In what is likely to be the high water mark of defense spending, both the Senate and House Armed Services Committees have endorsed a "defense" topline of $740.5B for DoD and DoE in FY 2020.
- Each committee approved only slightly different versions of the "Mac Thornberry National Defense Authorization Act of 2020" by overwhelming bipartisan majorities (25-2 in the Senate, 56-0 in the House).
- The Committee reports as amended on the floor should be approved soon after Congress returns on July 21. A conference will have to be convened in August or September to resolve Congressional differences with a goal of final approval in September before the election recess.
- The topline of $740.5B is essentially equal to the final appropriation for FY 2020 and thus reflects a slight loss in buying power given the lack of inflation adjustment.
- The FY 2022 Pentagon budget request, when it comes out in the spring of next year, will see at least a $30B reduction in Overseas Contingency Operations (OCO) spending. Given a change in Administration, the FY 2023 topline could see further reduction. See my note "This Year, Next Year and the Next in Defense Spending".
While the $740.5B toplines match the President's request for FY 2021, both the House and the Senate plan to take money from the President's request for the Operations and Maintenance and Personnel titles to increase investment (Procurement + RDT&E).
- Shipbuilding. Both Committees found significant fault with the meager Navy request for only eight new ships (one of which had been previously authorized) and the lack of a 30 year shipbuilding plan. The anger is such that the House version withholds up to 75% of the Office of SecDef's operating money until Secretary Esper submits a 30 year plan.
- The Senate added $1.35B to the President's shipbuilding request of $19.9B mostly spread across the DDG-51 (HII, GD) +$355M, Amphibious ships (HII) +500M, and the VA- and Colombia class submarines (HII, GD) +$575M programs. While not adding any new ships, the Senate would give the Navy the authority to enter into multiyear procurements for amphibs which should be of great benefit to HII and the Colombia-class sub which will help GD.
- The House added $2.15B to the PresBud request and with the help of $270M out of the CVN program and $98M out of the nascent Frigate program added a total of $2.6B to the Va-class submarine program, enough to buy two boats in FY 2021 compared to the one in the PresBud and Senate plan. The House added $671M to the PresBud's $9.9B ship maintenance request whereas the Senate went along with the PresBud request.
- Aircraft. The Senate added $1.3B for 16 additional F-35s (LMT) to the PresBud request for 79 jets while the House approved the 79 jets but cut $671M from the program leaving a $2B delta to be resolved in Senate-House conference. Similarly the House cut $577M from the KC-46 tanker program (BA) while the Senate approved the President's full $3B request. On the other side of the ledger, the House added $940M to the P-8 Poseidon anti-sub plane (BA), $418M to the V-22 (TXT/BA) and $135M to the CH-47 (BA).
The most ballyhooed policy difference between the President and both Congressional versions of the NDAA is language concerning Confederate statues and names on bases that the President has promised to veto. Most/all of the other policy differences are likely to be resolved in Conference. Congress does not want to be in Washington in this election year and we believe that the committee votes reflect strong bipartisan support for the NDAA. We believe that the bill will eventually pass by "veto-proof" majorities that will either force the President to back down, particularly on the Confederate issue, or both houses will override his veto.
House Appropriations Subcommittees have begun their work and House leadership has high hopes of a Defense appropriation bill by August. The Senate appropriations work is further behind. The Defense appropriation for FY 2021 is likely to be captive to other policy issues before final resolution. We believe that there will be a Continuing Resolution through the election.
For a more detailed discussion of the President's budget request and its movement through the Congress please contact your Hedgeye sales rep.
