Pentagon’s First Installment on Cutting Debt May Be $28 Billion
Pentagon officials may have to eliminate as much as $28 billion from the pending fiscal 2012 defense budget in the first installment of the Defense Department’s contribution to the new debt-ceiling agreement, administration officials and congressional aides say.
Under the deficit-trimming measure President Barack Obama signed into law yesterday, an initial $350 billion will be cut from defense spending over 10 years, with about $325 billion coming from the Pentagon, according to an administration official.
The savings targets based on the military’s current planning are closer to $400 billion, about 7 percent of planned spending over 10 years, and are achievable, a defense official told reporters at the Pentagon today, speaking on condition of anonymity.
Separately, the law requires a special congressional committee to find an additional $1.5 trillion in overall deficit reduction by late November. If the committee fails to act by that time, the deal calls for an automatic cut of $500 billion over a decade from Pentagon spending.
Most immediately, the reductions take effect with the $553 billion defense budget for the 2012 fiscal year; $539 billion is basic defense spending controlled by the defense appropriations subcommittees, while the remainder is in military construction accounts.
The Standard & Poor’s Supercomposite Aerospace & Defense Index fell less than 1 percent in New York trading today. L-3 Communications Holdings Inc. and Raytheon Co. (RTN) were among the 29 member stocks that declined.
The Pentagon is reviewing options to present the Senate Appropriations Committee to meet a potential $28 billion cut, another official said. Lawmakers can accept or apportion the reduction to other security agencies, congressional aides said. The House has already completed action on its version of the fiscal 2012 bill, which cut $9 billion.
The Pentagon would provide informal suggestions for how to reach a potential $28 billion reduction in fiscal 2012, the defense official said.
For Congress to cut an additional $28 billion, it would be necessary to look at an array of programs, the official said, pointing to the House’s $9 billion in cuts, of which $6.7 billion would come from procurement.
A decrease of about $28 billion in the $539 billion request controlled by appropriators would roughly freeze defense spending at the current fiscal-year level, officials said.
The debt agreement freezes overall security spending at $684 billion, $4 billion less than this fiscal year and about $35.4 billion less than the fiscal 2012 request, according to a Bloomberg Government analysis.
The fiscal 2012 request overall called for $719.4 billion in security spending, which includes the Pentagon.
The $553 billion Pentagon base budget had already been cut $11 billion from last year’s plan as part of $78 billion in deficit reductions through 2016 the White House directed.
In a message to department personnel today, Defense Secretary Leon Panetta said the $350 billion is “in line” with what has been anticipated. The potential of as much as $500 billion in additional cuts “would be completely unacceptable,” he said.
Congress’s failure to agree on further reductions would “trigger a round of dangerous across-the-board defense cuts” that may do “real damage,” he said.
Obama said in April that he wanted to reduce security expenditures by $400 billion over 12 years. Most of those cuts would have been Pentagon spending.
“We can implement these reductions while maintaining the excellence of our military, but to do that spending choices must be based on sound strategy and policy,” Pentagon said of the $350 billion. That review of strategy is continuing.
More troubling is the potential additional $500 billion, which “is not meant as policy,” he said. “Rather, it is designed to be unpalatable to spur responsible, balanced deficit reduction and avoid misguided cuts to our security.”
An automatic defense cut probably won’t occur, and the Pentagon at this point isn’t developing a contingency plan, the defense official told reporters. Still, an automatic cut could result in worker furloughs in the thousands, involuntary separations and program disruptions, the official said.
Panetta’s message was posted on the Defense Department website.
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