From Ukraine to debt ceiling, it’s a balancing act to pass FY24 budget

WASHINGTON — From a room on Capitol Hill, packed with roughly 100 representatives from companies that help build nuclear-powered aircraft carriers, came the disgruntled murmurs.

The group had just received an ominous warning from Sen. Tim Kaine: Congress may not pass a budget for the next fiscal year.

Kaine, a Virginia Democrat, told the members of the Aircraft Carrier Industrial Base Coalition that Congress is divided over an intertwined debate about the debt ceiling and spending. He warned the gridlock could mean lawmakers may have to rely on a full-year continuing resolution that would cap defense at this year’s levels.

“The drama is being pushed from the debt ceiling to” a discussion about the size of the federal budget, Kaine said. “My worry would be that the House will not be able to do an [appropriations] bill that can pass the House with the kinds of cuts that they want.”

The coalition members had assembled to lobby Congress to approve multi-ship contracts for aircraft carriers, but Kaine suggested they may have to fight simply for Congress to do one of its most basic duties: passing a budget.

Today, House Speaker Kevin McCarthy, R-Calif., is deadlocked with the White House over raising the debt ceiling amid Republican demands to curb spending while simultaneously increasing the defense budget. At the same time, he’s likely to face another divisive issue within his caucus in the months ahead: additional emergency defense and economic spending for Ukraine.

All of that means Congress is poised to rehash a decade-old fight in a divided government, and the Pentagon may no longer be able to rely on the massive defense budget increases it has grown accustomed to in recent years.

The new, yet familiar political dynamics on Capitol Hill mean the Defense Department could have to contend with, at best, a flat budget that fails to keep pace with inflation or, at worst, sweeping defense budget cuts if lawmakers inadvertently force themselves into a corner.

“Seems like we could be backing ourselves into sequestration,” Rep. Mike Waltz, R-Fla., who chairs the House Armed Services Committee’s readiness panel, told McCarthy on a conference call in January during his unusually protracted speakership battle, as reported by Politico.

Ten years ago, Congress failed to agree on deficit-reduction measures, triggering sequestration: an $85 billion, across-the-board reduction in federal spending, half from the defense budget. A 2011 showdown between a Republican House and the Democratic-held White House and Senate over the debt ceiling led to the start of sequestration in 2013, which the Defense Department then coped with throughout much of the next decade.

When sequestration first hit in 2013, the Navy postponed the deployment of the aircraft carrier Harry Truman to the Persian Gulf, the Air Force stood down 31 squadrons, the Army furloughed nearly 200,000 civilian employees and additional furloughs at shipyards resulted in yearslong maintenance backlogs.

Then-Army Chief of Staff Gen. Raymond Odierno said in 2015 that under sequestration, the military was depending on overseas contingency operations, or OCO, emergency funding for U.S. wars in the Greater Middle East “to mitigate risk” when managing its forces in the region.

Fast forward 10 years later and House Republicans are using the debt ceiling as leverage to enact steep spending cuts. As one of the many concessions made to win his speakership race, McCarthy promised the right-most flank of his caucus that he would slash fiscal 2024 spending by at least $130 billion. Those same members are also pressing him to turn off the spigot of emergency spending for Ukraine after Congress passed $61 billion in military aid to Kyiv last year.

Ukraine funding has allowed the Defense Department to circumvent some budgetary pressures, similar to the way OCO allowed it to evade some of sequestration’s impact. For instance, the Army has already received funding totaling one-third of its annual procurement budget from the Ukraine supplementals, allowing it to replace older systems sent to Kyiv with newer weapons.

At the other end of the caucus, Republican defense hawks have blasted President Joe Biden’s proposed $886 billion defense budget for FY24 — up 3.3% from last year — as “woefully inadequate.” These lawmakers want to grow the top line even as they officially maintain they will cap federal discretionary spending at FY22 levels.

McCarthy can only achieve his goals along party lines, and he only has five Republican votes to lose.

Congress will likely need to pass another emergency spending supplemental for Ukraine in the coming months. The chairman of the House Defense Appropriations Subcommittee, Rep. Ken Calvert, noted at a late March hearing that the Biden administration only has two to three months left of the $14.5 billion in presidential drawdown authority Congress authorized in December.

Calvert, R-Calif., accused the Biden administration of “giving Ukraine just enough assistance to survive, but not enough to win,” even as he echoed McCarthy’s line from last year’s midterm elections that Republicans will not write “blank checks” for Kyiv.

‘A little bit bigger’

The more Republicans seek to grow the defense top line, the deeper they’ll have to dig into the non-=defense budget to stay in line with McCarthy’s agreement to cap spending at FY22 levels. The defense budget already accounts for roughly half of annual discretionary spending.

“These spending proposals are fine in theory until you as a representative have to go back to your district and have to face a town hall meeting about the jobs in my district,” said Byron Callan, a defense budget specialist and managing director at Capital Alpha Partners, a Washington-based consulting firm. “Can we cut nondefense to fund defense? No. I’m skeptical about it.”

That hasn’t deterred Republican defense hawks from seeking to allocate billions of dollars more in military spending beyond Biden’s FY24 budget request.

“Obviously I’m concerned about this budget,” Calvert told Defense Secretary Lloyd Austin at the March hearing. “We’re going to work together to plus this up somewhat to make sure we meet the requirements..”

After the hearing, Calvert told Defense News he wants to grow the defense top line by 3% to 5% over inflation, citing former Defense Secretary James Mattis’ 2018 testimony that the Pentagon needs annual growth at that rate to compete with China and Russia. As he seeks to grow the top line, Calvert is also looking to sooth fiscal hawks in his party by proposing potential cost-cutting measures at the Defense Department such as trimming the civilian workforce, which he argues could save $125 billion over five years.

“Accounting for inflation, the president has now asked Congress to cut military spending for three years in a row, despite a worsening threat environment,” Senate Armed Services Committee Republicans said in a statement after Biden released his FY24 budget proposal.

Biden’s budget predicts a 4.3% inflation rate for FY23 — the current fiscal year — and the defense budget stands at $858 billion. Calvert’s goal of growing defense spending at 3% to 5% over inflation means Republicans would seek a range of $921 billion to $937 billion.

House Armed Services Committee Chairman Mike Rogers, R-Ala., indicated Republicans may stick to the lower end of that range, noting he views Biden’s defense budget proposal as better than last year.

“It’s going to be a little bit bigger,” Rogers told Defense News. “He didn’t come in at an embarrassingly bad number like he did last year, but it doesn’t cover inflation.”

The White House came under heavy fire from defense hawks in both parties last year for drastically underestimating the inflation rate. The Office of Management and Budget projected 2.2% in inflation for FY22, but it actually came in at 6.5%, per the consumer price index.

Ultimately, Republicans teamed up with centrist Democrats last year to add $45 billion to Biden’s $813 billion FY23 defense budget proposal. The boost included $4 billion extra for ship procurement and maintenance.

Rep. Betty McCollum of Minnesota, the top Democrat on the House Appropriations Committee’s defense panel, defended Biden’s recent FY24 budget plan as “consistent with the National Defense Strategy.” She noted the defense budget has grown by nearly $100 billion over the past two fiscal years.

New defense money this year could once again go toward bolstering the U.S. naval fleet and its presence in the Pacific. U.S. Indo-Pacific Command submitted a $3.5 billion unfunded priorities list to Congress in March that includes everything from munitions development to security cooperation with U.S. allies in the region to missile defense and cybersecurity.

Sen. Susan Collins of Maine, the top Republican on the Senate Appropriations Committee, told Defense News in March she’s worried Biden’s proposed budget undermines the Navy’s ultimate goal of 373 crewed ships.

“China is on pace to have a 400-ship fleet, and we today have only 296,” Collins said.

Republicans and some Democrats, including Kaine, hammered Navy officials during hearings in late March over their plans to retire three amphibious ships for the Marines, bringing that fleet below the 31-ship statutory requirement Congress enacted last year.

So what happens next if, as Kaine worries, the debate over federal spending in a divided Congress leads to a flat budget? Or what if, as Waltz warned, there are sequestration-style cuts?

“I am concerned about backtracking on the defense top line,” former Rep. Mac Thornberry, R-Texas, who chaired the House Armed Services Committee under sequestration, told Defense News. “So much of defense spending is locked in — personnel, various contracts, etc. — that when cuts are made, they tend to come out of certain [operations and maintenance] categories, like spare parts and maintenance and sometimes people.”

For instance, a 2018 Military Times investigation found sequestration partially contributed to a 40% uptick in aircraft accidents from 2013 to 2017. Thornberry also recounted talking to a Marine pilot during sequestration who needed a landing gear door for an F-18 Super Hornet, but had to resort to cannibalizing one from a plane at a museum.

Is Ukraine funding the new OCO?

Even if the defense budget top line fails to outpace inflation, supplemental aid packages could significantly boost Pentagon spending levels for FY24. The department left future aid amounts out of its base budget request this year and instead intends to rely on Congress to continue bankrolling the war effort via emergency supplemental spending while waiting to see if Ukraine can retake parts of its territory from Russia in a potential spring offensive.

“Ukraine support above the pre-conflict levels is not in this budget; the situation remains too fluid,” Pentagon Comptroller Mike McCord said March 13. “The way we’re handling this is the way we’ve handled every emerging situation in the last few years, and that’s supplementals.”

But Calvert criticized the Biden administration at his panel’s March 23 hearing for opting not to include additional Ukraine aid in its base budget request.

“It’s important that you communicate future requests for funding for Ukraine clearly, thoroughly and early,” Calvert told Austin. “Congress will need sufficient time to review and ask questions on any requests submitted.”

Total defense spending for FY23 — which ends Sept. 30 — will come to $893 billion after accounting for $35.4 billion in emergency Ukraine aid. Total FY22 defense spending came to $794 billion after Congress allocated an additional $26 billion in Ukraine aid.

Senate Minority Leader Mitch McConnell, R-Ky., noted in February much of the Ukraine aid money is spent in the U.S. as the Pentagon uses it to backfill weapons sent to Kyiv.

“The U.S. is largely sending Ukraine older weapons from our stockpile,” McConnell said. “This means that a significant portion of the money Congress has appropriated is going directly to strengthen America’s own defense by replenishing our inventories with more modern versions of these older weapons we have transferred to Ukraine.”

For instance, the Army asked for 91 Armored Multi-Purpose Vehicles in the FY24 base budget request but is actually slated to buy a total of 197 next year after factoring in supplemental funding to backfill 1960s-era M113 armored personnel carriers sent to Ukraine.

Congress started using emergency spending in the early 2000s to help fund the wars in Afghanistan and Iraq outside of the base budget through the overseas contingency operations account. From 2013 to 2021, Congress routinely used OCO funds to circumvent the defense spending caps imposed by sequestration, even as nondefense spending remained subject to spending limits.

According to the Congressional Budget Office, OCO spending averaged about $119 billion per year before Biden’s FY22 budget request eliminated it.

Sen. Chris Van Hollen, D-Md., likened it to a “slush fund,” while former Senate Armed Services Committee Chairman John McCain, R-Ariz., called it a “budget gimmick.” And former House Speaker Paul Ryan, R-Wis., described it as “a backdoor loophole that undermines the integrity of the budget process.”

Travis Sharp, a fellow at the Center for Strategic and Budgetary Assessments, said in December that continuing to fund Ukraine aid through supplemental emergency spending instead of the base budget allows the war-torn country to avoid “getting caught up in other issues that tend to get gridlocked in Congress, including omnibus appropriations and other things.”

Republican leaders have gone to great lengths to spotlight a multiyear plan for Ukraine aid oversight and end-use monitoring to temper skepticism within their party, but that has done little to appease conservative voices opposed to Ukraine aid.

House Foreign Affairs Committee Chairman Mike McCaul, R-Texas, held a March 29 hearing on Ukraine aid oversight where he noted “approximately 60%” of the assistance Congress has provided so far “is going to American troops, American workers and to modernizing American stockpiles.”

McCaul led a House Republican delegation to Ukraine and Poland in February with an emphasis on ensuring Kyiv has properly used U.S. materiel and economic aid.

“We were encouraged to learn that, to date, no significant acts of fraud or misuse involving U.S. assistance have occurred,” McCaul said in a statement after the trip.

That didn’t stop McCaul from backing a broad resolution from Rep. Marjorie Taylor Greene, R-Ga., which would require the White House, Defense Department and State Department to give Congress all documentation related to Ukraine emergency aid.

The House Foreign Affairs Committee advanced the resolution 26-20 on party lines on March 24. It’s now up to McCarthy and Republican leaders as to whether that resolution gets a vote on the House floor.

Multiple Defense Department officials and Pentagon Inspector General Robert Storch have testified before Congress that U.S. weapons sent to Ukraine have not been diverted from their intended use. Still, Chairman of the Joint Chiefs of Staff Gen. Mark Milley told the Senate on March 28 that the lack of U.S. troops or civilian personnel in Ukraine has placed limitations on aid oversight mechanisms.

“It’s not as rigorous as you might think, but I think the biggest way to measure accountability is their effectiveness against Russian forces,” Milley said.

Republican skeptics aside, pro-Ukraine lawmakers in both parties are starting to seek more consistency in the budget process and more clarity on how much more aid they will need to send Kyiv going forward.

“My personal preference would be to bake it into the base budget,” Senate Budget Committee Chairman Sheldon Whitehouse, D-R.I., told Defense News in March. “That sends a very positive signal to Ukraine.”

Several House defense appropriators grilled defense officials on the subject the month prior in a hearing devoted entirely to Ukraine aid.

Rep. Ed Case, D-Hawaii, called on the Defense Department to “be totally honest with everybody about what this is all going to cost,” while Rep. Mike Garcia, R-Calif., said the Biden administration needs to “do a better job of messaging on this long term, especially over the next two years.”