Appropriation
The CRE addresses the use by federal officials of financial incentives to accomplish policy objectives which cannot be achieved through the regulatory process. CRE believes this situation amounts to Regulation by Appropriation. Examples of this broad discretionary policy authority include the White House's involvement in the anti-drug messages of major network television programs and the proposal to control prescription drug prices through their proposed regulation in the Medicare program.

The ability of the federal government to undertake policy actions designed to promote the public welfare is a generally accepted part of the American social compact. Such actions can be accomplished by various means, including agency regulation or federal funding of various projects. However, there is a major difference between regulation and provision of grants in terms of the opportunity for public participation in the underlying policy making process. Regulatory activities generally have prescribed procedures for public review and comment, in the Federal Register or otherwise. However, in the area of grants, there are far fewer institutional checks on agency discretion. Therefore, in undertaking policy actions, CRE advocates that the federal government should adhere to two cardinal principles:

1. When making grants, the federal government should not impose conditions upon grantees which are not directly related to the purpose of the project in question.
   -- In other words, the government should not attempt to achieve unrelated policy goals through provision of public funds. All grants projects should have clearly defined objectives, and conditions imposed pursuant to the grant should be directly related to those objectives.
   -- Other objectives should be pursued through regulation or other appropriate means.
2. Federal policy actions should be "transparent."
   -- The involvement of the federal government and the message it is trying to convey should be clearly stated.
   -- This transparency requirement allows the public to understand the federal government's actions, thereby preventing inappropriate Regulation by Appropriation.

The Problem of Ancillary Conditions Placed in Federal Grants

Publicly funded grants usually impose conditions on recipients, and the agencies generally have broad authority in this area. In many instances, such conditions are entirely appropriate and bear directly on the proper completion of a grant, such as a requirement to make research data available to the granting agency or ensuring that wastewater treatment facilities comply with EPA water quality standards. Such conditions serve a legitimate function to allow limited federal oversight of the activities being conducted with public money.

However, there is nothing to stop the federal granting agency from imposing other conditions less necessary to the completion of the project, which may therefore be more controversial. For example, quotas for minority hiring on construction projects, requiring purchase of materials from providers in a certain geographical area, or other ancillary requirements could push the limits of agency involvement. Alternatively, the federal agency may try to infuse a project with a certain ideological perspective.

It is for these reasons that some members of Congress have proposed an increase in the use of block grants.

The Need for Transparency in Federal Grants

Regulation by Appropriation is a growing public policy concern, so despite platitudes to the agencies about not straying from their mission, there should be a mechanism to check agency authority in this area. Transparency of agency actions serves this critical function.

Often times, federally funded projects are noncontroversial, such as provision of grants for medical research, construction of sewage treatment facilities, and conduct of education programs. Federal grants often do not cover the full cost of the project. By requiring a financial commitment on the part of the grant recipient or third parties, the grantee has a stake in successful completion of the project. Thus, cost sharing promotes the efficient use of public resources and also leverages a limited supply of public funds.

In most cases, federal involvement is either clearly apparent or easily discoverable by the public. However, where agency actions are not transparent, the public has a right to ask questions. In this way, unrelated grant restrictions and other questionable measures can be scrutinized. Thus, transparency of governmental involvement is important in terms of fostering accountability and public trust.

White House Involvement in Television Anti-Drug Messages: A Case Study of Regulation by Appropriation

When the federal government does not bear the above two principles in mind, it risks criticism from both grantees and other interested parties. An example of where the federal government has used tactics which may amount to Regulation by Appropriation was recently reported by the Washington Post (Howard Kurtz & Sharon Waxman, White House Cut Anti-Drug Deal with TV, WASH. POST, January 14, 2000, A-1). The issue involves the recent dealings between the White House and six major television networks to promote anti-drug messages as part of their programs, in return for which the networks were freed from having to provide $22 million in public service announcements over the past two years. The extra air time was then available for sale to corporate advertisers at normal commercial rates.

According to the article, Congress appropriated $1 billion in 1997 to cover a five-year anti-drug advertising effort. Networks participating in the program were to provide a dollar-for-dollar match of the publicly-funded advertisements by providing their own public service announcements of similar content. When several network officials objected to this requirement, the government worked out a compromise, by which the networks could receive a credit for programs which convey an appropriate anti-drug message. (Up to three 30-second spots per show could be credited under the compromise arrangement, up to a maximum of 15% of the network's commitment for public service ads.)

As a result, scripts for episodes of popular shows such as "Beverly Hills, 90210" and "ER" were reviewed by the Office of National Drug Control Policy (ONDCP)(review conducted sometimes before and sometimes after airing of the program). The article states that ONDCP worked with over 100 shows on the anti-drug message. While the government did not mandate changes in the contents of any of these programs, the financial incentives to the networks to do so on a voluntary basis are clear.

In this instance, the controversy does not surround the propriety of the government's anti-drug messages themselves, but of the quiet way in which the government provided financial incentives to the networks to alter the content of their programming. Network officials deny that any programs were rewritten based upon the public service deal, but critics envision such tactics as Big Brother imposing subliminal messages on the American public in collusion with profit-seeking media executives. Perhaps in the future, the message conveyed will not be as benign as the present anti-drug theme.

The Administration's Proposals to Allow Agencies to Regulate Prescription Drug Prices

Another example of 'Regulation by Appropriation' can be seen in the Clinton Administration's proposals to use the Medicare program to regulate pharmaceutical prices. During the 1999 calendar year, the Administration advanced a proposal designed to lower the prices of pharmaceuticals provided to Medicare beneficiaries. Yet this proposal did not acknowledge the effect that the decreases would have on the costs of pharmaceuticals to non-Medicare patients, the ability of pharmaceutical companies to research, develop and market new drugs, and the long-term solvency of pharmaceutical manufacturers.

Under the Administration proposal, the prices of pharmaceuticals in health plans offered to Medicare beneficiaries would have to be approved by a federal agency, the Department of Health and Human Services ("HHS").

In addition, the federal government's "power of the purse' would set the de facto prices for the market in that the federal government would be the single largest purchaser of prescription drugs. Consequently, "price control" would be achieved through the federal appropriations process in lieu of the legislative and resultant regulatory process.