Defense Secretary Chuck Hagel says service members will have to share in the pain of sequestration if the automatic budget cuts continue into next year.

In a Pentagon press briefing Wednesday, Hagel laid out a “menu of options” for dealing with sequestration beyond 2014, including changes to military pay and benefits, consolidating headquarters staff and a potential modest reduction in military force structure.

The proposed savings and cuts stem from a four-month long “Strategic Choices and Management Review” that DoD began working on after sequestration went into effect March 1.

“The review confirmed that no serious attempt to achieve significant savings can avoid compensation costs, which consume roughly half of the DoD budget,” Hagel said in his prepared remarks. “If left unchecked, pay and benefits will continue to eat into readiness and modernization. That could result in a far less capable force that is well-compensated but poorly trained and poorly equipped.”

Hagel pointed to proposed compensation changes in President Barack Obama’s 2014 budget plan, such as modest increases in TRICARE premiums. “But given our current fiscal situation, DoD has no choice but to consider compensation changes of greater magnitude for military and civilian personnel,” Hagel said.

Some of the potential savings identified by the review include:

• Restructuring military-retiree health care to increase the use of private insurance plans
• Requiring individuals to pay more for housing costs by changing how the basic housing allowance is calculated
• Limiting military and civilian pay increases

Hagel emphasized that no formal decisions have been made and tasked Chairman of the Joint Chiefs of Staff Gen. Martin Dempsey with developing a package of military compensation reforms with the goal of saving about $50 billion over the next 10 years.

However, if Congress and the White House do nothing to avert sequestration, DoD would be compelled to consider broader changes, including eliminating civilian pensions for retired service members serving as civilians and ending subsidies for defense commissaries, Hagel said.

Furloughs of some 680,000 civilian Defense Department employees — one day off per week until the end of the fiscal year, for a total of 11 days — began in mid-July. However, the Defense Department is expected to announce a reduction in the total number of furlough days DoD civilians will be required to take.

Hagel plans new round of efficiencies

The strategic review also called on DoD to implement another round of departmental efficiencies.

Hagel said he would place Deputy Defense Secretary Ashton Carter in charge of appointing an expert from outside DoD “who is deeply knowledgeable about the defense enterprise and eminently qualified” to lead the latest round of efficiencies.

Among the cost-saving proposals is a plan to reduce headquarters budgets by 20 percent, including Hagel’s office, the Joint Staff and service headquarters.

“Although the 20 percent cut applies to budget dollars, organizations will strive for a goal of 20 percent reductions in government civilians and military personnel billets on headquarters staffs,” Hagel said.

The plan also calls for eliminating the number of positions that report directly to Hagel and consolidating other functions in the Office of the Secretary of Defense.

Hagel said these reforms would reduce overhead and operating costs by $10 billion over the next five years and make the department “more agile and versatile.”

However, even the steepest efficiency and compensation cuts identified by the review would still leave DoD anywhere from $350 billion to $400 billion short of the total savings required by full sequestration.

That will mean “a hard look” at military force structure, Hagel said. However, no decisions have yet been made, he added.

Reducing force structure revolves around a basic trade-off, Hagel said, “between capacity — measured in the number of Army brigades, Navy ships, Air Force squadrons and Marine battalions — and capability — our ability to modernize weapons systems to maintain our military’s technological edge.”

Hagel said that to achieve the savings by shrinking the force, the Pentagon might have to cut more than 100,000 additional soldiers from the Army — which is already planning to go from a wartime high of about 570,000 to 490,000 by 2017. And the current plan to reduce the size of the Marine Corps to 182,000 from a high of about 205,000 could also be changed — cutting it to as few as 150,000 Marines.

He added that the Air Force could lose as many as five combat air squadrons as well as a number of other bomber and cargo aircraft.

“This strategic choice would result in a force that would be technologically dominant, but would be much smaller and able to go fewer places and do fewer things, especially if crises occurred at the same time in different regions of the world,” said Hagel.

Another option, he said, would be to make fewer cuts in the size of the force, and instead cancel or curtail many modernization programs.

The massive savings and cost-cutting identified by the Pentagon’s review, however, may not go all that far in helping the department manage through the automatic budget cuts.

The savings will take years to be fully realized, Hagel said, coming only toward the end of a 10-year time frame, he said.

In the immediate years, there would still be budget shortfalls of between $30 billion and $35 billion, he said.

“These shortfalls will be even larger if Congress is unwilling to enact changes to compensation or adopt other management reforms and infrastructure cuts we proposed in our fiscal year 2014 budget,” Hagel said. “Opposition to these proposals must be engaged and overcome, or we will be forced to take even more draconian steps in the future.”

Congress has shown little inclination to undo the so-called sequester cuts, though talks between the White House and a handful of Senate Republicans have intensified in recent weeks.

Some lawmakers and staff aides say the new, deeper Pentagon reductions could be the jolt that prompts lawmakers to step back from the automatic cuts.

Rep. Adam Smith (D-Wash.) blamed the problem on GOP lawmakers who refuse to stop the sequester. Smith, the ranking Democrat on the House Armed Services Committee, said that refusal is forcing the Pentagon to make “unacceptable cuts to force structure, modernization and benefits for our military personnel and retirees.”

The committee’s chairman, Rep. Howard “Buck” McKeon (R-Calif.), said the Pentagon review was budget-driven and not a substitute for real strategic planning. But he said it makes clear the cuts will cause catastrophic damage.

“We will lose our workforce and ability to recruit and retain the all-volunteer force, and our influence around the world will continue to diminish,” McKeon said. “Our enemies will feel emboldened.”

Associated Press Reporter Donna Cassata contributed to this story.

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