Backdoor financing, borrowing funds from the US Treasury beyond the budget set by Congress, is no longer commonly used in government agencies. It can be used in unusual circumstances, such as natural disasters, but has also been used to circumvent budgetary restrictions. The federal government has implemented more stringent guidelines to limit its use.
The practice of backdoor financing, once common in most government agencies, is no longer used generally. In essence, backdoor financing is the practice of allowing a government agency to borrow funds from the United States Treasury as a means of obtaining funding above and beyond the budget and appropriations set for the agency by Congress . Here are a couple of examples to illustrate when backdoor financing can be considered a prudent option.
In general, government spending is budgeted within the limits outlined in congressional appropriations that are extended to each agency or department within the federal government structure. However, it is recognized that unusual circumstances may arise which are beyond the scope of the appropriations. An example of an unusual circumstance would be the occurrence of an unforeseen natural disaster that displaces a large number of citizens. In these types of situations, a government agency that would be involved in overseeing the welfare of displaced citizens and assisting with any cleanup of the affected area could apply for additional Treasury funding to successfully complete the task.
While ideal for managing natural and other domestic disasters, backdoor funding has sometimes been employed as a means of circumventing the policies and procedures mandated by the United States Congress in relation to setting budgetary restrictions for each agency governmental. In the case of state agencies, backdoor financing was sometimes possible without any yes vote from that state’s citizens, despite the fact that loan repayments were usually made using state and local tax collectors. As a means to eliminate the use of backdoor funding for this purpose, the federal government has committed to implementing more stringent guidelines and qualifications that an agency must meet before applying to the Treasury.
Although the practice of backdoor financing is nowhere near as widespread as it was in past decades, there are still mechanisms that allow for this type of financing. However, the process is much more detailed than before, resulting in backdoor funding being much more likely to be requested when there is no other way to address an incident that could not have accounted for in an operating budget. In the interest of making the best use of government resources, placing limits on the availability of backdoor funding has proven to be in the best interests of US citizens across the country.
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