Pentagon Must Trim Plans, Darman Says

Incoming President Bush’s designated budget director bluntly warned the Pentagon on Thursday that it will have to slash its spending plans to meet Bush’s budget goals.

In his first public comments since being nominated by Bush, Richard G. Darman told the Senate Governmental Affairs Committee at his confirmation hearings that he believes that Congress and the White House are not prepared to give the Defense Department any money beyond what is needed to keep up with inflation.

As a result, he predicted, there will “be a defense squeeze.”

Darman’s comments are likely to set off alarm bells throughout the vast defense contracting industry, much of which is concentrated in California. Although Darman did not name any particular weapons programs that might be cut back, budget analysts have suggested that such programs as the B-2 stealth bomber built by Northrop Corp. in Southern California, additional aircraft carriers and two advanced fighters planned by the Navy and the Air Force might be targets for postponement or elimination.

Higher Spending Planned

The Pentagon, which receives about $300 billion a year, plans to spend over the next five years about $95 billion more than the amount that would be required just to keep up with inflation. Moreover, most analysts believe that the Pentagon could not maintain its current force structure even if it receives the annual 2% real budget increases it projects.

Yet, “as a matter of realism,” Darman said, those increases “won’t be ever funded.”

Darman also said he is opposed to any relaxation of the Gramm-Rudman deficit targets, which require Congress and the White House to reach agreement by October on a budget blueprint that would cut next year’s federal deficit to $110 billion. If they fail to agree, the law would impose automatic spending cuts--split between defense and domestic programs--that would reduce the projected deficit to $100 billion.

Although saying he vastly prefers to reach a negotiated settlement with Congress that would avoid the automatic cuts, Darman said the Pentagon should not rule out the possibility of failure and “should be prepared to take the (automatic cuts).”

During an intense 4 1/2 hours of questioning by senators, Darman also sought to “close the door” to any impression that Bush would accept higher taxes. Although he acknowledged that he probably would adopt a number of revenue-increasing measures included in President Reagan’s last budget, Darman told reporters during a break that “there will not be any new taxes in Bush’s budget, as defined by any reasonable observer.”

In what may well be an early negotiating ploy designed to force Congress to go along with Bush’s no-tax vow, Darman said that, if faced with the choice between automatic cuts and a tax increase, he would favor the spending cuts.

Darman said Bush expects to submit a relatively detailed budget proposal by mid-February that would outline his own priorities and show where he differs from Reagan.

But Darman said Bush probably will rely on Reagan’s economic assumptions, which many lawmakers have criticized as unrealistically optimistic.

Darman also suggested that the Bush Administration’s plans to resolve the savings and loan industry crisis are likely to require about $45 billion to $50 billion in public spending to close insolvent thrifts. He downplayed some estimates that the additional cost to taxpayers of a thrift bailout would exceed $100 billion by arguing that many of the worst thrifts already have been merged or sold to investors by regulators.