diff --git a/cluster/gce/container-linux/configure-helper.sh b/cluster/gce/container-linux/configure-helper.sh
index f0c3925e891..b61f1adbfc4 100755
--- a/cluster/gce/container-linux/configure-helper.sh
+++ b/cluster/gce/container-linux/configure-helper.sh
@@ -655,8 +655,16 @@ function prepare-etcd-manifest {
   sed -i -e "s@{{ *hostname *}}@$host_name@g" "${temp_file}"
   sed -i -e "s@{{ *srv_kube_path *}}@/etc/srv/kubernetes@g" "${temp_file}"
   sed -i -e "s@{{ *etcd_cluster *}}@$etcd_cluster@g" "${temp_file}"
-  sed -i -e "s@{{ *storage_backend *}}@${STORAGE_BACKEND:-}@g" "${temp_file}"
-  if [[ "${STORAGE_BACKEND:-}" == "etcd3" ]]; then
+  # Get default storage backend from manifest file.
+  local -r default_storage_backend=$(cat "${temp_file}" | \
+    grep -o "{{ *pillar\.get('storage_backend', '\(.*\)') *}}" | \
+    sed -e "s@{{ *pillar\.get('storage_backend', '\(.*\)') *}}@\1@g")
+  if [[ -n "${STORAGE_BACKEND:-}" ]]; then
+    sed -i -e "s@{{ *pillar\.get('storage_backend', '\(.*\)') *}}@${STORAGE_BACKEND}@g" "${temp_file}"
+  else
+    sed -i -e "s@{{ *pillar\.get('storage_backend', '\(.*\)') *}}@\1@g" "${temp_file}"
+  fi
+  if [[ "${STORAGE_BACKEND:-${default_storage_backend}}" == "etcd3" ]]; then
     sed -i -e "s@{{ *quota_bytes *}}@--quota-backend-bytes=4294967296@g" "${temp_file}"
   else
     sed -i -e "s@{{ *quota_bytes *}}@@g" "${temp_file}"
diff --git a/cluster/gce/gci/configure-helper.sh b/cluster/gce/gci/configure-helper.sh
index af7d732372b..bb6a5b2e05a 100644
--- a/cluster/gce/gci/configure-helper.sh
+++ b/cluster/gce/gci/configure-helper.sh
@@ -721,8 +721,16 @@ function prepare-etcd-manifest {
   sed -i -e "s@{{ *hostname *}}@$host_name@g" "${temp_file}"
   sed -i -e "s@{{ *srv_kube_path *}}@/etc/srv/kubernetes@g" "${temp_file}"
   sed -i -e "s@{{ *etcd_cluster *}}@$etcd_cluster@g" "${temp_file}"
-  sed -i -e "s@{{ *storage_backend *}}@${STORAGE_BACKEND:-}@g" "${temp_file}"
-  if [[ "${STORAGE_BACKEND:-}" == "etcd3" ]]; then
+  # Get default storage backend from manifest file.
+  local -r default_storage_backend=$(cat "${temp_file}" | \
+    grep -o "{{ *pillar\.get('storage_backend', '\(.*\)') *}}" | \
+    sed -e "s@{{ *pillar\.get('storage_backend', '\(.*\)') *}}@\1@g")
+  if [[ -n "${STORAGE_BACKEND:-}" ]]; then
+    sed -i -e "s@{{ *pillar\.get('storage_backend', '\(.*\)') *}}@${STORAGE_BACKEND}@g" "${temp_file}"
+  else
+    sed -i -e "s@{{ *pillar\.get('storage_backend', '\(.*\)') *}}@\1@g" "${temp_file}"
+  fi
+  if [[ "${STORAGE_BACKEND:-${default_storage_backend}}" == "etcd3" ]]; then
     sed -i -e "s@{{ *quota_bytes *}}@--quota-backend-bytes=4294967296@g" "${temp_file}"
   else
     sed -i -e "s@{{ *quota_bytes *}}@@g" "${temp_file}"
diff --git a/cluster/gce/trusty/configure-helper.sh b/cluster/gce/trusty/configure-helper.sh
index fc6aee6244d..2b0bbf912f0 100644
--- a/cluster/gce/trusty/configure-helper.sh
+++ b/cluster/gce/trusty/configure-helper.sh
@@ -476,8 +476,16 @@ prepare_etcd_manifest() {
   sed -i -e "s@{{ *srv_kube_path *}}@/etc/srv/kubernetes@g" "${etcd_temp_file}"
   sed -i -e "s@{{ *hostname *}}@$host_name@g" "${etcd_temp_file}"
   sed -i -e "s@{{ *etcd_cluster *}}@$etcd_cluster@g" "${etcd_temp_file}"
-  sed -i -e "s@{{ *storage_backend *}}@${STORAGE_BACKEND:-}@g" "${temp_file}"
-  if [[ "${STORAGE_BACKEND:-}" == "etcd3" ]]; then
+  # Get default storage backend from manifest file.
+  local -r default_storage_backend=$(cat "${temp_file}" | \
+    grep -o "{{ *pillar\.get('storage_backend', '\(.*\)') *}}" | \
+    sed -e "s@{{ *pillar\.get('storage_backend', '\(.*\)') *}}@\1@g")
+  if [[ -n "${STORAGE_BACKEND:-}" ]]; then
+    sed -i -e "s@{{ *pillar\.get('storage_backend', '\(.*\)') *}}@${STORAGE_BACKEND}@g" "${temp_file}"
+  else
+    sed -i -e "s@{{ *pillar\.get('storage_backend', '\(.*\)') *}}@\1@g" "${temp_file}"
+  fi
+  if [[ "${STORAGE_BACKEND:-${default_storage_backend}}" == "etcd3" ]]; then
     sed -i -e "s@{{ *quota_bytes *}}@--quota-backend-bytes=4294967296@g" "${temp_file}"
   else
     sed -i -e "s@{{ *quota_bytes *}}@@g" "${temp_file}"
diff --git a/cluster/images/etcd/migrate-if-needed.sh b/cluster/images/etcd/migrate-if-needed.sh
index bb837e56318..db0cffd366a 100755
--- a/cluster/images/etcd/migrate-if-needed.sh
+++ b/cluster/images/etcd/migrate-if-needed.sh
@@ -40,16 +40,16 @@ set -o errexit
 set -o nounset
 
 if [ -z "${TARGET_STORAGE:-}" ]; then
-  echo "TARGET_STORAGE variable unset - skipping migration"
-  exit 0
+  echo "TARGET_STORAGE variable unset - unexpected failure"
+  exit 1
 fi
 if [ -z "${TARGET_VERSION:-}" ]; then
-  echo "TARGET_VERSION variable unset - skipping migration"
-  exit 0
+  echo "TARGET_VERSION variable unset - unexpected failure"
+  exit 1
 fi
 if [ -z "${DATA_DIRECTORY:-}" ]; then
-  echo "DATA_DIRECTORY variable unset - skipping migration"
-  exit 0
+  echo "DATA_DIRECTORY variable unset - unexpected failure"
+  exit 1
 fi
 
 if [ "${TARGET_STORAGE}" != "etcd2" -a "${TARGET_STORAGE}" != "etcd3" ]; then
diff --git a/cluster/saltbase/salt/etcd/etcd.manifest b/cluster/saltbase/salt/etcd/etcd.manifest
index 4d896202fa7..5f1ea9a6d60 100644
--- a/cluster/saltbase/salt/etcd/etcd.manifest
+++ b/cluster/saltbase/salt/etcd/etcd.manifest
@@ -20,7 +20,6 @@
 {% endfor -%}
 {% set etcd_cluster = vars.etcd_cluster -%}
 {% set cluster_state = vars.cluster_state -%}
-{% set storage_backend = pillar.get('storage_backend', 'etcd3') -%}
 {% set quota_bytes = '' -%}
 {% if pillar.get('storage_backend', 'etcd3') == 'etcd3' -%}
   {% set quota_bytes = '--quota-backend-bytes=4294967296' -%}
@@ -52,7 +51,7 @@
             ],
     "env": [
       { "name": "TARGET_STORAGE",
-        "value": "{{ storage_backend }}"
+        "value": "{{ pillar.get('storage_backend', 'etcd3') }}"
       },
       { "name": "TARGET_VERSION",
         "value": "{{ pillar.get('etcd_version', '3.0.14') }}"
diff --git a/hack/verify-flags/exceptions.txt b/hack/verify-flags/exceptions.txt
index 600b2ed24d2..a4c870cc98f 100644
--- a/hack/verify-flags/exceptions.txt
+++ b/hack/verify-flags/exceptions.txt
@@ -16,17 +16,26 @@ cluster/gce/configure-vm.sh:  env-to-grains "runtime_config"
 cluster/gce/configure-vm.sh:  kubelet_api_servers: '${KUBELET_APISERVER}'
 cluster/gce/container-linux/configure-helper.sh:    authorization_mode+=",ABAC"
 cluster/gce/container-linux/configure-helper.sh:    authorization_mode+=",Webhook"
+cluster/gce/container-linux/configure-helper.sh:    grep -o "{{ *pillar\.get('storage_backend', '\(.*\)') *}}" | \
+cluster/gce/container-linux/configure-helper.sh:    sed -e "s@{{ *pillar\.get('storage_backend', '\(.*\)') *}}@\1@g")
+cluster/gce/container-linux/configure-helper.sh:    sed -i -e "s@{{ *pillar\.get('storage_backend', '\(.*\)') *}}@${STORAGE_BACKEND}@g" "${temp_file}"
+cluster/gce/container-linux/configure-helper.sh:    sed -i -e "s@{{ *pillar\.get('storage_backend', '\(.*\)') *}}@\1@g" "${temp_file}"
 cluster/gce/container-linux/configure-helper.sh:  local api_servers="--master=https://${KUBERNETES_MASTER_NAME}"
 cluster/gce/container-linux/configure-helper.sh:  local authorization_mode="RBAC"
-cluster/gce/container-linux/configure-helper.sh:  sed -i -e "s@{{ *storage_backend *}}@${STORAGE_BACKEND:-}@g" "${temp_file}"
 cluster/gce/container-linux/configure-helper.sh:  sed -i -e "s@{{pillar\['allow_privileged'\]}}@true@g" "${src_file}"
 cluster/gce/gci/configure-helper.sh:    authorization_mode+=",ABAC"
 cluster/gce/gci/configure-helper.sh:    authorization_mode+=",Webhook"
+cluster/gce/gci/configure-helper.sh:    grep -o "{{ *pillar\.get('storage_backend', '\(.*\)') *}}" | \
+cluster/gce/gci/configure-helper.sh:    sed -e "s@{{ *pillar\.get('storage_backend', '\(.*\)') *}}@\1@g")
+cluster/gce/gci/configure-helper.sh:    sed -i -e "s@{{ *pillar\.get('storage_backend', '\(.*\)') *}}@${STORAGE_BACKEND}@g" "${temp_file}"
+cluster/gce/gci/configure-helper.sh:    sed -i -e "s@{{ *pillar\.get('storage_backend', '\(.*\)') *}}@\1@g" "${temp_file}"
 cluster/gce/gci/configure-helper.sh:  local api_servers="--master=https://${KUBERNETES_MASTER_NAME}"
 cluster/gce/gci/configure-helper.sh:  local authorization_mode="RBAC"
-cluster/gce/gci/configure-helper.sh:  sed -i -e "s@{{ *storage_backend *}}@${STORAGE_BACKEND:-}@g" "${temp_file}"
 cluster/gce/gci/configure-helper.sh:  sed -i -e "s@{{pillar\['allow_privileged'\]}}@true@g" "${src_file}"
-cluster/gce/trusty/configure-helper.sh:  sed -i -e "s@{{ *storage_backend *}}@${STORAGE_BACKEND:-}@g" "${temp_file}"
+cluster/gce/trusty/configure-helper.sh:    grep -o "{{ *pillar\.get('storage_backend', '\(.*\)') *}}" | \
+cluster/gce/trusty/configure-helper.sh:    sed -e "s@{{ *pillar\.get('storage_backend', '\(.*\)') *}}@\1@g")
+cluster/gce/trusty/configure-helper.sh:    sed -i -e "s@{{ *pillar\.get('storage_backend', '\(.*\)') *}}@${STORAGE_BACKEND}@g" "${temp_file}"
+cluster/gce/trusty/configure-helper.sh:    sed -i -e "s@{{ *pillar\.get('storage_backend', '\(.*\)') *}}@\1@g" "${temp_file}"
 cluster/gce/trusty/configure-helper.sh:  sed -i -e "s@{{pillar\['allow_privileged'\]}}@true@g" "${src_file}"
 cluster/gce/util.sh:    local node_ip=$(gcloud compute instances describe --project "${PROJECT}" --zone "${ZONE}" \
 cluster/juju/layers/kubernetes-master/reactive/kubernetes_master.py:            context['pillar'] = {'num_nodes': get_node_count()}
@@ -50,9 +59,8 @@ cluster/photon-controller/util.sh:  node_name=${1}
 cluster/photon-controller/util.sh:  ssh_key=$(ssh-add -L | head -1)
 cluster/rackspace/util.sh:    local node_ip=$(nova show --minimal ${NODE_NAMES[$i]} \
 cluster/saltbase/salt/cluster-autoscaler/cluster-autoscaler.manifest:{% set params = pillar['autoscaler_mig_config'] + " " + cloud_config -%}
-cluster/saltbase/salt/etcd/etcd.manifest:        "value": "{{ storage_backend }}"
+cluster/saltbase/salt/etcd/etcd.manifest:        "value": "{{ pillar.get('storage_backend', 'etcd3') }}"
 cluster/saltbase/salt/etcd/etcd.manifest:{% if pillar.get('storage_backend', 'etcd3') == 'etcd3' -%}
-cluster/saltbase/salt/etcd/etcd.manifest:{% set storage_backend = pillar.get('storage_backend', 'etcd3') -%}
 cluster/saltbase/salt/kube-admission-controls/init.sls:{% if 'LimitRanger' in pillar.get('admission_control', '') %}
 cluster/saltbase/salt/kube-apiserver/kube-apiserver.manifest:{% set params = address + " " + storage_backend + " " + etcd_servers + " " + etcd_servers_overrides + " " + cloud_provider + " " + cloud_config + " " + runtime_config + " " + feature_gates + " " + admission_control + " " + max_requests_inflight + " " + target_ram_mb + " " + service_cluster_ip_range + " " + client_ca_file + basic_auth_file + " " + min_request_timeout + " " + enable_garbage_collector + " " + etcd_quorum_read -%}
 cluster/saltbase/salt/kube-controller-manager/kube-controller-manager.manifest:{% if pillar.get('enable_hostpath_provisioner', '').lower() == 'true' -%}