Statement on Strategic Choices and Management Review
Statement on Strategic
Choices and Management Review
As Delivered by U.S. Secretary of
Defense Chuck Hagel, Pentagon Press Briefing Room, Wednesday, July 31, 2013.
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
Secretary of Defense Chuck Hagel, left, answers a reporter’s
question during a Pentagon press briefing on the recent Strategic Choices
Management Review in Arlington, Va., on July 31, 2013. Vice Chairman of the
Joint Chiefs of Staff Adm. James Winnefeld Jr. joined Hagel for the briefing.
The purpose of the review was to understand the impact of further budget
reductions on the Department, and develop options to deal with these additional
DoD photo by Glenn Fawcett
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 2 years old. So he is testing his Chairmanship
and his ability in that regard. So that's why General Dempsey is not with us
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
Inform the fiscal guidance given to the military services for their F.Y. 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
First, the President's F.Y. 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 third, 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 ten 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
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
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 and;
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
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.
The review also confirmed that no serious attempt to achieve significant savings
can avoid 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
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; and
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
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 ten
years. The review had to take a hard look at changes to our force structure and
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 F.Y. 2015
through 2019, one at the President's budget level and one at sequester-level
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 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
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
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
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 “backloaded.” 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 providing.
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.