MODERATOR:  Ladies and gentlemen, the secretary of defense, Chuck Hagel.

 

SECRETARY OF DEFENSE CHUCK HAGEL:  Colonel, thank you.  Good afternoon.  Are you guys supposed to sit or -- why don't you sit down?  I always check with the colonel and the general first before I give any orders.  I was just a sergeant, so I don't know about that.

 

But, first, thank you.  Thank you for giving me some time today and the opportunity to thank you on behalf of the president and our country for what you do.  Thank you for your service, your sacrifice.  Thank your families for us.  We appreciate what your families sacrifice, as well.

 

I wanted to come by today on my way to Brussels for a NATO meeting, which will start tomorrow.  After this meeting, I'm going to stop at Fort Eustis.  And I wanted to come by to get a sense from you, some things on your mind -- I think I know what some of them are.  But I try to do this as often as I can, get outside of Washington, the Pentagon, and listen to our men and women, and try to understand better what's on your minds, what your concerns are.

 

You help me.  You help all our leaders with what you tell us, and I know your commanders here from the general on down feel the same -- feel the same way.  And the only way you do that is you've got to get out and listen.  So that's why I stopped.

 

Particularly, I wanted to address an announcement I had made yesterday which has gotten some attention on our budget, a budget that I will present to the Congress next week.  It's the president's fiscal year 2015 budget.  We, I think as you know, annually are required to come before the authorizing and appropriations committees of Congress to present budgets.  

 

In that process, we also present not just the next fiscal year budget, but a five-year budget, to project out.  You know better than almost anyone in this business that the kind of astounding, incredible platforms that you fly and you work on and you protect and you make work aren't just one-year and two-year projects.  These are multi-year projects.  The commitments that we have to make to finance those, to build those, to design those takes a long time.  So that's partly why we do a five-year plan, then even out 10 years. 

 

But I wanted to cover a couple of points specifically, and then we'll get to your questions, whatever you want to talk about.  One, I wanted to give you a very brief explanation of what Chairman Dempsey and the chiefs and the secretaries, senior enlisted, combatant commanders, all of our senior leaders focused on when we put this budget together.  You know the realities of sequestration.  You know the realities of fiscal restraints that you're all dealing with, we're all dealing with, and I suspect they're not going to get much better over the next few years.

 

So we have got to prepare our institution.  We have to plan strategically to protect our country, as you do every day, and assure the president, assure the Congress, assure the American people, assure your families that they can count on us, they can count on you, as they do every day.  That takes planning.  That takes preparation.  That takes focus and discipline, all things you know about, and it takes resources.

 

And budgets always give you some opportunity to prioritize those resources.  How, in fact, are you going to carry out the strategic interests of our country?  And that's as much as anything what budgets are about.  Yes, they have to fit the resources in, the numbers in, but what's the strategy behind it?  Where are your priorities?  Why did you make the decisions you made?

 

And I want to just hit a couple of top-line points.  First, our priorities are, have been, will always be the people, the people of this institution, you.  No matter how good the equipment, how sophisticated the technology, it is people who make it work.  If you don't have quality people, you don't have a lot.  

 

It is critically important that we treat our people right, fairly, we keep them trained.  We owe you also the best equipment, the best leaders.  If a president of the United States is going to send a nation into war, as secretary of defense and everyone of your leaders, I have a responsibility, as well, to assure that you are the best led, best trained, best equipped in every way.  Today we can say that.  I think we've been able to say that generally since World War II.  We don't want to lose that edge.  We would fail our country, we would fail you if we did anything other than assure you of that commitment.

 

So that was the first priority, our people.  That means your pay.  That means your compensation.  That means your retirement benefits.  That means everything you work for in your life.  You have to be certain about that.  And we've prioritized that.

 

Second, readiness.  We can have a big force, a lot of people, but if they're not ready, then, in fact, you do have a hollow force.  I won't allow that to happen as secretary of defense.  I don't think any of our leaders will.  Certainly, the president won't.

 

Third, capability.  You've got to be capable.  That means everything that you need to do the best job that you can do, under any circumstances.  

 

And then capacity.  We did this in a way that was collaborative.  General Dempsey, the chiefs, the secretaries, all those I mentioned, worked on this together, month after month after month.  It was not my decision alone.  It was a collaborative decision.  That's as it must be, in any enterprise, but especially our defense enterprise.

 

We focused on the balance of the force.  We took every component of our Defense Department budget.  Every component's important -- the Army, the Air Force, the Marines, Navy, and each of those components, as you break down your responsibilities, your missions, the expectations that we have for you, as you execute those missions.  Reserves, National Guard, all are part of the whole, all are part of the total package, so we couldn't come it, wouldn't come at any kind of budget unless we factored in a balance of all the services and all what's required to defend this country.  

 

The defense of this country is always the guiding strategy.  How best do we defend this country, at a time when the world is complicated, it's uncertain, it's dangerous, and I suspect it's going to be that way for a while.  So that makes our job even more difficult.  

 

There is very little certainty in the world today; I don't need to remind any of you of that.  Many of you have served overseas.  Many of you served in combat.  You understand this.  We have to prepare our institutions for that uncertainty.  But there are some things that we do know.  For example, this budget that I will present next week to the Congress is the first budget that's not a war-footing budget.  For the last 13 years, this nation's been at war, Iraq, Afghanistan, and for many of those 13 years, we've been at war in both places.  This budget will represent a different environment, a different era, a different time.  It doesn't mean it's good or bad.  I think it's probably good that we're out of two wars.

 

But that's not a small point, because if we are not budgeting and prioritizing for wars, which we have had to do, the right thing to do, then that means our priorities have to be realigned and reset as to, where are we going to use our resources?  And where are we going to deploy?  Where are we going to position our assets to protect our interests, whether it's a shift in our presence, posture in the Asia Pacific, or Middle East, North Africa?  The world's dangerous everywhere, and we've tried to frame that budget strategic focus on that basis.

 

So I wanted to give you those top-line reasons for why we have come up with a budget we have.  Let me address the pay compensation, retirement issue specifically, because I know that's an issue that's on all your minds.  It should be.  It's on your families' minds, and then we'll open it up to questions, whatever you want to talk about.

 

First, retirement.  We have made a decision not to make any recommendations on any changes on retirement until a retirement commission impaneled by the Congress comes back in and reports to the Congress, as well as to the Defense Department.  We think that's a wise course of action.  We understand the importance of retirement plans.  But I've also said -- and -- (inaudible) -- agree that any changes, if there are any recommendations of changes, would not apply in the retirement to those now serving.

 

Let's go to the more immediate issues of pay and compensation.  First, we're going to continue, and we have in the budget, to recommend pay raises, pay increases, so (off mic) 

 

(inaudible)

 

SEC. HAGEL:  Thank you.  That's good.  All right.  Maybe because I was standing behind the podium.  

 

Pay.  We're going to continue to recommend pay increases.  There will be a slight decrease in those increases, but it's a cost of growth and a growth of increase recommendations.  So make sure you understand that.

 

Second, on the compensation and benefits, commissaries, we're not closing any commissaries.  What we are doing is recommending that the subsidies on commissaries be gradually phased out, like in our post exchanges.  That means you're still going to get significant savings as that process would go forward.  Nothing happens tomorrow.  Nothing happens next year.  This is a gradual process.

 

We will exclude all the overseas commissaries.  We will exclude commissaries that are in remote areas where there's no option.  In areas -- most areas now in the country, there are a lot of different options, whether it's Target or K-Mart, wherever it is.  So if that gives you some clarification on commissaries, that's how we'll recommend, go forward on commissaries.

 

On TRICARE, what we're going to do is recommend that we consolidate our three TRICARE systems into one TRICARE system.  We think it'll be more effective, more efficient.  This won't affect anything on base in health care.  This won't take away any preferred provider options.  This won't change the quality of the health care at all.  But there are tremendous savings in the consolidation and the coordination of that.  And this would be done over a period of time.

 

On health care co-pays increases, you all understand what your families pay now, and the modest per visit out-of-pocket co-pay.  We would recommend that for the active servicemember, there is no change, but just as is the case now with families and working-age retirees, there is a co-pay, depending on where you are, depending on what medical service is provided, and I don't have all the details, but I think it's around $10 minimum per visit, up to $20 -- I think it's in that range -- for working retirees, working-age retirees.  We would recommend a gradual increase from -- out-of-pocket from around 8 percent today to no more than 11 percent.  So that's a gradual increase.  We think that's appropriate.  We think that's fair.  

 

On base housing, right now, as you all know, it's a 100 percent subsidy.  I was asking General Abrams, who is my senior military assistant, the other day and some of the other officers at the Pentagon, when they came into the military, what was their out-of-pocket expense for what they paid in base housing, that they had to pay that was not covered?  Most of those officers -- and it wasn't too long ago, and certainly even in the '90s -- it was anywhere from 15 percent to 20 percent out-of-pocket.  Today, it's zero.

 

What we would recommend is eventually over a five-year period of phasing an increase into your out-of-pocket up to 5 percent.  So it would be capped at -- you would be subsidized 95 percent, and eventually we would ask you out-of-pocket for 5 percent, what you don't pay now.  I know that.

 

Those are the recommendations we've made.  We did this in coordination with all of our senior enlisted leaders in each service, all the chiefs, all the secretaries.  This was not a unilateral, arbitrary decision.  This was a decision that we made after a long deliberation.

 

So I wanted you to hear it from me directly as to what we have recommended.  The Congress will have to decide what they will accept, what they won't accept.  That's the appropriate part of our system.  And we'll start testifying and you'll hear more about this.  The chiefs will be on the Hill and others.  That testimony will begin next week when Chairman Dempsey and I and the comptroller, Bob Hale, go before the Senate Armed Services Committee and the House Armed Services Committee.

 

So let me stop there.  There's a lot that we could cover, I could yet cover on so many issues, but I want to give you a chance to tell me what you think and I want to listen to you.  

 

So who wants to start?  What, are we working off that microphone or that one?  Okay.  

 

Q:  Yes, Mr. Secretary. Tech. Sergeant Johnson, First Maintenance Group, First Maintenance Squadron.  My question to you, sir, is with the current force reductions, is this --

 

SEC. HAGEL:  Could you get a little closer to the microphone?  Thank you.

 

Q:  Yes, sir.  With the current force reduction, is this the future of our DOD end strength?  Or would personnel need to be ramped up in order to facilitate future military operations?

 

SEC. HAGEL:  Yep.  Well, that's a very good question.  I think everybody got it.  It's about end strength and personnel reductions.  A big part of what our recommendations are, which have gotten a lot of the headlines, which you -- which you know.

 

First, this is not new, a reduction in forces.  I mean, it just didn't start with my announcement last week.  This has been coming, if -- and at the end of every war America's ever been in, it's the way it works.  First of all, if you're not in war, your requirements are different, your manpower different, your posturing different.

 

So we're out of Iraq.  We're coming out of Afghanistan.  So, therefore, regardless of sequestration, we would still be forced to deal with an end strength issue.  What do you need to defend this country?  So I want to make clear that that's number one.

 

Second, as we ramp down, as we have been doing the last few years, coming out of Iraq, now coming out of Afghanistan, as we continue to retrograde out of Afghanistan month by month by month, that posture changes.  So we looked at the entire posture, as I said, in each force.  We went deep down into each of the combatant commanders' commands, our missions, our expectations, focusing on the president's strategic guidance, which he issued a couple of years ago, to fulfill the security commitments that we have to protect this country, as well as our allies and our partners around the world.

 

The end strength numbers that will be presented in this budget represent what the chiefs, what the secretaries, all our leaders believe can do the job, can get the job done.  Obviously, fiscal restraints affect that, as well, and we've been very honest with that.  I mean, the Army, which has gotten the most attention on this, because it's the largest force structure branch, as everyone knows, and it's been the service that has carried most of the bulk of the responsibility in the two long, large land wars we've been in.

 

So, yes, that force strength comes down.  It was planned to come down.  But we've been honest, if, for example, sequestration continues into fiscal year 2016, which by law right now it is going to happen, unless the Congress changes that. Then we'll have to go down on force strength in the Army even lower.  This will affect the National Guard and the Reserves.

 

Now, people ask a question, which is a legitimate question.  Well, why are you taking it out of end strength?  Why don't you just have a couple of less airplanes or a couple less submarines?  Well, we are having less airplanes.  We are being forced to cut total numbers.  We are being forced to do all the things that we need to do, whether that's overhead, more efficiencies, better contracting, auditing, all those things.

 

And we're doing all that.  But you remember I said in the preparation of the budget, one of the things that we used to focus us was balance.  And the balance of our Air Force, our Army, our Marines, our Navy is really critical here, because it has to comport each service with the mission of each service.

 

Now, we're joint.  We're integrated.  So you can't affect just one service, so when you cut end strength or cut planes or cut anything anywhere, whether it's a Navy or Air Force, Marine platform or end strength, it will affect all the other services.  Chairman Dempsey made this point yesterday when he and I addressed the press corps in Washington.

 

And I think there's some lack of understanding in different places about that, that you're not all just separate branches of the service and you're just separate and do your own thing.  In many ways, you are, but you're not.  It's a joint force.

 

So we had to look at end strength and everything based on all of those -- all those pieces.  We believe, and I wouldn't do it any other way, and I've said this, the president wouldn't recommend a budget that endangers our national security.  This is why the president in his budget next week, when he sends it to the Congress, is going to ask for $26 billion increase on trying to go back and get us, all of us out of the readiness hole we're in on operations and maintenance, on a number of platform commitments we have to make that we got behind in, because let's not forget, we started out, as a result of the Budget Control Act in 2011, with a 10-year reduction in the Defense Department of $487 billion.  That is thread into the fiber of every budget right now.

 

Additionally, last year, we took a $37 billion cut, abrupt.  Now, it started almost a year ago today.  It went into effect March 1st of last year.  Even with the budget agreement that the Congress and the president agreed to in December, this year, we're still going to take another $35 billion cut on top of the $487 billion 10-year cut.  Next year, we're going to take a $45 billion cut, and if sequestration goes back into 2016, which is the current law, then we'll be in the $52 billion range.

 

So those are the realities that we had to look at and assure that we could commit to the American people, as secretary of defense, that I could assure the president of the United States that all the options he believes he has on the table, in fact, not only are there, but they're operational and, in fact, we can fulfill those.

 

I would never, ever -- and the president feels the same way -- submit a budget to the Congress and the American people that we didn't think could carry out the security of this country.  I would never as secretary of defense.  No secretary of defense would ever put any of you in harm's way without the very best equipment, the training, the modernization, the readiness required.

 

We're dangerously close to cutting into that now.  That's why the $26 billion additional money is going to be requested, to try to get us back up to readiness.  I asked the pilot who showed me the F-22 about a half-hour ago, I said, how much has your readiness been cut last year, your flying time?  And he gave me the numbers on that.  You all know it, because you live it.  It's significant.

 

We can't get any closer down on that across the board, whether it's the Air Force or the Army or steaming time in the Navy.  And so this is a big time.  This is a defining time in our defense enterprise and how we go forward.  But we're going to protect what we have to protect.  We're going to protect our people.

 

Q:  Thank you, Mr. Secretary.

 

SEC. HAGEL:  Thank you.  Okay.  Hi.

 

Q:  Hi, good afternoon (off mic) 

 

SEC. HAGEL:  Could you move that mike down?  Because people won't hear you, Captain.  There you go.

 

Q:  Is that better?

 

SEC. HAGEL:  That's better. 

 

Q:  Captain Danielle Merritt, 633rd Air Base Wing, 633rd Medical Group.  Sir, today the Senate will be voting on the 2014 Comprehensive Veterans Health and Benefits and Military Retirement Pay Restoration Act, which mainly seeks timely funding for V.A. (Veterans Administration) mandatory accounts and addresses the repeal of the reduction in COLA (Cost-of-Living Adjustment) for military retirees.  Specifically, sir, what do you see happening with this act and the future of our retirement system?  Thank you.

 

SEC. HAGEL:  Well, Captain, thank you.  Where are you from?

 

Q:  Originally?

 

SEC. HAGEL:  Yes.

 

Q:  Kansas.

 

SEC. HAGEL:  Are you?  I could tell that bright look in your eye, you had to be from somewhere near Nebraska.  Where in Kansas?

 

Q:  Born and raised in Baxter Springs.

 

SEC. HAGEL:  Oh, that's a big place.  Baxter Springs.  Well, good.  Tell your parents hello and all your family.

 

Q:  (off mic)

 

SEC. HAGEL:  Thank you.  You all know of the -- what I just referred to a little earlier as the bipartisan budget agreement reached in December, or the -- the Murray-Ryan budget agreement.  In that contained a minus 1 percent COLA based on a number of issues.

 

That has been repealed.  And we didn't have anything to do with it, by the way, the Pentagon, or no one sought our advice on that.  We would have been opposed to it, if anybody would have asked about it.  But that's part of the larger debate on V.A. and other things.

 

Since I don't have anything to do with specifically responsibility-wise with the Veterans Administration, although we work very closely with General Shinseki, who is an old friend of mine, who, as you know, is the secretary of veterans affairs, we work very closely on our computer systems and, as I have often said, when there are some questions asked about our responsibility at DOD for veterans, my answer is, well, first, we produce the veterans.

 

So we have some responsibility to assure that there's a smooth transition when you leave the service, that your records get transferred and they're computerized and all the things that we -- we've done pretty well recently, but we've still got some work to do on this, and -- but we do have a responsibility on this, so we work very closely on this.

 

On their particular areas (off mic) but we support them in every way we can. I guess my time's up, Admiral Kirby, if I give a short answer -- I know you think I'm incapable of that -- but we'll do one quick question.  I'll give you a very quick answer, if you've got a quick question.

 

Yes?

 

Q:  Afternoon, sir.

 

SEC. HAGEL:  Hi.

 

Q:  27th Intelligence Squadron, 480th Intelligence, Surveillance, Reconnaissance Wing.  I am Tech. Sergeant (off mic) so I've got to read off my notes.

 

SEC. HAGEL:  Don't make it too long.

 

Q:  How hopeful are you that the Afghan and NATO U.S. representatives will agree upon a bilateral security agreement and SOFA (Status-of-Forces Agreement) before combat troops withdraw?  And what will the U.S. role be if the agreements aren't signed, sir?

 

SEC. HAGEL:  Where are you from?

 

Q:  Everywhere.  Southern California, Washington state.

 

SEC. HAGEL:  That's good enough.  Good.  Well, that's a good probably final question, because some of you may know the news here in the last two hours is President Obama spoke to President Karzai a couple hours ago about these very issues.  As I noted, I'm on my way to Brussels here tonight for a NATO meeting for two days on -- Afghanistan will be a big part of that.

 

Very quick on your question.  The president's conversation with President Karzai focused on, we don't have a BSA (bilateral security agreement).  You mentioned it.  We need a BSA.  Can't make any commitments until we have a bilateral security agreement that protects our troops.  We can't.  We won't.  The president's made that very clear.

 

What would be a mission for the United States and our NATO and ISAF partners post-2014, we're -- as the president said -- planning for different contingencies, including no mission in Afghanistan after 2014, unless there is a bilateral security agreement signed by a committed government in enough time to give our commanders the options and the planning they need to develop and implement a successful 2014 strategy in Afghanistan, along with our partners.

 

I mean, are almost 50 other nations that are in and have been in Afghanistan, most, not all, but most of our NATO partners and then, of course, other non-NATO partners.  They need a status-of-forces agreement to protect their people if they stayed.  And that would not just be a NATO status-of-forces agreement, but the non-NATO nations would have to be protected some way.  

 

So the president was very clear on this with President Karzai.  We'll talk about this in Brussels here the next two days.  So I'll end it there, because that's where we are.  We are looking at every contingency.  We are planning for that.  We are assuring the president that his request of me, of General Dempsey, to give him contingency plans and tell our commanders to start planning for different contingencies.  That's what we are doing, and that's what we'll continue to do.

 

Thank you.  Now, we're going to take photographs?  If you guys want your pictures taken.  As they are setting up, let me again thank you all for what you're doing and, again, tell you how much we appreciate it and how much we appreciate your families.  We know how much your families sacrifice, and this is a country that does appreciate your service.  Thank you very much.  (Applause.)