2018 Budget Fight Delayed, Pentagon Pivots to 2019 Request
The deal that President Trump cut with congressional Democrats this week — to fund the government until December, expedite disaster relief for Texas and raise the debt ceiling — has set the stage for all-out war later in the year. And it remains unclear how military spending will fare in the end.
The president on Thursday defended the agreement he hammered out with the opposition party. “We could have done a longer deal,” Trump told reporters at the White House. “But that would have effected the military, as you know. … We could have done a one-year deal but we couldn't do it for one reason, for the military. We need the flexibility, especially in these times.”
And he insisted that a “major” military buildup is on the horizon. “New fighter jets. New ships. Things that should have been bought over the last 10 years, we're making up for it.”
With Washington still mired in gridlock and a 2018 appropriations bill months away, the 2019 request is the one that the Pentagon and the defense industry view as pivotal to the future of the military.
Fiscal year 2019 will be the first real Trump budget that answers the question of “How do we rebuild the military?” said Andrew Hunter, a former Pentagon official and now a senior fellow at the Center for Strategic and International Studies.
Analysts said a continuing resolution to fund the government is the least concerning of bad outcomes given the political climate, but it does raise the odds that no grand bargain will be reached by December on the FY18 budget. That would mean additional CRs and continued uncertainty.
“One key risk we’ve cited is that, in deferring a possible GOP-Democratic face-off over domestic discretionary spending, a later fiscal fix could also delay agreement over how to raise the Budget Control Act’s discretionary spending caps,” noted Charles Gabriel, an investment adviser and president of Capital Alpha Partners.
Without a “guns-for-butter” agreement on defense versus domestic spending — similar to the 2013 bipartisan budget deal and a later one drawn up in 2015 — the majority will “likely be hamstrung in crafting a fiscal year 2018 budget resolution,” Gabriel commented in a note to investors. Political divisions are entrenched, making it “near impossible” to reach a broad deal without the discretionary spending issues resolved first.
Republican defense hawks worry that another short-term deal again puts off a substantive debate on military priorities.
“Attaching emergency funding for hurricane relief to a must-pass CR and debt limit increase is irresponsible and a dereliction of our most routine duties,” Sen. John McCain said Thursday. “Instead of returning to regular order by moving individual spending bills to fund our government and our national security priorities, with ample time for debate and amendment, we are shirking our responsibilities and kicking the can down the road — all of this to the detriment of the men and women serving in our military during a time of incredible global uncertainty.”
Chairman of the House Armed Services Committee Rep. Mac Thornberry said a CR was bad news for the military. Short-term funding disrupts plans, doesn’t allow the Pentagon to start new programs and generally creates inefficiency, he said Wednesday at a Defense News conference in Arlington, Va.
“There may well be a series of areas where we can try to ameliorate the detrimental effects of a CR,” said Thornberry. “We’re just trying to make the best of a bad situation.”
Defense Secretary Jim Mattis has said a 3 to 5 percent increase every year would be the minimum the Pentagon needs to start rebuilding. Hunter said he doubts the Pentagon will get all the money it wants, at least in the foreseeable future. “We are going to continue to see a mismatch” between the Pentagon’s expectations “and the reality of the resources likely to come from Congress,” said Hunter.
“This creates a complex planning challenge” for the Defense Department as it tries to squeeze too many programs and personnel into a mostly flat budget, he continued. Even with a substantial increase in 2019, growth would have to continue for several years before the military digs out of readiness and modernization holes.
Defense contractors had been anticipating the gridlock and are resetting expectations. Until there is more clarity on future funding, the industry is hanging tight and turning more attention to foreign military sales, contracting reforms and other policy issues, said John Luddy, vice president of national security policy at the Aerospace Industries Association.
“We hear the secretary of defense talk about a 5 percent increase year to year. That sounds good. And then we see how the soup is being made and it is a little bit depressing,” Luddy said.
The industry has consistently lobbied for budget increases and for predictability in Pentagon funding plans. But the budget top line is “one of those things we can’t control.”
One concern for the industry is that procurement of new military equipment will be deferred as the Pentagon plugs readiness gaps. Congress has blamed deadly aviation and ship accidents on budget cuts that compelled the military services to shortchange training and strain the force.
Luddy said the industry worries that spending on readiness will come at the expense of next-generation weapon systems. “We want to see balanced spending,” he said. “As the top line increases we are concerned about the balance in the defense budget between the near-term readiness accounts and the investment accounts.”
How readiness spending is defined appears to be shifting, he said. “What we are finding is that as time goes on, and the readiness problem persists, the definition of readiness broadens.” Today, readiness dollars pay for “gas in the tank and bullets in the magazine,” said Luddy. If procurement accounts are squeezed, ultimately readiness suffers, he noted. In a few years, “the number of tails you have in a squadron” could be an issue that affects readiness.
Sept. 11 is the deadline for government agencies to submit their fiscal year 2019 funding requests to the White House Office of Management and Budget. OMB Director Mick Mulvaney gave agencies the green light to include more “investment” dollars in their 2019 requests to “further support their mission.”