couldn't to travel throughout asia pacific and i consulted with a lot of our key allies and partners. i think they are receptive of the strategy that we're proposing. and are enthusiastic certainly about our engagement in the region. and i think -- i've been able to reassure our allies and partners that we have a strategy-based approach to dealing with national security. i come from this institution of the congress. and i have great respect for you and for this institution. and i look forward to a partnership here to try to develop the approaches that are going to be necessary if we're going to meet our responsibilities to national security and fiscal responsibility at the same time. thank you. >> mr. secretary, i thank you for your candor and painful testimony. i may now call upon general dempsey. >> thank you chairman, senator cochran, distinguished members

of the committee. thank you for this opportunity to discuss the president's defense budget proposal for fiscal year 2013. this budget represents a responsible investment in our nation's security. it maintains our military's decisive edge and it sustains america's global leadership. moreover it keeps faith with the nation and the true source of our military strength which is, of course, america's sons and daughters who serve in uniform. i'd like to open with a few words about them and their accomplishments. and just this past year, our soldiers, sailors, airmen, marines, further crippled al qaeda. they brought to a close more than 20 years of military operations in and over iraq. they continued the steady transition of security responsibility in afghanistan. they helped protect the libyan people from a regime's brutality and they help japan recover from a tragic natural disaster.

they also worked professionally and quietly behind the scenes defending against cyberthreats, sustaining our nuclear deterrent posture and working with allies and partners around the globe to built capacity and prevent conflict. they didn't just do it last year. they've been doing it year after year after year. during a decade of continuous combat, our service men and women and their families have persevered and prevailed. it is a genuine pleasure and honor to serve with each and every one of them. they remain a great source of pride for our nation. we need to keep faith with them just as they work to keep faith with the nation. one way to do this is by making sure our defense budget is informed by a real strategy. this past january, we released a new defense strategy that reflects the lessons of war and anticipates a more competitive security environment in the future. it also acknowledges the realities of a new fiscal environment. it sets priorities for

investment and it establishes a strategic focus. this budget resources that strategy. it ensures we remain our conventional overmatch while divesting capabilities not required in the active force or at all. it takes advantage of emerging capabilities as the secretary said such as special operating forces, intelligence and cyber. it restores versatility and readiness. overall, it's an important stepping off point on our path toward the joint force we assess we will need in 2020. a military that is always ready to provide options for the nation. keeping faith also means appropriate compensation for our troops. this budget proposes modest reforms to military pay and benefits. however, it does not place the burden of budget cuts on the shoulders of our men and women in uniform. there are no freezes or reductions in pay. and there is no decrease in the quality of health care received by our active duty members and

medically retired wounded warriors. that said, we can't ignore some hard realities. we need practical reform to deal with escalating personnel costs, particularly in health care. we must make our health care system more sustainable. otherwise, we risk both the quality and the continuity of care. we can assure its viability in ways that are fair and modest. lastly, keeping faith also means managing risk to our interests and to our institutions. to be sure, we are assuming some risk in this strategy. all strategies and all budgets that resource them have to accept some risk. that risk is not in what we can do but in how much we can do and how often. the budget helps buy down that risk by investing in our people and in the joint capabilities we need most. we have achieved balance in this budget. keep in mind, please, that this is a budget for a joint force. it should not be thought of as a set of separate service budgets

but as a comprehensive and carefully devised set of choices. choices that reflect the right mix among for structure modernization readiness, pay and benefits. different choices will produce a different balance. so before giving us weapons we don't need or giving up on reforms that we do need, i'd only ask you to make sure it's the right choice, not for our armed forces but for our nation. sequestration is absolutely certain to upend this balance. it will lead to further end strength reductions, the potential cancellation of major weapons systems and the disruption of global operations. we can't yet say precisely how bad the damage would be but it is clear sequestration would risk hol oeg out our force and reducing its military options able to the nation. we would go from being unquestionably powerful everything to being less visibly globally and presents less of an overmatch to our adversaries.

and that would translate into a different deterrent calculus and potentially, therefore, increase the likelihood of conflict. in closing, i offer my sincere thanks to this committee and to the entire congress of the united states. thank you for keeping our military strong. thank you for taking care of our military family, for supporting those who serve, who have served and who will serve. i know you share my pride in them. i look forward to your questions. >> thank you very much. mr. secretary, your description of sequestration, i believe, is a candid but frightening one. you've indicated that you would have reduced training at a time when you should be increasing training. it would mean deferral of maintenance of equipment and it's getting pretty bad.

you have few purchases of aircraft, ships, but there is something else you didn't mention, and i'd like to have your comment on that. this sequestration coupled with projected discretionary defense spendings could add 1% to the national unemployment rate from job losses in government, military and private sector jobs within the defense industrial ba base. does that description make sense? >> mr. chairman, i think that is the estimate that we've seen in terms of the impact that would have. now again, i just -- i stress, look, defense department is not a jobs program. it's a program to defend the nation. but clearly it would -- that kind of sequestration cut across the board would have a serious

impact on not only on men and women in uniform, but on our personnel and the contractors who serve the defense establishment. >> when you speak of deteral of maintenance of equipment, can you give us something beyond that? >> let me have bob heal, our comptroller speak to that. >> we haven't done a detailed plan, but i think one of the options we would have to look at is cutbacks in depot maintenance and that would mean we'd push out the availabilities of ships, for example, our planes. we would try to do it in a sensible manner, but i think it would inevitably delay some maintenance activities. i can't give you details, but i think that's an almost inevitable result of sequestration. >> the way the formula works under sequestration is it takes a percentage across the board out of every area of the defense

budget and means that what it's almost about 20% cut in a weapons system. it would be a 20% cut with regards to training, equipment. it would impact on every area of the -- of the defense budget. that's the way it was designed. it was designed as a meet ax. it was designed to be a disaster. because the hope was because it's such a disaster, that congress would respond and do what was right. and so i'm just here to tell you, yes, it would be a disaster. >> now the across the board cut as indicated by you will not impact upon pay, health programs, anything else? >> it would. >> the president has the authority, mr. chairman, to exempt military personnel. he will have to decide whether he does. that. if that were the case it won't

affect military personnel but the other accounts would have to be cut by larger amounts so the total remains the same. it would affect our ability to pay health care. it's in a separate account. it gets its meat ax chair of this cut and we'd face a problem of not being able to pay all our tri care bills, for example. >> mr. chairman, could i add something? it's important to note oco is now subjected to sequestration. that would roughly be about $8 billion. and of the 88 or so -- 88.5 that we've requested to sustain our operations globally, mostly in the gulf region, but we have to fund that. so that money will have to be taken -- will have to come to for some reprogram activity to move money from base to cover those war-related costs. that in combination with the potential freeze in the manpower account. exempting manpower means that a service chief, and i was a service chief, can only go back

to find this money to about three places. training, maintenance and modernization. that's it. there's no magic in the budget at that point. and those three accounts will be subjected to all of the cuts mandated by sequestration. >> let me add one more point, mr. chairman. i would not look at reprogramming as a way to solve this problem. we have some legal limits unless you change them on the amount we can reprogram. and we wouldn't have the authority to offset all of those changes, at least not readily in oco without some major changes. so we could do some, but there will be very little flexibility if this goes into play or into effect as it's currently designed. >> thank you very much. before i call upon my colleagues, i'd like to note that because of the good attendance, we will have to limit the questioning period to five minutes.

with that, senator cochran? >> mr. chairman, let me ask you, mr. secretary, what your impression is of the need for amphibious ships? we've heard that the navy and marine corps has determined a minimum force of 33 amphibious warships. is the limit of acceptable risk in meeting the amphibious force requirement. what's your assessment of the risk that we are assuming, if any, with our current ship building plan as proposed and requested for funding by the department. >> i'll ask general dempsey to comment as well. one of the things i am really trying to do is to maintain our industrial base in the defense departme department. if we lose more ship yards, if i lose more of the industry that

supports our defense department, it makes it very difficult to mobilize in the future. and so my goal is to try to design a budget here that maintains the ship yards that we have that maintains the industrial base that supports our defense system. on the amphibs, the reason they are important is because of the agility issue that i talked about because we are going to have a smaller force. these ships allow us to be very agile, to be quickly deployable, to be able to move quickly if we have to. and that's the reason that we want to maintain those as part of our defense structure. >> and just to add, senator, the number that you cited as based on the existing war plans and a particular phase in which the amphibious warship capability is under most stress. and what we're doing is a result of our defense strategy is we're

opening up our con plans or o plans to look at the assumptioms we need and see if we can adjust the way we do it. at this point the xhondant and i are convinced the budget proposal and the number of amphibs in that budget proposal are adequate to the task. but it means we'll have to adjust the way in which we conduct operations. >> well, there's a suggestion that current 30-year shipbuilding plan projects an inventory that will fall to 29 ships in fiscal year 2015. and i wonder, general, if this is below the level required by the department and whether or not this is an increase in the assumption of risk. do we need to revise that upward? what do you suggest we do when we review the requirements being submitted by the marine corps

and the navy. >> what i'd ask to do is take that question for the record because there is a bit of it that would cross over into classified information related to war plans. but i'd be happy to answer that for you. >> thank you. thank you, in chairman. >> thank you very much. senator leahy? >> as chairman and secretary panetta and general dempsey and mr. heaale, thank you for being here. i appreciate the opportunity we had to talk before the meeting. one thing i didn't mention then was that something you are well aware of on the last ten years is we've depended more on our reserve. i know we could never support two simultaneous wars without the men like you and general dempsey. any time i've visited areas

where we're in combat, you don't see a difference between active guard and reserve. they are all out there doing their job, putting their lives on the line. and i think your strategy has echoed this reality from the president's guidance of the last quadrennial defense review. as a result, and it's -- many of us in congress, senator graham and i are co-chairs of the guard caucus, when the air force presented a 2013 budget plan that disproportionately cut the guard. i know there's going to be cuts and we all understand that. but appears here you are going after your least expensive manpower to save money. and that did not make a lot of sense. especially manpower costs are considered more fd more the defense budget as you said. so i don't know how you shrink them and maintain a ready and

capable force. so my question is, does the department of defense stick with its early strategies to decrease dependent on the guard and reserve or is there an alternative. the air force budget does not appear to follow that idea. secretary panetta? >> senator, you know, again, what the air force was asked to do was based on the new strategy. try to develop an approach that provided a kind of multimission support for the force and, as a result of that, made decisions with regards to some areas that could be reduced in order to achieve, obviously, the savings that we were required to achieve. i recognize, you know, the controversy involved here because it impacts on constituencies. it impacts on the guard.

>> i'm afraid it impacts the readiness, too. that's my biggest concern. >> yeah, i understand that. but, you know, obviously we don't want to take it out of the active force because that is a force that's there ready to deploy quickly. what i've suggested is to try to see if there's a way that we can work to provide some restorations. i think i suggested putting some additional 130s back in place to try to assist some of these areas with regards to the impact that might be there. let me just say this for the record. i am fully prepared to work with this committee and to work with the staff of this committee to try to see if there's a way to do this that can minimize the impact but at the same time, hopefully achieve some of the necessary savings that we have to do in order to -- >> i hope you will. and you've worked with senator graham and i in the past on

issues like this. i know we can again. another matter, and you went into the budget. i was one of those on the committee who opposed the iraq war from the start. president obama did. i thought it was -- i opposed it because i didn't think it was the right decision for our national security. now we're making and we basically ran that war on a credit card. now we're making decisions how we address the national deficit. it's not just sequestration, and we voted earlier. the majority of us did, that sequestration be only if we were unable to reach consensus, and the understanding was put everything on the table. but now we find people who are calling for more military action on the parts of the world. at the same time, they do not want to consider any way of

paying for it, unlike what we've always done in the past. what would be the impact of going to war again without committing to pay for that war with up front taxes. something we did not do in either iraq or afghanistan. for the first time in the history of the country. >> obviously, if we repeated the mistake of not paying for the war that we decide to engage in, whatever that might be, the result would be that you would simply add more to the deficit and to the debt of this country for the future. you just put that burden on our kids for the future. and, you know, look. i think we always have to be careful when we make the decision to put our men and women in uniform into harm's way. that's number one. but number two if that decision is made, then i think for the sake of the country, it's important that we recognize the costs that are involved and

that, frankly, all of us bear some responsibility to pay those costs if we're willing to engage in war. >> thank you very much. thank you, mr. chairman. >> thank you. senator hutchison? >> thank you for your service, all three of you. secretary panetta, since the end of the cold war, nato has grown from 16 to 28 members and yet we know that the threat of a soviet invasion into europe has virtually disappeared. with only five alliance members spending the obligatory standard of 2% of their nation's gdp on defense and several countries as we know refuse to participate in combat assignments or limit what they will do, we are contributing 23% of the military construction for nato which is approximately $254 million this

year alone. and then virtually the same amount of percent of expenditures for operations of nato. my question is, are you looking at the nato alliance and determining if it is serving the function for which it was intended? and if there is a commensurate effort by all of the members, whether perhaps we are paying more than our fair share for what we are getting in return? >> senator, you've raised a legitimate concern here. with regards to the responsibility of nato nations to assume a greater responsibility for developing their capabilities and improving their defense posture. one of the things that came out of chicago in the nato meeting

in chicago was developing greater capabilities for nato with regards to missile defense, with regards to isr, with regards to other areas to try to ask them to assume greater responsibilities in those areas. but i also think, as i stated to my fellow defense ministers, we have great concerns because of the budget situation that faces many of those nations in europe. that one of the dangers here is that they'll constantly go back to defense and seek further savings there, which i think would be dangerous. right now, for example, when it comes to a nato deployment, libya is a good example, i think we provided probably about 60% of the support for the forces that went into libya. now they tell me that if we were to engage the united states would probably have to pick up 80% of that responsibility. you know, that's not something

that really makes clear to those nations the responsibility they have to be able to develop their own capabilities. so i think it's very important to continue to stress to those countries that they have to continue to invest in their basic security. there some are countries that are doing that. there are some countries that are investing well over 2% of their gdp in the defense budgets. we commend them for that. but other countries have to recognize that the last thing that we need right now is for them to do further cuts in the defense budgets that they have because that will put more of a burden on our shoulders in the future. let me just take germany as an example. and germany is certainly going through the hard times and we understand and they are burdened with regard to the rest of europe. but on our side representing our

interests, germany -- in military construction, germany contributes 7% to the infrastructure cost that we would make in their country. as compared, for instance, to japan which provides at least 40 and sometimes more percent. germany has refused to contribute any resources into libya. and afghanistan, they limit what they will do and their number of troops has been around 5,000. now the army is planning this year to spend 7% of its military construction budget in germany. that's on top of the nato part. it will be about $243 million this year to build landstuhl which is fine. that's a priority of ours. i am for that. but the other half, $113 million is for new schools, elementary

and high schools. now, obviously, if our troops are there, we need to furnish the schools that are good. but my question is, the troops that are there, are we overspending the military construction for the amount of troops that we have there and are we looking at the future on whether, in fact, it might be the rotational forces that you mentioned is more of the strategy in the pacific that maybe we would start doing that in germany and other places and cut back on this enormous military construction cost. >> i'll ask general dempsey to comment on this as well. we're doing exactly that. we're bringing two brigades home. one of the things we intend to do is emphasize more of the rotational presence that we have there and to be able to do exercises. we do have some important infrastructure there. it's very important to our deployments to the middle east and the war zone and that's the

reason some of that is continuing. but i think you're right. i think we've got to increase our rotational deployments and ask them to make a greater contribution to the infrastructural needs to do this. at the same time, the nato alliance is extremely important to our ability to deal with some of the challenges in the world. we can't do it alone. we've got to be able to have alliances like nato be able to work with us in confronting the many challenges we face in the world. >> we're out of time, senator. but what i'd offer is a briefing to you on what we consider to be the enormous and important benefits of being part of that alliance. i know some of them are self-evident, but we've got initiatives, baltic skies, allied ground system. the activities in kosovo. things that are kind of behind the scenes that we really need to expose to you so that you understand the reason we're still so deeply integritted into

the nato command structure. and acknowledging your point about their investment and the fact that it's declining. but let's, if i could, take that one as a task. >> i appreciate it, and thank you, mr. chairman. i do just hope we're looking at an equalization of effort according to the return that we're getting. thank you. >> thank you. senator mikulskey. >> thank you. first of all, we want to welcome you and we want to thank you for your service. mr. panetta, you came to the house in 1976. we came together. we were part of the bicentennial year. and the way we're going, we're going to be here for the tricentennial. general dempsey you graduated from west point about the time secretary panetta and i were getting started in congress. but you two represent close to

70 years, 35 years in each military and through a variety of exemplary civilian posts. so we thank you for your dedication and your service to the country. and mr. hilale you being here shows us what is often overlooked, the role of the civilian workforce in supporting our military, its commanders and the secretary of defense and the commander in chief. so we want to thank the civilian workforce. i want to raise some questions about new priorities and new threats. acknowledging that maryland is a really strong military presence from the naval academy to walter reid naval bethesda, helping those with the permanent wounds of war, to ft.e ed mmead, our n cybercommand, ft. dietrich, we're really proud of the presence here. but i want to go to