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14 The PCB Magazine • July 2017 Senate Armed Services Committee Chair- man John McCain, R-Ariz., has argued for a $700 billion defense budget for fiscal 2018, or about $60 billion more than President Trump's request. That kind of truly dramatic, immediate increase in defense spending is unlikely given the political, budgetary and legal realities gov- erning the appropriations process. The base spending caps created by the 2011 Budget Control Act will continue through 2021 unless Congress acts to end or ease them. Bud- get hawks are unlikely to allow a complete end to the caps. Congress has eased the caps three times, appeasing budget hawks by cutting spending elsewhere in the vast federal budget to make way for defense increases. Congress has also gotten around the defense cap by adding funds to the Pentagon's budget by using supplemental OCO funding. OCO funding is money set aside in the federal budget for emergency expenses connected to overseas operations such as: cri- sis response, infrastructure and coalition sup- port for operations in Iraq/Afghanistan, hu- manitarian assistance in the Middle East and North Africa, and embassy security, among other needs abroad. A mix of supplemental and OCO funding in- creases and modest increases to the base spend- ing caps are the most likely way that Congress will make good on Pres- ident Trump's campaign promise. Growth at the rate proposed in the fis- cal 2018 budget through 2021 would lead to spend- ing at about the $780 bil- lion level that year that Senator McCain is seek- ing, just at a slower imme- diate rate of growth. It's important to re- member that the Trump administration has been in office for less than six months. Defense Secre- tary Jim Mattis has initiat- ed a review called the Na- tional Defense Strategy, a new strategic planning process that replaces the traditional Quadrennial Defense Review. Mattis and his team must work through that review before proposing any major new initiatives or programs. The 2018 budget directs the largest fund- ing increase to operations and maintenance ac- counts to shore up the readiness of the force as the National Defense Strategy looks at how best to make investments in procurement accounts starting in 2019. With ongoing terrorism threats, coupled with rising threats from Russia and China, both on traditional military fronts as well as new cy- bersecurity and space fronts, the external justi- fication for defense spending increases is clear. Through the National Defense Strategy, the Pen- tagon will describe the internal justifications for specific investments in new weapons and exist- ing platforms. The political and budgetary reali- ties facing Congress will temper the growth as- pirations of defense hawks, but industry should be prepared to ramp up activity on behalf of the Defense Department now that the era of tough austerity is turning the corner. Given the lack of new programs—and de- spite the slower-than-hoped-for near term bud- get increases—there are substantial business opportunities for the military primes (and the DEFENSE BUDGET ANALYSIS: PATIENCE IS A VIRTUE Figure 1: President Trump's proposed 7% increase in Defense budget au- thority. (Source: U.S. Department of Defense 2018 Budget Proposal, U.S. House of Representatives 2017 Defense Appropriations Summary)

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