By Paul M. Krawzak and Kellie Mejdrich, CQ

Aug. 20, 2019

Lawmakers and stakeholders opposed to the possible cancellation of more than $4 billion in previously appropriated foreign assistance funds have limited options to combat the White House’s move, expected sometime this week.

The quickest route could be a lawsuit by aid groups and federal contractors that receive State Department and U.S. Agency for International Development funds seeking an immediate injunction, which would block such “rescissions” from taking effect. Click here to download the article.

By Robert Nichols and Andy Liu

In our article this past Sunday, we opined that OMB likely would be acting illegally if it tried to use the Impoundment Control Act (“ICA”) to run out the clock on the FY19 appropriations, or if it froze funds without timely notifying Congress.

Yesterday afternoon, Bloomberg reported that the White House intends to send a request to Congress on August 20 seeking rescission of unobligated funds in foreign assistance appropriations.  Additionally, OMB is imposing a daily spending limit of 2% of those unobligated funds per day, to block the agencies from distributing the funds before the end of the fiscal year.

The August 20 rescission notice may constitute a legal violation unless the Administration commits to releasing the funds “in sufficient time . . .  to be prudently obligated,” as GAO’s General Counsel has opined.[1]  Furthermore, the 2% cap would likely qualify as an illegal impoundment if OMB failed to timely notify Congress of this action.[2]

Several interested parties have asked us to outline a legal strategy for challenging both the anticipated rescission notice and 2% cap.  While more research is necessary, our initial thinking is informed by the ongoing lawsuit filed by the Sierra Club to stop President Trump’s reprograming of appropriated funds to pay for a border wall.  Several key takeaways from that litigation provide a good outline for such a challenge here.

Border Wall Litigation

When Congress refused to appropriate several billion dollars for construction of a border wall, President Trump declared that he would proceed with or without Congress’ blessing.  OMB reprogramed funding from various appropriations passed for other purposes, citing the National Emergencies Act (“NEA”)[3] and other fiscal statutes.  The Administration also waived the requirement for an Environmental Impact Statement for the border wall construction; that action triggered a response that President Trump may not have anticipated.

On February 19, 2019, the Sierra Club sued President Trump and his Cabinet in U.S. District Court for the Northern District of California.  The private party asked the District Court for an injunction against the Administration’s abuse of the fiscal laws to reprogram funds to a purpose not intended by Congress.  The White House, represented by the U.S. Department of Justice, opposed the request for injunctive relief.

On May 24, the District Court ruled for the Sierra Club and entered an injunction against the Administration.[4]  The Court focused its analysis on the application of the Constitution and the fiscal laws:[5]

The case is not about whether the challenged border barrier construction plan is wise or unwise. It is not about whether the plan is the right or wrong policy response to existing conditions at the southern border of the United States.  These policy questions are the subject of extensive, and often intense, differences of opinion, and this Court cannot and does not express any view as to them.

Assessing whether Defendants’ actions not only conform to the Framers’ contemplated division of powers among co-equal branches of government but also comply with the mandates of Congress set forth in previously unconstrued statutes presents a Gordian knot of sorts.  But the federal courts’ duty is to decide cases and controversies . . . .

Considering the Sierra Club’s request for relief, the District Court cautioned “[a] preliminary injunction is a matter of equitable discretion and is ‘an extraordinary remedy that may only be awarded upon a clear showing that the plaintiff is entitled to such relief.’”  The Court recited the legal standard that, to obtain preliminary injunctive relief, the plaintiff must establish:

• that it is likely to succeed on, or raises serious questions about, the merits;
• that it is likely to suffer irreparable harm in the absence of preliminary relief;
• that the balance of equities tips in its favor; and
• that an injunction is in the public interest.

The Court walked through each factor and found that the Sierra Club met its burden.  The crux of the analysis focused on the Court’s conclusion that the Administration’s reprogramming of funds likely violates the Constitution’s Separation of Powers, Congress’s most recent appropriations legislation, and the President’s statutory authorities regarding the handling of appropriated funds.  The Court found that:[6]

Congress’s “absolute” control over federal expenditures—even when that control may frustrate the desires of the Executive Branch regarding initiatives it views as important—is not a bug in our constitutional system.  It is a feature of that system, and an essential one. . . .  The Appropriations Clause is “a bulwark of the Constitution’s separation of powers among the three branches of the National Government,” and is “particularly important as a restraint on Executive Branch officers.” . . . Because the Court has found that Plaintiffs are likely to show that Defendants’ actions exceeded their statutory authority, and that irreparable harm will result from those actions, a preliminary injunction must issue pending a resolution of the merits of the case.

The Justice Department argued that the Sierra Club, a private party, has no standing to challenge the Administration’s use of Federal appropriations.  The District Court disagreed.  It found that the Sierra Club had met the Supreme Court’s standard for establishing standing:  the Sierra Club’s members would suffer an injury fairly traceable to the Administration’s reprogramming of funds, and the injury could be redressed by a favorable judicial decision.

Over the next several weeks, the District Court considered whether to issue a permanent injunction against the reprogramming.  Both the Sierra Club and the Administration, as well as various amici curiae (friends of the court), submitted briefs and testimony on the matter.  On June 28, the Court issued a second order confirming that the Administration had illegally reprogrammed appropriated funds for a purpose unintended by Congress.[7]  It then issued a permanent injunction against this unlawful fiscal action.

The Administration appealed the decision to the U.S. Court of Appeals for the Ninth Circuit.  Justice Department lawyers sought to stay the permanent injunction while the Circuit Court reviewed the District Court’s ruling; however, DOJ did not contest the Sierra Club’s standing (at least for purposes of lifting the injunction).  On July 3, the Circuit Court issued a lengthy opinion siding with the Sierra Club on both the illegality of the Administration’s funding actions and the Sierra Club’s standing.  It ordered that the injunction remain in place while the Circuit Court continued to consider other facets of the case.

The Administration immediately appealed to the Supreme Court.  On July 26, the Supreme Court issued a 5-4 decision releasing the funds during the pendency of the appeal at the Circuit Court.[8]  The majority stated that the Administration had raised sufficient doubt about there is a private cause of action to question the reprogramming of funds under one of the fiscal statutes in play.  Justice Breyer’s opinion, concurring in part and dissenting in part, observed that “[t]his case raises novel and important questions about the ability of private parties to enforce Congress’ appropriations power.”

Take-Aways From Sierra Club

We glean five key points from the Sierra Club litigation.

First, the District Court found that the Administration violated the law when it reprogrammed funds away from their intended purposes, and it granted an injunction halting the President’s actions.  The Court steadfastly focused on the Administration’s actions under the law, not on the policy differences that are motivating the litigants.

Second, a private party initiated the litigation.  The District Court and Circuit Court found that it has standing to do so, leading the Justice Department to concede the point at the Circuit Court (at least for purposes of seeking to lift the injunction).  However, at the Solicitor General’s urging, the Supreme Court questioned whether the Sierra Club has the right to enforce the fiscal statutes on which it is relying.  This issue remains in play.

Third, neither Congress nor GAO brought this litigation, nor is either participating in it as a plaintiff.  The U.S. House of Representatives and individual Members of Congress have joined the suit only as non-plaintiff amici curiae.[9]

Fourth, the Supreme Court released the funds for the Administration to spend while the Circuit Court continues its review of the District Court’s ruling.  The contrast in opinions between the California-based District Court and Circuit Court and the right-leaning Supreme Court should not go unnoticed.

Fifth, litigation such as this can move very quickly, requiring a comprehensive understanding of both appropriations law and legal rights of action to enforce fiscal laws.  Neither of these issues has been finally resolved by the courts.

Strategy for a Possible Challenge

In our view, any legal strategy to challenge the Administration’s impoundment of foreign assistance appropriations must involve three steps.

1. One or more contractors and/or NGOs would need to sign on as plaintiffs in a lawsuit and demonstrate that they will suffer harm from the Administration’s funding impoundments. Having other interested parties join the lawsuit—the House of Representatives, GAO, individual Members of Congress, and trade associations—would be helpful but may not be essential, given the ruling in Sierra Club.
2. Counsel would need to quickly nail down the legal arguments and draft a complaint addressing three issues:

   a. establishing that the plaintiffs meet the standards for standing;

   b. arguing that the Administration’s impoundments of the foreign assistance appropriations—

   • • • constitutes an illegal, de facto line item veto;
       • violates the Constitution’s Separation of Powers;
       • violates the Impoundment Control Act;
       • violates the foreign assistance appropriations statutes; and
       • possibly violates the Administrative Procedures Act.

   c. identifying the relief sought, which likely would include—

   • • • enjoining OMB from using any rescission package to “run out the clock” on the FY19 funding;
       • enjoining OMB from imposing the 2% cap on spending as an illegal impoundment of funds;
       • making the funds available during the pendency of the lawsuit; and
       • possibly making the funds available for a commensurate period after the fiscal year has expired.
3. Once the complaint is written, counsel could send it to OMB—without identifying the plaintiffs—as a warning shot before filing the lawsuit. This may very well cause the Administration to abandon its impoundment actions, at least for this year.  If not, the suit could be filed immediately.

This course of action obviously is not without litigation and political risks.  As the Sierra Club litigation shows, however, parties harmed by the Administration’s misuse of the fiscal laws may have a right to be heard—and might even be able to curb the President’s injurious disregard of fiscal laws.

[1] Impoundment Control Act—Withholding of Funds through Their Date of Expiration, B-330330 (Dec. 10, 2018), https://www.gao.gov/assets/700/695889.pdf.

[2] See 2 U.S.C. §§ 682-684 (requiring notice to Congress of any impoundment of appropriated funds).

[3] 50 U.S.C. §§ 1601-1651.

[4] Sierra Club v. Trump, 379 F. Supp. 3d 883 (N.D. Cal. 2019).

[5] See id. at 891 (citations omitted) (citing In re Aiken Cty., 725 F.3d 255, 257 (D.C. Cir. 2013) (“The underlying policy debate is not our concern . . . .  Our more modest task is to ensure, in justiciable cases, that agencies comply with the law as it has been set by Congress.”) (ellipsis in original)).

[6] Id. at 927-28 (citations omitted).

[7] Sierra Club v. Trump, No. 4:19-cv-00892-HSG, 2019 WL 2715422 (N.D. Cal. June 28, 2019).

[8] See Trump v. Sierra Club, 588 U. S. ____ (2019), available at https://www.supremecourt.gov/opinions/18pdf/19a60_o75p.pdf.

[9] Having said that, the U.S. House of Representatives did bring a separate lawsuit seeking a preliminary injunction in the U.S. District Court for the District of Columbia.  The District Judge dismissed that suit stating that, “while the Constitution bestows upon Members of the House many powers, it does not grant them standing to hale the Executive Branch into court claiming a dilution of Congress’s legislative authority.”  U.S. House of Representatives v. Mnuchin, 379 F. Supp. 3d 8, 11 (D.D.C. 2019).  That opinion has been strongly criticized by legal scholars and is now on appeal.

By Robert Nichols and Andy Liu

OMB claims that President Trump has the power to freeze appropriations until after they expire.  GAO maintains that such action would violate the Constitution’s Separation of Powers and the Impoundment Control Act – the very statute Congress enacted to curb similar abuses by President Nixon.  At stake is $4.3 billion in unobligated foreign assistance appropriations due to expire September 30.

For the second August in a row, OMB has begun impounding these appropriated funds, only to relent when foreign aid advocates have pushed back.  Insider sources, however, tell us that OMB may proceed in sending a rescission bill to Capitol Hill within the next 10 days.  Relying on political pressure and a divided Congress to save the funding may be an unacceptable risk, given the stakes.

Would a Federal judge issue an injunction to keep the appropriations available to the Agencies?  Perhaps.  At the same time, the Administration may bet that no interested party – Congress, GAO, States, International Organizations, Contractors, or NGOs – is able and willing to bring a lawsuit in time to save the appropriations.

But in our view, if an able party is willing to bring a lawsuit, while there are legitimate issues to overcome, they should be surmountable.

The current dispute over foreign aid funding arises around politics and fiscal policy.  It may ultimately be decided by a judge hearing from lawyers who know both government contracts law and appropriations law.[1]  This article outlines several legal issues that interested parties should understand as they monitor OMB’s actions relating to foreign assistance appropriations.

Recent Events

On August 3, 2019, OMB sent the attached letter to the State Department and USAID freezing foreign aid funds that Congress appropriated for FY19.  The letter states:

Pursuant to the authority delegated to me by the Acting Director of OMB to carry out OMB’s apportionment authority under 31 U.S.C. 1512, this letter constitutes a reapportionment of all previously approved apportionments of the below-mentioned Treasury Appropriation Fund Symbols (TAFS). All previously apportioned unobligated resources in the TAFS shall be unavailable for obligation until three business days after the Office of Management and Budget receives an accounting from your agencies of the current outstanding unobligated resources in the TAFS.

The letter lists eight areas that cover a variety of assistance:  international organizations, peacekeeping operations, international narcotics control and law enforcement, development aid, assistance for Europe, Eurasia and Central Asia, economic support funding, foreign military financing programs, and global health programs.

Foreign aid advocates sounded the alarm that the Administration planned to cancel the target funding – or possibly keep it frozen until it expires September 30.  Dozens of NGOs released a joint statement this past Thursday condemning the action.  Four top foreign policy lawmakers sent a tough bipartisan letter directly to Mulvaney.

Understanding Appropriations Law

The Constitution assigns to Congress the power to control the government’s purse strings.  This is perhaps “the most important single curb in the Constitution on Presidential power.”[2]  Congress implements its power through the annual budget and appropriations process and through a series of permanent statutes that establish controls on the use of appropriated funds.  This legal framework is designed to combat abuses by the Executive Branch.

Simply put, Congress appropriates, OMB apportions, and the receiving agency allots (or allocates) within the apportionment.[3]  OMB’s August 3^rd letter addressed only the reapportionment of funds.  Reapportionment occurs when there is a need to make “changes to the previously approved apportionment for the current year.”[4]  This is a standard budgetary tool – except that, in this case, it was likely not being used to move funds but rather to impound them so the agencies cannot spend them.

Impoundment is any Executive action or inaction that temporarily or permanently withholds, delays, or precludes the obligation or expenditure of budgetary resources.^[5]  These are most often seen as political battles between Congress and the White House.  When President Nixon threatened to withhold appropriations for programs that were inconsistent with his policies, Congress enacted the Congressional Budget and Impoundment Control Act of 1974 (ICA).^[6]  The ICA defines two types of impoundments and establishes the conditions for each.

• The President may ask Congress to rescind all or part of an appropriation and may freeze the funds for 45 days of “continuous session” while they consider this request rescission legislation. If Congress does not act, the President must immediately unfreeze the funds for agency obligation and expenditure.
• The President may issue a deferral – that is, temporarily freeze the appropriated funds to be disbursed later in the year.[7]

Under the ICA, the President must immediately notify both houses of Congress when taking either a rescission or a deferral action so that Congress can respond.  The existence and timing of this notice is key.

Dispute Over Impoundment Powers

There is a strong argument that OMB’s August 3^rd letter, by itself, constitutes an illegal impoundment of appropriated funds if OMB failed to timely notify Congress of the action.  Having said that, the Administration’s release of funds this past Friday effectively mooted this issue.  Ensuring proper notice is an important requirement to keep in mind for future actions.

More significant here is the legal question of whether the President has the authority to impound appropriated funds until after they expire.  On this point, GAO and OMB appear to be at odds.  The General Counsel of GAO opined on this issue in a December 2018 letter to the Committee on the Budget of the U.S. House of Representatives.[8]  GAO’s opinion referenced (but did not include) a letter from OMB’s General Counsel on the same topic.

GAO takes the position that the President has no power to impound funds except in the limited circumstances authorized by the ICA.  Congress did not intend the ICA to authorize the President to use either a rescission or a deferral action to impound funds past their expiration date.  If the Administration were to try to do so, it would be unilaterally revising the appropriation law, which not only would exceed the authorities conferred in the ICA but also constitute an illegal line-item veto.

GAO maintains that:

It would be an abuse of this limited authority and an interference with Congress’s constitutional prerogatives if a President were to time the withholding of expiring budget authority to effectively alter the time period that the budget authority is available for obligation from the time period established by Congress in duly enacted appropriations legislation. It would be inimical to the ICA and to its constitutional underpinnings for the executive to avail itself of the withholding authority in the ICA, but to ignore the remainder of the process.

Without citing any particular statutory language, GAO contends that the ICA authorizes the President to impound funds for up to 45 calendar days for a rescission, but only if the Administration releases the funds “in sufficient time . . .  to be prudently obligated.”  The opinion draws no bright lines about what is sufficient time, saying that it may be hours or days or weeks or months based on the program at issue.  GAO also cites no consequences for the Administration if it does not provide for sufficient time.  GAO describes some “particularly troublesome” past instances when OMB lifted an impoundment with insufficient time for the agency to prudently obligate the unfrozen funds.

In response, OMB correctly asserts that the language of the ICA does not expressly preclude an impoundment from persisting through the date on which amounts would expire. The ICA may require sufficient time following a deferral for the funds to be spent, but the statute’s language on rescissions is silent on the matter.  According to OMB, these distinctions demonstrate that Congress did not intend for the President to make withheld budget authority available for obligation before the end of the fiscal year. The ICA grants the President authority to withhold funds for the entire 45-day period, even if such withholding would result in the expiration of impounded balances.

The fact is that GAO and OMB appear not to agree on the proper interpretation of this statute raises the prospect of unilateral action by the Administration.

Questions in Bringing a Challenge

We have studied all of the legal arguments and authorities cited by GAO and OMB.  Both sides are relying on their own interpretation of what is, unfortunately, a vaguely-written law.  Having said that, we believe that GAO is almost certainly right that OMB would be acting illegally if it simply issues a deferral or rescission notice and tries to “run out the clock” on the appropriation.  But that question is academic unless some interested party takes legal action against the Administration.

In our view, bringing this challenge need not wait for OMB to issue its rescission notice but should be started immediately.  The Administration has already improperly impounded funds and is likely to do so again in the coming days.  Having arguments and papers ready to file is important.

Any legal challenge would likely occur in the U.S. District Court for the District of Columbia.  Plaintiffs would want to seek a temporary restraining order and permanent injunction, either enjoining the rescission notice entirely or providing other such relief that would leave proportionate time after the notice period for the unfreezing, obligation, and expenditure of funds before they expire.

Finally, and perhaps most important:  who is able and willing to bring the challenge.  A litigant can bring a court action only if it establishes standing.  Members of Congress generally do not have standing to bring a lawsuit on behalf of Congress,[9] and industry associations have met mixed results when suing on behalf of their members.[10]  The ICA authorizes the Comptroller General to hire legal counsel to bring an action,[11] but the hurdles to that happening are uncertain.[12]  Beneficiaries of the foreign funding – including Contractors, and NGOs – may be the best hope for establishing standing, though they too have standing hurdles to overcome.[13]  Perhaps a combination of these interested parties has the best chance of success.

In the end, though, the largest barrier may be whether there is a sufficient level of desire for taking on this fight.

[1] Robert Nichols is a government contracts lawyer who started his career as a fiscal law attorney in the Honors Program of the U.S. Army Corps of Engineers.  GAO’s Managing Associate General Counsel on this matter, Julie Matta, came from the same program.  Andy Liu is the former General Counsel of the Social Security Agency and regularly dealt with OMB on appropriations issues.

[2] Principles of Federal Appropriations Law, Fourth Ed., Ch. 1 (2016) (“GAO Redbook”), available at https://www.gao.gov/assets/680/675709.pdf.

[3] 31 U.S.C. §§ 1511-1516.

[4] See OMB Circular No. A–11, Preparation, Submission, and Execution of the Budget, Section 120 (2019), available at https://www.whitehouse.gov/wp-content/uploads/2018/06/a11.pdf.

[5] OMB Circular A-11, § 112.2.

[6] Pub. L. No. 93-344, 88 Stat. 297 (codified as amended in scattered sections of 2 U.S.C.).

[7] 2 U.S.C. §§ 682-684

[8] Impoundment Control Act—Withholding of Funds through Their Date of Expiration, B-330330 (Dec. 10, 2018), https://www.gao.gov/assets/700/695889.pdf.

[9] See William C. Freeman and Kevin M. Lewis, Congressional Participation in Litigation: Article III and Legislative Standing, CRS Report R45636 (Mar. 28, 2019), available at https://fas.org/sgp/crs/misc/R45636.pdf (“[C]ourts have generally (though not universally) been less willing to permit individual legislators to seek redress for injuries to a house of Congress as a whole, at least in the absence of explicit authorization to do so from the legislative body itself”).

[10] The U.S. Supreme Court has held that an association has standing to sue on behalf of its members only if the following conditions are met:  (1) the association’s members would otherwise have standing in their own right, (2) the interest the association is seeking to protect is germane to the association’s purpose, and (3) neither the claim asserted, nor the relief requested, requires participation of individual members in the lawsuit.  Hunt v. Wash. State Apple Adver. Comm’n, 432 U.S. 333 (1977).

^[11] 2 U.S.C. § 687.

[12] See Wm. Bradford Middlekauff, Twisting the President’s Arm: The Impoundment Control Act as a Tool for Enforcing the Principle of Appropriation Expenditure, 100 Yale L.J. 1 (1990) (describing the Reagan Administration’s attempts to resist GAO enforcement of the ICA).

[13] In Public Citizen v. Stockman, 528 F.Supp. 824 (D.D.C. 1981), a Federal court found no private right of action for an ICA challenge, but that case may be distinguishable.