Takeaway: The House Dems' opening counter to Trump's budget matches Pentagon's original topline target, +2.3% over FY19.

In its opening counter to President Trump's FY 2020 budget proposal, House Democratic budget leaders have proposed a Pentagon discretionary spending topline that matches the amount Pentagon leaders have been using for FY 2020 and 2021 for the last year and a half.  

The lack of substantive difference in the opening round bodes well for the Pentagon's final appropriation even if we're a long way from there.

Although at $733B, the topline is $17B less than the President's formal proposal of $750B, the President himself admitted in December that the $750B figure was set only to ensure that the Pentagon would get $733B. $733B is essentially the FY 2019 level plus 2.3% inflation.  (All "defense" figures shown include ~$32B of DoE spending)

Defense $ Will Be Fine: Dems' First Counter Is What Pentagon Asked For - Screen Shot 2019 04 02 at 11.26.29 PM

The principal difference between the President and the initial House proposal is the change to the Budget Control Act caps. 

  • The President's budget proposes to keep the discretionary budget caps in place and increase defense spending by inflating OCO to an astonishing $174B.  This strategy has been very poorly received by all concerned as discussed in our previous note
  • The House Democratic proposal is to amend the Budget Control Act of 2011 and raise the hated discretionary caps for both defense and non-defense for FY 2020 and FY 2021 as has happened every two years since the bill's enactment.  Raising defense and non-defense equally results in the defense cap for FY 2020 to be $17B higher than FY 2019 and the non-defense cap $34B higher.  OCO spending is maintained in 2020 and 2021 at the 2019 level, a level that must be considered robust as overseas presence is on the decline. 
  • The Budget Control Act expires at the end of FY 2021 thus removing any caps at that time and ending this peculiar biennial drama at that time. 

It could have been worse.  While the House proposal is unlikely to pass the Senate exactly as is, it will guide the House Armed Services and Appropriations Committee allocations as they mark up the authorization and appropriations bills between now and the end of June.  Many Democratic members to include the chair of the House Armed Services Committee, Adam Smith, had called for at best flatlining defense spending.  

Expect the Senate to come up with some kind of very similar guidance for its defense committees in the next several weeks.  The difference between the two houses will be in the guidance for the Senate non-defense committees. 

The inevitable compromise will come early this fall along with the need to increase the debt ceiling by early September and to keep the government operating past September 30.