The Defense Department is about three weeks from finalizing its Fiscal Year 2017 budget request and is coordinating with Congress on a final 2016 spending bill now that a two-year budget deal is in place, DoD Comptroller Mike McCord said Monday at a Center for Strategic and International Studies event.
McCord said the department is pleased with the two-year compromise budget that followed of President Barack Obama earlier veto of Congress’s spending plan, which would have given the Pentagon additional funding through the Overseas Contingency Operations account but held the rest of the government to Budget Control Act of 2011 spending caps.
“In the end, although we didn’t get all the money we wanted out of this deal, we felt good about the outcome” because important government partners, such as the departments of Homeland Security, Justice and Treasury, received the additional funding they need to contribute to national security, he said.
The budget deal was passed on Oct. 30 and gives $80 billion in budget cap relief for DoD and non-defense agencies in FY 2016 and 2017. McCord said the deal also includes an $8 billion plus-up in the OCO account – though Obama also recently agreed to keep troops in Afghanistan in FY 2016, which comes with about a $3 billion price tag that had not been budgeted for. So between the budget deal’s base budget and the $5 billion extra relief in the OCO budget, McCord said the Pentagon essentially got about 99 percent of what it wanted in 2016 and about 97 percent of what it wanted in 2017.
While largely positive, that still means the department faces a $15 billion cut in 2017. To account for the lower spending level, McCord said that “I think that you’ll probably see, one of the ways that we will accommodate this $15 billion or so cut is there will be some slow-downs in some modernization programs.”
He noted that the Air Force’s Long Range Strike Bomber is already seeing a slowdown – due to a protest by the losing bidders – and could therefore take a cut without hurting the program. Other modernization programs may have their budgets trimmed, and McCord noted that changes in the military’s compensation and retirement system included in the National Defense Authorization Act of Fiscal Year 2016 may create some small cost savings in 2017.
McCord made clear, though, that “I would not expect any major changes in the size of the force.” He said the budget agreement is a short-term deal and does not provide enough guidance to know if force structure cuts are needed, which the military would avoid until absolutely necessary due to high demands on the force.
The FY 2017 budget request is about three weeks away from being completed, he said, with the department on track to submit the budget request on time.
“We are near the end of program review, we have a couple more issues to discuss, to finalize, and the European Reassurance Initiative is one of them, as well as the particulars of OCO funding and I think compensation questions are still out there,” McCord said. Everything in the budget has been discussed at least once, he said, but budget planners will need to sit down with Defense Secretary Ash Carter to finalize the department’s approach to those topics.
Thanks to the budget deal from October, a few things will happen a little differently than usual, he said. The budget deal calls for OCO spending targets, or what McCord called “pre-agreed target on what emergency-type spending will be in the budget yet to be submitted. He noted “that’s kind of an odd concept” that he had never seen before, but he said the department can work with it.
The budget agreement also alters the relationship between base and OCO spending, leaves the State Department more reliant on OCO funding than some officials are comfortable with, and requires the federal government to auction off a range of frequencies in the electromagnetic spectrum for commercial use. Despite these complications, McCord said the agreement also provides more money than would otherwise be available, gives two-year budget certainty, removes the threat of a credit default and lessens the chance of a government shutdown, and strengthens key interagency partners in national security.
Perhaps most importantly, he said, Congress did not pay for the budget cap relief now by extending the caps further into the future – which is what happened in 2013 with the Ryan-Murray budget deal. That was “probably our top priority when we talked to [the Office of Management and Budget” because the nuclear triad will have to be recapitalized in the 2020s, and “that would be one of the worst times we could imagine to have the caps being extended.”
Given an upcoming retirement wave in the Baby Boomer generation, which will have significant fiscal impact and make higher top lines for DoD harder to achieve, the 2020s are already “not maybe the ideal situation in which we find ourselves here, a lack of budget stability and predictability in the near term and knowing that we have this fiscal pressure driven by demographics going forward” – but Congress did the DoD a favor by avoiding further stress and not extending the spending caps.