By IHE Fellow Emmett McGroarty

Every administration begins with a review of current policies. One hopes these reviews are conducted with an eye toward the common good.

Policy review – especially policies wrapped in specialized language — is often neglected by the standard political onlooker. Yet, it is an area where power is shifted in great quantities and something to which we would do well to pay attention.

This year, the media are reporting an ongoing policy review of a Department of Justice (DOJ) rule that concerns settlement agreements between the federal government and parties to its enforcement actions.

The rule in discussion was created to clamp down on the practice of designing settlement agreements to send money to non-governmental third parties that were neither a party to the enforcement action nor a victim of the alleged impropriety underlying the enforcement action.

Public awareness of the need for such a rule spiked after the 2008 financial crisis, when DOJ deployed such agreements in cases arising from the fallout.

In its $16.6 billion settlement arising from that crisis, Bank of America was credited with $2 for every dollar it gave to a specified group of nonprofits, transactions that reportedly reduced its settlement penalty by $138 million as of January 2016.

Likewise, under its $7 billion settlement in 2014, Citigroup was obligated to pay $10 million to housing-related nonprofit groups from a list the government maintains, $15 million to legal aid funds, and $25 million to community development funds. 

Formulating a rule to close this major loophole continued a trend toward accountability that pre-dates the Revolution. For centuries, the power of the purse had been a matter of contention between parliament and the Crown. On the eve of the Revolution, the monarch enjoyed rights to certain revenue that gave it a measure of independence from Parliament. The Crown also received “extraordinary” revenue provided at the discretion of Parliament.*

After the colonies declared independence, most state constitutions incorporated the principle that power to decide how the government will spend its money should be vested in the legislature.

The constitutional convention commenced in this context in 1787. Unsurprisingly, the Framers continued that trend. The Constitution provides that “all legislative Powers” accorded to the federal government shall be vested in Congress. Paired with that, it dictates that, “No Money shall be drawn from the Treasury, but in Consequences of Appropriations made by law.” 

Unless specified otherwise by the Constitution, Congress would set policy and provide the funds for its implementation by the executive. But through the years, executive agencies have developed various practices to skirt these strictures.

As the balance of powers wisely entails, Congress reacted by enacting legislation to rein in wayward executive spending practices. The Miscellaneous Receipts Act (MRA), with its legislative genesis going back to 1849, is an example of such legislation. It dictates that funds received by an agency – for example, user fees and tax revenue – must be deposited in the Treasury. Prior to that, agencies commonly used receipts to pay for their expenses.** The MRA thus tightened a loophole through which executive agencies had avoided accountability to the legislature.

Similarly, the Anti-Deficiency Act, whose structural forerunner dates to 1870, addressed an agency practice of spending its appropriated amounts well before the end of the fiscal year. 

Expending their full allotment of funds early in the year enabled agencies to put pressure on Congress to appropriate more funds. (One thinks of a toddler throwing his food on the floor at the outset of dinner to coerce his parents into giving him far more servings than his stature requires.) This practice earned the moniker “coercive deficiencies.” The same dynamic could be employed to increase staffing. Recognizing this, Congress broadened these prohibitions to include an agency’s use of volunteer services. ***

Against this background of executive agencies avoiding accountability to the legislature, the use of settlement monies to direct funding to third-party groups was just another agency attempt to broaden its influence and mission beyond the boundaries set by Congress. 

The existing rule is a bilaterally appealing, good governance measure that ensures executive agencies’ accountability to Congress and the people. In fact, Congress would do well to enact legislation – as had been introduced in previous Congresses – to codify the rule.

For the sake of the common good, one hopes that this common-sense measure survives its policy review.

* See Sean M. Stiff, Congress’s Power Over Appropriations: Constitutional and Statutory Provisions, Congressional Research Services, R46417 (June 16, 2020).

** Congress’s Power Over Appropriations, supra.

*** Ibid.

Emmett McGroarty, J.D., is Director of the Program on the Constitution and Catholic Social Doctrine at The Institute for Human Ecology.