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THE NEXT DEBT CEILING AND BALANCED BUDGET AMENDMENT DEBATES: DOING THEM RIGHT. MAKING THEM REAL – Part 4 (The Elephant in the Room)

September 9, 2011

The debt ceiling is only a “ceiling” until Congress raises it.  The Balanced Budget Amendment (BBA) only “requires” a balanced budget until Congress waives it.  The elephant in the room is the fear of what would happen if Congress actually refused to raise the debt ceiling or waive the hypothetical BBA mandate.  If supporters of a balanced federal budget want to prevent another debt ceiling increase and/or keep any future BBA from being routinely waived, then they must get serious about the elephant in the room.

Let’s begin by remembering that Tea Partiers were not the only ones to resort to brinksmanship in the recent debt ceiling debate.  The Obama Administration did so by insisting on an unwritten rule that government payments must be made in chronological order as they are presented for payment.  Under such a rule, available funds would be used for payments other than the public debt, thereby threatening the unprecedented default that so many believe will be economically catastrophic.

Of course, President Obama must also have realized that any official policy recognizing the priority of public debt payments would have made it easier for opponents to reject another raise in the debt ceiling.  This is doubtless why Deputy Treasury Secretary Neal Wolin issued a warning early in the debt ceiling debate (January 21, 2011) that any “legislation to ‘prioritize’ payments on the national debt above other legal obligations” was simply “unworkable.”

This refusal to prioritize debt payments prompted an immediate Congressional response in the form of two Republican bills (H.R. 421 and S. 163) that would have required public debt obligations to be paid first.  As the debt ceiling debate played out, another half-dozen or so bills were introduced (H.R. 568, H.R. 728, H.R. 1908, H.R. 2402, H.R. 2496, H.R. 2605, S. 259, and S. 1365) requiring both that public debt payments be made and setting a limited number of other payment priorities.  As one would expect, the priorities mentioned most often are the public debt, Social Security, the Armed Forces, and such “vital national security priorities” as would be certified by the President.  These bills have adopted a variety of approaches.  The two original bills, H.R. 421 and S. 163,  introduced by Rep. Tom McClintock (R-CA) and Senator Pat Toomey (R-PA), were clearly designed to take the possibility of default off the table.  The other bills are designed to allay political concerns from key constituencies, but at least one House proposal, H.R. 1908, introduced by Rep. Todd Akin (R-MO), takes a broader view.

The Akin bill not only sets priorities at the top of the food chain (the public debt, Social Security, military pay, etc.), but also identifies priorities at or near the bottom by specifying that certain departments and agencies would only receive 20% (!) of their authorized funding if the debt ceiling were reached.  The 20% figure appears to be arbitrary, but presumably is intended to cover only what might be considered the “essential” operations of these departments and agencies.  For a comprehensive set of spending priorities, the Akin bill would further require the President to explain how all other spending programs would be prioritized, as well as how the Government would continue to operate not only if the debt ceiling is reached, but also whenever a partial government shutdown occurs because annual appropriations have not been passed.

The passage of such a bill would clarify, if not fully resolve, the legal authority for establishing a payment priority plan, but in the meantime there are no recognized legal standards for doing so.  The lack of a federal court opinion is not surprising since there has never been a substantive default on a government obligation that created the injury needed for standing to file a lawsuit.  What is surprising is the lack of an official executive branch position on the issue.

The unofficial Treasury position is a simple “payment when presented” or “first-in, first-out” rule, so that no discretion can be exercised as to who gets paid first.  If a pork barrel project is presented for payment before the payday of soldiers in a war zone, then so be it.  Of course, it is hard to believe that the President would actually follow such a rigid rule in practice, but this has been the Treasury position since at least September 10, 1985, when a Reagan Administration official refused in a Senate Finance subcommittee hearing to consider asking the Attorney General for a formal ruling that the President could set spending priorities if the debt ceiling were not raised.

The Senate Finance Committee initially went along with this assessment, but then requested a legal opinion from General Accountability Office (GAO), which concluded in an October 9, 1985 letter to then Chairman Bob Packwood (R-OR) that the Treasury Department was “free to liquidate obligations in any order it finds will best serve the interests of the United States.”  Neither of these rulings is definitive, but rather two sides of the same coin: Treasury is saying that there is no legal authority to elevate one validly enacted appropriation over another, while GAO is saying that there is no legal prohibition against doing so.  Since there is no statutory law favoring either position, both positions are justified.

In the law, however, ties are typically broken by asking who has the burden of persuasion and here the burden is more justifiably placed on Congress, which after all is creating the problem by passing conflicting appropriations with insufficient funding.  Moreover, Congress has the constitutional power to set its own payment priorities, either as an express power under the Appropriations Clause (Article I, Section 9, Clause 7) or an incidental power under the Necessary and Proper Clause.

If this Congressional power is not exercised, however, then only the President can choose the order of payment if funds are unavailable to make all payments as they come due.  Such a presidential power would be incidental to the general executive power expressly granted in Article II, Section 1, and further implied by the President’s duty in Article II, Section 3 to “take Care that the Laws be faithfully executed,” a duty that parallels the GAO’s conclusion that payments be made in whatever order “will best serve the interests of the United States.”

A tie in this instance should therefore go to the President, and the GAO position should prevail absent any future statute restricting the President’s discretion in this regard.  Assuming then that Congress (or the President when Congress has failed to act) has the power and authority to reject a “first-in, first-out rule” and set payment priorities using other criteria, there remains the important question of how payment priorities should be established and by what criteria.  This issue will be discussed in the next and final post of this series.

Copyright © 2011 Anthony W. Hawks. All rights reserved.

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