Sequestration Exemption for the

Resolution Funding Corporation

“Backup” payments made by the Department of the Treasury to cover interest obligations 

o f the Resolution Funding Corporation are not subject to sequestration under the 

Balanced Budget and Emergency 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 e p a r t m e n t o f t h e T r e a s u r y

a n d t h 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 of Management and Budget (“OMB”) are correct in their determination that “backup” payments made by Treasury to cover interest 

obligations of the Resolution Funding Corporation (“Refcorp”) would not 

be subject to sequestration under the Balanced Budget and Emergency 

Deficit Control Act of 1985, as amended, 2 U.S.C. §§ 901-922 (“Balanced 

Budget Act” or “Act”). The Financial Institutions Reform, Recovery, and 

Enforcement Act of 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 provide funds to the Resolution Trust Corporation to resolve the financial 

problems of the thrift industry. Federal Home Loan Bank Act (“FHLB 

Act”), § 21B(a), as added by FIRREA, § 511(a), 103 Stat. at 394. In addition 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) of 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 of 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) of the FHLB Act, 103 Stat. at 401-02. The FIRREA “appro309
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 guarantee commitments or limitations; new direct loan obligations, commitments, or limitations; spending authority as 

defined in section 651(c)(2) of [title 2]; and obligation limitations for budget accounts, programs, projects, and activities 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 of obligations issued pursuant 

to § 511(a) of FIRREA, is funded only through investments by and assessments 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 corporation entirely outside the budget process. Thus Refcorp is not included 

in the calculation of 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 purpose of 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 of the obligations issued by Refcorp, 

and/or forcing purchasers to demand a higher rate of return to offset the 

risk of sequestration.

For the reasons stated, we conclude that Treasury and OMB are correct 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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