Congress Must Restore the Power of the Purse It Gave Away

By Devin Watkins

Wednesday, June 12, 2024

 

One of the most recent decisions made by the U.S. Supreme Court is also one of the most disastrous for democratic self-government. The Court’s ruling in CFPB v. CFSA (2024) sends a message to Congress that it’s acceptable to hand federal agencies a blank check to do whatever regulators want. This decision does not just apply to the CFPB but also authorizes almost any kind of agency funding that passes Congress.

 

The trouble started when Congress enacted the Dodd-Frank Act in 2010, which created the Consumer Financial Protection Bureau. Regardless of whether we needed yet another financial-regulatory agency, Congress did something extraordinary for an agency with so much power over Americans: It granted the director on-demand funding from the Federal Reserve rather than from Congress and the Treasury — a permanent appropriation regime.

 

The conventional agency-funding process rests on legislative prioritization. It results from negotiation and bargaining between Congress and the president for what most needs the public’s tax dollars. But the arrangements for the CFPB contained no real assessment, scrutiny, or provision for bargaining, and the funds derive from outside democratic control.

 

The legislature failed to do its job, and now the Supreme Court has failed to stop this abuse of power and surrender of duties.

 

Legislative appropriations are crucial to keeping the government accountable to elected representatives and the people. That history goes back to English common law, which underpins much of American law. A longstanding principle of English law, with certain exceptions, was that the Crown should only raise taxes with parliamentary consent, a requirement that hardened over time and was linked, however tenuously, with provisions regarding how the taxes raised should be spent. Disputes over Charles I’s recourse to taxation (and, by extension, spending) without parliamentary approval formed an important part of the broader conflict over the division of power between the Crown and Parliament that degenerated into civil war and Charles’s subsequent trial and execution. When the monarchy was restored a decade or so later, power over taxation and spending had, with exceptions — the less said about Charles II’s borrowing practices, the better — moved irrevocably to Parliamentary control.

 

In the U.S. government, the power of the purse remains crucial to notions of government by the people. Therefore, most appropriations to federal agencies consist of a fixed amount of money for a fixed amount of time. But there have been a few exceptions from the very beginning in which government agencies were funded by a fee-for-service model, such as the U.S. Postal Service and the U.S. Customs Service. Such fee-for-service agencies did not receive fixed annual amounts, and their appropriations were generally not time-limited.

 

The Supreme Court’s opinion in the CFPB case pointed to historical examples of unlimited-duration appropriations under English common law on the “civil list” — effectively, money given to the British royal family. It was not deemed appropriate in England for the legislature to exert control over the royal family’s budget every year (nor to exert control over the royal family in that way). According to the majority, “the King claimed absolute power to use the sums granted in the civil list as he pleased and regularly spent in excess of the allotted amount,” and later reforms by Parliament had no relevance to whether “the civil list was an ‘appropriation.’”

 

As the two dissenting justices, Gorsuch and Alito, pointed out, however, the contrivance of the civil list was unnecessary in a nation such as America that lacks a royal family. The dissenters quote Representative Albert Gallatin who, in 1798, said, “The Clause not only ‘gives to the Legislature an exclusive authority of raising and granting money,’ but it also obligates Congress to keep that authority from ‘the hands of the Executive’ at all times thereafter.”

 

The majority opinion also latched onto the examples of domestic postal and customs services as practices that could justify Congress’s creation of an unlimited-duration appropriation for the CFPB. But as the dissenters noted, there is a big difference between a fee-for-service arrangement — where the users voluntarily choose to provide money for what they get in return — and a permanent appropriation in which the nation is forced to fund agency operations indefinitely. Indeed, even if a majority of both chambers of Congress attempted to revoke this temporally indefinite funding, a presidential veto would foil Congress’s aim. Congress no longer has control.

 

There is yet another problem. Congress also gave the CFPB bureaucrats the ability to decide the scope of their own salaries — which most recently, at the highest level, amounted to $269,000 yearly. That is disturbing for obvious reasons. It is equally disturbing that a majority of Supreme Court justices acceded to this congressional practice of handing the purse strings over to an executive-branch agency.

 

Ideally, the terrible implications of this decision would prod Congress to reconsider the original mistake made in Dodd-Frank and claw back a measure of control over CFPB budget decisions. Namely, Congress should reassert control over the CFPB by ending its permanent appropriation in all future federal appropriation bills. The Supreme Court opinion sees all appropriation bills enacted into law as the same, just for different lengths of time, so the yearly appropriation process can still amend longer-term funding. The details of the CFPB’s budget are less important than making the point that the CFPB receives its funding only because of yearly congressional approval.

 

Perhaps the most expedient solution would be to make use of congressional continuing resolutions, a temporary spending bill that permits funding when Congress is unable to resolve a budgetary dispute before final appropriations have been approved. Within a forthcoming continuing resolution, Congress should include a requirement that the CFPB funding terminates at the end of the fiscal year, effectively amending Dodd-Frank in this way.

 

Dodd-Frank stated the funding “shall not be subject to review by the Committees on Appropriations of the House of Representatives and the Senate,” but this prohibition on the committees is not a change in law. Instead, it should be treated as a part of Congress’s power to set its own procedural rules. Under the Constitution, “Each House may determine” these rules, thus a future House or Senate has the authority to amend them unilaterally. Even if Congress has to give the CFPB the funding it wants now, it’s important for Congress to look at the long-term implications of this operating scheme.

 

Congress could also make the best of a bad ruling. Since the Court has rubber-stamped such long-term appropriations, Congress has the opportunity to examine whether to provide limited longer-term appropriations for all agencies. Congress could create an appropriation that starts when the fiscal year ends and then slowly decreases the agency’s budget over the following year. Cutting an agency’s funding by 1 percent per month wouldn’t cause massive problems for the functioning of the government, but it would create an incentive to resolve any disagreements about the budget between Congress and the White House more quickly. The problems of fiscal cliffs and midnight scrambles could be attenuated while establishing long-term fiscal responsibility.

 

This Supreme Court decision allowing Congress to send a blank check to federal bureaucrats, including agencies other than the CFPB, creates terrible incentives. Now that the Supreme Court has demonstrated that it won’t fix this problem, it’s critical for Congress to do so.