* USS Miami burned in blaze set by shipyard painter
* Estimated cost of repairs had risen to $700 million
* Move will free funds for other delayed maintenance
By David Alexander
WASHINGTON, Aug 7 (Reuters) - The U.S. Navy said on Wednesday it will scrap a nuclear-powered submarine damaged by an arsonist last year rather than repair it, saying the $700 million repair cost could not be justified in a time of tight budgets.
The decision to deactivate the USS Miami nuclear attack submarine, which had been scheduled for another decade of service, was the second example in as many days of the balancing act facing the Pentagon as it attempts to deal with effects of huge across-the-board budget cuts.
The department announced on Tuesday that it had found ways to trim $1 billion in planned spending, enabling it to reduce the unpaid leave it is forcing on some 650,000 civilian employees this fiscal year to six days from 11.
Rear Admiral Rick Breckenridge said the decision to deactivate the USS Miami, which involves removing the nuclear fuel and preparing the vessel to be taken apart, followed a reassessment that projected a jump in likely repair costs to about $700 million from the initial $500 million.
"I want to emphasize just the colossal nature of the repair required to restore Miami to service," he told reporters in a conference call, noting the job was four times the amount of any previous repair job. "We're talking about the whole forward front end of the ship gutted."
The $37 billion across-the-board budget cut imposed on the Pentagon in March kept the Navy from accomplishing as much work on the Miami this year as it expected, he said, and it would have taken $390 million in the next fiscal year starting on Oct. 1 to repair the vessel.
"Miami casts a fairly large shadow over an already pressurized maintenance and repair effort," Breckenridge said. "We just don't have that money within the Navy without substantially affecting critical maintenance on other warships and submarines."
The Miami was ravaged while undergoing repairs at the Portsmouth Naval Shipyard in Kittery, Maine, in May 2012 when a civilian painter used a bag of rags to ignite a fire because he wanted to leave work.
Breckenridge said the fire began during a shift change and as a result burned and spread for about 15 minutes before workers detected it. The fire burned for 12 hours as responders struggled to get into hard-to-access places to extinguish it. Four firefighters were injured.
Casey James Fury, 25, who was on medication for anxiety and depression at the time of the fire, pleaded guilty to setting the blaze and was sentenced this year to 17 years in prison.
Deactivating the submarine will take about nine months of preparation followed by another nine months of work at a cost of about $54 million. The work will be done at the Portsmouth Naval Yard, where it is still in dry dock, Breckenridge said.
The decision means cancellation of a substantial amount of work for General Dynamics Electric Boat, which was due to handle the repairs. Breckenridge said the Navy was "looking hard" at other projects that could be shifted to Electric Boat to offset the impact on the company's work force.
The Navy has 53 nuclear-powered attack submarines in its fleet plus four cruise missile submarines. It typically keeps 10 of the vessels forward-deployed around the world at all times, Breckenridge said.