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Pentagon Has Six Months to Spend $80 Billion. Can Congress Help? Five Options

By Jack Rametta, Steve Bell

Tuesday, March 13, 2018

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Appropriators are scrambling to finalize line-by-line appropriations in accordance with the recently passed Bipartisan Budget Act of 2018, which expires March 23. By that deadline, the Department of Defense (DOD) is set to receive an $80 billion funding increase for the remainder of Fiscal Year 2018 which ends September 30.

The question remains, how can DOD efficiently spend that money in only six months?

Fortunately, policymakers in Congress have taken note of this issue and have suggested some possible antidotes. In a bipartisan letter, signed by all seven members of the Senate Armed Services Subcommittee on Readiness and Management Support, the subcommittee recommends that appropriators exempt DOD from either the “80/20” rule or the one-year spending limitation for Operation and Maintenance (O&M) accounts to allow the department additional spending flexibility.  

Below is an analysis of the two options suggested by the subcommittee and three other potential choices for appropriators.

Five Options for Appropriators

Option #1: Exempt DOD from the “80/20” Rule

The “80/20” rule is a statutory requirement that prohibits DOD from spending more than 20 percent of its budget in the last two months of the fiscal year. The rule is meant to prevent potentially frivolous end-of-year purchases. Lifting the rule would allow DOD to divide the new appropriations over a slightly longer period of time (i.e., rather than spending the bulk of the funds in the next four months, they could more evenly divide it over the next six). But it could also enable the kind of behavior that the rule is meant to prohibit. 

Option #2: Exempt Operations and Maintenance Accounts from the 1-Year Spending Limitation

A large percentage of funds appropriated to spending accounts are limited to one year (meaning those funds must be spent before the fiscal year is up), with the exception of long-term contracts and other projects. Exempting Operations and Maintenance (O&M) accounts from the 1-year rule would allow DOD to spend O&M funds into the next fiscal year. This would certainly grant DoD some flexibility to efficiently spend their O&M appropriations, however, other spending accounts (i.e. military personnel, procurement, etc.) would not be granted additional flexibility, which could be problematic depending on how the additional money is distributed by appropriators. 

How can DOD efficiently spend $80 billion in only six months? 

Option #3: Grant DOD Additional Authority to Transfer Funds from Account to Account

In the rush to meet the March 23 deadline, allocation of additional funds may not be perfectly efficient. To account for this, appropriators could grant DOD additional transfer authority for the remainder of the fiscal year to repurpose allocated funds to accounts in need of additional support. This authority would go beyond existing reprogramming authority within budget accounts as well as bypassing the existing transfer process, which requires significant time and additional congressional and executive oversight. Adm. William Moran, vice chief of naval operations, hinted that account-to-account transfers might be a useful way to solve the problem at a congressional hearing last month.

Option #4: Grant DOD Authority to Spend FY2018 Dollars in FY2019

To allow the department more time to spend the additional appropriations, policymakers could grant DOD the authority to spend all FY2018 dollars in FY2019, not just O&M appropriations. This recommendation would alleviate the pressure on DOD to spend the money quickly, and perhaps allow for more careful and efficient spending. Additionally, it’s worth noting that the spending inflexibility issue will plague spending accounts beyond just O&M, such as Research, Development, Test and Evaluation (or RDT&E) and procurement. This recommendation would allow for flexibility across the department’s many accounts. Any inefficiencies in the initial allocation would need to be adjudicated using the existing transfer and reprogramming authorities.

Option #5: Various Combinations of Options #1- 4

To address multiple issues simultaneously, policymakers could combine these four recommendations, in a number of ways, to produce a policy that would perhaps be better than any single policy alone. For example, policymakers could allow FY2018 dollars to be spent in FY2019 and also grant DOD transfer authority (options #3 & #4), thus leveraging the comparative advantages of either proposal.

Or perhaps, to use the subcommittee’s recommendation, policymakers could lift the “80/20” rule and also allow FY2018 dollars to be spent in FY2019 (proposals #1 and #4). This would effectively alleviate any time constraint issue. This combination would not grant DOD additional transfer authority, but since the department has the ability to request transfers from Congress, with OMB oversight, that mechanism could be employed.  

Appropriators could draw from these options in various ways to design a policy that balances the Pentagon’s priorities with congressional oversight and decreases inefficiency along the way. As House Appropriations Committee Chairman Rodney Frelinghuysen stated with regard to this issue, “We just want to make sure that the Appropriations Committee continues its traditional oversight.”