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Pentagon pay raise goal: Just 1 percent in 2014

Feb. 6, 2013 - 12:51PM   |   Last Updated: Feb. 6, 2013 - 12:51PM  |  
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Troops' paychecks will grow next year but perhaps not as much as expected.

The Pentagon will recommend a 1 percent pay raise for service members in 2014 only slightly more than half of what was expected, and the smallest pay bump in the 40 years of the all-volunteer force.

Under current law, which calls for military raises to match private-sector wage growth, the projected 2014 military raise would be 1.8 percent.

For many troops, even a 1 percent increase would amount to several hundred dollars more per year roughly $240 for an average E-3; $360 to $400 for a mid-career E-6; $700 for an O-3; and close to $1,200 for an O-6.

For the Pentagon, slowing the pace of military pay growth would shave billions from defense budgets over the next several years.

"No one is going to get a pay cut," Defense Secretary Leon Panetta told Military Times in a Feb. 6 interview at his Pentagon office. "But we will provide, obviously, an increase that is smaller than past years in order to try to achieve some savings by virtue of what we confront in the compensation area."

The scaled-back pay raise requires approval from Congress, and many lawmakers may be reluctant to vote for a reduced raise while combat operations continue in Afghanistan.

If approved, the Pentagon proposal would mark the first time since the late 1990s that the annual raise in military basic pay would fall below average private-sector wage growth as measured by the Employment Cost Index, a Labor Department tool.

From 1998 to 2010, lawmakers purposely set military pay raises slightly above ECI. The intent was to close a perceived gap in the value of military pay that had grown over time and peaked at 13.5 percent in the late 1990s, at the end of the post-Cold War drawdown.

Advocates say the gap is now 2.4 percent. Pentagon officials argue there is no pay gap because improvements in food and housing allowances and other compensation tools are not included in "pay gap" calculations.

Since 2011, military pay raises have kept pace with private-sector wage growth but have not exceeded it. Annual raises were 1.4 percent in 2011, 1.6 percent in 2012 and 1.7 percent this year the only years since 1973 in which raises fell below 2 percent.

Asking Congress to drop the military raise below the ECI for 2014 marks a course change for the Pentagon. An earlier plan had the 2014 raise once again match the ECI and then drop below it in 2015, starting with a raise that year of 0.5 percent, followed by raises of 1 percent and 1.5 percent in 2016 and 2017, respectively.

It is unclear if the Pentagon's internal plans for 2015 and beyond have also been adjusted.

The nonpartisan Congressional Budget Office estimates private-sector wage growth will measure 2.2 percent in 2015, 3.3 percent in 2016 and 4 percent in 2017.

If the Pentagon's original plan for 2014-2017 was approved and CBO's estimates proved correct, military pay would fall another seven percentage points behind average private-sector pay over just a four-year span, pushing the "pay gap" to almost 10 percent.

Defense officials say they had to accelerate the plan to bring raises below the ECI after Congress last year failed to authorize an array of budget-cutting measures proposed in DOD's 2013 budget, including retiring several Navy ships, standing down several Air Force squadrons and ratcheting up Tricare health insurance fees.

Defense officials are struggling with mixed messages from lawmakers, who essentially ordered the military to cut spending but are rejecting specific proposals to reach that goal.

Subsequently, "we had to go back and look at changes to all our calculations," said a defense official who spoke on condition of anonymity.

Panetta noted that military compensation costs have soared by 80 percent during the past decade. Reducing military pay growth will help avoid cuts elsewhere and avert the prospect of a return to a "hollow force," he said.

"It would be irresponsible not to try to get some savings from that area when we are cutting back from every other area," Panetta said. "Our feeling was that every area ought to contribute to the savings in a responsible way. I want to give [troops] a pay raise. But at the same time, I've got to be able to get some savings out of the compensation area."

The Pentagon's formal 2014 budget request, likely to be sent to Congress in April, will include renewed calls to raise Tricare fees and also for a new base closure panel, he said.

He also hopes a similar panel might be created to recommend changes to military retirement, which critics say is expensive and unsustainable.

Compared with civilians, troops have fared well in recent budget battles. Federal civilians have not seen a raise in their pay scales since 2010, and Pentagon officials warn unpaid furloughs loom for civilians this year.

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