CONGRESSIONAL BUDGET OFFICE URGES REDUCED SPENDING

Debt held by the public is seen climbing to $46 trillion by 2033, amounting to 118% of GDP—the highest in US history – according to a recent Congressional Budget Office (CBO) report.   Bloomberg Government reports that CBO also projected that the total debt limit will be worse than earlier projections, at a total of $1.41 trillion.  These numbers will definitely have an impact on budget ceiling negotiations, as well as FY’24 spending numbers.  They suggest that federal spending, especially discretionary spending that funds most government contract actions, will be trimmed.  “Mandatory” spending, such as Social Security, Medicare, Medicaid, and service on the existing debt, is either logistically or politically untouchable, despite the fact that it collectively makes up the majority of federal expenditures.  Bloomberg states, “(t)he CBO report is the yardstick by which all federal legislation will be measured this year, including debt-limit related proposals and Republicans’ plans to put the budget on a path to balancing in 10 years.”   The CBO report will likely make debt ceiling negotiations more difficult, as well, as House conservatives demand reductions in domestic spending, setting up a clash with Congressional Democrats and the Biden Administration.  Government contractors should be prepared for disruptions in business this summer and reduced spending levels in future fiscal years.  Despite public pronouncements by some House members, however, the future of defense funding is somewhat more secure given security concerns that have recently ballooned.  Contractors will need to closely follow fiscal developments over the next several months.  Few outcomes are certain, making longer term planning difficult.  It will almost certainly not be smooth sailing.  Those that can adapt quickly to changing situations will be better positioned for success.