The Little Budget Deal is a Big Deal

As night fell on Dec. 12, the U.S. House of Representatives passed the two-year budget deal carved out by Sen. Patty Murray and Rep. Paul Ryan — but the fallout is not nearly over. It is rapidly changing the atmosphere in Washington, D.C. about budgeting. And it is a gift, of sorts, to the Pentagon, as they have quickly realized.

Sure, there are waves of disappointment from the congressional Tea Party advocates of shutting down the government and their moneyed supporters in the Club for Growth, Heritage Action for America, and others. And yes, there are still warnings that the budget negotiators had better not lose sight of the pressing need for long-term deficit reduction and debt control.

But, miracle of miracles, this agreement has passed the divided House and will get through the Senate, giving the appropriators a set of numbers to write actual appropriations for this fiscal year. Even more miraculous, it provides numbers for next year, too.

I’m not sure why so many folks are calling this an "interim" or "short-term" deal.

The advocates for the "long term" are disappointed because the Budget Control Act caps are not only retained in this agreement but extended for another two years, into 2023, and the Murray-Ryan agreement does not replace them with a long-term budget deal. .

The "long-termers" are living in a dream world. Haven’t they been watching for the last three years? For a Congress that has been alternately limping and fighting from quarter to quarter, bickering about debt ceilings, shutdowns, and sequesters, two years is a very, very long-term deal.

In fact, this "little" deal is turning out to be a very big deal. Not because the details are so important; they are the classic representation of green eyeshade budget negotiating, not the Ten Commandments. But because it’s upended the atmosphere for budget discussions and changed budgetary politics for several years to come — precisely because it reflects the way Congress actually does business, as opposed to how some people want it to behave.

The fight for the long-term deal is over, at least for now. It is over because it was unachievable. And it is over because, don’t tell anyone, the deficit is coming down, way down. The Congressional Budget Office (CBO) estimates that by 2015, the deficit will have fallen from a high of 10.1 percent of gross domestic product (GDP) to 2.1 percent, well within the sustainable range historically. For 2015, CBO estimates that the deficit will be under $400 billion, something that hasn’t happened for seven years.

Of course, that doesn’t change the reality that the federal debt continues be a high share of GDP and, as the baby boomers grasp at their Social Security and Medicare benefits, the federal deficits and the debt will continue to rise, posing problems 10 years from now. But, you see, that’s the real long-term, which is not what Congress does.

What this little deal does, however, is get back toward getting back to business. It is a smack-down to the Tea Party, underlined by Speaker John Boehner, who finally found the guts to call the Tea Party funders "ridiculous," for criticizing the agreement. "They’re using our members and they’re using the American people for their own goals," he said. My colleague Stan Collender says it is equally a rejection of the deficit hawks, writ large: "not only was their position almost completely rejected, after years of being seen as the voice of angels, the deal makes them voices in the wilderness for some time to come."

The deal says to these "long termers": enough, already. We cannot get there the way you want us to. Budget plans, tax reform, mandatory reform are going to take time, baby steps, and gradual measures; there will be no big bang.

And in my bailiwick — defense — the little deal actually looks like it will be a big deal, as well. Gen. Martin Dempsey, chairman of the Joint Chiefs of Staff welcomed it: "I support the legislative proposal, as I understand it, which provides relief to the immediate and urgent readiness problems we face. I hope this is the beginning of a conversation on the longer-term challenge to the capability and capacity of our force that is developing over time because of sequestration." Secretary of Defense Chuck Hagel hurriedly chimed in: "While this agreement doesn’t solve every budget problem facing DoD, it will help address our military readiness challenge by restoring funding for training and procurement — especially in fiscal year 2014."

The Pentagon has every reason to be happy. The deal does not provide budget growth, but it gives the Pentagon something it has been seeking for the last three years: budget stability. It is a flat budget for FY 2014 and 2015, which is a dose of reality, but it could have been worse. At least the numbers for the next two years are now clear.

The little deal gives the Pentagon something else. That little change from a looming sequester to an agreed budget number puts DoD planners back in a zone they would rather be in, where they can balance program A and readiness requirement B and actually do some trade-offs related to real choices, not arbitrary slices in the procurement and research budgets.

And when the Pentagon wants to scratch that readiness itch (it is overstated, but they love to scratch it), they will find a welcome tool in their holiday stocking. Although none of the media coverage of the budget agreement has mentioned it, the Pentagon asked for, and is likely to get, an additional $90 billion, give or take, in funding for what they call Overseas Contingency Operations (OCO) — the war budget.

That $90 billion — on top of the roughly $495 billion they can expect from the "little" deal — isn’t chicken feed, that’s real dollars. It has been the Pentagon’s secret fiscal escape hatch for more than a decade, even as we left Iraq and drew down in Afghanistan. For the last few years, the OCO budget has routinely had more funds in it than the military needs in the war zones.

And that $90 billion doesn’t really go to a separate budget. It is money appropriated to the same accounts as the regular (they like to call it the "base") budget. Most of it is in the "operations and maintenance" accounts, where the Pentagon’s readiness, and its "back office" live. Funds put there are very flexible — they can move from activity to activity with little or no notification to the Congress or anybody else.

No wonder the Pentagon loves this deal; they should. Sequester is kicked away for two years. Congress, being devoted once again to the short-term, is now likely to be kicking this budgetary device off into the future forever. Nobody knows what will happen two years from now, but you can bet that sequester is deader than a doornail.

For the Pentagon, however, the budgets are flat, no inflation adjustments, and in the "long term" there is no correction upwards. That
means all those plans they made for $500 billion more in funding over the next nine years have got to be trimmed, as my colleague Russell Rumbaugh has pointed out. Not as hard as you think. From 1985 to 1998, the Pentagon "lost" more than $1.5 trillion — they lost it because budget growth went away and they did not even get increases for inflation. But the budgets they got were plenty healthy to keep the military sharp and ready, as the takedown of Saddam Hussein showed in 2003.

It will be all too tempting for the Pentagon to try to sit this one out and hope for sunny fiscal days somewhere out in the near future. Watch out for that illusion, too. Unless serious choices are made now, those gradually shrinking "real" dollars won’t buy everything and they will be back to the squeeze they are in now.