View Full Version : Pentagon Cuts May Be Held Down By Congress

11-25-2005, 01:40 AM
Pentagon cuts may be held down by Congress


Bloomberg News

WASHINGTON Cuts in Pentagon spending may not be as severe as some investors in military companies anticipate because U.S. lawmakers are trying to preserve most of the large weapons programs under development.

"Nothing radical is going to happen," said David Scruggs, a military analyst with the Center for Strategic and International Studies, a research group in Washington. "As long as we're still fighting in Afghanistan and Iraq, I don't see major cuts. You will see some shaving around the edge."

The Pentagon may have to cut at least $32 billion from its planned spending through 2011, a top military official said last month. Lawmakers would rather spread those reductions among various programs than jeopardize any single project, Scruggs said. Investor concern about the future of programs like the $256 billion Joint Strike Fighter being developed by Lockheed Martin has driven down the shares of military contractors in the past month.

"Congress acts as a moderating influence on the Department of Defense," Scruggs said. In February, the Pentagon was pressured by the Congress to back off almost $5 billion in proposed cuts to the C-130J transport aircraft program of Lockheed, the biggest U.S. military contractor.

Brian Eisenbarth, chief investment officer of Davidson Investment Advisors, said, "Ever since 9/11 and the terror attacks got the budget pumped up, there's been this huge boon for the industry." He added, however, "The sustainability of that contract activity is pretty slim. It's hard to see that keep on going into the future."

Budget hearings for the fiscal year that begins Oct. 1 will start in early 2006. The U.S. defense secretary, Donald Rumsfeld, will set the tone with the release in February of the Quadrennial Defense Review, a planning release in February of the Quadrennial Defense Review, a planning document.

The Pentagon will have to slice at least $32 billion from its fiscal 2007-2011 budget plan, the deputy defense secretary, Gordon England, wrote last month in a memorandum. That includes cuts of $7.5 billion in 2007, which are expected to grow to $10.1 billion in 2011.

In February, the Pentagon estimated the fiscal 2007 defense budget would increase to about $443.1 billion, rising to $502.3 billion by fiscal 2011.

Senator James Inhofe, an Oklahoma Republican who serves on the Armed Services Committee, has rejected calls for any cuts in military spending. "We should have a much more robust defense budget," he said last week.

But Senator Ben Nelson, a Nebraska Democrat who also is on the committee, said Hurricane Katrina and the wars in Iraq and Afghanistan were straining the general budget, making cuts in weapons programs necessary at some point.

"There will be pressure and I think that pressure will prevail," Nelson said.