Panetta says difficult Pentagon cuts are coming

WASHINGTON (Reuters) - Defense Secretary Leon Panetta said on Tuesday the Pentagon will have to cut outlays on personnel, benefits and equipment as it makes the "difficult choices" required to reduce security spending by $450 billion over the next decade. Panetta, in what was billed as his first policy address, said the Pentagon wanted to make the spending reductions based on "strategy rather than expediency" and he appealed for lawmakers to support the effort. "Congress must be a responsible partner ... in supporting a strong defense strategy that may not always include their favorite base or their weapons system," he said, a request likely to go unheeded by lawmakers looking to protect jobs in their districts. Panetta's remarks, to the Woodrow Wilson International Center think tank, were the most detailed so far elaborating his views about what the Pentagon will have to do to meet the spending reductions called for in the debt reduction agreement approved by Congress and President Barack Obama in August. That deal requires $350 billion in cuts over 10 years in comparison to a Congressional Budget Office baseline of projected national security spending. The cuts represent more than $450 billion when measured against the Pentagon's own baseline projections. The cutbacks come at a difficult time for the Pentagon. While U.S. forces are due to leave Iraq by the end of the year, the United States and its NATO allies are still involved in a decade-long war in Afghanistan and are only slowly beginning to transfer security responsibility to local forces. The Pentagon is under pressure to modernize many of its major systems, from aerial refueling tankers to aircraft carriers, and must be prepared to deal with challenges from Iran and North Korea, which are developing nuclear programs, and China, whose military ability is expanding rapidly. Panetta said the largest area being examined for Pentagon spending cuts was force modernization, new weapons systems and maintenance. Every contract, he said, would be examined for savings that would not undermine "readiness or our ability to perform essential missions." "These cuts will need to be carefully targeted ... to ensure that we maintain a robust industrial base and to protect the new military capabilities we need in order to sustain military strength," he said. "But we will need to consider accepting reduced levels of modernization in some areas, carefully informed by strategy and rigorous analysis" STREAMLINING Panetta said the Pentagon would attempt to find $60 billion in reductions by streamlining, cutting overhead and eliminating waste and duplication. That figure comes on top of the $150 billion in efficiency savings announced previously by former Secretary of Defense Robert Gates. He said the Defense Department also would have to deal with rising military personnel costs, which have grown more than 80 percent in the past decade while the level of military employment has risen only 5 percent. Panetta did not elaborate on what actions might be taken, but he noted the government had implemented a two-year freeze in civilian pay and said "we must at the same time look at what reforms we can make in military pay as well." He said the issue of military pay was "an area of extreme challenge" because the Pentagon needed to be able to attract service members to the all-volunteer force and "keep faith with the men and women who have put their lives on the line to defend this country." "The 1 percent of the country that has served in uniform, and their families, have borne the heavy costs of war for 10 years," Panetta said. "They cannot be expected to bear the full costs of fiscal austerity as well." He indicated size of the military's ground forces would have to undergo "limited reductions" after the wars end in Iraq and Afghanistan but said he wanted to "maintain a sufficient force to confront the potential of having to fight in more than one area. Maintaining the readiness of the National Guard, a state-based militia, and the different military reserves would be critical if the size of the active-duty force was reduced, Panetta said. (Editing by Bill Trott and Cynthia Osterman)