Deltek’s FY 2017 Federal Budget Analysis Indicates Higher Contractor-Addressable Spending

Deltek's new report, FY 2017 Federal Budget Request: Challenges and Opportunities, indicates growth in federal contractor-addressable spending from $638 billion in FY 2015 to $660 billion in FY 2016.

The total FY 2017 discretionary budget of $1.149 trillion represents a 1.2% decrease compared to FY 2016, and a 3% increase over the FY 2017 planned sequestration level. It largely represents a continuation of the funding allocations in the Bipartisan Budget Act (BBA) of 2015 signed into law last year and very few new or politically controversial initiatives were introduced. The BBA continues to afford both some fiscal stability and predictability as well as more potential business opportunities for the contractor community.

Priority areas that are funded largely reflect the primary cornerstone issues that have been present throughout the Obama administration, including cybersecurity, national infrastructure, health care, veteran care, and workforce issues.

The largest among the 20 departments and agencies with a combined $15.3B in budget growth for FY 2017 are:

• Air Force: +$5.1B
• VA +$3.6B
• Army +1.1B
• Education +$1.1B
• Social Security Administration +$654M

Ten departments and agencies account for 18.0B in declining discretionary budgets. Those receiving the largest reductions are:

• Health and Human Services -$6.7B
• Navy -$3.9B
• Transportation -$2.3B
• Agriculture -$1.5B
• US Army Corps of Engineers -$1.4B

Contracted Spending

As is often the case, the largest projected increase is seen in the area of equipment spending with a planned increase of 9.1% from FY 2016 to FY 2017, from $32B to $38B for contractor-addressable spending.  The equipment category encompasses purchases of durable assets that normally may be expected to have a period of service of a year or more after being put into use such as transportation equipment; machinery; construction equipment; furniture and fixtures; tools and implements, instruments and apparatus; and information technology hardware.  This category excludes aerospace and defense equipment.

After about a $15B increase from FY 2015 to FY 2016, the aerospace and defense (A&D) market segment is expected to contract slightly -0.8% from $148B in contractor-addressable spending in FY 2016 to $146B in FY 2017.  The A&D segment includes full-scale development, production, and modifications of durable assets related to the aerospace and defense industries. Within the segment, space-related systems and ground systems are showing the most resilience for FY 2017. Among the various departments with significant spending in this segment – the Defense components, NASA, and DHS – only the Air Force sees expected growth in contracted A&D spending for FY 2017, although Army sustains a flat level after seeing declines from FY 2015 to FY 2016.

Small increases in information technology (IT) and the messaging surrounding the IT budget reveal efforts to show how the administration has saved money on IT. The budget largely reflects the administration’s desire to strengthen the roots of IT modernization, workforce, management and acquisition programs in advance of changing political leadership. The focus within the IT budget remains on reducing redundant infrastructure spending and on modernizing the federal IT footprint to reduce cybersecurity risk.

Deltek’s report FY 2017 Federal Budget Request: Challenges and Opportunities profiles the investment priorities and management initiatives in the Obama Administration’s FY 2017 budget request. It examines agencies’ budget trajectories, spending trends and market drivers outlined in the $1.14 trillion discretionary budget, as well as the $89.9 billion information technology budget.