Sequestration Exemption for the
Resolution Funding Corporation
“Backup” payments made by the Department o f the Treasury to cover interest obligations
o f the Resolution Funding Corporation are not subject to sequestration under the
Balanced Budget and Em ergency Deficit Control Act o f 1985.
October 3, 1989
M e m o r a n d u m O p in io n f o r t h e G e n e r a l C o u n s e l
D epartm en t o f th e T reasury
an d th e A c t in g G e n e r a l C o u n s e l
O f f ic e o f M a n a g e m e n t a n d B u d g e t
This responds to your request of September 29, 1989, for the opinion of
this Office on whether the Department of the Treasury (“Treasury”) and
the Office o f Management and Budget (“OMB”) are correct in their deter
mination that “backup” payments made by Treasury to cover interest
obligations o f the Resolution Funding Corporation (“Refcorp”) would not
be subject to sequestration under the Balanced Budget and Emergency
Deficit Control Act o f 1985, as amended, 2 U.S.C. §§ 901-922 (“Balanced
Budget Act” or “Act”). The Financial Institutions Reform, Recovery, and
Enforcement Act o f 1989, Pub. L. No. 101-73, 103 Stat. 183 (“FIRREA”),
exempts Refcorp from any sequestration order under the Balanced
Budget Act. We conclude that Treasury and OMB are correct that this
exemption extends to Treasury’s backup payments.
Refcorp is a privately capitalized corporation organized solely to pro
vide funds to the Resolution Trust Corporation to resolve the financial
problems o f the thrift industry. Federal Home Loan Bank Act (“FHLB
Act”), § 21B(a), as added by FIRREA, § 511(a), 103 Stat. at 394. In addi
tion to receiving private funding from the thrift industry, Refcorp may
issue “bonds, notes, debentures, and similar obligations in an aggregate
amount not to exceed $30,000,000,000.” § 21B(f)(l) o f the FHLB Act, 103
Stat. at 400. Interest on these obligations is to be paid by Refcorp from
four specified sources. Id. § 21B(f)(2). To cover shortfalls from these
sources, Congress established a “Treasury [b]ackup,” directing the
Secretary o f the Treasury to “pay to [Refcorp] the additional amount due,
which shall be used by the [Refcorp] to pay such interest.” See §
21B(f)(2)(E)(i) o f the FHLB Act, 103 Stat. at 401-02. The FIRREA “appro
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priate[s] to the Secretary [of the Treasury] for fiscal year 1989 and each
fiscal year thereafter, such sums as may be necessary to [fund]”
Treasury’s backup payments. Id. § 21B(f)(2)(E)(iii).
Treasury and OMB have concluded that Treasury’s backup payments to
Refcorp are not subject to sequestration under the Balanced Budget Act.
That Act directs the President under certain circumstances to sequester
appropriated funds to meet targeted budget reductions. 2 U.S.C. §§ 901-
902. The Act defines “sequesterable resource” as
new budget authority; unobligated balances; new loan guar
antee commitments o r limitations; new direct loan obliga
tions, commitments, or limitations; spending authority as
defined in section 651(c)(2) o f [title 2]; and obligation limi
tations for budget accounts, programs, projects, and activi
ties that are not exempt from reduction or sequestration
under this subchapter.
Id. § 907(9). Congress has exempted from sequestration a number of
“budget accounts and activities.” Id. § 905(g). On August 9, 1989,
Congress amended the Balanced Budget Act to add Refcorp to the list of
“budget accounts and activities” that “shall be exempt from reduction
under any order” issued under the Balanced Budget Act. FIRREA, §
743(a)(4), 103 Stat. at 437. The simple question posed is whether
Congress intended by this amendment to exempt from sequestration
Treasury payments to Refcorp made pursuant to § 21B(f)(2)(E) of the
FHLB Act.
Refcorp is a “mixed-ownership Government corporation,” see FIRREA,
§ 511(b)(1), 103 Stat. at 406 (amending 31 U.S.C. § 9101(2)(M) to include
Refcorp), which, apart from the proceeds o f obligations issued pursuant
to § 511(a) o f FIRREA, is funded only through investments by and assess
ments against the Federal Home Loan Banks, id. 103 Stat. at 396-97, 401;
assessments against Savings Association Insurance Fund members, id.
103 Stat. at 400; and FSLIC Resolution Fund receivership proceeds. Id.
OMB has advised us that for budget purposes Refcorp is a private corpo
ration entirely outside the budget process. Thus Refcorp is not included
in the calculation o f the budget “deficit,” 2 U.S.C. § 622(6), which forms
the basis for sequestration under the Balanced Budget Act, 2 U.S.C. §
901(a)(1), and is not subject to the Balanced Budget Act. Consequently,
there would have been no need to exempt Refcorp itself from reductions
under the Balanced Budget Act. The only conceivable purpose of the
exemption for Refcorp therefore must have been to ensure that payments
to Refcorp such as the Treasury’s backup payments would be exempt
from reduction. Accordingly, we believe that the exemption must be
understood as extending to these payments.
We recognize that Congress expressly exempted payments to other
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funds and entities, see 2 U.S.C. § 905(g)(1)(A). We do not believe that
Congress’ failure to exempt the Treasury payments expressly, however,
reflects an intent that they be sequesterable. If the amendment adding
Refcorp were construed not to extend to the Treasury backup payments,
it would be meaningless.
The legislative history provides no guidance as to Congress’ intent in
adding the exemption for Refcorp. H.R. Conf. Rep. No. 222, 101st Cong.,
1st Sess. 436 (1989). However, construing the exemption to encompass
Treasury’s backup payments furthers the indisputable congressional pur
pose o f saving the thrift industry at the least cost to the government.
Interpreting the exemption not to extend to the Treasury’s payments
could frustrate, if not defeat, the objectives of FIRREA by seriously
undermining the marketability o f the obligations issued by Refcorp,
and/or forcing purchasers to demand a higher rate o f return to offset the
risk o f sequestration.
For the reasons stated, we conclude that Treasury and OMB are cor
rect in their determination that backup payments made by Treasury to
cover interest payment obligations of Refcorp are not sequesterable
under the Balanced Budget Act.
WILLIAM P. BARR
Assistant Attorney General
Office of Legal Counsel
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