Same Wine, Different Bottle: The Fiscal Year 2014 Foreign Operations Budget

On April 10, 2013, the President released his fiscal year 2014 budget request. Much of the debate in the ensuing days focused on the effects of sequestration, entitlement reforms, tax increases, and whether or not the House Republicans will negotiate with the administration. Although these larger issues merit attention and will drive the debate, the details in the budget are equally important. In particular, the State and Foreign Operations budget (also known as the 150 account) says a lot about where the Obama administration places its priorities in terms of diplomacy and development. The FY2014 budget request supports the pivot to Asia, reduces the civilian development focus on the wars of the past decade in tandem with the Pentagon’s drawdown, and continues to support investments in health and agricultural development. The budget request includes a modest increase in baseline funding and a significant decrease in overseas contingency operations, which results in a slight decrease in the overall budget.

The FY2014 Foreign Operations budget request includes $48.1 billion in base funding and $3.8 billion for overseas contingency operations (OCO)—a total of $51.9 billion. This represents a cut of $2.4 billion from the FY2012 approved Foreign Operations budget (last year Congress passed a continuing resolution to fund FY2013), which totaled approximately $54.4 billion. When the Budget Control Act of 2012 (sequestration) took effect, approximately $2.6 billion was cut from the FY2013 continuing resolution: $850 million from State operations and $1.7 billion from foreign assistance accounts. As with the rest of the administration’s FY2014 budget, the Foreign Operations budget request ignores sequestration. Although the request generally appears to be a flat budget on the surface, it actually represents a significant increase of $4.9 billion in the baseline budget from FY2012. However, around $1 billion of this growth is simply the transfer of OCO funding for Afghanistan and Pakistan to the regular economic support fund budget.

The administration’s priorities remain roughly unchanged in this budget: global health, food security, and climate change. Health, including PEPFAR, the President’s Malaria Initiative, and others, are the center-piece of U.S. development efforts and one of the largest accounts in the Foreign Operations budget. Further, it supports the pivot toward Asia with increased funding to countries in this region, including a substantial increase for Burma. In addition, the FY2014 request includes substantial cuts to funding for Afghanistan, Pakistan, and Iraq—the so-called “front-line states.” This is in line with broader U.S. policy, which has seen a substantial drawdown of military forces over the past year. In spite of this, Pakistan and Afghanistan remain the two largest recipients of U.S. foreign assistance (outside of security assistance). With the transfer of some U.S. aid from OCO to the regular budget, the administration is seeking to move toward a more sustainable, long-term development relationship.

Within the budget, there is some evidence that the administration is beginning to shift its focus and resources. In particular, the FY2014 request begins to transform the U.S. relationship with rising middle income countries such as Brazil and India. In both instances this will involve moving toward a more traditional donor-to-donor relationship and be more responsive to the needs of these countries. This is an important shift and one that will free up funds for other priorities. The budget contains a notation that in Tanzania and Ghana the administration is shifting funds to address constraints to growth that were identified through an analysis performed in each country under the Partnership for Growth program.

It is something of a Washington truism that foreign aid is the “low-hanging fruit” of the federal budget, meaning in times of debt and deficit it easy to cut this money because it goes overseas and does not directly benefit Americans. In large measure, this explains the growing desire by some in Congress to substantially reduce the amount of foreign aid. For example, the House recently approved a budget resolution that provided $38.7 billion in base funding for the FY2014 Foreign Operations budget. This constitutes a proposed an extra 7 percent cut on top of the 5 percent sequestration cut. The broader development community, for its part, warns that cuts (or any cuts for that matter) like this will have catastrophic effects for developing countries. Neither position gets the United States to where it should be: aid aligned with the broader strategic goals of the country. As the largest donor in the world in terms of money spent, the United States has long had the luxury of being everywhere or almost everywhere. Even though the foreign aid budget represents less than 1 percent of total federal spending each year, it will still be cut. This is an opportunity for U.S. development to more strategic and targeted in creating lasting growth; the FY2014 budget request does not do that.

With bigger battles looming over spending, it remains to be seen if the President’s FY2014 is approved. It seems possible that, absence a broader grand bargain, FY2014 will again be funded by a continuing resolution. Therefore, the opportunity still remains for this administration to leave a lasting mark on how U.S. aid is programmed. But we may have to wait till next fiscal year to see this happen.

Conor M. Savoy is a fellow with the Project on U.S. Leadership in Development and Project on Prosperity and Development at the Center for International and Strategic Studies (CSIS) in Washington, D.C.

Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

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