The Sequestration Zombie

July 27, 2015

When House lawmakers seized on the idea of tapping the relatively unconstrained war accounts to bridge the expansive gap between the Pentagon’s spending request and budgetary reality, Senate Armed Services Chairman John S. McCain was among the first to criticize the maneuver as nothing more than a gimmick.

Within two days, however, the Arizona Republican had done a complete about-face, publicly—but reluctantly—endorsing the House GOP proposal to use the overseas contingency operations accounts as an overflow valve for some $38 billion that would otherwise need to be trimmed from the Pentagon’s Fiscal 2015 blueprint, thanks to stringent caps on spending.

“I don’t like OCOs. I think they should have gone away some time ago,” McCain told reporters in March. “But if that’s the only way to get the required level of defense spending, I would support what the House did.”

McCain not only supported the House’s action, contained in its nonbinding budget resolution, he actively and successfully advocated for the Senate to follow suit. In the end, the Senate agreed to the significant and unprecedented boost to OCO for nonwar spending, and McCain’s bill, the annual defense authorization measure, was the first Senate legislation to adhere to the new levels prescribed in the budget resolution.

McCain’s quick change of heart on using war spending to pay base-budget bills is perhaps the strongest indication yet of just how difficult it will be for Congress by the end of the year to come to a budget deal that provides the Pentagon with relief from the spending caps, commonly referred to as sequestration.

Even if there is some sort of an agreement, it will likely be modest and short-lived. Previous efforts to revise the caps have resulted in temporary deals—the most recent expiring at the end of this year—that provide some relief but fall short of doing away completely with the Budget Control Act.

That means tough budget decisions —such as the Pentagon’s request for another round of base closures and the Air Force’s money-saving plan to retire its fleet of A-10 Warthog aircraft—will continue to be the order of the day within the Defense Department.

Still, even a modest deal could spare the Air Force and the other military services some of the most difficult decisions.

“The Budget Control Act is essentially forcing us to choose between readiness, force structure, and modernization,” Air Force Chief of Staff Gen. Mark A. Welsh III told the Senate Armed Services Committee in March. “If we choose to sacrifice readiness in order to modernize, we risk failure in today’s fight.”

During that same hearing, Welsh addressed issues with using war funds for base-budget needs—the most predominant being the uncertainty surrounding an account that fluctuates dramatically from year to year.

For a department that plans its budgets in five-year increments, that could be problematic, particularly for modernization programs that can span decades.

“When you’re looking at a one-year budget cycle, it’s not guaranteed over time,” Welsh said, adding that war money was better than no money at all, if that is what it ultimately came down to. “At some point in time, if it’s green and it smells pretty and it’s not your St. Patrick’s Day tie, it’s OK,” he told the panel.

McCain, who leads the hawkish wing of his own party, wants more money for the Pentagon and believes a budget agreement—which would involve a new deal with Democrats over both defense and nondefense spending—is probably an elusive goal by year’s end, when a two-year budget agreement expires.

While he doesn’t love the idea of increasing reliance on the war accounts, McCain sees no other way out of the Pentagon’s budget jam. And he frequently points to a wide and growing array of threats, ranging from ISIS to Iran, to underscore his fervent belief that the nation’s security depends on robust spending for defense.

For McCain, the issue of whether to use the OCO accounts, which are not subject to the caps prescribed in the 2011 Budget Control Act, transcends the ongoing and divisive debate over federal discretionary spending.

“This is [about] the defense of the nation,” he said in late May as Democrats on his committee attempted to rein in the use of the war accounts during its closed-door consideration of the authorization bill, setting Pentagon policy and prescribes spending levels.

However, Democrats on Capitol Hill disagree. If the defense spending bills sail through Congress with the additional money tucked into the war accounts, Republicans will have no incentive to strike a deal to boost domestic spending, traditionally a Democratic priority.

In short, defense spending is the one card Democrats can play to force a debate on the broader budget issue. Even defense boosters within the Democratic Party are rallying to the cause.

McCain’s Democratic counterpart on the armed services panel, Jack Reed of Rhode Island, voted against the typically bipartisan measure during the committee’s work on the bill primarily because of his objections to the use of war accounts for base-budget funding.

A retired Army officer, Reed and other Democrats see the reliance on the OCO funds as an end run around the spending caps enacted in 2011. Domestic spending does not have any such uncapped fund to tap to pay for excess expenses that do not make the budget cut.

Needs, Not Spending Caps

But Democrats have also raised concerns about the long-term consequences of the artificially bloated war accounts, many of them reiterated by senior defense officials.

If Republicans proceed with their budget plans, they argue that war accounts that should be decreasing as operations overseas wind down, will only continue to grow, creating a permanent slush fund for the department. Meanwhile, reliance on the war accounts, varying in size from year to year, will hinder the Defense Department’s ability to do the necessary long-term budget planning.

“Our national defense decisions should be based on actual needs, not on spending caps” or budget gimmicks, Reed said in a Senate floor speech in June.

At the same time, a similar scenario was playing out this spring across the Capitol, with Rep. Adam Smith of Washington, the top Democrat on the House Armed Services Committee, leading his party’s opposition to the defense authorization bill during floor debate on that chamber’s version of the measure. It was the first time in Smith’s 18 years in Congress that he voted against the measure.

In speaking against the bill on the House floor in May, Smith pointed to recent comments by Defense Secretary Ashton B. Carter that the use of war funding for base budget accounts is “managerially unsound” and “unfairly dispiriting to our force.”

“Clearly, this desperate attempt to get around the budget caps put in place by Congress will have a significant negative effect on our military,” Smith said. “This is unfair and unnecessary and we should be working to fix the problem, not working to get around it.”

In the end, Smith, with the backing of party leadership, rallied 142 more Democrats to vote against the measure that typically receives strong bipartisan support in both chambers.

Combined with the eight Republicans who also voted in opposition to the bill, there could be enough votes in the House to block any GOP efforts to override a presidential veto of the authorization bill over the use of war funds.

The debate on the defense authorization measure in both the House and Senate has served as the precursor to the broader battle over the budget caps. It will play out on a spate of appropriations bills over the next several months.

Even though the bill does not actually allocate money, the White House has threatened to veto the authorization bill over a host of objections, including its reliance on the war funds to bridge the defense budget gap even as domestic programs struggle to squeeze their priorities into the stringent limits.

“The President has been very clear about the core principle that he will not support a budget that locks in sequestration, and he will not fix defense without fixing nondefense spending,” according to the Administration’s statement on the Senate’s version of the defense authorization bill. “Sequestration levels will damage our ability to restore readiness, advance badly needed technological modernization, and keep faith with our troops and their families.”

Senate Minority Leader Harry Reid (D-Nev.) said in early June the authorization bill had “no chance of becoming law,” as it stands now.

The White House, meanwhile, has issued a blanket veto threat on appropriations bills that lock in sequestration spending levels, an attempt to force a bipartisan compromise on defense and nondefense discretionary caps by the end of the year.

At the same time, Senate Democrats, who held onto enough seats in the last election to stall legislation in a chamber that requires 60 votes to do almost anything remotely controversial, have said they will block appropriations bills until there is a deal that addresses both defense and domestic spending.

“We will not vote to proceed to the defense appropriations bill or any appropriations bill until Republicans have sat down at the table and figured out with us how we’re going to properly fund the Defense Department and key priorities that help families, fuel economic growth, and keep us safe and strong at home,” New York Sen. Charles Schumer, a member of Democratic leadership, told reporters at a June press conference.

Republicans are also divided over how to address the budget dilemma and have so far been unwilling to compromise with Democrats on a deal to lift or alter the budget caps.

Republicans’ preference for now is to stick to the spending levels outlined in the budget resolution, allowing them to circumvent the politically dicey topics of revenue and domestic spending while still funding defense at levels that match the Administration’s own cap-busting request.

“The political reality is that the Budget Control Act, which the President signed, remains the law of the land,” McCain said on the Senate floor at the outset of the chamber’s deliberations on the authorization measure in June.

Democrats, however, are hoping that their plans to block spending bills—and the President’s promise to veto them, if they do make it through Congress—will force a dialogue that ultimately changes that, at least for next year.

“If they want increases on the nondefense side, which they absolutely do, their only bargaining chip is the increase on the defense side,” said Todd Harrison, an analyst at the Center for Strategic and Budgetary Assessments.

The Clock Ticks

As Congress became more serious about shifting money from DOD’s base budget—and as the White House became more opposed to the idea—defense and military leaders began to speak out more firmly against that approach.

Testifying before Senate appropriators in May, Carter said using OCO funds takes the department on a “road to nowhere.” Carter also stressed the OCO plan takes a narrow look at funding national security. It does nothing to make up for shortfalls in other departments, including the departments of State, Justice, Treasury, and Homeland Security.

“President Obama has already made clear that he won’t accept a budget that locks in sequestration going forward, as this approach does,” Carter said. “And he won’t accept a budget that severs the link between our national security and our economic security.”

As the political debate over spending levels swirls, the clock continues to tick down to Oct. 1, the start of the new fiscal year. That’s a firm deadline—and one Congress may not be able to meet if the parties are unable to find a compromise.

There are so many possibilities for the last months of the year that it reads almost like a Choose Your Own Adventure book. The most optimistic—and potentially least likely—possibility is some sort of a grand compromise that would pave the way for yearlong spending bills for the Defense Department and other agencies.

“It doesn’t look hopeful right now,” Harrison said. “I don’t see any real movement towards a compromise deal.”

On the other end of the spectrum looms the possibility of the second government shutdown since 2013, politically devastating for both the Administration and Congress.

In recent years, Congress has typically failed to complete its work on appropriations bills by Oct. 1, requiring stopgap continuing resolutions to hold DOD and other federal agencies over for several months until spending bills can be completed.

Congress always manages to pass a Pentagon spending bill, albeit late. In the meantime, defense officials say the uncertainty generated by a CR—typically providing funding at the previous year’s levels and prohibiting the department from awarding contracts for new programs—throws Pentagon planning into a tailspin.

It’s unclear this year whether the two sides can come to an agreement long enough to pass even a short-term CR. If not, that sets the stage for a painful, and potentially prolonged, shutdown.

There are a number of options between a full-scale deal and a shutdown, including scaling back the size of the OCO plus-up on the defense side while also adding a similar amount of money on the domestic side to appease Democrats.

“There is some negotiating room here,” Harrison said. In the end, Carter, who is widely regarded for his budget acumen and well-liked in both parties, may be the Administration’s best ambassador for a deal.

“I hope we can come together for a longer-term multiyear agreement that provides the budget stability we need by locking in defense and nondefense budget levels consistent with the President’s request,” he told Senate appropriators. “I pledge my personal support to this effort, as well as the support of the entire staff of the Department of Defense.”

Megan Scully is a reporter for CQ Roll Call.