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Peter M. Shane

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What May a President Do if He Cannot Pay Our Bills?

Posted: 07/20/11 05:14 PM ET

An obvious question, should Congress not manage to fend off default within the next two weeks, is: What does the president do then? If the president cannot pay off America's creditors and keep all government programs running, what legal authority does he have to deal with the crisis?

A little history helps to put the answer in context. In the 19th century, Congress simply did not have a budgeting process. It appropriated funds for various federal purposes, confident that customs revenues would outpace federal spending. In the unlikely event -- unlikely, that is, before the Civil War -- that appropriations outpaced revenues, Congress implicitly left it to the president to keep expenditures and revenues in line by not spending appropriations that were permissive rather than mandatory.

Congress did not adopt a formal budgeting process until 1921, when it created the Bureau of the Budget (now, the Office of Management and Budget) in the White House and the Government Accounting Office (now, the Government Accountability Office).The 1921 Budget Act was the first to task the president with presenting Congress each year with a proposed budget for its consideration.

Flash forward now to the Nixon administration. Congress had created a statutory framework to help structure the exercise of executive branch spending discretion. But Nixon, misinterpreting 19th century practice, insisted he had inherent constitutional authority to "impound" -- that is, not spend -- government funds that he thought had been unwisely appropriated.

In the wake of Watergate and in response to Nixon's abuses of impoundment power, Congress rebelled. It said, in effect, that whatever authority presidents enjoyed to manage government funds was a consequence of authority delegated to the president by Congress, either implicitly or explicitly. And to prevent any future claims of inherent presidential impoundment authority under the Constitution, Congress enacted the Congressional Budget and Impoundment Control Act of 1974 (ICA).

Simplifying things a bit, the ICA can be understood as dividing presidential decisions not to spend appropriated money into two categories -- rescissions and deferrals. Rescinding funds means never spending them; deferring funds means not spending them right away.

The ICA basically took away any presidential right of rescission. If the president wants to cancel altogether some congressionally authorized spending, he must send his recommendation to Congress. The rescission then occurs only if, within 45 days, Congress enacts a new statute approving the proposed non-spending. In other words, unless Congress affirmatively approves the president's decision, sooner or later, he has to spend the money Congress appropriates for mandatory expenditure.

In 1974, however, Congress treated deferrals differently. Presidents could propose to defer authorized spending for a fixed period of time, and those proposals would take effect unless either the House or the Senate voted to override the proposal -- a so-called legislative veto. The problem with this arrangement turned out to be that legislative vetoes are unconstitutional. So said the Supreme Court in 1983.

At that point, the question became: Did the President now retain his authority to defer spending, no longer subject to a legislative veto? The U.S. Court of Appeals for the District of Columbia Circuit answered, "Sometimes."

Sometimes, that is, presidents want to defer spending because they think Congress did the wrong thing in funding a particular project or activity. Deferring spending on such programs really amounted to a policy objection to Congress' approved programs or activities. According to the D.C. Circuit, the Supreme Court's decision to nullify legislative vetoes effectively took the president's power of "policy deferral" away. Congress would never have enacted any policy deferral authority in the wake of the Nixon Administration, unless it knew it could retain legislative veto authority. In "law-speak," "policy deferral" authority could not be "severed" from the legislative veto.

Sometimes, however, presidents want to defer spending because, however, unobjectionable a program, deferring spending is necessary to provide for unforeseen contingencies. Sometimes, for example, deferred spending enables the government to achieve savings through unanticipated efficiencies or changes in program requirements. Such "programmatic deferrals," according to the Court of Appeals, were still permissible. They were instances of good management, not policy resistance.

Reacting to this decision, Congress amended the ICA to reflect the policy-versus- program distinction. The ICA now basically prohibits "policy deferrals," but allows "programmatic deferrals." The president may recommend deferrals to achieve savings or otherwise "to provide for contingencies." Such deferrals take effect unless Congress affirmatively legislates to overturn them -- which, of course, the president may veto if he chooses.

So, this is where the president would stand on August 2 if informed that government spending at current rates cannot continue without further borrowing, which, in turn, would violate the statutory limit on incurring government debt. The president could claim authority to defer government spending in such amounts as necessary to avoid further borrowing. He would presumably cite as his legal authority 2 U.S.C. sec. 684(b)(1), which authorizes deferrals "to provide for contingencies."

Of course, exercising his statutory "programmatic deferral" authority in this way would be deeply ironic; the president could select expenditures to defer or not defer only by making policy judgments about spending levels that are different from the policy judgments that Congress enacted in its appropriations Acts. As expressed to me in a recent email from separation of powers scholar Louis Fisher:

Recognizing a broad power of impoundment by the President to handle the federal government in the absence of a higher debt limit would permit the President to radically change budget priorities by deferring this but not that -- precisely the same kind of power that got Nixon into trouble.

And yet there seems no other option. If there is not enough money in the till to pay all the bills that are due and further borrowing is impermissible, something has to give. The idea that the Fourteenth Amendment empowers the president to unilaterally raise the debt limit is implausible. The president has statutory authority to respond to contingencies; he would have to use it.

Because nothing in the ICA would instruct the president on what basis to choose appropriations to defer -- that is, what commitments not to keep -- he would have to decide, on his own initiative, what projects and activities to put on hold to keep from violating the law. Congress would thus have tacitly abdicated to the executive branch a huge swath of the power over government fiscal policy that the Framers quite deliberately vested in Congress. The results for good government -- indeed, for constitutional government as we know it -- would be calamitous.

 

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