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Hagel seen as able to tackle escalating personnel costs

Jan. 14, 2013 - 09:54AM   |  
Chuck Hagel, left, speaks during the press conference announcing his nomination to be the next Defense secretary.
Chuck Hagel, left, speaks during the press conference announcing his nomination to be the next Defense secretary. (Alex Wong / Getty Images)

The spiraling cost of personnel at the Defense Department isn’t a new problem, yet a solution has been elusive. Cutting benefits for service members during more than a decade of war has been politically unpalatable. As a result, the topic has largely been pushed to the side, left to be debated by budget wonks and defense policy gurus.

Now, with former Sen. Chuck Hagel preparing for confirmation hearings for the top job at the Pentagon, the issue of personnel costs is getting new attention. That attention revolves around one of the major selling points for a Hagel candidacy: His personal military experience could provide him political cover to confront some of the more difficult budget challenges the agency faces, including personnel costs.

“As a twice-wounded combat veteran, who volunteered, he has a high moral perch from which to say, ‘I think we can solve this problem,’ and I think it will take someone of that capacity to wrestle with this problem,” said Michael Bayer, president of the consulting group Dumbarton Strategies.

Privately, industry executives initially were cool to Hagel’s nomination, due to the perception that he would aggressively cut the defense budget. But that perception has changed in the past week, according to multiple sources, as the notion of tackling personnel costs has circulated. Cutting personnel costs creates more dollars for acquisition, they believe.

Still, politicians are hesitant to cut the pay or benefits of the same veterans they routinely cite as underappreciated and protected.

“It’s what I call the political third rail of the defense budget,” said Gordon Adams of American University, who oversaw defense budgeting in the Clinton administration. “People have said, ‘Well, you know Secretary Hagel, he was a grunt, he might be able to do this.’ He’ll have a lot of credibility to try, but trust me, [Former Defense Secretary] Bob Gates tried but couldn’t do it. [Defense Secretary] Leon Panetta tried, couldn’t do it.”

Panetta highlighted the problem in a 2011 speech.

“We must recognize that the growth in personnel costs must be addressed,” he said. “If we fail to address it, then we won’t be able to afford the training and equipment our troops need in order to succeed on the battlefield.”

Personnel Costs Could Hurt Acquisition

Defense industry executives, who make a living off of selling equipment and services to DoD, wouldn’t be the first crowd one would expect to focus on the cost of military personnel. But the industry is realizing that if personnel costs continue to grow, little money will be left over for the Pentagon to buy things. A 2012 report produced by the Center for Strategic and Budgetary Analysis highlights the threat personnel costs pose to acquisition: At current growth rates, personnel costs would devour the entire DoD budget by 2039.

“With my greatest apologies to my good friend Norm Augustine, who once said that there was only going to be one airplane that we could afford, I think the real problem is we’re only going to be able to afford one military person,” said Bayer, referring to a former Army undersecretary.

The precise cost of each uniformed military member is both hard to determine and the subject of fierce debate, but there have been several attempts in the past last few years to provide better numbers.

In July, the Congressional Budget Office produced a report that aimed to track cost growth at DoD, and included analysis of personnel costs. The report found that the cost of an active-duty service member had climbed roughly 50 percent since 2001, up to $158,000 per year in the base budget alone. As alarming as those numbers might otherwise be, they were quite low compared to those produced by the Reserve Forces Policy Board (RFPB) in December.

The board had been tasked with looking at the full “life-cycle” cost of people as part of an effort to confront growth in personnel costs.

The board, chaired by Arnold Punaro, a retired Marine Corps major general and former Senate Armed Services staff director, added that when a variety of associated costs usually left out of personnel cost calculations are included, such as family housing construction, operation costs, allowances and health care, the “all-in” cost of personnel eats up more than half of the Pentagon’s budget.

The report found that some of the areas typically left out of cost estimates included family housing construction and operation costs, a range of allowances provided to personnel, and even in some cases health care costs.

Adding some of these costs quickly bumps spending past $100,000 per active-duty member from the personnel account alone, before things such as operations and maintenance costs are included. Once equipment costs, training costs, and the cost of government programs for veterans outside of DoD are considered, the study found that the U.S. government was spending $384,622 per service member per year.

The number for members of the reserve component was only $123,351, or less than a third of the cost for active-duty personnel.

Hagel would get a helping hand from an external source, if he is confirmed. The Pentagon’s newly signed authorization act includes a provision to create a compensation and retirement modernization commission. The 2013 National Defense Authorization Act included a provision creating the Military Compensation and Retirement Modernization Commission. The commission is set to look at the issue in the coming months.

Punaro said that one of the major areas of focus for the RFPB was emphasizing the need to gather better data so that outside groups like the commission can effectively evaluate the problem.

“These are the kinds of things you almost have to do from the outside,” he said. “It’s almost mission impossible internally.”

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