Digging deep: How Trump's budget affects everything from local jobs to foreign stability

By Adva Saldinger, Michael Igoe 17 March 2017

The U.S. Department of State. Photo by: IIP Photo Archive / CC BY-NC

As President Donald Trump released his “skinny budget” outlining his top priorities on Thursday, leaders at development organizations, advocacy shops and on Capitol Hill were working overtime to figure out how best to tackle unprecedented cuts.

The budget proposes cuts of 28 percent to the base budget for the State Department and USAID, along with 37 percent cuts to the Overseas Contingency Operations fund, which is used to fund disaster response and emergency needs.

The budget proposes steep cuts that have been described by congressional and NGO leaders as “narrow-minded,” “small-hearted” and “disastrous,” although it is unlikely to be approved by Congress without significant changes. While the final budget will likely look quite different, many note that this blueprint provides a glimpse into how the Trump administration views foreign aid.

The short answer is: with great skepticism.

Speaking to reporters Thursday, Trump’s Budget Director Mick Mulvaney confirmed that development assistance would bear the brunt of the cuts Trump wants to levy at the foreign affairs budget. Asked how much of the 28 percent in cuts would be drawn from the foreign aid budget, Mulvaney simply said, “A lot of it.”

The overall budget request for the State Department and U.S. Agency for International Development for the 2018 fiscal year is $25.6 billion in base funding and $12 billion for OCO funding in conflict areas. That compares to $39.3 billion in base funding and $14.9 billion in OCO funding requested by former President Barack Obama last year.

The budget director reiterated that Trump wants to maintain support for U.S. diplomacy, which he views as a State Department “core function,” but said that the president wants to fulfill campaign promises he made to spend money at home on Americans, not in other countries.

“Most of the cuts within the State Department try to focus directly on foreign aid,” Mulvaney said.

One of the administration’s justifications for cuts, particularly to multilaterals and the United Nations, is that the U.S. bears too big a burden of the costs. The U.S. often contributes the highest amount in dollars, though it still gives less as a portion of gross national income or gross domestic product than other countries, such as the U.K.

Mulvaney said the administration would be unflinching in its commitment to reduce foreign aid. Asked point-blank by a reporter if they were concerned about the impact to the 20 million people currently at risk of starvation, Mulvaney said: “We're absolutely reducing funding to the U.N. and to the various foreign aid programs, including those run by the U.N. and other agencies ... The president said specifically, hundreds of times, you covered him: 'I'm going to spend less money on people overseas and more money on people back home.’ And that’s exactly what we’re doing with this budget.”

Congress

The power to determine U.S. budget ultimately falls to Congress, which will begin a lengthy process of holding hearings and debates and will be drafting its own budget. The president’s budget typically serves as a guide for Congress, although in this case both Republicans and Democrats in the House and the Senate have spoken out against slashing the foreign aid budget.

At a House Appropriations' Subcommittee on State, Foreign Operations, and Related Programs that met on Thursday to hear testimony from members of Congress about foreign aid budget matters, a number of congressional members voiced their concerns for the cuts and advocated for issues and programs they want to see maintain or gain funding.

Rep. Hal Rogers, a Republican from Kentucky and the committee chair, did not mince words when addressing his colleagues.

“I’m absolutely shocked at the administration’s puny request for this worldwide effort to defeat ISIS — maybe not necessarily on the battlefield — such as in soft warfare, if you will. So I share your frustration with the so-called ‘skinny budget’,” said Rogers, who, as chair, plays a key part in the appropriations process.

“The U.S. has a vital role to play in advancing democracy, protecting the innocent, helping the displaced and vulnerable, and offering diplomatic solutions to overseas unrest and other challenges abroad. For example, to protect our national interest, we need an aggressive plan to fight ISIS, which requires a comprehensive approach — not just military engagement but also the full and responsible use of all diplomatic tools at our disposal,” he said.

His counterpart Rep. Nita Lowey, a Democrat from New York and the ranking member, called the budget “shocking” and “disappointing” and said she would work to “turn this budget upside down.”

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Even some who have campaigned on a platform that opposed what they see as a bloated aid spending took aim at the cuts.

Rep. Ted Yoho, a Republican from Florida, gave one of the strongest arguments for foreign aid spending in testimony that started with “I’m a guy who came up here to get rid of foreign aid.”

He said that while reform of foreign aid is necessary, it is not possible to balance the budget on discretionary spending, and strategic investments open new markets for the U.S. businesses and in turn create jobs. Today 11 of the top 15 export markets for the U.S. were recipients of foreign aid, Yoho said.

“This investment in foreign aid, when it’s targeted and managed correctly, can yield great returns,” he said. “The small but cost effective investments we make in the international affairs budget help advance our national security interests at home and abroad and spur American economic and job growth.”

The United States Trade and Development Agency, he noted, returns $85 in exports for every dollar spent and has generated $56 billion in exports, supporting about 300,000 U.S jobs since it was founded in 1992. The Overseas Private Investment Corp, meanwhile, supports 2,200 jobs in Yoho’s state alone and contributes to deficit reduction. The representative called for continued investment in foreign aid and asked the committee to support a budget close to the one in place for the 2017 fiscal year.

“This will allow for needed reforms in our international aid programs while not sacrificing our security or economy for splashy headlines that say we are cutting American foreign aid — which will ultimately do nothing to address our current debt crisis and creating yet another vacuum by the lack of American leadership to be filled most likely by a foe to our country and ideals,” he said.

Chairman of the House Foreign Affairs Committee Rep. Ed Royce, a Republican from California, also expressed concern. He said that it is unclear how the administration will apply the proposed cuts, especially when certain expenditures, such as embassy security and military assistance to Israel, will be maintained.

“I am very concerned that deep cuts to our diplomacy will hurt efforts to combat terrorism, distribute critical humanitarian aid, and promote opportunities for American workers. Especially when the U.S. is fighting ISIS and millions are at risk of starvation around the world,” he said in a statement. “Today, America faces grave and growing threats. We need a strong reform budget that will improve the effectiveness and efficiency of foreign assistance.  And we can achieve this without undermining vital U.S. economic and national security interests.”

House Majority Leader Rep. Mitch McConnell, a Republican from Kentucky, had also previously spoken out against the cuts, saying that he is not in favor of reducing funding for the 150 Account, which is the foreign aid account. “I, for one — just speaking for myself — think the diplomatic portion of the federal budget is very important and you get results a lot cheaper, frequently, than you do on the defense side,” he said.

Members of the Senate, including South Carolina Republican Lindsey Graham and Democrats Chris Coons from Delaware and Ben Cardin from Maryland all voiced their opposition to the cuts as well.

Agencies at risk

The budget also came down hard on several agencies focused on promoting private sector engagement in development. OPIC, the USTDA, and the U.S. African Development Foundation, which provides grants to African entrepreneurs, were recommended for elimination.

As Rep. Yoho and others note, targeting those organizations in the budget sends a mixed message. An “America first” budget should be focused on U.S. job creation, should be fiscally responsible and protect national security interests. Cutting agencies geared toward leveraging U.S. government dollars and helping countries develop economies so that they will be less reliant on aid doesn’t make sense, they argue.

Inside the fight for OPIC reauthorization

Advocates and critics are staking their cases and looking to an upcoming battle for reauthorization of the Overseas Private Investment Corporation in Congress.

Eliminating OPIC, in fact, creates a budget shortfall as it typically generates approximately $280 million a year for the U.S. Treasury.

“It seems to me if there’s any attractive way in engaging with development, it’s to do so with a private sector business model and a focus on efficiency and profitability,” Elizabeth Littlefield, the former CEO of OPIC, told Devex. “OPIC’s role is to help create markets that help build self reliant societies,” she said — adding that it helps build “more peaceful stable societies that over time will no longer need support.”

For Robert Mosbacher Jr., another former OPIC CEO, several things about the elimination of OPIC are “baffling.” First, from a budget standpoint, eliminating OPIC also means eliminating about $280 million a year in dependable revenue; second, if U.S. companies can’t compete in emerging markets then they “abandon that field to Chinese investment and Chinese influence, which I was under the impression this administration was concerned about,” he said. His third point is that if the greatest threat is violent extremism, then the more that can be done to create jobs and markets in areas with high unemployment that are fertile ground for breeding extremism, the better for long-term stability and security, he said.

Criticisms of OPIC as interfering with the private sector or providing services that commercial banks could undertake are ill-founded and not based on the experience of people and companies that have actually done business in the markets OPIC lends in, he said, adding that OPIC takes additionality seriously and is “focused on making sure that’s the case precisely so they don’t crowd out or distort markets,” he said.

But Mosbacher said this is not the first time people have gone after OPIC; the agency has survived multiple attacks, and ultimately none of them succeeded once people understood the details about why it is an “important and necessary agency.”

Both OPIC and USTDA impact U.S. jobs. Last year USTDA spending created 18,000 export-related jobs in the U.S. and the agency has a history of success documented by internal and external evaluations, Leocadia Zak, the former director of USTDA, told Devex.

“What it seems is they are clearly not well informed and anyone at this time trying to create jobs would be scaling up the agency, not eliminating the agency budget,” she said.

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These agencies will all be working to educate members of Congress about the work that they do and the value they provide for the U.S. Part of that effort will likely be done by companies that have benefitted from the loans or guarantees OPIC provides or have been able to invest in a project USTDA supported.

Zak, Littlefield and Mosbacher all told Devex that they were confident congressional members would support their work once they understood the work of the agencies, the efficiency with which they work, and their value to the U.S.

“There seems to be a misunderstanding about the impact of the programs and a misreading of the benefits to the U.S. of these programs,” Mosbacher said. “Limited government has consequences. Rather than taking a meat axe to things, you really ought to look at what does it cost, what is the cost of eliminating it? I’m not sure that exercise has been pursued.”

Questions for MDBs

Trump’s budget also includes a $650 million cut spread over three years in U.S. contributions to multilateral development banks, including the World Bank, Asian Development Bank, Inter-American Development Bank, African Development Bank and others.

Given the extent of other proposed cuts to foreign aid — and the fact that the reduction to international programs run from the U.S. Treasury Department falls heaviest on global climate change programs — the damage to U.S. involvement in these institutions looks comparatively light.

The budget outline does not suggest how the cuts in U.S. contributions would be spread throughout the various MDBs, so it’s impossible to say whether certain banks would feel the weight of cuts more than others. The World Bank, for example, might be better positioned to weather a modest reduction in U.S. contributions than the significantly less-resourced African Development Fund.

But even a relatively small cut in U.S. contributions to the World Bank could have some significant consequences.

If the U.S. cuts back its commitment to the bank’s International Development Association — which relies on donor replenishments to provide low-interest loans and grants to the world’s poorest countries — that could “trigger a round of pullbacks from other donor countries,” said Scott Morris, senior fellow at the Center for Global Development.

The U.S. already has a track record of not making good on its IDA pledges, Morris said, and that “has engendered a fair amount of resentment” among other donors. Their reaction has been to push for mechanisms that would scale back their own obligations if the U.S. reduces its funding, not to pick up the extra slack by donating more, he said.

The World Bank has also recently sought to leverage its IDA capital on the market, in order to lend more money for projects in developing countries. The bank’s ability to do that is dependent on IDA maintaining a AAA credit rating, Morris said, which in turn depends on IDA’s ability to demonstrate support from its donors.

“You can imagine a scenario where any U.S. pullback … would be viewed as a cause of concern,” Morris said.

‘Greatest strategic importance’

Without providing additional details, Trump’s budget outline suggests that the administration plans to reconsider which countries receive U.S. foreign assistance, and how much.

The blueprint speaks to a spending plan that “refocuses economic and development assistance to countries of greatest strategic importance to the U.S. and ensures the effectiveness of U.S. taxpayer investments by rightsizing funding across countries and sectors.”

Development implementers were left wondering what criteria the Trump administration would use to determine what constitutes a strategically important country and what the impact might be for future geopolitical relationships.

“The places we’re not investing in, and not building partnerships in, are the ones that are going to be the super strategic places in 15 years,” said Bill O’Keefe, vice president for government relations and advocacy at Catholic Relief Services.

“We cannot afford to leave vast areas of fragile and ‘unstrategic’ parts of the world untouched by our influence, because our experience has shown that just leads to problems that we will have to deal with later,” he added.

A teachable moment

The cuts, while damaging and dangerous, have “shone a spotlight on a normally ignored part of the budget,” ONE Campaign's Hart said. The result is a moment when organizations and development advocates can teach members of Congress, and by extension, the public, about the efficacy and strategic importance of foreign aid.

Lobbying efforts ramp up in the wake of proposed cuts to US aid

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And capitalizing on that moment is important. Development professionals and organizations now must focus on publicizing how the work they do and the programs they run matter to America, said Liz Schrayer, the president and CEO of the U.S. Global Leadership Council. USGLC has been meeting with congressional members and senators in D.C. and at events in their home states to talk about the importance of foreign aid, and bringing together business, faith and military leaders to make their case.

Congress, meanwhile, has thus far shown a willingness to prioritize foreign aid. Apart from its public criticism of the aid budget, Congress recently passed eight pieces of bipartisan foreign aid legislation ranging on issues from water to women, to fighting human trafficking and bringing energy to Africa.

The question for many now is how likely is Congress to push back significantly on these proposed cuts?

“The reality is that the president’s budget is actually fairly meaningful ... It does create a baseline to judge other spending and so that’s going to show up in any analysis of any appropriations bills that move or any other analysis of what Congress does on the budget,” argued Tony Fratto — a partner at Hamilton Place Strategies, a public affairs consulting firm — who has worked in the White House and the U.S. Treasury Department.

To just say that the budget is dead on arrival doesn’t quite “capture where we are,” he said.  

But Schrayer, who calls herself an optimist, said that while she recognizes “that there are a lot of competing interests,” she believes “members of Congress on both sides of the aisle recognize we live in complex and challenging world and that 1 percent of the federal budget is a small amount of money to protect our America first interests.”

More questions than answers

Such predictions, however, belie the fact that huge holes in everyone’s understanding of the budget remain.

While the budget outlines broad strokes and priorities, and even specifics about a few programs, it doesn’t present a complete story, said Tom Hart, ONE Campaign North America executive director. According to an early analysis by ONE, the specific cuts outlined to foreign aid only add up to between 10 and 15 percent of the $10 billion proposed cuts.

“That has us very concerned,” Hart said, adding that development assistance, and economic support funds for USAID — which support education, food security, clean water and microfinance — might see severe cuts. “But to be clear none of that is spelled out in [the] budget.”

Among the recommendations outlined in the budget is that some savings or efficiencies could be derived from “reorganization and consolidation” of USAID and the State Department, but Fratto said he’d be surprised if Congress would support incorporating USAID into the State Department.

“If you want these programs to be technically sound, focused on their effectiveness, then you don’t want to have political involvement, political hands directing where the money goes based on other criteria,” he said.

And while there were clear positions on how certain organizations will fare, the budget provided no indication of how the cuts would affect the Peace Corps, the Millennium Challenge Corp. or key Obama administration programs such as Feed the Future and Power Africa, both of which received congressional backing through legislation last year.

Trump’s full budget is expected in May. By that time, said Hart, “Congress will be well into the process” and will doubtless have their work cut out for them.  

“We expect another shoe, or shoe store, to drop here when we see the details that make the $10 billion cut possible,” he said.

Stay tuned to Devex for more news and analysis of what the Trump administration means for global development. Read more coverage here and subscribe to The Development Newswire. 

About the authors

Adva%2520saldinger%2520photo
Adva Saldinger@deveximpact

As a Devex Impact associate editor, Adva leads coverage of the intersection of business and international development. From partnerships to trade and social entrepreneurship to impact investing, she enjoys exploring the role the private sector and private capital play in development. Previously, she has worked as a reporter at newspapers in both the U.S. and South Africa. Most recently, she has been ghostwriting a memoir for a former child slave and NGO founder in Ghana.


Igoe michael 1
Michael Igoe@AlterIgoe

Michael Igoe is a senior correspondent for Devex. Based in Washington, D.C., he covers U.S. foreign aid and emerging trends in international development and humanitarian policy. Michael draws on his experience as both a journalist and international development practitioner in Central Asia to develop stories from an insider's perspective.


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