At the moment, we have less information about current federal agency spending than at any time since the 1974 Congressional Budget Act was implemented. Congress passed that law with bipartisan, bicameral support in response to repeated efforts by President Nixon to limit Congress’ constitutional (Article 1) authority over government spending by impounding funds approved by Congress. While the Supreme Court struck down the Nixon impoundments, Office of Management and Budget (OMB) Director Vought has written and testified that President Trump should take action to assert Presidential Impoundment Authority knowing that decision will generate court challenges.
Our federal system of checks and balances doesn’t work on autopilot. Leaders in each branch of government have discretion over when, how, and to what extent they choose to assert their constitutional authorities.
As we saw during President Trump’s first 100 days, the executive branch has one clear advantage—speed. Witness the depth and breadth of the executive orders streaming out of the White House and the disruptive actions taken by the Department of Government Efficiency (which, by the way, is not a department). Of the three branches, the U.S. courts often take the longest to reach an ultimate conclusion as overlapping cases and conflicting lower court rulings wind their way through the system. With thousands of cases filed across the country, that process is under way.
So far, Congress has kept its powder dry. Part of that is by design. With a razor-thin majority in the House and a Senate Republican majority seven votes short of the 60-vote threshold needed to move major legislation, House Speaker Johnson (R-LA), Senate Majority Leader Thune (R-SD), and the White House worked together to maximize their opportunity to implement their economic agenda in one “big, beautiful” budget reconciliation bill that avoids a Senate filibuster.
THE FY25 DECISION
A key step in that process was adopting P.L. 119-4, a full-year FY25 continuing resolution (CR) for all federal agencies with far less Congressional direction on spending priorities than would occur in a regular appropriations bill. The law required agencies to submit spending plans to Congress by April 29 but based on every House and Senate Appropriations Committee hearing conducted this month, the executive branch failed to comply to the level expected by leaders of the Appropriations Committees.
In business and in government, the single most important piece of information needed to evaluate a budget for next year is a clear picture of current spending. At the moment, that doesn’t exist for a single cabinet agency. That fact makes evaluating President Trump’s FY26 Budget a challenge for Congress and for federal contractors.
When will Congress, and specifically the Appropriations Committees, reassert their Article I constitutional authority over agency spending? Based on precedent and ongoing hearings, that process has already started. We expect that pressure to build over the next six months as Congress wrestles with FY26 appropriations that ultimately need 60 votes to pass the Senate.
ENTER ELON
DOGE complicated matters by initiating layoffs of thousands of federal workers and cancelling (or getting agencies to review) hundreds of federal contracts. Initially, DOGE initially claimed these actions would save taxpayers $2 trillion. The real number will be dramatically smaller for multiple reasons.
Let’s focus on two. First, worker layoffs typically increase personnel costs in the first year, particularly when agencies are paying staff not to work. Second, when a federal contract is cancelled, the money “saved” flows back to the agency. Cuts to approved agency budgets only reduce spending when the funding is rescinded in a law passed by Congress. Rescissions are routinely included in annual appropriations bills. This year, OMB plans to submit a rescission package that will be considered under expedited Senate procedures. Release of that $10 billion package has been delayed until after the House passes its reconciliation bill. For those keeping score, $10 billion is less than $2 trillion.
The reality is that Federal Civilian Executive Branch (FCEB) agencies have more money to spend in FY25 than the levels DOGE has recommended or the levels outlined in President Trump’s “skinny” FY26 budget. Expect that to continue to be true in many cases, even if a recission package is proposed and passed, with that multi-billion-dollar delta creating FY25 and FY26 opportunities.
BUDGET RECONCILIATION
For the Defense Department, the GOP reconciliation strategy means that Defense gets less FY25 spending than advertised earlier this year. With enactment unlikely before late July, the Congressional Budget Office projects that only $2 billion of the
$150 billion increase for the Department of Defense (DOD) approved by the House Armed Services Committee outlays in FY25. That’s not a surprise. CBO did the same thing for the last reconciliation bill Congress passed—the July 2022 Inflation Reduction Act.
Under the FY25 CR, DOD funding falls billions short of the levels needed to maintain current services and with no funding to implement several of the new initiatives directed by President Trump like securing the southern border. That combination will trigger billions in transfers and reprogrammings in the coming weeks. Anticipating those actions, FBIQ predicted in December that FY25 would be the most back-loaded procurement cycle this century.
Trump’s aggressive transition strategy and DOGE have compounded operational challenges for agencies. Most of the expert agency staff needed to develop and implement spending plans—like the leadership team in the DOD Comptroller’s office—have either left their agencies or taken other assignments. Mix in proposed GSA reforms. Add shortages of experienced contracting officers and Senate-confirmed officials at the operational level for most departments, and you have a recipe for procurement gridlock.
Federal contractors are now flying in IFR (Instrument Flight Rules) conditions without reliable instruments. The same is true for Congress and federal agency managers. Expect the budget chaos in Washington to continue for months.
AN ACTION PLAN
In The Art of War, Sun-Tzu wrote, “In chaos, there is also opportunity.”
We’re now half-way through the third quarter of FY25. Let’s focus on what we know and what we expect to happen.
FORECAST
95% Every federal agency begins FY26 operating under a continuing resolution (CR) through at least mid-December 2025.
FORECAST
80% Most Federal Civilian Executive Branch agencies operate under CRs throughout FY26.
FORECAST
65% The Department of Defense operates under CRs through FY26.
What do a full-year CR, absence of detailed agency spending plans, DOGE, thousands of vacancies in senior civilian leadership positions and in contracting offices across government, a “skinny” FY26 Budget, and a reconciliation package with spending increases unlikely to land before FY26 have in common? For those with initiative, the answer is more flexibility in the short term to change course.
The key restriction for agencies operating under CRs is a prohibition on new starts. Agencies and contractors are accustomed to CR operations through most of the first quarter of the fiscal year.
With that in mind, what do federal agency managers have an incentive to do between now and September 30? Accelerate new initiatives outlined President Trump’s FY26 Budget into FY25, particularly initiatives focused on mission-critical operations and those with time-sensitive deliverables.