Defense Hoping to Avoid Nightmare Budget Scenario

Reports of a possible budget compromise between the White House and congressional leaders have raised hopes that a government shutdown could be averted. And in consequence, the Pentagon would avoid the scenario it fears the most: the continuation of temporary funding measures into next year.

A budget deal that, according to media reports, would fund federal agencies for two years and also lift the debt ceiling “could spell unexpectedly early relief from fears of a debt limit hiccup as soon as next week, or from welling up pressures toward a possible government shutdown in December,” noted defense industry analyst Byron Callan, of Capital Alpha Partners.

White House officials, House Republican and Democratic congressional leaders are said to have negotiated a two-year budget deal that also would extend the government’s borrowing authority until March 2017. The compromise also would lift discretionary spending caps for fiscal year 2016 and 2017 for defense and nondefense. Of significance to the Pentagon and defense contractors, the funding agreement would provide long-term budget certainty and remove the possibility of having to operate under a stopgap continuing resolution when the current one expires Dec. 11. With no federal appropriations bills for fiscal year 2016, the government has been funded since Oct. 1 by a continuing resolution that freezes spending at 2015 levels.

For the Pentagon, a budget agreement, even with topline funding below what it requested, should be a welcome respite. Congress has failed to pass a defense appropriations bill in time to start the fiscal year for seven straight years. The frustration of having to work under a fog of fiscal uncertainty has reached unprecedented levels at the Pentagon, noted Defense Secretary Ashton Carter. “The Department of Defense has done its best to manage through this prolonged period of budget uncertainty, making painful choices and tradeoffs between size, capability and readiness of the joint force,” he said in a speech earlier this month. “We cannot as a nation allow this to become the new normal.”

Defense officials have been warning for weeks that another continuing resolution to extend funding beyond December would be hugely disruptive and would put programs at risk. “They should be worried at the Department of Defense” if there is no budget deal, said Mackenzie Eaglen, national security analyst at the American Enterprise Institute.

The worst-case scenario would be not just a CR for the entire fiscal year 2016 but the possibility that it would be prolonged into 2017. With a presidential election approaching, she said, “A one-year CR would stretch into next year. If you get a one-year CR, you are going to get a two-year CR by extension,” she said during a conference call with reporters Oct. 26. During presidential election years, legislation stops in July. “They don’t come back except for pro forma issues for the remainder of the year.” Without a 2016 budget, it would become even less likely that a 2017 budget would be passed.

The prospect of leaving the Pentagon running on autopilot for two years galvanized defense hawks in Congress to push leaders to reach a budget agreement. A group led by Rep. Michael R. Turner, R-Ohio, chairman of the House Armed Services Committee’s subcommittee on tactical air and land forces, has led the charge. The group in recent weeks has grown from 70 to more than 100 members. In an Oct. 19 letter to congressional leaders, these pro-defense lawmakers asked for the House to reject a full-year continuing resolution and “put forth a funding measure that funds national defense base requirements at or above the $561 billion level included in the president’s budget request.”

Eaglen said a budget compromise would be a big coup for outgoing House Speaker John Boehner and his likely successor Rep. Paul Ryan, R-Wis. “Ryan will try to thread the needle between fiscal hawks and defense hawks,” she said. “I think he’ll find out that defense hawks outnumber fiscal hawks these days.”

The reality, however, is that the president has a stronger negotiating hand against a divided Republican caucus, so any budget deal would have to please both the left and the right, she noted, as the president will use defense as political leverage for his domestic priorities.

Budget negotiations are unfolding at the same time the House is gearing up for a Nov. 5 vote to try to override President Obama’s veto of the fiscal year 2016 National Defense Authorization Act. The policy bill does not provide funding but does set priorities for military programs, and endorses the addition of $38 billion to the defense budget via the emergency war account known as “overseas contingency operations.” That measure was a deal breaker that led to the presidential veto, as the White House needed a way to force Congress to also boost nondefense spending.

There is pressure on House Democrats to join Republicans in the veto override effort, but so far it appears unlikely there will be enough votes, said Justin Johnson, military analyst at the Heritage Foundation. “It is not an impossible scenario, but not likely.” If the veto is not overridden, the NDAA “goes into limbo until there is some clarity on the larger budget situation,” Johnson said. A budget deal that increases spending caps for defense and nondefense would almost ensure that Congress would revise the NDAA and send the president a bill he would likely sign. “We are in a funny situation,” said Johnson.

Defense budget analyst and Foreign Policy columnist Gordon Adams, predicts a protracted fight over defense priorities. “In reality, the White House’s seemingly principled rejection of the OCO budget as the way to fund the additional $38 billion for defense — and thus the veto of the NDAA — is actually not an act of principle, but pure hostage-taking,” he wrote Oct. 23. “White House insiders tell me that they would be happy to accept another $38 billion for defense in the OCO, or anywhere else, as long as it’s accompanied by an equivalent $38 billion of increase in non-defense discretionary spending, which funds diplomacy and foreign assistance.” In high-level talks between the Hill leadership and the White House, several options have been considered to increase spending, Adams added. “But don’t count on it.” There are still disagreements over defunding Planned Parenthood and other controversial policy riders, he noted. “Good luck with that, amid all the disarray in the House.”

Topics: Defense Department, Defense Watch, DOD Budget