Pentagon worried about more CRs

Congress’ habit of kicking the can down the road with more continuing resolutions instead of full appropriations bills could have major repercussions for the Defense Department and other agencies, the Pentagon’s top financial official said this week.

Mike McCord, DoD’s chief financial officer, said it is promising that the House of Representatives passed a continuing resolution (CR) this week, but Congress needs to fully fund the government. Since he spoke on Wednesday afternoon, the Senate has passed the CR and it now heads to President Joe Biden’s desk, which will mean the potential government shutdown that would have occurred if Congress did not pass something by Nov. 17, will likely be averted.

“The CR vote [is a] small, positive step,” McCord said at a Professional Services Council event. “I will say that the alternative — planning shutdowns — is bad and imposing them on your workforce is far worse. It’s terrible for readiness, it’s terrible for morale. So, I’m glad that it looks like we’re not going to be doing that. But flipping that around, we’re not throwing a party either for a CR. This one for Defense, for all but [military construction], takes us to Feb. 2, which everybody knows is Groundhog Day, fittingly apropos.”

The new CR, if signed, will have two deadlines: one that expires Jan. 19 for several appropriations categories and one that expires Feb. 2. Specifically, military construction and several agencies like Veterans Affairs and Housing and Urban Development will be funded through Jan. 19 and other government operations including Defense will be funded through Feb. 2. However, this could create the possibility of a future partial government shutdown, which would impact DoD because it has items affected by both deadlines.

“[Military construction] is a very difficult appropriation to work with under CRs,” McCord said.

He said that if all 12 appropriations bills are not passed by the April 30 deadline to avoid sequestration under the Fiscal Responsibility Act, which would trigger a 1% topline budget cut, the Pentagon would need to figure out “when to ramp down at DoD in anticipation of that.”

However, figuring out what to cut will not be easy. He said pay raises set to come on Jan. 1 will increase the bill and the administration has decided to exempt personnel from a sequestration. As a result, it could put pressure on contracts.

“We are already starting to pressurize [operation and maintenance (O&M)] accounts where a lot of service contracts lie because we’re exempting 25% of the budget defacto from harm under a regular CR or a minus 1% CR, but exactly what we would do when OMB might cut apportionments to agencies, [we] have not been able to get clear responses [on],” he said. “I’m starting to think ahead. What are some of the management off ramps we might have? 10 years ago, we didn’t take any off ramps and had to put on the brakes at the end of March. End of April, of course, is even one month later, to absorb those cuts.”

He said there’s concern that government could end up backing into sequestration by continually passing CRs. While a CR is at least temporarily better than a shutdown, appropriation bills need to be passed, McCord said.

In addition to the concern about a shutdown and more CRs, the House did not approve DoD’s upfront funding for the multi-year contracts that it proposed, which would help with innovation. However, the department has been able to use Ukraine supplemental funding for some innovation in the meantime.

“We’ve had the opportunity to use Ukraine supplemental to make some progress on particular niche capacities like 155 artillery, but since we are now having trouble getting a Ukraine supplemental passed, we had some other big moves laid into the next one that are stuck just like everything else is,” McCord said.

McCord said that the normal budget process can take a long time, but one solution could be to communicate with Congress more to iterate within this cycle better. He said the Pentagon did this last year, but the topline was increasing, so there was more flexibility to add money. It could be a different story if there’s no additional money. Another suggestion is to have broader flexibility where lots of conversations are not necessary.

Despite the uncertainty, the Pentagon is almost done preparing its fiscal year 2025 budget, even though it does not have an approved 2024 budget. McCord said creating the new budget without being able to refer to the prior budget is challenging, but this is not the first time that’s happened.

“Sadly, that’s become a little bit of a norm of not having the final answer to build off of your next year’s budget in ways that you would ideally like to,” McCord said.

Although it looks like the government will temporarily avoid a shutdown, which can impact workers via furloughs, it can also cause a trickle effect of implications across DoD.

“It looks like we’re not going to traumatize everyone with having to do all the shutdown preparations,” he said. “We’ve already done some, but [we won’t have to] impose them on the whole workforce and go through all of that. But now we need to see some progress and other things. Our partners in Ukraine, our partners in Israel, our own Defense budget, our own industry partners, all of our partners and our workforce need some progress on getting the real deal now, not just [a] continuing resolution.”

The possible shutdown at the end of this week would have come 45 days after the prior government shutdown at the end of September was averted with a CR.

“We came very, very close to a shutdown seven weeks ago,” McCord said. “I left work Friday night, the 29th [of September] convinced we would have one the next day. We had already done all the processing of furlough notices to people, so that’s been a big issue on my plate.”

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