The Administration's FY2005 Request for $25 Billion for Operations in Iraq and Afghanistan: Precedents, Options, and Congressional Action
Released: 2004-07-22T00:00:00

Balancing Flexibility with Oversight

Administrations have frequently asked Congress to give the Department of Defense flexibilityin allocating funds to cover costs of military operations. Most recently, on May 12, 2004, the WhiteHouse requested $25 billion in a "contingent emergency reserve fund" for FY2005 to cover costs ofoperations in Iraq and Afghanistan during part of the fiscal year. Although the request setsillustrative ceilings by appropriation accounts within the total, as written, DOD could transfer the$25 billion for DOD's expenses for Iraq and Afghanistan to any appropriation account and in anyamount after notifying Congress five days in advance. The issue for Congress is to determine howmuch flexibility the Defense Department may need to carry out operations Congress intends tosupport, while also ensuring that funds are used in amounts and for purposes that Congress hasapproved.

Faced with the challenge of balancing DOD's need for flexibility to respond to the uncertainties of military operations with congressional oversight responsibilities, Congress has responded tosimilar requests for DOD in different ways in recent years. Before the September 11, 2001, terroristattacks, Congress generally balked at proposals to provide blanket authority for the DefenseDepartment to finance military operations without specific, advance congressional approval. Since9/11, however, Congress has been more willing to provide the Administration with considerableflexibility to allocate funds for the "global war on terrorism" without detailed congressionaloversight. Since then, Congress has continued to provide the Administration with fundingflexibility, but it has gradually pared back the amount of funding placed in flexible accounts, and ithas also imposed a variety of reporting requirements. This report

(1) briefly reviews the Administration's request for flexibility in the $25 billion contingent emergency reserve fund that it has requested forFY2005;

(2) discusses options Congress has to provide flexible funding for military operations based on precedents discussed in more detail later in thereport;

(3) reviews standard peacetime procedures governing reprogramming of defense funds as a benchmark against which to assess flexibility Congress hasoften provided for wartime or contingency operations;

(4) reviews congressional responses to Administration requests for funding flexibility from the first Persian Gulf War in 1990 through post-9/11 wartimeappropriations to date; and

(5) analyzes congressional action and current issues.

Although Congress has provided most of the DOD funding requested by the Administration for the "global war on terrorism," Congress has not provided most of that funding in flexible accountsdespite Administration requests. Of the $173 billion that the Administration has requested for Iraq,Afghanistan and enhanced security for defense installations since the 9/11 terrorist attacks, theAdministration requested $104 billion in flexible funds and the remaining $69 billion in regularappropriation accounts. In response, Congress appropriated a total of about $165 billion including$40 billion in flexible accounts and $124 billion in regular accounts (see Appendix A ).

The current request for $25 billion in a flexible account is larger than any amount that DOD has received thus far. Since 1990, DOD has received between $2 billion and $14 billion in monies in any individual bill that can be moved after enactment for war and war-related funding, with theremainder of the funding placed in regular appropriation accounts. (1) In the most recent FY2004Emergency Supplemental, Congress provided $2 billion in flexible funding requested by DOD, orabout 3% of the total in the bill. (see Appendix A ).

Appendix A includes tables comparing the amounts that Congress has provided for military operations since 9/11 in flexible spending accounts and in regular appropriations accounts. Appendix B provides a list of legislation with flexible accounts.

The discussion below and Table 1 analyze the Administration's request and congressional action on the FY2004 Administration request. Both the authorization and appropriation bills rejectthe Administration's request for broad discretion and set allocations for most of the $25 billionrequested, as well as require additional reporting of how funds are spent, with advance notificationof spending of unallocated funds and after-the-fact reporting of funds allocated in appropriationaccounts or titles.

Congress is likely to vote on the conference version of the FY2005 DOD Appropriations bill, H.R. 4613 , before going on recess on July 26, 2004 but is not likely to address theFY2005 DOD Authorization until after the recess. See the section on congressional action belowfor an update of provisions on funding and monitoring of the $25 billion for Iraq and Afghanistanin the conference version of H.R. 4613 and a comparison of the House and Senate versionof the authorization bills.

Proposed FY2005 Budget Amendment

On May 12, 2004, the White House sent Congress an amendment to its FY2005 budget request,asking Congress to appropriate $25 billion as "contingent emergency funds" in the Iraq FreedomFund (IFF), a transfer account that Congress established in the FY2003 Emergency Supplemental,to be available until expended (see text in next section). (2) Within the total in the IFF, theAdministration proposed the following illustrative ceilings by appropriation account:

$14 billion for Operation and Maintenance, Army;

$1 billion for Operation and Maintenance, Navy;

$2 billion for Operation and Maintenance, MarineCorps;

$1 billion for Operation and Maintenance, Air Force;

$2 billion for Operation and Maintenance, Defense-Wide;and

$5 billion for other appropriations or DOD funds or classifiedprograms.

After consultation with the Director of the Office of Management and Budget (OMB), however, the Secretary of Defense could transfer funds to other accounts or to classified programs aslong as thedefense authorizing and appropriations committees were notified five days in advance.

If enacted, this language would give the Secretary of Defense complete discretion to transfer $25 billion among appropriation accounts to fund operations in Iraq and Afghanistan, or relatedactivities. Although the language sets illustrative ceilings by appropriations account within the $25billion total, the Secretary of Defense could alter those ceilings, with the approval of OMB and fivedays after notifying the defense committees. The language also provides that up to $5 billion ofappropriations could be transferred to any appropriation account or classified activity, presumablyincluding intelligence agencies. The language also permits the Secretary of Defense to transfer anyfunds not needed back to the IFF, to be available for subsequent retransfer. There is no time limiton the availability of the funds.

Once transferred, funds would be available for the same purposes and for the same periods of time as the accounts to which they were transferred, and these transfers would not count againstDOD's overall annual limits on general transfer authority -- standard language for transfer accounts. The request requires the White House to submit an official budget request to Congress for the fundsand designate the funds as emergency. Other than the five-day notification to congressional defensecommittees before transferring funds, no reports to Congress are required either before or aftertransfers take place (see below). The Administration does not plan to submit any justificationmaterials for the $25 billion until that official budget request is submitted. (3)

Language of the Request

The specific language of the request is as follows:

For additional expenses, not otherwise provided for, necessary to support operations in Iraq or Afghanistan, $25,000,000,000, available October 1, 2004,and to remain available until expended: Provided , That the funds made available under this headingshall be available only to the extent that an official budget request for all or part of the funds istransmitted by the President to the Congress and includes designation of the amount of that requestas an emergency and essential to support activities and agencies in Iraq or Afghanistan: Providedfurther , That funds made available under this heading, may be available for transfer for the followingactivities:

Up to $14,000,000,000 for "Operation andMaintenance, Army";

Up to $1,000,000,000 for "Operation and Maintenance,Navy";

Up to $2,000,000,000 for "Operation and Maintenance,Marine Corps";

Up to $1,000,000,000 for "Operation and Maintenance,Air Force";

Up to $2,000,000,000 for "Operation and Maintenance,Defense-Wide;

Up to $5,000,000,000 may be used to reimburse otherappropriations or funds of the Department of Defense and classifiedprograms:

Provided further , That in addition to the transfersauthorized in the previous proviso, after consultation with the Director of the Office of Managementand Budget, the Secretary of Defense may transfer the funds provided herein to any appropriationor fund of the Department of Defense or classified programs, to be merged with and available forthe same purposes and for the same time period as the appropriation to which transferred: Providedfurther, the Secretary of Defense shall notify the Committees on Appropriations and the AuthorizingCommittees five days prior to the transfer of funds made available under the previous proviso: Provided further , That upon a determination that all or part of the funds transferred from thisappropriation are not necessary for the purposes provided herein, such amounts may be transferredback to this appropriation: Provided further , That the transfer authority provided under this headingis in addition to any other transfer authority available to the Department ofDefense. (4)

Congressional Concerns

Before submission of the request, congressional concerns about funding for Iraq and Afghanistan centered on DOD's initial plan to wait until January 2005 to submit a supplementalrequest, and rely on peacetime funding to finance or "cash flow" occupation costs for the first sixmonths of FY2005. During hearings, members have also asked about the full amount of fundinglikely to be needed in FY2005.

While submission of the amendment responds to that initial concern, members have continued to ask about the total funding likely to be needed in FY2005. In its transmittal letter, theAdministration states that the contingent emergency reserve fund is requested at a time when "wedo not know the precise costs for operations next year" but that "developments on the ground in Iraqindicate the need to plan for contingencies..."; the letter also states that "we plan to pursue a fullFY2005 supplemental request when we can better estimate precise costs." (5) In testimony on May 12,2004, Secretary of Defense Rumsfeld stated because of the recent upsurge in violence in Iraq andthe decision to keep an additional 20,000 troops in Iraq, the Administration decided to submit arequest for $25 billion to ensure "there's no disruption in the resources for the troops." (6)

In a hearing on May 13, 2004 about the request itself, both majority and minority members of the Senate Armed Services Committee voiced considerable concern about the amount of discretionin the request -- some legislators characterized it as a "blank check." (7) In response to questions frommembers, Deputy Director of OMB, Joel Kaplan stated that the intent of the request was to identify"those areas where we think there'll be the greatest pressure points ... in particular, the Army O&M[Operation and Maintenance] accounts," but he acknowledged that the language of the request wasalso designed "to make sure that commanders and the secretary and the president have the flexibility,after notification to the Congress, to direct those resources to the needs and the requirements." (8)

In recent months, congressional concern about flexible funding available to DOD for war and occupation-related funding has mounted. Such concerns have grown with allegations of abuses inlarge support contracts and a recent allegation by author Bob Woodward that the Administrationspent funds appropriated in 2001 and 2002 for Afghanistan to prepare for the war in Iraq. (9) Administration spokesman, Deputy Secretary of Defense Wolfowitz, denied the charge, saying thatthe funds were "to strengthen our [U.S.] capabilities in the region," rather than strictly to prepare fora war with Iraq. (10)

Members have also questioned DOD's spending priorities for war and occupation spending because of initial shortages of force protection equipment, particularly body armor for troops anduparmored Humvees. The Administration has also provided sparse information about the allocationof spending between Iraq, Afghanistan, and enhanced security for defense installations, as well asthe number of troops deployed and current and future plans. For example, DOD has only providedthe distribution of funding by mission to Congress in the FY2004 Emergency Supplemental request,and only for FY2004, but not for earlier years or for the current request. (11) Some have expresseddissatisfaction with the quality and level of detail in DOD reporting on previous flexible funding.While flexible funding gives DOD a special tool to respond to the uncertainties of operations, it mayreduce the information available to Congress on U.S. plans, actions and options, and hence maymake oversight more difficult.

Congressional Action

Both the House and Senate provide the $25 billion requested by the Administration for operations in Iraq and Afghanistan in the FY2005 DOD authorization bill ( H.R. 4200 and S. 2400 ) and the FY2005 DOD appropriation bills ( H.R. 4613 for bothhouses, H.Rept. 108-533 and S.Rept. 108-284 ), passed on June 22 and June 24 respectively. Appropriations conferees met July 15, 2004, to resolve differences, and a conference report was filedon July 20 ( H.Rept. 108-622 ). The House and Senate are expected to vote on the FY2005 DODAppropriations bill, H.R. 4613, before the recess that begins on July 26, 2004. Table 1 below compares the request with congressional action to date. Congress is not expected to addressthe conference version of the FY2005 DOD Authorization until after the recess.

The conference version of the appropriations bill provides most of the funding in regular appropriation account, giving DOD flexibility to allocate about 14% of the $25 billion with fundinglevels that reflect a compromise between the House and Senate version (see Table 1 ). The billalsoincludes more extensive reporting requirements on operations in Iraq and Afghanistan than arecurrently in effect.

Authorization Issues. In the authorization bills, the chief differences in their treatment of the $25 billion request are the:

extent of funding flexibility for DOD;

mix of funding provided;

type of reporting requirements; and

military manpower levels.

Funding Flexibility. Although both houses authorize the amount requested, neither provides the Administration with the funding flexibility requested. Both the House and Senate versions of the FY2005 DOD Authorization Act provide all but $2.5billion, or 10%, of the funds in individual appropriation accounts or by appropriation title (e.g.operation and maintenance) (see Table 1 ). The House authorization bill ( H.R. 2400 )distributes all the funds but gives DOD $2.5 billion in general transfer authority, subject to thestandard criteria governing transfers, including prompt notification of transfers. (12) The Senate version( S. 2400 ) allocates $2.5 billion for transfers and also requires a five-day advancenotification and consultation with the Chair and ranking members of the four congressional defensecommittees before transfers can be made.

The House designates the $25 billion for "emergency contingency operations" for the global war on terrorism, consistent with the House version of the FY2005 budget resolution. (13) In the Senateversion, funding would not be available until the Administration submits a request and designatesthe funding as emergency.

The House included its provision for the $25 billion in the reported version of the bill, whilethe Senate adopted an amendment proposed by Senators Warner and Stevens. (14)

Funding Mix Differs. Unlike the Administration and the Senate authorizers, the House authorizers provide $3.4 billion for procurement of forceprotection equipment, with types of equipment specified in report language (e.g., $1 billion foruparmored HUMVees and bolt-on equipment for vehicles). (15) The Senate authorizers instead allocatehigher amounts for operation and maintenance funding and no procurement funding. TheAdministration has generally been reluctant to provide reconstitution funding in supplementals,although DOD has transferred funds provided in the FY2003 and FY2004 supplementals for forceprotection items such as body armor and uparmored HUMVees. The House also allocates funds byappropriation account, except for military personnel, whereas the Senate allocates funds at the moregeneral title levels and adopts the Administration's funding guidelines (see Table 1 ).

Reporting Requirements and Funding Limits. The Senate requires more extensive reporting requirements than the House. The Senate requires bothmonthly reports on the use of the $25 billion -- by cost, purpose and amount and operation -- andquarterly reports on all funds expended for Operation Iraqi Freedom, Operation Enduring Freedom(Afghanistan), and Operation Noble Eagle (enhanced security for defense installation), and any otheroperation of the "Global War on Terrorism." (16) Neither bill requires reporting on past, current, orfuture funding by mission or operation (i.e. Iraq vs. Afghanistan), information that has been ofconsiderable interest to members. Nor do the bills require information on past, current, or futuretroop levels, which plays a major factor in driving costs.

Both houses set a funding limit of $300 million and require reporting on the Commanders Emergency Response Fund, a fund where local commanding officers can dispense funds forcommunity and small reconstruction projects. (17) Both houses also require reports on contractorpersonnel. (18) And both houses provide forreimbursement for body armor or protective gear withincertain limits. (19)

Post Major-Combat Operations Report. The Senate also requires an extensive report, by March 31, 2005, assessing goals, performance, lessons learned, strategy, andparticipation of allies during the post-major combat operations period after May 1, 2003, throughDecember 31, 2004. (20) The Senate also requiresa report on DOD's prisoner population andfacilities. (21) This reporting requirement is similarto the "lessons learned" report required after thefirst Gulf war (see below).

Funding for Irregular Forces. The House provides additional flexibility inuse of these funds by allowing the Secretary of Defense to spend up to $25 million to supportirregular forces, a controversial previous Administration request that was rejected by Congress. (22) Both the House and the Senate authorizers refused, however, to give the Administration the authorityit requested to "train and equip" foreign forces for peace enforcement missions. (23) The Senate didprovide up to $150 million to train Iraqi security forces. (24)

Military Manpower Levels. A chief bone of contention between the Administration and Congress this year has been whether to increase thenumber of active-duty personnel in the Army and the Marine Corps on a temporary or a permanentbasis in order to deal with the stresses created by the Iraq and Afghanistan conflicts. By settingendstrength levels -- which are then funded in the DOD appropriation bill -- the authorization billsplay a key role in this issue. Both authorization bills provide that higher endstrengh levels are fundedin the $25 billion for Iraq and Afghanistan.

Although both authorization bills would increase active-duty endstrength by 10,000 in the Army and and 3,000 in the Marine Corps each year for the next three years, the House bill mandates theseincreases (although only through FY2007) and the Senate bill makes them permissive levels. Although the Administration has waived current ceilings, they oppose mandatory ceilings set byCongress, arguing that they need the flexibility to adjust levels.

Table 1. Congressional Action on Administration Request for$25 Billion in FY2005 for Iraq and Afghanistan (in billions of dollars)

Notes:

a Administration request included non-binding illustrative ceilings and $5.0 billionunspecified,amounts shown in brackets.

b As passed by each house. Both appropriation bills would make the funds available uponenactmentthough the Senate bill requires that the Administration must first submit an official budgetrequest.

c Funds in Iraqi Freedom Fund (IFF) can be transferred to any account unless a ceiling is set;Houseappropriations bill includes $2.0B in classified programs in IFF so flexible portion would be$1.0 billion. Senate appropriations bill provides $25.0 billion in the IFF but sets floors for allbut $2.5 billion of the funds; allocations shown in brackets. Within IFF total, appropriationsconference includes $1.8 billion for classified and $100 million for the Coast Guard. In theHouse, Senate and conference appropriations bills, DOD must inform the congressional defensecommittees of transfers from the IFF five days in advance and report transfers quarterly. Senateauthorization puts $2.5 billion in a transfer account to be allocated by DOD.

d The bills include these categories rather than accounts.

e Senate bill provides that "up to" the amounts shown in brackets would be available so DODcouldchoose to spend.

f Transfer authority sets limit on the amount that DOD can move between accounts withinreprogramming rules.

g Funds would be transferred to the Coast Guard.

h Classified funds are transferred to the intelligence community.

* = Less than $100 million.

NS = Not specified

Sources:

As passed by each house, H.R. 4200 and S. 2400 ; H.Rept. 108-491 and S.Rept. 108-260 ; Title IX in H.R. 4613 as passed each house and conference version; H.Rept. 108-284 , S.Rept. 108-553 , and H.Rept. 108-622 .

Appropriation Issues. In the House and Senate versions of the FY2005 appropriation bill ( H.R. 4613 ), the chief issues are

differences in funding priorities;

mechanisms for providing funding flexibility;

extent of reporting requirements; and

funding for Darfur region of Sudan and the new Iraqiembassy.

Funding Priorities. The conference version funding levels reflect a compromise between the levels in the two houses and lower funding for procurement. The conference version provides $1.2 billion for military personnel, between the House and Senateproposals and close to the Senate's amount for O&M. The conference version also provides lessfunding for procurement, primarily for Other procurement, Army, where force protection equipmentsuch as uparmored HUMVees is funded.

The House version provided more funding for military personnel ($3.9 billion) than the Senate ($.5 billion). This reflects primarily funding the current higher special pays for personnel in combatand the House authorization bill requirement that the Army increase military endstrength by 10,000in FY2005. (25) The House appropriators providefunds in specific military personnel accounts tocover costs for the first quarter of the year.

The Senate version provided $4 billion more in funding for operation and maintenance activities (see Table 1 ). Both appropriation bills provide additional funding for body armor fortroops in the Army's O&M accounts (e.g. $334 million in the House and $295 million in the Senate)and over $2 billion for procurement, much of it for force protection items (e.g., over $850 millionfor new vehicles or kits to uparmor HUMVees). (26)

Funding Flexibility. Of the $25 billion total, the conference version provides $3.4 billion or 14% in flexible funding. That $3.4 billion total includes$1.9 billion of unallocated funding in the Iraqi Freedom Fund (the IFF also includes $1.8 billion forclassified programs and $100 million for the Coast Guard) and $1.5 billion in transfer authority.

Both the House and the Senate appropriation bills provided about the same level of flexibility as the authorization bills, between $2 billion and $3 billion. The House version includes $2 billionin the Iraq Freedom Fund (IFF) Committee but specifies that $2.0 billion is for intelligence activities,leaving $1.0 billion for DOD to allocate. To provide additional flexibility, the House appropriatorsinclude $2.0 billion in transfer authority for the $25 billion in war-related funding, subject tostandard reprogramming rules. The Senate appropriators would give DOD $2.5 billion in the IraqiFreedom Fund to be allocated at DOD's discretion, but no additional transfer authority.

To ensure that the Army has sufficient funds available to finance its operations in FY2004 -- a current concern -- the conference version (reflecting both houses) makes the $25 billion availableupon enactment. (27) The conference versiondropped the requirement in the Senate bill that theAdministration submit an official request. Like both houses, the conference bill also designates thefunds as emergency but no longer requires an emergency designation from the executive branch. (28)

There is an ongoing debate about the size of the Army's shortfall in funds to finance its operations in Iraq in FY2004. DOD contends that sufficient funds will be available. (29) , CRSestimated that the shortfall in operations and maintenance (O&M) funding would range from $5.3billion to $7.1 billion but that DOD could tap about $7.0 billion in lower-than-anticipated costselsewhere to finance the shortfall. (30) Based onforecasts by the services, a new GAO report estimatesthat the Army will face an O&M shortfall of $10.2 billion, with the other services reporting shortfallsof about $3.0 billion more. To meet these shortfalls, GAO reports that the Army and the otherservices plan to transfer funds from other accounts with surpluses and defer some activities (likedepot maintenance) to the following fiscal year. (31) To accommodate these shifts in funding, theconference version of the FY2005 DOD appropriation bill ( H.R. 4613 ) increases DOD'sgeneral transfer authority from $2.1 billion to $2.8 billion. (32)

Reporting Requirements. The conference version of H.R. 4613 provides most of the funding in regular appropriations bills and $2.0 billionin the Iraq Freedom Fund, which would be subject to the five-day advance notification and quarterlyreporting that was included in both the House and Senate version of the bill. The conference versiondid not adopt the Senate approach where all funds were appropriated to the IFF with floors byappropriation account. Under that approach, all transfers would have been under the reportingrequirement (see Table 1 ). Extending the availability of funds beyond one year also gives DODadditional flexibility. All funds, except for procurement funds and IFF funds, are available for oneyear in the conference version rather than one year in the House bill and two years in the Senatebill. (33)

The conference bill adopted the extensive report to the Congress as a whole on military operations and reconstruction activities in Iraq that was required in the House bill. Required byApril 30 and October 31, DOD is required to report on amounts expended for Iraq and Afghanistan,progress in preventing attacks on U.S. personnel, effects on readiness, recruitment, retention, andequipment, on reserve forces. The report on treatment of prisoners in Iraq included by the Housewas dropped in conference. (34) The conferenceversion did retain the House provison (reflectingadoption of the Obey amendment on the floor) that the Administration provide estimates of costs formilitary operations and reconstruction for Iraqi and Afghanistan operations, reconstruction, andeconomic support for the period FY2006 to FY2011 unless the President certifies that the estimatescannot be provided because of national security. (35)

The conference version also adopts the limits and reporting on the Commanders EmergencyResponse Fund ($300 million), assistance to the Iraqi and Afghan armies ($250 million), AfghanFreedom Support Fund ($550 million), and quarterly reports on amounts spent on coalition support(no dollar limit) for countries aiding the U.S. in combating terrorism included by both houses. Theconference also provides up to $500 million in funds to "train and equip" only the Iraqi Army andthe Afghan National Army, with a 15-day advance notification, a modification of the House versionthat could be used for any Iraqi or Afghan military or security forces. (36)

Funding for Embassy Operations and Darfur, Sudan. Like the House and Senate appropriation bills, the conference bill also provides $70 million fordisaster assistance and $25 million for refugee assistance for Darfur, Sudan, to be transferred to theState Department, and like the Senate bill, $665 million for embassy operations and $20 million forconstruction. All of these funds are designated as emergency funding, and hence, are not subject tobudget resolution limits. (37)

The conference bill also includes $100 million for wildfire management and $400 million for suppression. (38)

Flexible Funding: Options for Congress

Since 1990, Congress has periodically given DOD discretion to allocate appropriated fundsafter enactment by placing funds in flexible transfer accounts, with the remaining funding providedin regular appropriations accounts. For flexible transfer accounts, Congress has sometimes requiredadvance notification for transfers ranging from 5 days to 15 days. For funding in regular accounts,Congress generally requires that DOD follow standard reprogramming practices under which DODmust receive prior approval for transfers above specified thresholds.

Based on precedents since 1990, and going from least restrictive to most restrictive, Congress could apply the following options to the FY2005 $25 billion budget amendment for Iraq that iscurrently under consideration.

Option 1: Provide Extensive Flexibility as After 9/11. This option parallels the provisions governing the initial $20 billion providedin the Emergency Terrorism Response Supplemental passed on September 18, 2001, in theimmediate aftermath of the terrorist attacks ( P.L. 107-38 ). That measure required only that thePresident consult with the chairmen and ranking minority members of the appropriations committeesbefore transferring funds, that $10 billion of the amount could not be transferred until 15 days afternotifying the appropriations committees, and that the Office of Management and Budget (OMB)report on funding allocations quarterly to the appropriations committees.

Option 2: Split Funding Between a Transfer Account and RegularAppropriations with Brief Notification Period. This approach was followed, withsome variations, in the FY2003 Iraq Emergency Supplemental ( P.L. 108-11 ), and in the mainappropriation of supplemental funding for the first Gulf War ( P.L. 102-28 ). Both measures providedfunding in regular appropriations accounts for those expenses that could be predicted, but providedrelatively large amounts ($10.0 billion to $11.0 billion in the FY2003 supplemental and $8 billionin the FY1991 Desert Storm supplemental) in a flexible transfer account for less predictableexpenses. Both also required 5- or 7-day advance notification to the congressional defensecommittees for transfers from the flexible account and quarterly after-the-fact reporting to the fourdefense committees.

Option 3: Put Most Funds in Regular Accounts with Longer Notification and More Extensive Reporting. This approach parallels some featuresof the Persian Gulf Conflict Supplemental Authorization and Personnel Benefits Act of FY1991( P.L. 102-25 ) and the FY2004 Emergency Supplemental ( P.L. 108-106 ). The FY2004 supplementalprovided just $2 billion of the $65 billion for the Defense Department in a flexible transfer accountwith the remainder in regular appropriations accounts. Both measures on the first Persian Gulf warrequired extensive reports on strategy, force levels, time lines, and monthly reporting on transfersand allied contributions. Recent supplementals have required quarterly reporting to the fourcongressional defense committees.

Option 4: Provide All Funds in Regular Accounts with SomeFlexibility, Longer Notification, and Require Planning Assumptions. Congresscould provide additional general transfer authority and could create special higher reprogrammingthresholds that would allow DOD to make changes to funding after enactment more easily. Fundingcategories could reflect current reporting on the costs of Iraq, Afghanistan and enhanced security fordefense installations (Operation Noble Eagle). This also reflects some features of the FY2004Emergency Supplemental ( P.L. 108-106 ), which provided most funds in regular appropriationsaccounts and provided $3 billion in general transfer authority. Legislative measures for the first Gulfwar and recent legislation on contingencies required that DOD provide its planning assumptions.Reporting could be provided to the Congress as a whole.

Option 5: Provide All Funds in Regular Accounts with SomeFlexibility, Require Longer Notification, Planning Assumptions and ExtensiveReporting. Under this approach, standard peacetime reprogramming restrictionswould apply, and DOD would have to submit extensive, monthly reports on the cost and planningassumptions underlying costs in categories similar to current reporting on contingency and war costs,and provide 15-day advance notice of transfers to Congress as a whole.

Table 2 below summarizes flexible funding, notification, and reporting requirements enacted by Congress for war, war-related, and contingency operations since 1990, and standardreprogramming rules, all of which serve as the basis for the options above.

Table 2. Precedents For Funding War, Occupation and Contingencies, FY1990-FY2004

Funding Flexibility In Regular Appropriations and Transfer Accounts

In providing flexibility for war and war-related spending, current restrictionsapplying to regular peacetime DOD spending may serve as a baseline. For mostfunds that are provided in regular appropriation bills, DOD can move monies afterenactment but only within the bounds of restrictions that are established partly bystatute, partly by language in congressional reports on annual defense funding bills,and partly by understandings with congressional defense committees that arereflected in Department of Defense financial management regulations.

In general, DOD must get prior approval from the congressional defense committees to move funds between accounts, and, for certain purposes and abovecertain threshold amounts, to change funding levels within appropriations accounts. For other changes to funding levels within accounts, DOD issues internalreprogramming reports.

Standard Statutory Restrictions on Moving Funds After Enactment

Congress provides most of DOD's annual funding in regular appropriation accounts, which cover fairly broad categories of expenses. Appropriations accountsinclude "Military Personnel, Army," "Operation and Maintenance, Navy," "AircraftProcurement, Air Force," "Research, Development, Test, and Evaluation,Defense-Wide." The language of annual congressional appropriations acts specifiesthe amount available within each account, typically in the billions of dollars.

After enactment, DOD is permitted to move funds between appropriation accounts or between specific programs within accounts in a process referred to as the "transfer" or "reprogramming" of funds. In most government agencies, the term"transfer" refers to shifts of funds between appropriations accounts, while"reprogramming" refers to shifts of funds within accounts. The Defense Department,however, uses the term "reprogramming" to refer to both kinds of activities.

As a matter of law, transfers between accounts are subject to strict limits. Each year, in annual appropriations acts, Congress provides a specific amount of "generaltransfer authority" which sets limits the amounts that may be transferred betweenaccounts. Section 8005 of the FY2004 Department of Defense Appropriations Act( P.L. 108-87 ), for example, sets an overall limit of $2.1 billion on DOD's generaltransfer authority, requires prompt notification for transfers, requires that any transferbe "necessary in the national interest," and specifies that

"such authority to transfer may not be used unless for higher priority items, based on unforeseen military requirements, thanthose for which originally appropriated and in no case where the item for which fundsare requested has been denied by the Congress." (39)

Standard Reprogramming Restrictions

In addition to limits established by statute, Congress has imposed other restrictions on DOD's authority to change the funding levels that are specified inappropriation acts or in report language. (40) Thoughit is not stated in statutorylanguage, Congress requires that the Defense Department receive prior approval fromthe four congressional defense committees for reprogramming of funds that would(1) move funds between appropriation accounts (i.e., amounts subject to overallgeneral transfer authority limit), (2) start or end programs, or (3) change fundinglevels above certain congressionally established threshold amounts.

Reprogramming Thresholds. In addition to approving all transfers of funds between appropriation accounts, thecongressional defense committees must approve all changes in funding above certainthreshold amounts, which vary by appropriation account. The thresholds are:

increases or decreases in funding for individual procurement programs above $20 million;

increases or decreases in funding for Research, Development,Test & Evaluation (RDT&E) programs above $10 million;

increases in funding to military personnel budget activitiesabove $10 million; or

increases in funding to O&M activities at the budget activitylevel above $15 million. (41)

DOD must also get prior approval for changes in any programs that are designated as "congressional interest items" by any one of the four congressionaldefense committees. (42) Increases to a programCongress has cut or decreases to aprogram Congress has increased require advance congressional approval. Forchanges in funding below the thresholds and for programs that are not congressionalinterest items, DOD issues internal reprogramming reports. (43)

It is important to note that the definition of a "program" or "budget activity" subject to the thresholds varies between accounts. For procurement and RDT&Eprograms, reprogramming limits are fairly restrictive because the thresholds apply toindividual "line items" or "program elements" that are defined very narrowly bothin Department of Defense budget justification material and in congressionalcommittee reports. The thresholds for both military personnel and O&M "budgetactivities," in contrast, apply to broad budget groupings in the billions of dollars thatencompass many activities, giving the services considerable flexibility.

Effect of Thresholds on O&M Activities. In Operation and Maintenance (O&M), for example, the$15 million O&M threshold applies to four budget activities within each service,each of which includes billions of dollars:

Operating Forces;

Mobilization;

Training and Recruiting; and

Administrative and Servicewide. (44)

Within these limits, the services have discretion to move funds between Activity Groups (AGs) and Subactivity Groups (SAGs) such as Air Force flying hours andbase operations support for military installations.

Because of concerns that DOD has sometimes moved funds out of readiness-related activities, such as combat training for Army units, Congress hasrecently required DOD to provide written notification of changes in funding tocertain "sub activity groups" (SAGs) within budget activities for O&M, such asPrimary combat forces, Air Force; or Aircraft depot maintenance, Navy. (45) Priorapproval of changes is not required, however, except at the broader budget activitylevel.

Alternative Thresholds for War-Related Reprogramming

In order to give DOD greater flexibility to adjust appropriations in response to changing circumstances, Congress could choose to establish new reprogrammingrules specifically for war and war-related spending. For example, the criteria forwar-related spending could require that funding must be directly related to combator occupation costs, be limited to incremental costs, and identify and take intoaccount savings in peacetime operations. These criteria are similar to the those thatapply to contingency costs funded in the Overseas Contingency Operations TransferAccount (OCOTF), and that are covered in DOD's financial regulations governingcontingency costing. (46)

Congress could also adopt special thresholds for war and occupation-related expenses that could be applied to DOD's current categories for reporting those costs. DOD currently reports war and contingency costs monthly in categories such aspersonnel, personnel support, operating support, and transportation, which are furtherdivided into type of personnel (active, reserve, civilians), type of support (personnelvs. equipment), and type of transportation (air, sea, other). (47) In addition, Congresscould require that DOD provide its current planning assumptions and then requirethat DOD report changes to its underlying planning assumptions. This would providea mechanism that could aid congressional oversight of ongoing operations.

Important planning assumptions that underlie cost estimates include current and anticipated manpower levels, mix of active-duty and reserve forces, planned rotationsof personnel, and anticipated operating tempo. DOD currently has a model, theContingency Operations Support Tool, that uses such assumptions to estimateoperational costs, but DOD has been unwilling to provide Congress with access tothis model or information about its assumptions. The Congressional Budget Office(CBO) has been provided access to similar models in the past. (48)

Flexible Transfer Accounts

To provide the Defense Department with greater flexibility in carrying out peacetime activities for which costs are likely to fluctuate after funds have beenappropriated, Congress has set up transfer accounts into which funding isappropriated for subsequent transfer to regular appropriations accounts for execution. In annual defense appropriations bills, for example, funds for drug interdiction andfor environmental restoration are normally provided in transfer accounts. TheFY2004 Department of Defense Appropriations Act, for example, provides $396million for the Army's environmental restoration programs that can be transferred toother accounts

Provided, That the Secretary of the Army shall, upon determining that such funds are required for environmentalrestoration, reduction and recycling of hazardous waste, removal of unsafe buildingsand debris of the Department of the Army, or for similar purposes, transfer the fundsmade available by this appropriation.

Some transfer accounts, like the Foreign Currency Fluctuation Account, set up to allow the services to respond to shifts in exchange rates, are noncontroversial. Others, like the Overseas Contingency Operations Transfer Fund (OCOTF),established in the mid-1990s to centralize funding in regular appropriations bills forcontingency operations in Bosnia, Kosovo, and Southwest Asia, and the DefenseEmergency Response Fund (DERF), set up originally to financing overseas disastercleanup activities but used as a vehicle for DOD's emergency funding afterSeptember 11, have proved to be more problematic. (49)

While transfer accounts have the advantage that DOD can respond to unanticipated changes in circumstances, they may have the disadvantage thatCongress may be unaware of, or disapprove of, particular uses of the funds providedin the accounts. For example, controversy recently erupted when investigativereporter Bob Woodward alleged that DOD used funds provided in the first post 9/11Emergency Terrorism Response Supplemental for projects that were intended toprepare for a future war with Iraq, an allegation denied by the Administration. (50)

Earlier in 2001, controversy developed about the Overseas Contingency Operations Fund (OCOTF), a flexible transfer account used to fund contingencies,when GAO found that some of those funds had been used for expenses that were nottruly incremental costs, or not related to contingency operations such as purchasesof cappuccino machines, golf memberships, and decorator furniture. (51)

After the 9/11 attacks, Congress again turned to flexible accounts to give DOD discretion to move funds after enactment to fund combat operations in Afghanistan.In later supplementals, Congress split funding between flexible accounts and regularappropriations, a practice that was also adopted in funding for the first Gulf War.

Precedents for Flexible Funding Since 1990

Since 1990, Congress has provided DOD with substantial amounts of flexiblefunding -- ranging from $2 billion most recently to $14 billion in the first post 9/11supplemental -- using various special accounts, and has used a variety of tools foroversight of those funds, including prior notification of transfers ranging from 5 daysto 15 days and various after-the-fact reporting in varying levels of detail. Typically,Administrations have requested broad discretion, which Congress has rejected evenin the midst of combat operations as was the case during the first Persian Gulf War.

First Persian Gulf War: Flexibility for Combat Operations But with Extensive Reporting

In 1990 and 1991, in the midst of the initial deployment of forces for the first Gulf War and during combat operations, the Administration submitted two requeststhat would allow the Defense Department full freedom to allocate funds contributedby allies for Operation Desert Shield/Desert Storm. Congress rejected bothAdministration requests.

Creation of the Defense Cooperation Account. On September 17, 1990, six weeks after Iraq's invasionof Kuwait and the dispatch of some 50,000 U.S. forces to Saudi Arabia to prevent aninvasion of that country, the first Bush Administration submitted a request forsupplemental appropriations of $2.1 billion to cover FY1990 costs of OperationDesert Shield. (52) At that point, the Administrationrequested the funding in regulardefense appropriation accounts despite the uncertainties in costs.

Relying on the analogy that contributions by allies were like gifts received by the government, however, the Administration also requested that Congress establisha trust fund in the Treasury to be known as the "National Defense Gift Fund," intowhich monetary contributions from allies or others would be deposited.

Under this proposal, the Secretary of Defense, with the approval of the Office of Management and Budget, would have authority to transfer any amounts receivedby the fund to the regular operating accounts of the Department of Defense withoutfurther congressional action. In effect, the Administration requested that theSecretary of Defense be given general authority to allocate all amounts received ineither money or properties from allies without further specific appropriations actionfrom the Congress.

Congress did not agree, however. At the end of September 1990, Congress provided $2.1 billion in supplemental appropriations for Operation Desert Shield andrelated expenses in H.J.Res. 655 ( P.L. 101-403 ), a measure providingcontinuing appropriations for FY1991. It appropriated the funds in regular defenseaccounts. Moreover, Congress explicitly refused to provide general authority to theSecretary of Defense to allocate funds received from allies. Instead, P.L. 101-403 established the "Defense Cooperation Account" in the Treasury to receivecontributions from allied nations or from individuals, but it also provided thattransfers from the account could be made only as provided in subsequentappropriations acts. Only two weeks later in mid-October, 1990, the U.S. wouldhave 200,000 troops deployed in the Persian Gulf. (53)

Creation of the Persian Gulf Working Capital Fund. Later, on February 25, 1991, when the air war was completeand the ground phase had just begun, the Administration submitted its secondsupplemental appropriations request to cover the incremental costs of operations inand around the Persian Gulf, and it again asked for broad authority for the Secretaryof Defense to allocate funds for costs of the war.

As a hedge to provide funds if allied contributions were not available, the Administration requested that Congress establish another new account, to be calledthe "Desert Shield Working Capital Account," with $15 billion in appropriated funds,on which the Secretary of Defense could draw, with the approval of the Office ofManagement and Budget, to cover war costs. Funds were to be transferred from thataccount to regular appropriation accounts, and the initial appropriation was to be"replenished" from previous and future contributions from allies deposited in theDefense Cooperation Account. In early September 1990, the Saudis had agreed tohelp defray the cost of Operation Desert Shield. (54)

In this request, DOD provided extensive justification materials to underpin requested funding levels, including planning assumptions for manpower levels foractive and reserves, operating tempo rates, transportation, and support costs, as wellas projections of contributions from allies. (55) These justification materials -- totaling96 pages -- are far more detailed and extensive than those provided for any of thesupplementals after 9/11.

Enacted April 6, 1991, the Persian Gulf Conflict Supplemental Authorization and Personnel Benefits Act of 1991 set up a Persian Gulf Conflict Working CapitalFund with $15 billion to act as a "bridge loan" until allied contributions becameavailable. Senate report language called on DOD to provide Congress withseven-day advance notifications of transfers, to certify that amounts were incrementalcosts, to list amounts and accounts for transfers, and to describe transfers at theprogram, project and activity level. (56) The Housereport required that reporting oftransfers follow regular reprogramming procedures including congressionalapproval. (57) A conference report was not issued.

DOD was also required to provide extensive monthly reports on bothincremental war costs and allied contributions using a set of cost categories that weredefined in statute, and that have since become the basis for current reporting ofcontingency and war and war-related costs. The legislation required that DODdistinguish between recurring and non-recurring costs, and report costs in functionalcategories including personnel, personnel support, transportation, and operatingtempo. (58)

Appropriators Require That Funds Be Allocated to Regular Accounts. Signed into law on April 10, 1991, about sixweeks after the conclusion of the war, the FY1991 Operation Desert Shield/DesertStorm Appropriations Act ( P.L. 102-28 ) rejected the Administration's request forbroad funding flexibility, and set up Persian Gulf Regional Defense Fund with $15billion in appropriated funds. At the same time, however, Congress required thatthose funds could be used only if allied contributions -- to be transferred from theDefense Cooperation Account -- were not adequate, and only in amounts specifiedby appropriation account in the act. (59) The actallocated a total of $34.6 billion byaccount. In effect, Congress insisted on appropriating funds in the regular mannerfor specific, established defense operating accounts for most of the funds, thoughthere was one exception.

Special Flexibility For Combat Operations. To give DOD some flexibility, Congress provided $6.0billion for operation and maintenance and $1.9 billion for procurement "to financethe estimated partial costs of combat and other related costs of Operation DesertShield/Desert Storm," with a requirement that the Secretary of Defense could nottransfer these funds until seven days after informing the congressional defensecommittees. (60) Although Congress appropriatedthese funds by title (O&M andProcurement) rather than at the appropriation account level, the amount was basedon DOD information about potential combat operations plans.

At the time Congress acted on the FY1991 supplemental, DOD had estimated "baseline" costs for the deployment of forces to the Gulf, but had not fully identifiedcombat costs. In its request, DOD presented a range of estimates for combatincluding a daily rate that would vary depending on the scenario. (61) In their respectivereports, the House and Senate used these estimates to recommend the amount to beincluded in the combat cost fund. (62)

As it turned out, combat and some other funding requirements subsequently changed and Congress responded in the 1992 supplemental appropriations bill ( P.L.102-229 ) by giving DOD discretion to move about 20% of the funds appropriated inthe previous supplemental into different accounts, including about $2.9 billion fromthe Persian Gulf Regional Defense Fund and $6.6 billion in previously transferredfunds from the FY1991 Desert Storm Supplemental Appropriations Act.

Providing Flexibility for Unanticipated Contingencies in the 1990s

At the end of FY1994, the United States unexpectedly deployed forces simultaneously to Haiti and Southwest Asia, financed by funds that had been slatedfor peacetime training and equipment maintenance. To meet immediate needs, theAdministration obligated $126 million under the Feed and Forage Act (41 U.S.C.11), an emergency authority which allows the Defense Department to obligate fundsin excess of available appropriations for certain operational purposes, and ultimatelydrew several hundred million in funds from the services' peacetime operatingaccounts. (63) As a result, several operational unitsreported reduced levels of readinessat the end of the fiscal year.

"Readiness Preservation Authority" Proposal Is Rejected. In reaction to this experience, the Clinton Administrationrequested, in a FY1995 supplemental submitted along with its FY1996 budget, thatthe Secretary of Defense be given authority to obligate substantial funds for certainreadiness-related military activities in advance of congressional appropriations,which the Administration called a "Readiness Preservation Authority." (64) Under thisproposal, if the Secretary of Defense, determines it is in the "national interest," hecould, with the approval of OMB, incur obligations 50% "in excess of" the totalamount appropriated for Operating Forces in Operation and Maintenance accounts(O&M) to fund certain "essential readiness functions and activities of the ArmedForces" in the second half of the fiscal year. These additional obligations were tobe offset by rescissions "unless the President determines that emergency conditionsexist." (65)

So if the Readiness Preservation Authority were in effect now, the Defense Department would have authority to obligate half of the $75 billion provided foroperating accounts, or $37.5 billion, in the second half of FY2005, forreadiness-related military activities without specific congressional approval. Thefunding could cover the cost of operational training of all kinds, weapons repair andmaintenance, and operation of facilities that support operational forces, whichtogether make up about half of DOD's O&M funding. (66) Unless the Presidentdetermined that there was an emergency, however, the Administration would haveto propose offsetting rescissions to other programs.

In 1995, Secretary of Defense William Perry and Undersecretary of Defense (Comptroller) John Hamre testified in support of the Readiness PreservationAuthority in congressional hearings. But neither the Armed Services Committees northe Appropriations Committees took any action on the proposal. (67)

Congress Adopts the Overseas Contingency Operations Transfer Fund. Although Congress was unsympatheticto DOD's request for broad authority to increase O&M spending above the levelsappropriated, concerns re-surfaced the following year. As an interim measure,Congress agreed to DOD's request to raise its general transfer authority from $2.4billion to $3.1 billion to "cover costs associated with United States militaryoperations in support of the NATO-led Peace Implementation Force (FOR) in andaround former Yugoslavia." (68)

The following year, Congress provided a more permanent solution by setting up the Overseas Contingency Operations Transfer Fund (OCOTF), to be drawn upon byDOD to fund contingency operations. Between FY1997 and FY2001, Congressappropriated from $1 billion to $5 billion annually to the OCOTF to cover the costsof operations Bosnia and Southwest Asia (including Northern Watch and SouthernWatch in Iraq).

For OCOTF funding provided in regular appropriations, the Secretary of Defense could transfer funds to operations at his discretion; for funds provided insupplementals, both Congress and the Administration also had to designate the fundsas an emergency. (69) Congress also initially limitedtransfers to military personnel andoperations and maintenance accounts, which fund operation al expenses.

In FY2000, Congress added the requirement that OCOTF funds be spent strictly on contingency operations, and required that DOD submit specific justificationmaterials for all contingency operations, including extensive reporting on manpowerlevels for active and reserve forces, costs by type of expense, and weapon systemsdeployed. (70) DOD incorporated these reportingcategories in its ContingencyOperations Support Tool (COST) model, and established reporting mechanisms tocapture the costs of individual contingencies. Both these categories and the reportingmechanisms are currently used in reporting on the cost of Iraq, Afghanistan, andother contingencies.

Over several years, Congress gradually became disenchanted with the OCOTF, in part because GAO reports found consistent overestimates in costs. The final blowcame in 2001, when GAO found that some of those funds had been used forexpenses that were regular expenses rather than incremental costs, or were not relatedto contingency operations, such as purchases of cappuccino machines, golfmemberships, and decorator furniture. (71) Inreaction, Congress cut funding for theOCOTF in FY2002 to from $3.9 billion to $5 million, and transferred funding forBalkan operations and Southwest Asia to regular appropriation accounts. (72)

Flexible Funding After September 11, 2001

After the terrorist attacks of September 11, 2001, Congress provided the Administration with broad authority to provide funds for disaster assistance, localpreparedness, countering terrorism, improving airport security, repairing damage andsupporting national security. In the next three emergency supplementals thatprovided funds for the occupation of Iraq and Afghanistan and enhanced security fordefense installations (known as Operation Noble Eagle), Congress continued to useflexible transfer accounts but gradually reduced the amount of flexible funding andincreased restrictions.

FY2001 Emergency Terrorism Response Supplemental Gives President Broad Discretion. On September 12,2001, the Administration formally requested that Congress immediately appropriate$20 billion to respond to the previous day's terrorist attacks. As requested, thePresident would have had complete discretion to allocate the funds to federalagencies to provide assistance to victims, fund the cost of preparedness, supportefforts to counter terrorism, increase transit security, repair facilities, and "supportnational security." (73) This request is similar to thediscretion requested in the currentFY2005 budget amendment.

Congress took swift action on the Administration's request by providing $40 billion in emergency supplemental appropriations on September 14th, two days afterthe Administration's request and four days after the attacks. The President signed theact into law ( P.L. 107-38 ) on September 18, 2001, six days after the attacks.

In this first emergency supplemental, Congress gave the Administration unprecedented discretion to allocate $20 billion in funds to any federal agency inresponse to the terrorist attacks. At the same time, however, Congress provideddouble the amount of funding requested and required that the allocation of the second$20 billion be included in a subsequent appropriations act, thus re-assertingcongressional prerogatives.

The first $20 billion in funding was initially placed in a government-wide Emergency Response Fund, to be transferred later to individual agencies. Alltransfers from that fund were subject to four general requirements:

that "the President shall consult with the chairmen and ranking minority members of the Committees on Appropriations prior to the transfer of thesefunds";

that the funds may be transferred only for specified purposes,including "supporting national security,"

that not less than half of the $40 billion shall be for "disasterrecovery activities and assistance related to the terrorist acts in New York, Virginia,and Pennsylvania on September 11, 2001"; and

that the Office of Management and Budget provide quarterlyreports to the Appropriations Committees on use of thefunds. (74)

Under P.L. 107-38 , the President had discretion to transfer $10 billion of that total immediately to any federal agency, and to transfer a second $10 billion to anyfederal agency 15 days after OMB submitted a proposed allocation of the funds anda plan for use of the funds by each agency to the appropriations committees. Theremaining $20 billion, however, was available only after the President submitted anadditional supplemental appropriations request for the funds, and Congress passed,and the President signed, a subsequent appropriations bill.

At the time, there was considerable debate about whether the 50% floor for recovery and assistance activities was met. More recently, some members haveraised questions about whether the requirement for consultation was met. (75)

Of the $20 billion to be allocated at the President's discretion, DOD received $14.0 billion with most of the funds dedicated to upgrading intelligence systems andprosecuting the war in Afghanistan. These funds were deposited into the DefenseEmergency Response Fund (DERF), a fund originally set up for unanticipated DODassistance provided during disasters. (76)

Some Appropriation Controls Apply To Second $20 Billion. In the supplemental attached to the regular FY2002defense appropriations bill, P.L. 107-117 , Congress appropriated the remaining $20billion to various federal agencies. Of that total, DOD received $3.5 billion that wasappropriated to the Defense Emergency Response Fund (DERF) in amounts specifiedusing a unique set of 10 major functional categories developed by DOD in theaftermath of the attack rather than regular appropriation accounts. These categoriesincluded, for example, "increased worldwide posture," which funded combatoperations in Afghanistan, and "Increased Situational Awareness" for intelligenceand reconnaissance activities. (77)

Within these functional categories, Congress set specific program amounts in the conference report and designated those funding allocations as congressionalinterest items, "for purposes of complying with established procedures regardingtransfers and proposed reprogramming of funds." (78) In other words, DOD would needto get prior approval for any transfers of funds that differed from amounts specifiedin the report. But because DOD chose to spend funds directly out of the DERFaccount, this provision did not have any effect. (79)

After-the-Fact Reporting Requirements. P.L. 107-38 required that OMB provide quarterlyreports to the appropriations committees on the use of the $40 billion in fundsoriginally appropriated. For DOD, OMB's quarterly reports only included the totalfunds obligated under each of the ten categories with no details on specific purposes,projects, activities, or appropriation accounts. (80)

In order to improve visibility over all spending under P.L. 107-38 , Congress also required in the conference report that within 45 days of enactment and quarterlythereafter, DOD provide the appropriations committees with a

"revised, comprehensive and detailed report, using the guidelines in the House report, regarding the overall allocation ofall appropriations for defense and intelligence activities (including obligations up tothat point, and forecasted expenditures) made available from Public Law107-38." (81)

For the $3.5 billion appropriated to the DERF from the second $20 billion, Congress required in statutory language that DOD provide Congress with a report"specifying the projects and accounts to which funds provided in this chapter are tobe transferred," suggesting that Congress assumed that the DERF would operate asa transfer account.

The House report also stated that all funding provided under P.L. 107-38 was to be "subject to traditional reprogramming procedures," with DOD required tosubmit an allocation plan for previous funding, and later a Base for Reprogramming"to be used as the baseline for any later transfers. (82) Based on that assumption, theHouse report also required that DOD provide quarterly reports with an allocationplan for both the $14.0 billion provided to DOD from the first $20 billion and the$3.5 billion provided in the FY2002 DOD Appropriation Act, including detailstypical for reprogramming reports, such as:

funds available;

funds transferred by appropriationaccount;

amounts obligated and expended;

amounts for O&M and military personnel using categories forongoing contingency operation since Bosnia and Kosovo.

In addition, DOD was to "identify savings dues to cancellation or downsizing or normal peacetime education, training, professional development, or other activitiesdue to individual and unit activations or deployments in the war on terrorism." (83) Again, although DOD provided periodic reporting, DOD did not submit any priorapproval reprogramming requests because no funds were transferred between DODaccounts.

Congressional Dissatisfaction with DOD Reporting. Although DOD did give periodic briefings to theappropriations committees, using the ten broad functional categories adoptedimmediately after the terrorist attacks, considerable dissatisfaction was voiced aboutthe quality of DOD's reporting. In the House report issued in November 2001, twomonths after the terrorist attacks, DOD reporting was characterized as "at best,intermittent and scattershot," and both the House report and the conference reportcalled on DOD to return to reliance on traditional appropriation accounts in futurerequests and provide "similarly configured, detailed supporting materials," in orderto ensure proper program review, fiscal discipline and controls, and oversight by boththe executive and legislative branches." (84)

Although DOD's decision to spend funds directly from the DERF and use ten new functional categories was an untraditional approach, it may have also givenDOD more visibility on war and war-related funds than is the case when DOD usestraditional appropriation accounts. In that traditional approach, the servicessometimes have difficulty in segregating peacetime from wartime costs, making it allthe more difficult to see trends in either peacetime or wartime costs over time.

Assessing DOD spending for war and occupation-related spending has also become problematic, not only because of inconsistent reporting categories, but alsobecause DOD has not provided information on the its planning factors for thisspending -- for example, operating tempo measures such as tank miles or flyinghours, how frequently forces will be rotated, or active and reserve manpower levelsfor forces in-country and those providing support to Iraq, Afghanistan, and enhancedsecurity for defense installations. (85)

FY2002 Emergency Supplemental: Considerable Flexibility But In A Transfer Account. In the FY2002 EmergencySupplemental, DOD requested that Congress provide $11.3 billion of the $13.4billion total for DOD in the Defense Emergency Response Fund (DERF) because ofthe "dynamic nature of these [Afghanistan] operations," and because "the global waron terrorism will be variable and dynamic and, as the President has said, will morethan likely go on for years." (86) By the timeCongress considered the supplemental inthe spring and summer of 2002, the Taliban regime in Afghanistan had fallen severalmonths earlier, but combat operations were underway to eliminate small groups ofAl Qaeda and Taliban fighters ( P.L. 107-206 ). (87)

Congress agreed, nonetheless, to provide $11.3 billion in the DERF but required that the DERF operate as a transfer account so that funds would be transferred toregular appropriation accounts and under the control of the services rather than beingspent directly from the DERF. Congress also required that DOD report quarterly ontransfers from the DERF. Congress was also to be notified in advance -- nospecified number of days -- if DOD planned to spend the funds in ways that differedfrom allocations in conference report language. (88)

Like the proposed FY2005 budget amendment, as enacted, the FY2002 Emergency Supplemental included "contingent emergency funding." For funding tobe exempt from caps on discretionary spending that applied in FY2002, both theAdministration and Congress have to designate that funding as emergency. TheAdministration designated all funding in its request as emergency funding.

In its action on the Administration's $28 billion request, however, Congress re-allocated $5.1 billion to other programs so that those funds no longer had anexecutive branch emergency designation. For that reason, Congress designated thefunds as "contingent emergency funding," that would only be available to agenciesif the Administration also designated the funds as emergency. The president chosenot to do so, so those funds never became available to agencies.

FY2003 Emergency Supplemental Provides Some Flexibility to Fund Iraq War. In its FY2003 EmergencySupplemental request, submitted shortly after the war in Iraq began, DOD asked thatCongress provide $59.9 billion in the DERF and $2.9 billion in regular appropriationaccounts to fund combat and post war operations in Iraq as well as ongoingoperations in Afghanistan and enhanced security for defense installations.

Submitted on March 25, 2003, two days after the war with Iraq began, DOD's request was to cover the costs of four to five months of pre-deployment buildup thathad already occurred, combat operations that had just begun, transitional costs duringthe post war period, and reconstitution of forces after the war. In its justificationmaterials, DOD argued that "because we cannot know exactly what militaryoperations might look like, it is impossible to know exactly the pace, scope, andaccounts related to expenditures," and "for this reason, we are requesting that themajority of the funding [should] be appropriated in a [flexible DERF] transferaccount." (89)

Preferring to accelerate allocation of funds to the services, the appropriators moved $44.0 billion of the requested funds to individual accounts, but kept $15.7billion in a newly-established flexible transfer fund, the Iraqi Freedom Fund (IFF) inorder to give DOD "flexibility to manage the war effort" and the "many unknownsin the conduct of combat operations." (90)

To provide additional flexibility, Congress also provided $2 billion in general transfer authority for funds in the FY2003 Emergency Supplemental. (91) At the sametime, Congress required that DOD follow standard reprogramming procedures,including prior approval procedures when appropriate. (92) As in the previoussupplemental, DOD was required to provide five-day advance notification oftransfers from the IFF.

Within the IFF, Congress set statutory ceilings and floors on various types of expenses, (e.g. fuel and classified programs). (93) Once the amounts governed by theceilings were taken into account, the Secretary of Defense had flexibility to transfera total of between $10 billion and $11 billion to respond to the uncertainty of majorcombat operations. (94) The FY2005 BudgetAmendment requests a larger amount offlexible funds for DOD.

Reporting Requirements. As in previous supplementals, DOD was required to report transfers of funds quarterly. The appropriators also stated that they expected DOD to be able to produce "better,more refined projections of expected costs," later in the year and to provide thecommittees with a "comprehensive financial analysis and update for FY2003,"including both actual and projected obligations for both peacetime and war-relatedspending. (95) Although these reportingrequirements were more extensive than in theprevious two supplementals, the reports were not required to include planningassumptions or cost drivers as Congress required in monthly reports after the firstGulf War.

In addition, the appropriators added several new restrictions to ensure that funds in the supplemental were not used to fund programs previously denied by Congressor for items that would not be available within four years. (96) In report language, theappropriators required advance approval of funding for any investment items thatwould be fielded more than 18 months from enactment. (97)

FY2003 Regular Budget Requests $10 Billion for Contingencies. Earlier in 2002, in its regular FY2003 budget, DODrequested discretion to transfer $20.1 billion from the Defense Emergency ResponseFund either for force protection, communication, or other projects, including up to$10 billion to be "used to fund continued operations for the war on terrorism." (98) Congress initially refused to provide the $10 billion for unspecified war costs.

The Administration later provided an allocation of the $10.0 billion by appropriations title (for example, "Military Personnel" for all services). Although theArmed Services committees authorized the funds, Congress initially refused toappropriate funds. Later in the year in response to DOD concerns that there could bea shortfall of funding for Afghanistan and intelligence activities, Congress includedthese funds in the FY2003 Consolidated enacted on February 20, 2003, ( P.L. 108-7 )but provided the funds in regular appropriation accounts. (99)

FY2004 Emergency Supplemental Limits Amount of Flexible Funding. Reversing course in the FY2004 EmergencySupplemental, DOD requested all but $2.0 billion of the $65.6 billion for DOD inregular appropriation accounts to fund ongoing operations in Iraq and Afghanistanand enhanced security. The only exception was $2.0 billion requested in the IraqFreedom Fund to cover the cost of foreign forces or to pay for U.S. troops if foreignforces did not become available. Congress accepted this rationale ( P.L. 108-337 ).

Submitted in September 2003, the FY2004 Emergency Supplemental was intended to "sustain the level of support necessary to continue our operations in Iraqand Afghanistan ... "and "other areas around the world," and to pay for a forcestructure that was expected to decline from five to two-plus active U.S. Armydivisions in Iraq. (100) DOD's reduced requestfor flexible funds was predicated on thegreater predictability of costs after the end of the war.

With the recent upsurge in violence, and the decision to keep an additional 20,000 troops in Iraq for the indefinite future, the Army has expressed concern thatit will not have sufficient funds to last the year. Others observers, including DODofficials, believe that funds can be transferred from other activities where expenseshave been lower than anticipated. Although the Army's costs are likely to be higherthan anticipated, their needs may be able to be accommodated by transferring fundsfrom other services and other areas within the Army. Rather than relying on aflexible account, DOD may be able to use the additional transfer authority that it wasprovided in the FY2004 Emergency Supplemental. (101) Expanding general transferauthority, but requiring that reprogramming practices are followed, may be analternative approach to giving DOD flexibility while maintaining traditionaloversight mechanisms.

As in the previous two supplementals, DOD was required to provide five-day advance notification of transfers from the IFF (or the DERF in FY2002), and toreport quarterly to the congressional defense committees on all transfers. In addition,the FY2004 supplemental also formally closed the Defense Emergency ResponseFund. (102)

Appendix A: Extent of Flexible Funding Since 9/11 Attacks

In the two and a half years since the September 11, 2001 terrorist attacks, theDepartment of Defense (DOD) has received $165 billion in supplemental funding forthe war and occupation of Iraq and Afghanistan and enhanced security for defenseinstallations (referred to by DOD as Operation Noble Eagle). The Administrationrequested much of this funding for the "global war on terror" in flexible accounts,emphasizing the difficulties of predicting the cost of combat operations andoccupation costs.

Amount of Flexible Funding in Post 9/11 Supplementals. Although Congress has provided most of the DODfunding requested by the Administration for the "global war on terrorism," Congresshas not provided most of that funding in flexible accounts despite Administrationrequests (see Table A1 ). Of the $173 billion that the Administration has requestedfor operations in Iraq and Afghanistan and for enhanced security for defenseinstallations since the 9/11 attacks, the Administration requested $104 billion inflexible funds and the remaining $69 billion in regular appropriation accounts. Inresponse, Congress appropriated $44 billion in flexible accounts and $127 billion inregular accounts.

Table A1. Extent of DOD Flexibility in Supplementals Since 9/11 Attacks: Funding Amounts (inbillions of dollars)

Notes and Sources: Includes effects of later rescissions. CRS calculations based onrequests and enacted levels.

Share of Flexible Funding in Post 9/11 Supplementals. In previous supplementals, the Administration requested that between 80% and 100% of DOD's funding be provided in a flexiblefund (see Table A2 below). While Congress has generally provided the amount offunds requested, with the exception of the P.L. 107-38 , the supplemental passed inthe aftermath of the attacks, and the FY2002 Emergency Supplemental ( P.L.107-206 ), Congress, has not been willing to provide the degree of flexibilityrequested.

Since then, Congress has pared back DOD's requests, providing about 20% in a flexible account in the FY2003 Supplemental ( P.L. 108-11 ) and 3% in the FY2004Supplemental ( P.L. 108-106 ).

Table A2. Extent of DOD Flexibility inSupplementals Since 9/11 Attacks: Share of Total Funding (aspercent of total)

Notes and Sources: Includes effects of later rescissions. CRS calculations based onrequests and enacted levels.

Appendix B: Legislation

P.L. 101-403 , October 1, 1990 ( H.J.Res. 655 )

Making continuing appropriations for the FY1991, supplemental appropriationsfor "Operation Desert Shield" for the FY1990, and for other purposes.

P.L. 102-25 , April 6, 1991 ( S. 725 )

Persian Gulf Conflict Supplemental Authorization and Personnel Benefits Actof 1991.

P.L. 102-28 , April 10, 1991 ( H.R. 1282 )

Making supplemental appropriations and transfers for "Operation DesertShield/Desert Storm" for the fiscal year ending September 30, 1991, and for otherpurposes.

P.L. 104-134 , April 26, 1996 ( H.R. 3019 )

Omnibus Consolidated Rescissions and Appropriations Act of 1996.

P.L. 107-38 , September 18, 2001 ( H.R. 2888 )

2001 Emergency Supplemental Appropriations Act for Recovery from andResponse to Terrorist Attacks on the United States.

P.L. 107-117 , January 10, 2002 ( H.R. 3338 )

Department of Defense and Emergency Supplemental Appropriations forRecovery from and Response to Terrorist Attacks on the United States Act, 2002.

P.L. 107-206 , August 2, 2002 ( H.R. 4775 )

2002 Supplemental Appropriations Act for Further Recovery From andResponse to Terrorist Attacks on the United States.

P.L. 107-248 , October 23, 2002 ( H.R. 5010 )

Department of Defense Appropriations Act, 2003.

P.L. 108-7 , February 20, 2003 ( H.J.Res. 2 )

Consolidated Appropriations Resolution, 2003.

P.L. 108-11 , April 16, 2003 ( H.R. 1559 )

Emergency Wartime Supplemental Appropriations Act, 2003.

P.L. 108-87 , September 30, 2003 ( H.R. 2658 )

Department of Defense Appropriations Act, 2004.

P.L. 108-106 , November 6, 2003 ( H.R. 3289 )

Emergency Supplemental Appropriations Act for Defense and for theReconstruction of Iraq and Afghanistan, 2004.