The battle over military retirement benefits in the budget deal was the first skirmish in a larger compensation war, and next year's outcome could determine the fate of long-protected military compensation programs.
Budget experts and veterans groups say the retirement benefits fight will serve as a test case to see what appetite there is on Capitol Hill to actually cut military compensation costs — and how much blowback will come from those efforts.
“There’s no doubt that this is a little bit of a weather vane, a litmus test as to what the veterans and military communities’ tolerance is going to be for this, and what types of cuts we’re going to be willing to tolerate and what types of cuts we're going to fight on,” said Alex Nicholson, legislative director for the Iraq and Afghanistan Veterans of America (IAVA).
“And what you saw, I think, from us was an absolute tip of the iceberg,” he said.
Congress had blocked initial attempts to cut into compensation — like TRICARE fee increases — until the budget deal reached this month by Rep. Paul Ryan (R-Wis.) and Sen. Patty Murray (D-Wash.), the chairmen of the House and Senate Budget committees.
The deal provided the Pentagon $31 billion in sequester relief, but it also included $6 billion in savings through cutting the cost-of-living adjustment (COLA) for working-age military retirees.
The retirement benefit cuts caught service member and veterans groups by surprise. They launched a full-court press to drum up opposition to the deal, and were joined by defense hawks who loathe sequester but nevertheless opposed the agreement due to the military retirement cuts.
The opposition was not enough to stop the deal from quickly passing both chambers, however.
Lawmakers from both parties have vowed to change the retirement cuts next year, and a flurry of bills have been introduced to repeal them. The coalition of service member and veterans groups are gearing up to mobilize their members to convince Congress to stop the retirement cuts before they take full effect in 2016.
“We’ve really shown we can flex some serious muscle up here and get the message out to folks, and I think it made a difference up there [on Capitol Hill], particularly in the Senate,” Mike Barron, deputy director of government relations for the Military Officers Association of America (MOAA).
But Pentagon budget experts and hawks who want broader military compensation reform are skeptical that the $6 billion in the budget agreement can be so easily replaced.
Todd Harrison, a defense budget analyst at the Center for Strategic and Budgetary Assessments, said including the military retirements cuts was a lynchpin to putting the budget deal together, as it also cut benefits for federal workers and Medicare.
“This is kind of the canary in the coal mine to tell people whether or not this is possible — and so far the canary hasn’t died,” Harrison said. “The lesson that we all ought to take from this is the idea that military retirement pay is a third rail in politics may not be true. That third rail might not have as much electricity flowing into it as we once thought.”
Budget hawks argue that reducing working-age retiree COLAs to 1 percent under inflation is a minor adjustment in military compensation, and it’s only one of many reforms needed to get compensation costs under control.
Harrison said military compensation costs total $412 billion in the federal government, with the majority of that mandatory spending outside the defense budget.
“You can’t say that all of that is untouchable, if you’re serious about tackling our deficit,” he said. “It’s as preposterous as saying Social Security and Medicare are untouchable.”
But opponents of the cuts say the budget deal is unfairly targeting service members and retirees. They note that the cuts for federal workers only apply to new employees, while the military pension cuts will affect current service members and 20-year retirees under the age of 62.
They also point to the commission mandated by Congress to study compensation reform, which was instructed only to consider changes that grandfather service members and retirees.
“The lesson we’ve learned, is that, when you do an agreement in the backroom … you don’t get the proper vetting, and don’t realize when you’re about to make a very big mistake,” Sen. Kelly Ayotte (R-N.H.) said at her second press conference this week with veterans groups.
Sen. Lindsey Graham (R-S.C.), who has joined Ayotte to oppose the deal, said he wasn't opposed to reforming compensation costs, but this deal was the wrong way to do it.
"Reform will come one day, but it sure as hell won’t come this way,” Graham said on the Senate floor.
Congress plans to revisit the retirement cuts in the budget deal next year. Senate Armed Services Committee Chairman Carl Levin (D-Mich.) says his committee will study the COLA changes, and he has suggested he’s open to making changes.
“I think it’s much preferable that anything like that be part of a much more comprehensive approach,” Levin said this week. “Singling that out, it seems to me, is not the best way to do things that involve this kind of sacrifice.”
Still, Pentagon leaders endorsed the budget deal, and Defense Secretary Chuck Hagel once again endorsed compensation reform at a press conference this week.
“We know that many proposals to change military compensation will be controversial and unpopular,” Hagel said, noting the pension cuts.
“DOD cannot sustain these current programs as they are structured,” he said. “We will work with Congress to bring the rate of growth of our compensation and benefits programs in line with budget limitations and fiscal realities.”
One part of the retirement cuts in the budget agreement is likely to quickly be altered. Murray said this week that the benefits cuts for veterans who retired for medical reasons were included in the budget deal due to a technical error.
Murray said that would be “fixed in short order.”