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	Statement of the Administrator Summary of FY 2007 Budget Request Management Improvements USAID Support Budget Operating Expenses Capital Investment Fund Working Capital Fund Operating Expenses, Inspector General Foreign Service Retirement and Disability Fund
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USAID Support Budget

Overview

The USAID support budget has a critical role in the successful implementation of the U.S. national security strategy. USAID plays a lead role in meeting the third pillar of the strategy's goals: political and economic freedom, peaceful relations with other states, and respect for human dignity. Sufficient Operating Expense (OE) and Capital Investment Fund (CIF) resources are vital as the Agency strives to address foreign policy and development challenges in increasingly complex settings.

The demand to meet complex foreign policy and international development challenges requires a USAID with sufficient human and physical capacity to oversee development programs and provide accountability. The FY 2007 request will allow USAID to resume its efforts to increase the workforce and improve management to strengthen programs and support systems, as it faces the challenges of high retirement rates among our most experienced officers, significant costs to improve infrastructure and information systems, and increases in the strategic importance and funding of key countries and programs.

The USAID FY 2007 budget will support the following management priorities:

• Rebuild human capacity to address critical workforce shortfalls.
• Enhance security and physical infrastructure worldwide to protect employees and facilities.
• Improve information technology systems to improve program and organizational accountability.

With significant continued investments in people, infrastructure, and information systems, USAID will build a foundation of sound management and organizational excellence.

With a USDH workforce drastically downsized during the 1990s and a large workforce contingent reaching retirement age, USAID has a critical need to increase its human capacity. Recognizing the vital role USAID staff plays in achieving the nation's foreign policy objectives, USAID developed the Workforce Planning Model, a projection tool that determines the appropriate level of U.S. direct-hire (USDH) staff needed to manage USAID programs. The Model identifies a critical deficiency in the technical areas of health; economic growth and trade; education; and crisis, stabilization and governance.

In addition to the Workforce Planning Model USDH increase, the Agency needs additional USDH staff to establish a Reconstruction and Stabilization Reserve. The Administration is at a critical stage in developing its overall reconstruction and stabilization capacity - potentially one of the President's most important initiatives -- with USAID designated to provide important operational leadership in the field. These additional positions will fill critical gaps in the ranks of first responders conducting leadership, technical response, and planning for major National Security Strategy initiatives.

By enhancing worldwide security operations and physical infrastructure, USAID will continue to protect USAID employees and facilities against global terrorism and national security information against espionage. The Agency will increase physical security measures, such as building upgrades, emergency communications systems, and armored vehicles; personnel security, such as background investigations and security clearances; and information security. USAID also will fund participation in the Capital Security Cost Sharing Program through which USAID will be given office facilities on seven new embassy compounds.

To improve operations and accountability, USAID needs to invest in its information technology systems. The Agency urgently needs to upgrade outdated information systems worldwide to avoid system failure. USAID also needs to increase collaboration with the Department of State to eliminate duplicative work and perform functions effectively and efficiently.

The requested OE budget authority of $678.826 million, combined with $46.376 million from local currency trust funds and other funding sources, will provide a total of $725.202 million to cover the Agency's projected operating expenses. This will fund:

• Salaries and benefits
• Overseas operations
• On-going support of current IT systems
• Security
• Training
• Other administrative costs associated with programs worldwide

Direct costs of the Agency's overseas presence, including USDH salaries and benefits, represent 49% of OE costs. The Agency's overseas presence is indispensable to the effective management of Agency programs, delivery of U.S. foreign assistance, improved situational awareness, and increased programmatic and financial oversight. It is the core of development readiness: strengthening the U.S. Government's knowledge base and providing alternative and valuable perspectives to U.S. policymakers. The FY 2007 request for overseas operations decreases from the FY 2006 level because it excludes funding for Iraq operations.

In recognition of USAID's staffing shortage, Congress enacted legislation to help the Agency meet future development challenges. The FY 2006 Foreign Operations legislation provides USAID with a Non-Career Foreign Service Officer hiring authority. As with the FY 2005 legislation, this authority allows USAID to use program funds to convert up to 175 personal services contractor or other non-USDH positions into limited-term direct-hire appointments. This authority follows FY 2004 appropriation language that allowed USAID to use program funds to employ 85 limited-term direct-hire employees in FY 2004.

With these authorities in FYs 2004 - 2006, the Agency will increase its USDH workforce by 328 by FY 2007, while decreasing its non-USDH workforce by 243 over the same period. While this will increase obligations for direct-hire personnel by $81.3 million, it will represent a decrease in total personnel costs, as the Agency replaces non-USDH staff with limited-term USDHs.

For FY 2007, USAID requests $131.8 million for its Capital Investment Fund. This fund uses no-year authority to provide USAID with greater flexibility to manage investments in information technology and facility construction. With CIF, USAID will:

• Fund participation in the Capital Security Cost Sharing Program through which USAID is provided office facilities on new embassy compounds
• Build acquisition and assistance and financial management systems in full coordination with the Department of State
• Fund ongoing support for currently installed financial systems and upgrades to facilitate integration with the Department of State
• Undertake e-government initiatives to improve Agency operations and cost-effectiveness
• Fund the development of the Executive Information System

OPERATING EXPENSES

Uses of Operating Expenses

The OE budget is comprised of:

• Overseas Operations, including field mission allocations, U.S. direct-hire (USDH) salaries and benefits, and field mission relocations
• Washington Operations, including bureau/office allocations and USDH salaries and benefits
• Central Support, including workforce initiatives; security; information technology; Washington rent, utilities and other support costs; staff training; and other Agency costs

The table below shows the funding and USDH workforce levels from FY 2004 through FY 2007, followed by a brief description of each category and explanation of the FY 2007 funding request.

OVERSEAS OPERATIONS

The FY 2007 request for overseas operations decreases from the FY 2006 level because it excludes funding for Iraq operations. It includes increases for specific purposes. The request includes $8 million for the non-construction costs of opening a mission in Sudan, $3.3 million for increased Afghanistan operations, and $2 million for security needs for Pakistan and West Bank and Gaza. USAID currently operates in Sudan as a non-presence country, managing the Sudan program primarily out of Kenya, with a small staff in Khartoum. Given the size and complexity of the Sudan program, by far the largest in the region, full presence is necessary for an appropriate level of management and accountability.

Approximately 49% of the FY 2007 OE budget will fund the Agency's overseas presence. This is comprised of the costs of maintaining field missions, USDH salary and benefits for foreign-service officers overseas, and mission relocations.

Field Missions ($236.5 M)

• Salaries and benefits for Foreign Service National direct-hire staff and personal service contractors (PSCs) and U.S. PSCs. The FY 2007 request is $95.3 million, or 40% of total mission funding.
• Residential and office rents, utilities, security guard costs, and communications. The FY 2007 request is $49 million, or 21% of total mission funding. These costs are largely non-discretionary.
• Intergovernmental payments. The FY 2007 estimated cost is $34.3 million or 14% of mission expenses. The majority is for payments of International Cooperative Administrative Support Services (ICASS). ICASS is the cost of administrative support provided to missions by other U.S. Government agencies (generally the Department of State). USAID's Working Capital Fund, which finances the costs associated with USAID's provision of services, is described later in this section.
• Operational travel and training. This category includes essential travel to visit development sites and work with host-country officials; other operational travel, including responses to disaster; and the costs of tuition and travel for training not sponsored by Washington. The FY 2007 request is $15.3 million.
• Supplies, materials, and equipment. This category includes the cost of replacing office and residential equipment, official vehicles, IT hardware and software, general office and residential supplies and materials, and some security-related equipment. The FY 2007 request is $13.7 million.
• Mandatory travel and transportation. This category includes travel and transportation expenses for post assignment, home leave, and rest and recuperation and the shipment of furniture and equipment. The FY 2007 request is $15.1 million.
• Contractual support. This category includes mission requirements for data-entry assistance and other administrative support provided through contracts. The FY 2007 request is $7.7 million.
• Operation and maintenance of facilities and equipment. This category includes the cost of operating and maintaining facilities and equipment at overseas missions. The FY 2007 request is $5.0 million.
• Miscellaneous. This includes medical costs, building renovations and printing. The FY 2007 request is $1.1 million.

USDH Salaries and Benefits - Overseas ($111.3 M)

• USDH Salaries and Benefits. This category includes salaries and the Agency share of benefits, such as retirement, thrift savings plan, social security, and health and life insurance for approximately 700 Foreign Service Officers serving overseas. Overseas salaries also include various post differentials including "difficult to staff incentives" for FSOs willing to extend tours at posts where harsh living conditions deter personnel from seeking assignments. The FY 2007 request is $111.3 million.
• Foreign Service Modernization. The requested funding of $3.9 million supports the first step of transition to a performance-based pay system and global rate of pay for Foreign Service personnel grade FS-01 and below. The forthcoming Foreign Service Modernization legislative proposal linked to this funding would amend Section 406 of the Foreign Service Act (22 USC 3966) to eliminate longevity-based pay increases and institute a strictly pay-for-performance system similar to that instituted for the Senior Foreign Service in P.L. 108-447.

The proposal also would establish a global rate of pay for the Foreign Service to attract and retain a labor market for worldwide-available personnel, based on the needs of the Service, consistent with other pay systems with similar worldwide availability requirements. This global rate also addresses the increasing pay disincentive to overseas service, due to the frequent rotation of assignments, influenced by 5 USC 5304. The Modernization proposal would equalize the Foreign Service global rate at the Washington, D.C. rate, including locality pay, over two years.

The requested funding supports the first step of this transition. The Agency will require additional funding in FYs 2008 and 2009 to close the gap fully, to begin a new pay-for-performance system effective April 2008, under a uniform, global rate-of-pay system.

Field Mission Facility Relocations ($2 M)

• In addition to recurring support requirements, USAID needs OE funds to move into interim office facilities and/or the purchase or construction of interim office buildings. These funds will provide for office relocation at priority security threat posts where the USAID mission is not collocated with the Embassy. The FY 2007 request is $2 million.

WASHINGTON OPERATIONS

Washington operations include USDH salaries and benefits for Washington staff, and travel, administrative supplies, and contract support for Washington offices and bureaus.

USDH Salaries and Benefits - Washington ($166.2 M)

• USDH Salaries and Benefits. This category includes salaries and the Agency share of benefits, such as retirement, thrift savings plan, social security, and health and life insurance, for approximately 1,580 general service and foreign service employees. The FY 2007 request is $166.2 million.

Washington Bureaus/Offices ($11.6 M)

• Operational and training travel. This category includes essential travel to visit missions and development sites, work with host country officials, participate in training, and other operational travel, including travel to respond to disasters.
• Advisory and assistance services. This category includes manpower contracts and advisory services to support essential functions, such as preparation of the Agency's Financial Statements, voucher payment processing, and financial analysis.

CENTRAL SUPPORT

Workforce Planning Model Hiring ($13.4 M)

With a USDH workforce drastically downsized during the 1990s and a large workforce contingent reaching retirement age, USAID has a critical need to increase its human capacity. The Agency needs to reinvigorate its USDH workforce to fulfill national security priorities and development objectives. USDH staff build relationships with partner countries that are key to promoting U.S. strategic interests through development and policy dialogue. Additional USDH staff also will improve accountability, as government officials - not contractors - should ensure the effective and efficient use of funds.

Recognizing the vital role USAID staff plays in achieving the nation's foreign policy objectives, USAID initiated a comprehensive workforce planning analysis to predict future workload and staffing demands, identify workforce gaps, and develop solutions to close those gaps. The Agency's Workforce Planning Model is a future-oriented tool that considers the entire workforce when determining the appropriate level of U.S. direct-hire (USDH) and other staff needed to manage USAID programs.

The Model's basic assumption is that USAID needs to rationalize its staffing by greatly reducing U.S. non-direct-hires, and, when and where appropriate, replacing them with USDHs. Additional assumptions are based on reasonable expectations about the future, i.e., program funds, location of missions, and business model. These assumptions include: ratio of technical staff to program funds managed, based on best practices; distribution of employment type and categories of technical staff; mission size; and regionalization and consolidation at New Embassy Compounds.

The Workforce Planning Model identifies a critical deficiency in USDH staff, particularly in the technical areas. While the Model projects the Agency needs an additional 410 USDHs (and to decrease by 740 its U.S. non-direct-hire staff), the Agency requests $13.4 million to hire 100 USDHs. This modest increment will begin the strengthening of our depleted technical ranks in the areas of health; economic growth and trade; education; and crisis, stabilization and governance.

The original plan for the Development Readiness Initiative (DRI) called for 300 total new positions, of which the Agency requested 170 in the FY 2004 to FY 2006 President's budget requests. The Workforce Planning Model now subsumes those remaining positions.

USAID will continue to reevaluate its staffing needs as we restructure the Agency's business model in FY 2006 and beyond. The long-term plan to restructure the Agency's business model includes restructuring our overseas presence through greater regionalization and consolidation of administrative services with the Department of State when and where it makes sense. We also plan to restructure Washington staffing to ensure we have the most efficient organizations to support our missions and manage headquarters operations. These operational changes will affect the staffing needs of the Agency.

Reconstruction and Stabilization Reserve ($6.6 M)

In addition to the Workforce Planning Model USDH increase, the Agency needs additional USDH staff for a Reconstruction and Stabilization Reserve. The Administration is at a critical stage in developing its overall reconstruction and stabilization capacity - potentially one of the President's most important initiatives -- with USAID designated to provide important operational leadership in the field. The Agency requests $6.6 million to fund a stabilization and reconstruction reserve of 24 USDH staff to enhance the capacity to support large stabilization and reconstruction programs following conflict and disaster. These additional positions will fill critical gaps in the ranks of first responders conducting leadership, technical response, and planning for major National Security Strategy initiatives. USAID is collaborating with the State Department's Office of Reconstruction and Stabilization in planning the appropriate use of such surge capacity.

Security ($15.2 M)

The USAID central security (SEC) budget for FY 2007 represents a continuing effort to protect USAID employees and facilities against global terrorism and national security information against espionage. The budget is allocated among three major categories as detailed below.

Physical security funding will cover (1) physical security enhancement projects at USAID facilities overseas; (2) enhancement of Emergency & Evacuation (E & E) voice radio systems; (3) procurement of armored vehicles, and (4) security costs associated with USAID Headquarters in Washington, DC. In FY 2007, USAID will:

• Complete 19 physical security enhancement projects at overseas posts where field missions cannot collocate with U.S. embassies because of insufficient space and there are no current plans to construct new embassies.
• Upgrade communications systems at 12 missions to provide USAID employees with 24 hour access to U.S. Embassy E & E voice radio networks at work, at home, and during transit.
• Provide 25 armored vehicles to posts where the threat of terrorism, war, or civil disturbance is considered critical or high and conduct training courses for USAID armored-vehicle drivers to enhance their driving skills and ability to respond properly to emergency conditions.
• Provide security equipment and guard services to protect personnel, safeguard facilities, and protect sensitive and national security information at USAID headquarters.

Personnel security funding will allow USAID to conduct required background investigations and periodic update investigations for all U.S. direct-hire personnel. It also covers required pre-employment investigations and security clearances or employment authorizations for contractors who will work in USAID office space.

Information security funding will allow USAID to maintain a mandatory security awareness program and Agency-wide interactive computerized training to protect national security and sensitive information.

Information Technology ($61.9 M)

The USAID Information Technology (IT) budget for FY 2007 restores operations and services to the FY 2005 level. It supports IT systems, infrastructure, and architecture, which is critical in helping USAID staff fulfill the Agency's mission.

IT Systems funding will support the management, operations, and maintenance of the suite of enterprise-wide, legacy, and database systems; the design, development, programming, and implementation of small, automated information-management systems; and additional costs to support the joint financial systems maintenance activities with the Department of State. USAID maintains about 33 financial, procurement, human resources, and other systems.

IT Infrastructure funding will support the worldwide telecommunications operations and centralized network and server platforms in Washington. Maintenance of these platforms will require additional funding due to contract labor cost increases. Given the vulnerability of international operations, USAID will review and improve IT systems and organizational security measures.

IT Architecture, Planning and IRM Program Management funding will support the costs associated with configuration, contract, and project management. Additional funding is required for: (1) project management activities to coordinate integration of new initiatives, modernization efforts and the current infrastructure, and (2) to improve testing, performance monitoring, and integration of worldwide mission critical applications.

Staff Training ($10.3 M)

Continued investment in training is central to the FY 2007 implementation of the Agency Human Capital Strategy. The FY 2006 bureau management assessments will complete an overseas workforce assessment that will form the basis for more robust workforce planning, corporate hiring strategies, and training programs in FY 2007.

Training activities will ensure the Agency builds a more flexible workforce and enhances its capacity to respond to the ever-increasing demands placed on USAID development experts. Training programs will focus on:

• Identifying the skills needed for a world-class 21st-century development agency
• Analyzing the gaps between skills needed and those available within the Agency
• Implementing the most cost-effective training models to close the skills gaps, including the use of the blended-learning approaches that combine classroom and distance learning
• Eliminating duplication in a variety of skills, project management, and leadership courses
• Designing and procuring a learning management system with a supporting database to accurately capture employee training data
• Re-establishing the After Hours tuition assistance programs

The training strategy will rebuild and retool the core of the Agency workforce and ensure that newly hired employees receive the training needed to do their jobs effectively. In FY 2007, USAID will:

• Train up to 250 employees in leadership
• Implement certification programs for senior leaders, program managers, technical officers and support staff (finance, project and contracting officers)
• Implement a new program to train all supervisors
• Continue training in languages, security, and retirement planning
• Train staff in cultural sensitivity

Approximately 60% of the request will support the Human Capital Strategy while the remaining 40% will fund fixed recurring requirements, such as language and security training.

Personnel Support ($9 M)

The request for personnel support aggressively restores funding to allow HR to improve as it implements human capital reforms. Funding will cover Agency-wide personnel support, including:

• Support costs for 40 training positions overseas
• Continued implementation of worldwide workforce planning model results
• Implementation of headquarters-to-field alignment recommendations
• Foreign Service officer recruitment costs, such as outreach, travel, and relocation costs
• Continued implementation of the Student Loan Repayment Program
• Staff support to implement recent hiring authorities

Washington Rent, Utilities, and Support Costs ($51.8 M)

The request for office rent, utilities, and guard services for the Ronald Reagan Building and warehouse space in the metropolitan area is $43.1 million, 81% of this budget category. The remainder also is relatively fixed, required for building and equipment maintenance and operations, postal fees, APO, bulk supplies, transit subsidies, health and safety, and other general support costs for headquarters personnel.

Other Agency Costs ($32.4 M)

The request for other Agency costs covers primarily mandatory costs, the largest being payments to the Department of State for administrative support and dispatch-agent fees and Department of Labor for employee medical and compensation claims relating to job-related injury or death. This category includes travel and related costs for retiring Foreign Service Officers, costs associated with the Foreign Service panels, and funding for medical, property, and tort claims.

This category also covers legislative and public affairs support, including the costs of publications and travel to accompany Congressional delegations. In addition, it includes $1.3 million for potential extraordinary audit costs for Office of Inspector General expenses.

Program-Funded U.S. Direct Hires ($81.3 M)

The FY 2006 Foreign Operations legislation provides USAID with a Non-Career Foreign Service Officer hiring authority. As with the FY 2005 legislation, this authority allows USAID to use program funds to convert up to 175 personal services contractor or other non-USDH positions into limited-term direct-hire appointments. This authority follows FY 2004 appropriation language that allowed USAID to use program funds to employ 85 limited-term direct-hire employees in FY 2004.

With these authorities in FYs 2004 - 2007, the Agency will increase its USDH workforce by 328 by FY 2007, while decreasing its non-USDH workforce by 243 over the same period. While this will increase obligations for direct-hire personnel by $81.3 million, it will represent a decrease in total personnel costs, as the Agency replaces more PSC and other non-USDH staff with limited-term USDHs. Decreasing the number of hiring authorities used by the Agency also will save resources by decreasing administrative complexity.

FUNDING SOURCES FOR OPERATING EXPENSES

USAID's operating expenses are financed from several sources, including new budget authority, local currency trust funds, reimbursements for services provided to others, recoveries of prior year obligations, and unobligated balances carried forward from prior year availabilities. The table below shows the details.

USAID estimates local currency trust funds at $18.531 million, a $4.023 million decrease from FY 2006. The Agency anticipates estimated recoveries of $12 million during FY 2006 available for use in FY 2007 and reimbursements of $5.6 million. In addition, several program account provisions make additional funds available for administrative expenses. Those provisions total $9.745 million.

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