UPDATE 1-Pentagon warns of tough trade-offs in face of looming cuts
WASHINGTON, July 31 (Reuters) - U.S. Defense Secretary Chuck Hagel on Wednesday outlined the stark choices facing the Pentagon if it keeps cutting $100 billion in spending annually over the next decade, including shrinking the size of the military, curbing pay and benefits, and reducing weapons programs.
Hagel, unveiling the results of his four-month Strategic Choices and Management Review, said the Pentagon would cut overhead by almost $40 billion more over the next decade, and was looking at $50 billion in savings from compensation.
He said the review also pointed to possible reductions of up to 70,000 troops from the U.S. Army's active force, and up to 65,000 from the Army reserves, given the drawdown in Afghanistan and the end of the war in Iraq.
But he said the department could come nowhere near achieving the budget cuts required by law - $500 billion over the next decade on top of $487 billion in cuts already begun - by just eliminating inefficiencies and waste.
Reaching the total Pentagon budget cuts required under the process known as sequestration would require tough trade-offs between the size of the military and weapons programs, Hagel said, warning that choosing size over capabilities would trigger a "decade-long modernization holiday."
Hagel did not identify any specific weapons programs to be cut, but vowed to protect certain programs, including the Lockheed Martin Corp F-35 Joint Strike Fighter, a new bomber and submarine cruise-missile upgrades, if the military chose to preserve high-end capabilities over size.
Hagel said decisions on how to balance the two stark options would be made in coming months. He said the final decision would be up to President Barack Obama.
"Before this review, like many Americans, I wondered why a 10 percent budget cut was in fact so destructive," Hagel said in prepared remarks. "This analysis showed in the starkest terms how a 10 percent defense spending reduction causes in reality a much higher reduction in military readiness and capability."
RISING PAY AND BENEFITS
The Pentagon is struggling to cope with nearly $100 billion in cuts to projected spending that were passed in 2011 as part of the Budget Control Act to reduce the federal government's huge deficits.
The law required $487 billion in cuts to projected defense spending over a decade. It required an additional $500 billion in across-the-board cuts over the same time frame unless Congress and the White House could agree an other ways to reduce deficit spending.
No deal was reached and the Pentagon was hit with a $37 billion reduction that took effect in March, midway through the 2013 fiscal year. Coming so late in the year, the cut forced the military to reduce Army training, ground Air Force jets, curb Navy steaming days and put 650,000 civilian workers on 11 days of unpaid leave.
Hagel said the review, which was carried out by the top Pentagon civilian and military leaders, agreed to undertake a series of efficiency moves regardless of the scope of the cuts in the coming years.
The cuts include a 20 percent reduction in the budgets of the department's main headquarters, consolidation of functions within the office of the defense secretary and reducing duplicative intelligence activities. The moves would save about $40 billion over a decade, Hagel said.
Hagel said any serious attempt to reduce Pentagon spending would have to deal with rising pay and benefit costs, which have grown 40 percent more than inflation since 2001 and now make up about half the department's more than $500 billion budget.