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Pay, benefits, troop reduction ‘on the table’ as Pentagon wrestles with budget cuts

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Posted at 8:12 PM, Jul 31, 2013
and last updated 2013-08-01 07:20:23-04

WASHINGTON (CNN) - The size of the active-duty U.S. Army could fall to levels not seen since the 1950s if the Pentagon fully carries out voluntary and forced spending cuts totaling $100 billion annually over the next decade, Defense Secretary Chuck Hagel said on Wednesday.

Hagel outlined a series of worst-case scenarios -- including potential pay and benefit reductions for active duty forces, civilian personnel and retirees -- that would also impact the Navy, Marines and the Air Force if steps to ease the one-two austerity punch are not taken.

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"This strategic choice would result in a force that would be technologically dominant, but would be much smaller and able to go fewer places and do fewer things, especially if crises occurred at the same time in different regions of the world," Hagel said.

Hagel said "everything is on the table."

It was Hagel's most comprehensive assessment of the financial challenges facing the Pentagon through the early part of the next decade.

His comments came just as Congress prepares to head home for its August break after which lawmakers and the Obama administration will again face key fiscal decisions on spending and federal borrowing.

The Pentagon is facing cuts of roughly equal value -- $500 billion -- in two areas over the next decade.

The first covers mandated, government-wide austerity that took effect in March after the inability of Congress and the administration to reach a deficit-reduction deal. The Pentagon's share of those cuts is roughly half of the overall government total.

The military also is planning to slash spending voluntarily as it moves away from more than a decade of warfare in Iraq and Afghanistan and prepares to reorganize and become more nimble.

Under the analysis, Hagel said the Army could have nearly 200,000 fewer soldiers compared to its recent wartime high if the double-whammy of cuts hits full force.

The active-duty Army could shrink to as low as 380,000 active-duty soldiers by 2017, as Hagel outlined a choice between cutting the size of the military or keeping its technological edge.

The Army has not been that small since the 1950s.

Hagel also suggested the Pentagon may have to eliminate three Navy aircraft carrier strike groups, slash the size of the Marines and mothball up to five of the Air Force's combat air squadrons.

Hagel's report followed a review by Pentagon officials examining the short and long-term effects of budget cuts on military strategy.

The Pentagon will consider changing military health care for retirees to increase use of private sector insurance when available, and may change how the baseline housing allowance is calculated so individuals are asked to pay a little more.

The military may also reduce the overseas cost-of-living adjustments and limit military and civilian pay increases.

"Many will object to these ideas, and I want to be clear that we are not announcing any compensation changes today," Hagel said.

But Defense officials admit overall personnel costs have risen 40% above inflation since 2001. "The Department cannot afford to sustain this growth," Hagel said.

Congress will have to sign off on some of the cuts Hagel suggested.

For instance, the Pentagon previously tried to impose small increases in health care fees for its working-age retirees. But leaders on Capitol Hill pushed back.

Now the Pentagon is signaling it will be forced to push for bigger cuts, affecting both military and civilian personnel.

Hagel described the Pentagon's current compensation plan as unsustainable if the sequester and voluntary spending reductions are imposed full force.

"If left unchecked, pay and benefits will continue to eat into our readiness and modernization. That could result in a far less capable force that is well-compensated, but poorly trained and poorly equipped," he said.