Appropriators Must Stay Within Spending Caps Without Gimmicks

As the Senate Appropriations Committee makes its 302(b) allocations, divvying up funding among the 12 appropriations bills, it will have to deal with an unpleasant surprise from CBO's latest baseline: lower estimated Federal Housing Administration receipts. CBO's estimates of FHA receipts are $4.2 billion lower than OMB's due to more pessimistic assumptions about pre-payments from homeowners. As a result, the appropriators find themselves squeezed having to make up the difference from other programs in non-defense spending, a category that is essentially frozen between FY 2014 and FY 2015.

CQ is reporting that Senate Appropriations Committee Chair Barbara Mikulski (D-MD) is considering using war spending ("Overseas Contingency Operations") as a way to partially ease the pain of the additional cuts. Unlike base discretionary spending, war spending is not capped so appropriators can effectively get around the caps by moving some spending from the base budget to the OCO category. Although this tactic is more readily available for defense spending and has been routinely used to backfill the base defense budget, it can also be used for non-defense spending since a small portion of OCO spending goes to non-defense spending related to the war effort. For example, the FY 2014 omnibus bill contained $6.5 billion of State Department funding and $0.2 billion of Homeland Security funding within OCO. The CQ article does not identify precisely how the OCO category would be used to free up room within the non-defense discretionary caps, but it could involve shifting some State Department spending requested in the base budget such as humanitarian assistance or embassy security to OCO, increasing Homeland Security funding in OCO, or moving a portion of veterans spending into the OCO category. Funding regular appropriations through OCO would free up room under the spending limits for other programs.

Regardless of what funding is involved, this move would be a gimmick that violates the spirit of the budget caps established by the Ryan-Murray agreement. The caps exist so that appropriators are forced to make difficult decisions to live within them. Circumventing the caps by shifting regular appropriations to the uncapped OCO category would allow more spending than would otherwise be the case, increasing the deficit and undermining the integrity of the spending limits. If lawmakers find the overall cap level insufficient to deal with the lower FHA receipts, they can identify additional savings to offset an increase in the caps. Otherwise, they must make tradeoffs in appropriations bills to stay within the spending limits.

This gimmick has been used numerous times, highlighting the need for reform to maintain discipline. One way, of course, would be to cap war spending at levels that lawmakers and military leaders believe can reasonably be met and not use the savings to offset other policies. This would eliminate the incentive to shift regular appropriations into the OCO category to avoid caps. Another way, endorsed in the report accompanying the House budget resolution, would be to strictly define war spending so it cannot be used for spending that is not directly related to the war effort. Either of these methods would prevent lawmakers from abusing the OCO designation and strengthen the integrity of the spending caps.