Quick Hits - What it Means
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
The Bottom Line: With an impending deadline to get passage in the House before recess, conferees were able to come together and compromise on the FY19 NDAA, which is expected to pass before the start of the fiscal year for the first time in over a decade. With $24 billion for shipbuilding and increases in procurement over administration recommendations, Congress has attempted to increase U.S. core capabilities and address 2018 NDS objectives. Following the appropriations process, the next step will be for movement on the FY19 Defense Appropriations Act in both chambers.Read more
Appropriations Update: Yesterday, the Senate took a major step in the appropriations process when the Senate Appropriations Committee approved the defense subcommittee FY19 markups (30-1), as the full House passed its version later in the day (359-49). In addition, full Senate passage of the FY19 NDAA (85-10) has paved the path forward for the bill to go to conference. House leadership named conferees this week.
|President’s Budget||Base: $617.1 billion||OCO: $69 billion||Timeline|
|Base: $616.7 billion||OCO: $69 billion||Conference Committee|
|Base: $617.6 billion||OCO: $68.5 billion||Conference Committee|
|HAC-D||Base: $606.5 billion||OCO: $68.1 billion||Passed in House
Next: Waiting on Senate
|SAC-D||Base $607.1 billion||OCO: $67.9 billion||Markup Approved
Next: Introduction to Senate
Senate and House FY19 Defense Appropriations
After approval by the defense subcommittee at the beginning of the week, the Senate Appropriations Committee (SAC) yesterday marked up the FY19 defense appropriations bill, ordering it to be reported favorably, 30-1. The markup appropriates $675 billion to defense for FY19, with a record high $95 billion for research and development. The specific breakdown reflects already released 302(b) allocations: $607.1 billion for base funding and $67.9 billion for Overseas Contingency Operations (OCO).
The House version of the FY19 defense appropriations bill, which was also passed on the House floor yesterday afternoon, is similar to the SAC version, though it does contain some key differences that will need to be hammered out during conference in the coming weeks.
- Shipbuilding Procurement Funds: $1b difference ($22.7b from the House; $24b from the Senate)
- Littoral Combat Ships (LCS): 3 funded by the House, only 2 funded by the Senate
- F-35 Joint Strike Fighter aircraft: 93 in the HAC version, 89 in the SAC version
- Exclusive to the Senate Version:
- Expeditionary Fast Transport (EPF), $225m
- LHA Replacement (Advanced Procurement), $350m
- LPD-17 (Advanced Procurement), $500m
With the passage of the FY19 NDAA in the Senate, the bill can now move to the House-Senate Conference Committee, where differences between the two versions will be addressed so that a final bill can be put forth. House leadership has already named who will serve on the committee, with notable names like Rep. Mac Thornberry (R-TX), Rep. Adam Smith (D-WA), Rep. Joe Wilson (R-SC), Rep. Frank LoBiondo (R-NJ), Rep. Joe Courtney (D-CT), and Rep. Mike Turner (R-OH). Senate conferees will be named in the coming days.
The Bottom Line: Defense bills are moving unusually fast this year for two reasons: (1) it’s an election year, and (2) there was an agreed topline number in the two-year budget agreement covering FY18-FY19.
Be alert: The current budget agreement does not cover FY20 and beyond, and budget caps associated with sequestration return in FY20. While relief may again emerge post-election, your program managers and program executive officers are working the details of FY20 now. Make sure you aren’t wedged out by an early or uninformed agency decision.
Happy Independence Day to our growing Quick Hit readership!Read more
Highlights: This week, The HAC convened to consider the FY19 defense appropriations bill, while the FY19 NDAA is being debated on the Senate floor. SAC-D defense appropriations markup is on track for completion in June.
FY19 Defense Appropriations Bill Markup in the House
Earlier today, June 13th, the House Appropriations Committee (HAC) marked the FY19 defense appropriations bill, after the Subcommittee on Defense approved its markup last Thursday, June 7th. The bill was ordered to be reported favorably, 48-4, and includes funding for operations, readiness, equipment modernization, and health and quality-of-life programs for troops and military families. The markup has DOD receiving $674.6 billion to defense for FY19.
The HAC released “tables” late last night to accompany the draft released last week, which includes a breakdown in numbers on the appropriations procurements.
- Military Personnel and Pay: $144b ($139.3b base requirements and $4.7b OCO).
- Operation and Maintenance: $245.9b ($197.6b base requirements and $48.3b OCO). This includes $1b above the request to fill readiness shortfalls, $1.05b above the request to invest in facility sustainment, restoration, and modernization programs, and $20.6b total for depot maintenance.
- Research and Development: The bill contains $92.4b ($91.2b base requirements and $1.2b OCO). Specifically, this supports R&D for the F-35 Joint Strike Fighter; space security programs; nuclear force modernization; the Ohio-class submarine replacement; Future Vertical Lift; and the Israeli Cooperative Programs. It also supports continuation of the E-8 JSTARS recapitalization program, rejecting the Air Force’s strategy to replace them.
- Equipment Procurement: $145.7b ($133b base requirements and $12.7b OCO).
- $22.7b for Shipbuilding and Conversion, Navy, including:
- Three Littoral Combat Ships (made in two versions by Lockheed Martin and Austal Ltd)
- Three DDG-51 guided missile destroyers
- Two Virginia-class submarines
- Two TAO fleet oilers,
- One Expeditionary Sea Base,
- One Towing, Salvage, and, Rescue Ship
- Continued procurement of the Columbia Class submarine
- $9.4b for 93 F-35 Joint Strike Fighter aircraft (Lockheed Martin)
- $1.9b for 24 F/A-18E/F Super Hornet aircraft (Boeing)
- $1.5b for the upgrade of 85 Abrams tanks (General Dynamics)
- $22.7b for Shipbuilding and Conversion, Navy, including:
- Savings and Cuts: $870m in savings from rescissions of unused prior-year funding. (TAKE NOTE – nearly $1b in unobligated funding from prior year appropriations!)
- Cuts $115.7m of FY18 funds from Tomahawk program due to mismanagement of the program by the U.S. Navy, according to the report.
NDAA Passage Looming in the Senate; Subcommittee Hearings in SAC-D
The Senate resumed consideration of the FY19 National Defense Authorization Act (NDAA) earlier today, and is expected to pass the bill as early as this week. Yesterday, a major block to NDAA passage was removed by acting chair Senator Jim Inhofe (R-OK), who shelved an amendment sponsored by Senator Bob Corker (R-TN) limiting President Trump’s authority to issue tariffs on the basis of national security. According to Inhofe, Corker was blocking consideration of all amendments to the FY19 defense authorization bill until guaranteed a vote on his provision. Even so, other Republicans are still posing more blocks, like Senators Rand Paul (R-KY) and Mike Lee (R-UT) as they try to secure a vote on a provision prohibiting indefinite detention of U.S. citizens. The White House is also at odds with a bipartisan amendment that would restore penalties on the Chinese telecommunications giant ZTE Corp.
As for the FY19 defense appropriations, the Senate Appropriations Subcommittee on Defense (SAC-D) is continuing the appropriations process with budget request hearings. Most recently, there was a classified hearing to review defense innovation and research funding, which took place last Wednesday, June 6th. The pace for the process this year has been faster than in previous years, as all markups are expected to be completed by the end of June.
The Bottom Line: Top Line numbers and next steps for FY19 defense spending are as follows
|President’s Budget||Base: $617.1 billion||OCO: $69 billion||Timeline|
|Base: $616.7 billion||OCO: $69 billion||Waiting on Senate Vote
Next: Conference Committee
|Base: $617.6 billion||OCO: $68.5 billion||Floor Action – Debate
Next: Passage (as early as this week)
|HAC-D||Base: $606.5 billion||OCO: $68.1 billion||Full Committee Markup
Next: Introduction in House
|SAC-D||Base $607 billion [302(b) allocation]||OCO: $67.9 billion [302(b) allocation]||In Subcommittee
Next: Markup (late June)
Highlights: Congress is on recess this week. Last week the FY19 NDAA passed on the House floor and made progress in the Senate. The FY19 defense appropriations process also continued in both chambers.
NDAA Progress in the House and Senate
The House version of the National Defense Appropriations Act (NDAA), H.R. 5515, passed with a 351-66 vote last Thursday the 24th. That same day, the NDAA also made progress in the Senate, when it was advanced through the Senate Armed Services Committee (SASC) and ordered to be reported, making it possible to be introduced to the whole Senate. Both versions attempt to address issues of oversight and management, accidents caused by military equipment, proper alignment of resources to meet priorities and demands, and a degrading state of capabilities, reflected in years of continuous war operations and what has been considered a lack of adequate funding.
Funding breakdown in the Senate:
- $639.2 billion for base DOD and DOE national security programs, $617.6 billion and $21.6 billion respectively
- $68.5 billion for Overseas Contingency Operations (OCO)
- $8.2 billion for defense related activities outside NDAA jurisdiction
- Total for FY19 national defense spending $716 billion
Funding breakdown of NDAA in the House:
- $616.7 billion for base DOD and $22.1 billion for DOE for a total of $638.8 billion
- $69 billion for OCO and $8.9 billion for mandatory spending
- Total for FY19 national defense spending $717 billion
- Aviation: The House and Senate both authorized the purchase of 24 Boeing F/A-18 E/F Super Hornet aircraft.
- Missile Defense: Both the House and Senate NDAA include provisions for procuring Standard Missile-3 Block IB missiles, effectively awarding a five-year contract worth roughly $1.9 billion to Raytheon for up to 204 of the missile interceptors. The Missile Defense Agency certified that the contract would save $212 million over annual purchases.
- Nuclear Warheads: In keeping with President Trump’s Nuclear Posture Review, both the House and Senate versions authorize development of low-yield nuclear warheads to be carried on submarine-launched ballistic missiles. Previously prohibited by the fiscal 2004 NDAA, development and production is being backed by $65 million in the Senate version.
- Tough on China: Both chambers increased pressure on President Trump not to weaken prohibitions on ZTE Corp., a Chinese telecommunications equipment maker accused of violating trade-sanction agreements and considered a threat to U.S. national security. The legislation includes bans on the use of ZTE-made technology by government agencies and prohibits the DOD from renewing contracts with vendors that work with ZTE Corp.
- Aviation: The House NDAA authorized the purchase of 77 Lockheed Martin F-35 Joint Strike Fighters, which is two more than requested by the SASC. The House also approved the purchase of 12 Boeing Co. KC-46A tanker aircraft, three fewer than requested, while the Senate authorizes 14, only one fewer than requested. Both moves were made “to restore program accountability,” amidst delays that Boeing is experiencing in delivering the tankers.
- Sea Power: The House NDAA has paved the way for the construction of an additional Ford-class aircraft carrier, CVN-81, to be made by Huntington Ingalls Industries Inc., while the Senate version does not back the purchase. The two versions also differ in requests for Littoral Combat Ships. The Senate NDAA authorizes one ship, the same as the Pentagon’s request, while the House authorized three ships, made in two versions by Lockheed Martin and Austal USA.
- Cyber: While both versions include provisions that provide funding for cyberspace activities and increasing cybersecurity capabilities, the Senate version addresses Russian cyber attacks, whereas the House version only makes mention of Chinese “malicious cyber activities.” The Senate NDAA specifically authorizes the White House and Secretary of Defense “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 in cyberspace.”
The Bottom Line: For all the differences between the two versions, both chambers address aircraft and ship procurement needs as enumerated by the Pentagon, and provide funding to help bolster U.S. capabilities in areas like missile defense and cyber. The breakdown of allocations is only slightly different in both versions, and any discrepancies will eventually be worked out when the bill goes to conference committee as early as late summer.
Appropriations Progress and 302(b) Allocations – How the Funding Breaks Down
The Senate Appropriations Committee (SAC) Chairman Richard Shelby (R-AL.) and Vice Chairman Patrick Leahy (D-VT) announced 302(b) Subcommittee allocations for FY19 last Thursday after the first full committee markup. All 12 subcommittee allocations must adhere to the $1.244 trillion discretionary spending cap set earlier this year by the Bipartisan Budget Act of 2018, which includes $647 billion for defense funding, $597 billion for non-defense funding, and $77 billion in funding for OCO. In the Senate, a markup of the Defense Appropriations Act for FY19 is expected the week of June 25-29.
302(b) allocations in the Senate: $607 billion for defense funding, $67.9 billion for OCO. $21.9 billion is also allocated for DOE defense related activities as part of the Energy subcommittee.
The House Appropriations Committee (HAC) also approved their 302(b) allocations in adherence with the Bipartisan Budget Act of 2018, submitting their report on Wednesday of last week. The 302(b) allocations in the House are $607 billion total.
Highlights: Mark up Season is Well Underway. Finding the Loose Change in FY18.
Appropriations Process and NDAA Movement
The appropriations process is underway with multiple House appropriations subcommittees marking their versions of FY19 spending bills. While the House defense subcommittee has yet to mark, it will likely vote out of subcommittee and full committee by the end of May. The Senate appropriations defense subcommittee will mark its version of the defense appropriation during the last week of June.
On May 9-10, the House Armed Services Committee passed the FY19 defense authorization bill (the NDAA) by a 60-1 vote.
The $717 billion defense policy bill now moves to a full House vote in the coming weeks, and the Senate Armed Services Committee is scheduled to adopt its own draft of the defense policy legislation next week.
What is in the NDAA Bill:
- Troops: The bill approves nearly 16,000 additional active-duty troops across the military and implement a 2.6 percent pay raise.
- Aviation: The bill provides $39 billion for aviation upgrades and more than $25 billion for equipment maintenance. It also authorizes the purchase of 77 F-35 Joint Strike Fighters, though there is an amendment that would allow the Defense Department to buy an unspecified number of additional F-35s if it can find savings.
- Sea Power: Big additions for the Pentagon’s budget dealt with ships. Construction of a fourth Ford-class aircraft carrier was accelerated, and lawmakers provided funding for long-lead time materials for two additional Virginia-class submarines to be built in 2022 and 2023. The bill also authorized two additional Littoral Combat Ships.
- Nuclear: In line with the Trump administration’s desire for a Nuclear Posture Review, the bill authorizes $65 million for developing and producing a low-yield nuclear warhead.
Points of Opposition in HASC:
- “Fourth Estate” Cuts: House Armed Services Committee Chairman Mac Thornberry’s effort to cut more than $25 billion dollars by 2021 was met with bipartisan opposition. He walked back his attempt to reduce Pentagon bureaucracy by eliminating 7 of the 28 non-military management agencies in the Fourth Estate, giving more deference to the Pentagon on providing solutions to cut costs. Furthermore, an attempt to preserve the Defense Information Systems Agency was defeated along party lines, but an amendment to protect the Test Resource Management Center was approved.
- Checks on Trump: Many attempted amendments dealing with Trump Administration decisions did not make it into the final cut, including limits on Trump’s planned Veterans Day military parade to only ceremonial units and equipment, limits on the role of National Guard troops ordered to the U.S.-Mexico border by Trump, and prevention Department of Defense funds from going to building a border wall. In addition, an amendment that would have slowed down the groundwork for a space force was also defeated, after Trump suggested he would be in favor of creating a sixth military branch dedicated to space
The Bottom Line: Defense authorizations are on a fast track, setting the pace and laying the framework of the FY19 national security budget. As a historical point, final defense authorization bill passage hasn’t happened before the start of the new fiscal year since 2009. Could this be the year?
The race is on to find the loose change in FY18 spending. Many agencies are simply not able to obligate all of their FY18 funding as originally planned; late arrival of FY18 funds has forced agencies to request permission from Congress to move funds (if greater than $10 million), or “sweep up” unobligated funds before year end so they might be applied to programs and projects deemed “ready now.” Are you waiting on FY18 funds? If so, you should be in position to clearly understand the spend plan of your program office for the coming months. We can help if you are not sure how to ask the right questions that will assure contract funding.Read more
On Thursday afternoon, the House passed a 1.3 trillion dollar omnibus spending package to avoid a third government shutdown this year, which would have occurred after the expiration of the continuing resolution passed earlier in February. Just after midnight Friday, the spending bill also passed in the Senate despite initial misgivings from Senator Rand Paul. Friday afternoon, President Trump signed the spending package, which includes all 12 appropriations bills and conforms to new spending caps set by the Bipartisan Budget Act of 2018 that was passed last month. Trump had earlier threatened he would veto the bill due to a lack of funding for his cornerstone border wall with Mexico, and a dismissal of addressing or extending protections for DACA recipients. However, after a phone call with Secretary Mattis, he praised the increase in defense spending, funding the government through September.
What is included in the omnibus spending bill?
- Homeland Security: At the center of the spending package is a “strong military and secure border,” according to the White House, and indeed this bill provides $6 billion for a border wall with Mexico and related border security technologies, as well as boosts the Department of Homeland Security’s budget by $6.3 trillion.
- National Defense: The bill increases military spending and provides $654.6 billion for the Pentagon — $700 billion including OCO funding. It specifically increases funding for procurement across the services, provides a pay raise to military personnel, and increases research and development funding.
- Rebuilding Infrastructure and Combating the Opioid Crisis: The bill provides funding for new Infrastructure projects, specifically $650 billion for Amtrak’s Gateway project, which aims to bolster railway infrastructure between New York and New Jersey, and provides $4 billion across different agencies to deal with the opioid epidemic.
- Gun Measures and School Safety: Included in the spending package are measures meant to strengthen gun sale background checks and more that $2 billion for new funding to improve school safety.
The Bottom Line: The federal government is funded through September. Of note, there are some allowances for DoD to spend portions of the funds beyond the end of the fiscal year in recognition of the challenge to obligate and spend the funds fully half way through FY 2018. Look for FY18 funds to be flowing into program offices no later than early June.