The Most Important Defense Budget Issue To Watch When Congress Returns From Recess

When Congress departed for the August break, it left much of its work on the defense budget unfinished. The National Defense Authorization Act (NDAA) was still in conference committee ironing out differences between the House and Senate versions, and while the House had completed its version of the defense appropriations bill, the Senate had not yet passed its version. This tardiness is not unusual, especially in recent years, but when Congress returns on September 8th it will have just over three weeks left before the new fiscal year begins and a lot of important budget issues to resolve.

Perhaps the most urgent budget issue is the topline level of funding for defense. The Budget Control Act of 2011 (BCA) caps the total national defense budget in FY 2016 at $523 billion. DoD typically consumes about 95.5 percent of the national defense budget, so its proportionate share of the budget cap is about $499 billion. The Obama Administration requested $534 billion for DoD in its base budget, or $35 billion more than the budget cap allows. It requested an additional $51 billion in war-related funding, which does not count toward the budget cap, for a total DoD budget of $585 billion. If Congress passed the administration’s request and did nothing to modify the BCA, it would trigger an automatic across-the-board sequester that would cut the budget by the amount it exceeds the budget cap, $35 billion.

But it’s highly unlikely sequestration will be triggered in 2016. Republicans in Congress rejected the administration’s approach and instead passed a budget resolution earlier this year that calls for a base defense budget at the budget cap level and war-related funding that is $38 billion more than requested. This approach effectively gives the administration what it requested in total DoD funding (and a little extra), but it does so by moving funding from the base budget to the war budget to avoid triggering a sequester. The administration, however, has threatened a veto because moving funding from the base to the war budget does nothing to fix the long-term problem of the arbitrary fiscal constraints imposed by the BCA and does not provide equal relief for the non-defense side of the budget. So while both sides seem to agree on the total amount of defense spending for FY 2016, they remain far apart on how to get to that number.

It is virtually certain at this point that the new fiscal year will start under a short-term continuing resolution, perhaps one to three months in duration. Congress could use that time to craft a compromise similar to the Ryan-Murray deal from December 2013. That deal raised the budget caps for defense and non-defense for FY 2014 and FY 2015 to a level both sides could tolerate, and it paid for the additional spending with other offsetting cuts. Both parties stuck to that agreement, passing appropriations bills each year that stayed within the budget caps, and the mindless across-the-board cuts of sequestration were not triggered. But the prospects for a “Ryan-Murray II” don’t appear promising at the moment. It’s not clear who the negotiating partners on each side will be since both Rep. Paul Ryan and Sen. Patty Murray no longer chair the budget committees, and there are no signs yet that any serious discussions have begun.

If a compromise can’t be reached, a fallback plan some have floated is to pass a full year continuing resolution for defense (and likely the rest of government). This would be unprecedented. DoD has not had a full year continuing resolution in modern history. There are a number of problems with continuing resolutions, including the fact that new programs can’t start, existing programs can’t increase production, and funding in all accounts is stuck at last year’s levels.

A straight continuing resolution at FY 2015 levels would put the base budget at $496 billion and war funding at $64 billion, for a total DoD budget of $560 billion—$25 billion less than requested for FY 2016. It would not trigger sequestration because the base budget would be below the budget cap. Congress could pass language allowing new program starts, production increases, and other anomalies on a case-by-case basis, and it could give DoD a blanket reprogramming authority to move money between accounts as necessary. But it would still mean a cut of $25 billion to DoD’s budget request.

In my view, these two scenarios—a Ryan-Murray-like deal and a full year continuing resolution—bound the likely range of possible outcomes for the FY 2016 defense budget. A few weeks ago, CSIS launched an interactive survey to gauge what others think the likely outcome will be. Click here to let us know what you think will happen and to see what others are saying.

None of this, however, is likely to be resolved anytime soon. When Congress returns, much of its attention will be focused on the debate over the Iran nuclear deal. And once that is resolved it must quickly pass a short-term continuing resolution to avoid another government shutdown. The next major defense-related piece of legislation to move will likely be the NDAA, which will include a number of important provisions that impact defense spending, such as changes to the military retirement system and pay raises. But the NDAA only implies a level of defense spending and constrains how that money can be used. The appropriations bills are what actually set the defense budget, and the final appropriations level may not be known until December or later.

Todd Harrison is director of Defense Budget Analysis and Senior Fellow with the International Security Program at the Center for Strategic and International Studies (CSIS) in Washington D.C.

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Todd Harrison

Todd Harrison

Former Senior Associate (Non-resident), Aerospace Security Project and Defense Budget Analysis