In this dangerous world, why are we pulling back funds from the Department of Defense? 

The last few weeks have made painfully clear what’s now glaringly obvious: war is always one spark away from lighting a region on fire.  

American resources are being expended to respond to two simultaneous conflicts: the grinding war of attrition in Ukraine and the conflict in Israel that may well spiral into a regional war. While the resources being sent to these theaters are different in some cases, hard power is the common denominator. And yet, for a variety of reasons, the Pentagon has under-resourced procurement, leaving a force unfit for global requirements and making every procurement dollar increasingly valuable.  

That’s why it’s become ever more important that the Defense Department (DOD) be allowed to hold onto the funds that Congress has appropriated to it, allowing more money to be put into hard power. 

Thankfully, one member of Congress has come to the same realization. Rep. Mike Gallagher unveiled legislation last month that would reroute canceling defense appropriations into a fund within the Treasury meant for three purposes, all of which are geared toward the Indo-Pacific: munitions, shipbuilding, and infrastructure investments in the region.  

According to Gallagher, had the fund been established in time for the end of the last fiscal year, the department would have been allowed to retain $11 billion in now canceled funds. And had the fund been created a decade prior, the Pentagon would have held onto over $125 billion to address our top geopolitical challenge of China. 

Gallagher’s bill is a smart step toward allowing the Pentagon to hold onto the funds that Congress has provided it, preventing those dollars from flowing back to the Treasury and being appropriated for a purpose other than defense. But, on a deeper level, why was this legislation even proposed? In other words, why can the department not spend its dollars fast enough, leaving billions on the table at the end of the fiscal year? 

The answer is that the executive branch exercises a sort of de facto impoundment on the Pentagon’s dollars, layering on social and regulatory constraints that are an annoyance at best and at worst a wrench in the Pentagon’s already slow-moving process to obligate funds.  

Just look at the timelines for DOD contract awards; when it comes to Army contracts, it can take an average of roughly seven to 20 months to award a $1 million to $10 million contract and up to two years for anything larger. Add in a Congress that defaults to continuing resolutions nearly every fiscal year and you have a situation where even if the Pentagon makes it past these regulatory and social hurdles, it has less than a year to spend appropriated funds. The problem is further compounded by the ticking time limits on defense appropriations, most notably operations and maintenance and military personnel, funds which must be spent within one year. 

Cancelled funds aren’t a problem specific to the Department of Defense. As the Government Accountability Office has noted, plenty of other agencies, from the Department of Education to the Department of Health and Human Services (HHS) and others in-between, have funds canceled if they’re not spent. In fact, it’s the law for time-limited appropriated funds to cancel after a five-year waiting period.  

What makes DOD different is that it lacks mechanisms to reroute expired funds away from being returned to the Treasury. This is unlike other federal departments, such as HHS, which has a Nonrecurring Expenses Fund that puts unobligated balances of expired funds toward capital acquisitions like facilities infrastructure and information technology. The Department of Veterans Affairs operates a similar pool of money called the Recurring Expenses Transformational Fund, which also transfers unobligated balances of expired dollars into infrastructure improvements. The fact that Congress has allowed these kinds of funds to flourish for domestic purposes but not for national security reasons is astonishing and extremely troubling.  

There has long been a rather disingenuous debate by advocates of a mandatory spending bait-and-switch policy to achieve parity in defense and non-defense discretionary spending levels as a way to reduce defense spending. It’s time that advocates for sufficient defense spending talk about parity in a more appropriate way – in terms of rules and regulations that reflect how expired appropriations can be treated. That discussion would put us one step closer to creating a fund for these canceled defense appropriations and, in turn, one step closer to making our dollars go further, with the ultimate aim of bolstering deterrence in the Indo-Pacific.  

With no guarantee of what may happen tomorrow, and in need of defense dollars wherever we can find them, allowing the Defense Department to retain funds for which it has been appropriated is a smart step to building hard power. 

Bill Greenwalt is a nonresident senior fellow at the American Enterprise Institute (AEI) think tank, a former senior staffer on the Senate Armed Services Committee and a former deputy undersecretary of defense for industrial policy. Charles Rahr is a research assistant at AEI.