What's the most important thing the military should do while going through this downsizing period?

I think every seperating service member should have a 1-2 month end of contract reserve commitment in there state of choice. First week should be taps class then a reserve weekend. They could then meet reservist in the area they want to live in. Ask questions see if they want to continue with reserve unit. The veteran would then check into the VA hospital and have another taps class at the end of the one or two months and beable to comfortable move on with the local contacts gathered or continue with the restive unit. A basic check like the one down at your last command. This would make the transition much easier for veterans and would hopefully cause less stress to those suffering with various disabilities.

Leaders should counsel their Soldiers regularly on the opportunities the Army offers to them, from the time Soldiers are assigned into his/her unit until Soldiers separate from the service. 

do not let go of the troops or close bases down make it to were new recruits or high school kids wanting to go in to the service need to have certain criteria to get into the service more then just a diploma.  we do not need to shrink our military at all i remember when they were offering big bonuses when they were looking for anyone and in California when i went in there was an option that courts were giving kids go to prison or serve in the military it flip flops so much of we got to many or we don't have enough i know after so long if you can not advance your rank they let you go as well keep it that way for the enlisted and lower officers.

I have read everybody's responses here so far, and the one thing I didn't see was about Fraud Waste and Abuse.  We used to have a system in place to check this very problem we have now.  The services now have Acrobat Pro, which allows them the latitude to not print every damn piece of paper in the printer, but they do not use it.  The forces have become WAY TOO DEPENDANT on powerpoint.  I have lead Soldiers many times, on many successful mission without one powerpoint slide.  As far as downsizing the civilian workforce goes, I agree wholeheartedly, which is why I am part of a group of NCOs training to replace the ones currently at the helm of the network gateways (downsizing 224 access points/firewalls down to 20, and guarding/patrolling them with green suiters).  The other thing I can't stand, is how we have gotten completely away from using the Company training calendar; without it, the troops have no assurances they are where they are supposed to be, and it allows for too many unprepared training events.  While on that topic, every week we have a new MANDATORY training requirement on some computer interface, and takes away time that Leaders would have with their teams/platoons, etc.  Keep trimming the FAT Soldiers out of the military, but do not miss the ones that are both lazy and useless, hiding in the background.  As far as promotions go, if the services are going to make getting a degree a requirement, then they had better have it on the training calendar as well.  There are way too many good idea fairies out there writing new policies that only patch, not fix or remove bad, antiquated systems.  The services will have to downsize, not just because of the funding issues, but also because there are too many people filling one job slot, causing competitions that ultimately take time away from needed training and development; in most cases you CAN find one officer that can do the job that three are doing now.  The Command constantly gripes about how the Soldiers are living the barracks/billets, etc, but they themselves have broken a proven system by taking the NCOs out of the barracks, and expecting NCOs living off post to somehow fill this duty between caring for their family and managing a squad/PLT/etc; in other wards, just because you're in charge, and it was idea, doesn't mean it's a good one, or that anyone supports it.  As far as the OER system goes, it has become a buddy system, and anyone in the club can get a great OER just by not bucking the system; this is a broken system.  In closing we do not need to create another damn team of idiots to go out and figure out where we can fix these problems, just listen to the NCOs, and they will tell you.   

Maintain technology/R&D investments.  With downsizing and limited budgets, technology as a force multiplier becomes ever more important. 

First by getting rid of people that can't meet weight standards. There are a lot of them. Get rid of the people that struggle with pt tests. Raise the standard on the asvabs because some of the jobs seem to easy to get a score for. And cut back on some of the office workers. Most of the ones I've talked to her have almost no job. It shouldn't take 5 people to push the same email.

Retain the best. DOD will save money by giving the best service members incentives to stay (pick of duty station or billet, family friendly, length of time at duty station, cash bonuses) rather than organizational relearning or hiring private companies.

Ensure that leaders are affording our Soldiers time to take full advantage of the ACAP process beginning 12-months from from ETS.

The Army does not owe its Soldiers a 20-year career, but the Army does owe its Soldiers a quality transition to civilian life.

Get rid of anyone who doesn't want or deserve to be in the military. Next, the entire DoD should be reviewed for redundancy and cost savings. Cut the fat but leave the bone and muscle in place. We can't trust the DoD to decide where to cut so it should be an independent commission. Finally, every active duty person should get as much education as possible. With the draw down coming everyone is expendable. Get certifications before degrees. If the call comes to get out and you're on the list you need marketable civilian skills now.

Change the "unfair promotion system". I've seen good soldiers / servicemembers got out because they couldn't get promoted. Being a PT stud doesn't make you a good soldier, because most of them got promoted quick and doesn't even know how to lead people.  The military should look at promoting everyone based on their leadership skills, work performance, job knowledge, and  military branch knowledge. Not because they can score a perfect on the pt test and looked confident on the promotion board. Look at the whole soldier concept and don't promote everyone so quick. Look at the time in grade and service.