CSIS Bad Idea: Blaming OCO for Defense Budget Blunders

It’s one thing Democrats and Republicans on Capitol Hill almost always can agree on. It’s well hated by budget experts and defense pundits. Indeed, if there is such a thing as a common enemy in today’s fractious political climate, the use of the Overseas Contingency Operations (OCO) by the White House to supplement the base defense budget would qualify. But not so fast, say Andrew Hunter, Defense-Industrial Initiatives Group at the Center for Strategic and International Studies (CSIS). In the third installment of CSIS’s Bad Ideas in National Security, Hunter argues against OCO’s many critics.

Contrary to the prevailing sentiment at the current moment, Overseas Contingency Operations (OCO) funds are wonderfully useful. They allow the Department of Defense (DoD) to carry out uncertain and expensive warfighting operations in difficult to reach and challenging parts of the world. Thanks to OCO, DoD can do this without having to cancel or postpone the more regular and predictable elements of its budget to offset the cost of these operations.

Critics of OCO point to regular base budget activities funded under OCO and its use to skirt discretionary spending limits. However, blaming OCO for our defense budget blunders, or calling for its complete elimination, punishes those who need OCO’s benefits without effectively punishing those who’ve instigated its abuse.

OCO provides separate lines of funding authorized and appropriated by Congress to facilitate overseas operations. In its classic usage, OCO covers costs over and above the regular costs of equipping and maintaining military units in the course of normal operations. For example, the base budget pays the salaries of an Army unit and its normal organizational and training expenses, but OCO pays the additional marginal cost of transporting the unit overseas for operations, the costs of fueling and resupplying the unit while deployed, and any special expenditures associated with deploying the unit such as hostile fire/imminent danger pay. It is clear that funding outside the regular budget is useful in this regard, because DoD has received some form of additional funding for overseas operations, either through OCO or supplemental appropriations, every year since the early 1990s.

The use of OCO to cover the marginal costs of ongoing overseas operations is broadly understood, and it is critically important, but there is another, more subtle aspect of OCO that is is often under appreciated. It is the extent to which the flexibility inherent in OCO funds — due to the fact that the levels are not planned out five years in advance — allows the performance of missions that might be practically impossible otherwise.

For example, a major component of OCO in the last decade has been funding provided to train, equip, and sustain Afghan security forces. While some elements of the cost for supporting Afghan security forces are known ahead of time, these costs are not fully predictable. The actual size, operational employment, and equipage of these forces has changed rapidly, multiple times, over the course of a decade. In the early years of the mission, it was hugely challenging to make even rough estimates of the amounts and kinds of funding that would be required to support these forces.

A special flexible account was created within OCO, the Afghanistan Security Force Fund, modeled on the earlier Iraq Security Forces Fund, that allowed the US command training Afghan security forces to rapidly build and equip these forces, and modernize their equipment as needed. While mechanisms within the base budget could have eventually accomplished the same task, they would have done so much more slowly due to the time required to introduce and obtain funding in new budget lines for emerging activities, increasing the burden on US forces to directly provide security in Afghanistan in the meantime.

The flexibility of OCO funds has directly served US forces in the same way. The Joint Improvised Explosive Device (IED) Defeat Fund, later renamed the Joint Improvised-Threat Defeat Fund, leveraged OCO funding to meet the equipment needs of deployed US forces confronting emerging threats such as rapidly evolving IEDs. These funds allowed the rapid acquisition of equipment to address new modes of attack on US troops as those techniques were developed by enemy forces.

The use of OCO to pay the marginal costs of overseas operations and to provide flexible funding for unpredictable needs normally provokes little concern, but controversy has resulted from the inclusion of spending in OCO that is aimed at more enduring budget requirements. An example is funding provided for support forces that are deployed overseas, but engaged in support activities in the region rather than directly engaged in combat operations.

Controversy has also arisen over funds allocated to restore the readiness of forces after they’ve returned from deployment. The Trump Administration’s fiscal 2020 request for OCO was particularly egregious in its inclusion of what would traditionally be base budget funding, in a transparent attempt to evade defense budget caps while keeping spending limits in place for non-defense spending.

These practices have led to extensive discussion about how to transfer such costs from OCO back to the base defense budget, and even for calls to end OCO funding entirely.

There are many arguments for abolishing OCO, which can be summarized, as so many misguided arguments can, as falling into two categories familiar to fans of the sitcom “Seinfeld” and the logic of  sidekick George Constanza.

The first set of reasons for doing away with OCO is because people use OCO for the wrong things, known as the “it’s not you, it’s me” argument.  The second set of reasons for eliminating OCO is that doing so will force better budgeting behavior by national leadership in both the executive and legislative branches,  known as the “I’ve got hand!” argument.

Both Constanza arguments against OCO fail for the reason that OCO isn’t actually the cause of the problems identified, nor does eliminating OCO actually eliminate the real problems. In return for the dubious benefit of eliminating OCO to create the appearance of solving real problems, we would have to bear the actual cost of doing so, which would be a substantial reduction in the availability of flexible funding in performing missions where such flexibility is required.

First, the ‘it’s not you, it’s me’ arguments. These arguments point out items that have been included in OCO over the years that either belonged in the base budget or didn’t deserve funding at all. This evidence is used by some not just to argue for changes in the usage of OCO, but to indict the entire concept of OCO. In addition, the argument is made that OCO funding receives insufficient oversight, so its elimination would ipso facto improve funding oversight by closing that gap.

A favorite tactic in the ‘it’s not you, it’s me’ arguments is to label OCO a “slush fund” that is ripe for abuse. However, these arguments are not really criticisms of OCO itself, but of the people who develop, manage, and oversee OCO accounts. It is these people who decide what should be included in the OCO account and how much oversight it will receive. In other words, the fault is not with the OCO mechanism, but in many cases, with members of Congress who are critiquing its use. They seek to abolish OCO as a solution for their own mistakes.

There is substantial irony in the fact that OCO was initially created to address these very concerns. In the 15 years prior to the existence of OCO, Congress usually addressed war funding needs through annual emergency supplemental appropriations acts. These bills did, in fact, receive substantially less oversight than the base defense budget due to the hurried timeline on which they were considered, and because they received no review from the authorization committees.

The shortcomings of this approach were highlighted in fiscal year 2009 when funding for the procurement of eight unrequested C-17 aircraft was included in a supplemental appropriations act as “emergency” funding. Sen. John McCain was scathing in his assessment of this decision at the time. He demanded that DoD submit its request for war funding along with the regular budget so that it might receive a similar level of congressional scrutiny as the base budget, and so that it would be less easy to embellish with non-war-related funding. With the 2010 budget request, DoD complied, submitting a request for OCO at the same time as the base budget. The Office of Management and Budget also established rules for what expenses qualified for OCO in an attempt to eliminate the inclusion of inappropriate items.

The failure subsequently to give full oversight to OCO and to enforce the OCO rules is not the fault of the OCO mechanism, but of defense and congressional leadership. In other words: it’s not you, it’s me. Eliminating OCO does not in a meaningful way increase oversight of war spending nor stop leadership from engaging in unwise expenditure. Arguably, it is likely to exacerbate these problems as in the days before OCO.

The second major Constanza principle applied to OCO is the “I’ve got hand!” fallacy, under which George breaks up with his girlfriend to preempt her from breaking up with him. The logic here is that eliminating OCO will force others in the budget process to improve their behavior.

OCO’s critics argue that OCO allows the executive branch to evade the limitations of the discretionary budget caps established by the Budget Control Act of 2011. They charge that OCO, which is exempt from the budget caps, benefits the defense budget at the expense of domestic spending. By eliminating OCO, the budget caps could be strictly enforced, and defense spending could only exceed the budget caps if Congress were to vote on the budget caps themselves, which would provide an opportunity to increase non-defense spending as well.

This argument ignores the fact that OCO funding is ultimately determined through an agreement between the executive branch and Congress, as is all other discretionary funding. The elimination of OCO doesn’t ultimately change the power dynamics by which funding levels are determined in any meaningful way. One illustration of this point is that OCO has sometimes included significant non-defense funding in years when advocates for that funding have had leverage in budget negotiations. Although the elimination of OCO may temporarily convince its opponents that they have the upper hand, it would not foreclose the possibility of emergency supplemental bills or cap adjustments that would achieve the same purpose as OCO in the budget process, and in the case of emergency supplementals, with less accountability.

The existence of OCO has proven vital to the successful prosecution of overseas operations and it provides much needed flexibility in budgeting for critical mission areas with fast changing requirements. While OCO is not the only way of achieving these ends, the burden of proof lies upon the alternatives to OCO that they would deliver the same benefits by other means. And although problems have arisen with OCO over time, these largely resulted from issues fundamentally exogenous to the OCO mechanism. The elimination of OCO does not actually solve these problems and will arguably make them worse. Thus blaming OCO for our defense budget blunders is a bad idea.