Brief from the 2012 Leadership Mess Symposium.

1. DEPARTMENT OF THE NAVY
FY 2013 PRESIDENT’S BUDGET
Rear Admiral Kevin J. Kovacich, USN
Director, Joint Capabilities & Integration Division (N83)
27 September 2012
1

2. Current DoD Fiscal Environment
The Budget Control Act 2011
2 August 2011
Establishes caps on discretionary funding through 2021 and proposes further reductions to at least $1.5T in
budgetary savings over the next 10 years. It appears a pro-rata distribution would leave DoD funding
levels at $529B/$525B/$528B over FY 11-13.
~$487B
Mechanics of Sequestration and its Effects on Defense Operations
3 January 2013
•An automatic across-government spending cut of $1.2T over 9 years (FY 2013-
FY 2021)
•Includes FY 2013 (base budget + Overseas Contingency Operations +
unobligated balances of defense funds from prior years )
•with one half of the sequestration to be assigned to Defense funds resulting in
an additional $600B reduction beginning in January 2013 applied equally to each
category of spending
~$600B
FY 2013 base request $551B + OCO $88B + Unobligated balances $82B = Total base for sequestration $721B
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3. Budget Programming
Acquisition
The Budget and Accounting Act of 1921 – Section 201
“The President shall transmit to Congress on the first day of each regular session, the Budget, which shall set forth
in summary and in detail:”
June 10, 1921
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4. Managing Three Budgets at a Time
Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb
12 12 12 12 12 12 12 12 12 12 12 13 13
Budget Execution (FY 2012) FY 2013
Congressional Review (FY 2013) FY
2014
Budget Formulation (FY 2014) FY 2015
DoD manages three budgets simultaneously. This requires a process that is:
Ongoing, Cyclic, and Overlapping.
FY 2012 Mid Year Review
Defending • Budget performance monitored against plans
budget for • Realignment of funds in accordance with priorities
FY 2013 to
EXECUTION
Congress FY 2012 Close Out
• Annual appropriations must be fully
obligated
• Intense effort to pull back unobligated
funds and reissue to other programs
• Funds not obligated cannot be restored
BUDGETING PLANNING
Formulating PROGRAMMING Developed
budget for plans and
FY 2014 programs for
FY 2014
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4

5. Priorities for 21st Century Defense
Counter Terrorism 10 Conduct
1 Humanitarian, Disaster
and Irregular
Warfare Relief, and Other
Operations
2 9
Deter and Conduct Stability
Defeat and
Aggression Counterinsurgency
Operations
3
8 Provide a
Project Power Despite Stabilizing
Anti-Access/Area Presence
4
Counter 7 Defend the Homeland
Weapons of 5 and Provide Support to
Mass
6
Operate Effectively Maintain a Safe, Civil Authorities
Destruction in Cyberspace and Secure, and
Space Effective
Nuclear 5
Deterrent 5

6. Department of the Navy
Objectives 2012 and Beyond
KEY EFFORTS
1 Take Care of Our
Take Care of Our 2 Maintain Warfighter 3 Lead the Nation in
Lead the Nation in
People
People Readiness in an Era of Sustainable Energy
Sustainable Energy
Reduced Budgets
4 Promote Acquisition 6
Excellence and Drive Innovative
Integrity Enterprise
5 Dominate in Transformation
Unmanned Systems
6
6

7. Department of the Navy Fiscal Balancing
Tough Leadership Decisions
Reshaping Restructured Forces
New Strategy Controlled Growth Tempered Capabilities
Revised Missions Reductions Refocused Manpower
Terminations
(In Billions of Dollars) FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FYDP
DON TOA (PB12-PB13) -9.5 -13.2 -10.7 -12.5 -12.1 -58.1
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8. Department of the Navy Topline
FY 2002-2017
FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
Total Funding (TY) $101.8 $126.4 $123.5 $133.6 $144.7 $151.7 $165.2 $166.5 $173.2 $176.8 $173.0 $170.1
Baseline Funding (TY) $101.8 $116.8 $118.4 $120.9 $127.9 $127.2 $139.5 $148.1 $155.3 $156.2 $157.3 $155.9 $155.8 $162.4 $163.4 $167.4
FY13-17 -$58.1B (to PB12)
-12.1
180 -9.5 -10.7 -12.5
20 -13.2
160 18 16 14
17
26
Billions of Dollars
140 25
5 17 70
13 69 68 67
120 10 69 65 62 62
64
59
100 47 54 52
44 48
80 39
46 46 50 49 49 50 51
60 42 42
43 37 40
38 35 36
33
40
20 40 42 44 45 46 44 44 45 46 47
30 35 36 37 37 38
0
FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
MilPers O&M Investment OCO ARRA
8
(FY 2009 $1B TY)
Numbers may not add due to rounding 8

9. FYDP Changes by Appropriation Title
PB 2012 to PB 2013
MilPers: -$17.9B Procurement: -$32.0B
Basic Pays -$6.9 Aircraft -$14.6
Housing Allowance +$2.3
Ships -$10.1
Retired Pay Accrual -$4.8
Health Accrual -$7.2 Weapons -$1.1
Reserve Personnel -$0.9 Marine Corps -$2.5
Subsistence +$0.1
Ammunition -$0.7
Allowances -$0.2
Special Pays -$1.4 Other Navy Procurement -$3.0
Other +$1.1
R&D: -$2.3B
$ Basic Research $0.0
O&M: -$2.6B PB 12 $862.9B Applied Research $0.0
Advance Tech Dev -$0.2
Ship Ops +$1.3 PB 13 $804.8B
-$3.0 Adv Component Dev +$1.3
Aviation Ops
Base Ops +$2.0 -$58.1B System Dev & Demo -$2.0
Marine Corps O&M -$0.3 Management Support $0.0
Combat/Weapons Support -$1.2 Ops Systems Dev -$1.4
Service Wide Support -$0.6
Training and Education -$0.2
Reserve O&M -$0.7
Environmental Restoration $0.0 Infrastructure: -$3.3B
Mobilization -$0.5 MILCON -$3.2
BRAC +$0.1
Family Housing -$0.2
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9
Numbers may not add due to rounding

10. Summary by Appropriation Title
FY 2013 Base Budget
Procurement: $42.5B
MilPers: $44.2B Aircraft $17.1
Basic Pays $18.2 DON (Base+OCO)
Housing Allowance $7.3 Ships $13.7
Retired Pay Accrual $5.8 Committee FY13 Change Weapons $3.1
Health Accrual $2.1 HAC-D/M +$2.5B Marine Corps $1.6
Reserve Personnel $2.6
HASC +$1.7B Ammunition $0.8
Subsistence $2.1
Allowances $1.0 SASC +$0.3B Other Navy Procurement $6.2
Special Pays $1.6
SAC-D/M +$1.3B
Other $3.5
R&D: $16.9B
Navy Strength 322,700
Marine Corps 197,300 $ Basic Research $0.6
182,100 Base
Applied Research $0.8
15,200 OCO
FY13: Advance Tech Dev $0.6
Adv Component Dev $4.3
O&M: $49.9B $155.9B System Dev & Demo
Management Support
$5.8
$0.8
Ship Ops $11.9 Ops Systems Dev $4.0
Aviation Ops $9.4
Base Ops $8.1 DoD (Base+OCO)
Marine Corps O&M $5.8
Committee FY13 Change
Combat/Weapons Support
Service Wide Support
$5.2
$4.6
Infrastructure: $2.4B
MILCON $1.7 HAC-D/M +$2.8B
Training and Education $1.7
BRAC $0.2 HASC +$3.3B
Reserve O&M $1.5
Family Housing $0.5
Environmental Restoration $0.3 SASC +$0.5B
Mobilization $1.5
SAC-D/M -$0.7B
NCBC June 2012 Numbers may not add due to rounding Office of Budget 10

11. Military Personnel
Active Navy Strength 328,000
326,000 325,700
Stabilizing the Force
324,000
- FY 2013 end strength 322,700 322,700
322,000 322,700 322,700
- Decrease from FY 2012 to FY 2013 by 3,000 320,300
319,900
320,000
321,053 319,000
personnel as a result of FY 2011 to FY2012
Enlisted Retention Board (ERB) identified 318,000 319,000
318,300 319,300 319,500
for separation due to overmanned ratings 316,000
- 66,500 Reserve Strength in FY 2013 314,000
FY2012 FY2013 FY2014 FY2015 FY2016 FY2017
PB12 PB13 Actuals as of 18 June
Active Marine Corps Strength 205,000 202,100 202,100 202,100
Right Sizing The Force 200,000
- FY2013 end strength 197,300 195,000
196,415 197,300 192,100
190,000
- Reduces Marine Corps end strength 192,200
182,100
185,000
from 202,100 to 182,100 by the end of FY 187,700
2016 180,000
182,100 182,100 182,100 182,100 182,100
175,000
- Remaining agile, flexible, and ready for
a full range of contingencies 170,000
FY2012 FY2013 FY2014 FY2015 FY2016 FY2017
- 39,600 Reserve Strength in FY 13 PB12 Base PB13 Base w/OCO Actuals as of 18 11
June
11

12. Civilian Personnel
Scientist
FY 2011 FY 2012 FY 2013 Change
212.3 214.6 212.1 -2.5
225 1.8 2.0 2.0
Full-Time Equivalents (FTEs)(#K)
200
175 79.6 79.7 79.1
150 Engineer
125
100
75
130.8 132.9 130.9
50
25
0
FY 2011 FY 2012 FY 2013 IT Technician
O&M NWCF Other
Workforce sized to meet the workload
12
Numbers may not add due to rounding 12

13. Readiness
Ship Operations Flying Hour Operation Marine Corps Ground Equip
58 days/qtr deployed Navy T-Rating 2.5 94% of projected
24 days/qtr non-deployed Marine Corps T-Rating 2.0 maintenance funded in FY13
7.0
Billions of Dollars
6.0 0.6
Billions of Dollars
6.0
Billions of Dollars
1.3 0.9
5.0 1.4 0.5
5.0 0.5
1.4 1.1 4.0 0.4
4.0
3.0 0.3 0.2
3.0 4.9
0.4
4.7 2.0 4.2 4.5 0.2 0.3
2.0 3.6 3.8
1.0 0.1 0.2
1.0 0.1 0.1
0.0 0.0
0.0
FY 2011 FY 2012 FY 2013 FY 2011 FY 2012 FY 2013
FY 2011 FY 2012 FY 2013
Ship Depot Maintenance Aircraft Depot Maint/Logistics Base Support
100% of projected 94% of projected Navy 80%/USMC 90% of facility
maintenance funded maintenance funded sustainment model, BOS at targeted
12.0 capability levels
2.0
8.0 0.2
10.0 1.0 0.5
Billions of Dollars
Billions of Dollars
Billions of Dollars
1.5
6.0 2.5 1.3 0.2 0.2
0.3 8.0
1.5
4.0 1.0 6.9
6.0 6.4 6.5
5.1 1.2 1.3 1.3
2.0 4.7 4.5 0.5 4.0
0.0 0.0 2.0
2.8 3.0 3.0
FY 2011 FY 2012 FY 2013 FY 2011 FY 2012 FY 2013 0.0
FY 2011 FY 2012 FY 2013
13
NAVY BASE USMC BASE OCO 13

14. Shipbuilding Procurement Plan
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FYDP
LCS 2
CVN 21 0 1 0 0 0 0 1
SSN 774 2 2 AP (all) 1 +1 2 2 2 9
DDG 51 1 2 +1 AP 1 2 2 2 9
+1
LCS 4 4 4 4 2 2 16
LPD 17 1 0 AP 0 0 0 0 0
LSD(X) 0 0 0 0 0 0 0
LHA (R) 0 0 0 0 0 1 1
T-ATF(X) 0 0 0 0 2 0 2
MLP/AFSB* 1 0 1 0 0 0 1
LPD 19
JHSV 2 1 0 0 0 0 1
T-AO(X) 0 0 0 0 1 0 1
T-AGOS 0 0 0 0 0 0 0
SSBN (X) 0 0 0 0 0 0 0
New Construction Total QTY 11 10 7 8 9 7 41
New Construction Total ($B) $14.2 $10.9 $9.9 $14.6 $13.1 $16.2 $64.7 SSN 782
LCAC SLEP 4 2 4 4 4 4 18
Oceanographic Ships 1 0 0 0 0 0 0
Ship to Shore Connector** 0 1 0 2 5 5 13
Moored Training Ships 0 0 0 1 0 1 2
CVN RCOH 0 1 0 0 1 0 2
Total Shipbuilding ($B) $15.4 $13.8 $13.2 $16.9 $16.3 $20.2 $80.5
*Funded in NDSF (FY 2011: $880M, FY2012: $400M, FY 2013: $38M, FY2014: $562M)
**Two Lead SSCs are funded in RDT&E (FY 2011 and FY 2013)
HAC-D +$1.7B HASC +$0.9B SASC +$0.8B SAC-D +$2.0B 14
NCBC June 2012 Office of Budget

15. Aircraft Procurement
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FYDP
EA-18G
Fixed Wing
F-35B (STOVL JSF) 6 6 6 6 9 14 41
F-35C (CV JSF) 7 4 4 6 9 14 37
AP +1
F/A-18E/F 28 26 +11 13 0 0 0 39
EA-18G 12 12 AP 0 +15 0 0 0 12
AP +15
E-2D AHE 5 5 5 7 6 7 30
P-8A (MMA) 11 13 17 20 20 13 83
C-40A (USMC) 0 0 +2 0 0 0 1 1
KC-130J (NAVY) 0 0 0 0 0 0 0
MV-22B
KC-130J (USMC) 1 0 +2 2 2 2 2 8
Rotary Wing
AH-1Z/UH-1Y* 26 28 +2 27 27 26 31 139
CH-53K (HLR) 0 0 0 0 2 2 4
MV-22B 30 17 +1 +1 18 19 19 18 91
MH-60R 24 19 +5 +5 19 31 38 0 107
MH-60S 18 18 18 8 0 0 44
UAV MQ-8B
MQ-8 (VTUAV) 12 6 7 7 8 6 34
RQ-4 BAMS UAS 0 0 3 4 4 5 16
STUAS (NAVY) 0 5 5 5 0 0 15
Training
T-6A/B (JPATS) 36 33 -2 31 0 0 0 64
TOTAL 216 192 175 142 143 113 765
*Includes Overseas Contingency Operations request of one AH-1Z in FY 2013
HAC-D +$0.4B HASC +$0.1B SASC +$0.06B SAC-D -$0.2B 15
NCBC June 2012 Office of Budget

16. R&D Investment
$17.6B $17.7B $16.9B Major Systems ($M) FY 2011 FY 2012 FY 2013
32.0 Aviation
HAC - D SAC-D
+$105M -$237M Joint Strike Fighter (F-35) 1,256 1,310 1,481
HASC SASC CH-53K 558 624 606
-$835M -$9M MMA (P-8A) 907 609 421
Next Generation Jammer 84 171 187
16.0
Shipbuilding
Ohio Replacement Program 610 1,067 565
LCS 164 293 429
Billions of Dollars
CVN 21 179 137 173
8.0 DDG-1000 362 258 127
14.3 14.8 14.1 Virginia Class SSN 167 112 165
Unmanned
RQ-4 UAV (BAMS) 526 548 658
4.0 NUCAS - D 258 198 142
UCLASS 0 76 122
Other
1.2 Amphibious Combat Vehicle 0 37 95
0.8 0.9 Joint Light Tactical Vehicle 18 47 45
2.0
Marine Personnel Carrier 7 20 40
Defense Research Sciences 417 454 473
2.0 2.1 2.0 JTRS 609 676 337
AMDR 204 166 224
1.0 MC Comms Systems 170 215 219
FY2011 FY2012 FY2013 Sat Com (Space) 410 263 188
FY 2011 FY 2012 FY 2013
Surface Electronic Warfare Improvement Program 85 158 126
Science & Technology Management Development Surface Ship Torpedo Defense 50 119 93
G/ATOR 58 107 75
Numbers may not add due to rounding 16
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17. Military Construction & Family Housing
$4,000
$3,500
Military Construction
$3,000 Committee FY13 Change
$2,500 HAC-M No change
$2,000 HASC No change
2,314
$1,500 1,200
741 SASC No change
$1,000
$500 1,129 SAC-M No Change
1,049 1,011
$0
FY 2011 FY 2012 FY 2013 Family Housing
USMC 2,314 1,200 741
$600
NAVY 1,049 1,129 1,011
3,363 2,329 1,752 $500
TOTAL 197
*FY 2012 includes OCO 101 102
$400
No BRAC Construction in PB 2013 Committee FY13 Change
$300
HAC-M** -$151M
372
HASC -$151M $200 368
378
SASC -$54M $100
SAC-M -$52M $0
FY 2011 FY 2012 FY 2013
**HAC added $151M to OCO
FHCON 197 101 102
FHOPS 372 368 378
TOTAL 568 469 480
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Numbers may not add due to rounding 17

18. Energy Investment
F/A-18 Super Hornet PV System DDG-51 Hybrid Electric Drive
April 2010 MCAS Miramar Test Platform: USS TRUXTUN
Department of the Navy PB 2013 Energy Investments
TY$M FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FYDP
Navy Total 706 776 728 701 745 682 3,632
USMC Total 261 226 172 127 130 133 788
DON Total 967 1,002 900 828 875 815 4,420
Allison 501k G/T Generator Operations & Policy Reduce Drag & Power Demand
January 2011 Example: Air Energy Examples: Stern Flaps & Solid State
Conservation Program Lighting
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Numbers may not add due to rounding

19. Overseas Contingency Operations Funding
Department of Navy OCO Budget
FY 2011 FY 2012 FY 2013
(In Millions of Dollars) Actual OCO OCO
Military Personnel, Navy 1,248 1,248 875
Health Accrual, Navy 26 - -
Reserve Personnel, Navy 49 44 39
Operation and Maintenance, Navy 8,527 7,518 5,880
Operation and Maintenance, Navy Reserve 88 74 56
Aircraft Procurement, Navy 600 481 165
Procurement Ammunition, Navy and Marine Corps 188 135 152
Other Procurement, Navy 405 236 99
Weapons Procurement, Navy 91 41 24
Research, Development, Test and Evaluation, Navy 215 48 53
Military Construction, Navy - 190 -
USN Subtotal 11,437 10,016 7,342
Military Personnel, Marine Corps 638 659 1,621
Health Accrual, Marine Corps - - 65
Reserve Personnel, Marine Corps 21 23 25
Operation and Maintenance, Marine Corps 4,463 3,538 4,066
Operation and Maintenance, Marine Corps Reserve 29 36 25
Procurement, Marine Corps 1,946 1,234 944
Procurement Ammunition, Navy and Marine Corps 492 182 134
Research, Development, Test and Evaluation, Navy 41 6 7
HAC - D SAC-D
USMC Subtotal 7,630 5,678 6,888 +$627M +$1,303M
DON Grand Total - Supplemental 19,067 15,693 14,230 19
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Numbers may not add due to rounding

20. FY12 Navy O&M Priorities
• OMN presented with significant challenges in FY12
⁻ Fuel pricing shortfalls ($0.6B)
• In previous years was sourced through Supplemental, outside reprogrammings
• FY11 shortfall was smaller and sourced through OCO force structure assets
• Recent reductions in the FY12 Fuel pricing to $97.02/bbl relieved most of FY 2012 shortfalls
⁻ CENTCOM demand has grown out of cycle ($0.5B  $0.6B in FY13)
• SECDEF order book to provide more presence (CSG/ARG/MCM)
• ISR initiatives (2X Fire Scout, transfer Army OIF Scan Eagle dets to OEF, etc)
• Fastlane Initiatives (PC’s to Bahrain, AFSB)
⁻ Ship maintenance shortfalls ($0.6B)
• Unfunded at Pres Bud due to late imposition of OMB OCO cap
• Execution year growth during “open and inspect”
• USS MIAMI fire repair
• Significant mitigations completed
⁻ Bought down shortfalls at end of FY11
⁻ OCO transportation asset applied, equipment retrograde deferred
⁻ Operational mitigations
⁻ Reprogramming – ($0.7B)
• Largely from Military Personnel and Defense Health Program
• This solution set is not available in the future
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OMN wholeness achieved, solution set may not be repeatable 20

21. FY12 Readiness
FY12 Afloat Readiness FY12 Shore Readiness
FY12
FY12 Oct-11 Sep-12
Program PB EOY Proj.
Oct-11 Sep-12
Facilities Sustainment
($1.4B)
% Funded 80% 84%
Program PB EOY Proj.
Renovation and
Flying Operations % Funded 99% 100% Modernization % Funded 73% 80%
($0.7B)
Ship Operations % Funded 100% 100% Base Ops Support
($4.8B)
% Funded 87% 87%
Air Maintenance % Funded 95% 100%
Overall Shore
Readiness % Funded 83% 85%
Ship Maintenance % Funded 94% 107% ($6.9B)
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22. Now Repeat After Me – “I Will . . .
 . . . Develop better and more accurate budgets and exhibits
 . . . Embrace CNO’s “Culture of Judiciousness”
 . . . When given a new task, do not immediately ask
• “Where are my new and greater resources?”
 . . . Ask everyday “Is this a need or a want?”
• FMB corollary – Almost every stated need is actually a want
 . . . Challenge every growth, strive to match the NAVFAC and the CEC and
achieve negative 7 to 10 % returns
• Beware of DAU standard numbers
• Look for the second knee in a curve
 . . . Beware the “Fallacy of savings”
• “10X the gigabytes for only twice the price” is still twice the price
• Its not just the Rate it is the Total, it is not the Unit Price it is the Total Price
• True energy efficiency is not Biofuel, it is not BTU’s/sec, it is Total Energy Use
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23. Key Take Aways
Resulting Force:
Investments  Smaller and Leaner
aligned to  Agile, Flexible and Ready
strategic  Rapidly Deployable and Expeditionary
 Innovative and Technologically Advanced
priorities and
 Capable of Confronting and Defeating Aggression
budgetary goals
Manned and Led by the Highest Quality Professionals
“… we are united in the belief that this strategy and the resulting budget
decisions followed the right approach to meet the country’s most
pressing security challenges and to preserve the strongest military in the
world and at the same time meet our fiscal responsibilities.“
Secretary of Defense Leon E. Panetta – 26 Jan 2012 23
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