Editor’s Brief1
Last week, we looked at Integrate Space Corporation, a Seattle-based software company building a multi-organization program-management platform.
This week, I mapped out the every dollar DoW had to spend in FY2026, traced from the bill that provided it down to individual programs, ships, flight hours and construction projects. Why? Well under a CR, the Department is authorized to spend at FY26 levels so I wanted a refresh on the budget.
As always, your feedback shapes our coverage—reply directly with insights or questions.
Signal Brief: Following the Defense Dollar
DoW had $1,016.3 billion to spend in FY2026. Congress provided $864.8 billion through the regular annual bills and the other $151.5 billion came from the 2025 reconciliation law (One Big Beautiful Bill) which was one-time money appropriated outside the normal committee process. That money supplied 31% of all research and development funding and a quarter of procurement for FY26.
With FY2027 under a continuing resolution, DoW spends at FY2026 rates until Congress passes a full-year bill. The FY2027 request would raise annual appropriations by $236.8 billion, to $1,101.5 billion, and asks for $350.0 billion in new "mandatory" money that requires another reconciliation-style law to be passed.
Key Takeaways
Reconciliation bought hardware and R&D. It supplied 31% of RDT&E and 25% of procurement, but under 2% of military personnel and 6% of O&M.
Golden Dome was funded entirely outside the annual bill. Its 17 budget lines total $21.1 billion in FY2026, and every dollar came from reconciliation.
Shipbuilding leaned on one-time money. Of $45.1 billion for Navy shipbuilding, $17.9 billion (40%) came from reconciliation, including $5.4 billion for DDG-51 destroyers and $4.6 billion for Virginia-class submarines.
Almost a tenth of the budget can't be seen. Classified programs account for $95.6 billion across R&D, procurement and O&M, about 9% of the total.
Appropriated is not spent. R&D money can be obligated over two years and procurement over three, so actual contract awards will trail these numbers well into FY2027 and FY2028.
SBIR is buried inside R&D. The 3.2% small-business set-aside is taken from each R&D program after enactment, so it never appears as its own line.
Where the money went
Operation and maintenance is the largest category at $311.6 billion, followed by procurement ($223.8 billion), RDT&E ($210.4 billion) and military personnel ($198.2 billion). Defense Health, military construction and revolving funds make up the remaining $72.3 billion.
The big numbers hide how little of each account is actually flexible. Follow one path in the chart: Navy O&M → operating forces → air operations. Of $16.7 billion for Navy air operations, $8.3 billion pays for the flying hours themselves, fleet air training takes $2.9 billion and aircraft depot maintenance $1.9 billion.
A reprogramming that goes looking for money in aviation O&M usually comes up short: the flying hour program absorbs most of it, and the rest is already committed to training and depot work.
The same is true across the budget. O&M, military personnel, the Defense Health Program, military construction and the revolving funds account for 57% of FY2026 funding, and nearly all of it pays for people, operations and facilities that already exist.
Add procurement, mostly contracts for ships, aircraft and munitions already in production, and about 80% of the budget is committed before anyone pitches a new idea.
That leaves RDT&E, about a fifth of the budget, and much of that is spoken for. More than half funds development and upgrades for existing programs, lines like Chalk Coral, which received $1.3 billion under a codename that means nothing unless you are already on the program.
The money a new company can realistically compete for sits mostly in research, technology development and prototyping, about $91 billion, and a large share of that is Golden Dome.
The reconciliation layer
The 2025 reconciliation law added $151.5 billion to FY2026, and it went to new systems, ships and industrial capacity.
DoW FY2027 budget exhibits: FY2026 discretionary enacted + P.L. 119-21 spend plan · excludes revolving funds ($4.2B, 49% reconciliation)
The largest single reconciliation line was Golden Dome space programs at $10.6 billion. An Industrial Base Analysis and Sustainment line managed by the Office of the Secretary of Defense received $10.5 billion, and the Navy's new Maritime Industrial Base Fund added $4.5 billion for submarine and surface-ship suppliers.
Market Signals
The budget lines most open to new entrants are the ones most dependent on reconciliation.
Line | FY2026 total | From reconciliation |
|---|---|---|
Defense Innovation Unit (3 lines) | $2.65B | $2.22B (84%) |
Lines with "unmanned" in the title (32 lines) | $8.00B | $6.06B (76%) |
Maritime Industrial Base Fund | $4.54B | $4.54B (100%) |
Golden Dome (17 lines) | $21.09B | $21.09B (100%) |
The main open pool is prototyping (6.4), at $42.4 billion. Software and digital technology pilots (BA-8), the budget activity built for faster software buying, total just $1.6 billion, under 1% of R&D. AI funding is mostly embedded inside larger program lines rather than carried as its own line, so the exhibits understate it as well.
Looking Ahead
FY2027 began on October 1 under a continuing resolution (Division A of P.L. 119-103) that runs through December 11, 2026. It funds DoD at the rate of the FY2026 annual bill so the $864.8 billion in appropriations is the current baseline. OMB doles that out in proportion to time, so for the CR's 72 days DoD gets roughly a fifth of a year's money.
A CR generally blocks a few things:
New starts. Section 102 bars funding to begin procurement, construction or R&D on anything that was not funded in FY2026 or earlier. "New" is judged line by line and by type of money, so an existing program moving from R&D into its first production buy is also a new start. Things like the Army's HADES surveillance aircraft ($131.7 million requested), initial procurement of the Navy's CPS hypersonic missile, and the Air Force's Large Aircraft Survivability Systems.
Production increases. DoD cannot buy at a higher rate than FY2026 funding sustained which means things like the FY2027 request's step-up in THAAD interceptor production ($921.9 million) can't ramp up.
New multiyear contracts. DoW cannot start a multiyear procurement that relies on advance buys of parts in bulk.
However, the DoW carves-out money to cover cost growth on Navy ships already under contract, up to $2.85 billion for National Security Systems in Defense-wide procurement, and issued one new-start exception for a combat medic training complex at Joint Base San Antonio.
The CR only governs new FY2027 money. Money Congress already provided keeps its own expiration date.
FY2026 R&D money is two-year money. RDT&E appropriated in FY2026 can be obligated through September 30, 2027, and procurement through 2028 (shipbuilding longer). Unspent FY2026 R&D can still go on contract during the CR. O&M is one-year money, so FY2026 O&M expired on September 30.
SBIR can still be awarded. The SBIR (3.2%) and STTR (0.45%) set-asides are carved out of each component's R&D budget, so the FY2026 pools are also two-year money. Because the SBIR program lapsed until the reauthorization in April 2026, what ever didn't get obligated in FY26 remains available into FY2027.
Reconciliation money is outside the CR entirely. The $151.5 billion from the 2025 reconciliation law was provided as mandatory funding available through September 30, 2029, so whatever DoW has not yet obligated can still be spent at whatever pace DoW chooses.
Example: the Defense Innovation Unit. DIU can keep funding projects, but the CR does little for it. Of DIU's $2.65 billion in FY2026, only $0.42 billion came from the annual bill which gives them about $85 million over 72 days. The other $2.22 billion came from reconciliation and stays available through 2029.
FY2027 requests
DoW Comptroller FY2027 budget exhibits: FY2026 discretionary enacted + P.L. 119-21 spend plan vs. FY2027 discretionary and mandatory request
Bottom Line:
The $1 trillion headline is not the market. About 80% of FY2026 funding paid for people, operations, facilities and production lines that already exist, and more than half of what was left in R&D went to existing programs. The money a new company can realistically compete for, research, technology development and prototyping, came to about $91 billion, roughly 9% of the budget.
The lines most open to new entrants leaned hardest on the 2025 reconciliation law: 84% of DIU's funding, three-quarters of unmanned systems and all of Golden Dome. The FY2027 request assumes it continues with $350 billion in new mandatory funding, but none of that is law.
What to do with this:
Founders: find the FY2026 budget line that funds your work. If one exists, the CR does not stop you. If your customer is spending reconciliation money, ask when it expires and whether FY2027 renews it.
Funders: size markets from budget lines, not the topline, and treat reconciliation-funded demand as renewal risk.
Fighters: a bigger topline does not create room for new entrants unless it arrives as flexible money.
Methodology and sources
All figures are FY2026 total obligational authority from DoW's FY2027 budget exhibits: the "FY 2026 Discretionary Enacted" columns plus the "FY 2026 PL 119-21 Spend Plan" columns. Guard and Reserve accounts roll into their parent service, Defense-wide spending is grouped by agency, and procurement counts "Add" lines only. FY2027 figures are DoW's request, not enacted law.
DoW Comptroller budget materials: FY2027 M-1, O-1, P-1, R-1, C-1 and RF-1 exhibits
1 The views expressed in this newsletter are my own and do not represent the views of the U.S. Navy, Department of Defense, or any government agency. Mention of companies, technologies, or products is not an endorsement or recommendation. The content is for informational purposes only and should not be considered investment advice.
