1.     Outlook for FY 2011 Appropriations Process

Congress returned to Capitol Hill last week to deal with a long list of unfinished legislative business in a “lame-duck” session, chief among which are all 12 of the unresolved FY 2011 appropriations bills. Before adjourning for the elections in September, Congress passed a Continuing Resolution (CR), which funds the International Affairs Budget at FY 2010 levels with some adjustments for the frontline states and Israel, Egypt and Jordan. The CR expires on December 3, and funds the International Affairs Budget at $51.1 billion, which is $4.9 billion less than the levels approved by the House and Senate Appropriations Committees earlier this year and $7.7 billion (14%) less than the President’s budget request.

It is likely that Congress will pass another CR into February or March, extending funding at the same level.  Hopes for passage of an omnibus package further dwindled last week when Senate Majority Leader Mitch McConnell (R-KY) announced his opposition to such a measure.  If the CR is extended, tough decisions on FY 2011 appropriations will be pushed into next year under the purview of the 112^th Congress, which is scheduled to be sworn in on January 5^th.

Congress is in recess this week for the Thanksgiving holiday and will return next week for final legislative business for the year.  It is unclear how long Congress will remain in session after Thanksgiving.

2.     Looking Ahead to FY 2012

While Congress works to complete the FY 2011 appropriations bills, the pressure to curtail the FY 2012 budget is certain to grow, particularly as the 112^th Congress will be filled with dozens of Tea Party candidates and policymakers with anti-spending platforms.  The Administration is likely reworking its budget request to respond to the volatile climate ahead.

With last week’s Senate confirmation of Jack Lew to head the Office of Management and Budget (OMB), the Administration’s budget team is now shored up.  This is Lew’s second round at OMB, as he was previously Director during the Clinton Administration. Senator Mary Landrieu (D-LA) had held up Lew’s nomination for several months over off-shore drilling issues.  Thomas Nides, who was nominated as Lew’s replacement at State, sailed through his confirmation hearing last week, and it is expected the Senate will approve his nomination and have him at Foggy Bottom as Deputy Secretary of State for Management and Budget soon.

The White House summer budget guidelines to departments already included a 5 percent decrease for all non-security agencies on their FY 2012 budget requests. While the Administration has classified the International Affairs Budget as part of security funding, it is unlikely the President will stay on track to meet his call to double foreign assistance by 2015. In addition, the House GOP leadership has proposed reducing discretionary accounts to their FY 2008 levels, which would result in a cut of at least 33% to the International Affairs Budget relative to FY 2010 levels. This proposal, among several others, could come up for a vote in the spring.

3.     Debt Commission Impacts International Affairs Budget

Two major bipartisan proposals for cutting the deficit circulated last week setting off significant reactions from both sides of the aisle.   While both reports concentrate on tax reform and entitlements, they both identify savings from the International Affairs Budget.

The Presidential Debt Commission co-chairs Alan Simpson and Erskine Bowles floated a first draft of recommendations for reducing the deficit by $200 billion by FY 2015.  This calls for 1% cuts in discretionary budgets every year, starting in 2012 based on FY 2010 levels, as well as an additional $200 billion in cuts.  Among the 58 “illustrative cuts” over the next four years, four items totaling $6.3 billion, or a little over 3% of the cuts, are related to the International Affairs Budget:

• Slow growth of foreign aid:  $4.6 billion in savings; 2.3% of total proposed cuts.  Calls for a 10% reduction in the President’s recommended increases in international development and humanitarian assistance to $45 billion by 2015.
• Reduce overhead costs of diplomatic operations: $1.3 billion in savings; less than 1% of total proposed cuts.  Restricts the growth of the Diplomatic and Consular Programs and ends “locality pay” for domestically-based FSOs.
• Reduce voluntary contributions to the U.N.:  $.3 billion in savings; .1% of total proposed cuts.  Recommends a 10% reduction in the $3.5 billion “voluntary funds” the U.S. gives to the U.N. on top of annual dues
• Eliminate OPIC:  $.1 billion in savings; less than .1% of total proposed cuts.  Eliminates new portfolios, but continues service on existing portfolios.

Just days later, the Bipartisan Policy Center released their report, co-chaired by former Sen. Pete Domenici (R-NM) and Alice Rivlin, calling for freezing domestic and discretionary spending at FY 2010 levels for four years.  It would set the International Affairs Budget at $56 billion, an approximately 4% cut from the FY 2011 budget.  The report calls for redefining discretionary spending as “security spending” and “non-security spending.”  Security spending would include defense, international affairs, and homeland security spending, recognizing the overlap among those programs.

4.     QDDR Announcement Goes to the Hill

Last week, Secretary Clinton and USAID Administrator Shah briefed lawmakers on Capitol Hill on the QDDR using this PowerPoint presentation.  The final report will likely be made public in mid-December.  The QDDR makes the case for strong and effective civilian power and calls for a new approach to interagency cooperation, more effective rapid response mechanisms, and cost-effective and result driven programs.  Other highlights include:

• Focus on transparency and results, including the USAID Forward reforms already underway. A new “dashboard” that will provide transparent data on State and USAID’s development funding will be online in December.
• USAID oversight of the Feed the Future initiative and while the Global Health Initiative will remain at State for now, it is expected to move to USAID within 2 years.
• Increased budget and planning authority at USAID.
• Multi-year planning and budgeting, with greater interagency cooperation, and accountability abroad under the Chief of Mission.
• Increased public diplomacy efforts focused on technology, women and girls, and private sector outreach.
• Strengthening and reorganization of State Department’s Global Affairs and Economic Bureaus.
• Joint civilian and military planning and budgeting in Iraq and Afghanistan, perhaps as a precursor for a National Security Budget.

This morning, the USGLC released a statement on the importance of the QDDR to America’s civilian power.