Looming Cuts Could Mean Big Changes For U.S. Military Without a deal by March 1, across-the-board federal spending cuts will kick in — including deep cuts to the nation's defense budget. Michele Flournoy, former undersecretary of defense for policy, and NPR's Tom Bowman discuss what sequestration might mean for the U.S. military.

Looming Cuts Could Mean Big Changes For U.S. Military

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This is TALK OF THE NATION. I'm Neal Conan, in Washington. If no budget deal is reached by March 1st, automatic, across-the-board spending cuts known as the sequester kick in. And that includes the defense budget, which accounts for roughly 20 percent of federal spending.

In a recent op-ed in the Wall Street Journal, Michele Flournoy, former undersecretary of defense for policy, says deep cuts should be a last resort not the default course of action, but she also argues that there are changes that could add up to significant savings and still allow for an effective, agile military ready to respond to any contingency.

She has her cuts. If you've worked for the Defense Department, in uniform or out, what are yours? Give us a call, 800-989-8255. What's the best way to cut defense spending? Our email address is talk@npr.org. You can also join the conversation on our website. That's at npr.org. Click on TALK OF THE NATION.

Later in the program, China's options after North Korea's atomic weapons test today. But first the defense budget. Michele Flournoy, now a senior advisor for the Boston Consulting Group, joins us here in Studio 3A. Good to have you back on TALK OF THE NATION.

MICHELE FLOURNOY: Good afternoon.

CONAN: And we'll get to your op-ed in just a moment, but I'd like to begin with that news from North Korea. There's still a ways to go before they can marry that bomb to the ballistic missile they tested in December. But it seems just a matter of time, and they say they're targeting us.

FLOURNOY: It's a very disturbing provocation. I think the assessment is that some of these provocations are occurring because the new leader has to consolidate power within North Korea, and he's trying to sort of prove himself to his military and so forth. But nevertheless, they are marching down the nuclear road, they are developing ballistic missiles, and we have to be concerned.

So I think it's very important that the U.S. continue to try to get some concerted international action, particularly from China, to try to rein in the North.

CONAN: And how do you do that?

FLOURNOY: I think a lot of this is working through the U.N., trying to increase the sanctions but particularly helping China understand that it's really in their interest to rein in North Korea. The last thing they want is a destabilizing situation in the region.

CONAN: Well, we're going to have, as I say, more on China's options later in the program with a former CIA - the CIA's former senior China analyst. But let's go on to cutting the defense budget. And you wrote the U.S. has an abysmal record of managing post-war draw-downs of defense spending. We're expecting to hear the president say tonight another 34,000 troops coming out of Afghanistan by this time next year. You worry about a hollow force.

FLOURNOY: I do. And you look at our record after the end of World War II, the end of Vietnam, the end of the Civil War, we tended to draw down in a way that took very deep cuts in readiness and modernization. And so the force that might have looked good on paper really didn't have the capabilities we necessarily needed.

But in all of those periods, we were facing a period of greater calm and a period of greater peace. As we come out of the war in Afghanistan, the world doesn't look very calm or peaceful. We have a lot of challenges on the horizon, and we need a military that still can be very responsive to emergencies abroad.

CONAN: And so how do you do that? There's going to be cuts no matter whether there's a sequester or not, you argue. I think you're probably right.

FLOURNOY: Absolutely. I think there will be probably a 10 percent cut as part of any budget deal that gets agreed. But if you look at the broader defense enterprise, there are places we can become leaner and meaner, if you will. We have too much overhead. Over the last decade, the civilian workforce in DOD has grown by about 100,000.

The level - the number of contractors has also grown. You look at health care, and everybody wants that benefit to stay, to be sustainable for our men and women who serve and their families. But DOD health care is growing much faster than civilian health care in terms of cost. It's also growing faster than government programs like VA, Veterans Affairs, and also Medicare.

So there's something wrong there in terms of the way we're managing that. We're not doing it as effectively as we need to. Infrastructure, the department hasn't been allowed to take - to close bases, to realign its infrastructure since the 1990s. We have a lot that we don't need.

And finally acquisition reform. We're just not getting the value for taxpayer dollars that we need to as we procure systems.

CONAN: Let me talk about the other player in this game, and that's Congress. The military would like to maybe lose or contract some bases. Those are all in congressional districts, they're all in states. This is a difficult process. There's - you talk about health care. This comes up before the Congress, and Congress votes it down every single time. There is also the question of acquisitions. The Department of Defense, the secretary goes up and says we don't want this or that or that, please don't buy them for us, and the Congress votes them anyway.

FLOURNOY: Yes, Congress has to be a critical partner in this, and in a period of growing budgets, there's really no need to make hard tradeoffs, to take any pain. But we're in a different situation now. The budget is going to be coming down. The world still is a dangerous place. You know, if you don't take some of these efficiencies in the defense enterprise, you will have to take down capability, readiness in a way that could very much impact our national security.

We have to start talking about these tradeoffs in very strategic terms and have that conversation with key members of Congress.

CONAN: Let's bring another voice into the conversation, our own Pentagon correspondent, Tow Bowman. Always good to have you with us here in Studio 3A.


CONAN: First of all, I have to say the - in advance of The Sequester, again that would take effect on March 1st, the Navy has withdrawn one of its two carriers from the Persian Gulf. Is this a real savings, or is this sort of theatrics saying oh no, there's going to be terrible things happening if the sequester goes ahead?

BOWMAN: Well, I'm not sure exactly how much it would save by pulling - the Truman was supposed to deploy on Friday, last Friday, for the Persian Gulf. So it'll mean you'll have less than two there at all times. They're going to pay the sailors whether they're on shore or on the ship. I mean, I'm sure there's steaming time and oil that, you know, you would have to pay for and so forth.

CONAN: The carrier's nuclear powered, its accompanying vessels are not.

BOWMAN: Exactly right. So I'm not sure exactly how much it would save. And they also said, beyond that, that they would have, you know, the military service members, rather than getting a 1.7 pay increase for next year, they get a one percent pay increase. So you just wonder if some of this is political. Everybody's concerned about Iran at this time, by pulling that carrier out. Also everybody wants to support the soldiers. By cutting their expected pay increase, that's sending the message to the Congress and to everyone that listen, you have to deal with this situation.

So much of this now is high-stakes poker. Let's face it. You know, you're pressuring the Hill to deal with this, and the chiefs were up on the Hill today talking about the impact of sequestration if it goes into effect the first of March. This is some of the things that General Ray Odierno, Army Chief of Staff, said: We'll curtail training for 80 percent of the force. We'll terminate 3,100 temporary and term employees. We'll furlough up to a quarter of a million civilians, cancel depot maintenance, delay equipment readiness for six divisions - so six out of 10 Army divisions.

So clearly if the sequestration goes into effect and this meat-axe approach happens, there'll be a lot of problems for the military. But again, some of the things they're doing right now, I think, is tactics.

CONAN: And Michele Flournoy, maintenance is a critical item, probably the easiest thing to cut back on.

FLOURNOY: It is. The dollars are very available. You get immediate reductions if you cut them, and so forth. And yet you tend to - you know, you take additional risk in terms of your ability to respond to events abroad. You also, if you defer maintenance too much, you can find yourself paying much higher cost down the line.

So the sequester really does take across-the-board cuts. There's no flexibility. It's absolutely the wrong way to deal with the budget challenges we face. If you were to get a budget deal, at least you could have - make some choices about where to protect your priorities and where to accept and manage some risk.

CONAN: Michele Flournoy, the former undersecretary of defense for policy, has suggested some cuts. We'd like to hear yours, if you worked for the DOD in or out of uniform, 800-989-8255. Email us, talk@npr.org. Let's talk with Chris(ph), Chris joins us from Springfield, Missouri.

CHRIS: Hi, yeah, I've worked with the DOD for the last 10 years, several contract bases, trying to get our software up there. And we had a meeting two years ago up in Warrensburg sponsored by former Congressman Ike Skelton. And they were telling us that these cuts were coming, and they wanted to know what our input.

And the biggest complaint that we had for most people was the fact that these bases, Whiteman or Fort Leonard Wood, would not hire local contractors or local suppliers. One gentleman talked about he was trying to sell restaurant equipment and things like that, refrigeration and stuff, and he had to go through the naval port up in Philadelphia, which was ridiculous because you had all this cost, transportation cost and everything like this.

And there wasn't an honest bidding going on, even though they say open bidding. Most of this bidding goes to the established lobbyists or the established contractors out there. And most of us small businesses don't even have a ghost of a chance to even be considered for our products.

CONAN: Michele Flournoy, has he got a point?

FLOURNOY: He does, unfortunately. I think there are parts of the Pentagon that are starting to experiment with things like reverse auctioning for smaller buys to favor small businesses, to allow them to, you know, really put in bids, compete on a more level playing field. But it's not as - it's not being pursued to the extent it needs to be to really open up the marketplace to local bidders.

CONAN: And this is one-offs or localized contracts...

FLOURNOY: Smaller buys.

CONAN: It's not for, you know, 1,800 refrigerator units where you get economies of scale.

FLOURNOY: Exactly.

CONAN: All right. Chris, thanks very much.

CHRIS: Thank you, appreciate it.

CONAN: And Tom Bowman, as we look at these ideas, civilians work for the Defense Department, contractors in particular, well, that's always a popular cut, isn't it?

BOWMAN: You know, it is, particularly some of these temporary workers that they were talking about, as well, and contractors. But as Michele pointed out, there's been an expansion not only of civilian DOD workers but contractors, as well. And it's just hard sometimes to cut these people.

CONAN: But doesn't that work still need to get done?

FLOURNOY: You know, the work needs to get done, but, you know, when I returned to the Pentagon in my last job, the office that I oversaw had grown from 600 people in the '90s to about 1,000 people more recently. When I tried to reshape my workforce, I found I could cut the budget by 20 percent, but I didn't actually have the authorities from Congress to reshape the workforce because of certain protections and so forth.

And so I couldn't do with less, even though - I wasn't allowed to do with less. And I actually think that some of the cuts I would have pursued would have made the organization more agile and more responsive.

CONAN: We're talking about smart ways to cut the defense budget. Pentagon officials are still drawing up contingency plans. If you've worked for the Defense Department, in uniform or out, what are you suggestions? What's the best way to cut spending? 800-989-8255. Email talk@npr.org. Stay with us. I'm Neal Conan. It's the TALK OF THE NATION, from NPR News.


CONAN: This is TALK OF THE NATION. I'm Neal Conan in Washington. Facing the possibility of automatic, across-the-board spending cuts, the Pentagon laid off tens of thousands of part-time workers. The Air Force says it will cut flying hours for pilots by a third and buy fewer of the new F-35 jets. The Navy plans to cancel some deployments. The Army will reduce training - all part of cuts that Deputy Defense Secretary Ashton Carter described today as the collateral damage of political gridlock.

If cuts are coming, we're talking today about the best way to go about it. If you've worked for the Defense Department, in uniform or out, what's the best way to cut spending? 800-989-8255. Email us, talk@npr.org. You can also join the conversation on our website. That's at npr.org. Click on TALK OF THE NATION.

NPR Pentagon correspondent Tom Bowman is with us, also Michele Flournoy, former undersecretary of defense for policy, now a senior advisor for the Boston Consulting Group. Let's go next to Kyle(ph), and Kyle with us from Newport in Rhode Island.

KYLE: As we speak, I'm driving past the Naval War College, where I worked for many years. But I was calling to find out, from your guest particularly, during the Rumsfeld administration, or legacy, when he wanted to streamline and make the Pentagon a big more businesslike, and everything went out to contractors - maintenance, base operations, security, almost everything that was not holding a weapon, and even some of that - did we actually save money? Did the Pentagon save money in that big move, or have we spent more maintaining these contracts than they would have doing it organically within the system?

FLOURNOY: You know, I think it's hard to generalize, but, you know, most people who have looked at this closely believe that the pendulum swung too far in the privatization direction. What you need is a balanced approach where you have enough of an internal government/civilian cadre that can actually manage acquisition and those contracts smartly, effectively.

When you contract out too much, we actually got to the point of contractors overseeing contractors, and you lost the sort of focus on value for the taxpayer. And so I think we have to find the right balance.

And you know, to give the Pentagon credit, people like Ash Carter, who was mentioned earlier, the deputy secretary, he's actually been pursuing something called better buying power. It's a set of initiatives that's moving in this direction. I just think we need to use the budget pressure, the burning platform to go faster down this road.

KYLE: I see. Well, I was curious. Ash Carter wrote one of the books I read long ago, "Managing Nuclear Operations," and one of the savings suggestions I had would be to go from a strategic nuclear triad to go to a dyad of just bombers and submarine weapons. Do you think he would go for that, or is that even possible?

FLOURNOY: Well, whether we go for a triad or a dyad, I certainly think there is room to take our strategic nuclear force down to lower levels if we could get the Russians to agree. My hope is that President Obama will make that a goal as part of his second term.

CONAN: Apparently Tom Bowman, we're expecting maybe a proposal for - going from 1,700 nuclear weapons to 1,000 again in a negotiation with the Russians.

BOWMAN: Exactly. We were talking about that a little bit earlier. Part of the challenge here is getting Russia's Putin to go along with this.

CONAN: Kyle, thanks very much for the suggestion. Of course he's talking about getting rid of one of those terrible Air Force programs, not the Navy program he was working with before.

BOWMAN: And that's always a challenge.

CONAN: Here's an email from David: We have already seen enough cuts. I'm in the Utah Army National Guard. When I deployed to Iraq, I was doing the job of a non-commissioned officer but being paid as a lower enlisted. This is because they cut two sections from my battery, and there is no room to move up. I'm seeing good soldiers with years of experience leaving because there's no more opportunity for promotion. We're losing our experienced soldiers and replacing them with unqualified and inexperienced soldiers that are just stuck it out long enough to fill in the space.

And if there's a drawdown in the force structure, that means fewer soldiers, fewer Marines, inevitably things like that are going to happen.

FLOURNOY: This is a great example of the kinds of unintended consequences that occur when you try to solve the entire budget problem, or most of it, on the back of the force rather than looking for excess capacity or inefficiencies in the defense enterprise writ large.

BOWMAN: And even beyond that, there are some who are calling for further cuts in the Army and the Marine Corps, for example, if there are more Pentagon cuts coming down the road. Even if you get past sequestration and you come up with more cuts in the Pentagon, they're suggesting more cuts among the troops.

CONAN: Would you advocate that, Michele Flournoy?

FLOURNOY: You know, not at this time, based on what I understand of the threat environment and what I believe is a very strong strategy. I mean about a year ago, President Obama personally led an effort with the secretary of Defense, the chairman of the Joint Chiefs, all of the chiefs, all of the combatant commanders, to develop a new strategy.

And that strategy is very sound. And to the extent we can resource that, I think we want to hold onto that if at all possible.

CONAN: Let's go next to Grant, Grant on the line with us from Anchorage.

GRANT: Yes, I'm actually currently active duty, but had spent some time overseas, in Europe and in (unintelligible) for the Navy. And I saw quite a bit of bureaucracy not only with maintaining installations we have overseas but even finding purpose for some of them to maintain I guess readiness for forces (unintelligible) as we saw in Libya, we definitely have an opportunity to use all of those bases that were over there, but now that Libya is done and even, you know, as far back as Cold War issues that we were dealing with, having bases overseas, the need is just not there as much as it was.

And I kind of have the opinion that we keep those open almost as a center of social welfare for the countries that we're in, whether it's Italy or Spain or any of those countries over there. And they're necessary, and they need to be there, but not as big as they are.

And we support NATO quite a bit, and I feel as though there's a loyalty we have to NATO, but it doesn't - it's not a loyalty to the taxpayers as far as what we spend that money on and how we spend it.

CONAN: Michele Flournoy?

FLOURNOY: It's a very - it's a very important point. I think in this budget environment, everything has to be on the table - our overseas basing structure but also our domestic basing infrastructure. The truth is, most of the reductions that have been taken have been taken overseas because we haven't been able to touch the domestic basing infrastructure since the last round of BRAC in the 1990s.

But you know, Congress needs to understand, yes, we may be affecting facilities and their constituencies, but we're freeing up money to reinvest in things like modernization, which also creates jobs for Americans.

CONAN: BRAC would be Base Reductions and Consolidations. So...

BOWMAN: And the problem is that, as Michele said, the last one was in the 1990s. It tells you everything, I think, that Congress is very reluctant to cut back on bases. They see these are public works programs for their states and districts, and it's very difficult to push those things through.

CONAN: Let's see if we can go next to - this is Mark, and Mark's on the line with us from Tucson.

MARK: Hi there.

CONAN: Go ahead.

MARK: Thanks for taking my call.

CONAN: Sure.

MARK: So related to what Grant just said, there's another type of subsidy going on, and I think there's a set of rules that the DOD has to follow for procuring things, and these could be entire weapons systems or very mundane things like office supplies.

And hidden in those procurement rules is a bunch of social engineering. So if you're on a base somewhere and you have to buy office supplies, maybe you don't just go to the open market and competitively buy them like you and I would do. Maybe you have to go Lighthouse for the Blind or some other worthy cause.

And I'm all for worthy causes, right, that's great, except that that hides in the budget not as subsidy to the blind, for instance; it hides in the budget as office supplies or weapons system or, you know, whatever procurements we give to our favorite suppliers. Everybody likes to beat up on KBR and Halliburton and Blackwater, but I mean there's a lot of directed procurement activity.

Some of it is buried in procurement rules, some of it is buried in sole-source contracts, and all of it is noncompetitive and all of it drives up price. That's my comment.

CONAN: Thank you very much.

MARK: I don't know how to turn that into a question.

CONAN: Well, let's, first of all, find out if you're right.

FLOURNOY: Well, I do think there are - there's a Byzantine morass of acquisition rules that people have to follow. And you know, I do think that a good scrub of those should be part of the acquisition reform process. But there are also things we can do, you know, stabilizing the requirements we set for weapons systems, incentivizing program managers to actually find savings rather than trying to protect the budgets for their programs and keep them as high as possible.

There are a lot of things we can do, you know, low-hanging fruit that we can pursue, short of the long-term requirement to completely scrub the legal and regulatory structure for acquisition.

CONAN: In a way it seems to be that, except that what we're hearing is about procurement of F-35s, what we're hearing is the same kind of problems you might encounter in any big organization. Granted, the Pentagon is a bigger organization than any other on the planet. But what's unique about this particular agency, this particular arm of government, as opposed to, you know, Hewlett-Packard?

FLOURNOY: Well, you know, in the private sector, companies get to these hard choices because of - for survival. That if they're going to compete and stay alive, they've got to take money out of overhead. They've got to shed excess infrastructure. They've got to get leaner in terms of how they procure things. In the Department of Defense, we're talking about the mission. Can we actually do the mission of this department which is protecting Americans at home and abroad, protecting our national security?

We are at a point where there are very real tradeoffs between our ability to do that mission. If you protect everything, you take everything off the table, well, we can't touch health care, we can't touch infrastructure, we can't touch overhead, you're going to touch the mission. You're going to touch your ability to secure our interests at home and abroad.

CONAN: Tom Bowman, we mentioned some of the political difficulties you were talking about - base reductions earlier, also Tricare, military health care extremely popular in Congress, very reluctant to change that or reduce it. The other kinds of - some of the other kinds of reductions we're talking about also have to be voted by Congress. Is this - is the atmosphere there changing?

BOWMAN: You know, I don't think so. I mean clearly people want to cut back on the budget, writ large, but a lot of Republicans want to shield the Pentagon from any cuts. But as Michele said in her article, trying to find savings in health care is key. Former Defense Secretary Bob Gates said these costs are eating us alive, and there hasn't been an increase in some of the health care plans for military retirees in - what - 15 or more years. I think the plan now is they pay about $600 per year for a family plan. Now, most families would pay seven, $8,000 a year and...

CONAN: I can still sit here and write...

BOWMAN: Right.

CONAN: ...the press release: howling in protest that those who have served our country on the frontlines are now being...

BOWMAN: Right.

CONAN: ...jacked up by (unintelligible).

BOWMAN: But some of the lobbyist groups will say, well, listen, you're taking benefits away from the fighting men and women. Well, that's true, to a certain extent, but not all of these folks have deployed to Iraq or Afghanistan. Not all of them have been in the tip of the spear - the people I go with to, let's say, Afghanistan, when I'm out in field, we're talking about all sorts of people who served, let's say, 20 years at an airbase in the United States. And clearly, they served their country, but they're not under fire. So I think we have to make a distinction between some of these folks.

FLOURNOY: But there are also lots of ways you can get cost out of health care without jacking up the prices or the - what is paid by the beneficiaries, the, you know, the active-duty military, the retirees and their families. For example, when you look at military health care, service utilization is two and a half times what it is in the civilian sector. Why is that? You know, there are ways to look at that to use...

CONAN: And otherwise, they go to the doctor two and a half more times than I do.

FLOURNOY: ...and also prescription use significantly higher than civilian counterparts. So, you know, there are ways to look at what's going on and have a better management approach. Another example, use of mail order and generics. The DOD is not up to where the civilian benchmark is. Getting them to the civilian benchmark could save literally a billion or more dollars per year. Retirees that are working age, there are lots of people who've come out of the military, go into the private sector.

They turned down health care in their private sector job, and they stay on the DOD health care rolls. Is that right? If - when that money could otherwise be invested in modernization and readiness, shouldn't we have a law that says Tricare can be a second pair, but not your first pair if you're a working age retiree in the private sector?

BOWMAN: Now, we're talking about some of these people, let's say, have been in the Air Force 20 years, retired at age 42 and then go work for a defense contractor.

CONAN: We're talking with NPR Pentagon correspondent Tom Bowman and former undersecretary of defense for policy Michele Flournoy, now senior adviser for the Boston Consulting Group. You're listening to TALK OF THE NATION from NPR News. But, Tom Bowman, let me ask you a question. We're looking for budget cuts. Let's assume, for example, The Sequester doesn't go ahead or, well, anyway, some sort of a deal is going to be worked out eventually.

They'll pass a budget eventually. Boy, there's an optimistic statement in this town. But if you're looking for money to save, it's the paraphrase of the old Willie Sutton line: Why do you rob banks? Why do you go to the Pentagon for cuts? Because that's where the money is. If you're going to cut things, you're going to go there. Is it going to be procurements like the F-35, a very expensive weapon system? Is it going to be actually Congress approving trims in military health care?

BOWMAN: Well, the problem with military health care for budget savings is Congress has repeatedly not wanted to go down that road and find savings in military health care. So what are you left with? You're left with things, like the F-35, or people. And some defense analysts we talked with would say you could still trim the Army. You could still trim the Marine Corps, which is still after the cuts, still larger than they were prior to 9/11. But as Michele said with the, you know, defense plans they're looking at now, you would need a force that is current - the current size.

So the question is where do you come up with cuts? Others have said operations and maintenance accounts. With all the equipment coming back from Afghanistan, let's say, do you have to fix everything right away, the armored vehicles, the helicopters, the aircraft? Could you defer some of that maintenance on some of those and find some savings? So depending on who you talk with, people - everyone comes up with a different scenario.

CONAN: And, Michele Flournoy, looking at the political realities, if there was one item in your list that you could prioritize and say do this, what would it be?

FLOURNOY: Oh, I'd say it would be to de-layer and streamline headquarters. When - over the last 10 years of growth, you've had headquarters staff in the Pentagon, in the defense agencies, across the board, grow substantially. When you look at the private sector, big companies like AT&T, what - they go through a systematic de-layering process, they routinely take out 15 to 20 percent of their costs. This is sizeable cost savings, but you need the Congress to give you the authorities to actually streamline the organization, take out layers and take out unnecessary jobs.

And are those people in uniform or are those people - civilian jobs?

I think most of the headquarters is going to be civilians' jobs, perhaps, some military as well.

CONAN: And are you hopeful that these cuts will go ahead?

FLOURNOY: Well, you know, I - you have to be an optimist to stay in this town for too long. But, you know, even on the health care front - I mean, yes, if you go to Congress and you say, we're going to cut benefits for the men and women who serve, of course, they're going to oppose it. But if you go and you say, we're going to actually manage to better health outcomes. And because we're going to manage to better health outcomes, we're going to reduce the cost, because we're going to adopt best practices from the private sector. Then, they're interested. That's a different conversation. So I think we have to frame this in a way that we can actually have the conversation rather than just ruling everything out.

CONAN: Michele Flournoy, as always, thanks very much for your time today.

FLOURNOY: Thank you.

CONAN: We wish you the best. Tom Bowman, also appreciate your time.

BOWMAN: You're welcome.

CONAN: When we come back, the U.N. promises consequences after North Korea detonates its third nuclear device. But will China, with its veto power in the Security Council and its enormous influence in Pyongyang, go along? We'll talk with a former CIA senior China analyst next. Stay with us. I'm Neal Conan. It's the TALK OF THE NATION from NPR News.

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