UPDATE 1-Pentagon expects real growth in its next budget

Wed Aug 25, 2010 8:05pm EDT

* Boost would come despite record deficit

* Defense Secretary is seeking savings in overhead (Adds quotes, background, byline)

By Jim Wolf

WASHINGTON, Aug 25 (Reuters) - The Pentagon's chief financial officer said the White House likely would seek real growth of about 1 percent in the next Defense Department budget, despite growing calls in Congress for cuts to help rein in record deficits.

"I expect there will be some modest growth in the budget," Robert Hale, the department's comptroller, told reporters on a conference call on Wednesday. "We've asked for about 1 percent for the top line above inflation -- and I think we have a shot at getting that."

Defense Secretary Robert Gates is seeking to boost spending on U.S. forces and their arsenal by as much as 2 percent to 3 percent under plans he started outlining in June. He aims to do so partly by paring more than $100 billion from bloated overhead accounts from fiscal 2012 through 2016. Savings would be spent on U.S. forces in the field and modernization of the U.S. arsenal.

Among those who could benefit are the Pentagon's largest suppliers -- Lockheed Martin Corp (LMT.N), Boeing Co (BA.N), Northrop Grumman Corp (NOC.N), BAE Systems Plc (BAES.L), General Dynamics Corp (GD.N) and Raytheon Co (RTN.N).

President Barack Obama is to send his fiscal 2012 spending plan to Congress by February 7. Even some conservative Republicans, mindful of the deficit, are eyeing possible cuts in military spending, which has roughly doubled in real terms since the Sept. 11, 2001, attacks on the United States.

Obama's 2011 budget request, released Feb. 1, sought $548.9 billion for the Defense Department's base budget, a real increase of 1.8 percent in purchasing power over the sum appropriated in fiscal 2010 for activities excluding Iraq, Afghanistan and other hot spots.

Hale made his comments in a session to highlight a push by the Defense Logistics Agency to drive down the prices it pays as much as 10 percent in selected areas. The agency buys nearly all of the military's consumable items, including food, fuel and spare parts.

DLA aims, among other things, to "leverage" its buying power by consolidating smaller contracts into larger ones to purchase in greater volume, said Navy Vice Admiral Alan Thompson, the agency chief.

Hale said: "We realize that we owe the American people every effort to be efficient since we're asking for large sums of money in a period that the country is having some serious economic problems."

Gates announced on Aug. 9 plans to cut spending on support contractors by 10 percent a year across the board for each of the next three years, part of an effort to dodge deeper budget cuts by Congress. (Reporting by Jim Wolf; Editing by John Wallace and Richard Chang)

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