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What is Back Door Financing?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 03 September 2014
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The practice of back door financing, once a common occurrence in most government agencies, is no longer employed across the board. Essentially, back door financing is the practice of allowing a government agency to borrow funds from the United States Treasury as a means of obtaining funding above and beyond the budget and appropriations set for the agency by Congress. Here are a couple of examples to illustrate when back door financing may be considered a prudent option.

Generally speaking, governmental spending is expected to the limits spelled out in the congressional appropriations that are extended to each agency or department within the structure of the federal government. However, there is recognition that unusual circumstances may arise that are beyond the scope of the appropriations. One example of an unusual circumstance would be the occurrence of an unanticipated natural disaster that displaces a large number of citizens. Under these types of situations, a government agency that would be involved in overseeing the welfare of the displaced citizens and aiding in any cleanup to the affected area could apply to the Treasury for additional funding to successfully complete the task.

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While ideal for handling natural and other types of internal disasters, back door financing has sometimes been employed as a means of circumventing the policies and procedures imposed by the United States Congress in relation to setting budget restraints for each government agency. In the case of state agencies, back door financing was sometimes possible without any supporting vote of the citizens of that state, in spite of the fact that repayment of the loan was usually accomplished by using local and state tax collections. As a means of eliminating the use of back door financing for this purpose, the federal government engaged in the implementation of stricter guidelines and qualifications that an agency must meet before for approaching the Treasury.

While the practice of back door financing is nowhere near as prevalent as it was in decades past, there are still mechanisms that allow for this type of financing to take place. However, the process is much more detailed than before, with the result being that back door financing is much more likely to be sought when there is no other way to deal with an incident that could not have possibly been accounted for in an operating budget. In the interests of utilizing governmental resources to best advantage, placing limits on the availability of back door financing has proven to be in the best interests of US citizens throughout the country.

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