Budget Implications of the Rebuilding the U.S. Armed Forces Presidential Memo
Published: February 01, 2017
Defense contractors can look forward to a very busy second half of FY 2017.
On Friday, January 27, 2017, President Donald Trump signed a draft Presidential Memorandum entitled “Rebuilding the U.S. Armed Forces” that addressed readiness issues in the U.S. military. The memo calls for a number of reviews that will illuminate U.S. defense readiness, but most importantly for government contractors, it also calls for the results of some reviews to be addressed in the FY 2017 budget – which hasn’t yet been passed.
The budget request for FY 2017 submitted by the previous administration called for $591B in total spending, including $524B in base discretionary spending, $8B in mandatory spending, and $59B in Overseas Contingency Operations spending. This budget failed to win approval on Capitol Hill, so instead the government has operated under a series of Continuing Resolutions that will remain in force until April 28, 2017. These CRs fund federal agencies at FY 2016 levels with no new program starts – you knows the drill by now – until a formal budget can be signed.
President Trump’s team has promised to take a look at the current fiscal year budget and enact changes where possible. Here is where the new Presidential Memorandum comes into play. It directs the Secretary of Defense to “conduct a 30-day Readiness Review [that] shall assess readiness conditions, including training, equipment maintenance, munitions, modernization, and infrastructure; and submit to the President a report identifying actions that can be implemented within the current fiscal year and that are necessary to improve readiness conditions.”
In other words, the White House is going to rely on the judgment of the SECDEF to identify programs in need of immediate additional funding to raise the status of U.S. military readiness. Conversely, the SECDEF will identify programs whose funding can be cut because they do not focus on readiness. Which programs will fall into the “fund/de-fund” buckets remains unclear, but hints may be found in the “Restoring American Power” white paper that the office of Senator John McCain recently published. This paper suggests some of the following focus areas to improve U.S. military readiness:
- Investment in emerging technologies to address fluid nature of threats
- Investment in capacity, including ships, tanks, and planes
- Investment in unmanned systems
- Investment in electronic warfare capabilities, ISR platforms, and modernized weapon systems
- Investment in cyber warfare capabilities and rapid prototyping
- Modernizing U.S. nuclear weapons capability
- Renewing the focus on missile defense of the CONUS - ballistic, cruise, and hypersonic
- Increasing R&D spending for advancements in space
Increased spending in these areas benefits defense contractors across the spectrum, but as most readers of this blog are in the IT business, they can see that there is plenty to look forward to, particularly if your company offers cyber warfare capabilities.
Equally clear is the fact that in Donald Trump the defense industry is not facing an individual who intends to conduct business as usual. Incoming administrations will typically do little to alter the shape of current budget year priorities, the current administration, however, has no intention of simply signing off on the last defense budget submitted by the previous administration. Defense contractors, therefore, can look forward to a very busy second half of fiscal year 2017.