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Fiscal 2017 defense budget request seeks balance

Balance is at the heart of the fiscal 2017 defense budget request, the DoD comptroller said during an interview Feb. 8.
Budgeteers had to maintain balance among compensation, readiness, modernization and size of the force, said Mike McCord, the department’s chief financial officer.

Balance is needed to ensure the military can fight the wars of today and the wars that could occur in the future, and the Defense Secretary Ash Carter wants a budget that focuses on both.

When making the hard choices necessary to comply with last fall’s budget agreement, senior leaders protected the readiness recovery plans developed by the four services. But that meant the department couldn’t afford to fund all the modernization of our equipment that was planned, McCord said.

“Leaders have to step back and ask themselves ‘are we investing enough?’” he added. “The Army and Marines would tell you — and we would tell you — that we are not investing enough in their modernization right now.”

McCord said the mission of the military is to fight and win the nation’s wars. “That means there has to be enough of you, you have to have the right training and the right equipment to win,” he said. “You shouldn’t have to sacrifice financially to serve your country and your family needs to be taken care of, but also we need enough of you — you need to be trained and we have to modernize.”
 

Weighing compensation, benefits
If approved, service members will receive a 1.6 percent pay raise in 2017. “It’s the highest pay raise in four years, and we are happy with that,” McCord said.

But even that required balance, he said. Officials try to tie military pay raises to the employment cost index — which measures the growth of pay in the private sector. The ECI went up 2.1 percent, so ideally military pay should go up by the same rate. But there is more to being in the military than just pay, McCord said.

He said he consulted closely with the chairman of the Joint Chiefs of Staff to protect funding for an appropriate  pay raise, even as the department had to reduce its top line by $17 billion from previously planned levels. Marine Corps Gen. Joseph F. Dunford Jr. believed the pay raise should keep pace with inflation, McCord said, and this one does.

“Compensation costs are something you balance against the size of the force you can afford, how much you can modernize and how you keep it ready,” he said. “If you put on blinders and only look at the pay raise, then of course you want the highest pay raise you can get. But since we have to balance, we think this is a good pay raise.”

A pay raise is also something the department can change fairly rapidly, McCord said. “If we see problems in retention, a pay raise is something you can change every year, and we will,” he said.

The budget request has no new proposals for the basic allowance for housing. Last year, Congress approved a defense request to structure BAH so five percent of housing costs come out of pocket. “There are no new policies, but that will continue to be implemented,” the comptroller said.

This year, DOD will go to Congress with proposals for changes to Tricare. The department will resubmit a proposal for enrollment fees for Tricare for Life and some changes in the pharmacy benefit, but the big proposal for Tricare “is to incentivize people more to use military treatment facilities to have a medically ready force,” McCord said.

 
Retirement, TSP changes
Other ideas are on the table, too. The DOD needs another base realignment and closure round, for example, and the budget proposal seeks some changes to the blended retirement system that goes into effect in January 2018, he said. “The biggest thing for us is the continuation pay,” McCord said.

Right now the law is structured so that every service member who reaches 12 years of service and signs up for another four years get continuation pay. “The way the department envisioned it was … you wouldn’t just pay it to everyone at the 12-year mark, but use it more as a force-management tool.”

Another proposal deals with the matching funds in the Thrift Savings Plan. Right now, the law says matching funds begin at three years of service and end at 26 years of service. The department wants matching funds to start at five years of service — where there is more of a career commitment — and not end at 26, but continue throughout a service member’s career.

“People may find it confusing that we are asking to change something that just got done, when we have said it was a significant accomplishment,” McCord said. “But we think it could be better still, and before it actually takes effect … we are asking Congress to make adjustments that are consistent with what we asked last year,”

This budget request is the second year of a two-year deal that avoided sequestration for the department, but that doesn’t mean sequestration is gone. Unless there is another budget deal, sequestration comes back in fiscal 2018. “There are four years left on the books where sequester is still law if no one does anything,” McCord said. “And we have about $100 billion at stake over those four years – that’s the difference between the base budget levels we’re proposing and going back down to those sequester caps.”

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