The Center for Strategic and Budgetary Assessment’s Todd Harrison has a new paper out warning that DOD is fast approaching a difficult choice: either fund the people or the weapons they operate, it will soon reach the point where it can’t do both.
Harrison has been warning anybody who will listen about the labor cost challenges at DOD for some time now. Last fall, he wrote a piece warning that DOD potentially faces a GM sized fixed labor cost problem, necessitating a massive increase in federal dollars, a “bailout” in essence.
His latest paper lays out what he calls DOD’s internal “guns versus butter” debate. The butter includes pay and benefit increases that have what economists call “stickiness”: they are almost impossible to rollback. The increase in pay and benefits that congress allots DOD each year will crowd out investment in research and new weapons.
First a sense of the scale of the problem: with some 2,250,000 people on the payroll, DOD is the single biggest employer in the U.S., public or private sector. In fact, DOD has more people on its payroll than Wal-Mart (1.1 million) and the Post Office (600,000) combined. The size of the payroll means any changes, even seemingly minor year-to-year increases in pay or benefits, have an outsized effect on the defense budget because of the compounding and cumulative effects of pay hikes.
Since 2000, the cost to pay and care for one active-duty serviceman has increased 73 percent in real terms: from $73,300 to $126,800 today.
In 2010, congress voted a pay raise for military personnel (including DOD civilians) that was 0.5 percent higher than the cost of living adjustment, a pay bump that added just $351 million to the 2010 budget. However, because all future pay hikes will be added on top of that raise, the compounding effect means that even if future pay is simply increased to account for inflation, the 2010 increase will add $2.4 billion to the budget over five years.
Healthcare for military personnel and dependents is also rising at an unsustainable rate. DOD provides care to 9.6 million troops, retirees, members of the Guard and Reserve and dependents. Defense healthcare costs have risen 6.9 percent a year since 2000. Healthcare accounts for nearly one-tenth of the 2011 defense budget, a total of $50.7 billion.
DOD’s guns versus butter debate can be seen as an “intergenerational struggle,” Harrison writes, “a question of providing benefits for those who served in the past or funding the equipment and training needed for those who will fight tomorrow’s wars.”
Ultimately, he writes, forced cuts in money for weapons and training will seriously impact the operational effectiveness of the force.