Budget debate pits military retiree interests against those in active duty, analysts warn

Military personnel costs for retirees versus active-duty service members are among the “most politically sensitive” competing interests within the fiscal 2013 Defense Department budget process, according to a new analysis from the Center for Strategic and Budgetary Assessments.

Andrew Krepinevich, CSBA’s president, called personnel costs in the future years’ defense plan “the 600-pound gorilla,” and CSBA senior fellow Todd Harrison urged leaders to address the uncomfortable topic now.

“This is one people don’t like to talk about. They don’t like to frame it this way,” Harrison said. “But it’s an important one for the long-term future.”

Military compensation and benefits currently account for about one-third of the Defense budget. Changes proposed last month as part of Defense’s fiscal 2013 budget request account for roughly one-ninth of the $487 billion of budget reductions the department is seeking. The Obama administration plans to unveil its full budget request Feb. 13.

The Pentagon proposed caps on pay hikes for military personnel beginning in 2015 and suggested what it described as a tiered approach to the TRICARE health insurance program, including higher enrollment fees. It also suggested lawmakers approve the creation of an independent commission to “conduct a comprehensive review of military retirement benefits as a source of savings,” but made no specific recommendations targeting retirement benefits.

The CSBA analysis favored creating such a panel, but warned the current plan does not go far enough toward savings. Defense sets aside 33 cents for every dollar of basic pay funding the military pension system, the report said.

“If military personnel costs continue growing at the same rate as the past decade while the overall budget remains flat, personnel costs will consume the entire defense budget by FY 2039,” the analysis stated. “This trend will only accelerate as the budget declines.”

Harrison added there now are more military retirees drawing benefits than there are active-duty service members currently collecting pay.

“Can DoD really slow the growth, the cost-per-person . . . in a way that they can avoid deeper cuts?” he asked.

Harrison cautioned that lawmakers might not approve the creation of such a commission and a commission alone would not produce cost savings. Instead, he suggested looking “at the entire military compensation system so you can explore the alternatives for making sensible trades between how much we spend on upfront cash compensation and how much we spend on deferred compensation and in-kind benefits."

“There are a lot of interesting trades you can make there,” he said.

Defense Secretary Leon Panetta’s announcement in January that the department would ask Congress to reauthorize the Base Closure and Realignment Commission to make new recommendations to shutter more military facilities would not generate cost savings upfront, Harrison said.

The last round of BRAC in 2005 affected 800 military sites and is still being implemented. The Government Accountability Office estimated that it cost $35 billion to implement.

Leaders in Congress have criticized Panetta’s proposal in recent weeks due in part to its impact on the economies of local communities.

“Don’t bank on savings on BRAC costs,” Harrison said, adding that because there was no budget savings estimate for the new round of BRAC proposed, “I don’t know how real the proposal is.”