Supplemental Appropriations FY2003: Iraq Conflict, Afghanistan, Global War on Terrorism, and Homeland Security
Released: 2003-05-05T00:00:00

Most Recent Developments

On April 12, the House and Senate approved the conference version of the FY2003Supplemental ( H.R. 1559 / H.Rept. 108-76 ) providing $78.49 billion to cover the costsof military operations in Iraq, relief and reconstruction of Iraq, ongoing U.S. costs in Afghanistan,additional aid to coalition partners and nations cooperating in the global war on terrorism, andhomeland security. This total is $3.74 billion more than the request and roughly $500 million morethan the $77.93 billion passed by the House and the $77.95 billion passed by the Senate. Theconference version includes a $3.1 billion airline industry relief package that was not requested bythe President. (1) President Bush signed the legislationon April 18 ( P.L. 108-11 ).

Reflecting Congressional priorities, the conference version of the bill includes additional funding for homeland security programs, such as customs and border protection and baggage andpassenger screening. H.R. 1559 further includes $700 million for protecting high-threaturban areas, up substantially from $50 million requested by the Administration. The EmergencySupplemental also provides $2.23 billion for first responders, about 10% higher than requested.

On international assistance issues, the conference version generally provides amounts proposed, but adds $369 million for food aid for Iraq and elsewhere, and drops $150 million for aPresidential crisis fund. The $2.475 billion Iraq Relief and Reconstruction Fund will follow theauthorities of regular foreign aid programs that are usually managed by the Department of State andthe U.S. Agency for International Development (USAID). Nevertheless, Congress agreed to thePresident's request for broad discretion in the allocation of Iraq reconstruction money that allowsdirect apportionment to several Federal agencies, including DOD.

For defense spending, H.R. 1559 , as enacted, funds the $62.6 billion requested by the Administration but appropriates all but $15.7 billion in regular appropriations accounts ratherthan providing $59.9 billion, as requested, in the Defense Emergency Response Fund to be spent atDOD's discretion. Instead, Congress appropriated $15.7 billion in a new Iraq Freedom Fund, whereDOD will have spending flexibility as long as it stays within several ceilings and floors and provides5-day advance notifications of transfers. Congress also increased combat pay and separationallowances for U.S. forces, costing an estimated $650 million.

Supplemental Overview

Within days of the initiation of U.S. military operations in Iraq, President Bush sent Congressa $74.75 billion supplemental package largely divided into three parts -- defense, Iraqreconstruction and foreign aid, and homeland security, as shown in Table 1.

Table 1. Emergency Iraq War Supplemental Summary ($s billions)

Sources: House and Senate Appropriations Committees and Congressional Budget Office.

a The aviation industry relief initiative, as structured in S. 762 , as passed the Senate, provided a combination of direct appropriations for grants to the airlines and changes in feesand unemployment benefits for airline workers that do not require direct appropriations. Theenacted version of H.R. 1559 follows the Senate framework of directappropriations and other items, although at different levels. Amounts shown in brackets for theSenate and enacted levels represent CBO estimates of the costs of fee changes andunemployment benefits.

b Includes only direct appropriations and excludes the non-appropriated costs of the airlineindustrypackage shown in brackets.

Congressional Action on Administration Request. As passed on April 3 in both bodies, the bills were at (Senate) or just below (House) the request fordefense. Both bills increased appropriations for Iraq reconstruction and other foreign aid -- theHouse slightly, to $7.98 billion, and the Senate more significantly, to $8.45 billion, mainly due toa $600 million amendment for additional food aid for Iraq. For homeland security, the Housemeasure was slightly below the President's request, mainly because of the denial of funding for theWhite House's proposed emergency fund, while the Senate increased homeland security by about$770 million to $5.14 billion. H.R. 1559 provided $3.2 billion for airline industry reliefwhile S. 762 included an estimated $3.5 billion. (2)

As requested, the conference version of the bill provides $62.58 billion for defense but, as recommended by appropriators in both houses, the enacted legislation reduces the flexibility in usingthose funds that was requested by the Administration. As passed, H.R. 1559 appropriates most of the funds to regular appropriations accounts. However, it also sets up a new$15.7 billion Iraq Freedom Fund to give DOD additional flexibility. Within the new fundestablished for Iraqi Relief and Reconstruction, the conference bill appropriates funds to thePresident, giving him the flexibility to allocate those funds to various agencies, including theDepartment of Defense. In response to Administration concerns, the conference version eliminatedrestrictions that would have prevented DOD from administering any of these funds. The enactedappropriation, however, provides that the funds are to be designated as bilateral economic assistanceand spent consistent with the Foreign Assistance Act of 1961. (3)

For homeland security, the conference version provides $5.12 billion, $749 million more than requested. For airline relief, the final bill provides for a $3.1 billion package, including directappropriations, authority to extend by 26 weeks unemployment compensation for displaced workers,and a temporary suspension of certain passenger and air carrier security fees from June 1 toSeptember 30, 2003. (4)

While details of each of these components are discussed below, one overriding theme that was apparent throughout the supplemental package was the President's desire for the maximum degreeof flexibility in managing and allocating these resources. Under the proposal, most of the fundswould be have been placed in emergency response funds which the President, the Secretaries ofDefense, Justice, and Homeland Security could draw upon. Purposes for which the resources wouldbe used were justified in general terms, but extensive discretion would have been allotted toexecutive officials. Among the proposed emergency funds were:

Defense Emergency Response Fund -- $59.9 billion

Iraq Relief and Reconstruction Fund -- $2.4 billion

Department of Homeland Security Counterterrorism Fund -- $1.5billion

Department of Justice Counterterrorism Fund -- $500million

Executive Office of the President Emergency Response Fund -- $250million

Legislative Branch Emergency Response Fund -- $125million.

Administration officials argued that such flexibility was needed due to constantly changing circumstances in and around Iraq and uncertainty over the duration and magnitude of the militarycampaign, the demands posed for near-term humanitarian relief, and longer-term reconstruction ofthe country, and the ongoing "global war on terrorism."

In the enacted legislation, reflecting both House and Senate action, funds are generally directed for more specific purposes than proposed by the White House. The Iraqi Relief and ReconstructionFund is the exception where Congress gives the President flexibility to allocate funds to five federalagencies, including the Department of Defense. Previous versions of the supplementalappropriation, as passed by the House and the Senate, would have limited the President's ability toapportion the funds directly to DOD, and required that Fund be managed by the State Departmentand the U.S. Agency for International Development (USAID).

For defense, the conference version allocates much of the $59.9 billion requested by the Department of Defense in the Defense Emergency Response Fund to regular appropriationsaccounts, reserving $15.7 billion in a new Iraq Freedom Response Fund to be allocated by thePresident subject to various ceilings and floors set in the bill.

H.R. 1559 substitutes the President's request for two Department of Homeland Security Funds totaling $3.5 billion with specific allocations for port security, state and localgovernment law enforcement, and National Guard reimbursements, checked baggage explosivedetection systems at airports, among others. The conference report also allocates most of these fundsto specific accounts.

The enacted supplemental also distributes nearly all of the $500 million proposed Justice Department Counterterrorism Fund among several activities, allocating a portion for FEMA disasterrelief. H.R. 1559 further requires advance notification of how the money will be spentand directs the Administration to reimburse foreign aid accounts that have previously been drawnupon to fund pre-conflict needs in Iraq.

Amendments During Floor Debate. During floor debate, lawmakers considered amendments affecting each of the three main areas of the President'ssupplemental request. Defense-related proposals that were adopted included:

Stevens amendment to increase combat pay ($650 million estimated cost) -- adopted by voice vote and included in the conference agreement.

Allard amendment to create a panel to examine claims of sexual misconductat the Air Force Academy -- adopted by voice vote and included, with modifications, in the enactedlegislation.

Within Stevens amendment (SA 522), a section that would prohibit contractsfor military airlift services to any carrier that is "not effectively controlled by citizens of the UnitedStates." (5) The amendment, with modifications,remained in the enactedlegislation.

The Senate also rejected an amendment by Senator Landrieu that would have added

$1.05 billion for National Guard and Reserves procurement (tabled 52-47).

House and Senate amendments regarding Iraq reconstruction and international assistance focused generally on efforts to add humanitarian resources for Iraq, cut aid to Turkey and Colombia,and restrict eligibility of reconstruction contractors. The Senate approved an amendment by SenatorKohl adding $600 million for PL480 title II food assistance programs, including a requirement that$155 million be used to reimburse food accounts from which resources had been previously takenfor Iraq. H.R. 1559 provides $250 million for these same purposes. The enacted billprovides $369 million for food assistance. The House defeated three amendments cuttinginternational assistance:

Cunningham amendment to delete $1 billion in aid to Turkey. (defeated 110-315).

DeFazio amendment to cut aid to Turkey by $207 million, transferring thefunds to establish National Guard Weapons of Mass Destruction Civil Support Teams (defeated113-312).

McGovern amendment eliminating $61 million in counter narcotics funds forColombia and increasing appropriations for the Office of Domestic Preparedness (defeated209-216).

On aid contracting and related issues, the House approved (voice vote) a proposal by Congressman Kennedy (MN) that prohibits the use of funds for Iraq reconstruction to purchase goods or servicesproduced by France, Germany, Russia, or Syria, although U.S. subsidiaries of companies organizedin those countries would be eligible. Two Senate amendments related to this issue were withdrawn:

Ensign amendment to prohibit reconstruction funds in a way that would benefit businesses and citizens of France and Germany unless physically located in theU.S.

Landrieu/Mikulski amendment to require that American flag commercial shipsbe used to transport U.S. assistance.

H.R. 1559 , as enacted, however, deleted the House-passed Kennedy amendment.

Most amendments considered in both houses focused on increased spending for homeland security purposes. The Senate adopted a modified proposal by Senator Bayh adding $105 millionfor grants to States for smallpox and other bioterrorism inoculation programs. Originally, theamendment would have provided $340 million. The conference version of H.R. 1559 includes $100 million for such inoculation programs. The Senate further agreed to an amendmentby Senator Specter (65-32) adding $200 million to the Office for Domestic Preparedness (ODP) andrearranging ODP funds so that resources for high-threat urban areas would grow from $100 million,as reported in S. 762 , to $600 million. H.R. 1559 , as approved, raises thistotal to $700 million. The Senate also adopted an omnibus amendment by Senator Stevens thatincluded provisions increasing homeland security by about $150 million, mainly for DOE nuclearsecurity programs. Conferees generally supported these DOE activities. But the House and Senaterejected several other efforts to add to the President's request for homeland security:

Senator Hollings amendment to add about $1 billion for port security -- tabled 52-47.

Senator Breaux amendment to add about $2.67 billion for various homelandsecurity programs -- tabled 52-46.

Senator Schumer amendment to increase ODP funding by $2.33 billion --tabled 51-46.

Senator Boxer amendment to earmark $30 million for R&D and deploymentof technology to protect commercial airliners from man-portable defense systems -- tabled50-47.

Congressman Obey amendment to add $2.5 billion for homeland security --ruled out of order.

Congressman Nadler amendment to increase port security funds by $15 billion-- ruled out of order.

The Senate also rejected an amendment by Senators Byrd and Hollings that would not have increased homeland security spending, but would have allocated resources to specific accounts rather thanleaving the Secretary of Homeland Security with broad discretion.

The Administration generally supported actions by the House and Senate, but raised objections in a few areas, largely related to executive flexibility matters. The White House suggested thatSenate language allocating defense funds to specific accounts might "slow timely and effectingfunding of urgent needs." The Administration raised the same concern regarding House text thatallocated homeland security resources to specific activities rather than placing the money in a centralfund. This, the White House claimed, would "hinder" the Homeland Department's Secretary fromapplying the funds to the most critical threats. The executive further expressed concerns about theHouse bill which directed that Iraq Relief and Reconstruction Fund resources be managed by theState Department and the U.S. Agency for International Development (USAID), removingPresidential flexibility over involving multiple agencies in reconstruction operations. Finally, theWhite House considered the airline industry relief packages in both bills "excessive." (6)

Details concerning each of the supplemental's major components are discussed below.

Congressional Action on the Department of Defense's Request

The Administration requested $62.6 billion for the Department of Defense (DOD) for the costof the war in Iraq, continued U.S. operations in Afghanistan and the global war on terrorism, andenhanced security at military bases in the United States. The DOD FY2003 supplemental requestfunded the deployment and redeployment of U.S. forces and equipment to the Persian Gulf and theprosecution of a short, intense conflict. In addition, the request included funding for an occupationforce in Iraq for the remainder of FY2003, repair and re-stocking of military equipment andmunitions, as well funds to conduct firefighting and restore and repair Iraqi oil fields, and a smallamount of funding for humanitarian assistance. (7)

Although DOD did not specify the amount, its request also included funds to cover the cost of U.S. forces in Afghanistan (Operation Enduring Freedom) as well as the cost of enhanced securityin the United States (Operation Noble Eagle) for the remainder of the fiscal year. (8) DOD received$6.1 billion to cover its expenses for these missions in the first part of the year in the FY2003Consolidated Appropriations Resolution ( P.L. 108-7 / H.J.Res. 2 ). (9) DOD has estimatedexpenses for the remainder of the FY2003 to be about $6 to $8 billion. (10)

Citing the "unpredictable nature of the U.S. conflict in Iraq," the Department of Defense requested that $59.9 billion, 96% of its total, be appropriated to the Defense Emergency ResponseFund (DERF), a transfer account, where DOD could exercise discretion in spending the money forpurposes that it considers appropriate and move funds into the relevant appropriation accounts. (11) Although DOD's proposed language required quarterly reports to Congress about the allocation of actual expenditures, some Members of Congress expressed concerns about the extent of flexibilitythat DOD would have in allocating almost $60 billion. In response to these concerns, the enactedversion of the supplemental appropriated 75% of the funding in the supplemental to specificaccounts and added various reporting requirements.

To give DOD flexibility to develop and exploit cooperative military relationships with other nations in the global war on terrorism, the Defense Department requested $1.4 billion for militaryand logistical support to Pakistan, Jordan, and other "key cooperating nations" in the war onterrorism, $150 million to support indigenous or irregular foreign military forces and $50 million tosupport the regular forces of foreign nations working with the United States in the global war onterrorism. Some of these proposals were controversial and Congress rejected DOD's request forindigenous forces and reduced and limited the request for regular forces but agreed to provide the$1.4 billion for military and logistical support with additional reporting requirements.

The request also proposed to raise current statutory limits on the amount of funds to be used at the discretion of the Secretary of Defense and combatant commanders for unanticipated militaryrequirements including support for foreign military forces. DOD again cited the war in Iraq and theglobal war on terrorism as the rationale for these changes. The request also proposed a majorincrease from $2 billion to about $9 billion in the total amount of funding that DOD could transferbetween appropriations after notifying the appropriations committees. (12) The enacted version raisesthe statutory limits and gives DOD additional transfer authority but at levels lower than requested.

In remarks at the Pentagon, President Bush characterized the FY2003 supplemental as urgent, and DOD officials called for quick passage to ensure that DOD does not face shortages in operatingexpenses. DOD characterized $30.3 billion of its $62.6 billion request as costs incurred for thebuildup phase of the Iraqi war including expenses such as transportation of equipment and personnel,or as committed costs, such as those for the return of troops and equipment theater of operations. (13) In the enacted version of the supplemental, Congress appropriated these costs in regularappropriations accounts rather than providing them in the Defense Emergency Response Fund asrequested by DOD.

Issues in the DOD Request

The major issues that arose during Congressional consideration of the supplemental and that are discussed below included the following.

Balancing Congressional oversight and DOD Flexibility : DOD requested that $59.9 billion be provided in the Defense Emergency Response Account (DERF) where DODwould have discretion to spend the funds, flexibility reduced by Congress because of concerns aboutoversight; (14)

Flexibility to fund foreign military forces : DOD requested funds for foreign military forces who cooperate with the U.S. in combating terrorism, and Congress responded byadding reporting requirements;

Compensation for war duty: Congress increased combat pay and family separation allowances for military personnel in theater because of concerns aboutadequacy;

Defining DOD's postwar role : The Administration request allowed the President to allocated funds for reconstruction and relief activities in Iraq to any agency, includingDOD, and Congress agreed; and

Costs and other effects of the war : Costs beyond FY2003 and effects on DOD's readiness and forces over the longer-term are unclear from DOD's request and remainconcerns of Congress.

There was little debate about the total amount requested by DOD for FY2003 although Congressional action adjusts the mix of funds requested by the Administration and reduces DOD'sflexibility (see Tables 2, 2a, and 2b and discussion below). Further details about theAdministration's request are in the section entitled DOD's Funding Request by AppropriationAccount.

Conference Resolution of Issues

The conference version of H.R. 1559 / P.L. 108-11 addressed the issue of flexibility by reducing the extent and type of funding flexibility for DOD. Congress did establish a new IraqFreedom Fund Account with $15.7 billion in funding where DOD would have discretion over about$10 billion to $11 billion of those funds (see Table 2 below). The enacted version also allowstheAdministration to give DOD a large new role in postwar reconstruction and relief activities (seesection on Defining DOD's Postwar Role and Key Issues in Iraq Reconstruction and InternationalAssistance below).

There was little controversy about the total funding level requested for DOD and the enacted version generally provides amounts consistent with DOD's request (see Table 2b below).

Balancing Flexibility with Congressional Oversight. The conference version of the bill blends the approaches used by thetwo houses to reduce DOD's flexibility in funding. The conference adopted the Senate'srecommendation to appropriate most of DOD's funds in regular appropriations accounts and theHouse's proposal to set up a new flexible general fund for expenses incurred later in the war. (Seesection on Previous Action by the House and Senate for further details.)

Table 2. Amount Of Flexibility For DOD In FY2003 Supplemental, Request and Congressional Action

Sources: Department of Defense, FY2003 Supplemental Request for Military Operations in Iraqand the Global War on terrorism, March 25, 2003; see http://www.defenselink.mil/comptroller/defbudget/fy2004/DoD_Justification-FY03_Iraqi_Freedom_Supplemental.pdf . House and Senate version of H.R. 1559 , H.Rept. 108-56 ,. S.Rept. 108-33 , and Conference Report, H.Rept. 108-76 .

a Within the DERF, DOD can transfer funds to specific appropriations accounts at its discretion.

b Within its new Operation Iraqi Freedom Response Fund, the House created this new fundwhereDOD would have flexibility to transfer funds to specific appropriations accounts as long ascertain ceilings and floors established in the bill were met (see Table 2a below).

c The enacted version of H.R. 1559 gives DOD flexibility to transfer funds within thenew Iraq Freedom Response Fund as long as certain ceilings and floors established in the billare met (see table 2a below).

d In addition to appropriations to regular accounts, the House bill set transfer ceilings whichlimitedDOD's flexibility within the new Iraqi Freedom Response Fund except for the $$25.4 billionin the Combat, Stability Ops, and Reconstitution Fund.

Restrictions Within The New Iraq Freedom Fund. To give DOD more specific spending guidance, the conference version of the bill appropriates 75% or$46.9 billion of DOD's total request of $62.6 billion to regular appropriation accounts. Theremaining $15.7 billion was placed in a new Iraq Freedom Fund account where DOD can spend themonies for combat, stability operations, reconstituting forces, replacing munitions and equipment,and other costs as long as DOD stays within several ceilings and floors that are set within the bill.Any funds not needed for the Iraqi conflict are to be returned to the Iraq Freedom Fund.

If DOD met the floors and spent up to the ceilings, these restrictions would affect $5.2 billion of the $15.7 billion in the fund (see Table 2a below).

Table 2a. Ceilings and Floors Within DOD's Iraq Freedom Fund in Enacted Version of FY2003 Supplemental (in billions of dollars)

Source : Conference Report on FY2003 Supplemental, H.Rept. 108-76 .

a CRS calculation assuming that DOD spent up to the ceiling amounts set in P.L. 108-11 ; if DODspent less than the ceiling amounts, the unallocated total would be greater.

If DOD met the floors and spent up to the ceiling levels, DOD would be still able to transfer atleast $10.4 billion from the fund to various appropriation accounts at their discretion. That fundingflexibility could be larger if DOD spent below the ceilings. In a recent press conference, DODComptroller Dov Zakheim stated that DOD would have "unfettered flexibility" for about $10.5billion to $11 billion. (15) DOD is still, however,required to notify Congress 5 days in advance oftransferring funds and to submit quarterly reports on transfers beginning on July 1, 2003. (16) Exceptfor funding for the Coast Guard and counter-terrorism training, the ceilings and floors follow DOD'srequest (see Table 2b below).

Comparison of Funding Levels. Because DOD will have flexibility to allocate over $10 billion of the funding in the FY2003 supplemental, the finaldistribution of funding is not yet available. Based on DOD's initial request and Congressionalaction, Table 2b below shows the Administration's request, House and Senate action and theenacted version of funding for the Department of Defense. Congress provided $62.58 billion, thesame as the amount requested and close to the amounts provided by the House and the Senate. Theslightly lower level in the House reflects smaller amounts for military construction. The Houserecommended $62.46 billion and the Senate Appropriations Committee (SAC) recommended $62.55billion.

Based on the illustrative breakdowns of expense that appear to be included in DOD's request, it appears that the enacted supplemental generally adopts DOD's projections for various types ofexpenses. The enacted version, however, includes over $3 billion more than DOD proposed formilitary personnel, reflecting discussions with the services, and possibly concerns about whetherDOD's request assumed adequate troop levels for occupation (see Table 2b ). Since DOD did notinclude the assumptions underlying its cost estimates in terms of troop levels or the duration of thewar, comparisons and assessments are difficult.

Table 2b. Funding Allocations or Appropriations in FY2003 Supplemental for DOD: Request, House and Senate Action, and Enacted (inbillions of dollars)

Notes: [ ] Square brackets identify allocations of funds within appropriated amounts. Total includesappropriated amounts.

NS = Not specified.

Source: Department of Defense, FY2003 Supplemental Request for Military Operations in Iraq andthe Global War on terrorism, March 25, 2003; see http://www.defenselink.mil/comptroller/defbudget/fy2004/DoD_Justification-FY03_Iraqi_Freedom_Supplemental.pdf . House and Senate version of H.R. 1559 , H.Rept. 108-56 ,. S.Rept. 108-33 , and Conference Report, H.Rept. 108-76 .

a DOD requested $59.7 billion in the Defense Emergency Response Fund (DERF) and includedproposed allocations; CRS calculated the distributions to accounts using DOD materials.

b House bill set up a new Operation Iraqi Freedom Fund and then recommended variousallocationsto individual accounts, and set ceilings and floors including $25.4 billion for the Combat,Stability Operations and Reconstitution Costs account where DOD would have considerableflexibility.

c Conference bill sets up a new Iraq Freedom Fund, and designates ceilings and floors withinthatfund affecting about $5 billion with the remainder to be allocated at DOD's discretion.

d Funding for military and logistical support or coalition support for "key cooperatingnations" in thewar on terrorism was included in O&M Defense wide in request and House and Senate versionbut was included in Iraq Freedom Fund in enacted .

e Funded in a direct appropriation, see below.

f Conference bill sets a ceiling within Iraq Freedom Fund of $489 million for NaturalResourcesRisk Remediation Fund and a floor of $1.1 billion for fuel purchases through the WorkingCapital Fund.

g House version provided that an additional $4.2 billion may be spent on procurement from$25.4billion placed in the Combat Stability Operations, and Force Reconstitution fund within theOperation Iraqi Freedom Fund where DOD generally has flexibility.

h Funded through O&M appropriations accounts.

i May not add to total due to rounding.

Additional Transfer Authority and Reporting Requirements. In addition to setting up the new Iraq Freedom Fund,Congress gives additional flexibility by allowing DOD to transfer up to $2 billion of the funds in thesupplemental to different appropriation accounts as long as normal notification procedures arefollowed. Although this ceiling on transfers is less than the $9 billion requested by theAdministration, it is proportionately six times greater than the transfer limit set in the FY2003 DODAppropriations Act ( P.L. 107-248 ). (17)

To increase the information available for oversight, Congress also requires that DOD submit to the defense committees a financial analysis on FY2003 spending that covers not only the FY2003supplemental but also the regular FY2003 appropriations, and the additional funding received byDOD in the FY2003 Consolidated Appropriations Resolution. (18)

Increasing Flexibility In Use of Military Construction Funds. DOD requested $128 million for Air Force and $48 million for Navymilitary construction of several projects in Guantanamo Bay, and the Persian Gulf, including an $85million project called Millennium Village for headquarters, billeting and other support facilities forsome 2,000 military and civilian personnel at a classified location. (19)

Although the conference version lists the particular projects to be funded within the $201 million appropriated, the enacted version gives more flexibility than normal by permitting DOD totransfer up to $150 million to the contingency construction account and then allocate funds fromthere to individual projects as long as the defense committees are given notifications seven days inadvance and cost estimates and documentation 15 days after obligating funds. The enacted billprovides $110 million for Millennium Village. (20)

Flexibility to Fund Foreign Militaries in the Global War on Terrorism Increases. Another area of controversy was DOD's request for additionalflexibility in reimbursing foreign military forces who cooperate with the U.S. in combating terrorism. The conference version of the FY2003 Supplemental gives DOD some but not all of the flexibilityrequested.

Coalition Support. Although Congress allows DOD to spend up to the $1.4 billion requested by the Administration to reimburse foreign military forcesof "key cooperating nations" for their military and logistical support in the global war on terrorism, P.L. 108-11 also requires that DOD notify Congress 15 days in advance of payments and provide afinancial plan for the expenditure of these funds by July 1, 2003. If DOD does not provide thefinancial plan, any unobligated funds for coalition support will revert to the Treasury. As theAdministration proposed, DOD must get the concurrence of the Secretary of State and consult withthe Office of Management and Budget about these transfers. (21) The $1.4 billion provided issubstantially more than the $490 million DOD already received in the two previous supplemental,giving DOD additional funding to use to work out cooperative relationships with foreign militaries.

In addition, Congress caps DOD's total spending for coalition support at $1.4 billion in the FY2003 supplemental plus the $490 million previously appropriated for these purposes in earliersupplementals ( P.L. 107-206 and P.L. 107-117 ). (22) According to the DOD request, some of thesefunds are to reimburse Pakistan for patrolling its borders to search for terrorists, and some for Jordan,other nations, and could be used within Iraq. DOD's plans may become clearer when it submits itsfinancial plan to Congress on July 1, 2003. (23) Appropriating funds to reimburse DOD for militaryequipment already provided to Afghanistan from its stocks was not controversial because theseactions were endorsed in previous legislation. (24)

DOD Support of Regular and Irregular Foreign Military Forces. Another tool that DOD requested to help establish cooperativerelationships with foreign military forces was $150 million in funding for support of irregular orindigenous forces. A controversial proposal, this request was rejected by both houses and notincluded in the final version.

In response to DOD's request for $50 million to support regular foreign military forces, the enacted supplemental permits DOD to spend up to $25 million, and restricts the funding tocounter-terrorism training. In addition, DOD is required not only to get concurrence from the StateDepartment but also to notify the Congressional defense committees 15 days in advance. (25) (ForHouse and Senate provisions, see section, "Previous Congressional Action," below.)

Discretionary Funds for the Commanders in Chief and the Secretary of Defense. In the enacted supplemental, Congress agrees to DOD's requestto double from $25 million to $50 million the amount available for combatant commanders in theCINC (Commanders-in-Chief) Initiative Fund to use for training, contingencies, operations, jointexercises, military education and training, activities that could help cement relationships with foreignmilitary forces. Within that $50 million for , P.L. 108-11 also increases current spending limits fordifferent types of purchases. The limits change as follows:

For equipment, from $7 million to $10 million;

For joint exercises, from $1 million to $10 million; and

For military education and training, from $1 million to $10million. (26)

Congress also expands the funding available for the Secretary of Defense for "emergencies and extraordinary expenses," from the current $34.5 million limit to $50 million, less than the doublingrequested. According to DOD's justification materials, these funds could be used for "jointwarfighting capabilities in support of military operations in Iraq and the global war on terrorism,"activities that could involve initiatives in support of either U.S. or foreign militaries. (27)

Increasing Compensation for War Duty. In the enacted supplemental, Congress increases imminent danger pay and family separation allowancesfor those forces deployed for the Iraqi conflict, an increase in compensation that was not proposedby DOD. Based on the Stevens-Durbin amendment that was unanimously adopted in the Senate ( S.Amdt. 436 as modified), combat pay increases 50% from $150 a month to $225 amonth, and family separation allowances increases 150% from $100 a month to $250 month,retroactively to the beginning of FY2003.

These increases are intended to provide additional compensation for military personnel, including activated reservists, for their service in the Iraq war. Senator Durbin, who originallyproposed higher levels, emphasized that these levels have not been adjusted since 1991 after the firstGulf War in 1991. The levels adopted represent a compromise between higher levels originallyproposed by Senator Durbin and those offered by Senator Stevens. (28)

These higher levels could offset some of the difficulties experienced by activated reservists serving longer than anticipated tours, an issue of concern to Congress. (29) Cost estimates for thischange range from $650 million to $825 million for FY2003. Although this change is only in effectfor FY2003, the armed services committees are likely to address the issue of making the changepermanent in the context of the FY2004 budget. DOD will cover the cost within the supplemental. (30)

Defining DOD's Postwar Role: Natural Resources Risk Remediation Account and Other Reconstruction. DOD requested funding for repairof Iraq's oil wells in a new Natural Resources Risk Remediation Account and also requestedflexibility to use any foreign contributions either to this new fund or to the Defense CooperationAccount that was set up during the first Gulf War. (Funds in the Defense Cooperation Account canbe transferred to the new account). In the enacted version, Congress agrees to provide the $489.3million for a new Natural Resources Risk Remediation Account to repair and rebuild Iraq's oil wellsand facilities.

Before spending these funds, DOD is to use any foreign contributions to this fund or from the Defense Cooperation Account. DOD would not need to return to Congress for specific appropriationof any foreign contributions, a reversal of the requirement in current law. That requirement wasadopted after the first Gulf War to ensure Congressional monitoring of foreign contributions. (31) Thescope of foreign contributions to Iraqi reconstruction is currently unclear.

In addition to the amounts requested for the new account, the Administration requested $2.4 billion for Iraq Relief and Reconstruction Fund with the President having discretion about whowould manage these funds (see section "Reconstruction Efforts" below). From Administrationactions, it appears that DOD may play a major role in managing these funds.

Established by the President in January 2003 as the "nerve center" of U.S. postwar activities, the new Office of Reconstruction and Humanitarian Assistance was placed within the Departmentof Defense and is headed by Lt. General Jay M. Garner (ret.) who reports to General Tom Franks,the Commander of the U.S. Central Command and the Secretary of Defense. (32) Althoughresponsibilities for reconstruction activities remain unclear, the role of the State Department andUSAID appears to be less than in the past.

Short and Long-Term Costs and Effects of the War. During a recent press conference, DOD Comptroller Dov Zakheim suggestedthat the $62.6 billion for DOD would be adequate to fund DOD's costs for the war in FY2003. Based on the estimates provided at that press conference, the cost of the Iraq war for DOD couldrange from $57.3 billion to $65.0 billion, with the midpoint of $60.2 billion (see Table 3 below). (33)

The adequacy of the supplemental may depend on how many U.S. troops need to be kept in Iraq now that hostilities have ended. Assessing the adequacy of the supplemental for the remainder ofthe year (or the potential cost in FY2004) is difficult because DOD has not provided its assumptionsabout troop levels. That may become possible when DOD submits reports of its expenditures forthe war, as well as a financial plan covering all of FY2003. (34) Recently, the Pentagon suggested thatthe U.S. may need to keep 125,000 troops in Iraq for the next year. (35)

Table 3. DOD Estimate of Adequacy of FY2003 Supplemental for the War in Iraq and Afghanistan (in billions of dollars)

Note: CRS calculations based on DOD Press Transcript, Dov Zakheim, OSD/Comptroller , April16, 2003; see http://www.defenselink.mil/transcripts/2003/tr20030416-0111.html .

a Covers personnel and personnel support costs for second half of FY2003; first half is covered incategory, "Spent Thus Far."

b Provides military and logistical support to Pakistan, Jordan and other "key cooperating"nations inthe global war on terrorism.

c DOD estimates cost of Afghanistan and global war on terrorism runs about $1.1 billionto $1.2billion per month; CRS assumes the last seven months of costs are covered in the FY2003supplemental with the previous months funded in the $6 billion received by DOD in theFY2003 Consolidated Appropriations Resolution ( P.L. 108-7 )

d DOD and Senator Steven's estimates of effect of Congressional action to increase imminentdangerpay and family separation allowances for deployed troops for FY2003 in P.L. 108-7 .

e Congress set a floor of $1.1 billion for fuel costs due to higher prices compared to the $430millionassumed by DOD in its request.

f Congress allocated $1.7 billion more for military personnel than DOD included in itsrequest (see H.Rept. 108-56 , p. 10); however, if DOD's estimates are correct and the funding is not needed,DOD can transfer the funds elsewhere.

For the long-term, the chief cost issue is likely to be the number of troops who remain in Iraq. According to a recent study, if U.S. troop levels declined from a level of 75,000 in the first year to25,000 by the third year, the five-year cost of that occupation force would be $45 billion. (36) Unlikethe experience in Bosnia and Kosovo, it is unlikely that the U.S. will share these costs with othercountries. (37)

Some observers have also suggested that keeping significant numbers of troops in Iraq could also affect the readiness of U.S. forces by putting strains on U.S. forces, both actives and reserves.Those effects are, however, difficult to measure and could be offset, to some extent, by theelimination of patrolling of Iraqi airspace in Operations Northern Watch and Southern Watch,missions that have been carried on for the past ten years.

Previous Congressional Action

The sections below give details on previous action in the House and Senate.

Floor Debate in the House and Senate. During floor debate on the FY2003 Supplemental, the House did not adopt any amendments affecting theDepartment of Defense.

During floor debate, the Senate added an amendment that increased imminent danger pay from $150 to $225 per month and increased family separation allowances from $100 to $250 per month,changes that were retained in the conference version. The Senate also adopted the Allardamendment ( S.Amdt. 451 ) establishing a seven-member panel to review and report tothe Secretary of Defense and the armed services committees within 90 days about the effectivenessof policy and actions taken at the Air Force Academy in response to allegations about sexualassaults. (38) This amendment was included in thefinal version.

A more controversial Senate amendment -- adopted by the Senate but dropped during conference -- was the Stevens amendment "to make certain improvements" ( S.Amdt. 522 ), including a provision that would prohibit any funding in the bill going to airlift contracts toany firm that is not U.S. controlled. (39) A sense ofthe senate amendment offered by Senator Hollings( S.Amdt. 479 ) that would require the President to submit a proposal to raise revenuesto pay for the cost of the FY2003 supplemental was rejected (79 to 18). (40)

Both the House and the Senate supported the funding requested by the Administration but provided different ways to increase Congressional oversight about the allocation of those funds (seediscussion below).

House and Senate Markup of Department of Defense Request. During markup, the House Appropriations Committee recommendedappropriations of $62.464 billion and the Senate Appropriations Committee (SAC) recommended $62.559 billion, both close to the $62.587 billion requested by the Administration. Both committees,however, devised different ways to restrict funds to specific accounts rather than providing the bulkof the funds in the Defense Emergency Response Fund as requested by the Administration. In somecases, the appropriators also added notification requirements before obligation of funds or reportingrequirements after funds are spent (see below).

Compared to the Administration's request for flexibility for $59.9 billion, the House version gave flexibility in the use of $25.4 billion as long as DOD stayed within certain ceilings while theSenate distributed all but $11.0 billion of the funds in the DERF to specific appropriation accounts. At the same time, the House version required a seven-day advance notification for transfers from thenew fund while the Senate permitted DOD to allocate those funds with quarterly after-the-factreporting as proposed by the Administration.

House Appropriations Committee (HAC) Limits. House appropriators established a new Operation Iraqi Freedom Response Fund totaling $59.7billion. Within that fund, the HAC allocated funds by:

setting limits on DOD's subsequent transfers to various appropriationsaccounts for $34.3 billion in funding;

appropriating $2.6 billion into specific accounts; and

setting up a third category for $25. 4 billion for the later stages of the warwhere DOD would have flexibility to allocate funds as long as it stayed within various floors andceilings set in the bill.

Under the HAC's transfer limits, DOD could spend less than or equal to the ceilings for specific appropriation accounts outlined in the bill. (See Table 2b above). (41) The House appropriatorsallocated $1.7 billion more than the Administration requested for Military Personnel accounts basedon their belief that the services would need additional amounts to cover such expenses as imminentdanger pay, family separation allowances and the cost of mobilizing reservists. (42)

Within the new Operation Iraqi Freedom Response Fund, the HAC set aside $25.4 billion that would be available for "Combat, Stability Operations, and Force Reconstitution costs," a newcategory included in the bill, and required 7-day advance notification to Congress of DOD's transfersof these funds to individual appropriation accounts. This category appeared to cover costs thatwould occur later in the war or during an occupation phase.

Within this $25.4 billion category, the House appropriators:

reserved $4 billion that DOD could not spend until July 1, 2003 for additionalMilitary Personnel or Defense Health costs in 2003;

set a floor of $1.8 billion for classified programs;

set a ceiling on total Operation and Maintenance of $20.2billion;

set a ceiling on procurement of munitions and equipment of $4.2billion;

set a ceiling on RDT&E accounts of $57 million; and

set a ceiling of $400 million for DOD to transfer to the Department ofHomeland Security for Coast Guard operating expenses. (43)

Since the total funding for all the ceilings and floors in the bill was $30.7 billion, over $5 billion more than the $25.4 billion reserved for Combat, Stability Operations, and Force ReconstitutionCosts, DOD would have had to fund some accounts below the ceilings.

Senate Appropriations Committee (SAC) Limits. The Senate Appropriators reduced the Administration's $59.9 billion request for the Defense EmergencyResponse Fund to $11 billion, transferring the remaining $51.2 billion to other specificappropriations accounts. Based on discussions with DOD, the SAC transferred funds that DODcharacterized as incurred costs, for example for deployment of troops and equipment or setting upbase camps (see Table 2 and Table 2a below) as well as other funds whereexpenses could be morepredictable. (44)

Both House and Senate appropriators provided amounts requested by the Administration for counter drug activities in Colombia ($34 million) and for reimbursement for drawdown in its fundsand stocks for the Afghan Army.

For procurement, the Administration's request can only be broken out at the service level rather than by individual accounts. The House and Senate bills appear to distribute some of the $3.7 billionrequested by the Administration for munitions and equipment replenishment in Procurement,Defensewide to individual services.

Support of Foreign Military Forces. Both the House and the Senate appropriators agreed to the Administration's request that $1.4 billion be madeavailable for military and logistical support to Pakistan, Jordan or other "key cooperating nations,"in the war on terrorism but each house proposed different restrictions. In addition to quarterlyreporting on the use of funds, the HAC required a 7-day notification in advance and required thatDOD provide a report within 30 days of enactment about their plans for using the funds or the fundswould revert to the Treasury. The SAC required a 15-day advance notification for use of thesefunds.

Neither the House nor the Senate approved the Administration's request that the Secretary of the Defense be allowed to spend $150 million to support irregular or indigenous forces. In responseto the Administration's request that the Secretary of Defense, with the concurrence of the Secretaryof State, be allowed to spend $50 million to support the regular forces of other nations whocooperate in the war on terrorism, the Senate approved the requested new authority with advancenotification but the House did not include any provision for this funding.

As requested, appropriators in both houses gave the combatant commanders and the Secretary of Defense flexibility to use certain funds at their discretion. Both the HAC and the SACrecommended that the combatant commanders (CINCs) be allowed to double from $25 million to$50 million the amount that they could spend from the CINC Initiative Fund that could be used tosupport either U.S. or foreign military forces. The HAC and the SAC also agreed with theAdministration's request to increase the amount available to the Secretary of Defense to spend at hisdiscretion for emergency and extraordinary expenses; the House increased the ceiling from $34.5million to $69.0 million as requested and the Senate agreed to raise the amount to $45.0 million.

Use of Defense Cooperation Account and Natural Resources Risk Remediation Account. In response to DOD's request to be able to useimmediately any foreign contributions to the Defense Cooperation Account, originally set up toreceive donations from foreign nations in the first Gulf War, both the HAC and the SAC setconditions on use of any contributions. The HAC required prior approval of any transfers from thefund to an appropriation account. The SAC retained current statute, which requires thatcontributions be appropriated in subsequent appropriations acts before DOD can use the funds.

Both the HAC and the SAC approved the $489 million for the new Natural Resources Risk Remediation Account to cover the cost of firefighting and repair of Iraqi oil wells (see below). Foruse of foreign contributions, the SAC agreed to allow DOD to use any contributions withoutrestrictions. The HAC, however, required prior approval of any transfers of contributions.

Request for Higher Total on Transfers. In response to the Administration's request that the total amount that DOD can transfer annually betweenappropriations accounts be raised from $2 billion to almost $9 billion, the HAC retained the currentceiling and the SAC capped transfers at $3.5 billion per year.

Administration Request

To maximize flexibility, the Defense Department's FY2003 supplemental requested almost all of its $62.6 billion in funding in the Defense Emergency Response Fund (DERF) transfer account.

Proposals to Maximize Flexibility. Although most of DOD's funding in the FY2002 supplemental for Afghanistan and enhanced security was alsoprovided in the DERF transfer account - based on the same rationale that DOD needed flexibilityin its efforts to combat terrorism after September 11th attacks -- the $11 billion in funding wassubstantially smaller than the current request. DOD also requested various changes to existing lawto increase its flexibility to provide aid to foreign militaries and to transfer funds between accounts.

Ceilings Within DERF Account . To place some limits on the $62.6 billion requested in the DERF, DOD proposed ceilings and floors within the DERFaccount in the categories below:

a cap of $3.7 billion for munitions replenishment;

a cap of $1.0 billion for procurement and RDT&E necessary for war with Iraqand global war on terrorism;

a cap of $50 million to support the military operations of foreign nations;and

a floor of $53.346 billion for military operations in Iraq and the global war onterrorism.

It is not clear, however, how these caps (or floors) could be enforced because the categories were not defined.

According to DOD, the $59.9 billion in the DERF appropriation account was intended to cover costs incurred in the war with Iraq -- deployment of forces and equipment and re-deployment costswhen they return, DOD's estimated costs of a "short but extremely intense" war, repair andreplenishment of equipment and munitions damaged or used during the war, mobilization of reserveforces, and some RDT&E, as well as other expenses for the war on terrorism. (45) As in the FY2002supplemental, DOD provided illustrative allocations of DERF funds but these allocations were notbinding (see Table 2c above).

Funds for Coalition Support. Continuing a practice begun in the FY2002 supplemental, DOD is requested $1.4 billion in the Operation andMaintenance, Defense wide account to fund coalition support. According to DOD, that supportwould include payments of $1.3 billion to Pakistan, Jordan and countries providing logisticalsupport to the U.S. in Afghanistan, and payments of $.1 billion for logistical support to thosesupporting military operations in Iraq. The proposed language did not bind DOD to any specific amounts for individual countries.

As in the FY2002 supplemental, the proposed language required that the Secretary of Defense consult with the Director of OMB, and receive concurrence from the Secretary of State beforeproviding funds to allies. The current proposal did not, however, include the 15-day notification tocongressional committees before making payments that was included in the FY2002 supplemental. (46)

New Natural Resource Remediation Fund. DOD requested $489.3 million for a new transfer fund, the Natural Resource Remediation Fund foremergency fire fighting, repairing damage to oil facilities and infrastructure and preservingdistribution capability, and ensuring availability of fuel to the Iraqi people. The fund was also to alsoreceive foreign contributions. Some observers were concerned about the nature and extent of DOD'srole, including the potential for "mission creep," the expansion of DOD's role beyond its traditionalmissions.

DOD also proposed that any contributions to the Defense Cooperation Account, set up after the first Gulf War for foreign contributions would be considered to have been approved in the FY2003Supplemental Appropriations Act. This proposal to give DOD discretion in advance to use foreigncontributions was not consistent with the practice in the past when Congress approved the transferof allied contributions to specific accounts.

Requests in Specific Accounts. DOD requested funds a total of $2.6 billion for specific accounts including:

$430 million to cover higher oil costs that DOD experienced in the early months of the year because of the initial spike in oil prices related to the war;

funding for several military construction projects in Guantanamo and at severalundisclosed locations overseas;

an additional $34 million for counter drug activities in Colombia; ($34 millionis also provided for the Andean Counter Drug Initiative in the State Department section.);and

$165 million for reimbursement to the services for expenses already incurredin training, and equipping the Afghan Army as well as assisting Jordan.

Proposed Changes to Current Law To Increase DOD Flexibility. DOD requested several changes to current law to increaseDOD's management flexibility contending that such changes are necessary to allow DOD to adaptquickly to the demands of the war on terrorism. Several controversial proposals included:

two proposals to permit the Secretary of Defense to provide monies to regular foreign militaries and to irregular " indigenous" forces;

two proposals to increase the amounts available to combatant commanders andthe Secretary of Defense to respond to unanticipated expenses where funds could be used to providesupport to foreign military forces; and

a large increase from $2 billion to about $9 billion in the ceiling set on the totalamount of funds that could be transferred between appropriations.

Providing Aid to Regular and Irregular Foreign Forces. The supplemental request also included a general provision thatwould have allowed DOD to use up to $150 million of funding in the supplemental to supportindigenous forces assisting U.S. operations in support of the global war on terrorism. The provisionwas intended to "clarify DOD's authority to promote military cooperation in the global war onterrorism." (47) (See additional discussion in sectionon Foreign Operations.)

Within the DERF account, DOD also proposed that up to $50 million could be used to support the regular military forces of foreign nations to further the "global war on terrorism" as long as theSecretary of State concurred with the Secretary of Defense in providing funds. According to DOD,this new provision would have enabled DOD to provide aid to foreign forces "rapidly, in responseto emerging, unanticipated emergency requirements." (48)

The request also raised the total amount available to the combatant commanders in the Commanders In Chiefs (CINC) Initiative Fund from $25 million to $50 million. This fund isavailable to combatant commanders for a wide variety of activities including not only training andselected operations of U.S. military personnel but also education, training and personnel expensesof foreign defense personnel in cooperative programs. (49)

To increase DOD's flexibility in carrying out these purposes, the supplemental request also proposed raising the limits that currently apply:

to purchases, from $7 million to $15 million;

to payments to foreign countries participating in exercises, from $1 million to$10 million; and

to military education and training of foreign nationals, from $2 million to $10million. (50)

All these proposals would have given DOD additional authority to reimburse foreign military forces for expenses, including procurement, personnel costs, and exercises. Although the Secretaryof Defense would need the concurrence of the Secretary of State in order to spend the additional$200 million in funding -- $50 million for regular foreign forces and $150 million for irregularforces -- the request did not provide a mechanism for congressional oversight of these activitiesbefore they occur. The Administration's proposal did include after-the-fact reporting, on a quarterlybasis, for both types of reimbursement. (51) The finalversion rejects DOD's request for $150 millionfor irregular forces and reduced the request for regular forces to $25 million.

Requested Change in Ceiling on Transfers. DOD proposed a large increase in the annual ceiling set on the total amount of funds that can be transferredbetween appropriation accounts after enactment from $2 billion to about $9 billion. (52) DODreprograms or shifts funds between appropriation accounts after enactment to reflect changes inpriorities. DOD stated that this additional flexibility, along with a lifting of the midyear deadline onreprogramming requests, would help DOD to respond to "emerging requirements, particularly inIraq." (53) In the enacted bill, Congress provides $2billion in transfer authority for funds in the FY2003supplemental.

Allocation of DOD Funding by Phase of Operations. DOD provided a breakout of the $62.6 billion according to severalphases of operations as shown in Table 4 below. In its justification material and recent pressstatements, DOD characterized the $30.3 billion of expenses for "coercive diplomacy" as incurredexpenses.

"Coercive Diplomacy". Almost half of the $30.3 billion was for personnel expenses including activation of reservists, and special pay for active-dutymilitary in combat and support of those personnel for both the Iraqi conflict, Afghanistan, andenhanced security in the United States. Another $7 billion was for the deployment and re-deploymentof personnel to and from the theater.

Major Conflict. DOD's estimate of the cost of the war itself appeared to assume a short, intense conflict of about a month. Using plans for deployments andmilitary operations developed by the combatant commanders, DOD estimated these costs relying ona model developed in the mid-1990s for contingency operations. (54) Assumptions about these plansunderlay DOD's estimates of costs.

Transitional and Stability. DOD included its postwar operational costs in this category, including funding to repair Iraqi oil facilities, and "Lower IntensityOperations" that may include the operational costs of an occupation force. The initial size andpossible phase down of this force was not specified.

Although DOD included little funding in its request for the postwar phases of the Iraqi War, a controversy developed about the Administration's plans to transfer funds to DOD fromreconstruction funds requested for the Executive Office of the President (see section onReconstruction Efforts below).

Reconstitution. Reconstitution referred to the repair of damaged equipment and replenishment of munitions, spare parts, or equipment lost in a war.

Table 4. DOD FY2003 Supplemental Request by Phase (in billions of dollars)

Sources: Under Secretary of Defense (Comptroller), Briefing to the Congressional OversightCommittees, FY2003 Emergency Supplemental: Military Operations in Iraq and the Global War onTerrorism, March 25, 2003; see http://www.defenselink.mil/comptroller/defbudget/fy2004/DoD_Justification-FY03_Iraqi_Freedom_Supplemental.pdf .

a Includes additional pay for active-duty military personnel in combat (e.g. hazardous duty pay), costof activating reservists, and personnel support.

b Specific definition not provided; includes setting up overseas bases.

c Consumables include paying higher prices for fuel than anticipated, expended munitions,and foodand medical supplies.

d Includes request of $1.4 billion for payments to Pakistan, Jordan, and "other keycooperatingnations" for logistical and military support in the war on terrorism in Afghanistan; also includes$0.1 billion for Free Iraqi Forces and $0.2 billion for the Afghan Army.

e "Other" includes enhancements to White House and other communications systems,improvementsto the Navy base at Guantanamo Bay housing prisoners from Afghanistan, logistics support,other projects and replenishment of equipment.

f DOD is requesting $489 million for emergency firefighting, repair of damage to Iraqi oilfields, andproviding fuel to the Iraqi people. e

g May be operational costs of occupation force.

h Includes replacement of expended munitions and equipment, and depot maintenance forequipment.

Allocation of DOD Funding by Major Type of Expense. Although DOD's justification materials included illustrative allocationsof expenses to be covered in the DERF account by appropriation account, these allocations were not binding, and could be changed in response to the course of the war in Iraq or changes in DODpriorities. Table 5 shows these potential allocations.

Personnel and Personnel Support. Personnel costs accounted for much of the total cost of the war in Iraq, continued expenses in Afghanistan, andenhanced security in the United States. They reflected both increases in overall strength levels ofactive-duty military and activation of reservists. The expense breakdown below did not, however,show either the number of reservists that DOD plans to activate over the rest of the fiscal year or theallocation of personnel among the different missions funded in the supplemental or the types of tasksthat these personnel carry out.

Starting in January 2003, DOD rapidly increased the number of reservists being called up for the Iraqi war. Before the buildup, about 50,000 to 55,000 reservists were on active-duty to providesupport for operations in Afghanistan or enhanced security in the United States, a decrease from the80,000 called up in the months after the September 11th attacks. The current level of activatedreservists is over 200,000, according to the Defense Department. DOD's estimates of cost in Table5 are built on assumptions about the number of reservists needed during the war with Iraq and forthe occupation force that would remain afterwards but those numbers are not provided in itsjustification material.

Military Operation Support. According to various sources, DOD anticipated a short, intense war of about one month, which would be roughlyconsistent with the $14 billion in operating support shown below. (This estimate was considerablyhigher than a recent CBO estimate of $10 billion based on current force levels.) (55) DOD's estimatedcost of $100 million reflected its expectation that its role in funding humanitarian assistance wouldbe limited.

Procurement. DOD did not specify the mix of munitions or equipment which it expected would need to be replaced. Although there was clearlyconsiderable uncertainty about replacement costs, the $3.7 billion estimate was predicated onassumptions about likely loss rates.

Table 5. FY2003 DOD Supplemental, by Purpose, Based onDOD's Justification Material (in billions of dollars)

Source: Department of Defense, FY2003 Supplemental Request for Military Operations in Iraq andthe Global War on Terrorism, March 25, 2003; http://www.defenselink.mil/comptroller/defbudget/fy2004/DoD_Justification-FY03_Iraqi_Freedom_Supplemental.pdf .

Iraq Reconstruction and International Assistance

The President's supplemental proposal included $7.79 billion for near-term Iraq reconstructionand relief, additional aid to coalition partners and other states cooperating in the global war onterrorism, and related State Department and USAID administrative expenses. Most of the funds --$7.6 billion -- fell under the jurisdiction of Foreign Operations appropriations programs. Bycomparison, the supplemental request totaled a little less than half of the $16.2 billion appropriatedpreviously by Congress for FY2003 Foreign Operations activities.

The proposal, as detailed below in Table 5 , was roughly divided into two components: Iraq relief and reconstruction (about $2.85 billion) (56) and aid to coalition partners and other nationsengaged in the war on terrorism (about $4.7 billion).

Reconstruction Efforts

Under the Administration's plan, the bulk of Iraqi reconstruction funds would be deposited in a special Iraq Relief and Reconstruction Fund, which would be managed by the White House. Outof this $2.44 billion Fund, resources would be drawn and transferred to implementing agencies topay the costs of immediate humanitarian relief and reconstruction activities over a 12-month periodfollowing the end of hostilities.

Normally, it would be presumed that transfers for reconstruction and post-conflict aid would be made to USAID, the State Department, and other traditional foreign assistance managementagencies. But with plans for the Defense Department to oversee the governing of Iraq immediatelyafter the end of hostilities, the White House wanted to have maximum flexibility over thedistribution of resources so the President could transfer some or all of the funding to DOD. Theproposal stimulated immediate controversy with a number of critics, including Members ofCongress, arguing that aid programs should remain under the policy direction of the StateDepartment and under the authorities of a broad and longstanding body of foreign aid laws. Theypointed out that during other recent reconstruction initiatives in Bosnia and Kosovo, resources andpolicy decisions flowed through the Secretary of State. Others argued that groups which would playa significant role in post-war rehabilitation efforts -- non-governmental organizations (NGOs), foreign donors, and international organizations -- would be reluctant to take direction and fundingfrom the U.S. military. This, they contended, would hamper relief activities. (57)

Furthermore, the placement of reconstruction funding in a Presidential account appeared to grant the White House significant discretion in responding to changing and unanticipated demands,unencumbered by specific programmatic allocations. The Administration said only that $543 millionwould cover humanitarian expenses, $1.7 billion would be set aside for reconstruction needs, andup to $200 million would be available to reimburse foreign aid accounts from which funds weredrawn prior to conflict.

According to Administration documents, reconstruction funds would focus initially on the most urgent needs to restore minimal services to the Iraqi population. Emphasis would be placed onrebuilding water and sanitation capacity, restoring public health facilities, refurbishing seaports andairports in order to move humanitarian supplies into the country, reestablishing a food distributionsystem, and generating emergency electricity. Following this early stage, the White House plancalled reconstructing broad economic and institutional capacity. This second phase would target therestoration of roads, schools, hospitals, markets, irrigation systems, and electrical generation,together with the construction of a framework within which to operate education, economic,agriculture, and good governance institutions.

Apart from the Relief and Reconstruction Fund, the Administration also sought $200 million to replenish refugee, disaster, and other economic aid accounts that had already financed the costsof food and other commodities. A portion of these funds would also bolster the size of humanitarianaccounts so that future "borrowings" from other aid sources to meet the needs in Iraq would beminimized. The State Department and USAID further requested appropriations to establish safe andsecure temporary facilities in Iraq and to eventually build an embassy and aid mission in Baghdad.

Congressional Action on Iraq Reconstruction. As cleared by Congress, H.R. 1559 appropriates $2.475 billion for the Relief andReconstruction Fund, slightly higher requested. The President will be able to apportion Fundresources directly to five federal agencies: the Departments of Defense, State, Health and HumanServices, and Treasury, and USAID. In previous congressional debate, the House and Senate hadeach expressed their expectations that these funds would be channeled to the Secretary of State, andin most instances, further directed to USAID. The report accompanying S. 762 specifically noted that the funds were not expected to be transferred to the Secretary of Defense. Nevertheless, the White House continued to argue for greater flexibility and authority to placereconstruction resources under DOD auspices, and ultimately conference committee membersagreed. The enacted legislation, however, specifies that the Iraq Fund will fall under the authoritiesof the Foreign Assistance Act of 1961 and that Congress will be notified five days in advance of anyobligation of amounts from the Fund. Further, these advance notifications will be reviewed underthe same terms as regular foreign aid notifications to the Appropriation Committees, a processthrough which Members may place "holds" on the obligation of resources pending furtherconsultation. H.R. 1559 , as approved, also strengthens congressional oversight of theFund by requiring two reports within the first 45 days of enactment regarding how the Fund will beorganized and other issues such as reconstruction and government-creation strategies, coordinationwith other donors, and overall costs. Beginning in mid-July 2003, H.R. 1559 requiresquarterly status reports on Fund operations.

Table 6. Iraq Reconstruction, International Aid, and Related Activities (in millions of dollars)

NS = Not specified.

a The House Appropriations Committee stated that up to $495 million in reimbursementswas included in H.R. 1559 .

b No appropriation required.

c DOD funds ($1.3 billion) were requested and enacted for Jordan, Pakistan, and other "keycooperating states" providing logistical and military supportto U.S. military operations in Iraq and in the global war on terrorism.

d Request "supported" in Senate bill.

e Although the enacted supplemental does not set a specific level for this country, theAdministration has allocated the full amount requested.

f DOD funds ($34 million) were also requested and enacted for drug interdiction andcounter-drug activities in Colombia.

g Due to Congressional reductions in overall ESF funding and increases for Afghanistan and thePhilippines, the Administrations allocated $100 millionfor MEPI.

h House bill funded an Islamic Partnership and Outreach Program.

i The Administration requested funds for 10 Central European nations but has altered thelist of recipients and the allocation of military grants followingenactment of the supplemental, as follows: Poland ($15 million requested and allocated); Hungary ($15 millionrequested; $8 million allocated);Czech Republic ($15 million requested and allocated); Estonia ($2.5 million requested, $2.75 million allocated);Latvia ($2.5 requested, $2.75 millionallocated); Slovakia ($6 million requested, $6.5 million allocated); Romania ($15 million requested and allocated);Slovenia ($5 million requested,$0 allocated ); Lithuania ($3.5 million requested, $4 million allocated); Bulgaria ($5 million requested, $10 millionallocated); Albania $0 requested,$3 million allocated); Macedonia ($0 requested, $1 allocated); and Ukraine ($0 requested, $1.5 million allocated).

The enacted bill further directs higher and more specific amounts that should be used to replenish several foreign aid accounts that had been drawn upon in order topreposition food and medicine stocks in the region and for other pre-conflicthumanitarian purposes. The conference agreement directs "full and prompt"reimbursement of USAID and State Department accounts from the Iraq Fund. Thesupplemental provides $143.8 million for international disaster assistance, $112.5million of which will restore funds diverted previously for Iraq. The remainingbalance will augment USAID disaster relief resources to respond to foreigncontingencies that may arise through the end of FY2003. Similarly, Congressincreased the State Department's refugee reserve account from the $50 millionrequested to $80 million in order to address needs in the Persian Gulf region as wellas other global requirements. H.R. 1559 also includes $369 million toreimburse food aid accounts from which commodities for Iraq were drawn. Thisincludes $69 million to replenish stocks in the Bill Emerson Humanitarian Trust. The House had added $250 million additional food aid while the Senate, by way ofan amendment by Senator Kohl, had recommended $600 million. In total, theenacted legislation provides roughly $920 million for reimbursing these foreign aidaccounts, more than double the Administration's $410 million request.

International Assistance. The supplemental appropriation proposal would have provided about $4.7 billion inadditional aid to 23 countries and regional programs that are contributing to the warin Iraq and cooperating in the global fight against terrorism. Table 6 provides acomplete list of proposed recipients. Among the largest and most complex aidpackages would be:

Jordan -- $700 million in economic grants and $406 million in military transfers. This would be on top of Jordan's regular $452 aid packagefrom the U.S.

Israel -- $1 billion in supplemental military aid (on top of the $2.7 billion regular FY2003 assistance) and $9 billion in economic loans guaranteedby the U.S. government over the next three years. Israel would pay all costs -- feesthat may total several hundred of million dollars -- associated with these economicstabilization loans. Conditions on the loans, similar to those that were applied in theearly 1990s when Israel drew on a $10 billion U.S.-backed loan package, would beemployed.

Turkey -- $1 billion for economic grants which could be applied to fees associated with $8.5 billion in direct loans or loanguarantees.

Afghanistan -- $325 million in economic grants, anti-terrorism, demining, and military transfers. This would be in addition to roughly $350 millionalready scheduled for Afghanistan this year.

Egypt -- $300 million for economic grants, a portion of which could be used to gain access to up to $2 billion in loan guarantees. Depending on theterms of the loan, if Egypt chose to receive the full $2 billion, about $120 million ormore of the $300 million would be applied to the costs faced by the United States ofguaranteeing the loans. The Administration further proposes to reprogram $379.6million in previously appropriated commodity import program aid to Egypt as a cashtransfer. The supplemental would come on top of $1.9 billion in regular U.S. aid toEgypt.

Pakistan -- $200 million in military grants and law enforcement assistance. Pakistan currently receives $305 million inFY2003.

The Administration further requested $150 million to initiate a U.S. Emergency Fund for Complex Emergencies, a contingency account that would allow the President toaddress quickly unforseen needs of coalition partners. The Fund, which would bemanaged by the White House, had originally been proposed for an FY2004 startupof $100 million.

Congressional Action on International Assistance. H.R. 1559 , as approved, includes$4.52 billion in additional aid to countries and regional programs, about $180 millionless than requested. Nearly all of this reduction, however, comes from Congress'decision not to fund the President's $150 million emergency account for complexcrises. In most other cases, the Administration will be able to allocate these foreignaid resources has it had intended. Congress earmarked funding at the requestedlevels for Israel, Egypt, Jordan, and Pakistan, while adding resources for Afghanistanand the Philippines (see Table 6 ). Turkey may receive "not to exceed" $1 billion,aid that is conditioned on a requirement for the Secretary of State to certify thatTurkey is cooperating with the United States in Operation Iraqi Freedom, includingthe facilitation of moving humanitarian aid into Iraq, and has not unilaterallydeployed forces in northern Iraq. The restriction on Turkey's aid package, the sizeof which could grow to $8.5 billion if the loan option is implemented, combines textin House and Senate-passed bills. Earlier, the House had defeated two amendmentsthat would have eliminated aid to Turkey or reduced it by $207 million.

For Israeli loan guarantees, the enacted supplemental includes the full $9 billion proposal, but adds conditions not included in the proposal. Loans may be issued in$3 billion allotments in each of FY2003 to FY2005, a provision that will allow thePresident to reduce disbursements in the second and third years Israel violate any ofthe loan conditions. One such condition added by Congress prohibits loan resourcesfrom supporting any activity in geographic areas that were not administered by Israelprior to June 5, 1967. This is similar to a condition attached to the 1992 $10 billionloan guaranty package for Israel, some of which was not disbursed because ofcontinued Israeli settlement activity in the West Bank area.

Table 7. Proposed Recipients of Supplemental Foreign Aid ($s millions)

* Up to this amount. Loans would not require additional appropriations since economic grants would be used to pay for loan fees.

a Amount is earmarked or recommended in the enacted supplemental appropriation.

b The enacted supplemental appropriation provides $167 million.

c The enacted supplement appropriation includes $30 million for Philippine economicaid.

d Following enacted of the supplemental, the Administration has modified its plansto allocate funds for this recipient. See footnote "i" in Table 6 , above, for theallocated amounts.

Although most of the President's request for international assistance is supported in the enacted emergency supplemental, the Administration had to reduceeconomic assistance in one instance. Congress cut Economic Support Fundappropriations by $20 million, but because earmarks and additions for Afghanistan,the Philippines, and $10 million to investigate possible Iraqi leadership war crimes,executive officials had $100 million less than requested in economic assistance forcountries not protected by legislative directives. Non-earmarked programs included$50 million for the Palestinians, $25 million for Djibouti, and $200 million for theMiddle East Partnership Initiative. The Administration chose to fully allocateamounts for the Palestinians and Djibouti, but cut resources for the Middle EastPartnership Initiative (including Muslim Outreach) to $100 million, half of the levelrequested.

The State Department also chose to modify its distribution of military aid grants to several Central Europe states. Most significantly, the executive branch decidedto add funds (not requested) for Albania, Macedonia, and Ukraine, and increaseamounts above the requested levels for Estonia, Latvia, Lithuania, and Bulgaria. Asoff-sets, the State Department cut funds for Hungary and eliminated the $5 millionrequest for Slovenia. See footnote "i" in Table 6 above for specific amountsallocated to each recipient.

Key Issues Regarding Iraq Reconstruction and International Assistance

The proposed supplemental raised a number of issues and concerns, including those focusing on the extent of executive flexibility sought by the President, howmuch more Iraq reconstruction might cost and whether these demands would erodefunding for other foreign aid priorities, whether the purposes and amounts of countryassistance were appropriate, and whether DOD's request for authority and funds toaid indigenous forces was consistent with traditional U.S. military assistanceprograms managed by the State Department.

Executive Flexibility and Congressional Oversight. Throughout the supplemental request, in both thedefense and Iraq reconstruction/international assistance sections, the President soughtauthorities that would maximize flexibility in responding to fluid and rapidlychanging demands. Among the most significant authorities affecting the use offoreign aid funds were:

Iraq Relief and Reconstruction Fund -- The Administration's budget justification for the White House managed $2.44 billion Fund offered onlybroad purposes for which the money would be used and divided the money into threegeneral categories. Iraq reconstruction plans submitted by the State Department toCongress offered some details on specific sectors, how the U.S. would respond, andthe timing of actions over the next year. Funding amounts for each activity, however,were not provided, as is usually the case with foreign aid justifications. Moreover,since the funds would be appropriated into a Presidential fund, it would be possiblefor the White House delegate the resources to any agency, including the DefenseDepartment, for reconstruction implementation. As noted above, this prospect ofDOD management raised disputes within the Administration and the Americaninternational NGO community, with critics arguing that it would be inappropriate forthe military to control a civilian operation. The proposal to establish a central Fundmost closely resembled how the Administration programmed U.S. relief for victimsof Hurricane Mitch in Central America in 1999 and Bosnia reconstruction efforts in1996. In both cases Congress appropriated money into special funds, but placedthem under the control of USAID and added numerous directives over how portionsof resources should be used and various notifications for informing Congress inadvance of committing the money. Moreover, the supplemental request for theRelief and Reconstruction Fund would make the appropriations available"notwithstanding any provision of law." This would remove any of the numerousrestrictions and conditions that generally apply to U.S. foreign assistance, includingprovisions relating to human rights, proliferation, government legitimacy, contractnegotiations, among others. Waivers of these restrictions are generally applied onlyto humanitarian programs. Congress rejected a similar request last year forsupplemental economic and military aid to the front-line states in the war onterrorism.

U.S. Emergency Fund for Complex Crises -- For many years, Administrations have asked Congress for various types of contingency resources thatcan be drawn upon immediately to address unanticipated foreign policy emergencies. Except in the case of humanitarian situations, however, Congress has been reluctantto support such requests, stating that the President has other mechanisms and specialauthorities for temporarily "borrowing" funds from other aid accounts over whichCongress can more closely maintain scrutiny and consult in advance as the purposesof the transfers. The President's $100 million FY2004 request to create the CrisesFund had already raised concerns among some Members during hearings on nextyear's budget request.

Transfer of funds among different accounts -- The supplemental proposed that up to $200 million of international assistance, StateDepartment money, and the Iraq Relief and Reconstruction Fund could betransferred between the accounts for any purpose. Longstanding foreign aid lawsplace percentage caps on the amount that can be taken from most accounts (10%) andhow much the receiving account can increase (20%). (58) Annual Foreign Operationsappropriations further require the President to consult and justify the transfer inadvance with House and Senate Appropriations Committees. In some circumstances,the Administration's supplemental proposal could have resulted in transfersexceeding the percentage caps. The request further did not require any congressionalnotification or consultation.

As noted above, the enacted supplemental establishes the Relief and Reconstruction Fund proposed by the President, but with added oversightmechanisms put in place. While the President may apportion resources directly toDOD, as well as the Departments of State, Treasury, Health and Human Resources,and USAID, the Iraq Fund falls under the authority of existing foreign aid laws. H.R. 1559 also adds several reporting requirements, as mentionedabove, and requires notification 5 days in advance of any Fund obligations. Theenacted supplemental further deletes appropriations for the President's emergencyfund for foreign crises and limits to $100 million the amount that can be transferredamong the various aid accounts.

Costs of Iraq Reconstruction and the Impact on Other Aid Programs. Like the costs of military operations, it isnearly impossible to estimate what the longer-term expenses of humanitarian reliefand reconstruction in Iraq will be. The Administration's $3.5 billion included in thesupplemental request represented a general projection of needs over the next 12months. But State Department activity justifications cautioned that the timetable wastentative, dependent largely on the extent of damage that resulted from the conflictand how future assessments might alter aid priorities. Some believed thatreconstruction needs beyond this initial allotment would be met largely throughproceeds from the sale of Iraqi oil and the release of frozen assets. The internationalaid community is currently discussing how post-conflict relief efforts will proceed,but there is a great deal of uncertainty over the Administration's intentions and theactual final outcome. How soon and in what amounts Iraq might gain access toborrowing from the International Financial Institutions will also be a factor in howmuch additional resources will be needed or expected from the United States. (59)

In the meantime USAID and the State Department have been drawing resources for Iraq from emergency refugee and disaster relief accounts, and from othereconomic aid programs that had been intended for other countries and purposes. Asof March 25, USAID had utilized an estimated $506 million, including drawdownsfrom the Child Survival and Health (CS/H), Development Assistance (DA), andEconomic Support Fund (ESF) accounts. For Child Survival and Developmentprograms, amounts diverted to Iraq contingency activities represented nearly 8% ofFY2003 appropriations. The supplemental request included about $410 million foreither replenishing CH/H, DA, and ESF accounts, or increasing disaster and refugeeresources so that future "borrowings" might be avoided and adequate funds wouldbe available for contingencies that might arise later in the year in other regions. Butthe supplemental did not appear to fully cover USAID transfers already made for Iraqprograms. Moreover, the supplemental provided "up to $200 million may be used"out of the Relief and Reconstruction Fund to repay these accounts. This discretionarylanguage left the final decision up to the White House as to whether these fundswould be available for the purposes and programs for which they were originallyintended.

The conference agreement on H.R. 1559 adds substantial amounts, as noted above, for replenishing foreign aid accounts from which money has beendrawn for Iraq operations. The enacted supplemental provides over $900 million torestore funds for several programs, including the addition of $369 million in foodassistance that had not been requested.

Country Assistance. The Administration asked not only for funds to assist coalition partners and nations thatface significant economic and political risks due to the Iraq conflict, but also toaugment support for a broader set of countries cooperating in the global war onterrorism. Some questioned whether a supplemental appropriation intended toprovide resources specifically related to the Iraq situation should include nearly $700million for this latter group, especially since Congress approved in mid-FebruaryFY2003 money for this purpose ( P.L. 108-7 ). Among the countries covered by therequest, but which are outside the conflict in Iraq were:

Afghanistan -- The Administration proposed $325 million to"meet immediate shortfalls" in Afghanistan's FY2003 program, including resourcesfor the Kabul-Kandahr-Herat road, budget support for the Afghan government,President Karzai's protective detail, demining, and military training and equipmentcosts. Although the Administration did not submit an official FY2003 Afghan aidrequest, Congress increased assistance to over $300 million.

Pakistan -- The supplemental proposed an additional $175 million in military aid to strengthen Pakistan's ability to track and disable terroristsoperating in its own territory and $25 million for better bordersecurity.

Colombia -- Included in the supplemental request was $71 million in military and counter-narcotics assistance for supporting Colombia'sunified campaign against drug cartels and terrorists. The proposal also included anadditional $34 million of DOD funds for narcotics interdiction operations. In theFY2003 Foreign Operations Appropriation, Congress approved $700 million for theAndean Counter-narcotics Initiative for Colombia and other countries in the region,$31 million less than the President had requested.

Palestinians -- The request would extend $50 million to support Middle East peace objectives generally, and specifically for humanitarianactivities in the West Bank and Gaza and for Palestinian civil reforms. Congress hadappropriated in August 2002 a similar $50 million package, together with $200million for Israel, in the FY2002 Supplemental Appropriation. President Bush chosenot to spend the funds because they were part of a much larger appropriation forprograms he had not requested. Instead, he amended the FY2003 Foreign Operationsrequest to include the Palestinian and Israeli funds but Congress did not increaseoverall appropriations to accommodate these additions.

Philippines -- The $30 million in military support would allow the Philippines to upgrade its counterterrorism capabilities. Like the Palestinianfunds above, Congress provided $30 million for the Philippines in the FY2002supplemental which the President chose not to spend.

Slovenia -- Not a member of the coalition, Slovenia would receive $5 million in military assistance in recognition of its efforts in providingaccess and overflight rights in Operating Enduring Freedom and contributing to theAfghan National Army and demining program.

Beyond this list, some questioned the Administration's $1 billion request for Turkey that could be converted into as much as $8.5 billion in loans. The UnitedStates had negotiated with the Turkish government for months over allowing thedeployment of U.S. forces in Turkey for military operations for a second front innorther Iraq. Reportedly, the United States offered a $6 billion aid package thatcould be leveraged into $26 billion in combined grants and loans. On March 1,however, the Turkish parliament rejected the U.S. request to base troops foroperations in Iraq and the United States withdrew the aid offer. Turkey's governmenthas subsequently granted U.S. overflight rights for the Iraq campaign. TheAdministration justifies the $1 billion request on the basis of Turkey's role as an allyand frontline state in the war on terrorism, and for the significant political andeconomic risks faced by Ankara due to the Iraq conflict.

As noted above, the enacted supplemental, for the most part, supports the President's foreign aid allocations for requested countries. Conditions are added tofunds for Turkey but amendments to eliminate or reduce the $1 billion package failedin the House. H.R. 1559 , as approved, however, will require theAdministration to make some economic aid reductions for some countries andprograms not earmarked, possibly including those for the Palestinians, Djibouti,Turkey, or the Middle East Partnership Initiative.

DOD Authorities to Provide Military Aid. Under sections relating to Defense Department funds andauthorities, the supplemental proposed two items that drew particular congressionalattention. The key issue was whether they infringed on congressional oversight andthe State Department's traditional role in directing foreign aid policy and resourceallocations. They were both similar to proposals made last year in the FY2002supplemental that focused on the war on terrorism and were closely scrutinized byCongress.

The first would provide $1.4 billion for the Defense Department, "notwithstanding any provision of law," to pay Jordan, Pakistan, and other nationsthat have provided logistical and military-related support to U.S. military operationsin Iraq or in the global war on terrorism. In the past, Defense officials argue,competing demands on regular military aid resources have delayed reimbursementto key friends that provide services to American forces. Congress approved fundingin the FY2002 supplemental for this purpose, but included a 15-day prior notificationrequirement that is not part of the FY2003 supplemental draft legislation.

The more controversial authority concerned DOD's request for $150 million to support "indigenous forces" assisting U.S. military operations, including those aimedat the global war on terrorism. Decisions to draw on these funds would be made bythe Secretary of Defense, with the concurrence of the Secretary of State. TheDefense Department defines indigenous forces as "irregular forces and resistancemovements" and notes that such forces "generally conduct military and para-militaryoperations in enemy-held or hostile territory and conduct direct offensivelow-intensity, cover, or clandestine operations." (60) Although it was unclear from thebudget justification and bill text exactly what groups and under what scenarios theAdministration would utilize these resources, a senior Administration officialsuggested that the intent was to have resources available for groups in Iraq. DeputySecretary Richard Armitage testified on March 27 that because of the uncertainty ofthe war's duration, it might be necessary to transfer additional arms and equipmentfor Kurdish and other forces, and that the $150 million would provide a "hedge" incase of a more prolonged conflict. (61) In last year'ssupplemental appropriation debate,DOD had asked for $30 million to support indigenous forces, funds that would beexclusively under the control of the Secretary of Defense. Congress rejected theproposal, however. The House Appropriations Committee observed in deleting therequest that the Secretary of State's primary responsibility over U.S. militaryassistance programs is well established and that the Administration has the necessaryauthorities under existing foreign aid laws to undertake the requested activities. (62)

H.R. 1559 , as enacted, provides the $1.4 billion for nations supporting U.S. military operations in the global war on terrorism but does notauthorize the $150 million for aid to indigenous forces.

Homeland Security

The smallest component of the supplemental proposal covered additionalresources for homeland security. Some critics of Administration homeland securitypolicy, including some Members of Congress, believe that key domestic preparednessmeasures have been under-funded and argue for additional resources. In some cases,as discussed elsewhere in this report, Members offered amendments increasingamounts for homeland security. Details of congressional action on homeland securityfunding matters are included in Table 8 .

Table 8. HomelandSecurity ($s millions)

a Included under Dept. of Homeland Security items below.

Support to State and Local Governments for Terrorism Prevention and Security Enhancements (63)

The Bush Administration's request for FY2003 supplemental appropriations included $2 billion for the ODP. These funds would be distributed to state and localgovernments "... to support federally-coordinated terrorism prevention and securityenhancements at this time of heightened threat, and terrorism preparedness for firstresponders." (64) The Department of HomelandSecurity projected that $1.5 billionwould go to the ODP formula grant program, $450 million to critical infrastructuresecurity grants, and $50 million to high threat urban areas. (65) The Administration'srequest for $450 million for critical infrastructure security grants contained at leastone significant change to the current structure of federal first responder programs. The request proposed allowing recipients to use these funds for personnel overtimeexpenses, an activity not currently authorized in existing terrorism preparednessprograms.

Congressional Action. The House, in H.R. 1559 , provided a total of $2.2 billion to ODP, $200million above the Administration request, specifically providing the followingamounts. (66)

$1.5 billion to ODP's formula grant program, and

$700 million "... to address security requirements in high threat,high density urban areas with critical infrastructure." (67)

In S. 762 , the Senate Appropriations Committee recommended $2 billion for ODP of which $1.42 billion would have gone to the formula grantprogram, $450 million to critical infrastructure security, $100 million to high threaturban areas, and $30 million to technical assistance. (68) The full Senate passed anamendment, however, that added an additional $200 million and allocated morefunding to high threat urban areas. (69) The Senatealso added additional funding toFEMA and the Community-Oriented Policing Services program (Justice Department)for interoperable communications. S. 762 , as passed by the Senate,provided a total of $2.2 billion for ODP programs, matching the House amount. TheSenate-passed bill provided:

$1.27 billion for the formula grant program,

$300 million to critical infrastructure protection,

$600 million to high threat urban areas,

$30 million for technical assistance and other activities,and,

$219 million for interoperable communications (to FEMA andCOPS).

The enacted supplemental ( P.L. 108-11 ) provides $2.23 billion for ODP, which is $230 more than the Administration request. In addition, the conference providedroughly $109.5 million for interoperable communications programs. Totalsupplemental funding for first responder preparedness comes to roughly $2.34billion, which, when added to the FY2003 regular appropriation of $2.045 billion,comes to a FY2003 grant total of $4.385 billion. Specifically, the conferenceagreement provides the following amounts:

$1.3 billion for ODP's formula grant programs (80% must go to localities),

$200 million for critical infrastructure protection (no less than50% going to localities),

$700 million to high threat urban areas,

$30 million for technical assistance, and,

$109.5 million interoperable communications (FEMA andCOPS) (70)

A number of observers have argued that the current level of federal assistance for first responders is insufficient and should be increased above current fundinglevels. Other observers, however, point to evidence of slow state and local utilizationof federal grants as an indication that additional funding at this time is notnecessary. (71) Still others have suggested thatODP's distribution formula should beadjusted to increase assistance to areas perceived to be high-risk. (72) The conferenceagreement addressed a number of these concerns. It instructed ODP to distributeformula grant funds to states within 60 days of enactment, and further instructedstates to distribute 80% of funds to localities within 45 days of receipt. Similarrequirements for distribution were applied to the other ODP assistance programs. Conferees also adopted several reporting requirements in the Senate bill( S. 762 ). These include reports on risk assessments of high-threat urbanareas, cost of securing such areas, appropriation federal share of security costs, andproposals for new distribution formulas. (73) Conferees also required reports onovertime accountability and a listing of all federal terrorism preparedness grantprograms administered by DHS. (74)

Departments of Justice and Homeland Security Counterterrorism Funds (75)

The Administration's FY2003 supplemental request included $500 million to reimburse Department of Justice organizations for the following purposes: (1) toreestablish operational capabilities that were lost or weakened as a result of a terroristattack; and (2) to pursue counterterrorism investigations, including the payment ofrewards. The request for this account includes language that would authorize the useof such funding to reimburse any federal agency for costs related to detaining aterrorist suspect as well.

For the Department of Homeland Security's Counterterrorism Fund, the Administration's FY2003 supplemental request included $1.5 billion to reimburseany homeland security organization for counterterrorism investigations andoperations, including operations in support of the Department of Defense. Amongother things, such operations could include (1) increasing border and maritimesecurity; (2) enhancing elements of the strategic national stockpile; (3) providingincreased port security for military outloads; and (4) deploying various biologicalattack detection technologies, related countermeasures, and response assets.

Congressional Action. As reported by the Senate Appropriations Committee, S. 762 provided $500million, as requested, for the Department of Justice's Counterterrorism Fund. However, as part of an omnibus amendment proposed by Senator Stevens, the Senatevoted to re-allocate these funds among several Department of Justice programs,including FBI salaries and construction, state and local law enforcement assistance,Community Oriented Policing Services, and interagency law enforcement support. The Stevens amendment also took $109.5 million of the President's request for theCounterterrorism Fund and made it available for additional FEMA disaster reliefoperations. The House measure appropriated $50 million for the Fund, and anadditional $450 million for several other Justice Department programs, including$399 million for the FBI. For Homeland Security Counterterrorism Fund, the Senaterecommended $1.135 billion after shifting $580 million for the Coast Guard to aseparate account, but including $215 million for the President's Emergency ResponseFund. The President had proposed resources for the emergency fund under a separateline-item.

As enacted, H.R. 1559 combines approaches taken in the House and Senate bills of allocating most of the proposed $500 million DOJCounterterrorism Fund to specific accounts. The FBI receives $367 million, closeto the House recommendation, but Senate proposals for over $160 million for stateand local law enforcement and interagency law enforcement support were deleted. Similar to the Senate bill, the conference agreement provides additional funds forFEMA, although the $55 million appropriation is less than half the amountrecommended in S. 762 .

Emergency Response Funds for the Executive and Legislative Branches

Beyond the additional resources for the Departments of Justice and Homeland Security to bolster their counterterrorism capabilities, the White House asked for a$250 million fund that could be drawn upon to meet any emerging terrorist relatedthreat across the entire federal government. Among any authorized activity, thishighly flexible fund could be used to assist first responders and health care workerswho have suffered adverse reactions from voluntary smallpox vaccinations.

The Administration also proposed a $125 million emergency fund for the legislative branch to meet emerging terrorist-prevention needs.

Congressional Action. House and Senate bills split on the issue of a White House emergency response fund. S. 762 provided $215 million within Department of Homeland Securityfunds, while the House did not include any resources for this purpose. As enacted, H.R. 1559 does not provide funding for a White House emergencyresponse fund but includes $150 million for the Department of Homeland Security'sCounterterrorism Fund. These resources can be used to reimburse any HomelandSecurity organization for terrorism-related expenses. The conference appropriationfurther includes $125 million for additional legislative branch security requirements,with specific allocations spread over a number of accounts, as illustrated in Table 8 .

Aviation Industry Relief (76)

The onset of the war in Iraq has dramatically effected the airline industry. Air travel in the short term has dropped approximately 10% according to the AirTransport Association (ATA). More worrisome for the airlines, advance bookingsfor the months ahead appear to be dropping approximately 30%. All of this ishappening against the backdrop of the events of September 11th, which also had ahuge negative impact on the industry. The airlines lost record amounts of money in2002, following what had been the previous record loss in 2001.

Among major airlines, only Southwest was profitable in 2002, and Southwest is the only major carrier believed to have a chance at profitability in 2003. Theindustry's second largest airline, United, is operating in receivership and thepossibility exists that other carriers could find themselves in this position in the nearfuture. There is, therefore, considerable concern that the airline industry is likely togo through a period of major structural change.

After September 11, Congress and the Bush Administration moved swiftly to provide the airline industry with $15 billion in federal financial support (AirTransportation Safety and System Stabilization Act (Stabilization Act), P.L. 107-42 ). The first $5 billion provided direct aid to pay for industry losses associated with theresults of the September 11th attacks. The vast majority of these funds have alreadybeen distributed to the airlines (a listing of airlines receiving funds is available fromthe Department of Transportation (DOT), http://ostpxweb.dot.gov/aviation/ ). Asecond source of funding, access to $10 billion in government backed loans, requiredapproval by the newly created Air Transportation Stabilization Board (ATSB). Thirteen airlines applied for the loan program. The majority received some form ofassistance, but the largest single applicant, United, was denied a loan. Of the $10billion authorized by this program only about $1.5 billion has been committed.

In the FY2003 Emergency Supplemental, Congress again proposed providing some short term relief to the airline industry. The House-approved package totaled$3.2 billion in direct assistance while the Senate proposed $3.5 billion, as estimatedby CBO. Both bills had the same intent, but there were significant differences in howaid would be provided. Both the House and the Senate measures included significant funding for security costs. In addition, S. 762 would providea tax holiday for collections of the existing $2.50 per flight segment security feecharged to airline passengers. The Senate measure would also extend to the end of2004 war risk insurance provisions in existing legislation that expire at the end of thisyear. In addition, the Senate bill provided additional unemployment insurance todisplaced airline industry employees. Both bills had provisions that would limitairline industry executive compensation.

The enacted emergency supplemental includes a relief package estimated by CBO as totaling $3.1 billion for FY2003. Conferees adopted the Senate approach ofdirect appropriations plus authority to temporarily suspend fees, and extendunemployment and war risk insurance. As calculated by CBO, the airline industryrelief package breaks out as follows for FY2003:

Grants to U.S. flag carriers for aviation security costs: $2.296 billion

Compensation to air carriers for secure cockpit doors: $100million

Suspension of fees, June 1 to September 30, 2003: $570million (77)

Extension of unemployment benefits: $125million 77