EXECUTIVE OFFICE OF THE PRESIDENT OFFICE OF MANAGEMENT AND BUDGET WASHINGTON, D.C. 20503

July 12, 2000
(House)

The President's FY 2001 Budget is based on a balanced approach that maintains fiscal discipline, eliminates the national debt, extends the solvency of Social Security and Medicare, provides for an appropriately sized tax cut, establishes a new voluntary Medicare prescription drug benefit in the context of broader reforms, expands health care coverage to more families, and funds critical investments for our future. An essential element of this approach is ensuring adequate funding for discretionary programs. To this end, the President has proposed discretionary spending limits at levels that we believe are necessary to serve the American people.

Unfortunately, the FY 2001 congressional budget resolution provides inadequate resources for discretionary investments. We need realistic levels of funding for critical government functions that the American people expect their government to perform well, including education, national security, law enforcement, environmental protection, preservation of our global leadership, air safety, food safety, economic assistance for the less fortunate, research and technology, and the administration of Social Security and Medicare. Based on the inadequate budget resolution, this bill fails to address critical needs of the American people.

Despite the Subcommittee's efforts to provide increases over last year's funding levels for certain programs, the funding provided is inadequate, and many provisions of the Committee bill, such as the international family planning provision, are highly objectionable. The President's senior advisers would recommend that the President veto the bill if it were presented to him in its current form.

Attached is a discussion of the Administration's specific concerns with the bill. We look forward to working with the House to resolve these concerns.

Attachment

Attachment

International Debt Reduction

The House Committee bill would cut the FY 2001 request of $262 million for debt reduction programs by $180 million. This shortfall is greatly exacerbated by the failure of Congress to provide any of the $210 million FY 2000 supplemental request for debt reduction. Full funding of both the FY 2001 and FY 2000 requests is critical. Funding at a low level would stall multilateral and bilateral debt relief efforts under the Enhanced HIPC Initiative. The lack of a substantial U.S. contribution to the HIPC Trust Fund would mean that there would be insufficient resources to provide debt relief to many of the poorest countries in Latin America and Africa that have undertaken macroeconomic reforms. Other bilateral donors have previously stated that they would base their future contributions to the HIPC Trust Fund on a substantial U.S. contribution. It is clear, at a minimum, that without a substantial U.S. contribution, HIPC debt relief would not be provided to Latin American HIPC countries. In addition, funding at this level would also significantly limit the ability of the United States to encourage countries to invest in their tropical forests through innovative debt treatment mechanisms under the Tropical Forest Conservation Act.

International Family Planning

The Committee's actions on the international family planning issue are a great disappointment to the Administration. First, the Committee's decision to maintain the unnecessary restrictions on international family planning providers is highly objectionable. As we have stated before, we should not impose limitations on foreign non-governmental organizations's use of their own money or their ability to participate in the democratic process in their own countries. Second, we strongly oppose the Committee's decision to freeze assistance at the FY 2000 level of $385 million. The requested increase of $156 million over the FY 2000 enacted level, for an FY 2001 funding level of $541 million, would help millions of additional women bear their children at the healthiest times for both mother and baby. The requested increase would also greatly reduce the number of unintended pregnancies, abortions, and deaths of mothers and children. Therefore, we strongly urge the House to drop these restrictions and restore funding to the requested level.

Multilateral Development Banks

Every dollar in U.S. contributions leverages nearly $60 in development assistance from the Multilateral Development Banks (MDBs). The Committee's $536 million, or 40 percent, cut would substantially reduce MDBs lending for education, health, infectious disease prevention, and other social programs in the world's poorest countries. The reduction would also severely undermine our ability to influence new policy directions, such as the fight to bring the HIV/AIDS pandemic under control. Moreover, this cut would nearly double U.S. arrears to over $800 million, reversing the progress made with bipartisan support in the FY 1998 and FY 1999 appropriations towards meeting our past-due obligations to these institutions. Of particular concern are the proposed cuts to the following institutions:

• International Development Association (IDA). IDA is the primary concessional lender for most of the world's neediest countries, with 80 percent of its lending going to countries where people earn less than two dollars a day. The $259 million, or 31 percent, cut in funding made by the Committee would have a devastating impact on IDA's ability to finance priority investments in health, clean water supplies, education, and other infrastructure needed for lasting poverty reduction. Moreover, a low contribution would significantly diminish U.S. leadership as we approach IDA-13 replenishment negotiations early next year.

• Global Environment Facility (GEF). The U.S. commitment to the GEF, begun under President Bush on a bipartisan basis, supports GEF's unique ability to finance environmental projects that cross country borders while promoting sound environmental policy in developing countries. The Committee's $140 million, or 80 percent, cut in funding would severely impair GEF's ability to play a prominent and cost-effective role in areas such as conservation of biodiversity and protection of fisheries. GEF's financial situation is precarious because its commitment authority is expected to run out late this year if financing is not made available. Given that each dollar we provide leverages $10 in co-financing, a low contribution would have a negative and cumulative effect on project work that benefits the global environment. In addition, this low level of funding would undermine U.S. credibility when negotiations for the next replenishment (GEF-3) begin later this year.

• African Development Bank (AfDB). As part of the last capital increase, the AfDB agreed to a series of major institutional reforms designed to strengthen the financial security and corporate governance of the institution. The $3 million, or 49 percent, cut made by the Committee would limit our ability to exercise the leadership necessary to ensure that the bank continues on the path of reform.

• Other Concerns. The Committee's cuts to the Asian Development Fund ($53 million), African Development Fund ($28 million), and the Inter-American Investment Corporation ($26 million) would limit the ability of these institutions to provide programs to reduce poverty in countries of critical interest to the United States and would call into question the willingness of other donors to continue their support for these institutions. In addition, the Administration is seriously concerned about the amendment added during the Committee mark-up that links the payment of 10 percent of the U.S. contributions to the international financial institutions to specific and problematic changes in procurement and financial management. Such an amendment would hinder our efforts to reach the international consensus needed to push for such reforms.

Nonproliferation, Anti-terrorism, Demining, and Related Programs

The Committee bill cuts the Administration's request of $352.7 million by $111.1 million, or 32 percent. A reduction of this magnitude cannot be made without jeopardizing programs vital to our nonproliferation and anti-terrorism efforts. In particular, the Committee recommends a cut of $20 million from the $55 million request for the Korean (Peninsula) Energy Development Organization, leaving insufficient funds to purchase necessary shipments of fuel oil, which we are required to provide under the 1995 Agreed Framework. The Committee's recommendation of $25 million for science centers in Russia, Ukraine, and Kazakhstan is $20 million, or 44 percent, below the Administration's request. This massive reduction would result in less support for scientists with expertise in weapons of mass destruction, thus increasing the risk of experts being hired by nations of concern. In addition, the Committee has not responded positively to the Administration's budget amendment that added $41.2 million for a U.S. contribution to the incremental costs of the trial of the suspected Libyan terrorists in the 1988 bombing of Pan Am flight 103 over Lockerbie, Scotland. The Administration is disappointed that the House Committee has not included requested funding for the Center for Anti-terrorism Security Training. The initiative is an integral part of the Administration's plans to address the growing worldwide terrorist threat.

Eastern Europe

The Administration appreciates the Committee's earlier support for FY 2000 emergency supplemental funds for programs in the Balkans. However, the shortfall from the supplemental request, when combined with the Committee's $75 million reduction to the FY 2001 request for the Assistance to Eastern Europe and the Baltic States account ($610 million to $535 million), would result in a reduction of $220 million, or 27 percent, below the funding needed to establish a stable and durable peace. In addition, the Administration opposes the provision limiting funds available for Kosovo to 15 percent of funds pledged by other donors as of January 1, 2001. This cut-off date would restrict U.S. funding for Kosovo since many donors will not make funding decisions until after that date, thus undercounting other donor pledges. While burdensharing is a key component of our Kosovo policy, the 15-percent cap would arbitrarily make U.S. funding dependent on the decisions of others. The full funding request will support critical programs to revitalize Kosovo's civil society and economy, and reduce the need for prolonged U.S. presence in Kosovo as part of the Kosovo Force.

Assistance to the Independent States

The Committee mark is $96 million below the FY 2000 enacted level of $836 million. The Administration strongly opposes the Committee's decision to cut funding for critically important programs to foster economic and democratic reforms in the former Soviet Union. These carefully targeted programs work with reform-minded governments and help foster grass roots support for reforms by working with small businesses and non-governmental organizations. These programs are helping citizens of the region make the transition to market democracies -- a transition clearly in our long-term national security interests. We also strongly object to cuts in the request for Expanded Threat Reduction Initiative (ETRI) programs. The Administration's ETRI request will advance important nonproliferation objectives in the former Soviet Union. A cut in this request will undermine our ability to prevent the spread of nuclear weapons and the illicit trafficking in WMD and missile related technologies. The Administration strongly opposes any prohibition of assistance to the Government of the Russian Federation in response to Chechnya and Conventional Forces in Europe (CFE) Treaty limit. Denial of funding would seriously undermine our efforts to work with the Russian Government to prevent the spread of nuclear weapons, to engage Russian scientists who would otherwise work on projects in countries of proliferation concern, and to honor its CFE Treaty-related commitments to withdraw its forces from Georgia and Moldova.

U.S. Export-Import Bank

We appreciate the Committee's action to provide adequate program and administrative expense allocations for the Export-Import Bank. Nevertheless, the bill cuts the Administration's request of $963 million for program resources by $138 million, or 14 percent, which would reduce the Export-Import Bank's ability to support U.S. exports by 11 percent ($1.8 billion) from the FY 2000 enacted level and by 14 percent ($2.2 billion) from the President's FY 2001 request. Lower export levels translate directly into lower employment opportunities for U.S. workers and lower revenues for U.S. companies. The requested level is necessary to help the Export-Import Bank pay for the higher cost of international lending caused by higher risk levels resulting from the international financial crisis and represents only a modest increase over the Bank's capacity for FY 2000. The Committee's mark, therefore, represents a de facto reduction in the Bank's capacity to support U.S. exports when compared to the FY 2000 enacted level.

Peacekeeping Operations

The bill cuts the Administration's request of $134 million by $16 million, or 12 percent, which would impair our peacekeeping efforts around the world, requiring cuts to programs such as the U.S. component of the civilian police contingent in East Timor, support to regional peacekeeping initiatives in Africa, and our efforts to train African militaries for peacekeeping operations. Such a reduction could additionally leave us without the means to pay our fair share of the Organization for Security and Cooperation in Europe mission assessment for elections and governance programs directly supporting the peace processes in Bosnia and Kosovo.

Economic Support Fund (ESF)

The bill cuts the Administration's request of $2.3 billion for ESF by $79.1 million, or three percent. When combined with the Middle East and various other earmarks, these reductions would result in a 12-percent cut to other crucial foreign policy programs. Such a cut would have an adverse impact upon regional programs, particularly in Africa, and upon human rights and democracy programs worldwide.

International Organizations and Programs (IO&P)

We are concerned about the $8.5 million reduction to the Administration's request for IO&P. After taking into account funding for UNICEF and the Global Alliance for Vaccines Initiatives, which were requested under this heading but funded under other accounts in the Committee bill, the reduction represents a six-percent reduction in the remaining programs, including important democracy and environmental programs.

Foreign Military Financing (FMF) and International Military Education and Training (IMET)

The Administration appreciates the Committee's positive response to the request for authority to disburse planned Egyptian outlays early in the fiscal year. However, the bill cuts the Administration's request for FMF of $3.5 billion by $28.2 million. After taking into account funding levels for vital Middle East programs, this reduction is a 17-percent decrease in grant funding for the rest of the world. This reduction would decrease our ability to support military reform and NATO inter-operability in the Balkans and South-East Europe, decrease our ability to strengthen capabilities and vital ties with the militaries of new NATO nations (Poland, Hungary, and the Czech Republic), and hamper our ability to support the Philippines, Tunisia, Morocco, and Mongolia, and build the peacekeeping capabilities of African nations.

The Committee has not accepted the Administration's proposal that the appropriations language requiring obligation upon apportionment for Foreign Military Financing be deleted. The Administration continues to request the deletion of this language. In addition, the Committee bill reduces the funding for administration of FMF programs by $2.5 million from the request and reduces the Administration's request for IMET by $2.5 million, or five percent. These reductions would further hamper these programs, in the face of increasing administrative and training costs.

International Narcotics Control and Law Enforcement (INL)

The Committee bill cuts the Administration's request by $7 million and provides the same level of funding as in FY 2000. International crime in the former Soviet Union, Asia, the Caribbean, Latin America, and elsewhere is a serious threat to U.S. interests. This account funds numerous long-term programs in a number of countries. Many of these initiatives are just getting off the ground and are starting to show beneficial results. A cut of $7 million could jeopardize these results in a number of programs now underway and negate the benefits of our initial investment.

U.S. Agency for International Development (USAID)

The bill cuts the Administration's request of $2.124 billion for development assistance and health programs by $207 million, or 10 percent. While the Administration notes that the Committee has provided a slight increase over the FY 2000 operating year budget level, the bulk of this increase is for health programs. The FY 2001 level for development assistance is inadequate to meet growing development needs worldwide. The overall reduction from the request in funding is compounded by the number of Committee directives, which would have the effect of further reducing funds available to promote economic growth, protect the environment, and support democracy. For example, at the Committee's funding level, it would be impossible to fully fund the Administration's requests for increased assistance to preserve biodiversity in tropical forests and to promote clean energy technology without cutting deeply into these other activities. The combination of Committee directives and reduced funding levels for development assistance would mean that economic growth activities would be underfunded further, even though the Committee's report states that such activities are necessary if health and family planning programs are to have more than a marginal impact in poor countries.

The bill provides only $23 million of the $65 million increase requested for USAID's HIV/AIDS programs in the Child Survival and Disease Programs Fund. The failure to fund this request fully would set back the Administration's effort to build program momentum that is urgently needed to address the rapid spread of HIV/AIDS in Africa where it has become the leading cause of death, where infection rates often exceed 30 percent of the adult working population, and where it is undermining decades of effort to reduce mortality, improve health, expand educational opportunities, and lift people out of poverty. We urge the Committee to provide the full $244 million requested for HIV/AIDS programs.

The bill reduces the $50 million request for the Global Alliance for Vaccines and Immunizations to $37.5 million. This would undermine this public-private partnership's ability to leverage funds from international donors and the private sector to reach millions of children in need of critical vaccines.

The Committee's proposed $15 million (27 percent) cut in funding for the Office of Transition Initiatives (OTI) would severely impair the Office's ability to respond to time-sensitive transition situations and stave off crisis -- in places such as Indonesia, Nigeria, Colombia, and Kosovo -- and prevent OTI from helping to lay the foundations for peaceful democracy.

The Committee reduction from the requested $520 million to $509 million for operating expenses would make it more difficult for USAID to implement the much needed improvements in its financial management capabilities and overall information technology -- a goal the Administration and the Committee both share -- and would also make it difficult for the Agency to maintain the staffing level needed to provide adequate program oversight. In addition, the Committee should be aware that House report language accompanying the State Department appropriations bill (H.R. 4690) specifically prohibits the expenditure of $50 million in funds requested by the Administration for buildings to house USAID employees on embassy compounds safely. Safeguarding the lives of USAID employees would thus go unfunded because costs now required could not be absorbed within the President's request for the USAID operating expenses account.

Finally, while the Administration appreciates the Committee's efforts to provide sufficient administrative expenses to run USAID's credit programs, the drastic cut in transfer authority for USAID's Development Credit Program would impede the Agency's ability to mobilize local private capital for development purposes, including microenterprises in the countries in which it works.

Community Adjustment and Investment Program (USCAIP)

The Committee bill provides none of the $10 million requested for the USCAIP. The funds requested are important if the program, which provides financial assistance to U.S. communities with significant job losses due to the implementation of NAFTA, is to become fully productive.

International Technical Assistance Programs

The Committee bill cuts the Administration's request of $7 million by $5 million, or 71 percent. Less than full funding will limit our efforts to provide technical assistance in support of key reform-minded countries around the world.

Kyoto Protocol

The Administration opposes Committee bill language relating to the Kyoto Protocol. The language, which purports to prohibit implementation of the Kyoto Protocol, is unnecessary, as the Administration has no intention of implementing the Protocol prior to ratification.

Phalcon Sale to China

The Administration would oppose any amendment that may be offered to condition the disbursement of $250 million in FMF assistance to Israel until the Secretary of Defense certifies to Congress that the proposed transfer by Israel to China of equipment and technology associated with the "Phalcon" radar system does not pose a threat to the national security of the United States or has been canceled. We do not view the fencing off of funds in a situation such as this as an effective way to achieve our objectives.

Constitutional Concerns

Several provisions of the Committee bill raise constitutional issues. The Department of Justice has provided views as follows:

• Sections 514 (Surplus Commodities), and 564 (Restrictions on Assistance to Countries Providing Sanctuary to Indicted War Criminals) purport to direct the vote of the United States representatives to international financial bodies. As provisions that purport specifically to direct the President on how to proceed in negotiations with international organization could be construed to interfere with the President's exclusive power to control diplomatic negotiations, these provisions would be construed as precatory should they be enacted.

• Section 565 (To Prohibit Foreign Assistance to the Government of the Russian Federation Should It Enact Laws Which Would Discriminate Against Minority Religious Faiths in the Russian Federation) and the section entitled "Contribution to the International Development Association," could be read to infringe upon the President's authority over diplomatic negotiations. These provisions, if enacted, would also be construed as precatory.

• Finally, in order to avoid intrusion into the President's negotiation power and his ability to maintain the confidentiality of diplomatic negotiations, section 566 (Greenhouse Gas Emissions) would not be interpreted to require the President to disclose either the contents of diplomatic communications or specific plans for particular negotiations in the future.

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