SECRETARY OF DEFENSE 1000 DEFENSE PENTAGON WASHINGTON, DC 20301-1000

NOV 14 2011

The Honorable John McCain Ranking Member Committee on Armed Services United States Senate Washington, DC 20510

Dear Senator McCain:

I am responding to your recent letter asking for more details about the effects sequestration would have on the Department of Defense (DoD). Like you, I believe it is essential that the Joint Select Committee on Deficit Reduction (JSCDR) meet its target and avoid sequestration. I also strongly urge the JSCDR meet its target while following the President's proposals, including his recommendation not to impose further reductions in the caps on discretionary funding.

If the JSCDR fails to meet its targets and sequestration is triggered, DoD would face huge cuts in its budgets. Compared with the President's budget plan for FY 2012, we are already planning on budget reductions over the next ten years of more than $450 billion. These cuts are difficult and will require us to take some risks, but they are manageable. If the maximum sequestration is triggered, the total cut will rise to about $1 trillion compared with the FY 2012 plan.

The impacts ofthese cuts would be devastating for the Department. The enclosure outlines some of the potential effects, which are summarized below.

In FY 2013, the reduction in defense spending under maximum sequestration would amount to 23 percent if the President exercised his authority to exempt military personnel. A cut of this magnitude would be devastating in itself, but it gets worse. Under current law, that 23 percent reduction would have to be applied equally to each major investment and construction program. Such a large cut, applied in this indiscriminate manner, would render most of our ship and construction projects unexecutable -you cannot buy three quarters ofa ship or a building and seriously damage other modernization efforts. We would also be forced to separate many of our civilian personnel involuntarily and, because the reduction would be imposed so quickly, we would almost certainly have to furlough civilians in order to meet the target. These changes would break faith with those who maintain our military and seriously damage readiness.

The situation does not get better beyond FY 2013. In this period, cuts to the DoD budget under maximum sequestration would equal about $100 billion a year compared with the FY 2012 plan. Facing such large reductions, we would have to reduce the size of the military sharply. Rough estimates suggest after ten years of these cuts, we would have the smallest ground force since 1940, the smallest number of ships since 1915, and the smallest Air Force in its history.

We would also be forced to terminate most large procurement programs in order to accommodate modernization reductions that are likely to be required.

While wartime funding in the Overseas Contingency Operations accounts is not directly affected by the sequester, war efforts would be adversely affected by the severe disruption in the base budgets. Contracting personnel would be cut, resulting in delays in the contracts and the contract oversight that support the war. Payroll personnel would be cut, resulting in late payments to wartime vendors, and legal and policy support would be disrupted.

Unfortunately, while large cuts are being imposed, the threats to national security would not be reduced. As a result, we would have to formulate a new security strategy that accepted substantial risk of not meeting our defense needs. A sequestration budget is not one that I could recommend.

I ask that you join with all members of Congress to meet the critical need for deficit reduction without resorting either to sequestration or to further cuts in the caps on discretionary funding. An identical letter has been sent to Senator Graham.

Sincerely, Leon Panetta