CONGRESSIONAL BUDGET OFFICE Douglas Holtz-Eakin, Director

U.S. Congress

Washington, DC 20515

www.cbo.gov

November 30, 2005

Honorable Ike Skelton

Ranking Member

Committee on Armed Services

U.S. House of Representatives

Washington, D.C. 20515

Dear Congressman:

In response to your request, the Congressional Budget Office (CBO) has assessed the

implications of last year’s recruiting shortfalls on future active-Army end strength. CBO

examined six scenarios that explore the effects of different recruiting levels and continuation

rates on the Army’s end strength. CBO forecast the year-by-year end-strength levels that would

prevail over the next five years if future recruiting levels and continuation rates paralleled those

observed during fiscal year 2005 or other recent years.

The attachment describes interim results. CBO will provide a complete report to the Committee,

covering all the branches of the military services and their various components, in the spring of

2006. If you or your staff would like further details in the meantime, please call me at (202) 226-

2700 or Heidi Golding, who led the team that prepared the analysis, at (202) 226-2912.

Sincerely,

Douglas Holtz-Eakin

Attachment

cc: Honorable Duncan L. Hunter, Chairman

Honorable Joel Hefley, Chairman

Honorable Solomon P. Ortiz, Ranking Member

Subcommittee on Readiness

House Armed Services Committee

Honorable John M. McHugh, Chairman

Honorable Vic Snyder, Ranking Member

Subcommittee on Military Personnel

House Armed Services Committee
Honorable Ike Skelton

Page 2

cc: Honorable Jerry Lewis, Chairman

Honorable David Obey, Ranking Member

House Committee on Appropriations

Honorable C. W. Bill Young, Chairman

Honorable John P. Murtha, Ranking Member

Subcommittee on Defense

House Committee on Appropriations

Honorable John Warner, Chairman

Honorable Carl Levin, Ranking Member

Senate Committee on Armed Services

Honorable Lindsey Graham, Chairman

Honorable Ben Nelson, Ranking Member

Subcommittee on Personnel

Senate Committee on Armed Services

Honorable John Ensign, Chairman

Honorable Daniel K. Akaka, Ranking Member

Subcommittee on Readiness and Management Support

Senate Committee on Armed Services

Honorable Thad Cochran, Chairman

Honorable Robert C. Byrd, Ranking Member

Senate Committee on Appropriations

Honorable Ted Stevens, Chairman

Honorable Daniel K. Inouye, Ranking Member

Subcommittee on Defense

Senate Committee on Appropriations
The Impact of Recruiting and Retention on

Future Army End Strength: An Interim

Report

November 30, 2005
Note

Unless otherwise specified, all years referred to in this analysis are federal fiscal years.
1. Since the September 11, 2001, terrorist attacks, ongoing military operations, including Operation

Enduring Freedom (Afghanistan), Operation Iraqi Freedom, and Operation Noble Eagle (defense of

the U.S. homeland), have required substantial increases in the number of military personnel

deployed. In August 2005, about 155,000 active-duty service members and another 87,000 Reserve

and National Guard members were deployed in support of those operations. The Army, supplying

the bulk of the personnel, had 82,000 active-duty troops and 75,000 Reserve and National Guard

members deployed at that time.

2. Accessions are new recruits who “ship” to basic training and begin their military service. A related

concept is contracts, which represent agreements between recruits and the military that the recruits

will ship, often several months after signing the contract (for example, after they graduate from

high school).

3. End strength is the number of troops in a component’s force at the end of the fiscal year.

Authorized end strength represents a goal set by the Congress in the National Defense

Authorization Act for that fiscal year; actual end strength may differ from the goal. There are a

number of other factors besides end strength that affect the ability of the Army to sustain operations

overseas. CBO’s final report will consider the extent to which units of the Army Reserve and

National Guard are meeting their own end-strength goals and can continue to deploy to Iraq or

Afghanistan, reducing active-Army deployments and perhaps helping sustain the active Army’s

continuation rates. However, the final report will not examine other policy options, such as

redeployment of units from elsewhere in the world (outside of the United States) to Iraq or

Afghanistan. The analysis in a recent CBO report considered those other factors; see Congressional

Budget Office, An Analysis of the U.S. Military’s Ability to Sustain an Occupation in Iraq: An

Update, Letter to the Honorable John M. Spratt Jr. (October 5, 2005). The Army’s modular brigade

structure is described in Congressional Budget Office, Options for Restructuring the Army (May

2005).

4. Continuation rates are the proportion of soldiers with a given year of service at the beginning of a

fiscal year that will remain in the military for 12 additional months and thereby accumulate another

year of service at the beginning of the next fiscal year (for example, those who will remain in the

military through their fourth year of service and into their fifth year of service).

Summary and Introduction

The Army’s ability to recruit and retain service members will directly affect its

ability to maintain the force levels required to continue conducting operations in

Iraq and Afghanistan while simultaneously converting to a new modular

structure.1 In this analysis, the Congressional Budget Office (CBO) examines the

recruiting and retention rates of the Army and the implications of those rates. The

analysis concentrates on a single component of the U.S. military—the active

Army. CBO will prepare a follow-up report in the spring of 2006 that completes

the analysis for the remaining Army components (the Army Reserve and National

Guard), as well as for the other corresponding service branches (the Navy, Air

Force, and Marine Corps) and their various components. CBO focuses on the

active Army in this report because it is the only active component that did not

achieve its recruiting goals in fiscal year 2005, falling short of its goal of 80,000

accessions by 6,600 accessions, or 8 percent.2

This report concentrates on attaining end-strength goals as a metric of the Army’s

ability to sustain operations and convert to a modular structure.3 In turn, there are

two key determinants of future end-strength levels: the number of soldiers

accessed each year and the continuation rates of existing soldiers.4 Accessions and
2

continuation are related in a complex way. A trained soldier who separates from

the Army must be replaced by more than one accession to account for recruits

who separate during training or during their first few years of service.

CBO finds that if the accession levels and continuation rates from 2005 were to

continue for the next five years, the Army’s end strength would decline over that

period. As discussed below, the Army has the authority to increase end strength to

512,400 service members. To do so would require the Army to sustain accession

levels and continuation rates through 2010 that have not been sustained over

prolonged multiyear periods during the past 20 years (although they have been

experienced during one- or two-year periods).

In making those determinations, CBO modeled six scenarios, each defined by

future accession levels and continuation rates. Under any given scenario, CBO

assumes that the new accession levels and continuation rates take effect in 2006

and continue at those levels indefinitely and that there are no phased-in changes.

The end strength and, more particularly, the number of enlisted soldiers within

each year of service will evolve over time as past years’ accession cohorts, as well

as new accessions, are subjected to the new (assumed) continuation rates.

Eventually, a “steady state” is reached wherein all of the past years’ accession

cohorts have separated from the military and only the cohorts from 2006 and

beyond remain in the force (at the assumed accession levels). Because military

careers can span 30 years, the steady state is not reached until 30 years into the

future, or 2035; as a practical matter, because relatively few soldiers are retained

beyond 20 years of service, the steady state is essentially reached by 2025. A 20-

year horizon, however, is too distant to enlighten the current policy debate.

Therefore, CBO reports instead the evolution of the Army’s personnel under each

scenario for the next five years: 2006 through 2010.

Each of the six scenarios begins with the Army’s end-strength levels on

September 30, 2005: 406,900 enlisted personnel, 81,700 officers, and 4,100

cadets, for a total of 492,700 active personnel. CBO’s analysis assumes that the

number of officers and cadets is maintained at 2005 levels, focusing only on the

enlisted force. The six scenarios that CBO considers are characterized as follows:

# Scenario 1 (base-case scenario): Annual accessions at the 2005 level of 73,400

per year; continuation rates also at 2005 levels.

# Scenario 2: Annual accessions at the stated 2006 goal of 80,000 per year;

continuation rates at 2005 levels. Because the Army did not achieve 80,000

accessions in 2005, this case is more optimistic than the base case.
5. Recruits who have signed contracts but have not yet shipped enter the Delayed Entry Program.

However, recruits may separate from military service while in the DEP pool prior to shipping

without incurring serious penalties.

3

Figure 1.

Overall Continuation Rates for Active-Army Enlisted

Personnel

(Percent)

Source: Congressional Budget Office based on Department of Defense, Defense Manpower Data Center.

Note: The 2005 rate is calculated using the June 2004 force profile and tracking the number of soldiers

remaining in the Army through June 2005.

# Scenario 3: Accessions totaling 80,000 per year; continuation rates at 2001

levels. This case is more optimistic than Scenario 2 because continuation rates

in 2001 were almost 1 percentage point higher than in 2005 (see Figure 1).

# Scenario 4: Accessions totaling 69,100 per year; continuation rates at 2005

levels. This case is less optimistic than the base case because the Army

achieved 73,400 accessions during 2005. However, it did so at the expense of

drawing down its pool of enlistees in the Delayed Entry Program (DEP) by

4,300 individuals.5 The Army normally prefers to have about one-third of the

coming year’s accession goal “banked” in the DEP to improve its odds of

meeting accession goals as well as to balance its training requirements. The

1990 1992 1994 1996 1998 2000 2002 2004

0

70

75

80

85

90
6. Stop-loss policies enable the military services to retain members beyond their contract obligation

dates.

7. See the Ronald W. Reagan National Defense Authorization Act for Fiscal Year 2005 (Public Law

108-375, sections 401 and 403).

4

figure 69,100 represents CBO’s estimate of the accessions the Army would

have achieved in 2005 had it held the size of its DEP constant.

# Scenario 5: Accessions totaling 73,400 per year; continuation rates at 2005

levels but removing the effects of stop-loss.6 This case is more pessimistic

than the base case because stop-loss enabled the Army to involuntarily retain

an average of about 7,000 enlisted soldiers at any point in 2005. CBO assumes

the policy will be rescinded early in 2006, resulting in an immediate onetime

drop in end strength. The scenario also incorporates the lower continuation

rates that would have prevailed during 2005 had stop-loss not been in effect,

as estimated by CBO.

# Scenario 6: Accessions totaling 80,000 per year; continuation rates at an

average of 2002 and 2003 levels. This case is the most optimistic because the

Army’s continuation rates during 2002 and 2003 were at the highest levels

observed since 1991 during Operations Desert Shield and Desert Storm. Those

higher continuation rates imply a much more senior enlisted force: the average

time in service for Army soldiers would be up to 1.3 years higher in the steady

state than under the other five scenarios.

Figure 2 displays CBO’s estimates of the end strength that the Army could

achieve over the next five years under each scenario. The starting point in each

case is the Army’s strength level of 492,700 active personnel as of September 30,

2005 (the end of fiscal year 2005). The Congress granted the Secretary of Defense

the discretion to increase active-Army end strength to as many as 512,400 service

members for the period 2005 through 2009, although as stipulated by the

Congress, any excess above 482,400 would be funded by supplemental

appropriations.7 Under the base-case scenario, CBO estimates that Army end

strength could drop by almost 40,000 to a level of 454,000 active personnel.

Under that scenario, the size of the Army would be more than 55,000 below the

2009 discretionary end strength of 512,400.

Active-Army end strength would continue to drop, but not as severely, under

Scenario 2 (80,000 accessions per year), reaching 473,000 by 2010. End strength

would drop by a smaller amount under the more optimistic Scenario 3 (80,000

accessions annually plus continuation rates at the higher 2001 levels), reaching

485,000 by 2010. That level is consistent with the size of the force prior to 2002

but less than the 492,700 Army personnel on active duty in 2005.
5

Figure 2.

Effects of Various Recruiting and Retention Scenarios on

Active-Army End Strength

(Thousands)

Source: Congressional Budget Office.

Scenario 4 (69,100 accessions per year) and Scenario 5 (lower continuation rates

than during 2005 because of the elimination of stop-loss) are more pessimistic

than the base-case scenario. Under those two scenarios, by 2010, the active

Army’s end strength would drop to 441,000 and 447,000, respectively, according

to CBO’s analysis.

The conditions that CBO assumed for Scenario 6 would enable the Army to

achieve the authorized discretionary end-strength goal of 512,400; CBO estimates

that the Army would reach 513,000 active-duty troops by 2009 under that

scenario. To do so would require 80,000 accessions per year, plus sustained

continuation rates as high as those observed during 2002 and 2003. Continuation

rates for those two years averaged about 85.3 percent (when computed as a

weighted average based on the 2005 force profile). Those rates, some analysts

believe, were driven by stop-loss policies and the unique operational environment

facing soldiers during that period. The last time that continuation rates had

reached those levels in the Army was in 1991 during Operations Desert Shield and

Desert Storm. The rates in 1991 were not sustained, however; continuation at the

2005 2006 2007 2008 2009 2010

0

440

460

480

500

520

Scenario 1

(Base case)

Scenario 2

Scenario 3

Scenario 4

Scenario 6

Scenario 5
8. The service branches were reducing the size of their forces in the early to mid-1990s after the end

of the Cold War. The Army’s relatively lower continuation rates from that period may reflect its

strategy for cutting personnel.

9. CBO calculated the most current continuation rates using the June 2004 force profile and tracking

the number of soldiers remaining in the Army through June 2005.

10. See the National Defense Authorization Act for 2004 (Public Law 108-136, section 401) and the

Ronald W. Reagan National Defense Authorization Act for FY 2005 (Public Law 108-375,

sections 401 and 403; 10 U.S.C. 115 note). Section 403 of the 2005 NDAA offered the rationale of

“achiev[ing] transformational reorganization objectives of the Army, including objectives for

increasing numbers of combat brigades, unit manning, force stabilization and shaping, and

rebalancing of the active and reserve component forces of the Army.” The 2005 NDAA also

increased active-Marine Corps end strength from 175,000 to 178,000 and further granted the

Secretary of Defense the discretion to increase end strength as high as 184,000 between 2005 and

2009, with the same stipulation on funding through supplemental appropriations.

6

average for the subsequent five years was 80.2 percent.8 Nor have the rates been

sustained since 2003; current continuation rates average 82.3 percent.9

Nonetheless, CBO’s analysis indicates that those are the continuation rates

needed—in conjunction with 80,000 annual accessions—if the Army chooses to

expand in fiscal years 2006 through 2009 to the maximum of 512,400 active-duty

troops authorized in the 2005 National Defense Authorization Act (NDAA).

Recruiting Trends for the Active Army

To facilitate the Army’s transformation to a modular brigade structure and to

support operational missions, the Congress authorized several increases in activeArmy end strength. Starting from a level of 480,000 in 2003, the Congress raised

the Army’s end-strength goal to 482,400 in 2004 and to 502,400 in 2005. The

Congress also granted the Secretary of Defense the discretion to increase end

strength to as high as 512,400 for the period spanning 2005 through 2009.

However, as stipulated by the 2005 NDAA, the Department of Defense’s (DoD’s)

budget (including the out-year budget projections through 2009 displayed in

DoD’s Future Years Defense Program) contains only enough funding for military

personnel to pay 482,400 active-Army service members. As previously noted, any

additional end strength must be funded through supplemental appropriations.10

The Army did not achieve its end strength goal of 502,400 in 2005. Actual end

strength on September 30, 2005, included 406,900 enlisted personnel, 81,700

officers, and 4,100 cadets, for a total of 492,700 personnel in the active Army—a

shortfall of nearly 10,000 personnel, or 1.9 percent (see Table 1). The size of the

force, however, was about 9,000 higher than it was between 1997 and 2001.
11. See Lawrence Kapp, Recruiting and Retention: An Overview of FY 2004 and FY 2005 Results for

Active and Reserve Component Enlisted Personnel, CRS Report for Congress RL32965

(Congressional Research Service, June 30, 2005).

7

Table 1.

Active-Army End Strength

Actual

Enlisted

Fiscal Year Authorized Personnel Officers Cadets Total

2000 480,000 401,414 76,667 4,089 482,170

2001 480,000 400,461 76,169 4,161 480,801

2002 480,000 404,304 78,158 4,080 486,542

2003 480,000 414,769 80,325 4,207 499,301

2004 482,400 414,438 80,968 4,137 499,543

2005 502,400 406,923 81,656 4,149 492,728

Source: Congressional Budget Office based on National Defense Authorization Act (various years),

Department of Defense, Directorate for Officer and Enlisted Personnel Management, and

Directorate for Information Operations and Reports (available at web1.whs.osd.mil/

mmid/military/miltop.htm).

Quantity of Recruits

The Army has several mechanisms available to help achieve its end-strength

goals. One option is to increase Selective Reenlistment Bonuses (SRBs) in an

effort to improve continuation rates; that approach will be discussed later in this

report. Alternatively (or in combination), the Army has various mechanisms

available to boost accessions and, consequently, end strength: for instance,

increasing enlistment bonuses or recruiters or easing enlistment restrictions. The

Army’s accession goal in 2003 was 73,800 (see Table 2). The Army began 2004

with an accession goal of 72,500 but later in that year increased its goal to 77,000.

The Army exceeded the latter goal by 1 percent and recruited 77,586 soldiers that

year. However, the Army exceeded its goal in part by drawing from its DEP. The

Army normally prefers to have about one-third of the coming year’s accession

goal banked in the DEP, but the Army drew down its DEP pool to 18.5 percent, or

to about 14,000 individuals, to meet its 2004 recruiting goal.11

The Army set an accession goal of 80,000 for 2005. Although the goal of 80,000

exceeded that of the two previous years, that level of accessions is not without

precedent in recent history. The Army recruited almost that many soldiers as

recently as 2002 and slightly more than 80,000 soldiers in 2000. Those precedents

notwithstanding, the Army was able to recruit only 73,373 soldiers (92 percent of

its goal) in 2005. Moreover, by the end of 2005, the Army had depleted its DEP
12. The Army did not increase its 2006 accession goal to make up for its 2005 shortfall—the goal for

2006 is again 80,000 recruits. There may be a number of reasons for that choice. The Army’s

current training establishment, for example, may not be able to handle a larger student load.

13. See David J. Armor and Paul R. Sackett, “Manpower Quality in the All-volunteer Force,” in

Barbara A. Bicksler, Curtis L. Gilroy, and John T. Warner, eds., The All-Volunteer Force: Thirty

Years of Service (2004), pp. 90-108; and Jennifer Kavanagh, Determinants of Productivity for

Military Personnel: A Review of the Findings on the Contributions of Experience, Training, and

Aptitude on Military Performance, RAND Corporation, TR-193-OSD (Arlington, Va.: RAND,

2005).

8

Table 2.

Total Accessions for Active-Army Enlisted Personnel

Fiscal Year

Begin Fiscal

Year Objective

Final Fiscal

Year Objective

Actual

Accessions

2000 80,000 80,000 80,113

2001 78,950 75,800 75,855

2002 76,800 79,500 79,585

2003 73,389 73,800 74,132

2004 72,500 77,000 77,586

2005 74,000 80,000 73,373

2006 80,000 n.a. n.a.

Average,

2000-2004 76,328 77,220 77,454

Source: Department of Defense, Directorate for Accession Policy.

Note: n.a. = not available.

pool to 12.4 percent of its annual accession goal—fewer than 10,000 individuals,

or somewhat higher than the number of recruits who typically “ship” to basic

training in a single month.12

Quality of Recruits

End strength and the ability of the force to meet its mission are also influenced by

the quality of new recruits. Recruits who are better educated or who score higher

on aptitude tests are more likely to complete their initial training and continue to

perform better in the military.13 DoD has to compete for young people with those

characteristics because many such youth are inclined to pursue higher education or

to seek jobs in the private sector.

DoD sets two major goals for the quality of its recruits. First, at least 90 percent of

the non-prior-service recruits in each branch of service should be high school

graduates. Second, at least 60 percent of those recruits should score at or above

the 50th percentile (relative to the general population) on the Armed Forces
14. DoD divides the scores on the AFQT into five ranges or categories. Scores at or above the 50th

percentile fall into AFQT categories I through IIIA.

15. Although CBO examined only enlistment bonuses and recruiters, other recruiting resources include

advertising funds and the number of recruiting stations.

9

Table 3.

Quality of New, Non-Prior-Service Recruits

(Percent)

Army Navy Marine Corps Air Force

Fiscal

Year HSDGa

AFQT

Category

I-IIIA HSDG

AFQT

Category

I-IIIA HSDG

AFQT

Category

I-IIIA HSDG

AFQT

Category

I-IIIA

2000 91 65 90 64 95 64 99 73

2001 91 65 90 63 96 65 99 75

2002 91 70 92 65 97 67 99 76

2003 92 73 94 66 98 69 99 81

2004 92 72 96 70 97 69 99 82

2005 87 67 97 71 96 68 99 80

Source: Department of Defense, Directorate for Accession Policy, available at www.dod.mil/prhome/docs/

recqual04.pdf.

Note: AFQT = Armed Forces Qualification Test; HSDG = high school diploma graduate. DoD divides the scores

on the AFQT into five ranges or categories. Scores at or above the 50th percentile fall into AFQT

categories 1 through IIIA.

a. Army HSDG performance excludes up to 4,000 participants in the GED+ (General Educational Development

Plus) pilot program for 2000-2004 and about 2,000 Tier Two Attrition Study participants for 2005.

Qualification Test (AFQT).14 The ability of the service branches to meet those

quality goals depends on labor-market conditions as well as the adequacy and

effectiveness of recruiting resources.

During 2005, 87 percent of the Army’s non-prior-service recruits were high

school graduates. Among all four service branches between 2000 and 2005, only

the Army in 2005 missed the stated DoD goal of 90 percent of recruits with high

school diplomas (see Table 3). The percentage of Army recruits with AFQT

scores at or above the median (in AFQT categories I through IIIA) was on an

increasing trajectory, starting at 65 percent in 2000 and reaching 73 percent in

2003. That metric was stable at 72 percent in 2004 but declined to 67 percent in

2005.

Incentive Packages and Recruiters

CBO examined two of the most important resources available to Army

recruiting—enlistment bonuses and the number of recruiters.15 Enlistment
16. High-quality recruits are high school graduates who score in AFQT categories I through IIIA.

10

Table 4.

Total Amount Spent on Selective Reenlistment Bonuses

and Enlistment Bonuses, Active Army

(Thousands of then-year dollars)

Fiscal

Year Selective Reenlistment Bonusesa Enlistment Bonuses

2000 105,388 94,924

2001 112,559 166,244

2002 127,817 200,722

2003 102,620 150,273

2004 142,936 125,983

2005b 505,591 n.a.

Source: Department of Defense, Directorate for Accession Policy and Directorate for Officer and Enlisted

Personnel Management.

Note: n.a. = not available.

a. Selective Reenlistment Bonuses also include the Critical Skills Retention Bonus.

b. Data for 2005 are preliminary.

bonuses, paid in a lump sum or in installments, provide incentives for new recruits

to join the military. The service branches may offer more-generous incentives

when they require larger numbers of recruits to fill a growing force or when they

encounter an unusual degree of competition with the private sector for specific

skills. The Army, in particular, has recently increased its incentives to join by

instituting a prior-service enlistment bonus of up to $10,000. Also, beginning in

2005, the Army began offering all non-prior-service recruits whom it considers

high-quality a $5,000 bonus if they enlist for three or more years.16 Previously,

only non-prior-service, high-quality recruits in certain occupations were eligible

for bonuses. Other enlistment incentives, besides enlistment bonuses, have also

become more generous. For example, in 2005, the maximum payout from the

Army College Fund was increased from $50,000 to $70,000.

Between 2000 and 2004, the Army spent between $94 million and $201 million

annually on enlistment bonuses (see Table 4). Beginning in 2005, Army

expenditures on enlistment bonuses will reflect payments for those new enlistment

bonus programs.

The number of Army recruiters has varied between 2000 and 2005, presumably

reflecting the service’s recruiting climate and goals (see Table 5). The Army

reduced its recruiting force from an average of about 6,400 recruiters during 2002
17. Improvements in the economy or other events beyond the control of Army Recruiting Command

could, however, counteract the additional recruiting resources.

18. Retention refers to the number of personnel who remain in the military after their contractual term

of service expires; retention rates are often measured separately by military occupation and by

seniority. Generally, retention rates are computed on a base of only those soldiers whose term of

service will expire within a given fiscal year. By contrast, continuation rates are computed on the

larger base of all personnel in the inventory at the start of the fiscal year, including those whose

term of service will not expire until some future fiscal year.

19. Initial enlistment refers to soldiers under their first enlistment contract regardless of their length of

service. Service members who are on their second or subsequent enlistment with up to 10 years of

service are categorized as being in mid-career, whereas service members with more than 10 years of

service are called careerists.

11

Table 5.

Average Number of Recruiters, Active Army

Fiscal Year Recruiters

2000 6,188

2001 5,156

2002 6,367

2003 6,078

2004 5,109

2005 5,953

Source: Department of Defense, Directorate for Accession Policy.

to an average of 5,100 during 2004. The Army increased its recruiting force from

5,100 at the beginning of 2005 to 6,500 by year’s end (averaging just under 6,000

for the entire fiscal year).17

Retention Trends for the Active Army

Although the Army did not achieve its recruiting goals in 2005, it did meet or

exceed its retention goals for enlisted personnel.18 The Army states its goals in

terms of the number, not the percentage, of soldiers retained. CBO examined

retention separately among soldiers serving in their initial enlistment, those in

mid-career, and careerists (see Table 6).19 The Army met its retention goals in all

three seniority ranges for each year between 2000 and 2005. Year-to-year

comparisons among those data are difficult to make, however. For example, in

January 2005, the Army changed the eligibility window for deployed soldiers to

reenlist from 12 months to 24 months before the expiration of their contracts and

extended that policy change to all soldiers in April 2005. Consequently, the pool

of possible reenlistees potentially nearly doubled between 2004 and 2005.
20. Rates may or may not rebound to pre-September 11, 2001, levels. Improvements in pay and

allowances argue for higher continuation rates in the future. However, many analysts have voiced

concerns that higher sustained deployment rates than experienced in the past several decades will

contribute to depressed continuation rates.

21. A 1 percentage point increase in overall continuation behavior translates into a rise in end strength

of more than 20,000 in steady state and more than 10,000 by the end of CBO’s five-year projection

period.

12

Table 6.

Retention of Active-Army Enlisted Personnel

Initial Enlistmenta Mid-Career Careerist

Fiscal

Year Actual Goal

Percentage

of Goal

Attained Actual Goal

Percentage

of Goal

Attained Actual Goal

Percentage

of Goal

Attained

2000 21,402 20,000 107 24,118 23,700 102 25,791 24,300 106

2001 20,000 19,750 101 23,727 23,350 102 21,255 20,900 102

2002 19,433 19,100 102 23,074 22,700 102 15,700 15,000 105

2003 21,838 19,821 110 19,509 18,422 106 12,804 12,757 100

2004 24,903 23,000 108 21,120 20,292 104 13,987 12,808 109

2005b 27,818 26,935 103 24,407 23,773 103 17,287 13,454 128

Source: Department of Defense, Directorate for Officer and Enlisted Personnel Management.

a. Initial enlistment refers to soldiers under their first enlistment contract regardless of their length of service. Service members

who are on their second or subsequent enlistment with up to 10 years of service are categorized as being in mid-career,

whereas service members with more than 10 years of service are called careerists.

b. In 2005, the Army changed the eligibility window for soldiers to reenlist from 12 months to 24 months before the expiration

of their contract. Consequently, the pool of possible reenlistees potentially nearly doubled between 2004 and 2005.

Because yearly comparisons of the number of soldiers retained are difficult to

make, CBO examined trends in continuation rates. CBO found that the Army’s

overall continuation rates (computed for all soldiers, regardless of their contract

expiration dates) were lower in 2004 and 2005 than they had been since 1996 (see

Figure 1 on page 3). In addition, continuation rates for initial enlistees in their

fourth year of service (the point where many face their first reenlistment decision)

were more than 5 percentage points lower in 2005 than they had been in either

2000 or 2001 and lower than they had been since the early 1990s. Despite

increases in pay and the enforcement of stop-loss policies, continuation rates

dropped to levels not observed in over a decade.20 According to CBO’s estimates,

continuation rates without stop-loss would have been 0.3 percentage points lower

than 2005 rates.21
22. CBO calculated, using data from the Current Population Survey released by the Bureau of Labor

Statistics, the 70th percentile civilian wages for male, full-time workers in nonagricultural

industries with some college and four years of experience. DoD uses the 70th percentile as a

benchmark for enlisted pay. See Beth Asch and others, “An Analysis of Pay for Enlisted

Personnel,” Report of the Ninth Quadrennial Review of Military Compensation, Department of

Defense, Office of the Under Secretary of Defense (Personnel and Readiness), 2002.

23. CBO applied a pay elasticity of 1.75.The pay elasticity that CBO uses expresses the change in

retention associated with a change in relative military pay. An increase in relative military pay of

14 percent induces an increase in the reenlistment rate of 1.75 × 14 percent = 25 percent for

soldiers at their first reenlistment point. CBO applied that increase only to those soldiers whose

initial term of service would expire within a given fiscal year. The effect on overall continuation

rates (for all soldiers) is smaller—increasing overall rates by more than 1 percentage point. The

elasticity of 1.75 was the midpoint of elasticities reported in Matthew Goldberg, “A Survey of

Enlisted Retention: Models and Findings,” Report of the Ninth Quadrennial Review of Military

Compensation, Department of Defense, Office of the Under Secretary of Defense (Personnel and

Readiness), 2002. CBO made similar calculations to adjust careerists’ retention rates.

24. See 37 U.S. Code 308.

13

Pay and Reenlistment Bonuses

Current military pay is often measured by Regular Military Compensation (RMC),

a construct that includes basic pay, allowances for food and housing, and the tax

advantage that arises because those allowances are not taxable. Between 2001 and

2005, average RMC for the entire enlisted force showed a cumulative increase of

almost 14 percent, adjusted for inflation. However, some of that increase took the

form of targeted pay raises for senior enlisted members (noncommissioned

officers). For soldiers facing their first reenlistment decision, military pay and

allowances rose by a smaller amount—about 10 percent, adjusted for inflation.

This rate represents a faster growth in earnings than that for comparable civilians;

military pay for those in their first-term relative to comparable civilians increased

by about 13.5 percent.22 CBO estimates that, in the absence of any other changes,

this increase in relative military pay should have increased first-term retention by

about 25 percent and added more than 1 percentage point to overall continuation

rates.23 The observed decline in continuation rates represents the combined effects

of other factors that overwhelmed the increase in military pay.

The services offer Selective Reenlistment Bonuses, which may be paid in a lump

sum or in installments, usually to enlisted members in specific occupations as a

way of retaining sufficient numbers in the military. The Congress authorized

individual SRB payments of up to $60,000.24 The Critical Skills Retention Bonus,

another type of reenlistment bonus, can range as high as $150,000 for soldiers in

Special Forces. In September 2003 the Army introduced a $5,000 reenlistment

bonus known as the Temporary Selective Reenlistment Bonus, which was later

renamed the Deployed SRB. That bonus, payable to both active-duty and Reserve

soldiers in Iraq, Afghanistan, and Kuwait, is exempt from federal income tax. In

January 2005, the Army increased the payment to $15,000. Although soldiers are
25. Either bonus is exempt from federal income tax if the soldier reenlists while in the wartime theater;

see Department of the Treasury, Internal Revenue Service, Armed Forces’ Tax Guide,

Publication 3.

26. SRB expenditures (excluding the Critical Skills Retention Bonus) by the other services did not

grow nearly as rapidly. The Navy’s annual SRB expenditures ranged between $233 million and

$344 million over the years 2000 through 2005. SRB expenditures for the Marine Corps and the

Air Force, respectively, ranged between $36 million and $64 million and between $126 million and

$263 million during those years.

27. In the NDAA for 2000 (Public Law 106-65, section 586), Congress authorized the payment of

$100 a day to service members whose deployments exceeded 251 days over the preceding 365

days. The following year, the NDAA for 2001 (Public Law 106-398, section 574) revised the

threshold to 401 days deployed in the preceding 730 days. Those payments were never

implemented, because Deputy Secretary of Defense Paul Wolfowitz invoked the national security

waiver in an October 8, 2001, memorandum to the Secretaries of the Military Departments

(www.defenselink.mil/news/Oct2001/n10122001_200110123.html). However, the deployment

thresholds indicate the sense of the Congress in terms of a maximum deployment frequency. See

also Congressional Budget Office, Options for Changing the Army’s Overseas Basing (May 2004),

Appendix C.

14

not entitled to both occupation- or skill-based SRB and the Deployed SRB, they

are entitled to the bonus of the higher amount.25 In 2004, the Army reported that

6,700 active-duty soldiers reenlisted and took the Deployed SRB; from September

2004 through August 2005, approximately 17,500 had reenlisted and taken the

Deployed SRB.

Among the active components, the Army has had the largest increases in SRB

expenditures (including the Critical Skills Retention Bonus) since 2000. In 2005

alone, the Army spent more on SRBs than it spent in the four previous years

combined (see Table 4 on page 10).26 Although the Army’s SRB expenditures

averaged less than $120 million annually between 2000 and 2004, they grew to

$506 million in 2005. The Army has also sustained the highest deployment tempo

of any of the services. A large number of active and reserve soldiers have

deployed to the Iraqi theater, many of whom have deployed more than once since

the onset of Operation Iraqi Freedom. Consequently, the deployment rate of Army

troops is considerably higher now than it was during the previous decade; it is also

higher than the rate implied by Congressional actions.27 Without the substantial

increase in SRBs during 2005, retention rates would have been still lower.

Stop-Loss Policies

A member of the military is obligated to serve through a date that is set in his or

her initial enlistment contract as modified by subsequent extensions,

reenlistments, or “payback” periods after training. However, stop-loss policies

enable the military services to retain members beyond their obligation dates. Until

November 2003, the active Army applied stop-loss to certain targeted

occupational specialties. Since then, stop-loss has been applied instead at the unit

level. Regardless of their contracted separation dates, active-duty soldiers under
15

stop-loss are required to remain in the Army for a period beginning 90 days prior

to their unit’s deployment and extending until 90 days after their unit has returned

from its deployment.

The number of soldiers affected by stop-loss varies from month to month as some

soldiers’ contracts expire and various units either deploy or return from

deployment. Soldiers may reenlist when under stop-loss, and many do so to take

advantage of the Deployed SRB. However, at any point in time in 2005, the Army

retained an average of about 7,000 enlisted soldiers who were involuntarily kept

in the service past their contracted separation dates. Almost all of those soldiers

separate from the Army once they are no longer under stop-loss orders.

Implications of Recruiting and Retention Trends for End

Strength

As described previously, CBO examined six scenarios, each defined by different

possible future accession levels and continuation rates (starting in fiscal year

2006). All six scenarios begin with the Army’s strength levels from September 30,

2005: 406,900 enlisted personnel, 81,700 officers, and 4,100 cadets, for a total of

492,700 active personnel. Further, the numbers of officers and cadets are assumed

to be maintained at those historical levels so that the modeling assumptions affect

only the enlisted force.

CBO’s base-case scenario (Scenario 1) uses the continuation rates by year of

service calculated over the 12-month period spanning June 2004 through June

2005 (the most recent data available). The base-case scenario also assumes that

the Army will achieve 73,400 accessions during each future fiscal year—the same

number achieved in 2005. The remaining scenarios are characterized as follows:

# Scenario 2: Accessions totaling 80,000 per year; continuation rates at 2005

levels. This case is more optimistic than the base case because the Army did

not achieve 80,000 accessions in 2005.

# Scenario 3: Accessions totaling 80,000 per year; continuation rates at 2001

levels. This case is more optimistic than Scenario 2 because overall

continuation rates in 2001 were almost 1 percentage point higher than those

recorded in 2005.

# Scenario 4: Accessions totaling 69,100 per year; continuation rates at 2005

levels. This case is more pessimistic than the base case because the Army

achieved 73,400 accessions during 2005. However, it did so at the expense of

drawing down its DEP pool by 4,300 people. The figure 69,100 represents
28. For example, if accessions rose from 73,400 to 74,400 for each of the next five years, end strength

by 2010 would be about 3,000 higher than it would otherwise have been.

16

CBO’s estimate of the accessions the Army would have achieved during 2005

had it held the size of its DEP pool constant.

# Scenario 5: Accessions totaling 73,400 per year; continuation rates at 2005

levels but removing the effects of stop-loss. This case is also more pessimistic

than the base case because stop-loss enabled the Army to involuntarily retain

an average of about 7,000 enlisted soldiers at any point. CBO assumes that the

policy will be rescinded early in 2006, resulting in an immediate onetime drop

in end strength. The scenario also incorporates the lower continuation rates that

would have prevailed during 2005 had stop-loss not been in effect, as

estimated by CBO.

# Scenario 6: Accessions totaling 80,000 per year; continuation rates at the

simple average of 2002 and 2003 levels. This case is by far the most optimistic

because the Army’s continuation rates during 2002 and 2003 were at the

highest levels observed in recent history.

Figure 3 summarizes the accession levels and the average length of service

(ALOS) in steady state associated with the assumed continuation rates. The ALOS

will evolve under any scenario as historical accession cohorts pass through the

system, converging to a steady-state value. Although CBO does not display the

end-strength levels achieved in the steady state, the ALOS in the steady state

provides a summary of the continuation rates under each scenario. Higher

continuation rates imply that soldiers remain in the Army longer and are reflected

in a higher ALOS. Figure 3 also displays the ALOS of 6.45 years that prevailed in

2005. Apart from the sixth scenario, all of the scenarios considered by CBO will

eventually lead to a more junior force, including the base scenario whose

continuation rates imply a thinning of the seniority structure of the current force.

Figure 2 (on page 5) presents CBO’s estimates of the end strength that the Army

could achieve over the next five years under each scenario. Under the base

scenario, CBO estimates that Army end strength could drop by almost 40,000 to a

level of 454,000 active-Army personnel. Under this scenario, the size of the Army

would be more than 55,000 below the 2009 discretionary end-strength goal of

512,400.

CBO’s second scenario assumes that continuation rates remain at current levels

but that the Army will meet its accession goal of 80,000 in each of the following

five years. By 2010, each 1,000 increase in annual accessions will accumulate to

almost 3,000 additional end strength.28 This scenario would generate almost
17

Figure 3.

Annual Accession Levels and Average Years of Service

Under Various Recruiting and Retention Scenarios

Source: Congressional Budget Office.

Note: The average length of service in 2005 was 6.45 years.

20,000 more personnel than CBO estimates the Army would have if current

conditions continued. However, end strength would still drop from today’s levels

to 473,000.

The third scenario is even more optimistic, assuming that the Army will meet its

accession goal of 80,000 while also assuming that continuation rates improve to

pre-September 11, 2001, levels. CBO obtained the continuation rates of enlisted

soldiers over the 12-month period spanning September 2000 through September

2001. Those rates from 2001 reflect some of the improvements that the Congress

authorized and appropriated in basic pay and allowances beginning in 2000 and

are typical of soldiers’ continuation behavior from 1997 through 2001. Under this

third scenario the Army’s end strength would reach 485,000 by 2010, or about

30,000 higher than under the base-case scenario. That level is in line with, or

somewhat higher than, the size of the Army earlier in this decade; however,

compared with the current force, the size of the Army would still decline by about

7,500 personnel.

123456

0

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0

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Scenario

Annual Accession Level

(Left scale, in thousands)

Average Length of Service

(Right scale, in years)
29. On the basis of data obtained from DoD, CBO estimates that about 90 percent of those soldiers

kept in the Army past their contract expiration date will not reenlist when their stop-loss orders are

lifted.

18

The next two scenarios are more pessimistic than the base-case scenario. In the

fourth scenario, CBO lowers the accession level for the next five years by 4,300

individuals so that the Army brings in only 69,100 new recruits annually. This

lower level represents CBO’s estimate of the accessions the Army would have

achieved during 2005 had it held the size of its DEP pool constant. Under this

scenario, the Army’s end strength would decline to about 441,000 by 2010, or

more than 50,000 soldiers below current levels.

In the fifth scenario, although CBO maintains the Army’s 2005 accession level of

73,400, CBO assumes that the Army ends its stop-loss program so that soldiers

will no longer be retained involuntarily past their contract expiration dates. During

2005, on average about 7,000 soldiers were retained involuntarily at any point in

time. The drop in end strength is attributable to the soldiers who were

involuntarily retained separating and from the lower continuation rates that would

have prevailed during 2005 had stop-loss not been in effect, as estimated by

CBO.29 Reflecting the immediate, onetime drop from the policy recision, the

Army’s end strength in 2006 would fall the furthest under this scenario; but by

2010, end-strength reductions would be greater by 5,000 soldiers under Scenario 4

than under this scenario. However, the size of the force would be about 7,000

smaller relative to the base-case scenario.

The final scenario was designed to roughly achieve the Army’s discretionary endstrength goal of 512,400 for the years 2005 through 2009 (in fact, that Army

would reach 513,000 active-duty troops by 2009 under this scenario, according to

CBO’s estimates). To do so would require 80,000 accessions annually, plus

continuation rates as high as those observed during 2002 and 2003. Continuation

rates for those two years averaged about 85.3 percent (when computed as a

weighted average based on the 2005 force profile). Those rates, some analysts

believe, were driven by stop-loss policies and the unique operational environment

facing soldiers during that period. The last time continuation rates had reached

those levels in the Army was in 1991 under Operations Desert Shield and Desert

Storm. The rates in 1991 were not sustained; in fact, overall continuation rates

averaged 80.2 percent in the subsequent five years.

The 2002 and 2003 continuation rates used in the final scenario imply an increase

in the ALOS from its current level of 6.45 years to 6.73 years in the steady state.

By contrast, freezing the continuation rates at 2005 levels (as was done in

Scenarios 1, 2, and 4) implies a decline in the ALOS to 5.44 years. The

continuation rates under the final scenario are so much higher than those under the

other scenarios that they imply a difference of 1.3 years in the ALOS. However,
19

those are the continuation rates needed—in conjunction with 80,000 annual

accessions—if the Army chooses to expand in fiscal years 2006 through 2009 to

the maximum of 512,400 active-duty troops authorized in the 2005 National

Defense Authorization Act.