A new forecast projects that defense spending will keep rising through 2035, while civilian agencies face years of flat or shrinking budgets, continued cuts and growing pressure to scale back. 

The Professional Services Council’s latest federal market forecast, compiled with input from more than 400 industry volunteers and subject-matter experts, predicts that in an environment where legislative logjam is likely to persist, defense spending will continue rising at roughly 2% annually after its first $1 trillion budget in fiscal 2026 — a one-time spike driven by reconciliation —  while cuts will “continue to fall disproportionately on civil agencies until elections change the balance of power.”

“What this means in practical terms is that the fiscal environment for the next decade will be tight, competitive, highly dependent on supplemental funding, reconciliation and prone to crisis-driven appropriations. Base budgets alone will struggle to drive new initiatives, especially on the non-defense side. In this environment, as one of our interviewees suggested, it’s best to keep your customers close and your congressional supporters and lobbyists closer,” Mike Riley, a volunteer for PSC’s Vision Federal Market Forecast told reporters last week.

In the defense space, PSC volunteers said their discussions with defense stakeholders revealed a shift, or “strategic realignment,” in the Pentagon’s priorities. While the Indo-Pacific Command remains of “elevated importance,” the Northern Command and Southern Command are gaining new emphasis as the department puts greater focus on homeland, border security and expands its presence in Latin America and the Caribbean. 

“This year was a bit of an interesting year for us. A lot of defense folks acknowledge the growing importance under this administration, but also a lot of consternation about the directions the administration might be going and just kind of the lack of clarity. There’s some continuing trends — deterring China, integrated deterrence, that pivot to the Pacific — that’s an ongoing thing that didn’t change from the previous administration. Of course, border security, the Department finds itself in an uncomfortable position,” Jason Dombrowski, a volunteer for PSC’s Vision Federal Market Forecast, said.

“They are getting a little bit more heavily involved in domestic politics than they would otherwise prefer to. Certainly, they always reiterated their intent to be responsive to the commander in chief. But historically, of course, the American military has tried to avoid a domestic role,” he added.

The department is also placing greater emphasis on the Golden Dome missile defense system, shipbuilding and munitions under this administration.

“I think everyone’s been paying attention to the news that there has been some very notable plus ups and focuses of this administration, most notably around shipbuilding, but also to include things like nuclear modernization, which in previous years we had highlighted as a potential toss up, but this year definitely moved into the winners category,” Dombrowski said.

Acquisition reform

The Defense Department also moves to implement Defense Secretary Pete Hegseth’s sweeping acquisition reforms, which emphasize greater competition, faster delivery and making commercial technology the default option. It’s unclear whether the department has the ability to implement those changes given deep personnel cuts across the contracting workforce.

“The contracting professionals — there seems to be a large reduction. How do we get this done? That fundamental capacity to get things done is really going to make a difference, whether you’re putting out contracts, supply chain, workforce throughput … It’s going to affect how we can actually help out the government. Adaptability is the name of the game,”Jim Kainz, a PSC volunteer, said.

In addition, the department’s new acquisition strategy promises to lower barriers to entry to encourage startups and non-traditional vendors to join the defense industrial base. Dombrowski said that while stakeholders are cautiously optimistic about the reforms, there is also a “healthy cynicism of saying, ‘How is this time any different?’” 

“This administration has made a big priority of trying to attract new people, and we looked at the pros and cons of it. It’s probably worth noting that, aside from a few very notable successes that we can all figure out, there hasn’t really been much movement in this regard,” Dombrowski said. 

“We’re very excited, certainly [Commercial Solutions Opening] and [Other Transaction Authority] and just a variety of things that should provide a lot of flexibility, but let’s see it,” he added.

Winner and losers

Dombrowski and Kainz said several areas emerged as clear “losers” in this year’s defense outlook, including the department’s buying power, which continues to erode as inflation and reshoring efforts drive up costs across programs.

Legacy systems and advisory and assistance services are facing cuts, and U.S. Africa Command and Central Command are being pushed lower on the priority list as resources shift toward European Command.

There is also uncertainty around operations and maintenance funding, which Dombrowski and Kainz said remains a major concern for both think tanks and potential customers. Sustainability initiatives appear to be split — the “green side of sustainability” will most certainly lose ground, while efforts tied to energy resilience may gain momentum. 

Contested logistics, once considered a toss-up, is gaining traction as a priority, and scalability — the ability to rapidly increase production in a crisis — is emerging as a clear winner across the department.

Overall, research and development spending is increasing, but only in areas related to advanced weapon systems, technologies, drones and energy. 

“However, there’s a belief and a growing expectation that the contracting community will bear more of those responsibilities,” Dombrowski said. “It’s really unclear where that line is going to be drawn between things that are really government exclusive where DoD is willing to pick up all costs associated to it. There are things we can all imagine, like fighter jets. But what about things that are more in the gray areas? Avionics, business process systems, back-office systems, things like that — definitely more of a sense that we are going to have to be developing those on our own.”

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.

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OPINION — “The [Defense] Department [DoD] will continue to defend the nation and conduct ongoing military operations. It will continue activities funded with any available budgetary resources that have not lapsed (e.g., funds made available in Pub. L. 119-21), as well as excepted activities such as those necessary for the safety of human life and the protection of property. Significant activities that will continue during a lapse are summarized in this planning guidance document. Activities that are determined not to be excepted, and which cannot be performed by utilizing military personnel in place of furloughed civilian personnel, will be suspended when appropriated funds are no longer available. The Secretary of War may, at any time, determine that additional activities shall be treated as excepted.”

That is a quote from the DoD’s September 2025 Contingency Plan Guidance For Continuation Of Operations In The Absence Of Available Appropriations, issued “For Planning Purposes Only - Do Not Implement Until Direction from the Deputy Secretary of War or his Designee.”

This document, it states, “provides guidance for identifying those missions and functions of the Department of War (DoW) that may continue to be carried out in the absence of available appropriations.”

I must point out, because it’s the reason I’m writing this column, that the Public Law referred to above, Pub. L. 119-21, is none other than the so-called One Big Beautiful Bill Act (OBBBA), passed by Congress July 3, and signed by President Trump into law on July 4.

A bit of history: The OBBBA was designed by the Republicans to enact all of Trump’s second-term tax and spending policies in a giant, 1,100-page piece of legislation. The Congressional Budget Office said the measure would result in a decrease in direct spending of $1.1 trillion, but also a decrease in revenues of $4.5 trillion, increasing the U.S. deficit by $3.4 trillion over the 2025-to-2034 period.

To get the OBBBA passed, the Trump White House and Republicans in Congress used the fiscal 2025 budget reconciliation process, which allowed them to avoid the 60-vote Senate filibuster. With universal Democratic opposition, it passed the House by a 218-to-214 vote, and the Senate by a 51-to-50 margin, with Vice President J.D. Vance casting the tiebreaking vote.

As I wrote last June, the OBBBA was “extending Trump’s 2017 tax cuts and reducing Medicaid spending – [and] also contains authorization and appropriation for an additional $150 billion for fiscal 2025 defense spending.”

That additional $150 billion for defense spending, because it was considered part of 2025 appropriations, is available to be spent during the current shutdown and through 2029, according to the terms of the OBBBA.

Credit for anticipating the need to put that $150 billion in the 2025 reconciliation measure, and not in the fiscal 2026 budget request, must be shared by Director of the Office of Management and Budget Russell Vought, White House Deputy Chief of Staff Stephen Miller, and Republican members of the House and Senate Armed Services Committees. Late last April, without much publicity, the Hill Republicans added the $150 billion to the OBBBA reconciliation bill with White House support.

They also added another $170 billion for the Department of Homeland Security and other agencies that I will discuss below.

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Back in June, I wrote that the Congress in the reconciliation bill called for the Defense Secretary “to deliver to the House and Senate Armed Services Committees within 60 days of the bill passing Congress” a plan detailing how the added $150 billion appropriated to DoD would be spent. Whether Defense Secretary Pete Hegseth did or not is unclear.

However, DoD’s September 2025 Contingency Plan Guidance said, “As of September 2025, the [Defense] Department considers efforts to the support the following among its highest priorities: Operations to secure the U.S. Southern Border; Middle East operations; Golden Dome for America; Depot Maintenance; Shipbuilding; Critical Munitions.”

No surprise, that section adds, “As in every case, efforts supporting these activities may occur during a lapse when resourced with funds that remain available -- to include those provided in Pub. L. 119-21,” the OBBBA.

It turns out, the OBBBA had a section entitled, “Improving Department of Defense Border Support and Counter-Drug Missions.” That section provided an additional $1 billion for fiscal 2025 to be used “for the deployment of military personnel in support of border operations, operations and maintenance activities in support of border operations, counter-narcotics and counter-transnational criminal organization mission support.”

The need for U.S. southern border money for DoD was obvious. But back in July, who publicly was thinking of using DoD assets for “counter-narcotics and counter-transnational criminal organization mission support?” It was not until late August that the public learned of a U.S. Navy buildup in the southern Caribbean to combat drug trafficking, and the first so-called Venezuelan narco-boat was destroyed September 2.

Yet back in early June, it appears, the Trump administration sought and got Congress to approve fiscal 2025 funds to finance what have become these current Caribbean counter-narcotics military operations in the OBBBA. And the same words, “counter-narcotic and counter-transnational criminal organization” were used to describe the targets in justification letters sent the Congress after narco-boat destructions.

Three other of the “highest priority” elements mentioned in the DoD’s September 2025 Contingency Plan Guidance were also singled out in the OBBBA for allocation of funds from the extra $150 billion added to fiscal 2025 defense spending.

A section entitled “Enhancement of Department of Defense Resources for Shipbuilding” was allocated $29 billion. This included $750 million for additional supplier development across the naval shipbuilding industrial base; $500 million for advanced manufacturing techniques in the shipbuilding industrial base; $500 million for additional dry-dock capability; and $450 million for additional maritime industrial workforce development programs.

Another section for Trump’s Golden Dome missile defense program entitled “Enhancement of Department of Defense Resources for Integrated Air and Missile Defense,” was allocated $25 billion. This included $7.2 billion for the development, procurement, and integration of military space-based sensors; $5.6 billion for development of space-based and boost phase intercept capabilities; $2.55 billion for the development, procurement, and integration of military missile defense capabilities; and $2.2 billion for acceleration of hypersonic defense systems.

A third section of the OBBBA entitled “Enhancement of Department of Defense Resources for Munitions and Defense Supply Chain Resiliency,” also got $25 billion. This included $5 billion for investments in critical minerals supply chains; another $2 billion for additional activities to improve the U.S. stockpile of critical minerals; $1 billion for the creation of next-generation automated munitions production factories; $688 million for the development, production, and integration of long-range multi-service cruise missiles; and $300 million for the production of Army medium-range ballistic missiles.

As I mentioned above, there was another $170 billion for the Department of Homeland Security added to OBBBA and it is money available to be spent during the shutdown.

For example, there was $46.5 billion for elements for the new border infrastructure and border wall system; $45 billion for single adult alien detention capacity and family residential center capacity; and $6.2 billion for procurement and integration of new inspection equipment to combat the entry or exit of illicit narcotics at ports of entry and along the southwest, northern, and maritime borders.

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On the personnel side, there was $4.1 billion to hire and train additional Border Patrol agents, Office of Field Operations officers, Air and Marine agents, rehired annuitants, and U.S. Customs and Border Protection field support personnel; and another $2.1 billion to provide recruitment bonuses, performance awards, or annual retention bonuses to eligible Border Patrol agents, Office of Field Operations officers, and Air and Marine agents.

Another OBBBA provision provided $10 billion “to remain available until September 30, 2029, for reimbursement of costs incurred in undertaking activities in support of the Department of Homeland Security’s mission to safeguard the borders of the United States.”

Three other items need no explanation.

In the OBBBA there was $625 million for security and other costs related to the 2026 FIFA [Soccer] World Cup, and $1 billion for security, planning, and other costs related to the 2028 Olympics.

Finally, there was $300 million included for the Federal Emergency Management Agency (FEMA) to reimburse state or local law enforcement personnel “for protection activities directly and demonstrably associated with any [non-governmental] residence of the President.” That would cover, at a minimum, Mar-A-Lago in Florida, Bedminster Golf Club in New Jersey and Trump Tower in New York. According to one news story, Trump during his first four years in office traveled to his properties nearly 550 times.

Under this OBBBA provision, the reimbursement would be available only for costs that a state or local agency incurred or incurs on or after July 1, 2024; demonstrated to the FEMA Administrator as being in excess of typical law enforcement operation costs; and was directly attributable to Presidential protection requested by the U.S. Secret Service.

One has to admit that Trump and key members of his staff clearly did some advance planning when they put together the OBBBA – maybe they even foresaw a government shutdown.

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