U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2250 Mail: Stop SSOP, Washington, DC 20402–0001

34–659 PDF 2007

GLOBAL WAR ON TERRORISM [GWOT]:

ACCURACY AND RELIABILITY OF COST ESTIMATES

HEARING

BEFORE THE

SUBCOMMITTEE ON NATIONAL SECURITY,

EMERGING THREATS, AND INTERNATIONAL

RELATIONS

OF THE

COMMITTEE ON

GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

JULY 18, 2006

Serial No. 109–232

Printed for the use of the Committee on Government Reform

(

Available via the World Wide Web: http://www.gpoaccess.gov/congress/index.html

http://www.oversight.house.gov

(II)

COMMITTEE ON GOVERNMENT REFORM

TOM DAVIS, Virginia, Chairman

CHRISTOPHER SHAYS, Connecticut

DAN BURTON, Indiana

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

JOHN L. MICA, Florida

GIL GUTKNECHT, Minnesota

MARK E. SOUDER, Indiana

STEVEN C. LATOURETTE, Ohio

TODD RUSSELL PLATTS, Pennsylvania

CHRIS CANNON, Utah

JOHN J. DUNCAN, JR., Tennessee

CANDICE S. MILLER, Michigan

MICHAEL R. TURNER, Ohio

DARRELL E. ISSA, California

JON C. PORTER, Nevada

KENNY MARCHANT, Texas

LYNN A. WESTMORELAND, Georgia

PATRICK T. MCHENRY, North Carolina

CHARLES W. DENT, Pennsylvania

VIRGINIA FOXX, North Carolina

JEAN SCHMIDT, Ohio

BRIAN P. BILBRAY, California

HENRY A. WAXMAN, California

TOM LANTOS, California

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

DANNY K. DAVIS, Illinois

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

CHRIS VAN HOLLEN, Maryland

LINDA T. SANCHEZ, California

C.A. DUTCH RUPPERSBERGER, Maryland

BRIAN HIGGINS, New York

ELEANOR HOLMES NORTON, District of

Columbia

———

BERNARD SANDERS, Vermont

(Independent)

DAVID MARIN, Staff Director

LAWRENCE HALLORAN, Deputy Staff Director

TERESA AUSTIN, Chief Clerk

PHIL BARNETT, Minority Chief of Staff/Chief Counsel

SUBCOMMITTEE ON NATIONAL SECURITY, EMERGING THREATS, AND INTERNATIONAL

RELATIONS

CHRISTOPHER SHAYS, Connecticut, Chairman

KENNY MARCHANT, Texas

DAN BURTON, Indiana

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

STEVEN C. LATOURETTE, Ohio

TODD RUSSELL PLATTS, Pennsylvania

JOHN J. DUNCAN, JR., Tennessee

MICHAEL R. TURNER, Ohio

JON C. PORTER, Nevada

CHARLES W. DENT, Pennsylvania

DENNIS J. KUCINICH, Ohio

TOM LANTOS, California

BERNARD SANDERS, Vermont

CAROLYN B. MALONEY, New York

CHRIS VAN HOLLEN, Maryland

LINDA T. SANCHEZ, California

C.A. DUTCH RUPPERSBERGER, Maryland

STEPHEN F. LYNCH, Massachusetts

BRIAN HIGGINS, New York

EX OFFICIO

TOM DAVIS, Virginia HENRY A. WAXMAN, California

R. NICHOLAS PALARINO, Staff Director

ROBERT A. BRIGGS, Clerk

ANDREW SU, Minority Professional Staff Member

(III)

C O N T E N T S

Page

Hearing held on July 18, 2006 ............................................................................... 1

Statement of:

Walker, David M., Comptroller General of the United States, Government

Accountability Office; Bradford R. Higgins, Assistant Secretary, Chief

Financial Officer, Bureau of Resource Management, Department of

State; John P. Roth, Deputy Comptroller (Program/Budget), Office of

the Undersecretary of Defense (Comptroller), Department of Defense;

James R. Kunder, Assistant Administrator for Asia and the Near East,

U.S. Agency for International Development [USAID]; Donald B. Marron, Acting Director, Congressional Budget Office; and Amy F. Belasco,

Specialist in National Defense, Foreign Affairs, Defense and Trade

Division, Congressional Research Office ..................................................... 23

Belasco, Amy F. ......................................................................................... 73

Higgins, Bradford R. ................................................................................. 48

Kunder, James R. ...................................................................................... 60

Marron, Donald B. ..................................................................................... 65

Roth, John P. ............................................................................................. 54

Walker, David M. ...................................................................................... 23

Letters, statements, etc., submitted for the record by:

Belasco, Amy F., Specialist in National Defense, Foreign Affairs, Defense

and Trade Division, Congressional Research Office, prepared statement

of ..................................................................................................................... 115

Higgins, Bradford R., Assistant Secretary, Chief Financial Officer, Bureau of Resource Management, Department of State, prepared statement of ........................................................................................................... 50

Kucinich, Hon. Dennis J., a Representative in Congress from the State

of Ohio:

NBER Working Paper Series ........................................................................... 74

Prepared statement of ...................................................................................... 15

Kunder, James R., Assistant Administrator for Asia and the Near East,

U.S. Agency for International Development [USAID], prepared statement of ........................................................................................................... 62

Marron, Donald B., Acting Director, Congressional Budget Office, prepared statement of ........................................................................................ 67

Roth, John P., Deputy Comptroller (Program/Budget), Office of the Undersecretary of Defense (Comptroller), Department of Defense, prepared

statement of ................................................................................................... 56

Shays, Hon. Christopher, a Representative in Congress from the State

of Connecticut, prepared statement of ........................................................ 5

Walker, David M., Comptroller General of the United States, Government

Accountability Office, prepared statement of ............................................. 26

Waxman, Hon. Henry A., a Representative in Congress from the State

of California, prepared statement of ........................................................... 10

(1)

GLOBAL WAR ON TERRORISM [GWOT]: ACCURACY AND RELIABILITY OF COST ESTIMATES

TUESDAY, JULY 18, 2006

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON NATIONAL SECURITY, EMERGING

THREATS, AND INTERNATIONAL RELATIONS,

COMMITTEE ON GOVERNMENT REFORM,

Washington, DC.

The subcommittee met, pursuant to notice, at 2 p.m. in room

2154, Rayburn House Office Building, Hon. Christopher Shays

(chairman of the subcommittee) presiding.

Present: Representatives Shays, Burton, Platts, Dent, Kucinich,

Van Hollen, Ruppersberger, Higgins, and Waxman.

Staff present: J. Vincent Chase, chief investigator; R. Nicholas

Palarino, Ph.D., staff director; Robert A. Briggs, analyst; Robert

Kelley, chief counsel; Raj Lalla, Jake Parker, and Jeff Hall, interns;

Phil Schiliro, minority chief of staff; Karen Lightfoot, minority communications director/senior policy advisor; Jeff Paran, minority

counsel; David Rapallo, minority chief investigative counsel; Andrew Su, minority professional staff member; Earley Green, minority chief clerk; and Jean Gosa, minority assistant clerk.

Mr. SHAYS. I would like to call this hearing to order.

Before we begin the hearing, I just would like to have a dialog

with David Walker, the Comptroller General.

Mr. Walker, you testified at a hearing on national security on

April 25th, going back a few months ago. In the hearing Mr.

Ruppersberger raised some very real and disturbing questions

about contracts and the fact that we need to address this issue. At

one point in the hearing I asked Mr. Ruppersberger to yield. I said,

‘‘Would the gentleman suspend for just a second,‘‘ and Mr.

Ruppersberger said, ‘‘Yes, I will.’’ ‘‘Mr. Shays—’’ that is me—‘‘I will

say to you that you give us a list of some contractors—’’ talking to

you, Mr. Walker—‘‘some areas within DOD that need a look, and

we will have a hearing or a series of hearings on that, and the

sooner you provide it to us the sooner we will do it.’’

Your response, Mr. Walker, was, ‘‘I will give you a list.’’ And then

Mr. Shays: ‘‘Let me just tell you something,’’ and then I spoke,

made some comments, I said, ‘‘I want you, whatever it is, if it is

Haliburton that is on the list, whatever it is I want you to give this

subcommittee a list of things that have just irritated you, you are

outraged by, or whatever, or suspect things. We will have a hearing, and I will pledge to this committee that we will call them in,

2

whatever it is, and let’s get the politics out of it to the extent we

can and go for it.’’

Mr. Walker, your response was, ‘‘I will do that.’’

I would like to know if you have yet provided the committee with

a list.

Mr. WALKER. No, I haven’t. You and I agreed, Mr. Chairman,

that by Friday you will have the following: No. 1, you will have

three to four examples of contracting problems. In addition to that,

as part of that you will have example of contracts that are a problem. Furthermore, you will also have specific contractor and/or governmental challenges that contribute to those contracting problems,

and you will have it by Friday.

Mr. SHAYS. Thank you, sir. Would you also rate them in terms

of which deserves to be looked at first, second, and third? In other

words, I don’t know how long your list will be, but if it is whatever

we would like to just prioritize it, and we will follow your list, however you prioritize it.

Mr. WALKER. I will do that. And the thing I think that is important, Mr. Chairman, is, while we will give three to four specific examples, in some cases the Government shares part of the responsibility for these contracting problems. That is where I think there

was a miscommunication. So I will provide that by Friday.

Mr. SHAYS. Let me just say there is no miscommunication. I

don’t want to go down that road. I was very clear in wanting a list,

and we have not yet gotten the list; is that correct? We have not

yet gotten the list?

Mr. WALKER. That is correct.

Mr. SHAYS. Yes. I am not trying to place any blame on you, Mr.

Walker. I am just trying to say that I said the sooner you provide

it the better and we will get to it. It is now July 18th and this was

a hearing in April. I want the record to clearly note that we are

still waiting for this list.

Mr. WALKER. You will get it by Friday.

Mr. SHAYS. Thank you, sir.

A quorum being present, the hearing on Global War on Terrorism: Accuracy and Reliability of Cost Estimates will come to order.

The global war on terrorism touches on all parts of the U.S. Government budget, covering homeland defense and military and diplomatic operations abroad. To combat terrorism, the United States

has initiated three military operations: Operation Enduring Freedom, covering Afghanistan and other GWOT operations ranging

from the Philippines to Djibouti, that began immediately after the

September 11th attacks; Operation Noble Eagle, providing enhanced security for U.S. military bases and other homeland security initiatives; Operation Iraqi Freedom that began in the fall of

2002 with the buildup of troops for the March 2003, invasion of

Iraq and continues with counter-insurgency and stability operations.

Determining the total amount of funding for the global war on

terrorism is challenging because of the various ways in which

funds are appropriated and the failure of the Department of Defense [DOD], to have auditable financial statements.

According to the Government Accountability Office, Congress has

appropriated approximately $430 billion to pay for military and

3

diplomatic efforts related to the global war on terrorism during the

year 2001 through fiscal year 2006. This $430 billion was provided

through regular appropriations as well as supplemental and bridge

appropriations that fall outside the normal budget process. Most of

this money was allocated for ongoing military and diplomatic operations overseas, especially in Iraq and Afghanistan. For military operations, the DOD has received $386 billion for

the global war on terrorism. For reconstruction and stabilization

programs in Iraq and Afghanistan, the Departments of State, Defense, and the U.S. Agency for International Development have received the remaining $44 billion.

Today we ask how effective are the Departments of Defense and

State processes for producing reliable, accurate, and timely cost estimates for the global war on terrorism. The GAO has found DOD

reporting problems make it difficult to know precisely how much

the war costs. The global war on terrorism cost reporting by DOD

is based on military services reports. At two Army divisions the

GAO reviewed Army posting procedures and found 35 percent of

transactions improperly posted.

Additionally, U.S. Government agencies, such as the Department

of State, do not formally track all global war on terrorism costs because they do not distinguish whether certain expenses are solely

attributable to the global war on terrorism. Furthermore, both Defense and State cannot accurately predict future commitments because of inaccurate reporting procedures and failure to distinguish

global war on terrorism costs from other obligations.

Beyond inaccuracies in reporting, global war on terrorism costs

and future commitments, there is also controversy over the practice

of seeking funding through supplemental spending measures. Many

believe—and I am one of them—that since the global war on terrorism will be a continued investment over the long term, these costs

should be part of the normal budget process.

According to the Congressional Research Service [CRS], supplemental appropriations have been the most frequent means of financing the initial stages of military operations during war; however, past administrations have requested funding for ongoing operations in regular appropriations bills as soon as a projection of

costs could be made. This should also be the case for the global war

on terrorism.

Why should we want accurate war costs? The answer is obvious:

decisionmakers and the public they represent need to know how

much this war costs and will cost. The U.S. commitment to the

global war on terrorism will likely involve the continued investment of resources, requiring decisionmakers to require difficult

tradeoffs as the Nation faces increasing fiscal challenges in the

years ahead.

Today we welcome our distinguished witnesses, including the

U.S. Comptroller General; the Assistant Secretary and Chief Financial Officer for the Department of State, and the Deputy Comptroller for the Department of Defense; the Assistant Administrator

for Asia and the Near East, U.S. Agency for international Development; the Acting Director for the Congressional Budget Office; and

the Specialist in National Defense with the Congressional Research

Service. We thank them all for appearing before us and we hope

4

this hearing will educate the American public about the cost of the

global war on terrorism.

At this time the Chair would receive the very distinguished ranking Member of the Government Reform Committee, the full committee, Mr. WaxmAn.

[The prepared statement of Hon. Christopher Shays follows:]

5

6

7

8

Mr. WAXMAN. Thank you, Mr. Chairman.

The purpose of today’s hearing is to assess the Bush administration’s global war on terror. Based on the facts and the data we

have before us, it is clear that the administration’s approach is failing.

There are two key problems with the administration’s approach

to countering global terrorism. The first is that costs are spiraling

out of control with inadequate accountability. The second is that

the administration’s actions have actually incited terrorism.

First, estimated spending has quadrupled over the past 5 years, increasing from about $31 billion to more than $122 billion this

year. Obviously, huge costs are associated with Iraq, but massive

waste, fraud, and abuse have undermined our efforts both to rebuild Iraq and to provide support to our troops.

Three years ago, we first raised the question about these out-ofcontrol costs. The excuse then was the fog of war. This isn’t the fog

of war, it is the fog of incompetence, the fog of indifference, the fog

of arrogance. We have out-of-control costs, while at the same time

our troops don’t have the armor and equipment they need, and it

is mind boggling. This has to stop. The incompetence, the fraud,

waste, and abuse, the squandering of billions and billions of dollars, it has to stop. We owe accountability to America’s families

that are paying for this war. For example, the Bush administration handed out over $9 billion

in bricks of cash to Iraqi ministries with no monetary controls, and

it now has no idea what happened to that money; $9 billion in cash

simply vanished.

One U.S. official who worked for the CPA, Frank Willis, described it as the ‘‘Wild West.’’ He said Iraq was a free-fraud zone,

with no accountability to prevent corruption.

The administration also squandered money it should have spent

on our troops. By now we all know that Haliburton had monopoly

contracts to provide our troops with meals and housing and laundry services. When we talked to former Haliburton employees, they

told us how the company intentionally inflated its prices. They said

the informal company motto was: don’t worry about the price, the

contract is cost plus. But the administration has let them get away

with it. GAO reported that the Army set no spending limits on

Haliburton until 2004. According to the Government Accountability

Office, cost constraint did not become a factor until almost a year

into the operation.

This is an incredible thing. The administration didn’t control

Haliburton’s overcharges until a year after the invasion; meanwhile, our troops didn’t have the body armor they needed, they

lacked night vision goggles, and they were driving around in

unarmored Humvees. As a result, we have now spent $50 billion

on Iraq reconstruction, including $30 billion from U.S. taxpayers,

but we have virtually nothing to show for it. We spent $2 billion

on Iraq’s oil infrastructure, but production is well below pre-war

levels. We invested $4 billion on electricity generation, but peak

output has been at pre-war levels. The situation is the same for

drinking water.

As Mr. Walker, the head of the Government Accountability Office, testified just last week before this committee, the Bush adminVerDate 11-MAY-2000 12:12 May 09, 2007 Jkt 000000 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 C:\DOCS\34659.TXT HGOVREF1 PsN: HGOVREF1
9

istration has yet to prove that is has made a difference in the Iraqi

people’s quality of life.

Well, the second problem is that the administration is actually

inciting more terrorism. When he testified before the 9/11 Commission, Richard Clarke, National Security Council official under

President Bush, warned that Iraq had no link to Al Qaeda and that

unilaterally invading Iraq without the support of our allies would

increase terrorism and further endanger the United States. He also

warned that Iraq would divert us from the war on terror. Well, the

facts are that the Bush administration never put more than 20,000

troops in Afghanistan to hunt for Osama Bin Laden, but he has

now over 100,000 troops mired in Iraq. Why?

The Bush administration spent only a few billion in Afghanistan,

but it has spent literally hundreds of billions of dollars in Iraq. Bin

Laden might be in Afghanistan. He might be in Pakistan. But I

have seen no intelligence reports suggesting that he might be in

Iraq.

What are the results of this misguided approach? Global terror

attacks are now at record levels. Worldwide terrorist attacks have

increased steadily each year since 2001, growing from a few hundred per year to an astonishing 11,000 per year. Deaths and injuries from terrorist attacks have also skyrocketed, increasing from

about 5,500 in 2001 to a record 39,000 last year.

Iraq is a quagmire of waste and incompetence. Osama Bin Laden

remains at large, taunting the administration and rallying more recruits. North Korea now has several nuclear weapons, where before

it had none. Hezbollah has become emboldened and is openly attacking Israel. Iran is actively seeking nuclear weapons and is essentially ignoring this administration’s overtures.

This is the result of 5 years of this administration’s global war

on terror. This is the result of 5 years of a rubber stamp Republican Congress. And these are the trend lines, the facts, and the

data, and they show no signs of reversing.

Thank you, Mr. Chairman.

[The prepared statement of Hon. Henry A. Waxman follows:]

10

11

12

13

Mr. SHAYS. Mr. Kucinich, you have the floor.

Mr. KUCINICH. I want to thank the Chair for holding this hearing

and thank him and Mr. Waxman. Mr. Waxman, thank you for your

leadership on this.

This is an urgent hearing, because this administration from day

one has intentionally mislead, distorted, and flat out lied to the

American people and the Congress about the real cost of the war

in Iraq. It is imperative for Congress and the American people to

know how much taxpayers’ dollars are being spent in Iraq and Afghanistan. Furthermore, it is essential that we understand the key

assumptions driving new requests for the war; namely, how long

does the administration intend to stay in Iraq and Afghanistan?

And what, if any, taxpayer money is being used to build permanent

bases in Iraq?

Currently the war in Iraq being conducted with no end in sight

and, except for this committee, not much congressional oversight,

costs our country $8 billion a month, $2 billion a week, and $267

million a day. The cost of the war today is estimated at $296 billion.

Now, with this kind of money we could hire over 5 million public

school teachers for a year, we could build over 2.5 million additional housing units, would could have paid for tens of millions of

young people to attend HeadStart programs, provided 4-year scholarships at public universities for over 10 million American young

people.

When you factor in the latest request for war funding by the administration, the total cost of war in Iraq and Afghanistan is set

to exceed half a trillion dollars in the next fiscal year. Through the

end of 2006, Congress will have appropriated a total of $437 billion,

with Iraq accounting for nearly 75 percent, 75 percent of these

costs. Factoring in the costs for 2007, the cost will reach $600 billion soon.

Not only do the costs of the war in Iraq account for the vast majority of this funding, but they continue to increase year after year.

Annual appropriations for Iraq jumped 30 percent between 2004

and 2006 and have now surpassed $100 billion per year.

Former U.S. Chief Economist and Nobel-laureate Joseph Stieglitz

estimated the long-term cost of the war in Iraq as being between

$1 and $2 trillion—trillion. In selling the Iraq war to the American

people, the administration insisted the total cost would be between

$50 and $60 billion, a tremendous amount of money, but when

former White House economic advisor Lawrence Lindsay estimated

a high limit of $100 billion to $200 billion for the entire operation,

the administration condemned the estimate as very, very high, and

Mr. Lindsay was soon out of a job.

Top administration officials have also proclaimed that much of

the expense would be self financed through oil revenue and other

Iraqi assets. Secretary Rumsfeld told the American people, ‘‘I don’t

believe the United States has a responsibility for reconstruction, as

Iraqi resources would be so readily available.’’ The administration

knowingly made these claims, and those claims were false, just like

the false claims of WMDs.

The administration’s predictions were either wilfully ignorant of

expert assessment or meant to hide the true cost from Congress

14

and the American people. But the American people are confronted

with the grim reality in their pocketbooks. Their children’s debt

burden is increasing, funds are continuing to be siphoned away

from education, Social Security, health care, or the repair of devastation caused by Hurricane Katrina.

But the costs do not end there. The human costs are in true

sense immeasurable. Over 2,500 American soldiers have lost their

lives. Estimates have been up to 48,000 wounded. Scores of Iraqi

citizens, actually perhaps over 100,000 innocent Iraqi citizens

killed, countless injured. While our coffers have been emptied to

fund this war, far too many coffins have been filled.

These mighty costs and how the American people were so ardently assured otherwise are not the end of the story. There are

also significant problems in how this taxpayer money is being accounted for and the questions on how transparently it is being

spent. This administration has yet to answer questions I raised

about $9 billion in Iraqi reconstruction funds that have still not

been accounted for. GAO continues to tell us it has significant concerns about the reality of the Department of Defense cost reporting,

concluding that neither Congress nor the DOD can know how much

the war on terror is costing or how appropriated funds are being

spent.

Problems with transparency go even further. In order for Congress to responsibly set funding levels, we need to talk about the

assumptions behind the requests, whether they are about troop levels, plans for permanent bases in Iraq, troop rotation plans, or

equipment replacement. Instead, these assumptions are not made

at all transparent in the supplemental or emergency funding requests that make them up 91 percent of Pentagon funding for the

global war on terror and the war in Iraq.

This administration has stonewalled this Congress at every turn,

continuing to refuse to turn over the most basic of information

needed for us to provide even minimal oversight. We must not

abandon, we will not abandon our constitutional responsibility to

provide checks and balances to the executive branch, especially

with an administration that has proven its lack of credibility time

and again.

It is great that the panelists are here. I thank them for their expertise on these issues and hope we can find a way to work to

make the funding process more transparent and more accountable.

The American people certainly deserve to know the full costs of

prosecuting the war, how those costs are affecting their everyday

lives today and in years to come.

Mr. Chairman, once again I want to thank you for the leadership

that you have shown on these issues in providing an open forum

that otherwise wouldn’t be provided in this House. Thank you.

[The prepared statement of Hon. Dennis J. Kucinich follows:]

15

16

17

18

19

20

Mr. SHAYS. I thank the gentleman very much.

Mr. Higgins, you have been very patient since you were the first

here.

Mr. HIGGINS OF NEW YORK. Thank you, Mr. Chairman.

I just wanted to make reference to the Government Accountability Office report which was the subject of a similar hearing in this

committee last week. The report had stated that a number of the

assumptions that the administration had made relative to the financing of the Iraqi war have changed. I would just state that assumptions don’t change; facts change, and facts serve as a basis for

new assumptions. The assumptions that the administration had

made relative to the financing of this war were dead wrong and

fundamentally flawed.

The fact of the matter is the administration said that this war

would be financed and its reconstruction by oil revenues and also

from the international community. That obviously has not happened. And $1.5 billion, or $6 billion a month is the cost to this

Government, and in many cases it is off budget, so it is for future

generations. So on the actual accuracy of the number and this

characterization of assumptions that have changed, I think we

need to talk about facts that have changed that should form the

basis for new assumptions if we are to be at all productive in this

process.

I would also say that the administration has an obligation to

level with this Congress and the American people about the true

cost, because not only does it affect the current Government and

this Congress, but it affects future generations, as well.

Then there is the deeper issue which has been touched upon in

this committee about accountability in the outlay, the expenditure

of these dollars, however much they are in reality. That is, if moneys are not being spent for their intended purpose to reconstruct

Iraq, then where are they? Is there fraud and abuse? Is it pervasive? Is it isolated? These are the kinds of issues that we need to

know, as well.

With that I will yield back.

Mr. SHAYS. I thank the gentleman.

Mr. Van Hollen, you will close up here.

Mr. VAN HOLLEN. I thank you, Mr. Chairman, and thank you for

holding another in a very important series of hearings. This hearing is entitled Global War on Terrorism: Accuracy and Reliability

of Cost Estimates. I think that is a very important issue to be investigating. But I also think it is important that we sort of take

the veil off the global war on terrorism and look at the different

components, because within that overall umbrella you, of course,

have military action against Afghanistan and also action against

Iraq and other efforts in terrorism.

This country, this Congress, in fact, the world community was

united behind the United States in our decision to take action in

Afghanistan. After all, the terrible attacks of September 11, 2001,

were launched by Al Qaeda, Osama Bin Laden as its head, from

Afghanistan while the Taliban government gave them refuge and

safe haven.

And the international community, as we know, passed a resolution at the United Nations unanimously condemning that and joinVerDate 11-MAY-2000 12:12 May 09, 2007 Jkt 000000 PO 00000 Frm 00024 Fmt 6633 Sfmt 6633 C:\DOCS\34659.TXT HGOVREF1 PsN: HGOVREF1
21

ing the United States in the fight on terrorism in Afghanistan, and

NATO, for the first time in its history, invoked one of the articles

of its charter saying an attack against one was an attack against

all. That was a necessary military action against the people directly responsible for attacking this United States on September

11, 2001, and I think the American people were fully prepared to

bear the costs of that war and continue to bear the costs, because

we need to get it right in Afghanistan.

We recall last time we were engaged in Afghanistan after the Soviet Union left, the United States decided it didn’t have its interests engaged there any more, left, and what you had was a failed

state that Al Qaeda took advantage of. We don’t want that to happen again in Afghanistan. We need to finish the job, and the American people are united there.

The situation in Iraq is very different. I think we need to approach it differently when we consider the cost, because that was

a war of choice. We now know there were no weapons of mass destruction. We know there was no collaboration between Osama Bin

Laden and Al Qaeda on the one hand and Saddam Hussein on the

other.

The President, in a speech he gave shortly before going to war

before the American Enterprise Institute, predicted that by going

to war in Iraq you would create a domino effect of democracy and

stability in the Middle East region. We just have to look at the terrible events going on there today to know that the opposite has

happened.

So the war in Iraq was very different, and when we consider the

costs we have to consider them differently.

Finally, when it comes to accountability I think you see a very

different standard applied to the two. Again, when it came to Afghanistan people understood the risks. They understood the challenge. They understood the threat, and they responded. In the case

of Iraq we have a series of predictions by administration officials

that were dead wrong, and yet the people who were wrong were either rewarded in some way or otherwise received positive reinforcement. The people who were wrong received positive and the people

who were right were consistently sort of diminished.

Since we are focusing on costs here I will close here, Mr. Chairman, but I do think it is important to go back when Lawrence

Lindsay, who was the chief economic advisor, predicted that the

cost of the war would be between $100 billion and $200 billion, and

Mitch Daniels, who was then the head of Office of Management

and Budget and others in the administration said it is not going

to be that high.

Well, we now know that Lawrence Lindsay’s predictions were, in

fact, low—low not just for the global war on terror but low for Iraq.

We are already far above that number, and we haven’t begun to

see the end of it. Yet, Paul Wolfowitz, when he was Deputy Secretary of Defense, also famously predicted that, when it came to reconstruction, Iraqi oil revenue would be able to pay the cost. We

haven’t even gotten back to pre-war levels there.

So whether it was on weapons of mass destruction, whether it

was on this claim, the manufactured link between Al Qaeda on the

one hand and Saddam Hussein on the other, whether it was the

22

cost of the war, and many other things, people just got it wrong.

And when you continue to ignore people who get it wrong, when

you ignore or reward failure, you get more failure. Unfortunately,

that is what we have today in Iraq.

Thank you, Mr. Chairman.

Mr. SHAYS. The Chair would recognize Mr. Dent.

Mr. DENT. Thank you, Mr. Chairman. I do want to thank you for

holding this hearing. It is very important that we continue this

oversight on the Iraq issue.

With that, I would like to yield my time to the chairman for a

statement.

Mr. SHAYS. Thank you. I won’t use much time, but to just say

to my colleagues that I agree with their very real criticism about

our assessment of the cost of this war. That is why we are having

this hearing. I would disagree with my colleagues about their sense

of the importance of the war in Iraq. I happen to believe it is a

noble effort and I believe, in fact, that Iraq is the central front in

the global war on terror, and I just want to be on record as saying

that. But this is a hearing, and now I would introduce our colleagues here who are testifying.

This is Global War on Terrorism: Accuracy and Reliability of

Cost Estimates. We have before us the Honorable David M. Walker, Comptroller General of the United States, Government Accountability Office; we have Mr. Brad Higgins, Assistant Secretary,

Chief Financial Officer, Department of State, and I would say a

constituent, which places additional burdens on you, Mr. Higgins,

and on me; Mr. John P. Roth, Deputy Comptroller, Office of the

Undersecretary of Defense, Department of Defense; Mr. James R.

Kunder, Assistant Administrator for Asia and the Near East, U.S.

Agency for International Development, referred to as USAID; Mr.

Donald M. Marron, Acting Director, Congressional Budget Office;

and Ms. Amy Belasco, Specialist in National Defense, Foreign Affairs, Defense and Trade Division, Congressional Research Office.

I think my statement gave you a larger title than your title actually is.

It is nice to have you here and to welcome you. At this time, as

you know, we do swear in our witnesses.

[Witnesses sworn.]

Mr. SHAYS. Note for the record our witnesses have responded in

the affirmative.

I thank you all for your patience. As you know, we like our witnesses to address us for 5 minutes, but this committee does not put

the clock on the first 5 minutes. But, given that we have six panelists, it would be good to be as close to the 5-minutes as you can,

but we are not going to stop you if you go over.

Mr. Walker, you have the floor.

23

STATEMENTS OF DAVID M. WALKER, COMPTROLLER GENERAL OF THE UNITED STATES, GOVERNMENT ACCOUNTABILITY OFFICE; BRADFORD R. HIGGINS, ASSISTANT SECRETARY, CHIEF FINANCIAL OFFICER, BUREAU OF RESOURCE MANAGEMENT, DEPARTMENT OF STATE; JOHN P.

ROTH, DEPUTY COMPTROLLER (PROGRAM/BUDGET), OFFICE OF THE UNDERSECRETARY OF DEFENSE (COMPTROLLER), DEPARTMENT OF DEFENSE; JAMES R. KUNDER, ASSISTANT ADMINISTRATOR FOR ASIA AND THE NEAR EAST,

U.S. AGENCY FOR INTERNATIONAL DEVELOPMENT [USAID];

DONALD B. MARRON, ACTING DIRECTOR, CONGRESSIONAL

BUDGET OFFICE; AND AMY F. BELASCO, SPECIALIST IN NATIONAL DEFENSE, FOREIGN AFFAIRS, DEFENSE AND TRADE

DIVISION, CONGRESSIONAL RESEARCH OFFICE

STATEMENT OF DAVID M. WALKER

Mr. WALKER. Chairman Shays, Ranking Member Kucinich, members of the subcommittee, I appreciate the opportunity to be with

you this morning.

I assume that my entire statement will be entered into the

record and I now move to summarize it.

As has been noted, the testimony today is dealing with funding,

reported costs, and future commitments of the global war on terrorism, and our testimony is focused on the overseas costs, as per the

request of the key subcommittee staff.

At the outset, Mr. Chairman, as I said last week, I want to compliment you and this subcommittee for your continued commitment

to oversight in this area. I think you are to be commended for that.

It is very important, and you are one of the few continuing to do

that.

I testified last week, as has been mentioned, on the new national

strategy for victory in Iraq. During that testimony I noted several

positive attributes about the new strategy, including a clear purpose and scope and the fact that strategy identifies Iraq as ‘‘a vital

national interest and a central front in the war on terror.’’ However, I also noted during that hearing that there were certain deficiencies, one of which was the absence of adequate current and future cost data for Iraq.

While this hearing is focused on the financial costs, needless to

say there is no way to compare the financial cost with the loss of

human life.

Since the beginning of the global war on terrorism in 2001, Congress has appropriated about $430 billion to the Department of Defense and other U.S. Government agencies for military, diplomatic,

and other efforts in support of the global war on terrorism. This

funding has been provided through regular appropriations, as well

as supplemental appropriations, which are provided, as you know,

outside the normal budget process.

Since September 2001, DOD has received roughly $386 billion for

global war on terrorism military operations, including funding for

homeland defense through Operation Noble Eagle. This $386 billion includes bridge funding in fiscal years 2005 and 2006 to continue global war on terrorism operations until supplemental appropriations could be enacted.

24

In addition, U.S. Government agencies, including the Depart- ment of State, the USAID have received about $44 billion since

2001 to fund reconstruction and stabilization programs in Iraq and

Afghanistan, and an additional $400 million for the commander’s

emergency response program in Iraq and Afghanistan. For fiscal year 2007, DOD has requested another $50 billion in

bridge funding for military operations, and other U.S. Government

agencies have requested $771 million for reconstruction and stabilization activities.

Since 2001 U.S. Government agencies have reported hundreds of

billions of dollars in cost associated with the global war on terrorism; however, as we have previously reported, we have certain concerns with regard to the DOD’s reliability and cost reporting. I

might note for the record some progress has been made since our

last testimony, especially with regard to timeliness, but we still

have concerns with regard to reliability of some of these cost estimates. I wish reliability was only a concern with regard to Iraq or

the global war on terrorism. As you know, Mr. Chairman, it has

been a concern throughout financial management throughout DOD

for a number of years.

DOD’s reported costs for GWOT operations overseas have grown

steadily in each fiscal year through fiscal year 2005 from about

$105 million in fiscal year 2001 to begin for the preparations for

operations in Afghanistan to about $81.5 billion in fiscal year 2005,

and has been mentioned about $1.5 billion a week with regard to

Iraq. With this steady growth, it is important to assure that all

commands seek to control costs to the extent possible, while providing appropriate support for our troops. With regard to the cost of military operations, about $23 billion

has been obligated for Iraq construction and stabilization, in addition to those military operations, as of 2006. However, U.S. Government agencies other than DOD do not formally track all global war

on terrorism costs.

Let’s face it, though: DOD is most of the money. This, along with

DOD’s cost reliability and reporting problems make it difficult but

not impossible for the decisionmakers to reliably know how much

the war is costing, to determine how appropriated funds are being

spent, and to use historical data to predict future trends. Predicting future costs will be difficult but not impossible because they are

dependent on several direct and indirect cost variables; however,

they are likely to be hundreds of billions of dollars in the future.

I know CBO will probably testify some on that.

With regard to GWOT costs, they are likely to continue for the

foreseeable future. No one knows for sure how long the global war

on terrorism will last. Decisionmakers will have to carefully weigh

priorities and make difficult choices, given increasing fiscal pressures. In assessing the tradeoffs, we would encourage the Department of Defense to consider moving other GWOT costs into the

baseline budget, as it has done with Operation Noble Eagle.

I know, Mr. Chairman, you have had some concerns with regard

to continued supplemental funding. This is consistent with our

prior suggestion that, once an operation reaches a known level of

effort or reasonably reliable level of effort and the costs are more

predictable, more funding should be built into the baseline budget.

25

This has been the approach that has been used in other conflicts

in the past, and we believe it should be considered for this conflict,

as well.

Thank you, Mr. Chairman. I would be happy to answer any questions you or the other Members may have.

[The prepared statement of Mr. Walker follows:]

26

27

28

29

30

31

32

33

34

35

36

37

38

39

40

41

42

43

44

45

46

47

48

Mr. SHAYS. Thank you, Mr. Walker.

Mr. Higgins.

STATEMENT OF BRADFORD R. HIGGINS

Mr. HIGGINS. Chairman Shays, Congressman Kucinich, and

members of the subcommittee, thank you for asking me to appear

before you to discuss the Department of State’s budget process for

funding the global war on terror.

In my confirmation hearing this past January, I made a commitment to not only seek the funds sufficient to complete our mission,

but also to make sure that these funds were spent for maximum

effect, issues that I believe are central to this hearing.

In my role as Assistant Secretary for Resource Management and

the Chief Financial Officer, I am responsible for administering the

development of the Department’s internal planning, budgeting, and

accounting functions. As you are aware, the department recently

reorganized the administration of foreign assistance programs

under the new Director of U.S. Foreign Assistance, Ambassador

Randall Tobias. While I work closely with Ambassador Tobias to

coordinate budgetary matters for both the foreign assistance and

the State operating accounts, he has authority for both State and

USAID foreign assistance funding and programs. As such, I am

pleased to have joining me as a witness to help respond to questions on foreign assistance USAID’s Assistant Administrator for

Asia and Near East, Jim Kunder.

I am here today to discuss the Department’s resources associated

with the global war on terror in Iraq and Afghanistan. In response

to your specific questions, to date the Department has appropriated

$34.6 billion for foreign assistance activities and State Department

operations in Iraq and Afghanistan, representing approximately 8

percent of the total U.S. Government funding for these two countries.

Breaking this down further, $26.5 billion has been provided for Iraq and $8.1 billion for Afghanistan.

Of the $34.6 billion, $31.1 billion has been provided in supplemental appropriations, as well, of the $34.6 billion, $30.5 billion or

88 percent was for foreign assistance. The remaining $4.1 billion,

or 12 percent, was appropriated for State and USAID operations

and for construction of embassy and other facilities in Iraq and Afghanistan. Of the funding appropriated to date, $28.2 billion, greater than 80 percent, has been obligated.

The Department separately tracks and regularly reports on the

status of these supplemental funds, such as through the quarterly

Section 2207 report on the Iraq relief and reconstruction fund that

we all know as IRRF, as well as other periodic reports required by

law. In order to develop reliable and accurate budget estimates, the

Department works very closely with its embassies in both Iraq and

Afghanistan to identify critical requirements and to better manage

the very high but very necessary expenses that are crucial to winning the global war on terror.

Costs that can be adequately projected and justified are included

in the President’s annual budget submission; however, because conditions are dynamic it is important that both our budget approach

and our response remain flexible to provide additional resources

49

outside the annual appropriations process, as warranted by changing circumstances.

As conditions evolve, the Department will work diligently to integrate our resource requirements for both countries into the Department’s annual budget submission. Costs that could not be reasonably funded through the use of existing Department funds have

been provided through supplemental appropriations. This supplemental funding has been critical to the Department in supporting

our operations and our activities, for which we are grateful to Congress for its support.

We are all aware that the operating environment in Iraq and Afghanistan is both constantly changing and hostile. These timely

supplemental appropriations, which are much closer to when the

funds are actually used, have allowed the Department to better

project funding requirements for the extraordinary security and

evolving assistance required to further our diplomatic efforts.

Thank you for the opportunity to address the subcommittee. I

look forward to addressing your specific questions.

[The prepared statement of Mr. Higgins follows:]

50

51

52

53

54

Mr. SHAYS. Thank you, Mr. Higgins. I am sure you will get a

number.

Mr. Roth.

STATEMENT OF JOHN P. ROTH

Mr. ROTH. Thank you, Mr. Chairman. Chairman Shays, Mr.

Kucinich, members of the subcommittee, thank you for the opportunity to speak with you about the current process for funding the

global war on terror.

I have been in the Department of Defense for 32 years, 22 of

these years with the Office of the Defense Comptroller. My principal role is to build a budget, whether it is the baseline budget for

the Department of Defense or a supplemental request. Drawing on

this experience, I am happy to address the important questions

raised in your letter of invitation. To date, the Congress has appropriated approximately $382 billion for the Defense Department and the intelligence community

for the global war on terror. As of April 2006, approximately $323

billion of this amount has been spent or obligated. The question of

whether supplemental appropriations as opposed to baseline budgeting is the best vehicle for funding the ongoing cost of military operations in the time of war is, in fact, a fair one.

In 2001 the administration and congressional leaders worked together to provide supplemental appropriations as the most appropriate mechanism to fund the global war on terror. For our part,

the Department can do it either way. However, because

supplementals are prepared much closer to the time the funds will

actually be used, they are a more accurate reflection of conditions

on the ground. They are a more accurate prediction of what the

cost of the war will actually be and, importantly, a process that allows quicker access to the funds at the time when they are needed

most, and to make an important point, because, regardless of

whether the war is funded through the supplemental appropriations or baseline budgeting, we must not lose sight of the fact that

our first priority must be to give the men and women who put their

lives on the line every day to protect our freedom what they need

and when they need it.

The same is true of the bridge funding provided by Congress in

recent years. Like the supplementals, they ensure that the U.S.

forces have the support they need when they need it without the

services having to resort to sub-optimal actions to cash-flow critical

military operations.

As for the accuracy and reliability of information on the cost of

war, the Department diligently and meticulously reports the cost of

war to both Congress and to the Government Accountability Office.

Congress has mandated nine distinct reports on the cost of the

global war on terrorism. These include one biannual and seven

quarterly reports to Congress, as well as the monthly report we

provide to the GAO.

Approximately 10 briefings on the cost of war are generally given

to Congress in the oversight committees every year. Indeed, as part

of the process of defending the Defense budget, over 31,000 pages

of budget justification and reports are provided to Congress every

year; 475 different reports were provided in fiscal year 2006, alone.

55

So we take our role as steward of the taxpayers’ money very seriously and we work to ensure that all cost of war information, both

in the baseline budget and the supplemental, is as accurate and reliable as possible. Indeed, this seriousness has been borne out not

only with respect to the cost of war, but by the substantial progress

the Department has made in business transformation and financial

management.

Two consecutive reports by the Government Accountability Office

have cited the Department’s progress in business systems modernization efforts. The Office of Management and Budget recently

raised the Department’s progress rating for financial management

from yellow to green, indicating that improvement efforts are proceeding according to plan.

So with that, Mr. Chairman, I conclude my formal remarks and

I look forward to your questions. Again, I thank the committee for

the opportunity to discuss these issues, and I am happy to respond

to your concerns.

[The prepared statement of Mr. Roth follows:]

56

57

58

59

60

Mr. SHAYS. Thank you.

Mr. Kunder.

STATEMENT OF JAMES R. KUNDER

Mr. KUNDER. Mr. Chairman, Mr. Kucinich, members of the subcommittee, thank you for the opportunity to be here today.

First, let me just answer directly the question asked by the committee on numbers. Thus far, the U.S. Agency for International Development in Iraq and Afghanistan has received $9 billion for reconstruction assistance. In response to the direct question of what

percentage has been obligated, in excess of 97 percent of that

money has been obligated to this point.

The issue of supplemental funding, we try to maximize the

amount of money put into the regular budget request, but also, as

Mr. Roth just testified, there are times when additional extraordinary expenses arise, especially in highly changeable circumstances like Iraq and Afghanistan. For fiscal year 2007, we put

the entire program budget at USAID in to the regular appropriations request.

The only amount that we added in the supplemental were those

security costs for static and mobile security because we were unable to estimate those going on. But increasingly we are trying to

put the bulk of the money into the regular appropriations request,

but in these kind of highly variable environments it is virtually impossible to project the year out, as circumstances change both on

the program and security side.

I would like to point out that Ambassador Tobias, the new Director of Foreign Assistance and AID Administrator is attempting on

the State and AID side, as Brad Higgins said earlier, to come up

with a new accounting system that will allow us additional ability

to track global war on terrorism, anti-terrorism efforts. This program is still in development, as you can imagine. It requires a

great deal of budgetary consultation.

But certainly, as that system is developed further, we look forward to sharing the ideas with the Congress and presenting those

ideas to you, but it explicitly does attempt to break out from each

of the existing funding categories development assistance, economic

support fund, and so forth, that proportion of the money on the

State and AID side that is going into the global war on terror.

In conclusion, I would just like to add one other comment. While

naturally the focus of this subcommittee’s questions today is on

Iraq and Afghanistan, I think one of the complicating factors in examining the true cost of the global war on terror is certainly a

number of programs supported by the Congress and implemented

by USAID around the world we think are consistent with the global war on terror.

But these are programs, for example, to reform the education

system in Indonesia or to look at broadcasting systems in Bangladesh or Egypt, or a number of capacity building programs in

Mindenau to make government more responsive. We think those

are also undermining terrorism and are part of the global war on

terror but, of course, are much more difficult to account for because

they also have a developmental and reconstruction impact.

61

Those are the points I would make at this point. I look forward

to answering any questions the committee may have.

Thank you, Mr. Chairman.

[The prepared statement of Mr. Kunder follows:]

62

63

64

65

Mr. SHAYS. Thank you.

Dr. Marron.

STATEMENT OF DONALD B. MARRON

Dr. MARRON. Thank you, Mr. Chairman, Congressman Kucinich,

members of the subcommittee. It is a pleasure to be here today to

talk about the accuracy and reliability of cost estimates for the war

on terrorism.

CBO estimates that since September 2001 the Congress has appropriated $432 billion for military operations and other activities

related to the war on terrorism. About $393 billion was allocated

to the Department of Defense and about $40 billion was appropriated for diplomatic operations and foreign aid. CBO estimates

that of these amounts $290 billion has been appropriated for operations in Iraq.

You will notice that each of the witnesses today brings with them

their own different sets of numbers and the estimates for these

various measures will differ somewhat, and I think that illustrates

the fact that there is a certain degree of judgment that has to go

in when estimating this, that the data are not speaking uniquely

with a single voice, and that, depending on the judgments the estimators make, we sometimes get different numbers.

CBO has frequently been asked to estimate the future costs of

operations in Iraq and the war on terrorism. Last week, for example, CBO released a report requested by Congressman Spratt, the

ranking member of the House Budget Committee, in which we estimated the cost of two Iraq scenarios that he specified. Those two

scenarios would imply that additional cost for Iraq would be somewhere in the neighborhood of $200 billion to $400 billion over the

next 10 years.

Now, estimating future war cost is always difficult because of uncertainty about the pace and scale of future military operations.

However, better estimates could be provided to the Congress if

more information was available. Let me just give a few examples.

First, the DOD’s supplemental budget requests for the war on

terrorism have typically been accompanied by much less justification than its regular requests. Such limited information is not always sufficient to understand how DOD develops its budget requests.

Second, the DOD’s monthly obligation reports on the war on terrorism also provide only limited information. These reports, for example, provide little guidance on how some of the funds were obligated. For example, in fiscal year 2005 a significant fraction of the

obligations were reported in various categories that were listed as

other, which didn’t provide sort of enough detail for us to really understand what was driving those and to understand in particular

whether those costs were likely to be repeated in the future.

The reports also do not include obligations for classified activities, which CBO estimates have been at least $25 billion to date.

Finally, obligation reports would be more useful if they contained

some information on the pace of operations, such as troop levels,

flying hours, vehicle miles in a given month. Such information

would be very useful in analyzing monthly cost variations.

66

Third, funds for Iraq and the war on terrorism were reported in

the same appropriation accounts that fund the regular non-war

budget. This makes it difficult to sort out how much is actually

spent, how much actual outlays are on war-related activities and

distinguishing that from the non-war.

Fourth, CBO frequently has difficulty obtaining the monthly reports on war obligations and other data. For example, the Agency

often receives that information months after the data are officially

approved for release. This could be addressed by establishing a

standard, more comprehensive distribution list for the war obligation reports and other data. It would also be helpful to have access

to the contingency operations support tool, the cost model that

DOD uses to formulate its supplemental requests.

A final, broader issue involves the timing of budget requests.

Since fiscal year 2001, funding for activities in Iraq and the war

on terrorism has been provided through a combination of partial

year bridge appropriations enacted near the beginning of the fiscal

year and mid-year supplemental appropriations. Some have suggested that, to better assist in planning future Defense budgets,

DOD should include the entire fiscal year’s cost of activities in Iraq

and the war on terrorism in its regular budget request.

That approach would have both positive and negative consequences. On the positive side, including war costs in the regular

request would give the Congress more time to debate and modify

the budget request for those activities and to balance those costs

against other budget priorities. Also, fully funding those operations

at the beginning of the fiscal year would help DOD avoid any potential funding issues that might arise from delayed enactment of

mid-year supplemental appropriations.

On the negative side, budgeting for activities in Iraq and the war

on terrorism in combination with the regular budget request could

result in less clarity about which funds go to war-related activities

and which were intended strictly for peacetime activities. In addition, submitting the request with the regular budget could lead to

less accurate cost projections, given the long lead times involved.

Thank you. I would be happy to answer any questions.

[The prepared statement of Dr. Marron follows:]

67

68

69

70

71

72

73

Mr. SHAYS. Thank you, Dr. Marron.

Ms. Belasco.

STATEMENT OF AMY F. BELASCO

Ms. BELASCO. I would like to submit my full statement for the

record.

Mr. SHAYS. It will be submitted for the record. You know what?

If you would allow me, just so I don’t forget, let me just take care

of that business. I ask unanimous consent that all members of the

subcommittee be permitted to place an opening statement in the

record and that the record remain open for 3 days for that purpose.

Without objection, so ordered.

I ask further unanimous consent that all witnesses be permitted

to include their written statements for the record. Without objection, so ordered.

Mr. KUCINICH. Mr. Chairman, I ask unanimous consent to put

the working papers in the record, the Stieglitz Report.

Mr. SHAYS. It is Joseph——

Mr. KUCINICH. Stieglitz, the Nobel-laureate.

Mr. SHAYS [continuing]. Stieglitz we will put in the record, without objection. It is dated February 2006.

[The information referred to follows:]

74

75

76

77

78

79

80

81

82

83

84

85

86

87

88

89

90

91

92

93

94

95

96

97

98

99

100

101

102

103

104

105

106

107

108

109

110

111

112

Mr. SHAYS. You have the floor, ma’am.

Ms. BELASCO. Chairman Shays, Ranking Member Kucinich, and

distinguished members of the subcommittee, my name is Amy Belasco and I am a Specialist in National Defense at the Congressional Research Office.

This hearing addresses an important oversight issue. How can

Congress get accurate and reliable projections of the cost of the

global war on terrorism? Projecting future costs depends on having

accurate records of past costs and on understanding how those

costs may change as troop levels or the pace of operations change.

I would like to make several points about this issue. The Department of Defense has not shared with Congress estimates of how all

the funds appropriated for each of the three operations that make

up the global war on terrorism—and that is Operation Iraqi Freedom, Operation Enduring Freedom that funds Afghanistan and

other counter-terrorism operations, and Operation Noble Eagle for

enhanced base security. DOD has not provided individual estimates

for these operations of how moneys have been and are likely to be

spent.

CRS was unable to resolve some discrepancies in DOD’s war cost

information. DOD has also not identified for Congress the planning

assumptions that underlie its requests, for example, the number of

troops deployed. That also drives future costs. DOD also does not

record the outlays associated with war spending that are necessary

to verify war expenses.

Another point is that war funding for procurement may make it

possible to reduce DOD’s regular budget because equipment is

being replaced sooner than planned.

Finally, to minimize problems in financing war operations, options could include funding most operational costs up front or submitting future war requests in February with the regular budget.

While it is sometimes difficult to project these costs because of

the uncertainties of war, it is not impossible, particularly in the 5th

year of operations.

In response to numerous congressional inquiries and in the absence of administration figures, CRS estimated the cost of military

operations, reconstruction, foreign aid, embassy operations, and

veterans health care since the September 11th attacks for the three

operations. Of the $437 billion appropriated thus far through fiscal

year 2006, CRS estimates that $319 billion or 73 percent is for

Iraq, $88 billion or 20 percent is for Afghanistan and other counterterrorism operations, and $26 billion or 6 percent is for enhanced

security, and about $4 billion CRS could not allocate.

In addition to this $437 billion, the administration’s fiscal year

2007 budget includes a $50 billion placeholder figure to cover the

first part of war costs, although a formal request has not been submitted. With that $50 billion, the total for the global war on terror

would reach $487 billion, and the total for all of fiscal year 2007

is likely to exceed $500 billion based on this year’s costs.

Of the $437 billion appropriated through fiscal year 2006, CRS

estimates that about 90 percent, or $397 billion, is for the Department of Defense, with the remainder for foreign aid, diplomatic operations, and VA medical costs.

113

As of March 2006, CRS estimates that about $302 billion of these

DOD funds are obligated and $95 billion is unobligated. Of those

unobligated funds, CRS estimates they would be split $71 billion

for Iraq, $12 billion for Operation Enduring Freedom, and $2 billion for enhanced security.

CRS found both strengths and weaknesses in DOD’s ability to estimate and track war costs. DOD uses a fairly sophisticated model

to estimate the specific expenses for each military operation that

are in addition to its normal operating costs, and those costs reflect

assumptions about troop levels, the pace of operations, and support

costs. The Defense Finance Accounting Service [DFAS], then tracks

these expenses by recording when contracts are signed and people

are due to be paid, but does not capture whether funds are ultimately spent, i.e., whether they result in outlays.

Nevertheless, CRS found several discrepancies and gaps in

DOD’s war cost information, including cases where obligations appear to exceed available budget authority and cases where budget

authority has not been spent. DFAS reports also do not capture

about $7 billion in budget authority that CRS and I believe also

GAO believe was appropriated for war, and the DFAS reports also

do not track the cost of intelligence that is managed outside of the

Defense Department and the cost to equip new Army modular

units in fiscal year 2005 and 2006 that was included in

supplementals.

For Congress to evaluate future war estimates, it would be useful

for DOD to fill in two significant gaps in war cost information:

tracking outlays and identifying troop levels. First, DOD cannot

currently identify whether the obligations reported by the Defense

Finance Accounting Service are ultimately spent or how much of

those are spent and where they are spent—in other words, the outlays. This is the cost DOD’s war funds and baseline regular appropriations are mixed in the same accounts and war funds cannot be

separately identified. Without outlay data, DOD cannot verify expenses, nor can Congress identify how war expenses affect the

budget deficit.

Second, in its testimony DOD generally identifies only the number of troops in country at particular times, which run roughly

140,000 in Iraq and about 20,000 in Afghanistan, or about 160,000

altogether. This number does not include all deployed military personnel supporting these operations in neighboring countries or

those who are conducting other counter-terrorism operations such

as those in Djibouti or the Philippines. Future costs depend on the

total number of deployed personnel, rather than those in country.

CRS found several estimates of the total number of deployed

troops in 2005 for Operation Enduring Freedom and Operation

Iraqi Freedom, which ranged from about 230,000 to 300,000.

Conducting oversight of how costs change as troop levels change

depends on having accurate data on past, current, and future troop

levels.

Distinguishing war and peace costs is another important issue.

DOD now receives substantial amounts of funds for war-related

procurement. Some of these moneys are for unanticipated new requirements such as additional armored Humvees. Other funds,

however, are to equip new Army modular units, to replace warVerDate 11-MAY-2000 12:12 May 09, 2007 Jkt 000000 PO 00000 Frm 00117 Fmt 6633 Sfmt 6633 C:\DOCS\34659.TXT HGOVREF1 PsN: HGOVREF1
114

worn equipment, which is known as reset, and to upgrade equipment. Since DOD’s plans already call for transformation or modernization of its forces, this war-related procurement may also

meet these needs. For this reason, it may be that DOD’s regular

budget could be reduced because equipment is essentially being

swapped out sooner than planned.

There is a couple of key things that are needed to build war

funding requests and to provide oversight over those requests. Options for improving oversight could include directing DOD to estimate by operation, by category, and by year how all appropriated

funds are or will be spent. DOD could also identify its planning assumptions such as troop levels that drive costs in previous and new

requests. DOD could also estimate overall and annual reset and

upgrade plans and potential offsets within its regular budget.

Finally, Congress could choose to direct DOD to set up separate

appropriation accounts for each operation so that war appropriations, obligations, and outlays can be accurately identified.

Finally, the subcommittee asked me to look at what the effect is

of supplemental requests on war funds.

Mr. SHAYS. If you could kind of bring it to a conclusion, how

much more do you have there?

Ms. BELASCO. I am sorry?

Mr. SHAYS. How much more in your testimony?

Ms. BELASCO. One paragraph.

Mr. SHAYS. OK.

Ms. BELASCO. Since September 11th, the administration has submitted supplemental requests for war funds well after the fiscal

year is underway. Although this allows DOD to estimate costs

based on later data, it reduces visibility on annual costs. If war

costs were submitted with the regular budget, DOD could then submit adjustments later.

To ensure that the Army and Marine Corps were not faced with

difficulties in meeting costs midway through the year, Congress

could consider options such as appropriating three-quarters of the

day to day operating funds at the beginning of the fiscal year and

a minimal amount of procurement funds, or about $45 billion, remains unobligated.

Thank you for inviting me.

[The prepared statement of Ms. Belasco follows:]

115

116

117

118

119

120

121

122

123

124

125

Mr. SHAYS. Thank you.

I am going to call on Mr. Kucinich, but I just would like to open

with a question that won’t be answered yet, but I would like to

know where all of you agree and where you disagree in terms of

what specific recommendations you would make, not just options,

would make for improving our ability to understand what we are

spending on each war—Iraq, Afghanistan, the general war on terrorism, and so on. So just as a bit of a heads-up.

Mr. Kucinich, you have the floor. We are going to do 10-minute

questioning. With that I would give my colleague 10 minutes.

Mr. KUCINICH. I thank the gentleman.

To Mr. Roth, how many people at the Pentagon keep track of the

actual cost of the war?

Mr. ROTH. Congressman Kucinich, I don’t have a specific number

in terms of number of people. Clearly, the costs of war are covered

by various levels and various echelons, beginning in the theater,

itself. Every unit that deploys to the theater has with it a financial

management team that goes that includes budget folks, accounting

folks, and auditors, as well. We have standing audit teams that go

to Iraq and Afghanistan to monitor costs. Then up and down the

chain of command, as well, the various commands that are in

charge of those troops also monitor costs and track costs and provide data on the costs of war, all the way up to and including military departments and the Office of the Secretary of Defense.

Mr. KUCINICH. Do you have dozens or hundreds or how many?

Mr. ROTH. I would say it is at least hundreds.

Mr. KUCINICH. Hundreds; 200; 300; 400?

Mr. ROTH. Sir, it would be a guess to put any——

Mr. KUCINICH. See, this is where the problem begins, Mr. Chairman. This GAO report says ‘‘We have significant concerns about

the overall reliability of Department of Defense’s reported cost

data.’’ If this gentleman who worked there for 32 years, testifying

on behalf of the people who are filing the figures, he doesn’t even

happen to know how many people are working on this. Then the

GAO reports that they don’t know about the reliability of the cost

data.

There seems to be some problem here. This gentleman told this

subcommittee—you cited chapter and verse of your absolute assurance of all the information you have given this Congress, and when

you did that you created a picture of candor of the Department of

Defense. I am wondering how that squares with the GAO report

that says neither the Department of Defense nor Congress can reliably know how much the war is costing. Can you tell us how much

the war is costing? How much is the war in Iraq, how much has

it cost and how much will it cost the American people?

Mr. ROTH. The cost of Iraq through April has been $215 billion

for the cost of DOD military operations. The cost of the other operations, as I testified in my statement, the cost of the obligations

through April were $323 billion. So Iraq was $215 billion and the

other operations are $108 billion. These costs were reported to us

on a monthly basis. It is something we call the Cost of War Report

that is processed through our accounting system and provided up

the chain of command, beginning with the many hundreds of people—again, all I said was I couldn’t put a specific point total to the

126

number of people, but there are hundreds of people that input the

data all the way from the theater to the buying commands to support commands and the various other echelons of support.

We make every effort to make these reports as accurate as we

possibly can. In our view they are, in fact—we diligently work to

make them accurate and we work diligently to make them timely.

Like any other process, we work to improve these reports. We look

at——

Mr. KUCINICH. Are these estimates or actual costs?

Mr. ROTH. These are actual costs.

Mr. KUCINICH. Now, Mr. Walker, you have given this subcommittee a report that raises questions about the reliability of the Department of Defense’s reported cost, and you say they include longstanding deficiencies in their financial management and the use of

estimate instead of actual cost and the lack of supporting documentation. Now, how does that square with what Mr. Roth just

said?

Mr. WALKER. Well, first, Mr. Kucinich, I think it is important to

put this in context, and that is financial management is a high-risk

area at the Department of Defense, has been for years, and it is

likely to remain to be for several more years.

Mr. KUCINICH. Why?

Mr. WALKER. There are several challenges.

Mr. KUCINICH. Why?

Mr. WALKER. Well, several reasons. No. 1, they have thousands

of legacy, non-integrated information systems that are capturing financial and other management information system at a very decentralized level involving multiple services and other units, and they

have, in many cases, major keypunch errors, inconsistencies. This

is a problem that exists well beyond Iraq. This is a fundamental

problem with regard to Iraq.

With regard to global war on terrorism, part of it is what is the

definition of an incremental cost associated with global war on terrorism, how consistently is that done. It is my understanding that

some of the costs that are being reported are estimated costs, not

actual costs.

Mr. KUCINICH. What is the difference between what you call an

actual cost and what Mr. Roth calls an actual cost?

Mr. WALKER. Well, I will give you one example. Actual costs,

trace it back to the payroll. We know exactly who got paid what

and we know whether and to what extent it was an incremental

cost associated with Iraq. My understanding is they can’t do that.

That is the difference between estimated and actual.

Mr. SHAYS. Could the gentleman yield just for a definitional

term? We will give him time.

Mr. KUCINICH. Of course. Sure.

Mr. SHAYS. When we say incremental cost, we are saying we

have added the war to the budget of the Department of Defense.

In other words, they are already paid a certain amount. How much

is a legitimate incremental difference that is designated or earmarked for Iraq. Is that what you mean by incremental?

Mr. WALKER. Correct. For example, Mr. Chairman, we had to

mobilize a number of National Guard and Reserve troops. That is

an incremental cost because of this operation. There are hazardous

127

duty pay and certain types of other pays they get paid because

somebody is in Iraq or because they are in Afghanistan that they

wouldn’t otherwise receive other than those operations, so they are

intended to be a cost that we would not have incurred but for the

operation.

Mr. KUCINICH. Now, Mr. Walker, you made it a point to say that

you created a pretty strong case that there aren’t any cost controls.

Given the fact that the cost controls are a problem, how much

could the war in Iraq end up costing the taxpayers? Do you have

any idea at all?

Mr. WALKER. We don’t have adequate cost controls, and, in addition to that, we are debt financing all of this, so the real cost is

actually more than whatever the short-term cost.

Mr. KUCINICH. Well, let’s go into that for a minute. When you

say we are debt financing it, you mean we are borrowing money

from other places to pay for the war?

Mr. WALKER. Well, no, we are borrowing money in many cases

from foreigners to pay for the war.

Mr. KUCINICH. That is what I mean. Now I will repeat the question. Since we are borrowing money from foreign countries to pay

for this war, how much money has the United States borrowed

from foreign countries to pay for this war?

Mr. WALKER. I wouldn’t be able to tell you off the top. I will tell

you that over 90 percent of our recent debt offerings have been purchased by foreign players. In fact——

Mr. KUCINICH. Would the GAO be able to provide for this

subcommittee——

Mr. WALKER. I will be able to try to provide you what we can,

Mr. Kucinich.

Mr. KUCINICH. I think that would be helpful so we know how

much money we are borrowing from foreign countries to pay for

this war.

Mr. WALKER. Again, that is overall, not necessarily for Iraq. It

is with regard to total Government financing, rather than to separate it. It would be impossible to separate it out for Iraq.

Mr. KUCINICH. Right. I understand. However, since you made the

case that we don’t have reliable figures, that they are not doing

very well at controlling costs, that there is longstanding deficiencies in their financial management system, that they are using

estimates instead of actual cost, that there is a lack of supporting

documentation, Mr. Walker, you have basically made a case for a

ballooning cost of the war, and since they are borrowing money

from other countries to pay for the war you have made the case

that our borrowing from other countries is going to increase commensurately. Is that correct?

Mr. WALKER. There is a difference between our revenues and our

expenditures, and to the extent that difference exists and to the extent that we have to go to others to finance it, then we are going

to have to pay interest on that. There is no doubt about it. In fact,

my understanding is that CBO has done some estimates showing

with and without borrowing cost, if you will, not necessarily for

this but for——

Mr. KUCINICH. You mentioned, Mr. Walker, that you keep track

of costs, payroll for example. Now, what about with respect to conVerDate 11-MAY-2000 12:12 May 09, 2007 Jkt 000000 PO 00000 Frm 00131 Fmt 6633 Sfmt 6633 C:\DOCS\34659.TXT HGOVREF1 PsN: HGOVREF1
128

tractors? Isn’t it true that, with respect to contractors, that you

brought a report to this subcommittee that indicated that $9 billion, essentially about $9 billion, could not be properly accounted

for?

Mr. WALKER. My understanding, Mr. Kucinich, and I want to double check this for the record, is that $9 billion may have been

Iraqi money, not U.S. money. I want to double check that for the

record.

Mr. KUCINICH. Is it OK to lose track of Iraqi money?

Mr. WALKER. It is not OK to lose track of any money, but there

is a difference as to our audit authority.

Mr. KUCINICH. But it is a question of it is Iraqi money, but who

was handling that money? Who was responsible for handling that

money, Mr. Walker?

Mr. WALKER. I would like to provide something for the record.

My understanding, it was a shared responsibility between the

United States and the Iraqis, but——

Mr. KUCINICH. So half of the problem of losing track of $9 billion,

at least half, had to do with your responsibilities, Mr. Roth? Who

was responsible for that?

Mr. ROTH. I would have to answer for the record, sir. I am not

aware of who was responsible for that $9 billion. I do not think it

was the Department of Defense.

Mr. KUCINICH. Well, we know it is a provisional government, but

we created that provisional government. It was under the direction

of the United States at the time. Now, Mr. Walker, you know, you

pointed that out in a report earlier.

I just want to say that I respect Mr. Roth’s 32 years of service

to this country, and I can’t ask you to pay for the sins of a number

of administrations, but one thing is for sure, though: we don’t know

what this war is going to cost. The Department of Defense has a

notorious lack of accountability when it comes to taxpayers’ funds.

Now we are borrowing money. This is insane. We are borrowing

money for foreign countries to pay for a war that we shouldn’t have

gotten into in the first place. I mean, unbelievable.

Mr. SHAYS. Mr. Burton, would you like time? You have the time?

Mr. BURTON. Mr. Walker, are there any other agencies of the

Government that have trouble with their accounting systems?

Mr. WALKER. There are other agencies that have financial management problems, but none on the scale of the Department of Defense. It is not close.

Mr. BURTON. I understand, but we are in a war and wars cost

a lot of money. But can you tell me how many agencies are having

accounting problems?

Mr. WALKER. I will double check this for the record, but as I recall, Mr. Burton, from a financial audit standpoint, about 21 of 24

Federal agencies can successfully withstand an audit and get an

opinion on their financial statements, overwhelming majority a

clean opinion. The Defense Department, not just because of Iraq,

because of other operations, is unauditable, and they, themselves,

file an annual certification that says that they are unauditable. It

has been that way for many years. That is not new, Mr. Burton.

It has been that way since 1947 when it was created. And they are

making some progress.

129

Mr. BURTON. Since 1947?

Mr. WALKER. Since 1947.

Mr. BURTON. When Truman was President?

Mr. WALKER. That is correct.

Mr. BURTON. Yes. Well, I imagine wars are kind of hard to keep

track of as far as the expenditures are concerned, and I am sure

that this is a continual problem, and I know that you will be making recommendations to the Defense Department to help them

straighten this out. We obviously would like to have more accountability if it is possible.

The one thing that I know is I know that we don’t know the total

cost of the war and we probably won’t for some time, but I do know

what the cost will be if we lose the war. If we lose the war I know

it will cost a lot more. It will cost people freedoms, it will cost people human rights, it will cause them all kinds of problems.

Winning the war against terror is something that we all have to

face and we all have to realize it has to be won. I understand that

there are accounting problems and I would like to see those accounting problems solved and I hope that the Defense Department

will try to do a better job, but the one thing that I feel is extremely

important is that every American knows what the stakes are.

We were attacked on September 11th; 3,000 people were killed.

It was worse than what happened in Pearl Harbor back in the

1940’s. We started a world war because of that, and that war,

World War II, cost 50 million lives; 50 million people died in World

War II. We started that war against Japan and Germany because

they attacked us at Pearl Harbor, and more people died in the

World Trade Center than died in Pearl Harbor.

I think the people of the United States need to realize that we

can’t afford to lose a worldwide war against terror. The terrorists

have attacked in Spain, they have attacked in London, they have

attacked in France, they have attacked in Latin America, they

have attacked all over the place, and they are not going away. They

are like cockroaches.

And it is a very insidious war. It is a war unlike anything we

have ever seen. We had frontal attacks in World War II. We had

frontal attacks in Vietnam. We had frontal attacks in Korea and

in World War I. We had trench warfare. This is a very insidious

thing. You have people walking around with bombs on their bodies

and they come into a crowded shopping center or into a school bus

and they blow it up and kill a bunch of people or they fly an airplane into a building, and they will do anything they can to destroy

the things we believe in and our way of life.

While I am just haranguing on about the need to win the war,

I don’t want to be distracting from the purpose of this hearing. Obviously I would say to Mr. Roth and the Defense Department work

harder. Make sure that you account for every dollar that you possibly can. I think everybody in this country, every taxpayer wants

to know that the money is being well spent.

And I think that the Secretary of Defense wants to know where

the money is spent and make sure that it is well spent. And I know

that everybody is trying to do that job over there. If we haven’t

done as good a job as we should have since 1947, then we just have

to try harder.

130

But the one thing that I would like to end my statement by saying is we cannot afford to lose the war against the terrorists, no

matter what it costs, no matter what it costs.

I yield back my time.

Mr. SHAYS. Would the gentleman yield?

Mr. BURTON. I would be happy to yield.

Mr. SHAYS. He has about 5 minutes and 40 seconds.

I thank the gentleman for his statement and I happen to agree

with it very strongly, but I still would like out of this hearing to

do a better job of getting a handle on our expenditures. So what

I would like to do is we have had different numbers, and they

range from a higher level by CRS to a slightly lower level, $9 billion.

What would account, as you understand it, for the difference be- tween GAO’s estimates, say, and CRS’s? The CBO estimate is $432

billion, GAO is $430 billion, and CRS’s is $438 billion. Do we know

what would account for that difference?

Mr. ROTH. Let me at least start, Mr. Chairman. First of all, let

me make a comment here, because there have been a number of

comments made here about the reliability and the accuracy of Defense data. We do, in fact, provide accurate data.

Having said that, we understand the need to improve the data

that we have provided. We have in place a financial management

improvement audit readiness plan that will address many of these

issues that the GAO has identified in terms of audit readiness, improved accuracy and timeliness of data, and improved business

practices. So I need to state for the record, sir, that the impression

that DOD across the board does not, in fact, provide accurate data

we would not subscribe to. That is not, in fact, the case.

Mr. SHAYS. The fact is, though—and this is the regretful fact—

DOD has not had auditable accounts since basically the end of

World War II, and it is a fact under every administration. Frankly,

I thought that would be one of the things that Mr. Rumsfeld would

have spent time on, but obviously it has gone in a different direction.

My testimony from the GAO is that you are making improvements. When you will get to auditable accounts and pass an audit

will be, I don’t know, I hope in my lifetime. It is why I used to vote

against the Defense budget. I didn’t want to vote for a Defense

budget that wasn’t auditable. I started voting for them when our

men and women were on the firing line in Iraq.

That is my challenge there.

Mr. ROTH. Yes. We understand that.

Mr. SHAYS. But what I want to then say is, given that your accounts are not auditable, you can’t account for the expenditures in

DOD if you make certain assumptions? What? What enables? Why

can we have confidence that the DOD numbers will be accurate as

it relates to the war?

Mr. ROTH. We have confidence in the numbers because we have

a substantial amount of oversight and a systemic way of looking at

the numbers, reviewing the numbers, and doing, for example, a

variance analysis on the numbers on a monthly basis. We do, in

fact, oversee the numbers. We have confidence that the numbers

are, in fact, correct. There are circumstances where we find that

131

people in the field, for example, made some mistakes in terms of

transactions. Where we find that, we dutifully go out and correct

those kinds of——

Mr. SHAYS. But, having said we have confidence in the numbers,

we all—and maybe CRS and GAO would speak to this—we have

to make assumptions about the incremental costs. What concerns

me is we have a budget for DOD. It has men and women and

equipment. But we then send men and women and equipment over

to Iraq.

In one sense, the full cost of that general would have been paid

whether he was in Iraq or somewhere else. That is what I think

the answer to my question would have been. We have to make certain assumptions as to how much we attribute to the war and how

much would have just been an ongoing expense.

Then you have the Comptroller General who has made the point

there is a tale to this. There is a tale of health cost ad infinitum.

There is a cost of equipment that has been, frankly, either destroyed or just worn out. And so we understand you won’t get it

perfect. Is there a process that you have, a scientific process that

enables you to distinguish incremental costs?

Mr. ROTH. There is, Mr. Chairman. The definition of incremental

cost, as Mr. Walker alluded to, as well, is very well defined. We

have it outlined in our financial management regulations. The example you provide is actually a very good one.

When a military member goes to the theater on an assignment

to take part in the contingency operation, the base pay of that military member is not, in fact, an incremental cost. You are absolutely

correct, Mr. Chairman. That military member would be paid

whether that military member were sitting in Fort Campbell here

at home or whether that military member were sitting somewhere

in Iraq. However, there are special pays that get activated when

that member goes into the theater, things like imminent danger

pay, hazardous duty pay, assignment pay.

Mr. SHAYS. Let me get into this, because the time is running out.

Mr. ROTH. OK. Those pays are incremental costs of the operation.

Mr. SHAYS. I didn’t mean to leave out CBO, and so please feel

free to jump in. Maybe you could just comment. Mr. Walker, you

were nodding your head. If you would just comment, and then we

will go to Mr. Waxman. Yes, Dr. Marron.

Dr. MARRON. Representing the middle number of your range, I

will start out. Appropriations are, at some level, the easiest thing

to track because you can track them at the moment that the laws

pass Congress. They don’t involve actions taken later on, primarily.

I believe the primary difference that occurs between the three

numbers are some judgments about certain appropriations that

happen not through that process but by transferring moneys from

the regular budget. Essentially, CRS, CBO, and GAO have made

different judgments about how much money on net was transferred

from other accounts into activities associated with the war on terrorism.

Mr. SHAYS. Mr. Walker, do you want to just make a comment or

should I go to——

132

Mr. WALKER. I think that is true. Some of our numbers are based

on overseas costs, only. As has also been mentioned, you know, we

don’t have numbers with regard to some of the classified operations. And as has also been mentioned by someone else, there is

supplemental funding that has occurred that is not for the global

war on terrorism but is for Army modularity, which obviously

wouldn’t be in here and hopefully wouldn’t be in anybody’s cost.

Mr. SHAYS. Do you want to just make a comment?

Ms. BELASCO. If I have this correct, CRS and CBO are fairly

close in terms of the moneys for Defense. For example, CBO is

about $393 billion and CRS is $397 billion. As you said, those are

basically how much moneys were transferred. I don’t actually know where DOD’s number of $382 billion, if I

am correct—is that what you said——

Mr. ROTH. Yes.

Ms. BELASCO [continuing]. Where that total comes from and why

it is about $15 billion less than the CRS number. And GAO’s number, if I have it correct, is $386 billion for Defense. Again, I don’t

know why that number is less.

Mr. SHAYS. Thank you.

Mr. Waxman.

Mr. WAXMAN. Mr. Chairman, before I ask any questions I want

to comment on the statements made by our colleague, Mr. Burton

from Indiana. We didn’t start World War II. World War II was imposed upon us when the Japanese attacked Pearl Harbor, they invaded the United States, and when Nazi Germany declared war

against the United States. It was not a war of choice; it was a war

we were forced into.

We were attacked on September 11, 2001. No one can argue that

Saddam Hussein led that attack on us. That attack was from

Osama Bin Laden and Al Qaeda. There was almost unanimous

vote of the Congress and support of the American people to go to

Afghanistan to root out Osama Bin Laden and the Al Qaeda and

to overturn the Taliban that gave them a place from which to operate.

The war in Iraq is a war of choice. It is the only war of choice

that this country has ever taken, and it was a war based on many

false premises. I know our chairman thinks this is a noble war. I

don’t think it ought to be confused with a war against terrorists

who would strike us. I think it was a war against the Iraqi people

based on the assumption that Saddam Hussein had weapons of

mass destruction which he did not have, based on the assumption

he was an imminent threat to us, which he was not, and based on

a desire by people in this administration to redo the whole Middle

East by the idea that we were going to invade Iraq and transform

them into a different reality.

Well, it has come home to us that the easy war we thought we

were going to engage in was not so easy after all.

If we look at what we were told not by the space Defense auditors, not by OMB, and not by the Budget Office about what this

war would cost us, because this hearing is about estimating costs

for the Iraq war, Mr. Van Hollen already referred to this in his

opening statement but let me just repeat it: Paul Wolfowitz, not an

auditor but a Deputy Defense Secretary, said that the cost of the

133

Iraq war, ‘‘We are dealing with a country that can really finance

its own reconstruction and relatively soon.’’

And Andrew Natsios, the Director of USAID, said on Nightline

that the most the United States would spend on reconstruction was

$1.7 billion. The head of the Office of Management and Budget,

working for President Bush, Director Mitch Daniels at the time the

war started, said total cost would be between $50 billion and $60

billion. And White House economic advisor Lawrence Lindsay, giving perhaps the highest estimate, said the that cost would be between $100 billion and $200 billion.

But now we know, as Mr. Walker testified last week, that we

have already spent more than $300 billion in Iraq, and the Bush

administration is now seeking over $100 billion more for next year.

Well, these administration estimates were off not by just a little

but substantially by orders of magnitude.

I want to put this in some perspective. People think that Congress adopts a budget, and in adopting the budget we set out our

priorities for spending. If we are in a war we have to set that out.

We have to set out our priorities for revenue raising in order to

spend, and we try, the people think, to balance that budget so that

the amount of money we spend is equal to the amount of money

that we take in, except under some rare circumstances where we

have to go out and borrow that money.

Well, I don’t think people running this Government care how

much this war may cost because they assume we can just borrow

it. They are not going out and raising money to pay for it. In fact,

this administration, at a time when we are borrowing money to

fund this war, is giving tax breaks to billionaires. It has never been

the situation where this country has ever been at a war when we

have said to people we are going to give you tax breaks.

But we are not giving people tax breaks alone, we are giving

those at the very top tax breaks. We are saying to them you don’t

have to make a sacrifice to help fund this war. We are going to

send our volunteer Army, men and women, they are the ones who

will make the sacrifice. And when you come back to the United

States your children and grandchildren will be paying for this war

in higher taxes and a lower quality of life, because it doesn’t matter, we are borrowing it.

I think it was Vice President Cheney that was credited with saying deficits don’t make any difference. We can go out and borrow

the money. They don’t make any difference. What he was talking

about, I believe, is that they didn’t make any difference politically

because people didn’t mind at the moment that the costs were

going to be passed on to future generations.

Democrats have always believed that you pay as you go along.

You decide on these priorities. You actually make a budget. You try

to stay with it. There are costs that you can’t anticipate, but there

are costs you can anticipate and there are costs you try to control.

But the Republicans running the Government in Washington

today want to say that this noble cause can be paid for by future

generations and by the sacrifices of young men and women who are

the ones on the front line.

Now, these cost estimates that we have had been way off. Mr.

Roth, my question for you as the Defense Department witness, and

134

an auditor, as well: how much does the administration currently

estimate that the war in Iraq will ultimately cost the American

people, if you can give us such a figure?

Mr. ROTH. Congressman Waxman, we in the Defense Department have not attempted to project a cost beyond the current fiscal

year. Given the unpredictability on certainty of the costs, I don’t

have any basis to develop any detailed analysis beyond this year.

So what we normally do is provide the detailed justification material to support the supplemental request when it comes to Congress. Beyond that period of time, that is, in fact, why we have argued supplemental appropriations are, in fact, an appropriate way

to finance that. We don’t have a sound basis to come up with an

estimate beyond the current fiscal year.

Mr. WAXMAN. Well, when the war started the administration’s

response is that we are taken by surprise, they never anticipated

any insurgency, they thought they could reconstruct Iraq with no

worries about security. That argument, of course, is ridiculous, and

they should have known it because General Shinseki warned the

administration that they would need several hundred thousand

troops, and he was ridiculed for his candor.

And the former President Bush, President Bush’s father, after

the first Gulf war explained his decision not to invade Baghdad by

warning that a U.S. occupation would result ‘‘incalculable human

and political cost, that there would be no viable exit strategy, and

the United States could still be an occupying power in a bitterly

hostile land.’’ Well, how could we have been taken by surprise?

People were telling this administration, they were telling the

American people what to expect, and yet President George W.

Bush, Secretary Rumsfeld, even Secretary of State Colin Powell all

bought into the idea that it was all going to work out well and we

could do this on the cheap.

How could the Defense Department, in trying to make estimates

of cost, fail to anticipate the cost of battling the insurgency, Mr.

Roth? Do you have any idea how they came to that conclusion that

they couldn’t, they didn’t have to figure out cost for battling an insurgency when the war started?

Mr. ROTH. Again, Congressman Waxman, in terms of when we

build the budgets, there is no basis to say in terms of battling the

insurgency as separate and distinct cost element along those lines,

so, sir, I don’t have any insightful comment to make on that.

Mr. WAXMAN. Well, even when we look at the experience of the

past 3 years and we look at the amount of money that has been

wasted, the Bush administration still pays the money. For example, in Haliburton’s $2.4 billion oil contract in Iraq the Pentagon’s

own auditors identified over $263 million in excessive and unsubstantiated costs. Those were the auditors working for the Pentagon,

and the administration ignored their own auditors and paid

Haliburton 97 percent of these charges, and then paid Haliburton

award fees and bonuses on top of that.

I just feel, Mr. Chairman and my colleagues, this has to stop. We

owe it to the American people who are paying for this war and to

the troops who are giving their lives for it that we have to stop the

waste, fraud, and abuse, and we have to fight against the terrorists

that threaten us in a smart and informed way, not one where we

135

are seen to be wrong at every turn, so much so that we can’t even

figure on what the costs are going to be from 1 year to the next.

I yield back the balance of my time.

Mr. SHAYS. I thank the gentleman.

I would recognize Mr. Platts and ask if he would just yield me

a speck of his time and I can return in favor.

Mr. PLATTS. Certainly, Mr. Chairman. I yield to the chairman.

Mr. SHAYS. Thank you.

Mr. Roth, I find your answer really very surprising, and I just

want to say that your statement needs to be very accurate for the

fact you are speaking before Congress and you are under oath. I

don’t think you meant to imply that there have been no estimates

of what this war will cost in the future, because that is your answer.

Mr. ROTH. Sir, I have not participated in any effort to forecast

the cost into the future.

Mr. SHAYS. Are you aware——

Mr. ROTH. What we do is we prepare——

Mr. SHAYS. I understand what you said.

Mr. ROTH. We prepare the cost estimates in support of our budget.

Mr. SHAYS. There is no one in DOD that is trying to estimate

what the cost will be if we have this number of troops or if we have

this number of troops? There is no estimate of those potential

costs?

Mr. ROTH. I am not aware of any estimates in terms of trying

to forecast future force levels because due to the unpredictability

of the nature of the war and these kinds of things. I am not aware

of any effort.

Mr. SHAYS. I think Congress has asked DOD to do that. Am I

wrong, Dr. Marron or Ms. Belasco? Haven’t we asked them to give

us a projection of future costs?

Ms. BELASCO. There was a statutory requirement for that and

DOD sent in a letter—I think it was actually an OMB letter—saying that they couldn’t give any estimates for, I think, fiscal year

2006 to fiscal year 2012 because of the uncertainty. They were supposed to ask for—the requirement was that they had to submit an

estimate unless the President submitted a waiver saying that for

national security reasons they couldn’t do it. They never submitted

the waiver; they just sent a letter in saying they couldn’t do it.

Mr. SHAYS. Mr. Walker, could you enlighten us on this?

Mr. WALKER. We have recommended that they attempt to do

that, but my understanding is they have not endeavored to do it

to date.

Mr. SHAYS. Well, I have used a minute of my colleague’s time,

slightly more than that, but I find that beyond comprehensive,

frankly. As President of the United States and as a Congress, we

would want you to be able to tell us what will be based on this

number of troops, based on this scenario, based on this scenario,

and I can’t believe that we would not have asked you to do it and

I can’t believe that we would not expect you to do to it.

I thank the gentleman for yielding.

Mr. PLATTS. Thank you, Mr. Chairman. I appreciate your hosting

this hearing. I think it is very important.

136

I want to try to focus on I think what we are really after, which

is the accuracy of what we know and the financial management of

DOD and Department of State and all agencies involved in the

global war on terror, because, while I think it is safe to say that

we can’t predict with any great certainty what next year or the following year will be on the war front from a strategic military

standpoint, but what we can predict with more certainty is our

ability to compile and accurately report the dollars appropriated

and ultimately expended, and even there though we are going to

have uncertainty.

I guess the way I would say it is we can with certainty say we

are going to be not very exact because of DOD problems and financial management. That is what I want to get into here, which I

think is what we are really after.

General Walker has been with us in our Subcommittee on Financial Management a number of times, and DOD’s efforts of reform

that have been going on for several years, and that is really where

I want to maybe take the discussion a little bit.

I will start with Mr. Roth. One, I appreciate all of your testimonies and your service and your different capacities and Mr. Roth

at DOD. OMB about a year ago put out their A–123 regulations regarding internal controls to all departments and agencies, a deadline of June 30th of this year to bring forth your plans, to have

them done, and to report on those plans as part of the financial

audit information in November.

I was wondering if you can give us an update on where DOD

stands in complying with the A–123 regulations on internal controls, because, as the subcommittee chair for Financial Management, it seems like I keep coming back to if we want, as we talk

about in the title here, accurate and reliable cost estimates, we

start at the bedrock, which is internal controls, because if you don’t

have those in place you may have numbers, but whether they are

accurate or not you never know. So where does DOD stand with

A–123 compliance?

Mr. ROTH. I will have to provide for the record specifically where

we are with A–123 compliance, per se. But, having said that, let

me say we have in place a financial improvement and audit readiness plan that we put into place in December 2005. This plan does,

in fact, address improving internal controls, dealing with material

weaknesses, and ensuring our fiscal stewardship, and so it lays out

in a very systemic, a very integrated way a plan to address these

kinds of deficiencies and to achieve on an event and performance

basis in improving our overall financial management stewardship.

And so already to date there are a number of success stories in

areas like military pay, in areas in terms of reducing our material

weaknesses. For example, during 2005 our material weaknesses

were decreased from approximately 47 to 34. Of those material

weaknesses, the financial weaknesses were reduced from 17 to 13.

So we do, in fact, have a very systemic plan. We track it on a

monthly basis. We do periodic reviews. And we have in place a very

comprehensive plan to deal with all the kinds of weaknesses that

others have identified and all the kinds of improvements that are

necessary to bring us into an auditable condition.

137

As far as where we stand on the 123, per se, I will have to provide that for the record.

Mr. PLATTS. If you could provide that to the subcommittee for the

record, I think the fact that DOD is not even able to be audited,

let alone get even a qualified opinion, goes to the whole issue here

of these accurate and reliable cost estimates.

Mr. PLATTS. That plan is in place, Mr. Walker. I am not sure,

has GAO reviewed and commented on the plan that was referenced

and how they are moving forward with it? Are you aware?

Mr. WALKER. We have seen several. I don’t know that we have

seen the latest. I will followup with my staff and provide something

for the record on that, Mr. Platts.

Mr. PLATTS. And, Mr. Roth, how about your IG? I know that the

DOD IG has been very involved in these issues. Are they involved

in reviewing that plan and the headway you are making and commenting on the progress?

Mr. ROTH. Well, it is a plan that has been vetted throughout the

Department of Defense, and all the stakeholders, if you will, and

all the interested parties have looked and have taken part in preparing that plan. It, for example, was a key. The development of

that plan and the fact that we have that plan or are making

progress along the lines of the kinds of efforts and initiatives that

are outlined in the plan did, in fact, lead, for example, the Office

of Management and Budget, as I alluded to in my statement, to

change our progress rating under the Presidential management

agenda in financial management from yellow to green. It was in

large part because of the existence of this plan and the fact that

the Department is, in fact, carrying out the plan and is, in fact,

achieving many of the goals that are outlined in that plan.

Mr. PLATTS. One of the challenges at DOD has been every different component having its own financial management system and

there was an effort to tally those, and the last count I saw we were

at 3,000 and counting, in different systems, and so the ability to

bring all the information together was very difficult. Where do we

stand in that effort of trying to unify the various agencies, components within DOD to have a unified reporting system that is able

to better communicate across the lines?

Mr. ROTH. Along those lines, sir, we are implementing a standard financial language throughout the Department. This is going to

be a new accounting structure that will enable the Department to

manage our costs, value assets, for example, forecast future needs,

develop better historic trends, and the like, and so we are in the

process of trying to address those kinds of issues to try to put the

overall financial information system, the overall accounting system

on a more common denominator, more common language kind of a

basis.

Mr. PLATTS. Is there a timeframe for when we can expect that

to be in place, that common language?

Mr. ROTH. I will have to get back to you. I will have to provide

that for the record. I don’t have that date right here.

Mr. PLATTS. I would appreciate that.

I appreciate the effort that is being made at DOD and, in fact,

Secretary Rumsfeld, September 10, 2001, gave a very important

speech at DOD about business systems modernization. The events

138

of September 11th happened the next day and kind of overtook the

importance of that message. That being said, he has reasserted

that message, you know, numerous times in trying to bring the

DOD into a financially accountable department, but it seems that

each time we have had hearings that it is always something in the

works. We are not seeing an actual outcome achieved, as opposed

to something in the works.

Mr. Walker, your assessment of where we are with this systems

improvement of getting that ability to communicate within the Department in a more uniform fashion?

Mr. WALKER. The latest plan that I have seen is clearly superior

to the last plan. It is a lot more realistic in its approach. It doesn’t

set, at least the financial management portion of it doesn’t set arbitrary timeframes for an end gain to get a clean opinion. It is focused on specific line items and specific entities, so I think that is

a clear plus. But, you know, candidly, it is going to take them years

to get to where they need to be.

Last thing, Mr. Platts, I think is important, if you wouldn’t mind,

is why do you care about cost? I mean, ultimately you are going

to have to do what you have to do, but there are several reasons

why I think the chairman has asked for this. I mean, one, you need

to exercise your oversight responsibilities, which you are trying to

do with regard to the funding and the accountability for the funding.

Second, you have to have a decent cost accounting system in

order to review the justification for resource requests, whether they

are part of the baseline or the supplemental or anything else.

Third, ultimately you want to try to get a sense for what this is

going to cost us longer term. You have to have timely, accurate,

useful information in order to accomplish those objectives. That is

why it is important.

Mr. PLATTS. Final question before I run out of time. Mr. Roth,

an issue that we looked at and GAO again has been a proponent

of is a chief management officer in the Department to allow us to

have more continuity within DOD to get to this end goal that we

are all after. Has the Department looked further at that proposal

from GAO? And, if so, where does it stand?

Mr. ROTH. The Department is on record as saying that a chief

financial management officer is not something that we will endorse. That said, I mean, we feel, we have in place strong management controls led, you know, from the most senior echelons of the

Department to deal with the business transformation, business

modernization kinds of efforts, to try to improve our business systems and our financial management systems and the like, and so

we think we do, in fact, have adequate systems in place. We do,

in fact, think we have an adequate architecture in place to deal

with those kinds of issues.

Mr. PLATTS. Mr. Walker, I am glad to let you respond as long as

the chairman will let you.

Mr. WALKER. If it is OK, Mr. Chairman, it is very important.

No. 1, our recommendation was not with regard to chief financial

officer. They have a chief financial officer. It was a chief management official to be responsible for the overall—taking a more straVerDate 11-MAY-2000 12:12 May 09, 2007 Jkt 000000 PO 00000 Frm 00142 Fmt 6633 Sfmt 6633 C:\DOCS\34659.TXT HGOVREF1 PsN: HGOVREF1
139

tegic, integrated, and consistent approach to the business transformation process.

For the record, I might note that the Defense Business Board,

which advises Secretary Rumsfeld and Deputy Secretary England,

recommended for the establishment of a chief management officer

at the principal undersecretary level two level recently, and this

week I will be speaking with representatives of another entity that

has been charged by the DOD to conduct a separate study on this

issue, as per congressional direction. I also know that one of the

world’s largest consulting firms is going to, within the next few

weeks, come out recommending this, as well. So I think the jury

is still out.

Mr. PLATTS. Thank you, Mr. Walker, and thank you, Mr. Chairman. Sorry for going over.

Mr. SHAYS. That is all right. We are going to give the gentleman

from Maryland an additional minute and a half, so he will have

111⁄2 minutes.

Mr. VAN HOLLEN. Thank you, Mr. Chairman. Again, thank you

for holding this hearing. Thank you all for your testimony here

today. Mr. Roth, I think you are bearing the brunt of the questions

for the simple reason that most of the moneys are spent in the Defense Department, and, as you say in your testimony, your principal role is to build the budget, whether it is a base budget for

DOD or a supplemental request.

If I could just underscore this issue which has come up in numerous hearings, and Mr. Walker has underlined that on behalf of the

Government Accountability Office, with respect to DOD’s record,

whether you are at war or not war, and financial management, my

understanding is since 1990, when GAO first instituted its risk/

high risk watch, agencies that would be on a watch list for poor financial management, Defense Department has been on there.

It is not enough for people to say we have a lot of costs because

we are at war at this particular time. The fact of the matter is that

has been the record there for many, many years, whether we are

in conflicts or not in conflicts, and this Congress bears a fair

amount of responsibility for making sure we have the adequate

oversight. I know the chairman of this subcommittee has said it is

one of the issues he wants to address going forward.

Second, just to pick up on another point you made, Mr. Walker,

which is that one thing we want to get a hold of, obviously, is the

accuracy of expenditures already made. We should be able to do

that if we have good accounting records. But the purpose of this

hearing is not just to count dollars spent. The purpose of this hearing in the memo sent out by the chairman is one sentence: the purpose of hearing is to examine the accuracy and reliability of cost

projections for the global war on terror. I already talked about the

fact that I think we should desegregate that umbrella, Afghanistan, Iraq. I know we are going to get the numbers, but we are

talking about accuracy of cost projections.

Now, we had some very good testimony from our representative

from CRS, Ms. Belasco, who outlined a number of pieces of information that would be very useful for the Congress to have so we

can try and have our independent arm reach some conclusions

about these costs.

140

Now, Ms. Belasco, you in your testimony talk about at least four

major items of information that would be useful to get from the Defense Department. I guess my first question to you, have you requested the Defense Department provide you with this information?

Ms. BELASCO. Well, periodically over the years I have asked, for

example, for troop levels, but in general it is very hard to get information out of the Department of Defense, so I in many cases just

resorted to sort of backing into estimates of my own or using published sources. I mean, I have gotten some information, some data

base runs on troop levels, but when there are inconsistencies I

can’t resolve the inconsistencies. And as I think Dr. Marron said

from CBO, part of the problem is in DOD’s justification material

for its supplementals there are basically no details about what

drives the cost.

Mr. VAN HOLLEN. Let me stop you there, Mr. Roth, and just ask

you: is DOD reluctant to provide the Congress with this information? Let me ask you some specifics. One of the categories, for example, that Ms. Belasco mentioned in her testimony, providing

Congress we key planning assumptions that drive cost, including

troop levels. Let me ask you, when you put together your budget

projections for the past supplemental and other request, you make

some estimate of troop levels, do you not?

Mr. ROTH. Yes, we do.

Mr. VAN HOLLEN. Are you opposed to providing Congress with

that information?

Mr. ROTH. No, and we have in the past. We have discussed it

with our oversight committees on many occasions.

Mr. VAN HOLLEN. All right. You provide that in advance for the

purposes of budget projections, or just the current troop levels?

Mr. ROTH. Just the current troop levels.

Mr. VAN HOLLEN. We are talking about budgeting now. I mean,

the whole purpose of this hearing is to try and get a handle on

what future costs are going to be, so my question to, and this is—

you know, I understand, thanks for telling us how many troops the

United States has on the ground in Iraq, but when it comes to

budgeting, which is what this hearing is all about, we need to get

the best estimates. I guess my question to you is: are you opposed

to providing Congress with your estimates of troop levels going forward?

Mr. ROTH. Certainly not, Congressman. Let me amend—misconstrue what I meant by current. We provide the basis for the cost

estimates. When we send a budget up, whether it is a supplemental, baseline budget, or any other kind of a budget, we will, in

fact, engage in a dialog, as we always do, with the oversight committees in what drives those cost estimates, and so we do, in fact,

provide the data that is requested of is in terms of what was the

basis of the cost estimate and anything else that drives the cost estimate that we have provided.

Mr. VAN HOLLEN. Do you have an opportunity to hear the testimony of Ms. Belasco with respect to the specific items that would

be helpful?

Mr. ROTH. Yes.

141

Mr. VAN HOLLEN. Are you opposed going forward then with making sure that CRS has that information in a timely manner?

Mr. ROTH. Certainly, we are not opposed to providing the information for people to understand where our cost estimates come

from.

Mr. VAN HOLLEN. OK. And when you put together, for example,

the current supplemental, you made certain assumptions about

troop levels going forward, did you not?

Mr. ROTH. We made certain assumptions concerning the cost

within that supplemental, yes.

Mr. VAN HOLLEN. OK. Well, I mean, did you have any assumptions regarding the number of troops on the ground which would

be a variable, cost variable, right?

Mr. ROTH. Yes, it would.

Mr. VAN HOLLEN. OK. Let me just go back, because I think that

part of this is trying to get a sense of cost going forward, and there

is also an accountability piece to this. I do want to get some sense

of the assumptions that were made at the very beginning going forward. Are you aware of the fact that Mitch Daniels, the former

head of OMB, estimated the cost of the war at the outset to be between $50 billion and $60 billion?

Mr. ROTH. I am not conversant with that estimate.

Mr. VAN HOLLEN. OK. Are you aware of any Pentagon estimates—and there was a Wall Street Journal article from back in

September 2002. There were numerous articles leading up to the

war where people were trying to get a handle on the cost. It was

said in those articles that $50 billion was the number coming out

of the Pentagon. Can you confirm that was a working number in

the Pentagon?

Mr. ROTH. No, I cannot.

Mr. VAN HOLLEN. So you are in charge of putting together the

budgets at the Pentagon; is that right?

Mr. ROTH. Yes.

Mr. VAN HOLLEN. OK. But you have no idea where that number

came from; is that correct?

Mr. ROTH. No, sir. No, I do not.

Mr. VAN HOLLEN. All right. But in your capacity as the person

who puts together budgets, you did have to make some assumptions about the cost of the war, did you not?

Mr. ROTH. Yes, we did.

Mr. VAN HOLLEN. OK.

Mr. ROTH. Let me explain, if I could just take 1 minute real

quick to explain.

Mr. VAN HOLLEN. OK.

Mr. ROTH. When we build the budget estimate for the contingency operations, we work very closely with combatant commanders, with the joint staff, with the war fighters, with the services

who actually incur cost to develop these cost estimates, and those

include assumptions concerning logistics support, obviously troops

on the ground, that is a major driver of it, rotations, troops going

in, troops coming out, these kinds of things.

And so these are long, iterative processes. We get a lot of criticism sometimes within the building how long and painful the process is, but we work very carefully with all the stakeholders, all

142

those who have some interest and would incur some of those costs

and try to get the subject matter experts, whether they be personnel people, logisticians, medical people, whoever, all the kinds of

costs that go into this.

And so the cost estimate you ultimately see in a supplemental

budget request reflects the result of this iterative process in terms

of developing a cost estimate for a given time period to say over

the next 12 months this is what we forecast to be the cost of supporting the contingency operation for the year.

Mr. VAN HOLLEN. All right. Well, let me ask you, were you a part

of the budgeting process at the time we went into Iraq?

Mr. ROTH. Yes, I was.

Mr. VAN HOLLEN. OK. What was your cost estimate at that time

for that year? In other words, the year ahead. In other words, when

you said we are going in, here are the assumptions we are making,

because, as you have said, you have obviously got to make certain

assumptions. I think everyone understands that there is no absolute certainty here, but people putting together budgets usually put

together sort of a range in terms of their projections. So my question to you is: when we went to war in Iraq what was the cost

range that you at the Pentagon put together for purposes of budget?

Mr. ROTH. The first budget I recall—and if it is different I will

correct you for the record—the first budget I recall that we explicitly asked for money for Iraq, the total supplemental in that fiscal

year was fiscal year 2003, and the total supplemental request for

that year was $62.5 billion.

Mr. VAN HOLLEN. But I think I am asking you a little different

question, and maybe nobody did it. I understand what your supplemental request was. My question is different. My question is: was

there any estimate ever put together as to what the cost of going

to war in Iraq would be? And if so, I am trying to find out what

assumptions were made.

And if you are going to tell me there was no estimate, I mean,

we know Lawrence Lindsay had an estimate. His was $100 billion

to $200 billion. We know that people in the administration like the

Deputy Secretary said that is off the mark, that is too high. We

know Mitch Daniels said that is ‘‘very, very high.’’ So obviously

Mitch Daniels had an idea of what the war would cost. Obviously,

Lawrence Lindsay had an idea of what the war would cost.

What is confusing is how the President’s chief economic officer,

chief economic advisor, and the head of OMB could have ranges of

what the war would cost, but the people who were going to bear

the primary cost in terms of budget, the Defense Department,

didn’t have a similar figure. If you did have a figure, I am interested in knowing what it was.

Mr. ROTH. My office did not make any attempt to do a multi-year

estimate of what the cost of the war might be. Again, we focused

on providing the supporting material for the given supplemental at

the time.

Mr. VAN HOLLEN. Did you make any assumptions about——

Mr. SHAYS. Would the gentleman just yield a second?

Mr. VAN HOLLEN. Yes.

143

Mr. SHAYS. It is just because it is the term, and I want to make

sure we are on record. When you say ‘‘your office,’’ did any other

office——

Mr. ROTH. I am not aware of any. My point is I am not aware

of any, sir.

Mr. VAN HOLLEN. Just for clarification, so you are not aware of

any estimates put together in the Department of Defense with respect to the cost of the war in Iraq; is that right?

Mr. ROTH. For a ‘‘total cost of the war?’’

Mr. VAN HOLLEN. At the outset.

Mr. ROTH. No, sir.

Mr. VAN HOLLEN. So, again, that $50 billion, you have no idea

where that came from?

Mr. ROTH. No, sir, I do not.

Mr. VAN HOLLEN. When you did your budgeting, you are saying

you just assumed, what, that the war would go on indefinitely, or

that it would just go on for the period of the supplemental? I mean,

here’s the issue. I think the chairman has been very diplomatic

here, because what we are saying, as I understand it, is the best

way to get a sense of the cost going forward is to do some analysis,

No. 1, of what the cost actually has been to date, but also to get

some sense about how good and reliable our cost estimates have

been to date and our projections so we can make any corrections

in how we are projecting cost going forward. And what we are

hearing really is that when it comes to sort of the long-term costs,

or when it came to trying to put together a number at the outset

about what the total cost would be, there wasn’t anything done. Is

that right?

Mr. ROTH. Again, not that I am familiar with. No, sir. I mean,

again, what we did is cost out the plan for a certain period of time

as it was outlined to us by the commands and by the war fighting

staff, and that is what we did.

Mr. VAN HOLLEN. Mr. Chairman, so they just said here are our

troop levels, here’s how long we want you to budget these troop levels for, here’s the expenditure equipment, here’s the munitions we

are going to use, you guys just tell us what the cost is?

Mr. ROTH. Again, for a set period of time, yes, sir.

Mr. VAN HOLLEN. For a set period of time, and that was the period of time in your testimony just for the supplemental?

Mr. ROTH. Yes, sir.

Mr. VAN HOLLEN. OK. Well, Mr. Chairman, I know——

Mr. SHAYS. We are going to do a second round. There are not

many of us, so we will come back.

Mr. VAN HOLLEN. I appreciate that. Thank you, Mr. Chairman.

Mr. SHAYS. I would like to take my time and say to you I don’t

want to end this hearing until we have a better handle on this. I

know we haven’t asked State and USAID questions yet, and we

may get to you in the second round, but I at least want to feel like

we have a better sense of what the heck is going on here, and I

am going to ask the GAO and the CBO and Congressional Research to listen to the answers and then help me out in trying to

understand what I should rightfully expect.

Mr. Roth, what I need to do in terms of how you respond to questions, I assumed you were a policy person, not a scribe under orVerDate 11-MAY-2000 12:12 May 09, 2007 Jkt 000000 PO 00000 Frm 00147 Fmt 6633 Sfmt 6633 C:\DOCS\34659.TXT HGOVREF1 PsN: HGOVREF1
144

ders, and so that you recommend the best procedures that DOD

should move forward with. Is that an accurate assumption? These

aren’t trick questions. These are just trying to understand.

Mr. ROTH. Yes, sir. I mean, I try to provide the best advice I can.

Mr. SHAYS. Well, have you been requested not to make estimates

of future costs of the war by either the Secretary or anyone under

the Secretary or anyone from OMB, anyone from the White House,

anyone? Have you been requested not to make estimates of future

costs?

Mr. ROTH. No one has directed me not to make estimates. No,

sir. I mean, I am not——

Mr. SHAYS. Or your office or anything.

Mr. ROTH. No.

Mr. SHAYS. OK. I don’t want to have to feel like I have to be——

Mr. ROTH. I am not trying to be. No, sir.

Mr. SHAYS. I don’t know how we can project future manpower

needs if we are not thinking about different scenarios. I, there is

a scenario—I just came back from Iraq—that says we need 50,000

more people to really gain control of Baghdad, the 1-to–20 ratio

which we talked about in the last hearing. I went in thinking, OK,

we will need some more folks. Then I am leaving believing that has

to be Iraqis with an Iraqi face, but I still had to wrestle with it.

Are we going to be asking for more people? It just seems to me

that if I were a Secretary I would have directed you to say, OK,

if we need to send in more troops this is what it is going to cost.

I want to know. If we are going to bring down 10,000 troops every

other month, this is what it is going to cost. I would want to know

those numbers. And no one has asked you to even project that kind

of scenario?

Mr. ROTH. We have certainly done analysis when requested to

say what does it cost to field 10,000, what is the cost to field 20,000

people, and these kinds of things, but we have been given—what

I am hearing here is have we been given a scenario over a multiyear period of time to price out to say what would it cost with X

thousand of people over a 2 to 5-year period. We have not done

that, No, sir.

Mr. SHAYS. OK.

Mr. ROTH. But we have, we are asked for information about what

does it cost to field certain number of soldiers, these kinds of

things, we have responded to those kinds of specific requests. Absolutely.

Mr. SHAYS. Let me ask just CBO and just GAO this question. Is

it unreasonable? Am I thinking not logically that we would want

to expect that DOD would make those kinds of analyses? And let

me ask you, are they not doing that in the Budget Committee? Has

no one in the Budget Committee, Dr. Marron, asked for these kinds

of estimates?

Dr. MARRON. Sir, certainly in our line of business we get requests

from various people, including the budget committees, as you emphasize, who bring to us, in essence, their scenarios, what might

possibly happen, say, over the next 10 years in terms of personnel

in Iraq, and then they come to us and they ask us to try to estimate what the potential cost implications of that would be.

145

Obviously, CBO was typically not in a position to make our own

projections about what force levels would need to be. That is not

our sort of core competence, but conditional on the scenario we can

cost it out.

Mr. SHAYS. Is it considered bad business practices to want those

projections or good business practices to want those projections?

Dr. MARRON. I would say we consider that to be a perfectly reasonable request from our clients at the budget committees.

Mr. SHAYS. Is it reasonable to expect the administration would

do that?

Dr. MARRON. I guess I would be hesitant to say what is reasonable or not reasonable for the administration. Again, I think it is

perfectly reasonable for our congressional clients.

Mr. SHAYS. What would——

Mr. WALKER. Mr. Chairman, it is my understanding the administration has taken the tack it is one supplemental at a time approach. In other words, they will come up with estimates for troop

levels and other types of expenditures and they will provide that

each time they submit a supplemental, but they generally have not

gone beyond that. They have said consistently that they can’t because of the uncertainty of what the conditions will be on the

ground.

It is my understanding they haven’t done it. We believe that they

should be doing it for a reasonable period of time. We believe that

it is prudent to do it. We believe that historically, if you look back

at prior conflicts, after a period of time it has been done. You know,

obviously there is a great degree of uncertainty, but we believe it

is possible and prudent to have some estimate beyond the current

approach.

Mr. SHAYS. And I will tell you why I would say it is prudent. I

mean, if I look back on anything I regret over the past 4 years, I

don’t regret going into Iraq based on what I believe, but I do regret

not nailing down what projected costs would be. And I actually was

somebody who believed it would be paid first out of oil money and

the administration said we are not going to do it. Then I believed

it would be paid by us and whatever we could get from contributions from others. Because we were so off, I feel that we have even

a greater obligation to try to nail down costs because we were so

off. I, frankly, would have expected that DOD would have done

that.

Mr. Roth, this is above your pay grade, but I will tell you what

I suspect. What I suspect is that nobody is doing it because you

don’t want to know, because if you know then you have to share

it with Congress, and that somehow we are not going to like what

those numbers are.

Strongly believing that what we are doing in Iraq is a noble effort, bringing democracy to this part of the world, having been

there where Iraqis say to me, when I ask their biggest fear, it is

not the bombing. Their biggest fear is that we will leave them, giving them the taste of democracy. I don’t wrestle with whether this

is a noble effort worth the dollars or even the lives, and I don’t

wrestle with the issue with the issue of whether or not this is a

‘‘war of choice’’ or whether we waited until we get the heck bombed

146

out of us, because, frankly, I don’t wrestle with the failure that we

had in World War II.

Had we listened to FDR, had we acted sooner, maybe Russia

wouldn’t have lost 25 million people and maybe we wouldn’t have

had the killing fields that existed there and maybe we wouldn’t

have had the extermination had we stepped forward. And then

would people have said, if we had done something before we were

attacked in Pearl Harbor it was a war of choice? I don’t think so.

It would have been a more logical thing to have done. Japan went

into China in 1928 and we seemed deaf to it. So I don’t wrestle

with that, but I do wrestle with my failure to come to grips with

costs.

Mr. Higgins, when I get to your round I am going to be asking

you about understanding why it is difficult to divide the war costs

for State Department. It may be that you don’t have that much incremental cost, but maybe you could explain it to me. I guess if you

have a secretary or Ambassador they are going to be there, but

clearly have more State Department folks in Iraq than elsewhere.

I would suspect that one of the answers that you are going to tell

me is that a lot at State Department aren’t State Department

folks. There might be more CIA agents, intelligence agents. It

might be more FBI. But I would love you to be able to kind of sort

that out and think about it before I ask, because your cost—the

thing that is challenging, it seems to me, for State Department is

that half of the State Department is filled by people that aren’t

State Department. I would like that to be dealt with.

With the remainder of the time, I would like to start where I

can’t yet get to. I want to know the cost elements of determining

the global war on terror. In other words, what are the elements

that we then say are attributed to the war on terror? I would like

to get from the panel definitions of what those elements are. I

would like the kinds of things that we would call incremental, and

I would like to know what we have left out of the equation.

I mean, you have all given us numbers, but one of them is a

term, I think it is called reset, and reset is a term about what we

then have to do to get our equipment back into shape, so I am

going to want to know those answers. I will want to know before

we leave what is a logical process for determining the war cost,

how close are we to actually doing that? That is what I would like

to do.

With this, I am going to go to you, Mr. Kucinich, for the second

round.

Mr. KUCINICH. Thank you very much, Mr. Chairman.

I share your concern about a lack of information, reliable information that this Congress needs in order to have accountability to

the American people. I also would suggest that the scope of this

hearing is so important that it may be possible that we are not

going to get all the answers today and we may have to invite some

of these individuals back in the not too distant future as a followup.

I want to go back to Mr. Roth. You answered the Chair that no

one has directed you not to provide information on the cost of the

war. Did you ever have in-house talk about what the war costs?

147

Mr. ROTH. Clearly we talk about it every day, sir, but mostly in

terms of this since we are, in fact, a budget shop. I mean, we deal

in terms of today’s cost, what is it costing me today. Is it funding

that has been made available to us through the supplemental sufficient to cover today’s costs, and these types of things. I will have

to say, quite honestly, the vast majority of our conversations inside

our office have to do with today’s cost.

Mr. KUCINICH. All right. Now, have you ever had a discussion

with the Secretary relative to the costs of the war?

Mr. ROTH. I personally have not, other than to brief him, obviously, on what the costs are in the supplemental, itself, and these

kinds of things.

Mr. KUCINICH. So you have spoken to the Secretary?

Mr. ROTH. We have briefed him on the costs.

Mr. KUCINICH. You?

Mr. ROTH. My staff.

Mr. KUCINICH. Have you ever met Mr. Rumsfeld?

Mr. ROTH. Yes, I have.

Mr. KUCINICH. OK. Thank you. Have you talked to Mr. Rumsfeld

about the budget?

Mr. ROTH. I have, yes, sir. I have briefed him on what the costs

are in the budget, yes, sir, as I have said before.

Mr. KUCINICH. OK. You are the Deputy Comptroller from the Office of the Undersecretary of Defense, Comptroller, Department of

Defense, and you deal with the program and the budget and you

have talked to Mr. Rumsfeld. Has Mr. Rumsfeld ever asked you,

gee, John, how much is this war going to cost?

Mr. ROTH. We haven’t had that kind of a conversation. No, sir.

Mr. KUCINICH. Wow. Have you had that kind of a conversation

with anybody in the rank between your office and Mr. Rumsfeld?

Mr. ROTH. Are you alluding to, again, trying to forecast the cost

of war?

Mr. KUCINICH. Just how much is the war going to cost.

Mr. ROTH. Again, we talk every day about the costs that are

being incurred, taking a look and seeing how that will affect——

Mr. KUCINICH. How much will it cost? How much will this war

cost? Has anybody ever asked you?

Mr. ROTH. No one has provided me an estimate on when this war

will be over, so, again, due to the uncertainty and due to the unpredictability of it, I don’t have any basis to cost it out.

Mr. KUCINICH. If the war ended today, how much will it cost? Do

you know?

Mr. ROTH. If the war ended today, I would have a cost estimate.

I could come up with a number in terms of the cost. There would

be, obviously, a tail in terms of bringing people home. There would

be the reset bill, as the chairman has alluded to.

Mr. KUCINICH. And if the war ends in 5 years could you estimate

the cost?

Mr. ROTH. I would have to do so. I haven’t done so to date.

Mr. KUCINICH. If the war ends in 10 years, would you be able

to estimate the cost?

Mr. ROTH. But, again, I would have to be given some parameters

and some estimate of what kind of operating tempo we are talking

148

about, the kinds of troops we are talking about, those kinds of

things.

Mr. KUCINICH. Now, are the elements in your cost estimates, you

use how much money has been spent to a given date, right? Would

that be——

Mr. ROTH. Yes, sir.

Mr. KUCINICH. In your cost estimates, would you use future

spending and operations?

Mr. ROTH. Yes, sir. I mean——

Mr. KUCINICH. Would you include in your cost estimates the cost

for the VA?

Mr. ROTH. No, sir.

Mr. KUCINICH. Would you include in your cost estimate the cost

of brain injuries?

Mr. ROTH. I don’t have a way of costing out future costs being

incurred outside of the Defense Department for things like medical

conditions and the like. Again——

Mr. KUCINICH. What about veterans’ disability payments?

Mr. ROTH. Again, sir, that is not under my purview. That is

under the Veterans Administration.

Mr. KUCINICH. Demobilization costs?

Mr. ROTH. Well, demobilization in terms of the military force

coming home and bringing folks home and the logistic support and

that kind of stuff which, in fact——

Mr. KUCINICH. Would you include that?

Mr. ROTH. Yes, sir.

Mr. KUCINICH. Would you include increased Defense spending,

forecast for increased Defense spending, how much it is going to

cost for certain operations?

Mr. ROTH. Again, if there are incremental costs associated with

a military operation, I would, in fact, attempt to cost that out. Yes,

sir.

Mr. KUCINICH. Would you cost out the interest on the debt for

the cost of the war?

Mr. ROTH. Again, sir, that is not under my purview.

Mr. KUCINICH. Well, what we have established here briefly, Mr.

Chairman, is that there are certain elements of budgetary cost

which are not being built into the assumptions that come from the

Department of Defense. They are not taking into account the cost

of the VA, the cost for brain injuries, veterans’ disability payments,

and the interest on the debt. Is that correct, Mr. Roth?

Mr. ROTH. Yes, sir.

Mr. KUCINICH. We are speaking about the cost of the war here,

yet we are only speaking about a fraction of the cost because there

are other elements of cost which Mr. Roth cannot address because

they are not under his purview but they are certainly related to the

cost of the war.

I mentioned earlier the study on the economic cost of the Iraq

war by Linda Vilmus and Joseph Stieglitz. Their report is as follows: December 30, 2005, total spending for combat and support operations in Iraq, $251 billion, and the CGO’s estimates put the projected total cost at around $500 billion. They go on to say that

these figures greatly underestimate the war’s true cost. ‘‘We estimate a range of present and future costs by including expenditures

149

not in the $500 billion CBO projection, such as—’’ talking the cost

of the war—‘‘lifetime health care and disability payments to returning veterans, replenishment of military hardware, increased recruitment costs.’’

They make adjustments to reflect the social cost of resources deployed, that is, reserve pay is less than the opportunity wage and

disability pay is less than foregone wages. And then they estimate

the effects of the war on the overall performance of the economy,

something that we never get into discussing in Washington. And

they took a conservative approach and assumed that all U.S. troops

returned by 2010, and by taking that conservative approach, building on all the other cost estimates, they are saying that the true

cost would exceed a trillion dollars.

Using CBO’s projection of maintaining troops in Iraq through

2015—2015 is why I asked 5 years, 10 years—they are saying the

true cost of the war could exceed $2 trillion, reflecting back on the

administration’s cost, which was estimated at $50 billion to $60 billion. Then they go on with some other costs.

I point this out because Mr. Roth, with all of his experience in

the Department of Defense, and while I might challenge the fidelity

of the figures that you provide, we are not—Mr. Chairman, the

true picture here is not going to be presented by the Department

of Defense, alone. There are so many other things related to the

war that are off the books. And so the American people really don’t

have an idea of the true cost, and I think that is unfortunate.

It is more than unfortunate. It is a tragedy, because what is happening is that these costs are off the books, or off your books, Mr.

Roth. They are still going to have to be paid for. We established

earlier with Mr. Walker they are being paid for by borrowing, and

when you borrow money you pay for a war you are going to pay

back that money at an interest rate. The interest rate in this

Stieglitz report, just so you know—it is very interesting to look at

the interesting rate—in billions of dollars the conservative estimate

for the interest on the debt is $98 billion. The moderate estimate

is $386 billion.

We are borrowing money to pay for a war, and when you borrow

that money there is also another social cost that is factored in that

we can’t quantify, and that is a commensurate reduction in funds

for education, for health care, for elderly programs veterans, which

really has more to do with the reason why I came to this Congress,

frankly.

So Mr. Chairman, I think it would be helpful at some point if we

could invite in the authors, Linda Vilmus and Joseph Stieglitz, to

talk about the true economic cost of the war and get all the elements in there, because we are only getting part of the picture

here. As well intended as the gentleman from the Department of

Defense is and as honorable as his service is to our country, he cannot give us the total picture.

I thank the gentleman.

Mr. SHAYS. I thank the gentleman, as well.

Mr. Van Hollen, you have the floor.

Mr. VAN HOLLEN. I thank you, Mr. Chairman.

Just to underscore Mr. Kucinich’s request, I think it would be

useful to have that, because, as many people do in budgeting, they

150

put together different scenarios and have different cost figures with

respect to different scenarios, best case, worst case, medium case,

and it seems to me that if we want to get a handle on this going

forward we are going to have to do that as a Federal Government,

so I think that would be very useful.

I think you all understand the concern here from the perspective

of trying to hold people accountable in the past so that we make

sure that going forward we have the best information, and we had

a situation where claims were made about the existence of weapons

of mass destruction. They weren’t there. Claims were made about

collaboration between Al Qaeda and Saddam Hussein. Turned out

not to be true.

And then we had claims about cost estimates that were clearly

low-balled, either low-balled on the one hand or people had a really

rosy assessment of how things were going to go, and yet people

today won’t come forward and tell us what their assessment was

and what went wrong, what part about what they predicted failed

to come true.

Obviously, when you have an estimate of about $50 billion for

the total cost of the war, you are expecting a pretty short time in

Iraq. Yet, no one will say, well, yes, that is what we expected and

we were wrong and here’s where we messed up or here is why it

was inevitable that what has happened happened.

People are unwilling to come up with figures now, but they were

pretty confident then. Let me just quote from Secretary of Defense

Rumsfeld, who quickly latched on to that OMB estimate. He was

asked what the total cost would be back in January 2003, just 2

months before we went to war. Well, this is his response: ‘‘Well, the

Office of Management and Budget has come up with a number that

is something under $15 [sic] billion for the cost.’’

Now, I guess, Mr. Roth, my question to you is: when you heard this number out there, you had to have heard the $50 billion number floating around, right? I mean, it was in all the newspapers.

And you heard Mitch Daniels over at OMB saying, you know, when

Lawrence Lindsay said $100 billion to $200 billion, that is very,

very high. You had to have heard it.

My question is: did you get on the phone and go to OMB and say

hey guys, where did you come up with this estimate? I mean, you

must have been a little bit curious. After all, the primary costs

were coming out of DOD. Did you ever pick up the phone or talk

to them or communicate with them in any way and say where are

you guys coming up with these numbers?

Mr. ROTH. Again, as I said before, I will be real honest with you,

I don’t actually recall that number. I may have been involved or

seen it. I understand your point it was perhaps in all the papers.

So the short answer is I don’t recall any conversations concerning

that specific number. No, sir.

Mr. VAN HOLLEN. Because it clearly was so far off, and yet clearly a signal was intended to be sent.

Let me, if I could, ask you, Mr. Kunder, because there were also

estimates about the reconstruction component of it, and I remember actually watching either Nightline or it was a sort of redo of

Nightline, rerun of this component of Nightline. Ted Koppel was

asking Andrew Natsios, who was a former AID, and I must say

151

overall did a terrific job as head of AID and I respect his public

service, as well.

But here’s what he was asked. Ted Koppel, ‘‘All right, this is the

first. I mean, when you talk about 1.7, you are not suggesting that

the rebuilding of Iraq is going to be done for 1.7 billion?’’ Natsios:

‘‘Well, in terms of the American taxpayers’ contribution I do. This

is it for the United States. The rest of the rebuilding of Iraq will

be done by other countries who have already made pledges,’’ and

then he lists some of those other countries. Are you familiar with

this quote? It has also been widely distributed?

Mr. KUNDER. Of course I am very familiar with it.

Mr. VAN HOLLEN. Now, what was Mr. Natsios basing this on?

Let’s first put on the record what was—I believe it is about $30 billion appropriated for reconstruction; is that right?

Mr. KUNDER. That is what was testified. The USAID portion of

it is about $5.1 billion, but I believe that was the number we testified to earlier, yes, sir.

Mr. VAN HOLLEN. But the total number is around $30 billion. So

can you tell me—maybe you are not aware. I don’t know if you are

in a position to know at the time where Mr. Natsios got this number which he said to the American public that the total cost of the

American taxpayer reconstruction is $1.7 billion, and even when

Ted Koppel said, are you sure, he said yeah, by God, I am sure.

Mr. KUNDER. Well, as Mr. Natsios said at that point, I think he

was basing that on the assumption that other donors, multilateral

and bilateral, would be coming in soon afterwards. Most of the initial USAID estimates were based on emergency humanitarian

needs. If nobody else says it, I will be the first one to say I made

some mistakes in estimates.

I mean, we made some estimates based on movements of population. It is very difficult to predict how populations are going to

move in a conflict, but we made our best estimates based on previous crises on what sorts of internal displacement would take

place, and we made some estimates based on food shortages, for example, and the need to bring emergency food aid to displaced populations. I know those were major components of Mr. Natsios’ thinking at that time.

But, as he stated—so I think the $1.7 billion was built on a number of emergency needs estimates. As he stated, he expected other

bilateral and multilateral donors to be coming in soon after that.

As it turned out, as we all know now, there were relatively few

major population movements at the time of U.S. forces going into

Iraq and there were not massive food shortages or outbreaks of epidemic disease, which we also had planned for.

Some of the elements were quite accurate. We had planned on

doing immediate measles immunization and other immunizations

so that there would not be massive outbreaks of epidemic diseases,

and those turned out to be precisely the correct interventions because we have not had any such outbreaks in Iraq.

But yes, we made some estimates based on humanitarian needs

that turned out to be wrong.

Mr. VAN HOLLEN. I guess my question is the predictions you

made that were wrong would have actually added to the cost,

152

right? In other words, if all those population migrations happened,

it would have been a bigger number, right?

Mr. KUNDER. Yes, sir.

Mr. VAN HOLLEN. I mean, this is not just off. This is way off for

the American taxpayer contribution, and it is just unbelievable in

terms of forward-looking budgeting, that we would have—was

there an assumption as to how long the United States would be involved in reconstruction in Iraq in that figure?

Mr. KUNDER. As you have stated, sir, he really did anticipate

that there would be multilateral and bilateral donors lined up to

contribute after that point. That is why the estimate was as limited

as it was.

Certainly, if you had asked him what is the total cost going to

be, at that point, as I think the subcommittee members well know,

the World Bank was estimating the total reconstruction cost in

Iraq would be $56 billion. That is probably still, given the fact that

it was an early estimate, not a bad estimate if you are looking at

reconstruction costs, non-military reconstruction costs. So Mr.

Natsios would have been perfectly aware of that element, but he

was asked a question what the U.S. contribution was going to be

and that is what he answered.

Mr. VAN HOLLEN. Can you for the record provide us the number?

What is the total amount actually spent by foreign partners in

Iraq?

Mr. KUNDER. Yes, sir, we have that number. For example, the

British government has contributed mightily to the reconstruction.

We could get those numbers.

Mr. VAN HOLLEN. I sure would appreciate it.

Mr. KUNDER. We will do that.

Mr. VAN HOLLEN. And, you know, just going back, Mr. Chairman, the first Gulf war under the first President Bush, I believe

the total cost has been estimated about $58 billion, and a large

share of that, over $40 billion, I think $48 billion was, in fact,

picked up by allies. It sounds to me like whoever was making assumptions about this time in Iraq picked up the same numbers,

$58 billion. They were estimating between $50 billion and $60 billion.

It is obviously a very different enterprise. I mean, first President

Bush made a very calculated decision not to go into Baghdad and

occupy Iraq, and how the people planning for this venture in Iraq

figured that the cost of occupying Iraq would be similar to the cost

of simply forcing Iraqi troops out of Kuwait is beyond me. I think

it is something the American people have just got to be scratching

their heads about, and the failure of accountability, no one has

been held accountable for these huge, constantly wrong projections

in very many different areas.

Thank you.

Mr. SHAYS. I thank the gentleman.

This is a bit heart-wrenching for me because I couldn’t believe

more strongly that what we are doing in Iraq is a noble effort and

that we have the extraordinary need to confront terrorism at home

and abroad, and whether or not people think terrorists were in Iraq

before, this is where they are now. We have no choice. We cannot

allow the terrorists to win in Iraq.

153

So I am at the opposite end of my colleagues who have spoken.

They think we shouldn’t have been there, they don’t think this is

an effort we should have done, they think we have basically lost

the lives of men and women for nothing, that we have spent, in

their view, billions of dollars for nothing. I take the exact opposite

view. But where we agree is that we should be trying to get a handle on the cost and that we should be trying to project what the

cost will be in the future.

If I have two regrets out of the hundreds that I could regret, because I don’t have lots of regrets, one, I believed he had weapons

of mass destruction, he did not. Second, I wish early on I had asked

about the cost of this war, so I wouldn’t have said to my own constituents it will cost less than what it absolutely costs.

Now, I know why it has cost a lot more. We made some fateful

decisions. We decided to not guard the depots so that we let the

insurgents get literally hundreds of thousands of explosions. We

proceeded to allow the looting, which was a huge message to the

Iraqis that security was not our concern and, frankly, we didn’t

care about them. We didn’t care about the fact that their country

was being ravished.

But the biggest mistake is we disbanded their army, their police,

and their border patrol. Every time I say it I am astounded by its

impact. We basically said to 26 million people no army, no police,

no border patrol. No police. Imagine all of New England and all of

New York without any police. Imagine all of California with no police. Admittedly, California’s 38 million people, we are talking 26,

but Iraq is about the size of California. No police in all of California. Big surprise that we would have problems. That was a fateful

and horrific mistake to which we are digging ourselves out.

So I don’t fault Mr. Roth or anyone else for not anticipating what

people ultimately did that caused that. What I want to do is get

a handle on the cost. If we can’t get the exact numbers, I would

at least like to leave with basic principles. Can we agree on basic

principles? Can you all agree or disagree on them?

I will start out with you, Mr. Walker. Is it better to have no estimates than to have estimates that may be wrong that at least are

estimates?

Mr. WALKER. We should have estimates and recognize that there

may be a variance from those estimates.

Mr. SHAYS. Mr. Higgins.

Mr. HIGGINS. I think yes, we do need estimates, but I also think

we have to develop scenarios. This is all based on a transition to

a self-reliant Iraq, so the speed in which we are able to get the job

done correctly and get the foundation set up will have a direct impact. It will save billions, but it will also save many lives, so I

think that the real focus should be on results. What are we trying

to get to now?

Mr. SHAYS. OK. I am asking you, Mr. Roth, not whether you

have them, but doesn’t it make sense to attempt to have estimates,

even if they are wrong?

Mr. ROTH. I think it is important to have some basic assumptions in place before you do the estimates, because otherwise you

get into the same sort of dialog here about where the numbers

came from years down the road.

154

Mr. SHAYS. I would agree with that. But let’s just say you have

to make assumptions to make estimates, but does it make sense to

make assumptions and to make estimates?

Mr. ROTH. It makes sense to make estimates where you have

some degree of confidence that you can come up with a good estimate.

Mr. SHAYS. Fair enough. Mr. Kunder.

Mr. KUNDER. Mr. Chairman, I want to be intellectually honest

with you. As I try to grapple with the very profound question you

are raising, I think about in our own circumstances. It seems to me

that it is defining the realm that you are trying to ask for the estimate about that is hanging up the question, at least in my mind,

because if you asked me what does it take to make Bangladesh a

decent place to live, you know, I don’t have an estimate for that.

Now, I have thought through very carefully what the components

are of making Bangladesh, for example, a better place to live, and

that has to do with some——

Mr. SHAYS. Let me interrupt you. I will make it very simple. Is

it better to have no estimates or to have estimates that may be

wrong?

Mr. KUNDER. I have estimates. It is better to have estimates, and

I have estimates of all the components——

Mr. SHAYS. And I am going to ask you to explain why, because

I think I know the answer, but I want it on the record. Dr. Marron.

Dr. MARRON. Short answer, yes.

Mr. SHAYS. Ms. Belasco.

Ms. BELASCO. I would agree that it is useful to have estimates,

but I would also like to point out that the services, in fact, do make

estimates a couple of years out. The Army makes estimates based

on some sort of rotation plan for their troops. They have to make

it beyond fiscal year 2007 and fiscal year 2008 for planning purposes, and they have to do that for other elements of war cost. It

is just inevitable. It is inevitable.

Mr. SHAYS. And that is why it is somewhat stunning that in

some cases we are avoiding making estimates.

Isn’t it true, Mr. Walker, that by making estimates, if they are

wrong we can go back and analyze what was wrong with our assumptions?

Mr. WALKER. That is correct, which means it would provide more

accountability.

Mr. SHAYS. OK. Which is, I think, a very important element to

this. In other words, what are estimates? Were they accurate? Why

were they or why weren’t they? And then who made the estimates

and why did they make them? It may be they made wrong estimates but they are very talented people, but then in the future

they will have learned from their faulty estimates and make better

estimates.

Isn’t it logical, Mr. Higgins, that if we make estimates and they

are wrong and we learn why they are wrong we can make better

estimates in the future?

Mr. HIGGINS. Just following up on what Mr. Roth was talking

about was to set up correct assumptions, recognizing that we are

in a war zone, but the practical matter, everything we have been

doing for the last few years at the State Department is lessons

155

learned. How do we get better? Certainly estimates going forward

is something we have to work from. But I also think we have to

be dealing in the now and project what do we think, particularly

what do we think the Iraqis are going to be able to do and what

do we think the international players will do.

It seems logical, what I am hearing you say, and you are speaking basically from the State Department’s side of this equation.

Every time I go there I try to leave saying well, are they ready yet.

I have a sense, you know, they are getting darned close, so maybe

we only have 30 to 40 percent of Iraq that is controlled by the

Iraqis, but it means we don’t need our military there, which has

meant that we can then bring our military to places we need them

more. I can’t imagine. I am trying to anticipate as I go there what

does this mean for the future, and I try to come back with some

findings of fact and then recommendations. I have to do that. I

don’t know why DOD wouldn’t do that, and it would seem to me

it would be logical.

Mr. Kunder, wouldn’t you be making—let me just make you respond whether you agree or not with Mr. Walker. I want to know

if I can have consensus here or not. Do you agree with Mr. Walker’s comment about learning from mistakes, wrong estimates, and

also accountability.

Mr. KUNDER. We have components of the reconstruction plan

fully costed out. As I said in my testimony, anticipating the elections we costed out every item, ballots, town hall meetings, and so

we can give detailed—I guess I don’t want to leave you with the

impression we are not doing any costing out, because, in fact, for

components we have a major component of the reconstruction that

has to do with building capacity in the ministries so that we have

oil production and electric production up. The elements are things

like building an Inspector General function, building a budgeting

function, computerization, training of the civil servants. Each one

of these items are detailed, costed out. We can provide you those

cost estimates.

Mr. SHAYS. But you have to make assumptions in every case. In

every case you have to make assumptions, correct?

Mr. KUNDER. Yes, sir.

Mr. SHAYS. I mean, to say that you can’t do it because you can’t

make assumptions because you don’t know how it is going to turn

out to me is a faulty way to think. You have to make assumptions.

So let’s just take one element that I think is under your territory,

reconstruction of Iraq. Now, what is the biggest assumption we

made that was wrong, in your judgment? I will give you a clue. It

has something to do with security.

Mr. KUNDER. We did not anticipate the level of violence. That is

correct.

Mr. SHAYS. Right. And so how much of what we intended to go

for reconstruction went for security?

Mr. KUNDER. The easiest way to say that is that approximately—

we have testified several times that approximately 22 percent of

our total reconstruction costs—this is within USAID—has gone into

providing security so the construction effort can go forward, so my

best estimate would be that we have probably accomplished 80 perVerDate 11-MAY-2000 12:12 May 09, 2007 Jkt 000000 PO 00000 Frm 00159 Fmt 6633 Sfmt 6633 C:\DOCS\34659.TXT HGOVREF1 PsN: HGOVREF1
156

cent of the bricks and mortar or schools or teacher training that

we intended to do, because our estimate is 22 percent.

Mr. SHAYS. Now, some people look at that as a horrible thing

that we had to set aside so much for security, but it explains to

me why we aren’t as far ahead in reconstruction, because there is

a reason. We made an estimate that was wrong. I learned from

that as a Member of Congress. I would think you would learn from

that.

That is why I would think we would project and then we would

determine whether or not our projections were accurate or not. Our

projections were wrong based on a good chunk of the dollars having

to go to security, which then gets us back to asking, well, what

mistakes did we make with security. It gets us to focus, in my judgment, on what is the biggest cost.

Dr. Marron, would you weigh in on this?

Dr. MARRON. Absolutely. Since, as you know, sort of CBO’s No.

1 business line is providing estimates of all sorts of policy proposals

that the Congress is considering, and I would say going through

the estimation process has at least three benefits. The first is the

estimates, themselves, are valuable for decisionmaking. The second

is, as you have emphasized, is that over time you can learn from

your estimates and make them better so you can make better decisions in the future. And then the third that I want to emphasize

is that going through the estimation process, itself, is a way to

learn about the policy choices that you face.

I can’t tell you how many times there are that we will evaluate

an estimate of a bill that has been proposed by some Member of

Congress, we will come back to them with our score, and they will

say oh, no, that is not what we intended. They learn by the process

it is not what they intended. So in sort of in the development of

policy at the time it lets you iterate and figure out what it is that

you want to do.

Mr. SHAYS. Mr. Roth, I am not throwing stones at you on this.

I think you are basically caught in the middle of decisions made

by higher authorities, but it strikes me that by not having estimates, by not trying to anticipate, by not trying to forecast, it almost has a sense of fly by night. We are just going to do whatever

we do.

I just think what I have learned mostly from this is if we are not

making these kinds of estimates we are depriving ourselves of extraordinary information, we are depriving ourselves of some real

accountability because, frankly, it will enable us to know who is

really sharp in anticipating and was closer to the estimate. To me

it is like an economist where you look at their track record and you

say maybe the next time around, if I am a policymaker, I want to

listen to that person as opposed to that one. It doesn’t mean the

other one is a bad person; it just means, you know, they didn’t get

it right. I have to live with that as a Member of Congress.

Ms. Belasco, did you want to weigh in on this?

Ms. BELASCO. You know, I just wanted to mention, even though

Defense typically, from John’s description, you know, each of the

estimates for war are as they come up, I mean, if there is any

agency in Government that does long-term budget planning it is

157

the Pentagon, because they are the ones who have had a future

years defense plan and they routinely estimate at least 5 years out.

So in one sense the Defense Department should have the greatest skill at doing this kind of thing. And the other thing is that

there is a very real stake in making sure that estimates are accurate, because if you don’t learn from your mistakes you will include

costs that are the wrong costs, and in order to do that you have

to go through this kind of evaluation and then another estimate in

the exercise.

Mr. SHAYS. Are you saying——

Ms. BELASCO. And there is nothing wrong with a range. I think

that is the other thing.

Mr. SHAYS. And that is the reason, Mr. Roth, why I am so surprised, because I really believe DOD has been one of the most effective at trying to anticipate costs in the future. And I realize your

comment would be you have dealt with greater certainties when it

is not the war in Iraq, and you are on record with that.

Mr. Higgins, we do need to assist, pay a little attention in the

State Department, give Mr. Roth a little bit of a rest here.

I need to understand the answers to the questions I asked before,

which is basically your comment that you don’t separate cost, you

don’t look at the incremental cost, so explain to me why the war

in Iraq? Is it because the increment is so tiny, or is it because—

why not?

Mr. HIGGINS. Well, as a practical matter, sir, we look at the global war on terror as our top priority. It is embedded in everything

we do, from our consular affairs to our weapons of mass destruction

efforts, but the way we have looked at Iraq and Afghanistan, it has

been very much done by supplementals. We are a little different

because our appropriations are done by program, so we are able to

track it pretty effectively. So I think that a practical matter is we

are not really looking at this incremental; we are looking at what

is the specific cost in Iraq to run our operations and to run our foreign assistance programs.

Mr. SHAYS. So you are in Afghanistan, you are in Iraq, in particular, so those costs you just basically attribute to the war?

Mr. HIGGINS. That is right.

Mr. SHAYS. OK. And you attribute all the agency costs? I mean,

let me just say we would have Treasury there, we would have Commerce there. Do you attribute that as part of the cost of the war,

or does Commerce do it and does the agency do it and does Justice

do it?

Mr. HIGGINS. At this point, as you know, the way we do our normal billings at the various missions is done by we bill all the agencies who happen to be there. In Iraq and Afghanistan at this point

we pay for the life support and we put it into our budget.

Mr. SHAYS. So you only incorporate their life support? You don’t

incorporate their other costs?

Mr. HIGGINS. That is right, their particular salaries, things like

that. No, that is picked up by the respective agency.

Mr. SHAYS. Yes. Mr. Walker, just walk me through what Mr.

Higgins said. Translate what he said to me in a way that I maybe

can understand a little better. I am pretty close. Not your fault, sir.

158

Mr. WALKER. Well, you are right, Mr. Chairman, in saying that

the amounts of money involved here are a lot less significant than

for the Department of Defense, and it is a little bit more difficult

to differentiate between what is incremental and what is not, but

let me give you an example of something that is incremental.

In order to get an adequate number of people to go to Iraq, the

State Department is having to pay significant financial incentives

to get people to go to Iraq. They may be having to do the same

thing in Afghanistan. I am not sure. I would argue that is an incremental cost. That is a cost that otherwise they may not have incurred.

Mr. HIGGINS. I should also add that when we talked about incremental, I think what I am really looking at is the specific cost of

operating in Iraq, and I think the clear cost driver is security. That

is by far and away our largest particular cost of securing the embassy at the various regional sites. That is an incremental cost and

General Walker is correct that there are other additional costs in

terms of the people going over there, what we need to pay them

in terms of hazard pay. For the record, they work 7 days a week,

so we pay them for that.

Mr. SHAYS. For the record, you don’t go out and play tennis.

Mr. HIGGINS. That is for sure.

Mr. SHAYS. You don’t play golf, you don’t go have a stroll through

the city, you don’t go to movie theaters, you don’t go to night clubs,

you don’t go anywhere except to eat, to work out, and to work.

Mr. HIGGINS. That is right.

Mr. SHAYS. That is your three options. It is remarkable.

Let me ask you, then I am going to have the professional staff

ask a few questions in a second, but when Mr. Bremmer was there

for the first year was he under DOD, State, or both?

Mr. HIGGINS. Ambassador Bremmer?

Mr. SHAYS. Yes.

Mr. HIGGINS. CPA was a DOD operation.

Mr. SHAYS. OK. There has been speculation that Mr. Bremmer

was paid a very sizable salary. What was Mr. Bremmer paid?

Mr. HIGGINS. I have absolutely no idea, sir.

Mr. SHAYS. Mr. Roth, what was he paid?

Mr. ROTH. I will have to take that for the record.

Mr. SHAYS. Was he paid as an employee or was he paid as a consultant?

Mr. ROTH. Again, I don’t have that fact at my fingertips here.

Mr. SHAYS. OK. This is a very serious question to which I would

like an answer by tomorrow. I would like to know what Mr.

Bremmer was paid. I would like to know who controlled his operation. Did it go under your budget in DOD, Mr. Roth?

Mr. ROTH. Yes. I mean, he reported to the Secretary of Defense.

Mr. SHAYS. So when we sent over literally billions of dollars in

crates, whose control was it? Who was supposed to control those

dollars?

Mr. ROTH. When we sent the money—are you talking about the

cash that came from——

Mr. SHAYS. Yes.

Mr. ROTH [continuing]. The seized assets and the like?

Mr. SHAYS. Well, were those the only cash that went?

159

Mr. ROTH. The answer to your question was it was a Defense Department operation.

Mr. SHAYS. OK.

Mr. ROTH. It was done under the auspices of financial officers of

the Defense Department.

Mr. SHAYS. OK. Did you have control over that or was that a separate organization?

Mr. ROTH. I personally didn’t have control over it, but the comptroller organization worked with—essentially it was the Department of the Army. Department of the Army and their financial officers did the hand-off from hand to hand until it was in the theater.

Mr. SHAYS. During my 13 trips, on occasion there were allegations that dollars were left in drawers, in closets, and so on. When

I was there I literally saw stacks of dollars literally in crates, not

locked up, not under any supervision. Is that a fact or not?

Mr. ROTH. I will have to take that for the record, sir. I don’t recall all the circumstances.

Mr. SHAYS. Can GAO speak to that issue?

Mr. WALKER. There were inadequate controls over cash resources, no doubt, and I can provide more for the record if you

would like.

Mr. SHAYS. OK.

Just in terms of the $9 billion, not to leave it hanging here, and

it was not confronted, I want to make sure we are clear as to the

$9 billion. The $9 billion number I believe includes a lot of different

parts. This was not $9 billion lost, correct, Mr. Walker?

Mr. WALKER. That is correct, and most if not all that money, it

is my understanding but I want to check for the record, was Iraqi

money.

Mr. SHAYS. Right. But it was money that was given to pay salaries for Iraqis. For instance—and this is where the dicey part

comes—Mr. Roth, if you were one of the generals in their military

you were given a—I won’t use you, Mr. Roth. That is not fair. I am

sorry. Ms. Belasco, if you were a general in the army you were

given and you said you had 1,500 troops, we allocated the salary

for 1,500 troops, but it is my understanding that you may have

only had 1,200 troops, and part of the problem of recordkeeping

was the fact they had no checking system; is that correct, Mr.

Walker?

Mr. WALKER. Correct. There is still a problem today with regard

to not knowing how many employees they have, even with regard

to their civilian ministries.

Mr. SHAYS. So they are paid in cash?

Mr. WALKER. At the time that you are speaking of they were

paid in cash, correct.

Mr. SHAYS. Well, how would they be paid now?

Mr. WALKER. I can’t state for the record how they are paid now.

I will find out and provide it for the record.

Mr. SHAYS. Right.

But they don’t have a checking system?

Mr. WALKER. In all likelihood they are paid in cash now. That

is my understanding, but I am under oath. I want to make sure.

Mr. SHAYS. Fair enough. So can any of you just speak to that

issue? We are going to end pretty soon here. The issue is of the $9

160

billion. We can let it hang out there. Mr. Roth, do you want to let

the $9 billion hang or do you want to put a little clarity? I am not

saying that it is a pretty story, but it is not $9 billion that just

walked out. It went to pay soldiers, it went for other costs. The

problem is we didn’t have the accounting processes to document

and certify that every penny was spent the way it was to be spent.

That is my understanding. Is that correct or not, Mr. Roth?

Mr. ROTH. Sir, I don’t know the fact about the $9 billion. I am

not trying to dodge the question; I honestly do not have any firsthand knowledge of it.

Mr. HIGGINS. Mr. Chairman, I spent 13 months over in Iraq in

two tours, so I had the opportunity to be there at that time. I think

Thegar, who reported that, has done a great job in terms of helping

us give advice about how to fix some of the issues we have. I have

always disagreed with that. The issue—and you hit on it—was one

of there is not an adequate audit trail based on U.S. standards,

again reflecting on the fact that we were paying the salaries. The

money went to the Central Bank of Iraq that was turned over to

the Ministry of Finance who then, in turn——

Mr. SHAYS. So we can document that it was turned over?

Mr. HIGGINS. Yes. It was turned over to ministries. The question

of how far—at least on the bulk, you know, there were a number

of issues, but the bulk of the money—I think General Walker hit

on it—was the Iraqi salaries. There was 1.1 million Iraqis being

paid monthly, so that the ministries——

Mr. SHAYS. That was 1.1 million?

Mr. HIGGINS. Yes, 1.1 million Iraqis were getting paid, and so effectively what happened was that the money was turned over to

the ministries and they would pay their salaries, as I am sure they

continue to do today.

Mr. SHAYS. Mr. Walker, any comment?

Mr. WALKER. My staff tells me they are still on a cash basis with

regard to payment.

Mr. SHAYS. Before professional staff, Dr. Marron or Ms. Belasco,

do you care to add anything to this?

Dr. MARRON. I have nothing to add.

Mr. SHAYS. OK.

Mr. CHASE. Mr. Higgins, what are the prospects for re-engaging

the international community to assist us in providing additional resources for the reconstruction of Iraq?

Mr. HIGGINS. I think last week when Ambassador Jeffries and

Ambassador Khalilzad spoke they pointed out the discussions that

Prime Minister Malaki and the U.N. are moving forward with the

compact. The international community is a key player in the financial plan or the future of Iraq, Iraq’s ability to help pay for its own

reconstruction. But, again, the $13.5 billion that has been pledged,

we are now getting to that stage where we anticipate seeing more

of that as the U.N. has set up and the World Bank has set up operations in Iraq.

Mr. WALKER. At some point, Mr. Chairman, I would like to answer your earlier question which I thought was an excellent one,

and that is what represented incremental cost and what, if any,

recommendations do we have.

161

Mr. SHAYS. That is how we are going to end up. And the elements. I would like if maybe you would start that, Mr. Walker.

Mr. WALKER. Thank you, Mr. Chairman. I think those are both

excellent questions. Keep in mind we are talking about incremental

costs here; therefore, they represent costs that would not be incurred but for the global war on terrorism, and one has to have a

solid definition of what that is.

To me that would be such things as military and civilian personnel and support cost, additional capacity building, reconstruction

cost, support of Iraqi security forces, reset cost. Reset cost would

include repositioning as well as reconstitution of equipment. Also,

other long-term costs that on a cash basis you don’t see right away

but undoubtedly will be there. That includes long-term disability

and health care costs. So those would be direct, incremental cost.

I would also respectfully suggest that since the country is running huge deficits, that we will have to debt finance this, so an additional direct cost would be the interest cost associated with these

expenditures, although those don’t just relate to the global war on

terrorism, they relate to deficits that don’t have anything to do

with the global war on terrorism, and most of our deficit does not

have anything to do with the global war on terrorism.

Last, I think one could speculate as to how much of an impact

this is likely to have on our long-term ability to recruit and retain

individuals and the related costs that we might incur. There are

likely to be some costs there, but I think it would be difficult to

estimate that with any degree of reliability.

As far as recommendations, Mr. Chairman, I will give you three

for now. No. 1, that the respective departments and agencies be required to build into their normal budget request and appropriation

request a reasonable estimate of the cost for the global war on terrorism; that they also be required to segment out by the major elements, meaning Iraqi Freedom, Enduring Freedom, and Noble

Eagle, which are that three major components; and that we recognize that these will be good faith estimates based upon certain assumptions, and that if there are significant variances they may

have to come forth with a supplemental, but that would be for the

variances, not for the baseline request, which would be based on

their good faith estimates.

In addition I would suggest the that Congress needs to act

quicker on appropriations bills, because there are costs, there is

disruption, and there are increases that are incurred when the appropriations bills aren’t enacted in a timely manner. CR should be

a rare exception rather than the rule.

Mr. SHAYS. Thank you.

Dr. Marron, would you add, and Ms. Belasco? I would also like

all of you to speak to this issue of the elements. You can just say

you agree with Mr. Walker and would add to it or subtract from

it, whatever you would like.

Dr. MARRON. I think Mr. Walker set out quite well the list of incremental costs to consider. The one element I would highlight,

which raises some issue, is the interest burden that comes with financing these expenditures. Really, the issue there is what purpose

are we going to put the cost estimate to.

162

As you know, many of the cost estimates that are used in the

usual course of the congressional budget process that CBO provides

do not include interest in them. So if you want to do an apples to

apples of a scenario for the Iraq war versus some other type of

spending or tax program, apples to apples there would typically be

no interest in either. If you wish to use interest in the Iraq war

or the global war on terror estimates, it would be important that,

whenever comparing that to some other source of financing or

spending, that interest be added in in parallel there.

Mr. SHAYS. I thank you for making that point. You recently announced that the deficit is anticipated to be how much lower? From

what to what in this fiscal year?

Dr. MARRON. Several months ago, looking at the strong revenues,

we suggested that the deficit this year might be somewhere in the

neighborhood of $300 billion. The administration came out with

$296 billion last week.

Mr. SHAYS. As opposed to what is actually projected when we

started out in the budget?

Dr. MARRON. When we started out including the administration’s

policy proposals, we were in the $370 billion range. I should emphasize we will come out with our formal estimate in August.

Mr. SHAYS. When we adopted the budget we were at 370?

Dr. MARRON. Excuse me?

Mr. SHAYS. Weren’t we in the 400’s?

Dr. MARRON. The administration, in their budget proposal with

their estimates, had a number north of $400 billion.

Mr. SHAYS. But when we adopted the budget we were at what

number?

Dr. MARRON. I am sorry? Which number? I am sorry, the confusion is so the administration said 400, I believe it was 412, in that

neighborhood.

Mr. SHAYS. And what did you all say?

Dr. MARRON. And then we re-estimated that exact set of policies

and had an estimate of 371.

Mr. SHAYS. So basically we are seeing, from CBO’s projection, we

are seeing a $71 billion reduction?

Dr. MARRON. As of where we were, that was the number we put

out 2 months ago now. I would suggest that it may differ again

when we come out with——

Mr. SHAYS. OK. Fair enough.

Dr. MARRON [continuing]. Our formal estimate in August.

Mr. SHAYS. Fair enough.

Ms. Belasco.

Ms. BELASCO. I would like to make——

Mr. SHAYS. This is about elements.

Ms. BELASCO. I think the elements are good elements. I think it

is very important to make sure that we don’t build into future estimates higher costs that are due to contracting problems, and nobody has brought that one up, so I just want to mention that.

Mr. SHAYS. OK.

Ms. BELASCO. Because the models tend to be updated with the

latest actual costs, but if the actual costs build in inflated costs

that is not a good idea.

163

I think in terms of recommendations, even though this sounds

like a sort of a budgeteer’s recommendation, I think it would be

worth looking seriously at setting up separate accounts for war appropriations, which now run more than a fifth of DOD’s total appropriations. That would give you more visibility.

Mr. SHAYS. When you say war, are you saying specifically the

war in Iraq or the global war on terror?

Ms. BELASCO. In fiscal year 2006 the total amount for the global war on terror was about, I think, $117.6 billion.

Mr. SHAYS. I am just asking you——

Ms. BELASCO. DOD’s peacetime budget is about $444 billion.

Mr. SHAYS. OK. Fair enough. Thank you.

Mr. Kunder, Mr. Roth, and Mr. Higgins, I would like a response

on this.

Mr. KUNDER. Sir, with profound respect for the Congress, I just

would like to say that, as an operator, as somebody who has to

make these programs happen on the ground, the comment about

the delay in appropriations every year is really very significant.

Mr. SHAYS. I will let you say that, but tell me elements first,

about the elements. I am going to let you come back to that point.

What about the elements? Mr. Walker was talking about the elements that you need to determine the true cost of the war. What

are the elements? Do you disagree with anything Mr. Walker said?

Do you care to add anything to it?

Mr. KUNDER. Yes, sir. I am sorry. I just wanted to emphasize

that one first. We are trying to learn from our mistakes, what we

did right and wrong with the earlier estimates, but I find those to

be useful recommendations going forward.

Mr. SHAYS. I will let you come back and make your point in full.

Mr. Roth.

Mr. ROTH. Dealing with what I heard, I don’t have anything really to contend with. Again, in our terminology the cost of the military operations, themselves, and all the costs that go along with

that in terms of the additional logistics support, additional personnel costs, special pays, the mobilization of the Guard and Reserve,

those kinds of things, we have pretty clearly a lot of experience in

demarking the fact, the line between what our incremental costs

and what our so-called peacetime or baseline costs.

I would agree that the reset and reconstitution of equipment is

a cost, an incremental cost of war. We also have costs in terms of

additional force protection requirements and some additional initiatives in terms of dealing with the improvised explosive device

threat and those kinds of things that we would also argue are incremental costs of the war, as well. So, in general, from what I

heard from Mr. Walker, I don’t have any problem as far as the

DOD cost.

Mr. SHAYS. Thank you.

Mr. Higgins.

Mr. HIGGINS. I would concur with General Walker, but I would

probably be a little more expansive. I would probably add in the

cost of when we start realizing that the global war on terror is just

not a military or security cost, it is a development and diplomatic

cost, building partnerships, helping develop some level of prosperity elsewhere to take away the reasons for terror, so I think when

164

we look at the global war I think we really do need to look at all

three of those and balance the funding in looking at it from that

basis, that a diplomatic and a developmental solution is far less expensive if we get involved early on.

Mr. SHAYS. That is an interesting point. You are speaking to a

former Peace Corps volunteer. What I hear you saying is when we

add up all these costs and we can say we can go this route or we

can go this route or we can do a combination, maybe our long-term

costs will be a lot less if we go in a different direction than just

where some might think we need to go.

Mr. HIGGINS. Absolutely. I think the lesson that we are taking

from Iraq is that the need to be involved early on with a strong

diplomatic and development focus will save a lot of money and save

a lot of lives other on. There are a lot of other areas around the

world that have problems right now, and I think we need to be

very focused on that. It is not just a security approach, chasing

down terrorists, but what are you doing to change that. I hate the

term hearts and minds.

Mr. SHAYS. OK. I am going to make some assumptions and just

put them on the record and then I am going to ask each of you to

just make whatever closing point you wanted so you, Mr. Kunder,

can make the point you wanted to make.

We have over 130,000 of troops, but we also have a lot of contractors who do the work that troops used to do. Frankly, I am happy

those contractors are doing exactly what they are doing. It allows

our military to be at the tip of the spear.

If we don’t allow or encourage the new Prime Minister to reach

out and to provide amnesty, to have reconciliation, we will, in my

judgment, see this war continue ad infinitum, and some of the

greatest opponents of the war are opposed to reconciliation, opposed to amnesty, which is curious to me. That absolutely has to

happen. If the Prime Minister chooses not to crack down on the

gangs that are roaming Baghdad, allows for basically these militias

to continue, he is basically, in my judgment, going to go the route

of a civil war.

And then I would say to you, Mr. Roth and DOD, that this very

strong support of the war is going to say we need to get out, because what then is happening is that we would be having a government that says Shiites and Kurds want to dominate the Sunnis

and we just want to battle it out with them. Well, if they are going

to battle it out, then my recommendation is to go. But if this Prime

Minister does what he says he wants to and empowers his own

troops to crack down on the militia, and they would be some of his

own people, or at least people who helped get him in his office,

then I think that you will see a noticeable and meaningful reduction in our troops.

But now, having said that, having been to Serbia and Bosnia and

other places where they are 10 years later, if we do our job we are

not getting all our troops home. They don’t have the logistics, they

don’t have the medics, they don’t have particularly the aircraft to

do what they need to do. They have been trained to be insurgents

and not to be an army that can defend its border with Iran, Turkey, or Syria, so we will have to have some presence there.

165

Those are assumptions that I think are pretty logical, and they

would steer me to make some assumptions. I don’t think it is

wrong for DOD to make some assumptions. They will know in a

few weeks or months this new Prime Minister and the route he is

going to go, and then I think they can make some very real assumptions.

I guess, Mr. Roth, I would say to you I hope and pray that the

mindset of DOD is to start to make estimates of the future, to be

proud of those estimates, to share them with Congress, to go on

record, and the worst thing that could happen is you are wrong,

but at least we have estimates as opposed to no estimates. That

would be the message I would like you to take back, and I appreciate it, and I realize that you are taking the position that DOD

has sent you here and you are doing your job. All of you are patriots. All of you are good people. All of you I know want to see success in Iraq. I pray that we see it. But I think that we have our

work cut out for us.

It is a plea, as someone who is supportive of our being in Iraq,

that we be more forthcoming about the cost of this war and that

we make a greater effort to nail those numbers down.

With that I would just invite each of you to make whatever closing comment. We will start with you, Ms. Belasco. Anything you

want on the record, anything you want on the record, now is your

shot.

Ms. BELASCO. Well, I think you are right in saying essentially

that the stakes are very high in this, and I just like to say that

I think it is an important option to look at budgeting for war earlier with the caveat that yes, indeed, you may be less accurate, but

maybe it is still worth it. And I think it is also important, if Defense budgets for war at the same time as they budget for their

regular operations, then there is a better chance that they can look

at how the pieces connect, and that really hasn’t happened much

in the past.

I think particularly with the reset issue, which is many billions

of dollars, that is very important, because there may, in fact, be

some offsets in the peacetime budget because of the earlier spending to meet war needs. Only if you look at things together as a

whole is that likely to come out.

Thank you very much.

Mr. SHAYS. Thank you very much.

Dr. MARRON. I guess in concluding I would just echo some things

from my original testimony about in order for CBO to serve the

Congress and provide the best cost estimates for scenarios possible,

it helps to have as good information as possible about where we

have been historically, both in terms of spending obligations, et al.,

and to the drivers of that. To the extent it is possible to have more

information that links what is happening on the spending side to

what is happening on the ground, that strengthens our ability to

cost out some areas that the Congress may want to consider.

Mr. SHAYS. Thank you.

Mr. Kunder, make your point now, sir.

Mr. KUNDER. I will save that one until later, sir.

Mr. SHAYS. No, don’t save it. I want you to make it. I interrupted

it. You can make two points.

166

Mr. KUNDER. In order to keep our folks focused on the need to

do good planning and budgeting, the appropriations do have to

come in a timely fashion. We just got the appropriations from 2006

based on by the time you go through the OMB apportionment and

so forth. And so the folks out in the field who are trying to run real

problems in the Bangladeshes and Afghanistans of the world who

have gone through detailed budgeting processes then find that all

of their planning has gone out the window. So I just want to link

the important issue you are raising about planning with the appropriation cycle, sir.

Mr. SHAYS. Well, Mr. Kunder, I sleep with a woman who tells me

the same thing. My wife happens to work in the Peace Corps and

she says it does raise havoc, and she is not happy about it, and I

take the heat for all of Congress.

Any other point you want to put on the record?

Mr. KUNDER. Mr. Waxman is not here to defend himself, but he

said at the end of his statement we have to stop the waste, fraud,

and abuse in Iraq. With all due respect, the folks who are out there

now are risking their lives, and this is—I will quote SEGIR, the Inspector General for Iraq reconstruction has said repeatedly in his

quarterly reports that for the last couple of years for the appropriated funds that are out there I know there are huge policy debates but there has not been massive waste, fraud, and abuse.

Those folks who are out there are working under careful accountability rules. There is not massive waste, fraud, and abuse by the

U.S. Government employees, Defense, State, and AID who are out

there working in Iraq.

I am a Scythian creature, so I know there are big policy issues.

That is different. But there is not massive waste, fraud, and abuse

in Iraq.

Thank you, sir.

Mr. SHAYS. Fair enough. Thank you for making that point.

Mr. Roth.

Mr. ROTH. The only comment I would make in conclusion, a

number of comments that address the accuracy and reliability of

Defense data. I really would like to emphasize that the data we

provide both in the budget justification material, itself, and in the

accounting reports and financial management systems is, in fact,

accurate and reliable.

And, going even further, we recognize room for improvement, as

well, and we have very serious efforts that the senior leadership of

the Department is very committed to, to improving the internal

controls, improving reducing material weaknesses, and the like. So

I just wanted to leave that as the Department’s position.

Mr. SHAYS. Thank you, sir. Thank you very much.

Mr. Higgins.

Mr. HIGGINS. I think I would like to leave with one point, and

that is that when we analyze costs and budgets I think we need

to recognize the fundamental fact, and I think we have talked

about it today that this is not a post-war reconstruction, this is a

wartime reconstruction, that it is the front line of the war. The insurgents, a primary focus is to destabilize and keep essential services from being set up and keep the government from taking hold.

167

So when we talk about what we are doing on the developmental

side, keep that in mind. It is a key part of the war on terror.

I think also when you realize we have lost over 500 contractors

and 5,000 wounded and 2,000 attacks——

Mr. SHAYS. That is 500 contractors have been killed?

Mr. HIGGINS. Yes.

Mr. SHAYS. It is pretty amazing. Percentage-wise, that must be

a huge number.

Mr. HIGGINS. Yes. And so I think Jim Kunder is absolutely right.

We spend a lot of time criticizing, but nothing like this has ever

happened in history. I was in Washington the weekend of the sniper and the place was empty. One sniper. This is a daily event for

those people out there. So I think when we realize what they have

been operating under, I think that, you know, rather than being

too hard, we are very hard.

And I think the last point I want to make is that, having been

out in Iraq for the time I have, I have had a chance to see you and

we have made some presentations. I think you and a number of the

Members, but particularly you, sir, you have your 13 trips. You

have gone to places I don’t think I would have the courage to go.

We appreciate it.

I am speaking as someone who has spent a good deal of time out

there and expect to be going back there again. We have developed

a great deal of admiration, because the trick is you are asking the

hard questions and you are demanding the accountability. One of

the commitments I made when I took this job was to ask the hard

questions and to demand accountability, so personally I want to

thank you for the example you have set for all of us.

Mr. SHAYS. Mr. Higgins, you have made me a friend for life.

Thank you. You are my friend for life. God bless you.

Mr. WALKER. Plus, he is a constituent and he can vote, too, Mr.

Shays.

Three comments, one of which is based on——

Mr. SHAYS. See, I should be saying that about him.

Mr. Walker.

Mr. WALKER. One of which is based on your comment, Mr. Chairman. Again, I want to compliment you again for holding these oversight hearings. Iraqis need to do more to build bridges between

Shiite, Sunni, and Kurds domestically. We, the United States, need

to do more to build bridges and partner for progress internationally. And both the United States and the international community

needs to do more to provide civilian technical assistance to help the

Iraqis deliver results that the people will care about, whether they

are Shiite, Sunni, or Kurd. All three of those I think are critically

important and I stand by my prior recommendation.

Thank you, Mr. Chairman.

Mr. SHAYS. Thank you very much. It is a wonderful way to end

this hearing with all of your comments. It is nice, Mr. Walker, to

end with yours, in particular.

Thank you all very much. This hearing is now adjourned.

[Whereupon, at 5:30 p.m., the subcommittee was adjourned.]

[Additional information submitted for the hearing record follows:]

168

169

170

171

172

173

174

175

176

177

178

179

180

181

182

183

184

185

186

187

188

189

190

191

192

193

194

195

196

197

198

199

200

201

202

203

204

205

206

207

208

209

210

211

212

213

Æ