How Jeff Sessions is stopping the EPA’s slush fund

Principles are to be found in many places, a blessing in the Beltway where principles are needed on a daily basis. One such principle is enshrined in the appropriations clause of the constitution: “No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law.” And here is another principle not found in the constitution: “Punish your enemies and reward your friends.”

One might think that the constitutional principle would dominate the political one, particularly by public officials sworn to support and defend the former. Alas, one would be wrong, a discouraging reality illustrated clearly by the practice of the Environmental Protection Agency over recent years in terms of using settlements of enforcement actions to subsidize its favored industrial groups.

{mosads}Consider for example a violation of environmental rules both recent and egregious: the Volkswagen diesel emissions cheating scandal. The settlement of claims from that set of violations of the Clean Air Act will cost Volkswagen about $14.7 billion, of which about $1.5 billion is a civil penalty. Volkswagen is also required to spend $2 billion on charging stations and promotion of electric vehicles.

Note that the Obama administration twice requested congressional funding for electric vehicle infrastructure, and twice Congress refused. Accordingly, the $2 billion from the Volkswagen settlement is an obvious end-run around the congressional power of the purse — the appropriations clause of the constitution — used to reward the electric-vehicle friends of the Obama administration generally, and of the EPA bureaucracy in particular. Note that of the $2 billion, $800 million will go to California alone, and California and its vast environmental bureaucracy is nothing if not a friend of the EPA enforcers. 

More generally: There is no constitutional power for executive-branch agencies to use or to direct payments agreed in enforcement settlements as a financing mechanism for industrial policy or any other activity in the absence of a congressional appropriation.

Such payments in principle — there’s that word again — are compensation for violations of laws and regulations protecting the public. That’s so the appropriate recipient of the funds is the U.S. Treasury rather than some firm, industry or interest group that executive branch officials happen to view with favor.

Accordingly, it matters not one whit whether the uses to which the settlement funds are directed, having been blessed by the angels, will create an environmental heaven on earth. The angels are not Congress and Congress comprises few angels, but Congress and only Congress has the constitutional power to appropriate public resources among competing uses.

The Volkswagen settlement is hardly the only such mitigation project (slush fund) created with EPA litigation agreements. William Yeatman of the Competitive Enterprise Institute notes that since 2005 the EPA and the Justice Department have reached eighteen settlements under the Clean Air Act directing over $74 million to renewable energy projects, $257 million to energy efficiency projects and $1.2 billion (actually $2 billion) to electric vehicle infrastructure. All except $7 million was negotiated during the Obama administration.

Did Congress authorize any of it? Nope.

EPA claims that three “safeguards” serve to support and defend the constitution in this context. First, there is the requirement that the mitigation projects have a “nexus” to the underlying violation of law; but the nexus requirement is satisfied when the project “is designed to reduce “the overall risk to public health and/or the environment potentially affected by the violation” Interpreted broadly as the EPA does: The nexus is established if the project might reduce any type of pollution. 

Second: EPA may not “control” the project. But EPA is allowed to “oversee” the project. Who decides when permissible oversight transforms into impermissible control? Answer: The EPA. Can anyone believe this serves as an actual constraint on the EPA? And anyway: How does this control/oversight dance protect the congressional power of the purse?

Third: The mitigation projects may not augment activities “that are already the responsibility of a federal agency to perform.” So mitigation projects may not augment activities already funded or supported by federal agencies, defined by EPA as support with “grants, cooperative agreements, federal loans, and federally guaranteed loans.” But that excludes the central funding mechanism used by the federal government for unconventional energy and many other energy and conservation programs: tax subsidies. Activities benefiting from tax subsidies are fair game for “augmentation” through mitigation projects not approved by Congress.

Attorney General Jeff Sessions has noticed this blatant system of circumventing the congressional power of the purse, and has signed a directive to the Justice Department to halt approvals of third-party payments in settlement agreements. In a July 28 memorandum, Sessions also directed the relevant Justice Department officials to compile a list of all such settlements and third-party payments going back a decade, raising the interesting and wholly appropriate possibility that outstanding payments might not be made, and perhaps even that the recipients of past payments might be required to refund them to the Treasury. 

Just Department officials claim that Sessions’ new policy would not apply to EPA supplemental projects; if that is correct, it would weaken the new policy substantially. But Sessions has asked the right question, and his new approach is a vast improvement. And that is a principle to be applauded.

Benjamin Zycher is a resident scholar at the American Enterprise Institute.