United States: Holland & Knight Defense Situation Report: March 2024

A monthly roundup of defense policy news

Welcome back to Holland & Knight's monthly defense news update. We are pleased to bring you the latest in defense policy, regulatory updates and other significant developments. If you would like additional information on anything in this report, please reach out to the authors or members of Holland & Knight's National Security, Defense and Intelligence Team.

LEGISLATIVE UPDATES

Defense Appropriations

After months of negotiations that began late last summer, Congress completed the fiscal year (FY) 2024 appropriations process, fully funding the federal government through the remainder of the fiscal year ending Sept. 30, 2024. Throughout the process, Congress passed four continuing resolutions (CR) of FY 2023 funding since Oct. 1, 2023. The final CR funded the government in two laddered steps, with six of the 12 appropriations bills – including the Military Construction, Veterans Affairs, and Related Agencies Appropriations Act – expiring on March 8, 2024, and the other six, including the defense bill, expiring on March 22, 2024. The first "minibus" package of appropriations bills, H.R. 4366 (P.L. 118- 42), the Consolidated Appropriations Act, 2024, was signed into law by President Joe Biden on March 9, 2024, and the second minibus of appropriations, H.R. 2882 (P.L. 118-47), the Further Consolidated Appropriations Act, 2024, was signed into law by President Biden on March 23, 2024. The FY 2024 Defense Appropriations bill included a total funding agreement of $825 billion when accounting for mandatory funds, according to the measure's joint explanatory statement. This funding is an increase of $26.8 billion above FY 2023 funding levels.

The defense appropriations bill faced many of the same obstacles in the Senate that the National Defense Authorization Act (NDAA) faced. In the Democrat-controlled Senate, the House's version of the defense appropriations bill faced steep opposition for its inclusion of contentious social issues and the pared-down efforts to send aid to Ukraine. Further, President Biden vowed to veto legislation that cuts down on or defunds the Pentagon's diversity programs or rescinds Pentagon policies that provide support for servicemembers seeking gender-affirming care, abortions or other reproductive healthcare. At the end of the day, most of these policy riders were left out of the defense appropriations bills. Though the measure did include $300 million for Ukraine Security Assistance, this is a small portion of what the Biden Administration requested and what was included in the Senate's emergency supplemental package that has not received a vote in the House, which you can read more about in the February 2024 Holland & Knight Defense Situation Report.

The federal government's FY 2025 begins on Oct. 1, 2024, and Congress has already begun the appropriations process for the next fiscal year. Because Congress is unlikely to pass the FY 2025 bills before the end of the calendar year and before the next Congress begins on Jan. 3, 2025, uncertainties are already present. Notably, the chair of the House Appropriations Committee, Rep. Kay Granger (R-Texas), who already announced her retirement from Congress at the end of her term, declared her descension as chair after Congress passed the FY 2024 bills and signaled that it is best that the committee is served by someone who will be in Congress next year. The Holland & Knight Defense Situation Report will continue to keep readers updated on the appropriations process.

Innovation Wins in Defense Appropriations Bill

The Defense Appropriations bill provides nearly $1 billion for the Defense Innovation Unit (DIU), which focuses on leveraging new commercial technology adaptation for the U.S. military, signaling the U.S. Department of Defense's (DOD) need to innovate and provide technologies quickly to U.S. armed services and combatant commands. This funding is nearly $842 million over the president's budget request to Congress that was sent in March 2023 and includes $589 million to accelerate DOD investments in innovative, commercial technologies with direct fielding of technologies to warfighters.

Similarly, the Office for Strategic Capital (OSC), a relatively new DOD organization that was first highlighted in the December 2022 Holland & Knight Defense Situation Report, will receive the budget authority for more than $900 million in loans to support the defense industrial base, which includes safeguards from Congress for the DOD to ensure that the loans and loan guarantees are provided only to companies with strong financial records. The OSC will seek to connect companies developing critical technologies vital to national security with capital. These technologies – which include advanced materials, next-generation biotechnology and quantum science – often require long-term financing to bridge the gap between the laboratory and full-scale production, often referred to as the "Valley of Death" in industry.

Finally, the bill provides $200 million to the DOD's Replicator initiative, which seeks to field thousands of autonomous, "attritable" systems across multiple domains within 18 to 24 months. This is the first time that Congress has provided the DOD authority to use appropriated funds on the new initiative, of which the details have been few.

NDAA Update

As covered in the December 2023 Holland & Knight Defense Situation Report, Congress passed the NDAA for FY 2024, the 63rd consecutive NDAA passage. The Senate and House passed the compromise measure on a bipartisan basis, and President Biden signed the bill into law on Dec. 22, 2023. The FY 2024 NDAA included a topline funding level of $886 billion, which matched the Biden Administration's budget request to Congress that was sent in March 2023. This also matches the topline funding level that appropriators set, though House Speaker Mike Johnson (R-La.) and Senate Majority Leader Chuck Schumer (D-N.Y.) have yet to announce if topline spending levels for defense appropriations will change. The topline funding level in the FY 2024 NDAA represents a $28 billion increase over levels in the FY 2023 NDAA. View the full text of the FY 2024 NDAA conference report.

Though it's always a feat to pass the annual NDAA, members of congress have turned their attention toward the FY 2025 NDAA. The House Armed Services Committee (HASC) accepted requests from its members from Feb. 1 to March 1, 2024. As such, HASC members solicited requests from stakeholders who want to influence the FY 2025 bill, having only a few weeks to submit requests to the committee before the internal deadline. Should you or your organization have any questions on the FY 2025 NDAA process, please reach out to the authors.

Congressional Hearings Coverage

The past month has been busy with House and Senate Armed Services Committees (SASC) beginning posture hearings on the Biden Administration's FY 2025 budget request to Congress. Leaders of armed services and defense agencies have begun to testify on behalf of their respective budget requests, and members of Congress have the chance to dive deeper into various funding lines. After these posture hearings, the HASC and SASC will write their annual NDAA legislation, and the House and Senate Appropriations Subcommittees on Defense will also author their bills.

While posture hearings are a time for the DOD's top brass to defend the Biden Administration's budget, armed services and combatant commands will also release their Unfunded Priorities Lists (UPL). Though DOD Comptroller Michael McCord has not yet formally confirmed the DOD's UPLs to Congress, a process that is required by statute, some UPLs have been made public by armed services and combatant commands. Congress has typically responded well to UPLs and generally includes additional items that have not been given the amount of attention deserved in an official president's budget request. However, it is still up to Congress to authorize and appropriate funding to the DOD.

HASC Hearing on Army Aviation Modernization

On March 6, 2024, the HASC Subcommittee on Tactical Air and Land Forces held a hearing on the U.S. Army's modernization plans, requirements and investments in aviation programs as part of the Army's recently announced Aviation Investment Rebalance. The subcommittee heard from DOD witnesses on how the DOD identifies and explains how this rebalance addresses the modernization priorities of the Army and how its leadership assesses and manages risk throughout the aviation portfolio.

A big topic of discussion covered the Army's Future Vertical Lift (FVL) effort and the cancellation of the Army's Future Attack Reconnaissance Aircraft (FARA) program. The cancellation of these programs has split reactions in Congress, mainly from delegations where the defense industrial base has traditionally supported these programs and where those members have suggested the companies and supported jobs will have a negative effect. The Army presented its reasoning for the FVL and FARA cancellations, citing evolving battlefield threats, industrial base concerns and the emergence of unmanned and joint capabilities. Members of the subcommittee expressed concerns about the loss of investment and potential gaps in capabilities but acknowledged the Army's commitment to maintaining situational awareness and combat effectiveness.

The discussion on FARA also highlighted the Army's decision to invest heavily in uncrewed aerial systems (UAS) and launched effects technologies, recognizing their significance in modern warfare. The Army plans to increase funding for UAS and counter-UAS (cUAS) programs and integrate them into future formations. Some members, including Subcommittee Chairman Rep. Rob Wittman (R-Va.), raised concerns about potential gaps in UAS capabilities due to the retirement of the RQ-7 Shadow, emphasizing the need for a swift and effective solution. Despite budget constraints, the Army expressed confidence in its ability to develop and field UAS and cUAS capabilities quickly, leveraging off-the-shelf technologies and existing authorities. Given the lessons learned in Ukraine and the exponential growth of UAS on the battlefield, as well as the cUAS systems that must be developed in tandem, Rep. Wittman also put forth the idea of establishing a Drone Corps within the Army that specializes in UAS. Members of the subcommittee and DOD witnesses affirmed their commitment to supporting the Army's modernization efforts through flexible acquisition authorities and increased funding agility, highlighting the shared goal of ensuring the Army remains a preeminent global force.

First Hearing on DPA Reauthorization

On March 12, 2024, the National Security, Illicit Finance, and International Financial Institutions Subcommittee of the House Financial Services Committee held a hearing to review and consider the 54th reauthorization of the Defense Production Act of 1950 (DPA) (P.L. 81-774, 50 U.S.C. §§4501 et seq.), as amended. Discussion focused on the purpose of the DPA's enactment and looking at what members of Congress and witnesses believe should be included based on their experiences in an authorization. Notably, witnesses highlighted the gaps in the supply chain, urging Congress to make reforms. There was bipartisan agreement on the need to reauthorize the DPA; however, testimony varied on how narrowly "national security" should be defined. Testimony primarily centered on the need for the reauthorization to focus more effectively on national defense and an indispensable public system. Additionally, debate centered around the DPA drifted from focusing on national defense events to non-defense emergencies, such as the COVID-19 pandemic.

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