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U.S. Army says it faces "dire" financial situation as cuts loom

U.S. troops with the International Security Assistance Force (ISAF) keep watch at the site of a suicide attack in Kabul, February 27, 2013.
U.S. troops with the International Security Assistance Force (ISAF) keep watch at the site of a suicide attack in Kabul, February 27, 2013.

By David Alexander

WASHINGTON (Reuters) - A senior military budget officer said on Wednesday that converging financial pressures could leave the U.S. Army with just $2 billion to spend on operations, maintenance and training this year after it has funded the war in Afghanistan and other security needs.

That is a fraction of what the Army usually spends to train soldiers, maintain bases, refurbish equipment and carry out overseas operations during a seven-month period and has created a "dire" and "unprecedented" outlook, said Major General Karen Dyson, director of the Army Budget Office.

Pentagon officials have warned for months that a $46 billion across-the-board cut in defense spending - now due to go into effect on Friday - would be "devastating" to the military.

Some analysts say the Pentagon is exaggerating the impact in an effort to convince Congress to stop the spending reductions.

Officials have said the Army would be hardest hit by the spending cuts and other converging financial issues.

Dyson told reporters the "fiscal crisis" facing the Army was the result of higher-than-expected Afghanistan war costs, the looming reduction in overall defense spending and a congressional decision that extended Pentagon funding based on 2012 levels and priorities.

Costs of the Afghanistan war were projected 18 months ago, but are running higher than expected. That is in part because military supply lines running through Pakistan have not been fully restored after a shutdown last year and the expense of using alternative routes is higher.

As a result of that and other war costs, Army spending on Afghanistan is running about $6 billion higher than anticipated this year, Dyson said.

The Army also is being squeezed by Congress' decision to fund the Pentagon through March 27 with a resolution that based spending on 2012 levels and priorities, she said. As a result, much of the money allocated to the Army is in the wrong accounts and cannot be easily transferred.

That has left the Army with another shortfall that could hit $6 billion if Congress decides to extend its decision through the end of the fiscal year in September.

TROOPS' PAY AND BENEFITS PROTECTED

The Army will have to absorb more than a quarter of the $46 billion across-the-board cut to defense spending due to go into effect on Friday. Dyson said $6 billion of that cut will hit Army operations and maintenance spending.

President Barack Obama has elected to protect the pay and benefits of uniformed military personnel from the budget cuts, known in Washington as "sequestration." And the Pentagon has made it a priority to avoid cuts to Afghanistan war funding and protect money for training troops deploying to the conflict.

As a result, said Dyson, the Army had about $34 billion in its operations and maintenance accounts that would not be protected from cuts in the 2013 fiscal year. However, the fiscal year began in October 2012, so only about $20 billion in unprotected funds are left to absorb the $18 billion in cuts, she said.

"This is why we say this is a devastating environment that we're operating in," Dyson told reporters. "The Army has had to begin taking actions to cut our spending now, so that we can plan for how we will implement sequestration."

She said the Army had begun reducing contracts, canceling training, stopping maintenance, halting upkeep to facilities and imposing a hiring freeze.

Brigadier General Curt Rauhut, director of resource management at the Army's Installation Management Command, said: "Bottom line up front, sequestration will affect soldiers, families and our civilian work force and the community businesses around our installations."

Asked if the Army could realistically maintain its 75 installations with 169,000 buildings worldwide for seven months on $2 billion, a spokesman said, "No, hence the draconian efforts to slam the brakes on costs."

"Cost control won't get the Army to the end of the fiscal year," said Army spokesman Dov Schwartz. "The Army will require help to make it to year end."

(Editing by Warren Strobel and Christopher Wilson)

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