TARP is Deficient Auto Savior

Dave Mason /

My Heritage colleagues have already noted that the auto bail-out violates the terms of the TARP legislation by extending funding beyond “financial institutions.”

It also appears the latest funding pledge to bail-out auto makers may have violated another Federal law, one normally taken quite seriously: the Anti-Deficiency Act.

When Congress approved TARP it approved up to $350 billion, with more funds available only after a certification by the President and a 15 day Congressional review. The president has not made a certification, Congress has not reviewed it. With the auto pledges Treasury has now committed over $358 billion under the TARP program.

The Anti-Deficiency Act, whose roots go all the way back to 1870, enforces the Constitution’s requirement that “No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law.” The Act prohibits spending or “obligations” exceeding amounts available in appropriations or before an appropriation is made.

Normally, Anti-Deficiency Act violations are taken quite seriously. The Act is the trigger for the periodic government shut downs that occur when Congress fails to pass annual appropriations. Violations require reports to OMB and Congress; there are even criminal penalties for knowing and willful violations.

On November 20, in a speech at the Reagan Library, Treasury Secretary Henry Paulson cited the Act as stopping Treasury from rescuing Lehman Brothers: “Federal law, and in particular the Anti-Deficiency Act, prohibits Treasury from spending money, lending money, and guaranteeing or buying assets without Congressional approval.

On December 19 Paulson stated that the commitments to GM and Chrysler “effectively … allocated the first $350 billion from the TARP.” Paulson acknowledged the need for Presidential and Congressional action to release additional funds. “It is clear,” Paulson said, “that Congress will need to release the remainder of the TARP to support financial market stability. I will discuss that process with the congressional leadership and the President-elect’s transition team in the near future.”

Four days later, however, and without explanation, the Treasury Department made an additional $2 billion in TARP commitments to a score of banks. Then, on December 29 Treasury pledged $6 billion to GMAC, putting the Department $8 billion over TARP’s appropriated limit.

An unnamed Treasury official briefing reporters on December 29 defended the commitments claiming that “from a short-term cash-flow basis” the department is not close to the $350 billion limit because some commitments made have not yet been fulfilled. The problem with this excuse, as Secretary Paulson himself implicitly admitted on December 19, is that the Anti-Deficiency Act prohibits not only expenditures, but a “contract or obligation” prior to an appropriation. Indeed, many Anti-Deficiency Act violations are triggered by contracts or pledges. For instance, in 2004 an FCC grant program for schools was suspended because the agency had promised more funds than it had cash on hand, even when the FCC knew grantees would never ask for the full amounts pledged.

Paulson was right on November 20, “the Anti-Deficiency Act prohibits Treasury from spending money, lending money, and guaranteeing or buying assets without Congressional approval.” On December, 19 Paulson acknowledged that he had consumed the entire $350 billion Congress had approved. He acknowledged he needed approval to spend more. But 10 days later Treasury had committed an additional $8 billion, and the only explanation was a lame excuse from an unnamed official.

Since Paulson himself specifically cited the Anti-Deficiency Act as limiting Treasury’s authority on November 20, he owes the public at least some explanation of why the same law did not apply a month later.