SEC. COHEN: Good afternoon. I thought I'd take a few moments this afternoon to give you a brief overview of the budget that is being submitted to Capitol Hill, that I and the chairman of the Joint Chiefs will be testifying before the Senate Arms Services Committee tomorrow. My understanding is that you have all been briefed in some detail by Bill Lynn, but he may be here later this afternoon to answer any additional questions you might have.
Let me begin with the first chart, other than the Defense budget statement and indicate that this budget does in fact reflect protecting the president's commitment to maintain a high quality in our armed forces. As you may recall that last year the president did in fact commit to increasing the budget over the future year's Defense budget by some $112 billion, that commitment has been protected.
We have actually added funds to deal with issues such as funding for Kosovo and also for higher fuel prices. But this does in fact represent a commitment to have very robust capabilities to deal with current contingencies and operations, and also protecting our investment for the future.
If I could have the second chart.
I might point out that this does represent a significant area of growth. When I first took over as secretary of Defense, they -- Congress and the White House -- had reached a budget agreement, taking the highest number of both. And my expectation at that point was that we would have very little in the way of increases for the foreseeable future, namely, my tenure as secretary of Defense. Within 18 months, we saw a significant shift because of the reality of what we had to deal with, and so last year the president made a significant commitment for this $112 billion increase.
If I could have the next chart.
Transforming the U.S. defense posture. The QDR guides the transformation of this budget. And you have heard me on many occasions speak the words of "shape, respond, prepare." This -- in fact -- budget does maintain those three components.
I think it's clear also that it's going to require, not only my successor, but perhaps by successor's successor to complete this transformation. And we have a very large institution, a large organization with serious commitments globally. And we have laid the foundation. We have agreed upon the blueprints, and the key building blocks are in place. We still have ahead many tough challenges.
And so I can have the next chart.
We have always put people and quality of life at the very highest of our priorities. Last year, we had the 4.8 percent pay raise, the pay table reform, the return to 50 percent retirement at the end of 20 years. This budget adds to that. We will have a pay raise of 3.7 [percent], which represents the employment cost index plus a half a percentage point over and above that.
In addition -- the basic allowance for housing -- we'll eliminate out-of-pockets costs by the year 2005, and that is a significant change. It will put money into the pockets of people who currently have to come up with as much as 19 percent out-of-pocket costs in order to live in off-base housing. And I think that's going to be a significant benefit to increasing the quality of life for our men and women in uniform.
And the third component is TriCare, of enhancing the benefits for active-duty family members, plus some other improvements. Here we are proposing on TriCare Prime to eliminate the co-payment. Also, on TriCare Remote, we are also going to eliminate the co-payment on that.
We are trying to establish a more seamless system whereby we can eliminate some of the confusion and certainly the effort that goes into filing the enrollments, when men and women are transferred from one jurisdiction to another. That is a goal that we hope to achieve this year.
And we hope to have certainly more access to the health-care system by having better management practices on the part of those who are practicing medicine at our military facilities, to take advantage of some of the modern techniques so that they can actually deal with more than one patient at a time and organizing differently and more effectively.
We have yet -- we are still in the process, I might point out, of trying to come to grips with how we deal with the retirees 65 and above and those who are on Medicare. The chairman and I are continuing to work together to see if we can't come up with proposals that will deal effectively with this issue. All of the options we've looked at are quite expensive but nonetheless we feel we have an obligation to address that and the chairman and I will continue our discussions to see what we can recommend to the Congress in coming years.
On the next chart, please?
QSome of us won't live forever --
SEC. COHEN: Well, we've made good progress. We'll make more. But it's very expensive, there's no doubt about that.
On readiness, the fiscal '01 budget on O&M [operations and maintenance] funding keeps our forces ready and capable of executing military strategy. We, as I've indicated before, have added funding for contingencies, fuel costs and other O&M, again, making sure that we maintain our forces at the high level of readiness.
And if I have the next chart -- this will only take a moment because this is the chart that we have looked at frequently in the past. It's one, as you may recall, that my predecessor and his chairman of the Joint Chiefs continue to testify on the Hill that it was necessary to achieve a $60 billion mark as far as procurement. There was nothing that was magical or sacrosanct about the $60 billion other than that was the figure that they indicated at the time we needed to achieve to start getting back to procurement levels that would satisfy our modernization needs.
That figure will go up in the future. In fact, it's calculated to go at least to $70 billion over the FYDP [future years defense program]. But there's something that we will still have to sustain. This represents a 46 percent real growth from fiscal '97 to fiscal '05 -- a very significant increase in our procurement budget.
On reshaping U.S. forces, the Army is now dedicated to the designing of forces that will be more deployable, lethal, agile. They have a new way programmed to acquire a medium-armored vehicle for the combat units at Fort Lewis. The Navy, as you know, has a DD-21, which is a multi-mission ship with fewer sailors. Right now we would see a reduction from roughly 300 on the current boats to about 100, so we'll have less pressure on the numbers of sailors that will be required. The Air Force, the AEFs [aerospace expeditionary forces] have been underway now with General Mike Ryan heading this up to produce a highly versatile Air Force, which will help to reduce the pers tempo.
They'd have more regularity and predictability, as far as their deployment schedules are concerned, and that will be a major achievement that we'll see the benefits of during the course of this year.
And of course, the Marines have their V-22 aircraft, which will enhance their mobility. And we know of their Urban Warrior experiments and training exercises, which we think will be very vital for the future. So we are seeing the transforming of equipment, operations. We have become more agile, versatile and sustainable.
The next chart.
On the so-called DRI, the Defense Reform Initiative, we have dedicated ourselves to competing and reengineering processes to ensure that the functions are performed in the most efficient organization. We are reengineering these processes and business practices. Dr. Hamre has been leading the effort in this regard and has done an outstanding job with a new travel system, reforming our financial management; the use of the purchase card, which is significantly higher today; and going to a paper-free procedure and paperless society, as such.
And of course, the final point is something that I have talked about for the last couple of years in calling for the need to eliminate excess infrastructure. That would be two additional BRAC [base realignment and closure] rounds. That is going to be a significant challenge in presenting this to the Congress. But, nonetheless, they will have to face this choice in the near future, which I will come to in a moment as I sum up what this budget seeks to achieve.
We sustain our military excellence. And I think that it goes without saying that we have the finest military in the world. We intend to keep it precisely that way.
We have a number of challenges, which are going to remain. One is bolstering recruiting and retention and quality of life.
We have a situation today, which is quite challenging. We have one of the longest sustained economic booms that we have had in this country for many, many years. We have a reduced pool of potential recruits from which we can draw, and we have a very competitive environment to attract these young people into the service.
In addition, the operation tempos, perstempos will continue to be a challenge, and we will have to address those quality-of-life issues. And that will be a constant challenge for future years in order to not only recruit the young people coming into the military, but to retain them.
We have reinforced readiness in this budget. We'll continue to have to manage that. Readiness issues will always be a challenge.
We need to continue sustaining modernization. And here is an issue, if you look out beyond the FYDP into, let's say, the years 2008 to 2015, there will be a number of systems that will be scheduled to come online during that time. And there will be requirements for additional spending, which brings me to the elimination of excess infrastructure as being one of the methods of paying for it.
And that's why I have tried to point out to my former colleagues that, at some point in time, they will be faced with some difficult decisions to make. They can either continue to carry the excess infrastructure, but that means that we'll either have to increase substantially the top line, or they will have to continue to take money out of procurement and pay for readiness and O&M. But those choices they will have to face; I have asked them to face them sooner rather than later, because we are going to need those systems.
They are required in order to keep us the finest fighting force in the world. And so I will continue, as I make my presentation to the Congress in the next several days, to call upon them to authorize two additional BRAC rounds.
With that, let me entertain your questions. David?
QWhat are you going to do about John Deutch's security clearances?
SEC. COHEN: Well, when we learned of the situation at the CIA, we called for the termination of his SCI [sensitive compartmented information] clearances here, to take whatever measures we could to terminate his access to classified information pertaining to military operations or intelligence activities.
There is a third matter dealing with his industrial associations or business associations, and there the law is different in terms of the requirements. There must be a compelling level of evidence that would support removing him from income-producing activities.
And there our IG [inspector general] has been in contact with the CIA IG, and they are in the process of presenting evidence that we've had to take into account in making that determination as to whether those can be terminated, as well. But I expect that to be provided very soon.
Q (Inaudible) -- clearances to be terminated?
SEC. COHEN: I expect the information coming from the CIA to be provided to us. And then our DOD counsel will have to make a determination as to whether or not the evidence is sufficient that we can, with due process, terminate that relationship.
QMr. Secretary, are there different levels of security information involved here?
SEC. COHEN: Yes. The kind of information that he would have access to for specific companies he is working on, is very narrow compared to the broad general access he would have that we have terminated. So we took immediate action to terminate those two categories. The third one is one in which we have a different judicial level of evidence that's required. And so that information is now in the process of being presented to our IG, and our DOD counsel will have to make a determination at that point for a recommendation to make.
QDoes that also include top-secret information?
SEC. COHEN: It may be some top-secret information in terms of a narrow area of technology.
QWas your office provided, a year and a half ago, with an opportunity to review what the CIA had found in John Deutch's home computers that pertained to the Defense Department, specifically? And did your office decline at that point to review that material?
SEC. COHEN: We've never declined to review any material from the CIA. My understanding is that it was incumbent upon the agency to provide the information to DOD, but I haven't sorted that out yet in terms of the initiation and the response. But that information is being gathered and presented to us for this other level of classification --
QMr. Secretary, you don't know whether or not this information was offered in 1998 to DOD? The CIA says it was offered.
SEC. COHEN: My understanding is that it was not, but I'll need to get clarification of that.
QMr. Secretary, this has been going on now for a couple of years, and of course, the IG report was done six months ago. How troubled -- one, why is the Pentagon just reviewing this now? But more importantly, are you personally troubled by the fact that your own security professionals have not -- (inaudible word) -- this material until today?
SEC. COHEN: My belief is that any information that the agency had should have been provided to DOD. I am not aware of the level of discussions between our IG and their IG at this point, but certainly any information that would have called into question Dr. Deutch's ability to carry out his employment without compromising any DOD intelligence matters certainly is an issue that should be addressed.
QSo, are you troubled by the fact that it's now six months later and your agency --
SEC. COHEN: The answer is yes. Yes.
QMr. Secretary, the reason -- and two questions here. First of all, the lie. Sloppiness? Arrogance? Just feeling that his position enabled him to do what he wanted to do? And the second part is, is there any evidence at all that any of this information fell into hands that perhaps it should not fall into?
SEC. COHEN: First of all, we have no information that any activities on the part of Dr. Deutch compromised DOD equities, intelligence or operations. We have no such information.
Secondly, I can't account for the reason for the situation, Dr.Deutch maintaining this. I can only speculate that he was doing a good deal of work at home; he is fairly aggressive in his work habits and working long hours, and I assume that had something to do with it, but I'm only speculating now.
But I think it's important that all of this matter be reviewed; my understanding is it was reviewed, but this level of the question involving due process. When you are going to terminate someone's access to classified information, there must be a compelling level of evidence that would warrant you for taking that action. That information has not yet been presented to DOD; should have been as far as over this period of time. We are in the process of acquiring that now and then we can make a determination whether it amounts to the level that, under the law, we could take action. And I can't make that determination now, at this point, until we see what the DOD general counsel recommends.
QWill you also investigate his handling of classified material while he was deputy secretary of Defense, as opposed to just reviewing these materials that the CIA is going to give you?
SEC. COHEN: That's something we're reviewing now, to go back and take a look to see what took place at that time. I want to get the information first before the DOD general counsel.
QMr. Secretary, the Human Rights Watch came out with a report today saying that NATO bombs killed 500 civilians in 90 separate incidents during the air war. Is the information accurate, to your knowledge? Were proper precautions taken, and would you do anything differently today?
SEC. COHEN: Number one, I have no basis for judging the accuracy of the information by Human Rights Watch. Based on what I have seen, just a summary of that report, it seems to me it does in fact expose Milosevic and his propaganda machine for the deceit that they were perpetrating at that time, saying that there were 5,000 or more who had been killed by this.
Let me say that we have always taken into account the potential loss of innocent human life. In fact, we have been criticized for the way in which the campaign was executed, that we didn't give enough flexibility to the military, in the judgment of some.
The fact of the matter is that we reviewed with great care every recommended target for an examination in terms of what the potential was for harming innocent civilians. I can tell you that I reviewed it with the chairman, even at the White House. We went over in great detail what type of activity was contemplated, what time of day or night, what angle of attack, what was the likely explosive impact, in order to reduce the loss of innocent lives. We don't want to see any innocent people harmed, and we took extraordinary care to achieve those results.
We'd like to have a situation where no innocent human being was ever injured by this -- by having -- our having to go into conflict with Milosevic.
QMr. Secretary, will you bring us up to date, as of now, on what we'll call the incident of the Russian tanker? And parenthetic to that, have you now declared open seas and are oil ships loading oil in Iraq that loaded in a contraband way?
SEC. COHEN: Well, there's no additional information. I am told that the ship now is in fact docked in Muscat in Oman, that the oil is being off-loaded. It will be sold and the proceeds used to reimburse for the costs involved in the surveillance and boarding activities and maintaining the international surveillance operations and interdiction operations.
It's not a question of open seas, and we -- and the United Nations wants to maintain a containment policy, to make sure that we intercept as many illegal operations as we can. They seem to have intensified in recent months, particularly with the increase in the price of oil. And Saddam Hussein is going to try to exploit that to get as much revenue as he can, certainly illegally.
And so we will continue to bolster the international community's obligation and opportunities to intercept as many as we can, when we have good intelligence, when there is suspicion in terms of the activity of the ship, tracking it; where it's been, where it's going. All of that we have to take into account to continue to contain him.
QHaving said that, are you now in a sense increasing, are you doubling, the effort? Are your -- how would you phrase it?
SEC. COHEN: We are intensifying the interception operations, yes.
QMr. Secretary, if I understand you correctly -- I hate to go back to John Deutch, but I just need to make sure that we understand where you are here -- you are, not only looking at what may have been on his computer that pertains to the Defense Department, for the first time I guess beginning today, you are reviewing whether or not your agency may have been remiss in not requesting or pushing or accepting that information, had it been offered by the CIA? Both of those are correct?
SEC. COHEN: Right.
QAnd do you have a time line on when you are going to try to determine whether or not John Deutch -- the final security clearance he owns from the Defense Department may have to be removed?
SEC. COHEN: Well, the first thing we have to do is get all of the information in the report. We hope to achieve that within a matter of a few days. And then we'll have to have our general counsel review that information and make a determination and a recommendation to me. I can't give you a time line on it, but obviously it's of some import.
QA budget question?
SEC. COHEN: Sure.
QWhat does this budget do to help restore health to the ailing defense contractors?
SEC. COHEN: Well, what it does is it achieves the $60 billion procurement mark that has long been elusive. And so we are putting more money into procurement, and that will help the defense industries.
Several of them are doing quite well; several have been assuming the burdens of their mergers and consolidations. But one of the answers is that we will have significantly more procurement funding available for them to propose their equipment for sale.
QAre there any particular programs that have been included or plussed-up with an eye towards that, towards preserving the industrial base?
SEC. COHEN: Well, we have included those systems that were laid out during the QDR [quadrennial defense review]. We are going to acquire all of the -- as far as our tactical aircraft, we will continue that program. We will continue the DD-21. The 10th, we'll get the final Nimitz carrier and move on to the design of a new carrier. So all of the systems that we have laid out in the QDR, we will in fact continue to acquire.
QMr. Secretary, you are stressing the growth in procurement. But I think there is pretty general acknowledgment in the building that there is still a bow wave --
SEC. COHEN: Yes.
Q-- in procurement building for the future. CSIS [Center for Strategic and International Studies] estimates that at $100 billion a year at this point.
What's your sense of what the next president and the next secretary are going to have to do to grapple with that problem? Is there a fundamental reexamination of what we do here in order?
SEC. COHEN: Well, I won't comment at this point on the CSIS report, but I think there are a number of assumptions in the report which would lead one to the conclusion of $100 billion annually increase over and above where we are, which -- I think that there are a number of assumptions which don't quite bear up. But nonetheless, I think it's clear from our examination that we're going to have to see additional monies spent for procurement and also for operations and readiness. That's one of the reasons why we have to continue to look for ways in which we can save money on excess infrastructure, to find ways in which we can take advantage of better business practices, all of that. I don't think there should be any escaping the fact that we will need more in order to maintain the force that we contemplate.
QMr. Secretary, have you issued any memo or warned the members of your staff and other senior Pentagon officials not to take their work home, secret work -- (inaudible)?
SEC. COHEN: I have not specifically issued a warning. I think that they -- they are already under general instructions not to take work home that would be of a highly classified nature to go on any kind of personal computers. They're already under that instruction.
QMr. Cohen, on the budget, sir, what is the amount of increase over the authorized 19 -- well, the '00 budget that would be in the asking budget for '01?
SEC. COHEN: We have a --
MR. LYNN: '01 is about 13 and a half.
SEC. COHEN: Well, he's asking the one year.
QWell, from what's been authorized for this period as to what's being asked for in the next period. What's that?
SEC. COHEN: This is the '01 budget that we're asking for.
QWhat's the increase?
SEC. COHEN: The total increase, I believe, is --
MR. LYNN: I think the way he asked the question is, is what's the increase from this year, '00?
QWhat's been authorized this year, what the Congress has approved, and what will be asked for -- or what is being asked for?
MR. LYNN: This number is 277, and this number is 291. So it's about about 13.5 billion from here to here.
QAnd then your rate of increase will be more or less steady in the early years of the 21st century; is that correct?
MR. LYNN: This is essentially zero real growth.
QZero real growth?
MR. LYNN: Right. This is about a 1 percent real growth, this is about zero. In other words, this accounts for inflation.
QHave you made any effort to talk to your former colleagues on the Hill to see if you can do something with BRAC other than just, you know, throw the spaghetti strand at the ceiling and see if it sticks this time? I mean -- (laughter). No, you had some conversations with Jim Inhofe last year and, you know, there was serious discussion. I mean, is there any effort to get this beyond, you know, [inaudible]?
SEC. COHEN: I continue -- I had a meeting this morning -- or lunch, actually, with members representing authorization and appropriation committees. I have tried to make it as clear as I can -- I have talked to Senator Lott as well, to explore with him ways in which perhaps we can structure an approach that would achieve this goal.
I mean, they cannot continue to put it off -- I mean, they can, but not without consequence. And so this is not a matter that is simply we're shoving it under the rug. This is going to come back. As we have tried to point out, that lump in the projection for procurement is going to get fairly large, and if you keep pushing these kind of reforms out, there's going to come a due date in which we either say, okay, we have to have a major increase in the top line or we have to take it out of procurement and put it elsewhere.
So I can only impress upon them what is coming, and they will have to determine whether or not it should wait another year. They may wait for another administration before they take action. What I've tried to do is say: I think it's important enough for you to address it now. You can keep putting it off, but the longer you put it off, the bigger the price is going to be.
QDo you have a ball park notion for how big the procurement jump gets in the '08, '15 periods you mentioned?
SEC. COHEN: Bill can probably give you a better figure in terms of what that ultimately is going to cost. But if you look at the -- the F-22 will be coming on line, Joint Strike Fighter, during that time; DD-21, the new aircraft carrier. There are a lot of items that will be in the production stage at that point. And the numbers total up -- I don't have the figure right now. (To staff) You may have it, Bill.
MR. LYNN: I think what you'd say is we've increased $15 billion to $18 billion since the beginning of the QDR. I think by the middle -- the end of the next decade you'd want to see a similar increase in that range.
QI'm sorry to go back to this, but I just want to be clear on Deutch. You said when you learned the situation with the CIA, you called for the termination of his SCI clearance. Was that in August or sometime more recently?
SEC. COHEN: It was at the same time the CIA made its determination; whenever Director Tenet revealed that, we called for the elimination at that point.
QAnd then on the budget, with this 1 percent increase, all the charts we see, they seem to be going up and up, and they look like it's a lot more money, but it's not. Could you explain that? I mean, it seems like it should be a lot more money, but it's really no growth at all.
SEC. COHEN: Well, it's a lot more money than where we were just a few years ago, to say the least. If you look at -- if you don't think going from $44 billion to $60 billion is a lot of money, I would ask you to take another look at that.
In terms of housing allowance, we put an additional $3 billion into the budget to cover for the costs of just the housing allowance. And so if you go down through each and every item, there is significant buildup of the budget. It's set --
Q (Off mike) -- goes back a couple of years, not just last year. Okay.
QMr. Secretary, you show $277 million for this year and $277 million -- or, 277.5 -- identical figures for this year and for the outlay for next year. Can you explain where are the cuts, given all of these increases, that allow you to basically spend the same amount next year as you're spending this year?
SEC. COHEN: Bill?
MR. LYNN: As you know, the outlays always lag the authorization. A big part of the increase this year is in the procurement account so there'll be a lag. You'll see, if you look in the out-years, in the outlays you'll see the outlays grow to that level over two or three years. There's always a lag. We funded the outlays according to the time frame that they spend out.
QI -- actually, I do understand that. What I'm asking is are there significant cuts in this budget that enable you to have so many increases? I mean, almost all the material we have talks about increases. Are there cuts?
MR. LYNN: There's an increase in the top line that accommodates some of these and there have been some cuts to accommodate other increases. The Army cut some of their M-1-based systems, such as Grizzly and Wolverine, in order to accommodate the shift to this new design. So it's a mix of both increased resources as well as some reprioritization.
QCould you give a couple more examples? You said the Grizzly and the Wolverine; can you mention a few others?
MR. LYNN: I think the other major one that you're probably aware of is airborne laser was cut.
QPardon. Are you going to get a budget this year?
SEC. COHEN: We hope so.
QA couple quick procurement questions. One, last year, you had requested, you said you were going to hit $61.8 billion instead of $60.3. Why didn't you hit that high mark? And two, the C-130J decision, can you talk a little bit about the rationale for that? On its surface, it looks like a last-minute bailout of America's top contractor.
SEC. COHEN: First of all, on the 60 billion, 60 billion is what the goal was for the QDR and remarkably, we hit exactly the 60 billion mark. Last year was predictably a bit higher. We took some of the funds from that 61 billion projection to apply it, some of it, to readiness accounts, some of it to accommodate the change in the F-22 funding profile, some of it for national missile defense.
On the C-130Js, that was a decision that we made to save roughly $600 million; that even though there is not an existing requirement right now for the number of C-130Js, we would need to have that line if it were to close. We'd have to have it started up in about four or five years, at a cost that was estimated at about $600 million. So it's actually a way to keep the production line going at a reduced rate of production, and save roughly $600 million for the future.
STAFF: Thank you very much.
QMr. Secretary, I'm still confused on two points. I'm very sorry. But if you terminated Deutch's SCI in August, why is it that only today you're looking at his industrial clearances? I'm just not getting it.
SEC. COHEN: I believe that our general counsel -- our inspector general was carrying on some level of discussion with the agency. They made a determination at that point that it requires under the law that there be a much higher level of evidence that would warrant taking away the industrial clearances. And so that has been ongoing.
I think it should have been done sooner, but it was not.
They are now accelerating the transfer of this information to the DOD. So we're in a position to make a judgment as to whether we can do that.
QIs there something that has accelerated the transfer, other than news media interest?
SEC. COHEN: I think the news media interest has been a prime factor.
QAnd can you just explain to us, how do you do your work at home? Do you have a classified computer?
SEC. COHEN: I do not, and I do not do any classified work at home --
STAFF: Thank you.
QThank you again, Mr. Secretary.
SEC. COHEN: -- other than reading documents --