Death To OCO: What Would Dem Sweep Mean For War Funding?

The Democrat-controlled House Appropriations Committee wants to eliminate the Pentagon’s much-maligned war funding mechanism, called Overseas Contingency Operations. In the past, such efforts got nowhere because OCO was a convenient mechanism for making a budget deal that domestic spending advocates, defense hawks, and budget hawks could all live with. However, deficit hawks are now nearly extinct and defense hawks are weakened. If the Democrats sweep the next election, eliminating OCO might be the mechanism for a Biden administration to cut defense. That would have effects across the board, including likely delays in the next generation of acquisition programs.

A Much-Maligned Account.

The war spending for Iraq and Afghanistan has been controversial from the beginning because the wars have been controversial. President George W Bush used supplementals, that is, additional amounts appropriated through a separate legislative vehicle from the regular DoD appropriation. This had the advantage of clearly identifying war funding and allowing the war funding proposal to go up several months after the regular budget, using more current information in a rapidly dynamic environment to inform decisions. However, the late transmittal engendered criticism that the Bush administration was trying to “sneak” the funding through Congress, and congressional rules limited review to the appropriations committees and excluded the authorization committees.

The Obama administration came into office vowing reforms. It included the war funding as a separate title of the regular budget. The two requests, base and OCO, thus went to Congress together. The Obama administration also established criteria for what could go into the war funding. Finally, it changed the name from “global war on terror” to “overseas control operations” to signal a narrower purpose.

However, war funding by any other name was still unacceptable to opponents who criticized OCO as a “slush fund.” That was unfounded. OCO was proposed, budgeted and accounted for in the same way as the base budget. What made OCO different was that it was not restricted by the budget caps imposed by the Budget Control Act of 2011. This made it a continuous target for those seeking to cut defense. Elizabeth Warren’s campaign, for example, proposed to eliminate OCO entirely, without apparently appreciating what exactly was in it.

A Convenient Tool for Budget Agreements

As I noted in an earlier Breaking Defense article, OCO provides a mechanism that helps domestic advocates, defense hawks, and deficit hawks agree on spending. Defense hawks — led for many years by former Sen. John McCain and, more recently, by Rep. Mac Thornberry — want more money for defense. Deficit hawks worry about long-term financial sustainability and want to reduce all federal funding, including defense. Advocates of domestic expending, mainly Democrats, want their programs to receive equal attention. The typical budget agreement, therefore, has increased spending for both domestic and defense above the BCA caps and given defense a little more money in OCO. Domestic advocates and deficit hawks could live with this additional OCO money as a one-year budget increase, but not at a permanent higher-level.

OCO Funds A Bunch Of Stuff 

Though the Obama administration’s criteria, still in effect, have limited what goes into Overseas Contingency Operations, there’s a wide variety of activities paid for in OCO. At the core is $20 billion for operations in Iraq, Syria, and Afghanistan, along with programs to support partners and allies, including the Afghan government. OCO also funds much of the US military presence around the Persian Gulf. Entirely outside the Middle East but funded in OCO are SOCOM’s global counter-terrorism campaign and the $5 billion European Deterrence Initiative for exercises and deployments to deter Russia. Finally, there is $16 billion in “base to OCO” described in DOD’s budget documents as “funded in the OCO budget due to budget caps enacted in the BBA of 2019 [and including] ground operations, depot equipment purchase and maintenance, contractor logistics support, and ship operations.”

Congress Can’t Seem To Move OCO Money To Base Budget

The desire to move funding for enduring activities out of OCO into the base budget is long-standing. The Obama administration in its 2016 budget stated its intention to make such a move beginning the next year. The Trump administration included a plan in its 2020 and 2021 budgets for a transfer in 2022.

This would seem to be a simple and uncontroversial transfer, since total funding for DOD would not be changed. OCO funding goes down; base funding goes up the same amount―so no net change. However, there is a perception that funds transferred from OCO into the base would constitute an “increase in defense budget” and require a compensating increase to domestic programs. Rather than wading into this controversy and expending precious political capital for the abstraction of “good government,” administrations have preferred to push such budgeting changes to the future.

Realignment Of Political Forces

As long as the three groups―defense advocates, deficit hawks, defense hawks―were each strong enough to demand a place at the table, OCO continued as it was at about $70 billion per year. However, in 2015 or so, deficit hawks started losing strength. Today, the movement known as the “tea party” is a distant memory. Defense hawks still offset domestic advocates, but defense hawks have also been losing ground. In a House controlled by the Democrats, HASC chairman Adam Smith has strongly supported defense, but he faces a progressive caucus. Nevertheless, this defense budget approach seemed destined to survive the 2020 election. Even if the Democrats capture the White House and the House, Republicans were thought likely to hold the Senate.

However, as President Trump’s popularity declines in the face of the pandemic, the possibility is rising that the Democrats could sweep the 2020 elections. With Democrats in control of both houses of Congress and the White House, defense hawks would be very weak. In that case, a radical change to OCO and the defense budget would become possible.

What The Future Might Hold

The HAC report lays out the argument for eliminating OCO. It is worth quoting at length since it represents the views of half of Congress and could become the prevailing view:

With the possibility of significantly fewer deployed American servicemembers in Afghanistan, combined with more training exercises and less contingencies, activities funded in the past by OCO could very well be supported within base accounts in the future. For these reasons, the committee believes that the department should cease requesting funding for OCO accounts following this fiscal year. The traditional manner of funding contingency operations through supplementals should return. The OCO experiment has been an abject failure and has given the department a budgetary relief valve that has allowed it to avoid making difficult decisions.

The wording implies that the HAC would not eliminate war funding but would reduce it to force DOD “to make difficult decisions.” Thus, a future Democratic administration might not make a dollar for dollar transfer from OCO to base but maybe 50 cents on the dollar — that is, for every two dollars cut from the OCO account, one dollar goes into the base budget, with a relatively small supplemental bill for combat operations.

The scenario described above would means a $25 billion cut to defense―about four percent, on the low end of what commentators are projecting. Nevertheless, it would force a radical reevaluation of DOD budget priorities, which secretaries and JCS chairman have said for years require a growing budget.

The current budget maintains a relatively high level of readiness, expands force structure modestly, sustains legacy systems and invests in advanced technologies. A $25 billion cut would require cutting back substantially on one or more of these. Advanced technologies and the new systems based on them would be highly vulnerable. Strategists strongly support such systems to compete with China and Russia, but these systems don’t have the political momentum that legacy systems do. This is evident in the draft 2021 NDAAs which have protected existing production lines and generally forbidden the early retirement of legacy systems. Nevertheless, there are many ways in which such a deep budget cut could play out.

What To Watch

Although the HAC views represent those of only one committee, the bill and report will almost certainly be accepted by the full House, given the chamber’s internal discipline. The Senate will not agree, and the OCO recommendation will not appear in the final bill or joint report. But that’s not the purpose of making a statement like this. The purpose is to put a marker down for future budget negotiations, perhaps when the Democrats are in a stronger position after the 2020 elections.

One near-term indicator is whether the Congress passes a 2021 appropriations bill before a new administration takes office. Congress did not do that before the 2016 election and came to regret it. Delaying the appropriations bill just jammed the legislative calendar at a time when the new administration had many initiatives that it wanted to push through. If Congress passes the 2021 appropriations (and authorization) bills before the election, that will delay the day of reckoning for a year because those bills will almost certainly come in at the current budget agreement level.

Finally, the dictates of strategy will drive the budgets of the next administration, whether it’s led by Biden or a Trump. It’s easy to talk about budget cuts in a vacuum but, as I have argued in these pages before, making the strategy changes that such budget cuts require is much harder.