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International Affairs Budget Update
November 7, 2014

1. Ebola Emergency Supplemental Request

On Wednesday, the White House sent to Congress an emergency FY15 supplemental request to address the Ebola crisis, both at home and abroad. As the virus has continued to spread rapidly, infecting over 13,000 in West Africa and a handful of people in the United States, lawmakers remain concerned about the epidemic and its economic and national security implications.

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The $6.18 billion Ebola supplement request is designated as emergency funding and would fall outside the FY15 spending caps. The
supplemental is divided between needs at home and abroad, with 53% of funds dedicated to homeland needs and 47% to programs overseas.

Of the total, $2.9 billion (47%) falls within the International Affairs Budget. The request includes $4.64 billion for immediate needs and a $1.54 billion Contingency Fund, which could be tapped by a Presidential designation and notification to Congress. Congress approved a similar funding mechanism in 2009 for an emergency supplemental addressing the H1N1 response.

Within the $4.64 billion for immediate use, there is $2.1 billion for programs managed by USAID and the Department of State.

The largest portion of the International Affairs part of the supplemental - $1.4 billion for USAID's International Disaster Assistance account - would be
available both to meet growing needs in West Africa and to replenish funds previously drawn from emergency resources so as not to disrupt the
U.S. responses to other humanitarian crisis in Syria, Iraq, and elsewhere. As of November 5, USAID's Office of Foreign Disaster Assistance had committed $174 million to the Ebola response with the total USG overseas contribution standing at $415 million. The additional $340 million in global health funding would provide capacity for USAID to engage in the Administration's Global Health Security Agenda while the $212 million in ESF
appropriations aims to mitigate the impact of the Ebola crisis on health, governance, economic stability, and recovery in the region.

Beyond the International Affairs portion, the supplemental proposes $2.43 billion for the Department of Health and Human Services (HHS), primarily for addressing domestic needs although some portion would be available for CDC programming in West Africa. In addition, the Department
of Defense would receive $112 million to support research and development of technologies relevant to the outbreak.

The $1.54 billion Contingency Fund is divided nearly equally between ESF International Affairs funds ($792 million) and HHS ($751 million). The Contingency Fund would be available to address unforeseen changes in the epidemic, maintaining maximum flexibility with transfer authority to meet virtually any critical needs that arise across the government.

Congressional Reaction

The Ebola supplemental is not expected to be without controversy. The fact the new money is not offset and comes above the spending caps is likely to pose a problem for some fiscal conservatives. To address this issue, Members may propose offsets to pay for the package or seek to limit
its size to only the most immediate requirements. In addition, some members will raise concerns about the flexibility built into the Contingency Fund.

The supplemental request will be the subject of hearings next week in both chambers. Senate Appropriations Committee Chairwoman Barbara
Mikulski (D-MD) has already scheduled a hearing next Wednesday, November 12th, to exam the request and the U.S. response to the outbreak.
Testifying for the State Department and USAID will be Heather Higginbottom, the Deputy Secretary for Management and Resources, and Nancy Lindborg, the Assistant Administrator for the Bureau for Democracy, Conflict, and Humanitarian Assistance. The House Foreign Affairs will also hold a hearing related to the outbreak and request later next week.

2. Lame Duck and FY15 Funding

Following the dramatic results of Tuesday's midterm elections, Congress returns to Capitol Hill next Wednesday for the lame duck session, with at least one major "must do" item on the agenda: finalizing FY15 appropriations before the current Continuing Resolution (CR) expires on December 11th. Wrapped into this debate will be consideration of the supplemental funding to fight Ebola and ISIS. The President requested a $6.2 billion supplemental package to fight Ebola on Wednesday (see details above), and the Administration is expected to request a package to fight ISIS soon.

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Decisions on finalizing FY15 appropriations will be front and center in the coming days, as leaderships gauges Members preferred path for funding the government after December 11th. There are three scenarios for how it could play out:

1. Omnibus: combine all 12 appropriations bills into one measure;
2. Short-term CR: pass another CR until early/mid 2015;
3. Long-term CR: pass a year-long CR.

While House and Senate leadership is generally inclined to resolve FY15 appropriation matters through an omnibus, that approach is likely to face resistance from some fiscally conservative Republicans who prefer to delay action until next year when they will hold majorities in both the House and the Senate so that the spending bills can be rewritten to better align with conservative priorities, including making significant changes to the Affordable Care Act ("Obamacare").

House and Senate Appropriations staff has been meeting in recent weeks to reconcile the differences between the twelve appropriations bills and prepare for a potential omnibus measure. A decision will likely be made by leaders in both chambers as early as later next week on whether to move an omnibus or enact another CR, short or long-term.

FY15 International Affairs Budget

The current FY15 CR provides approximately $50.4 billion for International Affairs - $43.9 billion in base funding and $6.5 billion for Overseas Contingency Operations (OCO). The CR, which was adopted in September, is largely "clean" in that it does not include new, controversial
policy riders and largely maintains spending at current levels, with a few exceptions.

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A key issue and area of concern for finalizing International Affairs funding levels is how to resolve a large difference in base funding between the House and Senate versions of the bill. While both the House and Senate State-Foreign Operations bills are nearly identical on the total spending level ($50 billion), they differ significantly on the split between base and OCO funding with the Senate cutting base funding $2.7 billion and shifting those monies into the off-budget, OCO account.

While the Senate's boost in OCO funds would mitigate the impact of the base cuts in the short-term, it sets a dangerous precedent in the long-term as it erodes base programs. In the event an omnibus bill is considered, it is expected to include base and OCO State-Foreign Operations funding levels that fall closer to the Senate levels of $39.7 and $8.6 billion respectively.

The other challenges for reconciling the State-Foreign Operations bills are in the priorities outlined in each bill. Both the House and Senate bills prioritize funding for disaster and refugee aid, global health, and embassy security. In addition, both measures add funding above requested levels for Ukraine and other former Soviet and East European nations that face regional threats. However, the House imposes significant cuts in contributions to International Organizations, UN Peacekeeping, and several Multilateral Development Banks while the Senate maintains funding levels in keeping with the Administration's request.

3. FY16 Budget Preview

The FY16 budget season is right around the corner, with the President expected to send his budget to Congress in early February. Per Office of Management and Budget (OMB) guidance earlier this year, federal departments and agencies are submitting two FY16 budget requests to OMB this month as part of the review and pass-back process: one request at flat levels to reflect sequestration and another at 5% above current spending levels. This latter option is expected to be the approach the Administration takes in its final FY16 request, proposing a budget that increases discretionary spending above sequester levels (see below) by finding alternative savings and revenue increases in the budget.

As noted above, FY16 will see automatic across-the-board cuts under sequestration kick back in for discretionary spending accounts, with the
International Affairs budget classified as part of non-defense discretionary (NDD) spending. Under sequestration, defense programs would face a cut of 9.4% while NDD would be cut 7% compared with the caps set out in the Budget Enforcement Act of 2011. However, because the FY16 NDD discretionary spending cap allows for a $10 billion increase from FY15 spending levels, the magnitude of the sequester cut in FY16 will be far less than it initially appears. Adjusting for both a larger spending cap and then the sequester cut would mean roughly flat funding for NDD programs compared with FY15.

Some Republicans are expected to push to undo sequester cuts for defense spending while maintaining sequester cuts for NDD spending. Potentially complicating FY16 budget negotiations further, the latest increase in the debt limit will expire in mid-March -- although it likely would not be
breached until the summer. According to the latest CBO projections, an increase of about $1 trillion in the debt ceiling will be needed through
the November 2016 election.

In short, the FY16 budget debate is expected to be a significant show-down between Capitol and the White House, as both entities use it as a vehicle for highlighting the spending and policy differences between the two parties in the lead up to the 2016 Presidential race.


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