1.    Congress Finalizes FY10 International Affairs Budget

With a few weeks remaining before the new fiscal year begins, Congress returns the week of September 13th having finally completed the FY10 spending bills with the enactment on August 10th of a FY10 Supplemental for Education, Jobs, and Medicaid support.  The bill included numerous rescissions of existing spending in order to offset part of the cost of the bill, including $120 million in rescissions from three International Affairs Budget accounts. The measure cut $50 million from the Millennium Challenge Corporation (MCC) and $40 million and $30 million from the Civilian Stabilization Initiative run by the State Department and USAID, respectively.

With this action, the final FY10 International Affairs Budget stands at $58.94 billion, $145 million or 0.2% higher than President Obama’s request for FY11. The FY10 total is $6.7 billion more than FY09, a 13.1% increase due to the supplemental. The FY10 figures include: $50.9 billion in FY10 base appropriations, $6.3 billion in the war and Haiti supplemental, $120 million in rescissions, and about $1.8 billion forward-funded from FY09 to cover FY10 expenses.

2.    Appropriators Set FY11 State-Foreign Operations Levels, but with Major Differences and an Uncertain Future

Before departing for the August recess, House and Senate Appropriators took steps forward toward approving FY11 funding totals for the State-Foreign Operations spending bill.  What became clear by these actions is that major differences remain between House and Senate drafts, not only in the top-line levels but also for specific account levels and activities.  Moreover, pressure to hold down spending for next year is growing, with indications coming out of the Senate that Majority Leader Reid is seriously considering an additional $6 billion cut to FY11 discretionary appropriations. This leaves an uncertain picture as to whether current appropriations bill allocations will stay the same or be adjusted lower, which would certainly have an impact on the International Affairs Budget. The most likely scenario is that Congress will pass a Continuing Resolution in September that will keep the government operating at FY10 levels until after the November election.

Spending Differences between House-Senate Bills:

The Senate Appropriations Committee wrapped up consideration of its version of the State-Foreign Operations measure on July 29^th, agreeing to $53.9 billion in International Affairs funding.  This level is $2.6 billion or 4.6% below the President’s request and $2.6 billion above current funding.

The House State-Foreign Operations Subcommittee, acting on June 30^th, voted out $52.5 billion for International Affairs programs — $1.4 billion lower than the Senate.  However, the House Appropriations Committee subsequently in July adopted subcommittee 302(b) allocations for each of its 12 spending bills, which restored $1.3 billion of funding to the State-Foreign Operations bill.  This now makes the House and Senate State-Foreign Operations funding levels virtually the same.

Policy Differences between House and Senate Bills

In a number of areas, the House and Senate draft bills are similar. Highlights on similarities of the bills:

• Both bills agree on MCC funding, contributions to UN peacekeeping operations, USAID operating expenses, voluntary and assessed contributions to the UN, the Pakistan Counterinsurgency Fund, and full funding for Israel, Egypt, and Jordan.
• On Global Health, the two measures differ by a minuscule amount with the House providing slightly more for Maternal and Child Health, the Global Fund to Fight HIV/AIDS, TB, and Malaria, and reproductive health and  the Senate adding a bit more for the Global Alliance for Vaccines and Immunization, bilateral malaria, and neglected tropical diseases.

Highlights of differences of the bills:

While the Senate has filed and published its bill and report, clarifying many details that lie below the overall account totals, the House measure remains unpublished, with only account levels and statements by Committee leaders to inform a House-Senate comparison.  Nonetheless, based on information currently available, key differences include:

• Visa, passport and other fee collection by the State Department. For more than a decade, the State Department has covered some of its operations and embassy expenses through the collection and retention of fees for visas, passports, and programs.  This year, the State Department will use about $2 billion from its fee collections.  For FY11, the State Department asked Congress for authority to retain additional fees, on the order of about $800 million, but Congress has not given the State Department the necessary authority to use these monies.  Therefore, the Senate State-Foreign Operations measure includes an additional $634 million in un-requested funds to cover part of the shortfall from fee collection. The House Subcommittee draft did not consider this issue, but it is anticipated that some of the additional $1.3 billion given to the Subcommittee’s 302(b) allocation will address this gap.

• State Operations vs. Foreign Operations. Because of Senate action regarding State Department fees, the Senate bill funds State Operations proportionately higher than Foreign Operations relative to the House.  With the addition of $634 million in non-requested appropriations for State Department costs, the Senate measure for all State Operations is slightly higher (+0.2%) than the FY11 request.  This, however, cuts into funding available for Foreign Operations, leaving those accounts 6.7% below the Administration’s submission.  The House measure, on the other hand, is 4.5% less than the FY11 request for State Operations and 8.2% below  for Foreign Operations.

• Afghanistan. Both bills cut the request, but the House level is unresolved. The Senate measure reduces by one-third – from $3.9 billion to $2.6 billion – non-military aid to Afghanistan. Due to concern over allegations of corruption and mis-management of U.S. assistance, the House bill does not yet allocate specific amounts for Afghanistan, pending hearings and an investigation of the situation.  Given that the Senate bill is somewhat larger than the House in the two accounts from which most Afghan aid is provided, the House Subcommittee bill is likely to include large cuts, perhaps even greater than the Senate.

• Food Security — Feed the Future Initiative. Both House and Senate bills cut the $1.65 billion request for Feed the Future, but in different ways and in different amounts.  The Senate provides $1.3 billion, with $250 million channeled through a World Bank managed multi-country fund for which the Administration had proposed $408 million.  The House measure reduces this further to $1.15 billion, providing a direct appropriation to the multilateral fund of $150 million, with authority to transfer another $100 million from bilateral resources, at the President’s discretion.

• Basic Education.  Similar to past State-Foreign Operations negotiations, the House provides $925 million for basic education while the Senate suggests $845 million.  This is above the request level of $843.4 billion.

• Asian Development Bank.  Unlike many other international financial institutions that have or are in replenishment negotiations due to the global financial crisis, the Asian Development Bank actually completed a General Capital Increase negotiation to which the U.S. pledged $107 million for FY11.  The Administration also proposed $115 million for the Asian Development Fund, the so-called “soft-loan” window of the Bank that lends at highly concessional rates to the poorest countries in Asia.  The Senate bill provides the full amount for the Asian Development Bank — $107 million – but cuts the Fund’s level to $37 million.  Alternatively, the House Subcommittee includes nothing for the Bank, but $105 million for the Fund.

• Climate and Environment Multilateral Funds.  While House and Senate recommendations for climate and environment multilateral funds for FY11 are more robust than in the past, both cut the request.  The House provides a combined $450 million, $185 million below the $635 million proposal.  The Senate is closer to the request, providing $575 million.

3.    FY11 International Affairs Budget Snapshot (as of 08/27/10)

* International Affairs totals for each year include additional amounts (ranging between $77 million and $89 million) appropriated in the Treasury spending bill for the International Trade Commission and the Foreign Claims Settlement Commission and $300 million for the Global Fund to Fight HIV/AIDS, Tuberculosis, and Malaria, included in the Labor-HHS bill.  The Administration does not include the Global Fund appropriations in the International Affairs budget but the Congressional Budget Office does.  This table follows the CBO scoring calculation.

** FY2010 and FY2009 enacted have been adjusted to reflect “forward funding”, amounts Congress appropriated in an emergency FY2009 supplemental in order to cover about $1.8 billion of the FY2010 request.

*** State Department Operations amounts exclude small accounts (about $150 million) that are funded in the bill but are not part of the International Affairs Budget.