Defense Department Briefing by Under Secretary of Defense McCord and Lt. Gen. Ramsay on the President's Fiscal Year 2016 Defense Budget Proposal

UNDER SECRETARY OF DEFNSE MIKE MCCORD:  Okay, thank you.

Good afternoon.  I have to begin by sending out greetings to the people of my wife's hometown of Punxsutawney, and thank them for letting us share Groundhog Day with them for the first time in 11 years, that those two days have coincided with the budget rollout.

In that spirit, I'm going to predict that at least more -- six more weeks of budget season.  Possibly more.

Second, I just want to say to Seahawks fans, sorry for your loss, but at least it was an interesting game for once.

So, General Ramsay and I are here to address an equally compelling topic, the Department of Defense budget request for FY 2016.

 I understand that the press release has been posted, that a number of documents have been posted on our website that are available to you -- and to -- and to others to -- to read that will have more details than we have time or I have capability to address in the session that we have here today.

 But let me start off by saying that I think there's a couple of themes that strike me about our budget request and the process we went through this year.  First is consistency.  As I think you've already heard touched on a little bit, we have the same strategy that was enunciated back in 2012, and reaffirmed in the QDR, so the same ends that we are trying to achieve.  We have basically the same force structure endpoints, that is end strength, number of ships, major denominators like that -- that.

The same end-states that we have been seeking for a couple years are still the goals of this plan and this budget.  For example, 304 ships in the Navy, 450,000 active-duty Army end strength.  The same endpoints that we've had are still with us. 

We also have basically the same -- the same budget profile.  Those of you who follow, and I know not everybody focuses on the out-year of a budget as much as people do inside the building, but if you look at last year's plan of where we said we would be in 2016, we're basically at that same place.
 

Excuse me.

We also have the same profile really, writ large, over the next five years, as we had been projecting last year.  We also have many of the same proposals for reforms that we believe are needed to the program through the budget, to the structure of this department, whether it's compensation, base closure-- so there's a lot of similarity, consistency of the things that we have been saying we needed to get to, the things we needed to do, where we wanted to go, that are still the same in this -- in this budget.

Second, I think that there is a real theme of balance in our deliberations all fall with the military and civilian leadership, and also in the final product in terms of trying to address today's needs in terms of readiness, which was discussed by the chairman and the vice chairman and the deputy, as well as tomorrow's needs, such as modernization for future challenges.

And then finally, I will say that I think that probably what will be a big theme this year as people discuss this budget on Capitol Hill and other places, will be the increase that was alluded to in a question already over the level we've had the last three years, you know, why is that necessary?  I think that we have that as our challenge to explain that, of course, and make the case for that.  I think that we have a good story on that and we'll get to that in just -- in just a minute.

The budget that we're asking for is taking us back to a level that we had earlier in the first several years of this administration when I was here as the deputy comptroller.  This is the level that we're proposing for FY '16 is the level that we had in FY '12, and FY '11 and FY '10.  We had a trough since then that was imposed on us by -- by the Budget Control Act, both the sequester, including the, you know, the mechanical sequester that hit us in 2013 as well as the flattened spending that was imposed by the two-year deal known as the Murray-Ryan deal.

 As the deputy said, that was not the worst outcome that we could've had, and so it did indeed give us some stability, but it was never the department's position that being down at that level for an extended period of time was our proposal, was acceptable to us, so I think that this budget is consistent with where we have been on that position all along.  We have -- we have a trough really, as the deputy was alluding to, driven by those reductions that we now have to dig out of.

If I could get the next slide.

The -- the strategy, as you've heard, is basically the same strategy that was described and affirmed in both 2012 and in the QDR in terms of major elements like the Asia-Pacific rebalance.

So, we are very consistent with what we have been trying to achieve.  Following that, the next chart kind of just shows you over time our budget request, both the base, on the bottom, the base budget, and the war funding, the OCO budget on the top.  You've already heard the numbers, I think, and they're on your chart, so I won't take your time to read them out to you.

I want to take a little time with -- with the next chart that shows some of the funding lines over the last couple years.

The line on the top, the FY '13 budget, was the budget that we submitted and developed after the Budget Control Act was agreed to.  This was a number you've heard probably many times out of this department since then, the $487 billion out of our 10 year plan, from FY '12 to '21, that's represented by that top line.  Had the super committee not failed to reach an agreement, that's where we think we -- that's where we would have been, that's where we think we should've been.

The following year, we submitted a budget that was a little bit less over the next 10 years.  That's the -- the blue line -- the FY '14 budget line.  That was submitted right about the time, or shortly before the sequester actually happened. 

Then in the -- in the ensuing spring and fall when Secretary Hagel got here, he directed a Strategic Choices and Management Review, referred to inside the building by the acronym SCMR, which is on that chart.  And we really explored a broad range all the way down to sequester levels, but focused in particular on an area that's sketched out in gray on this chart.  Which was the level that we thought we could sustain this strategy fully, or -- or getting down to where we thought we really would not be able to do it without major changes -- a level that was referred to somewhat colloquially as "bend the strategy."

 And so that range is described in gray.  Sequester took us well below that range.  The -- the two year budget deal -- the Bipartisan Budget Act -- kept us flat at that level, as he's described, for a three-year -- three-year trough, which was pretty far below where we thought we needed to be.  This budget takes us back up to pretty -- pretty much to the edge of that range.  And you can see within our five-year plan following this, continues along that -- the end of that range -- the lower end of that range.

 So, again, we have been, I think, fairly consistent.  The SCMR was -- was almost two years ago now that we sketched out a range.  We're coming -- bringing a budget that takes us up to the range that we said then and believe now is the range we need to be in, and taking us back, as I said, to a level of funding that we had several years ago.  Not to some extravagant level, you know, that we -- that is unprecedented in our history.

So, I  think, again, that we have a profile that is both defensible and consistent with we've been saying.

The next slide just gives you, again, some of the basic facts about where the money is by military department and by the major areas of expenditure in the budget -- our personnel, our operating costs, our investment costs.  Basically, what you'll see on this chart, if you look at the increase from last year to this year -- what is it that you're getting when our budget increases?  About 40 percent of it is on the operating side, and about 60 percent is on the investing in the future side.

The personnel costs go up only slightly, but it should be noted that the size of the force actually decreases somewhat.  So, this kind of speaks to the point that we are trying to control the growth of compensation costs.  We're not cutting people's compensation.  And even when the size of the force is stable or slightly declining, our personnel costs are still rising.  Although, again, most of the investment, we're trying to put into readiness, and then also investing in the future.

The next slide describes some of the resource tradeoffs and some of the constraints that we have.  The deputy has alluded in a couple forums to some of the issues that happened last year, just in the time from when we submitted a budget a year ago to today.  Russian aggression in Eastern Europe, the rise of ISIL, the Ebola mission that the department was sent to --to help out on.

We know that the department -- the nation expects us to have a ready, capable, flexible force to respond to unforeseen events like that.  And, you know, our troops do everything that we've asked of them.  But we have to -- we feel we have to have a higher budget to address those challenges, to keep the force ready to respond to unforeseen events like that, to dig out of the readiness hole that we're in, to look toward the future on some of the issues that are here.

 I think the deputy has also alluded to the fact that the planning that went on really assumed that we would have some ability, as we saw, to implement the president's policies to withdraw -- to draw down the forces in Afghanistan.  That those forces would be able to come home, get some time with their families, reset, train.  And the pace of world operations has hampered that.  So, that's one of the challenges described on this chart that require us, we believe, to -- to step up our game and make a challenge for us to try and do what we have been doing at the funding levels we've been at, if you want us to continue to have that quality force in the future.

 As I said in my introduction briefly, the -- the force structure -- the size of the military, that is -- that we -- that we believe we need to support is roughly the same as what we have been saying in terms of end strength, in terms of the size of the nuclear triad, in terms of major operational units like the number of ships, the number of tactical fighter wings.  So, shouldn't be any surprises here to those of you, like those in this room, who follow these issues closely.

We have, as I think was described earlier, slowed some of the ramps on end strength to allow people a little more time and breathing space to get to the same end points, but the end points aren't moving.  Last year's budget I know had some confusion about the Army.  I can address that later, but we have straightened that out in this year's budget request.

We also have some of the same proposals to the extent that they -- some of which were agreed in whole, some of which were agreed in part, some of which were not agreed to at all last year.  There was a mixed bag, and this is just trying to mention a few.  The Army aviation restructure and the Air Force A-10 probably got the most headlines, I think, of anything last year.  Base closure I think is an issue everyone knows, though I'm happy to talk -- speak to that.

Compensation is a good example where some -- some proposals were agreed to, some were agreed to in part, and some were not agreed to at all.  So, this is -- probably doesn't do justice to the complexity of all these issues just to list some of the topics on a slide.  But, again, to the extent that things were not agreed to, in general, the department believes that the proposals we made were the correct proposals, were necessary proposals, and is coming back to submit those again.

There are also things where we have moderated based on real world changes.  In particular, the demand for ISR continues high, especially once we started to deploying to -- to the Inherent Resolve mission in Iraq and Syria.  So, we have moderated the phase out of the U-2 from last year by three years from 2016 to 2019.  So, there are changes that we've made, as well, but many of the things we think fundamentally are -- were the right proposals and we're sticking with them.

The next slide lists some of the major modernization programs.  And I know that you probably have had a chance just to quickly look at these.  So, I'm not going to again read you these numbers.  And there are many more details in the documents the department is posting today on our budget at the line-item level.

I would say that the -- just to pick out one, the carrier overhaul is an example of something that last year, when our budget was down at a $496 billion level, we said we just can't afford to do this.

At the higher level that we're requesting now, we feel that we can afford to maintain 11 carriers.  But again, that's continent on being up at this higher level.  This is -- you know, if we had to come down, I am confident that our position would be, again, that we couldn't afford to stay up at 11 carriers if we have to persist at the $496 billion level going forward.  But that's an example of something that we -- makes a difference.  And there'll be many examples, I think, that will need to be discussed throughout the year.  What is it that you can afford to do at this higher level we're proposing that is not affordable at the level that we've been at?

These are not, of course, all of the -- all of the notable items.  And we're going to be followed today by the Army, Navy, Air Force.  I believe the Missile Defense Agency.

Just to take an example of something that's not on this slide, I think there's -- there's probably a good news story on some of the vehicle modernizations -- something that doesn't maybe get as much attention, but the so-called (inaudible) the JLTV -- some of these programs have a pretty healthy increase over last year's level.  So, many more things that you can -- that you can delve into as we go through all the parts the departments roll out today.

In addition, I think the deputy alluded to the fact that we have a good back and forth inside the administration over the fall of some issues that were important to all of us.  Many of you probably are quite familiar with, for example, the Nuclear Enterprise Review, which is not necessarily only or even primarily about money.  I would say there was over 100 recommendations in that review and maybe 20 percent of them involved money.  So, this is an example -- and I'll touch on this just a little later, as well -- of things that are -- you know, things that are priorities of the secretary, priorities of the department are not necessarily the biggest budget things in all cases.

Space is something that's, you know, significant -- funding, as well -- is a significant new concern going forward.  And this is not just about '16 in the case of space, but also the future years, as well.  We have -- space and, I think, power projection are really areas where we're -- when we talk about modernization and needing to address the future and looking at eroding technological superiority -- these are primarily the type of areas we're talking about where we are investing.  And we will -- we can talk later about some of the particular munitions.  Some of these areas are classified, and we can't talk about them in exquisite detail.  But -- but there's also things we can talk about.

On the next slide, the innovation area is something that is important to the deputy.  I think he has already spoken to this, and will continue to do so.  Under Secretary Kendall, as well.  I don't know that I could really do this justice compared to -- compared to the deputy, who's leading our efforts here.  But we're trying to give you a flavor on this slide of some of the innovation efforts, which, again, are not only about money, but are also about a way of thinking and approaching problems where he's trying to -- to move the department forward.

Some of the particular programs listed here -- I think probably, you're familiar with, in particular, the rail gun effort is probably the most well known of the things on this slide.  Undersecretary Kendall also feels very strongly about Aerospace Innovation Initiative, which I believe he testified on to some extent last week in front of the House.

When we get to readiness here, I'm going to ask General Ramsay to talk a little bit about the -- the near-term side of what I described as budget addresses both near-term readiness, as well as longer-term readiness and modernization.

LT. GEN. MARK RAMSAY:  Thanks.

Well, good afternoon.  I've got two slides on readiness I want to touch over.  And then as Mr. McCord already laid out, the three services and Missile Defense Agency will follow and give you more deep dive on readiness.

As I go through these two slides, I just want to point out that the first bullet under each of the areas is really kind of a look in the rear-view mirror, if you will, of the last couple of years about how we've survived the Bipartisan Budget Act and what the services have been able to do to get back towards a more full-spectrum readiness posture.  And then the second bullet under each section really is what the -- what this fiscal year president's budget 2016 does in the area of readiness.

We have spent an awful lot of time in the readiness area in the last -- at least the last three budget cycles since I've been in this job.  What has really become obvious over those three years is obviously readiness is a very difficult, a very complex area to understand because it has a lot of moving parts, but one of the things we were able to do at the PB-16 level is we literally have put about as much resources as we can into readiness to try to get back to full spectrum recovery. 

All the services at the PB-16 budget level, all things being equal -- so operations tempo being about what it is today and no other strategic surprises in the world -- is on track for about 2020.  The Air Force, since we're biasing a little bit towards capability over capacity readiness in the near term, taking a little bit of near-term risk as Admiral Winnefeld teed up, they're more on track for about 2023. 

Obviously, the events of the last year caused us to go back and re-look at this.  We had some, I wouldn't call them surprises out there, but in the -- every single year in the world, there are events that unfold that we had not planned to do because it's impossible to plan to do them, but some of the readiness things that really came to the fore this year were there's lots of things that affected us.  It's not just about throwing money at the problem. 

So forces have to have the time to reset.  For example, on the Army, it is to get back to full spectrum readiness.  After 13 years of counterinsurgency, their heavy forces, their combat forces need two rotations through the National Training Center to really achieve that level of readiness.  That alone takes money and that alone takes time. 

There are other forces, Air Force forces, some Army forces, for example, that have not come home as we had thought because they've been ordered to do other things in the world.  For example, the counter ISIS, counter ISIL campaign is really eating up a lot of combat air forces in the Navy and the Air Force, and the ISR that we thought was going to come out of Afghanistan and come home has gone to that region of the world.  So we're moving things around and we're responding to what the nation calls upon us to do. 

So each story has a little bit of a different readiness challenge.  The land -- the Army and the Air Force are primarily garrisoned back home station with some forward-deployed forces.  They're trying to get their rotation rate set, but again, ops tempo is denying us in some cases the time for the forces to do that. 

The challenge for the Department of the Navy and the Marine Corps and the Navy forces themselves really are two big challenges.  One of those is being able to reset their aviation arm, especially the older model F-18s, so all the services, to some degree, have got a depot backlog we're working through.  That depot backlog is a longstanding issue; we knew it was coming.  It's been built up with 13 years of continuous combat, the nation's longest war, as well as the hole we dug with sequestration in 2013 -- well, that was really dug upon us, if you will. 

So the Navy has a backlog of ships to get through their shipyards and we're working the alpha through delta model F-18s through the backlog as well. 

If you go to the next slide, just touch very briefly on Special Operations Command.  They are sort of rebalancing geographically, they're filling out their theater special operations commands and the geographic combatant commands.  They have largely been, I wouldn't say untouched by readiness -- they have their challenge as well -- but they're sort of resetting their force again for being largely in Afghanistan to being that global distributed counterterrorism force, and that's going to take time to reset them as well. 

If I can go onto the next slide please, I've got two slides to just briefly touch upon for compensation.  This is another area that the department has spent a great deal of time on the last several years.  Just to tee up on this slide -- and I'm not going to read it -- there's guiding principles that we used that if you go look at what the president told the commission that reported out earlier the military compensation and retirement modernization commission largely followed the same principles, and we- just to -- just to make sure you all understand this -- this budget submission does not reflect the commission's recommendations. 

They were an independent blue ribbon commission, they used department data to make sure that their recommendations used the correct starting set, but in terms of their recommendations, they were done independent of the department.  And we now embarked upon looking at those recommendations, but our submission does not include their recommendations.  

If can go to the next slide.  If you recall, the president's budget last year had a package of pay and compensation recommendations that we felt were necessary -- and I want to hit this point very hard -- to help us balance the capacity of the force, the capability of force and the readiness of the force.  The dollars we saved in pay and compensation last year and this year went back to the services to help balance out readiness and capability and maintain that capacity.

To get to kind of the meat and bones of this whole thing, I just want you all to recall that in the QDR report from last year, Admiral Winnefeld talked about the force planning construct, but there are three pages, starting at page 39, that detail the capacity of the force.  When we set the floor, how big the force is going to be, we have to go back and look at how that force is compensated, because the military personnel and the department are the strength of this nation, and the military.  We all are about our people.  But we consume, us uniform personnel, about 36 percent of the budget.

So, we've looked under every rock.  We've flipped everything over, and looked at our pay and compensation path.  And we have been on a path that we felt we had to slow the rate of growth of pay and compensation.  So we are largely, to the slide, submitting the same package we did last year with a few minor adjustments. 

We found a -- I'll say a locale disparity in our computation for how we do TRICARE.  There was a -- there were certain locales where we're going to force active duty family members to pay a copayment.  That has been eliminated.  We are asking this year for a 1.3 percent military pay raise, and the president will ask for a 1.3 percent civil servant pay raise.  So, the pay raises are matched.

On the commissary benefit, our changes this year are going to be all about operating the commissary more like a business.  They're going to take some efficiency overhead reductions.  We're looking for some flexibility, so some legal changes to allow the pricing structure to be changed a little bit, some of the -- the way that the food products were transported to the commissaries, and we're looking at flexibility on how the member surcharge that we pay, the five percent that users of the commissary pay, how that surcharge can be spent.

And then lastly, we are going to ask Congress to approve the same TRICARE for life modest fee as last year and the same pharmacy changes as last year.

MR. MCCORD:  Okay.  Thanks Mark.

Let me just turn to the -- to the next slide about institutional reform, and I'm not going to read any of this to you, just to make the point that even to the CFO of an organization, not everything's about money, and we do not just ask for money every time we have a challenge to address.  I just wanted to take a second in our rollout briefing here to recognize some of the efforts, one or two of which are mine, but are across the department to -- to manage this -- this institution better and to take -- take care of our people.

Probably the most notable here is Sexual Assault Prevention and Response, again, a very important effort to the White House, to the Congress, as well as to the department.  Secretary Hagel's initiative on reorganizing the missing personnel organization, I think, was just announced Friday, I believe.

About a month ago, Frank Kendall signed out a new DOD 5000.02, so a lot of efforts on -- across the department to manage this institution as well as we can, and again -- not -- all these, you know, everything has some relations to the budget.  These are not primarily budget-driven things.  Just wanted to give some context of what the senior leadership is spending its time on as well.

If I could just take a second now to discuss the -- the war funding, the OCO budget.  As the deputy mentioned, $51 billion, it's now a reduction of about -- over two-thirds from the level that was prevailing as the start of this administration, reflecting the draw-down from Iraq and Afghanistan, even with the -- the counter-ISIL mission that's still reduction to about the $51 billion level compared to $64 billion last year in the 80s.  A couple years before that, over 100 for many years prior -- prior to that.

The broad contours are of course familiar to people, I think, and I just want to mention that four areas -- there were four new things that we asked last year over the course of really starting from the president's speech at West Point in May and then progressing on to -- throughout the fall, a new Counter-Terrorism Partnerships Fund, a new European Reassurance Initiative, and then training and equipping the Iraqi army and a new proposal to train and equip the moderate Syrian opposition.  So, all of these were new in one respect or another last year.

All of them were a bit of a challenge, you know, working with Congress to get them to agree to things that were new and different, which is -- which is always, just you know, just harder for people than things that are the same, year to year.

We got a varying degree of support.  We got pretty much full support on the European Reassurance Initiative last year.  Less support probably one third of what we asked for, on the Counter-Terrorism Partnership Fund and more restrictions than we had sought.  All of these things, though, were agreed to in some form or another last year.  All of them are contained in our budget again this year.

We'll just mention the European Reassurance Initiative is conceptually a unified whole, but you'll find it in the budget spread out in different places, which is the way that Congress gave it to us last year.

So respecting how they -- how they changed the proposal last year, we've asked for it in a more distributed fashion, but we've brought it together for purposes of display and explanation here on this slide.

Again, as the deputy said, any -- any -- the process and the rules we have -- we developed these rules.  It was something I spent a lot of time on my first couple of years here in 2009 and 2010, with the Office of Management and Budget, on what was and was not OCO funding.  We've followed those rules since.  There's nothing new here other than these four new proposals to address particular situations that I described.  And any plans to change that will require additional relief on the base budget top line.

 I think that follows -- followed by a pie chart that maybe describes some of the same thing.  And so on our summary slide, and I will get to your questions, I just wanted to say that we think that we have, as the vice chairman has indicated, the Joint Chiefs agree, a good budget that makes the right choices for national security. 

We would be happy to talk later on in the year if need be about what there might be alternatives to that, but -- but we believe the Congress should accept and should, you know, look strongly on -- on our -- with support on our proposal to fund this level above what is allowed by the Budget Control Act.

As you know, the president has been consistent ever since the Budget Control Act was signed in not conceding that sequester was the right answer for defense spending, for non-defense spending, or for the country; has consistently proposed budgets that were what we felt was needed to address the national security threats, and this budget is no different in that respect.

Q:  I want to follow up on the OCO -- the overseas contingency operations.  There were two briefers -- (inaudible) -- about this, but there isn't -- considering that there's only supposed to be about 5,000 U.S. troops in Afghanistan, there's still an awful lot of money associated with those operations.  As that one pie chart said, over $40 billion for Afghanistan other missions.

To what degree is that money directly related to operations in Afghanistan?  And to what degree is, for instance, there's $16 billion for other theater operations like in the Gulf and places like this.  Is this the true cost of the war?  Or are you folding in other costs as well?

 MR. MCCORD:  Well, as I said, we followed the same -- the same rules the whole time that we've been here.  And so this is no deviation from that.  It includes costs that are both directly occurring on the ground in-country, as well as costs -- support structure in the theater, and that ranges from, you know, forces in Bahrain to Al Adeed in Kuwait, as has been the case for many years.

Q:  But those are big bases that are presumably going to stay around for a while.  So, I mean, after next year, the number -- right now, the number of troops is supposed to go down to nothing.  But we're still going to see overseas contingency operation through at least 2020 and that's if sequester is lifted?

MR. MCCORD:  If sequester is lifted, and what you'll see in the budget documents released by the Office of Management and Budget, which I haven't had a chance to review this morning myself, is -- is a proposal that we work together in the executive branch and work with Congress to move some of those costs for what takes place in the Central Command region, to the base budget, should circumstances allow us to do so.

The department is not -- is not able to absorb those costs within a fixed topline, however.

Q:  I guess -- (inaudible) -- the question is if the war ends, why can't that be done quicker -- the transition to the regular -- (inaudible)?

MR. MCCORD:  Well, it can be done as quickly as -- as a larger budget negotiation allows.  But again, if -- if sequestration is not lifted, it is, in our view, not doable to shovel those costs back in the base budget without a transition.

 LT. GEN. RAMSAY:  To go back to your basic point, too, just realize that what we're doing in Afghanistan, the drawdown, you're talking about the boots on the ground, is not a linear drawdown for dollars.  So, for example, some of the things we're providing to the troops that are left there for obvious reasons is ISR.  We have not brought down the number of ISR orbits commensurate with the number of troops.  Because even though our troops are inside the wire doing train, advise and assist, and helping them build their force, we're still out there trying to make sure that those troops inside the garrison are safe.  So it's not -- there's no linear, direct -- (inaudible).

Q:  Yes.  Sydney Freedburg, Breaking Defense.

You've mentioned -- the deputy secretary has mentioned the importance of innovation.  There is this defense innovation initiative.  Not everything is about money, but is there a figure for that?  It's presumably tucked in various places, but is there a way to get a big picture of this, which clearly is a very high priority to keep our tech edge?

MR. MCCORD:  Well, as you know, we have -- we have more blunt instrument-type figures, if you will, on how much we spend on research and development, or the tech base or the S&T parts of research and development.  We have not, to my knowledge, attempted to put a figure just on what we call innovation because, you know, one man's innovation might be another man's more incremental change.

So, I mean, we -- we'll get back to you for the record if there's a number that we want to put on that, but it was more of a -- you know, the deputy describes it as a particular set of issues that he works on that, but I don't think that we necessarily have a dollar figure that we want to put it and say only these things are innovation.

Q:  Is there a delta that's created by that program that we have already seen?  Or is that still too early?

MR. MCCORD:  We'll have to get back to you on that.

Q:  Thank you.

A couple of questions.  Will there be -- will the services submit an unfunded priority to Congress this year, as far as you know, number one?  And number two, on the compensation reform question, is there anything in the budget that will sort be out of sync with the compensation reforms that have been proposed by the commission, as far as you know -- (inaudible)?

MR. MCCORD:  Well, let me answer the second one first.  As you know, we -- the Compensation Commission works independently of us.  And they respected that and we respected that.  So, we've had about as long to read it as you have, since last Thursday I think it was that it -- that it was briefed, and they held their press conference.

I think there are some areas that are, you know, areas that they addressed and we did not, and there's areas that we addressed that they did not.  And there's a couple of areas -- commissary and health care I think would be the primary ones -- where we have independently then addressed the same thing.

We have -- we -- the department owe the president our views and analysis, and then he in turn owes a recommendation or an opinion on these recommendations to the Congress, I believe, in 60 days.  So, you're not going to see a lot of comment from probably the department's leadership prior to that, until we've had a chance to do some analysis, and then make a recommendation to the president and then work with him on what the administration position on these will be.

I think there are certainly going to be some differences, but how -- what position we're going to take on areas where they've made a different proposal than us or addressed something that we haven't addressed is -- is premature for us to say today.

I believe your first question was on an unfunded list.  I would assume that the chiefs would probably continue past practice, but for me at least on the day we're releasing the budget, it's -- it's too early to comment about what people don't like about it already.

Q:  Sir, Amy Butler, Aviation Week.

There's been a lot of change in the launch market since the last budget went in.  And I'm curious, there were two launches earmarked in your booklet that are going to put up for competition.  What are those launches? 

And can you give us an idea of when you do your planning in the future years, how much are you able to save by including new entrants over what you would have estimated had you only had one provider?

MR. MCCORD:  Okay.  I'm going to ask the Air Force who is coming up later today to give you more precise information than I would be able to on launches.

Q:  Okay. 

Do you have anything?

LT. GEN. RAMSAY:  I would like -- I'd be guessing.  You said there's two launches? 

Q:  (inaudible)

LT. GEN. RAMSAY:  (inaudible) -- and (inaudible).

(CROSSTALK)

Q:  Thank you.

Mr. Secretary, do you have an estimate of the efficiencies or the reforms, how much money that's worth?  And is that baked into the budget?  Or is that something that you would incorporate in the budget once Congress approves the efficiencies?

MR. MCCORD:  Okay.  Let me -- I think there's three parts to the answer to that.  First, there are -- have been efficiencies in just about every budget that I've been here, this being the sixth.  Especially starting with FY '12 when Secretary Gates was here, efficiencies that had numerical targets attached to them by year and where the money was taken out by the comptroller organization up front.

And so in FY '16, the year -- the budget we're submitting now, there's about $78 billion of either efficiencies or harvesting or making -- making tough choices and spending less on -- on things that were deemed to be lower priority.  So, that could be, you know, maybe recapping our facilities at a slower rate, for example.  So, efficiencies is a word that sometimes gets used a little loosely to describe both getting the same out for less money, as well as just doing without something because it's a lower priority and you don't have the funding.

 But using that broader definition, the FY '16 budget has from four previous rounds -- FY '12, '13, '14 and '15 -- about $78 billion already baked into it, to use your phrase. 

Second, I described on one of the slides a number of institutional reform efforts that are trying to make this place run better, whether it's for sexual assault prevention and response, reorganizing the Missing Persons Office, a number of things like that that are not tied to a dollar target, per se. 

Third, on the slide that we had on institutional reform, it made just a very brief reference and possibly a cryptic one to an effort the deputy secretary is undertaking with the Defense Business Board to look at some fundamental cross-cutting areas of our enterprise like human resources management, financial management, the supply chain. 

Those efforts are still in development and there is not a dollar target baked into or taken out of or assumed in this budget for those efforts.  The Deputy and his leadership are moving toward trying to have that ready for the FY 17 budget.

Q:  What about the BRAC and the compensation reforms A-10, is that baked into the budget? 

MR. MCCORD:  Right.  I wasn't characterizing those in my answer as sufficiencies, as opposed to policy proposals.  But yes, those type of things are baked into the budget, because they -- right, those are things that we routinely cost -- that, you know, put a price tag on doing them or not doing them, how they're phased, how many people they apply to, et cetera.  So those things, as in the past, as in last year's budget, have dollar assumptions on a cost-per-savings built into the budget and spread throughout the department's accounts.

Q:  Thank you.  On BRAC, is there a current estimate of how much excess base infrastructure there is?  And do you anticipate Congress will accept another round of BRAC? 

MR. MCCORD:  Well, the estimate on the excess capacity, you've probably heard figures used in the low 20 percents.  And there's a little bit of a catch-22 there, in that we have been sort of enjoying from doing really detailed updated of that, which is basically when you start a BRAC round.  So the figure is a few years old, because we're constrained from doing really the kind of work you would really do to get a more precise number.

Do I think that Congress will ultimately agree to BRAC?  I do.  In my previous life, I worked on Capitol Hill for many years and I spent five years working with Senator McCain's staff, for example, at the time, to get authority for what turned into the 2005 BRAC round.  We started back in 1997.  So it took -- it doesn't necessarily happen overnight.  And in this case, it certainly has not.  But I think the case is still compelling. 

I would believe that any person running a business in this company, large or small, would say that every 10 to 12 years, if you had a large organization as this one, there'd be time to look at your physical footprint and see if it still is relevant to your needs.  And so, it's now been 10 years in 2015, since the last round. 

We're asking for a round at 2017, 12 years since it will have passed since the last round.  And this is just a number of things I think that the Department has proposed, whether it's on the A-10, looking at maybe something that's an older, not as broad -- you know, not single mission asset. 

So whether it's trying to right-size our footprint or control compensation costs or, for that matter, prioritize force structure, I think these are the type of things you would expect an organization that's trying to stay competitive in a dynamic world to do. 

We've had more of a challenge with our board, getting these things agreed to than, I think, probably most organizations do.  But I think that you'll see in this budget that we continue to propose things that we think are the right and the rational way to respond to a changing world and redirect resources to higher priorities. 

LT. GEN. RAMSAY:  I'd also like to point out that one of the things Congress has been telling us the last couple of years is to reduce your overseas infrastructure.  And we just announced the European infrastructure reductions in the last several months.  So we've done our piece of that and we're very comfortable with where that is. 

Q:  Otto Kreisher with Seapower magazine.  Two things, you had $1.5 million for Ohio replacement.  Is that funded separately from the Navy ship construction process?  It was -- you know, Congress agreed last year to create a separate fund, but there was no money in it.  So how are you funding that $1.5 billion? 

And the other one, you indicated that you were continuing the cruiser modernization program.  The Navy budget doesn't reflect that.  They continue -- they show 22 operational cruisers, you know on into the FYDP.  I'm a little confused on that program.  

MR. MCCORD:  Sure.  Let me -- let me answer the -- your two in order.  The Ohio replacement program is funded in the research account.  So it's -- we're still a couple of years out from actually buying the first ship, so that's still in the R&D account, as it traditionally has been. 

And then on the cruiser modernization, the -- again, we -- the Navy is proposing, as I understand it, to do what is consistent with the legislation last year with the restriction.  So it's less than everything they asked for last year, but still doing cruiser modernization.  And -- but again, the Navy is following later today and they probably explain in greater fidelity.

Q:  Transitioning the OCO into the base, you mentioned it was contingent upon repeal of sequestration.  Is that the only condition?  I mean, full repeal or would a short-term deal motivate you to craft that plan?

MR. MCCORD:  Well -- well.

Q:  (off mic)

MR. MCCORD:  I don't know how likely the full repeal is.

I mean, sequester has about six more years to live on the books, right?  FY'16 through '21.

The period of time we're talking about is almost to the end of that period anyway, so I -- in my mind, I -- I view them as -- as -- as a common timeframe we're talking full repeal.

Q:  (off mic) kind of set aside would be enough to make the plan --

MR. MCCORD:  Yeah, I can't -- I can't absolutely rule out what -- what OMB and DOD and the -- and the Congress might agree to if there was another short-term deal, which is certainly a possibility.

But what we had in mind so far -- and we're still a little bit early in discussion between ourselves and OMB on this -- is a longer-term -- something that really gave us confidence on a way ahead, which is something, as you know, that we -- that we've been lacking.

Q:  The budget documents talk and you guys mentioned in your brief investments in space writ large and protecting American assets in space.  The budget request for space seems to go down from 7.4 last year to 7.1 this year.

I wonder if you talk broadly about why that money is going down or -- and also, what sort of -- you're trying to do here to sort of protect space assets in this budget?

MR. MCCORD:  Thank you.

Yeah.  This is probably the first of many awkward answers you might get on this subject.

(LAUGHTER)

The vast majority of the efforts that we're undertaking in -- in this area are highly classified, and we're -- and we're going to struggle to explain them, I fear, other than to our committees behind closed doors, which we've already tried to start doing.

The -- I mean, I can say in general terms, we're looking at resilience.  We're looking at better situational awareness.  We're looking at securing both communicationsand

Mark, I don't know if there's other that you want to add here.

The -- the other thing I would -- I would also say is that the initiative we're describing is a multi-year thing, and the funding level for this year is actually relatively flat.  More of the investments are going to phase in over time.

As you know, many -- many space assets are developed almost one of a kind, and so it takes a little time to dothere's usually research involved in changing the space architecture.

Q:  And at the risk of another awkward answer, is this more to protect existing assets or more to improve protections for future assets?

LT. GEN. RAMSAY:  It's -- it's really both of -- it's a range of programs.

Q:  I noticed in your geopolitical challenge slide that you listed, quote, "Russian activities in Ukraine above the rise in ISIL."

Is that a prevailing view in this building that Russia's activities in Ukraine is more important than the rise of ISIL?

MR. MCCORD:  No, I would not say the slide was meant to convey a relative judgment just by the placement.

I think what -- what General Ramsey can probably speak to of this -- since he sees him even more often than I do -- where the chairman is, in particular, is that sort of taking on board what Russia's activities mean for the department going forward is something that is not -- is still a work in progress, and this budget is not meant to reflect the final answer on what changes in posture ultimately might be necessitated by -- by Russian activities.

The European Reassurance Initiative that we have this year tracks pretty closely to what we had last year in terms of particular keeping presence, mostly rotational presence in Europe and giving us additional time to -- to develop policies further.

LT. GEN. RAMSAY:  I would say theI mentioned the European infrastructure announcement made a couple of months ago.  All of that infrastructure was permanent infrastructure that was in the western part of Europe, the European Reassurance Initiative is really all about the eastern frontier of NATO.

 (CROSSTALK)

MR. MCCORD:  But we did look, and we did the European consolidation course.

We -- we -- we had done a lot of work on that, and then we cycled back through it again to -- to square it with where we needed to be given -- given Russian activity to make sure that we still were happy with all the proposals, and one or two were maybe taken off the table that otherwise might've been agreed.

Q:  Just a quick follow -- if there were to be an increase in lethal aid to the Ukrainian government, does that factor into your reassurance budget here?

MR. MCCORD:  Let -- let us respond to record on that.  I don't believe there is any, but let us -- let us get you a definite answer for the record.

Q:  Couple questions.

One on OCO.  $8 billion of the request is classified.  $5 billion is for non-DoD, other agencies.

Why so much?  That's like 16, 17 percent of the whole request.

MR. MCCORD:  I would say if you looked over time that that's -- that there's been -- there's been a healthy and heavy intelligence component to -- to OCO spending for years, and this -- this is no different.

Q:  Can you broadly give an awkward answer in terms of what some of the spending is on?

MR. MCCORD:  No.

(LAUGHTER)

Q:  Okay, on a second question, for a budget debt, there's warning of the dangers of sequestration rhetorically.  There's a dearth of detail in here in terms of what the specific impacts would be. 

At the services, to what extent have the services crafted detailed plan B sequestration level budgets for the joint staff or for you, and to what extent will those be public at some point so that you might be able to mobilize some public support to pressure Congress to roll back sequestration if they have a better handle on consequences than just saying it's going to be an unmanageable risk?

MR. MCCORD:  And I'll ask Mark to comment as well.  There's a couple parts to this. 

We did last year, as we did the year before, ask when we developed the budget to do some work on developing an alternate level.  Basically, the year before, we had a full five-year plan at a sequester level as well as the level we actually supported. 

And we just got a lot of complaints that we were crushing the workforce with multiple levels of detail while people were dealing with sequester in the real world and every other kind of a challenge financially, you know, getting our -- getting ready for audit. 

So this year we tried to be a little more streamlined and focused a little more on just '16, but -- as opposed to having a full alternate reality five-year plan for everything. 

So the budget we're submitting today is not about sequester, it's about what we think is the right answer for the nation.  I think there'll be a time and a place to talk about sequester as an alternative, but I don't think today is that day.  I mean, we are -- we need to make the case for what we think is right for the country and right for our national security. 

Senator McCain had a hearing, as you know, the other day, where people had a chance -- the chiefs already had a chance to talk about sequester to some degree. 

Last year, the department released a publication giving some examples of major moves, not every single line item of the thousands of line items in our budget, but major examples of what would be different under sequester, and I think that document will be forthcoming again this year. 

 It's not -- it's not a budget document per se.  It's not necessarily -- you know, the president has only approved one funding profile for the department and that's what we're here to explain. 

I think if and when there are, and I imagine this will come up in future hearings, there may even be hearings specifically devoted to sequestration beyond the one that was held last week.  It wouldn't surprise me.  And I think at that time hopefully we would have a chance to have, say  the chairman or the vice chairman accompany the chiefs, because I know the vice chairman in particular has expressed himself that a joint warfighting impact would be useful to append to what would be the specific impact on inputs, like how much would you buy, how many people would you have to cut. 

Mark? 

LT. GEN. RAMSAY:  I just -- it's probably worth going back and look at the April 2014 document we produced last year.  We're kind of doing a refresh on that now. 

(CROSSTALK)

Q:  Realistically, though, when might you come up with the refreshed document?  Otherwise, this is like an "Alice's in budget land" briefing in terms of disconnected from political reality. 

MR. MCCORD:  Well, I would take issue with that.  I mean, every year that we've had a budget since the Budget Control Act was signed, we have asked for something higher than sequester, and every year we have gotten something higher than sequester. 

So we have not gotten 100 percent of what we've asked for, but we believe that stating what we think we need has been useful and productive, and it's the right place to start. 

LT. GEN. RAMSAY:  Going back to -- just reiterate, the vice chairman said it's a strategy-driven, resource-informed submission.  This is what we need to defend the country. 

Q:  Can you talk a little bit about the air-space innovation initiative?  And, if there is a need for a new type of fighter, with area denial capabilities, of some projected adversaries, why continue to buy the F-35?

MR. MCCORD:  Okay, first of all, I would -- I would say the -- you know, UnderSecretary Kendall will be able to do this more justice than I.  I was not able to listen to his testimony last week to see exactly what detail he described this in, but -- and there are classified as well as unclassified elements to it. 

I would say, though, that we're talking about pretty far down the road, you know, not as an alternative to the Joint Strike Fighter, but as what follows the Joint Strike Fighter.  So I don't think that there's a conflict between buying JSF and looking at what type of manned or unmanned vehicles you might do way down the road. 

LT. GEN. RAMSAY:  I was -- I was Mr. Kendall's battle buddy at the hearing with the House Armed Services --

(CROSSTALK)

MR. MCCORD:  That's right.  So I guess you do know what he said.

LT. GEN. RAMSAY:  So it's beyond a fighter aircraft.  It really is.  It really is the future of air dominance, how to dominate in air combat.  So there's a whole host of things tucked underneath that that are all about driving and developing technology for 15 to 40-50 years down the road in the future.  And, if we don't do that today, we're not going to stay ahead of our potential adversaries. 

(off mic)

Q:  Okay. 

(off mic)

Q:  Thank you.  I have a question about the rebalance to Asia strategy and a challenge caused by an emerging China.  Can you tell us anything about in this budget that's supposed -- that strategy is a priority.

MR. MCCORD:  The rebalance to Asia-Pacific strategy? 

Q:  Yeah -- (inaudible).

MR. MCCORD:  Sure.  We don't -- we don't produce a budget exhibit, which may be why you ask, that specifically describes these items are part of that strategy and other items are not.

But let me just describe some of the major things that are --  have been consistent in our budget.  And I think we first I believe described this in our '13 budget, so this is something we've been pursuing for many years and been, just to hark back to my opening theme, pretty consistent on. 

So, shifting the assets we have from, say the naval assets, from being 50/50 Atlantic Pacific towards the 60/40, that continues.  Some of the major construction and modernization footprint moves that we've had anywhere -- anywhere in the world the last couple of years have been at Camp Humphreys and then the movement with the government of Japan that in concert from Okinawa to Guam, those continue.  And we certainly, as you know, have some progress to report on that front, and since Mr. Hale presented this budget last year with General Ramsay, in terms of landfill permit and other political progress, as well as environmental studies being completed. 

 Many of the assets that we described just during -- and I know we would very quickly through some of things that we're buying in this budget, the P-8 aircraft, two Virginia class submarines, some of the munitions, the long-range bomber, are all applicable, of course, worldwide, but particularly in the area of large distances like the Pacific. 

And, Mark, you may want to add one or two others? 

LT. GEN. RAMSAY:  I really -- I think Mr. McCord's hit the high points.  And, obviously, we've had a very robust diplomatic effort as well as our military engagement in the Western Pacific for several years now, and that's going to -- that's not going to be abated anytime soon. 

MR. MCCORD:  Right.

LT. GEN. RAMSAY:  We're going to remain very engaged and keep the rebalance on track. 

MR. MCCORD:  Yeah, that's  good point.  Right.  I neglected to mention the agreements with the Australians and the Philippines.