The White House is placing new limits on war spending, making it more difficult for the Pentagon to outmaneuver its new budget caps, according to recent guidance from the Office of Management and Budget (OMB). Instead, the White House wants the Pentagon to start funding more activities through its base budget, shutting off a potential loophole to the Budget Control Act passed in August.
While the Defense Department's base budget is subject to the Budget Control Act's spending caps, its separate war funding bill, known as the Overseas Contingency Operations (OCO) account, is not. OCO funding is also exempt from sequestration, the process of automatic spending cuts that goes into effect January 2013 if Congress is unable to come up with an alternative deficit-reduction package of $1.2 trillion.
Many analysts have said it provides the Pentagon a loophole for staying within the budget caps.
The Senate, in its versions of the defense appropriations and authorization bills, has already made use of this loophole, shifting billions out of the base budget and into the contingency bill, while still complying with the spending caps for 2012.
"We're likely to see that again in 2013, so that will, in effect, soften the decline in defense spending, if they use that outlet," Todd Harrison, an analyst at the Center for Strategic and Budgetary Assessments, said after the congressional supercommittee failed to come to a debt-cutting agreement by its deadline last month.
However, a recent "passback" document from OMB to the Pentagon shows the White House might have little tolerance for this, according to a source who reviewed the 23-page document.
For its 2013 budget, the Defense Department needs to provide line item-level detail by Aug. 1, 2012, of the "enduring activities" that could be shifted out of the OCO bill and into the base budget. These could include depot work, equipment maintenance or training activities. It would also include support operations for bases that are part of Central Command's permanent infrastructure.
At their peak, the supplemental war bills funded several major acquisition programs, including the purchase of Mine-Resistant, Ambush-Protected vehicles (MRAPs), UAVs, and even an F-35 Joint Strike Fighter.
The Office of the Secretary of Defense needs to formulate a plan and provide guidance to the services for their 2014 budgets that details how to transfer appropriate activities.
Starting with the 2014 budget, the Pentagon has to start making these shifts and complete them by the end of the five-year plan, referred to as the Future Years Defense Plan (FYDP).
Based on this guidance, the Pentagon's budget safety valve might not be available to them starting in 2014, a source said. Of course, Congress controls the purse strings at the end of the day and could choose to shift any amount it wants into the OCO bill as part of the appropriations process.
In the document, OMB also provides top-line budget guidance for the years 2013 through 2017, as first reported by Bloomberg.
For the Pentagon's base budget, OMB is allocating $523.4 billion for 2013, $533 billion for 2014, $545.4 billion for 2015, $555.9 billion for 2016 and $567.9 billion for 2017. These figures are in current dollars.
They are also in line with the Pentagon's previously announced plan to cut $261 billion over the next five years to meet the Budget Control Act's spending caps.
The guidance sets OCO spending at $82.5 billion in 2013 and uses a $50-billion placeholder for the following years. This is based on an average troop level in Afghanistan of 68,000 in 2013.
Of that $82.5 billion, $4.4 billion is dedicated to classified programs, according to the source who viewed the document.
An additional $800 million would be allocated to the State Department for the Pakistan Counterinsurgency Contingency fund, equal to the amount enacted in 2011.
There is also $508 million provided in 2013 contingency funding for the Office of Security Cooperation in Iraq. This level could be reduced if the Iraqi government took actions in 2012 that affect diplomatic operations and assistance programs, the document says.
OMB acknowledges the tough choices the Pentagon has been forced to make but suggests that DoD is still punting some of the difficult decisions it faces.
"OMB supports DoD efforts to find specific savings and program efficiencies and acknowledges DoD's progress thus far in making difficult budget tradeoffs, but there is concern that specific program tradeoffs do not go far enough and because of that DoD may be using unspecified savings, which can only defer difficult choices into the future," the document reads.
OMB also takes issue with some of the Pentagon's accounting, saying it has underfunded programs by a total of $4.1 billion.
In the document, these are listed as "problematic funding approaches."
Some of OMB's concerns have to do with the "color" of the money, meaning DoD is using funds designated for one type of activity for something different" for example, using research and development money rather than procurement dollars to fund the purchase of operational equipment.
In other cases, OMB thinks the Pentagon is underfunding certain programs, at least according to the current strategies in place.
According to the source who viewed the document, the Evolved Expendable Launch Vehicle (EELV) program is short $1.1 billion.
The Air Force plans to spend $1.7 billion on EELV boosters in 2013 and a total of $10.1 billion through 2017. However, the Air Force budget does not fund enough launchers to support its planned satellite manifest in its entirety, according to the document.
"DoD should fund the EELV program and any other future launch providers sufficiently to ensure that each satellite on the manifest is paired with an adequate launch vehicle, or explain why additional launch vehicles are not needed," the document says.
According to the document, at the time of the passback, no final decision had been made for pay raises for uniformed and civilian personnel for 2013.
"DoD should assume that the funding levels included in the passback are sufficient to implement the final pay decision," the document says.
There is also a classified attachment to the document; it has not surfaced publicly.