WASHINGTON, July 31 (Reuters) - The number of U.S. troops deployed in battle zones is at its lowest level since before the 2003 invasion of Iraq. Still, Congress has authorized a 38 percent increase in the war budget over last year.
The contradiction is the legacy of an emergency war fund, started in the aftermath of the Sept. 11, 2001 attacks, that has become a favorite Washington way to sidestep the impact of fiscal constraints on military spending.
The Overseas Contingency Operations account, or OCO, has been tapped to fund tens of billions of dollars in programs with questionable links, or none, to wars, according to current and former U.S. officials, analysts and budget documents.
The mutation of the fund's original purpose has long been tolerated by Republican and Democrats. But its central role in a looming U.S. government budget showdown has brought fresh focus to the war fund, which is little known outside Washington.
This spring, Congressional Republicans abandoned any pretense that OCO should be used for its stated purpose - the wars in Iraq and Afghanistan and related operations. In a maneuver to increase defense spending, they simply approved adding $38 billion in other, non-war Pentagon spending to the account, bringing the total to $89 billion.
In doing so, lawmakers tapped OCO's budget magic: as a contingency fund, it doesn't count against budget caps on defense and non-defense spending imposed in 2011.
Sen. John McCain acknowledged the move was "a contradiction of what OCO was supposed to be all about many years ago, when we started it as a result of Afghanistan and Iraq."
President Barack Obama has threatened to veto defense spending bills over what the White House calls the OCO "gimmick." The administration wants budget caps lifted for both defense and domestic spending. It's one of the major sticking points in a Washington budget struggle that could leave part or all of the U.S. government unfunded after Sept. 30.
More is at stake than an accountants' dispute over different pots of money, officials and analysts say.
"It's the worst thing that could happen to budget discipline," said Gordon Adams, a former White House Office of Management and Budget (OMB) official.
Pentagon leaders warn that the budget uncertainty will undermine planning as Washington confronts challenges from Islamic State militants to China's expansion in the South China Sea.
Obama campaigned for president in 2008 promising to end what he called President George W. Bush's "abuse" of supplemental budgets to fund wars. He has reined in OCO spending, which peaked in 2008 at $187 billion - but only to a point.
"The difficulty was putting the genie back in the bottle," said a former White House official, particularly after the budget caps were imposed in 2011.
Obama proposed $51 billion in OCO spending for the fiscal year beginning Oct. 1, along with a regular $534 billion defense budget.
But only about $25 billion of that would directly fund U.S. combat-related operations, essentially the cost of keeping about 9,800 troops in Afghanistan this year, and fighting Islamic State in Iraq and Syria, Reuters has learned from U.S. officials.
Another $25 billion represents long-term Pentagon costs that have gradually found their way into OCO, an administration official told Reuters. Those costs, all sides agree, belong in the Pentagon's normal annual spending - called the base budget.
For 2016, Obama requested $789 million in OCO funds to reassure European partners worried about Russia and $2.1 billion for a Counterterrorism Partnerships Fund to boost allies' security forces.
Such programs don't meet the definition of war spending, said former OMB official Mark Cancian, who in 2009 helped write non-binding criteria detailing what the war fund should pay for.
"Both sides, Congress and the Executive, contravened the criteria when it was in their interest to do so," said Cancian, of the Center for Strategic and International Studies think tank.
EXPANDING "GRAY AREAS"
The United States spent $1.6 trillion on the Iraq and Afghan wars and related operations between fiscal years 2001 and 2014, the nonpartisan Congressional Research Service (CRS) said in December.
But $81 billion of that was spent on "non-war" costs, CRS found. The true figure is likely much higher: OCO money isn't audited to ensure it was used for war operations.
"There's a lot of money in the OCO that should probably be in base (budget)," Deputy Defense Secretary Robert Work acknowledged last year. "It just happened over 12 years."
Robert Hale, a former Pentagon comptroller, said budget supplemental bills are supposed to pay "the added costs of war." Special danger pay for troops and replacements for destroyed vehicles could be included legitimately, but not regular salaries or new weapons systems.
Over time, more and more OCO expenditures fell into "gray areas," he said.
Experts say that a complete accounting of questionable OCO spending may be impossible. But based on interviews and budget documents, examples include:
- This year, Congress added $1 billion for a National Guard and Reserve equipment account the Pentagon hadn't requested, as well as $532 million for military construction worldwide. That includes a hangar in Italy for a Navy submarine-hunting aircraft.
- Several billion dollars to transform the U.S. Army beginning in 2004 from a division-based force to a brigade-based one.
- $351 million this year for Israel's Iron Dome missile defense shield.
Former officials and analysts pegged October 2006, as the date the definition of war spending began to be stretched. Then-Deputy Defense Secretary Gordon England instructed the military brass to use supplemental budget funds for prosecuting "the longer war against terror," not just the conflicts in Iraq and Afghanistan.
"The message was just think more broadly about what you put in your war budget. Put more in there. And they did," said Todd Harrison, of the Center for Strategic and Budgetary Assessments.
Gordon could not be reached for comment.
Administration officials dispute they have violated the 2009 war-funding guidelines, arguing that Obama's programs meet OCO's underlying premise of funding unanticipated costs.
In today's uncertain world, some kind of contingency fund will likely be needed for years, experts say. OCO helped pay for the U.S. response to West Africa's Ebola outbreak, for example.
"It's time to step back and redefine OCO," Hale said. But with a budget battle and presidential campaign looming, that's unlikely to happen soon, he added. (Editing by Stuart Grudgings)