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Pentagon cuts, but it's still not enough: Analysis

The USS Arlington, front, and USS San Diego at Ingalls Shipbuilding yard, a division of Huntington Ingalls Industries, in Pascagoula, Miss.
Derick E. Hingle | Bloomberg | Getty Images
The USS Arlington, front, and USS San Diego at Ingalls Shipbuilding yard, a division of Huntington Ingalls Industries, in Pascagoula, Miss.

It appears the Pentagon is starting to make some tough decisions. But tougher ones may be yet to come.

On Friday, the Navy delayed plans to have Huntington Ingalls Industries build a second aircraft carrier that could cost more than $11 billion, according to sources quoted by The Associated Press. This, as the Pentagon may be running out of creative ways to avoid deep cuts due to sequestration.

While one source told the AP that the delay in the aircraft carrier had nothing to do with the mandatory $500 billion cuts over the next decade, a defense official earlier said, "The department was deferring many contracts until it had more clarity about fiscal 2014 funding levels."

The AP report added, however, that the Navy will extend an existing "preparation contract" for Huntington Ingalls in order to avoid "a potentially costly gap in production." It is not known how much the extension will cost taxpayers.

Even as several defense companies' stocks hit multiyear highs on Monday—including, United Technologies, Boeing, Lockheed Martin and Raytheon—UBS said Pentagon spending in August was down 16 percent from a year earlier, at $13.6 billion, with most of the reductions coming from research and development. The Army took the biggest hit, with spending down 25 percent, followed by the Air Force, down 19 percent, and the Navy, down 2 percent.

Is it enough to meet sequestration's mandated cuts? Not according to the analysis. "Even with the recent decline, outlays are still running 15-20 percent above the level implied for modernization under sequestration."

Then there's Afghanistan.

Spending debacle in Afghanistan

At the same time the military is reducing overall spending, new questions are being raised about the ongoing costs of construction projects in Afghanistan. The Special Inspector General for Afghanistan Reconstruction (SIGAR) has released a report saying the military needs to take steps to cut waste in projects totaling $4.7 billion. For example, SIGAR's analysis found at least 47 projects worth over $1.1 billion that will not be done by the time all U.S. combat troops have left Afghanistan at the end of next year.

Some of the projects have already been canceled, saving close to a half billion dollars. But many continue, and some of them are deemed too big. SIGAR said facilities are being constructed to accommodate an Afghan National Security Force of "surge" proportions, when, in fact, Afghan authorities are planning to downsize.

"The U.S. is building permanent facilities with lifespans of 25 years or more for a temporary surge force potentially lasting 4 to 5 years," the report said.

As CNBC has reported, SIGAR uncovered evidence that a $34 million building for U.S. troops was still being constructed even as the military made plans to leave.

The Inspector General is recommending that the Pentagon figure out which of the construction projects can be downsized or eliminated, and use existing projects with overcapacity to reduce the need for other construction. Finally, the report suggests the military come up with a plan "detailing specifics for security and oversight for construction projects continuing past 2014."

—By CNBC's Jane Wells. Follow her on Twitter: @janewells.

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