Despite lower funding level, two-year budget deal is ‘huge’ for Pentagon

Jared Serbu: Despite lower funding level, two-year budget deal is 'huge' for Pentagon

As a sign of how times have changed in the last decade of federal budgeting, here’s what now counts as a win from the Pentagon’s perspective: Even though it will have tens of billions of dollars less than it said in February was the bare minimum necessary to adequately perform its missions, it at least knows — with some degree of certainty — what its top-line budget will be for two whole years.

With President Barack Obama’s signature two weeks ago, the Bipartisan Budget Agreement relieved DoD from the prospect of another sequestration-style cut in its spending plans, partially by raising the mandatory caps in the Budget Control Act and partially by moving some ongoing Defense expenditures into the government’s Overseas Contingency Operations accounts.

And even though DoD officials have previously described their budget proposals as the “lower ragged edge” of what it needs to execute the current Defense strategy at an acceptable level of risk, Mike McCord, the Defense Department’s comptroller, said the final agreement was a pleasant surprise in the sense that it provides a break from almost a decade of continuing resolutions, last-minute budget deals and occasional government shutdowns.

“Having some certainty is absolutely huge for us,” he told a few reporters at the Pentagon on Friday. “Most of us were surprised that we got an answer early in November, so we still have some time to react and come to some rational decisions about 2016. We thought there was no way we’d get a two-year deal. There’s so much going on in the world, and having a little bit of certainty at least on the top line is at least one less thing to figure out. I think we’re now going to have the process we should have. Compared to what I’ve lived with for the past seven years, this is a relatively good situation compared to most of the years we’ve had.”

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For 2016 — the fiscal year that’s already begun — the spending agreement calls for $548 billion in national defense spending (which includes programs run by Energy, Homeland Security and Justice) plus another $59 billion in overseas contingency operations funds. Taken together, that’s about $5 billion less than the Obama administration requested for the “national defense” budget function.

Congress’ appropriations committees plan to make decisions before Dec. 11 on exactly how those funds will be apportioned, but McCord said that should still leave enough time for the Pentagon to make rational decisions on how to reprioritize spending, as opposed to in recent years when spending levels were delayed and re-decided long after a fiscal year had begun.

“Dec. 11 is pretty late for us to make any last-minute adjustments to our 2016 plans, but still, pretty late is not the same as absolutely-too-late, and that’s been a fact of life for any number of years here,” he said.

For 2017, the spending agreement would cut the administration’s previous defense spending plans by about $10 billion. But since the accord was reached long before the executive branch is due to submit a budget proposal for that year, McCord said the larger cut for that year is manageable.

He said DoD’s 2017 budget proposal — usually expected in February along with the rest of the President’s budget — will be on time, and with a top-line dollar figure that comports with the smaller dollar figure agreed to between the White House and Congress unless the Office of Management and Budget reveals any last-minute “surprises.”

He also forecasted that the next budget will contain very few new initiatives other than the ones Defense Secretary Ash Carter already has outlined during his first months on the job, including the Force of the Future initiative to reform DoD’s personnel system and the department’s move to break down barriers with Silicon Valley.

“The new priorities we’ll be highlighting will be the things the secretary’s already talked about since this is the first budget on his watch,” McCord said. “I don’t think it’s very likely that we’ll have a raft of new programs.”

But after several years of seeing its own cost-saving proposals shot down by Congress, the Pentagon may regroup before asking yet again for more base closures, the retirement of weapons platforms such as the A-10 and reforms to the TRICARE health system.

That’s mainly because, by coincidence, most of the members of the Joint Chiefs of Staff have retired since last year’s budget proposal; besides Gen. Mark Welsh, the Air Force Chief of Staff, all of the members of nation’s top military advisory panel are newly-confirmed in their posts.

“Whether it was the basic allowance for housing, how big the Army should be or the Joint Strike Fighter, the same chiefs had been through these same issues once or twice or three times,” McCord said. “I’m not necessarily predicting that they’re going to come to wildly different conclusions than their predecessors, but it’s not a given that their military advice is going to be the same on things like having a pay raise that’s slightly below the Employment Cost Index versus a smaller force. There could be some different judgments and some strong views from new players that we did not fully understand.”

While the current budget deal provides certainty on top-line Defense funding levels for the remainder of President Obama’s term, it also muddies the waters for the years beyond that.

For the first time, budget negotiators decided to use OCO funds as a two-year workaround to the budget caps — caps that won’t expire until 2021.

Those accounts are supposed to be used to fund near-term military operations and supporting activities by the State Department and other agencies, but since 2017 is still a long way away, the Pentagon still could decide it needs billions of dollars more in those accounts, depending on the magnitude and intensity of the wars it is fighting at that time.

“Using OCO in this way is not how I would have done it, but I see it as a jump-ball when the new President and Congress arrive two years from now,” McCord said. “RIght now, we’re mostly focused on making this thing work. But I think we do have a stewardship responsibility to think through where this leaves the department over the long term. Are we more at risk with this deal than without it in the out-years? Possibly so, because someone could come in and say we’re not doing OCO anymore. That would be pretty jarring, and it’s part of why OMB has been pushing us so hard to wind our funding into the base budget. But the budget caps have made that very hard, and it’s a problem that’s going to be greeting the next administration.”

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