March 6 (Bloomberg) -- Blinking for the first time since budget sequestration went into effect last week, House Republicans want to restore $10 billion to a category of Defense Department spending that few Americans probably know exists: “operations and maintenance.” Budgeting wonks know better.
O&M, which includes everything from upkeep of military hardware to flight-simulator training to salaries for the department’s 800,000 civilians, is the biggest platter on the Pentagon budgetary buffet, at $209 billion for fiscal 2013. Pay and benefits for troops are second at $135 billion, while purchases of new weapons lag at $98 billion.
Moreover, according to the Office of Management and Budget, O&M costs are expected to rise by almost 50 percent by 2030 (in 2013 dollars), while troop personnel costs will increase by 25 percent. Procurement, the poster boy for Pentagon free-spending, will increase only 15 percent.
What do these figures mean for the future of our fighting forces? That while runaway spending on F-35 fighters and other big-ticket programs exposed in a Bloomberg News investigation last week will need paring, solving the Pentagon’s long-term budget problem will depend greatly on cuts in the number of troops and the backup army of civilians and contractors that supports them, as well as smart reforms to pensions and health care.
Obviously, any plan to reform personnel costs has to recognize the extreme sacrifice of the men and women in uniform. Congress has done so, perhaps too generously, increasing active-duty compensation by 28 percent since 2000. The average service member and officer make 5 percent to 10 percent more in base pay than a comparably qualified civilian -- and that doesn’t take into account benefits, housing and subsistence allowances, “combat pay,” and the tax advantages of serving in a combat zone. Simply bringing pay increases in line with the Employment Cost Index would save $16.5 billion over the next five years, according to the Pentagon.
For savings of an entirely different magnitude, however, we will need to envision a much smaller military, particularly in the Army and Marines. The Barack Obama administration’s sea power-dependent “pivot to Asia” and its decision to give up the standing capability to fight two major land wars at once open the door for a complete overhaul of active forces.
Among those thinking radically are retired Admiral Gary Roughead, a former chief of Naval operations, and Kori Schake of the Hoover Institution, who have mapped out a plan reducing the Army to 290,000 soldiers from a proposed 490,000 and the Marine Corps to 172,000 from the current 202,000, while boosting the Army Reserves and National Guard by 100,000 troops. More realistically, simply going back to 1990s levels -- with 450,000 in the Army and 160,000 Marines -- would save $80 billion over a decade.
Health-care costs in the military have been rising even more rapidly than for the rest of the U.S. -- by 300 percent since 2001. Tricare, the comprehensive plan for active-duty troops, retirees and their families, requires too little cost-sharing, and even modest proposals by outgoing Secretary of Defense Leon Panetta to increase annual fees ran into congressional flak. Lawrence Korb, a former assistant secretary of defense, and his colleagues at the Center for American Progress have outlined reforms -- raising enrollment fees, limiting double-coverage for retirees who pursue second careers and raising co-pays to stem overtreatment -- to save $9 billion a year.
Pension reform can save money and improve fairness. Currently, those who serve for less than 20 years -- 83 percent of those who join the military -- get nothing, while those who do the full hitch can retire in their late 30s and get decades of benefits. The Pentagon’s Defense Business Board in 2011 proposed a better system for future troops that would introduce 401(k) plans, raise retirement ages, limit annual payouts to younger retirees and benefit all those serving more than five years. This could save $70 billion a year by 2034. The Pentagon would also do well to cut a head-scratcher of a program that gives $1 billion a year in unemployment checks to people who left the armed forces voluntarily.
Some will argue that cutting health benefits and pensions and slowing pay increases will hamper recruiting and retention. That’s generally not a bad thing -- we are trying to cut manpower, after all. Second, cuts in these areas may not be deal breakers. According to a groundbreaking 2012 survey by Todd Harrison of the Center for Strategic and Budgetary Assessments, service members put a low value on many of the most expensive (and often tax-free) benefits of military life -- including Tricare for Life, free health care for dependents and receiving retirement benefits before age 50. Far more important to them were less-costly things such as more vacation days, shopping at the PX, and being able to choose their next duty stations and length of tour.
As for that giant operations and maintenance account, we simply have too many people on the payroll who are not service members and too many bases in the U.S. and abroad. The 800,000 civilian staff and 700,000 contractors -- including 5,000 in the office of the secretary of defense alone -- outnumber active-duty troops.
“While the fighting force is coming down, the overhead continues to grow,” said Arnold Punaro, a retired major general and Defense Business Board member. “You want to put your money in the tip of the spear, not in the rear with the gear.” He’s right; the Pentagon should heed the board’s detailed plan for eliminating 110,000 jobs and reducing overlap among combat commands.
Base closings are a political minefield, but commissions from 1988 to 1995 did four rounds of shuttering excess facilities in a manner that the services and Congress perceived as fair. Time to repeat the exercise; bases that remain must also find efficiencies such as paring down commissaries and eliminating elementary schools if children are able to attend local public schools.
Although the full effects of sequestration may well be averted, the Pentagon will probably suffer the $1 trillion in defense cuts over 10 years called for under the law. Fortunately, the end of the wars in Afghanistan and Iraq, a strategic shift toward Asia, and rising asymmetrical and small-state threats worldwide have created the ripest moment for a military overhaul since the aftermath of World War II.
New Secretary of Defense Chuck Hagel would have his work cut out even if he hadn’t started the job bloodied by a distressing confirmation process. The nation’s long-term security depends on his finding ways for the military to do more, more efficiently.
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