Mr. Mark Peterson U.S. Special Operations Command Chief Financial Officer/Comptroller

1. US Special Operations Command The “New” Fiscal Environment(The anticipated fiscal environment)ASMC Luncheon September 2009 Mr. Mark Peterson U.S. Special Operations Command Chief Financial Officer/Comptroller The overall classification of this briefing is: Unclassified Ver 4c

2. David Walker GAO Comptroller General Nov 98 – Mar 08 The Future has arrived(Sooner than expected !) "I would argue that the most serious threat to the United States is not someone hiding in a cave in Afghanistan or Pakistan but our own fiscal irresponsibility.” CBS 60 Minutes, March 2007 Recession “The fiscal wake-up tour” The Economy is a National Security Issue

3. The Fiscal Environment • Federal • Department of Defense • The New Administration

4. The United States Constitution entrusts the `power of the purse' to the Legislative Branch of the United States. • -------------------------------------------------------------------------------------------------- • Article I, section 8: Congress is empowered “[t]o lay and collect Taxes, Duties, Imports, and Excises to pay the Debts and provide for the common Defense and General Welfare of the United States.” • Article I, Section 9: “[n]o money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law.” The Federal View

5. 2009 Federal BudgetDiscretionary vs. Entitlement Approximately $3 Trillion Dollars • Sixty-two percent of the Federal Budget is mandatory spending (including interest) • DOD Budget is more than 56% of all Federal discretionary spending---------------------------- • Some parts of DoD “Discretionary” spending acts like an “entitlement” (e.g., Military Health Care and Retirement) Source: FY 2009 Budget of the United States Government

6. The Fiscal Environment (Historical View compared to GDP) Downward Pressure $568B 4% GDP

7. Key Players in the Federal Discussion • “Peter has been one of our nation’s leading voices on budgetary issues…he doesn’t need a map to tell him where the bodies are buried in the federal budget. He knows what works, and what doesn’t.”President Obama commenting on Mr. Orszag as the new Director of OMB, November 25, 2008 Director of OMB Peter OrszagPresident Obama

8. Project for National Security Reform (PNSR) The Project for National Security Reform recently published its report highlighting the need for a “whole-of-government strategic planning document that outlines national objectives, priorities, and specific actions for improving interagency coordination and operational planning. - Resource implications: Shift of DoD $$ to other Agencies “Our country is wearing concrete shoes in a security environment that demands speed and agility. The need for fundamental reform is urgent and the consequences of inaction are dire.” James Locher III, PNSR Executive Director National Security Advisor James Jones Key participants of the PNSR effort included retired Admiral Dennis Blair, Director of National Intelligence and retired General Jim Jones, National Security Advisor Dennis Blair & James Locher III

9. Federal Summary • The National Economy is a National Security Issue • Wake-up call came early: Recession and failure of the mortgage and banking industry. Unemployment will continue to rise. • Short Term: The domestic economy will take priority over all other funding issues in the Federal Government. • All Budget decisions will be heavily influenced by the Recession • Next major issue will be the FY 2011 President’s Budget (How much can we afford for Defense - -and what kind of Defense?) • Anticipate a historic Budget fight for PB-2011 as Agencies wrestle over scarce dollars • Long Term: Entitlement spending must be addressed. Health care reform will be initial focus with tax increases and “means testing” an inevitable part of the equation (personal opinion). • Funding the “full instruments of national power” for security issues will be a theme in the FY 2011 President’s Budget Fiscally speaking: we are in “uncharted” waters as a nation

10. The dept of defense view

11. President meets with Senior military leaders “It’s bad….but not nearly as bad as the economy” - Informal remarks by President Obama after receiving briefs on the current situation in Iraq and Afghanistan with the Joint Chiefs of Staff. ‘Meet the Press’ 2/2/09 President Obama meets with the Chairman of the Joint Chiefs of Staff and the Service Chiefs on January 28, 2009.

12. FY 2010 DoD Budget (Current dollars in Billions) DoD Base Budget & Non-GWOT Supps. FY 10 / 11 OCO Request PBR 11 Position GWOT Funding Source: DRDW Warehouse Database FY 2001 – FY 2011, Government Accounting Office FY 2001- 2009 GWOT GWOT Request Information Database (GRID), FY11 Request in PresBud “The New Era” Feb 2009 Numbers may not add due to rounding

13. DRAFT PRE-DECISIONAL DoD Top-Line Budget1948 – 2010 (FY 2009 Constant Dollars in Billions) (FY 2009 $ in Billions) 9-11, Afghanistan, Iraq Korea Reagan Build-Up Vietnam Cold War Ends 0 Notes: FY 1949 – 2010 data includes supplementals, as applicable Source: Department of Defense National Defense Budget Estimates for FY 2008, Budget Authority in 2009 Constant Dollars

14. Carter Reagan I Reagan II G. Bush Clinton I Clinton II G.W. Bush I G.W. Bush II President’s DoD Budget Submit with FYDP Projections High Point Supplemental/GWOT Overseas Contingency Operations Actual Obama Fiscal Year President submitting budget

15. Robert Gates, Secretary of Defense Admiral Mullen, Chairman of Joint Chiefs of Staff Key DoD Leader perspectives “We must have the courage to make hard choices. Any necessary changes should avoid across-the-board adjustments, which inefficiently extend all programs.” Secretary Gates testifying before the SASC on Jan 29, 2009. {Referring to FY-10 budget discussions and noting procurement and acquisition reform as one of the biggest challenges facing the pentagon} ‘The global financial crisis is threatening U.S. security options abroad. The financial meltdown will force a delicate balance between national security and federal budgets.’ Paraphrased by USA Today, Feb 3, 2009 ------------------------ “We’ve got to fund the wars we are in. The most expensive part of our budget is our people, and there isn’t a lot of flexibility with respect to people unless you start reducing forces.” Adm Mullen indicating that the procurement budget will likely be the bill-payer as the Department puts its PB-10 budget together.

16. Key OSD Leader perspectives “The defining principle of the Pentagon’s new National Defense Strategy is balance. The U.S. cannot expect to eliminate national security risks through higher defense budgets…The military and civilian elements of the U.S. national security apparatus have responded unevenly and have grown increasingly out of balance.” - SECDEF SECDEF Gates from, “A Balanced Strategy: Reprogramming the Pentagon for a New Age” Foreign Affairs, Jan/Feb 2009 SECDEF Gates and Prior SECSTATE Rice “Rebalancing the overall Defense portfolio to ensure that the joint force is as effective in irregular warfare as it is in traditional warfare requires focused efforts in three key areas: Growing SOF capacity while maintaining quality standards Reorienting general purpose force (GPF) capabilities toward irregular warfare while maintaining the capability of GPF Promoting increased integrationbetween SOF and GPF” Mr. Vickers congressional testimony before the HASC subcommittee on terrorism and unconventional threats and capabilities, February 2008 ASD SO/LIC&IC Michael Vickers 16

17. USD Policy Michelle Flournoy New Administration Transition Brief(Five primary cost drivers requiring attention) • Manpower & Entitlements • Fully loaded personnel costs account for 50% of the DoD baseline budget. Healthcare costs (for active duty and retirees) noted as rising at an unsustainable rate. • O&M costs continue to increase • Improve supply chain and energy consumption • Excessive Overhead (tooth-to-tail ratio) – 42% rate • Includes management functions, personnel support, central training – considered to be “taxing combat capability.” • Force Structure/End-Strength • Adjust force for new “strategic intent” • Primary QDR issue – Ms. Flournoy Influence • RDT&E and Procurement • Acquisition Reform (again) • “Cannot reset force, modernize, and transform all portfolios” – tough choices required

18. DOD Summary • Serious divestment discussion required (process used?) • Greater accountability of resources (prior, current, future funds) • Acquisition Reform will be highlighted (again) • Reduction in major procurement accounts • “Hollow Force” versus “Smaller Force” ? • Preparation for a different kind of war (6 points) • Influence the force structure through the next QDR • What does “Rebalance” really mean? • Affordability will be a major factor • Interagency role will be revisited • Role of Guard and Reserve forces • Joint focus with serious look at “roles and missions” • Interdependent to provide true joint capabilities The economy and will drive a smaller DoD Budget

19. Questions ? • BGEN Charles G. Dawes, General Purchasing Agent for the Army Expeditionary Force, testifying before Congress, 1921 “Sure we paid…we would have paid horse prices for sheep if sheep could have pulled artillery…It’s all right now to say we bought too much vinegar or too many cold chisels, but we saved the civilization of the world…Hell and Maria, we weren’t trying to keep a set of books. We were trying to win a war!” You will always be asked to give an account of how you spent your funds