Chairman Levin, Ranking Member Inhofe, members of the committee, thank you for this opportunity to present our budget for fiscal year 2015. And to address some of the specific questions that the chairman noted as well Ranking Member Inhofe about what was behind a number of the decisions that we made as we prepared this budget, how we made those decisions.
I appreciate being here today with General Dempsey. Chairman Dempsey has been an integral part of our defense enterprise of this nation's leadership. I have valued his council, his leadership, his partnership. I appreciate his service to the country. I know this committee appreciates his leadership and service to the country.
I also want to acknowledge Bob Hale, who is our current comptroller who will be involved in his last budget presentation after five years of very distinguished service to this country and the Department of Defense. And I would tell you as secretary of defense and I suspect my predecessors Secretary Gates, Secretary Panetta would say the same. Bob Hale has been an indispensable part of the process at a very, very difficult time. Hale and his people have worked tirelessly, continue at a time that is probably uncertain as we have been through in maybe any time since World War II -- when we've talked about government shutdowns for 16 days, furloughs, budget uncertainty, no budget. It has been his remarkable leadership that's helped us. I don't think I overstate Bob Hale's value to our department and to this country.
Well, as you suggest, Mr. Chairman, our focus today is on the FY 2015 budget. Let me address, generally, the situation in Ukraine, and then ask in his statements, General Dempsey, for his comments.
General Dempsey and I have both, over the last few days, been in constant touch with our fellow ministers, CHODs [chiefs of defense], at NATO as well as Russia, Ukraine. In fact, today, we are putting together a call for me with the new Minister of Defense for Ukraine. Over the last couple of weeks I've had conversations with the previous two ministers. General Dempsey spoke this morning with the Russian CHOD -- who expressed a number of points that I'll let General Dempsey -- I spoke Saturday with the Russian Minister of Defense, Minister Shoygu, about this.
We have also constantly been in touch, as I said, with our collaborators on our side of the Atlantic, allies, NATO's partners in particular on the issue. I was at NATO last week where I attended the regularly scheduled NATO ministerial. We took a few hours to meet with the NATO-Ukraine Commission. We had then the Deputy Minister of Defense with us of Ukraine and spent some time with him.
Across the administration, our efforts, as you know, Mr. Chairman, have been focused on de-escalating crisis, supporting the new Ukrainian government with economic assistance, and reaffirming our commitments to allies in Central and Eastern Europe.
I strongly support the Administration's approach to this de-escalation. As you all know, Secretary Kerry was in Kiev yesterday. He's in Paris today. He's scheduled to meet with Russian Foreign Minister Lavrov today. There was a NATO meeting yesterday. Another NATO meeting today. OSCE has announced that it is sending 35 observers to Ukraine. The other forums that the United States is part of is also -- they are also meeting. The U.N. has had one Security Council meeting there. I suspect there will be more and other activities along the diplomatic and economic front.
I, earlier this week, directed the Department of Defense to suspend all military-to-military engagements and exercises with Russia. In particular, that includes two trilateral exercises that we had scheduled with the Russians. One, Canadians and the Russians and the other was the Norwegians and the Russians.
Also this morning the Defense Department is pursuing measures to support our allies, including stepping up joint training through our aviation detachment in Poland -- it's an area that I visited a few weeks ago -- and augmenting our participation in NATO's air policing mission on the Baltic Peninsula. Our EUCOM commander, General Breedlove, is convening Central and Eastern European chiefs of defense.
Mr. Chairman, I think everyone on this committee knows -- and, in particular, I know Senator McCain was in Ukraine a few weeks ago -- that this is a time for wise and steady and firm leadership. And it's a time for all of us to stand with Ukrainian people in support of their territorial integrity and their sovereignty. And we are doing that. That, in particular, is what President Obama continues to do as we pursue diplomatic and economic options. And I'd like to, again, thank the committee, Mr. Chairman, for your role in this.
Just another point about supporting the Administration's approach to how we all are coming at this crisis. This economic package that we are proposing -- as you all know, the OSCE has also proposed an economic package, working with the IMF, for Ukraine -- is a particularly important part of this and we'll continue to work those channels as well as the diplomatic channels.
Mr. Chairman, I think it's clear -- as you have noted, Ranking Member Inhofe, in your opening statements -- that the events of the past week underscore the need for America's continued global engagement and leadership. The President's defense budget reflects that reality and it helps sustain our commitments and our leadership at a very defining moment.
I believe this budget is far more than a set of numbers and a list of decisions. It is a statement of values and priorities. It is a budget grounded in reality. And you noted some of that reality, Mr. Chairman, in your remarks.
It's a reality that prepares the U.S. military to defend our national security in a world that is becoming less predictable, more volatile and in some ways more threatening to our country and our interests, as was noted in Ranking Member Inhofe's statement.
It's a plan that allows our military to meet America's future challenges and our future threats. It matches our resources to our strategy. And it's a product of collaboration. All of DoD's military and civilian leaders will include it. The Chairman, the Vice Chairman, Service Secretary, Service Chiefs -- all of our people -- we value their leadership, their input. Our senior enlisted input was important.
And, as we all know, America has been at war for the last 13 years. As we end our second war -- our second war of the last decade, our longest-ever -- this budget adapts and adjusts to new strategic realities and fiscal constraints while preparing for the future.
This is not a budget -- this is not a business-as-usual presentation. It is a budget that begins to make the hard choices that will have to be made. The longer we defer these difficult decisions, the more risk we will have down the road. And the next DoD leaders and Congress will have to face more complicated and difficult choices.
You have outlined, in your statement, Mr. Chairman, some reflection of the kinds of cuts the Department of Defense has had to take over the last couple of years, and what's out ahead of us. December's Bipartisan Budget Act, which you referenced, gave DoD some temporary relief. It gave us some temporary relief from sequestration and it gave us some certainty for planning for a year. But, it still imposes more than $75 billion in cuts over the next two years. And, unless Congress changes the law, like you have noted, sequestration will cut another $50 billion [a year] starting in Fiscal Year 2016.
The President's five-year plan provides a realistic alternative to sequestration, projecting $115 billion more than current law allows. DoD requires that additional funding to implement our updated defense strategy as outlined in the QDR [Quadrennial Defense Review]. The strategic priorities articulated in the QDR represent America's highest security interests: Defending the homeland, building security globally, deterring aggression and being ready and capable to win decisively against any adversary.
The funding levels in the President's budget let us execute this strategy with some increased risks in certain areas. And I made clear in my much, much longer written statement, and it's quite clear in the QDR what these risks are. We have not held back on the reality of these risks.
These risks would be reduced, however, if Congress approves the President's Opportunity, Growth, and Security Initiative, a proposal that would provide DoD with an additional $26 billion in Fiscal Year 2015 to, as you have asked the question, to improve readiness and modernization. That $26 billion represents an effort that would help dig us back out of the hole that we have been in the last two years on readiness and particularly focused on modernization. My submitted statement, as I said, contains details of this initiative, which I strongly support.
Although our five year budget plan exceeds sequestration levels, over the past year, DoD has prepared detailed planning for continued sequestration level cuts, showing the even harder choices we would have to make in order to comply. Those too are laid out.
Even though we're requesting spending levels above sequestration, we have maintained flexibility in our budget -- flexibility to respond immediately to the lower top line should sequestration be imposed. We did this by reprogramming some of the sequestration-level force structure reductions that take longer to plan and longer to implement, such as the decommissioning of the aircraft carrier the U.S.S. George Washington. This was the responsible thing to do. It was responsible given the reality that DoD might continue to experience the large cuts in the budget, and sequestration laws -- because of going back, reverting to sequestration in 2016. That's why I've issued formal guidance to service leadership, Mr. Chairman, that these specific reductions will not be made if Congress indicates it would make future appropriations at the top-line levels in our five-year plan. DoD has a responsibility to prepared for all eventualities, just as Congress has a responsibility to provide DoD with some budget predictability.
My submitted statement explains our budget details and rationale behind those key decisions, but I wanted to, as I close, Mr. Chairman, briefly address some very critical issues.
First, the balance between readiness, capability and capacity.
To meet our national security needs under constrained budgets, we focused on the balance -- the balance that will be required to defend this country going forward.
After more than a decade of long, large stability operations, we traded some capacity to protect the readiness and modernization capabilities as we shift focus on future requirements. These are shaped by enduring and emerging threats. We have to be able to defeat terrorist threats and deter adversaries with increasingly modern weapons and technological capabilities. We must also ensure that America's economic interests are protected through open sea lanes, freedom of the skies and space and deal with one of the most urgent and real threats facing all nations: cyber attacks. That's why we've protected funding for cyber and special operations forces.
For the active-duty Army, Mr. Chairman, we propose drawing down to about 440,000 to 450,000 soldiers. Less than 10% below its size pre-9/11. I believe this is adequate for future demand. We will continue investing in high-end ground capabilities to keep our soldiers the most advanced -- the most advanced on Earth.
Army National Guard and Reserve units will remain a vibrant part of our national defense, and will draw down by 5%. We will also streamline Army helicopter force structure by reducing the Guard's fleet by 8%. The Active Army's fleet will be cut by 25%, but we will still maintain and keep these helicopters modernized with the latest technology as we move from a fleet of seven models to four.
These decisions, including our recommendation to trade out Apache's for the Guard -- or in the Guard -- for Black Hawks, were driven by strategic evaluations. Guard units may prefer the Apache, but under constrained budgets, high-demand resources like Apaches must be where they can deploy fastest. As our NORTHCOM commander recently testified, his homeland missions do not require armed attack helicopters.
The Navy, for its part, will take 11 ships out of its operational inventory, but they will be modernized and returned to service with greater capability along the lifespans.
The Marine Corps will continue its planned draw down to 182,000, but will devote 900 more Marines to increased embassy security. Though smaller, the Marines will remain ready and postured for crisis response as they move back to their expeditionary, amphibious roots.
And Air Force, as you have noted, will retire the A-10, replacing it with more modern and sophisticated multi-mission aircraft like the Joint Strike Fighter.
The specifics, numbers and reasons for all of my recommendations as I have noted are included in my statement.
As I close, Mr. Chairman, regarding compensation reform. Taking care of our people means providing them with both fair compensation as well as the training and tools they need to succeed in battle at anytime, anywhere, and return home safely. To meet those obligations under constrained budgets and achieve that balance, we need some modest adjustments to the growth in pay and benefits.
All these savings will be reinvested in training and equipping our troops. And there are no proposals to change retirement in this budget. Let me clarify what these compensation adjustments are, and what they are not.
First, we will continue to recommend pay increases. They won't be as substantial as in past years, but they will continue.
Second, we will continue subsidizing off-base housing costs. The 100% benefit of today will be reduced, but only to 95%, and it will be phased in over the next several years.
Third, we are not shutting down any commissaries. We recommend gradually phasing out some subsidies, but only for domestic commissaries that are not in remote locations. Since commissaries will continue to operate tax- and rent-free, they will still be able to provide more people with a very good deal, as they should.
Fourth, we recommend simplifying and modernizing our three TRICARE systems by merging them into one TRICARE system with modest increases in co-pays and deductibles that encourage using the most affordable means of care. Active-duty personnel will still receive health care that is entirely free. This will be more effective and more efficient, and will let us focus more on quality. Overall, everyone's benefits will remain substantial, affordable and generous -- as they should be.
The President's defense budget is responsible, it's balanced, and it's realistic. It supports our defense strategy, defends this country, and keeps our commitments to our people -- not only ensuring that they are well compensated, but they have the best training and equipment in the world.
However, these commitments would be seriously jeopardized by a return to sequestration-level spending. My submitted testimony details how sequestration would in fact compromise our national security.
The result of sequestration-level cuts would be a military that could not fulfill its defense strategy, putting at risk America's traditional role as a guarantor of global security -- and, ultimately, our own security.
That is not the military the President and I want for America's future. I don't think that's the military this committee wants for America's future, but it's the path we are on.
Mr. Chairman, members of the committee, DoD leaders and I look forward to working with you as we make these difficult choices, these hard decisions that will be required to ensure America's security today and into the future and protect our national interests.
Mr. Chairman, thank you.