Who are the budget winners and losers in 2015?

Fiscal 2015 is going to be better than fiscal 2014, but don't break out the champagne and party hats yet.

“It’s probably not as good as you’d like it to be, but it’s still better than last year,” said Deltek’s Kevin Plexico at a Northern Virginia Technology Council event on Tuesday.

The event focused on the proposed budget’s impact on the contractor community, so there was a lot of talk of discretionary budgets, IT budgets, and who the winners and losers are in each category.

Plexico began with the big picture: in fiscal 2015, there is a 3 percent increase in total budget base compared to the enacted fiscal 2014 budget, with $6.4 billion in cuts, consolidations and savings.

That 3 percent marks the first rise in the discretionary spending trend since fiscal 2009, which was high due to the economic stimulus legislation. From fiscal 2009 on, the discretionary budget was lower each year, especially in 2013 due to the sequester and Hurricane Sandy (reduction of $57 billion from fiscal 2012).

This time around, the President’s request for 2015 is a $32 billion increase from fiscal 2014 enacted, Plexico said, but there is a problem with this request in that it is $50 billion above the budget agreement reached in December.

The excess is largely due, Plexico said, to the $55 billion Opportunity, Growth and Security Initiative, which is designed to support additional investments in critical areas for job creation and better government, evenly investing in defense and non-defense discretionary funding.

Deltek's analysis came up with a number of key words related to this initiative, with the five biggest ones being modernization, training, maintenance, infrastructure and construction.

On the agency by agency level, there are a number of winners and losers when it comes to the discretionary budget, and Plexico offered some insight into which agencies you should be paying attention to in the coming fiscal year.

There is $6.3 billion in increased spending across 10 agencies in fiscal 2015, and those winners are:

  • Veterans Affairs – $1.9 billion
  • Education – $1.3 billion
  • Energy – $700 million
  • Commerce – $500 million
  • NNSA – $500 million
  • Other agencies – $500 million
  • Transportation – $300 million
  • Census Bureau – $300 million
  • Social Security Administration – $200 million
  • National Science Foundation – $100 million
  • Interior Department – no change

Plexico gave an analysis on why some of these agencies saw increases. Veterans Affairs, for example, is the largest provider of medical care in the world, and there will be some IT opportunities ahead.

“IT spending has been a bright spot [in this department] despite the sequester. Their IT budget last year increased by about 20 percent. This year, it is proposed to go up another 4 percent,” Plexico said. This is largely due to investments in things like telemedicine and improvements in claim processing.

The Energy Department and the National Nuclear Safety Administration, or NNSA, will be putting money toward research and development and nuclear safety, Plexico said.

Unfortunately, there are a number of discretionary spending losers, too, but it is not what it looks like at first glance. Overall, there is $24.8 billion in decreased spending across 14 agencies (with all the following values being decreases):

  • State and International Programs – $100 million
  • NASA – $100 million
  • Treasury – $200 million
  • Labor Department – $200 million
  • Small Business Administration – $200 million
  • Environmental Protection Agency – $300 million
  • Defense Department – $400 million
  • USACE – $1 billion
  • Homeland Security Department – $1.1 billion
  • Housing and Urban Development – $1.1 billion
  • General Services Administration – $1.6 billion
  • Agriculture – $1.9 billion
  • Health and Human Services – $6.1 billion
  • Justice Department – $10.5 billion

“You might take a glance at the Department of Justice and ask, ‘who did they wrong?’ but a lot of that number is because of a reclassification of spending,” Plexico said. Much of that money is being reclassified as mandatory spending, and it is mainly related to the asset forfeiture program. “If you factor in that shift of dollars, the reduction basically becomes a flat reduction,” Plexico said.

Health and Human Services is similarly deceiving: “HHS is more a function of the winding down of the implementation of health care reform legislation, so it’s not a real cut,” Plexico said.

He also added that despite the reduction in the Homeland Security budget, the agency is in fact investing in cybercrime countermeasures and counterterrorism activities. “Those areas are safer in the scheme of things,” he said.

But there are also a number of winners and losers when it comes to specific IT budgets. The winners are:

  • Treasury – $468 million
  • Air Force – $253 million
  • USACE – $189 million
  • Veterans Affairs – $180 million
  • Defense-wide – $108 million
  • Commerce Department – $100 million
  • NASA – $42 million
  • Environmental Protection Agency – $38 million
  • State Department – $33 million
  • Labor Department – $31 million
  • USDA – $30.4 million
  • Education Department – $14.3 million
  • USAID – $8.7 million
  • Small Business Administration – $7.2 million
  • National Science Foundation – $3.8 million
  • Smithsonian – $2.5 million
  • NRC – no change

“IRS is perhaps the biggest winner here,” Plexico said, and a lot of that is due to the implementation of the Affordable Care Act.

With the Air Force, their increase is accounting for an integrated personnel and pay system, as well as base modernization. Commerce’s increase is tied to back office business application solutions, modernization efforts, and primarily enterprise-wide financial and business systems that are being upgraded, Plexico said.

On the opposite end of the spectrum, we have the losers:

  • Homeland Security Department – $3.5 million
  • Transportation Department – $6.6 million
  • Housing and Urban Development – $8.6 million
  • NARA – $9 million
  • General Services Administration – $20.9 million
  • Justice Department – $23 million
  • Interior Department – $32 million
  • Energy Department – $44 million
  • Social Security Administration – $129 million
  • Health and Human Services – $367 million
  • Navy – $634 million
  • Army – $764 million

Accounting for the Army’s and Navy’s reductions are the number of small programs that the two services have cut. The Army cut 79 programs worth $320 million, due in part to the pull back in Afghanistan and Iraq. The Navy has cut around 44 programs, with notable cuts being base-level computing capabilities and a joint precision approach and landing system, Plexico said.

Through the analysis of the winners and losers of the discretionary and IT budgets, it is easy to locate hotspots in the market, but the challenge will be moving into them quickly, Plexico said.

As for what to expect, “we don’t have the sequester looming, but we still do have a disagreement about the president’s initiatives that he wants funded versus what the Republicans in the House want,” Plexico said. With that being the case, continuing resolutions are still a real possibility, he added.

But overall, fiscal 2015 will be similar to 2014; however, Plexico believes it will be more predictable than fiscal 2014, which might alone make the year better by default.

About the Author

Mark Hoover is a senior staff writer with Washington Technology. You can contact him at mhoover@washingtontechnology.com, or connect with him on Twitter at @mhooverWT.

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