Department of Defense Press Briefing by Under Secretary of Defense McCord and Gen. Ierardi on the FY 2017 Defense Department Budget Request in the Pentagon Press Briefing Room

UNDERSECRETARY OF DEFENSE MICHAEL J. MCCORD:  Good afternoon.

First of all, I just want to say the deputy and the vice chairman have done a great job leading the internal effort, which stretches over many, many months.  It seems like forever, sometimes.  Since this is the last time I'll likely be doing this, I also just want to recognize the hard work that goes on all across this building in the department by so many people across -- in the services, in the combatant commands and OSD and OBM to get this budget done.

I especially just want to take a second to recognize the enormous contribution of two people, one my colleague, Jamie Morin, the director of cost analysis and program evaluation who leads a great team over there.

You know, I'll get to the second one in a second, I guess.  It wasn't until early November, as you know, that we got a budget deal that told us what top line we were actually going to get for the work we've been doing, starting back in late spring.  So, we were far along in our process by then in building this budget, and we really had to scramble the last six weeks or so to cut $17 billion -- and I'll explain that number -- in the last six weeks and it was only probably in the last ten days of our process that we knew what Congress had done to the '16 budget in the Omnibus Appropriations Bill.  So, a lot of information came late.

My staff, in particular, worked through the holidays to wrap this up, get it done on time and get a quality product.  So, I want to close just my introductory remarks by thanking –Ray Tonkin of my staff, who did the work of two people throughout this entire late-in-the-year process from November on.

We were missing and are still missing the top career budget official in the department.  He has been out for illness for an extended period of time.  We hope to get him back.  But in the meantime, Mary has done enormous work to do his job as well as her own, and I want to thank her for that.

If I could go to the first slide.  The deputy kind of covered -- first of all, there's sort of three things here.  One, there's the facts.  Just the numbers.  When's in the base, what's in the OCO, what's in the total budget.  I think the deputy touched on that, and you can read that, I hope.

Second, he talked at some degree of specificity about the secretary's guidance to us, and the idea that you have to fight and win across a range of challenges.  And that's, really, I think the important place to start is what problems are we trying to solve?  What problems does the secretary want us to solve?

So, for anyone who's listening, who didn't read the secretary's remarks from a week ago, I would encourage people to go to the defense.gov website and kind of start there, if you would, with his speech on the 2nd for what he's trying to do.  And a little more meat on the bones on the five challenges, which is what this budget is then trying to address.

And then finally, again, the deputy touched on this, just sort of a word on the future as we hand this off to the next administration, who will do the '18, the '19 budget and so on.

The sequester issue is still hanging around like a bad cold; it needs to be taken care of.  Our plans have been consistent, and we'll talk about that, across several years.  But our plans aren't going to work if we can't get the sequester problem solved and get back up to the level of resources that we need to keep this progress going.

And we think we're making progress in this budget.

I'm going to skim past the next slide, which kind of just shows you the history of the base budget and the OCO budget layered on top of it since 9/11.  We've done a slide like this before.  Because I want to move to the next slide after that, and drill down just a little bit on the three-year period that we have just been through or -- and are about to start.

So, what's important about the budget situation, the budget deal? A couple things.  From '16 to '17, the two bars on the right, we only got about $2.5 million more this year than last year, and that's under the terms of the budget deal, which was very flat from year to year in the base budget and was exactly flat in the OCO budget for those two years.  So, we're only up about $2.5 billion, sort of -- what I would call "kitchen table math," what did you have this year, compared to what did you have last year.

And if you do the math, the pay raises that we have in the budget basically consume about that amount of money.  So, taking that aside, we really had just a flat amount of money, once we got done with the compensation part, to work with.  So, that really speaks to the deputy's point about this being more about the shape of the budget than its size, because the size isn't growing.

But if you look back to the year before, one of the reasons that the secretary will say and has said that he was grateful for the budget deal is that it jumped us up a good $20, $25 billion from where we had been stuck in a rut for three straight years, down to the $495 billion level.  So, I would certainly much rather be in the 520 neighborhood than in the 490 neighborhood, and that's what this budget deal did for us.  It's also a better place, a better jumping-off point for trying to get the next jump up that we need in the future.

So again, when the secretary talks about being grateful for the deal, I think he's speaking primarily in terms of, it was compromise.  He had been calling all year for compromise.  Make a decision, get something done.  It wasn't everything we wanted, so, that's -- when he says grateful, he does not mean that he had to get everything he wanted to still think this was a good deal and was progress.

So, we got some stability, which is important to the troops, for our own planners, for our industry partners.

And so, in that sense, the deal was both a step up to much closer to where we think we need to be, and also, again, some near-term certainty, which was probably the best that we were going to expect under the circumstances.

If I could get the next slide, I just want to take you back for a second to where we were a year ago at this time.  You know, we were coming off of the second year of the Murray-Ryan deal, back to jump-ball, free-for-all land in terms of what was going to happen to the budget, not knowing what was going to happen, so we -- we were seeking -- you might remember last year's budget a huge jump after three years of being stuck down in the mid $490s for the base budget we were seeking to go up about $35 billion.  So a very large increase, that's what we were trying to accomplish last year.

Now, I'll flip to this year's picture of kind of where we are now.  So the budget deal came in, raised the caps for -- obviously for '16 and '17 in the -- in the bipartisan budget agreement from last November.  Didn't give us everything we wanted but jumped us up, you know, a good bit of the way.

So this year our top line is there's no drama there because it was set by the deal the President signed last November.  We're looking ahead a little bit to the future now.  We need to jump again just as we did from the '13-'14-'15 level to the higher '16-'17 level which is about -- which is about -- we need to make another jump in '18.

Two more things I want to just point out about this chart.  This I think has been the most consistent administration that I've ever seen in my 30-something years in terms of the -- the out year profile -- if you could look at the '15 budget which is on that chart, the '16 budget, the '17 budget, those lines are in purple, blue and green on this chart.  Very similar top lines.  What you used to see all the time was an -- every five year plan was slanted down lower and lower and lower than the previous five-year plan.

We -- we've stuck to our position pretty well in advocating for what we think we need, the size of force we think we need, the resources we think we need.

This chart also speaks to the point the deputy was making about the $100 billion, the caps in law have four more years, whether it's still in force if nothing changes from FY '18 through '21.  The difference between our position represented by those three lines and the red line below that is about $100 billion, so $25 billion a year or so, per year over the next four years is -- is what's at stake for us between the resources that we think we need and what we're going to get if the law's not changed.

Okay, if I could get the next slide.

So I'm going to pivot for a second from the numbers picture, the top line picture to secretary's priorities.  Again, the deputy talked about this and I don't think we need to say too much more here.

The thing that strikes me about what the secretary wants us to be doing is just the breadth I think of what we need to be addressing.  Our military, as the vice-chairman said, is the best in the world and probably nobody else would even contemplate being excellent in all these -- in all the things that the secretary wants us to be excellent at.

So you think about what he's asking us to do is to be able to fight and win today and far into the future.  To you think about the five challenges the deputy enumerated, that they span Europe, Middle East, Asia.  So the world's geography, time from now into the future as well as domains -- the typical air -- air, sea, land, as well as space and now cyberspace.  So just the breadth of what we're attempting to be excellent at I think is really something only our military could do.

Now, if I could go to the next slide, I'm going to do something that I wouldn't normally do in a budget brief which is to talk about what's not in the budget.  But I know this is of some interest to folks and we're going to have two slides on this.

Looking at the base budget which is the predominant part of our budget and, of course, the predominant part of the budget agreement, the caps were reduced about $22 billion below what we had planned for this year.  Now, a couple slides ago I was talking about what I called the kitchen table math, how much money did I have last year, how much money do I have this year.  This is different math.  This is what did we plan for in those lines that I just showed you that had been consistent year after year after year of what did we say we needed in FY '17. Compared to that plan, the budget deal cut us $22 billion.

As we've already discussed a little bit when the deputy was up here, the budget agreement for the first time had a specific number in there for so-called OCO or wartime spending.  When we built all our requirements, as we did from the ground up as we always do in the OCO budget, we came out to about $5 billion less than that.  So we had $5 billion of basically of relief, which was, as I think everybody who covers this know, directly intended by the budget agreement.  So that's not a surprise to anyone, I hope.  So that bought down $5 billion of that $22 billion.  So that leaves us with about $16.8 billion, $17 billion.

Over on the right-hand side of this chart, the first two things that we did, of course, is we applied the economics savings either assumptions that are given to us by OMB that apply to the whole government, which is the large part of the economic assumptions are of that nature.  And there's one or two that we -- that we develop ourselves, but largely they're administration-wide.

Everybody knows that we live in an era of low inflation and everybody can look at the pump and see what has happened to fuel prices.  And so as a consumer of fuel, a consumer of goods and services, we benefit from those things, too.

Those two things combined saved us about $5 billion compared to the pricing we had previously.  So that helped us a great deal, the first two things here, of being able to move some expenses to the OCO budget as laid out in the agreement, and to take advantage of favorable economic assumptions, solved about $10 billion of that problem for us.

Now, that still leaves us, you know, an $11 billion problem or so, which is about two percent of our top line, let's say.  We have some efficiencies which we'll talk about later that will grow over time in the first year that are only in the half-billion dollar range, so that kind of smallish red bar there.  And then the program changes that we had to actually go in and cut things out of our plan is the other -- the bulk of the $11 billion.

So, I'll flip -- well, we can flip to the next slide now.

So, what did we cut?  What's in that green bar of $11 billion?  Again, let me just take a second and talk about what's not in there and what you see -- what you don't see on this chart.  We didn't cut compensation.  There's no net reduction to the compensation portfolio even as we looked for $17 billion to save.  So, that portfolio, you know, is as well funded as it was before.

We didn't cut the size of the force in any substantial part.  I'm not going to say there wasn't one change to anything anywhere in the department, but generally the force structure plan that we had before is the force structure plan we have now.

We did look at modernization.  Modernization took the brunt of the reduction.  I would say not in a stupid way.  We didn't terminate programs.  We didn't break multi-years.  Neither on the people side did we issue RIF notices, things like that.  So we didn't do the type of things that, you know, that would involve sort of flailing around and breaking things.

We were careful and thoughtful in how we approached this.  We -- but students of defense reductions I think everyone would be familiar with this, that's studied this over time.  Especially when you have kind of a short term, in this case, a two-year budget deal that tells you you have less money, but you don't know what the future holds, it doesn't make a lot of sense to try and fundamentally change your force structure, RIF people.

So we went to the modernization account, which tends to be the most volatile.  And that's where we had to take some risk, both -- so you'll see, for example, 24 less Black Hawks, five less Joint Strike Fighters for the Air Force; fewer V-22s.  The aircraft procurement accounts, in total $4 billion less; less money for shipbuilding.

These are all not -- you know, these are not maybe things that we love to do, certainly, but as we talked about protecting readiness recovery, that people are our most important asset, and with the kind of inadvisability of trying to make a rapid change in force structure based on a fairly short-term budget signal of a two-year deal, this is where we had to go.

Also, we took risk in installation, which is already lower than any of us would like it to be.  We had to take further risk there.

So we can talk more about this later perhaps, but again, modernization is kind of where we had to take the brunt in terms of how to get the number down in the six-week period of time between when the budget deal hit and when we had to be done.

Okay.  Now, let me talk about what's in the budget, which will kind of constitute the rest of our talk here.  The force structure levels, as I said, are what we have been planning for some years.  There should not really be any surprises in there to, you know, experienced observers like yourself.  Consistency has really been a hallmark I think of this administration in terms of force structure plans, resource levels, things like that.

I will -- we'll talk a little bit later about the force of the future, so let me skip over that now.

The force structure, which is on the next slide, again, these numbers look pretty familiar to everyone -- the New START force levels on the nuclear side.  The deputy has talked about the ship count levels.  Fifty-four fighter squadrons funded in the base budget, one at Lakenheath funded in the OCO budget, which is the same as last year.

And we're still -- the mark's on the wall that I think everybody knows -- the 980,000-person Army total, of which 450,000 are in the actives.  That is still our mark on the wall that we're moving toward.  We go to 460,000 this year on the active side, so we're dropping, as we had planned and as we had said, from about 475,000 to 460,000, and then next year to 450,000, to reach the kind of objective level.  The Marine Corps stabilizing out at 182,000.

So again, there shouldn't be much of any surprise here to -- both to folks in here and to the troops around the country and around the world.

Same thing on the next slide -- the end-strength number.  I think this is important to have out here for the troops to see.  Again, people should recognize these numbers.  There's virtually no change in the reserve component side.

First of all, there's three changes that -- none of which exceed 1,000 people.

On the active side the only really major change from last year is the Army dropping 10,000.  But again, that has been planned for some time.

The next slide I'm going to try and just briefly touch on some of the major programs in the budget.  Joint Strike Fighter again, this is one where we would've loved to have more airplanes.

This is actually fewer than were funded last year and fewer than we had planned.  But again, this is something that you know taking $17 billion out in six weeks is a challenge.  And so you have to look at some of the large programs like this where the money is.

Others where -- other programs, especially due to their contractual situation like the tanker of course, were protected, and the multi years on the submarines and the DDGs.  That also of course plays into the services' thinking, into our thinking of where do you have multi years, where do you not?

EELV we have -- this is five launches, if you can't see the quantities there, in this year of which three would be competed.  The DDGs are all Flight III ships.  And again, the submarines and the DDGs are both in the multi-year category.

The deputy talked on the next slide a little about innovation, and I'm not going to dwell on that.  There's a couple of things on here that are -- were started last year.  Some were started this year.

And this really -- the innovation agenda which the deputy can talk about at -- could be of more expertise than myself.  Really spans the gamut from kind of smaller, nimbler efforts to large programs or larger efforts that could have significant warfighting impacts.

The secretary mentioned one of them last week, the arsenal plane, but there's a variety of projects here, both classified and unclassified that we're pursuing.

At this point I'd like to turn it over to General Ierardi to talk about the readiness and the people side of the budget for a few minutes.

LIEUTENANT GENERAL ANTHONY R. IERARDI:  Good afternoon.

I want to first say here that readiness is absolutely a critical part of our efforts.  And in this budget, this budget funds service efforts to address readiness from the standpoint of both ensuring that units are prepared for the missions that they will encounter today, as well as the demands of the future in ensuring that the joint force is ready to accomplish missions as they come out in the future.

And that is the recovery, if you will, of joint force full spectrum readiness.  And it's a reorientation.

The joint force has been engaged in combat operations over the past 10 years or more in one form of conflict.  And now we must shift focus to the full spectrum that their outline is implied as part of the five challenges that were talked about earlier.

Resources are programmed for this to occur.  However, resources are not the dominant factor in readiness recovery.  It's different in every service.  And it's also impacted by mission demands and operational tempo that may be occurring at any time, as it occurred today.

So resources are not the dominant factor in readiness recovery.  Force capacity, OPTEMPO, maintenance throughput all add to this challenge of recovering readiness.  The services will talk in more specificity later about this.

As we look at generating this type of readiness in the services and in the joint force.  We're really talking in the early portion of the next decade, the end of this FYDP before we see having regenerated in the force the full spectrum capability that we need.

And we remain dependent on Overseas Contingency Operation funding for current operational demands and future reset requirements.

Next chart.  Just highlight here a few of the -- again, the services will talk later.  Each of the services have their plans to regenerate full spectrum readiness.

In the case of the Army it's about training individual and at the collective levels, ensuring that combat training centers, units go through combat training centers.  We funded 19 rotations in 2017.  And this allows the Army to achieve full spectrum readiness to get leaders and soldiers and units into these environments to enhance their readiness so that they can have a full spectrum capability.

The Navy's focus is in level loading, or loading maintenance requirements to support consistent and sustainable maritime presence in ensuring that the force is in fact ready for the demands.

The Marine Corps will continue to focus on crisis response and expeditionary-type capabilities to maintain both the air and ground components to ensure that they're ready for emissions.

And the Air Force will balance between flying hours and weapons system sustainment to continue full spectrum readiness gains.  The Air Force is intensely involved in the operations that are occurring today and our missions abroad.  And time will be needed to regain combat readiness.

And finally, SOCOM will maintain funding for deployments, and has sufficient surge capacity to support operational plans and contingencies, and looks to the 2020 timeframe to regain its full-spectrum readiness.

If I could, I have one concluding chart for my portion here regarding the all-volunteer force.  The first thing I'd like to point out is that as the chairman views this, it's about comprehensive and holistic view of compensation for our force.  And the health of the force is viewed holistically.  Our service members train.  Do they have the proper equipment?  Are we ready to take on the tasks that we're assigned?

I second General Selva's and others here today, the notion that we have the best military in the world.  It's resilient.  It's dedicated.  But it's also running pretty hard.

The 2017 request for a 1.6 percent pay raise for our service members within, and top-line constraints, reflects the unique demands and recognizes the unique demands and sacrifices of our service members.  It buys down that gap between where we want to be and where we are.

And so the increase in that pay is the largest one over the last four-year period.  And it's an important part of what we did as we looked at, and the chairman and secretary assessed this portion of the budget.

You'll also see modest modifications for the blended retirement system.  And I'll just talk very briefly here.  First to increase the force-shaping ability of the services to provide greater flexibility and continuation pay of that portion of the law that was passed to create blended retirement, and to start matching contributions later to incentivize retention.

Next we want to obviously ensure nearly-equivalent lifetime benefit here and increase the defined contribution matching rate, and allow it to occur until the end of service as opposed to a particular point in time in a service member's career.

Finally, the department will propose modernization and improvements in the military health care system to increase value where simplicity, greater choice and better access is concerned, increase the skills and proficiency of military health care providers to provide them with opportunities to treat the beneficiaries for the benefit of the entire joint force, and to have their skills honed on a day-to-day basis.

And then finally, have a balanced approach to fiscal sustainability as part of this package.  That will be included as a legislative proposal.

So with that, I'll pass it back to Mr. McCord.

MR. MCCORD:  Thank you.  Almost done.

So the next slide, beyond kind of the traditional parts of compensation I think the secretary has really put a lot of effort, as I think you're all aware, into what he calls force of the future.  And the point of -- there's a couple of things.

First of all in November he gave a speech to what he calls permeability, which is really about trying to make it easier for people to serve their country either in uniform or as a civilian, either a career or for a shorter period of time just a few years.  And those of us having been here a couple of years, you know the hiring process is just one of the things that could be improved.

The second aspect, the second release of force of the future was done just about a little over a week ago, late January.  And it had to do with the family portion, the child care hours expansion with the fertility benefits, mothers' rooms being installed and also paternity and maternity leaves.

So building on everything the general was just talking about, secretary's very cognizant of the fact that we're competing for talent with the private sector of this country.  And he wants us to make sure that we are and remain a top-tier employer.

I think you could argue we already are.  You look across the span of our retirement benefits, education benefits, the health care system, we already are a good employer.  But again, the secretary knows that we are competing for talent and people, especially people trying to raise a family, the child care and the maternity, paternity leave -- things we think can help us maybe move the needle and attract and retain -- continue to attract and retain the best people.

So, I think it really speaks to the idea that compensation and quality of life for you and your family, which is, of course, as the saying goes "You recruit the member, you retain the family," is beyond just the paycheck.  And I think that's, really to me, the heart of kind of what Force of the Future is about.  It's not about the particular cost of the benefits, which is pretty modest in the scope of our budget for these new packages.  It's really more of a mind-set of trying to be competitive for talent, just like we know that we have to compete technologically.

Next, I want to just talk a little bit about some of the reform proposals that are in this budget, and some of which have been in the past budgets.  I'm -- on this chart, I kind of bend them into two categories, those where the proposal in this budget is the same or substantially the same as what we have proposed before that has not yet been accepted by the Congress.  I would put in this category the Army's Aviation Restructuring Initiative, known as ARI to those of us in the building; the Navy's cruiser modernization plan, and also the BRAC, Base Realignment and Closure proposal.

Those are essentially the same proposals that we have had before, the Base Closure proposal, the year proposed is now 2019 vice 2017, just because it's physically impossible, given the restrictions on our activities to have one in 2017 based on where we are now.

We have other proposals that you've seen before from us that we modified in some way that are in this budget.  The Air Force A-10, I think, is probably one that has -- word of that maybe has gotten out a little bit beforehand.  The general was just describing the TRICARE proposal, which is similar financially to last year's, but is a different proposal than last year's.

And we have Dr. Woodson, our department's expert here with us today, if we need to go into that in more detail.  And we have plenty of material, by the way, posted on the web today, with pages of information about the TRICARE proposal, specific prices, co-pays, things like that.  We have an overview book that contains that information that has published today.

Third thing, that is the commissary proposal which was -- has gotten a lot of potential last year.  This year's proposal is a different proposal.  A more modest proposal financially that only tries to get savings out of the business end, does not touch the benefits.  So, that's different in an important way, I think from the troops' perspective to last year.

So, again, these are just probably the most well-known reform agenda proposals, things where we believe that, given the continued pressure on our budget, hard choices need to be made.  The budget deal, good as it was for us to give us stability, again, remember, at the end of the day, reduced resources from last year's plan -- so, the case is at least as compelling for the need for reform as it was before.

We didn't get more money from the budget deal, and so we still have to make some hard choices.  The next slide is maybe somewhat lower visibility, but just indicative of the breadth of things we're trying to do across the department, from acquisition reform to the mandate that we have both imposed on ourselves and had imposed on us by Congress jointly to reduce headquarter's staff, the audit effort.  Something that we're -- a new review that the DCMO is going to lead to have people look at their service contracts to make sure that they're still needed, known colloquially as contractor reports.

Sexual assault prevention efforts.  The Goldwater-Nichols review that the secretary has already talked about.  And let me just touch on the last one a little bit.  Everybody, I think, recalls the, you know, the massive breach of personal information of people last year, the so-called OPM hack.

There's a proposal in this budget, which involves DOD is not limited to DOD.  To -- the system that we're going to move to, we propose to move to in this budget, is one where a new entity, created under OPM, would be involved, would be responsible for investigations.  It would not be a mission of OPM mixed in with all their other missions.

It would be a specified mission of a new entity inside OPM to do these investigations -- sort of like it is now in terms of agency responsibility would reside with this government-wide agency to do the investigation.  The information produced by that investigation would then, under our proposal, be the responsibility of DOD to protect that information behind our secure systems.

So, we would become a service provider, if you will, the information, the I.T. side of the process for the entire government.  A new entity inside OPM would remain the service provider for the entire government, including us, for doing the investigating.

And again, that proposal, you know, will come probably in a different part of the budget than the defense budget per se, but we are part of it and our budget funds are part of that proposal.

Last thing I want to talk about before we take questions is the OCO budget, which again the deputy talked about a little bit.  We have a continuing Afghanistan effort.  In response to the question that was asked before, the average troop strength is about 9,700 for '16; drops to about 6,200 in '17.  So that's not the end points which are more well known to people -- 9,800, 5,500.  It's the average number of man-years throughout the year drops by about a third from 9,700 to 6,200.

The average strength in the Iraq-Syria Inherent Resolve effort is roughly constant between the two years.  So the increase in funding is more driven by the pace of operating tempo than it is by having more personnel involved.

There was a question before, again, about the -- the Africa part.  We are trying to give them a little more robust -- a little more help, to have more robust resources to deal with, you know, a fluid situation that spans such a large, a large swathe of geography from al-Shabaab to Boko Haram, AQIM, across the northern part of the continent.

The counterterrorism partnership fund is constant from last year's level.  Probably the biggest increase in here is the European reassurance initiative, something that we've had good success working with Congress on to date.  I'm confident that they'll be supportive of this, too.  This -- this more than triples what we got last year appropriated, and pretty much quadruples what we asked for last year in this effort.

The biggest increase in this area is to start pre-positioning equipment in Europe to enable faster response and to provide greater deterrence.  The other -- other biggest part of this increase is basically a doubling of sort of the OPTEMPO, if you will, aspect of ERI to have -- our units' training, exercising with our European partners.  We're going to move to a so-called heel to toe basis, where we're over there consistently on the ground exercising.

That's a doubling of the operating budget part of ERI from what we had last year.  On top of that, then we're going to add a prepositioning aspect.

Just to -- just to touch on what the deputy already, I hope made clear, everything on this page that we have in the OCO categories, whether it's the Iraq-Syria operations, Afghanistan operations, the European Reassurance Initiative, we built the numbers based on what we thought was -- based on requirements of what we felt we needed, what was executable, especially in the ERI category.  Not constrained at all by the budget deal.

We came up with everything that we felt we needed to do at OCO, and then at the bottom, you see kind of what was left to use up the rest of the head room that was made available to us by virtue of the wording in the budget agreement.  So, that was about $5 billion after we got done pricing out everything that we needed to do in OCO on the merits.

So, just to hit the last slide, not going to read it to you, but basically, as the deputy said, what we're all about here is trying to, within a flat amount of money from last year to this year -- and again, predicated on the future being the higher level of resources that we believe we made a compelling case for.  How to reshape -- to address the challenges the secretary wants us to address to free up money for higher priorities -- that's all of our jobs, that's what the resource process is about.

And I think we've got a good product that does that.

So, with that, happy to take questions.  And Mark, are you going to handle that?

STAFF:  About 15, 20 minutes, both of the gentlemen have appointments immediately following.  So, with that in mind, Sydney.

Q:  To -- (inaudible) -- that you and the deputy -- SECDEF and the vice chairman all touched out, there is a path to recovery, but when I look at some of the documents, I see things like, you know, rebuilding of Army core -- (inaudible) -- has plateaued.  I see things like Air Force saying, you know, we will buy -- once we get to certain conditions in 2020, then we will have eight to 10 years to get into full spectrum of readiness for 80 percent of the force.

It seems like these are very long -- and -- that OFRP will not get back to three carriers to (inaudible), and three surge, apparently ever, will be two and three.

It seems like this is a very long road back to readiness, and I'm trying to get a sense of what the steps are and what the steps are that you would like take but maybe can't, because of lack of funding or too much COCOM demand.

GEN. IERARDI:  I would just start out by saying it's not linear.  A dollar today does not necessarily -- although it's certainly is required -- it's necessary, but not sufficient to achieve this full spectrum readiness that you're referring to.

And yes, in each of the services, it's a bit different.  The calculation includes time and availability for units, and the ability to be able to train and focus on those tasks.

Some of the deployments that are units have, in fact, contribute to readiness.  But some do not.  And where we have to operate in different organizational designs to accomplish the tasks that we're assigned and to meet the mission requirements in the context of the environment in which our units are operating, it does not necessarily lend itself to the full spectrum readiness that combat and supporting and enabling units and all of the services have to have.

So, it's a function of time, it's a function of having the adequate resources, it's a function of having units that are available to go through this, and have the opportunity to go to the combat training centers to participate in the high-end training environments and exercises to achieve those.

And Sydney, it's going to take time.  And we're -- what we're saying, and the services can illuminate this when they breathe, is it will be in the early portion of the next decade before we start to see recovery regeneration rates exceeding where we need them to be.  Right?  It's not linear and it's certainly not as fast as we'd like it to be, but we'll continue to work that hard with the resources that we've -- we've allocated to it.

Q:  Can you tell us how much in savings there are in the personnel reforms -- TRICARE and the other things?  How much money is being saved through those reforms?

MR. MCCORD:  Yeah, we can provide that.  The TRICARE number is very similar to last year.  My recollection is it's just under $1 billion.  But we'll get that for you for the record.

Q:  (off-mic.)

GEN. IERARDI:  In the TRICARE -- (inaudible).

Q:  Will these reforms offset the benefits that are being added on?

MR. MCCORD:  Within the compensation proposal -- within the compensation portfolio, yeah, we didn't really move any money in or out of that.  There are some savings in pay raises and other things, force of the future; there are things where we're making things more generous and -- and then there's the TRICARE, where there are some savings that we think we need to do to keep the health care cost sharing where it should be, or try to move it more towards where it should be.

Q:  Thank you.

The House Armed Services Committee, they've been saying that in this budget, you're robbing the base budget to fund OCO initiatives.  And I see that, you know, in your slide where you show $11 billion in program cuts.  Is the thinking that maybe if they increase OCO by $11 billion, you would be able to get all that stuff back?

MR. MCCORD:  Well, I would say the thinking in the budget was we comply with the budget deal.  You know, these numbers were -- were pretty well known to everyone, I think.  And I guess I -- I wouldn't characterize this as robbing the base budget.  We funded the base budget to what -- to what Congress agreed to.

Q:  Yeah, I understand, but that's what they've been saying, you know, in the public, to the media.  That's why I was wondering what your reaction to that accusation was.

MR. MCCORD:  Well, again -- I would say that, you know, if you look at the history of the last -- last five, six years, the president is the person who's had the highest defense number out there.  Congress has repeatedly refused to fund the president's defense requests.  So I don't think as us of the ones who are robbing the defense budget.  Certainly, I mean, we -- we have made the case.  I think this secretary and previous secretaries, this chairman and previous chairmen and previous Joint Chiefs have been saying, you know, we think that we have a good case for this level of resources that we've asked for.

We have generally not gotten it. I think FY '15, second year of Murray-Ryan, was the only budget in the last six or seven years where Congress has actually funded what we've asked for.  So every other year, we've had cuts ranging from, you know, $20 billion, $30 billion some years to what we've requested, be it either due to sequester, or due to cuts from the Budget Control Act, or otherwise.

So I think we've been making the case for higher resources, and Congress as a whole hasn't agreed to give them to us.  So, the budget deal, you know, was not everything we wanted, but -- but we're kind of have been used to have -- of having cuts over the last couple of years, so we still view this as progress.  But again, I think that we have done nothing -- nothing more, nothing less really than comply with the budget deal in this budget.  And I don't -- I don't think that we have -- have played any games.

Q:  Mr. McCord, this department has tried -- at the beginning when the Obama administration came in, tried to get rid of OCO.  It was kind of -- that was -- that was the marching orders.  Now, a lot has happened with both the budget caps and threats.

But how is the department now looking at OCO in the long term?  It seems that it had been done on a yearly basis, every year to reevaluate.  Are you taking more of a long-term approach these days at looking at it kind of FYDP-like?  And is that then de facto making it kind of an addendum to the base budget?

MR. MCCORD:  Well, I have to say that we've had a lot of effort over -- at the start of this administration the effort was really to tighten up the rules, I think, the predictability of OCO.  And I would say we did a good job at that.

We moved from what was the practice of the previous administration was to submit one or two supplementals to building you know a good-faith estimate of what the wars were going to cost into the budget, submitting it with the budget.  And I think that we've had, as a result, you know pretty decent predictability and certainly greater transparency than what came before.

Now, there were some reasons why that worked well in circumstances where we had sort of ongoing conflicts.  It's a little harder when things are changing a lot to do it that way.

In the last couple years there's been an effort, especially out of -- especially from OMB, but an effort that we've worked with them on to try and find a way to get OCO costs down and get everything back into the base budget.  We haven't made a lot of progress on that.  And I would say the budget deal that was enacted last November went exactly the opposite direction from that.

So I think it leaves OCO, the future of OCO a little uncertain as we get ready to turn over this administration to a new team.  And probably they'll take a fresh look at OCO.

You know the budget deal, in my view, gave us no guidance about what's going to happen the day after the budget deal expires, no guidance about 2018, 2019, 2020, 2021 either for a base budget or OCO budget.  We're back to sequester level down here, the department's proposed resource level that we think we need is up here.  No information in the budget about what people think about that.

The OCO arrangement in this budget deal was unprecedented.  I have never seen emergency spending type numbers written in advance into a budget deal before in my 30 years in this business.  Is that a precedent?  It's hard for me to tell.  Or is this a one-time thing that will not be repeated?

So we have tried to work with OMB to put some more predictability into OCO to get all the resources we could back into the base budget, hasn't really made a lot of progress.  And I think the battlefield's fairly confused right now, I have to say, in terms of what's the future of -- is there going to be an OCO budget in the future that looks like it does now.

Q:  This may be your last appearance up here, but on audit issues.  That's the gift that keeps on giving up there.

Can you give a reality check on the emerging results on the first three audits?  My understanding is they haven't been so great in terms of a clean opinion.  And for

General Ierardi, what is the significance of sending an armored brigade on a continual presence over to Europe versus an infantry brigade?  What's the message?  What's the equipment?  What's the symbolism there in terms of the U.S., what we're sending over there?

MR. MCCORD:  Sure.  On the audit, we've had -- the big effort this year has been the three military departments, the Army, the Navy and the Air Force to audit their current year resources.  Two of those have gotten their reviews back from their independent auditors.  I don't know if they've been at all published or not.

The third one is coming within probably less than a month now for the Navy.  And so they -- we are looking at disclaimers for the first two, which was not a surprise the first time you try something this big and involved.

So I think on the face of it you can say it's not progress.  We actually feel that it is because, as my predecessor used to say, you know you can't -- you really have to get into the game to -- you have to call in the independent evaluators, the auditors to really tell you what you're doing right and what you're doing wrong.

So we had spent a lot of time over this administration as well as previous ones what I would call practicing and preparing, which I think is all necessary first step.  But at some point you only really learn by getting in and having -- you know, showing up for the test and having, very much like in the military realm I sort of think of it the same way.

You go out to a national training center, an independent observer, controllers and opposition forces are out there, that you really learn what you're doing right and what you're doing wrong.

So I don't -- I'm not discouraged that the fact that we have disclaimers on these efforts.  There's still a lot of hard work ahead of us.  And but I think that we still are moving in the right direction.  There are problems.

The things that can be frustrating in an audit effort is, if you can imagine sort of working on your car.  You get in and you work on one thing.  And then you find something else you have to fix.

So as you get into it, you can really find that there is a lot that -- a lot to get your arms around it the more you open it up and work on it.  But that's how we're going to get this done I think is just to keep at it.  And we are making progress.

I think that both -- we think that and outside observers, knowledgeable outside observers think that we have the right plan and we are making progress.

So we're going to keep pushing because I think that we are doing the right things and moving in the right direction.  Whether we're going to get there exactly on schedule is that's the big open question.

GEN. IERARDI:  The European Region Insurance Initiative for this budget, $3.4 billion, really two main areas.

One is increased presence, which will include a United States Army armored brigade being on a rotational basis and essentially being, as Mr. McCord described, heel to toe, with no break in the availability of a full armored brigade there.

And the second main part is the prepositioning of Army equipment, including another Army brigade in a preposition state in Europe, exact location and details to follow.

So those are the principle components, along with the infrastructure required to enhance our ability to operate in Europe.

The significance of an armored brigade is important because the units that are United States Army units there as part of the joint force, at this time we don't have armored brigades stationed in Europe.  Previously there were two heavy brigades that were removed or withdrawn from Europe as part of the Army's drawdown.

So this is an important enhancement to the ability of the commanders, the combatant commander and the joint force commanders, Army commanders, to conduct combined arms maneuver and to have the right capabilities on the ground, trained and ready units to conduct our task.

STAFF:  Yes, ma'am?

Q:  Can you give us more details on the overall F-35 buy?  Have you changed the overall buy?  What is the reduction, the percentage reduction over the FYDP?  Will this impact the unit costs in the near term or the long term?  And how much is this giving us in savings?  And where exactly is the money going?

MR. MCCORD:  Okay.  There's, yes, a number of questions.  I think we're going to have to get you some of that you know over the course of the day right afterward.  I was going to say for the record, but that's a reflex from my Hill days.  I don't think that's the proper term here.

The one detail I have at my fingertips I'll give you, within the 63 in this budget there's 43 As, A-models for the Air Force, 16 for the Marine Corps and four for the Navy.  The biggest reduction I would say in -- compared to our previous plan, and that's kind of how I was talking is compared to previous plan, is definitely on the Air Force side.

The unit cost increase is not projected to be noticeable, but -- significant.  I wouldn't say noticeable, I wouldn't know what it was.  Not significant.  But of course you have to sort of look at the totality of the program including the partners to really have your correct numbers there.

So we will get with our folks in AT&L and the program office to get you the answers to all the questions.  But in general, the prediction from those areas is that it's not supposed to be a significant change in the unit cost.

But definitely you know it's a lot of resources.  And we are trying to get it back up to where we wanted to be across the FYDP.  But it's just it's a lot of money to -- and it's unclear we'll be able to get this program back to the ramps that we had hoped for previously.

STAFF:  Time for two more questions.  Sir?

Q:  Can you give us a sense of what the third offset effort was funded at in FY 2017?  It's got a budget label in the S&T section for $35 million.  We were expecting $12 billion to $15 billion over the FYDP.  Where did the rest of that money go live in F.Y. 2017?  And what level is it funded at?

MR. MCCORD:  Yes.  We'll have to try and get you something on that.

I mean there is not a tag in our budget system that says this program is a third offset idea and this one is not or could not be.  So it's a little bit of a -- a little less precise in saying what is connected to the submarine program, something like that.

Q:  Do you have a sense of the amount of new money that went toward it?  Or is it existing programs that were relabeled as we'll include this under third offset now?

MR. MCCORD:  Well there are certainly some of both.  And again, we'll get you the best numbers that we can on that.

STAFF:  Last question.

Q:  Can you give a breakdown of the contribution that DOD's giving to the new background check system?  You touched on it briefly.  But the resources figure behind that and then the rationale for that and how long that's going to stretch out into the future?

MR. MCCORD:  Well, the resource level in terms of -- you know, in terms of the scope of the size of our budget is not enormous.  I'd say it's in the $100 million a year range.  And then we also have, at least for 2017 we have the preexisting cost of the identity protection services that we have to offer to all the people.

Again, 80 percent of the people affected by this were in the DOD family, either employees and contractors, past employees.  So we have probably the biggest bill there.  OMB gave us the resources, by the way, for the projected cost of this increase IT cost that we're going to be doing.

But also important to remember that we will be doing this as a service provider.  So for those entities outside the Defense Department, we would be doing this you know and expecting to be reimbursed.  So we're not subsidizing other people in that sense.

We will have a cost, some of which we got from OMB through additional resource, and some of which we would expect and we would require legislation would be sending up to make this happen to be receiving the monies back from other agencies.

STAFF:  Folks, thank you very much.  Gentlemen, appreciate your time.  That's all we have time for.