Another Issue With Redirecting TARP Money

Last week I noted two challenges that Congress will face if it wants to use unused TARP money to “pay for” new spending efforts. The first is that each dollar of redirected TARP money generates only 50 cents in budget “savings” (because TARP budgeting uses credit principles that immediately recognize the potential for some money to be repaid in the future). The second is that the alleged budget “savings” are likely mythical (because the existing TARP program is on track to use much less than its full $699 billion authority).

A third issue, recently pointed out to me by a friend, is that the original TARP legislation includes language that’s intended to prevent TARP money from being redeployed to other uses. As I say in a new piece at e21:

When Congress created TARP, it specified that future TARP rescissions should not be used to pay for new spending. Section 204 of the Emergency Economic Stabilization Act indicates that the costs of TARP were being incurred because of an emergency (and therefore were exempt from certain congressional budget requirements) and that “rescissions of any amounts provided in this Act shall not be counted for purposes of budget enforcement.” In other words, Congress wanted to make sure that the emergency spending in TARP wouldn’t subsequently be rescinded to pay for new, non-emergency spending.

That limitation has not been a factor thus far when Congress has used TARP rescissions to pay for new legislation. In the spring, Congress used a $1.26 billion TARP rescission to help pay for legislation to help struggling homeowners. A few weeks ago, the House used a $34 million TARP rescission to pay for a new TARP database. In both cases, the resulting budget savings were relatively small ($630 million and $17 million, respectively) and were used to pay for programs related to TARP’s goals (housing and transparency). Looking ahead, a key question is whether Section 204 will play a bigger role now that Congress is considering larger TARP rescissions that would be used to fund programs well outside TARP’s scope.

I am not sure whether section 204 will have any practical relevance to today’s TARP debate (insights from folks close to the process would be appreciated). At a minimum, however, it is interesting that someone in Congress saw the potential for today’s TARP debate and tried to prevent it.

P.S. In case you’d like to check my interpretation, here’s the complete language of Section 204 of the Emergency Economic Stabilization Act:

SEC. 204. EMERGENCY TREATMENT.

All provisions of this Act are designated as an emergency requirement and necessary to meet emergency needs pursuant to section 204(a) of S. Con. Res 21 (110th Congress), the concurrent resolution on the budget for fiscal year 2008 and rescissions of any amounts provided in this Act shall not be counted for purposes of budget enforcement.