 Okay, folks, good morning, welcome. We're delighted to have you here. I think this is the fifth or the sixth Global Security Forum and we're delighted to bring it to the Washington policy community. I especially want to say thank you to our friends at FinMechanica that give us the resources to be able to put this on for all of you. And we're delighted that they are willing to do that and we're happy to have all of you here. Thank you for coming and I'm very happy that Secretary Bob Work has joined us today. I've had a chance to work near and around Secretary Work for a dozen years. And I can't tell you how gratified I am that someone of his ability is willing, at this time, to serve as the Deputy Secretary of Defense. Now I have a certain bias towards this position, of course. I know what it means to be the Deputy Secretary and it's typical that there have been 32 Deputy Secretaries and 17 Secretaries, okay? I mean, that's just roughly the wear out schedule that comes with a deputy. But we're so fortunate to have Bob in this job because Bob Work comes with a background that's just unparalleled in terms of what we need for the Deputy Secretary. Of course, having been a Marine Corps officer, having been a Senior Assistant, Military Assistant to the Secretary of the Navy, being the Under Secretary of the Navy himself, being in the think tank, I was really glad he got recruited so the competition went down when he left and went back into government. So I was grateful for that. But we're very glad that Bob has taken this role. It's a very important time. We just spent some little bit of time in preparation asking ourselves, what lies ahead? The Department has the most impossible situation to plan for. What is a reliable budget horizon for the Department of Defense? How does the Deputy Secretary organize these choices effectively for the Secretary in an environment so uncertain? And this is the challenge he faces. I think the Secretary will talk a little bit about that this morning and I think we're glad that he's giving us this time. We will have a brief period for question and answer, but he does have to get out of here sharply at nine o'clock. So would you please with your applause, welcome and thank Bob Work. Well, thank you, John, for that kind introduction. And good morning, everyone. It's a great, great honor to be here this morning, to kick off and be a part of the 2014 Global Security Forum here at CSIS. Now, first things first, I'd like to offer my heartfelt condolences this morning for the loss of CSIS co-founder, Dr. David Abshar. His commitment to public service and his bipartisan discussion of the great challenges facing our country and to preparing new generations of leaders and strategic thinkers, in my view, was truly without equal. David Abshar was a champion of crafting grand strategy, a process he said that was more art than science, and I certainly agree with him on that. And it must be adaptive to changing strategic circumstances. He once said, grand strategy making is the process of developing, revising, and adapting pathways to achieve our long-term goals while ensuring a reasoned relationship exists between means and ends. And striking the right balance between our national security objectives and the resources available to the Department of Defense, as John said, is on my mind a lot. In fact, it's on my mind every single day. And as a top priority for Secretary Hagel, myself, and the entire senior leadership of the Department, both civilian and military. Now that process has required us to make some very, very tough decisions as we managed through this era of strategic and budgetary uncertainty and change. So this morning, I wanted to share with you my perspective on the strategic environment and the budgetary environment and the legislative environment, and the turbulence in all three of those that is really challenging all of our efforts to balance our ends, ways, and means. Before going on, however, I want to first congratulate John on all he has done for CSIS over the years. Having worked at two other think tanks here in Washington, DC, I can tell you that CSIS has always set the high standards by which all think tanks tried to measure themselves by. And in my current position as Deputy Secretary, I have gained a newfound appreciation for what John accomplished while serving in this position, and while all Deputy Secretaries have done so. Now, when nominated to be the Deputy Secretary, one of the first people I reached out to was John, so that I could better understand what I was getting into and what the job entailed. And I continued to rely on his wisdom and his advice and his experience. As a result of his wise counseling, after talking with him, when people ask what's the difference between the Deputy Secretary of Defense and the Secretary, I always tell them to think back to the movie Jurassic Park and tell them that the Secretary is T-Rex and the Deputy Secretary is the tethered goat. Now, I can't really remember if John told me those exact words. But I used that line at a meeting with all of the political appointees in the Pentagon and Secretary Higel was standing right beside me. And after I said that, he kind of stood up and dryly said, I appreciate that Bob thinks of me as a dinosaur. So from that point on, whether or not John really told me that, I attributed it to him. So thank you for that, John. Now, I know this crowd plays very, very close attention to what's happening in the world. So I want to just briefly touch and remind you on all of the things that are going on right now. It's really quite striking. In Iraq and Syria, we're leading a broad multinational coalition and a campaign to degrade and destroy ISIL. Coalition airstrikes have been slowly but steadily degrading ISIL's capabilities and blending their advance inside of Iraq. But airstrikes are just one element of our broader campaign. Teams of U.S. and coalition advisors are helping Iraq regenerate and restructure their security forces so they can eventually take the fight to the enemy more effectively. We continue to keep a watchful eye on Iran. As the president said over this past weekend, our number one priority with respect to Iran is to make sure they don't get a nuclear weapon. And together with the P5 plus one nations, we continue to work towards that end. In West Africa, the president has ordered American troops to support the U.S. civilian-led contributions to another comprehensive multinational, international effort to fight Ebola at its source. DOD is deploying up to about 4,000 troops. Probably won't have 4,000 on the ground at any given time, but we might have as many as 4,000 moving in and out of theater to provide command and control, engineering, training, and logistical support. In Afghanistan, we remain on track to conclude our combat mission there after 13 years of war. Going forward, we will continue to disrupt the threat posed by al-Qaeda there, train, advise, and assist Afghan security forces and ministries, and give the Afghan people the opportunity to succeed as they stand on their own. And in Europe, we're closely working with our NATO allies and other partners to blunt further Russian aggression in the Ukraine, to promote a peaceful resolution to that conflict, and to deter future Russian intimidation or military action against its neighbors. John Tomey and Kath Hicks told me that today there'll be a war game exploring the future of what's going on in that theater, and I look forward to hearing its results. But as President Obama has made clear, and I want to make clear to everyone here, our collective defense commitments to our NATO allies are absolutely unwavering. To signal our resolve and capacity to deliver on those commitments, we have requested Congress to authorize and fund a European reassurance initiative, which will allow U.S. forces to do greater rotational deployments than we had otherwise planned, as well as to improve the infrastructure in Eastern Europe to allow rapid reinforcements if necessary. In the Asia-Pacific, nationalism is fueling and exacerbating territorial disputes and maritime claims, leading to increased tensions and greater chances of miscalculations among the countries in the region. We're also dealing with threats from North Korea's nuclear weapons and ballistic missile programs and discontinued provocations against our very close ally, South Korea. The Asia-Pacific, as you all know and appreciate, is a region of ever-increasing importance and a growing focus for the entire U.S. government as reflected in the President's strategy of rebalancing our political, economic, and military engagements in the region. The President's trip to Asia is going on right now. We'll highlight this strategic shift. I recently traveled to the region myself and can personally attest that we are very much welcome as a resident Pacific power and we intend to remain one. So as this list suggests, it just seems that, wow, the global security environment is very, very, very challenging and unpredictable. And of that, I don't think any of us would debate. But I often notice there's a tendency to view today's security challenges as unprecedented in their quantity and severity, as if they're almost insurmountable. And I simply disagree. We would do well to think back to the early years of Dwight Eisenhower's presidency and the challenges faced in the United States in 1953 and 1954. Now that was also an unsettled period. When President Eisenhower took office in 1953, the U.S. was engaged in a costly, protracted and unpopular war in Korea. Even after he managed to end the war, U.S.-China relations at that time remained hostile and tense, punctuated by the Taiwan Strait Crisis in 1954. The Soviets had detonated an atomic bomb faster than we expected in 1949, and a hydrogen bomb in 1954, and had embarked on what we thought to be a massive nuclear buildup leading to fears of nuclear annihilation in a third world war. Iron Curtain had descended across Eastern Europe. The Cold War was being waged by proxy through communist insurgencies in Asia, the Middle East, and Latin America. The Cuban Revolution began in 1953. Britain and France were struggling to hold on to their colonial empires. The French garrison at Dien Bien Phu was surrounded in 1954, and the French government pleaded to Eisenhower to use tactical nuclear weapons to save their troops in position. And while all this was going on, Eisenhower and the administration were striving to build NATO into a strong and effective military alliance. I use this example not to downplay the challenges facing us today, simply to illustrate that we have faced enormous challenges in the past. I could have picked 1979 or 1983. You heard the president last week say, hey, despite the problems today, he felt the problems he had when he entered office in 2009 to be even greater, because the economy truly was on the brink. We've managed our way through all of these, and we will so in the future. And Eisenhower, we should look to him because he gained, what he gained, his experience he gained as a wartime leader, and set out to develop a strategy, a patient strategy for peace. He was always playing the long game. The thing that I most admire about him is his strategic patience. He knew that the U.S. was in a long, persistent struggle against the Soviet Union, and he was determined to position all elements of our national power to give us the greatest possibility of winning. He rejected both on discipline defense spending. Defense spending was dropped by 40% between FY 1952, fiscal year 1952, and fiscal year 1956, 40%. But he also argued against unwise defense cuts. Faced with uncertainty abroad, he undertook the Solarium Project to develop a long-term strategic outlook. And as David Abshire said, Eisenhower shaped the strategic environment rather than let himself be shaped by it. Now, just as Eisenhower did, President Obama entered the White House during the time of war and he was similarly determined to responsibly end ongoing combat operations as quickly as he could. And just as Eisenhower did, he assumed his role as Commander-in-Chief, as I just said, at a time when the nation's fiscal house was under considerable pressure. Indeed, in terms of inflation-adjusted dollars, total war-time defense spending, including the base budget plus our overseas contingency operations, peaked in FY fiscal year 2008 at about 752 billion in FY 2015 constant dollars. That was the year before President Obama entered office. So in my view, we're in the sixth year of declining defense budgets. Now, post-war defense drawdowns are nothing new. This is the fifth sustained and major drawdown since the end of World War II. However, I would argue that this particular drawdown has been as unpredictable and as the current strategic environment and perhaps even more chaotic. It didn't start out that way. The 2009 QDR assumed relatively optimistic budget forecasts through the Five-Year Defense Plan, or FITUP. Nevertheless, in anticipation of a potential steeper decline, Secretary Gates terminated some 33 unnecessary or underperforming weapons systems. In 2010, Secretary Gates followed that up by forecasting that defense increases would start to slow down and reach 0% real growth by FY 15. It turned out he was wrong. But he was telling the department to get ready for a slower increase in budgets. And since it takes on average about 2% to 3% of real growth per year to maintain a program in a balanced function between modernization and personnel and research and development and infrastructure, he said we had to have become more efficient in shifting dollars from tailed overhead to tooth or warfighting capability. Now, that effort was generally a success, but things really started to get interesting. With the passage of the 2011 Budget Control Act, or BCA, featured defense spending was slashed by $487 billion over the next 10 years or two FITUPs. And it was front-loaded into the first FITUP, which made it even more challenging for the department. In response, the department conducted an extremely intense top-down strategic review. It involved the president, the secretary of defense, the deputy secretary of defense, the chairman of joint chiefs, the vice chairman of the joint chiefs, all the joint chiefs and the service secretaries. And the results were published in January 2013 in a document called Maintaining U.S. Global Leadership Priorities for 21st Century Defense. Now, I would argue that that document represented one of the most coherent balances of ends, ways, and means since the end of the Cold War, that the department want to take $487 billion in future defense spending? No, but it approached it in a very cohesive and coherent fashion. And that document is guided, the department's FY, or guided the FY2013 budget submission and its principles have continued to shape everything we've been doing since then. Unfortunately, however, FY2013 was submitted with the threat of sequestration hanging over the department's head. I don't have to tell you about sequestration, I think all of you were aware. It called for an additional $500 billion in cuts if the super committee could not reach a deal on the deficit. Now, coupled with the cuts that were in the BCA already, that would add to a reduction of almost $1 trillion in future defense spending over 10 years. Now, it doesn't matter how good of a strategic planner you are, when you're taking that big of a resource cut over your planning horizon, the next two five-year defense plans, it's gonna be a problem. So how can one really plan a program if they don't really know for sure if that next $500 billion is gonna trigger? Now, in the end, rightly or wrongly, the department listens to the assurances of many in Washington and particularly those in Congress who said that sequestration would never occur. It was simply too destructive and too idiotic and too irresponsible. Huh. I wish they were right. So we made a bad bet. Sequestration triggered on 1 January 2013 and although it's $30 billion in cuts in that fiscal year did not start until 1 March 2013, this represented an 8% cut, kaboom, in one year in the base defense spending. And when you added to the cuts to our overseas contingency operations, it was a 12% drop in overall defense spending, which was the largest single decline in defense spending since 1955 when we were demobilizing from the Korean War. Now, making matters worse, and a lot of people don't understand this, is that the cuts were spread only over the seven remaining months of the fiscal year, right? And it was exacerbated by the problem that we were under a continuing resolution through the first five months of the year. So it is no exaggeration to say. It is no exaggeration to say. We are constantly being accused of crying wolf. We're still recovering from the incomprehensibly destructive way that sequestration was implemented. There is no strategic planner on the planet who can really plan in that type of environment. So this was the cheery environment that Chuck Hagel confronted when he assumed duties as the secretary of defense in March, 2013. Sequestration had just triggered. The CR, the continuing resolution, was just over. He directed a strategic choices and management review to identify the options if we had to take this extra $500 billion and if sequestration level cuts were to persist in 2014. The results of that review were not pretty, but they informed the quadrennial defense review required by law, which was delayed by a 17-day government shutdown in October, 2013, and was conducted through no less than four continuing resolutions. The one bright spot of calendar year 2013, a year that will live in budget infamy, was the passage of the Murray-Ryan Balanced Budget Act in December of 2013, which provided us with some semblance of budget stability for the remainder of FY 2014 and all of 2015. We welcomed that stability, we needed that stability, but it still came in at about $75 billion lower than we had planned just a year before. So here we are in early FY 2015, preparing for the FY 2016 February President's Budget submission. We're in the third straight year of zero real growth and defense budgets, essentially our budgets have been flat in 13, 14, and 15. Remember what Secretary Gates said, you need about two to 3% in real growth to maintain the program. Since we've been at flat growth for the last three years, that means our program is extremely pressurized. We must contend with yet another continuing resolution. This is the fifth time in five years that Congress has been unable to do their basic business, passing a budget on time, so that we can plan. We therefore still, and we still have no certainty over the final FY 2015 defense authorization. However, we do know we're facing up to $70 billion in knows, $70 billion in knows across the five-year defense plan, stemming from congressional potential, congressional rejections of our proposed way forward. And I'll talk about that in just a second. We still have no certainty of sequestration is really gonna kick in on January 1, 2016 or not. You hear some people say, oh, it's all gonna change. We're gonna get rid of that. We've heard that all before. Been there, done that, have that t-shirt. So stop the madness, okay? We have to really stop the madness. I'm extremely and supremely proud of the professionals in the Department of Defense who continue to press on despite this unprecedented uncertainty and disruption to their missions, their programs, and their lives. Yes, their lives. That government shutdown really, really was a kick in the teeth to the 800,000 civilians in the Department of Defense. So make no mistake here. Constructing a coherent defense budget in this type of budget uncertainty is beyond the capability of the most capable of men and women. And the chaos is becoming more difficult for the Department to adjust to. As Secretary Hagel told us very forum last year, the Department cannot responsibly, efficiently, and effectively plan or strategize or implement national security policies with this continuing cloud of budgetary uncertainty hanging over our heads. Now we understand that the Department of Defense is going to have to have less money than it would otherwise desire. But we have repeatedly asked Congress to provide us with more time and flexibility and budget stability to implement the reductions that they have asked us to do and make deliberate and useful for structure adjustments according to our strategy. So I've got to tell you, unless we return to some sort of regular budget order soon and Congress provides us with some budgetary stability and room to make the hard choices that we must, we run increasing risk of building a program that will become increasingly misaligned with the strategic environment that we all see is so chaotic. For example, the Air Force wants to retire the A-10. It's a great plane. It's ugly as hell, but it is a beautiful plane to anybody who sees it on the battlefield. It was designed for a single mission and that was close air support. If the Air Force plan to divest the A-10 as delayed, it will cause serious maintenance challenges because we have to assume, we have to hedge our bets and assume that sequestration must occur. That's what I do not believe that the program, I mean the committees understand. We're hedging our bets. And under sequestration levels, you don't have enough maintainers to maintain both the F-35 and the A-10. It's pretty simple. So those personnel would be stretched and you just, we really need to make that move. Similarly, the Navy wants to place half of its cruiser fleet, 11 of 22 ships, in the long-term phase modernization program. Makes total sense. Although they are temporarily taken out of service, you get more ship lot years out of that process. You get longer timeframe of having the cruisers in the fleet. If prevented from doing so, the Navy would be unable to make other modernization plans and readiness investments across the fleet. Now those are just two examples. We want to get rid of the U-2. Nope, can't do that. We want to get rid of the Global Block 30. Nope, no, we have 40. Nope, can't do that. We want to do this. Nope, can't do that. Okay, well, when you say all of those, when you add all those up, it really causes a problem. The nose to our program, in other things we want to do like the Army Aviation Restructuring Initiative or the cruisers or the A-10, just adding up all of the things that different committees have said, that's a potential $31 billion bill back to us in a time where we have already faced with extreme uncertainty. At the same time, Congress appears to be, appears to be holding back on compensation reform. Now, everyone knows that our rising personnel costs are simply unsustainable over time. It's a fact. You can see it. It's having an impact now. It will have an even bigger impact over time. We have to be able to get a handle on this. As Chairman Dempsey has said, getting our personnel costs in balance is a strategic imperative. If you don't do that, you can't have a balance program. We're actively searching for ways to bend that compensation cost curve and put together what we consider to be modest reforms so that we're not trying to really put a burden on our servicemen and women. But here again, we've run into congressional opposition. And depending on what they say, that's another $11 to $39 billion in potential no's. The only thing that the committees have agreed upon is to freeze general officer pay, okay? We get a little money out of that. But on all of the harder things, there is a much, much, much disagreement. And we don't know what is going to happen here. Now, I hear all the time that we should be able to accommodate these cuts by trimming overhead. Got a lot of fat in the department. Geez, just get yourself into a 21st century business operation. And we agree in the main. And the first place we should look at is our basing infrastructure. The department spends about $55 billion annually to maintain, sustain, and protect its bases. We calculate that DOD has about 24% excess capacity. We've been cutting the force. Well, we had excess capacity before, and now we have more excess capacity. But Congress has not authorized a base realignment and closure round since 2005. Despite data that shows that previous rounds have saved us $12 billion a year recurring. Now, anytime you're a deputy secretary of defense, you hear that and you multiply by five, because that's what you get in the fit up. Five-year defense plan. $60 billion. That $60 billion would help, if we did another background and got anything close, would help us close where Congress doesn't want, agree with us on our program, or doesn't agree with in our conversation. Now, imagine the largest private sector companies being forced to maintain 24% of excess overhead. They'd be out of business in a heartbeat. Their shareholders simply would not stand for it. How could they possibly maintain their competitive edge if they were forced to do so? So in this time of constrained resources, I just don't understand why we are hamstringing ourselves. Well, I understand it, because it's a hard thing to do. Nobody wants to lose a base in their district. But maintaining that extra capacity is a big problem for us, because it is wasteful spending, period. It is the worst type of bloat. Now, BRAC critics point to the 2005 BRAC round to say, hey, you had to pay heavy upfront costs. That was by design. That BRAC was totally different than the ones before it, because it was realigning domestic basing to accommodate the returning forces that were coming back from Europe and Korea. It consolidated medical facilities across the Conas, the continental United States. It supported the army shift to modular brigades, and it markedly increased joint basing at a time when the force, at that time, was growing. Still, despite the upfront cost, we're saving $4 billion per year from that round. Again, cross-fitted $20 billion. That's real money in this environment. So the equation is simple. Force structure reductions result in excess bases and installations that are needed. Excess drains scarce resources from the program. It makes it harder for us to train, equip, and modernize our force. And we project conservatively that if we could do a BRAC round, we would save at least $2 billion a year recurring. $12 billion across the future year defense plans. Excuse me, $10 billion across the future defense plans. As Secretary Hagel said in testimony early this year, if Conas continues to block these requests, we are going to have to consider every tool at our disposal to reduce infrastructure. Now dealing simultaneously with this prospect of sequestration coming back, cuts in the FY16 up to about $70 billion in potential congressional knows. And congressional opposition to a BRAC makes a mockery out of the term strategic planning, in my view. It also makes it hard to maintain a ready force. Over the course of the last 13 years of war, we have reduced the size of our Air Force and Navy. And we are now in the process of reducing the ground forces from their wartime highs or surge levels. With budget down, demand for US forces forward still high because of all the things that are going on in the world. And for structured down, we have taken all the remaining slack out of the system. In the 1990s, the general rule was when we had the two war four sizing construct, one MCO and then be ready, major combat operation and go to another. We assumed that we could have about an MCO level of effort out and about in the world shaping the environment without affecting the readiness of the MCO that was ready to go to whatever crisis that might come up. Well, we don't longer have the slack to do that. And as a result, our forward forces are highly ready, but our surge forces are becoming increasingly under stress. So as a result, listen, I have to tell you, a lot of people look at sequestration. They were looking for a blowout. It didn't occur. It was more like the air going out of the tire over a long period of time. And the leak started in FY 13 with that $30 billion cut over a seven month period. We had to delay a lot of maintenance availabilities. We had to stop flying. The impact on readiness was extremely hard. Nonsense, our critics say. Just doesn't happen. You're crying wolf. Readiness can't be as bad as you say. After all, at the end of this last fiscal year, we had a little bit of money left over in our operations overseas contingency budget. And instead of putting that money into readiness, we wanted to buy F-35s and Army helicopters, et cetera. So we were accused of saying, you're overblowing the problem. How can you possibly be in a readiness problem when you're not dumping that money into readiness? Now that view is just plain and flat wrong. The effect in readiness is not like a blowout. It is more like this slow leak. And it started with slipping all our depot availabilities. It continues with a government furlough. It is exacerbated by a smaller force at extremely high demand. And the result of digging out of this is a matter of more of time right now than money because of the hole that we're in. The reality is that sequestration affected every node of the man, train, and equip pipeline and yielded dangerous operational effects. At one point, the Army had two brigade combat teams, two that were fully ready and available to execute a major combat operation. One third of our combat air forces were sitting on the tarmac, gathering bird guano. They weren't flying. We just didn't have the money to allow the pilots to fly. So readiness across the entire force is at very, very troubling levels. And it continues to be vulnerable to this budget uncertainty. Now, the additional funds that we received in the Bipartisan Budget Act helped to buy back that readiness in 14 and 15. That was really, really good. It was very, very welcome. But if we go to sequestration in 2016, all of those advances will be lost. So we're still trying to figure out how long it's going to take for each of the services to get their full spectrum combat legs underneath them. Well, we do know that we're in a readiness trough and it's going to take some time and fiscal predictability to recovery. So I'll just give you a couple examples. For the war, the United States Air Force had 88 tactical fighter squadrons. Today they have 54, 88, 54. Has the Air Force demand for forces overseas gone down? No, it has not. So because of the unrelenting pace on this smaller force, operations over the past 13 years have just started to compound. So all of the high-end training events, such as our red flags, are getting ready for suppression of enemy air defenses, they've been cut back. The result is our fighter and bomber squadrons have suffered skill atrophy on these higher admissions. Deployments has also knocked out their career maintenance progression. This is a real problem. It's not seen. It's kind of the hidden disease. It creates an Air Force-wide shortage of highly skilled maintainers and that impacts the availability of aircraft and also on less-flight training. At the President's budget level, which is about $131 billion over the BCA caps, 115 to 131 depending on when you snap the chalk line, the Air Force is not going to recover full spectrum readiness until FY 2023. Now a lack of, do you say, what's the problem? So what? Well, a lack of full spectrum-ready fighter squadrons could result in a problem if we have an unexpected contingency where Air Force forces need to respond rapidly and get there to establish air dominance. Now, the Navy Marine Corps, similar situation, had about 316 ships before the war. It's down to 287 now. They were putting out 105 ships on deployments around the world when they had a 400-ship fleet. They're putting out 105 ships right now with 287. Do the math. Ship maintenance is having a big problem keeping up. We have an aging aviation fleet and this really represents the biggest concern in the Navy. A smaller battle fleet, coupled with unrelenting deployments to meet global demands are taking a serious toll. The material conditions of our carriers right now are not good. Generally, a carrier will go into an 11-month standard dry dock maintenance period. It's now taking about 16 months to get those carriers out because we've been using them so hard. There are currently six carriers in some sorts of maintenance, more than half of our total carrier force and nine amphibious ships, which is one-third of the amphibious force. This is challenging our ability again. Our ready forces that are out, we're able to keep them up, but the forces that would respond in a contingency are just not there. Now the Sea Service also face a very severe strike fighter shortfall. This is a combination of the slip of the F-35 to the slip of the F-35 and we're flying the wings off of our old airplanes. So they're wearing out faster than we expected and we're not getting the F-35 as fast as we wanted. So right now, it's really a problem. We have an awful lot of airplanes that are just waiting to get in depot when we can't get them through fast enough. The problem is particularly acute for the Marine Corps, which has a higher proportion of legacy F-18 Hornets than the Navy, so they are really having a problem. These readiness outcomes are fragile and getting well will require stable funding over time. The Army has a little bit different problem. We are still above the Army's pre-war levels. When we started the war, the Army was about active duty, the Army was about 480,000 servicemen and women. We're still above that number, but we are coming down from our wartime highs and we will go below 480,000 at the present budget level to about 450,000 active duty Army. But still, because they have fewer BCTs, brigade combat teams overseas, they're able to train at home. And as I said, the Army's done a remarkable job in the past year, year and a half, in getting back to full spectrum readiness. But it's simply not possible to buy a seasoned infantry platoon sergeant, a tank platoon leader, an aviation company commander off the shelf. The Army has to make them. That takes time. You'll hear time over and over again. We're in a time problem as much as we are in a resource problem now because of the hole we're in. Before 2001, officers, NCOs and soldiers who'd been in the Army for 10 years would have completed numerous full spectrum combat training center rotations prior to assuming key leadership roles. The junior company and field grade leaders of today in many cases have only experienced a single decisive action training rotation, some none. They've been focused on counterinsurgency operations as they should be. The Army's goal is to have sufficient full spectrum ready forces by FY 2020, again assuming present budget level and not BCA level. A return to BCA funding would push that readiness goal out three to five years. So I'm talking about us recovering under the best of circumstances, the President's budget level in the early 20s. This should be a big concern. I hope these examples give you a sense of our readiness problems. Our forward deployed forces remain ready and they are locked and cocked and ready to go. Our smaller surge force is not as ready as it has been in the past. So getting there, whenever we're called upon is going to take time and more budget uncertainty and sequestration is going to make the problem much worse. I was a young second lieutenant in the Marine Corps and a first lieutenant between 75 and 1980. I was in a similar situation. Our gear was all worn out from Vietnam War and we had very, very little operations and maintenance funding to do the proper training and maintenance that we needed to do. That was a terrible time. Secretary Hagel, myself, the Joint Chiefs, we are absolutely determined that that's not going to happen again. And if that means we have to cut modernization and further infrastructure funding on an infrastructure that is already overcapacitized, then that's what we're going to have to do. But let's talk about modernization because that talks about future war readiness. What gives me pause in that regard is the military spending of our potential competitors is rising while that of our allies are dropping. China's defense budget has double digit growth nearly every year over the past decade. And a think tank in London, which I shall not name here, estimates that China will spend as much on defense as the US by the late 2020s or 2030s. Both Russia and China are feeling advanced new weapons and capabilities at an extremely rapid pace. Now in the 1990s, we enjoyed conventional dominance across the spectrum. Our global command and control network was not under the threat of cyber attack. Our space assets, which provided us with global command and control and the ability to set up theater, guided munition battle networks, weren't threatened. We enjoyed freedom of access on land, in the air and on the seas. Today, our potential challenges are investing heavily in capabilities and weapons that challenge us in all of the domains, put our space assets under risk and our global command and control system under risk also. So our technological dominance is no longer assured. You've heard Secretary Hagel and Frank Kendall talk about this. Because of the budget uncertainty and because of our focus on being ready because that's what we need to be if our nation calls, we're under investing in new weapons. We simply are, given the investments of our closest competitors. And most importantly, research and development is not a variable cost. No matter how many weapons or systems of a particular type we intend to have in our inventory in the second or third or fourth five year defense plans, doesn't matter, we still have to do the R and D. And when we cut that funding, it doesn't mean we will have less of something, it just means we won't have those things at all. Time is not recoverable in this regard. The time needed to develop, test and produce a new weapon system is set by how long it takes to do those processes more than it is by funding. Adding money at some point in the future simply doesn't buy back time. So we're going to keep at it, but these R and D cuts are hurting us especially. If we go to sequestration, if we go to full sequestration, we will reduce R and D funding by another $23 billion over the five year defense plan. That's why Frank Kindle estimates that that would remove four to five major programs from our future inventory, further degrading our technological superiority. Well, we are where we are. Everybody knows this, everybody sees it, everybody laments it. I'm waiting for Congress to say, yeah, let's get at it. We really need to get at this and work with the department. So what are we doing inside the department to manage this turbulence? Well, first we're looking at innovation across the department. Later this week, Secretary Hagel is going to announce a defense-wide innovation initiative. One part of that is going to be a long range research and development planning program, just like we had in 1975. Back then, we said if we go after stealth, guided munitions and information technology, we blend them together, we utilize the strengths of the American Armed Forces. We will have an offset strategy that will allow us to rule the battlefield conventionally for the foreseeable future. And we were right. We've exploited that offset strategy for about 40 years, but it's simply no longer viable. Just like the first offset strategy, which was based on nuclear weapons, no longer became viable when the Soviet Union achieved strategic parity with the United States. So we're looking to develop a third offset strategy. And Secretary Hagel and I will have more to say about that in the coming weeks. We're trying to re-establish order in the planning, programming, and budgeting and execution process, which John knows well and I know well too. Over the last four years, it's just been overwhelmed. The programming and budgeting part of the PPBS, the planning, programming, and budgeting and execution system have kind of blended together. We need to try to get back to more regular order in the process. Bob Hale, who's in the audience, started this, and we're trying to really jump on his coattails and do better. And third, we continue to reform the business of the department so as to be better stewards of the taxpayer dollars. We continue to try to shift from tail, overhead, to tooth. Frank Kindle is leading Better Buyer Power 3.0 to get the best and most critical technology to our people at the best cost of the taxpayer. And I have taken the DCMO, the Deputy Chief Management Officer, and I've taken the Defense Business Board and made it an operational arm. And we are now doing very deep dives. What we've done in the fourth estate, the overhead of the department in the past, is generally we've looked to the primary staff advisors or who were responsible. We said, hey, take a 20% cut, do it how you wanted to. Some would go after contractors, some would go after civilians, some would go after the way they did business. Now what we're doing is looking for vertical integration across the department and the Defense Business Board is helping me do that. All the while, we're also working on our financial auditing statements so we can prove to Congress and the American people that we know how we are spending everyone of their hard-earned tax, hard-earned money. But as I pointed out, these initiatives will not be sufficient. We have to be able in this time with everything going on in the world, we have to be able to better align our strategy and resources and the margins for us doing so are simply not there. We need funding pass at the President's budget level. We need continued overseas, contingency operations money continuing at least for the foreseeable future. We need flexibility in the way we manage our program. We need to work with Congress to get through some of these issues that they don't agree with us on. We need a BRAC and we need budget stability and that means above all, getting rid of sequestration. The strategic risks and limitations we would face if the BCA's sequester level cuts are imposed will simply be too damaging. What do we mean when we say too damaging or higher risk? We can attach as many adjectives as you want, high risk, significant risk, very high risk. But these are just adjectives that don't mean a lot. The thing that you get to hate the worst when you become the Deputy Secretary of Defense are the stoplight charts that have red meatballs, yellow meatballs and green meatballs. They come in and say, this is a red meatball. I say, why is it a red meatball? Because it is red. And I go, okay, what's the difference between red and yellow? What's the difference between yellow and green? But let me tell you what we mean about higher risk, at least from my view. When talking about risk, it's important to keep in mind exactly what we do as a department. We exist to fight and win our nation's wars, period. That's our primary mission, everything else we do. We operate forward to preserve the peace, to reassure our allies, to deter our adversaries. But we are designed to have a force that is ready when called upon to go to war. On the ground, in the air, on the sea, under the sea. A return to sequestration level funding would bend and actually break our defense strategy, which we believe is right for the world as we see it now. And in operational terms, when we say high risk, that means the next war will most likely have longer timelines to respond and could potentially cause risk to force and risk to mission. We just think it's unconscionable to send American troops into a fair fight. We don't want it to be fair. That's what the secretary has said, and that's what all commanders and chiefs and the Congress should strive for. We have to make sure they're adequately trained and equipped. There are just too many examples across our history. From Casserine Pass in World War II to Task Force Smith in Korea, where we've allowed that to happen. And believe me, we are going to make sure that it doesn't happen, but that means we have to take more risk in modernization, more risk in our infrastructure, more risk in our personnel accounts. So we need the support of Congress and the American people to keep that happening again. I tell the story about the great people we have and why even in this time of unprecedented budget uncertainty and a chaotic and challenging strategic environment, I rest easy at night. A young Marine Sergeant in Afghanistan comes over the top of the hill. Many of you may have heard me tell this story. They look down on the plane before them in there, our four Afghan nationals with a donkey cart doing something suspicious by a culvert in the road. Looks like they might be in place in improvised explosive devices. Now, you might just think, light them up, you know? But that's not what our rules of engagement allow our forces to do. So the sergeant said, let's go down and investigate what's happening. The four Afghan nationals saw what was happening and they scattered, leaving the donkey cart there. The Marine Sergeant comes up, you know, he's probably 21, 22 years old, been in the Corps maybe five, six years. He's damn professional. Everybody looks to him, young Lance Corporals. What do we do? Well, we unhook the donkey. What do we do after that? We follow the donkey. The donkey goes to a house, stops right in front of a house in a nearby village and inside are the four Afghan nationals and they were swabbed for explosive residue on their hands, came up positive, we caught them. The sergeant brings the four ne'er-do-wells back to his battalion command post and the battalion commander says, Sergeant, that was unbelievable. Why did you do that? He says, sir, I was born on a farm and I'm a sergeant in the Marine Corps. I've been following Jack S's my whole life. Now, that story, a lot of people say, why do you tell that story? That's kind of, you know, the sergeant saying disparaging things about the command. No, it's not. I mean, here's a young sergeant who's ethically bound by the rules of engagement. He follows the rules of engagement. We have an ethical force, endlessly innovative, being able to think on their feet and mission-oriented. That is why, despite all of the issues that we face as a department, all of you as American citizens and all of our leaders in Congress and our commander-in-chief can rest easy at night because no matter how bad it gets, we've got people like that. Thank you very much. I can stay a little longer. I'm sorry, I thought... You can stay a little longer? Yeah, I can. Okay, good. I was afraid we were gonna have to make a way real quick. Let me just first say, Secretary, that was a very powerful, strong statement. I flatter myself to think I wish I would have had the courage to give it when I was in your job. You're wonderful. Thank you for doing that. Let me begin the question, and I will open up to the field. Back, you referred to the time when the department had to cut out $500 billion, and it was followed a strategic review. And that strategic review, a lot of elements to it, but it basically said the rise of China and the need to provide security in Asia was the first priority. That was the pivot. But, and it said, second priority was the Middle East and third priority was Europe, because we didn't see a threat in Europe. We've got a pretty different environment now. We've got, since that strategic review, we've got a very unsettled situation in Ukraine, maybe growing again. We've got a very unsettled situation in Iraq. So, thinking about this from a strategic standpoint, how would you and the Secretary think about the strategic imperatives in the context of what you've mentioned this morning and the choices you face with budgets? Well, the basic decision we made in our strategic discussions was first to go to a force-sizing construct, and this might be a little arcane, but essentially to be able to have a force that's big enough to respond to any major contingency in the world, regardless of where it is, and then be able to deny the objectives of an opportunistic aggressor. So that was the first big part of the strategy. The second big part of the strategy was to create a global platform to continue to fight counterinsurgents or counterterrorism because we saw counterterrorism being a long-term threat. Although we said we would rebalance to Asia because we believe the Asia region is absolutely critical to the 21st century, we did say that we would remain engaged in the Middle East but with less boots on the ground, and we would operate with our allies in Europe who we considered to be security providers. Now, what has happened since that particular thing? I believe we all agree that that particular baseline is a good one, but right now our security partners in Europe, they are stretched, they are being asked to help in Afghanistan, in the Ebola crisis, in Western Africa, against ISIL in the Middle East, and they're pretty much tapped out. We have 104,000 peacekeepers out in UN peacekeeping missions. So the global security kind of bucket by which we can apply to all of these problems is stretched thin. And with all of the things that are going on in Russia, it is causing us to review our basic assumptions. Now, that is not done yet, but as you all know in strategy, it's a constant reshuffling of priorities based on what is happening in the world and what our potential adversaries are doing. Without question, what Russia has done in the Crimea and in Eastern Ukraine has caused us pause, and we continue to look at that and see how it might change our force-planning assumptions over the future. In the back, right? Yeah, my phone? Say, Eisen Marogi, United States Army Medical Corps. So it's not every day somebody like me get to ask Deputy Secretary a question, so I'm gonna step out of line and ask you a question. Yeah, just remember that I have members of my staff here taking down your name. Thank you, sir. Sir, I'm close to retiring, so. No pressure, no pressure. Sir, thank you very much for this eloquent presentation, but given what our distinguished moderator asked you, do you think given the asymmetric nature of the threat that United States is facing, what are, are there any plans for any other innovative ways and asymmetric responses given the global situation? For instance, we were, we had a situation in West Africa, for instance. This is a completely new response that needed by United States and its allies. We have an epidemic there. Again, we have a threat of ISIS in Iraq. And so I wanted to see what you presented was mostly conventional responses in weapon recruitment. But in terms of- Okay, I'll cut it off there because I've got a few more questions and I need to get them out. Thank you. Well, let me just say that that's what we talk about in terms of full spectrum capability. Being able to operate and respond to an Ebola crisis as well as respond to the crisis in Iraq right now, as well as to reassure our allies in Europe, it requires a force that has an enormous breadth of capabilities. And unless you have the right balance of those capabilities, you have a problem. Now in Ebola, what we said from the very beginning is the reason why the military should go in and help the international community, which is being led by the USAID quite well, I might say. And as you said, there's an international coalition that's responding. Essentially the United States is focused on Liberia, the British are focused on one country and the French on another. And the same thing is happening in Iraq. We have over 60 countries in that particular coalition. So in the future, we see all sorts of responses. We see additional responses due to climate change because of effects of weather that we're going to cause problems along the coasts of the world in different aspects. So my point to you is this goes back to my broader plea that we have to be able to have some budget certainty and we have to be able to make the adjustments that John is talking about as we see the environment unfold and make the changes to our program in a deliberate fashion. Right now, we're just simply unable to do it because we're constantly going from budget crisis to budget crisis. Peter, how am I gonna go again? Peter Sharfman, MITRE Corporation. Could you elaborate on your comment that two to 3% real growth is needed to keep a program going? Does that mean that if we had stability but an absolutely flat real budget forever, our capabilities would decrease year by year? Yes, essentially it's very simple math. What happens is that personnel costs are increasing faster than the rate of inflation, much more rapidly than the pace of inflation. And our operations and maintenance costs, the money that we need to maintain and operate the force are going up much faster than the rate of inflation because all of our airplanes are getting older and we're using them much more than we expected. All of our ships, our fewer ships are being used really, really hard. We have personnel deployment problems. So what happens is the two to 3% real growth allows you to at least maintain the program. Now you can do things within that. That doesn't mean you constantly have to have two to 3% growth from here to eternity because you can make adjustments like if you were given a BRAC, you'd be able to have more money to apply to the program. I think Rand did a study and they estimated one to 2%. Secretary Gates said two to three. So let's say two percent. I can tell you Justin, any deputy secretary would tell you the fact of life increases that go from year to year based on inflation, based on fuel prices, they just tend to go up faster than you expect and it puts pressure on the program. So we have to have budget stability first and if we had a very small amount of real growth, we'd be able to maintain the program that we think we need. Yes, sir. That was a very eloquent presentation which I really appreciate. My name is Everett Piat from the McCain Institute. I have an acquisition question. First of all, real growth in acquisition has occurred much faster than two or three percent just by technology advantages. But over the last few years, the GAO has reported about $400 billion of cost growth in the major acquisition programs. Would you consider a deep dive into that to eliminate some of the superfluous requirements? Well, I have to tell you that I think we have been blessed by having two really remarkable secretaries in defense for acquisition technology and logistics. First, Ash Carter, who became Deputy Secretary of Defense and now Frank Kendall. Both of them really know their business. Ash started the Better Buying Power initiative to try to get a handle just on this. We were wasting far too much money really focusing on underperforming programs, really trying to cut the acquisition timeline down and really trying to get the best bang of our acquisition buck. Frank Kendall has continued that and we're now on the 3.0 version of this Better Buying Power. We are nowhere near where we need to be. Still takes way too long. We have some successes like the MRAP, the mine resistant armored protected vehicles. There are ways when we focus our efforts we can get things in faster. But it is, you are absolutely right. We are really focused as a department on reducing costs as much as we can. But I think everybody knows we have a long way to go. Folks, we've got, unfortunately, we have to reconfigure this hall in a few minutes for the session. So we'll take one more question. I'll come right here and then Bob will let you out. Peter, I'm an Intel analyst. You recall the occasionally maligned Al Gore effort to reinvent government. In fact, it saves tens of millions of dollars. Little things like cutting the grass at military bases every week instead of every two weeks saves a couple million bucks. Hasn't been instituted yet. The key to this is when the worker bees are allowed to address the highest management without interference from the seven layers of bureaucracy between the worker bee and the management and without fear of retribution. How about an annual DOD, reinventing DOD contest in which there's some small prize money. This is crowdsourcing at its best. It's an interesting idea. Um, the way I wanted to tackle it is take the Defense Business Board, which really has an enormous amount of expertise. Everyone on the board has either been a former CEO or a CFO or a COO. They really understand what the business community has had to go through through these rough financial times and what they've done to reinvent themselves. That's been pretty successful. We started small. We just took two small offices. The two people that I have that are leading the effort for me are the departmental DCMO, the deputy chief manager and officer Dave Tillitson and Terry Halverson, who's our CIO, our chief intel information officer. We took a look at their particular staff sections. Out of one, we identified $16 million in recurring savings over the FIDUP. Doesn't sound like a lot, multiply it by five. Now we're talking real money. And we found $10 million in another and completely restructured the way we did their contracts, et cetera. We just looked at P&R. So what we're doing now is we are looking at vertical integration opportunities. The Navy Exchange Service, and we have the AFIS, the Army and Air Force Exchange Service. Why not have a single exchange service? Why not have a single HR program for the entire department rather than for civilians since the rules are the same? We will be going after all these vertical integrations this next year. We're in the midst of a data poll right now to allow us to really get after it. We're not gonna give bogies to anybody. We're gonna go down and get to the business level. But I think your idea has merit, and I'll take a look at it. When I, you know, usually I didn't completely rehearse this speech, but I knew how many words it was, and I knew I just divide by the average amount of time I talk. And so I thought that this speech was gonna be 32 minutes. I was off. That doesn't give you a lot of confidence in my ability to plan ahead. But I think what I wanted, I really felt that I needed to say what I said this morning were in unprecedented times. I wanna thank John and CSIS for everything they do to keep national security issues at the forefront of the national discourse. I'd like to compliment Kath Hicks for everything that she's doing. David, oh, hi Bill. It's good to see you. Another deputy secretary has joined us. So I just wanna thank you all and thank you for everything that you do and just ask for your help. We need to keep national security issues at the forefront right now because we're in a very turbulent time. And again, thank you very much, John. Please thank the secretary with your call. Okay, we're gonna break this room. It's gonna be about a half hour. We're gonna start right at 9.30. Please come back.