Deputy Secretary of Defense Ashton Carter is interviewed Aug. 7 at the Pentagon in Arlington, Va. (Mike Morones / Staff)
The Pentagon is hammering out details for potential cutbacks to Basic Allowance for Housing, a change that could force nearly a million troops to pay more out-of-pocket cash for their own living expenses.
“It turns out to be a devilishly complicated thing to do,” Deputy Defense Secretary Ash Carter told Military Times in an interview Wednesday.
“There can be reductions in rates,” Carter said, as he ticked off several options for how to cut BAH. “We can look at the rates of growth and try to find ways of slowing growth. We can look at inequalities in the system depending on where you live.”
Carter headed the Pentagon’s recent Strategic Choices and Management Review, which explored ways that the Defense Department could absorb the across-the-board budget cuts known as sequestration that became law in March. The cuts amount to a roughly 10 percent reduction in military spending.
A reduction in BAH rates would be a landmark reversal of a multiyear program that DoD rolled out with much fanfare from 2001 to 2005 under which the allowance was raised to a level that theoretically covers 100 percent of off-base rental costs for all troops. Prior to that effort, troops paid an average of 20 percent of their housing costs out of pocket.
Returning to a policy of making troops pay more for their own off-base housing is one way the military is trying to carve about $50 billion in savings from its personnel budget accounts over the next decade.
The Pentagon pays about $20 billion a year in BAH to nearly one million troops. A rough estimate suggests that if troops began covering 5 percent to 10 percent of their own off-base housing costs, the Pentagon could rack up between $10 and $20 billion in savings over the next decade.
Yet such a change would likely have many ripple effects. It would likely increase competition for on-base housing, which is already in short supply in many places. And it might make some duty assignments more or less desirable based on the local cost of living.
Defense Secretary Chuck Hagel has ordered the Joint Chiefs to consult with senior enlisted leaders and consider the impact of the proposed changes. During the “next several weeks,” the Joint Staff is expected to make a recommendation on the most palatable ways to cut compensation and health care costs, Carter said.
Other proposals involve granting smaller annual basic pay raises for troops and scaling back access to Tricare health coverage for working-age military retirees under 65.
“It’s one of those areas where the secretary and I look to the uniformed leadership because they are in closest touch with the folks who are going to be affected by it,” Carter said.
One key issue the Joint Staff will not examine is the military retirement system; any proposed changes to that will be addressed later this year by a commission created by Congress, Carter said.
BAH rates are determined by the Defense Department’s in-house survey of nationwide housing costs. Rates are revised each year to reflect changes in rental costs in local real estate markets.
“It’s a very complicated thing because the housing markets are different in different places,” Carter said.
Under a current DoD policy known as “individual rate protection,” BAH rates are locked in for troops already settled in a particular location for the duration of their assignment. That means if rates go down from one year to the next, those troops will continue to get the rate originally in effect in the year they arrived; only troops newly assigned to that location in the current year would get the lower rate.
It is unclear whether that sort of rate protection would continue if the budget crunch continues indefinitely.
Cutting compensation poses long-term risks to morale, recruiting and retention. But Pentagon officials have begun framing their commitment to service members in terms of not only paying them well, but also ensuring that they are sufficiently prepared for combat and other contingency operations when needed.
“We want to have the best people and owe them compensation that honors the distinctive character of military life ... it’s not like anything else in civilian life,” Carter said. “But we also owe them the best weapons and the best training and the best repair of ships and vehicles and aircraft. And so as we face this budget crunch, we are trying to balance all the ways that we do honor to and properly equip and train our people.”
Ultimately, Carter gave a sober assessment of the political and fiscal challenges the Pentagon is facing
“I’m afraid that we just don’t know how long this uncertainty is going to go on,” Carter said. “I’m just not in a position to give any reassurance.”