The Fiscal Responsibility Act (FRA) and how it Effects Government Spending

Over the last couple of months, there has been quite a bit of news regarding the recently passed Fiscal Responsibility Act (FRA) which raised the US Government debt limit until January 1, 2025. Vendors who sell to the US Government are wondering what effects this bill will have on Federal spending in the coming years, and how best to plan and execute their Government go to market sales strategies.

At a high level, the Fiscal Reduction Act increases the federal debt limit, established new discretionary spending limits, rescinds unobligated funds, and modifies other requirements related to the federal budget process (H.R.3746 - 118th Congress (2023-2024): Fiscal Responsibility Act of 2023 | Congress.gov | Library of Congress).

As it has been passed this bill (more on this later) caps the Government’s discretionary spending levels for FY24 and FY25 for both Defense and Non-Defense discretionary spending.

As you can see, Defense spending will increase each year while Non-Defense spending will decrease around 9% for FY24 and 8% for FY25.  For the budgets FY26 through FY29, a single limit on overall discretionary spending in each year would be applied via the Congressional budget process, allowing lawmakers to raise points of order if proposed spending exceeds the limit for that particular year (The Fiscal Responsibility Act of 2023: Budget Cost Estimates of the Debt Ceiling Agreement — Penn Wharton Budget Model (upenn.edu)).

Overall, the FRA has been estimated to reduce the budget deficit by approximately $1.3B over a 10 year period (Note the current US Budget Debt is $31.4 trillion).

What to watch for in the coming months:

Congress and Federal agencies are in full appropriations (budget) mode at this moment, reviewing budget requests, hearing justifications, and negotiating agency funding levels with a deadline of Sept 30th to have the new budget passed to avoid either a continuing resolution (essentially funding agencies at their current level) or a complete Government shutdown.

These next few months will decide the fate of new projects and spending for each agency, so keep a close watch on your focus agencies to understand how they fair in the budget battles.  Early estimates show that winners in the budget battle are predicted to be Defense, Military Health, Veterans, and Department of Homeland Security all receiving budget increases for FY24.

Another item to watch closely is the US House of Representatives as some members are pushing to reduce spending to levels lower than the agreed upon caps outlined in the Fiscal Responsibility Act. The Senate appears to be following the agreed up caps which will likely set up a stalemate which could lead to a Government shutdown.

More to follow as this process is just getting started.....