OPERATING EXPENSES

	FY 1998 Actual	FY 1999 Estimate	FY 2000 Request
Operating Expenses	$ 478,858,000 1	492,650,000 2	507,739,000 3

For FY 2000, USAID is requesting $507,739,000 in Operating Expenses (OE). These funds, combined with other funding sources, such as local currency trust funds, will provide a total of $564,178,000 to cover operating costs of the agency for FY 2000, compared to $554,833,000 in FY 1999 (including a $10.2 million appropriation transfer for Year 2000 costs and $2.5 million for overseas security improvements). The FY 2000 request includes $7,739,000 associated with the Office of Security. This office and its functions are being transferred from the Office of the Inspector General (OIG), funded from Operating Expenses of the Inspector General to become a separate office reporting to the Administrator, funded from the OE account. This transfer, which Congress authorized last year, will allow the OIG to focus on its core mission and will make USAID's security functions and structure consistent with other U.S. agencies. The amount to be transferred to the OE account in FY 1999 for the Office of Security will be determined at the time of the actual transfer of functions, which is expected to occur by April 1, 1999.

A breakout of staffing and OE costs by organizational unit and between headquarters and overseas will be provided separately.

Year 2000 Program. Throughout FY 1998 and FY 1999, USAID has aggressively pursued bringing those computer systems that are considered essential to the operations of the Agency (e.g., "mission-critical") into Year 2000 (Y2K) compliance. This effort includes remediating a number of our core corporate systems that provide key operational support to the Agency's Washington offices as well as its missions. The corporate systems include USAID's more recently developed New Management System (NMS). Further, the Agency's desktop computers, central servers, large mainframe computer, local-area networks, and wide-area telecommunications were either upgraded or replaced in order to bring these resources into year 2000-compliance.

Activities undertaken during FY 1998 and FY 1999 to achieve Y2K compliance focused primarily on a selected subset of USAID's computer systems -- those determined to be "mission-critical" in accordance with General Accounting Office (GAO) and Office of Management and Budget (OMB) Guidelines and definitions. Only after assurance that we will meet the target schedules for these systems will attention be directed toward systems that are important, but not considered "mission critical." The loss of non-critical systems would result in internal disruptions and inefficiencies. However, remediation and testing of several of these important systems will continue into FY 2000.

USAID has financed Y2K activities through reprogramming of FY 1998 and FY 1999 allocated funds as well supplemental FY 1999 funds appropriated specifically for Y2K-related activities. Processes and procedures provided by GAO guided these Y2K activities; status and progress continue to be reported monthly and quarterly in accordance with OMB instructions. Funding for Y2K activities totaled $21.8 million in FY1998 and $18.8 million in FY 1999 (including $10.2 million in supplemental funding). Y2K-related funding levels for FY 2000 total $3.2 million.

Information Systems. During 1998, USAID completed an assessment of the New Management System (NMS) and our efforts to get NMS up and running. The assessment identified deficiencies in our software development capabilities, Year 2000 (Y2K) compliance, software acquisition and engineering processes, and project management practices. This complex challenge prompted management decisions to stabilize NMS operations, to strengthen program management, and to lay a sound foundation for future investment decisions based upon OMB and General Services Administration (GSA) recommended practices. USAID had to adjust the NMS-related funding projections detailed in its FY 1999 Congressional Presentation. These adjustments were needed to allow sufficient time to complete the Agency’s first information architecture (i.e., definition of business functions and specific information needs) and reduce risk to Y2K compliance by renovating the NMS rather than replacing the financial management component of NMS before October 1999.

USAID has entered into agreements with another Federal agency and a private sector bank to perform certain financial management (FM) functions. Other FM processes are reengineered and a detailed needs assessment has been completed. An analysius of alternative approaches for implementing a new FM system is being done. USAID, in close collaboration with the GSA, selected a prime contractor with proven software engineering and system integration capabilities. Management decisions coupled with contractor assisted implementation have resulted in NMS operations being stabilized, Y2K compliance work being completed by July 1999, better management of costs and the quality of software maintenance being substantially improved.

During 1999, USAID will complete the information architecture which will guide the incremental investment planning and to support the analysis for FM system improvements. The FY 1999 and FY 2000 budgets below are based on current indications that acquiring a commercial-off-the-shelf (COTS) FM system will maximize return-on-investment. The current planning schedule for a COTS FM system includes an award in CY 1999 with implementation expected in USAID/Washington in FY 2000. Worldwide deployment is expected during CY 2001-2002.

The current configuration of NMS will be used through FY 2000 along with legacy systems (all Y2K compliant) to support the Agency’s operations until replacement information systems are deployed. The NMS maintenance and operations budget line includes Y2K renovation and validation work in FY 1999, a portion of which is financed from the government-wide Y2K supplemental. Funding to improve the reliability of NMS data and to prepare for transferring the data to a replacement COTS FM system is included in the FY 1999 NMS budget. In FY 2000, NMS maintenance and operations costs are substantially reduced in anticipation of the replacement of the NMS accounting module with the COTS FM system and Y2K renovations. Federally compliant investment analysis will be done to evaluate the business needs in the other NMS modules. The outcome of this analysis may require allocating resources from some planned maintenance of NMS modules in FY 2000 to renovations or replacement.

The COTS FM system budget line item below for FY 1999 includes the cost of completing essential acquisition planning activities, understanding the information interface requirements between a COTS FM system and the legacy systems including NMS, and selection of a COTS FM system vendor from a GSA schedule. Funding in the FY 2000 COTS FM system line item below will cover software licenses, software configuration, building interfaces, program management, deployment and training associated with implementing the COTS FM system in Washington.

Estimated funding levels for on going NMS maintenance and COTS FM system implementation ($000):

	FY 1999	FY 2000
NMS Y2K, Maintenance and Operations:	14,485	9,933
COTS FM System:	3,500	10,000
TOTALS:	17,985	19,933

Sources of Funding for Operating Expense Costs. The operating costs of USAID are financed through 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, as shown below:

Funding Sources for Operating Expenses
($000)

Category	FY 1998 Actual	FY 1999 Estimate	FY 2000 Request
Appropriated Operating Expenses	473,000	479,950	507,739
Appropriation Transfers	5,858	12,7000
Program Funds used for OE	255	330	350
End of Year Balance - Expired Funds	- 822	0	0
Obligations from New Budget Authority	478,291	492,980	508,089
Local Currency Trust Funds (Recurring)	39,267	35,575	33,449
Local Currency Trust Funds (Real Property)	354	11,400	3,100
Reimbursements	6,586	4,500	4,500
Unobligated Balance, Start of Year	32,847	20,164	20,786
Recovery of Prior Year Obligations	11,191	11,000	11,000
Unobligated Balance, End of Year	- 20,164	- 20,786	- 16,746
Obligations from Other Funding Sources	70,081	61,853	56,089
Total Obligations	548,372	554,833	564,178

Uses of the OE Budget.

The major OE cost components, required to support planned staffing levels, are as follows:

• Personnel Compensation (object classes 11 through 13) will increase by $9.2 million in FY 2000 compared to FY 1999, in spite of overall personnel reductions. Of this increase, $2.7 million is for costs of the about to be transferred Office of Security (not reflected in FY 1999 figures). The balance of the increase is due to the impact of Federal pay raises in FY 1999 and FY 2000 and pay raises for foreign service national personnel. Personnel compensation costs consume over 54% of total operating expense costs of USAID.
• Travel and Transportation (object class 21.0) will increase by $1.5 million from FY 1999 to FY 2000, of which $0.2 million is for Office of Security travel. The balance of the increase is due to the impact of inflation on travel costs and is primarily for mandatory and statutory travel such as post assignment, retirement, home leave, and rest and recuperation travel.
• Transportation of Things (object class 22.0) will increase by $1.1 million, due to the impact of inflation on the cost of shipping household effects as well as office and residential furniture and equipment to overseas posts.
• Rental of Space (object classes 23.1 and 23.2) will increase by $2.4 million over FY 1999. In this category of costs there is an increase of $2 million for rent associated with the Office of Security, with other rental increases due to general inflation. These increases are offset in part by the one-time nature of rental costs in FY 1999 for temporary interim office space in some locations overseas as plans progress to move to new facilities for improved security.
• Purchase of Goods and Services from Government Accounts (object class 23.3) will increase by $1.3 million, about half of which is associated with the impact of Federal pay raises and general inflation on payments to the Department of State for International Cooperative Administrative Support Services (ICASS).
• Lands and Structures (object class 32.0) reflects completion of funding for several real property programs.

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¹ Includes $473,000,000 in New Budget Authority and $5,858,000 transferred from the Department of State for International Cooperative Administrative Support Services (ICASS). Excludes $39,621,000 in local currency trust funds, $23,874,000 carried forward from prior year funds, $6,586,000 in reimbursements, and $255,000 in program funds used for travel related to environmental activities. [return to top]

² Includes $479,950,000 in New Budget Authority, $10,200,000 transferred from the Supplemental for Year 2000 costs, and $2,500,000 transferred from the Economic Support Fund Supplemental Appropriation to be used for overseas security improvements. Excludes $46,975,000 in local currency trust funds, $10,378,000 carried forward from prior year funds, $4,500,000 in reimbursements, and $330,000 in program funds used for travel related to environmental activities. [return to top]

³ Includes $507,739,000 in New Budget Authority, of which $7,739,000 is for costs associated with the Office of Security, funding and responsibility for which is transferred out of the Office of the Inspector General in FY 1999. Excludes $36,549,000 in local currency trust funds, $15,040,000 carried forward from prior year funds, $4,500,000 in reimbursements, and $350,000 in program funds requested for travel related to environmental activities. [return to top]

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