On Defense

By Kellie Lunney

January 5, 2012

We're just a few days into 2012, and guess what? Federal compensation is once again on the radar. This week, however, the focus is on military service members and retirees rather than the civilian workforce.

Defense Secretary Leon Panetta announced Tuesday that he plans to unveil a strategy soon for slashing the Pentagon's budget by $450 billion over the next decade. That strategy most likely will include significant changes to the military's compensation system, including retirement and health benefits. According to a recent report in The New York Times, Defense spends nearly one-third of its base budget on personnel costs: $107 billion for salaries and allowances, $50 billion for health care, and $24 billion in retirement benefits. The nonpartisan Congressional Budget Office estimates that the 1.6 percent pay raise in 2012 for service members will cost $1.2 billion.

For most of the past year, the Pentagon has been reviewing its compensation structure for service members. This summer, for example, the Defense Business Board, an advisory panel of private sector leaders, recommended the department phase out its 20-year cliff vesting retirement system and replace it with one providing some benefits to all service members regardless of their tenure. Currently, personnel who serve less than 20 years -- about 83 percent -- do not receive a retirement benefit, which some believe is unfair given their multiple deployments during the wars in Iraq and Afghanistan. Those with 20 years of military service can receive 50 percent of their base pay when they retire.

It's not clear what pay and benefits changes could be included in Panetta's strategy, or which group of service members they will affect. Panetta has said previously that he would not "break faith" with service members on the benefits promised to them. The Pentagon, however, must find massive savings, especially if automatic spending cuts go into effect forcing the department to slash another $500 billion over the next decade on top of the other cuts. That means it is unlikely military compensation will escape completely unscathed.

A few possibilities Defense could consider as part of its cost-cutting plan over the next decade:

Fewer Bucks for Transit

Bust out the Nikes and the bikes. Feds might want to consider walking or biking to work this year. Congress did not extend the transit tax benefit before the end of 2011, which means the subsidy reverts to $120 per month, down from $230 per month. So paying for parking or mass transit could hold less appeal for everyone now, including federal employees.

Payroll Tax Cut Extension: Act II

You are probably wishing the fight over how to finance the payroll tax cut holiday was a distant memory, never to return. But it's baaaack!

On Wednesday, one of the largest federal employee unions sent a letter to House and Senate conferees hammering out the details of extending the payroll tax holiday for a year, urging them not to finance the final deal with reductions to government pay and benefits. The House version of the payroll tax holiday extends the federal civilian pay freeze for government employees and members of Congress through 2013. It also increases the amount feds and lawmakers contribute to their government pensions by 1.5 percent over three years, starting in 2013, among other provisions. In addition, the package eliminates the Federal Employees Retirement System minimum supplement for individuals not subject to mandatory retirement beginning in 2013.

"Federal employees are working with severely limited resources," National Treasury Employees Union President Colleen Kelley wrote to the lawmakers. "They have faced government shutdowns four times this year, yet they have worked diligently to deliver services to the public. To ask them to bear such a disproportionate additional burden is unfair and unacceptable."

One hopeful sign for feds: Rep. Chris Van Hollen and Sen. Ben Cardin, both Maryland Democrats, are conferees on the payroll tax cut extension discussion. The lawmakers represent many federal employees and are strong supporters of government workers.

Conferees are scheduled to meet the week of Jan. 16, according to BNA.

Overpaid and Underworked?

Speaking of salaries, The Washington Post's Ezra Klein has a great item in his Jan. 3 blog that compares the pay of lawmakers in Europe and United States. The U.S. Congress earns just slightly less than the highest-paid lawmakers in Italy. Of course, the United States has a higher gross domestic product per capita than the rest of the countries included in Klein's list. Even so, the comparison isn't helpful to an institution with a single-digit public approval rating.

By Kellie Lunney

January 5, 2012