Opinion / Budget, Reform

Bad Idea: Eliminating, Rather Than Reforming, Overseas Contingency Operations Funding

Bad Ideas in National Security Series

Nothing in D.C. has the ability to unite political adversaries like a mutual hatred of the Pentagon’s war budget: Overseas Contingency Operations (OCO) funding. This shared enmity of OCO funding has created an unlikely alliance of progressives, deficit hawks, government transparency advocates, and supporters of strategic restraint in calling for the account’s elimination — something the Trump administration has proposed in its now publicly-disclosed FY 2022 budget plans. The OCO budget has been labelled a “slush fund” by its critics, who argue it’s been abused to add billions of dollars to the Pentagon’s topline that don’t actually support the war effort. While many of these criticisms are well-founded, simply eliminating OCO funding — instead of reforming it — could further imperil the greater transparency and accountability that its detractors seek.

While the war budget, previously known as Global War on Terror (GWOT) funding, was officially designated as “OCO” funding after the Obama administration took office in 2009, funding for operations in Afghanistan and Iraq has been distinctly separate from the base defense budget (or at least intended to be) since 2001. In total, the Department of Defense (DoD) has spent over $2.3 trillion in OCO/GWOT funding between FY 2001 and FY 2020 — on average, OCO has accounted for approximately 16 percent of DoD’s budget annually. 

Figure 1. OCO Funding in the Department of Defense Budget, FY 2001 – FY 2020

(Data: Department of Defense)

But analysts will be quick to point out that not all of those funds went towards operations and personnel in Afghanistan and Iraq — the incremental costs of contingency operations. The passage of the Budget Control Act (BCA) of 2011, meant to curb high federal deficits following the 2008 recession, ultimately paved the way for the abuse of the OCO account. The BCA placed limits on the total amount of defense and non-defense spending that Congress could appropriate, yet OCO funding was exempted under the law so military operations and the safety of personnel in Afghanistan and Iraq would understandably not be jeopardized. 

Beginning in FY 2014, the Obama administration took greater advantage of OCO’s exemption from the caps by moving base budget activities into OCO — so-called “enduring costs.” While the Bush administration had also funded some base activities through OCO, the Obama administration expanded this practice to work around the limits imposed by the BCA. The distinction between base and non-base budget activities funded by OCO has never been black and white — as the duration of operations expanded, the fixed or “enduring” costs that did not directly support contingency operations grew. Yet operations and activities that weren’t even related to Afghanistan and Iraq — like the European Deterrence Initiative (EDI) — would also come to be considered OCO. 

The practice continued into the Trump administration, despite the Obama administration promising to present a plan to transition all enduring funding back into the base budget by FY 2020. In the most flagrant flaunting of the OCO loophole, the Trump administration proposed putting the entire $174 billion increase above the defense budget cap in OCO in its FY 2020 request.  

DoD shouldn’t shoulder all of the blame though. Congress also exploited the loophole to fund base budget priorities in OCO appropriations and bypassed its own restrictions in the BCA. OCO funding was used to grease the wheels in critical budget deals: when negotiators did not want to increase the budget caps further, they used OCO for additional spending — for both defense and non-defense activities — despite not being needed for the war effort. 

To what extent is the OCO budget funding activities other than the direct costs of war? A 2018 Congressional Budget Office analysis found that from FY 2013 through the FY 2019 request, enduring costs made up the majority of OCO funding. On average, enduring costs made up approximately 67 percent of the OCO budget during those years.   

However, for the many flaws of OCO funding (i.e. acting as a loophole to bypass Congressional legislation, distorting accurate accounting of the cost of the wars, disrupting proper programming and budgeting practices — the list goes on) eliminating the account in its entirety could actually do more harm to efforts for greater transparency and accountability. Categorizing OCO separately (if done accurately) is important to denote the true additional costs of U.S. operations in Afghanistan and Iraq. Folding all war costs back into the base DoD budget would limit transparency around those operations. The alternative — funding OCO through individual supplemental appropriations bills — would be inefficient given the persisting nature of current operations in Afghanistan and could inject delays and politicize support for personnel overseas. The availability of OCO funding also provides DoD with needed flexibility to respond to unexpected needs that cannot always be forecasted in advance. 

Moreover, the BCA budget caps imposed on discretionary spending expire after FY 2021. This reduces the incentive for both Congress and DoD to exploit OCO funding as a loophole.

Finally, contrary to the claims of some advocates of cutting the defense budget, eliminating OCO funding will not actually reduce defense spending on its own. Of the $69 billion in OCO funds requested for FY 2021, only $20.5 billion directly supports direct war requirements, which will go down (but not to zero) if all U.S. forces are withdrawn from Iraq and Afghanistan. The remaining $48.5 billion categorized as OCO doesn’t support Pentagon pet projects or wanton waste; it pays for base budget operations, the procurement of equipment, and priorities like EDI and security cooperation, among other activities, and would consequently be returned to the base budget.

While OCO funding should not be eliminated in its entirety, there are steps that can be taken to increase the account’s transparency. First, obvious activities that are not direct war requirements must be returned to the base budget. Despite the OCO gambit in its FY 2020 request, the Trump administration took critical steps to increase transparency by providing a breakdown of war funding in its FY 2021 request. Categories included: “Direct War Requirements,” “Enduring Requirements”, and “OCO for Base Requirements.”

However, to maximize accountability over the cost of U.S. operations abroad, Congress and DoD must work together to clarify the definition of OCO. Yes, OCO funding falls on a spectrum between dollars that directly support war costs and those that trend toward enduring support and unrelated base budget costs. But a line must be drawn to distinguish what constitutes direct war requirements. In 2010, the Office of Management and Budget developed criteria to define the activities OCO should include, but this was not legally binding and failed to address the full possible range of activities. Instead, Congress and DoD should reach an agreement to define OCO funding in statute — anything that does not fall within that definition cannot be exempted from any future budget caps or restrictions. To prevent any clever work-arounds to that law, Congress could also mandate that the DoD comptroller and services’ budget chiefs certify that all requested OCO funds fall under the legal definition. While this will limit both Congress and the Department’s ability to exploit any loopholes and grease the wheels in future budget deals, it will ultimately hold DoD more accountable in disclosing the true cost of operations abroad.

These are only a few steps that the Pentagon and Congress can take to improve OCO spending — the Government Accountability Office has provided more alternatives. But ultimately, as my colleague Andrew Hunter wrote in this series last year, eliminating OCO will not “force others in the budget process to improve their behavior.” Yes, OCO funding should be reformed to increase transparency and accountability around the true costs of war. But there are bigger steps that must be taken to improve the efficiency and effectiveness of the defense budgeting process and how the Department makes tradeoffs in allocating its resources. Responding to Covid-19, rebuilding the economy, and tackling the deficit will further complicate these challenges for Congress and the incoming Biden administration. Yet the debate over OCO should not obfuscate larger, more significant questions surrounding the United States’ strategic and budgetary priorities.

CSIS does not take specific policy positions; accordingly, all views expressed above should be understood to be solely those of the author.

(Photo Credit: DoD photo by Cpl. Clay Beyersdorfer, U.S. Army National Guard/Released)