Military Personnel accounts will be exempt from across-the-board cuts if sequestration is implemented in FY2014.

In a letter to the Senate last week, Sylvia Burwell, Director of the Office of Management and Budget (OMB) notified Congress that the president will “exempt all military personnel accounts, including Coast Guard personnel accounts, from any discretionary cap sequestration in FY2014.”

Burwell said the Balanced Budget and Emergency Deficit Control Act of 1985 authorizes such an exemption if Congress is notified by August 10. The president also exempted military personnel accounts from sequestration in FY2013. Congress and DoD have routinely exempted Military Personnel accounts when implementing across-the board cuts to defense budgets.

Exempting military personnel accounts will mean that cuts to other DoD accounts will be increased if sequester goes into effect, Burwell noted. Unless an agreement is reached to stop sequestration, DoD estimates the defense budget will have to be cut by $52 billion in FY2014. DoD is currently dealing with a $37 billion sequestration cut in FY2013.

Discussing the options proposed by the Strategic Choices in Management Review released last month, Defense secretary Chuck Hagel strongly indicated that if sequestration continued into FY2015, it would be very difficult to exempt military personnel accounts from sequestration. Hagel said the Review determined that the high level of savings required if sequestration went into effect could not be achieved without cuts to compensation and compensation-related programs, including military. Compensation and compensation-related spending comprises about one-half the total DoD budget.

Hagel said the options identified in the Review to reform the compensation package included: increasing the use of private-sector insurance for providing health care to military retirees; changing the calculation of basic allowance for housing; reducing overseas cost-of-living adjustments; and limiting future military (and civilian pay) raises. Many of these proposals are expected to be included in the FY2015 budget request.