Just a day after Defense Secretary Chuck Hagel proposed reductions in military end-strength and shrinking compensation costs as part of next year’s budget plan, a slate of nominees to lead key offices at the Pentagon faced congressional scrutiny.

Robert Work, nominated earlier this month by President Barack Obama to serve in the No. 2 slot at DoD, pledged to members of the Senate Armed Services Committee he would strive to improve the department’s management and budget process.

But he faced tough questions about the department’s proposals to trim the growth of military compensation and its management of major weapons programs.

Hagel aims to slow growth of compensation

Savings from personnel- and compensation-related costs figure heavily into Hagel’s latest budget calculations.

That includes only a slight 1 percent pay raise for the second year in a row for military members. That’s lower than the currently projected 1.8 percent pay hike that would otherwise take effect, committee Chairman Carl Levin (D-Mich.) pointed out.

The Pentagon’s fiscal 2015 budget will also include a one-year pay freeze for general and flag officers; a reduction in the growth of military housing allowances — eventually shifting down 95 percent of housing expenses from 100 percent currently covered; a gradual reduction in direct subsidies for commissaries; changes to TRICARE, including the addition of new out-of-pocket costs for retirees as well as family members of active-duty service members; and overall steep reductions in Army end strength.

Work said service members today enjoy compensation levels about 10 percent above their average civilian counterpart and that the reductions are necessary to maintain military readiness.

Pentagon leaders “are trying to signal that we want to compensate our men and women for everything that they do for our nation but we need to slow down the growth of personnel compensation so that we can spend more money on readiness and modernization,” Work said. “There is a direct link.”

‘Tradeoff’ between compensation costs, readiness

The costs of military compensation account for about a third of DoD’s budget, said Mike McCord, who worked as a professional staff member on the committee for more than 21 years and has been nominated to succeed Robert Hale as DoD comptroller. When combined with civilian compensation costs, that grows to about half.

“The chiefs wrestle with this when we go through our budget deliberations. … They very directly feel, as the people who have to train and equip the force for today as well as tomorrow, that there’s a direct trade off between military capability and being able to control our compensation costs,” McCord said.

If confirmed, McCord faces the task of making sure the department has its entire consolidated financial statement ready to be reviewed by auditors by fiscal 2017 as well as preparing for a scaled-down review of the department’s statement of budgetary resources by the end of the current fiscal year.

DoD remains the only federal department that hasn’t passed a full audit, a requirement mandated for all agencies by Congress in 1990.

“So you understand there might be a slight germ of doubt, a cynicism about this latest year we’re going to have a clean audit?” said Sen. John McCain (R-Ariz.)

Also fielding questions from members of the committee, were Christine Wormuth, nominated to be undersecretary of Defense for policy; Brian McKeon, nominated to serve as principal deputy for policy; David Shear, nominated to be serve as assistant secretary of Defense for Asian and Pacific security affairs; and Eric Rosenbloch, nominated to be assistance secretary of Defense for homeland defense.

Budget caps LCS buys at 32

Many of the department’s large-scale acquisition programs also came under scrutiny during the hearing, including the troubled Littoral Combat Ship.

The department’s proposed budget for fiscal 2015 calls for capping the number of ships at 32 — 20 fewer than originally planned for — a sign many defense analysts see a potential death knell for the program.

“I think this is very normal with Navy shipbuilding,” said Work, who served as the undersecretary of the Navy up until early last year. “We build in flights.”

After filling that initial order, DoD could consider “follow-on” ships, such as a modified LCS or a domestic or foreign-designed replacement, he added.

“You think it’s normal?” McCain said. “You think it’s normal — the cost overruns associated with this ship? The fact that we don’t even know what the mission is?”

Work acknowledged up until 2009, the year he arrived at the Navy, there were significant overruns and the program “almost imploded.”

But all that’s changed, he said.

“I believe the program is on solid ground and is meeting its cost targets,” he added.

McCain said he believed Work’s assessment is in “direct contradiction” with a July 2013 Government Accountability Office report, which recommended Congress temporarily restrict funding for the program until the Navy got it back under control.

“The current LCS program is not the program envisioned over a decade ago,” that GAO report stated. “Initial cost estimates have been significantly exceeded and the supporting business case continues to evolve. … Today, the Navy continues to learn about the seaframe design, cost, and performance. But, it still does not know how well the ships will perform their missions, how well its unique crewing and maintenance concepts will work, or how much it will cost to equip and support the ship.”

Work told McCain he hasn’t read GAO’s study.

“You haven’t read it? Wow,” McCain said, pausing for a few moments. “Well, I’m stunned that you haven’t.”

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