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Pentagon's $526.6 billion budget asks Congress for unpopular steps

An aerial view of the Pentagon building in Washington, June 15, 2005. RTXNK0I
An aerial view of the Pentagon building in Washington, June 15, 2005. RTXNK0I

By David Alexander and Phil Stewart

WASHINGTON (Reuters) - The Pentagon proposed a $526.6 billion budget on Wednesday that calls for closing bases, slashing the civilian workforce and scrapping arms programs, holding out hope the Congress might still opt for an alternative to even more draconian cuts already on their way.

The proposed 2014 fiscal year budget would let the Defense Department implement new spending reductions of $150 billion over the next decade rather than forcing it to carry out the $500 billion in automatic cuts known as sequestration that began on March 1.

But defense analysts criticized the plan. One said it would be "dead on arrival" in Congress because of the politically difficult steps it requires and could trigger new budget cuts that would extend the financial uncertainty that has caused turmoil at the Pentagon in recent months.

With the United States still at war in Afghanistan, and grappling with tensions on the Korean peninsula, Defense Secretary Chuck Hagel said the new budget plan would buy the Pentagon needed time, delaying most of the $150 billion reduction until after 2018.

"While no agency welcomes further budget cuts, the president's deficit reduction proposal requested in this budget gives the department time," Hagel said.

The proposed budget asks Congress to take a series of politically difficult steps, including starting a new U.S. base closure process, increasing healthcare fees for military retirees and slowing military pay increases.

Defense officials said the department also planned to reduce its civilian workforce by 40,000 to 50,000 over five years, mainly through attrition, and take new steps to reduce the cost of healthcare, including overhauling treatment facilities.

"The costs of infrastructure, overhead, acquisitions and personnel compensation must be addressed in order to put the Department of Defense's budget on a sustainable path - particularly given the pressures on our top-line budget," Hagel told a budget briefing.

The budget includes $88.5 billion for the war in Afghanistan and other overseas operations, the same amount as requested last year. Comptroller Robert Hale said the figure was a placeholder and would ultimately be somewhat lower, but still high because of the cost of removing equipment from Afghanistan.

The spending plan is part of the budget President Barack Obama sent to Congress on Wednesday. It stands little chance of being enacted into law and will serve largely as a negotiating tool with Republicans, who have outlined budget proposals of their own.

HIGH-PRIORITY PROGRAMS

The Defense Department is in the midst of a long-term budget drawdown after a decade of increases. It began implementing $487 billion in cuts to proposed spending in 2012 and was hit by an additional $500 billion over a decade starting on March 1.

While looking for ways to cut back in the current tight fiscal environment, the Pentagon budget would continue to fund high-priority programs and initiatives, including the strategic "pivot" to the Asia-Pacific announced last year.

It includes $8.4 billion for continued development of the three variants of Lockheed Martin's F-35 Joint Strike Fighter, the Pentagon's most expensive procurement program.

It also includes $10.9 billion for new ship construction, $9.2 billion for missile defenses, $379 million for development of a new long-range bomber, $4.7 billion for cyberspace operations and $10.1 billion for space technologies.

The plan aims to save $9.9 billion by restructuring and canceling arms programs.

The defense budget is $52 billion higher than spending caps set by law for 2014 and is based on the assumption that a deal can be reached with Congress to replace the cuts that began on March 1 with an alternative package of tax increases and spending reductions.

The two sides have been trying for two years without success to reach a deal to avoid the cuts.

Obama's budget proposal would replace the Pentagon's $500 billion sequestration cut with a $150 billion reduction, most of it spread over a five-year period beginning several years from now. Some $34 billion in cuts would be implemented over the next five years.

Defense analysts criticized the White House for failing to take sequestration into account. Mackenzie Eaglen, of the American Enterprise Institute, said it would lead to "continued uncertainty" over the Pentagon budget, and Laicie Heeley, at the Center for Arms Control and Non-Proliferation, said the plan would be "essentially dead on arrival" in Congress.

Defense industry executives welcomed the administration's effort to reduce the spending cuts to $150 billion over the next decade but worried the proposal would be dismissed out of hand by Congress because of differences over proposed cuts.

"Sequestration is in effect. I'd like to see a budget that reflects what the reality is going to be," said David Melcher, chief executive of defense contractor ITT Exelis Corp. "Ignoring it doesn't solve the problem."

The Pentagon budget asks Congress to begin a new round of U.S. Base Realignment and Closure proceedings, a proposal that was rejected by lawmakers last year.

This year's request includes $2.4 billion over five years to pay for the base closure process. Closures disrupt local economies and cost a huge amount upfront, saving money only over the long run.

Based on estimates from the last round of base closures that started in 2005, the Pentagon is believed to have more than 20 percent surplus of infrastructure.

(Additional reporting by Andrea Shalal-Esa; Editing by Warren Strobel and Mohammad Zargham)

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