Difference between revisions of "Backdoor spending authority"

Revision as of 18:30, January 11, 2013

Backdoor spending authority in the federal budget is budget authority to incur obligations that evade the normal Congressional appropriations process because it is provided in legislation other than appropriation acts. Spending authority is the technical term for backdoor authority^[1], and defined in section 401(c)(2) of the Congressional Budget Act of 1974, as amended, as various types of authority to obligate the United States to make payments, the budget authority for which is not provided in advance in appropriations acts. It can also be known as a permanent appropriation.

Various types of backdoor spending authority include authority to enter into contracts; to incur indebtedness; to make payments (including loans, grants and entitlements) to persons or governments who meet requirements established by law; to allow United States government executive departments and agencies to forgo collection of proprietary offsetting receipts^[2]; and to make any other payments (including loans, grants, and payments from revolving funds.

From the perspective of the appropriations committees, funding by these forms of spending authority slips away from their control through legislative back doors. The Congressional Budget Act of 1974 allowed older forms of backdoor spending to be grandfathered in but attempted to give the appropriations committees some control over new new spending, or new borrowing and contract authority.

Origins and issues

Originally created by a parliamentary ruling of the House of Representatives in 1949, "backdoor spending" devices have been held not to constitute appropriations. The ruling permitted legislative committees, which are specifically prohibited from handling appropriations matters, to authorize agencies to obtain funds via the "backdoor" method. In some cases these spending authorizations do not come before the appropriations committees for review.^[3]

• One type of backdoor is contract authority which permits an agency to obligate funds in advance of appropriations. The matter comes before the appropriations committees only when money is needed to liquidate the obligation, too late for them to exercise any meaningful control.

• Another backdoor strategy is to authorize agencies to borrow funds from the Treasury or from the public. Borrowing authority^[4] outside the appropriations process has been authorized since this backdoor was opened in 1932 with creation of the Reconstruction Finance Corporation.

• The third and most prevalent form of backdoor is a mandatory entitlement of specified payments to eligible beneficiaries. Most entitlements are open-ended: their cost depends on the varying number of claimants and amounts allowable to each, rather than on current legislative decisions.^[5] Most entitlements are also in the form of permanent appropriations that bypass the appropriations committees altogether. Even when the entitlements go through the regular appropriations process (as is the case with public assistance and veterans' benefits) the appropriations committees have no real say over the amounts that are to be spent. ^[6]

The Congressional Budget and Impoundment Control Act of 1974 originally was intended to limit and reform backdoor authority^[7][8], however by 2010, President Obama's Simpson-Bowles Commission reported the that tax code had become riddled with $1.1 trillion (roughly equal to annual projected deficits) in backdoor spending as hidden "tax expenditures."^[9]

New vs old spending authority

Section 401 of the Congressional Budget Act of 1974 both defines and limits the use of spending authority. The term "spending authority" is used to describe legislation which authorizes the obligation of funds outside of, or prior to the appropriations process—such as by contract or borrowing authority. This type of financing mechanism is also referred to as backdoor authority.

The intent of section 401 was to control the use of backdoor authority by treating both contract and borrowing authority the same as regular authorizations which made funds available only to the extent provided in appropriations acts. A grandfather clause exists that distinguishes between new spending authority, which became law after the effective date of the Congressional Budget Act of 1974 (July 12, 1974) and subject to this provision, and old spending authority which is not subject to this provision.

When this section was enacted, it was assumed that old spending authority would be used up at some time in the future. Thus, the use of contract and borrowing authority as backdoor financing mechanisms would be eliminated.

But insured and guaranteed loans were not included. Section 401(c) provides that the term "spending authority, ... does not include authority to insure or guarantee the repayment of indebtedness incurred by another person or government."

Therefore, revolving fund programs which conduct their operations through insured or guaranteed loans, or are converted from making direct loans to this mechanism, were not subject to the required appropriations action on new spending authority. The reasoning is that insuring or guaranteeing loans does not require the immediate use of budget authority to carry out program objectives and that budget authority is only needed to cover losses from program operations, such as defaults on loans which are accounted for when the loss occurs.

Another form of spending authority covered by section 401 is entitlement authority. Procedures for control of entitlement authority differ, however, from those applied to contract and borrowing authority.

Section 401(d) lists other exceptions to the requirement subjecting new spending authority to amounts provided in appropriations acts. Included in this section is the following which relates to numerous public enterprise revolving funds:

The effect of section 401's provisions on the remaining public enterprise revolving funds which are not exempted in any way from its provisions is questionable. Although treating contract or borrowing authority as an authorization subject to amounts approved in appropriations acts appears on the surface to be exerting budgetary control, the approach was not always effective.

See also

• Direct spending