* Cites his interpretation of recent White House instructions
* Such an outcome could help spare high-priority programs
By Jim Wolf and Richard Cowan
WASHINGTON, Sept 25 (Reuters) - The U.S. Defense Department may have more flexibility to cope with what it has painted as a potentially devastating across-the-board spending cut, the department's chief financial officer said Tuesday.
Robert Hale, the Pentagon's comptroller, said he interpreted preliminary guidance from the White House to mean the Pentagon may dodge its worst fear: an indiscriminate lop of 9.4 percent from all of its more than 2,500 programs or projects.
He said the White House Office of Management and Budget's instructions in a Sept. 14 report, would give the Pentagon latitude to make such cuts within each overall budget account, rather than program by program.
If so, this would let the Pentagon protect higher-priority arms programs, for instance, by cutting more elsewhere in its budget.
The ability to pick and choose program cuts to meet overall budget constraints "would give us more flexibility," Hale said in a brief interview after speaking at a forum in suburban Arlington, Virginia, hosted by Government Executive magazine.
"But it's a preliminary report so we're not yet sure how about how it would be defined," he said, referring to pending final instructions for carrying out the spending cuts.
The Defense Department has about 50 budget accounts, including such things as active Army operation and maintenance, Navy reserve operation and maintenance and Air Force Guard operation and maintenance.
Another example of a budget account is Army weapons and tracked vehicles.
Hale declined to discuss which programs the Pentagon might cut more deeply given the managerial discretion to do so.
The across-the-board cuts known as sequestration are scheduled to kick in on Jan. 2, forcing the department to chop its spending by about $54.7 billion in fiscal 2013 on top of cuts already being carried out under a broad budget deficit-reduction deal enacted into law in August 2011.
Paired with a matching cut in spending on non-defense domestic programs, this would be the first installment of a 10-year, $1.2 trillion reduction in previously projected spending plans.
The idea behind sequestration was to prod ideologically opposed lawmakers into a more thoughtful, targeted way to curb annual budget deficits that have topped $1 trillion in recent years.
Defense Secretary Leon Panetta has urged Congress to call off the automatic spending cuts, going so far as warning last year that it was a "crazy doomsday mechanism" and "goofy meat-axed approach" that would have a devastating impact on national security.
Asked by Reuters about such comments, Hale said they were based on a fear of the inflexible nature of the sequester law before the OMB instructions that he read as more flexible.
The Sept. 14 OMB report cited by Hale says on its first page that, with the sole exception of military personnel accounts, the administration "cannot choose which programs to exempt, or what percentage cuts to apply" if the automatic spending cuts kick in.
"The administration does not support these cuts, but unless Congress acts responsibly, there will be no choice but to implement them," the OMB report said.
Asked to comment on any discrepancy, a spokeswoman for Hale's office said there was none.
The sequestration law requires that a breakdown by "Program, Project and Activity," or PPA, be used for sequestration, said Lieutenant Colonel Melinda Morgan, a Pentagon spokeswoman.
"However, PPAs are defined differently across the government," she said by email, adding that a final definition for PPAs has not yet been determined.