DOD TO SLASH $32 BILLION FROM SERVICE BUDGETS; MORE CUTS MAY FOLLOW

November 3, 2005

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The Defense Department is weighing $32 billion in cuts to major weapon systems and Army force structure over the next six years, reductions that may represent only a down payment on the total bill facing the Pentagon as federal budget pressures mount.

The steep cuts -- including an $8 billion decrement in fiscal year 2007 -- were proposed by the services after Gordon England, acting deputy defense secretary, directed them in an Oct. 19 memo to nominate $32.1 billion in reductions to their respective programs across the fiscal year 2007 to 2011 spending plan. InsideDefense.com reviewed a copy of the memo.

Cuts proposed in response to the memo may represent the last opportunity by the service brass to influence the shape of the military's FY-07 budget request and subsequent program, according to Pentagon officials.

This late-October round of budget cuts -- applied across five years -- represents a larger reduction than the $30 billion package of cuts handed down in late December 2004, when program budget decision No. 753 rocked the Pentagon, slashing across the Defense Department's portfolio of modernization plans.

The England memo, some details of which were first reported by InsideDefense.com on Oct. 21, also told the services to prepare for more cuts. The $32 billion does not "reflect the total shortfall, therefore we may need to adjust further in the future," England wrote.

According to England's memo, the Army is due to shoulder $11.7 billion worth of the new cuts; the Air Force's share is $8.6 billion; the Navy's is $8.5 billion (which includes Marine Corps reductions); and defense-wide cuts total $3.3 billion.

The largest changes are saved for the outyears. The Army must slice $2.3 billion in FY-07, $2.8 billion in FY-08, $1.2 billion in FY-09 $1.8 billion in FY-10 and $3.6 billion in FY-11. Air Force reductions include $2.1 billion in FY-07, $2.6 billion in FY-08, $500 million in FY-09, $900 million in FY-10 and $2.5 billion in FY-11.

The Navy's budget cuts are $2.2 billion in FY-07, $2.4 billion in FY-08, $300 million in FY-09, $700 million in FY-10 and $2.9 billion in FY-11. And the defense-wide reductions are $900 million in FY-07, $900 million in FY-08, $100 million in FY-09, $300 million in FY-10 and $1.1 billion in FY-11, the memo stated.

Subsequent cuts, if they are enacted, will be based on results of the Quadrennial Defense Review as well as expected cuts from the White House, which would be spelled out in the forthcoming annual Office of Management and Budget "pass-back memo." That memo is expected to reflect mounting federal budget pressures, including the huge bill expected from Hurricane Katrina relief efforts.

The QDR and White House cuts, coupled with the services' responses to England's Oct. 19 directive, will inform a late November meeting of the Strategic Planning Council, which includes the Pentagon's Senior Level Review Group and the combatant commanders.

According to the England memo, the services should expect further budget cuts to be directed then by the Joint Staff and the Office of the Secretary of Defense.

In a highly unusual development, the Army has classified how it would pay its portion of the England-directed cuts. However, sources familiar with the recommendation say the ground service has turned not to its procurement accounts to pay its share. Instead, the Army -- already stretched thin by current deployments to Iraq and Afghanistan -- is proposing reductions to its force structure, these sources said.

"It's a gold watch is what it is," said one industry official who believes the Army is fully aware that the Office of the Secretary of Defense would be loath to reduce the size of the service.

"It's causing quite some perturbations," said the official.

The Navy has tendered a number of programs to cut or kill, including its share of the Aerial Common Sensor and a new logistics ship, according to another industry source familiar with Navy plans.

The total $32 billion package of cuts may be part of a wider strategy to identify capabilities that can be cut in order to invest in new areas, said Andrew Krepinevich, executive director of the Center for Strategic and Budgetary Assessments.

The ongoing QDR is nearly complete, and senior officials overseeing the assessment, including England, are examining how to reallocate resources across the Pentagon's budget. These cuts could be a prelude to executing "portfolio" trades, Krepinevich said.

Alternately, they could simply represent cuts apportioned across the force to pay a bill as evenly as possible, he said. -- Jen DiMascio and Jason Sherman