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“Modest reforms to pay and compensation will improve readiness and modernization. It will help keep our all-volunteer force sustainable and strong. Keeping faith also means investing sufficient resources so that we can uphold our sacred obligations to defend the nation and to send our sons and daughters to war with only the best training, leadership and equipment. We can’t shrink from our obligations to one another. The stakes are too high.”

Gen. Martin E. Dempsey

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Continuing the Trend

Early, early on Saturday morning the Senate cleared the Continuing Resolution (CR) that allows the government to operate through March 27th.  The need to handle appropriations squarely in the middle of campaign season had been a widely-anticipated obstacle for a while, but shutdown wasn’t in the political cards after House Speaker John Boehner and Senate Majority Leader Harry Reid announced the CR plan in late July.  Even if this legislation was about as pro forma as its drafters could make it, though, it contains some nuggets that are important to note.

Spending subject to Budget Control Act (BCA) caps is continued at a value of $1.047 trillion, the sum of the Budget Control Act’s national defense and non-defense allocations for 2013.  That’s $4 billion above the 2012 cap and, because 2012 spending came in slightly lower than projected, it’s $8 billion above the 2012 estimate.  Congress spread three-quarters of that $8 billion evenly across its appropriations bills, an across-the-board raise of 0.61 percent, and then directed the remaining quarter into accounts of its choosing.

Neither the Defense nor the State/Foreign Operations bills benefited from any directed spending.  But like all the other appropriations, both enjoy the 0.61 percent increase.  The result is that Congress increased defense nominally, yet cut it in real terms since the 2012 inflation rate is at least a percentage point higher (see Table 2-1).

Still staying within $1.047 trillion is not all that the BCA required.  That top-line is divided into a national defense cap (function 050) of $546 billion and an everything-else cap of $501 billion (see pdf pg. 44).  National defense has to decrease by roughly $8 billion to meet that standard, a consequence of how caps reset in January.  Adding 0.61 percent, as well as a bit of directed growth in the National Nuclear Security Administration’s weapons activities budget, moves in the direction opposite from what the BCA mandates.

All this helps make the CR even more temporary than it appears.  Absent any new statutory action, the hotly-debated sequester is scheduled for impact on January 2nd.  Congress is unlikely to permit that – but it’s also not the only sequester order on the table.  Caps are law.  Appropriating above them doesn’t change that, and even a deal that narrowly handles the big sequester wouldn’t necessarily turn them off.  Unless Congress specifically amends the cap provision, the Office of Management and Budget will prepare a report within 15 days of the 112th Congress’ conclusion (i.e., in early January) to override the CR’s national defense sum and enforce the lower cap (see pdf pg. 2). 

So early January remains the decision deadline despite Congress’ move to continue appropriations through late March.  That leaves us with a relatively simple national defense trend, once all of this movement is factored out.  It’s down in 2013 after adjusting for inflation, and its likely to decrease even more at the beginning of the year.  Various mechanisms are in play – big sequester, a substitute deal, or just an enforcement of caps – but the overall direction of this storyline probably is not.