posted on 06 December 2015
from the Congressional Budget Office
Only military personnel engage in combat operations, according to U.S. government policies. However, either military personnel, civilian employees of the Department of Defense (DoD), or contractors may carry out support functions, such as accounting services. In 2012, about 340,000 active-duty military personnel were assigned to commercial positions that perform support functions.
Those functions require skills that could be obtained from the private sector so that, in principle, those same positions could be filled by civilian employees.
To cut costs, DoD could transfer some of those positions to civilian employees and then reduce the number of military personnel accordingly. CBO estimates that doing so for 80,000 full-time positions could eventually save the federal government $3.1 billion to $5.7 billion per year. (Those savings are measured in terms of annualized costs. That term encompasses all liabilities, current and future, that the federal government incurs by employing a military service member or a civilian today, expressed as annual amounts. All annualized amounts are in real terms, meaning that they have been adjusted to remove the effects of inflation.) Some costs of hiring military personnel are paid from accounts outside DoD's budget, so the department would not realize all of those savings.
What Costs of Replacing Military Support Personnel With Civilians Did CBO Analyze?
The annualized costs analyzed in this report include the pay of military and civilian personnel, as well as the accrual payments that DoD sets aside to meet some categories of future obligations to current workers. Those costs also include implicit accrual charges that, by CBO's estimate, account for the costs of deferred benefits for which the government does not make accrual payments. Such deferred benefits include health insurance for retired civil servants and for military retirees not yet eligible for Medicare. Costs also involve spending for in-kind benefits such as DoD-operated schools and for health care provided by the Department of Veterans Affairs (VA). With that definition, CBO calculates annualized costs and refers to a reduction in those costs as annualized savings.
Estimated costs in this report are broader than those reported in CBO's cost estimates for legislation, which project how a bill would affect the budget - spending and revenues - over a limited period. Those budgetary estimates focus on changes in discretionary spending (spending that would be subject to appropriation) for five years after the legislation is enacted; changes in mandatory spending and revenues are estimated for the 10-year period after enactment. Therefore, cost estimates for legislation do not encompass all changes in the government's future long-term liabilities that could result from that legislation. For comparison with the annualized costs of the options analyzed here, this report also notes the budgetary effects over a 10-year period.
What Options Did CBO Examine?
In analyzing the effects on costs of replacing military support personnel with civilian employees, CBO focused on occupations in each branch of service that have at least 500 military and civilian workers. This study does not try to identify the optimal mix of military and civilian workers for every occupation and service branch. But because some services have a smaller percentage of civilians than others in similar support positions, civilians could probably fill more such positions in those services than they do now. For example, the other services could adopt the same mix as the service with the largest percentage of civilian personnel in each support occupation. In that scenario, about 80,000 active-duty positions could be available for conversion, CBO estimates - about onequarter of the active-duty personnel assigned to commercial positions.
Potential savings would depend on how many civilian employees replaced military personnel. In the mid-2000s, DoD as a whole achieved an average ratio of 1:1.5 - that is, two civilians replacing every three service members - when it transferred some 48,000 commercial positions held by military personnel to civilian employees, in part because of the inherent advantages of having civilians in commercial occupations (civilians typically require less on-the-job training, for example) and in part because of some streamlined business practices. However, the efficiency reviews that DoD has conducted in recent years may have already absorbed some of the potential to realize further gains, so CBO examined three options:
The federal government might save even more by converting commercial positions in the reserve forces as well as in the active-duty military. However, CBO did not have adequate data on the pool of mostly part-time reservists to extend the analysis to that group. And because DoD does not provide adequate data on numbers and pay rates of contractors, CBO could not evaluate how shifting positions to contractors instead of to civilian employees would affect costs.
How Much Would the Options Reduce the Government's Costs?
Converting active-duty positions to civilian positions and reducing the number of military personnel could reduce costs for DoD, VA, the Department of the Treasury, the Office of Personnel Management (OPM), and the Department of Education (which helps school districts cover some of the costs of educating service members' children). CBO estimates that doing so for 80,000 activeduty positions would, after a phase-in period of at least five years, reduce annualized costs by $3.1 billion with a 1:1 ratio of civilians to service members or $5.7 billion with a 1:1.5 ratio (see figure below). Converting 40,000 or 20,000 positions would save about one-half or one-quarter as much, respectively, as converting all 80,000 positions. Converting more than 80,000 positions would produce larger savings but would increase the likelihood that the conversions would affect DoD's ability to achieve some of its personnel management objectives, such as reserving enough commercial positions for active-duty service members rotating from combat assignments.
The government's costs would decline for two reasons:
Because some of the savings would accrue to agencies other than DoD, the effects of those options on DoD's costs would differ from their effects on the costs of the federal government as a whole: For DoD, they would increase by $0.2 billion with a 1:1 ratio and decrease by $2.6 billion with a 1:1.5 ratio. According to CBO's analysis, a civilian worker costs DoD - as opposed to the entire federal government - slightly more than a service member, on average, in large part because roughly one-quarter of the costs of military personnel are borne by agencies other than DoD. Thus, any changes in annualized costs for DoD depend largely on how many civilians replace a given number of military personnel.
The options' annual effects on the federal budget during the first 10 years would be smaller than CBO's estimate of the reduction in annualized costs, for two reasons: Some of the savings would appear in the budget beyond the 10-year window used for budget estimates; and those budget estimates would altogether exclude certain mandatory costs (such as disability compensation that VA offers veterans) that would result from possible future changes in discretionary spending.
Achieving those savings could take five years or longer; the services would have to determine which positions to convert and hire civilians to fill them. At that pace, converting positions would not require laying off military personnel. Instead, the civilian employees would replace military personnel who retired, moved to other military positions, or left active-duty service in due course.
What Are Some Other Effects of the Options?
Transferring military positions to civilians has some advantages beyond lower personnel costs. For example, civilians can offer more stability and experience than military personnel, who must periodically change jobs. Nevertheless, the services would have to consider the disadvantages of transferring military positions to civilian employees. Besides costs, such considerations involve workforce management objectives - which DoD might have trouble meeting if civilians replaced service members. For example, support jobs can serve as a rotation base for service members who have been assigned overseas or aboard ship, providing them with a temporary break in a nondeploying or onshore position. Alternatively, such positions may offer military personnel paths for advancement. Those positions also help ensure that enough senior enlisted personnel and officers are available for immediate overseas deployment or to form new units.
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