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Panetta Sees ‘Difficult Choices’ Ahead to Curtail U.S. Defense Spending

Leon Panetta, President Barack Obama’s nominee to succeed retiring Defense Secretary Robert Gates, says he expects that “difficult choices will have to be made” to rein in defense spending and reduce the federal deficit.

“If confirmed, I will work to make disciplined decisions in ways that minimize impacts on our national security,” Panetta, who is now director of the Central Intelligence Agency, said in a 79-page set of answers to questions from the Senate Armed Services Committee in advance of his confirmation hearing, scheduled for tomorrow.

“But it must be understood that a smaller budget means difficult choices will have to be made,” he said.

Gates has said that to save money for new weapons, it may be necessary to cut personnel costs -- including troop pay, benefits and the size of the force.

Panetta told the committee that if confirmed, he would play a “large role” in the comprehensive review begun by Gates to assess options for reducing defense spending by $400 billion through 2023 beyond the $78 billion already planned through 2016. The review, ordered by Obama, will be a “strategy-driven approach” that is “essential to ensuring we preserve a superb defense even under fiscal pressure,” he said.

“I will not hesitate to provide my views on the potential consequences of proposed future changes in the DoD’s budget,’ he said.

Many of Panetta’s answers repeat administration policy or don’t provide specifics. Still, they will be parsed by defense industry and strategy analysts for insights into his priorities, especially on weapons programs.

F-35 Fighter

For example, when asked for his views on the Pentagon’s largest program, the F-35 Joint Strike Fighter, Panetta said he supports the current focus on reducing the aircraft’s estimated $1 trillion in ‘‘sustainment costs.”

“I believe it is important that we transition to a fifth- generation tactical fighter capability as soon as practical,” he said of the Lockheed Martin Corp. (LMT) program. “Overall, I believe we should maintain sufficient inventory” of current, so-called legacy aircraft “while we field the F-35,” he said.

“The major issue with Panetta is whether he is being brought in to be the ‘hatchet man’” to make deep cuts, said Robert Stallard, a defense analyst with RBC Capital Markets.

“There is a real debate going on as to whether we’ll see a continuation of the Gates approach to defense or a change in direction that emphasizes budget-cutting,” Stallard said.

Budget Deficits

Asked about the national security implications of the U.S. budget deficits during a Feb. 10 hearing of the House Permanent Select Committee on Intelligence, Panetta said “there’s no question that represents a threat that we have to pay attention to.”

Panetta, 72, a California Democrat who served in the U.S. House of Representatives from 1977 to 1993 and then as budget director and White House chief of staff under President Bill Clinton, has been CIA director since February 2009. Gates, the lone holdover in Obama’s cabinet from the George W. Bush administration, is retiring June 30.

To contact the reporter on this story: Tony Capaccio in Washington at acapaccio@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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