UPDATE 2-Pentagon cutting jobs, maintenance due to budget fears-official
* Up to 46,000 temporary and contract workers affected
* Navy to delay maintenance on 30 ships
* Defense Department civilian employees face furloughs
WASHINGTON, Jan 25 (Reuters) - The Pentagon has begun laying off many of its 46,000 temporary and contract workers and delaying maintenance on aircraft and ships to slow spending due to fears it may be hit by new budget cuts, Deputy Defense Secretary Ashton Carter said on Friday.
The Pentagon also plans to formally notify Congress in the next few weeks that if further budget cuts take place on March 1, it will furlough most of its 800,000 full-time civilian employees, probably by asking them to take a day off per week for the last 22 weeks of the fiscal year, Carter said.
"Obviously this is a terrible thing to have to do to our employees and to the mission," Carter said. "But it's necessary because it'll save $5 billion and we have to find that money."
The cost-cutting steps come as the Pentagon tries to deal with budget uncertainty caused by the threat of $45 billion in across-the-board spending reductions on March 1 and Congress's failure to appropriate defense funding for the 2013 fiscal year.
The Pentagon currently is absorbing $487 billion in cuts to projected defense spending over 10 years that were agreed in the Budget Control Act of 2011. That law also required the additional across-the-board cuts by Jan. 1, 2013, unless Congress agreed to an alternative.
Lawmakers failed to reach a new deal but did agree to postpone the across-the-board cuts until March 1 to give themselves more time. But March 1 is five months into the fiscal year, giving the Pentagon less time to absorb any cuts.
Defense officials had long resisted taking action in response to the threat of additional reductions, saying they were put in place to try to force Congress to reach an alternative.
But Carter said the congressional debate on U.S. financial issues in late December had been sobering, with little discussion of how cuts would affect the Pentagon or its mission. Postponing the decision for another two months reduced the time the department would have to respond.
"When we were marching up to January 1 we had more runway, more time to absorb cuts if we had to absorb cuts," Carter said. "Now we're running out of time and so for those two reasons, our risk calculus has to change ... and we need to begin acting."
Carter asked the military services two weeks ago to take steps to reduce their rate of spending. He said he asked them for detailed plans by Feb. 1 on what they are doing to reduce short-term spending before the $45 billion in new cuts are due to go into effect on March 1.
He also asked for detailed long-term planning by Feb. 8 on how the services will implement the $45 billion in across-the-board cuts if they go into effect.
Congressional failure to allocate funding for defense for the 2013 fiscal year has complicated the Pentagon's budget mess. The department is currently operating on a continuing resolution that maintains funding at 2012 levels until March 27.
"The problem is that the money is in the wrong pots," Carter said. He said the Pentagon had planned to spend considerably more for operations and maintenance in 2013 than it did in 2012.
"We don't have enough money to operate the forces in the way we thought we were going to," Carter said. "That's the problem. And that's a more than $10 billion problem. And we're running out of time to eat that $10 billion and that's the reason that we need to act now."
To slow the rate of spending, the department has put a freeze on civilian hiring, he said. Usually the department hires 1,000 to 2,000 civilians a week, more than 44 percent of them military veterans and 86 percent of them living and working across the country, not in Washington.
The department's 46,000 temporary and contract employees are "all now subject to release," Carter said, meaning they will either be let go now or will not have their contracts extended. The only exception would be if they are performing jobs critical to the war or the department's basic mission.
The department also is cutting back on base and equipment maintenance, which costs about $15 billion per year. He said the Navy would cancel maintenance on 30 ships that had been planned for the third and fourth quarters this year.
"They're not going to sign those contracts with the shipyards that do that work," Carter said.
Carter said the Pentagon would have to do "more draconian things" if Congress allows the $45 billion in cuts to go into effect, likely leading to "a pervasive crisis in readiness."
He said the Army projected that if the cuts occur, two-thirds of its active brigades and all of its reserve brigades would be operating at reduced readiness. Funds for training would primarily be used to prepare troops deploying to Afghanistan, while others would largely do without, he said.
Most Air Force flying units would be at reduced readiness by the end of the year, he said. The Navy would have to cut back steaming days by 30 percent to 35 percent, affecting its presence in the Gulf and Asia-Pacific region. He said the cuts might affect the U.S. ability to keep two carriers in the Gulf.