August 3, 2011

International Affairs Budget Update, 8-2-11

1. Debt Ceiling Deal Adopted; Assessing Impact on International Affairs Budget

2. House Appropriations Committee Postpones FY12 State-Foreign Operations Bill Markup


1. Debt Ceiling Deal Adopted; Assessing Impact on International Affairs Budget

President Obama and Congressional leaders from both parties endorsed a deal on Sunday to raise the debt ceiling and prevent government default ahead of the August 2 deadline.  The agreement allows increases in the current debt ceiling of between $2.1 and $2.4 trillion in exchange for two separate rounds of budget cuts by the end of the year.

The House passed the legislation last night by a vote of 269-161.  Ninety-five Democrats and 66 Republicans opposed the measure. The Senate passed the bill this afternoon by a vote of 74-26, with 19 Republicans, six Democrats, and Senator Bernie Sanders (I-VT) opposing it.  President Obama promptly signed the measure into law.

Two-Step Process for Budget Cuts
Budget cuts will be addressed in two steps, the first of which covers nearly $1 trillion in cuts, followed by a second set of cuts later this year.

Step 1: Voted on in this budget package

  • Increases debt ceiling by $900 billion in exchange for $917 billion in budget cuts over 10 years.
  • The $917 billion in savings is achieved by placing caps on discretionary spending for the next 10 years.
  • Savings do not come from entitlement programs, including Medicaid, Medicare, and Social Security.
  • Discretionary spending will be capped at $1.042 trillion for FY12 and $1.047 trillion for FY2013. The FY12 level is $24 billion above the current House FY12 allocations.
  • The spending cuts are divided with a firewall for security programs, with the International Affairs Budget classified as security for both FY12 and FY13.

Step 2: Negotiations to begin immediately

  • Establishes a new congressional “special joint committee” that would be required to make recommendations by November 23 on how to reduce the deficit by an additional $1.5 trillion over ten years.
  • The committee would consist of 12 Members: three Members of each party from each chamber.  House Speaker John Boehner (R-OH), House Minority Leader Nancy Pelosi (D-CA), Senate Majority Leader Harry Reid (D-NV), and Senate Minority Leader Mitch McConnell (R-KY) would each appoint three Members.
  • The committee is tasked with recommending a package of budget savings of at least $1.2 trillion, which could include cuts to entitlement programs and increases in revenue.
  • The House and Senate would be required to act upon the recommendation in an up or down vote by December 23.
  • If lawmakers do not enact the special committee’s recommendations, then automatic spending cuts would be triggered – known as sequestration – starting in January 2013.
  • The automatic cuts would fall equally on defense and non-defense spending, meaning across-the-board cuts to mandatory and discretionary programs and the susceptibility of cuts to the International Affairs Budget.  (Social Security, Medicare and low-income programs would be exempt from the across-the-board cuts.)
  • The International Affairs Budget is not classified as part of security spending for this second round of budget cuts.
  • A second debt limit increase of between $1.2 trillion and $1.5 trillion would be adopted once the special committee’s recommendations are adopted or sequestration is triggered.

Balanced-Budget Amendment Vote

  • The bill requires both chambers to vote on a balanced-budget amendment to the Constitution between October 1 and December 31, 2011.

Impact on International Affairs Budget

Under this new budget agreement, the International Affairs Budget could face very deep cuts given how security and non-security spending are capped for F12 and FY13, though the full impact will be determined by House and Senate appropriators this fall when they return from August recess.  In regard to the first round of cuts, because of the agreement’s cap on FY12 security funding, which includes the International Affairs Budget, additional cuts to these programs are very possible.  The overall cap could ultimately result in deeper cuts than current FY12 House levels for the International Affairs Budget, which are 20% below FY10 level and much deeper in some areas.  In regard to the second round of cuts, the categorization of security spending and non-security spending is altered and the across-the-board cuts (of at least $1.2 trillion) would be evenly divided between defense spending and other programs.  In this round, not being classified as security or defense spending could be more favorable for the International Affairs Budget.

Looking Ahead

While the exact impact of this new budget agreement on the FY12 International Affairs Budget will be determined this fall by House and Senate appropriators, it is clear that continued deep cuts to non-war related development and diplomacy programs are in the offing.  These cuts began earlier this year with the final FY11 spending agreement adopted in April, which cut 11.4% ($6.5 billion) from the International Affairs Budget relative to FY10 levels.  Last week, the House State-Foreign Operations Appropriations Subcommittee released its FY12 State-Foreign Operations Appropriations Bill, which cut non-war related accounts an additional 11% ($5 billion) below FY11 levels.  Before this current deal, the non-war related programs were primed for more than a 20% reduction in just two years.

Bearing the brunt of these cuts in the House bill are State and USAID operations and multilateral and development assistance, where the reductions range between 16% and 35% below current (FY11) funding levels.  The largest component of the International Affairs Budget not included in the State-Foreign Operations Appropriations Bill – international food aid – is cut over 30% in the FY12 Agriculture appropriations bill, which passed the House in June.

2. House Appropriations Committee Postpones FY12 State-Foreign Operations Bill Markup

Tomorrow’s scheduled House Appropriations Committee markup of the FY12 State-Foreign Operations Appropriations bill has been postponed.  As reported in our July 27th Budget Update, the Subcommittee’s $47.2 billion mark makes dramatic reductions in non-war related programs – overall 20% below FY10 levels and more than 30% below current levels for some specific accounts.