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As Fiscal Cliff Nears, Panetta Warns of Furloughs

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WASHINGTON -- With the real possibility of massive military budget cuts just days away, Defense Secretary Leon Panetta on Thursday told defense employees that staffing and program cuts will be considered if Congress can't agree on alternative budget plans.

In a department-wide memo, Panetta wrote that he does not expect any immediate disruptions to military operations on Jan. 2 -- the day the budget cuts are set to trigger -- but warned that "should we have to operate under reduced funding levels for an extended period of time, we may have to consider furloughs or other actions in the future."

Military pay and staffing are exempt from the cuts, and Panetta promised to provide "requisite advance notice" before any civilian employee actions.

"We will carefully examine other options to reduce costs within the agency before taking such action," he wrote.

It's the first formal warning to defense employees that their jobs could be lost to the two-year fight in Congress over the national debt, and a sign of how poorly last-minute negotiations between the White House and Republican leaders have gone.

On Thursday, the House abruptly adjourned for Christmas after failing to pass viable plans to avoid the so-called "fiscal cliff" -- tax increases and $1 trillion in automatic spending reductions set to go into effect the first week in January.

House Speaker John Boehner, who has been sparring with the president behind the scenes over details of a compromise measure, also failed to get his caucus to adopt a "Plan B" which would have allowed tax breaks for millionaires to expire in exchange for cuts in entitlement programs.

The measure wasn't expected to advance in the Senate, but was expected to provide some political cover in the event of a financial meltdown. Instead, it prompted questions about how deep the political divisions on Capitol Hill run, and whether any deal can possibly be reached in coming days.

On Friday, Boehner told reporters that he still believes a solution can be found, but only if Democrats drop their insistence on widespread tax increases and opposition to cuts in entitlement programs.

"We see a situation where, because of the political divide in the country, trying to bridge these differences has been difficult," he said. "We have to find a way to address the significant spending problems we have."

But Democratic leaders have blamed Republicans for insisting that wealthy Americans should hang on to low tax rates at the expense of needed social programs. White House spokesman Jay Carney said Thursday that the president has offered reasonable plans on tax increases and spending cuts, but conservative ideologues have so far derailed that compromise.

Lawmakers have been lamenting the possible devastating defense budget cuts for more than a year, after a congressional committee in November 2011 failed to reach any decisions on trims to federal spending mandated as part of debt ceiling extension negotiations months earlier.

That failure triggered the $1 trillion in automatic "sequestration" funding reductions -- half from defense, half from non-defense accounts -- to be implemented through across-the board cuts. For the Defense Department, the scenario would mean roughly a 10 percent cut in planned military spending from January to October, except for personnel accounts.

In raw figures, that means Defense Health programs would lose about $3.3 billion in funding, and the four services' operations and maintenance accounts would be reduced by more than $18 billion combined.

Pentagon officials thus far haven't said how those cuts will be implemented, other than to insist that such a drastic reduction can't truly be mitigated.

Panetta, in his memo, called the cuts "significant and harmful to our collective mission" but said the trigger won't immediately affect cash flow to the agency.

"This situation is different from other scenarios we have encountered in recent years, such as threat of government shutdown due to a lapse in appropriations," he wrote. "For these reasons, I do not expect our day-to-day operations to change dramatically on or immediately after Jan. 2."

But, he added, that could change if an after-the-fact solution isn't found quickly.

House and Senate leaders have promised to work with the White House on a solution up until the end of the year. Both chambers are tentatively scheduled to return to the Capitol for legislative action on Dec. 27, the first significant post-holiday session for Congress in almost two decades.

Boehner said he is still hopeful that a compromise can be found, although he admitted his main concern is "that time is running short."

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Sequestration and the Military Defense Secretary Leon Panetta
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