Quick Hits - what it means
Appropriations season is in full swing as the Senate subcommittees continue to meet and the House comes back into session on Tuesday. The House will resume its budget negotiations this week, but is unlikely to have gained much progress during the Easter recess. In the meantime, see below a brief outline of what can be expected over the next several weeks:
April 12 (Tues):
- House Armed Services Committee (HASC) releases markup schedule and bill number for National Defense Authorization Act (NDAA)
April 13 (Wed):
- House FY17 MILCON/VA Full Committee Markup and “Interim” Suballocation of Budget Allocations – “interim” in anticipation of a new number after a potential new budget deal on the topline.
- House FY17 Energy and Water Appropriations Subcommittee Markup
- House FY17 Agriculture Appropriations Subcommittee Markup
April 14 (Thurs):
- Senate Appropriations Committee presents subcommittee spending allocations
April 20 — 21 (Wed — Thurs):
- HASC subcommittees discuss FY17 NDAA allocations
April 27 (Wed):
- HASC Markup of FY17 NDAA
May 9 — 10 (Mon — Tues):
- Senate Armed Services Committee (SASC) subcommittees vote on final portions of FY17 NDAA Bill
May 11 (Wed):
- SASC Markup of FY17 NDAA
Stay tuned for more detailed info as markups and budget talks unfold!Read more
VA/MILCON appropriation advances amid a Budget Stalemate:
On Tuesday, March 22, the House Appropriations Committee released their initial mark of the FY17 Military Construction and Veterans Affairs Appropriations bill. The total discretionary spending for the bill comes to $81.6 billion, which is $1.8 billion over FY16 levels and $1.2 billion less than the President’s budget request.
Committee Chairman Harold Rogers expressed support for the bill, stating, “The Committee is getting off to a fast and productive start.”
So, the appropriations process has officially begun. What’s the problem?
The problem is that before going on recess for the Easter Holiday, House Republicans never agreed upon an overall budget, as Speaker Paul Ryan hoped they would. Chairman Rogers may be happy to see the appropriations cycle kick off, but Speaker Ryan has explicitly declared that he will not support the passage of 12 individual appropriations bills without an agreed topline spending limit.
Freedom Caucus Republicans will make a budget agreement difficult, given the 40 votes they carry in the House. Their insistence on cutting the previously agreed upon $1.07 trillion spending level to $1.04 trillion increases the possibility that Speaker Ryan will be forced to push through another sweeping omnibus appropriation at the end of this year.
Until then…the appropriations process will resume after the House returns in two weeks, and dominate floor activity for the next three months. If a new budget agreement is not reached, the proposed FY17 appropriations legislation under review will operate under the budget deal of $1.07 trillion topline from last year’s negotiations.
What to expect next…
Members of Congress will spend the next two weeks hearing from constituents during their district work periods. They will then return to a furiously paced appropriations and budget timeline and decision process that should be largely complete by mid-summer, and that they will carry into the November elections.Read more
Budget Talks, Mark-Ups, and What’s Coming Up:
What Happening with the Budget?
Congress is again struggling to set a budget topline number from which the appropriations process can flow. We have lived without a budget in years past, and likely will again this year. As reported in previous Quick Hits, the budget itself is a political document, not law. Appropriations bills are law. A two-year topline number was agreed last year; however, many in defense circles want to revisit that topline in order to increase defense spending for FY17. How to increase defense spending is the underlying issue. Particularly in an election year, asking Senators and Representatives in vulnerable races to take difficult votes on things like budget amendments is always a balancing act for Congressional leadership.
Conflict Inside House GOP…
Monday night, the House Freedom Caucus voted in opposition to the GOP leadership’s 10-year budget plan. The new plan, proposed by House Budget Committee Chairman Tom Price (R-GA), aimed to maintain discretionary spending levels at $1.07 trillion, the amount determined in the October 2015 budget deal, offset by a series of bills that would cut mandatory spending levels by $30 billion. House Speaker Paul Ryan and Chairman Price hoped this plan would appease the party’s far right contingent. Now that the plan has been rejected, the GOP will need to regroup. The markup for the bill could happen as early as Wednesday, with a vote on the floor next week before the House breaks for Easter.
Without the support of the 40-member Freedom Caucus or a significant number of Democrat crossover votes, it is unlikely the bill will pass.
On the Senate Side…
The Senate is not hampered by the same party tensions that have been causing trouble in the House. Last week Senate Majority Leader Mitch McConnell stated:
“We’ll be using the topline that was agreed to last year in order to move forward on the Senate appropriations”
As far as the Senate leadership is concerned, the topline has already been decided, and will proceed with a budget plan that aligns with that initial agreement made last year.
The Bottom line…
The end goal of the budget negotiations is to agree on a spending topline that will set the appropriations process in motion. Congress’s main job in the process is to pass the 12 appropriations bills that will fund the government for the next fiscal year, but that cannot happen before deciding how much will be spent overall.
House Appropriations Committee Chairman Rodgers is caught between a strong will from the Republicans to reduce spending and keeping the budget process moving along in order to pass appropriations legislation out of committee on schedule (typically April-May each year). Chariman Rodgers commented last week:
“What I don’t want us to do is blow up the process, make it impossible to pass bills”
And in regards to cuts to mandatory spending:
“So long as it’s not attached to or part of the appropriations bill, I have no problem with that.”
House Speaker Paul Ryan and Senate Majority Leader Mitch McConnell have set a goal to pass all 12 appropriations bills individually, to avoid a catch-all bill at the end of the year. This has not been accomplished since 1994.
On Monday, John King was confirmed in a bipartisan vote as the Secretary of Education. The bipartisan effort is not a major triumph in this case, as King has already been serving as acting secretary since the beginning of the year and will likely not serve beyond the one year left in the Obama administration.
Republicans will not demonstrate the same level of compromise for the open Supreme Court seat, which remains empty and is likely to stay that way until after the election:
“The American people should have a voice in the selection of their next Supreme Court Justice. Therefore, this vacancy should not be filled until we have a new president” —
Senate Majority Leader Mitch McConnell
Secretary of the U.S. Army — Eric Fanning
After being nominated by President Obama for Secretary of the Army in September, Eric Fanning was confirmed for nomination by a voice vote in the Senate Armed Services Committee last Thursday. Fanning’s nomination now advances to a full Senate vote.
The main obstacle to Fanning’s confirmation comes from Republican Senator Pat Roberts, who has vowed to delay the nomination until President Obama agrees to end his campaign to close Guantanamo Bay and transfer prisoners to US facilities (some of which are located in Roberts’s home state of Kansas). Similar to King, if Fanning is confirmed his position is not guaranteed in the next administration.
Of note, if Fanning does become the Secretary of the Army he will be the first openly gay man to hold a leadership position in military service.
Coming Up On the Calendar:
The Senate will break this Friday, March 18 and reconvene after Easter on Monday, April 4.
The House will be in session until next Wednesday, March 23, and reconvene on Tuesday, April 12.
Hearings season is in full swing and bill mark-ups are about to begin. Appropriations bills from Milcon/VA and Defense will be marked up over the next month and will proceed to the floor of the House by May.Read more
Things you should know
…a periodically published set of common questions and answers.
We are often asked by clients to clarify aspects of the federal budget and funding process. Headlines are often confusing or wrong, and articles are often incorrect or poorly sourced. What business leaders generally want to know is ground truth and what it means to them. A few nuggets:
- We are in FY16. A Consolidated Appropriations package (Omnibus) was passed and signed into law in December 2015. Funds for FY16 are finally flowing in government departments and agencies. The Omnibus passed on the heels of a balanced budget agreement (often referred to as BBA 2.0).
- Much of the funds are “one-year” appropriations and must be spent by September 30, 2016.
- Because funds arrived late, many mid-year adjustments will be made. These “reprogrammings” can represent opportunities or potential challenges to your funding stream.
- The FY17 President’s Budget was sent to Congress in February. Agency “posture” hearings are underway where Executive branch officials attempt to “defend” the President’s Budget request.
- After Congress has conducted hearings, committees will then “mark” their section of the President’s Budget request.
- The time for your input to the marks is NOW…if you aren’t engaged, you have likely missed the window for FY17.
- This being an election year, many foresee this process moving quickly through early summer, and then stalling until after the November elections.
- The FY18 budget is being “built” in most agencies now and should be complete at the agency level by the end of this summer.
- Now is the right time to be engaging your agency customer(s) to shape your FY18 outcomes.
The Defense Budget
Same headlines, different year? Not really.
Beginning with the end in mind, we anticipate a continuing resolution (CR) at least into December. Why? You guessed it, the elections. The Congressional calendar in the beginning of the year is robust. However, after mid-July, there are only 17 scheduled legislative days in session before the election. Congress will not be able to get it all done before the election.
What does it mean for your legislative priorities? Making your case to Congressional supporters and decision makers early is as important this year as ever.
The FY17 Budget is Out…What Does it Mean?
On Tuesday, the Obama administration released its budget proposal for the 2017 fiscal year, including $582.7 billionallocated to defense spending. Although this figure is in line with the budget deal reached this past October, recent developments in the Middle East, Europe, Russia, and China have forced many Republicans to reconsider the feasibility the previously agreed plan. There are two main concerns about the budget circling Republicans and Democrats on the Hill:
1) Determining the OCO budget – is the number right and will it be used for things other than Overseas Contingency Operations?
2) Changing the budget topline – is an increase required and can it be agreed upon? The appropriations process cannot produce a bill without the topline number agreed up front.
Can These Things Be Fixed?
The answer is likely, yes but it will require an exciting legislative ride to get there. At present, the budget allocates $59 billion to OCO funds, but with the recent practice of using OCO money to cover day-to-day operations costs, Republicans worry and argue the figures are fundamentally too low. The problem is that the Balanced Budget Act placed caps on the amount that Congress can increase the DoD budget. As Senator John McCain has consistently pointed out, until this legislation is reversed, Congress will be forced to perform a juggling act between OCO and base budget funds.
Of note, House and Senate Budget committees would not conduct a traditional budget hearing to publicly air positions. That means any topline budget adjustment will be conducted at the leadership level and appear as another backroom deal so disliked by rank-and-file Members of Congress.
Is There Anything to Like About the Budget?
That depends. Secretary Carter has followed through on the promises he made in a speech last week, to prioritize the administration’s “Third Offset” strategy by expanding operations and maintenance spending by $6.5 billion and supporting the acceleration of a variety of technology demonstrations. However, to pay for this increase, procurement has been cut by about the same amount. This means lawmakers representing districts that rely on the weapons manufacturing economy and legacy systems will be in a tough spot to claw those funds back. As suggested in the preceding paragraph, many legislators argue that the current defense budget is simply not enough.
What’s Coming Next Week in Defense…
On February 9 the Obama administration will release its budget proposal for the 2017 fiscal year. The expected topline defense proposal according to the October 2015 budget deal should be $583 billion, split $524 billion in base budget funding and $59 billion for Overseas Contingency Operations funding.
The OCO Debate…
The debate now comes from Republicans who fear that the presently proposed budget will not be enough to account for today’s military threats that have evolved even since the November 2015 budget agreement. The main source of contention is the OCO budget. The administration opposes OCO funds as a gimmick to circumvent sequesters from the Budget Control Act of 2011. Recall sequester amounted to a $50 billion dollar cut each year to the topline defense budget. However, as the Pentagon has faced increased, shortfalls the OCO funds have become necessary to cover everyday military costs. Last year, $30 billion of the $58.8 billion OCO budget paid for base budget services. What Republicans want from next week’s budget proposal is an increased defense budget that will supply sufficient funds for everyday military operations without touching the $59 billion allocated for OCO. Senate Armed Services Chairman John McCain has stated the problem will not go away until the BCA caps are repealed. At present, the most recent budget deal in November 2015 leaves BCA caps in place through 2021, as the law is written.
Comments from Secretary Carter…
Today, Secretary of Defense Ash Carter foreshadowed the administration’s intention to prioritize funding a “Third Offset” agenda over legacy programs in the upcoming FY17 defense budget proposal.The goal of “Third Offset” programs is to modernize U.S. military technology, assigning greater investment towards cyber intelligence, weapons development, and superior artificial intelligence capabilities. Specifically, funds and technologies being used to combat ISIS will be expanded, as well as funds for rotational forces in Europe and undersea weapons technology. The administration has proposed several cuts to existing programs in order to pay the $12-$15 billion cost of “Third Offset” programs over the next five years. Some of these suggested cutbacks are the Navy’s Littoral Combat Ship program, a delay to the F-35A production schedule, and shrinking active-duty Army troops by an additional 40,000 over the next few years. Overall, the FY17 defense budget is expected to preference development of new technology over upgrades to existing programs.
Secretary Carter’s budget plans are already ruffling feathers inside the Pentagon and on Capitol Hill. By prioritizing modernization over force structure, he’s setting up a showdown with lawmakers whose states and districts benefit from legacy programs.
SAVE THE DATE –
HASC NDAA MARKUP SET FOR APRIL 27:
The House Armed Services Committee is slated to mark up its FY17 National Defense Authorization Act on April 27, according to multiple sources familiar with the panel’s tentative plans. The date of the markup, subject to change, puts this year’s defense policy bill on a similar track as last year’s legislation. HASC marked up the FY16 NDAA on April 29.Read more
- Congress has returned for the second session of the 114th Congress;
- Floor actions on the near horizon include: North Korea sanctions enforcement; Iran Terror Finance Transparency and proposed changes to Senate filibuster rules
- FY17 budget will be delivered one week later than usual on February 9th (technically budget is due to Congress on first Monday of February)
- Anticipate agency posture hearings to begin the week of February 8th
- Despite the Balanced Budget Agreement (BBA), it looks like the defense spending figure will again open the dialog on a new budget agreement
- Most recent BBA (reached in Nov 2015) called for FY17 baseline defense budget of $573B with and additional $59B for Overseas Contingency Operations (OCO)
- HASC Chairman Thornberry and SASC Chairman McCain have both publicly expressed concerns that significant terror attacks have continued since the time of that agreement. Rumors abound that the FY17 budget about to be delivered cuts defense top line by $15B.
- The appropriations process (hearings, request deadlines, mark-ups, etc.) for FY17 is expected to move very quickly due to the election year
- Clients should be meeting with Congressional staff about their FY17 concerns in February and March at the latest
- State of the Union occurred earlier than usual this year
- President Obama focused more on past achievements for his final State of the Union, rather than policy initiatives for the coming year
Congress’s Holiday Gift to Obama…
Today, the Senate finalized the $1.8 trillion spending deal and tax package in a 65-33 vote. It is expected that the bipartisan legislation will be signed into law by the President shortly.
The Republicans got:
Lift on long-time ban on oil exports
Permanent tax breaks for business
Sec. 179 small-business expense deductions
The Democrats got:
30% solar tax credit extended, wind protection tax through 2022
Most GOP policy riders (Syrian refugee blocks, rollbacks to Dodd Frank) did not make the bill
Corporations not required to disclose political giving to SEC
Block to IRS rules regulating 501(c)4 group activities
The Cybersecurity Act of 2015 is passed under the spending and tax package, marking the most significant cyber legislation in years. The law permits private companies, such as Facebook and Google, to share private information with intelligence agencies and DHS in an effort to prevent cyber attacks. The issue is extremely controversial, not across party lines, but between privacy rights advocates and members of the intelligence/security community.Read more
Race to the Finish...
Late Tuesday night House Speaker Paul Ryan announced a $1.1 trillion spending bill and $500 billion tax package deal to fund the government through fall 2016. The spending legislation and tax package will go to the House, to be voted on separately, on Thursday. The bills are expected to pass despite criticism from Democrats who feel the tax breaks are too costly and far right GOP members who refuse to concede on the refugee issue. Senate Majority Leader Mitch McConnell has not specified whether the Senate will take up the spending and tax bills separately or together, but has until Dec. 22 to seal the issue before the most recent continuing resolution expires. Expect both bills to be passed before the weekend. Text of the 2009 page Omnibus may be found here: http://docs.house.gov/billsthisweek/20151214/CPRT-114-HPRT-RU00-SAHR2029-AMNT1final.pdf. Accompanying tables should be released within 24 hours.
FY16 Spending Negotiations
The original deadline Dec. 11 deadline for the omnibus bill is likely to be extended through the weekend to Dec. 18. Congress has been struggling to complete the spending legislation in time due to ideological contestations over certain policy riders including refugee policy, financial regulations, and Planned Parenthood funding. A short continuing resolution will prevent a government shutdown, but it is not a permanent solution. Stay tuned.Read more