FPI Fact Sheet: Defense Budgeting in Context

March 17, 2015

This morning, House Budget Committee Chairman Tom Price (R-GA) released his draft budget resolution, kicking off a furious debate over defense spending. Whereas fiscal hawks want to maintain the $1 trillion in defense cuts required under the Budget Control Act (BCA), defense-minded members warn that those cuts will undermine American national security.

According to Rep. Price, his plan “brings our FY 2016 budget for national defense to $613 billion in total – higher than the President’s budget request for the fiscal year.” Yet Rep. Doug Lamborn (R-CO), a member of the House Armed Services Committee, immediately responded, “I am very concerned about the $20 billion dollar shadow cut to defense spending included in [Rep. Price’s] budget.” In order to understand these contrasting perspectives, it is essential to understand a few basic concepts of defense budgeting, which this fact sheet will explain. 

The Budget Process and Proposals

The purpose of a budget resolution is to establish a framework for annual government spending. The budget resolution does this by specifying funding levels for various “functional categories,” each of which has a name and a number. National Defense is Budget Function 050, often shortened to “Function 050.”

Function 050 includes funding for both the Defense Department (DOD) and certain non-DOD activities, primarily the Department of Energy’s nuclear weapons programs. As a rule of thumb, the DOD receives approximately 95.4% of the funding from Function 050 in a typical year. This amount goes toward what’s called the Pentagon’s “base budget,” the amount required to raise, train, and modernize the Armed Forces.

Although the distinction between DOD and non-DOD activities within Function 050 is relatively small, it still results in some confusion.  Newspapers alternately use both the Function 050 number and the DOD-only number. As a result, articles in different publications (or even in the same publication) may seem to contradict one another.

The funding proposals at the center of the current debate are summarized in Table 1:

In recent hearings, the service chiefs of the Armed Forces have described the consequences that a sequestration-level budget would impose on our military, which would ultimately jeopardize the national security strategy and put American lives at risk.

As such, Rep. Mac Thornberry (R-TX) and Senator John McCain (R-AZ), the Chairmen of the House and Senate Armed Services Committees, recommend that Congress provide full relief from sequestration for the Defense Department in fiscal year 2016.  Going further, the bipartisan, congressionally-mandated National Defense Panel called on the President and Congress to immediately repeal the BCA and “return as soon as possible to at least the funding baseline proposed” by former Secretary of Defense Robert M. Gates in his final budget request, a view many defense experts share.

The Role of Overseas Contingency Operations (OCO)

A complicating factor in the defense budget debate is the role of special war-related funding, known as funding for Overseas Contingency Operations (OCO), or Budget Function 970. If the base budget is the price America pays to have a military, then OCO funding is the additional costs associated with deploying the force.

Although DOD always claims the lion’s share of OCO funding, the State Department and other agencies may also receive lesser amounts. As a result, it is necessary when discussing the defense budget to distinguish both base funding from OCO funding, and DOD-specific funding from that allocated to other agencies.

These distinctions are particularly important because Chairman Price’s budget resolution proposes an increase in the OCO funding for FY16 to $94 billion, which represents a $43 billion increase over the level projected in the President’s budget request. 

It is important to note, however, that only $90 billion of this amount would be directed to the Defense Department and, of that, no more than $70 billion would be provided unless the government identifies additional funding through a deficit-neutral reserve fund.  Although the value of such savings cannot be known ahead of time, similar funds created in the past have had a negligible effect on actual spending.  As a result, Table 2 provides a comparison between the Price budget and the President’s budget:

In sum, the Price budget at this point risks undershooting President Obama’s total request for defense spending by almost $20 billion.  Equally important, both the House budget and the President’s budget fall remarkably short of the National Defense Panel’s recommendation to restore defense spending to at least the level recommended by former Secretary Gates, which would amount to more than $689 billion, after accounting for OCO.

There is a final important distinction between the base defense budget and OCO funding.  In principle, OCO funding should only be spent on wartime or other emergency operations. In practice, the Pentagon and Congress have often feuded over what is eligible for this type of spending.  In any case, OCO cannot be used to develop and purchase major new weapon systems or to expand the size of the military on a permanent basis.  It is not a solution for defense shortfalls.

The Way Forward

No matter how the current debate over the House budget resolution ends, it will not have the effect of law or the ability to undo the harm imposed by the Budget Control Act.  The President and Congress will ultimately have to pass new laws in order to end sequestration, end the BCA caps, and provide our military with the funding its needs.  The budget resolution is, more than anything, a statement of principles and priorities.  In this case, the House budget resolution does not prioritize rebuilding America’s defenses.

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.
Read More