No More Supplemental Appropriations Abuse?

Most of President Obama’s speech to Congress last night focused, quite appropriately, on the current economic crisis, a launching pad he also used to propose very ambitious plans in areas like energy, health care, and education. Toward the end of the speech, as he was talking about budget responsibility and deficit reduction, he added a little nugget that may be overlooked (unless he highlights in subsequent foreign policy speeches) but deserves more prominent mention: the use, and in the case of the Bush administration abuse, of supplemental appropriations to finance government operations, and notably the war in Iraq.

The supplemental appropriation is a very old and time-honored budgeting device. As the name implies, it covers additions (or supplements) to the money government spends that are not covered in the regular federal budget (I have discussed this phenomenon in National Security for a New Era, 3rd edition). In that book, I quote a useful definition from OMB Watch of what supplementals are: “spending legislation, generally but not exclusively requested by the President, intended to address a need not known or foreseen when the annual budget for a given fiscal year was drawn up.”  The clearest example of a supplemental appropriation would be emergency funds for a natual disaster such as the response to Hurricane Katrina, and indeed, much of the initial relief effort for that event was provided for by a supplemental appropriations bill. Historically, supplementals were accompanied by “offsets,” reductions in spending elsewhere to compensate for emergency expenditures. 

The problem is that the supplemental appropriations process has been extended beyond unforeseen emergencies to entirely foreseeable (and foreseen) non-emergencies. Over the past several years, the most obvious example has been funding for the Iraq War, most of which has been funded, directly or indirectly, “off budget,” as the process is sometimes referred to. It has also been accomplished without offsets.

Why has this been the case? The major reason is that it obscures the amount of federal spending generally and for specific purposes, if it is the desire of any administration to do so. Supplemental appropriations spending does not appear in the annual accounting of federal spending versus revenue collections, meaning it is not calculated into the federal deficit for any given year. The money is spent just like regular budgetary allocations, but when the books are closed, it does not appear as an inflationary impact on federal deficits. This alone made it a particularly attractive device for a Bush administration that was running up record deficits without the impact of supplementals. It also made the cost of the Iraq War and defense spending gnerally appear much more modest than it in fact was. Moreover, the Bush administration generally provided no offsetting reductions to moderate the impact. Finally, supplementals generally receive nowhere near the public scrutiny of the regular budget, making them an attractive device for in effect hiding potentially controversial expenditures of public funds. Iraq certainly qualifies in that regard.

Obama, in discussing his ten-year budget projections, specifically rejected this form of funding future defense efforts. Specifically, he said there would be public accounting of all expenditures on Iraq (an by extension, other military adventures) through the regular budget cycle. Although he did not say it in so many words, what he appeared to mean is that defense spending (except, presumably, for real emergencies) will no longer be underwritten by distorting the supplemental appropriations process. Members of Congress knew what he was saying, but the general public probably did not.

If he follows through on this pledge, it will be one of the most significant reforms he proposed in terms of its effect on government transparency and on government spending. In effect, he pulled back the curtain on the Bush administration’s attempt to hide the extent of the government’s spendng on Iraq, and he promised  not to let it happen again on his watch. Let’s make sure he follows through on this pledge!

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5 Responses to “No More Supplemental Appropriations Abuse?”

  1. Just passing by.Btw, you website have great content!

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  2. Dr. Snow,

    You indicate that “Supplemental appropriations spending does not appear in the annual accounting of federal spending versus revenue collections, meaning it is not calculated into the federal deficit for any given year. The money is spent just like regular budgetary allocations, but when the books are closed, it does not appear as an inflationary impact on federal deficits”

    This is incorrect. The DoD and other Departments and Agencies report all the money they spend (including the $ on Iraq) to the Treasury and this spending is absolutely used in the calculation of the actual Federal deficits for a given year.

    Bush used the Supplemental appropriations as an accounting trick so that his projected deficits were much rosier than reality. But the actual Federal Deficit calculated by the Treasury Secretary at the end of the finscal year, absolutely included the cost of the wars.

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