The Pentagon’s budget faces serious constraints this year as a result of budget caps agreed to last year and rising personnel, healthcare, and retirement costs taking up an increasing share of military spending. The House Armed Services Committee is considering the Pentagon’s FY 2015 budget this week, proposing to set the defense budget at $521 billion, nearly identical to last year. Yet the budget proposed by the Committee would reject many of the cost-saving measures preferred by the Pentagon, such as retiring antiquated weapons systems and reforming personnel benefits, which would also save money in future years. Instead, the committee chose to save money on training, repairs, and maintenance, cuts that could hurt readiness and make cuts more difficult in future years due to their short-term nature.
The Committee would set the defense budget in line with last year’s Ryan-Murray budget agreement, setting defense spending at $521.3 billion, a 0.1 percent increase over last year’s budget of $520.5 billion. Staying within the budget caps and still accommodating cost increases requires finding savings from throughout the defense budget. This challenge will continue in future years as the defense budget is subject to tight spending limits established by the Budget Control Act and further reduced by sequestration. The Pentagon proposals to reform personnel benefits and eliminate weapon systems would produce savings that grow over time. Rejecting these proposals and replacing them with more short-term savings in operations and maintenance accounts will make it more difficult to meet spending caps in future years.
The Armed Services bill rejected Pentagon requests to trim housing allowances for service members, cut funding for commissaries, and reform TRICARE to reduce health costs and increase the out-of-pocket costs for some members. The Committee also did not include any changes to military compensation, choosing to wait until the recommendations of the military compensation commission are released (currently expected in February 2015). The President and Pentagon had also supported a lower 1 percent pay raise for both civilian and military employees, with pay frozen for generals and other flag officers. The defense bill enacts the pay freeze for flag officers but is silent on pay for the rest of the military. However, the Committee’s summary indicates that Chairman Buck McKeon (R-CA) supports current law, which calls for a 1.8 percent pay raise to all military employees. Finally, the President and Pentagon recommended a new round of base closures under the BRAC Commission, another idea rejected by the Committee.
In addition to rejecting the Pentagon’s cost-saving ideas, the defense bill would also fund a number of projects not requested by the Pentagon, including more money for refueling and refitting a nuclear aircraft carrier not called for in the Pentagon’s budget, more Tomahawk missiles, upgrades for the Abrams tank, and additional money for a cooperative Israeli missile defense program.
|Biggest House Armed Service Committee Changes to Pentagon Budget Request
||Additional Spending||2015 Savings|
|Rescind unobligated balances||$2.2 billion||Increase spending on readiness programs||$1 billion|
|Rescind balances used to protect against foreign currency exchange rate fluctuations||$427 million||Funding to build another amphibious ship||$800 million|
|Reduce service contracts for facilities||$419 million||Refueling the aircraft carrier USS George Washington||$796 million|
|Reduce other service contracts||$399 million||Replaces the “CPI-1” provision*||$535 million|
|Produce one fewer Littoral Combat Ship||$350 million||Israeli Missile Defense||$348 million|
|Reduce spending on the Moored Training Ship||$220 million||Funding to develop a US replacement for the Russian-built RD-180 rocket engine||$180 million|
*The “CPI-1” provision, passed in December, reduced annual COLA adjustments for working age military retirees by one percentage point until age 62. In February, Congress reversed the provision. However, the reversal was passed too late for inclusion in the President’s Budget.
Table based on a sample of changes highlighted by the House Armed Services Committee.
The Committee is also proposing an additional budget of $79.4 billion for Overseas Contingency Operations (OCO) in line with the Pentagon’s request, which represents a slight decrease from the $85 billion approved last year. The Pentagon’s request for these funds represents a placeholder, since future troop levels in Afghanistan have yet to be decided. The Obama Administration has suggested it would remove all troops from Afghanistan by the end of 2014 if a long-term security agreement is not signed with the country’s government. Although the defense bill sets broad categories (procurement, personnel, operations and maintenance, and other) for the OCO budget, it does not provide any further detail. The Committee expresses some concern that the OCO budget is being used for some enduring defense requirements beyond Afghanistan (a concern shared by the Budget Committee) and mandates a report on that spending. Options exist if policymakers want to take additional action to prevent abuse of the uncapped OCO account, including codifying criteria developed by OMB to clarify when military spending should be designated as contingency operations.
Defense Secretary Chuck Hagel urged Congress to give the Pentagon flexibility, saying there will be tradeoffs needed to protect military readiness, including making often-rejected changes to personnel programs. He continued by saying the budget “makes a series of tough choices to match resources to real strategic priorities and missions. If these choices are not made now, DoD will have a force that is ‘large, but not sufficiently ready or capable to meet national security requirements.'”
Ideally, Congress should use the pressure that spending caps place on the defense budget to conduct a thorough review of defense spending and enact reforms to control the growth of defense spending. Former generals have stated that growing benefits already threaten to crowd out important military spending on readiness. The Pentagon made recommendations for modest reforms of the fast-growing military compensation budget, including reducing housing allowances and the subsidies given to base commissaries. Bowing to popular pressure to reject the Pentagon’s recommendations and supporting a pay raise to servicemembers even beyond what the Pentagon is suggesting will continue to put pressure on other parts of the budget.
This defense bill continues the current trend of ducking the tough choices needed to address the growth in defense spending while sacrificing investments in readiness and equipment. This approach may limit the short-term political pain of complying with sequestration’s spending limit but will lead to larger problems in the future. Today’s budget cuts will translate into reduced readiness and greater pressure on future defense budgets to cut ever-growing compensation costs.