initial perspectives on civil and defense trends in the fy ......source: avascent analysis of omb...

PRIVATE & CONFIDENTIAL

Initial Perspectives on Civil and Defense Trends in the FY 2016 President’ Budget

Fiscal Year 2016 Federal Budget

February 5, 2015

PRIVATE & CONFIDENTIAL | AVASCENT | 2

Executive Summary

The FY16 President’s Budget request exceeds Budget Control Act discretionary spending caps by $38 B (~7.3%) in Defense and $37 B (~7.5%) in Non-Defense accounts

– For this reason, the FY16 request makes funding increases in many areas

– Robust increases shown for DoD investment should be taken with a grain of salt

The GOP-controlled Congress opposes the revenue increases that the Administration proposes to finance lifting the caps, as well as higher spending in Non-Defense areas

– This makes a “grand bargain” substantially raising the caps this year very unlikely

– A smaller deal to modestly raise the caps is plausible, but even that will be difficult

The FY16 request does not clearly outline the Administration’s core priorities to protect from cuts if the Congress sticks to existing BCA caps

– This could give Congress latitude to make cuts based on its own sense of priorities

– Judging from recent behavior, the Congress will protect at least some increases in Procurement and RDT&E by cutting O&M in the base budget, making good these reductions by shifting funds within the Overseas Contingency Operations account


Agenda

Overview of Federal Budget in FY16 Budget

Civil Agencies in the FY16 President’s Budget

Department of Defense in the FY16 President’s Budget


-12.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

-1,600,000

-1,400,000

-1,200,000

-1,000,000

-800,000

-600,000

-400,000

-200,000

0

200,000

400,000

The Federal budget deficit is far less severe than when the Budget Control Act started limiting discretionary spending in August 2011

Source: CBO, January 2015

• When the Budget Control Act became law in August 2011, the Federal budget deficit was 8.7% of GDP

• The Congressional Budget Office (CBO) estimate for FY15 is 2.6% of GDP

• Projections of growth in the Federal debt as a share of GDP remain troubling, but have improved since 2011

Federal Budget Deficit

20

09

20

11

20

13

20

15

20

17

20

19

20

21

20

07

20

05

20

03

20

01

20

23

20

25

Federal Budget Deficit/Surplus (Current $M)

Deficit/Surplus as a Share of

GDPCBO Forecast


$-

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20

Discretionary spending – defense and non-defense – comprises just 29 percent of the Federal budget in FY16, with Mandatory and Net Interest costs taking the rest

$ B

illio

ns

(Cu

rren

t Ye

ar D

olla

rs)

Source: OMB, February 2015

OMB FY16 Budget Forecast

• Growth in entitlement programs is causing Mandatory costs to grow far faster than Discretionary costs

• Net Interest costs are also forecast to grow very rapidly, as interest rates rise through the next decade

• The Budget Control Act (BCA) mainly controlled costs in Discretionary accounts

The Obama Administration wants to raise the BCA caps to

allow higher growth in discretionary spending

MandatoryFY15-20 CAGR: 5.6%

Net InterestFY15-20 CAGR: 18.9%

Non-Defense DiscretionaryFY15-20 CAGR: 2.2% Defense Discretionary

FY15-20 CAGR: 0.4%

OMB FY16 Forecast of Federal Budget Authority


As it has in the past several years, the Obama Administration has proposed that the FY16 budget have more discretionary spending than the BCA caps allow

Defense Discretionary Budget

Non-Defense Discretionary Budget

$523 $536 $549 $562 $576 $590

$38 $37 $35 $30 $22 $20

$-

$100

$200

$300

$400

$500

$600

$700

FY16 FY17 FY18 FY19 FY20 FY21

Obama Administration'sProposed Revised Caps

Post-Sequester Caps

$493 $504 $516 $530 $543 $556

$37 $37 $35 $30 $22 $20

$-

$100

$200

$300

$400

$500

$600

$700


Obama Administration'sProposed Revised Caps

Post-Sequester Caps

$ B

illio

ns

$ B

illio

ns

Post-Sequester Spending Caps Under the Budget Control Act

Without an agreement to end or change the Budget Control Act, $74 billion in budget authority among defense and non-defense agencies is at risk in FY16


How will Congress react to the President’s proposal to raise the post-sequester caps on Defense and Non-Defense discretionary spending in 2016?

Three Potential Outcomes for Changes to Discretionary Budget Caps

Grand Bargain Partial Deal No Deal

Very Low Probability Moderate Probability High Probability

• White House and Congress cannot agree to changes to BCA caps

• Disagreement on mandatory accounts and/or taxes prevent progress on discretionary spending relief

No common ground between White House and Congress

on entitlements or taxes

Some mutual desire to raise discretionary spending, but

high political barriers remain

Differences are too great to bridge; Post-sequester caps

remain in FY16

• Modest rise in BCA caps in FY16 and perhaps FY17

• Potentially similar to Ryan-Murray deal that shaped the FY14 and FY15 budgets

• A two-year deal would limit budget controversy in 2016 election season, but would be harder to reach

• Broad agreement between GOP Congress and White House affecting mandatory spending and taxes

• Such an deal would substantially raise existing post-sequester caps on Defense and Non-Defense discretionary spending over multiple years


Agenda





The Obama Administration proposes to increase discretionary spend across a wide array of Federal missions

National Security

FY16 Request

$600.0B

• Defense Dept.

• DoE Nat’l Nuclear Security Admin.

FY16 Request

$93.4B

• FAA

• FBI

• U.S. Coast Guard

FY16 Request

$53.3B

• State Dept.

• International Assistance Programs

Citizen Services

FY16 Request

$132.5B

• Department of Education

• Public and Indian Housing

FY16 Request

$16.3B

• U.S. Army Corps of Engineers

• HUD Community Planning & Dev.

FY16 Request

$32.9B

• EPA

• U.S. Forest Service

• NOAA

FY16 Request

$45.6B

• DoE Energy Programs

• NASA

• Nat’l Science Fnd

FY16 Request

$21.9B

• IRS

• Legislative Branch

• Census Bureau

FY16 Request

$9.3B

• Smithsonian

• Corporation for National and Community Svc.

FY16 Request

$69.1B

• Veterans Health Admin. (VHA)

• Indian Health Service

FY16 Request

$24.3B

• Veterans Benefits Admin.

• Social Security Admin. (SSA)

FY16 Request

$75.8B

• NIH

• Centers for Disease Control

Source: Avascent analysis of OMB FY16 Public Budget Database; Lists of agencies are illustrative, not exhaustive

FY15-16 Delta

7.3%

Health Delivery

9.1% 1.9%

FY15-16 Delta

0.1%

FY15-16 Delta

FY15-16 Delta

3.5%

FY15-16 Delta

FY15-16 Delta

9.5%

FY15-16 Delta

4.6%

FY15-16 Delta

6.0%

FY15-16 Delta

2.3%

FY15-16 Delta

5.6%

Science and Technology

18.8%

FY15-16 Delta

8.8%

FY15-16 Delta

Public Safety & Law Enforcement Foreign Affairs

Economic Development Environmental Protection

Government Mgt. & Finance Other

Health Benefits Administration Public Health


$0

$100

$200

$300

$400

$500

$600

$700

FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20

The Obama Administration proposes spending $530 billion in Non-Defense budget authority in FY16, which exceeds BCA caps by about $37 billion (7.3%)

$ B

illio

ns

(Cu

rren

t Ye

ar D

olla

rs)

Non-Defense Budget Authority by Mission Category

Citizen Services

Public Safety &Law Enforcement

Public Health

Health Delivery

Foreign Affairs

Science &Technology

EnvironmentalProtection

Government Mgt.& Finance

Health BenefitsAdmin.

EconomicDevelopment

CategoryFY15

EnactedFY16

Request

$121.0B $132.5B

$88.1B $93.4B

$74.4B $75.8B

$64.4B $69.1B

$52.1B $53.3B

$43.2B $45.6B

$31.8B $32.9B

$18.5B $21.9B

$22.3B $24.3B

$16.2B $16.3B

Source: Avascent analysis of OMB FY16 Public Budget Database; Tally here omits a handful of line items with negative values used for accounting purposes


Citizen Services Health Benefits and Delivery

Citizen Services is the largest sector of the non-defense discretionary budget, projected to grow rapidly at nearly 10% to 2016

Department of Education’s budget would rise to support several goals, including enhanced access to secondary education, partly via Pell and other grants

Department of Labor job training increased to transition workers to growing industries

HUD’s Public and Indian Housing program would grow to attract educators to Indian areas and better connect Indian Veterans with social services

HUD would also restore housing vouchers eliminated under sequestration

Social Security Administration would get a 1-year boost to focus on service improvements, with emphasis on reducing call center wait times and disability appeals process timelines

Discretionary-funded VA health care costs rise due to health-industry wide pressures; increased funds for mental health, long-term care, and tele-health efforts

To improve Vets’ benefits administration experience, VA is investing in paper-to-digital conversion and enhanced cyber security

Public Safety and Law Enforcement

Coast Guard would tighten its belt, with cuts planned in the Retiree health care account, and sharp decline in Acquisition, Construction and Investment (AC&I)

FAA budget continues to expand to accommodate the major NextGen investment

DHS ICE would see added funds to cope with unaccompanied minor immigrants and to prepare IT systems for the President’s immigration reforms

Other Mission Areas

Environmental Protection mission area would get a boost that will prompt a political fight with Congress

– EPA would get a 6% boost, and other agencies (e.g, Forest Service, NOAA) also tapped for higher funding related to combating climate change

After suffering in FY13, agencies related to Science & Technology would rebound: NASA, NIST, and Dept. of Energy would all gain significantly in FY16


Agenda





The FY16 budget request for the Department of Defense exceeds BCA caps by $34 billion

DoD Topline Budget

Key Considerations• BCA cap for the Department of Defense (051) in FY16 is about $499.5 billion

• BCA imposes discretionary caps through FY21

• OCO figures for FY17 and beyond are OMB placeholder estimates only

$ B

illio

ns

(Cu

rren

t Ye

ar)

Source: DoD FY16 Budget Documents

$291 $289$329 $365 $380 $402 $410 $430

$479$521 $526 $527 $530 $495 $496 $496

$534 $547 $556 $564 $570$29$17

$73$91 $79

$124$169

$187$160 $163 $159

$115

$82 $85 $64$51 $27 $27 $27 $27

$0

$100

$200

$300

$400

$500

$600

$700

$800

FY00

FY01

FY02

FY03

FY04

FY05

FY06

FY0

7

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20

Base

OCO

BCA Caps

FY16 President’s Budget Request Future Years

Defense Plan (FYDP)


Even at the above-BCA level, the FY16 request would continue a general decline from peak levels seen in the FY08-10 period

DoD Topline Budget, FY48 to FY20

$ M

illio

ns

(Co

nst

ant

FY1

5)

FY16 Request(Base and OCO)

Source: FY15 DoD Greenbook and FY16 OMB Public Budget Database

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

FY4

8

FY5

0

FY5

2

FY5

4

FY5

6

FY5

8

FY6

0

FY6

2

FY6

4

FY6

6

FY6

8

FY70

FY7

2

FY7

4

FY7

6

FY7

8

FY8

0

FY8

2

FY8

4

FY8

6

FY8

8

FY9

0

FY9

2

FY9

4

FY9

6

FY9

8

FY0

0

FY0

2

FY0

4

FY0

6

FY0

8

FY1

0

FY1

2

FY1

4

FY1

6

FY1

8

FY2

0

All Others

RDT&E

Procurement

Operation andMaintenance

MilitaryPersonnel


$495.0 $496.1 $496.2$534.2

$0

$100

$200

$300

$400

$500

$600

FY13 FY14 FY15 FY16

As it has in the past several years, the Obama Administration has requested more funding for DoD in the FY16 request than is allowed under BCA caps

FY16 DoD Base Budget FY16 DoD OCO Budget

Without changes to the BCA, the FY16 base budget will need to be cut by $35 billion (7%)

from the requested topline

The OCO budget is not subject to limits under the Budget Control Act; Congress could add

funds as it did in FY14 and FY15

BCA Cap

Source: FY16 DoD Budget Overview

$82.1 $85.2$64.3 $51.0

$0

$100

$200

$300

$400

$500

$600

FY13 FY14 FY15 FY16

$ B

illio

ns

$ B

illio

ns


$121.7 $119.5 $126.5

$147.3 $149.2$161.0

$134.7 $136.9$152.9

$92.3 $90.6

$94.0

$0

$100

$200

$300

$400

$500

$600

FY14 Actual FY15 Enacted FY16 Request

The FY16 base budget request is likely to be cut, but the DoD’s plan indicates rising priority for the Navy and Air Force, and an attempt to contain growth in Defense-Wide accounts

DoD Base Budget by Service

Cu

rren

t Ye

ar $

Bill

ion

s

BCA Cap: $499.5 B, 7% below request Share of Base Topline

Proposed Growth,

FY15 to FY16

3.8%

11.7%

7.9%

5.9%

18.6% 18.3% 17.6%

Defense-Wide

FY14 Actual

FY15 Enacted

FY16 Request

27.2% 27.6% 28.6%

Air Force

FY14 Actual

FY15 Enacted

FY16 Request

29.7% 30.1% 30.1%

Navy/ USMC

FY14 Actual

FY15 Enacted

FY16 Request

24.5% 24.1% 23.7%Army

FY14 Actual

FY15 Enacted

FY16 Request



$135.9 $135.0 $136.7

$192.8 $195.4 $209.8

$92.4 $93.6$107.7

$62.8 $63.5

$69.8

$0

$100

$200

$300

$400

$500

$600

FY14 Actual FY15 Enacted FY16 Request

As the active Army declines in endstrength, the Military Personnel account is set to stabilize, while DoD aims to increase Procurement spending sharply

DoD Base Budget by Title

$ B

illio

ns

(Cu

rren

t Ye

ar)

BCA Cap: $499.5 B, 7% below request

Proposed Growth,

FY15 to FY16

9.9%

15.1%

7.4%

1.3%

Share of Base Topline

12.7% 12.8% 13.1%RDT&E

FY14 Actual

FY15 Enacted

FY16 Request

18.6% 18.9% 20.2%

Procure-ment

FY14 Actual

FY15 Enacted

FY16 Request

38.9% 39.4% 39.3%O&M

FY14 Actual

FY15 Enacted

FY16 Request

27.4% 27.2% 25.6%

Military Personnel

FY14 Actual

FY15 Enacted

FY16 Request



Based on DoD statements issued with the FY16 budget and in arguing against the caps in 2014, it is possible to estimate the impact of the caps on the FY16 request

Estimated Impact of Post-Sequester Caps on the FY16 Base Budget

Impact on FY16 Base Budget by Service Impact on FY16 Base Budget by Title

$ B

illio

ns

$ B

illio

ns

Army Navy USAF Defense-Wide

Military Personnel

O&M Procurement RDT&E

About 4.3% at risk

About 8.0% at risk

About 7.2% at risk

About 5.8% at risk

About 1.6% at risk

About 4.2% at risk

About 15% at risk

About 6.0% at risk

Source: FY16 Budget Overview documents issued by OSD and each of the Services; Also draws on “Estimated Impacts of Sequestration-Level Funding,” DoD, April 2014

$5.5

$12.9$11.0

$5.5

$0

$20

$40

$60

$80

$100

$120

$140

$160

$180

$2.2

$8.9

$16.3

$4.2

$0

$50

$100

$150

$200

$250


$-

$20

$40

$60

$80

$100

$120

$140

$160

$180

$200

The FY16 request for Overseas Contingency Operations funding is $51 billion

DoD Overseas Contingency Operations (OCO) Budget by Title

$ B

illio

ns

(Cu

rren

t Ye

ar)

RDT&E

Procurement

O&M

Military Personnel

All Other

Proposed FY16 OCO Budget $245M

$7.26B

$40.21B

$3.21B

$89M

2.1%

-5.6%

-21.1%

-36.3%

-71.6%

FY16 Request

Change from FY15 Enacted

In recent years, the Congress has shifted base O&M funds to the OCO budget, which has freed up some topline space in the Base budget to bolster Procurement and other priorities



DoD investment would grow sharply in FY16(15% in Procurement, nearly 10% in RDT&E), but the need to meet BCA caps will force substantial cuts from those levels in many areas

Base Budget Investment Funding by Capability Area (Change from FY15 Enacted to FY16 Request)

Pro

cure

me

nt

RD

T&E

Source: Avascent analysis of FY16 DoD P-1 and R-1 documents

+16.2%

+8.1% +6.4%

+18.7%+18.4%

+15.3% +2.7%

-22.1%

+12.4%

+0.8%+9.7%

+9.5% +15.2%

+19.0% +-11.1% -22.4%

$-

$5

$10

$15

$20

$25

$30

$35

$40

Aviation Classified ShipSystems

Weapons &Munitions

C4ISR GroundSystems

SpaceSystems

Other

FY15 Enacted

FY16 Request

$-

$5

$10

$15

$20

$25

$30

$35

$40

Classified Other Aviation C4ISR Weapons &Munitions

ShipSystems

SpaceSystems

GroundSystems

FY15 Enacted

FY16 Request


Aviation

Ship Systems

Ground Systems

Threat of sequester means the FY16 request for investment programs will not go unscathed, but the request would involve aggressive growth in many areas

Aviation

Ship Systems

Ground Systems

$ B

illio

ns

$ B

illio

ns

$ B

illio

ns

FY15 Enacted FY16 Request

Base Budget, FY15 vs. FY16 Key Developments


• Investment in Aviation would rise by 14.7%, FY15 to FY16

• Investment in Ships would rise by 8.2%, FY15 to FY16

• Programs generally on track with prior plans, but a number of “fact of life” issues drove shifts in Procurement and RDT&E, relative to prior plans for FY16

• Some highlights include:

• DDG-51: Still 2 ships in FY16

• SSN-774: Still 2 subs in FY16

• LCS: Still 3 ships in FY16, but funding well below prior plan for FY16

• LPD-17: 1 ship added in FY16, prompted by Congressional action

• T-AO(X): Still 1 ship in FY16

• Investment in Ground Vehicles and other land forces equipment would rise by 16.7%, FY15 to FY16

• Several programs would see increases in FY16 procurement, compared to prior plans for FY16:

• F-35A/B/C: +$274M

• P-8A: +$72M

• UH-60: +$313M

• MH/SH-60: $680M

• Several programs would see a dropin FY16 RDT&E, compared to prior plans for FY16:

• LRS-B: -$344M

• UCLASS: -$534M

• Next Gen. JSTARS: -$290M

• CH-53K: -$82M

• Growth in FY16 (selected programs):

• JLTV: +230M

• MRAPs: +200M

• FMTV: +138M

• AMPV: +138M

• ACV: +$113M

• Growth in FY16, but not as high as original FY16 plans:

• M109: +$113 in FY16, but $189M less than prior plan

• M1: +$11M in FY16, but $93M less than prior plan

$32.7

$10.2

$38.0

$11.1

$0

$10

$20

$30

$40

Procurement RDT&E

$18.9

$3.1

$20.1

$3.7

$0

$5

$10

$15

$20

$25

Procurement RDT&E

$5.0

$1.3

$5.8

$1.6

$0

$2

$4

$6

$8

Procurement RDT&E


Aviation

Ship Systems

Ground Systems

Threat of sequester means the FY16 request for investment programs will not go unscathed, but the request would involve aggressive growth in many areas

Weapons & Munitions

Space Systems

(unclassified only)

C4ISR Systems

$ B

illio

ns

$ B

illio

ns

$ B

illio

ns

Base Budget, FY15 vs. FY16 Key Developments


• Investment in Weapons & Munitions (including Missile Defense systems) would rise by 17.3% in FY16

• Unclassified investment in Space Systems would decline by 2.2% in FY16

• A number of programs would see modest declines from FY15 to FY16:

• EELV Launch Vehicle: -$189M

• SBIRS-High: -$8M

• Advanced EHF: -$45M

• MUOS: -$167M

• GPS (multiple line items): -$80M

• Investment in C4ISR Systems would rise by 14.1% in FY16

• Most capability areas would see significant growth in FY16, but some failed to grow as rapidly as projected in last year’s plan:

• C2 Systems: +$532M in FY16, $132M more than planned

• Cyber (unclassified only): +45M in FY16, $125M more than planned

• EW: $+252M in FY16, $66M less than planned

• Networks/Comms: +$527M in FY16, $297M less than planned

• ISR Systems: +$302M, $160M less than planned

• Growth in FY16 (selected programs):

• Hellfire: +$563M

• Grd-based Midcourse Defense (GMD): +$411M

• JDAM: +$328M

• AMRAAM: +$237M

• AIM-9: +152M

• A few programs would see lower FY16 funding than prior plans:

• Patriot series: $22M below prior plan

• THAAD: $132M below prior plan

• JSOW: $123M below prior plan

FY15 Enacted FY16 Request

$11.6

$7.8

$13.8

$9.0

$0

$5

$10

$15

Procurement RDT&E

$4.1

$2.3

$4.2

$2.0

$0

$1

$2

$3

$4

$5

Procurement RDT&E

$9.5 $8.8

$11.2 $9.6

$0

$5

$10

$15

Procurement RDT&E


The request for the Military Intelligence Program (MIP) and the National Intelligence Program (NIP) would rise sharply, given the Administration’s aim to lift the BCA caps

Intelligence Community Budget by Component

$ B

illio

ns

FY16 President’s Budget Request

All figures include Base and OCO

Growth by Component

Note that an undetermined portion of the NIP budget is funded outside the Department of Defense

All of the MIP budget falls within the Department of Defense, and may include Procurement, RDT&E and O&M funds

MIP

NIP

18.2%

34.6%

-0.3%

-5.7%

FY15 to FY16 FY11-16 CAGR

Source: FY16 and prior years’ disclosures by ODNI (NIP) and DoD (MIP)

$54.6 $53.9 $49.0 $52.2

$45.6 $53.9

$24.0 $21.5

$18.6 $18.6

$13.3

$17.9

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90


National Intelligence Program Military Intelligence Program


In recent years, the Congress has cut the base O&M budget request and increased the OCO account

FY14 Base Budget

Trends in Request versus Appropriation of O&M Funds

FY14 OCO Budget

FY15 Base Budget FY15 OCO Budget

$0

$10

$20

$30

$40

$50

$60

$0

$10

$20

$30

$40

$50

$60

$0$5

$10$15$20$25$30$35$40

$0$5

$10$15$20$25$30$35$40

Source: Avascent analysis of DoD Operations & Maintenance budgets (O-1 documents)

• Congress took $14.3 B in O&M from the Base budget

• This left room to add funds to Procurement

• Grew OCO budget by $10.5 B

• Funds increased for Operating Forces and Maintenance & Logistics

• Support to Allies was cut, relative to request

• Congress cut $4.7 B in O&M from the Base budget

• This left room to add funds to Procurement

• Left the OCO O&M request nearly flat at the topline

• Funds increased for Operating Forces and Maintenance & Logistics

• Support to Allies was cut, relative to request

Requested Appropriated


Given that the base budget will need to be cut in line with BCA caps, the Congress is likely to revise spending levels, and will rely on the OCO budget as a safety valve

RDT&EProcurement

Operations & MaintenanceMilitary Personnel

FY15 Enacted

FY16 Request

Planned Increase

Potential Outcomes for DoD Budget by Title (Base and OCO)

$140.0 B

$139.9 B

-0.1%

• Likely to be funded close to the request

• Deep cuts would require cuts in pay structure or endstrength, and neither has Congressional support

• Likely to see cuts in the Base budget request

• Some of these costs will be made good in OCO accounts, whether they are OCO-related or not

FY15 Enacted

FY16 Request

Planned Increase

$246.3 B

$250.0 B

1.5%

FY15 Enacted

FY16 Request

Planned Increase

$101.3 B

$115.0 B

13.5%

• Growth in FY16 is likely but not as high as 13%

• Cuts in Base O&M may make some room for growth in Procurement

• Some growth is likely to preserve schedules for high-priority, high-risk programs (e.g., Ohio-class Replacement, Long-Range Strike-Bomber)

FY15 Enacted

FY16 Request

Planned Increase

$63.7 B

$70.0B

9.9%

Source: DoD FY16 Budget Documents; Avascent review of Congressional action in Base and OCO accounts, FY111 through FY15


In April 2014, DoD warned that without relief from discretionary caps, it would need to make deep cuts in a number of investment programs in FY16 and beyond

Aviation

Ship Systems

UH-60 Blackhawk -$333M

AH-64 Apache -$461M

UH-72 Lakota -$388M

CH-53K King Stallion -$41M

UH-1/AH-1 Upgrade -$111M

P-8A Poseidon -$1,015M

Combat Rescue Helicopter -$11M

MC-130J -$393M

F-35A -$1,364M

F-35C -$227M

SSN-774 Submarine -$1,564M

CVN-79 Aircraft Carrier -$1,385M

T-AO(X) Fleet Oiler -$682M

Ground Vehicles

Stryker -$300M

Amphibious Combat Vehicle -$88M

Joint Light Tactical Vehicle -$46M

Weapons & Munitions

AMRAAM -$202M

Joint Direct Attack Munition -$161M

BMD Interceptor Follow-on -$264M

Others

Science & Technology -$400M

BMD Ground-based Sensor -$126M

GPS III Satellite -$75M

+$88M

+$78M

-$15M

-$14M

+$13M

+$119MNo change to request

+$102M

+$138M

+$238M

-$52M

-$81MNo change to request


No change to request

-$30MNo change to request

+$50M


+$23M

Programs Identified by DoD in April 2014 as Candidates for Cuts in FY16 Under BCA

• Recent action taken by the Congress suggests that they are not likely to target the programs identified by DoD as candidates for reduction if BCA caps are kept in place in FY16

• In the FY15 Defense Appropriations Act, Congress increased funding for many of the programs identified by DoD as candidates for reductions

• This suggests that if Congress must determine where to take funding out of the FY16 budget due to BCA caps, it is not likely to follow the guidance offered by DoD last year

Congress’ Change to FY15 Budget Request

Source: “Estimated Impacts of Sequestration-Level Funding,” DoD, April 2014


The FY15 budget offers few explicit signals on DoD’s intent to shift its pattern of buying professional and technical services; Prospects vary widely by market sector and customer

Prospects for Technical and Professional Services Under FY15 Budget

Equipment Maintenance and Sustainment Training Services

Professional and Administrative Services IT and Network Services

Logistics and Technical Services Construction and Architecture Services

• Low likelihood that legacy systems will be retired in the timeline that DoD intends

• Push to sustain relatively high levels of readiness in USAF and Navy; But Army will focus high readiness only on the Army Contingency Force

• Army aims to shift to higher level of training for major combat operations (from stability ops focus), but relaxation of readiness standards for some units will pinch

• Heavy pressure at headquarters units to economize on A&AS, staff augmentation, and similar categories

• Slower pace of implementation among key initiatives, although few programs terminated

• Cyber and Business IT systems among the few bright spots in DoD investment budget plans

• OCO-exposed categories may have another year of life, given potential scale of FY15 OCO request

• Pinch on Procurement and RDT&E Management Support budgets will be felt in these categories

• Deep cuts in Military Construction and facilities sustainment, modernization and readiness (SRM) will lead to further market contraction


Bottom Line

If enacted, the FY16 budget would yield healthy growth in civil and DoD programs

Given political differences, the odds of a “grand bargain” to substantially raise the caps are very low

A smaller deal to raise the caps modestly (or provide added relief through OCO) is more plausible, but even that will be difficult

If the post-sequester caps are not raised, the FY16 request will need to be significantly scaled back, and Congress will play a strong role in shaping those changes

Based on its recent track record, Congress is likely to favor a series of outcomes:

Top-Level Priorities Programmatic Priorities

• Congress will cut O&M in the Base budget, and add funds to Base Procurement

• Congress will make selected increases to O&M in OCO

• Large-scale programs in serial production

• Most shipbuilding programs

• Maintenance & logistics accounts

• Retaining legacy fleets of aircraft and ships in service


www.avascent.com (202) 452-6990