Welcome back to Washington where funding the government prior to the beginning of the fiscal year may take top billing, but behind the scenes the Armed Services Committees will begin work in earnest to conference the Fiscal Year (FY) 2024 National Defense Authorization Act. This annual bill contains many “must-pass” provisions related to the Department of Defense and includes sections that impact different areas of the U.S. economy and international security.
On July 27, the Senate voted 86-11 to approve its version, FY24 NDAA. The Senate vote follows the House, which approved its measure by a 219-210 vote on July 14. Having passed each of their respective bills, the chambers can now move to begin their formal conference process and eventual passage of a conference report, likely toward the end of the calendar year.
The NDAA is the seminal piece of legislation by which Congress fulfills its obligation under Article 1 Section 8 of the Constitution to “provide for the common defense” of the United States. This year, both bills would authorize $886.3 billion in total defense discretionary spending for FY24 defense programs at the Department of Defense (DOD), the Department of Energy (DOE), National Nuclear Security Administration (NNSA) and other agencies. However, House and Senate markups of their respective bills led to different programmatic funding levels.
During the formal conference process, members will have to ensure their funding tables are aligned and agree on which provisions will remain in the final version of the bill. Below, we detail key areas and provisions of interest included in the House and Senate versions of the bill and discuss the process moving forward.
China:
Issue areas surrounding strategic competition with China continue to gain the most bipartisan attention and traction within Congress. Across both bills, there are more than 37 provisions directly addressing China and many more indirectly targeting Chinese Communist Party objectives. One of the most high-profile provisions was the Sens. John Cornyn (R-TX) and Bob Casey (D-PA) amendment known as the “Outbound Investment Transparency Act.” This provision adds a new title to the Defense Production Act that would require U.S. persons to notify the Treasury Secretary of specific investments into China. Adopted by a vote of 91-6, these investment areas include semiconductors, quantum computing, satellite-based communications, and artificial intelligence.
On Aug. 9, President Biden signed an Executive Order (EO) allowing more strict measures to prohibit investments by U.S. citizens into countries of concern. Compared to the Sens. Cornyn and Casey NDAA provision, the EO more narrowly defines critical technology sectors for national security but better enables regulations for outbound investments. Brownstein provides a more in-depth analysis of the EO here.
The ability of foreign nationals from China, Iran, Russia and the DPRK to purchase farmland in close proximity to U.S. military facilities was another concern for Congress. In the House, Reps. Ronny Jackson (R-TX) and Keith Self (R-TX) introduced a provision to require a report on foreign-owned agricultural land within 50 miles of a U.S. military installation. This concern was matched in the Senate where Sen. Mike Rounds (R-SD) led a bipartisan group of 11 senators in submitting a provision to prohibit China, Russia, DPRK and Iran from purchasing U.S. farmland and agricultural companies without a presidential waiver presented to Congress. The House adopted Rep. Jackson’s provision by voice vote and the Senate adopted Sen. Rounds’ by a vote of 91-7.
Congress also took aim at Chinese influence over fentanyl trafficking into the United States. Included in the House bill, the Secretary of Defense is required to determine the involvement of the People’s Republic of China in assisting in the trafficking of fentanyl by Mexican drug cartels. The Senate bill also includes the FEND Off Fentanyl Act, which targets precursor chemicals sourced from China and imposes sanctions on organizations trafficking these substances.
A bipartisan group in the Senate also moved to end China’s developing nation status. A bipartisan provision introduced by Sen. Mitt Romney (R-UT) and adopted by voice vote would make it the policy of the United States to oppose the labeling or treatment of China as a developing nation. This provision follows the House passage of the PRC Is Not a Developing Country Act by a vote of 415-0 in March, which directs the Secretary of State to take actions to prevent China from being classified as a developing country by international organizations.
Congress included provisions to deter and limit further Chinese aggressions in the Indo-Pacific in both the House and Senate bills. Consisting of investments to enhance the force posture, infrastructure and readiness of the United States and regional allies, the Pacific Deterrence Initiative (PDI) received significant funding in each bill. The Senate bill would match the $9.1 billion requested for the PDI in March while the House bill would authorize $9.7 billion. Both bills also include provisions blocking sales of oil from the Strategic Petroleum Reserve to China, Russia, the DPRK and Iran.
Strategic competition with China continues to be an issue area gaining the most attention from lawmakers, private industry and the press. These provisions will be significant areas of debate prior to the release of the final conference report.
CHIPS:
Semiconductors have seen a significant rise in attention across all sectors in the United States. Coinciding with Congress’ passage of the CHIPS and Science Act to counter Chinese technological influence and increase domestic manufacturing, Congress has intensified semiconductor-oriented national security efforts through NDAA provisions.
In the House, Reps. Mike Gallagher (R-WI), Paul Gosar (R-AZ) and Stephanie Bice (R-OK) each introduced provisions assessing the security of critical mineral supply chains for semiconductor manufacturing and designating phosphate, copper and uranium as critical to national security. Rep. Colin Allred (D-TX) introduced a provision to improve emerging technology partnerships in the Indo-Pacific with Australia, the UK, Japan, the Republic of Korea, India and ASEAN security partners. These partnerships are intended to strengthen allied technology strategies and include microelectronics, cybersecurity and artificial intelligence.
In the Senate, Sen. Mark Kelly (D-AZ) introduced a bipartisan provision to improve domestic semiconductor manufacturing capabilities with the support of eight co-sponsors. Known as the Building Chips in America Act, this provision assists companies seeking to develop microchip manufacturing in the United States by allowing them to bypass a new federal review under the National Environmental Policy Act (NEPA). As these projects have already received necessary state and federal environmental permits, new NEPA reviews are seen as redundant and would delay already ongoing construction projects. Included in the Senate managers package, this provision was adopted by a vote of 94-3.
Drones:
Responding to the devastating effects of drone operations in the war in Ukraine, Congress is developing a bipartisan strategy for U.S. drone procurement and implementation. In both bills, the House and Senate adopted provisions on topics such as reporting the opportunities and dangers that unmanned aerial systems pose to U.S. security interests and safeguarding drone supply chains and operations from foreign influence. While the House adopted provisions assessing the threats of unmanned aerial systems, the Senate adopted Sen. Rick Scott’s (R-FL) American Security Drone Act (ASDA) provision to combat security concerns from Chinese-manufactured drones being utilized by the U.S. government. With such companies as DJI, the world’s largest drone manufacturer, on both the Entity List and Chinese Military Industrial Complex Company list in the United States for gross human rights violations, they are a direct concern for U.S. security objectives.
Adopted by voice vote in the Senate, the ASDA provision would prohibit federal departments and agencies without proper waivers from procuring drones manufactured in nations deemed national security threats. Federal departments operating drones currently originating from these nations would be required to follow a timeline for ending their employment. The provision also includes a ban on federal grant dollars from being used by state and local governments for the purpose of procuring these systems.
Similar provisions to the ASDA have been adopted in previous pieces of legislation, such as in the Senate’s FY23 NDAA and the U.S. Innovation and Competition Act (USICA). While they have so far failed to pass into law, current congressional focus on drone operations and security will lead to a robust discussion on the ASDA during the conference process.
F-35 Engine Upgrade:
While there has been debate surrounding the future of the F135 engine, Congress and the administration believe they should maintain the trajectory of upgrading the stealth fighter’s current engine to meet future demands. Prior to the House NDAA floor debate, the Executive Office of the President released a Statement of Administration Policy (SAP) outlining the administration’s position on several NDAA provisions of concern. In the SAP, the administration stated it “strongly opposes the authorization of $588.4 million” for an alternate engine program (AETP). Instead, the administration cited the F135 Engine Core Upgrade (ECU) as a “more affordable and common solution across all three F35 variants.” While the House NDAA did include $588.4 million for AETP funding, the Senate version did not authorize any funding for the program. The House and Senate Defense Appropriations subcommittees also included sections prohibiting the appropriation of funds for an alternate engine on any F-35 aircraft (Sec. 8134, Sec. 8129), with both chambers including language prohibiting alternate engine funding from “this or any other Act.”
Ukraine:
The House and Senate bills make clear that engaging with Ukrainian and European security forces to support Ukraine is a key U.S. objective. Prior to the passage of their respective bills, funding and oversight for Ukraine security assistance were targets of criticism and debate from more conservative lawmakers. However, Congress expressed widespread support for continued transatlantic engagement and support for Ukraine through the overwhelming rejection of provisions that would critically limit U.S. partnership efforts.
In the House, Reps. Matt Gaetz (R-FL) and Marjorie Taylor Greene (R-GA) introduced provisions limiting federal funds from being transferred to Ukraine. The Gaetz provision would have prohibited the usage of any federal funds for security assistance to Ukraine and was rejected by a vote of 70-358 while the Greene provision to strike $300 million in Ukraine funding was rejected by a vote of 89-341. The Senate echoed the House’s support for Ukraine by rejecting similar provisions from Sens. Mike Lee (R-UT) and Bernie Sanders (I-VT) to cut funding for Ukraine by the votes of 13-71 and 11-88 respectively.
The push to increase oversight for U.S. funding to Ukraine received slightly more traction in the House, but was still a difficult issue in the Senate. Reps. Greg Steube (R-FL), Chip Roy (R-TX), Rich McCormick (R-GA) and Josh Breechen (R-OK) all introduced provisions to increase the Office of the Inspector General’s (OIG) ability to provide oversight of U.S. aid to Ukraine. These provisions, all adopted via voice votes, range from requiring oversight reports to Congress on U.S. assistance to Ukraine to expanding the hiring authority for the OIG and the United States Agency for International Development for matters relating to Ukrainian aid. In the Senate, Sen. Roger Wicker (R-MS) introduced a similar provision with Sen. Kyrsten Sinema (I-AZ) and four Republican co-sponsors to establish an Office of the Lead Inspector General for Ukraine Assistance to provide oversight, audits and investigations on U.S. funding for Ukraine. This provision was narrowly rejected by a vote along party lines of 51-48.
In response to the pressure the defense industrial base has faced since the conflict in Ukraine began, the Senate took action (Sec. 801) to expand the justification for multiyear contracts beyond projected cost savings to also include “industrial base stability.” If enacted, these new authorities will be welcomed by industry who may now be able to better anticipate demand and preserve supply chains to avoid munition shortages in the future. It does, however, set up a potential flash point with appropriators in the House who have been reluctant to approve multiyear procurement requests.
While Congress has expressed continued support for U.S. aid for Ukrainian security initiatives, the prospect of increased oversight has garnered more attention recently, and debates and compromises are expected during the formal conference process.
Social Issues:
One of the most difficult areas for the formal conference process will be managing the contentious provisions on a variety of health care and diversity, equity and inclusion (DEI) issues within the House version of the NDAA. While House Republicans were successful in including such provisions as limiting service member paid travel for abortion access, transgender affirming care and DEI programs, they are significantly opposed by the Democratic-led Senate and the White House. Navigating these so-called “culture war” provisions during the conference process will be critical to the ultimate result of the NDAA.
Chief among these contentious issues was Rep. Ronny Jackson’s (R-TX) provision to prohibit payments and reimbursements for service members seeking abortions. This would overturn current Pentagon policy that allows service members to be reimbursed for abortion-related travel. This has become an intensely unfavorable issue for Democrats concerned with service members stationed in states opposing abortion access following the Supreme Court’s overturning of Roe vs Wade. Rep. Matt Rosendale’s (R-MT) provision to prohibit TRICARE and Department of Defense coverage of sex reassignment surgeries and services was also identified as a nonnegotiable issue for Senate Democrats. With the Jackson and Rosendale provisions adopted in the House by votes of 221-213 and 222-211, respectively, they are set to be among the most contentious areas for the NDAA conference.
What to Expect:
These pressing issues are just a small sample size of each bill, both of which are around 2,000 pages not including the respective committee reports that accompany the bill text. The House is expected to go first in the process to name conferees and begin a formal NDAA conference, followed by the Senate. If agreed to, certain members across both chambers will be named as core and outside conferees to negotiate the many different provisions.
On Aug. 10, the White House released a $40.1 billion supplemental funding request to Congress in emergency funding for Ukraine, disaster relief and competition with China. The package includes funding requests for military aid to Ukraine, U.S. weapon stock replenishment, financing tools to counter China’s influence in developing countries and foreign military financing to support Taiwan. As discussed above, given the politics surrounding aid to Ukraine and the legislative time remaining to pass the annual appropriations bills, the prospects of passing such a supplemental appropriations bill remain to be seen and may impact total overall spending authorizations in the NDAA.
We expect Congress to work in a bipartisan and bicameral fashion to conference the NDAA and pass a final FY24 conference report before the end of the calendar year. The NDAA has been passed by Congress annually for 63 consecutive years and we have no expectation that this streak will be broken this year.
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