Congress Is Playing a Dangerous Game of Defense Budget Make-Believe

The debate over the defense budget has been underway now for six months. The Republican majority in Congress has passed budget resolutions, is working hard on defense authorizing bills (already through the House), and has pushed the defense appropriations bill through the House. Meanwhile, the Senate defense appropriations bill is out of committee and heading for the floor. That’s fast work compared to the slothful congressional pace on budgets over the past 15 years. Moreover, every one of these pieces of legislation assumes that the defense budget, including the war budget, will grow by at least $38 billion over this year’s level. Even President Barack Obama’s administration believes that, having submitted a budget that was $38 billion higher than the caps imposed in the Budget Control Act of 2011.

Which means that everyone involved is playing a game of “make-believe.” The defense budget will not grow by $38 billion. It may not even grow at all, but if it does, it will surely be by a lot less than $38 billion. And that will pose a problem for congressional appropriators, who have stuffed the bill with all kinds of goodies like extra aircraft, unmanned aerial vehicles, and National Guard equipment the Defense Department did not ask for. It poses problems for the Pentagon as well, where military services have built long-term force and weapons plans around the assumption that their budget beliefs, enshrined in the president’s budget, are reality.

A big wave is bearing down and is about to swamp this game of make-believe. It is the wave of the need for a bigger budget agreement, and nobody is assuming that will be easy. The outcome will not be clear until later this summer, but it could mean a government shutdown, a short-term or year-long continuing resolution covering all the appropriations acts, or a negotiated agreement to settle the budget at levels below what both the Congress and the Pentagon “believe” they will get. Time to get ready for that lower number.

How did we get into this game? The White House started it by submitting a “base budget” request for the Pentagon that was roughly $38 billion more than the Budget Control Act caps would allow for the fiscal year of 2016. This defense request was embedded in an overall budget request that would require Congress to either adjust all the 2011 caps (both domestic and defense), or come down Pennsylvania Ave. and negotiate a whole new budget deal, with higher caps (or none at all) for everything, including domestic discretionary spending (infrastructure, education, and health administration).

You may have noticed that Democrats do not control Congress. So for the same several months, the Republicans, who do, have been parrying the administration’s game with one of their own. The Republican majority is divided; some of them support budget discipline (keep the caps), others support raising the defense budget, regardless of the caps — just bust the deal and move on. So they created their own fictitious defense increase while adhering to budget discipline, at the same time.

The Republican budget resolutions, defense authorization bills, and even their appropriations bills all stay within BCA caps when it comes to the base budget. At the same time, they provide all the funding the administration asked for and even $1 billion more.

How do they manage that? By pretending that the BCA caps are met by the base budget, which is held at the roughly $496 billion cap level, while arbitrarily shifting the missing $38 billion over to the so-called “war” or Overseas Contingency Operations budget. The advantage of this game of “now you don’t see it, now you do” is that the Republican majority can have its “hard-cap” cake, and eat its “defense needs more money, so here it is” too. And they can do this because the OCO budget is outside BCA caps.

Even John McCain initially called the decision to put the money into the OCO budget a “gimmick” when it was first suggested by his Republican brethren. That was before he realized that finding a wishful place to park the money might be a nice ploy to force the Democrats either to add money or be accused of shortchanging national security if they did not. So he changed his mind and did it in his own Senate Armed Services Committee authorizing bill.

McCain was right the first time; it is an outrageous gimmick, as I have said several times in this column. The OCO budget is supposed to be for war costs that are above and beyond the peacetime operations of the Defense Department. But pretty regularly the Pentagon, Congress, and even the White House have stuffed things in there that aren’t about war — like new equipment, basic pay allowances for soldiers, and money for restructuring Army units and funding counter-Islamic State operations. Now the Republican majority seems to be saying, “We can put anything we like into OCO, if it lets us keep up the appearance of supporting budget discipline for the federal government at the same time.”

Here’s the problem: That extra $38 billion ain’t gonna happen. The Pentagon’s base budget request of $534 billion will not, in the end, be provided. And the OCO budget will not be nearly $90 billion, the way it is it now in the Republican majority bills. (That’s $52 billion the administration asked for, plus the $38 billion Republicans have shifted over to OCO.) Unless both Congress and the Pentagon start planning for less, it is going to be a hard payday this fall, when checks fall short and nobody has thought through how to deal with the budget reality.

Now why would I say this, if everyone seems to want defense budgets to go up (even if they don’t really need to)? Because their game of make-believe is confronting the meta-game of budgetary “chicken,” but neither side is yet ready to blink. When they blink — either in a continuing resolution, a shutdown followed by a continuing resolution, or a budget deal — the defense budget will either be flat compared to this year, or it might grow some, but by a lot less than either the Republicans or Pentagon have put in their make-believe budgets.

This game of chicken is the bigger fight over the federal budget as a whole, and defense spending is just a hostage in that fight. The Republicans figure congressional Democrats will not be willing to cut the administration’s defense budget request or their wishful plans, for fear of being called “weak on defense.” After all, according to Republican hype, America is facing unprecedented national security threats from the Islamic State, Russia, and China, so the defense budget must go up. The Pentagon has joined this chorus, so Democrats cannot possibly argue for less than the administration’s request. So from the Republican point of view, it is a good time to go for more on defense. Democrats will not dare stand in the way, and maybe, just maybe, Republicans can gut domestic discretionary and entitlement spending the way their budget resolutions do — on the way out the budgetary door.

The administration, on the other hand, figures that Pentagon’s budget is a great hostage to get a bigger budget deal. Obama came out of the door in February with a budget that busted the budget caps both for defense and domestic spending. Obama has made it continually clear, as have congressional Democrats, that if defense goes up, so must domestic discretionary by an equivalent proportion. Spending increases have to happen together, or no deal.

So the make-believe ends, and the meta-game of chicken begins, with the defense bill — at least from the administration’s perspective. The appropriations bill is the arena for this game because appropriators provide the actual money, and the House bill, out the door last week, uses the OCO gimmick. The administration argued that the bill “uses Overseas Contingency Operations (OCO) funding in ways that leaders in both parties have made clear are inappropriate” and that “shifting base budget resources into OCO risks undermining a mechanism meant to fund incremental costs of overseas conflicts and fails to provide a stable, multi-year budget on which defense planning and fiscal policy are based.” As a result, the administration says it is likely to veto the bill if it comes to the president’s desk.

It may never make it there. Democrats in the Senate, I am told by budget insiders, intend to prevent the Senate version of the bill from ever coming to a vote by opposing a “motion to proceed,” in effect filibustering a vote to even bring the bill forward.

This game of chicken has a purpose. It is designed to get a negotiation going between the administration and the Republican majority, a negotiation that could lead to a bigger budget deal. This is not likely to be a long-term, grand budgetary bargain. Both parties have too big a stake in continuing the budget argument into next year’s election to settle this issue for the long term. But the effort to get some kind of short-term deal is clearly the goal of the administration and Democratic strategy. And they are willing to hold defense and other appropriations bills hostage to get that negotiation going, perhaps as early as this summer.

Now what does this mean for defense? It means lower funding levels than the administration has requested, and it means lower funding levels than the Republican majority appears willing to provide (through the gimmick). That could happen one of two ways. Negotiations could begin and go nowhere, because the Tea Party caucus won’t let John Boehner and Mitch McConnell cut a deal that the Democrats might accept.

If that happens, the usual congressional answer is to pass a continuing resolution, which sets 2016 spending levels at the level they were in 2015. That continuing resolution might be for a few months; it might be for the whole year. But either way, a continuing resolution could mean a flat defense budget, not a growing one. (There is even a chance that failed negotiations could lead to a government shutdown. Remember that? But Republicans are unlikely to want another shutdown hanging around their necks in 2016 for fear it might reveal that they can’t govern.)

Or there might be a deal between the White House and the Republican majority to raise BCA caps over the next two years (to get around the election next year). But if I were to outline the framework of such a deal, it would have to contain compromises — a dreaded word. That would mean, as it did in 2013 (courtesy of Ryan-Murray, the last time the caps were raised), that Democrats would have to accept some changes to entitlement spending and more for defense, and Republicans would have to agree to an increase in the cap on domestic discretionary spending and possibly some fee changes (none dare call it “taxes”).

So a continuing resolution could lead to a flat defense budget (maybe after a shutdown) and a deal could mean some increase, but not what the game of make-believe has created, maybe something like $15 billion to $17 billion more. That’s not cab fare, but it is not $38 billion, either.

And there hangs the dilemma for the appropriators and the Pentagon. The defense appropriators in Congress have already allocated that $38 billion, shifting funding around from the base budget to the OCO budget to stay under the cap and spend more at the same time. The Senate shifted over $32 billion of operations money into OCO, so if the money is not forthcoming, they are going to have to figure out how to squeeze some of that operational funding wedge back into a smaller pie. And the House appropriators (Senate, too) stuffed the OCO budget with a whole bunch of weapons programs the administration did not ask for — eight more F-35s; 12 unrequested F-18s, an additional ship, eight more Reaper unmanned aerial vehicles, and $1 billion for National Guard and Reserve equipment, among other things.

If there is a continuing resolution, with virtually no increase, or a deal of only $15 billion more, not $38 billion, the appropriators are going to have to unscramble their budgetary omelet. And if there is a continuing resolution or a deal, the Pentagon’s nicely crafted $38 billion excess is going to have to be rethought, as well, perhaps drastically. Make-believe will fade back into reality. Since this outcome is likely, it is time for the appropriators to draft option B and for the military services put off plans for spending the mythical funds and start crafting their fallback position. Could be a tough fall for the Pentagon, if they don’t.

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