Patrick Shanahan said the instruction to cut the budget by 4.5 percent so far into the year has forced the Pentagon to effectively create two separate budgets for the 2020 fiscal year, which begins next October.
"So we are not going to reverse course on all of that planning, but we will build two budgets," Shanahan said while speaking to the Military Reporters and Editors Association. "We are building two budgets concurrently, but it will give the secretary a clear understanding of what the tradeoffs are. And we'll go back and we will do as directed by the president and give him a $700 billion budget and then everybody gets to decide how to work with that."
The Pentagon is currently preparing both budgets to submit to the Office of Management and Budget (OMB), which must sign off before either is submitted to Congress in February.
Shanahan said OMB Director Mick Mulvaney called him to issue the president's direction.
"Here's the assignment," Shanahan said Mulvaney told him. "Let's get to work on it."
The $700 billion budget would be $16 billion less than the funds allocated to national defense spending for the 2019 fiscal year. Congress signed off on 2019 $716 billion defense budget in August.
Trump is seeking to slash federal spending following a Treasury Department report that showed a 17 percent surge in the national deficit fueled by increased government budgets and tax cuts.
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