* Freeze on civilian hiring, delays sought for maintenance
* Precautionary planning for civilian unpaid leave
* "We cannot sit back and not be prepared for the worst"
By David Alexander
WASHINGTON, Jan 10 (Reuters) - Defense Secretary Leon Panetta said on Thursday he had ordered the U.S. military services to freeze civilian hiring, delay maintenance work and reduce other spending as fears grow the Pentagon will likely face another huge budget cut in March.
Speaking at a Pentagon news conference, Panetta acknowledged for the first time that across-the-board cuts he had said would be "devastating" to national security were increasingly possible and "we simply cannot sit back now and not be prepared for the worst."
The Pentagon is facing some $500 billion in cuts to defense spending over the next decade under a procedure known as sequestration. That comes on top of $487 billion in cuts over a decade that the department began implementing last fiscal year.
The new round of cuts, ordered by Congress as part of the effort to reduce the massive U.S. deficit, were due to go into effect on Jan. 2, but lawmakers reached a deal on New Year's Day delaying the spending reductions until March 1.
The White House had told the Pentagon until recently not to plan for the across-the-board budget cuts. Those cuts had been approved by the Obama administration and Congress to try to force lawmakers to reach a compromise spending deal. But they were never expected to take effect because they hit almost everything equally, regardless of strategic importance.
Under the new law, the Pentagon faces $45 billion in cuts this year unless Congress can agree on an alternative package of spending reductions. Analysts say that even if Congress approves an alternative deal, that could include hundreds of billions of dollars in additional cuts to projected defense spending.
"My fear in talking to members of Congress is that ... this issue may now be in a difficult place in terms of their willingness to confront what needs to be done to detrigger sequester," Panetta said.
"Regardless of what Congress does or fails to do, we still have an obligation to protect this country," he added. "So for that reason, I have asked the military services and the other components to immediately begin implementing prudent measures that will help mitigate our budget risk."
Panetta, who will leave office once his replacement is confirmed by the U.S. Senate, said he had asked the military services to freeze civilian hiring, curtail non-critical facilities maintenance, delay awarding certain contracts and take other steps to reduce spending.
He said he also had asked the services as a precautionary measure to begin planning how they would implement unpaid leave for the department's nearly 800,000 civilian employees if that became necessary.
The department's civilian workers can be placed on unpaid leave for up to 22 work days - about a calendar month - but the Pentagon must notify Congress of the intended step 45 days in advance.
A top defense analyst said on Wednesday that sequestration would probably require all 791,000 civilian defense employees to take the full amount of furlough possible in order to achieve the savings that would be required in the personnel accounts.
A defense official said the services also were directed to curtail travel, training and conferences; to reduce expenses on things like supplies, business information technology and ceremonies; and to cancel ship and aircraft maintenance in the third and fourth quarters as necessary.
Army General Martin Dempsey, chairman of the Joint Chiefs of Staff, said that if the budget cuts hit: "We'll continue to resource those who are next to deploy. ... It would be unconscionable to do otherwise. Likewise, we'll continue to care for our wounded warriors and their families."
"But for the rest of the force, operations, maintenance and training will be gutted. We'll ground aircraft, return ships to port and sharply curtail training across the force," he said. "Within months, we will be less prepared. Within a year, we'll be unprepared."
Panetta said the Pentagon's budget crisis was compounded by the fact that Congress had not approved the department's spending plan for the 2013 fiscal year, instead extending funding under a continuing resolution that keeps it at 2012 levels, which represents a 5 percent cut.
He said that resolution was to expire on March 27 and if Congress failed to pass the 2013 appropriations bill, it could end up extending spending at 2012 levels for the rest of the fiscal year, which ends on Sept. 30. That would take a further $11 billion out of the Pentagon's operations and maintenance budget.
"If you take the total sum of all these cuts, we're looking at a 19 percent to 20 percent reduction in the base budget operating dollars for active units, including what looks like a cut of almost 30 percent for the Army," Panetta said.