2. House Action on FY12 State-Foreign Operations Bill Scheduled for Next Week

1. Update on Budget Negotiations and Impact on International Affairs Budget

With the clock rapidly ticking down to Aug. 2 when the U.S. reaches its debt ceiling limit and faces default, the White House and Congress remain at odds over a deal to increase the debt limit and reduce spending.  In what is perhaps one of the most high-stakes showdown ever to avoid a U.S. default on its debt obligations, numerous budget proposals have been put forward in recent weeks to forge an agreement.  A common thread in all of these potential deals is a major reduction in discretionary spending, including the International Affairs Budget, which would jeopardize U.S. national security and economic interests.

Where Do the Major Deals Stand?

Since the adoption in April of the FY11 spending agreement, which cut $38.5 billion from FY10 spending levels (including $6.5 billion from the International Affairs Budget), several efforts have been underway to forge a long-term, bipartisan budget deal to reduce the federal debt and, in the short-term, raise the $14.3 trillion debt ceiling.  A brief summary of these proposals is below.

• McConnell-Reid plan: What at first was roundly criticized by his Republican colleagues, the proposal floated by Senate Minority Leader McConnell (R-KY) last week and being amended by Senate Majority Leader Reid (D-NV) is now viewed as the best prospect for reaching a deal by August 2.  The plan would give President Obama authority to raise the debt limit by $2.5 trillion in three increments through 2012, unless Congress votes to reject those increases and can overturn a presidential veto by a supermajority vote.  The McConnell-Reid proposal would require the President to submit corresponding spending cuts for each debt limit increase but adoption of those spending cuts is not required in order for the debt ceiling to be raised.  In addition, the measure will likely include some combination of short-terms spending cuts or a ceiling on discretionary spending.  As of press time, the spending cap under consideration is $1.048 trillion, a level that is $29 billion higher than the budget cap passed by the House in their FY12 budget resolution.  The McConnell-Reid measure might also include the creation of a bipartisan, bicameral committee that would attempt to forge a long-term debt reduction package.  Signs coming from the White House suggest the President might be willing to accept the McConnell-Reid plan.

• Conrad Budget Resolution: Last week Senate Budget Committee Chairman Conrad (D-ND) unveiled his long-awaited FY12 budget resolution.  His proposal includes a $4 trillion reduction in the deficit over ten years, including $1.2 trillion in cuts to discretionary spending.  For FY12, his proposal sets a top-level spending level of $1.058 trillion, $39 billion above the House-passed budget cap for FY12.  Importantly, the Conrad plan places International Affairs resources within the National Security component of discretionary funds, recognizing the significant role the International Affairs Budget plays in bolstering America’s security interests.  It remains doubtful if the Senate will move forward on Conrad’s proposal, but elements of the plan could be included in a long-term debt reduction package later this year.

• President Obama and Speaker Boehner’s “Grand Bargain”: Over the past month, the President held a series of bipartisan talks with Hill leaders, including House Speaker Boehner (R-OH), with the goal of reaching a 10-year, $4 trillion budget agreement.  $4 trillion is the size many believe to be the minimum necessary to achieve meaningful reduction in the debt.  Discussions included cuts to discretionary and entitlement spending, as well as increased revenues primarily by closing loopholes. However, the talks broke off abruptly when House Republicans, led by Majority Leader Eric Cantor, pushed back – forcing Speaker Boehner to declare on July 10 that the talks were at an impasse because of the President’s insistence that some tax increases be part of the agreement.

• Vice President Biden talks: Leading up to the Obama-Boehner talks, Vice President Biden led a bipartisan, bicameral effort over the last two months to find common ground over the specifics of about $2.5 trillion in savings, an amount that matched a debt ceiling increase necessary to push the next vote on raising the debt beyond the 2012 elections.  Negotiators apparently agreed on reductions in excess of $1.3 trillion, including those for defense spending, non-defense discretionary resources, farm subsidies and modest cuts in mandatory programs.  Those discussions broke down on June 23 when House Majority Leader Cantor (R-VA) withdrew from the negotiations because of his insistence that tax increases could not be part of the deal.

Impact of Potential Deals on the International Affairs Budget

All of the debt reduction packages under consideration would have a significant impact on the International Affairs Budget and other non-defense discretionary programs.  After shouldering a disproportionate 17% of government-wide spending reductions in the final FY2011 deal, U.S. development and diplomatic capabilities would be further eroded under these proposals.  Here is a rundown:

Cut, Cap, and Balance Act of 2011

Tomorrow the House will vote on H.R. 2560, The Cut, Cap, and Balance Act of 2011, sponsored by Representative Chaffetz (R-UT).  Were it to be enacted, the legislation poses severe threats to the International Affairs Budget and other discretionary resources over the next decade.  Fortunately, the measure does not have the votes needed to pass the Senate.

The “Cut” portion of the bill lowers discretionary spending for FY12 by $76 billion, which supporters say would take funding to below FY08 levels.  Calculating the exact impact on the International Affairs Budget is not possible at this point because of the uncertainty of how supplemental funding in FY2008 is factored into the bill’s calculations.  If supplemental monies are not accounted for, the State-Foreign Operations appropriations bill (the source of about 95% of the International Affairs Budget) would be cut 32% ($15.4 billion) from FY11 levels and 40% ($21.6 billion) from FY10.

The “Cap” portion of H.R. 2560 places limits on spending as a percentage of GDP over the next ten years, roughly equaling projections made in the House-passed budget resolution for FY12 (under which non-war related International Affairs programs would be cut 31% in FY12).  These legally-binding caps would be enforced through an across-the-board “sequestration” of funds that would bring spending down in order to align with the cap level.  However, because some, large components of spending would be exempt from the sequestration (military personnel, veterans benefits, military health and retirement, social security, medicare, and interest on the debt), the impact on all other components of spending, including the International Affairs Budget, would be crippling.

Lastly, the “Balance” portion of H.R. 2560 requires passage of a Constitutional amendment to balance the federal budget and send it to states for ratification before Congress would agree to raise the debt ceiling.  This portion of the bill essentially requires the budget to be balanced within a decade.  It mandates that the Balanced Budget Amendment include a limit on spending as percentage of GDP and requires a super-majority vote in Congress to raise taxes.  The House is tentatively scheduled to take up a Balanced Budget Amendment next week.

Conrad Budget Resolution

As mentioned above, last week Senate Budget Committee Chairman Conrad (D-ND) unveiled his $4 trillion deficit reduction framework, which includes $1.2 trillion in cuts to discretionary spending.  While the Conrad plan places International Affairs resources within the National Security component of discretionary funds, the resolution disproportionately cuts Security spending — taking nearly three-quarters of the $1.2 trillion discretionary cut from the Security portion.  Thus, while non-security funding would be 25% higher in FY 2021 than today, Security-related programs would increase only slightly (2.3%) from current levels.  This places the International Affairs Budget in a dangerous place because lawmakers could look to shore up potential cuts to defense spending by taking resources from the International Affairs Budget.

Conclusion

In the coming weeks, some spending reduction package is likely in order to avert what otherwise could be a major destabilizing outcome for an already struggling U.S. economy.  While we recognize the gravity of our nation’s fiscal situation, we are very concerned about the disproportionate nature of cuts being made to development and diplomacy programs.  Although only 1.4% of the total budget, the International Affairs Budget absorbed 17% of the total spending cuts in the in the final FY11 spending agreement.  Some of the proposals being advanced in Congress would impose even more severe cuts to these programs.  As a result, the International Affairs Budget could be cut 40% from FY10 levels.

As the negotiations continue, we will continue to oppose disproportionate cuts to International Affairs programs.  As leaders on both sides of the aisle, including President Obama and Senator Marco Rubio (R-FL), have recently pointed out, the International Affairs Budget is not the reason for America’s budget crisis – and these modest investments are vital to America’s security and economy.

2. House Action on FY12 State-Foreign Operations Bill Scheduled for Next Week

The House Appropriations Committee’s FY12 302(b) appropriations allocations fund the International Affairs Budget at $49.1 billion, $47.2 billion of which is allocated under the State-Foreign Operations Appropriations bill.  The funding level is 21% below the President’s FY12 request and would result in a deep 20% cut to non-war related programs from FY 10 levels.

The State-Foreign Operations Appropriations Subcommittee is scheduled to mark up the FY12 bill next Wednesday, July 27.  Action by the full Committee is scheduled the following week, with floor action (if at all) not until early this fall.  Additional cutting amendments are likely during the full Committee markup.