Global War on Terrorism: Observations on Funding, Costs, and Future Commitments
Published: 2006-07-18T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: After the terrorist attacks of September 11, 2001, the President announced a Global War on Terrorism (GWOT), requiring the collective instruments of the entire federal government to counter the threat of terrorism. Ongoing military and diplomatic operations overseas, especially in Iraq and Afghanistan, constitute a key part of GWOT. These operations involve a wide variety of activities such as combating insurgents, civil affairs, capacity building, infrastructure reconstruction, and training military forces of other nations. The U.S. has reported substantial costs to date for GWOT related activities and can expect to incur significant costs for an unspecified time in the future, requiring decision makers to consider difficult trade-offs as the nation faces increasing long-range fiscal challenges. GAO has issued several reports on current and future financial commitments required to support GWOT military operations, as well as diplomatic efforts to stabilize and rebuild Iraq. This testimony discusses (1) the funding Congress has appropriated to the Department of Defense (DOD) and other U.S. government agencies for GWOT-related military operations and reconstruction activities since 2001; (2) costs reported for these operations and activities and the reliability of DOD's reported costs, and (3) issues with estimating future U.S. financial commitments associated with continued involvement in GWOT.
section_title: What GAO Found
paragraphs: Since 2001, Congress has appropriated about $430 billion to DOD and other government agencies for military and diplomatic efforts in support of GWOT. This funding has been provided through regular appropriations as well as supplemental appropriations, which are provided outside of the normal budget process. Since September 2001, DOD has received about $386 billion for GWOT military operations. In addition, agencies including the Department of State, DOD, and the Agency for International Development have received since 2001 about $44 billion to fund reconstruction and stabilization programs in Iraq ($34.5 billion) and Afghanistan ($9 billion) and an additional $400 million to be used in both Iraq and Afghanistan. Since 2001, U.S. government agencies have reported significant costs associated with GWOT, but GAO has concerns with the reliability of DOD's reported cost data. Through April 2006, DOD has reported about $273 billion in incremental costs for GWOT-related operations overseas--costs that would not otherwise have been incurred. DOD's reported GWOT costs and appropriated amounts differ generally because DOD's cost reporting does not capture some items such as intelligence and Army modular force transformation. Also, DOD has not yet used funding made available for multiple years, such as procurement and military construction. GAO's prior work found numerous problems with DOD's processes for recording and reporting GWOT costs, including long-standing deficiencies in DOD's financial management systems and business processes, the use of estimates instead of actual cost data, and the lack of adequate supporting documentation. As a result, neither DOD nor the Congress reliably know how much the war is costing and how appropriated funds are being used or have historical data useful in considering future funding needs. GAO made several recommendations to improve the reliability and reporting of GWOT costs. In addition to reported costs for military operations, U.S. agencies have obligated about $23 billion of $30 billion received for Iraqi reconstruction and stabilization, as of January 2006. U.S commitments to GWOT will likely involve the continued investment of significant resources, requiring decision makers to consider difficult trade-offs as the nation faces increasing fiscal challenges in the years ahead; however, predicting future costs is difficult as they depend on several direct and indirect cost variables. For DOD, these include the extent and duration of military operations, force redeployment plans, and the amount of damaged or destroyed equipment needed to be repaired or replaced. Future cost variables for other U.S. government agencies include efforts to help form governments and build capable and loyal security forces in Afghanistan and Iraq, and meet the healthcare needs of veterans, including providing future disability payments and medical services.

section_title: Letter
paragraphs: I am pleased to be here today to discuss our work to date on the funding,  reported costs, and future commitments of the Global War on Terrorism  (GWOT) overseas. I recently testified on the National Strategy for Victory  in Iraq, in which I stated that there are some positive attributes to the new  strategy, including a clear purpose and scope. The strategy also identifies  U.S. involvement in Iraq as a “vital national interest and the central front in  the war on terror.”  However, among its deficiencies is the absence of  current and future cost data for Iraq. After the terrorist attacks of  September 11, 2001, the President announced a Global War on Terrorism,  requiring the collective instruments of the entire federal government to  counter the threat of terrorism. The United States and its partners are  attacking terrorists both at home and abroad, denying terrorists sanctuary  and sponsorship, disrupting the financing of terror, and building and  maintaining a united global front against terrorism. Ongoing military and  diplomatic operations overseas constitute a key part of GWOT and involve  a wide variety of activities such as combating insurgents, civil affairs,  capacity building, reconstruction operations, and training military forces  of other nations. These operations are currently focused on Iraq and  Afghanistan. Clearly, costs to the United States in financial terms in no  way compare to the loss of human life. To date, over 2,800 military  personnel have died as a result of GWOT operations and many more have  been wounded in action.
As I have highlighted in previous testimony, our nation is not only  threatened by external security threats, but also from within by growing  fiscal imbalances due primarily to known demographic trends and rising  health care costs. These trends are compounded by the near-term deficits  arising from new discretionary and mandatory spending as well as lower  revenues as a share of the economy. If left unchecked, these fiscal  imbalances will ultimately impede economic growth, have an adverse  effect on our future standard of living, and in due course affect our ability  to address key national and homeland security needs. These factors create  the need to make choices that will only become more difficult and  potentially disruptive the longer they are postponed. The United States’  commitment to GWOT will likely involve the continued investment of  significant resources, requiring decision makers to consider difficult trade- offs as the nation faces increasing fiscal challenges, including a growing  debt burden and interest costs on such debt, in the years ahead.
My testimony today will focus on the financial commitments required to  support military operations associated with GWOT in Iraq and  Afghanistan, as well as diplomatic efforts to stabilize and rebuild Iraq.  Specifically, I will discuss (1) the funding Congress has appropriated to  the Department of Defense (DOD) and other U.S. government agencies for  GWOT-related military operations and reconstruction and stabilization  activities since 2001, (2) costs reportedly incurred for these operations and  activities and the reliability of DOD’s reported costs, and, (3) issues with  estimating the future financial commitments associated with the United  States’ continued involvement in GWOT.
In preparing this testimony, we have relied on previously issued GAO  reports and testimonies on the costs and other aspects of military  operations and reconstruction and stabilization activities, as well as a  large body of ongoing work on GWOT-related topics. We performed our  work in accordance with generally accepted government auditing  standards.
subsections: section_title: Background
paragraphs: The United States is engaged in a comprehensive effort to protect and  defend the homeland and defeat terrorism. Using all instruments of  national power, the United States and its partners are attacking terrorists  both at home and abroad, denying terrorists sanctuary and sponsorship,  disrupting the financing of terror, and building and maintaining a united  global front against terrorism. After the terrorist attacks of September 11,  2001, military operations began with Operation Noble Eagle, which is  aimed at defending the U.S. homeland from terrorist attacks, and  Operation Enduring Freedom, which takes place principally in and around  Afghanistan, but also covers additional operations in the Horn of Africa,  the Philippines, and elsewhere. In 2003, DOD began Operation Iraqi  Freedom, which takes place in and around Iraq. DOD and the military  services are responsible for carrying out these operations. Recently, DOD  reported about 132,000 U.S. military personnel are deployed to Iraq and  about 15,000 are deployed to Afghanistan.
Diplomatic efforts are also underway to rebuild areas in and around Iraq  and Afghanistan, as well as to assist these countries in rebuilding their  governments and creating secure nations. State is responsible for all U.S.  activities in Iraq except security and military operations. Other U.S.  government agencies also play significant roles in this reconstruction  effort, including the USAID and the U.S. Army Corps of Engineers. The  Multi-National Security Transition Command-Iraq, which operates under  the Multi-National Force-Iraq, leads coalition efforts to train, equip, and  organize Iraqi security forces. In Afghanistan, USAID manages the majority  of reconstruction programs and operations. Other U.S. agencies provide  additional assistance, including DOD. Members of the North Atlantic  Treaty Organization also play a key role in training and equipping Afghan  forces.
Since 2001, DOD has prepared reports on the costs of its involvement in  GWOT. The costs of military contingency operations are referred to as  “incremental costs,” which are costs that are directly attributable to the  operation and would not otherwise have been incurred, were it not for the  operation. Specifically, the costs are above and beyond baseline training,  operations, and personnel costs. Incremental costs include the pay of  mobilized reservists as well as the special pays and allowances for  deployed personnel, such as imminent danger pay and foreign duty pay for  those personnel serving in Operation Iraqi Freedom and Operation  Enduring Freedom; the cost of transporting personnel and materiel to the  theater of operation and supporting them upon arrival; and the operating  cost of equipment, such as vehicles and aircraft, among many other costs.  Costs that are incurred regardless of whether there is a contingency  operation, such as the base pay of active duty military personnel, are not  considered incremental.
DOD tracks the obligations incurred to support GWOT and produces a  monthly cost report, which is distributed throughout the department and  used by senior DOD leadership, along with other information, in  discussing the cost of the war. It is also used in formulating future budget  requests to fund GWOT. The report identifies the monthly and cumulative  incremental GWOT obligations. DOD reports the costs by service, defense  agency, contingency operation, and appropriation. On October 1, 1998,  DOD implemented a standard contingency cost breakdown structure  consisting of 55 cost categories to improve contingency cost reporting  consistency between its multiple services and agencies. Examples of cost  categories include facilities/base support and airlift. Furthermore, this cost  breakdown structure was also to facilitate future efforts to understand and  interpret differences between estimated and actual costs. DOD Financial  Management Regulation 7000.14-R, volume 12, chapter 23, generally  establishes financial policy and procedures related to DOD contingency  operations. The regulation incorporates the common cost categories and  multiple subcategories, which were established in 1998 and updated in  September 2005, that are used to report DOD’s monthly GWOT costs.
Obligations are the foundation of all GWOT cost reporting. For example,  operation and maintenance obligations in support of GWOT represent tens  of thousands, if not hundreds of thousands, of individual transactions  ranging in value from one penny to millions of dollars. When obligations  are incurred, the military services enter them into their accounting  systems using accounting codes. Using the Army as an example, an Army  budget activity, such as an installation or unit, initially obligates funds for  acquired goods and services by using the Standard Army Accounting  Classification Code. An obligation entry includes information on the  funding source; the operational mission, such as Operation Iraqi Freedom;  and the category of cost. The cost categories are established by the  services.
section_title: Funding for the Global War on Terrorism
paragraphs: Since 2001, Congress has appropriated about $430 billion to DOD and  other U.S. government agencies for military operations and reconstruction  and stabilization activities supporting GWOT. Much of the funding has  come in the form of supplemental appropriations. Some funding has also  come through the normal baseline budget appropriated to the  departments. For example, in fiscal years 2005 and 2006, DOD was  provided so-called “bridge” funding—$25 billion and $50 billion,  respectively—through its regular appropriation, which was intended to  fund operations from the beginning of the fiscal year until a supplemental  appropriation could be enacted. Also, funds are appropriated to the  various appropriations accounts for each department and are not  specifically designated for operations in Iraq or Afghanistan. Since  September 2001, DOD has received about $386 billion to fund military  operations supporting GWOT. In addition, about $44 billion has been made  available to U.S. agencies—including DOD, USAID, and State—for  reconstruction and stabilization efforts in Iraq ($34.5 billion) and  Afghanistan ($9 billion) with an additional $400 million for use in Iraq and  Afghanistan through the Commander’s Emergency Response Program.  These efforts include training and equipping of security forces and  repairing critical infrastructure. (See table 1.) 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.
The $386 billion DOD has received to fund military operations supporting  GWOT also includes funding for homeland defense under Operation Noble  Eagle. This operation was funded through supplemental appropriations for  DOD until fiscal year 2005, when it was moved into DOD’s baseline budget.  This movement is consistent with our prior suggestion that, once an  operation reaches a known level of effort and costs are more predictable,  more funding should be built into the baseline budget. This $386 billion  also includes funding for DOD’s intelligence programs, as well as other  DOD initiatives, such as the Army’s efforts to transform its traditional  division-based force into a more rapidly deployable modular force that is  better able to conduct joint and expeditionary operations. Beginning in  fiscal year 2007, the Army’s modular transformation will be included in  DOD’s regular baseline appropriation. Prior to passage of the most recent  supplemental appropriation, military service officials told us that they had  already spent the $50 billion bridge that was included in the fiscal year  2006 defense appropriations act and had started to use baseline  appropriations for GWOT activities, as well as undertake cost-cutting  measures until the supplemental was enacted. DOD has requested another  $50 billion in bridge funding as part of its fiscal year 2007 budget.
In addition to the funding provided to support military operations,  Congress has appropriated about $44 billion to DOD and other U.S.  government agencies to support important reconstruction and  stabilization activities in Iraq and Afghanistan since 2001. These activities  support GWOT objectives because they help train and equip local security  forces, and help establish the foundations of a sound economy with the  capacity to deliver essential services, such as clean water and reliable  electricity. A growing economy also provides employment opportunities as  an alternative to recruitment efforts made by insurgents. Since 2003, about  $34.5 billion has been provided to support these types of activities in Iraq  and, since September 2001, about $9 billion to support these activities in  Afghanistan. The recent supplemental appropriation also provided an  additional $400 million for the Commander’s Emergency Response  Program for use in Iraq and Afghanistan. This would bring total  reconstruction and stabilization funding to over $44 billion.
Funding for reconstruction and stabilization efforts has supported the  following activities, among others:    Training and equipping of Iraqi security forces. Since fiscal year  2003, about $11.7 billion has been made available for U.S. security and  justice programs in Iraq, including funds to train and equip the Iraqi  security forces. Over the past several months, the Secretaries of State  and Defense have cited progress in developing Iraqi security forces,  and reported that the numbers of operational army personnel and  trained and equipped police have increased from about 142,000 in  March 2005 to about 266,000 in June 2006. However, as we have  previously reported, the number of trained and equipped forces does  not provide reliable information on their capabilities. In addition, the  administration received $3.0 billion in the recent fiscal year 2006  supplemental appropriation to continue moving the Iraqi security  forces toward stand-alone operational capacity.
Restoring Iraq’s essential services. Since fiscal year 2003, about  $10.5 billion has been made available for restoring essential services in  Iraq, specifically activities in the oil, water, health, and electricity  sectors. U.S. reconstruction efforts have helped increase electricity  generation capacity, restart crude oil production, and restore some  water treatment plants. However, key reconstruction goals in the oil,  electricity, and water sector have yet to be achieved due to security,  management, and sustainment challenges in U.S.-funded projects. The  administration received an additional $1.5 billion in the recent  supplemental appropriation for reconstruction assistance to Iraq,  including $50 million to USAID’s Iraq Community Action Program and  $50 million for democracy, rule of law, and reconciliation programs.
Training and equipping the Afghan national army. The United  States led the international effort to train and equip the Afghan national  army, which is crucial to both long-term security and U.S. counter- terror efforts. About 26,500 troops have been trained and equipped and  the defense force is projected to reach up to 70,000 military and civilian  personnel, according to State reporting. The administration has  received $1.9 billion in the fiscal year 2006 supplemental appropriation  to further prepare Afghan security forces to operate without U.S.  support.
The U.S. government also funds a variety of other programs that indirectly  support GWOT. For example, Congress provides funding for security  assistance on a worldwide basis to help train or equip foreign security  forces (military and police). In fiscal year 2006, Congress provided an  estimated $4.5 billion for two security assistance programs, the  International Military Education and Training program and Foreign  Military Financing program. In addition, the U.S. government reported  costs of $1.2 billion on worldwide public diplomacy programs in fiscal  year 2005.
section_title: The U.S. Has Reported Hundreds of Billions in Costs of Ongoing Military and Reconstruction and Stabilization Operations, but Data Weaknesses Make It Difficult to Reliably Know Cost of Military Operations
paragraphs: Since GWOT began in 2001, U.S. government agencies have reported  hundreds of billions of dollars in costs for overseas military and  reconstruction operations; however, as we have previously reported, data  reliability and reporting concerns make it difficult to know DOD’s total  GWOT costs. Since 2001, DOD has reported costs of about $273 billion on  overseas GWOT military operations through the end of April 2006. The  department’s reported costs have grown steadily from a reported about  $105 million in fiscal year 2001, to begin preparations for operations in  Afghanistan, to over $81.5 billion in fiscal year 2005. U.S government  agencies have reported costs of about $23 billion for Iraqi reconstruction  and stabilization. However, U.S. government agencies, other than DOD, do  not formally track all GWOT costs. This, along with DOD’s cost reliability  and reporting problems, make it difficult for the decision makers 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.
subsections: section_title: DOD’s Reported Costs for Military Operations
paragraphs: Since the attacks of September 11, 2001, DOD has reported cumulative  incremental costs of about $273 billion, through the end of April 2006, on  military operations overseas in support of GWOT. This amount includes  almost $215 billion for operations in Iraq and almost $58 billion on  operations in Afghanistan, the Horn of Africa, the Philippines, and  elsewhere. This does not include obligations for intelligence activities and  the Army’s modular force transformation. The difference between the  amount appropriated and DOD’s reported costs through April 2006 can  generally be attributed to these unreported obligations for intelligence and  Army modular force transformation, as well as funding for procurement,  military construction, and research, development, test, and evaluation,  which can be obligated over multiple years, that has not yet been  obligated. In addition to the costs for overseas operations, DOD has also  reported obligations of $27.7 billion through April 2006 for operations in  defense of the homeland U.S., under Operation Noble Eagle.
To date, the largest reported costs for the overseas GWOT operations have  typically been associated with two of DOD’s appropriations accounts— operation and maintenance and military personnel. Operation and  maintenance expenses cover a number of things, such as operational  support for housing, food, and services; transportation to move people and  supplies and equipment into the theaters; and the repair of equipment.  Military personnel expenses include military pay and allowances for  mobilized reservists, as well as the special payments or allowances, such  as imminent danger pay and the family separation allowance that all  qualifying military personnel receive. While expenses for operation and  maintenance, and military personnel have tended to be among the highest,  DOD has also reported incurring costs for procurement of equipment and  other items.
As we have reported in the past, we have significant concerns about the  overall reliability of DOD’s reported cost data. As a result, neither DOD  nor Congress can reliably know how much the war is costing. As we  reported in September 2005, we found numerous problems with DOD’s  processes for recording and reporting costs for GWOT. Factors affecting  the reliability of DOD’s reported costs include long-standing deficiencies  in DOD’s financial management systems and business processes, the use  of estimates instead of actual costs, and the lack of supporting  documentation. In at least one case, our work showed that some reported  costs may have been materially overstated. Specifically, reported  obligations for mobilized Army reservists in fiscal year 2004 were based  primarily on estimated rather than actual information and differed from  related payroll information by as much as $2.1 billion, or 30 percent of the  amount DOD reported in its cost report. In addition, we found inadvertent  double counting in a portion of DOD’s reported costs amounting to almost  $1.8 billion from November 2004 through April 2005.
In our September 2005 report, we made several recommendations to the  Secretary of Defense to (1) undertake a series of steps to ensure that the  services’ reported GWOT costs are accurate and reliable; (2) direct the  Office of the Under Secretary of Defense (Comptroller) to oversee the  services’ efforts and to develop a systematic process to review and test the  reliability of the overall GWOT reports; (3) expand the department’s  financial management regulation for contingency operations to include  contingencies as large as GWOT; and (4) establish guidelines to control  costs and require the services to keep the Comptroller’s office informed of  their efforts in this area.
Since the time of our report, we know that DOD has taken some measures  in response to our recommendations intended to improve the reliability  and accuracy of its cost reports, such as requiring the military services to  identify variances in reported costs from month to month, and determine  the causes. However, our initial review suggests that DOD and the services  have yet to take sufficient action to fully implement these measures and  that certain weaknesses in cost reporting continue to exist. Without  aggressive action on the part of DOD and the services, the reliability of  cost reports will remain in question. Also, there has been an ongoing issue  with the timeliness of DOD’s cost reporting. For example, the cost reports  for October through December 2005 were not issued until March 2006. To  address this long-standing problem, Congress, in the National Defense  Authorization Act for Fiscal Year 2006, directed that DOD provide the cost  reports to GAO no later than 45 days after the end of the month being  reported. DOD has now provided GAO with the March and April cost  reports on schedule.
section_title: DOD’s Reported Costs Have Steadily Grown
paragraphs: DOD’s reported costs for GWOT operations have grown steadily in each  fiscal year through fiscal year 2005—from about $105 million in fiscal year  2001 to about $81.5 billion in fiscal year 2005. For fiscal year 2006, as of  April 2006, DOD has reported obligations of about $49 billion; about $41.9  billion for Iraq and about $7.5 billion for Afghanistan. These amounts  include about    $22.5 billion in operating support, which pays for transportation, fuel,  maintenance, housing, food, services, and other items;    $5.3 billion for procurement of equipment and other items;    $9.9 billion in military personnel costs, including special pays and  allowances for deployed military personnel;    $2.9 billion for personnel support, including clothing and medical    $4.0 billion for transportation, including airlift and sealift;    $2.6 billion in support for the Iraq Security Forces;    $813 million for the Afghanistan Security Forces; and,    $474 million in support of coalition forces.
Costs for the remainder of fiscal year 2006 are expected to be higher than  DOD anticipated, in part because the Army has been unable to follow  through with plans to close a number of forward operating bases and  consolidate troops at some of the larger locations. Also, savings resulting  from a United States and coalition hand-off of operations in Afghanistan to  troops from nations representing the North Atlantic Treaty Organization is  not expected to be realized until after fiscal year 2007. Furthermore, the  rising cost of fuel is likely to push costs even higher than envisioned at the  start of the fiscal year.
In examining the historical growth of reported overseas GWOT costs, the  largest increase has been in operations and maintenance expenses. For  example, between fiscal year 2002 and fiscal year 2005, DOD has reported  increases in these expenses from about $7.6 billion to about $48.7 billion.  According to DOD, some of this increase is attributable to higher fuel  costs and increased operational support costs for contracts to provide  housing, food, and services for the military locations in Iraq and  Afghanistan. For the same time frames, reported obligations for military  personnel have increased from about $3.4 billion to about $14.9 billion,  and reported procurement obligations have increased from $0 to about  $16.5 billion.
With the steady growth in reported GWOT costs, we believe there is a need  to ensure that all commands seek to control costs to the extent possible.  As we reported in September 2005, individual commands have taken steps  to control costs and DOD policy generally advises its officials of their  financial management responsibilities to ensure the prudent use of  contingency funding. However, DOD has not established guidelines that  would require commands to take steps to control costs and keep DOD  informed of these steps as we recommended in our prior report. In the  absence of such guidelines and reports, DOD cannot be sure that enough  is being done to control costs.
section_title: U.S. Government Agencies Have Reported Obligating Most of Their Reconstruction and Stabilization Program Funding
paragraphs: U. S. government agencies have reported obligating $23 billion for Iraqi  reconstruction and stabilization, as of January 2006. However, U.S.  government agencies, other than DOD, do not formally track all GWOT  costs. Among other uses, these funds have been used for infrastructure  repair of the electricity, oil, water, and health sectors; training and  equipping of Iraqi security forces (military and police); and administrative  expenses.
State reports that the remaining funds will not be used for large  reconstruction projects, but to sustain the projects that have already been  built and to build greater capacity at the national, provincial, and  municipal levels for better and more responsive governments.
section_title: Global War on Terrorism Costs Will Likely Continue for the Foreseeable Future
paragraphs: It appears the United State’s military and diplomatic commitments in Iraq  and Afghanistan will continue for the foreseeable future and are likely to  be in the hundreds of billions of dollars. However, costs are difficult to  predict because they depend on several direct and indirect cost variables.  DOD’s future costs will likely be affected by the pace and duration of  military operations, the types of facilities needed to support troops  overseas, force redeployment plans, and the amount of damaged or  destroyed equipment that will need to be repaired or replaced. Other  future costs to the U.S. government include nation-building and  reconstruction efforts and treating injured GWOT veterans. These costs  will require administration decision makers and Congress to consider  difficult trade-offs as the nation faces increasing fiscal challenges in the  years ahead.
subsections: section_title: Future DOD Costs
paragraphs: The future costs associated with DOD’s commitments to GWOT depend on  several variables, including (1) the extent and duration of operations, (2)  the types of facilities that will be required to support troops overseas, and   (3) the amount of equipment that will need to be restored or replaced. As  DOD has done with Operation Noble Eagle, we would encourage the  department to consider moving other GWOT costs into the baseline  budget. This is consistent with our prior suggestion that, once an  operation reaches a known level of effort and costs are more predictable,  more funding should be built into the baseline budget. Doing so will  assist decision makers in determining investment priorities and making  trade-offs among funding needs.
subsections: section_title: Extent and Duration of Military Operations
paragraphs: It is uncertain how long DOD will be engaged in a high pace of military  operations associated with GWOT, making it difficult to predict costs  associated with future troop levels and mission requirements. There has  also been some discussion of reducing the number of troops in Iraq and  Afghanistan. However, DOD officials have not announced information  about the level or timing of any troop reduction or redeployment plans.  While it would appear that reducing the number of troops in theater could  lower costs for these operations, we have seen from previous operations  in Bosnia and Kosovo that costs may rise due to the increased use of  contractors to replace the military personnel. Bases still have to be  maintained, even with fewer military members in them. Also, if the pace of  operations remains high because of security concerns or hostilities, costs  for force protection, fuel, and other items could remain high.
section_title: Facilities to Support Overseas Troops
paragraphs: The United States does not currently have any basing agreements with  Iraq. DOD has constructed facilities in Iraq and neighboring countries  supporting missions in both Iraq and Afghanistan. Examples of facilities  funded by military construction funds and other appropriations funding  include force protection, airfield and road improvements, fuel handling,  power and water distribution, and support facilities. The Secretary of  Defense recently testified that already some 30 U.S. military bases have  been returned to Iraqi control or closed altogether. If the United States  decides to enter into agreements with the new governments in Iraq and  Afghanistan to have an enduring presence in these countries, costs to  make our temporary bases into more permanent facilities could be  significant.
section_title: Equipment Restoration and Replacement
paragraphs: Sustained GWOT operations have and will continue to take a toll on the  condition and readiness of military equipment. The United States faces  short-and long-term costs to maintain and restore equipment in theater, as  well as reequip units as these missions end and the units return to their  home stations. The uncertainties of how long ongoing operations will  continue make it difficult to estimate future costs of maintaining and  replacing this large amount of equipment.
The Army and Marine Corps will have the largest reset costs of the  services. DOD has reported Army equipment usage rates have averaged  two to eight times those of peacetime rates, while senior Marine Corps  officials testified that the ground equipment used by the Corps in ongoing  operations has experienced usage rates four to nine times that of  peacetime rates. We recently testified that the services are currently  funding their reset programs through the use of supplemental  appropriations and plan to rely on supplemental appropriations for reset  funding through at least fiscal year 2007. According to recent testimony,  the Army requirement for reset in fiscal year 2007 is $17.1 billion. The  Army expects the requirement beyond fiscal year 2007 to be $12 billion to  $13 billion per year through the end of the conflict and for a minimum of  two to three years thereafter. In recent testimony, the Marine Corps stated  that $11.9 billion is needed to manage the equipment in Operation Iraqi  Freedom and Operation Enduring Freedom for fiscal year 2007 and an  estimated additional requirement of $5.3 billion for each year that the  conflict continues. The uncertainties of pace and duration of ongoing  operations as well as the overall condition of major equipment items make  it difficult to estimate future equipment reset costs.  Equipment used in  operations in Iraq will eventually require more intensive repair and  overhaul than what is typically expected in peacetime. While the services  are working to refine overall requirements, the total requirements and  costs are unclear.
In addition to resetting a large number of major equipment items, the  Army and Marine Corps must also plan to replace active, National Guard,  and Reserve equipment left in theater to support ongoing operations. As  we previously testified, in late 2003 the Army began to direct redeploying  National Guard and Reserve units to leave their equipment in theater for  use by deploying forces. DOD policy requires the Army to replace  equipment transferred to it from the Reserve Component including  temporary withdrawals or loans in excess of 90 days, yet at the time of  our report in October 2005, the Army had neither created a mechanism in  the early phases of the war to track Guard equipment left in theater nor  prepared replacement plans for this equipment, because the practice of  leaving equipment behind was intended to be a short-term measure. As of  June 2006, only 3 replacement plans have been endorsed by the Secretary  of Defense, all to replace National Guard equipment, while 22 plans are in  various stages of approval. While the exact dollar estimate for these  replacements will not be known until operations in Iraq cease, it will likely  cost billions of dollars.
section_title: Future Nation-Building Costs
paragraphs: Future cost variables for other U.S. government agencies include the  efforts to help form national and provincial governments and build  management capacity in both Afghanistan and Iraq and build capable and  loyal Iraqi and Afghani security forces. Also, there will be further need for  funding to restore, sustain, and protect infrastructure. The new Iraqi  government will need significant help in building the procurement,  financial management, and accountability systems needed to govern and  provide basic services to millions of its citizens. In addition, the 18  provincial governments will also require assistance in building  management capacity and delivering results to the Iraqi people that make  a difference in their daily lives. The costs of sustaining an Iraqi force of  266,000 personnel may require the Iraqi government to spend more money  on personnel, maintenance, and equipment than originally anticipated. In  addition, the new Iraqi security forces will have recurring training needs,  and will need additional assistance in replacing lost or stolen equipment,  and in developing improved logistical and sustainment capabilities.
While most of the reconstruction money for Iraq has been obligated,  additional funds will be needed to finance remaining reconstruction needs,  and to restore, sustain, and protect the infrastructure that has been built to  date. For example,    Iraqi needs are greater than originally anticipated. In the next  several years, Iraq will need an estimated $30 billion to reach and  sustain oil capacity of 5 million barrels per day, according to industry  experts and U.S. officials. For electricity, they will need $20 billion  through 2010, according to the Department of Energy’s Energy  Information Administration. Iraqi budget constraints and limited  government managerial capacity limit its ability to contribute to future  rebuilding efforts.
There is widespread corruption in Iraq. Reconstruction efforts  have not taken the risk of corruption into account when assessing the  costs of achieving U.S. objectives in Iraq. The International Monetary  Fund, the World Bank, Japan, and the European Union officials cite  corruption in the oil sector as a special problem. In addition, according  to State officials and reporting documents, about 10 percent of refined  fuels are diverted to the black market, and about 30 percent of  imported fuels are smuggled out of Iraq and sold for a profit.
Future international contributions for Iraq may be limited. Most  of the U.S. funds have been obligated and about 70 percent of the $13.6  billion in international pledges are in the form of loans.
The new U.S. embassy will be costly. The embassy is projected to  cost about $592 million, but the full cost of establishing a diplomatic  presence across Iraq is still unknown.
Additional funds are needed to train and equip Afghan security  forces. The United States, other donors, and the new Afghan  government face significant challenges to establishing viable Afghan  army and police forces. Although DOD and State have not yet  prepared official cost estimates, the army and police programs could  cost up to $7.2 billion to complete and about $600 million annually to  sustain. Moreover, slow progress in resolving other Afghan security  problems—the lack of an effective judiciary, the substantial illicit  narcotics industry, and the continued presence of armed militias— threaten to undermine overall progress made toward providing  nationwide security and ensuring the stability of the Afghan  government.
section_title: Future Costs for Veterans
paragraphs: Lastly, one of the variables that can influence how much these efforts will  cost the United States is the long-term cost of caring for our veterans. Both  improvements in medical care in the field and in body armor have  increased the survival rate of those who are seriously injured in combat.  However, seriously injured survivors will likely require substantial long- term medical care from the VA, and may require extensive inpatient and  home and community-based support services to assist those with  traumatic brain injury, spinal cord injury, and other severely disabling  conditions. We also know that many servicemembers have been exposed  to intense and prolonged combat, which research has shown to be  strongly associated with the risk of developing post-traumatic stress  disorder. This disorder can occur after experiencing or witnessing a life- threatening event and is the most prevalent mental health disorder  resulting from combat. Mental health experts predict that 15 percent or  more of the servicemembers returning from operations in Iraq and  Afghanistan will develop post-traumatic stress disorder. In addition to an  influx of more severely injured patients, the VA health care system will be  required to serve large numbers of returning veterans with shorter term,  more routine, health care needs.
VA has estimated that a little more than 100,000 veterans from operations  in Iraq and Afghanistan are currently using VA health care services. VA  originally underestimated by 77,000 the number of returning veterans who  would use its health care, which in part required the VA to request  additional appropriations in both fiscal years 2005 and 2006. Long-term  estimates of how many returning veterans will use VA health care and the  costs of that care are imprecise for a variety of reasons, including  uncertainty about the duration of operations in the theaters as discussed  above. But, current levels of usage by returning servicemembers indicate a  growing VA health care workload and costs. Furthermore, while we have  no clear idea of the magnitude, there will undoubtedly be long-term  financial commitments associated with payments to veterans with long- term disabilities.
Mr. Chairman, this concludes my prepared statement. I would be happy to  answer any questions you and the subcommittee members may have.
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