Quick Hits - What it Means
What should you be doing right now?
- Confirm your FY17 appropriation survived the House-passed bill last week
- Determine if any of your prior funding (FY15-16) suffered a rescission
- Confirm the status of your program(s) in the FY17 supplemental
- Maintain communication with your government customer; they know what they submitted for FY18 and should be revealed in May
- Recognize that your government customer is working diligently on FY19 and FY20 planning today; engage now
What You Need to Know…
Senator Thad Cochran (R-Mississippi), Chairman of the Senate Appropriations Committee and Chairman of the Defense Subcommittee in Appropriations
President Trump’s skinny budget (the broad outline of a budget) for FY18 was delivered to Congress last week. It would remove $15B from non-defense programs while adding $54B to DOD, DHS and some security portions of DOE. The “pay-fors” of the $54B equate to serious cuts in several remaining agencies. OMB Director Mulvaney made his position clear that this budget requires difficult discretionary spending cuts to help shift funds towards the new White House vision; a vision much more aligned to “hard power.”
The FY18 defense budget blueprint looks to bring $639B to defense with a $574B base budget, and an additional $65B in OCO funding. Specific details for the defense blueprint will likely not be available until May when they are delivered to Congress.
FY17 Spending Bill Movement
The FY17 spending bill has been in limbo for months. Recall that the government is presently operating under a continuing resolution that funds the government at FY16 funding levels; the CR expires April 28th.
Yesterday, the House Rules committee passed a rule allowing the FY17 defense appropriationto come to the House floor, which will happen today, for a vote that could reinvigorate the funding approval process. The $583B defense appropriation adds $9B above President Obama’s original budget request through the Overseas Contingency Operations (OCO) account. The original bill added $18B to OCO, broke the BCA spending caps and drew much criticism from budget experts. Bipartisan support of this revised FY17 defense appropriation in the House is anticipated.
The bill will then proceed to the Senate, where it is expected to stall; Senate Democrats are not yet in agreement on proposed increases/reductions to defense and non-defense spending categories. Democrats have long held that any increases to defense spending must be matched by increases in non-defense spending.
A supplemental appropriation has emerged at the same time as the renewed FY17 appropriations activity. Specific details of an approximately $30B supplemental appropriation have not yet been revealed, but are expected to be released publicly in March. This supplemental is widely expected to provide a “down payment” on President Trump’s signature border wall.
Last week, President Trump formally proposed the FY18 $603B “skinny budget” for defense, providing the contours of the topline without the details. The detailed FY18 budget will not be revealed before May. OMB Director Mulvaney claims this will be a 10% increase in defense; however, that 10% is as measured against the 2011 BCA cap baseline of $549B. The budget cap has been evaded each of the past several years using the Overseas Contingency Operations (OCO) account. Defense policy experts, as well as SASC Chairman McCain (pictured above) and HASC Chairman Thornberry, recognize it’s only a 3.2% increase above President Obama’s FY17 request. The House Armed Services Committee proposes that $640B in defense spending is the required number.Read more
What a time we’re in! A complex budget process has now been made even more challenging with a White House and Congress fully engaged in national security issues of great significance. Despite the high-energy news headlines and the distractions of the day, there will be funding bills that move forward in the coming months.
Congressional leadership appears to remain willing to help the new administration implement its agenda through legislative actions. How long the favorable alignment lasts is not known; however, it is likely Congress will prove to be a moderating force over time. Elections have a way of focusing actions and 2018 mid-term elections are not far off. Every Member of the House and roughly one third of the Senate – 23 Democrats, 2 Independents and 9 Republicans – are up for election in 2018.
- GOP advocates in Congress have softened their tone recently regarding the Affordable Care Act (ACA). The new tag line is “repair and replace” as many come to recognize that complete repeal may actually cause harm to many in the health exchange.
- The current House GOP tax proposal would see an increase in the federal debt by an estimated $3 trillion over the next ten years. President Trump foresees a quick one-year turnaround for this plan, which will require significant work going forward. Public statements look for movement before 2018.
- Rep. Buchanan (R-FL) (pictured above), Chairman of House Ways and Means, has called the plan very “pro-growth” and predicts a release date of August. He is confident that the new plan will help business interests and thus increase investment, propping up consumers who serve as 2/3 of the nation’s economy.
- Any delay in confirmation of Congressman Mick Mulvaney as OMB Director will directly impact timing of unfinished FY17 bills and the FY18 budget.
- Press Secretary Sean Spicer said the budget would be out in a few weeks, but there is much speculation among Democrats in particular that the timeline will be much longer.
- As reported in previous Quick Hits, the FY 18 budget will be delivered to Congress nearly three months later than is traditionally the case. Anticipate an FY18 budget to OMB byMay 1st, and to Congress by Memorial Day.
- A supplemental FY17 appropriation will be forwarded to Congress in March; inputs are due from Executive Branch agencies by March 1st.
- Questions are circulating about when the debt ceiling may actually be raised, as it could come as early as May or as late as August or September. GOP members will look to separate the debt ceiling discussion from appropriations battles.
- Rep. Diane Black (R-TN) (pictured below) will most likely become Budget Committee chair after the confirmation of Congressman Tom Price for HHS Secretary, and she could bring strong thoughts to the table regarding ACA.
- Countless senior civilian appointments remain unannounced, unconfirmed, and therefore, unfilled across government. SASC Chairman McCain has expressed concern at the slow pace of names being forwarded to his committee for consideration of numerous defense posts. Beneath the surface it is clear that SecDef Mattis has expressed his intent to offer input on leadership positions within his department.
Status of Cabinet confirmations
Secretary of State: Rex Tillerson
Defense: General James Mattis
Homeland Security: James Kelly
Transportation: Elaine Chao
Health and Human Services: Tom Price
Education: Betsy DeVos
Attorney General: Jeff Sessions
Treasury: Steven Mnuchin
Veterans Affairs: David Shulkin Still to be confirmed:
Labor: Andrew Puzder
Housing and Urban Development: Ben Carson
EPA: Scott Pruitt
OMB: Mick Mulvaney
Energy: Rick Perry
With all the discussion about the new administration’s policies, cabinet confirmations, filling senior executive positions throughout government, a Supreme Court nominee and following the Twitter sphere, where should one focus? Bottom line: plan for a late, short and quick legislative cycle for FY18. I’ve had the opportunity over the past month to engage with industry, Pentagon and Congressional leaders – a common message from all is the prospect of opportunities for defense. Be engaged and be ready. Your moment will come and pass quickly. SASC Chairman McCain’s first effort to mark a blueprint ahead is here.
What it Means
– The FY17 continuing resolution expires April 28th. It is likely that an FY17 appropriation will be signed before the end of April.
– A supplemental appropriation of $6-9B has been in the works since before the end of the last Congress. Expect it to reemerge within the coming weeks. It addressed a few items that were left on the cutting room floor of the FY17 debate and will provide a bridge of sorts into the FY18 debate.
– The FY18 budget is anticipated to come forward from OMB to Congress by late April, definitely by 1 May. The nominee for OMB director, Rep. Mick Mulvaney (R-SC), has faced a challenging confirmation process but should ultimately be confirmed. Delivery of the President’s budget request typically signals the start of the process and legislative season.
– Full-blown posture hearings will not begin before the budget is made public. This effectively delays the start of the process.
– Committee staffs are largely waiting for direction on a legislative schedule. If you have a stable program without special needs, it’s worth checking in with your committee professional staff member to provide your routine update. If you have special needs, it’s best to wait for confirmation of your budget number when the FY18 budget is released. Communication with your oversight committee’s professional staff member(s) early is always a good idea.
– Make sure your government customer understands the status of your program and your contract as we approach an interesting year. The flow of funds for FY17 will come quickly once that appropriation is signed.
Don’t be distracted by the noise. The process remains in place and really can’t be short-circuited.
With the Presidential Inauguration just days away, Senate confirmation hearings have dominated Hill activity in preparation for the start of the new administration.
The confirmation hearing for General James Mattis, up for Defense Secretary, was held last Thursday morning. His hearing went quite well. The Senate voted 81-17 to pass a required waiver that would allow General Mattis to take the position despite legislation that states that retired military officers cannot serve as civilian head of military within seven years of active duty. The House passed the waiver on Friday with a vote of 268-151, with only 36 Democrats supporting the bill. Democratic resistance in the House can be attributed to a last-minute reversal by the Trump transition team of a plan for Mattis to testify before the HASC last week. Waiver legislation will now move to the President’s desk to await his signature after he is inaugurated on Friday. Today, SASC voted 26-1 that the full Senate should approve General Mattis for this position once the President signs off on it after taking office, meaning it will not have to go through committee after the President’s signature.
Hearings for Rex Tillerson, nominee for Secretary of State, and Mike Pompeo, nominee for CIA Director, were completed last week. Jeff Sessions, nominee for Attorney General, faced two days of questioning during his confirmation hearing. President-elect Trump surprised some with his nominee for the Secretary of the US Department of Veterans Affairs, Dr. David Shulkin, who presently serves as Under Secretary of Health at the VA in the Obama administration.
Interior Secretary potential Ryan Zinke and Education secretary nominee Betsy DeVos had their respective hearings Tuesday afternoon. The hearing for President-elect Trump’s pick for UN Ambassador, Nikki Haley, and Treasury secretary, Steven Mnuchin, will take place today. Senator Elizabeth Warren has expressed her opposition to Trump’s nominee for this position, and will continue to do so leading up to the hearing. Tom Price, nominee for Department of Health and Human Services, faces confirmation today as well.
The hearing for Mick Mulvaney, Trump’s pick for the leader of the Office of Management and Budget, will occur on January 24th.
Early battles taking shape
Senator McCain, SASC Chairman, staked out his terrain in releasing a plan to increase the Pentagon’s base budget and spending on nuclear weapons by $430 billion over a span of five years. The bill would produce a total defense spending proposal of over $700 billion, which is almost $100 billion more than what was authorized for this year. The bill would bring in multiple changes, such as increased troop posture in the Army to over 500,000 active duty troops, increasing the size of the Marine Corps to 200,000 by FY22, newer warships and more fighter jets. This move will require overturning the spending caps put in place by the 2011 Budget Control Act. While some may argue the fine points of the plan, the defense industry overwhelmingly supports the plan’s fundamental concepts – remove sequestration; investment in readiness, and, smart investment in capability – reversing a multi-year decline in defense spending.
Health Care Reform
The Obamacare debate continues, with Republicans pushing to repeal the Affordable Care Act that is said to cause 32 million people to lose their health insurance and double the price of premiums over the next ten years. The analysts at the Congressional Budget Office will play a critical role in the development of this legislation, especially as they bring to light the difficult compromises and sacrifices that arise with health care reform. During this process, Republicans have discussed funding up to $9 billion in health care subsidies to avoid wreaking havoc on the insurance market for the American people. It is still unclear whether this move would require an appropriations bill or a repeal and replacement bill.
Most Republicans believe the window is open to finally move on a significant streamlining of the tax code, including notable reductions in all tax rates. Some have been surprised to learn of the linkages between the Health Care Reform debate and the Tax Reform dialogue. Managing these federal revenue streams will require uncommon Congressional leadership to implement complimentary legislative changes.
Attendance and participation in the Presidential inauguration Friday is anticipated to be lighter than is typically the case; fewer than one million are expected to fill the National Mall. Many Democratic lawmakers have indicated they will “boycott” the inauguration. Regardless, the peaceful transition of power moves forward.Read more
President Obama visited the Hill today to urge Democrats against “Trumpcare.”
Players and movements aplenty
Paul Ryan was re-elected as House Speaker on Tuesday with 241 votes, defeating challenger Nancy Pelosi and her 194 seats. Ryan will continue his leadership for another two-year term on the Hill. There are several new players coming on the scene in the Senate, as freshman John Kennedy (R-La.) and Marco Rubio (R-Fl.) will join the Appropriations Committee. Elizabeth Warren (D-MA) turned heads with her move to the Senate Armed Services Committee. In the House, Diane Black is the most likely candidate for the Chair of the House Budget Committee, replacing current Chairman Tom Price (R-Ga.) if she is successful. Still to be confirmed are House appropriations seats and subcommittee chairmanships, most notably HAC-D. Many consider Kay Granger (R-TX) to be favored to get the nod for defense appropriations over Hal Rogers (R-KY)…we will know very soon.
Senate budget reveal
Senate Republicans unveiled a first look at the outline for their budget proposal that will seek to repeal Obamacare, supported by Senate Majority Leader McConnell. Expect a vote on the adoption of the budget to come next week, with the Republican-dominated House to follow shortly after.
Vice President-elect Mike Pence returned to the Hill today to meet with Republicans to discuss future plans for Obamacare.
Office of Congressional Ethics challenged
The biggest news of the 115th Congress’ first day back on the Hill revolved around House Republicans’ attempt to revamp the Office of Congressional Ethics in order to create the Office of Congressional Complaint Review. Suggested by Rep. Bob Goodlatte of Virginia, the change would put the new office under direct supervision of the bipartisan House Ethics Committee. Significant public backlash forced the GOP to drop the proposal and agree to revisit the matter at a later date. House Speaker Ryan objected to the proposal, and President-elect Trump expressed his disagreement as well. Now the House rules package will move forward without the OCE stipulation. This proved to be a needless early procedural and messaging stumble.
The New Administration comes into focus
Look for Republican defense hawks to encourage significant increases in defense spending, in accordance with President-elect Trump’s promises for a prominent military build-up while he is in office. Finally removing sequestration from the table of alternatives will be an early and visible effort. Additionally, and as previously reported in Quick Hits, expect a supplemental appropriation early in the calendar year.
Defense companies are quickly recognizing that a nimble communications staff will be required to keep up with President-elect Trump’s use of social media to quickly stake out a position on challenging issues.
It will be a busy year. Stay tuned for easy-to-read and easy-to-digest Quick Hits summaries.Read more
Wishing you a Happy Holiday and a joyful New Year from Capitol Integration!Read more
We are now operating the government on a Continuing Resolution (CR) that will take us seven months into FY17. Unlike a simple date extension CR’s of late, this CR ran 70-plus pages with numerous “anomalies.” The CR passed the House 326-96; passed the Senate 92-7.
Part of the reason the CR passed with relative ease is the knowledge that a significant supplemental appropriation will come forward early in 2017 – it could be as big as $10B before the dust settles.
The FY18 budget, typically due from the President to Congress the first Monday of February, likely won’t get to Congress before April. Agency inputs to the FY18 budget have been complete for some time, albeit without the final touches of a new administration.
National Defense Authorization Act (NDAA)
Passed the Senate with ease and moved to President Obama’s desk this week. Of particular note, the bill elevates US Cyber Command to Combatant Commander status, making it the 13th Major Combatant Command in the Unified Command Plan. Additionally, substantial acquisition reforms, too many to detail here, represent some of the most significant legislative policy prescriptions for DoD in decades.
Contrary to the media headlines of ExIm being a corporate welfare program, several small-to-medium-sized businesses indicate that ExIm affords their international customers access to funding that is not always available overseas. The CR mentioned above failed to include a provision that would restore the Export-Import Bank’s financing authority.
National Defense Authorization Act (NDAA)
On Friday the House passed the $619B NDAA by a vote of 375-34. The bill will move to the Senate this week, where it is expected to receive similarly strong support and easy passage. The bill reflects a compromise of the House and Senate versions passed out of committee earlier this year. The compromise provides for $9B in overseas contingency funding (OCO) versus the $18B in the original House version of the bill. The $9B in OCO directs $3.2B for readiness shortfalls in the base budget, and $5.8B for troops in Afghanistan and operations in Syria. See the text of the NDAA here.
See the HASC summary of the bill here.
Despite the relatively good news of agreement and compromise on the NDAA, appropriations will take months longer than previously anticipated. This week Speaker Ryan and Leader McConnell agreed to the incoming administration’s request to extend the continuing resolution (CR) into March, and possibly April. The time is expected to give the Trump team an opportunity to put its stamp on any funding agreement, while also allowing the Senate time to process the myriad confirmation hearings required in order to seat a new cabinet.
Fourth Annual Reagan National Defense Forum
- Generally very positive impressions of the defense spending outlook in the Trump administration with some caveats:
- As a practical matter, increases in defense spending and relief or repeal of sequestration, non-defense elements of government will have to receive some relief as well, although not necessarily equal relief
- Despite Republican control of the House and Senate, Democrats in the Senate can impose the 60 vote threshold and prevent passage of funding legislation – Republicans won’t be able to just force everything through
- The nomination of General Mattis is universally appealing to the defense industry and Congressional defense leadership.
- Senator Gillibrand (D-NY), a member of the Senate Armed Services Committee, has indicated she will not support the required legislative waiver for General Mattis to serve in this civilian role less than 7 years since his departure from active duty. The waiver legislation, supported by Chairman McCain and many others, may be a test case to see how difficult Senate Democrats will make the confirmation process for the Trump administration. Senator Gillibrand’s resistance can force a 60 vote requirement in the Senate, or we could see her use the leverage to force the Senate to revisit her previously failed legislation requiring changes to the pentagon’s handling of sexual assault cases. Look for the latter at this point.
- A supplemental funding request of between $6B and $9B is imminent. It is generally viewed as a welcome relief valve softening the impact of the CR. This supplemental will likely be passed soon after the new Congress forms in January.
See the recently published calendars of the new 115th Congress below.
The House and Senate returned from the election break to get back to work for the first time in the new political atmosphere Both chambers remain in Republican control, giving President-elect Trump a unified government for the first two years of his term – a scenario few would have predicted going into the election.
House Republicans re-elected their existing leadership team, retaining Paul Ryan (R-WI) as the Speaker of the House. House Democrats delayed their leadership elections amid loud opposition from younger members demanding recognition from more senior members. The top three House Democrats are 76, 77 and 76 years old, respectively. Rep. Tim Ryan (D-Ohio) announced on Thursday that he will challenge Leader Pelosi. Pelosi, however, has expressed confidence in her victory over a challenger.
Senate Republicans re-elected their existing leadership team as well, retaining Mitch McConnell (R-KY) as majority leader. Senate Democrats quickly elected Chuck Schumer (D-NY) as their leader, while simultaneously elevating four additional Senators to the Democratic leadership team. There are now TEN members on the leadership team, a nod to the diverse views of the party.
Congress had been expected to complete the FY17 spending bills in an omnibus appropriation before Christmas. As of Wednesday, the signal from President-elect Trump, delivered to Speaker Ryan by Vice President-elect Pence, was to do a short term Continuing Resolution into March 2017. In theory, this prevents a fight with Democrats over spending levels before the end of this Congress. While a CR is never a good solution, the Trump team and Republicans generally believe better outcomes can be agreed upon in the new Congress. This is not the solution Leader McConnell supported in the Senate, but the Senate has recognized demonstrating unity with the Trump administration will be a good start.
There are many repercussions of delayed FY17 funding. This will be a more complicated CR than just a single page change of date for expiration of funds. Several programs require special consideration and will be addressed as “anomalies” to the CR.
The National Defense Authorization Act (NDAA) for FY17 is nearly completed and will likely be ready to move to the President’s desk by early December. Relatively minor details remain, but big issues such as topline and OCO spending have been agreed. A compromise to add $9B above President Obama’s FY17 defense budget request, effectively split the difference between Senate and House proposals.
The House Republican caucus had clearly aligned enough votes to restore a newly formulated plan to allow a return to some level of Congressionally directed spending. Many lawmakers remain frustrated with surrendering their constitutionally derived authority to control federal spending to the Executive Branch. Speaker Ryan prevented the vote from taking place, strongly suggesting that this was not the time to vote on the issue. Look for earmarks to continue working their way back into the process as a new Congress, with renewed vigor, establishes its footing alongside a new Republican President.
FY18 Budget Outlook
A new budget is traditionally delivered from the President to Congress on the first Monday of February. Often this target date is missed in the first year of a new Presidency. It is anticipated that the FY18 budget will not be ready for delivery to Congress before early April 2017. This should allow sufficient time for a Trump administration to put some imprint on the input, as well as to be informed by any decisions of the FY17 CR.
Early indications suggest that sequestration will be quickly repealed in the new Congress. Ideally this should restore a sense of continuity in planning across government. Further, indications abound suggesting a near-term increase in national security spending across a variety of key programs.
Throughout the week on Capitol Hill, in both House and Senate offices, one could sense that change is clearly afoot. When there is change in Congress, there is opportunity, good and bad. Staying engaged in the process, thinking long-term about objectives and accepting the new realities are all part of doing business in Washington, DC.Read more