Legal Services Corporation--Lease with Friends of Legal Services Corporation
B-308037, Sep 14, 2006
Congress established the Legal Services Corporation (LSC) as a private, nonprofit corporation with broad investment authority and discretion conferred by the Legal Services Corporation Act and the District of Columbia Nonprofit Corporation Act. As such, LSC was authorized to create a second private, nonprofit corporation, and to lease property from that corporation. Both transactions were consistent with the statutory purpose of LSC under the Legal Services Corporation Act.
By law, LSC is not a federal agency and its officers and employees are not officers or employees of the United States for the purposes of the Antideficiency Act. 42 U.S.C. 2996d(e)(1). As violations of the Antideficiency Act are predicated upon an obligation of federal funds by an officer or employee of the United States government, LSC's transaction are not subject to the Antideficiency Act.
B-308037, Legal Services Corporation--Lease with Friends of Legal Services Corporation, September 14, 2006
The Honorable Charles E. Grassley
Chairman, Committee on Finance
Dear Mr. Chairman:
This responds to your
In reaching our conclusion, we developed our record from publicly available sources, including Inspector General reports, hearing testimony, and relevant financial information. Additionally, we solicited and received legal views and other information from LSC and its Office of General Counsel.
Congress established LSC under the Legal Services Corporation Act of 1974, for the purpose of providing financial support for legal assistance in noncriminal proceedings or matters to persons financially unable to afford legal assistance. Pub. L. No. 93-355, sect. 2 [sect.1003], 88 Stat. 378, 379 (
LSC created Friends in 2001 as part of an effort to find an alternative to the high costs of renting office space in the
In 2002, Friends and LSC identified a 65,000 square foot building for purchase in the
At its inception, Friends' Board of Directors consisted solely of officers of LSC. Fortuno Letter, at 3–4. LSC officers continued to occupy half of the seats of Friends' Board of Directors until 2004 when LSC and Friends made a concerted effort to ensure Friends' independence from LSC. Fortuno Letter, at 3. LSC and Friends share a common business address. See Articles, at 3; Bylaws of Friends of Legal Services Corporation,
Congress established LSC as a private, nonprofit corporation in the
GAO has previously had occasion to consider LSC's relationship to the
Authority to Create Friends and Enter into a Lease with Friends
As part of the annual appropriations process, Congress appropriates amounts for an annual payment to the Legal Services Corporation to carry out the purposes of the Legal Services Corporation Act of 1974. E.g., Science, State, Justice, Commerce, and Related Agencies Appropriations Act, 2006, Pub. L. No. 109-108, title V, 119 Stat. 2290, 2330 (
Section 2996e of title 42 of the United States Code defines the powers, duties, and limitations of LSC under the Legal Services Corporation Act. The powers relevant to the issues we address in this opinion are those Congress conferred on LSC by reference to the D.C. Nonprofit Corporation Act. Section 2996e states, To the extent consistent with the provisions of this [Act], the Corporation shall exercise the powers conferred upon a nonprofit corporation by the District of Columbia Nonprofit Corporation Act. 42 U.S.C. sect. 2996e(a). Section 29-301.05 of the District of Columbia Code defines the general powers of each nonprofit corporation under the D.C. Nonprofit Corporation Act. Exercising these powers, LSC can purchase, take, receive, and lease real property, D.C. Code sect. 29-301.05(4), and subscribe for, or otherwise acquire . . . use and deal in and with, shares or other interests in . . . domestic or foreign corporations, whether for profit or not for profit. D.C. Code sect. 29-301.05(7). Additionally, the D.C. Nonprofit Corporation Act authorizes LSC to have and exercise all powers necessary or convenient to effect any or all of the purposes for which the corporation is organized. D.C. Code sect. 29-301.05(16). In our opinion, LSC, exercising powers authorized by the D.C. Nonprofit Corporation Act, may create a corporation.
Congress provided, however, that LSC may exercise such powers only to the extent consistent with the Legal Services Corporation Act. 42 U.S.C. sect. 2996e(a). In circumstances similar to this case, B-219801,
In this case, we see no inconsistency between LSC's creating Friends and the purposes Congress set out in the Legal Services Corporation Act. Congress established LSC to provide financial support for legal assistance in noncriminal proceedings or matters to persons financially unable to afford legal assistance. 42 U.S.C. sect. 2996b(a). LSC, in turn, established Friends to obtain financial support to further LSC's purposes. In incorporating Friends, LSC set out as the objects and purposes of Friends, [r]aising funds to provide funds to support all aspects of [LSC's] mission; educating the public as to the wisdom and need (a) to provide equal access to the system of justice in our nation . . . ; (b) to provide high quality legal assistance to those who would otherwise be unable to afford adequate legal counsel; and (c) to provide legal counsel to those who face an economic barrier to adequate legal counsel; and acquiring, holding and managing assets for use by LSC where doing so may result in lower costs or greater efficiencies for LSC. Articles, article 4, at 1–2.
We do not view Friends' purposes as materially different from those of the National Consumer Cooperative Bank's subsidiaries that we considered in our 1986 opinion. The purposes outlined in Friends' Articles of Incorporation serve in various ways to advance LSC's mission of affordable legal assistance. Indeed, all of the activities permitted in the Articles of Incorporation are activities that LSC itself may perform. Cf. B-219801 (noting that the Bank's subsidiaries could not perform any activities that the Bank could not perform directly). We conclude therefore that LSC acted within its powers when it created Friends.
For the same reasons, we have no objection to LSC's lease of office space from Friends. As explained above, LSC's authorities permitted it to create Friends to assist LSC in performing activities that LSC itself may perform. Clearly, LSC has the authority to acquire office space by either purchase or lease. D.C. Code sect. 29'301.05(4), as incorporated by reference into the Legal Services Corporation Act. 42 U.S.C. sect. 2996e(a). Among the purposes set out in Friends' Articles of Incorporation is [a]cquiring, holding and managing assets for use by LSC. Articles, at 1. In this regard, Friends acquired the
Long-Term Lease and Assumption of Assets
Whenever a federal agency, operating with fiscal year appropriations, enters into a 10-year lease, as LSC did, questions arise whether the lease violated the Antideficiency Act. At issue here is whether the Antideficiency Act applies to LSC.
The Antideficiency Act provides, in relevant part, the following:
An officer or employee of the
(A) make or authorize an expenditure or obligation exceeding an amount available in an appropriation or fund for the expenditure or obligation;
(B) involve either government in a contract or obligation for the payment of money before an appropriation is made unless authorized by law.
31 U.S.C. sect. 1341(a)(1) (emphasis added). Clearly, one of the touchstones for application of the Antideficiency Act is an action or actions of an officer or employee of the United States Government.
As noted above, LSC, by law, is not a federal agency. Section 2996d(e)(1) of title 42 of the United States Code states that [e]xcept as otherwise specifically provided . . . the Corporation shall not be considered a department, agency, or instrumentality of the Federal Government. Its officers and employees, except for limited purposes not relevant here, are not officers or employees of the
Because LSC's transactions are not subject to the Antideficiency Act, LSC's authority to enter into a 10-year lease is not governed by federal fiscal law. LSC's authority to assume Friends' assets, as provided in Friends' Articles of Incorporation if Friends were to dissolve, is governed by the Legal Services Corporation Act. The Act authorizes LSC to accept money and property in furtherance of the purposes of the Act, 42 U.S.C. sect. 2996e(a)(2), i.e., to provide financial support for legal assistance in noncriminal proceedings or matters to persons financially unable to afford legal assistance. 42 U.S.C. sect. 2996b(a).
This opinion does not address the appropriateness of LSC's actions but only whether LSC acted within the confines of its legal authority. Congress created LSC as a private corporation conferring broad powers upon its Board of Directors to make business decisions. See 42 U.S.C. sections 2996a, 2996b; D.C. Code sect. 29-301.05. Although it receives payments in annual appropriations, LSC, as a private, nonprofit corporation, is not subject to many of the fiscal restrictions imposed on federal agencies. LSC's broad discretion is constrained only by the limitations Congress imposes in the Legal Services Corporation Act and its annual appropriations acts.
The Legal Services Corporation Act and the D.C. Nonprofit Corporation Act confer broad investment authority and discretion, allowing LSC to establish Friends and to enter into a lease with Friends for office space. While Congress has imposed some limitations in the Legal Services Corporation Act and in annual appropriations acts, it has not made the Antideficiency Act applicable to LSC's transactions. Accordingly, LSC's transactions at issue here do not violate the Antideficiency Act.
Gary L. Kepplinger
 In your letter, you also expressed concern that LSC might assume Friends' liabilities if Friends were to dissolve. Friends' Articles of Incorporation do not provide for LSC to assume Friends' liabilities upon dissolution. Instead, the Articles provide for the possibility that LSC will assume Friends' assets, but only after Friends' liabilities are extinguished. Articles of Incorporation of Friends of the Legal Services Corporation, Apr. 6, 2001, article 7, at 2 (Articles). Therefore, we do not address the possibility of LSC's assumption of Friends' liabilities.
 By law, LSC must maintain its principal office in the
 Both LSC and Friends are tax-exempt organizations under 26 U.S.C. sect. 501(c)(3). Application of the tax laws is outside the scope of this opinion.
 LSC's and Friends' operational and fiscal relationship has changed significantly since 2004. According to LSC, it no longer has operational control of Friends. See Fortuno Letter, at 3.
 D.C. Code sections 29-301.01–29-301.114 (2001) (D.C. Nonprofit Corporation Act).
 See, e.g., Science, State, Justice, Commerce, and Related Agencies Appropriations Act, 2006, Pub. L. No. 109-108, title V, 119 Stat. 2290, 2330 (
 42 U.S.C. sect. 2996c(a).
 42 U.S.C. sect. 2996d(d), (f).
 42 U.S.C. sections 2996d(g), 2996c(g).
 Under 31 U.S.C. sect. 1310, The Secretary of the Treasury shall credit an appropriation for a private organization to the appropriate fiscal official of the organization. The credit shall be carried on the accounts of —(1) the Treasury; or (2) a designated depositary of the United States Government.
 Unless a federal agency has specific statutory authority to enter into long-term leases, as a fiscal law matter, the Antideficiency Act issue is whether the agency incurred a firm, fixed 10-year obligation in advance of appropriations for years 2 through 10. Also, if an agency were to assume the assets of another entity, without statutory authority to do so, the agency may have augmented its appropriation.
 Given our conclusion, we need not address whether other elements of the Antideficiency Act may apply to the LSC.
 Congress, of course, could choose to subject LSC to the Antideficiency Act by amending the Legal Services Corporation Act or imposing restrictions specifically when it appropriates funds to LSC. For an example of a restriction in an annual appropriations act subjecting specific appropriations received by private entities to the restrictions of the Antideficiency Act, see Department of Transportation and Related Agencies Appropriations Act, 1998, Pub. L. No. 105-66, 111 Stat. 1425, 1435 (Oct. 27, 1997) (any obligation or commitment by [Amtrak] for the purchase of capital improvements with funds appropriated herein which is prohibited by this Act shall be deemed a violation of 31 U.S.C. sect. 1341).
 Were LSC a federal agency, without long-term leasing or contract authority, LSC's 10-year lease, in all likelihood, would have violated the Antideficiency Act. Generally, a federal agency using fiscal year funds may enter into such a multiyear lease only so long as the contract includes options to renew after the first fiscal year that may be exercised only by the agency, not the contractor, and require affirmative action by an authorized agency official. See Leiter v.