Future cuts may hit defense industry hard

By Bob Cox

rcox@star-telegram.com

Defense spending will be squeezed but not slashed in the first round of deficit reduction mandated by Congress, which likely means no major cuts in programs important to North Texas companies and their employees.

What happens after that, in 2013 and beyond, may well be another story.

Defense Secretary Leon Panetta and top Pentagon leaders will have difficult but not monumental decisions to make in the coming months to implement the 2012 defense budget dictated by the deficit-reduction bill approved last week.

But unless Congress makes hard political decisions in the next few months to cut other areas of the federal budget or to raise taxes, the defense budget in 2013 and beyond faces much deeper reductions.

The military services could be forced to make broad and sweeping cuts in troop levels and, most importantly to the defense industry, spending on weapons development and purchases.

In the next year or two, defense analysts say, Panetta and military leaders will almost certainly be faced with choosing between programs that can and should be cut.

Programs like Lockheed Martin's F-35 joint strike fighter and littoral combat ships like the USS Fort Worth, Bell Helicopter's V-22 Osprey and new Navy aircraft carriers will be scrutinized, as will a new Air Force bomber and a whole new fleet of helicopters the Army wants to spend billions to develop and buy.

The initial defense spending caps imposed by the Budget Control Act of 2011 are not much different from those announced by President Barack Obama in April, which involved cuts from long-term budget plans submitted two months earlier.

For 2012, the base defense budget -- excluding costs of combat operations in Iraq and Afghanistan -- is $525 billion. That's roughly $5 billion less than 2011 and $30 billion less than the Pentagon's proposed 2012 budget.

How tough is that?

"It's not draconian. It's not drastic," said Todd Harrison, analyst with the Center for Strategic and Budgetary Assessments in Washington.

"It's chicken feed," said Winslow Wheeler, analyst with the Center for Defense Information and a consistent critic of the Pentagon. "It leaves base DoD spending at more than $100 billion above what it was before 9-11."

But Baker Spring, a defense analyst with the conservative Heritage Foundation, says even that modest reduction will weaken the U.S. military by forcing cutbacks in troop strength and fielded units. Needed new fighter jets, ships and ground forces won't be funded.

"There will be some effect," Spring said, "on [the military's] readiness" to fight if needed.

The base Pentagon budget would stay flat in 2013 and then increase incrementally through 2021.

But that's just round one.

In 2013 a second round of cuts comes into play. By the end of this year, Congress must find $1.2 trillion in additional budget reductions through 2021. If it fails to do so, the law mandates an across-the-board round of cuts from discretionary spending, about half of which would have to come from defense. That would mean an additional $50 billion a year in cutbacks.

Both Panetta and Adm. Mike Mullen, chairman of the Joint Chiefs of Staff, have said they can live with the initial round of reductions but not a second round.

It "would result in a further round of very dangerous cuts across the board ... that I believe would do real damage to our security, our troops and their families and our military's ability to protect the nation," Panetta told reporters last week.

So where do the cuts come from?

"I think programs that can't meet ... their cost and schedule requirements are very much in jeopardy and will be very much under scrutiny," Mullen said.

The enormous costs of the F-35 program, estimated at $382 billion to purchase more than 2,400 planes for the Air Force, Navy and Marines, makes it a big target for reductions.

At least initially, the Pentagon can meets its new, smaller budgets with "modest cuts" and priority changes, Harrison said. Some weapons purchases will be slowed, and new programs won't be started. Troops' and veterans' contributions to their Tricare health benefits program may rise.

Wheeler says the military services badly need to cut overhead costs, by some estimates 40 percent of the budget, and purge their ranks of layers of admirals, generals and their staffs.

"That kind of bloat is all over the place," Wheeler said.

Rather than mandated across-the-board cuts, Congress can meet the $1.2 trillion in further deficit reduction with targeted cuts, trimming growth in entitlement spending or even raising taxes. Some political observers have speculated that conservatives and Republicans could agree to increase taxes to spare further defense cuts.

Spring isn't buying that. He fears that even if Congress acts, it will largely follow the blueprint of just cutting discretionary programs. The result, he said, would be that U.S. spending on defense would decline from about 4 percent of gross domestic product to 2.5 percent by 2021, which would lead to real declines in military capabilities.

Bob Cox, 817-390-7723

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