Military Pay Outpaces Civilians'. Is It Justified?

NORFOLK -- Whether you are military or civilian, enlisted or officer -- mention military pay in this region and you are likely to hear an earful.

To some, the topic is synonymous with the nation's commitment to those who serve and sacrifice on its behalf. Others see military pay and benefits surpassing civilian wages and question whether they're too generous, especially as Congress grapples with reductions in defense spending. It's an emotional issue, especially in Hampton Roads, where military pay drives the economy.

Service members give up a lot to serve in the armed forces. They can readily be placed in harm's way and often spend months at a time away from their families, said retired Vice Adm. Pete Daly of the U.S. Naval Institute.

"You give up a lot of freedoms," Daly said. "They own you. You go where you are told to go. That's a very difficult part to quantify in pay. What's the value in that?"

Advocates on both sides have legitimate arguments, and a Pentagon proposal that includes capping pay raises, cutting 5 percent from housing allowances and overhauling military health insurance has met with resistance from lawmakers.

But experts agree that cuts are coming and reductions would directly affect the region.

"It certainly would have an impact here," said Dr. Gary Wagner, a professor of economics at Old Dominion University and an associate with the regional Economic Forecasting Project.

In Hampton Roads, 25 percent of all goods and services are directly tied to defense spending; that figure climbs to 40 percent when defense procurement and contractors are included, Wagner said.

"So small changes, for example, can have a pretty strong effect here because of the magnitude of (Department of Defense) presence," Wagner said.

So, how do the numbers stack up? Military pay and benefits have long had their ups and downs. By the late 1990s, compensation was lagging well behind civilian wages. Changes were made to make it more competitive, and since the attacks of Sept. 11, 2001, military compensation has climbed steadily, outpacing civilian earnings.

Today, an average Navy petty officer 2nd class with dependents enjoys an income package -- including salary, housing allowance, food stipends and tax benefits -- that totals close to $59,000 a year, up from just over $40,000 in 2003, according to military pay charts. That puts the petty officer -- often a 20-something, typically with 6 to 8 years of service and without a college diploma -- ahead of 90 percent of civilians with similar education, skills and years on the job, a military official testified during a recent Senate budget hearing.

Here in Hampton Roads, ODU Professor Vinod Agarwal, who runs the Economic Forecasting Project with Wagner, put it this way: In 2012, the Bureau of Economic Analysis listed the average compensation for all military in this region -- including housing, allowances, tax, as well as health care and retirement benefits -- at $93,000, surpassed only by federal civilian workers, whose average was $98,000 a year.

The average civilian worker in this region brought in, by comparison, just under $45,000.

"The private sector is really not paying comparable salaries," Agarwal said. "The bottom line is, the private sector has to pick up the slack of the military and federal sectors."

Because of all the extras that come with military pay, drawing comparisons to civilian pay can be tricky. Military members earn a base salary that is dependent on both their rank and years of service.

Service members receive other forms of compensation that boost their earnings. There are housing allowances and a monthly stipend for food, as well as tax benefits -- all of which translate into significant earnings for service members. The total figure is known as regular military compensation, or RMC.

There's also additional compensation for certain types of duty, such as flight, dive or submarine pay, re-enlistment bonuses, and allowances for clothing, cost of living, and family separation -- but those aren't included in the basic compensation calculation.

Housing allowances are determined by rank, location and whether the service member is single or has dependents. The monthly subsistence allowance -- intended to cover the food costs for individual service members, not dependents -- is $358 for enlisted members and $246 for officers. Neither allowance is taxed.

A Navy seaman or an Army private 1st class, who would typically have two to three years of service, would take home just over $1,805 a month in base pay and an additional $1,380 in housing allowance, if he or she has a family. Annual compensation totals about $45,000 on the RMC charts.

A typical E-5 -- an Army sergeant or a Navy petty officer 2nd class -- has six years in service, makes $2,735 a month and, with dependents, qualifies for a housing allowance of $1,497 (or, without dependents, $1,203). The annual compensation package is about $60,000.

An officer's base pay is higher, more comparable to a college graduate's. So an O-3 -- an Army captain or Navy lieutenant -- on average would have four years in service with a monthly base pay of $5,168 and a housing allowance of $1,893. (Or, if they're unmarried, $1,671 for housing). His or her annual package totals $93,000.

The benefits are generous, and advocates contend they are also hard-earned and necessary to sustain retention and recruitment in an all-volunteer force.

The Pentagon's last quadrennial review, released in 2012, noted that historically, drops in retention and recruitment correspond directly to cuts in military benefits.

"Without adequate compensation, the nation would be unable to maintain the all-volunteer force," the 11th Quadrennial Review of Military Compensation stated. "Indeed, the history of the all-volunteer force has shown that when compensation falls relative to the wages paid to comparable civilians, recruitment and retention becomes more challenging."

But Pentagon officials told lawmakers last month that the tap had run dry. With billions in defense reductions being forced by sequestration, service chiefs said the only way to preserve military readiness was to cut personnel costs -- which make up nearly a third of the military budget and have nearly doubled, along with the rest of the defense budget, in the past decade.

"I don't think any of us at this table would say our people are overpaid, and we'd love to be able to maintain that level of compensation," Navy Adm. James Winnefeld, the vice chairman of the Joint Chiefs of Staff, told the Senate Armed Services Committee last month. "But if our joint force is to be sized, modernized and kept ready to fight, we're going to have to place compensation on a more sustainable trajectory."

In a statement to the Senate Appropriations Committee last week, Defense Secretary Chuck Hagel said that since 2000, Congress has periodically boosted military pay levels and benefits higher "than what most active-duty personnel sought, expected, or had been promised when joining the military." He called on Congress to accept the Pentagon's plans to deal with the current fiscal pressures.

"Now is the time to consider fair and responsible adjustments to our overall military compensation package," he said.

The Pentagon's 2015 budget proposal suggests capping pay raises for next year at 1 percent, below the 1.8 percent that inflation dictates. It also proposes trimming housing allowances, which are based on rental housing and utility costs in a given market, from covering 100 percent of expenses to 95 percent for any personnel moving to a new location.

Wagner and others say this would have a direct impact on the rental market in Hampton Roads and will also filter into other areas of the economy, as service members cut back on spending to make up for a reduced housing allowance.

It could also make service members, particularly younger ones who've never been through a downturn in military pay, more skittish about big purchases like a home.

Wagner said other areas in the country have stronger private sectors, and while the defense spending in Hampton Roads helped buffer the region during the current and past recessions, cuts to defense will hit harder here than in places without a big military presence.

"I almost hate to say we live or die with DoD spending," he said, "but we live or die with DoD spending.