What’s really in reconciliation, and how the pentagon can make it work

The recently enacted budget reconciliation act is a major, and somewhat unique, Congressional accomplishment that is good for the nation’s security. The defense portion of the reconciliation bill is both substantive and bipartisan.

However, with all the confusion and drama around the reconciliation process itself, the substance has been somewhat lost. A recent working paper from the American Enterprise Institute provides analysis on the budget reconciliation bill, which we’d like to share here.

First, some reminders on the legislation. Unlike normal annual bills, the reconciliation funds come without any appropriation categories. There are no new start restrictions, and the measure allows extended time periods to execute the money. Where DoD would normally come to Congress each year to justify development and procurement, this bill provides funds to be spent for certain capabilities rather than dolling it out in small batches for each part of the development and procurement process.

Similarly, the funds, which are available nearly immediately in most cases, last until 2029, giving DoD time to mature and develop new, broad capabilities without having to ask permission at each step of the process. (However, OMB has said it plans to use the majority of the funding immediately.)

While the initial House and Senate marks differed on proposed funding levels, the two chambers quickly came together at a compromise of $150 billion for defense and proceeded in a bicameral, bipartisan manner to assemble this portion of the bill, with virtually no controversies surrounding it. And there are fingerprints from Sen. Roger Wicker’s paper “ 21st Century Peace through Strength” and the bipartisan House Armed Services Committee SPEED Act woven throughout.

So, what are some takeaways?

There are three major themes found in the document. First, with a few interesting exceptions, it dispenses with micromanagement of funds in order to prioritize speed. Second, it is capability rather than project and platform focused. And third, it gives OSD broad discretion over allocating about a third of the roughly $150 billion included for defense.

The bill charts a journey that is strongly focused on shipbuilding, munitions and the supply chain, and air and integrated missile defense. More than fifty percent of funds, or $79 billion, go into these three areas.

The bill also prioritizes the industrial base and autonomous, next-generation and AI enabled capabilities, with each of these two buckets getting 15 percent, or just over $23 billion, of the total funding. This money, combined with the recent Secretary of Defense memo that strips away unneeded bureaucracy to establish drone dominance, could support fielding these much needed capabilities to the force by 2027.

The bill allocates just $1 million to the “joint energetics transition office” which is unique in its dollar amount and resembles an earmark. It provides $20 million to the Office of Strategic Capitol Workforce, $1 billion to the DoD Credit Program, and $500 million each to the defense exportability features program and a capital assistance loan program, which could represent new investment approaches. It appropriates a combined $510 million to something called “economic competition effects” and the associated workforce, an effort with unclear military focus.

In more typical congressional style, the bill specifically prohibits the retirement of two aircraft platforms, the F-22 and F-15E.

And notably defying normal appropriation processes of allocating nearly every last dollar, the Congress also provided over one-third of the funds ($52 billion) to OSD for further distribution. This approach signals trust in the political leadership of the Pentagon, leaving a lot of flexibility and funding to transform the department.

The Army, with its task to transform, will need to rely on a portion of the unallocated funds. It should be prepared to make the case for about $15 billion appropriated in this bucket for capabilities in scaling low-cost weapons, munitions and the supply chain, air and integrated missile defense, readiness and a subset of INDOPACOM-focused effort.

Of course, with great authority to spend in this manner, comes great responsibility for the Pentagon. There are three steps they must take.

First, defense leadership must spend this money quickly and consistently with the intent of Congress. Some may want to hoard the money and spend it slowly; this urge should be resisted. The Congress clearly wants a more capable and safe force for the nation today.

Second, they must be diligent and spend the funds to develop the capabilities that Congress has directed. Using these funds for other projects will certainly lead to this flexibility never being granted again.

Lastly, DoD must be transparent with Congress. Rather than just an oversight body, DoD should treat Congress as its board of directors and venture funding source, asking for its thoughts and providing feedback on this journey.

Congress should be congratulated for the major accomplishment of passing this very substantial reconciliation bill. It now has a huge task ahead in successfully finishing its fundamental duty, the annual appropriations process, a job made much tougher by a very late and insufficient budget request.

The Pentagon also has an important task ahead. In what may be a unique shot down the path of rebuilding the military to achieve peace through strength, it must quickly, responsibly and accountably make the most of this unique influx of flexible funding while building a new future years defense program and budget.

Elaine McCusker is a senior fellow at the American Enterprise Institute. She previously served as the Pentagon’s acting undersecretary of defense (comptroller). Retired U.S. Army Maj. Gen. John G. Ferrari is a senior nonresident fellow at AEI. He previously served as a director of program analysis and evaluation for the service.