Getting a Balanced Budget via Article V Constitutional Convention: 2.0

Nick Dranias of the "Compact for America" Explains How 38 States Could Force Congress to Spend Within Its Means.


Forcing the federal government to keep to a balanced budget has been a dream of the fiscally conservative, or those just worried about ruinous debt, for decades. "Force" is the operative word—there seems little hope that Congress will embrace consistent fiscal discipline on its own. Various organizations and movements are working to restrain government spending (and sometimes pursue other goals) via an "Article V convention."

What's that? Most of us are familiar with the way the Constitution actually has been amended in the past—via 2/3 votes of both houses of Congress followed by ratification by ¾ of the states. But Article V says there is another way: "Congress…on the application of the legislatures of two thirds of the several states, shall call a convention for proposing amendments" which again have to be approved by ¾ of the states. The "shall" is interpreted by many legal scholars to mean that Congress has no real say in the matter at that point: if the states ask them to set up that convention, they legally must.

One such group pushing for a such a convention, working under the name "Compact for America" combines that obscure procedural method with another one: the interstate compact, which the Compact for America website explains thus: "When states enter into a formal contract to legally obligate themselves among each other in an organized effort to achieve a common goal, such a contract is called a 'compact.' Currently, there are over 200 compacts in existence, and each state is typically a member of 20 or more compacts."

Nick Dranias is president of the Compact for America Educational Foundation, Inc. He's previous been general counsel and constitutional policy director for the Arizona-based Goldwater institute, as well as previously working as an attorney with the Institute for Justice for three years and in private practice in Chicago.

Dranias and his group are working to get 38 states to pass a bill entering into a compact that not only calls for a constitutional convention, but locks them into the one thing that convention can do. As  their website states, "The Compact approach allows for the specification of the text of the amendment to be advanced by the limited convention it organizes under Article V of the U.S. Constitution–avoiding the very difficult sales pitch that 'we have to organize a convention to find out what it might propose.'"

Many fear that there is no legal way to prevent such a convention, once it starts, from doing whatever the hell it wants (see: how the convention that formed our own current constitution was just supposed to amend the Articles of Confederation). A collection of concerns and opposition to any attempt to craft a new constitutional convention, even for conservative or libertarian goals, can be found from the John Birch Society's New American magazine. On Compact for America's website can be found detailed discussions about their goals, their safeguards, as well as a copy of the introduced congressional resolution to call the convention when 38 states demand it. [UPDATE: Dranias and his team don't use, or like anyone else using, the term "constitutional convention" for what they are trying to do, since they are not trying to craft a new constitution, but merely to make one amendment to our existing one. As a term of art for a convention designed to affect the constitution, this writer considers the adjective "constitutional" to be apt enough in informing a lay reader about what sort of convention is being called for by Article V.]

Senior Editor Brian Doherty interviewed Dranias by hone earlier this week about the Compact, what it hopes to accomplish, its procedural safeguards, and how far along it has gotten. Following are edited excerpts from that conversation.

Reason: What problem are you trying to solve with the Compact for America?

Nick Dranias: The abuse of unlimited borrowing capacity by the federal government is the root cause of unlimited federal power. Unlimited borrowing creates the illusion of unlimited resources, and that illusion in a mostly non-philosophical society is a propellant for the growth of government without bounds.

Against someone willing to give everyone what they want for no immediate cost on the federal credit card, the limited government politician will be outcompeted and is going to lose. That is my personal motivation in tackling national debt.

Right after the TARP debate with 80-90 percent of citizens opposed to the bailout of banks and corporations across party lines being ignored by Washington, it became readily apparent to me it didn't matter what the will of the people is [with the current spending process]. The only solution I could find that could tackle the structural flaw of unlimited borrowing would be a constitutional amendment, done away from Washington and closer to the people, via Article V.

But Article V amendment [via a convention called by the states directly] has never worked. [Calls for such conventions] have prompted Congress to act [to pass amendments itself that the states later ratified]. Why in 220 years has no one succeeded in convening, much less passing an amendment, via a convention called by the states? I realized that the process is kind of ridiculous.

It's a Rube Goldberg machine, a series of contingent speculative events [including 2/3 of states applying for a convention, all passing laws to send delegates, sending them and having the convention actually occur and hoping something good results, having Congress pass resolutions to call the convention and hoping 38 states will ratify the result] and for anyone to succeed in that process would seem to be virtually impossible. So I asked myself how to fix that, and the answer was to use the Compact process, which is already used to make formal binding contracts between states. This would get all of them pre-committed to doing what they are supposed to do and pass that one agreement to get it down legislatively in one fell swoop with just one bill.

That is the genesis of the Compact for America approach to Article V conventions. It consolidates all the different stages into a single bill on the state side and then into one resolution for Congress and one convention to meet and vote up or down on one amendment in one day. It makes Article V user friendly. I call the original way [of calling an Article V convention] without the Compact the "legacy" approach, and the Compact approach is 2.0.

Reason: One of the biggest fears you hear even from people sympathetic to the notion of binding Congress to a balanced budget is a "runaway convention" that once convened might just do whatever they want.

Dranias: Most runaway convention fears are fear of the unknown. But the compact precommits all states to everything that will happen in complete detail.  Compacts have already seen 200 years of case law and I've never seen case law this uniform, I researched them for five years and I've never seen any compact overturned. The Compact process has been thoroughly tested. If opponents of Article V tried to undermine a Compact, they'd create a legal precedent that undermines hundreds of existing compacts [involving things from metro transit authorities to dealing with hazardous waste].

Reason: How does the Compact approach lock in what a constitutional convention can do?

Dranias: First benefit of the Compact approach is it [predefines] the amendment it is committing states to advancing and ratifying; you know the policy product in advance which makes it more like a ballot measure. But unlike a ballot measure, the [amount of people] you need to persuade to get behind it is comparatively very small. We're looking at a target of 7,500 state legislators, then targeting their staff so multiply that by four then target key influencers around them, think tanks and the like so multiply by two then you're looking at 50-60,000 [people] in states [to convince]. Looking at the Congress side, 435 congressmen and their staff and the concentric circle of influencers and think tanks around them, it might be 20-30,000 people so a total of 100,000 [nationally] you have to persuade it's good policy [to pass the Balanced Budget Amendment]. So you have a known and smaller universe of people to persuade than in any major state [for passing a ballot measure].

The Compact approach consolidates in one piece of legislation everything we are trying to do. You don't have to come back separately and have the legislature pick delegates [to send to the Convention]. The Compact for America involves every state precommitting to ratifying [the amendment if the convention passes it and Congress chooses legislative ratification]. The compact when signed on commits everything [in the process] from beginning to end once we jump that initial educational hurdle [on convincing states to sign on to the Compact].

The default setting [of the Compact], we recommend the governor [of any given state] be selected as [delegate to the convention]. And [at the convention] the first order of business before anything else happens is every delegate must vote into place rules that limit the convention to 24 hours and one up or down vote on this particular amendment. Anything else as the first order disqualifies that state automatically and everything they do is void and every state attorney general is mandated to get an injunction in state or federal court in the northern district of Texas to stop the convention. So we will know before anything is done if we have a runaway convention, the moment they vote [for anything other than adopting the set rules confining them to voting on the one balanced budget amendment.] That is the most important structural protection the Compact provides.

Reason: How is your amendment structured to enforce a balanced budget?

Dranias: We're trying to create a structure that incentivizes the wrong people to do the right thing, to enforce a balanced budget by requiring a limit on borrowing without relying on the good grace or morality or character of those in power. We don't want to depend on an estimate they can game all day and night or debate accounting methods. A clean spending limit, a pay-as-you-go spending limit is the backbone to a balanced budget.

Recognizing there can be volatility in cash flow sometimes [from taxes], we recognize in order to make pay-as-you-go work ironically you must have borrowing capacity. [We'd limit borrowing to] a very specific line of credit. We suggest an absolute dollar amount. Things like formulas based on GDP can be gamed so we limited spending to what taxes bring in at all points in time except for borrowing from this limited line of credit, set initially at 105 percent of what's outstanding in federal bonds on ratification [of the amendment]. So if $20 trillion is outstanding [in debt] you get $21 trillion, a one trillion cushion at current borrowing rates, that's 1-2 years of additional borrowing at current levels. It gives a transition period, Congress will see it coming as [ratification] gets to the last few states [needed to trigger the constitutional convention].

The backbone of the amendment is not complicated: you can't spend more than taxes bring in, but you can borrow from this line of credit, and if you run out of that [borrowing] capacity, then [spend] no more than taxes bring in. If that's not enough flexibility and we run out of borrowing capacity for whatever reason, irresponsibility, a war happens, aliens attack, whatever, well, you might overshoot borrowing capacity given spending habits that exist and you get hit with a crisis, then we built in flexibility [through one exception] but not one Congress controls. It's a fundamental conflict of interest that Congress is both appropriator and the guy setting credit limits. The guy agreeing to spend money will of course agree to lend himself money to spend. So we can't have Congress in the position of controlling any exception.

So our solution is to engage the states. Any increase in that fixed debt limit requires approval of a majority of state legislatures within 60 days. That's not to say that states aren't influenced by federal grants, but their conflict of interest is far more attenuated than anyone in Congress. We think that will encourage Congress to have an entirely different perspective on borrowing capacity if Congress is no longer able to guarantee itself whatever borrowing it wants. It will dispel the illusion of unlimited resources and give them a narrowly self-interested reason to pay down debt so they don't have to go hat in hand to the states. We are aligning the interests of the political class with husbanding borrowing capacity and we believe the incentive will be strong enough for a balanced budget to be the norm.

The last element is a tax limit. This is not meant to be a right wing wet dream, it can't be, as much as I'd like, we have to get 38 states in play, can't just do "no new taxes" in the amendment. We devised a tax limit based on only allowing taxes to be raised when it's a choice between a bill to our kids and a bill to us, if we have exhausted all plausible spending reductions.

Two-thirds of each house of Congress must approve any new income or sales tax of any kind, which is a very high hurdle. A simple majority vote would still apply to closing loopholes, deductions, but lots of loopholes are defended by powerful special interests, so it will still make spending reductions much more attractive even with a simple majority. Another exception is they can get rid of the income tax entirely and replace it with a consumption or user non-VAT sales tax and raise revenue through the roof if you want. But the price is to give up income taxes. We also don't apply the supermajority rule to duties, excises, fees, fines, we believe those are better sources of revenue; they are more voluntary, consumption based, and more transparent. All taxes suck, all are bad, but there are worse and better so we incentivize the push for revenue through a narrow gap where [Congress would] encounter strongest special interest [opposition] and if you get through those, then you do the least damage.

Reason: Where does your effort stand now?

Dranias: We got four states in so far [Georgia, Mississippi, Alaska, and North Dakota], after 16 months working on this, just six months with me working full time. We have six more states in play [with the bill in active consideration] at the moment. [Missouri, Texas, North Carolina, Michigan, Alabama, and Ohio] We hope to have filed later this year in Maine and Wisconsin. [In a few states, including Arizona, Arkansas, and Wyoming, they passed one house of the legislature but not the other].

We want eight [to have passed] by the end of the year, as we want to average 7-8 states a year [signing on to meet the current sunset provision deadline of the bill of 2021].

All the states where it has passed are Republican controlled, though we have bipartisan support to some extent. The challenge has been [opponents] framing anybody for a Balanced Budget Amendment as a radical right wing person even though we know many Democrats [also support a BBA]. When a fiscal crisis rears its head it will become obviously a nonpartisan problem and we think we can break through in bringing on reasonable Democrats who don't want to see the system crash and burn. We've divided 40 states into three tiers, and then a tier beyond that we aren't focusing much on, California would be one of those, but that can change. We are focusing our resources opportunistically, and not spending much time on [for example] Vermont, Connecticut, or Rhode Island.

An interesting thing about the legislative process we are finding out, a third of the time, the outcome is completely unrelated to the merits of the policies or anything else we can anticipate. [Dranias says in at least one state sheer antipathy toward the legislator who sponsored their bill got it choked in committee by other legislators, and in other states they were stymied by what he considers rather paranoid fears of the "runaway convention" leading to a veritable coup d'etat.] But we pulled ahead of [an alternate effort to create a new constitutional convention called] Convention of States whose resources are 10-30fold ours and with them playing in 38 states while we focused on 12 states. We lost four after getting through one chamber and picked up two [this year] then got six more in play and we suspect by the end of year end we end up batting .500, not bad for an innovative policy proposal.

Reason: How's your fund raising?

Dranias: We've raised nearly $1 million since October when I left the Goldwater Institute. We can't disclose most of our donors; they want their identities protected. One donor that I have permission to identify publicly is the Rodney Fund, which made made seed money possible. Back in July I was writing for the Heartland Institute [the Fund's founder] saw a white paper I published there and started calling, leaving messages about how he wanted to do this, to save the country. He made it clear he wanted to support the Compact approach to Article V, he believed that Article V 2.0 made the whole process plausible. And if the concept is proven for a Balanced Budget Amendment, maybe the same process could get us subsidy bans, NSA snooping bans, all kinds of things you can find cross-party supermajority support to get through 38 states.

The challenge is we need realistically to do this with maximum effect, we need to raise $14-15 million more. The upside is if think about the cost of an average ballot measure in California they average $15-20 million. By virtue of the consolidated nature of the Compact approach, to get an amendment to the U.S. Constitution as long as your political product crosses party lines and ideology, you can get to that with no more the cost of a ballot measure in California.