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Sec. Panetta, Undersecretary Hale, and Gen. Dempsey's Testimony before House Armed Services Committee on the Fiscal Year 2013 Budget

By As Delivered by Secretary of Defense, Leon Panetta, Undersecretary of Defense (Comptroller), Robert Hale, and Chairman of the Joint Chiefs of Staff, Gen. Martin Dempsey, Washington D.C.
MCKEON: Hearing will come to order. Good morning, ladies and gentlemen. Thank you for joining us today as we consider the president's fiscal year 2012 budget request for the Department of Defense.

To put this budget in context it's critical to examine the strategy that has informed its submission. At the outset, I want our witnesses to know that I appreciate the hard work that went into the development of the strategy. It's no small effort to completely revise a strategy one year after the submission of the Quadrennial Defense Review and less than three months after the submission of a budget request. However, I do have serious concerns about the trajectory that this new strategy puts us on. Although the strategy is framed as making the military more nimble and flexible, it's not clear how slashing the armed forces by over 100,000 during a time of war, shedding force structure and postponing the modernization makes that so.

The president must understand that the world has always had and will always have a leader. As America steps back, someone else will step forward. We've now heard multiple times that the strategy drove the budget and not the other way around. I suppose this starts with the president's call to slash at least $400

billion from defense last April, in advance of any strategic review.

An honest and valid strategy for national defense can't be founded on the premise that we must do more with less or even less with less. Rather, you proceed from a clear articulation of the full scope of the threats you face and the commitments you have. You then resource the strategy required to defeat those threats decisively. One does not mask insufficient resources with a strategy founded on hope.

Furthermore, the president's new defense strategy, and I quote, "supports the national security imperative of deficit reduction through a lower level of defense spending," unquote. The administration appears committed to ensuring the military is the only sector of the federal government to meaningfully contribute to deficit reduction. Simultaneously, the budget proposes additional spending by diverting savings from

declining war funding to domestic infrastructure spending. How can you save by not spending money that wasn't in the budget to begin with? This is a cynical gimmick that once more ensures our military -- and only our military -- is held responsible for what little deficit reduction this budget represents.

White House Chief of Staff Jack Lew said the time for austerity is not today. Ask the 124,000 servicemembers who will have to leave the military how they feel about that. The president's budget is a clear articulation of his priorities. The president's budget asks the men and women in uniform,who have given so much already, to give that much more so that the president might fund more domestic programs.

The president claimed that the budget would rise every year, but ignores the fact that this request is $46 billion less than what he said he needed last year and more than $5 billion less than what was appropriated for fiscal year 2012. Furthermore, despite the new strategy's goal of pivoting to Asia, a theater where naval assets and air lift are decisive, the budget calls for retiring nine ships, remove 16 more

from the new construction plan, and cuts our air lift fleet by hundreds.

This isn't the only place where the president's public statements and mission seem to diverge. We cannot neglect the war. The president was committed to counterinsurgency strategy in 2009, yet inexplicably, and certainly not based on the advice of his commanders, announced our withdrawal and to pull out the surge forces before the end of the next fighting season.

Mr. Secretary, Chairman Dempsey, before the president makes another announcement about troop withdrawals, I implore you to heed our commanders' advice. We are seeing success. Let's not make a decision to pull some of the remaining 68,000 troops before we see what happens this fighting season. Let's wait to reassess any more force-level decisions until the end of the year.

I have more questions, but with that I will conclude. And thank you again for being here. I look forward to your testimony. And call now on Ranking Member for his opening statement.

SMITH: Thank you, Mr. Chairman. Thank you, Mr. Secretary and General Dempsey, for being here. And I applaud you for the effort that you've put in over the course of the last year. This did start quite some time ago with a major strategic review of our military and our national security needs that was, as has been documented, a very holistic, transparent process in which you brought in all of the military leaders and really sat down and thought about what our national security needs are going to be for the next 10 years.

The strategy, without question, was where this whole process started, and I applaud you for that, and you've laid out a very clear and coherent strategy. And when it comes to the budget numbers I think it's important to take a step back and have a little perspective on exactly what they are. The defense budget has doubled over the course of the last 10 years. The budget that is put before us, as the chairman points out, will be increasing the defense budget every year from this year forward. We hear about these cuts. These cuts are from what was projected to be needed to be spent a year or two ago. They are not actual cuts, with the sole exception of this year. Yes, after doubling the defense budget over the course of the last 10 years, not even counting the overseas contingency operations money, this one year we go from $530 billion to $525 billion, and then it goes up every single year for the next 10.

It's part, I guess, of sort of Washington-think that when you increase the budget you can call it a cut. You know, it's a decrease in the increase perhaps, but it is an increase nonetheless. So we have to keep those numbers in perspective. I think it's also worth pointing out that over the course of the last 10 years, I don't

think there's a single person on this committee who would argue that we've done an outstanding job of efficiently and effectively spending those dollars on the defense budget.

Anybody who would argue that we can't go back and look at our acquisition and procurement process and do it much better, do it in a way that's actually going to deliver more capable pieces of equipment at less money. And that's what these gentlemen have done. They've taken a hard look at those last 10 years and figured out how to do it better.

Now, I'm not going to be overly critical of those last 10 years. 9/11 happened and we had to respond, we had to fund the military. And when you have to act that fast mistakes will be made. And I know the people who were making those decisions back then did their level best in a very difficult time.

But to not learn from that experience 10 years later and figure out a way to spend that money, that would be a betrayal of our job and of the job of the people in the Pentagon. So I applaud you for doing that. I think we have a budget that did put the strategy first, that puts us on the right direction.

And then also I will point out that this is the law. The budget numbers that we projected for the next 10 years and that Secretary Panetta and General Dempsey had to live under were passed by this Congress.

Now, I know some members of this committee voted for it and some members didn't, but it's the law of the land, passed by the House and the Senate.

SMITH: The $487 billion reduction in the projected increases is the law that these people had

to follow and that we passed and gave to them. So as we hear today about various different programs and areas where we think that this budget is cutting too much, it would be most helpful, and I doubt this will

happen, but I will ask for it anyway, that if as people are making those criticisms, they point out where they'd like to find the money, either within the defense budget – you can say, "OK, your strategy is all right, but you should have spent more money here and less money there."

Or if you don't think that's possible within the defense budget, then by all means let us know what taxes you want to raise to produce more money. Or if you don't want to do that, what other programs, preferably with some specificity instead of just generally saying "we'd like to spend less money on government," that you're going to cut. Otherwise, this is just an exercise in imagining that we have more money than we actually do.

Now, these gentlemen didn't have that luxury. They had to put together a budget based on the law that we gave them. And again, I'll emphasize I think they did a very good job of it. Now, they put out a strategy that understands how the world is changing. The main threats that we're going to face are going to be asymmetric, nonstate terrorist threats, and then also Iran, North Korea, their missile technology.

We need a different sort of military to confront that than the one that fought two major land wars in the last 10 years. This strategy reflects those changes. Just to give one example, the Special Operations Command will keep going up because we know how critical they are to precisely the fight that we face. They're going to increase that. ISR capability through unmanned aerial vehicles and other -- other sources also going up to make sure that we meet the needs that are in front of us.

Now, there are a lot of other things that aren't going up, but that's because things have changed. We need a new strategy to confront the threats that we did. And in a difficult budget environment, you guys did that. You put together a very good strategy. So I hope we'll have a realistic conversation. And if more money wants to be spent here, tell us where we should find it. Tell us how to balance that out. Never forget that it is also in our national security interest to have a strong economy and a fiscally responsible government. And if we don't have those things, the strongest military in the world will not be able to protect us.

So this is a very interesting debate that we're going to have over the course of the next several months. I look forward to the comments from the members of this committee and from the secretary and the general. We have a lot of difficult work to do, but I think we're off to a good start and I look forward to working with everybody on the committee and at the Pentagon to get the job done for the American people.

Thank you.

MCKEON: Thank you. We're fortunate to have with us today our secretary of defense, the Honorable Leon E. Panetta from the U.S. Department of Defense; General Martin E. Dempsey, United States Army, chairman, Joint Chiefs of Staff; the Honorable Robert F. Hale, the undersecretary of defense and comptroller of the department. Thank you, gentlemen, for being here.

Mr. Secretary, the time is yours.

PANETTA: Thank you very much, Chairman McKeon, Congressman Smith, members of this committee. Always nice to be able to return to the House. Kind of, it was my home in the past and I still consider it one of the -- one of the good moments of my history in public service. If I could ask that my statement be made part of the record and I'll try to summarize it as briefly as I can.

MCKEON: No objection. So ordered.

PANETTA: I appreciate the opportunity to appear before you to discuss the president's budget request for fiscal year 2013 for the Department of Defense. Let me begin, first of all, by thanking all of you for the support that you provide to our servicemembers and to their families. These brave men and women, and they are, for anybody who has gone to the battlefield or talked to those in uniform, they are without question the next greatest generation of individuals.

Along with the department's civilian professionals who support them, they have done everything that's been asked of them and more during more than a decade of war. And again, I thank you for the support that you have provided to them.

The F.Y. '13 budget request for the Department of Defense was, indeed, a product of a very intensive strategy review that was conducted by the senior military and civilian leaders of the department -- all the service chiefs, all of the combatant commanders. All participated in this effort. We also had the advice and guidance from the national security team and the president as well. The total request represents a $614 billion investment in national defense that includes $525.4 billion requested for the department's base budget and $88.5 billion in spending to support our troops in combat.

The reasons for this review are clear. First, the United States is at a strategic turning point after a decade of war and, obviously, a very substantial growth in defense budgets. And second, with the nation confronting very large debts and very large deficits, the Congress passed the Budget Control Act of 2011 imposing by law on us -- by law a reduction in the defense budget of $487 billion over the next decade.

We at the department decided to step up to the plate to abide by the law and to use this crisis as an opportunity to try to establish a new strategy for the force of the future. And that strategy has guided us in making the budget decisions and choices that are contained in the president's budget.

The fact is, we are at a turning point that would probably have required us to make a strategic shift under any circumstances. The U.S. military's mission in Iraq has ended, while we still have a tough fight on our hands in Afghanistan. But 2011 marked significant progress in reducing violence and transitioning to Afghan-led responsibility for security. And we are on track to complete that transition by the end of 2014.

The NATO ministers, ISAF, all of the NATO countries are unified in this strategy, and we are abiding by our Lisbon commitments. Last year, the NATO effort in Libya also concluded with the fall of Gadhafi, and successful counterterrorism efforts have significantly weakened Al Qaida and decimated its leadership.

But despite what we have been able to achieve, unlike past drawdowns where threats have receded, the United States still faces a complex array of security challenges across the globe. We are still a nation at war in Afghanistan. We still face threats to our homeland from terrorism. There is a dangerous proliferation of lethal weapons and materials. The behavior of Iran and North Korea continue to threaten global stability. There is a continuing turmoil and unrest in the Middle East from Syria to Egypt to Yemen and elsewhere. Rising powers in Asia are testing international rules and international relationships. And there are growing concerns about cyber-intrusions and cyber-attacks.

Our challenge must be to meet these threats, to meet these threats, protect our nation and our people, and at the same time meet our responsibility to fiscal discipline. This is not an easy task. It's a tough challenge. To build the force we need for the future, what we decided to do is develop a new strategic guidance that consists of the following five key elements.

Number one, the military will be smaller and it will be leaner, but it should be agile. It should be flexible, ready to deploy quickly, and technologically advanced. Second, we have to rebalance our global posture and presence to emphasize Asia-Pacific and the Middle East. These are the areas of greatest concern in the future. Third, for the rest of the world, we need to build innovative partnerships and strengthen key alliances and key partnerships from Europe to Latin America to Africa. Fourth, we will ensure that we have the capability to quickly confront and defeat aggression from any adversary, anytime, anywhere. And fifth, this can't just be about cuts. It has to be about investments. What do we protect and prioritize in terms of investments in technology and new capabilities, as well as our capacity to grow, adapt and mobilize as needed?

While sharing this strategy and shaping the strategy, we didn't want to make the mistakes of the past. And every time we've gone through these drawdowns, there have been serious mistakes that have been made. Our goal is to maintain the strongest military in the world, to not hollow-out the force. That's extremely important, to not hollow-out the force, which means to maintain the large force structure and then cut training and equipment and then all the other things that are essential to make that a first-rate force.

Thirdly, to take a balanced approach to budget cuts, put everything on the table and look at every area in the Defense Department Budget. And lastly, to not break faith with the troops and their families -- people that have been deployed time and time again to the battlefield.

Throughout the review, we also made sure that this was an inclusive process. General Dempsey, as chairman, and I worked closely with the leadership of the services, combatant commanders, and consulted regularly with members of Congress, as well as the president and members of the administration. As a result of these efforts, the department is strongly unified behind the recommendations that we are presenting today. Consistent with the Budget Control Act, this budget reflects a $259 billion savings in the first five years. We obviously project meeting our $487 billion number over 10 years, but in the budget we present to you, it's the five-year cycle and that includes $259 billion in savings. It's a balanced

and complete package. And as I said, it follows the key elements that we laid out in our strategy.

The savings come from three areas: first, efficiencies; second, force structure and procurement reforms and adjustments; and finally, compensation. Compensation is an area that has grown by 90 percent and we felt that we had to achieve some cost controls in the future there as well.

Let me just quickly go through each of those areas. If we tighten up the force, then I think we have a responsibility to tighten up the operations of the department by reducing excess overhead, eliminating waste, and improving business practices across the department.

PANETTA: As you know, the F.Y. '12 budget proposed about $150 billion in efficiencies over five

years and we're in the process of implementing those changes, but we felt we could do more. So we've identified another $60 billion in additional savings over the next five years through measures such as streamlining support functions, consolidating I.T. enterprise services, rephrasing (ph) military construction projects, consolidating inventories and reducing service support contractors.

As we reduce force structure, we also have a responsibility to try to provide the most cost-efficient support for the force. And that's the reason the president will request the Congress to authorize the base realignment and closure process for 2013 and 2015. Look, as somebody who's gone through BRAC -- and I went through it in my own district and know what it means and know the impact that it can have -- it is a

controversial process that impacts on members and impacts on their constituencies. I understand that. And yet it's the only effective way to try to achieve needed infrastructure savings that we have to achieve in the long run. Lastly, to provide better financial information, we are also increasing our emphasis on audit readiness and accelerating key timelines. In October of 2011, I directed the department to accelerate the efforts to achieve fully auditable financial statements. Originally under a mandate we were supposed to do that by 2017. I asked that it be done by 2014.

But efficiencies alone are not enough to achieve the required savings, and that's obviously why we had to make significant adjustments to force structure and procurement investments. But we did it in line, again, with the strategies that we put in place. And let me quickly walk through those. First, we knew that coming out of the wars the military would be smaller. Our approach to accommodating these reductions was to use this as an opportunity, as tough as it is, to fashion an agile and flexible military that we will need in the future. We've got to have an adaptable and battle-tested Army that is there for decisive action

and capable of defeating an adversary on land, and also at the same time be innovative. We need a Navy that maintains forward presence and is able to penetrate enemy defenses; a Marine Corps that is a middle-weight expeditionary force with reinvigorated amphibious capabilities; an Air Force that dominates air and space and provides rapid mobility and global strike and persistent ISR; and a National Guard

and Reserve that continue to be ready and prepared for operations when needed.

To ensure an agile force, we made a conscience choice to maintain more force structure than we could afford -- we decided not to maintain more force structure than we could afford to properly train and equip. That was the point I made about not doing something that hollows out the force. We are implementing force structure reductions that are consistent with the strategic guidance for a total savings of about $50 billion over the next five years. The biggest pieces of that include resizing the active Army. We're at 562,000. We'll be going down to about 490,000 by 2017. This will be gradual. And at that point it will be a level that'll still be higher than pre-9/11.

Same thing is true for the Marine Corps. And we'll go from 202,000 to 182,000 Marines. We'll also reduce and streamline the Air Force's airlift fleet, basically going after aging C-5As, C-130s. But we'll still maintain a fleet of 275 strategic airlifters and 318 C- 130s.

The Navy will protect a -- a fleet of 285 ships and protect our highest priority and most flexible ships, but we will be retiring seven lower-priority Navy cruisers that, frankly, need to be upgraded with ballistic missile defense capability. That hasn't happened. And it would require significant repairs in order to do that.

Second, the strategic guidance made clear that we've got to protect our capabilities and project our power to Asia-Pacific and the Middle East. To this end, we maintain the current bomber fleet, we maintain the aircraft carrier fleet -- 11 ships and 10 air wings. We maintain the big-deck amphibious fleet. We restore Army and Marine Corps force's structure in the Pacific. After the drawdown from Iraq and the drawdown in Afghanistan, we are going to maintain a strong presence not only in the Pacific but in

the Middle East, as well.

This budget also makes selected new investments to ensure that we develop new capabilities: $300 million to fund the next generation Air Force bomber; $1.8 billion to develop the new Air Force tanker; $18.2 billion for the procurement of 10 new warships.

Third, this strategy makes clear that even as Asia-Pacific and the Middle East are the areas of greatest concern and priority, the United States will work to strengthen our key alliances, build partnerships and develop innovative ways, such as rotational deployments, to sustain U.S. presence elsewhere in the world.

With regard to NATO, we'll be investing almost $200 million in the NATO alliance ground surveillance system and $9.7 billion to develop and deploy missile defense capabilities that project the U.S. homeland and strengthen regional missile defenses.

Fourthly, the United States must have the capability to fight more than one conflict at a time. This is essential. But we are in the 21st century, and 21st century combat is a lot different. And we need to have the capabilities to deal with threats in the 21st century.

That means we need to invest in space, in cyberspace, in long- range precision strike, and the continued growth of special operations forces to ensure that we can still confront and defeat multiple adversaries even with the force structure reductions that we've outlined.

Even with some of the adjustments to force structure, this budget sustains a military that we believe is the strongest and will remain the strongest in the world. We'll have an army of more than 1 million active and reserve soldiers, 18 divisions, 65 brigade combat teams, 21 combat aviation brigades. We'll have a Navy battle force of 285 ships that will remain the most powerful and flexible naval force on Earth.

We'll have a Marine Corps with 31 infantry battalions, 10 artillery battalions and 20 tactical air squadrons; and an Air Force that will continue to ensure air dominance with 54 combat coded (ph) fighter squadrons in the current bomber fleet.

Lastly, we -- we have to invest. If we're gonna leap ahead of our adversaries technologically, we have got to be able to have some key investments in new technologies. We provide $11.9 billion for science and tech -- technology research; $2.1 billion for basic research; $10.4 billion to sustain continued growth in special operations forces; $3.8 billion for unmanned air systems; and $3.4 billion for cyber


Let me also mention a key element that we absolutely have to maintain, which is a strong, capable and ready National Guard and Reserve. To that end, we are going to retain -- we've asked the Army to retain mid-level officers and NCOs so that the structure and experience leaders will be there if we have to mobilize and regrow the force quickly.

Another important element is to preserve our ability to quickly adapt and mobilize a strong and flexible industrial base. We have got to have an industrial base for the future. This budget recognizes that industry is our partner in the defense acquisition enterprise.

And finally, to the most fundamental element of our strategy and our decision-making process: our people. Far more than any weapons system or technology, the greatest strength of the United States is our military, the men and women in uniform. One of the guiding principles in our decision-making process was to keep faith with them and their families. So we're protecting family assistance programs, we're

protecting basic benefits, we're sustaining important investments in the budget to try to assist our troops with their needs and the needs of their families.

And yet in order to build the force needed to defend the country under existing budget constraints, the growth in cost and military bay -- pay and benefits has to be on a sustainable course. As I said, this is an area of the budget that's grown by 90 percent. We have got to implement some efforts to try to control those costs in the future. The budget contains a road map to address the costs of military pay and health care and retirement in ways that we believe are fair, transparent, and consistent with our fundamental commitment to our people.

Let me -- let me conclude by saying this. Members of the committee, this, as I said, has not been an easy task. Putting together this kind of balanced package has been a difficult undertaking for everyone. But at the same time we viewed it as a very important opportunity to try to shape the force we need for the future. I believe that all of us -- the service chiefs and the combatant commanders – have developed a complete package here aligned to achieve our strategic aims and at the same time meet our responsibilities to fiscal discipline.

As you look at the individual parts of this plan -- and I urge you to do that, look at every element of the plan that we've submitted -- I encourage you to bear in mind the strategic trade-offs that are inherent in any particular budget decision. This is a zero sum game. And as far as I know, there's no free money around. And the need to balance competing strategic objectives has to take place in a resource-constrained

environment. We need your support and partnership. We look forward to that. I understand these are tough issues. And I also understand that this is the beginning, not the end of this process. But this is what Congress mandated. The majority of this committee voted for the Budget Control Act. We are mandated under law to meet these requirements of almost a half-trillion dollars in savings over the next 10 years.

We have taken that responsibility seriously. We need your partnership to do this in a manner that preserves the strongest military in the world. This will be a test for all of us whether reducing the deficit is about talk or about action.

And let me, finally, be very clear. When you take a half- trillion dollars out of the defense budget it comes with risks. We think they are acceptable risks, but nevertheless there are risks here. We're dealing with a smaller force. We're gonna have to depend on speedy mobilization. We're gonna have to depend on new technologies. We're gonna have to take care of troops coming home, to make sure that they have

jobs and have the support that they need.

PANETTA: There is very little margin for error in this budget. This is why Congress must do everything possible to make certain that we avoid sequestration. That would subject the department to roughly another $500 billion in additional cuts that would take place through a meat-ax approach and that we are convinced would hollow out the force and inflict serious damage to the national defense.

So the leadership of this department, both military and civilian, is united behind the strategy that we've presented and the budget that we are presented, but we look closely to working with you in months ahead to do what the American people expect of their leaders: to follow the law, to do our part in reducing deficit, to be fiscally responsible, but also to develop a force that can defend this country, a force that

supports our men and women in uniform, and a force that is and always will be the strongest military in the world.

Thank you, Mr. Chairman.

MCKEON: Thank you very much. General Dempsey?

DEMPSEY: Chairman McKeon, Congressman Smith, distinguished members of this committee, thank you for the opportunity to discuss the president's defense proposed budget for fiscal year 2013.

I'd like to begin by saying this budget represents a responsible investment in our nation's security. At its core, it's an investment in our people, the sons and daughters of America who serve this nation in uniform.

Allow me to open with a few words about them and what they have accomplished. The last 10 years of war have been among the most challenging in our history. Through it all, the joint force has persevered and it has prevailed. Our families have stood with us, deployment after deployment after deployment, and so have you. Together, we have fulfilled our solemn vow to protect and defend America, her citizens

and her interests.

As I sit with you today, our service men and women remain globally engaged. They are deterring aggression, developing partners, delivering aid, and defeating our enemies. They stand strong and swift and ready in every domain every day. I had the privilege to be with a few of them while traveling to Afghanistan and Egypt earlier last week. As always, I witnessed extraordinary courage and skill in the young soldiers just off patrol in the deep snows of the Hindu Kush; in the men and women of the NATO training mission managing the development of the Afghan national security forces; in the brave and vigilant Marine security detachment in our embassy in Cairo; and in the superb junior airmen who flew us to the right place at the right time. They exemplify a professional military with a -- a remarkable and reliable record of performance.

In just the past year, for example, we further crippled Al Qaida. We helped protect the Libyan people from near-certain slaughter, while affirming NATO's important role beyond the borders of Europe. We brought to a close more than 20 years of military operations in and over Iraq. And like we did in Iraq, we are steadily transitioning responsibility for security onto Afghan shoulders. And of course, as you recall, we helped Japan recover from a perfect storm of tragedy and destruction.

And of course, these were just the most visible accomplishments. Behind the scenes and beneath the surface, we defended against cyber- threats, we sustained our nation's nuclear deterrent posture, and we worked with allies and partners to build capacity and to prevent conflict across the globe.

We continue to provide this nation with a wide range of options for dealing with the security challenges that confront us. And, in an increasingly competitive, dangerous and uncertain security environment, we must remain alert, responsive, adaptive and dominant.

This budget helps us do that. It's informed by a real strategy that makes real choices. It maintains our military's decisive edge and it sustains our global leadership. Moreover, it ensures we keep faith with the true source of our strength, and that is our people.

With this in mind, allow me to add a few additional comments to those of the secretary. First, this budget should be considered holistically. It's really a joint budget for a joint force, rather than individual service budgets formed parochially. It presents a comprehensive, carefully devised set of decisions. It achieves balance among force structure, modernization, pay and benefits. Changes that aren't informed by that

context, the context of jointness, risk upending the balance that I just described and potentially compromising the force.

Second, this budget represents a way point, not an end point in the development of the joint force we will need for 2020 and beyond. It puts us on a path to restore versatility at an affordable cost. Specialized capabilities that were once on the margins become more central, even while we retain and must retain our conventional overmatch. It builds a global and networked joint force that is ably led and always


And third, this budget does honor our commitments made to our military family. It keep faith with them. There are no freezes or reductions in pay. There's no lessening in the quality of health care received by our active duty servicemembers and our medically retired wounded veterans.

Now, that said, we simply can't ignore the increasing costs of pay and benefits. To manage costs, we need pragmatic reform. All of this can be done in a way that preserves our ability to recruit and then retain the best of America's talented youth.

Finally, all strategies and the budgets that support them carry risk. This -- this is no different. In my judgment, the risk in this strategy and budget lies not in what we can do, but in how much we can do and how often we can do it. This budget helps us buy down this risk by investing in our people and in the joint

capabilities they most need.

To close, thank you. Thank you for keeping our military strong. Thank you for taking care of our military family, for supporting those who serve, who have served and, importantly, who will serve. I know you share my pride in them. And I look forward to your questions.

MCKEON: Thank you very much. Thank you for your testimony. Thank you for your service. Thank you for doing a great job in a very difficult situation.

You've mentioned the Deficit Reduction Act, and Mr. Smith mentioned it, and, again, many of us voted for it; some didn't. The Deficit Reduction Act called for serious reductions in our -- in our spending. I understand the results of the last election and people said you got to go to Washington and get our financial spending in order. Everything needs to be on the table, defense included. And I don't think anybody would argue, with a budget as large as we have in the Defense Department, that we can't find savings. And this is a huge -- a huge cut. Defense accounts for 20 percent of our overall budget, and the first tranche of the savings that we voted on in the Deficit Reduction Act, 50 percent of the savings come

out of defense. So I would say that we have given and given a lot out of -- out of defense.

And then the sequestration, I mean, when we voted for the deficit reduction we were told that the super committee, that the sequestration was so bad that it would force the super committee to do its work, to find other savings in the entitlement programs, which is where the real problem is anyway.

Because if we eliminated all defense spending, if we eliminated all education spending, if we eliminated all transportation spending, if we eliminate the total discretionary budget, we would still be running a deficit of over $0.5 trillion. So all of this talk, all of this agony of going through all of these cuts, which are very significant, don't really address the real deficit problem. It is not the Defense Department that is putting us into a very precarious situation in spending. Having said that, you've stepped up to the plate, you found the cuts over the next five years that are very serious, and you devised a strategy the best way you can to meet the threats that we can meet given the -- the cuts.

Just a couple of years ago, before you got here, Mr. Secretary, before you got here, Mr. Chairman, Secretary Gates in that same seat was saying that we had to over the next five years have a 2 percent growth over inflation or we would have to reduce the size of the force. Well, that's -- that's come to pass because we not only are not having a 2 percent growth over inflation, we're actually having a reduction when you consider inflation. And your -- your report from the department points that we are going to have negative real -- negative real growth over the next five years based on this budget, when you

take into account inflation.

So we understand that, and we're going to work through that, and you have stepped up and said that the military can live with this. But the sequestration we cannot live with. I think we're all in total agreement on that. So -- so I have -- I have a question. The way we're moving forward right now there's nothing in this budget to deal with sequestration except a possible tax increase, if that's needed at the end of the day. This budget that we'll be dealing with kicks in, starts with the new fiscal year, October 1st. Being realistic, I think all of us understand that we're probably not going to have that budget. The Senate says they're not going to pass one. And we will do ours on the House side, but being an election year, I think we -- we probably understand we're not going to have a normal year. We haven't had a normal year for years.

So maybe we are going to have a normal year, and we'll be with a C.R. from October 1st, at least through the election and, you know, I don't know how we'll come back and deal with this in January. But in January the securitization kicks in. Now, you've had six, seven, eight months to really work on this budget, to go through strategy and budget, and you've done exhaustive work to come up with this budget.

MCKEON: A week or so ago we had Dr. Carter and Admiral Winnefeld, the secretaries of the services and the chiefs, and one of the members of this committee asked Dr. Carter what he had done, what was being done to plan for sequestration. His answer basically was we don't have to do any planning for it. All we have to do is pull out the budget and take 8 percent off every line item. I -- I think everybody in here probably understands the chaos that that would create. I don't know how many contracts the department has. I know its hundreds. Those would all have to go back and be renegotiated. Pensions, retirement plans, health insurance -- all of the things that would have to be dealt with, further force reduction,


And given that we've got the C.R. hanging over us and then sequestration kicking in, I -- I, Mr. Secretary, talked to you about this. I put in a bill to -- this is going to be serious dealing with everything that we're talking about here today. The sequestration just -- just takes it right over the top. And we're looking at all the news reports that we're hearing -- the saber-rattling going on over in Iran, the new leadership in Korea. I mean, I think the world is in a very serious situation. And I know, General, you told us in a meeting a couple weeks ago that in your 37 years, this is the most serious you've ever seen it. So I -- I think these are serious questions.

My bill would move the -- would pay for the first year of sequestration, which moves it back a year. It does it with -- with as little pain as possible, through attrition, decreases the size of the federal workforce. But I -- I'm asking you, Mr. Secretary, if this is something you could support, trying to fix sequestration now, instead of having all of the people that will be laid off this year in preparation for next January, if it wouldn't be better to move ahead and fix that now, deal with it now, not wait for the December 31st deadline. And that would still give us, then, next year to work on next year's problems and sequestration.

PANETTA: Mr. Chairman, as I've said time and time and time again, sequestration is a crazy process that would do untold damage to our national defense. It's -- it's a mechanism that would do, you know, just kind of blind -- blind-sided cuts across the board and would really hollow-out the force. So I'm -- I'm prepared to work with you in every way possible to -- to try to work on both sides to try to develop an approach that would de-trigger sequestration. My hope was, frankly, that the super committee would take that responsibility and do -- and do that. I think that's what everybody's hope was. That didn't happen and that really concerned me. And so whatever -- whatever we can do on both sides to try to develop an approach that would de-trigger sequester and -- and avoid that kind of horrific result, I'm certainly prepared to work with you on that.

MCKEON: Thank you. Thank you very much. Mr. Smith?

SMITH: Thank you, Mr. Chairman. I will point out that the overall budget that the president submitted contained $3 trillion in 10-year savings, so that if that budget were passed, that more than meets the $1.2 trillion that was required to avoid sequestration. So there was a plan put on the table, and I share the chairman's remarks that the sooner we resolve that – that overall issue, the better for all -- all concerned, whatever that plan may wind up looking like. And I wanted to just get more comments from you about BRAC because you have seen since that discussion started, it has not been greeted warmly on the Hill, to put it mildly, except by me. I think I'm like the only one I think who has a single positive thing to say about it.

And I just sort of looked at it logically and said, you know, if we're shrinking the force by the size that we are, in reaction to the fact that Iraq is done, Afghanistan is winding down. We're moving two brigades out of Europe. We're making substantial changes within the strategy. I mean, regardless of the debate about the budget, we're going to be moving things around. I mean, logically there's no way we can do that without doing some closures and realignments. I mean, I just -- I don't see where it's possible. You know, I certainly have a large number of bases in my state and various degree of vulnerability and I understand that. But it -- it has to be done, as far as I can see. So I'd maybe give you just, you know, a minute or two to make another pitch for why we at least need to be a little bit more open to what to my mind is an absolutely necessary step.

PANETTA: Well, I mean, it goes to the point that as we make the reductions that I think will take place under any circumstances as a result of some of the drawdowns in the wars that we're engaged in, we're going to have units returning or coming back that will be drawn down. That means that the force that we maintain will -- will need less infrastructure to support it. That's just a reality. How do you make the decision as to what parts of that infrastructure ought to be reduced or changed or eliminated? That's been -- frankly, that's been a challenge as long as I've been in this town, to try to make those decisions. And ultimately what happened was that someone developed the BRAC process as a way to effectively do that by putting all of these decisions in one package and having an up or down vote.

I was a part of going through three BRAC processes. I had installations in my district. And one of those BRACs eliminated Fort Ord in my district, which represented 25 percent of my local economy. So I know the impact that the BRAC process has. At the same time, we were able to establish a campus of the California State University system there and reuse that area, and frankly, came out on the better end of the deal. But nevertheless, it's -- it's a tough process to go through. And yet, you know, standing back, I can't see a better way to do this other than BRAC because if you try to do this on a piecemeal -- piecemeal basis, you know, we know what's going to happen. It's not going to go anywhere. The only effective way to do it is to put it in this kind of package.

By the way, I also understand the costs involved. I'm not -- you know, BRAC costs a hell of a lot of money to do the cleanup and all the other things that need to be done.

SMITH: That should be clear. This is not about, you know, this is a way we can save money. We know it's not from our previous five experiences. Now, in the long term, it does save money.

PANETTA: That's right. Exactly.

SMITH: We've got to keep that in mind. Yes, for the five- 10- year numbers, but the long term matters. It's more about making sure you have the force structure and basing system that you need to support your national security strategy.

PANETTA: That's right.

SMITH: So thank you. I just want to make one quick editorial comment on -- on Guam, and just, you know, for you to consider. I know we're doing the realignment in the Pacific. There's still some details to work out because primarily of our negotiations with Japan, what to do about Okinawa and elsewhere. And I know there's been a significant reduction in what is going to go -- the number of Marines that are going to go to Guam from the previous plan.

I'd just like, as you're still trying to figure out what exactly to do in Okinawa, if you could consider perhaps more Marines going to Guam, and also not just rotational, but on a permanent basis. And believe me, I understand. We rolled this plan out I think six years ago. It was going to cost $10 billion. And then there were all kinds of demands and it wound up being $23 billion to move them to Guam, which was

completely unacceptable.

And the people in Guam are going to have to work with you to get those costs under control, but I just hope you will consider the fact that I think there is still, you know, more capability there to move some of those Marines to Guam if we can perhaps get a more -- more cooperative reception about how to make the finances work. So I just -- I hope you'll consider that as we go forward with the Pacific plans.

PANETTA: Thank you. Thank you very much for that. We are, you know, we very much view this as an opportunity to try to really give us a chance to reposture our force in the Pacific. Guam is a very important part of that. Believe me, it's something we're seriously looking at, and we're trying to work with the Japanese to try to get this done. This thing has been around for 15 years and nothing has happened, and the time has come to try to get this resolved, and that's what we're trying to do.

SMITH: Great. Thank you, Mr. Secretary. Thank you, Mr. Chairman.

MCKEON: Thank you. And we haven't had a chance to talk about this, but my thinking is really evolving on this whole Guam issue. And when we're talking about reducing the Marines by 20,000, maybe one way to do that would be to just bring the Marines that we take out of Okinawa, bring them to Camp Pendleton or some -- you know, bring them home.

And maybe leave some pre-positioned equipment in place or something. I think when we're talking about the tremendous cuts that we have to make, then we're going to have to really look at that seriously because this is -- this is just escalating, and we may be able to solve two problems instead of one. Mr. Bartlett?

BARTLETT: There's obviously no wild enthusiasm in the Congress for additional BRAC rounds for two reasons. Every one of those facilities is in somebody's district and it might be yours that gets gored. And secondly, we really don't save any money in the short term because of the cleanup.

You know, we've been on some of these bases for 100 years. Our families have lived there. Our kids have played there. And we're making the statement that these are second-class citizens because they can live and play in a place that really isn't even good enough to give away.

I know the law may require us to do this environmental cleanup, but I think we make the laws here in the Congress and we could change that law. If the local community doesn't want the facility, we'll plant some trees and lock the gate and come back in 100 years and cut the trees. And by that time, whatever the environmental problem was, it will undoubtedly be much less.

If we force you to keep open infrastructure that you don't need, clearly this impacts what you can do in personnel, in modernization, and in R&D. Would you tell us for the record how much more you could do in personnel, modernization and R&D if we could close these facilities without the obligatory cleanup?

I have a question, General Dempsey. If you ask our combatant commanders what they would like more, it's always ISR. So it's appropriate that the new defense strategy cites intelligence, surveillance and reconnaissance as one of the capabilities, and I quote, "critical to our future success."

Yet the DOD budget request for fiscal year '13 is approximately $1 billion or 25 percent less than fiscal year '12 for ISR programs. Each of the services is terminating a major ISR program in the fiscal year '13 budget request: the Army's enhanced medium-altitude reconnaissance and surveillance system; the Navy's medium-range maritime unmanned aerial system; and the Air Force's Block 30 Global Hawk

unmanned aerial system. In the place of the Global Hawk, 18 aircraft will be placed in storage. Nine of these are currently deployed and supporting combat command operations. Would you please explain what appears to be a real conflict between the new strategy and the fiscal year '13 budget investment decisions?

DEMPSEY: I will, sir. Thanks for asking. The -- first of all, you're right that combatant commanders -- and I was one -- have an insatiable, I mean literally that word by that definition, an insatiable appetite for ISR. What we've learned over the course of the last 10 years is that certain of those platforms -- I mean, once you procure them, you begin to recognize both their – the limit of their -- the expansiveness or limitations of their capabilities. And what you see reflected in our budget is a look across all of the various components of this thing called ISR to determine which ones are actually delivering the best value – meaning the best possible intelligence, surveillance and reconnaissance capabilities -- at the best value, at the best business case, if you will.

And so, for example, the Block 30 Global Hawk has fundamentally priced itself out of our ability to afford it when the U-2 gives in some cases a better capability and in some cases just a slightly less capable platform. So what you're seeing there is our ability to eliminate redundancy, to continue to invest in the best value, and to avoid at every possibility redundancy that fundamentally is too expensive.

BARTLETT: Secretary Panetta, with the delay in the F-35 aircraft program, what steps have you directed the Army, the Air Force and the Marines to take to maintain the necessary fighter inventory until the F-35 can be procured in numbers to replace legacy fighter fleets?

PANETTA: We have -- we have ensured, obviously, that we maintain our full fighter force in place, and obviously continues to require upgrades. We're prepared to make those upgrades as necessary.

Our goal here is to develop the fifth generation fighter. We think that's absolutely essential. And F-35s are coming off the production line. They continue to be tested. Frankly, the tests are -- are going pretty well. We've got to do some software on all three -- three models. I just took the STOVL off of probation because it had five problems that Secretary Gates had identified that put it on probation. It's been able to deal with all five problems, and now we're looking at the software aspect. So this -- this plane is on path to hopefully coming into full production within the next few years.

BARTLETT: Thank you very much.

MCKEON: Thank you. Mr. Reyes?

REYES: Thank you, Mr. Chairman. First and foremost, Mr. Secretary, thank you for coming to El Paso and covering a few of the -- of the issues that you've covered with the committee here this morning. I've got two areas that I would like for both you and General Dempsey to focus on. The first one deals with the reaction to the request for another possible BRAC from our allies abroad. And I know you've had a chance since first asking for that authority to go out and talk to at least some of our allies. And so I'm curious if you could share that with the committee.

And then the other issue -- and then I'll give you the rest of my time -- the other issue is the administration is fixing to launch yet another effort of troops in New Mexico and Arizona. And I'm concerned that not only is that very expensive, but it -- but it puts our troops at a -- in a questionable position because they're not trained for law enforcement, they're trained for combat.

And I would -- I would appreciate it if you would comment on this latest effort to deploy troops in New Mexico and Arizona. As I understand it, from the information that I have, it's against the ultra-light vehicles that the cartels are using. But there are certainly better ways to do that than a full -- full force presence in those -- in those two areas. So you would cover that I would yield the rest of my time to both of you.

PANETTA: Congressman, let me address the first part of your question and then I'll have General Dempsey comment on the second part. In the first part of the question, we are and we have been looking at infrastructure abroad very carefully, because obviously if we're going to look at infrastructure in this country we're obligated to look at infrastructure abroad. We're going to be taking down two brigades in Europe. That will impact on infrastructure there. We've already closed in the period of the last I guess six to seven years 100 bases in Europe. We're probably look at probably 23 additional bases that we'll be looking at as well. So that we are, as a result of drawing down our forces there, looking at what savings we can make in infrastructure in that -- in that arena.

DEMPSEY: Congressman, on the issue of use of troops on the border, you know, we went down that path to meet an immediate need several years ago, and every year we review our posture in that regard.

And we've seen it all alone as an -- as an interim strategy, a transitional strategy, and one that could ultimately be replaced by technical means, whether it's ISR in the – in the military sense or other surveillance capabilities available on the commercial market.

So we -- we understood when we began this our role, filling that immediate need. We are eager, actually, to partner with and are partnering with Department of Homeland Security, with FBI, with state and local governments. We do exercises periodically, but I am not eager to have that become a core competency of the -- of the uniformed military.

REYES: And it's important to note that this is a very expensive proposition when you deploy troops, and especially when we've already built up the border patrol to over 21,000 agents. I was just last week in Nogales, Arizona, Tucson and Nogales, Arizona, and in speaking to the people there they comment on the fact that everywhere that they are we have border patrol agents. So I am really at a loss to understand why we would want to deploy troops at a time when we're trying to save money. That's a very expensive proposition. The border is a - - is a safe environment, in spite of all the rhetoric that we hear politically. So I would -- I would hope that we could rethink that if at all possible, at a time when we're trying to save money. So thank you, Mr. Chairman.

MCKEON: Thank you. Mr. Thornberry?

THORNBERRY: Thank you, Mr. Chairman. Mr. Secretary, let me just add a couple of brief facts to some conversation you've already had this morning. One is that the president instructed the Pentagon in the spring of 2011 to look for $400 billion in savings in the defense budget. Now, that was before your time, it was before General Dempsey's time. But any notion that the $487 billion sprung out of Congress just from the Budget Control Act spontaneously in some way is obviously not true. It was under way long before we ever got to that point.

Second point I just wanted to throw out is a little more specificity on BRAC. By the way, I have supported every round of BRAC since I've been in Congress. But the 2005 round of BRAC will not even break even until 2018, according to GAO. That means for 13 years it's going to cost more money to have more BRAC than it would if you didn't have BRAC.

And so having the Pentagon suggest two more rounds when it will aggravate the budget situation for 13 years, or at least a decade, leaves me scratching my head a little bit. And I think it's important to -- to -- to put a little more specificity, it doesn't even break even for a decade, which I think is problematic. But, General Dempsey, the other -- another thing that leaves me scratching my head these days is the reports that the military and the administration are looking at substantial cuts to our nuclear deterrent.

Under START we're going to end up with about 1,500 weapons. If the reports are right, there's consideration of cutting that 80 percent, down to, say, 500, just for rounding, and that's being generous.

It seems to me if we end up with 500 nuclear weapons and country A has a couple hundred, that all the incentive in the world is for them to catch us, because it's not that far and not that hard for them to do. So I would appreciate your best professional military judgment on whether cuts of 80 percent in our nuclear stockpile really are good for the national security of the United States.

DEMPSEY: I won't comment on the 80 percent figure, Congressman. What I will say is that what's been -- what's been reported is the Cliff Notes version, not that you would ever understand what Cliff Notes are from your personal education, but it's the Cliff Notes version of what is a very comprehensive set of discussions internal to the military with the national security staff on what is our next negotiating strategy, notably with Russia. And the status quo, by the way, is always an option and one that is in play.

So I -- I -- at this point, sir, I would just -- I'd encourage you not to become too concerned with the media reports of what is a very comprehensive process.

THORNBERRY: Well, I do become very concerned, partly because it does nothing but encourage other

countries to advance their nuclear program. If they see that we are going to come down from 1,500 to some number in the low to middle hundreds, it does nothing but encourage our enemies and discourage our friends. And the result of that is more nuclear weapons programs all across the world, which would seem to me to be something that we would not want to have happen.

So I get very concerned if our military takes seriously any notion that we can -- can -- can even begin to approach reductions on that scale. I'm -- I'm worried about where we are with the last round of START, but much less something that goes to that level concerns me very much. Mr. Secretary, let me ask one last thing. Vice President Biden has said that the Taliban is not our enemy. And I have a quote here says -- that supports that. Do you agree or what -- do you believe that the Taliban is our enemy in Afghanistan?

And if they are our enemy, can we leave a secure and stable Afghanistan without addressing the Taliban and their safe havens in Pakistan?

PANETTA: The Taliban, as you know, Congressman, is a very broad group. Our primary enemy in that part of the world is Al Qaida. And the Taliban elements, the terrorist elements that support Al Qaida are also our enemy. And there are some elements, obviously, of the Taliban that support Al Qaida. And those are the ones that we've been targeting.

THORNBERRY: Can -- can we leave a safe and secure Afghanistan without dealing with those elements of the Taliban that support Al Qaida?

PANETTA: I think our -- our goal is to make sure that they never again can establish a safe haven in Afghanistan from which to conduct attacks on this country, and that remains our primary goal.

MCKEON: Ms. Reyes? I mean, Mrs. -- Mr. Andrews? Excuse me.

ANDREWS: Thank you very much, Mr. Chairman. I'd like to hear Mr. Reyes ask more questions, but...

(LAUGHTER) ... but -- I want to thank General and Mr. Secretary -- Secretary Hale for your service to our country, and particularly Secretary Panetta and Mr. Hale, your accessibility to members of this committee and the Congress. It is refreshing. And you've been the most accessible leaders of the Defense Department I've ever encountered, and I'm very grateful for that.

I also want to thank you, Mr. Secretary, for your comment on page 3 of your written testimony about the very personal priority you put on achieving audit readiness for the department. My friend and colleague, Mr. Conaway (ph), has taken the lead on this issue. He wrote it into law in an effort he and I worked on together, and he has very diligently led a panel of this committee to try to achieve that reality. All the discussions we're having this morning and are going to have in the next couple months may be based on false data if -- if we don't have good financial statements. So I think that -- you know, this is a boring topic that doesn't make headlines, but it is absolutely critical to an intelligent discussion of the hard financial choices we have in front of us. So I thank you for your very personal investment in that issue. And I did want to get to the more controversial (ph) question now. Despite some of the rhetoric which I think corresponds to the year on the calendar, the budget proposal that you've submitted, if I understand it, for every $100 that we spent in the core defense budget last year (inaudible) spend $99 in fiscal '13. And for every 100 people we had in uniform, at least authorized to be in uniform -- we're gonna have 99.

So I think before we get too excited about what the one year budget means we gotta understand that.

I do share with Mr. Smith, and I think with you, an understanding of the difficult political realities of the BRAC process but the necessary decisions that must be made.

And I wonder if you could outline for us what some of the strategic trade-offs would be if we don't do the BRAC process. You know, you've been through it, I've been through it, I think everybody in the committee has one way or the other. Tell us what happens if we bend to the easy decision and not do BRAC, what do we give up in that trade-off?

PANETTA: I mean, look, you all know this. The defense -- the Defense Department is made up of only so many parts. And I -- I've identified the areas that involve savings that we can focus on. And we've put everything on the table. Those parts are efficiencies, whatever we can do to try to eliminate waste and -- and cut down on bureaucratic overhead. And there is a lot of that, but, you know, we're -- we've added about $60 billion in savings in that area.

The second area, obviously, is force structure. And that means that -- that involves cutting personnel out of the force. And we've already targeted about 100,000 reduction in both the Army and the Marine Corps.

Thirdly, modernization, weapons, procurement areas. And there we've -- we've gone after significant savings. We still have to obviously maintain the technology and weapons systems that are key. But we've -- we've put on hold some of the areas that we think we can achieve some savings. We've gone after cost effectiveness. We've gone after affordability and tried to -- to deal with some of those areas as well in terms of savings.

And then the last area is compensation, which involves the pay and benefits for our military. OK. So if -- if infrastructure is part of the force structure reduction savings -- and let's assume we don't do any infrastructure savings and yet we still have to come up with additional savings, where are you gonna go?


PANETTA: And so that... (CROSSTALK)

ANDREWS: ... you think it's fair to say that if -- if we don't do infrastructure then there's only three places to look...

PANETTA: That's right.

ANDREWS: ... the compensation for the troops and their families and the civilian employees, tools and weapons that we need to defend the country, or -- or other strategic priorities about what we can do around the world. I mean, it -- it -- I was involved in a piece of litigation against BRAC that went to the United States Supreme Court. And I -- I've been through this one.

But I also understand that we won't cut that infrastructure without the BRAC. And as difficult as it is, I, frankly, would encourage you to ask for that new authorization and would like to work with you to support it not because I like BRAC -- because I even greater dislike the alternatives to it. I thank you for your time and testimony this morning.

MCKEON: Thank you. Mr. Jones?

JONES: Mr. Chairman, thank you very much. And Mr. Secretary, I might be the only Republican on the committee to say thank you for your recent decision about bringing our troops out in 2013. This has been an interest and concern to me. I have Camp Lejeune Marine Base in my district, Cherry Point Marine Air Station. And that's what my question will deal with, you being an elected official, served in the House, I think, with my father a few years ago -- Walter Jones Sr.

You know better than any of us here or as good as any of us that politics is local. There's no question about it. I have Cherry Point Marine Air Station in my district. Also have the depot in the – in my district. And so it reads -- it brings the question that Mr. Bartlett was asking you about -- the F-35 and, of course, at Cherry Point because of the depot, the interest in the F- 35B, and knowing that at one point in a discussion I had a few months ago there was a thought that maybe at some point in time as this F-35 becomes online and becomes a reality that there might be eight squadrons going down to Cherry Point.

Well, I realize in this very difficult budget year -- and none of know what we would like to see today might not be a possibility tomorrow. So if you would expand a little bit more on how you feel that the progress has been made on the F-35. And knowing that you believe that we do need a strong fighter system in our country, if you were to elaborate just a bit more on that I would appreciate it.

PANETTA: Thank you, Congressman. You know, the only way the United States remains the strongest military power in the world is to keep developing new generation fighters that have the technologies and

capabilities that we are gonna need in the future.

And I had the opportunity to go to Pax River and see the development that is behind the F-35 and actually sit in there and look at the technology that's involved. I mean, we're talking about spectacular technology that would be part of this plane in terms of stealth capabilities but also in terms of targeting capabilities. And it is -- it is the next generation fighter. It's what we're gonna need. And very frankly, countries are -- are all lined up waiting for this plane because they know how good its gonna be. And that's why we've gotta keep this on track. We've got three variants. You know, I can't -- I can't go into defending all of the decisions that were made before I became secretary, but three variants is not an easy process. It means you have to look at a lot of questions that arise depending on the capabilities you're trying to design in each area.

But nevertheless, each of those is important. We need a Navy plane. We need a – a Marine plane that can lift, as the STOVL will. And, obviously, we need an Air Force plane. So those are the key ingredients. My view is, you know, based on what I -- because I -- I came into this pretty skeptical about where this thing was. I looked at the facts. I've looked at the testing that's gone on. I've looked at the production rates that are out there. I'm convinced that we can deal with the final problems that are there -- largely software issues that we've got to face. We're producing these planes even as we speak, but they are continuing to be


My goal is, working with the industry, to make sure that any changes here now can be as cost-efficient as possible. That's what I worry about. I don't want big changes in these planes because that'll -- that'll ramp up the costs real fast. So the real challenge right now is to keep these costs under control as we resolve the final issues involved with this plane. But I'm -- I'm convinced we're gonna be able to put that in place.

JONES: Mr. Secretary, thank you for that answer. I have spent almost 10 years trying to clear the names of two Marine pilots – John Brow, Brooks Gruber -- who crashed the B-22 in Arizona on April the 8th. Nineteen Marines were burned to death. And I appreciate what you said when you said you wanted to make sure that the manufacture of this plane has its -- have it ready and no hidden problems like they found with the vortex ring state that brought that plane down. And I'm hopeful that the Marine Corps will give the two wives who have requested a paragraph to make it clear that their husbands were not at fault. And I hope that I won't have to come to you at some point in time and who you the evidence that we have accumulated over 10 years that the pilots knew nothing about how to react to vortex ring state that night.

So I do appreciate your answer and thank you again for your leadership (inaudible) our country.

General Dempsey, thank you as well. And may God continue to bless our men and women in uniform. And with that, Mr. Chairman, I'll yield back, because I had a little bit of extra time before the start of the clock. Thank you.

MCKEON: Thank you. Ms. Davis?

DAVIS: Thank you. And thank you Mr. Secretary and General Dempsey for going out of your way and really talking about the fundamental element of this new strategy, which I think is our people, and ensuring that keeping faith with our soldiers, our sailors, our airmen and Marines and their families particularly remains a top priority. Mr. Secretary, as we think of this process and move forward of changing our force structure and reducing personal end-strength over the next few years, what are we doing to ensure that we retain a spectrum of experience and knowledge across the services and specialties, and within that package, what is your greatest concern?

PANETTA: Let me -- let me yield to General Dempsey on that because he's been -- he's been very involved in how we approach the retention of some of these mid-level officers.

DEMPSEY: I'll -- I'll hearken back to my time as the chief of staff of the Army, because that – that is the issue that the service chiefs are grappling with with the secretary's guidance. But one of the things that we did back in the '90s is we -- when we separated soldiers, we did so -- and I'm speaking -- I said "soldiers," but servicemen in general. When we separated them, we were separating them too quickly. We -- we actually had reduction-in- force boards that sat specifically to tell people to go. But we could do that because we were passing them into a pretty economy, maybe one would even argue a booming economy back in those years, and we were no longer in conflict. The big difference about what we're doing right now is that those other assumptions I just mentioned are not any longer valid. We're passing people into a struggling economy. We're still in conflict and likely to remain in conflict. So what we're -- what we're doing as service chiefs is taking a look at how do we -- how do we, first of all, pace this. And to the question, by the way, that's related to BRAC, if you fix too many variables on us -- if you, for example, there are some physics involved. If you fix the variable called "infrastructure," and if we're -- if we're kind of maxed out in terms of our, literally, physical ability to pass people out of the service in a dignified way, it doesn't leave us very many levers to pull in the middle. It's operations, maintenance, training and equipment.

So that's why we're -- we're concerned about -- about BRAC and it's also why we're concerned about the pace at which we separate people. Now, once we settle in on the pace, and we have, then we -- we go -- we look internal to our systems. We have any number of personnel policies, promotion rates, accession rates. We have evaluation reports, board processes. But to the extent that we can use the existing processes to identify the -- the highest-performing personnel, keep them, encourage them, continue to develop them, we'll be in good shape. To the extent that this is accelerated on us, if it is accelerated, then we get into a position where we're forcing people out. And at that point, I won't be able to sit here and guarantee you that we're going to be keeping the right people.

DAVIS: Do you see -- is part of that discussion really formalizing longer periods of time between the eligibility for promotion and the promotion among noncommissioned and commissioned officers?

DEMPSEY: Yeah, we -- it's a great point and one which we -- you know, it's a Rubik's Cube, to tell you the truth. We twist it and turn it and in some ways you want to accelerate promotions because it's an incentive for especially the highest-performing personnel to see that, you know, that they have a great deal of potential and that that potential is being fulfilled. On the other hand, it has the other effect that you just described. So I -- I, you know, I would use a somewhat overused word probably, but I think it's a

matter of finding the balance between, let's call it talent management, and then managing the personnel system to -- to treat people with dignity and respect, but also re- shape the force.

DAVIS: I really appreciate that. I think that there are concerns. There should be concerns that for many of the men and women who were serving, that the fact that they would be leaving the services faster perhaps than they had ever imagined means that we have to put a lot more resources into that transition period and really ensuring that they have the skills, the talents necessary. And -- and are we looking at that in terms of a whole different kind of preparation as they leave? It's almost a preparation as they come in so that they are leaving in a different manner.

PANETTA: You asked -- you asked what worries me the most, and frankly that's -- that's one of the issues I worry about the most. As we draw down over these next five years, we're going to be putting another 12,000 or more out -- you know, bringing them back. And right now, the system's clogged. We -- it doesn't work as efficiently, frankly, as it should.

And my -- we have got to do a better job of -- of being able to take these young men and women that come out and give them the counseling, give them the education benefits, give them the jobs, give them the support systems that they absolutely have to have in order to be able to reestablish themselves in the communities. Otherwise, we are -- we are going to be dumping them in these communities – no jobs, no support. And that's why we have high unemployment now among our veterans is that that's exactly what's happening. We've got to change that.

DAVIS: Thank you.

MCKEON: Thank you. Mr. Forbes?

FORBES: Thank you. Mr. Secretary, your schedule only allows me five minutes for questions, so I'm going to try to be concise and help you be concise in your answers. But you made a statement that this will be a test of whether reducing the deficit is about talk or action. And I just want to be clear. We welcome a conversation with you or the president about serious deficit reduction. We wish we could have had it before the president pushed through an $800 billion stimulus package that many of us believe was ill-advised or a health care bill that's putting a lot of our employers out of business.

But be that as it may, we want to reduce the deficit. We just don't want to do it on the backs of the men and women that are fighting for this country every day. And to answer the ranking member's question he put before us, "what wouldn't you have voted for?" -- I wouldn't have voted for that $800 billion stimulus package, which contained almost twice what these cuts were, and I'd repeal the health care bill tomorrow.

But let's look at the approach of how we got here. And wouldn't you agree that if we had been more responsible in handling our budget as a federal budget, that the better approach would have been for us to have developed a national strategy – the Department of Defense develop a national strategy to defend the country; to be able to discuss exactly what we needed for that strategy; to determine what the resources would be in order to meet that strategy; and then come to Congress and say, "This is what we need to do to -- in order to do that job, to defend the country." Wouldn't you have agreed that that would have been a better approach?

PANETTA: Congressman, a better approach, and I say this not so much as secretary of defense, but as a former OMB director and chairman of the House Budget Committee, the better approach would have been for Congress, both Republicans and Democrats and the president, to sit down and develop a comprehensive deficit reduction package.

FORBES: And -- and Mr. Secretary, I understand that. But I'm talking about as far as the strategy, wouldn't it have been a better approach to have done it in the manner that I just delineated?

PANETTA: You know, that would have been nice, but we were mandated to come up with $487 billion.

FORBES: I understand that. But wouldn't that have been the better approach?

PANETTA: Of course.

FORBES: OK. And then in point of fact, as you mentioned, that's not the approach we took. What we did was to give you $487 billion of cuts and then you were forced to create a strategy that worked within the parameters of those cuts. Is that correct?

PANETTA: That's right.

FORBES: And then based on that, Mr. Secretary, isn't it true that it would be virtually impossible for you or anyone else testifying on behalf of this budget, to delineate for us the portion of that strategy that was driven by those budget cuts versus the portion of the strategy that was driven by security changes around the world?

PANETTA: I don't think you have to make a choice between fiscal discipline and national security. I really don't.

FORBES: No, no. And Mr. Secretary, I'm just -- just trying to -- because my five minutes. Isn't it true, though, that as you said, you were forced to have $487 billion of cuts. You worked a strategy that worked within those parameters. But isn't it virtually impossible for you or anyone else to tell us what portion of that strategy was driven by that $487 billion of cuts versus just security changes that took place around the world?

PANETTA: As I said, we -- we would have been required to look at -- at the change in strategy under any circumstances because of the drawdowns that were taking place.

FORBES: I understand that.

PANETTA: This is not just deficit reduction.

FORBES: I understand that. And we have two different components. We have security changes

that would have had strategy change, and we have budget cuts that would have cost it. But isn't it true that you can't delineate between those two?

PANETTA: Well, they were -- they were both involved in determining our strategy.

FORBES: Exactly. Now, you also mentioned the fact that this was imposed on you by law. I know I've

heard you state before this wouldn't have been the figure you would have picked – the $487 billion. Is that true?

PANETTA: That's for sure. That's for sure.

FORBES: I wouldn't have picked that and I didn't vote for that figure. But you've had a lot of discussions with the president. You heard Mr. Thornberry say the president came out and said he wanted $400 billion of cuts before the strategic cut was taking place. In your discussions with the president in looking at the strategy, at any time has the president ever voiced to you the fact that he thought this $487 billion of cuts was too much?

PANETTA: I -- I think the president understood that this was not going to be easy and that there would be risk involved in doing it.

FORBES: I understand that. That's not my question. Did the president ever voice to you the fact that he felt this $487 billion in cuts was too much?

PANETTA: He felt, as I did, that the Congress and the president had -- had gone forward with this Budget Control Act and we were obligated to fulfill it.

FORBES: And had he -- you disagree with that figure. I disagree with that figure. Had the president disagreed with that figure, could he not have put any of those cuts back into the budget that he has just presented to Congress?

PANETTA: I think the president shared your concern, which is what do we do about reducing the deficit. That was the only thing that...

FORBES: Did he put any of those cuts back...

PANETTA: ... that was worked out by the Congress on a bipartisan basis.

FORBES: Did he put any of those cuts back into this budget? Any of the cuts made, did he roll them back and say, "That was too much; I'm going to put them back in the budget." (CROSSTALK)

FORBES: My time is up. Thank you.

PANETTA: I don't think he could have done that without the support of the Congress.

MCKEON: Thank you. Mr. Langevin?

LANGEVIN: Thank you, Mr. Chairman. Mr. Secretary, General, thank you for being here today. Your testimony, your tireless service to our nation -- we are all grateful. I wanted to focus on two important areas in the budget and priorities for me – the Virginia Class submarine. And I also want to talk about cybersecurity. Mr. Secretary, as you know, the Virginia Class submarine is a model procurement program and we're only now beginning to reap the rewards of an aggressive cost management effort and a consistent two- boat per year funding level. The proposed delay of one of these subs from F.Y. '14 to outside the FYDP I believe could disrupt these gains and incur significant extra costs.

How did the department come to this decision? And how does the department propose to mitigate the military risk, the monetary cost, and the workforce challenges generated by the shift? Obviously, the Virginia Class submarine is -- is a program that has come in on time and under budget because of the -- the efficiencies that we gain from block buys and bringing stability to the supply chain. And I'm concerned that this delay is going to cost us in these areas.

Second, as you know, I've been a long and staunch supporter and advocate for increased investments in cybersecurity. And I'm, of course, pleased to see the – the continued escalation of attention being paid to cybersecurity and the projected $18 billion in funding from F.Y. 2013 to F.Y. 2017. Mr. Secretary and General, how does the proposed budget address these threats and the vulnerabilities that we face in the cyber arena? I know you've talked a bit about this today, but I'd like you to expound upon that.

LANGEVIN: And in the event of a large-scale cyber-attack, how resilient are our power grids and military bases? Obviously, our military bases in many ways are dependent on the critical infrastructure, our electric grid that's owned and operated by the private sector. And if they go down, our military bases and their ability to function are vulnerable. So what efforts are we doing to make them resilient and have some of their own power supply backup if necessary?

DEMPSEY: If I could, Congressman, I'll talk cyber and then I'll ask, I think Mr. Hale, to talk about submarines. Is that right? OK. We're very concerned about cyber. You know, we talk about what's new in the world in terms of threats over the last 10 years or emerging -- for us it's emerging capabilities, you know, it's special operating forces, it's cyber and it's ISR. Those same – those same capabilities are also -- become available to our adversaries. And in the case of cyber in particular we've been acting to prepare ourselves in terms of our vigilance on our systems and our defensive mechanisms. And we've got – as you know, we stood up CYBERCOM, we've got a cyber strategy. But -- but we are -- we remain vulnerable, and we're -- we're trying to, through a series of table top exercises, conversations with the national security staff, as well as on the Senate side now notably, we're trying to determine the next steps.

And there is -- there is legislation pending sponsored by Senators Lieberman, Collins, Rockefeller, and then a Feinstein amendment to that, that is a very good and important first step in providing the kind of information sharing and expanding – or potentially the first step in expanding protections beyond the dot-mil domain, for all the reasons you suggest. But make no mistake about it, there's controversy and plenty of it around this issue because of the Department of -- we're the Department of Defense. There's the Department of Homeland Security, FBI. So there's authorities to be considered. And we're working through all that. What I'm suggesting to you is that the current legislation pending is a good first step.

HALE: In terms of the Virginia class submarine, which is I think what you're referring to, we're planning to buy nine in the FYDP. A year ago we were planning to buy 10. We'll buy two a year in this FYDP except for fiscal '14, we'll buy one. So it's affordability decision, frankly. Submarine fits into our strategy and we're certainly continue to buy. But we were looking, frankly, to ways to comply or be consistent with the Budget Control Act.

PANETTA: I was -- I was asked this question yesterday. And, you know, if there are -- if there are cost efficiencies that can be achieved here that allow us to do this with savings and in a more cost-effective way, we're prepared to look at that.

LANGEVIN: Well, I have additional questions, but my time is coming to an end. I would just reiterate the importance, obviously, of the Virginia class submarine program. I am concerned about this delay, and it's going to wind up costing us, I believe, in both our workforce if we're not careful and also the efficiencies... (CROSSTALK)

MCKEON: Gentleman's time is expired.

LANGEVIN: With that, I yield back.

MCKEON: Mr. Wilson?

WILSON: Thank you, Mr. Chairman. Thank you all for being here today. And I share the concern of Chairman Buck McKeon, and the American people need to know this, that what's being proposed is a reduction of 80,000 personnel in the Army, 20,000 Marines, 10,000 personnel of the Air Force. I am truly concerned, at a time of war, that we would have these reductions, which I think is going to put American families at risk, those serving in the military and the American public at large.

And it just -- I just find it inconceivable. Every day we read about another threat to our country of instability around the world. Additionally, Mr. Secretary, I know that you're having to make tough choices and in particular, though, I identify with veterans. I served 31 years in the Army. And I'm just

grateful for my service and the commitment and dedication and commitments to veterans, too, commitments from and to. But I'm very concerned that the administration is proposing cost increases on health care for military retirees. And these are extraordinary, for TRICARE Prime that a proposal for F.Y. '13 increases enrollment fees between 30 to 78 percent. Over five years the enrollment feels -- fees -- would increase between 94 to 345 percent. How can we justify such increases when really commitments were made to the people who have made such a difference in protecting our freedoms?



DEMPSEY: Let me -- let me answer that, if I could, Congressman. You know, when we said that in order to rebalance this military of ours -- and by the way, you know, I don't want to let it pass entirely that I don't share your concern, but I will tell you, I'm responsible to this nation to do a risk assessment on the size of the force against the strategy, and my assessment is that the budget we've proposed and the force structure we are building toward is adequate to meet the needs of the nation. If I didn't I would tell you.

In terms of compensation, the -- the TRICARE enrollment fees of which you speak haven't been adjusted since the mid-'90s. They are an anachronism in terms of any other health care program. And I don't ever accept, by the way, the comparison of military benefits to civilian because of what we ask our uniformed military to do. On the other hand, we cannot any longer allow our pay, compensation, health care -- and as you know, we're going to look at retirement at some point in the out years – we simply can't allow that to keep growing. As the chief of staff of the Army, I knew that if my manpower costs exceeded 45 percent I would break the Army because I wouldn't have the money to invest in the other -- the other things I have to invest in. We're close, and now is the time to act, and that's why we've taken this action.

WILSON: And my concern would be that -- that we should be providing more (inaudible) that this -- that this is not the burden. Additionally, Mr. Secretary, last year the former governor of Maine, John Baldacci, was hired to review military health care. I understand that he's completed his report. Could you provide the committee a copy?

PANETTA: I'll be happy to.

WILSON: And has his report in any way influenced the defense program budget reforms?

PANETTA: I'm sure -- I believe it has, but, frankly, I have not reviewed it myself. So -- but let me get back to you on that and provide you a copy of that.

WILSON: And, additionally, I would like to know the salary paid and then the supporting cost for his services.


WILSON: And in conclusion, I want to thank both of you. You've raised a great concern about sequestration, the risk to the American people. What do you recommend that we do? And in particular I'm very hopeful that of course you would support the very progressive and very positive legislation of Chairman Buck McKeon.

PANETTA: I've indicated my concerns about sequestration. I would just -- I would urge you to work on a bipartisan basis to develop an approach that can pass the Congress that would de-trigger sequestration.

WILSON: And the consequence of sequestration?

PANETTA: It's be devastating. I mean, you take another $500 billion out of this defense budget, the strategy I just presented you, I'd have to throw out the window.

WILSON: And, indeed, Mr. Secretary, I've been very positive about your service because I know sincerely you believe this, but we've got to get the message out. Just the word sequestration puts people to sleep. (LAUGHTER) And so, please, be the -- be the Paul Revere I know. Thank you very much.

DEMPSEY: And, Congressman, I forgot to thank you for your 31 years of service. Thank you.

MCKEON: Thank you. Ms. Bordallo?

BORDALLO: Thank you, Mr. Chairman. And I'd like to welcome Secretary Panetta and General Dempsey. I appreciate the administration's continued focus on the Asia- Pacific region and that DOD intends to press forward with the buildup of Guam. Thank you, gentlemen. DOD recently announced a changed realignment plan for Guam. What is the rationale for changing the implementation plan with Japan? What prompted these decisions? What is the benefit of the proposed realignment? To what extent did the passage of the Budget Control Act play in these changes? And can you also elaborate on the strategic importance of keeping Marines forward deployed? How is this necessary to keep our treaty agreement with Japan? Secretary?

PANETTA: Congresswoman, first -- first and foremost let me indicate that no -- no decisions have

been made with regards to what exactly that realignment will be. We are in discussions with Japan.

BORDALLO: I understand.

PANETTA: We're trying to make, you know, decisions. This is an issue, as you know, that's been out there for a long time, and we just think it's time to try to get it done and to try to resolve it. And Japan has been very helpful and cooperative in trying to work with us in that effort, and we will continue -- we'll continue to keep you informed, because obviously it affects your home area and we want to make sure that -- that you know what we're thinking about before we actually make any final decisions here. It is important to try to keep that presence forward. My view is that we need a Marine presence that is forward, that -- I do not want to draw that Marine presence back to this country. I think it has to be forward in the Pacific.

BORDALLO: Thank you.

PANETTA: We're trying to be innovative in the way we're doing that. The approach we're taking in Australia is an example of the kind of rotational presence that we think can make sense. We're talking to the Philippines about doing the same thing. But the bottom line is we want to maintain the Marine force forward presence in the Pacific. That's an essential element of our strategy.

BORDALLO: Thank you. Another question I have. When the Japanese see the updated plans from DOD and identify the reduced number of Marines coming, will they reduce the overall funding that they were going to supply for the buildup? Will this lead to reduction in support for civilian infrastructure that's needed to support the military population on Guam? If the Japanese do reduce their funding commitment, how will the department ensure that the infrastructure needs continue to be addressed?

PANETTA: That -- that's also one of the things we're discussing. As you know, one of the elements here is the development of a new Futenma air facility, and it's an expensive process because of it involves environmental permits that have be obtained. It's a very expensive project. But at the same time they have been very generous in saying that whatever moves have to be made they will -- they will support -- they'll give us a lot of the funds to try to support that.

PANETTA: That continues to be a part of our conversation. And I think, as I said, I am very pleased with the attitude that the Japanese are taking... (CROSSTALK)

BORDALLO: So you don't think there will be any reduction at this point. Mr. Secretary, Deputy Secretary Carter certified in writing -- and I know this question has been asked before I arrived by Congressman Bartlett. He certified in writing to Congress that the Global Hawk system was essential to national security. Global Hawk was $220 million cheaper per year to operate than the U-2. The decision to pull 18 Global Hawk Block 30 aircraft is shortsighted, in my opinion. Your recommendation to terminate Block 30 is a complete reversal of your position. Can you explain how an asset can be critical to national security and then, less than one year later, be terminated? And can you answer how the Air Force will compensate for the loss of this capability?

PANETTA: I mean, I'm going to have General Dempsey speak to that, but it is...

BORDALLO: General -- thank you.

PANETTA: Look, we are very committed to unmanned systems. We think that's the future. But at the same time, we've got to make judgments about which ones are most cost-effective. And I think that was behind the decision here. General?

DEMPSEY: Yes, ma'am. And we're flying four other variants of Global Hawk. This isn't about Global Hawk. It's about Global Hawk Block 30. And it -- it has become too expensive relative to other capabilities we have.

BORDALLO: All right. And I had one final question, if I could. The F.Y. '12 NDAA requires that DOD

meet five requirements in order to spend government of Japan funding that is currently sitting unobligated to the U.S. Treasury. Now, this is a matter of great concern in our community. What steps is DOD taking to meet these five requirements?

HALE: It's part of the overall discussions. I mean, we need...

MCKEON: Mr. Hale?

HALE: ... to arrive at a -- we need to arrive at an agreement with Japan and we need...

MCKEON: The gentlelady's time has expired. Could you take that one for the record for her, please?

BORDALLO: Thank you.

MCKEON: Thank you. Mr. Turner?

TURNER: Thank you, Mr. Chairman. And, gentlemen, thank you for being here. Secretary Panetta, I want to thank you for meeting last week with Congressman Andrews, where we discussed the issue of a national standard for custody rights for our servicemembers. We asked you to affirm Secretary Gates' and DOD's policies supporting a national standard. As you know, unbelievably, across the country, there are federal law court judges that will take custody away from our servicemembers based upon their time away serving their country.

This committee has been very active on this issue, every member of the committee having endorsed the national standard, the House having passed five times a national standard, we would appreciate your support and advocacy to assist us in making that law.

Secondly, I appreciate your statement on the Budget Control Act and the issues of sequestration. It's a thing -- you know, as we look to sequestration, I think the American public do not know the great risk that could be imperiling our military. Your statements on it are important. It's one of the reasons I voted against the Budget Control Act, so we would not have this gambling with our military security. Mr. Secretary, as you know, I'm the chairman of the Strategic Forces Subcommittee. Nuclear weapons fall under my category. I have three questions, two for you and one for the general concerning that. Mr. Secretary, as you know, your predecessor, Secretary Gates, agreed to transfer some $5.7 billion to the National Nuclear Security Administration for specific purposes that were articulated in this document, which I ask be included in the record, that was to govern the transfer of these billions to the National Nuclear Security Administration.

I would ask if you would characterize the Department of Defense level of comfort with how the initial $5 billion tranche has been spent. For example, where did DOD's $1.2 billion go that it gave to the NSA to begin construction on the plutonium replacement facility known as CMRR? And how about the funding for the W76 warhead, which is again delayed in the NSA budget this year, seemingly without regard for the Navy's needs for this warhead?

And, secondly, Mr. Secretary, you kindly, in a correspondence in November, responded to the chairman and myself requesting that we receive briefings on the nuclear warhead -- excuse me -- the nuclear war plan. And you had indicated that you would agree to reinstitute those briefings with -- with our committee. They have not commenced, and we're afraid it might be stuck in the bureaucracy of DOD.

We'd appreciate your assistance there. And, General, with respect to Congressman Thornberry's question on the proposed 80 percent cut to our nuclear arsenal, you know, you indicated that you were – that these were just proposals or plans that were being reviewed and it might be premature for discussing them. But I would like your -- your input on the initiation of where these are coming from. Because it's our understanding that the president has asked to consider an 80 percent cut going to a warhead inventory of somewhere around 300. If you could confirm it, the administration is in fact the one that's initiating it; this is not just coming from somewhere arbitrary within the bureaucracy, that would be helpful also. Mr. Secretary?

PANETTA: If I -- if I could comment on your last question, this was -- this was all part of a nuclear posture review that was mandated by law and that the administration began that process of going through the review. And the second step was basically, you know, how do we now implement the review that was taking place? So it, kind of, followed that procedure. And there are a number of options that are being discussed. And as the general has pointed out, one of those options is maintaining the status quo. And no decisions have been made. This has been something that has been part of a process for discussion within the national security team and remains there, at this point.

As you know, reductions that have been made, at least in this administration, have -- have only been made as part of the START process and not outside of that process. And I would expect that that would be the same in the future. With regards to your question on the funding issue, let me ask Bob Hale to respond to

that. That's the $5.7 billion.

HALE: We are working closely with NSA. I think there are concerns on our part, theirs, too. There's been some cost growth that it sounds like you're aware of. But they are fully committed to meeting our needs, and we're trying to work with them. These are important programs, and we need to carry forward with them. I think I'll try to provide you more detail for the record, but I can tell you we have a Nuclear Weapons Council that meets regularly with NNSA representatives, as well as ours. And they are deeply engaged in these issues.

TURNER: But you do have concerns, correct?

HALE: Yes.

TURNER: Finally, let me commend your leadership on the adoption issue. You know, we did have the chance to discuss it. I -- I share the concern that you raised. I think it does need to be addressed. You've been successful at passing it on the House side. It doesn't seem to come out of the Senate. And I think the one thing I indicated to you is I want to work with you to see if we can actually try to get something done on this issue this year.

MCKEON: Thank you. Mr. Courtney?

COURTNEY: Thank you, Mr. Chairman, and thank you to the witnesses. Secretary Panetta, again, I want to thank you for visiting the Groton shipyard back in November. You had a chance to climb on board the Mississippi and the North Dakota, which is under construction, as well as, really, a pretty extraordinary town hall with the workers on the pier there, where you very eloquently described the value of the industrial base to our national security.

In light of that, I just, to follow up on Mr. Langevin's questions, the Mississippi, which was christened just a few weeks later, had come in $64 million under budget 12 months ahead of schedule. And there's no question that the momentum of two subs a year, which took 20 years to get us up to that pace, is achieving savings. That Block 4 contract shift, which, by the way, that's the third time it's been changed, not the second time, Mr. Hale. There's no question that, in terms of materials management, in terms of workforce management, in terms of layoffs, which is inevitably going to flow from that shift, is going to result in cost. And I guess the question is, you know, did you include that in your FYDP, in terms of the cost of that dip in production, which, again, we're seeing real results now, in terms of savings, because of the higher production rate?

HALE: So far as I know, the FYDP is fully funded. I hear your point. We had to take $487 billion out of the budget, and we tried to do it in a way consistent with our strategy, but we had to do it. And this was one of the issues raised with the Navy, discussed with them. And they would have preferred not to do it; so would we, but it's where it is. It is a fiscal '14 decision. We'll get another chance to look at it in light of current fiscal realities.

COURTNEY: Well, the strategy, of course, which was articulated at the outset today, clearly focuses on Asia-Pacific. And you can't have an effective strategy without a strong undersea fleet. Thank you for saying that you're willing to continue to work on this because...

HALE: We will. We need to look at it... (CROSSTALK)

COURTNEY: ... the long-term effect, in terms of the fleet size, will be decades...

PANETTA: This -- you know, I was very impressed with what I saw in Groton. I don't want to lose those skills. I don't want to lose those abilities. I want to maintain that kind of industrial base. So we'll continue to do whatever we can to work with you to see what we can do to try to reduce those costs in the future.

COURTNEY: Thank you, Mr. Secretary. I'd also want to go back to Mr. Thornberry's point about the 2005 BRAC, which, again, I respect the fact that you have deep, profound personal experience in terms of what you went through in your time in Congress. But some of us have our own experience as well. I've served on the Readiness Subcommittee. We've been following the 2005 BRAC like a box score, in terms of its results.

It cost about twice as much as was predicted. And as Mr. Thornberry said, the net savings is still years away. And, you know, we all get, sort of, pinned as being, sort of, looking in our own backyard when this issue gets discussed. But I think there is a legitimate question here, particularly with the fact that we got a deal with the Budget Control Act caps. You know, how you do this, in terms of not costing money in the short term -- I mean, your -- the answers we've gotten so far from Dr. Carter and yourself is that it's zero in terms of projected savings for the plan that was submitted there.

So, you know, zero minus zero equals zero. I mean, if we don't do it -- I mean, it just doesn't -- it's a nullity, in terms of trying to achieve the Budget Control Act targets. And -- and, frankly, I think that's a very big threshold question which the department has to answer before, I think, there's going to be any willingness to look at this thing at all.

PANETTA: You know, I mean -- I hear what you're saying. And I -- the 2005 costs are frankly -- you know, it's just unacceptable the way that process ultimately worked out, in terms of how much it cost us. On the other hand, obviously, in the long run, it will produce some savings. I guess what I would -- what I would suggest to you is that, you know, we've been through three BRAC rounds. There are some lessons to be learned here. If we're going to do another BRAC round, as we've recommended, perhaps we need to do it in a way that tries to acknowledge some of the lessons learned here to make sure that we achieve the savings that we have to achieve as part of the BRAC process. Maybe that's a better way to approach this issue.

COURTNEY: Well, it's our -- my understanding that we're going to see language sometime in March, in terms of the proposal. And, again, there's going to be a high degree of skepticism for those of us who, again, have been tracking the overall results of the last round. And, certainly, I know you've gotten mixed comments here today, but I just want to at least share, certainly, for some of us, this is a real problem. And I yield back.

MCKEON: The committee will take a five-minute break and reconvene at five minutes after. And Mr. Conaway will be next. Thank you. (RECESS)

MCKEON: The committee will come to order. The chair recognizes Mr. Kline.

KLINE: Thank you, Mr. Chairman. Thank you, gentlemen, for being here, for your testimony, for your extraordinary service to our country. I very much appreciated, General Dempsey, your testimony when you mentioned that the families have stood with us, talking about our men and women in uniform, and

stressing the importance of keeping faith with the true source of our strength, that's our people. And it's in that line, in that vein, Mr. Secretary, that I want to raise a subject that I've raised in the past in this committee, and that's the subject with the sort of -- the sort of convoluted name of the post-deployment mobilization respite absence program -- PDMRA.

And although the name is a little convoluted, it's pretty straightforward. DOD enacted this program back in January of 2007 with the express purpose of taking care of our troops, recognizing that we have men and women deployed for extraordinarily long periods of time, and rewarding them with this program so that they could spend more time with those families -- the families that have stood with us -- and so that we could keep faith with our men and women in uniform and their families.

This program has been in effect and running doing what it's supposed to do, easing stress on our men and women in uniform, rewarding the families. And then on October 1st of 2011, the department came out with a new policy. And it came out with this policy, of course, it affects soldiers who are deployed today to Kuwait or Afghanistan, changing the number of days that you can get as a reward for extended periods of service. And you could have a negative impact of over three or four weeks in some cases, because it's new policy.

And so I am -- I understand the department is perfectly allowed to make policy changes, but I'm very concerned that it looks like there's no provision for grandfathering those that are overseas now. And we have a part of a brigade combat team of the famous Red Bulls out of Minnesota and surrounding states that are over in Kuwait right now, and there's a lot of confusion about what the policy is going to be.

I think it's important that we keep faith; that we not change things around when -- during the middle of a deployment, and so we don't have our soldiers sitting over there wondering, and their families wondering, what this policy is going to be.

So I have a question for you, Mr. Secretary. Will you grandfather this new policy so that the soldiers that are deployed now get what they thought they were going to get when they deployed? It applies to all, but I'm particularly talking about members of the Guard and Reserve who are making decisions based on these sorts of policies. So if you know that answer, I'll take it now. If you don't, I'd take it for the record. I

actually sent you a letter a month ago, January 18th to be exact, requesting the answer to this. And I -- I understand from talking to your staff that that's in the works and I'm going to get an answer, but I just think it's really, really important that we keep that faith and that we not change policy and we not have that kind of an impact on our men and women in uniform. So that's my first question.

PANETTA: Congressman, if I could just respond to that. We are -- we are looking at that program. It is an important program. And I am -- I'm looking at the implications of what happened with the policy change to determine whether or not we should make any adjustments. I'm not going to make any promises to you, but I will assure you that I'll take a hard look at that before we -- we get you the answer.

KLINE: Please do. And I would just reiterate that from -- in my opinion from where I'm sitting looking at my -- my own experience and talking to many of my constituents and many people in Minnesota, who have been really impacted by these deployments -- the Red Bulls had the longest combat deployment of any unit -- active, Reserve, National Guard -- of any service. And so I just think it's really important that we -- we keep faith with those men and women.

Now, I have another really quick question. I know you've answered this before, but I see that we're talking -- and I think, General Dempsey, you mentioned that we're looking at, or the secretary, both of you talked about modifying the retirement system for our men and women in uniform. I just want to underscore again that any such changes will not affect those already serving. Is that correct?

PANETTA: Our -- our position -- strong position here is that all those that are currently serving would be grandfathered in under the present system. As the commission reviews future changes they're not gonna be affected.

KLINE: Thank you. My time has expired, Mr. Chairman.

MCKEON: Thank you. Mr. Loebsack?

LOEBSACK: Thank you, Mr. Chair. Before I say anything else, I do want to, I guess, concur with Mr. Kline. We have Iowans who are in that Red Bull group, as well, and we have many of the very same concerns of (ph) Iowa when it comes to the Guard and Reserve. And I do want to thank both of you -- or all three of you for your service. At the outset, I just want to quote from the defense strategy when it states that – and I quote, "The concept of reversibility, including the vectors on which we place our industrial base, our people, our active reserve component balance, our posture and our partnership emphasis, is a key part of our decision calculus," unquote. The strategic guidance also states that DOD will, quote, "will make every effort to maintain an adequate industrial base," unquote.

I -- I strongly believe that a critical part of our industrial base is in fact our organic base, our arsenals -- certainly our ammunition plants and our depots. They provide, I believe, a critical function to our readiness and our ability to supply our troops in the event that we have another conflict. We're drawing down now, but in the event that we have future conflicts we've got to maintain, I think, the capabilities of the organic industrial base to respond to future contingencies, there's no doubt about it; and allow for reversibility highlighted in the strategy.

And I strongly believe that the department must ensure that we -- that this organic manufacturing base be preserved but that it be actively supported. Secretary Panetta, Chairman Dempsey has the department actively engaged the military services to develop a plan to sustain our organic industrial base, including

our organic manufacturing capabilities? And if so, what is that plan?

PANETTA: That -- that's part and parcel of the whole strategy here, which is to maintain that industrial base that you talked about. The industrial base, I think, does include the areas you just defined. We need to have that as part of our ability to be able to – to mobilize and to be able to reverse any -- any steps we've taken in order to be prepared for the future.

We are looking at a broad strategy here as to how best do we do this to make sure that as we fund the industrial base we do it in ways that, obviously, are cost savings but at the same time maintain those -- those areas in place. It's sometimes not an easy balance. But my goal is, I do not want to put anybody out

of business in that area. I think we need to have it. And we're gonna do everything we can to ensure that they're around.

LOEBSACK: General Dempsey?

DEMPSEY: I can assure you, Congressman, that the -- as the service chiefs have briefed me on their plans -- they've also briefed the secretary -- and it's always part of the conversation.

LOEBSACK: Thank you. The strategic guidance also states that, quote, "The challenges facing the United States today and in the future will require that we continue to employ National Guard and

Reserve forces," unquote.

I guess I have a couple of questions related to that, both Secretary Panetta and Chairman Dempsey, can you explain what role DOD's total force policy will play in implementing the new strategic policy across each of the services? And can you explain further how the total force policy will be implemented in light of the proposed force reductions among the services and within that how well the experience and readiness of the operational reserve be maintained? That's a big question, I understand and kind of a series of questions.

DEMPSEY: Yes, sir, it is a very big question and one that's a work in progress. I mean, what -- what we're taking a look at is -- it's fundamentally what -- how do we balance active Guard and Reserve. And then within that a subset is, as you balance the force, how much of it is operational -- that is to say, ready to go today -- and how much is strategic -- ready to go in 30 days, six months or a year.

And as the service chiefs come and appear before you, they are doing that work within their rotational schemes. Every service has a rotational scheme. And they'll be able to articulate what portions of each of those components need to be available in those bins, now, 30 days, 60 days a year. May not be able to give you the details, but that's what we're working toward.

LOEBSACK: (inaudible) Mr. Secretary?

PANETTA: It's really -- it's really essential here -- we --- we have -- we have learned a great deal over the last few years in our ability to make the fullest use of the Reserve and the Guard. I mean, if you go out to the battlefield, you can't tell the difference between National Guard units and active duty. They're out there doing exactly the same thing. And they're getting tremendous experience, they're getting tremendous capabilities. I want to be able to continue that capability so that they're ready to go. And, you know, the services are working on plans to make sure that we have that kind of rotational ability.

LOEBSACK: I just want to echo that. Our Guard and Reservemen are absolutely fantastic, not just in Iowa and Minnesota, but throughout the country, and they've done a great job in the operational -- in their operational roles, not just strategic. Thank you very much to all of you. Thank you, Mr. Chairman. I yield back.

MCKEON: I appreciate the gentleman's concern for the workforce, and would encourage your to look at my bill because they are going to be making layoffs, you know, planning for next January's sequestration, that could be avoided if we could fix that problem now. Mr. Rogers?

ROGERS: Thank you, Mr. Chairman. I'm on your bill, by the way. And I share the gentleman from Iowa's concerns. I -- I have spoken repeatedly in recent months with General Stein and General Dunwoody about this very issue. And I'm sad to see General Dunwoody retire; by the

way, she's a class act.

But one of the things she's assured me is that y'all are determined to not get caught like we were caught offguard going into Iraq and Afghanistan when it came to our depots' capabilities. And I believe her and General Stein when they say that. Then I look at the budget that's just been proposed and I look at depot funding for '13 and it's 82 percent of last year and last year the majority of the funding was in -- was

in OCO, this year none of it. Reset was a little better, 93 percent of last year. All this funding last year and this year is OCO.

The numbers of depot maintenance for the Army Reserve is 57 percent of last year; for the National Guard is 64 percent of last year. And my question is, if we want to make sure we're ready for the next -- and by the way, obviously, we're still in a war and we have other theaters threatening -- why has depot maintenance been cut so much and why is there no funding in the traditional reset accounts? General Dempsey?

DEMPSEY: Yes, sir. I mean, the demand is going down. Yes, we remain in conflict, but, Iraq, you

know, we went from 50,000 a year ago down to roughly 300 uniformed personnel now. I mean, when that demand goes down so, too, does the demand signal then back into the depots, although, as you correctly point out, there will be a period of residual recapitalization and retrofit and so forth.

But some of what you see reflected there -- this is not -- wasn't done as a budget drill. It was based upon the demand signal and how we have to take action immediately. But let me ask Mr. Hale to comment.

HALE: I think some of what you're seeing as -- as we shift funding from OCO to the base, as the Iraq war ended, some of those units -- some went to Afghanistan, but some are coming home. And we need to get their funding back into the base budget. That's some of what's driving those trends. And then as General Dempsey said, we're seeing lower requirements in some cases because the tempo of operations will be lower when we're out of Iraq. (CROSSTALK)

ROGERS: Those are just much larger percentages of reduction. Just quickly, you know, we still have some real significant reset demands that -- I understand that maybe in '14 and '15 we may see some larger reductions, but those are awfully sharp hills to go off... (CROSSTALK)

HALE: ... to my knowledge, I mean, reset is a difficult issue, and it's hard to predict and -- and it's hard to know exactly when the equipment will be available. We are very mindful that we need to fix or repair this equipment that's coming out of Iraq and -- and that will come out of Afghanistan. And we'll do everything we can to work with you. I think we have $9.3 billion, if my memory serves me right, to reset in the fiscal '13 budget. There's a lot of money in there. And we're trying to do our best to make sure it works.

ROGERS: Is it -- is it your plan to do the reset in our depots, all of it?

HALE: Well, it's a combination. In some cases the equipment's so bad we have to replace it. But where -- where it's fixable, yes we'll do it in the depots.

ROGERS: All the reset will be done in our depots?


ROGERS: Great. While the Army's downsizing, this decrease in depot maintenance seems to be a little severe given that we're still in Afghanistan. Do you envision a flattening off of this? Again, I go back to when I was first here right when we went into Afghanistan and Iraq and it was 18 months before we were really up and running like we shoulda been. I'm concerned that this downsizing, y'all plan to continue it rather than reach a plateau and -- and make sure that we're ready with this -- with this depot infrastructure. Give me some reassurance that we're not gonna keep declining.

PANETTA: My -- my whole point here is that we -- we have to be ready to mobilize and surge quickly. And I want to be able to have the facilities I need in order to do that. That's one of the requirements I -- I basically made to the service chiefs and all of them to make sure that we have the base on which -- if we have to go, we've got -- we've got 'em and they're in place. I -- you know, closing those facilities is gonna hurt us, and so my point is, let's try to do what we can to maintain what we need in order to mobilize quickly.

ROGERS: And that's -- that's what I'm looking for reassurance on. These numbers, you're confident that with these cuts you're still...

PANETTA: That's correct.

ROGERS: ... gonna be able to maintain that core capability...

PANETTA: That's correct.

ROGERS: ... that we need in the event we're in North Korea or Iran six months from now?

PANETTA: Yeah, absolutely.

DEMPSEY: With these numbers, I share the secretary's confidence and commitment he just made to you. Sequestration, cannot make that commitment.

ROGERS: I agree. It can never happen. I've got some more questions. My time is up. And I'll just submit those for the record. Thank you, gentlemen for your service.

MCKEON: Thank you very much. Ms. Tsongas?

TSONGAS: Thank you, Mr. Chairman. And thank you all for your testimony. It's quite an array of issues you have to deal with, so I give you great credit for being so responsive to all our questions. I just wanted to note that past testimony before this committee has rightly noted that our nation's fiscal crisis represents a threat to our national security. As Secretary of State Hillary Clinton and former Secretary of Defense Bob Gates have both noted, our rising debt has implications for both our influence around the world and our ability to project strength. To that end, I commend the diligence with which you've prepared the department's strategic guidance along with fiscal year 2013 budget which was shaped by that

guidance. In the initial round of cuts it's been required by the Budget Control Act. Ranking Member noted -- Ranking Member Smith rightly noted there is a decrease in the increase, and we actually had a witness last week -- I'm sorry I can't remember his name, but -- who said that a strategy without fiscal constraint is not a strategy.

TSONGAS: So I think that forces have combined to create a strategy that acknowledges the constraints we deal with but also the world in which we live. You also noted that as you're doing this you noted the fundamental importance of keeping faith with our military personnel.

So I'm going to go to an issue that we've discussed before. In your last appearance before the committee, Secretary Panetta, we talked about the fact that the military's rate of sexual assault among servicemembers is much too high. In 2010 there were 2,670 reported sexual assaults in the military. By the Pentagon's own estimate, as few as 13 percent of sexual assaults are reported. And in your last testimony you committed, despite budget austerity measures, to absolutely work to confront sexual assault, to encourage survivors to come forward, and to continue to fund programs that prevent it.

As we restructure the force in the coming year, this is a problem we must continue to work to address. As we all know, a climate of trust is fundamentally important to how our military operates, and failure to address it truly does erode that climate. In January of this year you publicized policies, some mandated by the fiscal year '12 NDAA, giving victims who report a sexual assault an option to quickly transfer from

their unit in order to remove them from the proximity of an alleged perpetrator. You stated that the DOD would require the retention of written records of sexual assault for a period of 50 years to make it easier for servicemembers to claim veterans benefits. You also announced that $9.3 million would be spent on training to give rape investigations and prosecutions more teeth to provide servicemembers with the

protections they deserve.

I want to thank you for all your efforts and your commitment to sexual assault prevention and response. And I am particularly encouraged by the near doubling of the department's budget request for the Sexual Assault Prevention and Response Office for fiscal year 2012. You have many -- many tools now in your tool chest that didn't exist in prior years. But these policies will only prove effective if we make sure that military commanders and leaders at every level are aware of these policies and are able to appropriately

respond to it. We must make sure that every person that a rape survivor could turn to is ready to appropriately respond to protect that servicemember.

And we've been learning, as people have been coming to our office, that some of these changes are not making their -- themselves known on the ground. Lower level leadership is the key to changing the culture in the military that has allowed this problem to exist for far too long. And that's why I'm encouraged to hear that you've acknowledged that you are conducting an assessment on how the military trains commanders and leaders. Still, we have much work to do.

So, my question, Secretary Panetta, is, going forward, how do you see this coming together to continue to create a continued strategic approach, institutionalizing prevention of and response to sexual assault, making sure at all level of the – all levels of the military are aware of the tools in the tool box and how -- and guidance in their response? And I left you with very little time. If I have to take an answer for the record, I will.

PANETTA: Thank you, Congresswoman. Thank you for your leadership on this issue. This is very important to me. I think we -- we have to take steps to make sure that we have zero tolerance with regards to sexual. And you know the problems, all of the steps you outlined that I presented. We are pushing on every one of those fronts to make sure that we do everything possible to try to limit sexual assaults. I've got -- the final thing is really what you mentioned, which is we have got to get our command structure to be a lot more sensitive about these issues, to recognize sexual assault when it takes place and to act on it, not to simply ignore it. That's -- that's one of the important keys.

TSONGAS: Thank you. And we'll follow up...

MCKEON: Thank you.

TSONGAS: ... in future -- future hearings. Thank you.

MCKEON: Mr. Franks?

FRANKS: Well, thank you, Mr. Chairman. Gentlemen, thank you for being here, General Dempsey, Secretary Panetta and Mr. Hale. Secretary Panetta, first of all I would like to echo the concerns of Mr. Thornberry regarding the administration's consideration or potential proposal of reducing our nuclear -- our strategic nuclear inventory by as much as 80 percent. I mean, I have to suggest to you I consider that reckless lunacy. And your response, in all deference to you, sir, was really a non-response, and it did little to assuage my concerns. And I just have to tell you for the record, given the need for a broad umbrella that America represents to the world in terms of our nuclear deterrent and given the importance of being able to demonstrate in the mind of any enemy, even those that are not altogether sound, of our overwhelming capability to respond and overwhelm any -- any aggression on the part of someone with nuclear capability, I just want to go on record as saying that there are many of us that are going to do everything we possibly can to make sure that this preposterous notion does not gain any real traction.

So with that said, let me shift gears and ask you a question related to missile defense. As you know, homeland defense is listed as the first policy priority in the ballistic missile defense review. And, furthermore, the Ground-Based Midcourse Defense System is currently the only proven missile defense system that protects the U.S. homeland from long-range ballistic missile attacks. And yet, with that said, the F.Y. '13 budget request is $250 million less than was enacted in F.Y. '12, which is a follow on to a decrease of $180 million in F.Y. '11. Now, the budget cuts to these systems makes it very clear to me that the administration is willing to diminish our only system that protects -- our only proven system that protects our homeland from long-range ballistic missiles. And furthermore, the budget request increases funds for several of the European Phased Adaptive Approach systems, which to the casual observer might indicate that the administration has actually subordinated protecting the continental U.S. from ballistic

missiles to that of protecting Europe.

And now unless you or your department or this administration has assessed that the threat to our homeland from long-range ballistic missiles has declined such that GMD is no longer the critical system we all thought it was, or unless somehow the administration's commitment to protecting the homeland has some -- in some way declined, I -- I guess I'm in the middle of conundrum here, Mr. Secretary.

And so I -- my question is this: Would you explain in your mind and the policy of the department whether GMD is indeed a critical system to protect our national security? And if so, how does this rather specific and direct cut to these systems reflect that commitment?

PANETTA: First and foremost, Congressman, I -- I obviously share your concern that -- that we have to do everything possible to protect our homeland. And for that reason we – we maintain the full nuclear deterrent here and the -- and the triad. Every aspect of the triad is maintained because I believe that is -- that is extremely important to our ability to protect our homeland.

With regards to the specific decision on the funds there, even though it's less than what we've provided, the fact is that it meets our needs in terms of upgrading the missile system that we have. It -- you know, our missile is in place, it is ready to go, it is effective, we're not going to reduce that effectiveness in any way here. The sole point here is to try to do what we can to obviously achieve some savings, but at the same time make sure that it doesn't impact on our readiness. And I can assure you that nothing in this budget impacts on our ability to respond and protect this country under the nuclear deterrent.

FRANKS: Well, Mr. Secretary, I don't doubt for a moment your commitment to this country. I will just suggest to you that the policies that we're hearing here should alarm us all. And with that, Mr. Chairman, I yield back.

MCKEON: Thank you. Ms. Pingree?

PINGREE: Thank you very much, Mr. Chair. Thank you all for you time today, your testimony, and for your service to this country. Secretary Panetta, I truly appreciate hearing the steps that the DOD has taken towards a sustainable defense budget and how it correlates to the president's new strategic guidance, with emphasis placed on the need to keep the agile and flexible military force. I will be interested to hear in the future how the force structure will serve those needs. Specifically, the Navy already has agility built into its force, which would help support strategic targeted operations.

In addition to reevaluating our strategy after 10 years of war, I do believe that we must continue to provide our servicemembers and their families the support that they need, and I'm pleased to hear you speaking about that today. We truly need to keep our promise to the honorable men and women who have earned their benefits. I'm also pleased to hear that it is a priority of yours, and I was very pleased with the

testimony of my colleague Ms. Tsongas, that it's a priority of yours and General Dempsey to take care of our military as well as addressing military sexual trauma. And I agree with her that there is still a great deal that needs to be done in regards to that.

I want to talk a little bit about Afghanistan. After the deaths of bin Laden, Anwar al-Awlaki, and the elimination of much of Al Qaida's leadership are a testament to the success and effectively of the small rapid missions instead of the nation building mission of the past. The emphasis placed on a lily pad strategy will help us continue to address our national security priorities as well as draw down unnecessary troop levels in Europe, for example.

Secretary Panetta, I'm hear -- I was pleased to hear you announce a few weeks ago that the drawdown from Afghanistan would begin as early as mid-2013. Although I appreciate accelerating the drawdown slightly, I would like to hear more about the number of troops that will be withdrawn in 2013, as well as the schedule set for the pace of withdrawal of the 68,000 troops who will remain. As a longstanding opponent of the war, I also have serious concerns that the lessons learned from Iraq are not being implemented fully in Afghanistan. As the DOD attempts to rein in costs, I am puzzled why contracting in Afghanistan has not been more closely scrutinized, especially since many of the contractors overlap in both Iraq and Afghanistan.

The special inspector general for Iraq reconstruction has highlighted over $0.5 billion, $640 million to be exact, that could be used more effectively elsewhere and almost a third, $217 million, of which were payments to contractors for reimbursements that were not supported by any documentation.

PINGREE: For example, Inspector General Stuart Brown specified that an audit of Annum LLC, which has contracts in both Afghanistan and Iraq totalling almost $4 billion, revealed that overbilled -- they overbilled DOD by at least $4.4 million for spare parts, including $900 for a switch valued at $7.05. Now, I know I've asked a lot here today and there's a limited amount of time available, but let me ask a couple of questions. And if you're able to discuss it, that would be great. If not, I'll take my answer -- the answers for the record.

My questions are: What steps have already been taken to implement the lessons learned from Iraq and the case of Afghanistan? Has it been successful? And what more can we do at this time of the important budget cutting that's currently going on?

PANETTA: Congresswoman, there's no question that -- that a lot of lessons were learned in Iraq and many of those lessons are being applied in Afghanistan. I think the good news is that 2011 was really kind of a turning point. In 2011, the level of violence went down. We weakened the Taliban significantly.

More importantly, the Afghan army really came into its own operationally. It started really being effective in terms of providing security. We've gone through several tranches of areas where we're transitioning to Afghan security and governance; the second tranche which we've just gone through and announced. When we complete that, over 50 percent of the population will be under Afghan security and Afghan control.

We're going to continue those tranches through 2012, as well as into 2013. In 2013, our goal is that when the final tranche is completed that the Afghans will take the lead with regards to combat operations and we will be in a support mode. Although we'll be combat-ready, we'll basically be operating in support through the remainder of 2014. We're on track now, according to Lisbon, to be able to draw down with our ISAF forces by the end of 2014. And then the discussion will be what kind of enduring presence we have there. But bottom line is, I think we are on the right track with regards to completing our mission in Afghanistan.

PINGREE: Thank you.

MCKEON: Thank you, Mr. Secretary. Mr. Conaway?

CONAWAY: Thank you, Mr. Chairman. And gentlemen, thank you for your long service and your demonstrated patience this morning with being here. Leon, I want to add my comments to what Rob Andrews said. Thank you for your forward-lean on the audit issue and the sustaining an audit, and properly resourcing that. You and Bob Hale and your team, the ripples that your comments have made and the efforts that have gone forward since October, I've seen them felt all down through the organization, which is where it's got to get done. So thank you for that and I appreciate it.

The -- we still don't know yet from General Allen, you said yesterday to the Senate, how we're going to bring down -- bring home the 23,000 that are scheduled this year. I'm just worried that your comments of the last few weeks are a little premature. I don't think anybody says it's gotten a whole lot safer in the east of Afghanistan. And I understand the glowing comments you were just making about the Afghan army -- concern that the fighting season of 2013 is split by Ramadan and that we would have our folks in a position to -- to allow something to go on the second half, right after Ramadan, last half of that fighting season of 2013, that is counterproductive to what we're trying to get done.

Can you help me understand? I'm in a position to have some information on intelligence as to what's going on and it didn't -- I was a bit shocked with your comments because it's not marrying up with the evidence I had at that point in time from things improving on the ground that rapidly to -- and since then, questions of certain folks you should know. And just makes your -- maybe you were misquoted or maybe over-stated with respect to that, but I am concerned that we -- we -- and then one final question.


CONAWAY: Rumors recently -- more recently that even more accelerated drawdowns are going on. And the questions yesterday in the Senate was that no decision was made. Does that imply that those conversations are in fact going on within the administration separate and apart from what General Allen is telling you and the commanders on the ground are telling you? That would be a great concern to us if these are political decisions being driven within the White House for whatever reason that they would start having those conversations. Can you -- can you help me understand what's going on there?

PANETTA: Yeah, first and foremost, after 40 years, I'm never responsible for any headlines on any

article that involves comments that you make. My -- my comments were perfectly in line with our commitments under Lisbon. And to prove it, the -- all of the defense ministers in the last meeting I attended -- all of them concur in the same strategy, which is we're in together and out together by 2014. And we are all following exactly the same process here. We're doing the tranches. We're doing the transition to Afghan authorities. Obviously, we are watching it closely to make sure that it's working.

So far, it is working. The Afghan army is doing a great job. We've got to continue to put them in place. We've got to make sure that they're -- they're able to -- to achieve security. Everything is conditions-based when you're in war. That's a bottom line here. So we're going to be tracking this very carefully as we go through that -- that process. With regards to the decisions, obviously we are in the process of how do we draw down to 23,000, the surge. And General Allen will present a plan to General Dempsey within a few months to be able to show how that will be accomplished. And then beyond that, frankly, no decisions have been made because we are looking at the situation on the ground, what we're going to need in order to achieve the mission that we're all interested in achieving.

CONAWAY: So we're still set on what the mission is, and no instructions to change the battle plan to reflect lower levels of American troops beyond the 68,000? None of that's in the works or pushing forward at all? OK. Well, thank you for that. One minor -- one issue with respect to the budget. I think there was also a $600 million decrease in defense funding because of the switch -- adding $600 million for green energy or renewable energy efforts. That's a cut to defense spending. It's not your core mission.

You know, we're going to pay, and Secretary Mabus is bragging on the -- on the paying $15 a gallon for jet fuel to fly F-18s. It's a demonstration project, I guess. And it just makes no sense in these kind of budgetary constraints that we would pay $15 a gallon. And even if you ramp that industry up as good as it's going to get, you're going to be paying twice for that blend of algae and fossil fuels over what just straight fossil fuel is.

So I'm not real keen on spending that $600 million. I think you could find a better place to spend $600 million in defending this country, as opposed to demonstration projects that -- that might not yield the benefits that we want. So again, appreciate your long service to our country. I yield back.

MCKEON: The gentleman's time is expired. Mr. Critz?

CRITZ: Thank you, Mr. Chairman. And Secretary Panetta, General Dempsey, Secretary Hale, thanks so much for being here. Thank you for your service to this country. Secretary Panetta, the Air Force recently announced force structure changes in light of the new national defense strategy. These changes include major aircraft reductions of both combat and mobility forces and announced the closing of an air reserve station in Pittsburgh, Pennsylvania, outside of the base -- outside the BRAC process. The base serves 1,400 active, Reserve and Guard units of both Navy and Air Force and has tens of millions of dollars appropriated for improvements. Can you tell me if the decision to close the base was made in coordination with your office or with other stakeholders? And how many other bases are being identified for unilateral Department of Defense closure outside of the BRAC process?

PANETTA: Congressman, I really recommend that you ask the chief of the Air Force that question because the decision to make that decision was in his hands as part of the strategy here that was being implemented to kind of fulfill the strategic goals that we were after. So on that specific decision, I would recommend you ask him that question.

CRITZ: OK. Thank you. And it plays actually into a larger role because as you know and are aware, the Air Force's restructuring plan proposes a reduction of 65 C-130 tactical airlifters, getting us to a total fleet projection of 318 aircraft. Part of that is because we're going to be lowering the Army to a structure of about 490,000 members. My concern is that pre-9/11, the Army was at about 480,000, so very similarly sized, and we had 530 C-130 tactical airlifters. And I'm just curious as to the Air Force's new restructuring plan isn't realistic given previous demands for tactical airlift and future demands in this new strategy. Can you elaborate on any of this -- the secretary or General Dempsey?

DEMPSEY: I can't -- I cannot elaborate on that specific issue except to say that the collaboration between the Air Force and the Army on their lift requirements has -- that has been accomplished.

CRITZ: Right.

DEMPSEY: And you will have both of them here at some point in the near future.

CRITZ: Yeah.

DEMPSEY: But, you know, this is about accounting rules. So if you have X number of airborne brigades, how much lift do you need; X number of ground combat brigades, how much lift do you need. And those accounting rules have been adjusted over time based on lessons learned. Do you want to add anything?

HALE: Well, I would add that the C-130 is very important to us, but all our studies show we have too many, frankly, and so what you're seeing is adjusting in tough budget times to go down to what we believe are the minimum requirements that meet our wartime needs.

CRITZ: Yeah. Well, and part of my concern is that we are actually adding I guess duties to the Air Force's C-130 because they're going to be doing the C-27J lift as well. And – and just as a sort of general idea, I look at the C-27J, it was going to be sort of the pickup truck, and the C-130 might be more like a tractor- trailer truck. And I'm just curious if the C-130 is going to be able to get into the same airports as the C-27 and is it really a cost savings? Or are we going to start saying, "Well, we can't get into these places so we're going to up the tempo for the Chinooks to do what the C-130s can't do."

And I guess my question is long term -- this is a short-term savings. Is it also a longterm savings? Have we looked at the 20-, 30-year life cycle of these aircraft?

PANETTA: I think they have looked at the long-term savings that would be achieved here. I mean, part of the goal in developing our strategy was obviously to -- to ensure that we had not only agility and ability to deploy quickly, but that what we were using was multimission and designed to accomplish a series of missions, not just one. And the problem with -- with that one aircraft is that it was kind of single-mission-oriented. And that's why I think the Air Force recommended that we move towards the-- towards the C-130s.

CRITZ: OK. I'm a little suspicious of -- I've just heard from some of my Army friends that they like the greens -- they like the same uniform in the aircraft above them and it makes them a little more comfortable.

DEMPSEY: That shocks me, Congressman, for the record. (LAUGHTER)

CRITZ: My -- my last question in the very short amount of time is that we've used the National Guard at a level in the last 10 years in OIF and OEF that we've never seen in the past. The future defense plan, does it maintain that same tempo of use of the National Guards, or are we going to see a -- I don't want to say a diminishing, but much less use of National Guards in forward operations?

What -- what we do, sir, is we respond to the demand. So, as the combatant commanders put a demand on the system, the service chiefs meet it. The answer to your question is we will have active component and notably Guard and Reserve in an ARFORGEN cycle that meets the demand. If the demand goes down, there will be fewer demanded.

CRITZ: Thank you. Mr. Chairman, I yield back.

MCKEON: Thank you. Mr. Wittman?

WITTMAN: Thank you, Mr. Chairman. Secretary Panetta, General Dempsey, Secretary Hale, thank you so much for joining us today, and thank you for your service. Secretary Panetta, I want to begin with you and go back to some of the statements you made about this effort of budget reductions begin driven by strategy, and ask you this. I know that part of that strategy is an increased operational capability and presence in both the Middle East and the Asia-Pacific. Within that context, we're looking now about an additional SSN being moved outside the FYDP. And we know that, in that particular theater, especially the Asia-Pacific, the SSN is a very, very frequently utilized asset.

Also, we're going to be pushing the SSB annex two years further down the road. So it's not going to be operational or deployable until at least the 2020s. And we're going to have a significant period of time where we have a reduced number of ballistic missile submarines, in a time where we know that's a very critical element to our nuclear triad. Looking at those things strategically, and where we are re- emphasizing our efforts, that seems to be counter to that.

And I would ask this, with that in mind, have we looked at can you tell me, from the perspective of China, can you tell me how many subs they are building per year and how many submarines they will have in F.Y. '17 and beyond, just to have a comparison as to where we are going to be strategically?

PANETTA: Yeah, let me -- if I could, let's -- Congressman, we should take that one for the record and make it in a classified setting.

WITTMAN: OK, OK, very good.

PANETTA: But, clearly, our goal here was to not only maintain but to strengthen our presence in the Pacific. That's the reason, frankly, we maintained 11 carriers. The Navy assures me that we have a more than adequate submarine fleet to be able to accompany our forces there. We have delayed the Ohio class based on cost and trying to make sure that we could control those cost overruns as we went through the process. But I can assure you we're still committed to getting that online.

WITTMAN: OK. Another issue, too, there, with our fleet is we're looking at the reduction in the size of the fleet. You talked about the seven cruisers that are going to be brought out because of the cost of modernizing them to a BMV platform. But you're also looking, too, at a fleet that's been really pushed. We're talking about maintenance that's been put off. So many ships, as far as their (inaudible), their

operational availability, is really being pushed.

If we're looking at that and the strategy that denotes more challenges there in the future, especially with our naval capability -- and just having been to an exercise, Bold Alligator, and looking at our -- our operational capability within the Marine Corps that's necessitated by ships and looking also at our amphibious ship decline in numbers, I would ask, too, how are we going to reconcile that with operational

availability, with ship availability based on backlog of maintenance and our L-class ships essentially going down, yet we're going to be emphasizing that capability as part of our strategy? How do we -- how do we fix -- or how do we address that what I see as a conflict?

DEMPSEY: If I could take a shot at that one, Congressman, you're talking about a specific single service. In this case, you're talking about the Navy. I mentioned in my opening comment, we really need to think about this as a joint force. And what we're doing as service chiefs and as Joint Chiefs is looking at our war plans and determining how we meet the demands of the war plans innovatively, differently, creatively, and integrate those capabilities that we didn't have 10 years ago.

So while it might -- it might seem that the Navy, actually, is, as part of this joint force, has actually benefited from this new strategy, as it's shifted to the Pacific, but it hasn't been without cost to them at all.

And the entire joint force has to be appreciated to understand how we meet the needs of the nation in terms of the new strategy.

WITTMAN: Sure. And I certainly appreciate that. I guess my concern is that, with that reemphasis in those areas and looking at this new strategy, while I understand the crosscapability that's there, it still appears to me, though, is where we're going to be calling on our Navy, in many instances, the capacity and capability there is going to be pushed to the absolute maximum.

We look at the number of MEBs that can be deployed and the things that we're asking our folks in the Marine Corps and the Navy to do in a joint atmosphere, it seems to me that they're going to be pushed in a situation where it may not be the most challenging of situations where we say, wow, we can't do all the things that we need to do. So my concern is, if this is indeed being driven by strategy -- and, Mr. Secretary, you spoke of increased risk. My question is, are these scenarios an acceptable risk? In your mind, is it an acceptable risk?

PANETTA: I think -- I think it is an acceptable risk. Because we're going to be -- we're going to be maintaining 285 ships. We've got 285 ships now. We'll have 285 ships in 2017. In that next five- year period, our hope is to increase the fleet to 300 ships. So our goal is to try to make sure that we have a flexible, deployable and capable Navy that's out there.

MCKEON: Thank you. Mr. Johnson?

JOHNSON: Thank you, Mr. Chairman. And thank you, Mr. Secretary and General Dempsey, for being here today. I know that the development of a new strategy and related changes in the budget request were very difficult undertakings. And some of the responses that I have heard from some on the committee to your work has been unfounded criticism. There is no way a 1 percent reduction of the Pentagon's base budget from 2012 to 2013 could mean the difference between the world's greatest military and a hollowed- out force.

And under the administration's proposal, the DOD base budget will remain essentially constant between 2013 and 2017 after adjusting for inflation. I believe there's room for additional savings in the department's budget. And those may very well come when we can get some clean accounting statements. And I'm glad to know that that time period, Mr. Secretary, you've moved up to 2014, I believe, right? And I share your concern about the annual opposition to across- the-board cuts that would be mandated by sequestration. And -- but before I ask any questions, I'd like to ask you a couple of things. Last October, there were records that I requested and those records were not submitted until last week. Can you be more prompt after this hearing with supplying any records or answers that are requested?

PANETTA: Congressman, I was not aware of that. But in the future, if you make a request for documents and you don't get them in an expedited way, I wish you would call me and let me know, and we'll make sure you get them in time.

JOHNSON: All right. Thank you. And also, in that regard, Mr. Secretary, a DOD report on rare earth elements was due in June of 2011. And it has not been completed as of yet, and we were also promised

an interim report in December. But we've received no interim report. Can this be gotten to us quickly?

HALE: That one is an interagency coordination. I know it's late. I'm told it will be very soon.

JOHNSON: Thank you. Any time frame?

HALE: I don't have a specific time. Let's get back to you with more specifics.

JOHNSON: All right. Thank you.

HALE: My legislative aide is saying a couple weeks. We hope that will be in that period.

JOHNSON: All right. Thank you. That's great. Mr. Secretary, I'm concerned that the pivot to the Asia-Pacific increases the risk of an increasingly adversarial military competition with China. And that is not in either country's best interests. How do we execute this new strategy without beginning a new Cold War?

And I might add that I definitely see a need for us to reposition our thinking in terms of the Asia-Pacific region.

PANETTA: I just had this discussion with the vice president of China yesterday. We are – you know, we are a Pacific power. They are a Pacific power. And while we've had our differences, the fact is we have some common concerns that we need to confront. One is nuclear proliferation in that area. And it's as much a concern to China as it is to us. Secondly, it's the whole issue of ensuring that trade routes and commerce flows freely in that area. That's another area that we -- we have a joint concern.

Thirdly, we have humanitarian needs in that area that we need to respond to. And they're as much concerned about that as we are. Area after area, there are some common areas that we have concerns that will help us improve the regional cooperation in that area. That's the kind of relationship we would like to have with China, and that's what we hope to develop. But in order to do that, we have to do that from a position of strength. And that's why we have to maintain our presence in the Pacific.

JOHNSON: Thank you, Mr. Secretary.

MCKEON: Thank you. Mr. Hunter?

HUNTER: Thank you, Mr. Chairman. Thank you all for your service and time. Let me start with this. This is a quote from Secretary Perry and General Shalikashvili, chairman of the Joint Chiefs of Staff under President Clinton. "A dramatic reduction in the threat allowed for a significant reduction in the size of our military forces. The most obvious benefit of reductions in force and support structure was a reduction in the defense budget. This peace dividend" -- I'm quoting -- "This peace dividend, amounting to about $100 billion a year, has been a major contributor to the balanced budget that our country now enjoys. The question, of course, is did the nation pay too high a price for this benefit? In particular, was the capability of the military forces reduced to the extent that they cannot adequately protect American national interests?

Our answer to that question is an emphatic no. A year and a half later, terrorists murdered about 3,000 Americans and off we went to war. And as Secretary Rumsfeld said, we went with the Army we have, not the one that we wanted or wished for. I'd like to know in general how do you differentiate yourself from these two leaders in that time who were presiding over a -- what they would not call but we look back and

see was a hollowing out of the military?

DEMPSEY: Well, I differentiate from them because I think we each face our own different circumstances. I mean, you know, I mentioned earlier in response to another question that the fiscal reality of the '90s is different than the fiscal reality of this decade. And it seems to me that, as others have testified, that we can only remain a global power if we've got that balance, the aggregate of diplomatic, economic and military power. And what you're seeing us do is try to reconcile a different set of circumstances from any that -- from any of our predecessors and to ensure that we do form a strategy and then a -- and map the budget to it as opposed to just reacting to budget cuts. And I can only assure you we did that and that this will have to be seen as having been effective or not over time.

HUNTER: Thank you, General. OK, moving on then, let me hit on a few other things in no particular order here. One of the main points of the budget is calling for more capability in the Guard and Reserve, yet the NGREA -- that's the National Guard and Reserve Equipment Account -- is zeroed out in this budget. There is no request for NGREA at all, when we're going to put more on the backs of our Guard and Reserve. The National Guard and Reserve modernization account reduced by 44 percent. Navy Reserve over the next five years goes down by 9,000 sailors. Based on current capability, even though in five years we'll have LCS and a lot of different programs, more UAVs, Fire Scouts, which (inaudible) get them back for, and that will be more expensive, shortsighted.

Air Force is reducing, it looks like, two active and five reserve squadrons. It should be the other way around, just from our -- our point of view, kind of common sense. If you're there to save money, you look at these Reserve and National Guard air squadrons, they're the ones that pulled a lot of weight in Iraq and Afghanistan. And I think Chairman Kline had a statement on that matter. It just doesn't make sense, two

active, five reserve, when you could support a lot more reserve for the cost of one active.

Drones and technologies, we're going to -- we're going to ask for half as many Reapers. Even though we say the strategy is so that we could rely more on technology, we're reducing Reapers in half. We're reducing the number of Global Hawks. We canceled the Navy's next generation UAV because the Fire Scout can do the job. That's all fine if your argument wasn't that we're going to rely more on this type of technology, but then you cut it at the time same time. It doesn't make sense to me.

Third, Asia-Pacific. We fund ship repair at 100 percent, which we all know is about 80 of what it really needs. You still have ships going out that are not even close to being capable to do their job. You cut seven cruisers. It looks to me like we cut seven cruisers so that we could fund 100 percent of 80 percent of the Navy's needs, if that makes sense, meaning you cut seven cruisers so that you can -- we don't want to have to fix the things that are expensive to fix, so we just let them go. That's what's happening here.

Navy refuses to down select on the LCS. That's Congress' problems, as well as DOD's in my opinion. We should have -- we should be able to at least down select on an LCS.

I don't care which one it is. You can't train -- for the same class you're training different sailors to work on two different ships, different logistical tails, different modules -- or same modules, but different command decks inside. You're going to have sailors that are going to get trained for two totally different things.

And lastly, something that I noticed, the Joint Light Tactical Vehicle, the -- you're going to have contracts going out in June of this year. Ford came to us and said, "Hey, if you prolong this a year, Ford will get involved and save you hundreds of millions of dollars," and we said, "No."

HUNTER: There's some major problems with this budget. My -- my main point is this: The strategy and the budget contradict each other. They do not go hand-in-hand. They don't fit. And it looks to me like the things that we're trying to accomplish are not gonna be paid for. Anyway, that's my opinion, and I'm sticking to it. Thank you, Mr. Chairman. Thank you, gentlemen, again for your service. I appreciate it. Thanks for what you're doing and for coming in here with us.

DEMPSEY: Thanks for reading the thing. (LAUGHTER) Obviously, you've studied it quite a bit. (OFF-MIKE)

MCKEON: The gentleman's time is expired. Will you please answer those questions for the record? Thank you. Thank you. Ms. Hochul?

PANETTA: We'll be more than happy.

HOCHUL: (OFF-MIKE) Thank you, Mr. Chairman. And thank you for joining us today and for your service to our country. Certainly, I echo some of these sentiments because we are concerned about the need to cut costs. And that's the great challenge that faces you, and we appreciate the stress that you're under to accomplish this. However, it does seem that the more cost effective way to approach it is to continue staging Reserve and Guard units in a stronger capacity than has been announced thus far. So we're asking for your consideration, as a representative of the Niagara Falls Air Reserve Station, we are expected to, if all goes according to it's projected, to lose 16 percent of the nation's Guard. That's a big hit for an area like ours. And as you were talking -- and I took to heart what you said, Mr. Secretary, about the need to have jobs when our veterans come home. My part of the country sends a lot of people to war, and they come back to our area and the jobs are just not there. So we treasure these jobs, as well as the proximity we have to the border with Canada. We believe that you will certainly understand the need to ensure that we have a continued mission if not the C-130s that the Guard currently has but another mission to fall in its place, and that's -- that's very important for variety of reasons.

But, again, what you said about our military security being linked to our economic security and our industrial base and our manufacturing, do you envision a policy or do -- what are your thoughts on a policy whereby using our limited Department of Defense procurement dollars, do we actually give preferences to domestically produced materials? Is that something under consideration? Is that something that (inaudible) you think could help our job situation back home to shore up our economy and our industrial base as well, sir?

PANETTA: Well, let me begin by saying you -- you can't view the Defense Department budget as a jobs program. I know there are jobs that are dependent on it. I know we care an awful lot about the people that -- that work under our -- our department. But the bottom line is what do we need in order to get the best defense for this country and where can we get it?

And -- and, frankly, we do look at the U.S. industrial base as -- as supplying, frankly, the biggest part of that. Why? Because I can't -- I don't want to rely on foreign suppliers for that. I've got to rely on U.S. suppliers in the event that we have a crisis and we've got to respond.

HOCHUL: I agree with you 100 percent. I'd like your comments on it, sir?

DEMPSEY: Yeah, thanks -- thank you, ma'am. Just on this active Guard and Reserve issue, we really gotta be clear that -- I mean, the active is active because they're full time, 24/7, 365. And we fund them to be full time so they can be the most responsive force.

The Guard and Reserve, if they were full time, if they were ready on the same timeline, would cost exactly the same thing. But, yet, you know, on occasion we'll be told the Guard and Reserve are cheaper. They are because we only employ them for X-number of days a year. Once you bring 'em in and you want 'em to serve for 365, the fully encumbered costs are identical. The question for the nation that we're trying to answer is, how much active – because you need them right now; how much Guard and Reserve, and then within that, how many of them do you need within 30 days, 180 days or a year.

So, believe me, we want to do what's best for the nation, but there's -- this is not a -- you know, the active, Guard, Reserve (inaudible) it's not a dichotomy, it's a trichotomy -- has to be handled very carefully or we will talk ourselves into something that won't deliver when we need it to deliver.

HOCHUL: And I take that to heart. But I want to get back to the secretary's comments. Is there anything that this Congress can do to assist in your stated goal, which I share, that we can do more for our industrial base, our local manufacturing, and again our national security, as opposed to relying on manufactured items from countries that may turn on us and may not end up being our friends? Is that something we can work on together, because I think that's important.

PANETTA: Absolutely. I would have no -- no problem working with you on that aspect. Because I -- I want to be able to turn to our base in this country when we have to respond and mobilize.

HOCHUL: All right. Thank you very much. Mr. Chairman, I yield back the balance of my time.

MCKEON: Thank you. Mr. Scott?

SCOTT: Thank you, Mr. Chairman. Gentlemen, I appreciate you hanging around just for my question. (LAUGHTER) General, you spoke about the ISR capabilities. I represent Robins Air Force Base and we have the JSTARS there. And it's not appropriate here, but I'd like to get some information to you. There's a very efficient way for us to increase the capabilities of that unit and those planes that would, I think, be a significant cost- savings. So I'll -- I'll provide that information for all of you. I'll work my staff to your staff. I will tell you, I did not vote for the sequestration. I represent Robins Air Force Base, as I said. I'm from Georgia. We have Fort Benning. We have Fort Gordon. We have Fort Stewart. We have Moody Air Force Base. We have Kings Bay. I also, as the chairman would tell you -- tell you that I'm one of the ones that – that did not sign the letter saying "no cuts to the military." I recognize that -- that we are going to have to have some reductions.

What -- what I see happening, though, through the communities that have such a large military industrial base is the fear between sequestration and the talk of BRAC. It's disrupting businesses, whether it's an entrepreneur that wants to go to a restaurant, or a city who's trying to determine what -- what sewer capacity they need or water capacity or other types of infrastructure they need. It's I think in the end causing us more unemployment because of that uncertainty. Zell Miller was one of Georgia's governors and was a U.S. senator. And one of the things that he did, and he received some criticism for it when he did it, but in the end, it worked. He went through a process called "redirection," where he asked every agency to deliver -- the agency head was to deliver the 5 percent that they would cut.

It wasn't up to any of the elected officials. The agency heads delivered the 5 percent that they would cut.

So your base commander could deliver the 5 percent that they would take out, and then they were allowed to present back to command where they would put 2.5 percent of that. The net result of that was a 2.5 percent reduction in spending, and quite honestly, a more efficient agency.

And so as somebody who's come from a state appropriations committee, and Secretary Panetta, and General and Comptroller, I know that you all have more experience than I do with these issues, but that's something that we did see that worked.

SCOTT: I'd also like to say, you know, Mr. Secretary, there are 89 of us that are freshman Republicans. We'd very much enjoy a discussion with the president. That's something that we're not allowed. I wish we could. I wish that what was said about us working together could happen, and obviously that means that you have those meetings. But I would ask, as we talk about these cuts, you know, there's no -- there's no

discussion of cutting food stamps. We're talking about cutting veterans benefits. You know, there's not -- not talk of cutting housing programs or other things. I mean, the things that have been outlined to us are cuts to the military.

And we need your help. I mean, when Fox News and CNN are on -- and I watch Fox, I'll tell you, but CNN's a Georgia company -- and, I mean, we need you out there talking about the damage that sequestration is going to do to national security, to our economy, the military industrial complex. Those people work. My people at Robins want to get up in the morning and go to work and have a job. They want to build an airplane.

So I would just ask that, you know, we're going to do everything we can to have your back and we need you out there outlining that damage that can be done for us.

PANETTA: Congressman, thank you for those comments. And, obviously, I'll continue to talk about the impact that sequester would have. And I agree with you, just having the shadow of that out there is of tremendous concern to communities across the country, to industries across the country, and it's something that we really have to try to get rid of.

But just to -- you know, bottom line here is, we were handed a number for defense reductions. We stepped up to the plate, we met our obligations to try to do this in a way that would still preserve for us an effective force to deal with the threats. But you can't balance the budget on the backs of defense either.

SCOTT: Absolutely.

PANETTA: You got -- you got to look at every other area in the budget in order to deal with the deficits that we're confronting. And I just hope that Congress ultimately makes the decision, along with the president, to do that.

SCOTT: And, Mr. Secretary, that's the statement that we need to hear over and over and over from -- from those of you at the DOD and our military leaders. You can't balance the budget on the backs of the military. Thank you so much. I yield.

MCKEON: Thank you for waiting to get your question out there. Thank you very much, Mr. Secretary, General...

PANETTA: Thank you very much.

MCKEON: ... Mr. Hale. We appreciate your being here, appreciate the work you're doing. This hearing is now at an end.