Earlier this week, the Biden-Harris administration released their budget request for the 2025 federal government Fiscal Year (FY). If you are familiar with the process at all, you know that this is a request and the entire final budget does not get accepted for quite some time, if even partway into the next Fiscal Year. However, this request speaks to the administration’s intentions for the next year, and you can get a glimpse at upcoming or recurring initiatives, and which agencies will have increased or decreased funding.
Let’s talk about the 2025 budget request and what trends we can see, and how it may impact the government contracting marketplace over the next year.
Federal Budget Requests
It may have been a long time since you learned about U.S. government in school, and you may be asking the same questions I did when first learning about the federal budget process. So let’s briefly cover these. First, why are they proposing the budget so early for 2025? The federal government FY starts October 1, so we are already halfway through FY 2024. Next, what exactly is the federal budget process and why are we still passing appropriation bills for 2024 spending?
Federal agencies first need to create budget requests and submit them to the White House Office of Management and Budget (OMB). The OMB develops the budget proposal and sends to the president, and then they submit it to Congress (which is the stage we are in now for FY 2025). The proposed spending is split among 12 subcommittees which hold hearings about each government function. But then both the Senate and House of Representatives have to create their own budget resolutions and pass a single version of each funding bill, which is where a lot of the bills get hung up until a stopgap funding bill is passed to avert a shutdown. After they are approved, they go to Congress to sign and are sent off to the President.
There’s a long way to go for the FY 2025 budget and it’s bound to change, but again, it still gives us the big picture overall for federal government initiatives and priorities.
Federal Discretionary Spending for FY 2025
Discretionary spending is something to pay attention to in the federal budget request. This is the part of the budget that must be appropriated by Congress each year, and includes actions such as defense and civilian salaries, public housing, federal aid for K-12 education, transportation, and environmental organizations. This differs from mandatory spending (or entitlement spending), which is set for programs such as Social Security or Medicare/Medicaid that is not approved by Congress each year.
Out of the $7.3 trillion proposed overall, the Biden administration wants to increase defense discretionary spending by $37 billion ($895 billion) and decrease civilian discretionary spending by $26 billion ($621 billion).
Most agencies are requesting a budget increase, but overall civilian discretionary spending is down mainly due to proposed reductions at the Department of Veterans Affairs (VA) and Department of Transportation (DOT). The VA, DOT, Army Corps of Engineers, and Department of Justice (DOJ) are requesting less money in 2025 than they’ll most likely receive in 2024.
The total discretionary spending for 2025 is $1.63 trillion which is a slight increase from $1.6 trillion in 2024.
FY 2025 Defense Budget
The defense budget is always a hot topic of conversation, especially because it makes up a good portion of the overall budget. The Defense Department is requesting $849.8 billion, including more discretionary money to enact the 2022 National Defense and Security Strategies. The budget breakdown is $167 billion for procurement, $143 billion for research, development, testing and evaluation, and $339 billion for operations and maintenance.
Within this budget they are seeking a 4.5% pay raise for military service members, along with increased basic housing allowances and more accessible childcare.
Additionally, building up the Defense Industrial Base (DIB) is a key focus of the FY 2025 budget. If you are doing work with the DoD or plan to, this will directly affect you as a contractor.
Technology and AI Budget for FY 2025
The White House is requesting the lowest increase for the technology budget in over a decade, seeking only $75 million through the Technology Modernization Fund (TMF) compared to $200 million in 2024 and $300 million in 2023. The TMF has been a controversial topic since its creation, as some lawmakers have suggested zeroing it out in FY 2024 and years prior.
However, the federal civilian IT budget request overall was $75.1 billion which is a bit higher than last year. The OMB is trying to balance the decrease in spending or flat funding through the expansion of some IT modernization sources. For example, the Federal Citizen Services Fund (FCSF) run by GSA is requesting $7 million more than last year ($97 up from $90).
Staying on Top of Government Contracting News and Updates
Budget requests, new initiatives, Executive Orders etc. are important to stay on top of because they can affect your contract and possibly open up new opportunities. However, we know it can be difficult to keep up with your GSA Schedule and fresh updates. To learn about future government contracting news and insights, check out our monthly newsletter and weekly blog subscription. If you need help with your GSA Schedule, one of our consultants would be happy to help you.
