Here's the
official explanation provided by the GMAC for this question:
This sentence is based on the conditional construction
if x happens, then y will happen. In this case,
x is
proposed expenditures and the present-tense verb is
are reduced;
y is
news reports, but the verb is incorrect. The construction calls for a verb in the future tense,
will continue to diminish.
Option A: Have been is the wrong verb tense; the construction is also not grammatical
Option B: Have is the wrong verb tense; the construction is also not grammatical
Option C: As they already did is awkward and redundant;
continue expresses this idea
Option D: As they have already is awkward and redundant;
continue expresses this idea
Option E: Correct.
Will continue to diminish provides the correct future-tense verb for the conditional construction in this sentence.
The correct answer is E.
Please note that I'm not the author of this explanation. I'm just posting it here since I believe it can help the community.