The New Pentagon Slush Fund

President Biden’s 2022 budget request for the Defense Department took a big step toward eliminating the most notorious DOD slush fund of the past decade: the Overseas Contingency Operations account, or OCO. Unfortunately, a new slush fund—the Pacific Deterrence Initiative—may be taking OCO’s place.

When lawmakers proposed to create PDI last year, we warned that, as “yet another special off-budget fund,” it could contribute to “more slush” in the defense budget. Put differently, PDI could enable the President to suggest—or Congress to appropriate—funding for all sorts of politically favored projects and initiatives under the guise of countering the activities, reach, and influence of the Chinese military.

Fast forward to today, and the very first PDI budget request seems to be exactly what budget watchdogs feared. The good news is PDI is not an off-budget fund. However, a deeper look at the PDI request indicates the Biden administration’s vision for PDI is more about long-standing and struggling programs than it is about deterring China.

A large chunk of PDI funds—$2 billion, or almost 40 percent of the total—would fund a new DDG-51 Arleigh Burke-class destroyer, built in large part by two companies that “flubbed” the construction of DDG-1000 Zumwalt-class destroyers that were meant to replace the DDG-51. (Speaking of the Zumwalt, the PDI request includes $75 million for system development and demonstration for the beleaguered ship.)

Unfortunately, shipbuilding is not the only slush in the PDI request. A full $1 billion, or nearly 20 percent of the PDI request, would help fix the much-maligned F-35 program. One of the original sins of the F-35 program—buying jets in quantity before testing was complete—has resulted in costly fixes to retrofit and address deficiencies in what we have already purchased. The request also seeks more than $600 million for Air Force F-35A Block 4 fixes and improvements and $400 million to improve the naval F-35B and C variants.

Add up the shipbuilding and F-35 funding alone, and more than three in every four PDI dollars would be spent on longstanding acquisition and development programs that have received much-deserved outrage and calls for cuts from government and non-government watchdogs. While some of these ships and planes would no doubt be used for deterrence in the Pacific, it seems clear that Congressional intent for PDI was not to simply create another procurement account.

The PDI request is so bad that it’s led to scrutiny from a former Congressional adviser who helped create the new slush fund. Dustin Walker, a former lead adviser to the Senate Armed Services Committee’s top Republican, Sen. Jim Inhofe, R-Okla., recently wrote in Defense News: “Congress established PDI to improve budget transparency and oversight. The Pentagon’s PDI request does the opposite by omitting investments that would fit well within PDI, while including those with tenuous connection to the purposes set out by Congress in legislation.”

Walker outlines a number of improvements Congress could make to the PDI request—including submerging the request “in a punishing bath of red ink.”—But perhaps the best move for taxpayers at this early stage in PDI’s history would be to repeal the notion altogether. 

As the Project On Government Oversight’s Danielle Brian wrote last year: “The Pacific Deterrence Initiative establishes yet another special off-budget fund, in this case for resources and capabilities focused on deterring China. Yet our national security strategy, including managing our competition with China, is already integrated into agencies and services across the Defense Department and can be implemented using existing budgets and authorities.”

Indeed, the first page of the Biden administration’s PDI request notes the $5.1 billion is just a small part of the “$66 billion [invested] in the Indo-Pacific region for FY 2022, including what is highlighted in the PDI.” Taxpayers and budget watchdogs are rightly concerned that, rather than allowing Congress to exercise proper oversight of military decision-making in the Pacific and other theaters, PDI may become yet another slush fund where DOD officials and lawmakers can stash outdated, failing, or legacy boondoggles away from strategic and fiscal scrutiny.

There are elements of budget transparency Congress required to be included in PDI that should be preserved. Projecting the future cost implications of this spending helps Congress and the public make smarter decisions about priorities. But setting specific targets for this fund—which any bureaucracy would read as a floor rather than a ceiling on how much to spend—further undermines efforts to strengthen budget discipline at the Pentagon.

By the time the Biden administration proposed mothballing OCO earlier this year, lawmakers and experts from across the ideological spectrum recognized it had become an unaccountable, off-budget fund relieving policymakers of the pressure from Budget Control Act, or BCA, spending caps. In a post-BCA, no-caps era, PDI seemingly is the new DOD slush fund, putting upward pressure on a Pentagon budget that is sorely in need of downsizing. Congress should reject PDI before it’s too late.

Andrew Lautz is the Director of Federal Policy at National Taxpayers Union, a non-profit organization that works on tax, budget, and spending policy on behalf of the nation’s taxpayers. Mandy Smithberger is the Director of the Center for Defense Information at the Project On Government Oversight, an independent watchdog that investigates and exposes waste, corruption, abuse of power, and when the government fails to serve the public or silences those who report wrongdoing.