April 20, 2022 (WASHINGTON) – This testimony for the record was submitted by the Modernizing Foreign Assistance Network (MFAN) Co-Chairs: Lester Munson, Larry Nowels and Tessie San Martin.
Chairman Diaz-Balart, Ranking Member Lee, and Members of the Subcommittee: On behalf of the Modernizing Foreign Assistance Network (MFAN), we thank you for the opportunity to submit written testimony regarding FY 2024 (FY24) appropriations and the importance of effective and accountable U.S. foreign assistance.
MFAN is a bipartisan reform coalition created in 2008 to build on the bipartisan consensus on foreign assistance reform that first began under President George W. Bush with the creation of President’s Emergency Plan for AIDS Relief (PEPFAR) in 2003 and the establishment of the Millennium Challenge Corporation (MCC) in 2004. Our mission is to foster more effective and more accountable U.S. foreign assistance that advances American interests, delivering greater results for people in need and U.S. taxpayers. Our priorities include: the continued elevation of development as a distinct arm of American global engagement; strengthening the position of the U.S. Agency for International Development (USAID) as the lead U.S. entity for development policy and programming; and fostering greater collaboration among all U.S. Government agencies involved in foreign assistance, including USAID, the State Department, the MCC, and the U.S. International Development Finance Corporation (DFC).
While MFAN does not advocate for specific funding levels or sectoral approaches within the State-Foreign Operations account (with the one exception of USAID Operating Expenses), we would be remiss if we did not begin our testimony by noting our serious concern about proposals to impose deep cuts to foreign assistance funding in FY24. Now more than ever, United States leadership is critical to confronting the full range of challenges we face around the world – from aggression by Russia and increasing belligerence by China to grave humanitarian needs due to famine in the Horn of Africa. Our country needs both “hard” and “soft” power to promote American values, advance our economic interests, protect our national security, and create the conditions for greater stability and prosperity. We, therefore, urge you to oppose cuts to the State-Foreign Operations account.
Two decades of bipartisan-led reforms have made U.S. assistance more efficient and effective. In large part due to the leadership of this subcommittee and Congress as a whole, tremendous progress has been made in ensuring our aid dollars are used in the most effective way possible to prevent disease, save lives, and unlock opportunities for economic growth. From the life-saving work of PEPFAR to mobilizing greater private sector financing through the Development Finance Corporation, there is much to be proud of in the advances in aid effectiveness. But
much more remains to be done. To that end, MFAN urges the subcommittee to support the following in FY24:
Below we describe the need for the inclusion of these provisions in the FY24 bill and report. Additional details are also included in our FY24 recommendations submitted to the subcommittee on March 24, 2023.
USAID - Operations
Robust funding for the USAID Operating Expenses (OE) account is essential for aid effectiveness and supports USAID’s efforts to attract and retain skilled talent, work with new and innovative partners, improve transparency, and evaluate results. There is widespread recognition that USAID has inadequate staffing levels to effectively manage its current workload, much less meet the additional demands placed on it from record levels of procurements due to unprecedented needs. In addition, Administrator Power’s important locally led development initiative will require more personnel, including significantly more contracting officers that have been short-staffed for many years. Currently, USAID contracting officers manage more than four times the workload of their contracting counterparts at the Department of Defense. This is not a recipe for aid effectiveness.
We are pleased that Congress recognized the inadequacy of USAID personnel levels and increased the OE account by 6% percent in FY23 in order to address staffing and other gaps in
USAID’s operations budget. We urge the subcommittee to continue this trend this year and, consistent with the Administration’s request, support a funding level of at least $1.9 billion (an increase of $159.5 million above current levels), enabling the hiring of additional foreign service and civil service staff. Given that a significant portion of any increase to OE will be needed to cover a cost of living (COLA) increase for federal workers, an increase to the OE levels proposed by the Administration is vital to ensure needed staff hires can be realized.
Also with regard to staffing, USAID lacks adequately skilled staff to deliver on the promise of more robustly partnering with the private sector. Enhancing the private sector and business development experience of its staff, including in the recruitment process, must be prioritized.
USAID – Locally Led Development
Also known as localization or community-led-development, locally led development is widely seen as a more effective and sustainable way to deliver aid – and as vital to long-term self-reliance and accelerating country transitions from aid to broader forms of partnership with the United States. MFAN is pleased that both the House and Senate FY23 SFOPS reports included strong report language regarding USAID’s plans for locally led development, including directing USAID to report on how the agency defines a ‘‘local entity’’ and tracks funding to local entities. For FY24, we encourage the subcommittee to build upon this directive and request the agency to report on its progress in advancing locally led development, including the coordinated implementation of relevant agency strategies and policies. Importantly, the report should explain how the agency ensures its local funding methodology does not include funding to international organizations, which USAID calls “Locally Established Partners”, as part of tracking progress toward Administrator Power’s goal to direct 25 percent of development funds to local entities by FY25. Building on report language included in prior years’ appropriations bills, we also urge the subcommittee to request a report from USAID detailing the agency’s work to develop and implement a Domestic Resource Mobilization (DRM) strategy. With the demands on U.S. foreign assistance programs continuing to increase, it is more important than ever that developing countries raise and invest more of their own resources for programs to improve their citizens’ health, education, and economic well-being.
U.S. Development Finance Corporation (DFC)
Development finance is a powerful and cost-effective tool to drive private investment and catalyze economic growth in the developing world. The creation in 2018 of the DFC by the BUILD Act, including authority for the DFC to provide equity finance, marked a significant addition to America’s foreign policy tool kit. Unfortunately, the DFC’s ability to fully utilize its equity authority is restricted due to the way it is “scored” budgetarily. Currently, the agency’s equity financing is scored on a dollar-for-dollar basis -- as if every dollar invested is a grant, rather than an investment that in most cases will be paid back along with a financial return. While MFAN strongly supports a permanent scoring fix, we strongly support – as an interim measure – the Administration’s FY24 proposal to create a $2 billion equity revolving fund. This fund would allow the agency to scale up resources for equity investments and then re-use those funds through the returns generated from initial investments, all while helping free up discretionary funding within the 150 account for other needs.
For the DFC, we also encourage the subcommittee to affirm that the DFC should prioritize projects in low-income economies or lower-middle-income economies, where investment is most needed, and that utilization of its exemption authority to operate in upper-middle income countries remain limited. In addition, we request the subcommittee to direct the DFC to comply with the Foreign Aid Transparency and Accountability Act of 2016 (FATAA), which requires detailed disclosure of project level information - including making all evaluations of its investments publicly available within 90 days of completion.
Millennium Challenge Corporation (MCC)
MFAN is concerned about Congress’s decision in FY22 and FY23 to rescind $515 million and $100 million, respectively, from the MCC. While we understand pursuit of these rescissions took into account MCC's decisions to discontinue its proposed compact with Sri Lanka and terminate its compact with Burkina Faso, MCC’s model hinges on multi-year grant agreements with selected partner countries; ensuring the agency can deliver on its commitments requires careful pre-planning and depends on resources being set aside in advance. The decision to rescind funding two years in a row is a worrying trend that risks undermining the MCC model. Were rescissions to become a common occurrence, this practice could severely undermine the agency’s operations and patented approach to development and weaken the important role the agency has in America’s foreign policy tool kit.
Lastly, for many years, this subcommittee has maintained the practice of including funding directives in the State-Foreign Operations Appropriations bills that reflect congressional priorities on how these resources should be spent. While it is the prerogative of lawmakers to direct, oversee, and require accountability of taxpayer’s money, the number of directives and the mandatory nature of them has grown considerably in the past two decades. These directives limit agencies’ ability to respond to rapidly changing circumstances and pivot to opportunities that advance American national interests. For these reasons, MFAN advocates for more flexible foreign aid funding mechanisms on the part of Congress that are paired with appropriate and timely accountability on the part of the executive branch. We are pleased that Congress supported more flexible foreign aid funding in the FY23 bill by expanding the 10 percent deviation authority beyond the committee’s tables. For FY24, we recommend additional adjustments to Sections 7019 and 7060(h) to modestly expand the executive branch’s deviation authority. While these modest changes for FY24 would enhance efforts to instill more flexibility in exchange for greater accountability, other options are available to consider for current and future appropriations. These could include lessons learned from the relatively flexible funding Congress appropriates for PEPFAR and the MCC.
Thank you again for this opportunity to present our recommendations for the State and Foreign Operations Appropriation bill and for considering these requests. MFAN looks forward to continuing to work with you to advance U.S. values and economic and national security interests by supporting a more just, prosperous, and secure world.