The 16-day partial federal government shutdown did little to bolster anyone’s confidence in Congress when it comes to handling budget issues. When it comes to understanding how convoluted our nation’s budgeting process is, I like to recall the Dodd-Frank Act.
You might remember that in spring/early summer 2010, the House and Senate had agreed on bank industry reform legislation but they had to come up with a way to pay for it. The Congressional Budget Office estimated it would cost about $20 billion to implement the law and congressional rules required the lawmakers to come up with the money first. Their first idea was simply to assess a tax on the nation’s largest banks and hedge funds. But that idea upset some members of the Senate and it became clear rather quickly that they would have to come up with something else.
So here’s what they decided on. Earlier, Congress had authorized $700 billion to be used for TARP, but up to that point only $475 billion had been used. That left $225 billion sitting in the kitty. If Congress ended TARP right then, that $225 billion would not be used and CBO figured that would save the country about $11 billion. They came up with that figure by estimating that 5 percent of TARP money would never be repaid. On $225 billion, 5 percent is about $11 billion.
The remainder of the money would come from a variant on the big bank assessment. It was decided that banks with more than $10 billion in assets would be required to pay more into the FDIC’s Deposit Insurance Fund. In a classic example of double accounting, money in the DIF counts as revenue to the U.S. government which can off-set spending.
So $11 billion in savings on money that was never used through TARP, and another $6 billion to $9 billion in additional FDIC premiums was good enough to balance the federal books from the perspective of the CBO. With this plan in place, Congress ultimately passed the Doff-Frank Act.
Budgeting at the U.S. government level is certainly creative, and perhaps a bit ugly if you think about it too much.