Tuesday, September 17, 2013

The Military Pay Conflict in Washington

Military Pay Dispute in DC
Issue Brief by Alex Hecht

Over the past few months the White House, Pentagon and Senate have squared off against the House and several Voluntary Service Organizations in a disagreement over military pay. The House budget for FY 2014 provides for a 1.8% increase in military pay while the president’s budget calls for a 1.0% increase, and the Pentagon appears to support the President’s budget.


Since the passage of the National Defense Authorization act for FY 2004, annual increases in military pay have been chained to the Employment Cost Index (ECI), the Bureau of Labor Statistics measure of civilian (private and public) compensation. Specifically, monthly military base pay for all branches and ranks is to be raised by a percentage equal to the percent change in the ECI over the preceding fiscal year.

The ECI-peg is intended to ensure parity between growth in military and civilian compensation and to prevent military pay raises from falling below the rise of inflation. However, the President has the authority to break with this practice in his budget proposals during times of “national emergency or serious economic conditions affecting the general welfare.” (Public Law 108–136, Sec. 602)

Obama invoked this authority in a letter to congress defending the 1% military pay increase called for in his FY 2014 budget. The President’s 1% pay raise is 0.8 percentage points lower than the increase in the ECI over FY 2013, and one percentage point below the current rate of inflation.[1] In his letter to Congress, Obama cited budget constraints and the need for fiscal sustainability in justification of the 1% pay raise (Letter from The President, August 30).

The Defense spending bill introduced in the Senate is in line with Obama’s request. However, the House has passed a Defense spending bill that sticks to the ECI-peg and calls for a 1.8% increase in military pay.

On July 22, two days before the spending bill passed the House floor, OMB published a statement recommending that the Obama veto the House bill, citing (among other objections) the 1.8% pay raise. OMB claims that the pay increase in the House bill would need to be offset in future years by “deeper reductions to troop levels, readiness and modernization accounts,” presumably compromising the national defense. OMB also points to the 4.2 percent increase in Basic Allowance for Housing and 3.4 percent increase in Basic Allowance for Subsistence called for in the President’s budget, suggesting that the reduced pay raise is sufficiently offset by increases in these forms of military compensation. (OMB Statement of Administration Policy, p. 2)

Crucially, the Pentagon is backing Obama on this issue, and may have initially pushed Obama to limit pay raises. OMB claims that the 1.0% increase is “consistent with the views of the uniformed military leadership,” and according to the Military Times, DOD Comptroller Robert Hale said at a Reserve Forces Policy Board meeting last week (Sep. 5) that “I think we will go after military compensation aggressively” over the next few years.

MOAA has come out against the 1% pay raise. Col. Mike Hayden, USAF (Ret), MOAA Director of Government Relations, has two main arguments against the President’s budget:
1.      It sends us down a slippery slope, and “[h]istory has shown that once Congress starts accepting proposals to cap military pay below private-sector growth, pay caps continue until they have weakened retention and readiness.”
2.      Although it sounds low, a 0.8% difference in pay raise in a single year will have a big impact on career service-members’ lifetime earnings. Hayden estimates that, including retired pay, a Major with 10 years of service would lose $28,000 in lifetime earnings if the Obama proposal were implemented.

A few points:
·         Given the constraints on Defense spending imposed by the 2011 Budget Control Act, OMB is correct to say that a higher military pay raise will have to be balanced by reductions elsewhere in the Defense budget over the next several years.

·         When comparing with the ECI, it would make more sense to look at the increase in total military compensation, not just basic pay, since basic pay represents less than a third of total compensation (according to the 11th Quadrennial Review of Military Compensation (QRMC), p. 17).

·         More importantly, pegging growth in military pay to growth in the ECI does not guarantee real parity between military and civilian pay. The 11th QRMC actually makes detailed comparisons between earnings of service members and civilians with similar levels of educational attainment, and finds that “[a]verage RMC [cash allowances plus tax advantages resulting from exemption from income tax] was $50,747, which was about $21,800 more than the median earnings for civilians from the combined comparison groups, or about the 90th percentile of equivalent civilian wages” (p. 26). In other words, DOD’s main internal compensation review reports that service members are paid much more than their civilian counterparts.

·         On the other hand, there are two reasons why we might not be concerned with parity between military and civilian wages: (1) service-members should be paid more because of the sacrifices they are making for the sake of the country; and (2) civilian earnings may be too low by some objective standard, and so we ought to aim higher in the public sector where we can control wages democratically.

      Alex Hecht is a graduate of Stanford University. He is a staff analyst with a New York City-based foundation serving veterans and previously served as a staff analyst with the New Jersey Institute for Social Justice in Newark, NJ.

[1] The CPI increased by 2.0% from July 2012 to July 2013, according to the BLS.

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