Analysts’ Eyes Turn To Pentagon OCO Spending As Budget Drop Nears | Inside Defense

Numbers emerge to spark debate

By Tony Bertuca

As the Defense Department prepares to submit its fiscal year 2016 budget request to Congress on Feb. 2 amid the onset of sequestration, close attention is being paid to the amount DOD plans to seek in overseas contingency operations spending, with many analysts expecting that OCO, because it is exempt from congressionally mandated spending caps, could remain a Pentagon safety valve for years to come.

Analysts have said they expect the OCO request to be anywhere from $50 billion to $60 billion over the next three years, or just enough to help DOD ride out near-term sequestration cuts. Though the Pentagon has never put an expiration date on its OCO account, it has been on a downward trajectory due to the drawdown in Afghanistan and was expected to keep shrinking until DOD officials began to see it as a way around sequestration caps. OCO spending is exempt from the 2011 Budget Control Act, which will apply in FY-16 unless Congress can strike government-wide spending deal to avert it.

Pentagon officials have also said that lawmakers should expect the Obama administration to submit a budget that is anywhere from $20 billion to $30 billion above sequestration levels. The Congressional Budget Office has projected that the Defense Department’s planned base budget requests between FY-15 and FY-19 will be $47 billion higher per year than the levels designated by the BCA.

Absent a grand bargain, Todd Harrison, an analyst at the Center for Strategic and Budgetary Assessments, toldInside the Pentagon that OCO isn’t going anywhere.

“I think it is safe to assume that OCO funding will be here for the foreseeable future to offset cuts in the base budget,” he wrote in a Jan. 14 email. “Congress could change its mind at some point and close the OCO loophole in the BCA, but I don’t see much movement on that front.”

Meanwhile, Bloomberg News has reported that DOD sources say the FY-16 OCO request will be $51 billion, or a 20 percent decrease over the amount Congress granted the Pentagon in FY-15.

Harrison, however, thinks it would be inaccurate to view the FY-16 OCO request as declining because a former administration placeholder had put the planned request at $30 billion — $21 billion less than what may actually be sought.

“The real point is that it is not declining nearly as much as force levels in Afghanistan,” he wrote. “But we should also note that all we know is the $51 billion figure — we don’t know how much of that is directed for the fight against [the Islamic State of Iraq and the Levant] or European reassurance.”

Diem Salmon, a defense budget analyst at the Heritage Foundation, noted that OCO placeholders have proved “entirely useless” in the past.

“In the FY-12 budget, the OCO placeholder for (FY12-FY-15) was $50 billion even though the FY-11 OCO request was $159 billion,” she wrote in a Jan. 14 email. “The decrease is interesting, but the important takeaway is understanding what is being paid by OCO and what is not. We won’t know that until the detailed justifications are released.”

Gordon Adams, a White House budget official during the Clinton administration and currently a professor at American University, has long been critical of the OCO account, asserting that it erodes budgetary discipline.

“It is magic money, that allows DOD to have more than it gets under the caps and for the Congress to have their budget discipline and eat their OCO cake at the same time,” he wrote in a Jan. 13 email. “The real lead is that with Afghanistan spending down in the teens or lower this year, what on earth are they spending the other $35 billion [for]?”

Along with a continued U.S. presence in Afghanistan, new OCO initiatives include Operation Inherent Resolve and the European Reassurance Initiative. As of Jan. 2, 2015, the total cost of U.S. operations against ISIL started on Aug. 8, 2014 is $1.2 billion, or an average daily cost of $8.2 million. The Pentagon is also slated to spend less than $1 billion in FY-15 OCO money on the European Reassurance Initiative.

Salmon noted that OCO’s future was hard to predict. “There is pressure from fiscal hawks to bring the OCO amount down and DOD has begun to push back against this,” she wrote. “If Congress relieves pressure from the BCA sequester then OCO should decline at the same rate as drawdowns in Afghanistan. But if sequester levels of spending persist, then I think OCO will become an annual battle between fiscal hawks and DOD.”

Meanwhile, the Pentagon has put out the message that OCO should not be expected to shrink simply because the number of U.S. troops in Afghanistan is shrinking.

“I think it’s safe to assume that we are planning to factor into the budget process right now overseas contingency funding,” Rear Adm. John Kirby, the Pentagon’s chief spokesman, said at a Jan. 6 press conference. “And just because it went down over the last two years, you know, I don’t think that it’s logical to assume — and I wouldn’t want to get ahead of any process — that it’s going to be even smaller still by some degree. I wouldn’t go there yet.”

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