A “Hard Reset”


In the world of technology, a “hard reset” restores a device to its original factory settings by removing all user-added settings, applications and data. President-elect Trump, his transition team and Republicans in Congress are attempting a “hard reset” on a wide variety of federal programs supported by President Obama with the Affordable Care Act high on their agenda. Approving implementing legislation will be difficult and time-consuming, particularly in the U.S. Senate where Majority Leader McConnell’s 52-48 vote margin falls well short of the 60 votes needed to pass most legislation. For federal agencies and those serving them, the remainder of FY17 will be disruptive.

Much of the Senate’s early 2017 calendar will focus on consideration of roughly 4,000 executive branch nominations, a Supreme Court vacancy and dozens of other judicial nominations that require Senate confirmation. The confirmation process will delay the Executive Branch decision-making timetable on hundreds of issues, particularly those initiated by President Obama. It may also require Vice President-elect Pence to cast some tie-breaking votes.

The decision by the Trump transition team and GOP leaders in Congress to advance a long-term Continuing Resolution (CR) to April 28th further complicates matters. Members of the House Freedom Caucus argued, and the Trump Transition team agreed, that an April CR extension creates a legislative vehicle that would enable them to dramatically alter spending priorities and achieve a series of policy objectives. That’s a tall order. In the House, Republicans should be able to pass a blueprint that cuts FY17 non-defense discretionary spending, but Senate passage will be a challenge.

Operationally, the most likely FY17 outcome for several non-defense agencies will be what amounts to a restrictive, year-long CR at funding levels below those approved in FY16.

That outlook impacts the federal procurement process. For federal contractors supporting civilian agencies, procurement schedules will be delayed and obligation rates should drop through the third quarter of FY17 before budgets and operational decisions start to restabilize under the Trump Administration.

Within the Department of Defense (DoD), a different brand of reset will occur—one in which spending priorities within higher spending caps are shuffled.

As a candidate, President-elect Trump planned to “fully repeal the defense sequester” and increase the number of Air Force fighter aircraft and Navy ships. Trump also endorsed increasing the number of military personnel to 540,000 active duty Army soldiers and 36 Marine battalions. Based on Trump campaign documents, some of these defense spending increases will be offset “by conducting a full audit of the Pentagon, eliminating incorrect payments, reducing duplicative bureaucracy, collecting unpaid taxes, and ending unwanted and unauthorized federal programs.” Expect the Trump Transition team to seriously consider proposals advanced in a January 2015 Defense Business Board (DBB) report that identified $125 billion in DoD administrative savings over 5 years to help alter defense spending priorities within rising spending caps. Our January edition will include an analysis of DBB report recommendations.

Details on the President-elect plans for achieving these objectives will emerge over the next 4-5 months. Precedents dating back to adoption of the 1974 Congressional Budget Act, suggest the following timetable. Expect OMB career staff to produce a FY18 current services baseline budget by mid-February that becomes a reference point for future budgetary deliberations. As we noted earlier this year, the spending levels outlined in that baseline will exceed the FY18 Budget Control Act caps for defense and non-defense programs. Trump’s inauguration speech will likely be followed by a Special Message to Congress outlining the Trump Administration’s broad budgetary priorities. By early May, expect President Trump to release an abbreviated budget. That timetable coincides with the expiration date for the current CR and the statutory deadline for extension of the federal debt limit. For more details, see Timeline below.

In the short-term, most federal agencies and the contractors who support them should expect the transition to disrupt and delay hundreds of federal procurement and policy decisions through at least the third quarter of FY17. Even after FY17 funding levels are finalized, implementation schedules, guidelines and priorities for several ongoing initiatives will be adjusted and likely delayed into the first half of FY18. Others will be shelved. During this period of uncertainty, federal agencies will prioritize protecting headcount and to the extent they have operational flexibility, catching up on legacy system maintenance.

December FBIQ

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