The first amendment aimed at redefining $20.3 billion in reconstruction funds as a loan program, offered by Sen. Byron Dorgan, D-N.D., failed, 57-39.
Specifically, the amendment would have created a financing authority to issue securities backed by future oil production, with the revenue raised used to reconstruct Iraq. Republicans argued the effect would be to eliminate funding for Iraq reconstruction, as financial institutions would shy away from an unstable situation.
"To assume this oil revenue has a value right now is just a false assumption," said Homeland Security Appropriations Subcommittee Chairman Thad Cochran, R-Miss., noting that infrastructure does not yet exist to refine and deliver the oil. Sen. John McCain, R-Ariz., said it would be "unwise" to impose conditions at this time, but the debate could be held down the road after the situation has stabilized.
The vote came after a meeting at the White House where Secretary of State Colin Powell and Office of Management and Budget Director Joshua Bolten lobbied a bipartisan group of swing senators.
Some Democrats who were invited to the meeting but did not attend-including Sens. Blanche Lincoln of Arkansas and Hillary Rodham Clinton of New York-threw their support to Dorgan Tuesday instead.
"It's certainly not unreasonable to expect some form of repayment," Lincoln said.
But the real test could come later in the week if Sen. Kay Bailey Hutchison, R-Texas, offers her amendment to convert $10 billion of the reconstruction funds into a World Bank-administered loan, aimed at securing matching international contributions.
Senate Minority Leader Tom Daschle, D-S.D., said Tuesday he would support the amendment, which has significant support on the Republican side.
A compromise was building Tuesday among backers of the Hutchison amendment and one authored by Sens. Evan Bayh, D-Ind., and Ben Nelson, D-Neb., to require the reconstruction funds to be loaned unless foreign creditors such as France and Russia forgave Iraqi debt. In that case, the money could be granted.
Hutchison's amendment, which she is cosponsoring with Sen. Susan Collins, R-Maine, could be merged to create a hybrid with the Bayh-Nelson plan, said to senators considering the proposals.
Sens. Lindsey Graham, R-S.C., and John Ensign, R-Nev., cosponsors of the Hutchison-Collins amendment, said there would likely be a compromise along those lines. Both attended the White House meeting, as did Hutchison and Collins.
Senate GOP aides said there was likely to be a deal, noting that both Hutchison and Bayh amendments had a great deal of support. "Those are the two in play," one aide said.
Earlier in the day, an amendment by Sen. Debbie Stabenow, D-Mich., to divert $5 billion from the Iraq reconstruction section to pay for domestic programs was tabled, 59-35.
Eight Democrats joined in supporting the motion to table: Foreign Relations ranking member Joseph Biden and Sen. Thomas Carper of Delaware; Energy and Natural Resources ranking member Jeff Bingaman of New Mexico; Appropriations ranking member Robert Byrd, D-W.Va., Sens. Maria Cantwell and Patty Murray of Washington; Nelson; and Sen. Mark Pryor of Arkansas. There were no GOP defections.
The House is set to begin debating the supplemental this afternoon, as Republican leaders reached a unanimous consent agreement with House Democrats, GOP aides said Tuesday.
Under the agreement, the House will begin six hours of general debate Wednesday. The House would then debate the rule for the supplemental Thursday, followed by an additional hour of general debate, before considering amendments.
Under that scenario, the Rules Committee would still report a rule to be considered Thursday that would determine which amendments would be in order.
A spokesman for House Speaker Dennis Hastert, R-Ill., expressed confidence Tuesday the House would defeat proposals that would restructure aid as loans.
"I didn't hear a whole lot of hand-wringing about it," the spokesman said of leadership discussions Tuesday.
Another GOP leadership aide said the White House since last week has been working hard to make its case among House Republicans for the grant language, and Iraq funding overall.
"We think we'll give the administration what they want on this issue, which is grants," the aide said, adding, "Our members feel more comfortable about the case the president made, and will stand with him."
Meanwhile, House Democrats have taken no party position on the Iraq supplemental and House Minority Whip Steny Hoyer, D-Md., is not whipping the bill, Democratic aides said Tuesday.
"It is a vote of conscience," a spokeswoman for House Minority Leader Nancy Pelosi, D-Calif., said.
As a potential alternative for Democrats voting against the White House request, Pelosi last week promoted an amendment authored by Appropriations ranking member David Obey, D-Wis., that would redirect $4.6 billion in reconstruction spending to the military, give the World Bank authority to administer $7 billion in reconstruction loans and pay for the entire request by suspending tax cuts for the top 1 percent of taxpayers.
Obey's amendment was defeated in last week's committee markup. It is uncertain whether GOP leaders would allow a floor vote if the plan is offered.
Obey could opt to remove the language on suspending tax cuts, which would make the amendment germane.