From May 2003 through June 2004, the CPA was the UN-recognized coalition authority led by the United States and the United Kingdom that was responsible for the temporary governance of Iraq and for overseeing, directing, and coordinating the reconstruction effort. Within the CPA, the Project Management Office (PMO) was established to provide prioritization and management of projects and contract support of U.S.-funded reconstruction projects. In May 2004, the President issued a National Security Presidential Directive, which stated that after the transition of power to the Iraqi government, the Department of State (State) through its ambassador to Iraq would be responsible for all U.S. activities in Iraq, with the exception of U.S. efforts relating to security and military operations, which would be the responsibility of the Department of Defense (DOD). On June 28, 2004, the CPA transferred power to a sovereign Iraqi interim government, and the CPA was officially dissolved. At that time, the U.S. role—under DOD leadership—changed from being part of the coalition-recognized authority for temporary governance of Iraq to supporting the sovereign Iraqi government as an ally and friend, under State leadership. Management authority and responsibility of the U.S. reconstruction program also transitioned at that time from DOD to State. The Presidential Directive also established two temporary offices: the Iraq Reconstruction and Management Office (IRMO) to facilitate transition of reconstruction efforts to Iraq; and the Project and Contracting Office (PCO) to facilitate acquisition and project management support for U.S.-funded reconstruction projects. Iraq-based personnel from both offices are under U.S. chief of mission authority in Baghdad, although the U.S. Department of the Army funds, staffs, and oversees the operations of the PCO. IRMO is a State Department organization and its responsibilities include strategic planning, prioritizing requirements, monitoring spending, and coordinating with the military commander. Under the authority of the U.S. Chief of Mission in Baghdad, the PCO’s responsibilities include contracting for and delivering services, supplies, and infrastructure funded by $12.4 billion of the $18.4 billion for Iraq relief and reconstruction in the fiscal year 2004 emergency supplemental passed by the Congress. (See fig. 1.) Other U.S. government agencies also play significant roles in the reconstruction effort. For example, USAID is responsible for projects to restore Iraq’s infrastructure, support healthcare and education initiatives, expand economic opportunities for Iraqis, and foster improved governance. The U.S. Army Corps of Engineers (USACE) provides engineering and technical services to the PCO, USAID, and military forces in Iraq, including planning, design, and construction management support for military and civil infrastructure construction. As of March 2005, U.S. appropriations, Iraqi revenues and assets, and international donor pledges totaling about $60 billion had been made available to support the relief and reconstruction and government operations of Iraq. U.S. appropriations of more than $24 billion for relief and reconstruction activities have been used largely for security and essential services—including the repair of infrastructure, procurement of equipment, and training of Iraqis—and have been reallocated over time as priorities have changed. Iraqi revenues and assets, which totaled about $23 billion in cumulative deposits, were turned over to the new Iraqi government in June 2004 and have largely funded the operating expenses of the Iraqi government. International donor funds have been primarily used for public and essential service reconstruction activities; however, most of about $13.6 billion pledged over a 4-year period is in the form of potential loans that have not been accessed by the Iraqis. As of March 2005, of the $24 billion in appropriated U.S. funds made available for relief and reconstruction in Iraq from fiscal years 2003 through 2005, about $18 billion had been obligated and about $9 billion had been disbursed. These funds were disbursed for activities that include infrastructure repair of the electricity and oil sectors; infrastructure repair, training, and equipping of the security and law enforcement sector; and CPA and U.S. administrative expenses. Many current U.S. reconstruction efforts are consistent with initial efforts the CPA developed before June 2004. As priorities changed, particularly since the transition of power to the Iraqi Interim Government, the U.S. administration reported that it had reallocated about $4.7 billion of the $18.4 billion fiscal year 2004 emergency supplemental among the various sectors. (See fig. 2.) These reallocations were reported in October 2004, January 2005, and April 2005. As of May 2005, the administration was assessing whether additional reallocations would be needed for short-term reconstruction efforts. In October 2004, the administration reported that it had reallocated appropriated funds from the $18.4 billion fiscal year 2004 emergency supplemental based on a review of all U.S. reconstruction funding priorities. The administration reported that it had reprogrammed about $1.8 billion to security and law enforcement and about $1.2 billion to economic and private sector development and governance activities. These funds were reallocated from future water and electricity infrastructure projects. In addition, about $450 million in the oil sector had been reprogrammed from refined fuel imports to oil reconstruction projects. This review, prompted by both the transition from the CPA to a new State Department-led mission and a significant increase in insurgent activity in mid-2004, determined that the deteriorating security situation, the desire of the interim Iraqi government to quickly expand its security forces, and the need to create more jobs for the Iraqi people demanded a significant reallocation of funding. In January 2005, the administration reported that it had reallocated $457 million. The administration reported that $246 million of this amount was for smaller projects to provide immediate and visible essential services in four cities—Fallujah, Samarra, Najaf, and Sadr City—affected by coalition battles with the insurgents. According to agency documents and officials, these services included critical health needs, power distribution, and potable water projects. This funding was shifted from longer term power generation, transmission, water, and hospital projects. The remaining $211 million of the reallocated funds was redistributed within the electricity sector from longer range transmission projects to more immediate needs, such as spare parts procurements, turbine upgrades, and repair and maintenance programs. In April 2005, the administration reported that it had reallocated $832 million—$225 million for job creation activities and $607 million for essential services projects and programs. To fund these efforts, the embassy cancelled five longer term potable water projects and future energy projects. The $225 million reallocation for job creation activities primarily includes activities in targeted Baghdad neighborhoods and through USAID’s Community Action Program throughout Iraq. Of the $607 million reallocation for essential services, $444 million is for the electricity sector, including operations and maintenance projects at a number of strategic power plants to reportedly enhance the sustainability of ongoing projects, the completion of several electricity generation and rehabilitation projects, and the coverage of cost growth due to increased security costs in the electricity sector. The remaining funds allocated for essential services programs include funds for gas/oil separation plants, operations and maintenance projects for water treatment plants recently turned over to the Iraqis, and prison and courthouse security projects. Iraqi funds, which totaled about $23 billion in cumulative deposits from May 2003 through June 2004, are a mix of revenues and assets that the CPA used primarily to support the Iraqi budget for operating expenses, such as salary payments and ministry operations. A smaller portion of the $23 billion—approximately $7 billion—was allocated for relief and reconstruction projects, primarily for the import of refined fuel products, security, regional programs, and oil and power projects. These Iraqi funds came from revenues in the Development Fund for Iraq (DFI) and vested and seized assets from the previous Iraqi regime. Of the $23 billion, nearly $17 billion had been disbursed as of June 28, 2004. The DFI was initially comprised of Iraqi oil proceeds, UN Oil for Food program surplus funds, and returned Iraqi government and regime financial assets. From May 2003 to June 2004, nearly $21 billion had been deposited, $17 billion allocated, and $14 billion disbursed. The CPA turned DFI stewardship over to the new Iraqi government in June 2004. The majority of the funding had been used for Iraqi ministry operations, including salaries and other Iraqi budget support. Iraqi oil revenues continued to be deposited into the DFI after June 28, 2004. According to State Department estimates, about $18 billion in oil revenues had been deposited into the DFI since the transition from the CPA to the interim Iraqi government, as of May 31, 2005. The vested assets were former Iraqi regime funds frozen and held in U.S. financial institutions after the first Persian Gulf War and subsequently vested by the President in the U.S. Treasury in March 2003. In addition, assets of the former regime were seized by coalition forces within Iraq. These combined vested and seized assets totaled about $2.65 billion and had largely been obligated and disbursed by the time the CPA transferred authority to the Iraqi Interim Government. The vested and seized assets were used primarily on ministry operations, salaries, and regional programs, such as the Commander’s Emergency Response Program. International donors’ funds have been largely used to support public and essential service reconstruction activities; however, most of donors’ pledges are in the form of loans that have not been accessed by the Iraqis. International donors have pledged about $13.6 billion in support of Iraq reconstruction over a 4-year period from 2004 through 2007. Of this amount, about $10 billion, or 70 percent, is in the form of loans, primarily from the World Bank and International Monetary Fund (IMF).