On October 29, House and Senate appropriators announced a conference agreement, H.Rept.108-337 , on H.R. 3289 , a bill providing supplemental appropriations for militaryoperations and for reconstruction assistance in Iraq and Afghanistan. The House approved the billby a vote of 298-121 on October 31, and the Senate approved it by voice vote on November 3. ThePresident signed the bill into law, P.L. 108-106 , on November 6. The conference agreement rejecteda Senate proposal to provide about half of the Iraq reconstruction assistance as loans. For a review of conference action on key issues, see the section entitled "Key Issues in Conference," below. In a nationwide address on September 7, 2003, the President announced that he would requestan additional $87 billion for reconstruction assistance to Iraq and Afghanistan and for ongoingmilitary operations there and elsewhere. (1) OnSeptember 17, the White House submitted a formalrequest for the funds to Congress. On September 21, the Defense Department provided backupmaterial to congressional committees. (2) OnSeptember 23, the Coalition Provisional Authority thatis administering Iraq provided information on the details of its request for reconstruction aid. Congressional consideration of the request was completed on November 3, when the Senate approved a conference agreement on H.R. 3289 providing supplemental appropriationsof $87.5 billion for FY2004. Earlier, congressional committees held a number of hearings on issuesraised by the Administration request. Readers in congressional offices may click on the highlightedhearings listed below (in the .html version of this report) to link to hearing transcripts. During congressional debate, a wide range of legislative proposals addressing costs, burdensharing, and other issues were considered, including measures to require the Administration to provide reports on Iraq policy, giving details of plans to establish security and restore basic services; roll back reductions in the top income tax rate from 2005 through 2010 enoughto offset costs; encourage greater allied contributions of troops and reconstruction aid; transfer control of Iraq reconstruction from the Defense Department to the StateDepartment; and require fair and open competition on contracts in Iraq. The major issue in Congress was whether to provide Iraq reconstruction funds as grants, as the Administration proposed, or as loans. The following discussion (1) briefly reviews the basic elements of the request; (2) discusses the debate about long-term costs; (3) discusses congressional action on key legislative proposals; (4)provides an overview of funding for ongoing military operations in Iraq, Afghanistan, and elsewhere;and (5) provides an overview of funding for reconstruction and security in Iraq, for reconstructionin Afghanistan, and for other foreign policy initiatives. Of the $87 billion that the Administration requested, $65.6 billion was for defense, and $21.4billion for foreign policy programs. Of the $65.6 billion for defense, $51.5 billion was for ongoingmilitary operations in Iraq, $10.5 billion for U.S. forces in Afghanistan, and the remaining $3.6billion for homeland defense and support to allies. (3) Of the $21.4 billion for foreign policy programs,$20.3 billion was for security and reconstruction in Iraq, about $800 million for Afghanistan, andabout $200 million for other Global War on Terrorism foreign policy initiatives. Table 1 providesan overview of the request. Table 1. Basic Elements of the Administration Request for Additional Funding for Iraq, Afghanistan, and Other Activities (amounts inbillions of dollars) Sources: Congressional Briefing material provided by the Office of Management and Budget,theDepartment of Defense, the Department of State, and the Office of the Coalition ProvisionalAuthority, September 8, 2003; Office of Management and Budget, Supplemental AppropriationsRequest, September 17, 2003; Department of Defense, FY2004 Supplemental Request, September21, 2003. Note: a. Includes $61 million for U.S. diplomatic facilities and security and $50 million for multinationaldivision peacekeeping costs. Administration officials said that the request was designed to cover only pressing requirements through the next year to fifteen months -- the defense money through FY2004, which ends onSeptember 30, 2004, and the Iraq reconstruction money through December 2004. The request formilitary operations assumed that current troop levels and the current pace of operations in Iraq,Afghanistan, and elsewhere would continue unchanged through the fiscal year. The request did notaddress ongoing military costs after FY2004. Presumably, if the number of troops deployed in Iraqwere to change, costs would change as well. The $20 billion requested for reconstruction and security in Iraq finances only a part of what Administration officials estimate will be needed in the long run. Current estimates, from a varietyof sources, including the U.S. government, put the figure in the $50-75 billion range. A needsassessment released by the World Bank and the U.N. Development Program (UNDP) puts the costof reconstruction in 14 key sectors at $36 billion over four years, not including $19.4 billionestimated by the U.S.-led Coalition Provisional Authority (CPA) for security, oil, and other criticalsectors not covered by the Bank assessments. (4) TotalBank/CPA projected reconstruction coststhrough 2007 amount to $55 billion, $17.5 billion in 2004 alone. The White House says that theIraqi oil revenues and "recovered assets," along with additional international support, are expectedto contribute to meet remaining needs. Officials have also said, however, that Iraqi oil revenues areexpected to total about $12 billion in the next year, and that government operations will cost aboutas much, (5) leaving no Iraq oil money forreconstruction efforts in the near term. The request for $87 billion for defense and reconstruction assistance comes on top of more than$110 billion provided for those purposes since the September 11, 2001, terrorist attacks. Congresshas provided $100 billion in defense funding, over and above regular defense appropriations, formilitary operations in Afghanistan, for other global counter-terrorism military and intelligenceoperations, for homeland defense, and, most recently -- in last April's Emergency WartimeSupplemental appropriations bill -- for the war in Iraq. Table 2 provides a summary of defensefunding by appropriations bill. Table 2. Defense Funding for Iraq, Afghanistan, and Other Global War on Terrorism Activities: FY2001-FY2003 (amounts in billionsof dollars) *Notes: Total may not add due to rounding. The FY2004 Defense Appropriations Act rescinded$3.5 billion of funds provided in the FY2003 Emergency Wartime Supplemental. Since September 11, Congress has appropriated about $12 billion for Iraqi and Afghan reconstruction and for foreign aid to the "front-line" states in the global war on terrorism. Of that,Congress has provided $1.4 billion in reconstruction assistance to Afghanistan, with another $600million pending in regular FY2004 appropriations bills. For Iraq, the April FY2003 EmergencyWartime Supplemental provided $2.5 billion in foreign operations funding for relief andreconstruction. Additional funding for Iraq reconstruction totals $1.6 billion, of which $1.1 billionis from Department of Defense funds (part of the $62.6 billion shown above in Table 2 from theFY2003 Emergency Wartime Supplemental), and the remainder from the regular U.S. Agency forInternational Development (USAID) budget (see below for a further discussion). A large part of the debate in Congress about the Administration's $87 billion request focused on cost issues, including the impact of the new funding on the overall federal budget; whether the Administration was adequately forthcoming in its previousstatements about costs; how accurate and complete the current cost projections are; and how great costs will be in future years. The following sections review each of these issues in turn. The Office of Management and Budget (OMB) mid-session review of the budget, released in July, estimated that the federal budget deficit would total $455 billion in FY2003 and $475 billionin FY2004, assuming congressional enactment of the Administration program for FY2004. (6) WhiteHouse officials said that the requested additional appropriations of $87 billion for FY2004 wouldpush the deficit to about $525 billion for that year. (7) The Congressional Budget Office (CBO)updated budget baseline projected deficits of $401 billion in FY2003 and $480 billion in FY2004. (8) It is important to note that the CBO baseline for FY2003 included outlays from the April 2003wartime supplemental, and CBO projections for future years assumed growth with inflation inoverall discretionary spending. So, in effect, the CBO estimate of the FY2004 deficit alreadyassumed additional supplemental appropriations for military activities in Iraq and elsewhere roughlyequal to the amount provided in FY2003. (Reconstruction assistance for Iraq and Afghanistan,however, was more than three times as high in the FY2004 request as in FY2003.) (9) Administration officials argued that the economy can readily absorb additional federal borrowing entailed by the requested supplemental, particularly since the economy is still recoveringfrom recession. Using OMB economic projections, a deficit of $525 billion in FY2004 would totalequal 4.4% of gross domestic product -- less than the 5%-6% of GDP that the government borrowedin the mid-1980s. Congressional critics argued that funding for domestic programs, though not taxcuts, has been constrained; that borrowing 20%-25% of the overall federal budget is fiscallyirresponsible; and that continuing deficits will endanger the economy in the long term. Others, including some Members of Congress, contended that, given Iraq's future oil revenue potential, reconstruction costs should be financed as loans rather than grants. In this way, they say,future loan repayments would be a source of revenue for the United States.