Secretary of Defense Chuck Hagel tried to mollify worried military leaders Wednesday, speaking publicly for the first time about the Defense Department’s pressing budgetary woes.

Widespread cuts to the defense budget have led DoD to impose furloughs on civilian employees, defer critical maintenance projects, and consider cutting benefits to military families.

Military employees who attended Hagel’s speech at the National Defense University did not hesitate to express their fears, pressing Hagel to explain why benefits and salaries have been placed on DoD’s chopping block.

"Why are we still furloughing?" asked one anxious civilian employee during a question and answer session with Hagel. "In case your advisers haven’t told you, it is affecting morale."

"I wish I didn’t have to answer that question," Hagel responded, saying the department is facing a $41 billion funding shortfall. "I wish we had other options."

"We’ve tried to be fair and analyze where we take those cuts, and we take them because we have no choice, and trying to minimize the hurt and the pain that these cuts are causing across our entire range of responsibilities," Hagel added. "Morale will be affected but [there are] tough decisions that will have to be made."

"Our readiness and capabilities must come first," Hagel said, adding that this was "not a good answer."

As DoD grapples with nearly $500 billion in defense cuts known as sequestration, it will have to put military benefits and health packages on the chopping block, Hagel said.

"We need to challenge all past assumption and put everything on the table," Hagel said. "It is already clear to me that any serious effort to reform or reshape our defense enterprise" must take a hard look at personnel costs, overhead costs, and health costs.

Another concerned attendee asked Hagel to explain how benefits, health care, and retirement packages will be impacted in coming years.

Hagel said while no immediate changes are planned in the short term, the DoD is examining ways to reform and restructure its benefits programs.

"They are looking at our ability … to sustain the commitments we have made to the men and women who join the military, as well as our civilians," Hagel said.

"We make promises," Hagel said. "This country makes commitments to people. We’ll honor those. But there’s not anyone here today who is not aware of that if you play this out [over the next several years] we’re not going to be able to sustain [current programs]."

"We’ll become essentially a transfer agency" if reforms are not implemented, Hagel added. "You can’t sustain those programs, those commitments. We know that. … The longer we defer these things the worse it’s going to be for all of us."

Hagel went on to admit that sequestration "is already having a disrupting and potentially damaging impact on the readiness of the force," as well as on maintenance and training programs.

The immediate cuts "led to far more abrupt and deeper reductions than were planned or expected," Hagel said, admitting that the Pentagon is still "grappling with the serious and immediate" effects of sequestration.

Hagel discussed his vision for the American military.

U.S. forces "must be used judicially with a keen appreciation of its limits," Hagel said. Many new global threats "do not lend themselves to being resolved by conventional military strength."

"So our military must continue to adapt," Hagel added. "We adapt in order to remain effective and relevant in the face of threats markedly different" than those of the past.

Pentagon leaders are "not just tweaking or chipping away at existing structures and practices but we’re necessarily fashioning entirely new ones," Hagel said.

The threat posted by North Korea’s increasingly provocative military displays also came up.

Hagel noted that he "had a long conversation" Tuesday with China’s new defense minster to discuss the tensions with North Korea.

"North Korea is very good example of a common interest" for the United States and China. "Certainly the Chinese don’t want right now a complicated combustible situation to explode," he said.