OCO—The New Budget Battleground
By: Mark Cancian
“Overseas Contingency Operations” (OCO), aka war funding, has seized center stage in this year’s federal budget debate. Always the subject of controversy, OCO became even more controversial this year when congressional budget committees added $38 billon above the $51 billion President Obama requested for defense. In response, the administration has threatened a veto. How did this happen?
This maneuver arises from the complex politics of deficit hawks, security hawks, and domestic program advocates. In the wake of Russia’s aggression and ISIL’s growth, security hawks wanted to increase defense spending or, at least, keep it above sequestration level. However, deficit hawks did not want to lift sequestration budget caps, which they regarded as a key lever in controlling spending. The Republican leadership, though reluctantly in the Senate, found a solution—put $38 billion (the difference between sequestration level and the president’s budget level) into the uncapped OCO. That would nominally maintain the budget caps while increasing defense spending.
The president also supports more money for defense but only if it is matched by the same amount for domestic programs and paid for by raising revenue. The Republicans oppose both.
So the government is at an impasse. In the short term this maneuver complicates efforts to make a budget deal, as there is little common ground between the president and Congress. The showdown will begin when Congress starts sending spending bills to the president (assuming Senate Democrats don’t filibuster).
In the long term it produces uncertainty, instability, and ultimately, waste. The Department of Defense is one of the few agencies that will make changes today based on what it believes the budget future will be. If the future looks constrained, then it will make cuts. If the future looks brighter, it will keep programs going. This maneuver may produce the worst of both worlds—keeping programs going, sometimes at great cost, when they may be cancelled in the future after a long- term budget deal is made.
The maneuver also opens “uncapped” spending to any high priority activity for which the trade-offs are unpalatable. In the past, both Congress and the administration have been responsible for adding money to OCO for activities not directly related to combat operations, but the addition of $38 billion to offset limits in the base budget takes this budget maneuver to a new level. It thereby undermines the fiscal discipline many Republicans have tried to instill into the federal budget process.