Source: Missile Defense Agency
The start of the 2027 fiscal year is now less than two months away, and in typical fashion, the fate of the annual defense budget is in limbo. Three out of four defense committees have released markups that adhere to the administration’s $1.1 trillion topline discretionary request, but none of the legislation released by these committees addresses the administration’s $350 billion reconciliation proposal for the Pentagon.
Discussions are underway for a smaller reconciliation package that could provide additional defense funding originally outlined in a supplemental request to cover costs of operations in Iran and other priorities, but that legislation is being pursued outside of the regular appropriations process that guides the annual defense budget.
Aided by Forecast International’s U.S. Defense Budget Spotlight dashboard, this post will examine the status of the defense budget process thus far and the potential impact on military acquisition programs moving forward.
The Reconciliation Effect
The FY27 request began as a tale of two budgets. The administration requested $1.1 trillion in base discretionary spending and $350 billion in supplemental reconciliation funding, resulting in a record-setting $1.5 trillion request. Because none of the congressional spending bills accounted for reconciliation, the markups effectively reflect an initial $350 billion cut from the request. From that perspective, the vast majority of procurement and research accounts are subject to steep cuts compared to the administration’s goals for FY27.
Without the reconciliation funding, the biggest losses are the various defense industrial base and equipment investments contained in the Defense-Wide accounts, such as:
- $54.6 billion for the Defense Autonomous Warfare Group
- $40.6 billion for Industrial Base Analysis and Sustainment
- $30.5 billion for equipment funded through the Office of the Secretary of Defense
- $30 billion for Defense Production Act purchases
- $20 billion for the Office of Strategic Capital Loan Program
- $17.1 billion for the Golden Dome missile defense initiative
Munitions accounts are also heavily impacted by a lack of reconciliation funding at a time when inventories are dwindling due to ongoing operations, even as the administration seeks to accelerate production rates to rebuild stockpiles. For example, the reconciliation portion of the request contained $10.9 billion for Patriot interceptors and $10.5 billion for Terminal High Altitude Area Defense (THAAD) interceptors. The administration also used reconciliation to backfill other ongoing programs, such as the F-35, KC-130J, and several shipbuilding programs.
Acquisition Adjustments
While the discretionary budget markups aligned with the $1.1 trillion request, dozens of programs across the services face potential adjustments from the House Armed Services Committee (HASC), Senate Armed Services Committee (SASC), and the House Appropriations Committee (HAC) legislation. The Senate Appropriations Committee (SAC) has not released its markup. House appropriators generated the biggest variance from the request by recommending a $9.2 billion cut for procurement programs and adding $2.2 billion for research, development, test and evaluation (RDT&E).
Discretionary research budgets came out ahead in all the defense bills so far, resulting in proposed increases of $2.2 billion by the HAC, $1.1 billion by the SASC, and $687.2 million by the HASC. All three committees recommended additional funding for Army and Navy research, to varying degrees, while the adjustments for the Air Force’s account were mixed. The HAC and SASC proposed an additional $1.7 billion and $1.6 billion, respectively, while the HASC recommended a net reduction of $480.9 million. Meanwhile, every committee cut the Space Force’s research budget, from as little as $201.4 million by the HASC to as much as $3.1 billion by the HAC. Defense-Wide research was also subject to cuts of nearly $1 billion by the HAC and SASC, while the HASC proposed adding $558.1 million. The Air Force’s E-7, the Navy’s F/A-XX fighter, and unmanned surface vehicles (USVs) are poised to benefit from congressional adjustments, while efforts like the hypersonic Conventional Prompt Strike and the Space Force’s Automate Sat C2 effort risk losing funds.
The graphic below highlights total procurement and RDT&E funding adjustments by branch across the three defense bills that have been released so far.
On the procurement side, one of the standout performers is Army aviation, which did not benefit from the overall influx of money in the FY27 request. Despite the record size of the request, Army aviation funding declined in FY27 compared to FY26 levels and was $1 billion less than originally planned by the previous administration. Driven by ongoing transformation efforts, the request reduced funding for key programs, including the UH-60 Black Hawk and CH-47 Chinook. The HASC and HAC aimed to reverse some of those cuts, recommending increases of 27 percent and 47 percent, respectively, for Army aircraft procurement. However, the SASC recommended further reductions, trimming the service’s aircraft account by 7 percent. Following the initial release of the FY27 request, the Pentagon said it was open to revisiting its proposed aircraft reductions for the Army, and additional funding is expected to appear in the final version of the defense spending bill. Outyear spending plans may also be more favorable to Army aircraft.
The SASC pushed for a 12 percent increase in Air Force missile spending, a move the other committees did not match. That adjustment stems from an additional $845 million for the service’s Family of Affordable Mass Missiles (FAMM) program, which aims to field a range of new low-cost cruise missiles. House appropriators did recommend an extra $300 million for FAMM, which would offset a lack of reconciliation funding for the program. However, the committees reduced discretionary Army and Navy missile funding across the board.
The Navy’s shipbuilding account, which grew significantly in the request, fell short in some of the base budget markups. Specifically, the SASC and HAC proposed reducing the shipbuilding account by 5.1 percent and 5.8 percent, respectively. The SASC removed $1 billion requested for the BBG(X) battleship, as well as $2.4 billion for CVN refueling overhauls. The submarine tender program was also subject to cuts of up to 50 percent. Meanwhile, House appropriators recommended stripping $1.4 billion for the service’s P-8A maritime patrol aircraft.
A Strong Topline, with Caveats
It is easy to lose sight of the fact that, even without reconciliation, all the budget proposals released by congressional defense committees so far sign off on a $1.1 trillion discretionary budget request, which is around $242 billion more than the FY26 base budget and $91 billion more than the total FY26 enacted level. The latter included around $152 billion from the initial reconciliation bill signed in July 2025. The result is that many of the appropriation accounts that faced discretionary cuts in the congressional markups are still funded at higher levels than in previous years, and the administration anticipates future base budgets continuing to exceed $1 trillion annually.
At the same time, the administration’s efforts to quickly ramp up production of munitions, drones, and missile defense capabilities, among other priorities, may have to be tempered without the $350 billion reconciliation allocation. While reconciliation only requires a simple majority in both chambers, several Republican lawmakers said they do not see enough support to pass a $350 billion reconciliation bill. But that loss must also be weighed against the fact that a strained defense industrial base is already struggling to keep up with growing demand.
In the meantime, the GOP has been working on a smaller reconciliation bill that includes $60 billion for the Pentagon. If adopted, that funding would primarily support initiatives contained in the Iran war supplemental request, particularly munitions replenishment. At the same time, the House and Senate have drafted continuing resolution proposals with the understanding that a final discretionary defense budget will not be passed until after the mid-term elections, meaning the FY27 budget process is far from over.
Forecast International’s U.S. Defense Budget Spotlight dashboard will continue to be updated in real time as subsequent budget proposals are released by Congress in the months ahead. Additional program-level funding insights are also available through Forecast International’s U.S. Defense Budget Forecast database.
Shaun's deep-rooted interest in military equipment continues in his role as a senior defense analyst with a focus on the United States. He played an integral role in the development of Forecast International's U.S. Defense Budget Forecast, an interactive online product that tracks Pentagon acquisition programs throughout the congressional budget process. 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. He is a regular contributor to Forecast International's Defense & Security Monitor blog and has co-authored white papers on global defense spending and various military programs.
image sources
- Flight Test THAAD-23 (FTT-23): Missile Defense Agency
