this morning, i would like to welcome the honorable leon panetta, secretary of defense, and general martin dempsey, chairman of the joint chiefs of staff, to testify on the administration's budget request for 2013. gentlemen, you assumed these positions during a very challenging moment in history. our economy, our country is facing a budget deficit and you have been tasked with significantly reducing the department of defense budget in an effort to cut down spending. these budget reductions come at an occasion when we are fighting a war in afghanistan and the

counterterrorism threat worldwide. while at the same time, the world is changing rapidly and department of defense is being called upon to respond to threats ranging from cyberspace to weapons proliferation, rising powers, instability in key regions such as we have witnessed with arab spring, d.o.d.'s fiscal year 2013 budget request totals $604.5 billion and this, the subcommittee oversees. this is a decrease of $28.8 billion over last year's enacted budget, mainly due to the draw-down of operations in afghanistan and iraq. however, over the next decade, the budget control act sets limits for d.o.d., which is $487

billion less than what the department planned to spend. in order to meet the new fiscal realities, you have produced defense strategy to help guide this budget reduction. the structure moves from having a capability to fight two major theater wars to defeating a major adversary in one theater while denying aggression or applying unacceptable costs on the other aggressor. in addition, it shifts the military focus to increased emphasis on the pacific and middle east regions. furthermore, it commits the department to institutionalize capabilities to deal with what were once considered nontraditional or asymmetric

threats such as increasing counterterrorism capacity, enhancing cyberoperations and countering threats. most importantly, the strategy reafirms the administration's support of the all volunteer force and maintaining the residence of this force as a vital component of our national security. the defense strategy does not, however, take into consideration another component of the budget control act known as sequestration. as you know, beginning on january 2nd, 2013, if a deficit reduction agreement is not reached, d.o.d. will take its first increment of across the board reduction of nearly $500 billion over the next ten years.

gentlemen, i look forward to having a candid dialogue this morning on this issue as well as others i've highlighted. we sincerely appreciate your service to our nation and the dedication and sacrifices made daily by the men and women of our armed services. we could not be more grateful for what those who wear our nation's uniform and those who support and lead our military do for our country each and every day. mr. secretary, general, your full statements will be made part of the record and i wish to now turn to the vice chairman for his opening remarks. >> mr. chairman, i'm pleased to join you in welcoming our distinguished panel of witnesses this morning to review the

president's budget request for the department of defense and to give us an overview of the needs and challenges facing our national security interests. we thank you very much for your willingness to serve in these important positions. they really are complex and couldn't be more important. we appreciate the dedication and the years of experience that you bring to the challenge as well, and we expect to have an opportunity today to find out some of the specific details that need to be brought to the attention of the senate. thank you very much. >> i thank you very much. may i now call upon the secretary. >> thank you, mr. chairman. senator cochran, members of the committee, it is a distinct privilege and honor to have the

opportunity to appear before this subcommittee of appropriations and first and foremost, let me express my personal thanks to all of you for the support that you provide our men and women in uniform and the department. i've had the honor of working with many of you in other capacities and i just want to thank you for your patriotism in providing very important public service to this country, but from my point of view right now, providing the support that we absolutely need at the department of defense in order to keep this country safe. i'm here to discuss the president's budget request for fiscal year 2013. i also want to comment as well on the problems associated with

sequestration that faces us in january of 2013, and mention also some of the budgetary challenges that we still face in fiscal fy '12 as a result of fuel costs and other contingencies that we're facing. with regard to the fy '13 budget request, this was a product of a very intensive strategy review that was conducted by senior military and civilian leaders of the department under the advice and guidance of the president. the reasons for the review are clear to all of us. first and foremost, we are at a strategic turning point after ten years of war, and obviously a period when there was substantial growth in the defense budget.

but second, we are now a country that is facing very serious debt and deficit problems and congress did pass the budget control act of 2011 which imposes spending limits which reduce the defense based budget by $487 billion over the next decade. i have always recognized based on my own background, having worked on budget issues, that defense does have a role to play in trying to get our fiscal house in order. for that reason, we looked at this as an opportunity to develop a new defense strategy for the future, not to simply have to respond to the budget requirements that were here, but to do it in a way that would provide a strong defense for the country in the future. the defense strategy that we developed does reflect the fact that as we end the war in iraq

and draw down in afghanistan, we are at a turning point that would have required us frankly to make a strategic shift probably under any circumstances. the problem is that unlike past draw-downs where the threats that we confronted receded, after wars, after the vietnam war, after the fall of the soviet union, the problem is we continue to face very serious security challenges in the world of today. we are still at war in afghanistan. we still confront terrorism even though there's been significant damage to the leadership of al qaeda. the reality is we confront terrorism in somalia, in yemen, in north africa. we continue to see the proliferation of weapons of mass destruction. we continue to see threats from iran and north korea. we continue to have turmoil in the middle east. we see the rising powers in asia

that represent a challenge in terms of stability in that region as well, and there are growing concerns about cyber-intrusions and cyber-attacks. we have to meet all of these challenges and at the same time, meet our responsibility to fiscal discipline. i don't think we have to choose between our national security and our fiscal security, but at the same time, this is not an easy task. to build the force we need for the future, we develop strategic guidance that consists of five key elements, that were the elements that guided us in terms of the budget recommendations we make. first of all, we know that the military's going to be smaller and it's going to be leaner in the future, but it has to be agile, it has to be flexible, it has to be quickly deployable and it also has to be technologically advanced.

second, because of the world we live in and where we confront some of the most serious problems that face us, we have to rebalance our global posture and presence to emphasize the asia pacific region and the middle east. those are the two areas where we confront the most serious challenges. third, we have to build for the rest of the world that we deal with, we have to build innovative partnerships and strengthen key alliances and partnerships elsewhere in the world. so that we maintain a presence in latin america, in africa, in europe, and elsewhere. fourth, we have to ensure that we have a force that can confront and defeat aggression from any adversary any time, anywhere. lastly, this can't just be about cutting the budget. it also has to be about investments. investments in new technology and new capabilities as well as

our capacity to grow, adapt and mobilize as needed. in shaping this strategy, we did not want to repeat the mistakes of the past. our goals were the following. number one, maintain the strongest military in the world. that's what we have now. that's what we want to have in the future. secondly, we do not want to hollow out the force, where you maintain a large force, less spending and the result is that we weaken everything at the defense department by our failure to be able to address the needs of that kind of force, and that was a mistake that's been made in the past. we don't want to make that mistake again today or in the future. that means we have to take a balanced approach to budget cuts. we have to look at every area of the budget and put everything on the table, and it also means that we do not want to break faith with the troops and the families, particularly the troops that have been deployed time and time and time again.

as a result of these efforts, the department, both our military and civilian leaders strongly unified behind the recommendations that we've presented, consistent with the budget control act, this budget reflects that in the next five years, we'll achieve savings of almost $260 billion with ten year savings of $487 billion. the savings come from four areas. one, efficiencies. two, force structure. three, procurement reforms and lastly, compensation. let me walk through each of these areas. first on efficiencies. efficiencies yield about one quarter of the targeted savings that we have in this package. on top of the $150 billion in efficiencies that were proposed in the fy '12 budget, we added another $60 billion, primarily from streamlining support functions, consolidating i.t. enterprises, rephasing military construction programs,

consolidating inventory and reducing service support contractors. as we reduce force structure, we also have a responsibility to be cost efficient in terms of the support for that force and that's the reason that the recommendation has been to authorize another base realignment and closure process for 2013 and 2015. as someone who's gone through that, i realize how controversial this process is for the members and for the constituencies. yet, we do need if we're going to bring the force down, we have got to find an effective way to achieve infrastructure savings and that's the reason that recommendation was made. efficiencies are still not enough to achieve the necessary savings. budget reductions of this magnitude, almost half a trillion dollars, requires significant adjustments to force structure, procurement investments and compensation as well. we achieve those in the context

of the elements of the new strategy that i discussed so let me just walk through each of those. first, we obviously have a force that is smaller and leaner but it has to be more agile and technologically advanced. we knew that coming out of the wars, the military would be smaller and to ensure an agile force we made a conscious choice not to maintain more force structure than we could afford to properly train and equip. we're implementing force structure reductions consistent with this new strategic guidance. it will give us a total savings of about $50 billion over the next five years. so those recommendations are to gradually resize the active army. we're at about 560,000 now. we would bring that down over five years to 490,000, about a 70,000 reduction over that period. it's a force that would be flexible, would be agile, it would be ready, it would be

lethal, we would still maintain 18 divisions, 65 brigade combat teams and 21 aviation brigades. we would do the same with the marine corps. we're at about 202,000 in the marine corps. we would bring them down to 182,000 over the next five years. that's a reduction of about 20,000. again, they would still remain the strongest expeditionary force in the world. they would have 31 infantry battalio battalions, ten artillery battalions and ten air squadrons. we would reduce and streamline the air force's air lift fleet. in addition, the air force would eliminate seven tactical air squadrons but we still would retain a robust force of 54 combat coded fighter squadrons. the current bomber fleet would be maintained. we obviously have the joint strike fighter in production and we're also going to develop a

new generation bomber that we look forward to in the future. we also have a fleet of 275 strategic air lifters and 318 c-130s along with our refueling tanker capabilities. the navy would retire seven lower priority navy cruisers and the reason they focused on that is because these cruisers have not been upgraded with ballistic missile defense capability. they're old. they need repairs. so that was an area that they decided to try to achieve savings. that would still maintain a force in the navy of 285 ships, 11 carriers, 9 large deck am-fibs, 50 nuclear powered attack subject marimarines and ships by 2020. secondly, in rebalancing our global posture to emphasize asia pacific and the middle east, we

made clear that we've got to protect capabilities needed to project power in asia pacific and in the middle east. to this end, the budget as i said maintains the current bomber fleet, maintains our aircraft carrier fleet, maintains the big deck amphibious fleet and it restores army and marine corps force structure particularly in the pacific. we're looking at -- we've already provided for a rotational deployment of marines in darwin in australia. we're looking at doing the same thing in the philippines as well as elsewhere. and the same thing is true with regards to a strong presence in the middle east. because of the threats in that region, we have maintained a strong presence of troop strength in that area as well. we're building innovative partnerships and trying to strengthen our alliances throughout the world, and the way we are doing this is by

developing this innovative rotational presence, where troops will go into an area, exercise with them, provide guidance and assistance, develop alliances, develop their capabilities, and alliances and partnerships for the future. that's the message i delivered to the pacific on this last trip. it's well received. i delivered the same message to latin america. it's well received. thesecapabilities. this is not a question of the united states going around basically exerting our own power and telling these countries we'll defend them. they've got to develop their capabilities to be able to secure themselves for the future. and that's what this proposal provides for. fourthly, we ensure we can confront and defeat aggression from any adversardversary, any anywhere. that goes to the force structure that will sustain a military that's the strongest in the

world. in the 21st century, our adversaries are going to come at us using 21st century technology. that's the world we live in. and we've got to be able to respond with 21st century technology. so we must invest. we've got to invest in space, we've got to invest in cyberspace, we've got to invest in long-range precision strikes. we've got to invest in unmanned vehicles. we've got to invest in special operations forces. we've got to invest in the latest technologies. to ensure that we can still confront and defeat multiple adversaries. the last area is to protect obviously and prioritize key investments and have the capacity to grow and adapt and mobilize. i talked about some of the areas that we want to invest in. this budget provides almost $12 billion of investment in science and technology. $10.4 billion in special operations forces. about $4 billion in unmanned air

systems. and about $3.5 billion in cyber. the last point i would make is we have got to maintain a strong reserve and a strong national guard that can respond if we have to mobilize quickly. that's been a key to our ability to mobilize over these last ten years and, today, i have to tell you when you go out to the battle field, you can't tell the difference between active duty and national guard and reserve units. they are out there fighting, developing great experience, great capabilities, i don't want to lose that for the future. i want to be able to maintain that. last area i will mention is obviously an area that is extremely important. it's fundamental to our strategy which is our people. that, frankly is the biggest strength we have in the united states. for all the weapons we have and technology we have. frankly, it's the men and women in uniform that are the strongest weapon we have for the future. and so we want to sustain the family assistance programs, the

programs for wounded warriors, the basic support programs for our troops and their families. but at the same time, i've got to focus on some savings in the compensation area. this is an area that's grown by 90%. and, frankly, we have got to be able to find some cost constraints in that area. so it's for that reason that, you know, when it came to military pay, we don't -- we provide pay raises these next two years, but we try to limit those pay raises in the out years in order to provide some limits. we also do the same thing with tri-care costs, and i recognize that that's sensitive and controversial, but health care costs us almost 50 billion a year. i have to do something to control health care costs in the future. we've also looked at the idea of a retirement commission to look at retirement provisions for the future. we'd like to grandfather benefits for those presently in the force but we need to achieve

savings in this area as well for the future spoep that's the package. this is not easy. it's tough and we need your partnership and support in trying to implement this strategy. i know these cuts are painful. and the fact is they impact an all 50 states. but there is no way you can cut a half a trillion dollars out of the budget and not have it impact on states. that's just the fraelt you do it right. so key here is to try to do this in a way that relates to a defense strategy. that's important. the committees that have marked up our budget in many ways they've accepted the recommendations we made for investment changes, and we appreciate that. but some of the committees have also made changes with regards to our recommendations that we're concerned about. some of the bills seek to reverse the decisions to

eliminate aging and lower priority ships and aircraft. my concern is that if these decisions are totally reversed, then i've got to find money somewhere in order to maintain this old stuff. which has me literally in a situation where i've got to hollow out the force in order to do that. we've got to be able to retire what is aged and what we can achieve some savings on. the same thing is true. there have been some proposals to basically not provide for the measured and gradual reductions that we've proposed for the army and the marine corps. again, if i have a large force and i don't have the money to maintain that large force, i'm going to wind up hollowing it out because i can't provide the training, i can't provide the equipment. so that's why if we're going to reduce the force, then i've got to be able to do it in a responsible way. the last point i would make is

with regards to overhead costs in military health care and in compensation. again, i understand the concern about that. but if i suddenly wind up with no reductions in that area, i've got to reach some place to find the money to maintain those programs. and that, too, somebody is going to pay a price for that. there's no free lunch here. every low priority program or overhead cost that is retained will have to be offset in cuts and higher priority investments in order to comply with the budget control act. i recognize that there's no one on this committee that wants to hollow out the force or weaken our defense structure. i would strongly urge all of you to work with us to reach a consensus about how we achieve our defense priorities recognizing your concerns. our job is to responsibly respond to what this congress has mandated on a bipartisan basis with regards to reducing the defense budget. and i need to have your help and

your support to do this in a manner that preserves the strongest military in the world. let me just say a few words about sequestration. obviously, this is a great concern. the doubling -- this would result in a doubling of cuts. another $500 billion that would have to be cut through this kind of formulaic meat ax approach that was designed into this process and it would guarantee we hollowed out our force and inflict severe damage on our national defense. i young all recognize that sequester would be entirely unacceptable. and i really urge both sides to work together to try to find the kind of comprehensive solution that would trigger sequester and try to do this way ahead of this potential disaster that we confront. i know the members of this committee are committed to working together to stop sequester, and i want you to know that we are prepared to work with you to try to do what

is necessary to avoid that crisis. the last point i would make is on fiscal year 2012. we have some additional needs that have developed during fiscal year 2012. just to summarize a few. with regards to fuel costs. because of the increase in fuel costs, we're facing almost another $3 billion in additional costs with regards to that area. obviously if the price goes down, that will provide some relief. but right now, that's the number that we're facing. we've also had the closure of these ground lines in pakistan. and the result of that is that it's very expensive because we're using the northern transit route in order to be able to draw down our forces and also supply our forces. i think the amount is about $100 million a day -- >> a month. >> $100 million a month because of the closure of those g-locks.

iron dome, a system that we're trying to provide for the israelis is another additional cost that we would like to be able to provide. and also we have been -- we have had to provide additional forces in the middle east because of the tensions in the gulf. and so because we've increased both our naval and land forces there, those are additional costs as well. so we've got some unbudgeted needs that we would ask for your support. i'll present to you an amnibus reprogramming request and we hope to work with you to resolve these issues in the current fiscal year and do what the american people expect of all of us to be fiscally responsible in developing the force we need, a force that can defend the country and defend our nation and support the men and women in uniform that are so important to the strongest military in the world. these last two weeks i