Mr. Chairman, Senator Sessions, members of the committee, I want to thank you for the opportunity to have a chance to appear before you to discuss the president's budget request for fiscal year 2013 for the Department of Defense.
As pointed out, as a former chairman of the House Budget Committee and a former OMB director, I have a very deep appreciation for the important role that is played by this committee, having -- having spent a lot of time in this room on budget conferences over the years. And your basic role is to try to achieve fiscal discipline and help set the government's overall spending priorities.
As you know, and as you pointed out, Mr. Chairman, I had the honor of working on most of the budget summits and proposals during the '80s and '90s that ultimately helped produce a balanced federal budget. Believe me, I know first-hand what a very tough and critical job you have, particularly given the size of the deficits that unfortunately face our country again.
It is no surprise that there is a vigorous debate in Washington about what steps should be taken to try to confront these challenges. We went through many of the same debates in the '80s and the '90s. Thankfully, the leadership of both parties were willing to make the very difficult decisions that had to be made in order to reduce the deficit.
Today, you face the same difficult choices. And while I understand the differences, there should be consensus on one thing, that the leaders of both the legislative and executive branches of government have a duty to protect both our national and fiscal security. I know that as elected members of the Congress, particularly the members of this committee, you take that duty seriously, as I do as secretary of defense.
I do not believe -- I fundamentally do not believe that we have to choose between fiscal discipline and national security. I believe we can maintain the strongest military in the world and be part of a comprehensive solution to deficit reduction. The defense budget that we present to the Congress and to the nation seeks to achieve those goals.
The FY 2013 budget request for the Department of Defense was the product of a very intensive strategy review conducted by senior military and civilian leaders of the department under the advice and guidance of the president. The reasons for this review are clear.
First, we are at a strategic turning point after a decade of war and after substantial growth in defense budgets. And second, Congress did pass the Budget Control Act of 2011 imposing spending limits that reduce the defense base budget by $487 billion over the next decade.
We made the decision that the fiscal situation that was presented to us also gave us the opportunity to establish a new defense strategy for the future. We developed the strategic guidance before making any budget decisions to make sure that budget choices reflected the new strategy. We were driven by strategy, not simply by budget reductions.
We agreed that we are at a key inflection point. The military mission in Iraq has ended. We are still in a very tough fight in Afghanistan, but 2011 did mark significant progress in trying to reduce violence and transitioning to an Afghan-led responsibility. And we and our NATO allies have made a strong commitment to continue this transition through the end of 2014.
Last year, there were successful NATO operations that led to the fall of Gadhafi, and we have had very targeted counterterrorism efforts that significantly weakened Al Qaida and decimated its leadership.
But even though we have had these successes, unlike past drawdowns where threats receded, we still face an array of security challenges. The chairman referred to a number of those. We are still at war in Afghanistan. We still confront terrorism, if not in the FATA, in Somalia, in Yemen, in North Africa and elsewhere.
There's still a proliferation of weapons of mass destruction in the world. Iran and North Korea continue to undermine stability in the world.
There is continuing turmoil in the Middle East. Any one of those events in the Middle East could be thrust upon us in the future.
There are rising powers in Asia and growing concerns about cyber intrusion and attacks.
We must meet these challenges, we must meet these threats if we are to protect the American people.
And at the same time, as we try to protect the American people, we have a responsibility to fiscal discipline. This is not an easy task.
We made the decision that we didn't want to repeat the mistakes of the past. We've gone through drawdowns in the past in the defense budget. We decided to be guided by these guidelines. Number one, we wanted to maintain the strongest military in the world. Number two, we did not want to hollow out the force, and in the past, when defense cuts were made across the board, in effect what you did was you weakened every area of defense, and that's what resulted in hollowing out the force.
To not have that happen we have to take a balanced approach to budget cuts and look at every area in the defense budget and put everything on the table.
And lastly, of course, we didn't want to break faith with the troops and their families, those that have had to be deployed time and time and time again over 10 years of war.
The president's budget requests $525.4 billion in FY 13 for our base budget and $88.5 billion to support the war efforts. In order to be consistent with Title 1 of the Budget Control Act, our budget request had to be roughly $45 billion less than we had anticipated under last year's budget plan.
Over the next years, defense spending will be $259 billion less than planned for -- that we had in the FY 12 budget, a difference of nearly 9 percent. And over 10 years, starting in FY 12, it will be reduced by $487 billion.
To meet these new budget targets and our national security responsibilities we had to fundamentally reshape our defense spending priorities based on a new strategy. The Department of Defense has stepped up to the plate to meet its responsibilities under the Budget Control Act.
But with these record deficits no budget can be balanced on the back of defense spending alone. For that matter, no budget can be balanced on the back of discretionary spending alone.
Based on my own budget experience, I strongly believe that all areas of the federal budget must be put on the table, not just discretionary, but mandatory spending and revenues. That's the responsible way to reduce deficits and the responsible way to avoid sequester provisions contained in Title 3 of the Budget Control Act.
The sequester meat ax, as pointed out, would cut another roughly $500 billion over the next nine years. These cuts would in fact hollow out the force and inflict severe damage to our national defense.
The president's budget does put forward a plan to try to avert sequestration and reduce deficits by $4.3 trillion over the next decade. Whether you agree or disagree with these proposals, I encourage this committee to look closely at the president's approach and to hopefully adopt a large, balanced package of savings that de- trigger sequestration, reduce the deficit and maintain the strongest national defense in the world.
The $487 billion in 10-year savings that we have proposed come from four areas of the defense budget: efficiencies, force structure reduction, procurement adjustments and compensation. Let me, if I can, summarize each of those areas.
First of all, efficiencies, more disciplined use of defense dollars. On top of $150 billion in efficiencies that were proposed by my predecessor as part of the F.Y. '12 budget, we added another $60 billion, primarily from streamlining support functions, consolidating I.T. enterprises, re-phasing military construction programs, consolidating inventory and reducing service support contractors.
As we reduce force structure, something that Secretary Gates pointed out has increased as a result of large budgets over the last 10 years, we have a responsibility to provide the most cost-efficient support for the force that we're going to need.
For that reason, the president will request the Congress to authorize the base realignment and closure process for 2013 and 2015.
Now, look, as somebody who's been through the BRAC process, and I had it happen in my district in California, we lost Ford Ord, the Ford Ord reservation, which constituted 25 percent of our local economy. So I've been through BRAC. I know what it means and the impact it has on people, as well as your local communities.
At the same time, I don't know of any other effective way to achieve infrastructure savings in the long term, and that's the reason we ask you to consider that.
Achieving audit readiness is another key initiative that will help the department achieve greater discipline in the use of defense dollars. As you know, I've directed the department to achieve audit readiness by the end of calendar year 2014.
But efficiencies are not enough to achieve the necessary savings that were mandated. Budget reductions of this magnitude require significant adjustments to force structure, to procurement investments, and, yes, to compensation. The choices we made reflected five key elements of the defense strategic guidance that we developed at the department, with the support of the service chiefs, the undersecretaries and the secretaries.
Let me describe the key elements of that strategy and the decisions that followed, some of the decisions.
One, the force of the future will be smaller and it will be leaner. That's a fact. But at the same time, it should be agile, it should be flexible, it should be ready, and it should be technologically advanced.
We knew coming out of these wars that the military would be smaller, we would be doing a drawdown in the military. But in order to ensure an agile force, we made a conscious choice not to maintain more force structure than we could afford to properly train and properly equip.
We are implementing force structure reductions consistent with the new strategic guidance for a total savings of about $50 billion over the next five years. We're gradually re-sizing the active Army, going from 562,000 to 490,000 by 2017. That's a level that's slightly higher than where we were prior to 9/11.
We're doing the same thing with the Marine Corps, going from 202,000 to 182,000 Marines by 2017.
We're reducing and streamlining the Air Force's air lift fleet. In addition, the Air Force will eliminate seven tactical air squadron but retain a robust force of about 54 combat fighter squadrons and enough to obviously maintain air superiority and strategic air lift that we need.
The Navy, while it will maintain and protect some of our highest priority and most flexible ships, it will retire seven lower priority Navy cruisers that have been -- that have not been upgraded with ballistic missile defense capability.
The second area in our strategy was that we wanted to rebalance our global posture to focus on emphasizing Asia-Pacific and the Middle East. Those are the two areas where obviously we could confront challenges in the future.
The strategic guidance made clear that we have to do everything to project power in the Pacific -- in the Asia-Pacific region and in the Middle East.
So to this end the budget does maintain our current bomber fleet, it maintains our aircraft carrier fleet, it maintains the big deck amphibious fleet that we need, and we do enhance our Army and Marine Corps force structure presence both in the Pacific as well as in the Middle East.
Thirdly, we have to deal with our responsibilities elsewhere in the world as well. So to do that we recommend building innovative partnerships and strengthening key alliances and partnerships in Europe, in Latin America and in Africa.
This strategy makes clear that even though Asia-Pacific and the Middle East represent areas of growing strategic priority, the United States must work to strengthen its key alliances, to build partnerships.
And one of the things we are doing and recommending is the development of innovative ways to have rotational deployments by the Army, by the Marines, by special operations to sustain a U.S. presence elsewhere in the world.
Fourthly, we wanted to ensure, as we must, that we can confront and defeat aggression from any adversary, anytime, anywhere.
This fourth area means that we have to have the capability to defeat more than one enemy at a time. In the 21st century, we have to recognize that our adversaries are going to come at us using 21st- century technology. This is the world we live in, and we've got to be able to respond with 21st-century technology as well.
So we must invest in space, in cyberspace, in long-range precision strike capabilities, and in special operations forces to ensure that we can still confront and defeat multiple adversaries even with the force structure reductions that I outlined earlier. Even with some adjustments to force structure, this budget sustains a military that is the strongest in the world, that is capable of quickly and decisively confronting aggression wherever and whenever necessary.
And lastly, our strategy was to protect and prioritize key investments because it can't just be about cuts. It has to be in what do we want to invest in for the future, and our capacity to be able to grow, to adapt and to mobilize. So we've made recommendations to invest in science and technology and basic research and special operations forces and unmanned air systems and in cyber.
At the same time, we recognize that we've got to be able to look at our modernization needs and make decisions about those that can be delayed. This budget identifies about $75 billion in savings resulting from canceled or restructured programs. They include $15.1 billion from restructuring the Joint Strike Fighter; $13.1 billion by stretching investment in the procurement of ships; $2.5 billion from terminating what we considered one expensive version of the Global Hawk; $2.3 billion from terminating a redundant weather satellite program.
The key to this strategy is making sure that as we do this, we maintain a very strong Reserve and a strong National Guard. They have been one of the very important factors in our ability to conduct war over the last 10 years. The National Guard and the Reserve have fought right alongside the active duty and they've done a great job. They've gained tremendous experience. I want to be able to maintain that for the future so that we can mobilize quickly if we have to. And I also want to maintain a strong and flexible industrial base.
Finally, the most fundamental element of our strategy and our decision-making process is not our technology or our weapon systems or our force structure. It is our people. They, far more than any weapon system or technology, are the great strength of our military. We're determined to sustain the programs that help our families, that help the troops, that help our wounded warriors and that meet their needs.
And yet, to build the force needed to defend this country under existing budget constraints, cost growth in military pay and benefits has to be put on a sustainable course. That part of the defense budget, by the way, has grown by nearly 90 percent since 2001. So for that reason, we felt an obligation to look at how could we control costs in this area.
Well, on military pay, there are no pay cuts and we will provide pay raises these next two years. We will try to limit those pay raises in the out-years. We've also looked at ways to try to increase fees to pay for TRICARE costs. Health care in the military is costing me close to $50 billion right now. There have to be ways to try to control those costs as well.
And as you know, we've recommended a retirement commission to look at that area for savings, although we do want to grandfather those that are serving so that they don't lose the retirement benefits that were promised to them.
So that in summary is the package. This has not been easy. This is a tough process. And obviously, we need your support to -- to review the proposals we've made and to give us your best guidance as well. I'm a believer, as someone who comes from the Congress, that we need your partnership in order to try to implement this strategy.
And as you know, this committee in particular, this is a zero-sum game. If you're going to restore cuts, you've got to find places to cut it. And there is a very narrow margin here for -- for mistakes. If you're going to restore funding in one area, then you've got to cut more in force structure. If you're going to restore compensation, you've got to cut more in weapons systems. That -- that's the process we went through.
Also, make no mistake, there is no way I can reduce the defense budget by a half-trillion dollars and not have it impact on all 50 states. That's a reality. In addition to that, I can't reduce the budget by a half-trillion dollars, and frankly, not increase risk. Bottom line is we think these are acceptable risks, but there are risks. We are going to have a smaller force. We are going to depend on mobilization. We're going to depend on the development of new technologies. We've got to meet the needs of troops as they return home to find jobs, to find support systems in their communities.
So as I said, there is no margin for error here. But Congress mandated, as has been pointed out, on a bipartisan basis, that we reduce the defense budget by $487 billion and that is what we have done. In many ways, this is going to be a test. Everybody talks a good game about deficit reduction. Everybody talks about cutting costs. This is a test of whether or not this is about talk or about action, and whether or not we do this right, or whether we walk away from that responsibility.
Mr. Chairman and members of the committee, as a former member and chairman of the Budget Committee, this committee must never cease being the conscience of the Congress when it comes to fiscal responsibility and doing what's right for this nation. I look forward to working with all of you closely in the months ahead to do what the American people expect of their leaders, to be fiscally responsible in developing the force of the future, a force that can defend the country, a force that will support our men and women in uniform, but more importantly, a force that is and always will be the strongest military in the world.