by Shaun McDougall, Military Markets Analyst, Forecast International.
The White House has issued initial budget guidance to federal agencies for the 2018 fiscal year, calling for an increase in defense spending that will be offset by an equal reduction for non-defense discretionary programs. The plan calls for $603 billion in defense spending in FY18, reflecting an increase of $54 billion, or nearly 10 percent, over the current $549 billion Budget Control Act (BCA) cap. The topline figure applies to budget function 050, which covers the Department of Defense, defense programs within the Department of Energy, and defense-related programs in other agencies. The Pentagon’s base budget accounts for 95 to 96 percent of function 050 spending each year, with the exact amount varying with each budget.
Many media outlets reported that the administration is requesting a 10 percent boost in defense spending, but that narrative lacks important context. The Obama administration was already calling for an FY18 defense budget that exceeded BCA caps by over $35 billion. Compared to the Obama plan, Trump’s budget guidance reflects an increase of around $18.5 billion, or just over 3 percent – hardly a 10 percent increase. Obama’s budgets were constantly reined in due to disagreements on the Hill about how to address BCA caps, with lawmakers settling on a number of short-term deals that provided partial relief for both defense and non-defense programs.
That trend looks to continue, as there has already been fierce reaction to Trump’s budget plan on both sides of the aisle. In order to pay for the defense increase, the White House plan calls for cutting $54 billion for domestic programs, which is an immediate non-starter for Democrats. The aforementioned short-term budget agreements were only made possible because they altered spending caps across the board, and Democrats have said they want to see any defense increases matched by equivalent increases for non-defense programs.
On the other hand, some Republican lawmakers are concerned that the White House plan doesn’t do enough for the military. The most vocal critics, Senate Armed Services Committee Chairman Sen. John McCain (R-Ariz.) and House Armed Services Committee Chairman Rep. Mac Thornberry (R-Tex.), previously laid out their own recommendation to provide $640 billion for defense in FY18. The latest budget guidance misses that mark by $37 billion, or around 6 percent.
This continued divide will make it extremely difficult for Congress to eliminate or modify the BCA caps, a move that requires a 60-vote consensus in the Senate.
It remains to be seen to what extent the administration will rely on the Pentagon’s Overseas Contingency Operations (OCO) account, which has already been used as a loophole to increase defense spending since it is not subject to BCA limits. The new director of the White House’s Office of Management and Budget, Mick Mulvaney, has spoken out against the use of the OCO account as a slush fund. Nevertheless, the OCO loophole remains the easiest way at the moment to increase the defense topline. The administration is also working on an FY17 supplemental, which will likely take shape as an OCO adjustment for that very reason.
The details of the FY18 spending plan remain in the works, and the White House plans to submit a budget blueprint to Congress by March 16. However, a full budget request will not be released until at least early May.
Please feel free to use this content with Forecast International and analyst attributions, along with a link to the article. Contact Ray Peterson at +1 (203) 426-0800 or via email at ray.peterson@forecast1.com for additional analysis.
Forecast International’s U.S. Defense Budget Forecast covers every Procurement and RDT&E line item – from the President’s Request to the final joint congressional action – with links to corresponding justification documents (PEDs), historical funding and 10-year forecasts.
For 50 years, Forecast International intelligence reports have been the aerospace and defense industry standard for accurate research, analysis, and projections. Our experienced analysts compile, evaluate, and present accurate data for decision makers. FI's market research reports offer concise analysis of individual programs and identify market opportunities. Each report includes a program overview, detailed statistics, recent developments and a competitive analysis, culminating in production forecasts spanning 10 or 15 years. Let our market intelligence reports be a key part of reducing uncertainties and mastering your specific market and its growth potential. Find out more at www.forecastinternational.com
