Pentagon will need to fund 'enduring requirements,' now in OCO account, once combat ends

September 30, 2016

By Tony Bertuca

(Editor's Note: This story has been revised to reflect additional information Inside Defense obtained following its original publication.)

The Defense Department estimates it will need about $30 billion annually to support “enduring requirements” once overseas combat operations end. Those requirements are now being funded through the department’s Overseas Contingency Operations account.

"The Department of Defense Fiscal Year (FY) 2017 Overseas Contingency Operations (OCO) budget request includes requirements associated with a forward presence and readiness that will likely continue after current operations in Afghanistan and Iraq/Syria conclude," according to a statement from Lt. Col. Eric Badger, a DOD spokesman. "The cost associated with these enduring requirements is in the range of $30 billion annually."

The Pentagon does not consider these “enduring requirements” to be base budget requirements, which are paid for through DOD’s annual budget request. The “enduring requirements” are associated with current warfighting needs. Once combat operations end, the department will have to negotiate with Congress for funding to meet those requirements.

Some lawmakers and analysts have been citing the $30 billion figure in studies and official hearings.

Senate Armed Services Committee Chairman John McCain (R-AZ) said on Sept. 15 that approximately $30 billion meant for emergency operations is really being used for "base defense requirements."

"Roughly $30 billion of annual spending for base defense requirements is buried in the budget account for emergency operations -- requirements that will remain for our military even if our present operations immediately ended, which of course they won't," he said during a committee hearing.

A former senior defense official told Inside Defense that the Obama administration had every intention of reducing OCO spending in line with planned military drawdowns, but faced mounting pressure to keep it once Congress passed government spending caps mandated by the 2011 Budget Control Act. Money spent in the OCO account does not count toward the caps.

"OCO has done some good things," the former official said. "It got the department badly needed flexibility. But therein lies the problem. What if it gets turned off?"

Defense budget analyst Todd Harrison of the Center for Strategic and International Studies told Inside Defense that he sees the Pentagon's statement as a major revelation.

"This is the first time DOD has acknowledged that half of its OCO budget is being used for base budget activities and not war-related costs," he said. "It directly contradicts what DOD submitted to Congress in its budget materials, which stated that only $5.2 billion of the OCO budget is for base budget activities. DOD is effectively acknowledging that it misled Congress and the public in its budget submission."

Kate Blakeley, a defense budget analyst at the Center for Strategic and Budgetary Assessments, said the statement confirms what many people already know behind-the-scenes.

"This is the first time that DOD has publicly acknowledged what it has privately known for several years: that DOD relies on tens of billions of OCO funding for its ongoing, enduring presence and readiness needs, and that the force structure planned for in the FYDP is reliant on OCO money to execute," she wrote in an email to Inside Defense.

"This revelation is startling, because it contradicts DOD and the administration's long-held public position that all of the OCO requests since the enactment of the Budget Control Act, except for this year's $5.2 billion in 'OCO-to-base' money, were exclusively to support war funding needs," she continued. "It also reveals that the gap between DOD's base budget plans and the BCA caps over the [future years defense plan] is even greater than the Pentagon has acknowledged, ranging from $50-60 billion each year."

Anticipating that supporters of increased OCO spending would assert that "forward presence and readiness" can be justified as OCO expenditures, Harrison said: "The base defense budget is used to pay for the regular costs of maintaining and operating the military, including forward presence around the world and the readiness of forces."

The Pentagon's OCO account, for which the administration has requested $58.8 billion in FY-17, has been questioned by some deficit hawks in Congress and has long been derided by critics like the Project on Government Oversight as a "slush fund" that has been used to skirt spending caps mandated by the 2011 Budget Control Act because OCO is exempt from those caps.

Harrison questioned what he sees as DOD’s reluctance to publicly acknowledge the true cost of enduring OCO expenses, which he said has skewed U.S. deficit projections.

"As a matter of trust and transparency in a democracy, the public is always entitled to know how its money is being spent," he said. "This might be OK in Russia or China, but not in the United States. Congress also needs to know the degree to which the Defense Department's budget is leveraged on the continued use of OCO funding for base budget activities. And both Congress and the public need to know the impact this additional spending will have on the deficit because the OCO budget request does not come with a projection for future years. Hiding base budget funding in the OCO request makes deficit projections appear lower than they actually are."

Defense budget analysts, Harrison included, predict, however, that the OCO budget will remain in place as long as the BCA remains the law of the land because the exempted account has proven itself to be a useful tool to get around the mandatory spending caps.

Meanwhile, Harrison said the matter would likely impact ongoing budget negotiations between the White House and Republicans on Capitol Hill, arguing that it has put the Obama administration in the position of strongly defending its demand that Congress match increases in non-defense spending with every dollar that defense spending is boosted.

"This revelation makes Pentagon leaders look rather hypocritical for opposing House Republican efforts to add $18 billion in extra base budget funding in the OCO budget when they were already stuffing $30 billion in there themselves," he said. "It also raises a broader budget issue for the administration because this means it was not following the principle of dollar-for-dollar increases in defense and non-defense it has forced Republicans to adhere to in budget negotiations. The administration was not following its own rules."

The OCO account -- and the fact it is exempt from the BCA spending caps -- is likely to play a role in any kind of FY-17 budget deal Congress might arrive at when it returns after the Nov. 8 elections needing to pass appropriations legislation before a recently passed stopgap funding measure expires on Dec. 9.

Separately, Defense Secretary Ash Carter said Sept. 26 that the FY-17 OCO account is scheduled to grow beyond $58.8 billion because the Obama administration plans to send Congress a supplemental request in November to finance troop retentions in Afghanistan and the Pentagon's accelerated campaign against the Islamic State of Iraq and the Levant.

In November 2015, several months before the official submission of the FY-17 defense budget, Pentagon Comptroller Mike McCord acknowledged the continued reliance on OCO funding was an area of concern for the White House Office of Management and Budget.

"We are still going to be dependent on OCO as we exit this administration," he said at a conference in Falls Church, VA.

Cutting the OCO account "was something that OMB, in particular, had as a priority," he continued. "We would have liked to have fixed it. We knew it was very difficult to fix in an era of caps. The time was not right for that to happen this year. I'm not saying it's a good thing or a bad, it's a fact."