We have a few minutes before miss monacos staff puts me on a watch list. I appreciate you in both roles. I think those of us whove had clients know the challenge of having that duality. Can you talk to us about how you balance both your role as an overseer for agencies and as an advocate . You and your lawyers know that we do play both roles. It is interesting, nsd the sit at this juncture. We are not formally of the intelligence community. Were not formally members of the intelligence community. That is probably the right balance. We have to make sure we are both earning the trust of the clients and the operators and agents with whom we work. By being creative problem solvers, but also maintain the ability keep that trust by being creative, by helping our clients work through operational issues. I like to the lawyers to work in our office, we talk about how it is important not to be dr. No. You cannot be red all the time. You cannot be green and a yes person and captive to the client. Worst of all, if you are an operator, worst of all is to be flashing yellow. Constantly on hold, constantly in limbo. We tried to act as a navigational device, earning the trust and being creative. Helping you get to where you want to go, but doing so in a way that will be consistent with statued executive order and the rule of law. I have to say that not everything that we recommended worked out the way we expected. Nsd worked out exactly as the commissioners had hoped. It has been a major contribution to the innovative lawyering in National Security. I want to ask you about the Cyber Security crisis that we face. We do not have resources and government to investigate every one of the intrusions against private industry. The question is how can at the same time, we know a lot about the guys who are breaking into our networks. We have dedicated attention to that and it will allow us to take action against the people doing it. How do you draw on and use the resources of the private sector . If ibm is in intruded on, they will spend a lot of money to find out who it is on. How do you do that without turning the internet into the wild west . You have been very thoughtful in this area, stuart. It will be a place before not only prosecutors and agents in the field to plug in, but to also be a forum for the private sector. Our goal is to make sure we have all tools that we can apply to a particular problem. And to make sure we are preserving those options and working with interested parties to make sure we can do that. Something like prosecution will not always be applicable in all circumstances. It may be a viable option in some cases to act as a deterrent and as a way to disrupt a threat. The more information sharing we can have and good relationships we can have with the private sector, understanding that that will not always be satisfactory. The private sector can share with us information. We have to first know about the breaches and the intrusions that occurred before we can do anything about it. That sometimes causes concerns for companies. If they trust that we will use that information wisely and try to help and work with them to combat this siphoning off, hopefully, we will all be better off. Thank you. For graciously giving us your time this morning. We want to give you a copy of our latest publication. Do not be offended, paul. Your Ethics Council will find this of minimal value. No comment. [applause] that concludes our breakfast. Next, a look at the projected cuts in defense spending. Then, the future of the us energy production. Then, a discussion about the future of afghanistan. If you ask who describes themselves as libertarian, depending on what you look at, you might be getting between 10 and 15 . If you give them a battery of questions, and then you track those two different ideologies, pending him what you are looking at, you get may be up to 30 americans calling themselves libertarian. Are you economically conservative but socially liberal, you get almost half of americans calling themselves that is what they are. Just because they say these things, it does not mean that they believe them. If you ask most americans, do you want Smaller Government . They say yes. You want them to less money . They say yes. If you ask for a particular item on the budget, they do not want to cut anything. It is not clear. I have to say, roughly as low as 10 and as high as 30 . Libertarians, if they were kind of dodges and political, they could be a big movement. It could be a big group of people who have a shared ideology and influence in politics. It is not organized that way right now. A political primer and libertarianism. Author Jason Brennan on what you might not know, sunday at eight on cspan. About 500 billion of automatic sequestration in defense spending cuts was scheduled to take effect this month. On monday, the Brookings Institution hosted a discussion looking at the dental effects of defense cuts on National Security. This is about two hours. Good morning, everyone. I am Michael Ohanlon from the 21st century Defense Initiatives. We are delighted to welcome you here. After bob has spoken, i will come up and we can ask some questions. That will be your chance to intercede and pose questions on your mind. He will pose questions for about half an hour. Then we will go straight to a panel discussion. Again, thank you to all of you for being here. Let me say a brief word about a pale, for whom i had the great pleasure of working 20 years ago at the Congressional Budget Office. A fantastic career in National Security, as noted, the comptroller of the pentagon today. One of the top officials. The key adviser to the secretary of defense on all matters financial. Trying to figure out how to save money and execute efficiencies and reforms within the Defense Budget. He has a long career in National Security. He was a navy officer at the beginning of this career. Work for the Logistics Management institute. He was my boss at the Congressional Budget Office for a number of years. Including during the. When the berlin wall had just come down. He worked with people on both sides of the aisle at that. Of time. He worked with the clinton administration. Without further ado, please join me in welcoming one of my favorite Defense Budget experts, robert hale. [applause] good morning, how is everybody doing . Good. I am glad to be here for a number of reasons. We do not get invited out that much as comptrollers. Theres probably a good reason. An olympic athlete, practicing every day for the olympics i will try my best. The key issue facing us right now is, how do we maintain National Security in leaner budget times. Recently, the main declines in the defense and Defense Budget have been in war times. We have seen some real declines in the base portion, and there may be more coming. What do we need to do . I will offer three thoughts, starting with, we need a strategy to how we go about maintaining National Security. That is the first and maybe most important thing. Second, we need to make more disciplined is of the money we get. We have to stretch our defense dollars. I will tell you what we are trying to do. Third, i would say with that we desperately need more stability. Budget size and budget process. I will say if you were that the end about sequestration and other things that fall in the category. Let me talk about each of these points. Starting with the tragedy strategy, it could q2 success when you are facing lean budget times, if you do not know where you are going, any road will do. Without a strategy, we would not know where we are going. We needed to guide decisions. In some past drawdowns, there has been an across the board nature to them. The cold war drawdown had some across the board aspects to it. It is important that a year ago, january 2012, president obama announced a new Defense Strategy. We believe it is the right one for the times. Interestingly, despite a lot of criticism for all the specifics that we opposed in connection with that strategy, criticism on the hill, most members of congress seem to have accepted the strategy. It is meant to help us confront a comp likes National Security challenge. This think, syria and the arab spring. Iran and relations with the whole world, including israel. North korea and so many more. What are the elements to the strategy . I will not spend a lot of time on it. Briefly, it assumes we will be smaller and leaner forces. They will be highly ready forces. We will no longer assume that we have them for long operations. We will look for ways to reversibility. We understand that we often guess wrong. We feel we must those forces must be highly ready. There is very much aid no notice category or quality to the sort of threat to National Security. That will be important when i come back later. The second major item in that strategy is to rebalance our forces to were the asia pacific and the middle east. We have done the middle east pretty well. We are working toward rebalancing toward asia pacific. It moving around some forces. Fewer marines on long, for example. For example. Possibly a presence in the philippines. We will Pay Attention to long term threats in the asian area, including china. We will maintain technological superiority, the third element of the strategy, and invest more in some highpriority heads of activity. Ciber, special operations. We recognize we will have to delay a cut back on weapons programs to meet budget constraints. We have used this to guide budget decisions. We have worked to increase things like ciber investments and a number of other things. We think this is right for the times. We also believe that the current level of defense spending is roughly consistent with that strategy. So, we Hope Congress will continue to support that level, or at least something close to it. Strategy is not enough, and lean budget times strategy is not enough, and lean budget times, we owe it to the taxpayers to stretch defense dollars wherever we can. We have a number of initiatives to do that. Economists often referred to these as efficiencies. I do not like the term. Little of what were are doing is an efficiency. More often, what we are doing is eliminating lower Priority Programs where we think that makes sense in order to hold down spending. I prefer the phrase more disciplined use of resources. What have we done to make more disciplined use of resources . Two major packages in the last two budgets. One for about 150 billion over five years. Some cuts before that, as well. Many involve eliminating lower priority weapons programs, for example we terminated the future combat system in favor of a more focused Ground Combat vehicle. We terminated tea set satellite. We have ended production of the f22 aircraft. A number of other initiatives, two. Too. For the first time ever, we established a combatant command. We have been grouping our buys to try to use our market power to get better prices. We have look at things like consolidating email networks. Reducing use of Contract Services where we can. Some categories that do qualify as efficiencies, the air force, for example. They put flight Programming Software on their aircraft. Maybe consult consolidating wireless contract. We are trying to you that on a bigger scale. Another major set of initiatives has aimed at slowing the growth in military compensation. It has grown sharply over the past decade. We have proposed, and congress has agreed to some, increases in fees for military retirees. It had not then for their healthcare, it had not an increased in more than a decade. We got congress to agree in increases in pharmacy copays and at causing people to make better use of mail order and generic. Overall, we tried to slow the growth in dod health care. I mention some of the fee increases. We have also sought and achieved major changes in the way we pay healthcare providers. For example, using medicare rates to pay for Outpatient Care and the department of defense. We were not doing that a few years ago. Some initiatives for making better use of defense resources have been oriented toward improving we are committed to achieving auditable financial statements. The first time, we have a realistic plan to accomplish what is a very major task. Auditable statements will help us improve our business processes. They will help reassure the public that we are good stewards of their funds. More disciplined use of resources. We need to consolidate the structure, we are engaged in restructuring our civilian personnel to try to reduce their numbers. Looking at a restructuring of the military help system. I recognize there is more to do here that we have not, fundamentally, change some problems for the department of defense. Also growth in military compensation. I think it is fair to say that we have had a fairly aggressive effort to hold down defense costs, and that will continue. The last step is the key to managing and leaner times, is more stability. Both in terms of budget size, and ajit process. Budget process. I hope there will be a fifth Defense Budget during my tenure as a comptroller. The third, in february 2011, featured some substantial reductions. The last one featured a significant reduction 487 billion over 10 years. The bill Congress Passed on new years day on the fiscal cliff legislation made for some further progress. I would argue, the National Security challenges have not gotten any less complex. In this lack of budgetary stability makes it very hard to plan, extremely hard to plan well. The nations security would be better served if the congress adopted and then stayed with a more stable budget plan. We have also not enjoyed much process stability during my tenure. I have personally coordinated for shutdown drills. Two of them, i was sitting in my office at 8 00 at night, not knowing at night if we would shut down or not. Sixmonth continuing resolutions. We are under one right now. They hogtie the department and its ability to manage. They are very difficult to manage. There are a umber of legal restrictions. We had a crisis last week divergent. He continued specter of sequestration is out there. In more than three decades of working in and around the Defense Budget, i have never seen it. A period with such uncertainty that we are looking after the next few months, through march. It gives a whole new new meaning to march madness. I cannot wait for it to be over. What does 2013 look like . I know that we face sequestration, starting now, on march 1, 2013. We are still looking at the details, but the total sequestration appears to be 45 billion, if it all went into effect. About nine percent of our budget. That is less than the sequestration he faced before passage of the new years day asked. That would have been as much as 12 . We also cannot rule out an extension of the continuing resolution throughout the rest of this year. That would sharply reduce the operation and maintenance funds that we have available and that we need to maintain readiness. Think back to my statement earlier, readiness is one of our highest priorities. To add to the problems, we believe we must protect funds for wartime operations. We cannot leave the troops in afghanistan. That means even larger cuts. We face a confluence of some unfortunate events. A yearlong continuing resolution that will reduce funds available, especially for readiness. The possibility of sequestration and the need to projects these could all lead to some adverse effects on readiness. We face a lot of uncertainty and find ourselves balancing a lot of risk. On a lighter note in what has been a somber talk, a story about a speaker who is giving a talk on cost and risk. He asked somebody from the audience to come up. He had three questions. It will help illustrate the challenges we face. The first question, imagine there is a 40 foot long beeam. Six inches high. I will pay you 100 if you walk across the beam. Would you take the risk . Demint said, sure. The man said, sure. Ok, this time it is strung between 24story buildings. Ok, third question, same beam, i am at this end, i have one of your three children, if you do not walk across, i will throw him off the building. Would you take the chance . The man thought, and he said, which child have you got . Sometimes, as a defense manager, i feel like i am throwing my own children off of a building. I realize they may be some of your children, as well. I will try to answer your questions. I believe there are three key steps that we need to take we need more stability. In terms of size of budget and budget process. The decisions that are made over the next few years and months will be vertical to our National Security. Pineda put it just right last week, when he said, every day, the men and women of the department of defense put their lives on the line to protect us all here at home. Those of us in washington have no greater refundable it again to give them what what they need to succeed and to come home safely. All of us in the leadership of the nation have worked together to provide that stability. Our National Security demands no less. With that, i will stop and try to answer your questions. We will startck here, sir. Tony with a bloomberg news. You said 45 billion sequestration case and in march. Just review that. It was up to 62 billion added last week. What has changed and will modernization take a disproportionate amount of this if it happens, because of your . Wn rates question ma the law has changed. Also, a potential second sequestration, they reduced the caps. They changed the that cut it back. We would not have the authority under sequestration to choose between o and m and modernization. Unless we can reprogram, and that would be pretty limited, we would not have that option. Our best estimate is still rough. These