Of Contracts and COLAs.

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Of Contracts and COLAs.

I loved taking “Contracts” class in law school.   I was surprised I enjoyed it, since it doesn’t seem at first glance to be a very interesting topic.  But I chose my law school based on economics (both personal since it was cheap, and in a larger sense, since it had several noted economists like Walter Williams on staff) so I should have known it would have interesting elements.  Some contracts are simple:  “I’ll pay you $20 if you mow my lawn.”  Some are more difficult: “I’ll fix your car, if you paint my house.”  But then you start looking at them.  Who supplies the mower in contract 1?  Who pays for the parts needed to fix the car, or the paint needed for the house?

Now, I love contracts.  For me, a contract spells out the rights and responsibilities of the parties.  It cuts down on friction.  I’d love to have a contract for nearly everything.  I’m like Sheldon Cooper in that regard.  I like to know that if I do the laundry twice a week, and the dishes every night that I will be left alone to watch sporting events.  (Like my beloved Patriots and UMass basketball.)

But the thing about contracts is that all parties have to know going in what is expected of them, what responsibilities they will have, who bears the brunt of some intervening event, and what they can expect from the other party.

This is why this whole debate about Military retirement and COLAs has me so mad.  In a contract situation, both parties could rely on the legal agreement to ensure that they get out of it what they thought they would get out of it.  And adding in a cost of living tied specifically to an identifiable metric like the cost of inflation is standard.  But now, servicemembers have completed their responsibilities, or at least partially completed them, and the other contracting party, the federal government, has decided that it just can’t afford to pay what it said it would.

Here is Rep. Paul Ryan (the lead in the House effort to pass the budget deal) explaining in the Weekly Standard  why the COLA has to be lowered:

"We give them a slightly smaller adjustment for inflation because they're still in their working years and in most cases earning another paycheck,” Ryan said. "Our goal here is to make sure that no other country comes close to matching the U.S. military, and the stress on the budget in the future brings that whole entire notion into question. We still have a Pentagon budget that is not where it needs to be."

So, because the DoD and Congress in past years failed to properly grasp how much it would cost in successive years, the burden should fall on those who have already fulfilled, or at least started, their part of the contract?  If you hired someone to paint your house lime green, and that person paints the whole house lime green, is it OK to go back and say, “Well, it turns out no one wants to buy a lime green house, so I’m going to have to lower your pay by $1,000.  I know you understand.”

Folks join the service expecting that when they retire they will get their pensions annually adjusted with inflation.  And now they’ll get 1 percent less on that.  Put aside whether it is a “slightly smaller adjustment” for a minute, how is that fair?  If the Pentagon budget is “not where it needs to be” why would you punish the people who had absolutely nothing to do with formulating that budget?  Your average retired Sergeant First Class had zero impact on the formulation of that budget.  He has his own personal budget, however, and you just threw that into turmoil.

The piece from Weekly Standard continues:

But why not grandfather benefits for current servicemembers, like Ryan does for Americans over the age of 55 in his plan to reform Medicare?

Ryan replied that grandfathering wouldn't achieve the savings the military needs, and he emphasized the pension reform only affects servicemembers who have served the 20 years necessary to qualify for a pension (just 20 percent of all veterans) and retired before the age of 62.

Basically his argument is that this will only affect 20 percent of veterans, but we’re going to stick that 20 percent with the full amount that we need to make up.  So essentially we’re going to punish those who served out the full time.  So if two guys both serve eight years, and one decides to stay in, and the other decides to leave and work as a forest ranger for the federal government, we’re going to stick it to the guy who stayed in?  What possible incentive is there to stay in?   No other federal employee is being asked to bear this financial burden, only those who gave the most, faced the most risks, and endured the most hardships.  Why does the retired veteran get stuck with the bill as we build a littoral combat ship for $450 million a pop, when critics say it can’t fight in littoral waters?

Ryan goes on to defend the timeline of the provision:

Ryan also noted that the deal gives Congress time to come up with a better way to achieve the same savings. "We delayed this provision so that it doesn't take effect until the year 2016, which gives Congress and the military community time to address the broader compensation issue, including this provision, if people believe there's a better way to solve this problem," he said.

While that is probably good for the servicemembers, how does having this sword hanging over you make you feel about putting in the last eight years you would need if you are a 12-year servicemember?  Isn’t the failure of previous Congresses to address this issue what got us here in the first place?

The bill is currently in the Senate, and one of the amendments suggested comes from Senator Sessions of Alabama:

Sessions’ amendment would restore the funding by requiring applicants for a particular child tax credit to submit their Social Security numbers. Federal law bars illegal immigrants from collecting tax benefits but that particular tax credit is often claimed by undocumented residents, according to recent watchdog reports.

Sessions' office has estimated that closing the tax credit loophole would save the government approximately $4.2 billion, the amount the Treasury Inspector General for Tax Administration reported that illegal immigrants received due to the credit in 2010.

Meanwhile our Legislative Staff in DC is out there pounding on doors to try to get this COLA reduction provision stripped.  As the Commander stated last week:

"While The American Legion applauds the proposed National Defense Authorization Act’s prohibition against new TRICARE user fees and its limitations on raising existing fees, we strongly oppose any decrease in the annual cost of living allowance for veterans, retirees – who are also veterans – or their dependents and families. The men and women who have served our country honorably and well deserve to be treated in like fashion once they have hung up their uniforms. Few sacrifice as much as servicemembers, most especially those who have devoted their careers at great personal cost to the safety and welfare of our nation."

Servicemembers who made it to 20 years did so thinking that their government would live up to the promises they had made during their service.  It’s a matter of fairness and contract principles.  One party should not be able to unilaterally alter a contract that has been substantially completed by another party.  Are there tough decisions to be made on where to cut?  Absolutely.  Unsustainable means unsustainable.  But you can’t just punish one group of faultless servicemembers without justification or looking at other opportunities to find that money.


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News from the World of Military and Veterans Issues. Iraq and A-Stan in parenthesis reflects that the author is currently deployed to that theater.