Truth In Spending

A September 6th New York Times story on Iraq quoted Pentagon spokesperson Bryan G. Whitman as saying: “All known Iraqi munitions sites are being secured by coalition forces.”

Eighteen days later, testifying on the president’s Fiscal Year 2004 Supplemental Budget request for $87 billion more for Afghanistan and Iraq, General John Abizaid flatly contradicted Whitman. Abizaid told the Senate Appropriations Committee that he had never encountered as much ammunition–estimated at 600,000 tons–as had been discovered in some 2,700 identified storage sites throughout Iraq. He then conceded: “I wish I could tell you that we had it all under control, but we don’t.”

That statement could easily be made about the whole enterprise in Afghanistan and Iraq. Neither is “under control,” particularly when it comes to monetary costs. And as a new fiscal year (FY) begins, a thumbnail “truth in spending” review is in order–along with some recent non-defense spending highlights.

Starting with FY2003, which just ended, the Pentagon and nuclear weapons programs in the Department of Energy received $382.2 billion in regular FY2003 appropriations. The Pentagon received another $62.4 billion (of $79 billion) in the FY2003 supplemental, bringing the total for defense activities to $444.6 billion. The supplemental allocated another $2.5 billion for the “Iraq Relief and Reconstruction Fund” while Afghanistan received $167 million in economic aid and another $170 million in military aid (training).

The president signed the FY2004 Defense Appropriations bill October 1st, but legislation authorizing $399.1 billion for defense activities (Pentagon and nuclear weapons) remains caught in the legislative process. This snail’s pace did not stop the administration from asking for $87 billion more in supplemental spending for FY2004. Within this amount were requests for

Afghanistan:

  • $11 billion for Operation Enduring Freedom in Afghanistan where just over 9,000 U.S. military personnel are facing a resurgent Taliban and al Qaeda five months after Secretary of Defense Donald Rumsfeld declared major combat was over.
  • $800 million for “pressing security and reconstruction needs in Afghanistan, including building the Afghan National Army ($222 million) and continuing construction to complete the road from Kabul to Herat” ($105 million). A mere $50 million was requested to support the work of Provincial Reconstruction Teams whose small-scale reconstruction projects are intended–and often do more–to win good will among local populations, especially in the volatile south of the country.
  • Overall, the ratio of U.S. spending on military operations to reconstruction represented by this request is 13.7 to 1.

Iraq:

  • $51 billion for Operation Iraqi Freedom’s 130,000 troops.
  • $20.3 billion for security, rehabilitation, and reconstruction. Specifically, money would go for electricity generation and transmission ($5.7 billion), sanitation and safe drinking water ($3.7 billion), irrigation and marshland restoration ($875 million), housing and highway reconstruction ($470 million), and health system improvements ($850 million). Members of the Governing Council believe that many tasks could be implemented more cheaply if assigned to local Iraqi civilian groups through the appropriate Iraqi ministries or by international nongovernmental groups who would be relying on local firms and workers.
  • The ratio of requested military to reconstruction spending in the supplemental is 2.5 to 1. Here much of the reconstruction is being run by the military.

Some in Congress find very troublesome that at the beginning of FY2004 the U.S. is set to spend at least $486 billion on the military in the next twelve months. This is more than the administration’s combined request for discretionary spending for all other government departments and agencies. In fact, the cumulative cost of defense activities at the start of FY2004 accounts for 56% of projected federal discretionary spending. A further supplemental with a significant sum for military activities is almost assured, given that other countries are reluctant to send military forces to Iraq. Nor are expectations high that this month’s donor conference will yield large international donations for reconstruction in Afghanistan and Iraq. Afghan finance minister Ashraf Ghani said his country needed $30 billion for reconstruction over the next five years, but only $2 billion has been pledged so far. And going into the Madrid conference on Iraq, a similar $2 billion is all that participants have provisionally pledged.

Holding the Purse Strings

One of the reasons for the dearth of donations, especially for Iraq, is the U.S. insistence on dominating (if not dictating) how funds will be spent. UN resolution 1483 (2003), largely written by the Bush administration, establishes an International Advisory and Monitoring Board to oversee the influx and outflow of money in the Iraq Development Fund. But potential donors are leery that the Board will do anything or have real review authority.

The size of the FY2004 supplemental, particularly the $21 billion for reconstruction, has angered numerous members of Congress. Some believe that at least part of the $21 billion should be given as loans to be paid back with oil revenues rather than all of it going as grants. Others wonder why the U.S. is spending these sums in foreign countries on infrastructure and basic services when these same things in the U.S. need more money. In fact, an attempt may be made to attach the “The American Parity Act” (HR 1738), currently a separate piece of legislation, to the FY2004 supplemental. Moreover, even senior Republicans on the House Appropriations Committee are reportedly displeased with the administration’s allocation of funds in the FY2004 supplemental.

Indeed, on the home front, the past few weeks have revealed the fragility of many basic services. The failure of an electric transmission grid not built to carry large loads plunged a large part of the East Coast and north central U.S. into darkness and disrupting water purification plants. Hurricane Isabel did much the same in the Mid-Atlantic states just weeks later. And while some states (or portions of states) were declared federal disaster areas, for the most part it is the financially hard-pressed state and local governments that bear the financial burdens for building and maintaining basic social services–and do so in the face of declining financial support from Washington, even as new mandates are levied.

Then there is the continuing hemorrhaging in the U.S. health care system. The Census Bureau reported September 30th that 43.6 million people in the U.S. were without health insurance, an increase of 2.4 million, the largest jump in ten years. The total would have been higher except that 4 million were able to participate in either Medicaid or the State Children’s Health Insurance Program (Los Angeles Times, September 30). That’s the “good” news. The bad news is that this increase in enrollment in the government-sponsored plans occurred because the number of people living below the official poverty level increased from 32.9 million in 2001 to 34.6 million in 2002. (The Census Bureau reported that the poverty level for a family of four was $18,392 and for two people $11,756.)

Truth and Transparency

A different perspective on the negative implications of such unbalanced federal spending, compounded by huge tax cuts, emerged in a September 17th speech by the Comptroller General of the United States, David Walker. A few quotes from his text, which he titled “Truth and Transparency,” are trenchant.

“As of September 30, 2002, the U.S. had about $1 trillion in reported assets … [and] almost $8 trillion in reported liabilities….That left us with an approximate $7 trillion accumulated deficit, or a little over $24,000 for every man, woman, and child in the U.S….

“Significant items not currently included as liabilities in the government’s financial statements include “several trillion dollars in non-marketable government securities [IOUs] in so-called ‘Trust Funds’.

“Liability figures also do not adequately consider veterans’ health care benefit costs … nor … the difference between future promised and funded benefits in … the Social Security and Medicare programs. These additional amounts total tens of trillions of dollars…. Stated differently, they are likely to exceed $100,000 in additional burden for every man, woman, and child in America today.

“In fairness, the federal government’s financial statements also do not include certain assets…such as public lands and monuments, or national defense assets, which include items such as missiles, tanks, ships, and planes. While these items were acquired at a cost and have some value, do we really ever expect to sell them? For the most part, the answer is no.”

Walker also laid out in real dollars just how bad the situation is. In FY2002, Washington’s operational deficit was $365 billion while the unified budget deficit (after adding in the trust fund surpluses) came to $158 billion. For FY2003, the Congressional Budget Office (CBO) estimates a unified budget deficit of $401 billion but an operational deficit of $562 billion. These figures grow to $480 billion and $644 billion, respectively, in FY2004.

Costs of War and Peace

Beyond the incalculable toll of lives lost and disrupted, the contrast between the financial costs of war and peace could not be more stark. Ongoing military operations just in Afghanistan and Iraq are costing nearly $5 billion a month. In contrast, the administration asked for only $550 million for peacekeeping in its FY2004 budget and another $50 million in the FY2004 supplemental. With a population (2002) of 288.4 million, that $600 million for peacekeeping comes to a little more than $2 per person in the U.S. Estimating the 2004 U.S. population at 290 million, the $486 billion (minimum) to be spent for defense activities in FY2004 represents $1,676 per U.S. resident. These are “sunk costs,” little of which, as David Walker noted, will ever be recouped.

There is a tradition, less honored now than in the past, that if a person saved another from death (usually physical but also psychological), the “savior” incurs a moral obligation and responsibility for the saved person. Although initially a minor justification for war, the administration’s increasing reliance on the idea that the U.S. had a moral obligation to liberate the Iraqi people implies yet another unintended consequence: the U.S. has incurred an open-ended obligation, going beyond the requirements in international law applying to an “occupying power,” for the future of Iraq.

The burgeoning U.S. deficits, fed by a guns-butter-tax cut policy, will shortly be compounded further by the first large-scale waves of retiring baby-boomers. Addressing this coming reality means changing spending levels, which requires changing policies. The area where the greatest flexibility exists for change is foreign policy, specifically moving from a unilateral, highly militarized approach to a multinational, cooperative, diplomatic posture in which not only are risks shared but so too are responsibilities and decisionmaking. In Iraq and Afghanistan, indications are that such a revamped approach would induce other countries and regional organizations to contribute forces for peacekeeping and funds for rebuilding, thereby reducing both U.S. military and reconstruction costs. In turn, this would ease congressional concerns about spending to rebuild Iraq and allow for some transfer of funds for equivalent U.S. needs.

The UN has noted that world military expenditures have been on the rise since 1998. Most of these expenditures–43%–now fall to the United States. Moreover, the administration seems intent on exporting the American Way of War; of the $29.2 billion in 2002 in worldwide arms sales, the U.S. share was 45.5%.

In his remarks to the UN General Assembly on September 11, Secretary General Kofi Annan said that the nations of the world had come to a fork in the road, to a “moment no less decisive than 1945 itself when the United Nations was founded” to end the scourge of war. In the intervening 58 years, nations have managed to avoid worldwide conflagration, but on a more local scale have all too often failed to manage relationships so as to preclude a resort to war with all its human and monetary costs–which are always more and last far longer than predicted.

“The human race,” said Kofi Annan, has “only one world to live in, and … unless it [manages] its affairs more prudently, all human beings might perish.” The human race itself has created many of the challenges confronting the world, and it must somehow “forge a policy that is collective, coherent, and workable” if it is to deal with today’s many pressing crises. As the Secretary General said, “History is a harsh judge; it will not forgive us if we let this moment pass.”

Dan Smith is a military affairs analyst for Foreign Policy In Focus (online at www.fpif.org) is a retired U.S. army colonel and Senior Fellow on Military Affairs at the Friends Committee on National Legislation.