Major Budget Decisions Briefing from the Pentagon

            SECRETARY OF DEFENSE LEON PANETTA:  Good afternoon, everybody. 

            As all of you know, this department has undertaken a very fundamental review of its defense strategy and of our spending priorities. 

            The reasons for the review are clear.  First of all, we are at a strategic turning point after a decade of war and after a very substantial growth in the defense budget.  And second, the Congress of the United States, through the passage of the Budget Control Act, has required that the defense budget be reduced by $487 billion over 10 years. 

            To accomplish this effort, we decided that it was important to make this an opportunity to develop a new defense strategy for the United States and for the U.S. military force that we wanted for the future. 

            That strategy has guided us in making a series of tough budget choices and establishing a new set of defense priorities.   

            The ongoing process reached an important milestone earlier this month with the release of the new strategic guidance and the priorities for a 21st century defense.  And it will be reflected in the decisions that have been made and will be presented in the President's budget.   

            When I announced the new guidance, I highlighted five key elements of the strategy and five key elements of the vision that we have for a military force of the future.  And let me just summarize each of those. 

            First, the military will be smaller and leaner, but it will be agile, flexible, rapidly deployable and technologically advanced.  It will be a cutting-edge force.   

            Second, we will rebalance our global posture and presence to emphasize where we think the potential problems will be in the world. And that means emphasizing Asia-Pacific and the Middle East.  

            Third, we will maintain our presence elsewhere in the world and will do that by building innovative partnerships and strengthening our key alliances and develop new partnerships elsewhere in the world:  in Europe, in Africa and Latin America and elsewhere.   

            Fourth, we will ensure that we can quickly confront and defeat aggression from any adversary anytime, anyplace. 

            And fifth, we will protect and prioritize some very important and key investments in technology and new capabilities as well as our capacity to grow, adapt, to mobilize, to surge as needed. 

            Given the significant fiscal constraints that have been imposed on the department, our approach was to develop this force for the future with some pretty important guidelines.  We wanted to maintain the strongest military in the world.  We committed ourselves not to hollow out the force, as has been done in the past in these kinds of drawdowns, to take a balanced approach to our budget by putting everything on the table and to not break faith with the troops and their families. 

            I want to thank the entire leadership of this department, military and civilian alike, for their participation and support in this effort.  This has truly been a team effort, and I am deeply appreciative for their cooperation. 

            And we are united in the belief that this strategy and the resulting budget decisions followed the right approach to meet the country's most pressing security challenges and to preserve the strongest military in the world and at the same time meet our fiscal responsibilities. 

            Today I'd like to offer a preview of the decisions that we made to help build the department's budget request for fiscal year 2013 and the future years' defense plan. 

            Consistent with the Budget Control Act, this plan reduces spending over the 10 years, obviously, by $487 billion.  But in the five-year budget that will be presented by the President, we reduce the defense budget by 259 billion [dollars] over the next five years. 

            Specifically, the department will request for its base budget $525 billion in its base budget for fiscal year FY13.  And our -- by the way, that compares to 531 billion [dollars] in fiscal year 2012 -- and our hope and plan here is to try to rise to 567 billion [dollars] by fiscal [year] 2017.   I would just point out that the projected growth before we had to do this was to reach about 622 billion [dollars] by that year of 2017. 

            In fiscal 13, we will also ask for an additional $88.4 billion for overseas contingency operations, so-called OCO funds.  That compares to about 115 billion [dollars] that we receive in fiscal year 12, all of that obviously to maintain support for our troops in combat. 

            We believe this is a balanced and complete package that follows the five key elements of the strategy and vision that I've described. You have the specifics in the package you've been provided.  And I know that Ash Carter, the deputy, and Sandy Winnefeld, the vice chair, will fill you in on any additional specifics that you're interested in. 

            But what I wanted to do is to kind of summarize some of the key decisions for you. 

            First of all, with regards to the area of developing a smaller and leaner but agile and flexible and technologically advanced force, we knew that coming out of the wars and dealing with budget reductions of this magnitude, the military would be smaller.  But the key -- as tough as it was to make the decisions with regards to drawing these down -- the key is to fashion an agile and flexible military force that we need in the future. 

            What that means for the services is that we will have an adaptable and battle-tested Army that is our nation's force for decisive action, capable of defeating any adversary on land.  Let me say that again:  capable of defeating any adversary on land.  We will have a significant land force presence in places like Korea and in the Middle East.  But at the same time, we will emphasize special operations forces.  And we will also emphasize a rotational presence so that we can establish the kind of partnerships that I discussed and provide training and advice in other parts of the world. 

            We will have a Navy that maintains a forward presence and is able to penetrate enemy defenses.  The Navy essentially has agility built into its force because it can move and deploy anywhere throughout the world. 

            The Air Force is the same.  It will be an Air Force that dominates air and space and provides rapid mobility, global strike and persistent ISR, and it will provide unmanned capabilities through their operators as well.   

            A Marine Corps that is a middleweight expeditionary force with reinvigorated amphibious capabilities.  And a National Guard and Reserve component that is ready and prepared for operations, all of this networked into a highly capable joint force for the future. 

            To ensure an agile and ready force, we made a conscious choice not to maintain more force structure than we could afford to properly train and equip.  The budget also seeks to retain the most flexible, versatile and technologically advanced platforms that we will need for the future.  That involves unmanned systems, satellites, submarines, helicopters, aircraft carriers and fifth-generation aircraft.  What we're looking at are multi-mission weaponry and technology that can support that kind of agile force. 

            Striking the right balance between force structure and readiness is critical to our efforts to avoid a hollow force, and we'll continue to focus on this area to ensure that we make the right choices. 

            In this budget, we plan to gradually resize the active Army to 490,000.  That's down from present force level of 562,000.  And the active Marine Corps will go to 182,000.  That's down from 202,000. That transition will take place over the five years.  We won't reach those numbers until 2017. 

            This plan maintains, as I said, a very significant Army and Marine force.  Both services are at larger levels than they were at prior to 9/11. 

            They will be fundamentally reshaped by a decade of war.  They will be far more lethal, battle hardened and ready.   

            The changes to the size of our ground forces allowed us to examine the Air Force's airlift fleet.  Our intensive review determined that we could reduce, streamline and standardize our air fleet with minimal risk.  So, as you'll see, we are retiring some aging C-5As and C-130s, but we will maintain a very healthy airlift capability.   

            We were also able to identify excess capabilities in tactical air forces.  We currently have 60 Air Force tactical air squadrons, and the review determined that we could eliminate six of the 60 as well as one training squadron.  None of that will impact our ability to dominate the skies.   

            The Navy is protecting our highest-priority and most flexible ships, such as the Arleigh Burke destroyers and the littoral combat ships.  It will retire lower-priority cruisers that have not been upgraded with ballistic missile defense capability or that require significant maintenance as well as some combat logistics and fleet support ships.   

            As we build this leaner and more agile force, we frankly need to also look at a department that is leaner and more agile as well.  And for that reason, this budget seeks to reduce excess overhead, eliminate west -- waste in this department, and improve business practices across the department.  We've identified about $60 billion in savings over five years on top of the substantial efficiency efforts that are already under way. 

            This will involve areas such as aggressive and competitive contracting practices, better use of information technology, streamlining the staff, reductions in contract services and better inventory management. 

            As a result of all this, we will also need to look at facilities infrastructure, balancing overseas forward presence requirements with basing requirements back home.  In this budget environment, we simply cannot -- we simply cannot sustain the infrastructure that is beyond our needs or ability to maintain.  Therefore, the President will request the Congress to authorize to use of the base realignment and closure process -- so-called BRAC process -- with the goal of identifying additional savings and implementing them as soon as possible. 

            The second area: rebalancing our global posture and presence to emphasize the Asia-Pacific and Middle East areas.  The budget protects and in some cases increases our investments in these critical areas. That requires an Air Force that is able to penetrate sophisticated enemy defenses and strike over long distances.  So we will be funding the next-generation bomber, and we will be sustaining the current bomber fleet.  We are also moving ahead with our next-generation aerial refueling tanker. 

            The strategy also envisions a Navy and Marine Corps that is postured forward, bringing a stabilizing presence and combat power as needed, with an emphasis on these critical regions. 

            The Marines will sustain their level of presence in the Pacific and the budget supports an enhanced presence and partnering opportunities with Australia and others, such as the Philippines.  And in all of these cases, obviously we'll do this in a way that respects the sovereignty of the nations that we will be working with.  It also provides the resources to forward station littoral combat ships in Singapore and a patrol craft in Bahrain. 

            As I announced last weekend, sustaining our ability to project power in these regions will require maintaining the aircraft carrier fleet at 11 ships, with 10 air wings, and maintaining our big-deck amphibious fleet.  Modernizing our submarine fleet will also be critical to our efforts to maintain maritime access in these vital regions of the world.  In this budget, the Navy will invest in a design that will allow new Virginia class submarines to be modified to carry more cruise missiles and develop an undersea conventional prompt strike option. 

            Across the force, we will invest in upgraded sensors for aircraft, ships and missiles, and the most advanced electronic warfare and communications capabilities.  Meanwhile, the strategy requires the Army to return to a full-spectrum training, developing a versatile mix of capabilities, developing a versatile mix of formations and equipment to succeed on land, including in environments where access will be contested.  The Army will maintain its significant force structure in the Pacific, including on the Korean Peninsula, and will maintain an operationally responsive peacetime presence in the Middle East as well. 

            The third area: in building innovative partnerships and strengthening our alliances throughout the world.  This strategy envisions an Army that develops innovative approaches to presence and a partnership development that will ensure our continued engagement with allies and partners across the globe.  For example, in Europe, while we're taking down two brigades, we will maintain two brigades and, in addition, align a brigade combat team with each regional [combatant] command, and we will increase our rotational deployments on the continent so that our forces have more opportunities to train and operate with their European counterparts. 

            More broadly, the United States will continue to invest in our shared capabilities and responsibilities with NATO, responding to the alliance's most critical needs such as increased ISR and ballistic missile defense capabilities. 

            Elsewhere in the world, the gradual drawdown of the post-9/11 wars will provide more opportunities for special operations forces to assist and advise our partners in other regions, and we prioritize the most important programs for building partnership capacity. 

            Fourth: we will ensure that we can quickly confront and defeat aggression from any adversary anytime, anywhere.  The strategic guidance reaffirmed that the United States must have the capability to fight more than one conflict at the same time.  Still, the changing nature of conflict demands greater flexibility to shift and deploy forces to be able to fight and defeat any enemy anywhere. 

            The strategic guidance recognizes that we're dealing with the changing realities of the world that we live in in the 21st century. We're not just facing conventional threats.  We're also facing technological threats.  And we have to be prepared to be able to leap ahead technologically in order to be able to confront those kinds of adversaries. 

            This requires that we have the capability to defeat the enemy across a broad horizon of different conflicts.  And the budget leverages, as a result of that, new concepts of operations and advances in space, cyberspace, special operations, long-range precision strike capabilities and other capabilities as well to ensure that we can still confront and defeat multiple adversaries. 

            The budget also affirms the importance of strategic deterrence and provides for all three legs of the nuclear triad:  bombers, intercontinental ballistic missiles and ballistic missile submarines. However, our review determined that we could achieve better cost control by delaying the next-generation ballistic missile submarine for two years without harming the survivability of our nuclear deterrent.  We are fully committed to a safe, secure and effective deterrent to achieve national security objectives. 

            And lastly, with regards to the key investments in technology and new capabilities, we have to retain a decisive technological edge. 

            We have to retain the kind of leverage the lessons of recent conflicts have given us.  And we need to stay ahead of the most lethal and disruptive threats that we're going to face in the future.   

            That meant protecting or increasing investments in cyber capabilities, the ability to project power in denied areas, special operations forces -- the kind that we saw that conducted the bin Laden raid and the hostage rescue operation -- homeland missile defense, and countering weapons of mass destruction.  In order to protect vital investments for the future, we protected science and technology programs as well.   

            At the same time, the strategic guidance recognizes the need to prioritize and distinguish urgent modernization needs from those that can be delayed, particularly in light of schedule and cost problems. We've made reasonable adjustments to a number of programs.  Let me briefly mention the change with regards to the Joint Strike Fighter.   

            It's a program that remains essential for the future of our superiority.  We have to develop the next generation fighter, and we will.  The department remains committed to the JSF program of record.  But in this budget, what we've done is slowed the procurement to be able to complete more testing and allow for developmental changes before we buy in significant quantities.  We want to make sure before we go into full production that we are ready.   

            The force structure shifts I've outlined today entail some risks to be sure.  But to manage that risk we will ensure that we can mobilize, surge and adapt our force to meet the requirements of an uncertain future.   

            To that end, the Army will retain more mid-level, mid-grade officers and NCOs.  These are the guys who have the experience.  And they will maintain them even as their overall strength decreases to ensure that we have the structure and experienced leaders necessary to re-grow the force quickly if we have to. 

            Another part of ensuring the ability to mobilize quickly will be retaining a capable, ready and operational Reserve Component, leveraging 10 years of experience in war.  Consequently, we are maintaining a strong Army Reserve and National Guard.  There will be no reductions in the Marine Corps Reserve.  The Air Force will make balanced reductions in the Air National Guard consistent with reductions in both the Active Component and Air Force Reserve. 

            And finally, the budget recognizes that a critical part of our ability to mobilize is a healthy industrial base.  Maintaining the vitality of the industrial base and avoiding imposing unacceptable costs or risks on our critical suppliers will guide many of the decisions that we have made. 

            Now let me turn to the quality of our All-Volunteer Force.  The most fundamental element in our strategy and in our decision-making process is our people.  This budget recognizes that they, far more than any weapon system, far more than any technology, are the great strength of the United States military.  For that reason, we focus first on every other area of the defense enterprise for savings in order to minimize any impact on the quality of the troops and their families. 

            As a result, we were able to sustain or enhance critical support programs while reforming and reorganizing others to be more effective and responsive to the needs of their troops and their families. 

            Yet in order to build the force needed to defend the country under existing budget constraints, the escalating growth in personnel costs must be confronted.  This is an area of the budget that has grown by nearly 90 percent since 2001.   

            The budget will contain a road map to try to address the costs of military pay, health care and retirement in ways that we believe are fair, transparent and consistent with our fundamental commitments to our people.  We recognize through this process that we can never repay our service members or their families for all their sacrifices.  

            On compensation for service members, we've created sufficient room in the budget to allow full pay raises in 2013 and 2014 that keep pace with increases in private-sector pay.  In addition, let me make clear:  nobody's pay will be cut.  Nobody's pay will be cut. 

            With regards to pay raises, however, in order to achieve cost savings, we will provide more limited pay raises, beginning in 2015. That will give troops and their families fair notice and lead time before these proposed changes go into effect.   

            On health care, another area of tremendous cost growth in the department, we've avoided changes that negatively impact active-duty troops or their families.    We've protected health care services for these troops, for our wounded warriors. 

            But we decided that to help control the growth of health care costs, which is now almost $50 billion in this department, we are recommending increases in health care fees, co-pays and deductibles for retirees.  They'll be phased in over five years.  But let me clear that even after these increases, the cost borne by military retirees will remain below levels in most comparable private sector plans, as they should be. 

            We also feel that the fair way to address military retirement costs is to ask Congress to establish a commission with authority to conduct a comprehensive review of military retirement.  But the President and the Department have made clear that the retirement benefits of those who currently serve will be protected by grandfathering their benefits.  There will be, for those who serve today, no changes in retirement benefits. 

            Finally, let me just conclude.  Putting together this kind of budget that maintains the quality of an all-volunteer force and implements significant mandated savings has been a difficult undertaking.  This has been tough work.  And at the same time, we have viewed it as an important opportunity to try to shape the force we need for the future. 

            I believe we've developed a very complete package aligned to achieve our strategic aims.  The bottom line is that there is little room here for a significant modification if we want to preserve the force and the capabilities that we believe we need in order to protect the country and the fully assigned missions that we have to deal with. 

            Ultimately, we will need the support and the partnership of Congress to implement the vision that we have for a future military, and we look forward to working with the Congress in this effort. After all, it was a bi-partisan Congress that mandated that we reduce the defense budget by 487 billion [dollars] over 10 years.  So we look forward to their partnership in this effort. 

            Make no mistake:  the savings that we are proposing will impact on all 50 states and many districts, congressional districts, across America.  This will be a test, a test of whether reducing the deficit is about talk or about action. 

            I understand how tough these kinds of issues can be, and I understand also that this is the beginning and not the end of this process.  But my hope is that when members understand the sacrifice involved in reducing the defense budget by almost a half a trillion dollars that it will convince Congress of the important responsibility they have to make sure that we avoid sequestration. 

            That would be a doubling of the cuts, another $500 billion in additional cuts that would be required to take place through a meat- axe approach, and that we are convinced would hollow out the force and would inflict severe damage to our national defense for generations. 

            So the leadership of this department, both military and civilian,  we are united behind the strategy that we have presented.  And we look forward to working closely with the leaders of the Hill to do what the American people expect of all of their leaders:  to be fiscally responsible at a time of record deficits and a record national debt; to use this opportunity to develop the force we need for the future, a force that can effectively defend this country, a force that can support our men and women in uniform and their families, and a force that is, and always will be, the strongest military power in the world. 

            CHAIRMAN OF THE JOINT CHIEFS OF STAFF GENERAL MARTIN E. DEMPSEY:  Thank you, Mr. Secretary. 

            Just a few weeks ago, we released a new defense strategy.  It's a strategy that keeps America safe.  It represents clear strategic choices in the context of a persistently dangerous and increasingly competitive security environment.  These choices are reflected in the President's proposed defense budget for the next fiscal year. 

            As with the strategy, the Joint Chiefs and I worked closely with the President, with Secretary Panetta, the Service Secretaries and, importantly, our senior enlisted advisers.  And throughout, we made sure that the unique strengths of each service were recognized. 

            At the same time, we put national security above parochial interests -- exactly what the American people should expect from us. 

            In the end, we prepared a budget that strikes an appropriate and necessary balance between succeeding in today's conflicts and preparing for tomorrow's.  This balance accounts for real risks and real fiscal constraints.  It represents responsible investment in our national security.   

            But make no mistake, the trade-offs were tough.  The choices were complex.  The difficult decisions represented here produce $259 billion in savings over the next five years, and this is just the first installment on our way to half a trillion dollars in defense savings. 

            Even with these reductions, the budget still makes a $614 billion investment in our nation's security.  It maintains our military's decisive edge and helps sustain America's global leadership.  And it keeps faith with the true source of our military strength and that, of course, is our people.   

            Much will be said and written about the individual decisions underlying this budget.  Some may be tempted to view them through the prism of a zero-sum game, parsing through each cut, each change, to look for a winner and a loser.  That's actually the least productive way to assess this budget.   

            Instead the merits of our choices should be viewed in the context of an evolving security environment and a longer-term plan for the Joint Force.  This budget is the first step; it's a down payment as we transition from an emphasis on today's wars to preparing for tomorrow's.   

            Allow me to make just a few additional and brief points about what this budget means for the Joint Force of 2020.  First, capability is more important than size.  Yes, the strategy and budget reduce force size; we get leaner.  But this budget does not lead to a military in decline.  Rather, it builds a force that matches capabilities to needs.  It leads to a Joint Force that is global and networked, that is versatile and innovative, that is ably led and that is always ready.   

            It's a force that's prepared to secure global access and respond to global contingencies.  It's a military that can win any conflict, anywhere. 

            Second is the issue of compensation reform.  I want to make clear that cuts in spending will not fall on the shoulders of our troops. There are no proposed freezes or reductions in pay.  There is no change to the high quality of health care our active duty members and medically retired and wounded warriors receive.  But we cannot -- we cannot -- ignore some hard realities. 

            Pay and benefits are now roughly one-third of the defense spending, so pay will need to grow more slowly in the future.  And as the secretary mentioned, the budget proposes modest increases in health care fees, co-pays and deductibles for retirees.  And we also need to look at retirement, but we'll take that,  we'll take the time to determine how to enact any retirement reforms over the next year. 

            Last is risk.  The primary risks lie not in what we can do but in how much we can do and how fast we can do it.  The risks, therefore, are in terms of time and capacity.  And we've fully considered these risks.  I'm convinced we can properly manage them by ensuring we keep the force in balance, investing in new capabilities and preserving a strong Reserve Component.  And as I've said before, we will face greater risks if we don't change the way we've been doing things. 

            Three weeks ago I noted that we have a real strategy that reflects real choices.  The President's forthcoming budget proposal embodies these realities.  I'm confident it meets our Nation's needs in our current fights and for our future. 

            Thank you. 

            DOUG WILSON, ASSISTANT SECRETARY OF DEFENSE FOR PUBLIC AFFAIRS:  We have time for a few questions, and I'll turn it over to Lita. 

            Q:  Mr. Secretary, you touched a little bit on this, but over the next 10 years, do you see any other year than this year where the actual spending will go down from year to year? 

            And just to the American public more broadly, how do you explain what appears to be contradictory as you talk about, repeatedly, this $500 billion in cuts in a Defense Department budget that is actually going to be increasing over time? 

            And then just quickly for Mr. Chairman, can you address specifically the 490,000 as far as the size of the Army?  Is it the right number, and what are the actual risks in that? 

            SEC. PANETTA:  Yeah, I think the simplest way to say this is that under the budget that was submitted in the past, we had a projected growth level for the defense budget, and that growth would have provided for almost $500 billion in growth.  And we had obviously dedicated that to a number of plans and projects that we would have. 

            That's got to be cut, and that's a real cut in terms of what our projected growth would be.  So the reason you're seeing the tough decisions that are being presented to you in the implementation of the strategy is because we had to achieve savings that would meet the requirement that Congress gave us.  And that is tough, it's real, and it's something that obviously will cause some pain.  But at the same time, we recognize that Defense has to play a role in dealing with the national deficit. 

            GEN. DEMPSEY:  In terms of the size of the Army, briefly, it's, I'm confident that 490[,000] -- active, by the way -- is the, is the right number for 2017.  It may not be the right number for 2020.  I've always said that the Army -- when I was the Army chief -- that the Army needs to be adaptable enough to provide the greatest number of options given the security environment we face. 

            So we grew the Army to confront a particular kind of conflict, to conduct the stability operations, counterinsurgency strategies that we were asked to execute.  Those demands are going down.  I think it's perfectly reasonable that the force structure of the active Army would go down as well. 

            STAFF:  Brian. 

            Q:  Mr. Secretary, you talked about the additional requests for war spending.  I believe you said 88.4 billion [dollars] -- 

            SEC. PANETTA:  Right. 

            Q:  -- versus 115 [billion dollars].  Given that a year ago we had sizable numbers of troops in Iraq, the numbers in Afghanistan are coming down, why still so high?  I mean, it doesn't seem like it's that much of a reduction.  Can you just give us some sense of what that's for, that 88.4 billion [dollars]? 

            SEC. PANETTA:  Well, obviously we still are maintaining a significant force in Afghanistan to conduct the war there, and the costs associated with that effort are pretty significant.  As we try to deal with the supplying of our troops, this is not, you know, it's not as easy as Iraq in terms of our ability to provide the supplies and needs that our troops need. 

            So that plus obviously maintaining -- even as we draw down the surge -- the reality is that we will continue to maintain, you know, a fairly large number of troops that will be present in Afghanistan.  To support them, to give them the best supplies, to give them the best weaponry that they need in order to meet this mission, is going to continue to require support and funding under the OCO. 

            GEN. DEMPSEY:  Yeah, could I add, please, there's two -- there's two people who -- two groups that put demands on OCO.  One is the combatant commander for the -- for the operation and the other is the service chiefs.  For recapitalization, for reconstitution, we've always said that it would take years following the end of the conflict to recapitalize the force.  And some of the OCO costs are caught up in that. 

            MR. WILSON:  Tony. 

            Q:  For Mr. Secretary and for General Dempsey.  Mr. Secretary, are you seriously considering asking the President to ask Congress for another round of base closures?  Your civilians are still trying to deal with the 2005 base closure with that Shangri-La known as the Mark Center. 

            And for General Dempsey, there is a line in here -- you want to restart the undersea conventional strike capability.  The Bush administration tried that, and it spooked Congress, our allies and a lot of the arms control community.  You, the Obama administration has resurrected it, but what has changed in the last few years to prevent an adversary or the rest of the world from confusing one of these conventional missiles as a nuke? 

            GEN. DEMPSEY:  I'll go first.  The technology and therefore the trajectory that would be required to deliver it, there's the speed at which these delivery systems can move.  And therefore you can lower the -- you can lower the trajectory and therefore avoid the confusion you're talking about in terms of it being mistaken for an ICBM with a nuclear warhead.  But, you know, there's issues beyond that, but fundamentally that's it. 

            Q:  (Off mic.) 

            GEN. DEMPSEY:  Technologies change, yeah. 

            Q:  (Off mic.) 

            SEC. PANETTA:  Yeah.  It's a -- you know, it's a -- it's a fundamental problem we have to confront.  As we -- as we draw down the force, we've got to take a look at the infrastructure that's supporting the remaining force.  And the reality is that we are going to have to be able to reduce that infrastructure. 

            The best approach to reducing that infrastructure politically on Capitol Hill has been to work it through the BRAC process and to develop an approach whereby, you know, we would submit recommendations, the commission would look at those recommendations and then make a complete presentation to the Congress, and it would be voted up or down with one vote.  So obviously, the BRAC process provides that kind of process. 

            I've been through BRAC.  I know its weaknesses and its failings.  Obviously we will -- we will continue to work to make sure that it's done effectively and that we achieve the savings that we hope to achieve from the process.  But I have to tell you there is -- there is no more effective process to make it happen than using the BRAC process. 

            Q:  There's no savings embedded in the 259 [billion dollars] right? 

            SEC. PANETTA:  Yeah, we did not -- we did not want to tie any savings to it because, very frankly, we need the Congress to authorize it before we decide to put -- when -- you know, if we -- if we had put numbers in there and then Congress didn't do it, it would have -- it would have undermined our whole budget.  So we just thought, let's go with the BRAC process, and then we'll -- then we'll submit recommendations once it's put in place. 

            MR. WILSON:  Elizabeth? 

            Q:  Speaking of numbers, $60 billion you say for projected savings for efficiency.  That's always kind of a fuzzy area.  You know, better use of information technology.  How detailed is this savings actually that you've projected -- (inaudible). -- 

            SEC. PANETTA:  It's -- yeah, it's actually pretty detailed and, you know, we'll let our briefers go into specifics because I -- you know, I've asked the same question having dealt with efficiencies in the past -- 

            Q:  Right. 

            SEC. PANETTA:  -- that we -- you got to obviously have some meat on the bone.  As you know, Secretary Gates began that process, and we have gone back and said, OK, what have we've done to try to meet the goals that were assigned by Secretary Gates? 

            Q:  What have you done? 

            SEC. PANETTA:  We have.  There's actually some very good progress that's been made with regards to those efficiencies.  And that's what encouraged us that we could do another $60 billion on top of that. 

            Q:  Are you talking about civilian layoffs or pay cuts it looks like here?  (Inaudible) -- reductions, yeah -- (off mic). 

            SEC. PANETTA:  All -- yeah, all of that will be included, but more importantly going after duplication, going after overhead, going after waste, going after the kind of tightening up on systems here. This is a very big bureaucracy -- 

            Q:  -- (inaudible) --  

            SEC. PANETTA:  -- and it can use a lot of efficiency. 

            Q:  Are you talking about civilian layoffs, sir? 

            SEC. PANETTA:  No, no, we're -- we are -- well, we're talking about civilian pay savings as well.  That's built into the President's budget. 

            MR. WILSON:  Larry? 

            Q:  General Dempsey, I wanted to ask you about special operations.  The budget calls for protecting that investment.  I believe there's an increase for that.  But considering how much special operations work has increased over past years, do you believe that the funding is increasing enough to support their added role in this department? 

            And Mr. Secretary, you say you hope Congress will see the sense in this budget and pass it.  But as a former congressman, can you give us a reality check?  What do you think the chances are of this getting through Congress relatively unmolested? 

            GEN. DEMPSEY:  On the special operations, you may have heard me say before, when you say, what's new over the last 10 years, I would say notably three things:  the capability and role of special operating forces, ISR and cyber.  And I'm confident that each of those three new and emerging and more important capabilities are adequately funded in this budget.  But in balance, you know, we have to -- we -- the special operating forces can only be, quote/unquote special if there's a conventional force that allows them to conduct their operations and shape the environment.  So we got to do this all in balance.  And I am confident we've done that. 

            MR. WILSON:  Sophie. 

            SEC. PANETTA:  This is --  look, this is -- this is a -- this is going to be tough.  This is a tough challenge, and nobody ought to underestimate just how difficult it will be.  That's, you know, one of the problems with dealing with the whole issue of deficit reduction is it's very easy to talk about deficit reduction; it's very tough to do something that in fact reduces the deficit. 

            This -- what we're presenting here in this strategy -- does something about reducing the deficit and achieving the savings. 

            Now, it's going to impact on members, it's going to impact on districts, it's going to impact on constituents.  I understand that. When I was in the Congress, I went through this process, and I understand what it means.  But it's also an opportunity for members to show the kind of leadership that the country expects of them when it comes to dealing with this challenge.  

            I think we've presented a great blueprint for the kind of defense we need for the future, and it does it in a way that achieves the savings that are necessary but does not weaken our national defense, maintains a strong military force for the future. 

            I -- to your point, you know, we briefed members of the committees that are responsible for the defense budget last night, and I'm very confident that these leaders understand the challenge we face and that they want to work with us to try to see if we can achieve what we've presented to the Congress. 

            MR. WILSON:  (Off mic.) 

            Q:  Mr. Secretary, General Dempsey, I wanted to ask -- hope you can help me better understand.  You talk about hard choices, you talk about accepting some measure of risk, but you also point out the ground forces will still be higher than after 9/11, there will still be the Joint Strike Fighter, there will still be aircraft carriers roughly at the same level.  Given that, where is the risk, and what are the hard choices? 

            SEC. PANETTA:  Want me to do it? 

            GEN. DEMPSEY:  Yes, sir.  Please.

            SEC. PANETTA:  Look, the risks come with the fact that, you know, we will have a smaller force.  As we said, it's larger than we had prior to 9/11.  But obviously, it will be a smaller force, and when you have a smaller force, there are risks associated with that in terms of our capability to respond.  We think we've dealt with those risks because the combination of the forces we have in place and the ability, if we have to, to mobilize quickly will give us the capability to deal with any threat. 

            But nevertheless, there's a risk there. 

            There's a risk, frankly, in the -- you know, the technological area.  We're depending a great deal on being at the technological edge of the future.  And as I've said, I think we even have to leap forward.  If we're going to deal with the kind of challenges we're going to face, we've got to be smart enough, innovative enough, creative enough to be able to leap forward.  Can we do that?  Can we develop the kind of technology we're going to need to confront the future?  You know, I'm confident we can.  But there are risks associated with that. 

            So, it's -- the risks we're going to be facing obviously come with some of the areas where, you know, we've had to reduce the budget.  But what we've done is to try to develop the kind of agility and capability so that we can respond to the threats that we're going to face in the 21st century. 

            And I think -- I think this is the force for the future.  You know, are there risks going -- associated with it?  You bet.  Can we deal with those risks and make them acceptable?  You bet. 

            GEN. DEMPSEY:  If I could just elaborate in 30 seconds, the greater risk would be had we decided that we would just wish away any particular capability or any particular form of conflict -- so say, no, we're never going to -- we're just never going to do that.  So what you're expressing here is the recognition that we are retaining our full-spectrum capability, and that we -- that we didn't take any risk with that. 

            MR. WILSON:  We have time for one more question here. 

            Q:  Thanks.  Mike Evans, from The [London] Times.  Mr. Secretary, in terms of security challenges and security threats, what is worrying you most, in particular for the next 12 months? 

            SEC. PANETTA:  (Chuckles.)  That's a set-up.  (Laughter.) 

            Look, the one thing we had to do, obviously, in developing the strategy and the one thing that frankly distinguishes this from past drawdowns, as I've said before, is that in past drawdowns usually we've, you know, we've come to the end of a particular threat that we confronted and we could move on.   

            The reality is that as we draw down from Iraq and Afghanistan, we still face a number of very important threats in the world.  Obviously we're continuing to fight a war in Afghanistan.   

            We continue to face the threat of terrorism.  As successful as we've been in confronting that, we continue to see that challenge, whether it's in the FATA[Federally Administered Tribal Areas, Pakistan] or whether it's in Yemen or whether it's in Somalia and elsewhere.  So we're going to have to continue to confront the threat of terrorism.   

            We see the threats coming from Iran and a nuclear-capable Iran represents a threat to us and to the world.  The weapons of mass destruction and proliferation of weapons of mass destruction are a concern.  North Korea is a concern because they too are developing a nuclear capability.   

            Add to that the turmoil in the Middle East that we have to confront.  Add to that the whole cyber threat and the potential for cyber warfare.  You can see the vast array of threats that we have to confront with the force that -- you know, that we've designed here. So it's all of those that are my concern for the future. 

            Q:  Two quick comments -- 

            MR. WILSON:  Ladies and gentlemen, I'm sorry.  That has to be the last question.  But we have the Deputy and the Vice Chairman now about to come forward.  So thank you very much.