Government Contracting and the Federal Budget

Track agency funding from allocation to contract

April 25, 2023

Building your government contracting pipeline requires a firm grasp on addressable markets and aligning your organization’s capabilities with federal agencies’ procurement needs.

Bloomberg Government analysts have recently found that the federal industrial base is shrinking. Even as contractors are asked to respond efficiently to increasingly complex requirements and crises, the count of prime vendors participating in federal procurement processes dipped below 100,000 last year for the first time in at least a decade.

When things are changing rapidly, what does your market look like, and how can you plan for success in an evolving industry? By understanding and tracking the flow from ideas to money – from the laws and policies established at the highest levels of government to actual contract spending.

[For the complete picture on government contracting trends, plus details on top markets of growth and BGOV’s top 20 opportunities, download our FY 2023 Government Contracting Playbook.]

What impacts federal procurement?

In a shrinking federal market, with agencies relying on larger contract vehicles on longer timelines, knowing how to spot opportunities and track agency trends is key. Many issues can impact procurement markets, including top-level government decisions, internal agency policies, and external factors.

Decisions affecting procurement happen at the highest levels of government and funnel down to the decisions contracting officers make.

  • Laws, policies, executive orders: A presidential policy directive, new law, or executive order can have a significant effect on the contracting landscape. As a recent example, the Biden administration launched the Made in America Council in January to help maximize the domestic content of federal purchases as agencies implement administration initiatives.
  • Agency missions and strategic plans: When considering new openings in a specific market, look at an agency’s internal goals and objectives. If you’ve previously worked with one agency component, considering its overall mission and goals can help you understand how to serve other components’ procurement requirements. For example, sustainability is a growing influence on agency actions in the future as the Biden administration directed major agencies to create climate adaptation and resilience plans that integrate with their overall mission.
  • Specialized funding vehicles: Examples include the Technology Modernization Fund, which offers support for federal IT modernization to “enable agencies to reimagine the way they use technology to deliver their mission and services,” and Polaris, a governmentwide acquisition contract (GWAC) aimed at acquiring customized IT services and solutions from small businesses.

How have external factors affected the 2023 federal budget allocation?

External factors have a strong influence on federal budget allocation and spending, and the past few years have been rife with unique world events that shape the way federal government agencies operate and spend money.

  • War in Ukraine: The U.S. has been sending more DOD employees to Europe since February 2022, as part of the NATO response to Russia’s invasion of Ukraine. The deployment of troops and civilians requires logistics, material training, and facilities support, which has created a rise in federal government IT spending, as well as spending on professional services.
  • Covid-19 spending: On the flip side, after two years of bolstering federal contract spending, Covid-19-related procurement spending has dramatically declined. In 2021, that increased spending on Covid-related goods and services was significant enough to boost 2021 spending higher than 2019 spending. 2022 Covid spending did not keep pace with the previous two years, and that has impacted overall spending.
  • Inflation: Goods and materials currently cost more, due in part to supply chain issues. Supply prices are increasing, which will continue to feed into the cycle of rising prices overall. This also turns logistics and supply chain into a key market to keep an eye on.

What is the projected topline number and economic landscape for FY24?

On March 9, 2023, the Biden administration released the proposed federal budget for FY24, which lays out the recommended funding levels for agencies and programs. The proposed FY24 budget is $6.9 trillion, which is a $1.1 trillion increase from FY23’s proposal. GOP officials have criticized the FY24 budget for a high deficit-to-GDP ratio, tax proposals for high-income earners, and monies allocated for mandatory spending. In the coming weeks, Republican lawmakers are projected to write and release their own budget proposal, with expected cuts to federal spending.

Biden’s budget proposal outlines changes in federal spending and taxes that would reduce the deficit by about $3 trillion over a decade. The administration’s request projects that inflation will cool to 4.3% by the end of 2023 and then drop to 2.3% in future years, which is comparable to what economists are forecasting. Also aligned with private estimates, the Biden economic team projects that the U.S. economy will expand .6% in 2023 and 1.5% in 2024.

What are some of the biggest proposed legislative changes to watch in FY24?

A host of tax changes is at the center of the Biden administration’s deficit reduction plan. Some of the biggest changes would apply to investors and high-income taxpayers. Biden’s proposal almost doubles the rate of capital gains tax to 39.6% from 20% for people earning $1 million+ and applies a surcharge for Medicare, which would increase the 3.8% tax enacted under Obamacare to 5% for those earning over $400K. These two proposals taken together would mean that some of the wealthiest taxpayers would pay about a 45% federal rate on their investment income and other earnings.

What are the proposed mandatory funding priorities for FY24?

Under the proposed FY24 budget, mandatory funding priorities include improving health care, education, and childcare. Biden intends to raise Medicare tax rates to 5% for persons making above $400k to extend Medicare’s trust fund solvency by 25 years. To further bring down Medicare spending, he proposes to expand drug pricing changes that were included last year in the Inflation Reduction Act. This would include extending the inflation rebates to the commercial market and expanding the number of drugs that will face government negotiations. The Biden administration also hopes to expand access to childcare and universal preschool, in addition to providing free community college and paid family and medical leave.

What are the proposed discretionary funding priorities for FY24?

Defense spending would rise 3.3% and nondefense spending 6.5% in FY24. Within the $886 billion budgeted for defense, the DOD would be the largest recipient of funds; however, monies would also be allocated to other agencies, like the DOE’s nuclear programs. Biden’s FY24 proposes to allocate $1.7 trillion among cabinet-level departments. Education would get a 13.6% increase, HHS would get a 11.4% increase, Treasury would get a 15% increase, the EPA would get a 19.2% increase, and the National Science Foundation would get an 18.6% increase.

What are the top markets to watch in FY23 and FY24?

Key takeaways are that many factors impact federal procurement and markets, from laws and policies to agency-level missions, to completely external factors.

Bloomberg Government has identified these six markets as sources of contracting opportunities during a time of continued contract and industrial base consolidation:

  1. Cloud computing: 114% market growth since fiscal 2017.
  2. Artificial intelligence: 225% market growth since fiscal 2017.
  3. Logistics and supply chain: 7.4% market growth since fiscal 2017.
  4. Business management and financial services: 42% growth since fiscal 2017.
  5. Facilities services: 11% growth since fiscal 2017.
  6. Digital services: 68% growth since fiscal 2017.

[For more detailed coverage and analysis of these for contract opportunities, see our on-demand webinar.]

[Access our Defense Budget Breakdown for more detailed coverage and analysis of defense contracting opportunities.]

What are key agencies to watch in FY24?


The White House proposed $842 billion for defense for FY24, which is a 3.2% increase from last year. Focus would be on deterring China’s influence in the Pacific region, shoring up nuclear defenses, and providing support to Ukraine. If passed, the DOD would receive one of the largest-ever peacetime budgets when adjusted for inflation. The president proposes $37.7 billion for the DOD to maintain the nuclear deterrent triads, including missiles and submarines; $9.1 billion for the Pacific Deterrence Initiative to support allies in the region; and $6 billion to support Ukraine, NATO, and regional partners to counter Russia. In the proposal, there is a suggested 5.2% pay increase for servicemembers and the civilian workforce, in addition to fully funded recommendations from the review of sexual assault in the military.

Health and Human Services

The Biden administration is seeking $144 billion – an 11.5% increase in spending – for the largest nondefense discretionary agency. $22.5 billion would go toward existing early care and education programs, and $13.1 billion is allocated for Head Start, a $1.1 billion increase since last year. The proposed FY24 budget has $7.3 billion for the Office of Refugee Resettlement, plus an emergency contingency fund to give additional resources if there is an unanticipated increase in the number of unaccompanied children and other refugees into the U.S. There would be a 79% increase to the Title X Family Planning program, and $10.5 billion in discretionary funds for public health capacity at CDC and states.

Homeland Security

The proposed budget for Homeland Security is $60.4 billion. In the Trump administration, funds for this department were contended, as there was a fight over funding for the border wall and security. With a GOP majority in the House, this is set to be another contentious area, with major disagreements over how to respond to migrant surges and encounters at the U.S.-Mexico border. This budget calls for about $25 billion for Customs and Border Protection (CBP) and Immigration and Customs Enforcement (ICE), including $535 million for border security technology for ports of entry and funds to hire 350 border patrol agents. There is also $4.7 billion for a new contingency fund to respond to migration surges along the Southwest border. The idea is that Congress would appropriate money incrementally and then CBP and other agencies will be able to draw on those funds to respond to surges as they arise. $865 million would go to U.S. Citizenship and Immigration Services (USCIS) to reduce the immigration benefit request backlog and improve processing to advance the administration’s goal of admitting 125,000 refugees.


From FY23 to FY24, the Treasury is slated to increase by 15%, with a proposed budget of $16.3 billion. The budget calls for $14.1 billion for the IRS alone, which is a $1.8 billion increase from last year. $642 million would be allocated toward expanding customer service outreach and taxpayer experience, and $290 million would go toward the IRS business systems modernization to accelerate their digital tools. $341 million would be budgeted for the Community Development Financial Institutions (CDFI) fund to provide low-income and underserved communities access to credit, capital, and financial support. $332 million would go to restoring staffing to the core police offices to 2016 levels.

Environment Protection Agency

The EPA has a record-high proposed budget of $12.1 billion, showing a 19.2% increase from last year. Republican officials are already pushing back. The funding would go toward a range of environmental priorities, including $5 billion for greenhouse gas emission reductions and climate resiliency, $4 billion for drinking water infrastructure upgrades, $1.8 billion for environment justice initiatives like Justice40, $356 million for the Superfund program to clean up contaminated lands, $219 million for lead service line replacement, $170 million for PFAS remediation and research, and funds to hire 2,400 employees.

How can I track the latest contracting news and budget allocation trends?

Bloomberg Government offers essential tools, news, and analysis to help you find the right opportunities for your mission.

Size and scope your addressable market by using our Contracts Intelligence Tool to learn which agencies need your products and services the most.

Use our Opportunity Search tool to find or exclude keywords in documents attached to solicitation notices, so you can more easily discover the most relevant opportunities.

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