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Full text of "Effects of potential government shutdown : joint hearing before the Committee on the Budget, United States Senate and the House of Representatives, Committee on the Budget, One Hundred Fourth Congress, first session, September 19, 1995"

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''M^ EFPECTS OF POTENTIAL GOVERNMENT 

SHUTDOWN 

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Effects of Potential Governnent Shu... 

JOINT HEARING 

BEFORE THE 

COMMITTEE ON THE BUDGET 
UNITED STATES SENATE 

AND THE 

HOUSE OP REPRESENTATrV^S 
COMMITTEE ON THE BUDGET 

ONE HUNDRED FOURTH CONGRESS 

FIRST SESSION 



SEPTEMBER 19, 1995 



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Printed for the use of the Committees on the Budget 



U.S. GOVERNMENT PRINTING OFFICE 
WASHINGTON : 1995 



For sale by the U.S. Government Printing Office 

Superintendent of Documents. Congressional Sales Office. Washington, DC 20402 

ISBN 0-16-052064-9 



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'*iw \mn.% OF POTENTIAL GOVERNMENT 

SHUTDOWN 

Y 4.B 85/2: S.HRG. 104-175 ^=^— — 

Effects of Potential Covernnent Shu... 

JOINT HEARING 

BEFORE THE 

COMMITTEE ON THE BUDGET 
UNITED STATES SENATE 

AND THE 

HOUSE OP REPRESENTATR^ES 
COMMPrTEE ON THE BUDGET 

ONE HUNDRED FOURTH CONGRESS 

FIRST SESSION 



SEPTEMBER 19, 1995 



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FEB 




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^5 /Qc- 



Printed for the use of the Committees on the Budget 



U.S. GOVERNMENT PRINTING OFFICE 
WASHINGTON : 1995 



For sale by the U.S. Government Printing Office 

Superintendent of Documents, Congressional Sales Office, Washington, DC 20402 

ISBN 0-16-052064-9 



UNITED STATES SENATE 

COMMITTEE ON THE BUDGET 

PETE V. DOMENICI, New Mexico, Chairman 



CHARLES E. GRASSLEY, Iowa 
DON NICKLES. Oklahoma 
PHIL GRAMM, Texas 
CHRISTOPHER S. BOND, Missouri 
TRENT LOTT, Mississippi 
HANK BROWN, Colorado 
SLADE GORTON, Washington 
JUDD GREGG, New Hampshire 
OLYMPIA J. SNOWE, Maine 
SPENCER ABRAHAM, Michigan 



J. JAMES EXON. Nebraska 
ERNEST F. HOLLINGS, South Carolina 
J. BENNETT JOHNSTON, Louisiana 
FRANK R. LAUTENBERG, New Jersey 
PAUL SIMON, Illinois 
KENT CONRAD, North Dakota 
CHRISTOPHER J. DODD, Connecticut 
PAUL S. SARBANES, Maryland 
BARBARA BOXER, California 
PATTY MURRAY, Washington 



BILL FRIST, Tennessee 

G. William Hoagland, Staff Director 
William G. Dauster, Democratic Chief of Staff and Chief Counsel 



HOUSE OF REPRESENTATIVES 

COMMITTEE ON THE BUDGET 

JOHN R. KASICH, Ohio, Chairman 



DAVID L. HOBSON, Ohio 
ROBERT S. WALKER, Pennsylvania, 

Vice Chairman 
JIM KOLBE, Arizona 
CHRISTOPHER SHAYS, Connecticut 
WALLY HERGER, California 
JIM BUNNING. Kentucky 
LAMAR S. SMITH, Texas 
WAYNE ALLARD, Colorado 
DAN MILLER, Florida 
RICK LAZIO, New York 
BOB FRANKS, New Jersey 
NICK SMITH, Michigan 
BOB INGLIS, South Carolina 
MARTIN R. HOKE, Ohio 
SUSAN MOLINARI, New York 
JIM NUSSLE, Iowa 
PETER HOEKSTRA, Michigan 
STEVE LARGENT, Oklahoma 
SUE MYRICK, North Carolina 
SAM BROWNBACK, Kansas 
JOHN SHADEGG, Arizona 
GEORGE P. RADANOVICH, California 
CHARLES F. BASS, New Hampshire 



MARTIN OLAV SABO, Minnesota, 

Ranking Minority Member 
CHARLES W. STENHOLM, Texas 

LOUISE Mcintosh slaughter, 

New York 
MIKE PARKER, Mississippi 
WILLIAM J. COYNE, Pennsylvania 
ALAN B. MOLLOHAN, West Virginia 
JERRY F. COSTELLO, Illinois 
HARRY JOHNSTON, Florida 
PATSY T. MINK, Hawaii 
BILL ORTON, Utah 
EARL POMEROY, North Dakota 
GLEN BROWDER, Alabama 
LYNN C. WOOLSEY, California 
JOHN W. OLVER, Massachusetts 
LUCILLE ROYBAL-ALLARD, California 
CARRIE P. MEEK, Florida 
LYNN N. RIVERS, Michigan 
LLOYD DOGGETT, Texas 



Professional Staff 

Richard E. May, Staff Director 
Eileen M. Baumgartner, Minority Staff Director 



(ID 



CONTENTS 



Page 

Joint hearing held in Washington, DC, September 19, 1995 1 

STATEMENTS BY COMMITTEE MEMBERS 

Chairman Domenici 46 

Chairman Kasich 1 

Senator Exon 3 

Congressman Sabo 4 

Senator Dodd 47 

WITNESSES 

Dellinger, Walter, Assistant Attorney General, United States Department 

of Justice 13 

Rivlin, Alice M., Director, Office of Management and Budget 6 

ADDITIONAL MATERIAL 

Article: 

Continuing Resolution/the Debt Ceiling 49 

The Anti-Deficiency Act 64 

Debt Subject to Limit 86 

Memo: 

Walter Dellinger to Alice Rivlin 77 

Letters: 

Federal Reserve System 94 

Office of Attorney General 95 

(III) 



EFFECTS OF POTENTIAL GOVERNMENT 
SHUTDOWN 



TUESDAY, SEPTEMBER 19, 1995 

U.S. Senate, 
U.S. House of Representatives, 

Committees on the Budget, 

Washington, DC. 

The committees met, pursuant to notice, at 9:33 a.m., in room D- 
106, Dirksen Senate Office Building, the Hon. Pete V. Domenici 
(chairman of the Senate Budget Committee) and the Hon. John R. 
Kasich (chairman of the House Budget Committee) presiding. 

Senators present: Domenici, Lott, Gregg, Snowe, Abraham, Frist, 
Exon, Lautenberg, Simon, and Conrad. 

Representatives present: Kasich, Hobson, Shays, Miller, Franks, 
Molinari, Myricki, Shadegg, Radanovich, Sabo, Orton, Pomeroy, 
Woolsey, Meek and Doggett. 

OPENING STATEMENT OF CHAIRMAN KASICH 

Chairman KASICH. Since we have a bipartisan contingent here, 
why don't we go ahead and get started. Bill Orton will be the rank- 
ing Democrat here, and hopefully Mr. Sabo is on his way. I think 
the Senate is tied up with votes. 

Anyway, I want to welcome the witnesses here this morning. Di- 
rector Rivlin and Mr. Dellinger, no relation, I take it, to the famous 
Dellinger. 

Mr. Dellinger. No, sir, but my wife worked a bit at the FBI and 
she heard a lot about that. 

Chairman Kasich. Anyway, the purpose of the hearing this 
morning is to talk about what plans we have and what the sched- 
ule is and what are some of the potential scenarios of two separate 
events that will occur. One, of course, is the October 1st deadline 
on our appropriations bills. Let me just for a second, Director, tell 
you where we are on that. 

As you know, the House and the Senate are trying to resolve as 
many differences in a conference committee with the appropria- 
tions bills and we will get as many as practical to the President 
by the deadline. For those that have not yet been completed, Chair- 
man Livingston is currently working on a CR, a continuing resolu- 
tion for those that do not know all the terms, the way in which we 
would fund the level of government until all the appropriations 
bills are completed. 

We will send both the completed appropriations bills and those 
that are not completed the continuing resolution to the White 
House so that in fact you will have an opportunity to sign and an 

(1) 



opportunity to move things forward. Of course, it will then be up 
to the President essentially to decide whether he wants to sign the 
bill or not. Perhaps he is going to have disagreements with it, but 
the bottom line is that we are working up both the bills and the 
continuing resolution to make sure the Government continues to 
function. 

Part of the purpose of the meeting this morning is in case the 
President would in fact veto those bills and there would not be a 
funding resolution. We would like to explore the Anti-Deficiency 
Act, which is an act that provides for health and safety delivery. 
I know Mr. Bellinger has upgraded the Civiletti memos which are 
more of a micro-definition of what this means. 

Essentially, if we in fact do not have a continuing resolution or 
all the appropriations bills signed, the idea that the entire Federal 
Government closes down is, of course, overstated and we would like 
to spend some time hearing your views on that, Mr. Bellinger, and, 
of course, finding out what the impact of what we will now call the 
Bellinger memos and the Anti-Beficiency Act has in terms of what 
your priorities are, and which pieces of government would remain 
open. 

Then, of course, we face the situation with the debt ceiling and 
we would anticipate at this point that the debt ceiling would be 
tied to the reconciliation bill. When you use terms like that, I guess 
you might as well speak in Latin, because nobody but a handful 
of people inside the beltway understand it. The reconciliation bill 
is essentially locking into law the specific changes in entitlement 
programs. So you have got appropriations bill on one side, and then 
on the other side you have the changes in entitlements. 

We will attach the debt ceiling in all likelihood — these things are 
all subject to change, based on what we think is in the best inter- 
ests of our country — we will in all likelihood attach the debt ceiling 
to these changes in entitlement programs and send that adso to the 
White House, and again it will be up to the White House to decide 
whether they want to sign that bill or not. 

Of course, we also have the option of extending the debt ceiling 
on a short-term basis, where perhaps we can get agreement on 
that. I do not know at this point, and we do not need to presume 
that what we send down is necessarily going to be vetoed. 

I think it is important today that we outline what the impact of 
all these things can be, what the priorities would be, make it clear 
that things like the Social Security checks will go out in the mail, 
people will get those benefits, and that maybe we will get a little 
light shed here today that will allow the American people to under- 
stand a little bit better what is going on in Washington right now 
and what the probable outcomes are. 

I would now like to recognize the Senator from Nebraska, Sen- 
ator Exon, for any opening statement he may want to make. Sen- 
ator, if I could just lay out the schedule, since we have a few more 
members here, and Mr. Sabo. We are probably going to have votes 
at about 11, and I think we are going to have about 45 minutes 
worth of votes which will throw us into turmoil. Senator Bomenici 
is at markups and hearings and votes, and so we decided to move 
forward and hear from the witnesses. 

Senator ExON. 



OPENING STATEMENT OF SENATOR EXON 

Senator ExoN. Mr. Chairman, thank you very much. 

I should also advise you that we are scheduled tentatively for a 
vote in about 15 or 20 minutes, so I would suggest that we move 
ahead as rapidly as we can. Senator Domenici has advised me that 
he will be here as soon as he can. 

Let me continue and insert my opening statement, if I might, so 
we can get to the witnesses. I certainly want to welcome Director 
Rivlin and Assistant Attorney General Bellinger to toda/s hearing. 
This is a very important hearing. We hope that whatever we talk 
about here today does not have to be done, but certainly I think 
it is wise for the two Chairmen of the House and Senate Commit- 
tees on the Budget to have called this hearing to at least do some 
planning, which I think is obviously necessary. 

I wish we did not have to go through this exercise, but I appre- 
ciate the knowledge and the experience that it will bring to us and 
the help that it will be in case we have to put something into effect. 

Last week, America sighed relief when the White House and the 
congressional leaders tentatively agreed to work towards a continu- 
ing resolution, thereby avoiding a government shutdown. And from 
the comments that were made by the distinguished Chairman of 
the Budget Committee on the House side this morning, I am fur- 
ther relieved that chances are something can be worked out. 

I caution, however, that the relief may be short-lived and cos- 
metic. The continuing resolution, if we get one, could be a very 
brief stay of execution. In recent days, there has been a lot of soft- 
ening of rhetoric on the Government shutdown, although the bomb 
blast by the Republican revolutionary guard continued, and the Re- 
publican leadership has bolstered its guns at least for the moment. 

Any Member of Congress with a scintilla of common sense and 
responsibilty knows that another government shutdown would hurt 
both parties — especially the Republican Majority which has been 
charged with governing, but seems only capable of shutting down 
the Government. If we allow partisan, political calculations to take 
precedence over the safety of the American people, or to needlessly 
threaten the security of our Federal employees, then Congress will 
richly deserve the scorn of the American people. 

So I applaud the President and the Republican leadership for 
taking these first tentative, yet wobbly steps. And I hope they find 
their stride. The continuing resolution, however, is a perfect exam- 
ple of the old joke: every silver lining has a cloud. The jubilation 
over the continuing resolution masks a much deeper problem. 

As far as I can tell, there has been no movement on the part of 
the Republican Majority to accommodate any of the Democratic 
concerns over the budget — especially over the $245 billion tax cut 
for the wealthy. That monstrosity looms larger with each passing 
day. 

Because of the Republican arm twisting on the tax cut, I see no 
give and take on medicare or medicaid. I see no willingness to bar- 
gain over the harsh hits on rural America. At the White House, 
Speaker Gingrich restated his sound bite that he is willing to co- 
operate, but will not compromise. 

I also trust that my Republican colleagues are honest with the 
American people. A government shutdown may be some Members' 



4 

idea of good political theater. Closing up shop, however, can mean 
more than turning away tourists at the Washington Monument. 
The real showdown is not on October 1st. High noon comes when 
Congress must raise the debt ceiling in late October. Even Senator 
Dole said, and I quote, "That's when it really gets dicey. That's the 
date to keep your eye on." 

Some of the Republicans want to play budgetary "chicken" with 
the debt ceiling. At last count, 160 House Republicans had signed 
letters to the President and the Senate and House leaders vowing 
to oppose raising the debt limit unless the President caves in to 
their budget extortion. 

Holding the debt limit hostage could force a default on U.S. 
Treasury securities for the first time in history. The Congressional 
Budget Office warns, and I quote, "even a temporary default — that 
is a few days' delay in the Government's ability to meet its obliga- 
tions — could have serious repercussions in the financial markets. 
Those repercussions include a permanent increase in Federal bor- 
rowing cost relative to yields on other securities as investors realize 
that Treasury instruments are not immune to default." Such short- 
term foolishness will have serious long-term consequences. 

And what about Social Security? Failure to raise the debt ceiling 
could prevent checks from being issued to millions of America's 
seniors, survivors and disabled. 

In conclusion, I don't believe that we should be rolling bandages 
for a train wreck that doesn't have to, and shouldn't happen. I 
refuse to accept that verdict. Instead, we should be negotiating in 
earnest on this budget. Of course, that is much harder than shut- 
ting the Government down, but that is what the American people 
expect of their leaders. 

Mr. Chairman, I am looking forward to the testimony of our wit- 
nesses today. 

Chairman Kasich. Thank you, Senator. 

Congressman Sabo. 

OPENING STATEMENT OF CONGRESSMAN SABO 

Mr. Sabo. Thank you, Mr. Chairman. 

I welcome Budget Director Rivlin and Assistant Attorney Gen- 
eral Dellinger. Welcome to the committee. 

Mr. Chairman, I am not sure what we are going to accomplish. 
We have a problem that should be solved, not that difficult to solve. 
It is clear that not all appropriations bills will be passed by Octo- 
ber 1st. Others may be passed, but run into a veto. That is nothing 
new. Congress has passed continuing resolutions to keep the Gov- 
ernment functioning, many times and we should. It is nothing 
drastic or something that we have not done before. The process 
works and we should simply do it. 

Mr. Chairman, I would suggest that those people who want to 
play a game of chicken with the debt limit are making a serious 
mistake. In my judgment, that is the ultimate irresponsibility. We 
have a responsibility and an obligation, as members, at a time 
when we clearly have major differences of opinion on major policy 
issues, to extend the debt ceiling so that we do not negate and fail 
to pay a government debt when it is due. If we fail to pass it, it 



would be the ultimate irresponsibility on the part of the Congress. 
It is really the Congress' choice. 

Clearly, the reconciliation bill will be one that has major con- 
troversy attached to it. Clearly, a resolution of that disagreement 
will not be simple or easy. To shut down the Government for some 
type of pretended leverage while those negotiations go on I think 
would just be totally wrong. 

I look forward to our witnesses today. But the options are really 
with Congress, and the Congress should not be playing games with 
the people who work for the Federal Government or are dependent 
on the Federal Government or for those people who have financed 
our operations. I would only suggest to the majority that inherent 
in their budget resolution is an increase in the requirement for an 
increase in the debt ceiling. So we should get on with our business 
in a responsible fashion and then eventually do the negotiations 
that bring an end to this session. 

I ask unanimous consent that my entire statement be made a 
part of the record. Thank you, Mr. Chairman. 

Chairman Kasich. Without objection. 

[The prepared statement of Mr. Sabo follows: 

Opening Statement of Congressman Martin O. Sabo 

Mr. Chairman: I'd first like to welcome Budget Director Alice Rivlin and Assistant 
Attorney General Walter Dellinger to today's hearing. I am sure they will lend us 
their valuable insight and advice as we deal with important issues surrounding the 
budget process. Welcome to you both. 

Throughout this budget process, I have profoundly disagreed with the extreme po- 
sitions staked out by the new Republican majority. You have championed large tax 
breaks for the affluent, at the expense of the most vulnerable Americans. 

But I am just as concerned that in order to enact your extreme agenda, the major- 
ity has expressed a willingness to engage in irresponsible tactics that could inflict 
severe and irreparable harm upon the credibility of the United States. 

Although, "shutting down the Federal Government" and denying an extension of 
the Federal debt limit may make for good sound bites, they are, by almost all ac- 
counts, unsound policy. Uitimately, these tactics will do little to reduce budget defi- 
cits. They amount to playing budget politics with the credibility of the United 
States. 

CONTINUING resolutions 

In the past, when work on spending bills has not been completed by October 1, 
Congress has enacted continuing resolutions to provide interim funding until any 
disagreements could be resolved. Even when funding gaps have occurred, govern- 
ment services have been interrupted for only short periods of time. Continuing reso- 
lutions are a common and responsible way to keep the Government operating until 
we can enact spending policies. 

In fact, in 13 of the last 15 years, not all spending bills were completed and we 
have needed continuing resolutions to maintain Federal activities. In 11 of those 
years the continuing resolution was enacted on or before October 1. There is no rea- 
son that can't be done again this year while we work to resolve our internal political 
differences. 

debt limit extensions 

Far more problematic is the misguided attempt by some in the majority to deny 
an extension of the Federal debt limit. Action of this sort would be an unprece- 
dented act of irresponsibility with far harsher consequences than many of us have 
yet contemplated. In the end, not extending the debt limit would do nothing to re- 
duce deficits or increase revenues. Rather, it would make it impossible for the Gov- 
ernment to pay its bills and it would increase future Federal borrowing costs. 



The United States has never defaulted on any of its financial obligations. Any de- 
fault, even if temporary, would shake worm financial markets and have con- 
sequences for years to come. 

We all are interested in reducing budget deficits and making the Federal Govern- 
ment more efficient. But these sorts of cnanges are achieved by legislative decisions, 
not by refusing to pay the Government's bills. 

I would remind my Republican colleagues that when you voted to pass your budg- 
et this year, you also voted to increase the national debt. So, posing as fiscal con- 
servatives by denying a debt limit extension is an empty political act. It will do 
nothing to reduce the deficit and could do irreparable harm to our Nation. 

Chairman Kasich, I applaud your intentions to go along with a short-term debt 
limit extension. I urge all of my colleagues that as we work out our differences over 
the budget this year, we act responsibly and not hold the Government's honest 
creditors hostage to our political differences. 

Chairman Kasich. Well, I think we will go immediately to Dr. 
Rivlin and then to you, Mr. Bellinger. If you folks could summarize 
as best you can, that would be very much appreciated. 

Dr. Rivlin. 

STATEMENT OF ALICE M. RIVLIN, DIRECTOR, OFFICE OF 
MANAGEMENT AND BUDGET 

Dr. Rivlin. Thank you very much. I am pleased to be here, Mr. 
Chairman, and I am pleased both with the progress that has been 
made in discussing what would happen if we do not have a full set 
of appropriations bills signed by October 1, and by the fact that 
Congress is working very hard on those bills. I think many of the 
members who are not here this morning are, in fact, in conferences 
and and meetings that will speed the passage of those bills, and 
it is encouraging that we are having meeting of the minds on the 
necessity for a continuing resolution and a possible short-term ex- 
tension of the debt ceiling. 

As you know, Washington is awash in rumors and speculation 
about the possibility of a government shutdown. With that back- 
drop, let me state as clearly as I can: The President believes 
strongly that we should avoid a shutdown or other extraordinary 
disruption of the people's business. We should arrive at budgetary 
decisions in an orderly fashion, not in a crisis atmosphere of our 
own making. 

The President has urged Congress to send him, by October 1, all 
13 appropriations bills, preferably in a form that he can sign. If 
Congress needs more time to complete its work, the President has 
said he wants to work with Congress on a short-term continuing 
resolution to avoid a lapse in funding — a continuing resolution that 
is free of controversial riders and does not prejudice the ongoing 
debate over budget priorities. 

In addition, the President, the Secretary of the Treasury, and 
others have urged Congress to act responsibly and increase the 
debt limit in a timely manner. Failure to do so could disrupt Treas- 
ury borrowing, generate uncertainty in the financial markets about 
the Government's fiscal operations, and raise interest rates for all 
Americans. We must not play games with America's financial in- 
tegrity. 

Nevertheless, you asked that I discuss a potential funding hiatus 
and answer questions about a possible delay in increasing the pub- 
lic debt limit, and I will address both of those issues. 

As you know, departments and agencies will experience a lapse 
in their legal authority to enter into certain obligations if, first, the 



appropriations bills that fund their operations are not enacted by 
October 1, and, second, the President and Congress have not en- 
acted a continuing resolution. Under these circumstances, depart- 
ments and agencies would be unable to provide important public 
services or employ Federal workers. 

By contrast, failure to increase the statutory limit on the public 
debt — often called the debt ceiling — presents a very different prob- 
lem. If the Government reaches the debt ceiling, the Treasury De- 
partment will lack authority to borrow additional funds. Currently, 
the Treasury estimates the Government will reach its debt ceiling 
at the end of October. When monthly taix receipts are insufficient 
to cover outlays, the Government's inability to borrow would 
produce a cash shortfall, leaving the Treasury with insufficient 
cash to pay the Government's bills. 

I strongly support the view, expressed by the Secretary of the 
Treasury, that Congress must move promptly to raise the debt ceil- 
ing. I would note, as Secretary Rubin has also noted, that the con- 
gressional budget resolution calls for an increase in the debt ceiling 
to $5.5 trillion. As we continue to debate how best to balance the 
budget, we should separate that issue from the task of raising the 
debt ceiling. It would be irresponsible to bring the Nation to the 
edge of default, with the financial chaos that would ensue, in order 
to force a particular result in the budget debate. 

The United States has never defaulted on its obligations, and 
such a default has always been considered unthinkable. The Ad- 
ministration trusts that Congress will protect the Nation's financial 
integrity by raising the debt ceiling, as Secretary Rubin has re- 
quested. 

The issue of more immediate concern, of course, is the possible 
lapse in appropriations authority. 

Appropriations laws provide departments and agencies with legal 
authority to enter into obligations to provide services, employ work- 
ers, and enter into contracts. In cases in which Congress passes ap- 
propriations for programs, projects, and activities each year, a fail- 
ure to do so by October 1 would cause a lapse in legal authority 
to enter into obligations. No employee can obligate the Government 
in advance of appropriations, except as authorized by law — as, for 
example, in the case of emergencies involving the safety of human 
life or the protection of property. Mr. Bellinger will go into the law 
in greater detail. 

A lapse in appropriations authority on October 1 could he far- 
reaching and deleterious consequences. To be sure, the particular 
implications would depend on which appropriations bills were not 
enacted. But a few examples will serve to illustrate the point. 

Without an appropriation, the Government would not issue new 
Food Stamps beginning October 1. The Government would not send 
veterans compensation benefit checks on November 1st. The Gov- 
ernment would lack new funding for food packages for women, in- 
fants, and children. Except in emergency situations, the Govern- 
ment would not issue passports. National parks and Smithsonian- 
operated museums would close. And, environmental regulation, en- 
forcement, research, and grant programs would cease, as would 
rural development and farm credit programs. 



8 

During a lapse in appropriations authority, agencies would lack 
the authority to continue to employ Federal workers, except as au- 
thorized by law. Thus, the Federal Government would have to fur- 
lough large numbers of workers. In the absence of any appropria- 
tions or continuing resolution, it would have to furlough over 
800,000 workers. 

Meanwhile, other workers who are exempted from furlough in 
order to provide emergency services, such as air traffic controllers 
or personnel in veterans hospitals, would be working without pay, 
although they would be paid later. 

The Administration, from the President on down, is concerned 
about the disruptive effects that a government shutdown would 
have on employees and their families, as well as on those who re- 
ceive government services. These workers do the people's business 
every day, and they are in the forefront of our efforts to reinvent 
government. They should not be used as pawns as we try to work 
through the difficult budget decisions that lie before us. 

In addition, a shutdown of any size or duration would generate 
costs, including those of closing and securing Federal buildings and 
facilities, and paying penalties and other charges associated with 
the unanticipated cessation of contractual liabilities or late pay- 
ments. At the same time, the productivity of Federal employees 
surely would fall even after the shutdown ends; along with their 
normal responsibilities, they would have to perform the tasks left 
undone during the shutdown. 

Despite our strong hopes of avoiding a shutdown, we obviously 
must prepare for all contingencies. On August 22nd, I asked the 
heads of all executive departments and agencies to send 0MB up- 
dated contingency plans to deal with a funding hiatus. 

We have received plans from virtually all agencies except the De- 
partment of Defense, on which we had an extensive and detailed 
briefing. Some of these plans have come in only recently, and we 
have not yet completed our reviews. Specifically, we want to make 
sure that all the plans are complete, and that they are consistent 
with the Attorney General's 1981 opinion, and with the August 
16th opinion of Assistant Attorney General Dellinger that speaks 
specifically to the 1990 amendment to the Anti-Deficiency Act. 
Once we have completed our reviews, we will provide you with cop- 
ies of all the plans. 

The mechanics of a shutdown are straightforward. If neither an 
appropriations bill nor a continuing resolution is enacted by Octo- 
ber 1, or if an enacted continuing resolution has expired, then on 
the first day in which funding has lapsed, OMB will instruct agen- 
cies to implement their shutdown plans and actually begin the 
process of shutting down agency operations. Of course, agencies 
will need some time to implement these plans, and complications 
will occur because, this year, October 1 falls on a Sunday. 

At the end of the shutdown, the process works the same way in 
reverse. On the day the President actually signs an appropriations 
bill or continuing resolution, we will instruct the agencies that they 
are to resume normal operations. To the extent we can, we try to 
advise agencies in advance on both scores, if it seems reasonably 
certain that action is about to be taken. 



If necessary, the Administration is prepared to handle a shut- 
down on October 1, or at a later date. But a shutdown will need- 
lessly deprive our citizens of important services, hurt Federal em- 
ployees, and cost money. 

I urge Congress to send the President all 13 appropriations bills, 
in an acceptable form, before October 1. If not, I hope we can agree 
on a continuing resolution that does not contain controversial rid- 
ers or prejudice the outcome of the debate. 

Thank you, Mr. Chairman. 

Chairman Kasich. Thank you, Director. 

[The prepared statement of Dr. Rivlin follows:! 

TESTIMONY OF 

ALICE M. RIVLIN 

DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET 

BEFORE A JOINT HEARING OF THE 

SENATE BUDGET COMMITTEE 

AND THE 
HOUSE BUDGET COMMITTEE 

September 19, 1995 



Chairman Domenici, Chairman Kasich, Members of the two 
Committees, thank you for the opportunity to discuss with you 
today the implications of a hiatus in appropriations authority 
and of the federal government reaching the statutory limit on the 
public debt. 

As you know, Washington is awash in rumors and speculation 
about a possible government shutdown, whether at the October 1 
start of the fiscal year or later this fall in connection with 
the debt limit. With that backdrop, let me state as clearly as I 
can: The President believes strongly that we should avoid a 
shutdown or other extraordinary disruption of the people's 
business. We should arrive at our budgetary decisions in an 
orderly fashion, not in a crisis atmosphere of our own making. 

The President has urged that Congress send him, by 
October 1, all 13 appropriations bills, preferably in a form that 
he can sign. If Congress needs more time to complete its work, 
the President has said he wants to work with Congress on a short- 
term continuing resolution (CR) to avoid a lapse in funding — 
that is free of controversial riders and that does not prejudice 
the ongoing debate over budget priorities. 

In addition, the President, Secretary of the Treasury, and 
others have urged Congress to act responsibly and increase the 
debt limit in a timely manner- Failure to do so could disrupt 
Treasury borrowing, generate uncertainty in the financial markets 
about the Government's fiscal operations, and raise interest 
rates for all Americans. We must not play games with America's 
financial integrity. 

Nevertheless, you asked that I discuss a potential funding 
hiatus and to expect questions about a delay in increasing the 
public debt limit. I will quickly contrast the two issues, and 
then turn to the more immediate problem of a potential lapse in 
appropriations authority. 



10 



Appropriations Hiatus vs. Debt Ceiling 

As you know, departments and agencies will experience a 
lapse in their legal authority to enter into certain obligations 
if (1) the appropriations bills that fund their operations are 
not enacted by October 1, and (2) the President and Congress have 
not enacted a continuing resolution. Under these circumstances, 
departnents and agencies would be unable to provide important 
public services or employ federal workers. 

By contrast, a failure to increase the statutory limit on 
the public debt — often called the "debt ceiling" — presents a 
very different problem. If the government reaches the debt 
ceiling, the Treasury Department will lack authority to borrow 
additional funds. Currently, the Treasury estimates that the 
government will reach its debt ceiling at the end of October. 
When monthly tax receipts are insufficient to cover outlays, the 
governcent's inability to borrow would produce a cash shortfall, 
leaving the Treasury with insufficient cash to pay the 
government's bills. 

I strongly support the view, expressed by the Secretary of 
the Treasury, that Congress must now move promptly to raise the 
debt ceiling. I would note, as Secretary Rubin has also noted, 
that the Congressional Budget Resolution calls for an increase in 
the debt ceiling to $5.5 trillion. As we continue to debate how 
best to balance the budget, we should separate that issue from 
the task of raising the debt ceiling. It makes no sense — 
indeed, it would be irresponsible — to bring the nation to the 
edge of default, with the financial chaos that could ensue, in 
order to force a particular result from the budget debate. 

The United States has never defaulted on its obligations, 
and such a default has always been considered unthinkable. The 
Administration trusts that Congress will protect the nation's 
financial integrity by raising the debt ceiling as Secretary 
Rubin has requested. 

Lapse in appropriations authority 

The issue of more immediate concern is the possible lapse in 
appropriations authority. 

Appropriations laws provide departments and agencies with 
legal authority to enter into obligations to provide services, 
employ workers, and enter into contracts. In cases in which 
Congress passes appropriations for programs, projects, and 
activities each year, a failure to do so by October 1 would cause 
a lapse in legal authority to enter into obligations. 



11 



No employee can obligate the government in advance of 
appropriations, except as authorized by law — as, for example, 
in the case of "emergencies involving the safety of human life or 
the protection of property." (Other exceptions include the 
authority to enter into obligations which enable the President to 
perform constitutional duties; the authority to employ workers 
involved in implementing a shutdown; and the authority to employ 
workers to administer programs with permanent or multi-year 
appropriations authority.) 

The Costs — Human and Financial 

A lapse in appropriations authority on October 1 could have 
far-reaching and deleterious consequences. To be sure, the 
particular implications would depend on which appropriations 
bills are not enacted. Here are a few examples of the possible 
consequences : 

• The government would issue no new food stamps beginning 
October 1 ; 

• The government would send no veterans compensation benefit 
checks on November 1 ; 

• The government would lack new funding for food packages 
for women, infants, and children (WIC) ; 

• Except in emergency situations, the government would issue 
no passports; 

• National Parks and Smithsonian-operated museums would 
close; and 

• Environmental regulation, enforcement, research, and grant 
programs would cease, as would rural development and farm 
credit programs. 

During a lapse in appropriations authority, agencies would 
lack authority to continue to employ federal workers, except as 
authorized by law. Thus, the government might have to furlough 
large numbers of workers. In the absence of any appropriations 
bills or a CR, it would have to furlough over 800,000 workers. 
Meanwhile, other workers who are exempted from furlough in order 
to provide emergency services — such as air traffic controllers 
and personnel in veterans' hospitals — would be working without 
pay (though they would be paid later) . 

The Administration — from the President on down — is 
concerned about the disruptive effects that a government shutdown 
would have on employees and their families. These workers do the 



12 



peoples' business every day and are in the forefront of our 
efforts to reinvent government. They should not be used as pavms 
as we try to work through the difficult budget decisions that lie 
before us. 

In addition, a shutdown of any size or duration would 
generate costs, including those of closing and securing federal 
buildings and facilities, and the payment of penalties and other 
charges associated with the unanticipated cessation of 
contractual liabilities. At the same time, the productivity of 
federal employees surely would fall even after a shutdown ends; 
along with their normal responsibilities, they would have to 
perform the tasks left undone during the shutdown. 

Preparations 

Despite our strong hopes of avoiding a shutdown, we 
obviously must prepare for all contingencies. On August 22, I 
asked the heads of all executive departments and agencies to send 
to OMB updated contingency plans to deal with a funding hiatus. 

We have received plans from virtually all agencies except 
the Department of Defense, but some have come in recently and we 
have not completed our reviews. Specifically, we want to make 
sure that all the plans are complete, and that they are 
consistent with the Attorney General's 1981 opinion, and with the 
August 16, 1995 opinion of Assistant Attorney General Dellinger 
that speaks specifically to the 1990 amendment to the 
antidef iciency act. Once we have completed our reviews, we will 
provide you with copies of all of the plans. 

The mechanics of a shutdown are straightforward. If neither 
an appropriation bill nor a CR is enacted by October 1, or if an 
enacted CR has expired, then on the first day in which funding 
has lapsed, OMB will instruct agencies to implement their 
shutdown plans and actually begin the process of shutting down 
agency operations. Of course, agencies will need some time to 
actually implement their plans, and complications will occur 
because, this year, October 1 falls on a Sunday. 

At the end of a shutdown, the process works the same way in 
reverse. On the day that the President will actually sign an 
appropriation bill or CR, we will instruct the agencies that they 
are to resume normal operations. To the extent we can, we try to 
advise agencies in advance on both scores — i.e., if it appears 
reasonably certain that the Congress will be presenting the 
President a CR he can sign on the following day, we will instruct 
the agencies to prepare to continue (or resume) normal operations 
on that day. 



13 

Conclusion 

If necessary, the Administration is prepared to handle a 
shutdown on October 1. But, a shutdown will needlessly deprive 
our citizens of important services, hurt federal employees, and 
cost money. 

I urge Congress to send the President all 13 appropriations 
bills, in an acceptable form, before October 1. If not, I hope 
we can agree on a continuing resolution that does not contain 
controversial riders or prejudice the outcome of the debate. 



Chairman Kasich. Mr. Bellinger? 

STATEMENT OF WALTER BELLINGER, ASSISTANT ATTORNEY 
GENERAL, UNITED STATES DEPARTMENT OF JUSTICE 

Mr. Dellinger. Mr. Chairman, thank you. I will summarize my 
testimony. Let me begin by saying how pleased the Department of 
Justice is that you are having this hearing, which gives us an op- 
portunity to put forward what our interpretations are of laws in 
this area. 

One of my colleagues noted to me that this is unusually an area 
in which you run out of law well before you run out of questions. 
It is an extremely difficult area, but it is one that we think is im- 
portant to have a widespread discussion about what the law is in 
advance of facing one of these situations, because it is very impor- 
tant that the American people have confidence in the basic legit- 
imacy of the Government of the United States and in the legality 
of its continued functioning and operation, so we hope to be quite 
clear about that. 

Our basic approach has been to try to have every agency of the 
Government in good-faith try to apply the legal standards that 
have evolved in this area. We want to make it clear to you today 
that we would welcome any thoughts you have about the submis- 
sions we have made. I believe that members of the House and Sen- 
ate have been provided copies of the memorandum that was pre- 
pared by my office for Dr. Rivlin on August 16th of this year. Our 
testimony is available and we would be very pleased to have the 
benefit of any of your thoughts about how you believe the legal 
standards apply in this area, and we will take those thoughts seri- 
ously into account. 

Let me just begin by summarizing the law in this area and begin 
with the foundation point, which is the Constitution. It is one of 
the less known and less frequently quoted provisions in the Con- 
stitution, but I think this is a fundamentally important provision. 
It says no money shall be drawn from the Treasury but in con- 
sequence of appropriations made by law. 

It is not a very heralding provision, but it is certainly one for 
which patriots fought and died, because it establishes a very impor- 
tant principle that the people's representatives in the legislature 
must approve before one dime can ever be taken out of the United 
States Treasury and spent, and that is a principle in the long 
struggles between parliaments and kings, between legislators and 
executives, a principle that was worth fighting for to make sure 
that the representatives elected by the people made that deter- 
mination before anyone was authorized to take money out of the 



14 

treasury and spend that money. So it is really the Constitution 
that stands behind the basic concepts that we will be dealing with. 

Therefore, if there is a lapse in appropriations on October 1st or 
at the end of the period stated in a continuing resolution, then gov- 
ernment may not write checks where there are no appropriations 
by the bodies of Congress signed into law by the President, so that 
no employees can be paid, contract payments cannot be made, rent 
payments cannot be made by the Federal Government, in cases 
where necessary appropriations are lacking. 

Now, that is not the end of the story, because the Government 
of the United States does not operate on a daily pay-as-you-go 
basis. It is still possible, in the absence of an appropriation under 
the Constitution, for officials to go ahead and make obligations for 
future payment. Were it not for the Anti-Deficiency Act, there 
would thus be no legal limit on the authority of the executive 
branch to make promises to pay in the future for services that are 
rendered now by employees or for goods and services that are pro- 
vided by outsiders. 

So long as suppliers, contractors and employees were willing to 
contract with the Federal Government on the basis of a promise to 
pay in the future, then the Government could continue but for the 
limitations embodied in the Anti-Deficiency Act, which really plays 
an important backup role in protecting Congress' power over the 
purse. The Anti-Deficiency Act provides that no Federal official is 
permitted to enter into a contract or to otherwise obligate funds be- 
fore an appropriations measure has been enacted. 

Now, if that were, without any exception, an across-the-board 
barrier to entering into obligations, then it would also bring all of 
the functions of the Federal Government to a halt. However, the 
Anti-Deficiency Act is not an absolute across-the-board bar, and 
what I will discuss briefly with you are the half dozen major excep- 
tions to the application of the Anti-Deficiency Act that permit some 
operations of the Government to continue notwithstanding even a 
general lapse in appropriations. 

I think it is very important to note that the exceptions that exist 
do not necessarily reflect any considered judgment about what 
functions are important or essential. These are exceptions that 
arise from a variety of different causes, and one of the con- 
sequences is that sometimes fairly insignificant functions can con- 
tinue operating while other critically important activities must be 
curtailed. 

The first of the six — and I will go through these quickly — is the 
one you are most familiar with, and that is if there are some multi- 
year, permanent or indefinite appropriations like the Social Secu- 
rity Fund, and where that is the case, those monies may continue 
to be spent. 

Second, there are circumstances in which employees do not incur 
any obligation by continuing to work. Those few employees who are 
paid by virtue of holding an office like presidential appointees who 
are confirmed by the Senate do not bring about an obligation to be 
paid by coming to work, but merely by holding the office. So there 
is no obligation created by those individuals coming to work and 
they are therefore outside the Anti-Deficiency Act. 



15 

The most important exception, the one that we have grappled 
with the most and that prior Attorneys General and prior opinions 
of the Office of Legal Counsel have had to deal with is the emer- 
gency exception. It is the principal exception that will occupy our 
time and attention and I think your comments. That is, the Anti- 
Deficiency Act does allow government officials to go ahead and 
promise to pay, to enter into obligations, to contract for obligations 
without an appropriation having been made in what are really 
emergencies — what were defined originally in the 19th century ver- 
sions of this bill as emergency exceptions — that is, those that in- 
volve the safety of human life or the protection of property. 

The language is rather bracing, but it doesn't come without a his- 
tory. It comes with a very long history. And while on its own it 
does not provide a lot of guidance, what we have done in consulta- 
tion with the Office of Management and Budget and by consulting 
prior opinions is really look at what the prior practice has been. 

Our best guide to try to come up with legal guidance in this area 
has been to look at first the prior opinions by Attorney General 
Civiletti and others, and then to look at the contingency planning 
that was made during the administrations of President Carter, 
President Reagan and President Bush and by this Administration, 
and to see how those plans have played out over time that have 
come to give us some sense and understanding of what the legal 
standards are. 

It was necessary for us to take account of a 1990 amendment 
that stated that the emergency exception did not include permis- 
sion to continue just ongoing regular functions of the Government, 
the suspension of which would not imminently threaten the safety 
of human life and protection of property. In taking that into ac- 
count, we now believe that the standard must be that for a fiinction 
to continue under this exception, there must be some reasonable 
likelihood that the safety of human life or the protection of prop- 
erty would be compromised in some significant degree by a delay 
in the performance of the function in question. 

To give you a sense of how we looked at prior practice, let me 
give you one very good example. When you think of an emergency 
exception, the first thing that would come to your mind is air traf- 
fic controllers. The airways are full of commercial aviation carrying 
tens of thousands of passengers a day, and without the Federal em- 
ployees who are air traffic controllers, there would obviously be a 
severe risk to public safety. 

One could, however, say there is no threat to public safety if you 
simply shut down all the airports and ceased all air transportation 
and air traffic, then it would not be necessary for the protection of 
human life to continue to obligate payments to air traffic control- 
lers. To resolve the question of whether you assume that continu- 
ation of air traffic or other aspects of the private economy, we real- 
ly look at prior practice. 

What we found I think is, over various Administrations over 
time, it has become a settled practice to assume that the major seg- 
ments of the private economy need production, air traffic will con- 
tinue, and therefore in order to protect safety, you need to have air 
traffic controllers, FDA, Department of Agriculture meat inspectors 



16 

at their stations doing their jobs, and that question, which the text 
of the act may have left open, is really answered for us by history. 

There is one point that is very important to note, and that is that 
while this exception permits officials of the executive branch to con- 
tinue to obligate for these services, it does not allow you to actually 
issue a paycheck to any of these employees when there is not yet 
an appropriation. So these employees may not receive an actual 
payment of money from the Treasury unless and until an appro- 
priation is enacted. 

Therefore, during an extended lapse of appropriations, the Na- 
tion would be depending upon the ability and the willingness of air 
traffic controllers, prison guards, law enforcement agents and oth- 
ers to continue working even though they would not be receiving 
any paychecks until appropriations finally were enacted. 

In the interest of time, Mr. Chairman, I will just mention the 
final exceptions, which are those obligations that are expressly au- 
thorized by law like the Department of Defense's food and forage 
authority and those obligations that we believe are necessarily im- 
plied in law, that is, where Congress has appropriated on a con- 
tinuing basis the funding of Social Security and requires by law 
those checks to be sent out. We assume that you necessarily incur 
the obligation of those employees who are necessary to process and 
send out those funds. 

Finally and the last exception I will mention is the President's 
core constitutional duties. It is the case that the Constitution itself 
authorizes the President to take action as commander-in-chief, to 
make treaties, and to engage in those other essential functions of 
national defense and foreign relations. 

In those areas, under the opinion of Attorney General Civiletti, 
we believe that there is authority on behalf of the President to con- 
tinue those core constitutional functions, though caution should be 
exercised, and those who have written prior opinions are most com- 
fortable with the President doing so, and where Congress has also 
authorized the function. In any event, those should be undertaken 
with the policies of the Anti-Deficiency Act in mind. 

Mr. Chairman, I will conclude at this point, because I know that 
you will have questions for Director Rivlin and for me, and we 
would be happy to answer those questions as best we can and take 
any comments you have on this now or after you have had a chance 
to study these submissions. 

Thank you. 

Chairman Kasich. Thank you. 

[The prepared statement of Mr. Dellinger follows:] 




17 

U. S. Department of Justice 



Washington. DC. 20530 



TESTIMONY OF 

WALTER DELLINGER 

ASSISTANT ATTORNEY GENERAL 

OFFICE OF LEGAL COUNSEL 

BEFORE A JOINT HEARING OF THE 
SENATE BUDGET COMMITTEE 

and the 
HOUSE BUDGET COMMITTEE 

September 19, 1995 

Chairman Domenici and Chairman Kasich, Members of the Committees: 

I appreciate the invitation to appear today before the Budget Committees from both 
Houses to discuss with you the executive branch's interpretation of the laws providing for 
government operations in the event of a lapse in appropriations. The Department of Justice 
welcomes this opportunity to have a full public discussion of the conclusions we have 
reached so far. In addition to answering your questions, we would very much like to have 
the benefit of your thinking, either this morning or after you have had an opportunity to 
consider further the submissions we have made. Any thoughts you have about the proper 
resolution of these often difficult legal questions will be most welcome by the Department of 
Justice and will be given careful attention as we continue the process of elaborating the 
applicable legal standards. 

In recent weeks, the Office of Legal Counsel has been concentrating on the legal 
issues associated with a lapse of appropriations, and this is the focus of my remarks today. 
In the course of our analysis, we have reviewed and been guided by the 1981 opinion by 
Attorney General Civiletti interpreting the Antideficiency Act, which has formed the basis for 
contingency planning by the administrations of President Reagan and President Bush and by 
this administration. On August 16, 1995, I issued an Office of Legal Counsel memorandum 
reaffirming the conclusions of the 1981 Civiletti opinion and assessing the consequences of a 
1990 amendment to the Antideficiency. Let me briefiy sketch our interpretation of the law. 



18 

INTRODUCTION 

Our starting point in addressing these questions is the Constitution itself. One of the 
Constitution's least heralded, but most fundamentally important, provisions is found in 
Article I, § 9. It reads: 

"No Money shall be drawn from the Treasury, but in Consequence of 
Appropriations made by Law." 

This provision expresses what is corrmionly known as Congress's "power of the 
purse." It is no exaggeration to say that it is a principle for which patriots fought and died, 
and it means what it says; without authorization by the vote of the people's representatives 
in Congress, not one dime can be spent from the United States Treasury. 

Therefore, one consequence of a lapse in appropriations is mandated by the 
Constitution - no one can be paid any money from the Treasury when the necessary 
appropriations bill has not been enacted. Should we reach October 1 without all 
appropriations bills having been signed into law, and no continuing resolution in place, 
employees cannot be paid, contract payments cannot be made, government rents cannot be 
paid, in all cases where the necessary appropriations bill is lacking. 

If the government operated exclusively on a daily pay-as-you-go basis, a lapse in 
appropriations would necessarily mean that any and all activities of the government that 
required disbursements from the Treasury would just come to a halt. The government is not 
a daily pay-as-you-go operation, however. Consistent with Article I, § 9, it would be 
possible for the government to make contracts with individuals and firms for goods and 
services even when it currently lacked the funds to pay off those contracts. So long as 
suppliers, contractors and employees were willing to contract with the federal government on 
the basis of a promise to pay in the future, activities of government could continue on that 
basis - but for the limitations embodied in the Antideficiency Act. 

The Antideficiency Act provider that no federal official is permitted to contract or 
obligate funds before an appropriations measure has been enacted. By preventing the federal 
government from even obligating itself to pay for goods or services before Congress has 
made an appropriation, the Antideficiency Act reinforces the constitutional principle that the 
Congress must decide how much money to spend and how to spend it. 

If the Antideficiency Act were an absolute bar on obligating funds in advance of 
appropriations, then the results would be just as I have described — the entire portion of the 
federal government that requires annual appropriations would come to a halt. Congress, 
however, has not made the Antideficiency Act an absolute bar on obligating funds in advance 
of appropriations. It has instead provided for certain exceptions. For the functions covered 
by these exceptions the government may continue to obligate funds even though 
appropriations bills have not been enacted. 



19 



The exceptions to the Antideficiency Act do not necessarily reflect any considered 
judgment by the Congress as to which activities are crucial or essential and which are not. 
Instead, for reasons I will elaborate, there are a variety of different exceptions that permit 
some very discretionary and perhaps even insignificant functions of government to continue 
operating, while other, critically important activities must be curtailed. 



20 

A. EXCEPTIONS TO THE ANTmEFICIENCY ACT 

1. Multi-year, Permanent, and Indefinite Appropriations 

One initial explanation for a great deal of continuing functions of the federal 
government is that the Antideficiency Act does not by its own terms apply to a substantial 
portion of those functions at all. The Act only prohibits incurring obligations in advance of 
appropriations, and a majority of current government expenditures occur under multi-year, 
permanent or indefinite appropriations that do not lapse on the expiration of the current fiscal 
year. Some examples include social security payments, medicare payments and interest 
payments on the national debt. 

Some salaries are paid out of permanent appropriations, too. Sometimes this occurs 
because salaries are paid out of a fund that collects fees from users. An example would be 
the lawyers in the Justice Department's antitrust division whose salaries are allocated to the 
account that collects merger pre-clearance fees under the Hart-Scott-Rodino law. Sometimes 
it occurs because Congress has simply enacted an appropriations measure that continues for a 
period of years or even indefinitely. An example would be the salaries of members of 
Congress. 

In all these cases, obligations may be made and money may be withdrawn from the 
treasury to pay the recipients of these obligations. The Constitution is not violated because 
the sums in question are drawn from the Treasury "in Consequence of Appropriations made 
by Law." Congress has in fact enacted an appropriation, and the Antideficiency Act is not 
implicated because the expenditures or obligations are not taking place or being incurred in 
advance of an appropriation. 



2. Employees Whose Continuing Work Does Not Incur Any Obligation 

Some employees of the federal government operate under terms that obligate the 
federal government to pay them so long as they occupy a certain post or position, whether or 
not they are performing services. Examples include certain foreign nationals who are 
employed by the State Department in various localities where local labor laws create such 
terms. Certain high-ranking members of the executive branch who have been confirmed by 
the Senate, such as cabinet secretaries, provide other examples. In addition, the Constitution 
forbids the salary of the President or of Article III judges to be reduced while they are in 
office. The obligation to pay the salaries of these officeholders is created by the Constitution 
without regard to whether they actually perform services. 

In these cases, the authority to incur the obligation to pay such individuals is 
contained in the Constitution or in the legislation that creates or authorizes such arrangements 
to be entered into in the first place. Furthermore, having such individuals acaially perform 



21 

services during a lapse in appropriations does not incur any additional obligation — the 
obligation already exists as a result of the original hiring, appointing, or electing of the 
individual. As a result, the Antideficiency Act is not violated if those individuals continue to 
work. Bear in mind always that the fact that monies are not appropriated to pay them 
means, of course, that they do not actually receive pay until funds are appropriated. 



3. The Emergency Exception 

The exception that probably explains the greatest number of employees who will not 
be furloughed during a lapse in appropriations is expressly stated in the statute. The 
Antideficiency Act, in § 1342, authorizes federal officials to "employ personal services" in 
"emergencies involving the safety of human life or the protection of property." In 1990 this 
provision was amended to clarify its scope, so that the statute now expressly states that the 
emergencies it refers to "do[] not include ongoing, regular functions of government the 
suspension of which would not imminently threaten the safety of human life or the protection 
of property." 

This articulation is consistent with the advice that the Department of Justice had been 
giving since Attorney General Civiletti's 1981 opinion. The interpretations of the 
Department of Justice and the settled practice of the executive branch indicate that a function 
may be continued under the emergency exception if two conditions are met. First, there 
must bear some reasonable and articulable connection between the function to be performed 
and the safety of human life or the protection of property. Second, there must be some 
reasonable likelihood that the safety of human life or the protection of property would be 
compromised, in some significant degree, by delay in the performance of the function in 
question. 

In applying the exception relating to property and life, it is necessary to make certain 
assumptions. For example, the continued functioning of FAA air traffic controllers is 
necessary only if the nation's airports remained open and air transportation were to continue. 
In this area, as in others, we have looked to past practice as an interpretive guide. With 
respect to any short lapse in appropriations, the consistent practice of past administrations has 
been to assume the continued operation of the private economy. Consequently, air traffic 
controllers, meat inspectors, and other similarly situated personnel have been considered to 
be within the emergency exception of § 1342. We have not determined whether this 
assumption would continue to be justified if a lapse in appropriations extended beyond a 
short period. 

Because the Antideficiency Act authorizes federal officials to "employ personal 
services" to continue functions encompassed within the emergency exception, obligations to 
pay compensation may be given to those federal employees who perform emergency 
functions during an appropriations lapse. It is important to note, however, that these 
employees may not receive an actual payment of money from the Treasury unless and until 



22 

an appropriation is enacted. During an extended lapse in appropriations, the nation would be 
depending upon ability and willingness of prison guards, border officials, law enforcement 
agents, air traffic controllers and others to continue working even though they would not be 
receiving pay checks. 



4. Obligations Expressly Authorized by Law 

In some cases, Congress has passed other legislation that authorizes the government to 

enter into obligations in advance of appropriations. Attorney General Civiletti's opinion 
concluded that such authorization cannot be derived from the sort of general authorizing 
statute Congress necessarily enacts when creating a government program. Rather, to be 
considered "expressly authorized," a statute must clearly authorize the incursion of 
obligations regardless of a lapse in appropriations. An example of such authority is the 
statute that permits the military to incur obligations on behalf of the United States in the 
absence of appropriations "for clothing, subsistence, forage, fuel, quarters, transportation, or 
medical and hospital supplies." 41 U.S.C. § 11(a). 



5. Obligations Necessarily Implied by Law 

Attorney General Civiletti's opinion also recognized instances where the specific 
terms of a statute imposing duties upon or vesting authority in federal officers and employees 
lead necessarily to an inference that such officers or employees are authorized to incur 
obligations in advance of appropriations. It is on this basis, for example, that Attorney 
General Civiletti concluded that agencies may incur obligations in order to conduct an 
orderly termination of the unauthorized activities of the agency. The Attorney General 
interpreted the Antideficiency Act to require nonexcepted functions to terminate. He then 
reasoned that because it would in fact be impossible to terminate functions without incurring 
any obligations at all and because a statute that imposes a duty impliedly confers the 
authority to fulfill that duty, the Antideficiency Act itself requires, by necessary implication, 
federal officers to incur obligations associated with an orderly shutdown. 

A second kind of necessarily implied authorization arises in situations where the 
government has a duty to continue an activity, but the administrative personnel necessary to 
carry forward that activity or function are funded through appropriations that have lapsed. 
The Civiletti opinion concluded that in such a case. Congress had impliedly authorized the 
staffing necessary to maintain the activity. The example he used was of the personnel in the 
Social Security Administration necessary to maintain the activity of disbursing social security 
benefits to eligible individuals. 



23 

6. The President's Core Constitutional Duties 

The Constitution itself vests certain duties and powers in each of the three branches. 
As to the executive branch, the President's constitutional powers include the pardon power, 
the commander in chief power, the foreign affairs powers, the power to make 
recommendations to Congress, and the power to demand opinions in writing of the heads of 
departments. Anomey General Civiletti did not take an unduly broad view of this power. 
For example, he did not reason that, because the Constitution vests "the executive Power" in 
the President and charges him to "take Care that the Laws be faithfully executed," the 
President is "authorized by law" to carr>' out all statutorily vested executive power. Attorney 
General Civiletti did, however, read the Antideficiency Act as leaving with the President the 
authority to make "those obligations necessarily incident to presidential initiatives undertaken 
within his constitutional powers." Obligations incurred m undertaking these functions are 
"authorized by law"; viz. . the Constitution. 

For all three branches, but especially for the executive branch, the specific functions 
that they are constiuitionally entitled to undertake will depend on the facts and circumstances 
surrounding the proposed activity. Whether a particular function is necessarily incident to 
the exercise of the President's foreign affairs power, for example, will depend upon the 
factual setting. Attorney General Civiletti recognized that where the President seeks to take 
action that is grounded in his constitutional authority, his assertion of authority is buttressed 
in those cases in which there are acts of Congress authorizing the activity asserted. He also 
observed that valid assertions of the President's constimtional authority are typically marked 
by both urgency and necessity. 



B. NONEXCEPTED FUNCTIONS 

It bears emphasizing that the Antideficiency Act mandates the termination of all 
functions other than the excepted functions set out above. As I have indicated, the functions 
that the Antideficiency Act allows to continue during an appropriations lapse are not 
determined by whether a particular activity is important or "essential" in some general sense. 
As a result, a number of functions that are, by any conception, important and essential must 
nevertheless terminate during a lapse in appropriations. In contrast, other functions that, if 
assessed in order of importance, would be unlikely to rank higher than many nonexcepted 
functions would nevertheless continue. 



C. THE DEBT CEILING 

Finally, as Director Rivlin outlined, the situation in which neither an appropriations 
bill nor a continuing resolution has been enacted is entirely different from the situation in 
which the failure to raise the debt ceiling deprives the Treasury of authority to issue more 
debt as defined in the statutory debt ceiling, 31 U.S.C. § 3101(b). Among those differences 



24 

is this: In the case of a lapse of appropriations. Art I, § 9 of the Constitution prevents the 
Treasury from honoring any unauthorized claim for payment against the United States and 
the Antideficiency Act prohibits affected agencies from entering into many contracts or 
obligations to pay. By contrast, reaching the debt ceiling does not deprive the departments 
of the government of the authority to employ workers and otherwise enter into obligations. 
Nor does it deprive the Treasury of statutory authority to honor claims for payment. The 
problem would be, rather, that the Treasury may on any given day lack the funds to honor 
all the authorized claims that are submitted to it. In an extreme case, the government might 
face a calamity unknown in its two-hundred year history, namely a default by the United 
States on its debt obligations. 



CONCLUSION 

The Antideficiency Act protects that central constitutional provision committing the 
power of the purse to Congress. It was drawn, however, with a specific context in mind. 
Unfortunately for present purposes, that context is not a general appropriations lapse. In 
1820, when the first version of the Antideficiency Act was enacted, and through its formative 
revisions. Congress had in mind the practice, apparently common at the time, of executive 
branch agencies obligating more funds than had been appropriated for authorized activities in 
an attempt to force Congress after the fact to appropriate more funds than Congress had 
wished or chosen to appropriate. 

Although the Antideficiency Act was not written with a general lapse in 
appropriations in mind, the act applies to that situation. Because its drafters did not consider 
the contingency of a general appropriations lapse, it is often difficult to apply to the many 
specific and often very complicated questions that attend a general appropriations lapse. For 
that reason, we rely heavily on the precedents of administrative construction and practice in 
issuing guidance on the application of the Antideficiency Act to a general appropriations 
lapse. Since the scope and contours of the Antideficiency Act are very often difficult to 
define, we are grateful for these hearings and welcome the opportunity to receive any 
thoughts or suggestions that members of the Committees might have. 



Chairman Kasich. Mr. Bellinger, under the definition of health 
and safety, would the Administration be able to continue funding 
of WIC, continue funding of veterans health care benefits under the 
definition of health and safety? 

Mr. Bellinger. It is not clear that that is the case, Mr. Chair- 
man. 

Chairman Kasich. It essentially would be the Administration's 
call as to whether they wanted to define WIC or Food Stamps or 
veterans health care benefits as a health and safety requirement, 
correct? 

Mr. Bellinger. That is not entirely correct, because the emer- 
gency exception to the Anti-Beficiency Act provides that the Gov- 
ernment may employ personal services exceeding that authorized 
by law in emergencies involving the safety of human life or the pro- 
tection of property, and the actual WIC payments may not involve 
the employment of personal services. These are really employees 
that 



25 

Chairman Kasich. No, no, no. You are saying there is confusion, 
isn't that correct? You are saying you do not really know, it is a 
gray area, correct? 

Mr. Bellinger. I am not 

Chairman Kasich. I don't think you need to consult counsel. 

Mr. Bellinger. My colleague Chris Schroeder wants me to make 
precisely clear to you what is not allowed. We cannot pay the WIC 
funds for women, infants and children in the absence of an appro- 
priation. The emergency exceptions in health and safety is an ex- 
ception that pertains to employees and personal services, not for 
the payment of funds which have not been appropriated. So the an- 
swer to the question is no, we cannot send out funds for women, 
infants and children nutrition programs in the absence of an appro- 
priation. 

Chairman Kasich. Then how do you say that you can operate the 
air traffic control system? 

Mr. Bellinger. Because those employees may come to work be- 
cause we may obligate to pay for their services because they 
are 

Chairman Kasich. But under the definition of health and safety, 
correct? 

Mr. Bellinger. Under the definition that allows you to employ 
personal services in cases involving health and safety. There is not 
a provision of the anti-deficiency law — and I think this is where we 
are missing each other — there is not a provision of the anti-defi- 
ciency law that allows you generally to expend funds where there 
is a health and safety emergency. In fact, we cannot spend any 
funds. We cannot actually pay the air traffic controllers. 

What you can do is to promise to pay the air traffic controllers 
if and when there is eventually an appropriation. You can obligate 
to pay them. So there are no funds to pay air traffic controllers, 
there would be no funds to pay prison guards, there would be no 
funds to pay the money for the Women, Infants and Children Pro- 
gram under this, but there would be the ability to enter into an ob- 
ligation to pay the employees in the future. 

Chairman Kasich. Let me ask the Birector, you are in the proc- 
ess now of trying to put together the plans for how the Government 
would operate without a continuing resolution, and you are now 
asking the various departments, agencies and bureaus to send you 
a plan. How are you having that plan constructed, under what defi- 
nition, and where are we at this point in time? 

Br. RiVLlN. We circulated to the agencies Assistant Attorney 
General Bellinger's opinion, and previous legal opinions, so that 
they would have all the guidance they needed. We asked the 
agencied, in light of those legal opinions, to provide us with details 
on what they would do in the event of a shutdown. We have almost 
all of those plans, as I indicated earlier. 

Our only function is to review the plans for consistency. There 
are some kinds of functions that occur in several different agencies, 
and we're looking at the plans to see if those functions are being 
treated in a consistent manner across the Government — for exam- 
ple, legal services or the inspectors general or other kinds of oper- 
ations that occur in multiple agencies. In cases where they seem 
to be treated inconsistently, we were trying to arrive at a consist- 



26 

ent definition of what would happen. That process is ongoing, but 
is nearly complete. 

Chairman Kasich. What can you tell us essentially is the outhne 
of what we would see? 

Dr. RiVLlN. We would see a government that would maintain es- 
sential services — such as veterans medical care, the actual military 
services of those in uniform, air traffic controllers, and other types 
of essential services that we have referred to — but not very much 
else. Much of the rest of the Government would be closed down. 

Chairman Kasich. Mr. Bellinger, under your definition, could we 
continue to deliver veterans health benefits under the narrow defi- 
nition that you have? 

Mr. Bellinger. No, not in the absence of an appropriation. 

Chairman KASICH. Well, why is the Birector sa3dng that they 
would do that? 

Mr. Bellinger. Well, those benefits that are part of a continuing 
appropriation 

Br. RiVLlN. No, no. I am talking about the actual Veterans Ad- 
ministration employees who run acute care hospitals. We believe 
we could continue to incur the obligations for those kinds of serv- 
ices, but those doctors and orderlies would not be paid. 

Chairman Kasich. But you would continue to deliver the serv- 
ices, which is expending money, correct? 

Br. RiVLiN. We would not be spending money. We would be deliv- 
ering the services. The employees would be volunteers, so to speak, 
who would be working for the Government. 

Chairman Kasich. I understand that. 

Br. RiVLlN. We would not be spending money for those services, 
but we wouldn't leave people to die in the hospital. 

Chairman Kasich. Exactly right, and that is why I want to pur- 
sue this a little further, because I am confused about what you are 
saying. On the one hand, Mr. Bellinger says you cannot pay WIC, 
you cannot give people WIC benefits, but we can deliver — I would 
maintain that this issue of what is covered under the definition of 
health and safety would permit a significant portion of the Govern- 
ment to operate. I think you have to be consistent on this. 

In other words, if you are in a veterans hospital and you are de- 
livering services, that means you have to expend money for medi- 
cine. 

Br. RiVLiN. No, we would use up the existing stocks, but we 
would not buy more medicine. I think the very clear distinction 
here — and Mr. Bellinger can check if I am right, I am not a law- 
yer — is between continuing to incur obligations for services that are 
essential to health and safety which is OK, and actually writing 
checks, which is the case in operating WIC or Food Stamps, and 
that is not OK. 

Chairman Kasich. You wanted to comment? 

Mr. Bellinger. Yes; I think that the critical distinction is that 
you simply may not pay out money that has not been appropriated. 
So that if something requires the actual payment of money like the 
sending of funds for infant care, you cannot send that out. What 
you have to do is you have to rely upon, in providing services, that 
people will come forward and be willing to provide those services 
under an assumption that they will be paid later, and that will give 



27 

us some ability in an orderly fashion to run parts of the Govern- 
ment, but not to actually spend the money. So the exception doesn't 
help, if there are no funds on which you can write a check. 

Chairman Kasich. One other area and that is the area of medi- 
care and Social Security. Under a failure to reach an agreement on 
a CR, what would the status be of entitlement programs like Social 
Security and medicare? Would those checks be continued to be 
sent? 

Dr. RiVLlN. In cases where there is a permanent appropriation, 
checks would continue to be sent. Social Security and Medicare 
Part A fall into that category, but Part B does not. 

Chairman Kasich. Thank you very much. 

Mr. Sabo? 

Mr. Sabo. I will yield to Mr. Orton. I think he is the most senior 
member on our side, sir. 

Mr. Orton. I was not prepared quite yet to ask a question. Let 
me look very quickly here. Have you done a detailed analysis as 
to the cost that would be incurred if we did not pass a continuing 
resolution? Would it cost us any more to continue to operate and 
then pass the appropriations later and pay those services that we 
had continued? Is there an excess cost to the Government in failing 
to act? 

Dr. RiVLiN. There is certainly some excess cost. The cost of actu- 
ally shutting down facilities can be estimated. We have not done 
a new estimate of that, but there was as GAO estimate in 1990. 
But the real question is: What do you count as cost? 

If furloughed employees are eventually paid, then they are being 
paid for work they did not do. We would urge that they be paid, 
however, because they are counting on that income. But if they 
were paid for days they did not work, the Government incurs the 
cost of paying people for not working, and the work they did not 
do, of course, would have to be done later by them and other people 
and would cause an excess burden. 

Mr. Orton. I think you have covered fairly adequately from my 
point of view the difference between paying out checks in benefits 
to individuals such as welfare or WIC or whatever, and hiring em- 
ployees or paying for services. You can incur a continuing obliga- 
tion for services performed by individuals. You cannot issue a pay- 
ment either to acquire additional product or to make payments to 
beneficiaries. I think that is clear. 

One issue that I think we have not yet touched on is the next 
step. Assuming that we get beyond the continuing resolution or the 
appropriations bills, the next step is the debt limit, this issue of 
playing chicken that Mr. Sabo mentioned in his opening statement. 

If in fact the debt limit is attached to a series of statutory 
changes which the President cannot and would not accept and ve- 
toes and we are forced to go beyond the amount of the debt which 
we are authorized to incur and we fail to pay those obligations, you 
indicated, Dr. Rivlin, in your testimony the impact on domestic and 
foreign capital markets and financial markets. Have you done a 
cost analysis as to what it would cost the Government in that event 
as far as increased costs of borrowing, any additional costs that we 
would incur if we failed to increase the debt limit in a timely man- 
ner? 



28 

Dr. RiVLlN. We have not done a cost analysis, because the United 
States Government has nevrr defaulted on its obligations and we 
hope it never will. 

But the most obvious costs would be disruption of financial mar- 
kets and loss of confidence in United States Government obliga- 
tions. I do not think we can gauge the extent to which that would 
happen, because we hope it never happens. But certainly, if there 
were a default, people around the world who buy U.S. Government 
bonds would be much more cautious about doing so. They would 
demand higher interest rates on their money, and taxpayers would 
be paying higher interest rates for a very long time to come. 

Mr. Orton. My final question would be if either of you could — 
in fact, I think this is an area, since it has not happened, there 
have been people speculating as to what specifically would occur. 
Could either of you describe in detail the technical impact of a non- 
renewable of the debt ceiling, what we would expect to see, what 
would occur specifically, and what would be required of the Govern- 
ment at that point? Would it actually put us into technical bank- 
ruptcy and default on our obligations? What technically would 
occur if we failed to increase the debt limit? 

Dr. RiVLiN. Well, the Secretary of the Treasury would be faced 
with the problem of not having enough cash to pay major obliga- 
tions that were coming due, such as Social Security payments, vet- 
erans compensation, and interest on the debt. There are some very 
big payments of that nature that are due in November. 

If we failed to pay the interest on the debt, or even seriously con- 
templating the possibility, we could expect to see a major disrup- 
tion in financial markets, not just the markets for for U.S. Govern- 
ment bonds, but for financial markets around the world, because 
they are interrelated. 

Obviously, this is just speculation, but that is the nature of 

Mr. Orton. But the Treasury Department would actually be in 
default? 

Dr. RiVLlN. Yes, it would actually be in default. You need cash 
to meet those obligations, and if we were not able to borrow more, 
we would run out of cash. 

Mr. Orton. Thank you, Mr. Chairman. 

Chairman Kasich. Let me just ask a question. Director, would 
the President sign a short-term debt extension separate from any- 
thing else? 

Dr. RiVLIN. The President would very much like to have a debt 
extension that was not attached to anything else. We believe the 
sensible thing to do is to raise the debt ceiling now, and to detach 
that decision from the budget decisions. 

Chairman Kasich. At the end of the day, would the President 
sign a short-term increase in the debt ceiling while we worked our 
way through these disagreements in order to avoid a default? 

Dr. RiVLiN. The President would certainly do that. We would 
have to talk about the length of the term, but if it were separate 
from everything else, that would be a sensible thing to do. 

Chairman Kasich. Thank you. 

Let me ask Mr. Dellinger, just to put this in perspective. If you 
do this whole funding program as a pie, assuming that the debt 
represents about a third of the pie, entitlements are another third 



29 

of the pie, and defense discretionary and non-defense discretionary 
is another third of the pie, the debt would continue to be serviced 
if we failed to get a CR, is that correct? The debt would continue 
to be paid? 

Dr. RiVLiN. Yes, interest on the debt would be paid. 

Chairman Kasich. Second, nonappropriated entitlements would 
continue to be paid, correct? 

Dr. RiVLlN. Yes, if there is a permanent appropriation — as is the 
case for Social Security. 

Chairman Kasich. So about two-thirds of our budget would be 
operating, if you take the debt and the nonappropriated entitle- 
ment programs, and then half of the discretionary programs would 
be funded because they are defense. 

Dr. RiVLlN. Defense is not automatically funded, but a substan- 
tial portion of defense activities would continue, although they 
would continue without payment. 

Chairman Kasich. So when we talk about this close-down, it is 
about a sixth of the Government that we are really talking about, 
is that correct? 

Dr. RiVLlN. No, I would have to work through the numbers, but 
it is larger than that, certainly in terms of numbers of employees 
and 

Chairman Kasich. But in terms of non-defense discretionary 
makes up about a sixth, when you put it into the context of — I have 
not run the math, but you are going to pay your debt, you are 
going to cover your entitlement programs and they are still going 
to be funded 

Dr. RiVLlN. Only some of the entitlement programs would still be 
funded, Mr. Chairman. 

Chairman Kasich. But the bulk of them are not appropriated en- 
titlement programs. Social Security and medicare and medicaid, 
they are the biggest. 

Dr. RiVLlN. Wait a minute. 

Chairman Kasich. No, medicare and Social Security. 

Dr. RiVLlN. Medicare Part A and Social Security would not be af- 
fected. 

Chairman KASICH. I am just trying to get it in perspective so 
people can see what we are dealing with. 

Dr. RiVLlN. Part B and medicaid would be affected, depending on 
the length of the crisis. There is some forward-funding for medic- 
aid. 

Chairman KASICH. Part B would be up to whether physicians 
wanted to continue to treat their patients. 

Dr. RiVLlN. Yes, that is right. Funding for some of the others 
would depend on whether the States wanted to advance money to 
pay for their portion of the programs. 

Chairman KASICH. Thank you, doctor. I appreciate your com- 
ments, by the way, on the short-term debt. 

Senator Domenici is recognized. 

Chairman DOMENICI. I am going to be very brief, because many 
of you have been here for a while and I could not get here because 
I have been attending a conference on the Interior Appropriations 
bill which affects my State very, very much. 



30 

But let me make a couple of observations. First, Dr. Rivlin, I got 
in here just in time for you to discuss the effect of a so-called train 
wreck whereby we did not increase the debt limit and you were 
talking about its impact on the markets, including Treasury bills. 

I want to give you another scenario which I am growing more 
and more convinced is just as apt to be the case as yours. I believe 
that, as a matter of fact, the market and interest rates on United 
States Treasury bills is anxiously anticipating the passage of a bal- 
anced budget or at least that we dramatically reduce entitlement 
growth. I believe if we give in to the Administration in the bal- 
anced budget debate and do not accomplish significant reductions 
in the mandatory entitlement programs such as those that are in 
the current Reconciliation instructions to the various committees, 
I believe the impact on Treasury bills will be worse than if we have 
a 30- or 40-day hiatus at which time about $30 billion worth of 
bonds would be in jeopardy, and that is about all, $31 or $32 billion 
in the first 30 to 35 days. 

Let me put it more simply. I believe the market may sit by and 
not react badly for 30 to 40 days in anticipation that we will do 
what is right towards the balanced budget. Then if we do not, I be- 
lieve the impact on America's cost of T bills will be greater in the 
future than the risk we take of something happening for 30 to 40 
days. 

Now, I did not dream this up. I went out and talked to a bunch 
of people that work in this area. I had 10 of them last night in a 
room and they actually said we are not at all sure that there will 
be a black mark on T bills, if in fact we do not do anything for a 
while and we are certain it will not be as black and as bleak on 
the costs of T bills in the future as it will be if we do not solve the 
ever-growing problem of mandatory expenditures. 

Now, I do not want you to comment on that yet, but you might 
in a minute. My assessment which I would have given in my open- 
ing remarks in terms of what part of government will be closed 
down is as follows: Defense is 16 percent of the budget, and I un- 
derstand that most of it would remain operative. Mandatory pro- 
grams, that is entitlements that are not subject to appropriations, 
Mr. Chairman, are 67 percent of the budget. That means that there 
is really only 17 percent that would be subject to closure and some 
of that would not even be closed because of the emergency provi- 
sions in the various current laws. 

Now, I am not saying this because I want to close government 
down. What I want is to get a balanced budget and I want to get 
that in a way that is real, that is not based on optimistic economic 
assumptions, but, rather, upon the Congressional Budget Office's 
assessments. 

I would close by saying to you, Dr. Rivlin, there is much talk on 
the part of the President of let us not have this train wreck, let 
us get a balanced budget. But I want to say to the members of the 
House and Senate, that is not easy because of the way the Presi- 
dent's so-called balanced budget is structured, and let me just give 
you three points. 

The President's plan increases non-defense discretionary pro- 
grams over 7 years by close to $300 billion more than our balanced 
budget resolution, not $100 billion, not $50 billion, not $200 billion, 



31 

but $300 billion. Now, that is a lot of money. If you negotiate a 
budget, you start with a $300 billion increase in discretionary non- 
defense spending in the President's budget. 

Second, $475 billion of the President's deficit reduction is made 
up of economic and technical assumptions that are better than 
those in our budget resolution. Of that amount, technical assump- 
tions on medicare and medicaid spending are more optimistic by a 
rather substantial amount, about $120 billion. All that allegedly 
gets the President a balanced budget and thus reduces interest ex- 
penses on the debt. 

Now, that is very interesting, because the Congressional Budget 
Office says the President's plan does not balance budget. So I do 
not want to leave this hearing with any notion that it is the Con- 
gress' fault that we are going to end up in perhaps a train wreck, 
perhaps a meltdown posture. I mean it is as much the President's 
fault, if not more, than ours. He has to come our way substantially 
to get anything done. 

Having said that, I thank both of you for coming and for enlight- 
ening us, and I thank all the members of the joint committee for 
being here. I thank you. Representative Kasich, for presiding. You 
almost became a Senator today. 

Chairman Kasich. I wanted to keep my good job. 

Doctor, if you want to comment, pease proceed. 

Dr. RiVLiN. Yes, I do. 

First, the President wants a balanced budget. He also wants to 
avoid closing down the Government, and we want very much to 
work with the Members of Congress on that. 

As to speculation on what might happen if we do default on the 
obligations of the United States Government, I hope we never have 
to find out. Senator, and I know you hope so, too. I cannot imagine 
who these people are who think there would be no effect on the fi- 
nancial markets, especially the financial markets for government 
securities. I think they are wrong, and I hope we do not have to 
test the hypothesis. 

I would agree with you that the markets and the Nation are 
counting on us to get to a balanced budget, and if we fail to do 
that, it will have deleterious consequences. I do not think we can 
say whether T bills will go up more than they would have under 
other speculation, but both scenarios are undesirable. We should 
get to a balanced budget, but we should do it in a way that allows 
for a free, frank and open debate and decisionmaking by the con- 
stitutional processes, without an artificial crisis like the United 
States Government defaulting on its obligations. 

Chairman Kasich. Since we are over here in this building, I am 
going to turn the gavel over to Senator Domenici until he has got 
to leave, and he is now the Chairman. 

Chairman Domenici. Thank you very much. 

I think now we should go to a Democratic Senator. Who was here 
first under our rule? Senator Simon. 

Senator Simon. Thank you, Mr. Chairman. 

Let me just say a word of observation on a question. I hope we 
can get these things resolved. I have heard now in the last couple 
of weeks on the floor of the Senate Senator Byrd say we have had 
excessive partisanship. I have heard Senator Stevens of Alaska say 



32 

we have had excessive partisanship. I think we have to get to- 
gether and work this thing out. 

I do not know what the cost of shutting government down is, 
whether it is 17 percent or 15 percent or 19 percent. But I know 
it is unnecessary and that we ought to be getting things worked 
out. I hope we can pass at least a temporary debt extension or a 
small debt extension. 

But the reality is the confidence in our government in part comes 
from what we do. The day after the Senate defeated the balanced 
budget amendment by one vote, the dollar plummeted in the inter- 
national markets to below 80. Now, since both Republicans and 
Democrats are on line for a balanced budget, we have seen the dol- 
lar move up to 104 yen. But things can fall apart very, very quickly 
and I hope we do the right thing by our government, and frankly 
for both parties. 

Part of the reason for cynicism towards government is the public 
sees excessive partisanship, and do not see us working together 
when we should be working together, and I hope we can. Those are 
just some observations. 

I thank you, Mr. Chairman. 

Chairman DOMENICI. Thank you. Senator Simon. 

Who is next on the House side? Mr. Shays. 

Mr. Shays. Thank you, Senator. 

I thank both of you for testifying, and I was trying to think as 
I was going through what you were saying how I formulate a ques- 
tion, and I realize I first need to say to you how strongly I feel 
about how important it is and how important I think it is for con- 
fidence in the markets that this Congress, Republicans and Demo- 
crats, vote to balance the budget in 7 years. 

Since 1980, under a Republican President and now a Democratic 
President, the National debt has gone from $800 billion to nearly 
$5,000 billion or $5 trillion. That happened because Members of 
Congress voted for more spending and voted to increase the Na- 
tional debt ceiling. 

I feel so strongly about this bill. If Newt Gingrich got down on 
bended knee and asked me to vote for the debt ceiling, I would tell 
him no way. I will not vote to increase the debt ceiling until this 
President weighs in on a balanced budget amendment in 7 years. 
Now then how we spend in that 7 years to me needs to be worked 
out between the White House and Congress. 

I will vote for a continuing resolution, but under no cir- 
cumstance, even at risk of recall, would I vote to increase the debt 
ceiling. One of the points that I think needs to be made is that our 
leadership cannot necessarily deliver votes to increase the debt ceil- 
ing, because we are not going to be with them if that is what they 
intend to do. 

Now, my question to you is do you not believe that people want 
us to balance the budget and get our financial house in order? Do 
you not think that is something that matters a lot to them? 

Dr. RiVLlN. Yes, I do. I believe that very strongly. I do not think 
it is the only thing that matters to people, however. I think they 
want to see it done in a moderate way, without financing a large 
tax cut at the same time. We want to balance the budget. We want 
to do it over a slightly longer time period than Congress, and we 



33 

want to do it with more moderate cuts in spending programs, and 
without a huge tax cut. Those are the differences between the 
President and Congress. There will have to be a compromise, but 
I believe people want the budget balanced. The President wants to 
balance the budget, as does Congress. We just have to figure out 
how to do it. 

Mr. Shays. I agree that theoretically the President does, but in 
reality he does not. He came in with a 10-year budget that the 
Congressional Budget Office says is never in balance, that in the 
10th year it is over $200 billion. Now you all presented that 10- 
year budget, but you all scored your own budget. So scored by 
CBO, his budget is not balanced. How can I believe that he wants 
to balance the budget, when he comes in with a plan that CBO 
says never is balanced? 

Dr. RiVLiN. I have great respect for CBO. I have a historic con- 
nection with the institution. But, at the moment, I do not think 
their economic assumptions are necessarily better than ours. There 
is some difference of opinion about the baseline. The only things we 
are arguing about are the rate of grovvi;h in the economy and the 
rate of medical care inflation. In both areas, CBO is marginally 
more pessimistic than we are. Over time 

Mr. Shays. Dr. Rivlin, I was here in 1990 when 0MB scored the 
budget and it was as rosy scenario. I was here on the floor of the 
House 

Dr. Rivlin. I was not at 0MB in 1990. 

Mr. Shays. I was here when the President came before Congress 
and said let us use honest numbers, let us use CBO's numbers, and 
now I am seeing him say that there is a 10-year plan presented by 
you and scored by you, and to me it is a rosy scenario all over 
again. It is 1990 all over again and that is why he has no credibil- 
ity with us when you say he wants to balance the budget. 

Dr. Rivlin. We are not offering a rosy scenario. We are talking 
about 2.5 percent growth in the gross domestic product, adjusted 
for inflation. Senator Dole recently made a speech in which he cas- 
tigated the Administration for being so conservative on growth, 
saying that he believed the economy would grow much faster than 
2.5 percent. Well, we hope it will grow faster than that, but we 
think 2.5 percent is an average estimate. It is what commercial 
forecasters think, and it is certainly not a rosy scenario. 

Mr. Shays. I am only one Member of Congress. I will vote for 
continuing resolutions that spend something like 60 to 70 percent 
of the full cost. If the President vetoes budgets that cut 10 percent, 
we are going to give him I hope continuing resolutions that give 
him only 80 percent. I believe we are going to put the debt ceiling 
on a continuing resolution, as we should. If a vote comes to in- 
crease the debt ceiling, I am not going to be there as one member. 

Dr. Rivlin. There are strong feelings on this issue, which is why 
we very much hope that the substantive issues can be settled be- 
fore we get to the debt ceiling problem. 

Mr. Shays. I yield back. 

Chairman DOMENICI. I am told that Representative Pomeroy 
would be next. 

Mr. Pomeroy. Thank you, Mr. Chairman. 



34 

Chairman Domenici. Mr. Pomeroy, I wonder if you would yield 
me 30 seconds. 

Mr. Pomeroy. Of course, Mr. Chairman. 

Chairman DOMENICI. Let me make sure that in my exchange 
with reference to the value of a balanced budget for America's ^- 
ture debt and T bill interest rates, the Senator from New Mexico 
was not recommending a default on our T bills. 

Dr. RiVLiN. I am glad to hear that. 

Chairman DOMENICI. And I heard you say that I was and maybe 
I did. I do not think I did, but I 

Dr. RiVLiN. No, you did not hear me say that. We will correct the 
record on both scores. I know that you would very much like to 
avoid a default. 

Chairman DOMENICI. On the other hand, I wanted to make it 
very, very clear that the attention required to get our balanced 
budget in 7 years is going to scare a lot of people, including the 
street, but they have to understand if we get it done, it is very, 
very good for America and for interest we are going to be paying 
on those T bills. 

Thank you very much. Representative Pomeroy. 

Mr. Pomeroy. You are very welcome. 

I would find it a profound embarrassment for the institution of 
Congress to allow a situation to occur that would involve the Unit- 
ed States of America defaulting on its debt. I am very surprised to 
hear any member of this committee, particularly one I respect as 
much as Congressman Shays, indicate that we want to play around 
with continuing resolutions on appropriations, but drawing a line 
in the sand, take my marbles and go home, it is our plan, or no- 
vote on debt ceiling. 

To me, this is exactly the wrong place to do it. I think we ought 
to have a unanimous agreement that the United States of America 
pays its bills and never defaults on an obligation as a matter of 
principle, but also as a matter of cost to taxpayers. Because when 
our debt becomes as risky as Third World debt and the interest 
rates charged because the United States of America can no longer 
be trusted implicitly to pay its bills, it becomes an extra cost to tax- 
payers, something that they feel right in their pocketbooks. 

So it seems to me. Director Rivlin, that if we are going to want 
to pressure one side versus another to negotiate, that is done on 
the appropriations side, not on the debt limit side. I am a relatively 
new member of Congress, but I am aware that we often find our- 
selves as a country where Congress is controlled by one party, the 
White House by another. What has been the history on debt limit 
votes, even when there are very fundamental differences in the eco- 
nomic policy under debate? How have past Congresses worked with 
the Republican White House, for example? 

Dr. Rivlin. My briefing book is full of letters and exchanges be- 
tween past Secretaries of the Treasury, Republican and Democrat, 
and chairmen of the Finance Committee or Ways and Means Com- 
mittee on this subject. They have always worked out their dif- 
ferences. 

The United States Government has never defaulted on its obliga- 
tions, and neither Congress nor the Administration has ever con- 



35 

templated this as a realistic possibility. I hope it will stay that 
way. 

Mr. POMEROY. I yield back. That concludes my questions, Mr. 
Chairman. 

Senator Frist [presiding]. Thank you. 

Dr. Rivlin, we have already mentioned that medicaid is an appro- 
priated entitlement and there is an advance appropriation for med- 
icaid funds through calendar year 1995. Does that mean that a 
funding gap in this calendar year would not affect the medicaid 
payments to States? 

Dr. Rivlin. That is correct. 

Senator Frist. And if it were to extend beyond the end of this 
year, what would the effect be? 

Dr. Rivlin. If it extended into 1996, the Federal Government 
would not be paying its matching contribution to the States and 
the States would be left to carry the program on their own. If that 
happened, States would get interest on the funds retrospectively. 

Mr. Sabo. Would the Senator yield just on a technical questions 
on medicaid? 

Senator Frist. Yes, please. 

Mr. Sabo. I am just curious about medicaid, because it is a reim- 
bursement formula. My understanding is the bulk of the Federal 
reimbursements in October, November and December are for ex- 
penditures that occurred in the previous fiscal year. So under med- 
icaid, we would not be making those reimbursements, even though 
they were for expenditures that occurred in the previous fiscal 
year? 

Dr. Rivlin. That is right, but the reason that we would be paying 
in calendar year 1995 is that there is a one-quarter advance appro- 
priation already in place for medicaid. 

Mr. Sabo. There is in place 

Dr. Rivlin. Yes, through December 31. 

Mr. Sabo. OK. 

Senator Frist. Dr. Rivlin, again I want to go back to the CBO 
numbers one more time because, as you mentioned, as first Direc- 
tor of the CBO, you said that there are honest differences in those 
projections. But are you not concerned that the CBO does predict 
that in that period of 2002 and 2003 that the President's budget, 
using those CBO numbers, is still $200 billion? 

Dr. Rivlin. I would be concerned if I thought they were right. 
But I see no reason to think their estimates are better than ours. 
Both estimates are within the same range on the important eco- 
nomic variables. 

Senator Frist. So the implication is that it is not important to 
start with a common set of numbers, but the growth figure, as long 
as we agree on the growth figure, is that what you are sa5dng? 

Dr. Rivlin. No, I am saying that when we get to a negotiation 
on the final budget, and we will, we will have to agree on a com- 
mon baseline that should be the starting point. 

But when we sit down for that negotiation I think there will 
have to be some kind of compromise on the baseline, and I do not 
think the CBO numbers are more plausible than ours. I think ours 
are more plausible. 



36 

Senator Frist. Last, Dr. Rivlin, for what period of time and what 
amount would the Administration feel it appropriate to have the 
debt extended? 

Dr. Rivlin. We have stated that we would prefer that Congress 
raise the debt ceiling to $5.5 trillion, the number estimated in Con- 
gress' own budget resolution. We think that is an appropriate level, 
and it would extend the debt ceiling into 1997. 

Senator Frist. And do you think it is important to have a bal- 
anced budget plan in place before we raise that debt limit once 
again? 

Dr. Rivlin. No, I think the debt limit should simply be raised, 
and then we should resolve our differences over the budget. I be- 
lieve we both want to balance the budget and that we can reach 
a compromise on that, but the budget debate should not be carried 
out in a crisis atmosphere with the debt limit issue hanging over 
us. 

Senator FRIST. Thank you. 

We will turn now to Senator Conrad, and then the Chair back 
to Congressman Kasich. 

Senator Conrad. I thank the Chair. 

I want to greet Mr. Dellinger and Alice Rivlin, as well, to this 
unusual hearing. In your estimation, would it be an overstatement 
to say that if the United States defaulted on its debt, that that 
would be a disaster in the financial markets? 

Dr. Rivlin. I think it would be a disaster if we defaulted on our 
debt. What exactly would happen to the market, we do not know, 
because it has never happened and I just hope we do not find out. 
But I think it would have very serious consequences in the finan- 
cial markets. 

Senator CoNRAD. If we were in a circumstance in which we were 
approaching default, would the Treasury dis-invest in the trust 
funds? As I understand it, that has been done in the past. Would 
that be an option open to Treasury? 

Dr. Rivlin. It is an option, it is a very unattractive one and I 
cannot say what the Treasury would do. 

Senator Conrad. Would you explain precisely how dis-investing 
in the trust funds would work? What has happened in the past 
when they dis-invested? 

Dr. Rivlin. Well, disinvestment in the trust funds can take the 
form of the Treasury not investing in government bonds with the 
money coming into the Social Security Trust Fund. In a more ex- 
treme case, the Treasury would sell government bonds. This is 
something that nobody wants to do, because it would undermine 
confidence in Social Security. While such a move would not nec- 
essarily have any long-run consequences once we got back on track, 
it is something that we certainly do not want to do. 

Senator CoNRAD. Am I correct that that was done in 1985? 

Dr. Rivlin. Yes. 

Mr. Dellinger. In September and November of 1985, the Treas- 
ury was confronted with a failure of Congress to enact an increase 
in the debt ceiling and anticipated not having enough in its cash 
account to pay the benefits in a timely manner. The Treasury sus- 
pended the investment of contributions to the trust fund until 



37 

there was room under the debt ceiUng to invest those contributions 
in U.S. debt securities. 

The Office of Legal Counsel did not issue a public opinion at the 
time on the Treasury's action, but the Comptroller General opined 
that the Treasury did not act unreasonably under the cir- 
cumstances in doing that. That is, as far as we know, our only 
prior experience with that. 

Senator CONRAD. How long did that last? 

Mr. Bellinger. I am not certain. But it was a fairly short period 
of time in the September-November period of 1985. 

Senator Conrad. What other options are open to Treasury if 
there is a failure to pass the debt limit, in order to avoid a default? 
Other than disinvestment in the trust funds, is there any other op- 
tion open to the Treasury in order to avoid a default? 

Dr. RiVLlN. Well, cash management (i.e., not paying bills) is cer- 
tainly one option. But that is a difficult and undesirable thing to 
do, and costly in the long run. 

Senator Conrad. In terms of cash management, have you done 
an analysis of how long that would allow you to avoid default in 
the absence of Congress taking the steps necessary to extend the 
debt limit? 

Dr. RiVLlN. No, we have not. I would suggest that these ques- 
tions are more appropriately addressed to the Treasury. 

Senator CONRAD. I thank the Chair. 

Chairman Kasich. Thank you, Senator. I turn the chairmanship 
back to the Senator. 

Senator FRIST [presiding]. The gentleman from New Jersey, Mr. 
Franks, is recognized. 

Mr. Franks. Thank you, Mr. Chairman. 

Dr. Rivlin, this has been a very interesting exchange. I want to 
follow up on a few points raised by some prior members' opportuni- 
ties. 

Mr. Pomeroy spoke with great passion about the need to honor 
our obligations, to pay our debts. And I think most of us certainly 
concur that we need to live up to our obligations, both for our 
standing in the world economy and to make certain that we are 
practicing the values we try to teach our children, that we are 
going to be good to our word. 

But I think there is another overriding consideration. And it was 
spoken to by Mr. Shays, which is that we have to recognize that 
what we have before us is both a crisis and an opportunity. And 
the opportunity that we confront is to jointly make decisions, the 
Administration and the Congress, to end this debt financing. 

Certainly we have to recognize we have accumulated this debt. 
People are relying on us to meet our obligations to pay it out. But 
the historic opportunity, I think, from people watching this kind of 
hearing, is the answer is simple: Stop the deficit and debt financing 
upon which this Government has come to rely for so very long. 

Moreover, Dr. Rivlin, if the two parties are going to get together, 
the White House and the Congress — we spoke about this briefly at 
a House budget hearing — we have to come with goodwill on both 
sides and a willingness to understand each other's competing prior- 
ities, although I believe, after hearing your testimony today, that 
we share a good number of priorities in common. But how we will 



38 

express that to each other, I suspect, becomes particularly impor- 
tant. 

And it is on that basis, I think, that we have to look again at 
the President, who said to us in 1993: You know, people have, for 
various partisan purposes, Republicans and Democrats alike, have 
used different sets of numbers to spin the tail in such a way as to 
avoid blame or take credit, whatever the circumstances may have 
been. And the Congress looked to the President during that budget 
address. And the President pointed at my party, and he said: 
That's why I think we need to rely on one arbiter of all these com- 
peting scenarios, and that needs to be the CBO. And he spoke to 
the CBO's historic record of being somewhat more conservative and 
reliable than other folks who have been in the business of making 
these projections. 

So I think it is very troubling to many of us that the President 
who just 2 years ago said that was the entity, so no one can be able 
to hide behind favorable scenarios and nobody can try to escape 
blame for decisions that rightfully are ours, let us all sing from the 
same song sheet, at least as it relates to the calculation of the po- 
tential impact of these various scenarios. 

You later said at that House hearing a month or so ago that 
these are tiny, tiny differences in percentile. But as we all know, 
spread over an economy as vast as this one, spread over a govern- 
ment that spends $1.5 trillion a year, it amounts to hundreds of 
billions of dollars in differences in terms of what the ultimate re- 
sults of some of these policies are. 

You said to us: Well, all we need to do is sit down, and we can 
work those differing assumptions out. Can you share with us this 
morning some further insight as to how we can work these various 
differences concerning assumptions out in such a way that we can 
reach a breakthrough in this process? 

Dr. RiVLlN. I do not think I have anything to add to what I said 
that day or what I said earlier this morning. Congressman. The dif- 
ferences are small. And when we get to the negotiating table, I be- 
lieve we will be able to agree on a common baseline, and it will be 
very useful to do so. But I do not think that arguing about what 
the baseline might be in advance of a negotiation is very fruitful. 

We do have major differences in priorities. When we get all of 
the Congressional input, the 13 appropriations bills and the rec- 
onciliation bill, we will have to sit down and see where a com- 
promise lies. And part of that discussion will be: Can we first agree 
on a common baseline? 

Mr. Franks. Mr. Chairman, just one follow-up, if I may. Dr. 
Rivlin, I am a relatively junior member of this institution. I would 
not profess to be mindful of all of the various negotiations that are 
even in tentative states going on at this point in time. Is anyone 
talking about this issue today? Is anyone from the Administration 
talking to anybody in the leadership of the Congress about estab- 
lishing that common set of assumptions, that common baseline, as 
you call it in Washington jargon? 

Dr. Rivlin. There have been some staff-level discussions. But 
until we have the Congressional priorities spelled out in actual 
bills, we believe it is premature to start negotiating on where we 
would come out. 



39 

Mr. Kasich. Mr. Chairman, we are down to the 10-minute bell. 
And there are two Senators. I do not know how long we are going 
to be over there, I say to the gentleman from Arizona. If you want 
to take your time now and ask maybe a question or two, we could 
probably get over there in 8 minutes. But we do not have much 
time left. 

Mr. Shadegg. I am ready to go. 

Senator Frist. Mr. Shadegg, and then we will come back to Sen- 
ator Snowe. 

Mr. Shadegg. Dr. Rivlin, thank you very much for being with us. 
I have got to tell you that you just a moment ago sent a chill down 
my back. Mr. Franks said that he is a relative junior member. I 
am a junior member. I am a member of the freshman class. 

What I am going to tell you, I think, expresses, however, the sen- 
timent of many freshman. You said just a moment ago, boldly, di- 
rectly and flatly, no, you do not think it is important to have an 
agreement on a balanced budget plan before we raise the debt 
limit. A part of these hearings is for exchange of information in 
both directions. 

I will tell you that I feel as Mr. Shays does. I believe it is abso- 
lutely critical that we have a plan to balance the budget in 7 years 
before we raise the debt limit. And that is not just John Shadegg 
saying it or posturing it. I speak for the people in my district. I 
went home over my August recess. And the singlemost pressing 
point I got was why is it taking you 7 years to balance the budget? 
It is irresponsible. And point-blank statements from constituents 
who got in my face and said, "We did not send you there to con- 
tinue the debt finance. We did not send you there to continue to 
obligate our children and our grandchildren's money because of 
your irresponsibility, because you insist on continuing to spend 
money to buy votes. That is dead wrong. We sent you there to bal- 
ance the budget, John Shadegg, and if you do not balance it, then 
do not raise the debt and force this point." 

I am not acting irresponsibly, and I understand Mr. Pomeroy's 
passion. But I am more embarrassed by the notion that we cannot 
accomplish anything. And if the President does not believe that it 
is important that we balance the budget before we raise the debt 
limit again, he is gravely mistaken. 

Now, I do not want your opinions on this issue. What I would 
like is a list of specific studies I can go to. Number one, has the 
Administration studied what we could continue to fund with cur- 
rent cash flow and no extension of the debt? If so, where can I get 
a copy of that study. And what other institutions besides the Ad- 
ministration have created such studies and where can I get them, 
because I need to be able to provide them to my constituents in the 
eventuality we reach that point and I have to say to them, "Here 
are what the experts say about how we can continue to fund gov- 
ernment if we do not raise the debt limit?" 

Dr. Rivlin. I know of no such study. I think the question would 
be most appropriately addressed to the Secretary of the Treasury. 

Mr. Shadegg. Well, it seems to me that the entire Administra- 
tion needs to perform such a study. I think we need to know ex- 
actly what we can fund without further debt, because that's what 
my constituents want. They have said to me — and actually, quite 



40 

frankly — at the very first meeting of this committee — no, I am 
sorry, about the second — the first joint meeting of this committee, 
Mr. Largent said to the assembled people there, "Why is it that we 
cannot balance the budget in 1 year; isn't it because of politics?" 
And no one answered his question. I think the answer is, it is be- 
cause of politics. 

And at least in my district — and I am not acting irresponsibly 
and I am very concerned about financial markets — but in my dis- 
trict, the American people want me to balance the budget in 7 
years or less. And quite frankly, they think it should be done less. 
And they are not going to want me to vote to raise the debt limit 
if I cannot give them a plan to do that. 

So we need another consequence in case there are other members 
of my class and others who simply say we will not raise the debt 
limit until we have such a plan. It seems to me, having a cash flow 
plan, knowing how we could operate with only our current cash 
flow, would be a fundamental obligation. 

Dr. RiVLIN. We could not operate very long without defaulting on 
United States Government obligations. That is something we do 
not want to do. But permit me to answer the question that you say 
Congressman Largent asked about why we cannot get to balance 
in 1 year, and what would happen if we did. We cannot get to bal- 
ance in 1 year because we are too far out of balance. 

Part of the reason for that is the very large deficits we ran up 
in the 1980's, and we have very a large debt service to pay on those 
deficits. 

Mr. Shadegg. That is precisely why we should not 

Dr. RiVLiN. If we did not have the debt run up between 1980 and 
1992, we would be in balance now. 

Mr. Shadegg. That is precisely why we should not go on creating 
debt. I hope you will join me in trying to come up with a study for 
how long we could operate. I will offer my constituents your state- 
ments. 

Dr. RiVLlN. That is simply not my responsibility. Please address 
that question to the Secretary of the Treasury. He manages the 
cash. 

Senator FRIST. Thank you. The Senator from Maine, Senator 
Snowe? 

Senator Snowe. Thank you, Mr. Chairman. And I certainly want 
to welcome you — Dr. Rivlin and Mr. Dellinger — here today. I do not 
think there is any question about what the cost would be or the 
implications of a shutdown. And I am not just talking monetary 
cost. I think there would be a tremendous loss in public confidence 
toward both of our branches of Government. And it is something 
that we clearly should avoid. 

And what is frustrating about this discussion, not only today but 
in past weeks, is the fact that we are spending so much time, en- 
ergy, attention and money on what the impact would be of a shut- 
down — what will happen, what services will be provided, which 
ones will not, who will be working, who will not be working — rath- 
er than trying to negotiate the vast differences that exist between 
the legislative and executive branches. 

Now, we talked about the debt that was incurred in the 1980's. 
But the fact is, the President understood that and had, in fact, rec- 



41 

ommended a five-year balanced budget plan, even as late as Janu- 
ary of 1995, in one of his speeches. And in May, he said we could 
do it in less than 10 years. So what accounts for the President now 
feeling that a 7-year balanced budget plan is going too fast and too 
far? It seems to me seven is somewhere between five and 10. 

Dr. RiVLlN. Nobody in the Administration has a particular reason 
for wanting to go slower in terms of wanting to stretch it out. 
There are two reasons why we believe it is difficult to do what Con- 
gress wants to do. One is that Congress wants to fund a large tax 
cut, which means much more drastic cuts in spending than would 
otherwise be necessary. We think that is undesirable. The other is 
that getting there quickly means that very important programs — 
medicare, medicaid, education spending — will have to be cut dras- 
tically. We think that reaching balance more slowly, without the 
large tax cut, is a more moderate approach, and it's what the pub- 
lic wants. 

Senator Snowe. So would you do a plan in 7 years? 

Dr. RiVLlN. Well, I cannot negotiate. 

Senator Snowe. Would you offer a plan for 7 years that is dif- 
ferent than what we have offered? 

Dr. RiVLlN. Our plan gets to balance in 9 years. We originally 
thought we needed 10, but we figured we could do it in nine. Our 
plan funds a smaller tax cut. There are many differences between 
Congress and the Administration, and we certainly need to resolve 
them. One possibility would be to go, say, to 8 years, something in- 
between. I cannot negotiate here, however, and obviously, you do 
not want me to. But there will have to be a negotiation. My hope, 
and I think it is everybody's hope, is that we agree on a budget 
that does what the American public wants, including getting to bal- 
ance in a reasonable period. 

Senator Snowe. But the President said in January of this year 
that he was going to present a 5-year balanced budget plan, and 
then in May said he could do it in less than 10 years and that he 
would present us that plan. And so, that is what is confusing about 
all of this. Now we have a dramatic change on the part of the 
President. 

We should not be doing this at the end of the process, because 
we all know what that gamesmanship and that brinkmanship is all 
about. We should be doing it now. There are vast gaps. Just look 
at the numbers. The President, when he made his first speech to 
Congress, he said we should have one referee between CBO and 
0MB, and it should be CBO. Now he is back to 0MB. 

Well, we know that presents a whole set of problems That must 
be resolved first because there are disparities so great in terms of 
what set of numbers are we going to be using. And that is a major 
problem. And we should be doing that now. I just have not heard 
the alternatives. If the President disagrees vdth the resolution that 
we have enacted here in Congress and disagrees with the amount 
of time in which we are doing it — which obviously he does — then 
he has to present a plan to this Congress as an alternative. This 
is not enough. This is not enough. 

And there are no specifics in the President's plan. That is why 
CBO scored it the way it did, as adding a trillion dollars more in 
debt. It talks about the more optimistic economic assumptions that 



42 

Senator Domenici talked about, for the growth rate of medicare 
and medicaid. But the point is, there are vast disparities. And this 
is mid-September. And we should not be talking about shutdowns. 
We ought to be avoiding that. 

And if it comes to appropriations, the President ought to tell us 
what numbers can he accept in appropriations, what is his alter- 
native, because we have not heard anything. And to wait to the end 
of the process, we know what that means. And I think that here 
and now, we should be working out these differences. 

Dr. RiVLiN. I respectfully beg to differ. Senator. We have sent to 
Congress not only a plan for balancing the budget over 9 years, but 
also, with respect to appropriations, a very specific budget which 
says what we would do. And, each day, I write and sign several let- 
ters and statements of Administration policy on exactly what we 
would like changed in the appropriations bills as they move 
through Congress. 

Many of the bills are now in conference, as you know, and dif- 
ferences are being worked out. I think many members of these two 
committees are absent because they are sitting in conferences, 
working out the differences between the two houses, and between 
the Administration and Congress. Some of those differences are 
being worked out. There will be bills that the President can sign. 
While we have not received any bills yet. I think there will be sev- 
eral that he can sign. 

But there will be some that he cannot sign, because the dif- 
ferences in priorities are too great. And then we will need to have 
a negotiation about how to change those bills so that they can be 
made acceptable to both sides. 

Senator Frist. Thank you. In the interest of time, the Senator 
from New Jersey, Mr. Lautenberg. 

Senator Lautenberg. Thank you very much, Mr. Chairman. I 
am sorry that the room is empty of participants. But I often find 
myself in that situation. [Laughter.] 

But I would like to say, in response to comments that were 
made, I am not junior anything. I am not junior here. I am not jun- 
ior in life. But with the white hair and 30 years of experience in 
business, I hope comes not only experience, but wisdom, as well. 

And when I hear the debate about why cannot we solve our debt 
problems in a shorter time than 7 years, maybe even a year, well, 
the reason is fairly obvious. And I think Dr. Rivlin has said it. You 
just cause an economic collapse. That is the problem, perhaps only 
the most important reason. And to me, I think it is critical to get 
our financial house in order. But I do not think that a target date 
of 7 years is critical. I do not even think that a target date of 9 
years is critical. 

I think what is critical is responsible behavior by this Govern- 
ment. And when people demand or ask why it is that we cannot 
pay our debts, I think that we, the representatives of the people, 
nave a responsibility to push back and say because we are so deep- 
ly in debt and short of programs that we have to balance our books 
in a slightly different way. 

Corporations across this country take delight in announcing their 
credit worthiness. Families after families depend on credit. Does 
the average parent sit down and say to the child, "I am going to 



43 

balance the budget. We are not using our American Express card, 
our Visa card, our Master Card anymore. We are going to live with- 
in our means. We are not going to borrow to buy a house. We are 
going to save up our money until we have enough to buy a house." 

It would be the end of our economy as we know it. And so it 
would be with automobile sales and refrigerator sales and every- 
thing else. And I am not advocating loose borrowing. I think fami- 
lies ought to contain their borrowing. I think businesses ought to 
contain their borrowing and I think the Government ought to con- 
tain its borrowing. 

But our debt is created by two things. One is expenditures and 
the other is revenues. And I ask you, Dr. Rivlin, if we shut down, 
does it mean a suspension of our accounts payables process? 

Dr. Rivlin. If we do not have appropriations, we do not pay out 
money. We can incur obligations and we pay out money eventually. 
But we may have to pay more because there are penalties in some 
contracts. But unless there were a permanent or advance appro- 
priation, we would not pay out money. 

Senator Lautenberg. Would lots of little businesses, big busi- 
nesses across this country, feel the shock of withholding our funds 
for them to continue the operations of their business? 

Dr. Rivlin. Yes; they would. 

Senator LAUTENBERG. Well, I do not think that people here are 
quite looking at what the picture really is. The folks out in the 
country do not know what pain is going to be inflicted as we elimi- 
nate a lot of these programs. Forty-two million now in this country 
uncovered by any medical or health plan; forty-some million people 
now in the poverty class; our highways and our bridges groaning 
and straining under the flow of traffic that cannot be managed. 

We are among the worst in the Nations across the world in in- 
vestments in our transportation infrastructure. That is no way for 
America to be competitive. Company after company — and I come 
from a State that is considered a high-tech State. We have Bell 
Labs. We have pharmaceutical companies. We have Bell Corp. We 
are the third highest patent producer among States in the country, 
though we are only ninth in size. 

And we have to rely on foreign-born, in company after company, 
to do the science and engineering work that we need done. At what 
point do we say investments in America are critical and not stand 
on the political soap box and say, "What I want to do is cut out 
spending. But I want you to know, citizen, you are going to pay the 
price in spades"? And we ought to get on with solving our financial 
problem. But we ought to do it in a sensible way. 

I close with a question. Dr. Rivlin. If we did not plan to finance 
the tax cut, would getting to balance be an easier and more timely 
job? 

Dr. Rivlin. Absolutely. Financing a very large tax cut makes it 
much more difficult to get to balance. And if I may add just one 
more word, I think you have illustrated part of the problem of get- 
ting to balance very quickly. It would necessitate cutting back even 
more than we already have on investments we need to make the 
country grow. We think that is self-defeating. 

Senator Lautenberg. Thank you. Thanks, Mr. Chairman. 

Senator Frist. Senator Exon? 



44 

Senator EXON. Mr. Chairman, thank you very much. And let me 
briefly ask two questions, because I understand some of the ques- 
tions I had planned to ask earlier have been posed. 

Mr. Bellinger, in 1983, I think you will remember Attorney Gen- 
eral Smith wrote Majority Leader Baker at that time, to warn that 
the executive branch had no authority to pick and choose among 
government programs if the Government ran up against a debt 
limit and ran out of cash. Is that still the opinion of the Justice 
Department? 

Mr. Bellinger. Senator, I am aware of that. We have not revis- 
ited that question. It was, at that time, the position of Treasury 
and Justice that when the Treasury runs out of cash, the Secretary 
has no authority to prioritize payments; that the view was the 
Treasury merely performs the ministerial function in preparing 
government checks and has no discretion when it is presented with 
valid vouchers from agencies to pick and choose among the expend- 
itures. And therefore, they thought that checks must be paid in the 
order presented, to the extent there is cash available. That is not 
a question we have been asked to revisit at this time. 

Senator ExoN. Well, Director Rivlin, you have had a great deal 
of experience in this whole area. I would ask you: You probably re- 
member that opinion that the Justice Bepartment rendered; what 
is your opinion on that as an experienced budgeteer? 

Br. Rivlin. I would not second-guess the Justice Bepartment on 
a legal matter. 

Senator ExoN. You have always had a way of answering ques- 
tions very directly. [Laughter.] 

Mr. Bellinger. It is important to note that running into the 
debt ceiling is not a money — saving device. There was some sugges- 
tion made in some questions that it is a good way to save money. 
But, in fact, obligations continue to be incurred. We simply are un- 
able to write the check. It is nothing that saves any money for the 
Government to run into the debt ceiling and, as Birector Rivlin has 
noted, may in some circumstances actually cost you money as you 
pay penalties, et cetera. 

Senator ExON. Well, I would simply say that we are holding this 
hearing in anticipation of what could, should or would be done in 
the event of a crisis situation. I think none of us here expect that 
to happen. But we would not have had this hearing, I suspect, un- 
less the chairmen of the House and Senate Budget Committees felt 
it should be reviewed. 

I would respectfully suggest that it might not be a bad idea for 
the Justice Bepartment to give some consideration to that propo- 
sition, because if the train wreck occurs, I suspect that that is the 
first question that the Justice Bepartment is going to be asked, be- 
cause that would be a crisis. 

Turning to another matter, Br. Rivlin, can you tell me what the 
White House has been doing to avoid a government shutdown, and 
has Congress been receptive to any of these advances from the ex- 
ecutive department? 

Br. Rivlin. The White House, and all of us in the Government, 
have been working very hard with the appropriations committees, 
urging them to get their work done. We also are making clear our 
views are on appropriations bills, hoping that we can get many of 



45 

them into shape so that the President can sign them as soon as 
possible. That work is proceeding very rapidly. 

The President, as you know, called the leadership from both 
houses to the White House about 10 days ago to talk about the 
budget. He said he wanted to avoid a shutdown and suggested that 
a continuing resolution was in order. The leadership reacted favor- 
ably to that. I think we are on the track, as Chairman Kasich sug- 
gested earlier, to having at least a short-term continuing resolu- 
tion. 

With respect to the debt ceiling, Secretary Rubin and I have 
written several letters — and there is a new letter from Secretary 
Rubin today — asking Congress to raise the debt ceiling and decou- 
ple this problem from the budget debate. We have not received a 
response to those letters. 

Senator EXON. I thank both of you. I thank you, Mr. Chairman. 

Senator Frist. Thank you. The Senator from Maine? 

Senator Snowe. Yes. I would like to ask a follow-up question. I 
still do not understand why the Administration has decided that 
they cannot balance the budget in 5 years, as the President said 
in January. Then he said it could be accomplished in less than 10 
years in May. And I think we need to have an answer to that ques- 
tion. 

Obviously, the Administration has made a dramatic turnabout in 
terms of when that budget can be balanced. And we all have dis- 
agreements on whether or not we should have a tax cut this year. 
And that is a fair issue. But the President also includes a tax cut 
in his package. But supposedly, the President's 10-year balanced 
budget plan is not a balanced budget plan — according to CBO — 
even with a lesser tax cut. So I would like to know why the Admin- 
istration has changed its mind about the 5 years versus 10 years 
required fot balancing the budget. 

Dr. RiVLiN. I was not aware of the President's statement about 
balancing the budget in 5 years. The President says a lot of things, 
and that one was not run by me. So I do not know what you are 
referring to. 

Senator Snowe. Do you think he was wrong? 

Dr. RiVLlN. Our February budget did not get to balance. While 
it offered deep cuts in discretionary spending, it did not address the 
entitlement programs. We said at the time that, in order to get to 
balance, it would be necessary to address the entitlement pro- 
grams, especially the health care programs. 

In June, we did that. We produced a new budget plan that 
reached balance in 9 years. The reason we think it should take 
longer to reach balance, as I said earlier, is that although getting 
to balance is very important for the future of the economy, there 
are other things that are important as well, including investment 
in education, science and technology, and other programs. We do 
not believe that savaging those programs in the name of getting to 
balance quickly is a good deal for the American public. 

Senator Snowe. Well, you are saying "quickly". But the Presi- 
dent said even less than 10 years. And the fact of the matter is, 
CBO has said the President's budget, as presented to Congress, 
without the specific details on how to balance the budget, will still 
incur $200 billion as far as the eye can see. And I think that is a 



46 

problem. The American people want a balanced budget. We ought 
to be able to resolve those differences, because they are vast dif- 
ferences and we do not have that much time. 

Dr. RiVLlN. I agree that we ought to be able to resolve our dif- 
ferences, and I hope very much that we can. The Congressional 
Budget Office has not dealt with the question of how much would 
be saved by the cuts contained in the President's June budget. The 
difference that we are talking about today is a difference in base- 
lines — their estimates and our estimates of what the budget would 
be, absent any changes in policy. I just wanted to make that clear. 

Senator Snowe. Thank you. 

Senator Frist. Thank you. If there are no further comments, I 
wish, on behalf of both houses, to thank both of you for being with 
us today. And with that, we stand adjourned. 

[Whereupon, at 11:28 a.m., the joint hearing was adjourned.] 

Opening Statement of Chairman Domenici 

First, let me welcome you Chairman Kasich and Ranking Member Sabo, and the 
other members of the House Budget Committee to the U.S. Senate this morning for 
this joint hearing. 

Good morning, Director Rivlin. Mr. Bellinger, while you may not have appeared 
before the Senate Budget Committee as often as Director Rivlin, I recall you did ap- 
pear before the committee once in 1992 on the proposed balanced budget amend- 
ment to the Constitution. We are pleased you both can join us today. 

Director Rivlin, I want to assure you, the audience, and the American public 
watching this hearing today that we have no intention of "shutting down the gov- 
ernment". We do intend, however, to put the government on a path to a balanced 
budget in 7 years! 

Indeed, a week ago this evening our two respective leaders met with the President 
and I understand agreed that there would be a continuing resolution on October 1, 
that would avoid any funding lapse this year. 

This week and next the Senate will work hard to try to get the final six appro- 
priations bills passed and to conference. Every effort is being made to ge{ all 13 ap- 
propriation bills to the President before the start of the new fiscal year — but I think 
we all must be honest and admit that we will still need a continuing resolution sim- 
ply because we will not get all the paper work done on the conferences in time to 
meet the October 1 deadline. 

If of course the President chooses to veto a continuing resolution, for whatever 
reasons, then the first set of questions before the committee still are relevant this 
morning. 

What does it mean to have a funding lapse? Who would be affected by a funding 
shortfall and how? Who is essential and whose definition applies? What does it 
mean "programs for the safety of human life or protection of property"? And what 
broad authorities does the Executive possess to continue operating programs that 
have lost their funding? 

I hope we can shed some light on these questions today, even if we all still believe 
we can avoid such an occurrence in a couple of weeks because clearly this is not 
a new issue. Unfortunately it is becoming more of an annual event, and maybe we 
can at least clear up some of the confusion that surrounds this issue for government 
employees and the American public at large. 

But there are two funding issues, the first being the annual appropriations bills, 
and the second — and the one I consider more serious — the periodic debt limit issue. 
This fall we will be faced with both funding issues. 

The debt limit provides the government with the authority to finance the entire 
government. I believe, that failure to pass a debt limit will affect the government's 
credit and would have severe financial and economic ramifications that could trigger 
a financial crisis. 

Failure to enact appropriations is like not paying your phone bill. Failure to enact 
the debt limit is like not paying your mortgage. For a short time neither are disas- 
trous. For an extended time, one results in losing your phone; the other results in 
losing your house. Along with losing your house, you would ruin your credit rating 
and endanger your ability to borrow funds in the future. 



47 

While most news stories are focused on the October 1st date associated with the 
need for appropriations, a much more serious date looms in mid November. 

The current limit on the debt amounts to $4.9 trillion. CBO tells us that Treasury 
will run up against the debt limit in mid November. While Treasury can run the 
government for a short period of time through some financing techniques, the Treas- 
ury needs a debt limit extension to meet the government's obligation. 

If we fail to extend the debt limit for a period of time, it would eventually lead 
to a government default. That means the government could not honor its obligations 
and a financial crisis would ensue. Such a crisis would not be just a threat to the 
government, it would threaten the entire economy and have international ramifica- 
tions. 

Forcing a default would be the height of irresponsibility. And we should make 
every effort to avoid it. 

But equally irresponsible, I say to the distinguished Director, is a legacy of $200 
billion deficits that CBO says the President's budget plan will give this country. 

The next 2 weeks in the Senate is budget reconciliation time. I am convinced that 
the Senate Finance Committee will increase the debt limit in their title of the rec- 
onciliation bill. 

The President said over the weekend that he would veto the reconciliation bill 
that will embody our changes in entitlement programs because he thinks we are re- 
straining spending too much. Even under our budget which gets to balance in 7 
years, and which he objects to because of the spending restraint, we will have to 
increase the debt by $600 billion. 

To the extent the President prevails with a veto, his action will lead to a Federal 
Government default and even higher debt. He cannot have it both ways. He cannot 
be for higher spending and a lower debt, because the numbers simply don't add up. 

We cannot afford it and I hope the President will agree to the spending restraint 
outlined in our plan, using CBO's numbers, to get this country's budget balanced 
in 7 years. 

This is serious business, and I hope both the Administration witnesses will com- 
ment this morning if the President is willing to put the government in actual de- 
fault this fall by opposing a plan that truly and honestly gets us to balance in 7 
years. 

Dr. Rivlin you should know and communicate back to the President, that some 
in the Congress argue — and I do not necessarily agree but I understand their think- 
ing — that a default on our debt this fall for a few days is a small price to pay, if 
it means achieving a real deficit reduction agreement that would avoid the bigger 
government shut down and fiscal nightmare that awaits us in the next century from 
failing to find a way to a balanced Federal budget. 

I look forward to your testimony. 

Opening Statrment of Senator Christopher Dodd 

Thank you Mr. Chairman. I want to commend you for holding today's hearing. 
It is critically important that every American understand what may happen if Con- 
gress and the President engage in an elaborate game of budgetary chicken this fall. 
It is clear that Federal employees, the American public, our national economy, and 
the world's financial markets will not be held harmless. A long delay could cause 
enormous and irreparable damage. 

While a somewhat more conciliatory tone has been struck in recent days, Senate 
majority leader Dole and speaker Gingrich have repeatedly stated their unwilling- 
ness to compromise this fall. These comments increase the likelihood of a fiscal train 
wreck and are, therefore, cause for great alarm. 

I understand well the political stakes on these issues. But, I also understand the 
stakes of playing high-risk games with vital Federal functions. In my view, any 
short-term political advantage to be gained by either party could be dwarfed by the 
long-term damage of elevating this confrontation. 

In our 200+ years of existence as a republic, the United States has never de- 
faulted on its obligations. Any decision to hold the debt limit extension hostage to 
the passage of a reconciliation bill threatens to mar this record, undermine our Na- 
tion's creditworthiness, send warning signals throughout the world's financial mar- 
kets, and raise interest payments on the debt. 

Mr. Chairman, this year's debate over budget priorities is one of the most signifi- 
cant in a generation. The magnitude of the changes — to Federal health care pro- 
grams, education, welfare, and the environment — are extraordinary and unprece- 
dented. In my view, they will smack ordinary people in this country like a two-by- 
four right between their eyes. 



48 



Whatever one's view, one thing is clear: a fundamental reordering of Federal pri- 
orities demands a full, thorough, and open debate. The American people deserve no 
less. They deserve to see their representatives discussing these issues with the seri- 
ousness they deserve— not playing political games with vital Federal functions. 



49 



JOHN R KASICH. OHIO 
CHAIRMAN 

DAVID 1. MOBSON OHIO 
OOBEBTS WALKEB PENN5VLVAMJ 
JIM KOLBE ARIZONA 
CHRISTOPHER SHAYS CONNECTICl. 
WALL* HERGER CALIfORNIA 
JIMBUNNING KENTUCK- 
LAMAR S SMITH TEXAS 
WAYNE ALLAflO COIOHADC 
DAN MIILER FLORIDA 
RICK LA2I0 NEW YORK 
BOS FRANKS NEW JERSE» 
NICK SMITH MICHIGAN 
BCBINGtiS SOUTH CAROLINA 
MARTIN R HOKE OHIO 
SUSAN MOliNARi NEW YORK 
JIM NUSSLE IOWA 
PETER hOEKSTBA miCh'GAN 
STE ./E lARGENT Oklahoma 
SUE MYRICK NORTH CAROLINA 
SAM BROWNBACK KANSAS 
JOHN SHAOEGG ARIZONA 
GEORGE RAOANOvtCH CALIFORNIA 
CHARLES BASS NEW HAMPSHIRE 




lUiM. li)ousc of i\cprcscntatibcs 

Committee on the Budget 
JUastiington, DC 20515 



MARTIN OlAUSABO MINNESOTA RANKING 

Charles w stenholm texas 

LOUISE M SLAUGHTER NEW YORK 
MIKE PARKER MISSISSIPPI 
WILLIAM J COYNE PENNSVUANIA 
ALAN 8 MOLLOHAN WEST VIRGINIA 
JERRY F COSTE-LO ILLINOIS 
HARRY A JOHNSTON Florida 

PATSY T MINK HAWAII 
Bill ORTON UTAH 

earl pomeroy north dakota 
GlENBROwoER Alabama 

LYNNWOOLSEy CALIFORNIA 
JOHN w OlvER MASSACHUSETTS 
LUCILLE ROYBAL AlLARD CALIFORNIA 
CARRIE P MEEK Florida 
LYNN RIVERS MICHIGAN 
LLOYOOOGGETT TEXAS 



EILEEN M BAUMGARTNER 
MINORITY STAFF DIRECTOR 
J26-JJ00 



A Primer on 

Continuing Resolutions 

and the Ceiling on the Public Debt 



Septembers, 1995 



INTRODUCTION 

Two distinct and separate budgetary events that could affect government activities and 
operations face Congress and the White House this fall. This primer is intended to explain 
the basic principles surrounding these events, and to answer basic questions Members have 
raised. The two events discussed are the following: 

► The Potential Need for a Continuing Resolution. A continuing resolution 
would be needed to cover any appropriations bills that have not been signed by the 
President by October 1, the beginning of fiscal year 1996. If, in that situation, the 
President also refused tc sign a continuing resolution, the result would be a 
"shutdown" of non-essential government activities in those agencies whose 
appropriations bills have not been signed. If the President were to veto all 13 
appropriations bills, then the "shutdown" would affect all government agencies. 
Although such a shutdown would not halt "essential" activities — those concerning 
public health and safety and the protection of property — the suspension of other 
functions could affect substantial numbers of employees in various agencies. 

► Whether to Raise the Public Debt Celling. As the name implies, this ceiling 
limits how much the government can borrow to maintain cash flow and finance the 
deficit. The current ceiling is expected to be reached in mid-October, although 
various actions by the Treasur> could delay any effects until mid-November. 
Without an increase in the debt limit at that point, the Federal Government will be 
unable to borrow the money it needs to meet obligations for which there is no cash 
on hand on any given da\ . Although the need to raise the debt ceiling has been 



50 



driven by the past pattern of deficit spending, the effect of restricting government 
borrowing authority' when the current debt limit is reached would fall largely on 
government cash flow: It could complicate the government's ability to meet its 
fmancial obligations in a timely manner. Prolonging the situation could intensify 
the problem. 

It is important to bear in mind that a continuing resolution and the public debt ceiling are 
fM'o distinct budgetary issues. The fact that they could occur within weeks of each other is 
purely coincidence. Furthermore, the possible consequences of an impasse are different in 
each case. 

► Continuing resolutions concern potential lapses of authority to spend money for 
discretionary programs. (Discretionary' programs are those funded annually through 
appropriations bills, as distinct from entitlement programs, which are not affected 
by the passage of or delay in appropriations bills or continuing resolutions.) As 
noted above, a deadlock over a continuing resolution could lead to a temporary 
"shutdown" of non-essential government activities. 

► The debt ceiling concems cash flow and the authority to borrow and disf>erse fiinds 
in a timely manner. A stalemate over the debt limit would not necessarily suspend 
government activities — at least not in the short term — but it would complicate 
the government's ability to meet its obligations in a timely manner. Taken to its 
extreme the situation could lead the government to defaulting on its obligations, 
although this has never happened. 

Differences between Congress and the President over slowing the growth of spending, 
cutting ta.xes. and balancing the budget is creating what some call a budgetary "train wreck" 
over one or both of these events — especially the first. Such rhetoric exaggerates the 
possible consequences. Still, the issues are likely to demand challenging policy choices. 

[Please note: Tlie paper focuses on continuing resolutions and the debt ceiling because these 
are the two areas in which government operations could be affected. Government activities 
would not be affected if the President refused to sign this fall's other key legislative 
measure, reconciliation. Reconciliation is required to conform tax law and entitlement 
spendmg (such as Medicare, Medicaid, welfare, and so on) with the directives of the 
Congressional budget resolution. A failure to enact reconciliation legislation would create 
its own problems but funding for these programs would continue as provided under existing 
law because their appropriation is permanent. Nevertheless, areconciliation bill could be 
used as a vehicle for debt ceiling legislation or even — though less likely — for 
appropriations legislation.] 



Continuing Resolutions/the Debt Ceiling Page 2 



51 



I. POTENTIAL NEED FOR A CONTINUING RESOLUTION 

Since 1977, there have been 56 continuing resolutions, most of them covering relatively 
short periods, such as several days or weeks. Some covered an entire year for certain 
programs (such as those usually funded through the Foreign Operations appropriations). 
Such temporar>', stopgap legislation is required to cover any appropriations that the 
President refuses to sign by the time the fiscal year begins. 



A. Timing and Procedural Issues 

If one or more continuing resolutions are required this year, the first occasion for one will 
be Sunday, October 1. the start of the 1996 fiscal year. This also uill be the first critical 
juncture of this fall's budget events. 

Under normal circumstances, the government's discretionary (non-entitlement) spending 
is subject to the passage, each year, of 13 separate appropriations bills. These are the 
spending bills that the House has been considering this summer. A continuing resolution is 
needed to fund any discretionarv' programs whose appropriations the President has refused 
to sign by the time the new fiscal year starts on October 1 . 



Why is it possible a continuing resolution will be needed this year? 

Because it is unlikely that the President will have signed all the appropriations bills 
needed to fund discretionary spending for fiscal year 1996 by the time the r^w 
fiscal year starts on October I. The continuing resolution procedure is intended 
precisely for such situations — to provide stopgap funding so that government 
functions can continue. 

House and Senate leaders are striving to complete all the 1996 appropriations bills 
by October I, the beginning of the fiscal year. But the Administration has stated its 
disagreement with all of the bills — concerns that could lead to presidential vetoes. 
Should the President veto any or all of the appropriations, the House and Senate 
likely would send him a continuing resolution. 



Q: \Vould the need for a continuing resolution be unusual? 

A: No. As noted above, there have been 56 continuing resolutions since 1977, or about 

three a year on average. Some occurred because Congress did not complete 
appropriations actions by October 1. Others came about because of policy 
differences between Congress and the White House. Continuing resolutions exist 



Continuing Resolutions/the Debt Ceiling Page 3 



52 



precisely so that government activities can continue in these situations. Tlie table 
below shows the history of continuing resolutions. 



Recent History of Continuing Resolutions 



Fiscal Number of Number of Number of Appropriations Acts Covered by 
Year CRs Days Covered Days Enacted by Start Full Year CR 

by CRs Shutdown of the Year 



13 

9 1 

5 1 

3 3 
1 5 

4 

1 7 

4 3 
4 8 
7 
13 

13 
13 

1 


3 1 

1 

2 
13 



'1977 CRs mainly provided funding for HHS accounts not covered in the HHS Appropriations Bill. 
The sixth CR corrected enrollment errors in the fifth CR 



1977' 


2 


202 


10 


1978 


3 


337 


28 


1979 


1 


348 


17 


1980 


2 


355 


11 


1981 


3 


365 





1982 


4 


363 


2 


1983 


2 


361 


4 


1984 


2 


363 


3 


1985 


5 


362 


3 


1986 


5 


365 





1987 


6^ 


364 


1 


1988 


5 


365 


1 


1389 











1990 


3 


51 





1991 


5 


33 


3 


1992 


4 


366 





1993 


1 


5 





1994 


3 


41 





1995 












Continuing Resolutions/the Debt Ceiling Page 4 



53 



Where do the President and Congress disagree on appropriations bills? 

The Administration has expressed its disagreement with every appropriations 
bill under consideration by Congress. For example, the President has promised 
to veto the House-passed Labor-HHS appropriations bill because of cuts in the 
Head Start program, the termination of funding for Goals 2000, the elimination 
of the Summer Youth Employment program, language allowing states to restrict 
abortion funding, and language preventing organizations from using Federal 
funds for political advocacy. The Secretary' of Commerce has recommended that 
the President veto the Commerce-State-Justice appropriations bill because of 
terminations of duplicative programs in his department. The VA-HUD bill is 
threatened with a veto because of legislative limitations on enforcement 
activities at the Environmental Protection Agency and major program funding 
reductions at EPA and the Department of Housing and Urban Development, and 
cuts in the Corporation for National and Community Service programs. 



Q: What funding levels would be contained in a continuing resolution? 

A: There are several alternatives. Traditionally, a continuing resolution assumes the 

lowest of the current year's level, the new House-approved level, or the new 
Senate-approved level. But Congress can specify any level and any mix. 



Q: How long does a continuing resolution last? 

A: The resolution's duration is specified in the legislation. Typically, continuing 

resolutions are drafted to cover a number of weeks, or even days, depending on 
how much time is expected to elapse before the President signs the regular 
appropriations bills. The resolution can be written to cover an entire fiscal year. 



Q: If a continuing resolution is written to cover less than a full year, how are 

funding levels determined? 

A: The resolution provides authority to spend at an annual rate. The President, 

through the Director of the Office of Management and Budget, "apportions" the 
funds to assure that agencies do not spend too rapidly. 



Q: What level of spending is allowed by apportionments? 

A: Normally, the apportionments are made on a pro-rata basis. In other words, if the 

continuing resolution is effective for 12 percent of the year, then the 



Continuing Resolutions/the Debt Ceiling Page 5 



54 



apportionment is 12 percent of a program's annual appropriation. Different 
patterns of apportionments may be used where necessary. For example, if an 
agency needs to obligate more than a pro-rata amount, a larger apportionment 
can be provided by the Office of Management and Budget. 



Q: Can new programs be started under a continuing resolution? 

A: No, unless funds are expressly provided in the resolution. For example, if an 

activity is included in the Senate appropriations bill, but the House-passed 
appropriation is used as the basis for the continuing resolution, then the activity 
cannot be initiated under the continuing resolution. If, however, the continuing 
resolution expressly provides for the new activity, then the activity can be 
initiated. In the past, some continuing resolutions have contained language 
expressly prohibiting new projects or activities. 



Q: Can existing discretionary programs be expanded? 

A: No. Existing programs may be continued only at rates allowed under the 

continuing resolution. 



Q: If an existing program or activity is proposed for termination, can it be 

funded under a continuing resolution? 

A: If the program or activity is not terminated through specific language or 

implication in the continuing resolution, then it can be continued at a minimal 
level. 



B. Effects of an Impasse: a Possible Government "Shutdown" 

in the absence of regular appropriations or a continuing resolution, the government faces 
what is known as a "funding gap," in which the government lacks appropriations for 
discretionar> programs that are funded annually. This condition is known as a 
government "shutdown," although the term exaggerates the extent to which government 
activities are suspended. 



When could a government shutdown occur this year? 

As noted above, this would occur on October I if a discretionary "funding gap" 
occurred. This gap would come about if the President refused to sign any of the 



Continuing Resolutions/the Debt Ceiling Page 6 



55 



appropriations bills for fiscal year 1996 and also refused to sign a continuing 
resolution sent to him by the Congress. Technically, the government at that point 
would have no authority to obligate or spend funds on programs subject to 
annual appropriations. The government would have to suspend certain activities 
funded through annual appropriations, or delay payments for those that continue. 



Q: What if some appropriations bills are signed but others are not? 

A: The general practice has been that the continuing resolution covers the 

appropriations bills that have not been signed. 



Q: Don't the activities of some Executive Branch agencies continue even during 

a "shutdown?" 

A. Yes. Entitlement programs operating under permanent appropriations would 

continue, as would activities deemed by the President to be essential for health, 
safet\', and the protection of property. Also, programs needed for the President 
to discharge his Constitutionaily enumerated powers would continue. 



Q: Which programs could continue even if they fail to receive appropriations? 

A: Ultimately, it's the Administration's decision but based on criteria set out in the 

following: 

► The Anti-Deficiency Act This 1870 law is the principal legislation 

governing this area. The act forbids any officer or employee of the 
United States to "involve the Government in any contract or other 
obligation, for the payment of money for any purpose, in advance of 
appropriations made for such purpose, unless such contract or obligation 
is authorized by law." It also prohibits the government from accepting 
voluntary' services exceeding those authorized by law. (In other words, 
non-essential government employees cannot "volunteer" to work 
without pay.) 

It should be noted that the Anti-Deficiency Act was designed to prevent 
government officials from incurring unauthorized obligations beyond 
what Congress intended to spend. Only in recent years have 
interpretations of the Act been used to address the consequences of 
lapses in spending authority. 



Continuing Resolutions/the Debt Ceiling Page 7 



56 



► The so-called "CIviletti Memos." In 1980 and 1981, then Attorney 
General Benjamin R. Civiletti wrote two opinions in the form of 
memoranda. In the first, Civiletti set forth his interpretation of the Anti- 
Deficiency Act. Before the 1980 memo, GAO had interpreted the Anti- 
Deficiency Act to allow GAO's operations to continue because it was 
not "the intent of Congress that GAO close down." The 1980 Civiletti 
memo made clear that the Anti-Deficiency Act prohibited Federal 
agencies from incurring obligations prior to an appropriation. 

Civiletti's 1981 memo expanded on the first, elaborating on exceptions 
to the Anti-Deficiency Act. It said the exceptions would occur under the 
following circumstances; 1 ) for obligations that are "authorized by law," 
including mandator) programs such as Social Security; 2) for the 
discharge of the President's Constitutionally enumerated powers, such 
as his role as commander-in-chief of the armed forces, as well as his 
legislative role (signing bills sent to him by the Congress); 3) in cases 
of emergencies involving the safety of human life and the protection of 
propert>'; and 4) when funds are necessary to bring about the orderly 
termination of an agency. 

► The 1990 Budget Agreement. This legislation contained the 
following language: "The term 'emergencies involving the safety of 
human life or the protection of property' does not include ongoing, 
regular functions of government the suspension of which would not 
imminently threaten the safety of human life or the protection of 
property." This language makes clear that exceptions to the Anti- 
Deficiency Act are to be narrowly construed. 

► The "Rivlln Memo." On August 16, 1995, Assistant Attorney 
General Walter E. Dellinger prepared a memorandum for 0MB Director 
Alice M. Rivlin regarding the permissible scope of government 
operations during a lapse in appropriations. The Rivlin memo is 
basically a restatement of the earlier Civiletti opinions. Dellinger also 
notes that the 1 990 Budget Agreement was designed to provide a narrow 
construction of the "property and safety" exception to the Anti- 
Deficiency Act. This memo is being used by agencies to develop their 
current plans in the event of a shutdown. 

Based on the above, the consensus is that the personnel who would continue to 
work would include the following: 

» Those involved \\ilh the safety of human life and the protection of 

propert). such as air traffic controllers, FBI, DEA, ATF, and Customs 



Continuing Resolutions/the Debt Ceiling Page 8 



57 



agents, the border patrol, personnel involved with the oversight of stock, 
commodities, and futures exchanges, and meat inspectors. 

Those necessary to assure the continuation of mandatory programs 
(such as personnel involved with the check writing and distribution 
functions of Social Security). 

Personnel involved with the discharge of the President's constitutional 
duties and powers. This definition has been purposely kept vague 
because, according to the 198 1 Civiletti memo, its extent and limitations 
are dependent upon circumstances. 



Q: Do "essential" personnel get paid? 

A: Yes. Employees who are considered "essential" would continue to earn their pay 

during a government shutdown. Their actual paychecks might be delayed, 
however, subject to the passage of an appropriations bill or continuing 
resolution. 



Q: Would a government shutdown affect activities of the armed forces? 

A: For the most part, no. The armed forces probably would fall into the exception 

for health and safety and the protection of propert>'. In addition, the 1861 Food 
and Forage Act might also be employed. The Act provides the Department of 
Defense with the authority to obtain "clothing, subsistence, forage, fuel, 
quarters, transportation, or medical and hospital supplies, which, however, shall 
not exceed the necessities of the current vear." 



Would a shutdown threaten Social Security or Medicare benefits? 

No. Social Security and Medicare Part A have permanent appropriations, so 
benefits would continue to be paid. Medicare Part B benefits also would 
continue to fiow, although payments to providers would be subject to the 
availabilitN of funds in the Medicare Part B Trust Fund. 



Is this also true of other entitlement programs? 

No. Most other entitlements, such as Medicaid, Family Support Payments 
(AFCXT). Supplemental Security Income, and Social Services Block Grants, are 
appropriated annual!) even though they are mandatory spending. The effect is 



Continuing Resolutions/the Debt Ceiling Page 9 



58 



that clients continue to earn the benefits to which they are entitled, but the actual 
checks could not be processed without an actual appropriation for the program. 



Would a shutdown cause the furlough of personnel who write checks for 
benefit programs such as Social Security and Medicare? 

No. The second Civilerti opinion argued that the government would require 
employees who administer these checks to continue working. 



Recent U.S. Government "Shutdowns" 



Fiscal 
Year 


Date gap 
commenced 


Full days of shutdown 


Date shutdown 
terminated 


1982 


Friday 11-20-81 


Saturday, Sunday 


Monday 11-23-81 


1983 


Thursday 9-30-82 
Friday 12-17-82 


Fnday 

Saturday, Sunday, Monday 


Saturday 10-2-82 
Tuesday 12-21-82 


1984 


Thursday 11-10-83 


Friday, Saturday, Sunday 


Monday 11-14-83 


1985 


Sunday 9-30-84 


Monday. Tuesday 


Wednesday 10-3- 
84 




Wednesday 10-3-84 


Thursday 


Friday 10-5-84 


1987 


Thursday 10-16-86 


Friday 


Saturday 10-18-86 


1988 


Friday 12-18-87 


Saturday 


Sunday 12-20-87 


1991 


Friday 10-5-90 


Saturday, Sunday, Monday 


Tuesday 10-9-90 



Q: Would a government "'shutdown" be unusual? 

A: Obviously, a government shutdown is not common. Since 1980, however, the Federal 
Government has survived nine temporary "shutdowns'" because of funding gaps. 
Most have lasted only a feu days, and in several cases the effect was ameliorated 



Continuing Resolutions/the Debt Ceiling 



Page 10 



59 



because the shutdown occurred during a weekend (see table below). This year, 
October 1 fails on a Sunday, so if a shutdown started then it would likely run into one 
or more weekdays. 



Q: How long would a shutdown last? 

A: In theor>. a shutdown could last indefinitely if the President continued refusing 

to sign appropriations bills or continuing resolutions sent to him by Congress. 



II. THE PUBLIC DEBT CEILING 

The current public debt ceiling is $4.9 trillion. This figure represents the total amount of 
debt that the government can incur to meet its obligations and to maintain orderly day-to- 
day cash flow. 

The amount of money currently owed by the Federal Government that is subject to limit 
is about $4,881 trillion and growing. If the Federal Government reaches its current $4.9- 
trillion debt ceiling and the ceiling is not raised, the government will be unable to borrow 
money to meet any obligations for which there is no cash on hand on any given day. This 
will not bring government activities to an immediate halt; but it could lead to delays in 
meeting government obligations. 

There are two kinds of extensions of the debt ceiling. A "permanent" extension establishes 
a dollar limit on the government's ability to borrow; it lasts until the government's actual 
borrowing reaches the ceiling (potLntially forever). A temporary extension establishes 
either a small addition of borrowing authority' or a fixed date for the expiration of 
authority to borrow; this is usually a short-term measure. 



A. Timing and Procedural Issues 

The need to raise the ceiling has been driven principally by two conditions: the deficit 
spending that has been chronic since 1970 and the practice of bonowing from government 
trust funds. Deficit spending has driven up the debt held by the public to $3.6 trillion in 
1995. compared with $710 billion in 1980. Borrowing from government trust funds adds 
$1.3 trillion to the debt, compared with $200 billionin 1980. 

But the need for borrowing would exist even if the budget were in balance because 
government revenues do not flow into the Treasury at the same rate as the demand for 
spending. In other words, the government uses a portion of its borrowing authority simply 
to maintain orderly day-to-day cash flo\\ for approved programs and activities. 



Continuing Resolutions/the Debt Ceiling Page 11 



60 



Q: When is the current debt ceiling expected to be reached? 

A: The government is expected to reach its current debt ceiling in mid-October. But 

technical actions by the Department of the Treasury, as discussed below, will 
probably allow for sufficient cash flow up until November 15, when interest 
payments on Federal debt instruments will be due. On that day, the government 
will need to pay out between $22 billion and $25 billion. 



Can Congress temporarily extend the ceiling? 

Yes, through two possible methods. In one. Congress could provide a small 
amount of additional borrowing authority — say $25 billion. Another temporary 
method would be to extend borrowing authority for a fixed amount of time, 
expiring on a designated date. 



Q: What options does the Treasury have when facing an interruption of 

borrowing authority? 

A: TTie Treasur>' has typically resorted to several tactics, in sequence, in dealing with 

bumping up against the debt ceiling including the following; 

► Suspend the sale of non-marketable debt. This includes sales of 
savings bonds and securities to state and local governments. If a 
temporary debt ceiling extension were enacted, these sales would be 
suspended on the date the extension expired. 

► Disinvest trust funds balances. Trust fund surpluses are invested in 
lOUs the Federal Government writes to itself At the expiration of the 
debt limit, the Treasury' would stop writing new lOUs, and then, in effect, 
would begin tearing up old lOUs. The Treasury actually did this in 
November of 1985 to create room under the debt ceiling to auction 
marketable securities to establish a larger cash reserve. 

► Trim or delay auction of marketable securities. At the expiration of the 
debt limit, the Treasur>' would suspend (or alter the normal size) of public 
debt offerings (bills, notes and bonds). 

One other option that the Treasury has used previously — under a temporary debt 
ceiling extension — is beellng up sales of marketable securities to build cash 
balances prior to bumping up against the debt ceiling and before obligations 
become due. 



Continuing Resolutions/the Debt Ceiling Page 12 



61 



Q: Doesn't the government retire some of its debt each month even as it is 

incurring more? 

A: Yes. As government debt instruments (bills, notes and bonds) become due they 

are redeemed or retired. But retiring debt is usually funded through the issuance 
of new and additional debt because of deficit financing including interest 
payments on the Federal debt. 



B. Impact of Reaching the Debt Celling 

The questions and answers below reflect methods that have been used or can be used to 
address a restriction on the government's ability to borrow. 



Q: Can't the government simply run on a cash-flow basis but at lower levels? 

A: Yes, but it would be complicated, because cash receipts and outlays rarely 

coincide in timing. There are distinct peaks and valleys in the Treasury's need for 
cash associated with the seasonal and daily patterns of payments and receipts (see 
chart below). 

The Federal Government's cash flow needs can be compared to those of a 
business. Even if the business is not operating on a deficit basis, it still borrows 
to cover cash shortfalls brought about by making sales on credit while having to 
operate on cash. In other words, it may perform a service and be compensated 30 
days later while at the same time hrving to cover expenses for that service before 
receipt of payment from its customer. 

The government operates in a similar manner — cash income and expenses are 
out of synch with regard to timing. Two significant drains on the Treasury — 
benefit payments and interest payments — are especially large. 



What are the major cash flow drains on the Treasury? 

Benefit payments go out between the first and third of the month. Interest 
payments to owners of Treasury notes and bonds take place on fixed dates. Other 
cash withdrawals for purposes as varied as Federal employees' pay, defense 
contracts, grants to states and localities, loans to foreign governments and 
Medicare are smaller, but nonetheless, they are not on an even keel with receipts. 
Also, unpredictable heav\ outlays, such as natural disasters or national security 
emergencies. 



Continuing Resolutions/the Debt Ceiling Page 13 



62 



Q: How does the flow of receipts compare with this pattern? 

A: Receipts are a little more consistent, but they have some noticeable peaks and 

valleys as well. Income taxes withheld from paychecks and employment taxes are 
the backbone of the Treasury's deposits. Withheld taxes flow in fairly smoothly 
at about $3 billion a day with a little clustering. In contrast, corporate income 
taxes and nonwithheld individual income taxes concentrate around just a few 
deadline dates, most notably April 15. Interest payments due from loans are 
inconsistent as are other cash receipts from various activities of the government. 



U.S. Government Receipts and Outlays 






FY 1994 and FY 1995 






Billions 
$175 , 








Outlays 


i 




$150 


— Receipts 


A 


A 


$125 


/ A / \ / \ / \ " / "^\ " 


i\ 


A 


$100 




\ 


/ \ 


$75 








$0 











ct Dec Feb Apr Jun Aug Oct Dec Feb 


Apr 


Jun Jul 


FY 1994 FY 1995 







What happens if the debt ceiling is reached and the Treasury's cash flow is 
insufficient to meet all obligations? 

First, this would be unprecedented. There is no established guidance for the 
Congress, the President, or the Treasury to determine how to use Federal funds 
to meet its obligations should borrowing authority be limited or inadequate. 
Legislation has not been enacted nor has the Executive Branch established 
guidelines as to the priority of which obligations would be met first. 



Currently, the Treasury must prioritize payments by timing 
first, second, and so on. 



which came due 



Continuing Resolutions/the Debt Ceiling 



Page 14 



63 



Q: If the government attempted to run solely on a cash flow basis, how would it 

determine what obligations would be paid? 

A: Congress and the Administration could attempt to assign priorities to programs 

and activities to indicate who should get payments in what order. No 
comprehensive plan for such a situation ever has been drafted. Any plan that 
Congress and the Administration would adopt would have to be feasible for 
operations — in other words, it would have to be possible for the agencies, the 
Treasur>. and the Federal Reserve (the Treasur>''s banker) to apply the priorities 
to the day-to-day decisions of which claims should be paid and when. 



Continuing Resolutions/the Debt Ceiling Page 15 



64 
Ch. 13 APPROPRIATIONS 31 USC 1341 & 1342 

THE ANTI-DEFICIENCY ACT 

Sec. 1341. Limitations on expending and obligating amounts 

(a)(1) An officer or employee of the United States Government of the 
District of Columbia government may not — 

(A) make or authorize an expenditure or obligation exceeding an 
amount available in an appropriation or fund for the expenditure or 
obligation; 

(B) involve either government in a contract or obligation for the 
payment of money before an appropriation is made unless authorized 
by law: 



Sec. 1342. Limitation on Voluntary Services. 

An officer or employee of the United States Government or of the 
District of Columbia government may not accept voluntary services for either 
government or employ personal services exceeding that authorized by law 
except for emergencies involving the safety of human life or the protection of 

property. As used in this section, the term "emergencies involving the 

safety of human life or the protection of property" does noi involve ongoing, 
regular functions of government the suspension of which would not 
imminently threaten the safety of human life or the protection of property. 



65 

The Civiletti Opinion 
43 Op. Atf y Gen. 29, 5 Op. Off. Legal Counsel 1 (1981) 



Authority for the Continuance of Government Functions 
During a Temporary Lapse in Appropriations 

Statutory authonty for an agency to incur obligations in advance of appropriations need 
not be express, but may be implied from the specific duties that have been imposed 
upon, or of authorities that have been invested in, the agency. 

The "authorized by law" exception in the Antideficiency Act exempts from that Act's 
general prohibition not only those obligations for which there is statutory authority, 
but also those obligations necessarily incident to initiatives undertaken within the 
President's constitutional powers. 

A government agency may employ personal services in advance of appropriations only 
when there is a reasonable and articulable connection between the function to be 
performed and the safety of human life or the protection of property, and when there is 
some reasonable likelihood that either or both would be compromised in some degree 
by delay in the performance of the function in question. 



January 16, 1981 



The PilESIDENT 

The White House 



My Dear Mr. President: You have asked my opinion concerning the 
scope of currently existing legal and constitutional authorities for the 
continuance of government functions during a temporary lapse in ap- 
propriations, such as the government sustained on October 1, 1980. As 
you know, some initial determination concerning the extent of these 
authorities had to be made in the waning hours of the last fiscal year in 
order to avoid extreme administrative confusion that might have arisen 
from Congress' failure timely to enact 11 of the 13 anticipated regular 
appropriations bills, ^ or a continuing resolution to cover the hiatus 
between regular appropriations. The resulting guidance, which I ap- 
proved, appeared in a memorandum that the Director of the OfTice of 
Management and Budget circulated to the heads of all departments and 
agencies on September 30, 1980. Your request, in effect, is for a close 
and more precise analysis of the issues raised by the September 30 
memorandum. 

Before proceeding with my analysis, I think it useful to place this 
opinion in the context of my April 25, 1980, opinion to you concerning 
the applicability of the Antideficiency Act, 31 U.S.C. § 665, upon lapses 



'Prior to October i. 1980. Congress had passed regular appropnaiions for fiscal year 1981 only for 
energy and water development. Pub. L. No. 96-367. 94 Stat. 1331 (Oct. I. 1980). 



66 

in appropriations, 43 Op. Att'y Gen. No. 24, 4 Op. O.L.C. 16 (1980). 
TTiat opinion "set forth two essential conclusions. First, if, after the 
expiration of an agency's appropriations, Congress has enacted no ap- 
propriation for the immediately subsequent period, the agency may 
make no contracts and obligate no further funds except as authorized 
by law. Second, because no statute generally permits federal agencies to 
incur obligations without appropriations for the pay of employees, 
agenices are not, in general, authorized by law to employ the services 
of their employees upon a lapse in appropriations. My interpretation of 
the Antideficiency Act in this regard is based on its plain language, its 
history, and its manifest purposes. 

TTie events prompting your request for my earlier opinion included 
the prospect that the then-existing temporary appropriations measure 
for the Federal Trade Commission (FTC) would expire in April, 1980, 
without extension, and that the FTC might consequently be left with- 
out appropriations for a significant period.^ The FTC did not then 
suggest that it possesses obligational authorities that are free from a 
one-year time limitation. Neither did it suggest, based on its interpreta- 
tion of the law at that time, that the FTC performs emergency func- 
tions involving the safety of human life or the protection of property 
other than protecting government property within the administrative 
control of the FTC itself. Consequently, the legal questions that the 
April 25, 1980, opinion addressed were limited. Upon determining that 
the blanket prohibition expressed in § 665(a) against unauthorized obli- 
gations in advance of appropriations is to be applied as written, the 
opinion added only that the Antideficiency Act does permit agencies 
that are ceasing their functions to fulfill certain legal obligations con- 
nected with the orderly termination of agency operations. ^ TTie opinion 
did not consider the more complex legal questions posed by a general 
congressional failure to enact timely appropriations, or the proper 
course of action to be followed when no prolonged lapse in appropria- 
tions in such a situation is anticipated. 

The following analysis is directed to those issues. Under the terms of 
the Antideficiency Act, the authorities upon which the government 
may rely for the continuance of functions despite a lapse in appropria- 
tions implicates two fundamental questions. Because the proscription of 
§ 665(a}. excepts obligations in advance of appropriations that are "au- 
thorized by law," it is first necessary to consider which functions this 
exception comprises. Further, given that § 665(b) expressly permits the 



-PTC actually sustained less than a one-day lapse in appropnations between the expiration, on 
April 30. 1980. of a transfer of funds for its use. Pub. L. No 96-219. 94 Stat. 128 (Mar. 28. 1980). and 
the enactment, on May 1. 1980. of an additional transfer. Pub. L. No. 96-240. 94 Stat. 342. Pnor to 
April 30, however, it appeared likely that a protracted congressional dispute concerning the tertns of 
the FTC's eventual authorization. Pub. L. No. 96-252. 94 Stat. 374 (May 28. 1980). would precipitate 
a lapse in appropriations for a significantly longer penod. 

' See note I 1. in/ra. 



67 

government to employ the personal service of its employees in "cases 
of emergency involving the safety of human life or the protection of 
property," it is necessary to determine how this category is to be 
construed. I shall address these questions in turn, bearing in mind that 
the most useful advice concerning them must be cast chiefly in the 
form of general principles. The precise application of these principles 
must, in each case, be determined in light of all the circumstances 
surrounding a particular lapse in appropriations. 

I. 

Section 665(a) of Title 31, United States Code provides: 

No officer or employee of the United States shall make or 
authorize an expenditure from or create or authorize an 
obligation under any appropiation or fund in excess of the 
amount available therein; nor shall any officer or employee 
involve the Government in any contract or obligation, for the 
payment of money for any purpose, unless such contract or 
obligation is authorized by law. (Emphasis added.) 

Under the language of § 665(a) emphasized above, it follows that, 
when an agency's regular appropriation lapses, that agency may not 
enter contracts or create other obligations unless the agency has legal 
authority to incur obligations in advance of appropriations. Such au- 
thority, in some form, is not uncommon in the government. For exam- 
ple, notwithstanding the lapse of regular appropriations, an agency may 
continue to have available to it particular funds that are subject to a 
multi-year or no-year appropriation. A lapse in authority to spend funds 
under a one-year appropriation would not affect such other authorities. 
13 Op. Atfy Gen. 288, 291 (1870). 

A more complex problem of interpretation, however, may be pre- 
sented with respect to obligational authorities that are not manifested in 
appropriations acts. In a few cases. Congress has expressly authorized 
agencies to incur obligations without regard to available appropria- 
tions.* More often, it is necessary to inquire under what circumstances 
statutes that vest particular functions in government agencies imply 
authority to create obligations for the accomplishment of those func- 
tions despite the lack of current appropriations. This, of course, would 
be the relevant legal inquiry even if Congress had not enacted the 
Antideficiency Act; the second phrase of § 665(a) clearly does no more 
than codify what, in any event and not merely during lapses in appro- 
priations, is a requirement of legal authority for the obligation of public 
funds. ^ 



*See. e.g.. 25 U.S.C. §99; 31 U.S.C. §668; 41 U.S.C. § 11. 

*This rule has. in fact, been expressly enacted in some form for 160 of the 191 years since Congress 
first convened. The Act of May I. 1820, provided: 

[N]o contract shall hereafter be made by the Secretary of State, or of the Treasury, or 

Coniinucd 



68 

Previous Attorneys General and the Comptrollers General have had 
frequent occasion to address, directly or indirectly, the question of 
implied authority. Whether the broader language of all of their opinions 
is reconcilable may be doubted, but the conclusions of the relevant 
opinions fully establish the premise upon which my April 25, 1980, 
memorandum to you was based: statutory authority to incur obligations 
in advance of appropriations may be implied as well as express, but 
may not ordinarily be inferred, in the absence of appropriations, from 
the kind of broad, categorical authority, standing alone, that often 
appears, for example, in the organic statutes of government agencies. 
The authority must be necessarily inferrable from the specific terms of 
those duties that have been imposed upon, or of those authorities that 
have been invested in, the officers or employees purporting to obligate 
funds on behalf of the United States. 15 Op. Att'y Gen. 235, 240 (1877). 
Thus, for example, when Congress specifically authorizes contracts 
to be entered into for the accomplishment of a particular purpose, the 
delegated officer may negotiate such contracts even before Congress 
appropriates all the funds necessary for their fulfillment. E.g., 30 Op. 
Att'y Gen. 332, 333 (1915); 30 Op. Att'y Gen. 186, 193 (1913); 28 Op. 
Att'y Gen. 466, 469-70 (1910); 25 Op. Att'y Gen. 557, 563 (1906). On 
the other hand, when authority for the performance of a specific 
function rests on a particular appropriation that proves inadequate to 
the fulfillment of its purpose, the responsible officer is not authorized to 
obligate further funds for that purpose in the absence oi additional 
appropriations. 21 Op. Att'y Gen. 244, 248-50 (1S95); 15 Op. Att'y 
Gen. 235, 240 (1877); 9 Op. Att'y Gen. 18, 19 (1857); 4 Op. Att'y Gen. 
600, 601-02 (1847); accord. 28 Comp. Gen. 163, 165-66 (1948). 

This rule prevails even though the obligation of funds that the official 
contemplates may be a reasonable means for fulfilling general responsi- 



of the Depanment of War. or of the Navy, except under a law authorizing the same. 
or under an appropnation adequate to its fulfillment. 
3 Stat. 567, 568. The Act of March 2, 1861. extended the rule as follows: 

No contract or purchase on behalf of the United States shall be made unless the same 
is authorized by law or is under an appropnation adequate to its fulfillment, except in 
the War and Navy Depanments. for clothing, subsistence, forage, fuel, quarters, or 
transp>ortation. which, however, shall not exceed the necessities of the current year. 
12 Stat. 214, 220. Congress reiterated the ban on obligations in excess of appropnationi by enacting 
the Antideflciency Acr in 1870: 

[I)t shall not be lawful for any department of the government to expend in any one 

fiscal year any sum in excess of appropnations made by Congress for that fiscal year, 

ror to involve the government in any contract for the future payment of money in 

excess of appropnations. 

Act of July 12. 1870, ch. 251. §7. 16 Stat. 230, 251. Congress substantially reenacted this provision in 

1905, adding the proviso "unless such contract or obligation is authonzed by law," Act of March 3, 

1905. ch. 1484, §4. 33 Stat. 1214, 1257. and reenacted it again in 1906, Act of Feb. 27. 1906. ch. 510. 

§ 3, 34 Stat. 27, 48. Section 665(a) of Title 31, United States Code, enacted in its current form in 1950, 

Act of Sept. 6. 1950, Pub. L. No. 81-759, § 1211, 64 Stat. 595, 765, is substantially the same as these 

earlier versions, except that, by adding an express prohibition against unauthonzed obligations "in 

advance of' appropriations lo the prohibition against obligations "in excess of appropriations, the 

modern version indicates even more forcefully Congress' intent to control the availability of funds to 

government officers and employees. 



69 

bilities that Congress has delegated to the official in broad terms, but 
without conferring specific authority to enter into contracts or other- 
wise obligate funds in advance of appropriations. For example, Attorney 
General McReynolds concluded, in 1913, that the Postmaster General 
could not obligate funds in excess of appropriations for the employment 
of temporary and auxiliary mail carriers to maintain regular service, 
notwithstanding his broad authorities for the carrying of the mails. 
30 Op. Att'y Gen. 157, 161 (1913). Similarly, in 1877, Attorney General 
Devens concluded that the Secretary of War could not, in the absence 
of appropriations, accept "contributions" of materiel for the army, e.g., 
ammunition and medical supplies, beyond the Secretary's specific au- 
thorities to contract in advance of appropriations. 15 Op. Att'y Gen. 
209, 211 (1877).^ 

Ordinarily, then, should an agency's regular one-year appropriation 
lapse, the "authorized by law" exception to the Antideficiency Act 
would permit the agency to continue the obligation of funds to the 
extent that such obligations are: (1) funded by moneys, the obligational 
authority for which is not limited to one year, e.g., multi-year appro- 
priations; (2) authonzed by statutes that expressly permit obligations m 
advance of appropriations; or (3) authorized by necessary implication 
from the specific terms of duties that have been imposed on, or- of 
authorities that have been invested in, the agency.^ A nearly govern- 
ment-wide lapse, however, such as occurred on October 1, 1980, impli- 
cates one further question of executive authonty. 

Unlike his subordinates, the President performs not only functions 
that are authorized by statute, but functions authorized by the Constitu- 
tion as well. To take one obvious example, the President alone, under 
Article II, § 2, clause 1 of the Constitution, "shall have Power to grant 
Reprieves and Pardons for Offenses against the United States, except in 
Cases of Impeachment." Manifestly, Congress could not deprive the 
President of this power by purporting to deny him the minimum 



* Accord, 37 Comp. Gen. 155, 156 (1957) (Atomic Energy Commission's broad responsibilities under 
the Atomic Energy Act do not authonze it to enter into a contract for supplies or servicer to be 
furnished in a fiscal year subsequent to the year the contract is made); 28 Comp. Gen. 300. 302 (1948) 
(Treasury Department's discretion to establish reasonable compensation for Bureau of the Mint 
employees does not confer authonty to grant wage increases that would lead to a deficiency). 

'It was on this basis that I determined, in approving. the September 30, 1980, memorandum, that the 
responsible departments are "authonzed by law" to incur obligations in advance of appropnations for 
the administration of benefit payments under entitlement programs when the funds for the benefit 
payments themselves are not subject to a one-year appropnation. Certain so-called "entitlement 
programs," *.^.. 'Old-Age and Survivors Insurance, 42 U.S.C. § 401(a), are funded through trust funds 
into which a certain portion of the public revenues are automatically appropnatcd. Notwithstanding 
this method of funding the entitlement payments themselves, the costs connected with the administra- 
tion of the trust funds are subject to annual appropnations. 42 U.S.C. § 401(g). It might be argued that 
a lapse in administrative authonty alone should be regarded as expressing Congress' intent that benefit 
payments also not continue. The continuing appropnation of funds for the benefit payments them- 
selves, however, substantially belies this argument, especially when the benefit payments are to be 
rendered, at Congress' direction, pursuant to an entitlement formula. In the absence of a contrary 
legislative history to the benefit program or affirmative congressional measures to terminate the 
program, I think it proper to infer authority to continue the administration of the program to the 
extent of the remaining benefit funding 



70 

obligational authority sufilcient to carry this power into effect. Not all 
of the President's powers are so specifically enumerated, however, and 
the question must consequently arise, upon a government-wide lapse in 
appropriations, whether the Antideficiency Act should be construed as 
depriving the President of authority to obligate funds in connection 
with those initiatives that would otherwise fall within the President's 
powers. 

In my judgment, the Antideficiency Act should not be read as neces- 
sarily precluding exercises of executive power through which the Presi- 
dent, acting alone or through his subordinates, could have obligated 
funds in advance of appropriations had the Antideficiency Act not been 
enacted. With respect to certain of the President's functions, as illus- 
trated above, such an interpretation could raise grave constitutional 
questions. It is an elementary rule that statutes should be interpreted, if 
possible, to preclude constitutional doubts, Crowell v. Benson. 285 U.S. 
22, 62 (1932), and this rule should surely be followed in connection 
with a broad and general statute, such as 31 U.S.C. § 665(a), the history 
of which indicates no congressional consideration at all of the desirabil- 
ity of limiting otherwise constitutional presidential initiatives. The 
President, of course, cannot legislate his own obligational authorities; 
the legislative power rests with Congress. As set forth, however," in Mr. 
Justice Jackson's seminal concurring opinion in Youngstown Sheet & 
Tube Co. V. Sawyer, 343 U.S. 579, 635 (1952): 

The actual art of governing under our Constitution 
does not and cannot conform to judicial definitions of the 
power of any of its branches based on isolated clauses or 
even single Articles torn from context. While the Consti- 
tution diffuses power the better to secure liberty, it also 
contemplates that practice will integrate the dispersed 
powers into a workable government. It enjoins upon its 
branches separateness but interdependence, autonomy but 
reciprocity. Presidential powers are not fixed but fluctu- 
ate, depending on their disjunction or conjunction with 
those of Congress. 

Following' this reasoning, the Antideficiency Act is not the only 
source of law or the only exercise of congressional power that must be 
weighed in determining whether the President has authority for an 
initiative that obligates funds in advance of appropriations. Tlie Presi- 
dent's obligational authority may be strengthened in connection with 
initiatives that are grounded in the peculiar institutional powers and 



•a majority of the Supreme Coun has repeatedly given express endorsement to Mr. Justice 
Jackson's view of the separation of powers. Nixon v. Administrator of General Services. 433 U.S. *25. 
443 (1977); Buckley v. Valeo. 424 U.S. 1. 122 (1976): United States v. Nixon. 418 U.S. 683. 707 (1974); 
Old Dominion Branch No. 496. National Association of Letter Carriers v. Austin. 418 U.S. 264. 273 n.5 
(1974). 



71 

competency of the President. His authority will be further buttressed in 
connection with any initiative that is consistent with statutes — and thus 
with the exercise of legislative power in an area of concurrent author- 
ity — that are more narrowly drawn than the Antideficiency Act and 
that would otherwise authorize the President to carry out his constitu- 
tionally assigned tasks in the manner he contemplates. In sum, with 
respect to any presidential initiative that is grounded in his constitu- 
tional role and consistent with statutes other than the Antideficiency 
Act that are relevant to the initiative, the policy objective of the 
Antideficiency Act must be considered in undertaking the initiative, but 
should not alone be regarded as dispositive of the question of authority. 

Unfortunately, no catalogue is possible of those exercises of presiden- 
tial power that may properly obligate funds in advance of appropria- 
tions.' Clearly, such an exercise of power could most readily be justi- 
fied if the functions to be performed would assist the President in 
fulfilling his peculiar constitutional role, and Congress has otherwise 
authorized those or similar functions to be performed within the control 
of the President. '° Other factors lo be considered would be the urgency 
of the initiative and the likely extent to which funds would be obligated 
in advance of appropriations. 

In sum, I construe the "authorized by law" exception contained 
within 31 U.S.C. § 665(a) as exempting from the prohibition enacted by 
the second clause of that section not only those obligations in advance 
of appropriations for which express or implied authority may be found 
in the enactments of Congress, but also those obligations necessarily 
incident to presidential intiatives undertaken within his constitutional 
powers. 

II. 

In addition to regulating generally obligations in advance of appro- 
priations, the Antideficiency Act further provides, in 31 U.S.C. 
§ 665(b): 

No officer or employee of the United States shall accept 
voluntary service for the United States or employ per- 



• As stated by Attorney General (later Justice) Murphy: 

(T]he Executive has powers not enumerated in the sututes — powers derived not from 
statutory grants but from the Constitution. It is universally recognized that the consti- 
tutional duties of the Executive carry with them constitutional powers necessary for 
their proper performance. These constitutional powers have never been specifically 
defined, and in fact cannot be, since their extent and limitations are largely dependent 
upon conditions and circumstances. In a measure this is true with respect to most of 
the powers of the Executive, both constitutional and statutory. The nght to take 
specific action might not exist under one sute of facts, while under another it might be 
the absolute duty of the Executive to take such action. 
39 Op. Atfy Gen. 343, 347-48 (1939). 

"One likely category into which certain of these functions would fall would be "the conduct of 
foreign relations essential to the national secunty," referred to in the September 30. 1980. memoran- 
dum. 



72 

sonal service in excess of that authorized by law, except 
in cases of emergency involving the safety of human life 
or the protection of property. 

Despite the use of the term "voluntary service," the evident concer 
underlying this provision is not government agencies' acceptance of th 
benefit of services rendered without compensation. Rather, the origin: 
version of § 665(b) was enacted as part of an urgent deficiency apprc 
priation act in 1884, Act of May 1, 1884, ch. 37, 23 Stat. 15, 17, i 
order to avoid claims for compensation arising from the unauthorize 
provision of services to the government by non-employees, and claim 
for additional compensation asserted by government employees per 
forming extra services after hours. That is, under § 665(b), governmer 
officers and employees may not involve the government in contrac: 
for employment, i.e.. for compensated labor, except in emergenc 
situtations. 30 Op. Att'y Gen. 129, 131 (1913). 

Under § 665(b), it is thus crucial, in construing the government 
authority to continue functions in advance of appropriations, to inter 
pret the phrase "emergencies involving the safety of human life or th 
protection of property." Although the legislative history of the phras 
sheds only dim light on its precise meaning, this history, coupled wii, 
an administrative history — of which Congress is fully aware — of th 
interpretation of an identical phrase in a related budgeting contex: 
suggests two rules for identifying those functions for which governmen 
officers may employ personal services for compensation in excess o 
legal authority other than § 665(b) itself. First, there must be som 
reasonable and articulable connection between the function to be per 
formed and the safety of human life or the protection of p.open> 
Second, there must be some reasonable likelihood that the safety c 
human life or the protection of property would be compromised, i; 
some degree, by delay in the performance of the function in question 

As originally enacted in 1884, the provision forbade unauthorizei 
employment "except in cases of sudden emergency involving the loss o 
human life or the destruction of property." 23 Stat. 17. (Emphasi 
added.) The clause was added to the House-passed version of the 
urgent deficiency bill on the floor of the Senate in order to preserve th- 
function of the government's "life-saving stations." One Senator cau 
tioned: 

In other words, at the life-saving stations of the United 
States, for instance, the officers in charge, no matter what 
the urgency and what the emergency might be, would be 
prevented [under the House-passed bill] from using the 
absolutely necessary aid which is extended to them in 
such cases because it had not been provided for by law in 
a statute. 



73 

15 Cong. Rec. '2.143 (1884) (remarks of Sen. Beck); see also id. at 3,410- 
1 1 (remarks of Rep. Randall). This brief discussion confirms what the 
originally enacted language itself suggests, namely, that Congress ini- 
tially contemplated only a very narrow exception to what is now 
§ 665(b), to be employed only in cases of dire necessity. 

In 1950, however, Congress enacted the modern version of the 
Antideficiency Act and accepted revised language for 31 U.S.C. 
§ 665(b) that had originally been suggested in a 1947 report to Congress 
by the Director of the Bureau of the Budget and the Comptroller 
General. Without elaboration, these officials proposed that "cases of 
sudden emergency" be amended to "cases of emergency," "loss of 
human life" to "safety of human life," and "destruction of property" to 
"protection of property." These changes were not qualified or ex- 
plained by the report accompanying the 1947 recommendation or by 
any aspect of the legislative history of the general appropriations act 
for fiscal year 1951, which included the modern § 665(b). Act of Sep- 
tember 6, 1950, Pub. L. No. 81-759, § 1211, 64 Stat. 765. Consequently, 
we infer from the plain import of the language of their amendments 
that the drafters intended to broaden the authority for emergency 
employment. In essence, they replaced the apparent suggestion of a 
need to show absolute necessity with a phrase more readily suggesting 
the sufTiciency of a showing o^ reasonable necessity in connection with 
the safety of human life or the protection of property in general. 

This interpretation is buttressed by the history of interpretation by 
the Bureau of the Budget and its successor, the Office of Management 
and Budget, of 31 U.S.C. § 665(e), which prohibits the apportionment 
or reapportionment of appropriated funds in a manner that would 
indicate the need for a deficiency or supplemental appropriation, except 
in, among other circumstances, "emergencies involving the safety of 
human life, [or] the protection of property." § 665(e)(1)(B). " Directors 



"As provisions containing the same language, enacted at the same time, and aimed at related 
purposes, the emergency provisions of §§ 665(b) and 665(eKlKB) should not be deemed in pan materia 
and given a like construction. Northcross v. Memphis Board of Education. 412 U.S. 427. 428 (1973), 
although at first blush, it may appear that the consequences of identifying a function as an "emer- 
gency" function may differ under the two provisions. Under § 665(b), if a function is an emergency 
function, then a federal olTicer or employee may employ what otherwise would constitute unauthor- 
ized personal service for its performance; in this sense, the emergency nature of the function tnggers 
additional obiigational authority for the government. In contrast, under § 665(eXl)(B), if a function is 
an emergency function, OMB may allow a deficiency apportionment or reapportionment — this permit- 
ting the expenditure of funds at a rate that could not be sustained for the entire fiscal year without a 
deficiency — but the effect of such administrative action would not be to tnggcr new obligaiionai 
authority automatically. That is. Congress could always decline to enact a subsequent deficiency 
appropnation, thus keeping the level of spending at the previously appropriated level.) 

This distinction, however, is outweighed by the common practical effect of the two provisions, 
namely, that when authonty is exercised under either emergency exception, Congress, in order to 
accomplish all those functions it has authonzed, must appropnate more money. If, after a deficiency 
apportionment or reapportionment. Congress did not appropnate additional funds, its purposes would 
be thwarted to the extent that previously authonzed functions could not be continued until the end of 
the fiscal year. This fact means that, although deficiency apportionments and reapportionments do not 
create new obiigational authonty. they frequently impose a necessity for further appropnations as 

Condnucd 



74 

of the Bureau of the Budget and of the OfTice of Management and 
Budget have granted dozens of deficiency reapportionments under this 
subsection in the last 30 years, and have apparently imposed no test 
more stringent than the articulation of a reasonable relationship be- 
tween the funded activity and the safety of human life or the protection 
of property. Activities for which deficiency apportionments have been 
granted on this basis include Federal Bureau of Investigation criminal 
investigations, legal services rendered by the Department of Agricul- 
ture in connection with state meat inspection programs and enforce- 
ment of the Wholesome Meat Act of 1967, 21 U.S.C. §§601-695, the 
protection and management of commodity inventories by the Commod- 
ity Credit Corporation, and the investigation of aircraft accidents by 
the National Transportation Safety Board. These few illustrations dem- 
onstrate the common sense approach that has guided the interpretation 
of § 665(e). '^ Most important, under § 665(e)(2), each apportionment or 
reapportionment indicating the need for a deficiency or supplemental 
appropriation has been reported contemporaneously to both Houses of 
Congress, and, in the face of these reports. Congress has not acted in 
any way to alter the relevant 1950 wording of § 665(e)(1)(B), which is, 
in this respect, identical to § 665(b). *^ 

It was along these lines that I approved, for purposes of the im- 
mediate crisis, the categories of functions that the Director of the 
Office of Management and Budget included in his September 30, 1980, 
memorandum, as illustrative of the areas of government activity in 
which emergencies involving the safety of human life and the protec- 



compelling as ihc government's employment of personal services in an emergency in advance of 
approprii-.ions. There is thus no genume reason for ascnbing. as a matter of legal interpretation, 
greater or lesser scope to one emergency provision than to the other. 

"In my April 25, 1980. memorandum to you. I opined that the Antideficiency Act permits 
departments and agencies to terminate operations, upon a lapse in appropriations, in an orderly way. 
43 Op. Att'y Gen. No. 24, at 1 (4 Op. O L.C.— (1980)]. The functions that, in my judgment, the 
orderly shutdown of an agency for an indefinite period or permanently would enuil include the 
emergency protection, under § 665(b). of the agency's propcny by its own employees until such 
protection can be arranged by another agency with appropnations; compliance, within the "authonzed 
by law" exception to § 665(a). with statutes providing for the nghts of employees and the protection 
of government information; and the transfer, also under the "authorized by law" exception to § 665(a), 
of any matters within the agency's junsdiction that are also under the junsdiction of another agency 
that Congress has funded and thus indicated its intent to pursue. Compliance with the spint, as well as 
the letter, of the Antideficiency Act requires that agencies incur obligations for these functions in 
advance of appropnations only to the minimum extent necessary to the fulfillment of their legal duties 
and with the end in mind of terminating operations for some substantial p>cnod. It would hardly be 
pruderrt, much less consistent with the spirit of the Antideficiency Act, for agencies to incur obliga- 
tions in advance of appropriations in connection with "shutdown functions" that would only be 
justified by a more substantial lapse m appropnations than the agency, in its best judgment, expects. 
"The Supreme Court has referred repeatedly to the: 

venerable rule that the construction of a statute by those charged with its execution 
should be followed unless there are compelling indications that it is wrong, especially 
when Congress has refused to alter the administrative construction. 
Rtd Lion Broadcasting Co. v. FCC. 395 U.S. 367, 381 (1969) (footnotes omitted). Since enacting the 
modern Antideficiency Act. including §665(eKlKB), in 1950, Congress has amended the act three 
times, including one amendment to another aspect of § 665(c). At no time has Congress altered this 
inierpreiaiion of §665(eKlKB) by the Office of Management and Budget, which has been consistent 
and IS consistent with the statute. Compare 43 Op. Att'y Gen. No 24, 4 Op. O.L.C. 16 (1980) 



75 

tion of property might arise. To erect the most soHd foundation for the 
Executive Branch's practice in this regard, I would recommend that, in 
preparing contingency plans for periods of lapsed appropriations, each 
government department or agency provide for the Director of the 
OfTice of Management and Budget some written description, that could 
be transmitted to Congress, of what the head of the agency, assisted by 
its general counsel, considers to be the agency's emergency functions. 
In suggesting the foregoing principles to guide the interpretation of 
§ 665(b), I must add my view that, in emergency circumstances in 
which a government agency may employ personal service in excess of 
legal authority other than § 665(b), it may also, under the authority of 
§ 665(b), it may also, under the authority of § 665(b), incur obligations 
in advance of appropriations for material to enable the employees 
involved to meet the emergency successfully. In order to effectuate the 
legislative intent that underlies a statute, it is ordinarily inferred that a 
statute "carries with it all means necessary and proper to carry out 
effectively the purposes of the law." United States v. Louisiana. 265 F. 
Supp. 703, 708 (E.D. La. 1966) (three-judge court), affd, 386 U.S. 270 
(1967). Accordingly, when a statute confers authorities generally, those 
powers and duties necessary to effectuate the statute are implied. See 
2A J. Sutherland, Statutes and Statutory Construction § 55.04 ("Sands 
ed. 1973). Congress has contemplated expressly, in enacting § 655(b), 
that emergencies will exist that will justify incurring obligations for 
employee compensation in advance of appropriations; it must be as- 
sumed that, when such an emergency arises, Congress would intend 
those persons so employed to be able to accomplish their emergency 
functions with success. Congress, for example, having allowed the gov- 
ernment to hire firefighters must surely have intended that water and 
firetrucks would be available to them. ^"^ 

III. 

The foregoing discussion articulates the principles according to 
which, in my judgment, the Executive can p'-operly identify those 
functions that the government may continue upon lapses in appropria- 
tions. Should a situation again present itself as extreme as the emer- 
gency that arose on October 1, 1980, this analysis should assist in 
guiding planning by all departments and agencies of the government. 

As the law is now written, the Nation must rely initially for the 
efiicient operation of government on the timely and responsible func- 
tioning of the legislative process. The Constitution and the 



^* Accord, 53 Comp. Gen. 71 (1973), holding that, in light of a dctennination by the Administrator 
of General Services that such expenses were "necessanly incidental to the protection of propeny of 
the United States dunng an extreme emergency." id. at 74. the Comptroller General would not 
question General Services Administration (GSA) payments for food for GSA special police who were 
providing round-the-clock protection for a Bureau of Indian Affairs building that had been occupied 
without authonty. 



76 

Antideficiency Act itself leave the Executive leeway to perform essen- 
tial funcStions and make the government "workable." Any inconvenience 
that this system, in extreme circumstances, may bode is outweighed, in 
my estimation, by the salutary distribution of power that it embodies. 

Respectfully, 
Benjamin R. Civiletti 




77 

L). S. Department <if Jtistice 
Office of Legal Counsel 



OfficrofUic Wailiinfian.D.C. lOSSO 

AiAituni Attorney Gcncrtl 



August 16, 1995 

MEMORANDUM FOR ALICE RTVLIN 

DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET 

From: Waller Dellingcr /o£Z^/y^ 

Assistant Attorney General ' 

Re: Government Operations in the Event of a Lapse in Appropriations 



This memorandum responds to your request to the Attorney General for advice 
regarding the permissible scope of government operations during a lapse in appropriations.' 

The Constitution provides that "no money shall be drawn from the treasury, but in 
consequence of appropriations made by law." U.S. Const, art. I. § 9, cl. 7. Tlic treasury is 
further protected through the Autidcficicncy Act, which among oilier things proliibits all 
officers and employees of the federal government from entering into obligations in advance 
of appropriations and prohibits employing federal personnel except in emergencies, unless 
otherwise authorized by law. See 31 U.S.C. § 1341 et seq. ^ 

In llic eirly 1980s, Attorney General Civiletti issued two opinions with respect to the 
implications of the Antideficicncy Act. 2fis "Applicability of the Antideficiency Act Upon A 
Lapse in an Agency's Appropriations," 4A Op. O.L.C. 16 (1980); "Authority for the 
Continuance of Government Functions During a Temporary Lapse in Appropriations," 5 Op. 
O.L.C. 1(1981) (1981 Opinion). The 1981 Opinion has frequently been cited in the ensuing 
years. Since that opinion wa^ written, the Aniidcficicncy Act has been amended in one 



' We do not in this memorandum address the difTcrent set of issues thai arise when the limit on the public 
debt has been reached and Congress has failed to raise the debt ceiling. 

' f-or the purposes of this inquiry, there are two relevant provisions of the Antideficiency Act. The rirsi 

provides that "lajn officer or employee of tlie United Slates Government or the District of Columbia government 
nuy not . . . involve cither govemmcnl in a contract or obligation for the payment of money before an 
appropriation is made unless auUiorixed by law." 31 U.S.C- § 1341(a)(1)(B). The second provides that "[»)" 
officer or employee of ihc United Stales Govemmcnl . . . may not accept voluntary services . or employ 
personal services exceeding that authorized by law except for cmcruciicies involving the <;afei\ of hum.in life or 
the protection of property." 31 U.S.C. } 1342. 



78 

respect, and we analyze the effect of thai amendment below. The amendment amplified on 
the emergencies excepti-jn for employing federal personnel by providing that "[a}s used in 
this section, the term 'ccicrgencics involving the safety of human life or the protection of 
property' docs not include ongoing, regular functions of government the suspension of which 
would not imminently threaten the safety of human life or the protection of propcay." 31 
U.S.C. § 1342. 

With respect to iic effects of this amcndmeni, we continue to adhere to the view 
expressed to General Ccunscl Robert Damus of the Office of Management and Budget that 
"the 1990 amendment tc 31 U.S.C. § 1342 docs not detract from the Attorney General's 
earlier analyses;, if anj^hing, the amendment clarified that the Antideficiency Act's exception 
for emergencies is narnJw and must be applied only when a threat to life or property is 
imminent." Letter froc Walter Dellingcr to Robert G. Damus, October 19, 1993. In order 
to ensure that the clarif.cation of the 1990 amendment is not overlooked, we believe that one 
aspect of the 1981 Cpiiiion's description of emergency governmental funaions should be 
modified. Otherwise, Lhe 1981 Opinion continues to be a sound analysis of the legal 
authorities respecting ?rvcmmcnt operations when Congress" has failed to enact regular 
appropriations bills or i continuing resolution to cover a hiatus between regular 
appropriations. 



I. 

Since the issuarce of the extensive 1981 Opinion, the prospect of a general 
appropriations lapse hsj arisen frequently. In 1981, 1982, 1983. 1984, 1986, 1987 and 
1990, lapses of funding ranging from several houi^ to three days actually did occur. While 
several of these occurred entirely over weekends, others required the implementation of plans 
to bring government operations into compliance with the requirements of the Antideficiency 
Act. These prior rcspmscs to the threat of or actual lapsed appropriations have been so 
commonly referred to as cases of "shutting down the government" that this has become a 
nearly universal shorthmd to describe the effect of a lapse in appropriations. It will assist in 
understanding the trvje extent of the Act's requirements to realize that this is an entirely 
inaccurate description. Were the federal government actually to shut down, air traffic 
controllers would not sciff FAA air control facilities, with the consequence that the nation's 
airports would be closed and commerciai air travel and transport would be brought to a 
standstill. Were the federal government to shut down, the FBI, DEA, ATF and Customs 
Service would stop interdicting and investigating criminal activities of great varieties, 
including drug smuggling, fraud, machine gun and explosives sales, and kidnapping. The 
country's borders would not be patrolled by the border patrol, witl\ an extraordinary increase 
in illegal immigration ls a predictable result. In the ab.sence of government supervision, the 
stock markets, commodities and futures exchanges would be unable to operate. Meat and 
poultry would go uninspected by federal meat inspectors, and therefore could not be 
marketed. Were the federal government to shut down, medicare payments for vital 
operations and medica] services would cca.sc. VA ho.spitals would abandon ptiticnts and close 

- 2 - 



79 

their doors. These arc simply a tew of the significam impacts of a federal government shut 
down. Cumulatively, these actions and the others re<^uirvxl as part of a tmc shut down of the 
federal government would impose signincant health and safety risks on millions of 
Americans, some of which would undoubtedly result in the loss of human life, and they 
would immediately result in massive dislocations of and losses to the private economy, as 
well as disruptions of many aspects of society and of private activity generally, producing 
incalculable amounts of suffering and loss. • 

The Antidcficicncy Act imposes substantial restrictions on obligating funds or 
contracting for services in advance of appropriations or beyond appropriated levels, 
restrictions that ^ill cause significant hardship should aiiy lapse in appropriations extend 
much beyond those we have historically experienced. To be sure, even the shon lapses that 
have occurred have caused serious dislocations in the provision of services, generated 
wasteful expenditures as agencies have closed down ccruin operations and then restaned 
Ihcm, and disrupted federal activities. Nevertheless, for any short-term lapse in 
appropriations, at least, the federal government will not be truly "shut down" to the degree 
just described, simply because Congress has itself provided that some activities of 
government should coniiauc even when annual appropriations have not yet been enacted (o 
fund current activities. 

The most significant provisions of the Antidcficicncy Act codify three basic 
restnctions on the operation of government activities. First, the Act implements the 
constitutional requirement that "No Money shall be drawn from the Treasury, but in 
Consequence of Appropriations made by Law," U.S. Const, an. I, § 9, cl. 7. Second, 
when no current apprxjpriations measure has been passed to fund contracts or obligations, it 
restricts entering into contixicts or incurring obligations (except as to situations autliorized by 
other law). Third, it restricts employing the services of employees to perform govenunem 
functions beyond authorized levels to emergency situations, where the failure to perfonn 
those functions would result in an imminent threat to the safety of human life or the 
protection of propeny.' The 1981 Opinion elaborated on the various exceptions in the 
Amideficiency Act that permit some continuing government ftmctions, and we will only 
summarize the major categories here: 



♦ Multi-year appropriations and indefinite appmpriations. 

Not all government functions arc funded with annual appropriations. Some operat< 
under multi-year appropriations and others operate under indefinite appropriations provisic 
that do not require passage of annual appropriations legi.slation. Social security is a 
prominent example of a program that operates under an indefinite appropriation. In such 



These restrictions are enforced by cnminni penalties. An officer or employee oC ihc United States who 
knowingly and willfully violates the restrictions shall be Tined not more than $5,000. imprisoned for not more 
(hiui 2 years, or both. 31 U.S.C. §1350. 



80 

cases, benefit checks coniinue to be honored by the treasury, becnusc there is no lapse in the 
relevant appropriation. 

• Express authorizatio ns: contracting authority and borrowing authority. 

Congress provides express authority for agencies to enter into coniracis or to borrow 
funds to accomplish some of their functions. An example is the "food and forage" authority 
given to the Department of Defense, which authorizes contracting for necessary clothing, 
subsistence, forage, supplies, etc. without an appropriation. In such ca^es, obligating funds 
or contracting can continue, because the Antidcficiency Act does not bar such activities wlien 
they arc authorized by h*'. As the 1981 Opinion emphasized, the simple authorization or 
even direction to pcrforrf. a certain action that standardly can be found in agencies' enabling 
or Clonic legislation is Insufficient to support a finding of express authoriraiion or necessary 
implication (the exccpticr. addressed next in the text), standing alone. There must be some 
additional indication of t.- evident intention to have the activity continue despite an 
appropriations lapse. 

• Necessary implicstions: authority to obligate that is necessarily implied bv statute. 

Tlic 1981 Opinion concluded that the Antideficiency Act contemplates that a limited 
number of government functions funded through annual appropriations must otherwise 
-continue despite a lapse'in their appropriations because the lawful continuation of other 
activities necessarily implies that these funaions will continue as well. Examples include the 
check writing and disiribjcing functions necessary to disburse the social security benefits that 
operate under indefinite appropiiations. Fuither examples include contracting for the 
materials essential to the perfonnancc of the emergency services that continue under that 
separate exception. In sedition, in a 1980 opinion, Atomcy General Civilclti opined tliat 
agencies are by necessar- implication authorized "to incur those minimal obligations 
necessary to closing [thi] agency." The 1981 opinion reiterated this conclusion and 
consistent practice since that time has provided for the orderly termination of those functions 
that may not continue d-ring a period of lapsed appropriations. 

• Ohiipations nece<vary to the discharee of the President's con st itutional duties and 

Efforts should be made to fnterprel a general statute such as the Antidcficiency Act to 
avoid the significant cor.iiitutional questions that would arise were the Act txiad to critically 
impair the exercise of constitutional ftmctions assigned to the executive. In this regard, the 
1981 Opinion noted that when dealing with functions instrumental in the discharge of the 
President's constitutionzj p<iwers, the "President's obligational authority . . . will, be funher 
buttressed in conncctior. with any initiative that is consistent with statutes -- and thus with the 
exercise of legislative prwer in an area of concurrent authority — that arc mote narrowly 
drawn than the Antideficiency Act and thai would otherwise authorize the President to carry 



4 - 



81 

out his constitutionally assigned tasks in ilic manner he contemplates." 1981 Opinion, at 6- 

7." 

" Personal or voiimta n' ser/iccs "for emerpencic!; involving the safety of human life or 

the protection of Drooertv." 

The Antidcficicncy Act prohibits contracting or obligating in advance of 
appropriations generally, except for circumstances just summarized above. Tlic Act also 
contains a separate exception applicable to personal or voluntary services that deal with 
emergencies. 31 U.S.C. § 1342. This section was amended in 1990. Wc will analyau; the 
effects of that aijiendment in Pan n of this memorandum. 

Finally, one issue not explicitly addressed by the 1981 Opinion seems to us to have 
been settled by consistent administrative practice. That issue concerns whether the 
emergency status of government fimctions should be deienmincd on the assumption tliat the 
private economy will continue operating during a lapse in appropriations, or whether the 
proper assumption is that the private economy will be inicmiptcd. As an example of the 
difference this might make, consider that air traffic controllers perform emergency functions 
if aircraft continue to take off and land, but would not do so if aircraft were grounded. The 
correct assumption in the context of an anticipated long period of lapsed appropriations, 
where it might be possible to phase in some alternatives to the government activity in 
question;^ and thus ovei'linic to suspend the government function without thereby imminently 
threatening human life or property, is not entirely clear. However, with respect to any short 
lapse in appropriations, the practice of past adminisiraiions has been to assume the continued 
operation of the private economy, and so air traffic controllers, meat inspectors, and other 
similarly situated personnel have been considered to be within the emergency exception of 
§ I.U2. 



The Allomeys GenenJ and this office Hrvc declined to citalog what actionc nughl be undertaken this 
heading. In 1981, for example. Attorney Gcntrai Civiletli quoted Attorney General (later Justice) Frank 
Murphy. "These constituiloaai powers have never been s-nccificaily defined, and in fact uuinot be. since their 
extent and limitations arc largely dependent upon conditions and circunrutanccs. . . . The right to lake specific- 
action might not exist under one state of facts, while under another it might be tlie absolute duty 9f the 
Executive to take such action.' 5 Op. O.L.C. at 7 n.9 (quoting 39 Op. Ait'y Gen. 343. 347-48 (1939)). This 
power should tic called upon cautiously, as the courts have received such executive branch assertions 
skeptically. See, e.g. . YoungKown Sheet & Tube Co. v Sawyer . 343 U.S. 579 (19.52); George v. Ishim.'^ru . 
840 F. Supp. 68 (D.D.C.). vacated as moot . No. 94-5111, 1994 WL 517746 (D.C. Cir., Aug. 25, 1994). But 
see Haig v. Aeee . 453 U.S. 280 (19K]); in re Ncagle . 135 U.S. 1 (1890). 



82 



The icxi of 31 U.S.C. §1342, as amended in 1990, now reads: 

An officer or employee of the United States Government or of the District of 
Columbia government may not accept voluntary .-services for either government 
or employ personal services exceeding that authorized by law except for 
emergencies involving the safety of human life or the protection of propeny. 
This section docs not apply to a corporation gcning amounts to make loans 
(except ;Daid in capital amounts) without legal liability of the United States 
Government. A^ used in this section, the term "emergencies involving the 
safety of human life or the protection of propeny" docs not include ongoing, 
regular functions of government the suspension of which would not imminently 
threaten the safety of human life or the protection of propeny. 

31 U.S.C. § 1342. Because of the § 1342 bar on employing- personal services, officers and 
employees may employ personal services m excess of other authorizations by law only in 
emergency situations.^ This section does not by itself authorize paying employees in 
emergency situations, but it does authorize entering into obligations to pay for such labor. 

. - Tlie central inteipretivc task under § 1342 is and has always been to construe the 

scope of the emergencies exception of that section. When the 1981 Opinion undertook this 
task, the predecessor to § 1342 did not contain the fmal sentence of the current statute, 
which was added in 1990. Examining that earlier version, the Attorney General concluded 
that the general language of the provision and the sparse legislative history of it did not 
reveal its precise meaning. However, the opinion was able to glean some additional 
understanding of the statute from thai legislative history. 

The Attorney General noted that as originally enacted in 1884, the provision forbade 
unauthorized employment "except in case.<; of sudden emergency involving the loss of human 
life or the destruction of property." 23 Slat. 17. He then obscn'cd that in 1950. Congress 



The 1981 Opinion concluded that: 



|<l)espiie the use of the term 'voluntary service,' the evident concert! underlying this 
provision is not government agencies' acceptance of the benefit of services rendered 
without compensation. Rather, the original version of § (I342| was enacted as pan of an 
urgent deficiency appropriation act in 1884. aci of May 1, 1994, ch. 37, 2^ Slat. 15, 17. In 
order to avoid claims for compensation arising from the unaultiorizcd provi.<;ion of services 
to the govcrnmeni by non-employees, and clairns for additional compensation asserted by 
government employees performing extra services after hours. This is. under (§ I. '^421, 
government officers and employees may not involve government in contract for 
employment , i.e.. for compensated labor, except in emergency suuations. 30 Op. Ait'y 
Ccn. 129. 131 (19131. 



83 

enacted the modem version of the Aniideficiency Act and accepted revised language for 
§ 1342 that originally had been suggested by the Director of the Bureau of the Budget and 
the Comptroller General in 1947. In analyzing these different formulations, the Attorney 
Gcncial stated that 

[w]ithout elaboration, these officials proposed that 'cases of sudden 
emergency' be amended to 'cases of emergency,' 'loss of human life' to 
'safety of human life,' and 'destruction of property' to 'protection of property. 
These changes were not qualiTicd or explained by the report accompanying the 
1947 recommendation or by any aspect of the legislative liistory of the general 
approprialjons act for fiscal year 1951, which included the modem §[1341]. 
Act of Septembef 6. 1950, Pub. L. No. «l-759. §1211. 64 Sut. 765. 
Consequently, uc infer from the plain import of the language of their 
amendments thai the drafters intended to broaden the authority for emergency 
employment. 

5 Op. O.L.C. at 9. 

The 1981 Opinion also sought guidance from the consistent administrative practice of 
the Office of Management and Budget in applying identical "emergencies" language found in 
another provision. Tha other piDvision prohibits 0MB from apportioning appropriated 
funds "in a manner thsa would indicate the need for a deficiency or supplemental 
appropriation, except in cases of "emergencies involving the safety of human life, [or] the 
protection of property' -- phraseology identical co the pre- 1990 version of § 1342.* 
Combining these two sources with the statutory text, the Attorney General articulated two 



* 31 U.S.C § 1515 (recodified from § 665(e) at (he time of ihe Civilcui opinion). Analyzing past 
administrative praaicc uaicr this staiuic. Attorney General Civilciti found that: 

Directors of the Bureau of the Budget and of Ihe Office of Management and Budget have 
granted dozens cf deficiency rcappontonments under this subseciion in the last 30 years, 
and have appareaUy imposed no test more stringent than the articulation of a reasonable 
relationship ber»<jin the funded activity and the safety of human life or the protection of 
property. Activii.><a for which deficiency apprnionments have been granted on this basis 
include (FBI] crir.inal Investigations, legal servicer, rendered by the Department of 
Apriculiure in ccsnection with state meat inspection programs and enforcement of the 
Wholesome Mc«i Aa of I%7. 21 U.S.C§§ 601-695. the protection and management ol 
commodity inventories by the Oimmodiiy Credit Corporation, and the investigation of 
aircraft accidents by the National Transportation Safety Board. These few illustrations 
demonstrate the common sense approach that has guided the interpretation of § 6<i5^')- 
Most important, jndcr ? 665(c)(2). each apportionment or reapportionment indicatinc tho 
need for a dcfid»cy or supplemental appropriation has been reported conicmporanoously 
to both Houses c:' Congress, and, in the face of the^c reports. Congress has not acted m 
any way to alter :ie relevant IV.SO wording of § 065(e)( 1 )(n). which is. m this respect, 
identical to § 6d5,;h). 



84 

rules for identifying functions for which government officers may enter into obligations to 
pay for personal services in excess of legal authority other than § 1342 itself: 

First, _there must be some reasonable and articulable connection between the 
function to be performed and the safely of human life or the protection of 
property. Second, there must be some reasonable likelihood that the safety of 
human life or the protection of property would be compromised, in some 
degree, by delay in the performance of the function in question. 

While we continue to believe that liic 1981 articulation is a fair reading of the 
Antidcficiency Act even after the 1990 amendment, S££ Letter from Waller DcUingcr to 
Robert G. Damus, Oct6ber 19, 1993, we are aware of the possibility the second of these two 
rules might be read more expansively than was intended, and tlius might be applied to 
functions that are not emergencies within the meaning of the statute. To forestall possible 
misinterpretations, the second criteria's use of the phrase "in some degree" should be 
replaced with the phrase, "in some significant degree." 

The reasons for this change rest on our understanding of the function of the 1990 
amendment, which comes from considering the content of the amendment, its structure and 
its sparse legislative history. Thai history consists of a solitary reference in the conference 
report to the Omnibus Budget Reconciliation Act of 1990, Pub. L. No. 101-50?, 104 Sui. 
1388: 

The conference report also makes conforming changes to title 31 of the United States 
Code to make clear that . . . ongoing, regular operations of the Government cannot 
be sustained in the absence of appropriations, except in limited circumstances. These 
changes guard against what the conferees believe might be an overly broad 
interpretation of an opinion of the Attorney General issued on Jjinuary 16, 1981, 
regarding the authority for the continuance of Government functions during the 
temporary lapse of appropriations, and affirm that the constitutional power of the 
purse resides with Congress. 

H.R. Rep. No. 964, 101st Cong.. 2d Sess.. 1170 (1990). While hardly articulating the 
intended scope of the exception, the conference rcpon does tend to support what would 
othrrwise be the most natural reading of the amendment standing alone: because it is phrased 
as identifying the functions tliat should be excluded from the scope of the term "emergency," 
it seems intended to limit the coverage of that term, narrowing the circumstances that might 
otherwise be taken to constitute an emergency within the meaning of the statute. 

Beyond this, however, we do not believe that the amendment adds any significant new 
substantive meaning to the pre-existing portion of § 1342, simply because the most prominent 
feature of the addition -- its emphasis on there being a threat that is imminent, or "ready to 
take place, near at hand," see Webster's Third New International Dictionary 1 130 (1986) -- 
is an idea that is already present in the lenn "emergency" itself, which means "an unforeseen 

- 8- 



85 

combination of circumsunccs or the resulting state that calls for immediate action" to 
respond to the occurrcncc or situation. IsL at 741.'' The addition of ihc concept of 
"imminent" to the pre-existing concept of "emergency" is thus largely redundant. This 
redundancy does, however, scivc to emphasize and reinforce the requirement that there be a 
threat to human life or property of such a nature that immediate action is a necessary 
response to the situation. The structure of the amendment offers further suppon for this 
approach. Congress did not alter the operative language of the statute; instead. Congress 
chose to enact an interpretive provision that simply prohibits overly expansive interpretations 
of the "emergency" exception. 

Under th<^ formulation of the 1981 Opinion, government functions satisfy § 1342 if. 
inter alia, the safety of human life or the protection of properly would be "compromised, in 
some degree." It is conceivable that some would interpret this phrase to be satisfied even if 
the threat were dc minimis, in the sctise that the increased risk to life or property were 
insignificant, so long as it were possible to say that safely of life or protection of property 
bore a reasonable likelihood of being compromised at all. This would be too expansive an 
application of the emergency provision. The brief delay of routine maintenance on 
government vehicles ought not to constitute an "emergency," for example, and yet it is quite 
possible 10 conclude that the failure to maintain vehicles properly may "compromise, to some 
degree" the safety of the human life of the occupants or the protection of the vehicles, which 
are government property. We believe that the revised articulation clarifies that the 
emergencies exception applies only to cases of threat to human life or property where the 
threat can be reasonably said to the near at hand and demanding of immediate response. 



See nl^n Random House DtcKonary of the F-nfili.";!! Lanuuajic Un;<hridj:cil 6.V) (2il cd. I4K7) 
('emergency" mcan.s 'a sudden, urgent, usually unexpected oecurrcnee or oeeiiMon requiring immediiiie 
aciion"); Websicr's 11 New Rjvcrriide Univcrsiiy Dictionary 427 (IV.SK) ("an unexpected, serious oecurrenct 
Of situation urgently requiring prompi action'). 



86 



Chapter Four 



The Economic and Budget 
Outlook: An Update, CBO, 
August 1995. 



Debt Subject to Limit 



The Congress has long placed a cap on the 
Treasury's issuance of debt, covering both se- 
curities sold to the public for cash and the spe- 
cial securities issued to federal trust funds. Lawmak- 
ers have had to hike that limit 19 times over the past 
decade, and with the current ceiling likely to be 
reached within the next couple of months, they will 
soonhave to taT;e action again. * 

Before World War I, the Congress generally had 
to approve each separate issuance of federal debt. 
Since the Second Liberty Bond Act was passed in 
1917, however, the Congress, by statute, has simply 
set an overall dollar ceiling on the amount of debt 
that the Treasury can issue. The debt ceiling typi- 
cally gives the Treasury unfettered authority to issue 
debt for a year or two before seeking an increase, but 
very short term ceilings (which grant the Treasury 
permission to issue debt only for a few months or 
even days) are hardly rare. 

The Treasury is now operating under a debt ceil- 
ing of S4,900 billion, enacted in August 1993. With 
debt subject to limit standing at S4,870 billion at the 
end of July and the government continuing to run 
deficits, the Treasury is likely to bump against the 
ceiling in October or November. 



What the Debt Limit Covers 

The debt limit applies to nearly all debt of the federal 
government. Thus, it covers the special securities 
(government account series) issued to trust funds 



and other government accounts as well as to debt 
held by the public (securities such as bills, notes, and 
bonds that are" sold in the market to raise cash and 
purchased by a variety of investors, including private 
domestic investors, state and local governments, for- 
eign investors, and the Federal Rese^^'e system). Be- 
cause of large deficits, debt held by the public has 
climbed steeply— reaching $3.6 trillion in 1995 com- 
pared with S710 billion in 1980. Internally held debt, 
has also grown quite rapidly in recent years as Social 
Security and other trust funds have run large sur- 
pluses. At the end of fiscal year 1995, CBO esti- 
mates, government-held debt will amount to S1.3 
trillion compared with only S200 billion in 1980. 

With rare exceptions, the limit on debt does not 
apply to debt issued by other federal agencies, such 
as the Tennessee Valley Authority, which the Trea- 
sury does not control. However, few federal agencies 
have authority .0 conduct their own borrowing. The 
statutory limit also does not apply to debt issued by 
the Federal Financing Bank, which used its full au- 
thority during an interruption in the debt ceiling in 
1985. 

Debt subject to limit generally counts the face 
value of federal debt. Special rules, however, apply 
to securities that are sold. at a discount. Savings 
bonds. Treasury bills, and zero-coupon bonds are all 
discount securities, meaning that holders of those 
securities collect no income at all from them until 
maturity, when they receive the face amount that re- 
flects the initial purchase price plus accrued interest. 
If maturity is far in the future, the face amount of 
those securities greatly e.xaggerates their current 



87 



48 THE ECONOMIC AND BUDGET OUTLOCK: AN UPDATE 



August 1995 



■ worth. Hence, such securities are included in the 
debt subject to limit at their purchase price when they 

. ire first sold and then at gradually greater amounts 
until they mature. 

Together, the deficit and the trust fund surplus 
easily explain most of the growth in debt subject to 
limit (see Table 19). TTie deficit largely determines 
what the Treasury must borrow in credit markets. 
The trust fund surplus drives the issuance of debt to 
federal government accounts. Because the income-- 
mostly earmarked revenues (such as Social Security 
taxes) and interest—of trust funds is likely to continue 
to exceed their outlays, debt subject to limit will con- 
tinue growing even if the budget is brought into bal- 
ance. Under the budget resolution adopted by the 
Congress this past June, the debt subject to limit 
would rise from its current ceiling of $4.9 trillion to 
nearly S6.7 trillion at the end of 2002. 



At one time, the debt ceiling may have been an 
effective control on the budget when most spendine 
was subject to annual appropriations. But discretion- 
ary spending is now a much Tower proportion of total 
spending, amounting to only 36 percent in 1995. Un- 
der the recently adopted budget resolution, discre- 
tionary outlays will continue to fall further to 27.5 
percent by 2002. The rise in mandatory spending and 
growth of the trust fund surplus has turned the statu- 
tory limit on federal debt into an anachronism. 
Through its regular budget process, the Congress al- 
ready has ample opportunity to vote on overall reve- 
nues, outlays, and dellcits. Voting separately on the 
debt is ineffective as a means of controlling deficits 
because the decisions that necessitate borrowing are 
made elsewhere. By the time the debt ceiling comes 
up for a vote, it is too late to balk at paying the gov- 
ernment's bills without incurring drastic conse- 
quences. 



Table 19. 

Projections of Debt Subject to Limit Under the Budget Resolution 

(By fiscal year, in billions of dollars) 





1995 


1996 


1997 


1998 


1999 


2000 


2001 


2002 


Debt Subject to Limit, Start of Year 


4.605 


4.887 


5,195 


5.494 


S.764 


6,023 


6.273 


6.487 


Changes 
Deficit 

Trust fund surplus 
Other changes* 


161 

103 

17 


170 
121 

17 


152 
127 

20 


116 
134 
^0 


loa 

139^ 
_20i 


81 

151- 

18 


33 
162 
^9 


-6 

173 

19 


Total 


282 


308 


299 


270 


259 


250 


215 


185 


Debt Subject to Limit. End of Year 


4.887 


5,195 


5.494 


5.764 


6.023 


6,273 


6.487 


6.672 



SOURCE; Congressional Budget Office. 

NOTES; The current statutory ceiling is S4.S00 tjillion. 

The figures stiown here are based on the outlay and revenue levels reported in the budget resolution. Those reported levels do net 
include the effects of a contjngent tax cut that the resolution provides for or the effect of the so-called fiscal dividend that CSC 
estimates would result from balanang the budget Also, the figures reflect changes to CSO's estimates for 1995 that were conv 
pleted after the resolution was passed. 



a. Mostly investments by government accounts that are not tmst funds and net outlays of credit finanang accounts. 



88 



CHAPTER FOUR 



DEBT SUBJECT TO LIMIT 49 



As a result, because raising the debt ceiling is 
considered to be "must pass" legislation, the debt 
limit is frequently used as a device to force action to 
obtain some other legislative goal. For example, in 
1990, the Congress voted seven times on the debt 
limit between August 9 and November 5 as the bud- 
get summit meetings progressed and the Congress 
considered the resulting budget resolution and recon- 
ciliation bill. 



What Are the Consequences of 
Not Raising the Debt Limit? 

Financial markets find the debt limit a periodic 
source of anxiety. The government has never de- 
faulted on its principal and interest payments, nor has 
it failed to honor its other checks. However, even a 
temporary default— that is, a few days' delay in the 
government's ability to meet its obligations—could 
have serious repercussions in the financial markets. 
Those repercussions include a permanent increase in 
federal borrowing costs relative to yields on other 
securities as investors realize that Treasury instru- 
ments are not immune to default. 

Failing to raise the debt ceiling would not bring 
the government to a screeching halt the way that not 
passing appropriation bills would. Employees would 
not be sent home, and checks would continue to be 
issued. If the Treasury was low on cash, however, 
there could be delays in honoring checks and disrup- 
tions in the normal fiow of government services. 
Carried to its ultimate conclusion, defaulting on pay- 
ments would have much graver economic conse- 
quences-such as loss of confidence in government 
and a higher risk premium on Treasury borrowing— 
than failing to enact discretionary appropriations by 
the Stan of a fiscal year. 



Important Upcoming Dates 

The date on which the debt ceiling is reached de- 
pends on the Treasury's borrowing schedule, which 
in turn is based on the government's cash outflows 



and cash inflows. The Treasury tries to maintain a 
predictable borrowing calendar to minimize uncer- 
tainty in the market and help reduce costs. Many 
receipts and outlays also follow a predictable pattern, 
which helps in projecting the Treasury's cash needs. 



Borrowing 

Treasury securities are generally issued according to 
a regular schedule, except cash management bills, 
which are issued when needed to temporarily cover 
shortfalls in cash balances (see Table 20 for expected 
issue dates from September through November). 
Three-month and six-month bills are auctioned on a 
weekly basts, \Vith 52-week bills offered every four 
%veeks. As for longer-term securities, two-year and 
five-year notes are sold at the end of each month, 
with three-year and 10-year notes auctioned quarterly 
and 30-year bonds sold twice a year. 

The sizes of note and bond auctions are generally 
stable from one issuance to the next, usually varying 
by no more than SO. 5 billion, if they change at all. 
Fluctuations in financing requirements are therefore 
made up through bill auctions. The predictability of 
Treasury issues, as well as the market's liquidity, may 
help the Treasury keep down the cost of borrowing. 

Debt issued to trust funds plays an important role 
in calculating the debt limit. As shown in Table 21, 
debt held by government accounts represents over 
one-quarter of all outstanding debt subject to limit. 
Social Security, Medicare,' and federal retirement 
trust funds account for the bulk of those holdings. 

Purchases and sales of debt by trust funds are 
handled within the Treasury and do not flow through 
credit markets. Similarly, interest on those securities 
is simply an intragovernmental transfer: it is paid by 
one pan of the government to another part and adds 
nothing to the deficit. Thus, panicipants in the finan- 
cial markets view those investments accurately 
enough as a bookkeeping entry, an intragovernmental 
I.O.U. Nevertheless, transactions in government ac- 
count series debt accrue against the debt ceiling. 
Moreover, continued investment of trust fund sur- 
pluses may cause the Treasury to bump against the 
debt limit even without a major payment to the pub- 



89 



50 THE ECONOMIC AND BUDGET OUTLOOICf >AN UPDATE 



August 1993 



Table 20. 

Calendar of Treasury Borrowing, September to November 1995 



Auction Date 



Type of Issue 



Settlement Date* 



September 5 
September 5 
September 1 1 

September 11 
September 14 
September 18 
September 18 
September 25 
September 25 
September 26 
September 27 

October 2 
October 2 
October 1 
October 10 
Octobe'r 1 2 
October 16 
October 16 
October 23 
October 23 
October 24 
October 25 
October 30 
October 30 

November 6 
November 6 
November 7 
November 8 
November 9 
November 13 
November 13 
November 20 
November 20 
November 21 
November 22 
November 27 
November 27 



3-month bills 
6-month bills 
3-month bills 
6-month bills 
52-week bills 
3-month bills 
6-month bills 
3-month bills 
6-month bills 
2-year notes 
5-year notes 

3-month bills 
6-month bills 
3-month bills 
6-month bills 
52-week bills 
3-month bills 
6-month bills 
3-month bills 
6-month bills 
2-year notes 
5-year notes 
3-month bills 
6-month bills 

3-month bills 
6-month bills 
3-year notes 
10-year notes 
52-week bills 
3-month bills 
6-month bills 
3-month bills 
6-month bills 
2-year notes 
5-year notes 
3-month bills 
6-month bills 



September 7 
September 7 
September 14 
September 14 
September 21 
September 21 
September 21 
September 28 
September 28 
'October 2 
HDctober 2^ 




November 9 
November 9 
November 15 
November 15 
November 16 
November 16 
November 16 
November 23 
November 23 
November 30 
November 30 
November 30 
November 30 



SOURCE; Congressional Budget Offica based on the regularly announced schedule of the Department o( the Treasury. 

NOTE; Does not include cash management bills. 

a. Dale when debt is actually issued and the Treasury collects money. 



90 



CHAPTER FOUR 



DEBT SUBJECT TO LIMIT 51 



Table 21. 

Relationship Between Debt Held by the Public and Debt Subject to Limit 

(End of fiscal year, in billions of dollars) 



Debt Held by the Public 

Debt Held by Govemment Accounts 
Trust funds 
Social Security* 
Medicare' 

Civil Service Retirement 
Military Retirement 
Unemployment Insurance 
Highway 

Airport and Airways 
Railroad Retirement 
Federal Deposit Insurance Corporation' 
Other 
Subtotal 

Other govemment accounts ■• 
Deposit insurance agenaes' 
Other^ 
Subtotal 

Total 

Gross Federal Debt 

Exclusions from Debt Limit* 

Debt Subject to Limit 



1.500 



31 


37 


215 


19 


32 


110 


74 


127 


236 





12 


65 


13 


17 


51 


11 


12 


17 


S 


7 


14 


3 


4 


9 


10 


16 


c 


14 


23 


39 


180 


287 


755 


5 


7 


11 


14 


-24 


JS. 


19 


31 


41 


199 


318 


796 


909 


1.818 


3,207 


f 


6 


-45 


309 


1.824 


3.161 



3.605 



481 

147 

375 

110 

48 

17 

12 

13 

• c 

51 

1.255 



29 

38 
67 

1.322 

4,927 

-40 

4,887 



SOURCE; Congressional Budget Office based on information from the Department o( the Treasury and (he Office of Management and 
Budget 

a. Old-Age and Survivors Insurance and Disability Insurance. 

b. Hospital Insurance (Medicare Part A) and Supplsmenlar/ Medical Insurance (Part 8). 

c Until August 1989. the Federal Deposit Insurance Corporation Fund was classified as a trust fund. Its successor, the Bank Insurance 
Fund, is not a trust fund and is thus included in "other govemment accounts." Other deposit insurance funds include the Fe 'eral Savings 
and Loan Insurance Corporation (FSLIC) Fund and its successor, the FSUC Resolution Fund: the Savings Assoaation Insurance Fund: 
and the Credit Union Share Insurance Fund. 

d. Beginning in 19S9, includes Treasury secunties purchased in the open market by the Tennessee Valley Authonty. 

e. Mostly debt issued by the Federal Financing Bank and debt issued by federal agencies other than the Treasury. 
f Less than $500 million. 



91 



52 THE ECONOMIC AND BUDGET OUTLOOK AN UPDATE 



August 1995 



lie or auction scheduled on that day. Indeed, a lump 
sum credit to the Civil Service Retirement trust fund 
of around $20 billion on September 30 and a similar 
payment of around $1 1 billion to the Military Retire- 
ment trust fund on October 1 will involve large issu- 
ances of government account series debt. 



Cash Inflows 

If tJie Treasury is barred from borrowing, it can count 
only on taxes and other current receipts to replenish 
its cash balances. Withheld income and employment 
taxes are the backbone of the Treasury's deposits, 
accounting for the majority of all non-debt-related 
deposits. Withheld taxes flow in fairly smoothly at 
about S3 billion to S4 billion per day. By contrast, 
corporate income taxes are concentrated around four 
major payments dates: April 15, June 15, September 
15, and December 15. Given today's large budget 
deficits, though, the Treasury cannot count on such 
inflows to cover its cash drains for very long. 



Cash Outflows 

Two large drains on the Treasury— cash benefit pay- 
ments and cash interest payments— are particularly 
notewonhy. Nearly all cash benefit payments for 
Social Security and other retirement and disability 
programs go out between the first and third of the 
month. Currently, those programs drain the Trea- 
sury's cash by about $37 billion in -the first week of 
the month. 



So when will the Treasury hit the ceiling? It is 
still too early to determine the particular week that 
the debt ceiling will be reached, much less a specific 
day. With the 1995 deficit expected to total $161 
billion, the federal government should be able to 
squeak through September with a small amount of 
borrowing authority remaining. 

After that point, when exactly the Treasury uses 
up its available authority will depend on the size and 
timmg of upcoming cash drains and on the Treasur>''s 
cash balance at the beginning of the fiscal year. Nor- 
mally, the Treasury enters a new fiscal year with a 
cash balance of S30 billion to $40 billion. Drawing 
on those cash reserves and using any remaining bor- 
rowing authoriry, the Treasury should be able to hold 
out until mid-October. Note, however, that those 
projections do not presuppose any unusual action by 
the Treasury. By departing from some of its normal 
practices, the Treasury might even be able to hold out 
into early November. 

The November 15 interest payment date will 
present a very high hurdle for the Treasury to jump 
and may turn out to be the actual day of reckoning. 
October and November are both low-revenue— and 
therefore high-deficit— months. The Treasury bor- 
rowed more than $27 billion in the market last Octo- 
ber and almost S37 billion in November to meet cash 
needs. Even if the Treasury manages to avoid cash 
flow problems into early November, it is unlikely to 
be able to raise enough money to pay note and bond 
holders their interest without an increase in the debt 
limit before November 15. 



Cash interest payments to owners of Treasury 
notes and bonds take place on fi.xed dates. The big- 
gest spikes occur on midquarter refunding settlement 
dates: February 15, May 15, August 15, and No"em- 
ber 1 5. Interest payments on those dates total around 
$25 billion. Smaller spikes (of $4 billion to $5 bil- 
lion or so) occur on other semiannual cycles, mostly 
at the end of each month. 

Other cash withdrawals for purposes as varied as 
federal employees' pay, defense contracts, grants to 
states and localities, and Medicare are less lumpy and 
average about $4 billion to $6 billion per day. 



Treasury Options to Cope 
with Interruptions in 
Borrowing Authority 

During an interruption in borrowing authority, the 
Treasury's main objectives are to avoid default, honor 
government obligations, and keep operations run- 
ning. To do so, in the past the Treasury has adopted 
various tactics to cope with interruptions in the debt 
ceiling (see Table 22). The Treasury's options are 



92 



-(?H«7TER FOUR 



DEBT SUBJECT TO LIMIT 53 



Table 22. 

Recent Increases in the Debt Limit 



Enactment 
Date' 



Amount of Limit 
(Billions of dollars) 



Expiration 
Date 



Treasury Actions at Close' 



Sept 30. 1982 


1.290.2 


Sept 30. 1983 


May 26, 1983 


1.389.0 


Permanent 


Nov 21. 1983 


1.490.0 


Permanent 


May 25. 1984 


1.520.0 


Pennanent 


July 6. 1984 


1.573.0 


Permanent 


Oct 13. 1984 


1.823.8 


Permanent 



Nov 14. 1985 


1,903.6 


Dec 6. 1985 


Dec 12. 1985 


2.078.7 


Pennanent 


Aug. 21. 1986 


2.111.0 


Permanent 


OcL 21. 1986 


2.300.0 


May IS. 1987 


May-.15. 1987 - 


2.320.0 


July 17. 1987 


July 30. 1987 


2.320.0 


Aug. 6. 1987 


Aug. 10. 1987 


2.352.0 


Sept. 23. 1987 


Sept. 29. 1987 


2.800.0 


Permanent 


Aug. 7, 1989 


2.870.0 


Oct 31. 1989 


Nov. 8. 1989 


3.122.7 


Permanent 


Aug. 9. 1990 


3,195.0 


Oct 2. 1990 


SepL 30. 1990 


3.195.0 


Oct 6. 1990 


Oct. 9. 1990 


3.195.0 


Oct 19. 1990 


Oct 19, 1990 


3.195.0 


Oct 24. 1990 


Oct 25. 1990 


3.195.0 


Oct 27. 1990 


Oct 28. 1990 


3.230.0 


Nov. 5. 1990 


Nov. 5. 1990 


4.145.0 


Permanent ' 


ApnlS. 1993 


4.370.0 


Sept 30, 1993 


Aug. 10, 1993 


4,900.0 


Permanent 



OetenorateC t3udget outlook necessitated action well before expiration. In- 
crease enacted in May 1983 as a consequence of Social Secunty rescue 
package. 

Beginning late OctoCer 1983. delayed auctions; undennvested trust funds. 

Beginning late Apnl 1984. tnmmed auctions; undennvested Soaal Secunty. 

Beginning late June 1984. tnmmed auaions; undennvested Social Secunty. 

Delayed auaions (beginning late September 1984); undennvested trust funds 
(beginning early September): casrt situation not cntical. 

Prolonged interruption assoaaleC with debate over Balanced Budget and 
Emergency Defiat Control Act of 1985 (commonly known as Gramm- 
Rudman). Undennvested trust funds beginning early September 1985; cut 
late-September auctions, worsening casn situation: issued deot througfi FFB 
in October actively disinvested trust funds m order to pay benefits in early 
November. 

More or less timely increase. " ■ 

Used FFB temporanly to credit Soaal Secunty and preserve regular auctions 
August 1-15. 1986. otnerwise timely. 

Used FFB authonty; undennvested trust funds beginning September 30. 1986. 
delayed or cut aucions beginning late Septemoer casn situation not cnlical. 

Timely increase at expiration. 

Postponed some auctions beginning July 20. 1987; casfi situation not cntical. 

Postponed auctions normally heW m early August but settling on August 15. 
1987 {midquarter refunding). 

Part of Balanced Budget and Emergency Deficit Control Reaffirmation Aa of 
1987 (commonly known as Gramm-Rudman II) package. Rescneduled 
auctions normally held September 21-24. 1987. otherwise timely. 

More or less timely mcease associated with savings and loan bill. 

Boosted auction sizes and accelerated settlements to build up cash balances 
in late October. 

More or less timely increase before Congressional recess. 

Very short term increase assoaated with 1990 budget summit's conclusion. 

Very short term increase as 1990 budget summit agreement underwent modifi- 
cations. 

Borrowed up to limit on October 19 while awaiting next increase. 

Delayed several auctions normally held October 18-22. 1990. but settling after 
scheduled expiration of ceiling. 

Compressed auctions and settlements into the penod between Octooer 25 
and 27. 1990. 

Temporary limit until reconciliation bill (including the Budget Enforcement Act 
of 1990) was signed. 

Postponed several auctions pending last-minute increase before Congres- 
sional recess. 

Next increase enacted August 1993, comfortably before expiration, as part of 
06RA-93. 

Not yet expired. 



SOURCE: Congressional Budget Office based on infonnauon from the Department of the Treasury and vanous news items. 
NOTE; FFB = Federal Rnancing Bank; 08RA-93 = Omnibus Budget ReconaliaUon Act of 1993. 

a. Date signed into law. typically one to seven days after passage Dy the Congress. 

b. Actions listed do not include suspension of sales of savings Bonds and state and local govemmenl senes. which are more or less routine 
responses to an interruption in the debt ceiling (especially after expirauon of a temporary ceding). From 1983 througn 1990. the Soaal 
Secunty trust funds en|oyed a special arrangement under which they were creoited on the first of the month with all revenues expected 
dunng that month. If fully invested, that credit caused the debt subieCT to limit to spike between SI 5 billion and S20 billion. On occasion. 
wnen constrained by the debt limit, the Treasury credited the trust funds as required but was unaole to invest the resulting balances fully. 



93 



34 THE ECONOMIC AND BUDGET OUTLOOK: AN UPDATE 



August 1995 



influenced by whether it is operating under a perma- 
nent or temporary debt ceiling. Permanent ceilings 
(such as the current one) do not expire, but the dollar 
amount eventually becomes inadequate. Under a 
permanent ceiling, the Treasury can issue debt so 
long as it does not violate the dollar limit; even if it is 
right at the ceiling, it can refinance maturing securi- 
ties or take other actions that do not, on balance, raise 
the debt. 

In stark contrast, a temporary ceiling expires on a 
given date. The Treasury's authority to issue debt 
abruptly ceases, unless it can somehow get the debt 
down beneath its permanent ceiling. Debt that was 
issued before the expiration date need not be paid off 
immediately because it was perfectly legal when it 
was issued. But the Treasury can issue no new debt, 
not even to refinance maturing securities; instead, it 
must pay them off with cash. That requirement- 
combined with other drains on the Treasury's funds- 
brings matters to a head quickly. 



In many cases, the Treasury could not invest trust 
fund receipts fully when it was up against the 
debt limit. The trust funds were properly cred- 
ited, but they simply held large amounts of so- 
called uninvested balances. Upon the passage of 
a new debt ceiling, the Congress has routinely 
voted to invest those balances and replenish any 
trust funds that lost interest income as a result of 
the interruption. 

Only once did the underinvestment of trust, 
funds go a step further: in November 1985, the 
Treasury redeemed trust fund securities a few 
days early to create room under the debt ceilinp 
to auction regular, marketable securities. The 
money raised in those auctions permitted tlie 
payment of benefits to Social Security recipients, 
otherwise impenled by the Treasury's razqr-thin 
cash balances. During a penod when issuing 
debt has been suspended, the Treasury retains the 
opW)n to disinvest particular trust funds. 



Among the most common responses by the Trea- 
sury to interruptions in the debt limit In the past have 
been: 

Suspending Sales of Nonmarketable Debt. Sus- 
pending the sales of savings bonds, state and lo- 
cal government series, and other nonmarketable 
debt for the duration of the interruption is a more 
or less routine response. 

o Trimming or Delaying Auctions of Marketable 
Securities. If the Treasury is unsure whether it 
can legally issue bills, notes, and bonds on the 
settlement date, it will not auction^bem. 

o Underinvestment of Government Trust Funds. 
This practice has frequently proved unavoidable. 



The Debt Limit and 
Deficit Reduction 

Limiting the Treasury's borrowing authority is not a 
productive method of achieving deficit reduction. 
Significant deficit reduction can best be accom- 
plished by legislative decisions that reduce outlays or 
increase revenues. Failing to raise the debt limit in a 
ti.nely manner, though perhaps bringing a difficult 
vote on legislation to a head, only serves to make the 
Treasury's job of paying the government's bills more 
difficult. An extended delay could have a significant 
effect on the government's crddibiliry and the interest 
rates that it must pay on future borrowing. 



BOSTON PUBLIC LIBRARY 



94 3 9999 05577 314 5 



BOARD OF GOVERNORS 
OF THE 

FEDERAL RESERVE SYSTEM 

WASHINGTON, DC 20551 



November 9, 1983 



PAUL A. VOLCKER 

CHAIRMAN 



The Honorable Donald T. Regan 
Secretary of the Treasury 
Department of the Treasury 
Washington, DC 20220 

Dear Don: 

The proposal by the Administration to increase the debt ceiHng by $225.6 billion 
from its present level of $1,389 trillion has not yet been enacted by Congress. From 
projections provided by your staff 1 understand that if the debt ceiling is not in- 
creased, Treasury cash balances will be precariously low during the second half of 
November and by early December will be depleted entirely. I also understand that 
despite the absence of a sufficient cash balance in the Treasury's account at the 
Fecleral Reserve Banks, the Federal Reserve might nonetheless be faced with orders 
to pay from Treasury's account in the form of Treasury checks, letters of credit, wire 
transfers, or otherwise. Quite aside from the other major consequences of the gov- 
ernment's inability to meet its obligations as they come due, of which I know you 
are keenly aware, I want you to know of the difTTiculty and chaotic situation that 
would be created for the Federal Reserve and for the Nation's payment system in 
such an event. 

Under the Federal Reserve Act, banks may disburse funds upon order of the 
Treasury only against deposits in the Treasury account. Consequently, faced with 
the prospect or actuality of orders for payment in excess of available deposits, we 
would have no alternative other than to refuse or delay payment in part or in whole. 
As you are aware, a great variety of payments are made from the Treasury's ac- 
count with the Federal Reserve, including interest on the Federal debt, Social Secu- 
rity and other government benefits, payments to Federal contractors of all kinds, 
salaries, and payment of principal on maturing Federal debt. We in the Federal Re- 
serve have no basis for selecting among these items for payment, and, indeed, oper- 
ational capabilities will not in many instances permit selectivity among recipients. 
Left with no further instructions, our only practical recourse may be to delay all 
payments until sufficient balances are availaole to honor all payment orders reach- 
ing us on a particular day. 

In these potential circumstances, I would urge that in the absence of timely action 
on the debt limit you take all feasible steps to delay enough payment orders, with 
whatever priority you determine, to assure that orders reaching us will not exceed 
available deposit balances. Alternatively, it would be absolutely necessary for the 
Treasury to provide the Reserve Banks with instructions on priorities of payment 
in a manner in which we could, operationally, enforce such distinctions. The Federal 
Reserve Banks are prepared to assist you by monitoring and limiting wire transfers, 
redemptions and interest credits, ACE government payrolls and Social Security pay- 
ments, and food coupons and check deposits. Few distinctions within such categories 
are operationally feasible. Such procedures could not, however, avoid the result that 
some checks or other orders for immediate payment would have to be dishonored 
or delayed. 

In this light I would appreciate your guidance on whether payment orders to the 
Federal Reserve can be confined within estimated cash availabilities, and, if not, 
what priorities you wish us to apply in paying such orders. 

As you can well imagine, the failure of the Congress to act on the debt ceiling 
would in either case create great uncertainty and confusion in banking and money 
markets that count on timely payment, and in individual cases, could result in harci- 
ship, in addition to the broader implications for confidence and the government's 



95 

credit. To minimize these adverse consequences, I believe that due notice of poten- 
tial delays or other actions ought to be provided to recipients of Treasury pa)Tnents 
in advance of the event. 

The procedures I have outlined would assure our ability to act consistent with 
law. I hope we can a'oid the serious consequences of failing to honor claims on the 
Treasury presented for payment; at the minimum, we need to be able to announce 
a proceaure for denying certain payments. Nevertheless I must stress that even in 
these circumstances a failure to increase the debt limit would not only create havoc 
in the payments system because of the necessary delays that I have outlined, but 
it would also undermine confidence at home and abroad in the government's ability 
to manage its affairs. 

Sincerely, 



/f/^ 



Office of the Attorney General 

Washington, DC 20530 
November 11, 1983 



The Honorable Howard Baker 
United States Senate 
Washington, DC 20510 

Dear Senator Baker: 

You have asked for my analysis of the crisis that this country would face in the 
absence of legislation in the very near future to raise the Nation's debt ceiling. 
While we have not had an opportunity to research the matter thoroughly, we know 
of no comparable instance in which the President has been required to determine 
his responsibilities under the laws and Constitution of the United States in the 
event the United States were to run short of cash to respond to the imperatives nec- 
essary to continued functioning of the national government. I can say that the prac- 
tical and legal problems that this country might face without a prompt legislative 
solution to tnis situation are both severe and immeasurable. 

As you know, in the midst of a major constitutional dispute between the Congress 
and the President 10 years ago, involving scores of cases in the Federal courts and 
the impoundment by the President of billions of dollars of appropriated funds, the 
Congress enacted the Congressional Budget and Impoundment Act of 1974. That 
legislation, which avoided a test in the Supreme Court of the President's authority 
under the Constitution to impound appropriated funds, expressly reserved the grave 
unresolved constitutional issues concerning responsibilities of the President and the 
Congress with respect to the expenditure of appropriated funds. 

The Impoundment Control Act addresses the impoundment of obligational author- 
ity. The Congress intended to control the President's actions to reduce or abolish 
programs and activities. This is not to say that no power exists under the Act to 
defer outlays; however, serious questions can be raised as to the existence of that 
power under the Act, and any assertion of that power will almost certainly result 
in extensive and complex litigation whose outcome could remain in doubt for ex- 
tended periods of time. 

With regard to any inherent powers of the President to defer outlays, it can be 
assumed that the courts would closely scrutinize any action of the President lacking 



96 

express statutory authorization that would bar payments due and owing by the 
United States in satisfaction of obligations previously incurred. While the President 
has broad powers to take extraordinary actions in the presence of a fiscal-banking 
crisis that could not otherwise be resolved through resort to the normal constitu- 
tional processes, a serious question would be presented where, as here, the Congress 
had merely chosen not to enact a statute that could avert the crisis. 

Finally, it is extremely doubtful that any action to stop issuing checks or to termi- 
nate payment of benefits conferred by law would, in these circumstances, be effec- 
tive to ameliorate, much less "solve," the extraordinary crisis that would be pre- 
sented should the Congress not raise the debt ceiling. Given this, and the unre- 
solved nature of the legal authority to withhold payment of obligations under these 
circumstances, I am authorized to advise you that the Administration has deter- 
mined that it will continue to issue checks and will not seek to defer outlays should 
the Congress fail to act to avert this crisis. 

No responsible government should place itself in a situation in which it would de- 
fault on its obligations. I therefore urge, in the strongest possible way, that the Con- 
gress act to spare our citizens from the hardship, the flood of litigation, and the un- 
precedented constitutional crisis that would be threatened by the inability of the 
United States to meet its financial obligations. 



Sincerely, 




•^^ 



William French Smith 
Attorney General 



20-080 - 95 (100) 



ISBN 0-16-052064-9 



9 780.1 60"520648 



90000