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The 2014 Defense Budget Request: Another Whack at Personnel Costs

On April 10, when the Department of Defense (DoD) finally released its 2014 Defense budget request, there was one thing everyone could agree on: The numbers in it didn’t mean much. While the base budget topline of $526.6 billion, 1.8 percent lower than the 2013 base budget, reflects a downward trend in post-war budgeting, it is still about $52 billion higher than currently required by the Budget Control Act of 2011, which caps DoD’s 2014 base budget at $475 billion. The budget also fails to identify an amount for the war budget, instead assigning a “placeholder” equal to the 2013 expenditures, about $88 billion, for overseas contingency operations (OCO).


Spc. Christopher Carter has 1st Lt. Christine Sefchik, both of 47th Brigade Support Battalion, 2nd Brigade Combat Team, 1st Armored Division, Fort Bliss, Texas, swear him in for his re-enlistment ceremony at Western Technical College, Feb. 22, 2013. The proposed 2014 Defense Budget contains less money for recruiting and retention. U.S. Army photo by Sgt. Robert Golden, 16th Mobile Public Affairs Detachment

While these two numbers appear trifling – perhaps less predictive of the coming appropriation than any defense budget over the last decade or so – the Pentagon’s budget request cannot be dismissed as irrelevant; it’s an expression of where the department wants to take the American military in the near future.

Along with reductions in end strength, the 2014 budget request includes clear signals that recruitment and retention of active duty service members is a lower priority than it has been during the wars in Iraq and Afghanistan.

Several provisions in the budget are aimed at trimming personnel costs, which have increased at a greater rate than other parts of the military budget, and therefore consume an increasing share. Proposals include:

  • A 1 percent basic pay raise beginning Jan. 1, 2014—0.8 percent lower than last year’s pay increase. The 1.8 percent pay raise was tied to the formula in current law that calls for a raise equal to the private-sector Employment Cost Index (ECI), and a similar increase would have been suggested by the ECI in 2014.
  • A 4.2 percent average rate increase in the Basic Allowance for Housing (BAH) and a 3.4 percent increase in the Basic Allowance for Subsistence (BAS), effective Jan. 1, 2014.
  • $2.3 billion for “recruiting and retention incentives,” down from a peak of $5 billion in 2008.
  • Approximately $900 million in savings from the Military Health System’s $49.4 billion budget, achieved through several TRICARE benefit cost-sharing proposals.

These TRICARE benefit cost-sharing proposals – which, the department is careful to point out, will not affect any active duty service members – include:

  • An enrollment fee for the TRICARE Standard and TRICARE Extra coverage plans for working age retirees. There is currently no enrollment fee; the proposal calls for a fee in 2014 that will increase annually until 2018.
  • An increase in the deductibles under TRICARE Standard and TRICARE Extra, phased in over 5 years and tied to increases in retirees’ cost of living adjustment (COLA).
  • An increase in the enrollment fee for TRICARE Prime, the DoD’s HMO-style plan, with rates of fee increase based on a percentage of the beneficiary’s gross military retirement pay.
  • Higher co-payments for non-mental health office visits for TRICARE Prime retirees and their families, from $12 to $16.
  • An enrollment fee for TRICARE for Life, the benefit program for military retirees age 65 and older. The proposed annual fee, a set percentage of gross retired pay, will be phased in over five years.
  • Increased pharmacy co-pays for all retirees in all three classes of pharmaceuticals: generic, brand, and non-formulary
  • An annual catastrophic cap of $3,000 per family, indexed to increases in retiree COLA and excluding enrollment fees.

The TRICARE cost-sharing provisions, while slightly different from proposals floated by the Pentagon in the past several years, are not new, and they remain unpopular with advocates for military retirees, including the non-profit Military Officers Association of America (MOAA). Year after year, these cost-saving proposals are mostly shot down by Congress, which is loath to trim pay or benefits for service members. But after this year’s budget release, MOAA took particular exception to two aspects of the Pentagon proposal:

First, MOAA objects in principle to tying fee increases to a retired service member’s pay, which it refers to as “means testing” – a tactic, MOAA points out, that is not imposed on any other category of federal employee.

Second, the 2014 budget includes the adoption of a “Chained CPI” COLA, or one that is reduced according to the rate of inflation. This index, MOAA says, “would depress annual retired pay, Social Security, and other COLAs by about 0.3 percent per year – which can compound to impose significant cuts over time.

2014 Defense Budget

Secretary of Defense Chuck Hagel, center, testifies before the House Armed Services Committee on the Department of Defense budget request for fiscal year 2014 at the Rayburn House Office Building in Washington, D.C., April 11, 2013. U.S. Army Gen. Martin E. Dempsey, left, the chairman of the Joint Chiefs of Staff, and Under Secretary of Defense Robert Hale, the department comptroller, joined Hagel for the testimony. DoD photo by Erin A. Kirk-Cuomo

Perhaps the most surprising personnel cost saving measure in the 2014 military budget, however, is the pay increase capped at 1 percent, lower than that dictated by the ECI. In its 2013 proposal, the Pentagon said it would begin deviating from the ECI – slowing the rate of pay increases – beginning in 2015. This year’s lower increase, then, has been chopped a year earlier than expected.

In the overview provided by the DoD comptroller, the department explains the smaller raise: “While this adjustment means that the average enlisted member will see a monthly increase in pay of $26 vice $47 beginning in January 2014, it also means that the department will not have to reduce military end strength by thousands of additional troops on top of the drawdown already planned or … further cut funds for training and equipping our forces to achieve these savings.”

The idea that rising personnel costs might eat away enough of the military budget to produce a “hollow force” that lacks the training and equipment necessary to perform its mission is a danger often pointed out by defense budget analysts, including Todd Harrison, Senior Fellow for Defense Budget Studies at the non-partisan Center for Strategic and Budgetary Assessments (CSBA). It’s an issue that concerned Harrison enough that last year he launched a survey of active duty service members, in which he asked which incentives they valued most.

By far, service members of all ranks – especially those at the lower end of the pay scale – valued basic pay more than deferred compensation, and in fact expressed a willingness to trade a raising of the retirement collection age (to 50) for a 1 percent increase in basic pay.

“Basic pay is the last thing I would cut,” Harrison said. “Yeah, Congress has given service members pay increases higher than what DOD requested for – I think it was ten of the past eleven years. So yeah, it’s grown faster [than private sector pay], but that doesn’t mean it’s the right thing to cut. That’s like taking a lawnmower approach: Whatever has grown up the fastest, that gets cut the most. You’ve got to stop and ask yourself: Is that really a thoughtful way to do it? Is the problem that basic pay grew so fast, or is the problem that we’re not getting good value for other forms of compensation?”

It’s a good question – one of many to be debated in the coming months.


Craig Collins is a veteran freelance writer and a regular Faircount Media Group contributor who...