[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
THE GROWING BUDGETARY COSTS OF THE IRAQ WAR
=======================================================================
HEARING
before the
COMMITTEE ON THE BUDGET
HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
HEARING HELD IN WASHINGTON, DC, OCTOBER 24, 2007
__________
Serial No. 110-22
__________
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COMMITTEE ON THE BUDGET
JOHN M. SPRATT, Jr., South Carolina, Chairman
ROSA L. DeLAURO, Connecticut, PAUL RYAN, Wisconsin,
CHET EDWARDS, Texas Ranking Minority Member
JIM COOPER, Tennessee J. GRESHAM BARRETT, South Carolina
THOMAS H. ALLEN, Maine JO BONNER, Alabama
ALLYSON Y. SCHWARTZ, Pennsylvania SCOTT GARRETT, New Jersey
MARCY KAPTUR, Ohio MARIO DIAZ-BALART, Florida
XAVIER BECERRA, California JEB HENSARLING, Texas
LLOYD DOGGETT, Texas DANIEL E. LUNGREN, California
EARL BLUMENAUER, Oregon MICHAEL K. SIMPSON, Idaho
MARION BERRY, Arkansas PATRICK T. McHENRY, North Carolina
ALLEN BOYD, Florida CONNIE MACK, Florida
JAMES P. McGOVERN, Massachusetts K. MICHAEL CONAWAY, Texas
ROBERT E. ANDREWS, New Jersey JOHN CAMPBELL, California
ROBERT C. ``BOBBY'' SCOTT, Virginia PATRICK J. TIBERI, Ohio
BOB ETHERIDGE, North Carolina JON C. PORTER, Nevada
DARLENE HOOLEY, Oregon RODNEY ALEXANDER, Louisiana
BRIAN BAIRD, Washington ADRIAN SMITH, Nebraska
DENNIS MOORE, Kansas [Vacancy]
TIMOTHY H. BISHOP, New York
GWEN MOORE, Wisconsin
[Vacancy]
Professional Staff
Thomas S. Kahn, Staff Director and Chief Counsel
Patrick L. Knudsen, Acting Minority Chief of Staff
C O N T E N T S
Page
Hearing held in Washington, DC, October 24, 2007................. 1
Statement of:
Hon. John M. Spratt, Jr., Chairman, House Committee on the
Budget..................................................... 1
Hon. Paul Ryan, ranking minority member, House Committee on
the Budget................................................. 4
Hon. Adrian Smith, a Representative in Congress from the
State of Nebraska, prepared statement of................... 7
Peter R. Orszag, Director, Congressional Budget Office (CBO). 7
Prepared statement of.................................... 9
Prof. Linda J. Bilmes, Kennedy School of Government, Harvard
University................................................. 51
Prepared statement of.................................... 52
Amy Belasco, Specialist in U.S., Defense Policy and Budget,
Congressional Research Service............................. 58
Prepared statement of.................................... 60
Addendum:
Majority slides presented during the hearing................. 83
Minority slides presented during the hearing................. 87
THE GROWING BUDGETARY COSTS
OF THE IRAQ WAR
----------
WEDNESDAY, OCTOBER 24, 2007
House of Representatives,
Committee on the Budget,
Washington, DC.
The committee met, pursuant to call, at 10:05 a.m. in room
210, Cannon House Office Building, Hon. John Spratt [chairman
of the committee] presiding.
Present: Representatives Spratt, DeLauro, Edwards, Allen,
Becerra, Doggett, Berry, Boyd, McGovern, Etheridge, Hooley,
Baird, Moore, Bishop, Moore, Ryan, Conaway, Alexander, and
Smith.
Chairman Spratt. Call the hearing to order.
The hearing today concerns the cost of wars in Iraq and
Afghanistan. On the first panel, Dr. Peter Orszag will discuss
the cost of these conflicts, past and present, and will project
the costs to come based on two troop level scenarios,
illustrative scenarios.
Customarily, CBO does not calculate interest into war-
related debt, but in this study, which we have requested, CBO
has accrued interest, and the effects on total cost are
significant.
On the second panel we have two witnesses, Amy Belasco, of
the Congressional Research Service, who has tracked war costs
and prepared numerous excellent reports on the subject. Plus
Professor Linda Bilmes of the Kennedy School of Government at
Harvard has researched and published at length articles on the
economic and social costs of the war in Iraq. Professor Bilmes
is writing a book to be published early next year with updated
cost estimates.
This hearing builds on what we have started in previous
hearings all aimed at a better understanding of the cost of
these ongoing conflicts and, of course, their impact on the
budget.
While we will be discussing monetary costs, measured in
billions of dollars, the dearest price has been paid in lost
lives and wounded bodies by those serving and serving bravely
in Iraq and Afghanistan. So far in Iraq there have been more
than 3,800 military personnel and DOD civilians killed and more
than 28,000 wounded. In Afghanistan, more than 400 of our Armed
Forces have been killed, nearly 1,700 wounded.
Our troops have performed with valor and honor, and they
and their families, too, have sacrificed. As long as they are
in harm's way, we owe them our unstinting support and whatever
resources are needed to get the job done.
In deciding what to do in Iraq and Afghanistan, cost is not
the determinant, but the cost to date is substantial: $450
billion in Iraq alone and rising rapidly, and $10- to $12
billion a month. With the administration's budget request for
this year included, the overall costs will top $800 billion.
Now, by any yardstick, that is a staggering sum. In
constant dollars the cost is running above the peak spending
during Korea or Vietnam, as this next chart shows.
When the first war supplemental for 2008 is combined with
the base defense budget, the budget for 2008 totaled $647
billion. And when the next supplemental due to arrive shortly
comes, the total will go to $700 billion. Much of this
incremental cost will be borrowed, much of it, from foreigners,
which is why we have asked CBO to calculate the interest cost
into the subsidy.
As this next slide shows, we have provided more than $600
billion for the wars in Iraq and Afghanistan; 450- for Iraq
alone, according to the Congressional Research Service.
Two days ago the President submitted another war funding
request totaling $46 billion. This increases his 2008 request
to $196 billion and makes it the largest supplemental yet.
I will note the fact that strikes me about this particular
chart is that as the war has gone on, instead of diminishing as
we score successes, the cost has actually gone up and up and up
relentlessly each year to the point where, in the current
fiscal year, the cost is likely to be almost $200 billion. And
that is Iraq and Afghanistan.
These increases, however, are attributed mostly to our
commitments in Iraq. Of $800 billion provided through 2008, 600
billion has gone to Iraq. Of the $196 billion requested for
2008, 160 billion will be used in Iraq. Beyond 2008, the cost
remains significant, but the administration has declined to
give us a projection of those costs.
The administration's budget in 2009 includes $50 billion as
a placeholder, but it provides nothing, no projection, for 2010
and beyond.
I wish that was likely, but I think it is unrealistic,
particularly if we maintain forces in Afghanistan for some
years to come, which we are likely to do, and even if combat
operations ended tomorrow in Iraq, significant reconstitution
costs or reset costs would continue for several years to come.
The Army and the Marine Corps, for example, stated more than a
year ago that together they required 18 billion for reset each
year. Reset is refurbishment, repair, and replacement of worn
out and damaged equipment. Each of the services together said
that they required at least $18 billion a year for each year
they remain engaged in a substantial way in Iraq and for at
least 2 to 3 years after operations in Iraq cease.
The administration's latest supplemental indicate these
estimates are low. In the latest supplemental, the
administration is asking $46 billion for reconstitution. Now,
that is a broader, more inclusive term than reset, but that is
reconstitution, resupplying ourselves with equipment that has
been worn out, destroyed or badly damaged. That is $10 billion
more that was requested in 2007.
While the administration has declined to supply estimates
of future operations, the Congressional Budget Office, to its
credit, has agreed to try. CBO's estimates rest on illustrative
troop scenarios. In one, troop levels draw down to 75,000 in
the Iraq and Afghanistan theaters by 2013, and they remain at
that level, 75,000 troops, in theater, not necessarily in
country, through 2017. Under these assumptions, CBO projects
the cost of military operations at $966 billion over the 10-
year period, 2008 through 2017, and the cost of all operations
and all economic aid training indigenous forces is just over $1
trillion; 1 trillion, 55 billion to be exact. Add this to the
$604 billion already provided or appropriated for 2007, and
cumulative costs by 2017 could be a staggering $1.7 trillion.
While these costs are enormous, they haven't made any
calculation of interest on the funding borrowed for war
operations. And since the government has run substantial
deficits from 2003 through 2007, and since future borrowing to
some extent could be expected, interest needs to be imputed to
the total cost of the war.
This expense, as I said, has been previously omitted, but,
if included, according to CBO, interest cumulatively could be
as much as $705 billion by 2017. Added to direct costs to
military operation, to aid, to training of indigenous forces to
reconstruction, and total costs could reach $2.4 trillion by
2017. This estimate, once again, assumes a scenario, the
illustrative scenario, in which deployed forces in Iraq and
Afghanistan theaters draw down by 2017.
Now, one can quibble with these assumptions and with the
methodology, but no one can contest the enormous costs incurred
so far in Iraq or the likelihood that these costs will keep
being incurred into the immediate future.
The task of the Budget Committee is to balance priorities,
provide for the common defense, but also provide for health
care of our people, education of our young, transportation,
Social Security, all within the context of a balanced budget.
Understanding the costs of our deployments around the world is
one step towards balancing choices while planning the budget,
which is why we asked for this study from CBO and why we are
having the hearing today.
Dr. Orszag, we appreciate you coming. Before turning to you
for your statement, let me turn to Mr. Ryan for any statement
he would like to make.
Mr. Ryan, our Ranking Member.
Mr. Ryan. I thank the Chairman for yielding and for having
this hearing. This is an important hearing.
Since the beginning of the 110th Congress, we have had
repeated and vigorous debates about the war in Iraq and its
costs, as we should. We have heard comparisons about how much
we are spending on the war as opposed to children's health
insurance or education programs, or what have you, but nothing
has really changed. The President continues to send his war
funding requests to the Hill, and, in the end, he continues to
get what he asked for. And when asked in a recent debate, none
of the top Democratic Presidential candidates was willing to
commit to having troops out of Iraq as far in the future as
2013.
So the bottom line seems to be this: As long as we have
troops in Iraq, Congress will provide funding for them. That
being the case, we should continue to finance the war
responsibly, and the committee has led the effort in this
regard.
During the 108th Congress, this committee was the first to
include an estimated amount for war costs in the bottom line in
our budget. In the 109th Congress, at the urging of this
committee, the President followed suit, including his war
funding recommendations in the administration's annual budget
submissions.
The 2008 supplemental request was included in the
administration's proposal in February, and the Democratic
budget resolution did accommodate this amount, but it was not
included in the defense appropriations bill passed either by
the House or the Senate this year, and the Democrat Majority
has put off deliberation on the supplemental until after the
new year.
In addition, and quite inexplicably to me, the Majority has
failed to pass the regular defense appropriations and military
construction bills even though both House and Senate have
passed this overwhelmingly. At a time when people are so jaded
about partisanship, here is something we all have consensus on.
This should have been passed already.
The fiscal year began 24 days ago, and I distinctly
remember the Deputy Secretary of Defense testifying before this
committee in July that delays in funding are disruptive to our
men and women in combat on the ground and in harm's way. So it
seems we really should get on with it, and that is why we are
here.
We all know that the war entails many costs that cannot be
measured in dollars, but it is the area of funding where
Congress has its greatest impact, and as long as the funding is
going to continue, we have an obligation to do it responsibly.
I am proud of this committee's work, both from the current
Majority and the old Majority, in getting these numbers put
into the budget, and if I could just put one thing into
perspective, if you could pull up chart number 4, please, I
think this puts this debate into perspective. And I don't mean
to pull this chart up to try and offset what the Chairman just
said. I don't disagree with any of the numbers he cited. But
let us look at where we are today in our Nation's history and
what we are confronting.
This is a new ``ism.'' This is a world war like different
past world wars in size and scope. We are facing a moral
threat. Radical Islamic totalitarianism is a mortal threat to
this country. It is a mortal threat to our civilization and our
way of life, and we have to be prepared for this.
And so when you take a look at the sacrifice we have made
in our Federal budget, when you take a look at what the
American people have paid for in past conflicts that rise to
the level of this conflict, it is really quite low.
This is the chart that shows the percentage of our economy.
The spending on defense as a percentage of GDP. We are down
close to 4 percent right now in the post-9/11 era. The 50-year
average is 6.2 percent of GDP we have dedicated towards
national defense. In Vietnam, we were above 8 percent. In
Korea, we were about 11 percent. And in the Cold War build-up,
we were at about 6 percent of the GDP. So as a percentage of
our economy, as a proportion of our Federal budget, we are well
below the 50-year average even though we are now in the midst
of confronting one of the greatest mortal threats to our
country and our civilization, which is a threat to democracy
and freedom worldwide.
So it is important to put this in perspective. Equally
important, it is the job of this committee to make sure that we
are not doing this in fits and starts; equally to make sure
that we do this within our budget so that we can have rational
debate so that we can prepare for the future and we can save
efficiencies in the process, and to that end, I think CBO is
doing a good job. I think they ought to be commended for
putting these estimates together, I think, at the request of
the Chairman, on what will this look like in the outyears, what
will this look like if we have 75,000 troops in 2013, 30,000
troops thereafter. That is the kind of debate we ought to be
having. We should be putting these in the base budget.
But let us remember the fact that we do have a real
conflict on our hands that is not going away anytime soon. We
have to acknowledge that, put it in our budget, and let us look
at the fact that we are doing this so much more efficiently
with so fewer dollars than we ever did before when we had other
kinds of conflicts of this nature.
With that, I yield the balance of my time, and I thank the
Chairman for his indulgence.
Chairman Spratt. I thank you very much for an excellent
opening statement, Mr. Ryan.
Now, before turning to Dr. Orszag, let me tend to a couple
of housekeeping details.
First of all, I ask unanimous consent that all Members be
allowed to submit an opening statement at this point in the
record.
Without objection so ordered.
[The prepared statement of Mr. Smith follows:]
Prepared Statement of Hon. Adrian Smith, a Representative in Congress
From the State of Nebraska
Good Morning. I would like to thank Chairman Spratt for holding
today's hearing on this issue of concern to almost every American.
As Congress provides funds for troops in both the Fiscal Year 2008
Defense Appropriations Bill and the War Supplemental, it is important
for us to set the politics aside. Congress should finance Iraq
operations in a fiscally responsible manner without jeopardizing the
needs of our troops.
After visiting our troops stationed in Iraq and Afghanistan and
seeing real progress from strategies now in place, I am even more
convinced the Global War on Terror can be won by supporting our troops
and providing them the appropriate tools needed for success. By
properly funding the Iraq mission today, the United States is helping
Iraq to operate independently in the future; and an independent Iraq is
a goal I know we all share.
I look forward to hearing the testimony of the witnesses today.
Mr. Chairman, I thank you for your leadership in holding this
hearing.
Chairman Spratt. Now, Dr. Orszag, we will go directly to
you. First, let me thank you for the diligent good work as
usual you have done in preparing the report that you bring to
us today. We look forward to your explanation of it.
Secondly, you will constitute a panel of one. When your
testimony is concluded, we will have questions, and then we
will have the second panel follow you, if that is agreeable.
STATEMENT OF PETER ORSZAG, DIRECTOR, CONGRESSIONAL BUDGET
OFFICE
Mr. Orszag. Thank you very much, Mr. Chairman, Congressman
Ryan, Members of the Committee.
U.S. operations in Iraq, Afghanistan and the global war on
terrorism have important effects for the Nation and for the
individuals directly involved that go well beyond their effect
on the Federal budget. My job and my testimony this morning,
though, focuses on the narrower issues surrounding those budget
costs. The testimony delineates three types of budget costs:
past spending, potential future spending and borrowing costs.
First, the past. As the first chart shows, from September
of 2001 through the end of fiscal year 2007, the Congress
appropriated $602 billion for military operations in Iraq,
Afghanistan and other activities associated with the war on
terrorism. This funding has been rising rapidly, roughly
doubling in between 2003 and 2007, as you see on the chart,
from the 88 billion to $170 billion.
A disproportionate amount of that growth has been
experienced in the area of procurement, which rose from about a
billion dollars in 2003 to more than $50 billion in 2007.
Much of that growth in turn is related to the so-called
reconstitution and related reset programs, which are intended
to repair or replace the damaged equipment. CBO's analysis of
those programs, however, suggest that a significant share of
the funding has been devoted to substantial upgrades or new
purchases to expand capacity above prewar levels rather than
simply to replace or repair damaged equipment.
In addition to the $602 billion in funds that were
explicitly appropriated for the war, CBO estimates that the
Veterans Administration has spent an additional $2 billion for
war-related benefits. Including this VA-related spending,
funding for the war through 2007 has amounted to $604 billion,
as shown in the second table.
As that table also shows, the vast bulk of this $604
billion that is the first column provided to date through the
end of 2007 has been for the Department of Defense. That is the
$533 billion you see in the upper left corner of the first
column.
DOD is currently obligating an average of almost $11
billion a month for expenses associated with the war. Most of
that is related, about $9 billion per month, for operations in
Iraq.
I would also note that war-related appropriations now
account for about a quarter of the Department's overall budget.
The remainder of the $604 billion provided to date is--in
addition to the VA spending that I already mentioned, comes in
two different categories. First, approximately $30 billion has
been provided to establish training and equip indigenous
security forces in Iraq and Afghanistan. And roughly $39
billion has been provided for reconstruction and relief
efforts, diplomatic operations, embassy construction, foreign
aid and support.
Okay. That is the past. In terms of the future, CBO has
projected the cost of activities associated with operations in
Iraq, Afghanistan and the war on terrorism under two possible
scenarios. The productions for both scenarios are based on the
assumption that the increased troop levels currently in theater
in Iraq will be sustained for nearly 12 months and then
reduced. I would also note that the scenarios are meant to
serve as an illustration of the budgetary impact of two
possible courses in the war on terrorism, but they are not
intended to be a precise prediction of what will occur.
In the first scenario, the number of personnel deployed on
the ground for the war on terrorism would be reduced from an
average of 200,000 in fiscal year 2008 to 30,000 by the end
of--sorry, by the beginning of fiscal year 2010 and remain at
that level through 2017. CBO estimates that future cost to the
government under this scenario would total $570 billion over
the next decade, as you can see at the bottom of the second
column in this chart.
In the second scenario, the number of personnel deployed to
Iraq and other locations with the war on terrorism would
decline more gradually, falling from 200,000 this year to
75,000 by the end of fiscal year 2013, and then remain at that
level through 2017. Under that scenario, CBO estimates that
future costs would total more than $1 trillion over the next
decade. Again, you see that at the bottom of the final column
in the chart.
Included in both past funding and projected funding under
these two illustrative scenarios, total spending for U.S.
operations in Iraq, Afghanistan and the rest of the war on
terrorism would thus amount to between $1.2 trillion and $1.7
trillion through 2017.
In addition, CBO does not traditionally include the cost of
borrowing in our analysis of specific programs. However, in
this case, the Budget Committee requested that we compute the
additional debt service costs that would accrue if past and
future spending on the war were financed entirely by borrowing.
If such funding were entirely financed by borrowing, the
additional debt that the government would accumulate would
entail higher interest payments. Under the assumption that past
spending has been deficit-financed, CBO estimates that
additional interest payments would total $415 billion through
2017. In addition, if the future spending paths that are shown
on this chart were also deficit-financed, interest payments
would go up by another 175 billion to $290 billion.
In other words, the bottom line is that to the extent the
spending is not offset by higher taxes or reduced spending
elsewhere in the budget and therefore simply adds to the
deficit, the total budgetary impact of the war, including
spending to date, possible future spending, and higher interest
costs would amount to between $1.7 trillion and $2.4 trillion
through 2017.
A final part of my written testimony addresses some
differences between CBO estimates and other estimates of the
costs of the war that have been produced by private
researchers, and I would be happy to answer any of your
questions about those.
Chairman Spratt. Thank you.
[The prepared statement of Peter Orszag follows:]
Prepared Statement of Peter Orszag, Director,
Congressional Budget Office
Mr. Chairman, Congressman Ryan, and Members of the Committee, I
appreciate the invitation to appear before you today to discuss the
costs of U.S. operations in Iraq and Afghanistan and the government's
activities related to the broader war on terrorism. Those operations
and activities have important effects beyond their implications for the
federal budget, but my testimony this morning will focus on the
narrower issues of the appropriations and obligations to date and the
projected costs of the war on terrorism under two different deployment
scenarios.
SUMMARY
At the request of Chairman Spratt, the Congressional Budget Office
(CBO) has totaled the funding provided through fiscal year 2007 for
military and diplomatic operations in Iraq and Afghanistan and other
activities associated with the war on terrorism, as well as for related
costs incurred by the Department of Veterans Affairs (VA) for medical
care, disability compensation, and survivors' benefits. In addition to
totaling the funding provided to date, CBO has projected the total cost
over the next 10 years of funding operations in support of the war on
terrorism under two scenarios specified by the Chairman. Those
scenarios are meant to serve as an illustration of the budgetary impact
of two different courses in the war on terrorism but are not intended
to be a prediction of what will occur.
Including both funding provided through 2007 and projected funding
under the two illustrative scenarios, total spending for U.S.
operations in Iraq and Afghanistan and other activities related to the
war on terrorism would amount to between $1.2 trillion and $1.7
trillion for fiscal years 2001 through 2017 (see Table 1).\1\ A final
section of this testimony briefly compares parts of CBO's estimate to a
frequently cited estimate prepared by two academic researchers, Linda
Bilmes and Joseph Stiglitz.\2\
FUNDING THROUGH FISCAL YEAR 2007
From September 2001 through the end of fiscal year 2007, the
Congress appropriated $602 billion for military operations in Iraq and
Afghanistan and other activities associated with the war on terrorism.
In addition, although not explicitly appropriated for that purpose, an
estimated $2 billion has been spent by VA for war-related benefits.
Including VA's spending, funding for the war has amounted to $604
billion. Those sums do not include any funding for fiscal year 2008;
activities currently are being funded by a continuing resolution (which
is in effect through November 16, 2007).
TABLE 1
Source: Congressional Budget Office.
Note: Details may not add to totals because of rounding.
a. Funding in 2007 for military operations and other defense activities
includes almost $7 billion to maintain an additional 45,000
personnel on active duty to support ongoing deployments and as part
of the Administration's initiative to permanently increase the size
of the Army and Marine Corps.
b. These amounts do not include the cost of the Administration's
initiative to increase the size of the Army and Marine Corps, which
CBO estimates will cost $162 billion over the 2008--2017 period.
c. Includes $1.6 billion for medical care, disability compensation, and
survivors' benefits that CBO estimates has been spent over the
2001--2007 period from regular appropriations for the Department of
Veterans Affairs.
According to CBO's estimates, the majority of the $604 billion
appropriated to date--about $533 billion--has been provided to the
Department of Defense (DoD) for U.S. military operations and other
defense activities. Such war-related appropriations accounted for more
than 20 percent of the department's budget in 2006 and more than a
quarter of its budget in 2007. DoD currently is obligating an average
of almost $11 billion a month for expenses associated with its
operations in Iraq and Afghanistan and for other activities related to
the war on terrorism. Most of that amount (more than $9 billion per
month) is related to operations in Iraq.
The remainder of the $604 billion has been provided for three
categories of spending: Approximately $30 billion has been provided to
establish, train, and equip indigenous security forces in Iraq and
Afghanistan. About $39 billion has been appropriated for reconstruction
and relief efforts, diplomatic and consular operations, embassy
construction, economic support, and foreign aid. And a total of almost
$3 billion, including both specific appropriations and funds for other
costs incurred by VA, has been provided for medical care and other VA
programs to assist former service members affected by their
participation in operations related to the war on terrorism.
PROJECTED COSTS OVER 10 YEARS
On the basis of the two scenarios specified by Chairman Spratt, CBO
projected the costs of activities associated with operations in Iraq
and Afghanistan and the war on terrorism through 2017. Because DoD does
not report detailed operational statistics, those projections--which
CBO derived by calculating the ratio between current force levels and
funding requested by the Administration for 2008--are rough
approximations.\3\
In the first scenario, the number of personnel deployed on the
ground for the war on terrorism would be reduced from an average of
about 200,000 in fiscal year 2008 to 30,000 by the beginning of fiscal
year 2010 and then remain at that level through 2017. CBO estimates
that costs to the U.S. government under this scenario would total $570
billion over the 2008--2017 period (see Table 1).
In the second scenario, the number of personnel deployed to Iraq
and other locations associated with the war on terrorism would decline
more gradually, from an average of about 200,000 in fiscal year 2008 to
75,000 by the start of fiscal year 2013 and then remain at that level
through 2017. CBO estimates that costs to the government under this
scenario would total $1,055 billion over the 2008--2017 period.
In addition to estimating the costs of the two scenarios over the
next decade, CBO recently estimated the potential costs of maintaining
a longer-term U.S. military presence in Iraq. The budgetary
implications of maintaining such a presence are discussed in Box 1.
ESTIMATED FUNDING PROVIDED THROUGH FISCAL YEAR 2007
Since September 2001, lawmakers have provided $602 billion in
budget authority specifically for military and diplomatic operations in
Iraq, Afghanistan, and other regions in support of the war on
terrorism, as well as for attendant costs related to veterans' benefits
and services (see Table 2). Of that amount, about 70 percent has been
allocated for the war in Iraq, CBO estimates.
TABLE 2
Source: Congressional Budget Office.
Notes: Details may not add to totals because of rounding.
= between zero and $500 million.
a. CBO estimated funding provided for Operation Iraqi Freedom by
allocating funds on the basis of information in budget
justification materials and on obligations reported by the
Department of Defense. For more information about funding for
Operation Iraqi Freedom, see Congressional Budget Office, Estimated
Costs of U.S. Operations in Iraq Under Two Specified Scenarios
(July 13, 2006).
b. Includes Operation Enduring Freedom (in and around Afghanistan),
Operation Noble Eagle (homeland security missions, such as combat
air patrols, in the United States), the restructuring of Army and
Marine Corps units, classified activities other than those funded
by appropriations for the Iraq Freedom Fund, efforts to permanently
increase the size of the Army and Marine Corps, and other
operations. (For fiscal years 2005 through 2007, funding for
Operation Noble Eagle has been intermingled with regular
appropriations for the Department of Defense; that funding is not
included in this table because it cannot be identified separately.)
c. Funding for indigenous security forces, which was appropriated in
accounts for diplomatic operations and foreign aid (budget function
150) in 2004, and in accounts for defense (budget function 050)
since 2005, is used to train and equip local military and police
units in Iraq and Afghanistan.
d. Excludes an estimated $1.6 billion in spending for medical care,
disability compensation, and survivors' benefits for veterans of
the war on terrorism. Those amounts are based on CBO's estimates of
spending from the regular budget of the Department of Veterans
Affairs and were not explicitly appropriated for war-related
expenses.
Funding to date for military operations and other defense
activities totals $533 billion, most of which has gone to the
Department of Defense. Lawmakers also provided $30 billion during the
2004--2007 period to train and equip indigenous security forces in Iraq
and Afghanistan.\4\ Including the $30 billion allocated for indigenous
security forces, a total of $563 billion has been appropriated since
September 2001 for defense-related activities in Iraq and Afghanistan
and for the war on terrorism.
In addition to funding provided for defense activities since 2001,
lawmakers have appropriated just over $39 billion for diplomatic
operations and foreign aid to Iraq, Afghanistan, and other countries
that are assisting the United States in the war on terrorism. Of that
amount, $16 billion was appropriated for the Iraq Relief and
Reconstruction Fund.
Because most appropriations for operations in Iraq and Afghanistan
and for other activities related to the war on terrorism appear in the
same budget accounts that record appropriations for other DoD
activities, determining how much has actually been spent is difficult.
However, CBO estimates that appropriations for defense-related
activities in Iraq and Afghanistan and for the war on terrorism
resulted in outlays of about $430 billion through fiscal year 2007. Of
that amount, about $115 billion was spent in fiscal year 2007--an
average of between $9 billion and $10 billion a month. Of the funds
appropriated for war-related international affairs activities, close to
$30 billion was spent through 2007, CBO estimates.
In addition to the amounts specifically appropriated for war-
related activities, including almost $1 billion in budget authority
provided to the Department of Veterans Affairs in 2007, CBO estimates
that over the 2001--2007 period, VA has spent almost $2 billion on
assistance to and treatment of service members, veterans, and their
families as a result of operations in Iraq and Afghanistan. Those costs
cover medical care provided to ill or wounded service members at VA
facilities, disability compensation paid to veterans with service-
connected disabilities, and dependency and indemnity compensation
benefits paid to survivors of service members.\5\
FUNDING FOR FISCAL YEAR 2008
The President's budget proposal for 2008, which was submitted in
February, included a request for $137 billion for military operations
in Iraq and Afghanistan and for the war on terrorism; $5 billion for
establishing, training, and equipping indigenous security forces in
Iraq and Afghanistan; and $3 billion for related diplomatic operations
and foreign aid. In an amended request submitted in July, DoD requested
an additional $5 billion for mine-resistant and ambush-protected (MRAP)
vehicles. On October 22, the Administration submitted a request for
another $46 billion for 2008. If the requested amount is appropriated,
the total amount of funding specifically appropriated since 2001 for
all operations in the war on terrorism would reach $798 billion.
(Including the estimated $2 billion that VA has spent from its regular
appropriations and the nearly $1 billion that CBO estimates will be
spent in 2008 would bring total funding for the war over the 2001--2008
period to $801 billion.)
On September 29, 2007, lawmakers enacted Public Law 110-92, a joint
resolution making continuing appropriations for fiscal year 2008. That
act provided $5 billion in budget authority for MRAP vehicles. It also
extended the $70 billion in war-related appropriations that was
included in the Department of Defense Appropriations Act, 2007 (P.L.
109-289). However, that $70 billion in funding remains available only
until enactment of appropriations for the war for fiscal year 2008,
enactment of appropriations for the Department of Defense for fiscal
year 2008, or November 16, 2007, whichever comes first.
CBO cannot estimate how much of the funding contained in the
continuing resolution will be used before those funds expire or before
regular appropriations are enacted. Since the temporary funding
provided under the continuing resolution will most likely be subsumed
in subsequent appropriations for the war for 2008, CBO has not included
any amounts for fiscal year 2008 in its tally of funding enacted to
date. Estimates of funding for fiscal year 2008, however, are included
in the projections of future funding needs, which are described in more
detail below.
ESTIMATED FUTURE FUNDING REQUIREMENTS
CBO has previously estimated future funding requirements for
operations in Iraq and Afghanistan and for other activities related to
the war on terrorism under two broad, illustrative scenarios specified
by Chairman Spratt. 6 At the request of the Chairman, CBO has updated
its previous projections to account in an approximate manner for the
Administration's amended request for increased funding for the war in
fiscal year 2008.\7\
Under the first scenario, the number of deployed troops would
decline from an average of approximately 200,000 active-duty, Reserve,
and National Guard personnel on the ground in fiscal year 2008 to
30,000 in 2010 and would remain at that level over the 2010--2017
period, although not necessarily in Iraq and Afghanistan. In the second
scenario, the number of troops deployed overseas would decline more
gradually over a five-year period, reaching 75,000 in 2013 and
remaining at that level each year thereafter.
On the basis of testimony that General David Petraeus presented to
Members of Congress on September 10 and 11, it now appears that the
United States will begin reducing current force levels in December. By
July 2008, the withdrawal of the additional Army brigades and Marine
battalions that were deployed earlier this year as part of the
President's strategy to increase the size of forces in Iraq is
scheduled to be complete. Thus, the projections for both scenarios in
this analysis are based on the assumption that the increased force
levels will be sustained for nearly 12 months.
COSTS FOR MILITARY OPERATIONS
In the first scenario, the number of personnel deployed in Iraq,
Afghanistan, and elsewhere in the war on terrorism would average about
200,000 in fiscal year 2008, decline to approximately 100,000
personnel, on average, in 2009, and then reach 30,000 at the beginning
of fiscal year 2010. CBO previously estimated that this case would
require $440 billion in funding over the 2008--2017 period. On the
basis of the Administration's funding request for 2008, that projection
could total $485 billion over the same period.
In the second scenario, deployed forces would average about 200,000
in fiscal year 2008 and then decline to an average of 175,000 troops in
2009. Troop levels would decline steadily each year thereafter until
the beginning of 2013 when the number of deployed troops would reach
75,000. In July, CBO estimated that such a case would require $879
billion in funding over the 2008--2017 period. A projection formulated
on the basis of the Administration's budget request for 2008 could
total $966 billion.\8\
Over the 2005--2007 period, funding for operations in Iraq
accounted for 75 percent of all the funding provided for the war on
terrorism. A similar distribution of funding seems probable over the
next two years. Beyond 2009, however, the allocation of troop
deployments and funding to specific operations is highly uncertain.
COSTS FOR INDIGENOUS SECURITY FORCES
In developing its estimates, CBO assumed that the cost to train and
equip indigenous security forces in Iraq and Afghanistan would be
approximately the same under either scenario. To fund that effort, the
Administration requested and the Congress provided $13 billion in
2007--a significant increase over the $5 billion appropriated in 2006.
The Administration stated that the additional funding would enable
those countries to field capable police and military forces sooner and
that it anticipates less funding will be needed in 2008. On the basis
of funding requested for 2008, CBO estimates that DoD would require
about $50 billion over the 2008--2017 period to continue training and
equipping indigenous security forces in Iraq and Afghanistan.
COSTS FOR DIPLOMATIC OPERATIONS AND FOREIGN AID
CBO projected the future costs of diplomatic operations and foreign
aid in Iraq and Afghanistan on the basis of the amounts provided for
those activities in 2007. For that year, the Congress appropriated
almost $5 billion to fund diplomatic operations, assist local
governments, and promote economic development. CBO estimates that,
under the two specified scenarios, costs for diplomatic operations and
foreign aid would total about $4 billion for fiscal year 2008--slightly
more than the $3.3 billion requested by the President in February--and
$26 billion over the 2008--2017 period.
SPENDING BY THE DEPARTMENT OF VETERANS AFFAIRS FOR MEDICAL CARE,
DISABILITY COMPENSATION, AND SURVIVORS' BENEFITS
CBO estimated spending for medical care, disability compensation,
and survivors' benefits on the basis of casualty rates for veterans of
operations in Iraq and Afghanistan over the 2003--2006 period. Almost
$1 billion in supplemental appropriations was provided to VA in 2007
for medical administration costs, medical and prosthetics research,
medical services for veterans of those operations, and other related
purposes. In addition, CBO estimates that VA spent another $0.7 billion
in 2007 for medical care and disability compensation for veterans of
operations in Iraq and Afghanistan, as well as for compensation for
survivors of service members who died in those operations.
DEBT SERVICE
CBO does not typically include debt service in its cost analyses.
However, as requested, CBO calculated the debt-service costs associated
with spending for operations in Iraq and Afghanistan and elsewhere in
the war on terrorism under the assumption that all spending for those
operations, both past and present, was financed with federal borrowing.
Under that specified assumption, CBO estimates that interest
payments on spending thus far for operations in Iraq and Afghanistan
and elsewhere in the war on terrorism would total $415 billion over the
2001--2017 period. The path of spending generated by the first scenario
would add an additional $175 billion in interest payments from 2008
through 2017. Under the second scenario, interest outlays would
increase by a total of $290 billion over that 10-year period.
BOX 1.--PROJECTED COSTS OF SUSTAINING A
LONG-TERM U.S. MILITARY PRESENCE IN IRAQ
In September 2007, the Congressional Budget Office (CBO)
estimated the possible costs to the United States of
maintaining a long-term military presence in Iraq similar to
that maintained by the U.S. government in the Republic of Korea
and the Northeast Asia region. Because the nature and scope of
such a presence is highly uncertain, CBO projected costs under
two possible scenarios. Unlike the projections of future
funding requirements discussed earlier in this testimony--which
included funding for military operations, indigenous security
forces, and diplomatic operations and foreign aid in Iraq,
Afghanistan, and elsewhere in the war on terrorism--the
scenarios described here include costs only for military
operations in Iraq.
To estimate the costs of those scenarios, CBO adjusted
current spending levels to account for the scenarios' smaller
number of personnel and a lower intensity of operations. CBO
did not project current funding levels for procurement because
current funding for that purpose includes a number of one-time
expenses as well as items not tied specifically to the current
pace of operations, which CBO anticipates will not be required
indefinitely.
In the first scenario, CBO assumed that the United States
would maintain a long-term presence of approximately 55,000
military personnel in Iraq conducting combat operations similar
in type to the operations currently carried out in that
country. Military units would deploy with their personnel and
equipment for specific periods and then return to permanent
bases either in the United States or overseas. Such a scenario
could have one-time costs of $4 billion to $8 billion and
annual costs of approximately $25 billion (in 2008 dollars),
CBO estimates. In the second scenario, the United States would
maintain a long-term presence of approximately 55,000 military
personnel in Iraq by stationing specific units at established
bases for an indefinite period in a manner similar to the
current practice of assigning personnel to units based in Korea
or Germany. Under this scenario, units stationed in Iraq would
rarely, if ever, be engaged in combat operations. Up-front
costs would be approximately $8 billion, with annual costs of
$10 billion or less (in 2008 dollars), CBO estimates.
If U.S. military operations in Iraq were to develop into a
long-term presence, the numbers of deployed forces could differ
substantially from those assumed in either of the two
scenarios. Moreover, the scenarios are not mutually exclusive.
Over time, the more intensive pace of combat operations could
give way to the slower pace of noncombat operations. The first
scenario could also be viewed as a transitional phase between
the current operations and the more benign environment
considered in the second scenario.
A COMPARISON OF COST-OF-WAR ESTIMATES
A number of estimates of the costs of operations in Iraq and
Afghanistan have been performed by analysts working outside the
government; those estimates are often higher than CBO's. For example,
in 2006, two academic researchers--Linda Bilmes and Joseph Stiglitz--
estimated that the war in Iraq could cost several trillion dollars in
present-value terms, including costs to the federal government as well
as other economic costs outside the federal budget.\9\ CBO restricts
its estimates of war costs to federal budgetary effects and has not
attempted to estimate the macroeconomic effects of the war. However,
even within the confines of federal budgetary costs, CBO's estimates
differ from those of Bilmes and Stiglitz. Several important differences
between CBO's estimates and the Bilmes-Stiglitz estimates are explored
below.
INCREASES IN THE REGULAR DEFENSE BUDGET
Bilmes and Stiglitz estimated that, because of the war, the regular
defense budget--the portion not funded through emergency
appropriations--increased by a total of $104 billion to $139 billion
between 2002 and 2006. However, CBO's analysis suggests that most of
the budget increases that occurred during that period reflect factors
not related to the war, such as inflation, real (inflation-adjusted)
pay increases for military and civilian personnel, enhanced personnel
benefits that were either enacted before the war or not requested by
the Administration as part of its war-funding request, and DoD's
efforts to modernize and reconfigure military forces (efforts that were
initiated before the onset of the war in Iraq).
COSTS TO REPLACE EQUIPMENT
Bilmes and Stiglitz estimated that repairing or replacing equipment
that had been worn out, damaged, or destroyed in Iraq would total
between $89 billion and $149 billion in present-value terms over the
2006--2010 period. Those figures, though, do not reflect the cost of
replacing and repairing equipment used in Iraq and Afghanistan.
Instead, they are based on estimates of the difference between DoD's
peacetime procurement budget and the long-term funding required to
maintain DoD's inventories of major weapon systems at acceptable
levels. Any such funding gap would have nothing to do with operations
in Iraq and Afghanistan, which use existing weapon systems and are
funded by supplemental appropriations.\10\
COSTS FOR RECRUITING AND RETENTION INCENTIVES
Bilmes and Stiglitz argued that some of the wartime incentive
payments will become permanent, adding between $1 billion and $2
billion a year to all future defense budgets, or between $5 billion and
$17 billion in present-value terms. By contrast, CBO estimates that
incentive payments will not permanently increase the defense budget.
Furthermore, the cash incentives that Bilmes and Stiglitz quote
represent the legislated maximum amounts for active-duty personnel, but
those amounts are not paid to every service member. Only personnel who
are recruited into a limited number of critical military occupational
specialties and who commit to a six-year obligation are eligible for
the maximum enlistment bonus. Although the maximum authorized
reenlistment bonus is $200,000 for the active component and $100,000
for the reserve components, reenlistment bonuses averaged about $10,500
in fiscal year 2005 and $15,000 in fiscal year 2006. The military has
long shown considerable flexibility in setting bonus levels, routinely
reducing bonuses for occupations in which manning exceeds authorized
levels. Personnel costs are likely to remain higher for the duration of
the war, but the military has the authority to reduce incentives in the
future if the recruiting climate improves when the war concludes.
COSTS TO TREAT BRAIN INJURIES
Bilmes and Stiglitz estimated that the treatment and care of
personnel who suffered serious brain damage in Iraq would cost $14
billion if the war continued until 2010 and costs accrued over a 20-
year life expectancy, or $35 billion if the war continued through 2015
and costs accrued over a 40-year life expectancy. CBO's analysis
suggests that those figures overstate both the number of injured
service members who will likely need expensive care for brain injuries
and the cost of treating those who do.
Bilmes and Stiglitz estimate that of the 16,000 service members who
had suffered nonfatal injuries as of the publication date of their
study, 20 percent had incurred serious brain damage. Bilmes and
Stiglitz derived this estimate of the incidence rate of brain injuries
from a study conducted by Scott Wallsten and Katrina Kosec.\11\ That
estimate, in turn, was based on a research paper by Lt. Colonel
Xydakis, an Air Force otolaryngologist (ear-nose-and-throat specialist)
and head-and-neck surgeon stationed at Landstuhl Regional Medical
Center in Germany.\12\ He and his colleagues found that among 2,483
battle-injured patients evacuated from Iraq or Afghanistan and treated
at Landstuhl through March 19, 2004, some 21 percent had head or neck
trauma. Head or neck trauma, though, differs greatly from traumatic
brain injury: neck injuries affect the area below the helmet line and
are distinct from brain injuries; and traumatic brain injuries would be
treated by neurologists rather than by otolaryngologists. Moreover, the
21 percent incidence rate would at most apply only to those patients
evacuated to Landstuhl and classified as ``battle-injured,'' not to the
much larger pool of all wounded troops, over half of whom are treated
in-country and return to duty within 72 hours. On the basis of a DoD
medical census, 1,950 traumatic brain injuries (TBIs) had been
diagnosed through December 2006 and 2,669 through July 2007 but still
not the 3,213 that Bilmes and Stiglitz assert had occurred as early as
January 2006.
Perhaps more important, Bilmes and Stiglitz appear to overstate the
cost of treating brain injuries among military personnel. Again, they
adopted their cost estimates from Wallsten and Kosec, who assumed that
all brain injuries, regardless of the degree of severity, would cost as
much as ``severe head injuries'' sustained in automobile crashes, as
defined by the National Highway Transportation Safety Administration.
On that basis, Wallsten and Kosec estimated costs of between $600,000
and $4 million for the lifetime care of a brain-injured victim.
Applying those estimates to military personnel with brain injuries,
though, is problematic because the two types of brain injuries are
quite different: U.S. soldiers wear Kevlar helmets that are capable of
deflecting some bullets and shrapnel, or at least of significantly
reducing their velocity upon penetration, whereas motorists generally
do not wear helmets. Through 2006, about two-thirds of the diagnoses
among military personnel were for mild (as opposed to moderate or
severe) traumatic brain injuries; more recent tabulations indicate that
mild TBIs may represent as much as 80 percent of the total. Most
patients should recover naturally from mild TBIs, especially if given
prompt treatment. CBO estimates that a few hundred service members--
rather than several thousand--have sustained brain injuries serious
enough to require a lifetime of around-the-clock care.
ENDNOTES
\1\ To the extent that those sums are not offset by reductions in
other spending or increases in revenue--and therefore are financed by
higher budget deficits--additional budget costs would occur through
higher debt-service costs.
\2\ Linda Bilmes and Joseph Stiglitz, The Economic Costs of the
Iraq War: An Appraisal Three Years After the Beginning of the Conflict,
Working Paper No. 12054 (Cambridge, Mass.: National Bureau of Economic
Research, February 2006).
\3\ The Administration requested $145 billion for the war in
February and another $5 billion in July. On October 22, the Office of
Management and Budget submitted another request for $46 billion,
bringing the total requested for 2008 to $196 billion.
\4\ The $30 billion includes $5 billion provided for Iraqi security
forces in 2004 in an appropriation for the Department of State's Iraq
Relief and Reconstruction Fund.
\5\ That estimate does not include the costs of disability
retirement pay, disability severance pay, or Survivor Benefit Plan
payments provided by DoD, most of which would be offset by VA benefits.
Nor does it include payments from the Servicemembers' Group Life
Insurance or Traumatic Servicemembers' Group Life Insurance programs.
The additional costs incurred by those insurance programs for claims
related to operations in Iraq and Afghanistan are paid by DoD and have
been included in the estimate of funding for defense activities. For
further discussion, see the statement of Matthew S. Goldberg, Deputy
Assistant Director for National Security, Congressional Budget Office,
Projecting the Costs to Care for Veterans of U.S. Military Operations
in Iraq and Afghanistan, before the House Committee on Veterans'
Affairs, October 17, 2007.
\6\ See the statement of Robert A. Sunshine, Assistant Director for
Budget Analysis, Congressional Budget Office, Estimated Costs of U.S.
Operations in Iraq and Afghanistan and of Other Activities Related to
the War on Terrorism, before the House Budget Committee, July 31, 2007.
\7\ CBO has not had time to analyze the amended budget request;
however, in testimony before the Senate Armed Services Committee on
September 26, Secretary of Defense Robert M. Gates indicated that the
requested amount would exceed funding provided for that purpose in 2007
by approximately 10 percent. On the basis of that statement, CBO made a
corresponding adjustment to its previous projection. The amended
request submitted to the Congress on October 22 was slightly higher
than the amount suggested in the Secretary's testimony.
\8\ The Administration plans to increase the size of the active-
duty Army to 547,400 personnel, the Marine Corps to 202,000 personnel,
and the Army Reserve and National Guard to 564,200 personnel over the
next five years. The request for war funding submitted in February
included approximately $5 billion for that purpose in 2008. Another $12
billion was included in the regular budget request for 2008. CBO
estimated that $15 billion would be required in 2008 and another $147
billion would be required over the 2009--2017 period to increase the
number of Army and Marine Corps personnel as DoD plans. The
Administration has stated that the planned increase is not strictly
linked to the deployment of personnel to Iraq and Afghanistan but is
needed to improve military capabilities in general. Thus, CBO excludes
funding for that purpose from the cost of the scenarios described in
this statement. For additional information, see Congressional Budget
Office, Estimated Cost of the Administration's Proposal to Increase the
Army's and the Marine Corps's Personnel Levels (April 16, 2007).
\9\ See Bilmes and Stiglitz, The Economic Costs of the Iraq War, p.
9. In addition to estimating costs incurred by the Departments of
Defense and Veterans Affairs, Bilmes and Stiglitz assigned a monetary
value to the reduction in wounded veterans' quality of life. They also
considered the macroeconomic effects of diverting to the war effort
federal expenditures from civil projects (for example, the building or
maintaining of roads and bridges), as well as additional effects on the
U.S. economy resulting from rising oil prices, which the authors
largely attribute to the war's disruption of Iraqi oil exports. Bilmes
and Stiglitz estimated costs for a projected duration of the war under
two scenarios and for as many as 40 years beyond the cessation of
hostilities.
\10\ The Army estimates that the cost to replace, repair, and
upgrade its equipment will total $12 billion to $13 billion annually
for as long as current force levels in Iraq and Afghanistan are
sustained and for up to two years after forces are withdrawn. Army
equipment in Iraq and Afghanistan accounts for 80 percent of the total
equipment deployed to the two countries by both the Army and Marine
Corps; thus, the total cost to DoD to repair and replace damaged and
destroyed equipment deployed for operations in Iraq and Afghanistan
could total about $75 billion over the 2006--2010 period. Those
figures, as well as the even larger totals for ``reconstitution''
contained in the Defense Department's supplemental requests, include
funding to upgrade equipment, purchase new equipment for the Army
National Guard, and buy new equipment for reorganized Army units; such
expenses are not directly related to operations in Iraq and
Afghanistan.
\11\ Scott Wallsten and Katrina Kosec, The Economic Costs of the
War in Iraq, Working Paper No. 05-19 (Washington, D.C.: AEI-Brookings
Joint Center for Regulatory Studies, September 2005).
\12\ Lt. Colonel Michael S. Xydakis and others, ``Analysis of
Battlefield Head and Neck Injuries in Iraq and Afghanistan,''
Otolaryngology--Head and Neck Surgery, vol. 133, no. 4 (October 2005),
pp. 497--504; originally presented at the American Academy of
Otolaryngology Head and Neck Surgery Annual Meeting, New York,
September 2004.
Chairman Spratt. Let me make clear that the interest rate
you have assumed is 4.8 percent. Is there a Treasury rate that
is assumed for the full forecast period?
Mr. Orszag. The debt service calculations used are baseline
interest rate assumptions, and so when you have an extra dollar
of debt outstanding, you pay the interest rate that is embodied
in our baseline, and it is approximately the level that you
suggest.
Chairman Spratt. But the rate of interest you have assumed,
is this a Treasury rate of interest?
Mr. Orszag. Yes, as it is appropriate, since the additional
borrowing is Federal Government borrowing.
Chairman Spratt. So you aren't assuming any uptick in
interest rates due to this fiscal situation; you are taking
simply a constant interest rate number that is what is used by
Treasury today.
Mr. Orszag. That is correct. Incorporating any additional
effect on borrowing on the interest cost itself would be a form
of macroeconomic dynamic analysis. That is not traditionally
done by CBO.
Chairman Spratt. In addition, as you look at these costs,
would you give us just a brief description of the difficulty
there is to separate out the costs in the different accounts
from the Department of Defense so that you can identify what--
Iraq or Afghanistan or the rest of the world or stateside
expenditures? What sort of extrapolation do you have to do to
arrive at these numbers?
Mr. Orszag. We don't have full transparency into the
systems that the Department of Defense uses to allocate funding
into different categories, and I would note that there is a
particular challenge in outlays, that is, the money that is
actually spent as opposed to the budget authority that is
provided by the Congress, because on the outlay side, things
are mixed together in ways that are very hard to separate out.
On the budget authority side, while there are still some
shortcomings, and we would benefit from more access to the cost
models that the Defense Department itself uses to project
future costs, there have been some improvements over the past
couple of years in terms of transparency and the ability to
separate out the relevant information.
Chairman Spratt. And basically you are not auditors, you
are economists, and you have to do some extrapolation and some
interpellation in order to arrive at these numbers and give us
an estimate of that.
Have you, in the past when you have done this, received any
criticism from the Department of Defense, or have there been
specific objections made to specific forecasts that you
produced by DOD?
Mr. Orszag. To my knowledge, there was one incident in
which there was some criticism, but I believe that the facts
have proven us to be correct, and that had to do with the size
and, therefore, the costs of the so-called surge that has
occurred this year. We put out an analysis earlier this year
trying to delineate the potential size of that, given the
number of brigades that the administration had identified as
being involved in it, and there was some administration
criticism of those figures. But as the facts have turned out, I
believe our analysis has proven to be correct.
Chairman Spratt. When you referred to transparency, do you
approach the Department of Defense, the Pentagon, and the
Comptroller for an opportunity to see into their books and to
get more specificity in developing the numbers that you have
used here?
Mr. Orszag. Our staff is in regular contact with the
Defense Department staff.
Chairman Spratt. Once again, to go over what you have gone
over today, you have got $2.4 trillion, but that is sort of the
worst-case scenario, I suppose.
Mr. Orszag. That is the highest number that is contained in
our testimony because we don't know whether the two future
scenarios that we have laid out are actually defining the space
of what could be the worst-case scenario or not.
Chairman Spratt. Well, the most extreme case that you
presented is $2.4 trillion, everything included, interest
specifically included as well. The least amount is--of your
second case, the lesser amount is--the brackets is what I am
trying to get at.
Mr. Orszag. With additional debt service costs would be
$1.7 trillion.
Chairman Spratt. So the cost ranges you have got dependent
on these two illustrative scenarios is $1.7 trillion to $2.4
trillion.
Mr. Orszag. That is correct, as long as all of the spending
is financed by deficits; in other words, it is not offset by
lower spending elsewhere or higher taxes.
Chairman Spratt. Let me let others ask you questions that
they may have, but thank you once again for the study and for
your testimony.
Mr. Ryan.
Mr. Ryan. Thank you.
Peter, let me ask you about your baseline assumptions. Do
you include the war spending in your baseline, correct?
Mr. Orszag. Our baseline is based on whatever has been
enacted as of the----
Mr. Ryan. The most recent.
Mr. Orszag. The most recent. So it does have supplemental
funding embodied in it.
Mr. Ryan. So whatever the last supplemental is, you just
carry that out into the baseline?
Mr. Orszag. With inflation, correct.
Mr. Ryan. So if you think war spending is going to decline
based on these drawdown scenarios that you outline, or if it
does, in fact, do you know, what--the 75,000 or 30,000, does
the baseline decline consistently with that?
Mr. Orszag. No.
Mr. Ryan. Right. So are we not overstating the outlays in
the future if we believe these scenarios will come to be true?
Mr. Orszag. Now I get to be the two-handed economist.
On the one hand, yes, because of the effect you noted. But
on the other hand, there is lots of things both on the
nondefense side, where people believe that it is possible that
nondefense discretionary spending will keep pace not just with
inflation, which is the baseline assumption, but with
population growth and economic growth, and even with the
defense. Our analysis of the Defense Department's future plans
as embodied in the Future Year Defense Plan suggests that there
may be significant additional costs beyond inflation that are
embodied in the current thrust of defense policy.
Mr. Ryan. So all that will be soaked up by new plans.
Mr. Orszag. It could be.
Mr. Ryan. Could you bring up chart number 3, please?
This is constant fiscal year 2008 dollars, the Defense
Department budget authority.
If you take a look at this historically, in our history
over these conflicts, spending shoots up. It goes up at a very
high level and then comes back down and gravitates towards the
average.
Do you have reason to believe that this kind of a conflict,
even though you look at the Cold War, which is a long-lasting
conflict, this one is probably a long-lasting one like that--do
you believe history will not repeat itself, that we will not go
back down toward the average; or do you believe that we are
going to have an ever-increasing, ever-in-perpetuity escalating
increase in costs for DOD?
Mr. Orszag. Again, all I can say is if you look at the
Defense Department's future plans themselves, and we will be
coming out with an updated analysis of those future plans over
the next decade and beyond, they do entail increasing costs.
Whether or not that will turn out to be the case, you know,
history will tell.
Mr. Ryan. If I can--okay. When you say that--what comes to
my mind is the fact they want 20 new light brigades for the
Army and perhaps 20 new light brigades for the Marines to have
the kinds of soldiers that we need for this kind of a conflict
so we are not stretching our Guards and Reserves too much.
Mr. Orszag. And they want upgraded and new equipment, and
you have ongoing health care cost inflation that is occurring
in that system as well, and there are a variety of upward
pressures on the Defense Department.
Mr. Ryan. So that is assuming that that is all on top of,
not in place of, what they are doing and what they have,
correct?
Mr. Orszag. I am sorry?
Mr. Ryan. That is assuming new on top of--they are not
going to cut anything to make room, physical space, for these
new needs. They are just going to throw these new needs on top
of the request.
Mr. Orszag. There are some offsetting things, but, again,
if you look at their plans themselves, the offsets are not as
big.
Mr. Ryan. Not nearly as big as what the plans may be.
Mr. Orszag. Right.
Mr. Ryan. Therein lies a role for the committee to play,
which is we entered this conflict with the Cold War--military
with a Cold War posture, with Cold War assets and equipment and
mechanized divisions, and perhaps we now recognize in the 21st
century there is a different kind of a military we need, and
perhaps this committee can play a constructive role in making
sacrifices and choices as to do we need to have it all, or do
we need to have more 21st-century-based systems and therefore
not as much 20th-century-based systems?
People talk about bases in Germany and other places that no
longer present an immediate threat to us. This is something
this committee could probably play a constructive role in, I
would argue. So I think it is important to note that our
Nation's history; that is, we ramp it up during these
conflicts, and then it comes back down towards the mean
afterwards.
So it is not something we can confidently predict we are
going to have in perpetuity higher always spending on defense,
but I also think it is important to note, given the earlier
chart we brought up, that we are fighting this war with a lot
less cost and a lot less sacrifice than we ever have fought
wars before as a percentage of our ability to pay for it, and I
think that is a noteworthy point.
With that, I yield.
Chairman Spratt. Before we turn to Ms. DeLauro, let me get
a clarification.
The Ranking Member Mr. Ryan asked about the carry forward
of enacted supplementals, and typically your convention is to
carry forward enacted appropriations in projecting a future
including a supplemental. If it was enacted, you carry it
forward for future years.
Mr. Orszag. That is correct.
Chairman Spratt. What we have asked you to do here is to
not carry it forward, but to develop a different model for
extrapolating or projecting into the future.
So I want to make it clear, we didn't have a 10-year carry
forward of the supplemental. We had a different set of carry-
forward numbers, projected numbers, based upon the two
assumptions we gave you. One is to reduce to 30,000 troops, the
other is to go to 75,000 troops.
Mr. Orszag. That is correct, Mr. Chairman.
Mr. Ryan. May I, just on that?
So under some of these scenarios off of your current
baseline, we could be saving money, correct?
Mr. Orszag. It is--again, just looking at the component
that has to do with the war on terrorism, that is possible
especially under the lower cost scenario.
Chairman Spratt. Ms. DeLauro.
Ms. DeLauro. Thank you, Mr. Chairman, and welcome, Dr.
Orszag. Let me ask you a couple of questions.
Is it true, Dr. Orszag, that we are spending more on
defense in this effort in constant dollars than we spent in
World War II, since World War II? I am sorry, since World War
II.
Mr. Orszag. CBO has not done that analysis. I have seen
some estimates from the Congressional Research Service, and I
guess I will defer to the next panel for you to get the answers
from them.
The only thing I would note is when looking over a very
long period of time, economists typically like to look at
things from the share of the economy rather than just in
constant dollars.
Ms. DeLauro. But in terms of looking at it as a percentage
of the economy, then, should we make that same application to
nondefense discretionary spending if we are looking at----
Mr. Orszag. Again, over long periods of time, the best
perspective on something, something involving the budget, is
typically is a share of economy if you are going out 10, 20,
30-year kind of time span.
Ms. DeLauro. Let me also--let me follow, because I want to
get clarity on the carryover on unobligated 2007 funding.
DOD received $170 billion of supplemental funding for 2007.
How much of that amount will carry out and remain available for
obligation in 2008?
Mr. Orszag. My understanding is that something probably a
little bit under $50 billion and maybe in the 30- to $50
billion range of funds already provided in budget authority
have not yet been obligated.
Ms. DeLauro. You made the point about the--that we are
dealing with procurement and not replacing equipment, et
cetera. Do you have any way or is it under your jurisdiction in
any way to take a look at that, what you said, the $39
billion--I am trying to find your comments here--$39 billion
that we are spending on reconstruction, et cetera?
Do you do anything by way of looking at those numbers and
can determine what is dealing with any kind of overspending and
any kind of waste, fraud, abuse efforts; do you do those kinds
of calculations?
Mr. Orszag. I would say that is more of an activity for GAO
rather than CBO.
Ms. DeLauro. So that you are just dealing with the
aggregate numbers and what the cost of that spending is with
regards to cost of construction.
Mr. Orszag. That is correct.
Ms. DeLauro. Thank you very much, Mr. Chairman.
Chairman Spratt. Mr. Edwards.
Mr. Edwards. Thank you, Mr. Chairman.
Dr. Orszag, I had the privilege of chairing the
appropriations subcommittee on Veterans Administration and the
military. So if I could focus my questions on the long-term
monetary costs of treating veterans injured or those suffering
from mental illnesses as a result of their service in Iraq and
Afghanistan, respecting the fact there is no way to put a
dollar value on the sacrifice of these great Americans?
As I understand it, you have estimated the 10-year cost of
medical costs for the VA for the Iraq and Afghan veterans is
between $7- to $9 billion; is that correct?
Mr. Orszag. That is correct. And then there are some
additional disabilities to get you up to the 9- to $13 billion
range that I showed on the chart.
Mr. Edwards. So 7- to $9 billion for medical care, and if
you add disability compensation, which is VA compensation of
those injured in combat, it would possibly go up to $13
billion; is that correct?
Mr. Orszag. Yeah. That is right.
Mr. Edwards. Now let me ask, have you projected the cost,
because they will be real, as well as painful, financially and
physically and mentally, but have you projected the lifetime
financial costs for medical care for the veterans or just a 10-
year period?
Mr. Orszag. We at this point have just done a 10-year
period.
Mr. Edwards. Would it be difficult to try to take the
analysis you have done and project that to get the real cost of
the war projected over lifetime, because obviously while for
economic purposes and budget purposes it makes sense to use a
10-year time line, when we are talking about real Americans who
sacrifice greatly, the end of 10 years is not going to be a
magic solution to their health care problems. Would it be
possible for you to do it, and if so, how long would that take?
Mr. Orszag. It would be possible.
There is an additional complexity which is that veterans
often use the VA for some time, and then they will use part of
the rest of the health care system for part and come back, and
those transitions we have somewhat more confidence about for a
10-year period, and over a lifetime they become a lot harder to
model. But we potentially could take a stab at doing so.
Mr. Edwards. And projecting future health care costs, what
inflation factor did you use? Did you use Consumer Price Index,
or did you use the health care inflation index, which I believe
is significantly higher than the Consumer Price Index?
Mr. Orszag. I would think that we use a health care
inflation rate, yes.
Mr. Edwards. You did use that. Can you make that number
available to the committee, please?
Mr. Orszag. Absolutely.
[The information follows:]
Question (Mr. Edwards): What rate of inflation did CBO assume in
developing its VA health-care cost estimates?
Answer: CBO used annual inflation rates averaging around 7 percent
(the annual rates varied in a narrow range between 6.6 percent and 7.3
percent over the period 2008 through 2017). Those rates are based on
projections of per-capita growth in national health expenditures
developed by the Centers for Medicare and Medicaid Services (CMS).
Mr. Edwards. There have been--out of 1.5 million Americans
who have served in Iraq and Afghanistan, 75,000 have been
discharged. Of those, 250,000, a huge percentage, have already
sought medical care in VA hospitals; 95,000 of those 250,000
have been treated for mental health care, and of those, 45,000
have apparently full-blown post-traumatic stress disorder.
Can you tell me what estimates--how you determine the
estimate of the number of veterans coming back from the war
with mental health care problems including PTSD?
Mr. Orszag. They are based on many of the same data that
you just related, and one of the complexities in going forward
is do you believe that the incident rate of PTSD will be higher
or lower than what we observed so far.
On the one hand, it may well be that there are folks who
are undiagnosed that are suffering from PTSD, and therefore the
incident rate would be higher. On the other hand, it may be
that the people who are coming in and being diagnosed are
disproportionately those who suffer from it, and so, therefore,
as you roll out over time and have the rest of the population
involved, the incident rate would not be as high as what you
already observed.
Mr. Edwards. You used actual numbers from this war. You
didn't use, for example, the Persian Gulf war as a model for
determining what percentage of injuries or mental health care
cases would be?
Mr. Orszag. One of the factors that went into our set of
projections is the experience in the Persian Gulf war from
people who used the VA relative to how much use----
Mr. Edwards. But just because the time is short--I think I
have 20 seconds left.
In terms of mental health care issues, clearly there could
be very little comparison between the Persian Gulf war, which
lasted for several days, and this war which has now lasted
longer than World War II. Could you submit to the committee the
assumptions that you used in determining the number of veterans
who would need mental health care and PTSD service?
Mr. Orszag. Absolutely.
Mr. Edwards. Thank you, Mr. Chairman.
[More responses to Mr. Edwards' questions from CBO follow:]
Question (Mr. Edwards): Does CBO have estimates of the lifetime
costs (beyond 10 years) to treat OIF/OEF veterans in the VA health
system?
Answer: No, CBO restricted its estimates to the 10-year budget
window described in its written statement. Estimates beyond that point
become problematic because some veterans who initially receive VA
health care later become reemployed in the civilian sector, gaining
access to employer-sponsored health insurance and becoming less reliant
on the VA. However, they may return to the VA later in life if their
health insurance does not carry into retirement or if their general
health begins to deteriorate. It is difficult to separate those life-
cycle changes from the effects of (perhaps worsening) disabilities
directly related to service in combat.
Question (Mr. Edwards): What assumptions did CBO make in projecting
the number of veterans who would require VA health care, particularly
those with PTSD? How much does it cost to treat veterans with PTSD?
Answer: CBO projects future VA medical costs in a ``top-down''
rather than a ``bottom-up'' fashion. A ``bottom-up'' analysis would
consider every medical condition that could possibly afflict an OIF/OEF
veteran, project the number of veterans likely to develop that
condition, and multiply that number of veterans by the year-to-year
costs of treating a representative patient having that condition. The
bottom-up approach is impractical because there are (depending on the
specificity with which diseases are classified) thousands of
conceivable medical conditions, some very rare and difficult to
forecast, and others with widely-varying treatment paths (and
corresponding costs) depending on the individual patient. Also, a
bottom-up approach might not capture the fixed and overhead costs of
running the VA medical system that are unrelated to the treatment of
specific diseases.
By contrast, CBO's ``top-down'' approach starts with VA's costs to
treat OIF/OEF veterans in the base year of the analysis, 2007. CBO then
grows that base-year cost to reflect two factors: medical inflation and
the growing cumulative number of veterans who have returned wounded
from OIF/OEF. Regarding inflation, CBO applies projections of per-
capita growth in national health expenditures developed by the Center
for Medicare and Medicaid Services (CMS). CBO projects the number of
wounded troops under the assumption that historical casualty rates (per
deployed service member per year) for operations in Iraq and
Afghanistan over the 2003-2006 period will continue into the future.
Applying those casualty rates to CBO's two illustrative scenarios for
the force levels in theater yields a projected stream of annual
casualties. CBO recognizes that the wounded are not the only OIF/OEF
veterans who use VA medical care, but CBO uses the number of wounded as
an index of the overall number of medical problems attributable to the
two combat operations.
The top-down approach does not require projections of the numbers
of veterans likely to develop specific conditions (like PTSD), nor the
pattern of treatment costs for those specific conditions. However, the
approach does implicitly assume that the mix of medical conditions
remains roughly constant through time. For example, data from the VA
indicate that among OIF/OEF veterans who have received VA medical care,
about 37 percent have received at least a preliminary diagnosis of
mental health issues, and about half of those (17 percent) have
received a preliminary diagnosis of PTSD. CBO's estimates implicitly
carry those percentages forward into the future, as well as assuming
that the costs to treat those conditions will inflate at the same rate
as other medical conditions (i.e., at the CMS rate). Those assumptions
seem reasonable except, perhaps, in the event that veterans with
specific conditions (like PTSD) experience delayed onset and will
eventually present to the VA at rates exceeding the historical
averages.
Chairman Spratt. Thank you, Mr. Edwards.
Now Mr. Allen.
Mr. Allen. Thank you, Mr. Chairman.
And thank you for being with us again, Dr. Orszag.
I had several questions. First, I wanted to clarify in your
testimony you indicate that DOD is currently obligating about
$11 billion a month for activities in Iraq and Afghanistan and
other aspects of the global war on terror. It is true, is it
not, that $9 billion a month of that is currently related to
the war in Iraq.
Mr. Orszag. That is approximately correct.
Mr. Allen. A little bit more than 9 billion.
Mr. Orszag. It is in the range of 9 billion, yes.
Mr. Allen. I would like to have chart 3 put up for a
moment, if we can.
The direct budgetary costs--I am not blaming you for this,
but the direct budgetary costs of the war in Iraq are
astonishing. If the President's request is met, the total
direct budget costs will be $611 billion. That is a staggering
amount of money way beyond any projection that was ever made at
the beginning.
And then if I could turn to chart number 5.
Chart number 5 indicates that if you add in the funding
through 2007, then the 2008 requests, do the projected future
costs on the more gradual drawdown that you mentioned, which
would leave us with 50- or 60,000 troops in Iraq after 2013--if
you do all of that and then calculate interest on the war-
related debt, the overall number is 2.4 trillion; but it is
true, is it not, Dr. Orszag, that approximately 1.9- of that
2.4 trillion is related to the war in Iraq on that kind of
calculation?
Mr. Orszag. We didn't specifically parse out Iraq versus
other components of the war on terrorism for the future
scenarios, but if a historical pattern evolved the same way in
the future, you would wind up with a number that is
approximately the figure you gave.
Mr. Allen. Approximately one----
Mr. Ryan. Would the gentleman yield for a friendly
question?
Doesn't your budget resolution balance the budget by 2012?
Mr. Allen. Thank you for the question.
Let me go back. I am trying to understand this. You and I
can talk about that later.
Dr. Orszag, let me come back to this. You said earlier on
that DOD doesn't break down Iraq costs separately from
Afghanistan, particularly with respect to outlays, that with
respect to budget authorities, they are getting a little better
in terms of segregating the costs in Iraq and the costs in
Afghanistan; is that right?
Mr. Orszag. Yes.
Mr. Allen. Is there any reason why DOD could not do that if
they were directed by Congress to be more specific in
segregating the costs both for budget authority and for outlays
in terms of those two conflicts?
Mr. Orszag. My understanding is on the outlay side, that
would require a very significant change in the budget system
used by the Department of Defense. I could get back to you in
writing about the specific change that would be required, but
it would not be a trivial undertaking.
Mr. Allen. Then I guess so we are going to keep getting
these costs lumped together? That is very difficult because the
support for the conflict in Afghanistan, rebuilding in
Afghanistan, is very different from the support for or the lack
of public support for this ongoing conflict in Iraq.
Mr. Orszag. But just to be clear, again, the biggest
difficulties on the outlay side where things are for the war on
terrorism mingled together with other spending.
In terms of the budget authority that you are providing, it
is--while it may not be perfect, there is a lot more
transparency about what is going where.
Mr. Allen. And could we enhance that transparency by action
of this committee?
Mr. Orszag. I am not sure that there are additional steps
necessary. I think that in terms of projecting future costs,
there is more transparency that could be provided to us
through, for example, access to a cost model that the
Department of Defense uses.
Mr. Allen. Thank you very much.
I yield back.
[Response to Mr. Allen's question from CBO follows:]
Question (Mr. Allen): What changes to DoD's financial accounting
system would enable it to segregate war-related from normal peacetime
outlays?
Answer: Segregating war-related outlays would require changes at
both DoD and the Department of Treasury, the cost of which could
outweigh the benefits. Agency outlays are reported by appropriation
account, year of appropriation, and period of availability. Thus,
outlays of war-related budget authority provided in an appropriations
account will be commingled with outlays for budget authority for
peacetime purposes if the funding is provided in the same year and is
available for the same period of time.
CBO is currently studying the changes that would be required to
facilitate reporting of outlays for war-related purposes. However,
because budget authority will eventually lead to outlays over time,
CBO's tally of funding provided to date is a good indicator for what
will be spent on the war.
Chairman Spratt. Thank you, Mr. Allen.
Mr. Boyd.
Mr. Boyd. Thank you Mr. Chairman, and thank you for holding
this important hearing.
We are obviously here today to talk about the costs of our
operations in Iran and Afghanistan and other related costs, and
not only the current costs, but the long-term costs and how we
might pay for that.
But, ladies and gentlemen, let us be clear on one thing,
that that is a situation that we have created that has no good
solution. I know many of us, as Members, have been to Iraq. I
have been within the last 3 weeks. This is the situation,
ladies and gentlemen, where we have assumed the job of policing
the streets of Iraq and refereeing a civil war.
The Iraqi security forces can be stood up, trained, but
they can never be effective until the Iraqi Government stands
up and creates the command-and-control system, logistical
support system that will allow them to be effective.
So, in my view, I think that we are in it for the long haul
unless we understand that the war on terror, which Mr. Ryan's
folks spoke so eloquently about, and the morale threat is one
that exists all around the world, and the al Qaeda operatives
are working in at least 100 countries, Mr. Ryan, not just in
Iraq. There were none there until we toppled the government
there.
So we are in pretty much a quagmire that there is no good
solution to that. Many people in the administration would not
want you to understand what the long-term costs are.
And as Mr. Edwards has spoken about the long-term veterans
health care costs, which have not been spoken for in the
future, the debt service which is one that those of us who are
Blue Dogs are very interested in, we think that we ought to pay
as we go. We don't think we ought to borrow money, Mr. Ryan, to
fund the government, those things which protect our strategic
interests.
And also, Mr. Orszag. I want to ask you, Dr. Orszag, about
the reset costs. You have spoken eloquently about the debt
service and the $705 billion, which I see on your chart or
someone's chart. That is about 30 percent or so of the total
cost of the long-term cost to the war. But you have not spoken
in defense about the reset costs, which obviously are very
serious, and we are going to restore ourselves to a position
that Mr. Ryan put up in his chart, chart number 4, where he
so--where he very--he outlined the cost of this in terms of
gross domestic product.
I hope that we can see--my friend put up that kind of
chart--when we deal with overall costs of the government,
including domestic costs, which Ms. DeLauro has spoken to. That
would be if we are going to play this game, we ought to play
where we compare apples to apples in the long run. We ought not
to talk about costs in one term when we talk about domestic
costs and in a different term when we talked about national
security interests.
So, Dr. Orszag, can you talk to us a little bit about reset
costs and what the long-term future holds for us in terms of
preparing our military once this is over?
Mr. Orszag. Yes. And actually coming back to a question Mr.
Allen had asked, in the area of reset costs and the related
area of reconditioning, there is not as much transparency as
one would hope, and that is an area in which more transparency
about exactly what is happening would be useful.
We put out a study of the subset of reset, in other words,
the reset program where you are trying to repair or replace
damaged equipment, and what we found is that a substantial
amount of the funding that has been provided, about 40 percent,
has been not to repair or replace something that was damaged or
destroyed, but rather to significantly upgrade it or to get
something new.
So, for example, in the funding that was provided under the
reset program, there were 120 M-182 tanks that were enhanced to
the System Enhancement Program, SEP, configuration, which costs
about $5 million a tank, and it is substantially beyond what
would be entailed in simply returning a damaged tank to its
original state.
So an issue for the Congress is how much of this money,
which is supposed to be for repairing and replacing damaged or
destroyed equipment, is actually being used to upgrade and to
replenish the capital stock of trucks and tanks and what have
you.
Our analysis suggests that if you continued fully funding
all of these requests, the military will wind up in a better
position in terms of its equipment, tanks, et cetera, than
before the war.
Mr. Boyd. If I might, Mr. Chairman.
This may be a question for the next panel, but in terms of
what may be lost or left when we--when we leave--and let us
make no mistake about it, we will draw down numbers
significantly and equipment out of that country significantly
in the near future--what will the cost of that be?
Mr. Orszag. To remove the equipment?
Mr. Boyd. No. What we may leave or may have been lost.
Mr. Orszag. Again, that will depend on how much is left. So
I can't give you a specific answer.
Mr. Boyd. Thank you, Mr. Chairman.
Chairman Spratt. Thank you.
Let me turn for 2 minutes to Mr. Ryan, and then we will go
to Mr. Doggett, if that is agreed.
Mr. Doggett. Let me make an inquiry before he begins.
I assume by Mr. Ryan being here that every member of this
panel, including every Republican member on that side of the
aisle where all of the seats are vacant, received notice of
this hearing about the cost of the war in Iraq?
Chairman Spratt. I am pretty sure they did.
Mr. Doggett. And when was that notice of the hearing sent
out?
Chairman Spratt. Seven days ago as required.
Mr. Doggett. Thank you very much.
Chairman Spratt. Mr. Ryan.
Mr. Ryan. I want to ask a couple of quick questions to
follow up Mr. Boyd.
I agree these things all ought to be done in context,
percentage of GDP, and I think you will find that it has
shifted from defense over to more domestic issues, and as we
saw from the Comptroller General, we have a big problem on our
hands going as the percentage of GDP in the future. The reason
I stuck with defense is because that is what this hearing is
about.
Peter, I just have one quick question because I am the only
Republican here, is taking these numbers--you have $1.7
trillion cost with interest on the 30,000 level, and then $2.4
trillion cost with interest in it at the 2013 level. If the
Majority budget resolution occurs and is implemented and
executed, and we do not have deficits after 2012 and therefore
are not debt-financing it, what is the savings off of those
figures that you would achieve if what they are saying they are
going to do does, in fact, happen and we are not deficit-
financing these things afterwards?
Mr. Orszag. Well, it still seems that even after you are
running a surplus in the baseline, that if additional spending
reduces the surplus, you are not buying down debt as much as
you would otherwise, and therefore there are additional
interest costs. They are the same logic.
Mr. Ryan. It is not the same interest costs of additional
debt financing versus canceling out, correct, versus foregone
cancellation? You are imputing the same interest rate whichever
way you go?
Mr. Orszag. In other words, if you have a trillion dollars
in debt outstanding, and you add $100 billion to it, there is
some interest on that. If you would have reduced it by $100
billion, we are on a surplus, but you don't--you have more
interest than under the baseline.
Mr. Ryan. So you are saying regardless of whether we are at
a deficit or surplus, the costs are the same?
Mr. Orszag. Under the assumption that the additional
spending is not offset elsewhere in the budget, you are looking
at the marginal impact on debt outstanding and then higher
interest costs. Yes, sir.
Mr. Ryan. Thank you.
Chairman Spratt. Mr. Doggett.
Mr. Doggett. Thank you very much for your testimony.
With reference to the moneys that have already been
expended, about what percentage of those figures are
attributable to the war in Iraq?
Mr. Orszag. Roughly 70 percent.
Mr. Doggett. Hasn't this varied at times so sometimes much
higher, but seldom lower?
Mr. Orszag. Well, earlier on it was lower while we were
concentrating on this portion in Afghanistan.
Mr. Doggett. Earlier on everything was lower.
I am sure you are recall that when the President's top
economist Lawrence Lindsey suggested that perhaps the initial
White House figure of $50 billion for the total cost over all
time for the war in Iraq might be off a little bit, they found
him another job outside the administration.
If I understand the burn figures, as they are referred to
presently, we currently spend in about 4 months in Iraq what
the White House told the American people initially would be the
cost of the total war. Is that about right?
Mr. Orszag. We are spending roughly 11 trillion--I am
sorry--$11 billion a month.
Mr. Doggett. We actually got an estimate of 12 billion from
witnesses this summer from the Pentagon. But perhaps 5 months,
to spend the--or almost 5 months to spend the amount of money
now, American taxpayers, American people are being asked to
expend or borrow the money to finance this, that the total cost
of the war was alleged to have cost.
And then can you tell us--I know that since the President
declared mission accomplished, we have had about 97 percent of
all of the servicemembers that we have lost who have been
killed in Iraq who have died since he declared mission
accomplished. Do you know about how much money has been spent
in Iraq since the President declared mission accomplished?
Mr. Orszag. I think it would be pretty easy to get off of
our--the table that we provided so we could add that up and
provide that to you.
[The information follows:]
Question (Mr. Doggett): How much has the U.S. spent on operations
in Iraq since President Bush's ``mission accomplished'' speech?
Answer: The President declared an end to major combat operations on
May 1, 2003 aboard the USS Lincoln. The Congress does not appropriate
funding by operation, however, CBO estimates that about $340 billion
has been appropriated for military operations in Iraq and for training
and equipping Iraqi security forces since that date. Spending--that is
outlays or disbursements from the Treasury--for the war is commingled
with spending from regular appropriations for the Department of Defense
so CBO cannot say precisely how much has been spent for the war in
general, or for the war in Iraq in particular. However, CBO estimates
that of the funding provided to the DoD after May 1, 2003, about $250
billion had been spent by as of the end of fiscal year 2007.
Mr. Doggett. And as far as whether the accuracy and the
veracity of the story from the White House has changed any
since these initial estimates of $50 billion in Iraq, you made
reference to the analysis that CBO did, that your office did,
of the cost of this tragic surge that the President has
embarked on. And your analysis showed that the cost of the
surge would be substantially greater this year than the White
House tried to sell the American people on, didn't you?
Mr. Orszag. Yes. And this was--maybe I can just explain for
a moment.
This was an area I had been asked earlier in which the
administration explicitly criticized something CBO did.
Mr. Doggett. Yes, sir. And it is that point that I wanted
to focus on. Their reaction to a study that was done to try to
analyze so we would have the facts here in Congress of what the
costs in dollars--not in blood, we know that is very high--but
the true costs in dollars would be this year. They said that
your estimate was inflated; did they not?
Mr. Orszag. They used some inflammatory language.
Mr. Doggett. I think it was stronger than that.
And, in fact, they had apparently omitted to include the
support troops. They just put the people that were out on the
front lines, but they didn't consider--I know they contract a
lot of that out to Blackwater and the like, but they didn't
consider any of the support costs or all of the support costs
for those troops.
Mr. Orszag. And in particular, I remember this quite well
because it was very early in my tenure, so it sticks in my
memory.
The administration had announced an increase of five
brigades in the theater and were assuming that or were counting
only direct combat troops in terms to get their roughly 20,000
troop increase. Our national security team, which is
outstanding, pointed out that you never send combat troops in
without police and the people who help feed them and all of the
other support behind them, and there was no way that you could
send in five brigades with only 20,000 troops.
Mr. Doggett. Yes, sir.
Well, looking, again, throughout this year to see if the
veracity index or the mendacity index, perhaps, of the White
House has changed any since that initial $50 billion for the
total cost of the war, at the beginning of the year we were
told that we would need next year 145-, $147 billion. On July
the 31st, talking from your chair, we were told it might be in
the 165- to $170 billion range.
What is the current request total to this Congress to pay
for the war in Iraq next year?
Mr. Orszag. Slightly under $200 billion.
Mr. Doggett. So it has already risen to slightly under; it
is about 196 billion or something like that?
Mr. Orszag. That is correct.
Mr. Doggett. And in terms of the total cost, you were asked
whether it was the worst-case scenario.
It is not a scenario, in your estimates, the $8,000 for
every person, it is not a scenario that you defined. It is one
you were given. It does not consider what the cost would be if
Vice President Cheney is successful in launching an attack on
Iran. It doesn't consider what the cost would be if we kept the
current troop levels there in Iraq.
But if it is $2.4 trillion, can you just give us some
comparison to say the budget today--or what $2.4 trillion would
purchase that the ordinary American citizen could begin to
understand what it means to pay out $8,000 per person?
Mr. Orszag. Well, there is no question that $2.4 trillion
is a lot of money. I understand that you and your colleagues
have provided many such comparisons for the American public.
Mr. Doggett. How does it compare to the size of the entire
Federal budget today? What is that today? How does it compare?
Mr. Orszag. It is more than that. That is over an extended
period of time, and it is difficult to compare that to a 1-year
figure.
Mr. Doggett. But total amount over 10 years would be about
what portion of the total Federal budget today?
Mr. Orszag. You want me--again, the 2.4 trillion is
actually more than 10 years, and then it would be the--it would
be, I don't know, three-quarters or so of 10 years Federal
budget, but I am not exactly sure. I wouldn't normally do that
kind of comparison.
Mr. Doggett. Thank you.
Chairman Spratt. Thank you, Mr. Doggett.
Mr. Smith.
Mr. Smith. Excuse me. I apologize for arriving here late
from a markup in another committee.
When you talk about reset costs, what would you point to as
something that might be neglected that we may need to address 5
years down the road or 10 years down the road rather than 2
years down the road?
Mr. Orszag. I am not exactly sure what you mean, sir.
Mr. Smith. With the reset costs, replacing equipment and
various other items, long term, I mean, we are finding out now
that some of the equipment is needing to be replaced that was
not replaced 10 years ago that maybe should have been, so we
are starting to see some increased costs now, and certainly the
war on terror exacerbates the entire issue.
Could you elaborate on that?
Mr. Orszag. Sure. Again, the most dramatic increases in
costs over the past several years have been in the area of
procurement, and part of that is related to the reset program.
I would just note, though, that the reset program now is being
so aggressively funded that our analysis suggests that it is
more than offsetting what it is supposedly designed to do,
which is to replace or repair equipment that is damaged in
theater. In other words, it is leading to a net improvement in
the quality and number of tanks and trucks and what have you
relative to prewar----
Mr. Smith. So, I mean----
Mr. Orszag [continuing]. Because of the money that you are
providing to it, okay?
Mr. Smith. Excuse me. I understand, I think, where you are
going with this.
Now, if a 1990--and my years are probably not accurate, but
if a 1990 tank is needing to be replaced, what would you
suggest replacing it with?
Mr. Orszag. Well, again, I think the question is not
whether or not a 1990 tank needs to be replaced, but, rather,
if a 1995 or a 1998 tank is damaged in theater, whether the
purpose of the emergency funding that is provided for the reset
program is to restore it to operational--you know, to its
original state, or whether the funds should be used to purchase
a 2007 or a 2008 high-technology tank.
A significant component of what is happening is the latter.
Again, that is up to you. The way that the program is being
described is that it is designed just to offset the impact of
the war on that 1998 tank, and that is not all that is
happening.
Mr. Smith. Okay. Thank you.
Chairman Spratt. With the consent of the Members on our
side, I am going to allow Mr. Becerra to go ahead since he has
got to leave for a markup and a vote imminently, so I recognize
Mr. Becerra.
Mr. Becerra. I thank the Chairman, and I thank my
colleagues for that.
Dr. Orszag, thank you very much for your testimony. I would
like to--actually, I am, first, disheartened that no one from
the administration and from the Department of Defense took the
opportunity and the invitation of this committee to come and
testify about what has to be one of the most important things
that we are facing, which is how to pay for this ongoing
military operation in Iraq.
I am also saddened to learn that, even though the
administration is not willing to be here, what we are finding
today is not that we are seeing the tail end of the costs for
this war begin to occur, but we are actually seeing costs on an
annual basis rise to pay for the President's adventure in Iraq.
My understanding is that every single cent of this war--and to
date we are looking at over a half a trillion dollars--has been
paid for with a government credit card, because not a single
cent of it has been paid for, and neither has the President
ever requested that we try to pay for any particular expense
for the military campaign in Iraq, which, during times of
record deficits and difficulties with other programs, makes it
very difficult to understand.
I want to pick up on something that my colleague Mr.
Doggett had mentioned, that ordinary Americans are talking
about billions and now, of course, trillions of dollars for the
Iraq war, but rarely do we put it in terms that the average
American understands. If we could turn to chart number 1--I
would like to just go through a few of these charts with you,
Dr. Orszag.
My understanding is that if the war costs continue under
these, in some cases, pretty rosy scenarios, we might expect to
spend somewhere on the order of $2.4 trillion by the time we
get to 2017. My understanding is that we have a lot of Chicken
Littles out there in the world saying that Social Security will
not be around. Well, $2.4 trillion is over half of what it
would cost us to stabilize Social Security for the next 75
years.
Do you have any dispute with that particular figure?
Mr. Orszag. Without disputing the $2.4 trillion as a
significant sum, I would point out that that comparison does
suffer from the flaw that the $4.7 trillion is in present
value, and the $2.4 trillion is not, and therefore, it is not
exactly an apples-to-apples comparison.
Mr. Becerra. Not exactly, but I think even the oranges look
pretty ugly.
Can we go to the next chart, number 2?
Again, the war request by the President just for the year
2008 dwarfs what the President said we could not spend for 10
million children in this country so that they could have health
insurance. That, to me, is, perhaps, the most astonishing that
the President said he had to veto the children's health care
bill that would cover 10 million kids for a year who have no
health insurance because we could not afford it. There you show
that 40 days of Iraq war activity would more than cover the
expense. When you see the chart that compares the two, the $196
billion that the President requested for the 2008 war funding
compared to the $12 billion that we would spend for 2008 to
cover 10 million kids, I think it is pretty dramatic.
Chart number 3, if I could have that one put up.
I think my colleague from Texas Mr. Edwards went through
this. Again, I think it is hard for anyone to understand why it
is that the President is willing to spend so much on the war
and not even have to pay for it using the government credit
card, yet his request for our veterans falls way behind it. In
fact, it falls behind what the Congress was willing to do when
it comes to trying to protect our veterans.
Chart number 6--or 5. Excuse me. Is it 6? Chart 6. Excuse
me. Chart number 6.
As many of you know, California right now has 500,000
people who have been evacuated from their homes. We have had
some six people who have been killed, dozens of people who have
been injured as a result of these fires, many of them first
responders. We have over 1,200 homes or buildings that have
been destroyed, and there still is no end in sight. Yet, as you
can see, the funding for the war dwarfs what we would spend for
our first responders, and clearly, again, here, the President
way underfunds our first responders and even what Congress is
trying to do. But I think the interesting thing about this
chart is that the bar on the left, the $25 billion, is the cost
of borrowing money. That is not the cost of funding the war.
That is just to pay the interest on the money that the
President is requesting. That is what happens when you do not
pay for something and you use the government credit card.
Ultimately you have to pay for it. Well, the cost of paying the
interest payments, which have no value because they are just
interest payments on debt, exceeds by a tremendous amount what
we are willing to spend on our first responders back in our
home States.
Chart 8, if we can go to the chart quickly, and then I will
go to chart 9.
Again, it puts more in perspective what we are talking
about spending again on the government credit card because that
$330 million a day is not paid for. That would equal the amount
that we would spend for 45,000 veterans, giving them health
care; new Border Patrol agents, 1,700; 46,000 more children
could be in Head Start if we did not have to spend $330 million
a day.
As to the final chart, I think this one is the most
telling, of course. We spend on a daily basis $333 million on
this war, unpaid for. In other words, our children will have to
pay for this in the future. Yet, when you take a look at the
Gulf War just 10, 15 years ago, that was our net total cost,
$2.1 billion for the entire cost of that war. That is because
we had allies in this so-called Coalition of the Willing to
come forward.
So, Dr. Orszag, I thank you for having come forward with
this information. I hope the American public will understand
that, for the ordinary person in this country, there are costs
to this war.
Mr. Doggett. Will you yield?
Mr. Becerra. I certainly will.
Mr. Doggett. Reflecting back on your initial comments about
the administration, as compelling as your charts and these
soaring numbers are surely, this is a situation in which
absence speaks much louder than words or statistics.
Mr. Becerra. I yield back, Mr. Chairman, and I thank my
colleagues for the opportunity to question.
Chairman Spratt. Mr. McGovern.
Mr. McGovern. Thank you, Mr. Chairman.
Dr. Orszag, I want to thank you for your testimony and for
providing such important information and analysis.
While some of your testimony today builds on past reports,
the impact of the Iraq war on the public debt is particularly
important to this committee, which has the duty to draft a
realistic budget. I only wish the President of the United
States were listening and cared half as much about these issues
as you do and as Chairman Spratt and as other members of this
committee do.
I am troubled by the fact that the administration did not
send a witness here today. I am troubled by the fact that so
many of my colleagues on the other side of the aisle are not
here today. I get the feeling that some believe that if we do
not talk about it, that we do not have to deal with it. But we
have heard a lot this morning about the growing costs of the
Iraq war, and this is a real issue.
Now I would like to turn the conversation, if I may, to
paying for the war. As your testimony illustrates, we are deep
in debt from this war. Every second we borrow another $100
billion here and another $100 billion there to finance this
war, the deeper and deeper into debt we go, and every morning
China and Japan and the Arab oil-exporting States wake up and
they buy the debt. We borrow money for this war, and they hold
the IOUs.
We cannot keep borrowing money to pay for this war. We
cannot keep putting it on the national credit card. Someday
somebody is going to have to pay for this war, and right now
the ``borrow and spend and borrow some more'' approach of the
President's means that that ``somebody'' is going to be our
kids and our grandkids, and that ``somebody'' is going to be
the children and grandchildren of every military family in
America, including those fighting in Iraq and Afghanistan, they
are going to have to pay for this. And that ``somebody'' is
going to be the children of the wounded, many grievously
wounded. They are going to have to pay for this. So, on top of
all of the sacrifice already demanded of their fathers and of
their mothers, this President is also demanding that their
children sacrifice their financial security to pay off his Iraq
war debt.
Just as the President intends to dump his mess of a war
onto the lap of the next President of the United States, he has
also deliberately and, in my opinion, cynically chosen to dump
paying for this war onto the next generation.
So here is my question: If President Bush actually started
to pay for the war beginning with fiscal year 2008, how would
that affect the budgetary costs of the war on the public debt?
Now, he would not be reaching back to pay for the $600 billion
in borrowed money to fiscal year 2007, so that is still there,
accumulating debt interest, but imagine the President's
actually paying for fiscal year 2008 and onward. What would the
budgetary impact be if the President had finally found the
courage to pay for his war?
Mr. Orszag. Again, it depends on sort of what the course of
the future war looks like, but under the two scenarios we have
presented, if you offset the costs, he would reduce the impact
on the debt, you know, in the slower phase-down case by a
little bit more than $1 trillion; and then there is some debt
service on that, too, so it is something like $1.2 trillion by
2017 if he paid for future activities.
Mr. McGovern. Which is significant.
Mr. Orszag. That is a significant amount of money, yes,
sir.
Mr. McGovern. I also think--you know, sometimes--I think
Mr. Becerra said this. We talk about these figures, and they
are so enormous that I think people have kind of lost the
ability to understand, you know, what $100 billion is or what
$160 billion is. I was trying to do some calculations here. I
mean, $160 billion, which is about 1 year of this war in Iraq,
is equal to the entire budgets of the Department of
Agriculture, Commerce, Justice, including the FBI and the
entire Federal judiciary, Interior, Energy, Treasury, the
Environmental Protection Agency, NASA. I mean, that is
everything here in Washington. That is everything out in the
field. I mean, we are spending a huge amount of money, and to
put all of this on our credit card with no accountability and
with no plan to pay for it I think is the height of
irresponsibility.
The fact of the matter is sooner or later the President
somehow is going to have to find enough courage and integrity
to pay for his war, or the disastrous budget impacts described
by you and by some of the witnesses who will testify later are
going to get worse and worse and worse than, I think, we have
ever imagined here. So it will be just one more toxic legacy of
this disastrous war that, I think, we will have to leave our
kids to have to clean up.
I think this committee in particular has a special
responsibility to make sure that Members of both parties stand
up to the plate and assume responsibility for this war. I mean
this is a war that has been decided to be waged by this
generation, and this generation ought not dump all of the costs
on the next generation.
I appreciate very much your testimony here today and all of
your analysis.
Thank you, Mr. Chairman.
Chairman Spratt. Thank you, Mr. McGovern.
Now Mr. Etheridge of North Carolina.
Mr. Etheridge. Thank you, Mr. Chairman. Let me thank you
for holding this hearing because it is the role of this
committee to try to help set a direction.
I think one of the things most troubling about all of this
today--a great deal of it is about this amount of debt that we
are piling up, as many of my colleagues have talked about. But
let me ask you a question, and I am sorry Mr. Ryan is not here
right now because he talked earlier about a percentage of GDP.
My question to you is, if you can answer it succinctly, have
you factored in the amount of borrowed money in the GDP? In
other words, the GDP does not include the amount of money we
borrow. That is a part of the expenditure of each year, isn't
it?
Mr. Orszag. The calculations that I gave you today were
both without and then with borrowing costs, so the $2.4
trillion has----
Mr. Etheridge. Okay, but I think the chart we saw up here
uses a portion of the expenditure; that is, the revenue coming
in. Is the borrowed money a part of that revenue stream as you
calculate the GDP?
Mr. Orszag. I am not sure what chart you are referring to,
sir. I am sorry.
Mr. Etheridge. It was a chart that Mr. Ryan put up, this
chart.
Mr. Orszag. Oh, yes. That does not include debts. That is
just the flow of spending each year----
Mr. Etheridge. Okay.
Mr. Orszag [continuing]. Not including any interest on
outstanding government debt.
Mr. Etheridge. So, if you use that chart, you really do not
have a good frame of what is really happening in our budget
process.
Mr. Orszag. One of the reasons that----
Mr. Etheridge. Let me tell you what I am getting to.
Mr. Orszag. Okay. Thank you.
Mr. Etheridge. Because if you look at World War II, and if
you look at Vietnam, the amount of debt that the country held
and the amount of interest we were paying would be
substantially lower as a part of our GDP than it is today
because that is the fastest-growing part of our budget today.
Mr. Orszag. If you look over a long period of time, we have
had the evolution of debt as a share of GDP. It was very high
then in World War II because we faced a very substantial
military conflict.
Mr. Etheridge. Sure.
Mr. Orszag. There have been changes in both directions
since then.
Mr. Etheridge. Okay. So here is what I am getting to. If
you look at the budget, if you look at the scenario you have
laid out, the amount of borrowed money, and we assume no one
tackles the issue of paying for it----
Mr. Orszag. Okay. Uh-huh.
Mr. Etheridge [continuing]. Can you give us any indication
at what point the amount of interest we are paying is going to
crowd out everything else within this budget to include
education and infrastructure?
Because the amount of dollars available for the domestic
side of the budget outside of the mandatory spending is
continuing to be squeezed. At some point this interest rate
continues to grow, even with the cost of dollars you are
showing, without additional inflation, and obviously that has
got to grow if we do not start paying our debts.
Mr. Orszag. Let me put it this way: It is absolutely clear,
under any analysis, that the Nation is on an unsustainable
fiscal path, and the kinds of scenarios that we are discussing
this morning exacerbate that unsustainable fiscal path in which
higher debt and then higher interest costs will crowd out--will
cause severe economic dislocation and problems eventually over
time. That is exacerbated by additional spending on the war on
terrorism, but it exists even in the absence of such spending.
We are on an unsustainable fiscal path even without the type of
money for the future that we are talking about in this hearing.
Mr. Etheridge. All right. The long and short of it is that
we have got to start paying our bills with real money.
Mr. Orszag. There is no question that a broad array of
economists believes that it would be much better if we started
offsetting the costs of new initiatives and if we, as a Nation,
started saving more.
Mr. Etheridge. I asked that question in that context
because, within the last week, I have talked to farmers who are
now--we have asked the White House. We cannot seem to get money
to help them in the worst drought we have had in 100 years. I
have visited schools where children are in makeshift
classrooms, and that is happening across this country.
The truth is we are squeezing out the opportunities to deal
with our own infrastructure while we are helping with other
infrastructure, and I think this, over the long run, will
inhibit our ability as a Nation to be able to grow and to
compete in this fast-moving economic climate in which we find
ourselves around the world.
Do you have any disagreement with that fact?
Mr. Orszag. Again, what I would say is there is no good
outcome that comes from the fiscal path that we are on. We are
borrowing--nationally, in terms of the Nation as a whole, we
are borrowing an unsustainable amount from abroad. Every
economist whom I know believes that that will change, the only
question is when and how, and the sooner that we address those
sets of challenges the better.
Mr. Etheridge. Thank you.
Thank you, Mr. Chairman. I yield back.
Chairman Spratt. Thank you, Mr. Etheridge.
We have got a vote coming up. Let us plow ahead in the
hopes that we can, maybe, end this round of questioning.
Mr. Moore, Dennis Moore.
Mr. Moore. Thank you, Mr. Chairman.
Thank you, Dr. Orszag, for being here.
Mr. Edwards asked you questions about veterans' medical
treatment. Do you recall those questions, sir?
Mr. Orszag. Yes, sir.
Mr. Moore. He asked you a question specifically about
traumatic brain injury and about the cost of treatment of those
personnel. Do you recall those questions, sir?
Mr. Orszag. I believe he asked about PTSD, not traumatic
brain injury.
Mr. Moore. I am sorry. He did. Okay.
What about traumatic brain injury? Do you have information
on that in your statement and in the information provided?
Mr. Orszag. Yes, we do.
Mr. Moore. All right. What would be the cost--and I
apologize. I apologize to Mr. Edwards. I had to step out during
his questions. I had a constituent to meet.
What would be the cost of providing medical treatment in
the future to persons suffering from PTSD?
Mr. Orszag. From PTSD?
Mr. Moore. Yes, sir.
Mr. Orszag. We can get you the figures. We have existing
figures from the Veterans Administration on how much it is
costing currently, and those were used along with extrapolated
health care inflation to project future costs.
Mr. Moore. Has the number of persons suffering from PTSD
increased, to your knowledge, from past incidents, or do you
know? Do you have that information?
Mr. Orszag. The number has, as you would expect, as the
number of veterans exposed to stressful situations increases.
I think the question that we struggle with is how will the
rate change. That is, we expect when the number of veterans
goes up, that more people will suffer from PTSD, but will the
rate increase or decline. And those are some of the
countervailing forces that I delineated in my answers to Mr.
Edwards.
Mr. Moore. Yes, sir.
Dr. Orszag, how many State National Guard units have been
deployed, to your knowledge, to Afghanistan or to Iraq? Do you
have that information?
Mr. Orszag. I do not.
Mr. Moore. We can get it?
Mr. Orszag. We can get it.
Mr. Moore. I would like to have that.
[The information follows:]
Question (Mr. Moore): How many states have sent National Guard
units to either OIF or OEF?
Answer: Based on the data that CBO has, it would appear that all 50
states as well as the District of Columbia have sent units to either or
both of these operations at some time.
Mr. Moore. Any idea how much equipment has been left behind
by State National Guard units in Iraq and at what cost?
Mr. Orszag. We will also respond to you in writing on that.
Mr. Moore. All right.
[The information follows:]
Question (Mr. Moore): What is the cost to the states to replace any
equipment that those units left behind in theater?
Answer: Because equipment for units in the National Guard is
provided by the federal government and purchased by the Department of
Defense, there is no monetary cost to the states that would result from
units leaving equipment behind in theater. The Department of Defense
noted in its February 2007 National Guard and Reserve Equipment Report
for Fiscal Year 2008 that Army National Guard (ARNG) units had been
directed to leave $3 billion worth of equipment in theater, which CBO
estimates represents about 30 percent of the value of all Army
equipment stationed permanently in theater.
Mr. Moore. Do you know for a fact that that has happened in
some circumstances, in some cases, though?
Mr. Orszag. Yes.
Mr. Moore. All right. Do you have any idea how many States
have provided National Guard units? I mean, would it be a
majority of the States, or do you know that?
Mr. Orszag. We think so, yes.
Mr. Moore. Yes. That would probably be at a cost of several
billion dollars that you have not basically talked about in
your information here; is that correct? I mean, you have not
addressed that situation----
Mr. Orszag. Our costs are Federal Government costs. I just
want to be clear about that.
Mr. Moore. Exactly. I am not pointing the finger at you. I
am just saying that is something that was not covered by your
testimony; isn't that correct?
Mr. Orszag. I think there is some ambiguity about that, and
we will get back to you.
Mr. Moore. Thank you very much.
Do you have any way of knowing what the equipment that was
left behind by National Guard units would do to their readiness
in the future to respond to a similar situation in the future?
Mr. Orszag. An obvious statement would be the more
equipment that is left there and not replaced, the more
difficult it is. There are currently difficulties just even in
the regular military with, for example, trucks in particular,
more advanced trucks. So there are equipment shortages in
various different parts of the military outside of the theater
in question.
Mr. Moore. I am not trying to be critical of you by asking
these questions, but these were part of the overall picture.
Your study basically and your testimony related to the costs to
our country, to our Nation, for the deployment of troops and
for the equipment that was deployed to Iraq and Afghanistan;
isn't that correct?
Mr. Orszag. To the Federal Government, yes.
Mr. Moore. Right, but there are other costs to the States
and to the readiness, potentially, in the future. Would that
also be a fair statement?
Mr. Orszag. Let me just hone in on ``readiness.''
There is no question that the military has set a sort of
norm that there should be two units at home for every unit
deployed abroad for regular readiness purposes and training and
what have you, and we are nowhere near that. We are, you know,
somewhere close to one for one, and it ranges between .75 and
1.5 in terms of units at home relative to those deployed
abroad, and that is an unsustainable situation.
Mr. Moore. Would it be correct to say, based upon the
national debt at the time in the last, say, 6\1/2\, 7 years,
that it was about $5.8 trillion to $6 trillion, and now it is
over $9 trillion?
Mr. Orszag. You are measuring gross debt----
Mr. Moore. Yes, sir.
Mr. Orszag [continuing]. And I prefer to use debt held by
the public. But on gross debt figures, you are approximately
correct.
Mr. Moore. Well, thank you. And I leave you to your
preference, but I would like to state that the debt, under my
circumstances, has gone up over $3 trillion in the past 6\1/2\
to 7 years; is that correct, sir?
Mr. Orszag. The gross debt increases will have gone up by--
I am just getting the exact number. It will just take me a
second--something like that.
Mr. Moore. All right. We can expect that figure to increase
in the future based upon your testimony today and based upon
what is happening in Afghanistan and in Iraq and as to the
costs to our military. Is that correct as well, sir?
Mr. Orszag. Yes. At the end of fiscal year 2007, the gross
Federal debt was, indeed, $9 trillion. That figure will
continue to increase.
I would note, though, as an economist, the other concept of
debt held by the public is the one that is typically used by
the economics profession.
Mr. Moore. I understand, but we have mortgaged the future
of our children and grandchildren; is that correct?
Mr. Orszag. The way I would put it is we are on an
unsustainable fiscal path, and something has to give. There is
no question about that.
Mr. Moore. Thank you very much.
Thank you, Mr. Chairman.
Thank you, Dr. Orszag.
[Response to Mr. Moore's question from CBO follows:]
Question (Mr. Moore): What is the effect on the readiness of those
units that left equipment behind?
Answer: Leaving equipment behind in theater undoubtedly has a
negative effect on the readiness of a unit once it returns to the
States. Although CBO cannot quantify the size of this effect, many ARNG
units were already short of equipment before they were mobilized to
deploy to Iraq. Leaving some of their equipment behind would only
aggravate the shortage. It should be noted, however, that the
Department of Defense received more than $4 billion from the Congress
to purchase equipment specifically for the ARNG in 2007. Although not
all of the equipment to be purchased with these funds will have been
delivered to Guard units yet, it should eventually go a long way to
alleviate the shortages caused by leaving equipment in Iraq and
Afghanistan. The Department of Defense has requested at least $4
billion for equipment for the ARNG in 2008 and plans to devote an
additional $18 billion over the five years (2009 through 2013) to
purchase equipment for the Guard.
Chairman Spratt. Mr. Bishop.
Mr. Bishop. Thank you, Mr. Chairman. Thank you very much
for holding this hearing.
Dr. Orszag, I just want to make sure we all have the same
set of numbers. The additional debt service cost on the $196
billion supplemental, we have calculated it at approximately
$25 billion. Do you accept that number?
Mr. Orszag. Over the next decade?
Mr. Bishop. No. What is the number? Just in 1 year.
Mr. Orszag. Oh, no. That would be too high. The debt
service on $200 billion for 1 year should be something--you
know, approximately $10 billion.
Mr. Bishop. Approximately $10 billion?
Mr. Orszag. Yes.
Mr. Bishop. That amount is approximately half of the amount
by which the total nondefense discretionary funding that the
House has passed exceeds the President's request, correct?
Mr. Orszag. The disagreement between the Congress and the
President over discretionary spending levels is a little bit
more than $20 billion.
Mr. Bishop. And that $20 billion is only about $6 billion
above current services; is that correct?
Mr. Orszag. I think that is approximately correct.
Mr. Bishop. All right. So we are looking to spend $6
billion above current services, and that amount has been
described as representing fiscal irresponsibility. Yet it is an
amount that is less than the additional debt service just on
the Iraq supplemental; is that correct?
Mr. Orszag. Six billion dollars is less than $10 billion,
yes, sir.
Mr. Bishop. Okay. Thank you.
Now, the fiscal year 2007 supplemental was approximately
$170 billion.
Mr. Orszag. Correct.
Mr. Bishop. I believe I heard you say that approximately
$30 billion to $50 billion of that remains unobligated at this
time.
Mr. Orszag. Yes. I am just wondering if it is all from the
fiscal year 2007.
Those are all fiscal year 2007, yes.
Mr. Bishop. Is that amount carried forward into fiscal year
2008?
Mr. Orszag. It can be obligated. Oh, yes, I remember now.
About $30 billion can be obligated. There is some authority
that cannot. It expires basically.
Mr. Bishop. But some $30 billion could be carried forward.
So, if we were to approve the entire $196 billion requested,
the budgetary authority would be approximately $226 billion for
fiscal year 2008 for the Iraq and Afghanistan wars?
Mr. Orszag. We are mixing and matching a little bit because
some of the $196 billion will, presumably, not be obligated in
fiscal year 2008.
Mr. Bishop. I guess that gets to my question.
In the President's transmittal to us--I am just going to
quote it. He said, ``I hereby designate the specific proposals
of the amounts requested herein as emergency requirements. This
request represents urgent and essential requirements.''
If some $30 billion to $50 billion of the $170 billion--so
20 to 30 percent of the original request--remains unobligated
after the fiscal year is over, does that not beg the question
of the level of urgency or the level of emergency associated
with the request?
Mr. Orszag. One complication is most of that money is in
procurement and cannot, without some change, be used for
operations and maintenance or other activities, so there is a
sort of fungibility, or transferability, issue that would have
to be addressed.
Mr. Bishop. But there is some 60-some billion dollars of
procurement money in the $196 billion; is that right?
Mr. Orszag. Yes. I can look up the exact figure, but it is
significant.
Mr. Bishop. But procurement, assuming they could get it all
done, could be as much as $90 billion out of the 220-some
billion dollars?
Mr. Orszag. Again, if you are mixing these two concepts
together, yes.
Mr. Bishop. I guess one of my concerns is I think--I do not
know whether you would agree or not, but we are 5 years into
this war. We are funding it via supplementals. The fact is that
as much as a third of what had been requested as urgent in
fiscal year 2007 remains unobligated now that we are into
fiscal year 2008.
Does it not underscore the lack of desirability, for a lack
of a better phrase, of funding this through supplementals? I
mean, would we not be able to apply greater scrutiny, would
there not be greater planning associated with the expenditures
if these were part of the regular budgetary process as opposed
to these emergency supplemental processes?
Mr. Orszag. There would generally be more scrutiny if
everything were as part of the regular appropriations process.
On the other hand, you know, in fairness, it is often difficult
to project out exact amounts far out in a military conflict.
I would just come back, though, to the procurement point,
which is, again, a large share and much of the increase in the
supplementals is coming in this area, and I will just come back
to raising the questions that were raised in some of our
reports about exactly what that is purchasing and whether it is
directly tied to the war on terrorism, or whether it is
accomplishing other objectives that the Defense Department
would like to achieve that may be necessary for our overall
military readiness, but that are not directly tied to the war
on terrorism.
Mr. Bishop. Thank you very much.
Thank you, Mr. Chairman.
Chairman Spratt. Thank you, Mr. Bishop.
Mr. Conaway.
Mr. Conaway. Thank you, Mr. Chairman.
Mr. Orszag, when was that 2007 supplemental available to
DOD to start spending?
Mr. Orszag. Well, I can get you the exact date. Hold on 1
second.
Mr. Conaway. July-ish?
Mr. Orszag. May.
Mr. Conaway. Certainly not October 1 of 2007----
Mr. Orszag. No.
Mr. Conaway [continuing]. Or of 2006. Excuse me.
Somewhere towards the last half of the fiscal year, it
became available for the DOD to spend?
Mr. Orszag. In May 2007, the Public Law 110-28 provided $95
billion out of the total, and I guess the other $70 billion
was--I think the other $70 billion was available earlier on, so
there is a split.
Mr. Conaway. Okay. All right. But not the full year to get
this money obligated.
Mr. Orszag. Correct.
Mr. Conaway. All right. Do you see anything just horrible
about the fact that we have got some money, based on the fact
that this request was made in late 2006, and that there was
some money that may not have been yet spent?
Would it have been wiser to obligate that money to take
this argument away if it were not to be obligated on things
they really needed?
Mr. Orszag. You long ago taught me not to use words like
``horrible.''
Mr. Conaway. There you go.
Mr. Orszag. Now, again, I would just come back to that it
looks like a big part of this has to do with the procurement in
terms of unobligated amounts that have been provided in budget
authority.
Mr. Conaway. All right. I am going off the subject just a
little bit, but in talking about timing and about getting
things done, the Senate and the House have both passed their
versions of the military quality of life 2008 appropriations
bill, and it is not at conference yet; it was brought back to
the House; it has not passed yet. We started the fiscal year on
October 1.
Do you have any sense of what the veterans have not been
getting this month as a result of the delays in bringing this
bill back to the House?
Mr. Orszag. I do not have any information on that to
provide to you.
Mr. Conaway. If I say it was $18.5 million a day off the
House version that they are not getting those increased
benefits while we sit and ponder the past, is that anywhere in
the realm of----
Mr. Orszag. I do not have any reason to doubt your figure.
Mr. Conaway. Okay. All right. Let me put it this way. If,
in fact, the military quality of life appropriations bill had
an increase in it for 2008 versus 2007, can they spend that
increase right now?
Mr. Orszag. No. We are operating under a continuing
resolution.
Mr. Conaway. From the 2007 levels?
Mr. Orszag. That is correct.
Mr. Conaway. So it is fair to say that whatever that
increase is, whether it is $18.5 million a day in increased
benefits to our veterans, they are not getting it right now,
that they are not getting those increases whatever they might
be?
Mr. Orszag. That would be a direct conclusion from it.
Mr. Conaway. All right. Help me understand a little bit on
the gross debt versus the net debt.
Are we not paying interest on the debt held by the Social
Security Trust Fund and other things? Are we not paying
interest on that?
Mr. Orszag. The question arises as to--there is interest
paid from the rest of the government to the Social Security
Trust Fund and to the other trust funds whose debt is included
in gross Federal debt. There is a question about the degree to
which those transfers between one part of the government and
another part of the government represent the same net burden on
the economy or net implications for the economy as net interest
transactions between the government and the rest of the
economy. So, when one part of the government pays another part
of the government interest that is of a different nature than
when the government pays private borrowers--or private
creditors, actually----
Mr. Conaway. Is that because the part of the government
that is paying it is a revenue-generating part of the
government where they are selling goods and services to
somebody, and they are actually earning that money separate and
apart, or is that money actually coming from taxpayers also?
Mr. Orszag. The way I would put it is we tend to look at--
the net impact of the budget on, for example, the Nation's
savings rate and on the macroeconomic demand tends to be tied
to the unified budget concept, which incorporates both Social
Security and the rest of the budget.
Mr. Conaway. Okay. That is a bit hocus-pocus for Mom and
Dad back at home. Debt service as shown up in the budget is on
the gross debt, right?
Mr. Orszag. The debt service that shows up in the budget--
you know, on the bottom line, when we say the budget deficit in
fiscal year 2007 was 1.2 percent of GDP or was, roughly, $160
billion, that is net interest. That is not gross----
Mr. Conaway. So that does not include the interest that is,
in effect, owed to the Social Security Trust Fund and that will
ultimately have to get paid out, assuming the Federal
Government is good for its debt?
Mr. Orszag. Again, the reason is that you are collapsing
Social Security's part of the government, and so----
Mr. Conaway. I understand the mechanics, but when it comes
time to pay that money out in 2017-ish----
Mr. Orszag. We can have a very long discussion about the
theology of the Social Security Trust Fund.
Mr. Conaway. I am just talking about the debt versus the
gross debt.
Mr. Orszag. No, but it ties back to the broader question of
the meaning of the Social Security Trust Fund and the mechanics
of how those transactions are undertaken. And I would just go
back to saying that the headline figures that we tend to use
for the budget deficit relate to net interests paid to the
public and not----
Mr. Conaway. I am a CPA by trade. We are hiding the truth
when we use a net deficit that eliminates the Social Security
excesses that are collected each year to reduce our unified
budget deficit. I think that is hiding the truth as well.
Mr. Orszag, I appreciate your being here, buddy.
Mr. Orszag. Thank you.
Mr. Conaway. I yield back, Mr. Chairman.
Chairman Spratt. Ms. Moore from Wisconsin.
Let me say we have got 5 minutes and 12 seconds to cast our
votes.
Ms. Moore, if you would yield 30 seconds to Mr. Edwards, we
will then save the balance of your time and come back as
quickly as possible. We have got two votes, but the second vote
will follow shortly after this one.
Mr. Edwards.
Mr. Edwards. Mr. Chairman, in response to my friend and
colleague Mr. Conaway's comments, let me say into the record
that last year, under the Republican leadership, this Congress
failed to even pass a VA appropriations bill, yet this year we
are hearing Republicans concerned. We are now 24 days into the
new fiscal year. In 2006, they did not pass it until November
30th; in 2005, December 8th; in 2004, January 23rd; in 2003,
February 20th; in 2002, November 26th.
It seems that the concern that the Republicans have today,
this year, under the Democratic leadership in the Congress,
which has increased veterans spending by $5.2 billion already
this year--it seems like there is a lot more concern than there
was during the 10 years that Republicans were in control. By
the way, the last time the Republicans passed a VA
appropriations bill on time was in 1996.
I yield back.
Chairman Spratt. We will return shortly. Meanwhile, the
committee will stand in recess subject to the call of the
Chair.
[Recess.]
Chairman Spratt. I call the hearing back to order, and we
will finish with this witness as soon as possible.
Mr. Berry of Arkansas.
Mr. Berry. Thank you, Mr. Chairman, and thank you for
holding this hearing.
I am concerned that such a small number of our colleagues
from across the aisle has chosen to attend and also that the
administration has chosen not to participate in these hearings.
As I understand it, they were offered the chance and were
encouraged to do so, but they chose not to do that.
I have several questions, Dr. Orszag. I think you are a
good and honorable man. You have a very difficult job. I
appreciate the way that you do it and present it in as honest a
way as is humanly possible to do.
Over and over in the short time I have been on this
committee, people in a position like yours come before us and
tell us that one of the problems they have is that it is
difficult to track money at the Department of Defense. There is
just not enough transparency. From time to time, it is hard to
tell where the money is, who has got it, what to spend it on,
and what have you.
Am I stating that correctly?
Mr. Orszag. I think it is fair to say that we do not have
full transparency into the budget systems to the degree that it
would be beneficial to have.
Mr. Berry. I find myself--maybe it is a function of my age.
I just got my Medicare card, and I am beginning to get maybe a
little bit more focused on my children and grandchildren than I
have been in the past, but I find myself very concerned. I
think history's road is littered with the remains of great
nations that got bogged down in a war and where they ended up
spending their entire fortune and all they could borrow to go
with it to deal with that, and where they ended up bringing
their countries down. I would certainly hope that we would make
the right decisions here and get ourselves on a path to a
successful Nation, and not one that is just continuing to bog
itself down in debt.
I do not know if you even have the ability to answer this
or not, but when the war was begun, when the President made
that decision, he told us that the oil revenues in Iraq would
be enough to pay for the reconstruction. Do you have any idea
how much that revenue is and where it is going? Does it go back
to the Iraqi Treasury or to the U.S. Treasury? Do they actually
pay for anything themselves?
Mr. Orszag. I think the clearest answer to that is that the
reconstruction activities that we are undertaking on net have
cost us--I gave you the figure over the past--you know, through
2007. So it is not the case that any revenue generated from
Iraq or elsewhere has been sufficient to offset the costs of
what we have been undertaking.
Mr. Berry. But you do not have knowledge of where that
money goes?
Mr. Orszag. We could respond in writing, but the short
answer is that we can give you the figures, but in terms of
tracing exactly where the money goes, that is a more difficult
undertaking.
Mr. Berry. Right. I think you had a line item in your
testimony that mentioned international operations. Would that
be the State Department?
What I am really trying to get at here, are these private
security forces like Blackwater, are they included in this
supplemental? Do we pay for them out of DOD money, or does the
State Department pay for them?
Mr. Orszag. I believe that most of that money is included
in the figures that we have given you.
Mr. Berry. Okay. Well, it seems as though my colleagues
from across the aisle are determined to try to make chicken
salad out of chicken litter, and it is pretty difficult to do,
and as much as we would all like to see a rosy picture--and
goodness knows we are all ready for one, especially when it
comes to this war and to Iraq--and as well-intentioned as, I
think, you and your colleagues are, if you came here to cheer
me up this morning, it is not working.
I thank you very much for your time and for your knowledge.
Mr. Orszag. I am sorry we did not cheer you up, but I guess
that was not the intention of the hearing necessarily.
[Responses to Mr. Berry's questions from CBO follow:]
Question (Mr. Berry): To what extent have Iraqi oil revenues been
used to fund Iraqi reconstruction, thereby reducing the potential
fiscal liability of the U.S. Government?
Answer: Iraqi oil revenues have not been as high as initially
projected, this have not gone as far as hoped toward offsetting the
fiscal liability of the U.S. Government. The Iraqi government had set a
goal to export 2.5 million barrels of oil per day, and the
International Monetary Fund (IMF) set a goal of 2.7 million barrels.
Actual exports since the U.S. invasion have hovered about 1.5 millions
barrels per day, largely due to war damage, sabotage, and diversion of
some oil to the black market. Although many outside companies are
interested in investing in Iraq's oil industry, few are willing to do
so without a more stable security situation and better investment laws
and regulations.
Rising oil prices have had a positive effect, tending to increase
oil revenues. However, Iraq's Ministry of Finance has been slow to
transfer funds to the Ministry of Oil, making it difficult for the
latter agency to maintain the oilfields and execute capital improvement
projects. The U.S. Congress has thus far provided about $40 billion in
reconstruction aid to Iraq, including funding from the Iraq Relief and
Reconstruction Fund and the Iraq Security Forces Fund.
Question (Mr. Berry): Are private security forces like Blackwater
included in the supplemental appropriation? Do we pay for them out of
DoD money, or does the State Department pay for them?
Answer: Direct contracts to the three major security contractors in
Iraq--Blackwater, Triple Canopy, and DynCorp--are managed and paid for
by the State Department. DoD does not contract with those firms
directly, but some of DoD's prime contractors purchase security
services from subcontractors, and the three firms just mentioned may be
among the subcontractors. Thus, indirectly, DoD may pay those firms as
well. In either case, however--whether managed by DoD or by the State
Department--the amounts are included in the appropriation totals
contained in Dr. Orszag's prepared statement.
Chairman Spratt. Thank you, Mr. Berry.
Ms. Moore of Wisconsin.
Ms. Moore. Thank you so much, Mr. Chair.
I was very intrigued by a line of questioning that the
Ranking Member was following when he indicated that perhaps the
cost of the war was overstated. He said that the supplementals
plus the regular budget and the debt service and the costs that
you included beyond inflation such as, I would imagine, health
care costs and unpredictable things were an overstatement. I
was very intrigued, very excited, as a matter of fact, when he
sort of suggested that if we were to diminish our commitment to
certain Cold War assets and equipment, that we could, perhaps,
have a different outcome.
Just briefly--I know you have not had time, really, to do
any number-crunching on this, but I was very intrigued by that
line of questioning, and I am wondering would that amount to a
tremendous difference if we were to exclude those Cold War
assets from your future calculations?
Mr. Orszag. Well, I guess the way I would put it is there
are clearly significant opportunities, many of which are
identified in the CBO Budget Options volume that we put out,
for example, at the beginning of this year, to modify the
course of future defense spending through changes in policy,
and undoubtedly there are many policy choices that you all
could make to alter the path of future defense spending.
Ms. Moore. Thank you.
You talked in your testimony about having greater access to
the cost model that DOD utilizes, and I am wondering, there was
a provision in the appropriations bill that would add a little
bit more teeth to the 9010 measuring stability and security
reports, which do not contain metrics on war costs and are not
required by law. Would that be helpful to you in your analyses?
Mr. Orszag. I am being told by the people who know ``not
really.''
Ms. Moore. Not really. Okay.
I am wondering if you are familiar with A Unified Security
Budget, a report of the task force, the principal authors being
Miriam Pemberton and Lawrence Korb from the Foreign Policy in
Focus, Institute for Policy Studies, and the Center for
American Progress and the Center for Defense Information.
Here they basically talk about the appropriateness of, you
know, number one, providing the full costs of the defense
budget and the war budget as a unified budget, but, in addition
to that, the foreign ops budget, the diplomatic efforts, a
unified approach. They say that a unified security budget would
pull together in one place the U.S. spending on all of its
security tools; you know, military forces, homeland security
and prevention, quite frankly, nonmilitary international
engagement.
I am wondering if you have ever undertaken some sort of
analysis or would undertake an analysis of what impact the
unified budget would have.
Mr. Orszag. I think in general, and this has arisen with
regard to Homeland Security spending and in other areas,
efforts like that can often provide more transparency and a
better trade-off across different subcomponents of related
efforts. There is difficulty, though, in the way that Congress
is organized in jurisdiction across both authorizing committees
and appropriations subcommittees in that kind of effort, so it
is difficult to have an aggregate budget for some activity that
is split among lots of different committees, and that often
leads to complications that would need to be taken into account
in evaluating that kind of approach.
Ms. Moore. Okay. In my final seconds, I just wanted to
revisit some of the comments that the Ranking Member made as he
challenged your projections on the defense budget. He talked
about balancing the budget.
I am wondering, in his question and in your response, did
you consider that defense is not subject to pay-go?
Mr. Orszag. That is correct. Discretionary spending is not
subject to the pay-as-you-go rules.
Ms. Moore. So what was the relevancy--I guess I was not
able to fully follow that--your give-and-take on that? Because
neither of you mentioned that fact. So, when you started
talking about the Republicans balancing the budget by, I
believe, 2012, I am wondering what were his assumptions, as you
understood them, about that?
Mr. Orszag. Let me separate two things. One is what happens
after 2012 and before--under any projection in which the budget
is balanced and goes into surplus after 2012, which is the
question that you are asking, which is--the spending we are
talking about is discretionary spending, and one of the reasons
that the CBO traditionally does not attach debt service costs
to changes in something like discretionary spending is it is
really hard to parse out what is--you know, you are collecting
$100 in revenue, and then you are spending something. How much
of the existing revenue is going for this kind of spending
versus that kind of spending? It is much clearer when you are
changing a mandatory program or a flow of taxes, the stuff that
is subject to pay-go. If you are not offsetting it, then it is
clearly adding to the budget deficit, and it has the debt
service implications that then follow.
On the discretionary side, I think the thought concept is
there is a certain level of discretionary spending that is
embodied, for example, in the baseline or that would occur in
the absence of the war, and if the war is additional spending
that is not offset in the rest of the budget, that has
additional debt service costs. As I tried to make clear to Mr.
Ryan, that occurs regardless of whether the budget overall is
in surplus or in deficit. The key thing is whether any
additional costs are offset somewhere else in the budget.
Ms. Moore. Thank you so much.
I will yield back.
Chairman Spratt. Now Mr. Doggett has a couple of questions
to wrap up.
Mr. Doggett. Thank you very much.
I would again note that throughout this hearing, at no
point, except for one very brief moment, has there been more
than one Republican Member present, and now there are no
Republican Members present, not because we discouraged their
participation, but for reasons that they can explain.
I would like to redirect Mr. Orszag's testimony to an
inquiry I had earlier that I got cut a little short on.
Many of us feel that this surge was a serious mistake, that
it has not accomplished its purpose. I understand it is not
your function to analyze that aspect of it, but just looking
purely at the dollars and cents at the time that you made your
estimate at the Congressional Budget Office, you were
criticized vigorously earlier this year, just as this
administration has criticized almost everyone who differed with
it on anything about the Iraq war. I note in particular that it
was said that you had greatly overestimated the cost of the
surge, and I would just ask you to respond generally on how the
estimates of the Congressional Budget Office compare with the
actual cost of the surge in this fiscal year.
Mr. Orszag. The cost of the surge is very closely tied to
the number of troops involved. We had originally put forward a
range that at the lower bound was 35,000 additional troops. We
are now above that. So I think the record shows that our
analysis was right on target; again, a credit to the
outstanding staff that CBO has. To the extent that the
administration had criticized that original analysis, the
facts, as they have turned out, have not been kind to that
criticism.
Mr. Doggett. I thank you.
In fact, I believe Secretary Gates said you greatly
overestimated this. Rather, the truth is that this
administration, from its original $50 billion estimate on the
cost of the war in Iraq right through to the estimates that are
being made outside this committee today, consistently lowballs
and misstates to the American people the true cost of the
dollars and, of course, the true cost in blood that we are
paying for this go-it-alone misadventure.
I want to ask you about one other aspect of that. Again, I
am just asking you about the numbers.
Mr. Orszag. Uh-huh.
Mr. Doggett. At the onset of this war, we were told by the
administration, as far as the cost of reconstruction, this was
going to be an easy matter; that it would be handled through
the Iraqis themselves, because they were in a rich country.
Of the costs of the Iraq war on the reconstruction side,
how much have we already paid out versus this self-pay claim
that was made at that time?
I believe specifically on March 27th of 2003, the comment
was, ``'The oil revenues of Iraq could bring between $50
billion and $100 billion over the course of the next 2 or 3
years. We are dealing with a country that can really finance
its own reconstruction and relatively soon,' Paul Wolfowitz
said here in testimony in the House.''
Mr. Orszag. There is no question--and in the figures that I
gave you for 2001 through 2007, you saw that a subcomponent of
the $39 billion cost over that period, which is part of the
overall $600 billion, is for reconstruction, and there is no
question that there is a significant amount of net effect--
negative--that is extra cost in that area. In other words, it
is not the case that reconstruction efforts have paid for
themselves.
Mr. Doggett. Have you done any analysis of how much of our
appropriations have actually gone to pay for weapons for those
who are opposing us? There has been, I know, a General
Accountability Office study showing a significant diversion of
weapons to the insurgents. Has there been any analysis of that
at CBO?
Mr. Orszag. We have not done that. That is more of a GAO
type.
Mr. Doggett. Then there has also been an indication that a
significant amount of money--I believe the most recent purchase
proposed $100 million of our appropriations--is going to buy
the Iraqis weapons from the Chinese.
Have you done any analysis of how much money has been
expended on purchasing weapons from China, Russia, Iran?
Mr. Orszag. No, we have not.
Mr. Doggett. And with reference to the so-called--another
bit of fiction, illusion, the so-called Coalition of the
Willing, have you done any analysis of how much this
administration has spent already and how much it has committed
us to in the future to buy members of the Coalition of the
Willing so that they would be willing.
Mr. Orszag. Again, I wouldn't necessarily use that--that
kind of terminology, but----
Mr. Doggett. You speak more as an economist than an
accountant, but I am speaking about the practical implications.
Mr. Orszag. The information that I have is the Department
of Defense has reported using $1.2 billion of its--or in the
material for 2008 that it has requested, $1.2 billion of its
funds for support of Coalition partners in 2006 and $1.4
billion in 2007. That was part of the material that it used to
justify its 2008 request.
Mr. Doggett. That is out of its appropriations request for
Iraq?
Mr. Orszag. Again, those numbers are from the past, and,
yes, it is part of this overall total, but we have the
information from the request that they submitted for 2008.
Mr. Doggett. Does that include building a missile defense
system in Poland and the Czech Republic?
Mr. Orszag. No.
Mr. Doggett. So I don't know whether that is being done
because of all of the renditions and the hidden prisons there
are more directly related to Iraq.
Does it include any trade benefits that were given to any
of these alleged willing partners?
Mr. Orszag. No.
Mr. Doggett. Thank you very much.
Chairman Spratt. Thank you, Mr. Doggett.
And, Dr. Orszag, that concludes your testimony unless there
are some parting remarks you would like to leave us with.
Thank you for your participation and your excellent answers
and for your entire staff for the solid work that they have
done in preparation of this report. We are very, very grateful.
Chairman Spratt. We will now turn to the second panel,
which consists of Amy Belasco of the Congressional Research
Service, and Professor Linda Bilmes of the Kennedy School of
Government at Harvard University.
Thank you both for your participation and for the efforts
that you put into your testimony.
As we previously indicated, your prepared testimony will be
made part of the record, and you can summarize it as you see
fit.
Ms. Bilmes, let us begin with you, if that is agreeable
with the two of you. The floor is yours, and you can summarize
your statement to the extent that you see fit. Thank you once
again for coming, and thank you for your fine work.
STATEMENTS OF LINDA BILMES, PROFESSOR, JOHN F. KENNEDY SCHOOL
OF GOVERNMENT, HARVARD UNIVERSITY; AND AMY BELASCO,
CONGRESSIONAL RESEARCH SERVICE
STATEMENT OF LINDA BILMES
Ms. Bilmes. Thank you, Chairman Spratt.
Thank you, Chairman Spratt and members of the committee.
Thank you for inviting me today to speak on this important
topic. I am Linda Bilmes, professor at the John F. Kennedy
School of Government at Harvard University, and as you know,
for the past 2 years I have been studying the total cost of the
Iraq conflict, particularly the cost of caring for our
veterans, with my colleague, Professor Joseph Stiglitz of
Columbia University.
The paper that we published 2 years ago estimated that the
cost of the war would range from 1- to $2 trillion. That was 2
years ago. We are currently updating that study, but so far our
predictions have come closer than we even could have
anticipated.
I have been asked to speak today about the long-term
accrued costs and the nonbudgetary costs of the war. By long-
term accrued costs, I refer to costs that we have already
incurred but not yet paid, such as providing lifetime
disability compensation and medical care to veterans with
disabilities. And by nonbudgetary costs, I refer to the costs
that the government does not pay, but someone else is bearing
the costs; for example, the families taking care of wounded
soldiers who return home, the loss of economic productivity
when a soldier is killed or injured, and the impact on the
economy of macroeconomic factors such as the price of oil.
Finally, I was asked to say a word about the cost of paying
interest on the money that we have borrowed to finance the war.
The key message that I want to deliver is that these
additional costs are very significant and very real. We
estimate that the cost of providing disability benefits,
medical care, and Social Security disability compensation to
veterans from Iraq and Afghanistan is between 350- and 500
billion over the course of their lives. This is based on claims
activity by OIF/OEF veterans to date plus extrapolations of
data from the first Gulf War.
We estimate that the costs of replenishing military
equipment that is being used up faster than it is being
replaced is in excess of $100 billion. However, I want to note
that the transparency in the Defense Department's account on
this topic is very poor, so this may well understate the true
amount.
We estimate that the economic loss to the country from the
deaths of more than 4,000 soldiers, U.S. soldiers, in the
conflict is at least 30 billion based on using the standard
valuation of statistical life methodology that the civilian
government agencies such as OSHA, EPA and FDA adopt. This is a
case where the official government estimates of the war
significantly understate the true costs because the budgetary
cost of a lost soldier is $500,000 as opposed to the 6- to $7
million which civilian agencies use to estimate a loss.
We expect the economic losses to the country from soldiers
who are wounded, injured or incapacitated by mental illnesses
will add between 200- to $300 billion to the cost of the war.
This is based on a new analysis we have conducted with the
assistance of a team of neurologists and psychiatrists at five
VA hospitals and at the UCSF medical school shortly to be
published in the New England Journal of Medicine, as well as
research published by the Veterans' Disability Benefits
Commission just last month.
Another cost is the cost to the families. One out of every
five disabled veterans, according to the Dole-Shalala
Commission, has had a family member who has had to leave his or
her job to become a full-time caretaker. Other families have
had to make other adjustments, not completely leaving their
jobs, but other adjustments, and we estimate the economic loss
from this as 40 billion.
I have not included but I want to note the issue of
quality-of-life impairment. Many countries, including
Australia, Canada, New Zealand and the U.K., pay lump sums
purely for quality-of-life impairments. Those lump sums reach
up to $500,000, and the President in his current proposals for
reforming the disability compensation has proposed that we
include a quality-of-life payment.
Turning to the macroeconomic effects of the war, the effect
on the price of oil, which has risen from $25 a barrel before
the war to $90 a barrel now, is also a cost to the economy.
Even if we attribute only 5 to $10--you are used to this, but I
am not--even if we a attribute only----
Chairman Spratt. There are about 14 minutes left for the
vote, so there should be ample time for you to finish.
Ms. Bilmes. Even if we attribute only $5 to $10 of this
increase to the Iraq conflict, the impact on the economy is
from 175- to $400 billion. The multiplier effect of this price
increase, that is the amount that consumers spend less on other
goods, adds another at least 187 billion.
Finally, interest costs can be thought about in three ways.
First, there is the money that we have already spent on what we
have already borrowed. That amounts to about $85 billion,
including $58 billion for Iraq. Second, there is the interest
on money that we still have to pay in the future on what we
have already borrowed, which adds another 450 billion. Third is
the interest cost that we need to pay in the future on money
which we will borrow in the future. We have not included an
estimate of this, but it would be, depending on the assumptions
used, very considerable.
In summary, the budgetary costs of the war that we see
capture only a fraction of the total costs, and taken together,
we estimate that all of these costs I have described add nearly
$1 billion on top of the total cost of the war that the
government estimates.
Thank you very much.
[The prepared statement of Linda Bilmes follows:]
Prepared Statement of Prof. Linda J. Bilmes, Kennedy School of
Government, Harvard University
Mr. Chairman, and Members of the Committee, thank you for inviting
me to speak to you today on this important topic. I am professor Linda
Bilmes, a faculty member at the Kennedy School of Government at Harvard
University, where I teach management, budgeting and public finance.
By way of background, in January 2006 I co-authored, with Nobel
laureate Professor Joseph Stiglitz, a paper that analyzed the economic
costs of the Iraq War. At that time, we estimated how much the war in
Iraq was likely to cost in total, taking into account budget costs to
date, future operating costs, long-term accrued liabilities (such as
veterans disability compensation), and economic costs (such as the lost
earnings of those who were killed and wounded). At that time, we
estimated that the total cost of the war would be from $1.2 to $2.2
Trillion, depending on the length of the war and other factors. We are
presently updating out numbers and we will present an updated paper at
the American Economic Association in January.
One of the long-term costs we identified is the cost of providing
lifetime disability benefits and medical care for veterans. After we
published the paper, we were contacted by the major veterans' service
organizations, who thanked us for shedding light on this topic, but
urged us to take a closer look into the needs of returning veterans. As
a result I wrote a second paper published in January 2007, specifically
looking at the cost of providing medical care and disability benefits
to veterans deployed in Operation Iraqi Freedom and Operation Enduring
Freedom (OIF/OEF). [The paper, Soldiers Returning from Iraq and
Afghanistan: The Long-term Costs of Providing Veterans Medical Care and
Disability Benefits, KSG Research Working Paper RWP07-001 has been
submitted for the record.] Since then I have testified twice to the
House Veterans Committee on this topic and I am submitting my testimony
to the record.
As you know, Congress has already appropriated over $600 billion
for the war effort in Iraq and Afghanistan, of which three quarters, is
for operations in and around Iraq. This year, the President is
proposing another nearly $200 billion in funding for operations, which
would bring the monthly total for the conflict to an average of $14
billion. I would like to especially commend my fellow witness this
morning, Amy Belasco, who has done an excellent job tracking these
expenditures. I think she would concur that the Department of Defense
accounting and reporting systems make it very difficult to know exactly
where the money is being spent. Her efforts have been invaluable.
My testimony this morning is not going to focus on past
expenditures. But before I begin, I would like to say something about
the use of the ``emergency supplemental'' vehicle for funding the war.
In my opinion as a budgeting professor, this is not the best way for
the US budget system--or any budget system--to operate. The purpose of
the emergency supplemental facility is to fund a genuine emergency or
unforeseen event, such as Hurricane Katrina. The late transmittal of
the supplementals during the budget process leads to less congressional
review and a lower standard of detailed budget justification than
regular appropriations. It is difficult to understand why, five years
into the war, we are still funding it largely in this manner. We are
denying the budget staff of both parties, who are some of the very best
staff members in the Congress--the budget committees, the authorizing
committees, and the appropriations committees--the opportunity to
review these numbers thoroughly. So it is not surprising, given this
lack of transparency, that we have seen widespread waste and alleged
corruption in payments to contractors, a lack of timely requests for
vital equipment such as MRAPs, and continuing shortfalls in critical
areas such as veteran's health care.
My second, related, point related is that the Pentagon's financial
systems do not permit accountability over spending. In report after
report, the Department's own auditors, its own Inspector General and
the GAO have concluded that the financial control systems at DOD are
not capable of providing accurate, transparent accounts of where money
is actually going. In addition, their accounts do not include accrued
long-term liabilities. In the private sector, Congress enacted the
Sarbanes-Oxley law almost unanimously in order to make corporate
executives personally accountable for accurate and honest accounting.
But at DOD, there is still no accountability for spending hundreds of
billions of taxpayer dollars. This problem has been compounded by the
huge sums that are being spent in Iraq. I strongly urge Congress to
strengthen existing financial control laws and to consider enacting new
ones that would require more transparency over financial transactions
at the Defense Department.
These problems are directly relevant to the topic I will address
today, which is how to estimate the total, long-term costs of the Iraq
War. The government estimates prepared by CBO and CRS are measuring the
budgetary cost of the war. The estimates that Professor Stiglitz and I
have prepared count the full economic costs of the war. This includes
long-term accrued liabilities, human costs, social costs and macro-
economic costs.
LONG-TERM COSTS
When I speak of long-term costs, I am referring to the costs that
the US taxpayer will pay for decades even if we pulled out of Iraq
tomorrow. These can be considered ``promissory notes'' of the war--
accrued liabilities that must be paid. For example, in the first Gulf
War in 1991, the operating costs of the war were paid mostly by our
allies. By some accounts we even made a profit. But today, 16 years
after the end of that war, the US government is still paying $4 billion
a year in disability compensation to veterans of Desert Storm/Desert
Shield. And even that doesn't include what we are spending on medical
care and Social Security disability benefits for the veterans of that
war, and on medical research into Gulf War illness.
In the Iraq and Afghanistan conflict, there are 4 major categories
of long-term costs. These are 1) veterans' disability payments, 2)
veterans' medical care; 3) Social Security disability compensation, and
4) replenishment of military equipment.
Let me turn first to veterans. This war has imposed an enormous
strain on our armed forces. Of the 1.5 million men and women who have
served to date, about one third have done second or third deployments
and the majority has had initial deployments extended. These men and
women are serving in harsh, nerve-wracking conditions, in a war where
there are no clear front lines. Anyone driving a truck, even when they
are not on patrol, can be blown up.
In Iraq alone there have already been 3,800 deaths, 28,000 wounded
in combat, and another 28,000 injuries and illnesses among our forces.
Thanks to advances in battlefield medicine we are saving many more of
the injured than in previous wars. There are 7.5 wounded for every
fatality, compared with a ratio of under 3 in Vietnam and Korea. Many
of these are grievous injuries that include TBI, amputations, burns,
blindness, spinal injuries and polytrauma--which is a combination of
such things. If you include all those who are wounded in combat, or
injured in a vehicle accident or contract a disease, there are 14
casualties for every death. But even this doesn't tell the full story,
There is a near epidemic of mental health trauma among solders
returning from this war, To date 720,000 soldiers have been discharged.
Over 250,0000 of them have already been treated by VA hospitals for
medical conditions related to their service, with 95,000 treated for
mental health conditions and more than 45,000 for PTSD. Over 200,000
have already applied for disability benefits from the VA. The long-term
costs of the war will include providing medical care for these veterans
and paying them disability compensation and other benefits such as
vocational rehabilitation, adaptive housing, family benefits and
prosthetics.
A related long-term cost to the government is providing Social
Security disability compensation. This is decided based on a single
criterion: whether or not the person is able to work. There are a
significant number of OIF/OEF veterans who will fall into this
category. For example, according to the Veterans Disability Benefits
Commission, one-third of patients with PTSD are ``unemployable''. Given
that there are 45,000 confirmed cases of PTSD already, that implies
that already 15,000 Iraq war veterans may be eligible for Social
Security disability compensation, in addition to all those who have
serious physical disabilities.
If we maintain a presence in Iraq through 2017 we estimate that the
long-tern cost of providing all these benefits over the lifetime of the
veterans will be at least $400 billion. We projected these costs based
on the number of claims and medical visits of the current veterans, and
on historical data from the first Gulf War. For example, we know that
28% of OIF/OEF veterans have already applied for veteran's disability
benefits and 88% of the ones that have been processed have been
approved. Based on the Gulf War conflict, we can project how many Iraq
and Afghan veterans will eventually seek disability compensation. Even
through that was a short war with little ground combat, 45% of veterans
applied for benefits and 87% were approved.\1\ More than 40% are
enrolled and using the VA health care system. In reality, many veterans
experts and medical doctors predict that Iraq war veterans will claim
benefits and use VA health care system at a far higher rate than in the
Gulf War.
MILITARY RESET
A second long-term cost is the replacement of military equipment.
We are repairing equipment in Iraq, but it is depreciating at a much
faster rate than we are replacing it. The military has already said it
will need $10 to $15 billion to replace equipment in the Army and
Marines each year for the remainder of the war and for at least two
years beyond. But there are other forces that will also need re-tooling
as a result of the conflict. For example the Air Force fleet is aging
rapidly due largely to the harsh flying conditions in Iraq. The Air
Force estimates that it will need $400 billion to restore the fleet to
its target age. If only 10% of that cost is attributed to the five
years of effort in Iraq, that alone is $40 billion in cost. I will not
go through all of our estimates here. But in total we estimate that all
of this will add from $100 to $200 billion to the long- term budgetary
cost of the war.
ECONOMIC COSTS OF THE WAR
Now let me turn to the social and economic costs of the war.
Economic costs differ from budgetary costs in several ways. First, they
include costs borne by those other than the federal government, such as
veterans, their families, or the communities where they live. An
example of this is when a family member is forced to quit (or change)
jobs in order to be a caretaker for a disabled veteran. Consider, for
example, a veteran with severe physical or brain injuries who is 100%
disabled. He will receive about $44,000 from the Veterans Department
and perhaps an additional $12,000 in Social Security disability pay. He
will receive health care and some additional benefits. But all of this
adds up to a fraction of what it costs to look after a young man (or
woman) who needs help getting dressed, eating, washing and other daily
activities, as well as constant medical attention, 24 hours every day,
7 days per week. Someone else--perhaps a wife, husband, parent or
volunteer in the community--is bearing the real cost of providing this
care. The formula for calculating veterans' disability compensation is
supposed to approximate the earnings that a veteran would have obtained
had he not become disabled. But a recent in-depth analysis by the
Veterans Disability Benefits Commission showed that the dollar amounts
paid to younger veterans and to those with severe mental disabilities
do not come anywhere close to matching what they could have earned.\2\
Economic costs also refer to prices paid by the government that do
not reflect full market value, or where there is a short or long-term
impact on the economy as a whole. The US government's disability
stipend doesn't compensate for the pain and suffering of the veteran
and his family, or the impairment in quality of life, or the loss of
economic productivity because he can no longer work. These costs are
very real--but hard to quantify. For example, if veteran's hospitals
cannot hire enough mental health professionals to treat the epidemic of
PTSD, the burden is shifted onto the veterans and families. They are
the ones who bear the cost of waiting in a queue for long hours, facing
month-long delays,\3\ and traveling hundreds of miles to seek medical
attention.
ECONOMIC VALUE OF THE LOSS OF LIFE
One of the major economic costs is the loss of productive capacity
of the young Americans who have been killed or seriously wounded in
Iraq. We have estimated these costs, which we refer to as ``social
costs'', for soldiers who have been killed, wounded or injured. The
government's budgetary estimate does not include the loss of economic
output that occurs when a soldier is killed or incapacitated. Although
it is impossible to translate the value of a life into purely monetary
terms, the government commonly uses this approach and determines the
``Value of statistical life'' or ``VSL'', based to some extent on the
value of foregone earnings and contributions to the economy. This
method is also widely used by economists and by insurance companies and
other private sector concerns. There are a wide range of VSL values in
use. If an American is killed in an environmental or workplace
accident, the US government estimates the value of a human life at more
than $7 million.
Despite the fact that the military ``family'' mourns the loss of
its soldiers, the official budgetary cost for a soldier's death is
$500,000 paid to the soldier's family. This amount is a small fraction
of the value used in even the narrowest economic estimates--and much
lower than the $6--$7.5 million range used by civilian government
agencies such as EPA, OSHA and FDA.\4,5\ In many cases, the dead were
young men and women in peak physical condition, at the beginning of
their working lives. Their true economic value could easily have been
much higher.
Using a VSL of $7 million, the economic cost of the more than 4,000
American deaths in Iraq and exceeds $30 billion. And while it seems
harsh to convert these deaths into cold financial numbers, at the same
time it is important to recognize that our economy will suffer as a
result of the fatalities in this war.
We could also apply the VSL to the estimated 1,000 US contractors
who have died in the region, man of whom were highly skilled
specialists, working on reconstruction projects such as fixing the
electricity grid and oil facilities. We have not counted their true
loss to the success of the project in Iraq, or the fact that their high
casualty rate has made it more difficult and more expensive for western
contractors to hire replacements to perform these jobs. In addition,
the standard budgetary cost does not include the cost to the military
of having to recruit and train a new soldier to replace the one who has
died. Nor does it take into account any indirect costs--such as the
impact on morale, or the heightened risk of PTSD among comrades of the
fallen soldier who have witnessed the death.
ECONOMIC COST OF THE SERIOUSLY INJURED \6\
The wounded contribute significantly to the cost of the war, both
in a budgetary sense (in the form of lifetime disability payments,
housing assistance, living assistance and other benefits) and in an
economic sense.
To date, there have been more than 60,000 ``non-mortal
casualties'', among US servicemen deployed to OIF/OEF, half of them in
combat. 13,000 of these were seriously wounded and unable to serve
after their injuries. The number also includes 31,000 servicemen and
women who were injured in other ways while serving (such as truck
accidents, construction accidents, training accidents, friendly fire
and other reasons) or who succumbed to illness or disease, and required
medical evacuation.
There are also thousands of veterans who incur various injuries and
illnesses while on active duty who are not medically evacuated. These
numbers are reflected in the quarter of a million returning soldiers
who have already been treated at a veteran's medical facility. 80% of
these veterans have applied for disability benefits which means that
for at least 200,000 soldiers fighting in Iraq or Afghanistan have been
left with a physical or mental impairment.
In our study, Professor Stiglitz and I estimated the economic loss
to the wounded based on the severity of their injuries. We assigned
economic values to soldiers who have suffered brain injury, amputation,
blindness, other types of severe injuries ( e.g., burns, spinal, and
major organs), injuries that require medical evacuation (not including
those counted above) and PTSD. We estimate that those with grievous
injuries, who can no longer be employed, suffer an economic loss as
great as someone who has been killed because their labor output will
essentially be lost to the economy and therefore we should assign them
a VSL similar to the one we used to calculate the value of statistical
life. Using the percentage of disability service-connectivity they
receive, we have then assigned partial values for injury to those with
other significant impairments, such as moderate TBI and traumatic eye
injuries.
Since our earlier study, we have done new research to determine the
number of serious injuries including a study with several VA hospitals
to gather empirical data. Some have questioned whether all the
casualties in combat or accidental should be attributed to the war. The
Dole-Shalala Commission argued strongly that they should. To address
this point we compared the rate of accidental death and injuries for
the five years prior to the war with the rates since 2003. In both
cases the current rates are approximately 50% higher. We will be
publishing this study shortly.
In total, we find that the economic costs of injuries will add a
further $200 to $300 billion to the cost of the war.
ECONOMIC COST OF MENTAL HEALTH DISABILITY
Another significant economic cost arises from mental health
disability. The Veterans Disability Benefits Commission discovered that
disability pay for serious mental health problems understated the
economic loss by a wide margin. For example, it found that VA benefits
cover only 69% of the income that a 35-year old veteran with a mental
health disability could have expected to earn had he not been disabled.
For veterans who are rated 100% mentally disabled the Commission found
that the lifetime earnings disparity--the difference between what the
veterans could have earned and the disability compensation he was
paid--was as high as $3.6 million.\7\
The Commission also found that veterans with severe mental health
disorders had the poorest overall ratings on health and quality of
life. Among veterans suffering from PTSD, one out of every three was
not capable of working at all (``individually unemployable''). In
addition, long-term mental health disorders led to poor physical
health. The Commission writes: ``Physical disability did not lead to
lower mental health in general. However mental disability did appear to
lead to lower physical health in general.\8\ This confirms the findings
of Dr. Charles Marmar, chief psychiatrist at the Veterans Hospital in
San Francisco, who has led a 30 year longitudinal study of Vietnam
Veterans.\9\ The results of his study found that PTSD patients suffered
diminished well-being, physical limitations, compromised health status,
permanent unemployment, days spent in bed, and perpetration of
violence.\10\
QUALITY OF LIFE IMPAIRMENT
The Disability Commission provided a sense of the kind of life
impairment that veterans experience. It found that 57% of all veterans
with any kind of disability suffer ``severe or very severe'' bodily
pain. This finding is all the more extraordinary because the data
includes veterans who are only rated 10% disabled. Nearly half of the
veterans surveyed took daily pain medication, and one quarter of them
required help in routine activities such as bathing, dressing and
preparing meals. Overall, 53% of the veterans reported that their
disability had ``a great effect'' on their lives. Three quarters of the
veterans agreed with the statement: ``Living with my service-connected
disability bothers me every day''.\11\
The impairment to quality of life was strongest among veterans with
mental health disorders. For example, 99% had worse health status,
overall, than would have been expected in their age bracket. They also
scored extremely poorly on overall life satisfaction. Overall life
satisfaction, even for the 10% disabled level, is only 61%. For those
rated 50-90% mentally disabled, the overall life satisfaction measure
hovers around 30%.\12\
The VA does not currently pay explicit compensation for quality of
life impairments, and we have not yet included one in our study.
However a number of other countries, including the UK, Canada,
Australia and New Zealand, pay specific compensation for quality of
life . Maximum lump-sum payments for quality-of-life loss in these
countries range from $220,459 in Australia to more than $500,000 in
Britain. It is worth noting that the President has recently proposed--
as part of his overhaul of the veteran's disability compensation
system--that the US should begin to pay a quality of life stipend.
COSTS TO FAMILIES OF VETERANS
The repeated tours of duty have imposed an enormous emotional,
social and economic strain on the individuals serving and their
families. When a service member is critically wounded, friends and
family members put their lives on hold. This puts enormous financial
and emotional strain on their loved ones. Current law offers caregivers
few employment protections, so they not infrequently lose their jobs
and suffer financial consequences. The Dole-Shalala Commission
estimated that 20% of families of veterans who were wounded, injured or
otherwise incapacitated (such as with mental illness) have been forced
to leave their employment in order to become full time caretakers.
We are in the process of estimating some of the economic costs to
the families of having to sacrifice their income and jobs, some of the
additional health care costs that families and society will incur in
caring for seriously injured veterans. We believe this will impose an
economic cost in excess of $40 billion.
MACROECONOMIC COSTS
Finally, let me briefly discuss the macroeconomic costs of the war,
in particular, the effects of the increased price of oil. The price of
oil in March 2003 was $23 a barrel and has now hit $90 per barrel. We
attribute some portion of this increase to the war in Iraq. Looking
back to 2003, at that time the futures markets, even taking into
account factors such as the increasing demand in China and India and
the constraints on refining capacity, still predicted that oil prices
would remain flat. Instability in Middle East is a major reason for
failure of normal supply response. However in order to be conservative
we have only attributed $5 to $10 of this increase to the war.
The increased price of oil hurts the economy in two ways. First, it
takes money out of the hands of consumers and transfers it to the oil
producers. America imports around 5.0 billion barrels a year,\13\ which
means a $5 per barrel increase translates into extra expenditure of $25
billion (a $10 increase would be $50 billion) per year.\14\ Americans
are poorer by that amount. If the increase persists for seven years, as
our conservative estimate assumes, that's $175 billion. For our
moderate estimate which assumes the effect is for eight years, the cost
is $400 billion.
Second, there is a multiplier effect. The reduced purchasing power
of Americans leads to a reduction in aggregate demand. Assuming a
standard multiplier of 1.5 that implies that our GDP is reduced by
approximately $150 billion a year.\15\ Again, I emphasize that this is
a conservative approach given that nominal oil prices are four times
what they were in 2003
We assume GDP has gone down $25 billion x 1.5 = $37.5 billion every
year, a total of $187 billion. We believe, however, that the total
impact may in fact be considerably higher.
Globally, high oil prices and the resulting higher interest rates
dampened our trading partners' economies, just as it dampened ours. The
result was that they bought less from America.
Finally, we can pose the counterfactual question: what would have
been the impact on America had the money we spent on Iraq been spent at
home? Clearly there have been some winners in the economy--such as the
oil companies and certain defense contractors. But overall, war
expenditures have weakened the economy by more than just higher oil
prices. Government money spent in Iraq does not stimulate the economy
in the way that the same amounts spent at home would. To the extent
that the Iraq war crowded out other expenditures, it lowered domestic
aggregate demand. The money we have spent in Iraq has had a lower
multiplier than the same amount invested here; funds that end up being
spent on contractors in Nepal or transporting troops do not have a
long-term investment in the economy.
These macroeconomic costs that we have estimated can be huge,
depending on the assumptions and how comprehensive an analysis we
complete. At a bare minimum, the macroeconomic costs of the war have
exceeded $200 billion, but they may add hundreds of billions to the
long-term economic cost of the war.
SUMMARY
In summary the budgetary costs of the war capture only a fraction
of the total costs. There are other significant costs--including costs
that will occur in the future as well as costs the government does not
pay in full or at all. There are also costs which are real, but less
easy to put into dollar terms. These include the cost of pain and
suffering and the diminished quality of life. In addition, there are
significant costs in the form of lower economic activity overall. Taken
together, we estimate that all these costs add nearly $1 billion on to
the total cost of the war that the government estimates.
ENDNOTES
\1\ Today 169,000 Gulf War veterans are receiving disability
benefits. (GWVIS Reports).
\2\ Final Report for the Veterans' Disability Benefits Commission:
Compensation, Survey Results, August 2007
\3\ McClatchy Newspapers, (Charlotte Observer Sunday October 21st)
revealed that some of the most severely injured veterans have to wait
more than 30 days to see a doctor in the VA system. Waiting times were
longest in areas such as traumatic brain injury and related diagnostic
services.
\4\ The ``peak'' age for VSL may be 29, in terms of lost earnings
potential, with a VSL between $6 and $7.5 (Viscusi, and Aldy, NBER
Working Paper 10199, 2003). Adjusting these numbers for 2007 dollars
the average VSL would exceed $8 million.
\5\ Compensation typically has been far higher if the individual
has been injured or killed in an ordinary automobile accident or an
accident in the private workplace. Outside of government, juries
frequently award much higher amounts in wrongful death lawsuits, in
compensation for the pain and suffering of the family.
\6\ [Editor's Note: No footnote text supplied.]
\7\ VDBC, Ibid.
\8\ VDBC Report, p. 15 conclusions
\9\ [Editor's Note: No footnote text supplied.]
\10\ Zatzick, Marmar, Weiss et al, ``Posttraumatic Stress Disorder
and Function and Quality of Life Outcomes in a Nationally
Representative Sample of Male Vietnam Veterans'', RAND Corporation 1997
\11\ From VDBC Report, September 2007
\12\ Ibid.
\13\ In 2004, they were slightly over 4.8 million barrels, in 2005,
in 2006 slightly more than 5 million barrels. As this book goes to
press, imports for 2007 have been running slightly lower than in 2006.
\14\ We emphasize that these are approximations. We have not
adjusted the numbers either for inflation, for the time value of money,
or for the changing levels of imports over the period. Fine tuning the
calculations by making these adjustments would lead to slightly larger
numbers than those used in our estimate. ck
\15\ Given the low level of savings in the US, we can expect
consumers to spend an equivalent amount less on other goods. Even
governments (especially state and local governments, which must limit
spending to revenues) will have to spend less on goods made in America
as they spend more on oil imports. And, of course, lower spending will
cause the economy to produce less. Standard estimates of the multiplier
are at around 1.5.15 which we use in our conservative estimate.
Chairman Spratt. We have about 12 minutes, so let us get
started.
STATEMENT OF AMY BELASCO
Ms. Belasco. Chairman Spratt and other distinguished
members of the committee, thank you for asking the
Congressional Research Service to testify about the important
issue the committee is considering: the growing cost of the war
in Iraq.
This testimony makes the following key points:
First, CRS estimates that Congress has provided about 615
billion to date for Iraq, Afghanistan and enhanced security at
defense bases, including appropriations to the Department of
Defense, the State Department, aid AID, and the Department of
Veterans Affairs. This includes moneys provided in the fiscal
2008 continuing resolution. This total includes about 455
billion for Iraq, 127 billion for Afghanistan, and 28 billion
for enhanced security.
On October 22nd, as you know, the administration submitted
an additional request, which includes an additional--an
additional request of 43.6 billion. If Congress chooses to
provide those funds, CRS estimates the total war costs would
reach about 803 billion, including some 192 billion in fiscal
2008 for Iraq and Afghanistan.
Our preliminary estimate is that if Congress chose to
appropriate the moneys in this request, the total for Iraq
would reach about 609 billion and about 160 billion for
Afghanistan.
In recent years, war costs have more than doubled from some
72 billion in fiscal 2004 to 165 billion in fiscal 2007. Most
of this increase does not appear to reflect changes in either
the number of deployed personnel or increases in the intensity
of operations. Rather, the increase reflects a number of
unanticipated requirements for force protection, gear and
equipment, funding to train partners, to train Afghan--train
and equip Afghan and Iraq security forces, and the single
largest factor that results in part from a broadened definition
of those expenses that are war-related, moneys for reset to
repair, replace and, as the Pentagon has defined it, upgrade
war-worn equipment.
There are also increases due to various programs which have
a more indirect connection to war costs.
Because war funding has generally been provided as
emergency supplemental appropriations, the administration and
the Defense Department developed their requests on a separate
track and may not make the same kind of trade-offs that are
made between programs in the regular budget.
Like other funding requests, DOD's war requests were
assessed by OMB and the President, but funding levels are not
subject to the same budgets caps or to long-term budget plans
as DOD's regular spending.
Relying on emergency supplemental appropriations has both
advantages and disadvantages. Potential advantages include
meeting wartime needs more expeditiously, providing the
services with more capable equipment for future needs, enabling
the services to buy large amounts of equipment ranging from
trucks to radios that have proved important for wartime and
that were not funded in previous DOD budgets, buying equipment
earlier than planned, and meeting some unanticipated
requirements for counterinsurgency warfare.
Potential disadvantages would include potentially
increasing readiness problems from equipment shortages because
DOD has chosen to upgrade rather than do standard maintenance
in some equipment, and upgrading takes longer than standard
maintenance; purchasing some equipment whose requirements have
not been fully vetted; funding programs that may not have been
subject to the same scrutiny as those in the regular budget;
and reducing visibility on total program costs and potentially
eroding budget discipline.
To address potential effects like these, Congress could
either require DOD to restore its earlier stricter definition
of war costs, which has been changed in regulation as hence
reflects the policy decision, or another alternative would be
to delay consideration of much of the fiscal 2008 reset request
until the submission of the fiscal 2009 regular budget when
baseline requirements could also be considered potentially at
the same time.
CRS estimates that in fiscal 2008, DOD has about 45 billion
in unobligated balances available from previous war
appropriations which could be used to meet many of the urgent
war needs until passage of the fiscal 2008 emergency
supplemental request.
Finally, as requested, CRS has estimated that the Army
could finance or cash-flow its war operating expenses without
passage of the fiscal 2008 supplemental until about mid-January
of 2008. They would do this by using funds that would otherwise
be used later in the year.
If DOD used--transferred additional funds to the Army, and
the Army slowed nonreadiness-related operating funding, as has
occurred in previous years, we estimate that the Army can
finance the operations until mid-February of 2008.
Thank you very much.
[The prepared statement of Amy Belasco follows:]
Prepared Statement of Amy Belasco, Specialist in U.S., Defense Policy
and Budget, Congressional Research Service
INTRODUCTION AND SUMMARY
Chairman Spratt, Ranking Member Ryan, and other distinguished
members of the committee. Thank you for asking the Congressional
Research Service to testify about the important issue the committee is
considering: the growing cost of the war in Iraq.
This testimony makes the following key points.
First, CRS estimates that Congress has provided about $615
billion to date for Iraq, Afghanistan and enhanced security at defense
bases including appropriations to DOD, the State Department and AID,
and the Department of Veterans' Affairs (VA).
This total includes about $455 billion for Iraq, $127
billion for Afghanistan and $28 billion for enhanced security, and
reflects $5 billion provided in the current FY2008 Continuing
Resolution. On October 22, 2007, the Administration submitted an
additional request, which includes an additional $43.6 billion for Iraq
and Afghanistan. If Congress chooses to provide those funds, CRS
estimates that total war costs would reach about $803 billion including
some $192 billion in FY2008.
In recent years, annual war costs have more than doubled
from some $72 billion in FY2004 to $165 billion FY2007. Most of this
increase does not reflect changes in the number of deployed personnel
but rather several other factors:
unanticipated requirements for force protection gear and
equipment;
funding to train partners and train Afghan and Iraqi
security forces; and
the single largest factor, resulting from a broadened
definition of war-related expenses primarily for reconstitution or
reset--funds to repair and replace war-worn equipment to include
expenses with a more indirect connection to war needs.
Because war funding has generally been provided as
emergency supplemental appropriations, the Administration and the
Defense Department have developed requests on a separate track, and may
not have made the same kind of trade-offs between programs as is done
in the regular budget. Like other funding requests, DOD's war requests
are assessed by OMB and the President but funding levels are not
subject to the same budget caps applying to other discretionary
spending. DOD has also broadened the scope of programs funded as war-
related activities in recent years.
Relying on emergency supplemental appropriations has both
advantages and disadvantages. Potential advantages include
providing the services with more capable equipment for
future needs;
enabling the services to buy large amounts of equipment
ranging from trucks to radios that have proven critical for war
fighting which were not funded in DOD's previous regular budgets;
buying equipment earlier than planned; and
meeting some unanticipated requirements for counter-
insurgency warfare.
Potential disadvantages include:
contributing to equipment shortfalls because DOD chose to
upgrade rather than do standard maintenance on equipment such as
Bradley fighting vehicles and M-1/A-1 tanks;
purchasing some equipment whose requirements have not been
fully vetted, such as replacement of pre-positioned equipment stationed
overseas;
funding programs that have not been subjected to the same
scrutiny as programs funded in the baseline budget; and
reducing visibility on total program costs.
To address potential effects like these, Congress could
either require DOD to restore its earlier, stricter definition of war
costs or delay consideration of much of the FY2008 reset request until
submission of the FY2009 regular budget request in February 2008 when
baseline requirements would also be considered. CRS estimates that in
FY2008, DOD has about $40 billion to $45 billion in unobligated funds
available from previous war appropriations which could be used to meet
many urgent war needs until passage of the FY2008 emergency
supplemental request. 1
---------------------------------------------------------------------------
\1\ According to DOD, unobligated balances of war funds total $53
billion as of August 2007, consisting primarily of investment funding.
If an additional $11 billion is obligated in the last month of the
fiscal year, about $42 billion would remain available for FY2008. CRS
estimates that DOD figures do not include about $7 billion in funds
transferred from baseline appropriations to meet war needs. Taking
these funds into account, would increase unobligated funds to almost
$50 billion; see Table A1 in CRS Report RL33110.
---------------------------------------------------------------------------
As requested, CRS estimated how long the Army could
finance or `cash flow' its war operating expenses without passage of
the FY2008 supplemental request. Assuming that DOD receives its regular
appropriation for FY2008, we project that the Army could finance or
`cash flow' its war expenses until about mid-January 2008 using funds
that would otherwise be used later in the fiscal year. If DOD used its
transfer authority and the Army slowed non-readiness-related operating
funding for its regular activities, as has occurred in previous years,
we estimate that the Army could finance operations until mid-February
2008.
The remainder of the statement discusses these and other points.
COMPARISONS TO OTHER MAJOR WARS
To put the cost of Iraq and Afghanistan in perspective, it may be
useful to compare those costs to previous wars. Looking strictly at
military costs and using estimates prepared by CRS Specialist, Stephen
Daggett that are adjusted for inflation, the discussion below compares
the cost-to-date after six years of operations to previous wars.
2
---------------------------------------------------------------------------
\2\ CRS calculations for DOD costs relying on a variety of data,
all converted to FY2007 dollars.
---------------------------------------------------------------------------
The cost of all DOD funds appropriated thus far for the three GWOT
operations--Iraq, Afghanistan and enhanced security--now equals about
90% of the 12-year war in Vietnam ($670 billion) and about double the
cost of the Korean war ($295 billion). 3
---------------------------------------------------------------------------
\3\ Estimates prepared by Stephen Daggett; all figures converted to
FY2007 dollars; military costs only.
---------------------------------------------------------------------------
The cost of all three operations thus far is now over six times as
large as the cost of the first Persian Gulf War ($94 billion).
Comparisons to that war are problematic, however, because the United
States paid some $7 billion, or about 7% of the cost of the war because
our allies, principally Kuwait and Saudi Arabia, reimbursed the United
States for most of the cost. 4
---------------------------------------------------------------------------
\4\ Department of Defense, Annual Report to Congress for Fiscal
Year 1994, January 1993; converted to FY2007 dollars by CRS.
---------------------------------------------------------------------------
The Iraq war itself has thus far cost about 65% as much as Vietnam.
On the other hand, Iraq has cost about 50% more than Korea to date and
about four and a half times more than the costs incurred for the first
Persian Gulf War.
COSTS-TO-DATE AND FY2008 REQUEST
Now to costs. There are several ways to look at the cost of the
current conflicts in Iraq and Afghanistan. DOD witnesses often cite the
current `burn rates' or monthly obligations as of a particular date.
While this figure reflects current spending, it does not reflect
overall costs.
DOD's war cost reporting system captures the amounts that have been
obligated for Iraq, for Afghanistan, and for enhanced security and
hence shows how funds have been allocated after the fact or once
contracts or purchase orders are signed and military or civilian
personnel are paid. DOD's figures do not reflect the total amounts that
Congress has appropriated to date which includes funds that remain to
be obligated in later years.
Nor does DOD's reporting system capture some intelligence funding
that DOD does not administer and may not include other war funds
appropriated. Nor does DOD capture amounts that have actually been
spent. 5 Concerned about the accuracy of its reporting, DOD
asked a private firm to conduct an audit on war cost tracking.
6 Although DOD's current FY2008 request identifies the funds
for Iraq vs. those for Afghanistan, DOD has not presented a breakdown
by operation of all funds received to date. 7
---------------------------------------------------------------------------
\5\ DOD's financial systems do not segregate `amounts spent' or
outlays for war expenses from its regular or baseline budget because
the funds are mixed in the same account.
\6\ CRS Report RL33110, The Cost of Iraq, Afghanistan, and Other
Global War on Terror Operations Since 9/11, July 16, 2007 by Amy
Belasco; http://www.congress.gov/erp/rl/pdf/RL33110.pdf; hereinafter,
CRS Report RL33110. For example, DOD does not consider the 10 C-17
aircraft added by Congress in the FY2007 supplemental to be war-
related.
\7\ See Table 1a. In DOD, FY2008 Global War on Terror Request,
February 2007; hereinafter DOD, FY2008 GWOT Request; http://
www.dod.mil/comptroller/defbudget/fy2008/fy2007--supplemental/FY2008--
Global--War--On--Terror--Request.pdf.
---------------------------------------------------------------------------
To present a more complete picture, CRS has estimated how all funds
appropriated to date are split between Iraq, Afghanistan and enhanced
security, relying on DOD and other data. In addition, CRS includes not
only DOD appropriations, but also State Department funds for its
diplomatic operations, AID funds for reconstruction and aid programs,
and Department of Veterans Affairs (VA) funds for medical care of
veterans of these two conflicts. CRS estimates do not include any VA
disability benefits for Iraq and Afghan veterans since CRS was not able
to get figures from the VA. About 90% of total funds appropriated to
date have been for DOD military operations and support in theater as
well as to train Iraq and Afghan security forces.
Total War Cost-to-Date. CRS estimates that Congress has provided a
total of about $615 billion for Iraq, Afghanistan and other counter-
terror operations, and enhanced security at U.S. bases, often referred
to by the Bush Administration as the global war on terror (GWOT). This
total includes funds in the FY2008 Continuing Resolution. Of this
amount, about:
$573 billion is for DOD;
$41 billion is for foreign aid, reconstruction, and
building and operating embassies in Iraq and Afghanistan; and
$1.6 billion is for VA medical care for veterans of these
conflicts.
On a monthly basis, CRS estimates that DOD is spending about $11.7
billion for the three GWOT operations. This year's average monthly
spending for Iraq and Afghanistan is running substantially higher than
the $8.8 billion in FY2006 and the $7.7 billion in FY2005. These
increases reflect both higher spending by the services to buy new
weapon systems to replace and upgrade war-worn equipment and higher
operating costs--particularly in Iraq--much of it is unexplained in
available budget documents. 8
---------------------------------------------------------------------------
\8\ CRS estimates based on Table 6, Ibid and monthly DOD war cost
reports as of July 2007.
---------------------------------------------------------------------------
Cost of Iraq. CRS estimates that Congress has provided about $455
billion for Iraq including:
$423 billion for DOD;
$31 billion for State/AID; and
$1.6 billion for VA medical care.
Average monthly spending for Iraq is running about $9.7 billion,
well above the $7.4 billion in FY2006 and the $6.5 billion in FY2005.
Only a small amount of the increase in FY2007 reflects the `surge' in
troops in Iraq. 9
---------------------------------------------------------------------------
\9\ CRS estimates that the increase of 30,000 troops in Iraq cost
between $3.5 billion and $4 billion in FY2007, adding about $300
million to monthly spending and accounting for 13% of the increase.
---------------------------------------------------------------------------
Cost of Afghanistan. CRS estimates that Congress has provided a
total of about $128 billion for Afghanistan including about:
$118 billion for DOD;
$10 billion for State/AID; and
$100 million for VA Medical costs.
Average monthly obligations are running about $1.7 billion for
Afghanistan, again substantially more than the $1.4 billion in FY2006
and the $1.1 billion in FY2005. The increase may reflect higher troop
levels and operating costs.
Enhanced Security and Other. CRS estimates that Congress has
appropriated about $28 billion for enhanced security at DOD bases.
Average monthly obligations for enhanced security now run about $30
million a month, less than half of last year's level.
Of the $615 billion total for the three missions appropriated thus
far, CRS was unable to allocate about $5 billion in war-related
appropriations that appear not to have been captured by DOD's tracking
system, a problem also identified by GAO. 10
---------------------------------------------------------------------------
\10\ The $615 billion includes the $5.2 billion provided to DOD in
Sec. 123, H.J. Res. 52, P.L.110-2, FY2008 Continuing Resolution,
enacted 9-29-07. See also, Table 3 in CRS Report RL33110.
---------------------------------------------------------------------------
Status of FY2008 Request
Congress has not yet acted on the Administration's FY2008 request
for war funding with one exception--the FY2008 Continuing Resolution
includes funding requested by the Administration's for Mine Resistant
Ambush Protected (MRAP) vehicles, trucks with a V-shaped hull that have
proven more effective against attacks from Improvised Explosive Devices
than uparmored HMMWVs. 11
---------------------------------------------------------------------------
\11\ In the FY2008 CR (H.J. Res 52, P.L. 110-92) Congress approved
$5.2 billion for Mine Resistant Ambush Protected (MRAP) vehicles that
the Administration requested in a July 31, 2007 budget amendment.
---------------------------------------------------------------------------
As of today, including the request submitted on October 22, 2007,
the Administration has requested $192.5 billion for FY2008's war-
related activities in Iraq and Afghanistan including DOD costs, State
and AID, and VA medical. 12 This total includes about $158
billion for Iraq and $33 billion for Afghanistan, and includes the MRAP
funds which Congress has already provided.
---------------------------------------------------------------------------
\12\ See Sec. 123, H.J.Res 52, P.L.110-92 enacted September 29,
2007, and OMB, `Estimate No. 6, FY2008 Emergency Budget Amendments,
Operation Iraqi Freedom, Operation Enduring Freedom and Selected Other
International Activities,' 10/22/07; http://www.whitehouse.gov/omb/
budget/amendments/amendment--10--22--07.pdf
---------------------------------------------------------------------------
Senior appropriators have said that they may not consider the
FY2008 supplemental request until January or February of 2008, though
some interim or bridge funding may be included in DOD's FY2008 regular
Defense Appropriations bill which has been passed by the House and
Senate. 13 When DOD receives its regular or baseline
appropriations, it is expected to finance war costs until a
supplemental is passed by using regular funds slated to be needed at
the end of the year and any interim funds provided.
---------------------------------------------------------------------------
\13\ Conferees to H.R. 3222, the FY2008 DOD Appropriations bill
have been appointed by the House but not the Senate.
---------------------------------------------------------------------------
HOW AND WHY WAR COSTS HAVE INCREASED
In recent years, DOD's annual war costs have more than doubled from
$72 billion in FY2004 to about $165 billion in FY2007, an increase of
$93 billion. Little of this increase reflects changes in the number of
deployed personnel. Rather, the increase is attributable to several
factors: 1) certain unanticipated requirements for force protection
gear and equipment; 2) the cost of training and equipping Afghan and
Iraqi security forces; and 3) even more, to a broadened definition of
the types of programs that would be considered part of war
reconstitution or reset--funds to repair and replace war-worn
equipment.
Although the major cost drivers in war costs would be expected to
be changes in the number of deployed military personnel and the
intensity of conflict, this does not appear to have been the case
because average deployed military strength has changed relatively
little in the past four years (see below).
Changes in Deployed Military Personnel. Although DOD does not
report these figures to Congress, the best measure of military
personnel levels may be average strength because it captures the
average number of military personnel in theater for a year, taking into
account the ups and downs as units rotate, and the amount of time that
individual service members are in theater. This figure is equivalent to
a full-time-equivalents (FTE) for civilians. Between FY006 and FY2007,
average strength increased by about 6,000 reflecting the increase in
troop levels announced by the President in January 2007. 14
---------------------------------------------------------------------------
\14\ Defense Manpower Data Center, DRS 17253, Average Number of
Members Deployed by Month, September 2001--July 2007 based on the
Contingency Tracking System; CRS estimated the average of FY2007 by
assuming the same level in August and September 2007 as of July 2007.
---------------------------------------------------------------------------
The average strength of military personnel deployed in the Iraq and
Afghanistan theater of operations has grown from 219,000 in FY2004 to
254,000 in FY2007, an increase of about 15% increase. During the same
period, however, costs have grown by about 130%, more than doubling.
15 Thus there appears to be little correlation between
changes in personnel levels and changes in costs.
---------------------------------------------------------------------------
\15\ Ibid.
---------------------------------------------------------------------------
Changes in Operational Tempo. In the past four years, direct
operating costs--a reflection or the intensity of operations--have
grown by about $4 billion, from $6.9 billion in FY2004 to about $11.3
billion in FY2007, a 65% increase. This would suggest that the
intensity of operations has grown. While service witnesses have
frequently testified that operating rates for equipment are several
times higher than peacetime levels and in an especially harsh
environment, DOD has not provided Congress with the total number of
miles driven by tanks, fighting vehicles or trucks each year that would
show whether the overall pace of operations has risen. It appears,
however, that a major reason for the $4 billion increase is higher fuel
prices as cited by DOD in its FY2005 Supplemental justification.
16
---------------------------------------------------------------------------
\16\ Department of Defense, FY2005 Supplemental Request for
Operation Iraqi Freedom (OIF), Operation Enduring Freedom (OEF), and
Operation Unified Assistance, February 2005 http://www.dod.mil/
comptroller/defbudget/fy2006/fy2005--supp.pdf; and CRS Report RL32783,
FY2005 Supplemental Appropriations for Iraq and Afghanistan, Tsunami
Relief and Other Activities by Amy Belasco and Larry Nowels, May 12,
2005, CRS-22; hereinafter, CRS Report RL32783; http://www.congress.gov/
erp/rl/pdf/RL32783.pdf.
---------------------------------------------------------------------------
Factors Cited by the Defense Department. The Defense Department
cites a variety of factors, ranging from higher personnel benefits to
fuel prices, to explain increases in war costs in its budget
justifications. Together, we estimate that these could explain about
$42 billion of the $93 billion increase in annual war costs between
FY2004 and FY2007. These factors include:
$3 billion more for higher war-related personnel benefits
(for higher rates for imminent danger pay, family separation
allowances, hardship duty, death gratuities, and traumatic injuries);
17
---------------------------------------------------------------------------
\17\ CRS Report RL33298, FY2006 Supplemental Appropriations: Iraq
and Other International Activities; Additional Katrina Hurricane Relief
coordinated by Paul Irwin and Larry Nowels, June 15, 2006, p. CRS-31;
hereinafter, CRS Report RL33298; http://www.congress.gov/erp/rl/pdf/
RL33298.pdf.
---------------------------------------------------------------------------
$10 billion more is for force protection--for example,
uparmored HMMWVs, night vision goggles (from $2 billion in FY2004 to
more than $12 billion in FY2007); 18
---------------------------------------------------------------------------
\18\ CRS Report RL32783, p. CRS-33; Congress added $1.5 billion for
Mine Resistant Ambush Protected (MRAP) vehicles to the $11.3 billion
requested for force protection gear in Table 2 in DOD, FY2007 Emergency
Supplemental Request for the Global war on Terror, February 2007;
hereinafter, DOD, FY2007 Supplemental Request; http://www.dod.mil/
comptroller/defbudget/fy2008/fy2007--supplemental/FY2007--Emergency--
Supplemental--Request--for--the--GWOT.pdf; for Congressional add, see
House Appropriations Committee, Press Release, May 24, 2007; for FY2008
request, see Table 2 in DOD, FY2008 GWOT Request.
---------------------------------------------------------------------------
$4 billion more to defeat improvised explosive devices
(from $0 in FY2004 to $4.4 billion in FY2007); 19
---------------------------------------------------------------------------
\19\ See Table 5 in CRS Report RL33110.
---------------------------------------------------------------------------
$4 billion more for higher fuel prices ($3.5 billion cited
in FY2005 Supplemental);
$13 billion more the cost to train and equip Afghan and
Iraq Security Forces (from $0 funded in DOD in FY2004 to $12.9 billion
in FY2007); 20
---------------------------------------------------------------------------
\20\ Ibid.
---------------------------------------------------------------------------
$7 billion for higher troop levels and heightened naval
presence in FY2007 to meet the President's `surge' in force levels.
21
---------------------------------------------------------------------------
\21\ CRS Report RL33900, FY2007 Supplemental Appropriations for
Defense, Foreign Affairs, and Other Purposes, July 2, 1007 by Stephen
Daggett, Amy Belasco, Pat Towell, Susan B. Epstein, Connie Veillette,
Curt Tarnoff, and Rhoda Margesson, July 2, 2007, p. CRS-38;
hereinafter, CRS Report RL33900.
---------------------------------------------------------------------------
This leaves about $51 billion to be explained. 22
---------------------------------------------------------------------------
\22\ CRS calculation based on differences between FY2004 and FY2007
in categories listed.
---------------------------------------------------------------------------
Of other factors cited by DOD, the $34 billion increase in annual
reset requests--the repair, replacement, and upgrading of equipment--is
the largest single factor in the growth in the past four years. Of the
$51 billion increase,
About $34 billion is for reset or reconstitution (from
about $4 billion in FY04 to $38 billion in FY07);
Some amount that CRS has not been able to identify for
accelerating the creation of standardized units in the Army and Marine
Corps (level in FY04 and FY07 unclear); and
Possibly about $3 billion to `grow the force' or increase
Army and Marine Corps strength, (perhaps $1 billion in FY2004 to about
$4 billion in FY07). 23
---------------------------------------------------------------------------
\23\ CRS calculations based on various sources, including DOD,
Supplemental & Cost of War Execution Reports and DOD, FY2007
Supplemental Request.
---------------------------------------------------------------------------
Taking these additional factors into account, about $14 billion of
the increase between FY2004 and FY2007 would remain unexplained.
Role of Reset or Reconstitution. The largest single reason for the
growth in costs between FY2004 and FY2007 appears to be reconstitution
or reset--the repair, replacement, and upgrading of war-worn equipment
as DOD defines it. To date, DOD has received about $64 billion in
funding for reset. With the just submitted new FY2008 request, the
total for reset would be $47 billion. That brings the total for enacted
and requested funding to about $110 billion. 24 The FY2008
reset request is some $43 billion more than in FY2004. 25
---------------------------------------------------------------------------
\24\ CRS calculations based on Office of the Secretary of Defense,
Report To Congress, Long-Term Equipment Repair Costs, September 2006,
p.24 and p.25; Congressional Record, August 2, 2006, p. S8571; DOD
FY2007 Supplemental Request, p.75; DOD, FY2008 GWOT Request, p. 62; and
SAC, Fiscal 2008 War Supplemental, p. 7.
\25\ CRS assumed $4 billion for all services compared to the $3.3
billion for Army and Marine Corps in Office of the Secretary of
Defense, Long-Term Equipment Repair Costs, Sept. 2006, p. 24 and p. 25;
Table 2 in DOD, FY2007 Supplemental Request.
---------------------------------------------------------------------------
Although repair and replacement costs might be expected to grow
over time as operations wear down equipment, it appears that much of
the growth reflects a broadening of the definition of war-related
funding as well as `front loading' or requesting funding in advance as
OMB Director Ronald Portman acknowledged. 26 Providing
additional funds for reset faces fewer hurdles when war operations are
funded on a separate track from its baseline or regular requests.
---------------------------------------------------------------------------
\26\ For changes in repair costs, see Figure 2-2 and Figure 2-3 in
CBO Paper, Replacing and Repairing Equipment Used in Iraq and
Afghanistan: The Army's Reset Program by Frances Lussier, September
2007, hereinafter, CBO, Army Reset; http://www.cbo.gov/
showdoc.cfm?index=8629&sequcence=0&from=7. For front-loading and
changes in definition, see CRS Report RL33900, p. CRS-42 to CRS-43;
Table 2 in DOD, FY2008 GWOT Request.
---------------------------------------------------------------------------
THE EMERGENCY BUDGETING PROCESS
The Administration has requested and Congress has agreed to use
emergency supplemental funds to pay for almost all of the cost of the
wars in Iraq and Afghanistan thus far. 27 War funds have
generally not been under the overall discretionary limits set within
annual budget resolutions so that they do not compete with other
programs. While few disputed that initial war costs for Afghanistan and
Iraq met the budget resolution's criteria for emergency spending--
necessary and vital, urgent, sudden, requiring immediate action,
`unforeseen, unpredictable, and unanticipated,` and `not building over
time.' Some members now question whether those criteria still apply to
war costs in the sixth year of operations. 28
---------------------------------------------------------------------------
\27\ For example, war funds in the FY2007 Supplemental (Sec. 10002,
P.L.110-28) and provided as `additional' appropriations in DOD's FY2007
regular appropriations (Sec. 9011, P.L.110-28) were designated as
emergency funds; see also, Title IX, Sec. 9011 in P.L. 108-287, P.L.
109-148, P.L. 109-289; DOD also received some funds as non-emergency
funding in the FY2003 Consolidated Appropriations (P.L. 108-7) and the
FY2003 Regular DOD Appropriations Act, P.L. 107-48; see Table A1 in CRS
Report RL33110.
\28\ Sec. 204 (a) (6)(A) of S. Con. Res 21, May 17, 2007.
---------------------------------------------------------------------------
In recent years, Congress has set separate caps for war funds. For
example, the FY2008 budget resolution (S. Con. Res. 21) no longer
classifies war costs as emergency funds but instead, sets a level in a
separate category for `overseas deployments.' That level--set in the
resolution at the Administration's initial request--may be adjusted in
the House. Changes in that level in the House are not subject to the
overall budget caps for discretionary programs. 29 Thus, it
appears that war costs and baseline programs essentially remain on
separate tracks.
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\29\ Sec. 101 (121) and Sec. 207 (d) (1) (E), H. Rept. 110-153 on
S. Con. Res 21.
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DOD BUDGETING PROCESS FOR WAR COSTS
Although much of the standard budget review process is followed for
developing war cost requests--the services submit their requests, the
Office of the Secretary and OMB review those requests, and ultimately,
the President sets the level. But unlike the baseline budget, the
overall funding level for war requests is not set in advance, and war
requests have generally been considered on a separate track. In FY2008,
Congress required DOD to submit a full year of war costs with its
regular budget. Since then, the President has submitted two additional
requests.
Relying on supplementals has been considered appropriate for war
funding because conditions on the ground make it more difficult to
predict defense needs, particularly in the early stages of a conflict.
In FY2008, however, Congress required that the President submit a
complete and detailed request for FY2008 with the regular budget. In
response to this requirement, DOD simultaneously developed requests for
the FY2007 Supplemental, FY2008 regular budget, and the FY2008
Supplemental. Some observers believe having several alternative ways to
cover costs may have eroded budget discipline.
DOD's recent requests have also gone beyond traditional definition
of immediate `incremental costs,' including some programs with more
indirect or longer-term connections to ongoing war operations such as
equipping standardized units in the Army and Marine Corps, upgrading
equipment as part of reset, buying pre-positioned equipment, and
increasing the size of the Army and Marine Corps.
In DOD's regular budget process--a six-year process referred to as
the Planning, Programming, Budgeting and Execution System (PPBES)--
senior officials make trade-offs within a `top line' or total funding
level set in advance by the President, based on the relative costs and
benefits of various expenses and programs as well as the relative risks
of choosing to fund programs in the immediate budget year rather than
in a later year.
DOD's War Cost Guidance. DOD recently revised the regulations that
guide the services in developing war cost requests. These revised
guidelines appear to institutionalize previous interim guidance and
practice that broadened the definition of war costs. 30
Traditionally, the cost of contingencies was expected to include only
incremental costs directly related to operations--in other words, costs
`that would not have been incurred had the contingency operation not
been supported'(emphasis added). 31 The guidance goes on to
warn that `Costs incurred beyond what was reasonably necessary to
support a contingency operation cannot be deemed incremental expenses,
since such costs are not directly attributable to support of the
operation.' 32
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\30\ The latest Financial Management Regulations for contingency
operations are dated September 2007 and supercede September 2005
regulations. These regulations were developed in the mid-1990s in
response to difficulties in estimating the cost of contingency
operations such as Bosnia.
\31\ Section 230902, DOD, Financial Management Regulations, Chapter
12, Sec. 23, `Contingency Operations,' Sept. 2007, hereinafter, DOD,
FMR, `Contingency Operations'; http://www.defenselink.mil/comptroller/
fmr/12/12--23.pdf.
\32\ Ibid.
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Examples of incremental expenses are:
special pays for those deployed overseas such as imminent
danger or separation pay for those with families;
the additional costs of activating national guard and
reserve personnel in pay and benefits;
transportation of personnel and equipment and setting up
base support services;
maintenance above planned peacetime levels to repair
equipment that has been operated at higher operating tempo rates;
`Other Services and Miscellaneous Contracts;'
procurement, Research, Development, Test & Evaluation
(RDT&E), and military construction that is `associated with supporting
a contingency operation,' `only if the expenditures were necessary to
support a contingency operation and would not have been incurred in
that fiscal year in the absence of the contingency requirement'
(emphasis in original). 33
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\33\ DOD, FMR, `Contingency Operations,' p. 23-25.
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To distinguish these incremental costs, the guidance required that
the military services show assumptions about troop levels, operational
tempo, and reconstitution though little of this information has been
provided to Congress. In addition, the guidance lists and describes the
types of incremental expenses that are to be reported monthly.
In guidance issued to the services to prepare their FY007 and
FY2008 requests, DOD reiterated that the services would have to
demonstrate that any investment requests were `directly associated with
GWOT operations,' rather than to offset `normal recurring replacement
of equipment.' 34 In addition, the services were also
required to show that reset plans could be executed in FY2007,
presumably to meet an emergency criteria. 35
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\34\ Under Secretary of Defense, Memorandum for Secretaries of the
Military Departments, `Fiscal Year (FY) 2008-2013 program and Budget
Review,' July 19, 2006, p.34-49, specifically, p. 36, 39, 41.
\35\ CRS Report RL33110, p. CRS-31.
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Change in DOD's Definition of War Costs. During the final stages of
preparation of the FY2007 supplemental, however, DOD appears to have
adopted a new and expanded definition of war costs that permits the
services to fund reconstitution or equipment replacement for not only
operations in Iraq and Afghanistan but also `the longer war on terror.'
On October 25, 2006, Deputy Secretary of Defense Gordon England,
issued new `ground rules' for the services in developing their FY2007
Supplemental requests stating that the services could include
`incremental costs related to the longer war against terror (not just
OEF/OIF)' including replacement of war-worn equipment with newer models
and `costs to accelerate specific force capability necessary to
prosecute the war.' 36 There is no specific definition of
the `longer war on terror' although it is now one of the core missions
of the Department of Defense. 37
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\36\ Deputy Secretary of Defense Gordon England, Memorandum for
Secretaries of the Military Department, `Ground Rules and Process for
FY '07 Spring Supplemental,' October 25, 2006.
\37\ CRS Report RL33110, p. CRS-31-p. CRS-32.
---------------------------------------------------------------------------
In September 2007, DOD published revised budgeting guidance for
contingency operations that institutionalizes the changes in the
October 2006 England memo. 38 This new guidance includes a
new section on budgeting for `large-scale contingencies' that expands
the definition of expenses that would be considered part of reset. For
large-scale contingencies which include `intense combat or long-term
stability or anti-insurgency operations,' the guidance permits the
services to request `expenses beyond only direct incremental costs' on
a case-by-case basis. 39
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\38\ Although the revised guidance is dated September 2007, it was
apparently issued as interim guidance earlier. It also appears that the
guidance endorse requests by the services in earlier supplementals that
were approved by Congress.
\39\ DOD, FMR, `Contingency Operations,'p. 23-45.
---------------------------------------------------------------------------
The guidance also includes not only expenses that `relate directly
to operations' but also those that are `a result or consequence of the
operations such as reconstitution activities (to replenish stocks,
replace battle losses, or worn equipment or systems), depot maintenance
and other supporting actions,' as well as special funding authorities
such as coalition support. 40
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\40\ Ibid.
---------------------------------------------------------------------------
This new definition differs substantially from the traditional
definition of reset--the `process of bringing a unit back to full
readiness once it has been rotated out of a combat operation,' by
repairing and replacing equipment and resting and retraining troops.'
41 The new guidance allows the services to restore or buy
new equipment that meets a higher standard to meet its future missions
by enhancing capability or adding new technology as well as rebuilding
equipment to its original condition (italics added). Thus the guidance
endorses actions to:
---------------------------------------------------------------------------
\41\ Office of the Secretary of Defense, Report to Congress, Ground
Force Equipment Repair, Replacement, and Recapitalization Requirements
Resulting from Sustained Combat Operations, April 2005, p. 8; see also
GAO-06-604T, Defense Logistics: Preliminary Observations on Equipment
Reset Challenges and Issues for the Army and Marine Corps, p. 3.
---------------------------------------------------------------------------
reach a `desired level of combat capability;'
appropriate to the units' future mission;
`restore and enhance combat capability;'
insert new technology; and
rebuild equipment to its original condition. 42
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\42\ For example, the guidance for vehicle reset endorses `Actions
taken to restore units to a desired level of combat capability
commensurate with the units' future mission. It encompasses procurement
activities that restore and enhance combat capability to unit and pre-
positioned equipment that was destroyed, damaged, stressed, or worn out
beyond economic repair due to combat operations by procuring
replacement equipment * * * [including] major repairs/overhauls and
recapitalization (Rebuild or Upgrade) that enhances existing equipment
through the insertion of new technology or restores selected equipment
to a zero-miles/zero-hours condition;' see DOD, FMR, `Contingency
Operations,' p. 23-21 to p. 23-22.
---------------------------------------------------------------------------
The new guidance may be intended to help the services provide for
unanticipated requirements, and apply some of the lessons learned in
the Iraq and Afghan wars--for example, by providing more force
protection, meeting threats from improvised explosive devices, buying
support equipment like trucks, radios, and loading pallets that are
traditionally under-funded, or fully equipping the reserve-component
now playing a key role. The new standards appear to provide the
services with broader leeway to include programs that are expected to
contribute to future needs rather than restricting war requests to
programs tied directly to ongoing conflicts.
CHANGES IN EXPANDING DEFINITION OF WAR COSTS
Adopting these higher standards also appears to provide a rationale
for including expenses in supplementals that have more indirect
connections to ongoing operations. Some observers have questioned
whether certain programs, funded in emergency supplementals, contribute
significantly to war operations:
equipping standardized units in the Army and Marine Corps;
personnel costs to increase the size of the Army and
Marine Corps;
reset, particularly, replacing war losses with equipment
just beginning production, upgrading equipment for future needs, and
buying pre-positioned equipment.
Standardizing Units in the Army and Marine Corps. In FY2005 and
FY2006, DOD requested and received a total of $10 billion in
supplementals to fund its ongoing initiative to standardize the
configuration of Army and Marine Corps units--an effort referred to as
modularity in the Army and restructuring in the Marine Corps. The Army
argued that accelerating the creation of standardized units would
decrease the stress on Army forces by providing more units to deploy.
Critics suggested that these expenses were more appropriately
considered regular rather than emergency budget costs and that
standardizing units may not contribute significantly to reducing stress
on the force. 43 While DOD argues that modularity makes it
easier to swap out units during rotations, only some deployed units are
modular. Modular units have fewer personnel, and some studies have
found that these units make a small contribution to reducing stress on
the force. It appears that most, if not all, funding for modularity is
now in DOD's regular budget.
---------------------------------------------------------------------------
\43\ CRS Report RL33110, p. CRS-34 to CRS-35; CRS Report RL32783,
p. CRS-30 to p. CRS-31.
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Increasing the Size of the Army and Marine Corps. Until January
2007, the Administration and DOD argued that the increases in the size
of the Army and Marine Corps above pre-war levels should be considered
war costs because they would be temporary increases to relieve stress
on the force, which would no longer be necessary once the conflicts in
Iraq and Afghanistan were resolved. This was the rationale for
including the personnel costs of the additional Army and Marine Corps,
referred to as `active-duty over strength' in emergency supplementals
rather than baseline requests. 44 Some Members of Congress
argued that the Administration should permanently expand the size of
the Army and Marine Corps to relieve stress on the force.
---------------------------------------------------------------------------
\44\ CRS Report RL33298, p. CRS-32.
---------------------------------------------------------------------------
In January 2007, the Administration reversed its position,
endorsing permanent increases of 65,000 personnel in the Army and
27,000 in the Marine Corps by 2012. In its FY2007 Supplemental request,
the Administration included not only the military personnel cost but
also an additional $1.7 billion to equip an expanded force contending
that the additional forces would reduce the stress on the force from
frequent rotations.
Some observers have questioned this rationale, noting that most of
the additional forces would not be available until 2012 or 2013. In its
report, the Senate Armed Services Committee transferred this funding to
DOD's baseline request on the basis that the Administration's
initiative to `grow the force,' was a regular rather than a war-related
expense. 45 According to recent testimony, the Army is
planning to add forces sooner, though it's not clear whether DOD's
FY2008 request includes funding for that change. 46
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\45\ CRS Report RL33999, Defense: FY2008 Authorization and
Appropriations, by Pat Towell, Stephen Daggett, and Amy Belasco,
October 9,2007, p. 19, hereinafter CRS Report RL33999; http://
www.congress.gov/erp/ra/pdf/RL33999.pdf,
\46\ SAC, FY2008 War Supplemental, p. 69.
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Replacing War Losses. Although war losses are generally accepted as
an appropriate war-related expense, recently, there has been
controversy about DOD's original FY2007 emergency war requests, which
included requests to replace lost equipment with new systems about to
or just-beginning production which would not be delivered for two to
three years. Examples include:
$389 million to replace F-16 aircraft with Joint Strike
Fighters;
$146 million to buy CV-22 Ospreys;
$388 million for C-130J aircraft; and
$375 million for EA--18G electronic warfare requirements.
Partly in response to congressional scepticism, the Administration
withdrew these requests in its March 2007 amendment which provided
funding for additional troops to support the additional five combat
brigades being sent to Iraq in the troop `surge.' 47 That
scepticism may be reinforced by the finding in the new CBO report that
the Army's FY2007 request included funds to replace not only
helicopters lost in theater but also losses of some 40 helicopters in
other non-war-related operations, which many observers would continue a
baseline rather than a war-related requirement. 48
---------------------------------------------------------------------------
\47\ DOD withdrew these requests and re-allocated the funds to
additional support personnel associated with the higher troop levels of
the `surge;' see CRS Report RL33900, p. CRS-44 to CRS-45.
\48\ Ibid., p. 22-p. 23, and Table 2-3.
---------------------------------------------------------------------------
Expanded Definition of Reset. While Congress has largely endorsed
DOD's past reset request, some questions have been raised about these
requests. In the FY2007 Supplemental, for example, appropriators
rejected some of DOD's FY2007 reset-related requests on the basis that
the proposed depot maintenance or procurement was either not
executable, not clearly an emergency, or provided funding in advance of
requirements. 49 Congress may want to ask DOD to identify
which requests are part of the `long war on terror,' rather than for
Iraq and Afghanistan. Some observers might suggest that to the extent
that requests were for this purpose, they might be considered more
appropriately within the context of DOD's regular budget where they
would compete with other defense needs.
---------------------------------------------------------------------------
\49\ CRS Report RL33900, p. CRS-42 to CRS-43.
---------------------------------------------------------------------------
A new report by the Congressional Budget Office on Army reset
programs estimates that more than 40% of the Army's funding for reset
thus far--or about $14 billion--is not to repair or replace systems
returned from overseas, the traditional definition. Instead, CBO
reported those funds are to upgrade systems to new capabilities, buy
new equipment to eliminate longstanding shortfalls, and replace pre-
positioned equipment stocks. CBO estimates that almost half of the
FY2007 funding was for these purposes. 50
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\50\ CBO, Replacing and Repairing Equipment Used In Iraq and
Afghanistan: The Army's Reset Program by Frances Lussier, September
2007, p. ix and p. 31ff,, Tables 2-4 and Table 2-5; hereinafter, CBO,
Army Reset Program; CRS calculation of FY2007 of non-reset share from
CBO Table 2-5.
---------------------------------------------------------------------------
CBO's report states that over 40% of the Army's war request in the
past three years has been to rebuild, upgrade, and purchase new or
upgraded equipment for reserve component, modular units, and pre-
positioned equipment--the broader definition of reset--rather than to
replace lost equipment or repair equipment returned from theater. This
included, for example:
upgrades to Bradley fighting vehicles, previously funded
in the baseline budget;
rebuilding heavy trucks to an `as new' status;
buying replacements for pre-positioned equipment used in
theater;
buying additional trucks for the reserve-component to fill
longstanding gaps; and
buying medium trucks to equip new modular units.
51
---------------------------------------------------------------------------
\51\ CBO, Army Reset Program, passim.
---------------------------------------------------------------------------
Although the Army argues that the upgrades provide improved
capability, potential questions for Congress are whether such repair
and equipment requirements are urgent or war-related requirements in
light of the one to three years required for delivery. Given the lead
time to buy such new systems, the Army may rely on its current
inventory to provide equipment rotating back with units, which is
possible since the Army is generally using 20% or less of its inventory
in theater and in many cases, already has upgraded equipment available
to send to the Iraq and Afghan theater. 52
---------------------------------------------------------------------------
\52\ Ibid., Summary Table 1 and Table 1-1.
---------------------------------------------------------------------------
POTENTIAL ADVANTAGES AND DISADVANTAGES OF EMERGENCY BUDGETING
What are some potential advantages and disadvantages of relying on
emergency budgeting to fund war costs? Potential advantages might
include the following:
wartime needs could be met more expeditiously;
the services, particularly the Army and Marine Corps, have
been able to meet certain longstanding goals to upgrade and buy
equipment;
the services have bought upgraded, more capable, equipment
earlier than planned; and
funding ongoing programs such as modularity in
supplementals gives the Army room to fund other needs.
At the same time, potential disadvantages include the following:
readiness may have reduced because upgrades take longer
than standard maintenance and hence, equipment may be returned to units
later;
purchasing equipment whose requirements have not been
fully vetted, such as Army pre-positioned stocks;
visibility on total program costs may be reduced; and
budget discipline may be eroded.
Potential Benefits of Emergency Budgeting. The expanded definition
of emergency requests, particularly reset, may have allowed the
services, particularly the Army and Marine Corps, to fill certain
longstanding gaps in their inventories for equipment that had not been
deemed sufficiently important to be included in previous budgets, some
of which may have be needed in these conflicts. This included, for
example, many items that have been included in the Unfunded Priority
List (UPLs), lists of items that are not included in the President's
budget that are often submitted to the congressional defense
committees.
Supplemental requests have also allowed the services to fund
certain support items that typically receive less priority than
aircraft, helicopters, and tanks or other major weapon systems in
regular budgets. This includes funding in `Other Procurement' accounts,
which covers a wide range of seemingly mundane support items such as
radios, tactical vehicles, and loading pallets. During war-time
operations, the services realized the importance of these items and
requested substantial funding in supplementals.
Providing the Army with $5 billion in funding in FY2005 and FY2006
reduced the pressure on the Army's budget by covering costs that had
been previously funded in their regular budget. This may have made it
easier for the Army to cover unanticipated cost increases in programs
such as the Future Combat Systems.
Costs of Emergency Budgeting: Readiness Effects. Congress may want
to ask whether the Defense Department's decision to fund major upgrades
and purchase new weapon systems and equipment for reset may have
lowered readiness by contributing to equipment shortages for units
training to deploy. CBO points out that major system upgrades or
modifications take longer than performing standard maintenance or
refurbishing older equipment and delay when equipment returns to units.
CBO's new report cites two examples: a tank can be reconditioned in
four months while it takes two years to recondition and upgrade that
same tank, and an overhaul of a heavy truck takes two to three months
whereas rebuilding those trucks would take one year (Heavy Expanded
Mobility Tactical Trucks). 53
---------------------------------------------------------------------------
\53\ CBO, Army Reset Program, p. 36 to p. 37.
---------------------------------------------------------------------------
The broader definition of reset could also have lowered readiness
by putting into the depot maintenance queue major upgrades and
overhauls of equipment that take more time to complete and may be less
urgently required than other items. According to GAO testimony and a
recent report, the Army's repair depots do not target items needed by
units preparing to deploy but simply repair equipment as it returns.
54
---------------------------------------------------------------------------
\54\ GAO-07-814, Defense Logistics: Army and Marine Corps Cannot
Be Assured That Equipment Reset Strategies Will Sustain Equipment
Availability While Meeting Ongoing Operational Requirements, September
2007; http://www.gao.gov/new.items/d07814.pdf; GAO-07-439T, Defense
Logistics: Preliminary Observations on the Army's Implementation of Its
Equipment Reset Strategies, January 31, 2007; http://www.gao.gov/
new.items/d07439t.pdf.
---------------------------------------------------------------------------
Costs of Emergency Budgeting: Incomplete Vetting. Because the
services have drawn heavily on pre-positioned equipment for Iraq and
Afghanistan, DOD has included replacements in their war-related reset
requests. The Army is currently re-examining its overall pre-
positioning strategy to reflect the 2006 Quadrennial Defense Review. A
recent GAO report points out that the Army's pre-positioning
implementation plan could `result in investments for the pre-
positioning program that do not align with the anticipated DOD-wide * *
* strategy,' and recommended that the Army synchronize its strategy
with that of DOD, a recommendation that DOD endorsed. 55
---------------------------------------------------------------------------
\55\ GAO-07-144, Defense Logistics: Improved Oversight and
Increased Coordination Needed to ensure Viability of the Army's
Prepositioning Strategy, February 2007, p. 4 and p. 7.
---------------------------------------------------------------------------
Similar dilemmas may arise in other areas where DOD requests in war
supplementals items that may not fit in with ongoing modernization
efforts, as may be the case for uparmored HMMWVs and MRAP vehicles.
Those systems will create additional support costs that may not be
anticipated in regular budgets.
Lack of Visibility on Costs and Reduced Budget Discipline. Because
supplemental and regular funding is requested simultaneously, it
becomes difficult for Congress to get a full picture of DOD plans as
well as the past, current and future costs of weapon systems. At the
same time, the availability of supplementals and broadened definition
of war costs, gives DOD (and Congress) an alternate funding vehicle
that is not subject to standard budget caps, and hence a potentially
attractive way to add funding to the defense budget.
Some observers have raised concerns that the services may be
relying too heavily on future supplementals to cover various programs,
which may allow DOD to delay facing trade-offs between programs.
POLICY ALTERNATIVES
Although both the President and Secretary of Defense Gates have
suggested that troop levels in Iraq are likely to decrease in 2008
below pre-surge levels, there remains considerable uncertainty about
the pace of troop decreases. Administration and Defense witnesses have
stated repeatedly that changes in troop levels will reflect the
situation on the ground. 56
---------------------------------------------------------------------------
\56\ Senate Appropriations Committee, transcript, Hearing on the
Fiscal 2008 War Supplemental, September 26, 2007, p.55-p. 57, p. 64-
p.65.
---------------------------------------------------------------------------
Potential options for Congress to avoid some of the dilemmas raised
by separate emergency budgeting could include the following:
require DOD to define the criteria for war funding less
broadly ; or
delay consideration of much of the FY2008 reset request
until FY2009, which could encourage DOD to make trade-offs between
those programs and their baseline requirements within a set limit.
With about $45 billion in investment funds likely to be available
to spend as of the beginning of FY2008, DOD might be able to meet
urgent reset needs while Congress considers its FY2008 reset request.
57
---------------------------------------------------------------------------
\57\ According to DOD, war-related carryover is $53 billion as of
August 2007, consisting primarily of investment funding. If an
additional $10 billion is obligated in the last month of the fiscal
year, about $43 billion would remain available for FY2008. CRS
estimates that DOD figures do not reflect an additional $7 billion in
funds transferred from baseline appropriations to meet war needs.
Taking these funds into account, would increase unobligated funds that
are available to over $45 billion; see Table A1 in CRS Report RL33110.
---------------------------------------------------------------------------
FINANCING ARMY OPERATIONS WITHOUT A FY2008 SUPPLEMENTAL
As you requested, CRS estimated how long the Army could continue to
fund FY2008 war operations using strictly funds from the regular FY2008
DOD appropriations bill. Under that assumption, CRS estimates that the
Army could continue to finance its operating costs--both baseline and
war--until about mid-January. This estimate assumes that the Army uses
operation and maintenance (O&M) funds slated to be used at the end of
the year to cover war costs in the initial months of the year.
58
---------------------------------------------------------------------------
\58\ CRS assumes baseline Army O&M spending of $6.9 billion
monthly, including $2.3 billion in DOD's baseline program (the average
of House and Senate recommended levels) and $4. 6 billion in war
spending, based on the FY2008 request.
---------------------------------------------------------------------------
If DOD transferred additional funds to the Army and if the Army
slowed its non-readiness regular non-war support spending as occurred
last spring, CRS estimates that the Army could last an additional
month, or until mid-February 2008.
Chairman Spratt. We have 6 minutes and 42 seconds to make a
vote. With your patience and forbearance, we will go and come
back as quickly as we can. We have two votes. I want to make
sure that there will be some coming back because I certainly
have questions that I would like to put to you, but if that is
agreeable with you, we will be back as quickly as possible.
The committee stands in recess subject to call of the
Chair.
[Recess.]
Chairman Spratt. I think we will have a couple more
showing.
I have some questions for the witnesses, and then we will
let you get on your way.
Let me thank you for your excellent testimony. We have got
questions we would like to ask you about it, but you have added
tremendously to our knowledge already.
Let me say to Ms. Belasco in particular, you may sometimes
wonder as you labor over those CRS reports who is reading them.
There are several Members who are reading them, and you do a
very, very good job of getting all of the facts there in
something that is enormously difficult to master. You have done
a great job.
You say in your testimony that DOD's reporting system
doesn't necessarily capture certain funding; intelligence
funding, for example. But you imply that there are other items
that it simply doesn't capture, identify as war funding.
You also indicate that DOD asked for a private firm to
conduct an audit and to help it set up its system for war cost
tracking. Do you know of the status of that system, and have
you been allowed access to that in your work to determine as
you track war cost funding?
Ms. Belasco. My understanding is the audit is not complete
yet.
Chairman Spratt. So have they built a structure? Have they
consulted anyone outside DOD about how it should be designed?
Ms. Belasco. I don't know the answer to that. I mean, I do
know that they are working on looking at their own war costs.
And, for example, one of the things that I include and they
don't include is moneys that have been transferred from DOD's
regular appropriations act to meet unanticipated war needs, and
they are actually looking at this question.
But----
Chairman Spratt. What other items are they not capturing?
You mentioned intelligence.
Ms. Belasco. For their monthly burn rates and for their
obligations report, some of them don't capture intelligence
spending which is not administered by the Defense Department,
and that is about--to date I would have to double check it, but
it is probably $25 billion over the past few years.
There is also some moneys from fiscal 2003 which were--
which I count as war-related because that is what they were
appropriated for, and I don't think they capture those as well.
The other kind of--the other issue that is beginning to
surface is also that the Defense Department, in their
justification materials, now includes a line that says non-GWOT
and intelligence spending. So they themselves are starting to
categorize some of the moneys appropriated in supplementals as
not relating to war, like increases to cover higher fuel prices
in the baseline budget, or, for example, the additional C-17s
that Congress approved in the fiscal 2007 supplemental but that
they do not consider to be related to the global war on terror.
This makes things rather messy.
Chairman Spratt. You mentioned in your testimony that there
has been an enormous increase in the account called--or under
the rubric of ``reconstitution,'' which is different from
``reset.'' Apparently it is more inclusive, a broader category
than ``reset.'' Would you differentiate the two, and could you
shed some light on why this reconstitution account is now up to
$45-, $46 billion a year?
Ms. Belasco. I am sorry, what was the question again?
Chairman Spratt. Would you differentiate--how do you
distinguish ``reset'' from ``reconstitution,'' and why has the
category of reconstitution gone up to $46 billion, $10 billion
in 1 year? Is procurement being assigned to this account that
would otherwise be procured in the ordinary course of business?
Ms. Belasco. First of all, I think the question of
``reset'' versus ``reconstitution'' itself is a bit murky. The
terms are sometimes used interchangeably.
Part of what may have happened is that the definition of
what is considered to be ``reset,'' that DOD has broadened its
definition of what is considered to be ``reset.''
``Reconstitution'' was the traditional term, and it used to
mean simply restoring a unit to where it was before it was
rotated out for operations, and that included anything from if
there were problems with their equipment and it needed to be
repaired to retraining troops in their old skills.
But recently the Defense Department revised its financial
management regulations, which I recommend as bed-time reading
if you have insomnia. And that has, in a sense,
institutionalized a change in the definition of ``reset,''
which actually has been going on for some time. And that
definition is far--is significantly broader than the previous
sort of standard traditional definition of ``reset,'' which is
that you restore a unit to where it was, and--but there are a
couple of very significant changes, and this was most clear
last October when Deputy Secretary Gordon England issued new
guidance to the services for preparing their 2007 and 2008 war
cost requests.
And he said explicitly in a memo that went out to the
service that the--that the services could include incremental
costs--this is a quote--incremental costs related to the longer
war against terror, parenthesis, not just OEF/OIF, including
replacement of war-worn equipment with newer models and, quote,
costs to accelerate specific force capability necessary to
prosecute the war, and this was the longer war on terror.
So this, in a sense, helped provide justification for the
services to expand the types of things that they would request
as part of reset. And you can see this in the regulations as
well where they say----
Chairman Spratt. Is ``reconstitution'' a new word, or is it
an old word that has been redefined?
Ms. Belasco. It is an old word, and in their regulations,
they use ``reset'' rather than ``reconstitution,'' but they
define it in a very different way. They used to be somewhat
interchangeable.
But what is different about the definition is now what they
are talking about is that requests for reset would be towards a
desired level of combat capability to meet a unit's future
mission to restore and enhance combat capability, insert new
technology. So all of this is a much more--a much higher
standard than was previously the case. And once they have put
it----
Chairman Spratt. I appreciate that.
Let us turn now to Mr. Edwards.
Mr. Edwards. Mr. Chairman, thank you.
Professor Bilmes, from my position as Chairman of the VA
appropriations subcommittee, I want to extend a special thank
you to you for the efforts you have made to quantify in both
the economic and in human terms the terrible price paid for our
servicemen and women who have fought in combat in Iraq and
Afghanistan, a price I am sure all of them were willing to
make, but nevertheless a price that we ought to be aware of in
this Congress as we consider our funding levels for VA medical
care and for VA benefits, which today simply are not adequate
or come close to compensate these great Americans for their
sacrifices.
Mr. Chairman, some of the comments in the written testimony
of Professor Bilmes, I think, were so important. While they are
technically in the record, for those who might be watching this
hearing, I would like to just repeat and restate some of those
for the record.
The fact is that out of 1.5 million servicemen and women
who served in Iraq and Afghanistan, to date 720,000 have been
discharged. So technically 720,000 are now veterans.
We have had 60,000 nonmortal casualties, a casualty rate of
14 casualties for every 1 combat death. So while many Americans
through their daily newspapers keep up with loss of life in
Iraq, for which there can be no true cost associated, the fact
is for every 1 of those, there are 14 Americans who may be
paying a price every day for the rest of their lives as a
result of the Iraq and Afghan wars.
Of the 720,000 veterans who have been discharged, 220,000,
or 34 percent, have already been treated for medical conditions
at VA hospitals; 95,000 have been treated for mental health
care problems, and 45,000 of those appear to have full-blown
post-traumatic stress disorder; 13,000 severely wounded
veterans, whose wounds are so severe they could not continue to
serve in the military after their injuries or combat wounds
occurred; and economic loss estimated due to combat injuries to
be 200- to $300 billion.
As Professor Bilmes said, one out of every five families, I
believe, who has a veteran in that family with a significant
disability as a result of the war has had to leave his or her
job in order to care for their loved one, for our veterans.
I think those are costs that every Member of Congress ought
to think about in the months and years ahead as we decide where
to go in this war, what its true costs are, and every Member of
Congress ought to consider as we look at veterans budgets and
health care budgets.
Professor Bilmes, my question to you would be this: There
is a great difference between the economic and medical cost
estimates of the Congressional Budget Office versus yours.
Could you talk about that difference and give me your
evaluation of the methodology used by the CBO and any
differences of opinion you might have about that methodology?
Ms. Bilmes. Well, I think that, you know, first of all, the
CBO is estimating the costs for 10 years, I believe, or less,
and I am estimating the lifetime costs, which, for a 25-year-
old veteran, recent veteran, I am estimating for 50 years, and,
you know, prorated for a 35-year-old and so forth. So that
accounts for a substantial amount of it.
Secondly, my estimates are based on a number of things:
First of all, looking at the--we know how many veterans have
already claimed disability compensation and have already been
to the VA for care. What we don't know is how many more will.
Now, we have based our estimates on essentially two things:
First on looking back at the first Gulf War. Now, the veterans
from this war have the same eligibility as veterans from the
first Gulf War. So that is a good comparison in terms of
benefits. But, of course, that war lasted for 1 month and with
a small number of injuries.
Now, if my estimates are based on--and I think they are
conservative. Just assuming that the same number of veterans
from this war claim disability compensation and medical care as
those in the first Gulf War, we would see the kind of estimates
that I am talking about.
The other issues to take into account in terms of
estimating this are the level of health care inflation
included; the cost-of-living adjustment included; the cost of
how long, of course, the war goes on; the rate of injuries
going forward; and a variety of other factors.
And I cannot fully explain the discrepancy between in my
own estimates and the CBO estimates, but I will say that during
the last two breaks for votes, we have been discussing it, and
I suspect that we will resolve them.
I will also say that we have--for the past year, I have
been involved with a group of psychiatrists and neurologists at
UCSF Medical School and the five VA hospitals around the San
Francisco area in which we have been collecting actual
empirical data on health care usage and claims usage in that
region. So we expect to shortly publish those findings in the
New England Journal of Medicine, and I believe they will form
an ongoing basis for these projections.
Mr. Edwards. I want to thank you for your excellent work to
date. And I hope in the future we discuss the honest cost of
this war, that we absolutely must include in that the
continuing price being paid every single day by tens of
thousands of American veterans who are suffering from physical
and mental combat wounds. And we should take care of those
patriotic citizens in a way that they have not been taken care
of by administration budget requests to date.
Thank you.
Chairman Spratt. Thank you.
What was the name of the hospital where the research is
being done?
Ms. Bilmes. University of California San Francisco, UCSF
medical school.
Chairman Spratt. Mr. Doggett.
Mr. Doggett. Thanks to both of you for your important
testimony.
Professor, we have heard over the last several years so
many misrepresentations, so many gross untruths, so many lies
from this administration about the cost of the war in Iraq that
it was refreshing to have the landmark study that you and Dr.
Stiglitz provided concerning the true cost of this war, and I
know you are working on updating it.
I believe, if I remember correctly, that the general
reaction of the administration to your initial study was that
you were the folks with the green eyeshades, and the bean
counters, and that decisions need to be made for other reasons.
Let me ask you about an area that I am sure is difficult to
give true numbers on looking at it from an economic standpoint,
but wouldn't you agree that there is a very real cost to
America in systematically disguising the real cost of this war?
Isn't there a cost to delusion?
Ms. Bilmes. Well, I think that by not looking at the true
cost of the war, it makes it very difficult for you in Congress
to essentially do a cost-benefit analysis when you take a vote.
I mean, if you think you are taking a vote on a $70 billion
supplemental, and the true cost is actually twice that, you are
not really able to do your job properly.
So I think that the way that the administration has
requested money for this war through this series of so-called
emergency supplementals is a misuse of the vehicle, of the
emergency supplemental, and I certainly would argue that war
costs should be made transparent and more full.
Mr. Doggett. So if you come in and you reject the findings
of the bipartisan Iraq Study Group, and instead increase the
number of troops in the surge, and then when an independent
group like the Congressional Budget Office responds to a
request from our Chairman for the cost of that surge, and you
criticize the actual results of what the surge will cost by not
counting in all of the front-line troops, not counting in the
support troops--and, I guess, Mr. Chairman, the Congressional
Budget Office is due for some criticism because though they
were accused by the Secretary of Defense of greatly
overestimating the cost, they actually underestimated the cost
slightly of the surge.
Let me ask you if when you have this delusion, when you
have these misrepresentations, if there is a cost not just in
dollars, but if there isn't a link to the blood that has been
spilled and the lives that have been lost? And I am thinking
specifically, for example, of the administration's delay in
providing the armor that our troops needed to be protected from
the IEDs.
Ms. Bilmes. Yes. I mean, very much so, and I think nowhere
do we see this more than in the situation with the MRAPs. I
mean, we know that 4 years ago the Marines were already asking
for MRAPs because they already knew conclusively that they
protected our soldiers better from exactly the type of injuries
they were facing in Iraq than even the up-armored Humvees. And
despite that, it was not until Secretary Gates came in and
ordered a review and looked at it that we have finally now, 4
years later----
Mr. Doggett. And many lives.
Ms. Bilmes.--and many, many lives later that we have
finally asked for the money for the resources to replace the
18,000 Humvees.
But, of course, you can't just wave your hand and replace
18,000 vehicles overnight. It takes a while to actually
manufacture them.
So all of this while we are continually exposing our troops
to injury and death as a result of sort of a penny wise, pound
foolish approach to the budgeting.
Mr. Doggett. As you know, there has been some discussion
around these halls lately about a war tax. But isn't it true
that we are already paying a Bush war tax, a Bush gas tax every
time we pump a gallon of gasoline? Aren't we paying higher
prices because of the war in Iraq?
Ms. Bilmes. Well, I mean. I would say yes and no. I mean,
on the one hand, because of the way this war has been waged, it
has been waged with an all-volunteer paid Army and with paid
contractors. So essentially the cost in blood has been
translated into a financial cost, and since we have borrowed
all of the money to go to war, the financial cost has been
passed on to the next generation. So you could argue that we
have not--we, the public--we have not borne the cost of the war
at all yet, except for in the economy there are a number of
factors which do affect us to a certain extent, one of them
being the price of oil.
Now, the price of oil before we went to war was $25 a
barrel, and at that time the futures market, which looks out
and scans the horizon for changes, already anticipated the
enormously growing demand from China and India. And they
nevertheless expected that the price of oil would remain
constant.
So certainly if my colleague Joe Stiglitz was here, this
being exactly the area where he won his Nobel Prize for this
assymetry of information, he would argue that you should
attribute almost all of the increase of the oil price to the
instability in the Middle East caused by the invasion of Iraq.
But I, being a conservative person, said we should only
count $5 or $10 worth of this increase, and that alone has an
impact on the economy of $2- to $400-. And it--obviously,
people feel it when they buy gas because they feel that they
have less money to spend on other things.
Mr. Doggett. I gather, just in concluding from your
testimony, that you and Dr. Stiglitz do agree that we have
hardly had shared sacrifice, that there have been some people
that have actually been winners in this tragedy, and who are
they?
Ms. Bilmes. Well, there have been a small number of winners
such as the oil companies, and some contractors such as Kellogg
Brown and Root and Blackwater, but overall there have been few.
And our counterfactual analysis, which looks at how the
economy would have fared had we invested the money at home,
shows that we would be considerably better off if we had
invested the money at home.
Mr. Doggett. Thank you.
Chairman Spratt. Mr. Bishop.
Mr. Bishop. Thank you, Mr. Chairman. I apologize for coming
in late.
We talk a great deal in this Congress about entitlement
reform and about mandatory spending, and we hear particularly a
great deal of that from our friends on the other side of the
aisle and from the President.
I guess my concern is that the way in which we have handled
the budgeting for this war and certainly the way in which the
outyears----
Chairman Spratt. I don't believe your speaker is on.
Mr. Bishop. Certainly the way in which the outyear costs
have been projected have become a de facto entitlement.
The submission of supplemental funding requests, generally
late in the cycle, generally associated with an enormous amount
of Presidential arm-twisting and Presidential advocacy and
associated with words such as ``urgency'' and ``emergency,''
certainly takes an enormous amount of discretion away from the
Congress and, in effect, takes this now $200-billion-a-year
expenditure and puts it approximately in the category of an
entitlement.
Would you agree with that analysis or that assessment?
Ms. Bilmes. I would, and I have in my testimony strongly
criticized the use of the emergency supplemental mechanism for
funding the war.
The purpose of this mechanism or this vehicle is to fund
actual unforeseen circumstances, and everyone who has looked at
this issue, including academics, the CBO, the GAO, the CRS and
others, have criticized the sort of consequences of this.
I think the most insidious consequences of this is really
the fact that there are several hundred very experienced staff
members in the Congress, at OMB and elsewhere who are very,
very good at looking at numbers and scrubbing budgets and
trying to understand how much it costs to do something, and
they have really been cut out of the process and have been
denied the opportunity to look--to have accountability and
transparency for the American taxpayer in terms of how the
money is being spent.
I think if not from my colleague here at CRS, we really
would have very little sense of where some of the money is
actually ending up.
Mr. Bishop. I have to believe that the use of this practice
is purposeful, and I have to believe that it is related at
least in part to the enormous amount of waste, fraud and abuse
that we have seen in terms of how these funds have actually
been expended relating to the little oversight that they have
received prior to their approval.
By the same token, the now obligations that we have in
terms of veterans' compensation, veterans' disability payments,
Social Security disability payments, those are fixed
obligations that we have unless we behave in a fashion that
would simply be obscene to retreat from those obligations. So
those, in effect, have now become de facto entitlements as
well; would you agree?
Ms. Bilmes. Absolutely. Every corporation has to include
its long-term accrued liabilities on its books. You have to
include the cost of your pension plan on your balance sheet,
and I think that the government also needs to recognize that
these are long-term accrued liabilities, they are promissory
notes. They are part of the war costs.
Mr. Bishop. And your estimate of those costs for veterans'
payments would be approximately 400 billion; is that right?
Ms. Bilmes. That is right.
Mr. Bishop. And then for Social Security disability,
another 400 billion; is that correct?
Ms. Bilmes. No. That is included in the----
Mr. Bishop. So the Social Security disability is included.
And the military reset cost is another 100- to 200-?
Ms. Bilmes. Yes.
Mr. Bishop. So long-term costs that in effect are
entitlements now would be about 600 billion.
Ms. Bilmes. Roughly speaking.
Mr. Bishop. Thank you, Mr. Chairman.
Chairman Spratt. Thank you, Mr. Bishop.
Mr. Becerra.
Mr. Becerra. Thank you. Thank you to the witnesses for
their testimony.
I am going to make references to a couple of charts that we
have on the budgetary costs. I would like to begin actually
with chart number 2, which talks about the costs in comparison
to other government programs and government services like
children's health care.
My understanding--actually can we do something? Can we go
back to chart 1 that talks about the increasing costs of the
war for a second?
To me this is an incredible--not that one. Chart 1.
There is an incredible activity occurring here in this
country. We are spending more each year for our activities in
Iraq since the President declared mission accomplished, and
there is nothing to tell us that this will end anytime soon. In
fact, every time we get a request from the President for
unpaid--for moneys for this military adventure in Iraq, it ends
up being more than the previous request.
And so as we see this mounting debt, because all of those
figures are debt, we haven't paid a cent for any of these costs
for the war. It is all going to be on the government credit
card. It begins to add up.
Now, if we can go back to the chart that talks about
children's health care. As we see the cost of war escalating,
we find that the President is telling us we have to make trade-
offs. One of those trade-offs is that he vetoed recently a bill
to provide health care coverage to America's children who don't
have health insurance. We had a bill that we put on the
President's desk to give him health care coverage for 10
million children in this country over the next year for the
next 5 years, and that would have cost us about $12 billion to
accomplish compared to the cost of just 1 year's worth of
military campaign in Iraq of over almost a--excuse me, almost
$200 billion.
The reason I ask this is because while we see the cost of
war continue to escalate, and now the consequences of this war
beginning to hit home, 10 million children, kids in families
that work, suffering the consequence, we also have to ask are
we getting the best that we can out of that money that we are
spending. And my understanding is that at this stage, the
Pentagon's auditors, the Pentagon's auditors can't tell us if
some $10 billion of moneys that we put out there for
contracting to do work, principally in reconstruction, is being
spent well, or even if it got spent for reconstruction.
And so I guess the question I would have for either of the
two of you is can you tell us if we have had good accounting of
all of the dollars that we have expended in Iraq for the
American people?
Ms. Belasco. I am really not an auditor.
There are any number of reports by the Special Inspector
General for Iraq, which you have raised all sorts of questions
about how well money has been spent for both reconstruction and
training of Iraqi security forces.
Mr. Becerra. Professor Bilmes, any particular comment?
Ms. Bilmes. I mean, I think that the overall level of
accounting and budget transparency at the Defense Department is
an issue that I would strongly urge the Congress to take on,
and it extends beyond just this war.
I mean, the Congress has passed a number of pieces of
legislation over the years, including the Financial Management
Integrity Act, the CFO Act, and so forth, which require
government departments to produce auditable, clean financial
statements.
Now, when these laws were passed, none of the government
had auditable, clean financial statements. Now almost the
entire government does with the exception of the Department of
Homeland Security, and that is because it is trying to
consolidate 22 different agencies; and the Department of
Defense, which, although there are some people who certainly
are trying very hard to do it, the Department as a whole has
not sort of got religion about this subject.
And, you know, Secretary Rumsfeld made a speech on
September 10th, 2001, saying that the number one problem facing
the Defense Department was the lack of financial transparency.
And that was, you know, September 10th, 2001. That was the last
we ever heard of it.
Now, since then this problem has gotten worse, not better,
as a result of all of the war spending, which has really
blurred the procurement accounts, you know, to a point of the
inspector general's report is--you know, it is a scary read,
and the auditor reports are scary reads.
So I think that considering that Congress, almost
unanimous, has passed the Sarbanes-Oxley bill for the private
sector requiring financial transparency and personnel
responsibility, I would urge Congress to enact a sort of
modified Sarbanes-Oxley law which would require financial
transparency at the Defense Department.
Mr. Becerra. Thank you for this testimony.
Mr. Chairman, as I prepare to yield back, I would just like
to mention as I am looking at some notes, with one contract
alone, the Pentagon, in a contract with KBR, which is the
subsidiary of Halliburton, they have already identified in the
Pentagon nearly $2.4 billion in questioned and unsupported
costs on the law cap contract, which is the contract to provide
logistical support to our troops, just in that one contract.
So, Mr. Chairman, I think maybe there is some good advice
that we are receiving from some of the witnesses. Certainly if
we are going to be asked to spend this much money on a military
adventure by the President and at the same time swallow that he
is telling us we can't afford to provide 10 million children
with health care, children of working families, I think we
really do have to have some better accounting of what we are
doing in Iraq.
With that, I yield back the balance of my time.
Chairman Spratt. Mr. Doggett.
Mr. Doggett. Thank you, Mr. Chairman.
Ms. Belasco, if I understand your written testimony, you
have attempted to give an apples-to-apples, inflation-adjusted
dollar cost of the cost of what has been spent in the current
wars versus what we did in Korea, in Vietnam; is that correct?
Ms. Belasco. Yes.
Mr. Doggett. And if I understand your testimony and the
findings that have been made, we are--already we have spent
about twice the cost of the Korean War?
Ms. Belasco. Yes.
Mr. Doggett. And we have spent--again, comparing apples to
apples in real dollars, we have already spent about 90 percent
of the cost of the 12-year war in Vietnam.
Ms. Belasco. Well, but I do want to clarify that those
figures refer to the costs not only for Iraq, but also for
Afghanistan and advanced securities, global war on terror.
Mr. Doggett. We also heard testimony about at least 70
percent of that is in Iraq. But you also point out, making it
Persian Gulf-specific, that we have already spent six times the
cost of the Persian Gulf war.
Ms. Belasco. Yes. But, again, all three operations.
Mr. Doggett. Yes. And you add to that, however, on the cost
of the Persian Gulf war, United States taxpayers were only
asked to pay 7 percent of the costs because we had other people
contributing to the costs of the war.
Ms. Belasco. Kuwait and Saudi Arabia.
Mr. Doggett. And in the case of this war, we are actually
paying others to come into the war instead of relying on
substantial payments from other people paying for the war.
Finally, I would like to note that we have now gone through
the testimony of two important witnesses. We have not had one
of the 16 members of the Republican side of this committee
appear, just as we did not have anyone from the administration
appear on this very important matter.
As we look at the $2.4 trillion figure that is the estimate
for the cost of these wars, it is a mind-boggling number, but,
as Mr. Becerra pointed out earlier, if we want to try to
compare it and understand it, it is about half of the 75-year
cost of eliminating all of the shortfall in Social Security. It
is more than every American, government, private, public, will
spend on health care this year. It would be enough to purchase
the average cost of a home in the United States today for 10
million American citizens. It would provide $36,000 in 4-year
tuition assistance to every high school student who will
graduate this year. It is an enormous figure. It would--in just
5 months of spending in Iraq alone, it would permit us,
according to the House Transportation Committee, to fix every
deficient bridge in this country.
It is an immense factor, and the American people need to
understand that while there is a tragic cost in blood, that the
cost to our pocketbooks, to our grandchildren and great-
grandchildren's pocketbooks is immense.
Thank you.
Chairman Spratt. Thank you, Mr. Doggett.
Mr. Bishop.
Do you have any further questions.
Mr. Doggett. No, sir.
Mr. Becerra?
Mr. Becerra. No.
Chairman Spratt. Mr. Bishop.
Mr. Bishop. Thank you, Mr. Chairman, and I will be brief.
Mr. Becerra outlined some numbers that highlighted the
contrast between what we have been attempting to do, which is
to provide health care to 10 million children of the working
poor at a cost of approximately $12 billion a year, or actually
7 billion more per year than the President is willing to spend.
Contrast that against 196 billion for our 1-year-only
supplemental and 25 billion just in interest on that on what we
have spent in Iraq thus far.
It seems to be there are at least two arguments for SCHIP.
One, it is simply the right thing to do. It is what an
enlightened society does.
The second is more practical and pragmatic, and that is
that if we provide adequate health care to our society as they
are younger, as they age and ultimately become eligible for
Medicare, they will be less expensive to support once they
become Medicare-eligible.
Do you know if anyone has done any assessment of the long-
term impact of our Medicare exposure relative to providing
adequate health care to the young of our society?
Ms. Bilmes. I am sure there is one of my colleagues at the
Kennedy School who is doing that. I can certainly find out who
it is and get back to you.
Mr. Bishop. You would agree that is yet another long-term
cost of the spending priorities that are being pursued by this
administration?
Ms. Bilmes. Well, I mean, absolutely, and I would say in
terms of directly the cost of the Iraq war, I mean, many more
of these veterans will be qualifying for Medicare, and it
then--and will be using it more than would, you know, have been
the case had they not been in Iraq.
So another cost that we have not actually tabulated, but
there are so many sort of costs that we have not quantified, is
the additional costs to Medicare and possibly Medicaid of Iraq
war veterans who will be using their services more frequently
than they would have otherwise, particularly those with mental
health conditions who then develop additional physical
ailments.
Mr. Bishop. Thank you very much.
Thank you, Mr. Chairman.
Chairman Spratt. Let me say to both of our witnesses, thank
you very much indeed for your contributions to the hearing
today, that you have done previously and in the future, and we
look forward to possibly working with you further as we explore
this topic. But you have made a great contribution to this
record today.
The hearing stands adjourned.
ADDENDUM
[Majority slides presented during the hearing follow:]
[Minority slides presented during the hearing follow:]
[Whereupon, at 1:50 p.m., the committee was adjourned.]