been through most of those in recent history, where the threats that we confronted receded. the problem today is we still face a very serious array of challenges, of security challenges. we are still at war in afghanistan. we confront terrorism even though we've reduced the threat in the fatah terrorism exist in somalia, in yemen, in north africa, and elsewhere. and make no mistake, they still threaten to attack this country. we face the proliferation of weapons of mass destruction. we continue to face threats from iran and north korea that destabilize the world. we have turmoil in the middle east. any one of those situations could explode on us in terms of conflict. we have rising powers in asia that continue to challenge international rules and

international stability. and growing concerns about cyber intrusions and cyber attacks. we must meet these challenges and at the same time meet our responsibility to fiscal discipline. this is not an easy task. further, we did not want to make the mistakes of the past. every time these drawdowns have occurred in the past, what has happened is we've hollowed out the force. our decision was we want to maintain the strongest military in the world, not to hollow out the force by just simply cutting across the board and weakening every element in defense. that required we take a balanced approach to budget cuts and put everything on the table that we have at the defense department. and most importantly to not break faith with troops and their families, those that have deployed time and time again to the war zone.

the president's budget request $525.4 billion in fy-'13 for the base budget, and $88.5 billion to support the war efforts. in order to be consistent with title one of the budget control act, our fy-'13 base budget request had to be roughly $45 billion less than we had anticipated under last year's budget plan. over the next five years, defense spending will be $259 billion less than planned for in the fy-'12 budget, a difference of nearly 9%. and over ten years starting in fy '12, it will be reduced by over $487 billion. to meet these new budget targets, and our national security responsibilities, we had to fundamentally reshape our defense spending priorities based on a new strategy. the department of defense has stepped up to the plate.

we have met our responsibilities under the budget control act. but with these record deficits, no budget, no budget can be balanced on the back of defense spending alone. based on my own budget experience, i strongly believe that all areas of the federal budget must be put on the table, not just discretionary alone but mandatory spending and, yes, revenues. that is the responsible way to reduce deficits and the responsible way to avoid the sequester provisions contained in title three of the budget control act. the sequester would cut another roughly $500 billion from defense over the next nine years. these cuts would truly hollow out the force and inflict severe damage on our national defense.

the president's fy '13 budget does put forward a proposal to avert sequestration and reduce the deficit by $4.3 trillion over the next decade. i recognize that people can agree or disagree with those proposals. what i strongly urge is that working with those proposals, we come up with a large balanced package of savings. that have to be achieved, that could detrigger sequestration, reduce the deficit, and maintain the strongest national defense in the world. the $487 billion in ten-year savings that we have proposed come from four areas in the defense budget -- efficiencies, trying to improve the way the defense department operators to make it more efficient, four structure reductions comes out of manpower.

procurement adjustments, procurement reforms dealing with modernization and weaponization, and compensation, a difficult area to confront, but an area that has grown in the defense budget by almost 90%. let me walk through each of these areas. first of all, with regards to efficiencies, secretary gates had proposed about $150 billion in efficiencies in the fy '12 budget. and we are in the process of implementing those efficiencies. but we made the decision that we could add another $60 billion on top of that. primarily from the following, streamlining support functions, consolidating i.t. enterprises, rephasing military construction programs, consolidating inventories, and reducing service support contractors. as we reduce force structure, we have a responsibility to provide the most cost efficient support for the force. for that reason, the president will request the congress to authorize the base realignment

and closure process for 2013 and 2015. as someone who went through brac, and i did in space, a fort ord reservation was closed in my district. it represented 25% of my local economy. so i know what it means to go through that process. and, yet, as difficult as it is, it still remains the only effective way to achieve infrastructure savings in the long run. achieving audit readiness is another key initiative that will help the department try to apply greater discipline in the use of defense dollars. we do not have department wide auditability at the present time. and that's a shame. for that reason, i directed the department to achieve audit readiness by the end of calendar year 2014. so that we can speed up the process of being able to face the american taxpayers and tell them exactly how their funds are being used.

but efficiencies are not enough to achieve the necessary savings. budget reductions of this magnitude require significant adjustments to force structure, to procurement investments and compensation. those choices reflected the strategic guidance and vision that we worked on and were the basis for the decisions that follow. let me just summarize those if i can. let me also make clear that this strategy has the full support of all of the service chiefs, the service secretaries, all of the undersecretaries, the defense department is unified in the presentation of the budget strategies that i'm about to summarize. one, we know that the force of the future will be smaller and leaner. that's a reality. by virtue of the drawdowns that we're engaged in. but we have made the decision that that force must be agile,

it must be flexible, it must be ready to be deployed and it must be technologically advanced. we knew that coming out of the wars that there would be a drawdown. but we also knew that the force we wanted had to be truly agile and mobile and in addition to that the force structure that we had we wanted to be able to afford to properly train and equip. the very definition of hollowing out the force is to maintain a larger force structure and then cut training and equipment and weaken that force. and that's something we didn't want to do. we're implementing force structure in accordance with strategic died gans for a savings of $50 billion over the next five years. the adjustments include we're resizing the active army. we're going from 562,000 as a result of the ramp-up during after 9/11.

we're going to about 490,000 soldiers by 2017. we'll transition down in a gradual way. and we'll reach a level that is still higher above the level we had prior to 9/11. we'll gradually resize the active marine corps to about 182,000 from roughly 202,000. we'll reduce and streamline the air force's airlift fleet. in addition, the air force will eliminate seven tactical air squadrons, but we will still retain a robust force of 54 combat coded fighter squadrons, and maintain our capabilities on airlift as well. the navy, while it will protect its most flexible ships, will lower seven cruisers that have not been upgraded with ballistic missile defense capability. secondly, we felt we have to rebalance our global posture and focus on those areas that

represent the greatest threats to our national security. so we will emphasize asia pacific and the middle east. the strategic guidance made clear that we must protect capabilities needed to project power in asia pacific and the middle east. these are the areas where we obviously, as you know just by picking up the newspaper, these are the places that can represent the greatest threats to our security. for that reason, we maintain the current bomber fleet. we maintain our aircraft carrier fleet at a long-term 11 of 11 ships and 10 air wings. we maintain the big deck amphibious fleet. we enhance our army and marine corps structure presence in the pacific, and we also maintain a strong presence in the middle east. third, for elsewhere in the world, and we have responsibilities elsewhere, we can't ignore europe or latin america or africa. what we have recommended is that

we built innovative partnerships and strengthen key alliances and partnerships in those areas. it makes -- the strategy makes clear that even though asia pacific and the middle east represent areas of growing strategic priority, the united states will strengthen its key alliances, nato, the other alliances that we have in the pacific, build better partnerships. and one of the recommendations is to develop innovative ways such as rotational deployments using the marines, using the army, using special forces to sustain u.s. presence elsewhere in the world. fourthly, we need to insure that we can confront and defeat aggress from any adversary, any time, anywhere. we have to have the capability to defeat more than one enemy at a time. this is the 21st century. and our adversaries will come at us using 21st century technology.

and for that reason, we've got to be able to respond with 21st century technology. so we must invest in space, in cyberspace, in long-range precision strikes, and in special operations forces to ensure that we can still confront and defeat multiple adversaries, even with the force structure reductions that i outlined earlier. even with some adjustments to the force structure, this budget sustains a military that is the strongest in the world. we'll have in the army 18 divisions and 65 brigade combat teams. the navy will maintain 285 ships with the marines we'll have 31 infantry battalions and 10 artillery battalions. and in the air force, we'll maintain 54 combat squadrons. as well as 275 strategic airlifters. so we will have, without

mistake, the strongest military in the world. even after we've made these reductions. the last point i would make is that this can't just be about cuts. it also has to be about investments. so we targeted our investments in developing that technological leap that we have to have if we're going to be able to get ahead of the rest of the world. we're investing in science and technology and basic research and special operations forces, in unmanned air systems and in cyber. at the same time, we recognize the need to prioritize and distinguish urgent needs from those that can be delayed, particularly in light of the cost problems we confront. we identified $75 billion in savings over five years that result from canceled or restructured programs. $15.1 billion from restructuring the joint strike fighter program, $13.1 billion by stretching investment in the procurement of ships.

$2.5 billion from terminating an expensive version of the global hawk. all of these are important steps to try to modernize the force but do it in a cost effective way. an additional key to this strategy is making sure that we maintain a strong reserve and a strong national guard. that has been one of the basic support systems for the last ten years of war. we've relied on the national guard. we relied on the reserve. those of that you have been to the battle zone know that these individuals are fighting alongside the active duty. they're getting tremendous experience. they're making tremendous sacrifices. but they are an experienced effective force. we need to maintain that for the future. and also, i need to maintain a strong and flexible industrial base. if we start losing that industrial base and it impacts on our ship building capability, on our tank construction

capability, on our plane development. if we lose those crafts and 23 if we lose those skills, we will damage our national defense. i have to try to maintain that industrial base at the same time. finally, with compensation, the most fundamental element of our strategy and our decision making process is our people. they, far more than any other weapons system or technology, are the great strength of the united states. we're determined to sustain basic benefits that flow to the troops and to their families and to wounded veterans. and yet at the same time, we had to look at the compensation area because it has grown by 90% since 2001 and we have to implement cost constraints in the future in this area. for that reason, we have approached it in a way that we think is fair, transparent and consistent with our commitments to our people. on military pay, there is no pay cuts.

and we're going to provide pay raises these next two years but then limit those pay raises in the outyears. on tricare costs for health care, we have recommended increased fees. we have not increased those fee levels since 1990. we looked at retirement commission to look at the retirement area with the proviso that we grandfather those benefits so that those who are serve willing not lose those benefits that were promised to them. but at the same time, try to look at reforms on what can be made for retirement for the future. that's the package that we presented. this is not been easy. this is a tough and challenging responsibility. but we need your support as someone who comes from the legislative branch and has served in this congress, served in this room and in the congress. i believe in a partnership between the executive and legislative branches.

when it comes to making these kinds of decisions. so we need your partnership to try and implement this strategy. please make no mistake, there is no way i can reduce the defense budget by half a trillion dollars and not have it impact on all 50 states. and also not have it increase risk. we think they are acceptable risks but nevertheless, there are risks. we have a smaller force. we will depend a lot more on mobilization. we will have to depend on our ability to develop new technologies for the future. we have troops that are coming home. we've got to provide them jobs. we've got to provide them education and support. so they don't wind up on the unemployment rolls. there is very little margin for error. you have mandated, the congressman dated on a -- bipartisan basis that we reduce this budget by $487 billion. in many ways, this will be a

test. as you know, better than i, everybody talks a good game about deficit reduction. but this is not about talk. this is about action. and doing what's right for this country. mr. chairman and members of the committee, as a former member of and a former chairman of the budget committee, this committee cannot cease to being a conscience of the congress and the country when it comes to fiscal responsibility. and doing what's right for this nation. i look forward to working with you closely in the months ahead. to try to develop what this country expects of their leaders to be fiscally responsible in developing a force for the future, a force that can defend this country, that can support our men and women in uniform, and most importantly, be the strongest military in the world. thank you. >> thank you. general dempsey, if you could try to summarize as best you can. we have a lot of members who want to get to questions. >> yeah, fair enough.

thank you, chairman ryan and congressman van hollen, distinguished members of the committee. thank you for the opportunity to be here with you today. i tell you, i think this budget does represent a responsible investment in our nation's security. it strikes a purposeful balance between succeeding in today's conflicts and preparing for tomorrow. it also keeps faith with the nation and with the greatest source of our military strengths, that is america's sons and daughters and i submit the rest of my statement for the record. >> wow. that's pretty fast! wasn't expecting that. we're not used to that fast. okay. secretary panetta, as i mentioned, we have tremendous respect for you for your past, for your service to our country. agreed with lots of what you said in your testimony. but it is as hard to get my mind around whether this is a strategy-driven budget, or a budget-driven strategy. and that's what we're getting down to here. the administration since

february 2010 has reduced the budget. that's the budget without the costs of the wars in iraq and afghanistan by $500 billion.mil. at each time of these requests your pred sesor and now you argued this reflects a strategy driven budget and you just said that the world is not safer, that the challenges are mounting. ut mentioned wmd, iran, turmoil in the middle east, on and on, and so i don't know how to reconcile this. is the world becoming safer and we can trim our sales so much more or are we changing our strategy or are we changing our defense and foreign policy to a much less ambitious goal? >> i think the fundamental problems is that mike mullen said that one of the key threats to our national security is national debt.

in the effort to try to confront the national debt, obviously the congress came forward and proposed the budget control act, budget control exact provided about a trillion dollars in reductions. you developed a fence that was part of the act that set aside national security, and ensured that we would be required to reduce the budget by almost half a trillion dollars. that's the law. that's the requirement that i have abided by. >> mr. chairman, can i take a stab at adding to that a little bit? i do wear the uniform, been around 38 years, have gone through any number of strategic reviews and some of your questioning about whether we could make this a strategy driven discussion i think relates to the amount of time taken. i am a personal believer in parkinson's law. some of you may remember in 1955 in the economist magazine there

was a that work expands to fill the time available. i actually believe that, and i believe that in the six months, five months we had to take a very comprehensive look at strategy, we actually accomplished that task. >> let me -- so when we take away the budget gimmicks which is what they do this this committee, we have a budget from the president that has a net spending increase of 1.5 trillion dollars. it has a tax increase of 1.9, so about 400 billion in deficit reduction over ten years, but you're dropping this category by 487. so from our perspective this looks like a budget driven strategy, not a strategy driven budget because there is in entitlement reform. theres no reform in the other parts of government and the only specified cuts are here. let me ask it this way. we have this new revised defense strategic guidance talks about increasing the asia pacific region. most analysts that look at this strategy and this region say

that this necessarily means we need more naval and air forces but your budget abandoned the longstanding goal of a 313-ship fleet, and it does very little to expand or modernize the air force, and general schwartz notes is smaller and older than the air force at the end of the post cold war drawdown. how do we reconcile this rhetoric with this budget? >> well, okay, first and foremost, some of the questions you're asking are probably be better directed to o & b. >> you can do that, too. >> i can play any role. today i am secretary of defense. so i am dealing with the number that was handed me, and what we did to try to respond to that number, and the approach we took was to say, okay, if we are going to emphasize the pacific and the middle east, we have to have force projection. that's the reason we're maintaining 11 carriers.

some propose that we ought to cut back on a carrier force. we said no. we'll maintain carriers because they are very important to our ability to project power, we're going to maintain our bomber fleet and we're investing in a new bomber and developing a new bomber for the future. in addition to that we continue to invest in the joint strike fighter which is a fifth generation fighter that we think is very important for the future. in addition to the ships in the navy we're going to maintain the number of ships that we have now and our plan is in the next five years to meet that 300-ship navy we think is important for this country. we have tried to protect the key priorities that relate to the strategy that we have developed which is to stress the pacific, stress the middle east, and maintain the kind of forces we need to confront any enemy in these areas. >> without going into the o & b territory these are the only we see. the other is net increasing. let me get to specifics about

your budget. you did a good job of identifying budget gimmicks when you were here as chairman and trying to push them out of the budget when agencies tried to put them in when you were omb director. there is two i want to talk about here and i will do it as fast as i can. you moved funding for the 64,900 soldiers and marines from the base budget which is capped under the bca to the more budget which is uncapped. how is that not a circumvent of the budget -- >> that's why i have a comptroller here. >> the rules say we budget for permanent end strength and we have now decided we're going to go down to 490,000 and our view the difference between where we are now and the 490 and 182 is no longer permanent. it is there because of afghanistan. >> it is 92,000 soldiers, not 65,000, so why don't you put the

entire 92,000 in the oko budget? >> everything above 490 for the army and above 182 for the marines is now primarily in the force because of afghanistan and there have we think a properly budgeted noko and something we cleared fully with omb. >> first time that's ever been done and this is not normal. >> we have this temper end strength for a number of years, mr. chairman, smaller, but they have been there. >> i would say that. we usually have extra costs of having personnel in war zones covered and this includes the full $6 billion of costs of compensating troops in the war budget. that i would say is pretty unprecedented. >> well, we had about a billion two in the last budget and now it is six. again, this is an unprecedented change. we made a decision to go to a much smaller army and a much smaller marine corps consistent with the new strategy. >> the last administration tried plowing base budget spending into their supplementals as

well. i don't know how from -- look, we had a plob with the general budget. i don't know how you can say it is plowing base spending into a supplemental. let me ask this question. you mentioned the joint strike fighter. you have a large number of program restructurings in this budget request for the most part of it you're delaying the acquisition of purchase. for example, i think you claim 15.1 billion from the joint strike fighter program over the next five years and the program of record hasn't changed, so you're doing a five year budget and as you know we do ten year budgets and you're pushing it into the back of the ten year budget so how is that achieve any taxpayer savings over a ten-year period and if you're elongating the programs does not not violate the direction you're getting which is to tighten the timeframe of these programs? >> well, the key there is to produce a plain that plane when we go to full production doesn't

have to be changed time and time again which does the very problems you pointed out which is increases the costs and increases the expenditures to the taxpayer. our goal here is having worked with the joint strike fighter that we felt as it goes into the test let's be able to determine what changes need to be made now and want go into full production with what we have but wait and trail that out and when we have completed those tests, when we know, you know, what is to be in the time product, then we'll go into full production. this was based on substance. it wasn't based just simply on trying to ahe have choo the savings although fortunately when you do extend it out you do get savings. >> so you think that takes another five years? that's what makes it difficult to see this as more of a budget driven strategy than a strategy driven bunl. >> budget. >> i urge you to go down to our facilities and look at the plane

and the technology involved in the plane. it is spectacular technology, but it also requires a great deal of testing to ensure that it works. >> there are a lot of members here and i want to be cognizant of their time so i appreciate it and mr. van hollen. >> thank you, mr. chairman and let me thank all of you for your investigate today and i wasn't going to did go down this line of questions but i want to take a moment to discuss the math here because we are the budget committee. when the acting director of the congressional of the omb was here the other day, the chairman criticized him and the administration for taking the -- for saying as part of this budget we have the $487 billion worth of cuts saying that that was stuff that the congress did on a bipartisan basis. today the chairman's criticizing i think the administration for taking those same budget cuts in this as part of this budget and savings, and you just can't have it both ways. i would also point out