August 26, 2016 At Court

Spending Without Appropriations: Who’s to Complain?

By Jasper L. Cummings, Jr., Alston & Bird, LLP, Charlotte, NC

A. A Loss for Obamacare

United States House of Representatives v. Burwell, 2016 U.S. Dist. LEXIS 62646 (D. D.C. 2016) ruled that DHHS cannot pay insurance companies the costs they incur in reducing the “cost sharing” for some Affordable Care Act insurance policy holders. It enjoined further payments to the insurance companies for those costs, but stayed the injunction pending appeal, which surely will occur. In other words, the House of Representatives won. The ruling enforced the Appropriations Clause of the United States Constitution:

No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law; and a regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time.1

This is a rare sort of case, but not unusual within the realm of litigation over the Appropriations Clause. It is rare because Congress seldom gets involved in litigation; and it is surprising how seldom the Appropriations Clause is litigated; and when it is litigated, the plaintiffs usually are disgruntled creditors that the United States did not pay because the agency knew Congress failed to appropriate money for the claim. But here the agency thought Congress had appropriated money and so here the creditors have been paid (so far). Moreover, no “concerned citizen” complained, in contrast with the rare case when someone thought the CIA should not spend money without revealing how.2

Amid all of this rarity, one feature of this case is common: politics is behind most Appropriations Clause litigation. Here the Republican-controlled House filed this suit to throw yet another roadblock across the path of Obamacare. It asserted that Congress had not appropriated the money that DHHS has been spending on this key feature of Obamacare. This political use of the Appropriations Clause fits into a longstanding pattern, though it has never before arisen through the House alone suing an agency.

The House found a sympathetic ear in the person of Judge Rosemary M. Collyer, who served in the Reagan administration and was appointed to the D.C. District bench by George W. Bush in 2002. Her prior ruling in the case was probably the more important of the two rulings: she ruled that the House had standing to complain and that the case was justiciable and not a “political question.”3

Her opinion on the merits is a little short on Supreme Court authority (discussed below), but at first glance seemed correct (but stay tuned). It recounts the history of the appropriations that had been made to fund various parts of Obamacare, and adopts the arguments of the House that they skirted around funding the cost-sharing spending.

But a deeper read of what is not in the opinion reveals that DHHS may ultimately win.

The case is eerie in that it presents almost precisely the same conundrum that required Supreme Court contortions to resolve in NFIB v. Sebelius4 and King v. Burwell.5 In Sebelius the Supreme Court had to decide whether Congress’ obfuscation of the nature of the individual mandate as a tax meant Congress intended that it not be a tax.6 In King the Court had to decide whether Congress intentionally limited subsidies to policies sold on state exchanges or just accidently said that.7 In the current case, the trial judge had to decide in part whether Congress accidently did not appropriate for the cost-sharing payments or intentionally failed to do so.

Or at least that is how the trial judge characterized the issue, which made it easy to enforce the rule of literalism and find no appropriation. But the best DHHS argument has real potential to prevail eventually, when the Supreme Court may find these words in the Affordable Care Act to constitute an appropriation by authorizing DDHS to contract in advance of appropriations:

The Secretary shall also notify the Secretary of the Treasury and the Exchange under paragraph (1) if an advance payment of the cost-sharing reductions under section 1402 [42 USCS § 18071] is to be made to the issuer of any qualified health plan with respect to any individual enrolled in the plan. The Secretary of the Treasury shall make such advance payment at such time and in such amount as the Secretary specifies in the notice.8

The issue should be whether the italicized sentence satisfies this sentence in 31 U.S.C. 1301(d):

A law may be construed to make an appropriation out of the Treasury or to authorize making a contract for the payment of money in excess of an appropriation only if the law specifically states that an appropriation is made or that such a contract may be made.

The trial court opinion surprisingly avoided the relevance of this clause by cutting it out of the quotation of the statute and never using the word “contract.” That allowed Judge Collyer to avoid the issue of advance contract authorization discussed below, and thus to rule that the cost-sharing clause was starkly different from the appropriation in the following clause for tax credits:

The Secretary of the Treasury shall make the advance payment under this section of any premium tax credit allowed under section 36B of the Internal Revenue Code of 1986 [26 USCS § 36B] to the issuer of a qualified health plan on a monthly basis (or such other periodic basis as the Secretary may provide).9

One obvious difference between the credits to individual taxpayers and the payments to insurance companies is that the former are paid under tax refund statutes and the latter are paid under contracts. So necessarily the cost-sharing section would read differently than the credits section. That difference should not determine whether the insurance company clause is an advance contract authorization under 31 U.S.C. 1301(d).

Congress can appropriate without using the word “appropriate” if it gives authority for an agency to contract to spend money in advance of appropriation.10 If an appellate court focuses on this, DHHS may win.

B. How Did This Happen?

Without doing a Watergate-style investigation of the appropriations act in 2013 that produced this imbroglio, it is a fair guess that someone on the Hill was well aware that this landmine had been planted in the troubled appropriations acts that year. It was the year of the shutdown of the U.S. government from October 1 to October 16, as part of a huge standoff between the Obama administration and Republicans led by House Budget Committee Chairman Paul Ryan.11 That shutdown employed both of the ultimate political fiscal levers that can thwart government in America: appropriations and borrowing. The American system “works” like this:

  • First, Congress must authorize spending, as it did in authorizing a program like Obamacare.
  • Second, the agency authorized to carry out the program can contract with vendors and sometime spends without contracting, as in the case of spending for tax refunds.
  • Third, to pay the contracted party for spending, Congress must appropriate money, meaning it tells the agency it can draw cash from the Treasury (or sometimes, can use other sources such as fees collected). The general authorization to carry out a program is not sufficient to constitute an appropriation, but authorization for contracting in advance of appropriations, as discussed above, can be an appropriation.
  • Fourth, if Treasury runs out of cash from taxes and other revenues with which to fund appropriations, it has to borrow. As we all know, there is a cap on borrowing, which Congress refreshes from time to time (or not).

The problem raised by the House in the Burwell suit concerned step 3: it said it had not appropriated money for the spending it had authorized. The DHHS argued that the failure of authorization of this particular type of spending either was a footfault that the court should fix, or would create absurd results that the court should avoid. The judge in effect ruled that it was very unlikely to have been a footfault, which is true since it occurred right in the middle of the huge 2013 government shutdown that was all about the delayed appropriations bill at issue in Burwell. But the court did not focus on the possibility of advance contract authorization.

Even if DHHS knew the landmine was in the appropriations act, it is possible that it was lulled into hoping it would not matter by the vast discretion the government has habitually exercised over the meaning of the Appropriations Clause. One can infer this discretion by perusing the Red Book, or Principles of Federal Appropriations Law (currently in its 4th Edition), which the trial court cited and relied on almost to the exclusion of case law (but without discussing the advance contract possibility).

The Red Book appeared first during the Reagan administration and is written in a style that would surprise “regular lawyers.” It is liberally sprinkled with quotes from deep sources—for example, it begins with an Alexander Hamilton quote.12 Its introduction to the “analytical framework” of appropriations analysis begins with a quote from Winnie-the-Pooh:

I’m very glad, said Pooh happily, that I thought of giving you a Useful Pot to put things in.13

The Red Book proceeds to explain statutory interpretation almost entirely in terms of Comptroller Opinions and other authorities related to the Appropriations Clause, as if it existed in a world of its own apart from the huge world of law on statutory interpretation.14 It is likely that the great majority of decisions about whether an appropriation exists are not made in court rulings but in GAO or Comptroller decisions, which have created this world of their own.

That DHHS (or the DOJ lawyers who administer Appropriations Clause cases) believed in the specialness of the legal issue is suggested by its primary reliance on the two exceptions to literalism identified in the Red Book: avoidance of absurd results and correction of drafting errors.15 One can sense that the government attorneys really were accustomed to using self-help to pick a logical path through complex and sometimes incomplete appropriations, and substantive, statutes.

So the House’s lawsuit happened as a result of some very fundamental forces that are baked into the American system:

  • There are entirely too many checks on the actual operation of government;
  • Usually those checks can be circumvented because no one complains, leading to creations like the Red Book;
  • But if anyone wants to complain, and if we now have a path for Republicans in the House to sue an agency, the wheels of government are very likely to come off absent a huge lift by the Supreme Court, as has already occurred twice for Obamacare, and may have to happen a third time.

C. The Long Political History of Appropriations Disputes

The Burwell opinion relied almost entirely on the Redbook and Comptroller’s Opinions for the law on appropriations, and ignored historic Supreme Court opinions on the subject. The opinions reveal that politics is a frequent companion in these cases, as it was in Burwell.

In 1878 the Supreme Court ruled for the first time, 5 to 4, that the United States could not be made to pay a debt it had contracted without an appropriation to pay the debt.16 The opinion did not cite any earlier Supreme Court ruling but did cite the Appropriations Clause in the Constitution and a British decision. A little digging into that case suggests that it had political overtones.

In those days appropriations bills evidently addressed government obligations one by one. Congress had made annual appropriations to pay for a leased building in each of the first two lease years, but shortchanged the third year’s rent, appropriating less than half the annual rent and directing the postmaster to give up the property at the end of the term. The four dissenters thought that the appropriations for the first two years “bound” the United States to pay for the third year.

The location is now opposite the back side of the FBI Building on E Street in Washington. It was leased for a post office. The lease stated that the payment of rent was contingent on congressional appropriation.17 The lease was entered in 1873 during the administration of President Sherman. The majority opinion was written by Justice Clifford, appointed in 1857 by the last Democratic President James Buchanan. The four dissenters were all appointed by Republican Presidents.

The property was leased for part or perhaps all of the term from Alexander Robey Shepherd, who was then a very well-known personage in Washington. He was variously called “Governor Shepherd” and “Boss Shepherd” and was both the Territorial Governor of DC and head of the important Board of Public Works in the early 1870s. He is credited with creating much of modern Washington through the building of public works. But as often accompanies such undertakings, he also was viewed as corrupt and ultimately went bankrupt and moved to Mexico, trying to mine silver.18

Shepherd had borrowed money in 1873. On June 21, 1877 he secured the note with a deed of trust on the E Street property he had acquired from Bradley (the nominal plaintiff in the suit for rent), pledging also the post office lease.19 By this time Shepherd was in financial difficulty and had made an assignment of his property to trustees for creditors. Bradley appeared as attorney for Shepherd in several suits against him by creditors, and may have been Shepherd’s straw man to begin with in the original lease of the property to the post office.

Without trying to recreate all of the history of A.R. Shepherd, it seems highly likely that Congress chose not to fully fund the last year of the lease with him because he was viewed as a crook at that time, albeit a Republican (as was Congress).

Shepherd, through Bradley and his trustees, asserted that Congress had recognized the obligation of the United States under the lease by funding the first two lease years and so was obligated to pay the rent for the third year. The opinion by Justice Clifford disagreed because it was clear Congress chose not to fund all of the rent that otherwise was due. Clifford relied heavily on Clifford’s own opinion as Attorney General in 1847, when he told the War Dept. that it could not contract to spend more than Congress had appropriated for a port.20

Despite its seminal nature, the Supreme Court has cited the Bradley opinion only twice, and has addressed the Appropriations Clause in relatively few opinions. Citing Bradley and statutes on which Bradley also had relied (which remain in the U.S. Code today), Justice Brandeis ruled in 1921 that authorized projects could not be paid for without an appropriation.21

The Supreme Court next discussed the Appropriations Clause in depth in the politically charged case involving Robert M. Lovett.22 Lovett was a “famous” liberal who was given a job as the Government Secretary of the Virgin Islands in 1939 by his friend Harold Ickes, Secretary of the Interior, after Lovett’s retirement from the University of Chicago. He came under the scrutiny of Congressman Martin Dies in his investigations of Communists in government. Congress ordered that he be fired and he sued for unpaid wages after he quit. As in the current case regarding representation of the House in litigation, Congress had to hire its own lawyer, as Attorney General Biddle said he could not represent Congress.23

Congress enacted a law that no appropriation could be used to pay Lovett after a stated date. Lovett continued in his job for a period, unpaid. Justice Black, writing for a unanimous Court, said that the legislation was not a mere exercise of the appropriations power but also an unconstitutional Bill of Attainder designed to force the discharge of an executive branch employee.

The two most recent Supreme Court decisions in the area may have been less political.24

D. Conclusion

The D.C. District Court ruling may not seem of immediate interest to tax lawyers. But then we did not think that the Sebelius ruling was either, though it dealt with the core issue of the scope of the Taxing Power. Perhaps the most important aspect of the case for us as citizens is to wonder about a system in which Congress authorizes programs that spend and then has two ways to thwart those same programs: not to appropriate for the spending and not to allow borrowing to fund the appropriations. Even if DHHS ultimately loses this case, it may not be the end of the story. The District Court opinion observes that the insurance companies may have their own right to recover the payments from the DHHS if it stops paying.25


6 See Cummings, Health Insurance Tax Upheld, 2012 TNT 146-8 (July 30, 2012). See generally, CUMMINGS, THE SUPREME COURT, FEDERAL TAXATION, AND THE CONSTITUTION (ABA 2013).

8 42 USCS § 18082(c)(3) (emphasis added).

10 PRINCIPLES OF FEDERAL APPROPRIATIONS LAW, Ch. 2, p. 2-4 (4th Edition).

12 PRINCIPLES Ch. 1, 1-4.

13 PRINCIPLES Ch. 1, 1-23.

14 See generally, CUMMINGS, THE SUPREME COURT'S FEDERAL TAX JURISPRUDENCE (ABA 2010).

15 PRINCIPLES Ch. 1 1-29.

18 Ass’n of Oldest Inhabitants of D.C., Governor Alexander Robey Shepherd.

22 United States v. Lovett, 328 U.S. 303 (1946). See Obituary, Robert M. Lovett, Educator, Is Dead, N. Y. Times (Feb. 9, 1956).

23 Congress wants a Lawyer, N.Y. Times (Dec. 16, 1943). Lovett Quits as Virgin Island Official, N.Y. Times (Mar. 14, 1944).

24 Office of Pers. Management v. Richmond, 496 U.S. 414 (1990) applied the Appropriations Cause against a claimant in a non-political case, asserting there is no equitable exception, such as estoppel. The most recent Supreme Court opinion on appropriations was in 2012: Salazar v. Ramah Navajo Chapter, 132 S. Ct. 2181 (2012).

25 See note 20 of the opinion.