Optimism is real for 2021, but beware the caveats of a divided government

David Berteau, president and CEO of the Professional Services Council, is generally optimistic about the coming year given agencies have full funding for fiscal year 2021 and a new COVID relief bill has passed.

But when you push down below the surface, Berteau is just as quick to talk about caveats to his optimistic outlook.

Speaking as part of our Jan. 22 Washington Technology Power Breakfast, Berteau described a market where there are plenty of opportunities for new technologies and new ways of doing business such as digitalization of government processes and the growing importance around artificial intelligence and machine learning.

But no one can ignore the challenges ahead as the new Biden Administration takes shape with a Congress that is so closely divided.

“The funding is there for fiscal 21 but there’s only eight months left and we have no deal and not even the starting point for a deal for fiscal '22,” Berteau said at the Winning Strategies for 2021 breakfast.

Generally, we see a budget proposal from the president in February. But with the difficult transition from the Trump administration to the Biden administration, there is no hope of a proposal in February.

“The transition team didn’t even see (the Trump budget proposal) until way late in the game, so they’re already behind in terms of the available time that they had to reconstruct those budgets,” Berteau said.

And it doesn’t take an astute political observer to realize that what the Trump administration would ask for is very different from what the Biden administration will ask for.

The Biden administration may submit a budget where the total defense dollars are close to the Trump administration, but will not submit a budget with deep cuts to the civilian side as the Trump administration did year after year, Berteau said.

But beyond what is in the budget, there is the question of how to get it through Congress. For the last decade, there have budget resolutions and the Budget Control Act, which set ceilings for the total budget. With a cap in place there was at least broad agreement across both parties of what the total spend would be.

But now there is no agreement in place for the total budget.

“This is new territory for us,” Berteau said. “There is a lot of uncertainty.”

Finding a way out will be a challenge because the senate has a 50-50 split with Vice President Kamala Harris providing the deciding vote for the Democrats.

There is a reconciliation authority still in place that is left over and that can be used to push through legislation on a simple majority vote instead of the traditional two-thirds vote. Berteau said that authority will most likely be used for more COVID relief, which could include more support for contractors.

But the fiscal 2022 budget will be a bigger challenge. Berteau sees two triggers that will push Congress to act. One is the proposed Biden budget, which likely will come in April or perhaps May. That will kick off the negotiations. But a second, bigger trigger is the return of the debt ceiling as an issue.

The ceiling resets on Aug. 1 and while the Treasury Department can take what are called “extraordinary measures,” the federal government will essentially be in default.

The reconciliation authority can be part of a budget resolution and since these only apply to Congress, the president doesn’t need to sign it. But the clock is ticking.

“Time is of the essence,” Berteau said. “This is something that is going to be very important to contractors.”

Reconciliation authority can be used for the budget but it also could be used to push through an infrastructure bill, something that has strong bipartisan support. But beyond roads and bridges, Berteau said he’ll be advocating that government infrastructure be included as well.

“There is urgent need for the government to do substantial updates to its own infrastructure, its own systems; everything the government depends on to get its mission done,” Berteau said.

The COVID pandemic laid bare weaknesses in the government’s ability to operate through the crisis but it also showed how quickly contractors can respond, he said. Then the Solarwinds cyberattack occurred.

“There is a need for rapid modernization,” Berteau said.

The Biden administration has signaled support for modernization efforts and has proposed $10 billion for the Technology Modernization Fund, but “that’s not nearly enough,” he said.

But whether there is more money in the TMF or not, one of the most important things the Biden administration can do is to set modernization as a priority. The Trump administration, through the Office of Management and Budget, discouraged civilian agencies from spending all of their budgets.

“We think one of the most important things the incoming administration can do is take the shackles off and let agencies obligate the funds they have available,” Berteau said. “The need is there. The mission is there.

"Let’s use the funding we have available. It’ll have both an economic benefit as well as a government performance benefit.”