How Will the Federal Government Decide Who Gets Paid after August 2?

Monday, July 25, 2011

According to the Treasury Department’s latest estimate, if the debt ceiling is not raised by August 2, the federal government will run far short of the cash it needs to pay all of its obligations. A recent analysis by the Bipartisan Policy Center (BPC) estimates that there will be sufficient inflowing cash to pay only about 44% of all bills due between August 3 and August 31.

Who will get paid, who won’t, and how will the decisions be made?

In our system of government, Congress makes the spending decisions and provides the means for the executive branch to carry them out. No statute gives the executive general authority to prefer one form of spending over another. On the contrary, it is hard to imagine such an extraordinary delegation of Congressional power.

In 1985, the Government Accountability Office (GAO) did conclude that the executive is free to pay the bills in the order it determines is in the best interest of the Nation. But GAO’s one page opinion provides little analysis and is not binding. The GAO is not the U.S. Supreme Court.

The history of impoundment points in the other direction. Presidents from Jefferson to Nixon exercised the power to disobey Congressional spending orders, a power known as “impoundment.” President Nixon exercised the power vigorously, and Congress withdrew the power in the Impoundment Control Act of 1974. While the Act is not directly on point, it suggests that Congress does not intend that the executive have the power to decide which spending orders to obey and which to ignore.

It is quite possible that the Obama Administration will determine that it lacks the clear legal authority to take an active role in prioritization. Instead, the Administration could allow prioritization to occur mechanically, by simply allowing the bills to stack up, and paying them in chronological order as cash becomes available to do so.

If the Administration takes this approach, high profile payments such as Social Security and pay for active duty troops would stand in line and wait their turn like all other spending. For example, the $23 billion Social Security payment that is due on August 3 would probably be made on the 4th, 5th or 8th of August.

There are several reasons why the Administration might take this position. First, as mentioned above, it may conclude that it simply lacks clear authority to do otherwise. Second, it may be loathe to establish a precedent that would in effect allow future Congresses to avoid the consequences of their irresponsible behavior. Third, it might conclude that prioritization is not feasible as a practical matter.

We should hope that this question remains an academic one.

2011-07-25 00:00:00