Death to OCO: What Would Dem Sweep Mean for War Funding?

 In Industry, Acquisition, & Innovation, Defense

The Democrat-con­trolled House Appropriations Committee wants to elim­i­nate the Pentagon’s much-maligned war fund­ing mech­a­nism, called Overseas Contingency Operations. In the past, such efforts got nowhere because OCO was a con­ve­nient mech­a­nism for making a budget deal that domes­tic spend­ing advo­cates, defense hawks, and budget hawks could all live with. However, deficit hawks are now nearly extinct and defense hawks are weak­ened. If the Democrats sweep the next elec­tion, elim­i­nat­ing OCO might be the mech­a­nism for a Biden admin­is­tra­tion to cut defense. That would have effects across the board, includ­ing likely delays in the next gen­er­a­tion of acqui­si­tion pro­grams.

A Much-Maligned Account.

The war spend­ing for Iraq and Afghanistan has been con­tro­ver­sial from the begin­ning because the wars have been con­tro­ver­sial. President George W Bush used sup­ple­men­tals, that is, addi­tion­al amounts appro­pri­at­ed through a sep­a­rate leg­isla­tive vehi­cle from the reg­u­lar DoD appro­pri­a­tion. This had the advan­tage of clear­ly iden­ti­fy­ing war fund­ing and allow­ing the war fund­ing pro­pos­al to go up sev­er­al months after the reg­u­lar budget, using more cur­rent infor­ma­tion in a rapid­ly dynam­ic envi­ron­ment to inform deci­sions. However, the late trans­mit­tal engen­dered crit­i­cism that the Bush admin­is­tra­tion was trying to “sneak” the fund­ing through Congress, and con­gres­sion­al rules lim­it­ed review to the appro­pri­a­tions com­mit­tees and exclud­ed the autho­riza­tion com­mit­tees.

The Obama admin­is­tra­tion came into office vowing reforms. It includ­ed the war fund­ing as a sep­a­rate title of the reg­u­lar budget. The two requests, base and OCO, thus went to Congress togeth­er. The Obama admin­is­tra­tion also estab­lished criteria for what could go into the war funding. Finally, it changed the name from “global war on terror” to “over­seas con­trol oper­a­tions” to signal a nar­row­er pur­pose.

However, war fund­ing by any other name was still unac­cept­able to oppo­nents who crit­i­cized OCO as a “slush fund.” That was unfound­ed. OCO was pro­posed, bud­get­ed and account­ed for in the same way as the base budget. What made OCO dif­fer­ent was that it was not restrict­ed by the budget caps imposed by the Budget Control Act of 2011. This made it a con­tin­u­ous target for those seek­ing to cut defense. Elizabeth Warren’s cam­paign, for exam­ple, pro­posed to elim­i­nate OCO entire­ly, without apparently appreciating what exactly was in it.

A Convenient Tool for Budget Agreements

As I noted in an earlier Breaking Defense article, OCO pro­vides a mech­a­nism that helps domes­tic advo­cates, defense hawks, and deficit hawks agree on spend­ing. Defense hawks — led for many years by former Sen. John McCain and, more recent­ly, by Rep. Mac Thornberry — want more money for defense. Deficit hawks worry about long-term finan­cial sus­tain­abil­i­ty and want to reduce all fed­er­al fund­ing, includ­ing defense. Advocates of domes­tic expend­ing, mainly Democrats, want their pro­grams to receive equal atten­tion. The typ­i­cal budget agree­ment, there­fore, has increased spend­ing for both domes­tic and defense above the BCA caps and given defense a little more money in OCO. Domestic advo­cates and deficit hawks could live with this addi­tion­al OCO money as a one-year budget increase, but not at a per­ma­nent higher-level.

OCO Funds A Bunch Of Stuff 

Though the Obama administration’s cri­te­ria, still in effect, have lim­it­ed what goes into Overseas Contingency Operations, there’s a wide variety of activities paid for in OCO. At the core is $20 bil­lion for oper­a­tions in Iraq, Syria, and Afghanistan, along with pro­grams to sup­port part­ners and allies, includ­ing the Afghan gov­ern­ment. OCO also funds much of the US mil­i­tary pres­ence around the Persian Gulf. Entirely out­side the Middle East but funded in OCO are SOCOM’s global counter-ter­ror­ism cam­paign and the $5 bil­lion European Deterrence Initiative for exer­cis­es and deploy­ments to deter Russia. Finally, there is $16 bil­lion in “base to OCO” described in DOD’s budget doc­u­ments as “funded in the OCO budget due to budget caps enact­ed in the BBA of 2019 [and includ­ing] ground oper­a­tions, depot equip­ment pur­chase and main­te­nance, con­trac­tor logis­tics sup­port, and ship oper­a­tions.”

Congress Can’t Seem To Move OCO Money To Base Budget

The desire to move fund­ing for endur­ing activ­i­ties out of OCO into the base budget is long-stand­ing. The Obama admin­is­tra­tion in its 2016 budget stated its inten­tion to make such a move begin­ning the next year. The Trump admin­is­tra­tion includ­ed a plan in its 2020 and 2021 bud­gets for a trans­fer in 2022.

This would seem to be a simple and uncon­tro­ver­sial trans­fer, since total fund­ing for DOD would not be changed. OCO fund­ing goes down; base fund­ing goes up the same amount―so no net change. However, there is a per­cep­tion that funds trans­ferred from OCO into the base would con­sti­tute an “increase in defense budget” and require a com­pen­sat­ing increase to domes­tic pro­grams. Rather than wading into this con­tro­ver­sy and expend­ing pre­cious polit­i­cal cap­i­tal for the abstrac­tion of “good gov­ern­ment,” admin­is­tra­tions have pre­ferred to push such bud­get­ing changes to the future.

Realignment Of Political Forces

As long as the three groups―defense advo­cates, deficit hawks, defense hawks―were each strong enough to demand a place at the table, OCO con­tin­ued as it was at about $70 bil­lion per year. However, in 2015 or so, deficit hawks start­ed losing strength. Today, the move­ment known as the “tea party” is a dis­tant memory. Defense hawks still offset domes­tic advo­cates, but defense hawks have also been losing ground. In a House con­trolled by the Democrats, HASC chairman Adam Smith has strongly supported defense, but he faces a pro­gres­sive caucus. Nevertheless, this defense budget approach seemed des­tined to sur­vive the 2020 elec­tion. Even if the Democrats cap­ture the White House and the House, Republicans were thought likely to hold the Senate.

However, as President Trump’s pop­u­lar­i­ty declines in the face of the pan­dem­ic, the pos­si­bil­i­ty is rising that the Democrats could sweep the 2020 elec­tions. With Democrats in con­trol of both houses of Congress and the White House, defense hawks would be very weak. In that case, a rad­i­cal change to OCO and the defense budget would become pos­si­ble.

What The Future Might Hold

The HAC report lays out the argument for eliminating OCO. It is worth quot­ing at length since it rep­re­sents the views of half of Congress and could become the pre­vail­ing view:

With the pos­si­bil­i­ty of sig­nif­i­cant­ly fewer deployed American ser­vice­mem­bers in Afghanistan, com­bined with more train­ing exer­cis­es and less con­tin­gen­cies, activ­i­ties funded in the past by OCO could very well be sup­port­ed within base accounts in the future. For these rea­sons, the com­mit­tee believes that the depart­ment should cease request­ing fund­ing for OCO accounts fol­low­ing this fiscal year. The tra­di­tion­al manner of fund­ing con­tin­gency oper­a­tions through sup­ple­men­tals should return. The OCO exper­i­ment has been an abject fail­ure and has given the depart­ment a bud­getary relief valve that has allowed it to avoid making dif­fi­cult deci­sions.

The word­ing implies that the HAC would not elim­i­nate war fund­ing but would reduce it to force DOD “to make dif­fi­cult deci­sions.” Thus, a future Democratic admin­is­tra­tion might not make a dollar for dollar trans­fer from OCO to base but maybe 50 cents on the dollar — that is, for every two dol­lars cut from the OCO account, one dollar goes into the base budget, with a rel­a­tive­ly small sup­ple­men­tal bill for combat oper­a­tions.

The sce­nario described above would means a $25 bil­lion cut to defense―about four per­cent, on the low end of what com­men­ta­tors are pro­ject­ing. Nevertheless, it would force a rad­i­cal reeval­u­a­tion of DOD budget pri­or­i­ties, which secretaries and JCS chairman have said for years require a grow­ing budget.

The current budget maintains a relatively high level of readiness, expands force struc­ture mod­est­ly, sus­tains legacy sys­tems and invests in advanced tech­nolo­gies. A $25 bil­lion cut would require cut­ting back sub­stan­tial­ly on one or more of these. Advanced tech­nolo­gies and the new sys­tems based on them would be highly vul­ner­a­ble. Strategists strong­ly sup­port such sys­tems to com­pete with China and Russia, but these sys­tems don’t have the polit­i­cal momen­tum that legacy sys­tems do. This is evi­dent in the draft 2021 NDAAs which have pro­tect­ed exist­ing pro­duc­tion lines and gen­er­al­ly for­bid­den the early retire­ment of legacy sys­tems. Nevertheless, there are many ways in which such a deep budget cut could play out.

What To Watch

Although the HAC views rep­re­sent those of only one com­mit­tee, the bill and report will almost cer­tain­ly be accept­ed by the full House, given the chamber’s inter­nal dis­ci­pline. The Senate will not agree, and the OCO rec­om­men­da­tion will not appear in the final bill or joint report. But that’s not the pur­pose of making a state­ment like this. The pur­pose is to put a marker down for future budget nego­ti­a­tions, per­haps when the Democrats are in a stronger posi­tion after the 2020 elec­tions.

One near-term indi­ca­tor is whether the Congress passes a 2021 appro­pri­a­tions bill before a new admin­is­tra­tion takes office. Congress did not do that before the 2016 elec­tion and came to regret it. Delaying the appro­pri­a­tions bill just jammed the leg­isla­tive cal­en­dar at a time when the new admin­is­tra­tion had many ini­tia­tives that it wanted to push through. If Congress passes the 2021 appro­pri­a­tions (and autho­riza­tion) bills before the elec­tion, that will delay the day of reck­on­ing for a year because those bills will almost cer­tain­ly come in at the cur­rent budget agree­ment level.

Finally, the dic­tates of strat­e­gy will drive the bud­gets of the next admin­is­tra­tion, whether it’s led by Biden or a Trump. It’s easy to talk about budget cuts in a vacuum but, as I have argued in these pages before, making the strat­e­gy changes that such budget cuts require is much harder.

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