Following intense negotiations among the White House and congressional leaders, lawmakers have adopted a revenue and spending package that averts the so-called “fiscal cliff.”  The agreement passed the House last night by a vote of 257-167, with 151 Republicans and 16 Democrats voting in opposition.  The Senate passed the measure on Monday by a vote of 89-8, with three Democrats and five Republicans voting in opposition.

The agreement has two primary features: (1) it raises tax rates on individuals with incomes above $400,000 and couples with incomes above $450,000; and (2) it delays the automatic spending cuts under sequestration, which were slated to go into effect today, until March 1.  To cover the cost ($24 billion) of this two-month delay in sequestration, the bill achieves $12 billion in savings through revenue changes on retirement accounts and it reduces the discretionary spending caps for FY13 and FY14 by $4 billion and $8 billion, respectively.  For FY13, the cuts are evenly divided between security and non-security programs, with the International Affairs Budget part of security programs along with Defense, Homeland Security, and Veterans Affairs.  In FY14, the cuts are evenly divided between revised security classifications that are essentially defense and non-defense, with International Affairs part of non-defense.

Implications for FY13 International Affairs Appropriations

The 113^th Congress that will be sworn in tomorrow will have a few options for handling FY13 appropriations.  The current Continuing Resolution (CR) funds the government until March 27th. Congress could decide to enact a CR that would last for all of FY13 or to finalize and move the FY13 appropriations bills as part of an omnibus measure.

Describing the impact of these different scenarios on the FY13 International Affairs is not simple because of the differences between funding levels in effect under the CR and funding levels negotiated last month by House and Senate appropriators.  With that said, the path for International Affairs programs would seem to be more favorable if Congress acts on an omnibus FY13 spending measure rather than adopting a year-long CR.  That is because, according to the Congressional Budget Office (CBO), security programs under the current CR exceed the newly revised cap for FY13 by about $6.8 billion.  Congress would need to make those cuts in a full-year CR.

While security programs in an omnibus measure would also need to be cut from what appropriators negotiated last month, that reduction would be only $2 billion. As previously reported, House and Senate negotiators reached an agreement last month on reconciling their respective FY13 State-Foreign Operations appropriations bills, as well as other security-related bills.  While the details have not been released, the conference agreement fell within the original $686 billion cap for security programs, a level that now must be reduced to $684 billion.  Although totals for the International Affairs Budget are not available, it is believed that conferees provided a strong funding level for the International Affairs Budget close to the Senate’s $53.7 billion level rather than the lower funding level of $49.6 billion recommended by the House.  If this positive outcome for International Affairs programs is correct, appropriators would only need to cut about 0.3% from State-Foreign Operations program levels agreed to in December if the $2 billion reduction is applied proportionately.

Lastly, if Congress and the President do not reach an additional deficit reduction agreement by March 1 and OMB orders sequestration, FY13 International Affairs programs and other non-defense accounts in the security category shift to the non-security bucket for purposes of calculating the percentage of cuts required.  Being in this non-security/non-defense category works to the advantage of International Affairs spending since earlier estimates of FY13 sequestration amounts have been nearly two percent higher for defense accounts compared with non-defense.

Implications for FY14 Budget

For FY14, the fiscal cliff agreement sets the non-defense cap at $506 billion, $4 billion (0.8%) less than current law.  With uncertainty over whether a fiscal cliff agreement would be reached by today, OMB has delayed the process for finalizing the FY14 budget.  Normally, OMB would have notified each agency of changes to draft budget proposals by late November through a procedure known as “the passback.”  Further negotiations with agencies would have occurred in December, in time for the President to send his FY14 budget to Congress on February 5.

OMB’s passback is now not expected before next week, setting the timetable back by about six weeks.  The requirement to reduce the FY14 cap by $8 billion — $4 billion for defense and $4 billion for non-defense programs, including International Affairs — may further complicate efforts to finalize the budget submission.  While some of the delay might be made up through a compressed timeline, it is likely that late February or early March would be the earliest the White House could submit a complete FY14 budget plan.

Moreover, with a March 1 deadline looming to reach a comprehensive deal on further deficit reduction, including potential additional spending cuts, how to shape the FY14 budget and when to submit it remains murky.  Waiting until after March 1 or whenever a final agreement is reached is an option the White House could apply.  In the meantime, the President could send Congress a “blueprint” in February that outlines his budget proposal, with specific details to follow in March.  This is a model frequently used at the beginning of a new presidency.

2.    Senate Strongly Rejects Paul Amendment to Slash International Affairs Budget

On December 28 the Senate overwhelmingly rejected 3-91 an amendment by Senator Rand Paul (R-KY) to slash funding for the International Affairs Budget as part of an emergency supplemental appropriation for Hurricane Sandy relief.  Similar to his 2011 amendment to a disaster appropriations bill, Senator Paul’s amendment would have rescinded $9 billion in funding from the FY13 State-Foreign Operations account – a cut of nearly one-third to many key development and security aid programs – in order to pay for some of the costs of the disaster relief.  Senators Dean Heller (R-NV) and Mike Lee (R-UT) joined Senator Paul in support of the amendment.

In supporting his amendment, Senator Paul asserted that “we should not be sending billions of dollars to dictators who oppress their people, who burn our flag, who will not protect our embassies. I think it is an absolute mistake.”  Senator Lindsey Graham (R-SC) spoke out strongly against the amendment, saying, “If you think you can withdraw from the world and if you think America has no leadership role, then this is a good amendment. If you think the best thing America can do is invest in aid programs that help us as a nation to be safer, then I would vote no for this amendment.”  Senators Patrick Leahy (D-VT) and Barbara Mikulski (D-MD) also spoke out against the amendment, with Senator Mikulski echoing Senator Graham’s statement that the International Affairs Budget represents a “compelling national security interest.”

Thank you to all who took action last week urging Senators to oppose these devastating cuts to the International Affairs Budget.  Please take a moment to thank Senators who voted against this amendment. 
 

3.    House Passes Foreign Aid Transparency and Accountability Bill

On December 30th the House passed the Foreign Aid Transparency and Accountability Act (H.R. 3159) by a vote of 390-0.  As we reported previously, sponsored by Representative Ted Poe (R-TX) and a bipartisan group of lawmakers, the legislation would codify and expand the Foreign Assistance Dashboard and direct the President to establish guidelines and measurable goals for U.S. foreign assistance.  After negotiations with the Administration to ensure its passage, the bill was modified to exclude security assistance, OPIC, International Organizations and Programs, and International Narcotics Control from coverage under the Act.  Senator Richard Lugar (R-IN), who is the sponsor of the Senate companion bill (S.3310), tried to move the bill in the Senate on Monday but its passage was blocked when a hold was placed on it by Senator Tom Coburn (R-OK).  The bill remains pending in the Senate until the chamber adjourns later today.  This morning MFAN issued a press statement urging Senate passage of the bill.

4.    Rep. Berman Introduces Foreign Assistance Act Rewrite

Nearly five years after declaring foreign assistance reform as a top legislative priority, Representative  Howard Berman (D-CA) unveiled on December 12 the Global Partnerships Act of 2012 (H.R. 6644) as one of his last acts in Congress.  The bill would replace the Foreign Assistance Act of 1961, a statute that has not been comprehensively amended in 26 years and widely regarded as being outdated, cumbersome, and out of touch with current global challenges facing the United States.  The Berman bill, a nearly 1,000 page effort, offers a modernized roadmap to guide U.S. foreign assistance policy, transforming aid from a donor-recipient relationship to one of partnerships and shared interests and objectives.

The legislation is organized around seven thematic titles dealing with global development and humanitarian assistance, conflict prevention and mitigation, human rights and democracy, military support for strategic partners, transnational threats, a sustainable global environment, and trade and investment.  The Act further includes major sections strengthening strategic planning of U.S. foreign assistance, requiring rigorous monitoring and evaluation, updating policy authorities and conditions/restrictions on aid transfers, and elevating USAID.

To a large degree, the Berman bill codifies a number of foreign aid reforms launched over the past years by the Obama Administration, including those articulated in the President’s Global Development Directive, the Quadrennial Diplomacy and Development Review, and USAID Forward.  Of special note are provisions that advance the principle of country ownership of their own development, involving local citizens in the design, implementation, and monitoring of aid.  The legislation clarifies the objectives and purposes of foreign assistance, expands transparency of aid data, streamlines funding accounts into a single authority, improves civilian-military cooperation, and leverages the role of the private sector, foundations, educational institutions, and others in foreign assistance.

Although there was no expectation that Congress would consider the measure before the end of the session, many anticipate that Representative Gerry Connolly (D-VA) will assume leadership of the foreign aid reform movement in the 113^th Congress.  As the original co-sponsor, he could simply re-introduce the bill next year.  While marshalling the entire Act though to enactment would be a major undertaking, there are many elements of the legislation that could become the basis of separate bills that would advance the foreign aid reform agenda in the future.

5.    113^th Congress Sworn in Tomorrow

Tomorrow, January 3^rd, the 113^th Congress – including over 90 new Members of Congress – will be sworn in.  As reported above, the new Congress will have no shortage of work ahead of it, including finalizing the Hurricane Sandy relief supplemental, addressing another breach of the debt ceiling, and Senate confirmation hearings for new Cabinet appointments.  Following the swearing-in, the House will adjourn for recess the week of January 7^th, while the Senate calendar remains in flux.  Dates of note also include:

• January 16-18:         House Republican retreat
• January 21:             Presidential Inauguration
• January 29:             State of the Union Address
• February 6-8:          House Democratic retreat