By David Alexander and Phil Stewart
WASHINGTON (Reuters) - U.S. Defense Secretary Chuck Hagel announced on Tuesday he was slashing the amount of unpaid leave that 650,000 civilian employees were ordered take this year to six days from 11 in an effort to limit the pain from across-the-board budget cuts.
The decision means most civilian defense employees, who saw their pay effectively cut by 20 percent, will complete their furloughs next week. Teachers and school staff who were due to take five days of unpaid leave at the start of the school year in late August will not be furloughed, defense officials said.
Hagel ordered the unpaid leave on May 14 after the Pentagon was hit with a $37 billion budget cut in March, nearly halfway through its fiscal year. The cuts led the Navy to halt deployments, the Army to cancel training, the Air Force to ground aircraft and the Pentagon to furlough most civilians.
"This has been one of the most volatile and uncertain budget cycles the department ... has ever experienced," Hagel said in a memo. "While we are still depending on furlough savings, we will be able to make up our budgetary shortfall in this fiscal year with fewer furlough days than initially announced."
While acknowledging that the reduction in furlough days might lead some people to accuse the department of exaggerating the scope of its earlier problem, senior defense officials said the Pentagon was looking at an $11 billion shortfall when it initially ordered the unpaid leave.
"Time is the best budget analyst. If you wait longer, you'll know more," said one official. "There were a whole bunch of things that broke in our favor, but three months ago, with $11 billion short, I don't think we had a lot of choice."
Reducing the unpaid leave will cost the department about $1 billion, senior defense officials said.
The Pentagon offset its budget shortfall and compensated for the reduced furloughs in several ways, including getting permission from Congress to shift $9.6 billion between accounts, mainly from acquisitions to daily operations, officials said.
The department was able to reduce spending in some areas, such as the cost of shifting equipment out of Afghanistan as the war draws down. Some funds were shifted among the military service branches and defense agencies, and the furloughs also saved money, the officials said.
"As a result, we were able to accomplish two goals: a reduction in furlough days, and a modest improvement in training and readiness," Hagel said in the memo.
He noted that in recent weeks, some grounded Air Force squadrons had resumed flying, the Army had added additional training and the Navy had restarted delayed maintenance and ship deployments.
While offering regrets for the need to force civilians to take unpaid leave, Hagel cautioned that continuing uncertainty regarding the budget for the 2014 fiscal year beginning October 1 could lead to further hardship in the coming year. But he promised to do "everything possible to avoid more furloughs."
The furloughs came as the Defense Department struggles to cut nearly $1 trillion from its projected spending over the next decade under a law passed in 2011 to try to reduce the government's huge budget deficits.
The law required the department to cut $487 billion over a decade. It also directed the Pentagon to cut $500 billion across the board over the same time frame unless Congress and the White House agree on an alternative package to raise revenues or cut spending.
The sides have been unable to reach a deal, and Congress allowed across-the-board cuts to go into effect for the first time in March, but at a reduced amount of $37 billion because it was five months into the 2013 fiscal year.
(Reporting by David Alexander and Phil Stewart; Editing by Doina Chiacu and Stacey Joyce)