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Spending cuts won't end pressures on Pentagon budget: analysts

A United States Marine stands by his post in front of the Pentagon in Washington February 29, 2012. REUTERS/Gary Cameron
A United States Marine stands by his post in front of the Pentagon in Washington February 29, 2012. REUTERS/Gary Cameron

By David Alexander

WASHINGTON (Reuters) - Budget cuts that force the Pentagon to slash $46 billion in spending this year would do little to relieve long-term financial pressures facing the military, but it could lead the services to begin addressing the issue, analysts said on Friday.

Once the Pentagon puts civilian employees on unpaid leave, shortens flying hours, delays ship maintenance and takes other steps to address the cuts known as sequestration that go into effect late on Friday, it will still face rising costs in healthcare, pay and benefits, and weapons development, they said.

Spending on military pay and benefits has increased by nearly 50 percent over the past decade, and weapons development is still beset by unexpected cost jumps despite procurement reforms - factors that won't be altered by the new round of spending cuts.

"I think it actually makes the prospects of reform more difficult," said Todd Harrison, a defense analyst at the Center for Strategic and Budgetary Assessment think tank.

The across-the-board cuts, which reduce most accounts by a flat percentage, would create disarray that would likely force the Pentagon to slow weapons development programs and renegotiate contracts, driving up costs, he said.

"It's just going to create a bunch of mess and make us less efficient and ultimately reduce (the Pentagon's) buying power long-term by causing unit costs to go up," Harrison said.

'HARD CHOICES'

But Gordon Adams, an American University professor who worked on defense spending at the White House budget office in the 1990s, said the cuts could help restore a sense of discipline at the Pentagon after a decade of rapid growth and two wars.

"They doubled the budgets and lost the capacity to set priorities and make hard choices," Adams said. "If sequester sets in motion a recognition that budgets are coming down ... then it ... creates the incentive for greater discipline."

Retired Admiral Gary Roughead, the former top U.S. Navy officer, and Kori Schake, a researcher at the Hoover Institution think tank, said in a recent policy paper that the all-volunteer military was a key driver of rising costs.

The Pentagon says nearly a quarter of President Barack Obama's $613.9 billion defense budget for 2013 was for military personnel and another 12 percent for civilian employees. In all, Pentagon personnel costs amounted to about $220 billion.

Those costs have been rising quickly. Harrison said in a recent study that military pay and benefits grew by 46 percent per person between 2001 and 2011. If growth remains unchecked and budgets stay flat, personnel costs could consume the entire defense budget by 2039, he found.

"We have a guns-versus-butter tradeoff going on inside the defense budget, where the personnel accounts have grown at galloping paces," Schake said.

Congress has been reluctant to take on the issue. Lawmakers have blocked Pentagon efforts to increase healthcare insurance fees and sometimes have approved pay raises higher than those proposed by the Defense Department.

"It's a very emotional issue," said Schake, who has taught security studies at West Point and the National Defense University. "It gets cast in terms that any changes to current compensation (is) breaking faith with our military forces."

COMPENSATION REFORM

She and Roughead endorsed compensation reforms they said could shrink costs by some $20 billion per year by increasing some healthcare fees and co-pays and phasing out other programs.

They also urged the Pentagon to look at reforms suggested by Harrison. He examined the value that service members of different ages place on their benefits, then calculated the military could save money and improve satisfaction by eliminating some benefits in favor of cash or other alternatives.

"The all-volunteer force, as magnificent as it is, is becoming unsustainable and we need to make sensible choices to bring the personnel accounts onto better footing," Schake told a recent forum at the Brookings Institution think tank.

Analysts predicted that even if the White House and Congress took action to avert sequestration, lawmakers would ultimately force the Pentagon to reduce spending by about $100 billion per year over the next decade.

Pentagon officials, who already have cut projected spending by $487 billion over the next decade, have warned that another $500 billion reduction would force them to reduce global commitments and jettison their new defense strategy, which calls for a shift in focus to Asia.

Analysts encouraged the Pentagon to go ahead and change its strategy, saying budget pressures meant the department would have to live with a smaller military force that would be used in a more limited manner during the coming period of austerity.

(Editing by Xavier Briand)

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