Following the terrorist bombings of U.S. embassies in Kenya and Tanzania in 1998, the Secretary of State, with the support of the President and Congress, created an Overseas Presence Advisory Panel (OPAP) to examine the condition, organization, management, and other aspects of U.S. diplomatic representation overseas. In 1999, the panel declared that the U.S. overseas presence was near a state of crisis and that the condition of U.S. posts and missions abroad was unacceptable. Specifically, the Panel recommended that major capital improvements be undertaken at U.S. facilities to strengthen security. The Panel reported that funds for new overseas facilities should be provided from a variety of sources, including payments by all the agencies that share space in the facilities. In addition, the Panel concluded that, at U.S. facilities, linking the number of staff with mission priorities could achieve significant budget savings by reducing the size of overstaffed locations. Further, Congress passed legislation in 1999 requiring all U.S. government staff working at posts slated for new construction to be located on the new embassy compounds unless they are granted a special colocation waiver. In 2002, the President’s Management Agenda emphasized the importance of configuring U.S. overseas staff to the minimum necessary to meet foreign policy goals. As part of the Agenda, OMB led an effort to develop a cost-sharing mechanism. OMB also emphasized the need to build embassies more quickly and recognized that, to do so, all agencies with overseas staff should be required to contribute their share to the costs. The administration also emphasized that, by requiring agencies to pay for overseas staff, agencies would be more likely to closely assess the need for each position before deciding to place a person overseas, thereby rightsizing overseas staffing levels at U.S. facilities. In 2003, we reported on the poor conditions of facilities at embassies and consulates. For example, we found that the primary office building at 232 posts lacked sufficient security, potentially putting thousands of U.S. government employees at risk. We also reported, however, that OBO had begun to institute a number of organizational and management reforms, beginning in 2001, designed to cut costs, standardize designs and review processes, and reduce the construction period for new embassies and consulates. These reforms, along with other actions such as increasing staff training and expanding outreach to contractors, provided OBO with the capability to manage its overseas building program more effectively. The United States currently has a network of embassies and consulates at 251 locations around the world. Nearly 30 agencies have more than 61,000 staff at these locations. Under the proposed program, cost-sharing fees would be charged for every overseas position. Annual charges for approximately 25,000 State support staff that provide security, transportation, and other services to all overseas agencies would be shared proportionately among over 36,000 program staff from all agencies, including State. Figure 1 shows the numbers of U.S. agencies’ overseas staff positions that would pay annual cost-sharing fees under the proposed program. Historically, State has borne the costs for constructing nearly all diplomatic facilities abroad. During the 6-year period from fiscal year 1999 through 2004, OBO received appropriations totaling $3.1 billion for constructing these facilities. Annual funding amounts generally increased during the period from about $300 million in fiscal year 1999 to about $750 million in fiscal year 2004, an amount that is about half of the annual $1.4 billion that the proposed $17.5 billion program would provide for new embassy construction when fully implemented. The Capital Security Cost-Sharing Program was developed so that State could obtain funds to accelerate the construction of new embassies and consulates around the world and so that agencies would pay the full costs associated with their overseas presence. The agencies’ share of embassy construction costs would be phased in over 5 years. When the proposed program is fully implemented, from fiscal years 2009 through 2018, it could result in funding of $1.4 billion annually from nearly 30 agencies, including State. OBO worked with OMB to develop the program based on a per-capita allocation of worldwide embassy construction costs for 150 facilities. OBO devised a fee-assessment plan that would spread the total embassy construction costs among all agencies with an overseas presence. After considering and rejecting several ways to charge agencies, OBO approved a cost-sharing formula based on a per-capita or “head-count” fee because, according to OBO, it was simple to implement, promoted agency rightsizing, and minimized agencies’ incentives to move staff to different locations to avoid cost-sharing charges. Funding through the proposed Capital Security Cost-Sharing Program could allow significant acceleration of the construction of U.S. diplomatic missions. Under the proposed program, the total funding amount would be $1.4 billion annually, a substantial increase over OBO’s historical funding levels. For example, during the 6-year period from fiscal years 1999 through 2004, OBO’s actual appropriations for embassy construction totaled $3.1 billion, an average of roughly $522 million annually. Annual funding amounts generally increased from about $300 million in fiscal year 1999 to about $750 million in fiscal year 2004. According to OBO, funds from cost sharing would enable the construction of 150 new embassy and consulate compounds to be completed by 2018, 12 years sooner than OBO’s initial plan, which included a planned completion date of 2030. After fees are phased in during fiscal years 2005 through 2008, non-State agencies would pay $480 million annually for a 10-year period through fiscal year 2018, while State’s annual payment would be $920 million. Figure 2 shows OBO’s existing embassy construction projections through fiscal year 2030 and how funding generated by the proposed cost-sharing program could accelerate embassy construction through fiscal year 2018. In developing the proposed cost-sharing program, OBO, with OMB’s approval, selected a per-capita or head-count formula based on the number of agency staff at all overseas locations and the type of office space. To determine each agency’s cost share, agency officials were encouraged to scrutinize their overseas staff numbers and determine whether each position required office space with controlled access, space with noncontrolled access, or nonoffice space for staff such as custodians, gardeners, drivers, and others who do not require a specific desk or workstation. According to OBO officials, it can easily calculate and periodically revise agencies’ fees by performing a few simple calculations, without the need for a large number of staff to administer the program. OBO adopted a methodology in which agencies’ cost-sharing fees for the first 3 years of the program, fiscal years 2005 to 2007, would be based on the total number of overseas positions that OBO identified in a 2002 worldwide survey. The positions were categorized by the four types of space. To determine agencies’ fees for the four types of positions, OBO estimated the construction costs for building each type of space at a typical new embassy. For example, the annual charge for a position located in a controlled access area would be $59,318. According to OBO, it plans to adjust these amounts every 3 years, beginning in fiscal year 2008, based on changes in the total number of overseas positions. In addition to the basic head-count fees, agencies’ annual charges would include amounts for their proportionate share of construction costs for support services’ personnel under the International Cooperative Administrative Support Services (ICASS) program. However, agencies’ fees would be reduced, or “offset,” by the amounts they are currently paying for office space outside embassy compounds. Based on input from all participating agencies, OBO plans to update the head-count numbers for staff annually and adjust cost-sharing fees to reflect updated headcounts. If the proposed program begins in fiscal year 2005, agencies would be charged for 61,413 positions, including 251 positions in the chief-of-mission areas; 8,432 in controlled access areas; 30,850 in noncontrolled access areas; and 21,880 in nonoffice space. These positions include direct-hire Americans, locally employed staff, contractors, continuing part-time staff, and temporary duty positions. Non-State agency participants and phased-in annual fees are shown in table 1. OBO considered two other formulas before deciding on the head-count method of determining agencies’ shares of embassy construction costs. One formula considered by OBO and an interagency working group would have assessed agencies’ charges based on the amount of space (square feet or meters) occupied in overseas facilities. There was agreement that the “space occupied” formula would more directly link costs paid to benefits received. However, OBO rejected the proposed formula because, according to OBO officials, administering and managing the fee assessments would require frequent collection and updates of data, which could be burdensome and labor intensive. OBO proposed a second formula based on comparable rental costs apportioned on a per-capita basis. The formula included factors such as commercial cost of rent by location, the net amount of space occupied, and other variables. According to OBO officials, this option was eventually rejected because it would not result in sufficient up-front funding needed for the construction and would also be labor intensive to compile and manage the data. The space occupied and rent formulas also lacked the support of OBO’s Industry Advisory Panel (IAP), whose members stated that agency officials could dispute the amount of office space for which they were charged, complain about the quality of their space, assert that other agencies’ staff were using a disproportionate share of space, and raise other issues that could be difficult to manage. OBO and OMB worked to develop fee assessments based on a per-capita or head-count fee for the full costs of construction in early 2002.