Don't Be Fooled: Military Benefits Are on the Chopping Block

Score one for the veterans groups who demanded Congress go back on its plan to cut $6 billion out of military pensions.

The cuts, passed as part of December's budget deal between Sen. Patty Murray and Rep. Paul Ryan, sent members into a tailspin. As veterans groups mobilized en masse against the cuts, lawmakers have been tripping over each other to put their names on proposals to repeal the cuts.

And the repeal crowd was handed a boost Tuesday from Pentagon officials, who told the Senate Armed Services Committee that the provision in the budget deal was not the ideal way to reform military compensation. "We won," Sen. Lindsey Graham said, triumphantly, after the hearing.

The Pentagon suggested that Congress, at the very least, modify the cuts to exempt existing retirees and current service members who were already promised certain benefits. That message, the South Carolina Republican said, will guarantee Congress fixes the issue.

But Graham, and those upset about the recent cuts to military benefits, should not get too excited yet. They've yet to pass anything to repeal the cuts—and they're struggling to compromise on a way to do it without adding to the deficit. And even if they win this round, they have not yet won the impending war with the Pentagon over broader compensation reform.

Pentagon officials prefer Congress address personnel costs entirely after February 2015, so that members do not further interfere or influence the work of a commission set to recommend ways to overhaul the military's compensation and retirement system that would grandfather retirees and those currently serving. Members of Congress, however, are under political pressure. They want to get these cuts repealed now, even though they cannot agree on how to do it, to avoid appearing insensitive to veterans.

"Congress is supposed to get a say in this," said Senate Armed Services ranking member James Inhofe, an Oklahoma Republican. "This is a test to see who ends up being right on it."

The timing might seem like a relatively small detail. But the fact that there's so much momentum to reverse a relatively small cut now means a much larger battle over military compensation reform is looming on the horizon, when the commission report does eventually detail proposed reductions to what has historically proved a virtually off-limits part of the budget. In many ways, the $6 billion reduction in the budget deal became a de facto trial balloon. And Congress is, at least for now, shooting it down.

Members of Congress are caught in a tough place. Either they heed the calls from Pentagon leaders, including the usually-revered top uniformed generals, who say they urgently need compensation reform to keep the military ready and capable. Or they risk detonating a political land mine: Breaking faith with those who have served.

"If it were easy," said Republican Sen. Roger Wicker of Mississippi, "it would have been done long ago."

Sen. Richard Blumenthal said he was "doubtful" overarching reform "will be as easy as it sounds, even by 2015."

"This system is mind-bogglingly complex," the Connecticut Democrat said, "and the political forces will be challenging, so retirement reform is very far away from being a done deal."

But Pentagon officials insist that reform must take place. Due to increases in pay and benefits during more than a decade of war, inflation-adjusted pay and benefit costs are 40 percent higher than in 2001—even though the active-duty force today is only slightly larger, according to testimony at Tuesday's hearing from Christine Fox, acting deputy Defense secretary. Defense health care costs alone have grown from less than $20 billion in 2001 to nearly $50 billion in 2013; payments for housing costs have also increased faster than inflation.

"Given today's fiscal realities... we are unlikely to see defense budgets rise substantially for some time," Fox said. "So if this department is going to maintain a future force that is properly sized, modern, and ready, we clearly cannot maintain the last decade's rate of military compensation growth."

Put simply, the department cannot afford it.

The uniformed military leadership agrees. "Demanding at this point that our compensation not only remain at its currently high relative level, but that it continue to rise faster than that for the average American, would be irresponsible," testified Navy four-star Adm. James Winnefeld, vice chairman of the Joint Chiefs of Staff, "and is simply not sustainable at a time when our entire budget is under such great pressure."

Devil's in the Details

The $6 billion reduction to military pensions does have political—and financial—repercussions.

This "backroom deal," retired Navy Vice Adm. Norbert Ryan, chief of the Military Officers Association of America, said in a recent interview, means a sergeant first class or master sergeant retiring this year, with 20 years of service, would lose $83,000 compared to what he would have earned by the time he reaches age 62. It's unfair, Ryan argues, especially because compensation for military personnel has remained about one-third of the defense budget since 1980. Compensation costs are going up, as they are for say, weapons systems, he says, but "they're not out of proportion."

Square that with the Pentagon's call for a slower growth rate for pay, and higher health care fees and co-pays for retirees, since DoD personnel costs (including civilians) make up about half the department's budget. Without serious reform, officials have said, the military risks being well compensated—but poorly trained and equipped, limited in its abilities to fight and project power abroad.

So who's right? Both sides are downplaying the metric that appears to really matter: the costs per person.

Compensation grew—yes, along with the rest of the defense budget—but the number of service members has remained roughly the same, meaning that from 2001 to 2012, the average cost of basic pay and benefits per active-duty service member grew from $54,000 to $109,000 a year, according to analysis by Todd Harrison of the nonpartisan Center for Strategic and Budgetary Assessments. When you adjust for inflation, that's a whopping 56 percent increase, according to Harrison. If the costs keep growing at this rate—and the overall defense budget does not grow—these costs could gradually consume the entire defense budget by 2039.

High Stakes

For lawmakers, particularly those up for reelection this year, it's virtually impossible to support cuts in benefits for those who have served, says retired Marine Corps Maj. Gen. Arnold Punaro, a former staff director to the Senate Armed Services Committee. The issue is too complex to explain to the American public in a 30-second sound bite, or in a campaign ad, says Punaro, the chief executive of consulting firm The Punaro Group, even though the COLA cuts are minuscule compared to the reforms the military needs to confront in the future.

"The problem is the political cycle. If you are a congressman or a senator who is up for reelection, they"—the network of veterans groups—"use a bumper sticker against you," Punaro said. "The veterans groups are very powerful."

It's not just benefits that are hamstringing the Pentagon. Congress keeps putting restrictions on DoD to prevent it from making other reforms it wants. For instance, members are already working to prevent the Air Force from retiring the A-10 ground-attack aircraft to make room in the budget for newer planes. And Congress has rejected the Defense Department's request to reduce the number of bases it does not need.

The stakes are high: If the Pentagon is forced to downsize, it must make other sacrifices, with potentially more serious consequences for the military's ability to fight and equip its people. By refusing to cut compensation—and other political untouchables—the rest of the defense budget, from weapons programs to training for troops, will likely be slashed.

"If you can't go after infrastructure—your bases—and you can't go after force structure—the cost of your people—what that leaves is investment and operations," Eric Fanning, undersecretary of the Air Force, said in a recent interview. "So either you're not modernizing, buying the next generation of weapons, and/or not using them, not training. … We joke that there's not a caucus for readiness."

Even if the Pentagon cuts procurement and research and development accounts, budget-cutters "will have little choice but to cut the size of the force," Harrison said. "And if the cost-per-person continues to grow, they'll have to continue cutting people. So ultimately, we'll end up with a force too small to follow through on our global-security commitment."

Some members, like Senate Armed Services Chairman Carl Levin, D-Mich., understand this minefield. The Defense Department has made it clear, Levin said at the hearing, that it cannot meet the budget levels Congress has set without curtailing growth in the cost of military pay and benefits, and that failure to curb that growth "will necessarily result in drastic reductions to military force structure, readiness, and modernization accounts." Still, Levin opposes singling out the benefits of military retirees to reduce the deficit.

By the time the commission's work is over, however, Levin will have retired.