Monday, January 21, 2019

Lend the shutdown?

The Federal Government seems to be obeying with rather remarkable accuracy the constitutional mandate that the government may not spend money that has not been appropriated by Congress.

I would be curious to hear from legal experts, however, what stops the government from lending money to federal employees, or just guaranteeing loans.

After all the government lends money all over the place, and credit guarantees are even larger. Is the Treasury no longer operating small business loan programs? (Honest question.) Is the Fed no longer lending money to banks, if they want it? Are Fannie and Freddy refusing to buy home mortgages because the funds to guarantee home mortgages (which it does) are not appropriated? No. As far as I can tell, Federal lending and loan guarantee programs are up and running.

If so, what stops the Treasury, from either lending money directly to Federal employees, or guaranteeing private lending. After all, the Treasury will write their back paychecks when the time comes, so these are potentially risk free loans. What stops the Treasury from just writing on a federal employees' paycheck "this is a loan against your back pay?"

Or... Social security and Medicare are still running. Can they write advances against social security payments that will be deducted from future federal paychecks?

I presume there is something stopping this -- that it is a step too clever, like the trillion dollar coin solution to the debt limit. But I would be curious to hear what the limitation is.

(HT Marginal Revolution on federal employees' other sources of financing, at pretty high interest rates.)

9 comments:

  1. I wonder why the aurlines are not lending money to the TSA guards.

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  2. Article 1 Section 9 of the Constitution provides that no money shall be drawn from the treasury, but in consequence of Appropriations made by law. So, the Constitution does not forbid the government from incurring obligations. It just prevents disbursement of money from the treasury until an appropriation bill is passed by Congress, and signed by the president.

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  3. I can confirm that Small Business Administration loans are on hold.

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  4. News report this morning said that the state of Connecticut is going to guarantee zero interest loans to federal employees that aren't working. Seems like this idea has merit.

    http://www.hartfordbusiness.com/article/20190118/news01/190119907/amid-gov-shutdown-ct-to-provide-interest-free-loans-to-fed-workers

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  5. You can probably find most of the relevant information by googling "antideficiency act", the essence of which is, "You can't spend money you don't have." That's all you need to know in most cases.
    But to address your specific questions regarding loans and loan guarantees, the issue is how much the government is committed to an actual payment, or in the jargon of the business, "outlay".
    In the contracting world, you start by "obligating" money, which represents an intent to expend. But the actual expenditure--the outlay--happens pursuant to a request by the contractor...an invoice or similar.
    So I would guess, loan guarantees okay, actual loans, not okay.

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  6. (Additional) Another issue I forgot is that the problem is often about what type (or as they say in the business, "color") of money is involved. An agency might have money to spend, but if their personnel account isn't funded, they can't spend it, since the antideficiency act prohibits the government from accepting "voluntary effort." This was originally put in as a broader measure to keep agencies from coercing either employees or contractors from working without compensation.

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  7. I would think that agencies lending to federal employees would be prohibited by the Antideficiency Act of 1870, if I'm understanding Benjamin Civiletti's reasoning from 1980 correctly - http://time.com/5493596/government-shutdown-history/?ct=t(WUW_oct-3-2017_COPY_01)

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  8. Just a sidenote from a finance point of view: Disbursing loans is big money. you can apply any interest rate you want and you have a captive audience. You probably have a great interest rate from the bank and charge additional interest to the loans you discount to employees.

    Im not a legal guy at all so I dont know what is allowed. But getting all your cash-strapped employees to take out loans benefits someone (not the employees)

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  9. "I would be curious to hear from legal experts, however, what stops the government from lending money to federal employees, or just guaranteeing loans."

    Wrong question. What stops federal employees from engaging in borrowing from the federal government?

    I suspect:

    https://www.afge.org

    Having the federal government force loans onto federal employees would constitute indentured servitude that was abolished by the 13th Amendment to the Constitution:

    https://en.wikipedia.org/wiki/Thirteenth_Amendment_to_the_United_States_Constitution

    "Neither slavery nor involuntary servitude, except as a punishment for crime whereof the party shall have been duly convicted, shall exist within the United States, or any place subject to their jurisdiction."

    ReplyDelete

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