Defense Procurement: Full Funding Policy -- Background, Issues, and Options for Congress

Publication Date: June 2007

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Military and defense

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Abstract:

The full funding policy is a federal budgeting rule imposed on the Department of Defense (DOD) by Congress in the 1950s that requires the entire procurement cost of a weapon or piece of military equipment to be funded in the year in which the item is procured. Although technical in nature, the policy relates to Congress's power of the purse and its responsibility for conducting oversight of DOD programs. Support for the policy has been periodically reaffirmed over the years by Congress, the Government Accountability Office, and DOD.

In recent years some DOD weapons -- specifically, certain Navy ships -- have been procured with funding profiles that do not conform to the policy as it traditionally has been applied to DOD weapon procurement programs. DOD, in recent budget submissions, has proposed procuring ships and aircraft using funding approaches that do not conform to the policy as traditionally applied. DOD's proposals would establish new precedents for procuring other DOD weapons and equipment with non-conforming funding approaches. Such precedents could further circumscribe the full funding policy. This, in turn, could limit and complicate Congress's oversight of DOD procurement programs, or require different approaches to exercise control and oversight.

A principal effect of the full funding policy is to prevent the use of incremental funding, under which the cost of a weapon is divided into two or more annual portions. Incremental funding fell out of favor because opponents believed it could make the total procurement costs of weapons and equipment more difficult for Congress to understand and track, create a potential for DOD to start procurement of an item without necessarily stating its total cost to Congress, permit one Congress to "tie the hands" of future Congresses, and increase weapon procurement costs by exposing weapons under construction to uneconomic start-up and stop costs. Supporters of incremental funding, however, could argue that its use in DOD procurement programs could produce certain advantages in terms of reducing disruption to other programs, avoiding investment bias against very expensive items, improving near-term production economies of scale, and preserving flexibility for future Congresses to halt funding for weapons under construction that have become unnecessary or inappropriate.

Congress has several options for responding to recent proposals for procuring DOD ships and aircraft with funding mechanisms that do not conform to the full funding policy. These options could have the effect of terminating, modifying, maintaining, or strengthening the full funding policy. In weighing these options, Congress may consider several factors, including Congress's power of the purse, its ability to conduct oversight of DOD procurement programs, the impact on future Congresses, DOD budgeting discipline, and the potential impact on weapon costs. The process of weighing options may involve balancing a need to meet DOD procurement goals within available funding against the goal of preserving Congress's control over DOD spending and its ability to conduct oversight of DOD programs. This report will be updated as events warrant.