Guest Commentary: Introducing “Article V 2.0”: The Compact for a Balanced Budget

By Nick Dranias

General Counsel & Constitutional Policy Director, Goldwater Institute

Introduction

What if the states could advance and ratify a powerful federal balanced budget amendment in just twelve months? It could happen with a new approach to state-originated amendments under Article V of the United States Constitution. At the stroke of their pens on April 12 and 22, 2014, respectively, Governors Nathan Deal[1] and Sean Parnell[2] formed the “Compact for a Balanced Budget” among the States of Georgia and Alaska. Unlike any other effort to reform Washington from the states using their Article V amendment power, the formation of the Compact for a Balanced Budget changes the political game almost immediately.

An Immediate Platform for Reform

Alaska and Georgia are expected to organize the Compact’s interstate commission before the summer of 2014 ends. Think of the Compact Commission as an outside-the-beltway Erskine-Bowles Commission that can do much more than “jawbone” hypothetical fiscal reforms—it will marshal a state-based effort to propose and ratify a powerful Balanced Budget Amendment. Although it starts operating with appointees from just two states, eventually the Commission will expand to include appointees from three states—and possibly more.[3] It is designed to unify the states and lead the charge for fiscal reform shoulder-to-shoulder with allied legislators, citizens, and public interest groups—immediately changing the political game in Washington and the nation.

The Amendment in a Nutshell

With the Compact’s Balanced Budget Amendment in place, Washington would no longer have the ability to set its own credit limit and write itself a blank check. The states would become an active board of directors charged with keeping an eye on our wayward federal CEO and staff. Debt would finally become scarce. Priorities would have to be set. Sustainable federal programs would have to become the norm. A broad national consensus—not midnight-hour panic—would have to support any further increases in the national debt. Here’s how it would work:[4]

First, section 1 of the amendment would ensure that Washington cannot spend more than what taxes bring in at any point in time, with the sole exception of borrowing under a fixed debt limit.[5]

Second, section 2 would put an initially fixed limit on the amount of federal debt “equal to 105 percent of the outstanding debt” at the time of ratification.[6] The extra 5% borrowing cushion would provide approximately 1.5 to 2 years of borrowing capacity based on the current annual deficit rates ($500 to $650 billion per year), in order to give Congress a transition period in which to develop a proposal to fix the national debt.

Third, section 3 would require a referendum of the state legislatures to approve any increase in the fixed constitutional debt limit within 60 days of congressional proposal of a single-subject measure to that effect.[7] Because of the flexibility made possible through this referendum process, the proposed amendment does not include any emergency spending or borrowing loophole. Although flexible, requiring state approval for debt limit increases would make it substantially more difficult to increase the national debt because two hurdles (congressional and state approval) are obviously more difficult to jump than the status quo of one. Moreover, by requiring a nationwide debate in 50 state capitols over any increase in the constitutional debt limit, the proposed amendment would shine more light on national debt policy and give the American people a greater chance to stop needless increases in the debt limit. And by requiring state approval within 60 days, there will be a strong default position disfavoring any increase in the federal debt limit.

Fourth, section 4 would compel spending impoundments by the President when 98 percent of the debt limit is reached, ensuring that Washington is forced to reduce spending long before borrowing reaches its debt limit—preventing any default on obligations.[8] Abuse of such impoundment power is checked and balanced by empowering simple majorities of Congress to override the President’s proposed impoundments within 30 days without having to repeal the underlying appropriations.[9] This provision would start a serious fiscal discussion with plenty of time in which to fix the national debt.

Fifth, if new revenues are needed to avoid borrowing beyond the debt limit, the amendment would ensure that all possible spending cuts are considered first. It does this by reserving the current simple majority rule for new or increased taxes only for completely replacing the income tax with a non-VAT sales tax (“fair tax” reform), repealing existing taxation loopholes (“flat tax” reform), and increasing tariffs or fees (the Constitution’s original primary source of federal revenues). All other revenue increases would have to secure two-thirds approval from Congress. Any push for new revenue through these narrow channels will generate strong special interest pushback, strongly incentivizing spending cuts before taxes are raised.

The Next-Generation Article V Movement

The Compact for a Balanced Budget uses an interstate agreement to advance and ratify this powerful amendment proposal because a compact vastly simplifies the Article V convention process. Without a compact, the Article V convention approach would first require two-thirds of the state legislatures to pass resolutions applying for a convention (34 enactments). Second, at least a majority of states would need to pass laws appointing and instructing delegates (26+ enactments). Third, Congress would need to pass a resolution calling the convention. Fourth, the convention would need to meet and actually propose an amendment. Fifth, Congress would need to pass another resolution to select the mode of ratification (either by state legislature or in-state convention). And sixth, three-fourths of the states would then need to pass legislative resolutions or successfully convene in-state conventions that ratify the amendment (at least 38 enactments). That’s over one hundred legislative acts and six legislative stages.

By contrast, the Compact consolidates everything states do in the Article V convention process into a single agreement among the states that is enacted once by three-fourths of the states[10] and everything Congress does in a single concurrent resolution passed just once with simple majorities and no presidential presentment. The Compact is able to pack both the front and back ends of the Article V convention process into just two overarching legislative vehicles by using the “secret sauce” of conditional enactments. For example, using a conditional enactment, the “nested” Article V application contained in the Compact only goes “live” once three-fourths of the states join the compact (three-fourths, rather than two-thirds, is the threshold for activating the Article V application because the compact is designed to start and complete the entire amendment process).[11] The Compact also includes a “nested” legislative ratification of the contemplated Balanced Budget Amendment, which only goes “live” if Congress selects ratification by state legislature rather than in-state convention.[12] Correspondingly, using conditional enactments, the nested “call” in the congressional counterpart resolution only goes live once three-fourths of the states join the Compact.[13] Likewise, the nested selection of legislative ratification in the congressional resolution only becomes effective if, in fact, the contemplated amendment is proposed by the convention organized by the Compact.[14]

By using an interstate agreement and conditional enactments to coordinate and simplify the state-originated Article V amendment process, the Compact approach to Article V reduces the number of necessary legislative enactments, stages, and sessions from 100+ enactments to 39 (38 states joining the compact, one congressional resolution), from six legislative stages to three (passage of compact, convention proposal of amendment, congressional passage of resolution), and from five or more session years to as few as one (the current target is three years). Fortunately, there is perhaps no more universally accepted legislative provision than the conditional enactment. Conditional enactments are common components of congressional legislation, including legislation approving interstate compacts,^[15] as well as within many existing interstate and federal-territorial compacts.^[16] In fact, the U.S. Supreme Court and courts in 45 states and territories have recognized the viability of conditional enactments for a wide range of both state and federal legislation,^[17] including state laws that were enacted contingent on the passage of new federal laws.^[18] Because a state’s authority over whether to apply for an Article V convention or whether to legislatively ratify an amendment is as plenary as any other form of legislation, such case law sustains the Compact’s use of conditional enactments.

Article V: Not Meant to Be an Insurmountable Obstacle Course

Nevertheless, the Compact for a Balanced Budget has been criticized as violating the text of Article V by avoiding a difficult, multi-staged, multigenerational amendment quest. But this criticism is meritless. Through the operation of conditional enactments, the Compact conforms strictly to the text of Article V. For example, the Compact’s pre-ratification is entirely contingent on Congress first effectively selecting legislative ratification of the contemplated amendment, which, in turn, presumes the prior proposal of the amendment either by Congress or an Article V convention. In other words, because of the foregoing conditional enactment, the pre-ratification will go live (if it ever goes live) only in the precise sequence required by the text of Article V.

Furthermore, the streamlined, coordinated Compact approach to Article V is more consistent with the actual spirit of Article V as described by advocates of ratification, than the multi-staged legislative obstacle course which a non-compact approach to Article V necessitates. The amendment process under Article V was not meant to be exceedingly difficult. It was meant to guard “equally against that extreme facility, which would render the Constitution too mutable; and that extreme difficulty, which might perpetuate its discovered faults.”^[19] Proponents of ratification even described the amendment process as “easy.”[20] And there is strong evidence that the Founders expected that the states would coordinate their origination of constitutional amendments by advance agreement. Most significantly, at the Virginia Ratification convention, George Nicholas stated, “It is natural to conclude that those States who will apply for calling the Convention, will concur in the ratification of the proposed amendments” (emphasis added).^[21] The Compact’s streamlined approach thus conforms to the spirit of Article V.

Consent of Congress Requirements

Another common objection is that the Compact approach is defective because Article I, Section 10, of the U.S. Constitution provides that states may not enter into compacts without the “consent” of Congress. But the Supreme Court has held for nearly 200 years that congressional consent to interstate compacts can be given expressly or implicitly, either before or after the underlying agreement is reached.^[22] Moreover, under equally longstanding precedent, a binding interstate compact can be constitutionally formed without congressional consent so long as the compact does not trench on the federal government’s delegated powers.[23]

Nothing in the Compact for a Balanced Budget trenches on any federally delegated power, because conditional enactments and express provisions ensure that all requisite congressional action in the Article V amendment process would be secured before any compact provision predicated on such action became operative. Although it is true that the Compact Commission will operate immediately upon the membership of two states, that changes nothing in this regard. A compact does not trench on federal power merely because it provides “strength in numbers” among the states for a more effective federal educational or lobbying campaign.[24] To claim otherwise, one would have to demonstrate that the federal government, not the states, has the exclusive power to direct and control an Article V convention by way of setting the convention agenda and delegate instructions. But all of the available Founding-era and near-Founding-era evidence shows that it was the public understanding of the Framers and the Ratifiers that the states would target the Article V convention process to desired amendments, which implies state control over the convention agenda and delegates.

In fact, any convention called in response to applications of state legislatures seeking a convention with a specific agenda is naturally understood as adopting that specific agenda.^[25] This is because the word “application” was a legal term of art at the time of the founding that described a written means of petitioning a legislative body for specific relief.^[26] The usual and customary practice in response to specific applications was either to grant what was requested or to deny them.^[27] The contemporaneous usage of “application” thus supports the conclusion that state legislatures had the power to apply for an Article V convention with a specific agenda.

Consistent with that understanding, Hamilton wrote in Federalist No. 85, “If, on the contrary, the Constitution proposed should once be ratified by all the States as it stands, alterations in it may at any time be effected by nine States.”^[28] The reference to alterations being “effected by nine States” was in regard to what would be “effected” by the application of two-thirds of the states for an Article V convention; nine states being two-thirds of the original thirteen. The fact that Hamilton intended to convey the understanding that the application itself would specify the desired “alteration” is further evident in the immediately following sentence: “Here, then, the chances are as thirteen to nine in favor of subsequent amendment, rather than of the original adoption of an entire system.” Significantly, Hamilton footnoted the number “nine,” explaining: “It may rather be said TEN, for though two thirds may set on foot the measure, three fourths must ratify.” The colorful phrase that “two thirds may set on foot the measure” clearly indicates that the ultimately ratified amendment (“the measure”) would be initially specified by the application of “two thirds” of the state legislatures. Indeed, Alexander Hamilton concluded Federalist No. 85 by concluding, “We may safely rely on the disposition of the State legislatures to erect barriers against the encroachments of the national authority” by using their amendment power under Article V. Because Congress selects the mode of ratification and state legislative ratification may never happen, we know that Hamilton had to be speaking of the targeting of Article V applications originated by state legislatures as the source of such barriers to national encroachments.

Hamilton was not alone in his understanding of how applications would unite the states in advancing one or more particular amendments. For example, on January 23, 1788, Federalist No. 43 was published with James Madison’s attributed observation that Article V “equally enables the general and the State governments to originate the amendment of errors, as they may be pointed out by the experience on one side, or on the other.”^[29] Similarly, George Washington wrote on April 25, 1788, “it should be remembered that a constitutional door is open for such amendments as shall be thought necessary by nine States.”^[30] On June 6, 1788, George Nicholas reiterated the same points at the Virginia ratification convention, observing that state legislatures may apply for an Article V convention confined to a “few points.”^[31] Ten years later, on February 7, 1799, James Madison’s Report on the Virginia Resolutions further observed that the states could organize an Article V convention for the “object” of declaring the Alien and Sedition Acts unconstitutional.^[32] Of course, achieving these targeted results would naturally require that the states control convention logistics, including delegate appointments and instructions, to target the process to desired amendments. The Compact for a Balanced Budget thus does not infringe on any power delegated to the federal government by doing so—hence there is no need for congressional consent for the compact to be validly formed, although such consent is unavoidably necessary before the compact’s contemplated convention call and ratification referral can be effective.

Presidential Presentment Not Necessary

Another concern occasionally expressed about the Compact is that the counterpart congressional resolution, which gives implied consent to the Compact by calling the convention and preselecting legislative ratification in accordance with its terms, would require presidential presentment, as do ordinary bills.[33] However, the Supreme Court has already ruled in Hollingsworth v. Virginia that Congress’ role in the Article V amendment process does not implicate presidential presentment.^[34] Although this ruling was applied specifically to the congressional proposal of amendments, there is every reason to conclude that Congress’ convention call and ratification referral powers would be treated the same way. Simply put, Congress’ call and ratification referral powers under Article V, like the congressional proposal of amendments, merely channels a legislative proposal for further action by other bodies—it is not, itself, making federal law. Thus, like the direct congressional proposal of amendments, the contemplated counterpart congressional resolution does not require presidential presentment.

Restrictions on the Convention

Some contend that the Compact for a Balanced violates Article V by pre-committing member state delegates to voting up or down on the proposal of a specific balanced budget amendment. In response, it should first be observed that no Founder ever expressed the distinctly modern view that the states must first organize an Article V convention to find out what amendments it might propose. On the contrary, George Washington, James Madison, and Alexander Hamilton all said that the states’ power to obtain desired amendments by convention would be equal to that of Congress’ power. These representations, if taken as true, imply that the Article V convention was meant to be an instrumentality that could be directed by the states to proposing specific amendments, not an independent agency with a mysterious reform agenda of its own.[35]

Criticism of the Compact’s laser-focused approach to advancing a specific Balanced Budget Amendment also fails to account for the mechanism by which the Compact requires an up-or-down vote on the contemplated amendment. Although the application nested in the Compact sets the agenda, it is actually the delegate instructions set out in the Compact that enforce the adoption of convention rules that limit the agenda to an up-or-down vote on the contemplated Balanced Budget Amendment. As the first order of business, delegates are strictly instructed to adopt the Compact’s contemplated convention rules, which require an up-or-down vote on the contemplated amendment, or else they forfeit their authority in a variety of ways.[36] This means that the scope limitations of the Compact are enforced based on the agency principle that the delegates are the agents of the states that sent them. Thus, the extent of targeting in the Compact differs only in degree, not kind, from the custom and practice of more than a dozen interstate and inter-colonial conventions that were organized prior to the ratification of the U.S. Constitution.^[37]

Countering Congressional Leverage

Finally, whether Fivers like it or not, Congress has significant leverage in the Article V amendment process. Despite the plain meaning of Article V, Congress has never regarded its convention call power as purely ministerial.[38] Congressional Research Service Analyst Thomas Neale has observed that Congress “has traditionally asserted broad and substantive authority over the full range of the Article V Convention’s procedural and institutional aspects from start to finish.”[39] And even if Congress called a convention with no federal strings attached, there is no guarantee that it would not set an impossibly short ratification sunset date for any proposal it disliked. It is irresponsible for Fivers to ignore these facts.

Only a compact ensures that the states lead and Congress follows. By fully occupying all logistical spaces and then deliberately seeking to co-opt Congress at the states’ time of choosing—using the platform of a Compact Commission to unite the states and enable them to parley institution-to-institution, the Compact approach minimizes the risk that Congress will abuse its Article V leverage. This, in turn, enables the Compact effort to neutralize the principal political and litigation risk to the Article V movement—Congressional sabotage.^[40]

But even if Congress took an uncharacteristic hands-off approach to the Article V convention process, a compact-organized Article V convention remains the superior approach for a balanced budget amendment. This is because the organization of a convention of indefinite duration populated by as-yet unidentified delegates governed by as-yet unidentified rules is as likely to produce deadlock or to generate something worthless as to engender something worthwhile. And even if a worthwhile balanced budget amendment were proposed, the drafting-convention approach would still require the subsequent step of ratification. There is no guarantee that any amendment proposed by the convention would secure ratification from the requisite 38 states.

With the Compact, by contrast, you know what you are going to get. The text of the contemplated amendment is known in advance. The identities of the convention delegates are known in advance. The convention agenda and rules are known in advance. The convention itself would be limited to 24 hours, ensuring that its fiscal impact would be minimal. The amendment would be ratified if approved by the convention, because the Compact pre-commits each member state to ratifying it. Congress’ willingness to call the convention in accordance with the Compact would be known in advance, because the introduction of the requisite congressional resolution could be sought whenever the political stars align. The Compact thus maximizes the certainty that any investment of blood and treasure in the undertaking will yield results.

Conclusion

Of course, 36 more states must still join the Compact and simple majorities of Congress must approve it. But this can be done in as little as twelve months, because the Compact consolidates everything states do in the constitutional amendment process into a single agreement among the states that is enacted once by each state, and everything Congress does in a single resolution passed once. A non-compact approach to Article V simply cannot make that claim. With the clock ticking for federal fiscal reform, it is time for Fivers to upgrade.