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

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

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

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

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

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

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

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

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

                 Mr. Hale? 

                 MR. HALE:  Thank you.  Next slide. 

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

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

                 Next slide, please.  

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

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

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

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

                 Next slide. 

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

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

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

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

                 Next slide. 

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

                 And let me ask General Spencer to comment. 

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

                 MR. HALE:  Next slide. 

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

                 Next slide. 

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

                 But it's not all weapons.  We will ask the Congress for half a billion dollars for what's called Section 1206.  This is global train- and-equip money.  It's support for allied militaries to -- so that they can someday, if need be, be our allies in future conflicts. 

                 Counterdrug activities, $1.2 billion for intelligence support, combatant command support, assistance in domestic initiatives, with an increased focus here on Mexico. 

                 Next slide. 

                 We're investing not only for current wars, but we recognize we need to modernize for future conflicts.  And there is a broad-based modernization, including recapitalizing our tactical Air Forces with a restructured Joint Strike Fighter program, 9.4 billion (dollars) for the JSF program, including some deferral of procurement.  Compared to last year's plan, we'll buy 124 fewer aircraft.  But we still buy 325 JS air -- JSF aircraft in fiscal '12 to '16. 

                 Of the three variants, the STOVL is having the greatest problems with some aerodynamic performance problems and others.  The secretary has put it on a two-year probation.   

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

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

                 Next slide. 

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

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

                 Overall we are investing heavily to modernize for the future. 

                 Next slide. 

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

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

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

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

                 MR. HALE:  Fiscal '12 -- let me go to the next slide. 

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

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

                 Next slide. 

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

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

                 Next slide. 

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

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

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

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

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

                 Next slide. 

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

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

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

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

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

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

                 Next slide. 

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

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

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

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

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

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

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

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

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

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

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

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

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

                 Next slide. 

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

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

                 So with that, Lita. 

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

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

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

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

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

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

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

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

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

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

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

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

                 MR. HALE:  Pushing for the mid-2020s.   

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

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

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

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

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

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

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

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

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

                 They may be -- those would be good questions to address to the military services that are following us. 

                 Q:  Mr. Hale and General, while you're cutting foreign assistance in the military, you're increasing the support to the Mexican activities.  Why do you do that?  And second, how much do you plan to assign to this issue?  How this is going to be used?  And I would like to know if it is part of the Merida Initiative or there are additional resources. 

                 MR. HALE:  Well, Mexico is one of our most important allies. Obviously, we share a major border.  We want to do everything we can to assist the country and its -- and its government in ways that are consistent with their goals. 

                 I don't have an -- and it would probably be hard to give you an exact number of what we're spending on drug-assistance efforts for Mexico, because so many -- there would be so many dual purpose.  So I hesitate to give you a number.  I'll look at that one later.  But at least on the top of my head, I can't do that.  But I can tell you that there's a commitment to provide assistance to a very -- a country that is very important to us. 

                 Q:  But is this part of the Merida Initiative resources, or there will be an additional amount of money? 

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

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

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

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

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

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

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

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

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

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

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

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

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

                 MR. HALE:  You mean The TRICARE enrollment fees? 

                 Q:  Right. 

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

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

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

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

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

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

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

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

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

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

                 COL. LAPAN:  Yes, ma'am. 

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

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

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

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

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

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

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

                 COL. LAPAN:  Okay.  Go ahead. 

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

                 MR. HALE:  Right. 

                 Q:  -- same amount as in fiscal '11.  Going out, is there growth or not, or does it...

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

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

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

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

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

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

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

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

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

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

                 MR. HALE:  Right. 

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

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

                 Q:  Okay.  Thank you. 

                 MR. HALE:  Rounding will come to my aid. 

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

                 MR. HALE:  Yes. 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                 Q:  Did you terminate MEADS after 2013? 

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

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

                 MR. HALE:  That I don't know offhand, Tony.  I'll have to --  

                 Q:  Thank you. 

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

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

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

                 GEN. SPENCER:  No, I don't -- 

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

                 Q:  So you have no views on that -- 

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

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

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

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

                 Again, I think I've made clear -- I hope I have -- this is a bad idea.  It's a bad way to budget.  We need an appropriations bill as soon as possible. 

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

                 MR. HALE:  No; I mean, I'm sorry to say we do know how to do this, although it's been a long time, fortunately, since we had to execute it.  But we have gone through it as we got near some -- the absence of supplementals in the past.  I certainly hope that we don't go through that again. 

                 It's both time-consuming to plan and if we ever did it, I was actually here as the Air Force FM when we did it.  In the '90s, it was very not inefficient -- or it was inefficient and it was destructive of morale.  It's just -- I certainly hope we don't do it again.   

                 COL. LAPAN:  Sir, in the back. 

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

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

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

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

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

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

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

                 GEN. SPENCER:  AEGIS, phased adaptive approach. 

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

                 Q:  Yeah, probably not.  (Laughter.)  

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

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

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

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

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

                 Q:  -- that detail might finish?

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

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

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

                 Okay.  Thank you very much.  I appreciate it.