The Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) have announced a joint event on the future of crypto oversight amid the Trump administration’s push to welcome the sector.
SEC-CFTC Push Joint Crypto Oversight
On Thursday, SEC Chairman Paul Atking and CFTC Chairman Michael Selig announced they will hold an event next week to discuss regulatory harmonization between the two sister agencies.
According to the announcement, the pro-industry chairmen will outline the efforts to work together and cooperate to “deliver on President Trump’s promise to make the United States the crypto capital of the world.”
The event will be hosted on January 27 at the CFTC headquarters and moderated by crypto journalist Eleanor Terret. Additionally, it will be open to the public and livestreamed on both agencies’ websites.
“For too long, market participants have been forced to navigate regulatory boundaries that are unclear in application and misaligned in design, based solely on legacy jurisdictional silos,” said SEC Chair Atkins and CFTC Chair Selig in a joint statement.
“This event will build on our broader harmonization efforts to ensure that innovation takes root on American soil, under American law, and in service of American investors, consumers, and economic leadership,” they added.
Last year, the SEC and CFTC began discussing their options for effectively collaborating on crypto regulations, as a clear framework for digital assets became a top priority for the agencies
As reported by Bitcoinist, the agencies explored reinstating the CFTC-SEC joint advisory committee to develop recommendations on ongoing issues, including efforts in regulatory coordination.
During a September joint roundtable between the two agencies, Atking declared that the era of regulatory fragmentation was ending and the age of harmonized, innovation-friendly crypto oversight was here:
We are at a crossroads. If we follow the path of our predecessors, America risks ceding leadership in the next chapter of financial history. (…) This ends now (…) our two agencies must work in lockstep to transform dual regulation from a source of confusion into a source of strength. Together, we can offer the best of both worlds: the investor protections that have defined U.S. markets, combined with the innovation-friendly approach that will keep us at the frontier of financial technology throughout the 21st century.
The SEC’s Director of the Division of Trading and Markets, Jamie Selway, highlighted the SEC’s efforts to “further harmonize its rules with our sister regulator, the CFTC. In a January 22 speech, He affirmed that the Division will work shoulder-to-shoulder with the CFTC staff to ensure the US’s continued leadership in financial markets, following Atkins’ September directions.
Congress Regulatory Efforts Stall
The SEC and CFTC’s efforts to regulate the crypto market come as the US Congress struggles to establish a framework to oversee the sector. The Senate Banking Committee’s version of the market structure bill, which focuses on the SEC’s oversight, was delayed after multiple market participants criticized the bill’s draft.
Coinbase CEO Brian Armstrong shared his disappointment with the crypto legislation, withdrawing the company’s support last week. “This version would be materially worse than the current status quo. We’d rather have no bill than a bad bill,” he affirmed.
The Senate Agriculture Committee published its version of the CLARITY Act on Thursday, which mainly addresses the CFTC’s role and regulations, scheduling its markup session for January 27.
Eleanor Terret shared that the industry’s reaction has been mostly positive, “with stakeholders noting the bill’s close similarities to the House Agriculture Committee’s version of the Clarity Act.”
However, recent reports have warned that the Banking Committee’s crypto talks may not resume until later February or early March, as focus shifts to advancing affordable housing plans linked to President Trump’s priorities.
The Department of Veterans Affairs is preparing to issue what’s likely to become one of the largest service contracts in government history as it restructures its arrangements, aiming for rigorous management of the department’s role as a health care payer and greater competition among health care management firms.
The massive contract vehicle represents only the second time VA has signed large contracts with health plans to coordinate private sector care for veterans. The first was shortly after the MISSION Act was signed in 2018. Those contracts are now expiring, and in their place, VA is preparing one large indefinite delivery/indefinite quantity contract with a total potential value of $700 billion over the next ten years.
Among the changes the department is aiming for is a much more rigorous approach to program management in its “community care network,” said Richard Topping, VA’s assistant secretary for management and chief financial officer.
“This program has been unmanaged since its inception. None of the tools, none of the controls that we are talking about introducing here have been available,” he told the House Veterans Affairs Committee on Thursday. “VA had no ability to manage this program, to drive quality, to focus on the outcomes for veterans, to focus on cost. We’ve now got the ability to do that in this contract. The way we designed this unmanaged program also made it very difficult for industry to partner with us. It made it very difficult for community providers to serve our veterans, because it didn’t operate like any other payer program.”
The new contract, called Community Care Network Next Generation, is meant to change much of that. VA says the department intends to cast a wide net for vendors — creating an indefinite delivery/indefinite quantity contract that doesn’t only attract large, national health insurers.
“We are very intentionally not limiting it to the large vendors. The intention is to open this up to competition, to non-large vendors, to those who might bring regional capabilities, regional capacity, and that would not be able to operate on a national or semi-national scale,” Topping said. “They will incur a cost to bid and be awarded a spot on the vehicle. But once they do that, the vendors who are on the vehicle with us, large and small, have a seat at the table with VA, with our program management team to design the task orders. There are two initial task orders in the initial award, those look a lot like what we have now. But we are going to immediately partner with the vendors on the vehicle to begin to build the next more regional, more adaptable, more local models in our task orders.”
Value-based payment models and utilization management
VA plans to use the ID/IQ for its purchased health care for up to ten years. The contract includes a three-year base period, followed by three two-year option periods, and a final one-year option period. During that time, the department plans to use on-ramps and off-ramps to bring new vendors onto the contract — and remove ones that aren’t meeting performance standards.
And contract performance will be overseen and measured by VA program officials who plan to start implementing measures that value quality care over numbers of procedures performed, Topping said.
“VA will implement a comprehensive quality program for community care providers based on nationally recognized measures from the Agency for Healthcare Research and Quality. Contractors will track patient safety events, identify veterans at risk of avoidable visits and readmissions through predictive analytics, and while respecting their choice, guide veterans towards higher performing providers,” he said. “Next Gen will modernize how VA pays its contractors for the care furnished to veterans by implementing value-based payment models. We will begin with episode-based payments for lower extremity joint replacements. As we gain the data and the expertise to manage alternative payments, we will introduce at least three additional models over the performance period of the contract to continually improve care. These models will shift payment away from volume and toward outcomes and total cost of care, which aligns contractor incentives with veterans’ health and system sustainability. We will introduce utilization management. This includes active management of inpatient admissions, emergency department use, concurrent hospital reviews, and high cost drugs administered in clinical settings. This will reduce unnecessary hospitalizations and inappropriate care while protecting veterans’ access to medically necessary services.”
Questions from Congressional overseers
But the department faced bipartisan skepticism during the hearing, partly because VA officials have been slow to detail their plans for the CCN Next Gen effort to members of Congress. VA’s overseers on the House Veterans Affairs Committee say they found out the details of the contract at the same time vendors did — when the request for proposals was released a little over a month ago.
“I understand the VA finds it unprecedented to hold a hearing on an active contract solicitation. I appreciate the sensitivity of the contract, but it is also unprecedented to avoid Congress’s oversight of $1 trillion of spending,” said Rep. Mike Bost (R-Ill.), the committee’s chairman. “My staff and the ranking member’s staff have been told that some topics are off limits because of the sensitive nature of the contract and solicitation. We’ve tried to create a venue in which VA would feel comfortable to speak candidly to our members, but unfortunately, VA failed to assure us of such candor.”
Meanwhile, Democrats on the committee also worry that the new contract will serve as a way to further privatize VA health care — pointing out that more than 40% of veterans’ care is already delivered by private providers through the existing contracts.
Rep. Morgan McGarvey (D-Ky.) said he worried that the contract will lead to large, vertically-integrated conglomerates driving veterans into facilities they control, and away from smaller community-based providers.
“I don’t trust big insurance companies to take care of anybody. The sole thing that motivates them is profit. It’s not people, and it’s certainly not our veterans,” he said. “We have the right to be skeptical when we are talking about private insurance companies taking care of people, because right now they don’t.”
But Topping said the department believes it can avoid problems like the ones McGarvey is worried about through strong oversight and program management.
“The vendors, our health plan partners on this, don’t make the clinical referral from the direct care system to community care. VA does that,” he said. “They don’t make the referral to the provider or determine eligibility [for community care], VA determines that. VA drives where and how our veterans receive care, and we want to know what we’re buying. We want to steer our veterans to the highest quality, lowest cost providers. That goal is not unique to VA — it’s new to us, but we’re bringing this into this program.”
Vendors hoping for a spot on the contract have until March 16 to submit their proposals.
When the Defense Department received a $23 billion down payment for the Golden Dome initiative through a reconciliation bill, lawmakers demanded a detailed plan for how the Pentagon plans to spend that money.
Six months later, lawmakers are still waiting for the Pentagon to provide “complete budgetary details and justification of the $23,000,000,000 in mandatory funding.” That includes a comprehensive deployment schedule, cost, schedule and performance metrics and a finalized system architecture.
As a result, Congressional appropriators were unable to conduct oversight of Golden Dome programs for fiscal 2026.
The department’s $175 billion Golden Dome initiative President Donald Trump first ordered last January aims to build a network of satellites — possibly numbering in the hundreds or even thousands — that would detect, track and intercept incoming missiles. Pentagon officials have described the program as a “top priority for the nation.”
The effort has been shrouded in secrecy, and lawmakers’ demand for more detail on how the Pentagon plans to spend the initial tranche of funding is another sign of Congress’s limited visibility into the program’s early spending plans.
“Due to insufficient budgetary information, the House and Senate Defense Appropriations Subcommittees were unable to effectively assess resources available to specific program elements and to conduct oversight of planned programs and projects for fiscal year 2026 Golden Dome efforts in consideration of the final agreement,” appropriators wrote.
Elaine McCusker, senior fellow at the American Enterprise Institute, said it is not unusual or surprising for lawmakers to seek complete budget information for a complex program like the Golden Dome that pulls in multiple complex ongoing efforts and includes classified components.
“Congress often requests new budget exhibits and supplementary information for evolving, complicated programs with potentially high price tags so they can better understand what is existing and ongoing funding and what is really new or accelerated in the budget request,” McCusker told Federal News Network.
But Greg Williams, director of the Center for Defense Information at the Project on Government Oversight, said Congress’ request for complete budgetary information highlights a broader challenge with how the administration has rolled out major initiatives without providing sufficient detail.
“Golden Dome is an extraordinarily complex and ambitious program, for which we should expect extraordinarily comprehensive information. Instead, the American people and Congress have the opposite. The fiscal 2026 Defense Appropriations Act and its explaining document appear to appropriately reflect that disparity,” Williams told Federal News Network.
The House passed the final 2026 minibus funding package Thursday, which includes money for the Defense Department. If the spending bill becomes law, Defense Secretary Pete Hegseth, along with Gen. Michael Guetlein, the Golden Dome director, will have two months to provide a comprehensive spend plan for the initiative. Lawmakers want to see planned obligations and expenditures by program, descriptions, justification and the corresponding system architecture mission areas for fiscal 2025 through 2027.
The Pentagon comptroller would also have to submit a separate budget justification volume annually beginning in fiscal 2028.
McCusker said Congress bears some responsibility for the delay — budget uncertainty has complicated the department’s efforts to develop the program.
“The Pentagon is pursuing new ideas in how it partners with industry to rapidly develop, build and deploy the myriad systems that make up Golden Dome while also navigating annual delays and uncertainty in getting its budget,” she said. “Congress has an understandable thirst for information on high profile defense programmatic priorities and may perceive a delay in getting the level of detail it seeks, but failing to pass annual appropriations on time has become so common it is a perpetual factor to mitigate. Congress has to accept responsibility for this and be willing to take some risk in providing funds in advance of all the information it needs.”
President Donald Trump said in May that the Golden Dome’s architecture had been “officially selected,” but details about the initiative remain scarce and the Pentagon has restricted officials from publicly discussing the initiative.
McCusker said that Congress’ request for detailed planning, performance and budget information doesn’t say much about the program itself other than “its level of complexity and maturity and the need to develop and convey the overall strategy and projected timeframe for its execution.”
There is no single “Golden Dome” line item in the 2026 spending bill, though it includes billions for related programs that will most likely support the broader system.
The Pentagon leadership received its first official briefing on the Golden Dome architecture in September, and an implementation plan was expected to be delivered in November.
Williams said producing a detailed plan of this complexity in a short period of time is understandably difficult, but added that crafting a plan that credibly explains how its goals will be achieved is “likely impossible according to many experts.”
“Golden Dome is a program of unprecedented, arguably reckless, complexity and ambition.” Williams said.
“The lack of information is also a result of Congress’s choice to use reconciliation to increase defense spending: The reconciliation process does not provide for the formal submission of budget request materials from the executive branch and so risks exactly this kind of lack of information. Congress should return to the statutory process for clean Defense authorization and appropriations acts to ensure adequate information,” he added.
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FILE - This Dec. 10, 2018, file photo, provided by the U.S. Missile Defense Agency (MDA),shows the launch of the U.S. military's land-based Aegis missile defense testing system, that later intercepted an intermediate range ballistic missile, from the Pacific Missile Range Facility on the island of Kauai in Hawaii. The Trump administration is considering ways to expand U.S. homeland and overseas defenses against a potential missile attack, possibly adding a layer of satellites in space to detect and track hostile targets. (Mark Wright/Missile Defense Agency via AP)
The Department of Veterans Affairs is officially lifting a hiring freeze on its health care workforce, after shedding tens of thousands of positions last year.
But the VA, which saw the first-ever workforce net decrease, is unlikely to hire its way to a higher headcount than what it currently has.
“Facility leadership in the field are still reporting denials and severe delays in hiring approvals for all positions from clinical staff to custodians to claims processors,” lawmakers wrote.
The report claims the VA lost more than 40,000 employees last year, and that 88% of them worked in health care. About 10,000 of those employees worked in frontline positions that the department has struggled to fill.
VA workforce data shows the department saw a net decrease of 3,000 registered nurses last year, a net decrease of 1,000 physicians and a net decrease of 1,550 appointment schedulers.
In a typical year, the VA’s workforce sees a net gain of about 10,000 employees. But under the Trump administration, the VA sought to eliminate 30,000 positions through attrition by the end of fiscal 2025. The department previously envisioned cutting 83,000 jobs in part through layoffs.
VA Press Secretary Pete Kasperowicz disputed several of the report’s findings. He said the VA achieved its headcount reduction goal of 30,000 employees, but didn’t lose 40,000 employees, as Senate Democrats claim. The VA also disputes the report’s claims that veterans, in some cases, are seeing longer wait times for VA mental health care appointments.
Committee Ranking Member Richard Blumenthal (D-Conn.) told reporters in a call that the report shows a “diminished” VA that is unable to keep up with the needs of veterans.
“The loss of talent is so deeply regrettable, and the results are basically longer wait times,” Blumenthal said.
Kasperowicz said in a statement that, “while Blumenthal stages political theater, VA is making major improvements for veterans under President Trump.”
The VA fired about 2,400 probationary employees last year, but largely reduced its workforce through voluntary separation incentives.
VA workforce data shows the department made about 21,000 hires last year, offsetting the total impact of these workforce cuts. The latest data from the Office of Personnel Management shows the VA saw a net reduction of more than 27,000 positions in 2025.
But Blumenthal said these new hires have done little to improve the VA’s capacity.
“They are not the same skilled people as have been either fired or lost because of the toxic environment that’s been created in many areas of the VA,” he said.
VA workforce data shows the department made about 21,000 hires last year, offsetting the total impact of these workforce cuts. The latest data from the Office of Personnel Management shows the VA saw a net reduction of more than 27,000 positions in 2025 (Source: OPM)In a memo last week, VA Under Secretary for Health John Bartrum told department leaders that “all hiring freeze restrictions” still in place at the Veterans Health Administration have been lifted.
Bartrum wrote in the memo that each Veterans Integrated Service Network (VISN) “has been allocated a baseline number of positions calculated on their budgeted FTE plus anticipated needs for growth,” and that requests to exceed that headcount must be approved by the VA Strategic Hiring Committee.
“Leaders and managers must manage operational needs within their cumulative full-time equivalent (FTE) budget and position thresholds,” Bartrum wrote.
The report claims veterans are seeing longer wait times for mental health care appointments. In early January, new-patient wait times for individual mental health care appointments in 14 states exceeded 40 days — twice the wait time threshold that allows veterans to seek treatment outside the VA’s health care network. Those states include California, Colorado, Connecticut, Iowa, Idaho, Kansas, Maryland, Maine, North Carolina, North Dakota, Nebraska, New Hampshire, New Mexico, and Virginia. According to the report, the national mean for new patients to sign up for individual mental health care appointments is 35 days.
However, Kasperowicz said VA data shows wait times for mental health care were under six days for established patients, and 19 days for new patients.
The VA eased requirements for veterans to seek care from non-VA “community care” last year, and has increased spending on community care. The department is embarking on a $1 trillion next-generation community care contract, one of the largest government contracts in U.S. history.
House VA Committee Chairman Mike Bost (R-Ill.) said in a hearing Thursday that the contract, “if done properly,” would give the VA “unprecedented flexibility” to award contract and task orders that would lead to better health care outcomes for veterans.
In their report, Senate VA Committee Democrats found the VA last year cancelled about 2,000 contracts and let another 14,000 expire without plans to renew or replace those services.
VA Secretary Doug Collins has repeatedly defended his plans for a smaller workforce. He told lawmakers last May that increased staffing hasn’t always led to better outcomes for veterans.
Last year, the department decreased its backlog of benefits claims by nearly 60% despite a net decrease of about 2,000 VA claims processors.
Kayla Williams, a former VA assistant secretary and a senior advisor for the Vet Voice Foundation, said the department reduced the initial claims backlog, but has grown the volume of claims requiring higher-level review.
“These actions were never about efficiency or cost savings,” Williams said.
The VA anticipated a spike in the backlog after Congress passed the PACT Act, making more veterans eligible for VA health care and benefits, because they were exposed to toxic substances during their military service.
Lindsay Church, the executive director of Minority Veterans of America, said 1.2 million veterans have lost their VA providers under the Trump administration.
“Clinics can’t keep care teams staffed. Appointments are being canceled or delayed, and veterans who rely on consistent, trauma-informed care are being forced into instability and pressured into community care. Mental health access, which has always been a crisis for our community for decades, has deteriorated rapidly,” Church said.
Mary Jean Burke, the first executive vice president of the American Federation of Government Employees National VA Council, said that by the end of 2026, most VA facilities are on track to lose about 2-5% of their psychologists — and that locations, including Seattle and Buffalo, are on track to see “double-digit” attrition.
Burke said VA health care employees have left because the VA has slashed jobs, stripped away remote work and telework, and brought staff back into “overcrowded” spaces.
“These punishing policies haven’t just lowered morale, they end up compromising the quality of care we provide,” Burke said.
Collins is scheduled to testify before the Senate VA Committee next Wednesday, in a hearing about the department’s ongoing reorganization efforts.
House lawmakers are discussing a reauthorization of the National Quantum Initiative, with lawmakers eyeing agency prize challenges, workforce issues and supply chain concerns among other key updates.
During a hearing hosted by the House Committee on Science, Space and Technology on Thursday, lawmakers sought input from agencies leading quantum information science efforts. Chairman Brian Babin (R-Texas) said he is working with Ranking Member Zoe Lofgren (D-Calif.) on a reauthorization of the NQI.
“This effort seeks to reinforce U.S. leadership in quantum science, technology and engineering, address workforce challenges, and accelerate commercialization,” Babin said.
The National Quantum Initiative Act of 2018 created a national plan for quantum technologies spearheaded by agencies including the National Institute of Standards and Technology, the National Science Foundation and the Energy Department.
As the House committee works on its bill, Senate lawmakers earlier this month introduced a bipartisan National Quantum Initiative Reauthorization Act. The bill would extend the initiative for an additional five years through 2034 and reauthorize key agency programs.
The Senate bill would also expand the NQI to include National Aeronautics and Space Administration’s (NASA) research initiatives, including quantum satellite communications and quantum sensing.
Meanwhile, in September, the White House named quantum information sciences as one of six priority areas in governmentwide research and development budget guidance. “Agencies should deepen focused efforts, such as centers and core programs, to advance basic quantum information science, while also prioritizing R&D that expands the understanding of end user applications and supports the maturation of enabling technologies,” the guidance states.
During the House hearing on Thursday, lawmakers sought feedback on several proposals to include in the reauthorization bill. Rep. Valerie Foushee (D-N.C.) said the Energy Department had sent lawmakers technical assistance in December, including a proposal to provide quantum prize challenge authority to agencies that sit on the quantum information science subcommittee of the National Science and Technology Council.
Tanner Crowder, quantum information science lead at Energy’s Office of Science, said the prize challenges would help the government use “programmatic mechanisms” to drive the field forward.
“We’ve talked a little bit about our notices of funding opportunities, and the prize challenge would just be another, another mechanism to drive the field forward, both in potential algorithmic designs, hardware designs, and it just gives us more flexibility to push the forefront of the field,” Crowder said.
Crowder was also asked about how the reauthorization bill should direct resources for sensor development and quantum network infrastructure.
“We want to be able to connect systems together, and we need quantum networks to do that,” Crowder responded. “It is impractical to send quantum information over classical networks, and so we need to continue to push that forefront and look to interconnect heterogeneous systems at the data scale level, so that we can actually extract this information and compute upon it.”
Lawmakers also probed the witnesses on supply chain concerns related to quantum information sciences. James Kushmerick, director of the Physical Measurement Laboratory at the National Institute of Standards and Technology, was asked about U.S. reliance on Europe and China for components like lasers and cooling equipment.
“One of the things we are looking for within the reauthorization is to kind of refocus and kind of onshore or develop new supply chains, not even just kind of duplicate what’s there, but move past that,” Kushmerick said. “Through the Quantum Accelerator Program, we’re looking to focus on chip-scale lasers and modular, small cryo-systems that can be deployed in different ways, as a change agent to kind of move forward.”
Several lawmakers also expressed concerns about the workforce related to quantum information sciences, with several pointing out that cuts to the NSF and changes to U.S. immigration policy under the Trump administration could hamper research and development.
Kushmerick said the NIST-supported Quantum Economic Development Consortium polled members in the quantum industry to better understand workforce challenges.
“It’s not just in quantum physicists leading the efforts,” Kushmerick said. “It’s really all the way through to engineers and technicians and people at all levels. So I really think we need a whole government effort to increase the pipeline through certificates to degrees and other activities.”
This Feb. 27, 2018, photo shows electronics for use in a quantum computer in the quantum computing lab at the IBM Thomas J. Watson Research Center in Yorktown Heights, N.Y. Describing the inner workings of a quantum computer isn’t easy, even for top scholars. That’s because the machines process information at the scale of elementary particles such as electrons and photons, where different laws of physics apply. (AP Photo/Seth Wenig)
Lawmakers are still waiting for the Defense Department to provide details on how it plans to spend $23 billion already approved for the Golden Dome effort. Congressional appropriators say the Pentagon has not provided key budget information such as deployment schedule, cost, schedule and performance metrics, as well as a finalized system architecture. The White House has estimated the project could cost as much as $175 billion over the next three years. As a result, House and Senate appropriators were unable to conduct oversight of Golden Dome programs for fiscal 2026. Lawmakers want Defense Secretary Pete Hegseth to submit a detailed spending plan within 60 days of the bill’s enactment.
GSA is giving agencies access to a software to develop AI capabilities. The General Services Administration signed an enterprise agreement with Broadcom, becoming the 24th deal under its OneGov strategy. GSA says agencies can receive up to a 64% discount off Broadcom's schedule prices for access to several platforms, cybersecurity and development tools. Agencies can purchase software packages from Broadcom ranging from VMWare's data intelligence platform to its vDefend cybersecurity tools to its Tanzu starter kit to speed up AI prototyping and deployment. The OneGov deal will be in place through May 2027. GSA's agreement with Broadcom is the third OneGov deal since January and sixth since December.
Senate Democrats want to bar political appointees from moving into leadership positions at agency watchdogs. A new bill called the Inspectors General Independence Act would prevent presidents from nominating their own political appointees as Inspectors General. The legislation comes after recent reporting showing that many of Trump’s confirmed IGs were previously political appointees in his administration. Senator Tammy Duckworth, who introduced the bill, says it would help restore public trust and keep IG offices free from conflicts of interest.
The acting director of the Cybersecurity and Infrastructure Security Agency faces questions about steep staffing cuts at his agency. Acting CISA Director Madhu Gottumukkala told lawmakers that there are no reorganizations in the works at CISA. But he offered few specifics on how the cyber agency would continue to meet its mission after losing roughly one-third of its staff last year. During a House Homeland Security Committee hearing yesterday, Gottummukkala said CISA was getting back on mission and that he would communicate with lawmakers about any future reorganizations.
The IRS is abandoning a customer service metric it’s been using for the past 20 years. An independent watchdog within the IRS told Congress last year that this old metric is “misleading” and that it doesn’t “accurately reflect the experience of most taxpayers who call” the IRS. Agency leadership says it will use a new measurement that better reflects its interactions with the public. The IRS is pursuing these changes as part of a broader shakeup of its senior ranks less than a week out from the start of the tax filing season.
Agencies have more guidance on how to implement the “rule of many.” But actually adopting the new federal hiring practice may still be put on the backburner. Without enough funding or staffing, agencies are not likely to overhaul their current and already well-established hiring practices in the short term. That’s according to Jenny Mattingley, vice president of government affairs at the Partnership for Public Service. “The rule of many is a good tool, but until those ingredients are all put together, I don’t know that you’ll see it rolled out immediately,” Mattingley said. The “rule of many,” a change that’s been several years in the making, aims to create broader pools of qualified candidates for federal jobs, while adding flexibility for agency hiring managers.
President Donald Trump has turned to the Marine Corps to find the next leader of the Defense Intelligence Agency. Trump this week nominated Marine Corps Lt. Gen. James Adams to serve as director of DIA. Adams is currently deputy commandant for programs and resources at Marine Corps headquarters, where he helped lead the Marines to achieving two clean financial audits. DIA has been without a permanent leader since Trump ousted its former director, Air Force Lt. Gen. Jeffrey Kruse, last August.
A third-party arbitrator ruled the Trump administration’s return-to-office memo doesn’t override telework protections in a union contract. The arbitrator is ordering the Department of Health and Human Services to rescind its return-to-office directive and restore telework and remote work agreements for thousands of employees represented by the National Treasury Employees Union. The arbitrator says HHS committed an unfair labor practice by unilaterally terminating these agreements without regard to its five-year collective bargaining agreement with NTEU. HHS officials argued a return-to-office memorandum signed by President Trump on his first day in office supersedes its collective bargaining agreement with the union.
While the full impact of operating under continuing resolutions is difficult to quantify for the Defense Department, the Government Accountability Office says the funding lapses have led to delays, increased costs, administrative burdens and operational challenges. GAO found that at Joint Base San Antonio, the cost of a facilities sustainment contract more than doubled after CR-related delays in fiscal 2024. Officials told GAO the contract, which was originally estimated at around $580,000, increased to $1.45 million after a final appropriation was passed. U.S. IndoPacific Command said a funding lapse in 2024 disrupted training and exercises. F-35 program officials told GAO that roughly 20% of their financial management staff’s time is spent adjusting budgets to manage through CR constraints.
The Defense Department is putting some details behind Secretary Pete Hegseth's decision to audit the 8(a) small business contracting program. In a new memo released yesterday, DoD is giving combatant commanders, military services and defense agencies until Jan. 31 to identify three types of contracts: 8(a) sole source, 8(a) set-aside and any small business set-aside contract worth more than $20 million. Once identified, Hegseth says these contracts will undergo further reviews by DoD's DOGE team to ensure they are not pass-throughs to larger firms or to ensure they are critical to DoD warfighting capabilities. That review is scheduled to be completed by Feb. 28.
Terry Gerton You have done some analysis looking at the pattern of senior military officers being relieved with very little explanation from the Department of Defense. We’ve all read some of the headlines, but what is it about this issue that concerns you?
Virginia Burger For me, the biggest concern was that, like you said, there’s little to no justification for many of these firings. Or if we get any, it’s very oblique references in tweets from senior leaders like Secretary Hegseth, and we’re never provided any follow-up or any true validation that the relief was actually warranted. And for me, that is a red flag because it seems like we’re probably politicizing a organization that is meant to be apolitical, right? The military was always supposed to be an apolitical body, it’s not supposed to serve a party, it is supposed to serve the people, and if we are firing the most senior leaders of that organization for overtly political reasons, which is what we are left to surmise, given lack of any other information, that should be a serious point of pause for all Americans.
Terry Gerton As I mentioned, we’ve seen some headlines, but we may not know about all of the reliefs. Can you talk about how widespread this has become?
Virginia Burger So obviously I think the ones that everyone’s probably most familiar with were right away, the chairman of the Joint Chiefs, General C.Q. Brown, was relieved and then the chief of naval operations, Admiral Lisa Franchetti, were both relieved. They were probably the two biggest ones that everyone saw. And again, Hegseth characterized it very generally as cleaning house. I need new leadership, new generation for context. Neither of them were due to be turned over at that point in time, they were both still, well — had several years left in their tenure in those positions. And everyone sort of was left to guess, well, maybe they relieved General Brown because he was African-American and maybe they relieved Admiral Franchetti because she was a woman. I don’t have a ton of familiarization with General Brown, but I know a lot of friends in the Navy who were incredibly proud [of] and respected Admiral Françhetti. She was considered the pick for CNO and so her relief was quite shocking to a lot of people because she was by far and way, if we’re gonna talk about merit for positions, she was the person for that position. Some other ones that have maybe not gone as noticed are in some lower, more subordinate commands, but certainly still across the board, there were several women relieved in the Air Force and the Army that were senior leaders, and also notably the head of the NSA was relieved, and that position was gapped for several months. In fact, the replacement was only announced in the last few weeks, and that was both concerning for, why was the person relieved, but also from a strategic decision. If the NSA doesn’t have a leader, that’s a hugely powerful arm of national security. That was a big bipartisan concern as well that many senators and representatives expressed concern over.
Terry Gerton Let’s follow that because you also documented some patterns about gaps in leadership and transition and readiness. Tell us more about that.
Virginia Burger So when a senior leader is relieved, and it’s not on the normal timeline, because most of these positions you hold for a period of usually two to three years, that’s the typical timeline for command, especially at those senior leader levels of lieutenant generals and vice admirals, generals and admirals. When one of those positions is relieved suddenly, you do not have a replacement lined up. And for a lot of these senior leaders the replacement has to be confirmed by Congress, right? For combatant commanders, for service chiefs, that person has to nominated, they have to be reviewed by the Senate Armed Services Committee, and then voted on by the Senate. If you fire someone off timeline, that position is going to be gapped, and these are our most senior military leaders who are in the positions that are making the most pivotal decisions for our national strategy, and who are making the decisions that America’s sons and daughters in service are going to have to execute. And so when they’re fired very suddenly, that position is empty and there is a power vacuum, there is a void and naturally the executive officer, the deputy is going to step up and do their best and maybe they’ll rush to put in someone who’s acting. But you know, an acting person in that position does not have the same legal authorities. They don’t have the same authorities for command and it’s just going to cause headaches and issues that will roll all the way down the chain. And it can be very, very difficult for a unit to run. And then when we’re talking about people in positions of such amount of power, that’s going to have a lot of ramifications on national security, morale, and making sure our service members are well taken care of.
Terry Gerton So, Virginia, these positions that have been relieved have been at the top of chains of command. Have you heard any response from within the military or within DoD about the impact?
Virginia Burger I can only speak to like anecdotes I’ve been given from people I know. I haven’t seen any significant reports or anything from the DoD officially because they aren’t releasing any information like that, right? Like, Secretary Hegseth has not come out and said, hey, here’s a survey or here’s an investigation we did to see if the very dramatic relief of Admiral Franchetti had negative impacts to naval readiness. He’s not doing that kind of work or if he is, he’s not going to publish it. What I can say, and what I’ve heard, like I said, I spoke to several peers and friends of mine who are in the Navy, and it was quite a morale blow when she was relieved. I know many women in service, as a veteran myself, I still have many friends on active duty, and they have watched as many of those relieved look like them. They are women, and they’re sort of questioning, is there a future for me in this organization? I have friends who have sort of passed the 10-year mark, they’re trying to make it to 20, and they are looking to see, is that even really an option? Will I be able to continue to dedicate my life to this service that I’ve chosen? And that’s going to have ripple effects across the force and that’s not gonna have great implications when it comes to readiness, morale, etc.
Terry Gerton I’m speaking with Virginia Burger. She’s the senior defense policy analyst for the Center for Defense Information at the Project on Government Oversight. Virginia, in your paper, you talk about some opportunities that Congress might have to have some more say in this. Walk us through your suggestions.
Virginia Burger Like I said earlier, Congress has to review these nominees for the senior positions, right? And we’re talking specifically about the highest ranking officers. These are three and four-star generals and admirals. So those are the positions that have to go before Congress, they have to be cleared by SASC, Senate Armed Services Committee, and then voted on before they can take their seat in that position. And so Congress, and specifically the Senate, exists in that advisory capacity to the president’s nomination. And that’s written in law. That’s in Title 10, which is the section of U.S. Code that governs the United States military. There is a specific section, Section 601, that talks about the appointment of these officers, and it also talks about the removal and the replacement of them in some level of detail, but without any mention of Congress’ role, because there isn’t one in law for their removal. My suggestion is that we actually amend Section 601, so that there is some official oversight. Now, granted, Congress has avenues for oversight over these decisions now, right? The Senate, congress, they have the ability to conduct hearings, open investigations. If they wanted to, they could open an investigation into the relief of General Brown or Admiral Franchetti and subpoena them or subpoena Secretary Hegseth and have them come in and answer questions about that incident. The Senate could do that tomorrow. Politics aside, with all of that, there are things they could do to change the law. So my recommendations would be that they include explicit requirements for formal congressional notification, right? So when a senior leader, one of these three or four stars, is relieved, within 24 hours, it should be in the law, within twenty four hours, Congress must be formally notified of that decision. Right? Because again, these are the people whose relief is going to have the biggest impact to our national security. Our legislative body should be told that. That is something that I think would be a no-brainer to include, in my opinion. Another one is make sure that the DoD has to show their work, right? There should be a full investigative report. You and I have both been executive officers, I think you, for a very large battalion. You’re aware that the military loves to investigate everything. Someone sneezes in the wrong direction and an investigation is triggered. My guess is there’s probably investigations when these reliefs happen, I would hope there is, at the very least. If there isn’t, that’s maybe another question that we need to also pull the thread on. But at the least, I think Congress should be in receipt of that investigative material. Whatever investigation was done at that command level for the relief of that general or admiral should be provided to them, along with a statement from either the service secretary or the secretary of defense as to the justification for the relief and an optional response from the relieved officer stating their perspective. And that, I believe, should be included in 601 as a requirement to be given to Congress following the relief of one of these officers within 30 days. That way, Congress has this information. Does it need to be public? Maybe not. You could argue if someone is relieved for maybe personal misconduct that they don’t want in the public eye, sure, then the Senate or Congress can handle that with discretion, but at the very least, those legislators need that information so that they can make sure that the Secretary of Defense, the service secretaries, are not engaging in overt politicization in the removal of these officers.
Terry Gerton Virginia, I want to push on that a little bit because those proposals would give Congress oversight, but it still doesn’t address the issue of remediation or reinstatement that Congress might have that authority, if they were to receive all of that information and find that, in fact, in their opinion, that individual should continue on active duty. How do we get to a corrective measure that might help address this problem, or are you thinking that the additional oversight is its own deterrent?
Virginia Burger I think the oversight would be a deterrent in its own right because, you know, my guess is the secretary of defense does not want to be hauled in front of the Senate Armed Services Committee to answer for these should the Senate read the report and realize that the decision was overtly political. But there are, you now, like you said, ways that we could do it. They could impeach the service secretary or the secretary of defense if they feel like they are making these political decisions. That’s available to them now. I believe articles of impeachment for Secretary Hegseth were put forward in the House I think last week in light of Venezuela, I think one of the representatives did. I don’t think they went anywhere, but it’s something that they could do any day of the week if they feel like they are inappropriately handling their position, right? So that’s something they could to enforce this. Unfortunately, a lot of the rules governing the appointment of officers are established through case precedence. It’s not necessarily reflective explicitly in Title 10 or in the Constitution. So, a lot of the limitations that say the president is the one who should be appointing officers comes from case law, specifically before the Supreme Court. So that gets a little bit murky when it comes into the reinstatement of officers. But certainly, in my opinion, the easiest way would be if we believe a secretary of defense is mishandling their position by relieving officers for political reasons. If you impeach them, potentially the next secretary could then reinstate them. And then it’s very clean because it’s the secretary and the president who are then reinstating them.
Secretary of Defense Pete Hegseth, from right, with Chairman of the Joint Chiefs of Staff Gen. CQ Brown gives his opening statement before the start of their meeting with Israeli Prime Minister Benjamin Netanyahu at the Pentagon, Wednesday, Feb. 5, 2025, in Washington. (AP Photo/Manuel Balce Ceneta)
The Cybersecurity and Infrastructure Security Agency’s acting director testified that CISA is “getting back on mission,” but he provided few specifics after the agency lost nearly a third of its staff over the past year.
Acting Director Madhu Gottumukkala testified in front of the House Homeland Security Committee on Wednesday. Asked by Chairman Andrew Garbarino (R-N.Y.) about reports of plans for a reorganization at CISA, Gottumukkala said there are no plans to reorganize the cyber agency.
“We do have a lot of changes in the last year, but we have not planned any organizational changes,” Gottumukkala said. “But we are continuing to look at how we rescope our existing work that we have so that we can get back on our mission of protecting the critical infrastructure. And if there is any organizational changes, I will assure that we will communicate with you.”
CISA has gone from roughly 3,400 staff at the start of last year to 2,400 employees at the end of December. Most of those who left departed under the Trump administration’s workforce reduction programs, with many leaving government service earlier than planned due to uncertainty at CISA under the Trump administration.
Gottumukkala is leading CISA as the Senate has yet to approve Sean Plankey to serve as director. During Wednesday’s hearing, Gottumukkala declined to provide details on recent reports that he failed a polygraph exam needed to access a sensitive cyber program and that he had worked to oust CISA’s chief information officer.
Gottumukkala also said multiple times that CISA was “getting back on mission.” But he said little about what the agency was doing differently with markedly less staff.
“The way we are supporting back on mission is to make sure that we are protecting our critical infrastructure from physical and cyber threats, and our divisions are properly equipped, and we are making sure that we are aligning our existing resources,” he said.
Asked by Ranking Member Bennie Thompson (D-Miss.) about potential vacancies at CISA after the mass wave of departures, Gottumukkala said, “we have the required staff that is supporting the mission we do.”
Thompson said that was contrary to a November memo CISA shared with the committee. Lawmakers are advancing a homeland security spending bill that would provide CISA with funding to fill some “critical” positions. It would also stipulate that CISA “not reduce staffing in such a way that it lacks sufficient staff to effectively carry out its statutory missions.”
Gottumukkala was also asked by Rep. Tony Gonzales (R-Texas) how many cyber intrusions CISA expects from foreign adversaries as part of the 2026 midterm elections.
“We look at it as incident by incident, and we look at what the risks are. I don’t have a specific number in mind,” Gottumukkala said.
“Well, we should have that number,” Gonzales shot back. “It should first start by how many intrusions that we had last midterm and the midterm before that. I don’t want to wait. I don’t want us waiting until after the fact to be able to go, ‘Yeah, we got it wrong, and it turns out our adversaries influenced our election to that point.’”
CISA’s budget request for fiscal 2026 would eliminate its election security program. But the appropriations agreement released this week would continue funding CISA’s election security work.
Rep. James Walkinshaw (D-Va.) pressed Gottumukkala on whether CISA had analyzed if it could meet its mission with current staffing levels.
“The work that we do is mission focused, which means capability is measured by outcomes, not headcount,” Gottumukkala said.
Walkinshaw also asked about threats to state and local governments after CISA pulled funding for the Multi-State Information Sharing and Analysis Center in September. But Gottumukkala didn’t address the question head on, frustrating the Virginia lawmaker.
“You’ve managed to answer none of my questions. You haven’t answered a single question. But thank you for coming,” Walkinshaw said.
Terry Gerton Deltek has a new report out that’s looking ahead for federal contractor intelligence for 2026. But before we look forward, I want to look back a little bit. When you think of everything that happened in the contracting space in 2025, what stands out for you as the biggest trends?
Kevin Plexico Well, chaos reigns supreme this past year, for sure. And what I find just super interesting is that some companies happen to find themselves in really good places and align to the goals of the new administration and did really well. And others that happened to be in sort of the wrong place at the wrong time had profound impact. I think 2025 was a year where companies had to really take stock of the organizations that they’re selling to and their offerings to make sure they’re aligned to the goals of the administration and the mission that the government agencies have been asked to take on by that administration. That’s probably, to me, the biggest change. There’s been so much movement of money, in some cases money coming out of certain agencies. We’ve all heard about Agency for International Development and Department of State and Education. But then you look at organizations like the VA, DHS, and DoD that have continued to do really well. So, a lot of haves and have-nots this year, and I think for companies it’s just trying to figure out, based on this new administration, where should we really be aiming to be able to capitalize on it going forward?
Terry Gerton Every administration comes in with different priorities, but it seems like this one was able to make the pendulum swing really fast, and that may have caught companies off guard. What are some of the hard conversations that had to happen inside those boardrooms?
Kevin Plexico Well, early on, it was all about DOGE and the DOGE organization really putting some unprecedented pressure on some vendors. I mean, some of the letters I saw sent to professional services companies and some of demands that were made of value-added resellers were not anything I’ve seen a federal agency communicate to a vendor that was otherwise performing to the jobs that they were asked to do. And I think it’s, in some respects, a bit surreal that the administration was asking companies to identify wasteful spending. It’s just an awkward situation to be in if you have a customer, and the customer already hired you to do the work, and you’re now being asked to identify where there’s wasteful spending in that and sort of serve up cuts. So I think that was the early part of the year. We did see that start to sunset a bit and fade as we got into the summertime. But then all of a sudden, all eyes were turning to appropriations and funding for 2026. And we all know where that’s landed, which it hasn’t. We’re still waiting for full-year 2026, with just a couple agency exceptions. We bought some time ending the shutdown, which was, as you know, the longest on record. But there’s nothing to say that we might not have another shutdown here at the end of January. I still think where there’s that bit of uncertainty, the one silver lining this past year for the contracting community is the One Big Beautiful Bill, just because it had so much opportunity in it for contractors that really cut across the gamut of aerospace, defense, professional services, training, architecture, engineering, construction. There was literally something in there for everybody, but it does require really an honest assessment by a company to figure out, okay, how do we get after this? Because that might not be in the agencies that they’re used to doing business in.
Terry Gerton Right. And a lot of those funds haven’t been dispersed yet. So they’re still maybe in the RFP or RFQ stage. This unpredictability of funding flows is something you don’t normally see in government contracts. Everything from stop-work orders and termination notices earlier in the year to unpaid bills at the end of the fiscal year and the CR. Has that caused the GovCon community to sort of re-evaluate and re-adjust their planning for predictable cash flows?
Kevin Plexico I think this year, while it was a record-setting shutdown, is not an unusual year in that we don’t have a line of sight on what line appropriations are going to get done. I think industry has become used to that scenario. And while shutdowns are certainly not good for anyone, they’re usually relatively short-lived because of what happens. The pain gets so severe that finally Congress is like, we’re inflicting a lot of pain on rank-and-file Americans, we need to resolve this. I’m hoping that cooler heads will prevail the next time that this comes around. What I think is perhaps different this time versus what we’ve seen, say, the last decade or so is we’ve always had a bipartisan budget agreement or resolution that sort of set the top line that appropriators were negotiating towards. I think we’ve had that literally for about a decade, since back during the Budget Control Act, and we don’t have that for ’26. So there was no goalpost that Congress was working towards on a bipartisan basis that that they agreed on previously. And I think that’s the same for 2027. That’s what’s unique about this, is there’s nothing that says, here’s the goal that we’re working towards, and then how do we allocate it by the different appropriations bills that are negotiated?
Terry Gerton Kevin Plexico is senior vice president of information solutions at Deltek. Kevin, let’s turn our attention to the windshield and not the rear-view mirror now. With all of that disruption in 2025, what is at the top of Deltek’s intelligence report for 2026?
Kevin Plexico Well, I think 2026 is going to be a better year than 2025, thanks primarily to the One Big Beautiful Bill. As you pointed out, it’s not a single-year appropriation. The funding in that legislation lasts through, I think it has to be committed in contracts essentially by the end of 2029; then expenditures can take longer. So that gives us a bit of time and it certainly doesn’t mean that it has get rushed out the door like we’ve seen — some emergency supplemental appropriations have had that shape. And so that provides some longer-term opportunity and ability for companies to reposition, to get after some of that money. The biggest challenge on the base-level appropriations, we’ve got this ambitious goal of growing defense spending, paid for by significant cuts in civilian spending, and we saw that under the prior Trump administration. But they were never able to get appropriators to buy off on that. And I think that’s the dynamic that we have in the Senate, where it has to get 60 votes to get past the filibuster. It does really need a bipartisan-level agreement to get appropriations done. That’s particularly challenging in these contentious times, but I do think it helps prevent those draconian cuts that could be put in place for some civilian agencies that we’ve seen this and the prior Trump administration ask for that usually have not been enacted.
Terry Gerton One of the sectors that’s really struggled this past year is small businesses. What do you see in the future for them?
Kevin Plexico This is an interesting one, because on the one hand, the government has done a really good job of spending money with small business. But if you look at the level of participation in terms of prime contracts, it’s going down. The number of small businesses I think has declined by close to 30% over the last several years in terms of prime contracting. And I think that’s a problem that the administration really has to take a look at. Unfortunately, some of the things that we’re seeing them do around relying on best-in-class contracts, don’t create a new contract if there’s already an existing contract that you can place a task or delivery order under — those really favor the companies that already have those prime contracts. I think it makes it challenging for small businesses to enter the market. On the research and development side, we’re still waiting for Congress to extend the SBIR and STTR programs, which are Small Business Innovative Research-related work. So it’s a challenging market for all companies, but in particular for small businesses. They’re dependent on cash flow; shutdowns particularly impact small businesses. The rule changes that are being made in the FAR overhaul are pretty profound in terms of their impact on small business. I think it’s unpredictable to understand how much is it going to affect a service-disabled veteran-owned business versus an 8(a) company versus a women-owned business. It seems like they’re gravitating more towards a preference of just small business set-asides and trying to get away from sole-source awards. And that’s a big change for the small business community for sure. So I think getting smart about the new rules and how they’re going to be applied agency by agency is going to be super important for small businesses.
Terry Gerton Well, speaking about the FAR overhaul, let’s talk about GSA for a minute. They’ve really worked over this last year to centralize a lot of buying strategies, centralize lot of contracts. They’ve updated the OASIS contract. What are you seeing and what should contractors be expecting to hear from GSA?
Kevin Plexico Well, I think the thing that’s created a lot of confusion is the way they’re rolling it out. Usually when FAR changes are rolled out, they go through a rulemaking process, they issue drafts, take comments and then go to a final rule or interim rule. What they’ve done in this particular situation is instead of approaching it in that traditional way, they’ve rolled out the revised FAR and basically said that agencies can adopt it if they get a class deviation. So, you have to literally go to the FAR overhaul website and see which agencies have adopted these FAR clauses. And right now you basically have different agencies using different versions of the FAR. The DoD is still using the traditional FAR and DFAR. They don’t have any class deviations that I’m aware of, but many civilian agencies do. So it just puts a lot of onus on the contracting community to really be mindful of what regulations are being followed by the agency you’re selling to, because it’s not the same as everybody’s following the FAR anymore. Which version of the FAR? Is it this class deviation or is it the traditional FAR? And that’s just an example of the chaos that we talked about.
Terry Gerton If you could give contractors one piece of advice as they’re trying to put their 2026 business strategies together, what would it be?
Kevin Plexico I go to what we call the four Cs. Customers: Who are the right customers that you’re going to be focused on selling to? Contracts: What vehicles are they going to be using to get access to those providers? Compliance: What do you need to be able to comply with, and I know the CMMC is a big one, but even with all the FAR overhaul changes, I haven’t seen what I would call a deregulation of compliance requirements. There’s pressure on agencies to use more fixed-price; that would potentially take away some of the accounting requirements that come along with a cost-plus contract. I think I might have missed a C in that, but you get the gist of it, right? It’s really just being more strategic and being more thoughtful about how you’re going to go to market. You can’t just afford to live off the agencies you’ve been doing business with, because they might be starving for money going forward. So you really have to take an honest assessment of where you are today, where you want to play, and how are you going to position yourself to get there? Because it’s not a quick pivot by any stretch.
Terry Gerton Last time we spoke, we were talking about the potential of a patchwork of state laws that might stifle AI innovation. Now we don’t have a federal law, but we have an executive order from the president that creates a federal preemption framework and a task force that will specifically challenge those state laws. Last time we talked, we were worried about constitutionality. What do you think about this new construct?
Kevin Frazier Yeah, so this construct really tries to set forth a path for Congress to step up. I think everyone across the board at the state level in the White House is asking Congress to take action. And this, in many ways, is meant to smooth that path and ease the way forward for Congress to finally set forth a national framework. And by virtue of establishing an AI Litigation Task Force, the president is trying to make sure that Congress has a clear path to move forward. This AI Litigation Task Force is essentially charging the Department of Justice under the Attorney General to challenge state AI laws that may be unconstitutional or otherwise unlawful. Now, critically, this is not saying that states do not have the authority to regulate AI in certain domains, but merely giving and encouraging the AG to have a more focused regulatory agenda, focusing their litigation challenges on state AI laws that may have extra-territorial ramifications, that may violate the First Amendment, other things that the DOJ has always had the authority to do.
Terry Gerton Where do you think, then, that this sets the balance between innovation and state autonomy and federal authority?
Kevin Frazier So the balance is constantly being weighed here, Terry. I’d say that this is trying to strike a happy middle ground. We see that in the executive order, there’s explicit recognition that in many ways there may be state laws that actually do empower and encourage innovation. We know that in 2026, we’re going to see Texas, my home state, develop a regulatory sandbox that allows for AI companies to deploy their tools under fewer regulations, but with increased oversight. Utah has explored a similar approach. And so those sorts of state laws that are very much operating within their own borders, that are regulating the end uses of AI, or as specified in the executive order, things like data center locations, things like child safety protections and things like state government use of AI, those are all cordoned off and recognized by the EO as the proper domain of states. And now, the EO is really encouraging Congress to say, look, we’re trying to do our best to make sure that states aren’t regulating things like the frontier of AI, imposing obligations on AI development, but Congress, you need to step up because it is you, after all, that has the authority under the Constitution to regulate interstate commerce.
Terry Gerton Let’s go back to those sandboxes that you talked about, because we talked about those before and you talked about them as a smart way of creating a trial and error space for AI governance. Does this EO then align with those and do you expect more states to move in that direction?
Kevin Frazier Yes, so this EO very much encourages and welcomes state regulations that, again, aren’t running afoul of the Constitution, aren’t otherwise running afoul of federal laws or regulations that may preempt certain regulatory postures by the states. If you’re not doing something unconstitutional, if you’re trying to violate the Supremacy Clause, there’s a wide range for states to occupy with respect to AI governance. And here, those sorts of sandboxes are the sort of innovation-friendly approaches that I think the White House and members of Congress and many state legislators would like to see spread and continue to be developed. And these are really the sorts of approaches that allow us to get used to and start acclimating to what I like to refer to as boring AI. The fact of the matter is most AI isn’t something that’s going to threaten humanity. It’s not something that’s going to destroy the economy tomorrow, so on and so forth. Most AI, Terry, is really boring. It’s things like improving our ability to detect diseases, improving our ability to direct the transmission of energy. And these sorts of positive, admittedly boring, uses of AI are the very sorts of things we should be trying to experiment with at the state level.
Terry Gerton I’m speaking with Dr. Kevin Frazier. He is the AI innovation and law fellow at the University of Texas School of Law. Kevin, one of the other things we’ve talked about is that the uncertainty around AI laws and regulations really creates a barrier to entry for innovators or startups or small businesses in the AI space. How do you think the EO affects that concern?
Kevin Frazier So the EO is very attentive to what I would refer to, not only as a patchwork, but increasingly what’s looking like a Tower of Babel approach that we’re seeing at the state level. So most recently in New York, we saw that the governor signed legislation that looks a lot like SB 53. Now for folks who aren’t spending all of their waking hours thinking about AI, SB 53 was a bill passed in California that regulates the frontier AI companies and imposes various transparency requirements on them. Now, New York in some ways copy and pasted that legislation. Folks may say, oh, this is great, states are trying to copy one another to make sure that there is some sort of harmony with respect to AI regulation. Well, the problem is how states end up interpreting those same provisions, what it means for example, to have a reasonable model or what it means to adhere to certain transparency requirements, that may vary in terms of state-by-state enforcement. And so that’s really where there is concern among the White House with respect to extra-territorial laws, because if suddenly we see that a AI company in Utah or Texas feels compelled or is compelled to comply with New York laws or California laws, that’s where we start to see that concern about a patchwork.
Terry Gerton And what does that mean for innovators who may want to scale up? They may get a great start in Utah, for example, but how do they scale up nationwide if there is that patchwork?
Kevin Frazier Terry, this is a really important question because there’s an argument to be made that bills like SB 53 or the RAISE Act in New York include carve-outs for smaller AI labs. And some folks will say, hey, look, it says if you’re not building a model of this size or with this much money, or if you don’t have this many users, then great, you don’t to comply with this specific regulation. Well, the problem is, Terry, I have yet to meet a startup founder who says, I can’t wait to build this new AI tool, but the second I hit 999,000 users, I’m just going to stop building. Or the second that I want to build a model that’s just one order of magnitude more powerful in terms of compute, I’m just going to turn it off, I’m going to throw in the towel. And so even when there are carve-outs, we see that startups have to begin to think about when they’re going to run into those regulatory burdens. And so even with carve-outs applied across the patchwork approach, we’re going to see that startups find it harder and harder to convince venture capitalists, to convince institutions, to bet and gamble on them. And that’s a real problem if we want to be the leaders in AI innovation.
Terry Gerton So let’s go back then to the DOJ’s litigation task force. How might that play into this confusion? Will it clarify it? Will it add more complexity? What’s your prognostication?
Kevin Frazier Yes, I always love to prognosticate, and I think that here we’re going to see some positive litigation be brought forward that allows some of these really important, difficult debates to finally be litigated. There’s questions about what it means to regulate interstate commerce in the AI domain. We need experts to have honest and frank conversations about this, and litigation can be a very valuable forcing mechanism for having folks suddenly say, hey, if you regulate this aspect of AI, then from a technical standpoint, it may not pose any issues. But if you calculate this aspect, now we’re starting to see that labs would have to change their behavior. And so litigation can be a very positive step that sends the signals to state legislators, hey, here are the areas where it’s clear for you to proceed and here are areas where the constitution says, whoa, that’s Congress’s domain. And so I’m optimistic that under the leadership of the attorney general and seeing folks like David Sacks, the AI and crypto czar, lend their expertise to these challenges as well, that we’re going to get the sort of information we need at the state and federal level for both parties to be more thoughtful about the sorts of regulations they should impose.
Terry Gerton All right, Kevin, underlying all of the things you’ve just talked about is the concern you raised at the beginning. Will Congress step up and enact national legislation? What should be at the top of their list if they’re going to move forward on this?
Kevin Frazier So the thing at the top of Congress’s list, in my opinion, has to be novel approaches, number one, to AI research. We just need to understand better how AI works, things like that black box concept we talk about frequently with respect to AI, and things like making sure that if AI ends up in the hands of bad actors, we know how to respond. Congress can really put a lot of energy behind those important AI research initiatives. We also need Congress to help make sure we have more data be available to more researchers and startups so that we don’t find ourselves just operating under the AI world of OpenAI, Microsoft and Anthropic. But we want to see real competition in this space. And Congress can make sure that the essential inputs to AI development are more broadly available. And finally, I think Congress can do a lot of work with respect to improving the amount of information we’re receiving from AI companies. So SB 53, for example, is a great example of a state bill that’s trying to garner more information from AI labs that can then lead to smarter, better regulation down the road. But the best approach is for Congress to take the lead on imposing those requirements, not states.
technology control law ai concept for AI ethics and Developing artificial codes of ethics.Compliance, regulation, standard, and responsibility for guarding against
Senate Homeland Security and Governmental Affairs Committee Chairman Rand Paul (R-Ky.) is facing calls to ramp up oversight of the Department of Homeland Security. Democrats on the committee are calling on him to investigate the Trump administration’s immigration enforcement operations. They said Paul should issue subpoenas if necessary and have senior officials like Homeland Security Secretary Kristi Noem testify in front of the panel. Their letter comes in the wake of the fatal shooting of Renee Good in Minnesota.
DOGE representatives at the Social Security Administration discussed sharing agency data with an advocacy group looking to “overturn election results” in some states. The Justice Department said one of the DOGE staffers even signed a “voter data agreement” with the unnamed group. DOJ referred the two DOGE employees for potential violations of the Hatch Act which bars federal employees from using their positions for political purposes.
A Republican in Congress is looking to remove federal employees from their jobs if they have been convicted of a violent crime. The so-called “No Violent Criminals in the Federal Workforce Act” seeks to bar individuals with a violent criminal record from working for the federal government. The requirements of the bill would also apply to federal contractors. Rep. Nancy Mace (R-S.C.) introduced the legislation this week, calling it "common sense."
As he marked one year in office yesterday, President Trump called his administration’s cuts to the federal workforce “tremendous.” But some good government groups are painting a much darker picture. Agencies saw a loss of about 320,000 federal employees governmentwide over the course of 2025. The White House touted the staffing cuts as a step toward efficiency. But organizations like the Partnership for Public Service tell a much different story of the administration’s impacts on the federal workforce. “It tells a disturbing story about who we’ve lost in our government and what is actually happening to the workforce,” said Max Stier, president and CEO of the Partnership.
Congressional appropriators approved all 13 line-item consolidations requested by the Army in its fiscal 2026 budget, but flatly rejected the service’s “agile funding” request to raise notification threshold for reprogramming or transfers from $15 million to $50 million for procurement programs and to $25 million for research and development efforts. Lawmakers said that increasing reprogramming thresholds alone won’t improve program execution and cautioned that unilaterally moving funding without proper oversight could create uncertainty for programs and the industrial base. Appropriators also said they “discourage the Defense secretary and the service secretaries from submitting future requests of this nature.”
The latest minibus spending measure includes some big cybersecurity updates. The minibus appropriations agreement released this week would extend the Cybersecurity Information Sharing Act of 2015 until the end of September. It would do the same for the State and Local Cybersecurity Grant Program. Both authorities were set to expire at the end of this month. Cyber experts have particularly stressed the need to reauthorize the liability protections in the information sharing law. If the appropriations agreement passes, lawmakers will have more time to hash out their differences over a longer term extension of CISA 2015.
Congressional appropriators are backing the Pentagon’s push to speed up weapons buying, but warn that speed “must be factored alongside cost, performance and scalability.” Congressional negotiators said they support the Defense Department’s acquisition reform agenda but remain skeptical about the Pentagon’s push for greater budget flexibility. While Defense Secretary Pete Hegseth has directed the department to work with Congress to improve budget flexibility, lawmakers said the reforms are “internal in nature” and that the department needs to “demonstrate progress on those internal procedures” first. Lawmakers also raised concerns about joint requirements process reform and deep cuts to the department’s acquisition workforce that could jeopardize its ability to carry out Hegseth’s acquisition reforms.
Lawmakers are seeking a higher pay raise for air traffic controllers. Congressional appropriations propose giving the Federal Aviation Administration funds to implement a 3.8% pay raise for air traffic controllers, as well as supervisors and managers who oversee air traffic. That’s the same pay raise the Trump administration already approved for federal law enforcement. The spending deal would also give FAA enough funding to hire 2,500 air traffic controllers. Current controllers are working six days a week, including mandatory overtime.
FILE - The Department of Homeland Security logo is seen during a news conference in Washington, Feb. 25, 2015. DHS says a looming Supreme Court decision on abortion, an increase of migrants at the U.S.-Mexico border and the midterm elections are potential triggers for extremist violence over the next six months. DHS said June 7, 2022, in the National Terrorism Advisory System bulletin the U.S. was in a "heightened threat environment" already and these factors may worsen the situation. (AP Photo/Pablo Martinez Monsivais, File)
Terry Gerton There’s a lot to talk about, but it strikes me as strange that here we are two weeks before all of the continuing resolutions expire. The Senate is out this week. The House is planning to be out next week. Are they going to finish in time?
Loren Duggan There’s a path for them to do so and unlike other deadlines, when they’re approaching, everyone’s hair on fire — we haven’t felt that dynamic on this one. The House and Senate appropriators, they’re reaching deals, releasing packages, processing them through the House in the Senate, and there’s a way to get this all done by Jan. 30, or if they need a week or something, appropriators are already saying we could do another short-term. But there’s not a panic about this deadline that’s only two weeks away or so.
Terry Gerton Well, let’s recap, which bills are through and who would you say are the big winners in those bills?
Loren Duggan So we had the three bills go through last year. We’ve had another three-bill package get through both chambers this year. The House sent another two-bill package over to the Senate, who can deal with that when they come back. And then there’s this four-bill package, the remaining outstanding ones that they still need to tackle and get through both chambers. So there’s a lot of progress there. The last one’s big — Defense, Labor, HHS — and thorny in the case of the Homeland Security Department, given everything that’s going on there with ICE in Minnesota and concerns about lawmaker oversight there.
Terry Gerton Well, Homeland and Defense both got big chunks of money in the summer that they’re continuing to operate. So does it feel like maybe there’s a little less urgency around those bills?
Loren Duggan A little less urgency on the Defense side, where I think if you put that together with the reconciliation bill, it’s like $1 trillion. Of course, the president wants to take that to $1.5 trillion next year. We can deal with that another time. And Homeland, that extra pool of money has helped. They’ve used that to hire staff, to open centers. But there was a little controversy because DHS said if an ICE facility is funded with the reconciliation dollars, some of the oversight is different there than if it was regular appropriations. So we’ve seen a distinction made there. But definitely having that money earlier, locking that in for the administration, was really key to their plans for the year.
Terry Gerton What are the big controversies that are still on the table that are going to have to be hashed out before that last bill package gets through?
Loren Duggan DHS has been the sticking point. That was initially supposed to be in the last package; it ended up only being two bills instead of three as they worked through some of these discussions. And you could see a deal being made there and getting that through, maybe both chambers. But there could be a fight on that one in either chamber, depending on what you need. What we have seen are very bipartisan packages where the votes have been widespread, some opposition obviously, but they’ve gotten through very comfortably after all the fights that we went through ahead of this point in time.
Terry Gerton It does also seem, at least on the bills that have gotten through so far, that Congress has largely rejected the cuts that the administration proposed for 50% reductions are higher. Most of the reductions are very minor. So since agencies have already been downsized in many cases, what does this mean? How will relative increases, I guess, compared to where they’re operating today — how will that come into effect?
Loren Duggan In some cases, it’s less than they had last year, but still more than the administration wanted and more than House Republicans wanted in their initial versions. So we’re seeing a classic compromise being hashed out here between the House and the Senate, enough money for Democrats to support these bills, not the drastic cuts. And they’ve hastened to say “no poison pills” when they’ve released these different packages. But we’ll see how the agencies respond to more money. That’s been a fight over the course of the administration, where they’ve wanted to impound funds, rescind them, but if you put them back out there the agencies can use them. And even something like foreign aid is going to the State Department now, rather than USAID, after USAID was disestablished by the administration.
Terry Gerton I’m speaking with Loren Duggan. He’s deputy news director for Bloomberg Government. Loren, outside of the appropriations, what other sorts of legislative discussions are taking place on the Hill these days? ACA subsidies still on top?
Loren Duggan ACA subsidies has been a big driver of discussion. We are now at the end of open enrollment without an answer to what to do with these credits, if they’ll be extended. I assume the senators are still talking this week and when they come back. Donald Trump’s proposal last week didn’t necessarily change the dynamic too much. But one thing that might: We’re going to see insurance company executives brought to the Hill before two different House committees this week. They’ll have to answer some tough questions. Probably get a little beaten up by both sides in this case, because both parties have some concerns with them. So we’ll see how that plays out. The ACA, that’s now a deadline that’s passed; they’re still trying to figure out how to resolve that debate.
Terry Gerton There was also a lot of news last week about the crypto bill in the Senate. Tell us what’s going on there.
Loren Duggan There were markups that had been scheduled in two committees, and then they got pulled back as they continue to work through the issues and deal with the industry feedback. I think it was the Coinbase CEO who was up there weighing in pretty directly with lawmakers. So they pulled back, didn’t move forward, and they’re going to recalibrate the bill. This is the market structure bill, not to be confused with the stablecoin legislation, which is part of the crypto universe. This is a broader market structure bill, who has regulatory authority. I assume they’ll rejoin that debate when they return next week, if they’re not working up while they’re gone. But there’s big interest, big money, big stakes in this legislation.
Terry Gerton All of the things we’ve talked about so far are sort of normal order: appropriations bills, although late, getting through other sorts of legislative activities. Let’s talk about Greenland for a minute, because it seems like it has the potential to really upend all kinds of conversations and agreements that are going on. President Trump made tariff threats over the weekend. We have a congressional delegation on the ground in Denmark. What does this all mean when it comes back to domestic politics?
Loren Duggan We’ll have to see, there hasn’t been a ground swell against this. There are some members of Congress who concede it might be a good idea if Greenland was part of the United States, given its geostrategic importance. But then there’s other members of Congress who have said, maybe we’ll have to impeach Trump if he goes too far on this, so there’s not a consensus. There’s definitely a lot of range of opinions on this one. And it’s something that Donald Trump’s going to hear directly from other world leaders when he goes to Davos, Switzerland, this week and he’ll be side-by-side with some of the people who he’s threatened to tariff or have strong opinions on this, given their proximity to Denmark.
Terry Gerton We usually focus here on domestic politics, but this seems like it will flow over into lots of conversations. What are you expecting to hear out of Davos as that conversation gets started?
Loren Duggan Well, we had expected a domestic announcement with the president talking about his home ownership plan, maybe taking money from 401(k)s to make a down payment, part of his broader affordability discussion, home ownership discussion. So that’s a domestic thing, but we’re definitely going to hear the global things. Not just Greenland, but his “Board of Peace” that he’s talked about, where he wants world leaders to chip in money and be part of this arrangement. I’m sure those discussions will continue and there’ll be lots of feedback, given the compact nature of Davos and everyone who will be there. There’s a little bit of domestic, but it’s more of a foreign play given who’s there. It is the World Economic Forum after all, and the world will be there and talking to Donald Trump directly.
Terry Gerton When everybody gets back, what will you be watching for on the Hill?
Loren Duggan We’ll see if they can wrap up the spending debate and then they’ll be turning to February and eventually the fiscal ’27 process is right there. We’ll just get done with this one and really have to turn the page pretty quickly.
An Airbus A400M transport aircraft of the German Air Force taxis over the grounds at Wunstorf Air Base in the Hanover region, Germany, Thursday, Jan. 15, 2026 as troops from NATO countries, including France and Germany, are arriving in Greenland to boost security. (Moritz Frankenberg/dpa via AP)
Congressional appropriators are backing the Pentagon’s push to speed up weapons buying, but warn that speed “must be factored alongside cost, performance, lethality and scalability.”
The House released the final 2026 minibus funding package early Tuesday, which includes money for the Departments of Defense, Homeland Security, Labor, Education, Housing and Urban Development, Transportation and Health and Human Services. If passed, the bill would increase defense spending to more than $839 billion — roughly $8.4 billion above the White House’s fiscal 2026 request. House leaders plan to vote on the package later this week.
Congressional negotiators said they “strongly support” the Defense Department’s acquisition reforms, but pushed back on the Pentagon’s efforts to seek additional authorities or changes to its budget and appropriations framework until it fixes its internal processes.
“Rapid delivery of ineffective weapon systems at exorbitant cost will not serve the warfighter well,” the appropriators wrote.
Lawmakers also raised concerns about joint requirements process reform and deep cuts to the department’s acquisition workforce that could jeopardize its ability to carry out Defense Secretary Pete Hegseth’s acquisition reform agenda.
At the very end of the document, Hegseth instructed the department to “improve budget flexibility.”
“Where additional authorities are required, the [undersecretary of defense for acquisition and sustainment], in coordination with the military departments, shall develop a legislative engagement plan to ensure Congress is informed of and aligned with proposed reforms requiring any statutory change,” Hegseth wrote. “All actions will comply with applicable statutes, appropriations law, and procurement integrity requirements.”
That language was likely to become a friction point with Congressional leaders, and now appropriators are saying that reforms laid out in Hegseth’s memo are “internal in nature,” and that the Defense Department needs to “demonstrate progress on these internal procedures and administrative measures” before pursuing additional budget flexibility.
For instance, lawmakers said above-threshold transfer and reprogramming requests are often slowed because “a significant amount of the subcommittees’ time is consumed by waiting for the department to provide requested additional details and justification for these requests.”
“Providing this information alongside the submission of the request would accelerate consideration and create a nimbler process without altering existing authority or reprogramming thresholds,” the appropriators said.
Congressional leaders urged the department’s comptroller and the services’ assistant secretaries to work with the House and Senate Defense Appropriations Subcommittees to improve the amount of detail and justification provided in reprogramming submissions.
Congress gave the department some budget flexibility in 2024 but stopped short of granting broader authorities the department and reform advocates have been seeking that would allow DoD to move money more freely within its accounts without explicit congressional approval.
The Defense Department has also been pushing to change the hardware-centric budgeting model Congress uses to plan and execute the Pentagon’s spending by moving away from the traditional “colors of money” tied to different phases of weapons development. And while DoD has run several pilot projects to test the idea, lawmakers have been hesitant to authorize broader adoption of the approach due to the department’s inability to provide Congress with sufficient data showing the new approach would be more effective than traditional appropriation practices.
“To date, the agreement observes no new or compelling justification or quantitative analysis to support proposals that would alter the current appropriations framework, including with respect to reprogramming thresholds, notification requirements, new start guidelines, or consolidation into a single color of money,” the appropriators said.
“Consideration of legislative changes to the appropriations structure is premature until the Department has demonstrated full and effective use of its existing flexibilities and addressed persistent internal delays,” they added.
Army’s agile funding request rejected
While appropriators approved all 13 budget line-item consolidations requested by the Army in its fiscal 2026 budget, they flatly rejected the Army’s “agile funding” request to raise notification threshold for reprogramming or transfers from $15 million to $50 million for procurement programs and to $25 million for research and development efforts.
“The Department already has sufficient authorities to restructure its internal programming and budgeting processes, and many current challenges with execution can be solved by actions within the Department and do not require statutory change or congressional intervention … Increasing reprogramming thresholds alone is unlikely to improve program execution. Decisions to unilaterally move funding in the year of execution without sufficient oversight introduce uncertainty to both the programs impacted and the industrial base, increasing the risk of development and procurement delays,” the appropriators said.
“The House and Senate Defense Appropriations Subcommittees discourage the secretary of defense and the service secretaries from submitting future requests of this nature,” they added.
Joint requirements reform risks
The Defense Department kicked off the process of dismantling its decades-old Joint Capabilities Integration and Development System (JCIDS) process last year — and Hegseth ordered the Joint Requirements Oversight Council (JROC), which oversees the process, to stop validating service-level requirements to the “maximum extent permitted by law.”
House and Senate appropriators said they support the reform but want more detail on how defense officials plan to mitigate potential risks, such as the military services potentially prioritizing service-specific solutions over joint ones or top-down decision-making stifling bottom-up innovation.
The deputy secretary of defense, vice chairman of the Joint Chiefs of Staff and service secretaries have 60 days to brief appropriators on how they plan to address those risks.
Workforce is the linchpin of acquisition reform
DoD leaders have long warned that the depth of this administration’s workforce cuts could cripple the department’s ability to execute Hegseth’s acquisition reforms.
Appropriators echoed those concerns, saying they are “concerned that recent reductions to the acquisition workforce, the effects of which have yet to be realized, will negatively affect the Department of Defense’s ability to achieve the initial speed and agility sought by this reform effort.”
Lawmakers directed the defense secretary along with service secretaries to submit an acquisition workforce strategy, including a comprehensive assessment of the personnel needed to execute Hegseth’s and Congress’ proposed acquisition reforms.
If you would like to contact this reporter about recent changes in the federal government, please email anastasia.obis@federalnewsnetwork.com or reach out on Signal at (301) 830-2747.
Lawmakers are moving to extend key cybersecurity information authorities and grant programs, while also providing funds for the Cybersecurity and Infrastructure Security Agency to fill “critical” positions.
The “minibus” appropriations agreement released by House and Senate negotiators on Tuesday includes fiscal 2026 funding for the Department of Homeland Security. DHS funding could be a sticking point in moving the bill forward, as some Democrats want more restrictions around the Trump administration’s immigration enforcement operations.
The bill also extends the Cybersecurity Information Sharing Act of 2015 (CISA 2015) and the State and Local Cybersecurity Grant Program through the end of fiscal 2026. Both laws are set to expire at the end of this month.
Ross Nodurft, executive director of the Alliance for Digital Innovation, also applauded the extension of the Technology Modernization Fund included in the minibus.
“Reauthorizing the Technology Modernization Fund and the State and Local Cyber Grant Program for the rest of the fiscal year allows the government to invest money in new technology modernization and cyber security projects at the federal and state level while we work on more permanent, longer term reauthorizations and funding,” Nodurft said. “I am encouraged to see Congress put forward these stop gap measures and will continue to work with members to reauthorize these critical programs beyond 2026.”
CISA funding
The bill would include a cut for the agency CISA, with fiscal 2026 funding level set at $2.6 billion, about $300 million less than its current annual budget.
The appropriations agreement would specifically provide $20 million for CISA to hire additional staff to “critical positions,” according to the joint explanatory statement on the DHS appropriations measure.
That funding would be evenly split across five CISA programs: Threat Hunting; Vulnerability Management; Continuous Diagnostics and Mitigation; Security Programs; and Security Advisors.
The bill would also require CISA to “not reduce staffing in such a way that it lacks sufficient staff to effectively carry out its statutory missions.” Both Democrats and Republicans have expressed concerns about CISA losing roughly one-third of its staff over the past year.
Secret Service burnout
Appropriators are also taking aim at burnout within the Secret Service’s ranks. The funding measure provides $3.3 billion for the Secret Service as it embarks on a major recruiting initiative over the next two years.
That total would allow the Secret Service to “maintain ‘zero-fail’ mission by funding aggressive recruitment and retention to eliminate officer burnout, while modernizing high-tech training facilities and armored fleets to stay ahead of evolving threats
to our nation’s leaders,” according to a DHS spending bill summary provided by Senate appropriators.
The bill includes an increase of $46 million for Secret Service hiring in fiscal 2026. It also provides the agency with advance funding to prepare for the 2028 Olympic and Paralympic Games in Los Angeles.
But appropriators also want updates on the Secret Service’s recruitment and retention efforts. The explanatory statement directs the agency to provide briefings on its employee resiliency program and hiring projections, respectively.
“The briefing shall also include ongoing efforts to decrease the time to hire and increase yield rates from applicants to hires, as well as the impact that these hiring efforts will have on overtime costs,” lawmakers wrote.
FEMA staffing
The spending agreement also includes a “rejection” of staffing cuts made at the Federal Emergency Management Agency in fiscal 2025, according to the joint explanatory statement. The bill would provide $32 billion for FEMA, including $26.4 billion for the Disaster Relief Fund.
FEMA lost more than 2,000 employees to workforce reduction programs last year. And the agency has undertaken further staff reductions by not renewing Cadre of On-Call Response/Recovery Employees (CORE) in recent weeks. FEMA headquarters officials have also contemplated cuts totaling up to 50% of its workforce as part of a planning exercise shared with agency leaders in December.
Now, appropriators want FEMA to provide monthly briefings on the agency’s staffing levels and workload requirements.
“Such briefings shall also include projected staffing levels for the remainder of the fiscal year in light of the agreement’s rejection of the position reductions implemented in fiscal year 2025,” the joint explanatory statement reads.
The bill also requires FEMA to maintain staff “necessary to fulfill the missions” required of the agency by six separate laws and various other authorities. That staffing requirement, lawmakers emphasize, also applies to FEMA reservists and CORE staff.
The Trump administration has moved to shift more emergency management responsibilities to state and local governments. FEMA staffing reductions and policy changes over the last year have sparked concerns that the administration is implementing that plan despite there being no changes in the agency’s lawful responsibilities.
FEMA team members in Martin County, Florida, canvas with local residents to help register them for assistance and help disaster survivors after Hurricane Milton. (Photo source: FEMA/Patrick Moore)
Congressional appropriators are one step closer to reaching a comprehensive spending deal for the rest of the fiscal year before a stopgap spending bill expires at the end of the month.
Members of the House and Senate appropriations committees released a four-bill “minibus” of fiscal 2026 spending bills on Tuesday.
Congress is roughly halfway to passing a spending plan for the rest of FY 2026. The current continuing resolution expires on Jan. 30.
The latest “minibus” covers annual appropriations for the departments of Defense, Homeland Security, Labor, Health and Human Services, Education, Transportation and Housing and Urban Development, as well as some smaller related agencies.
House Appropriations Committee Chairman Tom Cole (R-Okla.) said in a statement that the spending package delivers “results without waste.”
“At a time when many believed completing the FY26 process was out of reach, we’ve shown that challenges are opportunities. It’s time to get it across the finish line,” Cole said.
Here are a few highlights from the spending package:
3.8% pay raise for air traffic controllers
The spending deal would give the Federal Aviation Administration a $1.58 billion budget for fiscal 2026, as well as funding to hire 2,500 new air traffic controllers
The FAA is about 3,500 air traffic controllers short of its staffing goals. Many current air traffic controllers are working six days a week, including mandatory overtime.
As part of this budget plan, the FAA would receive $140 million to implement a 3.8% pay raise for air traffic controllers, as well as supervisors and managers who oversee air traffic.
The Trump administration approved a 3.8% pay raise for federal law enforcement personnel, which went into effect at the start of January. Air traffic controllers were not on the Office of Personnel Management’s list of positions receiving a higher pay raise.
The spending bill states that the 3.8% pay raise “shall be implemented for all such employees only to the extent that the administrator determines, in his sole discretion, that improvements in workforce scheduling, staffing utilization, or other operational efficiencies are achieved that contribute to addressing workforce shortfalls and enhancing aviation safety.”
If the FAA administrator determines these conditions, the pay raise would retroactively go into effect for the first pay period in January 2026.
Spending cuts for a smaller federal workforce
Republican appropriators applauded overall spending cuts in the spending bill that funds the Transportation Department, HUD and related agencies.
GOP lawmakers on the House Appropriations Committee wrote that the spending deal “codified DOGE recommendations to reduce the federal bureaucracy” of Transportation, HUD and related agencies by 29%.
More specifically, GOP lawmakers said the spending package reflects a 24% reduction in HUD staffing achieved partially through layoffs last year.
Lawmakers said a smaller HUD workforce will save $348 million in salaries and related expenses.
Republican appropriators said the spending deal reflects the Transportation Department “right-sizing” its workforce through a 5% staffing reduction, “all without compromising transportation safety.”
President Donald Trump told reporters at a White House press briefing on Monday that his administration “slashed tremendous numbers of people off the federal payroll” during his first year in office.
Trump said downsizing the federal workforce was necessary, because “they had 10 people for every job,” and that terminated federal employees have moved on to higher-paying jobs in the private sector.
“I don’t feel badly, because they’re getting private sector jobs, and they’re getting sometimes twice as much money, three times as much money,” Trump said. “They’re getting factory jobs, they’re getting much better jobs and much higher pay.”
Higher HHS spending, proposed cuts rejected
The spending bill gives the Department of Health and Human Services $116.8 billion in discretionary spending — a $210 million increase in discretionary spending. By contrast, the Trump administration proposed a nearly 20% cut to HHS discretionary spending this year.
The congressional spending deal rejects the administration’s calls for deep cuts within HHS. The administration sought a 50% spending cut for the Centers for Disease Control and Prevention. Instead, the compromise reached by lawmakers essentially keeps CDC funded at current levels, and includes funding increases for some of its pandemic preparedness programs.
The spending package would give $7.4 billion to the Substance Abuse and Mental Health Services Administration (SAMHSA) a $65 million increase over current funding levels.
The bigger budget reflects increased spending to address a rise in opioid overdoses, especially from fentanyl, as well as boosts to substance abuse disorder prevention and mental health services.
Lawmakers rejected a 15% cut to SAMHSA funding proposed by the Trump administration. The spending deal also rejects the administration’s plan to reorganize SAMHSA into the Administration for a Healthy America (AHA), a new office envisioned by HHS Secretary Robert F. Kennedy, Jr.
Democrats on the appropriations committees said the spending deal ensures SAMHSA remains its “own, independent agency to help ensure substance use and mental health remain a priority at HHS” and “includes new guardrails to ensure SAMHSA funds are allocated as intended.”
NPR reported last week that HHS briefly terminated $2 billion in addiction and mental health grants, but quickly walked back those cuts.
Education Department budget remains intact
Lawmakers are largely rejecting the administration’s proposal to dismantle the Education Department, and move many of its functions to other federal agencies.
The spending bill gives the department $79 billion in discretionary spending — a roughly flat budget compared to current spending levels.
The Trump administration proposed cutting the Education Department by $12 billion, or about 15% of its current discretionary budget.
The Education Department has already signed six interagency agreements to transfer some of its programs and employees to HHS and the departments of Labor, Interior and State.
Education Secretary Linda McMahon told employees last November that the department is soft-launching plans to reassign its work to other parts of the federal government, before calling on Congress to permanently shutter the agency.
Senate Appropriations Committee Vice President Patty Murray (D-Wash.) said in a statement that “Congress will not abolish the Department of Education, and the people’s representatives will have the final say on how taxpayer dollars get spent.”
Budget boost for Social Security
The Social Security Administration would see a higher budget under this spending plan.
Lawmakers propose giving SSA $15 billion for its administrative budget in fiscal 2026 — a $554 million increase compared to current spending levels.
Lawmakers from both parties agreed that the funding will help the agency improve customer service for the public. Democratic appropriators urged SSA to use these increased funds to resume hiring.
SSA currently has about 50,000 employees in total, according to the latest data from the Office of Personnel Management. The agency lost more than 7,000 employees through voluntary incentives last year. It also relocated many of its employees from its headquarters and regional offices to field offices.
SSA Commissioner Frank Bisignano told staff at an all-hands meeting last week that the agency is continuing to hire, according to several employees in attendance. Those employees, however, said the agency still faces a hiring freeze.
Labor Dept. federal contractor watchdog spared from elimination
The spending bill provides $13.7 billion in discretionary spending to the Labor Department — a slight increase compared to its current $13.5 billion discretionary budget.
The department’s Office of Federal Contract Compliance Programs would receive a $101 million budget, about a 9% cut to current spending levels. OFCCP ensures federal contractors aren’t discriminating against their employees.
OFCCP, however, would remain largely intact, after the Trump administration proposed major staffing cuts. An earlier funding proposal from House Republicans also proposed fully eliminating OFCCP.
The agency sent layoff notices to 90% of its staff, but rescinded those layoffs last August. Instead of being reinstated to their jobs at OFCCP, the agency said impacted employees would be “reassigned to a new position” at the Labor Department.
Small agencies marked for closure stay open
The spending bill also includes funding for small, independent agencies marked for elimination by an executive order last year.
Lawmakers propose giving the Institute of Museum and Library Services a $292 million budget — a $3 million cut compared to current spending levels. The spending bill also proposes $3 million in funding for the Interagency Council on Homelessness.
President Trump signed an executive order last March, eliminating these agencies and five others “to the maximum extent consistent with applicable law.”
A federal judge in Rhode Island ordered a permanent injunction last November, putting the Trump administration’s plans to shutter these small agencies on hold.
House Appropriations Committee Ranking Member Rosa DeLauro (D-Conn.) said in a statement that the funding package “continues Congress’s forceful rejection of extreme cuts to federal programs proposed by the Trump administration.”
“Where the White House attempted to eliminate entire programs, we chose to increase their funding. Where the administration proposed slashing resources, we chose to sustain funding at current levels,” DeLauro said.
Terry Gerton I want to start with Secretary Hegseth’s Arsenal of Freedom tour. He’s taking his pitch on the road and recently spoke at the Lockheed Martin Air Force plant in Fort Worth, Texas. I know you’ve been following this, the developments in defense procurement for quite a while. What are you hearing at this point?
Stephanie Kostro So Terry, this “Arsenal of Freedom” is a month-long tour, and it really is Secretary Hegseth going around to various places. He started out in Newport News, here in Virginia, talking with shipbuilders about what it means to be part of the team, right? Being part of the arsenal of freedom and in making things faster, more efficiently, etc. He then went out to California and spoke with folks, and then most recently, just last week in Texas, visiting Lockheed Martin as you mentioned, but also SpaceX. And so talking to folks about, what does it mean to be part of the arsenal of freedom? This is building on his November 7th Arsenal of Freedom speech that he gave here at Fort McNair in the D.C. area. And it is really about reviving this team mentality of, “we are in this together.” Against that backdrop, of course, we have recent activity in acquisition transformation, but also an executive order that came out earlier this month about limiting executive compensation for defense contractors, limiting dividends and also share repurchases or stock buybacks. And so this is a very interesting time to be in the defense industry.
Terry Gerton Stephanie, with all of the changes in the FAR and the DFAR and now the Defense Appropriation Act that’s in law, do you think that DoD has the policy tools it needs and wants to accomplish its transformation?
Stephanie Kostro There are two elements of the answer here. One is, with the fiscal year 2026 National Defense Authorization Act, which was just signed into law last month, they received a lot of new authorities, a lot of a sense from Congress about the ways in which this should be tackled. There is language there about technical data rights and intellectual property. There were things in there about how to define a nontraditional defense company, etc. But I don’t think that was sufficient; we still have work to do. And so does the department have all of the authorities and resources it needs to move forward? I think we’re going to see a lot of legislative proposals come out of the department for this next round of the NDAA, the fiscal year ’27 NDAA. And I think we’ll see things about acquisition workforce. We’re going to see things about working outside of the Federal Acquisition Regulation way of doing contracts. That is code for things like Other Transaction Authority or commercial solutions openings, etc. I don’t think they have everything they need. Part of the Arsenal of Freedom tour and the rollout of this acquisition transformation is to look at how the department can buy things more effectively and more efficiently. That’s time, not having cost overruns, etc. And so all of this is sort of coming together, in a way, to ultimately really transform the way the department buys. And I’m very excited to be part of this.
Terry Gerton Having the rules and authorities is only one piece. What’s your sense of whether the acquisition culture and workforce are aligned to actually accomplish the goals?
Stephanie Kostro Culture is the hardest element of any kind of transformation, right? I do think they’re trying to empower contracting officers and other key members of the acquisition workforce, program managers, contracting officer representatives, etc. This is a longer-term issue, and I think they are trying to tackle it through training programs, etc., letting folks know tools are at their disposal and giving them the authority to go ahead and use those tools. Now, folks don’t get into acquisition within the civil service because they’re risk-loving. A lot of times they get into it because they want to do things very smartly, very efficiently and oftentimes they look back on precedent to see how things were done before. Layer over that, Terry, the fact that we lost a lot of contracting personnel through deferred resignation programs, voluntary early retirement programs and reductions in force. So we are trying to rebuild the workforce in numbers as well as in training. I don’t think they’re there yet; I do think there’s a path to get them there. I’m eager for industry to work with the Department of War and others about how to train effectively and to let industry folks sit in the same training as the government folks, so everyone’s hearing the same thing.
Terry Gerton Stephanie, before we leave this topic, you touched on the executive order about defense contractors and compensation and buybacks. There’s a lot of unknowns still in how that will play out, but what are you hearing from your members?
Stephanie Kostro Our members were very eager to hear how the Professional Services Council would summarize that EO. So we did put out — based on the fact sheet from the White House, based from some interactions we’ve had with administration officials — our interpretation of it. That said, we’ve also asked our member companies, and we have 400 member companies and the majority of them do business with the Department of War and the intelligence community, “hey, what questions for clarification would you like us to ask?” And that list is growing. It is very long. It’s things like, is this really just for publicly traded companies? What about privately owned, or S corps and LLCs? The reason I mentioned that, Terry, is S corps and LLCs will often pay out a dividend to an executive at the company so that executive can pay taxes. They pay out of dividend, so it’s not only a dividend payment, it’s executive compensation, but it’s really just to go ahead and pay federal taxes. What do people do in that regard? How do they explain this? If they have a parent company that is overseas in Europe or elsewhere, how do they explain this executive order to those folks? And that executive compensation, there’s a limit if the company is underperforming, and all of this is predicated on the company’s underperforming — either cost overruns or schedule overruns. How do they explain this to folks? And is it really just about government contracts, or what if you’re a commercial and a government company and your executive compensation is based usually on both elements, commercial and government? So how do you go ahead and limit compensation there? This is a fascinating area to be engaged with the government on. We are all learning this together.
Terry Gerton As Secretary Hegseth tries to walk this tightrope between encouraging defense contractors to be on the team and work with us, and at the same time kind of tightening the screws on enforcement and compensation, the president has said he wants to spend $1.5 trillion on defense next year. That’s a lot of money. How is that going to get spent, do you think?
Stephanie Kostro Oh, it is an eye-catching number, right? $1.5 trillion when we are roughly $1 trillion now are just under, and it is a huge increase. Now, we’ve had large increases in the defense budget in other times in U.S. history. In the early 1950s with the Korean War, the Reagan buildup that some of us remember from the ’80s. Some of us who are listening may not remember it. They may not have been born yet, and that’s okay too. You know, there is some precedent for huge increases in the defense spend. The question here becomes, if the department and the military services are going for commercial-first mentality to prioritize speed of award and innovation, etc., they certainly can spend that money throughout the defense ecosystem. The question that we have is really, what is the organizing construct for this? What would we be spending the money on? Would it be shipbuilding, combat aircraft, the logistics piece, which always tends to be an issue? We also know operations and maintenance accounts are sometimes used and reprogrammed away if they’re not spent by a certain time, because it’s one-year money at the department, it gets reprogramed away. It’s going to be an interesting mathematical problem to tackle. In addition, I would mention, we had the reconciliation bill, the One Big, Beautiful Bill Act that passed and was signed into law last July. That infused a bunch of cash into both the Department of Defense and the Department of Homeland Security. I understand some of that money hasn’t been apportioned and provided to the departments yet, but we are now at this point in January of 2026 talking about, what would a reconciliation bill look like for 2026? Congress can pass one per fiscal year. The one that was passed last July was the one for fiscal ’25. What happens this year? There are a lot of different mechanisms to get that money through Congress and over to the government to apportion to the department.
Terry Gerton Well, speaking of 2026 appropriations, it looks like Homeland Security and Defense will be two of the last bills out, hopefully before the end of this month. What are you hearing from folks on the Hill?
Stephanie Kostro I’m hearing that they’re trying really, really hard to avert a shutdown. And I think we’re going to get there. I’m not a betting person, Terry, you know, I’ve talked about that in the past. And I’m not in this case, either. The chance for a shutdown is never zero. That said, the experience that we all had back in October and November last year would indicate that there really is no appetite for a shutdown this year. The National Defense Appropriations Act and the DHS [bill] I think are probably the last because they want to get everything done before they tackle those. Those are the two departments that received the lion’s share of the money from the reconciliation bill, One Big Beautiful Bill Act last year, and they are looking to get more money in a reconciliation bill this year. So I’m not surprised to hear that those are last, but I actually don’t think that indicates that they’re very far apart on the numbers.
Terry Gerton And on those two departments, PSC is sponsoring a trip in January to the border to do some on-site research. Tell us about that plan.
Stephanie Kostro I am so excited about this. PSC has not typically done this. I do know other entities have done this, I used to be at a think tank where we would do things like this. We are bringing almost 30 different companies out to California next week, Jan. 28 and 29, to do a behind-the-scenes access with the Customs and Border Protection folks who are out there. And the ports of LA and Long Beach, the ports at entry, the land ones over at San Ysidro and Otay Mesa, really talking with folks on the ground there about what their requirements are. This is really focused on technology. How do we use technology and the art of the possible to protect our borders? Now, I would hasten to add, Terry, border security is not a partisan issue in many, many ways. The Biden administration, the Obama administration, the previous Trump administration all focused on border issues in different ways. Our companies really want to mention to folks on the ground, here is technology that you may not have experience with that is up-and-coming. How can we leverage it to better secure our borders? Talking about cargo screening, etc. I think this is a really good opportunity for companies to sit down with folks who are in the field and hear about what they need.
FILE - Containers with Yang Ming Marine Transport Corporation, a Taiwanese container shipping company, are stacked up at the Port of Los Angeles with the the Long Beach International Gateway Bridge seen in the background on Wednesday, April 9, 2025 in Los Angeles. (AP Photo/Damian Dovarganes, File)
The privacy rights group Fight for the Future was one of 44 organizations that sent a letter to lawmakers urging them to pull back on funding for ICE, noting the growing threats to U.S. citizens and others as the agency spends millions of dollars on its growing surveillance capabilities.
The Army is updating its software directive and scrapping its existing policy on software funding that has routinely hindered software projects across the service.
Michael Obadal, the service’s undersecretary, said the new software directive will be released “in the coming weeks.” The service plans to revise the document annually to keep pace with the rapidly changing environment.
Meanwhile, canceling its existing policy governing how the service pays for software will allow the Army to “apply the appropriate type of money to the applicable use case.”
“For many years, as many of you know, we’ve been trapped by the color of money. We try to buy modern, agile software with rigid funding authorities. Predictably, it doesn’t work,” Obadal said during the AFCEA NOVA Army IT Day event on Thursday.
This shift will give the Army greater flexibility in how it uses its operations and maintenance, procurement and research, development, testing and evaluation funds for software.
While flexible use of different colors of money will offer the service some relief, it is still not “the most effective method” for funding software. Obadal said the Army ultimately plans to pursue Budget Activity 8 (BA-8), which will allow program managers to move away from the hardware-centric budgeting model and instead draw funding from an appropriations category specific to software.
“We’re going to pursue Budget Activity 08 for our software, which would realign funding from various appropriations to new software and digital technology in its own budget activity,” Obadal said.
The Defense Department has long struggled with software acquisition for a number of reasons, but the rules that govern how the department pays for software have possibly been one of its major obstacles. The model Congress and the Pentagon have used to plan and execute the Pentagon’s spending was originally built for long-term hardware acquisition. But this structure doesn’t apply well to the agile software development model.
The department has been experimenting with using a separate appropriations category for software. The idea started to gain traction in 2019, when the Defense Innovation Board found that “colors of money tend to doom” software programs. “We need to create pathways for “bleaching” funds to smooth this process for long-term programs,” the board wrote in its report.
But lawmakers have been hesitant to authorize broader adoption of this pathway beyond a small number of pilot programs until the Defense Department is able to produce data comparing this approach to traditional appropriation practices.
“Agile funding … we have to have that in the right focus area to be able to apply it to modern software, and it’s a little more difficult than we think because it involves Congress … But these are the steps we’re taking,” Obadal said.
Obadal also urged industry to “build [systems] to scale, don’t build it to demo.”
“What we’re asking from industry as we tackle those things is the confidence in your solution to scale, not just demo … That means that you have to take extra steps, and you have to think about what happens in a year or two years for you. Open architectures, interoperable designs, secure by design software, not bolted-on cybersecurity. That’s another incredibly important one, is your design and a willingness to align with Army timelines and with our operational realities,” he said.
The CEO of Bank of America has warned that trillions of dollars could flee from bank deposits to the stablecoin sector if the upcoming crypto market structure bill allows interest payments on the tokens.
Banking System Could Face $6 Trillion Problem
On Wednesday, Bank of America CEO Brian Moynihan told investors that the banking industry could face significant challenges if the US Congress does not prohibit interest-bearing stablecoins.
During its Q4 earnings call, the executive affirmed that up to $6 trillion in deposits, around 30% to 35% of all US commercial bank deposits, could flow out of the banking system and into the stablecoin sector, citing Treasury Department studies.
The banking sector has heavily criticized the US’s landmark stablecoin legislation, the GENIUS Act, for months, claiming that it has loopholes that could pose risks to the financial system. Notably, the crypto framework prohibits interest payments on the holding or use of payment-purpose stablecoins but only addresses issuers.
Multiple banking associations across the US sent a joint letter to the Senate Banking Committee urging Congress to amend the law to include digital asset exchanges, brokers, dealers, and related entities.
According to the call’s transcript, Moynihan compared the digital assets to money market mutual funds, which require reserves to be held in short-term instruments, such as US Treasuries, thereby reducing lending capacity in the system.
That is the bigger concern that we’ve all expressed to Congress as they think about this, if you move it outside the system, you’ll reduce the lending capacity of banks. (…) And if you take out deposits, (…) they’re either not going to be able to loan or they’re going to have to get wholesale funding and that wholesale funding will come at a cost that will increase the cost of borrowing.
The CEO asserted that Bank of America would not be affected by this issue, as the institution would be able to “meet customer demand, whatever may surface.” However, he noted that it would particularly hurt small- and medium-sized businesses, as they’re “largely lent to end consumers by the banking industry.”
Stablecoin Rewards Debate Intensifies
Moynihan’s remarks come amid the Senate’s struggles with the long-awaited market structure bill. The recently shared draft, which was scheduled for a markup today, has raised concerns among crypto industry leaders, who have outlined multiple problems with the bill.
Coinbase’s CEO, Brian Armstrong, took to X to share his disappointment with the legislation, affirming that “this version would be materially worse than the current status quo. We’d rather have no bill than a bad bill.”
He affirmed that, after reviewing the bill’s draft, Coinbase could not support it in its current state, arguing that there were “too many issues.” Among the problems, he noted the de facto ban on tokenized equities, crucial DeFi prohibitions, the “erosion” of the Commodity Futures Trading Commission (CFTC)’s authority, and the policies regarding the payment of interests on stablecoins.
As reported by Bitcoinist, this version of the market structure bill introduced key restrictions for stablecoin issuers. Under the proposed changes, issuers would be able to offer rewards for specific actions, such as account openings and cashback.
However, they are prohibited from offering interest payments to passive token holders. To Armstrong, this “would kill rewards on stablecoins,” and allow banks to “ban their competition.”
Amid the intensified backlash, Senate Banking Committee Chairman Tim Scott announced on Wednesday that the bill’s markup had been postponed to “deliver clear rules of the road that protect consumers, strengthen our national security, and ensure the future of finance is built in the United States.”
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