This week the Trump administration released its budget request for the 2020 fiscal year, which includes a total of $750 billion for national defense, nearly 5 percent higher than the current level of funding. But that total is $174 billion higher than the Budget Control Act (BCA) budget caps for defense for FY 2020, which are currently set at $576 billion for the year. Every year since the BCA was enacted, Congress has increased the defense and non-defense budget caps to allow for higher spending on both sides of the budget. That is how deals have been made in the past, including the most recent budget deal President TrumpDonald TrumpTrump defends indicted GOP congressman House to vote Thursday on holding Bannon in contempt Youngkin calls for investigation into Loudoun County School Board amid sexual assault allegations MORE signed into law in February 2018. But instead of asking Congress to increase the budget caps again, this budget proposes something different. The Trump administration is not requesting that Congress raise the budget caps at all, either for defense or non-defense.
Instead, the administration is asking Congress to use a loophole in the law to allow for higher defense spending without breaching the budget caps: overseas contingency operations (OCO) funding. Also known as the war budget, OCO is intended to fund military operations in places like Iraq, Afghanistan, and Syria and does not count toward the budget caps. This exception in the law was included because war-related funding can vary considerably from year to year depending on the conditions on the ground, and it helps ensure troops overseas have the resources they need for ongoing operations regardless of the budget turmoil at home. But the vast majority of the $174 billion being requested for OCO funding in 2020 won’t actually go to overseas military operations. Instead, it will be used to get around the law and fund things that should really be subject to the budget caps.
To be fair, using OCO funding like this to get around the budget caps is not a new trick. Both Congress and the Obama administration did the same thing in years past. The difference is the magnitude of money being laundered through the OCO loophole. In the final months of the Obama administration, DoD acknowledged that roughly $30 billion of the $59 billion in OCO funding in 2017 was not due to the cost of the wars in Iraq, Afghanistan and Syria. And in last year’s budget request, the Trump administration estimated that $53 billion of the $73 billion it would need in OCO funding for 2020 belonged in the DoD “base” budget. Now the administration plans to add another $101 billion of base budget funding into OCO, meaning that $154 billion of the $174 billion being requested does not belong in the OCO budget.
The administration has pitched this OCO scheme as a plan to cut spending and curb the national debt. According to an op-ed by Russ Vought, the acting director of the Office of Management and Budget (OMB), “expanding the use of OCO funds remains the administration’s only fiscally responsible option in meeting national security needs while avoiding yet another increase to the spending caps.”
Some might criticize this plan as “an accounting trick” or “gimmick.” Some might even go as far as to label OCO a “sham” or a “slush fund.” But those aren’t our words--that’s how OMB director and acting White House chief of staff Mick Mulvaney has described this very use of OCO in the past.
As the Republican congressman representing South Carolina’s 5th District from 2011 to 2017, Mr. Mulvaney was a noted fiscal conservative, tea party member, and co-founder of the House Freedom Caucus. He was also outspoken in his criticism of both the Obama administration and Congress for their abuse of OCO funding for non-war-related activities.
In debate over military construction and veterans affairs appropriations in April 2015, Mr. Mulvaney argued that if “we cannot live within the BCA caps and we agree that the defense of the Nation takes more money than is permitted under the BCA caps, then let’s break the caps” by changing the law. He urged his colleagues to avoid using OCO as a “back door” or “something that is off-budget.” Such an act, according to Mr. Mulvaney’s statements, is “desperate,” “dishonest,” “disingenuous,” “deceptive,” and “mischievous.”
Mr. Mulvaney’s scathing characterization of OCO and his efforts to kill the use of this loophole were a common refrain during his tenure in the House and were reaffirmed in his confirmation process to be OMB director. When asked if he would eliminate the OCO funding, he replied that “at the very least,” he would “advocate...that the President ensure that true “base” budget expenditures are reflected in the topline defense discretionary numbers, and that only true war-related costs are contained in OCO.” He would also “advocate for an end to OCO...while, at the same time recognizing that the President-elect may ultimately settle on a different policy.”
The Trump administration’s plan to put $174 billion into OCO stands at complete odds with Mr. Mulvaney’s previous position on defense spending. Indeed, Mr. Vought even noted in his op-ed that “[f]iscal conservatives may feel uncomfortable using OCO in this way.” However, the FY 2020 request does not only run counter to Mr. Mulvaney’s previous positions, it contradicts the administration’s own proposal in last year’s budget request that included a plan to do the opposite of what it is proposing now, shifting OCO costs back into the base defense budget.
While damaging to the common interests of fiscal transparency and government accountability, this rampant abuse of the OCO loophole has more practical concerns. One, which Mr. Mulvaney himself noted in his floor speech from 2015, is that it does not allow the Department of Defense (DoD) to “budget properly.” For example, OCO funding does not typically include the 5-year projections that accompany other parts of the DoD budget, limiting the ability of Congress and DoD to plan effectively for the future.
The Trump administration’s request is almost guaranteed to be a non-starter on the Hill with Congressional Democrats and some Republican defense hawks. It does not even provide a baseline from which to begin negotiations to raise the BCA budget caps for FY 2020. If Congress does not pass a budget agreement to raise the caps by Jan. 15, 2020, across-the-board sequestration cuts will take effect, impacting agencies across the federal government.
If the administration is genuinely serious about cutting deficits, it will seek a bipartisan budget deal that includes broad reforms to both spending and revenues. Its FY 2020 budget request, however, is far from a sign of any progress. Mr. Mulvaney of all people should know better than to play games like this with the people’s money.
Todd Harrison is the director of Defense Budget Analysis at the Center for Strategic and International Studies (CSIS). Seamus P. Daniels is a research associate for Defense Budget Analysis at CSIS.