Bernstein argues that the biggest discrepancy between current expectations and reality is the simultaneous existence of two contradictory phenomena: a significant increase in the US Department of Defense's fiscal year 2027 defense budget, while the actual short-term available funds are declining.
The House Appropriations Committee's version of the fiscal year 2027 base defense budget is approximately $1.07 trillion, with investment accounts directly related to defense industry revenue, such as procurement and R&D, growing by about 9% year-over-year. However, the continuing resolution (a temporary short-term appropriations bill) only extends the previous year's base appropriations and does not automatically extend the additional funding provided through the settlement process in 2026.
Thus, the continuing resolution effectively freezes Department of Defense funding at approximately $839 billion. Only after adding approximately $161 billion in additional settlement funding in fiscal year 2026 will the total approach $1 trillion. Therefore, at the beginning of fiscal year 2027, the defense budget is actually about 16% lower than the full fiscal year 2026 budget.
