JUSTIFICATION

Net additional funds required for all decreases and increases in fiscal year 1977 for operating expenses are reflected in the summary schedules of However, justifications are presented in this introductory section for the decrease in fiscal year 1977 of one day's less pay, and the increases required for (1) annualization of 1976 and Transition Quarter local employee wage increases and 1976 Federal the individual bureaus and offices. salary increases, (2) within-grade salary increases for local employees, (3) price increases for international air fares and government printing, and (4) other mandatory increases for Military Postal Service Reimbursement to the Department of Defense.

Also incorporated within this section are certain increases and decreases in fiscal year 1977 for the transfer of the Foreign Affairs Administrative Support (FAAS) System from Other Accounts, which includes a $38,100 decrease for one day's less pay, and increases of (1) $1,148,600 for annualization of 1976 local wage increases and 1976 Federal salary increases, (2) $367,900 for local within-grade salary increases, (3) $302,100 for International air fare price increases, and (4) $1,460,000 for other mandatory increases for Military Postal Service reimbursements to the Department The remainder of the FY-1977 increases for FAAS are justified in the tab for FAAS which immediately follows this tab. of Defense.

Amount

-$ 214,400

1976 and TQ Local Employee Wage Increases..

Each year overseas posts are required to grant local wage increases due to issuance of local government decrees increasing all wages, or due to wage surveys conducted by the posts which disclose that the United States Government's wage scales do not provide remuneration equal to the local private community wage scales for corresponding skills and services. During fiscal year 1976 and the Transition Quarter (July 1 September 30, 1976) wage increases will be authorized in Since these increases will be authorized at different times during the Each year, funds are requested to cover local wage various countries to maintain wage comparability. two periods, only a portion of the total annual cost will be funded. increases anticipated during the budget year and to annualize the cost of those increases authorized during the current To annualize wage increases occurring in both the fiscal year 1976 and the Transition Quarter, a total of $6,649,300 Of this amount $1,127,900 is for annualization for the transfer of the Foreign Affairs is requested for fiscal year 1977. Administrative Support System.

year.

of this longer period is to require additional funds for salaries and benefits for part-time, temporary, and W.A.E. employees, and for reimbursement to the Working Capital Fund of the Department of State and to other agencies for salaries of personnel rendering services to the various offices funded from this appropriation. Included in the reimbursement to the Working Capital Fund is the cost of wage board increases which will be in effect for approximately eight months in 1976. Of the $263,700 requested, $20,700 is for the transfer of the Foreign Affairs Administrative Support System.

Local employee wage compensation plans provide for periodic within-grade salary increases similar to those provided American employees. This estimate is based upon data provided by each Embassy after it reviews the post wage plans and makes adjustments to reflect offsetting reductions resulting from employee turnover and normal promotions. the amount required to cover these salary increases is estimated to be $1,729,800.

For FY-1977

International air fares have risen sharply in recent years. In fiscal year 1975, the Civil Aeronautics Board approved a 5 percent fare increase for the North Atlantic Sector and a 4 percent fare increase on mid-Atlantic flights effective August 1, 1974. The International Air Transport Association (IATA) member airlines boosted Atlantic passenger fares an additional 10 percent effective November 1, 1974. In fiscal year 1976, international air fares increased 12.7 percent; indications are that the increase will continue at the same rate during fiscal year 1977, and $1,108,400 is requested to cover this additional cost.

$ 2,600 17,700 302,100

The U.S. Government Printing Office officially notified Federal Government printing and publishing officials in September 1974 of price increase projections for iscal year 1976. The GPO indicated that agencies should propose a fiscal year 1976 budget increase of 25 percent over fiscal year 1975. The average costs to date in fiscal year 1976 of all supplies ard materials affected by the GPO projection have borne out this projection, and this rate of increase is expected to continue in fiscal year 1977. An additional $1,450,000 is requested to cover this expected increase.

In February 1975, the Department of Defense (DOD) informed the Office of Management and Budget (OMB that DOD lacked authorization to provide postal services to other government agencies without reimbursement. ONE subsequently advised DOD that other agencies with a considerable number of employees serviced by the military postal system should request funds in their fiscal year 1977 budgets for reimbursement to DOD for postal services. Based on DOD's latest survey and cost statistics, it is estimated that $3,656,000 will be required for this purpose in fiscal year 1977.

2,196,000 1,460,000

The Department proposes to replace the present shared cost system and establish the Foreign Affairs Administrative Support system (FAAS), a direct and variable cost system for overseas support. The basis for the new system is that certain costs, previously billed to other agencies under the shared system, are fixed and essential to the Department's operations, and will remain relatively unaffected by changes in the volume of administrative support provided to other agencies. Under the FAAS system the fixed costs will be financed by appropriations made directly to the Department, instead of partially from reimbursements received by the Department from the serviced agencies. The FAAS system will provide improved budgeting and resource control, facilitate the financing of administrative support costs overseas, and yield an increase in managerial effectiveness for all concerned.

Under the present system called Shared Administrative Support (SAS) an agency is charged a portion, based on agency usage, of all administrative expenses at post. The charges to each agency under SAS reflect both variable and fixed costs of administrative services. The variable costs are directly related to the existence at post of agencies other than the Department. The sharing of fixed costs among several agencies, however, creates two problems.

First, the budget of the Deparment could be viewed as not appropriately reflecting the complete cost of operating the Department. This is because the fixed cost of furnishing certain essential services is shared among the agencies, regardless of the fact that the Department might have to furnish service at the same level even if no other agencies had operations at the post. A second problem is that sharing fixed costs could result in the charges to an agency being more representative of the number of serviced agencies at a post rather than the level of services consumed. For example, if one serviced agency terminates its operations at a small post, the cost to the other serviced agencies could increase simply because there are fewer agencies available to meet the fixed costs.

A total of $69,867,000 and 2,553 positions is being requested by an inter-agency financing transfer in FY 1977 to establish the FAAS system. Of the funding, $66,917,000 is for the Salaries and Expenses Appropriation, $467,000 is for the Missions to International Organizations Appropriation, and $2,483,000 is for the Acquisition, Operation and Maintenance of Buildings Abroad Appropriation. The request for 2,553 positions in the Department's direct position authorization will be accomplished by transfer from reimbursable employment 446 domestic, 672 overseas American, and 1,435 overseas local positions.

It should be emphasized that the increase in appropriated funds and direct employment does not affect the gross level of The increase in funding for the Department is fully offset by decreases in the approFederal expenditures or employment. priation requests of the serviced agencies; the increase in direct employment is exactly offset by a decrease in reimbursed employment of the Department.

The

Not only do the serviced agencies see the advantages of the FAAS system, but so does the General Accounting Office. "...an incremental cost system which would charge other agencies only for GAO, in its report of December 11, 1975, suggested Charging only for State's additional costs should allow State to those costs State incurs in meeting their requirements. better control self-support funds as well as deter participating agencies from decisions which would add to the total adminisCharges to State and the participating agencies would be closer to the costs that each has caused." trative support costs.