With the turmoil surrounding the presidential election essentially freezing Congress into inaction, this is probably a good time to take another look at aid to Israel. The common figure given for U.S. aid to Israel is $3 billion per year—$1.2 billion in economic aid and $1.8 billion in military aid. As impressive as this figure is, however, since it represents about one-sixth of total U.S. foreign aid, the true figure is even more remarkable. It is difficult, however, to arrive at an exact number. Much of the money the U.S. gives Israel is buried in the budgets of other government agencies, primarily the Defense Department (DOD). Other subsidies come in a form that isn’t easily quantifiable, such as the early disbursement of aid, which allows Israel to gain (and the U.S. taxpayer to lose) the interest on the unspent money.
This year’s appropriations bills for FY 2001, which began Oct. 1, 2000, include, in addition to the $2.82 billion in economic and military foreign aid to Israel, an additional $60 million in so-called refugee resettlement and $250 million in the DOD budget, plus $85 million imputed interest, for a total of at least $3.215 billion. In addition, on Nov. 14, 2000, President William Clinton sent a special request to Congress for an additional $450 million in military aid to Israel in FY 2001, plus $350 million for FY 2002.
The package also included $225 million in military aid for Egypt and $75 million in security assistance for Jordan. The $450 million for Israel is not included in these calculations, because it is unclear at this writing whether Congress will approve the package in the current political climate.
Calculating Total U.S. Aid
Unquestionably, Israel is the largest cumulative recipient of U.S. aid since World War II. Estimates for total U.S. aid to Israel vary, however, because of the uncertainties and ambiguities described above. An Oct. 27, 2000 Congressional Research Service (CRS) report, using available and verifiable numbers, gives cumulative aid to Israel from 1949 through FY 2000 (which ended Sept. 30, 2000) at $81.38 billion. On the other hand, last year the Washington Report on Middle East Affairs estimated total aid to Israel through FY 2000 at $91.82 billion.
The CRS number surely is too low, because, although it does include such things as the old food-for-peace program, the $1.2 billion from the Wye agreement, and the current subsidy for “refugee resettlement,” it does not include money from the DOD budget, on the grounds that those funds are for joint research and development projects. Nor does the CRS figure include estimated interest on the early disbursement of aid funds. Last year’s Washington Report estimate imputes an amount for other aid (including the DOD) that may no longer be valid, based as it is on a thorough study of three representative years. While this year’s estimate is more conservative, the results are still shockingly high.
To the CRS number of $81.38 billion through FY 2000 can be added (with details to follow):
• $4.28 billion from the DOD; and
• $1.72 billion in interest from early disbursement of aid, for a total of $87.38 billion through Sept. 30, 2000. To that can be added the $3.22 billion detailed above, giving a grand total of $90.6 billion total aid to Israel through FY 2001. Approval of Clinton’s special request for $450 million more in military aid would push the number over $91 billion.
Defense Department Funds
A search going back several years was able to identify $3.423 billion in specific DOD line items appropriated to Israel. Since that figure includes only the programs that were uncovered, it is reasonable to add 25 percent, or $856 million, to account for what was not found. The largest items in the DOD budget were $1.3 billion for the cancelled Lavi attack fighter project; $628 million for the ongoing Arrow anti-missile missile project; and $200 million for 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 invalidate the argument that these are “joint defense projects.
Israel began receiving early disbursement of U.S. economic aid in 1982, and of military aid in 1991. It would be inaccurate to simply apply the rate of interest to the amount of aid, 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 economic aid money deposited in the U.S. Treasury. Since the period from 1982 to 1991 was a time of relatively high interest rates, the figure of $860 million (86 x 10) seems a reasonably conservative estimate for those 10 years. For the nine years since 1991, a 6 percent rate was applied to one-half of the economic aid, for a total of $324 million over the past decade.
On the military aid, the 6 percent rate was applied to one-half of the military aid for the 10 years it has been disbursed early, for a total of $540 million.
The impressive numbers for U.S. aid to Israel become even more so when they, and the attached conditions, are compared with other Middle East countries. The roughly $3.3 billion in annual aid compares with some $2 billion for Egypt, $225 million for Jordan, and $35 million for Lebanon. Aid for the Palestinian Authority (PA) is not earmarked, but has been running at about $100 million. Furthermore, aid to the PA is strictly controlled by the U.S. Agency for International Development, and goes for specific projects, mostly civil infrastructure projects such as water and sewers.
On the other hand, the U.S. gives Israel all of its economic aid directly in cash, with no accounting of how the funds are used. The military aid from the DOD budget is mostly for specific projects. Significantly however, considering current events, one of those projects was the development of the Merkava tank, which has been encircling and firing on Palestinian towns in the West Bank and Gaza.
The only condition the congressional foreign aid bill places on military aid to Israel is that about 75 percent of it has to be spent in the U.S. In contrast with other countries receiving military aid, however, who purchase through the DOD, Israel deals directly with U.S. companies, with no DOD review.
Special mention should also be made of the details of the Wye agreement. All of the $400 million going to the PA under the agreement is economic aid, whereas all of the $1.2 billion for Israel is for military projects and programs. These include $40 million for armored personnel carriers and $360 million for Apache helicopters, again significant considering current events.
Loans, The Cranston Amendment and Loan Guarantees
Currently, Israel owes the U.S. government almost $3 billion in 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. The CRS report, however, notes that from FY 1994 through FY 1998 $29 billion in U.S. loans have been waived for Israel. Therefore, it is reasonable to consider all loans to Israel the same as grants.
There seems to be much confusion about the so-called “Cranston Amendment,” named after the California senator who sponsored it in 1984. The amendment said, simply, 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 has always been considerably higher than the annual debt repayments, this is something of a non-issue. Furthermore, since the amendment is simply a statement of policy and intent, it may not be legally binding. In any event, although the amendment was included in every aid appropriations bill through FY 1998, it has not been repeated in the FY 1999, 2000, and 2001 appropriations bills.
The amount of U.S. government loan guarantees to Israel was not included in the above numbers, because they have not cost the U.S. any money (yet), although they are listed as “contingent liabilities (that is, they would become liabilities to the U.S. should Israel default). Nevertheless, they unquestionably have been of tangible financial benefit to Israel. The major loan guarantees issued by Washington have been $600 million for housing between 1972 and 1990; the much publicized $10 billion for Soviet Jewish resettlement between 1992 and 1997; and some $5 billion for refinancing military loans commercially. Currently, the total U.S. contingent liability for Israeli loans is about $10 billion.
The Neeman Agreement
After Israeli Prime Minister Binyamin 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. After much backing and forthing, they reached agreement that Israel’s then-$1.2 billion in economic aid would be decreased annually, beginning FY 1999, by $120 million, and the $1.8 billion in military aid would be increased 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 its $1.8 billion U.S. military aid in Israel. Beginning in FY 1991 that was increased to $475 million. As a result of the Neeman agreement, beginning in FY 1999 the aid appropriations bill gave the amount to be spent in Israel as a percentage of the total, rather than a stated amount. This maneuver helped hide from U.S. defense contractors the fact that the U.S. direct subsidy to their Israeli competitors was being increased by $15 million per year. For FY 2001 the stated percentage works out to $520 million. None of this is included in the above figures, because it does not represent a direct cost to the U.S. taxpayers. It is clearly an indirect cost, however, 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.
Copyright 2001 Washington Report on Middle East Affairs