Accompanying briefing slides.
Captain Doubleday: ...a brief rundown of how this is going to work and the ground rules.
All of the materials that you receive this afternoon and the comments that are being made this afternoon are embargoed until Monday morning, February 1st, at 8:00 a.m. when the Office of Management and Budget releases the President's budget.
You received the conditions of the embargo with your budget package, and if anybody did not receive that information Sue Hanson, who is standing at the door here, can provide you a rundown.
When the embargo is lifted on Monday morning, the attribution for his remarks is as Senior Department of Defense Official.
We expect that the session will run about an hour. (Briefer) has another meeting at 4:30 this afternoon.
When we break up here the services will be available in rooms in the OSD conference center which is downstairs. We will also have representatives from the Department of Defense for more questions that you may have on DoD-wide questions.
You received a sheet with your information package about the room locations, but let me remind you that the Air Force is in Room 1; the Navy is in Room 4; the Army is Room 7; Ballistic Missile Defense Organization is in Room 6; and the representatives of the Department for such questions as personnel issues and the environment and that sort of thing, are located in Room 5.
To get to this complex you go out this door, turn to the right, take a right to go down the first set of stairs, take another right, another right, and you're in the conference center and you can find the rooms that way. There will be a large number of people, I'm sure, who are moving in that direction.
We have had to move the briefing, the on the record briefing with the Secretary on Monday from the time we originally scheduled to the new time which is 2:00 p.m. We'll look forward to seeing you back here at that point, and (briefer) will return again on Monday to be available to answer some more of your questions.
With that, I'll turn the podium over to (briefer).
Briefer: Thanks very much, Michael.
Q: How about some Hamre jokes?
A: No Hamre jokes this year.
The best part about this year's briefing is I really do have a drop dead. I have to be with the Secretary at 4:30, so you only have an hour. Although you will get another shot at me on Monday, I'll answer the questions after the Secretary. So anything I don't get to this time around.
The other good thing about this briefing is I have all these people on my right and on my left who actually, if there are any hard questions they get to answer them afterwards, so I will defer as many as I can get away with to them.
What I propose to do is I think I have about 20 charts. I think probably the best is for me to go through them relatively rapidly. It lays out the program as we see it, then I'd go to questions. I'd ask you to, unless there's a real serious point of clarification, to withhold the questions until then. I think that will be fairer to everyone and we won't get bogged down on the first five charts, the first ten, whatever.
We start with a very budgety chart here. These are all of the numbers that you'll see. I start with this to try and reduce confusion.
There are a whole series of different ways to portray the defense budget. I'm sure most of you know. You can do it as 050 or 051, in other words basically whether the Department of Energy is in or out. You can do it with budget authority which is generally the way we do it, or outlays. Outlays being important, of course, surplus deficit calculations. You can also do it mandatory versus discretionary. The bulk of our budget is discretionary, but we have some mandatory receipts which are listed here which actually change the number so our total budget is the money we get from Congress plus the mandatory receipts.
What I'm going to do the entire rest of the briefing is refer to these numbers up here, mostly the budget authority numbers here, the discretionary budget authorities. All of the charts, all of the numbers that you see will be discretionary 051 budget authority. I'm not going to talk to DOE. I'm not going to talk to mandatory. So that, I hope, clarifies it a bit. If you see other numbers in general, somebody is using something else.
With that, let me go to the next chart which describes those same numbers a little bit more graphically.
This is the headline item, of course. What we're proposing is a $112 billion increase. The numbers that have been out earlier have bounced around a bit, but this is the final increase that's in the proposed President's budget. $112 billion increase. This is, as the President noted, this would be the first sustained increase in defense spending certainly since the end of the Cold War and really since the end of the Reagan year buildups.
It builds, as you can see, on the supplemental that Congress provided. They provided about $7.7 billion in emergency funding above the original spending caps in 1999. This builds on that, and as I say, adds $112 billion.
About three-quarters of the $112 billion is an increase to the top line. About one-quarter of that is reapplied savings, is what we've said here.
Let me talk to those two specific numbers on the next chart which has a table which I think lists them a little bit more clearly for you.
Let me start with the top line increase. The top line increase is very simple to describe. You take last year's '99 President's budget as it was submitted, extend it out through '04 and '05 and you compare it to the FY00 President's budget that we're submitting to Congress on Monday, and you will see an $84 billion difference between the two numbers. That is the add in the top line, the proposed increase in the budget. The President talked about where the source of that would be in the State of the Union address where he identified that this would be part of an overall allocation of the surplus, with a starting point being a reservation of the funds for Social Security, in order to fix the long term problems of Social Security as well as Medicare, and that within that overall framework there would be funding available for discretionary priorities and in particular defense. That is where that $84 is coming from.
The second line of numbers here is the reapplied savings. That is when you count the rescissions, which is essentially reapplied savings as well, that is $28 billion, which is the number you saw on the previous chart. That $28 consists of largely two things. One is a repricing for current inflation assumptions. Now that is not a change really in the projection of out year inflation. What it is is that our prior year projections have been high. In particular, inflation in '98 and '99 have come in lower than we anticipated so the overall program is going to cost less. We have taken that difference and reapplied it to new defense programs.
Similarly, fuel prices have dropped as everyone has seen at the gas pumps. They dropped more than several dollars a barrel, and that is a savings in every service in every year. Those savings are also being used in this budget to buy new needs, new program needs.
The total of those altogether is about $28 billion. When you add the $28 billion and the $84 billion, that is where you get the $112 billion increase.
Let me spend a little time on '00 because that is a little bit different.
In '00, which is part of the overall $112, to make sure there's no confusion here, this $12.6 is included in that $112.
In the FY00 column we have the same two things I described, the additional top line, the economic changes including the rescission. We also have this line here, this MILCON advanced appropriation. Let me explain a little about that.
What that does is essentially split the funding for military construction, the military construction program in FY00, splits the funding between '00 and '01. In other words, $3.1 billion of the funding is paid in the '01 column rather than the '00 column. Some will describe that as incremental funding. That's probably not a completely accurate description because this is not a proposed permanent policy change. What this is is a split or a deferral of the funding from one year to the next. That is part of the way we were able to generate the $12.6 billion in '00. It is entirely paid for here, so that $15.9 includes that $3.1, an additional $3.1 billion in top line increases in '01.
The central reason we adopted that is, this overall program here fits underneath the budget cap as required by law. The budget that we have to submit required by law should fit, that FY00 budget has to fit within the budget caps.
Over the long haul here, the President, as he said in the State of the Union, is proposing an allocation of the surplus that would be part of an overall agreement that would fix Social Security, address Medicare and the rest.
Let's go to the next chart.
The next chart talks about where did this $112 billion go. It went in general terms to these three areas. This is essentially the appropriations title in the budget. The first way to describe it, about $35 billion was added to the military personnel accounts. That paid for the military pay raises. That paid for the changes in retirement. I'll talk to these in more detail in a moment. Also a portion of the readiness increases that you've seen described are actually here as well. Those would be things like recruiting and retention increases.
If you hire more recruiters you pay them here. Similarly, bonuses, those kinds of things show up here.
Operations and maintenance is the largest part of the increase. Nearly $49 billion. The bulk of that is readiness but also included here are the funding for contingencies as well as the civilian pay raise. Most of the civilian pay raise is paid for in the O&M account. That's where most of the civilian salaries are paid.
The third piece here is modernization. There we're talking about a $28 billion increase. Most of it goes to procurement, R&D, a couple of billion in the military construction title. Then the $6 billion in the NMD lines also is under the modernization column.
This is, as I say, a very budgety way of displaying it. This is how the appropriations title, this is how the budget we lay out to Congress shows it.
But let me go to the next slide here and show you how we were really thinking of it as we built this.
We started as a foundation with the QDR strategy of shape, respond and prepare -- shape the international environment, be able to respond to the full spectrum of crises, and at the same time prepare for the future. What we're trying to do in this strategy is balance between the near term needs of shape and respond, the near term requirements for our military to operate in a way that supports our national security interests around the globe. At the same time, to be able to prepare for the uncertain threats that we may face in the future, whether it's another near peer competitor, weapons of mass destruction, increases in the availability of ballistic missiles or whatever. We're trying to balance between the near term and the long term.
Toward that end, we had four priorities for the money and a fifth priority I'll describe in a second.
The four priorities for where we put the funding were first, people. We've seen some warning signs that I'll talk about on people, and we came up with a package to address them.
Second, readiness. The levels of operational readiness are still very high, particularly in the first to fight forces, but we have seen some cracks, some strains, and we tried to address those, particularly with the forces in the continental United States, some of the non-deployed forces.
Third, modernization. We set out a ramp in the QDR to try to reach $60 billion and then go beyond to try to recapitalize the force that we have and to insert new technology, and that was the third priority.
Fourth, an area that has not gotten enough attention over the decade and a half drawdown in the Department has been facilities. We feel that the facilities budget has not been taken care of adequately and we are trying to remedy some of that in this proposal that we have.
Finally, as we are adding money the Secretary was very clear that he is not giving up and not stepping back, but continuing forward and trying to advance the Defense Reform Initiatives. To streamline the infrastructure, to address the various, any inefficiencies, to adopt practices following a revolution in business affairs to match our revolution in military affairs.
Let me talk about each of these five in a little more detail.
Starting with people. This was the most urgent priority. As I said, we are starting to see warning signs. I notice there are articles even today in the Early Bird. There are some shortfalls in recruiting in the Navy and now in the Army. Retention, a couple of the services are having trouble in second and third term reenlistments. These are not across the board problems but they are, nevertheless, as I say, warning signs. The point of this chart is to show why we don't want to let these warning signs or these problems fester.
The point of this rather cartoonish display, but the point is serious, is that it takes longer to develop good people than it does to actually develop the weapon systems. If we let the people go, if the quality people we have now in the force leave, it will take us not only years but decades to restore that. So we took as the highest priority to take steps to address the recruiting and retention issues as we saw them.
The package we came up with is the so-called triad that General Shelton and Secretary Cohen briefed around Christmas time. The three major provisions, and I've added a fourth I'll show you in a second. The three major provisions starting with the Chief's highest priority is a restoration of the 50 percent retirement benefit. It moves the retirement benefit back up from the 40 percent it was between the '86 to '98 period to the full 50 percent. It addresses, I think two issues. It addresses fair compensation and retirement for our military services. It also addresses the equity question of why people who came in after '86 were being treated differently than those who went before them. So we've tried to address both the equity and the real dollars in the pockets of the troops.
Similarly on the large pay raise, more dollars in the pocket. It's the largest pay raise in '00 since 1982. All of these pay raises are at the ECI, the employment comparability index of where civilian sector salaries are. This is a change from past years. Congress did it in '99. We have done it in the out years. We're at full ECI. In past years we have been generally at ECI minus a half, so this is a policy change to increase the pay raise.
The other point to make on this is in every year the pay raise here is above the consumer price index, so what we're talking about here is real increases in salary of one or two percent beyond the consumer price index which is generally around two.
The third element of the triad is perhaps the most targeted, to reform the pay table. Here we're trying to reward performance. The pay table has slid a bit so longevity is treated as much as performance in terms of pay raises. We wanted to shift it back, so we are putting three, four, five percent on top of this 4.4 for certain key people. The key people here I mean are the senior NCOs and the field grade officers. Those are the people that we find we need to retain. Those are the people where we see pockets of problems. This pay table reform is intended to address that as well.
Further, not formally part of the triad but an important piece of the puzzle here is targeted specialty pay, targeted bonuses for surface warfare offices, nuclear officers, special operators. Also we're proposing to increase the enlistment and reenlistment bonuses so that we can target these kinds of things to where we see recruiting and retention problems.
Rand has done some analysis for us. I think General Shelton has mentioned it in testimony. We think that on the whole this should have at least a 20 percent or so impact over the force on retention. We're certainly hoping that proves to be true.
Next chart, please.
Moving to the second priority here, readiness. Where you see the largest increase in funding, and this follows on a relatively large increase in the QDR. We're trying to address here the full gamut of problems that we've found. Again, here the early warning signs, non-deployed readiness in the Air Force and the Navy being down; National Training Center issues with the Army. We've plussed all of those accounts up.
The base operating support in the Army is substantially up, the depot maintenance accounts in the Navy and the Air Force are substantially up. Real property maintenance is up. I would encourage you to talk with the individual services -- these were tailored to the issues in the individual services, and I would encourage you to talk to them about what the issues were and where we put the money and why.
Just to give you a couple of charts on, at a very high level. This is the canonical OpTempo training level chart. As you can see, we're maintaining or in some cases increasing the overall OpTempo and training levels of the forces. What is not reflected on this chart and an important point to make is we have tried here to bulwark the accounts where the money migrates.
Generally the OpTempo account in every year is fully funded, but what happens is, for example, you have bills in the base operating support area that the commanders in the field feel they need to pay and so they end up cutting their training budget to pay their base operating support bill because it's a must pay bill.
By increasing the base operating support, it doesn't directly increase the training or the OpTempo, but in the end it actually does that because it prevents the money from migrating out of there. So we're optimistic here that we've addressed these kinds of issues with this add.
Let me bring the Reserves in. They participated fully in the whole discussion and they're also part of where we're trying to address issues.
You'll see here, those of you who follow this closely will see this is unusual. We've increased the operating accounts for the overall Reserves above what -- this is the congressionally enacted level. Generally Congress increases beyond what we've proposed and we go back down. This year we are not doing that. We're proposing increases beyond what was enacted here, and that's what shows up down here. I've just picked the National Guard out of the Reserve component, and what you're seeing here is that Force Package 1 through 3 are at 100 percent of their OpTempo, and the late deploying Force Package 4 is at 75 percent. All of these are substantially above what they have been in prior years.
Finally, we've focused here, working with the National Guard on new missions for the Guard. We have ten teams dealing with the WMD mission in the domestic United States. They're being activated this year. We'll be building on this proposal, and we think that the expertise of the Guard and their location in the continental United States makes them a very effective choice for this domestic preparedness mission.
Two more charts on readiness. One is, here is the contingency funding. Last year this was an emergency set of funding, the $1.8 billion for Bosnia. This year we have proposed that the Bosnia funding be part of the base program. This is working with Congress. Congress, I think, specifically desired that we not continue to do this contingency as an emergency, so we have agreed to that and committed to put it in the program, which we've done. It's fully funded, as is Southwest Asia, which has been for the past couple of years.
The '99 column I will point out does not include some potential additional costs. I note the three here -- small costs on the Kosovo verification mission. This is just in support of the UN mission there. We have a small part of the cost. There's some storm damage relief efforts. In particular, by that, this is the efforts of the Southern Command down in Honduras, Nicaragua and the other Central American countries, relief efforts regarding Hurricane Mitch. And finally, the recent action against Iraq. Those costs we're developing, and we're working with OMB to decide on how best to submit those to Congress and we'll be doing that over the next several weeks.
Next chart, please.
Just a wrapup chart on O&M. One of the ways, this is a very top line review, but one of the ways of looking at operations and maintenance spending is rather than looking at gross budget levels, is look at the number of dollars per soldier, sailor or airman. And when you look at that over time, what you see is a pretty consistent increase. Increases here generally were quality of life increases as we converted to an all volunteer force. Then over time as we've improved the technology in the force, that requires additional training and there's still additional commitments to quality of life. That tends to require a one to two percent real increase in operating and maintenance funds just to stay current with the equipment, to stay current with the quality of life commitments to the troops.
What we've done here, what you can see out here is we have gotten that so it's on a rising line. That, at a very gross level gives you some indication that the amount of money you have in the O&M account is roughly right. It doesn't mean you absolutely won't have any problems, that there won't be issues but it gives you some confidence that there you've addressed the issues.
Next chart please.
Turn to the third priority of modernization. Here I want to make three points. Start here first, these are the targets from the QDR that ramp to 60. We're moving up. We've added over $4 billion to the account. This is about a 6 or 7 percent real increase in procurement. It continues the progress we started with the QDR. If you remember the numbers that go back, we were always sliding down off procurement. We've moved up. We were a billion short of the target we would like to be. The difference here is not really programmatic. It's largely inflation. The inflation that's come down has allowed us to buy that program for less. More importantly, we've stayed on the track. We were above 60 in '01 and we've started to address the bow wave issues that will begin to come. In this FYDP we've added these two years here. As you can see, we've significantly increased procurement budgets. Those budgets are needed to deal with the coming bow wave in procurement as more and more systems go into production.
The next generation of weapon system is now going into production. The F-22, the Comanche, Crusader, ultimately the Joint Strike Fighter. To address those procurement needs we're going to need to ramp up. This program talks about a 52 percent real increase over the course, since the QDR.
Let me give you a few charts on the content of that. Start with the shipbuilding account. Here the headline story here I think is that we are now getting to the level of shipbuilding that you need to replace a 300 plus ship fleet. Admiral Johnson I believe has talked eight to ten ships a year is what you need. We're in that band. In the out years this reflects, if you compared this to the shipbuilding plan we were looking at this summer, there's 8 additional ships in here.
You're going to have to help me Admiral. I think there's an additional submarine in '03, an additional destroyer in '05, the LHD in '05 and then we pulled the whole fast combat ship, the logistics ships have been pulled forward, adding three ships into the FYDP. And similarly the command ships have been pulled into the FYDP. I think it was the support ships we had the biggest gaps in before, and that's where we made the biggest adds in addition to the several combat ships.
Next chart please.
Talk to tactical aircraft. What you see here is the buildup in the F-18 to the steady state of 48 per year. We're on track for that. We'll be proposing a multiyear, I think it's '00 to '04 to try and get the best cost for that program and to bring stability to it. Similarly F-22 is ramping up to 36 by the end of the FYDP. The Joint Strike Fighter is on track for development but production well after the FYDP.
The new item here is the F-16s. We've added 30 F-16s for a couple of reasons. First to develop, to address gaps in the National Guard units, make sure they have the full complement of 15 aircraft. Second, to deal with issues that some of the older F-16s we're finding are just not as valuable to the commanders in the field and they need more of the Block 50 F-16s to perform the mission in order to deal with OpTempo and other issues. This will help with that.
A: This is only U.S. So yes, you would see, in terms of the production plant you would see whatever export F-16s are there. It's also what I think allows you to have that gap here as well.
I'm not going to talk to, I think in your backup charts you have some Army programs and rotary wing aircraft. I'm not going to talk to those. But I will go to the next chart which is missile defense, although the Secretary I think has probably already told you most of the news here.
We're talking about a $6.6 billion add in the NMD column. Here. What the bulk of that is, is to fund deployments of the system by FY05 with the decision next year. Also retain an option for deployment in '03. But the trend of the technological direction has pushed us towards '05, the feasibility.
I should point out as well that part of the funding here, part of that $6.6 billion came from the supplemental in '99 that Congress added for ballistic missile defense, and that's what those numbers in parens are. Smaller portions went to the other programs.
In upper tier, I think the Secretary, when he had his press conference, talked about that as well.
We are continuing the development of the THAAD, everybody's aware of the problems THAAD's had in testing. We are continuing that, but we are putting it now in a dynamic tension with Navy Upper Tier. We've added money to the Navy Upper Tier program and pulled that one forward so that we will be able to develop both in parallel. And test them over the next couple of years with the idea in this timeframe there would be some decision on which then to focus on for a potential FY07 FUE (First Unit Equipped). The idea is to, as I say, put them in tandem and make a decision a couple of years down the road on which to focus on.
Next chart please.
The lower tier programs are essentially. They're not completely unchanged but no major policy changes there.
Turning to facilities. The facilities, in the military construction account you'll see a 10 percent increase of the '99 President's budget. One of the priorities here is to try and address the needs in the facilities area. We've done that with increased funding in military construction. In family housing, it is less an issue of increased funding than better tools. What we're looking to exploit and make use of is the congressional authority we've received to use privatization to leverage our family housing money. By using a series of tools, loan guarantees, leasing, rental agreements, we can work with the private sector, and we've been able to get a five to one leverage off of our family housing budget. This is going to allow us to buy more units faster and to turn over the 300,000 units we think we need to do over the next decade or so.
Finally, not in the military construction account but in the O&M account, there were significant increases in the real property maintenance account as we'll begin to arrest those backlogs that have been developing in the real property maintenance account.
A final priority, as I said, this doesn't reflect additional funding, this reflects a continued commitment to the Defense Reform Initiative. OSD's just in the process of completing the 33 percent reduction that Secretary Cohen promised a little over a year ago. He said he'd get 33 percent in 18 months. That he is accomplishing.
Agency consolidations, the most prominent is the standup of DTRA, the Defense Threat Reduction Agency, combines three agencies. That's been stood up.
Reengineering business practices, in addition to paperless contracting, the strong impetus to privatize our utilities. We're pushing to do that over the next several years, be able to both reduce costs and deal better with the coming capital costs in that area.
We have not slacked on the A-76 competitions. These are difficult but we are still continuing to see significant savings by competing private and public sector. Whoever wins, we find that we get a more efficient, more streamlined, more effective organization. And we will propose again that we have two additional rounds of BRAC in FY01 and FY05. If accepted, those would yield $3 billion in annual savings and $21 billion over the course of the period immediately following the FYDP through 2015.
Overall what we're trying to do is pull overhead down so that we can shift resources into readiness and force structure.
Q: Before you leave that, are you assuming you've got those savings as you build this budget?
A: Not exactly, because in the FYDP there are net costs. We have a BRAC line funded in the out years. It's not in the '00 budget because you don't have any costs in '00, but in '02 through '05 we have funded the BRAC, but that is a net cost. It's about $800 million in, $830 million I think in FY02; about $1.5 billion in FY03 is the net cost, and it doesn't yield any savings until '05. It yields a net of $200 million savings in '05.
Q: I was just trying to ask you whether...
A: We're not buying program with BRAC, no.
Q: Are you assuming that Congress is going to give you the BRAC closings? Is your budget built on that assumption?
A: We have built the long term plan on that assumption. You don't have to address the issue in the '00 budget because it's an '01, the first BRAC is in '01, so the first costs are actually in '02. So in terms of the budget that Congress has before it for the one year, it doesn't assume anything. We are planning for it by reserving the costs.
Q: In the out years.
A: In the out years.
Q: The first net savings are in '05?
A: The first net savings are in '05. It usually takes three to four years for a BRAC to yield savings. We're just using the historical costs. There's no assumption yet about the bases. We've just used the average of prior year BRACs.
Let me go to a final couple of charts. The main point we want to make on starting with this emergency supplemental in '99, we think we've addressed the warning signs we've seen in readiness and personnel and continue the modernization by proposing the first sustained increase in defense spending since 1985. This would be, as I said, $112 billion in the '00 to '05 period. It is not every need that we have, but we think it will go a substantial way along the path of addressing the most critical needs.
I'd just wind up with a final chart here to stress the point of departure and where we're going. The point of departure is the military, is the quality of the military. It's been absolutely flawless execution from DESERT STORM all the way through DESERT FOX. Whether it's a high end conflict like those or relief operations like Hurricane Mitch, or peacekeeping operations like Bosnia, the performance, the quality is truly outstanding. We've done a 35 percent drawdown in the last decade, and the professionalism of the American military is, if anything, I think enhanced. Certainly undiminished.
Where we're headed is we're trying to build a strategy, a budget that matches the strategy of shape, respond, prepare. We think we have the balance here between funding the personnel and operating accounts, and making sure that we have the foundation there in the investment accounts to deal with the future.
With that, I'll close and go to questions.
Q: Where does the $84 billion, the $112 billion -- where does that come from? Are there domestic offsets or what?
A: It's not domestic offsets. It is what the President said in the State of the Union, he would allocate the surplus.
Q: This is all surplus?
A: Except in '00. The number in '00 is offset but not on the domestic side. There's a mandatory offset.
Q:...major (inaudible) over the $4 billion that many may say is over the cap.
A: It's not over the cap. I don't think so. I think the issue will be trying to address all of the social security, Medicare, defense and domestic needs as the President laid out, is can you come to grips with that whole package.
Q: While you're on this, what total cap are you working against as we talk about, the walls are down and if the Congress decides they want to add say $10 billion to defense, for example, but they didn't want to exceed the cap. The last number for the total cap I saw was out of O&M and I think that was $565 billion total. Do you have a number that you work against for what they'd have to take out of other programs if they wanted to give say a $10 billion increase to defense? And secondly, is there any major weapon you canceled in this whole budget?
A: The answer to the second I think is no, unless I see a nod over here.
The answer to the first is I think you're going to have to check with OMB. These are the numbers we worked with OMB to get. I know in answer to Tony's question, that they did not come from domestic discretionary cuts. What the final cap number was, they do all the technical adjustments and I don't have it.
Q: You mentioned several times that this budget puts people first. Do you have any reaction to the assertion of Republicans on the Senate Armed Services Committee that that doesn't go far enough? And do you have any initial budgetary heartburn over any aspect of their plan in terms of how it might affect the budget you put together here for the next six years?
A: I haven't seen their final plan. We think we've put the triad package together within the $112 billion add, and we balanced it within the other needs. As I say, we put people first, but there are other needs in readiness, modernization and facilities. So we balanced within that and we've paid for it.
I would be interested in seeing the context in which they're proposing this new package. I wouldn't look at it with prejudice, but I think I just need to see how they would pay for it. How does it fit with everything else?
Q: I understand the $28 billion that comes from a mix of things but including inflation savings. The first two years of the '98, '99, you have actual cash in your hands. The rest of it does reflect new assumptions about the economy and what the inflation rate is going to be, correct?
A: It's about the same as last year.
Q: Can you give us what your assumptions are and where you think those savings are coming from?
A: The savings are coming from what you said. The change in the...
Q: The $28 billion can't be all from '98 and '99.
A: Most of it is, yeah.
A: About $20 of the $28 is inflation. The rest is the fuel and the...
Q: The $20 billion is cash that you have in hand from prices that were lower in '98 and '99.
A: When you lower '98 and '99 prices, it ripples all the way through. You lower the whole base. It ripples. It doesn't just lower prices in '98, '99, it ripples, the whole program shifts down because they were built on those prior year prices.
I think there's only a tenth of a percent difference in any year, in any other year. We can give you the... I'm sure we have a stream of numbers I can give you. I don't have them off the top of my head.
Q: On national missile defense, you're talking about $6.6 billion over a five year span, is that correct?
Q: Six year span.
Q: So for '00 it's $1.287 billion?
A: The numbers that you have there are the total program, so the total program I think in that period is on the order of $10.4, $10.7 billion, in between $10 and $11 billion. The $6.6, you add $6.6 to what was there before and you get the current, the program that we laid out for you.
Q: All that $10.6 is deployment earmarked, right?
A: It's development and deployment. Most of the $6.6 was for deployment. The prior program, basically the prior program was 3+3 but only the development was funded, the initial deployment was not. What largely what the 6+6 does is now fund the other half. It funds the other three, as it were.
Q: In the research and development budget it looks like it is dropping, and then kind of staying flat, and probably dropping and it looks that way throughout the whole plan. Can you explain how you expect to deal with the revolutionized technology for like tomorrow's Army when you're not increasing the RDT&E budgets?
A: Sure. The R&D account is cyclical. It tends to go up as you're developing a set of weapons, then it slides back down as you move those weapons from development into production. What you're seeing is the move of weapons from development into production. So the R&D budget on the F-22 is going down, but the procurement budget on the F-22 is going up. V-22, the same way. As you move systems, some of the money moves from development to production.
If you look over time, you'll see there's a normal cycle that that's happening and that's all you're seeing here. It's not any change or any less of a commitment in terms of the revolution. Indeed, it is implementing the revolution in military affairs by getting those systems out into the field.
Q: The DESERT FOX and Kosovo costs, do you know roughly how large they'll be, and will there have to be offsets when you go for a supplemental?
A: I really don't actually want to answer either question. We have estimates, but if I put them out then they change and then I have to... We haven't finalized our estimates so I'm reluctant to give them. We're in discussion with OMB and the Congress on which ones we can do as emergency, which ones we can do offset. And those discussions are still ongoing so there's a decision yet to be made there.
Q: Any more problems with healthcare like the ones that surfaced in September, the $600 million shortfall?
A: There'd better not be. (Laughter)
We sat down with, in great detail, with the Surgeons General and gone over in detail with their program and how it's financed, and we think this program is fully funded. We think we've addressed the concerns that were raised in September. We have added money, I can't tell you offhand how much, but we have added money to last year's program to do exactly that.
Q: I thought I heard you say that the pay increases would solve 20 percent of your retention problem.
A: No, no... I think there are personnel people downstairs. Rand has a way of analyzing just based on its model what happens if you change pay, if you change retirement, what kind of boost in terms of retention. What it says is career retention should go up 20 percent.
Q: Then you're still stuck with your problem, aren't you?
A: No, no. I don't know what it is at now, but it goes 20 percent over what it's at now. That's a delta. You need to talk to the P&R folks to get more of the detail.
Q: How many C-130Js are you buying?
A: There are no C-130Js in the '00 column. I think there are some in the out years. Starting in '02.
Q: Any for the active force? Or is that all Guard or...
A: Are they allocated to the Guard or the active? I don't know that they're allocated in the budget.
Q: You have $1.1 billion for ongoing Bosnia operations and $1.8 for Southwest Asia...
A: The other way around.
Q: Is that, funding that up front or projecting what that's going to cost, is that somewhat of a policy change? Do you expect Congress to have a problem with that?
A: I do not expect Congress to have a problem. They encouraged us to do this. It is a policy change with regard to Bosnia in that Bosnia was last year submitted as an emergency and that it hadn't been anticipated in the balanced budget agreement. This year with congressional recommendations, we have funded it in the program. And as I say, Congress encouraged us to do that.
The Southwest Asia was funded for the last several years in the program, and we have continued to do that.
Q: The place where you break out the, I think it's ...[cough]... The Blue top breaks out the personnel and the O&M chunks in some more detail. The modernization chunk, $28 billion, is not broken out other than we know what the NMD number is and so on.
Can you give us any idea of where that $28 billion goes in procurement and R&D other than NMD?
A: I think I'm going to have to refer you to the services. It is... That procurement, that chart where I showed you the QDR goal and the procurement... A significant chunk of it went there. The additional F-16s, the Air Force has additional C-17s. There's I think three more V-22s. There's a series of smaller com gear...
Q: But it's nickels and dimes. It's not... There aren't...
Q: But there are no major initiatives embedded in that chunk of money.
A: I don't know how to define it. Eight new ships is, I think, a major initiative. There are 14 new C-17s.
Q: You have, in your press release you mentioned there's an allowance for some unanticipated contingencies. Can you say how much that is? Secondly, you're not assuming savings from BRAC, when you look at acquisition reform, outsourcing, privatization, defense reform initiative, all that kind of stuff, can you give us an idea of how much of your budget is predicated on some assumed savings in those kind of areas?
A: I lost your first question.
Q: The first question was allowance for...
A: Oh. There's a billion dollars in the '01 column for notionally Bosnia. This is... We're trying to deal with contingencies on a year by year basis so we don't know frankly, exactly what the end point in Bosnia will be. It is possible we'll be there in '01 so we have put $1 billion against that possibility. We might have to still add more money if we were still there, but the idea was, again, to try and fund these things within the core program so they don't drain away from the other priorities. That's what that allowance meant.
The major source where we're assuming initiatives, or two major sources. We are realizing the savings now from the prior four BRACs. We're building to $5.6 billion. I think we hit that by '02. We're seeing those savings, there's a recent GAO report that I think has ratified that conclusion. We indeed are spending that money.
I think it is not a coincidence that the procurement number started to go up when the BRAC savings turned positive.
The other major place where we're seeing savings is in the competitive sourcing area. We had an order of magnitude increase in the number of jobs we've been able to competitively source. We're up into the 30,000, 40,000 range versus the 3, or 4 or 5 thousand range and we're hoping to continue that over the next several years of the FYDP. What we're seeing is whether the private sector or the public sector wins the competition you see 20-25 percent savings. The [strong] CNA study, some other looks... We're seeing those. You can talk to each of the services. Each of the services has a plan as to where those savings are going to show up, in what years, and how they're allocated.
Q: But you don't have a bird's eye top level number for how much you're going to save from the other stuff. Acquisition reform, all the other good stuff.
A: We haven't put wedges in for things like paperless contracting and acquisition reform. We're trying to get away from just taking money away from people and hoping that the savings appear. We've tried to set up an incentive so that each of the individual services and the other components have an incentive to pursue acquisition reform because any savings they generate don't come back to us, they come to finance their program. We found that's a much stronger incentive. So no, I don't have a bird's eye view.
Q: I understand your MILCON juggling and the family housing program, There seems to be almost no money for family housing. How are you going to privatize without having money to pay the private firms who are supposedly building your new housing?
A: The split funding in MILCON doesn't affect the privatization. I think it's $79 million in '00 is specifically identified for the privatization. It's in a special account. That money is there. That's what we're using to fund that privatization.
Q:...on MILCON. You're borrowing from '01 into the '00 account or what?
A: We're splitting the funding of the '00 program. So the '00 program doesn't change, whether it's privatization, family housing or military construction. You're buying the same program but you're splitting the cost over two years. Instead of paying the full cost in '00, you're deferring about $3 billion of the $8 billion total into '01. This is something that we've done in the past on occasion with military hospitals and some large projects. The Department of Energy, NASA, the Corps of Engineers do it on a somewhat more routine basis. But this... That's all.
Q:...any of your '01 programs?
Q: Right. That means that the '01 program.
A: The '01 program was increased by that $3.1 billion. The '01 program remains fully funded.
Q: Some of us have knit-picking editors and when we go back to them and say that the increase over six years is really 112 instead of 110 they're going to ask how did the Pentagon pick up another $2 billion over the last month since the first stories broke about the increase. What do we tell them.
A: Tell them two things changed. One thing was the inflation savings of the $84 billion add hadn't been accounted for before. So when you add $84 billion there's actually some inflation within that. That added.
The second thing is the actuaries reestimated the cost of the Redux proposal and came to the conclusion it was $200 to $300 million a year higher. So we increased the program by a little over a billion dollars to do that. Those were the two changes that occurred after the beginning of the month.
If they're technical knit-picking they'll like that answer. (Laughter)
Q:.. '00, you say $5.6 in '02.
A: We're going to have to get that. Henry do you know what the BRAC... It's a ramp to $5.6 I know we have the ramp. I don't have it in my memory.
Q: Does the purchase of the ten F-16s reflect any uncertainty about the development of the JSF it might have to be pushed back or the program somehow might not go forward?
A: There's been no change in the Joint Strike Fighter program. It is continuing. We're still counting on it. Thirty F-16s isn't going to address the needs of the F-16. It keeps the industrial base alive so in that sense it helps but beyond that it doesn't reflect any change.
Q: Of the increases for modernization and procurement, of that, in the tactical aircraft, is there anything that's unexpected or unanticipated other than the F-16s that you talked about?
A: I think you're going to have to check with the Air Force. Not that I'm aware of.
Q: Does anybody on your staff or yourself have any estimate of how much extra above what you're proposing the Warner Bill that was reported this week would cost? The $4.8 raise for instance versus the 4.4 plus the other sweeteners? Any rough estimate?
A: I've seen rough estimates but I've seen them mostly in the press. I don't think we've done a final... We've seen... They're marking up the bill and until you have the final package, it's hard. I'd be reluctant to put an (inaudible) a number I'm not fully confident in.
Q: How about the half a percent increase. What does that equate to?
A: I don't have it in my head.
Q: A year and a half ago the National Defense Panel came up with their independent review of the QDR and they suggested X billions of dollars be included in the budget to help the Pentagon transition from the force of today to the force of the 21st Century. How much of that report is factored in the budget...
A: I think we agree with them that we need to fund and then operationalize the revolution of military affairs. We think the programs we have on the books do that, whether they're in the WMD area of digitization of the Army or the Joint Strike Fighter or standoff weapons. You'd have to go through their specific proposals. I couldn't do that.
Q: What is your explanation for the slip in the (inaudible) program and the affect on national missile defense?
A: There's no affect on national missile defense because the slip represents a change in the life of the defense support program, the existing program for early warning. That, the life of that program has been extended, so there won't be any affect.
Q: You mentioned earlier that there were no major program terminations in the budget. I guess my question is did you look at that all? In the process of putting this budget together did you include any analysis as to whether or not some Cold War weapons were not needed or not needed in as many quantities? And is it safe to assume you would have had to do that had this increase not come?
A: He's asking whether we reviewed in this program reducing or eliminating existing weapon systems on the basis of the Cold War base rather than the future base.
I think the review you're looking for was really the QDR. In the QDR we really went back and looked and changed the TacAir program in particular, changed substantially, and we looked at those in that instance. And what we were looking here was to make sure we were able to execute the QDR strategy and we took what we think were steps to do that. The one exception, it's not a cut but an add, was national missile defense where we went further in the direction of where the future seems to be going.
Press: Thank you.