GWEN IFILL: Now we take a two-part look at President Obama's choice to be the next secretary of defense.
Confirmation hearings for former Nebraska Senator Chuck Hagel are set for Thursday. Among other things, he is likely to face questions about the Pentagon's looming budget crisis. Automatic spending cuts set to take effect March first mean the Defense Department may have to find $52 billion in savings this year and half-a-trillion dollars over the next decade.
NewsHour correspondent Kwame Holman reports.
KWAME HOLMAN: Outgoing Defense Secretary Leon Panetta recently sounded the alarm at the prospect of looming budget cuts.
DEFENSE SECRETARY LEON PANETTA, United States: The most immediate threat to our ability to achieve our mission is fiscal uncertainty. We're going to suffer some damage.
KWAME HOLMAN: That damage could be felt soon. Hundreds of thousands of the Pentagon's civilian employees will face furloughs and reduced paychecks as early as April.
GORDON ADAMS, American University: So if the new secretary is confirmed by March 1st, the first fight, before he even finds the men's room at the Pentagon, is going to be, how do I negotiate with the Congress on behalf of my interests in this bigger context of the budget?
KWAME HOLMAN: Gordon Adams was the top White House budget official for national security during the Clinton administration and now teaches at American University.
GORDON ADAMS: When he takes office, the first challenge he has is, he will be in the middle of a sequester fight, because we are supposed to have a budget sequester, meaning an automatic across-the-board cuts for the defense budget and every other federal budget, that is supposed to happen March 1.
KWAME HOLMAN: The Pentagon's top brass also is worried about any delay in resolving the budget fight. The Joint Chiefs recently told Congress they may have to "ground aircraft, return ships to port, and stop driving combat vehicles in training."
Historically, military spending rises during wartime and declines by about 30 percent once the war is over. So spending that went up nearly 70 percent in constant dollars since 2001 is on the way down, as the U.S. leaves Afghanistan and the Iraq war has ended.
That means even if Congress and the president reach a budget deal and avoid automatic spending cuts, the Pentagon's budget still is going to be reduced significantly, says Adams.
GORDON ADAMS: We are going down in the size of the defense budget. And the first and foremost challenge that the new secretary has is, how do I manage that drawdown? What do I do to make the forces smaller, to get control over management of the Department of Defense, to make sure hardware programs are coming in on time, in budget, with the capabilities that we want? How do I get my arms around the pay and benefits and compensation for the force that are very expensive? And how do I do all of that with less money?
KWAME HOLMAN: Former Senator Chuck Hagel begins the committee confirmation process on Thursday. He's made statements indicating he's open to cutting military spending.
In an interview with The Financial Times in 2011, Hagel said the wars in Iraq and Afghanistan necessarily shifted U.S. spending priorities toward the military, but that times change.
CHUCK HAGEL, Defense Secretary Nominee: The Defense Department, I think, in many ways has been bloated. I mean, let's look at the reality here. The Defense Department has gotten everything it's wanted the last 10 years and more. No American wants to in any way hurt our capabilities of national defense, but that doesn't mean an unlimited amount of money and a blank check for anything they want at any time for any purpose, not at all.
THOMAS DONNELLY, American Enterprise Institute: People have been looking for the bloat account in the Pentagon as long as I have been doing it.
KWAME HOLMAN: During the 1990s, Thomas Donnelly worked on defense issues for Republican members of Congress. He's now director of security studies at the American Enterprise Institute.
THOMAS DONNELLY: There's a very few number of airplane programs. There's a very few number of ship programs. The personnel strength of all the services is already much lower than it's been, certainly compared to the Cold War. So you are getting past the point where there is a lot of fat to cut. There is not much that won't be painful.
KWAME HOLMAN: Over the past decade, the number of U.S. ground forces increased by 120,000. The Army and Marines now are aiming to cut 100,000 service personnel by 2017. Gordon Adams predicts another 100,000 to 200,000 people will be moved out of the armed forces in the coming years.
GORDON ADAMS: When you are out of major combat operations, the ground force is what you need less of, and so it's the automatic target to shrink. It's harder to shrink deeply the Navy and the Air Force. You have a certain amount of equipment you have got to fly, you have got to sail, and a certain amount of staffing that you need to have in order to do it.
KWAME HOLMAN: But Thomas Donnelly thinks further service personnel cuts would be unwise.
THOMAS DONNELLY: My view is that the force is too small. It's been too small for a long time. We could not fight Iraq and Afghanistan properly at the same time. We have always had a so-called two-war construct, so we can do two things at once. And that's kind of the definition of what it's been to be a global power.
KWAME HOLMAN: Another way to make budget reductions could come from reforming what's called Tricare, the health care insurance system for soldiers, their families, and retired veterans, according to Adams.
GORDON ADAMS: The health care system is as out of control as health care costs in the country as a whole, and expensively administered. It's now a $50-billion-a-year system, going up to $60 billion a year very quickly. It's about 10 percent of the defense budget just in the health care system.
KWAME HOLMAN: Those covered by Tricare pay an average of about $500 a year in out-of-pocket fees, compared to about $7,000 a year for civilians with private health insurance.
Defense Secretaries Panetta and Robert Gates both tried to reform the health care system by raising annual fees for some retirees, but Congress rejected their proposals.
ROBERT GATES, Former U.S. Secretary of Defense: Health care costs are eating the Defense Department alive.
KWAME HOLMAN: Military health care is not covered by reforms included in the so-called Obamacare plan.
GORDON ADAMS: It is the third rail politically, because if you try to get it under control, the reserve officers association, the retirees association come up on the net, and it's a politically impossible situation.
THOMAS DONNELLY: People in uniform can fairly say, hey, we are the few who are sacrificing to defend the country, putting our lives at risk, and you are going to take away my entitlements, so you baby boomers can have a comfy retirement?
KWAME HOLMAN: Donnelly says it's simply a nonstarter to ask veterans to make financial sacrifices if ordinary Americans are not doing the same.
THOMAS DONNELLY: It's really hard to see a solution to this problem that isn't part of a larger reassessment of overall government entitlements.
I think that, politically, it would be suicidal to try to take away from people in uniform, but you are not willing to take away from the rest of us.
KWAME HOLMAN: While Thomas Donnelly and Gordon Adams disagree about how the new secretary of defense should go about implementing cuts at the Defense Department, they agree that cuts are in inevitable.
GORDON ADAMS: As we come out of Iraq, as we come out of Afghanistan, the American public cares less about defense. The Congress cares less about defense. That puts defense under extreme pressure on the downward side.
THOMAS DONNELLY: The defense budget is very much falling victim to the larger fiscal woes that the government faces.
KWAME HOLMAN: As former Nebraska Republican Senator Chuck Hagel prepares to face the Senate Armed Services Committee on Thursday, the difficulty of the fiscal issues confronting the next defense secretary already are clear.