Cuts to military pay and benefits can't wait, Pentagon tells Congress

Thursday - 3/27/2014, 4:30am EDT

Jared Serbu reports.

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Pentagon leaders say the reductions to military personnel spending they are proposing as part of the fiscal 2015 budget weren't easy decisions, but Congress needs to OK them this year, or the overall military budget picture will become far gloomier over the next five years.

The Defense Department is taking heat from military associations and Capitol Hill not just for proposing trims to compensation, but also for the timing of the proposals. They come one year before the congressionally-chartered Military Compensation and Retirement Modernization Commission is scheduled to issue a full package of recommendations to reform the entire structure of military pay and benefits, including salaries, pensions, health care and other perks.

But in budget hearings on Capitol Hill Tuesday and Wednesday, Pentagon officials insisted they've done enough analysis on their own to move forward with a package of changes that they said must be made immediately, including lower military pay raises, smaller housing allowances, an end to commissary subsidies and new out-of- pocket health care costs for military family members and retirees.

"If we wait until we have the commission results, then we're going to have to take all of this money out of readiness and modernization," said outgoing Defense undersecretary Robert Hale, DoD's comptroller and chief financial officer. "We think that will damage national security, and that's why we're doing this. We'd rather wait; we'd rather not do this at all. But the budget caps are in effect and we don't see them changing."

Reductions are 'modest'

The Pentagon's budget does not propose any changes to the current retirement system. DoD says it wants to wait for the commission's recommendations on that politically-volatile topic.

Defense officials defended their current personnel proposals this week as being "modest." The proposals would lower military pay raises to 1 percent per year instead of keeping pace with private-market wage inflation. Housing allowances would be changed to cover only 95 percent of the estimated cost of service members' rent, and the department would no longer pay the costs of renters insurance.

Also, commissary shoppers would get about a 10 percent discount from private market prices for groceries, compared to the average 30 percent they enjoy now. And the TRICARE health insurance system would introduce new fees and co-pays to try to push beneficiaries to use lower-cost military treatment facilities and pharmacies.

If Congress enacts those and other personnel changes into law, DoD estimates it would save about $2 billion in 2015.

Sen. Lindsey Graham (R-S.C.) is one of the few lawmakers who routinely and publicly agrees with the Pentagon's assessment that the military personnel budget is in need of serious structural reform. But even he was unwilling to embrace the department's proposals Wednesday.

"Could we find $2 billion [in the federal budget] this year that would avoid us having to make structural decisions about commissaries, about TRICARE and other things about compensation? I'll probably support these things in the end, I'd just like the commission to do it," he said. "It's not that I don't trust the department's work product, but we've got ourselves in a bind here. You've got a commission studying the same subject matter. You've got an administration that's got to come up with money within the budget caps. If we could find a $2 billion safety valve, I think we could allow the commission to do its work. If you're going to ask people to give up some of their housing allowances, I'd just like to make it a more thoughtful process and be able to go to these folks and say, 'We've had the best minds in the country looking at this.' I just think it be easier for us to sell."

No easy choices

DoD says it's not just a $2 billion problem. The Pentagon estimates the changes it wants to begin making next year would carry compounding savings that would accrue to the tune of $31 billion over the next five years.

And Hale said even delaying the changes by a year or two would throw DoD's already-tenuous budget plans way out of balance.

"If you delay all of these, the whole budget slips," Hale said. "You would have to wait probably two years before you could act on the commission's recommendations, so it's probably another $15 billion or so in that period. I don't have the exact number, but what you're doing is forcing further cuts in numbers of personnel or modernization in the out years."