Military Soon Will Pay More For Former Soldiers Than Current Ones

With reforms unlikely, a new study warns the Pentagon has a major people problem.

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The Pentagon soon will spend more on health care and other benefits for former military personnel than on the men and women fighting today's conflicts, according to a new study.

A Bipartisan Policy Center study group composed of former defense officials is warning that in 2014 the "cost of veterans' benefits will exceed [the] amount spent on active-duty troops."

If Congress fails to pass a broad debt-reduction package this year that would reduce the federal debt by $1.2 trillion, around $500 billion in separate cuts to defense and domestic entitlement budgets would go into effect Jan. 1. The impact would force government entities like the Pentagon to cancel contracts, lay off workers and terminate programs.

But lawmakers and analysts predict President Obama will use his power to exempt from those cuts around $140 billion the Pentagon devotes right now on military personnel programs. "I can guarantee that'll be exempted," Arnold Punaro, says Arnold Punaro, a former executive at SAIC, Marine Corps general and senior Senate staffer. "No one" in Congress is going to vote for a bill that would cut "money for the troops," Punaro says.

As the Pentagon faces shrinking yearly budgets, Pentagon officials and analysts are calling for major changes in military personnel and retirement programs to make them cheaper. They warn if people costs are allowed to skyrocket, there will be fewer funds to buy combat hardware.

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"I want to see money going to [buy] tanks and bullets...and drones, not to people who get a pension for 50 years after they leave the military," says Dov Zakheim, a former Pentagon comptroller and Booz Allen Hamilton executive.

The Pentagon's retirement benefits bill will only get larger after 2014, creating a major financial problem as annual military spending is slated to decline after a decade of war.

Yearly military retirement payments alone are expected to more than double by 2035, growing from $52.2 billion in 2011 to $116.9 billion, according to an estimate prepared by the Defense Business Board, which reports directly to the defense secretary.

More broadly, the Bipartisan Policy Center study further highlights what some call the military's "people problem."

"In 2017, the DOD plans to have 100,000 fewer troops, but still spend as much on personnel as today," states the report.

Another think tank, the Center for a New American Security, found personnel costs for the Army—the largest of the four armed services—have grown by nearly 50 percent over the last decade.

"Since 2001, military personnel costs on a per-person basis grew by 46 percent in real terms due to new and expanded benefits, health care inflation, increased allowances for housing and subsistence, and pay raises higher than the employment cost index," CNAS found.

Military officials said they have spent around $245 billion on personnel costs in 2010, more than a third of the $636 billion appropriated that year to the Defense Department. Some analysts put the actual number at more than $300 billion.

Pentagon officials are increasingly concerned about the growing costs, saying health care expenditures alone have swelled over the last decade by over $30 billion, from $19 billion to $50 billion annually.

James Jones, a former national security adviser to President Barack Obama and a retired Marine Corps general, told reporters last week that when any organization spends so much on its employees it has "big problems."

Lawmakers from both parties repeatedly say "everything" within the Pentagon's budget must be on the table as annual spending shrinks. Yet, House and Senate panels that oversee military policy making and spending keep killing Pentagon proposals to make modest changes aimed at making its personnel programs more affordable.

No one in Washington expects lawmakers to take on military health care, retirement, or pay and benefits reform during an election year. But Pentagon officials are adament that must soon change.

"Part of this is understanding where the money is," former Joint Chiefs of Staff Chairman Adm. Michael Mullen said during his final weeks in office last year, adding that the big places there's available money is in healthcare, pay and benefits.