[Senate Hearing 113-572]
[From the U.S. Government Publishing Office]





                                                        S. Hrg. 113-572

   DEPARTMENT OF DEFENSE PROPOSALS RELATING TO MILITARY COMPENSATION

=======================================================================

                                HEARING

                               before the

                      COMMITTEE ON ARMED SERVICES
                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                              MAY 6, 2014

                               __________

         Printed for the use of the Committee on Armed Services

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                      COMMITTEE ON ARMED SERVICES

                     CARL LEVIN, Michigan, Chairman

JACK REED, Rhode Island              JAMES M. INHOFE, Oklahoma
BILL NELSON, Florida                 JOHN McCAIN, Arizona
CLAIRE McCASKILL, Missouri           JEFF SESSIONS, Alabama
MARK UDALL, Colorado                 SAXBY CHAMBLISS, Georgia
KAY R. HAGAN, North Carolina         ROGER F. WICKER, Mississippi
JOE MANCHIN III, West Virginia       KELLY AYOTTE, New Hampshire
JEANNE SHAHEEN, New Hampshire        DEB FISCHER, Nebraska
KIRSTEN E. GILLIBRAND, New York      LINDSEY GRAHAM, South Carolina
RICHARD BLUMENTHAL, Connecticut      DAVID VITTER, Louisiana
JOE DONNELLY, Indiana                ROY BLUNT, Missouri
MAZIE K. HIRONO, Hawaii              MIKE LEE, Utah
TIM KAINE, Virginia                  TED CRUZ, Texas
ANGUS KING, Maine

                    Peter K. Levine, Staff Director

                John A. Bonsell, Minority Staff Director

                                  (ii)

  













                            C O N T E N T S

                               __________

                              may 6, 2014

                                                                   Page

Department of Defense Proposals Relating to Military Compensation     1

Dempsey, GEN Martin E., USA, Chairman of the Joint Chiefs of 
  Staff..........................................................     3
Winnefeld, ADM James A., USN, Vice Chairman of the Joint Chiefs 
  of Staff.......................................................     8
Odierno, GEN Raymond T., USA, Chief of Staff of the Army.........    10
Greenert, ADM Jonathan W., USN, Chief of Naval Operations........    11
Welsh, Gen. Mark A., III, USAF, Chief of Staff of the Air Force..    13
Amos, Gen. James F., USMC, Commandant of the Marine Corps........    14
Grass, GEN Frank J., ARNG, Chief of the National Guard Bureau....    15
Tilelli, GEN John H., Jr., USA, Ret., Chairman of the Board, 
  Military Officers Association of America.......................    55
Sullivan, GEN Gordon R., USA, Ret., President and Chief Executive 
  Officer, Association of the U.S. Army..........................    63
Totushek, VADM John B., USN, Ret. Executive Director, Association 
  of the U.S. Navy...............................................    70
Questions for the Record.........................................   148

                                 (iii)

 
   DEPARTMENT OF DEFENSE PROPOSALS RELATING TO MILITARY COMPENSATION

                              ----------                              


                          TUESDAY, MAY 6, 2014

                                       U.S. Senate,
                               Committee on Armed Services,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 9:35 a.m. in room 
SH-216, Hart Senate Office Building, Senator Carl Levin 
(chairman) presiding.
    Committee members present: Senators Levin, Reed, Nelson, 
Hagan, Manchin, Shaheen, Gillibrand, Blumenthal, Donnelly, 
Hirono, Kaine, King, Inhofe, McCain, Sessions, Ayotte, Fischer, 
and Graham.

       OPENING STATEMENT OF SENATOR CARL LEVIN, CHAIRMAN

    Chairman Levin. Good morning, everybody.
    The committee meets this morning to review Department of 
Defense (DOD) proposals relative to the growth of personnel 
costs. We welcome the Joint Chiefs of Staff to testify on these 
proposals, to explain why they support them, what their impact 
is on the force, and their impact on other areas of the defense 
budget.
    Our witnesses on the first panel are General Martin E. 
Dempsey, USA, Chairman of the Joint Chiefs of Staff; Admiral 
James A. Winnefeld, Jr., USN, Vice Chairman of the Joint Chiefs 
of Staff; General Raymond T. Odierno, USA, Chief of Staff of 
the Army; Admiral Jonathan W. Greenert, USN, Chief of Naval 
Operations; General Mark A. Welsh III, USAF, Chief of Staff of 
the Air Force; General James F. Amos, USMC, Commandant of the 
Marine Corps; and General Frank J. Grass, ARNG, Chief of the 
National Guard Bureau.
    We will have a second panel consisting of non-government 
witnesses which I will introduce later.
    It is not often that all the members of the Joint Chiefs of 
Staff testify before us at a single hearing. It is not often 
that we have the opportunity to thank them as one group for the 
contributions that they and those that they lead make to the 
well-being of our Nation. Thank you, gentlemen. Thank you for 
the service of you and yours.
    The distinguished nature of this panel reflects the 
importance of the questions before our committee this year. 
When we mark up the National Defense Authorization Act (NDAA) 
for Fiscal Year 2015 later this month, the decisions that we 
make on compensation, force structure, end strength, readiness, 
and modernization will have a far-reaching impact on the men 
and women of our Armed Forces and on the future of our military 
and our country.
    The DOD 2015 budget request comes at a time of tremendous 
challenge and great uncertainty for the Nation and for the 
military. DOD faces a highly constrained fiscal environment in 
2015. The $496 billion top line for DOD remains the same from 
the funding levels in fiscal years 2013 and 2014 and remains 
more than $30 billion below the funding provided to DOD in 
fiscal years 2010, 2011, and 2012. Sequestration has already 
taken its toll on training, readiness, and modernization, and 
sequestration threatens to return full blast next fiscal year 
unless, hopefully, we act to mitigate its impact before then.
    These fiscal constraints have led DOD to propose a number 
of painful measures to reduce future expenditures. The budget 
before us proposes significantly lower end strengths for the 
ground forces through 2019, including a reduction of 50,000 
more than had been previously planned in Active Duty Army end 
strength with smaller percentage reductions in the Guard and 
Reserve, as well as a reduction of over 16,000 in Active Duty 
Air Force end strength this year alone. The budget calls for 
retiring the Air Force's A-10 and U-2 aircraft, inactivating 
half of the Navy's cruiser fleet, reducing the size of the 
Army's helicopter fleet by 25 percent, and terminating the 
Ground Combat Vehicle program. Those are among other cuts.
    If the budget caps in law remain in effect in fiscal year 
2016 and beyond, DOD has informed us that, among other cuts, it 
would request further reductions in end strength, the 
retirement of the entire KC-10 tanker fleet and the Global Hawk 
block-40 fleet, reduced purchases of Joint Strike Fighters and 
unmanned aerial vehicles, the inactivation of additional ships, 
and the elimination of an aircraft carrier and a carrier air 
wing.
    The legislative proposals that we are considering this year 
include a number of measures relative to military pay and 
benefits, and that is what we will be discussing here this 
morning. These include setting a pay raise for servicemembers 
below the rate of inflation, freezing pay for general and flag 
officers, limiting increases in the housing allowance below the 
rate of inflation, reducing the subsidy to commissaries, and 
making changes to TRICARE that would result in increased fees 
and cost-shares for most non-Active Duty beneficiaries. In all, 
these pay and benefit proposals would result in savings to DOD 
of over $2 billion in fiscal year 2015 and more than $31 
billion over the Future Years Defense Program (FYDP).
    General Dempsey and his senior enlisted advisor, Sergeant 
Major Bryan Battaglia, recently wrote to this committee that 
``these difficult choices will reap large savings over time to 
address the growing imbalance in our accounts, allow us to 
invest in combat readiness and force modernization, and still 
enable us to recruit and retain America's best.'' The letter 
went on to say that ``delaying adjustments to military 
compensation will cause additional, disproportionate cuts to 
force structure, readiness, and modernization.''
    We surely must do all that we can to minimize the adverse 
effect of the personnel proposals. But as long as the statutory 
budget caps remain in place, we do not have the option of 
simply rejecting the compensation proposals. Under the 
statutory budget caps, we would then have to make alternative 
cuts.
    I look forward to, as we all do, the testimony of our 
witnesses. Again, we thank you all and those with whom you 
serve for your great service to our country.
    Senator Inhofe.

              STATEMENT OF SENATOR JAMES M. INHOFE

    Senator Inhofe. Thank you, Mr. Chairman.
    Over the last decade, our Nation has depended upon the 
courageous service and sacrifice of our military members and 
their families for its security. In return, we have steadily 
increased their pay and benefits, and rightly so. We should be 
proud of this. It is exactly what we should do for those who 
risk their lives to keep us safe.
    However, misguided fiscal priorities of the Obama 
administration and the runaway entitlement spending have forced 
massive cuts to national security spending such as we have 
never seen before. These cuts have driven our military into a 
readiness crisis. Squadrons have been grounded. Ships have been 
tied to piers. Training rotations for ground forces have been 
cancelled while much needed modernization programs have been 
delayed or cancelled. We all know this.
    Retired Navy Admiral John Harvey recently said that we are 
sending the wrong signal to the force that is serving today, 
the one that fought two wars in the last decade, and the force 
we are dependent upon to re-enlist tomorrow. We are telling 
them they just cost us too much, that they constitute a ticking 
time bomb, and that their sacrifice is eating us alive. We are 
telling them that we are looking for a way out of fulfilling 
our commitments to them. This is not the right signal to send 
those who volunteered to serve in a time of war.
    I think the chairman did a good job of listing the systems 
that we have that we are no longer going to be able to keep. 
The effects of these cuts are undermining the military's 
ability to protect the Nation. Our military leaders have 
painted a stark and troubling picture of this reality. Because 
of misguided fiscal priorities, we are now being forced to make 
false choices between paying our troops and their families what 
they deserve and giving them the training and capabilities 
required to accomplish their mission and return home safely to 
their loved ones. This is an irresponsible and reckless choice. 
If we spent what I think is necessary on national security, we 
would not be in the mess that we are in today.
    I am looking forward to hearing from our witnesses.
    Thank you, Mr. Chairman.
    Chairman Levin. Thank you very much, Senator Inhofe.
    General Dempsey, welcome.

STATEMENT OF GEN MARTIN E. DEMPSEY, USA, CHAIRMAN OF THE JOINT 
                        CHIEFS OF STAFF

    General Dempsey. Mr. Chairman, thank you, and Ranking 
Member Inhofe, and other distinguished members of the panel.
    You are right, Mr. Chairman, we do not often appear as a 
group before you and, in particular, with our senior enlisted 
leaders right behind us. What I would like to do at the 
beginning here is since it is unlikely we will see you as a 
group in your role as chairman between now and the end of the 
year--at least I hope not--we would like to thank you very much 
for your steadfast and passionate support of America's Armed 
Forces, the men and women who serve and their families. Thank 
you.
    Chairman Levin. Thank you very much, General.
    General Dempsey. I want to thank you all for the 
opportunity to discuss military pay and compensation, but as 
you mentioned, this is only one part of a much broader effort 
to bundle reforms in order to keep ourselves in balance. This 
particular issue, pay, compensation, and health care, is an 
important and deeply personal issue for our servicemembers and 
their families.
    As I have testified in the past, we are working to make 
sure that the joint force is in the right balance to preserve 
military options for the Nation in the face of a changing 
security environment and a declining budget. We have been 
tasked to reduce the defense budget by up to $1 trillion over 
10 years while upholding our sacred obligation to properly 
train, equip, and prepare the force. This requires carefully 
allocating our resources across the accounts, restoring the 
readiness we have already lost, and continuing to make 
responsible investments in our Nation's defense.
    As I have testified before, this requires certainty. It 
requires time and it requires flexibility. While we have a 
degree of certainty in our budget for the next 2 years--really 
for this year--we still do not have a predictable funding 
stream nor the flexibility and time we need to reset the force 
for the challenges ahead. We cannot do this alone. Our 
recommendations have lacked congressional support, notably our 
request to reduce base infrastructure and retire weapon systems 
that we no longer need and cannot afford.
    In the meantime, we are continuing to hemorrhage readiness 
and cutting further into modernization. Risk to the performance 
of our mission and risk to those who serve continues to grow.
    As one part of a broader institutional reform, the Joint 
Chiefs, our senior enlisted leaders, and select mid-grade level 
leaders have examined pay and compensation options for more 
than a year. We support the three DOD-wide principles guiding 
our proposals to rebalance military compensation.
    First, we are not advocating direct cuts to troops' pay. 
Rather, this package slows the growth of basic pay and housing 
allowances while reducing commissary subsidies and modernizing 
our health care system.
    Second, we will ensure that our compensation package allows 
us to continue to attract and retain the quality people we 
need. If we step off on this path--and we will watch the way 
the force reacts, and if it reacts, we will be back to you with 
recommendations on how to adjust, but we have to take that 
step.
    Third, the savings will be reinvested into readiness and 
into modernization.
    In all cases, we will continue to prioritize our efforts 
that focus on wounded warriors and on the mental health 
challenges facing our force.
    We have not requested any changes to military retirement. 
We are awaiting recommendations from the Military Compensation 
and Retirement Modernization Commission (MCRMC) expected in 
February 2015. But to be clear and to restate it, we do support 
grandfathering any future changes to the retirement program.
    We are seeking $31 billion of savings in pay, compensation, 
and health care over the FYDP. If we do not get it, we will 
have to take $31 billion out of readiness, modernization, and 
force structure over that same period. Delaying the decision 
until next year will likely cause a 2-year delay in 
implementation, which would force us to restore approximately 
$18 billion in lost savings.
    In short, we have submitted a balanced package that meets 
budgetary limits, enables us to fulfill the current defense 
strategy, and allows us to recruit and retain the exceptional 
talent that we need. Our people are our greatest strength, and 
they do deserve the best support we can provide.
    As leaders, we must also exercise proper stewardship over 
the resources entrusted to DOD. We have enough information to 
make these changes now. We remain committed to partnering with 
Congress to make these and other difficult choices facing us.
    Thank you.
    [The joint prepared statement of General Dempsey, Admiral 
Winnefeld, General Odierno, Admiral Greenert, General Welsh, 
General Amos, and General Grass follows:]
            Prepared Statement by The Joint Chiefs of Staff
    Chairman Levin, Ranking Member Inhofe, and distinguished members of 
the committee, thank you for your invitation to address the critical 
issue of pay and compensation. As the Joint Chiefs testified in March 
and April 2014, we must rebalance the Joint Force to preserve military 
power and maximize options for the Nation in the face of an uncertain 
security environment and a declining budget. Achieving the right 
balance is a significant challenge, but it remains a strategic 
imperative for the Department of Defense (DOD) and our Nation.
    It requires that we carefully allocate our resources across 
readiness, modernization and force structure accounts, and that we 
sufficiently compensate the Joint Force--while seeking to restore the 
readiness and modernization we have already lost. Above all, we must 
fulfill our sacred obligation to properly train, equip, and prepare the 
Joint Force to fight and win. We cannot do this alone.
    The Department needs congressional support to achieve institutional 
reform on all fronts. We cannot continue to expend scarce resources on 
unneeded and unsustainable weapons systems and infrastructure. These 
reforms have often lacked congressional support, notably our requests 
to reduce infrastructure and weapon systems.
    We have examined pay and compensation options within our budget for 
more than a year. This process included our most senior officer and 
enlisted leaders and select mid-grade servicemembers--leaders who fully 
recognize that it is our people who make us the most capable military 
in the world. Our men and women will always be our greatest strength, 
and they deserve the best possible support we can provide. However, as 
leaders, we all must exercise good stewardship over the resources 
entrusted to the Department, including competitive pay and compensation 
consistent with a ready and modern force.
    In our deliberations, we collectively assessed how a wide range of 
compensation proposals would affect our troops at every rank, and over 
the course of their service. We concluded that we can no longer put off 
rebalancing our military compensation. Failure to approve this 
compensation package will require us to take $31 billion in savings 
over the Future Years Defense Program (FYDP) out of readiness, 
modernization, and force structure.
    The Joint Chiefs and our senior enlisted leaders support the three 
DOD-wide principles guiding these proposals. First, we are not 
advocating direct cuts to troops' pay. Rather, this package slows the 
growth of basic pay and housing allowances in addition to reducing 
commissary subsidies, and simplifies and modernizes our health care 
system. Second, we will ensure that our compensation package allows us 
to continue to attract and retain the quality people we need. Third, 
the savings will be reinvested into warfighter readiness and force 
modernization. In all cases, we will continue to prioritize efforts 
that focus on wounded warriors and mental health.
    Our proposals reflect well-informed choices that will reap 
significant savings over time. They were reviewed by the 
administration, have the full support of the Secretary of Defense, and 
are submitted as part of the President's budget for fiscal year 2015. 
Implementing this compensation package now will help us remain the 
world's best-trained, best-led, and best-equipped military.
                proposed pay and compensation proposals
    In the late 1990s and through the post-September 11 period, with 
the help of Congress, we substantially increased the glideslope of 
compensation growth. We are now requesting more modest pay increases in 
fiscal year 2015 to slow the growth rate of basic pay beyond 2015. Flag 
and general officer basic pay will be frozen for at least 1 year. We 
are also requesting that we slow the growth of tax-free housing 
allowances, reduce the direct subsidy to commissaries, and modernize 
our TRICARE health insurance program by creating a single plan that 
promotes wellness and encourages members to use the most affordable 
means of care. Slowing the rate of growth of these programs will 
obviously affect buying power over time, but they do not directly cut 
pay. As noted above, we have the predictive tools and can both assess 
and illustrate the effect by rank and over time.
    We have not requested changes to military retirement benefits. We 
are awaiting the results of the Military Compensation and Retirement 
Modernization Commission (MCRMC) before considering reforms in that 
area. But, we want to reiterate our ardent support of the principle of 
grandfathering for any future changes to military retirement plans.
    Congress has taken some important steps in recent years to control 
the growth in compensation spending, but we must do more. A holistic 
and comprehensive approach is required. Continuous piecemeal changes 
will only exacerbate uncertainty and doubt among our servicemembers 
about whether important benefits will be there in the future.
    The following proposals represent a carefully informed package that 
enables each of the Military Services to invest more in critically-
important readiness and modernization while maintaining a well-trained, 
ready, agile, motivated, and technologically-superior force. These 
savings will still allow us to offer competitive and sustainable 
benefits to ensure we recruit and retain the right talent across our 
ranks. We also preserve special pay and incentive authorities which the 
Services can use as levers to ensure they recruit and retain the 
specialties they need.
Basic Pay
    For fiscal year 2015, we have requested a 1 percent raise in basic 
pay for military personnel, except general and flag officers whose pay 
will be frozen for 1 year. Basic pay raises in future years will be 
similarly restrained, though modest increases will continue.
Basic Allowance for Housing
    We request gradually slowing the growth rate of the tax-free basic 
allowance for housing until Basic Allowance for Housing (BAH) 
ultimately covers approximately 95 percent of the average 
servicemember's housing expenses. We also seek to eliminate renter's 
insurance costs from the allowance. This will result in an average 6 
percent increase in out-of-pocket cost from today, but far less than 
the 18 percent out-of-pocket cost in the 1990s. Such changes will be 
phased in over several years to allow members to plan accordingly.
    Additionally, the rate protection feature already in place for BAH 
will remain. A servicemember's BAH will not be reduced so long as that 
member retains eligibility for BAH at the same location and does not 
change dependency status or lose rank. Servicemembers in the same pay 
grade but living in different areas would have their BAH rates adjusted 
proportionally to ensure members retain the same purchasing power 
regardless of the cost of housing in their respective areas. Adjusted 
rates will remain publicly available to allow members to make informed 
decisions about housing. Just like today, depending on servicemembers' 
actual housing choices, they may or may not have to pay out-of-pocket 
costs.
Commissaries
    The DOD today operates 245 grocery stores worldwide and spends 
about $1.4 billion per year to provide subsidized groceries ``at cost'' 
plus a 5 percent surcharge. The subsidy pays for employee and overhead 
costs including transportation. The budget proposal would begin phasing 
out much of the subsidy over 3 fiscal years, beginning with $200 
million less in fiscal year 2015 and totaling $1 billion by fiscal year 
2017. This phased approach will ultimately provide the Defense 
Commissary Agency with approximately $400 million per year to continue 
to pay overhead costs of operating about 25 remote locations in the 
United States and 67 overseas locations.
    We recognize the value of commissaries to our servicemembers, 
military families, and retirees, and our plan does not direct the 
closure of any location. Once fully implemented, commissary shoppers 
will receive an average 10 percent discount compared to most private 
sector grocery stores--and the level of savings may increase through 
internal operating efficiencies. Overall, commissaries will continue to 
be a valuable benefit to our people, particularly to those serving 
abroad.
Healthcare
    The costs to the taxpayer for military healthcare have risen from 
$19 billion in 2001 to $48 billion in 2013. Increases have been caused 
both by growth in private-sector healthcare costs and by the creation 
of a new healthcare program for military retirees 65 and older, TRICARE 
for Life. We propose simplifying and modernizing our TRICARE health 
insurance program, as the fundamental structure has not been revised 
since its inception in the mid-1990s. We would consolidate Prime, 
Extra, and Standard into a single plan that encourages routine wellness 
visits and use of the most affordable means of care such as Military 
Treatment Facilities (MTF), preferred providers, and generic 
prescriptions.
    Servicemembers on active duty would have no out-of-pocket expenses 
regardless of the point-of-care delivery (MTFs, network, or out-of-
network) and will have the highest priority for MTF care. Without 
question, we will continue to fully fund and support our wounded, ill, 
and injured warrior programs. To protect the most vulnerable, the 
proposal treats survivors of members who die on active duty and those 
who are medically retired and their family members as active duty 
family members for purposes of enrollment fees, co-pays, deductibles, 
and the annual catastrophic cap. Likewise, family members residing with 
active duty servicemembers in areas remote from MTFs will continue to 
be treated as ``in network'' families even if there are no network care 
providers in the remote location.
    In addition to moving to the new TRICARE Single Plan, we have 
resubmitted our fiscal year 2014 proposal which seeks modest annual 
enrollment fees for TRICARE for Life coverage and further adjusts the 
pharmacy co-pay structure for retirees and active duty families. These 
pharmacy changes provide incentives to use mail order and generic 
drugs. For pharmacies, the increased co-pays will be phased in over 10 
years, while enrollment fees for TFL recipients will only apply to 
those who turn 65 after enactment.
    The cumulative effect of the proposed TRICARE fee increases still 
ensures beneficiary out-of-pocket costs remain far below costs to 
military beneficiaries in the mid-1990s, and remain far better than 
virtually every comparable employer in the United States today. By 
fiscal year 2019, a retiree family of three utilizing civilian care 
providers will pay about 11 percent of total health care costs--well 
below the original 27 percent of the mid-1990s. Overall, the TRICARE 
benefit will remain one of the most comprehensive benefits in the 
country, as it should.
                       costs of delay or inaction
    Current and future funding levels require adjustments to pay and 
compensation now to avoid further degradation of readiness and 
modernization. We are working with and waiting for the MCRMC 
recommendations with regard to retirement, where we believe special 
study is required. However, based on multiple internal and external 
analyses as well as our review of Quadrennial Review of Military 
Compensation (QRMC) efforts since the late 1990s, we possess the needed 
information and senior leader consensus to make proposals now on other 
aspects of compensation.
    If Congress delays these pay and compensation changes by 1 year, we 
would forfeit $10 billion in savings over the FYDP. Moreover, waiting 
for the Commission would likely cause a 2-year delay in implementation, 
and we will be forced to restore approximately $18 billion in lost 
savings over the FYDP. Conversely, if we make these modest changes now, 
we will see annual savings of nearly $12 billion by the mid-2020s. If 
Congress rejects all of the proposals, we will not only have to find 
$2.1 billion in 2015, but we will also have to find $31 billion over 
the FYDP to pay for the shortfall. In the near-term, we will be forced 
to take these funds out of readiness. In the mid-term, it will diminish 
our ability to rebalance during the FYDP. Beyond the FYDP, we will see 
substantial impacts to modernization and our ability to field the Joint 
Force we need in the future.
    It is also worth noting that today's readiness problem will be 
tomorrow's retention problem. Young men and women who join the U.S. 
military to lead a tank crew, fly an F-16, or serve on a submarine will 
soon lose interest in joining or staying in the military if they lack 
training or proper equipment to complete their mission.
    Again, we have enough information to request these nominal pay and 
compensation changes now. We are not infringing on the Commission's 
charter. In fact, implementing these proposals this year will allow the 
MCRMC to account for them in their recommendations in February 2015. We 
look forward to working with Congress and the Commission when the MCRMC 
recommendations are released.
    We know that this budget features difficult choices. They were 
difficult for us. Understandably, they are difficult for Congress. But 
we have created a balanced package of changes that meets budgetary 
limits and enables us to fulfill the current defense strategy, albeit 
with increased risk in some areas.
                  part of broader institutional reform
    Our pay and compensation proposals are only a part of a wider 
effort to achieve balance across the Joint Force. Before recommending 
these changes, we first focused on implementing management reforms and 
reducing overhead and operating costs. This has included eliminating 
duplication, reducing management headquarters, and pursuing 
efficiencies from contracting and weapons systems to infrastructure.
    We were successful in identifying approximately $94 billion in 
efficiencies across the FYDP. This included a 20 percent cut in 
headquarters' budgets, reduction in contractor funding, civilian 
manpower restructuring, healthcare cost reductions (separate from those 
affecting beneficiaries), terminating or deferring weapons programs and 
military construction projects, a base realignment and closure round 
for 2017, continued acquisition reform, and auditable financial 
statements. These efforts are in addition to continuing to implement 
the $245 billion in efficiencies we have submitted over the last three 
budget cycles.
    Reducing overhead continues to be important, but such savings will 
not by themselves permit us to meet targets under either the 
President's budget or sequestration levels. To meet reductions of the 
scale required, we also had to reduce the size of our military force. 
As a result, relative to levels expected by the end of this year, total 
active duty military personnel will decline by about 6 percent by the 
end of the FYDP in 2019; Guard and Reserve personnel will decline by 4 
percent; and civilian personnel will decline by 5 percent.
    Notably, although military pay and benefits account for about 33 
percent of the budget, our pay and compensation proposals account for 
only 10 percent of the planned cuts. The remaining 90 percent of the 
cuts come from readiness, modernization, and force structure--making 
the need for a balanced application of cuts across accounts, wherever 
possible, even more urgent.
                               conclusion
    As a global leader, the United States requires a robust national 
defense strategy and a military that can implement that strategy 
effectively and sustainably. We face increasing risk if we do not adapt 
to provide more responsible stewardship of our Nation's resources and 
security interests. This can only be achieved by strategic balance 
across the Joint Force enabled, in part, by the compensation package 
the DOD is presenting to Congress. It will require Congress' 
partnership with DOD in making these and other difficult choices.
    The opportunity is ours in the months ahead to carry the hard-
earned lessons from our Nation's wars into the context of today, to set 
the conditions to prepare the Joint Force to address the challenges of 
tomorrow, and to sustain and support our dedicated men and women in 
uniform and their families. We look forward to seizing this opportunity 
together.

    Chairman Levin. Thank you very much, General.
    Admiral?

STATEMENT OF ADM JAMES A. WINNEFELD, USN, VICE CHAIRMAN OF THE 
                     JOINT CHIEFS OF STAFF

    Admiral Winnefeld. Chairman Levin, Ranking Member Inhofe, 
distinguished members of the committee, thank you also for the 
opportunity to appear today.
    I would like to add some additional context to Chairman 
Dempsey's introduction.
    I think it is important to recall that in the 1990s, 
military compensation had fallen to a deeply unsatisfactory 
level relative to the rest of the working population in 
America. With the help of Congress, we took action to close 
that gap which involved raising the trajectory of our 
compensation well above inflation. Those increases worked.
    In 2001, U.S. median annual household income equated to the 
direct pay of an average E-7. Today it is roughly equal to the 
direct pay of the average E-5 and trending towards the average 
E-4 who now surpasses the U.S. median annual household income 
about 8 to 10 years earlier in his or her career than before 
and also receives health care, family services, leave, 
educational benefits that well surpass the civilian sector, 
along with the potential for a generous retirement. In the 
process, this E-5 has moved from being in the 50th percentile 
of civilians with comparable education and experience in 2000 
to being around the 90th percentile today.
    I do not think any of us at this table would say our people 
are overpaid, and we would love to be able to maintain that 
level of compensation. But if our joint force is to be sized, 
modernized, and kept ready to fight, we are going to have to 
place compensation on a more sustainable trajectory. We do not 
want to return to the 1990s. We are only asking for gradual 
adjustments to ensure we can recruit and retain the best our 
Nation has to offer while doing everything else that is 
required to fulfill our obligation to protect the United States 
within the means we are given.
    These changes would only account for about 10 percent of 
our planned cuts within an area that accounts for fully one-
third of our budget. The other 90 percent of our cuts are going 
to come out of the other two-thirds of our budget that buys 
things.
    We have carefully thought through every one of these 
recommendations over the course of many meetings. Even though 
they are fair and they are gradual, there is still some 
disinformation out there. For example, some say we are cutting 
pay. That is not true, as Chairman Dempsey said. We quickly 
eliminated any proposal that would do that.
    Others say we are trying to renege on promised health care 
benefits. Again, not true. We are actually trying to simplify a 
bewildering system while incentivizing our people to help us 
contain costs. We will continue to provide the same high 
quality health care to our troops and our retirees, and it will 
continue to be free to those on Active Duty.
    Still others say a 1 percent pay raise is not fair when the 
Employment Cost Index (ECI) is going up at about 1.8 percent. 
But I would point out that our DOD civilians have just been 
through 3 years of no pay increase, and they just received 1 
percent this year.
    Finally, some are also suggesting that we want to close all 
State-side commissaries. We have never considered that in any 
meeting that I have ever attended. In fact, we believe our 
commissaries are an important part of the benefits we offer our 
families. But we want those stores to have to work as hard as 
our unsubsidized exchanges in providing a good deal for our 
people. We think the Defense Exchange Commissary Agency (DECA) 
can find at least the first year's savings through 
efficiencies, not price increases, especially since we exempted 
them from the 20 percent staff cuts that everyone else is 
taking.
    Congress should also repeal legislation apparently lobbied 
for by the food industry that prohibits the sale of generics at 
our commissaries which takes money right out of our people's 
pockets. It really does. I recently bought a generic bottle of 
ibuprofen at a post exchange, which is not prohibited from 
carrying generics, at a 73 percent savings over the brand name 
that the commissary is required to carry right next door. 
Efficiencies in generics could easily offset the savings we are 
asking for in 2015 from our commissaries, savings that will 
enhance the combat readiness of our warriors that they count on 
us to provide.
    Now, we were not confirmed for these positions by the 
Senate to only make the easy choices. We have to make the hard 
ones too, choices that have only gotten harder with recent 
budget cuts. We need your support. My Service colleagues will 
now describe what will happen if we do not receive that support 
and we have to ask our young men and women to fight with $31 
billion worth of a smaller, less modern, less ready force.
    Thank you again for the opportunity to speak today, and I 
look forward to hearing your views and your questions. Thank 
you.
    Chairman Levin. Admiral, thank you so much.
    General Odierno?

STATEMENT OF GEN RAYMOND T. ODIERNO, USA, CHIEF OF STAFF OF THE 
                              ARMY

    General Odierno. Thank you, Chairman Levin, Ranking Member 
Inhofe, all the other committee members. It is always a 
pleasure to be here to discuss these important issues.
    I have had the privilege to lead our men and women of all 
Services in both peace and war. I have witnessed firsthand 
their selfless service, dedication, and sacrifice. The All-
Volunteer Army has performed phenomenally during the longest 
conflicts in our Nation's history. But it is imperative we 
discuss and understand the appropriate level of compensation 
not only to recognize the sacrifice of our soldiers and their 
families, but to ensure we sustain the premier All-Volunteer 
Force.
    Pay and compensation benefits must remain competitive in 
order for us to recruit and retain the very best for our Army 
and the joint force. However, pay and compensation must be 
balanced, along with end strength, readiness, and modernization 
of our force. Thus, it is necessary that we take a 
comprehensive look at every aspect of our budget.
    I fully endorse these DOD proposals that do not directly 
cut our soldiers' pay but slows the rate of growth from any 
allowances that are simply unsustainable.
    Additionally, it is essential that we gain more 
efficiencies in our commissaries and our health care, 
specifically TRICARE. I believe the proposals recognize the 
incredible service and sacrifice of our soldiers and their 
families by allowing us to better balance future investments in 
readiness, modernization, and compensation. These are difficult 
but necessary decisions.
    Taking care of soldiers is not just about providing them 
competitive pay and compensation benefits. It is also about 
having the right capacity in order to sustain a reasonable 
personnel tempo, invest in the most modern equipment, and 
maintain the highest levels of training readiness.
    If the Army does not get the $12 billion in compensation 
savings over the Program Objective Memorandum (POM), we will 
have to look at a further reduction in end strength, lower our 
overall readiness posture, and slow even further our current 
modernization programs. It is my opinion that if Congress does 
not approve our compensation recommendations, then you must end 
sequestration now and increase our top line.
    We must keep in mind that it is not a matter of if but when 
we will deploy our joint force to defend this great Nation. We 
have done it in every decade since World War II. It is 
incumbent on all of us to ensure our soldiers are highly 
trained, equipped, and organized. We must balance our resources 
effectively to do that. If we do not, our soldiers will bear 
the heavy burden of our miscalculations on the battlefield.
    I am proud to wear this uniform and represent all the 
soldiers of the U.S. Army. Their sacrifices have been 
unprecedented over the last 13 years. We must ensure we provide 
them with necessary resources for their success in the future.
    Thank you, Mr. Chairman.
    Chairman Levin. Thank you very much, General Odierno.
    Admiral Greenert?

  STATEMENT OF ADM JONATHAN W. GREENERT, USN, CHIEF OF NAVAL 
                           OPERATIONS

    Admiral Greenert. Thanks, Chairman Levin, and many thanks 
to you and Barbara for your service through the years. We 
appreciate it.
    Senator Inhofe and distinguished members of the committee, 
I am proud to represent 633,000 sailors, Navy civilians, and 
their families and especially the 50,000 sailors deployed 
around the globe today, along with their fellow marines. Their 
dedication and resilience continue to inspire me, and our 
citizens can take great pride in the daily contributions of 
their sons and daughters in places that really matter.
    When I appeared before you in March, I testified that we 
were compelled to make some difficult choices in our 
President's fiscal year 2015 budget submission. 90 percent of 
the reductions in our President's fiscal year 2015 submission 
focused on procurement, force structure, and modernization, as 
well as overhead reduction, contract efficiencies, and buying 
smarter. The area of last choice that we addressed in the 
budget was cost growth of our pay and compensation.
    Now, for over a year, as the chairman mentioned, the Master 
Chief Petty Officer of the Navy, who is with me today, and I 
traveled around the fleet and bases, and we listened to our 
sailors and families, especially those who would be most 
affected by these proposed changes, both the increases and the 
decreases. The vast majority of our sailors and families told 
us that they believe their total compensation package matches 
well with, and in some cases exceeds, their civilian 
counterparts.
    But let me be clear. I do not believe our sailors are 
overpaid, nor do they believe that. Our sailors and families 
are not enthusiastic about a compensation reform, but they were 
clear to us that their quality of service, their work 
environment needs to improve. They understand that in this 
fiscal situation we face hard choices. We cannot have it all. 
The reality within this given budget, the one that we have been 
given, is we cannot sustain our current personnel costs 
trajectory, and we need to address this problem sooner than 
later.
    Today, our total force personnel costs consume about 40 
percent of our given budget, and that is up from 32 percent in 
2000. That share continues to rise. In fact, since 2001, we 
reduced Navy's end strength 60,000 sailors, but the growth in 
personnel costs alone consumed 60 percent of those savings. In 
other words, although the Navy manpower has shrunk 
significantly, at the same time we reduced 25 ships in our 
inventory, our personnel costs have spiked. That has been a 
burden in our ability to balance our investments.
    DOD's compensation reform proposals would generate savings 
to the Navy of $123 million in 2015 and $3.1 billion over the 
FYDP. We would intend to reinvest any and all of these savings 
into these sailor quality-of-service enhancements and that 
includes increasing sea pay and critical skills incentive pay 
to assure retention, improving 30 barracks, training buildings, 
morale welfare and recreation and fitness centers, constructing 
barracks, fitness centers, and trainers, providing schools and 
travel for about 7,500 sailors, purchasing tactical trainers 
and simulators, purchasing spare parts, improved tools, and 
providing more maintenance opportunities. All of these 
reinvestments would address the disatisfiers that I mentioned, 
our sailors' quality of their service. They are designed to 
help sailors get their jobs done effectively and safely while 
addressing our critical man, train, and equip challenges.
    If Congress denies authority for all the compensation 
savings, however, Navy would be forced to back out of these $3 
billion sailor quality-of-life improvements, and we would also 
face an additional $4 billion cost resulting from pay raises 
reverting to the ECI. That would compel us to reduce readiness, 
shipbuilding, and aircraft procurement even further. We cannot 
afford the equivalent of another $7 billion bill. Our Navy 
would be less ready, less modern, and less able to execute the 
missions outlined in our Defense Strategic Guidance (DSG) and 
the Quadrennial Defense Review (QDR).
    Mr. Chairman, this is a tough decision, but it is also an 
opportunity. Not seizing the initiative now means billions of 
dollars of additional costs on other programs that we can ill 
afford. Given our current situation, I think it is necessary to 
better balance our sailors' needs to ensure our Navy remains 
forward and, more importantly, ready where it matters when it 
matters.
    I look forward to your questions.
    Chairman Levin. Admiral, thank you so much.
    General Welsh?

          STATEMENT OF GEN. MARK A. WELSH III, USAF, 
                CHIEF OF STAFF OF THE AIR FORCE

    General Welsh. Thank you, Mr. Chairman, Ranking Member 
Inhofe, and members of the committee. It is an honor to be 
here, especially with the members of this panel.
    Mr. Chairman, might I add from all the men and women of our 
Air Force thank you for your distinguished service to this 
country.
    Chairman Levin. Thank you.
    General Welsh. You are a statesman, sir, and you have the 
respect and admiration of everybody on this panel.
    Chairman Levin. Thank you.
    General Welsh. For the past 23 years, U.S. airmen have 
maintained an extremely high operations tempo deploying 
routinely alongside their joint partners to the Middle East, 
nonstop since Operation Desert Storm ended in 1991, and they 
performed spectacularly well. I believe they have earned every 
penny they have made. You have been remarkably supportive in 
increasing their pay and benefits over time.
    But today we are in a precarious position. Per capita costs 
for an airman have grown over 40 percent since 2000. Last year, 
our readiness levels reached an all-time low. As we struggle to 
recover, we do not have enough units ready to respond 
immediately to a major contingency, and we are not always able 
to provide fully mission-ready units to meet our combatant 
commanders' routine rotational requirements.
    Our modernization forecasts are also bleak. Roughly 20 
percent of our aircraft were built in the 1950s and 1960s. Over 
half of the others were built more than 25 years ago. Now, due 
to sequestration, we have cut about 50 percent of our currently 
planned modernization programs.
    We cannot ignore the fact that the law, as currently 
written, returns us to sequester-level funding in fiscal year 
2016.
    This has forced us into some very difficult decisions. Pay 
and compensation reform is one of those very tough decisions. 
No one takes this lightly, but we feel it is necessary to at 
least try and create some savings. If we are not willing to 
make some tough calls, our Air Force will be neither ready to 
fight today nor viable against the threats of tomorrow.
    My most sacred obligation as Chief of Staff of the Air 
Force to my airmen is that when we send them to do difficult 
jobs in dangerous places, that they are prepared to succeed and 
to return home safely. Although slowing the rate of pay 
increases, gradually reducing Basic Allowance for Housing (BAH) 
rates relative to the market, reforming TRICARE, and reducing 
commissary subsidies will certainly hurt, what my secretary and 
I owe the Nation, the joint team, and our airmen more than 
anything else are the training and tools necessary to fight and 
win and survive.
    If the proposed compensation reforms are rejected, the Air 
Force will be forced to cut $8.1 billion from readiness, 
modernization, and infrastructure accounts over the next 5 
years. We will take significant cuts to flying hours and weapon 
system sustainment accounts, reduce precision munitions buys, 
and lower funding for training ranges, digging our readiness 
hole even deeper. We will likely have to cancel or delay 
several critical recapitalization programs. Among those 
probably impacted would be the combat rescue helicopter and the 
T-X trainer. Abandoning the T-X program would mean that future 
pilots will then continue to train in the 50-year-old T-38. We 
will also be forced to cut spending on infrastructure beyond 
the $5 billion we have already recommended to cut over this 
FYDP.
    Of course, these cuts would be on top of the difficult 
recommendations we have already made, some of which the 
Chairman mentioned this morning, lowering our end strength by 
nearly 17,000 airmen next year, divesting the entire A-10 and 
U-2 fleets, and if sequester-level funding returns, divesting 
the KC-10 fleet as well.
    None of these options are good ones, but we are simply out 
of good options. It is time for courageous leadership. We 
simply cannot continue to defer every tough decision in the 
near term at the expense of military readiness and capability 
over time. We need your help.
    Chairman Levin. Thank you very much, General.
    General Amos?

            STATEMENT OF GEN. JAMES F. AMOS, USMC, 
                 COMMANDANT OF THE MARINE CORPS

    General Amos. Chairman Levin, Ranking Member Inhofe, and 
members of the committee, the current period of fiscal 
austerity has exacerbated an imbalance across the Marine Corps' 
budget. I nor my fellow Service Chiefs and, more importantly, 
the men and women who wear our Service's cloth, those who have 
served our Nation so faithfully did not set the conditions for 
the fiscal calamity that we find ourselves in.
    As Service Chiefs, we are obliged to live within the budget 
and the laws passed by Congress. Senators, none of us like 
where we find ourselves today. We have spent a greater part of 
a year restructuring each of our Services under the cold 
reality of a fully sequestered budget. While the Bipartisan 
Budget Act (BBA) provided much needed relief in 2014 and 2015, 
I am advised by many of your colleagues in Congress to expect 
to return to full sequestration in 2016 and beyond.
    We have made difficult choices--all of us have--as we have 
attempted to build a balanced and combat-ready force. We have 
restructured and downsized our Services to live within our 
means. We have done all of this knowing full well that the 
world that we live in is a dangerous one, an international 
landscape that is simply getting more challenging as each day 
goes by. I see no indication there will be a peace dividend 
once we complete the mission in Afghanistan later this year. 
Mr. Chairman, we will not do less with less in the decade to 
come. We will do the same with less.
    From a personnel perspective, our men and women have been 
compensated appropriately for their many sacrifices over the 
past decade of war. I make no apologies for that. They have 
deserved every penny that Congress has afforded them. They have 
faithfully fought our Nation's battles, all while successfully 
keeping the enemies of America far from our shores.
    Because of my loyalty to them, there is much about today's 
discussion on compensation reform proposals that frankly I do 
not like, but I am stuck with them. I am stuck with them 
because I have raided every other pot of money available to me 
to pay for a ready Marine Corps. As a Service Chief, I am first 
and foremost responsible for the defense of our Nation. That 
task comes before all others. It is the sole reason why America 
has a Marine Corps.
    To accomplish this, the Marine Corps must maintain a high 
state of readiness. That is accomplished by having combat units 
that are highly skilled and highly trained. It is done by 
having the right equipment in the hands of warriors who may be 
headed into harm's way. The most important way that we can keep 
faith with our men and our women is to send them into combat 
with the best possible training and the freshest of equipment 
and to take care of them then when they come home.
    My challenge lies in balancing readiness, manpower, and 
modernization, all under the umbrella of sequestration. Our 
goal of consistently fielding a highly trained and combat-ready 
crisis response force for America is pressurized by a military 
personnel account that has grown to 63 cents of every 
appropriated dollar. Balanced against readiness requirements 
and an anemic military construction account, the Marine Corps' 
modernization and investment accounts comprise a mere 8 
percent. 8 cents on the dollar. This is the lowest it has been 
in well over a decade.
    At the end of the day, I am ultimately responsible for 
taking care of the marines, the sailors, and our families. This 
includes ensuring our people are well compensated for their 
service while also afforded the best training and equipment 
available to fight and win our Nation's battles. For marines, 
their quality of service is as important as their quality of 
life. They understand that they must be prepared for 
uncertainty, and they must be prepared for their next mission.
    Thank you for the opportunity to represent your Marine 
Corps and its men and women. I thank the committee for your 
continued support and I stand prepared to answer your 
questions.
    Chairman Levin. Thank you so much, General Amos.
    General Grass?

            STATEMENT OF GEN FRANK J. GRASS, ARNG, 
               CHIEF OF THE NATIONAL GUARD BUREAU

    General Grass. Chairman Levin, Ranking Member Inhofe, 
distinguished members of the committee, it is an honor for me 
and Chief Brush, my senior enlisted advisor, to be here today 
representing the men and women of the National Guard.
    The men and women of the Guard serve with distinction as a 
primary combat Reserve of the Army and Air Force. We are also 
the first military responders on site in times of domestic 
crisis.
    I echo the concerns of the Chairman and my colleagues 
regarding the critical need to achieve fiscal balance across 
the joint force. Future fiscal challenges will dramatically 
constrain decision-making about the size, shape, and rolls of 
our military. This certainly will be the case when the Budget 
Control Act (BCA) funding levels return in fiscal year 2016. 
Therefore, it is important that we act now.
    Despite the Guard accounting for only 8.4 percent of the 
defense compensation and benefit budget, these proposals will 
significantly impact operational Guard. The Guard we have today 
is equipped, trained, and tested over the past 12 years of 
combat. Modest investment keeps your Army and Air National 
Guard ready. But if we do not act now to rebalance military 
compensation, we risk future training, readiness, and 
modernization cuts across the joint force.
    Our success is unquestionably due to our most important 
resource, our people. Every servicemember--Active Duty, Guard, 
and Reserve--deserves the best we can provide within a fiscally 
sound solution. I believe the proposal before you provides the 
level of compensation and is consistent with a ready and modern 
force.
    Mr. Chairman, Senators, the National Guard has been and 
will remain always ready, always there.
    Thank you and I look forward to your questions.
    Chairman Levin. Thank you so much, General.
    I think we have a good turnout here. We also have a vote at 
11 a.m. One vote, I believe. Let us start with a 6-minute first 
round.
    A number of you have mentioned the impacts of these budget 
caps and the impacts of sequestration. These are legislatively 
required, but we need to do something about them. I can assure 
you and members that we will have an opportunity to do 
something about the looming sequestration for the next fiscal 
year. I hope we take that opportunity. In the meantime, as you 
all put very well and very clearly, we have to live with the 
current year's budget caps, and that is what you are trying to 
help us do with your recommendations.
    By the way, I believe, Admiral, you mentioned something 
about generics in our commissaries. We are going to check that 
one out. We do not think that the law requires it. We think 
that the commissaries have to be competitive, and so we are 
going to try to find the origin of that additional cost to our 
men and women in uniform.
    We have a budget in front of us which must meet the caps in 
law. We have no choice. Again, if we do not adopt these 
particular reforms or some of them, we are going to have to 
make up for it with reductions somewhere else, and the 
somewhere else has taken a bit hit already, as you have pointed 
out, our readiness, our modernization. We have the 
responsibility of being law-abiding and we have the 
responsibility to the security of this country. We are going to 
do the very best that we can to accomplish both goals.
    Chairman Dempsey, you have mentioned what the impact would 
be if we delayed these kind of changes. Can you be a little 
more specific? You said it would be a 2-year delay, for 
instance, if we waited for the final report of the MCRMC. Why 
would that be a 2-year impact? Be a little more detailed as to 
why you believe, as you have testified, that you have 
sufficient information now to make these recommendations even 
though when it comes to the retirement issues, you believe that 
we can delay any changes in that until the MCRMC reports.
    General Dempsey. We believe it will be a 2-year delay 
because the commission will not report out until February 2015, 
and that is inside of our decision cycle for the submission of 
the budget. Waiting until February seems to us to make it clear 
we would actually have to move along with 2 years at our 
current state and prevent us from making the changes that we 
know we need to make right now.
    Chairman Levin. In terms of your preparation and 
recommendation, it would be a 2-year delay, but from the 
congressional perspective, we would have time in the next 
fiscal year, if we get those recommendations in February, to 
take those recommendations into account. Is that correct?
    General Dempsey. It seems to me that is correct. I know 
less about your process than I do about our own, and preparing 
the budget to justification book level of detail is a pretty 
remarkable enterprise every year. By the way, for the past few 
years, we have had to prepare budgets against alternative 
futures. I would be surprised if you could act that quickly on 
a recommendation that came to you in February.
    But more importantly, to the second part of your question, 
we have spent the better part of a year analyzing direct and 
indirect compensation with the team that you see here 
represented here today and our programmers. We believe that we 
can articulate what the impact would be at various grade 
levels, an E-5, an O-5, both what it would do to them today and 
what it would do to them across the course of a career. We have 
all the information we need, and we have actually provided it. 
We are ready to move on it because we need that $18 billion.
    Chairman Levin. You have taken steps, you have assured us, 
to consult with others in making these recommendations, 
including your senior enlisted personnel.
    General Dempsey. We have, sir.
    Chairman Levin. I would just say this that they are all 
sitting here behind you, I believe you have told us, and we 
again give special thanks for their service as well. I would 
just invite them, any of them, to personally contact me if in 
fact they do not agree with any or all of these cuts. It is 
very difficult for us to ask them here today or to put them on 
the spot generally. But it is important that we hear from them. 
I would assure them that I would keep the privacy of their 
remarks, and I would assure them to the best of my ability in 
guaranteeing that privacy and anonymity, share them with my 
colleagues to the best I could. I would welcome any personally 
delivered comments from those senior enlisted personnel to me.
    General Dempsey. Sir, if I could. They did testify before 
the Subcommittee on Personnel. I will also attest to the fact 
that there is not a bashful one among them, and you do not have 
to ask for their views. They will provide them and they are 
free to do so.
    Chairman Levin. We welcome that and I am sure our 
Subcommittee on Personnel would also welcome any privately 
delivered comments that might differ from their testimony or 
from your testimony. Thank you very much.
    Senator Inhofe.
    Senator Inhofe. Thank you, Mr. Chairman.
    Not a bashful one among them. Let us see how bashful they 
are here.
    First of all, a lot of us have seen this coming, and I know 
we do not talk about it very much, but when we see money that 
otherwise should have gone into our military, into our defense, 
we see the construction of the biofuel refineries, $160 
million. We see the Navy purchased the green fuel at $26 a 
gallon, which could be purchased on the market for $3 a gallon. 
The climate change initiatives have gone up now $120 billion 
since President Obama has been in office. I commented the other 
day, General Welsh, that for the $120 billion we could buy 
1,400 new F-35s. Food stamps, $42 billion additional every 
year.
    I would like to ask you in this climate--and I am going to 
submit for the record, because there is not time to read them 
all, all of the quotes from everyone, up to and including 
Secretary Hagel, about the dilemma that we are in and the 
fiscal situation that we are in right now.
    [The information referred to follows:]
 Quotes on Military Readiness and Ability to Execute Strategic Defense 
                                Guidance
    Secretary Hagel said 2 weeks ago, ``American dominance on the seas, 
in the skies, and in space can no longer be taken for granted.''
    I believe that under sequestration, we will have to assume so much 
risk that it is immoral.

         General Dempsey agreed when he told the Senate Armed 
        Services Committee, we are putting our military on a path where 
        the ``force is so degraded and so unready'' that it would be 
        ``immoral to use the force.''
         Admiral Winnefeld in January 2013, stated that ``there 
        could be for the first time in my career instances where we may 
        be asked to respond to a crisis and we will have to say that we 
        cannot.''
         General Amos agrees with me on increased risk, ``We 
        will have fewer forces arriving less-trained, arriving later to 
        the fight . . . This is a formula for more American 
        casualties.''
         The Department of Defense's Chief of Technology, Under 
        Secretary Frank Kendall, said on 3 January: ``We're cutting our 
        budget substantially while some of the people we worry about 
        are going in the opposite direction. We've had 20 years since 
        the end of the cold war [and sort] of a presumption in the 
        United States that we are technologically superior militarily. 
        I don't think that that's a safe assumption.''

    Each of the Service Chiefs agree. Here's what they said about the 
ability to execute the current Strategic Defense Guidance:

         Army Chief of Staff General Odiemo said that under 
        sequestration: ``Such reductions will not allow us to execute 
        the 2012 Defense Strategic Guidance, and will make it very 
        difficult to conduct even one sustained major combat 
        operation.''
         Chief of Naval Operations Admiral Greenert said 
        ``[Sequestration] will preclude our ability to execute the 2012 
        Defense Strategic Guidance both in the near term and the long 
        term. ''
         Marine Corps Commandant General Amos said: ``To meet 
        the requirements of the Defense Strategic Guidance, we need a 
        Marine Corps of 186,800 . . . '' but a force of 174,000 marines 
        quite simply is the largest force that we can afford [under 
        sequestration] . . .''

    General Dempsey on Quadrennial Defense Review and Budget: ``The 
smaller and less capable military outlined in the QDR makes meeting 
these obligations more difficult,'' Dempsey said. ``Most of our 
platforms and equipment will be older, and our advantages in some 
domains will have eroded. Our loss of depth across the force could 
reduce our ability to intimidate opponents from escalating conflicts.'' 
He added, ``Moreover, many of our most capable allies will lose key 
capabilities. The situation will be exacerbated given our current 
readiness concerns, which will worsen over the next 3 or 4 years.''
    Under Secretary Jessica Wright Statements on Readiness:

         ``The Secretary of Defense has been very clear that 
        sequestration funding limits imposed by the BCA of 2011 will 
        yield a force that is too small, and not ready enough to meet 
        the Nation's security objectives.''
         ``The budget does not provide adequate funding for 
        modernization, increased training, and facility sustainment 
        needed to resolve the Department's readiness challenges.''

    Senator Inhofe. Could each one of you briefly describe 
something in concrete terms that this fiscal climate means in 
terms of what your Service will not be able to do to adequately 
train men or women, to deploy them, and bring them safely home? 
I would like to have some specifics. If you cannot do it now, I 
would like to get that for the record. Would any of you, 
General Odierno, have any specific thing that you would want to 
do that you are going to have to sacrifice doing in terms of 
training?
    General Odierno. Senator, thank you.
    Beginning first in 2015, we have to reduce home station 
training. It all affects the collective level of training, 
which is the most important for our forces, and it is the 
ability to synchronize and integrate air, ground, and the many 
different types of maneuver that we have to do in case we have 
to respond, whether it be in Korea, whether it be in the Middle 
East, whether it be in Europe. We have had to cut back on this 
training. What that means is we have less capability and lower 
readiness levels than we would like to have in case we are 
asked to deploy.
    This will continue to exacerbate itself in 2016 and 2017 
and 2018 until we get our end strength down to a level that 
would enable us to balance, and that will not happen until 
about fiscal year 2020.
    If we do not get these, we now add another $12 billion bill 
that I have to find. That means we might even have to take more 
end strength out. I have already testified to the fact that I 
do not believe we have enough end strength now if we go to 
sequestration in order to meet our national security needs. 
This will further exacerbate this problem.
    Senator Inhofe. General Welsh, can you think of anything 
specific in terms of grounding of units?
    General Welsh. Senator, last year was a pretty good example 
of what sequester-level funding will do to our Air Force. We 
grounded about a third of our combat squadrons. We cancelled 
Red Flag exercises, both U.S. Red Flags and coalition Red 
Flags, which is the full spectrum, high end part of training 
for the United States Air Force. It is what separates us from 
other air forces. It is where we integrate with the other 
Services and with ground forces and with our allies. We cut 
weapon school classes where we develop our Ph.D. warfighters. 
All the things that take us from doing low intensity work to 
being able to fight a full spectrum fight were affected 
dramatically.
    Senator Inhofe. Yes. I think we saw after the grounding of 
the squadrons that the cost of getting them back to a state of 
readiness, as well as the equipment that was grounded with 
them, exceeds the amount that would have been saved at that 
time. Is that accurate?
    General Welsh. Senator, that is accurate.
    Senator Inhofe. Anybody else? Yes, sir.
    Admiral Greenert. Senator, you were down in Norfolk. You 
talked to our people, and they said these long deployments are 
killing us.
    Senator Inhofe. Yes.
    Admiral Greenert. The problem is if somebody is deployed 
and we need another carrier to deploy due to a contingency in 
Syria or the issues in Europe, those that are out there now 
have to stand that watch because we do not have the response 
force for a contingency that we would normally have. The folks 
are not trained up to do that. It takes longer to train them up 
to deploy. We are deploying just on time. We need a better 
contingency force to deal with the contingencies today.
    Senator Inhofe. Okay, I appreciate that.
    General Amos, anything specific that comes to your mind 
that you cannot do now in terms of properly preparing these 
kids?
    General Amos. Senator, we have made decisions to move money 
into training and readiness of our units. Those units are at a 
fairly high state of readiness and will be so for the next 2 
years. To do that, though, we pulled money out of all our other 
accounts, to include procurement. That is where we are feeling 
the pinch right now. We have $983 million total to reset the 
Marine Corps and modernize the Marine Corps for this year. That 
is less than 4 percent of our entire budget. We are feeling it 
in the modernization, Senator, because we have paid the bill 
for readiness and training out of that account.
    Senator Inhofe. Yes, and I bring this up because I know 
this is a hearing on compensation, but if you change that, that 
does not happen in a vacuum and it cannot be at the expense of 
our training and, as you say, our modernization.
    My time is about expired, but in terms of our combat 
readiness codes, C-1, C-2, C-3, and C-4, because we have 
already experienced some losses in terms of our readiness 
capability, how are we doing now on those that we were 
deploying, General Odierno? They should be C-1 when they are 
deployed. Is that correct?
    General Odierno. That is correct.
    We made progress in 2014 because of the BBA. We are 
beginning to increase the readiness of our brigade combat 
teams, and we have added about four to five more brigade combat 
teams.
    Senator Inhofe. Are they all either C-1 or C-2?
    General Odierno. They are C-1 or C-2. The problem is in 
2015 and 2016, that goes down again because of the 
sequestration. If we lose what we have asked for in the 
compensation savings, that will bring the readiness down 
further. So it will impact readiness in the out-years 
significantly.
    Senator Inhofe. Readiness, risk, lives. Right?
    General Odierno. That is right.
    Senator Inhofe. Thank you, Mr. Chairman.
    Chairman Levin. Thank you, Senator Inhofe.
    Senator Reed.
    Senator Reed. Thank you very much, Mr. Chairman.
    Thank you, gentlemen.
    General Odierno, you are, I think for the first time in 
decades, actually involuntarily separating personnel this year, 
and that will continue if some of these savings are not 
realized. Is that a fair judgment?
    General Odierno. That is correct, Senator. We are 
involuntarily separating captains, majors, lieutenant colonels, 
colonels, and also non-commissioned officers. It is also the 
first year that people who are eligible to re-enlist will not 
be able to re-enlist because of the reduction in the size of 
the Army.
    Senator Reed. There are a lot of issues at play here, but 
we are already seeing the effects of these constrained budgets 
in terms of the opportunities for people who are competent, 
capable in their ability to serve until at least retirement and 
to retire.
    General Odierno. That is correct, Senator.
    Senator Reed. Some of these savings, if they are realized, 
will help alleviate that pressure. It will not end it, but it 
will help alleviate that pressure.
    General Odierno. It will not end it, but it will help 
alleviate it. If we do not get it, it will increase.
    Senator Reed. Accelerate.
    General Odierno. Right.
    Senator Reed. Admiral Greenert, we talked about the 
savings. Let us assume for the moment you get some savings. How 
would you apply them this year? In what specific programs could 
we see with general savings applications?
    Admiral Greenert. Getting those savings the first year, it 
would be career sea pay and it would be special pays and 
allowances, incentive pays. It would be increases to our base 
operations. Our ports shut down. They run 9 a.m. to 5 p.m. We 
want to keep them open so when ships complete training, they 
can come home Friday not go anchor out and then come in 
Saturday during daylight hours. That is 2015. That is about 
$123 million right there.
    In 2016, it is again starting to repair 30 barracks, buy 
trainers and simulators for small arms for our submarine 
trainers, for our surface trainers to put money in to get 
people to training, that is, travel money and trainers. That is 
about 7,500 sailors that we just have backed up. This is the 
quality of their service, Senator, as I was saying. This is 
what they are asking for. Spare parts.
    Senator Reed. One of the points, I think, in Senator 
Inhofe's question to General Welsh was it is a more efficient 
use of resources too. Rather than keeping a ship just standing 
idle off port, that ship could be brought in, the crews could 
see their family.
    Admiral Greenert. Yes, sir. Obviously, they will be 
happier. They are back home and their families waiting for them 
rather than just hanging out overnight waiting for the port to 
open.
    Senator Reed. This is a very difficult issue. I do not have 
to tell anyone around this table or at the witness table. There 
is one view and I think a reasonable view that there is no way 
you can pay these men, women, and their families for what they 
do. There is no benefit. There is nothing. But at some point, 
we have to make very difficult judgments about pay, allowances, 
et cetera.
    But one of the other impressions I have is that training 
and having the best equipment is really key to the morale and 
to the sense of service. Ironically, we could be increasing 
compensation, but with poor training, and poor equipment, et 
cetera, the morale and the satisfaction and the sense of pride 
of the service would deteriorate. Is that unreasonable, General 
Dempsey?
    General Dempsey. No. It is absolutely correct, sir. I have 
said before and I believe it today as well that today's 
readiness problem is tomorrow's retention problem. If you came 
into this military to be a man or woman of action and go to sea 
and fly and train and you are sitting around watching your 
equipment or just simply maintaining it with no possibility of 
training on it, you are not going to stick around very long.
    Senator Reed. My experience is limited, but it was that 
good training was one of the key factors in any unit. If you 
did not have it, the other was important but not as critical.
    Let me ask a question, General Dempsey, about the 
commissaries. Essentially your testimony is that you would like 
to get some efficiencies out of the system and that they can 
generate these efficiencies. If that is not the case, then they 
are going to have to curtail some of their operations. Have you 
thought about criteria for curtailment?
    General Dempsey. We have, sir. I will tell you that 
commissaries has been the most difficult issue to wrap our arms 
around because it is very difficult to understand the 
functioning of the commissary and the effect that a reduction 
in the subsidy will have until you make the decision to do it. 
That is why we are supportive of taking this first step this 
year, $200 million. As the senior enlisted, when they do talk 
to you, Senator, will tell you, let us see what happens. Let us 
see how much efficiency we can wring out of it in order to gain 
some savings. But left unaddressed, we will be providing a $1.4 
billion subsidy in perpetuity, and that just does not seem to 
be a reasonable course of action.
    Senator Reed. So your first step--and the number is about 
$200 million--would be to essentially charge the system with 
coming up with efficiencies either through operation, 
techniques, different purchasing approaches, different 
managerial approaches that would save the money. There is no 
thought in this first year of closing any commissary. Is that 
fair?
    General Dempsey. Yes. Let me ask the Vice Chief to comment, 
sir, because he has actually done most of the heavy lifting on 
this.
    Admiral Winnefeld. I will be very quick. We have not 
directed any commissaries to close. That is not part of the 
plan. What would happen, as you correctly point out, look for 
efficiencies first. Whatever they cannot wring out of 
efficiencies would be a price increase. You might go from the 
30 percent claimed advantage right now--if all $200 million in 
the first year came out, it looks like that would go to 26 
percent. We think we can do better than that. Then you look at 
the competitiveness of the commissary in the market in which it 
exists, and most of them, I think, at 26 percent savings will 
remain very competitive. If not, then there are probably 
situations where you might close one or two, but that is not 
what we have specified. It is, I think, a lot gentler than it 
looks.
    Senator Reed. Thank you very much.
    Thank you, Mr. Chairman.
    Chairman Levin. Thank you, Senator Reed.
    Senator McCain.
    Senator McCain. Thank you, Mr. Chairman.
    I thank the witnesses.
    General Amos, with all of these proposals that we are 
examining today, it seems to me from previous testimony that 
the biggest problem really is sequestration. Would you agree?
    General Amos. Yes, sir, I would.
    Senator McCain. By far?
    General Amos. By far.
    Senator McCain. General Odierno?
    General Odierno. I agree, Senator.
    Senator McCain. Unless Congress and the President act 
together, all of these savings will pale in comparison to the 
challenge you will face as a resumption of sequestration. Would 
you agree?
    General Odierno. I think we have said before that under 
sequestration, we cannot meet the DSG. We have many concerns. 
It also affects compensation and other things we want to 
accomplish within our budget.
    Senator McCain. By the way, on commissaries, I have a 
thought. Why not have people compete to provide those services? 
Why not just open it up for competition? No subsidy. Just see 
who wants to provide the best services. That might be a thought 
you might consider.
    General Welsh, should we be purchasing rockets for our 
Evolved Expendable Launch Vehicle (EELV) program from Russia, 
including the fact that the person in charge of that aspect of 
Russia's defense has been sanctioned by the United States of 
America and a Federal judge has ruled that that is a process 
that should not be pursued?
    General Welsh. Senator, we already have purchased some of 
those rockets. We have a backlog. We certainly are not 
purchasing them currently as we work through----
    Senator McCain. You have a backlog?
    General Welsh. Sir, I am sorry. We have an inventory that 
will cover the next 2 years of planned launches, if we are 
allowed to use them.
    Senator McCain. Do you think you should continue to 
purchase them?
    General Welsh. Sir, it is clear that right now we may not 
continue to purchase----
    Senator McCain. I am asking your opinion whether you think 
we should continue to purchase them.
    General Welsh. Sir, I think the best answer for the United 
States of America is to have the option of an organic booster.
    Senator McCain. Thank you.
    General Grass, do you believe that the movement of Apaches 
out of the Guard is a wise move?
    General Grass. Senator, the adjutants general submitted a 
proposal to me that I have submitted to the Army about that. We 
actually agree with two-thirds of the move of the trainer and 
also moving the Kiowa Warriors, and we submitted a proposal to 
keep a strategic depth of Apaches in the Guard.
    Senator McCain. It is your view that the Apaches should 
remain in the Guard.
    General Grass. A certain amount, sir.
    Senator McCain. General Odierno, you mentioned a couple 
times in previous testimony you thought that the A-10 was by 
far the most superior close air support (CAS) weapon that we 
have.
    General Odierno. Senator, what I said is our soldiers have 
the most confidence in the A-10. They are used to working with 
it. I also said that the Air Force is providing CAS with other 
platforms, which has also been successful.
    Senator McCain. Does it give you comfort to know that the 
B-1 is one of the replacement ideas that the Air Force has put 
forward presently in Afghanistan? That would mean a 6-hour 
flight from its base in a different country as opposed to a 
minimum of 1 hour, and those weapons are delivered from very 
high altitude.
    General Odierno. Senator, first off, I have confidence that 
the Air Force understands the immediacy of the necessity of 
CAS. I believe the systems they have in place will provide us 
that immediacy.
    Again, as we use different platforms, we will work through 
with the Air Force how we use those and how they are best 
effective in supporting our ground forces as we move forward.
    Senator McCain. I find it curious that you come over here 
with all the necessity for cost savings and the A-10 cost per 
flying is $17,000 per flying hour and the B-1, $54,000 per 
flying hour. As I said before, General Welsh, I challenge you 
to find an Army or Marine Corps commander who has functioned in 
the field and needed CAS that would feel comfortable with the 
B-1 replacing the A-10. I will look forward to you providing me 
with those individuals. The fact is that the B-1 is much more 
expensive. It flies at high altitude and it attacks static 
targets. That does not fulfill the mission of CAS as I know it. 
I would be glad to hear your response.
    General Welsh. Senator, the B-1 also provides about 5 hours 
times on station, and up to 32 joint direct attack munitions.
    Senator McCain. At $54,000 per flying hour.
    General Welsh. Yes, sir, and in some scenarios where the 
ground forces are not in direct contact with the enemy, it is 
an exceptionally good CAS platform. I would be happy to provide 
people who will tell you that.
    It is also not the planned replacement for the A-10, sir. 
The primary airplane doing CAS to take the place of the A-10 
will be the F-16. It has already done more CAS in Afghanistan 
than the A-10 has, and it will work with other aircraft, if the 
scenario allows it, to provide the best possible CAS for our 
troops on the ground. We are absolutely committed to it. We 
have been and we will remain so.
    Senator McCain. Well, you tried to get rid of it before, 
General, and did not succeed. We will try to see that you do 
not succeed again.
    Finally, Mr. Chairman, my time has expired. But I gave a 
speech again yesterday on the floor of the Senate. We have now 
spent 57 percent of the $300 billion that was spent in fiscal 
year 2013 on non-competitive contracts, 80 programs, according 
to the Government Accountability Office, with $500 billion in 
cost overruns. The EELV. The Air Force Expeditionary Combat 
Support System over $1 billion which as of now has no result. 
The Expeditionary Fighting Vehicle, $3 billion. Former Marine 
One helicopter, $3.2 billion. The acquisition system in DOD is 
broken. It still has not been fixed, and when we have as much 
as a $3 billion cost overrun for a single aircraft carrier, the 
American taxpayers will not sustain it.
    I thank you, Mr. Chairman.
    Chairman Levin. Thank you, Senator McCain.
    Senator Blumenthal.
    Senator Blumenthal. Thank you, Mr. Chairman.
    Thank you all for your service, your extraordinary 
dedication and contribution to our Nation. I join Chairman 
Levin in saying to you and the men and women who serve under 
you that we owe you a tremendous debt of gratitude both in 
peace and war.
    General Dempsey, I had not intended to ask this question, 
but I am encouraged to do so by one of Senator McCain's 
questions. On the purchase of Russian helicopters for the 
Afghan military, what would it take to convince you that we 
should stop those purchases today since the money that we are 
spending on them goes to Rosoboronexport, the Russian arms 
agency that, in turn, is fueling and financing Assad in Syria 
and also now the troops that are on the border with Ukraine? 
What would it take to convince you that we should stop those 
purchases right away?
    General Dempsey. An alternative, Senator. I just came back 
from Afghanistan on Saturday, and the Afghan Security Forces 
did an absolutely remarkable job of managing their elections. 
They peaked for the big events, but they are not ready to 
sustain themselves over the long term. We have to get them a 
lift capability and an attack capability, and currently there 
is no alternative.
    Now, we are looking inside DOD to see if we can find an 
alternative supply chain and repair parts. Believe me.
    By the way, the other thing that it would take is if a 
sanction were to be placed against them, that would be the law 
and we would have to react to that.
    Senator Blumenthal. A sanction against the Russian arms 
agency.
    General Dempsey. That is right. A sector sanction.
    But at this point, we do not have an alternative, though we 
continue to seek one.
    Senator Blumenthal. Is there a military reason that we 
should not impose sanctions on Rosoboronexport, the Russian 
export agency?
    General Dempsey. The military reason is what I just 
expressed, which is a concern that we would leave the Afghan 
Security Forces without an air component for some time.
    Senator Blumenthal. But can we not provide those components 
from another source and the training to fly American 
helicopters?
    General Dempsey. We have talked about the American 
helicopter, Senator. That would take a very long time, much 
longer than it does with the Mi-17. But we are looking at 
alternative sources of supply and repair parts.
    Senator Blumenthal. I do not want to dwell too long on this 
issue, and you have been very gracious in talking to me about 
it on previous occasions, both on and off the record. I 
appreciate your attention to it. But I would like to follow up 
further with it, and I appreciate your responding.
    A question for you, General Dempsey, and perhaps to General 
Odierno and General Amos. One of the biggest factors as a cause 
of suicide is financial stress, and the rates of suicide I know 
have been of great concern to every member of this panel. Do 
you anticipate that any of these cuts or changes in 
compensation will impose greater stress? Obviously, that is an 
emotional term. It may not be objectively a cut in the standard 
of living, but the idea of stress comes with reductions in 
compensation and the threat of additional reductions in 
compensation.
    I ask this question very cognizant of the fact that many of 
our best and brightest who are fortunately serving now go into 
the military without the idea that compensation is going to be 
the key to their future. As the father of two who have served, 
who are serving, I am well aware that the training and the 
challenge and the mission are the primary motivations for any 
young man or woman who goes into the military. But in terms of 
retention and continued service, are we not creating additional 
financial stress which, in turn, aggravates suicide rates and 
could have other down sides physically and emotionally?
    General Dempsey. I will let the Service Chiefs talk about 
the many programs in place to help service men and women deal 
both with stress and, in particular, with their financial well-
being.
    Personally, Senator, my belief is that the uncertainty of 
all of this is a greater cause of stress than the slowing of 
growth that we have prepared. As I have gone around into 
townhall meetings, that echoes. That resonates. They are more 
concerned because they do not know what the future will be in 
terms of our ability to raise and maintain a force over time.
    But let me ask if any of the Service Chiefs want to talk 
specifically about this.
    General Odierno. If I could, Senator, I want to really 
piggyback on what the Chairman just said. Their concern is am I 
going to have a job? Am I still going to be part of the best 
Army? Am I going to have the best equipment? Am I going to be 
ready when you ask me to deploy somewhere around the world? 
Certainly they are concerned about their compensation. But in 
reality, we are not reducing their compensation. We are 
reducing the rate of growth. Nobody will see a cut in their 
paycheck. Their paychecks will continue to increase. In my 
opinion, that is the bigger issue, sir.
    Senator Blumenthal. Can you talk perhaps, General Dempsey 
or General Odierno, about the Study to Assess Risk and 
Resilience in Servicemembers (STARRS) program, in terms of 
addressing the suicide issues in the Army?
    General Odierno. I can, Senator.
    STARRS enters its fifth year of the program. To date, more 
than 100,000 soldiers have voluntarily participated. This is 
allowing us to gain new data that is enabling us to see where 
the stresses are, what are causing soldiers to think about 
suicide, to have suicide ideation, in some cases with those who 
have actually attempted suicide. It is really giving us high 
quality information that we are able to put back in our 
program. We are continuing to fund that program because the 
information we are getting is allowing us then to pass that 
information to the commanders and allowing them to better help 
and understand what the stressors are on our soldiers. We are 
continuing to invest in that program as we move forward.
    Senator Blumenthal. Thank you.
    Thank you very much, Mr. Chairman.
    Chairman Levin. Thank you, Senator Blumenthal.
    Senator Fischer.
    Senator Fischer. Thank you, Mr. Chairman.
    General Dempsey, some have suggested that maybe there are 
other areas in the budget that we can cut. I guess I would like 
you to speak to that. I know that research and procurement 
funds have been cut, but do you believe that there are any 
additional savings in those areas or other areas that can 
offset these compensation changes? How do you weigh that?
    General Dempsey. Yes, Senator, not only are there other 
areas that could be cut, we have actually cut nearly every 
area. In fact, I would actually prefer to allow some of the 
Service Chiefs to talk about how they have tried to balance the 
reductions against pay, compensation, health care, 
modernization, training, infrastructure. There are five or six 
or seven places you can find money in a budget. They have 
looked. There is nothing left under the mattress. We have to do 
this in a balanced way.
    Anybody want to add to that?
    Senator Fischer. General Amos?
    General Amos. Senator, in my Service, as I testified in my 
opening statement, 63 cents on every dollar goes to manpower. 
We are the highest of all. By the way, that does not mean the 
marines cost more. We actually cost less because we are a 
younger Service. But it is a percentage of budget and a 
percentage of top line. We are at 63 percent.
    That leaves 27 percent available for readiness. You want me 
to be in a high state of readiness so we can deploy today, and 
we do that often. 27 cents of every dollar applies to that.
    Then really all that is left over, for the most part, is 
about 8 percent, which is equipment, modernization. You 
mentioned research and development (R&D). 4 percent is R&D and 
4 percent is modernization. When you think about our Service, 
we have been at war for 12 to 13 years, and 4 cents on every 
dollar is going to modernize the Marine Corps after 12 or 13 
years of war.
    General Dempsey's point is that we have looked in a lot of 
places. For me, my manpower account is 63 cents on every 
dollar. 64 percent of that is pay, health care, and BAH. If I 
am going to make a change, even if it is a modest change, for 
me I get a pretty high return on the money considering the 
amount of money I am paying for modernization.
    General Odierno. Senator, if I could just add to that.
    Currently we are only funding our installations at 50 
percent of what they should be funded at. We do not have a Base 
Realignment and Closure (BRAC) round. We are going to have to 
continue to sustain the number of installations that we have. 
We cannot fund our installations fully. That is already the 
case. We are cutting the Army by 34 percent in the Active 
component. We are cutting the Army by potentially 20 percent in 
the National Guard, 10 percent U.S. Army Reserve. Our research, 
development, and acquisition account has been cut by 39 
percent. We have slowed down every one of our programs, which 
is causing cost overruns because we have now slowed down how 
long it is taking us to procure aircraft. What that means is 
each aircraft costs more because we have slowed it down and we 
have reduced the amount of aircraft we are buying. We are not 
only past efficiencies. We are becoming more inefficient 
because of how we are trying to deal with the problems that we 
are dealing with. Our military construction (MILCON) is at the 
lowest level ever in the Army right now. We have taken as many 
efficiencies as we possibly can to pay a $170 billion bill that 
we still have to pay over the next several years.
    Senator Fischer. You have strategic requirements that you 
have to meet. So just how far are you going to fall short of 
those if the sequester continues?
    General Odierno. Until we can get the end strength out, 
which is going to take us about 3 or 4 more years, we are going 
to continue to be out of balance. We are taking a portion of 
the force, a very small portion of the force, and making them 
as ready as possible to meet our operational commitments. The 
problem is the rest of the force is paying a significant price 
in readiness. What that means is as we get unknown 
contingencies, we are not going to be able to respond with the 
readiness and capabilities that we are used to responding. That 
is my real concern, Senator.
    Senator Fischer. We have talked a little bit about the 
MCRMC that is out there and the recommendations that they may 
come up with. I guess I will start with you, General Dempsey. 
Are any of you concerned about the changes that you are 
proposing here that you are contemplating for the budget? What 
happens if the MCRMC rejects those and goes in another 
direction? How are you going to address that?
    General Dempsey. The commission's work is on changes to 
structure of pay, compensation, and health care and retirement, 
which is a longer look at this than we are proposing right now. 
I think our suggestions are going to harmonize quite well, 
frankly, with what they are doing.
    Senator Fischer. What would you see for savings if the pay 
is going to be capped at an increase of 1 percent down the 
line?
    General Dempsey. I am not sure I understand the question, 
Senator.
    Senator Fischer. If you are looking at savings on pay in 
the budget that you are proposing, you are talking about a 1 
percent this year or fiscal year 2015 instead of the 1.8 
percent?
    General Dempsey. Right.
    Senator Fischer. There will be savings there. Do you 
anticipate that that will continue into the future and how far 
into the future? Would you cap that?
    General Dempsey. I think that is one of the things that we 
would expect to get some advice from from the commission 
because that is a structural issue. But the savings on that 1 
percent vice 1.8 is about $3.8 billion over the FYDP, and that 
is money we really need.
    Senator Fischer. I see my time is up. Thank you.
    Chairman Levin. Thank you, Senator Fischer.
    Senator Donnelly.
    Senator Donnelly. Thank you, Mr. Chairman, and thank you 
for all your service.
    I want to focus for just a minute on mental health 
assistance. I appreciate all the efforts of all the Services in 
trying to get this right.
    General Grass, the National Guard is limited in its ability 
to provide medical treatment to its members. You cannot access 
the Defense Health Program's funding and have to use operations 
and maintenance funds. Does this impact the quality of mental 
health support that you can provide for your members?
    General Grass. Senator, we have 167 trained mental health 
clinicians across the States. Those are primarily in the State 
headquarters as well as in the flying wings. Thanks to 
Congress, we got a $10 million plus-up for this year. We have 
been able to bring on additional clinicians that we can put in 
the high risk areas. That has been very helpful.
    My concern is probably more looking to the future and 
especially as we bring men and women off of Active Duty into 
the Guard that maybe have had multiple deployments and they are 
coming back to their hometown and will we be able to expand and 
provide the health care they need, as well as our own men and 
women. In the past, we have had a 50/50 split on prior service 
and non-prior. During the war, that actually went down to a 20 
percent prior service and 80 percent non-prior. We have to 
tackle this issue.
    Senator Donnelly. We continue to need to do a better job of 
assessing the mental well-being of our servicemembers every 
year for every servicemember regardless of whether deployed or 
not. This goes for Active Duty, Guard, and Reserve.
    General Dempsey, I was wondering your views on conducting 
annual mental health examinations or screenings for the Active 
Duty and Reserve members.
    General Dempsey. We have programs in place pre-deployment 
where we screen them. Let me ask the Service Chiefs if you 
extend those into routine presence deployments. John?
    Admiral Greenert. We have pre-deployment, as the Chairman 
has said, and then post-deployment, we have a 30-day, 90-day, 
and 6-month checks which include--I do not know that I could 
call it a mental health screening but delves into issues of 
mental health of our individuals. When you take that across a 
spectrum--and folks deploy every 2 years or so--that is quite a 
few checks.
    General Odierno. We conduct assessment prior. Then we do 
one during deployment, and then we do one after the deployment. 
But then we are now making a part of the routine sustainment, 
as we do physicals and other things, behavioral health is 
becoming a part of that.
    There are two things with the National Guard, if I could. 
We have increased the tele-behavioral health. We have to 
continue to invest in that because that then allows them from 
external places to get behavioral health.
    The other thing is the TRICARE Reserve Select, which is a 
low-cost premium that allows them to get care. We are 
subsidizing that. We subsidize that by 72 percent. That is an 
investment that we have made to help them to get care outside 
of the military health structure which should assist our Guard 
and our Reserve in order to get the behavioral health and other 
care that they need.
    Senator Donnelly. You in previous hearings here had 
mentioned about the possibility or the use of off-base mental 
health assistance as well. That seems like in certain cases 
that could be a very good fit.
    General Odierno. We are trying to build a civilian military 
consortium of capability that allows our soldiers and their 
families to get the care. We are making some progress on that.
    We are also working with many outside organizations on our 
major installations in order to have this cooperative effort 
because sometimes they would much rather go to someone in the 
civilian community than in the military structure because of 
their concern about stigma and other things. We are trying to 
open that up as much as possible as we move forward.
    Senator Donnelly. General Amos, I just wanted to ask you. 
You mentioned 63 cents of every dollar goes to personnel, 4 
percent for modernization. With that 4 percent, how modern will 
that allow the Marine Corps to be in about 10 years if it 
continued at that rate?
    General Amos. Sir, it is part of the decision we made last 
summer as we were facing sequestration. We said what is good 
enough. So in 10 years, the Marine Corps will not be a very 
modern Service with regard to ground tactical vehicles. It will 
be modern with regard to aviation and a few other, but we will 
be living with legacy vehicles in the ground tactical vehicle 
arena.
    Senator Donnelly. This would be for all of you, and I will 
do it quick.
    Is there an upper limit like on the personnel costs? I 
remember, Admiral Greenert, we were at a dinner with you where 
you said at some point, if things do not change, the Navy's 
personnel costs will be two-thirds of every dollar and it will 
be very difficult to run the operations of the Navy if that 
occurs. Is there an X crosses Y point for the different 
Services?
    Admiral Greenert. That was at a rate that we were on at the 
time, and that would notionally arrest itself. But I think what 
we are suggesting is to slow growth. For the Navy, we are about 
right now at about 25 to 35 percent. Now, if you add 
reservists, I am talking about sailors, reservists, and 
civilian personnel. We are talking about arresting it to the 
area we are right now.
    Senator Donnelly. Okay.
    Sir?
    General Odierno. For the Army, historically it is 42 to 45 
percent. Today we are about 48 percent and growing, and that is 
the concern we have. As the budget comes down, it will probably 
grow as a bigger percentage. We are still working the numbers, 
but it will continue to grow if we do not watch this very 
carefully.
    General Welsh. Senator, one of the concerns that I have is 
that the percentage for the Air Force has stayed the same 
between 2000, 2001, and today. It is roughly in the mid-30s. 30 
to 35 percent of our budget is costs we pay to people. The 
problem with that is we have cut 50,000 airmen during that time 
frame. Our top line has gone up. We have cut 50,000 people and 
the percentage of the budget we put toward those people is 
exactly the same. That is the impact of the cost growth.
    Senator Donnelly. Thank you very much, Mr. Chairman.
    Chairman Levin. Thank you, Senator Donnelly.
    Senator Ayotte.
    Senator Ayotte. Thank you, Mr. Chairman.
    I want to thank all of you for your leadership in the 
military, for your extraordinary service to our country during 
challenging times.
    I just have a comment up front, and I want to echo the 
comments that Senator McCain made. This really is about 
sequestration. As we look at these issues in terms of 
compensation and also the readiness issues and challenges that 
you are facing right now, it seems to me that when we look at 
the overall budget, taking it out of the DOD realm, 60 percent 
of what we are spending our Federal dollars on are on mandatory 
spending, entitlement programs, that if we do not get together 
collectively as a Congress and address the bigger picture in 
the budget, then those programs, by the way, go bankrupt but 
also it continues to squeeze out the priorities in terms of 
defending this Nation at a very challenging time.
    Sequester, let us not forget, was set up to be something 
that would never happen, and yet, here we are. I think that we 
need to show an iota of the courage that our men and women in 
uniform do every day and really address the big picture problem 
here with sequester because we are going to continue to face 
this down.
    As I look at it, the one thing that worries me is that when 
we went though the cost-of-living adjustment (COLA) discussion 
in the budget agreement, there seemed to be somewhat of a 
disconnect that there were comparisons made between civilian 
personnel and the sacrifices that our men and women make every 
day. When you are married to someone in the military and you 
have to move around, you cannot have the same career as someone 
who is on the civilian side. When you are missing those 
weekends, those holidays, it is not the same. You cannot make 
those comparisons, and we cannot lose sight that the 1 percent 
of this population, the men and women in uniform who go out and 
defend the rest of us, that the sacrifices they made are very 
different.
    What I would like to make sure of is that we do not lose 
sight of that as a Nation and that we actually hopefully can 
get this Congress to the place where we are taking on the big-
picture, hard questions that need to be taken on so that we do 
not diminish the best military in the world.
    That is my comment upfront, and I know that many on this 
committee share those sentiments and really what we need to 
address if we want to make sure that our men and women in 
uniform are supported and the defense of this Nation is sound.
    I want to ask, in particular, just real quick to follow up 
on what Senator McCain had asked General Odierno. Just so we 
are clear on the A-10, our men and women on the ground--do they 
have as much confidence in the F-16 in terms of the CAS mission 
as they do in the A-10?
    General Odierno. If you go ask people on the ground, they 
will tell you that they believe in the A-10. They can see it. 
They hear it. I think a lot of times they are not aware of the 
F-16 as much because it is not actually visible to them. If you 
ask them on the ground, they are very clear that they----
    Senator Ayotte. Do you believe the F-16 is the equivalent 
of the A-10 on the ground in terms of re-attack times, in terms 
of ability to go low and slow in terms of survivability in 
those real close settings?
    General Odierno. They both have very different 
capabilities. They both can conduct the missions, but the A-10 
has certain characteristics that enable them, visual 
deterrence, able to see, the type of munitions. But the F-16 
also has been capable of developing and delivering.
    Senator Ayotte. Let us be clear. The F-16 is not the 
equivalent of the A-10 when it comes to the CAS mission on the 
ground. Is it?
    General Odierno. It is not the same.
    Senator Ayotte. General Amos, would you disagree with that? 
Is the F-16 the equivalent of the A-10 in terms of CAS on the 
ground?
    General Amos. Senator, I cannot comment on the F-16. I can 
comment on the F-18, and the marines would rather have F-18s 
overhead than A-10s. I will say that caveated. During Operation 
Iraqi Freedom-1, I had 60 F-18s, 72 Harriers, and General 
Mosley gave me a 100 sorties of A-10s every day. It was a nice 
blend. The A-10s in those days were nonprecision. I think that 
is taken care of now. I think they have precision systems.
    Senator Ayotte. They are precision guided now.
    General Amos. Yes, and so they have all that. That makes 
them the better platform.
    I think it is a blend. But if you ask the marines on the 
ground, they would rather have their F-18s and the Harriers 
overhead. That does not mean they did not appreciate the hell 
out of the A-10s, and I know for a fact that they did.
    Senator Ayotte. I guess my question is do you think that 
the F-16 is the equivalent of the A-10 on CAS. Yes or no?
    General Amos. Senator, I do this for a living, and I think 
they are two completely different platforms with overlapping 
missions. Now, one is very old. The other one is not quite so 
old. I think what you would probably like to do is have a 
blend, if we could afford it. We are at a point right now where 
we are trying to make decisions on what we can afford and 
modernization.
    Senator Ayotte. Well, it seems to me when I think about 
what the men and women in uniform on the ground have told me 
when I visited Afghanistan, we should be able to afford what 
they believe is the best CAS platform, especially given the 
cost per flying hour and what we have previously invested in 
the A-10.
    I have a question for the whole panel that I really think 
we need to get to the bottom of. When we add up the fiscal year 
2014, fiscal year 2015 pay caps, and the proposed BAH pay 
reductions, the reductions in commissary savings, and the new 
TRICARE fee structure, the Military Officers Association of 
America (MOAA) has given us an estimate that an E-5's family of 
four would experience a loss of about $5,000 in purchasing 
power annually, thinking about their overall compensation 
package as opposed to just pay or one area.
    Do you all agree with that estimate? Have you done the 
analysis in terms of thinking about our junior enlisted 
officers and what it will mean for them in terms of these 
proposals on a gradation? Because I have not yet seen that. 
Perhaps you produced it, but I think it is important for us to 
see especially for thinking about the sergeants in our Army and 
our Marine Corps, the staff sergeants, the petty officers 2nd 
class, all of those who are really at the junior enlisted level 
who are making a lot less money. Some of them, unfortunately, 
in some instances I know in the past have been on--it is a 
shame, but have been on food stamps and other things. I think 
those numbers are particularly important for us to see.
    General Dempsey. Senator, we will take it in general for 
the record and give you--we do have that data. The Chief of 
Naval Operations (CNO) actually has the specific answer to that 
question that you asked.
    [The information referred to follows:]

    We do not agree with the Military Officers Assocation of America's 
(MOAA) estimated impact of the Department's pay and compensation 
proposals on junior enlisted servicemembers.

         - Baseline: MOAA is inconsistent in base lining each proposal. 
        For example, MOAA depicts the total impact of the BAH and 
        Commissary proposals, which are not fully implemented until 
        fiscal year 2017, but only depicts the impact of slower Basic 
        Pay raises in fiscal year 2014-2015.
         - Timeframe: MOAA includes the impact of the 2014 pay raise, 
        which was less than the employment cost index. Analysis should 
        be bounded by the PB15 horizon (fiscal year 2015-2019).
         - Assumptions: The impact to the servicemember varies based on 
        the underlying assumptions, including: dependency status, years 
        of service (YOS), health care usage, and shopping habits. In 
        fact, of all the PB15 pay and compensation proposals, the 
        commissary impact is the most sensitive to varying assumptions.

                - YOS. MOAA depicts an E-5 with 10 YOS. An average E-5 
                has about 6 YOS.
                - Family Size. MOAA depicts a family of four. The 
                average servicemember has a family of three.
                - Commissary. MOAA assumes 100 percent commissary 
                usage, resulting in annual savings of $4,500. The 
                average servicemember does not shop exclusively at the 
                commissary and independent analysis shows the 
                commissary may only save the average servicemember 
                $600-$2,250 annually.

    The below table depicts the OSD estimated average monthly increase 
in pay and benefits from (fiscal year 2014 to fiscal year 2017) after 
implementing all the PB15 pay and compensation proposals.

----------------------------------------------------------------------------------------------------------------
                                      E-3  (2    E-4  (3    E-5  (6    E-6  (12   O-1  (<2   O-2  (3    O-3  (6
                                        YOS)       YOS)       YOS)       YOS)       YOS)       YOS)       YOS)
----------------------------------------------------------------------------------------------------------------
Single.............................        $98       $107       $135       $167       $128       $186       $230
Family.............................         52         62          0         35         81        133        185
----------------------------------------------------------------------------------------------------------------

Assumptions:
    Single:
      -  No dependents
      -  Shops at the commissary 80 percent of the time
    Family:
      -  E-3-E-4 & O-1-O-3: servicemember is married with no children
      -  E-5-E-6: servicemember is married with two children
      -  Shops at the commissary 80 percent of the time

    Admiral Greenert. If you look at the literal pay today--
this is an E-5 in the Navy, about 6 years in the Navy, three 
dependents--they make $64,300. I will back this up. In 2019, 
which is at the end of this pay period we are talking about, 
they would make $76,000. Now, that gives them inflation. If you 
look at buying power, to be straight with you, they get about a 
4 percent loss in buying power as a result of this. That is 
about $2,500, not $5,000. Does that make sense?
    Senator Ayotte. Yes. Basically you would say that the 
estimate that MOAA gave us--your estimate would be half that.
    Admiral Greenert. Yes, ma'am.
    Senator Ayotte. I appreciate that. I just think it is 
important for us to understand in the buying power dollars 
because that is how families operate. It is the junior enlisted 
level that really are going to have the toughest time with 
this, and I want to understand that.
    General Amos. Senator, on the commissary issue, which is a 
sore point for me personally, DECA advertises 30 percent 
savings across the market for us out there right now. They are 
saying that as we go down and we put these efficiencies in, 
this over $1 billion worth of efficiencies over time, it is 
going to go down to 10 percent savings. That is a 66 percent 
drop in savings for my marine. I do not like that. I do not 
think that is the solution set. I think the solution set is to 
force DECA to become more efficient and figure out how to do it 
and do not put that burden on the backs of our young enlisted 
marines, our lance corporals, our sergeants, our airmen, or 
seamen.
    I think the commissary piece is important. We do not need 
to turn our back on it. But I think we are going at it the 
wrong way. I think we need to force DECA to do some of the 
things that the Services have had to do over the last year to 
try to live within our means, if that makes sense.
    Senator Ayotte. It does.
    Thank you all. I appreciate it. I know I am beyond my time.
    Chairman Levin. Thank you, Senator Ayotte.
    Senator Hagan.
    Senator Hagan. Thank you, Mr. Chairman.
    Mr. Chairman, I just wanted to express my thanks to 
Commandant Amos for his incredible leadership over the marines, 
as well as your wife, Bonnie, for all that she has enjoyed and 
been through over these so many years. Thank you for your 
steadfast dedication to our Marine Corps, to our country, and 
to the State of North Carolina.
    General Amos. Thank you, Senator. I will pass that on to 
Bonnie.
    Senator Hagan. Please do.
    We certainly face difficult decisions in fiscal year 2015, 
as we all know and have been discussing. It is something that 
this committee will be closely examining in the coming weeks as 
we consider the NDAA. Looking ahead, however, we also face the 
return of sequestration in fiscal year 2016 and beyond.
    North Carolina, as all of you know, has one of the largest 
military footprints in our Nation. I am particularly concerned 
about the effect that it would have on our servicemembers. I am 
committed to finding a balanced solution that is going to put 
an end to sequestration in future years.
    My question, General Amos, with this likely being your last 
appearance before our committee as commandant, I am interested 
in your most blunt view of the impact that the return of 
sequestration would have on our Marine Corps in the future.
    General Amos. Senator, just trying to pull the figures 
out--we have testified on this so many times on this in the 
past. There is absolutely no doubt in my Service and in 
particularly your State. You are going to go from almost 50,000 
marines, a little bit more than that, down to just about 41,000 
marines in your State alone, all as a result of the force 
drawdown, which is driven a lot by sequestration. It is not 
dollar for dollar, but it is significant.
    I think more importantly than that is you are going to take 
a force whose raison d'etre is to be ready today, to go 
tonight. We will continue to do that for about 2 more years, 
but if sequestration returns in 2016, then you are going to see 
the readiness of those units that are designed to and assigned 
to be ready tonight--you are going to see the readiness in 
those units fall under sequestration. We have not even talked 
about modernization, equipment, and all that other stuff. Just 
the operation and maintenance, the training readiness, the 
ranges, the ammunition, the fuel, the ability to train those 
young marines is going fall starting in about 2 years.
    Senator Hagan. That is certainly one of the very reasons 
that I think it is very important that we take notice of this. 
We listen to what you all have to say and we certainly work 
very hard together to be sure that we can stop sequestration.
    General Dempsey, as I am chair of the Emerging Threats and 
Capabilities Subcommittee and I am concerned about how, once 
again, the continued sequestration could affect our ability to 
meet the challenges in the future, if sequestration returned in 
fiscal year 2016, what threats concern you the most in terms of 
our ability to be prepared?
    General Dempsey. I think three things, one I mentioned to 
Senator Blumenthal, which is the uncertainty that will persist 
within the force, and that is going to have issues in the human 
dimension. These are real people we ask to do this work. We owe 
them a little certainty in their lives.
    Second, it will affect our ability to maintain forward 
presence to the degree we believe we should. When we are 
forward, we deter our adversaries and we reassure our allies. 
If we have fewer forces forward, we will be less deterrent and 
less reassuring to our allies.
    Third, as General Odierno mentioned, should a contingency 
arise, we will have less in readiness back here to flow forward 
to respond to that crisis.
    Those are the three things I would suggest we should take 
very seriously. In the aggregate, they define a level of risk 
that at sequestration levels we believe to be unacceptable.
    Senator Hagan. Thank you.
    I did want to ask a question similar to what Senator Ayotte 
was talking about in her last question. Unlike the private 
sector, where most companies can easily recruit mid-level 
employees, in the Armed Forces we do not have an alternative 
but to build and develop our mid-grade officers and non-
commissioned officers from within. As our servicemembers reach 
that midpoint of their careers, they are making these critical 
decisions about whether or not to make the military a career. 
These officers and noncommissioned officers obviously have a 
wealth of experience with multiple deployments many times to 
Iraq and Afghanistan.
    How do you think they will view DOD's proposed compensation 
proposals? I would put this out to anybody.
    Admiral Winnefeld. I can give you some numbers that are 
rough numbers. We find that in retention, which is I think the 
question you are asking, that a 10 percent pay increase 
historically--we have had more increases over the last decade 
than decreases--for first-term retention increases retention 
about 10 to 15 percent. For second-term retention, it increases 
at about 10 to 13 percent, and it increases career retention 
about 5 percent. If you were to take a 10 percent decrease, 
which is not at all what we are talking about here--we are just 
talking about lowering the trajectory of increases. They are 
smaller increases--presumably you would have a commensurate 
effect.
    I think what we are hearing from our people is that there 
might be some small impact on retention but that based on the 
current economy and a number of other factors, we think we are 
going to be okay. We carefully considered that as we designed 
these proposals to not end up with a break in retention.
    Right now, the Air Force is retaining and I would defer to 
the chief over there. But in 10 of 11 categories, the Air Force 
is exceeding its goals. In career retention, they are at 96 
percent, just as an example.
    Senator Hagan. Thank you. Once again, General Amos, thank 
you.
    Senator Nelson [presiding]. Thank you, Senator Hagan.
    Now, Senator Kaine.
    Senator Kaine. Thank you, Senator Nelson.
    To members of the panel, thank you for your service and 
your testimony today.
    I just want to associate myself with the comments about 
sequestration. One of the first votes I cast when I came into 
the Senate was to eliminate sequester as needless and poor 
budgetary strategy. Together with colleagues, Senator Nelson, 
Senator King, and others on the Budget Committee, we worked to 
at least reduce the effect of sequester in fiscal years 2014 
and 2015. Those of us who are on the Budget Committee, those of 
us on Armed Services, many of us are going to be trying to do 
the same thing with 2016 and carrying it forward.
    General Dempsey, just to open my questions in this vein 
about sequester, are the recommendations that are part of this 
budget, including the compensation recommendations we are 
discussing today, driven primarily by optimal defense strategy 
or by budgetary caps imposed by Congress?
    General Dempsey. This is a bundling of reform. There are 
some things in there that we would have clearly wanted to do 
whether sequestration was a fact or not. Then there are things 
that are very clearly the result of sequestration.
    We are trying to recover from 12 years of conflict, restore 
skills lost, rebuild readiness, recapitalize the force. It is 
really the aggregate of effects. I would certainly say that 
sequestration has dramatically exacerbated our challenge. It 
would have taken us 3 years or more to reset the force whether 
sequestration was upon us or not, but this really exacerbates 
it.
    Senator Kaine. I think that is an important thing. The 
optimum for the Nation would be if our budgetary decisions were 
driven by our strategic choices, especially in defense but in 
other areas as well. The distant second place is if we let 
strategy be dictated by budget realities, but what we have 
really been doing is letting strategy be dictated by budget 
uncertainties, budgetary gimmicks, and that is the far distant 
third in terms of the way we ought to be doing defense and 
other strategy in my view.
    Before I came to the Senate, the Senate agreed, as part of 
the 2013 NDAA, to embark upon the MCRMC process. One of the 
issues that I have just found kind of compelling, as folks have 
advanced it, is regardless of the justifications for particular 
compensation-type changes--and all those that you are advancing 
seem to me to be good faith efforts to tackle budgetary 
challenges. Nevertheless, there is an argument that is being 
made that the Senate embraced a notion that there ought to be 
this full-scale, 360 degree examination of these changes, and a 
recommendation would be circa February 2015, and that you 
should not make changes until then.
    What is your thought about whether we break faith with a 
commitment that we made even if these changes are made in good 
faith and they are justified, if we embark on those changes 
prior to the full set of recommendations from the MCRMC early 
next calendar year?
    Admiral Winnefeld. I think it is important to reiterate 
what Chairman Dempsey said a minute ago, and that is we fully 
expect the commission to take a holistic look not only at 
retirement structure but also the pay structure, how do we 
structure compensation for our people, what is BAH, what is 
basic pay, all those sorts of things. What we are talking about 
here is really tweaks to the existing structure that we would 
not really expect the MCRMC to say, well, we think base pay 
should be raised at this percent next year, whatever. I think 
they are taking a more fundamental look at how we structure 
compensation overall.
    But we believe we need to get going now. We cannot wait for 
this commission to report to get the savings we need in order 
to give these young men and women the tools they need to fight. 
We look forward to the MCRMC's recommendation on structure.
    Senator Kaine. Admiral Winnefeld, is it your understanding 
that the commission, just to use one example, would not be 
addressing items like what should the level of subsidy be for 
the commissaries? Do you think that is outside the scope of the 
work that they are going to be doing?
    Admiral Winnefeld. They might address the level of subsidy 
there. They can address the full range of things, but our view 
is their principal role is the structure of compensation. Let 
us take a fresh look at how we pay our people to see if we have 
this right in the 21st century. I would not want to rule out 
that they would look at individual numbers, but we felt we had 
all the data that we needed right now to get moving on this so 
we can get the savings we need sooner to get these young men 
and women the tools they need to succeed in combat.
    Senator Kaine. One of the things that I think is most 
important about the work that the commission does is that they 
really have a great sense, kind of a scientific survey sense, 
of what service men and women at all levels feel about the kind 
of relative priorities of compensation and retirement items. 
Senator Cornyn and I have today introduced a bill, the 
Servicemember Compensation Empowerment Act, that directs them, 
as part of their recommendations, to make sure that they have 
done a survey. They may already be underway in surveys of that 
kind, but we think that is pretty important.
    Let me ask about this idea that the work of this commission 
looks at structure. We had a wonderful hearing last week, 
General Welsh, on the Air Force force structure analysis that 
really was getting at some of these structural issues. There 
are more ways to save money in a personnel system than adjust a 
COLA or adjust a salary increase. The entire structure of a 
Service operation is a way to find savings and promote the 
mission as well. You talked about the continuum of service as 
an idea within the Air Force.
    Are the other Services doing things similar to the Air 
Force force structure analysis, or is that more being done as 
part of the MCRMC?
    General Welsh. Senator, we look at our structure every 
single year, and we do a comprehensive review of our structure 
and how it fits and what the cost is and how it fits within our 
requirements. We are constantly doing this.
    We also look at optimizing the grade plate within the 
structure, what are the right grades that we should have. What 
is the right leader-to-led ratio? What is the right leader-to-
led ratio in the operational force versus the generating force. 
We are constantly doing this assessment. Every year we look at 
it anew to make sure we keep it in balance and have it right, 
and that is part of this.
    But we are all in different places. We are significantly 
reducing end strength and structure now. We are doing about 
everything we can in that area, and that is why for us it is 
important to take a look at some of these other areas as well.
    Senator Kaine. Admiral Greenert?
    Admiral Greenert. We do a 30-year shipbuilding plan and 
submit it to Congress annually and a 30-year aircraft building 
plan. We roll into that the strategy of DOD and the 
requirements of the combatant commanders. Then we do what is 
called a force structure assessment where we balance 
predominantly ships, but we look at all capabilities, our 
ability to meet the combatant commanders' present requirements 
and the operational plans, as well as the scenarios of DOD. We 
roll those factors in. That is done every time we change the 
strategy or make a tweak to the strategy and at a QDR.
    Senator Kaine. Briefly, General Amos?
    General Amos. Senator, we have done three of them in the 
last 3\1/2\ years. The first one took over a year, a force 
structure review going on right after I took this job. The last 
one was in the face of sequestration last year. That designed 
the force to come from 202,000 down to 175,000. Within that, 
though, we looked to how we can afford that 175,000 force. We 
looked at pay structure inside grade plates, that is what we 
are talking about.
    We are the youngest of all the Services, and so we have the 
lowest numbers of what we call top-six ranks. They are the most 
expensive both in the officer and the enlisted side of the 
house. We look at can we make it even more less top heavy. The 
answer is no because we are so lean right now at that level. We 
have about 11 enlisted marines for every officer. That is the 
ratio. I think it is the best.
    The answer is yes, we have looked at it, and sir, we are 
about where we are.
    Chairman Levin. [presiding]. Thank you, Senator Kaine.
    Senator King.
    Senator King. We have just a few minutes left before this 
vote, so I am going to try to be quick.
    These hearings must drive you guys crazy. I have been 
coming to these hearings with you for a year and a half. 
Everybody talks about sequester and yet nobody does anything 
about it. Then we are acting like sequester came from Mount 
Olympus. It is self-imposed. I call it the Wile E. Coyote 
budget theory. You remember Wile E. Coyote in the Road 
Roadrunner cartoons? You throw an anvil off the cliff, run to 
the bottom, look at the camera, smile stupidly, and then it 
hits you on the head. We created this problem, and we can do 
something about it. You guys must go and tear your hair out. 
Perhaps not you, General Odierno. [Laughter.]
    Chairman Levin. Actually he did have hair before 
sequestration. [Laughter.]
    Senator King. That is right.
    But it is entirely self-imposed, and we act like everybody 
around this committee, both parties, talks about how terrible 
it is, and yet, we do not really move to do anything about it.
    General Dempsey, I assume you do not want to make these 
cuts that you have presented, but you have to because it is a 
zero-sum game. Is that not correct?
    General Dempsey. I it is certainly in our best interests to 
be the best stewards of America's resources, and there are some 
things we would do anyway. But as I said earlier to Senator 
Kaine or to Senator Blumenthal, sequestration has made this 
almost a mind-numbing experience.
    Senator King. But the reality of the world that we are in 
right now that you are facing--it seems to me it is a new 
reality for Congress--is that it is a zero-sum game. If we do 
not accept your recommendation, then that is $2.1 billion a 
year, $30 billion over 5 years that has to come from somewhere 
else.
    General Dempsey. Absolutely, and that is why I mentioned to 
the chairman if we wait 2 years, it is $18 billion.
    Senator King. Your professional judgment unanimously--and I 
heard on the Personnel Subcommittee from the senior enlisted 
unanimously--was that this is a sensible alternative 
particularly when compared to the cuts to readiness that would 
otherwise have to take place. It is not a ``both/and.'' It is 
an ``either/or.'' Is that correct?
    General Dempsey. That is correct.
    Chairman Levin. Let me interrupt, if I could, for one 
second. We have a vote. We are near the end of it. When you are 
done, Senator King, if you could recess this, if there is 
nobody here, for 10 minutes. Senator Nelson is coming back, I 
know. He has not had his first round. If you all could stay 
during that recess, we would appreciate it.
    Senator King. I think we can recess now, Mr. Chairman. I am 
set.
    Chairman Levin. We will recess until someone else comes 
back, and give you folks a chance----
    General Dempsey. It is the story of our life, Mr. Chairman. 
[Laughter.]
    [Recess.]
    Senator Nelson [presiding]. The committee will come back to 
order after the recess.
    Senator Graham.
    Senator Graham. Thank you, Mr. Chairman-designee. You would 
make a great chairman.
    Thank you all for being here today.
    First, I would just get my advice out of the way. We have a 
commission that is supposed to report back to Congress here I 
think next year, and I would like to hear from the commission 
before we make any real substantial changes. I understand what 
you are telling Congress. You have some things that you need to 
do now because of budget cuts.
    Senator McCain asked a good question. Your big fear is 
sequestration. I want to turn it around a bit. Even if you had 
all of the money you could possibly ask for within reason, 
would you still want to make personnel changes, reform the 
personnel system?
    General Dempsey. Yes, absolutely, Senator. We have actually 
testified to that in the past. We have a new demographic. 
Different things appeal to different kids, and we would want to 
take a look at all that.
    Senator Graham. Whatever personnel footprint you have, you 
have to make it sustainable.
    We are having a dilemma here. We are trying to make sure 
the pay and benefits are consistent with the sacrifice, as much 
as possible. It is good for retention. It is fair, and the tie 
goes to the soldier, sailor, airman, and marine because if 
there is a doubt, I want to give them more, not less. But it 
has to be sustainable.
    Now, General Grass, we have offered TRICARE to reservists 
and Guard members. Is that correct?
    General Grass. Yes, Senator.
    Senator Graham. How has that been received?
    General Grass. Senator, about 12 percent of our force has 
bought into it.
    Senator Graham. I think over time more will buy into it, 
and I think it is a good retention and readiness tool. When we 
deploy from the Guard and Reserve, sometimes we find that 
health care problems are the biggest impediment to getting 
people in order. Having continuity of coverage, I think, makes 
sense from readiness, and as far as retention, if a member of 
the Guard or Reserve could sign their family up for TRICARE, it 
is a real inducement to stay in. That is an example of 
expanding benefits.
    When it comes to taking care of our troops, we are doing 
more on the sexual assault front. Is that right, General 
Dempsey?
    General Dempsey. Yes, Senator.
    Senator Graham. I want to applaud everybody on this panel 
for taking the issue seriously. I like the way you are headed. 
We are providing Judge Advocates General (JAG) to every victim. 
I just think what we are doing on the sexual assault front will 
pay dividends.
    We have post-traumatic stress disorder (PTSD) problems. We 
have suicide prevention programs. All these programs cost 
money. Is that right, General Dempsey?
    General Dempsey. They do, Senator, and it is money well 
spent.
    Senator Graham. I could not agree with you more.
    On one side, you are increasing benefits based on reality 
of retention and problems associated with long-term service in 
a very dangerous world. On the other side, we are trying to 
create sustainable pay and benefits.
    From the Marine Corps point of view, what percentage of 
your budget, General Amos, is personnel cost?
    General Amos. Sir, it is 63 percent.
    Senator Graham. Navy? Please, everybody answer that 
question, if you could.
    Admiral Greenert. It is about a third, sir.
    General Odierno. 48 percent.
    General Welsh. Sir, roughly 48 percent with the military 
and civilian together.
    Senator Graham. General Dempsey, one of the things that we 
are looking at is prospectively maybe redesigning retirement. 
You are going to wait on the commission as far as that is 
concerned. Is that correct?
    General Dempsey. That is correct, Senator.
    Senator Graham. Count me in the camp of putting retirement 
on the table, making it more sustainable, more efficient, but 
still generous.
    The real big issue I think is TRICARE. Is that a fair 
statement from all of your perspectives?
    General Dempsey. I think the big three are actually pay, 
TRICARE, as well as BAH.
    Senator Graham. Okay. As we look at the big three, we are 
going to be looking at trying to make the pay/benefit system 
more sustainable but yet still appropriate for the sacrifice. 
Is that correct?
    General Dempsey. Yes, sir.
    Senator Graham. You are asking Congress to be a partner in 
this.
    General Dempsey. Yes, sir.
    Senator Graham. I am asking Congress to keep an open mind 
to our veterans organizations. We will listen to you. We 
should, but we have to get a handle on this because over time 
TRICARE becomes a larger part of the budget. Is that correct?
    General Dempsey. That is correct, sir.
    Senator Graham. Very much like Medicare. We are going to 
have to deal with the cost of health care in a responsible way.
    If we make these personnel changes and we adopt a reform 
package like you just said, some kind of reform, how much do 
you think it would save over time for DOD?
    General Dempsey. The submission that we have currently 
proposed----
    Senator Graham. No. I am talking about pay and benefits. I 
mean, what is your goal?
    General Dempsey. I think the goal is to actually slow the 
growth. As you noticed, each Service has a different model, and 
each Service would probably be better able to answer that 
question.
    Senator Graham. What is your goal in the Marine Corps after 
all these reforms, General Amos?
    General Amos. Senator, right now in this FYDP, I am looking 
at $1.2 billion over the next 10 years.
    Senator Graham. You do not have to answer this question 
today. Pick a number that you think is a sustainable cost, a 
percentage of your budget, and let that be your goal. The goal 
is going to be each Service is going to pick a percentage of 
your budget. What do we have to do to get there? That is 
running the place like a business. Personnel costs have to be 
managed. Let us pick a fair amount of the budget to go to 
personnel, understanding that is the heart and soul of the 
military. They have to be well taken care of. Their families 
have to be well taken care of, but it has to be sustainable.
    Now, I will end with this. Once you put all these numbers 
together, can you please, for the 555th time, tell Congress 
that no amount of personnel reform is going to save the 
military from being a hollow force if you do not fix 
sequestration. Is that still a true statement?
    General Dempsey. It is truer today than the last time we 
had this conversation.
    Senator Graham. Does everybody agree with the Chairman's 
assessment?
    General Odierno. Yes, Senator.
    Senator Graham. Let the record reflect everybody nodded in 
the affirmative.
    Thank you.
    Chairman Levin [presiding]. Thank you, Senator Graham.
    Senator Hirono.
    Senator Hirono. I got back just in the nick of time.
    I start by thanking all of you for your service, of course.
    I join my colleagues in saying that we need to get rid of 
sequestration because it has done so much damage to our 
readiness and other aspects of the military. I am with my 
colleagues who are going to commit ourselves to getting rid of 
sequestration.
    I have a question for General Amos regarding the 
commissaries. That is something that our service people 
understand. Their families go to the commissaries. They know 
what the price differentials are. General Amos, you said that 
we should force DECA to become more efficient rather than 
raising the prices so that the differential becomes so much 
less. I am completely in agreement with you.
    Does that mean that you know of examples, or perhaps any of 
the other chiefs? Do you have examples of where commissaries 
need to find efficiencies? What is inefficient that they are 
doing that they should just address right away in your view?
    General Amos. Senator, first of all, you are absolutely 
correct on what our families are saying. The commissary issue 
itself is radioactive. Again, our efforts never even suggested 
closing commissaries. That was never on the table and it is 
still not today for us.
    But we have already talked about some of the efficiencies. 
Admiral Winnefeld talked about that.
    Senator Hirono. Excuse me. Are you talking about the 
generic drugs?
    General Amos. Yes.
    Senator Hirono. I completely agree with you on that. I 
cannot understand why we do not allow generic drugs to be sold 
in our commissaries.
    Admiral Winnefeld. It is not just drugs. It is generics 
across the board. I used the drug example because I could 
compare it to the exchange, which does not sell food. But there 
are similar stories across.
    Senator Hirono. Thank you for that clarification.
    That is a change that should occur, and you are saying that 
you cannot do it on your own, that it would require some change 
in the law?
    Admiral Winnefeld. That is our understanding. We would like 
to see it happen. I can give you the example. I went out 
because my knees hurt and I use ibuprofen. I went out in town 
to a chain store. $8.99. The commissary sells it for $7.98, a 
pretty good deal. But the chain store sells a generic for 
$4.49, and the exchange sells it for $2.10. I think that there 
are some substantial savings that we could put right back in 
our people's pockets that would easily offset at least a 
portion of any subsidy.
    Senator Hirono. I agree with you. That sounds like low 
hanging fruit that we ought to pick immediately, if not sooner.
    General Amos, do you have any other areas where you can see 
efficiencies by our commissaries?
    General Amos. Senator, I do not have specific areas, but I 
will just say this across the board. Years ago, the Marine 
Corps exchange--and I think it was that way in the other 
Services as well--received what they called appropriated funds. 
In other words, they were subsidized so they were not forced 
into making good business decisions. It is a little bit like 
Senator Graham was just talking about being a good steward of 
your money. That is not the case here. This is a subsidized 
institution, and I think it is time to change that. I think it 
is time to force them to go back and do things economically.
    Now, economically in my mind does not equal taking the 30 
percent savings away from our families. That is not what I am 
saying. I am saying figure it out. We cannot sit at a hearing 
and understand all that that means. But I am confident that 
they can, the same way that our Marine Corps exchange did years 
ago. You can go the Marine Corps exchange today and you still 
get a pretty good bargain.
    Senator Hirono. I agree with you because in earlier 
hearings, the number of the savings or the price differential 
would go down to only 10 percent instead of 30 percent. That 
sounded like that was going to be the result. But now you are 
saying that, no, there should be some other avenues before they 
start raising those prices. I completely agree with you. I hope 
we are all on the same page on that.
    Admiral Winnefeld. Ma'am, one of the things that I 
mentioned in my opening statement was that we exempted the 
commissaries from the 20 percent staff cuts that the rest of us 
are taking. We did that to help them with the first year's $200 
million. I am not even going to suggest that they could make 20 
percent. They have to run their enterprise. It is a 
distribution network and they have stores they have to man. But 
we think they ought to look there. Certainly it is one of the 
efficiencies that you talked about.
    Senator Hirono. General Dempsey, you said that for you to 
come up with the kind of suggested savings in personnel costs, 
it was a 1-year process, and it included most senior officers 
and enlisted leaders and select mid-grade servicemembers. That 
says to me that the vast majority of our servicemembers are not 
aware of your suggestions. Maybe you are doing some things to 
get the word out because I think it is really important to 
educate our servicemembers, explain to them that the cuts that 
are being made are not mainly coming on their backs because it 
begins to feel like that if their housing allowance is not what 
it is or that the commissary prices are going up or that their 
pay is slowing down.
    I think it is going to be very important, as we go forward, 
knowing that these cuts represent just a smaller percentage of 
what personnel costs actually represent, 30 percent versus 
these cuts, 10 percent. I think it is important to get the word 
out to the servicemembers because, believe me, if that does not 
happen successfully, I do think that we are going to start 
hearing from our constituents and pretty soon it is going to be 
hard for us to support these cuts.
    Can you tell me what you all are doing to get the word out 
so that we know we are all in the same boat here?
    General Dempsey. All of us and those behind us and those at 
every echelon of command are engaging our population on this 
very subject. Whenever I travel--and I travel quite 
extensively--I will always hold a townhall meeting. This is 
always a topic of conversation.
    I offer the chiefs the opportunity to elaborate, if you 
would like.
    General Welsh. Senator, Chief Master Sergeant of the Air 
Force Cody and I have been visiting Air Force bases all over 
the world. Like the Chairman, we hold large audiences and 
forums everywhere we go. We talk about this subject every time. 
We take questions about it. We answer concerns. We make sure 
they understand what the proposals are and what they are not. 
Our force is actually aware of what is going on. I do not think 
you will find any individual who says he likes the idea of 
anybody slowing cost growth if it benefits their family, but 
they also will tell you that they would really like to have the 
best tools in the world. They really would like to be trained 
better than anybody else, and they take great pride in being 
the best in the world at what they do. If they cannot do that, 
they will find other employment.
    Senator Hirono. That is reassuring. Thank you. I believe my 
time is up.
    Chairman Levin. Thank you, Senator Hirono.
    Senator Nelson.
    Senator Nelson. Thank you, Mr. Chairman.
    General Dempsey, some have suggested that instead of the 
recommendations on changes in military compensation, that we 
should cut the civilian workforce. Some estimates are that you 
would need to cut 100,000 in the civilian workforce. Do you 
believe that cuts of that magnitude of civilian workforce is a 
feasible alternative?
    General Dempsey. No, I do not, Senator. In fact, it has 
been our advice in these conversations with DOD that the 
reductions in the size of the end strength of the combat power 
of the Nation should be matched by a commensurate reduction in 
the overhead of DOD and it includes out into what we call the 
fourth estate, the defense agencies. Secretary Hagel has 
directed a 20 percent reduction across the board. But I think 
that would devalue the contribution of the civilians who are 
our wing men and foxhole buddies and swim buddies in this 
enterprise.
    Senator Nelson. Mr. Putin continues to be very aggressive, 
and whether it is uniformed personnel on the border of Ukraine 
or whether it is the non-uniformed people that are proxies that 
are stirring up things inside, he has now moved on Odessa.
    What can you share publicly are the plans of the U.S. Armed 
Forces, as well as the North Atlantic Treaty Organization 
(NATO), with regard to this aggressive action by Russia?
    General Dempsey. What I can say publicly, Senator, is that 
the United States has three instruments of national power: 
economic, diplomatic, and military. They are all being applied 
to this challenge of an assertive and aggressive Russia. The 
military instrument at this point with regard to the Ukrainians 
is support in terms of nonlethal assistance, intelligence 
sharing at some level. The military instrument is principally 
involved in reassuring our NATO allies by the deployment of 
additional resources, the deployment of planners, the conduct 
of exercises to assure our NATO allies that we will live up to 
our Article 5 responsibilities under NATO.
    Senator Nelson. An example of that would be the F-16s that 
you recently sent to Poland.
    General Dempsey. F-16s to Poland, an increase in ship 
presence, deployment of company-sized elements out of the 173rd 
Airborne out of Vincenza into the Baltics and Poland. Yes, sir.
    Senator Nelson. Thank you, Mr. Chairman.
    Chairman Levin. Thank you very much, Senator Nelson.
    Senator Sessions.
    Senator Sessions. General Dempsey, thank you and thanks to 
all of you for your service. You have been given a thankless 
task. You have led us magnificently in combat. All of you have. 
I know how many hours you work.
    When people think about how much you should pay a person in 
the military, often they forget there is no overtime. There are 
weekends and full deployments of months at a time often in 
dangerous areas that we are asking them to go. I do believe 
there is a bond that the American people must have with those 
we send into dangerous places--and we ask them to leave their 
families for an extended period of time--that cannot be broken. 
I think that is fundamental.
    Now, I had to leave to go to the Budget Committee where I 
am ranking member. I am seeing this from both sides, and I know 
how much of a danger this Nation faces from the debt. The 
Congressional Budget Office director, Mr. Elmendorf, told the 
Budget Committee a few months ago that last year we spent $221 
billion on interest. That is about half the defense budget. We 
get nothing for that. It has to be paid first. He projects, 
however--and this is a dangerous thing--by 10 years from today, 
we will pay $875 billion in interest in 1 year. That is a $650 
billion increase in the amount we are paying for interest over 
this period of time. We had the Secretary of Education before 
us, and I told him it is going to threaten your education 
budget.
    First of all, I think DOD is taking this seriously, and I 
respect you for it. I am totally of the belief that you are 
being asked to do more than any other department in the 
Government is being asked. I think the numbers will show that.
    But it is a huge department and we have agreed to certain 
budget limits on spending, and we need to adhere to them. 
Relief was given in Ryan-Murray earlier this year, and I am 
hopeful that that would be sufficient, that we could get 
through this period with the help from that act. Maybe not. We 
will just have to hear from you.
    This really worries me. It keeps me up at night. It is the 
toughest thing that causes me frustration because the President 
is also saying if we increase any spending for DOD, we have to 
increase non-defense spending an equal amount, doubling the 
amount so it busts the budget that he signed. He is the 
Commander in Chief. You would think he would be here more 
forcefully advocating priorities that need to be set.
    General Dempsey, you have heard former members of DOD and 
others question the number of civilian personnel. I believe 
Senator Nelson mentioned that earlier. One estimate that I 
heard that I think is accurate, that since September 11, we 
have added about 100,000 civilian personnel. That was 
presumably to support an increase in Active-Duty Forces which 
was considerable, but as those Active-Duty Forces return to a 
level, which I understand your plans call for--returns to a 
level of what it was in 2011, why should we not be able to 
reduce civilian personnel by 100,000?
    General Dempsey. Senator, there are three groups of 
individuals, all of whom make up the total force, and that is, 
of course, the service men and women, civilian DOD employees, 
and then contractors. Contractors will take a more significant 
cut followed by the DOD civilians and the uniformed military.
    Senator Sessions. But on a percentage basis, General 
Dempsey, personnel--will you not be reducing military uniformed 
personnel in a bigger percentage than civilian?
    General Dempsey. That will probably vary slightly. Not 
slightly. It will probably vary Service by Service.
    But you do know, Senator, that 90 percent of the people we 
are talking about are not in Washington, DC. They are out in 
shipyards and depots and training areas. They are doing 
important work.
    If I could, sir, I think maybe one of the Service Chiefs 
would want to talk about that aspect of the way they build 
their force.
    Senator Sessions. Let me just say I fully respect their 
contributions, and many of these are former military people. 
They will deploy. Many of them from Alabama were in Iraq and 
Afghanistan during hostilities assisting the military in their 
mission. However, it may be a bit harder personnel-wise to 
reduce a civilian employee as compared to a military employee. 
As for me, I do not think that should be. I think we should 
make sure that civilian personnel face the same evaluations 
that uniformed people do.
    General Dempsey. I agree with that, Senator.
    Do any of the chiefs want to talk about the civilian aspect 
of this?
    General Odierno. Senator, in the Army, we are reducing. As 
the Chairman said, there is a triad of military, civilian, and 
contractors. The military is much easier because it is a 
billet, it is a face. It is very easy to understand. But we 
have also cut the budget on our contractors. We have cut the 
budget on our civilians. That is what controls the number of 
civilians and contractors, the number of dollars allocated. We 
have come down about 20,000 civilians so far in the Army, and 
that will continue to come down at a rate equal to what our 
military members will come down as we continue to look at out-
year budgets.
    We are also looking very hard at reducing our contract 
support to our sustainment and maintenance and try to do more 
with uniformed personnel, and we are looking at that very 
carefully.
    We are also looking at the contracts we have that we think 
are more service-related that can be done by others.
    If, for example, I cut contracts and installation, then I 
have to use borrowed military manpower. It is one or the other 
because it still has to get done. If I cut the contracts for 
cutting grass and doing other things, then I have to have 
military cut the grass. I have to have them work in our dining 
facilities. I have to have them do these other things that 
contractors have been doing. It is all things that have to get 
done.
    We can cut contractors and we will. We will cut some of our 
civilians, but some of them we cannot because they are too 
valuable, as you mentioned, to everything we do. But if we do, 
the military is going to have to take over some of those 
responsibilities. It is just stuff that has to be done.
    Again, I would just throw out there right now we are not 
reducing any installations because there is no BRAC. We are 
reducing 150,000 men and we have to sustain these 
installations, and it costs us a lot of money. We have to hire 
contractors. We have to hire civilians. If we cannot do that, 
we are going to have to use borrowed military manpower to do 
it. That is the bottom line.
    Senator Sessions. Thank you. I will submit some questions 
about the numbers. But my impression is that you are having a 
larger percentage of reduction in uniformed personnel than we 
are in civilian personnel, and I am troubled by that.
    Chairman Levin. Will you give us that Service by Service 
for the record? Thank you.
    [The information referred to follows:]

    General Odierno. The Army's programmed and projected reductions 
across the Future Years Defense Plan (FYDP) for fiscal years 2015-2019 
are as follows. The fiscal year 2011 data is provided for comparison 
only.

----------------------------------------------------------------------------------------------------------------
                                                                        Fiscal Year
                                         -----------------------------------------------------------------------
                                             2011        2015        2016        2017        2018        2019
----------------------------------------------------------------------------------------------------------------
Active Army Personnel...................     565,463     490,000     470,000     450,000     430,000     420,000
ARNG Personnel..........................     361,561     350,200     336,300     328,900     321,500     315,000
USAR Personnel..........................     204,803     202,000     195,000     190,000     185,512     185,000
Civilian Full-Time Equivalents..........     260,929     238,300     229,558     225,084     219,043     218,681
----------------------------------------------------------------------------------------------------------------

    Admiral Greenert. The Navy has planned modest reductions in active 
and Reserve component military end strength (700 E/S, 0.2 percent) from 
fiscal year 2014 to fiscal year 2019. Conversely, the Navy is reducing 
Navy Secretariat and Service government civilian full-time equivalents 
(FTE) by 3,800 (2 percent). In addition, our fiscal year 2015 
President's budget aggressively pursues contracting efficiencies and 
proposes a collection of business transformation initiatives, including 
contractual services reductions (about $14.8 billion FYDP).
    In the Navy, the factors used to determine appropriate military 
end-strength and contractor/civilian FTE levels are different. Military 
end strength is directly tied to force structure, or the number of 
ships, aircraft and equipment the Navy has to staff. The Navy mans 
equipment, vice other Services that equip their manning. Contractor/
civilian FTE levels are more aligned to business operations, which are 
not directly tied to force structure. For example, as the Navy builds 
ships with more advanced systems that require smaller crews, military 
end strength may decrease, but contractor/civilian FTE levels may 
increase as the ship will require more complex maintenance work in the 
shipyards. Thus, I feel that the planned military end-strength and 
contractor/civilian FTE levels are right for the Navy, but they are 
largely independent from each other, so there is no right ratio.
    General Welsh. From fiscal year 2014 through fiscal year 2019 we 
anticipate an overall reduction of 4.9 percent of Air Force Total Force 
military personnel, with a reduction of 3.4 percent of our civilian end 
strength during this same period. This equates to an overall Air Force 
reduction of 4.5 percent in our total workforce. While the percentage 
of change between these types of manpower is relatively comparable, the 
Air Force did not target either of these segments specifically. Rather, 
the Air Force looked at headquarters and whole systems and/or weapon 
systems to find the means of achieving the fiscal savings driven by the 
Budget Control Act targets.
    The Air Force's fiscal year 2015 budget submission aligns program 
priorities and resources with fiscal realities and will drive the Air 
Force to become smaller. The resultant personnel reductions are tied 
directly to the divestiture of weapons systems, headquarters 
realignments, and a rebalancing of aircrew-to-cockpit ratios in a post-
Afghanistan environment, the majority of which resulted in military 
reductions. Efforts to downsize our headquarters activities allowed the 
Air Force to plan civilian reductions.
    Absent changes in Base Realignment and Closure and Depot 
legislation, the Air Force will be hindered in finding additional 
civilian personnel savings. In the last four budget cycles (i.e., 
fiscal year 2012 PB, fiscal year 2013 PB, fiscal year 2014 PB, and 
fiscal year 2015 PB), the Air Force has reduced its civilian workforce 
by 25,000 billets. These reductions, along with a 3-year pay freeze, 
furlough, and government shut-down, have significantly impacted the 
civilian workforce. Arbitrary, non-programmatic reductions to the 
civilian workforce would be untenable and would severely compound 
readiness shortfalls.
    General Amos. The optimal Marine Corps Active-Duty Force remains 
186.8K with a commensurate civilian workforce of 17.5K full-time 
equivalents (FTE). In the PB14 submission, the Marine Corps accepted 
risk in the Active-Duty Force and was funded at 182.1K. Solely as a 
result of the fiscal constraints, particularly with the continued 
threat of sequestration or a significantly reduced top line, the PB15 
submission reflects the Marine Corps' plan to draw down to an active 
duty end strength of 175K and a civilian workforce of 15.7K FTE by 
fiscal year 2017. This equates to a 6 percent and 10 percent reduction 
respectively from our optimal force structure requirements. While the 
Marine Corps will continue to support the President's National Security 
Strategy, the Defense Strategic Guidance, and posture to meet steady 
state forward presence and crisis response requirements around the 
globe, it comes at the expense of risk to major combat operations, 
infrastructure sustainment and equipment modernization, and increased 
stress on the force.

    Chairman Levin. Senator Gillibrand?
    Senator Gillibrand. Thank you, Mr. Chairman.
    Thank you all for your service. Thank you for testifying 
today before our committee. I am very grateful.
    Obviously, these are very tough times, and we are all 
concerned about how to manage our mission and operations to the 
best of our abilities. As the chairman of the Personnel 
Subcommittee, I am very worried about tradeoffs we are making 
in terms of military families, particularly those who are the 
lowest paid.
    General Dempsey, you mentioned in your opening statement 
that you are unable to retire weapon systems that you no longer 
need and cannot afford. Can you tell us more about these 
systems and what kinds of savings you could find if you do 
retire them? Every time we pass a budget in Congress, it is all 
about priorities. I want to hear a little bit about that as a 
source perhaps for funding for things that we think are higher 
priority.
    General Dempsey. Yes, thanks, Senator. I would like to take 
that one for the record as well.
    [The information referred to follows:]

    The attached document was provided to Senator Gillibrand's office 
on 19 May via a separate request.
      
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    General Dempsey. I will give you one example because it 
would cross all Services. Let me take one that is not at all 
controversial, the A-10. [Laughter.]
    If we retire the A-10, it is $3.5 billion in savings to the 
Air Force over the FYDP. If we do not, he has to find $3.5 
billion someplace else. Each Service has an example of 
something like that.
    Senator Gillibrand. Thank you, and I look forward to your 
full response on the record.
    Another issue that I care deeply about--and General 
Dempsey, we have talked about it, as has Admiral Winnefeld--and 
that is the men and women who serve in our military and their 
families and the sacrifices they make to do that. One of the 
sacrifices I do not think they should have to make is not being 
able to afford treatment for their kids who have autism or 
other developmental disabilities. I think it is so unfair that 
just because you will sacrifice everything for our Nation and 
serve for our Nation that your kid, your child, who needs these 
important therapies to learn, to grow, and to develop are 
denied it because we do not want to make them a priority. I 
think that is a mistake. I think it is morally wrong.
    I would like your thoughts on what is going to happen with 
regard to that process because I know we are combining all the 
programs specifically for autism. I have not seen what that is 
going to look like yet. But I want to know are there going to 
be barriers to care for children with disabilities and 
particularly autism.
    Admiral Winnefeld. Senator, it is a great question. Last 
time you and I dealt with this, we made a little stink over in 
DOD, and I think we actually fixed that problem. But I do not 
have the specifics for you. I would like to take that for the 
record. I believe we are on track. If we are not, I want to 
know about it because this is something that is terribly 
important to us. We are on the same sheet of music here.
    [The information referred to follows:]
      
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    Senator Gillibrand. You do not want Federal employees' kids 
to have better access to care than military families' kids. 
That is just not right. I do want to just raise it because it 
is one of the most expensive and painful things to make sure 
your child gets the education they need. A lot of the therapies 
are developmental. It actually affects how their brains form 
and whether they can reach the level of capacity that they can.
    Thank you.
    Admiral Winnefeld. I think the Assistant Secretary of 
Defense for Health Affairs tackled that, but I do want to get 
back to you to make absolutely certain.
    Senator Gillibrand. Thank you.
    Similarly, as I meet with the troops around my State, both 
National Guard, Active Duty, and Reserve, the stress on mental 
health access is very high. Access to mental health services to 
treat PTSD and traumatic brain injury is still quite intense. 
My question is as we have had a number of families coming home, 
under the current TRICARE requirements, there are co-pays for 
these services. Do you believe that those co-pays will cause 
barriers to care specifically for the mental health of our 
troops and their families?
    I held a hearing to discuss the increase in suicide rates, 
11 suicides a day in our military, but there is also an 
increase in suicide of family members because of multiple 
deployments, because of PTSD of servicemembers coming home. 
Obviously, that raises serious concerns to me. I would like to 
hear a little bit from any of you who want to talk about 
whether you see barriers to care here.
    General Odierno. If I could, I think we are doing a good 
job increasing behavioral health to Active-Duty Forces, and we 
are trying to get more access to our Reserve and Guard. My 
concern I think is where you are headed with this--and I agree 
with you--is for family members because, frankly, even under 
TRICARE it is difficult to always get care covered for 
behavioral health under TRICARE for our family members. 
Sometimes it is accepted; sometimes it is not. Our behavioral 
health rules for health care need to be looked at, especially 
as we look at the impacts that the wars have had on our 
families, especially our children, and that is who I worry 
about significantly.
    I know specific cases where a lot of out-of-pocket expense 
has to be expended either because it is not covered or there is 
a co-pay because they do not recognize certain treatments, and 
so in my mind, this is something we have to absolutely get 
after over the long term.
    Senator Gillibrand. I would like your commitment that you 
will work with me on this to come up with some solutions for 
how best to protect our servicemembers or their families. Thank 
you.
    Then my last set of questions are for any who want to take 
it, but what is the DOD's plan for the increased demands at the 
medical treatment facilities (MTF)? Does DOD plan to hire more 
medical providers to handle the increase of patients at the 
MTFs? What will the impact on military families, both Active 
and Reserve, who do not live near the MTFs--are they going to 
be penalized for not being able to use the MTFs?
    General Dempsey. I will give you a general answer. That 
question probably would be best addressed to the Defense Health 
Agency, and Dr. Woodson. But I can tell you that our 
recommendation on our support for forming a single TRICARE 
system as opposed to multiple systems that are not 
interoperable with each other is to try to encourage use of 
MTFs and then in-service care or in-network care and then only 
out-of-network care as a last resort. That is our role, working 
with Dr. Woodson because we want to make sure that while we are 
incentivizing use of MTFs, for example, there may be another 
process that might be trying to reduce the level of care at an 
MTF. We are deeply involved in that process right now.
    Senator Gillibrand. Thank you. Thank you all.
    Chairman Levin. Thank you very much, Senator Gillibrand.
    Gentlemen, thank you. Thank you for all you do for our 
Nation, for our troops and their families.
    We will now move to our second panel. We now welcome our 
second panel: four so-called outside witnesses. A strange word 
for folks who have been inside just about every important 
military operation or thinking that we have done in the last 
few decades.
    Retired Army General John H. Tilelli, Jr., Chairman of the 
Board of the Military Officers Association of America; retired 
Army General Gordon R. Sullivan, President and Chief Executive 
Officer of the Association of the U.S. Army; retired Vice 
Admiral John B. Totushek, Executive Director of the Association 
of the U.S. Navy; and retired Air Force General Craig R. 
McKinley, President of the Air Force Association.
    Gentlemen, we thank you for your past service. We thank you 
for your current service to our servicemembers, the retirees, 
and their families.
    I believe that the order that we are calling on you is to 
first call on General Tilelli. General, thank you for being 
here and please give us your statement.

 STATEMENT OF GEN JOHN H. TILELLI, JR., USA, RET., CHAIRMAN OF 
      THE BOARD, MILITARY OFFICERS ASSOCIATION OF AMERICA

    General Tilelli. It is like old home week, Mr. Chairman. 
Chairman Levin, Ranking Member Inhofe, members of the Senate 
Armed Services Committee, thank you for the opportunity to 
appear before you today to discuss the administration's fiscal 
year 2015 budget affecting the entire military community. On 
behalf of the over 380,000 members, Active Duty, Guard, 
Reserve, families, veterans, survivors, and retirees, of the 
MOAA, I have the honor and privilege of being here today to 
represent them.
    At the heart of DOD's budget challenge is the devastating 
effect of sequestration--and we have heard that several times 
today--and the BCA of 2011.
    While debt reduction is a national priority, we believe 
that such a disproportional share of this burden must not be 
imposed on DOD and especially on the backs of the military 
members and their families. MOAA believes that continued 
sequestration cuts for 2016 and beyond will place national 
security at risk, and we strongly urge Congress to eliminate 
sequestration and fund our military to levels that enable all 
components of the Armed Forces to adequately be manned, 
trained, equipped, and compensated. No Federal obligation is 
more important than protecting our national security, and the 
most important element of national security is the sustainment 
of a dedicated top-quality All-Volunteer Military Force.
    The past 12 years of unprecedented demands and sacrifices 
highlight how radically different Military Services' conditions 
are from civilian life. These are the things that many budget 
analysts and think tanks do not understand. The times the All-
Volunteer Force has been jeopardized have been due to budget-
driven cutbacks in the military compensation packages that gave 
insufficient weight to the extraordinary demands and sacrifices 
inherent in a service career. Yet, today we hear that Congress 
must slow the growth. They state that personnel costs have 
risen above 40 percent more than growth in the private sector 
since 2000 and are squeezing out dollars for training and 
equipment. We believe that pitting pay and benefits against 
readiness is a false choice.
    It is important to put the growth since 2000 in context. 
The All-Volunteer Force is the key to readiness. Have costs 
risen since 2000? Yes, they certainly have, but using 2000 as a 
baseline without reflecting that in a historical context is 
misleading as it implies that it was an appropriate benchmark 
for estimating what reasonable personnel and health care 
spending should be. Nothing can be further from the truth.
    What caused military personnel costs to grow higher than in 
the private sector? By the late 1990s, retention was on the 
ropes because years of budget cutbacks had depressed military 
pay to where there was a 13.5 percent pay gap. We cut 
retirement value by 25 percent for post-1986 entrants. We had 
military families paying 18 to 20 percent out of pocket for 
housing costs, and we moved beneficiaries over 65 out of 
military health care facilities.
    This committee worked diligently--and I thank them for 
that--over the next decade to restore pay comparability, repeal 
our retirement cuts, zero out housing costs, and restore 
promised health care coverage for older retirees. We thank you 
and all the members thank you.
    Since 2010, Congress has already implemented changes to 
slow the growth. In fact, the growth has slowed. These have 
included significant health care fee changes, end strength 
reductions, pay raises that have either mirrored the private 
sector or in the case of this year, have been capped below the 
private sector. The fact is that between 2000 and 2011, 
personnel and health care costs experienced an average 7.8 
percent rate of growth, but that cost was essential to keep the 
previous commitments and avoid retention and reenlistment 
issues and from breaking this All-Volunteer Force.
    However, between 2011 and 2014, personnel cost growth has 
not just slowed, it has declined an average of minus 1.5 
percent per year, according to the Office of Management and 
Budget historical tables. The growth has slowed. In fact, it is 
negative at this point. When you look at the DOD military 
personnel costs, which include military personnel and the 
defense health program, these costs average 30 percent of the 
overall DOD budget.
    Between 2014 and 2015 pay caps, the promised housing 
reductions, the planned reductions in the commissary savings, 
and in new health care consolidation and fees, an E-5 family of 
four--that is a sergeant--with 10 years of service, looking at 
the pay tables, would lose $5,000 in purchasing power. An O-3, 
an Army or Marine Corps captain, not a Navy captain, family of 
four would experience a loss of $6,000, that is a large 
percentage of their overall pay. Contrary to when I came into 
the military, we have a married force today. It is not a single 
force.
    MOAA believes these budget proposals would be a major step 
backwards towards repeating some of the mistakes and measures 
which led to retention and readiness problems in the past and 
would undo the needed compensation improvements Congress put 
into place since 2000 and again set us up in the future for 
another parity issue that will have to be resolved.
    These piecemeal budget reductions are doubly inappropriate 
since we have a congressional commission that will be offering 
even broader reform proposals next year.
    America will remain the greatest power only if it continues 
to fill its reciprocal obligation to the only weapon system 
that has never let our country down, our extraordinary, 
dedicated, top-quality volunteer men and women who serve our 
country and the families who stand behind them.
    Now that we are drawing down from Afghanistan, we cannot 
place these volunteer members of our Armed Forces in our rear 
view mirror. They listen. They know what is going on, and they 
do not agree with these proposals.
    I thank you. I look forward to your questions. I thank you 
for your service to our country, and I thank you for all you 
have done for our men and women who serve. Thank you, sir.
    [The prepared statement of General Tilelli follows:]
     Prepared Statement by GEN John H. Tilelli, Jr., USA (Retired)
    Mr. Chairman and Ranking Member Inhofe. On behalf of over 380,000 
members of the Military Officers Association of America (MOAA), we are 
grateful for this opportunity to express our views and appreciate the 
committee for hosting this hearing on the fiscal year 2015 defense 
budget submission and the related personnel program proposals.
    MOAA does not receive any grants or contracts from the Federal 
Government.
    We are truly grateful for your unwavering commitment to men and 
women who defend our fine Nation and we appreciate that Congress have 
given personnel issues top priority in the past decade.
    You have had difficult choices to make while bolstering a weak 
economy and addressing budget deficits. The past few years have been 
arduous, with our military winding down operations in Afghanistan and 
the Nation dealing with the effects of sequestration.
                             sequestration
    Sequestration was thought to be so harmful that it would have never 
come to pass. But it is a reality with DOD still taking a 
disproportionate share of the burden.
    The Bipartisan Budget Act of 2013 mitigated the sequestration 
spending cuts for fiscal year 2014 and 2015. However, the original 
sequestration cuts of fiscal year 2016 thru 2021 remain in effect, 
continuing to place national security at risk.
    This concern for readiness and national security was reinforced 
during Secretary Hagel's Feb 24, 2014 press conference \1\ outlining 
the fiscal year 2015 budget submission when he stated `` . . . the only 
way to implement sequestration is to sharply reduce spending on 
readiness and modernization, which would almost certainly result in a 
hollow force . . . the resulting force would be too small to fully 
execute the President's defense strategy.''
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    \1\ Hagel, Chuck. ``Fiscal Year 2015 Budget Preview.'' Defense.gov 
Secretary of Defense Speech: Fiscal Year 2015 Budget Preview. http://
www.defense.gov/Speeches/Speech.aspx?SpeechiD=l831.
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    The Services have been forced to slash flying hours, cancel the 
deployment of ships, renegotiate critical procurement contracts, 
temporarily furlough civilian employees, and are in the process of 
reducing force structure by some 124,000 personnel.
    As a result, sequestration caused the Pentagon to submit proposals 
in fiscal year 2014 that have started to reverse some of the needed pay 
and benefits fixes Congress put in place over the past decade--
specifically, the military pay raise cap below the Employment Cost 
Index (ECI) of 1 percent, the lowest pay raise in 50 years.
    The proposed fiscal year 2015 defense budget assumes some 
additional monies will be forthcoming to mitigate sequestration 
impacts. However, the budget proposes additional force reductions of 
over 78,000 personnel. If sequestration is not ended, additional force 
reductions will likely go deeper and training and modernization will be 
further impacted--further putting our national security strategy at 
risk.
    What greatly concerns MOAA and should concern the committee are the 
fiscal year 2015 budget submission proposals that impact personnel 
costs--a second year of capping the military pay raise below ECI with 
the possibility of 4 additional years, increasing out-of-pocket housing 
expenses for military families, significantly reducing commissary 
savings, and a consolidation of TRICARE plans which will have all 
beneficiaries except those in uniform paying more for their health care 
while eliminating access standards.
    Several of these are broken promises to our service members and 
families. Fortunately the House Armed Services panel agrees and 
rejected these proposals last week.
    While debt reduction is a national priority, such a disproportional 
share of this burden must not be imposed on the backs of military 
families who already have sacrificed more for their country than any 
other segment of Americans. Since the conflicts are ending we cannot 
place those who voluntarily serve in the rear view mirror.
    We believe Congress should end the harmful effects of sequestration 
by supporting a bipartisan debt reduction package that avoids 
disproportional penalties on the Pentagon and on service members and 
their families.
               military personnel and healthcare overview
    What makes our national defense strong is sustaining a top-quality, 
All-Volunteer Force. This requires a pay and benefits package that is 
fundamentally different from those of the private sector in order to 
induce young men and women to wear the uniform for not only one term of 
enlistment, but also for 2 decades or more.
    But military pay and benefits continue to come under attack. For 
many years, critics have claimed military personnel costs are rising 
out of control and, if left unchecked would ``consume future defense 
budgets.'' \2\
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    \2\ Eaglen, Mackenzie. ``There's a Storm Brewing in the Pentagon's 
Budget.'' US News. http://www.usnews.corn/opinion/blogs/world-report/
2013/07/29/congress-ignores-obamas-attempt-to-rein-in-military-health-
care-spending.
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    They've attacked pay, retirement, health care, and other military 
benefits in hopes of diverting funds to hardware or non-defense 
programs. But time and some hard experiences have proven such claims 
wrong in the past--and they are still wrong today.
    But with this year's budget rollout, defense leaders are suggesting 
cuts to pay, the housing allowance, the commissary, and health care 
stating spending on pay and benefits for servicemembers has ``risen 
about 40 percent more than growth in the private sector'' since 
2001.\3\
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    \3\ Garamone, Jim. ``DOD Takes Holistic View of Slowing Military 
Compensation Growth.'' Defense.gov News Article: DOD Takes Holistic 
View of Slowing Military Compensation Growth. http://www.defense.gov/
news/newsarticle.aspx?id=121701 (accessed April 29, 2014).
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    In addition, late last year there have been other alarming 
statements on the glide path that personnel costs are on, such as: ``by 
2025 or so 98 cents of every dollar [will be] going for benefits.'' \4\
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    \4\ U.S. Senate Committee on Armed Services. ``Testimony on the 
Impact of Sequestration on the National Defense.'' http://www.armed-
services.senate.gov/imo/media/doc/13-68%20-%2011-7-1311.pdf.
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                                    Source: OMB Historical Tables 3.2 
        and 16.1 \5\
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    \5\  http://www.whitehouse.gov/omb/budget/historicals.
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    The truth is the same one-third of the defense budget has gone to 
military personnel and health care costs for the last 33 years. That's 
no more unaffordable now than in the past and they are just as 
important.
                      the fiscal year 2015 budget
    The fiscal year 2015 budget submission proposes several significant 
pay and benefit cuts which are inconsistent with the sacrifices 
exemplified by the last 12 years of war.\6\
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    \6\  Department of Defense. ``United States Department of Defense 
Fiscal Year 2015 Budget Request Overview March 2014.'' http://
comptroller.defense.gov/Portals/45/Documents/defbudget/fy2015/fy2015--
Budget--Request--Overview--Book.pdf.

         Capping pay below the Employment Cost Index (ECI) for 
        a second straight year (with more planned)
         Reducing Basic Allowance for Housing (BAH) by 5 
        percent, reversing DOD's own initiative to eliminate out-of-
        pocket housing cost completed in 2005
         Reducing commissary savings for uniformed service 
        families
         Restructuring the TRICARE benefit where active duty 
        families and retiree beneficiaries will pay more for their 
        health care

    The Pentagon is suggesting these cuts, in order to ``slow the 
growth'' of personnel costs stating personnel costs have ``risen about 
40 percent more than growth in the private sector'' since the turn of 
the century. Growth has slowed significantly since 2010.
    But this is statement needs to be put in the proper context. 
Personnel cost growth has gone up at a rate greater than the private 
sector since 2000 . . . that's true.
    But using 2000 as the baseline without reflecting on the historical 
context is misleading--it implies that 2000 was an appropriate 
benchmark for estimating what reasonable personnel and healthcare 
spending should be--it's not.
    Years of budget cutbacks led to a 13.5 percent pay gap, a 25 
percent reduced retirement value for post-1986 entrants, a point where 
servicemembers were paying nearly 20 percent out-of-pocket for their 
housing costs, and beneficiaries over 65 were completely thrown out of 
the military health care system.
    In the late 1990s, retention was on the ropes, and Congress was 
being asked to correct these problems to prevent a readiness crisis.
    Congress did so over the next decade restoring military pay 
comparability (slide next page), repealing the retirement cuts, 
zeroing-out member out-of-pocket housing costs, and restoring promised 
health coverage for older retirees.\7\
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    \7\ Department of Defense. ``Military Compensation Background 
Papers (Seventh Edition)'', page 38. http://www.loc.gov/rr/frd/pdf-
files/MilitaryComp-2011.pdf.
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    Cost growth since 2000-2001 was essential to keep the previous 
compensation cutbacks from breaking the career force.
    Between 2000 and 2011, personnel and health care costs experience 
an average rate of growth of approximately 7.8 percent annually.
    However, between 2011 and 2014, cost growth has slowed and actually 
declined at an average rate of minus 1.5 percent per year.
      
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
                                    Source: OMB Historical Tables 3.2 
        and 16.1 \8\
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    \8\ http://www.whitehouse.gov/omb/budget/historicals.
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    The rate of military personnel and health spending will only 
decline further in the out-years due to:

         Significant pharmacy copay increases which started 
        last year (fiscal year 2013)
         Significant savings from requiring mandatory mail-
        order/military pharmacy refills of maintenance medications for 
        Medicare-eligible beneficiaries starting this year
         Savings from tying annual adjustments for Prime and 
        pharmacy to retiree's cost of living adjustment
         Savings associated with shrinking TRICARE Prime 
        service areas
         Significant reductions to end strength
         Recent changes to the retirement system for new 
        entrants (COLA -1 percent provision)
         Savings from sustaining pay with private sector pay 
        growth (ECI) since 2011

    MOAA believes the proposals in this year's defense budget are a 
huge step backwards repeating many of the same bad habits during past 
drawdowns--cutting end strength, capping pay, and attacking benefits--
that led to the difficult retention times of the late 1990s.
    Past experience of capping military raises below private sector pay 
growth has proven that once pay raise caps begin, they continue until 
they undermine retention and readiness--and this is the second year of 
proposed pay caps with a possibility of 4 more.
    One pay cap is a data point, two is a line, and three is a trend. 
Six years of planned caps is definitely a bad trend and does not bode 
well for the currently serving.
    This proposal is not limited to pay. This ``quadruple whammy'' of 
capping pay, increasing out-of-pocket expenses for housing, slashing 
commissary savings, and having military families pay more for their 
health care, would be major steps backward on the road towards 
repeating the insidious measures which led to retention and readiness 
problems in the past.
    Each may seem small by themselves . . . a pay cap of .8 percent. A 
5 percent out-of-pocket housing cost. Copays for family off-post doctor 
visits. Reduced savings at the commissary.
    However, the elimination of the $1 billion subsidy for the 
commissary benefit itself will reduce the purchasing power of a 
military family of four by nearly $3,000 annually.
    When you add up the fiscal year 2014 and fiscal year 2015 pay caps, 
the proposed BAH reductions, the reductions in commissary savings, and 
the new TRICARE fee structure, an E-5's family of four would experience 
a loss of nearly $5,000 in purchasing power annually; and an O-3's 
family of four would experience a loss of nearly $6,000.
      
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    These are very conservative projections seeing that it only 
includes 2 years of pay caps and the new TRICARE consolidation/fees 
will be very dependent on a military family's access to an MTF and 
special needs.
    In several recent hearings, many Service and Pentagon leaders have 
stated troops are willing to accept the pay and benefit changes as long 
as they can get the training and equipment needed to do their jobs--
feedback that is something we must question.
    MOAA conducted a non-scientific survey in March and of over 4,700 
currently serving who responded, over 65 percent were least satisfied 
with their basic pay.
    Additionally, in a more recent survey conducted by the Washington 
Post and the Kaiser Family Foundation of post-September 11 veterans and 
currently serving members, 83 percent indicated they do not favor the 
Pentagon's fiscal year 2015 proposed reductions.\9\
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    \9\ The Washington Post. ``After the Wars--Post-Kaiser survey of 
Afghanistan and Iraq war veterans.'' Washington Post. http://
www.washingtonpost.com/politics/polling/wars-postkaiser-survey-
afghanistan-iraq-war/2014/04/02/3e8f2380-b7a6-11e3-9eb3-c254bdb4414d--
page.html.
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                         tricare consolidation
    DOD again is proposing similar disproportionate pharmacy fee 
increases and a means-tested TFL enrollment fee as they did last year 
and in the past that thankfully Congress has rejected.
    But it also includes a plan to consolidate the three major elements 
of TRICARE--Prime, standard, and extra--into what is being 
characterized as ``streamlining'' or ``modernizing.''
    In this proposal currently serving families and retirees will pay 
more and get less. It retains the TRICARE prime enrollment fee by 
relabeling it as a ``participation'' fee yet eliminates the one element 
that the enrollment fee assured . . . guaranteed access standards.
    But even more disconcerting is that the proposed change includes 
fees where fees never existed before and provides no discernable value. 
For the first time, this proposal would have working-age retirees 
paying to be seen in the military treatment facilities.
    The Pentagon proposal will have military families paying more for 
their health care when they have limited or no access to military 
facilities.
    MOAA wants to make one thing clear. The military TRICARE benefit is 
by and large an excellent one.
    But it has to be, in order to induce large numbers of top-quality 
people to accept the extraordinary demands and sacrifices inherent in a 
multi-decade military career.
    Military people already pay much steeper premiums for health 
coverage than any civilian ever has or ever will by serving at least 20 
years in uniform--most of it paid in-kind, not in cash.
    That's why assertions that military retirees pay far less for their 
health care than civilians do are so aggravating to the military 
community.
    Defense leaders say they'll keep faith with the currently serving 
on retirement reform, and would apply changes only to new entrants.
    But if it's breaking faith to change the rules for someone with 10 
years--or 1 year--of service, it's doubly so to impose new fees on 
military families who don't have access to the MTFs as well as imposing 
fees for use of the MTF on those who already completed 20 or 30, 
whether they'll retire next year or are already retired.
    We believe DOD must look at making the system much more efficient 
instead of simply shifting costs. For example, there's still no single 
point of responsibility for budgeting or delivery of DOD health care.
    We've accepted mail-order requirements in lieu of higher pharmacy 
copays and annual adjustments to pharmacy and Prime fees tied to 
retired pay cost of living adjustments.
    All of these changes we accepted will save DOD billions in the 
coming years and has slowed the growth of health care costs.
    Now we think it's time to develop management efficiencies that 
won't impact beneficiary fees, access to care, or delivery of quality 
care and simply shift more of DOD's costs onto them.
                                summary
    In closing, Secretary Hagel stated before the fiscal year 2015 
budget release that, ``Continuous piecemeal changes will only magnify 
uncertainty and doubts among our servicemembers about whether promised 
benefits will be there in the future.'' \10\
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    \10\ Garamone, Jim. ``DOD Takes Holistic View of Slowing Military 
Compensation Growth.'' Defense.gov News Article: DOD Takes Holistic 
View of Slowing Military Compensation Growth.
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    We couldn't agree more. Any changes to pay, compensation, and 
benefits, to include health care, should be looked at comprehensively--
not in a piecemeal manner.
    Since the congressionally-directed Military Compensation and 
Retirement Modernization Commission has been tasked to take a holistic 
and comprehensive look at the entire compensation package, and propose 
broader reform proposals next year, these piecemeal, budget-driven 
changes are even more inappropriate.
    What's needed is to sustain pay and benefits for the men and women 
in uniform and their families as well as those that have faithfully 
served 2 decades or more.
    MOAA remains concerned that the Pentagon is heading down a 
previously taken path, repeating some of the very same mistakes that 
led to significant retention problems the Nation experienced by the 
late 1990s and undoing the needed compensation improvements Congress 
has made since 2000 to match the extraordinary demands and sacrifices 
of military service and a military career.
    History shows comparability can't work unless it's sustained 
through both good and bad budget times. We are still a nation at war-
capping pay and forcing troops and their families to pay more for their 
housing, health care, and groceries sends the wrong message.
    The most important element of a strong national security is the 
sustainment of a dedicated, top-quality mid-level NCO and office force. 
These changes will significantly devalue the compensation and benefits 
needed to sustain those seasoned, trained, and talented troops and 
ultimately have a negative impact on recruiting, retention, and overall 
readiness.
      
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    

    Chairman Levin. Thank you so much, General.
    General Sullivan.

 STATEMENT OF GEN GORDON R. SULLIVAN, USA, RET., PRESIDENT AND 
     CHIEF EXECUTIVE OFFICER, ASSOCIATION OF THE U.S. ARMY

    General Sullivan. Mr. Chairman, Ranking Member Inhofe, 
honorable members of the committee, before I begin my formal 
remarks, I want to thank each of you for your personal support, 
certainly the three of you that I have in front of me right now 
who were here when I was battling times such as this back in 
the early 1990s. Senator Kaine, we appreciate your support now.
    I want to note that during that time, for some reason we 
seemed to have more stability primarily due to the 
appropriations and authorization environment, which reflected 
regular order. I always felt as if you had an open ear for me 
when I came over to talk and give you a problem. Sometimes you 
at least believed me and gave me more money, if you had it and 
if you could get it. But you permitted us to navigate difficult 
terrain without a lot of constraints such as the chiefs have 
now. You set limits on funding and manpower and let us strike 
the balance as we saw fit and gave us the latitude to act. For 
that I thank you.
    Senator Levin, I probably will not see you in this kind of 
a role again. I want to thank you publicly for everything that 
you have done for the Services and everything you have done for 
our country.
    Chairman Levin. Thank you so much, General.
    General Sullivan. Thanks for the opportunity to present the 
views of the Association of the U.S. Army (AUSA). This 
committee has, as I said, provided extraordinary support of our 
Active Duty, Guard, and Reserve, retired members, veterans of 
the Army and the other Services, their families and survivors. 
Your efforts are very positive and have impacted the lives of 
the entire uniformed services community.
    We are keenly aware that Congress and the administration 
have had to make difficult choices while bolstering a weak 
economy and addressing budget deficits. While we recognize that 
debt reduction is a national priority, AUSA believes that a 
disproportionate share of this burden has fallen on DOD. 
Requiring that 50 percent of mandatory budget cuts come from 
defense, even though the defense budget is only 17 percent of 
the Federal budget, is in my view misguided and misdirected. 
How in such a dynamic and dangerous world can such a system be 
permitted to continue?
    The result is that defense officials, most of the uniformed 
people involved, sat at this table just 15 minutes ago--is they 
are trying to find balance among readiness, training, 
education, operational activities, and modernization, as well 
as soldier and family program funding. Uncertain times are 
demanding agility and adaptability by these defense leaders 
here in Washington, as well as on the front lines wherever they 
may be. After all, look at what is happening now in Eastern 
Europe.
    Yet, the funding policies in place that are guiding them 
are so rigid and so constraining and damaging to our long-term 
national security that continuing this formula for the better 
part of the next decade defies logic.
    AUSA and its members urge Congress and our elected and 
appointed officials to eliminate sequestration or modify these 
unrealistically rigid budget control measures in ways which 
would enable responsible and accountable leaders to exercise 
their responsibilities in a manner that is consistent with the 
challenges we all face.
    Now, providing for the common defense--and I do not have to 
tell you, but I need to say it for the record--is a shared 
responsibility among the American people, Congress, the 
President, those of us in uniform, and the citizens of the 
United States. Sometimes I often get the feeling that shared 
responsibility is a concept which has disappeared somewhere. 
Shared responsibility and accountability is what we are talking 
about here, and each one of these people who sat here is 
accountable to the American people. They are being asked to 
make major tradeoffs in a very constrained budget environment.
    AUSA believes that the primary source of the budget 
challenges that face DOD is the devastating effect of 
sequestration and the provisions of the BCA of 2011.
    The BBA of 2013 mitigated this, as one of the chiefs 
pointed out--I think it was the Chief of Staff of the Army, 
General Odierno--when he said he could buy back readiness 
because of the Murray-Ryan bill. However, the original 
sequestration cuts scheduled for 2016 through 2021 remain in 
effect and will exacerbate the situation that existed before 
the Murray-Ryan bill. You heard General Odierno say that he 
would see a diminution of readiness in some of those units he 
brought back. It is having a profoundly adverse effect on the 
defense of this Nation and it will do so well into the next 
decade.
    Over the last 2 years, sequestration has set America on a 
path to reduce military readiness and reduced ability to secure 
our national security. Sequestered budgets are rapidly 
shrinking our military forces to unacceptable levels, thereby 
creating unready forces. All of this while even a casual 
observer might suggest that the world is more dangerous today 
than it has been in recent years.
    Sequestration has also reduced our military's war-winning 
capabilities to unacceptably low levels and it has created 
unnecessary divisiveness, acrimony, and tensions within the 
Armed Forces as they struggle to meet budget goals and juggle 
requirements around Active Duty, Guard, and Reserve. I believe 
we must enable all components of the Armed Forces to be 
adequately manned, trained, and equipped to focus on the 
mission and not fighting over an arbitrarily depressed defense 
budget.
    One of the chiefs mentioned--there were a couple of them--
that developing three POM alternatives in a year is really 
destabilizing both within DOD, and it ripples down to the field 
because the people at Fort Sill, Fort Benning, Fort Hood--they 
know when DOD is coming up with different alternatives for 
their particular units. It has created an atmosphere of 
desperation that leads to false arguments and false choices 
when it comes to compensation and benefits provided to all 
servicemembers and families who make up the All-Volunteer 
Force.
    Sequestration, by the way, also affects the defense 
industrial base. Whether everybody understands that, that the 
industrial base today is much different than the industrial 
base which fueled World War II, the Korean War, and even the 
Vietnam war. The industrial base is much more sophisticated and 
diverse, and some of these weapons cannot be made overnight.
    I believe the Services are being forced into a mobilization 
posture, whether by design or inadvertently. But if we become 
involved in any kind of a large-scale operation, we must turn 
inward to enhance ourselves or to grow ourselves. That is 
Active Duty, Guard, and Reserve. Interestingly enough, it took 
the Active Army multiple years to create the 4th Brigade or the 
101st. It does not happen overnight, and there is this great 
myth, the great American myth, that you can just ring the bell 
on the village green, everybody shows up, and off we go. The 
world does not work quite like that anymore, if it ever worked 
that way.
    We must rely on the force we have in being, the Active 
Duty, Guard, and Reserve, and we need a balanced force. 
Sequestration is throwing that necessary equilibrium out of 
whack.
    Now, I would note interesting things were said this 
morning. General Dempsey said if the BCA kicks back in, it will 
cause unacceptable risk. Unacceptable risk he said. The Chief 
of Staff of the Army and Secretary of the Army John McHugh in 
their testimony last week said ``risk'' a number of times. Most 
significantly, the Chief of Staff of the Army said there could 
be serious risk to being able to perform his assigned missions 
in the war plan.
    Gentlemen, this is a huge step, and I do not believe 
everybody is appreciating the implications when the Service 
Chiefs and the Chairman of the Joint Chiefs says ``unacceptable 
risk.'' We have to pay attention to these words. They mean 
something, and they do not say these words lightly.
    Not only is sequestration, being combined with the 
declining defense budget, having an adverse effect on military 
readiness, we are seeing an emergence of international doubt. 
You can see it on the covers of The Economist this week. We can 
see it in all of the national papers on whether the United 
States is a reliable ally and partner. I do not want to go into 
the politics of that. I do not intend to. But we must be seen 
as a credible ally and a dangerous enemy. Credibility in this 
context is found in the perception of strength and national 
resolve to be responsive to not only our treaty commitments but 
to our partners with balanced and ready forces.
    Adversaries, by the way, are watching us also, and they 
could make miscalculations and so forth. A credibly sized 
force, not just a reasonably sized force, is what is necessary. 
We must maintain a viable All-Volunteer Force.
    Despite extraordinary demands, men and women in uniform 
still answer the call, thanks in no small measure to the strong 
and consistent support of this committee, but this is only now 
at the cost of ever-increasing personal sacrifices.
    Service personnel are now facing even greater uncertainties 
with their jobs, force reduction measures, and now compensation 
adjustments. No Federal obligation is more important than 
protecting national security. It is principle number one. We 
all know that. You know that, and I know that. The most 
important element in national security is sustainment of a top-
quality career force backed by dedicated DOD civilians.
    By the way, I served with General Tilelli for a number of 
years, and interestingly enough, we did not collaborate on what 
I am going to say now. I acknowledge the power of high tech 
equipment and new equipment. But I am convinced, after being in 
or around the Army for 60 years, that it is not equipment which 
wins wars. It is high-quality men and women, our most adaptive 
weapon system, our most loyal, and people who will never quit. 
If we can continue to recruit, train, and develop and retain 
these people, America will remain the world's greatest power 
only so long as it fulfills its commitment to their training, 
their well-being, and their education. Our extraordinarily 
dedicated, top-quality, All-Volunteer Force is critical. You 
have consistently recognized the cost of sustaining this 
current military career incentive package is far more 
acceptable and affordable than any alternative.
    Now, in the matter of compensation, AUSA does support the 
MCRMC. We do not want to see a return to the recent era of pay 
caps at this critical juncture, but it is imperative that 
funding be available for training and some modernization. Pay 
caps must not be permanent. Military pay comparability is 
important to the recruiting and retention of high-quality 
soldiers and will become more important in the future.
    We are committed to military pay raises that match the ECI, 
but this year, because of sequestration, the funds freed up by 
a slightly smaller pay increase is the price that had to be 
paid for soldiers who are trained and ready. But I do believe 
that cuts to COLAs must be reflective of decisions made each 
year based on the dynamics of the economy and the dynamics 
within DOD.
    I want to end my testimony as I began it. Sequestration is 
patently unresponsive to needs of this Nation, which is part of 
a rapidly changing world which we cannot predict the future. We 
never could predict the future. People a lot smarter than me 
have said that, not the least of whom was the former Secretary 
of Defense Gates and Panetta. I mean, countless people. We all 
know it. It creates a paradox in my mind in which this Nation 
is locked into a creaky, slow-moving, lockstep budget process 
that is irresponsible and unaccountable. No one seems to be 
accountable.
    Sometimes it is like people do not listen. The Chairman of 
the Joint Chiefs of Staff said unacceptable risk. The Chief of 
Staff of the Army says he is at risk of performing the mission, 
his battlefield mission. Those are serious pronouncements.
    Sequestration profoundly affects all parts of the national 
security community, the Department of State, the Central 
Intelligence Agency, National Security Agency, Department of 
Veterans Affairs, and parts of the Department of Energy which 
are included in that particular budget line. The impact on our 
national security writ large must be considered.
    I urge you to pursue some kind of a modification of this 
budget device which is being used so that we can get back to 
full order so that we can have a dialogue like we are having 
here today and appropriate decisions can be made based on the 
needs of our Nation for our security and our national defense.
    Thank you very much for your patience while I went through 
that. We at AUSA appreciate anything you can do to get rid of 
the burdensome sequestration. There has to be a better way.
    [The prepared statement of General Sullivan follows:]
      Prepared Statement by GEN Gordon R. Sullivan, USA (Retired)
    Mr. Chairman and Ranking Member Inhofe: Thank you for the 
opportunity to present the views of the Association of the U.S. Army 
(AUSA) concerning issues relating to the Army and its soldiers and 
families. This committee has provided extraordinary support of our 
Active Duty, Guard, Reserve, retired members, and veterans of the 
uniformed services, their families and their survivors and its efforts 
have had an enormously positive impact in the lives of the entire 
uniformed services community.
    AUSA is keenly aware that Congress has had to make difficult 
choices while bolstering a weak economy and addressing budget deficits. 
While we recognize that debt reduction is a national priority, AUSA 
believes that a disproportionate share of this burden has fallen on the 
Defense Department.
    Requiring that 50 percent of mandatory budget cuts come from 
defense--even though the defense budget is only 17 percent of the 
Federal budget--is patently misguided. How in such a dynamic and 
dangerous world can we be so shortsighted?
    The result is that defense officials now face a no-win situation. 
They can fund readiness, training, education, operational activities, 
and some modernization but doing so requires cutting soldier and family 
program funding. Continuing this formula for the better part of the 
next decade defies logic. Uncertain times demand agility and 
adaptability--look at what has suddenly occurred in Eastern Europe.
    AUSA and its members urge that Congress and our elected and 
appointed officials eliminate sequestration or modify these 
unrealistically rigid budget control measures in ways which would 
enable responsible and accountable leaders to exercise their 
responsibilities in a manner that is consistent with the challenges 
they face.
    ``Providing for the Common Defense'' is a shared responsibility 
among the American people, Congress, the President, and the Army. We 
have lost that sense of shared responsibility because of the mindless, 
automatic and arbitrary cuts that sequestration brings.
    Military leaders in order to properly execute their national 
security mission need authorization authority and appropriations to be 
completed on time and with regular order. Operating under a series of 
continuing resolutions limits the capability to properly plan and 
execute a budget.
                             sequestration
    AUSA believes that the primary source of the budget challenges that 
face the Department of Defense (DOD) is the devastating effect of the 
sequestration provision of the Budget Control Act of 2011.
    The Bipartisan Budget Act of 2013 mitigated the sequestration 
spending cuts for fiscal year 2014 and 2015. However, the original 
sequestration cuts scheduled for fiscal year 2016 thru 2021 remain in 
effect and will exacerbate the situation by continuing to place 
national security at risk.
    Sequestration is having a profoundly adverse effect on the defense 
of the Nation--and it will do so well into the next decade.
    Over the past 2 years sequestration has:

         Set America on a path to reduced military readiness 
        and national security. Sequestered budgets are rapidly 
        shrinking the Nation's military forces to unprecedented and 
        even unacceptable levels thereby creating unready forces unable 
        to accomplish the tasks assigned by the defense strategy. All 
        of this while the world security environment is becoming 
        increasingly uncertain and dangerous.
         Reduced the military's war-winning capabilities to 
        unacceptably low levels, and has created unnecessary 
        divisiveness, acrimony, and demonization within the Armed 
        Forces between servicemembers and leaders who just months ago 
        were serving side by side in combat. We must enable all 
        components of the Armed Forces to be adequately manned, 
        trained, and equipped to focus on the mission--and not on 
        fighting over an arbitrarily depressed defense budget.
         Created an atmosphere of fiscal desperation that leads 
        to false arguments and false choices when it comes to the 
        compensation and benefits provided to the servicemembers and 
        families who make up the All-Volunteer Force.
              mobilization and the defense industrial base
    Whether by design or inadvertently, sequestration has forced our 
Armed Forces back into a mobilization posture. Many who refuse to 
acknowledge that the United States might again become involved in a 
large land operation have set us on a path where a too-small Active 
component force can just be reinforced when needed by a mobilized 
Reserve contingent or by simply recruiting more soldiers (as the 
likelihood of a return to the draft is remote).
    GEN George Marshall in 1956 said that ``. . . the hardest thing in 
the world to train is a ground army''. Marshall had it right some 60 
years ago when he concluded that the complexity of land conflict (more 
so in today's unstable security environment) requires our land forces 
to maintain ``a very high state of training, higher than that of any 
other force that I know of.'' George Marshall knew what he was talking 
about.
    Unfortunately, recent history has shown us that it takes the U.S. 
Army as much as 3 years to organize, train, and equip a newly formed 
brigade combat team--that's not rapid enough in today's security 
environment where crises like the Crimea can emerge in literally days 
(think Korea in June 1950 and even today) and linger for years as in 
Syria. The myth of small to big in short order is just that--a myth.
    So, we must rely entirely on the force we have in being--Active, 
Guard, and Reserve. But with the effects of sequestration steadily 
decreasing the size and readiness of our military, the depth of the 
force and its ability to mobilize is being severely degraded.
    What is needed is a balanced force--balanced among land, air, 
maritime, space, cyber, and Special Forces. Balance is also required 
between Active and Reserve Forces. Equally important is the balance 
between mission readiness and soldier and family programs. But 
sequestration is throwing that necessary balance out of whack, 
especially with land forces, and is creating risky, even dangerous 
vulnerabilities.
    Likewise, sequestration is having a devastating effect on the 
defense industrial base. In both DOD's own organic industrial base and 
the commercial industrial base, sequestration cuts are putting our 
ability to equip a mobilized force when it is needed at growing risk. I 
am alarmed that there is a gross lack of awareness among national 
leaders how dire this situation is becoming. Only legislative relief 
from sequestration can rectify this.
                        a crisis of credibility
    Not only is sequestration and a declining defense budget having an 
adverse effect on military readiness, we are also seeing an emergence 
of international doubt as to the credibility of the United States as a 
reliable ally and partner. I am convinced we must be seen as a credible 
ally. Credibility in this context is found in the perception of 
strength and national resolve to be responsive to our treaty 
commitments with balanced, trained, and ready forces.
    Similarly, adversaries are most certainly watching the steady 
decline of American military power and could take more and more risk to 
challenge U.S. leadership. Moreover, the decline in U.S. military 
strength can lead to strategic miscalculation by potential adversaries. 
A credibly sized force--not just a reasonably sized force--provides a 
deterrent effect that is withering under the constraints of 
sequestration.
                  viability of the all-volunteer force
    Sequestration has created a perception that the troops ``cost too 
much'' and are to blame for our growing military unreadiness. The facts 
do not bear this out and the troops know it. But it has sown a growing 
distrust among servicemembers who are increasingly and unfairly 
portrayed as an entitlement special interest group.
    The past 12 years of unprecedented demands and sacrifices highlight 
how radically different military service conditions are from civilian 
life. Decades of dire predictions about ``unaffordable'' personnel 
costs have proved consistently wrong. Yet budget critics persist in 
asserting military pay, retirement, and health care benefits are 
unsustainable and should be slashed to resemble civilian benefit 
packages.
    Existing career incentives have sustained a strong national defense 
through more severe and protracted wartime conditions than even the 
strongest volunteer-force proponents thought it could survive.
    Despite extraordinary demands, men and women in uniform are still 
answering the call--thanks in no small measure to the committee's 
strong and consistent support--but only at the cost of ever-increasing 
personal sacrifices.
    Service personnel are now facing even greater uncertainties with 
force reduction measures and pay caps. No Federal obligation is more 
important than protecting national security. The most important element 
of national security is sustainment of a top-quality career military 
force backed by dedicated DOD civilians.
    America will remain the world's greatest power only so long as it 
continues to fulfill its reciprocal obligation to the only weapon 
system that has never let our country down--our extraordinarily 
dedicated, top-quality, All-Volunteer career force.
    Congress has consistently recognized that the cost of sustaining 
the current military career incentive package is far more acceptable 
and affordable than the alternative.
                       compensation and benefits
    In the matter of compensation, AUSA supports the establishment of 
the Military Compensation and Retirement Modernization Commission. The 
members of that body are fully capable of recognizing the unique 
contributions and sacrifices required by military service when they 
consider changes to military compensation and the retirement system. 
AUSA expects that any changes made must and will take into account the 
services' need to compete for talent in the labor market.
    AUSA does not want to see a return to the recent era of significant 
pay gaps, at this critical juncture in the life of the Army and DOD. It 
is imperative that funding be available for training and maintaining a 
ready national defense force. The capability to accomplish the mission 
is of paramount importance.
    Pay caps must not be permanent. Military pay comparability is 
important to the recruiting and retention of high-quality soldiers and 
will become more so as the economy rights itself. AUSA is committed to 
military pay raises that match the Employment Cost Index, but this year 
because of sequestration, the funds freed by a slightly smaller pay 
increase is the price that must be paid to have soldiers who are 
trained and ready. However, Congress must ensure that this type of 
budgeting does not become routine as it will have long-term detrimental 
effects on the All-Volunteer Force.
    In the matter of Military Compensation and Retirement Reform, AUSA 
believes that any permanent changes in the military compensation and 
retirement system should be withheld pending the report of the Military 
Compensation and Retirement Modernization Commission and not be made 
piecemeal. Further, any changes to retirement benefits must apply only 
to those who volunteer after the changes are implemented. 
Grandfathering of the currently serving force and current retirees is 
imperative. Finally, any change must recognize the unique and 
extraordinary demands and sacrifices that military service requires. 
The profession of arms is not equivalent to a civilian job.
                             sequestration
    I end my testimony as I began it.
    Sequestration is a disruptive piece of legislation indicative of a 
government seemingly unable to function as a responsible democracy. 
Furthermore, sequestration is patently unresponsive to the needs of a 
nation that is part of a rapidly changing world in which we cannot 
predict the future. It creates a paradox in which the Nation is locked 
into a creaky, slow moving, lockstep budget process that is 
irresponsible and unaccountable and ignores the world around it, while 
its defense forces must be flexible and agile.
    Further, sequestration profoundly affects all parts of the national 
security umbrella--the Department of State, Central Intelligence 
Agency, National Security Agency, Department of Veterans Affairs, and 
parts of the Department of Energy budgets. Its impact on national 
security writ large must be considered.
    Members of the committee, as you pursue your duties related to the 
personnel issues of DOD, I urge you to get at the root cause of the 
budgetary problems consuming DOD and end sequestration permanently 
before more damage is done and before we are left with an inadequate 
national defense force in 2021.
    Thank you again for your support of the uniformed services and for 
considering this testimony of the Association of the U.S. Army.

    Chairman Levin. Thank you, General Sullivan.
    Admiral Totushek, we are going to have to leave here in 
about 15 minutes. We will have to leave a few minutes before 1 
p.m. We want to leave some time for questions. If you can 
adjust accordingly, that would be great. We do not want to cut 
you short.

    STATEMENT OF VADM JOHN B. TOTUSHEK, USN, RET. EXECUTIVE 
             DIRECTOR, ASSOCIATION OF THE U.S. NAVY

    Admiral Totushek. I will endeavor to do that, Chairman 
Levin. Thank you very much. Ranking Member Inhofe, members of 
the committee, it is always a pleasure to be with you, and I 
thank you for your service to our country and the things you 
have done for our men and women in the military.
    I will cut through part of this, just to highlight a few 
things.
    The first is that we basically heard a lot of people say 
today that cuts will not harm the quality of life for our Navy 
families, but I would say that all aspects of compensation, not 
just pay, are part of what they look at as their pay. It is 
going to definitely impact decisions they make when they are 
out there trying to live their lives, especially things like 
BAH that are reductions in what they take home each month to be 
able to pay their bills.
    We basically are the voice of sailors at AUSN, and we did a 
recent study asking some people to tell us what they thought 
about these impending kinds of changes that DOD has proposed. 
Ninety percent of them did not like what is being proposed, a 
little bit contrary to what I think the chiefs are hearing when 
they go out there. By the way, we do not envy the chiefs--the 
position they are in to try to make this balance that is 
typical of the tough choices they are trying to make today. It 
is just that we think there is a bigger impact to our force 
than they are seeing when they go out and hold their all-hands 
calls.
    One sailor said the cost of living has not gone down in our 
area. Yet, DOD has made a decision to knock down the BAH for 
Hampton Roads.
    Another one said I think that DOD is breaking faith with 
what we signed up for. Things are going backwards.
    Now, you may have seen today that the Web site military.com 
had a survey that said the same thing ours said. 90 percent of 
those surveys--and they surveyed 8,400 Service people--do not 
like the proposed cuts. What the Chiefs are hearing when they 
go talk maybe is not the real thing that is going on.
    I would tell you also that the sequestration, as General 
Sullivan says, makes big impacts to our readiness, to our force 
structure, and to our training, but it also has an impact on 
Navy families because the CNO said we are now forced into 
longer cruises and when we retain people, we do not retain just 
that service person. We retain the family. The families will 
vote with their feet. I believe that the committee does not 
need to be reminded of that fact.
    I will cut to the chase so that my colleague to my left has 
a couple of moments to spend. But I would tell you that for the 
last 30 years, the cost of personnel in the military has 
remained constant at 30 percent to 33 percent. The President's 
budget for 2014 is 33 percent. To say that these compensation 
percentages are higher, you have to be including some things 
that military compensation does not include like the civilians 
or something else is in those numbers that you heard from the 
Service Chiefs today.
    In summary, we think that really the biggest factor today 
that is keeping people in the military is the poor jobs market 
on the outside. When you couple these kinds of changes with 
that, we are actually going to see people walking with their 
feet despite what the chiefs are hearing.
    With that, thank you very much for your attention, and I 
look forward to your questions.
    [The prepared statement of Admiral Totushek follows:]
         Prepared Statement by VADM John B. Totushek, USN (Ret)
                                summary
    Chairmen Levin, Ranking Member Inhofe, and members of the Senate 
Armed Services Committee, the Association of the U.S. Navy (AUSN) 
thanks you and your Committee for the work that you do in support of 
our Navy, veterans, retirees, and their families. Your efforts have 
allowed significant progress in creating legislation, through 50 plus 
years of consecutive National Defense Authorization Acts (NDAA), that 
has left a positive impact on our Navy and military community.
    On 4 March 2014, the administration sent to Congress the 
President's budget (PB) request for fiscal year 2015. The PB requests a 
total of $495.6 billion for the Department of Defense (DOD) budget, 
about $31 billion less than fiscal year 2014 requested levels. Despite 
some programs seeing positive steps forward, there are significant 
`cost saving' measures being proposed which could impact overall 
morale, recruitment, retention and readiness in the military. Of 
particular concern are proposals within DOD's budget to reduce military 
pay raises, lower Commissary subsidies, reduce the Basic Allowance for 
Housing (BAH) and merge three different TRICARE plans: Prime, Standard 
and Extra into one Consolidated TRICARE Health plan, while instituting 
TRICARE for Life (TFL) enrollment fees and increasing pharmacy copays. 
All of these changes are being proposed before the Military 
Compensation and Retirement Modernization Commission (MCRMC), mandated 
by Congress in the NDAA for Fiscal Year 2013, which has finished its 
work and should come up with its final report in February 2015.
    The 6 percent reduction in BAH will result in higher out-of-pocket 
costs for those servicemembers living off base. Base barracks are not 
built to accommodate 100 percent of the servicemembers stationed there, 
so this will undoubtedly affect many sailors. The housing allowance is 
calculated based on the average cost-of-housing for the area and is 
meant to provide servicemembers with the ability to live in 
satisfactory accommodations. The proposed budget also puts the base pay 
cap below private sector pay growth determined by the Employment Cost 
Index (ECI), with an increase of 1 percent rather than 1.8 percent. 
This is the second year that DOD has tried to cap the pay increase at 1 
percent. Before last year, servicemembers' last three pay increases 
averaged at 1.4 percent, and the NDAA for Fiscal Year 2014 pay increase 
was the smallest in almost 50 years. In addition, the proposed 
reduction in savings at the Commissary would result in a roughly 20 
percent price spike. The PB also plans for TRICARE pharmacy copay 
increases and the establishment of enrollment fees, while also creating 
a consolidated TRICARE plan, eliminating the managed care option and 
leaving only a fee-for-service option for retirees and families.
    We have heard DOD officials say that the cuts will not harm quality 
of life; however, there is no doubt that it will have a substantial 
effect on purchasing power and affect day-to-day financial decisions. 
For instance, the total loss in purchasing power for an Active Duty E-5 
family of four would be $4,993 per year based on the proposed changes 
to TRICARE, BAH, pay raise cuts and Commissary savings put together. 
For an Active Duty O-3 family, the total loss of purchasing power would 
be $5,890. There are some who justify these cuts by saying military 
compensation is already very generous, but that's not necessarily true. 
Military compensation is fair and carefully constructed to sustain the 
stability of the all-volunteer force. AUSN shares the concern, along 
with many lawmakers, that these cuts will end up being a disincentive 
to serve. As the ``Voice for America's Sailors,'' AUSN has always been 
a people first association, since it is our servicemembers, Veterans 
and retirees who help/helped make our Navy the finest force in the 
world. The readiness of our Navy follows in importance since our 
sailors need the training, resources, and modern equipment to carry out 
its mission.
AUSN Questionnaire of Active Duty, Reserve, Veteran and Retirees on 
        Fiscal Year 2015 Proposals
    In order to better understand the concerns of the military and Navy 
community, beginning in mid-April, AUSN conducted a questionnaire of a 
couple hundred of our members who also passed along to friends and 
shipmates to hear how they were impacted or not impacted by the 
proposals being vetted in regards to military compensation and 
benefits. Overall, with results compiled on 28 April 2014, of the over 
100 participants in the poll, 59 percent of respondents were Veterans/
Retirees and 41 percent were Active Duty. Respondents were asked, ``In 
the fiscal year 2015 PB request, I am most concerned with . . . '' and 
had the choice of Military Pay Raise Cut, BAH Reductions, TRICARE 
Proposals, Commissary, None or All of the proposals. Comments were also 
submitted whereby one Active Duty sailor stated, ``I understand the 
need to tighten our belts, but [military personnel accounts] are not 
the places to do it,'' whereby another Active Duty sailor stated, 
``Enlisted are already severely underpaid. Taking away more of their 
pay would be detrimental to morale.'' An additional comment came from 
one Active Duty sailor who said that, ``The cost of living has not gone 
down in our area, yet [DOD] has made the decision to knock down the BAH 
for Hampton Roads, VA!'' A Navy Veteran commented, ``I appreciate the 
opportunity to have my input considered. DOD is breaking faith with all 
of us who serve/served faithfully, and I consider these proposals will 
negatively affect retention and recruiting.'' Another Navy veteran 
stated in his submission, ``While good equipment is important, it seems 
that the DOD has misplaced their priorities and are not taking care of 
the troops.'' The final compiled results showed that ALL of the 
proposals had a majority of concerns with TRICARE, with the military 
pay raise cuts following behind.
      
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    Before going into detail on the Military Compensation fiscal year 
2015 budget proposals, we'd like to take the time to discuss a few 
pending concerns which are driving many of the proposals coming out of 
DOD. Most notably we will address sequestration and ask ourselves: is 
the current military compensation and benefits system truly 
unsustainable as many DOD officials claim, and haven't we seen the 
mistakes of drastic changes before?
                          sequestration impact
    The national security environment we face today is as perilous as 
any in recent memory. Over the past several years, our defense budget 
has been struck time after time with reductions. The Budget Control Act 
(BCA) of 2011 started a $487 billion loss in the defense budget, and 
now we are at even greater risk threatened by a sequestration law 
cutting another $500 billion over the next decade.
    We were told sequestration would never happen. But here we are in 
year two facing the blunt and irresponsible approach to taming our 
annual deficits and reining in the enormous debt we and future 
generations face. Despite sequestration being `held at bay' for now due 
to the Bipartisan Budget Act (BBA) of 2013 agreement, the ongoing 
threat of it returning for fiscal year 2016 continues to have looming 
consequences that must be paid attention to.
    Under sequestration, defense, which accounts for less than 15 
percent of the budget, is forced to take 50 percent of sequester cuts. 
It is disproportionate by any measure of understanding and incredibly 
detrimental to our national security. The results of these cuts have 
already been devastating to our national security, with our Navy alone 
at a historic low level of ships, facing worse than pre-World War II 
levels, should sequestration persist.
    The readiness impact of sequestration not only threatens our 
military and forward presence but also has a significant impact upon 
the Navy family. For instance, the recent announcement in the fiscal 
year 2015 PB to defer the decision on whether or not to early retire 
the USS George Washington (CVN-73) in fiscal year 2016 has dire 
consequences for our fleet's capabilities. Scheduled to undergo 
Refueling and Complex Overhaul (RCOH), this vital but costly regularly 
scheduled carrier maintenance, threatens to reduce the fleet of Carrier 
Strike Groups (CSGs) from 11 to 10 and with any further delays of the 
Ford-class aircraft carrier, potentially down to nine. What is missing 
from this discussion to the effect on our national security that this 
has is the impact upon our military families, as we have seen with 
other RCOH delays of carriers. Delays and reduction in ships means 
longer deployments for other CSGs and, consequently, more time our 
sailors are away from their families, impacting overall morale of our 
Navy community.
    In addition, DOD recently released an April 2014 report titled 
``Impacts of Sequestration Level Funding'' which noted not only the 
RCOH concerns with CVN-73 but also the Navy consequently having eight 
fewer ships procured throughout the remainder of the Future Years 
Defense Program (FYDP). Three fewer Arleigh Burke Class destroyers 
(DDGs) would be procured from fiscal year 2017 through fiscal year 
2019, resulting in a smaller and less capable surface combatant force. 
Sequester level funding would also result in the fiscal year 2016 
Virginia-class submarine procurement to be unaffordable and prolong the 
period where the force is below the desired level of fast attack 
submarines by 4 years. The Navy would also delay six P-8A ``Poseidon'' 
aircraft until fiscal year 2020, substantially increasing per unit 
costs, and would procure two fewer F-35C variants in fiscal year 2016. 
The entire Armed Services would also lose more than 530 Advanced 
Medium-Range Air-to-Air Missiles, and the Tomahawk Cruise Missile 
program would be eliminated. Perhaps the largest impact would be to the 
Operation and Maintenance (O&M) accounts, which include installation 
services and service readiness, which could be reduced by $40 billion 
over the course of the FYDP. Not funding Navy O&M accounts severely 
limits force structure, readiness and capability.
    AUSN insists Congress eliminate sequestration and fund our military 
to levels that enable all components of the Armed Forces to be 
adequately manned, trained and equipped to focus on the mission-- and 
not on fighting over an arbitrarily depressed defense budget. While 
debt reduction is a national priority, we believe that such a 
disproportional share of this burden must not be imposed upon DOD and 
especially on the backs of military members and families who already 
have sacrificed more for their country than any other segment of 
Americans.
   slowing the growth? (is it really that bad? are we repeating past 
                               mistakes?)
    Today sequestration is still the `law of the land' and continues to 
impact the decisions made regarding cost savings within DOD, 
particularly when it comes to military compensation and benefits. We 
have faced similar budget scrutiny before, and the impact upon our 
military had significant consequences. AUSN is concerned that attempts 
to change compensation and retirement will cause the same negative 
effects that have been seen in the past. Military compensation and 
benefit changes, like our overall military readiness, should not be so 
heavily budget driven but rather should reflect strategy and 
modernizing for a 21st century force. Recent military compensation 
studies within DOD have leaped to the erroneous conclusion that the 
cost trends of the last decade will continue indefinitely. This is not 
so. Yet, Pentagon leadership continues to focus on ``recent growth 
trajectory.'' For example, the military personnel account, according to 
Office of Management and Budget's (OMB) historical table 3.2, has 
doubled between 2000 and 2012, from $76 billion to $152 billion. What 
the Pentagon doesn't advertise is that the overall defense budget grew 
over the same period from $281 billion to $651 billion, a 131 percent 
increase. This alone shows personnel costs are consuming a smaller 
share of the budget. So if any costs are ``spiraling out of control,'' 
they're not personnel costs.
      
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    While AUSN supports responsible spending in defense, past attempts 
to alter military compensation and retirement benefits have had 
significant negative impacts. For example, the REDUX program in the 
1980s comes to mind, which was cancelled in 1999, when its attempts to 
reduce 20-year retirement benefits by 25 percent caused drops in 
retention and readiness levels.
    The REDUX system, enacted in 1986, was applied to service entrants 
on or after 1 August 1986. It provided 2.5 percent times high-36-month 
basic pay per year of service, except that 1 percent was subtracted for 
each year of service less than 30 (e.g., 40 percent of high 36-months 
basic pay after 20 years of service). Furthermore, REDUX retiree Cost-
of-Living Adjustments (COLAs) adjusted annually at a rate 1 percent 
less than the Consumer Price Index (CPI); (CPI-1). Under the REDUX law, 
retired pay was recomputed on a one-time basis when the retired member 
attains age 62. At that point, retired pay was recalculated to the 
amount that would have been payable under the high 36-month average 
system. After age 62, CPI-1 COLAs continued for life. The REDUX system 
further reduced lifetime retired pay value by up to 27 percent!
    Congress repealed REDUX as the default system for post-1986 
entrants in 2000, after the Joint Chiefs of Staff (JCS) complained that 
it was undermining career retention and readiness. At the time, the 
REDUX system was the most frequently mentioned reason for leaving 
Service among separating personnel.
    Under current law, the high 36-month retired pay system is the 
default option, but servicemembers have the option at the 15-year point 
of electing the REDUX option in return for a one-time $30,000 taxable 
career retention bonus. Only a minority of servicemembers choose this 
option, and AUSN, as well as our counterparts, believe strongly that 
accepting this option is a very unwise decision.
    Additionally, past attempts at military pay caps have caused 
significant problems. A series of annual pay raise caps in the 1970s 
led to major negative impacts on retention and necessitated a pair of 
large ``catch up'' raises in 1981 and 1982. The same problem occurred 
again in the 1980s and 1990s, with pay caps contributing to an eventual 
peak ``pay comparability gap'' of 13.5 percent below the private 
sector.
    There have been three areas where DOD has stated that Military 
Compensation and Benefits are becoming ``unsustainable'' and urged a 
need to ``slow the growth,'' regarding ``spiraling'' compensation and 
benefit costs. Those areas are pay, healthcare and retirement. All 
three areas are vitally important to the recruitment and retention of 
our All-Volunteer Force, and all three are areas that DOD constantly 
sends proposals to change in each of the President's Budgets. Personnel 
and healthcare costs have represented the same share of the defense 
budget, about a third, which they have for the last 30 years, 
indicating that these costs are not spiraling out of control as DOD has 
claimed. In fact, looking at last year's fiscal year 2014 budget alone, 
as requested in the PB request, there was $412 billion allocated for 
total Military Personnel Costs, less than half of which is actually in 
the DOD budget. That means, of the PB requested $526.6 billion for the 
base budget of DOD, only $176.6 billion, about a third, is dedicated to 
ALL Military Personnel Costs for DOD, which, again, is about the same 
share of the DOD budget for the past 30 years. Hardly 
``unsustainable.''
      
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    Our successful all volunteer-force has been accomplished with the 
same portion of the DOD budget being allocated for human resources as 
there has been for the last 30 years. Less than one-third, of the total 
DOD budget goes towards pay, healthcare, retirement and other 
compensation, so, again, these are exaggerated claims that military 
compensation programs are the most impactful financial issue.
      
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    Thus, if we continue to let budget drive the conversation, like 
REDUX did, then we risk consequences of adopting many of the proposals 
within the fiscal year 2015 budget request as noted below which may be 
detrimental to our military's most important asset, our people.
 military compensation proposals in fiscal year 2015 president's budget
Military Pay Proposals in Fiscal Year 2015 Budget
    Military pay is meant to offset the massive personal cost that 
accompanies a servicemember's career. In exchange for their pay, 
members of the military not only serve in foreign and often dangerous 
locations but also accept abridgments of speech and organizational 
rights enjoyed by those they protect. Military pay is a huge motivating 
factor in attracting new recruits as well who are willing to make these 
sacrifices as part of joining the all-volunteer force. Pay 
comparability is also one of the most important factors in maintaining 
stable retention. All of this has been accomplished with the same 
portion of the DOD budget being allocated for military compensation as 
there has been for the last 30 years. AUSN is very concerned that many 
in the administration, and some Members of Congress, are unaware of the 
history of compensation changes and their unforeseen outcomes. 
Moreover, we are alarmed that some view these vital compensation 
programs as a source of budget savings without regard to the impact 
they may have on long term readiness, but most importantly, the 
livelihoods of the All-Volunteer Force.
    The historical context of military pay provides ample evidence that 
capping military raises is an exceptionally slippery slope which has 
never ended well with past attempts at military pay caps causing 
significant problems. A series of annual pay raise caps in the 1970s 
led to major negative impacts on retention and necessitated a pair of 
large ``catch up'' raises in both 1981 and 1982. The same problem 
occurred again in the 1980s and 1990s, with pay caps contributing to an 
eventual peak ``pay comparability gap'' of 13.5 percent below the 
private sector. To correct this, Congress has made great strides to 
restore military pay comparability over the past 13 years. In 2003, for 
the NDAA for Fiscal Year 2004, Congress tied the basis of pay increases 
for military personnel to be equal to the Department of Labor's ECI, so 
that increases in military pay matched the bare minimum increases that 
civilians in the private sector received. Congress has even had the 
ability to enact raises that exceed these ECI percentages, as they did 
for 2008 and 2009 (see chart on following page for recent increase in 
pay raises).
      
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    Through these measures, the pay gap was closed, and servicemembers 
were compensated at a fair rate equal to those in the civilian sector. 
However, now that erosion of pay and associated retention-related 
problems have abated, there are renewed calls to cut back on military 
raises, to either create a new comparability standard or substitute 
more bonuses for pay raises in the interests of deficit reduction. For 
Congress to override the statutory linkage that they themselves have 
passed does not bode well for our men and women in uniform, especially 
in the midst of an on-going conflict. History shows that, once military 
pay raise caps are implemented, the tendency has been by Congress to 
continue them until retention problems arise, which then have to be 
addressed through significant pay raise plus-ups. AUSN believes such 
proposals are exceptionally short-sighted in light of the extensive 
negative experiences we have had with military pay raise caps. The 
whole purpose of sustaining pay comparability through both good times 
and bad is to prevent significant fluctuations in retention and 
readiness; to avoid going through an endless cycle of causing problems 
and then repairing them.
    A 2010 Congressional Budget Office (CBO) report asserted that, 
considering adjustments in housing allowances, many military people 
were actually paid more than their civilian counterparts in terms of 
Regular Military Compensation (RMC), composed of basic pay, food and 
housing allowances and the tax advantage that accrues because the 
allowances are tax-free. Developed in the 1960s when all servicemembers 
received the same allowances, regardless of location, and the 
allowances were arbitrarily established, the RMC was an inaccurate 
calculation of servicemember compensation. Since the 1960s, Congress 
has transformed the allowances into reimbursements for actual food 
costs and for median locality-based housing costs. Consequently, AUSN 
believes the CBO's assertions to be fundamentally flawed and that 
Congress would have a hard time explaining to troops why their pay 
raises should be reduced because their taxes are rising. However, in 
2013, the PB request for fiscal year 2014 established the 1 percent 
smaller pay raise, instead of the 1.8 percent dictated by the current 
ECI, which affected a total of 2.2 million Active Duty and Reserve 
component members in order to save DOD $536 million, a small cut in a 
$526.6 billion budget. AUSN was then exceptionally disappointed that 
Congress agreed to that cap on Active Duty pay raises, as this sends 
the wrong message to our servicemembers saying in order to save a small 
amount of money, we are cutting your pay raise mandated by current law 
by almost half. DOD continues to claim it would save over $3.5 billion 
if pay increases were reduced at this rate in future years. Yet, as 
previously mentioned, personnel costs have represented the same share 
of the defense budget, about a third, for the last 30 years, indicating 
that these costs were not spiraling out of control as DOD claims.
    Furthermore, a 1 percent boost in military pay would continue to 
be, as it was for fiscal year 2014, the lowest pay increase since 1963, 
when no pay raise was authorized. This would represent a historically 
significant reduction, as well as explicitly increasing the pay of 
servicemembers less than the bare minimum that a similarly-employed 
civilian would receive (which, in all honesty, both career paths cannot 
and should not be compared). These actions are of significant concern, 
since annual pay increases are not just raises or bonuses for 
servicemembers but vital adjustments that are counted on by military 
families as part of military service. For example, an E-5 Active Duty 
family of four stands to lose a total of $593, and an O-3 Active Duty 
family of four stands to lose a total of $1,130 aggregate loss for 
fiscal year 2014/fiscal year 2015 in military pay. AUSN advocates for 
the specified 1.8 percent increase as determined by the ECI for the 
current NDAA for Fiscal Year 2015 to ensure that servicemembers receive 
a fair increase. AUSN encourages DOD and Congress to adhere to this 
standard of pay increases. As past experiences have shown, pay raise 
caps tend to cause major problems in exchange for minor short-term 
savings, which are then undone when larger adjustments must be made to 
make up for the caps. If pay raise caps are instituted again by the 
administration, ignoring current law from the NDAA for Fiscal Year 
2004, we will likely see retention problems reemerge in exchange for an 
extremely small cost reduction. In short, pay raise caps are not worth 
the negative consequences, and therefore, AUSN strongly encourages 
Congress not to approve the fiscal year 2015 PB request for having 
military pay raises set at 1 percent instead of the mandated ECI rate 
of 1.8 percent. By adding language to the NDAA for Fiscal Year 2015 
supporting current law of the NDAA for Fiscal Year 2004 stating 
military pay should match the ECI rate, Congress will have re-asserted 
it's authority and counter the administration's use and interpretation 
of title 37 powers to change military pay rates as they please.
Basic Allowance for Housing Proposals in Fiscal Year 2015 President's 
        Budget
    In addition to base pay, servicemembers also receive a supplement 
for housing. BAH is an allowance paid to Active Duty servicemembers 
based on pay grade, dependency status and geographic location within 
the United States. The PB request for fiscal year 2015 proposes to 
gradually slow the annual BAH increases until rates cover only 95 
percent of housing rental and utility costs on average. Additionally, 
it proposes to eliminate renter's insurance from the housing rates. The 
administration argues that this change only results in an out-of-pocket 
cost of 6 percent on average, emphasizing that such a change is far 
less than the 20 percent out-of-pocket costs in the 1990s. However, by 
the late 1990s, the Defense Department persuaded Congress to make 
military housing allowances meaningful by setting BAH at 100 percent of 
median local housing costs. This standard was codified after years of 
budget cuts reducing BAH rates below actual housing costs. Furthermore, 
they maintain that in areas where average rates increase, DOD will slow 
the growth of that increase until the 6 percent target is reached. 
Additionally, the administration claims that the actual percentage will 
vary by area, because it would be unfair to those who live in high 
rental cost areas to make this change on a strict percentage basis. 
Therefore, the administration proposes that servicemembers in the same 
pay grade, but living in different areas, should see the same dollar 
amount of out-of-pocket cost. In order to accomplish this, the 
individual servicemember will know the amount he will contribute toward 
housing and can make informed trades in his own budget. The rate 
protection feature will also remain in effect. In other words, no one 
who is currently living in a particular area will see his BAH decrease. 
If the survey data in an area indicate that the BAH rate should 
decrease, only members moving into the area will receive the lower 
rate, which already happens under the current rules. Finally, the 
administration expects that the out-of-pocket target of 6 percent will 
take several years to achieve because the DOD is just starting to slow 
the growth of future increases.
    AUSN, however, disagrees with the administration's assessment and 
asserts that the fiscal year 2015 PB proposal of a 6 percent reduction 
in BAH will, because of its even spread over the entire force, prevent 
troops in high-cost living areas from paying out more of their base pay 
than troops in low cost of living areas. Under the administration's 
proposal, servicemembers will only receive 95 percent of the BAH for 
their rank and location, resulting in greater out of pocket housing 
costs. This ``slowed growth'' of the BAH will affect families, whether 
they rent or own their own home. All told, for example, an E-5 Active 
Duty family of four under this proposal would stand to lose a total of 
$1,224, and an O-3 Active Duty family of four under this proposal would 
stand to lose a total of $1,584 annually. Additionally, the fiscal year 
2015 budget eliminates compensation for renter's insurance, which is an 
important component that goes into a servicemember's monthly housing 
cost. While AUSN is appreciative that the lower BAH will not affect a 
military family until their next duty assignment, we are concerned 
about the long-term impact on families' ability to find and pay for 
appropriate housing. BAH has a tremendous impact on servicemembers and 
their families' lives and is an important service that military 
families depend on to afford reasonable housing wherever it is they are 
stationed. As a result, AUSN urges Congress to reject the BAH proposals 
in the fiscal year 2015 PB and provide full BAH for any Active Duty 
servicemember at the current BAH rate.
TRICARE Proposals in Fiscal Year 2015 President's Budget
    The military healthcare system is built mainly to meet military 
readiness requirements rather than to deliver needed care efficiently 
to beneficiaries. These readiness requirements result in increased 
costs across the healthcare system, as the system needs to be able to 
not only provide for beneficiaries but also be able to meet the 
readiness requirements the military has. But because the increased 
costs have been incurred as a result of military readiness requirements 
and out of convenience for the military, beneficiaries should not be 
expected to bear any share of the military-driven costs. Instead of 
imposing higher fees on beneficiaries as the first budget option, DOD 
leaders should be required to fix/consolidate redundant, 
counterproductive DOD health systems.
    Currently, TRICARE is managed by the Defense Health Agency (DHA), 
formally the TRICARE Management Activity (TMA). On 1 October 2013, TMA 
was disestablished, whereby DHA took over. As a major component of the 
Military Health System (MHS), TRICARE combines the healthcare resources 
of the uniformed services with networks of civilian healthcare 
professionals, institutions, pharmacies and suppliers to provide access 
to high-quality healthcare services, while maintaining the capability 
to support military operations. This integration allows for the men and 
women of our Armed Forces to readily access care whether it is within 
VA healthcare centers or the private sector. The healthcare needed for 
servicemembers varies greatly throughout their military careers as they 
transition throughout the stages of their service. This variety, with 
multiple TRICARE plans, is designed in order to provide for the 9.66 
million Americans who are eligible for benefits under TRICARE and have 
different degrees of healthcare. However, out of that 9.66 million, 
only just fewer than 5.5 million users are actually enrolled in a 
TRICARE program as many eligible beneficiaries receive healthcare via 
their current employers. In fiscal year 2012, more than 84 percent of 
eligible TRICARE beneficiaries used some form of Military Health System 
service, highlighting just how important the MHS and TRICARE systems 
are to providing care for the members of our Armed Forces and their 
beneficiaries.
    The fiscal year 2015 PB provides for $47.4 billion, spanning 
Defense Health Program, personnel and healthcare accrual. Despite large 
savings in recent years, DOD feels it must pursue veteran and military 
retiree healthcare reform. As part of this reform, the DOD has proposed 
a ``Consolidated'' TRICARE plan, as opposed to the current system with 
varied plans. Although there would be no change for Active Duty 
servicemembers, the remaining TRICARE beneficiaries would see changes 
to their plan. Cost shares would be implemented across all beneficiary 
levels, excluding Active Duty, in an attempt to facilitate the 
effective use of military clinics and increase the efficiency of the 
military's fixed facility cost structure. Additionally, there would be 
an annual TRICARE participation fee for retirees, their families and 
survivors of retirees, which if unpaid, would result in the forfeiture 
of coverage for that year. The annual consolidated TRICARE 
participation fee would be inflated annually according to the COLA but 
would start at $286 per person or $572 per family in 2016. Meanwhile, 
the cost sharing initiative would see an in-network catastrophic cap of 
$3,000 per fiscal year and a combined (in and out of network) cap of 
$5,000. The budget request goes on to propose increased copays for 
pharmaceutical prescriptions, with significant increases in what 
TRICARE beneficiaries must pay every time they fill or re-fill a 
necessary prescription over the next 10 years. Finally, there is a 
proposal to implement an enrollment fee for TRICARE for Life (TFL) 
beneficiaries. TFL, enacted in 2001, is an additional payment plan for 
eligible beneficiaries over the age of 65 who are also enrolled in 
Medicare Part B, which only covers about 80 percent of normal 
healthcare costs. The TFL fee proposal would grandfather current 
members in but would begin charging an annual fee, phased in over a 4-
year period, based on a percentage of the beneficiary's military gross 
retired pay. This would result in annual fee ceilings above $600 per 
beneficiary starting in fiscal year 2018.
    In recent years, emphasis has been placed on achieving savings and 
efficiency within the MHS. On the other hand, approximately $3 billion 
are being saved annually in MHS with programs such as the Prospective 
Payment system and the Federal Ceiling Pricing (a discount drug 
program). There have also been increases to fees for TRICARE 
beneficiaries, tied to annual COLA increases, over the past couple of 
years, and those would continue to increase under the current TRICARE 
system, in addition to savings seen via TRICARE Service Center 
closures. Additionally, as mentioned in the Federal Ceiling Pricing 
program, there have been significant savings achieved in pharmacy 
costs, as major changes have been enacted to double and triple pharmacy 
copays for military beneficiaries, and these will continue to increase 
in future years. Even more savings would be achieved under the current 
TRICARE system when the significant reductions in end-strength are 
enacted. Currently there are plans for the end-strength of the Active 
and Reserve Forces to be cut by 124,000 troops over 5 years, and the 
fiscal year 2015 budget proposes an additional cut of 78,000 troops. 
Such significant reductions will reduce military healthcare costs, as 
there will be 202,000 fewer troops (and their family members) eligible 
for TRICARE benefits.
    AUSN continues to be alarmed at the many attempts over past PB 
submissions for DOD to find savings off of those who have served and 
looking at military healthcare as a solution. Healthcare costs are only 
10 percent of DOD's base operating budget. Put in the proper context, 
this is not very much. Healthcare costs account for 27 percent of the 
Federal budget, 32 percent of the average state budget, 16 percent of 
household discretionary spending and 17.2 percent of U.S. Gross 
Domestic Product. This shows that the current system which DOD uses to 
provide healthcare for nearly 10 million servicemembers and their 
families does not need to see such drastic changes, changes which will 
greatly impact the standard of living and quality of life many of our 
military members currently experience. AUSN recommends that fee 
increases be limited to the annual COLA and is opposed to any increase 
in TRICARE costs for users that is not directly related to COLA. AUSN 
also advocates that the healthcare provided by TRICARE (physical, 
behavioral, mental or otherwise) be up-to-date with the most current 
form of coverage and not consolidated for the needs of servicemembers 
and their families, and not just the budget needs of DOD.
Commissary Proposals in Fiscal Year 2015 President's Budget
    The military Commissary system is administrated by the Defense 
Commissary Agency (DECA) and provides food supplies, beyond that 
official rations, and savings to supplement the pay received by the 
military. The Commissary system has been a cornerstone of the 
military's non-pay benefits and has become an integral part of ensuring 
that our young servicemembers and their families have the best possible 
quality of life. Particularly, the benefits the system provides are of 
great assistance to families stationed in high cost-of-living areas. On 
average, servicemembers and their families save more than 30 percent on 
grocery bills, which translates to around $4,400 in savings per year. 
All the while, DECA strives to develop the Commissary system while 
balancing cuts to Commissary subsidies.
    The fiscal year 2015 PB proposes that the $1.4 million funding for 
DECA should be reduced to $400 million over the course of the next 3 
years. This is a two-thirds slash to DECA's budget and will eliminate 
many of the discounts Commissaries provide. Overall, a military family 
stands to lose a total of $2,970 of Commissary savings per year if the 
fiscal year 2015 proposal is adopted. According to the fiscal year 2015 
PB, for the system to survive, prices will have to be raised, but this 
could further alienate the customer base who can no longer afford its 
services. DECA operates 243 stores total, which includes 178 domestic 
locations. Commissaries overseas or in remote American territories are 
exempt from these cuts, but domestic bases will suffer a 20 percent 
price spike in goods and services based on the proposal. The military 
Commissary exchange and Moral Welfare and Recreation (MWR) programs are 
contributing factors to national defense by sustaining livelihoods and 
morale of its military and improving their quality of life.
    AUSN supports responsible spending; however, lowering Commissary 
subsidies causes several consequences. First, according to Title 10 
U.S. Code, section 2485, the Commissary stores' operations are, by law, 
required to reflect the cost of the items to DECA. Therefore, though 
price changes will vary, the prices in the commissaries are only set 
high enough to cover the recovered item cost. Also, built in Title 10, 
these savings are inherent features of the military Commissary system. 
Second, the savings commissaries provide is known to be a motivating 
factor in recruiting those who are willing to make the sacrifices 
associated with the military. Lack of proper compensation affects the 
military's ability to retain and recruit, which adversely affects its 
readiness capability. Third, these are not only incentives for 
servicemembers but promises made to protect and benefit their families 
upon joining the military. By cutting benefits there is a direct 
reduction to quality of life and stability. These are services that our 
military families rely on to fulfill their needs. While it affects 
military preparedness and readiness, the cuts are a greater disservice 
to the men and women who have defended our Nation who are left 
wondering if their families are being properly taken care of on bases 
when they are gone. Finally, AUSN is a strong supporter of two pieces 
of legislation moving through Congress that have recognized the 
detriment of lowering subsidies. H.R. 4215 and S. 2075, The Military 
Commissary Sustainment Act of 2014, both seek to prohibit any cuts in 
DOD's funding for commissaries until a final report has been filed by 
MCRMC next year. These bills protect against unnecessary stresses that 
military families might suffer due to a rise in cost of living and also 
provide proper focus to an important benefit area that is owed to 
servicemembers.
 cost-of-living adjustment, retirement and proposal in dod white paper
    The administration has already expressed a desire to wait on 
decisions regarding military retirement overhaul until the report from 
the MCRMC, established in the NDAA for Fiscal Year 2013, is submitted 
in February 2015. The MCRMC is currently meeting to review findings and 
come up with options for improvements to the current military 
compensation methodology. However, DOD released its own report in early 
March--``Concepts for Modernizing Military Retirement''--that proposes 
two slightly different design concepts for modernizing the military 
retirement system. The proposals, which AUSN appreciates and is 
interested in learning more about, would create a ``hybrid'' structure 
that combines a defined benefit plan (similar to the current system), a 
defined contribution component (similar to a civilian 401k plan) and 
supplemental pays. Secretary of Defense Chuck Hagel has also made it 
very clear that he would wait to ask Congress for any proposed changes 
in retirement until next year; however retirement, as well as the 
ongoing COLA debate, is important to mention.
Ongoing Cost-of Living-Adjustment Concerns
    AUSN was pleased to see the 1 percent reduction of COLA established 
in the BBA of 2013 addressed with the partial fix in the fiscal year 
2014 Omnibus Appropriations bill, passed January of this year, which 
exempted disabled veterans and survivors. Additionally, the passage in 
February of S. 25 covered the remainder of current retirees under 62. 
Despite this, there are still many concerns. First, while S. 25 seemed 
to have largely bipartisan support, some Members of Congress were 
disappointed with the ``funny money'' additional 1 year of 
sequestration offset, saying the Federal Government was ``robbing one 
part of the budget to pay another.'' In particular, some Members of 
Congress argue, and AUSN agrees, that no one can be sure what the 
budget climate will be like for all Executive Branch departments, 
including DOD and the Department of Veterans Affairs (VA) after 10 
years of sequestration (2013-2023), much less adding on one more for an 
11th year of sequester cuts (to 2024). Other Members of Congress were 
displeased that the mandatory sequestered accounts being affected were 
unrelated to defense spending at all. As of now, it appears that there 
would be only two major DOD mandatory accounts that would be impacted 
by the extension of sequestration: TFL and DOD Retirement 
Contributions. This is, of course, relatively loose and subject to 
change, but at this point, those would be the primary accounts impacted 
by tagging on an additional year of sequestration to offset the COLA 
cuts from the BBA of 2013. Among the defense community, however, aside 
from the two mentioned mandatory accounts, it is hard to determine what 
money will be available given the uncertainty surrounding the future of 
sequestration.
    Second, there are additional concerns regarding how the final bill, 
S. 25, with the COLA repeal was negotiated. It appears that the deal 
was brokered among the senior leadership of the House and Senate and 
not vetted by major stakeholders such as the chairmen and ranking 
members of the House Armed Services Committee, the House Veterans' 
Affairs Committee, the Senate Armed Services Committee (SASC) and the 
Senate Veterans' Affairs Committee. During a 28 January 2014 hearing of 
this committee, both defense officials and SASC members stated that 
they were not consulted during negotiations on the budget deal, the 
2013 BBA, and wanted to be part of the conversation in the future to 
exempt current servicemembers and retirees from any changes to the 
pension system. This continues to set what appears to be a dangerous 
precedent where the process of bringing legislation through committees 
is undermined by Senate and House leadership taking control of forming 
bills and putting them through each chamber for consideration. AUSN 
asks the committee to keep these potential consequences in 
consideration moving forward, as the full impact of these repeal 
provisions will surely manifest themselves in the coming years.
    Finally, while Congress has seemingly corrected the wrong that is 
the reduction in COLA calculations (for disabled Veterans and survivors 
through the fiscal year 2014 Omnibus Appropriation bill and passage of 
S. 25 for all other affected current and future retirees for their COLA 
calculations), the impact this will have on future servicemembers, 
Veterans and retirees, moving forward is unclear. Although the COLA cut 
repeal provisions passed earlier this year will grandfather those who 
joined the Service before 1 January 2014, the BBA COLA cut will still 
apply to all those who joined after 1 January 2014. AUSN recommends 
that that the committee keeps an eye on the impact this will have upon 
the livelihoods of future retirees and Veterans who will be joining the 
Armed Forces after 1 January 2014.
Retirement Proposals and DOD White Paper
    Critics of the current military retirement system cite costs 
spiraling out of control, yet as the numbers have shown, retirement as 
a percentage of DOD's total budget has remained steady for the past 
decade, while other portions of the DOD budget increase every year. 
Currently, the military retirement system is non-contributory, meaning 
that servicemembers do not have to pay into their own retirement plans. 
To qualify for retirement pay, servicemembers must serve at least 20 
years, upon which they will be eligible to receive a fixed, inflation-
protected lifetime annuity beginning immediately following retirement 
from service. Generally, members of the Reserve Component who qualify 
for retirement pay do not begin receiving benefits until age 60. All 
retired servicemembers can apply for a Survivor Benefit Plan (SBP), 
providing surviving spouses with a lifetime annuity. Retirees with 
service-related disabilities, who receive both disability compensation 
and regular retirement benefits, experience a dollar-for-dollar offset, 
also known as concurrent receipt. Programs such as the Combat Related 
Special Compensation and Concurrent Retirement and Disability Pay are 
in place to counter this offset. However, the sacrifices made by 
servicemembers are not found in the civilian sector, and this could 
have harmful effects on retention rates if servicemembers decide that 
the compensation they receive does not compare to the unique costs they 
face in their military careers.
    In both of the DOD's proposed concepts, servicemembers would 
qualify for full retirement after 20 years of service, but the annuity 
would be reduced compared to current benefits, resulting in decreased 
compensation in the long-term. Both design concepts plan to offset this 
reduction by shifting some deferred compensation, payment received upon 
retirement, to current pay. The difference between the two is most 
apparent in how they actually dispense this pay.
    Concept 1 is a two-tiered system, offering partial benefits to 
members (both Active Duty and Reserve) after their retirement from 
service but during their employable years. It does not begin to pay 
members their full benefits, calculated with the same multiplier as the 
current system, until after the servicemembers reach their 60s. Concept 
1 assumes that most servicemembers hold civilian jobs after retiring 
from the military, and therefore, are less dependent on their 
retirement at that time. This might be a harmful assumption, as not all 
military skills translate to the civilian sector. On the other hand, 
Concept 2 is a single-tier system that pays the member full benefits 
each year immediately following retirement from service. However, 
members of the Reserve component would not receive retirement 
compensation until reaching the age of 60, and the multiplier for 
calculating payments would be lower for all members than the one that 
is used today.
    Both concepts offer supplemental pay: continuous pay after 12 years 
and transitional pay at retirement, though the amounts would differ 
slightly. Both concepts include a 401K-type contribution-based 
component as well, the Thrift Savings Plan (TSP), for those who serve 
beyond 6 years. The proposal also calls for modifications in the method 
of calculating disability payments and the elimination of the dollar-
for-dollar offset currently required for servicemembers who receive 
both retirement pay from DOD and disability compensation from the VA. 
This would make the concurrent receipt programs in place today 
obsolete. Additionally, survivors will also be able to receive unused 
funds in TSP accounts in exchange for a cut in annuity payments from 
the SBP. The cost for SBP premiums will also increase, from 6.5 percent 
to 10 percent, but this will enable the elimination of the offset when 
the survivor also qualifies for Dependency and Indemnity Compensation 
(DIC) from the VA.
    The report estimates that the modifications to the military 
retirement system could save DOD anywhere between $500 million and $2.7 
billion for Active Duty members and about $200 million for members of 
the Reserve component. The timeline for visible DOD savings is 
uncertain and will depend on the rate at which current servicemembers, 
who are grandfathered into the current retirement system, retire, are 
paid out and then are replaced by the new servicemembers receiving 
benefits based on the new system. While overall payouts to retired 
servicemembers will be less under both new proposals than in the 
current system, the inclusion of TSPs, continuation pay and transition 
pay offset some of the reductions in benefits. AUSN appreciates and 
acknowledges this thoughtful proposal as well as the concept of 
receiving a payout sooner, which could prove more valuable to some 
servicemembers, as could the opportunity for growth in the TSP 
accounts, which guarantee retirees compensation.
    AUSN is also pleased that the white paper addresses areas of 
concern such as the SBP and DIC offset, concurrent receipt for 
disability and retirement pay and the Integrated Disability Evaluation 
System. The proposal acknowledges that disabled retirees could have had 
careers worth more had they been able to continue on and earn more 
benefits in addition to regular pay. The proposed disability benefits 
would be greater than the current compensation, mostly due to the 
elimination of the offset. However, other issues can be found in the 
details, such as the fact that to claim unused TSP funds and eliminate 
the offset from the DIC payments survivors would face an increase in 
SBP premiums and decreased pay-back. This could potentially devalue the 
benefit.
Retirement Conclusion
    An effective modernization of the retirement system needs to ensure 
four things: that military careers are competitive with other 
opportunities in the job market, that promotion opportunities are 
available for young servicemembers, that retired servicemembers can 
enjoy a certain level of economic security and that there is a pool of 
experienced personnel capable of being recalled to Active Duty in the 
event of wartime or an emergency.
    AUSN is open to thoughtful dialog on retirement and recognizes the 
need to `modernize' the current system. The 20-year benchmark has a 
proven tool useful for recruitment and retention; however, AUSN 
understands that providing more retirement options and/or a tiered 
system for certain retirement `packages' that allow sailors to begin to 
receive compensation earlier in their careers may be better suited in 
the 21st century. Changes that ultimately improve the military 
retirement system for servicemembers and lead to cost-savings for DOD 
are welcomed by AUSN, provided that current servicemembers are 
grandfathered into the system into which they signed. It is important 
to keep faith with our men and women currently serving. Nonetheless, 
AUSN is mindful of lessons of the past, such as the REDUX reforms of 
the 1990s, where cuts to compensations resulted in harmful effects on 
recruitment and retention. Grandfathering the current servicemembers at 
the time did not mitigate the negative impact from REDUX, which had to 
be repealed a decade later, and AUSN asks that the committee also be 
mindful of the results from these changes in the past.
                          testimony conclusion
    The Association of the U.S. Navy understands that a good, thorough 
and honest look is needed in regards to the future of military 
compensation and benefit programs for our current and future force. 
However, we firmly believe that this must be done in a way that doesn't 
inhibit the recruitment and retention within our military. Many of 
these proposals are already being looked at by the MCRMC to examine and 
send to lawmakers a report on recommendations for establishing a new 
set of pay, compensation and benefits for our future forces. The MCRMC 
has not yet finished its mandated duties and investigations, yet DOD is 
moving forward with an aggressive set of compensation changes in its 
proposals within the fiscal year 2015 budget. With an extension on the 
report going into 2015, and a forthcoming preliminary report in May 
2014, the Commission itself is still holding hearings, open and closed 
door Executive sessions, listening to testimony and gathering expert 
advice. AUSN's own Vice-Chairman of the Board, MCPON Jim Herdt, USN 
(Ret), has already testified in a public hearing before the Commission 
in November 2013, in an Executive session in March 2014 and has met 
with Commission staff many times throughout the year. Consequently, it 
seems rather premature to be taking action to change compensation, 
benefits and retirement when a proper analysis being done by the MCRMC 
is incomplete and such a detailed report with recommendation will not 
be shown until at least 2015. AUSN has been very pleased with the open 
dialog the MCRMC has had with Military and Veteran Service 
Organizations (MSO/VSO) and expects their report to reflect many of the 
thoughtful discussions on these issues being discussed in today's 
hearing.
    Finally, while the COLA cut issue has been extremely important to 
AUSN and our members in the past few months, with its ability to affect 
the finances of a multitude of retired and current servicemembers, 
there is uncertainty about how the COLA reduction impacts our future 
servicemembers after 1 January 2014. Those who have signed up and 
joined the Armed Forces between 1 January 2014 and when S. 25 passed, 
13 February 2014, will still see their COLAs reduced when they retire 
before the age of 62. A ``breach of faith'' with our servicemembers 
argument can be made to that effect and will be a future consequence 
moving forward. In addition, an argument can be made that we will now 
have servicemembers who joined prior to 1 January 2014 receiving one 
type of retirement compensation serving with servicemembers receiving a 
different type of compensation, whereby having a scenario of ``haves'' 
vs. ``have nots.'' Again, this is an issue that may or may not manifest 
itself as a major problem, but concerns and questions on the impact of 
the passage of S. 25 still lie ahead.
    AUSN appreciates the work of this committee and this hearing which 
seeks to look into how the future of our military compensation system 
will be sustained to reflect the current needs of our military. AUSN 
stands ready to be the ``Voice for America's sailors,'' abroad and upon 
their return home, and looks forward to working with Congress, the Navy 
and DOD on serving our Nation's sailors, veterans, retirees, and their 
families. Thank you.

    Chairman Levin. Thank you so much, Admiral.
    General McKinley?

STATEMENT OF GEN. CRAIG R. McKINLEY, USAF, RET., PRESIDENT, AIR 
                       FORCE ASSOCIATION

    General McKinley. Thank you, Chairman Levin. I agree with 
my colleagues to thank you for your great service to our 
Nation. It has been nothing short of exceptional. Thank you.
    Chairman Levin. Thank you.
    General McKinley. Ranking Member Inhofe, members of the 
committee, thank you for staying so late with us today. It has 
been a long day but a very educational day.
    I will try to hit the wave tops because I know we have some 
questions from you and we would like to hear those.
    On behalf of the Air Force Association's (AFA) 100,000 
members and our chairman, George Muellner, I would like to 
thank you and the entire committee for your support of our 
Active Duty, Guard, Reserve, civilians, retirees, and veterans 
of the Air Force, their families and survivors, and for the 
significant concern and effort you have put forth for our 
national security. AFA is grateful for your unwavering 
commitment to the men and women who defend our Nation and 
appreciate the priority Congress has given personnel issues in 
the past decade.
    We also acknowledge the increasingly difficult choices 
before our Nation. It is an honor to be here with you and my 
colleagues. I know we are all committed to the defense of this 
Nation, to those who serve and have served and their supporting 
loved ones.
    Our airmen and retirees deserve every dollar they earn. 
However, as you have heard today, personnel compensation costs 
continue to climb at unsustainable rates, and for the Air 
Force, we have a much smaller force. If not addressed, they 
will consume much of our combat training and modernization 
spending over the next few decades.
    We along with the other associations believe that the 
sequestration provision of the BCA of 2011 is destroying 
military readiness and endangering national security. It has 
normalized a dangerously low level of defense spending, 
constrained defense decisionmakers, and this new normal has 
created an unhealthy competition for resources within DOD's 
base budget.
    I will cut to the chase. I believe we can never pay a 
military member enough for his or her willingness to risk their 
life for this Nation. However, we can ensure military members 
are competitively compensated to enable us to retain the All-
Volunteer Force. Thanks to increases in compensation and 
benefits since 2001, our military members are compensated 
equivalently with their civilian counterparts when all benefits 
are included.
    To conclude, with last year's grounding of 13 combat 
squadrons, lost opportunities for real-world training, and 
numerous course cancellations, to include our premier Red Flag 
exercise, our Air Force is at a crossroads. Sending airmen out 
to any contingency without the best training and equipment we 
can give them could imperil the mission and jeopardize lives. 
This is unacceptable.
    Our members, stakeholders, and indeed our airmen are 
committed to keeping faith with the American people by 
providing them with an Air Force that is capable, ready, and 
resourced appropriately for the future.
    Thanks again for inviting us over here today. I look 
forward to your questions.
    [The prepared statement of General McKinley follows:]
      Prepared Statement by Gen. Craig R. McKinley, USAF (Retired)
    Chairman Levin, Ranking Member Inhofe, on behalf of the Air Force 
Association's 100,000 members, I'd like to thank you and the entire 
committee for your support of our Active Duty, Guard, Reserve, 
civilians, retirees, and veterans of the Air Force, their families, and 
survivors, and for the significant concern and effort you have put 
forth for our national security.
    We are grateful for your unwavering commitment to the men and women 
who defend our Nation, and appreciate the priority Congress has given 
personnel issues in the past decade. We also acknowledge the 
increasingly difficult choices before our Nation.
    It is an honor to be here with you, and my fellow colleagues. I 
know we are all committed to the defense of the Nation, those who serve 
and have served, and their supporting loved ones.
    Our airmen and retirees deserve every dollar they earn. However, as 
you have heard today, personnel compensation costs continue to climb at 
unsustainable rates, and, if not addressed, they will consume our 
combat, training and modernization spending over the next few decades.
    We in the Air Force Association believe the sequestration provision 
of the Budget Control Act of 2011 is destroying military readiness and 
endangering national security. It has normalized a dangerously low 
level of defense spending, constrained defense decision-makers and this 
new normal has created an unhealthy competition for resources within 
DOD's base budget.
    We are facing an even greater hollowing of the military as we 
strive to meet national security needs in a very dangerous security 
environment.
    We believe this is a paramount national security issue. We urge 
lawmakers to end the political stalemate over taxes and entitlement 
spending and agree to a compromise resolution that will replace 
sequestration. Otherwise we will be forced to endure further manpower 
cuts aircraft reductions and fewer new aircraft to replace the aging 
fleet--creating not only dangerously low readiness levels, but a 
diminished ability to recover a sufficient state of readiness to meet 
the continuing challenges of national security.
    We urge Congress to fund our military to levels enabling all 
components of the Armed Forces to be adequately manned, trained and 
equipped to effectively address the Nation's security challenges today 
and tomorrow.
    No matter what the funding level is for Defense, we must honor our 
commitments to those serving today and to those who have served this 
great nation. Any changes to the current compensation and retirement 
system should include grandfathering the current force.
    We could never pay a military member enough for his or her 
willingness to risk their life for this nation. However, we can ensure 
military members are competitively compensated to enable us to retain 
the All-Voluntary Force. Thanks to increases in compensation and 
benefits since 2001, our military members are compensated competitively 
with their civilian counterparts, especially when all benefits are 
included.
    Changes to the military compensation structure should be based on a 
holistic assessment of the total compensation package, rather than 
piecemeal cuts. In fact, Congress should just as diligently examine the 
entire Federal employment and benefits system, as it has focused on our 
men and women in uniform.
    We are working with Secretary Hagel's office to continue the 
dialogue about changes to the current system, and we have testified 
before the congressionally-mandated Military Compensation and 
Retirement Modernization Commission.
    We support a compensation package for our All-Volunteer Force 
allowing us to recruit and retain the quality of Total Force airmen our 
national security demands.
    These are challenging times. The force is coming home from 13 years 
of war . . . actually 2 decades of continuous deployment since 
Operations Desert Shield and Desert Storm, for the U.S. Air Force . . . 
to a nation that is struggling with pervasive financial crises. Yet . . 
. this Nation's global national security commitments and obligations 
continue to increase in scope and complexity.
    With last year's grounding of 13 combat squadrons, lost 
opportunities for real-world training and numerous course cancellations 
to include our premier Red Flag exercise, our Air Force is at a 
crossroads. Sending airmen out to battle without the best training and 
equipment we can give them could imperil the mission and jeopardize 
lives. This is unacceptable.
    Our members, stakeholders and indeed our airmen, are committed to 
keeping faith with the American people, by providing them with an Air 
Force that is capable, ready and resourced appropriately for the 
future.
    Thank you again for your support of our force, and for the 
opportunity to offer this testimony from the Air Force Association.
    I look forward to your questions. 
    
    
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    Chairman Levin. Thank you so much, General.
    Let us just do 5 minutes here.
    Senator Inhofe. Four.
    Chairman Levin. Four minutes. Okay, I take that suggestion 
to make sure we all have a chance to do this before 1 p.m.
    First of all, perhaps two of you have mentioned that the 
numbers that have been provided for us in terms of the increase 
in personnel costs as percentages of the budgets of the 
Services are not numbers that you think are necessarily on 
target. What we would do is welcome any or all of you on that 
subject or any other subject, but on that subject for the 
record. Take a look at those numbers. I think they are probably 
available to each of you. Tell us where you have differences 
from those percentages, if you do. Just for the record, that 
would be helpful to us.
    [The information referred to follows:]
     Information submtted by General Gordon R. Sullivan, USA (Ret.)
      
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     Information submtted by General Craig R. McKinley, USAF (Ret.)
      
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]    
     
    
       Information submtted by VADM John B. Totushek, USN (Ret.)
      
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                            AUSN Enclosure 1

      
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                                AUSN Enclosure 2

      
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     Information submtted by VADM Norbert R. Ryan, Jr., USN (Ret.)
      
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                            MOAA Attachment

      
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    Chairman Levin. I think many of us up here do not like 
sequestration. You have heard me and you have heard others say 
that it is an abominable way to budget. It was never was 
intended to take effect.
    We are going to be offering alternatives to sequestration. 
We have been talking about this now for a long time, working on 
alternatives for a long time, including frankly closing some of 
the tax loopholes in our law which do nothing in terms of 
productivity but are simply tax avoidance loopholes that I and 
many others believe should be closed. That would be part of an 
alternative. We also have to do something in the entitlement 
area as well.
    But all of the burdens so far of reductions have fallen on 
discretionary accounts. There has been nothing done on the 
revenue side. We have to, I believe, address that. I would hope 
that when we come up with a specific bill, that we will send it 
to you and your organizations and that you would then indicate 
to us whether you can support these kind of alternatives to 
sequestration because I happen to agree with Senator King who 
phrased it I believe earlier today about the fact that we talk 
a lot about getting rid of sequestration, but we have not done 
much about it. We put in effect these budget caps. Nobody else. 
We can do something to change them. So we will send you those 
proposed alternatives.
    Next would be the following, whether or not you could right 
now indicate which of these proposed changes in these personnel 
accounts are the most problematical, if you are able to 
prioritize them. I know you probably do not like any of them, 
and I can understand why. They all have consequences. But if 
you could very briefly indicate if you are able to say which of 
the ones that are in the budget proposal are the worst or the 
most problematical from your perspective. Why do we not start 
at the other end, but we will get to all four of you. Very 
briefly. I only have about a minute left. General McKinley?
    General McKinley. Thank you, Mr. Chairman.
    I think from our membership's perspective and that of our 
chairman, we felt that the COLA at 1 percent was a valid 
approach. As General Sullivan said, I think we need to look 
into the out-years, that we cannot sustain that over a period 
of time.
    TRICARE, commissary, and other issues obviously are a 
concern to our members. But none of them rose to the level of 
maintaining a strong and viable Air Force. I think if I could 
leave you with one point, members do not join the Service, at 
least the Air Force, for pay, benefits, and compensation. They 
join because of a patriotic duty to their Nation. Over time, we 
have seen adequate compensation provided to our military 
members. I think we need to look very carefully over the next 
10 years, look at what the Congressional Budget Office is 
talking about in terms of the rapid growth in some of the 
programs like TRICARE and things like that. But overall, our 
members want to see a strong, viable, modernized, ready Air 
Force.
    Thank you.
    Chairman Levin. Thank you.
    Admiral Totushek?
    Admiral Totushek. We did a survey, as I said, and 90 
percent of the respondents had a problem with something. The 
one that was the biggest impact was the COLA actually for them. 
Second was TRICARE. The last was BAH.
    As far as the commissary is concerned, the thing that I 
kept hearing was there are efficiencies to be had, but I do not 
see a forcing function that is going to require DECA and the 
commissaries to take those efficiencies just instead of doing 
the easy thing and raising prices. Unless we have something in 
place for that, we are going to have that problem as well.
    Chairman Levin. Thank you.
    General Sullivan, do you have a priority list?
    General Sullivan. We did sign up for the COLA at 1 percent 
because we felt that General Odierno and Secretary McHugh could 
buy back readiness. We were less enthusiastic about the others. 
Our approach was to go with the COLA.
    Chairman Levin. Thank you.
    General Tilelli?
    General Tilelli. Sir, in a real sense, these structural 
changes that we are talking about are a reduction in 
compensation, earned benefits. To prioritize them prior to what 
we believe Congress' intent was, the commission who is going to 
look at all of this, is preemptive. We can continue to 
piecemeal year on year benefits, compensation for retirees, 
servicemembers, survivors, and pretty soon you have created a 
volunteer force that is no longer viable.
    At this point, I support the commission and a true vetting 
of their recommendations before we prioritize anything. In a 
real sense, I believe waiting the year is very important to the 
men and women who serve to keep the faith with them.
    Chairman Levin. Thank you.
    I take it from your nodding your heads that when I talked 
about sending you proposals to get rid of sequestration, you 
indicated that your organizations would be willing to take a 
look at them.
    General Tilelli. Yes, sir.
    General Sullivan. I want to make one point. I did not sign 
up for every year capping pay. It was 1 year.
    Chairman Levin. I understand. I think that came through 
very clearly. Thank you.
    Senator Inhofe.
    Senator Inhofe. Mr. Chairman, one observation, two quick 
questions. I will not even take my full 4 minutes.
    First of all, we got into this mess because here we have 16 
percent of the budget having to take 50 percent of the cuts. 
That is the problem that we have. It is one that is a political 
problem that we cannot seem to address.
    General Sullivan and General Tilelli, you said back on 
January 28 that given the choice between compensation and 
strong national defense, strong national defense wins. I assume 
the other two of you agree with that?
    Okay. Here is the problem. I look at strong national 
defense. That is going to have to be modernization, training, 
and readiness, and that is where we are not keeping up. I am 
going to ask the four of you if you agree with the statement by 
Acting Deputy Secretary of Defense Christine Fox when she said 
our men and women are the first to say that they are well 
compensated, that DOD does not have money to maintain their 
equipment or supply them with the latest technology or send 
them to get the training that they need and then they are being 
done a disservice. Do you agree with that? I do too.
    The last thing I would mention, would you all agree since 
we have this MCRMC that is supposed to report back February 
2015, that it might be a little presumptuous to try to do 
something in this year's NDAA that could constrain the 
commission with the recommendations that they are studying? 
They might have to undo something that we have done in order to 
come up with their recommendations. Do you agree with that?
    General Tilelli. Absolutely. I agree with that, and I would 
hope that we have the opportunity to vet that along with 
Congress as we look at it for our servicemembers.
    Senator Inhofe. Good.
    Thank you, Mr. Chairman.
    Chairman Levin. Thank you very much, Senator Inhofe.
    Senator Reed?
    Senator Reed. First, let me thank you all for your great 
service to the Nation and to the men and women you represent.
    One of the issues here is looking ahead regardless of 
sequestration. Frankly, you are preaching to the choir. We have 
to get rid of sequestration. Even if we eliminate 
sequestration, there is a lot of analysis that suggests that 
growing personnel costs will continually erode training, 
modernization, and we know that is critical also. Echoing the 
chairman, we have to get a handle on these numbers.
    Today, we heard Admiral Greenert suggest that 50 percent of 
every dollar goes to personnel costs in the Navy. It is going 
to go up to 60 percent and then 70 in about a decade. I know a 
little enough about numbers to suggest it all depends what you 
are measuring.
    Admiral, you mentioned a 33\1/3\ percent constant figure. 
Is that Active Duty service? Is that the fully discounted cost 
of a servicemember?
    Admiral Totushek. If you look over the last 30 years--and 
that is in my testimony for the record--at Total Obligation 
Authority as opposed to the cost of our men and women--and that 
is total cost, it is about 30 percent. It went up to about 33, 
but remember, over these last 10 years, we have increased the 
size of the force tremendously. You obviously are going to have 
larger costs, and the percentages pretty much have stayed the 
same.
    As General Tilelli said, we actually have seen a downtick 
now in the actual costs for DOD.
    Senator Reed. We cannot settle it in the next 2\1/2\ 
minutes, but this issue of the right metric, of the right 
measure, which we all agree upon, is going to be absolutely 
critical going forward. I thank you and will ask you again as 
we define what we are measuring that we are consistent so we 
have a baseline. That I think will help us a lot.
    Another issue here which we have all touched upon in our 
question and comments and the chiefs did also. I think we are 
of the vintage where we remember post support. I was shocked 
going up to the Navy base at Newport and having the commander, 
a relatively young captain, apologize to me because the grass 
would be little longer because the contractors will not be here 
as often. I said ``contractors cut grass?''
    But what General Odierno and others suggested too is that 
if we do not get a handle on some of these costs--it is going 
to be mundane initially--you are going to see the old issue of 
1 month not seeing your troops in a given month because they 
are cutting grass and painting rocks. That is not the force 
that we have trained today. These are superb professionals 
because every day we try to get every bit of training, every 
bit of--and that is a cost that we have to look at going 
forward. I do not have much time remaining, but I just want to 
put that one on the record too.
    But I thank you again for your service, your excellent 
testimony, and for what you do for the men and women who served 
and continue to serve. Thank you.
    Chairman Levin. Thank you, Senator Reed.
    Senator Sessions.
    Senator Sessions. I will just thank you all. I appreciate 
your contributions to this discussion. It is very important. We 
need an outside view from some former insiders, and I think 
that helps us.
    The BCA includes the sequester. It was passed in August 
2011. We are projecting to increase spending over the next 10 
years by $10 trillion. The BCA allowed it to increase by $8 
trillion not $10 trillion. But as Senator Inhofe said, half the 
cuts fell on defense. Particularly because it was so rapid, it 
becomes destabilizing, and I wish we could have done better.
    I one time proposed just increasing defense at 1 percent a 
year every year instead of going out--and other big cuts and 
going up at 2\1/2\ percent a year, which we will soon be in 
track to do.
    Thank you all for sharing this. The debt threat to America 
is real, but we do not need to break the faith with the men and 
women who say ``yes, sir,'' and go to be deployed to the worst 
areas on the globe at great risk.
    Thank you.
    Chairman Levin. Thank you, Senator Sessions.
    Senator King.
    Senator King. Very briefly, Mr. Chairman.
    I want to thank you gentlemen for joining us today and hope 
that you can stay engaged in this issue. One question is, are 
you being consulted? Have you been consulted by this 
commission? Have you had an opportunity to testify and provide 
your input?
    General McKinley. Yes, sir, AFA has and we have also been 
consulted by DOD. It is very helpful.
    Senator King. We certainly want that to continue and we 
want your good thoughts as we try to work through this.
    You understand the box that we are in. The Chiefs presented 
it very well, that if we do not make these changes, then we 
have to take the money from somewhere else. We do not have the 
luxury of saying, ``oh, well, we will just add to the budget,'' 
unless we are able to do something about sequestration.
    I appreciate the statesman-like view that you took, for 
example, General, saying that you understand that. It is a 
tradeoff between readiness, training, and compensation.
    With that, I just hope you will stay engaged with us and 
help guide us through this difficult set of decisions. I 
appreciate your joining us here today. Thank you.
    Chairman Levin. Thank you very much, Senator King.
    We have received statements from outside groups and 
individuals, including from the following: the National 
Military Family Association, the Reserve Officers Association, 
and the Reserve Enlisted Association. They, and any other 
statements which may be submitted to us, will be made part of 
the record.
    Chairman Levin. We thank you for your service in and out of 
Government.
    We will stand adjourned.
    [Whereupon, at 12:58 p.m., the committee adjourned.]

    [The prepared statement of the National Military Family 
Association follows:]
      
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
         
       
    [The joint prepared statement of the Reserve Officers 
Association of the United States and the Reserve Enlisted 
Association follows:]
      
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
         
      
    [Questions for the record with answers supplied follow:]
           Questions Submitted by Senator Richard Blumenthal
                            rosoboronexport
    1. Senator Blumenthal. General Dempsey, I understand that 16 Mi-17 
helicopters have yet to be delivered by Rosoboronexport to the 
Government of Afghanistan to fulfill the remainder of the current 
contract. If the contract were to be terminated before these 
helicopters are delivered, what is the termination cost?
    General Dempsey. Eighteen Mi-17 helicopters have yet to be 
delivered. Financial liability for termination of the contract by 
either party to the contract would be subject to negotiation.

    2. Senator Blumenthal. General Dempsey, what is the cost of the 
current contract?
    General Dempsey. $552 million for 30 Mi-17s modified to a military 
configuration with U.S. and the North Atlantic Treaty Organization 
(NATO) standard cockpits, mission equipment and weapons; an initial 
spares package; and a 1-year warranty.

    3. Senator Blumenthal. General Dempsey, how much money has yet to 
be paid to Rosoboronexport for the 16 remaining helicopters?
    General Dempsey. $171.3 million has yet to be paid. Advanced 
payments are made as manufacturing progresses with additional payment 
upon Mi-17 delivery.

    4. Senator Blumenthal. General Dempsey, I understand that $120.0 
million is spent each year on the repairs and maintenance for the Mi-17 
helicopters owned by the Afghanistan security forces. How much of that 
$120.0 million is paid to Rosoboronexport?
    General Dempsey. The contract with Rosoboronexport is for 
procurement of aircraft, which does include an initial supply of spares 
and a 1-year warranty. The $120 million for repairs and maintenance are 
handled through contracts with U.S. contractors, specifically Northrop 
Grumman and Lockheed Martin.

    5. Senator Blumenthal. General Dempsey, of the $120.0 million 
identified for repairs and maintenance this year, how much has been 
paid to date?
    General Dempsey. Approximately $70 million has been paid to 
Northrop Grumman and Lockheed Martin for repair and maintenance 
activities in Afghanistan this year.

    6. Senator Blumenthal. General Dempsey, in addition to the Mi-17 
and the RD-180, please identify all other contractual agreements--
research and development (R&D), procurement, defense cooperation--
between the Department of Defense (DOD) and any Russian manufacturer, 
government agency, or other Russian entity.
    General Dempsey. In addition to Mi-17 and RD-180, the United States 
is engaged with Russia concerning contracts in several areas, from 
small R&D research grants, water pollution engineering, supply 
procurements, to logistics support items (excluding fuel and 
construction), trucks, guns, laboratory equipment and supplies. One 
example includes the U.S. Prisoner of War/Missing in Action office's 
agreement with the Russian Government regarding archival research in 
the Russian State Military Archives. Finally, United Launch Alliance, 
in addition to using the RD-180 engine, purchases Antonov aircraft 
flights from a private transport company based in the United Kingdom.

              prescription opiate use within the military
    7. Senator Blumenthal. General Odierno, General Welsh, Admiral 
Greenert, and General Amos, testimony presented by Brigadier General 
Norvell V. Coots, USA, at an April 30 hearing of the Senate Committee 
on Veterans Affairs indicated that in 2011 over 26 percent of the 
Active Duty military force used some form of opiate medication. In 
2013, over 24 percent of the Active-Duty Force had used opiate 
medication. I would like to gain clarity on these numbers. Over each of 
the past 10 years, what percentage of your respective Service has been 
prescribed an opiate medication at least once as covered by the 
previous list?
    General Odierno. The proportion of Active Duty Army servicemembers 
prescribed an opiate medication at least once in a year for the last 10 
years is as follows:

      2004 - 21 percent
      2005 - 22 percent
      2006 - 25 percent
      2007 - 26 percent
      2008 - 26 percent
      2009 - 26 percent
      2010 - 27 percent
      2011 - 29 percent
      2012 - 29 percent
      2013 - 27 percent

    General Welsh. The percentage of Active Duty Air Force 
servicemembers prescribed an opiate medication at least once in a year 
for the past 10 years is as follows:

      2004 - 22 percent
      2005 - 22 percent
      2006 - 23 percent
      2007 - 24 percent
      2008 - 24 percent
      2009 - 23 percent
      2010 - 24 percent
      2011 - 24 percent
      2012 - 24 percent
      2013 - 23 percent

    Admiral Greenert. The testimony provided by BG Coots was based on 
data compiled by the Army Pharmacovigilance Center (PVC) on the 
proportion of Active Duty members with at least one prescription for an 
opiate agonist or partial agonist. The proportion of Active Duty Navy 
servicemembers prescribed an opiate medication at least once in a year 
is:

      2004 - 27 percent *
---------------------------------------------------------------------------
    * It is possible 2004 data may overestimate prevalence in active 
duty due to error in source data that misclassified beneficiaries as 
sponsors (i.e. AD).
---------------------------------------------------------------------------
      2005 - 26 percent
      2007 - 25 percent
      2008 - 25 percent
      2009 - 26 percent
      2010 - 26 percent
      2011 - 26 percent
      2012 - 25 percent
      2013 - 22 percent

    General Amos. The testimony provided by BG Coots was based on data 
compiled by the Army PVC on the proportion of Active Duty members with 
at least one prescription for an opiate agonist or partial agonist. The 
PVC has compiled 5 years of data for all Services from 2009 to 2013, 
and is conducting data analysis to provide a response to opioid 
medication use over the last 10 years.
    The proportion of Active Duty Marine Corps servicemembers 
prescribed an opiate medication at least once in a year is as follows:

      2009 - 26 percent
      2010 - 26 percent
      2011 - 26 percent
      2012 - 26 percent
      2013 - 25 percent

    8. Senator Blumenthal. General Odierno, General Welsh, Admiral 
Greenert, and General Amos, over each of the past 10 years, what 
percentage of your respective Service has been prescribed an opiate 
medication for a chronic condition--whether physical pain or mental 
health--as covered by the previous list?
    General Odierno. Less than 1 percent of our forces are initiating 
chronic opiate treatment at any given year in the past 5 years. All 
soldiers receive a medication evaluation to determine deployment 
eligibility. This evaluation includes a review of prescribed 
medications. Soldiers who are prescribed chronic opiates require U.S. 
Central Command (CENTCOM) surgeon waiver to deploy. Since the release 
in December 2013 of Modification 12 to the CENTCOM Individual 
Protection and Individual Unit Deployment Policy, deployment waivers 
for chronic opiate use have rarely been approved. Those few exceptions 
tend to be cases of short deployments located at or near Medical 
Treatment Facilities and the low-risk condition of the soldier.
    General Welsh. At the present time data analysis for opioid 
medication use over the last 10 years is being conducted. We currently 
have the last 5 years of data.
    Chronic opioid use is defined as cumulative use of 90 or greater 
days of use in a 6 month period for new users. This definition is in 
agreement with the Veterans Health Administration. The percentage of 
Active Duty Air Force servicemembers prescribed an opiate medication 
for chronic use in a year is as follows.

      2009 - 0.5 percent
      2010 - 0.5 percent
      2011 - 0.5 percent
      2012 - 0.5 percent
      2013 - 0.4 percent

    Admiral Greenert. The Army PVC conducted data analysis to provide a 
response to chronic opiate medication use over the last 10 years for 
all Services.
    The Army PVC defines chronic opioid use as, ``cumulative use of 90 
or greater days of use in a 6 month period''. Previously, the Army PVC 
defined chronic opioid use as, ``cumulative use of 90 or greater days 
of use in a 6 month period for new users,'' which resulted in a lower 
percentage of active duty being considered chronic opioid users. The 
proportion of Active Duty Navy servicemembers with any chronic opiate 
use in a year is as follows:

      2004 - 1.12 percent
      2005 - 1.14 percent
      2006 - 1.24 percent
      2007 - 1.22 percent
      2008 - 0.91 percent
      2009 - 0.81 percent
      2010 - 0.85 percent
      2011 - 0.90 percent
      2012 - 0.90 percent
      2013 - 0.79 percent

    General Amos. At the present time the Army PVC is conducting data 
analysis to provide a response to opiate medication use over the last 
10 years for all Services. We currently have 5 years of data.
    The Army PVC defines Chronic opioid use as, ``cumulative use of 90 
or greater days of use in a 6 month period for new users''. This 
definition is in agreement with the Veterans Health Administration. The 
proportion of Active Duty Marine Corps servicemembers prescribed an 
opiate medication for chronic use in a year is as follows.

      2008 - 0.42 percent
      2009 - 0.42 percent
      2010 - 0.45 percent
      2011 - 0.51 percent
      2012 - 0.38 percent

    From 2008 to 2012, the average percentage of U.S. Marine Corps 
Active Duty Servicemembers prescribed an opiate medication associated 
with a chronic condition was 0.44 percent.

    9. Senator Blumenthal. General Odierno, General Welsh, Admiral 
Greenert, and General Amos, what procedural measures have been 
implemented within your respective Service to mitigate risk with regard 
to prescription of opiate medication?
    General Odierno. Army Medicine uses best practices that are 
comparable to, or exceed, civilian programs, such as prescription drug 
monitoring to identify polypharmacy cases. Positive interventions 
include comprehensive medication reviews, sole provider programs, 
limiting the dispensed supply of medication, restricting high-risk 
patients to the utilization of one pharmacy, informed consent, use of 
non-drug treatment options, clinical pharmacist referrals, and patient 
and provider education.
    General Welsh. Current Air Force practices and programs designed to 
mitigate risk with regard to prescription of opiate medication include: 
development of comprehensive pain management policy, urinalysis 
testing, screening controlled substance prescriptions, Air Force 
Alcohol and Drug Abuse Prevention and Treatment and Drug Demand 
Reduction programs. Other provider specific programs include: ``Do No 
Harm'' training for all prescribing providers, ``Sole Provider'' 
prescription restriction program, medication reconciliation, and the 
use of pain contracts for chronic pain patients.
    With the standup of the Defense Health Agency (DHA) and under the 
new governance structure of the Military Health System (MHS), a tri-
Service/DHA working group has been established to develop a 
standardized comprehensive pain management policy across the Services 
which includes a multi-disciplinary approach using non-traditional and 
holistic methods to control pain without or in conjunction with 
prescription medications. This group will develop policy for safe 
prescribing practices of opioids with tri-Service consensus to include 
guidelines for urine drug testing, requirements for opioid care 
agreements and consents, screening guidelines, specialty referral, and 
improved provider education on opioid therapy. In addition, the working 
group will align its efforts with the Defense and Veterans Center for 
Integrative Pain Management which develops consensus recommendations 
for the Air Force, Army, Navy, MHS, and Veterans Health Administration 
integrated pain management communities for improvements in pain 
medicine policies, practice, education, and research.
    Military treatment facility (MTF) pharmacies screen controlled 
substance prescriptions, review patient medication profiles, and use 
the Pharmacy Data Transaction Service (PDTS) to help identify 
potentially dangerous polypharmacy. PDTS monitors medication profiles 
from MTF, mail-order and retail pharmacy points of service.
    Admiral Greenert. The Navy in collaboration with DOD has undertaken 
several actions to mitigate the risks of related to prescribing 
pharmaceuticals. Specifically:

          The DOD Pharmacy Operations Division utilizes the 
        PDTS, an online centralized prescription data repository, to 
        automatically check new prescriptions against a patient's 
        computerized medication history from all points of service 
        (Retail, Mail, MTF, and Theater) for possible adverse events or 
        therapeutic duplications before the new drug is dispensed.
          The MTF Prescription Restriction Program allows a 
        provider or a nurse/pharmacist, on behalf of a provider/multi-
        disciplinary team to restrict a patient's access to controlled 
        substances, or to exclude controlled substances or specific 
        non-controlled substance(s) at mail order or a retail pharmacy
          The TRICARE Pharmacy 1-1-1 Program allows a 
        prescriber to limit at-risk patients' access to controlled 
        substances to one prescriber, and at only one pharmacy.
          The Patient Centered Medical Home provides a 
        comprehensive, integrated approach to primary care, to include 
        treatment for acute and chronic pain. Incorporating a pain 
        management program that collaborates with DOD and VA as well as 
        provider specific training on pain management, the Navy looks 
        at a holistic approach to patients needs including non-
        pharmacological therapies. In addition we have seven pain 
        management centers throughout the enterprise providing 
        therapeutic and invasive pain management care to Navy Medicine 
        beneficiaries.
          Lastly, the Navy Alcohol and Drug Abuse Prevention 
        Office, part of the Navy's 21st Century Sailor Office, has also 
        developed the ``Prescription for Discharge'' campaign to 
        educate sailors, marines, and their family members on the safe 
        and proper use of prescription drugs. The campaign includes, 
        tips for all Navy personnel on the safe and proper use of 
        prescription drugs. Materials are available for distribution 
        and display at Navy medical clinics, pharmacies, waiting rooms, 
        barracks, and other locations; and resources are provided for 
        Navy leadership, medical personnel, and drug abuse prevention 
        personnel to present at safety stand downs, briefings, or 
        community health fairs.

    General Amos. The Marine Corps in collaboration with Navy Medicine 
and DOD has undertaken several actions to mitigate the risks related to 
prescribing opiate pharmaceuticals. Specifically:

          Interactions and duplication warnings are 
        communicated to the provider in real time during prescription 
        entry via the Composite Health Care System.
          Provider and patient education related to VA/DOD 
        guidelines for providers prescribing opioids, Complementary and 
        Alternative Medicine training and access which provide non-
        pharmacologic therapeutic options for pain management.
          Medication verification and documentation in the 
        medical record at every patient encounter.
          Force Preservation Councils (FPC) provide a clear 
        formalized process for units to identify at-risk marines and 
        focus appropriate attention and resources to assist the 
        individual. Use of opiate medications is a required reporting 
        condition for the FPC.
          Marine Centered Medical Home (MCMH) provides a 
        comprehensive, integrated approach to primary care, to include 
        treatment for acute and chronic pain. The MCMH facilitates 
        education of both the patient and his/her family on the 
        etiology and management of acute and chronic pain, which may 
        reduce the likelihood of disability, address the under-
        treatment of pain, and provide for individual tailoring of 
        treatment plans.
          The Marine Corps also capitalizes on a number of 
        Bureau of Navy Medicine prescription restriction and opioid 
        management programs and processes including the Navy 
        Comprehensive Pain Management Program.

    10. Senator Blumenthal. General Odierno, General Welsh, Admiral 
Greenert, and General Amos, what is your assessment of force readiness 
with regard to prescription opiate use?
    General Odierno. At the present time, the Army Pharmacovigiliance 
Center is conducting data analysis to provide a response to opiate 
medication use over the last 10 years. We currently have the last 5 
years of data, beginning with 2012.
    Chronic opioid use is defined as cumulative use of 90 or greater 
days of use in a 6-month period. The proportion of Active Duty Army 
servicemembers initiating on an opiate medication for chronic use in a 
year is as follows:

      2008 - 1 percent
      2009 - 0.9 percent
      2010 - 1 percent
      2011 - 1 percent
      2012 - 0.8 percent

    General Welsh. Force readiness is always our number one priority. 
Our ability to fulfill the readiness mission is not hindered by 
prescription opiate use. All personnel are medically screened prior to 
deployment, including any medication therapy they may be on. If 
servicemembers become ill or injured while deployed, their condition 
and treatment regimen, including medication therapy, are evaluated for 
any impact on their ability to perform the mission.
    We will continue to use and improve current programs and processes 
to appropriately treat patients and prevent and mitigate the impact of 
drug use or abuse on the readiness of the force. These programs 
include: development of comprehensive pain management policy through 
tri-Service working groups, urinalysis testing, screening controlled 
substance prescriptions, Air Force Alcohol and Drug Abuse Prevention 
and Treatment and Drug Demand Reduction programs. Other provider 
specific programs include: ``Do No Harm'' training for all prescribing 
providers, ``Sole Provider'' prescription restriction program, 
medication reconciliation, and the use of pain contracts for chronic 
pain patients.
    Admiral Greenert. Prescription opioid use has been stable over the 
last 6 years in Navy. There are serious risks with opioid use to 
include the risk of misuse, abuse and diversion. Opiate use requires 
judicious management, education and monitoring to ensure appropriate 
and safe utilization. Our Active Duty servicemembers suffering with 
chronic pain are provided with interdisciplinary and collaborative pain 
management services. Furthermore, by consistently fulfilling all 
aspects of the Opioid Therapy Clinical Practice Guidelines, we are 
continuously assured that we are safely prescribing opioids for our 
Active Duty servicemembers who require pain care management and opiate 
prescriptions.
    Illegal use of prescription drugs, including opiates, undermines 
combat readiness and is incompatible with our standards of performance 
and military discipline. Accordingly, this past month we launched a new 
``Prescription for Discharge'' campaign, designed to educate sailors 
and their families on the safe use of prescription drugs and on the 
health and career risks associated with misuse. Abuse of prescription 
drugs is a violation of the Uniform Code of Military Justice.
    General Amos. Force Readiness is our mission. There are serious 
risks with opioid use to include the risk of misuse, abuse and 
diversion. Opiate use requires judicious management, education and 
monitoring to ensure appropriate and safe utilization. Our Active Duty 
servicemembers suffering with acute and chronic pain require 
interdisciplinary and collaborative pain management services. We are 
strengthening the patient-provider relationship in our Marine Centered 
Medical Homes to increase the effectiveness of pain management 
practices and standardizing the care delivered using Clinical Practice 
Guidelines. As we fulfill all aspects of the Opioid Therapy Clinical 
Practice Guidelines that include opioid care agreements, urine drug 
screening, assessment of contraindications, safe prescribing practices, 
facilitation of self-care, patient education and more, we can safely 
prescribe opioids for our Active Duty servicemembers who require pain 
care management and opiate prescriptions. Prescription opioid use has 
been stable over the last 6 years in the Marine Corps. The data does 
not support a concern for force readiness.
                                 ______
                                 
              Questions Submitted by Senator Joe Donnelly
                              compensation
    11. Senator Donnelly. Admiral Greenert, in your answer to one of 
Senator Ayotte's questions, you mentioned that an E-5 (6 years of 
service) with three dependents currently makes $64,300 and will make 
$76,000 in 2019, which would amount to a 4 percent loss in buying 
power. Please provide the breakdown of the pay of an E-5 and how the 
pay amounts were determined, to include where the basic allowance for 
housing (BAH) rate was determined, if this was factored into the pay.
    Admiral Greenert. After my testimony, we discovered that the 
compensation amounts I presented for the notional E-5 with three 
dependents were calculated incorrectly; they used a commissary discount 
value for a sailor with only one dependent, which understated the 
calculated purchasing power. The correct amount should have been 
$66,071 for an E-5 today, $78,313 in 2019 (with no compensation 
reform), and $69,804 (with compensation reform). When corrected for 
inflation, $69,804 represents a 5.5 percent loss in purchasing power. 
Our methodology and analysis follows:
    Calculated purchasing power is composed of basic pay, basic 
allowance for subsistence (BAS), BAH, and the commissary discount, less 
TRICARE cost sharing. The notional E-5 has 6 years of service, three 
dependents, and is stationed in San Diego. Calculated purchasing power 
does not include any special and incentive pays that many sailors 
receive, such as Career Sea Pay or Family Separation allowance (for 
deployed sailors). 


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

      
    The table above makes clear that, absent compensation reform, a 
sailor's purchasing power is expected to increase faster than the 
standard measure of consumer inflation, CPI. Because BAH is such a 
large component of sailor compensation, total purchasing power without 
reform is also expected to increase faster than civilian wages, as 
measured by Employment Cost Index (ECI).
    However, the traditional method to compare the purchasing power of 
nominal cash flows at different points in time is to discount using the 
CPI rate. Using the Congressional Budget Office (CBO) discount rate 
detailed above, the total purchasing power in 2019 for the notional E-5 
including proposed compensation reforms and expressed in 2014 dollars, 
is $62,399, or, a 5.5 percent reduction in total purchasing power.

    12. Senator Donnelly. Admiral Greenert, how was the analysis of 
buying power determined? Please provide the detailed analysis.
    Admiral Greenert. See response to question 11.

                  retirement pay for general officers
    13. Senator Donnelly. General Dempsey, in 2007, Congress passed a 
DOD-sponsored proposal that increased retirement benefits for three- 
and four-star generals and admirals, allowing them to draw retirement 
pay based off the basic pay chart and not restrained by Level II of the 
Executive Schedule ($15,125.10 in the 2014 pay chart). According to a 
USA Today article (January 9, 2014), this would mean that a four-star 
general retiring with 40 years of service would receive a pension of 
$237,150, when the base pay is only $181,501. Additionally, because 
time in the military academies counts towards the pension, a retired 
general could receive a higher pension. As you have considered changes 
to the military retirement system, have the Joint Chiefs given 
consideration to this issue?
    General Dempsey. While serving, general and flag officer basic pay 
is limited by Level II of the Executive Schedule. Once a general or 
flag officer retires, that limitation is removed. Retirement pay is 
based on the appropriate percentage of their actual basic pay. In some 
rare cases, this results in retirement pay that is greater than their 
capped pay while on active duty.
    Time at military academies does not count towards pension except in 
rare cases, such as prior service. Date of entry at military academies 
does determine (in most cases) the retirement system that applies to a 
military member. For graduates of a Military Academy with no prior 
service, the date they entered the Academy is called the DIEMS (Date of 
Initial Entry to Military Service). Academy graduates who entered the 
Academy prior to, but graduated after, September 8, 1980, are under the 
final pay system. For those that entered after that date, the high 36-
month system applies.
    We do not object to review or recommendations regarding retired pay 
for general and flag officers. However, because of the complexity of 
the military retirement system, any proposal for change should be part 
of a holistic, system-wide review under the congressionally established 
Military Compensation and Retirement Modernization Commission (MCRMC).

    14. Senator Donnelly. General Dempsey, if a general officer or a 
flag officer has over 40 years of service, does the retirement 
multiplier increase to calculate over 100 percent of base pay?
    General Dempsey. Under the Final Pay and High 36-month retirement 
systems, the retirement multiplier is calculated by multiplying 2.5 
percent and the number of years of the member's active service. At 40 
years, the retirement multiplier is 100 percent. For the few officers 
who retire with over 40 years of service, the retirement multiplier is 
over 100 percent.

    15. Senator Donnelly. General Dempsey, what would be the 
implication on the retentions of three- and four-star flag officers if 
the 2007 provision was eliminated?
    General Dempsey. We do not object to review or recommendations 
regarding retired pay for general and flag officers. However, because 
of the complexity of the military retirement system, any proposal for 
change should be part of a holistic, system-wide review under the 
congressionally established MCRMC.
                                 ______
                                 
              Questions Submitted by Senator Kelly Ayotte
                                ukraine
    16. Senator Ayotte. General Dempsey, in your professional military 
judgment, is it in America's national security interests to deter a 
Russian invasion of eastern Ukraine and to do all we can to help 
Ukraine protect its territorial integrity and sovereignty?
    General Dempsey. America's national security interests are aligned 
with an independent, sovereign and stable Ukraine, firmly committed to 
democracy and respect for human rights, minorities, and the rule of 
law. DOD will continue efforts to support this end state.

    17. Senator Ayotte. General Dempsey, in a conventional battle 
against each other, how do Ukrainian forces compare with Russian forces 
in terms of size and capabilities?
    General Dempsey. [Deleted.]

    18. Senator Ayotte. General Dempsey, what lethal assistance would 
best help the Ukrainian military in the event of a conventional 
invasion of eastern Ukraine?
    General Dempsey. The United States aim is to encourage a diplomatic 
resolution of this crisis. Our continued desire is that Russia will 
move its forces back to garrison and cease such destabilizing 
activities on Ukraine's border. Lethal assistance at this stage could 
be counterproductive and would have very limited utility in deterring 
Russia from further military actions.

    19. Senator Ayotte. General Dempsey, what lethal assistance has the 
Ukrainian Government requested from the United States?
    General Dempsey. As of 12 June 2014, Ukraine has requested small-
arms, ammunition, anti-tank and air defense systems, armored vehicles, 
combat support equipment, and logistical equipment from NATO and the 
United States.

    20. Senator Ayotte. General Dempsey, what, if any, lethal 
assistance has the United States provided to the Ukrainian military?
    General Dempsey. As of 12 June 2014, to the best of my knowledge, 
we have not provided any lethal aid to Ukrainian forces.
    We continue to assess the conditions under which we would provide 
lethal support to Ukraine. Limited lethal assistance at this stage 
would not deter Russia. Russia could use even limited U.S. military 
assistance as a pretext to conduct further destabilizing activities 
with respect to Ukraine.

    21. Senator Ayotte. General Dempsey, in your professional military 
judgment, would providing anti-tank and anti-aircraft weapons to the 
Ukrainian military decrease the likelihood that Putin would undertake a 
conventional military invasion of eastern Ukraine?
    General Dempsey. President Putin's ultimate objectives for Ukraine 
are unknown. We are working through diplomatic and military channels to 
ease tensions and dissuade further Russian interventions.

    22. Senator Ayotte. General Dempsey, what military training is the 
United States providing the Ukrainian military?
    General Dempsey. Over the years we have developed a routine 
training and exercise relationship. We are in contact with the 
Ukrainian Minister of Defense and the Armed Forces to assess future 
training requirements.

    23. Senator Ayotte. General Dempsey, can the United States provide 
more military training to the Ukrainian military?
    General Dempsey. We are in the process of assessing Ukraine's 
training and capacity needs to best support its requests for military 
training.

    24. Senator Ayotte. General Dempsey, if the United States can 
provide more military training to the Ukrainian military, what specific 
training would you recommend?
    General Dempsey. Ukraine's newly elected government will greatly 
influence its military training requirements. Their specific needs 
include defense in depth, intelligence-operations fusion, campaign 
planning, strategic leadership, operational level logistics, and 
interoperability with law enforcement agencies.

                     general officer retirement pay
    25. Senator Ayotte. General Dempsey, the 2007 National Defense 
Authorization Act made significant changes to the pay authorities of 
flag officers. The 2007 legislation provided incentives for senior 
officers to continue serving by extending the basic pay table from a 
cap at 26 years to providing an increase in longevity pay out to 40 
years of service. According to a January 9, 2014, USA Today report, 
using 2011 numbers, the 2007 pay table changes could result in a four-
star officer retiring with 38 years of experience receiving $84,000 
more per year in retirement than previously allowed (63 percent more). 
The 2007 changes not only increased longevity pay for senior officers 
but also allowed senior officers retiring with 40 years of service to 
receive 100 percent of their Active Duty pay. Unlike the cap on annual 
pay, there is currently no cap on retired pay for these senior 
officers. Was the purpose of this legislation to encourage combat 
experienced one- and two-star admirals and generals to continue to 
serve during a time of war?
    General Dempsey. The legislation provided greater incentive and 
more appropriate compensation for individuals who the Services retained 
beyond 30 years of service. At the time of the change, with the 
exception of cost of living increases, most O-9s and O-10s were serving 
for over a decade without adjustments in salary or retired pay. The 
changes provided consistent recognition across an individual's entire 
career, not just the first 26 years. For certain highly-skilled 
officers and warrant officers, as well as general and flag officers, 
the impact of the changes has increased leadership experience and 
allowed the Services to retain highly-skilled senior leaders.

    26. Senator Ayotte. General Dempsey, do you believe this program is 
still necessary given the fact that we have withdrawn from Iraq and we 
are withdrawing most of our troops from Afghanistan?
    General Dempsey. I believe we benefit from senior leaders who are 
more experienced. That said, moreover, although our conflicts in Iraq 
and Afghanistan are nearing a point of ``normalization,'' the security 
challenges facing our Nation are significantly increasing. In my 
judgment we will need more not fewer experienced leaders to operate at 
the strategic level. I do not object to review or recommendations 
regarding retired pay for general and flag officers. Because of the 
complexity of the military retirement systems, any proposal for change 
should be part of a holistic, system-wide review under the 
congressionally-established MCRMC.

    27. Senator Ayotte. General Dempsey, what is the justification, if 
any, for keeping this in place?
    General Dempsey. I believe we benefit from senior leaders who are 
more experienced. The current legislation provides deferred 
compensation, in the form of retired pay, based upon rank and position. 
Prior to the 2007 legislative changes, O-9s, O-10s, the Joint Chiefs 
and combatant command commanders were compensated without recognition 
of varying experience or responsibility, while on active duty and upon 
retirement.
    However, I do not object to review or recommendations regarding 
retired pay for general and flag officers. Because of the complexity of 
the military retirement system, any proposal for change should be part 
of a holistic, system-wide review under the congressionally-established 
MCRMC.

    28. Senator Ayotte. General Dempsey, is DOD recommending the repeal 
of this provision? Why or why not?
    General Dempsey. We do not object to review or recommendations 
regarding retired pay for general and flag officers. However, because 
of the complexity of the military retirement system, any proposal for 
change should be part of a holistic, system-wide review under the 
congressionally-established MCRMC.

                impact on junior enlisted servicemembers
    29. Senator Ayotte. Admiral Greenert, the Military Officers 
Association of America (MOAA) estimates that the family of an E-5 would 
experience a loss of nearly $5,000 in purchasing power annually if the 
current military compensation proposals are enacted. In the hearing, 
when I brought this to your attention, you stated that, ``they [E-5] 
get about a 4 percent loss in buying power as a result of this. That's 
about $2,500, not $5,000.'' Please explain the difference between the 
figure MOAA calculated and the figure DOD calculated.
    Admiral Greenert. We used the below methodology to analyze a 
notional sailor's buying power as a result of our proposed compensation 
reforms. That sailor's total loss is approximately $3,700, or 5.5 
percent.
    The 5.5 percent calculation reflects one amendment since the 
hearing. After my testimony, we discovered that the compensation 
amounts I presented for the notional E-5 with three dependents were 
calculated incorrectly. We used a commissary discount value (one factor 
among several used in our calculation) for a sailor with only one 
dependent, which understated the calculated purchasing power. The 
correct amount should have been $66,071 for an E-5 today, $78,313 in 
2019 (with no compensation reform), and $69,804 (with compensation 
reform). When corrected for inflation, $69,804 represents a 5.5 percent 
loss in purchasing power (approximately $3,700).
    Calculated purchasing power is composed of basic pay, BAS, BAH, and 
the commissary discount, less TRICARE cost sharing. The notional E-5 
has 6 years of service, three dependents, and is stationed in San 
Diego. Calculated purchasing power does not include any special and 
incentive pays that many sailors receive, such as Career Sea Pay or 
Family Separation allowance (for deployed sailors). 


      
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
      
    The table above makes clear that, absent compensation reform, a 
sailor's purchasing power is expected to increase faster than the 
standard measure of consumer inflation, consumer price index (CPI). 
Because BAH is such a large component of sailor compensation, total 
purchasing power without reform is also expected to increase faster 
than civilian wages, as measured by ECI.
    However, the traditional method to compare the purchasing power of 
nominal cash flows at different points in time is to discount using the 
CPI rate. Using the CBO discount rate detailed above, the total 
purchasing power in 2019 for the notional E-5 including proposed 
compensation reforms and expressed in 2014 dollars, is $62,399, or, a 
5.5 percent reduction in total purchasing power.

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