SECRETARY OF DEFENSE CHUCK HAGEL: Good afternoon. I wanted to make some brief comments this afternoon regarding the reopening of government. I'm going to take -- after I make a statement, a couple of questions, and then I'm going to ask Bob Hale, our comptroller, to take some questions regarding the specifics of the reopening.
This morning, I announced that the Department of Defense is resuming operations now that Congress has restored funding for DOD and the rest of the federal government. While all of us across the department welcome the fact that the shutdown is now behind us, I know that its impact will continue to be felt by all of our people. All of them, in different ways, had their lives affected and disrupted during this period of tremendous uncertainty. In particular, I am deeply aware of the harm that this shutdown inflicted on so many of our civilian personnel.
All of our leaders, civilian and military alike, deeply regret what this shutdown has done to our people, and we'll work to repair the damage beginning today. Echoing what President Obama said earlier today, I want all of our civilian personnel to know that the work they do is critically important to this department and this country. It matters to this department, and it matters for the country.
The military simply cannot succeed without our civilian employees, and the president and I appreciate their professionalism and their patience throughout this very trying period. Now that this latest budget crisis has become history, and we have come to an end, we have an opportunity to return to refocusing on our critical work.
But it's important to note that Congress did not remove the shadow of uncertainty that has been cast over this department and our government much of this year. Like much of the rest of the government, DOD is now operating on a short-term continuing resolution which limits our ability to start new programs, and the damaging cuts of sequestration remain the law of the land.
In the months ahead, Congress will have an opportunity to remove this shadow of uncertainty as they work to craft a balanced long-term spending bill. If this fiscal uncertainty continues, it will have an impact on our economy, our national security, and America's standing in the world. And if the sequester level continues, there will also be consequences.
Earlier this year, in our Strategy Choices and Management Review, DOD explained how the continuation of these abrupt cuts put us at risk of fielding a force that is unprepared due to a lack of training, maintenance, and the latest equipment. DOD has a responsibility to give America's elected leaders and the American people a clear-eyed assessment of what our military can and cannot do after years of sequester-level cuts. In the months ahead, we will continue to provide our best and most honest assessment as Congress works to establish the nation's long-term spending priorities.
That is my statement, and I'd be happy to respond to a couple questions. Thank you.
Q: Mr. Secretary, you mentioned consequences. As you look down the road -- I think Mr. Hale addressed this at one of his briefings -- there already are some reviews of how many civilians and how much force reduction overall there will have to be, reductions in force. Can you talk a little bit about, as you look ahead, what are you warning Congress and the country about in terms of the number of forces that you're going to have to cut in order to meet these lower budget levels, the number of civilians you may have to lay off? And what does that do to U.S. readiness and morale of your workforce?
SEC. HAGEL: Well, I'll -- I'll leave the specific numbers to Bob Hale, but let me respond in a general way to your -- your questions.
Let's start with the impact on morale. I don't think anyone questions that the uncertainty that shutting down the government and closing down people's jobs has brought a great amount of not only disruption to our government, to our country, but to their lives, to the civilian personnel whose lives have been disrupted by this particular shutdown.
Then you add further to that the uncertainty of no authorizations, no appropriations, and living in a world of continuing resolutions, of continuing sequestration, the uncertainty of planning, not just in an agency or a department, or certainly all the elements of the Department of Defense, but in personal lives. I mean, people have to have some confidence that they have a job that they can rely on. I know there are no guarantees in life, but we can't continue to do this to our people, having them live under this cloud of uncertainty.
So morale is a huge part of this. We won't be able to recruit good people. Good people will leave the government. They're not going to put up with this. Good people have many options. So that's one part of it.
I have said many times, the chiefs have said, General Dempsey has said over the last few months that as we have had to close down training facilities, and our training, we've had to stand down wings, and not allow many of our -- our wings to fly, the steaming of our ships. We've had to pull back the longer-term investments that are required to keep the technological edge that this country has always had.
I mean, these are all dimensions of sequestrations, of uncertainty, of not knowing or not being able to plan what's coming. Sure, that adds to impact on our readiness, and, sure, that eventually will present capability issues for us.
So these are not new issues. I've talked about them, General Dempsey, all of our leaders; all of our chiefs have talked about them. That's part of the point the president has made, I have made continually through this process over the last few months.
I noted again in a statement that we've got to have some certainty here of being able to go forward. We've got a QDR that you all are -- are familiar with, that we're going through that review. We've got a budget resolution that we are preparing within this institution and within the White House budget that we will present a budget to Congress, as we do each year. To try to plan for a budget with this kind of uncertainty alone, how are we going to fulfill our strategic commitments? What impact is this having overseas with our allies?
I've been to, as many of you know -- some of you have been with me on these trips -- to the Asia Pacific area three times since I've been secretary of defense. Secretary Kerry was there recently. The president pulled his trip down last week because of the shutdown.
Our allies are asking questions, can we rely on our partnership with America? Will America fulfill its commitments and its promises? These are huge issues for all of us, and they do impact our national security and our relationships and our standing in the world.
So these are the broad general areas of consequences of not being able to plan and prepare because of that uncertainty that we're living under. The specific numbers, Lita, I'll leave for Bob Hale.
Q: Thank you, sir. On the sequester moving ahead, you know, you spent a lot of time in the Senate, you know how -- how the Hill works. You have a good sense of the American people. So in your current position, Mr. Secretary, is it your sense that the sequester-level cuts, those are the new reality, and rather than uncertainty, isn't that what you should be planning against, given Congress's will, the will of the people?
SEC. HAGEL: As you know, Thom, everyone in this room knows that the so-called sequester, which is a product of the Budget Control Act of 2011, is the law of the land. And we have to plan and prepare, to your point, with the facts as they are and the realities as they are.
If you recall, when I implemented and directed the strategic management review and choices, which I noted in my comments here, it was to prepare this institution for different scenarios of different numbers, and certainly the numbers that we know are there that we have been living with this year reflected under sequestration are numbers that we've got to prepare for. We plan also for the continuing resolution numbers. And we plan also for our budget numbers.
Now, I don't know -- you started your question to me, Thom, about my service in the Senate -- I don't know if a compromise can be reached, if some kind of an agreement can be reached to deal with these issues. That's part of the uncertainty.
So we have to plan for every eventuality here. And you can't take an institution like this, as you all know, because you've been around here a long time, and turn these things around in a month, in a week. This is the national security of America we're talking about. And so it does take thought and it does take planning -- we're talking about people's lives -- as we bring down and draw down by law our force structure.
We know that, and we're planning for that. And you've heard me say many times, you've heard General Dempsey say many times that the abruptness and the steepness of those cuts give us no flexibility to glide it down in a responsible way to make sure that our resources match our mission, our -- our mission matches our resources, and that we are able to fulfill the strategic interest of this country.
GEORGE LITTLE: One final question.
Q: Mr. Secretary, you spoke a minute ago about morale of the civilian workers at the department. Are you at the point yet where you have -- you or General Dempsey have concern about troop morale, given all of this? What indicators might concern you? And how are you watching that, given what you said about they're not being allowed to train and to fly and all of that? Are you now worried about the troops?
SEC. HAGEL: We are always worried about the troops. The reason I noted the civilian personnel specifically is because the civilian personnel were the ones affected by the furloughs and the shutdown. As you know, our uniformed military was protected in that.
But the same uncertainty, certainly, resides in the uniformed military community, different dimension of it, of course, but questions I get all the time from our junior enlisted, from our officer corps, from our senior officer corps, future, I get -- what is the future for me as an E-5, starting a family, for example? And I got these questions two weeks ago when I had my monthly luncheon with junior enlisted members of our services.
I get these questions all the time. Mr. Secretary, can you give me an honest answer -- in one case last week, two weeks ago, I had one service member say, my wife asked me to ask you, do I have a future? Do we have a future?
And these are young men and women who are very proud to be in the military, want to stay in the military. They have a purpose to their lives serving in the military. But they also have to ask the question, when you're 25 or 30 years old, if you have a family, you want to start a family, can I support that family? I mean, what kind of a future am I giving my family if I'm not sure where all this is going?
So, yes, it affects our uniformed military. Yes, we are vitally concerned about the morale of our military. But the civilian workforce are the ones that have been obviously touched directly by the shutdown and, of course, the furloughs that we've seen this year.
Thank you. And Bob Hale will respond to more specific questions you've got. Bob.
UNDER SECRETARY OF DEFENSE ROBERT F. HALE: Well, good afternoon. Let me just start by joining the secretary in thanking our civilian workforce, all of our workers, but especially our civilians for their patience through this. And I'd add the senior commanders and managers have helped me a great deal as I work to help the department get through this.
So when I read the OMB message about 2:30 this morning saying government was reopened, I felt like I could stop beating my head against a wall, but I got to say it would have felt a lot better never to have started beating my head against a wall. So with that, I'll stop and -- if you have questions.
Q: I wonder if there is any estimate of what costs the Department of Defense incurred as a result of the shutdown, including the -- you know, the workers at the beginning who were not working and that -- that money was wasted. Is there any cost estimate?
UNDER SEC. HALE: Well, we know at a minimum there are about $600 million of lost productivity, if you will, from at that point almost 400,000 civilians that we had on furlough for four days. There were a number of other costs where I can't put a number on them. We built up interest payments because we were forced to pay vendors late. We had to cancel training classes, so we had to bring the people home on -- on orders and then send them right back again. So there were a lot of costs of those sort.
I can't quantify those, but it's at least the $600 million to start with in essentially lost productivity.
Q: Can you just take a stab at the layoff and attrition...
UNDER SEC. HALE: The layoffs?
Q: The layoffs -- layoffs that are coming down the road and reductions in force?
UNDER SEC. HALE: Well, you know, he said he'd defer to Bob Hale. Bob Hale is going to defer to the future, because we haven't decided.
But, look, if we face budgets at the BCA cap level, roughly $50 billion less in '14, we're going to have to get smaller. I can't tell you exactly how much. Yes, that will mean fewer civilians. We will try to avoid reductions in force. We'll keep them at an absolute minimum. We would look to do this, if we have to, through attrition, but, yeah, we're going to get smaller. I just can't tell you exactly how much.
Q: Mr. Hale, you've had an entire couple of hours to pull your numbers together. Do you have any idea yet of the impact of this on programs and the -- whether, you know, some testing's been delayed, that sort of thing, and also just the friction costs to both you and to the companies?
UNDER SEC. HALE: Well, we -- we were relatively fortunate in the government. We had a partial appropriation. The Pay Our Military Act was in appropriation, so we kept -- except for that first four days, most of our civilians working, all of our military.
I think that limited the disruption, but it was there. I'm sure we delayed testing, though I can't quantify it for you. My guess is that we will be able to catch up reasonably quickly for those kinds of delays, backlogs of vouchers we haven't paid.
I'm a lot more worried about the morale effects on all of the -- of all of our people, but especially our civilians. And you've heard that story, but I think we all are concerned. I mean, it's not just this event. I mean, we've had three years of pay freezes, although I noted the CR did not prohibit the -- or either the military or civilian pay raise, so -- so far, it's still in place. We've had three years of pay freezes. We had the sequester furloughs, now the shutdown furloughs.
I mean, my own people are kind of looking at me and asking the question -- most of them are seniors, so they'll probably stick around, but you wonder what the folks out in the field are saying. "I'm not so sure I want to work for this government." So we need some stability, and we need to keep telling them they're important, and then we need to show it, through things like pay raises and no more furloughs, et cetera. That's the bigger -- that's the bigger concern to me.
Q: Do you know of any new starts that are being delayed because of the CR?
UNDER SEC. HALE: Oh, yes. I mean, the CR will delay -- well, now you're going to test my memory. I can see the sheet. I can't remember. So I'm going to have to get back to you. I don't want to name something that's wrong.
There are no huge ones, but there are a number of smaller programs that under the continuing resolution we are not allowed to do new starts, rate increases, no military -- new military construction projects.
Perhaps one of the biggest problems is -- is the fact that we essentially required under the CR to buy the same ships this year as last year, because Congress appropriates by ship, and we have to repeat last year. It's a Groundhog Day approach to budgeting.
So there are lots of disruptions. I can't remember -- I can't remember the specifics. They're not in my head. I'm sorry.
Q: Mr. Hale, is the likelihood of sequestration informing your recruitment numbers now, either for civilian or for uniformed members? And wouldn't the responsible thing be to be slowing down in that recruitment so that you don't have to let people go who will only just...
UNDER SEC. HALE: Right. We're going to -- we're going to start executing at the continuing resolution level or a little lower, because of the enormous uncertainty and the possibility that sequestration in January, if it occurs, could take us down to the BCA cap level.
And, yes, I think that will cause us to begin to reduce or think in terms of reduced size and reduced recruiting. You're exactly right. I mean, we don't want to -- on one hand, we don't want to commit ourselves in this period too much in a period of enormous uncertainty in case -- in case we are able to do things we think that are important, but we do need to slow down. And we will slow down our execution, at least to the CR level, and probably a little bit south of that, just because there's so much uncertainty.
We're only three weeks into the fiscal year, and we're still kind of plus or minus $50 billion in what we're going to spend this fiscal year. That's not a comfortable position, particularly for our comptroller. So it's a challenge.
Q: Excuse me. So have there been orders issued to the components and the services to spend at the BCA level? And, secondly, with the CR, is there the kind of flexibility in moving money around in accounts that you -- that you need to -- to cope with sequestration.
UNDER SEC. HALE: I mean, we haven't issued any formal orders. We've discussed with the services to execute at the continuing resolution level and maybe somewhat south of it. And we'll have to work with them on specifics as -- as time develops. And -- what was your second question again? I got...
Q: About flexibility.
UNDER SEC. HALE: Yeah, flexibility. No, I mean, we have very little flexibility under continuing resolution. It gives us money in budget accounts, like Air Force procurement and Army active O&M. It just gives us a dollar figure and says that you can't do new starts, no -- no rate increases, no new military construction projects, and you get then a little more than 25 percent of it to cover October 1st through January 15th.
Beyond that, though, we've got to kind of be looking at the fact eventually we'll get some kind of appropriations, so we -- we need to be careful on where we spend that money, and we can't move between those accounts at all. And generally we aren't allowed to reprogram when we're under continuing resolution. So for a while, we kind of have to hold our breath and -- and try to look to the future and be as conservative as you can. If that's a vague answer, it's because things are kind of vague. It's not a good way to run a railroad.
Q: Going back to the secretary's comments regarding his doubts on Congress reaching some sort of compromise, is there anything that -- that can be said that hasn't been said already by the department to convince lawmakers that, you know, this cliff is coming? Or is it just a matter of continuing to sort of beat the drum on -- on the dangers of sequestration?
UNDER SEC. HALE: You mean that can be said to sort of help the process along? I mean, we'll be helpful in any way we can. We'll work through the administration. The president has a plan. He enunciated -- announced it with a budget, in terms of a plan to reduce the deficit and -- and to provide for discretionary spending, which is the level we submitted the budget at.
We certainly support that plan. We understand there's going to be negotiations, and we'll help them in any way we can. I don't think there's any one thing we can do, but we stand ready to assist through OMB and the administration to help the negotiators any way we can. We want them to succeed.
Q: Tuition assistance, G.I. Bill, what happens with that going forward? What's the situation now?
UNDER SEC. HALE: I mean, I assume -- we will -- we will, I think, pay tuition assistance. G.I. Bill is funded in another agency, but the tuition assistance we will pay, I think more or less at the levels that were programmed. I mean, we're not planning to cut it back substantially.
Now, we continue to look at it in the context of overall budget reductions. And there may be some -- some trims, but we know it's an important program, and we won't stop it, and we will continue to fund it.
There may have been some temporary interruptions during the shutdown, but -- but we'll continue to support the program. We know it's important to our people.
Q: Mr. Hale, you've had a chance to look, I think, at all the services' initial 15 proposals and their alternate proposals with sequestration. How much of -- I guess, of an "oh, wow" factor is there in the alternate proposals, in your opinion, sir?
UNDER SEC. HALE: Well, I mean, there are far-reaching changes. It shouldn't be surprising when you take about $50 billion in fiscal 2015. And there were some funds that were taken out right at the end game by the president. The president proposed some cuts in discretionary spending, as well, in that budget package that we didn't fully accommodate, so pretty good-sized reductions.
There are force cuts. I mean, I'm not going to give you specifics, because I don't feel I should, but I'm not surprised. And you saw the SCMR, and it's often usually in those ranges, within the ranges of the SCMR. I'm not surprised. But I think all of us are aware that it will be a somewhat different, smaller military if -- if we have to go through with those cuts.
But we are looking at them actively. And -- and we will be as prepared as we can, within the limits of time that we have, to be ready for a wide range of contingencies, because we know that's what we face.
STAFF: Last question from Thom Shanker.
Q: Thanks. In past years, it's been the business practice of this department, as you approach the end of the fiscal year, to hold some money back. You obviously don't want to overspend your budget accidentally. I'm just curious how many tens of millions or hundreds did you end the year with? And can you now apply that money in some way to mitigate the strain?
UNDER SEC. HALE: Well, there are several kinds of money we get. A number of the operating dollars, military personnel and operations and maintenance, expire, those you can't spend them after September 30th. It will tell you something about the real-time nature of our accounting systems that I don't know yet for sure what we obligated. But I think that we will have obligated the great majority of those funds. We usually try to.
Other funds that -- investment ones, we get two years for RTD&E, three years for procurement. And there I think you would see our obligation rates fairly low right now for a couple reasons, uncertainty, but also, frankly, I mean, our contracting officers were concentrating heavily on the one-year money in those last days. And we had had to cut back on -- on them because of sequestration.
So my guess is, we've pretty well obligated, though I don't know for sure on the operating accounts. I think that's not true on the investment accounts. And there are some -- we'll try to pick up the pace as best we can. And let's hope there's no further disruption that occurs in January.
STAFF: Thank you very much.
Q: Thank you, sir.