DoD Pushes Forward On Pay, Benefits Cuts

Never in the 40-year history of the all-volunteer force has the Pentagon sought to roll back the existing military compensation package for service members.

Until now.

The Defense Department’s budget proposal for fiscal 2015 seeks to “rebalance” the force by shaving money from personnel accounts to help pay for new weapons, training and the high-tech research that maintains the U.S. technological edge over potential adversaries.

“We had to make some tough choices – there’s no getting around that,” Defense Secretary Chuck Hagel said in explaining the controversial recommendations.

Many details remain unclear, and some changes will require approval from Congress. Yet back-of-the-envelope math suggests that many military families would see their annual household spending power drop by as much as $1,000, and possily more, under the proposals, which include reduced Basic Allowance for Housing, upticks in out-of-pocket cash for Tricare co-pays and a huge cut in commissary subsidies that would drive up prices in stores.

Hagel told troops that the decisions are in part for their own safety, suggesting that without robust funding for equipment and training, they would face a greater level of risk in the next conflict.

But he knew that message will be a tough sell. Just one day after unveiling the broad outlines of the budget plan Feb. 24, Hagel sought to quell criticism by traveling to Joint Base Langley-Eustis in southern Virginia to speak to hundreds of enlisted troops and officers to clarify the changes and the reasons they are necessary.

“No secretary of defense would ever put any of you in harm’s way without the very best equipment, the training, the modernization, the readiness required. We’re dangerously close to cutting into that now,” Hagel told the troops at a town hall-style meeting.

He spoke frankly and in detail about the budget recommendations, which likely would be phased in over several years.

“We’re going to continue to recommend pay increases,” Hagel said, putting a positive spin on the proposed 1 percent basic pay raise for 2015. That’s the same pay hike troops received this year, which is the lowest in the volunteer era and marked the first raise since 1999 that did not match or exceed average private-sector wage growth.

On BAH, the Pentagon would tweak rates so that they no longer covered 100 percent of average housing costs. Instead, annual rate increases would slow until the allowance received by about 1 million troops sinks to cover only 95 percent of average housing costs.

Hagel reminded troops that even 95 percent would be historically generous. Until the early 2000s, most paid nearly 20 percent of their rent out of pocket.

“We think it’s fair,” Hagel said of the BAH proposal.

No one would see an immediate drop in BAH payments because the Pentagon’s rate-protection policy will remain in effect. That policy shields troops from any BAH rate changes until they move to a new duty station.

On commissaries, Hagel emphasized that DoD does not intend to close any stores. Yet, he acknowledged that the budget plan would slash annual taxpayer subsidies for the commissary system by more than two-thirds, from $1.4 billion to $400 million. That would inevitably drive up the grocery bills for hundreds of thousands of families.

The remaining $400 million would continue to fund commissaries overseas and in rural areas with few off-base alternatives.

On health care, Hagel explained that out-of-pocket co-pays would rise for family members of active-duty troops and working-age retirees who seek care outside the military health system. Hagel told troops it would be a “slight, modest increase” and emphasized that “it will not change the quality” of care.

Schools Off The Table

One budget proposal that was taken off the table at the last minute involved DoD schools. The Pentagon spends about $2.5 billion a year operating dozens of schools for military children both overseas and in the U.S. Initial discussion among civilian leaders suggested this was an area ripe for reductions. But the top brass on the Joint Staff disagreed.

“They concluded that schools were really important to the quality of life of the military families. We move them around so much. Their kids are jerked out of school all the time. Some confidence that DoD is going to make sure we provide for their family’s education was judged as important” to future recruiting and retention, acting Deputy Defense Secretary Christine Fox said Feb. 26.

Personnel costs have risen significantly during the past decade – along with the rest of the defense budget. In the early years of the Iraq and Afghanistan wars, lawmakers approved large pay hikes and expanded benefits that pushed military compensation to all-time highs by some measures.

Meanwhile, the rest of the defense budget grew at a roughly similar pace amid new spending on combat operations, expanded weapons procurement and new research projects.

Spending on military personnel peaked in 2010 at about $165 billion, when adjusted for constant 2014 dollars, according to VisualDoD, an independent information technology firm that tracks defense spending.

This year, the Pentagon is authorized to spend about $144 billion on military personnel, according to VisualDoD. When adjusted for inflation, personnel costs today consume roughly the same percentage of overall Pentagon spending – about a third – as in 2001, defense budget documents show.

New Postwar Reality

Hagel has highlighted the fact that the 2015 budget is the first in 13 years that is not focused on conducting a major war. “This budget will represent a different environment, a different era, a different time,” he told the troops at Joint Base Langley-Eustis.

The budget reflects the Pentagon’s overarching decision to avoid large-scale ground wars, counter-insurgency conflicts and nation-building projects. That’s most evident in the call for Congress to drop the Army from its current size of about 530,000 soldiers to “440,000 to 450,000” over the next few years.

“I suppose we could just have a lot of people and just keep training them and training them and training them, thinking that, well, maybe another Iraq or Afghanistan will come,” Hagel told the troops.

“World’s unpredictable. I get that. Have to be prepared. I get that. But you also have to use some common sense. Do you really want to carry that kind of an inventory and overhead? … It’s not fair to you because what that means [is] less training for you; that’s less compensation, less money, less everything for you.”

When he unveiled the budget plan Feb. 24, Hagel mentioned feeling a dual responsibility toward troops that creates tension when drawing up a budget.

“America has an obligation to make sure service members and their families are fairly and appropriately compensated and cared for during and after their time in uniform,” he said. “We also have a responsibility to provide our troops with the finest training and equipment possible – so that whenever America calls upon them, they are prepared with every advantage we can give them so that they return home safely to their families.”