The USAID Fait Accompli

On Friday, the administration sent a memo on the future of USAID to the agency’s staff. It makes clear that the strategy continues to be “cut and reorganize first, ask permission later”—putting forward a vision for the full abolition of USAID. Regarding reorganization, remaining USAID staff have received “reduction in force” notifications with termination dates later this year. Regarding cuts, nearly all awards across a range of sectors have been terminated, and (by eliminating staff) the capacity to issue new awards removed. The approach appears designed to present Congress with little choice: if members want any sort of functioning foreign assistance system, they will have to support moving functions to an expanded State Department—one which will lack the capacity to carry out the scale or sectoral range of projects previously managed by USAID. Besides its questionable legality, the approach is likely one of the more damaging ways to reach the end goal of a smaller US assistance program focused on fewer sectors, largely run out of the State Department.

The memorandum to USAID personnel forecasts that “substantially all non-statutory positions at USAID will be eliminated… By July 1, 2025, the State Department will have assumed responsibility for USAID’s remaining programming…. By September 2, 2025, the agency’s operations will have been substantially transferred to State or otherwise wound down.” In other words, staff from USAID will be fired. Then there will be a separate hiring exercise at State to build some capacity to manage remaining awards. (What may be a draft notification to Congress reports that State and USAID were “notifying their intent to undertake a reorganization” that would shift responsibilities from USAID to State, and suggests the order in which things will happen—no changes to law until the FY26 budget request).

It is worth noting how much more radical and rapid this proposal is than mergers between development and diplomacy agencies that we have seen in other countries—mergers that have taken years to iron out. In order to end-run Congress, there is no merger: the proposal is to completely shut down one agency and build new capacity in a different one in three months.

At the same time, it’s clear the State Department expansion will be designed to build less capacity than is lost in USAID. The table below, based on awards data collapsed to the USAID department level by Leigh Mitchell and then cleaned by us, reports on the number and value of contracts under management by USAID country, regional, and central offices, active and terminated. The last column presents obligations under terminated contracts as a percentage of terminated and retained. As discussed here, that’s not a good indication of the impact of terminations on service delivery and outcomes, but it is a better measure of the likely future scale of operations of particular USAID departments. Nearly half of country offices, along with two out of five regional bureaus, already have no active awards left under management. Only 193 awards are left under management at the country and regional offices. Thirteen out of 18 central departments also have no awards left under management. It is a sign of the scale of the reduced geographic and sectoral scope of assistance that the administration is planning. (Note also: it appears the State Department will not inherit any capacity to support evaluation or innovation, and support toward self-reliance through programs backing economic growth or institutional strengthening has been substantially cut).

Regarding funding, under still-active awards, total estimated costs (an award’s maximum potential value) are $78 billion compared to obligated costs (funding already set aside to pay awardees) of $70 billion. So, without signing new contracts, there is about $8 billion in potential additional obligation headroom—but many of the projects with this headroom may not need additional finance. Meanwhile, the capacity to develop new projects, sign new contracts, and manage awards is being destroyed at USAID before it is built at the State Department. Contracting and agreement officers served critical, specialized roles at USAID, and the agency has struggled with sufficient recruitment and retention. It will be a surprise if the State Department is in a position to make considerable new obligations in the coming months, especially in budget lines beyond humanitarian assistance and global health including development assistance and the Economic Support Fund. And that suggests the impoundment issue may be forced.

At the start of March, total FY25 USAID obligations were $5 billion, but the contract terminations “de-obligated” an estimated $10 billion (this is an estimate of the obligated amount not already outlayed under terminated awards). We don’t claim to understand US budget procedures well enough to know if only “de-obligated” funds from obligations made this year count or not, but if all cancelled unspent obligations count as a negative, this suggests cumulative USAID obligations this year stand at negative $4.9 billion. (If it is only cancelled unspent obligations from this year’s awards, the negative number will be considerably lower.)

Certainly, it appears that very little of appropriated funds have been obligated whatever the measure. In FY24, the estimated obligations for bilateral economic assistance were $29 billion. The unobligated balance in the bilateral economic assistance categories as of March 23 was approximately $27 billion, according to the administration.

Through December, obligations were running slightly ahead of FY24. They subsequently flatlined, and March will have seen a reverse—reflecting the freeze, the complete collapse of USAID’s capacity to make new awards and the award cancellations. If appropriated funds are to be spent, obligations for the rest of the year will have to be made at a considerably more rapid pace than last year. That seems unlikely under the circumstances. The administration could submit a recissions package to Congress. But if they don’t (or it doesn’t pass), it may be hard to avoid a fight over impoundment.

It all suggests that if US lawmakers have their own opinions about the scale, scope, and institutional design of US assistance or want to avoid the chaos of the planned restructuring approach, they’ll have to act fast before the choice is made for them.

Figure. USAID cumulative obligations FY24 and FY25 ($m) (Treating canceled obligated but undistributed funding as “de-obligation”)

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Sources: obligations. For “de-obligations,” cancellations and outlays data. Estimated share of obligations not outlayed using data from top 25 largest terminated awards obligations and outlay status (78 percent outlayed) and applying the same proportion to total obligations under terminated contracts.