What does the fiscal cliff deal mean for foreign affairs?

January 7, 2013
by Allison Grossman, Senior Legislative Associate

As we all know by now, on New Years Day, Congress passed a deal to avert going over the so-called fiscal cliff. The Senate first voted 89-8 in favor of The American Taxpayer Relief Act of 2012, which the House then passed 257-16 later that same day.

A few days ago, Meredith Dodson, RESULTS Director of U.S. Poverty Campaigns, wrote about what this means for critical programs that protect and support the most vulnerable here in the U.S.

But what does the deal mean for foreign affairs? Well, we’re still parsing through the issues, but we do have a few details to share thanks to excellent analysis by InterAction and and the U.S. Global Leadership Coalition. We will continue to share more information and context for what this means for the International Affairs Account as it comes out, including next steps on fiscal year 2013 appropriations, the 2014 budget and appropriations process, and next steps on the debt ceiling and sequestration.

Discretionary Spending
The budget deal passed on New Years Day calls for the sequester (i.e. the across-the-board budget cuts agreed to in 2011’s Budget Control Act) to be delayed by two months from January to March 2012. In the meantime, these cuts will be replaced by $12 billion in new revenue and $12 billion in spending cuts. The cuts will be divided evenly between defense and non-defense discretionary spending by further reducing the spending caps that were also originally laid out in the Budget Control Act (BCA) for FY13 and FY14. The original spending cap for total discretionary spending under the BCA for FY13 was $1.047 trillion. In the fiscal cliff deal, the cap was decreased by $4 billion to $1.043 trillion. Half of this ($2 billion) will have to come from the security accounts, which includes the International Affairs Account at the moment. The FY14 discretionary spending cap was also set lower than the original in the BCA – by a total of $8 billion, split evenly between the defense and non-defense buckets. In FY14, the International Affairs Account will move to the non-security bucket. These smaller caps happen regardless of whether or not sequestration happens.

If no deficit reduction deal is reached by March 1, the total additional amount that will have to be cut under sequestration in FY13 is $85 billion, down from $109 billion because of the two month delay. Half will come from security spending ($42.5 billion) and other half from non-security. The International Affairs Account will move to the non-security discretionary spending bucket if sequestration is ordered on March 1. All cuts will be taken from March – September 2013 spending, which will have a significant impact on foreign assistance programs.

Fiscal Year 2013 and 2014 Appropriations
We are currently operaing under a continuing resolution for FY13, passed by by Congress last year; it is set to expire on March 27. Congress has a couple of likley paths forward – pass another continuing resolution (this time through the end of the fiscal year) or pass an omnibus appropriations bill. Both will have to take into account the new spending caps set out in the fiscal cliff deal. USGLC’s analysis includes an arugment as to why an omnibus would produce a more positive outcome for foreign affairs.

At the same time as we’re finishing FY13, we are also beginning the FY14 budget and appropriations process. Under a normal schedule, the President would send his FY14 budget request to Congress on February 5. But we have heard that because of the fiscal cliff conversations, the process has been delayed by about six weeks. There are a few possible scenarios, including that the President will send a “blueprint” of his budget to Congress in February with a more detailed version coming several weeks later.

Key Upcoming Dates
January 3: New Congress sworn in
January 7-11: House recess; Senate schedule TBD
January 21: President Obama’s second inauguration
February 5: Usual deadline for President’s budget request to go to Congress; would more likely be some sort of outline/blueprint instead of a full budget request
February 12: State of the Union Address
Late February/March: Debt ceiling reached (we have actually already reached the debt ceiling, but accounting tricks are helping the U.S. go on a few weeks longer)
March 1: Sequestration deadline
Sometime in March, post-deficit reduction deadline (or not): President’s full budget request to Congress
March 27: Sequestration goes into effect
March 27: End of current FY13 CR

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