The Biden administration is poised to absorb the Pentagon’s ‘slush fund’

On May 6, Defense Secretary Lloyd Austin said he believes the U.S. withdrawal from Afghanistan is likely to create “opportunities” to redirect Pentagon spending. “Certainly, any time you stop doing something that is this important and this big, it creates opportunities,” he said. The statement was a signal that, in a major break with precedent, the Biden administration intends to simply roll excess war spending back into the Pentagon’s base budget. As the wars come to an end, Congress should demand greater understanding and accountability for those funds, as well as the designation that allowed the money to grow outside recent budget caps. What’s more, Congress should demand the topline savings Americans expect to enjoy at the end of a war.

We don’t know much about the parameters of President Biden’s first budget, but one thing we do know is that the “emergency” Overseas Contingency Operations (OCO) designation, long derided as a slush fund, will cease to exist — at least in name. This budgeting sleight of hand might look like progress. In reality, the administration looks poised to absorb decades of creeping cost growth once justified, if only rhetorically, by the wars. The fact is that OCO, as originally intended, ceased to exist long ago.

Traditionally, at the onset of war, operations are funded as emergency appropriations. Historically, in the latter years of a conflict, when costs have become more predictable as the war winds down, some or all of this spending has been moved into the base defense budget. The Iraq and Afghanistan wars disrupted this pattern. Beginning with the U.S. invasion of Afghanistan, war-related funding was initially provided through the use of emergency appropriations, as in the past. Later, this ongoing supplemental funding was designated “Overseas Contingency Operations” (OCO). 

These supplemental war funds eventually rose to levels not seen since the Korean War. But as the wars began to draw down, OCO dropped more slowly. At its peak, in fiscal year 2008, OCO spending rose to $187 billion. At this time, 154,000 troops remained in Iraq and 33,000 in Afghanistan, for a total of 187,000. That’s around $1 million per troop. OCO decreased steadily after this time, eventually hitting a low point of $59 billion in FY2016. With about 4,000 troops in Iraq and 6,000 in Afghanistan, the cost of a single troop had ballooned to $5.9 million.

As force level assumptions rose in the following years, this cost remained high, but no matter. In September 2016, the Department of Defense (DOD) acknowledged what budget-watchers already knew: OCO was no longer simply a tool to fund the wars. Nor had a few closely related requirements simply begun to seep in. OCO was now being used explicitly to fund DOD’s enduring and base requirements to the tune of about $30 billion.

Eventually the budget documents came to reflect this fact, with separate line items for “Enduring” and “OCO for Base” requirements, and those numbers came to encompass nearly the whole of OCO. In its FY2021 request, the Pentagon estimated that $48.5 billion of its $69 billion request for OCO — 70 percent of its request — would fund enduring or base requirements. According to GAO, however, “few details exist as to what makes up these enduring costs or how they were derived, raising questions about how much should be included as future requirements.” 

Now, it appears the Biden administration is set to do away with the OCO designation once and for all, absorbing these funds back into the base budget where they belong. Lawmakers have applauded this move toward fiscal responsibility. And they should. But what they seem to have missed is that, in doing away with what was once termed a “slush fund,” the Biden administration has avoided having anything to say about the slush itself.

Thanks to OCO, the Defense Department’s base budget has grown largely unchecked in the years since the height of the wars. As the cost of a single troop increased nearly sixfold, so did the opaqueness of base spending. This is one reason Austin might seek to simply roll these funds back in. But even after accounting for cost growth, $20 billion in savings is nothing to scoff at.

As lawmakers ready to consider the president’s full budget submission this month, they should look closely at the history of OCO and the danger of repeating the same mistakes through new initiatives. It is still unclear to what extent President Biden’s proposed $715 billion topline in fiscal year 2022 might be revised to account for his planned withdrawal from Afghanistan. If it is not, lawmakers should demand those savings. Otherwise, the administration will have used the end of a war to significantly increase topline Pentagon spending without regard for strategy, policy, or fiscal responsibility.

Laicie Heeley is the founder and editor of Inkstick and the host and executive producer of the PRX- and Inkstick-produced podcast, Things That Go Boom. She is a partner with the Truman National Security Project and a former fellow with the Stimson Center’s budgeting for foreign affairs and defense program. Follow her on Twitter @laicie.