The Senate Appropriations Committee (SAC) passed both the FY25 Military Construction-VA and the Defense appropriations bills out of committee. The Defense Bill passed by a 28-0 vote on August 1 and the Military Construction-VA bill passed by a vote of 27-0 on July 11. These two bills provide the Department of Defense, Military (051) resources of $870.3 billion which is considerably above the agreed-to Fiscal Responsibility Act (FRA) limit and 2.4% above President Biden’s $849.8 billion request.
As Chart I indicates, the House and the President’s levels remain within the boundaries set by the FRA, whereas the Senate Appropriators allot the Department an additional $20 billion in non-emergency funds plus an additional $20.7 billion in emergency funding (shown separately in Chart II). It should be noted that the SAC is also adding funds in the base budget for non-defense programs. Neither the President nor the House has designated emergency funding in FY25. With six weeks left in FY24, the Department has received just over $67 billion in emergency spending this year which is not counted towards the FRA cap. Those funds should help the department during the long-term continuing resolution (CR) that we expect at the start of FY25.
Chart I. Source: Department of Defense, House and Senate Appropriation Reports. * Does not include $20.7 billion SAC includes for emergency spending.
The SAC could have easily stayed under the cap and then designated any overage as “emergency.” The fact the Senate’s bill busts the FRA caps and then designates emergency funding on top of that spending suggests to us that for Defense, FRA has become the FY25 funding floor.
Chart II. Source: Senate Appropriations Committee Report. Totals may not add due to rounding.
The SAC numbers represent strong support for modernization as both the base funding and the emergency funding directs more resources to the Procurement and Research, Development, Test, and Evaluation (RDTE) titles of the bill. The period of availability for these funds is longer than that of the O&M and Military Personnel titles.
Chart III shows selected SAC-approved Procurement increases above the President’s request. Chart IV shows SAC priorities for RDT&E.
Chart III. Source: Senate Appropriations Report.
With major differences between the House-passed FY25 Defense Appropriations bill and the SAC-approved version, specific increases are likely to change before FY25 Appropriations are finalized after the November elections. We view these increases as a market signal representing bipartisan SAC priorities. We also expect that regardless of the outcome of the November elections, FY25 Defense spending is likely to exceed the current FRA. We also note that the RDT&E increases in areas such as command, control, and communications, cyber, supply chain, and missile defense and space programs align to multi-billion- dollar mission, policy, funding and operational priorities that we expect to grow faster than DOD’s top-line budget over the next five years.
Chart IV. Source: Senate Appropriations Report.