Washington Report on Middle East Affairs, May 2003, pages 32-33, 59
Special Report
A Conservative Tally of Total Direct U.S. Aid to Israel: $97.5 Billion—and Counting
By Shirl McArthur
With Israel to get an additional $1 billion in military grants and $9 billion in economic loan guarantees from the president’s “war budget” submitted to Congress March 25, this seems a good time to update the estimate of U.S. aid to Israel (last tallied in the January/February 2001 issue of the Washington Report on Middle East Affairs). This analysis is based on a conservative accounting of U.S. direct aid to Israel, rather than of Israel’s cost to the U.S. or the American taxpayer. The distinction is important, because the indirect or consequential losses suffered by the U.S. as a result of its blind support for Israel exceed by many times the substantial amount of direct aid to Israel.
It is commonly reported that U.S. aid to Israel is $3 billion per year. This reflected the earlier $1.8 billion in military grants and $1.2 billion in economic grants given to Israel every year. The total ignored, however, other money given to Israel—some buried in the budgets of other government agencies, especially the Defense Department (DOD), or in a form that isn’t easily quantifiable, such as the early disbursement of aid, allowing Israel a direct gain and the U.S. Treasury a direct loss of the interest on the unspent money.
Beginning in FY 1999, however, at the instigation of then-Prime Minister Binyamin Netanyahu, annual economic grants to Israel have been reduced by $120 million and military grants increased by $60 million (see details below). For the current fiscal year (FY 2003) the amounts were $2.1 billion in military grants and $600 million in economic grants, for a total of $2.7 billion. However, the real amount of total U.S. direct aid still exceeds $3 billion because, in addition to the $2.7 billion in economic and military aid, Israel is to receive an additional $60 million in so-called refugee resettlement, about $250 million from the DOD budget, about $2.3 million from the American Schools and Hospitals Abroad (ASHA) account, and about $10 million from various other accounts—plus about $41 million in early interest, for a total of at least $3.063 billion, not counting the additional funds included in the war budget.
Cumulative Total Direct Aid
Unquestionably, Israel is the largest cumulative recipient of U.S. aid since World War II. Because of the uncertainties and ambiguities described above, however, arriving at an exact amount probably is not possible. The January/February 2001 estimate was $91.6 billion through FY 2001. That estimate was based on an October 2000 Congressional Research Service (CRS) report, which used available and verifiable numbers, that calculated cumulative aid to Israel from 1949 through FY 2000 at $81.38 billion. The CRS number surely was too low because, although it did include such things as the old food for peace program, the $1.2 billion from the Wye agreement and the subsidy for “refugee resettlement,” it did not include money from the DOD budget, on the grounds that those funds are for joint research and development projects. Nor did it include estimated interest on the early disbursement of aid funds.
Building up from the CRS number of $81.38 billion through FY 2000, the earlier Washington Report on Middle East Affairs, estimate added $4.28 billion from the DOD, $1.72 billion estimated interest from early disbursement of aid, plus $3.22 billion for FY 2001, for a grand total of $90.6 billion. The $3.22 billion for FY 2001 consisted of $2.82 billion in economic and military grants, $60 million for refugee resettlement, $250 million from the DOD, and $85 million in imputed interest.
This current estimate will use the same methodology, similarly based on a CRS estimate. In February 2003 the CRS issued a new report on U.S. foreign aid to Israel, showing a total of $87.104 billion through FY 2002. The summary table from that report is reproduced below as Table 1.
To the CRS number of $87.104 billion can be added (with details to follow):
—$5.454 billion from the DOD;
• $1.851 billion in interest from early disbursement of aid;
• $0.040 billion from “all other” accounts; and
—$0.009 billion from the ASHA account.
This gives a total of $94.458 billion through Sept. 30, 2002. To that can be added the $3.063 billion detailed above for FY 2003, for a grand total of $97.521 billion total aid to Israel through FY 2003.
For the convenience of those who wish to look up more details, citations for the foreign aid and DOD appropriations bills for the past five years are given in Table 2.
Defense Department Funds: For the January/February 2001 estimate, a search going back several years was able to identify $3.423 million in specific items from the DOD to Israel through FY 2001. Since that figure included only the things that were found, $856 million was added to cover what was not found. The largest found items were the canceled Lavi attack fighter project, the ongoing Arrow anti-missile missile project, and the completed Merkava tank. The fact that the U.S. military was not interested in the Lavi or the Merkava for its own use and has said the same thing about the Arrow would seem to destroy the argument that these are “joint defense projects.” In addition, the FY 2001 appropriations bill also awarded Israel a grant of $700 million worth of military equipment, to be drawn down from stocks in Western Europe. Adding $225 million from the DOD appropriations for FY 2002 brings the total to $5.454 billion.
Interest: Israel began receiving early disbursement of U.S. economic aid in 1982, and of military aid in 1991. It would be wrong simply to apply the rate of interest to the amount of aid, however, because it has to be assumed that the aid monies were drawn down over the course of the year. In 1991 it was reported that Israel earned $86 million in interest on the U.S. economic aid money it deposited in the U.S. Treasury. Since the period from 1982 to 1991 had relatively high interest rates, the figure of $860 million (86 x 10) was assumed for those 10 years. For the decade from FY 1991 through FY 2001, a 6 percent rate was applied to one-half of the economic aid, for $349 million in interest. For FY 2002, a 3 percent rate was applied to one-half of the economic aid, for $11 million. On the military aid, the 6 percent rate was applied to one-half of the military aid for the 11 years through FY 2001, for $600 million, and 3 percent was applied for FY 2002, for $31 million in interest.
American Schools and Hospitals Abroad and “Other”: The CRS report has question marks for four years of ASHA and of “all other,” probably because specific earmarks for Israel were not found for those years. However, the ASHA account is relatively stable, and the money gets spent for American schools and hospitals in Israel (and in Lebanon) whether or not it was earmarked. Similarly, money from other accounts, and other agencies, gets spent in Israel. So it was conservative to assume $2.25 million for ASHA and $10 million for “other” for each of those years.
The U.S. gives Israel all of its economic aid directly in cash, with no accounting required of how the funds are used. The military aid from the DOD budget is mostly for specific projects. The only condition on the military aid from the foreign aid bill is that about 75 percent of it must be spent in the U.S. Other countries receiving U.S. military aid generally are required to spend 100 percent of it in the U.S. Also, in contrast with other countries receiving military aid, who purchase through the DOD, Israel deals directly with the U.S. companies, with no DOD review.
Loans, Loan Guarantees, and The “Cranston Amendment”
Currently, Israel owes the U.S. government almost $3 billion in direct economic and military loans. Direct government-to-government loans are included in the above numbers for total aid, because repayment of several loans has been “waived” by the U.S. Israeli officials are fond of saying that Israel has never defaulted on a loan from the U.S. Technically, this is true, but the CRS report notes that from FY 1974 through FY 2002 Israel has received $42 billion in waived loans. Therefore, it is reasonable to consider all government loans to Israel the same as grants.
Not included in the above numbers is the amount of U.S. government loan guarantees, because they have not (yet) cost the U.S. any money—although they are listed as “contingent liabilities” (that is, they would become liabilities to the U.S. should Israel default). However, they have unquestionably been of tangible financial benefit to Israel, because they have enabled Israel to get commercial loans at favorable interest rates. The major loan guarantees have been $600 million for housing between 1972 and 1990; the much publicized $10 billion for Soviet Jewish resettlement between 1992 and 1997; and about $5 billion for refinancing military loans commercially. Currently, the total U.S. contingent liability for Israeli loans is about $13.5 billion.
The so-called “Cranston amendment,” named after the California senator who sponsored it in 1984, simply said that it is “the policy and intention” of the U.S. to give Israel economic aid “not less than” the amount Israel owes the U.S. in annual debt interest and principal payments. Since official economic aid to Israel always has been considerably higher that the annual debt repayments, this was something of a non-issue. In any event, although the amendment was included in every aid appropriations bill through FY 1998, it has not been repeated in subsequent appropriations bills.
The Neeman Agreement
After Israeli Prime Minister Netanyahu told Congress in 1996 that he wanted to reduce the level of U.S. economic aid to Israel, Israeli Finance Minister Yaacov Neeman met with members of Congress in January 1998 to negotiate the details. They finally reached agreement that Israel’s then-$1.2 billion in economic aid would be reduced to zero over 10 years, by decreasing it by $120 million annually, beginning FY 1999. This would be partially offset by increasing the $1.8 billion in military aid by half that, or $60 million.
As a little-reported part of the deal, the amount of military aid that Israel was allowed to spend in Israel would be increased by $15 million per year. From FY 1988 through 1990 Israel was allowed to use $400 million of the $1.8 billion military aid in Israel. Beginning in FY 1991 that was increased to $475 million. By increasing the amount by $15 million each year since FY 1999, the amount of U.S. military aid to be spent in Israel in FY 2003 stands at $550 million—clearly a subsidy to the Israeli defense industry at the expense of American defense contractors. Because it does not represent a direct cost to the U.S. taxpayers, this is not included in the above figures, although it is clearly an indirect cost in terms of lost tax revenue and lost business for American companies.
Shirl McArthur, a retired foreign service officer, is a consultant in the Washington, DC area.
