war on the rocks

Don’t Believe the NDAA Hype: Congressional Appropriations Will Determine Defense Spending Levels

November 17, 2017

If you’ve seen recent headlines like “House passes nearly $700 billion defense authorization bill,” or “Massive U.S. defense bill includes a bevy of research-related provisions,” or even “House passes $700B compromise defense bill,” you’d be under the impression that defense spending in the United States is about to go way up. However, as important as the FY 2018 National Defense Authorization Act (NDAA) is, it does not actually determine funding for the Department of Defense. As has been the case for the past few years, appropriations bills, not the NDAA, will determine spending levels. So far, a major increase in defense appropriations looks a lot less likely.

To explain this, it’s worth reviewing the basics of the congressional budget process, particularly as it concerns defense spending. While most government spending funds mandatory programs that are based on eligibility (typically referred to as “entitlement spending”) such as Social Security and Medicare, Congress and the White House must also agree on spending for a wide variety of activity each year (known as “discretionary spending”). This ranges from salaries for congressional staff to funds for the Department of Defense. Here’s how that process is supposed to work:

–The president is supposed to submit a budget request for the next fiscal year to Congress by the first Monday in February of the current fiscal year. This document lays out proposals for discretionary and entitlement spending for the next year. While a useful source of insight into the priorities of the executive branch, this is not similar in form or function to the congressional budget resolution that is adopted each year.

–Congress then debates and agrees to a budget resolution that includes any proposed changes to entitlement spending and sets a cap on discretionary spending for defense and non-defense activity for the next fiscal year. The budget resolution is an internal document, not a law, so it does not require the president’s signature and can be passed with a simple majority in both chambers.

–The appropriations committees in both chambers then debate and agree on twelve different bills — each corresponding to a different part of the government — that fund the government’s discretionary spending for the next fiscal year within the context of the caps set in the budget resolution. This legislation goes through regular order and can be filibustered in the Senate, meaning that at least eight Senate Democrats will need to support the appropriations bills this year for them to become law. This is a crucial point, as any legislation that is passed without Democratic input is likely not representative of what a final deal will look like. The appropriations legislation is what actually determines funding for defense programs each fiscal year. Both the House and Senate Appropriations Committees have released defense spending bills for FY 2018 that have significantly lower toplines than the NDAA.

This is the crux of why the FY 2018 National Defense Authorization Act is likely a poor indicator of what the actual funding levels for the Department of Defense will be in the next fiscal year.

Right now, the government is operating under a continuing resolution (a temporary funding bill that sustains funding for the government after the start of a new fiscal year) that runs until Dec. 8. At that point, Congress and the White House will need to pass appropriations for FY 2018, pass another continuing resolution, or allow the government to shut down. It is currently unclear whether congressional Republicans, the White House, and congressional Democrats will be able to come to an agreement on FY 2018 appropriations. Even if they can, it seems unlikely that it will reflect the numbers in the FY 2018 NDAA.

Defense spending in the NDAA is far above most of the other proposals made this year. The below table should not be encouraging for those seeking a major increase in defense spending. The congressional budget resolution, the White House budget request, and the Senate appropriations bill have all come in significantly lower than the NDAA figure. This likely illustrates the tradeoffs that may be made to placate deficit hawks, Democrats, and moderate Republicans in the broader context of funding the government.

FY 2018 Spending Options

Total ($Billions)
SAC-D Guidance  $                  595
FY18 Budget Resolution  $                  599
FY18 President’s Budget Request  $                  640
House Budget Committee  $                  665
HASC NDAA  $                  667
House Appropriations  $                  668
SASC NDAA  $                  692
NDAA Conference Agreement  $                  692

All figures drawn from congressional reports and the president’s FY 2018 budget request

It’s not clear that a major increase in defense spending is a White House priority. Since the passage of the Budget Control Act in 2011, the president’s request is usually more than Congress eventually appropriates (see the table below). This year, Trump’s budget request includes an increase in defense spending, but it is nowhere near the levels seen in the NDAA agreement. While it’s true that in recent years, Congress and the White House were controlled by opposite parties, the trend of appropriating below the president’s request may well continue this year. Although the current White House favors increased defense spending, it has not made it clear where this falls on its list of priorities. Since the budget was released, there has been talk of funding a border wall, some type of increased defense spending, and some sort of resolution for DACA, but the White House has given no clear indication of which specific budget proposals it actually plans to fight for in the upcoming negotiations. Trump has discussed the need for more defense spending and a military build-up, but there certainly hasn’t been a concerted campaign to push this message consistently.

Fiscal Year President’s Request ($ Billions) Enacted Appropriations ($ Billions) Change ($ Billions)
2009  $                         660.50  $                                662.00  $      1.50
2010  $                         663.80  $                                694.00  $   30.20
2011  $                         708.20  $                                687.00  $ (21.20)
2012  $                         670.90  $                                645.70  $ (25.20)
2013  $                         613.90  $                                614.70  $      0.80
2014  $                         615.10  $                                581.20  $ (33.90)
2015  $                         575.00  $                                560.40  $ (14.60)
2016  $                         585.20  $                                580.30  $ (4.90)
2017  $                         607.70  $                                605.30  $ (2.40)
2018  $                         639.10  TBD  TBD

Enacted funding figures represent aggregate Defense Department appropriations. All figures drawn from congressional reports and the president’s FY 2018 budget request.

Republicans can’t agree amongst themselves. The tension between deficit hawks, moderates, and defense hawks in the GOP caucus creates problems for any attempt to significantly increase defense spending. Defense hawks would like to see a major increase in defense spending, deficit hawks want to reduce the deficit by cutting spending, and moderates won’t support massive cuts to non-defense spending. This creates a situation where any attempt at increasing defense spending risks offending one of two groups whose support is necessary for passage. Beyond that, a number of members of the far-right House Freedom Caucus will vote against almost any funding bill that doesn’t contain sweeping, immediate cuts to government spending.

Twice this year, congressional Republicans have had the opportunity to pass a budget that contained significant defense increases. Both times they have settled for levels that were roughly consistent with current law. The FY 2017 budget was adopted in January and was geared towards repealing the Affordable Care Act, while last week Congress adopted a budget for FY 2018 that was aimed at facilitating tax reform. In both cases, Republicans could not agree on significant increases in defense spending. Some of this may have been due to issues around parliamentary procedure in the Senate, but fundamentally Republicans have trouble reconciling the goals of deficit hawks, moderates, and defense hawks.

Democrats, as always, will have a say in what happens. While Democratic leadership has not yet announced its goals for the end of the year, the question of how the party will choose to use its limited leverage is important to understanding any potential funding deal. Since appropriations require 60 votes to avoid a filibuster, Democrats in the Senate will need to agree to an eventual appropriations deal. Additionally, many conservatives in the House will not vote for any appropriations legislation that does not contain major cuts to federal spending. This means that Democrats in both chambers will have a say in any year-end funding deal. This puts more pressure on defense spending, as Democrats will want something in exchange for their support.

The current continuing resolution ends on Dec. 8, and any December funding bill will be a Christmas tree for everyone in Congress. The inability of Congress to move any legislation of consequence this year, combined with the White House’s tendency to throw hard decisions at Congress, has created a formidable set of legislative requirements for the end of the year. Increased defense spending will be only one goal among many for congressional leaders. A quick list of “must do” priorities for Republican leadership includes, but is not limited to:

–Tax reform/tax cuts

–Reauthorization of the Children’s Health Insurance Program

–Resolving the status of individuals in the Deferred Action for Childhood Arrivals (DACA) program

–Reinstating or resolving insurance subsidies the White House recently stopped providing

–Another set of disaster relief funding that the White House has requested

–Appropriations for FY 2018

For a Congress that has barely been able to move any noncontroversial legislation at all, this is a daunting  set of requirements. While any tax cut will almost certainly pass as separate legislation, it still will require the time and attention of congressional leadership to the detriment of everything else. This is a lot for Congress to try to manage in the 12 legislative days before the government shuts down.

In a vacuum, Congress almost certainly has the votes for a funding bill that lifts the defense and non-defense caps while avoiding controversial changes to any existing policies. However, when you combine a raft of complicated and controversial issues, as well as political jockeying heading in to the 2018 midterm elections, things become much murkier. Add to this a White House that has yet to demonstrate any facility at managing the legislative process and it’s hard to see how the expected Trump defense build-up will happen in FY 2018.

These obstacles to a significant increase in defense spending have broader implications for the Department of Defense and the defense industrial base. The Department of Defense is facing a troubling combination of a wave of increased procurement spending for major new platforms, limited budget resources, and sustained overseas operations that are wearing down personnel and platforms far more rapidly than expected. Some hoped that the election of Trump and unified Republican control of government would provide an easier path to handling these issues. While there remains a possibility that Congress will surprise everyone with a deal in December that provides additional funding, the takeaway from their work so far this year is that the Pentagon should not plan on additional funds to save it from the coming fiscal crunch. Hard decisions will need to be made about modernization efforts, end-strength, and operational tempo.

For industry, the takeaway is that governmental dysfunction remains a major problem. Early plans for a Reagan-like defense buildup appear unlikely to be borne out. Instead, consolidation around existing funding streams and a search for international growth opportunities will remain the safer plays. At some point, conditions in Washington may change to allow Congress to address the budgetary needs of the policies the government is pursuing, but that appears unlikely to happen any time soon. Next year will be an election year, so if there is a failure to get a deal in December, the fight in February or March over appropriations for the remainder of FY 2018 will be even uglier. The possibility of a full-year continuing resolution remains remote, but FY 2018 will likely only have appropriations guidance for a severely truncated period of time, and it is hard to believe FY 2019 will be any better with an election pending. For an industry looking for certainty and expecting growth, this year’s budget process appears set to deliver disappointment, regardless of the bright lights of the FY 2018 NDAA.

 

Matt Vallone is the Director of Research & Analysis in Avascent Analytics, where he leads a team of defense and space-focused analysts in producing the content for Avascent Analytics products and analysis. Prior to working at Avascent, he worked as the Legislative Director for Congresswoman Carol Shea-Porter in the House of Representatives.

Image: U.S. Army/Craig Coleman