Archive for April, 2011

Debt Limit & Default

Posted in Econ, Law on 20110421 by Avenging Sword

Recently, H.M. Stuart posed the following query:

I have heard it claimed recently that, if the current debt ceiling is not raised, the U.S. would not be able to cover the interest currently due on our national debt and other immediate obligations and would immediately default. . . .

I have also heard it claimed recently that . . . current U.S. Treasury receivables are easily sufficient to pay such current obligations many times over.

What is the true situation, as best you can discover?

What follows is my attempt at an answer.

1.  The term “default,” as applied to the federal government, is ambiguous.  It could either refer to:

  • Inability of the government to pay principal & interest on the outstanding stock of federal debt; or
  • Inability of the government to pay obligations besides federal debt, such as salaries, entitlements, tax refunds, etc.

Since “default” is commonly defined to mean “failure to meet financial obligations,” either of the above could be characterized as “default.”  Given that federal outlays currently exceed receipts by a considerable margin, default on non-debt obligations appears highly probable absent a debt-limit increase or massive tax increases.  This may well be highly unfortunate, but I doubt it would induce the financial catastrophe that would likely result from a default on the national debt.  It is this sort of default that I – and methinks many others – have in mind when they worry about the federal government defaulting.  Default on the national debt, however, is probably avoidable even if the debt limit stays constant.  Preventing debt default would have two aspects:  rolling over the current stock of federal debt, and paying interest on the debt.

2.  Rollover:  When a given portion of the national debt comes due, Treasury rolls it over:  it sells new issues of bonds & bills, and uses the resultant proceeds to pay off maturing debt issues.  These rollover operations could still continue even if fedgov hit the debt limit.  Since the debt limit provision merely establishes an overall limit on outstanding debt, and does not specifically prohibit new issues of debt, ISTM Treasury would still be able to issue new debt to “roll over” existing debt issues as they expired.

3.  Interest Payments:  Treasury would still receive revenue from taxes, and could use a portion of this revenue to pay interest on the debt.  Monthly Treasury Statements for the previous 18 months show monthly revenue exceeding gross interest payments by a significant margin.  According to the March 2011 MTS

  • Total Receipts were ~$1.02 trillion through March 2011, and were estimated at $2.17 trillion for the full fiscal year.
  • Gross interest payments were ~$216 billion through March 2011, and were estimated at $430 billion for the full fiscal year.

It therefore appears that Treasury could continue paying interest on the national debt even if the debt limit weren’t raised.

4.  Of course, the foregoing analysis assumes that Treasury prioritizes debt rollover & payment of interest above other obligations.  Arguably, Sec. 4 of the Fourteenth Amendment mandates such prioritization, by mandating that “The validity of the public debt of the United States, authorized by law . . . shall not be questioned.”  ISTM Treasury also has the power to prioritize in this manner.  Although I’m unaware of any court cases addressing this question, a 1985 GAO report did conclude that Treasury is “free to liquidate obligations in any order it finds will best serve the interests of the United States.”  A 1981 OMB memorandum implicitly concurs, by outlining which governmental functions that would continue during a lapse in appropriations.  Finally, even though a recent statement by Deputy Secretary of the Treasury Neal Wolin deemed prioritization “unworkable,” it stopped short of asserting that Treasury is prohibited from prioritizing in this manner.

5.  Given such prioritization, ISTM the US would avoid the ill effects suggested by the first three bullets of a recent Treasury Notes blog post, i.e., “default on legal obligations of the United States,” a default-induced economy-wide increase in “all borrowing costs,” and “prolonged and far-reaching negative consequences on the safe-haven status of Treasuries . . . .”  OTOH, as noted in a recent CRS report:

Even if the government continued paying interest, it is not clear whether creditors would retain or lose faith in the government’s willingness to pay its obligations. If creditors lost this confidence, the federal government’s interest costs would likely increase substantially.

The probability of such a crisis in confidence depends on the psychology of those holding Treasury securities.  I have insufficient data to guestimate this probability.

Incorporation by Reference & the Constitution

Posted in Law, Poli-ticks on 20110404 by Avenging Sword

As it turns out, the constitutionality of incorporation by reference in federal statutes has been previously considered, by minds far more knowledgeable than my own.  A decade ago, Hershey Corporation (of Hershey Kisses fame) got annoyed by one particular usage of incorporation by reference, and decided to sue in federal court.  The challenged provision read:

The provisions of the following bills are hereby enacted into law:

. . . .

(8) H.R. 3428 of the 106th Congress, as introduced on November 17, 1999 . . . .[1]

Hershey argued that this provision’s enactment violated the Presentment Clause.[2] The court was not impressed:

Laws containing cross-references do not appear to be uncommon. While no case has addressed the Presentment Clause challenge, several courts have upheld laws containing cross-references. See e.g., United States v. Sharpnack, 355 U.S. 286, 293, 2 L. Ed. 2d 282, 78 S. Ct. 291 (1958)(“Wether Congress sets forth the assimilated laws in full or assimilates them by reference, the result is as definite and as ascertainable as are the state laws themselves.”); United States v. Menominee Indian Tribe of Wisconsin, 694 F. Supp. 1373, 1375 (E.D. Wis. 1988)(“It is well established that Congress may incorporate by reference state criminal laws in federal criminal statutes.”); Robertson v. Seattle Audubon Soc’y, 503 U.S. 429, 433 n.1, 118 L. Ed. 2d 73, 112 S. Ct. 1407 (1992)(involving an appropriations act in which Congress incorporated by reference, among other things, a list of spotted owl habitat areas contained in a Forest Service environmental impact statement).

For the foregoing reasons, the Court is not persuaded by plaintiff’s interpretation of the Presentment Clause. Congress may incorporate by cross-reference in its bills if it chooses to legislate in that manner. Nothing in the Presentment Clause, or elsewhere in the Constitution, demands otherwise.[3]

Since § 2(a)[4] of the Government Shutdown Prevention Act contains language similar to the provision challenged in Hershey, that precedent suggests that § 2(a) is likewise constitutional.

More recently, the General Accounting Office considered the matter.  In a letter report, the agency defined incorporation by reference as follows:

As a legislative tool, incorporation by reference is the use of legislative language to make extra-statutory material part of the legislation by indicating that the extra-statutory material should be treated as if it were written out in full in the legislation.[5]

After discussing various precedents regarding the practice, the report concluded:

Legislative incorporation by reference is well founded historically and the Supreme Court has accepted it as a legislative tool without objection.[6]

As previously noted, I was disinclined to reject the constitutionality of incorporation by reference.  After reading the above, I’m even less inclined to do so now.


[1] Act of Nov. 29, 1999, Pub. L. No. 106-113, § 1000(a), 113 Stat. , 1536 (1999).

[2] U.S. Const. art. I, § 7, cl. 2.

[3] Hershey Foods Corp. v. USDA, 158 F. Supp. 2d 37, 41 (D.D.C. 2001), aff’d, 293 F.3d 520 (D.C. Cir. 2002).

[4] Government Shutdown Prevention Act of 2011, H.R.1255, 112th Cong. § 2(a) (2011) (“[T]he provisions of H.R. 1, as passed by the House on February 19, 2011, are hereby enacted into law.”).

[5] U.S. Gov’t Accountability Office, B-316010, Consolidated Appropriations Act, 2008—Incorporation by Reference 4 (2008), available at http://www.gao.gov/decisions/appro/316010.pdf.

[6] Id. at 9.

Incorporation by Reference and the Government Shutdown Prevention Act

Posted in Law, Poli-ticks on 20110403 by Avenging Sword

In a recent post, co-blogger Steve questions whether a provision in H.R. 1255, the “Government Shutdown Prevention Act of 2011,” would be unconstitutional if enacted.  The supposedly-problematic text apparently reads as follows:

If the House has not received a message from the Senate before April 6, 2011, stating that it has passed a measure providing for the appropriations for the departments and agencies of the Government for the remainder of fiscal year 2011, the provisions of H.R. 1, as passed by the House on February 19, 2011, are hereby enacted into law.[1]

Frankly, when I saw this, I wasn’t quite sure what the problem was.  By my reading, the above basically amounts to “incorporation by reference,” i.e.,

A method of making a secondary document part of a primary document by including in the primary document a statement that the secondary document should be treated as if it were contained within the primary one.[2]

In the case of H.R. 1255, the “primary document” is H.R. 1255 itself, the “secondary document” is H.R. 1.  And since H.R. 1255 states that “the provisions of H.R. 1 . . . are hereby enacted into law,” H.R. 1255 would appear to contain “a statement that the secondary document should be treated as if it were contained within the primary one.”  Though I’ll confess I’ve not looked into the matter in detail, I don’t see why incorporation by reference would render a federal statute unconstitutional.  After all, even if H.R. 1 was passed only by the House, the provision giving H.R. 1 the force of law – § 2(a) of H.R. 1255 – would still have to receive passage by both houses, and a presidential signature (or a bicameral veto override), in order to become the law of the land.

It’s also worth noting that H.R. 1255’s use of incorporation by reference is hardly unprecedented.  A brief text search of the Statutes at Large uncovered several prior uses of the technique.  For example:

[T]here is hereby enacted into law the amendment made by section 901 of S. 2582, as reported by the Committee on Foreign Relations of the Senate on April 18, 1984, except for subsection (c) of the section enacted by this proviso . . . .[3]

Also:

There is hereby enacted into law H.R. 3750, as introduced in the House of Representatives on December 11, 1987.[4]

Also:

Provided further, That the amendment in the nature of a substitute to the text of H .R. 4645, as ordered reported from the Committee on Banking, Finance and Urban Affairs on September 22, 1988, is hereby enacted into law: Provided further, That title I of H .R. 5263 as passed by the House of Representatives on September 20, 1988, is hereby enacted into law . . . Provided further, That notwithstanding any other provision of this Act, titles I and III of S. 2757 as reported by the Senate Committee on Foreign Relations on September 7, 1988, are hereby enacted into law . . . .[5]

Also:

The provisions of Senate Resolution 89, of the One Hundredth Congress, agreed to January 28, 1987, are hereby enacted into law, effective on the date such Senate Resolution 89 was agreed to.[6]

Also:

S. 2681, as passed by the Senate on September 12, 1992, is hereby enacted into law. [7]

Also:

Section 423 of H.R. 1361, as passed the House of Representatives on May 9, 1995, is hereby enacted into law.[8]

Also:

The provisions of section 5 of the bill, H.R. 1691 (104th Congress), as passed the House of Representatives on October 30, 1995, are hereby enacted into law.[9]

Also:

The provisions of the following bills of the 106th Congress are hereby enacted into law:

(1) H.R. 5547, as introduced on October 25, 2000.

(2) H.R. 5548, as introduced on October 25, 2000.[10]

Also:

The provisions of H.R. 5526 of the 106th Congress, as introduced on October 24, 2000, are hereby enacted into law.[11]

Also:

The provisions of H.R. 5408 of the 106th Congress, as introduced on October 6, 2000, are hereby enacted into law.[12]

Also:

The provisions of the following bills of the 106th Congress are hereby enacted into law:

(1) H.R. 5482, as introduced on October 18, 2000.

(2) H.R. 5483, as introduced on October 18, 2000.[13]

Also:

Section 4013 of the Uniform Per Student Funding Formula for Public Schools and Public Charter Schools Amendment Act of 2005, passed on first reading on May 10, 2005 (engrossed version of Bill 16–200), is hereby enacted into law.[14]

Also:

Notwithstanding any other provision of law, the reciprocal rights-of-way and easements identified on the map numbered 92337 and dated June 15, 2005, are hereby enacted into law.[15]

Admittedly, frequent Congressional usage is insufficient to render a practice constitutional.[16] Nevertheless, if “incorporation by reference” is unconstitutional, then it’s an unconstitutional practice that’s been perpetrated many times, by both Democratic & Republican Congresses, over the past quarter-century.


[1] Government Shutdown Prevention Act of 2011, H.R.1255, 112th Cong. § 2(a) (2011).

[2] Black’s Law Dictionary 834 (9th ed. 2009).

[3] Act of Oct. 12, 1984, Pub. L. No. 98-473, 98 Stat. 1837, 1885 (1984).

[4] Act of Dec. 22, 1987, Pub. L. No. 100-202, 101 Stat. 1329, 1329-134 (1987).

[5] Act of Oct. 1, 1988, Pub. L. No. 100-461, § 555, 102 Stat. 2268, 2268-036 (1988) (footnotes omitted).

[6] Legislative Branch Appropriations Act, 1990, Pub. L. No. 101-163, § 9, 103 Stat. 1041, 1046 (1989).

[7] Department of Defense Appropriations Act, 1993, Pub. L. No. 102-396, § 9168, 106 Stat. 1876, 1948 (1992).

[8] Department of Transportation and Related Agencies Appropriations Act, 1997, Pub. L. No. 104-205, § 341, 110 Stat. 2951, 2975 (1996).

[9] Housing Opportunity Program Extension Act of 1996, § 5(a), Pub. L. No. 104-120, 110 Stat. 834, 835 (1996).

[10] Act of Dec. 21, 2000, Pub. L. No. 106-553, § 1(a), 114 Stat. 2762, 2762 (2000).

[11] Act of Nov. 6, 2000, Pub. L. No. 106-429, § 101, 114 Stat. 1900 (2000).

[12] Act of Oct. 30, 2000, Pub. L. No. 106-398, § 1, 114 Stat. 1654 (2000).

[13] Act of Oct. 27, 2000, Pub. L. No. 106-377, § 1(a), 114 Stat. 1441 (2000).

[14] Transportation, Treasury, Housing and Urban Development, the Judiciary, the District of Columbia, and Independent Agencies Appropriations Act, 2006, Pub. L. No. 109-115, § 133, 119 Stat. 2396, 2522 (2005).

[15] Safe, Accountable, Flexible, Efficient Transportation Equity Act, Pub. L. No. 109–59, § 4408, 119 Stat. 1144, 1777 (2005).

[16] Cf. INS v. Chadha, 462 U.S. 919, 944 (1983) (“[T]he fact that a given law or procedure is efficient, convenient, and useful in facilitating functions of government, standing alone, will not save it if it is contrary to the Constitution. . . . our inquiry is sharpened rather than blunted by the fact that congressional veto provisions are appearing with increasing frequency in statutes which delegate authority to executive and independent agencies . . . .”).