Defense Department Spending By the Numbers Robert levinson Senior Defense Analyst cameron leuthy Senior budget Analyst Kevin brancato Director of Government Contracts Research JAN. 31, 2018

Lots of uncertainty about the course of defense spending Government is currently operating under a continuing resolution through Feb. 8 Under the Budget Control Act caps, Pentagon spending levels under the CR are held to slightly less than fiscal 2017 levels Without a deal on spending, caps remain the law of the land Broad support for higher DOD spending in Congress but Democrats want increase in domestic spending as well Deferred Action for Childhood Arrivals (DACA), other issues complicating deal FY 2018 Defense Authorization Act authorizes spending that would exceed caps, but appropriations are still limited by law Although the Trump administration asked for defense increases in fiscal 2018 and will ask for more in fiscal 2019, projected spending would still be less than levels forecast before the Budget Control Act became law Defense contracting fortunes are tied directly to final defense budget numbers

Defense Spending in historical perspective Spending peaks during wartime and drops afterward; latest trough isn’t as deep as previous ones FY 2018 and 2019 requests Korea Vietnam Cold War Sources: FY 2018 Pentagon Budget Request Green Book Table 6-8, and Budget Brief, Pentagon Wins as Trump Readies a $716 Billion Budget Request

Operational costs are squeezing investments O&M and personnel consume the majority of the Pentagon budget

Trump FY 2019 defense budget request is below pre-bca projections but exceeds caps Using the fiscal 2012 request as a baseline, DOD will still be about $600 billion below the 2012 defense budget request’s projection for fiscal 2012 through 2019 Some of the gap has been closed by using Overseas Contingency Operations (war) funds for base requirements

Contractor fortunes rise and fall with defense budget Defense contract obligations rose to 55 percent of DOD budget in FY 2017 Contract obligations still below FY 2012 level Sources: FY 2018 Defense Budget Request; Bloomberg Government data Note: DOD obligations do not include classified contracts

Continuing Resolutions are Now the Norm for appropriations The federal government has had four lapses in funding since 1995.

About the ANALYSTS rlevinson5@bloomberg.net +1 202 416 3380 @levinsor Robert Levinson is a senior defense analyst with Bloomberg Government, covering defense spending, sequestration, international sales opportunities for military equipment, and government contracting. He is a retired lieutenant colonel in the U.S. Air Force with more than 20 years of service. Prior to joining Bloomberg Government, Levinson worked for Booz Allen Hamilton as a strategic communications consultant and in government relations for the American Israel Public Affairs Committee. He has a bachelor’s degree from the U.S. Air Force Academy and a master’s from the University of California, San Diego. He is also a graduate of Harvard’s program for Senior Executives in National and International Security. Cameron Leuthy is a senior budget analyst with Bloomberg Government. He has more than 20 years of experience in analyzing budgets and legislation at the Office of Management and Budget, the Department of Defense, and at Booz Allen Hamilton. His expertise includes the federal budget and the nexus of national security policy, operational requirements and funding. He has a bachelor's degree from Western Washington University and an MPA from the University of Washington. cleuthy2@bloomberg.net 1-202-416-3662 @CLeuthy