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Background Briefing on the Fiscal 2003 DoD Budget Submission

Background Briefing on the Fiscal 2003 DoD Budget Submission

Source: News Transcript from the United States Department of Defense. DoD News Briefing: Senior Defense Official, Friday, February 1, 2002.. Slides shown during this briefing are located on the web.

Staff: Welcome to the background session on the fiscal year 2003 Department of Defense budget submission. I'll just take a second to go through some of the, remind about some of the procedures.

The materials that you received earlier this afternoon and the comments being made today as well as the ones that you might receive later from the services are embargoed until Monday morning, February 4th at 9:00 a.m. Eastern time. This is in conjunction with the release of the President's budget also scheduled for that time. You should have received the conditions of this embargo with the packet of materials that you were given earlier.

You most likely know our briefer today. When the embargo is lifted on Monday remember this is a background briefing so the attribution for his remarks, even when you use them Monday, should be as a senior defense official.

After this session here the services will have presentations on their specific programs. These will be in the OSD, the Office of the Secretary of Defense, conference center which is Room 1E801, downstairs from us here. The service representatives will be there to answer any questions you may have.

You should have a sheet with the room locations but let me rip through these just to make sure. The Air Force is in room one; the Navy is in room seven; the Army is in room four; the Missile Defense Agency is in room six; and representatives for DoD-wide questions such as personnel issues will be in room five. Again, that's all within 1E801.

Also when we published the advisor for this particular background embargoed briefing we said that the particulars for Monday's briefing would be released at a later time. You should have seen an advisory out this morning. The briefing on Monday will be here at 3:00 p.m. Eastern time with Secretary of Defense Rumsfeld and also the Comptroller, Dr. Doug Zackheim.

And just again a reminder, this particular briefing: embargoed until Monday at 9:00 a.m., senior defense official. And for your information this is who it is for those few of you who may not know this.

Senior Defense Official: I'm your friendly senior defense official. I am accompanied by lots of other friendly senior defense officials who will correct me whenever I'm wrong.

I have a surprise for you today. Unlike one of my other briefings, I have some real numbers. I knew you'd like that. Let's move to the next slide, and here are the real numbers.

I want to walk you through some of this because it's kind of interesting.

This is not the number you're probably familiar with for '02. The number you're probably thinking about is 328.9. However, that is not what the Congress gave us 327 and change. It then, in the second 20 billion of the 40 billion supplemental, if you're with me, gave us another roughly 3.5, you'll see the exact number momentarily. That also wound up in '02. Now this is kind of weird so I'll walk you through it again.

The 40 billion, as you know, is 20 and 20. The first 20 was approved in fiscal year '01. By the time they got around to the second 20 it was already fiscal year '02. So you get whatever money we got for the defense budget in the second 20 winds up in '02. That's what drives that number.

If I haven't lost you yet, I will with this number, because that number is what I call the St. Thomas Aquina number. That is to say if there had been a civilian accrual add-on in fiscal year '02, which there was not, but had there been it would have been 3.2 billion. Now if that doesn't rival elephants on the head of a pin or angels on the head of a pin, I don't know.

So that is not really a number in the classic sense.

Question: Why is it up there then?

Senior Defense Official: The reason it is up there is because this year the Office of Management and Budget has indeed added to our top line to fund civilian accrual. And therefore, in order to give folks an 'apples to apples' sense, it gave a shadow apple against the current apple. As I say, that number's kind of in invisible ink.

Question: Where does the 20 to go?

Senior Defense Official: The program, it was an OPM program.

This is actually, the civilian accrual which is part of that new number is part of a government-wide effort by OMB to have all our retirement programs in accrual funds which then pay out.

The principle of an accrual fund is basically you project when people are going to retire and how much benefit they're going to get. And obviously you don't know that exactly so you go to actuaries to do that. That is what is paid into a fund each year.

At the same time you have actuals, people who have retired and have claims. That is what is paid out.

Because we're starting this now as you will see in a later chart, there is a bigger up-front payment this year to kick this thing off, and that is on the military health care side. The civilian accrual side is roughly the same principle. Accruals are accruals.

So in '03 we have the number. In '02 we don't. But if we had, that's what it would have been. If you're still with me, it's remarkable. (Laughter)

So this is our number. Now why is it broken up this way?

We actually have, as you will see momentarily, a total of approximately $20 billion that is related to the war. Of that total, some $9.4 billion is for specific programs like procurement or science and technology or what have you that are essentially what we would call in non-English the tail, the consequences of programs you've already started.

Those would have simply been in the baseline number except that by the time we finalized that $9.4 billion we had pretty much locked down the budget, so it was a mechanical issue. So the question was well, what do you do with the money?

We have a thing called the Defense Emergency Response Fund which gives you visibility as to how money's spent. In fact that's what we used for the defense money that we got in the supplemental in '02, the '01-'02 wartime supplemental. So approximately 20 billion is going into that.

Of that 20 billion, however, 10 billion is what we're calling a wartime contingency. That is to say we don't know where we will be in a year's time. We know we will be continuing the war on terrorism, but how, at what pace, in what country, uncertain. But we can start some planning today. I mean we have to because we are deeply concerned, as you heard in the President's speech, about the linkage between terrorism and weapons of mass destruction, and it is critically important that we have some planning capability, some sense of what we're doing.

Now in fact the war is costing us approximately 1.8 billion a month, so if you annualize that, that's something slightly in excess of $27 billion. You can see, therefore, that this 10 billion is roughly a third of the level of effort we're doing right now, so it's an exceedingly conservative estimate of continuing the war on terror beyond fiscal year '02.

Other elements, this is as you know in budget talk Function 051 is the defense budget. It is within a total budget category called Function 050 and that is broken down into two other major subcomponents. One is the defense-related portion of the Department of Energy, and mostly in what is called the NNSA [National Nuclear Security Adminstration], the new agency that is run by General Gordon, as well as some other elements that are related to national defense, for example the Coast Guard and the Transportation Department, about $350 million a year; the Maritime Security Program, defense-related FBI and so on.

So that if you were on the budget committee, for example, and you looked at total national defense your number for this year is $396.1 billion.

Next slide, please.

Here's another way to look at our budget, the Function 051. That's the 331.2 and I explained to you how we achieved that. There's the inflation number. This is what we received as a top line increase from our brothers and sisters at OMB [Office of Management and Budget]. Here's the homeland security increase, and I'll discuss homeland security and generally the war on terror a bit more later.

We conducted a nuclear posture review. It was as a result of that review that the President announced we were reducing our warhead levels to somewhere between 1700 and 2200, and the rest were going to be primarily, I think, put in reserve. But that begged a larger question which was okay, what else are you doing for your strategic deterrent? Not strategic nuclear deterrent, but strategic deterrent.

We've come up with a new triad -- we tend to think of things in three's -- and this new triad consists of the classic strategic nuclear deterrent, missile defense as a second leg, and a third leg, a new conventional capability which because of improvements in communications and in targeting allow us to do some of the things that in the past we probably didn't even do as well with nuclear forces.

So as a result of all of that that kicked up some new programmatic requirements. That's about 700 million.

Then you've got the accruals which is another word for entitlements. If you're going to have people and you're going to be in your forces and your end strength or there are going to be civilians working for you, you're going to have to do some additional things. The Congress decided that military retirees over 65 could draw on the TriCare program as opposed to simply the Medicare program. Getting that accrual program up and running this year is $8.1 billion. I've already talked a little bit about civilian retirement and health care. That's $3.3 billion. So these are kind of entitlements, if you will.

We are making transfers of certain accounts to other agencies, primarily to DOE for example. We have moved a plutonium program to DOE which is about 50 million. We've moved certain discretionary programs to what are called mandatory, that drop out of the top line, for instance current health benefits. As part of this whole shift to accruals, what we pay out -- remember I said there's two parts to this. You estimate what you're going to pay out in the future and you pay that in today, but you're also paying out today for what it costs people. What you pay out is now called a mandatory expenditure and it drops out of the top line. The cost of the war are the two components I talked about.

Next slide, please.

Here's another way of looking at it, and I call this Mr. Rumsfeld's personal chart. The reason I say this is those of you who covered the testimony in particular may recall the Secretary of Defense said look, if we leave everything alone it's going to cost us at least $350 billion in the next fiscal year, the next fiscal year being this fiscal year.

It turns out his estimate was conservative. This number you've seen. Here's the must pay. These two you've seen. Pay raises. We were told by the Congress that we should increase military pay by what is called ECI, the Employment Cost Index, which is essentially an index that we use as comparability for our military. Here's what the people on the outside world are getting as payment increases, and here therefore is what we should compare our military earnings to, but it wasn't just ECI which this year was 3.6 percent, it was ECI plus a half percent, so it was 4.1 percent. And the military indeed the President announced is getting a 4.1 percent increase. The civilians are getting a 2.6 percent increase. If you aggregate the cost of those that's another $2.7 billion.

These are the must pays. Again, not very much we do.

Here's another one that in a sense is discretionary but in a sense is not if you're serious about budgeting. That is you cost thing realistically. We had gotten into a pattern of under-funding and under-requesting the cost of programs. What would then happen is every year there would be a supplemental. The President and the Secretary made very clear to everybody that unless there was a war for which there would be specific funds to fight that war, we would not request supplementals any longer. We would be honest, up front, about how we budgeted for things. And that's what this does.

There is a unit that is actually in my office called the Cost Accounting Improvement Group or the CAIG, not K-E-G, C-A-I-G. And the CAIG has a much better history of estimating program costs than the services in charge of the programs. Not every single time, but a good part, in fact most of the time.

What we said was we will either go with the CAIG's estimates or with those estimates that are a product of agreement between the CAIG and the services that in fact might even be better than the CAIG estimates. Having done that, we just added $3.7 billion to our budget.

Another case where we traditionally under-funded for a host of different reasons was operational tempo, readiness, in effect we added money for that, and depot maintenance -- to maintain the readiness of our systems we added more money to get them into depots and not to say afterwards, gee, we have to spend more money on depot maintenance and therefore give us a supplemental.

Well, if you add those up you'll see the Secretary was actually optimistic because that totals something over $360 billion. So we came up with a series of programmatic cuts. I will show you some of the highlights of those and you'll be able to get all the detail ultimately, which total something over nine billion, which bring us to the Secretary's number -- $350 billion.

I've talked several times already about the cost of the war. Add those and you are now at 369.5. So if you take our 379 figure, 379.3, you see that for all other requirements, all kinds of new stuff, you have less than $10 billion.

So what people perceive as a $48 billion increase in practice, in terms of new things, is less than $10 billion.

You had a question. You can interrupt. I'm only an assistant.

Question: I'm a little confused by the 19.4. That's -- ten is reserve --

Senior Defense Official: No, ten is that war contingency, exactly. 9.4 is what would have been in the baseline had we had probably another week, but we didn't and the budget was already locked down. And that one goes to specific programs, specific expenditures like procurement or like R&D [research and development] or what have you. The $10 billion, as I said, is a working estimate of what we would need to seriously plan for follow-on.

Question: When you talk about the two figures for the war, the $19 billion total, you're talking about the war on terrorism in general, not just the war in Afghanistan or --

Senior Defense Official: Exactly. Because the war in Afghanistan may no longer be in Afghanistan at some point in '03, so this is a war on terrorism number. We may still be there, we may be partly there, we may be there and somewhere else, we may be at higher levels, lower levels, you know.

Question: When you talk about the 1.8 billion a month, you're talking about the war in Afghanistan --

Senior Defense Official: Yes, that's the war in Afghanistan.

Question: And the --

Senior Defense Official: And Noble Eagle.

Question: Is that an average figure?

Senior Defense Official: Yes, an average figure. What's happened is when you get into December it has really skyrocketed. The pace of activity really shot up and it looks, the curve looks like that. You're down here, so we really began in the beginning of October, last week of September, and it literally looks like that.

Question: One more question on this. The 19.4 that you reflected in there, that's what you expect the war to cost --

Senior Defense Official: The 9.4 is what we know. What we know and what we are spending as a result of the consequences of the war.

Question: In '03.

Senior Defense Official: That we are spending in '03 and there will be money in '04 and '05 and so on. $10 billion is this expectation.

Question: But the 19.4 number came out of the '02 supplemental.

Senior Defense Official: No. Let me try that one again. I know it's not easy.

We had a supplemental, all right? And we funded the war as best as Congress was ready to let us and the Secretary said he expects another supplemental because we're probably going to run out of money before '02 ends.

But now we're looking at '03. What happens on October 1, 2002? Let's say we get another supplemental as the Secretary expects, and we are carried and we're fine and we're whole through September 30th, '02. What happens in '03?

That is the second $10 billion. That is our best working estimate for planning purposes of what we will need in '03. It could be lower, it could very well be higher.

The 9.4 on the other hand, and maybe this goes to the heart of your question, is the programmatic consequences of the war. In other words, as we spend money whether out of the 17-plus billion we got in the supplemental, or spent money say on JDAMs, we had a JDAM program -- Joint Direct Attack Munition, I'm sorry, I used an acronym. A program before the war started. But there are consequences to what we've done and we've recognized those and those consequences got built into the 9.4 billion, and that's why it's a little misleading, although they're bunched together in this emergency fund. In fact the 9.4 really needs to be treated differently from the 10 simply because the 9.4 is very program specific.

You had a question.

Question: You just answered it.

Senior Defense Official: Okay. Anybody with questions?

Question: Would it be correct to say that the cost of the war, this $19.4 billion in '03, you would not be wrong to say that, would you?

Senior Defense Official: This is our best estimate of war-related costs as opposed to the cost of the war.

If the war ended tomorrow, ended today, we would still need the 9.4. Okay? Because that is the consequence, there's a long-term consequence to the things we've done. See what I mean?

Question: So if the taxpayer asks what are we going to spend in '03 on the war on terrorism --

Senior Defense Official: That's a different -- I'll get to that. That's a slightly different answer, okay?

Do you guys want to keep interrupting me or do you want me to go ahead? I'm easy.

Question: Go ahead.

Question: One more on that.

Senior Defense Official: Somebody wants to interrupt me. Go ahead.

Question: The 9.4, when you say programmatic costs are you talking about replacing stuff that you used? Replacing --

Senior Defense Official: In some cases. In many cases it's buying new stuff. Procurements you'll see, new procurements.

Question: Buy new stuff that the warriors are asking for --

Senior Defense Official: Yes.

Question: -- in order to carry out the war.

Senior Defense Official: Yes. Yes.

Question: Can you explain the 9.8?

Senior Defense Official: The 9.8. You'll see, that's the total budget and you'll see that. That is simply what we have available after all this other stuff is done for new programs. Now I'm going to walk through the whole program if you guys let me.

Next slide please.

This is a word chart so since you're all journalists you can read as well as I can if not a lot better.

Let me explain a little bit more about this one than about this one. The right-hand column.

This indicates areas where we really would have liked to have done more than we did. You will see as I brief you on shipbuilding that we're buying actually fewer ships than last year. We would have liked to have bought more.

Tactical aircraft, frankly I'm a little conflicted about that one. We are clearly not buying as many aircraft as we would like, and in some categories, say for instance the F-18, we're buying fewer. However, as you will also see, we're spending about a billion dollars on unmanned aerial vehicles, and that demonstrates a major commitment to a new kind of adjunct to our tactical aviation that we've never made before.

Question: How does that compare to this year? The billion.

Senior Defense Official: About 300 more. So we're talking about a significant increase.

If you didn't hear the other senior official, that's after supplemental money in '02. We're all one senior official here.

So I'm a little less uptight about the tactical aviation.

S&T, science and technology. Our objective is to reach three percent of the budget. If you take all but that amorphous ten billion, because obviously by definition it's undefined, if you take 369 billion, we are at 2.68 percent with our science and technology expenditures. By comparison, last year we were at 2.65 percent. So we're roughly the same, slightly higher.

In actual spending terms, however, we are considerably higher as you will see. Now some of you will say well wait a minute. You're using last year's request as a baseline. In fact if you add in congressional adds, that is higher than what we're requesting this year and you'd be absolutely right. And there has been a pattern for years and years and years of Congress adding programs that, let me put it this way, are not our highest priority. Okay? I see that there are some knowledgeable snickers there.

In order to compare apples to apples, therefore, we have to look at what we are requesting as our priority science and technology relative to what we requested last year as priority science and technology. We're still on the road to three percent. We would like that moved more quickly. So that's one that we made decisions about priorities there.

Legacy forces. This is a really tough choice because what this basically, it goes to the heart of the planner's dilemma. How much do you put in to fight the Kim Jong Il's and the Saddam Hussein's of today who have conventional forces, who have their legacy forces, and against whom you would like to have the most modernized possible of those legacy forces. So how much would you want to allocate to that vice truly transformed systems?

So if we could have everything we wanted we would have done more on the legacy systems, too, but we did make a tradeoff. We think we've made about as reasonable a tradeoff as one can hope. Reasonable being defined as scaring the pants off Saddam and Kim Jong Il while also transforming. But sure, we could have done better.

The same kind of dilemma, although structured differently, is what colors this one. Congress in its wisdom decided not to do anything about base closures in fiscal year '03 as we indeed had requested they do. They did say that they would allow us to begin a process in fiscal year '05, or actually close bases in fiscal year '05, the process starts sooner.

Well, this begged a major question. Given that Congress has also in a series of legislative provisions made it very clear that you cannot forecast, preview, or in any other way indicate your preference for closing one base against another prior to the actual process beginning, that meant that you have to treat all bases equally when you're spending money on military construction. Unless you have some justification like a building is about to collapse or whatever.

That in turn meant, given that the Secretary and the Chairman have made it very clear that somewhere between 20 and 25 percent of our bases are not needed, that we would be going to the American taxpayer and effectively saying every dollar you're giving us for military construction we're throwing 20 to 25 cents away because they're going to places that are going to get closed, or that we think should be closed.

So what we did was, since we had also wanted to recapitalize, and let me explain recapitalization of facilities to you. Essentially in business there's a principle that if you have a bunch of assets, a bunch of office buildings, whatever, you've got to replace them after a given period of time. Now you don't allocate money to replace them all at once. You allocate a certain sum of money to allow for an orderly replacement.

In business it's about 57 years. We have some historic facilities -- West Point, the Naval Academy, Monterey, a number of places. That average therefore goes up to 67 years, give or take.

So the idea is, you should out enough money in military construction to allow you to turn your entire inventory over in approximately 67 years. In fact we have been putting money in the past, in the past decade, it led to a situation that the money we were putting in would allow us to turn our facilities over every 192 years. Which meant that you wouldn't want your best friends to work there.

Now we have this dilemma. If we wanted to bring the facilities average down, and we did indeed to that in this past year, but further down, we would be spending money on facilities that we were going to close. So the only way we could deal with that in a way that was honest with the taxpayers was to put less money in military construction and only into those places that absolutely, critically needed money. And that's what we did.

But that begged another question which was, well wait a minute. If you're not closing these places are you just going to let them rot? We felt that that wasn't right either, so we put more money into what's called sustainment which is to say repairing, doing the critical repairs in those places we don't close down.

So would we have liked to have put more money in construction? Absolutely. But given the nature of the BRAC [Base Realignment and Closure] process, the limitations, and all the stuff I've just talked about, we decided this was the best way that we could be honest with the taxpayer.

Next slide, please.

Question: You'll be doing the same thing next year, right?

Senior Defense Official: We will be doing the same thing next year.

Question: Can I just ask you one thing there? That process, the process you described, doesn't that mean that when you do spend money to fix places up in the future it will cost you more than if you'd done it now?

Senior Defense Official: Maybe, maybe not. I mean on the aggregate you'd have to spend a lot more money on the places you fix in the future to compensate for the 23 percent savings that you anticipate. All right? It's just such a large number of facilities that we consider are subject to clsure.

Question: But the communities that do get military construction funding this year, can they read anything into that?

Senior Defense Official: No. That's the whole point. You can't read yes, you can't read no. We are absolutely in full compliance with the law. You've got no way of guessing what's going to happen. You know what? Neither do we. (Laughter)

Here's a list of programs that we've reduced.

Now you're going to turn around to me, anybody who's looked at this chart for more than a nanosecond and say wait a minute, why are minor changes equivalent to half of the total?

The reason is that I just listed the changes that are 100 million or more. All the rest of that stuff is less than a 100 million but it aggregates up. Those of you who want the changes, the other parts of my senior defense official around me will be happy to give you better insights into those.

Next slide please.

This is a pie chart with which most of you if not all of you are familiar. Except for this. I asked my people -- my colleagues. I can't say my people, that implies something about me.

(Laughter) I asked my colleagues to identify these portions of the budget to show that there is 10 percent of the budget over which we have virtually no control -- given assumptions about how many people we're going to have. Ten percent of that budget, roughly $38 billion, is going to these accruals and to health care. Not to weapon systems, not to bullets, not to operations, ship days, steaming hours, flying -- No. Now should we not do that? Not if we want to keep our people. That's a different issue.

But once we have our people they're entitled to these things and we don't have control over it in a real way.

Next slide, please.

What this shows is how much we've increased over, well, I don't know how I'd describe that red line. You see in 2001 the previous Administration submitted a budget to the Congress. It was the last budget the previous Administration submitted, and it made estimates about what it was going to spend in 2002. That estimate was approximately $296 billion.

But then before the new Administration took over the Defense Department already had come up with an estimate that it never submitted to the Congress, that brought that number up from 296 to 306. So again, we get into this Aquinas type of debate. Would it really have been 306? Would it really have been, and so on.

We decided just to give a conservative sense of how much we're adding to use that 306 baseline. So if you believe the real number would have been lower than 306 had the other Administration stayed, which it didn't, then the gap would be even larger. So this is a conservative estimate of the increase.

The next slide does the same thing if you can turn to the next slide please, but it shows it to you by specific categories. Military personnel includes the defense health program. Okay? Remember that. That's about $22, $23 billion.

Procurement, though, although everyone's going to say wow you always promise everything in the last year but nothing happens, this is not trivial. This is this year, this is next year, and as you will see, we have broken the $70 billion limit, and those of you who follow all these analytical studies know that $70 billion is within the window of what expert analysts have said we need for procurement each year. This is the first time I believe, and you guys will correct me if I'm wrong, but I believe it's the first time in many, many years that we have come within that window on procurement. It's a major change.

Operations and maintenance. This is going to drive -- There are lots of analysts around town that do these kind of trend lines. This is going to drive them nuts because you can't do a trend off of this because of this emergency response fund. Because of the supplementals and the way they were broken out between '01 and '02, you no longer have trend lines. It goes like this. You can't predict a damn thing, which may be nice.

But including that you see serious increases in operations and maintenance, and obviously you can imagine even without these two you still see some very serious increases. Then again look at research and development.

Now research and development of course is cyclical. There are lots of things that may come up in the out years. For that in particular what you really want to be looking at are the first two or three years, the first one to three years, and you'll see that we're healthy there. I'll give you the numbers momentarily.

Question: Would you say that in fiscal year 2007 procurement you're going to reach or approach $70 billion?

Senior Defense Official: No, in '03. We have broken the barrier in '03. What I'm saying is in '07 it's much higher. But traditionally --

Question: I'm sorry, I'm confused by the graph then.

Senior Defense Official: That's just the increase. This is the cumulative increase. Again, I said what these graphs are meant to show is simply how much more are we doing. We'll get to the absolute numbers momentarily, okay? Which is now.

Next slide, please.

I've talked ad nauseam, I think, about how this has worked out. This is the second half of the supplemental. This is the grand total of the Defense Emergency Response Fund. Now you're going to say wait a minute, you said 19.4. Why is it 21? The difference is the 700 million I talked about in terms of the Nuclear Posture Review. And that money was also included at the 11th hour, and therefore in the Defense Emergency Response Fund.

Question: I was going to interrupt you earlier on this, but the nuclear posture, you started to talk about the new triad. Precisely what's the 700 million for? Missile defense is --

Senior Defense Official: This is simply the add-on. We have a lot of programs that are going to be in that triad, but when you cost them all up you actually wound up spending 700 million more than you would otherwise have done had there not been a posture review.

Question: On conventional, on missile defense --

Senior Defense Official: Not on missile defense. Leave missile defense aside. On conventional stuff. Missile defense you'll see momentarily is level.

So that's that one. Defense wide includes the defense health program. And what that tells you is that the drop in defense wide is greater than 0.8. Okay?

Next slide, please.

These just outline our priorities. I will give you three or four seconds to look through those. You're more interested in numbers, I think.

Move to the next slide, please.

I'll give you three or four seconds to look at those. If you have a question -- This one actually I want to draw your attention.

The UCAV, the Unmanned Combat Air Vehicle, is not like what is called an armed Predator, where you have an unmanned aerial vehicle and you give it the capability to fire something. That starts out as an unmanned aerial vehicle without the capability. The UCAV is being designed as, in effect, an attack plane without the pilot. This is completely different. And although there was, you know, minimal UCAV funding in the past, it was so minimal as to be trivial. Now we're serious about it. I will get back to that.

The rest of it I think is reasonably understandable. If not, you'll tell me.

Next slide, please.

So somebody asked me before about the war on terror. This row here is essentially the money that we have spent over the year for what is primarily force protection. And you can see that we have moved from fiscal year double zero to this fiscal year by about 75 percent. And this as I say is fundalmentally force protection. That's only the beginning.

Here again you have the how much we spent on the war on terror, and this is obviously the Afghan war. This is the original supplemental in '01. The anti-terrorism amendment which is that 20 billion extra, so all of that goes into the war on terror. You then have the 9.4 which as I said are the long-term related requirements. The long-term consequences of the war which even if the war stopped today you would still have to spend, and the new operational requirements which is that undefined portion. What we call our best working estatement for planning purposes of what we might need. And as you can see when you agregate all of that whereas in fiscal year '00, we committed less than five billion dollars to beat the hell out of the terrorist. Now we're committing nearly 30. I think that's a good message to them.

Question: For example the Philippines, the operation in the Philippines, is that coming out of that 10 billion dollars.

Senior Defense Official: It might at this stage. Remember your talking about something that will only come into effect-- Lets assume that it is fully approved by the Congress, which from my mouth to God's ears I hope it is, that comes into effect on October 1st. Now if we're doing stuff in the Philippines on October 1st in a big way it could well come out of that. I don't know. But you've put your finger on it. We may be somewhere other than Afghanistan doing something other than what we're doing today. That's exactly the point.

Question: On the off chance that you don't spend that ten billion, what's going to happen to it?

Senior Defense Official: Well, I think that will be up to the wisdom of the Congress.

Question: You had said earlier that the ten billion was a very conservative estimate. I believe the real number was 27.

Senior Defense Official: No, no, no. You misunderstood.

If I were simply to take the current level of effort in Afghanistan and spun it out over a year and assumed that we would do exactly in fiscal year '03 what we have done up to now in Afghanistan, then the number would be 27.

Question: That's the --

Senior Defense Official: Therefore the ten is to give you a -- The 27 is to give you a reference point. The ten is obviously a level of effort that is far below an annualized level of effort in Afghanistan. That was my point.

Question: But my point is that in point of fact you do have 27 for terrorism in the budget.

Senior Defense Official: But that's not all for Afghanistan. Okay? That's different. You've got lots of other things in there. It's a coincidence that if you annualize what we've spent on Afghanistan it comes out to roughly the same number. That's a pure serendipity.

Question: Bottom line in '03, if that is true in 2002 the Pentagon will spend $27.2 billion to fight the war on terrorism.

Senior Defense Official: It's not the Pentagon will, I hope it will, but it plans. I think it is true to say that in fiscal year '03 the Pentagon plans and is requesting funds to spend $27.2 billion.

Question: Could you make a simple statement about '02, what you have spent? (Laughter)

Senior Defense Official: Yes, I can make a simple statement. Up to now in Afghanistan, is that what you mean?

Question: Sure.

Question: Correspond it to the 27.

Senior Defense Official: Yes. I think I can. You've got 10.5 billion right now. I think that's the best comparison to the 27.

Question: How does that score with the 6.4 billion your own charts talk about for Enduring Freedom and --

Senior Defense Official: Because part of the 6.4 billion is financed by this, '01. Here again you have this confusion.

Question: Spent to date.

Senior Defense Official: Yeah. Spent to date in Afghanistan is actually closer to -- I don't know if I can give the number out. Who's in charge of me here?

Question: You are. (Laughter)

Senior Defense Official: What's the story on how much we've spent in Afghanistan? Can I say?

Question: I thought you already said 1.8 billion a month.

Senior Defense Official: That's right, but you didn't do the calculation, did you? (Laughter)

Okay, October, November, December, January, four times 18 is something about $7 billion. It's actually higher than that if you aggregate some other things. It's around 10.

Question: Can you give us some insight on how you came up with the ten billion? Why wouldn't you have taken 1.8 and multiplied it out for a year?

Senior Defense Official: For the simple reason that we didn't know if the level of effort would be like that.

Question: -- pulled it out of --

Senior Defense Official: No, not at all. (Laughter) You wouldn't accuse me of that, would you? (Laughter) I'm shocked that you would say something like that.

No. The difficulty -- You've put your finger on the difficulty. The difficulty is we don't know where we're going to be, we don't know what the level of effort will be. As I just indicated a few minutes ago, the level of effort in Afghanistan since the war began has gone up like that. If I applied that kind of a projection, I might have asked for $40 or $50 billion. What we needed was a sum of money that allowed us to do some planning on a very, very conservative basis with the following two assumptions, and only those two assumptions, in my view. One, that the war would continue somewhere. And two, that we had to bear in mind that the terrorists could well be linked to weapons of mass destruction. So that's how we achieved 10 billion. Could it be 9.98 or 10.02? I won't argue with you.

Question: Or 30?

Senior Defense Official: But again, if that number would have been 30, your question to me would have been isn't that too high?

Question: Sure.

Senior Defense Official: So I wanted to avoid that question. (Laughter)

Question: -- for four months, it's only 21 billion over a year.

Senior Defense Official: Right.

Question: Where did the 27 come from?

Senior Defense Official: Oh, you mean -- Oh. You're asking me now about the actual war. The actual war, my answer is that's why we have to come in with another supplemental. We're going to be running out. And indeed, the cost of the geometric progression of expenditure, we're running out faster than we even though we'd be running out.

Next slide, please.


Question: -- expenses, components of the war on terror. If you say that you're requesting 27.2 billion in fiscal '03 to fight the war on terror, what are the three or four most expensive pieces of that? What do they go to fund?

Senior Defense Official: Well, I think force protection is probably the major one. There's some research and development in there for new systems. There's the cost of operations. Basically much of what we're spending on Afghanistan right now is operations costs, so if you make an assumption about what you might do in the future, it's mostly driven, the 10 billion could be totally eaten up by operations with nothing else so you've got lots of different components.

Question: Your notional terms, you made two assumptions, that the war will continue somewhere, and that the terrorists, the terror is linked to WMD [weapons of mass destruction]. What are the fiscal controversies, financial controversies of the second of those assumptions? What are the costs --

Senior Defense Official: I think it goes to the question of like intelligence and surveillance and what you're going to be doing. How are you going to know that they're hooked up? How do you know they have what they have. It's that kind of thing.

A large part of what we're doing now, and you'll see more of this later on, is putting money into the ability to find out what the other guy's doing without him knowing that you found out and early enough to do something about what you have found out.

Question: Was the $10 billion number at all influenced by

OMB? Did they come to you and say don't come in with too much red ink for the overall federal budget?

Senior Defense Official: Nope. (Laughter) Somebody asked me before for a straight answer. That's pretty straight.

Here are some elements. Somebody asked me about some of the key elements. So there you are -- force protection, counterterrorism, and intelligence.

Next slide, please.


I talked to you a little bit already about the 4.1 percent increase. Housing. As you know, family housing is an account that's separate from military construction. We are putting money in for improving and also privatizing housing. We have programs like one at Brooks Air Force Base that essentially allows us to work with private contractors to save money. It saves the taxpayer money. And actually, considerable sums, and if you want to ask other parts of my senior official body about that they will give you some detail. They can give you considerable detail particularly about the success at Brooks and other places.

Question: Excuse me. I'm sure the figures are in here somewhere, but since pay and health is such a huge part of this budget, off the top of your head do you have the total cost out of the 379 billion, the total cost of pay, civilian and military, and health care?

Senior Defense Official: Yes, I do.

Question: How much?

Senior Defense Official: You'll see.

Question: How much?

Senior Defense Official: How much? Turn the page. The next slide, please.

This number includes the pay and the health care. $94.3 billion in '03. That includes pay and health care and all sorts of benefits. For military personnel only, by the way, so it does not include the civilian side.

Question: Will it reflect the trends --

Senior Defense Official: Yes. It includes the 8.1 billion accrual program, the TriCare for life, yes.

Question: -- number lower?

Senior Defense Official: We will have a slide on that, too.

You see, one of the problems with you guys interrupting me is I can't give you the slides. You're just so eager. What can I tell you?

Next slide please. Operations and maintenance. Bear in mind again these two categories drive that operations and maintenance number pretty high, but this is very significant in my view. Defense health programs, part of the defense-wide, I've told you that before. And I will get into some details again in the tank miles, flying hours in the next, in a backup slide if you want it. 18


Health care. Somebody asked me about the total cost of health care. Next slide.

$22.4 billion. It includes the accrual costs in the military personnel accounts. It reflects, not includes. It reflects those costs.

Question: That's both for civilian and military --

Senior Defense Official: This is military. Military personnel addresses only military.

Question: How much of that is the TriCare for life?

Senior Defense Official: $8.1 billion.

Question: If we want to project TriCare for life long-term costs, do we just add on about that much every year?

Senior Defense Official: No, because of that $8.1 billion the amount that actually is being paid out is approximately four to five billion. So next year when you look at the actual payouts it will be probably closer to the four to five than it is to the eight. And I anticipate an actual drop in the overall health care costs as a result of that.

Question: -- and estimate the (inaudible) billion for military pay?

Senior Defense Official: I think that's not unreasonable. Pay and benefits with absolute -- Yeah.

Question: There are other things like --

Senior Defense Official: I speak --

Voice: -- move personnel and other support. So it's not purely pay even though we named it, but it's largely pay.

Senior Defense Official: Pay and pay-related and personnel benefits of various kinds.

Next slide, please.


I've actually discussed both of these. This gives you some detail.

Let me tell you something about this percentage. Remember, we are talking about predictions of repair requirements beginning, let me see, in October of '02 and running through September of '03. So it begins ten months from now and ends 22 months from now. And anybody who can predict more than about 90 to 92 percent of what their repair bill can be ought to go into prophecy immediately. So this is a pretty healthy estimate of what we need to do repair and sustainment.

Next slide, please. 16


Question: -- billion for '03?

Senior Defense Official: Yes.

Question: (inaudible)

Senior Defense Official: Yes. It includes privatization, it includes sustainment.

Transformation. Actually most of the sustainment is not in the family housing, it's in the other amount, the 4.8.

20 ou 16 ?


That's pretty straightforward. Somebody asked me about missile defense. 7.8, same as last year. All right?

Question: Reprogramming is there?

Senior Defense Official: Sure. Bear in mind that the 7.8 last year included Space-Based Infrared System, the low version, SBIRS Low. It included the Navy area-wide program, both of those, one of my colleagues who I guess remains nameless, decided he would cut. And we terminated that program. Those programs.

So in fact this number in '03 is net of those two terminated programs.

Question: SBIRS Low was terminated?

Senior Defense Official: SBIRS Low is restructured. Restructured essentially means you've preserved the acquisition program but you've totally changed the inside.

Question: -- contractors still working on their --

Senior Defense Official: My understanding is that whole thing has been blown open but the contractor base is still there. Okay?

Question: What's being spent on that?

Senior Defense Official: Navy Area Wide, by the way, is a termination.

Question: But on SBIRS, I saw there was an amount of reduction listed here. I didn't see what the total amount was, I just couldn't find it in the charts before.

Question: What's the total on SBIRS Low? Does anybody know offhand?

One of my other parts of my body will get to you later. (Laughter)

Question: -- cancellations? Where will that money go --

Senior Defense Official: As you saw in the earlier summary chart, we essentially used those program cancellations, which totaled 9.3 billion in all, to put it back into the budget for other things.

Question: For instance, increased testing or --

Senior Defense Official: In some cases, and I have a chart about that. We have taken the money and we're going to improve testing. For example, V-22 is a good example of that. We'll be putting more money into testing.

By now I assume you've read all of that, and it's straightforward. Let me give you the missile defense numbers. You can see it's the same. Here's the termination, restructure and delay. Here we're increasing.

This is simply, it's more an FYI than anything else. We're establishing an agency and we are putting together a national team for system integration. In other words, we're really trying to get our arms around the entire problem in a coherent way, the entire challenge. In the Pentagon they never talk about problems, but I do.

Question: Can you explain the difference between the first missile defense system and the three that come after it? Is one of those formally known as NMD [National Missile Defense]?

Senior Defense Official: Well, let me see. No. NMD would have included terminal defense and mid-course defense and boost defense as well.

So what would you define as missile defense, other part? I'm trying to recall now how that differs from the following three rows.

Voice: These are kind of general R&D programs that benefit all across the entire spectrum. What they did is they redesigned the structure of the missile defense programs, some of which are now key to boost, mid-course and terminal which are specific phases. Others are more generic, they cover the entire umbrella. It's just a different portion of the R&D program, all of which make up the system of systems.

Senior Defense Official: So these are what you used to call NMD. This addresses those. These are what you used to call PMD [Program Management Directive]. And this is just additional research and development. And these are all in the research and development budget, by the way.

Question: When you say split SBIRS Low that means, it says two years here, so --

Senior Defense Official: Yes. It restructured, and the idea is that the operational capability and the program as a whole falls back two years.

What is the date now? 2000 and what for SBIRS Low? Effective date? Six instead of four.

Question: -- SBIRS Low by two years, is that going to have a corresponding effect on the mid-course and terminal if you don't have your eyes out there looking for the missiles?

Senior Defense Official: Well, I think the way that they're trying to work this entire program is to keep testing things and seeing what falls by the wayside as we move along. So to say that it will have an impact presupposes that you've got all kinds of stuff that will all be ready at the same time, but you won't. Some things will obviously not be as capable until you get the SBIRS Low on board. But in managing the program and seeing what you want to get out sooner or what you want to get out later, they're going to take that into account. It's a much more flexible program that it's been up to now and it will become even more flexible once we formally have left the missile treaty.

Question: On this point, the Pentagon is still trying to do a space-based sensor versus something else, which Congress says might be, they might be amenable to.

Senior Defense Official: The Pentagon still wants to do a space-based sensor. That's correct.

Question: I'm sorry, I might have misheard you before on the dates for SBIRS Low. I thought that SBIRS Low is now envisioned, had been envisioned to supposed to be launched around 2006 and that that has been moved to 2008.

Senior Defense Official: Well, the other part of my body told me four to six, so if we stand corrected. Des anybody have the right answer? We'll get it for you. We're not trying to -- We will get you the right answer before you have to go to print.

Question: -- theater-wide on --

Senior Defense Official: Yeah. Now we know that we need the answer to that, yeah.

Question: -- Navy theater wide on this chart?

Senior Defense Official: Navy theater wide is part of the, as I recall, that would be part of mid-course, isn't it? Yeah.

Okay, we're beating this one to death. Next slide, please.

This and the following slide are simply highlights of transformation programs. And let me say that there are various ways to look at transformation programs. For example, if you have a B-52 and it is able to use a global positioning system and information from a Predator to bomb something, it's not the B-52 that you were operating 30 years ago. It is a transformed B-52.

Or alternatively, if you have, and this is a true story which many of you have heard, the fellow who was on horseback who was being chased by the bad guys who apparently were also on horseback, he was a special operations officer, and he obviously couldn't call for the cavalry because it was far away, so instead he gets on his satellite phone, he gives the coordinates, and pretty soon a B-52 shows up, and pretty soon boom, there is the bad guys in different pieces all over Afghanistan.

So that is transformation. You have transformed the B-52.

(Laughter) You've also transformed the bad guys.

So you can take a very broad definition and say the B-52 and what we've done to it, the expenditures on making the B-52 a different kind of system, indeed is transformation.

If you want to take a narrower view and say what if just the new systems like these and like the ones on the next slide, then that's about $20 billion. These are just highlights of what we're talking about, and I think they're pretty straightforward. UAVs, as you know, are unmanned aerial vehicles. The unmanned underwater vehicle is supposed to be a mine smeller. It's essentially to go after mines.

The DDX, next slide, is really quite different from the DD-21. The DD-21 has been terminated. I will not retract that. It has not been re 

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Directeur de la publication : Joël-François Dumont
Comité de rédaction : Jacques de Lestapis, Hugues Dumont, François de Vries (Bruxelles), Hans-Ulrich Helfer (Suisse), Michael Hellerforth (Allemagne).
Comité militaire : VAE Guy Labouérie (†), GAA François Mermet (2S), CF Patrice Théry (Asie).