Slowing Housing, Food Allowance Raises Could Save the Pentagon Billions, Congressional Report Says

Slowing increases to housing and food allowances for service members by switching a crucial benchmark could save the Pentagon billions, the Congressional Budget Office reported Thursday.

The idea proposed in the report involves tying those allowances to the same benchmark used for basic military pay raises.

The Defense Department is required to use the Bureau of Labor Statistics' employment cost index, or ECI, to adjust basic pay, which makes up 70% of the military's regular pay expenses. The only exception is when Congress approves a bigger pay raise. 

But housing allowance rates are set annually by the defense secretary, using data on rental housing vacancies in each location. Food allowances are set annually based on the Agriculture Department's index for food prices.

These methods combined have resulted in troops' compensation growing beyond what the DoD envisioned, according to the CBO report released Thursday. 

The Pentagon's goal was for troops to be paid at the 70th percentile of earnings for comparable civilians, meaning 30% of civilians in similar jobs would earn more than troops. 

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But military compensation now greatly exceeds that. The CBO said cash pay -- basic pay plus food and housing allowances -- for enlisted personnel was at about the 90th percentile of civilians with similar levels of experience and some college education in 2018. The military has, by and large, been successful at bringing in high-quality new recruits in recent years.

The military spent about $160 billion on cash pay and benefits for service members in 2020, amounting to roughly a quarter of its $630 billion base budget.

The Bureau of Labor Statistics calculates the ECI using its National Compensation Survey of employers' payrolls, measuring how much compensation has shifted in the U.S. in certain jobs.

"These data raise questions about whether DoD is paying more for its personnel than is necessary to meet goals," the report said. "DoD might be able to pay less and still reach its personnel goals, while possibly meeting other objectives, such as procuring weapons."

The Center for Strategic and International Studies also raised concerns about military compensation costs in its own report released Thursday. The active-duty military hit its post-World War II end strength peak in fiscal 1952, CSIS said, then fell by 64% to its lowest point in fiscal 2016. But over roughly that same time period total personnel costs grew by 110%, driven in part by a rising ratio of officers to enlisted personnel, military pay raises over the employment cost index amount, and significant increases in housing allowances.

The CBO has suggested adjusting all service members' cash payment raises using the ECI benchmark. If this method were adopted in future years, it said, the military could save about $3 billion annually, or 1.7% of its annual cash pay and expenses costs, by 2030.

The CBO study found housing allowances grew faster than the employment cost index between 2000 and 2020. If the ECI had been used instead, housing allowances for enlisted troops at the E-4 paygrade would have been 9% lower in 2020 than they actually wound up being.

If all elements of regular cash pay had started being adjusted in 2004, the CBO said, the military would have spent about $4 billion less in 2020 alone.

The CBO also designed and considered a new system for adjusting basic pay called the alternative wage index, which it said would be tailored to the age and education level of military personnel. The ECI does not account for that kind of demographic information. 

But when CBO used this method to recalculate raises from 2004 to 2020, it found it would not differ greatly over time from the pay raises set using ECI. The new index also would vary more from year to year, leading to larger swings in pay raises.

The CBO did not consider special and incentive pays, which vary by job and location, and the tax advantages troops enjoy because housing and food allowances are not taxed.

-- Stephen Losey can be reached at stephen.losey@military.com. Follow him on Twitter @StephenLosey.

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