Acquisition Programs Dominate Pentagon’s FY17 Spending Increase

 by Shaun McDougall, Military Markets AnalystForecast International.

The Pentagon’s FY17 budget was signed into law on May 5, more than halfway through the fiscal year.  The legislation couldn’t come soon enough, as the military has been operating under a series of three continuing resolutions that funded the department at FY16 levels.  CRs bring with them a host of difficulties, including restrictions on launching new programs, and leave many existing programs overfunded or unfunded.  The Pentagon has become quite adept at navigating CRs, which have sadly become the norm in Washington.  However, this year’s scenario was particularly troubling, as CRs in recent years haven’t lasted more than a few months.

The accounting gets a little tricky, but in the end, the enacted level of defense spending in FY17 is approximately $22 billion higher than the original budget request submitted in February 2016.  The new defense bill, which was contained in a broader omnibus agreement that also funds the rest of the government through the remainder of the fiscal year, provides the Pentagon with $509.6 billion in base discretionary spending – $1.6 billion below the request – and $76.6 billion via the Overseas Contingency Operations (OCO) account – $17.9 billion more than requested.  These figures represent a combined $586.2 billion in new discretionary spending, or an increase of around $16.3 billion over the requested amount.

The surge in OCO spending was the result of a supplemental budget request submitted by the White House in March 2017.  The supplemental sought $30 billion in additional defense funding, most of which was allocated to the Pentagon’s base budget.  Congress ultimately added an additional $14.8 billion in supplemental funding to its original markup of the FY17 defense appropriations bill, but shifted that funding to the OCO account to bypass Budget Control Act spending limits.  Increasing the base budget would have required modifying the spending limits, which is a much more difficult and time-consuming process than using comparatively simple accounting loopholes.

The final piece of the puzzle is $5.8 billion in FY17 OCO funding that was enacted as part of a continuing resolution in December 2016.  That funding stemmed from a separate supplemental budget request released by the Obama administration in November 2016.  Tacking that $5.8 billion onto the account provides the Department of Defense with a total of $592 billion in FY17 funding, or around $22.1 billion above the original request.  These figures also account for over $5 billion in rescinded funding from prior years.

Big Money for Acquisition

The Pentagon’s acquisition accounts were bolstered by some $15.1 billion by the time the FY17 budget process came to a close with the signing of the omnibus spending bill.  Procurement programs were funded at $125.1 billion, which is $13 billion more than originally requested back in February 2016.  Research and development programs received $73.8 billion, reflecting a $2 billion increase.  These figures include funding added by Congress in its original conference appropriation markup, $6.5 billion in supplemental OCO funding added to the final omnibus bill, and nearly $900 million in OCO acquisition funding enacted as part of the December 2016 continuing resolution.

Although the Pentagon’s acquisition coffers outpaced the original February 2016 budget request, they fell short of the combined value of the original request and follow-on supplemental requests.  When factoring in the supplemental requests, acquisition accounts fell short by around $2.4 billion: $1.8 billion for procurement and $552 million for RDT&E.  For example, the White House had requested supplemental funding for an additional 24 F/A-18E/F Super Hornets and 20 new-build Apache helicopters, but Congress instead provided funding for a dozen Super Hornets and seven new-build Apaches.  The White House also asked for six P-8A Poseidons and a handful of HC/MC-130J aircraft in its supplemental request, but these did not make it into the final spending bill.  It should be noted that some of the items included in the March 2017 supplemental request had already been funded in the original markup of the defense spending bill, such as the 12 Super Hornets and five of the seven Apaches.  The remaining equipment was added via a separate supplemental OCO funding table within the omnibus agreement.

When the supplemental request was released in March, there were doubts as to whether any of the additional funding would make it into the appropriations bill, so the fact that the acquisition accounts came so close to the total requested amount is still a win for the Pentagon.  In fact, some programs even surpassed the level of additional funding sought by the White House, such as the Black Hawk and UH-72A helicopters and the MQ-1 unmanned aerial vehicle (UAV), all of which received more funding than requested in the original budget and supplemental requests.

Meanwhile, the legislation rescinded around $2 billion worth of unobligated acquisition funding from FY15 and FY16.  Those cuts comprise $264.1 million in FY15 procurement funding, impacting 15 line items; nearly $1.1 billion in FY16 procurement funding, targeting 31 line items; and $661.7 million in FY16 research and development funding, for 18 line items.

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 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.

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