A squadron of F-35 stealth fighters, F-15s, refueling aircraft and rescue helicopters – this is the loot with which the air force left a meeting of the security cabinet on Sunday. Together with the army’s more modest pickings, the Israel Defense Forces got an open check of $9.5 billion to spend from the U.S. aid money.
Some $7 billion of that represents what’s left of the $38 billion Washington is giving to Israel over the years 2019-2028. The other $2.5 billion is being made possible thanks to some financial engineering that will allow the defense establishment to delay repaying a loan it has taken by five years.
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The loan, from Citibank, was taken in 2015 outside the framework of the state budget to finance the purchase of F-35s. It was due in 2022-2026, but the Defense Ministry and the IDF wanted to use the money slated for repayment to buy more aircraft, again outside the budget framework.
As to the loan, delaying repayment means that it will be paid out of money from the next U.S. aid package for the years 2027-2031, assuming it is approved. That delay will saddle the Israeli taxpaying public with $217 million in interest costs, covered by the ordinary defense budget.
How did the Defense Ministry and the IDF pull off such a maneuver despite some doubts expressed by Attorney General Avichai Mendelblit about its legality? Asked about that, the Defense Ministry’s legal adviser absurdly cited the principle of reasonable reliance.
Such a legal claim is usually made by individuals against each other, or against the state, on the grounds that they acted prudently based on promises made by the defendant. For example, when someone is assured of a return on an investment and acts accordingly, only to find the promises were not true or misrepresented. Such claims are conventionally used in contract law and damage suits. But for a ministry to cite it as a claim against its own government? That’s a stretch.
The defense establishment claims that because it was approved in 2015 to take an off-budget loan for the F-35 or patrol boats from ThyssenKrupp, they can in effect roll over the approval. On that basis, it built a new procurement program that ignores the need to repay the loan and keeps the spending off-budget.
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Finance Ministry officials who attended the security cabinet meeting were astounded when they heard the Defense Ministry’s claim. It wasn’t just that the original loan was taken by the dubious method of designating it off-budget and that treasury officials had warned that rolling it over was illegal and would be regarded as null and void. Now the Defense Ministry was telling the government that six years ago it had been given the false impression that extra-budgetary loans were a normative act. The Defense Ministry and the IDF had innocently fallen into the trap set by the Finance and Justice ministries, they said. In short, “The bastards changed the rules.”
It’s not just that the defense establishment hadn’t been warned for several months about the issue and that no damage had yet been done (since no contracts have been signed for the new procurements). What the treasury officials couldn’t understand is who it was the defense establishment was claiming misrepresented the status of the off-budget loan in the first place. In any case, reasonable reliance doesn’t provide immunity for the plaintiff, just compensation.
“According to the Ministry of Defense, a false presentation was made by an organ of the same body in whose name reliance is being claimed,” Finance Ministry legal adviser Avi Messing said teasingly in an opinion circulated to cabinet members. “It is clear that a body cannot make a claim against itself about reliance, and certainly such reliance cannot allow the government to impose justice on itself and violate legal restrictions that apply to it.”
Messing’s opinion resembled an appeal to the High Court against the cabinet. At the end of it, he asserted that it was legally impossible to approve rolling over the loan because it violates the Basic Law on the State Economy, the cabinet isn’t authorized to approve such a move and because a caretaker government is barred from making such important decisions. Those should be left for the next government.
His case fell on deaf ears, and the reason for that was that Mendelblit gave his seal of approval. That is the same Mendelblit that three months earlier had said that the “Defense Ministry’s proposal is inconsistent with the budget deliberations and raises, at the very least, very significant legal difficulties.” As he said,”at the very least.”
After the treasury warned that the loan could have a negative impact on Israel’s credit rating, Mendelblit said in a letter to Prime Minister Benjamin Netanyahu, Defense Minister Benny Gantz and Finance Minister Yisrael Katz that there were legal impediments to the move that would need to be addressed if ministers decided to act.
Three months later, the attorney general appeared in front of the security cabinet and said there are legal problems, but no legal impediments and that there may be something in the Defense Ministry’s reasonable reliance claim after all. Instead of an outright “no,” he told the ministers, “Okay, but never again” (although that promise was not put into writing).
The Defense Ministry and IDF promised that it would never happen again. But we now know that the defense budget is not only exempt from ordinary economic criteria and the government’s budgetary priorities but that it is also exempt from the law.