The Pentagon on Thursday made clear that it strongly suspects 2013 may well turn out to be a fiscal nightmare that goes well beyond the significant challenges that financial and program managers already have been contending with in an era of continuing resolutions, government shutdown threats and other budget emergencies.

The new guidance from Ashton Carter, the deputy secretary of defense, told all of DoD’s components to essentially keep hoping for the best, but plan for the worst as Congress and the White House draw nearer to the next fight over the federal budget in March and while no resolution seems apparent to the battles over several budget deadlines.

The Pentagon now wants the military services and DoD agencies each to draw up a blueprint to conserve cash in anticipation of the twin prospects that the government will continue through the entire fiscal year without an approved budget, and that on March 1, sequestration will occur, immediately reducing every line item in the military’s budget by roughly 9 percent.

“Either of these problems, in isolation, would present serious budget execution challenges to the department, negatively impacting readiness and resulting in other undesirable outcomes,” Carter wrote. “This situation would be made even more challenging by the need to protect wartime operations.”

DoD components are being told to deliver their plans to the Pentagon by Feb. 1.

Additionally, the memorandum tells defense managers they have the immediate authority to cut spending in a number of areas. Among them:

• Freeze civilian hiring, with the exception of “mission critical” activities;
• Terminate temporary employees and not renew the contracts of term employees;
• Cancel maintenance availabilities for ships and depot-level maintenance activities for aviation and ground vehicles in the third and fourth quarter of 2013;
• Cut back travel, training and conference spending, even for events that are needed for professional licensing and certification requirements;
• Reduce spending on business IT, supplies and ceremonies.

Additionally, Carter told all DoD components that any research and development or production contract or contract modification that would spend more than $500 million now needs a go-ahead from Frank Kendall, the undersecretary of defense for acquisition, logistics and technology.

DoD’s instructions also include a handful of categories that are exempt from cutbacks. Consistent with President Barack Obama’s decision last year to exempt military pay from sequestration, most uniformed personnel accounts are off limits. Likewise, the memo calls for wartime operations funding to be fully protected.

Speaking to reporters, Secretary of Defense Leon Panetta said that department officials must also develop detailed plans to implement unpaid furloughs for civilian personnel. The furloughs would kick in if the automatic cuts are triggered.

But Panetta said he has asked defense leaders to ensure that any initial moves they make now should be reversible if at all possible, and they must minimize harmful effects on military readiness.

“The simple fact is that this fiscal uncertainty has become a serious threat to our national security,” Panetta said. “We really have no choice but to prepare for the worst.”

Tradeoffs would be made

Gen. Martin Dempsey, the chairman of the Joint Chiefs of Staff, said that while it was critical to maintain funding for troops downrange, that protection comes with significant tradeoffs.

“Operations, maintenance and training will be gutted. We’ll ground aircraft, return ships to port and sharply curtail training across the force,” Dempsey told reporters at the Pentagon during a news conference. “We’ll be unable to reset the force following a decade of war. Our readiness will begin to erode. Within months, we’ll be less prepared. Within a year, we’ll be unprepared.”

If the automatic cuts currently scheduled to take place on March 1 stay in effect, DoD estimates its spending authority would be reduced by $45 billion in fiscal 2013. Compounding the problem, the cuts would have to be absorbed in just the final seven months of the year.

The Center for Strategic and Budgetary Assessments, a Washington think tank, estimated this week that a funding reduction of that size compressed into such a short time frame would require the Pentagon to make several painful decisions, including undergoing costly renegotiations for acquisition programs and furloughing virtually every one of its non-uniformed employees without pay for as long as federal law allows: 22 work days per year.

Should that furlough occur, it would result in a serious hardship for federal civilians, but it’s highly unlikely that any agency would force its workers to take those unpaid days off all at once, said Jacqueline Simon, the policy director for the American Federation of Government Employees (AFGE).

“That would ultimately be a shutdown for many agencies, and I’m sure that’s not what the administration would want to see,” she said. “You could envision that some workers would have their furloughs on a Friday, others on a Thursday, that kind of thing. I highly doubt that any agency would want to take those cuts all at once.”

The Associated Press contributed to this story.

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