The aerospace and defense industry, including those in the defense trade press, have since late evening of November 6, 2018 been wrestling with the implications of the midterm elections for U.S. defense policy and spending over the next two years.  Quite frankly, it is too early to say with certainty. As Leo Rosten, the famous political scientist and humorist, once said, “Some things are so unexpected that no one is prepared for them.” That statement seems an appropriate caution given the current tumult of U.S. domestic politics.

That caution given, we can offer a couple, dare we say, steadfast observations about what is likely to be “normal” even given change to control of the House:

• The President retains significant power to determine national security policy, and often enjoys first-mover advantage in this area; continuity, rather than change, will likely be the broad theme.
• Congress has passed an annual National Defense Authorization Act for 58 consecutive years, and we expect them to do so again. This remains a must-pass piece of legislation, including policy issues in the jurisdiction of other committees (for example, the Foreign Investment Risk Review Modernization Act that governs the Committee on Foreign Investment in the United States was included in last year’s defense bill).

But with the change in control of the House, we do expect a more contentious and potentially drawn out debate regarding key defense policy priorities of the Trump administration and congressional Republicans. 

Congressman Adam Smith, the presumed Chairman of the House Armed Services Committee (HASC), has already released a set of priorities emphasizing “aggressive oversight” of the administration in several areas, including:

• Challenging the administration on the President’s war powers, and potentially reexamining the Authorization for the Use of Military Force that dates to 2001.
• Questioning planned investments in nuclear modernization, the Space Force, missile defense, and the overall size of U.S. military forces.
• Scrutinizing U.S. military collaboration with and Foreign Military Sales to certain allies and partners, including those in the Gulf.
• Challenging personnel policies that do not align with Congressman Smith’s call for eliminating “arbitrary and discriminatory barriers” and “discriminatory social policy riders.”
• Elevating initiatives to more efficiently and effectively spend national defense dollars; prioritizing the auditability of Pentagon’s financial statements and simple accounting of assets; reviewing rising personnel costs (including TRICARE); and examining the potential long-term savings from a new round Base Realignment and Closure.

Turning to the Senate Armed Services Committee (SASC), it is clear that several policy priorities for the Trump administration and Senate Republicans, including Chairman Jim Inofe, stand in almost perfect contrast to stated priorities of presumed HASC Chairman Smith, particularly those investments argued to be central to the execution of the National Defense Strategy. Nuclear modernization, the Space Force, missile defense, and force structure investments are just a few that will be addressed in each Committee’s markup of the fiscal year (FY) 2020 NDAA and the conference process that follows. As a result, we do not anticipate the NDAA process for the coming year to replicate the speed or efficiency we saw this past year.

The same can be said for the federal budget negotiation and appropriations process for FY 2020 and FY 2021. The Budget Control Act remains in force for those fiscal years.  Congressional leaders will need to negotiate a new deal to lift the caps on defense and non-defense discretionary spending.  Although we understand that Democrats and Republicans expect to be able to raise the caps, neither the size of those increases nor the scope of the ancillary negotiation terms are clear. What we do know is that differing defense and non-defense discretionary spending priorities between the parties, combined with overall downward pressure on the federal budget resulting from the projected growth of budget deficits, will likely produce a more contentions, drawn out, and potentially unresolved budget negotiation next year.

The administration has a significant role to play in that debate, as well.  As has been widely reported, the Department of Defense is preparing two budgets: one at a top-line level of $733 billion (including certain elements of the national security budget of the Department of Energy), which had been the objective throughout the past year of planning, and one at $700 billion, which is being generated in response to a directive in October from the President as a result of projected growth in budget deficits.  The administration should determine in December a national defense budget top-line, which will, to a degree, be informed by its budget negotiation strategy with the Congress, particularly a Democrat-controlled House.

While the intent of the administration and the Congress is to identify shared defense priorities and pursue a budget agreement for FY 2020 and FY 2021 to align resources against them, don’t be surprised when House Democrats leverage their control to challenge the administration’s spending priorities and top-line levels across both defense and non-defense discretionary programs. We could find that a continuing resolution in FY 2020 is the most likely way forward next year to resource both parties’ policy priorities… with the potential exception of the deficit hawks.