Quick Hits - What it Means
Why Do “Caps” Matter?
- President Trump’s budget cuts non-defense programs by $53 billion and raises defense by $34 billion.
- House Democrats are not happy…but neither are Senate Republicans.
- It is possible for Congress to negotiate some of these major cuts by raising the budget spending caps enacted by the Budget Control Act of 2011 but, they would need President Trump’s sign-off, and he won’t budge – or will he?
- After the Easter recess, Congress will feel the squeeze to come up with a budget plan quickly to allow appropriators in both chambers to start drafting their spending legislation for FY20.
What It Means
Some Senate Republicans are almost as resistant to President Trump’s budget as House Democrats because they also don’t want to see major cuts to certain high-level non-defense agencies (like the State Department.) The severity of President Trump’s cuts put Senate Republicans in a tough spot to defend his plan, and many of them just don’t want to. Will Senate Republicans make this their stand?
Historically, one way Congress has navigated budget negotiations is to use the budget spending caps as a mechanism to balance the need to make significant cuts. If Congress is allowed to spend more, they don’t have to cut as much. The current cap levels were determined by the Budget Control Act (BCA) of 2011. House Democrats would like to see those caps raised (to the tune of $17 billion for defense and $34 billion for non-defense) so that there will be less pressure to make the kinds of spending cuts proposed in President Trump’s budget.
The problem is, President Trump has made it clear he will not engage in any negotiations to raise the spending caps. So, why won’t the “dealmaker” President sit down and make a deal? He doesn’t have to yet, the crisis must percolate first.
President Trump’s administration knows, as Congress does, that if the budget caps remain where they are, Congress will have no choice but to accept the cuts in the PresBud. If they can’t work within the constraints of the 2011 BCA, the law stipulates that across-the-board sequestrations will kick into effect for all mandatory and discretionary spending (excluding entitlement programs i.e. Medicare, Medicaid etc.) Those sequestrations would come by way of a stopgap Continuing Resolution (CR) in December 2019. For Congress, in both chambers and both parties, that is a worst-case scenario.
While President Trump refuses to talk, neither Senate Republicans or House Democrats want to debate the issue. There is no point in Congress struggling to reach a resolution to raise the spending caps and force members to make tough votes, if the President wouldn’t sign the legislation they come up with anyway.
So, for now, President Trump’s plan to remain unshakeable on cap deal negotiations appears to be working.
After recess, House Democrats and Senate Republicans will be on the clock to revisit the caps deal conversation because appropriations committees in both House and Senate are scheduled to start their meetings to write spending legislation for FY20. A difficult task for appropriators if they do not have an agreed upon, overall budget number to work with.
SASC and HASC are scheduled to begin the last week of May and first week of June. Appropriators appear to be targeting June.Read more
Here We Go Again – The Road to a Continuing Resolution
What it Means
Well, it was too good to last. Most FY19 spending bills flew through the system with relative ease last year, largely owing to the existence of a budget agreement at the beginning of the process. While the border wall caused some theatrics, defense and MILCON/VA were completed and in place by the start of the fiscal year (October 1st). That smooth process will not repeat this year.
That said, the FY20 process has been moving along quickly since the FY20 President’s Budget arrived to Congress in mid-March. Although the “PresBud” came later than expected and was received with dubious support, the legislative process of converting that budget “input” into legislative “outputs” (bills) kicked into high gear immediately. As we speak, meetings continue to take place across Capitol Hill with staff members from individual and committee Congressional offices. Assisting with and orchestrating these meetings are thousands of lobbyists, preparing and guiding clients to the correct place in the process in order to make a case for their requested policy or funding “outputs.”
What can we expect in the coming months?
Committees have begun to announce their subcommittee and full committee markup schedules; the first opportunity for Congress to publicly declare its initial view of the President’s “input.” Markups will begin at the end of April and run through the beginning of June across all oversight committees.
By the July 4th break, we’ll have a general sense of where the House and Senate each stand on major issues, but it is not likely the two chambers will have agreed upon a “topline” budget number by that time. The House, the Senate and the President all have a slightly different figure they believe is required to fund the government for FY20. Without a common topline number, bills will move through the House and Senate only to then sit and wait, and likely wait some more, while the political dynamics play out.
What will be the key issue that grinds the legislative process to a halt during the summer?
The quick answer is, it’s too soon to know for sure. But, there are a number of candidate issues: responses to Congressional subpoenas, the release of Mueller Report details, immigration, and health care reform all have the potential to slow the process while simultaneously producing leverage.
What can you do now?
Know that your government “customer” likely has a backup plan in mind come October when they find themselves living under a Continuing Resolution (CR). Are you a part of that plan?
***Now is the time to engage with your “customer,” to discuss how and why you should fit in to their year-end plan.***
 There are roughly 14,000 registered federal lobbyists representing every aspect of your life that is impacted by the federal budget
It’s not about “the wall.” The wall is a political lever.
Here’s what matters:
The budget for FY20 has finally been released to Congress. Before going down the rabbit hole of “border wall” funding, let’s look at a few definitions and facts.
- The Office of Management and Budget released the FY20 “President’s Budget” today, known as PB20 or the PresBud
- All President’s Budgets are political documents meant to highlight Presidential priorities; they never execute exactly as proposed
- PB20 signals the real start of the legislative process of delivering appropriations to be allocated within agencies
- The more worrisome budget to watch for is the Congressional Budget; it is nowhere close to being agreed, and until it is, movement of funding legislation will slow to a grind by summer
- In 2018, a two-year Congressional Budget agreement was reached, providing a two-year outline of FY18-FY19 spending thresholds, and allowed for “topline” relief from the 2011 Budget Control Act (BCA)
- Because there was already an agreement in place, the FY19 funding process moved quickly
- While part of the government funding was held up over the 2018 border wall debate, much of the government (including defense) was actually funded on time for the first time in 8 years
- For FY20, no relief from the BCA has yet been agreed, so PB20 is the opening argument to the negotiations
- With PB20 now delivered, President Trump has laid down markers to:
- Ignore the BCA spending caps
- Cut domestic spending by 5% across the board
- Fund DoD to the tune of $750B
- With PB20 now delivered, President Trump has laid down markers to:
Useful definitions when reading or listening to breathless media reports:
Allocation: The House and Senate Appropriations Committees, respectively, decide on how to apportion the budgeted amount to each of their corresponding 12 subcommittees. The amount assigned to each of the 12 subcommittees is known as a 302(b) allocation and taken together the 12 assigned amounts are known as 302(b) allocations.
Appropriation: The provision of funds, through an annual appropriations act or a permanent law, for federal agencies to make payments out of the Treasury for specified purposes.
Authorization: A statutory provision that obligates funding for a program or agency. An authorization may be effective for one year, a fixed number of years, or an indefinite period. An authorization may be for a definite amount of money or for “such sums as may be necessary.”
Budget: Authority provided by law to enter into obligations that will result in outlays of Federal funds.Read more
An End to the Partial Government
Shutdown: The Government Reopens until Feb. 15
On January 25th, the partial government shutdown came to an end following the passage of a stopgap funding bill in the Senate and House to fund the government through Feb. 15. The 35-day long partial government shutdown, the longest in history, ended after a deal reached between President Trump and Democratic leaders Nancy Pelosi (D-CA) and Chuck Schumer (D-NY). The deal includes funding for seven out of the twelve appropriations bill, specifically Agriculture-FDA, Commerce-Justice-Science, Financial Services-General Government, Homeland Security, Interior-Environment, State-Foreign Operations, and Transportation-HUD. The State Department, Homeland Security Department, Transportation Department, and NASA are just a few of the covered agencies the continuing resolution will reopen. FY19 appropriations bills have already been enacted for Defense and Labor-Health and Human Services-Education, as well as for Energy and Water, Legislative Branch, and Military Construction-Veterans Affairs.
One notable absence in the deal is funding for President Trump’s border wall. As part of the deal, however, lawmakers agreed to form a conference committee to negotiate appropriations for the Homeland Security Department. This could ultimately include funding for border security. Though the deal provides much needed relief, there is still a tough road ahead for Democrats, Republicans, and President Trump as they continue to negotiate on President Trump’s demand for $5.7 billion in border wall funding.
Are you ready for FY20?
Even though portions of the government have been waiting for Congress and President Trump to find agreement on FY19 funding, the FY20 budget reveal is immediately upon us. The annual budget is traditionally due to Congress the first Monday in February, in this case the 4th. The administration has signaled their FY20 submission will be late, but we don’t yet know how late. Surely the partial shutdown has impacted some agency’s ability to finalize their budget materials.
That said, companies with government customers should have a pretty good understanding of how they expect their programs to fare in the FY20 submission. If that’s not the case, you might re-assess how close you are to your customer.
As the FY20 submission comes forward, your opportunity to tell your story to Congress is also upon us. Remember, Congress reviews every line of the budget submission and puts its stamp on what eventually becomes the 12 appropriations bills that will fund the government. As such, every federal dollar that will be spent on your programs of interest will have passed through this Congressional review and approval process. Upon review of the public FY20 budget submission, if you find your program took an unexpected “hit” or somehow fell “below the line” this year, you have an opportunity to make sure Congress fully appreciates the impact of those decisions.Read more
Government Shutdown Continues into 2019
While many are celebrating the New Year, federal employees from nine government agencies have been forced to continue to work without pay as the partial federal government shutdown enters its eleventh day absent a compromise proposal from Congress. Since December 22, negotiations to re-open about a quarter of the federal government have stalled over a lack of funding for President Trump’s border “wall” and more broadly the difference in positions of Democrats and Republicans regarding border security. Initially, President Trump had agreed to support the Senate’s plan to continue funding until February 8th, but changed his mind following backlash from the more conservative members of his party in the House.
House Democrats have already created a plan to end the partial shutdown that is expected to pass upon them taking control of the House January 3rd. This plan includes approval of six full-year appropriations bills with new spending totals and a continuing resolution for the Department of Homeland Security funding until February 8th. However, the short-term proposal maintains current border security funding at $1.3 billion, shy of President Trump’s $5 billion request, and can be used for fencing and border barrier repairs. Without more “wall” funding President Trump is likely to reject the proposal, and Senate Republicans will not take up the legislation if the President does not approve. The politicization of border security and deepening polarity in Congress has made compromise challenging—we’ll keep tracking as any significant developments unfold this week.
To all of our readers, we wish you a Happy and Healthy New Year!Read more
Some Reports of Interest
International Workboat Show
Capitol Integration attended the International Workboat Show last week. Having attended for the last four years, one trend was obvious – the commercial maritime and service industry is feeling the lift of an improving economy.
2018 Reagan National Defense Forum
Capitol Integration attended the sixth Reagan National Defense Forum at the Reagan Library this weekend, in the company of civilian and uniformed leaders of the Department of Defense, leaders of Congressional defense authorization and appropriations panels, and leaders of defense Primes and thought leaders from a variety of DC-based think tanks. In the main, it offered attendees a collective sense of where the industry will move in the coming months. Below are a few sobering observations at the macro level:
- The general public is more disassociated than ever from a direct connection to the military, and therefore, an inherent understanding of the present strains on readiness
- Agreement on a “topline” funding figure for defense in FY20 and beyond is far from certain
- President Trump has stated he believes the FY20 number will be $700B
- SASC Chairman Inhofe believes the FY20 number must be $733B
- Incoming HASC Chairman Adam Smith believes the FY20 number must be weighed against relative interests, such as Health Care and Infrastructure
- If the topline were to grow with inflation, that would translate to a relative cut as personnel and operations/maintenance costs outpace inflation
- The military’s ability to win two major conflicts simultaneously is zero
- The outcome of conflicts with China or Russia would include losses of capital assets our country has not seen since World War II
- The tech industry generally views China as the biggest world threat
- US payments on US debt interest to China is effectively funding the ongoing Chinese military buildup
While the defense bill and veterans and military construction appropriations bill for FY19 were dispatched with record speed, seven appropriations bills remain unfinished. Chief among them is the Homeland Security appropriations bill, which funds 18 agencies and would potentially fund a border wall.
The passing of President George H.W. Bush gave Congress convenient top cover to extend the current Continuing Resolution (CR) for two more weeks until December 21st. Funding would otherwise have expired December 7th. President Trump is demanding $5B for the border wall, so look for a compromise to be worked out. While this is a lot of money being debated, compared to both past and previous funding debates this one is likely to be resolved before Congress breaks for the Holidays.
How do Midterm Election Results Impact You?
2018 Midterm Elections
As as a result of Tuesday’s midterm elections, Democrats have retaken the House of Representatives, and Republicans have kept control of the Senate. While results are still incomplete from a few close races, Democrats have won more than the 218 seats needed for control of the House, gaining 28 seats, and Republicans are positioned to extend their majority in the Senate. Currently, Senate results reflect 51 – 46 in favor of Republicans, with Florida, Arizona, and Mississippi likely to go Republican. In the House, results reflect 223 – 197 in favor of Democrats, but forecasters are predicting a final count of 229 – 206.
- How did your relationships fare in the election?
- Are your champions still positioned to guide, assist, challenge policy and address funding issues of interest to you?
- How have committees of interest and oversight for issues concerning your business been impacted by election results?
What “Split Control” Means
- In the House, all committees and committee staffs will change structure by: shifting to Democrat chairmanships; adjusting seats to reflect more Democrat seats than Republican; and, increasing Democrat (majority) staff while decreasing Republican (minority) staff.
- The speedy appropriations process that has unfolded for FY19, including the relative ease with which a topline budget was agreed, will come to a halt.
- Spending and policy issues will be much more difficult to reconcile between House and Senate positions, and will require real compromise to reach completion. In some cases, statesmanship will prevail.
- The “Freedom Caucus” in the House, which exercised considerable sway over House Republican Leadership in recent years, is effectively powerless.
What’s Next in the Near Term?
Congress returns November 13, 2018 for a “lame duck” session. Republicans will expend great effort attempting to wrap up appropriations, including the Homeland Security appropriation where President Trump’s signature border wall would potentially be funded.
What’s Next for the New Congress?
- After a Holiday break, Congress will return January 3, 2019 to formulate the 116th Congress, a two-year period covering calendar 2019-2020. Unfinished legislation from the 115th Congress will either expire or will have to be reintroduced in the new Congress.
- Committees will be reconfigured, a process that normally takes multiple weeks. In both the House and Senate, election losses have created vacancies on multiple committees. Specific rules about the number and types of committees on which Members may serve will cause movement, as some Members will exercise their seniority to serve on a more relevant committee.
- Leadership teams will be reelected in Congress, including Speaker of the House, Leaders of the House and Senate, Majority and Minority Whips of the House and Senate, etc. This process typically takes days, and is normally pre-ordained.
Appropriations Update: GOVERNMENT SHUTDOWN? Maybe not this year!
Appropriations Committee leadership has deployed a clever strategy to break what could have been a massive, and widely disparaged “Omnibus,” into three “minibus” packages. Each minibus is designed to appeal to both Republicans and Democrats in the run up to the election. 9 of 12 appropriations bills are near-ready, a faster pace than seen in over ten years!
FY 2019 Defense and Labor-HHS-Education Appropriations Minibus
Thursday, Congress made positive movement on two major minibus spending packages that will fund the government through the next fiscal year. Most significantly, the conference report for the FY 2019 Defense and Labor-HHS-Education Appropriations Minibus (H.R. 6157) was agreed to, including a stopgap measure that would fund govt. through Dec. 7. This minibus is huge: the spending package combines funding for almost 70 percent of FY19 federal discretionary spending. It provides major procurement wins for shipbuilding and aircraft, as well as funding under a single contract for two Ford-class aircraft carriers, boosts research on hypersonics, and prevents Transfers of F-35s to Turkey.
NEXT STEPS: More conservative Republicans are lamenting the lack of Republican policy riders in the domestic portion of the package, but the minibus is expected to pass both chambers when they return from a brief recess the week of September 24th.
FY 2019 Energy and Water Development, Legislative Branch, and MilCon-VA Appropriations Minibus
Thursday, the House also passed the conference report to the FY 2019 Energy and Water Development, Legislative Branch, and MilCon-VA Appropriations Minibus (H.R. 5895) by a large margin of 377-20. The bill makes up roughly a little more than 10 percent of federal discretionary spending for FY19, and includes the aspect of the Pentagon’s budget that deals with military construction.
NEXT STEPS: The House has cleared the minibus for the President’s signature and so it awaits approval by the President.
The Bottom Line: Congress is making a proactive effort to make sure the government does not shut down and is fully funded for FY19, using this objective to garner bipartisan support to pass the appropriations minibuses. Of note, the Homeland Security appropriations bill has not been included in the three minibuses and remains a wild card pending an agreement with President Trump on funding his high priority border wall.Read more
Appropriations Update: FY19 Defense Appropriations takes another step forward on an uncommonly fast path to completion as the Senate passes minibus appropriations package
FY19 Defense Appropriations
This past Thursday, August 23rd, the Senate passed the FY19 minibus appropriations package to set spending priorities for military, labor, health, and education programs by an overwhelming majority of 85-7. The $857 billion minibus package, H.R. 6157, sets aside $675 billion for defense spending for FY19: $607 billion for base defense funding and $67.9 billion for Overseas Contingency Operations (OCO) funding. Since lawmakers have until Sept. 30 to pass new appropriations for federal agencies, appropriations movement on Capitol Hill has largely been driven by the desire to finalize funding by the start of the new fiscal year to avoid a government shutdown or short-term budget extension for the Pentagon. Given the difficult political environment of the day, another significant legislative win before the November elections would be welcome news. President Trump already signed the FY19 John S. McCain National Defense Authorization Act (NDAA) August 13th, named at the time for the late Senator we lost this weekend. The NDAA only accounts for the policy aspect of defense spending while the defense appropriations bill actually spends funding.
The speed in which appropriations has been moving this year is historic: If passed and signed into law by President Donald Trump by Oct. 1, it would be the first time since 2006 a defense spending bill has been enacted by the start of a new fiscal year.
Notables and Amendments
- Defense Spending Increase: $16 billion increase from FY18 (the largest increase in 15 years)
- Military Pay: Increase of 2.6% (the largest in nine years)
- Cyber: $4 million for the Cyberspace Solarium Commission (established in the FY19 NDAA)
- Readiness: $237 billion for readiness issues
- Shipbuilding: $24 billion for 13 new ships, including two Virginia-class submarines, three DDG-51 destroyers and two Littoral Combat ships
- Senate Amendment 3910 (Shelby/Durbin): Allows for multi-year procurement contracting for SSN Virginia-class submarines
- Aviation: $42 billion for 12 F-35 aircraft for the Navy and Marine Corps, $720 million for new AH-64E Apache helicopters and $240 million for three new V-22 Osprey aircraft
The Bottom Line: The desire to avoid a shutdown, coupled with the need for a legislative win before the November election recess, has allowed for the appropriations process to progress at a historically fast pace. Appropriations Committee Chairman Richard Shelby (R-AL) has led his Senate peers with a deft hand in moving the process so efficiently. Next steps will be for the House and Senate to conference their respective bills, hammering out differences before voting to send the final bill to the President.
Varsity Player’s Footnote: The desire to avoid a shutdown, coupled with the need for a legislative win before the November election recess, has allowed for the appropriations process to progress at a historically fast pace. Appropriations Committee Chairman Richard Shelby (R-AL) has led his Senate peers with a deft hand in moving the process so efficiently. Next steps will be for the House and Senate to conference their respective bills, hammering out differences before voting to send the final bill to the President.Read more
Appropriations Update: FY19 NDAA clears Conference Committee as House enters its last week in session before summer recess
FY19 NDAA Defense Funding Levels (in billions)
|DoD Discretionary Base||$616.9|
|DoE Discretionary Base||$21.8|
|NDAA Authorized Base Topline||$639|
|Overseas Contingency Operations (OCO)||$69|
|NDAA Authorized Topline w/OCO||$708.1|
|Defense-Related Activities Outside NDAA Jurisdiction||$8.2|
|National Defense (050) Topline w/OCO||$716.3|
FY19 NDAA Resolved Bill Summary
This week, Congress released the full conference report for the reconciled FY19 National Defense Authorization Act (NDAA) after Congressional negotiators from both chambers reached an agreement on the policy bill earlier Monday. The NDAA aims to effectively implement the 2018 National Defense Strategy by aligning the budget request with the priorities it outlined in the 2018 National Defense Strategy (NDS) and through organizational reform. The NDAA also covers innovation in research and engineering, strategic competition and effective deterrence of Chinese and Russian aggression, reinforcement of our alliances, modernization of the Joint Force, and retention of our all-volunteer force. Notably, the bill establishes the first U.S. policy on cyber warfare and establishes a sub-unified command for space under the U.S. Strategic Command. The NDAA now awaits final approval, and the House is expected to adopt the measure this week before it enters its summer recess. The Senate is likely to follow as early as August, having decided to extend and work through the month.
Many provisions in the compromised bill go directly against the recommendations of Defense Secretary Mattis and the White House, including a temporary ban on transfers of Lockheed Martin’s F-35 to Turkey, the imposition of a government-wide ban on equipment and services from ZTE, Huawei and other Chinese telecommunications companies, and limitations on support to the Saudi campaign in Yemen. However, other provisions of contention with White House policy were dropped, like the removal the National Nuclear Security Administration from direct control of the Energy Department, and a Trump-backed provision regarding Russian sanctions waiver language was included despite pushback from the Senate.
Differences Resolved in the Final Version
- Authorization for the Huntington Ingalls’ Ford-class aircraft carrier designated CVN-81, if the Secretary of Defense submits a certification to the congressional defense committees
- $7.6 billion to procure 77 Lockheed Martin F-35 Joint Strike Fighters
- $1.6 billion to procure a total of 3 Littoral Combat Ships (2 over administration request)
- $2.4 billion to procure 15 KC-46 aircraft
- $904 million to procure 5 E-2D Advanced Hawkeyes (1 over administration request)
- $508 million for 8 Ship to Shore Connectors (3 over administration request)
- $203.4 million to procure 69 General Dynamics’ Stryker upgrades (66 over administration request)
- Prohibits the retirement of any E-8C Joint Surveillance Target Attack Radar (JSTARs) Aircraft, but doesn’t fund the JSTARs recapitalization program
- Authorizes the National Command Authority to direct U.S. Cyber Command to take appropriate and proportional action through cyberspace to disrupt, defeat, and deter systematic and ongoing attacks by Russia, China, North Korea, and Iran in cyberspace
- Will not eliminate the Washington Headquarters Services, as specified in House-passed version
- Requires the development of a Militarily Critical Technologies List to inform technology protection, export control, and research investment decisions