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	Statement of the Administrator Summary of FY 2006 Budget Request Program Highlights Management Improvements USAID Support Budget Operating Expenses Capital Investment Fund Working Capital Fund Operating Expenses, Inspector General Foreign Service Retirement and Disability Fund International Disaster and Famine Assistance Transition Initiatives
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USAID Support Budget

Overview

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The USAID support budget has a critical role in meeting the State-USAID joint mission to create a more secure, democratic, and prosperous world by supporting the strategic goal of ensuring a high-quality workforce supported by modern and secure infrastructure and operational capabilities. Adequate Operating Expense (OE) and Capital Investment Fund (CIF) resources are particularly important 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 modern business systems, organizational discipline, and the right number of qualified, well-trained people to manage its programs. The FY 2006 request will enable USAID to continue management improvements to strengthen programs and support systems, as it faces the challenges of high retirement rates among our most experienced officers, significant costs to implement major business transformation initiatives, and increases in the strategic importance and funding of key countries and programs.

The USAID FY 2006 budget will support the following management priorities:

• Strengthen and right-size the workforce and rebuild the Agency's diplomacy and development capacity
• Continue investments in modernizing business processes to improve program and organizational accountability
• Increase security funding to improve physical, personnel, and information security

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

USAID faces increasing requirements for surge capacity to respond to critical new demands while maintaining programs elsewhere with capabilities weakened by a direct-hire workforce drastically downsized during the 1990s and a large workforce contingent reaching retirement age. To address the critical need to increase human capacity, USAID has prioritized the Development Readiness Initiative (DRI), which builds on the State Department's Diplomatic Readiness Initiative.

In its third year of implementation, DRI will strengthen the workforce and rebuild the Agency's diplomacy and development capacity. This effort will help USAID meet the Office of Personnel Management's (OPM) mandate to get the "right people in the right jobs with the right skills at the right time." By increasing overall staffing levels, DRI will strengthen the Agency's capacity to respond to crises and emerging priorities, cover staffing gaps, fill critical vacancies, and provide appropriate training.

To address significant management challenges and improve our accountability to the American taxpayers, USAID will continue to modernize its business systems and support State-USAID joint goals for information technology (IT) management. Joint procurement and financial management systems will serve both agencies' needs and improve program accountability through better integration of budget and performance.

By enhancing worldwide security operations and 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.

The requested OE budget authority of $680.735 million, combined with $50.499 million from local currency trust funds and other funding sources, will provide a total of $731.234 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 U.S. direct hire (USDH) salaries and benefits, represent over 50% 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.

In recognition of USAID's staffing shortage, Congress enacted legislation to help the Agency meet the development challenges of the future. To supplement the Agency's DRI, the FY 2005 Foreign Operations legislation provides USAID with a Non-Career Foreign Service Officer hiring authority. 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 U.S. direct-hire employees in FY 2004.

With these authorities in FY 2004, FY 2005, and FY 2006, the Agency will increase its U.S. direct-hire workforce by 435 by FY 2006, while decreasing its non-USDH workforce by 350 over the same period. While this will increase obligations for USDH personnel by $94.65 million, it will represent a decrease in total personnel costs, as more expensive contractors and other non-USDH staff are replaced with limited-term direct-hire employees. Decreasing the number of hiring authorities used by the Agency also will save resources by decreasing administrative complexity.

For FY 2006, USAID requests $77.7 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 new office facilities co-located on embassy compounds where new embassies are constructed as part of the Capital Security Cost Sharing program
• 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
• Upgrade IT equipment to modernize systems and enable participation in joint systems integration efforts

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 the Development Readiness Initiative; 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 2003 through FY 2006, followed by a brief description of each category and explanation of the FY 2006 funding request.

OVERSEAS OPERATIONS

Approximately 50% of the OE budget funds 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 ($269 M)

• Salaries and benefits for Foreign Service National direct-hire staff and personal service contractors (PSCs) and U.S. PSCs. The FY 2006 request is $106.7 million, or 40% of total mission funding.

 
• Residential and office rents, utilities, security guard costs, and communications. The FY 2006 request is $54 million, or 20% of total mission funding. These costs are largely non-discretionary.

 
• Intergovernmental payments. The FY 2006 estimated cost is $34.7 million or 13% 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 2006 request is $21.5 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 2006 request is $15.2 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 2006 request is $16.9 million.

 
• Contractual support. This category includes mission requirements for data-entry assistance and other administrative support provided through contracts. The FY 2006 request is $10.5 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 2006 request is $7.8 million.

 
• Miscellaneous. This includes medical costs, building renovations and printing. The FY 2006 request is $1.8 million.

USDH Salaries and Benefits - Overseas ($103 M)

• USDH Salaries and Benefits 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 2006 request is $103.4 million.

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. These funds are separate from the proposed CIF account, which will be used exclusively for new office building construction on Embassy compounds. The FY 2006 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 ($161 M)

• USDH Salaries and Benefits includes salaries and the Agency share of benefits, such as retirement, thrift savings plan, social security, and health and life insurance, for approximately 1,400 general service and foreign service employees. The FY 2006 request is $161.2 million.

Washington Bureaus/Offices ($13 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. The FY 2006 request is $5.2 million.

 
• 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. The FY 2006 request is $7.8 million.

CENTRAL SUPPORT

Development Readiness Initiative ($23 M)

The USAID multiyear DRI supports the Department of State's Diplomatic Readiness Initiative. Under this effort, USAID will expand its U.S. direct-hire staff by 70 in FY 2006 to allow the Agency to establish the required training and assignment float for entry-level programs (i.e., foreign service employees enter at the lowest levels and are promoted up the ranks like the military) and increase capacity to deal with emerging priorities. In FY 2004, USAID successfully completed the first stage of DRI, resulting in recruitment of 52 new staff above attrition of 169 (a rate of 30% above attrition).

The Development Readiness Initiative will strengthen the Agency's capacity to respond to crises and emerging priorities, cover staffing gaps, fill critical vacancies, and provide appropriate training. DRI includes the recruitment and hiring of qualified staff to replace retiring officers to expand staff to develop a surge capacity to meet urgent foreign policy demands. More critically, DRI will maintain the Agency's quality and flexibility of human resources and ensure that staff maximizes the professional skills needed to grow with job requirements. DRI will help USAID meet OPM's mandate to get the "right people in the right jobs with the right skills at the right time."

In FY 2006, USAID will:

• Hire 70 USDH staff over and above attrition
• Target hiring to fill the most critical skill gaps identified in FY 2004 and FY 2005
• Allocate 50-60 training positions in overseas missions to ensure that new officers are mentored appropriately before assuming leadership of offices and programs
• Continue to develop capacity to respond to new policy priorities and programs
• Reverse the staffing shortage by expanding and strengthening recruitment/hiring
• Train and develop new and current staff to be well-prepared to carry out USAID's 21^st century mission

Security ($13 M)

The USAID central security (SEC) budget for FY 2006 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) overseas security enhancement projects to deter intruders to USAID facilities; (2) upgraded 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 2006, USAID will:

• Complete 17 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 20 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 20 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 for USAID headquarters to protect personnel, safeguard facilities, and protect sensitive and national security information.

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

Information Technology ($62 M)

The USAID Information Technology (IT) budget for FY 2006 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; and the design, development, programming, and implementation of small, automated information-management systems. 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. 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.

Staff Training ($10 M)

Continued investment in training is central to the FY 2006 implementation of the Agency Human Capital Strategy. The FY 2005 completion of an overseas workforce assessment will form the basis for more robust workforce planning, corporate hiring strategies, and training programs. 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 2006, USAID will:

• Train up to 220 new officers (70 DRI, 150 to replace attrition)
• Implement certification programs for senior leaders, program managers, technical officers and support staff (finance, project and contracting officers)
• Implement a new training program to meet the Administrator's commitment to train all supervisors
• Continue training in languages, security, and retirement planning
• Training 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.

Washington Rent, Utilities, and Support Costs ($53 M)

USAID will sign a new five-year occupancy agreement in FY 2006, upon General Services Administration (GSA) determination of new step rates. In FY 2006, office rent, utilities, and guard services for public areas in the Ronald Reagan Building and metropolitan-area warehouse space will cost about $41.6 million, 79% of this budget category. GSA rent includes Department of Homeland Security charges for building-specific security, which is estimated to increase by $2 million from FY 2005 due to increased security measures after the 9/11 attacks. The remainder of this account also is relatively fixed, required for building and equipment maintenance and operations costs, postal fees, APO costs, bulk supplies, transit subsidies, health and safety, and other general support costs for headquarters personnel.

Other Agency Costs ($22 M)

The budget 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 also 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 $1.9 million for potential extraordinary audit costs for Office of Inspector General expenses.

Program-Funded U.S. Direct Hires ($95 M)

To supplement the Agency's DRI, the FY 2005 Foreign Operations legislation provides USAID with a Non-Career Foreign Service Officer hiring authority. 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 FY 2004, FY 2005, and FY 2006, the Agency will increase its USDH workforce by 435 by FY 2006, while decreasing its non-USDH workforce by 350 over the same period. While this will increase obligations for direct-hire personnel by $94.65 million, it will represent a decrease in total personnel costs, as more PSC and other non-USDH staff are replaced with limited- term direct-hire employees. 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 $22.554 million, a $4.138 million decrease from FY 2005. The Agency anticipates estimated recoveries of $12 million during FY 2005 available for use in FY 2006, compared to $16.3 in FY 2004. In addition, several provisions in the program accounts make additional funds available for administrative expenses. Those provisions total $15.445 million.

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