July 24, 2025
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Defense budget expert, Todd Harrison, of the American Enterprise Institute, lays out a clear-eyed explanation of how the Pentagon is funding its operations—and why the current approach may be setting up long-term risks. The focus of the discussion is the growing use of the congressional budget reconciliation process to fund Department of Defense programs, and how this method differs from the now-retired Overseas Contingency Operations (OCO) account.
Harrison begins by walking through the historical context. During the 2010s, under the Budget Control Act, Congress imposed strict caps on the base defense budget. However, there was an exception: war funding through the OCO account. This loophole allowed base budget items to be moved into OCO, bypassing the caps. While this wasn’t considered honest budgeting, Harrison notes, it had bipartisan support and served as a reliable way to get needed funds to the Department of Defense.
Now, Harrison says, the reconciliation process is serving a similar function—providing additional money outside the regular budgeting rules. But he emphasizes that reconciliation is a very different tool. Unlike OCO, it requires single-party control of the White House and both chambers of Congress, making it far less predictable. Harrison explains that while OCO could be counted on year after year due to the ongoing presence of U.S. troops in conflict zones, reconciliation depends entirely on political conditions that are subject to change.
He points out that this unpredictability creates serious challenges for defense planners. Because reconciliation funds are classified as mandatory spending rather than discretionary, they don’t follow the typical five-year budget planning cycle. This leaves gaps in the Department’s long-term strategy and makes it difficult for the defense industrial base to plan for future demand.
One striking example Harrison cites is the Golden Dome program, a top priority for the current administration. While the reconciliation bill includes $25 billion for the program, the base budget includes zero dollars. That creates a risk: if reconciliation isn’t available in future years, programs like Golden Dome may find themselves without funding, unless the Department backfills those dollars in its core request.
Harrison also notes that the FY26 defense budget request from the Trump administration doesn’t include a five-year plan—common for a first budget under a new administration. This makes it even harder to assess how the Pentagon intends to manage future funding. He poses an open question: will the Department continue to rely on reconciliation in FY27, or will it return to a more sustainable strategy rooted in base budgeting?
Harrison warns that if the Department does not adjust its approach and Congress does not continue to provide reconciliation dollars, defense funding could drop significantly in future years. That would not only impact individual programs but could disrupt the broader defense industrial base.
You can read Harrison’s full article here