Key themes during follow-up meeting yesterday, with Secretary Gates and Think Tanks & Budget Experts: This followed Secretary Gates’ 2:30pm Press Briefing on “Efficiency” Decisions yesterday. McAleese was fortunate enough to have been invited to participate in that small group meeting. (McAleese has attempted to paraphrase key themes that arose during yesterday’s Roundtable Q&A. However, please do not treat these as direct statements by OSD Leadership, because McAleese may have inadvertently-misunderstood specific intent, given breadth & fluidity of that meeting.) McAleese has also attached excerpts from the Secretary’s 2:30pm public Press Conference, which preceded the Roundtable Q&A.
Attendees of follow-up meeting:

Dave Berteau, CSIS
Dov Zakheim
Eric Edelman
Gordon Adams, George Washington University
Jim McAleese, McAleese & Associates
John Nagl, CNAS
Loren Thompson, Lexington Institute
Mackenzie Eaglen, Heritage
Smithsonian Institution
Thomas Donnelly, AEI
Winslow Wheeler, CDI

• Throughout the meeting, the Secretary’s relentless focus on high Headquarter costs; excessive O&M Growth; and excess Program Requirements, genuinely-resonated. There is strong probability that Secretary’s personal outreach will result in: (1) increased White House reluctance to target immediate DoD Funding; (2) increased public support; and (3) increased Investment Community support.

• Secretary Gates is particularly-concerned over potential for Defense Funding contraction as Peace Dividend. (Paraphrase: “I have seen this first-hand twice following Vietnam and Cold War, and I can smell it coming again.”)

• There are increasing Democratic calls to predominately-target Defense Funding, for both Deficit-reduction and Domestic Priorities. Additionally, Republicans have unexpectedly-called for large Deficit-reduction, which creates potential confluence of future cuts to Defense Funding.

• Secretary Gates is personally-targeting “Fat”; “Underperformance”; “Poor Business Practices”; and is particularly-sensitive to Congressional & White House perception of poor Acquisition Program Management.

• While diplomatic & restrained, Secretary Gates appears genuinely-frustrated that DoD is being targeted for Deficit-reduction purposes, when total DoD Funding represents only 4%-5% GDP, while nothing is being done to control explosive growth in Domestic Entitlements.

• OSD will propose significant Defense Health Program modifications in 2012 Budget, given doubling, and expected tripling, of DoD’s Health Care costs. (Paraphrase: “The good news is there is increasing recognition within Congress, that Defense Health Care costs are eating us alive.”)

• Secretary Gates is aware of ongoing deliberations of Bipartisan Deficit-reduction Commission. (Paraphrase: “I need to meet with them as soon as possible.”)

• In response to potential recommendations for proposed targeting of Military Compensation, the Secretary was adamant that it would not be possible to re-evaluate Milper Compensation & Benefits until after OEF OPTEMPO has fallen.

• There was significant questioning & skepticism of the ability for Secretary Gates to secure White House commitment for continued outyear DoD funding at current “peak” levels. Specifically, there was strong pressure by analysts to attempt to force the Secretary to divulge his personal level of “tolerable” topline Defense Funding cuts.

• However, the Secretary was adamant, given the COIN strain on current Force Structure, plus need for continued Modernization. (Paraphrase: “I strongly believe that today’s world of terrorist threats, cyber threats, failing states and militarizing peer competitors, is just as dangerous, if not more dangerous, than traditional conventional scenarios. I must make my best case to the President. I am not currently prepared to concede any reduction in current topline DoD Base Funding.”)

• The Secretary acknowledged that expected savings from the 33K FTE (by 2015) contractor-to-civilian Insourcing, have not materialized as originally-planned. (Paraphrase: “We are accelerating this effort by focusing immediately on the Funding, rather than FTE. If the Funding is redirected elsewhere, the contractors will follow.”)

• Regarding proposed elimination JFCOM, Secretary Gates has delegated full responsibility to General Odierno on specific capabilities to be salvaged. (Paraphrase: “I have spoken with Ray Odierno. Ray supports this decision. Ray will take 9-12 months to identify new homes for key elements of current JFCOM. I anticipate that Ray will work himself out of this job, because I already have future opportunities in mind where he can make a genuine difference.”)

• As a practical matter, Secretary Gates’ targeting of JFCOM; Business Transformation Agency; and Network & Information Integration (NII) will establish a de facto mandate for each Service to eliminate 1-3 Headquarters or lower-value Commands.

• Importantly, Secretary Gates has reassured the Services that they will not only keep Savings generated internally, but that he will also reallocate to them, savings from OSD/Defense Agency restructuring.

• Secretary Gates refused to be drawn into discussion of potential changes to specific Modernization Programs, ranging from Army Requirements in GCV, to USMC EFV. However, Secretary Gates made several positive references to specific actions being taken by USD(AT&L) Carter, and specifically-authorized USD(AT&L) to continue growth of Defense Acquisition Workforce.

• Previously, Secretary Gates withheld public announcement of 2010 & 2011 Budget decisions until formal release of Budget in February. This preemptive targeting of excess Headquarters Overhead; lower-value O&M; and excess Program Requirements, on the eve of FY2011, is clearly anticipated to achieve two purposes. First, is to generate immediate savings in 2011, presumably with or without 2011 Defense Authorization Act, and under Continuing Resolution in absence of 2011 Defense Appropriations Act.

Second, Secretary Gates has clearly undertaken a genuine “earnest negotiations” approach with the Services, to provide incentives for them to make their own internal cuts, to redirect Savings from “Generating Forces” into Combat Operating Forces. This increased Service discretion, plus immediate public transparency, is likely to significantly-increase probability of success of Secretary’s “Efficiency” Initiative.

• Despite specific geographic constituent-impacts, the Secretary’s clear focus on driving Savings within the Overhead/O&M “Generating Force”, for Combat Operating Forces, will likely resonate with both Congressional Authorizers & Appropriators, from both Readiness and Modernization perspectives.

McAleese-personal assessment is that Secretary is genuinely-committed to protecting both Operating Forces & Modernization priorities; and will likely remain beyond previously-rumored departure of November-December 2010.