(Reuters) - A decision to cut $350 billion in security spending over the next decade will force the Pentagon to make difficult trade-offs that could lead to layoffs, canceled weapons systems or a smaller nuclear arsenal.
Following are some of the areas likely to be considered for cutbacks as the Defense Department attempts to reduce spending as required by the new deficit reduction law passed by Congress and signed by President Barack Obama.
About 45 percent of the Pentagon's base budget -- which was $526 billion this year -- goes for pay and benefits for the Defense Department's 2.3 million employees. Nearly 20 percent of the growth in the defense budget over the past decade has been due to rising personnel costs.
Defense analysts have suggested taking a knife to the $250 billion in personnel costs by shrinking the overall size of the department or changing the pay and benefit structure.
"Personnel costs really are a major driver in the defense budget, so reducing the number of personnel can generate a significant amount of savings," said Todd Harrison, an analyst at the Center for Strategic and Budgetary Assessments, an independent national security think tank.
"I think they will want to reduce the total active duty end strength a bit. With the $350 billion cut, they won't have to do much," Harrison said, adding that the civilian work force would probably be trimmed back proportionately as well.
Analysts at the Center for American Progress, a liberal Washington think tank, recommended in a recent report that the Pentagon eliminate 74,200 Army and 27,000 Marine positions along with a similar number of civilians in an effort to save $39.16 billion through 2015.
"The United States is unlikely to deploy large land armies in the near future due to the tremendous cost of these wars in both blood and treasure," said the analysts, led by Lawrence Korb, a former assistant secretary of defense.
PAY AND BENEFITS
The Pentagon also may look at reforming the military's pay and benefit structure -- everything from base salary and housing allowances to medical costs and retirement funding.
The overall annual per-person cost for active duty military personnel has risen by 46 percent in inflation-adjusted dollars over the past decade, to $121,600, Harrison said.
"They certainly can't continue allowing personnel costs to grow at that rate, but to really rein in the growth they'll have to make changes to healthcare benefits that they provide," he said.
Healthcare costs have been rising rapidly and now amount to about $52.5 billion annually. Some 9.6 million people are covered, including active-duty troops, their families, retirees and reserves.
Former Defense Secretary Robert Gates and others frequently mentioned one area they believe is ripe for reform -- the cost of health coverage for those who retire from active duty after 20 years or so and then go into the private-sector work force.
Their health insurance payments have not risen since the 1990s. Prices are so low that retirees have no incentive to take health insurance through their civilian employer rather than sticking with the military's plan. Congress has rejected attempts to raise the price in the past, but the Obama administration is now seeking a $5 per month increase.
The Center for American Progress estimated the Pentagon could save $42 billion through 2015 by reforming the healthcare system to require military retirees who work to pay a greater proportion of their healthcare costs.
The Sustainable Defense Task Force, a group of defense analysts and academics, foresaw even greater savings in a report last year. They said the Pentagon could save $115 billion through 2020 by changing the compensation and healthcare systems.
With the United States still engaged in three conflicts overseas and unemployment topping 9 percent, analysts say lawmakers may find it politically difficult to tackle personnel and compensation issues in the military. As a result, weapons programs may be the first to be sliced by the budget knife.
Some of the weapons systems likely to draw scrutiny:
F-35 Joint Strike Fighter - Lockheed Martin's F-35 Joint Strike Fighter is a likely candidate, if for no other reason than its size. The Pentagon has been planning to buy 2,443 of the aircraft through 2035 at a cost of $382 billion.
The Sustainable Defense Task Force last year recommended canceling both the Navy and the Marine Corps versions of the F-35 and replacing them with other aircraft, saving $9.85 billion through 2020.
But canceling the Marine F-35 would eventually leave the corps without a strike fighter capable of taking off from the Navy's 11 amphibious assault ships. The vessels currently carry Harrier jump jets, which are nearing the end of their service life.
What would become of the assault ships?
One possibility, said Harrison, would be to fund the Marine Corps F-35 and instead eliminate one of the Navy's full sized aircraft carriers. The short-takeoff aircraft could be used off of the assault ships.
Joint Tactical Radio System - The joint tactical radio is aimed at enabling communications among soldiers, airmen, Marines and others operating in a given theater.
The Pentagon is planning to spend another $27 billion to complete it in the coming years. It has had technical issues and some of the resulting radios cost about 10 times the versions they replace.
"I think it will make the services question whether or not they need the advanced capabilities the radios provide, whether or not it's worth the cost," Harrison said.
Aerial refueling tanker - The new Air Force refueling tanker program received bad publicity when Boeing announced just months after winning the contract that the cost of the first set of planes would be higher than the contract price.
Pentagon officials said the cost overruns were Boeing's problem -- it had offered a below-cost price in hopes of making money on the planes ordered after the initial development.
But the announcement angered some lawmakers and gave the program a black eye, contributing to the sense that the Pentagon procurement process needs reform. The Sustainable Defense Task Force has recommended that the tanker project be delayed, at a savings of $9.9 billion.
Despite the concerns about the tanker, Harrison said he did not think the project would be cut. "The Air Force has needed this tanker for more than a decade," he said.
The U.S. government could make substantial savings by reducing the size of its nuclear arsenal.
Under the New START nuclear arms treaty with Russia ratified this year, deployed nuclear warheads are due to be cut to 1,550 in seven years. In securing Senate approval, the administration promised to spend billions on modernizing the nuclear arsenal.
Analysts say the United States could save huge amounts of money by reducing the nuclear arsenal even further and eliminating one leg of the so-called triad of delivery systems -- missiles, bombers and submarines.
The Sustainable Defense Task Force recommended cutting deployed nuclear warheads to 1,000 on seven nuclear submarines and 160 Minuteman missiles while eliminating the nuclear bomber force.
It estimated savings of $113.5 billion through 2020.
(Reporting by David Alexander; Editing by Warren Strobel and Kieran Murray)