In wake of rescission battle, US aid community faces spending restrictions

WASHINGTON — While U.S. aid supporters recently managed to fend off another attempt by the White House Office of Management and Budget to rescind funding for global development programs, the U.S. Agency for International Development and the State Department are still facing restrictions that limit the rate at which they can spend their money until the end of the current fiscal year. Aid advocates have described a general state of confusion surrounding the funding restrictions, which they say have been difficult to parse, and some have worried that USAID programs might be cancelled as a result of having to align spending with OMB’s directive. The latest notice from OMB offers greater spending flexibility than a previous daily spending limit that had been in place, but has still raised concerns that members of the administration are using budgetary powers to take political swipes at U.S. development programs. “President Trump has made it clear that U.S. foreign aid must prioritize the interests of the U.S. and our allies.” --— Senior administration official, U.S. State Department “They decided to use this rather arbitrary number to continue to make a point that there are these large pipelines of unobligated funds, and ... in their view, that this is because [State Department and USAID] don’t have things [they] can spend the money on,” said Conor Savoy, executive director of the Modernizing Foreign Assistance Network. On Aug. 3, OMB issued a directive freezing roughly a dozen USAID and State Department accounts, and ordering the agencies to report back on how much money those accounts contained. The amount of funding in question was believed to be over $4 billion. While that opening salvo never turned into a full rescission package — as was widely expected — it did come with some additional strings attached. On Aug. 9, OMB issued another directive stating that USAID and the State Department were limited to spending less than 2% of remaining unobligated funds in the affected accounts per day. That daily spending limit effectively served as a “pseudo-rescission,” Savoy said, since it required a rigid spending schedule that would have made it difficult for the agencies to obligate all of their remaining funding before the end of the fiscal year on Sept. 30. On Aug. 29, in another letter recently obtained by Devex, that daily restriction was replaced by a weekly restriction for the month of September — the last month of the fiscal year. For September, funding in the affected accounts is being released in weekly increments of 25%, every Sunday. If the agencies do not obligate money in one week, it carries over to the next. That means that State and USAID will have seen all of their remaining unobligated funds “unlocked” by Sept. 22. When the letter first appeared and began to circulate around the U.S. development community, many struggled to understand exactly what OMB was ordering. “One-quarter of the balances in the [Treasury Appropriation Fund Symbols] included in this letter that are unobligated as of September 1, 2019, and were not available for obligation under the August 9 letter as of such date, shall become available for obligation on a cumulative basis on each of the Sundays between September 1st and September 22nd of 2019,” reads the letter from OMB Associate Director for National Security Programs Michael Duffey. According to people with knowledge of the international deliberations over foreign aid spending, this change amounted to a small victory. “My understanding is that there was a fair amount of back and forth behind the scenes with State and AID pushing back very hard on OMB and that is what ultimately led to this weekly obligation rate,” Savoy said. When asked for further explanation, USAID referred questions to the State Department. This is how a State Department official described the situation in an email to Devex: “The 1.89% daily obligation rate imposed by the Office of Management and Budget (OMB) on some State Department and USAID accounts was effective through August 31. Beginning September 1, OMB has allowed the State Department and USAID to obligate the remaining unobligated resources for the affected accounts at a rate of 25% per week.” When asked about the intention behind these funding policies, a senior administration official wrote to Devex, “President Trump has made it clear that U.S. foreign aid must prioritize the interests of the U.S. and our allies.” The same senior administration official pointed Devex to nine different examples of waste, fraud, and abuse in U.S. and multilateral development and peacekeeping programs, as documented in news articles and think tank reports dating from 2000 to 2018. Two of the examples cited by the senior administration official were a 2008 Washington Post story about wasted funding in a Sudan peacekeeping mission, and a 2016 report from the Heritage Foundation about sexual abuse in the peacekeeping system. The proposed rescission package included two accounts associated with contributions to U.N. peacekeeping, believed to amount to more than $750 million in funding. U.S. aid advocates view the spending restrictions as a further attempt by OMB to drive home their perspective that the State Department and USAID dump money into wasteful programs at the end of the fiscal year, according to Savoy. “Most people will acknowledge that there is this glut that happens at the end of every fiscal year. It’s not unique to this particular administration, and folks do have frustrations that AID and State come around and immediately start just kind of dumping money in the last couple of months of the fiscal year, because often it’s ‘use it or lose it’ money,” Savoy said. “If you really wanted to get at this problem and try to fix it, you would actually talk to the community, talk to AID and State, talk to the Hill and identify potential solutions for this, and they’re not doing that, because that’s not what they actually want to do,” he added. Given that the funds in question have already been appropriated — and the programs they support approved — by U.S. Congress, others noted that it appears OMB is using funding restrictions to achieve its own policy goals. “OMB’s latest restriction on spending foreign assistance appropriations — while perhaps legal — further demonstrates how this Administration employs fiscal law principles to achieve its policy objectives,” Robert Nichols, a partner at the USAID-focused law firm Nichols Liu, wrote to Devex. “Lawmakers and industry would do well to keep a vigilant eye on such maneuvers,” he added. Industry groups take a similar view. “While we recognize that changing priorities occur in every administration, the method by which these caps were imposed, and the confusion they created among recipients and host governments, does little to maintain coherent program funding,” Alan Chvotkin, executive vice president and counsel of the Professional Services Council, an advocacy group for development contractors, wrote to Devex.