FISCAL 2019

Midterms likely to force CR for start of next fiscal year

Lawmakers appear on track to get the fiscal year 2019 defense appropriations and authorization bills done by the Sept. 30 deadline but yet one more analyst believes the coming midterm elections will get in the way.

Instead, investment bank and research analyst firm Drexel Hamilton wrote in a June 19 research report that it expects Congress to pass another stopgap continuing resolution “that’s likely to last until at least late” into December.

The election results would have a direct impact on defense contractors and in particular how control of the House shapes out, according to Drexel Hamilton’s lead aerospace and defense analyst Pete Skibitski.

“Should the GOP keep control of the House, this could lead to better out-year defense spending than expected, particularly if the GOP gains seats in the Senate,” Skibitski wrote June 19. The House flipping to Democrats in contrast would pressure the industry, he wrote.

The House Appropriations Committee passed a fiscal 2019 defense funding bill on June 13 that would allocate almost $674.6 billion in total spending, which includes a $606.5 billion base budget to the Pentagon and $68.1 billion for the overseas contingency operations fund.

Of particular note to government IT and professional services companies is the operation and maintenance account that House appropriators included is almost $197.5 million 2019, $9.3 billion higher than the previous fiscal year’s level.

A large portion of federal IT spending goes into O&M investments for upkeep of legacy systems that in some instances are at least five decades old.

More than three-quarters of all budgeted federal IT funds went to O&M in fiscal 2015 with that number anticipated to increase in years going forward, according to a May 2016 Government Accountability Office report.

Those operation and maintenance accounts are also poised to be the center of contracting activity this summer given the shortened amount of time agencies have to get funding on contracts after the six-month-late passage of this year’s budget.

House appropriators also gave a $2.9 billion year-over-year boost to the research, development, test and evaluation account to $2.4 billion, while new equipment procurement came out to $145.7 billion.

Other analysts including those at Credit Suisse have noted recently that a continuing resolution for the next federal fiscal year may not be so bad from an overall funding level perspective.

A CR freezes government funding at the prior fiscal year’s levels, which included the largest increase to the Defense Department’s budget in 15 years to almost $700 billion.

The Senate passed its version of the fiscal 2019 defense authorization bill on June 18 to follow the House’s approval of that measure on May 24, but that legislation does not allocate dollars and focuses more on policy.

Both chambers will have to reconcile their versions of the authorization bill over the summer. The Senate is only taking a one-week recess in August in an effort to accelerate the completion of both the defense and civilian appropriations processes.

About the Author

Ross Wilkers is a senior staff writer for Washington Technology. He can be reached at rwilkers@washingtontechnology.com. Follow him on Twitter: @rosswilkers. Also find and connect with him on LinkedIn.

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