Thanks go to former OMB General Counsel Jeff Rosen for pointing this out.

An Executive Order is a document signed by the President that establishes how he organizes and manages the Executive Branch.  This power is derived from the first sentence of Article II, Section 1 of the Constitution:  “The executive power shall be vested in a President of the United States of America.”

Some Executive Orders are time limited.  Others remain in place until they are modified or repealed.  Executive Orders span Presidential terms, so any Executive Order issued before President Obama’s term began that has not yet “sunset” is still legally binding upon the Executive Branch.  President Obama can unilaterally modify or repeal such an E.O., but until he does, Executive Branch employees are legally required to continue implementing it.

On January 29, 2008, President Bush signed Executive Order 13457, “Protecting American Taxpayers From Government Spending on Wasteful Earmarks.”  This E.O. has no sunset date.  It continues to be legally binding until modified or repealed by our current President.

On March 11, President Obama publicly stated his own principles on earmarks, but he has not modified or or repealed E.O. 13457.

Let us therefore look at the current policy of the Executive Branch regarding implementation of earmarks.  I have seen no public indication that anyone in the Executive Branch is following these requirements, or is even aware of them.  Here is the key language from the Executive Order.

Section 1 … For appropriations laws and other legislation enacted after the date of this order, executive agencies should not commit, obligate, or expend funds on the basis of earmarks included in any non-statutory source, including requests in reports of committees of the Congress or other congressional documents, or communications from or on behalf of Members of Congress, or any other non-statutory source, except when required by law or when an agency has itself determined a project, program, activity, grant, or other transaction to have merit under statutory criteria or other merit-based decisionmaking.

Section 2 implements this requirement by requiring “Agency Heads” (Cabinet Secretaries and others who run sections of the government) to do certain things.  The language is easy to understand:

Section 2.  Duties of Agency Heads. (a) With respect to all appropriations laws and other legislation enacted after the date of this order, the head of each agency shall take all necessary steps to ensure that:

(i) agency decisions to … expend funds for any earmark are based on the text of laws, and in particular, are not based on language in any report of a committee of Congress …

(ii) agency decisions to … expend funds for any earmark are based on authorized, transparent, statutory criteria and merit-based decision making

(iii) no oral or written communications concerning earmarks shall super-sede statutory criteria, competitive awards, or merit-based decisionmaking.

This language is formally telling Executive Branch employees “If an earmark is not in the law, you must ignore it.  Use your merit-based decisionmaking process, even if the committee report that accompanies the bill says ‘we think you should spend money on project X,’ and even if you get a phone call from a Member of Congress or Congressional staffer.”

As a reminder, we define an “earmark” like this:

(T)he term “earmark” means funds provided by the Congress for projects, programs, or grants where the purported congressional direction (whether in statutory text, report language, or other communication) circumvents otherwise applicable merit-based or competitive allocation processes, or specifies the location or recipient, or otherwise curtails the ability of the executive branch to manage its statutory and constitutional responsibilities pertaining to the funds allocation process.

Let’s look at the report that accompanied the omnibus appropriations bill that President Obama signed into law on March 11.  Here are four earmarks from the committee report.

The first is by Rep. Rosa DeLauro (D-CT).  It’s $600,000 of “Byrne Discretionary Grants” from the Department to Justice support an Evidence Response Training Center at the Henry C. Lee Institute of Forensic Science in West Haven, CT.  You can find it on page 268 here.

Here is another, by Rep. Howard Berman (D-CA).  It’s $200,000 of Byrne Grants for a Tattoo Removal Violence Prevention Outreach Program at the Providence Holy Cross Foundation in Mission Hills, CA.  You can find it on page 283 here.

We also have $1.791 M for Swine Odor and Manure Management Research at Ames, IA, sponsored by Sen. Tom Harkin (D-IA).  you can find it on page 77 here.

To show that this is bipartisan behavior, here is one from Rep. Bill Shuster (R-PA) and Sen. Arlen Specter (R-PA) for $713,625 for the Juniata Hybrid Locomotive.  You can find it on page 263 here.

Although all four of these earmarks are in the report language, they have different legal statuses.  The first two are pure report language earmarks.  There is nothing legally binding about them, and they are therefore subject to E.O. 13456.  The third and fourth (swine odor research and the hybrid locomotive) are “incorporate

d by reference” into the law, so the Executive Branch would be breaking the law if they tried to ignore them.  I will write about incorporation by reference in the future.

Now according to E.O. 13456, Attorney General Eric Holder, as the “Agency Head” for the Justice Department, has been directed to not allocate of Byrne Discretionary Grant funds based on the inclusion in the conference report of the earmarks for CSI: West Haven or Mission Hills tattoo removal.  That does not mean that those institutions may not be funded.  It means that if they are funded, DoJ must determine that they deserve funds “based on authorized, transparent, statutory criteria and merit-based decisionmaking.”  And DOJ is not permitted to allow a phone call from Mrs. DeLauro or her staff, or from Mr. Berman or his staff, to supercede those criteria.

The process point is important in earmark reform.  There are certain earmark recipients that could win funding in a competitive or merit-based decision making process.  Relying on such a process ensures that funds will be allocated on merit rather than political power.

One of two scenarios can now play out.  I will rank them in my order of preference:

1. The Executive Order stays in place and unmodified.  Budget Director Orszag issues an implementation memo parallel to the one issued by Director Nussle last October on the FY 09 continuing resolution.  Throughout the Executive Branch, Agency employees are required to ignore earmarks that are not in the law.
2. The President repeals or modifies E.O. 13456.

If the first scenario plays out, I will heartily congratulate the President for being as strong as he says he is on earmark reform.

If the second scenario plays out, then the President will have weakened the earmark rules put in place and implemented by his predecessor.

If the Executive Order is not modified and no apparent action is taking place to comply with it, then I believe Agency Inspector Generals have an obligation to make certain that the E.O. is being implemented within their respective agencies.

The President said on March 11,

I ran for President pledging to change the way business is done in Washington and build a government that works for the people by opening it up to the people. … We eliminated anonymous earmarks and created new measures of transparency in the process.

All the President has to do now to change earmarking for the better is make certain this Executive Order is enforced.

Will the Administration fund CSI: New Haven and Tattoo removal in L.A.?

© 2010 Keith Hennessey - Your guide to American economic policy

Related posts:

1. Earmark reform (State of the Union follow-up)
2. Defense earmarks
3. Economic highlights of the State of the Union address

Included in these annual appropriations bills are spending for defense, veterans, military construction, highways, housing, education (except student loans), foreign aid and the foreign service, the FBI, CIA, and Department of Justice, most of the Departments of Commerce and Labor, Congress and the White House, the Department of Homeland Security, including Border Patrol and Customs, highways, airports, and ports, health and energy research, scientific grants to universities, the Interior Department and Environmental Protection Agency budgets, national parks, … you get the idea.

Much of what we think of as the federal government gets its funding annually through these 12 bills.  As a result, these debates and tradeoffs occur each year.  This is called “discretionary” spending, which goes through the “annual appropriations process.”

In contrast, several “mandatory spending programs,” aka “entitlements” are on autopilot.  Spending occurs based on formulas written in law.  Those formulas contain variables that change according to external factors (wages, inflation, food costs, health care costs).  Most importantly, these programs are on autopilot.  Spending continues from one year to the next according to these formulas unless the laws are changed.

If Congress does not enact an annual appropriations bill this year for the Department of Justice, then DOJ will have to shut down on October 1st.

If Congress does not enact a law this year affecting Social Security, Medicare, or Medicaid, those programs will continue spending money based on the automatic formulas within them.

There are many smaller entitlements other than the big three (Social Security, Medicare, and Medicaid), but in an aggregate budget sense, it’s the big three that matter most.  Payments to federal retirees and the refundable elements of tax credits are the next biggest.

From an aggregate budgetary perspective, these big three programs are (i) huge, and (ii) growing faster than the economy.  As a result, they are swallowing up the rest of the budget, and they are the principal source of future spending growth.

These automatic spending increases that are “built into the baseline” are not carefully reexamined each year, and are not forced to compete with other priorities.  The national parks, scientific research, and defense budgets are at a tremendous disadvantage – each year they have to compete for the marginal spending increase dollar, while the Big 3 entitlements quietly grow without anyone really noticing too much.

Let’s look at some numbers.

If the President’s budget were to be enacted in full, four areas of spending would increase dramatically over the next ten years.

• The new health entitlement would go increase $100 B per year in 2019 (starting from nothing now).
• Non-defense discretionary spending would increase $74 B from this year to 2019.
• A collection of low-income cash support and food stamps programs would increase $61 B from this year to 2019.
• Federal spending on student loans would increase $29 B from this year to 2019.

Importantly, these are proposed policy changes from the default baseline.  Now let’s look at a picture and see where the increased spending would go.  This graph shows increases in spending, comparing 2019 under the President’s budget to spending this year.  To be clear, this graph shows the level of projected spending in 2019, minus the level projected for this year (2009).  The amounts on this graph are increases above where we are now, measured in billions of dollars.

The green bars show the President’s big spending increase proposals.  You can see the big new health entitlement, the net effect of his new student loans proposal, and the spending-side effect of his “making work pay” credit and his expansion of the earned income and child credits.

You can also see that he would increase spending for non-defense discretionary.  The red bar on defense, in contrast, is the amount that he would shrink defense spending.  You can see he would make a similar change in the Medicare spending increase.

What about the yellow bars?  They dominate the graph.  They show the spending that will occur if we follow the baseline.  For the top two bars, that’s a concept that we just do what we did last year, and increase everything by inflation.  For everything else, that’s the effect of the autopilot effect of mandatory spending programs.

Look at those bottom three bars.  While we’re fighting about the new health entitlement (I’m opposed), federal Medicaid spending will grow $171 B without any Congressional Debate.  Federal Medicare spending will grow (net of premiums) $367 B with almost no debate.  And Social Security spending will be $408 B higher in 2019 than in 2009, if Congress keeps burying their heads in the sand for the next decade.

By all means, let’s debate and even fight about the green and red bars.  But if we ignore the spending increases in Social Security, Medicare, and Medicaid that occur without any changes to law, it will all be for naught.

p.s.  This trend gets worse in the second decade.

The danger of autopilot entitlement spending

© 2010 Keith Hennessey - Your guide to American economic policy

Related posts:

1. Health spending fallacy
2. America’s long run fiscal problem is spending growth, not taxes
3. Economic highlights of the State of the Union address

The Tuesday evening press conference should keep me busy for at least a week, so I will break it up into small bites.  I was stunned by the President’s language when asked about his cap-and-trade proposal.  The premise of the reporter’s question was that the cap-and-trade proposal is running into resistance from Congressional Democrats.  Here’s what the President said in response:

When it comes to cap and trade, the broader principle is that we’ve got to move to a new energy era, and that means moving away from polluting energy sources towards cleaner energy sources.  That is a potential engine for economic growth.  I think cap and trade is the best way, from my perspective, to achieve some of those gains because what it does is it starts pricing the pollution that’s being sent into the atmosphere.

The way it’s structured has to take into account regional differences; it has to protect consumers from huge spikes in electricity prices.  So there are a lot of technical issues that are going to have to be sorted through.  Our point in the budget is let’s get started now, we can’t wait.  And my expectation is that the energy committees or other relevant committees in both the House and the Senate are going to be moving forward a strong energy package.  It will be authorized, we’ll get it done and I will sign it.

I rewound this to make certain I hadn’t misheard him.  He never said the words “climate change,” “global warming,” “greenhouse gases,” “carbon,” “carbon dioxide,” or “C-O-2.”  His answer was entirely about clean energy and clean energy technology.  He expects that the committees will move forward a strong energy package, not a strong climate change package, and not (necessarily) a cap-and-trade bill.  This persisted throughout the press conference.

I tried to figure out if this is intentional, so I looked at the President’s recent weekly address, in which he used similar language:

First, it must reduce our dependence on dangerous foreign oil and finally put this nation on a path to a clean, renewable energy future.  There is no longer a doubt that the jobs and industries of tomorrow will involve harnessing renewable sources of energy.  The only question is whether America will lead that future.  I believe we can and we will, and that’s why we’ve proposed a budget that makes clean energy the profitable kind of energy, while investing in technologies like wind power and solar power; advanced biofuels, clean coal, and fuel-efficient cars and trucks that can be built right here in America.

Again, it’s all about clean renewable energy and spending money on technology, with no mention of climate change or global warming.  I am not suggesting any change in the President’s substantive view on climate change, nor that he has given up on it as a legislative matter.  He is, however, framing this as a clean energy and technology issue, rather than as a climate change / global warming issue.  If I’m missing some other venue in which he has recently advocated vigorously for climate change legislation and framed it as such, please point it out to me in the comments.

This does not seem to be an oversight.  It appears strategic.  At a minimum, it would allow him to later declare victory if the Congress does not pass a cap-and-trade bill, but instead just increases clean energy research funding in appropriations bills.

I should mention three side notes about his second quote:

1. Clean coal is not renewable energy.
2. He included clean coal in the list.  This is somewhat surprising, and I’m glad that he included it.
3. He left nuclear power off the list.  This is not surprising, and I’m disappointed that he excluded it.  Nuclear power is clean, reliable, safe, and it emits no greenhouse gases.

Parsing the President: no “climate change”?

© 2010 Keith Hennessey - Your guide to American economic policy

Related posts:

1. What did President Bush announce today on climate change?
2. The wrong way to address climate change
3. The G-8 agreement (especially on climate change)

The national average price is now 59¢ higher, at $3.81 per gallon.  That’s down 30¢ from a high of $4.11 in early July.

In June of 2007, here’s what I wrote.

Q:         So what can the government do about [high gas prices]?

A:         In the short run, almost nothing.  In the long run, the President has proposed to:

1. lower demand by increasing fuel economy standards (“CAFE”), and also to reform the way those standards are measured, to encourage sound science, safety, and keep costs low
2. increase our domestic oil supply by drilling for more oil, both in the Gulf of Mexico and off the Alaskan and Virginia coasts (these are already underway), and in Alaska (we need Congress to change the law)
3. increase our supply of alternative fuels by expanding something called the Renewable Fuel Standard, mandating that more of our fuel come from ethanol (from corn and, eventually, other plant sources), and expanding it to include other alternatives like electric vehicles, plug-in hybrids, and coal-to-liquids
4. increase our insurance policy by doubling the size of the Strategic Petroleum Reserve.  The SPR is a few big holes in the ground where the nation stores oil, just in case there’s a severe supply disruption
5. and, most importantly, encourage the development of new technologies on both the supply side and the demand side.  The President has proposed increased federal R&D funding for cellulosic ethanol, batteries and plug-in hybrid vehicles, and even a “Hydrogen Fuel Initiative” in the long run.

#1, #3, and #4 are the President’s new “20 in 10” proposal that he rolled out in the State of the Union address this year.  Together, they would reduce our gasoline usage by up to 20% within 10 years (by 2017).  If you want to learn more about our “20 in 10” energy proposal, you can find a good description here.

The solutions take years to have a big effect.  We’re urging the Congress to take those long-term actions now.  It’s taken years to get to this point, and it’s going to take us years to work our way out of it.  But that’s no excuse for not starting now.

What has happened since June of 2007?

• The higher fuel economy standards (#1) are now law.  The President signed them into law in December of 2007.
• The expanded Renewable Fuel Standard (#3) is also now law.  It was enacted in the same December 2007 bill.
• Congress has increased federal R&D funding for cellulosic ethanol, batteries, and hybrid vehicles (#5).

The two things the Congress has not done are:

• increase our domestic oil supply;
• increase our insurance policy by doubling the size of the Strategic Petroleum Reserve.  In fact, they have moved in the opposite direction, by stopping the fill of the SPR.

On June 18^th of this year the President proposed that Congress take four steps to expand American oil and gasoline production:

1. Lift the legislative bans to drilling on the Outer Continental Shelf, off our coasts.
2. Lift a legislative ban preventing firms from developing onshore oil shale resources.
3. Lift a legislative ban preventing environmentally responsible drilling in 2000 acres of the Alaska National Wildlife Reserve (less than .01% of the ANWR area).
4. Create an expedited process for resolving legal disputes around energy projects, and establish the Secretary of Energy as a “Federal Coordinator” with authority to establish deadlines and ensure the timely review of Federal, state and local permits needed to undertake refinery projects.

We released a policy memorandum at the time that described in more detail each of these four steps.

At the time, the President offered to lift an Executive Branch prohibition on drilling in the Outer Continental Shelf when Congress acted on #1.  A month later, Congress still had not acted, so the President lifted the Executive Branch prohibition.

It’s now August recess for Congress, and they still have not acted.  Some House Republicans have remained in Washington, however, and are protesting Congressional inaction by giving speeches on the House floor even though Speaker Pelosi has turned off the CSPAN cameras and the microphones.  They’re bringing in constituents and tourists and speaking to them about the need for increased domestic energy production.

This past Tuesday, the President again called on Congress to lift the legislative ban on drilling on the Outer Continental Shelf:

Members have now had an opportunity to hear from their constituents, and if they listen carefully I think they’ll hear what I heard today, and that is a lot of Americans from all walks of life wonder why we can’t come together and get legislation necessary to end the ban on offshore drilling. And so today I join House Republicans in urging the Speaker of the House to schedule a vote on offshore oil exploration as soon as possible.

Now, the way ahead is this: The moratorium on offshore drilling is included in the provisions of the Interior appropriations bill. When Congress returns, they should immediately bring this bill to the House floor and schedule an up or down vote on whether to lift the moratorium on offshore drilling. Our goal should be to enact a law that reflects the will of the overwhelming majority of Americans who want to open up oil resources on the Outer Continental Shelf.

More oil supply

© 2010 Keith Hennessey - Your guide to American economic policy

Related posts:

1. Why are gas prices high, and what can we do about it?
2. Much ado about nothing: the House energy bill
3. Sloppy energy language: dependence on foreign oil

The House passed this bill last Thursday.  One provision in the bill would attempt to limit the President’s ability to ignore certain earmarks in the report language that accompanied the bill.  This is an important moment in the debate on how to handle earmarks.

I want to focus on those earmarks which are not written into the text of the bill, but are instead included in the report that accompanies the bill.  I’m going to delve into the mechanics of earmarking and the current legislative dispute, because the details matter a lot.

As a reminder, we define an “earmark” like this:

(T)he term “earmark” means funds provided by the Congress for projects, programs, or grants where the purported congressional direction (whether in statutory text, report language, or other communication) circumvents otherwise applicable merit-based or competitive allocation processes, or specifies the location or recipient, or otherwise curtails the ability of the executive branch to manage its statutory and constitutional responsibilities pertaining to the funds allocation process.

Here is a snapshot of part of a table in the highway law, enacted in 2005.  This is an example of a earmark that was in the legislative language of the 2005 highway bill, and is now part of the law.

The full table of “high priority projects” in this highway bill is 197 pages long and contains 5,173 specific line item earmarks.  Since they are part of the law, each one is a legal requirement – the Department of Transportation must fund each one.

Now let’s look at the committee report that accompanies the defense authorization bill.  It, too, contains earmarks.  Here’s one:

Niagara Air Reserve Base, New York

The committee believes that timely infrastructure improvements should be made at Niagara Air Reserve Base and should be provided priority in the Future Years Defense Program (FYDP).  Therefore, the committee urges the Secretary of the Air Force to accelerate projects, such as the programming to design and construct a small arms range at Niagara Air Reserve Base, New York, in the next FYDP.

Since it’s in report language and not legislative language, this earmark is not legally binding on the Executive Branch.  Note the difference in form between a legislated earmark and one in report language:

• legislative earmark – “the amount listed for each high priority project in the following table shall be available …”
• report language earmark – “the committee urges the Secretary of the Air Force to …, such as … at Niagara Air Reserve Base, New York …”

In one case, the law requires the Department of Transportation to spend money in a certain way.  In the other, the committee (which is only a subset of one House of Congress) “urges” the Secretary to spend money in a certain way.

As a practical matter, there’s little difference.  Agencies typically try to follow these report language earmarks for various reasons, including the fear that if they don’t, the Member of Congress or the powerful Congressional staffer who originated the earmark will come back the next time around and cut their funding.  As a result, while report language earmarks are not binding in any formal legal sense, they do affect agency behavior in the real world, and they distort agency spending decisions away from merit-based criteria.

The other important thing to understand about report language earmarks is that, if you work in Congress, they are relatively easy to get done.  It’s pretty hard to change a spending bill as it moves through the legislative process, but it’s not that hard to get an earmark into a report.  Reports are written by Congressional staff, and are never voted on or amended by Members.

Here is what the President said in the State of the Union address last year:

Next, there is the matter of earmarks. These special interest items are often slipped into bills at the last hour — when not even C-SPAN is watching. (Laughter.)  In 2005 alone, the number of earmarks grew to over 13,000 and totaled nearly $18 billion. Even worse, over 90 percent of earmarks never make it to the floor of the House and Senate — they are dropped into committee reports that are not even part of the bill that arrives on my desk. You didn’t vote them into law. I didn’t sign them into law. Yet, they’re treated as if they have the force of law. The time has come to end this practice. So let us work together to reform the budget process, expose every earmark to the light of day and to a vote in Congress, and cut the number and cost of earmarks at least in half by the end of this session. (Applause.)

You’ll note that there are three components to the President’s 2007 earmark challenge:

1. cut the number of earmarks in half;
2. cut the cost of earmarks in half; and
3. end the practice of earmarking in committee reports.

Here is what he said in the State of the Union address this year.

The people’s trust in their government is undermined by congressional earmarks — special interest projects that are often snuck in at the last minute, without discussion or debate. Last year, I asked you to voluntarily cut the number and cost of earmarks in half. I also asked you to stop slipping earmarks into committee reports that never even come to a vote. Unfortunately, neither goal was met. So this time, if you send me an appropriations bill that does not cut the number and cost of earmarks in half, I’ll send it back to you with my veto. (Applause.)

Then, on January 29^th, the President signed an Executive Order (E.O. 13457), which included the following text:

(T)he head of each agency shall take all necessary steps to ensure that:

(i) agency decisions to commit, obligate, or expend funds for any earmark are based on the text of laws, and in particular, are not based on language in any report of a committee of Congress, joint explanatory statement of a committee of conference of the Congress, statement of managers concerning a bill in the Congress, or any other non-statutory statement or indication of views of the Congress, or a House, committee, Member, officer, or staff thereof;

The President therefore used this Executive Order to direct agencies to follow the law, but to ignore earmarks that are not in the law, those in report language.  He instead told them to use “merit-based criteria” as the basis for determining how to spend.  He has the right to do so, since report language is advisory and not legally binding.

Now let’s move to the new legislative issue.  The defense authorization bill passed by the House last Friday contains a provision that tries to nullify this Executive Order, and to force the Executive Branch to follow earmarks in report language.  Here’s the provision from the bill:

SEC. 1431. INAPPLICABILITY OF EXECUTIVE ORDER 13457.

Executive Order 13457, and any successor to that Executive Order, shall not apply to this Act or to the Joint Explanatory Statement submitted by the Committee of Conference for the conference report to accompany this Act or to H. Rept. XXX or S. Rept. XXX.

This is Constitutionally objectionable.  Here are some questions raised by this language:

• How can a bill limit “any successor executive order”, when such does not yet exist?
• Does this section infringe on the President’s Constitutional authority to supervise the Executive Branch as he see fit?
• How can Congress prevent the President from directing agency heads to ignore something that is not in the law?  (This one is my favorite.)

This section of the bill was debated on the House floor, but the House majority leadership used the Rules Committee to preclude consideration of an anti-earmark amendment by Rep. Flake (R-AZ).  This amendment would have stricken section 1431 from the bill.  Mr. Flake’s amendment would have been an excellent opportunity for Congress to take a significant procedural step toward reducing the number of earmarks, and toward forcing earmarks to be considered in the light of day on the House and Senate floors, rather than being hidden in committee reports.

Here is the relevant text on section 1431 from our Statement of Administration Policy (SAP).  As you can see, this provision merited a veto threat.

If the final bill presented to the President contains any of the following provisions, the President’s senior advisors would recommend that he veto the bill.

…

Earmark Reform:  The Administration strongly opposes the bill’s provisions to block the President’s recent Executive Order 13457, “Protecting American Taxpayers from Government Spending on Wasteful Earmarks.”  This Executive Order made clear that future earmarks would be honored only if included in the text of legislation, building on the President’s pledge in his State of the Union address to veto FY 2009 spending bills that do not cut the number and cost of earmarks in half from FY 2008 levels.  The President took this unprecedented action on earmarks to bring more transparency and accountability to the budget process – just as the American people expect and deserve.  The President’s goal is to reform the earmarking culture that often slips earmarks into bills at the last minute, without discussion or debate – which contributes to the wasteful and excessive pork-barrel spending the Administration has seen in recent years. Section 1431 of the bill is also constitutionally objectionable in that it seeks to prohibit the President from supervising Executive Branch agencies as to discretionary matters and to have agencies implement informal preferences of Congressional committees that are not enacted into law.   Moreover, while Executive Order 13457’s objectives could still be accomplished by other means, this bill would cause confusion among agencies, inefficient use of resources, and unnecessary litigation potential.

The President is committed to “expos[ing] every earmark to the light of day and to a vote in Congress, and cut[ting] the number and cost of earmarks at least in half.”  And he has issued veto threats to back that up.  We’ll see whether Congress meets that standard.

Defense earmarks

© 2010 Keith Hennessey - Your guide to American economic policy

Related posts:

1. Earmark reform (State of the Union follow-up)
2. Will the Administration fund CSI: New Haven and Tattoo removal in L.A.?
3. Economic highlights of the State of the Union address

The people’s trust in their government is undermined by congressional earmarks — special interest projects that are often snuck in at the last minute, without discussion or debate. Last year, I asked you to voluntarily cut the number and cost of earmarks in half. I also asked you to stop slipping earmarks into committee reports that never even come to a vote. Unfortunately, neither goal was met. So this time, if you send me an appropriations bill that does not cut the number and cost of earmarks in half, I’ll send it back to you with my veto. (Applause.)

And tomorrow, I will issue an executive order that directs federal agencies to ignore any future earmark that is not voted on by Congress. If these items are truly worth funding, Congress should debate them in the open and hold a public vote. (Applause.)

Here is the Executive Order that the President signed this afternoon.

If you’re interested in perusing earmarks, go to OMB’s excellent earmark website.

You can search bills from 2005.  OMB is updating the database for more recent laws.

I suggest you try searching for “museum” in the “Search Earmarks full text” box.  I got 273 results.

Here are results of a few other searches:

“genome”       $1.2 M for trout genome mapping at West Virginia University in Morgantown, WV and the Agricultural Research Service in Leetown, WV  (in report language)

“dinosaur”       $99,000 for environmental improvements for preservation of the dinosaur collection in Pittsburgh, PA.  (in the law)

“hockey”         $129,000 for the American Hearing Impaired Hockey Association in Chicago, IL  (in report language)

“paint”            $1.5 M for a Virtual Reality Spray Paint Simulator System and Training Program at Fakespace Systems in Marshalltown, IA  (in report language)

In addition, the huge “omnibus” appropriations bill the President signed at the end of last year contained these two earmarks in report language:

• $846,000 for a Father’s Day Rally Committee
• and $178,600 for New York City’s American Ballet Theater

There are three components to our new policy on earmarks:

1. a veto threat if an appropriations bill does not cut the number and cost of earmarks in half from 2008 levels;
2. direction to agencies that they should ignore earmarks in report language in future bills; and
3. direction to agencies that any “phonemarks” be ignored unless they are put in writing to the Agency.  The Agency must then publish the written request on the internet within 30 days.  A “phonemark” is when a Member of Congress or Congressional staffer calls an agency and presses for funds to be spent on a particular project, generally within that Member’s district or State.

Veto threat

Using our definition of an earmark, last year’s appropriations bills and the accompanying committee reports contained a total of 11,737 earmarks, which combined spent a total of $16.872 B of taxpayer money.  This is the baseline against which we will measure the President’s threat to veto any bill which does not cut both the number and $ amount of earmarks at least in half.  (Technical note:  The actual comparison with last year will be done on a bill-by-bill basis.)

Last year the President called on the Congress to meet this threshold.  This year he’s backing that call up with a veto threat.

Executive action

The new executive order defines an earmark as spending provided by Congress where the purported Congressional direction:

1. “circumvents otherwise applicable merit-based or competitive allocation processes”;
2. or “specifies the location of the recipient”;
3. or “otherwise curtails the ability of the executive branch to manage its statutory and constitutional responsibilities pertaining to the funds allocation process.”  (I’ll skip the explanation of this.)

Here’s some general appropriations language in a law:

For necessary expenses of activities authorized by law for the National Oceanic and Atmospheric Administration … $2,856,277,000.

The bill includes a further subdivision of $709 million for the National Marine Fisheries Service, a subdivision of NOAA.  So far, so good.

The report language, however, includes the following text:

These funds are distributed as follows:

• …
• Oyster Hatchery Economic Pilot Program, Morgan State University, MD                                $470,000
• Papahanaumokuakea Marine National Monument Fishery Assistance, HI                            $6,697,500
• Southern New England Cooperative Research Institute, RI                                                     $1,339,500”
• …

About 80% of earmarks are of this form – they’re in report language, which is not actually part of the bill signed into law by the President.  These earmarks are instead incorporated into the “report” that accompanies the bill, more formally known as the “Statement of Managers”.  The President focused a spotlight on report language earmarks, because they are never subject to a vote in Congress.  If a Member had wanted to amend this bill to strike the $470K of spending for the Morgan State Oyster Hatchery Pilot program, he could not have done so.  There’s nothing to amend, since this earmark wasn’t actually in the bill.

But the earmark has a practical effect, even though it’s not part of the law.  Why?  Imagine you’re the person running the National Marine Fisheries Service.  You are not legally required to spend this $470K as the report says you should.  But if you don’t, next year when you’re coming to Congress to get your $709M (plus inflation), the Member or staffer whose earmark you ignored might cut your funding.  And since report language is generally written by those staffers who actually determine what your top-line number is next year, you have a tremendous incentive to do what they “recommend” in the report.

The President’s executive order now instructs you to ignore those report language earmarks.  You have been directed to give money to the Oyster Hatchery Pilot Program only if it merits that funding based on an objective, transparent, and merit-based funding process.

I’ll extract some key language from the Executive Order.

(T)he head of each agency shall … ensure that … agency decisions to … expend funds are based on the text of laws, and in particular, are not based on language in any report of a committee of Congress … or any other non-statutory statement or indication of views of the Congress, or a House, committee, Member, officer, or staff thereof

In other words, follow the words of the law, not what some other person or document claims is the intent of the law.

(T)he head of each agency shall … ensure that … agency decisions to … expend funds for any earmark are based on authorized, transparent, statutory criteria and merit-based decision-making …

Some earmarked projects will still get funding because they qualify on the merits.  The process is important here – they will be getting the funds because they are projects that succeed in a merit-based competition based on transparent (public) criteria, not because they have a powerful supporter.

(T)he head of each agency shall … ensure that … no oral or written communications concerning earmarks shall supersede statutory criteria, competitive awards, or merit-based decision-making.

An agency shall not consider the views of a house, committee, Member, officer, or staff of Congress … to carry out an earmark unless such views are in writing …

A “phonemark” is when a Member of Congress or Congressional staffer calls an agency and presses for funds to be spent on a particular project, generally within that Member’s district or State.  No more phonemarking.  You’ve got to put it in writing…

All written communications from the Congress … recommending that funds be … expended on an earmark shall be made publicly available on the Internet by the receiving agency, not later than 30 days after receipt of such communication …

… and then your letter will be made public.  Transparency is key.

Note that the Executive Order has no sunset date – it is now permanent policy.  A future President could modify it or repeal it, but they would then be weakening President Bush’s action to limit earmarks.

Earmark reform (State of the Union follow-up)

© 2010 Keith Hennessey - Your guide to American economic policy

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2. Economic highlights of the State of the Union address
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Since the big document is 36 pages long, we also have versions of the different component fact sheets on whitehouse.gov.  Here are the economic ones:

• Economy
• Budget
• Free trade
• Energy
• Health care

We also have separate fact sheets outside the economic lane on National Security, Iraq, the Global War on Terror, Veterans, No Child Left Behind, Education, Stem cell research, Faith-based initiatives, Immigration, and Compassion.

While many inside the Beltway focus on the specific phrasing of key sentences to look for nuances, it’s probably even more important to pay attention to what subjects the President discusses.  Those are important signals about his priorities for the upcoming year.  This year, roughly the first third of the speech will be dedicated to economic issues.  Over the next week or two I’ll drill down and explain the details of what he said on particular topics.  Tonight I’ll just point out the broad brush strokes.

Here are a few things you should listen for in tonight’s address:

1. The President will push Congress to quickly enact the bipartisan agreement on growth that we announced last Friday.  The House plans to vote on it tomorrow, and we’re hoping for a big bipartisan vote.  He will ask both the House and Senate to resist the temptation to load up the bill with other provisions.  We need speed, and additions could delay or derail it.
2. While the bipartisan growth agreement is the most urgent economic need, the most important is making the enacted tax cuts permanent, and preventing taxes from increasing beginning in 2011.  He will emphasize that tonight.
3. He will talk about the importance of free trade:  Free Trade Agreements with Colombia, Panama, and South Korea, and the “Doha Round” of global trade talks.
4. He’ll announce new policy on earmarks – telling Congress that he will veto appropriations bills if they do not cut the number and $ amount of earmarks at least in half.  He will also announce that tomorrow he will sign an executive order that directs agencies to ignore future earmarks that are in “report language” which is never voted on by the Congress.
5. He’ll talk about health care, and reaffirm his commitment to reform the tax treatment of health insurance.  The President’s proposed standard deduction for health insurance would make it more affordable for millions of Americans, and would mean that Americans not fortunate enough to get health insurance through their job would now get the same tax advantage as those who do.  More broadly, he’ll emphasize the importance of an approach to health care policy that centers decision-making in individuals and families, rather than in Washington.
6. He’ll talk about energy and climate change.  In December the Congress passed the President’s energy proposal from last year’s State of the Union to reduce our consumption of oil.  This year, he’ll focus more on the power sector, and stress the importance of technology to the three goals of economic growth, energy security, and addressing climate change.
7. He’ll talk about entitlement reform:  Social Security, Medicare, and Medicaid.  Many in Congress have expressed their views on the President’s proposed reforms, especially of Social Security, but they have not proposed solutions of their own.  He will call on them to put forward their own ideas so we can actually debate how best to make these programs sustainable.

I hope you enjoy the speech.  It should be about 45 minutes long.

Economic highlights of the State of the Union address

© 2010 Keith Hennessey - Your guide to American economic policy

Related posts:

1. Earmark reform (State of the Union follow-up)
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