How much money flows from US taxpayers’ pockets into the Israeli treasury each year? Is it the $3 billion figure so often quoted in the press? And what is it used for?

When Rep. Lee Hamilton (D-IN) asked the State Department these questions, he learned that the total for fiscal year 1989 was actually $3,742,100,000 — almost 25 percent more! [1]

This does not count some $2.5 billion in private US funds which go to Israel each year: an estimated $1 billion in short- and long-term loans from US commercial banks; some $500 million worth of Israel Bonds sold by a US firm, Development Corporation for Israel, in turn owned by the non-profit American Society for the Resettlement and Rehabilitation of Israel; and about $1 billion in donations from private citizens. [2] [3] Adding these amounts brings the total to $6.2 billion ($6,200,000,000) a year, or $1,377 per Israeli. Between 1983 and 1988, pro-Israel political action committees contributed $4.9 million to members of the Senate. [18]

US Assistance to Israel in Fiscal Year 1989 (in millions of dollars)

Military                                                                                                              Amount

Foreign Military Sales (FMS) grants (of this amount, $550 million is spent in Israel) 1,800.00
US Air Force exercises                                                                                                .02
US Navy
Crew liberty                                                                                                         27.0
Exercise fees                                                                                                           .1
Port service fees                                                                                                    2.4
Helicopter maintenance                                                                                          1.5
Ship maintenance                                                                                                  6.2
Strategic Defense Initiative
Arrow                                                                                                                  60.8
Test bed                                                                                                                5.0
Hyper-velocity gun                                                                                                 1.4
Evaluation of Israeli weapons for possible US purchase                                                  1.5
Construction of US facilities in Israel                                                                           9.56
Congressionally mandated reduction of FMS administrative costs for Peace Marble          20.0
Defense Department procurement from Israeli companies                                           354.2
Multinational force and observers (half of US one-third share of total budget)               12.23

Total military                                                                                                      2,301.91


Economic Support Funds (ESF) cash transfer                                                           1,200.0
Interest earned on lump sum cash transfer                                                                  76.7
Refugee assistance (RP Bureau to United Israel Appeal)                                                28.0
American schools and hospitals abroad                                                                         6.9
Cooperative development program                                                                               5.0
Cooperative development research program                                                                  2.5
Middle East regional cooperation program (half of trilateral US-Egypt-Israel program)       2.5
Arab-Israeli Peace Scholarship                                                                                      .75
Binational Foundations (grants from joint endowments to joint US-Israel projects):
Science                                                                                                                13.0
Industrial research and development                                                                      14.4
Agricultural research and development                                                                     7.5
VOA/RFE/RL transmitter relay station                                                                         30.04


Ex-Im Bank:
Intermediary loans                                                                                               16.8
Medium-term guarantees                                                                                        2.9
Short-term insurance coverage                                                                              33.2

Total non-military                                                                                                1,440.19

Grand total                                                                                                           3,742.1

Note: Israeli refinancing of part of its FMS debt saves Israel about $150,000,000 per year in interest payments.
Source: Information compiled from Departments of State, Defense and Agriculture, USAID, Ex-Im and BIB sources.

Foreign Military Sales: The intent of FMS funding is to promote the sale of US military products, but Congress has allowed Israel to spend up to $400 million of this money each year to buy military equipment in Israel (such as the Merkava tank). [2] [4] Israel also benefits from a special arrangement whereby US arms manufacturers are directed to “offset” the cost to Israel of purchasing US equipment by buying some of the parts from Israel. These two provisions pumped $6.5 billion into Israel’s arms industry from 1976-1989. [5]
US Air Force: Air Force (and Navy) planes use Israeli bombing ranges in the Negev Desert for training. [6] Then-Deputy Assistant Secretary of Defense Edward Gnehm suggested in 1989 that as low-level military flights encounter more popular opposition in Europe, “the importance of Israel as a training location will only increase.” [7]
US Navy: About 25 US ships now call at Israeli ports each year, and the Navy increasingly relies on Israeli shipyards for repair services. The Navy holds joint anti-submarine warfare exercises with Israeli forces. Small-scale US Marine Corps joint exercises in Israel began in 1988 and increased to battalion-level maneuvers in 1989. [6]
Strategic Defense Initiative: A three-year $160 million Israeli component of a Star Wars project to develop the Arrow anti-tactical ballistic missile. US experts now question the need for Arrow, but Israel could apply the technology vis-a-vis Syria, Saudi Arabia or Iraq. [8] [9]
Test Bed: Research on questions such as how an Israeli anti-missile system might be linked to existing US Early Warning Satellites in a Star Wars network. [10]
Evaluation of Israeli Weapons: In 1987, 54 percent of the Pentagon budget for evaluating non-US weapons for possible purchase was spent on Israeli weapons. [7] In 1988, Congress required the Pentagon to set up a procurement office in Tel Aviv to match Israeli goods with US needs and to “help Israeli industry better cope with the complex Pentagon procurement system.” [11] A squadron of Kflr fighters on loan from Israel is used as the “aggressor squadron” in US training exercises. An Israeli firm has the maintenance contract. Maintenance costs on these “free” Kfirs were $5,817 per hour of flight time in 1986, about five times those of comparable US jets. [12]
Construction of US Facilities: Probably funds to build warehouses for the $100 million worth of US military equipment stockpiled in Israel. [13]
Peace Marble III: “Discount” in the price of F-16 fighter planes and air defense equipment — the result of a 1987 decision to declare Israel a “major non-NATO ally.” [13]
Defense Department Procurement: The Pentagon spent more to buy Israeli military equipment in 1989 than the Israeli Defense Ministry itself: up from $9.4 million in 1983 to at least $350 million in 1989! [7] [14] About $1 billion worth of Israeli military goods ordered in previous years was “in the pipeline” to the US in 1989. [6] The US runs an annual $300 million deficit in commercial military trade with Israel. [15]

Economic Support Funds: Israel uses these funds to make $1 billion annual interest payments on the some $10 billion Israel owes the US government, most of it accrued from earlier US loans to buy military hardware. This frees up other funds to spend as Israel chooses. A 1990 Congressional Research Service report concludes that because aid is given as budgetary support, “there is no way to tell how Israel uses US aid.” [2]
Interest Earned: Israel receives its entire ESF grant in one lump sum rather than the usual four installments. Early borrowing costs US taxpayers an additional $50 to $60 million in interest yearly. Israel invests the entire ESF sum in US Treasury notes, and the US then pays Israel interest on those notes. [2]
Schools and Hospitals Abroad: Nineteen Israeli schools and hospitals sponsored by private US groups have received funds since 1978 — more than in any other country. [16]
Cooperative Development Program: Israel funnels these funds from USAID’s foreign aid budget to countries in Central America and Africa.
VOA/RFE/RL Transmitter Relay Station: Planning and site preparation costs for the world’s largest radio transmitter in the Negev desert. Total cost is $270 million. Forty-five antennae, up to 70 stories high, would transmit US anti-communist programming to Soviet Central Asia and Africa. Environmentalists object that the antennae threaten a major migratory bird route. [17]

Loans/Guarantees: Israel also refinanced between $4.5 and $5 billion of its debt with bonds backed by a 90 percent guarantee from the US Treasury, saving an estimated $100 million in annual interest. [9]

[1] Congressional Record, Extensions of Remarks, March 7, 1990, pp. E578-579.
[2] Clyde Marks, Israel: US Foreign Assistance Facts, March 15, 1990 (Washington, DC: Congressional Research Service).
[3] Russell Mokhiber, “Bonds of Affection,” Multinational Monitor (April 1988).
[4] Hearings, House Subcommittee on Appropriations, Part 4, March 24, 1988.
[5] Helena Cobban, “The US-Israeli Relationship in the Reagan Era,” Conflict Quarterly (Spring 1989), p. 12.
[6] Statement by AIPAC director Thomas Dine to House Appropriations Subcommittee on Foreign Operations, April 4, 1990.
[7] Near East Report, March 13, 1989.
[8] Jane Hunter, “Wishing Upon a Star War,” Multinational Monitor (April 1988), p. 13; Washington Jewish Week, June 8, 1989.
[9] Washington Post, March 12, 1989.
[10] John Pike, Federation of American Scientists.
[11] Near East Report, February 13, 1989.
[12] Mohamed Rabie, “US Aid to Israel,” The Link (May-June 1989), p. 7.
[13] Staff, Subcommittee on Europe and the Middle East, April 1990.
[14] Jerusalem Post, June 3, 1989.
[15] Jerusalem Post, May 4, 1989.
[16] House Subcommittee on Appropriations, Hearings on Foreign Operations, Export Financing and Related Programs Appropriations for 1989, Part 4, p. 552.
[17] Washington Post, February 22, 1990; Washington Jewish Week, March 29, 1990.
[18] Washington Post, April 24, 1990.

How to cite this article:

Martha Wenger "The Money Tree," Middle East Report 164-165 (May/June 1990).

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