Increasing Flexibility and Responding to Global Challenges within the 150 Account

To effectively respond to today’s global challenges, the United States must rethink its approach to how it budgets, appropriates, and spends its foreign assistance. The State, Foreign Operations, and Related Programs Appropriations Bills and Act (SFOPs)—often referred to as the “150 Account”—funds the majority of U.S. foreign assistance, with activities ranging from global poverty alleviation to the promotion of democracy to women’s rights.¹ Over the past 25 years, the foreign assistance budget has become a web of multi-year presidential initiatives (e.g., the U.S. President's Emergency Plan for AIDS Relief (PEPFAR), the President’s Malaria Initiative (PMI), and Feed the Future) and “hard” and “soft” congressional spending directives that fund a series of sector and regional priorities. These initiatives and directives frequently reflect the choices of individual members of Congress, advocacy groups, the White House, and other Washington-based individuals, rather than the actual needs and desires of developing countries. At a time of increasingly complex global challenges—where foreign assistance can play a strong role—these directives needlessly constrain the U.S. government from meeting the challenges of today. Moreover, they restrain the United States from meeting the development priorities of its partner governments.

Increasingly, U.S. foreign assistance will be refracted through the lens of strategic competition. Under the leadership of the Chinese Communist Party, China presents a unique threat to U.S. power around the world. Unlike the Cold War, strategic competition with China requires that the United States bring a full suite of power to bear; central to this effort are foreign assistance and other tools of economic engagement. To reflect this reality, Congress and the executive branch should find ways to update the 150 Account to better reflect the world as it is today. This will require giving the Department of State and the U.S. Agency for International Development (USAID) greater autonomy to pivot funding allocations to better address emerging opportunities and pressing global challenges, including Covid-19, climate change, and great-power competition. To be sure, this reflects long-running constraints on the ability of the State Department and USAID to reprogram funds to meet emerging challenges. In the background of this discussion around meeting new challenges is a recognition that the United States will need to reconsider how it programs its people, time, money, and other soft-power resources—beginning with the nature and number of directives in the 150 Account.²

State and Foreign Operations Budget (150 Account)

U.S. foreign assistance programmed through the 150 Account is the backbone of U.S. soft power and engagement abroad, supporting a wide range of programming and assistance, as well as diplomatic activities. The 150 Account funds the majority of U.S. bilateral foreign assistance and provides essential funding for the operation of U.S. consulates and embassies, military assistance for U.S. allies, economic assistance to support new democracies, promotion of U.S. exports, payments to international organizations, bilateral development assistance, contributions to multilateral institutions, and international peacekeeping efforts. Funding from the 150 Account is programmed through the State Department and USAID primarily, but also by the Department of Agriculture, the Department of the Treasury, and the Millennium Challenge Corporation (MCC), to name a few. Despite its wide mandate, foreign aid makes up less than 1 percent of the U.S. federal government budget.

In its first budget request, the Biden administration requested $63.6 billion for the fiscal year (FY) 2022 president’s budget. This represented an 11 percent increase from what Congress appropriated for FY 2021. It also was a reversal of four years of a Trump administration that routinely proposed 20 percent to 30 percent cuts to the SFOPs budget, cuts, which were rejected by Congress. SFOPs appropriations fund a variety of international activities, including diplomatic exchanges, education, development, humanitarian assistance, and U.S. participation in multilateral organizations. For the past several years, total U.S. foreign assistance or what is counted as non-military foreign aid has hovered around $34 billion to $35 billion annually. Approximately 88 percent of U.S. assistance is provided via bilateral channels, while the remaining 12 percent funds U.S. multilateral commitments, including UN dues and paid-in commitments to the multilateral development banks.

Bilateral foreign economic assistance is divided into several accounts, including Development Assistance (DA), the Economic Support Fund (ESF), global health programs, International Disaster Assistance (IDA), and others. The State Department and USAID are responsible for approximately 80 percent of this funding. Table 1 shows the main appropriations accounts for the SFOPs budget along with their periods of availability and purpose. Congress, by putting funding into accounts, is already signaling how the U.S. government should spend the funding.

Earmarks and directives build on top of the rigid account structure. Spending directives affect each of these accounts differently. International Disaster Assistance, Transition Initiatives, and the Complex Crises Fund are relatively free of spending directives. Other accounts—DA, ESF, Assistance for Europe, Eurasia, and Central Asia (AEECA), and the Democracy Fund (DF)—are subject to significant sector and regional directives that limit the ability of the State Department and USAID to program these funds to tackle emerging opportunities or challenges. The Global Health account is also subjected to congressional directives, with funds allocated to counter specific diseases (e.g., AIDS/HIV, malaria) or to tackle specific health challenges (e.g., child and maternal health).

Spending Directives Impede Ability to Compete

The nature of U.S. foreign policy priorities and strategic interests has changed dramatically since Congress passed the Foreign Assistance Act of 1961 at the height of the Cold War. Extreme poverty has fallen significantly over the past 30 years, while diseases such as smallpox and polio have been essentially eliminated. Globalization and the expansion of supply chains, an explosion of free trade agreements, and the influx of digital technologies and infrastructure have all created new economic opportunities. With these new opportunities have come new U.S. government policies such as the USAID Digital Strategy, which represents a new paradigm in the U.S. approach to advancing development and humanitarian assistance.

The Covid-19 pandemic, however, illustrates how an interconnected world can also facilitate the rapid spread of disease. It also shows that many countries remain vulnerable to economic and development backsliding. Climate change presents new and more acute challenges, and the United States must confront strategic competitors with their own alternative development models that threaten to undermine U.S. soft power and interests abroad.

Moreover, many of the sector directives within the SFOPs appropriations bill were introduced 25 years ago or steadily added since then. These directives are not reflective of today’s realities; many are the product of post–Cold War logic that sought support from sector advocates to maintain political support for foreign assistance. Supplemental foreign assistance has typically only been appropriated in response to global health crises, such as Covid-19, Ebola, and Zika. Since the early 1990s, there has been a significant increase in the number of soft and hard directives for sectoral priorities. These increases in directives over the past 30 years have restricted the ability of the executive branch to mobilize foreign assistance to address critical foreign policy and development requirements and have limited the strategic nature of U.S. foreign assistance.

Significantly, most spending directives within the foreign assistance budget are sector- or program- focused. This limits the ability of USAID and others to pivot to meet changes at the regional or country level. Prior to the Nixon administration (1969–1974), there were no sector accounts. These accounts were created during the late 1960s to increase foreign aid and make it more appealing to potential recipient countries. The shift to more sectoral accounts can be explained by several factors: (1) the separation of powers between Congress and the executive branch, (2) a congressional interest to prioritize a more poverty-focused approach to foreign aid, (3) a lack of trust between branches of government that aid dollars will be spent appropriately, (4) a disconnect between country and sectoral focuses, and (5) lack of alternative measures of progress (i.e., data). Chart 2 below shows the largest sectoral/programmatic hard directives included in the FY 2020 SFOPs budget as appropriated by Congress.

Beyond limiting the ability of USAID to quickly shift funds, the move toward hard sectoral directives has had other negative impacts on U.S. foreign assistance. The shift has lowered flexibility to redirect funds in the face of unforeseen threats or opportunities; limited funding for democracy, governance, and economic policy reforms; and inhibited partner country ownership. A good example is support for digital transformation. Countries are rightly exploring what they need to invest in digital infrastructure (e.g., 5G technology) that will enable them to fully engage in the digital economy. At present, the State Department and USAID have limited resources to support investments in digital technology, preventing the United States from engaging on an important issue. This has caused some countries to turn toward China for access to digital technology supplied by Huawei and ZTE. Moreover, many hard, sectoral directives impede USAID and other agencies from implementing long-term country-led development plans that are reflective of the actual needs of countries. Not to mention, it is extremely difficult to move money among countries within the 150 Account unless it is between projects of the same nature. It is also difficult to shift funding between agencies, unless Congress specifically grants authority to do so.

Some of the more recent growth in the number of directives is understandable given the Trump administration’s attempts to cut foreign assistance or simply not spend it. The Trump administration issued four federal budget proposals that included decreases of up to 33 percent to the State and Foreign Operations budget. Congress, in some years—rightly—rejected these cuts during the Trump years and kept foreign assistance spending at roughly the same level as FY 2017. Failing to convince Congress to cut assistance, the administration then engaged in a series of attempts to “rescind” appropriated funds that it claimed were not needed or requested by the administration. While rescissions are used legally to return appropriated money no longer needed, the Trump administration sought to apply a sledgehammer to what is usually a scalpel approach. It also engaged in a process of “freezes” whereby it froze appropriated funds that would expire at the end of a fiscal year, then unfroze the funds with little time remaining to obligate. The General Accounting Office later ruled this practice as violating the Impoundment Control Act of 1974, and these machinations further eroded trust between Congress and the executive branch.

The White House has not been innocent in reducing the flexibility of U.S. foreign assistance. In response to the inflexibility of congressional spending directives, successive presidential administrations have proposed “presidential initiatives” in an effort to direct assistance toward new priorities. This includes programs created in the early 1990s to support democratization and economic liberalization in the former Soviet bloc, PEPFAR, the PMI, and Feed the Future. The Biden administration recently proposed spending up to $10 billion per year in assistance directed toward combating climate change; if this proposal goes forward it will likely be in the form of a new presidential initiative. Many of these presidential initiatives have subsequently been authorized by Congress and further enshrined as spending directives.

Existing Work-Arounds to Directives

Congress and the executive branch have recognized the rigidity caused by directives and taken steps to create work-arounds that address new and emerging threats. This includes new funds authorized by the FY 2020 Appropriations Act, such as the Countering Russian Influence Fund, the Countering Chinese Influence Fund, and the Relief and Recovery Fund. These are welcome steps given the soft-power threats from both Russia and China, but the amounts allocated remain relatively small when compared to the broader 150 Account. The Countering Russian Influence Fund includes $290 million for FY 2021 to “counter Russian influence and its attempts to sow distrust in democratic institutions worldwide.” These funds will be used for various purposes, such as aiding in protecting the North Atlantic Treaty Organization, the European Union, and other vulnerable countries’ vital infrastructure and electoral systems from cyberattacks; improving rule of law and clamping down on corruption; responding to humanitarian crises; and building resilience of civil society and media against Russian propaganda.

The Countering Chinese Influence Fund was established as part of the August 2020 Countering Chinese Communist Party Malign Influence Act. The bill authorizes $300 million for FY 2020–2024 to “counter the malign influence of the Chinese Communist Party globally.” The Countering Chinese Influence Fund budget is used for efforts including increasing transparency and accountability, cracking down on corruption, and supporting civil society and media efforts to build awareness of the harmful impacts of the Belt and Road Initiative (BRI). Additional work-arounds include the Office of Transition Initiatives (OTI), which sits within the Bureau for Conflict Prevention and Stabilization at USAID. OTI provides “fast, flexible, short-term assistance” that centers around political transitions and meeting stabilization needs. Created in 1994, the OTI averages about 1,750 activities each year around the globe. OTI programs are unique given their context-specific design. This kind of strategic approach allows OTI to effectively aid local partners to further democracy and peace, and to play a key role in creating the basis for long-term development. Other OTI work with local partners includes addressing issues such as “conflict, democratic backsliding, violent extremism, and stabilization.”

The Relief and Recovery Fund (RRF) provides “assistance for areas of instability, including areas liberated from Islamic State and other extremist groups.” The RRF is now effectively appropriated under the Prevention and Stabilization Fund, which was introduced in the FY 2021 appropriation as part of the addition of the Global Fragility Act to the bill.

Another pertinent example of a work-around to directives is the Complex Crises Fund (CCF). Managed by USAID’s Bureau for Conflict Prevention and Stabilization, the CCF was created in 2010 to allow the USAID administrator, in collaboration with the secretary of state, to bolster programs “to prevent or respond to emerging or unforeseen complex crises overseas.” The CCF has the ability to quickly pivot and address a range of issues across the humanitarian, political, and security domains, making the fund crucial for protecting U.S. national security objectives and fostering long-term development. USAID appropriations for CCF to date reach $352.9 million (including transfers) and activities funded to date are reported at $316.9 million.

Table 2 shows total amounts appropriated for these new and existing funds meant to counter threats or provide flexibility to respond to emerging challenges. In the past two fiscal years (FY 2020 and FY 2021), the total amount appropriated has topped $1 billion.

In addition, Congress has provided a certain amount of “deviation” authority through Section 7019 of the SFOPs budget. Under this authority, the State Department and USAID may deviate from the specified amount in a spending directive up to a certain percentage (in recent years it is capped at 10 percent). This authority has been useful in allowing the State Department and USAID to shift funds at the country level to meet unexpected needs. This implicitly acknowledges that often the amount appropriated to a specific directive does not reflect actual needs on the ground. Some see Section 7019 as a double-edged sword, as congressional appropriators have included a series of tables in the managers’ report that provide further soft directives on how to allocate funds.

More recently, in response to the Covid-19 global pandemic, the Trump and Biden administrations both requested, and Congress appropriated, significant foreign assistance to counter the health and economic consequences of the pandemic. Because of the unpredictable nature of the pandemic, the State Department and USAID requested funds that would provide them with maximum flexibility in their response. Congress agreed and provided significant funds in IDA, Global Health, and ESF. At times, however, there were concerns raised that this would reduce transparency of how and where these significant funds were being spent. The Biden administration has sought to provide an accounting of where and how these funds have been spent through a series of fact sheets released by USAID. Table 3 shows the most recent top-line figures available on funds appropriated versus obligated by the agency.

This follows earlier requests by previous administrations to counter Zika and Ebola and respond to reconstruction needs in Afghanistan and Iraq. When requested, Congress has shown a willingness to provide supplemental funds to meet emergencies, though it should be noted that with fewer directives, the State Department and USAID could respond quicker—at least in the short term—to crises at the country or regional level. Supplemental funds, new accounts, and spending directed to counter emerging threats all represent a reliance on the existing system of directed spending rather than granting the State Department and USAID the ability to program funds to meet emerging challenges or align with a country’s development priorities.

Recommendations

The United States faces unprecedented international challenges that are multidimensional in nature and will require a response that draws on all facets of American power, including foreign assistance. While the United States brings significant amounts of assistance, it is constrained in how it deploys those resources by congressional spending directives and multi-year presidential initiatives. These directives reflect the very real prerogatives of Congress, including its constitutional power of the purse, but they also limit the U.S. government’s ability to respond strategically to emerging opportunities and threats. Absent a solution, the United States risks losing its position as the preeminent global development power, and the breadth of its response to strategic competitors such as China will be limited. Strategic competition with China is not Cold War 2.0, as it will require more nuance and a response that is primarily weighted toward soft-power tools. In recent years, the People’s Republic of China has successfully leveraged its foreign aid and other forms of official finance to build strong ties across sub-Saharan Africa, Southeast Asia, Central Asia, and Latin America. As currently constructed, the U.S. approach to budgeting, appropriating, and programming foreign assistance is not optimized to counter China, address new global challenges (e.g., climate change), or meet the hopes and aspirations of developing countries by aligning with their development priorities.

The increase in sectoral directives represents a Faustian bargain that Congress, the Washington-based global development community, and the executive branch engaged in in the late 1990s and early 2000s to preserve foreign assistance in the wake of the end of the Cold War. The bargain struck was understandable in the context of those times, but its usefulness in an era of renewed great-power competition is increasingly questionable.

Outside advocacy groups continue to make the case on an annual basis that various sectors need to see an increased budget. These groups engage congressional allies to protect and grow existing sector spending directives with little regard for whether their requests reflect actual needs or will enable good development practices. This dynamic exploits a breakdown in trust between the executive and legislative branches over the federal budget. Trust is a two-way street, however, and the executive branch must do its part to rebuild its relationship with the Appropriations Committees in the U.S. Senate and House. Foreign assistance is an issue that requires an open dialogue between both ends of Pennsylvania Avenue to ensure that the United States can meet the challenges of the moment.

Recommendations below are divided by where they are directed (toward the executive branch or Congress), though implementing these will require significant dialogue between the two branches.

Executive branch recommendations:

1. Greater accountability and transparency of foreign assistance spending. In general, the State Department and USAID could be more transparent about how, where, and on what foreign aid money is spent, and where it works well and where it does not. While agencies have made strides in recent years to be more transparent about where foreign assistance is spent, more could and should be done to make this data digestible. The recent move to create one web-based platform to show U.S. foreign assistance spending (combining foreignassistance.gov with Foreign Aid Explorer) is a good example of how data can be presented. More could be done to streamline terminology used, to ensure that State and USAID data is fully current and correct, and to ensure that all agencies that provide foreign assistance are involved in reporting on this platform. This could take the form of a website that tracks congressional directives on an annual basis and provides transparency about what the directives are.


2. Clear and understandable metrics of success (and failure). A key component of accountability is conducting credible monitoring and evaluation (M&E) reviews of U.S. foreign assistance projects. Done right, these reports can help identify the impact of projects and improve future projects. In recent years, USAID has consciously rebuilt its ability to conduct M&E, but far more can be done to provide a greater accounting to Congress of the successes (and failures) of foreign assistance. For example, too often M&E reports focus on easily quantifiable outputs rather than more difficult-to-measure outcomes. In addition, reports for and evaluations of many projects are missing from USAID’s Development Experience Clearinghouse, and the State Department has lagged in publishing evaluations of its own foreign assistance programs. This will require additional resources in terms of people and money, and it will require a culture shift. The State Department and USAID should be more willing to transparently discuss their failures as well as their successes, engage in learning exercises to incorporate results into subsequent projects, and find ways to understand the trade-offs that exist between different sectoral approaches. MCC has done a good job of discussing both successes and failures of its programming, which other agencies could potentially emulate.


3. Limitation of new presidential initiatives. In seeking work-arounds for congressional spending directives, the executive branch has resorted to creating its own initiatives that address its priorities. The most prominent of these are PEPFAR, the PMI, and Feed the Future; while these programs have subsequently been authorized by Congress, they create similar dynamics for the State Department and USAID as congressionally imposed spending directives. Rather than create new presidential initiatives, the Biden administration should work with Congress to create the conditions needed to address emerging challenges and opportunities.


4. Sustained dialogue between the executive and legislative branch. Foreign assistance occupies a gray area between the power and prerogatives of the executive and legislative branches. Congress holds the power of the purse and has significant discretion in the amount of money appropriated for various activities within the SFOPs budget. Given these dynamics, both branches need to engage in a sustained dialogue on the SFOPs budget, ensuring that money is appropriated to meet clearly identified needs and not simply funding advocacy- or member-driven priorities. Trust and dialogue have broken down in recent years between the two branches; it is time to reestablish this trust to find common ground to advance a more effective and efficient SFOPs budget. At the very least, such a dialogue could help Congress and the executive branch reach a common understanding of the current scope of spending directives.

Congressional recommendations:

1. Fewer but larger sector directives. One option to consider is reducing the number of existing sector directives and combining them into large “super” directive accounts, similar to the approach of “Functional Development Assistance Program” accounts and sub-accounts used through 1995. As an example, existing directives that cover basic human needs (e.g., water, basic education, and other social safety net issues) could be combined into one large directive account. This would allow the State Department and USAID to better prioritize funds across a wider range of sectors, allowing the agencies to allocate resources in a way that better matches up with conditions on the ground. Ideally, larger sector accounts would include the following: basic human needs, global health, economic growth, and democracy and governance. Global health, which is appropriated into one large account, already follows this approach, although more flexibility among global health directives would be needed to break down the current disease-siloed approach. Such an approach would help move global health spending beyond simply responding to specific diseases or categories of health interventions and more toward building and strengthening local health systems’ capacity.


2. Increased regional directives. Another option to consider is shifting funding away from sector directives and toward larger regional directives. Such an approach would appropriate funds to regional accounts (e.g., Latin America and the Caribbean, Africa, the Asia Pacific), and then the State Department and USAID would allocate funding at the country level and to sectors identified through the Country Development Cooperation Strategy (CDCS) process. USAID could report its proposed CDCS budget allocations to promote transparency and accountability around potential discrepancies.


3. Increased funding for existing “flexible” spending accounts. As noted above, Congress has recognized that the State Department and USAID need some resources that can be used to respond to crises or changing conditions on the ground. This includes the OTI account, Complex Crises Fund, IDA, Migration and Refugee Assistance (MRA), and recently created funds such as those for countering Russian and Chinese influences. These funding accounts have great flexibility and in some cases are available until expended with no time constraint on obligation. As noted above, though, these accounts remain relatively small. Increasing funding could provide a pilot to test whether the State Department and USAID can provide results with more flexibility.


4. Increased deviation authority. Section 7019 of the State and Foreign Operations Appropriations Act provides the State Department and USAID with the ability to deviate from congressionally imposed spending directives. In past years, the administration has often asked to increase this from the standard 10 percent to allow a greater ability to reprogram funds to meet country-level needs. To grant this ability, Congress should consider raising it from 10 percent to as high as 25 percent and eliminating carve-outs from such flexibility in sectors such as health. Congress should also remove any requirements that make allocation levels in the Joint Explanatory Statement required.

Conclusion

Today’s complex global challenges require that the United States bring the full spectrum of its power to bear, including economic, development, and military power. The current manner in which the United States budgets, appropriates, and programs its foreign assistance is not optimized to meet these challenges. USAID’s inspector general captured this problem well in its FY 2022 Management Challenges Report; the report noted, “Additional practical implications [of legislative directives] for USAID include constrained ability to quickly reallocate development funding to address new threats and unforeseen opportunities; reduced availability of development funding for sectors and programs without earmarks; and limited ability to produce long-term, country-specific strategic plans.” This will require that the administration and Congress recognize that how foreign assistance is budgeted, appropriated, and obligated does not reflect current international priorities. U.S. foreign assistance is arguably its greatest soft-power mechanism and has proven time after time its ability to catalyze change and positively impact development outcomes in partner countries, as well as deliver clear national security and foreign policy benefits. The consequences of inaction could range from ceding our social license to operate as a global development leader to creating a vacuum for the Chinese government or malign actors to fill. Our competitors are funding more proactive global development initiatives, which puts the United States at risk of losing credibility in this space. By refocusing the SFOPs budget and allowing for more flexible funds and programming opportunities, the U.S. government can prove to its partners and the world that it is serious about tackling the global challenges of today and tomorrow.

Daniel F. Runde is senior vice president, William A. Schreyer Chair in Global Analysis, and director of the Project on Prosperity and Development at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Conor M. Savoy is a senior fellow with the CSIS Project on Prosperity and Development. Shannon McKeown is a research assistant with the CSIS Project on Prosperity and Development.

This report is made possible by general support to CSIS. No direct sponsorship contributed to this report.

This report 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).

© 2022 by the Center for Strategic and International Studies. All rights reserved.