FY20 Budget Leaves Future Topline Growth Largely Unchanged, but Modifies Acquisition Spending Plans

The Pentagon requested $718.3 billion in discretionary funding in FY20, which is 4.9 percent above the FY19 enacted level, or around 2.8 percent real growth after inflation.  The White House had projected a defense budget of $701.4 billion in FY20, meaning the request is about 2.4 percent larger than planned.

That topline is part of the broader $750 billion national security budget request, which also includes funding for nuclear programs in the Department of Energy and defense-related programs outside of the DoD.  The administration was originally planning a $733 billion national security budget request, and at one point had even threatened to reduce the topline to $700 billion due to concerns about a rising deficit.  The president was ultimately convinced not only to reverse his proposed defense cut, but to bolster the defense budget in FY20.

Federal spending is still subject to spending limits stemming from the Budget Control Act, which remain in place for another two years (FY20 and FY21).  In order to get around these limits, the administration has funneled nearly $100 billion in base budget priorities into the Overseas Contingency Operations account, which is not subject to BCA spending caps.

defense spending chart

Source: DoD FY20 Budget Request Overview Book

The Pentagon’s $718.3 billion request therefore includes a $544.5 billion base budget, $164.6 billion for OCO, and $9.2 billion in emergency funding for hurricane reconstruction and the administration’s controversial border wall proposal.  The emergency funding is also exempt from the BCA limits.  The massive OCO request is broken down further into $97.9 billion for base budget priorities and $66.7 billion for traditional OCO expenses.  Of course, the OCO account had already grown into something of a slush fund even before the FY20 request.  Of the $66.7 billion traditional OCO budget for FY20, only $25.4 billion is for direct war requirements.  The remaining $41.3 billion is for enduring requirements that would continue even if military operations came to an end.  The possibility of merging these enduring requirements into the base budget has been discussed off and on for years, but doing so has been too difficult under the BCA spending limits.  If the accounting gimmicks were set aside, the $718.3 billion topline would consist of a $683.8 billion base budget, $25.4 billion for military operations, and the $9.2 billion in emergency funding.

The FY20 request is far from the first time that the OCO account has been used as a loophole to increase the defense budget, but it is certainly the most egregious example.  Furthermore, budget documents indicate that the administration plans to make use of the OCO loophole in FY21 as well.  Whether or not that happens will depend on whether Congress reaches a deal to alter the BCA caps in FY20 and FY21, which Democrats want to do in order to bolster domestic spending alongside the defense increases.

Aside from the spike in FY20, the administration’s outyear growth projections for the defense budget topline remain on track with the previous year’s plan.  The FY20 request shows the Pentagon budget dropping slightly to $713.5 billion in FY21, compared to $714 billion under the previous plan.  The topline would subsequently increase to $727 billion in FY22 (+1.9 percent), $741.5 billion in FY23 (+2.0 percent), and $746.7 billion in FY24 (+0.7 percent).  The growth rates in FY22 and FY23 are the same as under the FY19 spending plan.  A 2024 comparison cannot be made, as FY19 budget projections only went out to 2023.

Defense spending table

Source: Office of Management and Budget

The FY20 request includes $274.4 billion for acquisition, comprising $143.1 billion for procurement and $104.3 billion for research, development, test and evaluation.  The procurement budget is actually $1.3 billion below the previous year’s request and $5.9 billion below the FY19 enacted level, as Congress added some $4.6 billion in additional procurement funds in the FY19 defense appropriations bill.

The procurement account is split up into $119.9 billion in base funding and $23.1 billion for OCO.  The latter includes $9.7 billion in standard OCO funding and $13.5 billion in OCO funding for base requirements that would have been included in the base budget were it not for the budget caps.  In total, the budget includes $133.4 billion for base budget procurement requirements, which is about $1.2 billion more than the government projected for FY20 in the previous year’s budget outlook.

Procurement budgets for the Army ($26.2 billion), Air Force ($50.1 billion), and Defense-Wide agencies ($5.7 billion) are all lower than the previous year’s request.  Only the Navy saw an increase compared to the FY19 request level, receiving $2.6 billion more in FY20.  The trend reverses beyond FY20, however.  The Navy is slated to receive $6.2 billion less for procurement between FY21 and FY23 than under the previous plans, whereas the Air Force and Army would get an additional $13.6 billion and $5.2 billion, respectively, over the three-year period.  The additional Air Force funding in the outyears is primarily for ammunition and the service’s “Other Procurement” category.  It should be noted that the Other Procurement account includes a massive classified slush fund that contains money for programs outside of the Air Force, meaning some or all of the increase in this account could be attributed to these external classified efforts.

The Army sees a fairly equal distribution of additional funding over the three-year period, though the service’s aircraft account stands to lose nearly $1.2 billion between FY21 and FY23 compared to the previous spending plan.  The Navy, meanwhile, stands to receive $2 billion less for aircraft and $6 billion less for ships between FY21 and FY23 than previously planned.  These projections are hardly set in stone, and can change for a variety of reasons, including new leadership, new requirements, or budgetary constraints.

The Pentagon’s $104.3 billion research and development budget represents an increase of $11.9 billion compared to the FY19 request and $8.3 billion over the FY19 enacted level.  More significantly, the new research budget is $14.4 billion more than that originally planned for FY20.  Outyear spending on research and development has also increased over previous plans, with the Pentagon outlining $29.6 billion more between FY21 and FY23 than in its FY19 spending plan.  The additional funding is broken out among the major services as follows: $11.8 billion for the Navy, $9.2 billion for the Army, $7.5 billion for the Air Force, and $1.1 billion for Defense-Wide agencies.

The increase in research and development funding is being driven by a desire on the part of the DoD to prepare for potential conflicts with countries like China and Russia, and investments include additional funding for such capabilities as hypersonic missiles, space-based sensors, aircraft, and advanced networks and cybersecurity.

About Shaun McDougall

As editor of International Military Markets, North America, Shaun has cultivated a deep understanding of the vast defense markets in the United States and Canada. Shaun's perspective on defense procurement and budget issues has been cited in a variety of defense periodicals, including Defense News and National Defense Magazine. Further, Shaun played an integral role in the development of Forecast International's U.S. Defense Budget Forecast product, which offers an unprecedented level of insight into the Pentagon's acquisition budget. In addition to providing original analytical content for the U.S. Defense Budget Forecast, Shaun oversees an internal defense budget forecasting process involving Forecast International's team of skilled systems analysts following release of the DoD's annual budget request. Shaun is also in charge of managing Forecast International's Weapons Inventory database.

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