economists analyze the differential between legal status versus a pathway to leadership? >> i certainly think there's a lot of arguments for why you want to have a pathway to citizenship. ..

the more you're able to invest. the most certain thing you can have that it makes sense for you to invest in education and setting up a business is you know you are on your path to becoming a citizen of the country. if you work hard and play by the rules. so i cannot off the top of my head think of an economic study that has asked the difference between the two of these because it's not like there's a lot of empirical variation. you want to take one country and a run at one way and another another way look what happens. adored not able to do that. but i know from economic logic would tell me you want a pathway to citizenship. >> i want to follow-up on that question. [inaudible]

you see it as reform? >> certainly the president has through his entire administration always paid for his ongoing initiatives and always believes they should be paid for an certainly you see in the budget howard he would propose to pay for this. in answer to your second question, there is no reason you need to do a broad tax reform in order to do this. there's a set of parameters for the child list eitc in terms of where the plateau starts and what the phase-out is. there are different parameters that characterize it. you can change any one of those without a more thorough review

of the tax code. but i certainly think when we get to the tax reform i look at tax reform and judge the success more by what it does for the middle class and people looking hard to get into the middle class. and that is precisely when you're looking at the tax code the first place in terms of the lowest hanging fruit not just achieving an objective in terms of fairness. but enormous amount of evidence and what this does for economic efficiency to the labour force. >> they see this as an alternative to -- can you foresee this strategy where you could have some trading over with the minimum wage would be exchanged for.

>> i don't foresee that. i think it is not either or but you are going to see the president vigorously pushing the minimum wage in exchange for something like this. >> i guess we have to wait and see what congress -- is their something they had to do from an economic perspective? is it a deal breaker? >> that is something that the president has been very clear should be in whatever the congress does and he has explained it in terms of why would you go through this

without solving the problem going forward? people have explained just in terms of the congress and passed the senate, and finally economically, as i said, i think we are strong guest if you deal with all the different aspects of this at once and if you are increasing the amount of certainty we have, and for all those reasons let's why we are pushing so hard for that. >> i was wondering what your thoughts are at this point. >> that's not something that the white house or the council of

economic advisers -- >> take a little time. [laughter] sorry. >> should i revised my question? >> the president is doing a google hang out this afternoon if people want to ask him that question, too. i'm wondering [inaudible] whether it should be done, can be done kind and the principles that we need to put it in the sanctions regime nammuldi and that will take time. adjust your general thinking what the legislation would be. >> sam, i don't want to talk a

lot about this because there's some of my colleagues who this is what their entire focus is, but the president was pretty clear about what he would do if the sanctions bill came to his desk and he said he would veto it. but he needs the space to negotiate with -- to continue the negotiations that we have had. and i don't have anything to add to what my foreign policy colleagues would be able to say. >> [inaudible] the cost benefit of legalizing marijuana [inaudible] >> i just really have not looked at the cost-benefit of that question at all.

so i don't have anything for you on that. >> [inaudible] >> you're just going to have to wait and see what's in the budget. >> job growth fell last month for the first time in quite awhile. i wonder what you're take on that is and to what extent kali is that playing off in the job growth? >> in the way the you noted and framed your question, if it helps with one it is pretty much adding jobs throughout the whole cycle but things will vary from month to month, and december was

obviously much weaker in that regard. we are giving a lot to reduce the cost growth in health care. as a result of their real per-capita health spending is growing in 50 years. and, you know, we have written a report and i have talked a lot about the way that i think the affordable care act is one of the factors that is contributing to that. even with all of that, all of the projections are that health spending will increase as a share of gdp, it will increase at a much slower rate. part of that is just the demography of the population, and a part of it is the fact that you have never had the same productivity growth in the health sector and that you have in other parts of the economy,

because it is a very labor-intensive part of the economy. so when you take those two factors together, and what we are going to need in terms of, for example we are not going to replace the home health aides with robots any time soon. this is going to be an area that i think he will continue to see in the medium term job growth even if it does fluctuate from month to month. >> charlie cook? >> [inaudible] where does the president put the authority in terms of what he

can do directly the will have an effect on the economy? >> in answer to the first question what is economically important is tpp and tpip we are negotiating both of those. you can't negotiate with partners and implement here in the united states if we don't have tpa but it's important to understand the goal is and some sort of process but it's these trade agreements and what we want to be looking at is all of the ways i spoke to earlier about how these trade agreements to expand economic growth and contain jobs and net of the united states. what is important in that is it is clear that we are moving forward towards getting that trade promotion authority.

when senator baucus and senator hatch came out, we were very clear that was the start of the process would involve a lot of consultations and a lot of engagements. and that is something that i can tell you right now, at the white house we are really very focused on continuing to push forward. but i don't have a particular timetable for you in that regard >> [inaudible] >> i can't give you a sort of this debate is this cost and that date is that cost kind of answer but what is important as that of the ambassador furman is engaging with other partners in both of those agreements that he can make it very clear to them as we are asking for concessions

from other countries that we are going to be able to deliver and implement those agreements here in the united states and that is why it is so important to strengthen the hands of our negotiators and those agreements by having the forward momentum and a path forward, and that is something the president was pushing for in the state of the union and you are continuing to see us do. in terms of the economic priorities, this is one of several important priorities for the economy. >> going back to the long-term unemployed, what can companies do to help them -- how much do you think can be achieved by the best practices and what else can the administration do to bring down the unemployment rate.

and is that a zero sum game is more of them get hired out of college? >> in answer to the first question, he's doing a memorandum as the largest employer in the country. we are putting these practices and to place where i've seen companies do the same. one thing we found is a lot of it wasn't on their radar screen. and a lot of them are able to make the case that it makes good business sense to try to find the most qualified people and make sure that as you are looking through applications there aren't some falling out for no good reason and we got

businesses to make these specific pledges in terms of what they were doing and what's advertising and sharing in the best practices and the like. in terms of your second question, i don't think the economy is zero some. creates demand coming and we discovered about eight years ago and pretty painfully again six years ago that's not true at every point in time in the economy, that it's over the medium and the long run broadly true and even the short run bringing more into the field to get the president's analogy to expand the number of consumers and expand productive opportunities and increase the total number of jobs, not just

the total number of people seeking jobs. in particular, what we've really want to avoid is that we -- our economy heals itself from the recession and there is a permanent collapse of people but they are longer contributing to the economy. i think that we can avoid that. we have a lot of unemployment rate continuing to come down. i don't think we have any evidence at all that we have anything like sclerosis here in the united states but to make sure we don't will require the continued effort. that is one thing that we are doing today. >> charlie? >> on the participation that you answered saying that a lot of it had been rated by women entering the workforce and starting to come down because of baby

boomers. but you have a sense of the category. how much of them just did well and now they are kicking up their feet in florida, and how many are sort of squeezed out of the work force less than voluntary departure? >> there's very little of the latter and the reason is the participation rate for age 6375 and each of the groups within that have actually gone up quite a lot in the last couple of years. and the evidence is that this cohort is in jobs and a little bit less physically demanding so they are on average less able to work longer than more women who are staying in the force longer and a number of things like

that. so we have increased the participation. it's still the case making up numbers here because i don't have of the top of my head. you get a group participation rate and goes from five to 30 the purchase of participation rate be increasing that if you shift from 80 to 90% participation rate is something that used to have 25 and now it has 30 that will take the overall participation. >> i was wondering on a sort of a two-part question. one is given the republicans reaching out to women do you think there is a chance of the legislation that is being passed around and if that doesn't happen, [inaudible] >> i don't have a great reading of congress in terms of the likelihood of the passing with paycheck fairness act.

but i know it's been before them for a while. and it hasn't exactly been rushing its way through. and in regards to the second question, we are always taking a look at the full range of executive actions of the president to take in particular i want to ask with all of them what can i do, in this area what can i do to improve the economy and efficiency of the federal government and the pertinent and contracting. >> is there a certain example of the president in terms of with particular effectiveness or are there instances that if you'll look at?

>> not that i'm aware of but that isn't to say that there isn't. >> anyone that has been waving at me and i haven't seen. >> you said we aren't going to replace them with robots any time soon but we are already seeing major restaurant changes talking about eliminating the staff and just ordering from your table on an ipad. it does automation keep you up at night worrying about jobs disappearing because of automation? >> it doesn't keep me at night because we have had hundreds of automation and for most years about 95% of the people that want to work can find a job. this gets to the same issue that we were dealing with in the long term, unemployed which is we

tend to have an economy with a set of mechanisms that doesn't work very well in the short run or very quickly as we would like which is why we have been helping them with public policy. but they do get you to some type of an equilibrium in terms of the people of what jobs and the jobs, the number of jobs that are available. and in general having more capital means people can produce more per hour. that is and always everywhere in the case and the president in the state of the union did say technology in some cases has taken away good paying jobs, and that's why we need to be working hard for things like education so that people can to get rid of that technology and why we need to do things like connect ed and taking advantage of that technology to actually improve

outcomes in terms of education and not taking it for granted assuming that the technological progress will always do good things. it creates opportunities and the public policy can help make sure that we can seize those opportunities. >> what are the two or three economic studies findings in five years, four years that most surprised you or were different from what we would have expected. i think -- i don't know that it surprised me, but the research on medicaid has been i think some of the most exciting

research in terms of the set of things that's found. the economic research is good for health and good for your financial security as five for ten years ago was a little bit weaker than a lot of economists would want to admit. not because it isn't clear that insurance is good for your health but there are so many issues in the causation that were hard to sort out that it was hard to prove that in the type of scientific standards than we would all like. and i think that by taking advantage of that experiment, you are able to establish a set of things. now like everything you need to enter those results correctly. so for instance if the indicators of health did not improve but they only had an 18 month window and he would have expected that to improve and on the head of the emergency department, it was a part of the

story. it wasn't the type of delivery system reform, so the act complemented primary care and with the would do to emergency rooms. so, that is one set of studies that i think is among the best. i think the biggest questions are economic development and growth in the countries over a longer period of time. and at the same time, economics has gotten a lot better at questions in terms of the randomized. actually what we have been able to do in terms of growth she's been doing this in terms of the institutions of isn't new in the last four years, but he's pulled it together.

the growth has also been important. >> about three minutes left but i want ask about income inequality that the president talked about in the state of the union address. he called the response from wealthy americans as paranoia, and it's been on thursday that the nation's wealthiest slice of the one per cent appear to be having a collective meltdown. what are your thoughts on how we have a national discussion about inequality and diminished ability without lapsing into a language of collapse or terror or paranoiacs? >> i think that one can just take a look at the facts. and if you look at the tax rate on the top 1%, for example, and even with the high rates as a part of the tax deal at the beginning of this year, it's still lower than was in the mid 1990's because, for example, the

capitol gains and dividends rates are both lower than they were then. so i think some is just hyperventilation around not paying attention to the specific facts and data. no one is talking about 100% tax rates or 70%. we are talking about tax rates the same as the 90's and the average tax rate is actually even a little bit lower than a was in the mid 1990's. but, you know, i'm not -- - come, middle-income, lower-income households in the country were about what we can do to make sure we have, for example, the quality of

opportunity, what we can do to take the tremendous resources the country has and make sure people can get a preschool education and go to college and complete college and the like. sali think if anything it's more conversation of that type. >> we have about a minute left. >> [inaudible] >> of the bls doesn't produce a price index for the elderly that reflects the full set of things where they shop, and the

composition in some respects of what they buy, but the experimental index that pushes them is not something that is close and i don't believe they have any plans and frankly the budget to have the plan to have a more comprehensive measure of prices for the elderly. >> [inaudible] >> we could discuss another time for a different price measurement, but that's what they currently do. >> thank you for doing this.

>> [inaudible conversations] a little bit of the prime time schedule

we are very focused on the sochi olympics and have seen an uptick in regarding sochi and this is where we are given the olympics located. the extremists in particular is the most prominent terrorist group in russia. the leader of that group last july announced in a public message that the group would intend to carry out attacks and sochi in connection with the olympics and we have seen a

number stemming from last fall, suicide bombings in volgograd that took a number of lives. the tourists are becoming more sophisticated and going to school on their repeated disclosures and leaks so is allowed it to be much more difficult to find them and to address the threat they pose. so when i look at the threat relative to 9/11 as a country i think we have done a great job at addressing the vlore abilities that exist in the system and putting together an information sharing architecture that allows us to move that information quickly but you never know what you don't know. >> the probability of the attacks now compared to 2001 is at least for me is a very hard question to answer because principally because of this very dispersion and diffusion of the threat, whereas we are very

focused initially particularly in that time period on al qaeda and now we are facing a much more dispersed threat. as part of the bipartisan budget agreement approved by congress the military retirees under the age of 62 will see a 1% reduction to the cost-of-living adjustment they received on retirement pay starting at the end of 2015. this change to military retirement benefits was the

topic of a senate hearing earlier this week. the joint chiefs of staff james winfeld was on the committee and the heard from a panel of retired military officials. this is just over three hours. >> good morning everybody. the committee meets this morning to review the reduction and cost of living adjustments to cola for working age military retirees. it was enacted as part of the bipartisan budget act of 2013. we welcome to the acting deputy secretary of defense, ms. christine fox and admiral sandy winnefeld.

i will introduce them after we hear from secretary of fox and admiral winnefeld. the bipartisan act adopted in december included a provision that reduced the cola for working age military ev ty cherry eased by 1% until the reed ty -- retiree at which time the pay is adjusted to the level that what had been had the cola not been reduced. in a usa today column defending the legislation, congressman ryan explained the provision as follows. here is what the law will do. we make no changes for those currently at or above age 62. this reform affects only younker military retirees. right now any person who has served 20 years can retire, regardless of their age. that means a service man who in less that 18 becomes eligible

for retirement at 38. but late thirties and early 40's are prime working years and most of the younger retirees go on to a second career. now the consolidated appropriations act adopted a few weeks ago amended the bipartisan budget act to exempt disability retirees and their survivors from thus cola reduction. i believe that the cola reduction is wrong. because it targets a single group, military retirees to help address the budget problems of the federal government as a whole. reforms have been made for the federal civilian pension system over the past several years. those changes apply prospectively to please.

bye contrast, the change to the military pensions will apply upon implementation to the current retirees, their families and survivors. we have established a commission to review the military compensation and retirement systems but i believe that it is unfair to single out military retirees at the federal deficit reduction effort. there have been married and proposals to repeal this cola change and putting proposals with different offsets and some with no offsets. these include proposals from senator shaheen, ayotte, mcconnell, sanders, hagen and others. the difference is highlight the challenges and opportunities and the legislation before it takes effect on 2016.

but i believe we must find a way to appeal and i predict that we will. i trust that the first panel will also address the broader context in which this provision is repealed will be considered in both the stress placed on the department of defense budget by the combination of congressional the mandated budget reductions approaching a trillion dollars over the next decade and also combined with the dramatic growth in the cost of military pay and benefits. the military services have responded to severe budget pressure by reducing the force structure and in the strength and the during the repair of equipment, delaying or canceling the modernization programs, and allowing training levels to seriously declined. the department of defense has told us it will be unable to

meet the legislatively mandated budget levels unless it also begins to curtail the growth and cost of military pay and benefits. the army chief of staff ray odierno told us the cost of a soldier's pay and benefits has doubled since 21 and if left unchecked it will double again by 2025. the service chiefs have testified that this rate of growth was not sustainable even before the budget cuts mandated by law and that a failure to curb the growth would necessarily result in drastic reductions to military force, readiness and modernization. so we look forward to the testimony of witnesses on the impact that the reduction in cola will have on the force and the retirees, its impact on the

recruiting and retention and help the changes fit into the overall department of defense budget picture. >> almost everything you said was in my statement, too, sallai welford go except for one thing that wasn't mentioned and that is fiscal 2014 has the comprehensive review of the compensation and retirement and proposed reforms to congress by early 2015. now when the commission was created, the congress made a promise into law to the retek aeries that those serving would be grandfathered from any changes to the benefits they were promised when they volunteer service to the country. i've often said that. people think a decision and it's predicated on what they are told at that time would be the

situation i think it becomes immoral and shia. the promise of grandfathering was made from the president through the ups principles to guide the commission. section 403 breaks the promises and we all agree their needs to be a look at the military thief and compensation however the piecemeal approach taken in the act is the wrong way to do that and i would add that this is on top of other cuts that are not classified as kutz but such changes to the detriment of their retirees in tricare. we are often forced to come up with a solution. thank you mr. chairman. >> thank you, senator inhofe.

okay. secretary fox. >> mr. chairman, senator inhofe and members of the committee i appreciate the opportunity to appear before you with admiral winnefeld. on behalf of secretary hagel and the men and women that we survive but like to offer my appreciation to the committee and once again enacting the national defense authorization act. your dedication to passing the ndaa means the department has the authority that it needs to accomplish the incredible array of missions we undertake a around the world each and every day as well as those that support our number one asset, our people. allow me to situate today's discussion in the larger frame of the department's fiscal situation. in the printer grateful for the

support of the congress in enacting the 2014 appropriations act and for the bipartisan budget act of 2013 which provides us with much needed certainty over our budget for fiscal year 2014 and 2015 and partially addresses some of the significant budgetary challenges imposed by the sequester provisions of the budget control act of 2011. in response to the sequestration, last summer secretary hagel directed that the department be prepared to operate with significantly fewer resources than those previously requested. the resulting strategic traces and management review showed that savings from increased efficiencies, reduced overhead and a reduced military and civilian pay and benefits would not come close to funding the gap created by the budget control act nonetheless every dollar saved could remedy some of the shortfalls to the military readiness, capacity and

capability caused by sequestration. that's in part from last summer secretary hagel managed the reform most notably a 20% cut in the department's major headquarters, staff director it and support agency. while the bipartisan budget act partially mitigates the worst of the departments readiness problems and fy 2014 and to the lesser extent in fy 2015 beyond those two years it remains well all of the land. if sequestration is allowed to insist, it will lead to the force that is too small and adequately yclept and insufficiently trained to foley defended the nation's interest. that is why the department continues to call for the change and the law even as we plan responsibly for the future that could include a return to sequestration.

i join the leadership in stating we cannot sustain their rate of growth in military compensation we've experienced over the last decade. the one-third of the defense budget consumed by a military compensation cannot be exempt as an area of defense saving. we must find a way to slow the rate of growth. i would like to be clear we are where we are today with respect to personnel costs because of good intentions. from a desire to make up from previous gaps between military and private sector compensation. to the needs of the recruiting and the retaining a top notch force during the decade plus of the war to an expression of the nation's gratitude for the sacrifices of the military members and their families. as a result the inflation on the 40% higher than in 2001, even though the active force today is only slightly larger. the defense health care costs alone have grown for less than

$20 billion to 21 to nearly $50 billion in the 2013. payments for housing costs have also increased faster than inflation. this rate of growth occurs in the era in which the department's top line was also growing to meet the needs of the nation involved in multiple conflicts. given today's fiscal reality barring the unforeseen events we are unlikely to see the defense budgets rise for some time. so if the department is going to maintain a future force that is modern and ready we cannot maintain the last decades rate of military compensation growth. admiral winnefeld and i brought what compensation each of the members receive. it is on the table in your package is just below the written testimony. what we hear and mistakenly from our people is they feel the quality-of-life enabled by the pay and benefits package listed

on this chart is relatively high. but what we increasingly hear them say is lacking is particularly following the sequestration is in their level of pay that their quality of service. our men and women are the first to say that they are well compensated with the department doesn't have the money to maintain the rita bender supply them with the latest technology or send them to get the training they need, and then they are being done. when they are sent into harm's way, this of this service can quickly translate into the breach of trust. here i am referring to the collective, sacred obligation to provide the troops with the finest training and equipment possible so that they can be applied to combat able to accomplish their mission and to return to their families safely. they've done a significant amount of work to export rate of compensation growth fairly and effectively.

we provided several proposals in recent years some of which have been accepted and most notably just this year congress accepted a 1% basic pay raise even though the employment cost index call for the increase of 1.8%. we are currently reviewing all of the military benefits and the offer for their proposals. a few words now on the cola or above cpi -1 as part of the dba. no officials were consulted including the - one provision. it's made to the provision to exempt the military disability requirements and survivors. including its effect on the retirees and not currently xm it. of the congress decides to retain the approach we strongly recommend that it be modified to include grandfathering because

of the complex nature of the military retirement benefits i would urge the congress not make any changes in this area until the military compensation. they present a final report in february, 2015. there are many ways that we might change military retirement in putting far more fundamental reform. because the cpi -1 provision does not go into effect until december 2015 there is ample time for such a careful review including waiting for the commission to provide its input. i will conclude by reiterating the pay and benefits are an area we must be particularly thoughtful of the commitments made and our ability to recruit and maintain the force needed for tomorrow. yet, it has become increasingly clear that the compensation cannot be excluded from critical efforts to sustain the force that is balanced, he quit in the

latest technology and ready to meet the challenges seen an unforeseen. not to do so in the name of serving the people for any other reason. men and women would be sent in a less than they need to accomplish their mission. secretary hagel and the rest of the leadership won't let this happen on their watch. we appreciate the committee and look forward to working with you to achieve the balance that we all seek and our men and women deserve. >> thank you very much. admiral winnefeld. >> good morning, chairman levin, members of the armed services committee. thank you for the bertoni to testify on the cpi -1 provision and the military compensation in general. and i would like to start with the latter if i might. i want to make it very clear that our magnificent volunteered men and women in uniform and their incredible families deserve the best possible

support that we can provide including the competitive pay and other forms of compensation. this is especially true when they've experienced over a decade of wartime deployment and stress coming on top of all of the normal disruptions of military life including the sacrifices made by a wonderful spouses and their families. however we must also exercise good stewardship over the resources that the american taxpayers and trust of the department of defense to protect in the united states. this means investing prudently to maintain the highest quality of the volunteer force. while simultaneously getting the best value for the capability and capacity and readiness that we need to win decisively in combat. in this light i try not to forget that the american people have been very supportive over a decade of war to those of us that were in the uniform. they've provided ample funding for the combat operation. they treat us in person for differently from our vietnam for

predecessors. many businesses have offered generous discounts and other special benefits to the men and women in uniform. they have provided substantial increases over the last decade in compensation they have more than closed previously existing gaps with the rest of the nation's work force. in the uniform we are very grateful for all of this and it means a lot. however, the demanding at this point that our compensation not only remain in its currently high level, but that it continue to rise faster than that for the average american is simply not sustainable at a time when our entire budget is under great pressure. this growth has been substantial, and rightly so. by the 1990's military compensation had fallen to a deeply unsatisfactory level relative to the rest of the working population in america. the quality of the all volunteer force suffered as a result. to address this with the help of the congress that we

substantially increase compensation growth trajectory in the late nineties and the post-9/11 period. and 2001 the u.s. median and annual income was equated to the direct pay of an average each seven in the military. today the median income is $52,000, roughly equal to what an average he five weeks. so the service members pass the u.s. median annual household income to pay grades earlier or about eight to ten years earlier than his or her career in 2001. none of this includes indirect compensation or the special pay and bonus we used to shape the force or the generous changes to the will. to provide additional context and 200 to the quadrennial review of the military compensation concluded that in

order to attract and maintain the best that america has to offer and because of the rigorous military service, the military pay should equal around the 70th percentile of the civilians with compatible education and experience. but in a 2000, the personnel only placed in the 50th percentile. by 2009, the higher compensation trajectory enabled us to more than close the gap. in 2012, they reported an average compensation had climbed between the 85th and the 90th percentile. understandably so during the decade of the war. why all these numbers are not a goal, they are an indicator that we should and can replace the compensation on a stable trajectory. as the secretary mentioned the the department has already made adjustments but more are probably needed. the department with the support of the joint chiefs and the senior enlisted leaders is

considering proposals the would meet that intent. contrary to what some are reporting, none of the proposals red raiders the take-home pay of anyone in uniform. we believe that we should make this adjustment once and we will be able to record and maintain the best of the nation and to our all volunteer force and indeed, we are hearing from our people that they are much more concerned about their quality-of-life, their continued ability to continue serving in a modern force than they are about maintaining the trajectory of the previous gaps. we realize we will not get this right. we seldom do and there may be special cases and issues that require corrective action. the future adjustments are required to remain competitive for the best america has to offer. we will so do our best to ensure active and retired communities have the most accurate information possible. some will say the savings can

and should be found elsewhere through efficiencies. we agree we are working hard to do just that and we should use additional congressional support in that area yet even with the most ambitious a deficiency efforts, we still need to address the growth rate of the compensation. indy 500 end we believe the most importantly we keep faith in the fantastic young men and women who volunteered to defend the nation as to only send them into combat with the best possible training and equipment that we can provide. controlling compensation growth and the tough budget environment will help us to do just that. now regarding the cpi -1 provision we are pleased that it prevented the government shut down and gave us at least a couple of years of long needed predictability in the budget. however cut the inclusion of the cpi -1 provision has clearly led a considerable and understandable anxiety among those who are currently retired or who are planning for

retirement. i want to make it clear the chairman and i and the service chiefs and senior enlisted leaders support grandfathering any changes to the retirement structure. the chairman has testified several times on this point and the current cpi -1 doesn't fit within that principle. we believe changes should only be made after the commission takes a holistic look at the many variables involved. accounting is only one of those variables and it is far too soon to reach a conclusion on whether it should be part of a grandfather plan. i would also say however and whenever the specific provision is address should not permanently remove the cost of living adjustment as a potential variable in the future grandfather plant. and other words we don't have to rush into this we just have to make sure we get it right.

however, as the secretary said we are grateful that the appropriations bill does exempt military disability retirement and survivors of members who die on active duty. we think the congress for this correction and it's an important signal to those in the force who have sacrificed the most. thank you again for the opportunity to speak today and for your support for the magnificent men and women who serve and who have served. i look forward to hearing your questions. >> thank you very much, admiral. you both have made reference to the fact as did the senator and myself, that we have a military compensation and retirement modernization commitment that is at work and again this year and early next year. i would first ask we would have

a seven minute first round by the way. you made reference to the possibility or the need for some kind of acceptable adjustments. you talk about them being made holistically, but this means that there has got to be some kind of a criteria, which is utilized to help control the line between acceptable adjustments to existing benefits that would cross the line and undermine commitments that were made. one of those criteria as would be grandfathering. is there any criteria that either of you would suggest.

do either one of you have suggestions. >> we both have talk thoughts on this because we have been thinking very hard about it. i do believe that the changes to the compensation fall into two buckets. there are changes to the payments and co-payments and things of existing benefit programs and pay and then there's retirement. so the kind of things the department has proposed in the past and is looking at adjustments to things like pay raises. if you're going to get paid next year, is is something we should talk about and certainly those need to be looked at in a very clear-eyed way to make sure that we can recruit and train the best people we need for the all volunteer force. there are standards for that but frankly we monitor that very, very closely every year, and as admiral winnefeld said we would

come back to you if we saw any kind of trends and a negative direction. retirement, however, is a program that the commission is looking at and considering fundamental reform. those reforms are important for the ways we think about shaping the force, how long the people stay on the force, for example, and that has to be thought of in a very different way. and that's why we really do want a commission to help us think freely and look at all of the considerations of how it would affect the shape of the forces in the future. so we parcel them in that way and have been thinking of them in that way. ..

retired members don't sense a change in what they believed they were promised and i don't believe i got any promises when i came in. i think as the commission looks at future potential changes to the retirement system they have to look at all the variables in those variables include vesting time, is it 20 years or is it something else? what your retired base pay is what the defined benefit multiplier is it that would be included in any bonuses that would take care of that and matching and also cost of living. but in end, i think there are three goals that such a system has to meet. one of those is that we have to take the best possible care for people who serve this country. another goal is that we have to allow the retirement program to help us shape our force with the

right profile and third we have to get the best value for the american taxpayer and as long as we can meet those three goals with the commission and grandfather what we do have i think we will be in great shape area and i hope helps. >> thank you. do you expect there's going to be any changes in benefits in the 2015 budget request? >> are you talking about retirement and if that's? >> yes. >> i don't think so. >> we won't propose anything on retirement benefits in 2015. we are waiting for and working with the commission to think through retirement. >> do you agree with that? >> absolutely and this goes back to what secretary fox said a moment ago that any adjustments we might make an existing compensation those are changes within an existing structure. we think the commission is going to look at the entire structure and that takes a much longer deliberate luck and it stresses

the variables that i mentioned. >> when we find a way to repeal this provision, some of us are going to want to find and offset to some of the bills that have been filed that don't require and offset. but if we are looking for offsets which is about a 6 billion-dollar number, do either of you since i think you have indicated that you support repealing this provision, do any of you have, to either of you have suggestions on offsets inside the defense budget? >> i can certainly start that. we have looked at that. it's about $6 billion as you said sir in mandatory spending. inside the defense budget there's really only two places to go for mandatory tricare for life or changes to retirement and we have already said any changes we believe should be grandfathered.

the proposed changes to tricare for life fees that would contribute but not cover a 6 billion-dollar bill. so that is inside the defense budget. in our budget, there are savings that we would accrue aside from the mandatory savings that you referred to of about $500 million a year. we understand and are planning that these types of changes take time so if you grandfathered those savings would accrue over time and that is true for all the compensation changes we have proposed for structure changes we have proposed. we understand it takes time. that is one of the big challenges with a sudden drop like sequestration would give us before the vba and we may go back to in 16. that sudden shop is the real challenge for us because it does take time and we understand that. >> admiralty you have anything on that? >> i would add that i want to make sure this is clear to the members that there's the

$6 billion in mandatory and inside dod because of the cola minus one there were things we had to contend with and nonmandatory ways which will involve readiness capability and capacity choices that we will not be able to make because of that but we are prepared to deal with that and we understand it's a factor among all the many other factors that we have to deal with when crafting a budget. >> thank you. senator inhofe. >> thank you mr. chairman. as secretary fox is the former director of the cost assessment program evaluation you lead the strategic choices and management review. in that effort you spent many hours examining the department's military personnel compensation benefit structure including retirement pay and benefits. in your current role as the interim deputy secretary of defense you will have been heavily involved in the departments budget.

i have a chart. you can see it over there on this side and it shows -- this is a chart we have used quite a bit. i have talked to you both about this chart in my office. you have to review this. >> can i interrupt you? we have a quorum. could we keep you here for one minute? we want to get nominations and forgive the interactions but senator inhofe has asked me to interrupt anyone. thank you very much. sorry to do that to you. we now have a quorum so i would ask the committee. >> thank you so much for speaking out. >> i shouldn't of singled you out. you would have never done this but this is a unique opportunity for me. since a quorum is now present i would ask the committee to consider three civilian nominations of the list of 1096 pending military nominations. versailles is has the committee to consider the nominations of

pamela creed and the principle deputy minister at her national nuclear security administration brad carson to be undersecretary of the army william maclean junior to be assistant secretary of the air force for acquisition. is there a motion and is there a second? all in favor say aye. opposed, nay. the ayes have it. the committee will consider a list of 1096 pending military nominations. all of these nominations have been before the committee and require the length of time and is there a motion to the -- the motion carries. thank you very much. >> i will be right back. we have moved over 1000 nominations while i was here so i let i was able to. >> thank you and senator inhofe we will not take time away from you. >> that's fine and mr. chairman wanted to point out the big picture here. you are both familiar with this. this is the area savings prior to the budget that was passed.

the black line cuts down in the area of the balance which is the readiness for the first two years. but just to get an idea, that would be what i would call the orange up there is really the readiness area and the modernization prior to the budget is the green. you can see that. the force structure is a big thing but in the first years but the last. i think when we talk about the savings from various changes in compensation that you are looking at the blue line. you are really only looking at about half of the blue line there are. that is entitled inefficiencies of which changes in compensation would be a part so it would be about 50%. now, secretary fox do you agree with that and i'll says on that chart? >> yes, sir.

you briefed my slide extremely well. one point, we did not in the strategic choices management review consider retirement changes. eco-'s of the commission and the complexity as i've said before so those compensations that is half the blue as you said correctly or just changes to pay in fees and things of existing programs. >> i understand that and i appreciated and the reason i wanted to bring this up is this meeting here today is about compensation. there is this misunderstanding of where that fits into the overall picture. most people would think it would be about the size of perhaps the grain and the blue put together. i think people need to understand that it's a big deal. it's a lot of money but relative to the rest of it it's not. my concern has always been in the readiness area. secretary fox, we have already seen that this is going to have a devastating effect on the

long-term financial impact for those who are currently serving and i think that we need to be sure that we are all on the same page on this. the cut squeezes military retirements between tricare fee increase that applied at the cola raid and a compounding decrease in cola adjustments to retired. as a result the military retired pay will not keep up with inflation. i wanted to bring this up because this is over and above those issues that are already in play right now. do you both agree that yes as bad as they are they are even worse because of the fact that they have already taken what most people consider to be cuts in the tricare medical services? >> i want to make certain i got your question. the question is the cola -1

provision compounds on the changes we have made an tricare? >> that's correct. over and above tricare. >> certainly we believe we should grandfather any changes to retirement and we also believe for retirement many to look holistically. cola -1 might be right for the future and it might not so absolutely the cola -1 is important. the tricare increase that we have talked about in 2012 was an increase of $60 a year above as our chart shows. it's now up to after being indexed, 548 a year. that compares for civil servants to $820 a month, a month. so yes there is an increase in my view, $60 a year as indexed and not as significant as the cola money -- cola -1 we are talking about. >> it's over and above it.

and again my concern has always been and when i was serving in the army many years ago probably before you guys were even born, we were talking to people who would be reenlisting or making career decisions and it was always based on what was promised to them at this time and i think that was the reason i was bringing that up. general dempsey said the other day and i'm quoting now, if anybody here thinks i want to be a chairman that goes down in history for having carved out pay in compensation and health care or i assure you i do not. i don't want to be that chairman the problem is there is going to be a chairman that has to do it so my view is we should get on with it that we should do it all at once. what he is referring to here is the military compensation retirement commission which would be coming out next year. i think you already answered the question secretary fox.

admiral winnefeld would you agree also that the military, the commission should be allowed to finish its report and then do everything all at once rather than to do it piecemeal? >> i certainly think on the retirement side that would be a big mistake to make piecemeal changes which is why the cola -1 thing was a surprise and a bit of a disruption. we think though that on generic compensation side we have all of the information we need to -- these these are fine-tuned adjustments on regular compensation but definitely in the retirement peace we should wait until the commission report creates the very good. appreciate that mr. chair. >> thank you very much senator inhofe. senator manchin. >> thank you mr. chairman and i want to thank both of the witnesses were testifying before the committee today. we are here to discuss an important issue as you have been talking about so for those who will join in the future. after more than a decade of war

or our servicemembers have made tremendous sacrifices and i'm here to say that we should honor the sacrifices made by the men and women in our service. i really want to thank chairman levin for holding this hearing today. there are a couple of things that i want to ask both of you. when i was governor of west virginia the first thing that came to me was they said we had to raise taxes, first thing. i said don't you think we can run the place and check this out to see if we can do a better job before he raised taxes? and be more prudent and what we did and basically our values are based around priorities and vice versa. just over a month ago the u.s. marine corps became the first service to complete an unqualified favorable audit opinion. the first and the gold standard for auditing countless claims of mismanagement and waste and played the pentagon and i think all of you know that.

the current goal is for a clean audit depending on 2017 yet we are discussing cuts to soldiers, pay and benefits. it doesn't seem prudent for me and for you to say the first thing you have to do is cut soldiers pay and benefits. we don't know if you can run the place a little bit better. so if the pentagon feels he can convince congress to make changes to retirement benefits are the best answer to cost savings what other courses of action will you recommend? we hear about the unbelievable waste and fraud that goes on at the pentagon. >> sir, first i don't want to say that we could not be more efficient. that would be a crazy statement and of course we need to be more efficient and the other thing i wanted to share with you is that from my time as senator inhofe said as director of cost assessment and program evaluation i spent four years starting with secretary gates running efficiency in the

department. we found deficiencies in secretary kendall is of course running these acquisition reviews and has done better buying power started by dr. carter the former secretary of defense so the department has been seized with efficiencies. we found 100 billion dollars first and then another 60 and another 30. this year we will propose more. we expect to propose efficiencies every year but as senator inhofe's chart shows those efficiencies while important and we must continue them, are not adequate to pay the bills of sequestration. that said we have to do them. slowing the growth of compensation is another piece of this though. we are not cutting compensation. we just need to slow the growth. it can't continue to grow at 40% above inflation so we think that's another piece of it. but fundamentally at these budget levels everything is on the table.

first and foremost efficiencies. >> i would also reinforce that we aren't planning. the proposals are not to cut anybody's payen that's a really important thing i think to get out and i would also share in the belief that there is an awful lot more this department could do to become efficient. it would be responsible to say or believe anything else. we are working very hard and as you know we are cutting our staff sizes considerably and working hard on acquisition efficiencies. we have a long way to go on that and i think many senators here would point out examples where we have a long way to go on that although we are making progress. we saved $4 billion on expendable launch program which is a tribute to ash carter and kendall's work. even with our most ambitious efficiency targets we still have more of this gap that we have got to fill and as senator inhofe pointed out the compensation is slowing is only

a very small part of that gap. >> let me say the other thing i want to talk about is the national guard. going through the horrible chemical spill that we are going during west virginia right now was the guard that was the frontline defense for our state and it always has been and i think every state will go with the same. with that being said i'm concerned the recent reports of the army wants to move apache helicopters out of the guard and cut 40,000 troops from the guard when i look at what we are doing with contractors, private contractors and the department of defense and it's been a real problem for me and really a thorn to think that we are going to be maintaining our contractors size while cutting men and women in uniform. also the guard it just makes sense with the climbing budget. you could use your guard more effectively and efficiently but it seems like the military itself does not want to embrace that. maybe admiral you can talk about that. >> we do embrace the guard.

we love the guard. it's a fantastic institution that this country has used for many hundreds of years depending on which state you talk to they will give you a different number. >> as a recycling going into our reserves and guard, you have all this experience and expertise. >> we are in the process of our budget deliberations that we are doing right now looking at the balance between the active and reserve component and i would guess that there would be a difference in proportionality but i wouldn't want to get into any details in there about how one would come down as opposed to the other. but no doubt about the guard. the other thing you mentioned was contractors and again we completely share your belief. we have got to make sure we have her contract -- >> we have a lot of my hands just getting their salaries from 700,000 to 900,000. we think they should be paid more than the vice president to 33. >> the staff reductions the largest proportion of staff

reductions and the joint staff and i expect out of the 20% reduction that we have offered up to do. a large proportion of that is in fact contractors because they are costly. and -- >> and most of them are military. ex-military for the same jobs. i would hope, the guard to me is the most effective and efficient way for us to go in this country they have the expertise and to keep that expertise ready at all times. for some reason i don't see the pentagon embracing that even though we have elevated that up to the full joint chiefs position. maybe it takes time and i know senator graham tells me it's like paul masson's wine. it's not ready until it's time that i hope you're getting close to that. with that, thank you sir. >> thank you very much senator manchin. senator mccain. >> thank you mr. chairman. first could i say secretary fox, do you believe that the actions

that were taken in context of a budget agreement was not the way the pentagon would like to see this issue addressed? is that correct? >> that is correct, sir. >> and the best way to do this is an overall addressing of the issue through the commission that this committee has had written into law and signed by the president? >> that would be our preference. >> and would you agree that one of the principles we should publicly adhere to and address in this issue it is an issue, would need to make sure that we do not act in a way that would affect existing servicemembers and retirees? in other words, it would be prospective in nature and we could address the issue effectively if we do a prospective rather then creating an impression to the men and

women who are serving and those who have party served that we are reneging on our promises to them. >> sir that is the department's position and has been. >> so it will be definitely, you believe, it a recommendation from his commission that whatever changes need to be made will be prospective in nature, rather than effective? existing benefits and retirement parameters? >> u.s. senator mccain i believe that is even written in the establishment of the commission that they be grandfathered. >> i know you respect the members of the budget committee as i do but they are not renowned for their expertise on military personnel issues. would you agree? you don't have to answer secretary fox. you don't have to answer. i will say that. so, and i think you are to answer this question but again

for the benefit of the record again, plan to reduce 1% of military retirees cost of living was not conceived and with and the department of defense. is that right clicked to your knowledge were you consulted on this decision? >> not to my knowledge. >> did you acknowledge that this decision was made by the budget committee without ever consulting the department of defense as to the impact of it on readiness, morale, keeping our promise etc.? >> to the best of my knowledge we were not consulted. >> mr. chairman i want to thank you especially for anticipating this issue because it is an issue of rising personnel costs and in fact under your leadership, we now have the commission established that i think we can come up with a recommendation that would take into consideration the views of the military and civilian

leadership and the pentagon and hopefully we can arrive at a consensus. our next panel of witnesses today would be very adamant and understandably so about their concern about the effect of this action taken by the budget committee on the morale and readiness and the ability of us to keep our promise to the men and women who have served and are serving. so i think you mr. chairman for actually anticipating the fact that this issue has to be addressed and i hope we will be able to convince all of the american people of the need to base what we do based on the recommendations of the most highly qualified people we can find. thank you mr. chairman. >> thank you so much senator mccain. senator donnelly. >> thank you mr. chairman.

admiral, as we look at this challenge and in light of our belief that these should be grandfathered and we look at this 6 billion-dollar amount that we are looking at, are there things that you can sit with other folks at the pentagon and with the joint chiefs and such and say are there areas where over eight years period in this budget we can try to find $500 million? you know, putting it in your best judgment as opposed to imposing something from the top down in regards to our retirees. >> senator we have already accepted the need to do that with a piece of this that is already inside the dod budget where we pay into the accrual fund. that's a 500-dollar bill but when the legislation was passed our accounts basically were

credited that $500 million when we started to plan prudently to use it. we will have to backtrack on that if this proposal is repealed but we are prepared to make those difficult decisions. if we are asked to account for the money that is outside of the dod budget, the $6 billion in mandatory spending, that's a far more difficult problem for us and as secretary fox mentioned earlier there are only two pots of money on the mandatory side that we can address and what his retirement which we believe should be grandfathered and the other is the tricare for life piece which he now is a difficult question as well. >> admiral winnefeld said exactly are position. we do believe grandfathering is the right thing for the people. it is another one of the reductions that the department would seek to make that has backed wooded savings and that is the challenge as was shown in senator inhofe's charge but we

are prepared to address that challenge. >> as we look at the future we have the commission coming up next year and we don't want to step in front of them are any decisions that are going to be made. what are some of the areas you think that we can take a real close look at and make a difference while still saying to our perspective servicemembers, this is a great place to be and this is a great opportunity to have in life? admiral? >> i think that's a good question and i think he gets back to the variables that are inherent in any retirement plan. i think one of the ones that has been discussed the most is vesting time. the piece about you have to wait 20 years to receive any retirement in the pits. that actually helps is a great deal right now in the profiling of our force. we want to have a young forest that is going to stay to a certain point and then frankly we need a number of them to move bond so that we can bring fresh new faces in.

so it would be very difficult to design a system that would give vesting before that but it's not impossible and that is one of the things that the commission certainly have to consider. >> secretary fox? >> senator, i would like to share some advice i got from secretary gates when i was trying to look at some of these issues. he warned me and i will just share with you what he said. he said the defense department is like a dinosaur. little tiny brain and poor fine motor skills. if we start fiddling with these retirement benefits, we have the chance of messing it up. at this is why it's so important that the commission do this thoughtful work looking at all of the analysis because it is admiral winnefeld has said it's very important that we understand changes in vesting and what that does to the shaping of our force. the needs of our force are changing though as we look into the future. technology changes, expertise changes. we have seen some of our people with important expertise stay

longer and we need others to move through faster and the young to bring in new ideas. how do we get that exactly right? it's a difficult challenge and we are working with the commission and we look forward to continuing to do so. >> admiral as we look at the commission and as you indicated that challenge you have of saying you know we want that mix to also change at the end where some decide on other career choices. is it pretty much, you know you are really have to dig deep to try to figure out how do we set this up so at six or seven years we don't lose people we want for 20 or whatever and the skills that we want. on the flipside of that, the folks who may choose to move on, that they have that choice. is it going to be a major consideration by the commission when you look at this as to how to get the mix right for the

future? >> yes, sir i think it is. we have really good models under our current system for retention we understand that fairly well. there are always unknown variables out there and the number of variables is dizzying. national employment, the propensity to serve on the part of the population whether you are at war or not. ..

is to understand whether we have a model that can accurately predict behavior so we can profile our force correctly. >> thank you very much. thank you, mr. chairman. >> senator wicker. >> thank you, mr. chairman. a real important hearing and i appreciate you calling it, and mr. chairman, i appreciate you starting out at the outset saying that this cpi minus one is wrong and it needs to be fixed. as a matter of fact, not a single voice has been raised on either side of the dais today in support of what this congress enacted and will sign into law. and i appreciate this but i also want to appreciate the seriousness of this hit to the military retirees that are affected. it hasn't been mentioned yet today. and if be the witness wants to

challenge me on this, now is the time to do it. but for the typical enlisted military person who retires below the age of 62, this is going to mean a lifetime hit of somewhere between $70,000.80000, or more. lifetime. to the military member. correct me if i'm wrong, but that's been suspended over and over, depends on exactly when the enlisted person retires and exactly what the rent was at the time. for officers it's even more, over $100,000. out of their pockets lifetime. so this is a serious matter with cpi minus one sometimes can appear to diminish the profound effect this has. let me ask you, secretary fox, and let me acknowledge also to both of you i understand the

problems that you are facing. and the daunting task you have in making the numbers come out. we want to work with you on that. that's what we established the commission with certain parameters. as i understand it, secretary fox, you are sorry this was affected. you're glad it's been corrected with regard to disabled military retirees. and you want to fix it, but you want us to wait 13 months to fix it for everyone else, is that correct? >> yes, sir. we want this to be informed by the results of this commission. >> why was it a good idea to fix this -- it wasn't going to go into effect until december of 2015 for the disabled retirees. why was it you had to go ahead and fix it for them? >> well, sir, i think that the disabled retirees cases is very clear. i think whether to do anything with the disabled retirees is

just, is not part of any -- >> okay, all right. i think it was clear. i think it's clear on the rest of them, too. seems to be clear up and down the aisle. so if it was clear for them, and if we are unanimous in this room and unanimous at the witness table, that this is a wrong that should be fixed, it seems to me it ought to be made clear, and admiral winnefeld, you mentioned predictability. we have an opportunity. we have a force propose on -- we have pay-fors proposal both sides of the out to do this. it seems to me it doesn't make any sense. we are all in agreement on this to wait, unless you want to hold out the possibility that we may stick with this. if we want to send that signal, then waiting for a commission report or waiting 13 months might be a good idea. but if we all agreed this wrong

shouldn't have been done, we can pay for it elsewhere, it seems to me that it makes no more sense to postpone this for 13 months and it did for the other clear case. it kind of reminds me of sequestration. mr. chairman, we had witness after witness appear before this committee, and other committees. we are not going to have sequestration in the united states of america. we had witnesses from agencies tell committee after committee, we're not even making plans for sequestration because it is so unthinkable, it is so heinous that we know this is not going to happen. the president of the united states said in the debate, not going to be any sequestration. we hoped that was true but it wasn't true. sequestration did happen. and to me to say we know this should be fixed, we know it's wrong, we know it was the wrong

approach, we regret it, but let's wait. to me it holds out the potential that it would be like sequestration, and go into effect despite everyone's protestations to the contrary. you know, we have said there's not going to be sequestration. there was sequestration. we were told in the city repeatedly, if he liked her health plan, you get to keep it, you get. turns out that wasn't the case. we've told military members, you do your side of the bargain, you sign up for worldwide duty, you place yourself in an assignment to regions where your in harm's way and we're going to keep our promise to you. and last month we broke that promise. and now we are being told, let's just wait 13 months before we fixed that.

i really, i can go along with it. i say to my colleagues, this is about a promise that everybody says we need to keep. and it's also about the process. my friend from arizona said this came out of the budget committee. this didn't come out of the budget committee. it came from behind closed doors and was authored by two individuals, and presented to us as a package, take it or leave it. if we would start following the process in this congress, if the budget conference had been allowed to vote on it, to debate it, we might have adopted send a odds office. we could have come up with these savings elsewhere. if we'd had in a minute process like the rules called for in the budget bill. we would've had opportunities on a bipartisan basis to pay for this. elsewhere. to have the savings elsewhere, to keep our promises to the people who fulfilled the

promises to the security of the united states of america. if we had had this in the ominous bill. we need to get back to following the rules around this congress. if this has seen the light of day, the elected representatives of the american people, the 100 senators, the 435 members of congress would never have stood for this broken promise. and i think this ought to be a lesson to us. let's keep promises, but there's a reason we've got rules around here. and it's not to wait and it's not to get around them, because generally it ends up with bad policy. i thank you. i want to work with you, i have to say we need to go ahead and act. everyone acknowledges this was wrong, and if it was wrong when he decoded and sent the signal that we're going to make it right. >> thank you, senator wicker. senator kaine.

>> thank you, mr. chair. i want to maybe take a little different down than my friend, the senator from mississippi on this one. i agree completely that this is a provision that needs to be changed and i think we will change it. i think, i agree i think we should change it immediately because it seems like the thrust of your testimony is, why not return to the status quo pending the 2015 report. and we need to change this just returned to the status quo so we don't send a wrong signal. whether it's what they pay for or not i think we should return to the status quo. but i do want to take on the bigger picture issue instead of kicking ourselves around because we made a mistake, we haven't done a budget in four years. we haven't done a budget in four years. and a divided congress hasn't done a budget conference since 1986. and so we did a budget an in the senate budget did not include this provision.

there are at least four members of this committee to on the senate budget committee. this was not in the senate budget. it did come up during the course of the budget conference and the negotiations between the two chairs. i don't want to trash the chairs for coming up with a budget deal. that we had to vote on. because no budget has been hurting our military and hurting our veterans. sequester has been, which is what we did when there was no budget deal, has been hurting the military and hurting veterans. continuing resolutions instead of appropriations bills has been hurting the military and hurting veterans. and so we did in december what legislative bodies do all the time, which is, there was a budget deal that was a compromise. it had things in it that i loved, had things in it that i hated, and the do nothings in the that i wished were in a.

that's what doing a budget deal is. this is an example of something that we didn't put in the senate budget bill because we didn't like it. we liked the grandfather notion. i think all of us embraced. but the both the weekends on this, i know it's good to put this whole boat as we were breaking a promise or no, we're trying to do budget for the united states of america in a congress that hadn't done a budget for four years. and doing it with the knowledge that there were some pieces that we didn't like and felt like we could fix. as i think there's a tendency up your ticket each other around or for one has to keep the other house around, or for the executive to get to legislate around, or the legislate to take the executive around. talking each other down is no way out of any of these challenges we have. i think the budget deal that we reached in december, just ask you, are you glad that we have a two-year budget? is that a good thing for the

military? >> the department has been very clear. we needed the stability and we appreciate the stability. >> are you glad we're able to get an omnibus appropriations bill for the full year instead of gimmicks like continuing resolutions? >> yes, sir, of course to give up her creation gives us a lot of opportunities to do what we need to do without the c.r., which just ties our hands as you will appreciate. >> a standard feature of this budget deal, the best part about the deal is that there was a deal. and a standard feature of a budget optimize is that there's some pieces i don't like. and i hope to fix. i wish ui extension have been part of this budget you. it was an. were trying to figure out a way to fix that. but the fact that their pieces of the deal that we don't like i don't think should obscure the issue that when we come together, pass the budget deal an omnibus, we did something really good for veterans. we did something good for the military. i live in a state that osha has the most direct military

connection in terms of the number of veterans per capita, active duty, military, guard reserve, dod civilian, dod contractor, military installations. we are the most connected state i believe in the country and overwhelmingly, even those are aspects of this deal we don't don't like and want to fix, the fact of the deal is something that i think how senate, democrats, republicans, inside outside, capitol hill should be glad that we have finally shown we can get it. not that we can't make improvements and this is one i share with everyone around the table that we ought to fix this, and that actually very confident we will. for purposes of those who are watching this who weren't in on the our discussion about the composition of the panel, i think it's important and i would like to ask you guys to describe who is that's around the table coming up with the recommendations that you are intended to make back to congress in february of 2015. i think it's important to know, you know, are all viewpoints

enlisted and officer and active and veteran, are all viewpoints sort of been represented? i'm not talking about the names but i'm talking about, is it a good collection of stakeholders who are making these recommendations, who will look at these issues from a variety of different angles? >> just for clarity, are you asking about the process we use inside the defense department, not the composition of the commission, correct? >> i would like to know within the dod and then composition. this is more to explain for those who are watching this. >> sir, for the commission, i don't have the actual composition of the commission memorized or whitney but i do recall having looked at it, and it was a good representative commission of panel that will have a good opportunity to look fairly and thoroughly at retirement, in particular. we've got confidence in this panel. we've had good cooperation with

them, and they're working hard and i think they're going to come up with some pretty good information for us. inside dod we've had a number of meetings of the joint chiefs, with the senior enlisted advisor's in the room. we have talked about this for months on specifically the compensation pieces. we are still working through it. we haven't made a budget submission yet but there's been a thorough vetting with our senior officers and enlisted leadership of the proposals we might present. >> and then on top of that, the senior officer or enlisted as abroad through the joint chiefs has come to the department leadership right up to the secretary spent a lot of time with him with the military, the civilian, our personnel experts, our comptroller, our analysts, all in the ring together going through these proposed options for change, how we might think about it, and that's the process we've done pretty much every year that we propose any changes

to the congress for our compensation. >> thank you, mr. chairman. >> senator ayotte. >> thank you, mr. chairman. thanks so much for the shooting but it's a very important topic. let me just ask you, admiral winnefeld, i think it's been clear, and secretary fox, not one dod official was consulted on this cost-of-living increase cut, were they? >> not to my knowledge, there were no dod officials consulted. we heard about it in the in game as other people did. >> just to be clear, the way this went down is that many of us sitting around this table action also serve on the budget committee, and as a member of the budget committee and a member of the armed services committee, we were not consulted about this cut to the cost-of-living increase. as far as i know the chairman of the armed service committee was not consulted on this

cost-of-living increase cut. and, in fact, the cut action violated the principles and her own law that we passed that said if you are going to be any changes to retirement, that they would be grandfathered, isn't that right? >> that's correct. >> wonderful that we can reach a two-year budget agreement. but, you know, what was astounding to me, is once this became public, that people from both sides of the aisle said this is wrong. the four we even voted on it. people from both sides of the aisle have ideas on how to fix it, that we couldn't get it fixed then. the four we think this view. that would have been the right thing to do -- before we think this. the right thing to do is to fix it now. not to leave this hanging over our men and women's heads in terms of the unfair cuts year, and i think that we can agree to fix this now, not to delay.

this is a lesson to not consult our men and women in uniform is outrageous, did not include people who serve on the armed services committee, to make cuts to military retirees, only in washington. and i think that we should commit ourselves around this table to find a fix for this. we can't pay for it. many, many people including myself have ideas on how to do it. not taking further from the military budget so that we don't have a further impact on sequestration. and a service to our men and women in uniform, making sure they have the equipment that they need. let me just ask you, admiral. sergeant first class, the chairman use an example of you enlist at 18. you put 20 years in. you retire at 38. someone who's done that in the last 20 years, how likely is it that that individual has done all double doors in iraq and

afghanistan? >> certainly depends on the branch of service, but no question if you're a soldier or a marine or someone in the other services who served on the ground, you have probably done more than one shower. >> and when you do a tour in iraq or afghanistan, to have a chance to put roots down in a place i wanted to retire, that you already have roots somewhere that you can establish a career? is that cities he? >> i would say regardless of whether you're serving in afghanistan or iraq around the world speeds or anywhere. >> one of the facets of our life in the military that we accept is that we don't have the opportunity necessarily to set some roots down. as the son of a naval officer i don't even know what roots are, but the are a number of people who come in the service from states all around the country who might have residual reach their but you are right, for 20 or you are moving around. >> isn't that different from your average individual in terms of the ability to establish a

career even post 20 years in the military? >> it's even more than that. it affects the spouses employment. many of them faced severe disruptions as they move from place to place. we've gotten some help from congress on that frankly but it's hard for a spouse to move from one place to another and jump to another job. >> when your spouse is moving around all the time, he or she can't have a situation where they can establish their career also. so you're losing income there as well, aren't you? >> its income and i think frustration and anxiety level of next time we move, am i going to be able to get a job at? >> absolutely. let's be clear. a military retirement is very different in terms of the sacrifices that are made than your average civilian retireme retirement. do you agree? in terms of the sacrifices made by her family, in terms of the

opportunities that you lose to earn income, in terms of the opportunities you lives to put roots down because of the sacrifices you've made for our nation, is that right? >> absolutely agree, and that's what we intend to try not to make direct comparisons. >> and, in fact, when you retire from the military, you can be recalled, can't you? as far as i know in a civilian retirement generally you're not mandatorily recalled back to your job, are you? >> it's unusual but in the event of a crisis, a national emergency, you could be recalled. >> we have been informed since 9/11, about 3400 retirees were recalled back to active duty service. does that sound about right? >> i don't have the number's but i wouldn't be surprised if they are accurate. >> that's another huge difference, and i think a disconnect with what happened in

this budget agreement. i want to ask you about an issue that was brought to our attention that involved general officer retirement pay. bellevue, admiral, and secretary fox. as w we looked, i saw report tht said in 2007 legislation provide incentives for senior officers continue servicing -- surfing by extending the basic pay table by a cap of the 26 years to provide for years of service. according to one press report in "usa today," using a 2011 number, this could result in a 4-star officer retiring with 38 years receiving $84,000 more in retirement than previously allowed. i understand why these changes were made because we were in a wartime and i assume the purpose was to encourage combat experience, one, and to start admirals and generals to continue serving during the war.

however, now we're in a situation where the congress has made cuts, and i want to see these cuts are penalty. it's 1% decrease in your cost of living increase, it's a penalty. and we haven't even looked at issues like do we need to continue the increases to the generals and admirals that they have received now that we're winding down in iraq and afghanistan? could you comment on that? think about the impact on sergeant first class losing $80,000. that is a huge impact spent we think the commission should look at all comments of retirement, all pay grades, all of the many very both i listed earlier. we looked forward to what the commission has to say on that and other issues. >> and also looking at,

obviously admirals, generals, seeing what is there in terms of their compensation as well because it seems to me that the people that took the biggest hit under this, the officers took a big hit on this as well and i don't diminish it, but your average enlisted person from what they take as a hit, basically as i understand their average retirement is about $25,000 a year. you know, with moving around and everything like that, they have to try to find another job just to feed their family. do you agree with that? >> i do. and we are looking at all of the proposals we are considering under the budget submission that we will make this year. flag and general officer pay is one of them. >> i appreciate that. i just hope that we can fix this wrong and right now, not wait. secretary fox, i don't think we should wait. thank you. >> thank you, senator ayotte. senator reed.

>> thank you, mr. chairman. i think there are two clear issues emerging with broad consensus. one is we have to correct this issue, and my sense is that has to be done very quickly, immediately. for many reasons. one is the issue of what signal we're sending to forces in the field. i understand, the chairman may correct me or respond, that we could move such a bill through the committee without a paid for. were not responsible to pay for it, is that i could? >> that is accurate. i think the one bill that has been referred to the committee, we are doublechecking is, however, is the bill of senator hagan and senator pryor applet that does not have a paid for. if there's a pay for, and offset in other words, that i believe will be referred to a different committee. but this committee am i believe,

will have the ability to act prompted on a deal, and hope that we will and not wait for the commission. because there is a clear consensus we should clear the air on this issue. >> thank you, mr. chairman. i appreciate that clarification. and again, i do sense that this is a consensus across the whole spectrum of the committee. that does still leave open the question of the role of this commission which is absolutely critical. and we can anticipate, and i'll ask you, therefore, and secretary fox, we can anticipate next year when the commission reports that there will be proposals to us and we can deliver it up on them thoughtfully and publicly that will do with the spectrum of pensions, compensation, and if it's, et cetera. and that's a necessary because you're reaching a situation where maintaining the

operational readiness of the existing force is being squeezed, for lack of a better term, because of the obligations of these costs are building up and have been building up because of congressional action. can you comment on that, admiral? >> the commission will certainly offer its recommendations to the congress and serving to this committee on how both a compensation and retirement should be structured. and so we believe that we should wait until they -- and i'm not necessarily saying we should wait to repeal this. that's a different question, but we do need to look at what they come up with. at various variables on retirement. on the compensation peace, it's possible the commission could come up with some structural recommendations to compensation. any recommendations we would make for the fy '15 budget would not be structural.

they would be fine-tuning the existing system to recruit and retain the best while getting the best value or the taxpayers spent before i ask the secretary, the presumption i think within the commission is, not only will their recommendations allows to deliberate and make thoughtful decisions based upon input from everywhere, but also basic fairness, they will be sort of implemented on the basis so that people will not be prejudiced. there will be grandfather provisions. because without that you have people who have served with distinction and with great courage, their expectations could be radically changed. is that the presumption? >> i would have to double check but i'm almost certain that the law itself, the legislation directs them to not consider anything other than something that his grandfather and and we support that. >> secretary fox, your thoughts. >> he's correct. i brought that section with the.

the law specifies that anything, any changes be grandfathered that was a guidance to the commission. and we do want to see the commission's results and they would be brought forward and debated, and we look forward to that. this point about timing, i hear the consensus we agree. colma minus one in the provision is not grandfathered and that's -- c.o.l.a. minus one. whatever it ends up being is grandfathered. the only point is that it doesn't happen until december 15. we believe that two things must happen, it needs to change before it's implement and we need to get space to this commission to allow it to be effective. and if that space is repealed and into something, so be it. if that space is wait and see what the commission has to say and then do it one time, a one time change, so be it. but those are the parameters of our consideration. >> so your point is that at present, because the effective

date is not until december 2015, there is no one who is actually being denied the full benefits that were promised, et cetera. the other point i think you make is that it is entirely possible that the commission could propose some retirement arrangement, maybe not this one identically, but some arrangement. however, that would have to be debated by the it would have to be grandfathered to protect people, which is provision is an. so that would provide a much better approach to dealing with the issue of retirement. is that they're? >> yes, sir. that's exactly our position. and the commission our report out in february of 2015 spent but it doesn't preclude us and it shouldn't preclude us from taking immediate action to protect it and waiting for the deliberations. just one of the point, what is driving this, not entirely,