The 2026 Midterms and the National Security Outlook

The U.S. Congress returned following the midterm elections with very little time to address a significant national security to-do list, which includes negotiating and passing a conferenced fiscal year (FY) 2027 National Defense Authorization Act (NDAA) and resolving FY 2027 Pentagon funding levels. With Democrats preparing to take leadership by wide margins in both the U.S. House of Representatives and Senate next Congress and current Republican members looking to advance their party's priorities before handing over control, both of these efforts face an uncertain and politically complicated future.

Defense Budget and Appropriations

Congress adjourned before the election without a clear path forward on three major elements of Pentagon funding:¹

• FY 2027 discretionary budget request of $1.1 trillion, which would be enacted through the traditional appropriations process and require some degree of Democrat support in the Senate
• FY 2027 mandatory budget request of $350 billion, which would require enactment via the party-line budget reconciliation process led by the House and Senate budget and armed services committees
• FY 2026 supplemental funding request of $67 billion for operations related to the military conflict with Iran; supplemental funding has traditionally been enacted via the appropriations process and would require some degree of Democrat support in the Senate

The bifurcation of the FY 2027 budget request between discretionary funding within the jurisdiction of the House and Senate appropriations committees and mandatory funding within the jurisdiction of the House and Senate armed services committees is particularly complex because several major Pentagon programs were budgeted in-part, or even predominately within, the mandatory request. This includes $17.5 billion for the Golden Dome for America missile defense program, $47 billion for various munitions, $53.6 billion for the Drone Dominance initiative, $113 billion for defense industrial base infrastructure and capacity initiatives, and $6.7 billion for F-35 Joint Strike Fighter aircraft. This means that failure to enact the mandatory budget request, in part or whole, will require a significant rewriting of the discretionary budget in order for Congress to account for these priorities.

Although the House Committee on Appropriations passed its FY 2027 defense appropriations bill in June 2026, largely tracking to the administration's proposed topline, Senate appropriators have yet to release their version of the draft legislation largely due to strong opposition among Senate Democrats to the overall proposed defense topline and administration's military actions against Iran.

On budget reconciliation and the supplemental, congressional Republicans have to date failed to come to a consensus. In July, the House narrowly passed a budget resolution authorizing the House Committee on Armed Services (HASC) to propose $60 billion in spending intended to address urgent requirements related to the conflict with Iran, aiming to address the larger mandatory funding request in subsequent reconciliation legislation. The Senate has not yet considered a budget resolution to begin the reconciliation process this year or taken action on supplemental funding. Congressional Democrats broadly oppose providing additional funding for the Iran conflict.

The current continuing resolution (CR) funds the government through December 11, 2026, less than five weeks away. Prior to the election, several congressional leaders hoped to complete work on appropriations bills in December. However, since the election, some influential Democrats, including incoming Senate Committee on Appropriations Chair Patty Murray (D-Wash.), indicated a preference for an additional short-term CR into the new year when Democrats control both chambers.

Holland & Knight Insights: Defense Budget and Appropriations

• A lack of consensus among Republicans on whether to proceed with reconciliation, as well as strong opposition among congressional Democrats to the proposed overall defense funding topline and funding for the conflict with Iran, has prevented any significant progress toward a defense funding agreement that can pass both chambers. Democrat Congressional leaders, newly empowered by their large incoming majorities in both chambers, are less incentivized to negotiate a FY 2027 spending deal before taking power next year.
• A party-line Republican reconciliation bill seems increasingly less likely in the lame duck due to ongoing disagreements among congressional Republicans about the size and scope of a potential bill, as well as likely attendance issues among outgoing Republicans making vote counts unreliable. However, Senate Republicans reportedly approved a "sense of the conference" resolution during a closed meeting on November 10, 2026, urging the passage of a reconciliation bill before the new Congress convenes.
• Any discretionary defense appropriations bill absent separate reconciliation or supplemental funding will require difficult tradeoffs to fund key national security items that were included in the mandatory budget request or offset supplemental needs driven by expenditures in the Iran conflict. According to Politico in October, the Pentagon and defense appropriators were working on crafting a $1.1 trillion defense budget.
• Even enacting a new continuing resolution may prove difficult, with congressional Democrats increasingly signaling they may demand concessions such as cutting off all funding related to the Iran conflict, increasing the risks of a government shutdown. A year-long CR, which had never occurred for the Pentagon until FY 2025, is a distinct possibility this year as a negotiated agreement on FY 2027 defense spending levels looks increasingly difficult.

NDAA

The House passed its version of the FY 2027 NDAA in July 2026. The Senate was unable to progress the committee-passed version of the NDAA due to Democrat objections over the topline defense spending level and conflict with Iran. However, staff began conferencing their respective bills in September 2026. The "Big Four," the chairs and ranking members of the House and Senate armed services committees, currently intend to meet for the first time next week to negotiate outstanding items with a goal of producing a compromise version of the NDAA in the next couple of weeks. Any floor action on the NDAA is unlikely until December 2026 at the earliest.

Major issues to be resolved in the NDAA include:

• Overall Defense Spending Authorization Level. This is a contentious issue in both committees' markups and likely the most difficult issue to resolve.
• Iran Restrictions. Many Democrats argue the NDAA must include provisions ending military hostilities against Iran, though this is not included in either chamber's bill.
• Acquisition Reforms. In particular, Pentagon rights to intellectual property, known as "right to repair," are included in both chambers' bills.
• Prohibitions on defense company stock buybacks and dividends are included in the Senate bill.
• Munitions Multiyear Procurement Authorities. The House authorizes multiyear procurement for 13 munitions while the Senate authorizes 19.
• Foreign Shipbuilding. Both bills include provisions strongly opposed by the Trump Administration preventing the procurement of certain ships in foreign shipyards.
• Renaming the U.S. Department of Defense. Legally renaming this the "U.S. Department of War" (DOW) is included in both chambers' versions in contentious votes, as are naming issues involving military installations.

Holland & Knight Insights: NDAA

• Enactment remains likely but probably only after significant removal or modification of various partisan House provisions. However, HASC Ranking Member Rep. Adam Smith (D-Wash.) recently opined that he is unsure whether President Donald Trump would sign a compromise NDAA deal. Although President Trump has not signaled what issues might lead to a potential veto, he previously vetoed the FY 2021 NDAA in his first term, which led to a congressional veto override.
• The final NDAA may become one of the primary vehicles for defense acquisition, technology, supply chain and national security provisions that cannot move independently, as well as other legislation such as the Intelligence Authorization Act, Department of State Authorization Act and National Quantum Initiative Reauthorization Act.

Looking Ahead to the 120th Congress and FY 2028

Between retirements and electoral losses, congressional defense committees will see major changes in leadership, personnel, policy focus and oversight priorities.

HASC

The HASC will see a dramatic membership overhaul, with as many as 15 open seats due to retirements and electoral losses. Rep. Smith will become chair, while the top Republican slot is less certain. Current Chair Rep. Mike Rogers (R-Ala.) announced his intent to seek a waiver to continue serving as top Republican on the panel, while Rep. Trent Kelly (R-Miss.) and Rep. Ronny Jackson (R-Texas) also previously announced their intent to run.

In a letter to colleagues, Rep. Smith announced that his top priority will be "vigorous oversight of the Department of Defense and the Trump Administration," including the conflict with Iran, military strikes in the Caribbean and Latin America, and the deployment of troops in U.S. cities. Rep. Smith also intends to focus on defense contracts to ensure they are free of conflicts of interest or favoritism and seeks to reestablish HASC's Subcommittee on Oversight and Investigations panel. The committee's oversight of procurement issues will likely include matters related to Golden Dome, munitions stockpiles, sensitive materials sourcing, and private equity investments and government equity deals. It may also review private-party access to government systems and information and the department's overreliance on a limited number of vendors for its satellite networks and other critical technologies.

Of note, several longtime HASC members or subcommittee chairs will not be returning in the 120th Congress, including:

• Don Bacon (R-Neb.), Cyber, Information Technologies, and Innovation chair
• Scott DesJarlais (R-Tenn.), Strategic Forces chair
• Robert Wittman (R-Va.), Tactical Air and Land Forces chair
• Seth Moulton (D-Mass.), Strategic Forces Ranking Member
• Mike Turner (R-Ohio)

Senate Committee on Armed Services (SASC)

Sens. Jack Reed (D-R.I.) and Roger Wicker (R-Miss.) will reverse roles atop the SASC, which will also undergo significant membership changes.

As SASC chair, Sen. Reed would hold significant influence over future presidential nominees at the Pentagon, and he expressed an interest in investigating numerous issues to include DOW Secretary Pete Hegseth's dismissal of numerous senior defense leaders. Sen. Elizabeth Warren (D-Mass.), who previously launched oversight efforts into various facets of the Pentagon such as military artificial intelligence and surveillance contracts, military privatized housing and defense contractor overcharging, would yield greater influence in the 120th Congress.

There will be four open seats, possibly five depending on the outcome of Sen. Dan Sullivan's (R-Alaska) still-uncalled race. Departing members include:

• Jeanne Shaheen (D-N.H.)
• Joni Ernst (R-Iowa), Emerging Threats and Capabilities chair
• Gary Peters (D-Mich.)
• Tommy Tuberville (R-Ala.), Personnel chair

Sen. Sullivan, whose Senate race may not be determined for some time, currently chairs the SASC Subcommittee on Readiness and Management.

House Defense Appropriations Committee (HAC-D)

Current HAC-D Ranking Member Rep. Betty McCollum (D-Minn.) is poised to take the gavel, while Rep. Ken Calvert (R-Calif.) is seeking a second waiver to continue serving as the top Republican on the defense spending panel. Rep. Steve Womack (R-Ark.) is the likely successor to Rep. Calvert should he not be granted a waiver.

In a recent colleague letter, incoming HAC-D Chair Rep. Rosa DeLauro (D-Conn.) argued that the committee must make efforts to "claw back billions of dollars Republicans unilaterally provided to … the Pentagon through budget reconciliation in an end run outside of the Appropriations Committee."

The current make-up of HAC-D gives Republicans a three-seat majority, which suggests that two or more current Republican members will be forced to leave the subcommittee in the 120th Congress with Democrats in the majority, while several new Democrat members will join the panel. The only current HAC-D member who will not be returning in the 120th Congress is Rep. David Valadao (R-Calif.).

Senate Defense Appropriations Committee (SAC-D)

SAC-D Chair Sen. Mitch McConnell (R-Ky.) is retiring, and Sen. Chris Coons (D-Del.) is expected to forgo chairmanship in order to chair the Senate Committee on Foreign Relations. There is not yet clarity on who will assume their roles atop the Senate's defense spending panel.

With the electoral loss of full committee Chair Sen. Susan Collins (R-Maine), Sen. Lisa Murkowski (R-Alaska) is next in seniority to take charge of the committee for Republicans. Notably, she also stated in the past an interest in taking the top Republican spot on SAC-D. Sen. Jerry Moran (R-Kan.) is reportedly also pursuing the Ranking Member position of the full committee.

Sens. Brian Schatz (D-Hawaii), Tammy Baldwin (D-Wis.) and Chris Murphy (D-Conn.) would all be in a position to potentially take the gavel of SAC-D, though Democratic conference rules may limit Sen. Schatz's ability to also lead SAC-D if he is elected majority whip, as is widely expected.

Five senior defense appropriators will not return in the next Congress:

• Collins, full committee chair
• McConnell, chair
• Dick Durbin (D-Ill.)
• Jeanne Shaheen (D-N.H.)
• Cindy Hyde-Smith (R-Miss.)

Holland & Knight Insights: Defense Committee Leadership and Composition

• Congressional defense committees will see significant changes in leadership and membership in the 120th Congress. Committee membership will lean heavily toward Democrats in the House compared to current membership, and the HASC in particular will see 15 or more new members join the committee.
• Changes in leadership and the loss of senior members will also affect defense committee priorities and funding. For example, Sen. Collins, who secured billions for additional U.S. Navy surface combatants, will not be returning next year. Retiring Sen. Durbin was a longtime champion of the Pentagon's Congressionally Directed Medical Research Program, though that funding continues to enjoy broad support among other congressional Democrats.
• Defense contractors should be prepared for intense oversight of defense contracts and government equity deals, particularly by the HASC, which may reestablish its oversight and investigations subcommittee.

General Congressional Oversight and Investigations Risks in the 120th Congress

When the 120th Congress convenes on January 3, 2027, the incoming majority will have the power to compel document productions and testimony in pursuit of inquiries into the Trump Administration, companies, other organizations and individuals. Those drawn into these inquiries can face significant reputational, legal and financial consequences well before any future legislative risks.

• Existing Inquiries Will Gain Force: Companies should expect renewed or expanded document and testimony requests, backed by the incoming majority's authority to hold hearings and issue subpoenas.
• Corporate Relationships with the Pentagon Will Face Increased Scrutiny: Government contracts, waivers, regulatory approvals, loans and policy changes may become subjects of investigation, bringing companies' communications with administration officials and the benefits they received into focus.
• Companies May Become Sources of Evidence When Their Conduct Is Not the Focus: Where Pentagon officials resist or delay disclosure, investigators may turn to private parties for corresponding emails, messages, meeting notes and other records concerning government decisions.

For more information or questions, please contact the authors.

Notes

¹ Although discretionary funding for the Pentagon is provided in both the annual military construction – the veterans affairs appropriations bill and defense appropriations bill – this article focuses only on the defense appropriations bill.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.