ASMC Washington Chapter Luncheon Meeting How do we strengthen our national defense in this time of fiscal uncertainty? Jamie Morin OSD CAPE 19 February 2015 ASMC Washington Chapter Luncheon Meeting

Agenda Strategy to budget PB15 to PB16 PB16 principles and choices Challenges at BCA Making every dollar count through smarter acquisition Final thoughts

PB15 to PB16 PB15 made tough choices but maintained sufficient force structure to meet the strategy Congress rejected many PB15 reforms the Department proposed Compensation Healthcare BRAC Force structure reductions PB16 add resources and tightens our alignment to strategic guidance Balancing joint force capacities, capabilities, and readiness Increased focus on ISR and full spectrum combat readiness Modified resubmit of the reforms Congress rejected Key investments in nuclear deterrence, space, power projection and counter-A2/AD

PB16 Request PB16 is shaped by the 2014 QDR strategy Protect the homeland Build security globally Project power and win decisively Department’s Priorities Rebalance to the Asia Pacific Maintain a strong commitment to security and stability in Europe and the Middle East Sustain a global approach to countering violent extremists Reinvigorate efforts to build innovative partnerships Keeping faith with and taking care of our service members and their families Leverage the Defense Innovation Initiative Prioritize and protect key investments in technology

Key Investment Areas ISR Nuclear Deterrence Space Additional Gray Eagle and Reaper orbits Slowing retirements of legacy forces to meet demand Nuclear Deterrence $8B in additional funding to address shortfalls in the Nuclear Enterprise Infrastructure and ICBM Security force improvements, additional nuclear shipyard workers and force sustainment Space Improving space resiliency and space control to meet the growing threat Power Projection and Counter-A2/AD Additional missile capacity for Virginia class submarines Maintain P-8A Poseidon aircraft for large area anti-submarine warfare Increased funding for electronic warfare systems

PB16 Topline We’re still living with uncertainty FY15 Opportunity, Growth, & Security Fund ($26B for DoD) Readiness Enhancement -- Training adds in Army -- Spares and logistics in Navy -- Unit training in USMC -- Flying hours in Air Force Installation support increase -- All Services increase base sustainment -- All Services add MilCon funding Investment increases -- Army helicopters (56) -- Navy P-8 (8), E-2D Aircraft (1) -- USMC Light Armored Vehicle and minor procurement -- Air Force F-35 (2), C-130J (10), MQ-9 Aircraft (12) ++++++++++++++++++ FOR FY15–19: Blue minus Green = PB14 minus PB15 = $113B Green minus Red = PB15 minus BBA/BCA = $115B SCMR PB16 BCA

Challenges at BCA At the PB16 funding level the strategy can bend without breaking Significant changes coming if forced to fund to BCA levels Reductions in select force structure areas Reduce Army and Marine Corps end strength Cut 11th Carrier and a carrier air wing Reduce FYDP procurement by 8 ships Divesting the Global Hawk Block 40 fleet Cutbacks in modernization and investment PB16 increase in Space control investment is reduced by 70% PB16 increase in Nuclear Enterprise investment is reduced by 40% Break many multi-year/quantity buys of critical capabilities Reduced readiness Reduce Service readiness funding by about $16B over the FYDP Larger maintenance backlogs Delay timeline to achieve joint readiness for full-spectrum operations A mechanical sequester would be even worse

Making Every Dollar Count Through Smarter Acquisition Defense acquisition is about balancing valid, competing considerations We cannot have a strong defense with a feeble acquisition process Military comptrollers play multiple roles in the acquisition process Cost analysis advocates Resource risk balancers in PPBE Requirements generators (i.e., capability champions) Proper balancing of these roles is critical to maximizing funding stability and creating a resilient acquisition enterprise

Cost Analysis Advocates Strengthening the quality, relevance, and timeliness of cost estimation is key Cost estimates are critical early in programs’ life cycles Congressional direction to improve cost estimating and acquisition program performance (e.g., WSARA) paid significant dividends Space Fence Cost estimates are a tool to measure the risk of unmanageable cost growth Air Force’s Non-advocate Cost Assessments (NACA) were used to reduce cost risk by more than 90% in just 4 years

Risk Balancers PPBE has been significantly strained by the fiscal uncertainty we have been facing Threat of BCA reductions have impaired program stability across DoD Build fiscal resiliency into the process by remaining focused on strategy Financial managers need to assess alignment of resources and strategy Balancing short-term and long-term priorities is a challenge Sequestration / continuing resolutions can create vulnerable programs In such environments, financial managers must be engaged to avoid small blips becoming death spirals

Capability Champions Capability champions are not program champions Requirements are not set in stone, it only seems that way Sticking to a set of requirements after conditions have changed can be a recipe for acquisition failure or operational failure Focus on the end goal Change requirements and make trades when necessary Seek to remain in the cost-schedule-capability “sweet spot” Preventing DEAMS from becoming a nightmare Keep asking questions / seeking options Does this make sense? Do we have to have ‘this program?’ Is there another way to get there?

Project Power and Win Decisively Balancing Challenges Build Security Globally Protect the Homeland Project Power and Win Decisively Ends Balance Capacity Capability Readiness Means Balance

BACKUP

Principal Deputy Director LtGen Robert E. Schmidle Jr. CAPE Org Chart DIRECTOR, CAPE Jamie M. Morin Principal Deputy Director LtGen Robert E. Schmidle Jr. Front Office Team Cost Assessment Deputy Director Rick Burke Program Evaluation Deputy Director Scott Comes Analysis & Integration Deputy Director Vacant Program, Data, & Enterprise Services Deputy Director Joseph Nogueira Economic and Manpower Analysis Weapon Systems Cost Analysis Advanced Systems Cost Analysis Operating and Support Cost Analysis Land Forces Naval Forces Tactical Air Forces Projection Forces Irregular Warfare C4 and Information Programs Strategic Defensive & Space Prgms Force and Infrastructure Analysis Intelligence, Surveillance, & Rec. Program Analysis Simulation Analysis Center Force Structure & Risk Assessment Enterprise Services Joint Data Support Program Resources & Information Systems Management

Historical Topline Afghanistan/ Iraq [Note: this chart shows the Department’s topline budget including OCO through FY15 with OCO placeholder amounts of $79B in FY15 and $30B per year during FY16-19] Zooming out of a longer period of time, here’s another look at the Department’s topline budget – this time in constant (or inflation-adjusted) dollars broken out by major budget category (or “color of money”). Not surprisingly, we tend to spend more money during times of conflict. You can see that after times of war, we typically reduce our budget by between 30 and 40 percent. Since the peak of the Global War on Terror, we’ve reduced our budget by 21 percent, with further cuts to come. So these are the fluctuations in the Department’s overall topline budget, but which budget categories do we typically turn to first during times of budget cuts?

Historical Investment Accounts Afghanistan/ Iraq But are we done? Procurement — and investment accounts in general — typically bear the brunt of budget cuts following major conflicts. While in the past the overall topline was reduced by 30–40 percent following times of conflict, investment accounts during these times were reduced by much more – between 50 and 70 percent! And although our topline has come down 21 percent during FY08–14, investment accounts have already been reduced by 39 percent during this same time period. And we expect there might be more cuts coming in these accounts in the out-years. Why does the Department rely on heavy cuts to acquisition programs during budget drawdowns? The main reason is it’s difficult to cut force structure quickly so by default we’re forced to cut modernization accounts. This creates a serious challenge — maintaining a technologically advanced military in light of budget reductions is no easy task.

Balancing Challenges Internal Cost Pressures Fiscal Uncertainty Topline Timing OCO Action on prior requests Internal Cost Pressures People Acquisition Operations and Support Strategic & Operational Challenges Shift to Asia – away game, geography, & A2AD EM Spectrum Dominance Commercial technological pacing vs DoD OODA Loop Adversary cost imposition

By Appropriation Title By Military Department FY 2016 President’s Budget (Dollars in Billions) By Appropriation Title FY 2015 FY 2016 Dollar Change Military Personnel 135.0 136.7 +1.8 Operation and Maintenance 195.4 209.8 +14.5 Procurement 93.6 107.7 +14.1 RDT&E 63.5 69.8 +6.3 Military Construction/Family Housing 6.6 8.4 +1.9 Other 2.1 1.8 -0.3 TOTAL 496.1 534.3 +38.2 Numbers may not add due to rounding By Military Department FY 2015 FY 2016 Dollar Change Army 119.5 126.5 +7.0 Navy 149.2 161.0 +11.8 Air Force 136.9 152.9 +16.0 Defense Wide 90.6 94.0 +3.4 TOTAL 496.1 534.3 +38.2 Numbers may not add due to rounding Base Budget Request: $534.3 Billion

Military Construction Family Housing $8.4 FY 2016 President’s Budget Base Budget Budget By Military Department Military Construction Family Housing $8.4 Others $1.8 (Dollars in Billions) Defense Wide $94.0 Air Force $152.9 Army $126.5 Navy $161.0 Budget Request: $534.2 billion

PB 2016 Significant Modernization Programs 57 Joint Strike Fighters ($10.6B) 16 P-8 aircraft ($3.4B) 5 E-2D aircraft ($1.3B) KC-46 tanker ($3.0B) and Long Range Strike development ($1.2B) 9 ships ($11.6B) George Washington (CVN) overhaul ($678M) Ohio replacement strategic submarine development ($1.4B) Littoral Combat Ship capabilities improvements ($55M) Cyber capabilities enhancements ($5.5B) Ground Based Interceptor reliability ($1.6B) Army helicopter modernization (e.g., Light Utility Helicopter) ($4.5B) Reaper (MQ-9) procurement ($821M)

PB 2016 Continues to Pursue Compensation Reform FY 2016 Budget request savings (FY16, $1.7B; FYDP $18.2B) FY16 Basic Pay raise 1.3% (FY 2016, $0.7B; FYDP, $4.3B) Slow growth in Basic Allowance for Housing – an additional 4% out-of-pocket above 1% authorized by Congress in FY 2015 (FY 2016, $0.4B; FYDP, $3.9B) Reduce Commissary Operating costs and subsidy through efficiencies and revenue generating opportunities gained through legislative changes (FY2016, $0.3B; FYDP, $4.4B) Consolidate TRICARE healthcare plans with altered deductibles/co-pays to encourage beneficiaries to seek care in the most appropriate setting and improve the overall continuity of care. (FY 2016, -$0.1B; FYDP, $3.1B) Implement modest annual fees for TRICARE-For-Life coverage for retirees 65 and over (FY 2016, $0.1B; FYDP, $0.4B) Additional changes to pharmacy co-pay structure for retirees and active duty family members above the FY 2015 authorized level to further incentivize the use of mail order and generic drugs (FY 2016, $0.3B; FYDP, $2.0B)

Overseas Contingency Operations Included with this Budget Request $50.9B Continues decline since FY 2010 Reflects continued operational demands on U.S. forces Continues responsible transition in Afghanistan Includes training and equipping of Afghan security forces ($3.8B) Funds Counter-ISIL Operations ($5.3B) Includes training and equipping of Iraqi forces and vetted moderate Syrian opposition ($1.3B) Includes Counterterrorism Partnerships Fund ($2.1B) Continues European Reassurance Initiative ($789B) Funds International support ($1.7B) Coalition Support Fund Resets/retrogrades equipment ($7.8B) If sequestration lifted, plan to transition enduring costs currently funded in the OCO budget to the base budget beginning in 2017 and ending by 2020

(Current Dollars in Billions) The FY 2016 President’s Budget is a Strategy-Driven, Resource-Informed Budget 33 $750 691 666 687 666 1 7 645 601 614* 585 597 3 162 159 578 581 574 583 591 534 560 27 187 146 115 27 27 27 8 51 479 82 85 64 $500 468 166 3 437 116 76 91 345 73 316 6 17 23 $250 287 328 365 377 400 411 431 479 513 528 528 530 495 496 496 534 547 556 564 570 $0 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 * Reflects FY 2013 Enacted level excluding Sequestration Numbers may not add due to rounding DoD Topline, FY 2001 – FY 2020 (Current Dollars in Billions) Base Budget OCO Other The $27 million shown in FY 2017 through FY 2020 for OCO are placeholder amounts 23