The Next National Defense Strategy Will Be Shaped by Post-BCA Budget Instability

The Bottom Line

Starting in fiscal year (FY) 2022, the end of the Budget Control Act (BCA) will increase instability in the budgetary environment. For the Department of Defense (DoD) to craft an effective new National Defense Strategy (NDS) and successfully implement it in the following years, it must take this uncertainty into account and plan for it accordingly.

• Uncertainty in budgets will continue to wreak havoc on the department’s ability to implement a strategy. Therefore, the DoD should prioritize long-term budget certainty over exact dollar amounts in future agreements. The department cannot make informed choices about strategy, choices that take years to study and implement, if the budget topline is unknown and constantly changing.
• The strategy should be aligned with the major assumptions of the president’s budget request, not only for the immediate fiscal year but also for the 10-year projections. DoD must be clear about how the strategy is driving the budget request.
• The strategy must take uncertainty into account. The new NDS should be written to absorb strategic risk should the budget situation remain unreliable. That risk should be well understood by all parties.

Introduction

As of August 2019, the BCA is no more. In an attempt to rein in the federal deficit, the BCA had created 10 years of discretionary caps for defense and non-defense spending, and instituted a mechanism called sequestration, which involves automatic and uniform cuts across the entire budget to enforce those discretionary spending caps. After years of the BCA being decried as the greatest threat to national defense, there was little to no mention or fanfare when it finally ended. No doubt the BCA had negative impacts on the military, but the post-BCA world will lead to greater uncertainty for the federal budget. This will ultimately impact the department’s ability to implement the next National Defense Strategy. The DoD should take into account this new environment as it crafts not only the next NDS, but also the budgets that are meant to support it.

The End of BCA Leads to Greater Uncertainty

Under the BCA, Congress and the White House negotiated five separate budget agreements. Toward the end, there was a clear understanding of the “asks” from each of the various participants, as they were fairly consistent. Examples of the demands were for dollar-for-dollar parity between defense and non-defense discretionary spending; the greatest amount of offsets possible, meaning cuts in spending to balance the increases; two-year agreements instead of one-year; and the use of Overseas Contingency Operations accounts as a pressure release valve. Many of these bases for negotiations are gone or will drastically change now that the BCA discretionary caps no longer apply.

An illustrative example is the dollar-for-dollar construct, or parity principle. It is the most prominent aspect of the recent budget agreements. The Democratic Party’s top priority in budget negotiations was that for every dollar the Department of Defense received above the discretionary caps, the non-defense budget would receive the same. For example, the Bipartisan Budget Act of 2015 increased spending for defense and non-defense by $25 billion each above the discretionary caps for FY2016 and by $15 billion each for FY2017. To argue for parity, there must be an agreed-upon baseline; this is what the BCA provided. For fiscal year 2022 and beyond, there is no clearly agreed-upon baseline between the political parties or between the executive and legislative branches of the U.S. government.

Of course, there are other ways to frame the age-old guns versus butter debate besides dollar-for-dollar increases. However, the important takeaway is that parties and branches will need to reset their respective arguments and identify what are truly the immovable positions of their counterparts. This will add new complexities that will require more negotiating time. The argument for parity is only one of those that will have to change in the post-BCA environment. Republican requests for offsets and how to calculate them will also be a contentious issue without the BCA discretionary spending caps. All told, with potentially new players and unclear priorities, the next budget agreement is unlikely to be similar to the previous five.

The Lure of the Continuing Resolution

It is worth noting that an increasing number of members of Congress and even the current administration dislike budget agreements, which necessitate compromise, have wins and losses for both parties, are mundane, and are difficult to negotiate. These agreements typically lead to trillion-dollar bills with some additional unrelated policy provisions attached. For this reason, budget agreements are often tied to must-pass legislation or deadlines, for example extending the federal debt limit to avoid default. Must-pass legislation generates enough incentive and support to negotiate and pass budget agreements that on their own would not have enough votes. Besides raising the debt ceiling, other must-pass situations used to incent budget negotiations include avoiding a government shutdown or preventing sequestration.

Some of the urgency necessary to reach a budget agreement was provided in two ways by the BCA. First, it set discretionary spending caps for defense and non-defense. These caps were purposefully low, initially to incentivize the Joint Select Committee on Deficit Reduction to come to agreement on legislation to reduce the debt. When the Joint Committee failed, the lower spending caps ultimately incentivized Congress and the White House to reach budget agreements built around raising the caps. The second form of BCA-provided incentives was the enforcement mechanism of the discretionary caps—sequestration—whereby all programs and activities would be cut by a uniform percentage until spending was at or below the discretionary cap. Sequestration was used only once, in 2013, and it unsurprisingly had terrible effects on the military. Then–Secretary of Defense James Mattis testified in 2017 that “no enemy in the field has done more to harm the readiness of our military than sequestration.”¹ Since then, the fear of sequestration has helped drive greater support behind budget agreements.

Budget agreements and large omnibus appropriations are not the only way to fund the government. Congress often relies on continuing resolutions (CR) as a short-term solution to keep the government open until budget agreements are made to allow for appropriations bills. A CR funds the government at prior-year spending levels, but the mechanism prevents the government from moving any of the money around. Therefore, under a CR, there are no new activities, or even growth or reductions in spending from previous years for all programs. Delays in reaching a budget agreement simply extend the time that government is funded on a CR.

On their own, CRs are not harmful enough to incent a budget agreement. For many federal agencies, a CR is inconvenient but not damaging. DoD is unique in that the CR is more damaging because of the high number of development and procurement programs and the very detailed nature of the defense budget. Despite this, DoD has had a lot of practice functioning under a CR, and consequently is quite good at mitigating the effects. Thus, CRs are often an acceptable way to fund the government and thereby avoid dealing with the more difficult budget agreements and appropriations bills.

Another reason a CR may be attractive is that it locks in prior-year funding levels. The fiscal year 2021 budget levels for defense and non-defense are high, and possibly represent a peak. If either the budget request or congressional leaders indicated a desire to reduce spending, a CR would likely result in higher budgets than would a budget agreement, but the funding would likely be misaligned and inflexible.

What It All Means for DoD

DoD is going to have to navigate this budget uncertainty while implementing the new National Defense Strategy. As evidenced from the past several years, it takes time to implement change within DoD. While the NDS currently in effect drastically changed the priorities for DoD, very little changed in the budget for the first several years to realign programs to the new strategy. The NDS was released in early 2018, and changes to support it were expected be reflected in the FY2019 budget request—but there were no significant changes.² The DoD leadership then promised that the FY2020 budget would be a “masterpiece” in regards to reshaping the budget to match the NDS, but again there was little to show for it.³ DoD was still proposing major reprioritizations in the fiscal year 2021 request, and still has considerable work to do. Items such as the updated Fleet Architecture Study, or implementation of the new Marine Corps force design remain works in progress.

To be fair, these are all difficult decisions that require time and study. As DoD crafts the next NDS, so too will it have to make force planning decisions to implement the strategy. It cannot do so if the budget topline is dramatically shifting every few years. DoD can only make decisions, and more specifically tradeoffs, on matters such as force size, or how to leverage technology to maintain key military advantages, if it has a general idea of its budget during the period in question. With so many variables, DoD needs a constant, and that should be the budget topline. Thus, it is more important to have certainty in the budget topline than in higher levels of spending. To put it succinctly, given the choice, DoD should prioritize a four-year budget agreement even if it means a lower topline.

DoD also must properly communicate the actual budgetary requirements necessary to support the strategy. With the 2018 NDS, the common recommendation for spending was 3 to 5 percent of real growth annually. This budgetary recommendation was weak, unclear, and unjustified. The upcoming NDS must come with a clear recommendation for budget levels and force sizing requirements. At the macro level, the NDS and the administration’s budget request should be aligned. This includes not only the FY2022 budget request, but also the full 10-year projection. If the president’s budget does not show real growth in defense spending, then the NDS should not require a 400-ship Navy, for example. While it is unrealistic to assume that the fiscal year 2022 budget will include all the necessary changes to support a new strategy, in general the topline budget request and the strategy should share the same set of assumptions regarding the direction of the military.

More important, if the new NDS maintains one of the key features of the 2018 NDS—the prioritization of threats and responsibilities—then the strategy should be flexible enough that it can be implemented even with fewer resources. It is very possible that as the budget negotiations evolve, DoD will be asked to make do with less, and DoD must be in a position to articulate which roles or missions will be at risk due to potential cuts. Ultimately, DoD is the only organization that can link its budget to the strategy, and thus it has a responsibility to communicate the impacts of resourcing outcomes.

Recommendations

The best way for Congress to support the implementation of the NDS is to fund it. However, for Congress to do so effectively, DoD must properly advocate for a strategy that drives the budget. To do so, DoD must:

• Value certainty over spending levels. The priority for DoD should be achieving budget certainty, rather than higher dollar amounts. DoD cannot make good decisions about reshaping the force, or tradeoffs, if the budget level is unknown.
• Align the NDS and accompanying budget request. Whether the NDS informs the budget request or the other way around, the two documents need to be aligned at the macro level.
• Be able to explain the risk. Implementing a strategy is not binary. If the defense budget is less than requested, DoD should be able to succinctly explain which actives or missions will be at higher risk. This is actually the best way for DoD to advocate for its budget request.

Conclusion

Of course, no one can ever precisely predict what will happen on any given issue in Washington, DC. But considering that in the past 11 years, DoD has started out under a CR for 10 of those years, the odds are very low that there will be greater budgetary certainty. A strategy is only as good as the implementation, and DoD is the only institution that can and should make the argument for an NDS-driven budget. The role of Congress and the administration is to balance that argument against those from competing interests—which, in the view of some, are of higher priority than national defense.

About the Author

Diem Salmon currently leads strategy and business development for advanced aircraft and weapon systems at Anduril Industries. She has worked on defense budget issues for more than 10 years in multiple roles in organizations ranging from think tanks to the private sector. Most recently, she served as the Budget Director and Deputy Policy Director at the Senate Armed Services Committee.

Learn More

From July to December 2020, CNAS will release new papers every week on the tough issues the next NDS should tackle. The goal of this project is to provide intellectual capital to the drafters of the 2022 NDS, focusing specifically on unfinished business from the past several defense strategies and areas where change is necessary but difficult.