Background Briefing

RADM Quigley: Good morning, ladies and gentlemen. Thank you for joining us.

What we have prepared today is a background briefing by two senior defense officials on the fiscal year 2000 Defense Authorization bill. And this will help you, hopefully, frame some of the issues that will be addressed by the president, Secretary Cohen and the chairman, later on this afternoon, here at the Pentagon.

The two individuals that will address you today are as follows - I think you know both of them from previous briefings.

Q: Why on background? I mean, why -- this is not --

RADM Quigley: To allow some of the more detailed sort of questions to be addressed by the people who have that additional level of detail. And allow Secretary Cohen, General Shelton and the president this afternoon to -- just to prep you, I guess, is the goal here, Charlie.

Q: (Inaudible) -

RADM QUIGLEY: To provide a lead-in and some sort of a framework to the remarks that you hear this afternoon, as well.

Q: It still would be more helpful if it was on the record. I mean, to the average reader, to quote by name carries a little more weight than a Defense official saying it.

Briefer: Not much more, but...

Briefer: You can quote that.

RADM Quigley: Sir.

Briefer: Just want to make a couple of points and then turn it over to - [the other senior defense official]. We are talking about the 2000 Defense Authorization bill -- take you back to February.

We are gratified that that bill supports what the president proposed in his budget in February, which is the first sustained increase in defense spending in over a decade, since the end of the Cold War. As you remember, the president proposed a total increase, over six years, of $112 billion.

This bill puts us on the road to supporting that, and we look forward to the next budget request. We'll be able to continue on that path.

We are also gratified that Congress, in this bill, supported the major priorities that the administration had in the budget request we put forward in February: first, that readiness is fully supported; the operations of maintenance accounts are fully funded.

As you probably remember, nearly half of the $112 billion that we proposed in February was devoted to operations and maintenance to ensure that our forces will continue to operate in a way that they proved so formidable in the recent operation in Kosovo.

It also supported our emphasis on recapitalization. We are progressing on a program to take us to $60 billion and beyond in terms of procurement. This bill supports a level of procurement at $56 billion, which takes us another substantial step on the road -- on that program.

Finally, and probably most importantly and what we want to talk about most today, is it supports -- the bill supports the triad of personnel compensation measures that we proposed: a pay increase, the largest in 18 years; pay table reform to reward performance, particularly in the enlisted, the senior enlisted ranks; and finally, a change in the retirement program to a full 50 percent of base pay for retirees at 20 years.

At this point, I'd like to turn it to - [the other senior defense official] - to elaborate more on that last priority.

Briefer: Thank you. Just a few opening comments.

One, the Army, Navy and Marine Corps met their congressionally mandated end strength for fiscal year '99 that ended last Thursday. The Air Force ended the year 2.8 percent under strength.

Second, we're very pleased that with the 2000 year authorization bill that President Clinton will sign this afternoon. We feel that it's going to be key in retaining high-quality service members. The comprehensive pay package includes the 4.8 percent pay raise effective January 1st, pay table reform effective July the 1st, and then retirement pay reform that gives members essentially the 50 percent retirement at 20 years or, an option that Congress created, a $30,000 lump sum bonus. And then remaining under the redux retirement program.

Third, the services have done, I think, an outstanding job in recruiting in a very difficult environment. The military offers many opportunities and challenges for America's young people. However, with the booming economy, a general shortage of skilled workers for the economy, the increased availability of college to all families, our recruiters have had to work very hard in the way that they did business.

Fourth, to ensure that we're getting the most out of our recruiting budget, we conducted a review of our recruiting program, with the assistance of two advertising firms, Bozell-Eskew and Murphy Pintak. We feel confident that by better targeting our message and ensuring our young people understand that the military offers challenging and rewarding careers, we'll be able to recruit and retain the quality individuals that we need.

Finally, the services have maintained their high standards of quality. Overall, 92 percent of all recruits are high school grads, and 66 percent scored in categories 1 through 3A, the top 50 percent on the armed forces qualification test. The Air Force, which has had the most difficult time recruiting and retaining personnel this year, has maintained a high school graduation percentage of 99 percent.

It's a tough environment in terms of recruiting. The strategy and philosophy of the bill that the president will sign today was to first start with retaining our key people.

We've made an investment; those people are leaders, they are well educated, highly disciplined, highly motivated, highly professional. So the first key piece of our strategy is obviously to retain the key people that we have, and then to provide new and additional tools to recruiters.

We have an extremely professional all-volunteer force. The all- volunteer force has never had to retain and recruit people. Given the profile of the economy and the demographics of the current generation that we're dealing with, this year was very challenging, next year was very challenging. But the bill that the president will sign today will give us additional tools so that we can retain our key people.

And with that, we're happy to take any questions.

Q: Could you take your February triad proposal as a base line and just speak to a couple of the key changes that the bill makes in the across-the-board pay and in the retirement package? Just comment, you know, from the administration's standpoint and your strategy, you know, talk about, you know, the changes for the pay raise and for the retirement package compared to what you sent up.

Briefer: Well, I think for the most part -- and we appreciate the great work that Congress did, both in the Senate and the House respectively. I think we -- you know, there was the 4.4 versus 4.8 for fiscal '00. In the out years I think there is an additional half a percentage. The Congress created the $30,000 lump sum option.

But I think for the most part, the product reflects the work of the president, Secretary Cohen, General Shelton in terms of the package that they originally put on the table last December in this room. And then there are, obviously, congressional changes to it, but I think the changes, in many respects, make the program equally strong. So I think we're encouraged by the tools that the president proposed and the Congress has given us.

(To other briefer) I don't know if you have any thoughts.

Q: ...if you give us the total of what was originally proposed and the total of what Congress passed, and what the extra money does overall?

Briefer: I've got an estimate.

Briefer: Go ahead --

Briefer: I think -- well, the way that we costed out our package, we thought it was about -- in the five-year defense plan -- it was about a $35 billion package. Our best estimate is that the package that's being signed today is approximately a $42 billion compensation package in our five-year defense plan. I think the big change is the additional .5 percent in '00 and then the additional .5 percent in the pay raises in the out-years.

Q On that subject, could you discuss -- talking with folks who are trying to do their budgets, they're having to come up with that money to cover the extra .5 percentage that they hadn't exactly planned for within their programs. Could you discuss that -- the fiscal constraints and where that money is coming from and if individual programs are being constricted by this? By the pay raise?

Briefer: The -

Q: There seems to be some feeling that...

Briefer: No, that's right. The pay increase, as the other senior defense official indicated, is somewhat higher than we proposed and that carries on into the out-years. We're in the process of adjusting our 2001 budget proposal to reflect that increase. There's no one place this comes from. You have to make adjustments across the board to accommodate that additional pay increase, so that --

Q: Because your top line's not going up, so you're having to search for that $7 billion over those five years within your budget? Is that right?

Briefer: [Yes]

Q: You had mentioned the advertising agencies you worked with. What did they tell you about how to change a program and target it better and how is it going to change?

Briefer: Well, they came in with a number of suggestions. I think we're always hostage to our history, and so 18 months ago, we thought if we replicated the number of recruiters in the field, the dollars we were spending back in the 1980s, we'd be successful. There are those macroeconomic issues I raised, but in addition, how we communicate with kids today, I think, is -- these kids have e-mail addresses and cell phones and pagers, and are quite sophisticated in terms of how they collect information.

So I think some of the recommendations -- we need better research into -- in terms of attitudes that are impacting today's teenagers. We need to focus on Internet advertising and Internet recruiting, because we're dealing with a young population that is very computer literate; that we've got to change some of the business practices by which the department and the individual services contract for advertising time on television. The way that we do our budgets is generally different than the way that companies buy ads. They sort of buy time in advance. It's almost a futures type commodity. We're not very sophisticated at using our leverage to try to get the best time placement, things like that.

So it was, one, how are we communicating to young people?

Second, are our business practices really ones that allow us to maximize the investment that we make in recruiting advertising?

And then, third, we really do have to focus on our message to young people, in terms of the need and importance of public service, the opportunities that are there in the new environment of the Cold War being over. The Marines have done an excellent job in selling young people on the intangibles of military service -- the self- discipline, the commitment to excellence -- that for you here, who have regular contact with our men and women in the armed forces, both here in the building but also you have a chance to be out in the field -- you know how capable they are. You know how professional they are. And so part of it is to convey that message to a large segment of the American public that really does not have the opportunity, day in, day out, to work -- and meet military people.

Just one additional point, I have one of the senior analysts who helped us with our advertising study who can probably be much more articulate and go into some more detail. But she is with us here today, so any follow-up you have, she'd be happy to give.

George?

Q: I wonder if you could give us a status report and also do a little blue sky. On the status report, the Army is letting in people without high school degrees, they're trying to lean more to the Hispanic population. (A) How is that working, in your view; and (B) in the blue sky area, some of our allies are thinking of breaking the mold; for instance, one NATO country is considering teaching a recruit a skill that he can sell after he finishes his service. For instance, you come in, you learn to be welder, you go to your (inaudible) at Fort Benning and you get out and you get a job. I'm just wondering, since Congress is demanding some kind of new thinking from the Pentagon, have you got any forward-looking ideas on the plate?

Briefer: Well, I think -- just a couple of things. One, we need to look at the college market in ways that we have really focused on the high school market traditionally. Professor Moscos (ph) has raised some of these issues. But if you look at the programs state by state, almost every state has some kind of tuition program for families. They're the state universities or the community colleges, but a college education is available and, for the most part, affordable to every student, almost every student who graduates from high school. So we do need to look at the community colleges and students who start that first or second year of college and then are looking for something else.

Q: Let me make sure I understand. You say, "Okay, Mr. Smith, I'll give you $10,000 to finish junior college if you'll come in the Army." Is that the idea?

Briefer: Things like that, yes. And then maybe you'll come in and you'll do a tour in the Army and then you'll go finish years three and four of college with the additional benefits that you earn.

Q: Above the GI bill, you're talking about?

Briefer: No, consistent with the tuition assistance and the programs that we have on the table. But one, we've got to go into the college market. Second, we're looking at new ways to grow potential recruits. If you look at the all-volunteer force and a lot of the principles offered by Max Thurman (sp), you've got to look for people that have the potential to serve, and then help them acquire the skills that are necessary in terms of, again, discipline and leadership and maximizing educational opportunities.

So I think the Army is looking at programs in that direction.

I think the third point you raised, in terms of skill sets post-military service, I think there that is a real success story. If you listen to Alan Greenspan when he testifies and talks about the shortage of skilled workers that the economy faces, each of the men and women who have served and who leave military service come to the economy with key sets of skills. Some use their background in military public affairs and become reporters. Others become --

Q: (inaudible)

Briefer: Following in your footsteps.

Others become police officers or teachers or medical technicians. You know, if you go into a community hospital and you talk with some of the nurses or technicians, you're likely to find people that have served and acquired those skills in the armed forces. So there's a lot of that going on right now already, I'd argue, George.

Q: The last question was, are you doing anything new in (inaudible) toward the Hispanic youth population?

Briefer: I think that we're working that - those communities. I would say the Marine Corps would tell you they have great success with the Hispanic community. And I think the Army is looking at the Hispanic community right now to see how they can deal with some of the institutional and cultural impediments that might be there.

Q: A recruiting and a budget question. Do you have a final tally on how it worked out for the Army, the $6,000 bonus, how many people signed up?

Briefer: I'm not sure that we have an exact number. I think if you talk to our expert for military personnel policy, as soon as we have that number, we'll get that for you. And I think also we can give you some perspective on the $6,000 bonus. I think that was uniquely targeted to kids at sort of the high-quality end of the spectrum and also as an incentive to essentially sign up quickly.

Clearly it was used with some success by the Army in fourth-quarter recruiting. Each of the services periodically will use these kinds of bonuses. The Marine Corps, for example, uses those bonuses early in the year, their slower months, to boost recruiting. So I think that the $6,000 bonus had an impact.

But I think as we sit down monthly and track both recruiting and retention, it was very clear to us that the troops were tracking the pay bill and that the retention numbers were going to be very important for each of the services, but particularly for the Army. The Army had a very successful retention year.

Q: Okay. Because of the pay bill?

Briefer: I think the pay is a piece of it. I think there was a lot of -- you know, at the end, this is rolling-up-your- sleeves, personal-effort kind of hard work.

Q: On the $112 billion increase, there are a couple of categories of where that money was coming from. A small bit of it was new. Some of it came from fuel savings and expected acquisition efficiencies, and some of it came from the deferment in construction spending. Can you tell us how the fuel savings have shaped up and how the other savings are shaping up? And I think it's my recollection that Congress didn't approve it. What does the defense authorization bill do with that $3 billion deferred construction -- oh, I'm sorry -- the 5 billion in deferred constructions money?

Briefer: Sure. Let me correct one thing in it. Most of it was actually new money. I think 84 billion of the 112 billion was new funding. The rest of it, as you indicated, came from a combination of inflation savings, and it mostly came from inflation savings and fuel savings. We don't have the final inflation numbers, but they look to be fairly steady, so that's - I think that savings will remain, as, I think, your question implies, the fuel savings have not, and there's going to be some additional costs in terms of fuel. We're talking, though, in the low hundreds of millions of dollars. mean, it's not a...

Q: It's not (inaudible)

Briefer: Well, relative to the high hundreds of billions -- (laughter) -- which is what the total defense budget is, that -- but that's clearly --

Q: Over five years or when?

Briefer: It's -- right now it looks on the order of a hundred or two hundred a year is --

Q: Okay.

Briefer: -- but they haven't -- we won't finalize that until we get to the closing of the budget in December. So it depends on what the fuel price is then. But we'll -- you're always going to have economic assumption changes, and we're going to have to accommodate. But as I said, inflation looks fairly stable. We don't know what the ECI rate, which determines pay, is going to be yet. But as you build a budget, it is normal for fuel, ECI, inflation to change somewhat, and that's part of the challenge we have in building a every year.

Q: And the construction?

Briefer: Oh, the construction money. The construction money was actually not part of the 112 [billion dollars], just to be clear.

The construction money was a question of which year you paid it in. We had $3 billion of construction money in '01. The Congress, as you suggested, has not accepted that, and they have put it back into '00. The construction program would be close to the same, but the financing scheme that Congress pays would pay all of it up front.

(Inaudible.)

Q: (Inaudible) -- in fact what they are doing?

Briefer: If they -- yeah, if they could get the same -- you get the same program.

Q: But what about -- you were going to use that money somehow else in --

Briefer: No, no, no. The challenge was for Congress to fit the additional $3 billion within the '00 column. That was the challenge. They have done that in this bill. It doesn't harm us in '01; if anything, it helps.

RADM Quigley: One more question.

Q: How do you respond to the criticism by some parents groups that military TV advertising, including advertising - has been gravitating toward programs that promote what they consider to be gratuitous violence, like some of these wrestling programs and things like that?

Briefer: That's an interesting question. (Laughter.) I think it's -- (laughter) -- out of the whole advertising study, the most astonishing thing I learned was, you know, the high ratings of some of those programs that you just mentioned. And so I think it's more focused on what the demographics of the audience are and less on the content of the program.

Q: Isn't content a consideration? I mean, it's not -- I'm just asking the question.

Briefer: You know, I think in this particular case, there are high segments of our population that watch these sporting events. And so it's -- probably some of our advertising dollar there is justified.

If you focus on what our report is saying though, it is -- look at avenues that allow you to connect more directly with the potential recruit; that, for all of the dollars you spend on a sporting event, you only hit a small fraction of the population that you are really trying to connect with.

And so some of the electronic communications -- e-mail, things like that, the virtual recruiters -- the materials we give our recruiters, are much more tailored and allow a much more direct engagement with potential recruits.

Q: Can you make that advertising study available to us?

Briefer: Sure.

Q: Okay. Thank you.

Q: Thank you.

Briefer: Thank you.

RADM Quigley: On the table, as you exit the briefing room, is a blue-topper with the specifics of the recruiting and retention -- (end of available audio).

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