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CR + ISIS = Crisis?

Last week, President Obama announced that the U.S. would begin a campaign to fight ISIS (or ISIL), the Sunni militant group in Syria and Iraq. That operation will involve two parts – a campaign of airstrikes to weaken ISIS and an effort to train Iraqi troops. Budget analysts immediately started wondering how those missions are going to be funded and whether it would add pressure to the already-strained budget at the Department of Defense (DoD). Congressional approval of the Continuing Resolution (CR) for appropriations for fiscal year (FY) 2014 presents interesting questions:

Does DoD have sufficient funds to simultaneously enable the ISIL intervention and the Ebola aid plan?

If so, where does this money come from?

Finally, does the unanticipated (at least to the DoD) money solve the growing funding problems confronting them?

Based on the plans he announced, a number of different analysts have pegged the cost of the air operation at around $1 billion a month. Early versions of the bill to authorize the president to undertake the training mission requested approximately $500 million.

How will we pay for the fight against ISIS?

Since before the onset of sequestration in 2013, the DoD has been arguing that the sequester levels are too low to adequately fund our military. For FY 2014 and FY 2015, the sequester has been replaced with the budget levels in the Murray-Ryan agreement, which are somewhat above sequestration – but not as high as DoD has requested.

But the Department of Defense (DoD) has a source of funding not subject to sequestration or the caps set in the Murray-Ryan agreement. Overseas Contingency Operations (OCO) is a budgetary category that was created in the late-2000s to fund military operations in Iraq and Afghanistan. It appears that the current level of funding in OCO will be sufficient to carry out operations against ISIS through the end of fiscal year FY 2014 at the end of September.

What happens after the end of September?

Last night, the House approved a CR that will run through December 2014 and that continues funding levels from FY 2014. The CR includes almost exactly the same level of OCO spending as in FY 2014 – just over $7 billion a month.1 If that spending level were to continue for the whole year, that would be an increase of over $30 billion from the original DoD request for the year of $58 billion.2

Does this solve DoD’s budgetary worries?

Yes and no. DoD is getting 50 percent more funding in OCO under the FY 2014 CR than the president requested in his FY 15 budget. So in the short run, DoD has seen an unexpected windfall from OCO, which have been used to help correct shortfalls in regular programs. But in the longer run, depending upon how long the FY 2014 CR levels continue, DoD may find itself at lower OCO funding levels. Senator Jon Tester (D-MT), on the Senate floor, cogently made this point in explaining his “no” vote. As we have written before, the long term trends in DoD spending remain problematic. As personnel costs inexorably rise, monies for modernization, operations and maintenance, and research and training will face a serious funding crunch.

It may be that the new initiatives proposed by the president will cost more than we anticipate. It will be useful to see whether additional funding will go through the OCO path or in a more traditional funding manner.

The unfortunate and seriously flawed decision to allow the sequester to continue for both defense and domestic discretionary programs will continue to take a toll on the government’s ability to fund investments for the future. Now, more than ever, one can see how the sequester makes America’s fiscal problems worse, not better.

Alex Gold contributed to this post.

1 About $85 billion a year on an annualized basis.

2 The total request for FY 2015 was $66 billion including OCO funds for the Department of State and the corresponding amount in the CR is $92 billion.

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