Hagel proposes 20 percent cut to headquarters; SecDef, grounded: Navy Won, Air Force, Zero; Mundy to 1st MEB; North Koreans try to sugarcoat it; For the CIA, digital is the new black; and a bit more.

By Gordon Lubold

The Pentagon is starting to touch the third rail of budgetary spending: military compensation, retirement and benefits spending. As Chuck Hagel completes his "listening tour" of troops and their families, a quiet effort has begun to review military retirement and compensation that will grow louder as its work begins to surface. Hagel is finishing up his domestic road trip today, visiting airmen at Charleston Air Force Base, S.C., and then Marines at Camp Lejeune, N.C. Hagel, we’re told, wants to hear from troops and families about the challenges they face during a period of shrinking budgets. He’s listening but he’s also starting slowly to float the idea that compensation benefits and even retirement plans may have to be pared back in order to make the Pentagon’s ledgers add up. Personnel costs alone cost the services between 55 and 65 percent of their budgets and rising – a fact the Pentagon brass say they’ve been saddled with for years. But now as budgets tighten, it’s a fact that can’t be ignored.  

A group takes form. Earlier this month, a group called the Military Compensation and Retirement Modernization Commission, created under the fiscal 2013 defense bill, held an organizational meeting. It’s a little-known group that has been given a tremendous task: to review the existing benefits package for service members and recommend changes. The group will be seen as a failure if it doesn’t suggest serious ways to reign in benefits spending. And even as budget cuts look at trimming the number of personnel within at least some of the services, the Pentagon leadership is looking for other ways to create a more financially sustainable Defense Department. "I think this could be an extremely important mission, assuming Congress listens to it," said one official familiar with the group. Read more about this including who’s on the new group, below.

Hagel yesterday ordered a big cut to brass and senior civilians. The Pentagon chief announced yesterday that he would make a 20 percent cut in the number of top brass and senior civilians at the Pentagon’s Office of the Secretary of Defense, the Joint Staff and service headquarters over the next six years. This could mean dropping as many as 5,000 jobs in a Pentagon that was considered increasingly top heavy – a vestige of a dozen years of war – and the spending that went with it. Initial estimates of the kinds of savings it would produce run as high as $2 billion. Pentagon Press Secretary George Little, in a statement: "Personnel reductions associated with these savings will be determined during the development of detailed execution plans. Secretary Hagel’s announcement is based on the work of the Strategic Choices and Management Review, which scrutinized the Department’s spending priorities and determined that these headquarters reductions should be pursued now, regardless of future fiscal circumstances. These cuts will be implemented even if Congress lifts sequester-level budget caps."

Retired Marine Gen. Arnie Punaro, to the WaPo’s Craig Whitlock: "It’s all relative for a bureaucracy that has hardly been touched by a human hand over the past decade… but a 20 percent cut is pretty dramatic."

First in a series? This is one of the first big announcements by Hagel drawn from the work of the strategic review, or SMCR, and may be a sign that Hagel will begin to roll out more results of the review process, which is perceived to be less than transparent both in and outside of the Pentagon.

Welcome to Wednesday’s edition of Situation Report. Sign up for Situation Report here or just e-mail us. And as always, if you have a report, piece of news, or a tidbit you want teased, send it to us early for maximum tease. Please follow us @glubold. And remember, if you see something, say something — to Situation Report.

For the CIA, digital is the new black (bag). Writing on FP, Matthew Aid has a great tale about when computer hacking just won’t do, there are teams of CIA operatives who, when necessary, break into the computer of those it needs to watch. "During a coffee break at an intelligence conference held in The Netherlands a few years back, a senior Scandinavian counterterrorism official regaled me with a story. One of his service’s surveillance teams was conducting routine monitoring of a senior militant leader when they suddenly noticed through their high-powered surveillance cameras two men breaking into the militant’s apartment. The target was at Friday evening prayers at the local mosque. But rather than ransack the apartment and steal the computer equipment and other valuables while he was away — as any right-minded burglar would normally have done — one of the men pulled out a disk and loaded some programs onto the resident’s laptop computer while the other man kept watch at the window. The whole operation took less than two minutes, then the two trespassers fled the way they came, leaving no trace that they had ever been there. It did not take long for the official to determine that the two men were, in fact, Central Intelligence Agency (CIA) operatives conducting what is known in the U.S. intelligence community as either a "black bag job" or a "surreptitious entry" operation."

Aid writes more: "The CIA’s clandestine service is now conducting these sorts of black bag operations on behalf of the NSA, but at a tempo not seen since the height of the Cold War. Moreover, these missions, as well as a series of parallel signals intelligence (SIGINT) collection operations conducted by the CIA’s Office of Technical Collection, have proven to be instrumental in facilitating and improving the NSA’s SIGINT collection efforts in the years since the 9/11 terrorist attacks." Read the rest, here.

A Corps up-and-comer? Brig. Gen. Carl Mundy is on his way. The Marine one-star will become commanding general of the 1^st Marine Expeditionary Brigade today, the Corps announced. Mundy, well regarded by many in and outside of the Corps, has been walking a chosen path. Mundy, the son of the Corps’ 30^th Commandant, Gen. Carl Mundy, Jr. was most recently the X-O to Army Gen. Lloyd Austin, commander of U.S. Central Command; before that, he served Gen. Jim Mattis at CENTCOM.

The Cubans seem to sugarcoat an arms shipment to North Korea. The NYT’s Rick Gladstone and David Sanger: It started with a tip: that a rusty North Korean freighter, which had not plied the Caribbean in years, was carrying drugs or arms amid more than 200,000 sacks of Cuban brown sugar. It ended with a five-day, eventually violent standoff between Panamanian marines and 35 North Korean crew members, armed largely with sticks, who were subdued and arrested while their captain, claiming he was having a heart attack, tried to commit suicide. Underneath all that sugar, it turned out, were parts for what appeared to be elements of an antiquated Soviet-era missile radar system that was headed, evidently, to North Korea – a country that usually exports missile technology around the world, rather than bringing it in." Read the rest, here.

SIGAR: A U.S. Army Corps of Engineers released contractors who built a flimsy project. Again. The Special Inspector General for Afghanistan Reconstruction released a report this morning that says that the U.S. Army Corps of Engineers failed to hold contractors accountable after building the Sheberghan Teacher Training Facility in Jawzjan province. An Iraqi firm, Mercury Development, was awarded $2.9 million in 2009 to build three teacher training facilities – one of which was to be located in Sheberghan in Jawzjan and remains, four years after it was begun, incomplete. In an e-mailed statement from the SIGAR office, on the project: "Its history is one of broken promises and undelivered results.  Additionally, the report identifies a disturbing trend in which the US Army Corps of Engineers (USACE) fails to hold contractors accountable for completing the work they were paid to perform. "Read the rest of the SIGAR report, here.

Democrat Adam Smith talks foreign assistance and national security, Friday. Smith, ranking member of the House Armed Services Committee, talks about how foreign assistance preserves and promotes American national security, at USIP Friday morning. Deets here.

The Pentagon’s fancy footwork on sexual assault? Politico’s Darren Samuelsohn and Anna Palmer: The country’s most senior military commanders filed into a Capitol Hill hearing room in June, sat in front of TV cameras and promised to stamp out military sexual assault – a problem Army chief of staff Gen. Ray Odierno called "a cancer." "We can and will do better," Odierno told the senators. But privately, Pentagon lawyers and advisers were trying to limit just how much they’d have to do. Over the past three months, Pentagon lawyers and legislative officials met with senior lawmakers and aides, including the Senate Armed Services Committee staff director and its top lawyer, to persuade them to shut down a movement led by Sen. Kirsten Gillibrand (D-N.Y.) to take the chain of command out of sexual assault cases." More here.

Hagel ran into Jesse Jackson. Hagel was in Jacksonville, Fla., having coffee at a hotel with city officials when he saw Jackson, in town for a conference. Then Hagel, increasingly comfortable in the job and often speaks off the cuff, ran upstairs and jumped onstage to say hello to the crowd assembled for the conference, the Conference of Minority Transportation Officials. Hagel said, in part: "I want to thank all of you for what you do for our country.  We are one country.  We’re trying to make it work.  We have responsibilities to all of our people, and our biggest responsibility, as you all know so well because your lives have been focused on this and about this, is preparing our next generation in every way we can, whether it’s transportation, national security, education.  But we nourish our young people, and hopefully there is one principal objective that we all have, and that’s to make a better world for all people."

SecDef, grounded: Navy won, Air Force zero. It’s always at least minor news when the plane on which the Defense Secretary is traveling has mechanical issues. A new plane is brought, the other one is dragged shamefully away to the repair hangar, its nosecone in its proverbial hands. But yesterday’s news of plane troubles for Chuck Hagel, visiting troops at Naval Air Station, Jacksonville, Fla., brought a little service rivalry flavor. The C-40 Hagel and his entourage were riding in experienced a problem when the plane, an Air Force jet, broke down and was replaced with one of the Navy’s six new P-8s. A senior defense official put it in sports terms, saying the Air Force was playing "an away game" at Naval Air Station Jacksonville. "You’ve gotta be on your toes when you’re on the other team’s home turf," the official told Situation Report via e-mail. "Of course, at a major Navy installation, there a lots of planes to choose from."

Inshallah: The Air Force will have its chance to shine once again today with a repaired C-40 – or another Air Force aircraft to ferry Hagel and his gang safely back to Andrews. "Charleston is home field advantage for the Air Force, so permission to land shouldn’t be a problem," the defense official said.

Military compensation review group begins its work, con’t. The challenge, of course, is to make intelligent trims of the Pentagon’s compensation package without breaking faith with service members who entered the military based on a certain set of promises of what those benefits would be. "The issue is how do you ensure that people are being treated properly and that the commitments are kept – and at the same time we don’t eat into the other accounts to where we have a seriously weak [military] capability?"

The group is short on public details about just what specifically is on its agenda, but its work will become central to Pentagon thinking in the months ahead. It’s likely that the group will provide some input to the White House and to Congress later this year; officially, its deadline is May 1, 2014.

The success or failure of this group may hinge on whether the huge number of powerful veteran advocacy groups dig their heels in to stop any reform of personnel spending – or get on board to have a hand in that reform. But both Congress and the White House – neither branch eager to be seen as cutting military personnel programs – will have to find a politically palatable way to change the military compensation system or, experts say, any attempt to change it will surely fail. For now, though, the commission’s job will be to do its homework and ensure that it can justify what programs it will look at tweaking. "There are a lot of programs," said the individual familiar with the group, "so the question is which do you touch and what do you leave alone and why did you leave that alone and why did you decide to touch the ones you touch?"

Commission Chairman: Alphonso Maldon, Jr. Other members: Former Sens. Larry Pressler and Bob Kerrey; Former Reps. Chris Carney and Stephen Buyer; Dov Zakheim, Mike Higgins, Pete Chiarelli and Ed Giambastiani, Jr. MOAA’s quick bio of each, here.

Syria, Year Three

• Al-Monitor: Aleppo starves under siege. 
• U.S. News: Syrian refugee crisis destabilizes Jordan.
• NYT: Ruins in a center of Syria’s uprising. 

Afghanistan, Year 12

• RT: UK police implicated in U.S. Senate’s "kill list."
• AP: At least 2,112 military deaths in Afghanistan since 2001.
• Forbes: The gendered impact of Afghanistan’s drug crisis.

The Pivot

Defense News: U.S. Pacific shift has heavy logistics price tag.
WSJ: Japanese minister says country to bolster its defenses.
USA Today: Seized missile radars on North Korean ship a threat to aircraft.