SECRETARY OF DEFENSE CHUCK HAGEL: Good afternoon. I want to make some remarks about our Strategic Choices Management Review, which I directed about four months ago, and Sandy Winnefeld, who as you all know is the vice chairman of the Joint Chiefs, is here and will add his comments, as well.
The chairman is in Arizona, where he has just recently welcomed his eighth grandchild, so he's doing important business, as he is taking care of twin boys who are two years old. So he is testing his chairmanship and his ability in that regard. So that's why General Dempsey is not with us today.
So I'll begin, and then Admiral Winnefeld will add his thoughts. And we'll take some questions. And if you all want to go deep, deep down into what I'm going to talk about, then we have some of our budget and financial analysts here to go as deep as you want to go on what I'm going to talk about here in the next few minutes. So, thank you for giving me some time today.
Earlier today, I briefed key congressional committee leaders on the findings of DOD's Strategic Choices Management Review. And this afternoon, as I've said, I want to talk about these findings and clarify the major options and the difficult choices that we have ahead.
I directed the Strategic Choices and Management Review four months ago to help ensure the Department of Defense is prepared in the face of unprecedented budget uncertainty. Although DOD strongly supports the president's fiscal year 2014 request and long-term budget plan for the entire federal government, the deep and abrupt spending cuts under sequestration that began on March 1st of this year, are, as you all know, the law of the land.
Sequestration will continue in the absence of an agreement that replaces the Budget Control Act. The purpose of the Strategic Choices and Management Review, which was led by the Deputy Secretary of Defense Ash Carter, with the full participation of General Dempsey and Admiral Winnefeld, the service secretaries and the service chiefs, was to understand the impact of further budget reductions on the department and develop options to deal with these additional cuts.
It had three specific objectives: help DOD prepare for how to deal with sequestration if it continues in fiscal year 2014; inform the fiscal guidance given to the military services for their fiscal year 2015 through 2019 budget plans; and, third, anchor the upcoming Quadrennial Defense Review, which will assess our defense strategy in light of new fiscal realities and the many threats and complexities and uncertainties of this new century.
The Strategic Choices and Management Review did not produce a detailed budget blueprint. That was not the purpose of the review. It generated a menu of options, not a set of decisions. These options were built around the potential budget scenarios:
First, the president's fiscal year 2014 budget, which incorporates the carefully calibrated and largely back-loaded $150 billion reduction in defense spending over the next 10 years.
Second, the Budget Control Act sequester level caps, which would cut another $52 billion from defense spending in fiscal year 2014, with $500 billion in reductions for the DOD over the next 10 years.
And then we looked at, third -- the third scenario, an in-between scenario that would reduce defense spending by about $250 billion over the next 10 years, but would be largely back-loaded.
It's important to remember that all these cuts are in addition to the $487 billion reduction in defense spending over the next decade required by the initial caps in the Budget Control Act of 2011, which DOD is currently implementing. If sequester-level cuts persist, DOD would experience nearly $1 trillion in defense spending reductions over the next 10 years.
To help DOD balance strategic ends, ways and means under these budget scenarios, the Strategic Choices and Management Review scrutinized every aspect of DOD's budget, including contingency planning, business practices, force structure, pay and benefits, acquisition practices, and modernization portfolios. Everything was on the table.
As I discussed last week at the VFW convention in Louisville, four principles helped guide this review. First, prioritizing DOD's missions and capabilities around our core responsibility of defending our country; second, maximizing the military's combat power by looking to reduce every other category of spending first; third, preserving and strengthening military readiness; and, fourth, honoring the service and sacrifice of DOD's people and their families.
Those principles, and a rigorous review process, resulted in packages of options that included management efficiencies and overhead reductions, compensation reform, and changes to force structure and modernization plans. Allow me to share with you some of the options the review identified in each of the areas I've just mentioned.
First, management efficiencies and overhead reductions. A tenet of the review was what we need to focus on is maximizing savings from reducing DOD's overhead administrative costs and other institutional expenses. For several years, DOD has been paring back overhead. About $150 billion in five-year efficiency reductions were proposed by Secretary Gates. An additional $60 billion in savings were identified by Secretary Panetta. And I submitted a $34 billion savings package in our latest budget.
DOD is continuing to implement these efficiency campaigns, but despite much progress, as well as good efforts and intentions, not every proposal has generated the savings we expected or gained the support of Congress, most notably, our request for a base realignment and closure round.
The review showed that DOD will have to do more in this area, much more, even though it is getting more difficult to find these cuts, and it can take years for significant savings to be realized. After considering the results of the review, I determined that it is possible and prudent to begin implementing a new package of efficiency reforms now, ones that should be pursued regardless of fiscal circumstances.
Some of these management efficiencies and overhead reductions include:
Reducing the department's major headquarters budgets by 20 percent, beginning with the Office of the Secretary of Defense, the Joint Staff, service headquarters and secretariats, combatant commands, and defense agencies and field activities. Although the 20 percent cut applies to budget dollars, organizations will strive for a goal of 20 percent reductions in government civilians and military personnel
Reducing the number of direct reports to the secretary of defense by further consolidating functions within OSD, as well as eliminating positions
Reducing intelligence analysis and production at combatant command intelligence and operation centers, which will also foster closer integration and reduce duplication across defense enterprises.
These management reforms, consolidations, personnel cuts, and spending reductions will reduce the department's overhead and operating costs by some $10 billion over the next five years and almost $40 billion over the next decade. They will make the department more agile and more versatile.
Past efficiency campaigns have shown that implementation can be very challenging, so effective follow-through is critical, if savings targets are to be realized. This is especially true of OSD reductions. I've asked Deputy Secretary Carter to identify someone from outside DOD who is deeply knowledgeable about the defense enterprise and eminently qualified to direct implementation of the OSD reductions and report to the deputy secretary.
In addition to the measures I've described, the review identified additional consolidations and mission reductions that could be required, if sequester-level caps are imposed over the long term. These measures include consolidations of regional combatant commands, defense agency mission cuts, and further IT consolidation. These changes would be far-reaching and require further analysis and consideration. Though defense bureaucracies are often derided, the fact is that these offices perform functions needed to manage, administer, and support a military of our size, complexity, and global reach.
Even over the course of a decade, the cumulative savings of the most aggressive efficiency options identified by the review are $60 billion. That's a small fraction of what is needed under sequester-level cuts. We will have to look elsewhere for more savings.
Compensation. The review confirmed that no serious attempt to achieve significant savings can avoid sequestration -- or compensation cuts, which consume roughly half of the DOD budget. If left unchecked, pay and benefits will continue to eat into our readiness and modernization. That could result in a far less capable force that is well-compensated, but poorly trained and poorly equipped.
Any discussion of compensation should acknowledge the following:
No one in uniform is overpaid for what they do for this country
People are DOD's most important asset, and we must sustain compensation packages that recruit and retain the finest military in the world
The significant military pay and benefit increases over the last decade reflected the need to sustain a force under considerable stress, especially the Army and Marines, during the height of the Iraq and Afghan campaigns
One post-9/11 war is over. And the second, our nation's longest war, is coming to an end.
Overall, personnel costs have risen dramatically, some 40 percent above inflation since 2001. The department cannot afford to sustain this growth.
Reflecting these realities, the president's fiscal year 2014 budget included a package of modest compensation-related reforms that have the strong support of our uniform leadership. Congress has signaled its opposition to some of these proposals, including modest increases in TRICARE fees for working-age retirees.
But given our current fiscal situation, DOD has no choice but to consider compensation changes of greater magnitude for military and civilian personnel. The review developed compensation savings options that we believe would continue to allow the military to recruit and retain the high-quality personnel we will need. If we were to pursue these options, we would need Congress's partnership to implement many of them. Examples include:
Changing military health care for retirement for retirees to increase use of private-sector insurance when available
Changing how the basic allowance for housing is calculated, so that individuals are asked to pay a little more of their own housing costs
Reducing the overseas cost-of-living adjustments
Continuing to limit military and civilian pay increases.
Many will object to these ideas, and I want to be clear that we are not announcing any compensation changes today. Instead, I've asked Chairman Dempsey to lead an effort with the service chiefs and the senior enlisted advisers to develop a package of compensation proposals that meet savings targets identified in the review, almost $50 billion over the next decade, and still enabled us to retain and recruit the high-quality force. We would begin implementing this package in the fiscal year 2015 budget. Senior OSD staff will lead a similar review for civilian pay and benefits.
The review also identified more sweeping changes to meet sequester-level targets, such as eliminating civilian pensions for retired military personnel serving in civilian government service, ending subsidies for defense commissaries, and restricting the availability of unemployment benefits.
This package would yield savings of almost $100 billion over the next decade, but would have a significant impact on our service members and our workforce. But a sequester-level scenario would compel us to consider these changes, because there would be no realistic alternative that did not pose unacceptable risks to national security.
Strategic choices, force structure, and modernization. The efficiencies in compensation reforms identified in the review, even the most aggressive changes still leave DOD some $350 billion to $400 billion short of the $500 billion in cuts required by sequestration over the next 10 years. The review had to take a hard look at changes to our force structure and modernization plans. The president's defense strategic guidance anchored this effort. The goal was to find savings that best preserve the tenets of the president's strategy, such as strategic deterrence, homeland defense, and the rebalance to the Asia Pacific.
The review concluded we should not take reductions proportionately across the military services. Instead, the options we examined were informed by strategy, and they will guide the services as they build two sets of budgets for FY 2015 through 2019, one at the president's budget level and one at sequester-level caps.
While we want to preserve flexibility for each military service to develop the best force possible, given reduced resources, the review identified areas where we have excess capacity to meet current and anticipated future needs. In particular, the analysis concluded that we can strategically reduce the size of our ground and tactical air forces even beyond the current drawdown.
I've not made any program or force structure decisions, and more analysis will be required before the decisions are made. But with the end of the war in Iraq, the drawdown in Afghanistan, and a changing requirement to conduct protracted large-scale counterinsurgency operations, it makes sense to take another look at the Army's force structure, which is currently planned to reach 490,000 in the active component and 555,000 in the reserves.
One option the review examined found that we could still execute the priority missions determined by our defense strategy, while reducing Army end strength to between 420,000 and 450,000 in the active component and between 490,000 and 530,000 in the Army Reserves. Similarly, the Air Force could reduce tactical aircraft squadrons, potentially as many as five, and cut the size of the C-130 fleet with minimal risk.
In the months ahead, I will work closely with Chairman Dempsey and each of the service chiefs to reach agreement on the proper size of our armed forces, taking into account real-world needs in a dangerous world. A modest reduction in force structure, when combined with management efficiencies and compensation reforms, would enable us to meet the $150 billion in savings required by the president's budget proposal while still defending the country and fulfilling our global responsibilities. We can sustain our current defense strategy under the president's budget request.
Significant reductions beyond the president's plan would require many more dramatic cuts to force structure. The review showed that the in-between budget scenario we evaluated would bend our defense strategy in important ways, and sequester-level cuts would break some parts of the strategy, no matter how the cuts were made. Under sequester-level cuts, our military options and flexibility will be severely constrained.
Given that reality, the review examined two strategic approaches to reducing force structure and modernization that will inform planning for sequester-level cuts. The basic tradeoff is between capacity, measured in the number of Army brigades, Navy ships, Air Force squadrons, and Marine battalions, and capability, our ability to modernize weapons systems and to maintain our military's technological edge.
In the first approach, we would trade away size for high-end capability. This would further shrink the active Army to between 380,000 to 450,000 troops, reduce the number of carrier strike groups from 11 to 8 or 9, draw down the Marine Corps from 182,000 to between 150,000 and 175,000, and retire older Air Force bombers. We would protect investments to counter anti-access and area-denial threats, such as the long-range strike family of systems, submarine cruise missile upgrades, and the Joint Strike Fighter, and we would continue to make cyber capabilities and special operations forces a high priority.
This strategic choice would result in a force that would be technologically dominant, but would be much smaller and able to go fewer places and do fewer things, especially if crisis occurred at the same time in different regions of the world. The second approach would trade away high-end capability for size. We would look to sustain our capacity for regional power projection and presence by making more limited cuts to ground forces, ships, and aircraft. But we would cancel or curtail many modernization programs, slow the growth of cyber enhancements, and reduce special operations forces.
Cuts on this scale would, in effect, be a decade-long modernization holiday. The military could find its equipment and weapons systems -- many of which are already near the end of their service lives -- less effective against more technologically advanced adversaries. We also have to consider how massive cuts to procurement and research and development funding would impact the viability of America's private-sector industrial base.
These two approaches illustrate the difficult tradeoffs and strategic choices that would face the department in a scenario where sequester-level cuts continue. Going forward in the months ahead, DOD and ultimately the president will decide on a strategic course that best preserves our ability to defend our national security interests under this very daunting budget scenario.
The balance we strike between capability, capacity, and readiness will determine the composition and the size of the force for years to come. We could in the end make decisions that result in a very different force from the options I've described here today.
Our goal is to be able to give the president informed recommendations, not to prejudge outcomes. Regardless, the decision-making process will benefit from the insights of this review provided.
In closing, one of the most striking conclusions of the Strategic Choices and Management Review is that if DOD combines all the reductions I've described, including significant cuts to the military's size and capability, the savings fall well short of meeting sequester-level cuts, particularly during the first five years of these steep decade-long reductions. The reality is that cuts to overhead, compensation, and forces generate savings slowly. With dramatic reductions in each area, we do reach sequester-level savings, but only toward the end of a 10-year timeframe.
Every scenario of the review examined showed shortfalls in the early years of $30 billion to $35 billion. These shortfalls will be even larger if Congress is unwilling to enact changes to compensation or adopt other management reforms and infrastructure cuts we've proposed in our fiscal year 2014 budget. Opposition to these proposals must be engaged and overcome, or we will be forced to take even more draconian steps in the future.
A lot has been said about the impact of sequestration. Before this review, like many Americans, I wondered why a 10 percent budget cut was, in fact, so destructive. Families and businesses trim their costs by similar projections.
But this analysis showed in the starkest terms how a 10 percent defense spending reduction causes the reality in a much higher reduction in military readiness and capability. Unlike the private sector, the federal government, and the Defense Department in particular, simply does not have the option of quickly shutting down excess facilities, eliminating entire organizations and operations, or shutting massive numbers of employees, at least not in a responsible, moral, and legal way.
The fact is that half of our budget, including areas like compensation, where we need to achieve savings, are essentially off-limits for quick reductions. Given that reality, the only way to implement an additional, abrupt 10 percent reduction in the defense budget is to make senseless, non-strategic cuts that damage military readiness, disrupt operations, and erode our technological edge.
We have already seen some of the significant effects of the $37 billion reduction occurring in this fiscal year, including halting all flying for some Air Force squadrons, canceling ship deployments, ending Army combat training center rotations for brigades not deploying to Afghanistan, and imposing furloughs for 650,000 DOD civilians.
In fiscal year 2014, this damage will continue if sequestration persists. DOD is now developing a contingency plan to accommodate the $52 billion sequester-level reduction in fiscal year 2014, which I outlined in a letter this month to Senate Armed Services Committee Chairman Levin and Ranking Member Inhofe. Congress will need to help us manage these deep and abrupt reductions responsibly and efficiently.
The bold management reforms, compensation changes, and force structure reductions identified by the Strategic Choices and Management Review can help reduce the damage that would be caused by the persistence of sequestration in fiscal year 2014, but they won't come close to avoiding it altogether. The review demonstrated that making cuts strategically is only possible if they are back-loaded. While no agency welcomes additional budget cuts, a scenario where we have additional time to implement reductions, such as in the president's budget, would be far preferable to the deep cuts of sequestration. If these abrupt cuts remain, we risk fielding a force that over the next few years is unprepared due to a lack of training, maintenance, and the latest equipment.
And as I mentioned last week at the VFW convention, a top priority in future-year budget plans is to build a ready force, even if that requires future reductions in force structure. No matter the size of our budget, we have a responsibility to defend the country and America's vital interests around the world. That means crafting the strongest military possible under whatever level of resources we are provided.
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 in the event of a major confrontation or a crisis after several years of sequester-level cuts. In the months ahead, we will continue to provide our most honest and best assessment. And the inescapable conclusion is that letting sequester-level cuts persist would be a huge strategic miscalculation that would not be in our country's best interests.
While I've focused today on the impact to DOD, sequester-level cuts would equally harm other missions across the government to support a strong economy, which, as is always the case, supports a strong national defense. And this will be important, because providing that support through that economy to our servicemembers, veterans and their families is part of our overall readiness and capabilities and capacity responsibilities.
DOD depends on a strong education system to maintain a pool of qualified recruits. We rely on domestic infrastructure that surrounds our bases and installations. And we count on scientific breakthroughs funded by research and development grants and a strong manufacturing base to maintain our decisive technological edge. All of these areas are threatened by sequestration.
It is the responsibility of our nation's leaders to work together to replace the mindless and irresponsible policy of sequestration. It is unworthy of the service and sacrifice of our nation's men and women in uniform and their families. And even as we confront tough fiscal realities, our decisions must always be worthy of the sacrifices we ask America's sons and daughters to make for our country.
Thank you. I'll now ask Adm. Winnefeld for his comments, and we'll be glad to respond to some questions.
ADM. JAMES WINNEFELD: Well, good afternoon, and I'll be very brief so we can get to your questions. I just want to underscore for you several of the secretary's comments from the uniform point of view.
First, this was, indeed, a collaborative process that involved the Office of the Secretary of Defense, the combatant commanders, the services, and the Joint Staff. It was a deep and very painful look at every corner of our entire institution, and I can tell you that although nobody was very happy as they came to terms with what a cut to their particular part of the department would involve, they were all involved in the process, and the process made us all better.
Second, I would tell you that this was not an academic exercise. We looked at everything. Everything was on the table. We kept our strategic interests at the forefront of the discussion. And it became quickly apparent there is no free lunch. We need to understand that the more our means are reduced, the more we may have to adjust the ends that we hope to achieve or accept more risk as we achieve those ends.
Third, as the secretary pointed out, the most damaging element of this whole process for us is the speed at which the reductions hit us, particularly in the case of the full Budget Control Act cuts. They're sudden and deep, rather than gradual, but we are limited in how fast we can or should reduce the number of people in our department, and we're limited by legislation in the ways that we can cut other parts of our budget.
So unless we can backload, as the secretary said, all we can really do in the early years of this thing is grab money wherever we can, which it will be principally out of modernization and readiness, and that is what makes the early years of these cuts particularly disruptive to our ability to defend the nation.
Fourth, I would tell you, we need the freedom to find savings and efficiencies in compensation first or the structure and modernization and readiness of the force that defends our nation will have to be reduced even more. And I know the chairman and I are very concerned that most of those reductions could end up coming on the back of readiness.
And indeed, all of this comes as we're digging out of the readiness hole that we constructed in -- because of this year's sequester, $37 billion over seven or eight months. We stopped or slowed training on a very large scale this year, and it's going to take both resources and time to recover and get that readiness back.
But I'll close by saying that no matter the budget challenge we face, I can assure you that the magnificent young men and women in uniform who stand on the front line for this country, supported by our fantastic DOD civilians, will do everything we can to remain the world's best fighting force. And I'll leave it at that, and I'll defer to the secretary to manage the questions.
SEC. HAGEL: Thank you. Bob?
Q: Mr. Secretary, question for you about your description of the scenarios, budget scenarios. You said the in-between -- as you call them, in-between budget scenario would bend the president's defense strategy and then a full sequestration cut would break some parts of it. Could you explain in a little more detail what you mean -- what parts would be broken? For example, the pivot to Asia or other key elements of the strategy?
And may I ask, also, both of you a question about Egypt? And is the Bright Star military exercise that's scheduled for September, is that still viable, given what's going on in Egypt right now? Have you made a decision about that?
SEC. HAGEL: On your budget question, Bob, specifically, bend, break on the middle course versus sequestration, what I was trying to point out there is the first part of the answer is, obviously, when you are reducing your resource base in the kind of numbers and in the sequestration scenario, as Admiral Winnefeld noted, as abruptly and steeply, there will have to be adjustments to strategies. We don't have any choice. As I noted in my comments, we prioritize where our national security interests are. And I noted, I think, four on what our review was predicated on.
Now, to get below those and the variations of how do you fulfill those strategic interests and protect those strategic interests, adjustments will have to be made, and that's part of our continuing and ongoing efforts to review what we may have to be dealing with.
So we tried to give at least some general sense of -- rather than -- not sinking down into numbers and technicalities so deep, that this is a way to maybe describe on these two different scenarios you brought up on what would occur, what would be the consequences, if you continue to take $50 billion cuts a year over the next 10 years versus spreading that out and coming down more slowly at the back end with half of those cuts. So let me leave that answer there.
As to the Egyptian question, I'll ask Admiral Winnefeld for his thoughts. We don't discuss any of the specifics of the strategies and the exercises that we have ongoing. These are bilateral agreements and arrangements, and if Admiral Winnefeld wanted to go into any more detail, it'd be...
Q: Well, the question is whether you're going to go ahead with it. It's been announced.
SEC. HAGEL: Well -- I know. Well, just as it's been announced, we're planning on going ahead with it. But beyond that...
ADM. WINNEFELD: Yeah, I think that covered it.
SEC. HAGEL: Tom?
Q: Thank you, Mr. Secretary. Since the SCMR process was not transparent to all of us, I was hoping that you and the vice could tell us whether at any point in the discussion you really looked at using this financial crisis to recreate the way the military does its business, the way it's organized, trained and equipped, to come out the end with a different, but smarter military? Or is this simply an exercise in managing a downward budget, where some things have to get smaller and some are protected, but the military's more or less the same at the end of the day?
SEC. HAGEL: Well, I think it's a variation of all of the components that you just asked about. Certainly, it's being forced by the budget issue, where we have no choice. I mean, we are living with the reality we're living with. This isn't theoretical. The law of the land right now is sequestration. As Admiral Winnefeld just noted, we are now in the last couple of months of going through a $37 billion reduction in this fiscal year. October 1st starts a new fiscal year. Unless there is a budget agreement reached at some point, we're going to be dealing with an additional $52 billion. So, of course, that component forced the review.
But to your bigger point, we wound down, as I noted, out of one war, long war, eight-year war. We're winding down out of the longest war, 12 years, still there. Of course that's going to have an impact on force structure capabilities. And then you look at the larger context of the kind of world that we're living in today versus five years ago or certainly 10 years ago. I doubt if cyber was a given 10 years ago. When I was in the United States Senate, I don't recall cyber being on a top priority list as one of the great threats to our security 10 years ago.
Different dynamics. Bipolar world. Different influences. The Economist magazine has a very interesting piece out this week on -- they maintain over the last 20 years it's been an historic shift and diffusion of economic power in the history of man. We've never seen anything like it. Half of the world's GDP today is coming from developing countries, spending power. It wasn't that way 10 years ago.
So this is not unusual. In one sense, it -- institutions, defense strategies, structures are always shifting and are always having to adapt to the threats that are out there. And all the components of why we've been successful, I think, in our country -- certainly post-World War II -- is that we've had a technological edge, we've had the professionalism of the -- of a military that is really unequaled in the world of our -- with our people.
We've had strategies. You know, we haven't always made every call right. So I think, Tom, all of the pieces that you mentioned in your question are part of what we're looking at now. We would have to do it anyway. We would have to do it anyway, just simply because the world's shifting. And the fact is, we've come out of two wars.
ADM. WINNEFELD: Tom, I would add, strategy really, as you know, is about balancing ends, ways and means. And it's not about one or the other. It's about balancing all three. And so we couldn't just look at reduced means and reduced ends and that -- without looking at the ways in between. And a considerable amount of intellectual effort inside the SCMR process was devoted to looking at new ways of doing business.
And I will tell you, we didn't come up with any dramatic changes in service organization or anything like that, but there was a considerable effort involved in the ways. And things like, how do you generate presence more innovatively? How would you do homeland air defense more innovatively? And taking a deep look inside some of our contingency plans, is there a more efficient way we can execute those things?
So, yes, the answer -- we did look at ways, but as the secretary, I think, pointed out, no major structural changes that would -- that would be at the magnitude that some people sometimes speculate.
SEC. HAGEL: Tony? Tony?
Q: You -- you lay out here a tale of two approaches, basically, trading off high-end capability for force structure or vice versa. When will the public get a sense of which approach is predominant? Will that be in the fiscal '15 budget?
And given that this was such a collaborative, deep and painful process, where many players were involved, was there a rough consensus that emerged in terms of what approach would be preferable, smaller, high-capable force or a little larger force with less capability?
SEC. HAGEL: Well, I'll give you my answer, and then if Admiral Winnefeld will want to respond. Let's start with the second part of your question. As I said in my remarks, we're going to work our way through all of this on that second part of your question, what's preferable, what are the threats, what are the resources, on capability versus capacity, smaller versus larger.
As I said, no decisions have been made. This would be part two, as we prepare for the first part of your question, fiscal year 2015. As you know, we are now starting to sail into that, with all our service chiefs, combatant commanders, everybody's involved in -- you all know that process, and POMs and everything that goes into it.
This review, as I noted, will be immensely helpful to help inform that. And the question that you asked are all going to have to be part of this overall strategic look as to what decisions are we going to make? What decisions may we be forced to make? To Bob's question about the prioritization of our interests, and we talked about break and bend, that's part two. That's what we'll sail into now.
Do you want to add anything to this?
ADM. WINNEFELD: Yeah, Tony, I'd say the principal tension between capability and capacity really starts to come into play at the higher levels of budget reductions. So if we ended up with the full BCA, $52 billion forever cuts, that's where that really is going to come into play.
So we've asked the services to go and look at a couple of different budget scenarios, because we don't know where we're going to be. This is one of the frustrating things here. We don't know how much money we're going to have. We don't know when we will know how much money we're going to have. And we don't know what the rules are going to be when we know.
So the services are planning -- and it's actually taking quite a toll on their "budgeteers" right now to do this -- but we have to do it this way. And so I would tell you that we -- one of the great things about this process, it was top-down and bottom-up. And as the secretary just pointed out, the bottom-up stuff is really coming into play now, where the services are going back with fiscal guidance, and they're going to construct these two alternatives for us.
And it's not an alternative capability -- capacity. It's alternatives of numbers -- you know, a dollar number. But I believe what we're going to find is that we will edge slightly probably towards capability, because we have to keep our industrial base alive, we have to keep focusing on new technologies that will take care of us in the future. But we'll have to keep an eye on the capacity that might be required to fight a war today.
Q: Okay, thanks.
SEC. HAGEL: David?
Q: I'm still unclear. This smaller, but still technologically dominant force, would that bend or break the ability to execute the national strategy?
SEC. HAGEL: Well, I think the answer to that is all the things we've been talking about, David. And Admiral Winnefeld just said, we don't know. I mean, when you factor in the uncertainty that Admiral Winnefeld just noted that we're living with, the abruptness and the deepness that right now we're living with -- and may have to continue to live with -- is going to affect this. Until we get through the part two of this, as Admiral Winnefeld noted, that the services having an opportunity to sit down with their numbers that we will give them on their guidance, as they prepare fiscal year 2015 budgets and through 2019, this will all impact your question and the answer to your question.
Admiral, do you want to add anything?
ADM. WINNEFELD: So I would say, David, that, first of all, the options as presented, you know, it's not all capability or all capacity. Somewhere, if we have to go that way, full BCA cuts, it's going to be something in the middle, and we know that.
The real question is if either of those scenarios gets us into what was described as break. So what is break? Break is not you can't do anything in the strategy. It means there are certain things that are in this strategy that we're going to have a really hard time doing, may not be able to do, or we'll have to do it at extremely high risk.
And because what we were doing here is teeing up choices, we haven't made those choices yet. We now understand them very, very well. The secretary understands them. And when we finally get an answer on what -- what the financial outlook is going to look like, we will then begin to make those choices. And that would determine which parts of the strategy would suffer the most.
I hope that helps.
Q: Why would it be a huge strategic miscalculation, if you -- if you're not sure of what the impact would be?
ADM. WINNEFELD: We're going to have to assess that as those decisions come into focus, and we're going to have to consult, of course, with the president on his take on what the potential answers are going to be.
Q: Mr. Hagel...
GEORGE LITTLE: Time for one more.
SEC. HAGEL: Okay. Dave?
Q: You've mentioned a number of reforms that -- that Congress has strongly opposed, BRAC, TRICARE, compensation reform. How are you going to convince them to go along with those changes? And will the cutbacks in the -- in the headquarters, the efficiencies that you've gotten there, will that help?
SEC. HAGEL: Well, I don't know what will help, but I would answer your question this way. I noted, as I opened my comments today, I spent an hour-and-a-half this morning with the ranking members and chairmen of the House and Senate Armed Services Committee and appropriations committees. And we went through in some detail, in a pretty significant briefing, to them and their senior staff, something similar to what I've just given you narratively. But we went through the graphs and the numbers and so on.
We have been keeping the Hill tuned into this as we go along for obvious reasons, so as much as we had, we could give them, and as best organized as we were able to organize it, rather than just throwing things out, because they are going to have to be partners. They're always partners. And they need to understand -- it doesn't mean they agree -- but to answer your question, we're going to need their help -- and I told them that today -- because if we are not allowed, any maneuverability in some of these tough choices that we're all going to have to make, then we're going to have to be forced to go into, for example, investment accounts, go into areas where you're going to have to essentially rob accounts for the future.
We're starting from a hole now in readiness. As we go into 2014 -- and the admiral can speak clearly about this -- and so we're in a hole right now as we go into 2014, because we have had to go to accounts -- you heard some of the things that we talked about -- for example, no training, no flying, ships aren't sailing. Well, that cuts right into readiness, and you can't buy back that readiness. And so we're going to have to find some of these other cuts in some tough areas, and we're going to need some room here and some management room, maneuverability to make some tough cuts with the Congress on this.
And I don't speak for the Congress. I never did. But we're going to have to hopefully be able to give them as much as we can give them to help all of us understand what we're facing here. And I always believe the education and information is critical to any decision-making process. And I know there's politics in all this. I get all that. We understand those realities. No one likes to lose anything. We get all that.
But what we're trying to project here is not crying wolf or not trying to overstate or overhype -- and in every word I said here and everything that our people have been talking about, every time they talk to the press, I have said, said it again this afternoon, don't put a word anywhere that's exaggerated. I don't want any of us to have to come back and say, "Well, but you overstated that, Mr. Secretary." I don't want you to understate it, but everything we say has to be factual.
Now, you'll draw your own conclusions. But this is what we owe to the Congress, and this is a partnership, and it's why I close my comments, is the responsibility we have to them, to the president. The president's got to know what he's got and what he doesn't have. It's in all of our interests, regardless of if you're a democrat or republican. It's the responsibility of the Congress here, too. We all have some responsibilities.
So I'm -- I have some confidence that we're going to be able to work with the Congress on this.
MR. LITTLE: Thank you, everyone. Appreciate it.
Q: (OFF-MIC) more question?
SEC. HAGEL: Go ahead.
Q: This is a very small Army that you lay out here, 380,000. Are there examples of things that the U.S. has historically done, Operation Desert Storm, Operation Iraqi Freedom, that we could not do on this historically small active-duty Army?
SEC. HAGEL: Well, first, let me just re-emphasize, so that there's no misunderstanding about this, is that we're not proposing a 380,000 Army. We're not advocating that. But in the interest of being honest with you, as you educate and inform the American public and educate yourselves and leaders of this country, elected leaders, they've got to know the ranges, they've got to know the dimensions of this.
So in answer to your question, not to keep going back to the same answer we give for almost everything, but I can't give you much more of an answer on this until we get down into exactly what we talked about earlier, inventorying the strategic interests, how do we fulfill those strategic interests, how can we do this, all the different scenarios that are out there?
And again, we've made no choices. We're not making any recommendations on any of this. This is an honest range of what the review has produced from one end to the other on what we're going to be looking at here.
MR. LITTLE: Thank you, everyone.
SEC. HAGEL: Thank you.