The State Department conducts activities designed to promote and protect U.S. interests overseas. To support these activities, State maintains a headquarters with regional and functional bureaus and 252 overseas posts. The State Department received slightly less than $2.7 billion for the administration of foreign affairs in both fiscal years 1995 and 1996, with the bulk of these resources allocated to salaries, infrastructure, and operating expenses. State faces a widening gap between available budget resources and the costs of maintaining existing activities. The State Department is the central agency for coordinating and implementing U.S. foreign policy in support of U.S. interests. State provides leadership to help bring peace and stability to areas such as Bosnia and the Middle East and carries out a variety of activities to promote these interests, including negotiating and overseeing over 14,000 treaties and agreements in force since 1946, including 24 treaties and 338 agreements concluded in 1994; analyzing overseas events to obtain information critical to U.S. preparing over 130 congressionally mandated reports covering such diverse subjects as the abuse of human rights and foreign trade; representing the United States at 700 international conferences annually; providing consular services to Americans overseas and issuing over 5 million passports and 8 million visas annually; and providing administrative support to about 35 federal departments and independent agencies with staff overseas. State’s headquarters in Washington, D.C., includes geographic bureaus that are organized along regional lines (such as the Bureau of East Asian and Pacific Affairs) and bureaus that are organized along functional lines (such as the Bureau of Political-Military Affairs). Figure 1.1 shows the basic organizational structure of the Department. The Under Secretary for Political Affairs oversees State’s six geographic bureaus and the Bureau of International Organizations. With 1,143 headquarters staff, Political Affairs is the Washington focal point for the development of policy recommendations, for coordination with other departments and agencies, and for transmission of guidance to ambassadors in the field. The geographic and International Organizations bureaus guide, coordinate, and supervise nearly all of the State Department’s activities overseas, including the operation of 163 embassies, 64 consulates general, 13 consulates, 8 missions to international organizations, 2 branch offices, 1 liaison office, and 1 interests section. The functional bureaus generally manage and coordinate specific issues and activities. The Bureau of Economic and Business Affairs, under the jurisdiction of the Under Secretary for Economic, Business, and Agricultural Affairs, is responsible for integrating U.S. economic interests with U.S. foreign policy in such areas as international energy, trade, and international civil aviation. In addition, State economic officers support U.S. foreign policy initiatives, including devising, negotiating, and implementing strategies and agreements to advance U.S. goals such as Russia’s transition to democracy and Bosnia’s reconstruction. The Under Secretary also oversees the Office of the Coordinator for Business Affairs, which was created in 1993 to facilitate U.S. businesses’ access to markets abroad. The Under Secretary for International Security Affairs coordinates national security functions pursuant to over 20 provisions of law. The Under Secretary manages the Bureau of Political-Military Affairs, which provides guidance, coordinates policy formulation, and participates in all major negotiations involving the nonproliferation of weapons of mass destruction and missile technology, nuclear and conventional arms control, defense relations and security assistance, and export controls. The Under Secretary for Global Affairs facilitates the implementation of U.S. foreign policy on 11 issues grouped under 4 bureaus: the Bureau of Democracy, Human Rights, and Labor; the Bureau of International Narcotics and Law Enforcement Affairs; the Bureau of Oceans and International Environmental and Scientific Affairs; and the Bureau of Population, Refugees, and Migration. Global Affairs administers over $800 million for narcotics control, refugee, and other programs and prepares reports such as the annual human rights report to the Congress. The Bureau of Consular Affairs administers and enforces immigration and nationality laws in issuing passports, visas, and related services and provides for the protection and welfare of American citizens and interests abroad. The Bureau also manages the Department’s border security program through which State is attempting to improve visa and passport functions. In fiscal year 1995, Consular Affairs issued 5.7 million passports, processed 7.8 million nonimmigrant visas and 604,000 immigrant visas, and provided over 1.1 million special services. The Under Secretary for Management directs all budgetary, support, and personnel policies of the Department. The Under Secretary’s principal function is to reconcile resources, both fiscal and personnel, with policy requirements. This Under Secretary also coordinates the activities of other bureaus, including the bureaus of Consular Affairs, Personnel, Administration, and Finance and Management Policy. The State Department was appropriated $2.695 billion for fiscal year 1995 and $2.671 billion for fiscal year 1996 for the administration of foreign affairs. State spends nearly 92 percent of its funding for fixed costs: personnel, operating supplies, utilities, and essential contracts. The remaining 8 percent is for mission-essential travel, the replacement of worn-out equipment, and infrastructure projects. Table 1.1 shows the allocation of State’s fiscal year 1995 appropriations by major account category. Table 1.2 shows how these funds were actually spent, based on our analysis of State Department data. This analysis shows that overseas posts cost about $1.9 billion (the combined funding for overseas foreign policy, overseas consular functions, overseas support provided by both geographic and management bureaus, and security and maintenance of U.S. missions). State support functions cost about $1.8 billion (the combined costs of domestic support, overseas support provided by both geographic and management bureaus, and security and maintenance of U.S. missions). Support functions include, among others, information systems, housing, telecommunication, security, personnel, finance, training, and medical services. Because of inflation and cost increases overseas, we estimate that maintaining current functions and personnel would cost $584 million more in 2000 than in 1995, a 22-percent increase. But, it is likely that the Department of State will face budget cutbacks over the next several years. If total discretionary spending is held to the levels envisioned in the congressional budget resolution for fiscal year 1997, spending will fall by almost 6 percent between 1995 and 2002. It will be difficult to exempt State from bearing a share of this planned reduction. Moreover, larger reductions in State’s funding have been proposed by the Office of Management and Budget (OMB) and the Congress. For fiscal year 1996, State’s budget is $2.671 billion for the administration of foreign affairs—$87 million less than requested. In July 1995, OMB proposed reducing funding for the administration of foreign affairs to $2.5 billion by 2000—a 7-percent decline from fiscal year 1995. When inflation is factored in, this represents a $770-million reduction in State’s purchasing power. Under the terms of the 7-year concurrent budget resolution passed by the Congress in June 1995, funding levels for the administration of foreign affairs could be even less than OMB projections. If the administration of foreign affairs were to take a proportional share of the proposed reductions for international affairs (the 150 budget function), State would receive $1.4 billion less in fiscal year 2000 than the amount required to sustain current activity levels. This represents a greater than 44-percent reduction in real terms from fiscal year 1995 levels. This analysis assumes that the administration of foreign affairs would receive the same percentage reductions as the rest of the 150 function, which may not be the case. To maintain the current—fiscal year 1995—level of services, we estimate that State would need $584 million more in appropriations in fiscal year 2000 than it received in fiscal year 1995—a 22-percent increase. We calculated this amount by applying a 4-percent annual inflation rate to the fiscal year 1995 funding. Figure 1.2 illustrates the widening difference between the funding needed to sustain State’s current level of services and funding provided under the OMB and congressional scenarios. The magnitude of the likely difference between available resources and the funding needed to maintain current operations dictates the need for a fundamental change in the management and structure of the foreign affairs apparatus. In the remainder of this report, we discuss State’s own reform efforts and the importance of developing an effective strategy to guide fundamental change (ch. 2) and present various options to realize cost reductions—streamlining State functions (ch. 3), restructuring State’s overseas presence (ch. 4), and reducing support costs (ch. 5). In response to a request from the Chairman, House Committee on the Budget, we reviewed State’s reform and cost-cutting initiatives and identified options that would enable State to adjust to reduced budgets. We did not make judgments on the relative value of State’s functions and activities or the level of resources that are required. In Washington, D.C., we interviewed officials and collected data in the bureaus responsible for political, economic and business, international security, global, consular, and support issues and functions. We also conducted work at agencies that perform related functions, including offices at the Departments of Agriculture, Commerce, Defense, Justice, Labor, Transportation, the Treasury, and other agencies, including the U.S. Agency for International Development (USAID), the U.S. Information Agency, the Arms Control and Disarmament Agency (ACDA), the Peace Corps, the Environmental Protection Agency, the U.S. Export-Import Bank, and the Office of the U.S. Trade Representative (USTR). Although our work describes State’s relationships with these agencies, we did not evaluate State’s effectiveness relative to these agencies. In addition, we met with various individuals in the private sector, including representatives from the U.S. Chamber of Commerce, the Executive Council on Foreign Diplomacy, the Kenan Institute of Private Enterprise, and the National League of Cities.