FPI Bulletin: Flawed Budget Deal Provides Relief for U.S. Military

October 28, 2015

The agreement reached by the White House and congressional Republicans will provide an additional $56 billion for defense over the next two years, compared to what would have been available if the budget-capping process known as sequestration were fully applied. This increase will get the Pentagon back to what General Martin Dempsey, former Chairman of the Joint Chiefs of Staff, has described as the “lower ragged edge of manageable risk”, but still falls far short of the cross-party consensus on what our military needs. 

Last year, the bipartisan, congressionally appointed National Defense Panel (NDP) recommended that in order to repair the damage done by deep spending cuts accompanied by rising threats abroad, the White House and Congress should immediately repeal sequestration and return to the budget baseline proposed by Secretary of Defense Robert M. Gates during his final year in office. This would an entail an additional $89 billion per year for defense, or $178 billion over the two-year period covered by the budget deal. A bipartisan group of more than 80 national security experts wrote the congressional leadership this spring to reiterate the NDP’s recommendations.

The next opportunity to restore defense spending will come after this budget deal expires in 2017, and will fall on the next President and Congress. They should act on the advice of the NDP’s final report and all those who endorsed it.

The Mechanics of the Deal

The two-year deal paves the way for an additional $112 billion of Federal spending relative to the annual caps imposed by the Budget Control Act of 2011 (BCA) and the sequestration mechanism it created. The deal lifts the caps for Fiscal Year 2016 by $50 billion and the caps for 2017 by $30 billion, evenly divided in both years between defense and-non defense spending. The deal also provides an additional $16 billion per year of spending on Overseas Contingency Operations (OCO), a term of art for supplemental funding, intended primarily for operations in Iraq and Afghanistan. Half of this OCO funding will go to the Pentagon, whereas the other is currently allocated to the Department of State. All in all, the Pentagon will receive an additional $56 billion over two years, compared to what it would have received if sequestration were applied in full.

To understand the relative magnitude of these changes, it is essential to understand the distinction between the Pentagon budget and the budget category known as Function 050 – National Defense. In addition to the Pentagon budget, Function 050 includes much smaller allocations for the nuclear weapons-related activities of the Department of Energy, along with very limited funding for the Department of Justice. As a rule, the Pentagon budget comprises slightly more than 95 percent of the money for Function 050.

The distinction between the Pentagon budget and Function 050 often results in significant confusion, since correspondents for leading publications rarely explain the difference. As a result, readers may encounter different sets of figures in different publications, or even in separate articles in the same publication. Many publications also omit explanations of OCO funding, which results in additional in consistencies.

Under the BCA and sequestration, the Function 050 cap for 2016 is $523 billion, whereas the cap for 2017 is $536 billion. Applying the 95 percent rule, this translates into $499 for the Pentagon in FY16 and $511 in FY17. The budget deal adds $25 billion to Function 050 for FY16, yielding $548 billion, and $15 billion to Function 050 in FY17, yielding $551 billion. The budget deal also adds $58.7 billion of OCO funding in each year to Function 050, yielding totals of $606.7 in FY16 and $609.7 in FY17. (These totals do not account for the $8 billion of OCO funding for the Department of State, which is not part of Function 050.)

The numbers in the budget deal should first be compared to those in the President’s budget proposal for FY16 and the congressional budget resolution also for that year. The President requested a total of $612 billion, consisting of $561 for function 050 (yielding an expected $534 billion for the Pentagon) plus $51 billion for OCO. The budget resolution endorsed sequestration-level caps of $523 billion for Function 050 (yielding $499 billion for the Pentagon), but added $90 billion for OCO, amounting to a total of $613 billion.

All in all, the budget deal’s FY16 funding for Function 050 falls $5-$6 billion—or 1 percent—short of what the President and Congress wanted, but provides $33 billion—or about 5 percent—more than allowed by the BCA and sequestration.  To match the Pentagon’s base budget (i.e. without OCO) prior to the BCA and sequestration, an increase of $77 billion would’ve been necessary.

In addition, the deal should clear the way for passage of the defense authorization act, which the President vetoed despite its historic reforms of the military retirement system and ambitious effort to reform how the Pentagon develops new weapon systems, a major source of cost overruns.

Defense in 2017 and Beyond

A different perspective on the budget deal comes from comparing it to the spending baseline proposed by Secretary Gates in 2011. That year, the Pentagon’s share of Function 050 amounted to $528 billion, or $572 billion when adjusted for inflation. Gates projected a gradual increase to $611 billion by 2016, an increase in real terms of about 1.5 percent per year, or 7 percent total. Instead of the gradual increase Gates envisioned, the BCA and sequestration have led to cuts that pre-empted almost half a trillion dollars of projected spending and will pre-empt half a trillion more if corrective action is not taken in 2017.

Looking forward to the next administration, it remains to be seen if a new President and Congress will restore defense spending to the level that many national security experts have recommended. One sign of progress is the activism of rank-and-file House members concerned by an absence of leadership on this issue.

In an open letter to Speaker of the House John Boehner, Rep. Michael Turner (R-OH) and just over 100 of his Republican colleagues wrote that they would vote against any agreement that failed to provide the military with the level of funding promised by this year’s budget resolution as well as both the defense authorization and defense appropriations acts, all of which passed the House with overwhelming GOP support. The Turner letter commanded the attention of the Republican leadership in the House because its signatories hold the votes necessary to pass any potential compromise with the President.

While a renewed sense of purpose is Congress is welcome, there is no replacement for a President determined to rebuild the nation’s Armed Forces. Next year’s election will determine whether the Oval Office will be occupied by such a leader.

Mission Statement

The Foreign Policy Initiative seeks to promote an active U.S. foreign policy committed to robust support for democratic allies, human rights, a strong American military equipped to meet the challenges of the 21st century, and strengthening America’s global economic competitiveness.
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