Secretary McHugh: We have a number of messages that we are reporting upon, the least of which is ongoing concerns about sequestration as is the law subject to 2016 and the effects we feel will strongly will have on the United States Army's ability and its capacity to meet what I think our National Military Command Structure and the United States citizens expect us to be able to do, as well as the number of changes we have that the Chief will be talking about this week, the Army Operating Concepts and beyond. We always welcome the chance to get together with people within the United States Army as we have here this week. This is a very unique opportunity to communicate outside our own ranks, and we look forward to that very much. My opening comments for better or worse I think speak for themselves. So I assume you got a copy or someone told you about them. I won't go into any detail, but I look forward to your questions, and with that I will turn it over to General Odierno.General Odierno: Thank you and good morning everyone. I believe that over the next 8-12 months coming are the more important times in our Nation's history as we continue to wrestle with and decide what we are going to do with our military. I think it encompasses all of the services, and obviously my concern is specifically the Army. Why is it the next 9-10 months? I believe it is because of the budget decisions that have to be made. As I often say there are three things that I wake up every morning thinking about, and those things have increased lately. The first thing I think about are the Soldiers that we are deploying around the world. Today we have Soldiers deployed on every continent except Antarctica. We have Soldiers doing important missions in the security environment around the world. Frankly it is probably increasing in instability, which is requiring Army Forces to deploy to many different places simultaneously. That is a change from what it was just 10-12 months ago. We are doing this while we continue to downsize the Army and take risks in modernization and readiness, and frankly I am starting to worry about our end strength. The last thing that I think about is what we need to be and look like in the future. We are going to unveil this week our new Army Operating Concept. I will tell you this is just the beginning. We have done some hard work to release this, but this is the beginning point of where we want to take our Army over the next 10-15-20 years. It is an evolving process, and I am excited about it. I think our Soldiers are excited about it. I think it will much work for us to do as we move ahead. With that I will be happy to take any of your questions.Q: My question is that Army Leadership has argued for budget stability. Is there any indication that Congress is getting the message? Does the message need to change?Secretary McHugh: I spend time, as and I know the Chief and other Army leaders do, the talking to members on the Hill. I don't think there is any question that the vast majority of members on both sides of the aisle in both Houses understand the challenges of this lack of predictability. It is a challenge by the way that just does not associate itself with sequestration. Continuing resolutions provide their own relief. There is no question that it is far better than total interruption in funding as experienced in recent past. It still prevents us from doing many of the things that would be considered normal operations. There is a certain sense of lack of stability in CR's as well. The challenge for members, as it always is, is to try to take that baseline agreement that something needs to be done and develop a pathway by which you can pass it through the House and Senate and get it through conference committee. Obviously that is a critical step, but it is not an easy one in these very politically complicated times. We need, as an Army, to just continue to reinforce the reality of the issues so that as the overseers on Capitol Hill continue to look at the problem they can find a way to enact their positions into a final policy.General Odierno: As I go around individually, everyone understands and is worried about the impact of the budget with the things the Army is being asked to do. The problem that we have is that collectively we can't get them to make a decision. I think that is something I am looking forward to seeing what happens in the next 6-10 months. I think that we have to remember sometimes that the sequestration is greater than the military. It is for the whole government. Although when I talked to most people they understand the impacts it has on the military and their concerns, there still appears to be enough gridlock with the rest of the government that it is hindering any progress made with military sequestration. I think that as you look around the world today, I believe it is time for us to talk about security as our own national security issue separate from the budget. We have to have national security debate. There is too much going on around the world, and I believe that it has to be discussed. I think that has to happen in the 5-6-7 months. Let's see what happens as we have a new Congress come in next year.Q: Question for the both of you to elaborate on. You said that you are concerned about end strength. What does that mean exactly? In terms of equipment and modernization you have talked a lot in the past about not wanting a hollow force. To what extent are you going to be able to proceed with the acquisition programs that you need, and how far behind are you, given the delays of those programs over the past few years?General Odierno: Since I said the end strength comment, I will answer that first. What I mean by that is, I don't want to get in to much detail, but back in 2012 when I testified, we had just finished the defense strategic review. We testified to the size of the Army that we thought we needed, 490,350, and 205 in the Reserve Component. We believed that was the size of the force we needed to execute the strategy. Then because of sequestration that we went through, we came out and said that we had done some more work; we could probably do it with 450, but we have some concerns about that and the risk is increasing. The problem is that since we made those statements the world is changing in front of us. We have seen Russian aggression in Eastern Europe. We have seen ISIS. We have seen some increased instability in other places. I now have concern about whether even going below 490 is the right thing to do or not because of what I see potentially on the horizon. We don't have the money to do that right now. My thought is that it should all be on the table as we look at the changing security environment that we see. I will just make quick comment and allow the Secretary to comment. On modernization and readiness, in order to get in balance we have said all along, that even if we go down to 450 or 420 based on sequestration, we don't get into balance until FY19 or FY20 at the earliest. We have a huge window of risk in modernization, and not only modernization, but readiness. That is what I am worried about. As we continue to increase the requirements of commitments of our forces, yet we cannot ensure that we have the readiness in order to meet those commitments. So that is a concern of mine as we move forward.Secretary McHugh: I spoke in my opening remarks this morning about the need to maintain the balance, which is a mixture of end strength, modernization and training. We are coming down in end strength about as fast as we are able. That means as we struggle to meet the declining budget targets, we have only a few places to go: modernization, as you noted, and obviously training, which provides for readiness for our challenge. We think that to this point as we look through the end of 2015, we have the funding to maintain that balance. We are starting to regain our readiness; the BCT training levels are rising. The sequestration looms there. Fiscal Year 2016 begins on October the 1st, and sequestration if not changed legally, comes in there shortly thereafter. We have made some hard decisions: our aircraft restructuring initiative for example, and the non-combat vehicle fleet decisions. We think given those hard choices that we still have a bedrock of modernization programs that can see us through that 2019 that the Chief was speaking about. However, any further reductions can put all of that in question and that is our deep concern.Q: A couple of weeks ago the Deputy Secretary said that as a part of the result of the Congress' rejections of fiscal year 2015 budget proposal faced a hole of about $30 billion. What if any share of that bill does the Army hold? How would you fill that hole and what is the impact of that have on what you are planning for 2016?Secretary McHugh: Are you saying about reprogramming?Participant: No, the Deputy Secretary had addressed the CSI and said that the Department had a $31 billion shortfall.Secretary McHugh: I do. The Army does have a share of that, obviously the compensation package most notably. We recognize, as we have in each of the last several years when all the services sent the proposals to the Hill, that these are tough things to do. We feel it appropriate and in many ways absolutely essential to bring our expenditure lines into balance with the budget realities that we have been given.Participant: Sir, how much of a hole does the Department face?General Odierno: First of all $30 billion is over 5 years of POM. The Army's portion is about 40% of the compensation. It is about 30-40% because we have the most people. It is based directly on the number of people that you have. It impacts us pretty significantly over the POM.Secretary McHugh: I was going to mention ARI. Again, over the POM, if we are not allowed to go forward with that, that is $12 billion bill. It $12 billion over POMthat you have to find in other program savings. Few Army Secretaries have greater understanding and respect of the oversight responsibilities of Capitol Hill. I get it. I was a 17 year member of House Armed Services Committee. We do have a circumstance where the budget lines are just so delicately balanced and tight that everything we are not allowed to do means that we are going to have to find the money somewhere else as the Deputy Secretary said. That is starting to add up to a pretty significant bill.General Odierno: Then if I could add, you just mentioned compensation. The Secretary mentioned ARI. That is even before sequestration. So now you see the problems that we have with our budget over the next 4-5 years. There is only one place that it can come. You can't have modernization any lower. We are going to stop procuring equipment. So the only place it can come out of readiness, and that is my concern. It is that all of this has to come directly out of readiness.Q: You mentioned the operating concept that you are working on. How do you have any mental bandwidth for 2025 when 2016 is such a huge question mark? What is the value at a time like this when there is so much uncertainty in the near term of even trying to put a flag out there for a future?General Odierno: You have got to start sometime. You can't just say it is too hard; I am going to delay it. You would never do anything if that were the case. It is a good question, actually. The point is that we know there is going to be continued budget pressures on the Department of Defense. That is just a reality that is going to continue. We have to begin now, this operating concept in order for us to continue to work towards how we become a more efficient effective force, and more importantly, to understand the future environment that we are going to have to operate in, what we going to be asked to do and make sure that we have the capabilities, concepts and the technologies and equipment in order for Soldiers and organizations to operate in the future. That is why it is important to do that right now and as we always talk about, and in fact General Sullivan is the one who told me the intellectual has to precede the physical. We have to begin the intellectual change now. That is really important to us as we start.Secretary McHugh: Can I add just one point? You used the phrase how can you go forward with so much unpredictability. If you get a chance in the coming weeks to look at the AOC, I think you will note that a very significant portion of that is how do we develop future Army leaders to operate in unpredictable environments. Bob Gates always used to say that when it comes to predicting the future, we have a perfect record; we have been wrong every time. So while, as the Chief said, we are trying to develop the AOC, and intellectually defensible and sound ways to go forward, that development of that leader who can operate in an environment of unpredictability is vital. So I think it actually underscores our AOC has to go forward because of the unpredictability.Q: My question is in reference to the (inaudible). Basically I am asking to the Chief or the Commander what leadership position was with relation to the military and the embassy in Ben Ghazi, and what would the military do today that they did not do then?General Odierno: The Army provides forces that conduct operations. We do not make decisions on how those forces are used. So what are we doing? We are ensuring today that we have forces positioned on many different continents that can respond to potential threats to our embassies. For example, we have a Battalion task force in Africa that is there to potentially respond and assist if there is a problem somewhere in Africa. We have forces that are ready in the Middle East that are the Marine Corps and others that are there to respond if necessary. So I think those are the adjustments that we have made. We have made forces available to the decision makers so if something happens they are available to reinforce to ensure that we protect all of our citizens.Secretary McHugh: The only thing I would add is that this is part of frustrating aspect of trying to deal in this current budget environment. I think the American public understandably wants the United States military including the United States Army to be able, as the Chief said, to respond to crises wherever they arise and whatever they may be. As we see our budget shrinking, we are fiscally and physically unable to be in more and more places. So that increase response time. While we see the need for quick response whether it is Ben Ghazi or whether it is Russian adventurism in Eastern Ukraine. Whether it is the need to get up front and build the capacity and capability to deal with the Ebola crisis in west Africa, and on and on, speed is an important part of what we need to be able to do. Budgets affect our ability to get there quickly. So that has to be something that our policy makers give very careful consideration to.Q: For General Odierno, in recent weeks ISIS has made significant advances into the Anbar province. Reports also put them about 8-10 miles from Baghdad international airport. Given this, how comfortable are you that Baghdad is safe from a major attack from ISIS? Secondly, given how rapidly ISIS advanced in Northern Iraq in June and July, what is it going to take to get the security forces back to the kind of shape where they can be relied on to tackle ISIS on the ground?General Odierno: First, off we are watching it very carefully. I know the General Officers are working very hard and keeping a close eye on the military and day-to-day operations there. I think the air strikes are helping. They are helping slow down the advance. It is buying us time so that we can continue and begin to train the Iraqi security forces in order to do the things we think they should be capable of doing. I would say in the beginning what happened was frankly that when you train Soldiers there are trusted professionals that we are talking about here. They have to have trust in their leaders. I think what has happened over the last couple of years is the Iraqi security forces have no trust in their leaders. So when they became under attack, they abandoned their posts, which is very disappointing to me based on the training that we gave them. That has fundamentally more to do with training than it has with the trust in their leaders and trust in their government, which I think they lost. So part of this is hopefully with the new government coming into place now that will help to build trust. We will get the right leaders into place. Then we can begin to train the Iraqi security forces and enable them to do the things that are necessary. I think that is really important. So what we have to do now, the air strikes are not obviously going to solve the problem by themselves. You are going to need forces on the ground. So it buys us time to train the Iraqis so they can continue to get out there and start to make it, as well as the Peshmerga forces up in the north. We are watching that happen. We are working in that. We are working very closely with all of them to do that. We are trying to build a coalition effort to help us to respond. I think it is going to take time. We said from the beginning this is not something that is going to be resolved over night. It is going to take a little bit of time. That is what is happening now. Again, the air strikes are effective. People do not understand how difficult it is to conduct air strikes making sure you do not have collateral damage and kill innocent civilians. So we are being very careful in how we conduct those strikes. We are making sure we don't have collateral damage. We are conducting many of them in order to stem the tide and reduce the immediate impact that ISIS can have. That buys us the time necessary. I will say we were a bit surprised by their capability. There is no excuse for that. We have to work our way through that now, and I think the solution and path we are on is the right one, but it is one that is going to be long and difficult, and we have to understand that.Q: Can you answer the question about the security of Baghdad?General Odierno: I would say right now I never make predictions about what is going to happen in the future, but I would say is I believe the capability is there to defend Baghdad. So I think we are somewhat confident about that. We will have to wait and see what plays out over the coming days.Q: Is tiered readiness inevitable in the Army of the future, especially when only small numbers of troops will be deploying at one time?General Odierno: Based on the budget, tired readiness is a reality. It is a reality today. That is my concern. It is just not whether tiered readiness is going to happen. It is how much tiered readiness are you going to have. What I remind everybody is now we are deploying smaller elements, but we are deploying more elements, and we are deploying them to many different areas. That requires higher readiness, actually. What I worry about now is especially beginning in FY16, we are not going to be able to sustain the level of readiness that I believe will be necessary if the commitments continue at the levels they are at now. That is why I am very concerned as we move forward.Q: Good morning. I want to ask in regards to the most recent drawdown with the Captains as well as the Majors, looking at the numbers there, there was a much higher percentage of Black Officers versus White Officers who were let go during that process. Did that cause any alarm bells to reevaluate the way this goes on, or just how the career ends go?General Odierno: Since I have been the Chief for three years, from the day I came in here we have been focused on diversity of the force. It is important to us that we have diversity across all branches; we have diversity in male versus female; diversity in all different kinds of ethnic backgrounds. We think the Army should represent what our population represents. So whenever you see any statistics that say promotion rates might be lower for our minorities or those who are asked to leave are higher for minorities, it is concerning. So what we are doing is we have been looking at this and we are looking at it from the time we assess them whether it is in ROTC at West Point, to what assignments they get, to how they are being managed. We do that for all Officers, no matter the ethnicity or nationality. We have to review it again, and see what lessons do we learn, and how do we adapt and adjust to that, and what can we do to make it different. I will say this: the process that we use is a fair process. It is one that Officers from all different BRACs and NCOs from all different backgrounds are looking at these files. It is based totally on performance. It is based on record. So I am not worried about the process and how they were selected. I am more worried about how we got the outcomes. That is what we have to take a look at. We have to determine what the problem is in that area.Q: Does it concern you how Black Officers were choosing combat arms?General Odierno: That has been something I have been looking at for a while. I think we have been working on that. That is a long-term problem. You have to look at that at the commissioning source. We have worked hard at both the United States Military Academy and ROTC in how we can improve interest in the combat arms. We have made some small progress, but we have a lot more progress to make.Q: I was wondering if both of you could comment on the Secretary's remarks this morning that the irony is absorbing a lot of cuts and you are making it look easy. So is the implication that, unless you had a noticeable Corps readiness edge or something that would shock people that is a result of budget cuts, that people do not understand what these budget problems really are?Secretary McHugh: I would like to comment on my comment. I thought that was brilliant. (Laughter) My point was, and I also noted later when we talked about risk and readiness, the terms that we are very familiar with don't always resonate to those people outside of the military. When sequestration was first adopted, we spent a lot of time saying we think this is going to take us to a very bad place. I think the natural conclusion of many in this town was when we continued to meet missions. We continued to do what the Army does, that is to lead from the front. Somehow what we said about the very damaging aspects of sequestration was somehow untrue, and that it was extreme. So what I meant by we made it look too easy is that the Army leadership on both the military and the civilian sides have worked day and night to try to squeeze every possible savings out of our budgets. My opinion is that we did that and did it in a way that is still allowed us to meet most obvious demands that are placed upon us. That does not mean that the things that we concern ourselves about, our modernization programs, the decreased readiness rates, things that over time have an incredibly important impact on our ability to meet missions were not dramatically affected. So it is a matter of what the outside sees and has seen versus what we are going through. That concerns me, and all we can do is try to be open, transparent, and honest about our fiscal situation as we possibly can so that folks that have the authority and responsibility of making decisions going into the future have a full understanding of the facts.General Odierno: Chief, if I could just add to that. I grew up with my whole career hearing about Task Force Smith, which was a task force in Korea, for those who don't know that was not prepared. We sent them in combat. They got destroyed. We lost a lot of lives. So as the Chief of Staff of the Army, the first and foremost on my mind is to ensure that we don't send Soldiers unprepared into a situation that causes them their lives. The burden always falls on their shoulders. It does not fall on my shoulders necessarily. It does not fall on Congress' shoulders. It falls on the Soldiers whom we ask to go do something and are not prepared. I think what we have done so far is we have been able to mask cuts because we focused dollars on those who are going, but there is going to come a time when we cannot do that. That is where I think it is a problem. I swore that I would never send Soldiers into a place not properly prepared, trained or equipped. I will probably get away with that because I will leave at the end of this year or the beginning of next year. I worry for the next Chief. I think that might be a problem in FY16-17-18. That is what I am worried about. That is why I think we have to solve the problem now.Q: I am curious, General Odierno, given your assessment, that since you have discussed end strength there have been additional threats that have come out affecting your end strength concerns. What about affecting materials specifically with your aviation assets? You have the ARI on table. You also have plans to continue procuring Apaches, Chinooks, MRT technologies. Can you make some minor adjustments there and get additional savings or conversely are you going to protect those?General Odierno: The ARI, aviation restructure gets us the savings that we need. Frankly, it takes us to a point where I feel very uncomfortable going any lower in terms of our structure. We have gotten involved with the ARI and focused on the number of Apaches. Apaches go from the Guard to Reserve. What we forget about is we are cutting the Active Component by three entire Aviation Brigades. That is a huge amount of aviation that we are taking out of the force. We have kind of glossed over that in all of this. So we already have that. It is 13 and 10. So you can do that math. That is 25% reduction in our aviation capacity that right now is deployed all over the world. So I believe with this ARI we have gotten al of the savings that we can. We have tried to maximize Guard and Reserve with lift. We have reduced the size of the Active and put the attack helicopters in there because of the collective training that is necessary. We think that is the right decision. So I worry about that. The other thing I worry about is we continue to stretch out the modernization and procurement of our helicopters. So what does that mean? That means each helicopter costs us more. So although we are saving money, it is actually costing us more money per item because we have to stretch it out longer. So we are not making the most efficient and effective use out of our long procurement strategy that we have. I think we have gone as far as we can. I think ARI is a very good initiative. I think it is one that makes sense for the fiscal environment we are in. It is not completely efficient because we have had to stretch out procurement over long periods of time. So again I worry about that as well as we move forward.