Fall Budget Follies Threaten to Wreck Defense Budget

September 25, 2015

After a year of halting work on the appropriations process, Congress has yet to pass the funding legislation necessary to avoid a government shutdown on October 1. Now, faced with a rapidly approaching deadline, some members are floating the idea of a full-year continuing resolution (CR), which would maintain funding at current levels.

A full-year CR would generate considerable uncertainty for the Department of Defense: Planned funding increases for various programs in FY2016 would not be forthcoming; new-start programs would be denied authorization to get underway. Future planning, already strained by the recurring budget wars, would be made even more difficult by wasting time and effort on anomaly requests and promoting attempts to pass actual appropriations. While this outcome is unlikely, that it is even being considered speaks to the difficult position Congress and the White House find themselves in as fiscal year 2015 draws to a close.

In order to understand why such a destructive outcome is on the table, it’s important to first understand how the budget process arrived at this point.

How We Got Here

At the start of the year, Congress had the opportunity to avoid the annual fiscal drama that has afflicted the appropriations process in years past. Following decisive wins in the 2014 election, Republican leaders in both the House and the Senate stressed their intent to return to “regular order” and the passage of normal appropriations bills. In May, both chambers passed a budget resolution for the first time since 2009, putting Congress on track to pass the 12 appropriations bills needed to fund the government in FY2016 by the end of September. This budget would have maintained the spending caps from the 2011 Budget Control Act (also known as “the sequester”), but massively increased the Overseas Contingency Operations funding to increase spending on defense. However, the White House and Democrats in Congress have insisted on adjusting both defense and non-defense spending levels in tandem. Thus, Democrats in the Senate blocked consideration of appropriations bills based on a budget that increased only defense spending.

In addition to debates over the topline spending levels, other disagreements regarding appropriations legislation appeared as specific bills were being considered in committee and on the House floor. In particular, conservative Republicans, angered by videos of Planned Parenthood staff discussing the acquisition of fetal tissue for research, vowed to use a legislative rider — an amendment dealing with policy issues that is part of an appropriations bill — to strip Planned Parenthood of funding. The White House threatened to veto any legislation containing such a ban. Senate Republicans have proposed a short-term CR that would provide level funding through December 11, and defund Planned Parenthood, but this proposal failed to break a Democratic filibuster. Republican leadership has indicated that they will likely next move to a “clean” version of the CR that provides funding without the Planned Parenthood rider. However, it remains unclear if such legislation can be brought to the floor in the House without causing a revolt by conservatives.

Absent some sort of agreement, on Thursday, October 1, the federal government will shut down for the second time in three years.

What Might Happen

Since it is basically impossible for Congress to pass the 12 necessary appropriations bills in the handful of legislative days remaining to avoid a shutdown, it’s worth considering what options do exist as the end of the fiscal year approaches. The most likely possibilities, in descending order, are as follows:

Short-Term CR

Bottom line: This is the most likely scenario. It would provide funding at FY2015 levels through December, when another budget fight would occur. In the interim, implementation of new starts and funding shifts in the FY2016 budget will be postponed or suspended.

The most likely outcome of the September 30 deadline is the passage of a short-term continuing resolution. This legislation would maintain the funding levels approved for FY2015 for the first few months of FY2016. Under this option, Congress will pass a funding bill that pushes out the deadline until December, buying time to pass a larger bill that deals more comprehensively with government funding, raising the debt ceiling, and/or reauthorizing other important programs.

Because few members of Congress object to maintaining the funding status quo, a CR is the most likely outcome as the September 30 deadline approaches. The only group likely to oppose such a bill would be Republicans determined to attach language defunding Planned Parenthood, but these members are too few to prevent passage of a short-term CR.

The primary complication to the adoption of a short-term CR is the possibility of an attempt by House conservatives to remove John Boehner as speaker using a rarely used parliamentary procedure. A motion to remove him was filed in July, but hangs over the budget debate as a clear threat to Boehner’s position in the House should he fail to appease the most conservative elements in his caucus. While he could likely survive such an attempt with the support of Democratic votes, having to do so would only serve to highlight the immense weakness in his position.

Government Shutdown

Bottom line: This is unlikely, but may still happen. During a shutdown, there’s no funding for non-essential activities while Congress decides what to do. Contractors and non-essential employees will be furloughed. There would be no new appropriations for any new activities.

This outcome is less likely, but remains a real possibility. While both Senate Majority Leader Mitch McConnell and Speaker of the House John Boehner have stated their intention to avoid a government shutdown, House Republicans have shown their willingness to buck leadership on a number of issues this year.

The most likely way a shutdown might occur would be for Boehner to attempt to pass legislation and fail to successfully whip his caucus. However, the significantly larger size of the House Republican caucus in this Congress may provide Speaker Boehner with more margin to maneuver than he has had in the past. And with several Senate Republicans running for president (including Sen. Ted Cruz, who played a pivotal role in the 2013 shutdown), McConnell may not exercise full control over his caucus either. When this is combined with fairly solid opposition from the White House and Democrats in Congress, the path forward becomes very tricky for all parties.

The severity of a government shutdown hinges in large part on how long it lasts. To be sure, even a brief shutdown would be highly inconvenient for government employees, government contractors, and citizens. But since essential employees and activities (such as military operations) can be extended, the worst effects can be avoided for a time. But a shutdown lasting more than a couple of weeks would seriously impact contractors and employees alike. The 2013 shutdown forced contractors and manufacturers to consider furloughing tens of thousands of employees and caused delays in production and delivery of defense platforms.

If the shutdown scenario comes to pass, there is a strong chance that Republicans will be forced to fold after a brief period of opposition. This is essentially what transpired during previous shutdowns in 1994, 2013, and (for the Department of Homeland Security) in 2015. The negative publicity that has tended to land on Congress in these episodes would be hard for GOP partisans to endure for long.

The Worst Possible Outcome: A Full-year Continuing Resolution

Bottom line: This is highly unlikely, but may yet occur. It would provide funding at FY2015 spending levels for all of FY2016. New starts will be pushed back or suspended. Shifts in funding identified in FY2016 budget cannot occur. DoD will spend the year trying to get Congress to pass defense appropriations. This has not happened to the Department of Defense before.

For several reasons, a full-year CR is likely the worst outcome of the various options currently being considered. A full-year CR would not provide budgetary certainty for FY2016, as ongoing attempts to pass requested changes to FY2015 funding levels (known as “anomalies”) or actual appropriations would force DoD and industry to dedicate time and effort to planning and lobbying for programmatic changes. In addition, a CR covering the entire fiscal year would further undermine the budget process and increase the costs associated with compliance, create delays to new projects, and continue unnecessary spending.

While this outcome would be very difficult for federal agencies, it is still relatively unlikely. A full-year CR would attract far less support than a short-term CR. Conservatives would oppose funding Planned Parenthood, and defense hawks and the White House would be unlikely to agree to funding levels below the sequester (FY2015 discretionary spending was $1.014 trillion and the cap for FY2016 is $1.016 trillion). However, while it remains unlikely, some anonymous aides have floated the idea of a full-year CR as a solution to the budget impasse, so the possibility cannot be ignored.

It is worth explaining why a full-year CR would be so damaging. A CR poses inherent problems for effective governance. During a CR, there are significant limitations on DoD’s ability to start new programs, end unnecessary activities, and fund changing priorities. Avascent Analytics has identified 67 new programs representing over $4.7 billion in spending that are due to begin in FY2016. A full-year CR would throw all of that into question. As former DoD Comptroller Robert Hale notes, “Sometimes the previous year’s levels leave the money in the wrong appropriations, which occurred to a significant extent in FY 2013 and added to that year’s dismal quality.” A full-year CR locks all of these problems into place, forcing the department to continue to spend money on unnecessary activities and delaying the start of new programs.

Some have argued that a full-year continuing resolution would provide DoD and other agencies greater certainty about their funding through the full fiscal year than a short-term CR (or multiple, successive CRs), even if the ultimate budget outcome is favorable. With a short-term CR, agencies would be forced to spend time and money planning for short-term fiscal deadlines. As seen in an insightful piece by Hale, “Budgetary turmoil at the Department of Defense from 2010 to 2014: A personal and professional journey,” these activities do have a cost.

However, to say that full-year CR would provide certainty is also an error. While there would be a budget topline, there would be a full-year push by various members of Congress to enact actual appropriations. The appropriations committees, in particular, would push back strongly against any attempt to remove them from the budget process. Time and energy that should be devoted towards executing on FY2016 priorities would instead be spent trying to bring the spending under the continuing resolution in line with congressional and department priorities. Thus any certainty would only be at a topline level and of little use to contractors and project managers attempting to move their programs forward.

For its part, the Defense Department would attempt to get Congress to approve a series of desired changes to FY2015 funding levels, which, under a CR, are the default standard. In order to highlight just how onerous this would be, a list of requested changes (anomalies) has already been leaked. Anyone involved in the projects on this list would face a full year of uncertainty as Congress considered whether or not to approve the requested changes.

In addition to creating uncertainty, a full-year CR would further the ongoing erosion of the existing budget process. Since the 1990s, and most noticeably since 2010, Congress has demonstrated an inability to abide by its own rules for adopting a budget. These problems have been repeatedly documented by observers of all political stripes. The president’s budget request and the congressional budgets are increasingly seen as messaging vehicles rather than governing documents, and the ability of agencies to move programs through — from the budget to authorization to appropriations — has been reduced. Prior to 2007, Congress had not adopted a full-year continuing resolution since 1992. A third full-year CR in under 10 years would be a clear, blaring signal that the budget process is broken.

Two-Year Spending Deal

Bottom line: Highly unlikely. This would involve some spending agreement between Republicans and Democrats that sets topline figures through FY2017. It would likely involve relief from the budget caps for those years through the use of some form of mandatory savings.

This outcome is preferable and palatable to most people, but it remains highly unlikely. While most parties involved would prefer budgetary certainty and avoiding a messy fight over funding during a presidential election year, few can agree upon the specifics of a spending deal: The White House has proposed lifting spending caps on both defense and non-defense spending; Republican defense hawks in Congress would prefer removing the caps on defense spending only; Republican budget hawks want to maintain both caps.

Besides contention surrounding topline spending, all parties disagree over sources of funding: Democrats favor a combination of out-year cuts and tax increases, whereas Republicans prefer reforms that cut mandatory spending. As evidenced by the low congressional productivity since 2011, Democrats and Republicans have a poor recent track record of reaching a consensus on comprehensive agreements. The bruising experience of a shutdown or the market-flattening impact of debt ceiling brinksmanship may lead Washington to focus on longer-term solutions.

Among the various options for Congress, a short-term CR followed by some type of larger deal in November or December remains the most likely. However, the possibility of a damaging shutdown or forcing the government to operate under a CR for a year remains intact. Defense budget watchers will need to follow the upcoming budget debate closely, as passage of such measures would have a significant impact on defense expenditures in FY2016 and beyond.

 

Matt Vallone is currently the Defense Platforms manager at Avascent Analytics, responsible for maintaining accurate information on ships, aircraft, and ground vehicles for over 50 countries. Prior to this position, he worked as the Legislative Director for Congresswoman Carol Shea-Porter, and was responsible for coordinating her votes, actions and positions in committee (House Armed Services and Natural Resources) and on the House floor.

 

Photo credit: Nicolas Raymond