US strikes budget deal to end six month long Continuing Resolution
Trump secures 3% uplift for defence, half of what he requested
The Republicans and Democrats reached a compromise over the weekend to avoid a government shut down in the US. They have agreed at $1.6trn omnibus spending bill for 2017, with $593bn for defence. The US is currently in Continuing Resolution (CR) which as Ultra Electronics noted last week has led to lower levels of government spending in the first half of 2017. The House is expected to vote on the Consolidated Appropriations Act of 2017 today, followed by the Senate on Friday, putting it on track for enactment before Friday’s midnight budget deadline.
The agreement is significant for defence for two reasons. Firstly it signals that the defence budget is on a growth path again but that the Government is determined to keep President Trump in check. A total defence budget, base spending plus Overseas Contingency Operations (OCO) funding, of $593bn is 2.7% higher than the figure requested for 2017 by the Obama administration (as shown by red in graph below) and means there will be year on year growth of 3.1%. The Trump administration is due to publish its budget request for the next five years sometime this month so we do not yet know the exact trajectory he is planning for the defence, but it is safe to assume it will be one of steady growth. However, the Democrats and non Trump supporting Republican’s have used this omnibus bill to show that they can keep the President under control. The additional $15bn of defence funding is only half of what he requested last month, and $2.5bn of it is contingent on President Trump publishing a strategy to defeat ISIS. No money was provided for the US – Mexico border wall. The Senate Democratic leader Chuck Schumer said “Democrats and Republicans in the House and Senate were closer to one another than we were to the President on so many different issues.”
US defence budget 2001 - 2021E (current US$m)
Second, this omnibus bill is the first time in the past eight years that an increase in US defence spending has not had to be matched by a commensurate rises in social spending in order to placate the Democrats. This suggests that the Congressional stalemate of the Obama administration has come to an end which is positive.
Whilst optically this agreement looks positive, it is worth noting that any benefit the defence industry may have felt from the 3% uplift in spending this year has already been offset by the six month long Continuing Resolution. In addition, the 2011 Budget Control Act mandating Sequestration has not yet been repealed and so theoretically any future Trump budgets will still be at the mercy of spending caps. However, the level of compromise in this omnibus suggests the House and Senate may be in the mind set which could see them finally reach an agreement to end Sequestration.
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