You’ve identified two main structural problems driving defense spending increases: spiraling costs in both the personnel and O&M accounts. The Pentagon has proposed slowing personnel cost growth, in part, by cutting the 2014 pay raise and raising TRICARE fees and co-pays. But once again, neither the House nor the Senate is going along with these proposals. In its authorization report, the House Armed Services Committee said it had already put TRICARE on a “sustainable path” with previous reforms.

They’ve done some small things to reduce costs. I know one provision in last year’s NDAA [National Defense Authorization Act] is to require retirees using TRICARE prescription drug coverage to switch to pharmacy-by-mail for one year. But then after that, they’re not required to use pharmacy-by-mail anymore. The hope was that if you could get people to try it, they’d like it, and they would continue using it in the future. That does save some money for DoD; pharmacy-by-mail is cheaper. But that’s not going to bend the cost curve significantly.

And when Congress does things like add additional pay raises, beyond what DoD requests, the real impact isn’t felt this year, or the year of the authorization. The real impact is five, 10 and 15 years from now, because all future personnel costs are going to be that much higher. When they continue to raise basic pay above what is requested, those increases compound on top of each other and have a long-term, cumulative effect.

The O&M cost increases can be broken down into several components. One is the rising cost of supporting surplus bases. Also, the majority of the DoD civilian workforce is funded out of O&M, and that’s something that has grown, over the past decade, disproportionately to the size of the active force.

If you look a little deeper, you’ll find that the peacetime costs of operating equipment – things like flying hours and tank miles – are increasing as well. I suspect that’s because the equipment we’re using is getting older and more expensive to operate and maintain. And for a flying unit, fuel prices have been part of that, too, because they use a lot of fuel.

 

Last year, when you surveyed active-duty members about the kinds of military compensation they most valued, the results, presented in the paper “Rebalancing Military Compensation: An Evidence-Based Approach,” suggested service members would be willing to trade reductions in some of the military’s costliest personnel expenses – health insurance and retirement payments, for example – for higher salary, bonuses, and special payments. The Pentagon’s proposal to reduce the active-duty pay raise to 1 percent was flatly rejected by the House, which voted to raise pay 1.8 percent.

Based on the study I did last summer, basic pay is the last thing I would cut. Yeah, it’s grown faster than the civilian population’s, and Congress has given service members pay increases higher than what DoD requested for 10 of the past 11 years – but that doesn’t mean it’s the right thing to cut. That’s taking a lawnmower approach to the budget: Whatever’s grown 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? Basic pay, and the raises in particular, that would be the last thing I would cut. If anything, I would add money there because you’re getting really good value for that. People value cash.