Quick Hits - What it Means
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.
Busy weeks on Capitol Hill this month. Over the past two weeks I personally observed appropriations staffs moving about their counterpart’s offices working diligently toward completing conference of the FY18 omnibus appropriation. Their stated goal was to be complete well before the March 23rd deadline (when CR number five expires). Chairman Frelinghuysen (House Appropriations) put the heat on subcommittee chairmen to exercise their authority, make decisions and get the bill ready for vote. Look for the House to vote on the bill this week, leaving several days of cushion to allow for any Senate fireworks. Fingers crossed, a bill will make it to President Trump for signature no later than March 23rd.
There are plenty of indications that despite said Congressional relief in timing of FY18 spending, DoD will still end the fiscal year with billions that are not able to be obligated. What this means is that there will be multiple opportunities to reprogram funds late in FY18. Staying close to your PEO and PM with ready solutions that have an available contract vehicle could serve you well. You cannot over-communicate with your PM this year.
Change of Office
Senator Shelby (R-AL) appears well-positioned to assume the Chairmanship of both the Full Senate Appropriations Committee and the Senate Appropriations Defense Subcommittee upon the April 1st retirement of Senator Cochran (R-MS). No Senators have spoken publicly of any other challenger to these key Chairmanships.Read more
The Bottom Line
After a brief shutdown that occurred over night and lasted less than six hours, the Senate approved yet another stopgap funding bill early this morning with a 71-28 vote, followed by a House vote of 240-186 to send the agreement to the president’s desk. The new stopgap bill will keep federal agencies and the military running until March 23rd. While this new legislation includes the framework for a longer budget agreement born out of the Senate on Wednesday, it is important to note that this is not a full appropriation. According to appropriations staffers, the House and the Senate will use this newly extended deadline to finally parse togetherFY18 defense appropriations. President Trump signed the bill first thing this morning.
What is Included in the Two-Year Budget Agreement?
- Increase in spending by $300B over the next two years (around $165B to the Pentagon and $131B to non-defense domestic spending)
- This year: increase in defense spending by $80B and domestic spending by $63B in excess of the 2011 budget caps
- Next year: increase in defense spending by $85B and domestic spending by $68B in excess of the budget caps
- Raises the debt ceiling until March 2019, after mid-term elections
- Will add around $1.5 trillion to the budget deficit over the next 10 years
- $90B in disaster relief funds for US states ravaged by hurricanes and wildfires
Based on an appropriation being agreed in March, expect funds to flow to agencies in June. Billions of dollars will likely go unobligated as they are being received so late in the year again.Read more
What It Means
Shutdown politics produced no “winners” this weekend. Perhaps C-SPAN’s audience ticked up a few notches than it otherwise might have as Congressional staffs followed the hype. The “losers” will prove to be Congressional incumbents of both parties as we approach 2018 mid-term primaries and elections. Most Americans outside of the beltway establishment are simply not following the nuances of the arguments being made – they don’t have the time and Washington fatigue is taking its toll. It all blurs together.
The shutdown outcome produced a continuing resolution that funds the government through 8 February and a promise to bring immigration legislation to the Senate floor by 9 February if an immigration agreement has not otherwise been forged.
What Does This Mean For You?
A fifth Continuing Resolution is in the offing. Look for the prospect of an FY18 omnibus appropriation to now move into February.
Funding negotiations among House and Senate Leaders and the President continue to look dreary. The Continuing Resolution under which the government presently operates will expire 19 January. We’ve reached the point in the timeline where a bill could not be produced for vote and publication by the 19th even if we had a miraculous agreement to terms today.
What Has Happened?
Outlook for Elections
Bottom line for now: another short-term Continuing Resolution next week.
Severe temperatures and snow storms have welcomed us into 2018, and caused Congress to adjourn a day early in their first week back. Below are some quick updates to watch in the coming weeks.
- The storms in the DC area forced Congress to leave a day early, but the deadline for the most recent continuing resolution remains 19 January. Producing non-defense spending equivalence and working on DACA are still the Democrats’ primary goals for the new budget.
- Two Democratic Senators were seated earlier this week, Doug Jones of Alabama andTina Smith of Minnesota, giving the Democrats 49 seats compared to Republicans’ 51. Senator Jones replaced Republican Luther Strange, and Senator Smith replaced former Senator Al Franken.
- On Wednesday the Senate easily confirmed John Rood as the new OSD Undersecretary for Policy, with a vote of 81-7. Rood comes to this position after serving as the vice president of Lockheed Martin, where he focused on increasing the company’s defense footprint in over 70 countries worldwide. Rood’s confirmation completes the senior OSD leadership team nearly a year into the Trump administration.
- President Trump will deliver his first State of the Union Address to Congress on 30 January. He will use this speech to outline his plans for the second year of his administration.
Despite the weather, we will monitor the upcoming legislation to ensure you have the most accurate information to best inform your business needs in the New Year.Read more
As important legislation comes to fruition right before the end of the year, here are our latest updates on the tax reform bill and the third continuing resolution before we take a break for the holidays:
The GOP tax bill passed the House yesterday afternoon with a vote of 224-201, after a procedural issue with the Senate parliamentarian rules forced them to vote a second time. There was unanimous Democrat opposition, as well as 12 GOP members who also denied the bill. The bill passed through the Senate earlier that day, with a vote of 51-48. The President signed the bill into law earlier today during an informal ceremony in the Oval Office , marking the first major legislative victory for Republicans during this administration.
Highlights from the bill include a decline in the corporate tax rate from 35 percent to 21 percent. Republicans predict that the bill will increase hiring and lead to higher wages, as well as incentivize corporations to come back to the US and produce domestically. The total amount in tax cuts in 2018 as a result of the bill is projected to be $135 billion. The bill will also reduce estate taxes and eliminate part of the Affordable Care Act, which could signal an important milestone for the GOP looking to dismantle Obamacare.
With one day to spare, Congress managed to pass a third Continuing Resolution before the 22 December expiration that funds the government through 19 January. While the CR averted a shutdown, the discussion of agreed topline funding levels for FY18 remains unresolved.
When Congress returns from the Holiday recess, it is likely that a two-year agreement on topline appropriations for both fiscal years 18 and 19 will dominate the headlines. As has been the case in recent years, the matter of defense vs. non-defense spending levels will be the crux of the debate.
Of note, an $81B disaster relief package was not included in this funding extension.
We at Capitol Integration wish you a safe and joyous holiday! See you in the New Year!Read more
Republican and Democrat leadership appear committed to averting a government shutdown.
Despite our headline above, we’ve laid back on trying to interpret or predict the future in Congress over the past couple of weeks. The dynamics have been unusual to say the least, and it has taken some time for the fog of ideological battles to dissipate.
What’s Happening Now?
Since the last Quick Hit, Congress appears to have settled on a 2017 endgame that will lead to an FY18 Omnibus appropriations bill. Here’s the quick update of where we are:
- President Trump is expected to sign FY18 National Defense Authorization Act into law in the coming days; the bill was passed to the President from Congress 30 November. It authorizes defense funding at nearly $700B across base and OCO budgets.
- The House and Senate have each passed their versions of a tax bill. Far short of the “tax reform” many hoped for, it has the potential to be the most significant change to tax policy since 1986. The tax bill must complete conference by the end of calendar year 2017 in order to use the specialized voting mechanism that accompanies the reconciliation process – a 51-vote threshold vs. a 60-vote threshold.
- The Senate Appropriations Committee released its version of the FY18 defense appropriations bill the Wednesday before Thanksgiving. It marked to a number about $50B below what many had hoped for and what the House Appropriations Committee had marked to.
- The present Continuing Resolution will expire 8 December. Expect another short-term CR to fund the government through 22 December. This CR is intended to allow Congressional leadership to finally agree on a topline budget number for defense and domestic spending. The NDAA sets a solid target that “defense hawks” hope to reflect in appropriations ($700B). As mentioned above, the Senate is still short of that target today. This means there will be some negotiation about comparable increases on the domestic side of the budget. Expect some flash and bang in the headlines, but look for a compromise to emerge.
- Yet a third CR will then be agreed to fund the government from 23 December into mid-or-late January. This CR is intended to create negotiating space for the final tax bill, as well as some incorporation of immigration legislation (border wall, Dreamer Act, etc.) into a final Omnibus.
The potential exists for substantive Congressional victories on tax policy, budget and appropriations as we transition into calendar year 2018 and Fiscal year 2019 positioning.
What It Means
There is movement and a general sense of optimism that an omnibus appropriation will pass before the end of the year. It would not be without a few challenges along the way. Here’s the streamlined recap below:
- The President’s FY 2018 request for defense spending was $640B, well above theBudget Control Act (BCA) cap of $549B
- The FY18 Budget Resolution, agreed upon on 10/26/17, calls for $640B for defense along with $77B for Overseas Contingency Operation (OCO) funding. Recall the Budget Resolution is a non-binding document. It is not legislation; the President does not sign it. Think of it as bipartisan political guidance.
- The FY18 National Defense Authorization Act (NDAA) is in the final phase of conference between the House and Senate versions. The Senate version calls for $631B base defense and $60B for OCO. The House version calls for $640B base defense and $60B for OCO. Look for conference to complete this week.
- The Senate Appropriations Committee’s Defense Subcommittee has not released the FY18 Defense Appropriations Bill, the bill that actually spends. (SAC-D). The FY18 House version of the same bill calls for $584B in base defense and $74B for OCO.
- It is clear all defense bills released to date suggest the BCA cap ($549B) will once again be ignored. Recall that OCO is considered “off budget.” In recent years, OCO funding has funded items with little relevance to overseas contingencies. Look for Democrats to use these facts as leverage in vying for increases in non-defense categories of the eventual omnibus appropriation.
Tax Reform and the Impact on Appropriations
House Ways and Means Chairman Brady has been the most prominent spokesman for his committee’s version of the Tax bill.
The House GOP plan for a renewed tax code was released this past week, calling for $1.51 trillionadded to deficits over the next decade. Corporate rates and individual rates will see the most substantial cuts in the House version. Certain politically debated clauses, like mortgage interest and property taxes, were combined into a single, more vague provision that should produce $1.2 trillion windfall in the coming years. The provision calling for the elimination of state and local tax deductions was not well received by all, and will be a point of contention going forward that could stall progress.
The markup period for a Tax bill has historically been one week, but with the number of highly charged provisions that remain unresolved, the markup phase will likely go longer. The House hopes to pass the bill on to the Senate before the Thanksgiving recess.
President Trump has made clear he firmly believes a Tax bill can be completed before Christmas. The outcome of the markup phase of the Tax bill will directly impact the movement of an Omnibus appropriation.Read more