Press Room

MFAN very concerned large budget cuts in House FY24 State-Foreign Operations Bill will undermine aid effectiveness

July 18, 2023

July 18, 2023 (WASHINGTON)This statement is delivered on behalf of the Modernizing Foreign Assistance Network (MFAN) by Co-Chairs Lester Munson, Larry Nowels, and Tessie San Martin.

On July 12, the House Appropriations Committee approved the Fiscal Year (FY) 2024 State, Foreign Operations and Related Programs (SFOPs) appropriations bill by a vote of 32-27. The measure provides a total of $52.5 billion in funding, a draconian $18.3 billion (31%) cut compared to FY23 enacted levels. If counting an additional $11.1 billion in the subcommittee’s proposed rescissions to non-SFOPs programs, the bill is a $7.2 billion (12%) cut compared to FY23 non-emergency enacted levels.

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), these deep cuts to foreign assistance funding are highly concerning. Foreign assistance is now and has always been an essential tool to advance America’s foreign policy objectives. 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 China to grave humanitarian needs due to famine in the Horn of Africa and the enormous disruption of global supply chains of agriculture products from Ukraine. The dramatic funding reductions will diminish our standing in the world and limit critical efforts to increase global stability and prosperity.

Significantly, the budget cuts also will set back efforts to further improve aid effectiveness, efforts that are the result of two decades of bipartisan-led reforms to modernize and enhance foreign assistance. Particularly concerning is the $528 million cut to Operating Expenses (OE) for USAID. The House bill provides $1.214 billion for USAID OE – a cut of 30% from current levels. Such a draconian reduction will have grave consequences for USAID and take a heavy toll on our nation’s chief development agency at a time when there is a clear recognition, including among America’s military leaders, that robust investments in global development are vital to U.S. security. MFAN recalls that when Congress reduced USAID’s OE by 10% in FY1996, it led to a significant reduction-in-force of staff and the closure of more than 25 USAID Missions around the world.

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 global needs. For example, USAID contracting officers currently manage more than four times the workload of their contracting counterparts at the Department of Defense. This clearly is not a recipe for aid effectiveness.

The steep budget cuts to USAID OE will result in reductions in staffing at USAID not seen in many years – at a time when the global demands on the agency are acute and growing – and hamper efforts to bolster the efficiency and effectiveness of development and humanitarian relief programs. The USAID OE account is essential for continuing to strengthen the agency’s oversight of program implementation, measure and evaluate impact, and apply a strong learning agenda for future programming. These funds are also vital to the agency’s efforts to attract and retain skilled talent and to adopt more innovative approaches that will boost the return on investment (ROI) for U.S. taxpayers’ investments. MFAN also notes that the substantial OE cuts will compromise USAID’s ability to deliver on its efforts to advance locally led development and promote self-reliance.

While MFAN is pleased the Committee notes in its report that it is concerned with the burdens placed on contracting officers at USAID and that “assistance outcomes and oversight rely heavily on how well USAID is staffed with contracting officers as well as efficiency mechanisms built around procurement and management systems,” we strongly urge Congress to reject these highly counterproductive cuts and to restore funding for USAID OE.

Regarding other USAID provisions in the bill and report, locally led development is widely seen as a more effective and sustainable way to deliver aid; it is vital to long-term self-reliance and accelerating country transitions from aid to broader forms of partnership with the United States. MFAN is pleased the Committee encourages USAID to use capable local entities, including local NGOs, in responding to humanitarian crises and that it requests a report from the agency assessing its progress in advancing locally led development and humanitarian response, including detailing how USAID “is utilizing internal systems, management, and process reforms, including authorities already granted to benefit the localization strategy.”

Regarding local implementation of USAID programming in Central America, MFAN agrees with the Committee that development is best implemented through the participation and involvement of talented, local stakeholders. We believe that USAID’s targets for local funding are advancing the effectiveness of U.S. assistance in the region.

MFAN applauds the inclusion of report language for USAID regarding: (1) the feasibility of building on innovation incentive awards and pay-for-performance awards at USAID and assessing how proven technologies and other innovations can be brought to greater scale; and (2) encouraging maximum levels of transparency and public reporting of all recipients of foreign assistance funding and the purposes of such funding, in keeping with requirements of the Foreign Assistance Transparency and Accountability Act of 2016.

Regarding the International Development Finance Corporation (DFC), MFAN is very concerned with the $229 million (23%) cut from current FY23 levels to the agency and the failure of the bill to address DFC’s equity financing shortfall. Such a deep cut will hinder DFC’s vital work to mobilize private capital and investment to catalyze economic growth and counter China’s bold activities in the developing world.

The bipartisan Better Utilization of Investments Leading to Development (BUILD) Act of 2018 which established the DFC provided the new agency with several critically important new investment tools, but none more important than permitting equity investments. Indeed, it was anticipated that equity investments would be such an integral part of the DFC's overall portfolio that Congress limited equity investments to no more than 35% ($21 billion) of the $60 billion portfolio. Unfortunately, DFC’s ability to carry out its mission and fully realize its investment potential is being restricted because the agency’s equity financing is scored on a dollar-for-dollar basis – as if every dollar invested is a grant that would never be paid back to the U.S. government. However, in most cases, these equity investments will eventually be paid back along with a financial return.

The current scoring methodology limits the agency’s ability to make critical early-stage investments in low- and lower-middle income countries where private finance is limited or not available. Of particular salience, given the significant budget reductions being made in this bill, this dollar-for-dollar scoring of equity investments also makes DFC’s equity costlier to the International Affairs budget than it should be. Correcting the scoring problem or supporting the Biden Administration’s creation of a $2 billion "revolving fund" for equity financing would have substantially reduced the appropriation requirement for DFC equity investments and freed up vital resources for other programs within the State-Foreign Operations bill.

Also, with regard to the DFC, continuing to improve the transparency of the DFC’s data, especially at the investment level, is necessary to increase private sector financing and improve measurement and accountability. MFAN notes that the bill does not 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.

Regarding the Millennium Challenge Corporation (MCC), while we are pleased the agency was spared deep budget cuts, MFAN does not support the $25 million (3%) cut in its budget and is concerned that the agency’s administrative expenses are capped at $122 million, given the importance of these funds for ensuring the agency maintains sufficient capacity to effectively manage program resources.

Lastly, MFAN has advocated for many years for a greater degree of flexible funding mechanisms in the SFOPs appropriation so that State Department and USAID professionals are able to adjust to changing situations on the ground and maximize program impact. Consequently, MFAN is disappointed that the Committee has reduced (in Section 7019) from 10 percent to 5 percent the level that USAID and the State Department can “deviate” from amounts specified in tables set out in the bill’s report.

MFAN will continue to press for a deviation level of at least 15 percent and for other flexible funding options that will lead to better outcomes and results. As this bill moves through the legislative process, MFAN looks forward to continuing to work with the subcommittee to further enhance the effectiveness of foreign assistance.

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