(Bloomberg) -- A running battle between Republicans and Democrats over the use of almost half a trillion dollars in Covid-19 aid funding is set to enter the legal field, with Treasury Secretary Steven Mnuchin and a member of a congressional oversight panel aiming to have counsel prepare each side’s interpretations of the law.
Mnuchin in mid-November said he would pull unused money authorized by the March Cares Act to back Federal Reserve emergency-lending facilities at year’s end. The Treasury also unveiled plans to park those funds, along with other left-over lending authorization -- some $455 billion in all -- into the department’s general fund, rather than the Exchange Stabilization Fund over which the secretary has greater discretion.
Democrats in a Thursday hearing of the Congressional Oversight Commission charged with supervising Treasury and Fed lending programs continued to blast Mnuchin for those moves. Lawmakers including House Speaker Nancy Pelosi have said that the actions amounted to a misreading of the law and were politically motivated to hamstring the incoming Biden administration.
Mnuchin and Bharat Ramamurti, a Democratic appointee to the watchdog panel, each said in the Thursday hearing that they will tap legal counsel to write their interpretation about the use of the funding granted in the Cares Act. Neither indicated a timeframe or whether the briefs would be publicly released.
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Ramamurti said the statute gives the Treasury room to use the funds until 2026, while Mnuchin -- backed by GOP senator and panel member Pat Toomey -- insisted the law required the moves he’s making.
Mnuchin has the upper hand for now, but after the Jan. 20 inauguration of President-elect Joe Biden, his Treasury Secretary pick, Janet Yellen, could apply a different interpretation following her confirmation.
“Before the election, the Treasury’s position was that it could extend the programs if market conditions required it,” Ramamurti claimed at the Thursday session. “Let me put it this way: does anyone think the Treasury would have ended these programs if Donald Trump were re-elected?”
Democrats say the lending is crucial to prop up struggling small businesses, local governments and nonprofits as the economy continues to falter.
“Your reading is an obvious loophole,” Mnuchin countered to Ramamurti. “If someone else wants to take that reading, which is not the legal interpretation, they can do that. I’m not going to do that. I was trusted by Congress.”
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While the Fed said last month it preferred to keep the “full suite” of its backstops in place into 2021, Chairman Jerome Powell has repeatedly said that the Treasury secretary is the “sole” authority on interpreting the law and that the central bank had no dispute with the reading.
Toomey said he had wanted to add language to the Cares Act that would have made it exceptionally clear the facilities would stop making new loans at the end of 2021 -- averting the debate now under way -- but the measure didn’t make it into the final law.
He also issued a veiled warning against any move by Mnuchin’s successor to use the money.
“I would rather avoid the risk of having to litigate -- which is what would happen if somebody, a future Treasury secretary for instance, decided that this invalid interpretation was the one that was going to govern their behavior,” Toomey said.
Mnuchin reiterated his argument that fresh legislation would be required to revive the facilities that are being phased out. “If Congress wants to extend these programs, Congress has every right to do that,” he said.
Mnuchin is relying on the unused funds to, in effect, pay for a large chunk of the $916 billion Covid-19 relief package that he pitched to Pelosi earlier this week.
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