Budget Deal Leaves Intact Vast Majority of Sequester Cuts

Military still faces billions in unfunded costs, pension cuts

• December 17, 2013 3:52 pm


The recent budget deal proposed in Congress provides modest relief for a Department of Defense (DOD) that still faces hundreds of billions in unfunded costs and a shrinking, less prepared military.

The agreement reached by Rep. Paul Ryan (R., Wisc.) and Sen. Patty Murray (D., Wash.), which will likely pass the Senate this week and head to the president’s desk, provides $31.5 billion in relief to DOD over two years from budgetary reductions known as sequestration.

However, the proposed lifeline from Congress represents less than 7 percent of the total impact of sequestration on the defense budget in the next decade—about $500 billion in cuts. That is on top of another $500 billion in reductions imposed by the 2011 Budget Control Act’s spending caps.

Mackenzie Eaglen, resident fellow at the American Enterprise Institute (AEI) and a defense budget expert, noted in a recent op-ed that the Pentagon consistently underestimates its spending needs. The Congressional Budget Office (CBO) projected last month that even if sequestration were fully repealed, the Pentagon’s costs in its base budget would still be $283 billion higher between 2014 and 2021 than the money allocated to it.

"While this agreement is a positive step towards unwinding the sequester, the Defense Department's budget woes are simply lessened, not eliminated," Eaglen wrote.

DOD undershoots its funding needs partly because of escalating benefit costs. The CBO, whose cost projections are typically higher than the Pentagon because it does not expect costs to be curbed, estimates that compensation and health care costs will rise from $190 billion, or about 36 percent of the total DOD budget, next year to $235 billion, or 38 percent, by 2028.

Any proposed changes to those programs elicit staunch opposition from lawmakers and veterans groups. A congressional committee aide said in an interview that lawmakers feel like they have already made adequate changes to TRICARE, DOD’s health care program, to make it sustainable.

The latest version of the National Defense Authorization Act (NDAA) does not raise fees for TRICARE beneficiaries.

"There is a reason to reform a particular benefit program that might have merit one time if you see a problem to fix," the aide said. "But don’t reform it and try to squeeze more money out of it the next year. That tends to be corrosive on the all-volunteer force."

Retired Army Col. Bob Norton, a lobbyist for the Military Officers Association of America (MOAA), said in an interview that DOD has also underspent its TRICARE funds by billions in the past and asked Congress to move the money elsewhere.

"To say there’s not enough for other stuff when [DOD has] underexecuted the TRICARE program and converted money into other things—they’re playing with the facts," he said.

The MOAA and other veterans groups also oppose a provision in the Ryan-Murray deal that would lower the annual cost-of-living adjustment (COLA) for military retirees younger than 62 by one percent, which they say would deprive veterans of tens of thousands in retirement income.

"This is the only group of Americans that is being asked to help bail out the Pentagon’s sequester-driven budget woes—no other Americans have been asked to help out with this," Norton said. He added that the change would primarily affect noncommissioned officers who have served multiple deployments in Iraq and Afghanistan.

Ryan defended the COLA decrease in an interview with the Weekly Standard, noting that it does not take effect until 2016 and affects fewer than 20 percent of veterans who have served for at least 20 years and typically have other jobs before age 62. There is also a "catch-up" part of the provision that grants retirees the full inflation adjustment for pay from previous years when they turn 62.

Other experts have said additional benefits for veterans enacted by Congress in the past decade more than compensate for the potential cut in retirement pay.

As a result of congressional and veterans groups’ resistance to changes, there appear to be few painless options to cut costs for DOD. The Pentagon itself has a swelling civilian staff that now outnumbers the service members in the field.

Additionally, sequestration cuts are beginning to have a real impact on military size and readiness. Army Chief of Staff Gen. Ray Odierno said in October that only two Army brigades are combat-ready. The Army and Marines will have 14 fewer ground divisions, the Air Force 1,600 fewer aircraft, and the Navy eight fewer air craft carriers by 2021 if sequestration remains in place, according to the Bipartisan Policy Center.

Pentagon spending will ultimately be dwarfed in the next decade by mandatory programs—including Medicare, Medicaid, and Social Security—which are projected to consume more than two-thirds of the federal budget by 2022.