Defense employees bear heavy burden in efficiency plan

The Defense Department will save $25 billion by freezing personnel levels and salaries of military civilians, but only $6 billion by reducing its reliance on service support contractors, a top Pentagon official testified on Tuesday.

As part of a departmentwide efficiency initiative, military service agencies have identified roughly $100 billion in savings from fiscal 2012 through 2016, funds that will be reinvested in high priorities, including increasing combat capacity. An additional $78 billion in departmentwide savings will be used to reduce the federal deficit.

Senior military officials tasked with implementing the efficiency plan appeared before the Senate Armed Services Subcommittee on Readiness and Management Support, offering the broadest explanation to date on how the savings will be achieved and in some cases reinvested.

For example, a freeze on hiring across the department -- with the exception of increases in the acquisition workforce -- through fiscal 2013 will save $13 billion, according to Pentagon figures. Another $12 billion will be saved by freezing civilian pay scales in fiscal 2011 and 2012. And roughly $8 billion will be pared from Defense health programs during the next years by better managing medical cost growth and raising TRICARE fees for working-age retirees.

An additional $11 billion will be saved by reducing overhead, staffing and expenses and through more-efficient contracting and acquisition.

In total, of the $78 billion the department will save, $68 billion will be achieved by shedding excess overhead; improving business practices; changing economic assumptions and reducing personnel costs, including cutting senior leadership positions; and reducing the total size of the Army and Marines Corps, officials said.

"I have never seen such far-reaching business streamlining," said Defense Comptroller Robert Hale.

But service contractors, by contrast, face more modest cuts. The department said it will save $6 billion by reducing staff support contractors by 10 percent per year for three years. For example, the offices of undersecretary of Defense for policy and for acquisition, technology and logistics will cut a combined 270 contractors. The TRICARE Management Activity will cut more than 780 contractors, and the Missile Defense Agency will trim its contractor head count by 360.

Subcommittee Chairman Sen. Claire McCaskill, D-Mo., argued that civilian employees are bearing an unfair burden. She calculated that in fiscal 2012, civilian employees would face $4.5 billion in cuts as compared with $1.3 billion for contractors. "Is that really the best we can do?" McCaskill asked.

Even with the $78 billion in cuts, the Defense budget is expected to rise. The department requested $553 billion for its base budget in fiscal 2012, and it is expected to grow to $611 billion in fiscal 2016, Hale said.

Across the military services, the Army achieved $29.5 billion in savings, in part by consolidating six installation management command regions into four and closing the Evaluation Task Force at Fort Bliss, Texas, which was created to assess the now-restructured Future Combat System. This action will make 1,000 servicemen and women available for other duties at that post, said Army Undersecretary Joseph Westphal.

The Navy, for its part, achieved $35 billion in savings. It cut personnel at 290 shore commands, achieved efficiencies in acquisition and disestablished the 2nd Fleet in Norfolk, Va.

And the Air Force achieved about $33 billion in overhead savings through changes to force size and personnel, consolidating two Air Operations Centers in the United States and another two in Europe and implementing sounder business practices.

Even as the department implements its efficiency plan, officials testified that the lack of a permanent budget is having the opposite effect. Without a guaranteed source of funding, contacting officers are signing more short-term contracts and deferring other acquisitions, Hale said. The Navy, meanwhile, is delaying major ship repair while other service agencies have put construction projects on hold.

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