January 23, 2006
Defense Budget Tutorial #2: Smoke and mirrors in Congress’ Defense Appropriations bills
The Smoke and Mirrors in Congress’ Defense Appropriations Bills: You’ll need a Rosetta Stone
Understanding how Congress allocates spending in the defense budget requires a comprehension of obscure terms, opaque practices, and sometimes complex ruses. The explanation below of the gimmicks in Congress’ 2006 Department of Defense Appropriations Act is based on over 30 years of experience in congressional appropriations. Some of that experience was in crafting the very same dodges explained below; there did, however, come a point during the author’s Hill career when the focus shifted to opposing the same.
“Defense Budget Tutorial #1” established that Congress appropriated $454.5 billion for the Department of Defense in H.R. 2863, the DOD Appropriations Act, which is now Public Law 109-148. The amount constitutes most, but not all, of what the Defense Department will get in fiscal year 2006. The question here is, how did Congress distribute that money, and what does that say about the nature of Congress’ exercise of its “power of the purse?”
Appropriations Bill Basics
To understand the defense appropriations bill, it is necessary to briefly review its basic contents. These bills are typically divided into eight categories, or “Titles,” as follows:
Military Personnel: funds the pay, benefits, and pensions for people in the military services, both active duty and the reserves; also included are housing allowances, some travel costs, and social security contributions. The amount appropriated for 2006 was $97.0 billion, $1.2 billion less than what the president asked for in his budget request.
Operation and Maintenance (O&M): a very diverse account that includes the costs to operate forces (i.e., gasoline, food, clothing, logistics, and more), upkeep for military facilities, weapons maintenance at DOD depots, training and military exercises, most transportation costs, spare parts, ROTC, all civilian salaries in the Pentagon, and almost anything else that doesn’t fit in the other parts of the budget. For 2006, Congress appropriated $123.6 billion, $3.3 billion less than the president’s request.
Procurement: the purchase of major hardware items for all military services (procurement of “minor” items, such as some spare parts, occurs in the O&M budget). Congress appropriated $76.5 billion; $100 million less than president’s proposal.
Research, Development, Test and Evaluation (R&D): the development and testing of all hardware. The 2006 appropriation was $72.1 billion, $2.7 billion more than the White House request.
Revolving and Management Funds: the financing of transactions between components inside the Department of Defense and to support some shipbuilding. The 2006 appropriation was $2.3 billion, $800 million less than the request.
Other DOD Programs: constituting the Defense Health Program (89 percent of this category), plus chemical munitions destruction, and the DOD Inspector General. Congress increased the request by $400 million to $22.7 billion.
General Provisions: a hodge-podge, varying from adding pork spending for Alaskan military bases, fisheries, and natural gas pipelines, in addition to protection for American producers of steel plate and anchor chain from foreign competition, support for specific military retirement homes, road building projects, museums, and other more significant purposes, described in detail below.
The Lure of “Emergency” Spending
In the last few years, these “Titles” have been supplemented by an additional Title IX, often called “Additional Appropriations.” This year, it amounted to $50 billion, none of it requested by the president. Its declared purpose is to pay for ongoing military operations in Iraq and Afghanistan.
This money has a unique characteristic. It is “emergency” spending, which has had a specific legislative meaning since a 1991 budget agreement between Congress and President George H.W. Bush. “Emergency” spending is appropriations that do not count in the “spending caps” Congress imposes on itself for appropriations. For example, the 2006 congressional budget resolution imposed a “cap” on the DOD Appropriation bill at $402.3 billion. The $452.8 billion Congress appropriated for that bill was, of course, way over that limit. However, $50 billion for Iraq and Afghanistan in Title IX and $5.9 billion in Hurricane Katrina and avian flu expenses in other parts of the bill, were all exempted from being “scored” to the cost of the bill because they are designated as “emergency.” Thus, the $452.8 billion bill fits under the $402.3 billion “cap” with room to spare.
More to the point, the “emergency” (budget restraint exempt) characteristic of such Title IX’s provide Congress, and its budget gamers, an incentive. If Congress can find a pretext to move programs from the regular part of the bill, where the spending counts, to Title IX, where the money does not count, then Congress can advertise itself as saving money. That is precisely what is going on.
The Procurement Dollar Shift
The stunt is readily apparent in the procurement accounts of both the regular part of the 2006 bill and in Title IX. Peppered throughout the small print of the procurement accounts of both are programs labeled “transfer.” For example, in the account for “Aircraft Procurement, Army” on page 249 of the regular part of the 2006 conference report, one can find the notation “Transfer to Title IX” for $11.2 million deducted from the president’s regular annual request to purchase “aircraft survivability equipment.” The money is added back in on page 477 in Title IX, where the money becomes “emergency” spending.
Why not? One might ask. Surely aircraft survivability is a legitimate requirement in Iraq and Afghanistan. Certainly, but the point here is that Congress took spending the president requested for normal peacetime procurement costs and moved it to the “war” account, where by the way, the money was not increased for the additional likely war expenses over and above peacetime requirements to purchase such equipment.
The author counted 17 of these transfers from the peacetime procurement account to the “emergency” war spending account for a total of $654 million.
There appear to be additional shifts that are not identified as “transfer” in the small print. The author counted four that move an additional $107 million in spending. That makes a total of $762 million that Congress moved from spending accounts where the money is counted to measure “budget restraint” to accounts where it is not counted.
However, Congress reduced the president’s $76.6 billion procurement request by only $100 million. The $762 million transfer out of the bill is not reflected. What happened? Congress simply added spending, but only enough to preserve a $100 million “savings.” The money was spent on many programs, including one F-15E fighter-bomber ($65 million), two “Littoral Combat Ships” ($440 million), and a host of other much smaller purchases, numbering in the hundreds. These are the projects that mean more spending for the states and districts of the senators and representatives adding them. The “congressional add-ons” (pork) are broadly touted in press releases to the folks back home. Some members of Congress send out numerous such press releases to separate regions and cities in the states and districts.
It’s a pretty clever system. The Congress can assert it is exercising “budget restraint” by imposing a modest $100 million cut on the procurement budget proposed by the president. But few procurement programs are actually cut (many are just moved to the “emergency” account), and the members get to add a several hundred million dollars in spending for their home states and districts.
The Mega Gimmicks
Typically, members of Congress are far from satisfied with just several hundred million dollars in “pork” for 50 states and 435 congressional districts. In recent years, the pork ad-ons to the peacetime portions of the defense bills have been on the order of magnitude of $8-12 billion. And yet, the peacetime portions of these bills rarely exceed the amount requested by the president, and they often are a few billion lower, such as the $4.4 billion reduction advertised for 2006.
How can you add as much as $12 billion while simultaneously reducing the bill by a $4.4 billion?
Here are a few of the major gimmicks.
“Unobligated Balances.” In the Military Personnel and O&M accounts, Congress cuts $872 million and $333 million, respectively, for “unobligated balances.” What on Earth are those? “Unobligated balances” are simply funds that have not been spent — yet. The money coming out of the Military Personnel account could have been intended for payroll costs, but for some reason the expense either will not occur at all or will not occur on the planned schedule. It could be that the expense is no longer required, or it could be that it is still needed, but the payment will be due later than anticipated. It will remain a mystery; nowhere do either of the Appropriations Committees explain why the money is being cut or even where in these huge accounts it should be cut.
The Military Personnel and O&M accounts are strange places to cut money during a war, when personnel and operating expenses, such as manning and training, should increase, not slow down. It’s entirely possible that the Appropriations Committee staff who crafted this reduction know that and fully intend for the money to shift to wartime costs in Title IX of the bill, the “emergency” fund for war costs. However, there is no evidence that these unobligated balances are restored in Title IX in any notations in the conference report. Indeed, nothing in the conference report sheds light on the matter, other than that the appropriators are extracting that amount of money out of the regular bill because it is deemed to be “unobligated balances.” Thus, when $1.2 billion disappears from the peacetime bill, its fate is left unaccounted to the public.
“Cost Avoidance.” Basically, the same thing is occurring in the portions of the Military Personnel account for the Reserves and the National Guard. There, virtually every component is tapped for unexplained “cost avoidance” for a total of $318 million. Are Reserves and National Guard personnel costs going down in a time of war? That’s hard to conceive, and again in Title IX there is no sign whether the money is moved there. Fate unknown.
These actions, and their being unexplained as either spending to be eliminated altogether or simply transferred to Title IX, are just the tip of the iceberg. The peacetime O&M account is crammed with other examples.
Congress reduced “Peacetime Training” and “Operations Support” by a whopping $1.3 billion. There is no identifiable addition of the money back into Title IX. It is unclear whether this funding for training is to be eliminated altogether or just transferred to the “emergency” account.
Depot maintenance (of weapon systems) for various military services is reduced by $631 million. Almost $2 billion is added in Title IX for Depot Maintenance; it appears that Congress is funding both peacetime and wartime depot maintenance costs in Title IX.
Funding for converting civilian jobs filled by military personnel back to jobs filled by civilians is being reduced by $282 million. This program was intended to make more military personnel available for war related tasks. There is no apparent add-back-in Title IX. It is not possible to discern if the money is cut altogether or simply transferred.
Financial Management is cut by $103 million in the peacetime bill. There is no apparent add-back-in Title IX. It appears to be a genuine reduction. However, for more than 20 years DOD has flunked audits by GAO and the DOD Inspector General. Given the Pentagon’s persistent incompetence in this basic peacetime management skill, it is a strange place to cut costs and activity.
And so on. Other arbitrary reductions in the all-important O&M budget (the budget that enables our forces at home to be properly trained and deployed with working weapons) amount to $1.6 billion. Added to the O&M reductions noted above, the total (so far) comes to $4.2 billion.
The Mayhem in General Provisions
Reading legislation is never fun; at best, it’s dry, obtuse, and legalistic. However, if there is such a thing as entertaining reading in defense appropriations bills, it occurs in “General Provisions.” These titles are typically a menagerie. In this year’s bill, the provisions go on for 129 different sections in over 35 pages. Strangely, the “explanatory materials,” which one would expect to be even longer, are only four pages. For good reason. There’s much in the General Provisions that members of Congress would probably prefer no one to understand. There’s funding for military museums, youth organizations, new roads, the Alaskan natural gas pipeline, the Civil Air Patrol, Indian lands, the Boy Scouts, retirement homes, Israeli “anti-missile” missiles, and the Red Cross, among other things.
Several other provisions take yet another whack at the O&M budget.
Another $265 million is extracted from O&M as “savings” due to “efficiencies and management improvements.”
$100 million is taken from O&M to “limit excessive growth in … advisory and assistance services.”
$195 million is extracted to reflect “revised economic assumptions.”
$92 is taken out to reduce travel.
$250 million is cut “to reflect cash balance and rate stabilization.”
Many, if not most, of these “savings” are quite phony. The Office of Management and the Budget frequently complains that these reductions are arbitrary and really only mean that DOD’s important readiness programs will be cut. For example, on June 16, 2005, OMB complained to the House Appropriations Committee that the Committee’s “reductions in the General Provisions …. could damage the readiness of U.S. forces and their preparedness.” What OMB is, in effect, saying is that DOD is unable, or unwilling, to effect real savings (i.e. eliminate inefficiencies), and these provisions actually amount to cuts in O&M programs, potentially including training, base repairs, depot maintenance and other readiness-related activities.
In some cases, the amount “saved” is derived from specious calculations. For example, the “savings” in “rate stabilization” can assume changes in foreign currency fluctuations in favor of the dollar many months in advance, a prediction that any prudent financial adviser would be very reluctant to make. In some past cases, these reductions and across the board cuts are reverse-engineered: in other words, the Appropriations Committee leadership decides how much money it needs to “save” and the staff writes provisions to come to that exact amount.
These General Provisions amount to another $950 million cut from O&M.
There are more. Congress adds numerous pork projects in the General Provisions title, “earmarked” to the O&M account, but no new money is added to pay for them. Thus, DOD must reduce other O&M programs to pay for them. In this year’s bill, these O&M “earmarks” in General Provisions add up to $268 million.
The total of Congress’ additional cuts to the O&M budget from General Provisions comes to $1.2 billion.
In General Provisions, Congress also takes some more whacks at the Procurement and R&D accounts. An annual favorite is “revised economic assumptions.” Procurement is reduced by $264 million; R&D by $312 million (and per above, O&M is reduced by $195 million). These cuts are justified by revised estimates of future inflation. (They are not adjustments based on inflation rates that actually occur; they simply replace one prediction into the future with another.) They are a perennial exercise, and for unexplained reasons, when the new predictions foresee higher inflation, or when actual inflation data arrives to compare to past predictions, adjustments are not made.
The author counts an additional $874 million in earmarks, transfers, and cuts specified in General Provisions, bringing the grand total of reductions specified in this title to $2.1 billion.
Grand Total and Why?
All in all, the reductions and/or transfers in all the titles of the peacetime parts of the bill (e.g. the unobligated balance “savings” in Military Personnel and the depot maintenance reductions in O&M) come to a grand total of $8.3 billion. Add to that, the many projects that Congress added to the bill without adding the money to pay for them (thus, forcing DOD to make additional reductions to finance the projects), and add to that any gimmicks and devices this author was unable to uncover, and the total will come to something approximating $16 billion.
That’s how you add up to $12 billion in pork projects while simultaneously reducing the apparent total of the bill by the $4.4 billion advertised by the Senate Appropriations Committee. Recall, however, that no such amount was “saved.” Instead, much of the asserted savings were, in reality, transfers to Title IX, where the money can be added but not “scored.”
It’s a well-cloaked set of dodges allowing Congress to add spending, mostly for pork, while advertising its bill as saving money. Worse, as members tout their patriotism and their heartfelt support for the troops on the battlefield, they simultaneously raid the very accounts that pay for training, weapons maintenance, and other wartime readiness to pay for the pork the same members cram into the bill.
And, so far at least, no one is the wiser.
# # #
 The totals for each title cited here do not include the one percent across the board cut enacted by Division B of the 2006 DOD Appropriations Act. That reduction is discussed in “Defense Budget Tutorial #1.”
 There will be additional discussion of such “pork” projects in the next “Defense Budget Tutorial.” For an extended discussion of the congressional pork process, see the author’s book “The Wastrels of Defense,” especially the chapters entitled “Confessional of a Pork Processor” and “Pork Lows and Highs.”
 For example, see one of five press releases offered by Sen. Hilary Clinton, D-N.Y., on spending she touted as added for western New York state at http://clinton.senate.gov/news/statements/details.cfm?id=249989.
 See “Conferees Approve FY 2006 Defense Spending Bill,” U.S. Senate Committee on Appropriations, Press Release, Dec. 17, 2005, p. 1.
 When alerted by the author of a $250 million reduction in Army training in the peacetime part of the bill, a conscientious House staffer called the Appropriations Committee to ask why the money was eliminated. He was told that the money was not cut but transferred to Title IX. When asked where the money was moved to, the appropriations committee staffer responded it was in an account labeled “Rapid Fielding Initiative; Force Protection; IBA,” all budget activities that have little, if anything, to do with training. The appropriations committee staffer provided no further information; it is impossible to tell whether and how much peacetime training money was moved to this Title IX account, or whether, in truth, the money was reduced, or even eliminated, thereby reducing Army training in a time a war, an action the politically sensitive appropriations committee staff would be hesitant to admit.
 There are scores of Government Accountability Office and DOD Inspector General reports since the 1970s documenting DOD’s horrendous record on financial management.
 Statement of Administration Policy, Office of Management and Budget, June 16, 2005, H.R. 2863 – Department of Defense Appropriations bill, FY 2006, p. 2.
 Congress does not permit these cuts to impact the unrequested projects it adds to the O&M account for member’s states and districts. Those “congressional interest items” can only be cut if specifically requested by DOD and the request is explicitly approved by the Appropriations Committees.
 There are hundreds more of these “earmarks” added in the O&M title; there also, new money is not added to pay for them, and DOD must “eat” the cost.
 Added to the other reductions and transfers directed from within the O&M account, and discussed earlier, the grand total reduction to O&M appears to be $5.4 billion.
 For example, see Senate Committee on Appropriations press release, op. cit., p. 1.
Author(s): Winslow Wheeler