With 2015 budget, Pentagon looks beyond Afghanistan

WASHINGTON (Reuters) - The Pentagon unveiled a $496 billion (297 billion pounds) base budget on Tuesday that shifts the United States from its war-footing for the first time in a dozen years, cutting the size of the military to pay for training and new weapons systems in an era of tighter spending.

The budget sets the Obama administration on a collision course with Congress by seeking to eliminate popular older weapons and reform military compensation while proposing an additional $26.4 billion in military spending to be paid for by closing tax loopholes and cutting mandatory spending.

It drew an immediate negative reaction on Capitol Hill, with U.S. Representative Buck McKeon, the Republican chairman of the House Armed Services Committee, expressing "dismay about the shrinking might of the military reflected in this budget," and noting that Russia and China were arming at "an alarming rate."

The department's base budget for the 2015 fiscal year beginning in October would remain essentially flat for a third consecutive year as the Pentagon tries to comply with a congressional mandate to reduce projected spending by nearly $1 trillion over a decade.

The White House said Pentagon's funding levels would enable the military to protect U.S. interests and execute the country's updated defence strategy, albeit with "somewhat increased levels of risk." The risks "would grow significantly" if higher budget cuts go into force in 2016 and beyond as planned, it said.

Analysts said the true level of defence spending would not be known until the Pentagon releases its war-funding request for 2015 in coming months. That segment of the budget that has become increasingly important source of operations and maintenance money because it is not subject to congressional budget caps.

Todd Harrison, a defence analyst with the Centre for Strategic and Budgetary Assessments, said money included in the war-funding budget in 2014 largely offset the more than $30 billion in across-the-board cuts imposed on the base budget.

The budget calls for the Army to shrink to between 440,000 and 450,000 soldiers, down from a war-time high of 570,000, a reduction of 40,000 to 50,000 compared to last year's proposal.

It would eliminate the entire fleet of popular A-10 "Warthog" tank-killer aircraft, as well as the venerable U-2 reconnaissance plane. The budget also cancels several other key weapons programs.

The Army's new ground combat vehicle would be eliminated, saving $3.4 billion over the next five years, and the Army communications network being built by General Dynamics Corp would be scaled back, saving another $3.4 billion.

The budget also scraps plans to build two additional Lockheed Martin Corp Advanced Extremely High Frequency satellites, for $2.1 billion in savings, and defers two Global Positioning System III satellites to be built by Lockheed.

The Air Force's proposed new combat rescue helicopter, a program for which Sikorsky Aircraft, a unit of United Technologies Corp. was the sole bidder, would be delayed.

The Pentagon would use some of the savings to invest in new research, development and procurement. The budget includes $153.9 billion for weapons, including $40 billion for aircraft, $22 billion for ships and $8.2 billion for missile defence.

The budget included a $79.4 billion figure for war funding for 2015, but that was described as a "placeholder" until the actual request is submitted once the size of any post-2014 U.S. force in Afghanistan is known.

The war-funding supplement, for Overseas Contingency Operations, has remained in the $80 billion range since fiscal 2013, even as the number of U.S. troops in Afghanistan has fallen to 33,700 from about 88,000.

While the 2015 budget assumes the Afghanistan war will end after December 2014, the administration indicated it would continue seeking additional war funding in the coming years. It proposed a total cap of $450 billion on contingency operations between fiscal 2013 and 2021.

(Reporting by David Alexander and Andrea Shalal; Editing by Susan Heavey)

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