	Introduction

The full funding policy is a federal budgeting rule that has been applied to Department of Defense (DOD) procurement programs since the 1950s. Although technical in nature, the policy relates to Congress's power of the purse and its responsibility for conducting oversight of DOD programs. In recent years, some DOD weapons—specifically, certain Navy ships—have been procured with funding profiles that do not conform to the policy as it traditionally has been applied to DOD weapon procurement programs. DOD, in recent budget submissions and testimony, has proposed or suggested procuring ships, aircraft, and satellites using funding approaches that do not conform to the policy as traditionally applied. DOD's proposals, if implemented, could establish new precedents for procuring other DOD weapons and equipment with non-conforming funding approaches. Such precedents could further circumscribe the full funding policy, which in turn could limit and complicate Congress's ability to conduct oversight of DOD procurement programs. Background

		Description of Policy

For DOD procurement programs, the full funding policy requires the entire procurement cost of a weapon or piece of equipment to be funded in the year in which the item is procured. A principal effect of the full funding policy is to prevent the use of incremental funding in the procurement of DOD weapons and equipment. Support for the policy has been periodically reaffirmed over the years by Congress, the Government Accountability Office (GAO), and DOD. Incremental funding fell out of favor because opponents believed it did (or could do) one or more of the following:
make the total procurement costs of weapons and equipment more difficult for Congress to understand and track; create a potential for DOD to start procurement of an item without necessarily understanding its total cost, stating that total cost to Congress, or providing fully for that total cost in future DOD budgets—the so-called "camel's-nose-under-the-tent" issue; permit one Congress to "tie the hands" of one or more future Congresses by providing initial procurement funding for a weapon whose cost would have to be largely funded by one or more future Congresses; increase weapon procurement costs by exposing weapons under construction to potential uneconomic start-up and stop costs that can occur when budget reductions or other unexpected developments cause one or more of the planned increments to be reduced or deferred. Although incremental funding fell out of favor due to the above considerations, supporters of incremental funding could argue that its use in DOD (or federal) procurement can be advantageous because it can do one or more of the following:
permit very expensive items, such as large Navy ships, to be procured in a given year without displacing other programs from that year's budget, which can increase the costs of the displaced programs due to uneconomic program-disruption start-up and start costs; avoid a potential bias against the procurement of very expensive items that might result from use of full funding due to the item's large up-front procurement cost (which appears in the budget) overshadowing the item's long-term benefits (which do not appear in the budget) or its lower life cycle operation and support (O&S) costs compared to alternatives with lower up-front procurement costs; permit construction to start on a larger number of items in a given year within that year's amount of funding, so as to achieve better production economies of that item than would have been possible under full funding; recognize that certain DOD procurement programs, particularly those incorporating significant amounts of advanced technology, bear some resemblance to research and development activities, even though they are intended to produce usable end items; reduce the amount of unobligated balances associated with DOD procurement programs; implicitly recognize potential limits on DOD's ability to accurately predict the total procurement cost of items, such as ships, that take several years to build; and preserve flexibility for future Congresses to stop "throwing good money after bad" by halting funding for the procurement of an item under construction that has become unnecessary or inappropriate due to unanticipated shifts in U.S. strategy or the international security environment. Issues

In considering options for responding to specific DOD proposals for non-conforming approaches, or for addressing the issue of full funding in DOD procurement generally, Congress can consider several factors, including Congress's power of the purse, congressional oversight of DOD procurement programs, future Congresses, DOD budgeting and program-execution discipline, and the potential impact on weapon procurement costs. Nevertheless, addressing such proposals may involve balancing a need to meet DOD procurement goals within available funding against the goal of preserving Congress's control over DOD spending and its ability to conduct oversight of DOD programs.
The full funding policy is a federal budgeting rule imposed on the Department of Defense (DOD) by Congress in the 1950s that requires the entire procurement cost of a weapon or piece of military equipment to be funded in the year in which the item is procured. Although technical in nature, the policy relates to Congress's power of the purse and its responsibility for conducting oversight of DOD programs. Support for the policy has been periodically reaffirmed over the years by Congress, the Government Accountability Office, and DOD.
In recent years some DOD weapons—specifically, certain Navy ships—have been procured with funding profiles that do not conform to the policy as it traditionally has been applied to DOD weapon procurement programs. DOD, in recent budget submissions and testimony, has proposed or suggested procuring ships, aircraft, and satellites using funding approaches that do not conform to the policy as traditionally applied. DOD's proposals would establish new precedents for procuring other DOD weapons and equipment with non-conforming funding approaches. Such precedents could further circumscribe the full funding policy. This, in turn, could limit and complicate Congress's oversight of DOD procurement programs, or require different approaches to exercise control and oversight.
A principal effect of the full funding policy is to prevent the use of incremental funding, under which the cost of a weapon is divided into two or more annual portions. Incremental funding fell out of favor because opponents believed it could make the total procurement costs of weapons and equipment more difficult for Congress to understand and track, create a potential for DOD to start procurement of an item without necessarily stating its total cost to Congress, permit one Congress to "tie the hands" of future Congresses, and increase weapon procurement costs by exposing weapons under construction to uneconomic start-up and stop costs. Supporters of incremental funding, however, could argue that its use in DOD procurement programs could produce certain advantages in terms of reducing disruption to other programs, avoiding investment bias against very expensive items, improving near-term production economies of scale, and preserving flexibility for future Congresses to halt funding for weapons under construction that have become unnecessary or inappropriate.
Congress has several options for responding to recent proposals for procuring DOD ships and aircraft with funding mechanisms that do not conform to the full funding policy. These options could have the effect of terminating, modifying, maintaining, or strengthening the full funding policy. In weighing these options, Congress may consider several factors, including Congress's power of the purse, its ability to conduct oversight of DOD procurement programs, the impact on future Congresses, DOD budgeting discipline, and the potential impact on weapon costs. The process of weighing options may involve balancing a need to meet DOD procurement goals within available funding against the goal of preserving Congress's control over DOD spending and its ability to conduct oversight of DOD programs. This report will be updated as events warrant.