Criteria DOD Uses for Determining Items Appropriate for Its OCO Budget Request Do Not Address the Full Scope of Activities Included in Its OCO Budget Request

In 2010, in collaboration with DOD, the OMB developed updated criteria  for deciding whether items properly belong in the base or in the OCO  funding request, but these criteria do not address the full scope of  activities included in DOD’s fiscal year 2017 OCO budget request. OMB’s criteria were issued when military  operations in Iraq and Afghanistan were the principal contingency  operations supported by DOD. Specifically, the criteria do not address operations in new  geographic areas such as Syria and Libya, the department’s deterrence  and counterterrorism initiatives, or requests for OCO amounts to fund  base budget requirements, such as readiness. For fiscal year 2017, DOD requested $20 million  for Operation Odyssey Lightning. Moreover, the proportion of OCO appropriations DOD considers to be  non-war increased between fiscal years 2010 and 2015. However, DOD officials noted that the OMB has  deferred the decision to update the criteria until a new administration is in  place in 2017. Without the OMB and DOD reevaluating and revising the criteria  for determining items and activities that can appropriately be included in  DOD’s OCO budget request, decision makers may be hindered in their  ability to set priorities and make funding trade-offs. DOD Has Developed an Initial Estimate of Its Enduring Costs but Has Not Finalized and Reported the Estimate Externally

DOD officials told us that the department had developed an initial  estimate of costs being funded with OCO appropriations that are likely to  endure beyond current operations, but that it has not finalized or reported  its estimate outside of the department. According to DOD officials, an  internal working group established in 2014 estimated that enduring costs  account for between $20 billion and $30 billion per year – as much as 46  percent of DOD’s total OCO budget request for fiscal year 2017. DOD Developed an Initial Estimate of Its Enduring OCO Costs

In May and July 2016, the OMB and DOD officials respectively told us  that the estimate of DOD’s enduring OCO costs, those costs that would  remain after the contingency operations end, and that would need to be  transitioned to DOD’s base budget request if OCO funding were no longer  available, are in the range of $20 billion to $30 billion per year. These officials indicated that the department  continues to evaluate and revise this estimate, and that it could be closer  to the higher end of the range. According to DOD officials, although DOD developed an initial estimate of  enduring costs, DOD has not finalized and reported its estimate of  enduring costs externally because current statutory spending caps limit its  ability to increase base budget funding. Without a reliable estimate of  enduring costs, decision makers will not have information needed to  make informed choices and trade-offs in budget formulation and decision- making. To assist decision makers in formulating DOD’s future budgets, we  recommend that the Secretary of Defense direct the Under Secretary of  Defense (Comptroller) to develop a complete and reliable estimate of  DOD’s enduring OCO costs and to report these costs in concert with the  department’s future budget requests, and to use the estimate as a  foundation for any future efforts to transition enduring costs to DOD’s  base budget. In its  written comments, reproduced in appendix IV, DOD concurred with our  first recommendation that it, in consultation with the Office of  Management and Budget, reevaluate and revise the criteria for  determining what can be included in DOD’s OCO budget requests. To assess whether DOD has developed and reported an estimate of the  costs being funded with OCO appropriations that are likely to endure  beyond current contingency operations, we reviewed DOD’s budget  submissions and met with staff from the OMB, the Office of the Under  Secretary of Defense (Comptroller), and each of the military services to  discuss steps taken to develop and report to Congress or other  stakeholders an estimate of enduring OCO costs.
Why GAO Did This Study

Since 2001 Congress has provided over $1.6 trillion in appropriations to fund OCO. For fiscal year 2017, DOD requested $64.6 billion in funding for OCO. While DOD's OCO budget request has included amounts for contingency operations primarily in Iraq and Afghanistan, more recently the request has also included other activities, such as efforts to deter Russia and reassure U.S. allies and partners. DOD acknowledges that many OCO costs are likely to endure after contingency operations cease.
GAO was asked to review DOD's use of OCO funds. This review assesses (1) the extent to which OMB's 2010 criteria address the activities included in DOD's OCO budget request; and (2) whether DOD has developed and reported an estimate of the costs being funded with OCO appropriations that are likely to endure beyond current contingency operations. GAO analyzed OMB's criteria for determining whether costs belonged in the OCO budget and reviewed DOD-provided information on its enduring OCO costs.

What GAO Found

In 2010 the Office of Management and Budget (OMB), in collaboration with the Department of Defense (DOD), issued criteria for deciding whether items properly belong in the base budget or in the overseas contingency operations (OCO) funding request, but the criteria are outdated and do not address the full scope of activities included in DOD's fiscal year 2017 OCO budget request. For example, they do not address geographic areas such as Syria and Libya, where DOD has begun military operations; DOD's deterrence and counterterrorism initiatives; or requests for OCO funding to support requirements not related to ongoing contingency operations. Further, the amount of OCO appropriations DOD considers as non-war increased from about 4 percent in fiscal year 2010 to 12 percent in fiscal year 2015. DOD officials agree that updated guidance is needed but note that the Office of Management and Budget has deferred the decision to update the criteria until a new administration is in place in 2017. Without reevaluating and revising the criteria, decision makers may be hindered in their ability to set priorities and make funding trade-offs.
DOD officials told GAO that the department had developed an initial estimate of costs being funded with OCO appropriations that are likely to endure beyond current operations, but has not finalized or reported its estimate outside of the department. In May and July 2016, OMB and DOD officials said the estimate of enduring costs was between $20 billion and $30 billion—as much as 46 percent of DOD's total OCO budget request for fiscal year 2017—and indicated that DOD continues to evaluate and revise this estimate, which might be closer to the higher end of that range. GAO recommended in 2014 that DOD develop guidance for transitioning enduring costs funded by OCO appropriations to DOD's base budget. According to DOD officials, DOD has not finalized and reported its estimate of enduring costs because current statutory spending caps limit its ability to increase base budget funding. Without a reliable estimate of DOD's enduring OCO costs, decision makers will not have a complete picture of the department's future funding needs or be able to make informed choices and trade-offs in budget formulation and decision making.

What GAO Recommends

GAO recommends that DOD, in collaboration with OMB, reevaluate and revise the criteria for determining what can be included in DOD's OCO budget requests; and that DOD develop a complete and reliable estimate of enduring OCO costs to report in future budget requests. DOD concurred with our first recommendation and plans to propose revised OCO criteria to OMB. DOD partially concurred with our second recommendation but identified no steps planned to develop and report its enduring OCO costs.