infrastructure, the support to these large planes is in fact probably sustained. but we don't yet know. that's what we have to look for in that equation. >> and i give them great credit for at least saying the right words and saying we've got to take into account what these cuts are going to mean for the defense industrial base and we've got to take action where necessary to preserve critical, vital sectors of the industrial base. the devil, of course, is in the details. the reality is, in this budget environment, you can't do everything everyone would want you to do to preserve every sector of the defense industrial base. so the question is, you know, not what do you cut, but what do you keep? and we don't really know yet what they're talking about doing. they at least talked about monitoring, but i don't think that is quite sufficient. but, you know, in terms of the procurement and tne accounts, we don't really know enough yet to say based on what they said yesterday, my hunch is that procurement is going to take a

steeper cut than other parts of the budget. they're talking about protecting s&t investment, if you will. so if they do that, then they may not take as much of a cut as procurement. but i think that's all we can really say at this point. >> i'll put in a plug here. we do plan here at csis on wednesday, the 15th of february, to have an event specifically focused on the industrial base implications assuming they do actually release it on the 13th, as is currently planned. so we'll be able to answer sort of our own questions and many of yours, as well, at that point in time. let's go up in the front here. >> rich mcfarland. the other gorilla in the room besides sequestration is a cr. and we are heading that way into a perfect storm of issues that have to be addressed. and i personally see another 6-8

months here that we experienced last year. do you know if the department and the rest of government is trying to prepare some kind of strategy to deal with that? in terms of maybe prioritizing procurements, rescheduling procurements, et cetera. and if not, please ask them to do so. and that was really -- that's really to you, stephanie. >> to be honest, i think the executive branch has been so wrapped up in what we've been seeing lately that they haven't given it much thought. and this could be the former legislative staffer in me going come on, guys. i think you're right. we will be seeing crs. i think it will be longer than eight to nine months. i think for defense, you're looking at a year-long cr. for other parts of government, it will be shorter. i think you make some very good points. we will take that message back to people we talk to. >> there are a couple of other aspects, too. the real wild card there is who wins in november.

not only at the presidential level, but in terms of will the republicans take back the senate? will it be a tighter margin in the house? or a larger margin? the incentives for making a decision during the lame duck session will be directly driven by what happens in the first tuesday in november. the other thing, though, is that the difference between a cr level, which is basically continue fy-12 funding into fy-13 and the fy-13 request is pretty minimal. and so as long as there are enough anomalies written into the continuing resolution so that the defense department can, in fact, make the adjustments that it planned to do for fiscal year 13, the potential impact would not necessarily be that great, absent the $52 billion of sequestration. the uncertainty freezes the customers. and, you know, programs tend to take one of two very diametri diametrically aposed views here.

i don't know what my future money is going to look like, so i'm going to be prudent and go slow and be cautious and slow everything down. the other dynamic is i don't know what my future money is going to look like, so i better spend every nickel i've got right now before they take it away from me. that's going to be a program by program dynamic. i think we've got another question back up here in the front here. >> peter sharpman, miter kormgs. getting back to the sequestration, would the unprecedented degree of flexibility that you described give the defense department once in a generation opportunity to cut things that have been sacred cows in congress. is this the chance to cut the program in the subcommittee chairman's district? >> what an astonishingly clever question. it sort of remind me of, you know, richard nixon's secret

plan for ending the war in southeast asia. it would certainly, potentially, provide a once in a century opportunity to do that sort of thing. i will tell you, though, i see not only no indication that anybody is willing to step up to that, but i suspect that the bulldozers lined up outside the building, if that were to occur, would materialize very, very quickly and we'd see some elimination. what it does do, peter, is it provides the opportunity for those of us who want to contribute to the discussion and provide advice as rich note t earlier to begin thinking a little more creatively about what kind of flexibleties you'd need to have in order to actually ask you this. the thing i think you would all agree is that this is not the end of the reductions. and, in fact, even though the document that was released by the pentagon yesterday said that, if you look at the words in the transcript, general

dempsy called this a down payment. that implies, at a minimum, a second payment. right? secretary pinetta called it the beginning. that implies, at a minimum, some subsequent steps. i think at a recognition that this is not the end of the game. the fight over sequestration is not a fielgt over reductions. it's a fiegt over the process for doing that. and what you've indicated is the game changers, not just strategy, but other things. >> stephanie and then clark. >> if i could just comment on the political environment in which we're operating. going back to something todd said which is there aren't a lot of surprises in what we've heard yesterday. i don't think we're going to have a lot of surprises. it may be a great opportunity if you look at the broader strategic construct of can you actually cut programs that have been sacred cows in the past? there is that opportunity, but the political will, in my view, doesn't necessarily exist.

and i go back to who will want to sacrifice something in their district in an election year where it is so very partisan right now. because it's a zero sum game, in perception, at least, if i lose, you win. if i lose, my opponent wins. for a host of reasons, but purely just political, i'm a policy woman. in a policy world, this wouldn't be so hard. but it's not reality. and that's just my perspective on it. >> i think that we've had many heroic programmers in the past who have used these kind of financial crises to cut programs that might have been sacred cows. negative funding wedges have been built into many palms. and then when that heroic program was brought down to size or he left, because we have a fairly rapid transition of people, there's broken glass all over the floor from these negative funding wedgings. so i don't think people are

doing that. i think it's a practice that's just too risky. but i do believe, and i mentioned this before, is that there is a common understanding that we have to do something about paying benefits. that it's unsustainable. and i do think that this is an opportunity where they are hopeful of reaching some kind of an agreement with congress either through the commission or through other means, as well, where they're able to at least cap the growth so that it leaves room in the budget to actually equip and train the forces that we're going to retain. so i think that's something that's big enough. that the building is desperate enough to handle. it could be addressed at this time. >> and the commission that the defense department proposed yesterday was solely on retirement. our work, and i think all of our work up here, says that's too narrow a boundary. you've got to actually look at retirement changes in the context of a broader paying

benefits approach that cuts across the board. and the idea of a brac-like process, i think, really means produce a result that's an all or nothing up or down vote. there are other elements of the brac process that should be incorporated here, including robust public opportunity for input and debate and an opportunity for the members who would be potentially damaged by this to have fizzble, active resistance so that at the end ot game, they could say we did all we could. >> can i just add one note? i think that's exactly right that retirement commission is not quite enough. you really need to broaden it to look at military compensation, comprehensively. and i think the key thing that we need to do here, like i said before, it shouldn't just be about what do you cut. it should be about where can you get better value? if you're going to do that, you've got to understand how service members actually value the various forms of compensation they get.

and it is a complex mesh of different forms of compensation. that's something the department has actually been reluctant to do. it's not through focus groups or senior enlisted leaders. you've really got to go out and get input from a broad secretary of the department. i will take a moment here to plug a study that we're doing. we're actually trying to do this. we're conducting a survey of military personnel where people can go in. it's an online survey. and they can actually start to show us their utility curves, if you will, for different forms of compensation. and then they make trade-offs in the tool of would you prefer a little more of this and a little less of that and some other combination of benefitings. it's online. we encourage people in the military or family members or retirees to go to it. csbamilsurvey.org is the web site. we need a lot of results.

once we've got that, we're dpoik to share that with leaders here in washington and the department and forums like this in the future. >> we're going to be at this for a little while longer, but todd harrison has to leave for another commitment. so if there's a question particularly on this side of the room that you want to direct towards todd, this would be the right opportunity to do that. i do see one here. if you would bring the mic up there, terrance? >> todd, you said navy ships cut into fita. which ones are you counting? there's also a program draw down in lcs and in the joint high-speed vessels in addition to retiring the cruisers and the amphibs. where do you get your 17? >> i got it from the department. straight from the horse's mouth. and, yeah, i don't have the list of how it all adds up. i think they're cutting, what, seven cruisers, slipping two

lcs, slipping a virginia class sub, there are a number of ships involved here. but that's number that they're using that they're taking out. and that is a significant change. i think that that just goes to reinforce the fact that these cuts are not being solely put on the army and the marine corps. the air force and the navy are taking a share of the cuts, as well. >> all right, any other questions? we are -- oh, we do have -- we've got one. well, we have down front over here. i'm sorry. it's the lights are so kind to me that i actually can't see people right in front. so let's go over here. >> hi, i'm emily rutheford. stephanie talked about reversibility. i'm wondering if the other panelists had any thoughts on that and also how you're

defining it and what you understand it to be? >> i mean, i think reversibility could mean a lot of thingings. s, the key question is how are they doing it? reversibility, also implies that there will be some costs. so, you know, in taking down end strength in the army and marine cor corps, they've said that they're going to try to protect the mid level officers and ncos. that's smart. if you do need to rebuild your forces quickly, those are the people you need in order to train new recruits that are coming in. but it's still, you know, it's never wout a cost. those personnel are more expensive. so now your mix of personnel will be changing so that your cost per person, your average cost, is going to be a little higher because you're keeping more of those middle-ranked people. the same is true with the defense industrial base. you can cut programs and then make some investments that mitigate, you know, the downside to the industrial base. but, often, what will happen is,

you know, your unit costs will go up. and you'll be paying money, in some cases, to support overhead and infrastructure, capacity in the industrial base and skills that you're not actively using. you know, there are good reasons to do that. but it gets hard to defend that. in front of congress year after year. so there are definitely risks involved with doing it. >> just a brief word on that. i wouldn't pay too much attention to the word itself as promising. this is a case of thesaurus inflation that todd referred to before. we used to hedge against things. we used to ask what if questions. it's also true when you return to the joint world, we used to synchronize things, now it's synergy. it's a different adverb that, presumably -- or a different adjective that presumably can notes more content than it really does. >> thank you, todd. i've got two questions on the

back row there if we can take the first and then pass the mic over to the second one. >> a quick comment, really, for todd, although he's gone. his comment about the mid level officers. during the post world war i period, when the german army virtually did not exist, they kept, really kept, their mid level officers. and guess what, they expanded really quickly. quickly after that because they kept their core. >> bill courtney with computer sciences corporation. last july, the defense business board recommended that if dod follow private sector corporate downsizing policies, they could save 5-15% without affecting readiness. is there any sign that dod has taken that recommendation on board or rejected it?

or any of the new data in the release yesterday suggest that the defense business board recommendation is being pursued? >> were there any sign that is it's been rejected? no. there's been no explicit rejection, that i'm awaiver of. i think some ovt language that was used in the announcement yesterday, i actually saw, i think for the first time in a long time, the phrase reduction in overhead. that's an intriguing one to me because there is, in fact, no identification or line item anywhere in the defense budget that's called overhead. so it's a little hard for us to validate and verify that such reductions have taken place. none the less, i think the mentality is potentially there, bill, and i still hold out some hope for a recognition that one of the ways in which you reduce the budget is actually figure

out things that you're not -- that you're doing that aren't adding a lot of value and just simply stop doing them. i've got a question down here in front. >> thank you. i wanted to ask a question about the comment you made on a grand bargain that would be necessary at some point to fix the deficit. i mean, if you -- if hy hypothetically that were to happen, what kind of cuts would you forsee for defense that would be on the table potentially would be politically acceptable and do you have a number in mind for that? >> people pull grand bargain out of the hat to describe any really serious problem that if you're going to solve it, you

have to bring in a lot more into the picture. i think the first time with respect to this is brought in last july and august. that's when president obama and speaker boehner were speak about a deal that was much bigger than 1.2 to 1.5. they were talking about a deal that was twice as big. how do you get there? you have a grand bargain. now, what determine what is the grand bargain looks like? we're trying to think through here at csis the beginning of a process that will take us six or seven months because it will take that long and we'll also figure this is something that's going to be relevant after the election because you can't have a grand bargain until you know who your bargainers are. and we're not going do know that until after the election. but i think that that's -- that sort of is behind the scenes of any new president or any new administration coming in knows that if they don't address this at that level, we're going to have another four years, that

looks like the last two. and i don't think anyone wants that. so for me, a grand bargain means how do you generate a combination of spending reductions and tax increases that add up to a total of about $4 billion. that's a lot of money. projected over how many years? i don't know. that's why the defense department in the actions just taken, you see a recognition that they're one of the big stakes in this bargain because they represent 40% plus of discretionary spending. so there's no way you have a grand bargain. not without avoiding more of it. and so one of the reasons why i don't think you saw big, gaudy cuts like a carrier or something in this first round is they know there's a second round. they know, at a minimum, there's a second round to what we do to avoid the sequester cut. but everybody knows there's a grand bargain out there that we hope -- all hope the grand barg

addresses the fiscal crisis that this country faces. and i think there's an awful lot of jocking going on now to determine where it is. as to what my personal ideas are stay tuned another six months and i hope to have them. >> i'm going to bring the microphone kind of to the middle and back and then down forward. terrance, raise your hand higher. while the mic is moving that way let me point out that we have been talking this morning as if the debate on capitol hill over the fiscal year '13 defense budget is going to be to fund the request the president makes or cut it further. the debate that is going to occur is going to be whether to add money back. and so the fundamental underlying reality which is between the fy '13 level and

something lower is not going to be reflected particularly in the house when the debate is whether or not defense department cut too much and it ought to be added back. so the disconnects between the grand bargain and the reality we face today are going to be amplified by, in fact, a perceived debate that is largely irrelent to those long term reductions but very relevant to the programs and cuts that are embedded in that budget in the first place. so with that, howie. >> this question is right directly commenting on what you said regarding continuous operations overseas. i know there is less going to afghanistan than last year and next year. we have seen the model is is conflicts, the war fighters go in and companies in this room get hired to support them. is there anything else described and talked about in the budget

regarding future conflicts other than reductions from the afghanistan account? >> what i found remarkable yesterday is finding the word "contractor" somewhere, anywhere was impossible. what this means to me is it is something that they don't want to talk about. there has been reliance for contractors for base operating support and other support that they receive in afghanistan. to be honest in so many other places around the world. i think this is a debate that really does need to happen. i wouldn't be surprised if the authorizing committees take this up as part of the you are cutting and you are not going to be doing stability operations on a prolonged basis. but we need to be involved. so how are we going to do it? contractors will come up in terms of stability operations

and others. and so from my perspective i think as we move forward just watch this space. i find it remarkable that you can have an entire press conference and not really talk about it when it has been such a topic. david, you might have a different view on this. it is a conversation that we need to have in the next weeks if not months. >> i would like to add one thing to that. dod put out a fact sheet. i understand that using the word fact in conjunction with budge tarry figures is perhaps an -- perhaps -- they don't do that now. now it is 88 billion in fy '13. then there is tbd, to be determined. they are not making projections now about what future outyears

are going to look like because they don't know what they will look like. >> let's take a question down here in row four. and then i believe there might be one further back. >> thank you, david. unaffiliated. stephanie in your opening remarks you talked about ground forces and possible future requirements. if you look at the discussion we have had here it seems to me that the army, that the budget numbers that came outgoing down to 490 k active seems pretty unrealistic for me. i think we will be a lot lower than that. can you talk about strategy ground forces and your ideas about that a bit. >> absolutely. thank you for that question. it's a concern. when you look at the path for the n strength, you are really talking about 490,000 army

soldiers in 2017. we are not talking about 2013 at this point. we are talking about over the next few years. from a strategy perspective i go back to what are the engagements that we are expecting our armed forces to operate in going in the future. they are not going to be hopefully in iraq and afghanistan situation. certainly you can't rely on relatively scarce special operations forces to take care of all the training, advising and assisting that we are expected to do. 490 i think by 2017 might be a realistic number but depends on what the next few years show us. it goes back to clark's earlier point that if you have a strategy that requires adjustment every year or so what strategy is is it. my concern is that it talks about we are not going to be doing pro longed stability operations on a rotational basis going forward. i see no evidence of that.

large scale, maybe. pro longed i think we are going to be in places in the world. and the alternative is having friends and partners willing to do things that we aren't willing to do. i'm not sure that those conversations have happened. >> i think there is also a parallel question which is even if stephanie's right and we are going to be engaged in a host of such operations around the world and even if those operations actually require as they will contractor support, from the budget point of view the question is, does it drive thefore structure or can you absorb it? i think that is the question that they have tentatively answered in the abstract but not analytically answered in the specific. do we have any other questions? i have one in the front row

here. i think this will be our last question and then we'll allow you to go out and take advantage of the fact that the rain will be diminishing. >> thanks. i'm curious. there was some mention of the industrial base and the need to protect this moving forward. do we know where that threshold is with slipping ships? when you do start to risk threatening the subcontractors who provide specialized parts. if we do have a sense of that how far are we from starting to really risk the subcontractors as we have potential for further slips? >> that's a complex question in terms of do we know. no we don't know. let me tell you what we suspect. what we suspect is there are three elements to what the pentagon has to do to be able to

do a better job to think about the industrial base as it makes the cuts going forward. the first is actually a level of awareness understanding what the levels are. there is a tendency or has been to focus on just the prime contractors as part of that process when in reality what we have seen is a migration of the prime contractors share of the programs from maybe 60 or 70% 15 years ago to maybe 30 or 40% today with the rest being sustained by subcontractors. the prime on one project is a sub on another. the first question is does the pentagon have better information. i think the answer to that is yes. they have spent the last year with the sector by sector analys analysis. i suspect a number of you in this room have spent a consideral amount of time and energy and cost filling out surveys. the second question is how they actually use that information in the decisions. and that's kind of the question

you have raised. we have had statements by the defense department that they have, in fact, done so. we can't yet validate any instance. we have asked them to validate instances where they have done so. the third is whether or not they did the right thing when they made those considerations. what this is is a judgment call of how close to the edge of the cliff we will allow our industrial base to go before it falls off. and history says pretty darn close because we've got a very good idea that we have an ample supply of parachutes and we know how to give them to people as they are falling off. that is kind of scary philoso y philosophy. i think there is actually a fourth question and this is the one that really becomes important. you can't tell what parts of the industrial base you need to sustain unless you have a clearer description of what