	Designating War Funding to Meet Spending Caps

In the current debate on the level of FY2016 defense spending, Congress is considering how to stay within the spending limits, or caps, set by the Budget Control Act (BCA) as amended ( P.L. 113-67 ). Under the BCA, all defense spending for the defense base budget—excluding amounts designated for "Overseas Contingency Operations" (OCO) or emergencies—is subject to annual BCA caps for FY2012-FY2021. If enacted appropriations exceed these limits, the President is required to levy a sequester or across-the-board spending reductions to achieve the savings and meet the limits. For funds to be considered OCO funding and essentially exempt from BCA caps, Congress must first designate funds on an account-by-account basis in an appropriations bill and the President must subsequently do the same, typically in a letter to Congress after enactment. The OCO designation therefore requires a consensus between the legislative and executive branches on the status of the funds. The President, some Members of Congress, and military leaders have voiced concerns that the FY2016 BCA defense spending caps—set at $2 billion above FY2015 spending caps in FY2016 and increasing by about $11 billion annually through FY2021—are insufficient to meet defense needs. Congressional Action

The President's FY2016 national defense request of $561 billion for the base budget exceeds the BCA cap by $38 billion, providing defense with a 6.8% annual increase. To meet the BCA cap, Congress would need to cut the base budget defense request by 6.8% in FY2016. As part of this year's debate about defense spending, the FY2016 annual budget resolution ( S.Con.Res. 11 ) and the National Defense Authorization Act as passed by the House and Senate propose to transfer and designate funds totaling $38 billion from the defense base budget spending to Title IX where OCO funding is specified. Similarly, the FY2016 House-passed Defense Appropriations bill ( H.R. Potential Implications

If the President does not designate the transferred funds as OCO, those funds would count as part of the base budget, which would breach BCA spending levels and trigger a sequester. On the other hand, if a CR included defense spending levels that exceeded BCA caps and non-defense funding levels were set at BCA caps level—positions opposed by the Administration—then the President might not sign the CR. Designating Base Budget Funds as OCO

DOD and other Administration officials have argued that designating base budget funds as OCO and transferring them to the OCO title could complicate defense budgeting by setting up a one-year spike in funding that might not be "sustainable" (i.e., not followed by higher levels in later years). The President, some policymakers, and Members of Congress have called for raising BCA caps for both defense and non-defense, as was done in the Ryan-Murray compromise in the Bipartisan Budget Act of 2013 ( P.L. Finding offsets, either in mandatory programs or by raising taxes to offset increases above BCA caps, could be problematic. At the same time, U.S. deployed troop levels in Iraq and Afghanistan, the main factor in setting OCO funding levels, are slated to fall 15,700 in FY2015 to 10,000 in FY2016, and to an "embassy presence" of about 1,000 by January 1, 2017.
In the FY2016 debate on the level of defense spending, Congress is considering how to stay within the spending limits, or caps, set by the Budget Control Act (BCA). Under the BCA, all defense spending for the defense base budget—excluding amounts designated for "Overseas Contingency Operations" (OCO) or emergencies—is subject to annual BCA caps.
For funds to be counted as OCO funding that is essentially exempt from BCA caps, Congress must first designate funds in law on an account-by-account basis, and the President must subsequently do the same. The OCO designation therefore requires a consensus between the legislative and executive branches on the designation and is independent of any particular criteria about the types of expenses that would be covered.
The President, some Members of Congress, and military leaders have voiced concerns that the FY2016-FY2021 BCA defense spending caps—set at $2 billion above FY2015 spending caps in FY2016 and increasing by $11 billion annually after that—are insufficient to meet defense needs. Others have suggested that Department of Defense (DOD) planning has largely accommodated BCA caps. The President's budget request plan exceeds BCA caps by $182 billion, or 5%, for FY2016-FY2021 rather than the trillion dollars in savings originally needed. BCA caps are slated to rise from $523 billion in FY2016 to $590 billion in FY2021, setting defense spending at a real freeze (i.e., the same level adjusted for inflation) in later years.
The President's national defense request of $561 billion for the base budget, including $534 billion for the DOD, exceeds the FY2016 BCA cap by $38 billion. To meet the cap, Congress would need to cut DOD's base budget request for defense spending by 6.8% in FY2016.
The FY2016 annual budget resolution (S.Con.Res. 11), the National Defense Authorization Act (NDAA) as passed by the House (H.R. 1735) and by the Senate, and the appropriations bills funding DOD (H.R. 2685 as reported by the House and H.R. 2029 as passed by the House) all propose to transfer about $38.5 billion from the defense base budget to OCO-designated funding. If the President also designates these as OCO, they would not breach BCA caps and would not require offsets as in previous BCA amendments. If signed by the President, these bills would increase defense spending but stay within BCA caps. This would bring OCO-designated spending to $89 billion, 75% above the request at a time U.S. troops deployed to Iraq and Afghanistan are projected to fall from 15,700 in FY2015 to below 10,000 in FY2016 and to 1,000 in FY2017.
In response to congressional action, the Administration has threatened a veto, characterizing the transfer as "budget gimmickry," and calling instead for raising BCA caps for both defense and non-defense spending, with alternate savings from raising revenues and reducing mandatory spending. DOD officials have also opposed the transfer, arguing that it would complicate defense budgeting by setting up a one-year spike in funding that might not necessarily be sustained.
If the President does not designate the transfers as OCO, they would revert to base-budget status, BCA caps would be breached, and OMB would implement a sequester to ensure that BCA spending limits are met. This would entail largely across-the-board cuts in total defense resources. Some policymakers have called for increasing BCA caps, as was done by the Ryan-Murray compromise in the Bipartisan Budget Act of 2013 (P.L. 113-67). If no agreement is reached, a continuing resolution (CR) and government shutdown could be possible.