by little to where we have the worst record in this administration announces a first term of ronald reagan and i did the math a couple months ago. and got their attention this is the sixth full fiscal years we have completed. but 24 months out of six years. sometimes three months or six months so with that fiscal year to execute new ideas. that situation so it did do

better but not what we wanted them but i would say one of the famous that we have been pretty consistent of the f weiss 60 budget in terms of what we're trying to accomplish with this strategy a strategic thought and the amount of our resources and have been consistent where it needs to go but they knew pretty well

where we were coming from. so that helped us in terms of the thought process. with those resources that we needed. en to do that charter this is the budget submitted earlier in 2011. but the next line down after it was kind to cut half a

trillion dollars out of the plan for secretary gates. and then he rightly suspected and then remember in january 2012 that the deputy secretary with our strategy. and we touchback to where we were we caved in a little lower than that. to have that strategic

choice given the new reality of the budget control act so what is that the acceptable risk level. with that area of the line on the top and the other lines on the bottom. ever since we have been telling people for what was covered by the grave risk and. that is from the fis 16 and f-117 budget said. and to be a substantial portion. look at in terms of a point of view.

so we live with the lower level of resources. so we had telegraphed that very well. and we had been pretty consistent with than for those budget discussions we were needed. and then to ride to the second day of bed new deal that we have passed. the difference between the red line and then every year since then.

before the budget deal was an active. and then with the solid red line and then to get through three different budget deals. them with the budget balanced budget act of 15. so this is the point that jumps out. we have never gotten the worst case or with the president's budget was written and with that budget request but other than a bad it is a negotiation in every year.

is where the budget control act is that is a painfully slow process. so i will take you back but they look at where we started and then the worst case and and looking now $1 trillion per cut. where are we in that range with no relief whatsoever? it is close to though worse case with those budget deals. the what they call the first 500 billion to recognize what we would have to do no matter what that we owed $500 billion.

the green line shows where we ended up with us budget act so we have relief so far over six years. but that is the difference between the green line and the red line. afield the budget control act is the key driver of the strong gravitational pull if you look at the big picture that is something that congress agreed even with this super committees to succeed without offset we're still pretty close to the bottom of the bucket and it

has been a dominant force. to walk through the resource level that we have to take this down when the super committee failed with the new budget deal and i can show this best on the next chart. that there is no deal at the bottom of the box we will have gotten $70 billion. if we have no further relief

after this deal. so the al years of our plan with that out your profile there is about $100 billion at stake the difference between what we see in the out years so that is more relief than we could achieve in the first six there is a lot at stake but now more or less we cannot predict the next budget that we presented to congress it is still in madrid billion dollars that is the best

case based on what it is. so the range is much closer if you think about the changes of world events with the constructs in terms of political discussion or the discretionary budget as the whole. why do we have a budget deal? partly because of the dispute of the maneuver over the a resolution so just to refresh you in the end that

we were right to hold up for deal suddenly have it to your topline and help for defense and nondefense government side of the budget not just dod part so secretary carter was not just to get it fixed for one year but would doj and the players so we did and did all the money we wanted but with our reluctance to go for the easy solution. and with the few observations what it does it does not do.

and that seems like not a great accomplishment but still for economic security you don't take that for granted. that is important for us. and then figure out how to meet the targets to learn about the appropriators how the topline should be adjusted. and then to have the pre-agreed targets it is an odd concept but because of

the last point to alter the rules in the relationship with the funding for this two years period through oco and that is in the discussion. the only offset down the road that requires that future spectrum so down the road in a few years and now so that is something we have it makes us whole. and it was very important to secretary carter with one man in a light bulb that was not his idea of success and

i would say from those that we work with on a daily basis oco read the was directed at the state department functions. it is a way that i would be very uncomfortable so they will be much more leveraged and a lot more certain headed into the administration. but to give targets specific to dod with the nsa and others it doesn't actually provide us monday so with that appropriation bill on time so therefore it does not prevent a shutdown on the appropriation bill.

although it is a helpful sign if we don't have that situation again, . so it continues the pattern of short-term relief but doesn't guarantee anything so the threat of a sequester is coming back well lit is still above all it is not removed by the budget deal. you can make assumptions of it is good or bad that now extended to the spending cap. probably the top priority is we did not want to see the

caps extended further because the decade of the '20s we need additional resources from where we are today and that would be one of the worst times we could imagine that something that you did not see is you could make judgments with the oco spending will be repeated or not but it doesn't tell us the future of that to make it work as the compromise in the future. so that is one of the key things to keep an eye on. the european reinsurance initiative started on the

little over a year ago. it was comparable but we will remove that at. we are still debating but it will be significant but there is say budget deal the biggest asian had a slightly different concept. so here is the reassurance and if it is not clear at all. and then not to be bit picky but as we look to the

future. so this chart can illustrate where the budget was. where the caps were in the red. but the oco relief you have read about compared to the level that we rat with the 60 budget. because the president decided to extend the entire troop level and i had a bill that was not contained but is $3 billion a year.

with $5 billion of relief. with the attack on paris so i cannot necessarily control or predict the true cost of what will happen. end of the defense department that dash% of that total butted said it needed is a little less. now to say to my family and i count that as such for

both. but it gives us 3% cut but still if you look at the difference county in from $0 up through $530 billion to get 87 percent of what we wanted. with get the space is 80 percent have no way up that is more relief with those applications but what

you do today but to feed about so many dimensions from cyberterrorism or any temporal terms to day but here is what is on our plate with the program as it is the key point for us with the high end capabilities hopefully looking at secretary carter's priorities he has been very clear about how to have talent even more than what we have today with innovation of our investments in the way

technology is delivered to day how we compete for talent in seoul many realms. secretary carter is focused on getting things done but the the the successors. i wish i could say i have predictability and i have that of course, we know some of the big issues on the plate that we alluded to to recapitalize the nuclear deterrent. and those for full retirement. i will show you a chart with

the long-term budget outlook is and what i call the ability to pay. and by 2020 the non-defense the budget is above the line of what is covered by the revenue. by 2035 the entire discretionary budget is above though wide and that describes to buy but did resources they did not the ideal situation with that pressure written by demographics where are they

for the next administration? uk and see where we were the first three years then we got run over them rehab as a drop in your budget and that $35 billion and then jumping up $30 billion with that $3 billion above the cap proposal first of all, and with the fourth year in your role but you notice i

haven't connected and i left that gap there. in addition the calendar year me be in the fall there'll be another budget deal based on past history. and my successors will be starting from a place where renegotiating. even to head over there to jump back up. this year if it was difficult to achieve it would have been impossible

to where we take we need to go with 16 and 17. this is doable for what was accomplished but it does show it is possible. it set this up fairly well for the future given the all factors considered to have the negotiation for the defense budget over the last two or three years that is an important point. finally over the last couple years of what i have seed with the feeling for these negotiations what i call growing up with politics in defense is up high water

mark. second the point i made that we have never gotten everything that we wanted and then there is some relief that comes in a one or two years dose's. it is like christmas you know, is coming but you have to wait. we have had to common to your deals. -- a two-year deal so that topline is it dictated heavily with the stronger gravitational pull with the combined desire of the president and the joint chiefs.

we have had some success but it has been a fight there is no guarantee of success except for a tiny little bit they have had to be paid for. the constructs is a supply of resources with the national security requirements of the country. so for people to come up with resources generally has not included much revenue such shows it is a dominant factor to set those defense resource priorities and then

on the funding with the exit this administration for them to do better on that front is to have more resources out of oco but that will not be achieved under this deal but that is one big we left it is important variable to the future. that is my summary and that is the key aspects of resources we have looked the last couple of years to leave the couple points peggy in particular. >> if there is a way of getting us started give a

status update of the uprising of 2017 budget cuts where do things stand right now about three weeks ago we need to be done so it is crunch time for sure. and we will probably get it as late as a week from today but we have a couple of issues to discuss as well as the particular 79 funding

and then a couple to bring to ruth closure. that will be hard to reach the next couple of days. but we are is in decent shape every year looking to lock this up. and i can assume there is any additional time. but that is the shared goal. >> so we can have an idea it

is about the $15 billion reduction from last year's request so should we expect any major program terminations and? for the modernization you program? to route up the production or do we see deviations? >> one of the ways to accommodate and of course, to have a logo of scheduled dynamics but there will be some slowdown in some places just to get all the new inflation factors

with the military retirement to sign a few days ago is taken into account that is the day huge near-term impact to finalize the determination that may be a savings for us to have something that updates for the retirees without making the situation in the worse. >> space is f-117? >> i think it will be kind of flat with the impact is another point that i may

attilas you that topline with the appropriations committee i would not expect any major changes because that does not give you the demand to say i need to shrink my forced to accommodate because based on history it is out there but history shows you don't live with the worst case we already know what that is we just don't know the best case so in terms to have the leverage we don't know what we're living with because it

is such a hard thing to do given the demands on the force nobody wants to they don't have to. >> turned to oco funding to talk about my greedy in the interim requirements this sounds like a euphemism to be but going in opposite directions with the budget deal congress is done similar things in the past so with that alliance and has been blurred because there is no the apple distinction and what counts and how this will be used to the future.

>> i would say yes but you are right the desire was as we ramp down that presents in iraq to get us out of that combat mission in afghanistan is seems we have built up some dependencies over the years we with the course of least resistance this gets us out by 2020 and and also as though way to solve this year's particular problem and it was evident early on and to get more the

cost back into the base budget and at the end of the day there is the point to that. . .

, it does send a few signals to the future. it's obvious to me at least why it ended up this way and you could change the deal without having to get fundamentally committed to the future with a long-term budgets this way but not ideal for us but compromise, this to me was part of a compromise and maybe it's not the way we would ever admit though we had the desire to ramp down and we had a desire to ramp up on it but it was a more temporary thing about what people wanted to be. go me think about it there's only a couple of ways to fund contingency activities. you can give the executive branch the money up front with not a lot of strings but you can

give it to them upfront with a lot of strings or you can wait until after-the-fact congress a bill that they have not much choice except to pay so before-and-after and what degree of strings there are only so many ways you can skin a cat. so i think we may well see some formulation of how to pay for contingency funding although i couldn't guess what that might be at this point but ultimately there are so many models that you can do. >> woodstock about something, the idea keeps coming up a lot of times. dod has not yet had it. it's been in the works for a while. can you give us a bit of an update on where it stands in terms of getting to an audit and we have a pretty smart audience hear why is it hard for dod?

>> we have a goal that we set out that congress came back and agreed on a legislature that we would submit the entire department for a full audit of all the statements that go with it in 2017 so that's this fall of 2017. there will be a difference cfo most likely when that happens and secretary panetta felt that five years ago was too far away to have an interim goal without an interim goal he felt we needed an interim goal to reestablish one to submit an audit on our current year statement for the fall, for this last fall, the fall of 2014. 2015, i'm sorry so we have done now submitted audits for the army, navy, air force. one of those have come back with a disclaimer which is pretty

much what we expected the first timeout and we were elected to get the other two as well but we are making a lot of progress. one of the things i was talking about on the topline aspect is that we had in terms of what resources were needed and what size the force needed we have been fairly consistent over the last couple of years which has helped us. the same is true on the outside. we had a plane that we have stuck to the framework on and we have been trying to work down the to-do list of things to get them done but we haven't changed the plan a lot in the last couple of years and we are not going to change the plan this time either just because we have a disclaimer. it will not surprise us finally get started on these so we have the benefit that everybody knows what the plan is in working together on the plan. it's going to be a journey that will last beyond my time. we are making progress. why is it difficult for us? i think largely our size and complexity is one thing and i think people will appreciate how big we are.

we have millions of employees. our budget is the size, pretty good-sized economy in belgium or the netherlands but we are not a small organization at all. we have i think something like 25 million acres of land that we have half a million buildings. so that's not the main reason. i think the main reasons are probably two. one, we have so many systems that were built to do something else that needs work together and produce information in a way that auditors can use and verify which is not what they were built for and where to big to lowball our systems. we have to put together all kinds of logistics with financial systems and that's been a difficult effort in second i think culturally we are an organization that's all about getting the mission done.

this has not been and probably never will be seen as the department's primary mission. the primary mission is to defend the nation and fight and win wars so the trick has been to get our culture to see this as a mission that needs to get done even though we will never be the top mission in the department but to bring the same attitude as this is something to get done. we are about accomplishing the mission and that is what we have been achieving over the last couple of years. but it's hard to measure and i will tell you some members of the congress have said they will concede that you guys actually have a plan that makes sense and you appear to be following your plan and you are moving the ball down the field but is not in end zone and that's what counts as a result. it's hard to assess progress many don't get the ball into the end zone and i will tell you progress is there. one evidence of that to me is we have had by my count zero august

this year which is surprising. of course there's a lot going on a pretty high importance. as we talked about we have less resources. we have headquarters that. we have financial cuts to absorb so one thing you might say was something that we may need to dial back on there as been strong resistance in the services to doing that so to me there are a couple of signs that culturally this is a mission want to get done. on it to be pushed. we don't have to be beaten. we don't have to have hearings are the things to make it. we have internalized this now is a goal but it's difficult to get there for us given our size and complexity and the need to get so many parts of the community and everybody else working together. i think we are on the right track and i think history will

look back and it will take a couple of more years to get this going. my credit goes to bob hale who says you can't learn it on the beat. you have to get on in it to really learn and have independent auditors to say here's what you're doing right and here's not what you're doing right. we are going to learn at a more rapid rate even though the initial results will be you weren't good enough to get a clean on it. >> you need a couple of failures >> i think you do. and you need to stop practicing and not doing test prep is what we have been doing a lot of as you take the s.a.t.. you want to prepare but at some point you need to find out if you are good enough and where you are not good not. >> it sounds like a lot of the challenges an i.t. issue. the legacy data systems talking to each other.

>> and business processes too. if you have a bad process and put a new computer system you still have a bad process. >> the other thing that i hear people talking about is why shouldn't you do a budget increase? clear up something here. once you pass an audit what is the likelihood you find $100 billion sitting around here and now we have all the money we need? are we going to see anything like that happening from an audit? >> that's a good question. i find the premise of that viewpoint or a question like that understandable but a little frustrating. the fact that we haven't had an audit our business practices are not what they should be. doesn't mean that we don't know what we do at the money. you occasionally hear that this characterization that we don't know where the money is or what to do with the money. we have among other things we have 535 members on the board of

directors as well as every contract. if congress gives us money x billion dollars to buy those people know if we did or didn't buy those things. paying our people that are budget between military and civilian pay and benefit. if people weren't getting paid we would know about it. >> it's a misnomer to think their resources, nobody knows what happens to them. the issue of the audit is to demonstrate going from the order to the invoice to the expenditure, everything connected that auditors when they find -- paul rec rids they find it meets auditing records. it's not the wild west where nobody knows what's going on. that being said if you do have your business processes at the point where you are passing audit there will be efficiencies and there will be things you discover about yourself.

but that's true of audits. that's true of any number of efficiencies. i recall when i -- i see ray sitting in the front row and when his boss confirmed with me early in 2001 he said any organization can be run more efficiently. we are not saying, that's why you do a business. there's no pretense here that we are perfect. we recognize it's as true today as it was 50 years ago. this is one of many efforts one that i think has broad support and people recognize we had an audit. others have not had a not at that's a well organization should be divesting some of its legacy to that new capabilities and so i grant that people, some

of them, it's not hard to be for passing audit and someday things who want to do. and finding the resources as well as trying to make ourselves better in terms of i.t. processes, business processes audit and infrastructure and other things. iis consideration that when we are trying to do all these things at once we know we need to do better on process and satisfy an auditor but it's just as true when we say we need to have less restrictions and we need support for base closure we need -- we have a proposal he think takes a lot of sense to consolidate our tri-care system. there are consideration as well. all of these things are things you that don't pay off the next day but they pay off down the road. again i'm talking about in the 20s.

there was a bill that was true in the early 60s and was true under reagan. that bill is going to come in the 20s so investments that we make today weatherbee base closure or something else and save us money. it won't help meet the budget target but it can still be important to help us save money down the road. the audit is one of those long-term efforts. >> quickly before band i want to own put it up for questions. >> i am troubled by you thinking that your budgetary future in the midterm five years out is all that in certain. bca is not this free-floating entity. it's a reflection of a generational battle over the state of society and thing going on for a decade or two and it will go on for another two, three or four presidential cycles. in the meantime we have got this

one-time fix and the guy that was supposed to be so charitable we do know what the shape of the linux like. you get 50% of the delta between the defense request and you had that amount to both and we got lucky this time. you are better off. >> we know that you are getting some of it takes. you are getting the compensation stuff. not as fast as you would like but you are getting the apaches move. you probably won't get them cancel until you stopped applying them and that's a problem. it's not that all that unpredictable. he said the demands it and doesn't justify anything that's hard to reverse of the force structure, fair enough. but it seems to me you could reasonably serve eyes -- a mise we will follow this pattern -- we will surmise that you will get the total.

is there nothing less than force structure cuts but more than sliding the last payday of the fiscal year two october 21? is there nothing in the mid-range that you can do structurally to say hey the skimmer is in a relevant benchmark anymore. here's something we can do in the short to medium-term timeframe. the structural adaptation to what we know is coming down the track. >> okay, i would grant your point that through 21 you will be somewhere at the midpoint or maybe a little better. other than the fact that we have a change of administration which adds additional uncertainty and we might have a president who thinks -- we will know more about that in the year.

there are things that we can do and they tend to involve looking at the loan priority programs were things that can be re-face. my point was that particularly on the ground for side it's been proposed about shrinking the ground forces and there's a lot of angst about that so i don't think you realistically can achieve that without getting a clear demand signal about what you want. that's been part of the frustration at not only do we have the department but the defense has had to think our defense committees have taken the vision that the ground forces should not shrink in the delta ground forces should not shrink but a lot don't agree with them. so that's been somewhat of an uncertain point. i think really the uncertainty is more about beyond the bca.

you are right. and again we have a lot of concerns. it's not a problem that we can do much in the sapna straight about what's going to happen in 2020. in a period that starts after the next administration first term but it is something that because we tend to do so much long-term thinking that we look at, when i say that in particular when we start modernizing the submarine which we started in 21 it's going to stretch and both are so expensive that i'm sure if any of you have followed the navy the navy has expressed concerns and so you prove to me it's not going to come out of my ship the link budget then i'm going to keep waving my arms around until somebody notices how we are going to solve it in right now it's probably not in our power to tell how it's going to be solved. we are the stages of socializing the problem. the committees will get it

already but trying to get it more broadly and start talking about what might be a solution. so i think that longer-term, the easy solution for dod would have bump up the end resources that will last 15 straight years. that's probably not realistic though that the first thing we need to do is please make sure people understand our problems so when our budget negotiations that is understood and that's one thing we really did appreciate from this budget deal. it's a very easy thing and i've been around the budget seen a long time, to just say i will pay for a dollar today by a more restrained in 2024. we were grateful that didn't happen and it leaves the field more neutral for that future period but again in terms of just dealing with the rest of the period the levers are out

there. you are right. there is compensation and there is the size of the force and modernization but readiness i don't think there's going to be that much of a lever on the table. i don't think anybody really wants the force whatever does to be any less ready. if anything we would like to rebuild. i think that lever is less available to us. on compensation as you say we have gotten some progress on what i call the direct pay site. we have supportive pay raise and housing for proposed some and less so on things like health care. health care is more complicated. there's a lot of talk. next year the committees are going to dive in to health care so that will be a hopefully something we can all work together on to build off of the consensus retirement this year. to make -- we already seen some progress in controlling those

costs. i think there's more that we can do there. so yeah one last question. >> hi. you had mentioned the coming increase to eri in half by 17 budget. i was wondering if you could tell us how members of the u.s. military should expect that increased to manifest itself and also sent to isolate is proven to be a threat to european security how should americans and europeans and members of the military expect to counter isil budgetary commitments to increase in fy17? >> okay. let me start with the european side. i think what we are looking at is a more robust version of what we have been doing. exercising, having more presence there and not going back to the

old days of having printed thousand people permanently stationed there necessarily but having, contending the higher level of presence especially with their middle eastern and european partners. i think that's a different way of looking at this years the more permanent investment whether it be preconditioning for basing for additional presence and additional posturing capability in europe that was the ever more longer-term longer-term nature. what we are not talking about would be having the u.s. department of defense help beef up the immigration system or the influx of people into europe from the middle east. that kind of thing is something the europeans need to handle for themselves. we are talking here on the european side a more traditional military role. so they isil effort i think will be dealt with as a military

operation and european military operation. the connection between the two and the refugee flow is not something that would be on our plate to work so i think you will see these things tend to be , the european side will tend to look at where can we do something that's a little more substantial and give it a little more time to plan in this budget whereas on the isil cited think it will tend to be more operationally focused on operations in the middle east. it is. >> i want to thank you for coming out on this day in a lot of great . . cfa. [applause] >> thank you. [inaudible conversations]