by Winslow T. Wheeler
16 January 2014
Summary of Findings:
In the so-called “war-related,” Overseas Contingency Operations (OCO) account of the 2014 Omnibus, there is a DOD program spending increase of $10.8 billion above what President Obama requested. This has been misreported as a “$5 billion” increase. The OCO account should be re-titled the War Pretext Slush Fund.
In the “base” portion of DOD spending, up to $7 billion is un- or poorly justified, arbitrary across-the-board cuts, most of them directed against O&M spending, which can only have a negative impact on military readiness. Moreover, these kinds of a-t-b cuts are precisely the sort of thing DOD and Congress vociferously criticized in the sequestration process.
There are also $10.7 billion in mostly specific programmatic cuts in Procurement and R&D portions of the bill, but it is possible that their primary effect will be to simply defer, if not increase, future costs.
Overall, the DOD section of the Omnibus should not be seen as an effort by Congress to return defense spending to lower, let alone pre-war, levels. Instead, it can be seen as a rear guard action by high defense spending advocates in Congress to keep the Pentagon budget as high as possible.
Discussion and Analysis:
This week by large bipartisan majorities, the House and Senate are passing HR 3547, the Consolidated Appropriations Act of 2014 (better known as the “Omnibus”). It appropriates discretionary spending for diverse agencies of the federal government for the balance of fiscal 2014. Division C of the bill contains funding for the Pentagon, not including military construction which is in a separate part of the bill. The bill text is accompanied by a “Joint Explanatory Statement” (JES) that contains more useful details-but which does not explain nearly as much as it should.
Some in Congress, the press and think tanks exult that we are witnessing a return to “regular order” after the chaos of Congress’ dysfunctional government shutdowns followed by giving most agencies “continuing resolutions,” which hold spending for individual programs mostly to the previous year’s spending level, no matter how impracticable that might be. While the House and Senate may have been able to get past the dysfunction of refusing to enact appropriations bills, the actual contents of the Department of Defense (DOD) portions of the Omnibus reveal that a much dysfunction remains.
The dysfunction simply comes in a different form: that of deceptive, arbitrary and misleading budget activities. These behaviors mask actual spending levels in DOD, and they can incur even larger future costs while pretending to promote economy. They constitute an effort to keep Pentagon spending as high as possible, now and in the future, even if some proclaim that DOD spending is plummeting downward, even dangerously.
To explain, some background and analysis are required.
Based on the available data from the Congressional Budget Office, we know the following:
· National Defense spending in the Pentagon and related agencies (the so-called 050 budget function) was $518 billion in 2013.
· Equivalent spending in the new “Omnibus” for 2014 is $520.5.
· Add to these amounts the money for the wars in Afghanistan and elsewhere. $82 billion was provided in 050 accounts for 2013. $79.4 billion was requested by President Obama for 2014, but this is being increased by Congress to $85.2 billion, an apparent “plus-up” of $5.8 billion (which is sometimes misreported as $5 billion).
· Thus, the total amount for 2013 was $600 billion; the total amount for 2014 is $605.7 billion.
Some in the press report this increase as a decrease. Eager to pretend the Pentagon is under some sort of austerity regime, they compare the $605.7 billion for 2014 as a huge cut from Obama’s original 2014 request of $640 billion. However, that request that was dead on arrival in Congress, and it constitutes only a cooperative “baseline” for politically driven comparison purposes. According to a budget analyst frequently consulted by the Washington press, the widely respected Todd Harrison at the Center for Budgetary and Strategic Assessments, defense spending at the newly decided 2014 level exceeds every defense budget during the Cold War, including the wars in Korea and Vietnam, with the only exception being the very peak of the Ronald Reagan era. To call $605.7 billion for defense in 2014 anything but a historic high (especially in the absence of an existential threat from the Soviet Union) disregards almost 70 years of post-World War Two defense budget history.
Others look at a different defense budget baseline that might have been: the $498 billion for the non-war parts of defense spending that the sequestration process from the Budget Control Act of 2011 would have imposed. They assert the $520.5 for National Defense in the Omnibus is a huge, $22.5 billion, increase. While they too are making comparisons to spending levels that never occurred, they are far more accurate than those proclaiming Pentagon budgetary Armageddon. The reason is the deceptive practices by congressional appropriators in the Omnibus.
WAR-PRETEXT SLUSH FUND
By parsing through the documents that the Appropriations Committees released this week on their Omnibus, especially the JES, it is apparent that the plus-up they gave to DOD in the war-related portions of the DOD budget is far larger than the $5.8 billion that is apparent from the math (comparing the $79.4 billion request to the $85.2 billion appropriation).
To explain, note first that the appropriators took a few billion dollars out of the OCO fund. They removed $1.7 billion out of the amounts requested for military personnel. They also nixed a request of $3.1 billion for something called the Afghanistan Security Forces Fund and the Afghanistan Infrastructure Fund, declaring the need in the former “greatly overstated.” They also cut the notoriously ineffective Joint Improvised Explosive Device Defeat Fund by $130 million; they reduced a classified program by $58 million, and they made other smaller miscellaneous cuts. It all totals something just over $5 billion.
Then they added: $50 million for MRAP vehicle modifications, $90 million for a new CV-22 Osprey, and then came two mother loads. $9.3 billion was added for the various Operation and Maintenance (O&M) accounts of the military services, and $1 billion was added for equipment for the National Guard and Reserves. There were also various small miscellaneous adds.
In sum, the House and Senate appropriators cut Obama’s OCO account by over $5 billion, and then they added $5.8 billion to the requested amount. The full plus-up for DOD in the OCO fund is $10.8 billion, more than double the “$5 billion” reported by the some in the press.
The two biggest additions have little to do with “war-related” activities, however. Every bit of the $9.3 billion added for O&M in the OCO account was transferred from the “base” (non-war) parts of the bill. The appropriations committees were simply transferring money from the “base” accounts to the OCO accounts.
Because the Budget Control Act of 2011 and subsequent congressional budget deals put a cap on 2014 “base” Pentagon spending, the appropriators were simply creating a hole there into which they could pour more money (more on this later). They had reason to do this because the past budget deals put no cap whatsoever on the OCO accounts: in budget-gimmick terms; it’s all free (uncapped) money.
It is a loophole quite consciously created by the congressional budget negotiators, and it is not new. The basic gimmick is decades old, and today’s appropriators are using it to the hilt, surely motivated by the assertion that DOD suffers from “austerity.” Routine peacetime O&M money magically becomes “emergency” and “war-related,” and it all happens to be unconstrained under existing budget rules. That the purpose for which the money is used does not change one iota is immaterial.
The pretext is even clearer in the $1 billion fund created for equipment for the National Guard and Reserves. The added hardware in this account includes aircraft countermeasures and equipment to face an enemy that has no air defense, chemical and biological warfare equipment for a theater that includes no chem-bio warfare, new AESA radars for aircraft that will not need it in Afghanistan, forklifts and even “high-density storage cabinets.” So much for “war-related.” This perennial plus-up, usually added to the base portions of defense bills, is put in the OCO fund simply because money there does not count under budget caps, pure and simple.
The OCO account is not an emergency war fund; it is and should be known as a War-Pretext Slush Fund.
(The Congressional Research Service used to report almost annually on war spending, pointing out previous transgressions against the belief that it was for emergency, war needs only; however, those reports stopped coming out a few years ago, and we remain in the dark about what other portions in the OCO account don’t belong there.)
BASE BUDGET LEGERDEMAIN
This sort of gaming continues in the “base” parts of the DOD portions of the “Omnibus” appropriations bill.
In addition to the $9.3 billion promiscuously transferred to the so-called “war-related” account, there are many other cuts in the “base” bill. Some of them are actual program reductions: for example, the various procurement and R&D accounts for the F-35 program were cut by a grand total of $1.1 billion-a not inconsiderable amount.
But there are some shady reductions as well. Section 8109 declares a savings of $380 million due to “favorable foreign [currency] exchange rates.” An old and tired gimmick, the appropriators are pretending they can predict exchange rates out to September 2014 with great precision. If you have a financial adviser who claims he can do that, fire him; it is pure speculation.
The appropriators also declare a savings of $866.5 million due to “excess cash balances in Department of Defense Working Capital Funds.” These are accounts to pay internal and contractor bills; the money is not excess forever; they simply don’t need it right now, they think. The need for the money is not going away; it is simply being deferred. There is no real, lasting savings; they are mostly kicking the can to future years.
There are also $527 million in “undistributed” unobligated balances. “Undistributed” means they don’t know what program to apply them to; they’re usually guessing or using a computer model (which is not much better) to take away these funds that simply have not yet been spent-but for which there is usually a plan to do so.
There are $2.7 billion in reductions labeled “Program Adjustment to Non-NIP Only.” Nowhere are these explained in what is euphemistically titled the Omnibus’ “Joint Explanatory Statement,” but presumably “NIP” refers to National Intelligence Programs that are surreptitiously funded in the classified portions of the bill.
There are still more. Under the labels “underexecution,” “excess to requirement,” “overestimation,” and “overestimate,” more is cut. They appear to amount to $2.5 billion.
In addition to the transfer of $9.3 billion in O&M spending to the OCO account, all these cuts calculate to $7.0 billion.
Whether they are the result of detailed oversight work or of arbitrarily imposed budget targets we can only guess. They are rarely explained with any meaningful details; frequently they are not explained at all. Just where to cut is not specified; they are in effect across the board hits against all programs. They are precisely the kind of arbitrary cuts that DOD and Members of Congress complained so vociferously about in the Budget Control Act.
This behavior is also decades old. The actions are taken to help meet budget targets or to create holes into which the appropriators can pour other money for favored, specific programs. In fact, they serve both purposes.
Moreover, programs that can’t absorb the across-the-board hit (or don’t want to) will simply add back the money in future budgets. Program activities may simply be deferred to future years, which makes them not cuts but postponements. We may see the money again in the future, even if the specific re-emergence is invisible to us.
It is important to note the arbitrary cuts are mostly directed at the O&M budget. O&M funds a wide variety of activities, most prominently military training, equipment maintenance, and peacetime operations. These activities are the heart and core of military readiness-the ability to fight effectively and efficiently and to save our troops lives at the expense of the enemy’s. The appropriators across-the-board cuts in the O&M account will necessarily reduce spending for this military readiness, even if the rhetoric surrounding the bill proclaims they are not doing that. Under sequestration, DOD savaged these accounts and only partially restored them. Now Congress is hitting them up as well, even if it is saying it is not.
ACQUISITION
In the Procurement and R&D budgets there are hundreds of individual and specific programmatic cuts–not the arbitrary swipes the appropriators take at the O&M budget.
Overall, Procurement is cut $6.2 billion (6.2 percent) and R&D is cut $4.5 billion (6.7 percent) from Obama’s request.
A spokesman for the appropriators boasted to the press that they were able to avoid terminating programs and instead took relatively small reductions across many programs. This was to be good news, but it is not necessarily. Many of those actions can mean that production rates or research tempos will be cut back, or other elements of programs will simply be deferred to future years; these can also mean not just deferments of spending but cost increases-if production rates are made less efficient, for example.
In the past, such budget reductions have meant some efficiency in some programs. However, the prevailing atmosphere in DOD and Congress seems to be to endure a period of “austerity” (in truth, it is not) pending future restoration of higher spending levels. That is not a mentality that fosters efficiency. If we were confident that current DOD management knew how to get more out of less, or even wanted to do, we could be more optimistic.
EARMARKS
The Senate Appropriations Committee did not report any earmarks in its original version of the bill, and the House Appropriations Committee explicitly reported “Neither the bill nor the report contains any congressional earmarks, limited tax benefits, or limited tariff benefits as defined in Clause 9 of rule XXI.” Perhaps there are none that qualify under the Senate’s and House’s carefully circumscribed definition of earmarks, but there are plenty in the Omnibus. In fact, the JES is quite careful to point out that there are “congressional special interest items” in the bill, and they are to be treated with special care should DOD attempt to alter them. The tables for the R&D accounts show scores of them, and the Defense Health Program specifically lists 26 of them. Moreover, various procurement adds, such as for F-18s and Virginia class submarines, have all the hallmarks of earmarks, and yet they escape identity as such. Perhaps the chairmen of the two Defense Subcommittees of the House and Senate Appropriations Committees, Congressman Rodney Frelinghuysen (R-NJ) and Senator Richard Durbin (D-IL), should be asked what circumvention of the so-called earmark ban is being used to permit these “congressional special interest items.”
THE FULL TALLY
In the so-called “war-related,” OCO account of the 2014 Omnibus, there is a DOD program spending increase of $10.8 billion above what President Obama requested.
In the “base” portion of DOD spending, up to $7 billion is un- or poorly justified, arbitrary across-the-board cuts, most of them directed against O&M spending, which can only have a negative impact on military readiness.
There are also $10.7 billion in mostly specific programmatic cuts in Procurement and R&D portions of the bill, but it is possible that their primary effect will be to simply defer, if not increase, future costs.
Overall, the DOD section of the Omnibus should not be seen as an effort by Congress to return defense spending to lower, let alone pre-war, levels. Instead, it can be seen as a rear guard action by high defense spending advocates in Congress to keep the Pentagon budget as high as possible. The bill attempts to build a bridge to a future time when higher defense budgets are politically feasible. In the meantime, the congressional appropriators will use gimmicks and dodges to keep spending higher while appearing to be lower.
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