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[From the U.S. Government Publishing Office]


114th Congress      }                             {     Rept. 114-102
                        HOUSE OF REPRESENTATIVES
 1st Session        }                             {      Part 2
====================================================================
 
        NATIONAL DEFENSE AUTHORIZATION ACT FOR FISCAL YEAR 2016

                                _______
                                

  May 12, 2015.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

  Mr. Thornberry, from the Committee on Armed Services, submitted the 
                               following

                          SUPPLEMENTAL REPORT

                        [To accompany H.R. 1735]

      [Including cost estimate of the Congressional Budget Office]

    This supplemental report shows the cost estimate of the 
Congressional Budget Office with respect to the bill (H.R. 
1735), as reported, which was not included in part 1 of the 
report submitted by the Committee on Armed Services on May 5, 
2015 (H. Rept. 114-102, pt. 1).

                  Congressional Budget Office Estimate

    In compliance with clause 3(c)(3) of rule XIII of the House 
of Representatives, the cost estimate prepared by the 
Congressional Budget Office and submitted pursuant to section 
402 of the Congressional Budget Act of 1974 is as follows:

                                     U.S. Congress,
                               Congressional Budget Office,
                                      Washington, DC, May 11, 2015.
Hon. Mac Thornberry,
Chairman, Committee on Armed Services,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 1735, the National 
Defense Authorization Act for Fiscal Year 2016.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is David Newman.
            Sincerely,
                                                        Keith Hall.
    Enclosure.

H.R. 1735--National Defense Authorization Act for Fiscal Year 2016

    Summary: H.R. 1735 would authorize appropriations totaling 
an estimated $605.3 billion for fiscal year 2016 for the 
military functions of the Department of Defense (DoD), for 
certain activities of the Department of Energy (DOE), and for 
other purposes. In addition, H.R. 1735 would prescribe 
personnel strengths for each active-duty and selected-reserve 
component of the U.S. armed forces.
    If appropriated, $515.6 billion of the authorized amounts 
would count against the defense caps set in the Budget Control 
Act (BCA), as amended. Another $0.4 billion would count against 
the nondefense caps. An additional $89.2 billion would be 
authorized for overseas contingency operations (OCO), and if 
appropriated would not count against the caps; of that amount, 
$50.9 billion would be for war-related activities, while the 
remaining $38.3 billion would be used for ``Overseas 
Contingency Operations for Base Budget Requirements'' that in 
recent years have counted against the defense caps. CBO 
estimates that appropriation of the authorized amounts would 
result in outlays of $590.3 billion over the 2016-2020 period.
    The bill also contains provisions that would affect the 
costs of defense programs funded through discretionary 
appropriations in 2017 and future years. Those provisions would 
affect force structure, DoD compensation and health care 
benefits, the uniformed services retirement system, and other 
programs and activities. CBO has analyzed the costs of a select 
number of those provisions and estimates that they would, on a 
net basis, lower the amount of appropriations needed to 
implement defense programs relative to current law by about 
$3.4 billion over the 2017-2020 period. The effects of those 
reductions are not included in the total amount of outlays 
mentioned above because funding for those activities would be 
covered by specific authorizations in future years.
    In addition, H.R. 1735 contains provisions that would 
affect revenues and direct spending. Changes to the uniformed 
services retirement system would require DoD--beginning in 
2018--to make matching contributions (using appropriated funds) 
to the Thrift Savings Plan (TSP) on behalf of military 
personnel. Those matching contributions would encourage members 
to contribute a larger portion of their pay to the TSP, thereby 
reducing their taxable income. CBO and the staff of the Joint 
Committee on Taxation (JCT) estimate that enacting the bill 
would reduce revenues by about $1.3 billion over the 2016-2025 
period. Several other provisions would change direct spending 
by less than $500,000 over the 2016-2025 period. Because 
enacting the bill would affect revenues and direct spending, 
pay-as-you-go procedures apply.
    In the decade after 2025 and in subsequent decades, CBO 
expects that other changes to the uniformed services retirement 
system made by the bill would reduce mandatory spending by more 
than the revenue losses from expanded participation in the TSP 
in those years.
    H.R. 1735 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act (UMRA) 
and would impose no costs on state, local, or tribal 
governments.
    Estimated cost to the Federal Government: The estimated 
budgetary effects of H.R. 1735 are shown in Table 1. Almost all 
of the $605.3 billion authorized by the bill would be for 
activities within budget function 050 (national defense). Some 
authorizations, however, fall within other budget functions, 
including, in 2016: $196 million for the Maritime 
Administration in function 400 (transportation); $145 million 
for function 700 (veterans benefits and services); $64 million 
for the Armed Forces Retirement Home in function 600 (income 
security); and $18 million for the Naval Petroleum Reserves in 
function 270 (energy).

      TABLE 1. BUDGETARY EFFECTS OF H.R. 1735, THE NATIONAL DEFENSE AUTHORIZATION ACT FOR FISCAL YEAR 2016
----------------------------------------------------------------------------------------------------------------
                                                            By fiscal year, in millions of dollars--
                                               -----------------------------------------------------------------
                                                   2016       2017       2018       2019       2020    2016-2020
----------------------------------------------------------------------------------------------------------------
                                        SPENDING SUBJECT TO APPROPRIATION
 
Authorization Levels for Appropriations
 Subject to the BCA Caps:
    Defense:
        Specified Authorizations for Base
         Budget Costs for the Departments of
         Defense and Energy:
            Authorization Level...............    515,228          0          0          0          0    515,228
            Estimated Outlays.................    320,630    106,897     44,300     20,940      9,341    502,108
        Estimated Authorizations for
         Additional Base Budget Accrual
         Payments:a
            Estimated Authorization Level.....        388          0          0          0          0        388
            Estimated Outlays.................        388          0          0          0          0        388
    Nondefense:
        Specified Authorizations, Primarily
         for the VA and MARAD:
            Authorization Level...............        398          0          0          0          0        398
            Estimated Outlays.................        319         53         16          0          0        388
        Estimated Authorizations for the VA
         and Other Departments and Agencies:b
            Estimated Authorization Level.....         25         73         75         75         75        323
            Estimated Outlays.................         21         67         73         74         74        309
            Subtotal:
                Estimated Authorization Level.    516,039         73         75         75         75    516,337
                Estimated Outlays.............    321,359    107,017     44,389     21,014      9,415    503,193
Authorization Levels for Appropriations Not
 Subject to the BCA Caps:
    Specified Authorizations for Overseas
     Contingency Operations:
        Authorization Level...................     50,949          0          0          0          0     50,949
        Estimated Outlays.....................     23,963     16,331      5,899      2,514        789     49,495
    Specified Authorizations for Miscellaneous
     Base Budget Costs:
        Authorization Level...................     38,290          0          0          0          0     38,290
        Estimated Outlays.....................     25,042      8,486      2,912        907        307     37,654
        Subtotal:
            Authorization Level...............     89,239          0          0          0          0     89,239
            Estimated Outlays.................     49,005     24,817      8,811      3,421      1,096     87,149
            Total:
                Estimated Authorization Level.    605,278         73         75         75         75    605,576
                Estimated Outlays.............    370,363    131,834     53,200     24,434     10,511    590,342
 
                                              CHANGES IN REVENUESc
 
Retirement....................................          0          0        -51       -125       -154       -330
----------------------------------------------------------------------------------------------------------------
Notes: Except as discussed below, the authorization levels in this table reflect amounts that would be
  specifically authorized by the bill (as reflected in Table 2). Some provisions in the bill also would affect
  the costs of defense programs in 2017 and future years; estimates for a select number of those provisions are
  shown in Table 3, but are not included above because specified authorizations in future NDAAs would cover
  funding for those activities. For example, the authorizations in this table do not reflect the effects of
  several provisions that would significantly change retirement benefits for members of the uniformed services.
  Those provisions, sections 631-634, would have no effect on spending subject to appropriation in 2016.
BCA = Budget Control Act; DoD = Department of Defense; MARAD = Maritime Administration; NDAA = National Defense
  Authorization Act; VA = Department of Veterans Affairs.
Numbers may not add up to totals because of rounding.
aThis authorization reflects CBO's estimate of the added cost of certain accrual payments required under current
  law but not fully reflected in the amounts specifically authorized by the bill.
bThis authorization reflects the estimated costs to the VA for establishing a joint formulary for certain
  categories of drugs (section 701) and for making annual contributions to the joint DoD-VA Incentive Fund
  (section 721), and estimated costs for extending certain benefits to federal civilian workers who perform
  official duties in a combat zone and are employed by departments and agencies other than DoD (section 1101).
  The five-year estimated authorization levels for those provisions amount to $240 million, $75 million, and $8
  million, respectively.
cIn addition to the changes in revenues shown above (a decrease of $330 million over the 2016-2020 period), H.R.
  1735 would have effects beyond 2020. CBO estimates that over the 2016-2025 period, H.R. 1735 would decrease
  revenues by $1,323 million (see Table 4).

    Basis of estimate: For this estimate, CBO assumes that H.R. 
1735 will be enacted near the start of fiscal year 2016 and 
that the authorized and estimated amounts will be appropriated 
at about that time.

Spending subject to appropriation

    The bill would authorize appropriations for 2016 totaling 
$605.3 billion--a $26.7 billion (or 5 percent) increase 
relative to appropriations for comparable programs in 2015. 
Nearly all of that amount ($604.9 billion) would be 
specifically authorized by the bill (see Table 2). The 
remaining amount ($0.4 billion) largely reflects CBO's estimate 
of the amounts necessary to fund certain accrual payments 
required under current law that are not fully reflected in the 
amounts that would be specifically authorized by the bill.
    Authorizations for all major categories of spending would 
rise relative to funding levels for 2015. Procurement would 
receive the largest increase ($16.6 billion, or 16 percent), 
followed by research and development ($4.7 billion, or 7 
percent). All other categories of DoD spending would, on a 
combined basis, increase by $4.2 billion (1 percent). 
Authorized amounts for atomic energy defense activities (which 
primarily are carried out by the Department of Energy) would be 
$1.1 billion (6 percent) higher than funding provided for 2015.
    Of the $605.3 billion that would be authorized by the bill, 
$515.6 billion would cover ``base budget'' costs that, if 
appropriated, would count against the BCA caps on defense 
appropriations, while $0.4 billion would count against the cap 
on nondefense appropriations.
    The remaining $89.2 billion would be authorized for 
overseas contingency operations and, if appropriated, would not 
count against the caps set by the BCA. However, $38.3 billion 
of that amount would cover operation and maintenance 
activities--which the bill identifies as ``base 
requirements''--that in past years would have been counted 
against the defense cap. Absent that amount, the remaining 
authorization for OCO funding would be $13.3 billion (or 21 
percent), lower than the amount provided for OCO in 2015.
    H.R. 1735 also contains provisions that would affect the 
cost of various discretionary programs in future years. Most of 
those provisions would affect end strength (the size of the 
military forces at the end of a fiscal year), military 
compensation and benefits, and retirement reform. The estimated 
effects of some of those provisions are shown in Table 3 and 
discussed below. The following sections discuss how those 
provisions would affect the need for discretionary 
appropriations in future years. All such spending would be 
subject to appropriation action.

                        TABLE 2. SPECIFIED AUTHORIZATIONS OF APPROPRIATIONS IN H.R. 1735
----------------------------------------------------------------------------------------------------------------
                                                            By fiscal year, in millions of dollars--
                                               -----------------------------------------------------------------
                                                   2016       2017       2018       2019       2020    2016-2020
----------------------------------------------------------------------------------------------------------------
Specified Authorization Levels for
 Appropriations Subject to the BCA Caps:
    Defense:
        Military Personnel:a
            Authorization Level...............    136,443          0          0          0          0    136,443
            Estimated Outlays.................    130,411      4,180        177         37          0    134,805
        Operation and Maintenance:
            Authorization Level...............    169,394          0          0          0          0    169,394
            Estimated Outlays.................    118,080     35,468      9,369      2,906      1,020    166,843
        Procurement:
            Authorization Level...............    110,456          0          0          0          0    110,456
            Estimated Outlays.................     22,668     34,194     26,184     14,439      6,165    103,650
        Research and Development:
            Authorization Level...............     68,353          0          0          0          0     68,353
            Estimated Outlays.................     33,449     24,677      5,064      2,304      1,586     67,080
        Military Construction and Family
         Housing:
            Authorization Level...............      7,538          0          0          0          0      7,538
            Estimated Outlays.................        908      2,184      2,221      1,120        476      6,909
        Revolving Funds:
            Authorization Level...............      4,189          0          0          0          0      4,189
            Estimated Outlays.................      2,508        979        258        184        119      4,048
        General Transfer Authority:
            Authorization Level...............          0          0          0          0          0          0
            Estimated Outlays.................        250       -100        -75        -50        -25          0
            Subtotal, Department of Defense:
                Authorization Level...........    496,372          0          0          0          0    496,372
                Estimated Outlays.............    308,274    101,582     43,198     20,940      9,341    483,335
    Atomic Energy Defense Activities:
        Authorization Levelb..................     18,856          0          0          0          0     18,856
        Estimated Outlays.....................     12,356      5,315      1,102          0          0     18,773
        Subtotal, Defense:
            Authorization Level...............    515,228          0          0          0          0    515,228
            Estimated Outlays.................    320,630    106,897     44,300     20,940      9,341    502,108
    Nondefense:
        Department of Veterans Affairs and
         Other Departments and Agencies:
            Authorization Level\c\............        398          0          0          0          0        398
            Estimated Outlays.................        319         53         16          0          0        388
            Subtotal (subject to caps):
                Authorization Level...........    515,626          0          0          0          0    515,626
                Estimated Outlays.............    320,949    106,950     44,316     20,940      9,341    502,496
Specified Authorization Levels for
 Appropriations Not Subject to the BCA Caps:
    Overseas Contingency Operations:
        Military Personnel:
            Authorization Level...............      3,205          0          0          0          0      3,205
            Estimated Outlays.................      3,045        119          3          0          0      3,167
        Operation and Maintenance:
            Authorization Level...............     39,450          0          0          0          0     39,450
            Estimated Outlays.................     17,827     13,567      4,421      1,894        543     38,252
        Procurement:
            Authorization Level...............      7,457          0          0          0          0      7,457
            Estimated Outlays.................      2,854      2,409      1,286        532        212      7,293
        Research and Development:
            Authorization Level...............        216          0          0          0          0        216
            Estimated Outlays.................         98         86         17          7          4        212
        Military Construction:
            Authorization Level...............        532          0          0          0          0        532
            Estimated Outlays.................         18        156        179         92         38        483
        Working Capital Funds:
            Authorization Level...............         89          0          0          0          0         89
            Estimated Outlays.................         33         29         19          6          1         88
        Special Transfer Authority:
            Authorization Level...............          0          0          0          0          0          0
            Estimated Outlays.................         88        -35        -26        -18         -9          0
            Subtotal:
                Authorization Level...........     50,949          0          0          0          0     50,949
                Estimated Outlays.............     23,963     16,331      5,899      2,514        789     49,495
    Additional Base Budget Costs for Operation
     and Maintenance:
        Authorization Level...................     38,290          0          0          0          0     38,290
        Estimated Outlays.....................     25,042      8,486      2,912        907        307     37,654
        Subtotal (not subject to caps):
            Authorization Level...............     89,239          0          0          0          0     89,239
            Estimated Outlays.................     49,005     24,817      8,811      3,421      1,096     87,149
            Total Specified Authorizations:
                Authorization Level...........    604,865          0          0          0          0    604,865
                Estimated Outlays.............    369,954    131,767     53,127     24,361     10,437    589,645
----------------------------------------------------------------------------------------------------------------
Notes: This table summarizes the authorizations of appropriations explicitly stated in the bill in specified
  amounts. Various provisions of the bill also would authorize activities and provide authorities that would
  affect costs in 2017 and in future years. Because the bill would not specifically authorize appropriations to
  cover those costs, they are not reflected in this table. Rather, Table 3 contains the estimated costs of some
  of those provisions.
Numbers may not add up to totals because of rounding.
aThe authorization of appropriations for military personnel in section 421 includes $6,243 million for accrual
  payments to the Medicare-Eligible Retiree Health Care Fund. However, CBO estimates, that amount understates--
  by $388 million--the amount required for those payments; thus $388 million has been added to the estimated
  cost of the bill, as reflected in Table 1.
bThis authorization is primarily for atomic energy defense activities of the Department of Energy.
cThis authorization is for the Maritime Administration ($196 million), veterans' benefits and services ($120
  million), the Armed Forces Retirement Home ($64 million), and the Naval Petroleum Reserves ($18 million). The
  authorized amount for the Maritime Administration does not include the $186 million specified in the bill for
  payments to shipping companies under the maritime security program because that program is authorized under
  current law for 2016.

    Force Structure. The bill would affect the force structure 
of the various military services by setting end-strength levels 
for 2016 and modifying the minimum end-strength levels 
authorized in permanent law.
    Under title IV, the authorized end strengths in 2016 for 
active-duty personnel and personnel in the selected reserves 
would total 1,308,915 and 818,000 respectively. Of those 
selected reservists, 77,005 would serve on active duty in 
support of the reserves. In total, active-duty end strength 
would decrease by 1,765 and selected-reserve end strength would 
decrease by 9,800 when compared with levels authorized under 
current law for 2016. The specified end-strength levels for 
each component of the armed forces are detailed below.
    Active-Duty End Strengths. Compared with end strengths 
authorized under current law for 2016, section 401 would 
authorize decreases in active-duty personnel for two of the 
four services: 15,000 fewer for the Army and 100 fewer for the 
Marine Corps. The end strengths authorized for the Air Force 
and Navy would increase by 7,735 and 5,600, respectively. In 
2016, DoD would face increased costs of $437 million because of 
differences in how quickly the services would make the 
adjustments to new end strength levels. Based on information 
from DoD, CBO expects the Air Force and the Navy to have a 
portion of the increase in personnel already in place at the 
beginning of fiscal year 2016. In contrast, CBO expects the 
Army and Marine Corps to evenly distribute the reductions in 
their respective strengths over fiscal year 2016. Those initial 
costs would be more than offset by the net decrease in active-
duty personnel of 1,765 members over the next five years. On 
net, CBO estimates that DoD's costs would decline by $657 
million over the 2016-2020 period, assuming appropriations 
reflect those changes. Those savings include reduced spending 
for compensation and benefits as well as lower costs for 
individual training, base support, and unit operations, which 
are paid out of the operation and maintenance accounts.
    Selected-Reserve End Strengths. Sections 411 and 412 would 
authorize the end strengths for reserve components, including 
those who serve on active duty in support of the reserves. 
Under the bill, three of the six reserve components would 
experience decreases in end strength: 4,000 fewer for the Army 
Reserve, 300 fewer for the Marine Corps Reserve, and 8,200 
fewer for the Army Guard. End strength would increase for each 
of the remaining three components: 100 more for the Navy 
Reserve, 2,100 more for the Air Force Reserve, and 500 more for 
the Air Guard. The number of full-time reservists who serve on 
active duty in support of the reserves would decline by 409 
compared with current authorized end-strength levels for 2016. 
CBO estimates that the result of implementing those provisions 
would be a decrease in costs for salaries and expenses for 
selected reservists of $1.0 billion over the 2016-2020 period, 
assuming appropriations are reduced by the same amount.

                          TABLE 3--ESTIMATED COSTS FOR SELECTED PROVISIONS IN H.R. 1735
----------------------------------------------------------------------------------------------------------------
                                                            By fiscal year, in millions of dollars--
                                               -----------------------------------------------------------------
                                                  2016a       2017       2018       2019       2020    2016-2020
----------------------------------------------------------------------------------------------------------------
                                                 FORCE STRUCTURE
 
Active-Duty End Strengths.....................        437        -91       -282       -355       -366       -657
Selected-Reserve End Strengths................       -123       -212       -222       -231       -238     -1,026
Reserve Technicians End Strengths.............        -50       -102      --106       -109       -113       -480
 
                                            COMPENSATION AND BENEFITS
 
Expiring Bonuses and Allowances...............        827        467        285        262        156      1,997
Civilian Benefits in a Combat Zone Department           0         36          0          0          0         36
 of Defenseb..................................
Other Military and Civilian Compensation               57         61         66         65         65        314
 Provisions...................................
 
                                                   HEALTH CARE
Delay Reorganization of Military Treatment             15         25         25         25         10        100
 Facilities...................................
TRICARE Coverage of Infertility Treatment.....        140        300        310        330        350      1,430
DoD-VA Incentive Fund:
    Department of Defensec....................         15         15         15         15         15         75
 
                                                   RETIREMENT
 
TSP Contributions.............................          0          0        700      1,550      1,720      3,970
Continuation Payments.........................          0          0        350        990      1,200      2,540
Accrual Payments to the Military Retirement             0         90     -3,080     -3,530     -3,910    -10,430
 Fundd........................................
Financial Literacy Training...................          0          5         40         30         20         95
----------------------------------------------------------------------------------------------------------------
Notes: Amounts shown in this table for 2017 through 2020 are not included in amounts that would be specifically
  authorized by the bill (and therefore are not reflected in Tables 1 and 2). Rather, those amounts would be
  covered by specific authorizations for defense programs in future years.
Numbers may not add up to totals because of rounding. TSP = Thrift Savings Plan; DoD = Department of Defense; VA
  = Department of Veterans Affairs.
aAmounts shown in this table for 2016 are included in amounts specifically authorized to be appropriated by the
  bill (as reflected in Table 2 and summarized in Table 1).
bThis provision also would increase costs in 2017 for departments and agencies other than DoD by an estimated $8
  million. Those costs are included in Table 1 under ``Estimated Authorizations for the VA and Other Departments
  and Agencies.''
cThis provision also would increase costs for the VA by an estimated $15 annually. Those costs are included in
  Table 1 under ``Estimated Authorizations for the VA and Other Departments and Agencies.''
dThe proposal to change the retirement system for the uniformed services would change DoD's accrual
  contributions to the Military Retirement Fund. Because those changes would affect DoD's need for discretionary
  appropriations, they are displayed here. However, those payments are intragovernmental transactions and have
  no net effect on federal spending.

    Reserve Technicians End Strengths. Section 413 would 
authorize the minimum end strength for dual-status military 
technicians, who are federal civilian personnel required to 
maintain membership in a selected-reserve component as a 
condition of their employment. The bill would lower the minimum 
number of technicians required by 1,274 relative to the levels 
currently authorized. CBO estimates that such a reduction would 
decrease costs for civilian salaries and expenses by $480 
million over the 2016-2020 period.
    Compensation and Benefits. H.R. 1735 contains several 
provisions that would affect compensation and benefits for 
uniformed personnel and civilian employees of DoD. The bill 
would specifically authorize regular appropriations of $136.4 
billion for the costs of military pay and allowances in 2016. 
For related costs resulting from overseas contingency 
operations (primarily in Afghanistan), the bill would authorize 
the appropriation of an additional $3.2 billion for 2016.
    Expiring Bonuses and Allowances. Sections 611 through 615 
would extend for another year DoD's authority to enter into 
agreements to pay certain bonuses and allowances to military 
personnel. The authority to enter into such agreements is 
currently scheduled to expire on December 31, 2015. Some 
bonuses are paid in a lump sum, while others are paid in annual 
or monthly installments over a period of obligated service. 
Based on DoD's budget submission for fiscal year 2016, CBO 
estimates that extending that authority for one year would cost 
$2.0 billion over the 2016-2020 period.
    Civilian Benefits in a Combat Zone. Section 1101 would 
extend for one year the authority to grant certain benefits to 
federal civilian employees who perform official duty in a 
combat zone. Those benefits, which expire under current law on 
September 30, 2016, include death gratuities, paid leave and 
travel for one trip home, and up to three leave periods per 
year for rest and recuperation. Based on information from DoD 
and the Office of Personnel Management, CBO estimates that 
about 2,400 civilian employees of DoD and 500 employees of 
other federal agencies will work in a designated combat zone in 
2017 and, under this provision, would receive an average annual 
benefit costing about $15,000. Thus, CBO estimates that in 
2017, section 1101 would increase the costs of civilian 
employees of DoD by $36 million and of other federal employees 
by $8 million. (The $8 million for other federal employees is 
included in the amount shown in Table 1 for nondefense 
estimated authorizations, rather than in Table 3.)
    Other Military and Civilian Compensation Provisions. CBO 
estimates that certain other provisions in titles V and VI 
would, on net, increase costs to DoD by $314 million over the 
2016-2020 period by reducing the number of training and 
informational events related to deployments and prohibiting DoD 
from reducing per diem rates for extended temporary duty 
assignments.
    Health Care. A number of other provisions in H.R. 1735 
would affect discretionary costs in 2016 and over the 2017-2020 
period, for health care spending by DoD and the Department of 
Veterans Affairs (VA).
    Delay Reorganization of Military Treatment Facilities. In 
an effort to increase efficiency and save money, DoD is 
planning to consolidate or eliminate some under-used services 
offered through some military treatment facilities. Based on 
information from DoD, CBO estimates those changes will result 
in savings of almost $200 million over the 2016-2020 period. 
Section 713 would delay those planned changes until various 
studies are completed, which CBO estimates would delay the 
expected savings by about two years and increase costs to DoD 
by about $100 million over the 2016-2020 period.
    TRICARE Coverage of Infertility Treatment. Section 704 
would require TRICARE to provide fertility assistance services 
to active-duty members and their dependents. Under current law, 
TRICARE will cover testing and treatments that address the 
underlying physical causes of infertility, but will not cover 
assistive reproductive technology (ART) services. Section 704 
does not specify the types of fertility treatments that TRICARE 
would be required to provide. Because ART services are widely 
used and accepted as effective treatments for infertility, CBO 
expects that section 704 would require TRICARE to pay for such 
services.
    The estimate for this section comprises two components: the 
cost of providing the services and the cost to TRICARE for 
providing the additional child delivery services from the 
resulting pregnancies. To estimate the number of active-duty 
members who might make use of this new benefit, CBO examined 
the incidence of ART services in the general population as 
reported by the Centers for Disease Control (CDC). Based on 
those data, CBO estimates that TRICARE would cover those 
services for about 10,000 active-duty households each year. CBO 
estimates that the cost of those services would be about 
$18,000 per household, or about $175 million per year; that 
estimate is based on publicly available pricing information 
from several fertility clinics, and includes the cost of in 
vitro fertilization, one of the more popular and accepted 
procedures.
    In addition to the cost of the fertility assistance 
procedures, CBO also estimates that TRICARE would incur 
additional costs for the increased number of pregnancies 
resulting from those procedures. Based on information from the 
CDC, CBO estimates that about one-third of ART services result 
in a pregnancy. However, because roughly half of the affected 
households are currently seeking ART services on their own and 
TRICARE is already paying for those pregnancies under current 
law, CBO estimates the number of additional pregnancies 
resulting from this provision would be less, about 1,700 per 
year. Based on information from private-sector studies and DoD, 
CBO estimates the cost of those pregnancies would average about 
$60,000, or about $100 million per year. Those costs are 
significantly higher than the average cost of a pregnancy in 
the United States because of the higher percentage of multiple 
births and preterm deliveries associated with fertility 
assistance procedures.
    In total, CBO estimates that providing ART services would 
increase costs to TRICARE by $1.4 billion over the 2016-2020 
period. Costs would be lower in the first year because of the 
time needed to establish rules and regulations.
    Joint Formulary. Section 701 would require DoD and the 
Department of Veterans Affairs to establish a joint formulary 
for certain categories of drugs that are of particular 
importance to service members who are transitioning from 
receiving medical care provided by DoD to care provided by the 
Veterans Health Administration. Those categories would include 
medications to treat pain and sleep disturbances, as well as 
psychiatric medications.
    After analyzing data on pain, sleep, and psychiatric 
medications dispensed by both DoD and VA, CBO determined that 
DoD provides a number of such drugs that are not included in 
the VA formulary, and that those particular drugs are 
significantly more expensive, on average, than the drugs VA 
provides for similar purposes. In 2014, VA spent a total of 
$841 million for pain, sleep, and psychiatric medications. For 
the purposes of this estimate, CBO assumes that VA would 
prescribe those new drugs in the same manner as DoD. Based on 
information from the Government Accountability Office and an 
analysis of data from DoD, CBO estimates that implementing 
section 701 would require VA to increase its total spending on 
pain and psychiatric medications by about 5 percent. After 
factoring in the time needed to prepare regulations and the 
effects of inflation, CBO estimates this provision would 
increase VA's costs for providing drugs by $240 million over 
the 2016-2020 period. (That estimated amount is included in the 
amount shown in Table 1 for nondefense estimated 
authorizations, rather than in Table 3.)
    DoD-VA Incentive Fund. Section 721 would extend through 
2020 the requirement that both DoD and VA contribute a minimum 
of $15 million each year to the DoD-VA Health Care Sharing 
Incentive Fund. That requirement will expire at the end of 
2015. The fund is used to pay for joint projects aimed at 
improving the quality, access, and cost effectiveness of health 
care provided by DoD and VA. Based on the levels of 
contributions from the agencies in recent years, CBO estimates 
that implementing this provision would cost each agency $75 
million over the 2016-2020 period, for a total cost of $150 
million over that same period. (The $75 million in added costs 
that would be incurred by VA is included in the amount shown in 
Table 1 for nondefense estimated authorizations, rather than in 
Table 3.)
    Retirement. The bill would change retirement benefits for 
members of the uniformed services by:
           Lowering the amount of future annuities (a 
        decrease in direct spending),
           Providing new government contributions to 
        the Thrift Savings Plan,
           Providing additional cash payments for 
        members who agree to extend their time in the service, 
        and
           Requiring additional financial training and 
        services to help members of the military and the Coast 
        Guard understand the new retirement system and make 
        better financial decisions.
    Additionally, those changes would allow DoD to reduce 
accrual payments made to the Military Retirement Fund (MRF). 
Those payments made by the military services out of 
discretionary funds represent the cost of service members' 
future retirement benefits. CBO estimates that, taken together, 
changes to the retirement system would reduce net spending 
subject to appropriations by about $4 billion over the 2016-
2020 period, assuming appropriations are reduced by the 
estimated amounts.\1\ Those changes also would affect direct 
spending and revenues, which are discussed below under the 
heading ``Direct Spending and Revenues.''
---------------------------------------------------------------------------
    \1\The changes to the military retirement system would affect 
uniformed members of the Department of Defense, Coast Guard, Public 
Health Service, and the National Oceanic and Atmospheric 
Administration. In this cost estimate, all costs related to military 
retirement reform include the effects on all of those services, 
although over 95 percent of the costs or savings would occur within the 
Department of Defense. The one exception is the effect on accrual 
payments to the Military Retirement Fund, as DoD is the only agency 
that makes such payments. The other agencies pay retirement benefits 
directly from annual mandatory appropriations.
---------------------------------------------------------------------------
    Background on Retirement for the Uniformed Services. The 
retirement system for the uniformed services is a defined 
benefit that vests when a member serves 20 or more years on 
active duty or in the reserves. Upon completing 20 years of 
service, a member is eligible for a monthly annuity, which is 
computed by multiplying the average of their highest 36 months 
of basic pay by a percentage equal to 2.5 percent times their 
years of service.\2\
---------------------------------------------------------------------------
    \2\For example, the monthly annuity for a member who separates 
after 20 years of service with an average pay of $5,000 per month over 
their 36 months of highest pay, would be $2,500 per month ($5,000 
 20  .025). If that member remained an additional 2 
years and got no additional pay raises, the monthly retirement annuity 
would be $2,750 per month ($5,000  22  .025).
---------------------------------------------------------------------------
    For active-duty members who have at least 20 years of 
service, the annuity is payable immediately upon their 
separation from the service. For some, this means they can 
start receiving a longevity-based annuity as early as age 37. 
Members who serve at least 20 qualifying years in the reserves 
or who have a combination of 20 years on active duty and the 
reserves are also eligible for an annuity. The calculation of 
the annuity for reserve retirees is roughly the same as for 
those who retire from active duty, but the amount is prorated 
for the amount of time spent on active duty or in training and 
generally is not payable until the member reaches age 60.
    Members who separate from the service with less than 20 
years of service can receive a monthly annuity if they are 
separated with a service-connected disability rated at 30 
percent or higher (as determined by the individual service).\3\ 
The annuity calculation for disability retirees is complicated, 
but for most it equals the average of their highest 36 months 
of basic pay multiplied by their disability rating (in 
percentage terms), but cannot exceed 75 percent of their 
pay.\4\
---------------------------------------------------------------------------
    \3\In periods when DoD is trying to reduce the size of the force, 
the Congress has authorized DoD to grant annuities to members with 
between 15 and 20 years of service. However, that temporary early 
retirement authority is only authorized for a limited time and covers 
only a small subset of the retiree population.
    \4\If a member has a high-36 average pay of $4,000 and is separated 
from DoD with a disability rating of 50 percent, the member's monthly 
annuity would be $2,000. If that same person separated with a 
disability rating of 100 percent, the monthly annuity would be $3,000, 
as the annuity cannot exceed 75 percent of the member's average high 36 
months of pay.
---------------------------------------------------------------------------
    Benefits for retirees of the Army, Navy, Air Force, and 
Marine Corps are paid from a trust fund in the Treasury called 
the Military Retirement Fund. Each year DoD makes accrual 
payments into the MRF out of its annual appropriation in an 
amount that reflects the future retirement benefits service 
members accrued in that year. The payment rates are set by an 
independent board of actuaries and take into account military 
pay, the probability that members make it to retirement, and 
economic factors, including inflation and the fund's expected 
earnings from its investments (the fund invests its assets in 
non-marketable U.S. government debt instruments). The other 
uniformed services do not make accrual payments; those services 
pay the costs of retirement benefits directly from annual 
mandatory appropriations.
    Proposed Changes to the Retirement System. Sections 631-634 
would change the retirement system for the uniformed services 
in several ways. First, the 2.5 percent multiplier used in the 
annuity calculation would be reduced to 2.0 percent, 
effectively reducing the annuity for future retirees by 20 
percent (a reduction in direct spending). To help make up for 
the reduced annuity, the services would make contributions on 
behalf of service members to the Thrift Savings Plan equal to 1 
percent of their basic pay. After two years of service, the 
uniformed services also would match 100 percent of additional 
contributions the member makes to the TSP up to 5 percent. 
(Including the automatic 1 percent, total contributions by the 
services could be as high as 6 percent of a member's basic 
pay.) Those contributions would continue as long as the member 
is drawing basic pay from the uniformed services. As is the 
case with federal civilians, service members would not be 
allowed to withdraw any amounts from the TSP without penalty 
until age 59\1/2\.
    In addition to the TSP contributions, members would receive 
a cash bonus once they reach 12 years of service, if they agree 
to remain in the uniformed services for at least four more 
years. For active-duty members, that payment (also referred to 
as continuation pay) would range from two-and-a-half to 
fifteen-and-a-half times a member's monthly basic pay. For 
reserve component members, the bonus would range from one-half 
month's pay to six-and-a-half months' pay (using the same 
monthly pay as if they are on active duty for the entire 
month).
    Those changes in retirement benefits would apply to all 
members who first enlist in the uniformed services on or after 
October 1, 2017. Those currently serving in the uniformed 
services would be allowed to enroll in the new retirement 
system during a one-time election period that would run through 
the end of calendar year 2018.
    CBO's Cost Model. To estimate the budgetary effects of 
different retirement proposals, CBO constructed a cost model 
that tracks the amount of cash benefits received by members of 
the uniformed services from the time they enter the service 
throughout their lives and the lives of any surviving 
beneficiaries. CBO uses the model to estimate the government's 
lifetime costs for a group of people who enter the uniformed 
services in a particular year. The model then extrapolates the 
results to recent and future entrants, with adjustments for 
changes in inflation and demographics. CBO used a separate set 
of assumptions for officers and enlisted personnel, and 
modified the model to handle the unique characteristics and 
retirement rules that govern the part-time reserve forces.
    CBO used data and information from a variety of sources to 
construct the model and to estimate the cost of the 
legislation, including data from the Defense Manpower Data 
Center. CBO also relied heavily on the assumptions and data 
published by the DoD Office of the Actuary in its annual 
Statistical and Valuation reports.\5\ Using that information, 
CBO constructed a baseline that projects what government 
spending on uniformed services retirement benefits will look 
like under current law. Key inputs, observations, and 
assumptions for that model include the following:
---------------------------------------------------------------------------
    \5\DoD Office of the Actuary, Valuation of the Military Retirement 
System, September 30, 2013 (January 2015), http://actuary.defense.gov/
Portals/15/Documents/MRF%20ValRpt%202013.pdf. Also see DoD Office of 
the Actuary, Statistical Report of the Military Retirement System 
Fiscal Year 2013 (July 2014), http://actuary.defense.gov/Portals/15/
Documents/MRS_StatRpt_2013_July.pdf.
---------------------------------------------------------------------------
           Each year, slightly fewer than 150,000 
        enlisted members and just over 10,000 officers will 
        enter the full-time active-duty uniformed services and 
        complete at least one full year of service.
           About 17 percent of those who join as 
        enlisted personnel and around half of those who enter 
        the service as officers will eventually earn an active-
        duty retirement.
           Over half of retirees will leave behind 
        someone entitled to survivor benefits when they die.
           Basic pay and retirement benefits are 
        computed using the most recent pay tables published by 
        DoD, with adjustments for future pay raises.
           Mortality rates and mortality improvement 
        are computed using information published by the DoD 
        Office of the Actuary.
           Appropriate reductions to projected 
        retirement pay are made to account for survivor benefit 
        premiums and for reductions because of the receipt of 
        compensation from the Department of Veterans Affairs.
           Any changes to the retirement system would 
        be done in such a way as to maintain the current force 
        size and experience profile. Any changes to this 
        assumption could have a large effect on the budgetary 
        costs or savings related to any changes to the system.
    Some of the most important assumptions in the cost model 
are the economic variables, which include projections of 
inflation, military pay raises, and the rate of return earned 
by assets held in the MRF. Those variables have a large effect 
on the amount of contributions that DoD would need to make each 
year to the MRF to account for the benefits of future retirees. 
For this estimate, CBO has adopted the following economic 
assumptions approved by the DoD Board of Actuaries:
           Annual inflation rate equal to 3 percent,
           Annual average pay raise equal to 3.5 
        percent, and
           Annual rate of return on assets held in the 
        MRF equal to 5.5 percent.
    CBO uses those assumptions for two reasons. First, the DoD 
Office of the Actuary would ultimately be responsible for 
calculating any changes to DoD's monthly accrual payments that 
would result from changes to the retirement system. Because of 
the prominence those changes would have in the initial 10-year 
budget window, CBO chose to project the Office of the Actuary's 
calculation to the extent possible. Second, given the 
complexity of the estimate, using one uniform set of economic 
variables throughout the estimate simplified the modeling and 
ensured the economic consistency of the accrual payments with 
the other outputs of the model.
    Importantly, in both CBO's baseline model and the cost 
estimate, many future retirees will be subject to a reduced 
annual cost-of-living increase until they reach the age of 62. 
Section 403 of the Bipartisan Budget Act of 2013 (Division A of 
Public Law 113-67), as amended, reduced the annual cost-of-
living adjustment for annuities paid to certain retirees and 
survivors by up to 1 percent for those who first enter the 
uniformed service beginning in 2016. Section 632 would delay 
this change so that it would take effect for those who first 
enter the uniformed services after the start of fiscal year 
2018.
    A key variable that significantly affects costs in the 
initial 10-year period, and an important source of uncertainty 
in the estimate, is the percentage of current members who would 
choose to switch to the new retirement plan. Members with more 
than 12 years of service when the opt-in period occurs in 2018 
would have little or no incentive to switch to the new plan and 
accept a lower retirement annuity, and CBO estimates that none 
of those members would make the switch. However, those with 12 
years of service or less during the opt-in period would be 
eligible for continuation pay at the 12-year point in their 
careers, and also would have a longer period over which to 
accrue matching funds in their TSP accounts. CBO estimates that 
about half of those members with 12 years of service in 2018 
would switch to the new system; that fraction would increase 
for those with fewer years of service, so that close to 100 
percent of those with only one or two years of service would 
choose to switch.
    Those estimates are based on work by the RAND Corporation 
and others that show to what extent military members prefer 
cash in the near term over more valuable benefits later. That 
preference is referred to as a personal discount rate. 
Individuals with high personal discount rates are more likely 
to prefer near term benefits over more valuable benefits later, 
while those with lower discount rates are less likely to do 
so.\6\ Many younger members also enlist in the uniformed 
services for only a short period with no intent of remaining 
long enough to earn a longevity based retirement. Members who 
fit that profile would find it more beneficial to switch to the 
new system and thus be eligible for government contributions to 
their TSP accounts. If the number of current members who switch 
to the new system is different than our estimate, the 
additional costs for TSP and the 12-year continuation payments 
would be different over the initial 10-year window.
---------------------------------------------------------------------------
    \6\Beth J. Asch, James Hosek, and Michael G. Mattock, Toward 
Meaningful Military Compensation Reform: Research in Support of DoD's 
Review, RR-501-OSD (RAND Corporation 2014), http://www.rand.org/pubs/
research_reports/RR501.html.
    Also see Curtis J. Simon, John T. Warner, and Saul Pleeter, 
``Discounting, Cognition, and Financial Awareness: New Evidence From a 
Change in the Military Retirement System,'' Economic Inquiry, vol. 53, 
no. 1 (January 2015), pp. 318-334.
---------------------------------------------------------------------------
    TSP Contributions. To estimate the cost to the uniformed 
services of the new TSP contributions, CBO examined current TSP 
participation rates among uniformed services personnel and 
compared it to the participation rate of the federal civilian 
workforce. Currently, about 40 percent of military personnel 
make contributions to the TSP, whereas the participation rate 
for federal civilians is over 95 percent. That military 
personnel receive no federal contributions to their TSP 
accounts, matching or otherwise, have a more generous annuity 
than federal civilian employees, and are younger probably 
explains most of that difference. If the proposed changes are 
enacted, CBO estimates that the rate of participation in TSP 
among uniformed services personnel would increase to 80 percent 
for enlisted personnel and 90 percent for officers. CBO expects 
the participation rate for uniformed services personnel would 
always be lower than the rate for federal civilians because 
service members are, on average, younger, and many would not 
want to contribute money to a retirement account, even with the 
government making matching contributions.
    For personnel who elect to make contributions to the TSP, 
CBO estimates the average government matching contribution 
would equal about 4 percent of their basic pay, reflecting the 
assumption that most participating members would want to 
maximize the amount of government matching contributions (5 
percent). When combined with the personnel and payroll figures 
generated by the cost model (discussed above), CBO estimates 
that the proposal to provide government contributions to TSP on 
behalf of service members would increase spending subject to 
appropriation by about $4 billion over the 2018-2020 period. 
Costs would be lower in 2018 because current service members 
would have a year to make their elections and transition to the 
new system.
    Continuation Payments. To help keep the force structure the 
same as today and to avoid a decrease in the number of senior 
personnel, the proposal to reform the retirement system would 
provide for cash payments when service members reach 12 years 
of service. In exchange for that continuation payment, the 
member would have to agree to serve an additional four years. 
Based on current continuation rates, CBO estimates that about 
75 percent of enlisted personnel and 95 percent of officers 
would agree to serve an additional four years at that 12-year 
point in their careers in exchange for a cash payment.
    The amount of that one-time payment could vary based on 
service members' occupational specialties and the overall needs 
of the force at any given time. Those who agree to serve an 
additional four years would be guaranteed a payment equal to at 
least two-and-a-half months of pay, in the case of regular 
active-duty members, and half-a-month's pay for part-time 
reservists. The uniformed services would have the authority to 
increase this to an amount equivalent to fifteen-and-a-half 
months of a member's basic pay.
    Based on the analysis of personal discount rates for 
service members discussed above, CBO estimates that maintaining 
the current force profile would require the services to set 
those continuation payments for active-duty personnel so that 
they are equivalent to six months of basic pay for enlisted 
personnel and 14 months of basic pay for officers. For part-
time reservists, CBO estimates the average payments would need 
to equal about one month of basic pay for enlisted members, and 
six months for officers. Using those rates in the cost model, 
CBO estimates that about $2.5 billion would be needed for 
continuation payments over the 2018-2020 period, assuming 
appropriation of the necessary amounts.
    The additional costs for continuation pay could be 
significantly different if the Administration, or the Congress, 
changes the size and experience profile of the force.
    Accrual Payments to the Military Retirement Fund. The 
proposed change would reduce the amount of the annuities paid 
to service members who eventually qualify for a longevity-based 
retirement by about 20 percent. As a result, the Department of 
Defense would lower its monthly accrual payments to the MRF 
that are meant to cover the cost of future retirement benefits. 
Those contributions to the MRF are intra-governmental 
transactions and have no net effect on overall spending by the 
government. The accrual amounts are paid out of the annual 
defense appropriation and they are offset one-for-one elsewhere 
in the budget. By effectively lowering accrual payments, the 
proposal would allow the Congress to lower discretionary 
appropriations to DoD without affecting DoD's current level of 
operations. Alternatively, the Congress could keep the 
appropriation at the higher level, thus allowing DoD to spend 
it's discretionary appropriations on other things.
    To estimate the effect of this proposal on the accrual 
payments, CBO used its cost model to project the change in 
future outlays from the MRF under the bill, and then adjusted 
the accrual contributions accordingly so that amounts 
contributed to the fund would be equal to eventual outlays, 
with adjustments for inflation and interest earned by amounts 
in the MRF. Initially, only new entrants and those who choose 
to switch during the election period in 2018 would receive the 
lower annuity payments, so the reduction in the accrual 
payments would be less than 20 percent. The accrual savings 
would increase over time, as the changes to the retirement 
system gradually apply to a larger percentage of the force. 
Those savings would continue to be partially offset by DoD's 
contributions to the TSP and continuation pay, which also would 
increase as more of the force came under the new system.
    As noted above, the Bipartisan Budget Act of 2013, as 
amended, reduced the annual cost-of-living adjustment for 
annuities paid to certain military retirees and survivors by up 
to 1 percent for those who first enter the service beginning in 
2016. Section 632 would delay that change so that it would 
begin to take effect for those who first enter the uniformed 
services after the start of fiscal year 2018. Because that 
change would increase the cost of annuities paid to members who 
first enter the service in 2016 and 2017, CBO estimates DoD 
would need to increase its accrual contributions by about $90 
million per year beginning in 2017 (it is unlikely the changes 
would be enacted in time to affect DoD's 2016 contributions).
    On net, CBO estimates the proposed changes to the military 
retirement benefit would allow DoD to reduce its' accrual 
contributions to the Military Retirement Fund by about $10 
billion over the 2017-2020 period.
    Financial Literacy Training. Section 651 would expand 
financial training and services available for members of the 
military and the Coast Guard by increasing the frequency of 
such training and by adding explanations of the new benefits 
under retirement reform, such as the TSP and continuation 
payments, to the information covered by the services' financial 
education programs. In addition, CBO expects that the services 
would provide specific training for those current members who 
would have one year to decide whether to opt-in to the new 
retirement system or stay under the current system.
    Because CBO expects that DoD and the Coast Guard would 
require time to determine their new policy under the proposal, 
as well as time to develop and provide new training programs 
and materials, CBO estimates that expanding financial literacy 
training under this section would not increase costs until 
fiscal year 2017. Costs in 2017 would mostly reflect the cost 
to design, prepare, and implement the new training. CBO 
estimates that costs would be higher in fiscal year 2018, when 
the agencies would begin to provide new and more frequent 
training for service members and provide extensive training to 
help those current members make educated decisions during the 
limited opt-in period. Following the end of the opt-in period, 
December 31, 2018, costs for additional training under section 
651 would fall to about $20 million a year. Thus, CBO estimates 
that expanding financial literacy would increase training costs 
by $95 million over the 2016-2020 period.

Direct spending and revenues

    Several provisions in H.R. 1735 would affect direct 
spending and revenues. CBO and JCT estimate that enacting those 
provisions would decrease revenues by about $1.3 billion over 
the 2016-2025 period, and would change net direct spending by 
less than $500,000 over that same period (see Table 4).

                                                   TABLE 4. ESTIMATED EFFECTS OF H.R. 1735 ON REVENUES
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                            By fiscal year, in millions of dollars--
                                       -----------------------------------------------------------------------------------------------------------------
                                         2016   2017   2018     2019      2020      2021      2022      2023      2024      2025    2016-2020  2016-2025
--------------------------------------------------------------------------------------------------------------------------------------------------------
Retirement............................      0      0     -51      -125      -154      -168      -183      -198      -214      -230       -330     -1,323
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: CBO estimates that enacting the bill would change net direct spending by less than $500,000 over the 2016-2025 period.

    Retirement. Sections 631-634 would change retirement 
benefits for certain future retirees of the uniformed services 
by lowering the amount of future annuities. Additionally those 
sections would provide for new government contributions to the 
TSP and additional cash payments for certain members who agree 
to extend their time in the service (an increase in spending 
subject to appropriation). Those changes would affect both 
direct spending and revenues.
    Annuities for retired service members are treated as direct 
spending in the budget. CBO estimates that the proposed changes 
would have little or no effect on direct spending outlays over 
the 2018-2025 period, because those service members who will 
become eligible to begin receiving annuities over the next 10 
years would have little incentive to switch to the new system 
and accept a lower annuity. However, CBO expects that many 
younger members would switch to the new system, and they would 
begin retiring in the decade after 2025. Eventually, when all 
retirees are bound by the new rules, CBO estimates that the new 
system would reduce annual retirement outlays by about 20 
percent. (If retirement outlays in 2015 were reduced by that 
much, they would decrease by a little more than $10 billion.)
    Requiring the uniformed services to provide matching 
contributions to the Thrift Savings Plan would encourage 
members to increase their participation in the TSP. Because 
income taxes are deferred on TSP contributions, the anticipated 
increase in contributions would initially decrease revenues. 
Additionally, income taxes on the earnings in TSP accounts are 
also deferred. Based on the payroll and TSP participation rates 
discussed above under the heading ``Spending Subject to 
Appropriation,'' CBO and JCT estimate that providing matching 
contributions for members would reduce revenues by about $1.3 
billion over the 2018-2025 period.
    Over the long-run, CBO estimates those changes to the 
uniformed services retirement system would reduce the budget 
deficit relative to current law, because the reductions in 
direct spending would exceed the amount of decreased revenue 
stemming from the TSP provisions.
    Other Provisions. Other provisions in the bill would have 
insignificant effects on direct spending or revenues, generally 
because very few people would be affected.
           Section 502 would defer the mandatory 
        retirement age for any Chief or Deputy Chief of 
        Chaplains until age 68.
           Section 535 would impose the same standard-
        of-proof threshold on military whistleblower cases as 
        is currently used for federal civilians who claim to 
        have been subjected to unlawful reprisals for 
        whistleblower activities. CBO estimates that enacting 
        that section would result in an increased number of 
        substantiated claims and allow those victims of 
        reprisals to receive retroactive payments, benefits, or 
        awards that were improperly denied.
           Section 712 would expand the network of 
        mental health counselors that could be seen by TRICARE 
        beneficiaries without first obtaining a referral. 
        Health costs for certain TRICARE beneficiaries are 
        mandatory. While enacting this provision would increase 
        the use of mental health counselors, CBO expects those 
        added costs would be mostly or totally offset by a 
        decrease in the usage of other, more expensive, medical 
        treatments.
           Section 714 would authorize the Secretary of 
        Defense to conduct a pilot program to study the 
        benefits of establishing a preferred pharmacy network. 
        Some TRICARE pharmacy benefits are treated as direct 
        spending.
    Pay-As-You-Go considerations: The Statutory Pay-As-You-Go 
Act of 2010 establishes budget-reporting and enforcement 
procedures for legislation affecting direct spending or 
revenues. The net change in revenues that are subject to those 
pay-as-you-go procedures are shown in Table 5. Enacting H.R. 
1735 would not have a significant effect on direct spending.

                    TABLE 5. PAY-AS-YOU-GO EFFECTS FOR H.R. 1735 AS REPORTED BY THE HOUSE COMMITTEE ON ARMED SERVICES ON MAY 5, 2015
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                        By fiscal year, in millions of dollars--
                              --------------------------------------------------------------------------------------------------------------------------
                                2015   2016   2017    2018      2019      2020      2021      2022      2023      2024      2025    2015-2020  2015-2025
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               NET INCREASE IN THE DEFICIT
 
Statutory Pay-As-You-Go            0      0      0        51       125       154       168       183       198       214       230        330      1,323
 Impact......................
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sources: Congressional Budget Office and the staff of the Joint Committee on Taxation.

    Estimated impact on state, local, and tribal governments:
    H.R. 1735 contains no intergovernmental or private-sector 
mandates as defined in UMRA and would impose no costs on state, 
local, or tribal governments. The bill would authorize 
financial assistance for local educational agencies to fund 
education and services for military dependent children. The 
bill also would convey federal land to counties in Florida and 
Georgia, and release certain federal interests in land to the 
state of Texas. Any costs to those governments resulting from 
those transactions would be incurred voluntarily as conditions 
of receiving federal assistance.
    Estimate prepared by: Federal Costs: Defense 
Authorizations--Kent Christensen; Military and Civilian 
Personnel--Dawn Regan; Military Construction--David Newman; 
Military Retirement and Health Care--Matthew Schmit; 
Procurement--Raymond J. Hall and David Newman; Operation and 
Maintenance--Jason Wheelock and William Ma; Veterans Health 
Administration--Ann E. Futrell. Federal Revenues: Staff of the 
Joint Committee on Taxation; Impact on State, Local, and Tribal 
Governments: Jon Sperl; Impact on the Private Sector: Paige 
Piper/Bach.
    Estimate approved by: H. Samuel Papenfuss, Deputy Assistant 
Director for Budget Analysis.

                                  [all]