Washington Report on Middle East Affairs, June 1992, Page 27, 87

Special Report

What Does Israel Cost U.S. Taxpayers?

By Frank Collins

Why is it so difficult to arrive at an agreed total of U.S. aid to Israel over the 44 years since it came into existence in 1948? The reason is that the U.S. provides different kinds of aid to Israel. These have consisted of direct monetary grants, loans, loans with repayment waived so that they may be considered to be grants, loan guarantees, weapons transfers from U.S. stocks (sometimes off-budget) and U.S. arms stockpiles in Israel. To derive a single total from all of these categories can be compared to adding apples and oranges. The Congressional Research Service (CRS) generally refrains from this kind of operation. It provides an accurate listing of the various categories of aid to Israel through the years. Others decide which data are relevant to computing the total cost of the aid.

1. Outright Grants and Forgiven Loans

The most elementary accounting of the cost of U.S. aid to Israel is to limit the data used to outright grants, military and economic. In compiling the totals of such outright grants, CRS includes $21 billion in U.S. military loans to Israel, the repayment of which has been waived.

Taking account of such explicit grants alone yields a rock bottom figure of $42.6 billion in U.S. aid to Israel, since aid began in 1949 through Sept. 30, 1992.

2. Interest Costs

Interest bulks large compared to principal, as every homeowner knows. It is therefore unrealistic to estimate the cost of aid to Israel without taking account of interest on the cash advanced.

As the United States does not operate on a cash basis but is heavily in debt, the cost of this U.S. aid to Israel is simply added to the national debt. The additional debt incurred by the continuing aid to Israel grows year by year by the total of the additional grants each year, the interest on past grants and the interest on the past unpaid interest.

Item 1 in this article cites the total aid to Israel, without interest, as amounting to $42.6 billion with FY 1992 included. With interest at the prevailing Treasury rate for each year, the cost of U.S. taxpayer grants to Israel and the interest on those grants is $78.1 billion through Sept. 30, 1992.

3. Arms and Technology Transfers

The cost of arms and technology transfers to Israel is debatable. Appropriated FY 1991 aid to Israel included $700 million in military equipment to be withdrawn from U.S. forces in Europe. At this date none of this excess equipment has been delivered, although Israel has received 16 F-15 fighter planes from the U.S. worth a book value of between $20 million and $30 million each. The legislation also provided for $300 million in U.S. arms to be stockpiled in Israel. While it is unlikely that the stockpiled equipment will ever be recovered by the United States, technically the equipment and material in the stockpile remain U.S. property. Thus in preparing estimates of the cost of aid to Israel, it is questionable as to how much of the cost of this $1 billion in aid should be included.

4. Loan Guarantees

In September 1991, U.S. loan guarantees that had been granted to Israel in past years amounted to $6.198 billion. Of this amount, $11 million has been paid off, leaving $6.187 billion outstanding. This does not include $10 billion to $20 billion in interest that Israel must ultimately pay to private lenders, and for which the U.S. is liable in the event of default. Of the 138 countries to which loan guarantees have been advanced by the United States, Israel exceeds all others except Mexico in the amount outstanding. Service costs (interest and payments on principal) on all debts to domestic and foreign lenders amount to 40 percent of the Israeli government budget. The corresponding figure for the debt-burdened United States is approximately 26 percent.

The subject of loan guarantees to Israel became controversial beginning with the $400 million in housing loan guarantees that were passed into law in May 1990 and were held up by the administration until March 1991. The administration was concerned that the funds borrowed under the guarantees would be used to build housing in the occupied territories, which has long been contrary to U.S. policy.

The loan guarantees for the $400 million were released by the administration upon receiving assurances from the Israeli government that the loan guarantees would not be used for that purpose. The present mass building of housing in the West Bank is regarded in some quarters as a serious breach of that trust.

Even more controversial are estimates of the costs of servicing the $10 billion in loan guarantees requested by Israel over the next five years, but held up by the administration pending a halt in Israeli settlement activity in East Jerusalem, the West Bank and Gaza. Estimates of the cost to U.S. taxpayers if Israel defaults, ranging from $29.3 billion to $116 billion have been printed in this magazine, with the amounts varying according to the author's assumptions.

Nor is there any agreement on the cost of annual set-asides for the possible $10 billion in U.S. guaranteed loans for Israel to cover actuarial risk. Amounts of set-aside that have been discussed in congressional committees range from a few million dollars to $800 million, all of which would have to be borrowed by the U.S. Treasury.

The Cranston Amendment

A device for converting loans into grants is provided by the Cranston amendment, passed in 1984 and renewed annually thereafter. The amendment provides that U.S. economic aid to Israel shall not be less than the interest and payment on principal on debts due the U.S. government in any given fiscal year. For example, in FY 1991, the economic aid grant was $1.2 billion, of which $1 billion covered the servicing of military debts.

Lack of U.S. Supervision

Unlike U.S. foreign aid grants and loans to every other country in the world, U.S. aid is turned over to Israel without U.S. supervision of its use. Israel puts the money into the general government budget to be spent for all government programs. This is the basis for the argument that aid from the United States frees up other monies to be spent for some purposes, such as settlement building in the occupied territories, of which the U.S. government strongly disapproves.

The unique policy of non-supervision of U.S. aid to Israel has resulted in several cases of misuse covered by the Israeli press. The most recent, in August 1991, related to alleged misappropriation of $20 million in military aid by middle-level managers of the General Electric Company and retired Israeli Gen. Rami Dotan, who was convicted in Israeli courts.

Frank Collins is a free-lance journalist specializing in the Middle East.