BUDGET UPDATE: DEBT CEILING TIMELINE MOVES TO THE RIGHT AS CONGRESS CONSIDERS INCREASED DEFENSE SPENDING

Although there is no great news on a deal to pass legislation increasing the federal debt ceiling, contractors may take some comfort in knowing that the timeline for such action has moved to sometime between July and September, leaving some to speculate that Congress may pass a last-minute deal right before they leave for August recess.  That, in fact, is what happened the last time this issue surfaced with a Republican-controlled House and a Democratic White House.  While the Treasury Department is still officially holding to their original June 5th estimate, the Congressional Budget Office believes that increased revenues will provide more time before a deal must be reached.  Treasury has the last word, but Congress will likely only act at the last minute.  In the meantime, contractors can anticipate increased defense spending in FY’24.  Although there was initial talk about reducing appropriations, even among some Republicans, geo-political realities have apparently turned the tide.  The White House released a record-setting DOD budget request last week, but one which is expected to be enhanced even more by Congress.  More money would be available for assistance to Ukraine, but also for a host of Pentagon priorities.  With $816 billion appropriated for this year, FY’23 will, itself, present opportunities for contractors.  FY’24 will be even larger as the US seeks to keep pace with a projected 7.2% increase in Chinese defense spending.  There lies the rub, however:  increased spending may indicate that defense officials believe that the chances for an armed conflict are on the rise.  Contractors should not just monitor these developments but ensure that their voices are heard where needed.