The State of DOD Funding

By Lloyd McCoy Jr., DOD Manager

As always, my Market Intelligence colleagues and I are keeping close tabs on federal funding for upcoming fiscal years. And some recent action on a Defense bill caught our eye.

The House approved 277-147 the 2017 National Defense Authorization Act, a $610 billion policy bill that’s $27 billion more than what President Obama had requested and more than the Pentagon even said it needed.

As reported by the Wall Street Journal last week, the bill is fraught with disagreements between the White House and House Republicans. Among the topics of contention are Pentagon funding, detainee policy, the U.S military base network, and how to fight the Islamic State extremist groups.

The current bill diverts $18 billion from the Pentagon’s warfighting fund into the main defense budget to pay for additional personnel and equipment. That means money used for U.S. troops and operations in Iraq, Afghanistan, Syria and other parts of the world would run out. The Defense Department (DOD) will have to go back and ask for more money in the middle of the fiscal year from a Republican Congress that’s likely to give the thumbs up. Obama is expected to veto the bill but it’s an interesting strategy to funnel more money into the defense budget.

For tech companies selling to DOD, it’s something to keep a close eye on. On the one hand, the lack of agreement on funding levels indicates another contentious summer in an already divided Congress. Like so many fiscal starts in recent memory, we will very likely begin FY17 with a continuing resolution that maintains current spending levels. That means no new capital expenditures – not until a budget is passed into law.

On the plus side, what these maneuvers to divert more dollars into DOD’s base budget mean is that there is little appetite in Congress to go back to sequestration levels. It’s yet another sign that we’ll likely see another agreement to postpone or cancel sequestration before the current stopgap measure, the Bipartisan Budget Act of 2015, expires in December 2017.

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