• Inside Development

For US aid community, no easy response to the sequester

By John Alliage Morales07 March 2013

A glimpse the U.S. Capitol at night. Photo by: Alberto Ceballos / CC BY-SA

Days after sweeping budget cuts took effect in the United States, aid implementers continue to scramble for information to help anticipate the potential impact on their operations, and fears have swollen about everything from procurement delays to the closing of overseas offices.

At the same time, aid groups in Washington and beyond are hoping for the Obama administration and Congress to soften the blow of — or outright erase — some of the cuts in the coming days. Yet in today’s environment of partisan politics, such hopes could easily be squashed.

“Congressional prognostication has become a very challenging and very difficult art,” said Bill O’Keefe, vice president of government relations and advocacy at Catholic Relief Services, a major partner of the U.S. Agency for International Development. “So we have to be prepared for a number of scenarios and that’s what we’re doing, some scenario planning.”

O’Keefe and his peers are trying to answer the same question U.S. officials appear to still be grappling with: How exactly would cuts of up to $1.7 billion be allocated across the government’s aid architecture, and how would that affect operations especially at USAID and its partners?

The cuts are a result of what is being called sequestration: $85 billion in across-government cuts triggered after lawmakers missed a March 1 deadline to find offsets.

The sequester has prompted a flurry of meetings and phone calls to USAID and other government institutions from nervous partners. Behind closed doors, aid officials express fear about operations grinding to a halt, fewer and smaller contracts and grants being awarded, and missions in countries that are of lesser strategic importance to the United States closing down.

Amid all this uncertainty, some aid officials remain calm and hopeful. They continue business as usual. Many of them point at their increasingly diversified funding streams; organizations that rely heavily on U.S. government funding are expected to bear the greatest brunt of the looming cuts.

For now, aid groups are trying to gather what little information they can to gauge the potential impact of sequestration on USAID and other government-funded aid programs. They’re reaching out to their friends in the executive branch while educating and lobbying Congress — and especially freshman lawmakers and those who took office just two years ago — to reverse cuts, or at least to give government more leeway in applying them.

The first such chance may come in the coming days, as Congress debates a continuing resolution to keep government afloat for as much as the rest of the fiscal year, which ends Sept. 30. The U.S. government currently operates under a continuing resolution that expires March 27. The White House may also use its fiscal 2014 budget proposal, which has yet to be released, as a bargaining chip with the Republican majority in the House of Representatives in order to amend some of the terms of the sequester.

The aid community, by and large, seems to be in the dark about these behind-the-scenes negotiations at this point.

“For the time being,” O’Keefe said, “our vast guess and estimate is that most of what’s going on will continue.”

What-ifs

One of the most feared prospects for hundreds of U.S. aid implementers may be further delays in procurement, or the outright cancelling of projects that had previously been planned and put out for bids.

The White House’s Office of Management and Budget, in fact, has recommended that government agencies consider entering into new contracts only when “highly needed,” cancelling programs that exceed available funds for the year, and reducing assistance through formula funds or block grants, among other actions.

USAID’s procurement process is notoriously complex and long-winded, but in recent years has been sped up somewhat; sequestration could reverse those gains.

It may become tougher to win funding from USAID, said Robert Zachritz, government relations director of World Vision, which was awarded about $52 million from the agency last year.

“It’s a natural reaction,” Zachritz told Devex. “If you’re unsure if your budget is going to be cut, you’re going to hold back on allocating those funds until you get security. We’ve clearly seen and observed that.”

Around this time last year, USAID had signed at least 1,247 contracts (including projects for administrative work) worth around $653 million and obligated 511 grants worth about $680 million. From January to March this year, USAID signed 1,308 contracts worth about $554 million and obligated 363 grants worth around $668 million.

If history is any indication, USAID may shut down offices in countries that are of lesser strategic value or national security interest, O’Keefe of CRS noted.

“In the past, where the resources for the Food for Peace diminished and resources to USAID diminished, that was one of the responses: to close mission,” O’Keefe recalled.

USAID presently has missions in 98 countries.

“At some point they make cuts and some of their missions start to look to them as not strategic,” O’Keefe suggested. “The balance between the fixed cost of running up the operation and the amount of programs that they can push through, that balance becomes out of whack.”

Whatever the case, the sequester will certainly force austerity within the U.S. bureaucracy. The largest aid-related cut, with more than $400 million, may be to global health, but USAID’s operating expenses may also face painful reductions of around $70 million this year.

“We are concerned that with fewer people and fewer resources, the very necessary and already difficult administrative processes that are required are going to slow down and become more onerous,” O’Keefe said.

Agency leaders have already floated a variety of ways to save money, through hiring freezes, modified service contracts and fewer IT investments, for instance. At least for now, USAID has not issued furloughs.

As sequestration squeezes the aid budget, paperwork may be processed more slowly, travel budgets may be cut, and less technical assistance may be funded — a trend that could have a ripple effect with other donors that look for U.S. leadership in funding institutions such as the Global Fund to Fight AIDS, Tuberculosis and Malaria.

Wait and see

Aaron Williams, who rejoined RTI International in October as vice president for international development after serving as Peace Corps director for three years, said the sequester’s impact on foreign aid is too soon to tell. After all, the cuts only took effect last week.

Besides, he added, the U.S. aid budget has gone up and down over the last few decades. RTI isn’t yet changing its operations because of the sequester, he suggested.

“We’re looking at our programs and awaiting more instructions,” said Williams, who has also held leadership posts at USAID. “But at this time, we’re conducting our projects as we normally do.”

At the end of the day, aid officials suggest, organizations with highly diversified funding streams may be best positioned to weather the looming U.S. budget cuts.

Take, for instance, the Futures Group, a U.S. consultancy that merged last year with the Australian development management firm GRM International.

“In recent years, our company diversified our client base and sectoral focus to help us to better weather shifts in client priorities and spending,” Futures CEO Chris LeGrand told Devex. “While preserving our core working with the U.S. government, we have had recent success growing our work with DfID, AusAID and private foundations.”

Other aid groups may find themselves relying more heavily on individual donations and corporate partnerships. World Vision, for instance, raised $2.6 billion last year, and only 5 percent came from the U.S. government.

Still, U.S. government spending is often mirrored by other governments as well as the private sector, World Vision’s Zachritz suggested, noting that last year, public grants as well as corporate gifts to World Vision declined.

The good news is that existing aid projects appear not to be in jeopardy.

“The indications that we’ve gotten from variety of sources are that the U.S.-funded activities that are already approved or already obligated should be able to continue,” said O’Keefe, of CRS.

If these projects were to be stopped, staff would lose jobs, aid groups would be forced to sever ties with local counterparts, people relying on aid would lose their lives, and in the end, U.S. global leadership would be put in jeopardy. That’s the message aid groups are delivering to Capitol Hill these days, in the hope that lawmakers will halt the automatic cuts that began to take effect on March 1.

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About the author

Alliage profile
John Alliage Morales

As a staff writer, John Alliage Morales covers the Americas, focusing on the world's top donor hub, Washington, and its aid community - from Capitol Hill to Dupont Circle, Foggy Bottom to the downtown headquarters of USAID, the World Bank and Millennium Challenge Corp. Prior to joining Devex, Alliage worked for a variety of news outlets including GMA, the Philippine TV network, where he conducted interviews, analyzed data and produced in-depth stories on development and other topics.


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