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Analysis: Biden ends abuse-prone overseas military budgets

Decision marks the end of an era after two decades and $2 trillion

Minnesota Democrat Betty McCollum, the chair of the House Defense Appropriations Committee, has called the OCO account a "budget gimmick."
Minnesota Democrat Betty McCollum, the chair of the House Defense Appropriations Committee, has called the OCO account a "budget gimmick." (Tom Williams/CQ Roll Call file photo)

The Biden administration’s fiscal 2022 defense budget request would eliminate the so-called Overseas Contingency Operations account, a seemingly bottomless box of money that had become emblematic of Washington’s fiscal flimflammery.

The president intends to discontinue requests for OCO “as a separate funding category, instead funding direct war costs and enduring operations in the DOD base budget, a significant budgetary reform,” according to a fact sheet submitted to appropriators Friday by Shalanda Young, the acting director of the White House’s Office of Management and Budget.

This would mark the end of an era. Over the past two decades, off-budget war accounts, whether called “supplementals” or the OCO account, had morphed from a temporary way to budget for fighting in Afghanistan and Iraq into what some called a slush fund for hundreds of billions of dollars — spending that, by law, was not hemmed in by the budget caps that circumscribed most other federal programs.

All told, Americans spent $2 trillion on this unlimited charge card from fiscal 2001 to 2019, according to a 2019 Congressional Research Service report.

The Pentagon has spent tens of billions more in OCO money since then.

This spending constituted roughly 10 percent of the federal government’s discretionary budget since the 9/11 terrorist attacks and about 20 percent of the Pentagon’s, according to the nonpartisan research service.

Not only was it a lot of money, details on its purposes were often hard to come by, even for Congress.

Betty McCollum, the Minnesota Democrat who this year became chair of the House Appropriations Subcommittee on Defense, is intent on doing away with the OCO account. 

At a March 23 hearing, she called it “a budget gimmick.”

“It’s time that we correct those past mistakes,” she said.

Departure from precedent

It didn’t used to be this way. In the Korea and Vietnam wars, for example, the Defense Department set up supplemental accounts to handle war expenses — but just in the first couple of years of the conflicts. After that, ongoing expenses were reflected in the regular budget.

From 1970 to 2000, the Pentagon spent just 2 percent of its money outside the base budget, compared with roughly 20 percent since then, according to the Congressional Budget Office. 

Mandy Smithberger, a defense expert with the Project on Government Oversight, said doing away with OCO is “the right move.”

“It is time to move all that spending back to the base budget like we have for most of every war before 2001,” Smithberger said.

The Pentagon employed this emergency spending account for about a decade prior to the 2011 enactment of the budget caps, but the money really started to gush after the caps were in law. 

That was because OCO spending was, according to the budget control law itself, exempted from its limits. This gave the Pentagon a place to stash extra spending above the cap levels — for not just fighting current wars but for numerous other defense purposes.

In fact, the extra spending was to a large degree unrelated to the wars that were the ostensible purpose of OCO. Specifically, between 2006 and 2018, the Pentagon spent, on average, more than $50 billion a year of OCO money on programs that were unrelated to the wars. 

The practice has continued up through the current fiscal year. Fully $48.5 billion of the nearly $69 billion fiscal 2021 allocation for the Pentagon’s overseas account was for so-called enduring or base-budget requirements. 

“However, we know very little about what makes up these enduring costs or how they were calculated,” said Elizabeth Field, a defense analyst with the Government Accountability Office, at a Feb. 24 hearing of McCollum’s panel.

The report accompanying the House’s defense appropriations bill last year said, “The OCO experiment has been an abject failure and it’s given the department a budgetary relief valve that has allowed it to avoid making difficult decisions.”

Mislabeling

In fairness to lawmakers and the Pentagon, the purposes for these base-budget programs were spelled out, at least to some extent, in the tables of appropriations and authorization bills and in budget request documents. 

But OCO programs clearly had comparatively less transparency. Officials who ran base-budget programs had to spell out their spending intentions in a five-year plan, but OCO initiatives had no such requirement.

That meant less oversight in the Pentagon and Congress and a greater likelihood that programs lacking in merit would get funds, analysts have long said.

Moreover, in a broader sense, the spending was being mislabeled — the base budget was not fully reflective of base needs, and the war budget was largely not about warfare. 

And while the State Department has had an OCO account (and so have the Department of Homeland Security and the Coast Guard, to a small extent), most other federal agencies were not lucky enough to have this budgetary safety valve.

A new war account?

Politicians in both parties will likely cheer and abet the demise of OCO. Most members have said over the years they would prefer to get rid of it. Doing so, however, has been another matter entirely.

Now comes Biden promising to jettison the practice. Accomplishing that now is easier than it has been, of course, because the wars are all but over and because fiscal 2022 is the first year in a decade that federal spending is not subject to caps — making the need for the budgetary relief valve a thing of the past.

Still, some believe Biden’s defense budget will still have some component that covers overseas operations. The wars are all but over, but several thousand troops remain deployed, as of today, in the Middle East and Africa. 

The term OCO may not be used, but another term probably will be, Mark Cancian, a former OMB official, said in an email Friday.

“I expect that there will be some separate account, maybe $20 billion, for the cost of actual military operations in the Middle East,” wrote Cancian, now an analyst with the Center for Strategic and International Studies. 

Even if it will be a repackaged form of OCO, at least it would in theory be transparent and would not include base-budget expenses and would not be merely a vehicle for exploiting a loophole in the budget law, one big enough that $2 trillion-plus could pass through.

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