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Who the Heck Makes the U.S. Military Budget?

By Rich Smith – Nov 30, 2014 at 10:11AM

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Would you like the short answer or the long one?

"The less people know about how sausages and laws are made, the better they'll sleep at night." --Otto von Bismarck 

If that's true ... well, get ready for a few sleepless nights. Because in today's column, we're going to take you through the process by which this Congress makes the U.S. military budget. (And not a moment too soon -- because in just a few short weeks, we'll have a new Congress in Washington, doing just that).

Prussia's Colonel-General Otto von Bismarck -- not looking impressed at the performance of the U.S. Congress. Photo: Wikimedia Commons

So, how does the U.S. defense budget get put together? It all starts with somebody proposing some numbers.

Round up the usual suspects
In this case, "somebody" means the various departments within the Pentagon. With an estimated budget of $575 billion in fiscal 2015, the Department of Defense is big. The subordinated Departments of the U.S. Army, Air Force, and Navy each have bigger budgets than most other cabinet-level departments in the government.

Together with the Commandant of the Marine Corps and the Chief of the National Guard Bureau, these services serve as the starting point for setting the U.S. military budget for the year. Through a process known as the Planning, Programming, Budget, and Execution (PPBE) cycle, the Department of Defense and the subordinate services agree on a combined budget request to be sent to the President's Office of Management and Budget every fall.

After considering DoD's request, around about November or December, OMB "passes back" this request to DoD with OMB's proposed revisions. DoD can then make counterproposals, which OMB considers before submitting its final recommendations to the president.

Source: U.S. Department of Defense Fiscal Year 2015 Budget Request

Presidential prerogative
Armed with facts and figures from OMB, the president takes the Pentagon's requested U.S. military budget, incorporates it into requests from the other federal agencies, tweaks all these numbers to reflect his own preferences, and submits the whole mess to Congress as his proposed budget for the next fiscal year.

By law, this should happen by the first Monday in February of a given year, giving Congress plenty of time to make necessary changes, approve the budget, and pass it to the president by signing before the new fiscal year commences (on Oct. 1). In practice, political tussles between the President and Congress have caused this deadline to be missed with some regularity of late.

Let the sausage-making commence!
Once the President's proposed budget does arrive, though, the ball is in Congress's court. Its first move is to try to pass a budget resolution, laying out its expectations for the coming fiscal year's revenues and spending, and guesstimating the budgetary surplus (or more often, deficit) that will result. Both House and Senate pass competing versions of the budget resolution, then merge the two bills into one in a process called "reconciliation."

By April 15, this budget resolution should be presented to the president -- just to keep him in the loop, not as a proposed "law" to be signed. (In practice, political infighting has also prevented the passage of such agreed budget resolutions for the past few years).

But if one does get passed, Congress moves on to draft separate defense appropriations bills -- again, one each from the House of Representatives and from the Senate. Around about May 15, the House and Senate Armed Services Committees, the House and Senate Appropriations Subcommittees on Defense, and a few other committees, hold hearings on, debate, and mark up versions of what they think should go into the U.S. military budget. This process can stretch out for months, but ideally concludes no later than October 1. (In practice, though, the committees are working on these bills from the moment the President's proposed budget arrives -- and often continue working long past the official deadline for completion).

Upsetting the apple cart
It's also worth noting that in the midst of this process, recent years have seen the President upset the apple cart by sending Congress proposed supplemental military budgets for Overseas Continuing Operations. For example, the most recent fiscal year saw a request for some $79 billion worth of supplemental funding -- nearly 14% of the entire defense budget -- sprung upon Congress in June. That was four months after the President's "base" military budget proposal was due for submission to Congress.

Originally designed to fund the War on Terror, and in particular military operations in Iraq and Afghanistan, you'd think the OCO budget would have shrunk as U.S. forces pulled out of Iraq, then drew down their strength in Afghanistan. But the truth is somewhat different.

Much larger than what's needed to fund America's residual wars in the Middle East, in recent years, the OCO budget has morphed into a near-$80 billion Pentagon slush fund. Through it, DoD is able to obtain funding for projects and weapons systems that might fail to receive funding under the base defense budget. And because OCO funding requests come so late in the legislative game, they tend to receive less scrutiny from -- and are more likely to be approved by -- a Congress that's been preoccupied with hammering out a basic U.S. military budget for months already. 

All through this process, of course, America's defense contractors, including the nation's two largest, Boeing (BA -1.45%) and Lockheed Martin (LMT -0.43%) -- but not just Boeing and Lockheed -- are busy lobbying Congress to fund their favorite weapons systems, and divert money away from their rivals' programs. This is also how we sometimes end up with military budgets calling for the purchase of hundreds of new M1 Abrams battle tanks that the Army says it doesn't want -- or need.

Eventually -- ideally -- the U.S. military budget makes it out of the various committees and goes to the full House (and Senate) for separate debate. Each chamber passes its own version of this bill. And then once more, the House and Senate have to agree on a single, final form into which to put the bill. So again, they reconcile their two versions. They ultimately agree on a final form, vote on it, and pass it in time for the President to sign the entire federal budget by the Oct. 1 start date for the new fiscal year.

Again, in theory.

And in practice?
In practice, this doesn't happen very often. Last year, for example, the U.S. military budget, titled the "National Defense Authorization Act for Fiscal Year 2014," didn't get signed into law until the day after Christmas, Dec. 26, 2013. To bridge such gaps between the end of one fiscal year's authorized spending on the U.S. military budget, and the passage of a law authorizing the next year's spending, Congress passes "continuing resolutions" -- ad hoc laws to pay to keep the military running until the budget can be agreed upon.

In the end, that's probably the simplest answer to "who makes the U.S. military budget": Congress does, making it up as it goes along.

Your Congress at work -- the caning of Charles Sumner. 1856 lithograph from The Boston Athenaeum

Rich Smith has no position in any stocks mentioned. The Motley Fool owns shares of Lockheed Martin. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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