Analysis of the Bipartisan Budget Act of 2015.

AuthorMcCord, Mike

The budget deal negotiated by the President and the Congressional leadership is on balance a positive deal for the Department of Defense. The Department did somewhat better than splitting the difference between the President's budget position on the high end, and the sequester caps in current law on the low end, even without taking into account the additional flexibility regarding Overseas Contingency Operations (OCO) funding in this deal.

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Looking only at the base budget, the difference between the President's position for DoD on the high end and the sequester-level Budget Control Act (BCA) caps on the low end was about $36 billion per year in FY2016 and FY2017. In FY2016, the Department got about $24 billion of that difference and lost $12 billion. In FY2017, the Department got about $13 billion of the difference but lost about $22 billion. Taking the two years together, the Department got $37 billion more than the worst-case BCA levels and $34 billion less than the best-case President's budget levels.

Compared to FY2015, the Department's FY2016 base budget would grow by about $26 billion or over 5% in nominal terms (about 3.6% in real terms), the biggest increase during this Administration.

The bill was also designed to give the Department some additional headroom by providing more OCO funding for FY2016 and FY2017 than the negotiators thought the Department needed--in theory up to $8 billion a year above current levels. However, I estimate the unfunded additional cost of the President's decision to keep extra troops in Afghanistan at over $3 billion annually, which will eat up much of that OCO headroom.

In addition, the President may approve additional activities in the fight against terrorist organizations that will add to OCO costs, and of course the enemy always has a vote. So the Department cannot count on being able to completely control its OCO costs. However, at this time the Department does anticipate being able to recover some of the base budget topline lost in this deal by using $4 to $5 billion per year of OCO flexibility.

Including that OCO flexibility, the Department could end up with as much as 80% of the difference between the sequester caps and the original position in FY2016, and 50% in FY2017.

Put another way, the OCO flexibility provides around 1% a year of additional resources ($5 billion). The Department should end up with about 98% of its original base budget position in 2016 and 96% in 2017...

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