Navy Announces IT Budget Cuts, but Congress Seems Willing to Fund Priorities

Published: January 31, 2013

BudgetCONGRESSDEFENSEForecasts and SpendingNAVYPolicy and Legislation

Since Congress and the White House postponed the federal budget sequestration deadline from January to March there has been a flurry of reports around how the Department of Defense (DoD) is trimming its budgets in anticipation of either sequestration being enacted in March or Congress passing a defense budget for the remainder of fiscal year (FY) 2013 with comparable cuts. The Department of the Navy has been very publicly proactive in delineating its budget cutting plans, but there may be some hope for softening the blow in the latest defense authorization bill.

In a recent media report the Navy is anticipating further budget pressures of either sequestration or reduced appropriations by instituting multiple stages in cutting spending. In a memorandum issued by Adm. Jonathan Greenert, Chief of Naval Operations, on January 25th, the immediate cuts will impact primarily Operations and Maintenance (O&M) activities but also covers non-deployment-related training and education as well as non-mission-essential information technology and equipment. The O&M cuts could have IT implications by constricting the dollars available for ongoing maintenance of Navy legacy IT systems.
Efforts by the Navy to trim its IT spending have been ongoing in recent years and are expected to continue into the foreseeable future. Naturally, this will significantly impact federal contractors supporting the Navy. In our most recent annual 5-year federal IT forecast covering FY 2012-17 we project that Navy’s contracted IT compound annual growth rate to be -3.4%, making it one of the most suppressed of the four DoD entities, second only to our forecasted CAGR for Defense-wide/OSD at -3.5%. However, the FY 2013 National Defense Authorization Act, enacted at the beginning of January, contained tangible, congressionally authorized spending increases in the Navy’s Procurement, Research and Development (RDT&E), and even O&M budgets that have the potential to soften the blow. (See chart below)
In our analysis of the federal IT market implications of the FY 2013 NDAA we identified several areas of IT impact, including IT procurement, cybersecurity, network operations, and software use and licensing. The impact is not all negative from a spending perspective. Congress is prepared to fund key IT priorities, but competition is likely to be intense as funding shifts.

While uncertainty remains as to whether Congress and the White House will agree on appropriations for the remainder of FY 2013 that are in line with the authorizations in the NDAA, the fact that the president signed that bill introduces a glimmer of hope – especially since much of the NDAA increases (and decreases) seek to align the DoD budget with the latest defense strategy developed under Obama.