Source: bloomberg.com

Republicans on the U.S. House and Senate defense committees say they’ll work to block $500 billion in defense budget cuts threatened by the failure of the deficit supercommittee to reach agreement yesterday.

The chairman of the House Armed Services Committee said he will introduce legislation to prevent the cuts. President Barack Obama said he’d veto any attempt to void the automatic cuts.

“I will not be the armed services chairman who presides over crippling our military,” Howard P. “Buck” McKeon, a California Republican, said in a statement yesterday.

Republican Senators Lindsey Graham of South Carolina and John McCain of Arizona said they also were working on a plan to evade the automatic cutback.

“The first responsibility of any government is to provide for the common defense; we will pursue all options to make certain that we continue to fulfill that solemn commitment,” Graham and McCain said in a joint e-mailed statement.

Lawmakers on the bipartisan supercommittee announced yesterday that they failed to reach agreement on a plan to reduce the federal deficit by at least $1.2 trillion. Under the law, automatic spending cuts for the Defense Department and other agencies would take effect in 2013.

Veto Threat
Obama said yesterday that he would veto any move to avoid the automatic cuts. Lawmakers still have a year to “figure it out” and come up with a deficit reduction plan, he said.

Defense Secretary Leon Panetta pressed lawmakers in a statement “to avoid an easy way out of this crisis,” and pass deficit reduction measures at least equal to the $1.2 trillion that the supercommittee was tasked with finding.

“If Congress fails to act over the next year, the Department of Defense will face devastating, automatic, across- the-board cuts that will tear a seam in the nation’s defense,” said Panetta. “I have never been more concerned about the ability of Congress to forge common-sense solutions to the nation’s pressing problems.”

Defense companies and their lobbyists will prepare their “playbooks” to fight automatic cuts next year, said Michael Herson, president of American Defense International, a lobbying and consulting firm in Washington, DC. ADI’s client roster includes Northrop Grumman Corp. (NOC) and General Atomics, the maker of the Predator drones.

‘Figure This Out’
The automatic defense cuts of $500 billion, not including interest, are slated to start in 2013, leaving almost a whole year for negotiations, said Herson.

“It gives us a whole year to try and figure this out,” Herson said.

Defense companies “are all going to be acting differently,” he said. “They are going to be preparing themselves for the worst but they are going to hope for a deal to be done. Defense companies will not be affected by this equally: there will be winners and losers.”

The Pentagon already is cutting about $450 billion from its budget over the next decade as a result of the budget control act that Obama signed into law Aug. 2. The same measure created the supercommittee.

‘Hollow Force’
Panetta warned yesterday that the additional cuts would lead to a “hollow force” and would “jeopardize” the Pentagon’s ability to provide the members of the military and their families with the benefits that they have been promised.

“Our military has already contributed nearly half a trillion to deficit reduction,” McKeon said in the e-mailed statement. “Those who have given us so much, have nothing more to give.”

McKeon is still weighing the options of how to reverse the automatic cuts as well as the best time to introduce his measure.

If Republican efforts to reverse the automatic defense cuts fail, the Defense Department’s budget would face reductions of about $1 trillion over a decade, the most of any department.

Panetta on Nov. 14 said in a letter that cutting $1 trillion from defense may lead to the termination of Lockheed Martin Corp. (LMT)’s F-35 jet and would reduce the “size of the military sharply.” At $382 billion, the F-35 is the Pentagon’s most expensive weapons program.

If Obama exercises his authority to exempt military personnel from cuts, other Pentagon programs could be slashed in 2013 by 23 percent, Panetta said. Such funding reductions may mean termination of programs such as the F-35, major space initiatives, silo-based U.S. nuclear missiles and a new vehicle for the Army and Marine Corps. The Navy’s new Littoral Combat Ship program might be affected, Panetta wrote. The ship is designed to operate closer to coastlines than existing surface vessels and may be used for clearing mines, hunting submarines and providing humanitarian relief.

Cutback Limitations
“You cannot buy three quarters of a ship or a building,” he wrote the lawmakers, urging them to ensure that Congress finds deficit reduction through other means.

The Pentagon as recently as February anticipated spending $571 billion in 2013, or 1 percent real growth over fiscal 2012’s $553 billion basic request. The projections increase to $611 billion in 2016. Without the automatic cuts, Pentagon budget planners anticipate about $522.5 billion annually in 2014-2017, in 2011 dollars. The projections assume war funding of $50 billion in 2014, $30 billion in 2016 and $20 billion in 2017. That’s down from $117 billion proposed this fiscal year.

Mothballed Ships
McKeon’s committee in September released an analysis that concluded that the U.S. Navy may mothball as many as 60 ships if automatic spending cuts go into effect. The Pentagon would have to curtail the next generation bomber and Boeing Co. (BA)’s refueling tankers, according to the assessment compiled by the Republican staff of the Armed Services Committee.

The analysis assumes more than $1 trillion in defense cuts and that military pay, benefits and funding of the wars in Afghanistan and Iraq would be exempted. Each military department would take a cut of 24 percent from remaining appropriations, it said.

Defense and aerospace companies, led by the Aerospace Industries Association, have warned lawmakers that the U.S. would lose 1 million jobs and $59.4 billion in wages and salaries tied to their businesses if automatic cuts are imposed.

The Aerospace Industries Association -- a trade group which represents Lockheed Martin, Boeing and Northrop Grumman -- has been using the figures in its lobbying campaign to persuade lawmakers to avoid a scenario in which the defense budget may be cut by $1 trillion over the next decade.

Job Losses
The study commissioned by AIA “assumes that nothing else happens when you cut defense,” said Gordon Adams, a professor at the American University in Washington and a former official in the White House Office of Management and Budget during the Clinton administration.

“Assume, for a moment, that reducing defense budgets, along with other spending, and holding revenue policy constant had, as Republican economics assume today, a healthy impact on economic growth and job creation,” Adams wrote on his blog Capital Gains and Games. “Private capital is liberated to invest, risk-takers abound, interest rates remain low, the government gets smaller, and, voila!, the economy starts to surge, creating millions of jobs.”

AIA President Marion Blakey warned in a statement yesterday that the Pentagon will start applying cuts to the fiscal year 2013 budget which it presents to Congress in February.

“Job losses will increase as the Pentagon is forced to halt work,” Blakey said. “AIA will continue to make sure that the impacts to our nation, economy and industry are well understood by all Americans.”