Pass-through funds inflate USAF spending by almost 25 percent, hiding the truth from friends and foes alike. Is this the year it finally ends? Photo illustration: Mike Tsukamoto/staff
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The Budget and the Truth

April 1, 2020

Pass-through funds inflate USAF spending by almost 25 percent, hiding the truth from friends and foes alike. Is this the year it finally ends?

The Department of the Air Force’s $207.2 billion top line in its fiscal 2021 budget request looks pretty good on paper, especially when compared to the $207.1 billion requested for the Department of the Navy or the $178 billion for the Army. But looks can be deceiving. 

In reality, the Department of the Air Force’s share of the budget pie is significantly smaller than those other services. That’s because the Air Force funding line includes $38 billion in proposed spending that will never be seen, used, or controlled by the Air Force. This is the so-called “non-Blue” budget, also known as the “pass-through,” because it is spending that passes through the Air Force, but is never under its control. This portion of the Air Force budget has  artificially inflated the service’s top line for decades. 

Without the pass-through, the 2021 Air Force budget request seeks just $169 billion for the department, including $153.6 billion for the U.S. Air Force and $15.4 billion for the fledgling U.S. Space Force.

The pass-through has been a thin disguise, but with a big penalty.

Barbara Barrett, Air Force Secretary

“A myth exists that the Air Force is funded equally with the other services,” wrote Mark Gunzinger, director of future aerospace concepts and capability assessments for AFA’s Mitchell Institute for Aerospace Studies, and Carl Rehberg, a non-resident senior fellow at the Center for Strategic and Budgetary Assessments, in a December 2019 policy paper, “Paying For the Air Force We Need.” 

In reality, the Air Force share of the fiscal 2020 budget is only 23 percent of the total, well below the 28.6 percent for the Department of the Navy (which includes both the Navy and Marine Corps) and 26.7 percent for the Army, according to the paper. 

Gunzinger and Rehberg argue that the pass-through has resulted in consistent and dramatic underfunding of the Air Force, compared to the other services. 

Now, with the launch of the Space Force within  the Department of the Air Force, the opportunity to clean up this long-standing practice seems within reach.  

Source: Mitchell Institute for Aerospace Studies

“It’s now or never,” said Mackenzie Eaglen, a budget expert at the American Enterprise Institute and a longtime proponent of removing the funds from USAF’s budget. “Although, even if they are successful, it’s only half of the battle. It’s still not clear what the Space Force budget will look like as it comes out of the Air Force budget.” 

While it’s still possible for the Air Force to convince congressional appropriators to move the funding this year, Eaglen said, if it doesn’t happen by 2022, the window will close.

Air Force Secretary Barbara Barrett said in January that getting the funding moved will be an uphill fight. In the weeks leading up to the budget release, she said the issue had come up almost daily in discussions with Defense Secretary Mark Esper. 

“The pass-through has been a thin disguise, but with a big penalty,” Barrett said. “We need to be looking at better solutions. Those solutions will all be fashioned buildingwide. We need solutions that a former Army Secretary—who’s now Defense Secretary—will find equitable. He needs to be persuaded on these, but all the services are beneficiaries of the space capabilities [that will come from the Space Force], and if no one else contributes, the space asset will be starved.” 

Exactly what is contained in the classified non-Blue budget is closely guarded; though the aggregate figure is mentioned annually  when the budget is released, it is never explained. A 2013 RAND report said the funding supports the Defense Health Program, special operations, and the National Intelligence Program, but Barrett’s suggestion to shift the funding to the Space Force confirms, perhaps for the first time, a widely held belief that the majority of the pass-through budget funds satellites that are already on orbit. 

Secretary of the Air Force Barbara Barrett argues for making the passthrough either part of the Space Force budget or moving it out of the Department altogether. The ultimate decision rests with the White House and congressional appropriators. Photo: Mike Tsukamoto/staff

Todd Harrison, a defense budget analyst with the Center for Strategic and International Studies, said changing the pass-through will require White House and congressional action. “It’s not a DOD decision,” he said. “You have to get it through OMB [Office of Management and Budget] and the appropriators. It is interesting that Barrett proposed putting it in the Space Force budget. It seems to explicitly acknowledge that this is space funding, which I don’t think they’ve acknowledged before.”  

Eaglen said she raised the issue with Deputy Defense Secretary David Norquist and Esper in February, making the case that the Air Force’s top line is misleading. The non-Blue budget, she said, makes the Air Force appear healthier than it really is and de-emphasizes the Intelligence Community’s “sizable means.” 

“When I raised this with the deputy in front of the Secretary a couple weeks ago, he looked at David and said, ‘Look into that,’ ” Eaglen noted. 

There are several ways to initiate the change:

  • The Office of Management and Budget can tell the Defense Department to move the funds.
  • DOD can ask permission to remove the pass-through from USAF’s budget.
  • Legislators can push for change.

In 2018, the Senate version of the 2019 defense policy bill recommended the Secretary of Defense transfer the pass-through funds from the Air Force budget to the defense-wide budget for fiscal 2020 and beyond. Nothing happened.

Since then, the pass-through has grown from about  $22 billion, or “just less than half of the total Air Force procurement budget,” according to the 2018 Senate report, to $38 billion—well more than double the entire Space Force budget request for 2021. The committee agreed that the pass-through “provides a misleading picture of the Air Force’s actual investment budget.” 

Graphic by Dash Parham/staff; source: USAF

Similar language was not included in the House version of the legislation, however, and the initiative failed to advance to the conference report. Since then, the black budget has only increased, with $39 billion approved for 2020—or just over 19 percent of USAF’s total obligational authority. 

That’s “the equivalent to the last four years of total Air Force new aircraft procurement funding,” according to Gunzinger —enough to buy  400 new fifth-generation F-35As, Gunzinger and Rehberg wrote. 

Eaglen said the biggest problem with the pass-through is that most members of Congress don’t understand the issue. “ ‘What do you mean there’s a blue and black budget?’ ” There’s 100 ways to slice that argument,” she said. 

Moving the funding is essentially an accounting shift, but it’s a political landmine. Although it’s a long-held common assumption that DOD’s budget is evenly split among the departments, that has never been true. 

In the 1950s, the newly formed Air Force took the lion’s share of funding as the Eisenhower Administration built  up a nuclear deterrent to counter the Soviet Union. With two of three legs of the nuclear triad under Air Force control, the new service owned about 49 percent of the budget, Harrison said. During the Vietnam years, the Army received more funding, and afterward—as the Navy was rebuilt—its share rose  following the war. For a little over a decade after the 9/11 terrorist attacks, the Army once again garnered the largest share of the budget to pay for continuous ground combat in Iraq and Afghanistan.  

In the wake of the Cold War, all of the military services lost buying power, but none more so than the Air Force. In constant 2020 dollars, the Air Force saw steep reductions from 1989 to 2001, losing more buying power than the other services in four of five spending categories, according to the Mitchell report: 

  • Military Personnel—USAF (-37.2%); Army (-34.4%); Navy (-31.6%).
  • Procurement—USAF (-52.0%); Army (-35.9%); Navy (-32.0%).
  • Research, Development, Test, & Evaluation—USAF (-39.7%), Navy (-17.7%); Army (-8.0%).

The only category in which the Air Force did not lose more was Operations and Maintenance.

“Now things have fallen back, and the Air Force and Navy are fighting it out for the top spot” among the services, Harrison said.

Another portion of the budget that has grown in recent years is the share that funds defense agencies outside the armed services. That portion now comprises about 17 percent of all defense spending, funding programs ranging from the Missile Defense Agency to U.S. Special Operations Command. This category is where the pass-through funding belongs, Harrison said. 

“It’s not really for the Space Force any more than it was important to the Air Force,” he added. 

The standup of the new U.S. Space Force, led by Gen. Jay Raymond, could help USAF get the pass-through out of its budget. Photo: Wayne Clark/USAF

Eaglen agreed, but said the Space Force could be a temporary parking place for the funds. She suggested the Chief of Space Operations, USSF Gen. Jay Raymond, could decide if the funding makes sense in his top line and, if not, push for it to be moved out of DOD all together. That might be an easier sell coming from a new service, she said. 

“These assets are purely Intelligence Community-controlled and owned, and they support the entire force. That’s exactly what defensewide is meant to do,” Eaglen said. “Members of Congress don’t have time to dig deep into budget matters. … If the intelligence budget suddenly grows by double-digit numbers, I think it would be great because members of Congress would have to wake up to this artificial pass-through. Then we can try to have a bigger discussion on why the Intelligence Community is parking money in DOD. It should just go to the Intelligence Community. It shouldn’t even be appropriated to the Defense Department.”