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United States Government Accountability Office: GAO:
Office of the General Counsel:
September 2008:
Principles of Federal Appropriations Law:
Third Edition:
Volume III:
This volume supersedes the Volume IV, Second Edition of the Principles
of Federal Appropriations Law, 2001.
On February 19, 2009, the security of this file was reset to prevent a
situation where linked references are appended to the PDF. If this
change prevents an Acrobat function you need (e.g., to extract pages),
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GAO-08-978SP:
Foreword:
This is Volume DT of Principles of Federal Appropriations Law, third
edition. Publication of this volume completes our process of revising
and updating the second edition of the "Red Book" and reissuing it in
a 3-volume looseleaf set with cumulative annual updates. This volume
and all other updated volumes of Principles, including the annual
updates, are available on GAO's Web site (www.gao.gov) under "Key
References." The annual updates are only available online. The online
updated versions contain hyperlinks to the GAO material cited. Check
the GAO Web site for other interesting information, for example,
materials from our annual Appropriations Law Forum.
This volume updates chapters found in Volume IV of the second edition.
We did not update Volume III of the second edition, which deals with
functions that were transferred to the executive branch, including
claims against the United States, debt collection, and payment of
judgments against the United States. However, since the exercise of
these responsibilities has appropriations law consequences, we include
in this volume a new Chapter 14 that discusses these responsibilities
in that context. Because Volume DT of the second edition provides a
useful history of case law in these areas, it will remain available on
GAO's Web site. However, inasmuch as it has not been updated and was
last revised in 1994, it should not be viewed as a statement of
current law. Also, it should not be confused with this Volume DT of
the third edition, which updates Volume IV of the second edition.
Our objective in Principles is to present a basic reference work
covering those areas of law in which the Comptroller General issues
decisions, using text discussion with specific legal authorities to
illustrate the principles discussed, their application, and
exceptions. As we noted in our first volume, Principles should be used
as a general guide and starting point, not as a substitute for
original legal research. We measure our success in this endeavor by
Principles' day-to-day utility to its federal and nonfederal audience.
In this regard, we appreciate the many comments and suggestions we
have received to date, and hope that our publication will continue to
serve as a useful reference.
Signed by:
Gary L. Kepplinger:
General Counsel:
September 2008:
[End of section]
Detailed Table of Contents:
Volume III, Chapters 12-15:
Chapter 12 Acquisition of Goods and Services:
A. Acquisition and Disposal of Property for Government Use:
1. General Services Administration Schedule Programs:
2. Governmentwide Acquisition Contracts:
3. Stationery and Supplies:
4. Exchange/Sale Authority in Acquiring Personal Property:
5. Disposal of Personal Property:
B. Interagency Transactions:
1. The Economy Act:
a. Origin, Legislative History, General Requirements:
(1) Funds available: (2) Interest of the government:
(3) Performing agency's "position":
(4) Lower cost:
(5) Written agreement:
b. Who Is Covered:
c. Fiscal Matters:
(1) Payment: types and accounting:
(2) "Actual cost": meaning and application:
(3) Obligation and deobligation:
(4) Applicability of limitations and restrictions: (5) Accountability
issues:
d. What Work or Services May Be Performed:
(1) Details of personnel:
(2) Loans of personal property:
(3) Common services:
(4) Other examples:
e. What Work or Services May Not Be Performed:
f. Contracting Out and "Off-Loading:"
2. Account Adjustment Statute:
3. Other Authorities:
C. Revolving Funds:
1. Introduction:
a. Concept and Definition:
b. Creation/Establishment:
2. Receipts and Reimbursements:
3. Types:
a. Public Enterprise Revolving Fund:
b. Trust Revolving Fund:
c. Intragovernmental Revolving Fund:
(1) Working capital funds:
(2) Franchise and other revolving funds:
(3) Contracting services and revolving funds:
4. Expenditures/Availability:
a. Status as Appropriation:
b. Purpose:
c. Time:
(1) Earned receipts and collection:
(2) Appropriations of revolving funds' customer agencies:
d. Amount:
e. Obligation Requirement:
5. Augmentation and Impairment:
6. Property Management and Utilization:
7. Revolving Funds in the Department of Defense:
D. User Charges:
1. Providing Goods or Services to Private Parties:
2. The Concept of User Charges:
3. The Independent Offices Appropriation Act:
a. Origin and Overview:
b. Fees versus Taxes:
c. Establishing the Fee:
(1) Need for regulations:
(2) Benefit under the Independent Offices Appropriation Act:
(3) Public versus private benefit:
(4) Calculation:
d. Refunds:
4. Other Authorities:
a. Subsection (c) of the Independent Offices Appropriation Act:
b. Independent Offices Appropriation Act Incorporated by Reference:
c. Statutes In Pari Materia:
d. Statutes Entirely Independent of the Independent Offices
Appropriation Act:
5. Disposition of Fees:
a. Fees under the Independent Offices Appropriation Act:
b. Fees under Other Authorities:
(1) Miscellaneous receipts:
(2) Credit to agency's appropriation:
(3) Special account or fund:
6. U.S. Customs and Border Protection: A Case Study:
7. User Fee as Grant Condition:
E. Motor Vehicles:
1. Acquisition:
a. Need for Statutory Authority:
b. Price Limitations:
2. Use:
a. The "Official Purpose" Limitation:
b. General Services Administration Motor Pools:
c. Expenditure Control Requirements: 3. Chauffeurs:
Chapter 13: REal Property:
A. Introduction and Terminology:
B. Acquisition of Real Property for Government Use:
1. The Fifth Amendment:
2. Federal Land Acquisition Policy:
3. Need for Statutory Authority:
a. Applicability:
(1) Debt security:
(2) Donated property/funds:
(3) Options:
(4) Indian tribal funds:
b. Types of Statutory Authority:
(1) Express versus implied authority:
(2) Forms of express authority:
c. Effect of Noncompliance:
4. Title Considerations:
a. Title Approval:
b. Title Evidence:
c. Title Evidence Expenses:
(1) Purchase:
(2) Donation:
(3) Condemnation:
5. Methods of Acquisition:
a. Purchase:
b. Involuntary Acquisition:
(1) Overview:
(2) Legislative taking:
(3) Sources of authority:
(4) "Complaint only" condemnation:
(5) Declaration of Taking Act:
(6) Inverse condemnation:
6. Obligation of Appropriations for Land Acquisition:
a. Voluntary Purchase:
b. Condemnation:
7. Expenses Incident to Real Property Acquisition:
a: Expenses Incident to Title Transfer:
b. Expenses Incident to Litigation:
(1) Attorney's fees:
(2) Litigation expenses:
C. Relocation Assistance:
1. Uniform Relocation Act: Introduction and Overview:
2. The Threshold Determination: Meaning of "Displaced Person:"
3. Types and Payment of Benefits:
a. Moving and Related Expenses:
(1) Residential displacements:
(2) Commercial displacements:
b. Replacement Housing Benefits:
(1) Homeowners:
(2) Tenants and "90-day homeowners:"
c. Advisory Services:
d. "Last Resort" Replacement Housing:
e. Federally Assisted Programs and Projects:
f. Procedures and Payment:
4. Public Utilities:
a The Common Law:
b. Statutory Exceptions:
(1) Uniform Relocation Act:
(2) 23 U.S.C. § 123:
(3) Other statutory provisions:
D. Jurisdiction over Federal Land: The Federal Enclave:
1. Acquisition of Federal Jurisdiction:
2. Specific Areas of Concern:
a. Taxation:
b. Criminal Law:
c. State Regulation:
3. Proprietorial Jurisdiction:
E. Leasing:
1. Some General Principles:
a. Acquisition:
b. Application of Fiscal Law Principles:
c. Rights and Obligations:
d. Payment of Rent:
(1) Advance payment:
(2) Payment to legal representative:
(3) Assignment of Claims Act:
2. Statutory Authorities and Limitations:
a Federal Property and Administrative Services Act:
b. Prospectus Requirement:
c. Site Selection:
d. Parking:
e. Repairs and Alterations:
f. Rental in District of Columbia:
g. Economy Act:
h. Some Agency-Specific Authorities:
3. Foreign Leases:
4. Lease-Purchase Transactions:
F. Public Buildings and Improvements:
1. Construction:
a. General Funding Provisions:
(1) 41 U.S.C. § 12:
(2) Contract authority under partial appropriations:
(3) Duration of construction appropriations:
(4) Design fees:
b. Some Agency-Specific Authorities:
(1) Military construction:
(2) Continuing contracts: two variations:
(3) 7 U.S.C. § 2250:
(4) 15 U.S.C. § 278d:
c. Public Buildings Act and the General Services Administration:
d. Scope of Construction Appropriations:
2. Operation and Control:
a. Who's in Charge?
b. Allocation of Space:
c. Alterations and Repairs:
d. Maintenance and Protective Services:
e. Utilities:
f. Use Restrictions:
g. Payment of Rent by Federal Agencies:
G. Improvements to Property Not Owned by the Government:
1. The Rules:
2. Some Specific Applications:
a. Leased Premises/Property:
b. Research:
c. Public Improvements:
d. Federal Aviation Administration:
e. Private Residences:
H. Disposal:
1. The Property Clause:
2. Disposal under Title 40 of the United States Code:
a. Excess Property:
b. Surplus Property:
c. Disposition of Proceeds:
d. Deduction of Expenses:
e. Disposal under Other Authorities:
3. Use by Nongovernment Parties:
a. Leasing and Concessions:
(1) Outleasing in general:
(2) 40 U.S.C. § 1302:
(3) Concessions:
b. Granting of Revocable License:
4. Adverse Possession:
Chapter 14: Claims against and by the Government:
A. Introduction:
B. History of Claims Settlement:
C. Claims against the Government:
1. Overview and Sources of Claims Settlement Authority:
a. Legislative Claims Settlement:
(1) Congressionally sponsored bills:
(2) Congressional reference cases:
(3) Meritorious Claims Act:
b. Judicial Claims Settlement:
c. Administrative Claims Settlement:
2. Source of Payment of Claims against the Government:
a. Legislatively Settled Claims:
b. Judicially Settled Claims: the Judgment Fund:
(1) Origins and overview:
(2) Availability and limitations:
c. Administratively Settled Claims:
3. Whom and What to Pay:
a. To Whom Agencies Should Make Payment:
b. Amounts Payable in Addition to the Principal Amount:
(1) Interest:
(2) Costs and attorneys fees:
(3) Deductions:
D. Claims by the Government: Debt Collection:
1. Introduction:
2. The Government's Duty and Authority to Collect Debts Owed to It: 3.
Debt Collection in a Nutshell:
4.Common Appropriations Law Issues Associated with Debt Collection
Activities:
a. Diminishing Returns and Cost/Benefit Considerations:
b. Disposition of Proceeds:
(1) The general rule:
(2) Statutory exceptions:
(3) Refund exception:
c. Accountable Officer Issues:
Chapter 15: Miscellaneous Topics:
A. Boards, Committees, and Commissions:
1. Introduction:
2. Title 31 Funding Provisions:
a. 1842: The First Attempt:
b. 1909: The Tawney Amendment:
c. 1944: The Russell Amendment:
3. Interagency Funding:
a. Joint Funding of Common-Interest Project:
b. 1945: The First Interagency Funding Statute:
c. Appropriation Act Provisions:
4. The Federal Advisory Committee Act:
a. Overview and Applicability:
(1) Definition and specific exemptions:
(2) Advisory versus operational:
(3) Who is being advised?
(4) "Established or utilized:"
(5) Other factors:
b. Creation and Funding:
(1) Statutory committees: creation:
(2) Statutory committees: funding:
(3) Committees established by the executive branch:
(4) Donations:
B. Government Use of Corporate Entities:
1. Introduction:
2. The Problem of Definition:
a. Government Corporations:
b. Government-Sponsored Enterprises:
c. Title 36 Patriotic, Fraternal, or Charitable Corporate Entities:
d. Federally Funded Research and Development Centers:
e. Summing Up:
3. Creation:
a. Historical Background and Purpose:
b. Need for Statutory Authority:
4. Management:
a Government Corporation Control Act:
(1) Origin:
(2) Definitions:
(3) Budget provisions:
(4) Other financial controls:
(5) Audit:
b. Appointment and Control of Directors:
5. Sources of Funds and Financing:
a. Types of Financing: Government:
(1) Direct appropriations:
(2) Federal borrowing:
(3) Federal ownership of stock:
b. Types of Financing: Private:
(1) Sources of private financing:
(2) Market perception of implied backing by United States:
(3) Statutory controls:
6. Fiscal Autonomy:
a Account Settlement:
b. Status of Funds Received by Corporate Entities:
c. Application of Fiscal Laws:
(1) "Character and necessity" provision:
(2) "Without regard" clause:
(3) Laws expressly applicable:
(4) Appropriation act provisions:
(5) Other provisions of title 31, United States Code:
d. Program Implementation:
(1) Commodity Credit Corporation:
(2) Bonneville Power Administration:
(3) Amtrak:
7. Application of Other Laws:
a. Civil Service Laws:
b. Procurement Laws and Regulations:
(1) 41 U.S.C. § 5:
(2) Federal Property and Administrative Services Act:
(3) Office of Federal Procurement Policy Act:
(4) Federal Acquisition Regulation:
(5) Competition in Contracting Act:
(6) Other statutes:
c. General Management Laws:
(1) Inspector General Act:
(2) Federal Managers' Financial Integrity Act of 1982:
(3) Chief Financial Officers Act:
(4) Government Performance and Results Act:
(5) Government Management Reform Act of 1994:
(6) Federal Financial Management Improvement Act of 1996:
(7) Improper Payments Information Act of 2002:
d. Property Management:
e. Freedom of Information, Privacy Acts:
f. Printing and Binding:
g. Criminal Code:
8. Claims and Lawsuits:
a. Administrative Claims:
(1) Claims settlement authority:
(2) Federal Tort Claims Act:
(3) Contract Disputes Act:
(4) Assignment of Claims Act:
(5) Estoppel:
(6) Prompt Payment Act:
(7) False Claims Act:
(8) Interagency claims:
b. Debt Collection:
c. Litigation in the Courts:
(1) Sovereign immunity:
(2) "Sue-and-be-sued" clauses:
(3) The Tucker Act:
(4) Liability for costs and remedies of litigation:
(5) Sovereign immunity from state and local taxes:
(6) Litigation authority:
9. Termination of Government Corporations:
C. Nonappropriated Fund Instrumentalities:
1. Introduction:
a. History of Military Morale, Welfare, and Recreation Organizations:
b. Defining the Nonappropriated Fund Instrumentality:
2. Legal Status:
a. Authority for Creation:
b. Relationship to the United States Government:
3. Sources of Funding: The Use of Appropriated Funds for
Nonappropriated Fund Instrumentalities:
a. Self-Supporting or Subsidized?
b. General Rule: Appropriations Not Available for Morale, Welfare, and
Recreation unless Authorized by Congress:
c. The Current Trend: Use of Appropriated Funds:
d. Other Issues in Appropriated Fund Support:
e. Borrowing by Nonappropriated Fund Activities:
4. Transactions with Federal Agencies:
a. Economy Act and Intra-Agency Orders:
b. Contracting to Sell Goods and Services to Agencies:
c. Statutory Authority to Enter into Contracts with Federal Agencies:
5. Nonappropriated Fund Instrumentality Procurement:
6. Debts Due Nonappropriated Fund Instrumentalities:
7. Nonappropriated Fund Instrumentality Property:
8. Management of Nonappropriated Fund Instrumentalities:
a. Regulation and Oversight:
b. Authority to Audit Nonappropriated Fund Activities:
(1) GAO jurisdiction:
(2) Other auditors:
(3) Settlement of accounts:
(4) Bid protests:
9. Sovereign Immunity:
a. Immunity from State and Local Taxation:
b. Immunity from Suit:
c. Payment of Judgments:
10. Status of Nonappropriated Fund Instrumentality Employees:
a. Applicability of Civil Service Laws:
(1) Civil Service Reform Act of 1978:
(2) Other employment related laws:
D. Trust Funds:
1. Federal Funds and Trust Funds:
a. Federal Funds:
b. Trust Funds:
c. Congressional Prerogatives:
2. The Government as Trustee: Creation of a Trust:
a. Property of Others Controlled by the United States:
b. Trust Funds Designated by Statute:
c. Accepting Donated Funds:
3. Application of Fiscal Laws:
a. Permanent Appropriation Repeal Act of 1934:
b. Available Uses of Trust Funds:
(1) Using donated funds:
(2) Property of others:
(3) Statutory trust funds:
c. Intergovernmental Claims:
4. Concepts of Amount and Time:
5. Duty to Invest:
6. Liability for Loss of Trust Funds:
7. Claims:
a. Setoff and Levy against Trust Funds:
b. Unclaimed Moneys:
8. Federal Trust Funds and the Budget:
[End of section]
Chapter 12 Acquisition of Goods and Services:
A. Acquisition and Disposal of Property for Government Use:
1. General Services Administration Schedule Programs:
2. Governmentwide Acquisition Contracts:
3. Stationery and Supplies:
4. Exchange/Sale Authority in Acquiring Personal Property:
5. Disposal of Personal Property:
B. Interagency Transactions:
1. The Economy Act:
a. Origin, Legislative History, General Requirements:
(1) Funds available:
(2) Interest of the government:
(3) Performing agency's "position:"
(4) Lower cost:
(5) Written agreement:
b. Who Is Covered:
c. Fiscal Matters:
(1) Payment: types and accounting:
(2) "Actual cost": meaning and application:
(3) Obligation and deobligation:
(4) Applicability of limitations and restrictions:
(5) Accountability issues:
d. What Work or Services May Be Performed:
(1) Details of personnel:
(2) Loans of personal property:
(3) Common services:
(4) Other examples:
e. What Work or Services May Not Be Performed:
f. Contracting Out and "Off-Loading:"
2. Account Adjustment Statute:
3. Other Authorities:
C. Revolving Funds:
1. Introduction:
a. Concept and Definition:
b. Creation/Establishment:
2. Receipts and Reimbursements:
3. Types:
a. Public Enterprise Revolving Fund:
b. Trust Revolving Fund:
c. Intragovernmental Revolving Fund:
(1) Working capital funds:
(2) Franchise and other revolving funds:
(3) Contracting services and revolving funds:
4. Expenditures/Availability:
a. Status as Appropriation:
b. Purpose:
c. Time:
(1) Earned receipts and collection:
(2) Appropriations of revolving funds' customer agencies:
d. Amount:
e. Obligation Requirement:
5. Augmentation and Impairment:
6. Property Management and Utilization:
7. Revolving Funds in the Department of Defense:
D. User Charges:
1. Providing Goods or Services to Private Parties:
2. The Concept of User Charges:
3. The Independent Offices Appropriation Act:
a. Origin and Overview:
b. Fees versus Taxes:
c. Establishing the Fee:
(1) Need for regulations:
(2) Benefit under the Independent Offices Appropriation Act:
(3) Public versus private benefit:
(4) Calculation:
d. Refunds:
4. Other Authorities:
a. Subsection (c) of the Independent Offices Appropriation Act:
b. Independent Offices Appropriation Act Incorporated by Reference:
c. Statutes In Pari Materia:
d. Statutes Entirely Independent of the Independent Offices
Appropriation Act:
5. Disposition of Fees:
a. Fees under the Independent Offices Appropriation Act:
b. Fees under Other Authorities:
(1) Miscellaneous receipts:
(2) Credit to agency's appropriation:
(3) Special account or fund:
6. U.S. Customs and Border Protection: A Case Study:
7. User Fee as Grant Condition:
E. Motor Vehicles:
1. Acquisition:
a. Need for Statutory Authority:
b. Price Limitations:
2. Use 12-205:
a. The "Official Purpose" Limitation:
b. General Services Administration Motor Pools:
c. Expenditure Control Requirements:
3. Chauffeurs:
Chapter 12 Acquisition of Goods and Services:
In the course of performing its lawful duties, a government agency
routinely needs to acquire various goods and services from outside
sources. These outside sources may include federal entities as well as
private parties. The agency may also have to dispose of property or
equipment which it no longer needs, or it may be authorized to provide
certain goods or services to others as part of its mission. Fiscal
aspects of government contracting are dealt with in virtually every
chapter of this publication. This chapter addresses several topics not
covered elsewhere whose only common thread is that they relate loosely
to the general theme of how the government "does business."
A. Acquisition and Disposal of Property for Government Use:
1. General Services Administration Schedule Programs:
The General Services Administration (GSA) has broad authority over the
acquisition of personal property and nonpersonal services for other
government agencies. Section 501(b)(1)(A) of title 40, United States
Code,[Footnote 1] provides that GSA—
"shall procure and supply personal property and nonpersonal services
for executive agencies to use in the proper discharge of their
responsibilities, and perform functions related to procurement and
supply including contracting, inspection, storage, issue, property
identification and classification, transportation and traffic
management, management of public utility services, and repairing and
converting."
Section 501(b)(2)(A) requires GSA to "prescribe policies and methods
for executive agencies regarding the procurement and supply of
personal property and nonpersonal services and related functions."
These GSA policies and methods are subject to regulations prescribed
by the Administrator for Federal Procurement Policy. 40 U.S.C. §
501(b)(2)(B).
Section 501(d) requires GSA to "operate, for executive agencies,
warehouses, supply centers, repair shops, fuel yards, and other
similar facilities" and, after consultation with the affected
agencies, to "consolidate, take over, or arrange for executive
agencies to operate the facilities."
Section 502(a) of title 40, United States Code, authorizes GSA to
provide the same services, upon request, to a federal agency, mixed-
ownership government corporation as defined in 31 U.S.C. § 9101, or
the District of Columbia. The term "federal agency" brings in the
legislative and judicial branches except for the Senate, House of
Representatives, and Architect of the Capitol. See 40 U.S.C. § 102(5).
GSA published a detailed explanation and listing of who is eligible to
use its programs in GSA Order No. ADM 4800.2E, Eligibility to Use GSA
Sources of Supply and Services (Jan. 3, 2000).[Footnote 2]
GSA administers the Federal Supply Schedule (FSS) program, also known
as the GSA Schedules Program or the Multiple Award Schedule Program
(MAS), which is a simplified process for federal agencies to obtain
commercial supplies and services at prices associated with volume
buying. See generally Federal Acquisition Regulation (FAR), 48 C.F.R.
pt. 8.4. Indefinite delivery contracts are awarded to provide supplies
and services at stated prices for given periods of time. 48 C.F.R. §
8.402(a). Ordering agencies are authorized to place orders, or to
establish blanket purchase agreements, against a vendor's FSS
contract. Id. § 8.401. Orders and blanket purchasing agreements are
considered to be issued using full and open competition; therefore,
when placing orders under FSS contracts or when establishing a blanket
purchasing agreement, ordering agencies do not need to seek
competition outside the FSS. Id. § 8.404(a).
GSA schedule contracts require all FSS contractors to publish an
"Authorized Federal Supply Schedule Pricelist," which contains all
supplies and services offered by an FSS vendor, as well as the pricing
and terms and conditions pertaining to each Special Item Number that
is on the schedule (that is, a group of generically similar, but not
identical, supplies or services that are intended to serve the same
general purpose or function). 48 C.F.R. §§ 8.401, 8.402(b). GSA for
many years included ordering instructions in the Federal Property
Management Regulations, but dropped them in 1995. 60 Fed. Reg. 19674
(Apr. 20, 1995). GSA's Web site contains extensive information on the
schedules at [hyperlink, http://www.gsa.gov/schedules] (last visited
Mar. 20, 2008).
In the early 1980s, GSA developed a system, which GAO approved in 63
Comp. Gen. 129 (1983), for entering into MAS contracts on a multiyear
basis.[Footnote 3] This is in accord with the bona fide needs rule
(see Chapter 5) and does not violate the Antideficiency Act (see
Chapter 6) since there is no obligation of appropriations until a
using agency determines that it has a requirement and issues a
delivery or task order.[Footnote 4] Id. Of course, the agency must
have available appropriations when it does that.
For FSS contracts, GSA has already determined that the vendors' prices
of supplies and fixed-price services and rates for services offered at
hourly rates are fair and reasonable. Therefore, ordering agencies are
not required to make a separate determination of fair and reasonable
pricing, except for a price evaluation as required by section 8.405-
2(d) of the FAR. 48 C.F.R. § 8.404(d). By placing an order against an
FSS contract using the procedures in section 8.405 of the FAR, the
ordering agency has concluded that the order represents the best value
(as defined in 48 C.F.R. § 2.101) and results in the lowest overall
cost alternative (considering price, special features, administrative
costs, etc.) to meet the government's needs. Although GSA has already
negotiated fair and reasonable pricing, ordering agencies may seek
additional discounts before placing an order. Id. §§ 8.404(d), 8.405-4.
Under the FSS program, agencies may place orders using a request for
quotations (RFQ). Id. § 8.405-1. A quotation is not a submission for
acceptance by the government to form a binding contract; rather,
vendor quotations are purely informational. In the context of an RFQ,
it is the government that makes the offer, albeit generally based on
the information provided by the vendor in its quotation, and no
binding agreement is created until the vendor accepts the offer. 48
C.F.R. § 13.0004(a). Generally, a vendor submitting a price quotation,
therefore, can reject an offer from the government at the vendor's
quoted price. B-292708, Oct. 3, 2003.
However, where an agency issues an RFQ under FAR subpart 8.4 and
conducts a competition (see 48 C.F.R. § 8.405-2), GAO, in a bid
protest, will review the record to ensure that the agency's evaluation
was fair and reasonable and consistent with the terms of the
solicitation. See B-297210, Nov. 28, 2005; B-278343, B-278343.2, Jan.
20, 1998. In such a competition, it is the vendor's burden to submit a
quotation that is adequately written and establishes the merits of the
quotation, or else the vendor runs the risk of the agency rejecting
the quotation as technically unacceptable. B-293527, Mar. 26, 2004; B-
290291, June 17, 2002.
The FSS program applies to services (priced at either hourly rates or
at a fixed price for performance of a specific task) as well as
supplies (listed at fixed prices). For example, GSA is acting within
its authority in establishing a mandatory supply schedule for debt
collection services. The using agency's authority in 31 U.S.C. § 3718
to contract for debt collection services does not override GSA
authority to determine how the procurement is to be accomplished. B-
259975, Sept. 18, 1995.
For administrative convenience, an ordering agency may add items not
on the FSS (that is, open market items) to an FSS blanket purchase
agreement or to an individual task or delivery order only if all
applicable acquisition regulations with respect to non-FSS items have
been followed (e.g., publication (48 C.F.R. part 5), competition
requirements (48 C.F.R. part 6), acquisition of commercial items (48
C.F.R. part 12), contracting methods (48 C.F.R. parts 13, 14, and 15),
and small business programs (48 C.F.R. part 19)), and the ordering
agency has determined that the price for the non-FSS is fair and
reasonable, the items are clearly labeled on the order as non-FSS
items, and all applicable clauses with respect to non-FSS items are
included in the order. 48 C.F.R. § 8.402(f)(1)-(4). A nonschedule
procurement in violation of the regulations is an unauthorized act,
but again as with stock items, the agency may pay the vendor if the
quantum meruit/quantum valebant standards are met. B-213489, Mar. 13,
1984; B-195123, July 11, 1979.
As with any other agency program, there are certain expenses GSA must
bear incident to administering the Federal Supply Schedule program.
One example is discussed in 42 Comp. Gen. 563 (1963), in which GSA
directed a supply schedule gasoline contractor to litigate the
constitutionality of a state gasoline tax. The cost was simply a cost
of carrying out GSA's normal duties and there was no basis for passing
it on to user agencies.
2. Governmentwide Acquisition Contracts:
In 1996, the Clinger-Cohen Act authorized the creation of
Governmentwide Acquisition Contracts (GWAC), which are contracts for
information technology (IT) goods and services that are established by
one agency for governmentwide use, with deliveries scheduled through
orders with the contractor. Pub. L. No. 104-106, thy. E, 110 Stat.
186, 679 (Feb. 10, 1996). See also GAO, Contract Management:
Interagency Contract Program Fees Need More Oversight, GAO-02-734
(Washington, D.C.: July 25, 2002); Interagency Contracting: Improved
Guidance, Planning, and Oversight Would Enable the Department of
Homeland Security to Address Risks, GAO-06-996 (Washington, D.C.:
Sept. 27, 2006). GWACs are generally indefinite-delivery, indefinite-
quantity (IDIQ) contracts. Chapter 7, section B.Le discusses
requirements for obligating IDIQs. Each GWAC is operated by an
executive agency designated by the Office of Management and Budget
pursuant to section 5112(e) of the Clinger-Cohen Act, Pub. L. No. 104-
106. An agency placing an order under a GWAC incurs an obligation
directly against the contract; accordingly, as with MAS contracts,
interagency agreements, discussed in section B of this chapter, are
not required when placing orders against a GWAC. See GSA Schedules
Frequently Asked Questions, available at www.gsa.govischedules (last
visited Mar. 20, 2008).
3. Stationery and Supplies:
Originally enacted in 1868,[Footnote 5] 41 U.S.C. § 13 provides:
"Except as otherwise provided, it shall not be lawful for any of the
executive departments to make contracts for stationery or other
supplies for a longer term than one year from the time the contract is
made." Our research failed to disclose a definition of "supplies" for
purposes of this statute, although the request for decision in one
case assumed it meant "supplies which are consumed in the use thereof,
such as food, gasoline," etc., and nothing in the decision
contradicted that assumption. 19 Comp. Gen. 980, 981 (1940). The
statute was often cited along with other fiscal control laws such as
the Antideficiency Act, Adequacy of Appropriations Act, bona fide
needs statute, etc., and its independent significance received little
attention. E.g., 36 Comp. Gen. 683, 684 (1957). Apart from certain
indefinite-quantity or requirements contracts (e.g., A-60589, July 12,
1935), it added little to what was already prohibited by the other
statutes.
In any event, while the law is still on the books, statutory
exemptions have whittled it down to virtually nothing. The Federal
Property and Administrative Services Act of 1949, ch. 288, 63 Stat.
377 (June 30, 1949) (Property Act), included an exemption for the
General Services Administration (GSA) and agencies acting under a GSA
delegation, later expanded to what is now the first sentence of 41
U.S.C. § 260: "Sections 5, 8, and 13 of this title shall not apply to
the procurement of property or services made by an executive agency
pursuant to this subchapter." Since this provision originated in the
Property Act, the definition of "executive agency" in the codified
version of title 40 derived from that act, contained in 40 U.S.C. §
102(4), would presumably apply:
"The term 'executive agency' means—
"(A) an executive department or independent establishment in the
executive branch of the Government; and,
"(B) a wholly owned Government corporation."
GSA published a detailed explanation and listing of who is eligible to
use its supply services in GSA's Order No. ADM 4800.2E,[Footnote 6]
which includes executive, legislative, and judicial branch agencies as
well as other federal entities. Section 7.b of the GSA order states:
"Subsection 201(b) of the Property Act authorizes the Administrator
[of GSA] to provide GSA sources of supply to these organizations upon
request...
"(1) Other Federal Agencies. These are Federal agencies defined in
subsection 3(b) of the Property Act that are not in the executive
branch; i.e., any establishment in the legislative or judicial branch
of the Government ...To the extent that GSA has made such
determinations, the organizations qualifying under this authority are
listed in app. B."
Appendix B to the order contains a list of "Other Eligible Users,"
which includes legislative branch agencies (e.g., GAO and the Library
of Congress); judicial branch agencies (e.g., the Administrative
Office of the U.S. Courts); and a number of government boards,
commissions, and corporate entities.
In addition, 10 U.S.C. § 2314 provides: "Sections 3709 and 3735 of the
Revised Statutes (41 U.S.C. [§§] 5 and 13) do not apply to the
procurement or sale of property or services by the agencies named in
section 2303 of this title [10 U.S.C. § 2303]." Section 2303 lists the
Departments of Defense, Army, Navy, Air Force, the Coast Guard, and
the National Aeronautics and Space Administration.
GAO has pointed out that these exemptions are just that—exemptions
from 41 U.S.C. § 13—and do not by themselves authorize anyone to
obligate funds in advance of appropriations. 63 Comp. Gen. 129, 135
(1983); 48 Comp. Gen. 497, 500 (1969).
4. Exchange/Sale Authority in Acquiring Personal Property:
Section 503(a) of title 40, United States Code, provides: "In
acquiring personal property, an executive agency may exchange or sell
similar items and may apply the exchange allowance or proceeds of sale
in whole or in part payment for the property acquired." Section 503(b)
provides that a transaction under 40 U.S.C. § 503(a) must be in
writing and carried out in accordance with General Services
Administration (GSA) regulations, which in turn are subject to
regulations of the Office of Federal Procurement Policy.
The reason for section 503 is that, without it, the acquiring agency
would have to charge the full purchase price to its appropriation
while depositing the proceeds from the disposition of old material in
the Treasury as miscellaneous receipts, even though it may have
budgeted on the basis of net cost. For an example of this problem, see
21 Comp. Gen. 294 (1941). This was true regardless of whether the old
material was sold for cash (15 Op. Att'y Gen. 322 (1877)) or traded in
for an allowance against the purchase price (5 Comp. Dec. 716 (1899)).
GAO had come to the conclusion that there was "no complete and
satisfactory solution of the problem except by obtaining necessary
legislation." 21 Comp. Gen. at 297. Section 503 was the culmination of
legislative attempts that began decades earlier. The first statutes
tended to be limited either to a particular agency or to particular
types of personal property such as automobiles. See, e.g., 19 Comp.
Gen. 906 (1940). The origins and history of section 503 (formerly
section 201(c) of the Federal Property and Administrative Services Act
of 1949, ch. 288, 63 Stat. 377 (June 30, 1949)) are outlined in B-
169903-0.M., Jan. 8, 1973. Although the statute uses the term
"executive agency," GAO regards it as applicable to itself by virtue
of 31 U.S.C. § 704(a) which makes laws "generally related to
administering an agency" applicable to GAO. B-201082-0.M., Dec. 2,
1980.
Implementation of the exchange/sale authority is the primary
responsibility of GSA, whose regulations are found in 41 C.F.R. part
102-39, part of the Federal Management Regulation. GAO has considered
various aspects of the exchange/sale authority on many occasions, but
relies heavily on the GSA regulations and will not interfere with any
reasonable application by GSA. See B-189300, May 5, 1978 (nondecision
letter).
The regulations authorize use of the exchange/sale authority only when
the following conditions apply:
* The property sold or exchanged must be "similar to the property
acquired."
* The property sold or exchanged must not be excess or surplus, and
the agency must have a continuing need for the property acquired.
* Subject to certain exceptions, "the number of items acquired must
equal the number of items exchanged or sold."
* The property exchanged or sold cannot have been acquired for the
principal purpose of exchange or sale.
* There must be documentation that the exchange allowance or sale
proceeds will be applied to the acquisition of replacement property.
41 C.F.R. § 102-39.50. If the exchange/sale authority applies, the
agency is under no obligation to give precedence to other statutory
disposal options, such as donation programs. B-153771, June 12, 1964.
The first listed condition is simply a restatement of the requirement
of the statute that the items be "similar." GAO has observed that
"'similar items' is not a precise term" and that the law "affords
[GSA] a flexible standard in the promulgation of regulations." 41
Comp. Gen. 227, 228-29 (1961). GSA regards items as similar for
purposes of the exchange/sale statute when:
* the replaced item and the acquired item are identical;
* the acquired and replaced item "are designed and constructed for the
same purpose";
* both items constitute parts or containers for identical or similar
end items; or;
* the acquired item and the replaced item both fall within a single
Federal Supply Classification group of property that is eligible for
handling under the exchange/sale authority.
41 C.F.R. § 102-39.20.
Under the second standard, items need not be identical if they are
designed and constructed for the same purpose. Thus, ambulances and
station wagons adapted for use as ambulances are similar for purposes
of the statute. 41 Comp. Gen. 227 (1961). Different types of trucks
qualify because they are designed and intended to be used for the
transportation of property. B-47592, Feb. 14, 1945. So do vessels
designed for hydrographic surveying, notwithstanding differences in
size and capacity which would preclude their operation under the same
conditions. B-127659, June 5, 1956.
The statute and regulations are designed to facilitate the legitimate
replacement of property and should not be used for what amounts to a
new acquisition in the guise of an exchange. In 55 Comp. Gen. 1268
(1976), GSA had disapproved an exchange of gold for silver proposed by
the Defense Department and the National Aeronautics and Space
Administration. Notwithstanding the assertion that the two were
"virtually interchangeable," an examination of the proposal showed
that they would not serve the same specific purpose, and that GSA was
therefore correct. See also B-149858-0.M., Feb. 25, 1963 (diamonds not
similar to rubies). The purpose to be served must be specific.
Intermingling dissimilar items for use on a common project—unless they
are within the same Federal Supply Classification group—is not enough.
Thus, trucks and shovels, for example, are not similar simply because
they will be used as "road building equipment." 27 Comp. Gen. 540
(1948). In general, "in the purchase of a truck only a truck may be
sold or exchanged, a tractor for a tractor, a boat for a boat, etc."
23 Comp. Gen. 931, 934 (1944).
The regulations also treat items as similar if they are parts for
similar end items. See, e.g., 34 Comp. Gen. 452 (1955) (United States
Mint at Philadelphia could sell high-frequency motor-generator set and
use proceeds for parts for high-frequency melting units); B-126544,
Feb. 17, 1956 (another case involving U.S. Mint equipment). The 1955
decision cautioned that while the proceeds could be applied to the
purchase of the new equipment, they could not be used for such things
as removal, modification, installation, or assembly. 34 Comp. Gen. at
454.
Sales proceeds can be applied to a different program or activity in
the same agency as long as they are applied to the purchase of similar
items. This follows logically from the requirement under 40 U.S.C. §
524(b)(1) that, as far as practicable, an agency reassign property
within the agency before reporting it to GSA as excess. B-153771, June
12, 1964.
There are a number of important exclusions from the exchange/sale
authority. One is mandated by the very premise of the statute—it
applies only to personal property, not to real property. E.g., B-
128706, Aug. 14, 1956 (41 miles of telephone line are not "personal
property"). Others are contained in the regulations. Items are not
eligible for exchange/sale treatment if they are found in any of the
Federal Supply Classification groups listed in 41 C.F.R. § 102-
39.45(a). The groups listed range from hand tools and clothing to
weapons and nuclear ordnance. Other provisions specify that the
exchange/sale authority may not be used if the acquisition is not
otherwise authorized by law or is in contravention of an applicable
restriction. 41 C.F.R. §§ 102-39.45(j), (k), 102-39.30. For example,
it could not be used to acquire a passenger motor vehicle by an agency
which lacks the specific authority required by 31 U.S.C. § 1343(b). 27
Comp. Gen. 105 (1947). As noted above, the exchange/sale authority may
not be used to dispose of excess or surplus property. 41 C.F.R. § 102-
39.50(b). See B-163084, Feb. 5, 1979; B-169903, July 27, 1970. Nor may
it be used to dispose of scrap materials except scrap gold for fine
gold. 41 C.F.R. § 102-39.45(e); see B-163084, Feb. 5, 1979.
Long before the enactment of 40 U.S.C. § 503, GAO had taken the
position that an agency disposing of personal property through
competitive bids should solicit cash bids as well as trade-in offers,
and should accept whichever was more favorable to the government.
E.g., 5 Comp. Gen. 798 (1926). This position continued after enactment
of section 503. 45 Comp. Gen. 671 (1966); B-150296, Mar. 14, 1963.
[Footnote 7] In 64 Comp. Gen. 132 (1984), GAO sustained a bid protest
where the solicitation failed to include the cash option. The decision
stated:
"Where an agency contemplates considering offers for the government's
old equipment in conjunction with an acquisition of new equipment, we
question whether it is fair or even in the government's best interest
to limit offers for the old equipment to firms also offering to supply
the new equipment, if there exists a third-party market for the old
equipment that might be willing to offer more on a cash basis than the
government could have obtained from any exchange allowance."
64 Comp. Gen. at 134.
GAO has approved issuing a request for quotations for the sole purpose
of comparing trade-in offers where the agency contemplated making the
actual acquisition by purchase request from the Federal Supply
Schedule. B-181146, Nov. 21, 1974. GAO has also concurred with a
proposal by GSA to sell used cars, many of which are exchange/sale
cars, on consignment through private auction houses. 64 Comp. Gen. 149
(1984).
Of course, the main reason for the enactment of 40 U.S.C. § 503 was to
permit the proceeds of the exchange or sale to be applied towards
acquisition of the new item. Applicable requirements are set forth in
GAO's Policy and Procedures Manual for Guidance of Federal Agencies,
title 7, § 5.5.D (Washington, D.C.: May 18, 1993), some of which have
been incorporated into GSA regulations at 41 C.F.R. §§ 102-39.15(a),
10239.40(a)(3), and 102-39.70. If the proceeds are received after the
obligation for the replacement property has been incurred, they may be
credited directly to the appropriation account charged. If the
proceeds are received before the obligation for the replacement
property has been incurred, they remain available for the purchase
during the fiscal year in which the property was sold and for one
fiscal year thereafter. 41 C.F.R. § 102-39.70. If an administrative
determination to use the proceeds has been made and documented, the
money should be credited to the appropriate budget clearing account.
When the obligation is incurred, the clearing account is charged and
the appropriation account credited. This prevents expiration of the
appropriation from thwarting the legitimate exercise of the
exchange/sale authority. If the obligation does not occur within the
prescribed time period, the money goes to the Treasury as
miscellaneous receipts, the theory being that it would no longer be a
bona fide replacement. Id.
5. Disposal of Personal Property:
The principles which govern the disposal of government property are,
for the most part, the same for real and personal property although
they differ in detail. We discuss the disposal of real property in
Chapter 13. The principles are:
* Under the Property Clause of the Constitution (art. W, § 3, cl. 2),
disposal of government property requires statutory authority.
* Congress has implemented the Property Clause mainly through
provisions of title 40, United States Code. The General Services
Administration (GSA) has primary responsibility for administering
these provisions, and does so in turn through the Federal Management
Regulation, 41 C.F.R. chapter 102.
* Disposal is a three-stage process: reassignment within the agency;
transfer to other federal agencies (excess property); sale or other
authorized disposal outside of the government (surplus property). The
definitions of excess and surplus property are the same for real and
personal property.
Upon determining that an item of personal property is no longer needed
"for the purposes of the appropriation used to make the purchase," the
agency's first task is to see if it can be reassigned for use
elsewhere in the agency. 40 U.S.C. § 524(b)(1); 41 C.F.R. § 102-
36.35(a). The statutory language makes clear that this includes
activities within the agency financed by different appropriations. B-
139655-0.M., July 20, 1959. If the property is not needed elsewhere in
the agency, it is declared excess and reported to GSA. GSA can then
direct transfer to another agency, a government corporation, or the
District of Columbia, or can redistribute the property through its own
supply centers. 40 U.S.C. §§ 521-522.
As with real property, the statute requires reimbursement by the
receiving agency of the property's "fair value" if either the
transferor or the transferee is the District of Columbia or a
government corporation subject to the Government Corporation Control
Act, 31 U.S.C. §§ 9101-9110, or if the property was acquired by using
a revolving or reimbursable fund and the transferor agency requests
reimbursement of the net proceeds. In all other cases, the extent of
reimbursement is left to the determination of GSA and the Office of
Management and Budget. 40 U.S.C. §§ 522(a), (b). The regulations
provide that, except for the situations mandated by the statute and a
few others, transfers of excess personal property are without
reimbursement. 41 C.F.R. § 102-36.75. This "no reimbursement" policy
is within GSA's discretion under the law. B-101646-0.M., Feb. 11, 1977.
A little-known statute is 40 U.S.C. § 528, which prohibits any
department or agency of the federal government from using appropriated
funds "to purchase furniture if the Administrator of General Services
determines that requirements can reasonably be met by transferring
excess furniture, including rehabilitated furniture, from other
departments or agencies" in accordance with the title 40 provisions.
Excess property in a foreign country is subject to different
provisions of the law. Each agency is responsible for disposing of its
own foreign excess property. 40 U.S.C. § 701(b)(1). Methods of
disposal include sale, exchange, lease, or transfer, or the property
can be returned to the United States for handling as domestic excess
property. Id. §§ 702-704. This broad authority includes transfer to
another federal agency without reimbursement. 42 Comp. Gen. 21 (1962).
If the property is found to be excess to all federal agencies, GSA
declares it to be surplus. GSA has general supervision and direction
over the disposition of surplus property. 40 U.S.C. § 541. Another
agency can sell surplus property only if it has specific authority
which overrides the title 40 provisions or upon delegation from GSA.
56 Comp. Gen. 754 (1977). GSA's regulations amount to a blanket
delegation by authorizing agencies to either sell their own surplus
property or to have GSA, a contractor, or another agency sell it for
them. 41 C.F.R. § 102-38.40.
Section 543 of title 40 provides that agencies authorized by GSA to
dispose of surplus property:
"may do so by sale, exchange, lease, permit, or transfer, for cash,
credit, or other property, with or without warranty, on terms and
conditions that the Administrator considers proper. The agency may
execute documents to transfer title or other interest in the property
and may take other action it considers necessary or proper to dispose
of the property under this chapter [chapter 5 of title 40]."
Note that section 543 authorizes sales for credit as well as cash. The
regulations permit accepting payment by either credit or debit card.
41 C.F.R. § 102-38.290.
The procedures for disposal are contained in 40 U.S.C. § 545. Section
545 generally requires advertising for bids for disposal and contracts
for disposal, although, as discussed below, it includes a number of
exceptions to this requirement. The statute further provides that:
"an award shall be made with reasonable promptness by notice to the
responsible bidder whose bid, conforming to the invitation for bids,
is most advantageous to the Federal Government, price and other
factors considered. However, all bids may be rejected if it is in the
public interest to do so."
40 U.S.C. § 545(a)(4). Generally speaking, this requires award to the
highest bidder. 36 Comp. Gen. 94 (1956); B-192592, Nov. 16, 1978. The
winning bidder must be responsive and responsible. These terms have
the same meaning as in the procurement arena. Responsive means that
the bid must conform to the advertised terms and conditions (49 Comp.
Gen. 244, 246 (1969)); responsible refers to ability to perform (B-
160179, Dec. 12, 1966).
Section 545(b) sets forth nine situations in which the sale may be
negotiated rather than advertised. They include such things as
national emergency; estimated fair market value does not exceed
$15,000; and advertisement fails to produce reasonable bids. Another
situation is where sale by competitive bidding "would impact an
industry to an extent that would adversely affect the national
economy," provided that negotiation will produce the estimated fair
market value and other satisfactory terms. 40 U.S.C. § 545(b)(4). This
does not authorize an agency to address economic impact by advertising
a sale with the condition that the property must be scrapped by the
purchaser. 43 Comp. Gen. 15 (1963). Another provision of the statute,
40 U.S.C. § 545(d), authorizes GSA to sell surplus personal property
by negotiation at fixed prices which reflect estimated fair market
value, without regard to section 545(a).
A provision that has generated some attention in judicial and GAO
decisions is 40 U.S.C. § 544:
"A deed, bill of sale, lease, or other instrument executed by or on
behalf of an executive agency purporting to transfer title or other
interest in surplus property under this chapter [chapter 5 of title
40] is conclusive evidence of compliance with the provisions of this
chapter concerning title or other interest of a bona fide grantee or
transferee for value and without notice of lack of compliance."
This language originated in a very similar provision in the Surplus
Property Act of 1944,[Footnote 8] designed to protect the good-faith
purchaser, in the absence of fraud, against attack based on mistake or
lack of authority. United States v. Jones, 176 F.2d 278 (9th Cir.
1949). See also East Tennessee Iron & Metal Co. v. United States, 218
F. Supp. 377 (E.D. Tenn. 1963) (mutual mistake). It will protect an
otherwise innocent party who acquires title from a fraudulent vendee.
United States v. Mailet, 294 F. Supp. 761 (D. Mass. 1968). The
provision has also been viewed as a protection for the title of a good-
faith purchaser where the property had never been declared surplus and
was therefore disposed of in violation of law and regulations.
International Air Response v. United States, 75 Fed. Cl. 604 (2007);
Pacific Harbor Capital, Inc. v. United States Department of
Agriculture, 845 F. Supp. 1 (D.D.C. 1993). GAO has held that, where
the notice of award specifies that title does not pass until the
property is removed, section 544 does not apply until the property is
removed. 58 Comp. Gen. 240 (1979). GAO has also suggested that the
statute should not be read as, in effect, permitting disregard of any
statutory violation. B-150468, Dec. 23, 1963.
One situation in which 40 U.S.C. § 544 will not prevail is illustrated
in Dubin v. United States, 289 F.2d 651 (Ct. Cl. 1961). The government
had erroneously sold certain defense articles as surplus. A provision
of the Espionage Act, 18 U.S.C. § 793(d), gives the government the
right to recover the articles in the interests of national security, a
right which prevails over the purchaser's claim to title under 40
U.S.C. § 544. In Dubin, the person surrendering the property was
entitled to recover only his out-of-pocket expenses. See also B-
247981, July 24, 1992.
Another major method of disposal of surplus personal property is
donation to the states, set out in 40 U.S.C. § 549. For decades,
federal law has authorized the donation of surplus personal property
to states for educational, public health, or civil defense purposes.
Congress significantly revised the law in 1976 to expand the range of
authorized purposes.[Footnote 9] In brief, GSA transfers surplus
property, without cost, to state agencies designated under state law
to receive surplus federal property. GSA is supposed to try to
allocate property among the states on a fair and equitable basis. The
state agency may then distribute the property:
"(A) to a public agency for use in carrying out or promoting, for
residents of a given political area, a public purpose, including
conservation, economic development, education, parks and recreation,
public health, and public safety; or
"(B) for purposes of education or public health (including research),
to a nonprofit educational or public health institution or
organization that is exempt from [federal] taxation ..."
40 U.S.C. § 549(c)(3). GSA regulations governing the donation program
are in 41 C.F.R. part 102-37. According to 41 C.F.R. § 102-37.120, all
donations have to go through GSA except those listed in 41 C.F.R. §
102-37.125.
Title to property in the custody of the state receiving agency remains
with the United States. 41 C.F.R. § 102-37.205(b). Upon executing the
required certifications and taking possession from the state agency,
the donee receives "conditional title." Id. According to 41 C.F.R. §
102-37.450(d): "Full title to the property will vest in the donee only
after the donee has met all of the requirements of this part." The
donee must return the property if it is not used for the donated
purpose within 1 year of donation, or if it ceases being used within 1
year after being placed in use. 40 U.S.C. § 549(e)(3)(D); 41 C.F.R. §
102-37.450(b). In addition, there are recapture provisions for
noncompliance. 41 C.F.R. § 102-37.485.
The statute provides no standards as to when property should be sold
or when it should be donated. It does not require GSA to consider
various policy factors in making the determination. Northrop
University v. Harper, 580 E Supp. 959, 963 (C.D. Cal. 1983). It
confers "unfettered discretion" on GSA. Id. at 964.
In addition to the more general features noted above, provisions in
title 40 of the United States Code address many highly specialized
situations. For example, 40 U.S.C. § 548 authorizes the Maritime
Administration to dispose of surplus vessels determined to be
"merchant vessels or capable of conversion to merchant use," in
accordance with the Merchant Marine Act of 1936, as amended, 46 U.S.C.
app. §§ 1101-1295g. The procedures of the Merchant Marine Act take
precedence over those in title 40. 42 Comp. Gen. 69 (1962). Dredges
are apparently not regarded as within the scope of 40 U.S.C. § 548 (B-
158429, Apr. 20, 1966), so there is separate authority in 40 U.S.C. §
556 to dispose of dredges.
A situation the statute does not address is the disposal of property
held by a commission composed equally of federal and state members.
Confronted with one such situation, GAO said there is a choice: divide
the property in half with the federal portion of the commission
disposing of its half in accordance with the title 40 provisions, or
sell it with the United States receiving half the proceeds. Absent
statutory guidance, the choice is up to the commission. B-185203, Apr.
8, 1976 (Federal-State Land Use Planning Commission for Alaska).
Unless one of several statutory exceptions applies, the net proceeds
from the sale of surplus personal property must be deposited in the
Treasury as miscellaneous receipts. 40 U.S.C. § 571;[Footnote 10] 41
C.F.R. § 102-38.300. See also B-200962, May 26, 1981. One exception
(40 U.S.C. § 572) is personal property related to real property sold
by GSA. Another (40 U.S.C. § 574(a)) is property originally acquired
with amounts not appropriated from the general fund of the Treasury or
with reimbursable appropriations from the general fund. E.g., B-162337-
0.M., Oct. 2, 1967 ("proceeds from the sale of surplus and excess
property and from salvage and scrap shall be deposited into the
industrial fund when such property is held in the industrial fund").
Another (40 U.S.C. § 574(b)) permits a portion of the proceeds to be
deposited in a special account from which to pay refunds or payments
for breach of warranty that may become necessary. When property is
recovered under the Espionage Act noted earlier, for example, the
expenses may be paid from one of these accounts. B-163028, Jan. 8,
1968. Still another (40 U.S.C. § 574(c)) permits proceeds from the
sale of property in the custody of a contractor or subcontractor to be
applied against the contract price when so provided in the contract.
E.g., B-140689-0.M., Feb. 1, 1980; B-139655-0.M., July 20, 1959. When
GSA sells surplus personal property, it may deduct from the proceeds
its costs of conducting the sale, and may deposit those amounts in the
Acquisition Services Fund. 40 U.S.C. § 573.
Finally, while the title 40, United States Code, provisions discussed
above govern the vast majority of disposals, other authorities exist
in specific contexts. For example:
* With the approval of the President, the Secretary of the Treasury is
authorized to sell gold and silver. 31 U.S.C. § 5116. GSA can conduct
the sale as Treasury's agent. See B-87620, Jan. 27, 1976.
* Various statutory provisions summarized in B-225008, Feb. 24, 1987,
afford several options for the use and disposition of forfeited
property. The provisions still in effect include: 18 U.S.C. § 1963; 19
U.S.C. § 1616a; 21 U.S.C. §§ 853 and 881; and 28 U.S.C. § 524(c).
* Excess and surplus personal property can be donated to Indian tribes
and tribal organizations under the Indian Self-Determination Act, 25
U.S.C. § 450j(f). If someone obtains property under this authority to
sell to third parties, the government may bring criminal charges.
E.g., United States v. Hacker, 883 F. Supp. 444 (D. S.D. 1994).
B. Interagency Transactions:
1. The Economy Act:
a. Origin, Legislative History, General Requirements:
In 1932, as part of a package of measures designed to reduce
government spending and help the nation fight its way out of the Great
Depression, Congress enacted the first governmentwide statutory
authorization for federal agencies to provide work, services, or
materials to other federal agencies on a reimbursable basis. Act of
June 30, 1932, ch. 314, 47 Stat. 382. The advantages of interagency
dealings had long been apparent, but widespread use had been
discouraged by the "well established rule that one Government activity
may not be reimbursed for services performed for another except to the
extent that it is shown that increased costs have been incurred." A-
31040, May 6, 1930.[Footnote 11] In addition, the early decisions held
that statutory authority was necessary if doing work for another
agency would require an increase in the plant or personnel of the
performing agency.[Footnote 12]12 10 Comp. Gen. 131, 134 (1930); 7
Comp. Gen. 709, 710 (1928). Furthermore, there was discomfort with the
concept of the government contracting with itself. See, e.g., 26 Comp.
Dec. 1022, 1023 (1920); 22 Comp. Dec. 684, 685 (1916).
The 1932 legislation did not hatch fully grown. A general, albeit
limited provision, had been enacted in 1920 authorizing ordering
agencies to transfer appropriations to performing agencies "for direct
expenditure." Act of May 21, 1920, ch. 194, § 7, 41 Stat. 607, 613.
[Footnote 13] In addition, a number of agency-specific statutes were
on the books. For example, a permanent provision in the Navy
Department's 1927 appropriation act, Act of May 21, 1926, ch. 355, 44
Stat. 591, 605, directed agencies ordering services or materials from
the Navy to pay the actual cost to the Navy's working fund, either in
advance or by reimbursement. This law, quoted in 10 Comp. Gen. 275,
277 (1930), was the source of some of the language used a few years
later in the Economy Act.
Against this backdrop, Representative Burton French sponsored
legislation in 1930 to provide general authority for reimbursable
interagency transactions. The purpose of the legislation,
Representative French testified, was "to permit the utilization of
facilities and personnel belonging to one department by another
department or establishment and to enact a simple and uniform
procedure for effecting the appropriation adjustments involved."
Interdepartmental Work: Hearings on H.R. 10199 Before the Committee on
Expenditures in the Executive Departments, 71"t Cong. 3 (1930), quoted
in 57 Comp. Gen. 674, 678 (1978). Representative French explained how
the bill conformed with certain fundamental tenets of appropriations
law:
"It is also a requirement of law, in using appropriations for the
support of any activity that the appropriation be expended only for
the objects specified therein....
"This requires that when one department obtains work, materials or
services from another department it should pay the full cost of such
work, materials or services.
"If full cost is not paid, then such part of the cost as is not
reimbursed must fall upon the department doing the work, which is
contrary to [31 U.S.C. § 1301(a)] and the appropriation of the
department for which the work was done will be illegally augmented
because it does not bear all of the cost of the work done for it."
Id. at 4, 57 Comp. Gen. at 678.[Footnote 14]
The report of the House Committee on Expenditures in the Executive
Departments mirrored the sponsor's testimony:
"The purpose of this bill is to permit the utilization of the
materials, supplies, facilities, and personnel belonging to one
department by another department or independent establishment which is
not equipped to furnish the materials, work, or services for itself,
and to provide a uniform procedure so far as practicable for all
departments.
"Your committee also believes that very substantial economies can be
realized by one department availing itself of the equipment and
services of another department in proper cases. A free interchange of
work as contemplated by this bill will enable all bureaus and
activities of the Government to be utilized to their fullest and in
many cases make it unnecessary for departments to set up duplicating
and overlapping activities of [their] own.
"Heretofore the cost of such services as have been performed by one
department for another has frequently been paid for out of the
appropriations for the department furnishing the materials and
services. This is unfair to the department doing the work. All
materials furnished and work done should be paid for by the department
requiring such materials and services. [The bill's funding provisions]
will hold each department to strict accountability for its own
expenditures and result in more satisfactory budgeting and accounting."
H.R. Rep. No. 71-2201, at 2-3 (1931), quoted in 57 Comp. Gen. at 674.
The bill was not enacted immediately, however. The following year, it
was again reported favorably, in the same language as quoted above, by
the House Committee on Economy. H.R. Rep. No. 72-1126, at 15-16
(1932). This time it became law as section 601 of the Legislative
Branch Appropriation Act for 1933, ch. 314, 47 Stat. 382, 417 (1932),
which almost immediately upon enactment became popularly known as the
"Economy Act."[Footnote 15]
Section 601 has been amended several times, receiving its current
structure and designation in the 1982 recodification of title 31,
United States Code, and is now found at 31 U.S.C. §§ 1535 and 1536.
[Footnote 16] The basic authority is set out in 31 U.S.C. § 1535(a):
"(a) The head of an agency or major organizational unit within an
agency may place an order with a major organizational unit within the
same agency or another agency for goods or services if:
"(1) amounts are available;
"(2) the head of the ordering agency or unit decides the order is in
the best interest of the United States government;
"(3) the agency or unit to fill the order is able to provide or get by
contract the ordered goods or services; and;
"(4) the head of the agency decides ordered goods or services cannot
be provided by contract as conveniently or cheaply by a commercial
enterprise."
The introductory portion of 31 U.S.C. § 1535(a) tells you who can use
the authority and what they can use it for. Both points will be
explored later in more detail. The numbered subsections establish four
basic conditions on use of the authority.
(1) Funds available.
The first condition is that "amounts are available" or, in the
original language, "if funds are available therefor" (47 Stat. 417-
18). Since nothing in the Economy Act in any way abrogates or
diminishes 31 U.S.C. § 1301(a), the ordering agency must have funds
which are available for the contemplated purpose, or, in other words,
the purpose of the transaction must be something the ordering agency
is authorized to do. 26 Comp. Gen. 545, 548 (1947); 16 Comp. Gen. 3, 4
(1936); 15 Comp. Gen. 704 (1936); 15 Comp. Gen. 5 (1935); B-259499,
Aug. 22, 1995. The ordering agency does not need specific authority in
its appropriation language to use the Economy Act, but of course must
adhere to any monetary limits Congress may choose to impose. 19 Comp.
Gen. 585 (1939).
In brief, the Economy Act does not authorize an agency to use another
agency to do anything it could not lawfully do itself. This is merely
a continuation of the rule in effect under the Economy Act's 1920
predecessor. E.g., 5 Comp. Gen. 757 (1926). This point—that transfer
of funds to another agency cannot be used to circumvent 31 U.S.C. §
1301(a)—is not limited to Economy Act transactions but applies to all
transfers, whether in advance or by reimbursement, to working funds or
otherwise, unless authorized under a statute which expressly provides
differently. See, e.g., Federal Deposit Insurance Corp. v. Hurwitz,
384 F. Supp. 2d 1039 (S.D. Tex. 2005) (reimbursable agreement under
which the Federal Deposit Insurance Corporation (FDIC) transferred
funds to the Office of Thrift Supervision (OTS) violated the Economy
Act because FDIC had transferred resources to OTS to bring claims that
FDIC could not); 7 Comp. Gen. 524, 526 (1928) (emphasizing that since
the appropriation in question "is not available for direct expenditure
for such purpose ...it can not be made available for such purpose by
transfer" to another agency). See also 30 Comp. Gen. 453 (1951); 28
Comp. Gen. 365 (1948); 22 Comp. Gen. 462 (1942), overruled on other
grounds, 56 Comp. Gen. 928 (1977); 19 Comp. Gen. 774 (1940).
(2) Interest of the government:
The second condition is that the head of the ordering agency must
determine that the order is in the best interests of the government.
This appears to offer little impediment, and our research has
disclosed no case law applying this provision.[Footnote 17]
(3) Performing agency's "position:"
The third condition-—agency is "able to provide" the goods or
services—-is best understood by again referring to the original
language: the performing agency must be "in a position to supply or
equipped to render" the materials or services in question (Act of June
30, 1932, ch. 314, 47 Stat. 382, 418). (The "get by contract" part was
added by amendments starting in 1942, and will be addressed later in
our discussion.) This requirement goes to the essence of the Economy
Act. The objective of the statute is to permit an agency to take
advantage of another agency's experience or expertise, not merely to
"dump" either work or funds or to avoid legislative restrictions. A
good example of one agency taking advantage of another agency's
expertise is 13 Comp. Gen. 138 (1933), in which a government
corporation issuing its own securities sought Economy Act assistance
quite logically from the forerunner of the Bureau of the Public Debt.
The "in a position" requirement does not mean that the performing
agency must have all required equipment and personnel already on hand
before it may validly accept an Economy Act order. If necessary, the
agency may, as long as the work or service is within the scope of
activities it normally performs, procure additional supplies or
equipment or add additional temporary personnel. B-197686, Dec. 18,
1980. For example, the agreement in 13 Comp. Gen. 138 was not
objectionable merely because the Public Debt Service had to take on
some additional personnel in order to handle the increased workload.
Similarly, GAO found a proposed transfer of funds to enable the
performing agency to hire additional personnel authorized in 14 Comp.
Gen. 526 (1935). GAO noted in B-119846, Sept. 8, 1955, that this
authority is not unlimited; however, no case thus far has defined
precisely what those limits might be.
Property purchased incident to an Economy Act transaction is, upon
completion of the work, "an asset of the agency bearing the cost of
its acquisition." 33 Comp. Gen. 565, 567 (1954). If the ordering
agency has paid for the entire asset through an advance of funds to
the performing agency, then whatever remains when performance is done
should be returned to the ordering agency for use or disposal as
appropriate. Id. If several agencies have advanced funds to cover the
cost, the property is regarded as "owned" by all of the agencies on a
pro rata basis. 38 Comp. Gen. 36 (1958). However, if the ordering
agency does not pay in advance but pays upon completion of its order,
and the performing agency acquires property with its own funds, the
property remains under the control of the performing agency and only
the amount of depreciation of the property during its work for the
ordering agency should be charged to such agency. Id.
It is one thing to acquire property incident to performing an Economy
Act order. It is entirely different, and far more questionable, to
acquire substantial equipment—or to solicit funds from potential
customer agencies to do so—solely to put yourself "in a position" to
perform Economy Act services. B-119846, July 23, 1954. And, of course,
in order to be "in a position" to do anything under the Economy Act,
the performing agency must be in existence. B-37273, Oct. 16, 1943.
Whether an agency is in a position to do Economy Act work is primarily
the agency's own determination, one which merits substantial weight.
23 Comp. Gen. 935, 937 (1944). However, the agency's status includes
legal as well as factual considerations. The legal part of the formula
is the absence of any statutory prohibitions or restrictions which
would obstruct performance. Id. at 937-38. The Economy Act does not
give a performing agency any authority which it would not otherwise
have. 18 Comp. Gen. 262, 266 (1938).
(4) Lower cost:
The Economy Act was never intended to foster an incestuous
relationship in lieu of normal contracting with private business
concerns. Hence the fourth condition of 31 U.S.C. § 1535(a)—the
ordering agency must determine that it cannot obtain the goods or
services "as conveniently or cheaply" from a private contractor.
[Footnote 18] It should be apparent that this refers to services which
are "lawfully procurable" from private sources in the first place and
not to "regular governmental functions." 19 Comp. Gen. 941 (1940).
In making the lower cost determination, it is permissible to solicit
bids and then reject all bids if they exceed the cost of dealing with
another agency. 37 Comp. Gen. 16 (1957).[Footnote 19] Even if the
determination is made, however, the authority to use the Economy Act
is permissive rather than mandatory. Id. If the agency cannot make the
determination, although the title 31 recodified language is less
explicit in this regard (compare the original language, Act of June
30, 1932, ch. 314, 47 Stat. 382, 418), use of the Economy Act is
improper.
The Economy Act itself does not require that agencies document the two
determinations called for by 31 U.S.C. §§ 1535(a)(2) and (a)(4)
(interest of the government and lower cost). However, GAO regards
documenting the determinations as "sound practice" and a desirable
internal control. GAO, Interagency Agreements: Fiscal Year 1988
Agreements at Selected Agencies Were Proper, GAO/AFMD-88-72
(Washington, D.C.: Sept. 28, 1988), at 8. The Federal Acquisition
Regulation was amended in 1995 to require that the two determinations
be documented in a Determination and Finding. 48 C.F.R. § 17.503(a)
(60 Fed. Reg. 49721, Sept. 26, 1995).
(5) Written agreement:
Another important requirement which should be emphasized at the outset
is not specified in the statute but finds its authority in common
sense and in the recording statute.[Footnote 20] An Economy Act
transaction should be evidenced by a "written order or agreement in
advance, signed by the responsible administrative officer of each of
the departments or offices concerned." 13 Comp. Gen. 234, 237
(1934).[Footnote 21] A written agreement is important because, as in
any contract situation, the terms to which the parties agree, as
reflected in the writing, establish the scope of the undertaking and
the rights and obligations of the parties. Also, the written agreement
can establish a ceiling on the ordering agency's financial obligation.
22 Comp. Gen. 74 (1942).
While an advance agreement normally "should be regarded as essential
... the lack of a specific agreement does not necessarily preclude
reimbursement" in appropriate cases. B-39297, Jan. 20, 1944. An
"appropriate case," although the decisions do not use this language,
generally means one in which the facts are sufficient to establish an
implied contract, or an express contract which was not finalized. In A-
85201, Apr. 15, 1937, for example, an agreement had been in effect for
several prior years and the facts showed an intent to continue the
agreement for the year in question. Another appropriate case is where
there is a written agreement and the parties subsequently agree to an
"adjustment" for some additional amount or item which is otherwise
proper but was not included in the original agreement. 22 Comp. Gen.
74; B-31862, Feb. 27, 1943.
Apart from common sense, another reason for an advance agreement is
that documentation is necessary in order to record an obligation under
31 U.S.C. § 1501(a). See 34 Comp. Gen. 418, 421 (1955).
GAO recommends that the agreement specify at least the following:
* Legal authority for the agreement;
* Terms and conditions of performance;
* The cost of performance, including appropriate ceilings when cost is
based on estimates;
* Mode of payment (advance or reimbursement);
* Any applicable special requirements or procedures for assuring
compliance; and,
* Approvals by authorized officials.
GAO, Policy and Procedures Manual for Guidance of Federal Agencies,
title 7, § 2.4-C.2(e) (hereafter GAO-PPM). The documentation
requirements of the Federal Acquisition Regulation are found in 48
C.F.R. § 17.504(b). In addition, it is extremely useful for the
agreement to set forth a requirement and procedures for the performing
agency to notify the ordering agency if it appears that performance
will exceed estimated costs and to cease or curtail performance as may
be necessary. This is an important safeguard to protect the performing
agency against Antideficiency Act violations. See 7 GAO-PPM § 2.4-
C.2(g); B-234427, Aug. 10, 1989 (nondecision letter).
b. Who Is Covered:
The coverage of the Economy Act is broad, and there is no distinction
between who can place an order and who can perform one. The statute
says that "[t]he head of an agency or major organizational unit within
an agency may place an order with a major organizational unit within
the same agency or another agency." 31 U.S.C. § 1535(a). This embraces
all three branches of the federal government. Within the legislative
branch, for example, one of the earliest Economy Act decisions applied
the statute to the Architect of the Capitol. 12 Comp. Gen. 442 (1932).
Financial audits of legislative branch agencies include the Economy
Act as one of the laws tested for compliance. E.g., GAO, Financial
Audit: First Audit of the Library of Congress Discloses Significant
Problems, GAO/AFMD-91-13 (Washington, D.C.: Aug. 22, 1991), at 29. And
GAO has always viewed the law as applicable to itself. B-156022-0.M.,
Jan. 6, 1972; B-130496-0.M., Mar. 13, 1957; B-13988, Jan. 7, 1941. See
also A-31068, Mar. 25, 1930 (Economy Act's 1920 predecessor applicable
to Botanic Garden). The court in United States v. Mitchell, 425 F.
Supp. 917, 918 (D.D.C. 1976), regarded the law as applicable to the
judicial branch.[Footnote 22]
The Economy Act applies to government corporations. 13 Comp. Gen. 138
(1933); B-116194, Oct. 5, 1953; B-39199, Jan. 19, 1944; B-27842, Aug.
13, 1942; A-46332, Jan. 9, 1933. The cited decisions involve a variety
of government corporations in the capacity of both ordering agency and
performing agency. Although the specific corporations in those cases
are now defunct, the point remains valid.
The Act also applies to temporary boards and commissions. See B-
157312, Aug. 2, 1965 (Public Land Law Review Commission). However, GAO
found it inapplicable to the land and timber appraisal committee
established by 43 U.S.C. § 1181f-1 even though it was to be federally
funded and permanent, because two of its three members could not be
employees of the United States. 33 Comp. Gen. 115, 116-17 (1953).
The common thread of applicability is that the entity in question must
be an agency or instrumentality of the United States government.
Accordingly, the Economy Act does not apply to the District of
Columbia Government. 50 Comp. Gen. 553, 556 (1971); B-107612, Feb. 8,
1952. (As we will see later, there is separate legislation applicable
to the District of Columbia.) It also does not apply to the National
Guard, except possibly when the Guard is called into federal service.
B-152420, Oct. 3, 1963, affd on reconsideration, B-152420, Feb. 25,
1964. Nor does it apply to Indian tribes (B-44174, Sept. 6, 1944),
agencies of the United Nations (23 Comp. Gen. 564 (1944)), American
Samoa (B-194321, Aug. 7, 1979), or a presidential inaugural committee
(62 Comp. Gen. 323, 330 (1983)).
There are also a few instances in which entities that clearly are
agencies or instrumentalities of the United States, or which are
treated as such for other purposes, are not covered. For example, the
Postal Service, although clearly an instrumentality of the United
States, is subject only to those statutes specifically designated in
the Postal Reorganization Act; however, the Economy Act is not one of
the statutes designated. 58 Comp. Gen. 451, 459 (1979). It also does
not apply to nonappropriated fund instrumentalities. 64 Comp. Gen. 110
(1984).[Footnote 23]
Finally, it is important to note that the Economy Act authorizes
intraagency, as well as interagency, transactions. E.g., 57 Comp. Gen.
674 (1978); 25 Comp. Gen. 322 (1945); B-77791, July 23, 1948. While
the decisions had consistently taken this position, this is one
instance in which the recodified language of 31 U.S.C. § 1535(a)
("major organizational unit within the same agency") is more precise
than the original language. While the two bureaus or offices may be
part of the same department or agency, they must be funded under
separate appropriations.[Footnote 24] 38 Comp. Gen. 734, 737-38
(1959); B-60609, Sept. 26, 1946. GAO has stated in the past that the
Economy Act does not apply with respect to separate appropriations of
a single bureau or office. See, e.g., 38 Comp. Gen. at 737-38. GAO,
however, has not addressed such circumstances since 1959.
c. Fiscal Matters :
(1) Payment: types and accounting The payment provision of the Economy
Act is 31 U.S.C. § 1535(b):
"Payment shall be made promptly by check on the written request of the
agency or unit filling the order. Payment may be in advance or on
providing the goods or services ordered and shall be for any part of
the estimated or actual cost as determined by the agency or unit
filling the order. A bill submitted or a request for payment is not
subject to audit or certification in advance of payment. Proper
adjustment of amounts paid in advance shall be made as agreed to by
the heads of the agencies or units on the basis of the actual cost of
goods or services provided."
This provision authorizes two types of payment, advance and
reimbursement. The decision is up to the performing agency.[Footnote
25] Payment may be in a lump sum or in installments. Audit or
certification in advance of payment is not required. The Federal
Acquisition Regulation restates this. 48 C.F.R. § 17.505(c) (bills
rendered or requests for advance payment shall not be subject to audit
or certification in advance of payment).
Payments made in advance will often necessarily be based on estimates,
in which event the amounts should be adjusted, up or down as the case
may be, when the actual cost is known. Any excess (the amount by which
the advance exceeds actual cost) should be returned to the ordering
agency. Retention of the excess amount by the performing agency is an
improper augmentation of its funds. 72 Comp. Gen. 120 (1993). If the
account to which the excess would otherwise be returned has been
closed, the money should be deposited in the Treasury as miscellaneous
receipts. 31 U.S.C. § 1552(b).
If the excess is determined while the appropriation charged with the
advance is still available for obligation, the performing agency
should pay special attention to returning the funds in time for the
ordering agency to be able to use them. GAO, Policy and Procedures
Manual for Guidance of Federal Agencies, title 7, § 2.4-C.2(d)
(Washington, D.C.: May 18, 1993).
The authority to pay by reimbursement amounts to an exception to 31
U.S.C. § 1301(a) by implicitly authorizing the performing agency to
temporarily use its own funds to do the ordering agency's work. See B-
6124-0.M., Oct. 11, 1939; B-234427, Aug. 10, 1989 (nondecision
letter). The statute requires that payment be made "promptly."
Accounting for payments is addressed in 31 U.S.C. § 1536. Section
1536(a) sets forth general requirements; section 1536(b) deals with
goods provided from stock. Section 1536(a) provides:
"An advance payment made on an order under section 1535 of this title
is credited to a special working fund that the Secretary of the
Treasury considers necessary to be established. Except as provided in
this section, any other payment is credited to the appropriation or
fund against which charges were made to fill the order."
This provision amounts to an exception—albeit a necessary one if the
Economy Act is to succeed—to the "miscellaneous receipts" statute, 31
U.S.C. § 3302(b). 56 Comp. Gen. 275, 278 (1977).
Advance payments are to be credited to special working funds created
for that purpose. 31 U.S.C. § 1536(a).[Footnote 26] The House report
accompanying the original legislation stated that the Secretary of the
Treasury was required to establish a working fund when requested by
the performing agency. H.R. Rep. No. 72-1126, at 16 (1932). The
language of the Act itself would appear to give Treasury the final
decision on the need to create such a fund. When the work is
completed, the amount of the advance is adjusted as noted above.
Payments made as reimbursements are credited to the appropriation(s)
of the performing agency "against which charges were made" in
effecting performance. This means that the reimbursement must be
credited to the fiscal year in which it was "earned," that is, the
fiscal year actually charged by the performing agency, without regard
to when the reimbursement is made. If the appropriation which earned
the reimbursement is still available for obligation at the time of
reimbursement, the money may be used for any authorized purposes of
that appropriation. 31 U.S.C. § 1536(b). (This would be true as a
matter of general appropriations law even if the statute were silent.)
If the appropriation is no longer available for new obligations, the
reimbursement must be credited to the appropriate expired account or,
if the account has been closed, to miscellaneous receipts. 31 U.S.C. §
1552(b); B-260993, June 26, 1996. See also B-211953, Dec. 7, 1984,
n.8; B-194711-0.M., Jan. 15, 1980.
If this causes problems for the performing agency, its choices are to
(1) seek advance payment, (2) bill the ordering agency promptly as
soon as the work is completed, or (3) bill periodically as portions of
the work are done. See GAO, Program to Improve Federal Records
Management Practices Should Be Funded by Direct Appropriations, LCD-80-
68 (Washington, D.C.: June 23, 1980), at 12.
Although not expressly provided in the Economy Act, an agency, if it
chooses, may deposit reimbursements in the Treasury as miscellaneous
receipts. 57 Comp. Gen. 674, 685 (1978) (direct costs); 56 Comp. Gen.
275, 278-79 (1977) (applying same conclusion to indirect costs). The
decision in 57 Comp. Gen. 674 pointed out that crediting a
reimbursement to an appropriation against which no charges had been
made would amount to an improper augmentation. Thus, there could be
situations—the closed account being one example—where the performing
agency has no choice but to deposit the reimbursement as miscellaneous
receipts. 57 Comp. Gen. at 685-86.
A significant exception to 31 U.S.C. § 1536(b) exists for the
Department of Defense. By virtue of 10 U.S.C. §§ 2205(a) and 2210(a),
if an appropriation has expired, Defense, at its option, may credit
Economy Act reimbursements to the expired appropriation which earned
the reimbursement or to the appropriation current at the time of
collection. See B-179708-0.M., Dec. 1, 1975, at 16.
With respect to items provided from stock, 31 U.S.C. § 1536(b)
provides in part:
"Where goods are provided from stocks on hand, the amount received in
payment is credited so as to be available to replace the goods unless:
"(1) another law authorizes the amount to be credited to some other
appropriation or fund; or;
"(2) the head of the executive agency filling the order decides that
replacement is not necessary, in which case the amount received is
deposited in the Treasury as miscellaneous receipts."[Footnote 27]
This provision, which limits the performing agency's authority to
retain payment to cases where replacement is necessary, illustrates
the Economy Act's approach of structuring the transaction so that the
performing agency neither profits nor is penalized. It does not say
merely that payments are available for replacement, but limits their
availability to cases where replacement is necessary. B-36541, Sept.
9, 1943. The apparent theory is that retaining payment when
replacement is not necessary would amount to a form of profit. 41
Comp. Gen. 671, 674 (1962) (purpose of provision is "to preclude
augmentation of the appropriations involved").
While the replacement items need not be identical, the Economy Act
does not authorize exchange of dissimilar items. 41 Comp. Gen. 671
(1962). That case involved a proposal by the Public Health Service and
the Defense Supply Agency to exchange lists of medical goods and
equipment in long supply or available for rotation and, in effect, to
swap supplies and equipment not presently needed, making necessary
appropriation adjustments periodically. GAO recognized that the
proposal had merit and suggested that the agencies seek legislative
authority, but was forced to conclude that 31 U.S.C. § 1536(b) does
not authorize what amounts to "program replacements," that is,
replacements of excess materials with other materials within the
general area covered by the appropriation.
(2) "Actual cost": meaning and application:
Payment under the Economy Act, whether by advance with subsequent
adjustment or by reimbursement, must be based on "the actual cost of
goods or services provided." 31 U.S.C. § 1535(b). This applies to both
intra- and interagency transactions under the Act. 57 Comp. Gen. 674,
684 (1978). Unfortunately, as the decisions have pointed out, neither
the statute nor its legislative history address the meaning of the
term "actual cost." Id. at 681.
In setting out an analytical framework, it is useful to start by
recalling that agencies using the Economy Act must avoid the
unauthorized augmentation of their appropriations. B-250377, Jan. 28,
1993. Charging too much augments the appropriations of the performing
agency. B-45108, B-48124, Feb. 3, 1955; B-101911-0.M., Apr. 4, 1951.
Charging too little augments the appropriations of the ordering
agency. 57 Comp. Gen. at 682. In connection with this latter
proposition, GAO quickly recognized that the Economy Act legislatively
abolished the prior decisional rule that limited the performing
agency's recovery to additional costs. 12 Comp. Gen. 442 (1932).
[Footnote 28] Once this is accepted, the approach then becomes a
matter of seeking to apply the concept of actual cost consistent with
the statutory objectives and such guidance as the legislative history
does provide.
The following passage from 57 Comp. Gen. at 681, describes this
approach:
"While the law and its legislative history are silent as to what was
meant by the term 'actual cost' ...the legislative history does
indicate that ...Congress intended to effect savings for the
Government as a whole by: (1) generally authorizing the performance of
work or services or the furnishing of materials pursuant to inter- and
intra-agency orders by an agency of Government in a position to
perform the work or service; (2) diminishing the reluctance of other
Government agencies to accept such orders by removing the limitation
upon reimbursements imposed by prior [GAO] decisions [footnote
omitted]; and (3) authorizing inter- and intradepartmental orders only
when the work could be as cheaply or more conveniently performed
within the Government as by a private source. Thus in determining the
elements of actual cost under the Economy Act, it would seem that the
only elements of cost that the Act requires to be included in
computing reimbursements are those which accomplish these identified
congressional goals. Whether any additional elements of cost should be
included would depend upon the circumstances surrounding the
transaction."
Thus, the universe of costs may be divided into required costs and
what we may term "situational" costs.
Required costs consist in large measure of direct costs—expenditures
incurred by the performing agency which are specifically identifiable
and attributable to performing the transaction in question. As stated
in 57 Comp. Gen. at 682: "The Economy Act clearly requires the
inclusion as actual cost of all direct costs attributable to the
performance of a service or the furnishing of materials, regardless of
whether expenditures by the performing agency were thereby increased."
One element of direct cost is the salary of employees engaged in doing
the work. 12 Comp. Gen. 442 (1932). This means gross compensation. 14
Comp. Gen. 452 (1934). It includes, for example, the accrual of annual
leave. 32 Comp. Gen. 521 (1953); 17 Comp. Gen. 571 (1938).
Another common element is the cost of materials or equipment furnished
to the ordering agency or consumed in the course of performance.
Actual cost in this context means historical cost and not current
replacement or production cost. B-130007, Dec. 7, 1956. See also 58
Comp. Gen. 9, 14 (1978). This does not necessarily have to be the
original acquisition cost, however, but may be the most recent
acquisition cost of the specific kind of item provided to the
requesting agency. B-250377, Jan. 28, 1993. Related transportation
costs are another reimbursable direct cost item. Id.
Not every identifiable direct cost is reimbursable under the actual
cost formulation. An illustration is 39 Comp. Gen. 650 (1960). The
Maritime Administration was activating several tankers for use by the
Navy. In the course of performing this activity, an employee of the
Maritime Administration's contractor was injured, sued the United
States under the Suits in Admiralty Act, and recovered a judgment
which the Maritime Administration paid from an available revolving
fund. While certainly a very real cost actually incurred in the course
of performance, the judgment was not "necessary or required in order
to condition the tanker for use by the Navy" (id. at 653), and
therefore was properly payable as a judgment and not as a reimbursable
cost which could be billed to Navy.[Footnote 29]
In addition to direct costs, it has long been recognized that actual
cost for Economy Act purposes includes as well certain indirect costs
(overhead) proportionately allocable to the transaction. E.g., B-
301714, Jan. 30, 2004; 22 Comp. Gen. 74 (1942). Indirect costs are
"items which commonly are recognized as elements of cost
notwithstanding such items may not have resulted in direct
expenditures." 56 Comp. Gen. 275 (1977); 22 Comp. Gen. 74. Indirect
costs which (1) are funded out of currently available appropriations,
and (2) bear a significant relationship to the service or work
performed or the materials furnished, are recoverable in an Economy
Act transaction the same as direct costs. 56 Comp. Gen. 275 (1977), as
modified by 57 Comp. Gen. 674 (1978), as modified in turn by B-211953,
Dec. 7, 1984. Examples of indirect costs include administrative
overhead applicable to supervision (56 Comp. Gen. 275); billable time
not directly chargeable to any particular customer (B-257823, Jan. 22,
1998); and rent paid to the General Services Administration
attributable to space used in the course of performing Economy Act
work (B-211953, Dec. 7, 1984).
The costs discussed thus far are those which the Economy Act can
fairly be said to require. In addition, there may be others, so-called
situational costs. The discussion in 57 Comp. Gen. 674 goes on to say:
"[The Economy Act] is not so rigid and inflexible as to require a
blanket rule for costing throughout the Government ....Certainly
neither the language of the Economy Act nor its legislative history
requires uniform costing beyond what is practicable under the
circumstances. This is not to say that costing is expected to be
different in a substantial number of circumstances. We are merely
recognizing that in some circumstances, other competing congressional
goals, policies or interests might require recoveries beyond that
necessary to effectuate the purposes of the Economy Act.
"The term ['actual costs'] has a flexible meaning and recognizes
distinctions or differences in the nature of the performing agency,
and the purposes or goals intended to be accomplished." Id. at 683,
685. For example, under the rules stated above, depreciation is
normally not recoverable, however, because it is not funded out of
currently available appropriations. 72 Comp. Gen. 159, 162 (1993); 57
Comp. Gen. 674.[Footnote 30] However, in 57 Comp. Gen. 674, in view of
the congressionally established goal that the performing agency (the
government entity which operated Washington National and Dulles
International Airports) be self-sustaining and recover its operating
costs and a fair return on the government's investment, it was
appropriate to include depreciation and interest as indirect costs.
The performing agency chose to deposit the amounts so recovered in the
general fund of the Treasury as miscellaneous receipts. Id. at 685-86.
Another example of permissible situational costs is where the
performing agency is funded by a statutorily authorized stock,
industrial, or similar fund which provides for full cost recovery,
that is, beyond what the Economy Act would otherwise require, and the
fund's Economy Act work is an insignificant portion of its overall
work. In such a situation, there might be sound reasons for charging
all customers alike. B-250377, Jan. 28, 1993.
While particular circumstances might authorize some indirect costs
beyond what the Economy Act requires, their inclusion in the
performing agency's charges is not required but is discretionary.
Failure to recover them is not legally objectionable, except in the
unlikely event it could be shown to be an abuse of discretion. B-
198531, Sept. 25, 1980.
The Economy Act was intended to promote interagency cooperation, not
interagency bickering over billings. Hence, the statutory scheme
emphasizes the role of agreement. It contemplates that application of
the actual cost standard in a given case should be "primarily for
administrative consideration, to be determined by agreement between
the agencies concerned." 22 Comp. Gen. 74, 78 (1942). In the interest
of intragovernmental harmony, it has been held that the Economy Act
does not require the ordering agency to conduct an audit or
certification in advance of payment. 39 Comp. Gen. 548, 549-50 (1960);
32 Comp. Gen. 479 (1953). Nor does it require the performing agency to
provide a detailed breakdown unless the agreement provides otherwise.
B-116194, Oct. 5, 1953. Payment is authorized "at rates established by
the servicing agency so long as they are reported to be based upon the
cost of rendition of the service and do not appear to be excessive."
32 Comp. Gen. at 481.
While at times actual cost can be computed with precision, the Economy
Act does not require that the determination be an exact science. Cases
on reimbursable work even before the Economy Act recognized the
acceptability of a reasonable and appropriate methodology over
"absolutely accurate ascertainment" which might entail considerable
burden and expense. 3 Comp. Gen. 974 (1924). As stated in B-133913,
Jan. 21, 1958, "[a]s long as the amount agreed upon results from a
bona fide attempt to determine the actual cost and, in fact,
reasonably approximates the actual cost," the Economy Act is
satisfied. One methodology GAO has found to be reasonable and
"consistent with the minimum legal requirements of the Economy Act" is
billing on the basis of standard costs derived from documented costs
of the last acquisition or production. B-250377, Jan. 28, 1993
(containing a detailed discussion); GAO, Iran Arms Sales: DOD's
Transfer of Arms to the Central Intelligence Agency, GAO/NSIAD-87-114
(Washington, D.C.: Mar. 13, 1987), at 8.
There are limits, however, and the "methodology" cannot be totally
divorced from the determination or reasonable approximation of actual
costs. Thus, a cost allocation in which some customers are paying
excessive amounts and effectively subsidizing others is improper. 70
Comp. Gen. 592 (1991). So is an allocation based on the availability
of appropriations (B-114821-0.M., Nov. 12, 1958), or a per capita
funding arrangement not related to the goods or services actually
received (67 Comp. Gen. 254, 258 (1988)).
Agencies may waive the recovery of small amounts where processing
would be uneconomical. An agency wishing to do this should set a
minimum billing figure based on a cost study. B-156022, Apr. 28, 1966.
The case for waiver is even stronger when the account to be credited
with the payment is no longer available for obligation. See B-120978-
0.M., Oct. 19, 1954.
Finally, while the statute talks about the "actual cost of goods or
services provided," there is one situation in which payment of actual
costs will have no relationship to anything "provided." For various
reasons, an agency may find it necessary to terminate an Economy Act
contract before it is completed. It can terminate the contract "for
convenience," the same as it could with a commercial contract, in
which event the performing agency should not have to bear the loss for
any expenses it has already incurred.
The Comptroller General addressed the situation as follows in B-61814,
Jan. 3, 1947, at 3:
"Where an order issued pursuant to [the Economy Act] is terminated
after the establishment receiving said order has incurred expenses
incident thereto the amount of such expenses or costs is for
determination and adjustment by agreement between such agencies ....
There would appear to be ample authority for an agreement between the
agencies ...to effect an adjustment of the appropriations and/or funds
of said agencies on the basis of the actual amount of the costs or
expenses incurred."
(3) Obligation and deobligation:
The obligational treatment of Economy Act transactions is addressed in
31 U.S.C. § 1535(d) (emphasis added):
"An order placed or agreement made under this section obligates an
appropriation of the ordering agency or unit. The amount obligated is
deobligated to the extent that the agency or unit filling the order
has not incurred obligations, before the end of the period of
availability of the appropriation, in:
"(1) providing goods or services; or;
"(2) making an authorized contract with another person to provide the
requested goods or services."
The first sentence of section 1535(d) establishes that an Economy Act
agreement is sufficient to obligate the ordering agency's
appropriations even though the agency's liability is not subject to
enforcement the same as a contract with a private party. This sentence
must be read in conjunction with 31 U.S.C. § 1501(a)(1), which
recognizes interagency agreements and prescribes the requirements for
a valid obligation. Under section 1501(a)(1) (emphasis added), an
obligation is recordable when supported by documentary evidence of:
"(1) a binding agreement between an agency and another person
(including an agency) that is:
"(A) in writing, in a way and form, and for a purpose authorized by
law; and;
"(B) executed before the end of the period of availability for
obligation of the appropriation or fund used for specific goods to be
delivered, real property to be bought or leased, or work or service to
be provided."
Thus, an Economy Act agreement is recordable as an obligation under 31
U.S.C. § 1501(a)(1) if it meets the requirements specified in that
section. 39 Comp. Gen. 317, 318-19 (1959); 34 Comp. Gen. 418, 421
(1955). It must, for example, involve a definite commitment for
specific equipment, work, or services. See, e.g., 15 Comp. Gen. 863
(1936). Also, the recording statute reinforces a point in the Economy
Act itself which we noted earlier, that the order or agreement must be
for a purpose the ordering agency is authorized to accomplish.
In addition, a valid Economy Act obligation must satisfy the basic
fiscal requirements applicable to obligations in general.
Specifically, it must comply with the bona fide needs rule. E.g., 58
Comp. Gen. 471 (1979); B-195432, July 19, 1979. And, of course, the
ordering agency must have sufficient budget authority to satisfy the
Antideficiency Act.
The second sentence of section 1535(d) lays out the requirement that
the performing agency must incur obligations to fill the order within
the period of availability of the appropriation being used. Otherwise
the funds must be deobligated. In the case of a contract with a
private party, as discussed in Chapter 5, obligated funds remain
available to fund work performed in a subsequent fiscal year as long
as the obligation met bona fide need concerns when it was incurred.
Some statutes authorizing interagency transactions specifically
provide for obligations to be treated the same as obligations with
private contractors. E.g., 41 U.S.C. § 23.[Footnote 31] The original
Economy Act contained similar language (Act of June 30, 1932, ch. 314,
47 Stat. 382, 418). However, a concern soon arose that the Economy Act
was being used to effectively extend the obligational life of
appropriations beyond that which Congress had provided. Legislative
resolution came about in stages. A 1936 statute restricted the period
of availability of advance payments under the Economy Act to that
provided in the source appropriation.[Footnote 32] See 16 Comp. Gen.
752, 754 (1937); 16 Comp. Gen. 575, 577 (1936); 15 Comp. Gen. 1125
(1936).
A more comprehensive provision was enacted as part of the General
Appropriation Act for 1951, ch. 896, § 1210, 64 Stat. 595, 765 (Sept.
6, 1950). This provision, the origin of what is now the second
sentence of 31 U.S.C. § 1535(d), restricted the availability of any
funds "withdrawn and credited" under the Economy Act to the period
provided in the act which appropriated them. The obvious purpose, as
reflected in pertinent committee reports, was to prevent use of the
Economy Act as a subterfuge to continue the availability of
appropriations beyond the period provided in the appropriating act.
See 31 Comp. Gen. 83, 85 (1951); B-95760, June 27, 1950. Thus, funds
obligated under the Economy Act must be deobligated at the end of
their period of availability (fiscal year or multiple year period, as
applicable) to the extent the performing agency has not performed or
itself incurred valid obligations as part of its performance. 34 Comp.
Gen. 418, 421-22 (1955). The 1982 recodification of title 31 of the
United States Code restated the provision as a positive requirement to
deobligate.
The deobligation requirement is not limited to advance payments but
applies as well to payment by way of reimbursement. 31 Comp. Gen. 83
(1951). Accordingly, as stated in 31 Comp. Gen. at 86, "where work is
performed or services rendered on a reimbursable basis by one agency
for another over a period covering more than one fiscal year, the
respective annual appropriations of the serviced agency must be
charged pro tanto with the work performed or services rendered in the
particular fiscal year." See also B-301561, June 14, 2004. The
deobligation requirement of 31 U.S.C. § 1535(d) does not apply where
the appropriation originally obligated is a no-year appropriation. 39
Comp. Gen. 317 (1959).
If it is determined, after an Economy Act agreement is completed and
the ordering agency's appropriation has closed pursuant to 31 U.S.C. §
1552, that the ordering agency owes the performing agency additional
amounts, current appropriations available for the same purpose should
be used to reimburse the performing agency. 31 U.S.C. § 1553(b); B-
301561, June 14, 2004; B-260993, June 26, 1996.
A concrete example will illustrate the difference between a commercial
contract and an Economy Act agreement. Suppose that, towards the end
of fiscal year 2006, an agency develops the need for some sort of
statistical study. It enters into a contract with a private party a
few days before the end of the fiscal year, obligating fiscal year
2006 appropriations, knowing full well that most of the work will be
done in the following year. Assuming the need was legitimate, the
obligated funds remain available to pay for the work. Now take the
same situation except the contract is with another government agency
under the Economy Act and the work is to be done by personnel of the
performing agency. The 2006 funds may be used only for work actually
done in the remaining days of that fiscal year. The remainder must be
deobligated and reobligated against fiscal year 2007 appropriations.
See B-223833, Nov. 5, 1987; B-134099, Dec. 13, 1957.
The deobligation requirement of 31 U.S.C. § 1535(d) applies only to
obligations under the Economy Act and has no effect on obligations for
interagency transactions under other statutory authorities.[Footnote
33] E.g., B-302760, May 17, 2004; B-289380, July 31, 2002; B-286929,
Apr. 25, 2001; 55 Comp. Gen. 1497 (1976).
(4) Applicability of limitations and restrictions:
Every agency is subject to a variety of authorities, limitations,
restrictions, and exemptions. Some are governmentwide. Others are
agency-specific. Still others may be bureau- or even program-specific.
In analyzing the relationship of such provisions to an Economy Act
transaction, it is important to start with an understanding of what
the Economy Act is and is not supposed to do. As we have noted
previously, the law is designed to permit an agency to accomplish some
authorized task more simply and economically by using another agency's
experience and/or expertise. It is not intended to permit an agency to
avoid legislative restrictions on the use of its funds, nor is it
intended to permit an agency running short of money to dip into the
pocket of another vulnerable and more budgetarily secure agency.
The rule, as stated in 18 Comp. Gen. 489, 490-91 (1938), is as follows:
"Funds transferred from the appropriations under one department to
another department for the performance of work or services under
authority of [the Economy Act], or similar statutory authority, are
available for the purposes for which the appropriation from which
transferred are available, and also subject to the same limitations
fixed in the appropriations from which the funds are transferred."
Under the first part of this rule, the purpose availability of the
funds is determined by reference to the purpose availability of the
source appropriation. This is closely related to the rule discussed
earlier in section B.1.a(1) of this chapter, that an Economy Act
transfer cannot expand that purpose availability.
The second part of the rule is easier to state than to apply.
Transferred funds remain subject to limitations and restrictions
applicable to the transferring agency, as a general rule. One example
is expenditure limitations applicable to the source appropriation. 17
Comp. Gen. 900 (1938); 17 Comp. Gen. 73 (1937); 16 Comp. Gen. 545
(1936).[Footnote 34] A 1951 decision, 31 Comp. Gen. 109, held that an
appropriation rider which limited the filling of vacancies arising
during the fiscal year followed an advance of funds to a working fund.
A decision just 2 months later found the result equally applicable to
payment by reimbursement. B-106101, Nov. 15, 1951.
The same rule applies to exemptions from general prohibitions. For
example, a statute long since repealed prohibited what GAO's decisions
referred to as "the employment of personal services" in the District
of Columbia without express authority. The Navy had a statutory
exemption. The Army had one too, but it was much more limited. In a
case where the Army was doing Economy Act work for the Navy, GAO held
that the exemption applicable to the Navy controlled. Therefore, the
Army could proceed without regard to the restriction it would have had
to follow when making direct expenditures for its own work. 18 Comp.
Gen. 489. In a similar case, the Commerce Department needed to procure
supplies for use in Economy Act work it was doing for the Army. Both
agencies had exemptions from the advertising requirement of 41 U.S.C.
§ 5 for small dollar amounts—$500 for the Army but only $25 for
Commerce. The Comptroller General advised that even though Commerce
was doing the purchasing, it could do so under the Army's more liberal
exemption because it would be using Army money to make the purchase.
21 Comp. Gen. 254 (1941). See also B-54171, Dec. 6, 1945.
There have been a number of exceptions to the rule that Economy Act
transfers are subject to the limitations of the source appropriation.
The substantive aspects of the exceptions are less important than
their rationale. One case, B-106002, Oct. 30, 1951, concluded that
funds advanced or reimbursed in Economy Act transactions were not
subject to a monetary limit on personal services contained in the
ordering agency's appropriation, because it could be clearly
demonstrated that the ceiling was based on the cost of employees on
the agency's payroll and did not include the estimated cost of Economy
Act services either performed by the agency or reimbursed to it.
A similar limitation for the Bureau of Reclamation was the subject of
another exception in B-79709, Oct. 1, 1948. Legislative history
revealed that the limitation stemmed from a congressional concern over
an excessive number of administrative and supervisory personnel
employed by the Bureau. The limitation was more on the Bureau than on
the funds in the sense that it was apparently not intended to limit
funds which could be transferred to some other agency, and spent by it
to pay its own personnel used in performing Economy Act work requested
by the Bureau. Thus, the Bureau could pay for Economy Act work without
regard to the ceiling. However, work the Bureau did for other agencies
had to be charged against the ceiling because, unlike the situation in
B-106002 noted above, the figures upon which the ceiling in B-79709
was based did include transfers from other agencies.
Still another group of exceptions involved the authority to employ
(and pay) personnel without regard to certain of the civil service
laws. The issue first arose in 21 Comp. Gen. 749 (1942), in connection
with Economy Act work being performed by the Bureau of the Census for
various national defense agencies. The question was whether the Census
Bureau was bound by limitations in the source appropriations. The
decision noted the line of cases applying the general rule, such as 18
Comp. Gen. 489 and 21 Comp. Gen. 254, summarizing them as follows:
"Such decisions involved cases in which it was sought to employ
transferred funds for purposes for which the funds would not have been
available in the transferring agency; or where it was sought to use
transferred funds to employ personal services when such services could
not have been employed (regardless of the method of appointment or the
rates of pay) by the transferring agency; or where the transferred
funds were directly subject to restrictions regarding the amount
expendable therefrom for passenger-carrying automobiles, or for
procurements without advertising, etc."
d. at 752. The decision then went on to distinguish the prior cases on
the following grounds:
"What is involved in the instant matter is essentially different,
being the accomplishment of certain objects for which the funds of the
transferring agency are available and which the agency to which the
transfer is made is equipped to accomplish by the use of personnel and
equipment it already has or is otherwise authorized to procure. Under
such circumstances, the charge to be made by the performing agency
against the funds of the agency desiring the services—whether under a
reimbursement or advance-of-funds procedure—should be on the basis of
the rates of compensation which the performing agency is otherwise
authorized by law to pay to its personnel used in the performance of
the services."
Id. Later cases applying this holding are B-38515, Dec. 22, 1943, B-
43377, Aug. 14, 1944, and B-76808, July 29, 1948. A similar rationale
is found in B-259499, Aug. 22, 1995, advising the Central Intelligence
Agency (CIA) on the extent to which it could use its own personal
services contractors in performing Economy Act orders where the
ordering agency lacks authority to contract for personal services.
Where the CIA is merely using the contractors along with its own
employees to perform otherwise authorized work, there is no violation.
This is merely "a means to an otherwise authorized end, and not an end
in itself." Id. at 8. However, B-259459 noted, the Economy Act would
be violated by placing the contractors under the direct supervision
and control of the ordering agency, or by procuring the contractors
solely in response to the ordering agency's needs. The latter two
situations would amount to using the Economy Act to circumvent
limitations on the ordering agency's authority.
We have noted that one of the Economy Act's objectives is to avoid
improper augmentations. An Economy Act transaction carried out in
accordance with law serves this purpose. It has been stated that
Economy Act agreements "do not increase or decrease the appropriation
of the requisitioned agency." A-99125, Nov. 21, 1938. That case held
that Economy Act transactions would not violate an appropriation
proviso which limited the amounts available to a particular agency to
the funds appropriated in that act. Similarly, absent some indication
of a contrary intent, a monetary limit on general transfer authority
is aimed at transfers which supplement the appropriation in question,
and does not apply to credits to that appropriation incident to
otherwise proper Economy Act transactions. B-120414, June 17, 1954.
Variations in discernible intent may change the result. See B-30084,
Nov. 18, 1942.
In 31 Comp. Gen. 190 (1951), an agency whose appropriation contained a
monetary ceiling on personal services asked whether the ceiling
applied to services provided to others under the Economy Act or, more
precisely, whether reimbursements received from ordering agencies
counted against the ceiling. Viewing the limitation as applicable to
expenses incurred for the agency itself, and noting the point from A-
99125, Nov. 21, 1938, that Economy Act transactions do not serve to
increase or decrease the performing agency's appropriation, the
decision said no. Absent evidence of a contrary intent, the rationale
of 31 Comp. Gen. 190 would presumably apply as well to other types of
limitations on the performing agency.
(5) Accountability issues:
A payment to another federal agency differs from a payment to a
private party in that an overpayment or erroneous payment to another
agency does not result in an actual loss of funds to the United
States. 24 Comp. Gen. 851, 853 (1945); B-156022, Apr. 28, 1966; B-
116194, Oct. 5, 1953; B-44293, Sept. 15, 1944. As stated in 24 Comp.
Gen. at 853: "The question here presented does not involve the
discharge of a Government obligation to a non-Government agency or
individual where an excess payment might result in a loss to the
United States. In case of an overpayment by one department to another,
the matter can be adjusted upon discovery."
Consistent with this, the Economy Act includes in its payment
provision the statement that a "bill submitted or a request for
payment is not subject to audit or certification in advance of
payment." 31 U.S.C. § 1535(b). The language had appeared in various
places prior to the Economy Act, one example being the 1926 Navy
working fund statute noted in our introductory comments. While
research discloses no attempt to define "certification" for purposes
of these statutes, the term does have a plain and well-known meaning
in the payment context—the verification and endorsement of a payment
voucher by a certifying officer or other authorized official—normally
performed in advance of payment. See 31 U.S.C. § 3528. As the narrower
and more specific provision, the no advance certification language in
31 U.S.C. § 1535(b) would take precedence over the more general
certification requirements of 31 U.S.C. § 3528.
Thus, an ordering agency is not required to certify vouchers prior to
payment when making payment to another federal entity, whether in
advance or by reimbursement, in an Economy Act transaction.[Footnote
35] However, keeping in mind that the ordering agency "remains
accountable to the Congress for activities under appropriations made
to it" (46 Comp. Gen. 73, 76 (1966)), an agency could presumably, on a
voluntary basis, pass vouchers through some form of limited
certification process as an internal control device, at least as long
as it does not materially delay payment. Certainly the no audit or
certification language does not permit the agency to disregard the
preconditions set forth in 31 U.S.C. § 1535(a). 16 Comp. Gen. 3, 4-5
(1936). Of course, the "no advance certification" language has no
application to disbursements by a performing agency.
The preceding paragraphs presuppose a two-step payment process-—
payment by the ordering agency to the performing agency either
preceded or followed by obligation and payment by the performing
agency. There is an approach, described and approved in 44 Comp. Gen.
100 (1964), that consolidates these into a single step and effectively
removes the no advance certification language from consideration. In
that case, the former Department of Health, Education, and Welfare
(HEW) was performing Economy Act services for the Agency for
International Development (MD). Under the terms of the arrangement, MD
would establish appropriate fund limitations and HEW certifying
officers would certify vouchers directly against MD appropriations for
direct payment of costs incurred in performing, with HEW being
responsible for staying within the established fund limitations. Once
it was established that the agencies were agreeable to operating this
way, the primary legal obstacle was that certifying officers are
normally supposed to be employees of the agency whose funds they are
certifying. The solution was a slight bit of legerdemain that could be
referred to as "cross-certification." The ordering agency appoints the
performing agency's certifying officer as an officer or employee of
it, the ordering agency, without compensation, and then designates him
or her as one of its own certifying officers. Voila!
The concept of cross-certification has a number of applications in
situations where financial services are themselves the subject of an
Economy Act agreement. For example, the General Services
Administration (GSA) not infrequently enters into Economy Act "support
agreements" with smaller agencies, boards, or commissions to provide
administrative support services, including the processing of payment
vouchers. In 55 Comp. Gen. 388 (1975), GSA inquired as to the
potential liability of its certifying officers in such a situation.
The answer is that it depends on exactly what has preceded the GSA
certifying officer's actions. Certainly, GSA could provide full
certification under the agreement, in which event the GSA certifying
officer would be the equivalent of the HEW certifying officer in 44
Comp. Gen. 100. However, if an official of the client agency certifies
the voucher before it gets to GSA, GSA administrative processing is
not certification for purposes of the accountable officer laws, and
the GSA official will be liable only for errors made during his or her
final processing.
For temporary agencies, the support agreement may include the payment
of obligations after the agency has gone out of existence. However,
the "appointment without compensation" sleight-of-hand cannot possibly
be stretched to apply where the agency no longer exists. In such a
case, the GSA certifying officer can certify the voucher provided (1)
the agencies must have entered into an Economy Act agreement while the
client agency was still "alive," (2) the agreement must expressly
authorize GSA to perform this function, and (3) the debt in question
must have been incurred prior to the client agency's expiration. 59
Comp. Gen. 471 (1980).
The cross-certification concept has also found overseas applications.
For example, State Department officials may perform certifying and
disbursing functions for military departments overseas, charging
payments directly to the applicable military appropriations. 44 Comp.
Gen. 818 (1965); 22 Comp. Gen. 48 (1942). Similarly, when the
Department of Education was created and took over responsibility for
the Defense Department's Overseas Dependents' Schools, Education
wanted to retain Defense's financial support services which had been
in place for decades. It could accomplish this with an Economy Act
agreement, applying guidance from decisions such as 44 Comp. Gen. 100
and 55 Comp. Gen. 388. B-200309-0.M., Apr. 3, 1981.
Anyone processing payments for the Defense Department will sooner or
later run into a confidential "emergency or extraordinary expense"
payment. In a 1993 case, a State Department certifying officer in
Haiti asked whether he could properly certify a voucher for
unspecified "emergency or extraordinary" expenses where nobody would
furnish supporting documentation or tell him what the money was for.
Under 10 U.S.C. § 127, all that is required is a certification of
confidentiality by an authorized military official. The State
Department official could not question that certification. Under these
circumstances, the State Department certifying officer's
"certification"—certifying merely that the payment was being charged
to the emergency expense appropriation for that fiscal year—was little
more than "subsequent administrative processing" as discussed in cases
like 55 Comp. Gen. 388. 72 Comp. Gen. 279 (1993).
Fiscal services provided under an Economy Act agreement, in
appropriate circumstances, can include disbursing cash from an imprest
fund. The fact that the cashier is disbursing another agency's money
has no effect on accountability or liability. 65 Comp. Gen. 666, 675-
77 (1986).
As discussed in section A.4 of this chapter, agencies are increasingly
relying on the contracts and contracting services of other agencies.
As a result, authority for contract oversight and administration is
often delegated among multiple agencies. The ordering agency, however,
ultimately remains accountable for the use of its funds. GAO,
Department of Energy, Office of Worker Advocacy: Deficient Controls
Led to Millions of Dollars in Improper and Questionable Payments to
Contractors, GAO-06-547 (Washington, D.C.: May 31, 2006). The
Department of Energy had entered into an interagency agreement with
the Space and Naval Warfare Systems Center, New Orleans (SSC NOLA) to
obtain a contractor, but had not established adequate controls over
payments to the contractors, which led to millions of dollars in
improper and questionable payments. GAO stated that while
responsibility for review and approval of invoices rested with the
performing agency, Energy, as the ordering agency, must ensure that
the performing agency carried out proper oversight. Id. at 43. See
also GAO, Federal Bureau of Investigation: Weak Controls over Trilogy
Project Led to Payment of Questionable Contractor Costs and Missing
Assets, GAO-06-306 (Washington, D.C.: Feb. 28, 2006) (interagency
agreement under authority other than the Economy Act).
d. What Work or Services May Be Performed:
(1) Details of personnel:
A very common type of interagency service is the loan or detail of
personnel. A detail is "the temporary assignment of an employee to a
different position for a specified period, with the employee returning
to regular duties at the end of the detail." 64 Comp. Gen. 370, 376
(1985). Some of the earliest administrative decisions deal with
details of personnel.
In 14 Comp. Dec. 294 (1907), the Comptroller of the Treasury was asked
to advise the Secretary of the Treasury on a proposal to loan an
employee to another agency, with the "borrowing agency" to reimburse
only the employee's travel and incidental expenses, but not basic
salary. The Comptroller knew what the answer should be: "If these were
questions of first impression I would be impelled to answer each of
them in the negative, because of that provision of the statute [31
U.S.C. § 1301(a)] which requires all appropriations to be used
exclusively for the purposes for which made." 14 Comp. Dec. at 295.
However, he continued, "they are not questions of first impression."
Id. The practice had developed in the executive branch of loaning
employees without reimbursement except for extra expenses incurred on
account of the detail. This practice had been around for so long,
according to the Comptroller, that it was virtually etched in stone.
Id. at 295-96. As long as the agency could spare the employee for the
requested time, it would be:
"in the interest of good government and economy to so utilize his
services. His regular salary would be earned in any event, and in all
probability without rendering in his own Department adequate services
therefor. Therefore reimbursement has never, to my knowledge, been
made on such details for regular salaries. But where additional
expenses have accrued because of such detail such expenses have always
been reimbursed to the regular appropriation from which originally
paid ...." Id. at 296. This rationale was quite remarkable. Subsequent
comptrollers obviously struggled with the rationale's weakness and
were careful not to expand the rule of the 1907 case. Thus, if the
loaning agency had to employ someone else to do the detailed
employee's job while he was gone, the salary was reimbursable. 22
Comp. Dec. 145 (1915). A 1916 case, 23 Comp. Dec. 242, soundly
attacked the rationale of 14 Comp. Dec. 294, specifically the
assumption that the employee "would have remained idle if he had not
been loaned," 23 Comp. Dec. at 245, and came close to throwing it out,
but did not. Early GAO decisions failed to seize the opportunity but
instead adhered to the "no reimbursement" rule. E.g., 6 Comp. Gen. 217
(1926).[Footnote 36]
The 1932 enactment of the Economy Act provided the vehicle for change,
but it was slow to implement. It was quickly recognized that the
Economy Act authorized fully reimbursable details of personnel. 13
Comp. Gen. 234 (1934). However, as with the first round of Economy Act
decisions in other contexts, the early decisions held that agencies
had a choice. If they chose not to enter into a written Economy Act
agreement expressly providing for full reimbursement, they could
continue to operate under the old rules. Id. at 237. The question of
how you could have nonreimbursable details in light of 31 U.S.C. §
1301(a) never went away but, like a stubborn weed in the garden, the
"informal accommodation" approach survived (e.g., B-182398, Mar. 29,
1976; B-30084, Nov. 18, 1942), and was reaffirmed as late as 59 Comp.
Gen. 366 (1980).
If enactment of the Economy Act was the first shoe dropping, the
second shoe did not drop until 64 Comp. Gen. 370 (1985). After
reviewing the prior decisions and the legislative history of the
Economy Act, the Comptroller General said in 1985 what the Economy Act
probably thought it was saying in 1932, and certainly what the
Comptroller of the Treasury really wanted to say in 1907:
"Although Federal agencies may be part of a whole system of
Government, appropriations to an agency are limited to the purposes
for which appropriated, generally to the execution of particular
agency functions. Absent statutory authority, those purposes would not
include expenditures for programs of another agency. Since the
receiving agency is gaining the benefit of work for programs for which
funds have been appropriated to it, those appropriations should be
used to pay for that work. Thus, a violation of the purpose law does
occur when an agency spends money on salaries of employees detailed to
another agency for work essentially unrelated to the loaning agency's
functions."
64 Comp. Gen. at 379. Accordingly, absent specific statutory authority
to the contrary, details of personnel between agencies or between
separately funded components of the same agency may not be done on a
nonreimbursable basis, but must be done in accordance with the Economy
Act, which requires full reimbursement of actual costs, one of which
is the employee's salary. The fact that the loaning agency pays the
employee from a revolving fund changes nothing; a nonreimbursable
detail still creates an unauthorized augmentation of the receiving
agency's appropriation as well as violates the purpose limitations of
31 U.S.C. § 1301(a). B-247348, June 22, 1992.
Apart from details which may be nonreimbursable under some specific
statutory authority, the decisions recognize two exceptions. First,
nonreimbursable details are permissible "where they involve a matter
similar or related to matters ordinarily handled by the loaning agency
and will aid the loaning agency in accomplishing a purpose for which
its appropriations are provided." 64 Comp. Gen. at 380. Second,
details "for brief periods when ...the numbers of persons and cost
involved are minimal" and "the fiscal impact on the appropriation is
negligible" do not require reimbursement. Id. at 381. GAO has declined
to attempt to specify the limits of the de minimis exception but it
could not, for example, be stretched to cover a detail of 15-20
people. 65 Comp. Gen. 635 (1986).
The Department of Justice's Office of Legal Counsel has taken
essentially the same position as 64 Comp. Gen. 370. 13 Op. Off. Legal
Counsel 188 (1989) (United States Attorney's Office for the District
of Columbia must reimburse Defense Department for year-long detail of
10 lawyers); 12 Op. Off. Legal Counsel 233 (1988) (detail of Internal
Revenue Service agents to investigate tax fraud for an Independent
Counsel could be nonreimbursable under the commonality of functions
exception). While the OLC's approach and analysis are otherwise the
same, it has misgivings over the propriety of a de minimis exception.
13 Op. Off. Legal Counsel at 190.
While the agreement should normally precede the detail, an agreement
entered into after the detail has started can include the services
already performed. B-75052, May 14, 1948. Reimbursement should include
accrued annual and sick leave. 17 Comp. Gen. 571 (1938). It should
also include travel expenses incurred in connection with the detail
work 15 Comp. Gen. 334 (1935); B-141349, Dec. 9, 1959. If the detail
is to be for a substantial period of time, the loaning agency should
change the employee's official duty station to the location of the
detail and then restore it when the assignment is done. If applicable
to the distances involved, the employee may then become entitled to
allowances incident to a permanent change of station, such as shipment
of household goods. 24 Comp. Gen. 420 (1944). A case where this was
done is B-224055, May 21, 1987.
If interagency details are authorized under statutory authority other
than the Economy Act, whether or not they are reimbursable will
naturally depend on the terms of the statute. A statute which is
silent on the issue will generally be construed as not precluding
reimbursement unless a contrary intent is manifested. For example, 5
U.S.C. § 3341 authorizes intra-agency details within the executive
branch for renewable periods of not more than 120 days. The statute
says nothing about reimbursement. GAO regards this as merely providing
authority to make the details and not as exhibiting an intent that
they be nonreimbursable. 64 Comp. Gen. at 381-82. The same applies to
5 U.S.C. § 3344 which authorizes detailing of administrative law
judges but is similarly silent on the issue of reimbursement. 65 Comp.
Gen. 635 (1986). The Justice Department has said the same thing with
respect to "temporary reassignments" under the Anti-Drug Abuse Act of
1988.[Footnote 37] 13 Op. Off. Legal Counsel 188 (1989). An example of
a statute which addresses reimbursement is 3 U.S.C. § 112, which
authorizes details of executive branch employees to various White
House offices and requires reimbursement for details exceeding 180
calendar days in any fiscal year. See 64 Comp. Gen. at 380; B-224033-
0.M., May 26, 1987.
A different type of statute, discussed and applied in B-247348, June
22, 1992, is 44 U.S.C. § 316, which prohibits details of Government
Printing Office employees "to duties not pertaining to the work of
public printing and binding ...unless expressly authorized by law."
Finally, it is not uncommon for agencies to detail employees to
congressional committees. Two 1942 decisions, 21 Comp. Gen. 954 and 21
Comp. Gen. 1055, addressed this situation and held essentially that
the details could be nonreimbursable if the committee's work for which
the detail was sought could be said to help the agency accomplish some
purpose of its own appropriations. These cases were the source of the
"commonality of function" exception which 64 Comp. Gen. 370 applied
across the board. See 64 Comp. Gen. at 379. The second 1942 decision
emphasized that "mutuality of interest" is not enough:
"It must appear that the work of the committee to which the detail or
loan of the employee is made will actually aid the agency in the
accomplishment of a purpose for which its appropriation was made such
as by obviating the necessity for the performance by such agency of
the same or similar work."
21 Comp. Gen. at 1058. A 1988 decision applied these precedents to
conclude that the Treasury Department could detail two employees to
the House Committee on Government Operations on a nonreimbursable
basis to work with the committee on the oversight and review of the
FTS-2000 telecommunications project. B-230960, Apr. 11, 1988.
As to reimbursable details, 2 U.S.C. § 72a(f) provides that "no
committee [of the Congress] shall appoint to its staff any experts or
other personnel detailed or assigned from any department or agency of
the Government, except with the written permission of" specified
committees. The Justice Department's Office of Legal Counsel (OLC)
regards this as implicit authority for reimbursable details of
executive branch personnel to congressional committees, the theory
being that a restriction like 2 U.S.C. § 72a(f) would be rather
pointless if the authority did not already exist. 12 Op. Off. Legal
Counsel 184, 185 (1988). See also 1 Op. Off. Legal Counsel 108 (1977).
However, OLC cautions that agencies should have due regard for
potential ethics and separation-of-powers concerns. 12 Op. Off. Legal
Counsel at 186-89. GAO has pointed out that 2 U.S.C. § 72a(f) is a
limitation on the authority of congressional committees to appoint
staff assigned or detailed to the committee, not a limitation on
agencies to assign or detail employees to committees. B-129874, Jan.
4, 1971. Accordingly, the responsibility for compliance with section
72a(f) rests with the committee making the request for personnel
rather than with the loaning agency. Id.
GAO details its own personnel to congressional committees under
various authorities. A provision in GAO's organic legislation, 31
U.S.C. § 712(5), requires the agency to provide requested help,
presumably including loans of personnel, to committees "having
jurisdiction over revenue, appropriations, or expenditures." Details
under this provision are not required to be reimbursed. B-129874, Jan.
4, 1971; B-130496-0.M., Mar. 13, 1957. In addition, GAO has applied
the two 1942 decisions, 21 Comp. Gen. 954 and 21 Comp. Gen. 1055, to
itself. B-41849, May 9, 1944; B-130496- 0.M., Mar. 13, 1957. Another
statute, 31 U.S.C. § 734, provides that the Comptroller General "may
assign or detail [GAO employees] to full-time continuous duty with a
committee of Congress for not more than one year." A part of this
statute which required reimbursement by the Senate was deleted in the
1985 Legislative Branch Appropriations Act[Footnote 38] "to put the
Senate on the same basis as the House in this regard." S. Rep. No. 98-
515, at 15 (1984).
(2) Loans of personal property:
Another area where the Economy Act wrought considerable change was
reimbursement for interagency loans of equipment and other personal
property. Prior to 1932, there was no authority to charge another
government agency for the use of borrowed property. E.g., 9 Comp. Gen.
415 (1930). Also, the borrowing agency lacked authority to use its
appropriations to repair the borrowed property unless for its own
continued use, the theory being that the property belonged to the
United States and not to any individual agency. To some extent at
least, the Economy Act amounts to "tacit recognition of property
ownership rights in the various departments and agencies possessing
such property." 30 Comp. Gen. 295, 296 (1951).
Thus, one early case held that the Economy Act provided sufficient
authority for the old Civil Aeronautics Board to lease surplus
aircraft from another government agency. 24 Comp. Gen. 184 (1944). It
also authorized the Soil Conservation Service to borrow a shallow
draft river boat from the Bureau of Land Management for certain work
in Alaska. 30 Comp. Gen. 295 (1951). The logic of the 1951 decision is
simple. If the Economy Act authorizes the permanent transfer of
equipment, and it unquestionably does, then it must also authorize
"lesser transactions between departments on a temporary loan basis."
Id. at 296. Another boat was involved in 38 Comp. Gen. 558 (1959). The
Maritime Administration wanted to loan a tug to the Coast Guard and
asked if the transaction was within the scope of 24 Comp. Gen. 184.
Sure it was, GAO replied. There was no "essential difference" between
the lease in the 1944 case and the loan in this one (38 Comp. Gen. at
559), and therefore no reason not to follow 24 Comp. Gen. 184 and 30
Comp. Gen. 295.
That the Economy Act authorizes interagency loans of personal property
has been confirmed in several judicial decisions, a rare example of
the Economy Act coming before the courts in any context. The cases
arose out of the 1973 occupation of the village of Wounded Knee, South
Dakota, by members of a group called the American Indian Movement.
Various law enforcement agencies had been called in, including the
United States marshals and the Federal Bureau of Investigation. The
Army provided substantial amounts of equipment, such as sniper rifles,
protective vests, and armored personnel carriers. Defendants charged
with obstructing law enforcement officers tried to argue that the
Army's involvement violated 18 U.S.C. § 1385, the so-called Posse
Comitatus Act, which prohibits use of the Army or Air Force for law
enforcement unless specifically authorized. With one exception, the
courts held that the Posse Comitatus Act applies to personnel, not to
equipment, and in any event providing the equipment was authorized by
the Economy Act. United States v. McArthur, 419 F. Supp. 186, 194
(D.N.D. 1975), aff'd, 541 F.2d 1275 (8th Cir. 1976), cert. denied, 430
U.S. 970 (1977); United States v. Red Feather, 392 F. Supp. 916, 923
(D.S.D. 1975); United States v. Jaramillo, 380 F. Supp. 1375, 1379 (D.
Neb. 1974), appeal dismissed, 510 F.2d 808 (8th Cir. 1975). As the
McArthur court noted, borrowing "highly technical equipment ...for a
specific, limited, temporary purpose is far preferable" to having to
maintain the equipment permanently. McArthur, 419 F. Supp. at 194. One
court disagreed, holding that the Economy Act applies "only to sales,
and not to loans." United States v. Banks, 383 F. Supp. 368, 376
(D.S.D. 1974). However, Banks goes against the clear weight of
authority in this respect.[Footnote 39]
The reimbursement of actual costs is somewhat different for loans of
personal property than for other Economy Act transactions. If an
agency loans a piece of equipment to another agency and the borrowing
agency returns it in as good condition as when loaned, the loaning
agency has not as incurred any direct costs. Thus, the decision at 24
Comp. Gen. 184 (lease of surplus aircraft) said merely that the
borrowing agency should agree "to reimburse the department for the
cost, if any, necessarily incurred by it in connection with such
transaction," plus repair costs. Id. at 186. Depreciation is an
identifiable indirect cost, but recovery of depreciation is normally
inappropriate under the standard of 57 Comp. Gen. 674 (1978),
previously discussed in section B.1.c(2) of this chapter. Reimbursable
costs (or costs the borrowing agency should pay directly in the first
instance) include such things, to the extent applicable, as
transportation, activation, operation, maintenance, and repair. See,
e.g., 38 Comp. Gen. 558, 560 (1959). Another permissible item of cost
is a refundable deposit on containers. B-125414, Sept. 30, 1955. An
important expense which the borrowing agency should assume under the
agreement is the cost of repairing and/or restoring the property so as
to return it to the lending agency in the same condition as when
borrowed. E.g., 30 Comp. Gen. 295 (1951).
While there is no payment for the bare use of the property, that is,
divorced from some cost actually incurred by one of the agencies, the
Economy Act should not be used for loans for indefinite periods which
amount to permanent transfers in disguise. The reason is that a
permanent transfer, while authorized under the Economy Act, requires
payment for the property. 59 Comp. Gen. 366, 368 (1980); 38 Comp. Gen.
558, 560 (1959). In 16 Comp. Gen. 730 (1937), for example, an agency
had loaned office equipment to another agency. When the borrowing
agency's need for the property continued to the point where the
lending agency had to replace it for its own use, the borrowing agency
paid for the equipment. Agencies desiring a permanent transfer without
reimbursement should seek statutory authority. 38 Comp. Gen. at 560.
A permanent transfer raises the question of how to value the property.
The same question arises when property loaned under the Economy Act is
totally destroyed. The decision at 16 Comp. Gen. 730 does not specify
how the amount of the payment was calculated. In a case where property
was destroyed, the question was whether value should be set at
acquisition value or the value of similar property being disposed of
as surplus property. GAO declined to choose, advising that the amount
to be billed "is primarily a matter for adjustment and settlement"
between the agencies concerned. B-146588, Aug. 23, 1961, at 2. In 25
Comp. Gen. 322 (1945), however, a case involving lost property, the
answer was zero. The parties could have provided for the situation in
an Economy Act agreement, except they did not enter into one. Once the
property was lost, "there existed no proper subject of a purchase or
sale," and, absent a prior agreement to that effect, the borrowing
agency's appropriations were not available to purchase nonexistent
property. Id. at 325.
(3) Common services:
It often makes sense, economically as well as operationally, to
provide certain common services centrally, procurement for example.
Centralization often occurs within larger agencies made up of
component bureaus or offices funded under separate appropriations. It
also occurs across government agencies, with one agency providing a
common service to other agencies.
How an agency that is made up of component bureaus or offices provides
common services within the agency depends primarily on its
appropriations structure. One approach is to appropriate specifically
for common services from a single, centralized appropriation. For
example, a department might receive an appropriation which is
available for certain specified departmentwide services such as
personnel, information resources management, and other necessary
expenses for management support services. Under this type of
structure, questions of reimbursement should not arise. Indeed,
requiring reimbursement from the component bureaus when Congress has
provided funding in the departmental appropriation would be improper.
B-202979-0.M., Sept. 28, 1981.
A different legislative approach is illustrated by 43 U.S.C. § 1467,
which establishes a working capital fund for the Interior Department
to be available for specified common services—reproduction (of
documents, we think), communication, supply, library, and health—plus
"such other similar service functions as the Secretary determines may
be performed more advantageously on a reimbursable basis." The
receiving components are required to reimburse the fund "at rates
which will return in full all expenses of operation, including
reserves for accrued annual leave and depreciation of equipment." Id.
Under this structure, services within the scope of the working fund
are provided centrally, but each component bureau must budget for its
own needs, much as agencies budget for and pay rent to the General
Services Administration.
If each bureau receives its own appropriations for support services
and there is no further statutory guidance, the agency may centralize
the provision of common services on a reimbursable basis under
authority of the Economy Act provided the reimbursements correspond to
the value actually received. B-308762, Sept. 17, 2007 (human capital
management, budget support, and systems maintenance); 70 Comp. Gen.
592, 595 (1991) (executive computer network); B-77791, July 23, 1948
(procurement of office supplies); B-202979-0.M., Sept. 28, 1981 (legal
services).
In 1962, the Bureau of the Census sought and received specific
authority to charge common services to any available appropriation,
provided the benefiting appropriation(s) reimbursed the financing
appropriation no later than the end of the fiscal year. Pub. L. No. 87-
489, 76 Stat. 104 (June 19, 1962). Other agencies sought similar
authority and GAO supported the enactment of governmentwide
legislation. See B-136318, Dec. 20, 1963. This authority is now found
at 31 U.S.C. § 1534, referred to as the "account adjustment statute,"
and is discussed in section B.2 of this chapter.
Agencies are also increasingly using common services provided by
another agency. In 2002, the Office of Management and Budget (OMB)
encouraged centralizing the provision of common goods and services
across agencies by introducing 24 initiatives to use technology to
eliminate redundant systems and improve the government's quality of
customer service for citizens and business.[Footnote 40] These
initiatives are referred to as Electronic Government or E-Gov
initiatives.[Footnote 41] Congress subsequently enacted the E-
Government Act of 2002, Pub. L. No. 107-347, 116 Stat. 2899 (Dec. 17,
2002), which, among other things, required agencies to support the E-
Gov initiatives and established the Office of Management and Budget's
(OMB) role in administrating the initiatives.
In order to facilitate centralization, OMB designated a number of
agencies as "centers of excellence.[Footnote 42] These centers
function as governmentwide service providers and make their services
available to other agencies on a fee-for-service basis.[Footnote 43]
Whether an agency will use the Economy Act or some other specific
statutory authority to enter into an agreement to purchase these
common goods and services will depend on the statutory authority of
the performing agency.
Agencies also obtain common goods and services through franchise funds
and other similar intragovernmental revolving funds that provide
services governmentwide on a fee-for-service basis. These types of
funds are discussed in section C.3.c of this chapter.
(4) Other examples:
As summarized earlier, the subject of an Economy Act transaction must
be something the ordering agency is authorized to do and the
performing agency is in a position to provide. Also, there must be
direct benefit to the paying agency. B-16828, May 21, 1941; B-170587-
0.M., Oct. 21, 1970. Apart from these general prescriptions, the
Economy Act makes no attempt to define the kinds of work, services, or
materials that can be ordered. This is in apparent recognition of the
great diversity of tasks and functions one encounters in the federal
universe, and the fact that these tasks and functions are subject to
change over time. The legislative history gives some illumination:
"For illustration, the Navy maintains a highly specialized and trained
inspection service. Why should not this personnel, when available, be
used by other departments to inspect materials and supplies ordered to
make certain that such materials comply strictly with specifications?
Or if a department needs statistical work that can be more
expeditiously done by another department it should have the right to
call upon the agency especially equipped to perform the work. The
Bureau of Standards is a highly specialized agency and its equipment
and technical personnel should be made available to other services.
Frequently the engineering staff of one department might be utilized
by another department to great advantage.
"The War and Navy Departments are especially well equipped to furnish
materials, work, and services for other departments....
"The Treasury Department, Department of Justice, Interior Department,
and Shipping Board have many vessels at sea. The Government navy yards
should be available to these whenever repairs or other work can be
done by the Navy Department as expeditiously and for less money than
the materials and services will cost elsewhere.
"Illustrations might be multiplied but the above are sufficient to
give a general idea of what may reasonably be expected under the
[bill]."
H.R. Rep. No. 72-1126, at 15-16 (1932).
The examples we offer here are cases in which the cited decision or
opinion either directly approved the proposed transaction (which does
not necessarily mean that it actually took place), or at least noted
it without further question in a context which can fairly be viewed as
implicit approval.
One situation we have already noted is the provision of administrative
support services. The Economy Act is used to enable the General
Services Administration (GSA) to provide certain support services to
smaller agencies. E.g., B-130961, Apr. 21, 1976 (Federal Election
Commission). In the case of a temporary agency or commission, the
agreement may authorize GSA to perform various "posthumous" functions
necessary for the liquidation of the agency's assets and liabilities.
E.g., B-210226, May 28, 1985. However, there is no authority for
anyone to do anything until the agency actually comes into existence.
B-230727, Aug. 1, 1988 (legislative authority would be necessary to
enable GSA or Treasury or anyone else to accept or act as custodian of
private funds donated for use of commission prior to its statutory
effective date).
Another group of cases involves the use of federal facilities (real
property) of one type or another. A long line of decisions predating
the Federal Property and Administrative Services Act of 1949, ch. 288,
63 Stat. 377, 380 (June 30, 1949), established the proposition that an
agency could, under authority of the Economy Act, make surplus space
available to other agencies. For government-owned buildings, the
amount charged could include special services such as utilities and
janitor services, but not rent. 26 Comp. Gen. 677 (1947); B-70978,
Dec. 5, 1947. For leased premises, the charge could include a
proportionate share of the rent. 27 Comp. Gen. 317 (1947); 24 Comp.
Gen. 851 (1945); B-74905, May 13, 1948; B-48853, Apr. 21, 1945. It
could also include alterations made by the agency holding the lease to
adapt the space for use by the new tenant. B-72269, Jan. 16, 1948.
Agencies subject to the Federal Property Act now obtain their space
requirements through GSA and no longer need to rely on the Economy
Act. However, in situations not covered by the Federal Property Act,
the old cases continue to apply. E.g., 43 Comp. Gen. 687 (1964). That
case involved a proposal to make space in leased Postal Service
facilities available to the Customs Service for it to perform its mail
examining responsibilities. Since the Postal Service has its own space
acquisition authorities, and since GSA regarded Customs' space as
"special purpose space" and hence beyond GSA's responsibility, the
solution was an Economy Act agreement based on the precedent of 24
Comp. Gen. 851 and its progeny.
Similarly, when the Coast Guard needed temporary residential
facilities at an airport in Alaska pending construction of permanent
quarters, it could obtain them from the Federal Aviation
Administration under the Economy Act. B-150530, Jan. 28, 1963. See
also B-14855, Feb. 8, 1941 (agency can store and service another
agency's motor vehicles if it can do so at less cost than private
sources).
Medical services and facilities are not treated any differently. Thus,
the Department of Veterans Affairs can make its hospitals available to
nonveteran beneficiaries of other agencies, such as the Public Health
Service, on a space-available basis, but cannot "bump" its own veteran
beneficiaries in order to put itself in a position to do so. B-156510,
Feb. 23, 1971; B-156510, June 7, 1965. See also B-133044-0.M., Aug.
11, 1976; B-183256-0.M., Dec. 22, 1975 (Economy Act authorizes VA to
provide medical services to persons eligible for medical assistance
from the Defense Department). A variation is B-171924, Apr. 7, 1971,
holding that an Air Force hospital on Clark Air Force Base in the
Philippines could provide services to a child struck by a Coast Guard
vehicle, to be reimbursed by the Coast Guard under the Economy Act.
[Footnote 44] Another medical case is B-62540, Feb. 12, 1947, holding
that the Economy Act was the appropriate authority for using agencies
to pay proportionate shares of the operating cost of an emergency room
run by the Public Health Service in a federal office building.
Another broad area in which the Economy Act is particularly useful is
the occasional need by one agency of something another agency performs
or produces on a regular basis. One example noted earlier is 13 Comp.
Gen. 138 (1933), in which a government corporation authorized to issue
securities sought help from what is now the Bureau of the Public Debt.
Similarly, when Congress directed the Treasury Department to sell a
portion of the nation's gold reserves, Treasury entered into an
Economy Act agreement with the General Services Administration to
conduct the sale. B-183192, July 17, 1975. Again, when the Defense
Department wanted to conduct examinations of credit unions at U.S.
military installations overseas, it logically turned to what is now
the National Credit Union Administration, which routinely conducts
similar examinations of credit unions stateside. B-158818, May 19,
1966. Other examples in this family are 54 Comp. Gen. 624, 630 (1975)
(Secret Service protection for government officials other than those
statutorily entitled to receive it); B-192875, Jan. 15, 1980 (hearing
examiners provided to other agencies by the Equal Employment
Opportunity Commission in discrimination complaints); B-98216, Oct. 2,
1950 (purchase by Defense Department of surplus potatoes from
Department of Agriculture); B-95094, June 2, 1950 (technical services
by National Bureau of Standards for the Bureau of the Mint).
Finally, we note a few miscellaneous cases, primarily to try to give
some idea of the variety of transactions that can fit under the
Economy Act's umbrella. The Economy Act has been used in, or at least
was recognized as available for, the following situations:
* Sale of arms by Defense Department to Central Intelligence Agency
for use in covert operations. B-225832-0.M., Feb. 25, 1987.
* Civic/humanitarian assistance activities by the Defense Department
overseas. 63 Comp. Gen. 422, 443-46 (1984).
* Agreement between Veterans Administration and Navy whereby Navy
would execute and superintend a contract for the construction of the
Corregidor-Bataan Memorial. 46 Comp. Gen. 73 (1966).
* Purchase by Walter Reed Army Medical Center of motion picture
supplies and services from Department of Agriculture. B-140652, Nov.
9, 1959.
* Agreement between Bureau of Land Management and Fish and Wildlife
Service for "control of predatory animals and rodents" on public
domain lands. A-82570, B-120739 Aug. 21, 1957.
* Services of National Park Service in planning and supervising
installation of equipment in Franklin D. Roosevelt Library. B-64762,
Mar. 31, 1947.
Also, a congressional subcommittee study concluded that agencies could
and should share federal laboratories under the Economy Act if no more
specific authority was available. Subcommittee on Science, Research,
and Development, House Committee on Science and Astronautics,
Utilization of Federal Laboratories, H.R. Print No. H1203 (1968). See
also 48 C.F.R. § 35.017(a)(2) ("a Federally Funded Research and
Development Center may perform work for other than the sponsoring
agency under the Economy Act ... when the work is otherwise not
available from the private sector").
e. What Work or Services May Not Be Performed:
Apart from the restrictions specified in the Economy Act itself,
limitations on what can be done under the Economy Act derive largely
from common sense and axiomatic requirements of the appropriations
process. One rule frequently encountered is that the Economy Act may
not be used for services which the performing agency is required by
law to provide and for which it receives appropriations. As the
Department of Justice has noted, this rule "is required in order to
prevent agencies from agreeing to reallocate funds between themselves
in circumvention of the appropriations process." 9 Op. Off. Legal
Counsel 81, 83 (1985). See also 61 Comp. Gen. 419, 421 (1982)
(charging the receiving agency "would compromise the basic integrity
of the appropriations process" and would amount to a "usurpation of
the congressional prerogative").
For example, if a GAO audit enables an agency to recover overcharges,
the amounts recovered may not be paid over to GAO to help defray the
cost of conducting the audit. B-163758-0.M., Dec. 3, 1973. The reason
is that conducting audits is GAO's job and it receives appropriations
for that purpose. Similarly, the Social Security Administration is not
authorized to charge the Railroad Retirement Board for information it
is required to furnish under 45 U.S.C. § 231f(b)(7). 44 Comp. Gen. 56
(1964).[Footnote 46]
Nor may the Justice Department, which is required by law to conduct
the government's litigation and which receives appropriations for its
litigation functions, pass the costs on to the "client agency." 16
Comp. Gen. 333 (1936). However, while Justice must conduct the
litigation, the client agency typically provides a variety of support
to the Justice Department, and to that extent Economy Act agreements
are possible, even extending to the hiring of additional attorneys,
provided that the work for which the client agency is paying is work
it is authorized to do itself. 9 Op. Off. Legal Counsel 81 (1985); 2
Op. Off. Legal Counsel 302 (1978). The types and extent of support
depend in part on the breadth of the client agency's own statutory
authority. 2 Op. Off. Legal Counsel at 305-06.
If a service is required to be provided on a nonreimbursable basis,
the inadequacy of the providing agency's appropriations is legally
irrelevant and does not permit reimbursement by the receiving agency.
18 Comp. Gen. 389, 391 (1938). If the service is authorized but not
required, there may be circumstances under which reimbursement is
permissible. An internal memorandum, B-194711-0.M., Jan. 15, 1980,
discussed one such situation. Each agency is required by 44 U.S.C. §
3102 to have a records management program. In addition, the National
Archives and Records Administration (NARA) has oversight and
assistance responsibilities, which include conducting surveys and
inspections. When NARA is performing its oversight function, or
conducts a study on its own initiative, the general rule applies and
NAREs appropriations must bear the cost. However, if an agency wants
to conduct a study of its own program and asks NARA to do it, and
NARA's appropriations are insufficient, nothing precludes a
reimbursable arrangement under the Economy Act. Also, as discussed in
B-165117-0.M., Dec. 23, 1975, if Congress has provided appropriations
for a particular activity for an initial start-up period, and later
discontinues funding with the intent that the activity become self-
sufficient, reimbursement under the Economy Act is authorized.
An agency providing services over and above what it is required by law
to provide may invoke the Economy Act to recover the actual costs of
the nonrequired services. For example, 44 U.S.C. § 1701 requires the
Government Printing Office to provide addressing, wrapping, and mailing
services for certain public documents. It cannot charge for these
required services. 29 Comp. Gen. 327 (1950). However, section 1701
specifically excludes certain documents from its mandate. Since GPO
was also in a position to provide those services in an efficient and
economical manner with respect to the excluded documents, it could do
so on a reimbursable basis under the Economy Act. Id. Similarly, the
Secret Service is statutorily required to provide protective services
to specified officials. Officials other than those specified may
obtain the services only by "purchasing" them under the Economy Act.
54 Comp. Gen. 624 (1975), modified on other grounds, 55 Comp. Gen. 578
(1975).
A variation worthy of note occurred in 34 Comp. Gen. 340 (1955). A
series of decisions in the early 1950s had held that the Patent and
Trademark Office could not charge fees to other government agencies
for services performed in administering the patent and trademark laws.
33 Comp. Gen. 559 (1954), modified, 34 Comp. Gen. 340 (1955); 33 Comp.
Gen. 27 (1953); 32 Comp. Gen. 392 (1953). In 34 Comp. Gen. 340, the
Army had entered into an agreement with the United Kingdom for a
royalty-free license to an invention, with the Army to bear all costs
associated with filing and prosecuting a patent application in the
United States. GAO agreed with the Patent Office that the rule need
not apply because the services were not really being rendered to
another government agency. The fees were essentially part of the
consideration for the license. The law was changed in 1965[Footnote
46] to authorize the Patent Office to charge fees to other government
agencies, subject to discretionary waiver in the case of an
"occasional or incidental request." 35 U.S.C. § 41(e). While the
payment in 34 Comp. Gen. 340 would now be authorized under the
statute, the approach of that decision could still be useful in
analogous situations.
Closely related in both concept and rationale is the principle that an
agency may not transfer administrative functions to another agency
under the aegis of the Economy Act. Even under the Economy Act's 1920
predecessor, the Comptroller of the Treasury had held that "a
particular duty placed on one branch of the Government by enactment of
Congress or going to the essence of its existence" could not be
transferred to another agency without statutory authority. 27 Comp.
Dec. 892, 893 (1921). See also 8 Comp. Gen. 116 (1928). The rule
continued under the Economy Act, its rationale being stated as follows
in B-45488, Nov. 11, 1944, at 3: " Pub. L. No. 89-83, 79 Stat. 259
(July 24, 1965).
"The theory ...is that there is inherent in a grant of authority to a
department or agency to perform a certain function, and to expend
public funds in connection therewith, a responsibility which, having
been reposed specifically in such department or agency by the
Congress, may not be transferred except by specific action of the
Congress. The soundness of this principle is without question ...."
The difficulty in applying the rule is that no one has ever attempted
to define the admittedly vague term "administrative function" in this
particular context, although as the rule has evolved a definition is
arguably unnecessary. Certainly it would prohibit transfer of an
entire appropriation. Decision of July 7, 1923 (no file designation),
23A MS 101, quoted in 8 Comp. Gen. 116, 118 (1928). That decision
stated the following rather fundamental proposition: "The intent of
the Congress in requiring estimates and the making of appropriations
thereon is the imposition of a duty upon the department to which [the
appropriations are] made to act and be responsible for the
expenditures made under the appropriations."
The rule has been held to embrace functions with respect to which an
agency has authority to make "final and conclusive" determinations.
Thus, the Veterans Administration could not transfer to the Federal
Housing Administration management and disposal functions with respect
to property acquired incident to its credit programs. B-156010-0.M.,
Mar. 16, 1965. Equally unauthorized is the transfer of debt collection
responsibilities under the Federal Claims Collection Act, 31 U.S.C. §§
3701, 3711. While debt collection services can be provided under the
Economy Act, they may not include the taking of final compromise or
termination action. B-117604(7)-0.M., June 30, 1970. Both of these
cases involve functions subject to final and conclusive authority. See
also 17 Comp. Gen. 1054 (1938) holding, in a case predating the
Federal Claims Collection Act, that there was no authority for an
agency to transfer its debt collection responsibilities. In any event,
while final and conclusive authority will most likely bring a function
under the rule, it is not an indispensable prerequisite.
Earlier decisions addressing the transfer of administrative functions
seemed to emphasize the permanency of the proposed transfer. E.g., 14
Comp. Gen. 455 (1934). However, later decisions recognize the crucial
factor as who ends up exercising ultimate control. The first case to
adopt this approach appears to have been B-45488, Nov. 11, 1944. The
Civil Service Commission proposed, at least for the duration of
wartime conditions, to advance to the Army funds from the Civil
Service Retirement and Disability Fund. The Army would hold the money
in a trust account and treat it as a working fund from which to make
refunds of retirement deductions to certain separating civilian
employees. All concerned seemed to accept, as a starting premise, that
the proposal amounted to performance by the Army of an administrative
function of the Civil Service Commission. However, the proposal also
contemplated that the Commission would audit all cases of refunds, and
this, said the decision, "must be considered as a retention of a
certain degree of supervision and control." Id. at 5. Thus, while the
Army would be actually making the refunds, "responsibility for the
performance of the function generally would remain" in the Commission.
Id. Therefore, the proposal was authorized under the Economy Act.
In sum, the lesson of B-45488 is that, for purposes of applying the
administrative function rule, the allocation of ultimate
responsibility is more important than becoming immersed in a semantic
morass over what does or does not constitute an administrative
function. An agency can acquire services under the Economy Act, but
cannot turn over the ultimate responsibility for administering its
programs or activities.
f. Contracting Out and "Off-Loading:"
As originally enacted, the Economy Act made no provision for the
performing agency to contract out all or any part of its performance.
Indeed, the law authorized only work or services the performing agency
was "in a position" to provide, and GAO construed this as precluding
performance by use of contracts with third parties. 20 Comp. Gen. 264
(1940); 19 Comp. Gen. 544 (1939). Notwithstanding this limitation, it
soon became clear that the use of commercial contracts in performing
Economy Act orders could in certain circumstances be advantageous.
In 1942, Congress considered legislation which would have amended the
Economy Act to authorize all agencies to use private contracts in
performing Economy Act orders. GAO found the proposal unobjectionable.
See B-18980, Feb. 13, 1942. However, the legislation as enacted (Act
of July 20, 1942, ch. 507, 56 Stat. 661) authorized contracting out
only if the ordering agency was one of five specified agencies—Army,
Navy, Treasury, Federal Aviation Administration, and Maritime
Administration. The only explanation appearing in any printed
legislative history materials was some concern over "trading going on
among too many departments." See 52 Comp. Gen. 128, 133 (1972), citing
88 Cong. Rec. 5622 (1942) (remarks of Mr. May). This remained the law
for 40 years.
In a 1972 decision, however, GAO advised the Environmental Protection
Agency (EPA) that the Economy Act did not inhibit the joint funding of
contracts to carry out mutually beneficial projects where EPA was
statutorily authorized to cooperate with the other participating
agencies. The decision further noted that the Economy Act would not
preclude EPA from entering into mutually beneficial projects with
other agencies, which might in turn use contracts as part of their
performance. 52 Comp. Gen. 128, 134 (1972).
In 1982, Congress again amended the Economy Act, this time authorizing
all agencies to obtain goods and services by contract in fulfilling
Economy Act orders. Pub. L. No. 97-332, 96 Stat. 1622 (Oct. 15, 1982).
The legislative history described some of the potential advantages:
"Since 1942, when the Economy Act was amended to allow agencies to
contract out for goods and services on behalf of only 5 specified
agencies, numerous areas of agency expertise have been developed. With
the authority extended to allow agencies to contract out on behalf of
any other Federal agency, an agency having only an occasional
requirement in a specific area could turn to an agency with
substantial experience in the area for assistance. This would
eliminate the need to duplicate the requisite expertise. For instance,
if the [then] Immigration and Naturalization Service has a requirement
for night sensors for border protection, that agency could seek
assistance from the Department of Defense which presumably has already
developed expertise in that area. Or, if the Coast Guard had a
requirement for navigational equipment, it could seek assistance from
the Department of the Navy to acquire such, rather than duplicate
research and development already under way or completed. Various
statutes now permit such interagency requisitioning in specific areas;
however, removal of the general restriction allows the maximum
utilization by the Government of valuable expertise developed over the
years in the various Government agencies. In addition, such generally-
available authority creates the potential for wider use by the
Government of quantity discounts or other benefits which may not have
been available in the past. It will also permit an agency to use
another agency which has some, though not all, of the capability to do
the requisitioned work by allowing the requisitioned agency to simply
contract out the part of the work that it cannot do."
H.R. Rep. No 97-456, at 4 (1982).
The 1982 amendment changed the Economy Act in three ways. First, it
amended 31 U.S.C. § 1535(a)(3) to generally authorize performing
agencies to obtain ordered goods and services by contract, and deleted
the limitation to the five named agencies. This eliminated the
existing inhibition. Second, it amended 31 U.S.C. § 1535(a)(4)—the
"lower cost" determination quoted at the beginning of our coverage—to
replace the specific reference to competitive bids with a more general
reference to providing the goods or services simply "by contract." The
intent of this change was to permit the performing agency to use
whatever methods of procurement are available to it. H.R. Rep. No. 97-
456 at 5.
Finally, it added 31 U.S.C. § 1535(c): "A condition or limitation
applicable to amounts for procurement of an agency or unit placing an
order or making a contract under this section applies to the placing
of the order or the making of the contract." This provision is
designed to preclude use of the Economy Act to avoid legal
restrictions on the availability of appropriated funds. Originally
recommended by GAO,[Footnote 47] it "prevents the ordering agency from
accomplishing under the guise of an Economy Act transaction, objects
or purposes outside the scope of its authority." B-259499, Aug. 22,
1995, at 8.
The Competition in Contracting Act requires that procuring agencies
obtain full and open competition "except in the case of procurement
procedures otherwise expressly authorized by statute." 41 U.S.C. §
253(a)(1) (civilian procurements); 10 U.S.C. § 2304(a)(1) (military
procurements). For purposes of this provision, the Economy Act is one
of the otherwise authorized procedures. National Gateway
Telecommunications, Inc. v. Aldridge, 701 F. Supp. 1104, 1113 (D.N.J.
1988), aff'd mem., 879 F.2d 858 (3rd Cir. 1989) (10 U.S.C. § 2304); 70
Comp. Gen. 448, 453-54 (1991) (41 U.S.C. § 253). Thus, an agency can
obtain its needs under another agency's requirements contract, as long
as the transaction is in compliance with the Economy Act and the
action is permissible under the performing agency's contract. National
Gateway, 701 F. Supp. at 1114; 70 Comp. Gen. at 454; B-244691.2, Nov.
25, 1992, reconsideration denied, B-244691.3, Jan. 5, 1993. Exceeding
a maximum quantity specified in the contract, however, would be
outside the scope of the contract and would violate CICA's competition
requirements. 70 Comp. Gen. at 457.
One of the Economy Act requirements the ordering agency must satisfy
is the "lower cost" determination, 31 U.S.C. § 1535(a)(4). For
example, in B-244691.2, Nov. 25, 1992, the ordering agency made the
determination without testing the open market because the price under
the performing agency's requirements contract was lower than the
current Federal Supply Schedule price, and agencies are permitted to
purchase from a Supply Schedule contract without seeking further
competition. This, GAO found, was perfectly reasonable.
As long as the various requirements of the Economy Act are satisfied,
the ordering agency may also legitimately take into consideration such
factors as administrative convenience or procurement risks, 70 Comp.
Gen. at 454 n.5, or the need to obligate funds to avoid future funding
cuts, National Gateway, 701 F. Supp. at 1111.
In the late 1980s and early 1990s, congressional attention to reported
abuses under the Economy Act resulted in a detailed report by the
Subcommittee on Oversight of Government Management, Senate Committee
on Governmental Affairs, Off-Loading: The Abuse of Inter-Agency
Contracting to Avoid Competition and Oversight Requirement, S. Prt.
No. 103-61 (1994). The report's title reflects the birth of a new
term, off-loading, defined (on page 1 of the Senate report) as "when
one agency buys goods or services under a contract entered and
administered by another agency." The report found that government
agencies "off-load billions of dollars of contracts every year," and
that "improper off-loads total at least in the hundreds of millions of
dollars, and losses to the taxpayers are at least in the tens of
millions of dollars." Id. at 5. Among the abuses the report cited were
the use of off-loading to avoid competition, to direct contracts to
favored contractors, to improperly obligate expiring year-end
appropriations, and to make a variety of inappropriate purchases. Id.
at 6. The report recommended that off-loading be limited and subject
to stronger regulatory controls. Id. at 44-46.
Congress responded with two pieces of legislation: for military
procurements, section 844 of the National Defense Authorization Act
for Fiscal Year 1994, Pub. L. No. 103-160, 107 Stat. 1547, 1720-21
(Nov. 30, 1993), enacted into law as the Senate report was being
written; and for civilian procurements, section 1074 of the Federal
Acquisition Streamlining Act of 1974, Pub. L. No. 103-355, 108 Stat.
3243, 3271-72 (Oct. 13, 1994). The two provisions are virtually
identical and require that the governing procurement regulations be
amended to:
* permit off-loading only if the performing agency (a) has an existing
contract for the same or similar goods or services, (b) is better
qualified to enter into or administer the contract by reason of
capabilities or expertise the ordering agency does not have, or (c) is
specifically authorized by law to act in that capacity;
* require that off-loads be approved in advance by an authorized
official of the ordering agency; and;
* prohibit the payment of any fee in excess of the performing agency's
actual costs or, if not known, estimated costs. Implementing
regulations are found in the Federal Acquisition Regulation, 48 C.F.R.
subpart 17.5.[Footnote 48] In addition, the law directed the Secretary
of Defense and the Administrator for Federal Procurement Policy to
develop systems to collect and evaluate data in order to monitor
compliance. See Pub. L. No. 103-355, § 1074(c); Pub. L. No. 103-160, §
844(c).
2. Account Adjustment Statute:
The "account adjustment statute," 31 U .S.C. § 1534, authorizes an
agency to temporarily charge one appropriation for an expenditure
benefiting other appropriations within the same agency, as long as (1)
amounts are available in the appropriation to be charged and in the
benefiting appropriation and (2) the accounts are adjusted to
reimburse the appropriation initially charged during or as of the
close of the same fiscal year.[Footnote 49] For example, an agency
procuring equipment to be used jointly by several of the agency's
bureaus or offices that are funded under separate appropriations may
initially charge the entire cost of this equipment to a single
appropriation and later allocate the cost among the appropriations of
the benefiting components. B-308762, Sept. 17, 2007; 70 Comp. Gen. 601
(1991); 70 Comp. Gen. 592 (1991).
Agencies sought this authority to facilitate the acquisition of common
services. The Bureau of the Census received this authority in 1962.
Pub. L. No. 87-489, 76 Stat. 104 (June 19, 1962). Other agencies
sought similar authority, and GAO supported the enactment of
governmentwide legislation. See B-136318, Dec. 20, 1963.
Governmentwide authority was provided in Public Law 89-473, § 1, 80
Stat. 221, June 29, 1966. The Senate report accompanying the public
law explained that the legislation is "primarily a bookkeeping
convenience" that will facilitate the accounting and payment of common-
service types of activities, and "promote economies by making
unnecessary the estimating and precharging of various accounts and
appropriations." S. Rep. No. 89-1284 (1966), at 1-2. In a 1991
decision, GAO found that, because the Army Civilian Appellate Review
Agency charged another component's appropriation for the actual costs
involved in investigating grievances filed by employees of the
benefiting component, the agency did not augment its appropriation. 70
Comp. Gen. 601.
An agency using the authority of 31 U.S.C. § 1534 must be careful to
charge the benefiting appropriations an amount that is commensurate
with the value each benefiting appropriation receives, or the
transaction may result in an augmentation to one or more
appropriations.[Footnote 50] For example, in a 2007 decision, GAO
found that the Department of Homeland Security's (DHS) Preparedness
Directorate may have improperly augmented several appropriations when
it failed to allocate costs of shared services to all benefiting
appropriations. B-308762, Sept. 17, 2007. The Preparedness
Directorate, which was dissolved in 2007, developed a complex system
in order to provide cross-cutting services to multiple appropriations
within the directorate. One appropriation entered into contracts for
services that benefited most of the appropriations throughout the
directorate. These services included human capital management, budget
justification preparation, budget execution, program review and
analysis, and facilities management. GAO found that the Preparedness
Directorate had authority, pursuant either to the Economy Act or to 31
U.S.C. § 1534, to draw on multiple appropriations to fund the shared
services. The directorate, however, did not enter into valid written
Economy Act agreements and thus could not rely on the Economy Act to
justify the shared services transactions. And, while DHS had authority
to carry out these transactions pursuant to section 1534, DHS could
not provide GAO with documentation showing that the directorate
properly recorded allocated charges against each of the benefiting
appropriations. The directorate improperly augmented the benefiting
appropriations to the extent it did not record an obligation against
the appropriations for the estimated value of the services each
appropriation received. To the extent DHS did not charge all of the
benefiting appropriations, it was required to adjust its expired
appropriations so that each benefiting appropriation was charged for
the value received. If insufficient unobligated balances remained in
any of the appropriations accounts, DHS was required to report a
violation of the Antideficiency Act. 31 U.S.C. § 1351.
In a 1991 decision, GAO examined the Department of Labor's (DOL) use
of the appropriations of nine agencies within DOL to finance computer
equipment for a communications network linking executive staff
throughout DOL. 70 Comp. Gen. 592. GAO found that DOL could arguably
have used either the Economy Act or the account adjustment statute to
finance a network benefiting multiple agencies within DOL. GAO also
found, however, that DOL's cost allocation methodology exceeded the
authority granted by these statutes in that it required several of the
appropriations to subsidize costs allocable to other appropriations,
resulting in an improper augmentation of the subsidized
appropriations. 70 Comp. Gen. at 596. As in the decision regarding the
Preparedness Directorate's use of shared services, DOL was required to
adjust its appropriation accounts, and to the extent it did not have
available unobligated balances adequate to make the adjustments, it
was required to report an Antideficiency Act violation.
3. Other Authorities:
Although the best known interagency authority is the Economy Act,
there are many others. One such authority is the Federal Property and
Administrative Services Act,[Footnote 51] which is discussed in
various sections in this chapter. Revolving funds, discussed in
section C of this chapter, also provide agencies with authority to
enter into interagency transactions independent of the Economy Act.
The Economy Act will not apply in the face of a more specific statute.
E.g., 44 Comp. Gen. 683 (1965); B-301561, June 14, 2004 (nondecision
letter); 6 Op. Off. Legal Counsel 464 (1982); Integrated Systems
Group, Inc. v. GSA, GSBCA No. 13108-P, 95-1 BCA ¶ 27,484 (1995).
Having said this, there are still situations in which it is legitimate
to look to the Economy Act for guidance even though, strictly
speaking, it does not apply, an example being where the statute
prescribes reimbursement only in general terms. E.g., 72 Comp. Gen.
159, 163-64 (1993) (term "reimbursable basis" in statute directing
agencies to furnish certain services to Nuclear Regulatory Commission
can include "added factor" for overhead). Be that as it may, the
starting point is that each statute stands on its own with respect to
what services can be provided, who the customers may be, and who bears
the costs.
It is important to understand what authority an agency is using to
enter into its agreements because of the different statutory
requirements. For example, for interagency transactions governed by
authorities other than the Economy Act the ordering agency is not
required to deobligate funds at the end of the fiscal year if the
performing agency has not performed or incurred a valid obligation, as
is required by the Economy Act. In B-302760, May 17, 2004, the Library
of Congress entered into an interagency agreement with the Architect
of the Capitol for the redesign and renovation of a loading dock at
the Library. The Library entered into the agreement under its transfer
authority, 2 U.S.C. § 141(c), which specifically authorizes the
Architect and the Library to "enter into agreements with each other to
perform work under this section" and to "transfer between themselves
appropriations ...to pay the cost therefor." Accordingly, this
transaction was not governed by the Economy Act. As explained in B-
302760, an interagency transaction, like that authorized by section
141(c), is, in some ways, not unlike a contractual transaction.
Similar to a contractual transaction for a nonseverable service, at
the time the agencies involved in the transaction enter into an
interagency agreement, the ordering agency incurs an obligation for
the costs of the work to be performed. B-302760, May 17, 2004. See
also B-286929, Apr. 25, 2001 (interagency obligations pursuant to 40
U.S.C. § 757[Footnote 52] are treated like other agency obligations
rather than like Economy Act obligations, and the existence of a
defined requirement at the time the agreement is executed forms the
basis for incurring and recording a financial obligation).
An agency that enters into an interagency agreement governed by an
authority other than the Economy Act also is not required to prepare a
Determination and Finding (D&F) as required by the Federal Acquisition
Regulation (FAR) for Economy Act transactions.[Footnote 53] See 48
C.F.R. subpt. 17.5. In a 2000 decision, a contractor contended that a
procurement conducted by the General Services Administration (GSA) on
behalf of the Army violated the Economy Act and constituted an
"illegal off-load" by the Army because the Army neglected to prepare a
D&F. GAO concluded that because GSA had authority to conduct this
procurement under the Federal Property and Administrative Services Act
(currently codified at 40 U.S.C. § 501(b)), the Economy Act was not
applicable to this transaction. Accordingly, the Army was not required
to prepare a D&F, and the procurement was not an illegal off-load. B-
285451, Oct. 25, 2000.
A few other interagency authorities are described below.
Government Employees Training Act. Under the Government Employees
Training Act, an agency covered by the act (as defined in 5 U.S.C. §
4101) can extend its training to employees of other government
agencies. The key provision is 5 U.S.C. § 4104:
"An agency program for the training of employees by, in, and through
Government facilities under this chapter shall:
"...(2) provide for the making by the agency, to the extent necessary
and appropriate, of agreements with other agencies in any branch of
the Government, on a reimbursable basis when requested by the other
agencies, for:
"(A) use of Government facilities under the jurisdiction or control of
the other agencies in any branch of the Government; and;
"(B) extension to employees of the agency of training programs of
other agencies."
The legislative history of this provision, discussed in B-193293, Nov.
13, 1978, makes clear that training can be reimbursable or
nonreimbursable, in the discretion of the agency providing it. Thus,
the Defense Department may, in its discretion, make its procurement
training courses available on a space-available and tuition-free basis
to employees of civilian agencies. Id. An agency choosing to charge a
fee for its training under this provision is equally free to do so,
and may credit fees received from other federal agencies to the
appropriation which financed the training.[Footnote 54] B-271894, July
24, 1997; B-247966, June 16, 1993; B-241269, Feb. 28, 1991. An agency
may provide training to private sector personnel on a space-available
basis, provided that the fees received for the training are deposited
in the Treasury as miscellaneous receipts. B-271894, July 24, 1997.
Department of Defense. The Defense Department has the following
provision: "If its head approves, a department or organization within
the Department of Defense may, upon request, perform work and services
for, or furnish supplies to, any other of those departments or
organizations, without reimbursement or transfer of funds." 10 U.S.C.
§ 2571(b). Authority to furnish the supplies or perform the services
already exists under the Economy Act, so this provision adds nothing
in that respect. What it does is authorize the military department or
organization, at its discretion, to provide the supplies or services
to another military entity on a nonreimbursable basis, that is, free.
Tennessee Valley Authority. The Tennessee Valley Authority (TVA) is
authorized to "provide and operate facilities for the generation of
electric energy ...for the use of the United States or any agency
thereof." 16 U.S.C. § 831h-1. TVA is required to charge rates to
produce revenue "sufficient to provide funds for operation,
maintenance, and administration of its power system; payments to
States and counties in lieu of taxes," required payments to the United
States Treasury, and commitments to bondholders, among other things.
Id. § 831n-4(f). This is an example of a statute which is sufficiently
specific and detailed to wholly displace the Economy Act. 44 Comp.
Gen. 683 (1965). Since electric power is a utility service, GSA, under
40 U.S.C. § 501(b)(1)(B), can contract with TVA for periods of up to
10 years,[Footnote 55] and can delegate this authority to other
agencies. 40 U.S.C. § 121(d); 48 C.F.R. § 41.103.
District of Columbia. Enacted as part of the 1973 District of Columbia
home rule legislation, 31 U.S.C. § 1537 authorizes the United States
government and the District of Columbia government to provide
reimbursable services to each other. Services provided under this
authority are to be documented in an agreement negotiated by the
respective governments and approved by the Director of the Office of
Management and Budget and the Mayor of the District of Columbia.
Section 1537(c) provides that:
"(1) costs incurred by the United States Government may be paid from
appropriations available to the District of Columbia government
officer or employee to whom the services were provided; and;
"(2) costs incurred by the District of Columbia government may be paid
from amounts available to the United States Government officer or
employee to whom the services were provided."
Charges are to be "based on the actual cost of providing the
services." Id. § 1537(b)(2). Under this authority, for example, the
Bureau of Prisons could provide personnel to the District of Columbia
Department of Corrections in the event of a strike by District
employees. 4B Op. Off. Legal Counsel 826 (1980). Another example is
printing done for the District of Columbia by the Government Printing
Office. 60 Comp. Gen. 710 (1981). That decision pointed out that,
since the District is not a federal agency, the federal agency
providing the services can charge interest on overdue accounts, and
can collect a debt by administrative offset, but not against amounts
withheld from the salaries of federal employees for D.C. income tax.
National Academy of Sciences. A statute dating back to the Civil War
era (1863, to be precise) provides that:
"on request of the United States Government, [the National Academy of
Sciences] shall investigate, examine, experiment, and report upon any
subject of science or art. The [National Academy] may not receive
compensation for services to the Government, but the actual expense of
the investigation, examination, experimentation, and report shall be
paid by the Government from an appropriation for that purpose."
36 U.S.C. § 150303. This statute authorizes the Academy to be
reimbursed for its "actual expenses," but nothing beyond that. A
formal contract is not required, although the documentation used
should adequately describe the services to be provided and the payment
terms. B-37018, Oct. 14, 1943.
An agreement calling for a fixed price which is not confined to
reimbursement of actual expenses has been said to violate the statute.
B-4252, June 21, 1939. It is probably more accurate to say that it
creates no obligation over and above the payment of actual expenses.
The other side of the coin is that the Academy has been permitted to
recover the excess where its actual expenses exceeded the fixed price.
39 Comp. Gen. 71 (1959), as modified by 39 Comp. Gen. 391 (1959).
GAO's suggestion is that the agreement should provide for the
reimbursement of actual expenses up to a stipulated maximum, and
should also provide that no costs be incurred above that amount unless
authorized by some form of supplemental agreement. 39 Comp. Gen. at
392. A flat surcharge for overhead also violates the statute, but if
the interagency work causes the Academy to increase its normal
overhead, the amount of the increase (or a reasonable approximation)
constitutes part of the actual expenses. B-19556, Aug. 28, 1941. Cases
like these do not stand for the proposition that the Academy's cost
recovery cannot be subjected to contractual limits. Thus, a 1977
decision held the Academy's recovery of Independent Research and
Development costs limited by provisions in procurement regulations to
which it had agreed to be bound. B-58911, Aug. 1, 1977.
Inspection of Personal Property. Section 201(d) of the Federal
Property and Administrative Services Act, 40 U.S.C. § 504, provides
the following, subject to GSA regulations:
"(a) Receiving Assistance-—An executive agency may use the services,
work, materials, and equipment of another executive agency, with the
consent of the other executive agency, to inspect personal property
incident to procuring the property.
(b) Providing Assistance-—Notwithstanding section 1301(a) of title 31
or any other law, an executive agency may provide services, work,
materials, and equipment for purposes of this section without
reimbursement or transfer of amounts."
This provision is similar to the Defense Department statute noted
above in that the service involved—property inspection in this case—
could have been furnished under the Economy Act. Like the Defense
Department statute, the significance of 40 U.S.C. § 504 is that it
authorizes the providing agency to waive reimbursement.
National Archives and Records Administration (NARA). The Archivist of
the United States has a range of duties and responsibilities with
respect to the custody and preservation of government records. The
Archivist is authorized by 44 U.S.C. § 2116(c) to charge a user fee
for making or authenticating copies or reproductions of materials in
his custody, calculated to recover costs including increments for the
estimated cost of equipment replacement. The statute further provides:
"The Archivist may not charge for making or authenticating copies or
reproductions of materials for official use by the United States
Government unless appropriations available to the Archivist for this
purpose are insufficient to cover the cost of performing the work" Id.
The problem with this is that NARA receives a lump-sum operating
appropriation and has the normal range of discretion in using it.
Therefore, unless the Office of Management and Budget were to
apportion a specific amount for reproducing documents for other
agencies, when could it fairly be said that appropriations were
insufficient? To avoid this problem, NARA simply stopped requesting
appropriations for that specific purpose and funded the entire program
on a reimbursable basis, an approach GAO approved in 64 Comp. Gen. 724
(1985). This, observed GAO, was "the most equitable way of allocating
cost in performing this activity," since any other approach would
inevitably favor early (in the fiscal year) users over later ones. Id.
at 726.
Consumer Product Safety Commission. Section 27(g) of the Consumer
Product Safety Act, 15 U.S.C. § 2076(g), provides that: "The
Commission is authorized to enter into contracts with governmental
entities, private organizations, or individuals for the conduct of
activities authorized by this chapter." GAO concluded that based on
the plain meaning of the language in section 27(g), as confirmed by
the legislative history of the Consumer Product Safety Act, the
Commission had authority pursuant to section 27(g) to enter into
agreements with other federal agencies for any purpose authorized by
the Consumer Product Safety Act. B-289380, July 31, 2002.
Consequently, the agreements were not subject to the Economy Act. Id.
C.Revolving Funds:
1.Introduction:
a.Concept and Definition:
A recurrent theme throughout much of this publication is the attempt
to balance the legitimate need for executive flexibility with the
constitutional role of the legislature as controller of the purse.
While this theme underlies much of federal fiscal law, it is perhaps
nowhere as clear as in the area of revolving funds. A revolving fund
authorizes an agency to retain receipts and deposit them into the fund
to finance the fund's operations. The concept of a revolving fund is
to permit the financing of some entity or activity on what is regarded
as a more "business-like" basis. Laws that establish revolving funds
may authorize agencies to perform reimbursable work for either the
public or other federal agencies, or both.
Most Treasury accounts are either receipt accounts or expenditure
accounts. Under the typical or "traditional" funding arrangement, any
money an agency receives from any source outside of its congressional
appropriations must, unless Congress has provided otherwise, be
deposited in the Treasury to the credit of the appropriate general
fund receipt account. 31 U.S.C. § 3302(b). Absent an appropriation, an
agency may not withdraw money from a general fund receipt account.
Congress provides the agency's operating funds by making direct
appropriations from the general fund of the Treasury. These are
carried on Treasury's books in the form of general fund expenditure
accounts. It is possible to credit money to an appropriation
(expenditure) account—if specifically authorized by statute or if the
money qualifies as a "repayment," such as the recovery of an erroneous
payment, but the money is subject to the same limitations as the
appropriation to which credited. 65 Comp. Gen. 600, 602 (1986), citing
Treasury Department-GAO Joint Regulation No. 1, reprinted in GAO,
Policy and Procedures Manual for Guidance of Federal Agencies, title
7, app. 11.[Footnote 56] Most importantly, its obligational
availability expires along with the rest of the appropriation, and if
the appropriation has already expired for obligational purposes at the
time of the deposit, the funds deposited have only the limited
availability of expired balances.[Footnote 57] It should be apparent
that a key element of congressional control is the ability to control
the disposition and use of receipts. For a further description of
accounts relating to the government's financial operations, see the
Treasury Financial Manual, 1 TFM 2-1500, and GAO, A Glossary of Terms
Used in the Federal Budget Process, GAO-05-734SP (Washington, D.C.:
Sept. 2005), at 2-5 (Budget Glossary).
A revolving fund, while classified as an expenditure account, combines
elements of both receipt and expenditure accounts. The term "revolving
fund" may be defined as "a fund established by Congress to finance a
cycle of businesslike operations through amounts received by the
fund." Budget Glossary, at 88. See I TFM 2-1520.45 (also defining
revolving funds); OMB Cir. No. A-11, Preparation, Submission, and
Execution of the Budget, § 20.3 (July 2, 2007). See also 38 Comp. Gen.
185, 186 (1958). A 1977 GAO report explained that:
"In concept, expenditures from the revolving fund generate receipts
which, in turn, are earmarked for new expenditures, thereby making the
Government activity a self-sustaining enterprise. The concept is aimed
at selected Government programs in which a buyer/seller relationship
exists to foster an awareness of receipts versus outlays through
business-like programming, planning, and budgeting. Such a market
atmosphere is intended to create incentives for customers and managers
of revolving funds to protect their self-interest through cost control
and economic restraint, similar to those that exist in the private
business sector."
GAO, Revolving Funds: Full Disclosure Needed for Better Congressional
Control, GAO/PAD-77-25 (Washington, D.C.: Aug. 30, 1977), at 2.
Because a revolving fund authorizes the agency to retain receipts and
deposit them into the fund, the miscellaneous receipts requirement of
31 U.S.C. § 3302(b) does not apply. The legislation authorizing a
revolving fund is a permanent, indefinite appropriation.
Revolving funds in the federal government appear to have developed in
the latter part of the nineteenth century. Although we have not been
able to identify the first revolving fund, the Navy is said to have
had one as far back as 1878. GAO/PAD-77-25 at 11. Some years later, as
part of the Navy's 1894 appropriation act, Congress created a
permanent naval supply fund for the purchase of "ordinary commercial
supplies..., to be reimbursed from the proper naval appropriations
whenever the supplies purchased under said fund are issued for use."
Act of March 3, 1893, 27 Stat. 715, 723-24. The term "revolving fund"
does not appear in the early statutes, but seems to have come into use
in the early 1900s. Thus, the Comptroller of the Treasury was able to
observe in a 1919 decision:
"The Congress has at times barred the application of [31 U.S.C. §
3302(b)] by authorizing expenditures under appropriations to be
reimbursed such appropriations, and in recent years has used the term
revolving fund for such purpose and the further purpose generally of
permitting the use of the moneys without the fiscal year limitations
which usually attend appropriations."
26 Comp. Dec. 295 (1919). Within just a few more years, the term could
be said to have an established meaning as a fund which functioned as
both a receipt account and an expenditure account, and which
authorized receipts the fund earned through its operations to remain
available without fiscal year limitation. 1 Comp. Gen. 704 (1922).
These, then, are the two key features of a revolving fund:
* A revolving fund is a single combined account to which receipts are
credited and from which expenditures are made. Treasury does not
assign separate "receipt" and "appropriation" accounts.
* The generated or collected receipts are available for expenditure
for the authorized purposes of the fund without the need for further
congressional action and without fiscal year limitation.
Thus, a revolving fund amounts to "a permanent authorization for a
program to be financed, in whole or in part, through the use of its
collections to carry out future operations." GAO/PAD-77-25 at 47.
Therefore, as explained below, a revolving fund is a permanent
appropriation. The fund's continuing availability is what
distinguishes a revolving fund from a reimbursable appropriation. In
the case of a reimbursable appropriation, the reimbursements are
available only during the same period that the appropriation itself is
available, whereas in a revolving fund, "monies are paid in and out
over and over again for the same purpose." B-75345, May 20, 1948, at
2. It is important to note, however, that only the receipts or
collections that the fund has earned through its operations are
available without fiscal year limitation. For example, advances made
by a customer agency to a revolving fund to cover the costs of the
order have not been earned by the fund and retain the fiscal year
limitations of the customer agency. See, e.g., B-288142, Sept. 6, 2001
(customer agency funds advanced to the Library of Congress Federal
Library and Information Network revolving fund are not available
without fiscal year limitation; amounts transferred do not take on the
character of the revolving fund). The time availability of funds an
agency transfers to a revolving funds is discussed in more detail in
section C.4.c of this chapter.
Proponents of revolving funds cite several advantages.[Footnote 58]
Since it involves only one "pocket," a revolving fund provides a
simpler funding structure. A revolving fund presents a clearer picture
of an activity's profit or loss. Also, reflecting expenditures in
budget totals on a net basis, as is done with revolving funds, helps
reduce budget distortion. Revolving funds also provide increased
flexibility since the agency does not have to ask Congress for the
money. In addition, as discussed above, revolving funds provide
agencies with authority to enter into interagency agreements
independent of the Economy Act, and thus the customer agency is not
subject to the deobligation requirements of 31 U.S.C. § 1535(d). See B-
288142, Sept. 6, 2001; B-286929, Apr. 25, 2001; B-301561, June 14,
2004 (nondecision letter). For these reasons, most executive agencies,
naturally and understandably, will take all the revolving funds they
can get.
b. Creation/Establishment:
Perhaps the most fundamental rule relating to revolving funds is that
a federal agency may not establish a revolving fund unless it has
specific statutory authority to do so. 44 Comp. Gen. 87, 88 (1964); A-
68410, Jan. 20, 1936; A-65286, Oct. 1, 1935. The reason is that 31
U.S.C. § 3302(b), the so-called "miscellaneous receipts statute,"
requires that any money a federal agency receives from any source
outside of its congressional appropriations be deposited in the
general fund of the Treasury unless otherwise provided. Since this
requirement is statutory, exceptions must be statutory. Thus, agencies
have no authority to administratively establish revolving funds.
The legislative authority creating a revolving fund must be explicit.
Authority to reimburse an appropriation does not authorize the
creation of a revolving fund. See 38 Comp. Gen. 185 (1958); B-75345,
May 20, 1948. The authority to establish a revolving fund, of course,
may be contained in an appropriation act.[Footnote 59] The National
Technical Information Service revolving fund, for example, was created
in the 1993 appropriation act for the Departments of Commerce,
Justice, and State. See Pub. L. No. 102-395, title II, 106 Stat. 1828,
1853 (Oct. 6, 1992), 15 U.S.C. § 3704b note. See also B-127121, Apr.
3, 1956 (appropriation act riders used over long period of time to
modify restrictive provision in the Alaska Railroad's revolving fund).
While the authority must be explicit, there is no prescribed formula.
Certainly the words "revolving fund" will do the job. As noted
earlier, there is a long-established congressional pattern of using
the term "revolving fund" to mean the authority to retain specified
receipts and to use them for authorized purposes without further
congressional action and without fiscal year limitation. 1 Comp. Gen.
704 (1922); 26 Comp. Dec. 295 (1919); B-209680, Feb. 24, 1983.
However, as long as the statute contains the required elements, use of
the words revolving fund is not necessary and failure to use them is
not controlling. B-135037-0.M., June 19, 1958.
In order to create a revolving fund, a statute, at a minimum, must do
the following:
* It must specify the receipts or collections which the agency is
authorized to credit to the fund (user charges, for example).
* It must define the fund's authorized uses, that is, the purpose or
purposes for which the funds may be expended.
* It must authorize the agency to use receipts for those purposes
without fiscal year limitation. However, as explained above, only
receipts and collections that the fund has earned through its
operations are available without fiscal year limitation.
A statute illustrating several of these points is 15 U.S.C. § 1527a,
the Commerce Department's Economics and Statistics Administration
Revolving Fund:
"There is hereby established the Economics and Statistics
Administration Revolving Fund which shall be available without fiscal
year limitation. For initial capitalization, there is appropriated
$1,677,000 to the Fund: Provided, That the Secretary of Commerce is
authorized to disseminate economic and statistical data products as
authorized by [15 U.S.C. §§ 1525-1527] and charge fees necessary to
recover the full costs incurred in their production. Notwithstanding
[31 U.S.C. § 3302], receipts received from these data dissemination
activities shall be credited to this account as offsetting
collections, to be available for carrying out these purposes without
further appropriation."
First, it specifies the receipts for credit to the fund—the fees
charged to recover the costs in production of the data products to be
disseminated. Second, it defines the authorized uses of the fund—to
carry out the purposes of 15 U.S.C. §§ 1525-1527. Third, the statute
uses the term "revolving fund" and states the fund "shall be available
without fiscal year limitation." Statutes creating revolving funds
often specify additional features. For example, such statutes may fix
the amount of the fund's capital; authorize the fund to be maintained
at the desired level by periodic appropriations as needed; direct that
the fund be self-sustaining, or substantially so; require the return
of excess amounts to the Treasury or, alternatively, authorize
investment of these funds; or impose reporting requirements or other
congressional control devices.
A statute which does not use the words "revolving fund" is 12 U.S.C. §
1755, the National Credit Union Administration's operating fund.
However, it contains the attributes of a revolving fund. For example,
it specifies that the National Credit Union Administration is
authorized to collect annual operating fees. It defines the purpose
for which these collections may be used. Also, the Administration is
implicitly authorized to use the collections without fiscal year
limitation. It says that the National Credit Union Administration
Board may invest "such portions of the annual operating fees ...as the
Board determines are not need for current operations." If the
collections were not available without fiscal year limitation, any
unused collections would have to be deposited in miscellaneous
receipts at the end of the fiscal year. The Treasury Department's
Federal Account Symbols and Titles in fact classifies this fund as a
public enterprise revolving fund.[Footnote 60] See I TFM, FAST, at A-
95.
Examples of statutes requiring the return of excess amounts to the
Treasury are cited later in section C.5 of this chapter. Examples of
the alternative approach—-authorizing investment of funds not needed
for current operations—-are 12 U.S.C. § 1755(e), the revolving fund of
the National Credit Union Administration, and 42 U.S.C. § 2000e-
4(k)(3), the Equal Employment Opportunity Commission's Education,
Technical Assistance, and Training Revolving Fund. Typically, as in
these two instances, the statute authorizes investment only in
obligations of, or whose principal is guaranteed by, the United
States, and authorizes income from the investment to be retained by
the fund.
The requirement for specific statutory authority applies to federal
agencies. It does not apply to the use of revolving funds by grantees
and contractors unless prohibited by the relevant grant agreement or
contract. The question in 44 Comp. Gen. 87 (1964) was whether an
educational institution funded by a State Department grant could use a
revolving fund to finance the printing and sale of publications. The
answer was yes, because nothing in the grant documents prohibited it
and the miscellaneous receipts statute does not apply to funds in the
hands of a grantee. A 1974 case, B-164031(1)-0.M., Oct. 3, 1974,
applied the same result to the publishing activities of a contractor.
A requirement in the contract that unexpended funds be returned to the
government upon completion did not stand in the way; the contractor's
accountability upon completion of the contract did not alter its
discretionary authority during the course of performance.
If it takes a statute to create a revolving fund, it logically follows
that it also takes a statute to terminate one, unless the law
establishing the fund includes some sort of built-in termination
mechanism. Legislation terminating a revolving fund should address the
payment of existing debts if any remain, and the disposition of the
fund's balance and future receipts.[Footnote 61] As discussed in
section C.4.c of this chapter, GAO, in the past, has also regarded the
account closing statute as applicable to revolving funds. Section 1555
of title 31, United States Code, provides that a no-year account shall
be closed if the agency head determines that the purposes of the
appropriation have been carried out and no disbursement has been made
against the appropriation for two consecutive fiscal years.
2. Receipts and Reimbursements:
Since a revolving fund is a creature of statute, the statute which
established the fund (or subsequent amendments or appropriation acts)
will determine what may go into the fund. Receipts may be lumped
generally into two categories, initial and ongoing or operational.
The typical revolving fund may receive an initial infusion of working
capital (called the fund's "corpus") to enable it to finance
operations until the "operational receipts" start coming in. This
initial capitalization, which the fund may be required to repay, is
normally furnished as part of the legislation establishing the fund.
It may be in the form of an initial lump-sum appropriation, a transfer
of balances from some existing appropriation or fund, a transfer of
property and/or equipment, borrowing authority, or some combination of
these.
An example of a fund capitalized by a direct appropriation is the
Economics and Statistics Administration Revolving Fund, 15 U.S.C. §
1527a ("For initial capitalization, there is appropriated $1,677,000
to the Fund").
Capitalization by transfer is illustrated by the Equal Employment
Opportunity Commission Education, Technical Assistance, and Training
Revolving Fund, which received its initial working capital by a
transfer of $1,000,000 from the Commission's Salaries and Expenses
appropriation. 42 U.S.C. § 2000e-4(k)(4). The Corps of Engineers Civil
Revolving Fund authorized the Secretary of the Army "to provide
capital for the fund by capitalizing the present inventories, plant
and equipment of the civil works functions of the Corps of Engineers."
33 U.S.C. § 576. An example of one form of borrowing authority to
capitalize a fund is 31 U.S.C. § 5136, the United States Mint Public
Enterprise Fund, which authorized the Secretary of the Treasury,
subject to reimbursement within 1 year, to "borrow such funds from the
General Fund as may be necessary to meet existing liabilities and
obligations incurred prior to the receipt of revenues into the Fund."
After the initial capitalization, the defining feature of a revolving
fund is, as we have seen, its ability to retain and use receipts.
Normally, the receipts will be those generated by the fund's
operations as this is the very concept of a revolving fund. See, e.g.,
B-124995, Sept. 27, 1955; B-112395, Oct. 20, 1952; B-105693, Oct. 22,
1951.[Footnote 62] This is not a firm legal requirement, however, and
a revolving fund can mean "a fund which when reduced is replenished by
new funds from specific sources," whether or not generated by the
fund's operations. 23 Comp. Gen. 986, 988 (1944). However the fund is
capitalized, the authority to retain receipts is an exception to 31
U.S.C. § 3302(b). E.g., 20 Comp. Gen. 280 (1940); 19 Comp. Gen. 791
(1940). When describing 31 U.S.C. § 3302(b), we usually say that it
requires that all receipts be deposited in the Treasury as
miscellaneous receipts absent statutory authority for some other
disposition. However, the portion of the statute requiring that all
receipts be deposited in the Treasury promptly and without deduction
also applies to receipts credited to an appropriation pursuant to a
specific statutory authority. Accordingly, the requirement that all
receipts be deposited in the Treasury promptly and without deduction
applies fully to revolving funds deposits. B-305402, Jan. 3, 2006; B-
72105, Nov. 7, 1963.
The statute will prescribe the types of receipts which may be credited
to the fund and, where contextually appropriate, the method of
payment. The prescription of sources is found in varying degrees of
specificity, depending on the purpose of the fund. A fund intended to
finance an entity rather than a particular activity tends to have
broader language, an example being the Bonneville Power
Administration's provision, 16 U.S.C. § 838i(a) ("all receipts,
collections, and recoveries ...from all sources"). Some funds
expressly authorize the crediting of receipts from the sale or
exchange of, and payments for loss or damage to, fund property. E.g.,
5 U.S.C. § 1304(e)(3) (Office of Personnel Management
investigation/training fund); 44 U.S.C. § 309(b)(2) (Government
Printing Office revolving fund). Unlike an activity funded by direct
appropriations, a revolving fund would, even without this explicit
authority, be able to retain payments for loss or damage to fund
property. B-302962, June 10, 2005; 50 Comp. Gen. 545 (1971).
The specification of authorized receipts operates, as one might
expect, as a limitation as well as an authorization, although this
principle should not be applied to the exclusion of common sense.
Thus, a provision of the Agricultural Marketing Act providing that
payments of principal or interest on loans be deposited in a revolving
fund (12 U.S.C. § 1141f(b)) includes sale proceeds obtained in a
foreclosure proceeding as well as voluntary payments. 12 Comp. Gen.
553 (1933).
Revolving fund legislation may or may not authorize advance payments.
If the statute specifies reimbursement and is silent as to advances,
advances are not authorized. 32 Comp. Gen. 99 (1952). But see 32 Comp.
Gen. 45 (1952), in which legislative history was used to conclude that
while the statute did not specifically authorize advance payments, it
did not preclude payment in advance. While the approach in 32 Comp.
Gen. 45 appears questionable as a general proposition, the apparent
congressional intent in that case was buttressed by a separate
provision in the same appropriation act which made the appropriations
of the client agencies available "for advances or reimbursements" to
the fund.[Footnote 63] An interesting linguistic variation found in
several of the working capital fund statutes is "reimbursed in
advance." E.g., 20 U.S.C. § 3483(b) (Department of Education); 42
U.S.C. § 3513 (Health and Human Services); 49 U.S.C. § 327(d)
(Transportation). Cf. B-286929, Apr. 25, 2001 (Economy Act authorizes
transactions on a "reimbursable advance payment basis").
Customer agencies receiving goods or services from the Government
Printing Office's revolving fund are required to pay promptly upon the
Public Printer's written request, "either in advance or upon
completion of the work, all or part of the estimated or actual cost,
as the case may be, and bills rendered by the Public Printer are not
subject to audit or certification in advance of payment." 44 U.S.C. §
310. Under this provision, regardless of the status of the work,
"payment of an acceptable invoice may not be delayed in order to
complete a prepayment audit." 56 Comp. Gen. 980, 981 (1977).
Where receipts are based on the cost of work or services, such as the
typical working capital fund, the statute will generally require the
recovery of indirect costs (overhead) as well as direct costs. For
example, the Corps of Engineers Civil Revolving Fund, 33 U.S.C. § 576,
requires payment "at rates which shall include charges for overhead
and related expenses, depreciation of plant and equipment, and accrued
leave." In B-167790, Dec. 23, 1977, an agency whose regulations
precluded reimbursement of administrative overhead nevertheless
entered into an agreement with the Corps for revolving fund work.
Since the requirement to charge for overhead was statutory, it had to
prevail over the contrary provision in the customer agency's
regulations. The burden properly fell upon the agency even if it did
not fully understand that the Corps would be using its revolving fund.
A 1995 decision involving the same revolving fund advised that the
fund could recover its costs for "idle time" where fund property was
forced to remain idle as the result of a congressional enactment, even
though the effect may be that the reimbursing appropriations are
paying for periods of nonuse. B-257064, Apr. 3, 1995. Precisely how to
account for these costs (allotments, rate adjustments, etc.) is within
the Corps' discretion.
The statutory language may be less explicit, providing merely for
recovery on an actual cost basis, an example being the Office of
Personnel Management revolving fund, 5 U.S.C. § 1304(e)(1). GAO has
construed this language to include indirect costs, consistent with
similar language in the Economy Act. B-206231-0.M., Sept. 12, 1986.
See also 72 Comp. Gen. 159 (1993) (similar interpretation of term
"reimbursable basis"). In a more recent decision, GAO found an
administrative fee that a Library of Congress revolving fund charged
to each customer agency was consistent with GAO's long held view that,
pursuant to the Economy Act, it is appropriate for agencies to assess
administrative fees to other agencies in the course of providing goods
and services, in order to recover overhead and other indirect costs. B-
301714, Jan. 30, 2004.
As discussed above, it is not uncommon for revolving funds to enter
into contracts with private parties as part of their performance. If a
customer agency cancels an order and the revolving fund is forced to
terminate the commercial contract for the convenience of the
government and bear the resultant termination costs, the revolving
fund may recover these costs from the customer agency. 60 Comp. Gen.
520 (1981). However, the fund itself should bear the loss if it
terminates a contract it entered into merely to build up its inventory
in anticipation of customer orders. Id. at 523. In accord is 69 Comp.
Gen. 112 (1989), holding that the General Services Administration
(GSA) could assess termination charges, payable to its then
Information Technology revolving fund, against an agency which had
withdrawn from GSA's telecommunications system. The alternative in
both cases would have been to pass those costs on to other customers.
A more recent GAO decision involved a somewhat different situation in
which the revolving fund was required to bear the loss. In B-301714,
Jan. 30, 2004, the Library of Congress incurred losses as a result of
advance payments that the Federal Library and Information Network
(FEDLINK) revolving fund made for the acquisition of subscriptions to
a contractor who subsequently defaulted and declared bankruptcy. The
FEDLINK fund has two components: (1) advance payments made by agencies
to cover their orders for goods and services, and (2) administrative
fees to reimburse the Library for its administrative costs, both
direct and indirect, of operating the program. The Library also uses
the administrative fees to build a reserve in the revolving fund to
finance future improvements and to replace outdated equipment. In an
earlier FEDLINK decision, GAO agreed that it was prudent for the
Library to reserve some of the administrative fees, not spending all
of them in the same fiscal year in which they were collected, so that
they might be used for "legitimate business costs" which arise in
subsequent years. B-288142, Sept. 6, 2001. GAO considered the losses
associated with the bankruptcy to be "legitimate business costs" of
the FEDLINK fund. Accordingly, GAO concluded that the Library should
use the administrative fees that it collects from all FEDLINK
customers to cover this loss, rather than assign the loss to the
specific agencies whose orders were placed with the contractor. B-
301714, Jan. 30, 2004.
We should note one final potential source of capital for a revolving
fund—the United States Treasury. If a fund is falling behind its goal
of self-sufficiency, or if there has been a significant impairment of
capital, or if Congress wishes to increase the fund's capital,
Congress can enact additional appropriations. Some revolving fund
statutes expressly recognize this possibility (for example, 31 U.S.C.
§ 5142, the Bureau of Engraving and Printing Fund), although, subject
to a possible point of order, absence of the language can not stop
Congress from making the appropriation. Also, some revolving funds
have borrowing authority, one example being the Rural Electrification
and Telephone Revolving Fund, 7 U.S.C. § 931.[Footnote 64]
3. Types:
There are three broad categories of revolving funds—public enterprise,
trust, and intragovernmental.[Footnote 65] Since they are all
revolving funds, they share the common elements of revolving funds
discussed below: they are created by act of Congress, they operate as
combined receipt and expenditure accounts, and they authorize use of
the receipts without further congressional action.
a. Public Enterprise Revolving Fund:
A public enterprise revolving fund is a revolving fund which derives
most of its receipts from sources outside of the federal government.
It usually involves a business-type operation, which generates
receipts, that are in turn used to finance a continuing cycle of
operations. Although not a legal requirement, like a self-sustaining
business operation the fund should be self-sustaining or nearly so. B-
302962, June 10, 2005; 65 Comp. Gen. 910 (1986); GAO, Revolving Funds:
Full Disclosure Needed for Better Congressional Control, GAO/PAD-77-25
(Washington, D.C.: Aug. 30, 1977), at 7, 51.
Many wholly owned government corporations are financed, at least in
part, by public enterprise revolving funds. They are also commonly
used for credit programs (direct loan, loan guarantee) of agencies
such as the Department of Housing and Urban Development and the Small
Business Administration. Although not necessary, the governing
legislation sometimes explicitly designates the fund as a "public
enterprise" fund. An example is 31 U.S.C. § 5136, the United States
Mint Public Enterprise Fund. Either way, if it meets the criteria,
Treasury will assign it an account symbol from the 4000-4499 group
reserved for public enterprise revolving funds.[Footnote 66] An
example is the Senate Restaurant Revolving Fund, which is Account
4022. See GAO, Financial Audit: Senate Restaurants Revolving Fund for
Fiscal Years 2006 and 2005, GAO-07-462 (Washington, D.C.: Mar. 13,
2007).
b. Trust Revolving Fund:
A trust revolving fund account (Treasury accounts 8400-8499) is
similar to other types of revolving funds—a fund permanently
established to finance a continuing cycle of business-type operations—
except that it is used for specific purposes or programs in accordance
with a statute that designates the fund as a trust fund.[Footnote 67]
Examples of trust revolving funds include the Employees' Life
Insurance Fund, 5 U.S.C. § 8714, and the Veterans Special Life
Insurance Fund, 38 U.S.C. § 1923. Chapter 15, section D, provides an
in-depth discussion of federal trust funds.
c. Intragovernmental Revolving Fund:
An intragovernmental revolving fund (Treasury accounts 4500-4999) is,
as the name implies, a revolving fund whose receipts come primarily
from other government agencies, programs, or activities. It is
designed to carry out a cycle of business-type operations with other
federal agencies or separately funded components of the same agency.
Some intragovernmental revolving funds perform the services or provide
the requested goods primarily themselves, such as the Transportation
Systems Center working capital fund (49 U.S.C. § 328). Others enter
into contracts with private vendors to provide the customer agency
with the agreed upon goods or services. Examples of such
intragovernmental revolving funds include the Federal Library and
Information Network (FEDLINK) revolving fund (2 U.S.C. § 182c), which
the Library of Congress uses to provide other federal agencies online
access to databases, periodical subscriptions, and other related
reimbursable services, and the Acquisition Services Fund (40 U.S.C. §
321),[Footnote 68] which provides federal agencies with supplies,
services, personal property management, and telecommunications
services and support. See General Services Administration
Modernization Act, Pub. L. No. 109-313, § 3, 120 Stat. 1734, 1735-37
(Oct. 6, 2006). For additional examples of intragovernmental revolving
funds, see GAO, Budget Issues: Franchise Fund Pilot Review, GAO-03-
1069 (Washington, D.C.: Aug. 22, 2003), at 50-51.
Intragovernmental revolving funds have common elements:
* As with all revolving funds, receipts that the fund has earned
through its operations are available without fiscal year limitation. B-
288142, Sept. 6, 2001; 1 Comp. Gen. 704 (1922); 26 Comp. Dec. 295
(1919); B-209680, Feb. 24, 1983.
* The authorizing statute will address the services to be covered in
one of three ways: it may list the services (e.g., 42 U.S.C. § 3513),
leave it to the agency's discretion (e.g., 42 U.S.C. § 3535(f)), or
provide some combination. Discretion is not unbridled, but must remain
within the scope of the fund statute. 6 Op. Off. Legal Counsel 384,
386 n. 8 (1982).
* The authorizing statute will require payment for goods or services
the fund provides. Some authorize advance payments, while others do
not. An advance payment provision may limit the advance's period of
availability to that of the paying appropriation. E.g., 7 U.S.C. §
2235.
* The authorizing statute may require some form of budgetary
disclosure. Authorizing statutes usually include some direction on
determining the amount of reimbursement, the inclusion of depreciation
being the most common.
* The authorizing statutes may also have a provision limiting the
amount the fund may retain and requiring return of amounts exceeding
the limitation to the general fund of the Treasury. E.g., 15 U.S.C. §
278b(f).
Intragovernmental revolving funds include stock funds, industrial
funds, supply funds, working capital funds, and franchise funds. We
will discuss the latter two in more detail below. Stock funds finance
inventories of consumable items and industrial funds generally finance
industrial- and commercial-type activities. See Senate Committee on
Government Operations, Financial Management in the Federal Government,
S. Doc. No. 87-11, at 171 (1961). Both are found primarily within the
Defense establishment. See section C.7 of this chapter for more
information on stock and industrial funds. A supply fund is largely
self-explanatory and is used to finance the operation and maintenance
of an agency's supply system, plus whatever else the governing
legislation may specify. Examples include a revolving supply fund
within the Department of Veterans Affairs (38 U.S.C. § 8121) and the
Coast Guard Supply Fund (14 U.S.C. § 650).
(1) Working capital funds:
A working capital fund is a form of intragovernmental revolving fund
that generally finances the centralized provision of common services
within an agency. A typical example[Footnote 69] of a working capital
fund that is used to finance the centralized provision of common
services within an agency is the Commerce Department's working capital
fund, 15 U.S.C. § 1521:
"There is established a working capital fund of $100,000, without
fiscal year limitation, for the payment of salaries and other expenses
necessary to the maintenance and operation of (1) central duplicating,
photographic, drafting, and photostating services and (2) such other
services as the Secretary, with the approval of the Director of the
[Office of Management and Budget], determines may be performed more
advantageously as central services; said fund to be reimbursed from
applicable funds of bureaus, offices, and agencies for which services
are performed on the basis of rates which shall include estimated or
actual charges for personal services, materials, equipment (including
maintenance, repairs, and depreciation) and other expenses: Provided,
That such central services shall, to the fullest extent practicable,
be used to make unnecessary the maintenance of separate like services
in the bureaus, offices, and agencies of the Department ..."
As the Justice Department has pointed out, a working capital fund
statute like 15 U.S.C. § 1521 provides the necessary authority to tap
the appropriations of the component bureaus to pay for the services,
regardless of whether they were previously funded on a centralized or
decentralized basis. 6 Op. Off. Legal Counsel 384 (1982).
A working capital fund may also provide goods or services to other
agencies on a reimbursable basis. See, e.g., 43 U.S.C. § 50a, the
United States Geological Survey Working Capital Fund ("the fund shall
be credited with appropriations and other funds of the Survey, and
other agencies of the Department of the Interior, other Federal
agencies, and other sources, for providing materials, supplies,
equipment, work and services"). These working capital funds may
operate similarly to the franchise and other entrepreneurial revolving
funds described below.
In recent years, federal agencies have turned increasingly to
contracting services provided through fee-for-service
intragovernmental revolving funds, and to contracts one agency makes
available governmentwide, such as Governmentwide Acquisition Contracts
(GWACs), and Multiple Award Schedule (MAS) Contracts. Under GWACs and
MAS contracts, the purchasing agency incurs an obligation directly
against the contract; accordingly, interagency agreements are not
required when placing orders against these contracts. Section A of
this chapter discusses MAS contracts and GWACs.
(2) Franchise and other revolving funds:
In the 1990s, in an attempt to foster competition among agencies in
the area of providing common services in order to increase efficiency
at reduced cost, Congress introduced the concept of the "franchise
fund" as a pilot. Government Management Reform Act of 1994, Pub. L.
No. 103-356, § 403, 108 Stat. 3410, 3413 (Oct. 13, 1994), codified at
31 U.S.C. § 501 note. Section 403(a) authorized the establishment of
franchise fund pilots in six executive agencies to be selected by the
Office of Management and Budget (OMB) in consultation with specified
congressional committees. Section 403(b) provides:
"Each such fund may provide, consistent with guidelines established by
the Director [of OMB], such common administrative support services to
the agency and to other agencies as the head of such agency, with the
concurrence of the Director, determines can be provided more
efficiently through such a fund than by other means. To provide such
services, each such fund is authorized to acquire the capital
equipment, automated data processing systems, and financial management
and management information systems needed. Services shall be provided
by such funds on a competitive basis."
Section 403(c) addresses funding by providing those elements commonly
found in revolving fund legislation. It authorizes the necessary start-
up appropriations and the transfer of certain unexpended balances and
inventories. It also addresses the charging and disposition of fees as
follows:
"Fees for services shall be established by the head of the agency at a
level to cover the total estimated costs of providing such services.
Such fees shall be deposited in the agency's fund to remain available
until expended, and may be used to carry out the purposes of the fund."
Pub. L. No. 103-356, § 403(c)(2). Thus, a franchise fund is a type of
intragovernmental revolving fund designed to compete with similar
funds of other agencies to provide common administrative services.
Examples of such services include accounting, financial management,
information resources management, personnel, contracting, payroll,
security, and training.
The six executive agencies selected by OMB in consultation with
specified congressional committees were the Department of Commerce,
the Department of Health and Human Services, the Department of the
Interior, the Department of Veterans Affairs, the Environmental
Protection Agency, and the Department of the Treasury. See OMB and
Chief Financial Officers Council, 2000 Federal Financial Management
Report (Nov. 20, 2000), at 23, available at [hyperlink,
http://www.whitehouse.gov/omb/financia1/2000ffm.pdf] (last visited
Mar. 20, 2008); Report to Congress: The Franchise Fund Program, An
Interim Progress Report (Apr. 1998). The specific statutory authority
for each fund is as follows:
* Department of Commerce: Pub. L. No. 105-277, thy. A, title II, §
209, 112 Stat. 2681, 2681-87 (Oct. 21, 1998), 31 U.S.C. § 501 note.
* Department of Health and Human Services (ITHS): This franchise fund
operates under the authority of the BHS Service and Supply Fund. 42
U.S.C. § 231.
* Department of the Interior: Pub. L. No. 104-208, div. A, title I, §
113, 110 Stat. 3009, 3009-200-201 (Sept. 30, 1996), 31 U.S.C. § 501
note (Acquisition Services Directorate, formerly GovWorks).
* Department of Veterans Affairs (VA): Pub. L. No. 104-204, title I,
110 Stat. 2874, 2880 (Sept. 26, 1996), 31 U.S.C. § 501 note.
* Environmental Protection Agency (EPA): Pub. L. No. 104-204, 110
Stat. at 2912-13. EPA's franchise fund was subsequently reclassified
as a working capital fund and not a franchise fund pilot. See Pub. L.
No. 105-65, title III, 111 Stat. 1344, 1374 (Oct. 27, 1997), codified
at 42 U.S.C. § 4370e.
* Department of the Treasury: Pub. L. No. 104-208, 110 Stat. at 3009-
316-317.
The provisions for Commerce, Interior, VA, and Treasury are similar
and track the enabling legislation. The Interior and Commerce statutes
mandate payment in advance (as did the EPA statute). The BHS,
Treasury, and VA statutes permit advance payment but do not require it.
As explained in section C.6 of this chapter, a common feature of most
revolving funds is that they are intended to operate on a break-even
basis or reasonably close to it, over the long term. Most of the
franchise fund pilots authorize the funds to charge a fee at rates
which will return in full all expenses of operation, including an
amount necessary to maintain a reasonable operating reserve, as well
as to retain up to 4 percent of total annual income as a reserve for
acquisition of capital equipment and enhancement of support systems,
with any excess to be transferred to the Treasury. See, e.g., Pub. L.
No. 104-208, § 113. Revolving fund statutes may also limit the amount
the revolving fund may retain and require periodic payments of surplus
amounts to the general fund of the Treasury.
The Department of Transportation and Related Agencies Appropriations
Act established a new franchise fund at the Federal Aviation
Administration. See Pub. L. No. 104-205, 110 Stat. 2951, 2957 (Sept.
30, 1996). It has authorities similar to those of the Commerce,
Interior, Treasury, and VA franchise funds. Id.
Other agencies also have revolving funds that operate on a fee-for-
service basis, but these funds generally do not have the authority to
retain up to 4 percent of total annual income as a reserve for capital
equipment. See, e.g., Federal Library and Information Network's
(FEDLINK) revolving fund (2 U.S.C. § 182c); General Services
Administration's Acquisition Services Fund (40 U.S.C. § 321);
Department of Interior's Working Capital Fund (43 U.S.C. § 1467).
(3) Contracting services and revolving funds:
GAO and inspectors general of several agencies have identified
numerous issues in contracting services provided by revolving funds,
including possible Antideficiency Act violations. GAO added management
of interagency contracting to the High Risk List in 2005. GAO, High-
Risk Series: An Update, GAO-05-207 (Washington, D.C.: Jan. 2005). The
report discussed both interagency agreements through which one agency
uses the contracting services of another agency, and contracts that
one agency makes available to other agencies governmentwide. See also
GAO, Interagency Contracting: Improved Guidance, Planning, and
Oversight Would Enable the Department of Homeland Security to Address
Risks, GAO-06-996 (Washington, D.C.: Sept. 27, 2006).
Inspectors General of DOD, GSA, and Interior have been critical of
their agencies with respect to obtaining or providing goods and
services through interagency agreements with revolving funds. For
example, the DOD Inspector General reported that guidance on the use
of GSA then Information Technology Fund was widely misunderstood and
that DOD may have violated the Antideficiency Act. See DOD Office of
Inspector General, Acquisition: DOD Purchases Made Through the General
Services Administration, Report No. D-2005-096 (July 29, 2005),
available at [hyperlink,
http://www.dodig.mil/auditireports/05report.htm] (last visited Mar.
20, 2008).
A General Services Administration Inspector General report identified
instances of inappropriate contracting practices, including misuse by
GSA of contract vehicles, inadequate competition, nonexistent or
ineffective contract administration, misleading descriptions of work,
and awarding contracts outside of the scope of the then Information
Technology Fund. See GSA, Office of the Inspector General, Compendium
of Audits of Federal Technology Service Client Support Centers (Dec.
14, 2004), at 5, available at www.gsa.gov, under About GSA, OIG
Reports, Special Reports (last visited Mar. 20, 2008).
A subsequent report by the DOD Inspector General in 2006 found that
although GSA and DOD contracting and management officials improved the
interagency acquisition process, they continued to purchase goods and
services without fully complying with appropriations law and federal
regulations. DOD Office of Inspector General, Acquisition: FY 2005 DoD
Purchases Made Through the General Services Administration, Report No.
D-2007-007 (Oct. 30, 2006), at i, available at [hyperlink,
http://www.dodig.mil/auditlreports/07report.htm] (last visited Mar.
20, 2008).
The Department of Defense Inspector General also reported numerous
appropriations and procurement issues regarding the goods and services
the Department of Interior revolving funds provided to DOD. Department
of Interior Office of Inspector General, Audit of FY2005 Department of
the Interior Purchases Made on Behalf of the Department of Defense,
Report No. X-IN-MOA-0018-2005 (Jan. 9, 2007), available at [hyperlink,
http://www.doioig.gov/upload/2007-G-0002.txt] (last visited Mar. 20,
2008).
DOD, in an effort to improve its compliance with appropriations and
procurement laws, entered into agreements with both GSA and Interior
outlining more than 20 areas in which GSA and Interior agreed to work
with DOD to achieve "acquisition excellence," and to ensure the
acquisition practices comply with all statutory, regulatory, and
policy requirements.[Footnote 70] One area was severable services and
compliance with 41 U.S.C. § 2531 and 10 U.S.C. § 2410a[Footnote 71] In
particular, GSA and Interior agreed that if DOD has transferred fiscal
year appropriations to them, they will return those appropriations to
DOD when they expire unless the agency has obligated those
appropriations for a severable services contract for DOD during the
appropriation's period of availability and the contract's performance
period does not exceed 1 year. In establishing this practice, DOD,
GSA, and Interior will prevent use of an expired appropriation to fund
a new contract.[Footnote 72]
Recent GAO decisions have examined interagency agreements and
revolving funds and found that customer and performing agencies are
violating the bona fide needs statute and trying to "park" or "bank"
expiring appropriations. B-308944, July 17, 2007, and discussion in
section C.4.c.2 of this chapter. For a discussion of "parking," see
Chapter 5, section B.1.c. We also found that agencies cannot use a
revolving fund to acquire office space when neither the customer nor
performing agency has authority to enter into leases. B-309181, Aug.
17, 2007, and the discussion in section C.4.b of this chapter. The
next section examines interagency agreements in the context of
purpose, time, and amount.
4. Expenditures/Availability:
a. Status as Appropriation:
There are perhaps two "fundamental rules" pertaining to revolving
funds from which all else flows. One, discussed earlier, is that
specific statutory authority is necessary to create a revolving fund.
The second is that a revolving fund is an appropriation. Hence, funds
in a revolving fund are appropriated funds. The significance of this
second rule is twofold. First, except as may be otherwise specified by
statute, a revolving fund is available for expenditure without further
appropriation action by Congress. It "is in no way dependent on the
existence of [a separate] appropriation for the same purpose." B-
209680, Feb. 24, 1983, at 4. Second, unless specifically exempted,
funds in a revolving fund are subject to the various purpose, time,
and amount limitations and restrictions applicable to appropriated
funds.
As discussed in Chapter 2, the reason for the rule that revolving
funds are appropriated funds follows from the Miscellaneous Receipts
Act, 31 U.S.C. § 3302(b), and the Appropriations Clause, U.S. Const.,
art. I, § 9, cl. 7. Under 31 U.S.C. § 3302(b) all moneys received for
the use of the United States must be deposited in the general fund of
the Treasury absent statutory authority for some other disposition. B-
271894, July 24, 1997. Pursuant to the Appropriations Clause, once the
money is in the Treasury, it can be withdrawn only if Congress
appropriates it.[Footnote 73] Therefore, the authority for an agency
to obligate or expend collections without further congressional action
amounts to a continuing appropriation or permanent appropriation of
the collections.[Footnote 74] E.g., United Biscuit Co. v. Wirtz, 359
F.2d 206, 212 (D.C. Cir. 1965), cert. denied, 384 U.S. 971 (1966); 73
Comp. Gen. 321 (1994); 69 Comp. Gen. 260, 262 (1990).
In addition, 31 U.S.C. §§ 701(2)(C) and 1101(2)(C) define
"appropriation" as including "other authority making amounts available
for obligation or expenditure." A revolving fund certainly fits this
definition. Discussing a now-obsolete fund called the "Farm Labor
Supply Revolving Fund," the Comptroller General set forth the
principle in these terms:
"The payments received from the growers who make use of the workers
represent moneys collected for the use of the United States and in the
absence of specific statutory authority would be required to be
deposited into the general fund of the Treasury as miscellaneous
receipts under [31 U.S.C. § 3302(b)]. In this case, the specific
statutory authority to use the moneys is supplied by the referred-to
legislation establishing the Fund. The result of such legislation is
to continuously appropriate such collections for the authorized
expenditures for which the Fund is available ....Thus, we conclude
that the 'Farm Labor Supply Revolving Fund' does represent an
`appropriation'...."
35 Comp. Gen. 436, 438 (1956).
GAO has expressed this principle on numerous occasions. E.g., B-
289219, Oct. 29, 2002 (revolving funds of the Pension Benefit Guarantee
Corporation, a wholly owned government corporation, are appropriated
funds and are subject to statutory restrictions governing appropriated
monies); 63 Comp. Gen. 31 (1983), aff'd on reconsideration, B-210657,
May 25, 1984 (operating fund of National Credit Union Administration
is an appropriation and thus subject to certain employee compensation
provisions in title 5 of the United States Code; the 1984 decision
includes the more detailed discussion of the appropriation issue); 60
Comp. Gen. 323 (1981) (Federal Prison Industries revolving fund is an
appropriated fund for purposes of surplus personal property provisions
of Federal Property and Administrative Services Act); 35 Comp. Gen.
615 (1956) (statutory restriction on use of appropriated funds applies
to operating fund of National Credit Union Administration's
predecessor); B-204078.2, May 6, 1988 (Panama Canal Revolving Fund); B-
217281-0.M., Mar. 27, 1985 (revolving funds of Pension Benefit
Guaranty Corporation subject to federal procurement laws and
regulations); B-148229-0.M., May 15, 1962 (General Services
Administration's General Supply Fund is an appropriated fund for
purposes of administrative payment under Federal Tort Claims Act). The
decisions have consistently rejected the suggestion that revolving
funds should be regarded as nonappropriated funds. E.g., 60 Comp. Gen.
at 327; B-210657, May 25, 1984.
The fact that the initial capitalization has been paid back to the
general fund of the Treasury and the revolving fund has thereafter
become fully self-sustaining through collections from private parties
does not change the fund's character as an appropriation. 60 Comp.
Gen. at 326; 35 Comp. Gen. at 438.
Most of the cases involve public enterprise revolving funds because it
is there that the miscellaneous receipts statute comes into play. It
is much harder to try to suggest that an intragovernmental revolving
fund is not an appropriated fund, in effect, that moving money from
one government pocket to another changes its status. E.g., 31 Comp.
Gen. 7 (1951) (Navy Management Fund is an appropriation).[Footnote 75]
See also Pulsar Data Systems, Inc. v. GSA, GSBCA No. 13223, 96-2
B.C.A. ¶ 28, 407 (1996) (involving a lease funded under GSA's working
capital fund in which there is not the slightest suggestion that the
monies are anything but appropriated funds).
The Court of Appeals for the District of Columbia Circuit is in
agreement. Holding a military stock fund subject to certain
procurement laws, the court stated that the revolving fund legislation
"eliminated the need for a new appropriation each fiscal year by
creating what was, in effect, an ongoing appropriation." United
Biscuit Co. v. Wirtz, 359 F.2d 206, 212 (D.C. Cir. 1965), cert.
denied, 384 U.S. 971 (1966). Indeed, the court went on to note, in
view of the Appropriations Clause of the Constitution, if a revolving
fund is not an appropriation, its constitutionality is cast into
doubt. Id. at 213 n.14. See also B-67175, July 16, 1947.
b. Purpose:
Since funds in a revolving fund are appropriated funds, they are fully
subject to 31 U.S.C. § 1301(a) which restricts the use of appropriated
funds to their intended purpose(s). 63 Comp. Gen. 110, 112 (1983); 37
Comp. Gen. 564 (1958); B-203087, July 7, 1981. The purpose
requirement, as discussed in detail in Chapter 4, applies to revolving
funds in exactly the same manner that it applies to direct
appropriations.
You look first and foremost to the statute creating the fund, that is,
the appropriation, to identify the fund's authorized purposes. Since
revolving funds are by definition creatures of statute, this step is
of paramount importance. The governing legislation may be somewhat
general, or it may be painstakingly specific. Either way, the rule is
the same: the terms of the statute, in conjunction with other
applicable statutory provisions, define the fund's availability. Thus,
for example, revolving funds for the Senate Recording and Photographic
Studios, without further statutory authority, may not be invested in
short-term certificates of deposit since this is not a specified
purpose under the enabling legislation (2 U.S.C. §§ 123b(g) and (h)).
B-203087, July 7, 1981. Similarly, the General Services
Administration's Working Capital Fund, which is available for the
expenses of operating "a central blueprinting, photostating, and
duplicating service" (40 U.S.C. § 3173), may not be used to finance
the agency's central library or travel office. B-208697, Sept. 28,
1983. While reimbursing the Working Capital Fund from the
appropriations which should have been charged in the first instance
will avoid an Antideficiency Act violation, use of the Fund for
unauthorized items was nevertheless improper. Id.
While the statute is the first and most important source for
determining purpose availability, it cannot be expected to spell out
every detail. If the statute does not directly address the item in
question one way or the other, the next step is to apply the
"necessary expense" rule the same as with any other appropriation.
E.g., 63 Comp. Gen. 110, 112 (1983); B-230304, Mar. 18, 1988; B-
216943, Mar. 21, 1985. This means that a revolving fund is available
for expenditures which are directly related to, and which materially
contribute to accomplishing an authorized purpose of, the fund and
which are not otherwise specifically provided for or prohibited.
One revolving fund whose purpose statement is quite general is 31
U.S.C. § 5142, the Bureau of Engraving and Printing Fund. The Fund is
available "to operate the Bureau of Engraving and Printing" (id. §
5142(a)(1)) or, in the original language, "for financing all costs and
expenses of operating and maintaining the Bureau" (Act of August 4,
1950, ch. 558, § 2, 64 Stat. 409). Under this language, the Fund has
been held available for various alterations and improvements to the
Bureau's real property (replacements and additions of elevators, air
conditioning, electrical, plumbing and heating equipment, partitions,
flooring, etc.), as these are clearly necessary costs of operating and
maintaining the Bureau. B-104492, Oct. 4, 1951. It may be used to send
representatives to meetings of societies of coin collectors as this is
sufficiently related to the Bureau's activities for purposes of 5
U.S.C. § 4110. B-152624, Feb. 18, 1965. And, in view of legislative
history strongly indicating an intent that the language be broadly
construed, it satisfies the requirement of 5 U.S.C. § 3109(b) that the
procurement of experts and consultants be "authorized by an
appropriation or other statute." B-122562, May 26, 1955.
Another illustration is the Rural Housing Insurance Fund, which, under
42 U.S.C. § 1487(j)(3), is available, for "servicing of loans, and
other related program services and expenses." One "related expense"
chargeable to the fund is the purchase of surety bonds needed to
obtain the release of deeds of trust for borrowers where the Farmers
Home Administration could not find, and therefore could not deliver,
the original canceled promissory note. B-114860, Dec. 19, 1979. GAO
also regards the fund as available to pay the pro rata share of
developing and installing a new computerized program accounting
system, intended in part to permit prompter and more accurate loan
servicing. B-226249-0.M., Mar. 2, 1988.
A somewhat more specific purpose statement was contained in the now-
defunct Farm Labor Supply Revolving Fund. The Agricultural Act of
1949, as amended by Pub. L. No. 82-78, 65 Stat. 119 (July 12, 1951),
authorized the Department of Labor to incur, on a reimbursable basis,
certain expenses incident to the transportation and subsistence of
farm workers. Under the legislation establishing the revolving fund,
the fund was available "for payment of transportation, subsistence,
and all other expenses" which were reimbursable under the Agricultural
Act. See Supplemental Appropriation Act, 1952, 65 Stat. 741 (Nov. 1,
1951). One decision concluded that the fund was available for the cost
of physical examinations because they could be regarded as directly
connected with the transportation of the workers into the country. Of
course this also meant that the costs were reimbursable and would
ultimately be borne by the employers of the imported workers and not
the taxpayers. 33 Comp. Gen. 425 (1954). GAO determined, however, that
the necessary expense rationale could not be stretched far enough to
justify charging the revolving fund for the cost of a management
survey of the program. B-119354, Mar. 30, 1959. It is not clear
whether GAO would reach this same conclusion today.
An example of an expenditure which is otherwise provided for is B-
230304, Mar. 18, 1988, concluding that the Federal Prison Industries'
revolving fund was not available to construct a prison camp because
Congress had provided statutory procedures and specific appropriations
for prison construction. An expenditure which is otherwise prohibited
is illustrated in B-67175, July 16, 1947, finding a revolving fund
unavailable for the purchase of motor vehicles without the specific
authority required by 31 U.S.C. § 1343(b). By way of contrast, in B-
122562, May 26, 1955, one of the Bureau of Engraving and Printing
cases noted above, explicit legislative history combined with
sufficiently broad statutory language was found to supply the
necessary authority.
In analyzing the purpose availability of a revolving fund, as with any
other appropriation, the agency has reasonable discretion in selecting
means of implementation, as long as its exercise is consistent with
the statutory objectives. Since the 1970s, the Department of Housing
and Urban Development (HUD) had a revolving fund to finance something
called the New Community Development Program. The fund was available
for specified forms of credit and other financial assistance, and for
"any other program expenditures." When the program failed and the
incipient new communities raced toward insolvency, HUD was faced with
a variety of options. In one decision, GAO advised that, under the
statute, HUD could acquire the property by foreclosing on its security
and undertake a variety of expenditures incident to engaging a new
builder. Actions specifically authorized by the statute had to be
regarded as "program expenditures," and nothing in the law required
HUD to choose the option which would minimize the government's loss. B-
170971, July 9, 1976. The discretion was not open-ended, however.
Another decision, cautioning that "program expenditures" means
"expenses of the program established by other sections" of the
statute, found no basis for using the revolving fund to, in effect,
step into the developer's shoes and maintain and operate a
development, except pursuant to a bona fide determination to acquire a
given security. B-170971, Jan. 22, 1976.
The desirability of a proposed expenditure is not enough to supply
legal authority which is otherwise lacking. In 40 Comp. Gen. 356
(1960), for example, the Veterans Administration (VA) proposed using
its revolving supply fund to finance a program to recover silver from
x-ray developing solutions. There was no question that the proposal
was a good idea. The problem was that recovering silver was more of an
industrial-type operation than the furnishing of supplies and the
reclaimed silver was apparently of no benefit to any of the
appropriations which supported the supply fund. Therefore, GAO was
forced to conclude that the proposal was not an authorized revolving
fund activity, but urged the VA to seek an amendment to its statute.
This was done, and the statute now specifically includes the
"reclamation of used, spent, or excess personal property." 38 U.S.C. §
8121(a).
Chapter 4 uses over a dozen broad subject areas to illustrate
different aspects of purpose availability. The same authorities and
limitations apply to revolving funds. For example:
* Statutes dealing with the use of appropriated funds to pay the
expenses of attendance at meetings apply to revolving funds. 34 Comp.
Gen. 573 (1955) (37 U.S.C. § 412 (Department of Defense)); B-152624,
Feb. 18, 1965 (5 U.S.C. § 4110).
* Employees paid from revolving funds are subject to the statutory
restriction on payment of compensation to noncitizens. 50 Comp. Gen.
323 (1970);[Footnote 76] B-161976, Aug. 10, 1967.
* Like other appropriations, revolving funds are not available for
entertainment without statutory authority. B-170938, Oct. 30, 1972.
* Revolving fund may be used to subsidize employee cafeteria if
properly justified under the necessary expense rule. B-216943, Mar.
21, 1985.
* Revolving funds are subject to the prohibition in 31 U.S.C. §
1348(a)(1) on providing telephone service to private residences. 35
Comp. Gen. 615 (1956), affd on reconsideration, B-126760, Aug. 21,
1972.
A revolving fund cannot be used to permit the customer agency to evade
restrictions on its funds or to accomplish some purpose it is not
authorized to do directly. E.g., 30 Comp. Gen. 453 (1951) (working
capital fund not available for construction where customer agency
lacks the authority required by 41 U.S.C. § 12). See also 34 Comp.
Gen. 573 (1955); B-161976, Aug. 10, 1967.
A similar situation was presented in a transaction involving the DOD's
Counterintelligence Field Activity (CIFA) and GovWorks[Footnote 77]
for acquisition of space to consolidate CIFA's activities. B-309181,
Aug. 17, 2007. GovWorks is a revolving fund. CIFA entered into an
interagency agreement with GovWorks for GovWorks to consolidate CIFA
programs and provide space for multiple activities. CIFA directed
GovWorks to enter into a contract with a vendor for services,
including supplying office space and facilities management services.
The vendor then signed a lease with a property owner for office space
for use by CIFA. GAO concluded that without a delegation from GSA or
independent statutory authority to enter into a lease, neither
GovWorks nor CIFA had authority to obtain office space through a third-
party lease. Unless ratified by an appropriate government official,
the agreement for office space was unenforceable against the
government. The decision stressed that GovWorks and CIFA could not
circumvent federal statutory and regulatory requirements on leasing by
bundling the lease agreement in a contract for services, and that
without ratification, all payments under this third-party lease were
improper payments.
The purpose for which a revolving fund may be used, of course, is
governed by the statute which created the fund. See, for example, 40
Comp. Gen. 356 (1960), holding that a revolving supply fund is
available to finance a supply operation and not an industrial-type
program. In addition, it is necessary to consider the purpose
availability of the supporting appropriations, that is, the
appropriations from which the revolving fund is advanced or
reimbursed. A decision addressing the Navy Industrial Fund stated the
rule that the Fund is "available only for the purposes permissible
under [the] source appropriation, and subject to the source
restrictions." 63 Comp. Gen. 145, 150 (1984). See also, e.g., 18 Comp.
Gen. 489, 490-91 (1938); B-106101, Nov. 15, 1951. For related
material, see section B.1.c(4) of this chapter.
c. Time:
(1) Earned receipts and collection:
As pointed out earlier in this discussion, one of the key features of
a revolving fund is that receipts and collections earned through the
fund's operations and credited to the fund are available without
further congressional action and without fiscal year limitation.
[Footnote 78] This continuing availability of receipts and collections
that a revolving fund has earned through its operations has long been
recognized as an inherent characteristic of a revolving fund, at least
as that term is used in statutes enacted by Congress. While the more
modern statutes tend to include explicit language such as "without
fiscal year limitation" without more, the term "revolving fund" alone
would be construed to mean the same thing. 1 Comp. Gen. 704 (1922); 26
Comp. Dec. 296 (1919).
Thus, the various rules discussed in Chapter 5 governing the
obligation and expenditure of fixed-year appropriations with respect
to time generally do not apply to receipts and collections that a
revolving fund has earned through its operations. For purposes of
comparison, the time availability of receipts and collections that a
revolving fund earns through its operations, unless otherwise
restricted by statute, is similar to that of a no-year appropriation—
the money is "available until expended." This being the case, the
rules for no-year appropriations provide a useful analogy. Under a no-
year appropriation—and therefore a revolving fund as well—"all
statutory time limits as to when the funds may be obligated and
expended are removed." 40 Comp. Gen. 694, 696 (1961). Amounts earned
and credited to the fund are treated as unobligated balances and are
available for obligation the same as any other unobligated money in
the fund. Id. at 697. Deobligated funds are treated the same way. B-
200519, Nov. 28, 1980.
A question that appears to have drawn little attention is whether 31
U.S.C. § 1555 applies to revolving funds. That statute permits an
agency to close a no-year account if the agency head determines that
the purposes of the appropriation have been carried out and if there
have been no disbursements from the account for two consecutive fiscal
years. In 72 Comp. Gen. 295 (1993), the Treasury Department had
invoked 31 U.S.C. § 1555 to terminate the Check Forgery Insurance
Fund, a revolving fund. GAO found closure improper because the reasons
the fund had been created continued to exist. While the issue was not
directly raised in the decision, apparently both Treasury and GAO
regarded 31 U.S.C. § 1555 as applicable to the revolving fund without
question.
(2) Appropriations of revolving funds' customer agencies:
When entering into a transaction with a revolving fund, the customer
agency still must satisfy the various time rules to its own
appropriation. Specifically, the customer agency must obligate its
appropriation for a bona fide need within the specified period of
availability.
In order for the customer agency to incur an obligation when it enters
into an interagency agreement with the revolving fund, the customer
agency must have documentary evidence of a binding agreement between
the two agencies for specific goods or services. 31 U.S.C. § 1501(a).
In addition, an appropriation is available for obligation only to
fulfill a bona fide need of the period of availability for which it
was made. 31 U.S.C. § 1502(a). In B-308944, July 17, 2007, GAO found
that a Department of Interior revolving fund accepted Military
Interdepartmental Purchase Requests (MIPRS), which DOD used to
document interagency agreements with Interior, that did not identify
the specific items or services that DOD wanted the revolving fund to
acquire on its behalf. Lacking the necessary specificity as to the
items or services ordered, these MIPRs did not obligate DOD's funds.
DOD sent more specific information to the revolving fund at a later
date, which served to perfect the orders and obligate DOD's
appropriations; however, at this point, DOD's appropriations had
expired, and they were not available for obligation in the fiscal year
when the orders were perfected and the funds were used. Accordingly,
when the revolving fund later used these funds for three contracts,
the revolving fund improperly used prior year funds.
Funds transferred to a revolving fund through an interagency agreement
must comply with the bona fide needs rule. So when DOD ordered laser
printers (a readily available commercial item) from a revolving fund
at the Department of Interior, and the revolving fund did not execute
a contract on DOD's behalf until 17 months later and 11 months after
funds transferred expired, GAO found that the contract did not fulfill
a bona fide need arising during the funds' period of availability. B-
308944, July 17, 2007.
When an agency withdraws funds from its appropriation and makes them
available for credit to another appropriation, like a revolving fund,
the withdrawn amounts retain their time character and do not assume
the time character of the appropriation to which they are credited
until they are earned. See B-306975, Feb. 27, 2006; B-288142, Sept. 6,
2001; 31 Comp. Gen. 109, 114-15 (1951). Consequently, unless otherwise
specifically provided by law, unexpended expired balances must be
returned to the customer agency.
GAO addressed the time availability of funds a customer agency
transfers to a revolving fund in a 2001 decision which involved the
Library of Congress Federal Library and Information Network (FEDLINK)
revolving fund. B-288142, Sept. 6, 2001. Section 103(e) of the Library
of Congress Fiscal Operations Improvement Act of 2000, Pub. L. No. 106-
481, 114 Stat. 2187, 2189-90 (Nov. 9, 2000), specifies that amounts in
the FEDLINK revolving fund are available to the Librarian "without
fiscal year limitation" to carry out the FEDLINK program. GAO
explained that this language did not permit the Library to retain
unexpended fiscal year appropriations advanced by a customer agency
that were not needed for costs the Library had incurred in filling the
order. B-288142. The Library could not reserve the unexpended amounts
to cover future year orders placed by the customer agency but was
required to return excess funds to the customer agency. Id. If the
period of availability of the customer's appropriation has not
expired, the customer agency may deobligate the returned funds and use
them to place a new order. However, remaining balances are not
available to enter into a new obligation once the period of
availability of the customer agency's appropriation has expired. Id.;
51 Comp. Gen. 766 (1972). See also B-306975, Feb. 27, 2006 (if a
customer agency advances fiscal year funds to the National Archives
and Records Administration (NARA) Revolving Fund for September's
estimated costs, NARA may not credit excess amount in adjusting
October's bill).
GAO addressed a bona fide need issue in a decision involving GSA's
Federal Systems Integration and Management Center (FEDSIM), which was
financed through GSA's Information Technology Fund.[Footnote 79] B-
286929, Apr. 25, 2001. The U.S. Total Army Personnel Command (PERSCOM)
entered into an interagency agreement with the revolving fund using
fiscal year 2007 funds and transferred funds to the revolving fund.
While the agencies envisioned a three-phase project, PERSCOM actually
entered into an agreement for only the first phase of the project.
Because PERSCOM entered into an agreement for only the first phase of
the project and incurred an obligation during the period of
availability of the appropriation only for the first phase, PERSCOM
could not apply the expired balance of the amount originally
transferred to the revolving fund to complete the remaining project
phases. Even if PERSCOM could have established phases II and DI as a
bona fide need of fiscal year 2007, PERSCOM did not take appropriate
action to satisfy that need during the fiscal year by contracting for
additional phases during the period of availability of the
appropriation.
It is also improper for a customer agency using a fiscal-year
appropriation to place an order with an industrial fund at the end of
the fiscal year without a legitimate need, thereby using the revolving
fund to extend the life of the appropriation. GAO, Improper Use of
Industrial Funds by Defense Extended the Life of Appropriations Which
Otherwise Would Have Expired, GAO/AFMD-84-34 (Washington, D.C.: June
5, 1984). Similarly, a customer agency, using fiscal year
appropriations, may not amend a properly placed order in a subsequent
fiscal year to widen the scope of work and charge the increased costs
to expired funds of the prior year. Id. app. I at 9.
While the funds a customer agency advances to a revolving fund to
cover its order for goods or services are not available without fiscal
year limitation, the "earned fee," that is, the component of the fee
that reimburses the revolving fund for the cost of its operations is
available until expended. In the FEDLINK example discussed above, fees
for service under the FEDLINK revolving fund had two components: (1)
advances the customer agency provides the Library of Congress to cover
the customer's order for goods and services, and (2) reimbursements to
the Library for the accounting services and its other administrative
costs, both direct and indirect, of operating the program. Because the
Library intended for these amounts to reimburse the Library for
administrative costs of running the program rather than as an advance
to cover the customer's order for goods and services, GAO agreed with
the Library's conclusion that it could retain these amounts without
fiscal year limitation. B-288142, Sept. 6, 2001.
Revolving funds must also abide by time restrictions when entering
into an indefinite-delivery, indefinite-quantity contract (IDIQ)
[Footnote 80] on behalf of a customer agency. In B-308969, May 31,
2007, the Department of Interior's (DOI) National Business Center
Acquisition Services Division, Southwest Branch (SWB), awarded a 1-
year indefinite-delivery, indefinite-quantity contract on behalf of
DOD, having a period of performance from July 1, 2003, to June 30,
2004. This transaction was funded through DOI's working capital fund.
The contract required the government to purchase a minimum of $1
million in services from the contractor. SWB, however, obligated only
$45,000 of $1 million from DOD's fiscal year 2003 appropriation and
incorrectly obligated the balance from DOD's fiscal year 2004
appropriation, using fiscal year 2004 funds to satisfy an obligation
established in fiscal year 2003.
d. Amount:
As with other appropriations, authorities and limitations relating to
the amount that can be obligated or expended apply to revolving funds
unless specifically exempted. Limitations fall into three categories.
First are governmentwide limitations. An example is 35 Comp. Gen. 436
(1956), finding a revolving fund bound by a governmentwide statute,
since repealed, limiting obligations or expenditures for improvements
to real property to 25 percent of the first year's rent. Because the
Farm Labor supply revolving fund constituted an appropriation, the
statute applied.
Next are limitations or restrictions specific to the particular fund.
An unusual situation occurred in 46 Comp. Gen. 198 (1966). Hurricane
Betsy caused considerable damage in several southern states in 1965.
Part of the congressional response was a law authorizing the Small
Business Administration (SBA) to cancel portions of outstanding
indebtedness. The indebtedness to be forgiven stemmed from loans
financed by a revolving fund. The law authorized the appropriation of
$70 million. Congress subsequently appropriated half that amount, $35
million. The SBA asked if it could grant relief in excess of $35
million, noting quite logically that forgiving an obligation does not
require an appropriation. The decision concluded that SBA may not have
needed an appropriation, but since it received one, it could not
ignore it. The authorization and appropriation reflected the
congressional determination to maintain the revolving fund for future
program use. (The alternative would have been to let the fund dwindle
and pump more money into it later.) Congress chose to enact the
limitation, and the agency could not disregard it.
The final category, applicable in the case of intragovernmental
revolving funds, consists of limitations on the appropriation from
which the fund will be reimbursed. For example, Defense Department
industrial funds can finance authorized military construction,
reimbursable from Operation and Maintenance appropriations. "Minor
military construction" projects may be charged to O&M appropriations
up to a monetary ceiling set by 10 U.S.C. § 2805. It is improper to
use the industrial fund for a construction project whose cost has been
split to evade the ceiling. B-234326.15, Dec. 24, 1991. Similarly
improper is the use of revolving fund financing to exceed a ceiling on
travel expenses applicable to the reimbursing appropriation. B-120480,
Sept. 6, 1967.
Of course, the most important law relating to amount is the
Antideficiency Act, which by its terms applies to an "appropriation or
fund." 31 U.S.C. § 1341(a)(1)(A). It is clear that the statutory
prohibition against overobligating applies to revolving funds. E.g.,
72 Comp. Gen. 59 (1992). It also applies to annual obligation
limitations on revolving funds. B-248967.2, Apr. 21, 1993, at 3
(Antideficiency Act applies "to any fund administered by a federal
employee"). See also OMB Cir. No. A-11, Preparation, Submission, and
Execution of the Budget, § 145.4 (July 2, 2007).
The law is violated by creating an obligation in excess of available
budgetary resources. 60 Comp. Gen. 520, 522 (1981). Depending on
whether the revolving fund is an intragovernmental revolving fund or a
public enterprise revolving fund, available budgetary resources may
include (a) amounts received from other government accounts that
represent valid obligations of the ordering account,[Footnote 81] and
(b) amounts received from the public.[Footnote 82] However, the
concept does not include inventory. 72 Comp. Gen. at 61; 60 Comp. Gen.
520. Nor does it include anticipated receipts from transactions that
have not yet occurred. GAO, The Air Force Has Incurred Numerous
Overobligations in Its Industrial Fund, AFMD-81-53 (Washington, D.C.:
Aug. 14, 1981); B-195316-0.M., Jan. 30, 1980; OMB Cir. No. A-11, §
20.13. A statutory exception is 10 U.S.C. § 2210(b), which authorizes
Defense Department stock funds (but not industrial funds) to obligate
against anticipated reimbursements if necessary to maintain stock
levels planned for the next fiscal year. The Coast Guard Supply Fund
has similar authority. 14 U.S.C. § 650(b). The rules relating to
indemnification discussed in detail in Chapter 6 apply fully to
revolving funds. 63 Comp. Gen. 145 (1984).
A revolving fund can also violate the Antideficiency Act by
overspending a specific monetary limitation. B-120480, Sept. 6, 1967.
However, if the overobligation or overexpenditure is authorized under
some other appropriation or fund available at the time of the
overobligation or overexpenditure, the revolving fund can make an
accounting adjustment and charge the proper source—assuming it is
still available. This would not constitute an Antideficiency Act
violation. B-208697, Sept. 28, 1983.
As discussed in Chapter 6, a violation may also occur when an agency
charges an obligation or expenditure to an appropriation that is not
legally available for that item, regardless of how much money is in
the account. The same is true if the proper funding source does not
contain adequate budgetary resources to cover the obligation or
expenditure when the accounts are adjusted. A problem of this sort
arose when the Defense Supply Agency charged the Defense Stock Fund
with a renewal option on a multiyear fuel storage service contract.
The contractor argued that exercise of the option violated the
Antideficiency Act because a Defense Department Directive required
that supply administration contracts be charged to Operation and
Maintenance appropriations and not to stock funds. There was no
question that charging the stock fund was unauthorized. The Armed
Services Board of Contract Appeals, however, found that the Defense
Directive was merely an "in-house accounting [measure] not relevant to
determining the availability of appropriated funds." Therefore, and
since there was no statutory limitation on using stock funds for
otherwise authorized fuel storage contacts, there was no
Antideficiency Act violation. The Board further noted that, even if the
stock fund was considered to be legally unavailable, there would be no
violation as long as a funding adjustment could be made. New England
Tank Industries of New Hampshire, Inc., ASBCA No. 26474, 88-1 BCA ¶
20,395, at 103,169 and n.23 (1987). While vacating and remanding the
Board's decision on other grounds, the Court of Appeals for the
Federal Circuit expressly agreed that using the stock fund, although
unauthorized, did not violate the Antideficiency Act. New England Tank
Industries of New Hampshire, Inc. v. United States, 861 F.2d 685, 692
n.15 (Fed. Cir. 1988).
Another part of the Antideficiency Act requires the apportionment of
"appropriations and funds" by the Office of Management and Budget
(OMB). 31 U.S.C. §§ 1511(a), 1512, 1513. While fixed-year
appropriations are generally apportioned by time, appropriations for
an indefinite period are apportioned "to achieve the most effective
and economical use." Id. § 1512(a). Overobligating or overspending an
apportionment is just as illegal as overobligating or overspending the
appropriation itself. Id. § 1517(a). That the apportionment statutes
apply to revolving funds is reinforced by 31 U.S.C. § 1516(2), which
authorizes OMB to exempt from apportionment "a working capital fund or
a revolving fund established for intragovernmental operations."
The applicability of the apportionment laws to revolving funds is
reflected in OMB Circular No. A-11. OMB's illustration of the Standard
Form 132 Apportionment and Reapportionment Schedule (Exhibit 121G)
includes both public enterprise and intragovernmental revolving funds,
while section 120.7 restates OMB's authority to exempt particular
intragovernmental funds. For purposes of assessing violations, the
fact that the fund includes unapportioned budgetary resources greater
than the amount of the deficiency is irrelevant. OMB Cir. No. A-11, §
145.4. The authority of 10 U.S.C. § 2210(b), mentioned above, can be
exercised only "with the approval of the President." This means OMB
apportionment. B-179708-0.M., July 10, 1975.
An important concept covered in Chapter 4 is the agency's spending
discretion under a lump-sum appropriation, illustrated in decisions
such as B-279338, Jan. 4, 1999; 55 Comp. Gen. 307 (1975); and 55 Comp.
Gen. 812 (1976). The same discretion applies under a revolving fund.
In one year, for example, committee reports expressed the view that
the Economic Development Administration not make any direct loans in
the upcoming fiscal year. Since this desire did not find its way into
any statutory language, the agency's revolving fund was legally
available to make the loans. Of course, the agency was also within its
discretion to comply with the committee preference and not make any
direct loans. B-209680, Feb. 24, 1983.
e. Obligation Requirement:
Nothing exempts revolving funds from the obligation recording
provisions of 31 U.S.C. § 1501. When a revolving fund does something
that meets one of the statutory recording criteria, it must, just like
other appropriations, record an obligation. 72 Comp. Gen. 59 (1992)
(entering into contract to procure equipment). See also 60 Comp. Gen.
700, 703 (1981); 51 Comp. Gen. 631 (1972).[Footnote 83]
Under a multiyear or base-year-plus-options contract, the amount to be
recorded as an obligation depends on the nature and extent of the
government's commitment. For example, if a multiyear contract does not
restrict the government's obligation to less than the full contract
amount, then the full contract amount is the amount of the obligation.
B-104492-0.M., Apr. 23, 1976. If the contract consists of a base
period plus renewal options, the obligation is the cost of the base
period plus any amounts payable for failure to exercise the options
(termination costs), this being the least amount of the government's
potential liability.[Footnote 84] 62 Comp. Gen. 143 (1983); 48 Comp.
Gen. 497, 502 (1969).
Congress, of course, can vary the above treatment by statute.
Statutory exceptions have tended to involve multiyear contracts under
the rather large Defense Department revolving funds where the chances
of premature termination are, from practical and political
perspectives, remote. Under a Navy ship-leasing program financed by
the Navy industrial fund, for example, Congress enacted a provision
authorizing the Navy to obligate only 10 percent of the outstanding
gross termination liability. See B-174839, Mar. 20, 1984. A case
several years earlier considered a recurring Defense appropriation act
provision which authorized Defense working capital funds to maintain
cash balances only to the extent necessary to cover cash disbursements
at any time, and further authorized transfers between such funds when
and if necessary.[Footnote 85] This provision amounted to an exception
to the requirement to obligate for termination liability. 51 Comp.
Gen. 598 (1972).
With an intragovernmental revolving fund, it is also necessary to
consider the obligational treatment of the supporting appropriations.
Section 1501(a)(1) of the recording statute (31 U.S.C. § 1501) applies
to contracts "between an agency and another person (including other
agencies)" and thus applies to interagency agreements with revolving
funds. At the time the agencies involved in the transaction enter into
a written, binding agreement, the customer agency incurs an obligation
for the costs of the work to be performed. See, e.g., B-308944, July
17, 2007; B-302760, May 17, 2004. In B-308944, July 17, 2007, GAO
found that Military Interdepartmental Purchase Requests (MIPRs ) used
to document interagency agreements between DOD and a revolving fund in
the Department of Interior (GovWorks, now called the Acquisition
Services Directorate) lacked the specificity necessary to comply with
the recording statute. Consequently, the DOD funds expired before
being properly obligated.
For some types of transactions, however, orders are required by law to
be placed with another agency. With these types of transactions,
section 1501(a)(3) applies, and the obligation occurs when the order
is placed.[Footnote 86] The same holds true for interagency
transactions with a revolving fund. For example, when an agency places
an order with the General Services Administration (GSA) for work to be
financed from one of GSA's revolving funds, placing the order
obligates the customer agency's appropriations if the order is one
which is required by law—including GSA's statutory regulations—to be
placed with GSA. If the order is not required by law to be placed with
GSA, the job order itself does not obligate the customer's funds. 34
Comp. Gen. 705 (1955).
Obligating for purchases from stock or supply funds (Defense
Department stock funds or GSA's General Supply Fund, for example) has
its own set of conventions. For common-use stock items which are on
hand or on order and expected to be delivered promptly, placing the
order obligates the customer agency's appropriation. 73 Comp. Gen. 259
(1994); 34 Comp. Gen. at 707; 34 Comp. Gen. 418, 422 (1955); 32 Comp.
Gen. 436 (1953). For other orders of items which are part of the stock
fund system, there is a measure of discretion. The fund can develop a
system—for example, a list of items which constitutes an offer to sell
at the published prices—under which placing the order "accepts" the
offer and creates the recordable obligation. See B-208863-0.M., Apr.
11, 1983; GAO, Criteria for Recording Obligations for Defense Stock
Fund Purchases Should Be Changed, GAO/AFMD-83-54 (Washington, D.C.:
Aug. 19, 1983). Otherwise, if the customer's order is the offer, a
recordable obligation requires acceptance by the revolving fund unless
the order is required by law to be placed with the fund. 34 Comp. Gen.
at 707-08; 34 Comp. Gen. at 422; 32 Comp. Gen. 436. For items which
are not part of the stock fund system, the order must be accepted
before an obligation can be recorded. GAO/AFMD-83-54, app. I at 5.
If a revolving fund finds that it has undercharged the supporting
(customer) appropriations, and those appropriations have expired for
obligational purposes, the customer agency should use its expired
appropriation to reimburse the revolving fund. See 31 U.S.C. §
1553(a). The customer agency incurred an obligation for the order at
the time it entered into the interagency agreement with the revolving
fund. The undercharge relates back in time to when the customer agency
and the revolving fund entered into the interagency agreement. Under
31 U.S.C. § 1553(a), the customer agency's expired appropriation would
remain available to make adjustments to obligations that were properly
incurred during the period of availability of the appropriation. GAO
has taken the position that any such restoration should be supported
by adequate documentation of the underlying obligations. Use of
statistical methods is not sufficient where the agency cannot identify
the underlying transactions. B-236940, Oct. 17, 1989; GAO, Financial
Management: Defense Accounting Adjustments for Stock Fund Obligations
Are Illegal, GAO/AFMD-87-1 (Washington, D.C.: Mar. 11, 1987).[Footnote
87] Presumably, although we have found no published decision, if the
customer account has been closed pursuant to 31 U.S.C. § 1552(a), a
validly supported reimbursement could be charged to current
appropriations in accordance with, and subject to the limitations of,
31 U.S.C. § 1553(b).
Any statement of obligations an agency furnishes either to the Office
of Management and Budget in connection with an appropriation request,
or to the Congress or a congressional committee, is required to be
consistent with the obligational criteria of 31 U.S.C. § 1501(a). Id.
§§ 1108(c), 1501(b).
5. Augmentation and Impairment:
One of the cornerstones of congressional control of the purse is the
rule, covered extensively in Chapter 6, that an agency may not augment
its appropriations without authority of law, or, in other words, may
not retain for credit to its own appropriations anything Congress has
not expressly authorized. The primary statutory manifestation of this
rule is the miscellaneous receipts requirement of 31 U.S.C. § 3302(b).
We have previously noted that a revolving fund is an exception to the
miscellaneous receipts requirement. While this is certainly true, it
is not a blanket exemption but goes only so far as the governing
legislation specifies. The improper augmentation of a revolving fund
can occur in either of two ways: (1) putting something in the fund
which Congress has not authorized to be put there, or (2) leaving
something in the fund, regardless of the propriety of the original
deposit, beyond the point Congress has said to take it out. The
presence or absence of a fixed dollar ceiling on the fund's capital is
irrelevant.
GAO has frequently used the following formulation of the anti-
augmentation rule: "[W]hen Congress specifies the source of money and
property that go to make up the permanent working capital of revolving
funds there may not be added additional sources which serve to
increase the working capital in the absence of specific statutory
authority therefor." B-149858-0.M., Aug. 15, 1968, at 5. The
legislation establishing a revolving fund will prescribe what may go
into the fund. Depositing anything not expressly authorized by the
statute is an improper augmentation. E.g., 23 Comp. Gen. 986 (1944);
20 Comp. Gen. 280 (1940); 19 Comp. Gen. 791 (1940). In these cases,
all related and dealing with the same fund, a statute authorized an
agency to use, as a revolving fund, income derived from operations of
a particularly special fund. It did not authorize the agency to retain
and reuse income from any other source, including operations of the
revolving fund itself (as opposed to the special fund from whose
income the revolving fund was derived), and this income therefore had
to be treated as miscellaneous receipts. The situation was admittedly
unusual in that the typical revolving fund does depend on self-
generated receipts, but in this case Congress had chosen a different
approach. "The statute thus having expressly specified the sources of
the money that comprise the revolving fund, other sources may not be
added by construction." 23 Comp. Gen. at 988.
The lesson of the preceding paragraph is simple: the precise terms of
the statute control. Another illustration, closely related to the
cases cited above, is the treatment of interest income. Interest
income earned on revolving fund operations can be added to the fund if
and only if the statute says so. An example is the revolving fund
created by the Agricultural Marketing Act, 12 U.S.C. § 1141d. Payments
of "principal or interest" on authorized loans "shall be covered into
the revolving fund." Id. § 1141f(b). Another example is interest on
rural electrification loans. 7 U.S.C. § 931(3). Of course, general
language which is sufficiently inclusive will also do the job, for
example, the Bonneville Power Administration's authority in 16 U.S.C.
§ 838i(a) to retain "all receipts, collections, and recoveries... from
all sources." Alternatively, Congress may authorize interest to be
deposited to a revolving fund and later paid over to the general fund
in whole or under some statutory formula. See, e.g., 15 U.S.C. §
633(c) (Small Business Administration Business Loan and Investment
Fund). If the statute does not include authority of the types noted,
interest income must be deposited in the Treasury as miscellaneous
receipts. 26 Comp. Dec. 295 (1919); A-96531, Oct. 24, 1940. See also 1
Comp. Gen. 656 (1922) (same principle applies to reimbursable
appropriation as opposed to revolving fund). Contrary to the
impression a superficial look might give, this is not an example of
logic versus the law. It is a matter of the choices Congress has made
as to the scope and purposes of the revolving fund.
Some further examples of unauthorized augmentations are:
* Increasing a revolving fund's working capital by transferring funds
to it from other revolving funds (or nonrevolving appropriation
accounts, for that matter) either without statutory authority or in
excess of applicable statutory authority. See GAO, Operations of
General Services Administration's General Supply Fund, GAO/LCD-76-421
(Washington, D.C.: Mar. 19, 1976).
* Retention of funded reserve for accrued annual leave after the
employees have transferred to another agency. B-149858-0.M., Aug. 15,
1968.
* Retention of jury service fees remitted by an employee paid from a
revolving fund. B-113214-0.M., Jan. 16, 1953.
Our discussion thus far has emphasized the need to follow the precise
statutory language. In addition, there are, as discussed in Chapter 6,
section E.2, certain nonstatutory exceptions to the miscellaneous
receipts requirement, and these apply to revolving funds just as to
other appropriations. For example, receipts which qualify as
"refunds," such as the recovery of overpayments or erroneous payments,
may be credited to a revolving fund even though not specified in the
governing legislation. 69 Comp. Gen. 260 (1990). That decision held
that the Federal Emergency Management Agency could deposit in its
revolving fund recoveries under the False Claims Act sufficient to
reimburse the fund for losses suffered as a result of the false claim,
including administrative expenses incurred in investigating and
prosecuting the case, but must deposit any recoveries in excess of
those amounts (treble damages, for example) in the Treasury as
miscellaneous receipts. See also B-281064, Feb. 14, 2000 (Tennessee
Valley Authority (TVA) may credit the TVA Fund (a public enterprise
revolving fund) with that portion of a False Claims Act award or
settlement that represents a refund of moneys erroneously disbursed
from the fund).
Similarly, although we do not have a case precisely on point, a
revolving fund may retain excess reprocurement costs recovered from a
defaulting contractor, at least to the extent necessary to fund the
reprocurement or corrective work, regardless of whether the recovery
occurs before or after the fund has incurred the additional costs. As
discussed in Chapter 6, this is the case where the procurement is
funded under a no-year appropriation. If it is true for a no-year
appropriation, it is true for a revolving fund.[Footnote 88]
A variation on this principle is illustrated in two cases involving
the Corps of Engineers Civil Revolving Fund, 33 U.S.C. § 576. When
supervising military construction under 10 U.S.C. § 2851, the Corps
charges its "customer" a flat percentage (5.5 percent in the cases
discussed here) of the contract price for "supervision and
administration" (S&A). The charge is designed to enable the revolving
fund to break even over the long term. In one case, faulty design
caused the Air Force to incur additional construction costs, which in
turn increased the Corps' S&A charge. GAO advised the Air Force that
it could retain the money recovered from the architect to cover its
increased construction costs and the S&A fees actually paid to the
revolving fund. However, the portion of the recovery representing S&A
expenses over and above the 5.5 percent, which the revolving fund had
absorbed, had to go to the Treasury as miscellaneous receipts. Had the
fund been charging its customers on an actual cost basis, it could
have been reimbursed the entire amount of S&A expenses actually
incurred. However, since the percentage fee was designed to recover
actual costs over time, and the Corps had already received this from
the Air Force, any additional reimbursement would amount to an
unauthorized augmentation of the fund. 65 Comp. Gen. 838 (1986). On
the other hand, the fund can be reimbursed for expenses actually
incurred which are not covered by the flat rate. B-237421, Sept. 11,
1991 (additional S&A costs resulting from contractor delay can be
reimbursed from recovery of liquidated damages since delay costs are
not factored into uniform rate).
The cases cited in the preceding paragraph point to a common feature
of most revolving funds—they are intended to operate on a break-even
basis or reasonably close to it, over the long term. One thing this
means is that the fund should not augment its working capital by
retaining funds in excess of what it needs to cover its costs. To
nudge this process along, revolving fund statutes frequently include
the requirement for the periodic payment of surplus amounts to the
general fund of the Treasury. We quote three variations:
* General Services Administration's (GSA) Acquisition Services Fund,
40 U.S.C. § 321(f):[Footnote 89]
"Transfer of Uncommitted Balances.—Following the close of each fiscal
year, after making provision for a sufficient level of inventory of
personal property to meet the needs of Federal agencies, the
replacement cost of motor vehicles, and other anticipated operating
needs reflected in the cost and capital plan ..., the uncommitted
balance of any funds remaining in the Fund shall be transferred to the
general fund of the Treasury as miscellaneous receipts."
* Bureau of Engraving and Printing Fund, 31 U.S.C. § 5142(d):
"The Secretary shall deposit each fiscal year, in the Treasury as
miscellaneous receipts, amounts accruing to the Fund in the prior
fiscal year that the Secretary decides are in excess of the needs of
the Fund. However, the Secretary may use the excess amounts to restore
capital of the Fund reduced by the difference between the charges for
services of the Bureau and the cost of providing those services."
* Office of Personnel Management (OPM) Revolving Fund, 5 U.S.C. §
1304(e)(4):
"Any unobligated and unexpended balances in the fund which the Office
determines to be in excess of amounts needed for activities financed
by the fund shall be deposited in the Treasury ... as miscellaneous
receipts."
The Acquisition Services Fund provision is the most restrictive, at
least on its face. The other two examples confer more discretion. The
OPM provision is the most discretionary and permits OPM to reduce
retained earnings by freezing or reducing fees, purchasing equipment,
or using the money essentially for any authorized purpose, or
depositing surplus as miscellaneous receipts. B-206231-0.M., Sept. 12,
1986. While this provision clearly does not require the OPM fund to
operate on a break-even basis each year, GAO has voiced the opinion
that operating with deficits or surpluses for periods of several years
is not consistent with the statutory objective. GAO, OPM's Revolving
Fund Policy Should Be Clarified and Management Controls Strengthened,
GAO/GGD-84-23 (Washington, D.C.: Oct. 13, 1983), at 9.
The absence of a provision requiring periodic payments of surplus to
the Treasury does not eliminate augmentation as a concern. For
example, the Defense Department working capital fund authority, 10
U.S.C. § 2208, contains no such provision. It nevertheless remains the
case that the fund should try to minimize annual gains or losses.
Absence of statutory limitation merely means that the fund has more
discretion in adjusting its charges periodically to recover losses or
offset profits of prior periods. B-181714-0.M., Jan. 3, 1975.
The provision quoted above for the Bureau of Engraving and Printing
Fund expressly authorizes reductions from surplus for certain capital
restoration, with the net amount then to be paid over to the Treasury.
This introduces a concept which does not exist in the case of other
appropriations—the concept of capital impairment. If the objective is
to maintain a revolving fund at a certain level, then impairment—
diminution of fund capital—is as important to guard against as
augmentation.
This concern manifests itself in the statutes in various ways. The
revolving fund of the National Institute of Standards and Technology,
for example, directs that earned net income be paid over to the
general fund of the Treasury at the close of each fiscal year, but may
first be applied "to restore any prior impairment of the fund." 15
U.S.C. § 278b(f). GAO considered the meaning of this provision in 58
Comp. Gen. 9 (1978). The decision first noted that "impairment" is not
a term of art with an established meaning in the accounting world. Id.
at 10. Then, after reviewing legislative history and similar
provisions in other laws, GAO concluded that impairment in the context
of a revolving fund statute means operating losses, specifically,
losses sustained by providing services at prices which do not recover
costs. Id. at 12. The term does not include losses caused by
inflation. Under the language of the statute as it then existed, the
fund could not retain profits to offset increased equipment
replacement costs. (The statute was subsequently amended to permit
this.) One of the statutes GAO reviewed in the course of reaching its
conclusion was the Bureau of Engraving and Printing provision, a
linguistic variation of the anti-impairment concept. Id. at 12-13.
The original version of the OPM statute included anti-impairment
language similar to 15 U.S.C. § 278b, but it was deleted in the 1969
amendment[Footnote 90] which recast the provision in the form quoted
above. In view of the discretionary language used, the amendment in no
way diminished OPM's ability to restore capital impairment. Rather, it
expanded OPM's authority to use surplus—from the limited purpose of
the restoration of impairment, to any authorized fund purpose. See B-
110497, May 10, 1968 (GAO's comments on the proposed amendment); B-
206231-0.M., Sept. 12, 1986.
6. Property Management and Utilization:
Items of property and equipment that revolving funds use in their
operations are typically treated as assets of the fund itself. This in
turn raises issues which implicate augmentation and impairment
concerns.
One type of cost the fund will necessarily incur is the cost of
equipment replacement. The fund anticipates this by including
depreciation in its charges and fees, and establishing a reserve for
this purpose. E.g., B-75212, June 16, 1955. The problem is that
inflationary pressures drive prices up over time, and a piece of
replacement equipment will almost certainly cost more than the
original equipment did, sometimes a lot more. Simple enough, you say,
just raise prices. The obstacle here is that statutory authority is
needed in order to avoid an augmentation. The agency had no such
authority in 58 Comp. Gen. 9 (1978), discussed in section C.5 above.
The decision explained:
"We believe that the term 'cost,' absent something in the law or its
legislative history indicating otherwise, means historical cost, and
not replacement cost. Thus, when capitalizing fixed assets in the
fund, the value of the asset is determined by historical cost (e.g.,
acquisition cost) and it is this value that depreciation allocates
over the useful life of the asset."
Id. at 14. See also B-151204-0.M., Dec. 9, 1971. Since the agency
could not base depreciation on replacement cost, its next thought was
to treat the difference between the depreciation reserve and
replacement cost as an impairment of capital and to take the
difference from surplus before turning it over to the Treasury. As
explained above, GAO concluded that impairment did not include losses
caused by inflation and that the fund could not retain profits to
offset increased equipment replacement costs. 58 Comp. Gen. 9.
In some cases, the rule that depreciation refers to historical cost
and not replacement cost is expressed in the statute. For example, the
Bureau of Engraving and Printing is directed to provide for equipment
replacement "by maintaining adequate depreciation reserves based on
original cost or appraised values." 31 U.S.C. § 5141(b)(1)(C). In view
of this language, and the rule that would have been applied even
without it, the Bureau had no authority to augment its depreciation
reserve through a surcharge. B-104492-0.M., Apr. 23, 1976.
One solution is to amend the statute. The statute in 58 Comp. Gen. 9,
15 U.S.C. § 278b(f), was later amended to authorize the application of
net income "to ensure the availability of working capital necessary to
replace equipment and inventories." The Bureau of Engraving and
Printing statute also received a legislative solution with the 1977
enactment of 31 U.S.C. § 5142(c)(3), which permits it to adjust its
prices "to permit buying capital equipment and to provide future
working capital." Pursuant to this authority, the Bureau can levy a
surcharge, or it can simply raise its prices. B-114801-0.M., Nov. 19,
1979. Similarly, at one time, the General Services Administration
(GSA) could not charge using agencies the replacement cost of motor
pool vehicles as it would have amounted to an unauthorized
augmentation of the former General Supply Fund. B-158712-0.M., Oct. 4,
1976. Legislation was enacted in 1978, 40 U.S.C. § 605(b)(2) (formerly
cited as 40 U.S.C. § 491(d)(2)) to authorize GSA to charge for
estimated replacement costs and to retain those increments in the
fund, but only for replacement purposes. Still another statutory
approach is to require payment to the Treasury at the end of a fiscal
year of any balance "in excess of the estimated requirements for the
ensuing fiscal year." See B-100831- 0.M., Mar. 1, 1951. Or, a statute
may specify the actual amount an agency may retain. For example, many
of the franchise fund pilot programs have authority to retain up to 4
percent of total annual income as a reserve for acquisition of capital
equipment and enhancement of support systems, with any excess to be
transferred to the Treasury. See, e.g., Pub. L. No. 104-208, div. A,
title I, § 113, 110 Stat. 3009, 3009-200-01 (Sept. 30, 1996), 31
U.S.C. § 501 note (Department of Interior franchise fund). In
addition, the exchange/sale authority of 40 U.S.C. § 503 (formerly
cited as 40 U.S.C. § 481(c)) is available to a revolving fund. See B-
149858-0.M., Feb. 25, 1963. If none of these approaches affords a
solution, the fund has little choice but to seek additional
appropriations from Congress. 58 Comp. Gen. at 14.
It has also been stated as a general proposition that "the corpus of
[a] revolving fund should not be impaired by the transfer of assets."
B-121695, Feb. 3, 1955, at 2. Of course, transfers authorized by law
to be made without reimbursement are an exception. Id.; B-149858-0.M.,
Feb. 25, 1963. Property can become excess to a revolving fund just as
it can to any other entity. Unless the fund's own legislation provides
specific authority, the disposal of excess property should be handled
under authority of the Federal Property and Administrative Services
Act and GSA's implementing regulations. 56 Comp. Gen. 754 (1977); B-
121695, Feb. 3, 1955.
One section of the Federal Property Act, 40 U.S.C. § 574(a) (formerly
cited as 40 U.S.C. § 485(c)), provides that transfers shall be
reimbursable when the property transferred or disposed of was acquired
by the use of funds either "not appropriated from the general fund of
the Treasury" or appropriated therefrom "but by law reimbursable from
assessment, tax, or other revenue or receipts." This language includes
revolving funds. 56 Comp. Gen. at 757; B-116731, Nov. 4, 1953. Another
section of the Federal Property Act, 40 U.S.C. § 522(b) (formerly
cited as 40 U.S.C. § 483(a)(1)), states that reimbursement of the fair
value of transferred excess property is required if "net proceeds are
requested under section 574(a)." In view of these provisions, unless
the revolving fund legislation itself requires reimbursement, the rule
is that the transfer of excess property from a revolving fund is
reimbursable if and when requested by the transferring agency. The
agency has discretion in the matter. 35 Comp. Gen. 207 (1955); B-
233847, Apr. 14, 1989. The same rationale authorizes a military
department to credit to its industrial fund the proceeds from the sale
of scrap and salvage generated by fund operations, regardless of the
potentially large amounts of money involved. B-162337-0.M., Oct. 2,
1967.
Some revolving fund statutes require reimbursement. An example is the
Veterans Affairs Supply Fund, which provides that the fund shall be
"credited with ... all other receipts resulting from the operation of
the funds, including ... the proceeds of disposal of scraps, excess or
surplus personal property of the fund." 38 U.S.C. § 8121(a)(3). Under
this type of legislation, the disposal would still be done under the
authority and procedures of the Federal Property Act and GSA
regulations, except that the agency no longer has the discretion to
decline reimbursement. The mandatory language of the statute overcomes
the discretionary language of 40 U.S.C. § 522(b) and the statement in
41 C.F.R. § 102-36.285(a)(3) that "[i]t is the current executive
branch policy that working capital fund property shall be transferred
without reimbursement."
If the authorized transfer of excess property from a revolving fund
without reimbursement is not an impairment of the fund, it is equally
true that the transfer of excess property to a revolving fund without
reimbursement, when authorized by law, is not an improper
augmentation. B-110497, Aug. 28, 1952.
Thus far, we have been talking about fund property as opposed to
property purchased by the fund on behalf of a customer. Property in
the latter category no longer needed by the customer agency, apart
from transactions which may be authorized under the Federal Property
Act, does not revert to the revolving fund simply because it was
initially purchased by the fund; converting the property to cash and
then retaining and using those proceeds improperly augments the
revolving fund because it would credit the revolving fund with amounts
supplied by the customer. 40 Comp. Gen. 356 (1960). Somewhat
similarly, if an agency using fund property has paid the full cost of
the item and then no longer needs it, nothing prevents the fund from
making the property available to a second user at rates based on fair
market value. The income should not be used to augment the fund's
capital, however, but should, to the extent it exceeds costs, be
treated as net income subject to a "transfer to Treasury" provision if
there is one. B-151204-0.M., Dec. 9, 1971.
An unusual provision of law is found in 22 U.S.C. § 2358(a), which
authorizes the Agency for International Development (MD) to receive
excess property from other agencies for foreign assistance purposes,
and to stockpile that property "in advance of known requirements
therefor," up to a specified monetary ceiling. In determining
compliance with the ceiling, MD may properly deduct the amount of
unfilled orders received from overseas missions since the receipt of
an order represents a known requirement. B-160485-0.M., Jan. 17, 1967.
The Federal Property and Administrative Services Act does not apply to
the Senate or House of Representatives. However, they may purchase
services under the act from GSA if they choose. 40 U.S.C. § 113(d).
Therefore, when a revolving fund of the Senate or House of
Representatives has excess property, it may either request GSA's
assistance or dispose of the property through the official or body
with operational control of the particular fund. B-205013, Jan. 27,
1982 (Senate); B-114842, Oct. 17, 1979 (House).
Under the "interdepartmental waiver doctrine," the general rule is
that if one agency damages the personal property of another agency,
funds available to the agency causing the damage may not be used to
pay claims for damages by the agency whose property suffered the
damage.[Footnote 91] The general rule, however, does not apply to
revolving fund activities. A 1986 decision, 65 Comp. Gen. 910, held
that a revolving fund which had loaned vehicles to another agency for
use on a project unrelated to the fund's purpose should be reimbursed
for damage which occurred while the vehicles were in the borrower's
custody.[Footnote 92] Acknowledging the general prohibition on
interagency damage liability, the decision states: "It is our opinion,
however, that even in the absence of an Economy Act or similar
agreement, the prohibition should not apply where the fund that would
be charged with the cost of repair if reimbursement were not permitted
is a reimbursable or revolving fund." Id. at 911. The decision further
pointed out that the fund in that case, the Air Force Industrial Fund,
treated repair costs as an indirect cost factored into its charges,
but it is assumed that this referred to damage which occurred while
the property was being used by the Air Force on fund work, not damage
caused by another agency. Id.
The view that a revolving fund should be reimbursed for damage to fund
property caused by another agency is supported by the approach taken
in 59 Comp. Gen. 515 (1980). GSA regulations provide that GSA will
charge the using agency for damage to motor pool vehicles which occurs
while the vehicle is assigned or issued to that agency, unless the
damage can be attributed to the fault of an identifiable party other
than the using agency or its employee. 41 C.F.R. § 101-39.406(a).
Motor pool vehicles are financed under GSA's Acquisition Services Fund
(formerly its General Supply Fund). Reviewing an earlier (but not
substantially different in principle) version of the regulations, GAO
agreed that GSA was well within its discretion because repair cost is
certainly a cost of maintaining the service. The decision further
noted: "In addition, since the GSA revolving fund is intended to be
operated on a businesslike basis, it is inequitable to impose upon the
revolving fund a loss for which the managing agency is in no way
responsible." 59 Comp. Gen. at 518.
A 2005 GAO decision held that a federal agency should collect for
damages to property financed by a revolving fund either from the
customer agency, the customer agency's contractor, or the revolving
fund agency's own contractor, as the case may be. B-302962, June 10,
2005. The National Archives and Records Administration (NARA) asked
GAO whether it could collect and retain in its Records Center
revolving fund payments for damages to a Records Center storage
facility caused by a customer agency or the agency's contractor. GAO
concluded that NARA should collect amounts sufficient to repair
damages to the facilities, whether the damage was caused by NAREs
customer, the customer's contractor, or NARA's own contractor,
depending on which entity was responsible for the damages, and deposit
these amounts into the Records Center revolving fund. Id.
Similarly, in 50 Comp. Gen. 545 (1971), GAO advised the National
Credit Union Administration that it could credit to its revolving fund
recoveries for property lost or damaged in transit. The fund consists
of fees paid by member credit unions, and the decision emphasized
legislative history expressing the intent that "the Administration
will not cost the taxpayers a single penny." Id. at 546. Several
revolving fund statutes-—mostly intragovernmental funds where the "not
cost the taxpayers a penny" rationale has no meaning—expressly
authorize the retention of payments for loss or damage to fund
property. E.g., 5 U.S.C. § 1304(e)(3)(B) (Office of Personnel
Management revolving fund); 38 U.S.C. § 8121(a)(3) (Veterans Affairs
Supply Fund); 40 U.S.C. § 321(b)(2) (Acquisition Services Fund); 44
U.S.C. § 309(b)(2) (Government Printing Office revolving fund).
7. Revolving Funds in the Department of Defense:
At the outset of our discussion, we noted that revolving funds in the
federal government appear to have originated within the defense
establishment. Their use in that establishment has grown over the
course of the past century so that they now play a highly significant
role in financing defense operations. For example, the Defense-wide
Working Capital Fund is estimated to have financed about $49 billion
in defense operations in fiscal year 2008. Budget of the United States
Government, Fiscal Year 2009 Appendix (Feb. 4, 2008), at 317,
available at [hyperlink,
http://www.whitehouse.gov/omb/budget/fy2009/appendix.html] (last
visited Mar. 20, 2008).
The most important piece of legislation was section 405 of the
National Security Act Amendments of 1949, which enacted what is now 10
U.S.C. § 2208. Pleased with the success of the Navy's working capital
funds through two World Wars, Congress decided to expand the concept
and extend it to all of the military departments. The objectives
Congress sought to achieve were "most effectively to control and
account for the cost of the programs and work performed, to provide
adequate, accurate, and current cost data which can be used as a
measure of efficiency, and to facilitate the most economical
administration and operation of the military departments." S. Rep. No.
81-366, at 17 (1949).
Section 2208(a) of title 10, United States Code authorizes the
Secretary of Defense to create working capital funds to: "(1) finance
inventories of such supplies as he may designate; and (2) provide
working capital for such industrial-type activities, and such
commercial-type activities that provide common services within or
among departments and agencies of the Department of Defense, as he may
designate." These are known as, respectively, stock funds and
industrial funds. The stock fund concept was intended to standardize
procurement, storage, and issue policies and thereby encourage
interservice utilization; reduce over-all inventory requirements;
facilitate procurement of seasonal items at times when the market is
most favorable; facilitate cost control; and permit standard pricing.
S. Rep. No. 81-366, at 19. The Senate report described the intended
operation of industrial funds as follows:
"All costs of the operation of [the] industrial-type or commercial-
type activity would be paid from the working capital fund, utilizing
standard, accepted, and approved commercial practices for the
distribution of direct and indirect costs to jobs in process.... The
activity which places a work order with the industrial-type or
commercial-type activity would establish proper commitments and
obligations against moneys appropriated to it—generally in the same
manner as would be followed if the order were placed for the work to
be done by a private concern. The industrial plant would enter the
order and distribute the work in the plant by its own job orders—a
fundamentally sound procedure. When the work is completed and the cost
of the job ascertained, the plant will invoice or bill the cost to the
ordering military agency and its proper appropriation and budget
program.... The invoice charges would include items of cost for labor,
material, and current operating expense."
Id. at 20-21.
Section 2208(b) of title 10 directs the Secretary of the Treasury to
establish the appropriate accounts on Treasury's books upon request of
the Secretary of Defense. Section 2208(c) authorizes the revolving
funds to be charged with the cost of supplies and services, including
administrative expenses, and to be reimbursed from available
appropriations. Section 2208(d) authorizes the capitalization of
existing inventories and the appropriation of necessary amounts.
Section 2208(e) authorizes internal reorganization of military
departments in order to take maximum advantage of the revolving funds.
Section 2208(f) prohibits a requisitioning agency from incurring costs
for supplies or services from any of the revolving funds in excess of
"the amount of appropriations or other funds available for those
purposes." The Senate Committee described this subsection as the means
by which Congress controls the amount of money that may be spent by
the department and agencies for supplies or services. S. Rep. No. 81-
366, at 18.
Under section 2208(g), supplies returned to inventory are charged to
the applicable revolving fund and the proceeds credited to "current
applicable appropriations" of the customer agency. Where the return
takes place in a subsequent fiscal year, this amounts to an
augmentation of the current appropriation (B-132900-0.M., Feb. 1,
1974), but it is expressly authorized. This procedure is intended to
encourage the return of materials found not to be immediately needed
and to "reduce the temptation to overbuy." S. Rep. No. 81-366, at 18.
Section 2208(h) authorizes implementing regulations. The remaining
portions of the statute were added in later amendments.
According to one commentator, performance of the military revolving
funds "is not well documented." Although there is "some evidence" that
they are achieving the desired benefits, the evidence is "mixed."
Patricia E. Byrnes, Defense Business Operating [sic] Fund: Description
and Implementation Issues, 13 Public Budgeting and Finance 29, 32 (No.
4, 1993). According to Byrnes:
"Revolving funds are intended to provide at least three important
benefits. First, in contrast to the services budgeted and financed
through the appropriations process, the contractual relationship
between the fund activity (supplier) and the customer improves
supplier incentives for efficient, demand-driven production. Second,
because revolving funds are intended to operate across organization
boundaries, economies of scale can be achieved in procurement and use
of facilities. Finally, in addition to reduced rates from more
efficient provision of services, the customers should also realize
advantages of stabilized rates typical of contractual arrangements."
Id. at 31-32.
While, as Byrnes points out, the measure of success of an activity
intended to be businesslike is how closely it resembles a commercial
activity, the goal of a government revolving fund, in sharp contrast
with a private business's goal of profit maximization, is "a zero fund
balance." Id. at 32.
In any event, after operating under the structure established by the
1949 legislation for over four decades, the next major development
took place in late 1991 with the introduction of the Defense Business
Operations Fund (DBOF). The Defense Department had proposed the DBOF
as a consolidation of the various stock and industrial funds already
in existence, together with other activities, such as the Defense
Commissary Agency and the Defense Finance and Accounting Service,
which would be converted to revolving fund status. Considering the
proposal as part of Defense's 1992 appropriations package, the
congressional reception was cautious. The Senate Appropriations
Committee reported:
"The DBOF proposal has been met with both antipathy and confusion. The
antipathy arises, for the most part, from the perception of Congress
losing influence on and oversight of programs to be subsumed in the
fund. The confusion arises from several factors; probably the most
important of these was the Department having not clearly defined the
advantages of establishing DBOF when the proposal was first made to
Congress."
S. Rep. No. 102-154, at 354 (1991). The conference committee shared
the concern over the potential loss of oversight H.R. Conf. Rep. No.
102-328, at 176 (1991). These concerns notwithstanding, Congress gave
the DBOF its initial statutory basis in section 8121 of the 1992
Department of Defense Appropriations Act, Pub. L. No. 102-172, title
VDT, § 8121, 105 Stat. 1150, 1204-05 (Nov. 26, 1991), as "a working
capital fund under the provisions or 10 U.S.C. § 2208.
To call the DBOF "big" would be somewhat of an understatement.
Testifying before a congressional subcommittee only 6 months after the
DBOF was established GAO noted that for fiscal year 1993, when
compared with the "Fortune 500," the DBOF's sales "would make the Fund
equivalent to the fifth largest corporation in the world.[Footnote 93]
The Fund experienced a number of management problems, and GAO issued a
steady stream of reports over the next few years.[Footnote 94]
In 1996, as part of the National Defense Authorization Act for Fiscal
Year 1996 (Pub. L. No. 104-106, § 371, 110 Stat. 186, 277-80 (Feb. 10,
1996)), Congress repealed the 1991 provision and codified the DBOF in
more detailed legislation, 10 U.S.C. § 2216a, which restricted the
DBOF to a list of specified funds and activities. Later that year
Congress directed the Secretary of Defense to prepare and submit a
comprehensive plan to improve the management and performance of the
DBOF. Pub. L. No. 104-201, § 363, 110 Stat. 2422, 2493-94 (Sept. 23,
1996). In December 1996, the Defense Department initiated a
reorganization, and in effect a "de-consolidation," of the DBOF and
created four new working capital funds—Army, Navy, Air Force, and
Defense-wide.[Footnote 95] The authority to manage working capital
funds and certain activities through the DBOF was terminated when
section 2216a was repealed in 1998. Pub. L. No. 105-261, div. A, title
X, § 1008, 112 Stat. 1920, 2115-17 (Oct. 17, 1998).[Footnote 96] The
military working capital funds, however, continued to face management
problems following the de-consolidation of DBOF, and GAO continued to
issue reports examining the funds.[Footnote 97]
The funds' various permutations notwithstanding, the legal issues they
raise and the analytical approach used in resolving them are not
fundamentally different from other revolving funds, and cases and
reports dealing with the military funds have been included in the
various topics throughout our discussion. While the funds are
certainly here to stay in one form or another, their precise scope and
direction will almost certainly continue to evolve.
D. User Charges:
This section, like our earlier coverage of the Economy Act in section
B.1 of this chapter, deals with the authority of federal agencies to
charge for goods and services they provide—to other federal entities
in the case of the Economy Act; to mostly private parties under the
authorities discussed in this section.
1. Providing Goods or Services to Private Parties:
We start with a principle regarded as so elementary that references to
it invariably include the word "fundamental," as in the following
statement from 28 Comp. Gen. 38, 40 (1948): "It is fundamental that
Federal agencies cannot make use of appropriated funds to manufacture
products or materials for, or otherwise supply services to, private
parties, in the absence of specific authority therefor." Not
surprisingly, GAO has reiterated this principle in many subsequent
decisions. See, e.g., B-300218, Mar. 17, 2003; 62 Comp. Gen. 323, 335
(1983); 31 Comp. Gen. 624, 626 (1952).
This simple-sounding principle goes to the essence of the relationship
between the federal government and the taxpayers. When Congress
creates and funds a department or agency, it does so to serve one or
more public purposes. If accomplishing these public purposes produces
incidental benefit to some private interest, no harm is done. If the
roles become reversed, however, and the public purpose becomes
incidental to the private benefit, or the private benefit exists
independent of any public purpose, closer scrutiny is warranted. The
theory, abetted by the statutory bar on using appropriated funds for
unauthorized purposes (31 U.S.C. § 1301(a)), is that the activity
should be undertaken only if it has been explicitly authorized by the
elected representatives of the taxpayers. The miscellaneous receipts
statute, 31 U.S.C. § 3302(b), discourages violations by prohibiting
agencies from keeping any proceeds they may receive from the private
parties.
The earliest administrative decisions dealt with the sale of
commodities. In 15 Comp. Dec. 178 (1908), the Army, which manufactured
hydrogen for use in aviation balloons, asked if it could sell hydrogen
to private individuals for the inflation of private balloons. The
agency cannot sell it to private parties "at any price or for any
purpose," the Comptroller of the Treasury responded. Since the
miscellaneous receipts act would require the proceeds to go into the
general fund of the Treasury, the practical effect would be to deplete
the Army's appropriation for the manufacture of hydrogen on purposes
not contemplated by Congress. Id. at 179. However, the manufacturing
process produced oxygen as a by-product, for which the Army had no
use. This could be sold to the private sector, the Comptroller
continued, but the proceeds would have to be deposited as
miscellaneous receipts. Id. at 181.
Restated, 15 Comp. Dec. 178 said two things. First, a government
agency has no authority, on its own initiative, to produce something
in order to sell it to a private interest. Second, an agency, which in
the ordinary course of its operations, necessarily produces a surplus
of any commodity may sell that surplus, but must account for the
proceeds as miscellaneous receipts unless it has statutory authority
for some other disposition. The portion of the rule dealing with the
sale of surplus commodities has been applied to surplus electric power
produced by government-owned generating plants (28 Comp. Gen. 38
(1948); 5 Comp. Gen. 389 (1925)); excess water produced by a then
Veterans Administration hospital water filtration plant (55 Comp. Gen.
688 (1976)); and surplus steam from a government power plant (A-34549,
Dec. 19, 1930). As several of these cases point out (e.g., 5 Comp.
Gen. at 391), the alternative would be to let the surplus commodity go
to waste.
Turning from goods to services, the concept of "surplus" of course has
no relevance (notwithstanding the reference to "surplus services" in
55 Comp. Gen. at 690), and we are left with the prohibitory rule as
quoted above and as applied in the first portion of 15 Comp. Dec. 178.
It makes no difference that the recipient is willing to reimburse the
government. B-69238, July 13, 1948.[Footnote 98] Nor does it matter
that the proposed reimbursement is in the form of credits rather than
cash. 28 Comp. Gen. 38, 41 (1948) (pointing out that even where the
service or sale is authorized, the agency would have to transfer the
value of the credit from its appropriations to miscellaneous
receipts). The rule is not limited to private interests but applies as
well to governmental units. 31 Comp. Gen. 624 (1952). Applications of
the rule include B-300218, Mar. 17, 2003 (provision of technical
assistance services to a foreign government outside the scope of an
agency's statutory grant-making authority); 34 Comp. Gen. 599 (1955)
(construction of a sewerage system in excess of the government's needs
so that it may be shared with a local government); and 62 Comp. Gen.
323, 334-35 (1983) (use of military personnel as chauffeurs and
personal escorts at presidential inaugural and pre-inaugural
activities).
A judicial application of the rule may be found in the case of
National Forest Preservation Group v. Volpe, 352 F. Supp. 123 (D.
Mont. 1972), reconsideration denied, 359 F. Supp. 136 (D. Mont. 1973),
in which the court, holding that the designation of an access road as
a "federal-aid primary highway" exceeded the Department of
Transportation's statutory authority, enjoined federal funding of the
construction. The road would primarily have served the interests of
private corporations who wanted to develop recreational property. The
court stated:
"There is no rationale for the expenditure of federal funds which
serve to benefit directly this type of private business venture
without explicit congressional authorization. To allow the primary
highway designation to stand would have the effect of holding that the
[Federal Highway Administration] may become a partner in private
enterprise without explicit statutory authority."
Volpe, 352 F. Supp. at 130.
To sum up, regardless of who pays or what happens to the money, a
government agency needs statutory authority in order to provide goods
or services to nongovernment parties. Fiscal issues come into play
only after this authority has been established.
2. The Concept of User Charges:
When Congress authorizes a program or activity that will benefit
private interests, it must also decide how to finance that program or
activity. Basically, the choices are subsidization, user financing, or
some combination of the two. Subsidization means funding the activity
from appropriated funds, thus spreading the cost among all taxpayers.
The user financing option involves some form of user charge or fee,
under which part or all of the cost is borne by the recipients of the
benefit. A user fee may be defined as "a price charged by a
governmental agency for a service or product whose distribution it
controls,"[Footnote 99] or "any charge collected from recipients of
Government goods, services, or other benefits not shared by the
public."[Footnote 100]
We all pay a variety of user fees. When you buy postage stamps at your
local post office, buy a fishing license, or pay highway tolls, you
are paying a user fee. These common examples show some of the
different types of user fees. You pay the toll only when you use the
highway; if you never use the highway, you never need to pay the toll.
Similarly, if you have no intention of going fishing, you do not need
to buy a fishing license. Once you buy the license, however, whether
you ever use it or not is irrelevant to the issuing authority. You can
use it as often as you like during the fishing season, but it becomes
worthless once the season or specified time period is over, and even
if you have never used it you cannot get your money back. You can use
the postage stamp for its intended purpose, or you can save it.
Although you cannot sell it back to the post office, it never loses
its face value as long as it remains unused.[Footnote 101]
The advantages and disadvantages of user financing are much discussed
and debated in the public financing literature. Supporters of user
fees regard them as equitable because they place the economic burden
on those receiving the benefit. They are also politically and
"budgetarily" attractive as an alternative to general tax increases.
This was especially true during the budgetary shortfalls of the 1980s
and early 1990s. The Congressional Budget Office (CBO) has noted that
"most of the new and increased [user fee] charges of the 1980s
followed the passage of the Balanced Budget Act of 1985. As the search
for new sources of funds intensified, changes in law and budget
processes helped assure the enactment of new user charges." CBO, The
Growth of Federal User Charges xi (Aug. 1993). Moreover, the legal
basis for setting user charges expanded from reimbursing an agency's
costs of providing services, to financing all or specified portions of
the agency's budget. Id.
While user fees at the federal level are not new,[Footnote 102] they
received relatively little attention prior to the final third of the
twentieth century. In March 1980, GAO issued its report The Congress
Should Consider Exploring Opportunities to Expand and Improve the
Application of User Charges by Federal Agencies, PAD-80-25, the thrust
of which is evident from its title. Page 1 of that report stated:
"Both individuals and businesses are concerned with tax burdens.
Businesses are also concerned with the fact that compliance with
Federal regulations is often expensive. Both concerns can be addressed
by the Government's promotion of economy and efficiency through
actively employing user charges. [Footnote omitted.]
"User charges can reduce Federal taxes, as well as the costs of
certain types of regulation. They are a source of revenue that can
partially replace general taxation of individuals and businesses. They
also reduce the amount of taxes needed to finance the production of
goods and the delivery of services to the extent that charging higher
prices reduces recipient demand."
In addition, GAO has issued a minor deluge of reports analyzing, and
encouraging optimum use of, user fees in specific contexts.[Footnote
103] The fever spread to Congress generally as well as the Office of
Management and Budget and the rest of the executive branch, with the
result that the growth of user fees mushroomed. Between 1980 and 1991,
CBO found, user charges increased by 54 percent in constant dollars,
and financed much larger shares of many agencies' budgets. CBO, The
Growth of Federal User Charges. A later GAO report supports the notion
that this trend continued during the 1990s, as many agencies became
increasingly more reliant upon user fees, over general tax revenues,
to fund their programs and operations. GAO, Federal User Fees:
Budgetary Treatment, Status, and Emerging Management Issues, GAO/AIMD-
98-11 (Dec. 19, 1997). While user fees have not expanded as
dramatically in more recent years, they are generally still on the
increase. GAO's 1997 report indicated that user fees produced $196.4
billion in fiscal year 1996 revenues. Id. at 1. The Office of
Management and Budget (OMB) estimates user fee receipts will increase
to $243.2 billion for fiscal year 2007. See Analytical Perspectives,
Budget of the United States Government for Fiscal Year 2007 (Feb. 6,
2006), at 272, available at [hyperlink,
http://www.whitehouse.gov/omb/budget/fy2007] (last visited Mar. 20,
2008). OMB projects that such fees will grow to over $258 billion in
2011. Id. However, the latter figure assumes implementation of OMB's
proposals for new user fees and for extension of expiring fees.
Political attractions aside, levying user fees is not simply a
question of raising revenue, but can implicate a variety of other
economic and public policy issues as well. For example, increasing a
user fee can result in capital losses in the form of decreased asset
values. This in turn raises questions as to the desirability of some
form of compensation for these losses. A GAO analysis of these issues
can be found in Congressional Attention Is Warranted When User Charges
or Other Policy Changes Cause Capital Losses, GAO/PAD-83-10
(Washington, D.C.: Oct. 13, 1982). The case study presented in that
report is the use of water in the Columbia Basin Project in the
Pacific Northwest. The study showed that, if the price charged for
water provided to farmers for irrigation purposes were raised to
market levels, water would be diverted from farming to the production
of electricity, and the value of farmland would drop significantly.
3. The Independent Offices Appropriation Act:
a. Origin and Overview:
In 1950, the Senate Committee on Expenditures in the Executive
Departments (a forerunner of the Committee on Homeland Security and
Governmental Affairs) conducted a study of user fees in the federal
government, and issued a report entitled Fees for Special Services, S.
Rep. No. 81-2120 (1950). The committee's governing philosophy was that
"those who receive the benefit of services rendered by the Government
especially for them should pay the costs thereof." S. Rep. No. 81-
2120, at 3. The report concluded: "On the basis of the limited study
reported upon herein, the committee has established conclusively that
opportunity exists for the equitable transfer of many financial
burdens from the shoulders of the taxpaying general public to the
direct and special beneficiaries." Id. at 15. The report did not
recommend any particular legislation, but left it to the
jurisdictional committees to consider and develop legislative
proposals within their respective areas of responsibility.
Several committees then began their own studies. The following year,
while many of these studies were in process, Congress enacted general
user fee authority to fill in the gaps. Its intent, the House
Appropriations Committee reported, was to:
"provide authority for Government agencies to make charges for ...
services in cases where no charge is made at present, and to revise
charges where present charges are too low, except in cases where the
charge is specifically fixed by law or the law specifically provides
that no charge shall be made."
H.R. Rep. No. 82-384, at 3 (1951). The new legislation was title V of
the Independent Offices Appropriation Act, 1952, Pub. L. No. 82-137,
65 Stat. 268, 290 (Aug. 31, 1951), known as the "IOAA" or the "User
Charge Statute.[Footnote 104] Codified at 31 U.S.C. § 9701, the law
provides in part as follows:
"(a) It is the sense of Congress that each service or thing of value
provided by an agency (except a mixed-ownership Government
corporation) to a person (except a person on official business of the
United States Government) is to be self-sustaining to the extent
possible.
"(b) The head of each agency (except a mixed-ownership Government
corporation) may prescribe regulations establishing the charge for a
service or thing of value provided by the agency. Regulations
prescribed by the heads of executive agencies are subject to policies
prescribed by the President and shall be as uniform as practicable.
Each charge shall be:
"(1) fair; and;
"(2) based on:
"(A) the costs to the Government;
"(B) the value of the service or thing to the recipient;
"(C) public policy or interest served; and;
"(D) other relevant facts."
Although enacted as an appropriation act rider, the IOAA is permanent
legislation and applies to all agencies, not just those funded by the
act in which it originally appeared. B-178865, Apr. 19, 1974. The
statute is permissive rather than mandatory. It authorizes fees; it
does not require them. Aeronautical Radio, Inc. v. United States, 335
F.2d 304, 307 (7th Cir. 1964), cert. denied, 379 U.S. 966 (1965); 42
Comp. Gen. 663, 665-66 (1963); B-128056, July 8, 1966. Thus, while the
law encourages uniformity, an agency's authority to charge a fee under
the IOAA is not diminished by the fact that other agencies may choose
not to charge for similar services. Ayuda, Inc. v. Attorney General,
661 E Supp. 33, 36 (D.D.C. 1987), aff'd, 848 F.2d 1297 (D.C. Cir.
1988); B-167087, July 25, 1969. Nor is failing to charge a fee where
one could have been charged a violation of law. B-130961-0.M., Sept.
10, 1976; B-114829-0.M., June 11, 1975.[Footnote 105] Guidance for the
executive branch is found in Office of Management and Budget Circular
No. A-25, User Charges (July 8, 1993).
It is also important to note that the IOAA merely provides authority
to charge fees, not authority to provide the underlying services. The
legal basis for the services—which, as noted at the outset of this
section, must exist before you ever get to the question of fees—must
be found elsewhere. 62 Comp. Gen. 262, 263 (1983).
The IOAA is not free from difficulty or controversy. Gillette and
Hopkins offer the following rather harsh assessment:
"The IOAA does not constitute a model of clarity and precision. To the
contrary, the statute uses vague terms and invokes ephemeral
principles that demand substantial interpretation. The statute
provides little guidance concerning the constituents of a 'service or
thing of value' and leaves fairly open the appropriate mechanisms for
computing a proper charge. Instead, the statute recites considerations
that are, at best, inconclusive, and, at worst, inherently
conflicting."
Clayton P. Gillette and Thomas D. Hopkins, Federal User Fees: A Legal
and Economic Analysis, 67 B.U. L. Rev. 795, 826-27 (1987) (footnote
omitted).
b. Fees versus Taxes:
The government has many ways to get money from your pocket. In
National Cable Television Ass'n v. United States, 415 U.S. 336 (1974),
the Supreme Court distinguished two of them, fees and taxes. A fee is
something you pay incident to a voluntary act on your part, for some
benefit the government has bestowed or will bestow on you which is not
shared by other members of society, examples being "a request that a
public agency permit an applicant to practice law or medicine or
construct a house or run a broadcast station." National Cable
Television, 415 U.S. at 340. Taxes, on the other hand, need not be
related to any specific benefits: "Taxation is a legislative function,
and Congress ... may act arbitrarily and disregard benefits bestowed
by the Government on a taxpayer and go solely on ability to pay, based
on property or income." Id. (footnote omitted). The distinction had
lurked in the bushes since shortly after the Independent Offices
Appropriation Act (IOAA) was enacted. In B-108429, Mar. 24, 1952, for
example, GAO advised a Member of Congress that "in the absence of
clear and convincing evidence to the contrary," GAO would be unwilling
"to assume that [any government agency] would attempt to levy a tax
... under the guise of a fee" as authorized by the IOAA.
The issue remained largely dormant until the National Cable Television
decision, in which the Supreme Court held that the IOAA authorizes
fees but not taxes. In that case, the cable TV industry challenged
fees assessed by the Federal Communications Commission (FCC), which
had been under pressure from both Congress and the Office of
Management and Budget to recoup its full costs from the industry it
regulated "to fully support all its activities so the taxpayer will
not be required to bear any part of the load in view of the profits
regulated." National Cable Television, 415 U.S. at 339 (citations
omitted). After drawing the distinction noted above, the Court added
that the primary measure of a fee under the IOAA is the "value of the
service or thing to the recipient" standard of 31 U.S.C. §
9701(b)(2)(B). An attempt to recoup total cost would go beyond this by
charging recipients for the public as well as private benefits of the
FCC's regulatory activities,[Footnote 106] which would at least
arguably amount to levying a tax. Holding that the FCC could not do
so, the Court said: "It would be such a sharp break with our
traditions to conclude that Congress had bestowed on a federal agency
the taxing power that we read [the IOAA] narrowly as authorizing not a
'tax' but a 'fee.'" National Cable Television, 415 U.S. at 341. By
adopting this interpretation, the Court was able to avoid having to
directly confront the constitutional issue of the extent to which
Congress could delegate its power to tax.
In determining the proper scope of the IOAM fee-setting authority, the
Court suggested extreme caution in applying the criteria of 31 U.S.C.
§§ 9701(b)(2)(C) and (D)—"public policy or interest served" and "other
relevant facts"—which "if read literally, carry an agency far from its
customary orbit and put it in search of revenue" and thereby tend to
indicate assessments more in the nature of taxes. National Cable
Television, 415 U.S. at 341. Indeed, the Court concluded: "The phrase
`value to the recipient' is, we believe, the measure of the authorized
fee." Id. at 342-43. Thus, some lower courts have stated that National
Cable Television "effectively read[s] out of the statute" the "public
policy and interest served" and "other relevant facts" criteria. Bunge
Corp. v. United States, 5 CL Ct. 511, 515 (1984), aff'd, 765 F.2d 162
(Fed. Cir. 1985). See also Seafarers International Union v. United
States Coast Guard, 81 F.3d 179, 183 (D.C. Cir. 1996).
On the same day it decided National Cable Television, the Court also
decided the companion case of Federal Power Commission v. New England
Power Co., 415 U.S. 345 (1974), applying National Cable Television to
invalidate annual assessments levied on pipeline companies by the then
Federal Power Commission. The Court agreed with the lower court that
the IOAA does not authorize assessments on whole industries, but
applies only with respect to "specific charges for specific services to
specific individuals or companies." New England Power, 415 U.S. at
349. The Court noted with approval portions of OMB Circular A-25, User
Charges, now found at sections 6 (agencies should assess user charges
to "each identifiable recipient" of a special benefit),[Footnote 107]
and 6a(4) (agencies should not assess fees "when the identification of
the specific beneficiary is obscure"). This, said the Court, "is the
proper construction of the ROAN" and helps to restrain it from
crossing the line into the realm of taxes. New England Power, 415 U.S.
at 351.
Thereafter, the Court of Appeals for the District of Columbia Circuit
issued a series of decisions elaborating on the standards laid down in
National Cable Television and New England Power. See, e.g., National
Association of Broadcasters v. Federal Communications Commission, 554
F.2d 1118 (D.C. Cir. 1976); Electronic Industries Ass'n v. Federal
Communications Commission, 554 F.2d 1109 (D.C. Cir. 1976). The court
particularly focused on the importance of cost in the analysis:
"When the cost of the benefit conferred is exceeded by any material
amount, one immediately gets into the taxing area and the result is
revenue and not a fee ... We do not mean to circumscribe the ingenuity
of the agencies in dealing with this problem. But there still remains
the overall requirement that the process be fairly related to costs
and that a proper nexus exist between the service, the cost of the
service and the fee charged for the service. The fee must bear some
reasonable relation to the cost or it ceases to be a fee and [National
Cable Television] does indicate that it cannot go beyond being a
'fee.'"
National Ass'n of Broadcasters, 554 F.2d at 1130 n. 28.
Notwithstanding overbroad language occasionally encountered in some
lower court decisions,[Footnote 108] National Cable Television and New
England Power do not stand for the proposition that Congress may not
delegate the authority to assess charges which are more appropriately
categorized as taxes. Indeed, as we will see later in section D.4 of
this chapter, it is now settled that Congress can do so as long as the
statutory delegation is sufficiently explicit and provides
intelligible guidelines. Rather, these cases hold merely that Congress
did not do so in the IOAA.
c. Establishing the Fee:
(1) Need for regulations:
Some courts have held that in order to assess fees under the
Independent Offices Appropriation Act (IOAA), an agency must first
issue regulations. See, e.g., Sohio Transportation Co. v. United
States, 766 F.2d 499, 502 (Fed. Cir. 1985); Alyeska Pipeline Service
Co. v. United States, 624 F.2d 1005, 1009 (Ct. Cl. 1980); Alaskan
Arctic Gas Pipeline Co. v. United States, 9 Cl. Ct. 723, 732-33
(1986), aff'd, 831 F.2d 1043 (Fed. Cir. 1987) (issuance of regulations
a "condition precedent"). A simple policy statement to the effect that
fees will be charged for special services has been held too vague to
support fee assessment. Diapulse Corp. of America v. FDA, 500 F.2d 75,
79 (2nd Cir. 1974). Rather, since rulemaking under the Administrative
Procedure Act generally must provide the opportunity for public
comment, 5 U.S.C. § 553, the agency's notice must include, or make
available on request, a reasonable explanation of the basis for the
proposed fee. This, one court has held, must be one that "the
concerned public could understand." Engine Manufacturers Association
v. EPA, 20 F.3d 1177, 1181 (D.C. Cir. 1994). In that case, the court
rejected as inadequate an agency cost analysis which, according to the
court, "contains page after page of impressive looking but utterly
useless tables" and some "complete gibberish." Id. It is probably
impossible to predict what would be acceptable to any given court at
any given time, but cases like this demonstrate the need for the
agency to observe at least some minimal level of clarity and provide
its explanation "in intelligible if not plain English." Id. at 1183.
The Court of Appeals for the District of Columbia Circuit has also
stressed the need for the agency to make a clear public statement of
the basis for its fees so that a reviewing court can measure the
agency's action against the Supreme Court's standards. National Cable
Television Association v. FCC, 554 F.2d 1094, 1100, 1104-05 (D.C. Cir.
1976).
(2) Benefit under the Independent Offices Appropriation Act:
The first step in establishing a fee or fee schedule under the
Independent Offices Appropriation Act (IOAA) is to "identify the
activity which justifies each particular fee" the agency wishes to
assess. National Cable Television Association v. FCC, 554 F.2d 1094,
1100 (D.C. Cir. 1976). Thus, the threshold question is what kinds of
government services or activities are regarded as conferring special
benefits for purposes of the IOAA?[Footnote 109] The statute itself
refers merely to "each service or thing of value provided by the
agency." 31 U.S.C. § 9701(a). That this phrase should be construed
broadly[Footnote 110] is made clear by the source language, 65 Stat.
290, which authorized fees for "any work, service, publication,
report, document, benefit, privilege, authority, use, franchise,
license, permit, certificate, registration, or similar thing of value
or utility performed, furnished, provided, granted, prepared, or
issued by any Federal agency ... to or for any person (including
groups, associations, organizations, partnerships corporations or
businesses)." OMB Circular No. A-25, User Charges, § 6a (July 8,
1993), provides further guidance, stating that, for example:
"a special benefit will be considered to accrue and a user charge will
be imposed when a Government service:
"(a) enables the beneficiary to obtain more immediate or substantial
gains or values ... than those that accrue to the general public ...;
or;
"(b) provides business stability or contributes to public confidence
in the business activity of the beneficiary ...; or;
"(c) is performed at the request of or for the convenience of the
recipient, and is beyond the services regularly received by other
members of the same industry or group or by the general public ...."
One area in which the issue has arisen with some frequency is the
government's regulatory activities. On the one hand, the mere fact of
regulation is not enough to justify a fee. Engine Manufacturers Ass'n
v. EPA, 20 F.3d 1177, 1180 (D.C. Cir. 1994); Central & Southern Motor
Freight Tariff Ass'n v. United States, 777 F.2d 722, 729 (D.C. Cir.
1985). On the other hand, however, the granting of a license or
similar operating authority clearly is enough. Seafarers International
Union v. United States Coast Guard, 81 F.3d 179 (D.C. Cir. 1996)
(merchant marine licensing by Coast Guard); Engine Manufacturers
Ass'n, 20 F.3d at 1180 (EPA certificate of approval for motor
vehicles); Mississippi Power & Light Co. v. United States Nuclear
Regulatory Commission, 601 F.2d 223, 229 (5th Cir. 1979), cert.
denied, 444 U.S. 1102 (1980) (license from the Commission to operate
nuclear facility); National Cable Television, 554 F.2d at 1103 (grant
of operating authority by the Federal Communication Commission); B-
217931-0.M., Apr. 2, 1985 (drug and antibiotic review and approval by
the Food and Drug Administration).
Where an application is voluntarily withdrawn before final agency
action, the First Circuit has held that the agency can charge a fee
for work done prior to withdrawal. New England Power Co. v. United
States Nuclear Regulatory Commission, 683 F.2d 12 (1st Cir. 1982). The
agency's intent to do so must be specified in its regulations. Id. If
failure to process is attributable to the government, for example, a
change in program requirements, no fee should be charged and any
amounts collected should be refunded to the applicants. 53 Comp. Gen.
580 (1974).
An agency may also charge a fee under the IOAA for services which
assist regulated entities in complying with statutory duties.
Electronic Industries Ass'n v. FCC, 554 F.2d 1109, 1115 (D.C. Cir.
1976) (tariff filings, equipment testing and approval); Raton Gas
Transmission Co. v. Federal Energy Regulatory Commission, 852 F.2d
612, 617 (D.C. Cir. 1988) (rate reduction application); Phillips
Petroleum Co. v. Federal Energy Regulatory Commission, 786 F.2d 370,
376 (10th Cir. 1986), cert. denied, 479 U.S. 823 (1986) (tariff
filings, certifications, charges for transportation of natural gas);
Mississippi Power & Light, 601 F.2d at 231 (routine safety inspections
of nuclear facilities); B-216876-0.M., Jan. 30, 1985 (pipeline safety
inspection). This is particularly true where the statute was enacted
"in large measure for the benefit of the individuals, firms, or
industry upon which the agency seeks to impose a fee." Central &
Southern Tariff Ass'n, 777 F.2d at 734 (tariff filing requirement of
Interstate Commerce Act and Motor Carrier Act).
Use of government property is another activity for which fees may be
charged under the IOAA. A common example is the granting of a right-of-
way over public lands. B-307319, Aug. 23, 2007; B-118678, May 11,
1976. Rights-of-way are sought for such things as the construction of
power transmission facilities and energy pipelines. E.g., Nevada Power
Co. v. Watt, 711 F.2d 913 (10th Cir. 1983) (electricity transmission
lines); Alaskan Arctic Gas Pipeline Co. v. United States, 9 CL Ct. 723
(1986), aff'd, 831 F.2d 1043 (Fed. Cir. 1987) (gas pipeline); Sohio
Transportation Co. v. United States, 5 CL Ct. 620 (1984); aff'd, 766
F.2d 499 (Fed. Cir. 1985) (oil pipeline). Other examples are
nonfederal use under a revocable license (B-180221, Aug. 20, 1976
(nondecision letter)), and commercial leasing by the Alaska Railroad
(B-124195-0.M., Apr. 12, 1977). This category also illustrates the
point that those liable for fees under the IOAA can, in appropriate
circumstances, include government employees. E.g., B-148736, Apr. 6,
1976 (use of facilities at certain national parks as "guest houses"
for federal officials); B-212397-0.M., July 13, 1984 (locker room
facilities in government building).
Information is certainly a "thing of value." Accordingly, the
dissemination or distribution of information is another area subject
to the IOAA to the extent not governed by some other statute such as
the Freedom of Information Act. See 5 U.S.C. § 552. IOAA user fees
have been held appropriate for such things as copying and delivery of
materials requested in discovery by parties to an agency enforcement
action (B-302825, Dec. 22, 2004), subscriptions to government
publications (B-110418, July 8, 1952), subscription to a Department of
Agriculture market news wire service (B-128056, July 8, 1966), and
international flight documentation provided to aviation interests by
the National Weather Service (B-133202-0.M., Sept. 17, 1976). Examples
from the procurement arena are B-236822, Sept. 8, 1989 (fee for copies
of specifications and drawings); B-209933, June 6, 1983 (fee for
solicitation documents); and B-184007, Sept. 24, 1975 (fee for copy of
bid abstract).[Footnote 111] The statute applies even to requests for
information directly about the requester. Reinoehl v. Hershey, 426
F.2d 815 (9th Cir. 1970) (pre-indictment request for documents from
Selective Service file).
Starting in the 1980s, emphasis began to shift to electronic
dissemination. A 1986 congressional study found the IOAA not
particularly suited to information services but still better than
nothing, and told agencies to do the best they could under it until
something better comes alone.[Footnote 112] Some of the complexities
are illustrated in B-219338, June 2, 1987, discussing a Department of
Agriculture system established under a statute (7 U.S.C. § 2242a)
which mandates consistency with the IOAA.
An agency may permit a contractor to provide information to the
public, with the contractor assessing and retaining the fees, but the
fees may not exceed what the agency could have charged had it provided
the information directly. 61 Comp. Gen. 285 (1982); B-166506, Oct. 20,
1975. See also chapter 3 of GAO's report ADP Acquisition: SEC Needs to
Resolve Key Issues Before Proceeding With Its EDGAR System, GAO/IMTEC-
87-2 (Washington, D.C.: Oct. 9, 1986).
Another activity susceptible to IOAA fees is adjudicatory services by
an administrative agency. The services may or may not be incident to a
regulatory program. An example of the former is Federal Energy
Regulatory Commission review of administrative appeals of remedial
orders. B-224596, Aug. 21, 1987. An example of the latter is the range
of adjudicatory services rendered to aliens by the U.S. Citizenship
and Immigration Services in the Department of Homeland Security
(previously provided by the then Immigration and Naturalization
Service in the Department of Justice). Ayuda, Inc. v. Attorney
General, 661 F. Supp. 33 (D.D.C. 1987), aff'd, 848 F.2d 1297 (D.C.
Cir. 1988); B-125031-0.M., July 23, 1974. As the Ayuda appellate court
stressed, the procedures "are triggered only at the instance of the
individual who seeks, obviously, to benefit from them." Ayuda, 848
F.2d at 1301. Another example is B-167062, June 13, 1969 (IOAA
reimbursement to former Civil Service Commission for advisory opinions
rendered at request of foreign military representatives in United
States).
Fees incident to litigation in the courts are also commonplace, but
they implicate certain constitutional considerations and are
prescribed under statutes other than the IOAA. See 28 U.S.C. §§ 1911
(Supreme Court), 1913 (courts of appeals), 1914 (district courts),
1926 (Court of Federal Claims), 1930 (bankruptcy fees). The rule is
that, with the exception of certain indigent situations, reasonable
fees may be charged to those seeking access to the courts. E.g.,
Lumbert v. Illinois Department of Corrections, 827 F.2d 257 (7th Cir.
1987).[Footnote 113] Fees may be charged even to involuntary litigants
provided they do not unduly burden access to the judicial process,
determined by balancing the litigant's interest against the
government's interest in assessing the fee. In re South, 689 F.2d 162
(10th Cir. 1982), cert. denied, 460 U.S. 1069 (1983); In re Red Barn,
Inc., 23 B.R. 593 (Bankr. D. Me. 1982).
Still another example is transportation services. Thus, if local
services are not available, the National Park Service may provide
transportation to injured or ill visitors in national parks, but
should attempt to recover its costs under the IOAA. B-198032, June 3,
1981. A case analogous to the "information contractor" cases noted
above is 46 Comp. Gen. 616 (1967). Public transportation to a then
Veterans Administration hospital in an isolated area had been
discontinued due to a low level of usage. Aware that visits by family
members often have significant therapeutic value to patients, GAO
agreed that the VA could use its appropriated funds to remedy the
situation. One approach would have been for the VA to furnish
transportation directly, presumably charging the riders under
authority of the IOAA. However, the VA found it would be substantially
less expensive to enter into a "subsidy contract" with a private
carrier under which the carrier would be paid a guaranteed annual
amount less fares collected, the fares to be comparable to commercial
common carrier fares. GAO concurred, advising that payment should be
on a net balance basis and that the contract should include adequate
controls to insure proper accounting of the fares collected.
While it is possible to categorize a great many of the user fee
situations as we have tried to do here—regulatory activities, use of
government property, dissemination of information, adjudicatory
services, transportation services—there are also many situations which
defy further generalization, the test being simply whether an activity
fits the terms of the statute as the courts have construed it. Thus,
GAO has regarded the IOA:Vs authority as extending to the following:
* Fees charged to nonfederal participants in government-sponsored
conference. B-190244, Nov. 28, 1977.
* Surcharge for expedited processing of passport applications. B-
118682, June 22, 1970.[Footnote 114] (The basic fee is authorized by
22 U.S.C. § 214.)
* Fees for certain allotments from the pay of civilian employees under
5 U.S.C. § 5525. 42 Comp. Gen. 663 (1963) (state income tax where
withholding is not required); B-152032, Aug. 1, 1963 (private
disability income insurance).[Footnote 115] The Office of Personnel
Management's regulations implementing 5 U.S.C. § 5525 are found at 5
C.F.R. part 550, subpart C.
(3) Public versus private benefit:
The Supreme Court, in National Cable Television Ass'n v. United
States, 415 U.S. 336 (1974), cautioned that an attempt by a regulatory
agency to recover its full operating costs would amount to charging
the regulated entities for those portions of the program that benefit
the public as a whole. This would go beyond the concept of a "fee,"
which is all the Independent Offices Appropriation Act (IOAA)
authorizes. Implicit in this is the recognition that a government
activity which benefits a private party also to greater or lesser
extent includes an element of public benefit, and it may not always be
possible to draw a clear line of demarcation.
Although the Supreme Court has not revisited the IOAA since 1974, two
important principles have emerged from the body of lower court
jurisprudence:[Footnote 116]
* When establishing a fee for a specific benefit conferred on an
identifiable beneficiary in a regulatory context, the agency must
exclude expenses incurred in serving some independent public interest.
* Once it is established that a given activity confers a specific
benefit on an identifiable beneficiary, the agency may charge its full
costs of providing the service, regardless of the fact that the
service may incidentally benefit the general public as well.
The D.C. Circuit has offered the following test: "If the asserted
public benefits are the necessary consequence of the agency's
provision of the relevant private benefits, then the public benefits
are not independent, and the agency would therefore not need to
allocate any costs to the public." Central & Southern Motor Freight
Tariff Ass'n v. United States, 777 F.2d 722, 732 (D.C. Cir. 1985).
More recently, the D.C. Circuit has come to view the term "private
benefit" with disfavor because it can mislead parties into attempting
to weigh the "public" versus "private" benefits of a given government
activity. The correct principle, said the court, is simply that the
IOAA authorizes an agency to charge the full cost of a service which
confers a specific benefit on an identifiable beneficiary,
notwithstanding any incidental benefit to the general public. There is
no need to weigh the relative public and private interests. Seafarers
International Union v. United States Coast Guard, 81 F.3d 179, 183-85
(D.C. Cir. 1996). The Seafarers decision also contains an illustration
of an "independent" public benefit although the court uses a slightly
different characterization. If, as part of the process of issuing
merchant marine licenses to qualified individuals, the Coast Guard
chooses to conduct boat inspections, it cannot include the cost of the
boat inspections in the fee charged to the applicants because those
costs are not "materially related" to the statutory license
requirements. Id. at 186.
One issue which has provided a battleground for these concepts is
whether a fee authorized by the IOAA can include the cost of preparing
an environmental impact statement (EIS) required by the National
Environmental Policy Act, 42 U.S.C. § 4332(2)(C). In a 1976 opinion to
a Member of Congress, GAO expressed what would later become the
established rule: "[W]here an impact statement is required to be
prepared in connection with the processing of a right-of-way, we
believe that the agency may include its cost as a direct cost
attributable to the special benefit represented by the right-of-way
which is chargeable to the applicant under 31 U.S.C. § [9701]." B-
118678, May 11, 1976, at 2.
In view of the substantial sums involved, however, it was inevitable
that the issue would find its way to the courts—again and again. The
first published court decision to consider the question was Public
Service Co. v. Andrus, 433 F. Supp. 144 (D. Colo. 1977), in which the
plaintiffs had sought rights-of-way over federal lands for electric
power transmission lines. The plaintiffs argued—as they would in every
case—that the National Environmental Policy Act was enacted for the
primary benefit of the general public, not them. The court agreed,
holding that EIS costs "are not of primary benefit to the right of way
applicant, and thus cannot properly be charged as fees" under the
IOAA. Public Service, 433 F. Supp. at 153.
While Public Service has never been directly overruled,[Footnote 117]
this portion of it has been effectively repudiated. The Fifth Circuit
considered the issue in connection with Nuclear Regulatory Commission
(NRC) licensing fees, holding that the NRC could include the EIS costs
notwithstanding the "obvious public benefit" because they are a
mandatory prerequisite to the issuance of a license and hence properly
chargeable as part of the full cost of conferring the benefit.
Mississippi Power & Light Co., 601 F.2d at 231. A few years later, the
Tenth Circuit, the governing circuit of the Colorado court which
decided the Public Service case, said the same thing. Nevada Power Co.
v. Watt, 711 F.2d 913, 933 (10th Cir. 1983).[Footnote 118] Other cases
reaching the same result are Alaskan Arctic Gas Pipeline Co. v. United
States, 9 Cl. Ct. 723 (1986), affd, 831 F.2d 1043 (Fed. Cir. 1987),
and Sohio Transportation Co. v. United States, 5 Cl. Ct. 620 (1984),
aff'd, 766 F.2d 499 (Fed. Cir. 1985).
(4) Calculation:
Up to this point, we have established that the agency must identify
its activities which provide specific services within the scope of the
Independent Offices Appropriation Act (IOAA) and must be able to
identify specific beneficiaries; having done this, it may charge those
beneficiaries the full cost of providing the services, any incidental
benefits to the general public notwithstanding, but excluding the cost
of independent public benefits. OMB Circular No. A-25 sets out two
methodologies for setting fees:
* fees based on an agency's costs, such that the agency gets a "full
cost" recovery, which should be used when the government is acting in
it capacity as sovereign; and;
* fees based on market price" (i.e., the market value of the goods or
services provided), which should be used under business-type
conditions, such as when leasing or selling goods or resources.
OMB Cir. No. A-25, User Charges, § 6.a (July 8, 1993). It remains to
translate this into dollars and cents.
Fees based on costs in regulatory context:
Courts have had many occasions to review fees of regulatory agencies.
The agency must first separate its beneficiaries into "recipient
classes" (applicants, grantees, carriers, etc.), among which costs
will be allocated. Each recipient class should be "the smallest unit
that is practical." Electronic Industries Ass'n v. FCC, 554 F.2d 1109,
1116 (D.C. Cir. 1976).
The agency then proceeds to calculate the cost basis for each fee
assessed against each recipient class.
Full cost for purposes of the IOAA includes both direct and indirect
costs. Engine Manufacturers Ass'n v. EPA, 20 F.3d 1177, 1181 (D.C.
Cir. 1994); Electronic Industries Ass'n, 554 F.2d at 1117; Public
Service Co. v. Andrus, 433 E Supp. 144, 155 (D. Colo. 1977); B-237546,
Jan. 12, 1990; OMB Cir. No. A-25, User Charges, § 6d (July 8, 1993).
As GAO pointed out, the original version of the IOAA specified that
the fee take into consideration "direct and indirect" cost to the
government (65 Stat. 290), but the 1982 recodification in 31 U.S.C. §
9701 dropped these words as unnecessary. B-237546, Jan. 12, 1990.
Indirect costs include administrative overhead. 55 Comp. Gen. 456
(1975). They also include depreciation of plant and equipment. 38
Comp. Gen. 734 (1959), aff'd, 56 Comp. Gen. 275, 277 (1977). The Fifth
Circuit has offered the following explanation:
"The cost of performing a service, such as granting a license to
construct a nuclear reactor, involves a greater cost to the agency
than merely the salary of the professional employee who reviews the
application. The individual must be supplied working space, heating,
lighting, telephone service and secretarial support. Arrangements must
be made so that he is hired, paid on a regular basis and provided
specialized training courses. These and other costs such as
depreciation and interest on plant and capital equipment are all
necessarily incurred in the process of reviewing an application.
Without these supporting services, professional employees could not
perform the services requested by applicants.
"Such costs may be assessed against an applicant as part of the total
cost of processing and approving a license; we emphasize again that
the Commission may recover the full cost of providing a service to a
beneficiary."
Mississippi Power & Light Co. v. United States Nuclear Regulatory
Commission, 601 F.2d 223, 232 (5th Cir. 1979), cert denied, 444 U.S.
1102 (1980) (emphasis in original).
The agency is not required to calculate its costs with "scientific
precision." Central & Southern Motor Freight Tariff Ass'n v. United
States, 777 F.2d 722, 736 (D.C. Cir. 1985). Reasonable approximations
will suffice. Id.; Mississippi Power & Light, 601 F.2d at 232;
National Cable Television Ass'n v. FCC, 554 F.2d 1094, 1105 (D.C. Cir.
1976); 36 Comp. Gen. 75 (1956). Thus, it was "entirely sensible and
reasonable" for an agency to use the governmental fringe benefit cost
percentage from an existing Office of Management and Budget source
rather than conduct its own probably duplicative study. Central &
Southern Tariff Ass'n, 777 F.2d at 736.
The final step is for the agency to "divide that cost among the
members of the recipient class ... in such a way as to assess each a
fee which is roughly proportional to the 'value' which that member has
thereby received." National Cable Television Ass'n, 554 F.2d at 1105-
06.
In the regulatory context, the fee cannot exceed the agency's cost of
rendering the service. Central & Southern Motor Freight Tariff Ass'n,
777 F.2d at 729; Mississippi Power & Light, 601 F.2d at 230;
Electronic Industries Ass'n, 554 F.2d at 1114. The fee must also be
reasonably related to the value of the service to the recipient, and
may not unreasonably exceed that value. Central & Southern Motor
Freight Tariff Ass'n, 777 F.2d at 729; National Cable Television
Ass'n, 554 F.2d at 1106. This is because the IOAA requires that the
fee be based on both factors and that it be "fair." 31 U.S.C. §§
9701(b)(1), (b)(2)(A) and (B). While the courts have not suggested
that the agency must engage in a separate calculation of "value to the
recipient" in order to compare it to the government's costs, neither
have they furnished instruction on how to measure that value. The D.C.
Circuit, in a 1996 case, tried to simplify matters by stating that
"the measure of fees is the cost to the government of providing the
service, not the intrinsic value of the service to the recipient," but
acknowledged that this would still be subject to the statutory
fairness prescription. Seafarers International Union v. United States
Coast Guard, 81 F.3d 179, 185 and n.4 (D.C. Cir. 1996). Thus, the
agency must calculate its fee on the basis of its actual or estimated
costs.
When an agency applies these principles, the agency might well not be
able to recover its full costs in the case of a high-cost but low-
value service.[Footnote 119] Conversely, in a situation where the
value to the recipient may substantially exceed the cost to the
government, the agency will be able to recover its full costs but no
more. It is improper, for example, to look to the value the recipient
may derive from the service, such as anticipated profits. National
Cable Television Ass'n, 554 F.2d at 1107. In the cited case, the fee
charged to cable operators was based on the number of subscribers. The
court recognized the possibility that increased numbers of subscribers
could produce increases in agency regulatory costs, but required
evidence of that linkage to avoid concluding that the fee was based on
revenues, which the IOAA does not authorize. Id. at 1108. Similarly,
the IOAA does not authorize an agency to levy a surcharge over and
above its costs, or to vary its fees among beneficiaries. Capital
Cities Communications, Inc. v. FCC, 554 F.2d 1135, 1138 (D.C. Cir.
1976); B-237546, Jan. 12, 1990. Of course there is no objection to use
of a sliding scale if the graduated fees in fact reflect graduated
costs. Electronic Industries Ass'n, 554 F.2d at 1116; B-237546, Jan.
12, 1990.
Depending on the circumstances, a fee system which permits deviation
from established schedules may be acceptable. The case of Phillips
Petroleum Co. v. Federal Energy Regulatory Commission, 786 F.2d 370
(10th Cir.), cert. denied, 479 U.S. 823 (1986), provides an
illustration. The agency had a fee schedule for regulatory filings,
but occasionally received filings which were much more extensive than
average. Factoring the extraordinary cases into the regular schedule
would have meant that the average filings would be subsidizing the
extensive ones. To avoid this, the agency developed a system,
published in its orders, whereby an extraordinary filing would be
billed not under the schedules but on the basis of the direct and
indirect costs associated with that specific filing The court found
this system in accord with the IOAA and a reasonable exercise of the
agency's discretion, not just a pretext to avoid work. Phillips
Petroleum, 786 F.2d at 378-79.
If any of this sounds easy, it is not. The D.C. Circuit conceded the
"extreme difficulty" of the task, which it said, "resembles
unscrambling eggs." Electronic Industries Ass'n, 554 F.2d at 1117. GAO
in its many reports on the IOAA also acknowledges the difficulty of
the task but regards the obstacles as not insurmountable. B-201667-
0.M., May 5, 1981. A more detailed discussion may be found in GAO,
Establishing a Proper Fee Schedule Under the Independent Offices
Appropriation Act, 1952, CED-77-70 (Washington, D.C.: May 6, 1977).
Fees based on market value:
The foregoing discussion has all been in the regulatory context with
the government acting in its capacity as sovereign. The same rules do
not necessarily apply when the government is selling goods, property,
or services.
In 1982, the then Court of Claims examined a contract dispute between
the National Park Service (NPS) and a concessioner in Yosemite
National Park, the Yosemite Park and Curry Company. Yosemite Park &
Curry Co. v. United States, 686 F.2d 925, 929 (Ct. Cl. 1982). As part
of the concession, the concessioner purchased electricity from NPS.
NPS is authorized by 16 U.S.C. § 1b(4) to provide electricity to
concessioners on a reimbursable basis. The concessioner asserted that
NPS was overcharging for the electricity it supplied because NPS
charged rates based on local utility rates, which could exceed NPS
costs. The Court of Claims referred to a variety of authorities,
including the then Bureau of the Budget Circular A-25 and IOAA, in
concluding that the NPS rate-setting methodology was "reasonable"
within the meaning of the contract, although it, in fact, might result
in NPS charging a rate in excess of cost. Id. at 930. Circular A-25 at
the time provided that "where federally owned resources or property
are leased or sold, a fair market value should be obtained," as
determined by the application of "sound business management principles
and comparable commercial practices."[Footnote 120]
In referring to IOAA, the Court of Claims acknowledged the line of
federal cases interpreting IOAA to "mandate a cost based fee schedule"
and establish that "cost must be the ultimate basis of fees," but
found that those cases were "not apposite" to NPS's authority under 16
U.S.C. § 1b(4). Id. at 930-32. Instead, the court relied on the fact
that the government was not acting, in that instance, as a sovereign:
"In the present case ... the Government has not created the need for
electricity, nor is the service provided a regulatory one." Id. at
932. In selling electricity to the concessioner, the government was
entering into a voluntary contract for the sale of electricity to a
willing partner. Id. at 934. This is fundamentally different from the
circumstances in National Cable Television Ass'n v. United States, 415
U.S. 766 (1974), for instance, where "the Government's power to
allocate the airwaves and to issue licenses came not from its
ownership of the airwaves but from its sovereign power to regulate
certain activities ..." Id. Thus, the Court of Claims found the
comparative-rate system methodology used by NPS to set rates for
electricity acceptable, despite the fact that those rates could exceed
NPS costs. See also B-307319, Aug. 23, 2007.
Subsequently, the Office of Management and Budget adopted the court's
distinction between the government acting as a sovereign and the
government acting commercially in setting user fees for goods and
services in the 1993 revision to its Circular No. A-25 (which is the
current version) as follows:
"User charges will be based on market prices (as defined in Section
6d) when the Government, not acting in its capacity as sovereign, is
leasing or selling goods or resources, or is providing a service
(e.g., leasing space in federally owned buildings). Under these
business-type conditions, user charges need not be limited to the
recovery of full cost and may yield net revenues."
OMB Circular No. A-25, User Charges, § 6a(2)(b) (July 8, 1993).
d. Refunds:
It would seem an elementary proposition that money collected in excess
of what is due should be refunded, and there is no reason this should
not apply to fees under the Independent Offices Appropriation Act
(IOAA). After the Supreme Court handed down its decision in National
Cable Television Ass'n v. United States, 415 U.S. 336 (1974), holding
that the IOAA authorized only fees, not taxes, the Federal
Communications Commission (FCC) refunded the cable television fees it
had collected under the schedule the Court struck down.[Footnote 121]
Shortly thereafter, other regulated entities which had paid fees under
the same schedule sued the FCC to have their fees refunded. In
National Association of Broadcasters v. FCC, 554 F.2d 1118 (D.C. Cir.
1976), the court held that the FCC's broadcast system fees were
vulnerable under the Supreme Court's interpretation the same as its
cable television fees. It did not follow, however, that the entire fee
was invalid. Noting what it called the "mandate" of the IOAA that
government services to identifiable beneficiaries should be self-
sustaining to the extent possible (31 U.S.C. § 9701(a)), the court
said: "It is our interpretation of this mandate that the Commission
should retain the maximum portion of the fees collected that would be
permissible under the principles announced in [cited Supreme Court
decisions] and the statute." National Association of Broadcasters, 554
F.2d at 1133. Accordingly, the court remanded the case to the FCC to
calculate a proper fee under the court's guidelines and to then
"refund that portion of the money which was collected in excess
thereof." Id.
The court was careful to point out that it was not asking the agency
to engage in "retroactive rulemaking." Id. at 1133 n.42. The D.C.
Circuit revisited this concept several years later in Air Transport
Ass'n of America v. Civil Aeronautics Board, 732 F.2d 219 (D.C. Cir.
1984). The defendant agency had revised its fee schedules following
the fee/tax refund litigation of the mid-1970s and announced a refund
policy under which it would offset the total amount of fees a claimant
had paid during a calendar year against the total amount of
recalculated fees the agency could have charged, and actually pay a
refund only if and to the extent the former exceeded the latter.
Finding that this offset policy amounted to unlawful retroactive
rulemaking, the court emphasized that the principle of National
Association of Broadcasters must be applied on an individual fee
basis. Air Transport, 732 F.2d at 226-28. The court also flatly
rejected a claim for the refund of the full amount of the fees as
"irreconcilable" with National Association of Broadcasters. Id. at 228
n.17.
If the principle of National Association of Broadcasters-—that the
agency may retain what it could have charged under a properly
established fee and must refund only the excess-—is circumscribed by
considerations of retroactive rulemaking, one situation in which
refund of the entire fee may appear appropriate is where the agency
did not have regulations to begin with. The Court of Claims reached
this result in Alyeska Pipeline Service Co. v. United States, 624 F.2d
1005 (Ct. Cl. 1980). See also B-145252-0.M., Nov. 12, 1976.
If an agency is refunding fees which were improperly assessed under
IOAA guidelines, and if those fees were deposited in the Treasury as
miscellaneous receipts as the IOAA requires, then the refund is
chargeable to the permanent, indefinite appropriation entitled "Refund
of Moneys Erroneously Received and Covered," established by 31 U.S.C.
§ 1322(b)(2).
55 Comp. Gen. 243 (1975);[Footnote 122] B-181025, July 11, 1974. If
the agency has been authorized to credit the fee to some other
appropriation or fund, the refund is chargeable to the appropriation
or fund to which the fee was credited. See, e.g., 55 Comp. Gen. 625
(1976).
Absent statutory direction to the contrary, the rules of the preceding
paragraph apply equally to refunds of fees collected under statutes
other than the IOAA. For example, fees under the Federal Land Policy
and Management Act are deposited in a "special account" from which
they are authorized to be appropriated. 43 U.S.C. § 1734(b). Erroneous
or excessive fees may be refunded "from applicable funds." Id. §
1734(c). Where an appropriation from the special account has actually
been made, that appropriation is the "applicable fund." 61 Comp. Gen.
224 (1982). If the statute is silent as to disposition, the fees are
properly treated as miscellaneous receipts, in which event refunds of
erroneous or excessive fees are chargeable to the "Erroneously
Received and Covered" account. Id.
OMB Circular No. A-25, User Charges, § 6a(2)(c) (July 8, 1993), tells
agencies to collect user fees "in advance of, or simultaneously with,
the rendering of services unless appropriations and authority are
provided in advance to allow reimbursable services." An agency
collecting a fee in advance should use common sense to avoid
depositing the money in the general fund prematurely. In 53 Comp. Gen.
580 (1974), for example, fees for certain permits had been deposited
as miscellaneous receipts when a change in the law authorized transfer
of permit issuance to the states but made no provision for transfer of
funds. When the state also charged a fee, applicants naturally sought
refund of the fees they had already paid to the federal government and
for which they had received nothing. Although not discussed in the
decision, the "Erroneously Received and Covered" appropriation was not
available because the receipt of the fees had been entirely proper.
The solution was a two-step procedure—make an adjustment from the
receipt account to the agency's suspense account to correct the
erroneous deposit, then make the refund from the suspense account. The
proper accounting treatment should have been to retain the fees in the
suspense account or a trust account until they were "earned" by
performance, then transferred to the appropriate general fund receipt
account. See, e.g., A-44005, Apr. 24, 1935.
For refund purposes, whether or not the fees were paid under protest
is immaterial. Alyeska Pipeline Service Co., 624 F.2d at 1018; 55
Comp. Gen. at 244. However, waiting too long to assert a claim could
be fatal under the doctrine of laches if, for example, through no
fault on the part of the agency, records are no longer available from
which the fees could be recalculated. Air Transport, 732 F.2d at 225-
26. Laches will not help an agency which fails to retain adequate
records if it is on notice of a challenge to its fee schedule. Id. at
226 n.14. Whether a simple payment under protest will serve this
purpose is not clear.
4. Other Authorities:
a. Subsection (c) of the Independent Offices Appropriation Act:
For approximately 35 years, although there were other fee statutes on
the books, the Independent Offices Appropriation Act (IOAA) was the
predominant federal user fee statute; it remains the only
governmentwide authority. In the mid-1980s, however, as the need to
attack the growing budget deficit took center stage, and general tax
increases were not forthcoming, congressional attention turned
increasingly to user fees as a revenue source. Starting in 1986,
Congress enacted dozens of fee provisions directed at particular
agencies or activities.[Footnote 123]
The relationship between the IOAA and these other statutes is
addressed in the IOAA itself, specifically 31 U.S.C. § 9701(c):
"(c) This section does not affect a law of the United States:
"(1) prohibiting the determination and collection of charges [or
directing] the disposition of those charges; and;
"(2) prescribing bases for determining charges, but a charge may be
redetermined under this section consistent with the prescribed
bases."[Footnote 124]
This is largely a codification of the canon of construction that a
general statute must yield to the terms of a specific statute
addressing the same subject matter.
Perhaps the simplest application of section 9701(c) is the prohibitory
statute, in which case the IOAA is knocked out of the picture. An
example is 21 U.S.C. § 695 which provides that, except for certain
overtime services, the "cost of inspection ... under the requirements
of laws relating to Federal inspection of meat and meat food products
shall be borne by the United States." Enacted in 1948, this statute
replaced an unsuccessful 1-year experiment in financing federal meat
inspections through user fees. See S. Rep. No. 81-2120, at 5 (1950);
Combs v. United States, 98 E Supp. 749 (D. Vt. 1951). Unlike the broad
proscription of the meat inspection statute, a prohibitory statute may
simply have the effect of barring reliance on the IOAA, effectively
requiring more explicit authority. The Food and Drug Administration's
(FDA) appropriation, for example, regularly carries a proviso that
prohibits use of the FDA's Salaries and Expenses money "to develop,
establish, or operate any program of user fees authorized by 31 U.S.C.
§ 9701." For the fiscal year 2006 version, see Pub. L. No. 109-97,
title VI, 119 Stat. 2120, 2148 (Nov. 10, 2005). The origin of this
proviso is discussed in B-217931, July 31, 1985. The FDA does have a
user fee system, but it is authorized under the FDA's own detailed and
specific legislation (21 U.S.C. § 379h), not the IOAA.
The Small Business Administration (SBA) is another agency with a
specific, and exclusive, statutory user fee system. Section 634(b)(12)
of title 15, United States Code, provides that SBA may "impose,
retain, and use only those fees which are specifically authorized by
law or which are in effect on September 30, 1994." It goes on to
authorize certain specific fees to be imposed and used subject to
approval in appropriation acts. Relying on section 634(b)(12), GAO
held in B-300248, Jan. 15, 2004, that SBA could not impose certain
fees on lenders in its Preferred Lender Program since such fees were
not specifically authorized under SBA's statutes and the IOAA was not
available to SBA as an independent source of authority.[Footnote 125]
GAO stated its approach to 31 U.S.C. § 9701(c) vis-a-vis other fee
statutes in 55 Comp. Gen. 456, 461 (1975): "It has consistently been
our view that ... 31 U.S.C. § [9701(c)] preclude[s] the imposition of
additional user charges under that section only to the extent that
another statute expressly or by clear design constitutes the only
source of assessments for a service." See also B-307319, Aug. 23, 2007.
b. Independent Offices Appropriation Act Incorporated by Reference:
One form of user fee statute is based directly on the Independent
Offices Appropriation Act (IOAA) and makes explicit reference to it.
An example is 14 U.S.C. § 664(a): "A fee or charge for a service or
thing of value provided by the Coast Guard shall be prescribed as
provided in section 9701 of title 31." Another very similar Coast
Guard statute is 46 U.S.C. § 2110(a)(1).
The main thrust of statutes like these is to remove the discretionary
aspect of the IOAA and to make the authority mandatory. See Boat
Owners Ass'n of the United States v. United States, 834 F. Supp. 7, 12
(D.D.C. 1993). A statute of this type may include its own limitations
on use of the authority. For example, the Coast Guard legislation
prohibits charging a fee for any search or rescue service. 46 U.S.C. §
2110(a)(5).
Another example is 42 U.S.C. § 2214(b), applicable to the Nuclear
Regulatory Commission, enacted as part of the 1990 Omnibus Budget
Reconciliation Act: "Pursuant to section 9701 of Title 31, any person
who receives a service or thing of value from the Commission shall pay
fees to cover the Commission's costs in providing any such service or
thing of value." Like the Coast Guard statutes, use of the word
"shall" makes mandatory what would otherwise be discretionary under
the IOAA.
One step removed from these is a statute which authorizes or directs
the charging of fees, with the link to the IOAA appearing in
legislative history rather than the statute itself. An example is the
original version of the Freedom of Information Act which specified
merely "fees to the extent authorized by statute." Committee reports
made it clear that the IOAA was the statute Congress had in mind. See
Diapulse Corp. v. Food and Drug Administration, 500 F.2d 75, 78 (2nd
Cir. 1974); B-161499-0.M., Aug. 13, 1971. The Freedom of Information
Act now includes its own detailed fee provision in 5 U.S.C. §
552(a)(4).
A variation is 7 U.S.C. § 2242a. Section 2242a(a) authorizes the
Department of Agriculture to charge reasonable user fees for
departmental publications or software. Section 2242a(b) then goes on
to state that "the imposition of such charges shall be consistent with
section 9701 of title 31." GAO analyzed Agriculture's authority under
this provision in B-219338, June 2, 1987. Finding no legislative
history to explain what Congress intended by the "consistent with"
terminology, GAO concluded that the agency was not required to adopt
every wrinkle of judicial interpretation under the IOAA. GAO advised:
"At a minimum ... we take it to mean that the charges may be cost-
related under any of the various formulations sanctioned by the
decisions of the courts, or, in the absence of a cost based fee
schedule, reasonable. Also, the requirement that fees be 'consistent'
with section 9701 fees clearly does not mean that they must be
identical to those that would be imposed under section 9701 or that
they must have been promulgated in accordance with all the procedural
requirements [of the IOAA]."
B-219338, June 2, 1987, enclosure at 16-17.
c. Statutes In Pari Materia:
Another type of user fee statute one encounters is a statute which
authorizes or directs an agency to charge a fee or to recover costs in
general terms, without making specific reference to the Independent
Offices Appropriation Act (IOAA). The statute may apply to a specific
type of activity or to a broader range. Unless there is something in
the statute or its legislative history to compel a different result,
the approach is to regard it as being in pari materia with the IOAA—
that is, statutes dealing with the same subject matter or having a
common purpose (Black's Law Dictionary 807 (8th ed. 2004))—and to
construe them together as part of an overall statutory scheme. Where
this principle applies, it is legitimate to look to the body of law
developed under the IOAA for guidance in construing the other statute.
For example, the National Park Service is authorized to furnish
utility services to concessioners "on a reimbursement of appropriation
basis." 16 U.S.C. § 1b(4). In Yosemite Park & Curry Co. v. United
States, 686 F.2d 925 (Ct. Cl. 1982), a concessioner at Yosemite
National Park who had been purchasing electricity from the Park
Service challenged the Park Service's rate structure, which was based
on the average of rates charged by other area utilities rather than
cost reimbursement. Viewing 16 U.S.C. § lb(4) and the IOAA as being in
pari materia, the court analogized to the fee structure under the
IOAA, as implemented by the then Bureau of the Budget Circular No. A-
25 (Sept. 23, 1959)), and found it reasonable under both statutes.
Yosemite, 686 F.2d at 928.
Another illustration is 30 U.S.C. § 185(1), part of the Mineral
Leasing Act:
"The applicant for a right-of-way or permit shall reimburse the United
States for administrative and other costs incurred in processing the
application, and the holder of the right-of-way or permit shall
reimburse the United States for the costs incurred in monitoring the
construction, operation, maintenance, and termination of any pipeline
and related facilities on such right-of-way or permit area ...."
The then Court of Claims held that this provision did not supersede or
override the requirement of the IOAA that fees be assessed only
pursuant to regulations. Alyeska Pipeline Service Co. v. United
States, 624 F.2d 1005 (Ct. CL 1980). See also Sohio Transportation Co.
v. United States, 5 Cl. Ct. 620 (1984), aff d, 766 F.2d 499 (Fed. Cir.
1985). The lower court in the Sohio litigation also looked to
precedent under the IOAA to determine that the Bureau of Land
Management's pipeline right-of-way fees were not taxes. 5 Cl. Ct. at
628.
Another illustration is the legislation governing the Comptroller of
the Currency's assessments against national banks. At one time, the
law directed the Comptroller to recover the expense of required
examinations by assessments on the national banks in proportion to
their assets or resources. 12 U.S.C. § 482 (1988). Applying the pari
materia concept in effect if not in terms, one court sustained the
Comptroller's assessment regulations, concluding that "the Comptroller
is directed, to the fullest possible extent, to assess fees reflective
of the actual cost of examination while adhering to the statutory
guideline of asset and resource size." First National Bank of Milaca
v. Smith,, 445 F. Supp. 1117, 1123 (D. Minn. 1977). See also First
National Bank of Milaca v. Smith,, 572 F.2d 1244 (8th Cir. 1978). The
district court rejected the bank's argument that 31 U.S.C. § 9701(c)
rendered the IOAA inapplicable (see section D.4.a of this chapter); 12
U.S.C. § 482 did not fix the amount of the fee but merely provided a
basis for calculation, in which event section 9701(c) encourages fee
recalculation to more fully achieve, or at least approach, self-
sufficiency. First National, 445 F. Supp. at 1123. A 1991 amendment
[Footnote 126] to 12 U.S.C. § 482 deleted the asset/resource size
requirement and the statute now merely provides a general assessment
requirement with respect to fees. The amendment does not appear to
affect the relationship of section 482 to the IOAA.
d. Statutes Entirely Independent of the Independent Offices
Appropriation Act:
Once you eliminate those user fee statutes that are tied in to the
Independent Offices Appropriation Act (IOAA) either expressly or by a
pari materia rationale, those that are left have little in common
other than their independence of the IOAA by virtue of 31 U.S.C. §
9701(c) (see section D.4.a of this chapter). The only safe
generalization is that each statute stands alone and its own terms
determine its coverage and limitations. Many of the laws stem from the
post-1985 period and there is little interpretive case law.
Accordingly, our objective here is essentially to present a typology
to illustrate the different kinds of user fee laws and the different
things Congress has tried to do with them.
Perhaps the simplest type is a provision that directly fixes the
amount of the fee. An example is 8 U.S.C. § 1356(d):
"In addition to any other fee authorized by law, the Attorney General
shall charge and collect $7 per individual for the immigration
inspection of each passenger arriving at a port of entry in the United
States, or for the preinspection of a passenger in a place outside of
the United States prior to such arrival, aboard a commercial aircraft
or commercial vessel."
Section 1356(e) sets forth limitations. While this type of statute may
generate other questions of interpretation,[Footnote 127] it
eliminates the calculation nightmare. Of course, a fixed-fee approach
is not always viable. Conceptually similar is a statute which fixes
the amount of the fee and provides a mechanism for periodic adjustment
by the administering agency. An example is 47 U.S.C. § 158 (Federal
Communications Commission application fees).
Another simple type, at least simple to administer, is a fee set as a
percentage of some reference amount. Congress enacted legislation in
1985 directing the Federal Reserve Bank of New York to deduct 1-1/2
percent of the first $5 million and 1 percent of any amount over $5
million from every award by the Iran-United States Claims Tribunal in
favor of a United States claimant. The deduction was intended to
reimburse the government for expenses of its participation in the
claims program. Pub. L. No. 99-93, § 502, 99 Stat. 405, 438 (Aug. 16,
1985), 50 U.S.C. § 1701 note. In United States v. Sperry Corp., 493
U.S. 52 (1989), the Supreme Court upheld the deduction against a
variety of challenges, one of which was that the government had failed
to demonstrate the relationship of the amount of the deduction to the
costs presumably being reimbursed. The Court responded:
"This Court has never held that the amount of a user fee must be
precisely calibrated to the use that a party makes of Government
services. Nor does the Government need to record invoices and billable
hours to justify the cost of its services. All that we have required
is that the user fee be a `fair approximation of the cost of benefits
supplied.'"
Sperry, 493 U.S. at 60, citing Massachusetts v. United States, 435
U.S. 444, 463, n.19 (1978). The statute declared the deduction to be a
user fee, and it is the claimant's burden to demonstrate otherwise.
Sperry, 493 U.S. at 60. Of course there are limits to this rationale.
The Court continued:
"The deductions authorized by § 502 are not so clearly excessive as to
belie their purported character as user fees. This is not a situation
where the Government has appropriated all, or most, of the award to
itself and labeled the booty as a user fee.... We need not state what
percentage of the award would be too great a take to qualify as a user
fee, for we are convinced that on the facts of this case, 1-1/2% does
not qualify as a 'taking' by any standard of excessiveness."
Id. at 62 (citations and footnotes omitted). There is no apparent
reason why the Court's approach in Sperry would not apply equally to a
fee in the form of a fixed dollar amount. Also, as the statute in
Sperry illustrates, a fixed-amount fee or a fixed-percentage fee can
be in the form of a sliding scale. Indeed, a number of lower courts
have applied, or suggested in dicta that they would apply, the Sperry
approach to both fixed and variable fees. See, e.g., Slade v. Hampton
Roads Regional Jail, 407 F.3d 243 (4th Cir. 2005) ($1 per day charge
to pretrial detainee to partially defray the costs of incarceration);
Vance v. Barrett, 345 F.3d 1083 (9th Cir. 2003) (charges to cover
administrative costs of prisoner personal property and savings
accounts); Owens v. Sebelius, 357 F. Supp. 2d 1281 (D. Kan. 2005) ($25
monthly supervision fee for parolees); Dudley v. United States, 61
Fed. Cl. 685 (2004) (filing fees pursuant to 28 U.S.C. § 1915(b), for
civil actions and appeals brought by prisoners).[Footnote 128]
Most user fee statutes are not this simple. Rather than fixing the
amount of the fee, they tend to prescribe the basis for determining
the fee and vary greatly in their level of detail. At one end of the
spectrum are laws that prescribe a cost basis and include some
additional detail. Section 304(a) of the Federal Land Policy and
Management Act, for example, 43 U.S.C. § 1734(a), authorizes fees
"with respect to applications and other documents relating to the
public lands" and lists several factors to be considered in
determining reasonableness. See Nevada Power Co. v. Watt, 711 F.2d 913
(1st Cir. 1983). Additional examples are the fee provisions of the
Grain Standards Act, 7 U.S.C. §§ 79(j) (inspection) and 79a(1)
(weighing). In holding the IOAA inapplicable to these statutes, the
Claims Court noted that "accepted principles of statutory construction
require that a specific legislative enactment be given effect to the
exclusion of a more general one." Bunge Corp. v. United States, 5 CL
Ct. 511, 516 (1984), aff'd mem., 765 F.2d 162 (Fed. Cir. 1985).
At the other end of the spectrum are statutes containing a complex fee-
setting mechanism set forth in considerable detail, often including
waiver authority. One example is 7 U.S.C. § 136a-1(i), prescribing
fees for pesticide registration under the Federal Insecticide,
Fungicide, and Rodenticide Act. The law combines fixed fees for
certain pesticides, fees set administratively within limits for other
pesticides, and formula fees for reregistration. The law also includes
annual ceilings per registrant and an aggregate target revenue amount.
Another example is 21 U.S.C. § 379h, fees for the Food and Drug
Administration (FDA). The law authorizes three fees—human drug
application and supplement fees, prescription drug establishment fees,
and prescription drug product fees. 21 U.S.C. § 379h(a). The fees are
fixed dollar amounts subject to an adjustment mechanism. The law also
specifies aggregate fee revenue amounts which the fees are to
generate. Id. § 379h(b). Section 379h(f)(1) requires FDA to refund
fees unless its Salaries and Expenses appropriations meet or exceed
certain levels for a given fiscal year. Section 379h(g) provides that
the fees shall be collected and available only to the extent provided
in advance in appropriation acts.[Footnote 129]
A well-known user fee system is the one prescribed in the Freedom of
Information Act (FOIA), 5 U.S.C. § 552(a)(4), which illustrates still
a different fee-setting approach. FOLVs fee provisions are quite
complex. Fees are set at three levels varying with the purpose and
identity of the requester. At the highest level are fees charged to
commercial-use requesters, who pay for search, duplication, and
review. 5 U.S.C. § 552(a)(4)(A)(ii)(I). The lowest level fees are
charged to educational or noncommercial scientific institutions and
the news media, who pay only for duplication provided that they are
not seeking information for commercial purposes. Id. §
552(a)(4)(A)(ii)(10. All others are charged for search and
duplication. Id. § 552(a)(4)(A)(ii)(DI). Each agency is to issue its
own fee regulations, but in the interest of uniformity they must
conform to Office of Management and Budget (OMB) guidelines. Id.
§ 552(a)(4)(A)(i). OMB's guidelines are found in 52 Fed. Reg. 10012
(Mar. 27, 1987). An agency's own regulations may simply adopt the OMB
guidelines. Media Access Project v. FCC, 883 F.2d 1063 (D.C. Cir.
1989). FOIA explicitly limits fees for all categories of requesters to
"reasonable standard charges"; restricts fees to the direct costs of
search, duplication, and review; and specifies what may be included in
review costs. 5 U.S.C. § 552(a)(4)(A)(iv). No fee may be charged any
requester if the fee is likely to be less than the cost of collecting
and processing it, and all noncommercial requesters are entitled to
two free hours of search time and 100 pages of free duplication. Id.
Section 552(a)(4)(A)(iii) of FOIA entitles educational, noncommercial
scientific, and media requesters to a fee waiver or reduction "if
disclosure of the information is in the public interest because it is
likely to contribute significantly to public understanding of the
operations or activities of the government and is not primarily in the
commercial interest of the requester." This provision has generated
extensive litigation. The following cases illustrate the standards
that courts have applied in adjudicating waiver requests:
Environmental Protection Information Center v. Forest Service, 432
F.3d 945 (9th Cir. 2005); Forest Guardians v. Department of the
Interior, 416 F.3d 1173 (10th Cir. 2005); Judicial Watch, Inc. v.
Department of Justice, 365 F.3d 1108 (D.C. Cir. 2004); Community Legal
Services, Inc. v. Department of Housing and Urban Development, 405 E
Supp. 2d 553 (E.D. Pa. 2005); Southern Utah Wilderness Alliance v.
Bureau of Land Management, 402 E Supp. 2d 82 (D.D.C. 2005); Electronic
Privacy Information Center v. Department of Defense, 241 E Supp. 2d 5
(D.D.C. 2003). A number of these cases emphasize the admonition in the
legislative history of FOIA that the act "is to be liberally construed
in favor of waivers for noncommercial requesters." 132 Cong. Rec.
514,298 (Sept. 30, 1986) (statement of Senator Leahy). See, e.g.,
Environmental Protection Information Center, 432 F.3d at 947; Forest
Guardians, 416 F.3d at 1178.
Finally, section 552(a)(4)(A)(vi) of FOIA provides: "Nothing in this
subparagraph [covering all of the provisions described above] shall
supersede fees chargeable under a statute specifically providing for
setting the level of fees for particular types of records." This
provision has been raised in some of the waiver litigation, including
two decisions that represent a possible split in the circuits
concerning its scope. In Environmental Protection Information Center,
432 F.3d at 947-49, the Ninth Circuit held that the exception under
section 552(a)(4)(A)(vi) extended only to another statute that
mandated the imposition of fees.
Thus, an otherwise qualified requester was entitled to a fee-waiver
under FOIA even if the information requested was covered by another
statute that permitted but did not require the charging of fees.
Environmental Protection Information Center, 432 F.3d at 947-49. In
reaching this conclusion, the court quoted from and relied on the OMB
guidelines, which clearly state that the FOIA fee provisions are
superseded only by another statute that specifically requires an
agency to set fees. The court acknowledged that its "result may be at
odds with" Oglesby v. Department of the Army, 79 F.3d 1172 (D.C. Cir.
1996), which held that a discretionary fee-setting statute came within
the section 552(a)(4)(A)(vi) exception. However, the court noted that
the Oglesby decision did not consider the OMB guidelines.
Environmental Protection Information Center, 432 F.3d at 949.
In Oglesby, a FOIA requester sought records from the National Archives
and Records Administration (NARA), among other sources. NARA denied
the requester a FOIA fee waiver on the basis that its statute, which
permits but does not require charges, constituted an exception to
FOIA.[Footnote 130] The D.C. Circuit agreed with NARA. The court
concluded that under the plain meaning of both statutes, the NARA
provision "fits comfortably within the exception carved out in FOIA"
section 552(a)(4)(A)(vi). Oglesby, 79 F.3d at 1177. However, the
Oglesby opinion went on to limit its holding:
"We wish ... to make it clear that we are in no way ruling on a
separate argument which Oglesby failed to raise in a timely fashion.
In a motion filed after oral argument, Oglesby pressed the claim that
the FOIA subsection (vi) exception excuses a qualified agency only
from FOINs fee-setting requirements, and not from the fee-waiver
provision." Oglesby, 79 F.3d at 1178. The Ninth Circuit court took a
more definitive approach, specifically giving deference to the OMB
guidelines and concluding that only statutes setting mandatory fees,
rather than statutes setting discretionary ones, could satisfy the
exception in 5 U.S.C. § 552(a)(4)(A)(vi). Environmental Protection
Information Center v. Forest Service, 432 F.3d 945,948-49 (9th Cir.
2005).
Several user fee provisions were included in the Consolidated Omnibus
Budget Reconciliation Act of 1985 (COBRA), Pub. L. No. 99-272, 100
Stat. 82 (Apr. 7, 1986). The Congressional Budget Office (CBO) has
observed that if the IOAA was the first turning point in user fee
legislation in the post-World War II era, COBRA was the second. CBO,
The Growth of Federal User Charges 19 (1993). This is because several
of the COBRA provisions departed from the traditional approach of
basing fees on the cost of specific benefits, and instead linked fees
to recovering part or all of an agency's operating budget.
One provision of COBRA, the amended version of which is found at 42
U.S.C. § 2213, directed the Nuclear Regulatory Commission (NRC) to
assess annual charges on its licensees so that the annual charges,
when added to the fees the NRC was already assessing under the IOAA,
would approximate 33 percent of the NRC's operating budget. The annual
charges "shall be reasonably related to the regulatory service
provided by the Commission and shall fairly reflect the cost to the
Commission of providing such service." 42 U.S.C. § 2213(1)(B). A group
of licensees sued, arguing that the COBRA provision must be read as
incorporating the limitations of the IOAA, otherwise it would amount
to an unconstitutional delegation by Congress of its power to tax. The
challenge was rejected in Florida Power & Light Co. v. United States,
846 F.2d 765 (D.C. Cir. 1988), cert. denied, 490 U.S. 1045 (1989). The
court first held that COBRA was intended to go beyond the IOAA by
authorizing the NRC to recover "generic costs, that is, costs which do
not have a specific, identifiable beneficiary." Florida Power & Light
Co., 846 F.2d at 769. The court then went on to hold that, even if you
wanted to call the annual charges a "tax," the COBRA provision
satisfied the Supreme Court's test for a permissible delegation
because it provided adequate standards for the implementing agency to
apply. Id. at 772-76.
The Omnibus Budget Reconciliation Act of 1990 added a provision,
codified as amended at 42 U.S.C. § 2214, directing the NRC to collect
additional fees and charges. Originally, the collections were to
approximate 100 percent of NRC's budget authority. Section 2214 now
provides a sliding scale that reduces the collections to 90 percent of
the agency's budget. The Justice Department's Office of Legal Counsel
has determined that this fee extends to and is payable by other
federal agencies which hold NRC licenses. 15 Op. Off. Legal Counsel 91
(1991).
Another COBRA provision, now codified at 49 U.S.C. § 60301, directs
the Secretary of Transportation to collect annual fees from operators
of various pipeline facilities. The fees are to be calculated to cover
the costs of activities under the Natural Gas Pipeline Safety Act of
1968 and the Hazardous Liquid Pipeline Safety Act of 1979, not to
exceed 105 percent of the total appropriations made for those
activities in a given year. As with the NRC provision noted above,
there was no way this provision could pass muster under the rigid
interpretations of the IOAA, and, again as with the NRC provision, the
operators were in court before the ink on the statute was dry. This
time, the litigation produced a Supreme Court decision which once and
for all laid to rest the "taxing issue" (bad pun) which had hovered
over all user fee statutes since the 1974 IOAA decisions. The case is
Skinner v. Mid-America Pipeline Co., 490 U.S. 212 (1989). This time,
the plaintiffs conceded that the statute satisfied the requirements of
the nondelegation doctrine, but argued that the standards should be
tighter when Congress is delegating authority under its taxing power.
Not so, held the Court: "Even if the user fees are a form of taxation,
we hold that the delegation of discretionary authority under Congress'
taxing power is subject to no constitutional scrutiny greater than
that we have applied to other nondelegation challenges." Skinner, 490
U.S. at 223. As to the 1974 IOAA cases:
"National Cable Television [415 U.S. 336] and New England Power [415
U.S. 345] stand only for the proposition that Congress must indicate
clearly its intention to delegate to the Executive the discretionary
authority to recover administrative costs not inuring directly to the
benefit of regulated parties by imposing additional financial burdens,
whether characterized as 'fees' or 'taxes,' on those parties.... Of
course, any such delegation must also meet the normal requirements of
the nondelegation doctrine."
Id. at 224. Thus, what is important is not whether you call something
a fee or a tax, but whether Congress has legislated its intention with
sufficient clarity.
Another COBRA provision in this family is 42 U.S.C. § 7178, which
directs the Federal Energy Regulatory Commission to "assess and
collect fees and annual charges in any fiscal year in amounts equal to
all of the costs incurred by the Commission in that fiscal year." Id.
§ 7178(a)(1). Like the NRC statute noted above, this provision does
not replace fees charged under other laws but prescribes charges
which, when added to those other fees, will reach the desired
budgetary goal. In this case, the fees expressly preserved are those
authorized under the Federal Power Act. Id. § 7178(a)(2). A case
interpreting the Power Act fee provision is City of Vanceburg v.
Federal Energy Regulatory Commission, 571 F.2d 630 (D.C. Cir. 1977),
cert. denied, 439 U.S. 818 (1978). Cases interpreting the COBRA
provision, 42 U.S.C. § 7178, include Michigan Public Power Agency v.
Federal Energy Regulatory Commission, 405 F.3d 8 (D.C. Cir. 2005);
Midwest Independent Transmission System Operator, Inc. v. Federal
Energy Regulatory Commission, 388 F.3d 903 (D.C. Cir. 2004); and City
of Tacoma v. Federal Energy Regulatory Commission, 331 F.3d 106 (D.C.
Cir. 2003).
A final example is 21 U.S.C. § 886a, enacted as part of the Justice
Department's 1993 appropriation act.[Footnote 131] It directs the Drug
Enforcement Administration to set fees under its diversion control
program "at a level that ensures the recovery of the full costs of
operating the various aspects of that program." 21 U.S.C. §
886a(1)(C). In American Medical Ass'n v. Reno, 857 F. Supp. 80 (D.D.C.
1994), the court held the IOAA inapplicable, rejecting what has become
almost a ritualistic challenge that the restrictive IOAA standards
should continue to govern. The Reno decision was remanded on appeal.
American Medical Ass'n v. Reno, 57 F.3d 1129 (D.C. Cir. 1995). The
court of appeals did not challenge the underlying legality of the fee
nor did it address the IOAA issue. Rather, it held only that the
rulemaking on which the fees were based violated the Administrative
Procedure Act, 5 U.S.0 §§ 553(b)-(c), by providing inadequate
information as to how the components of the fee were determined.
Indeed, the appeals court declined to vacate the rule at the time of
remand in view of the likelihood that the fees were not "grossly out
of line" and that the agency could come up with the necessary
explanation to justify them. Reno, 57 F.3d at 135. Presumably, the
agency did so since there is no reported subsequent history for this
case.
5. Disposition of Fees:
The rule governing the accounting and disposition of user fees is the
same rule that governs the accounting and disposition of receipts in
general—they must, as required by 31 U.S.C. § 3302(b), be deposited in
the general fund of the Treasury as miscellaneous receipts unless the
agency has statutory authority to do something else.
a. Fees under the Independent Offices Appropriation Act:
Normally, fees collected under the authority of the Independent
Offices Appropriation Act (IOAA) must be deposited as miscellaneous
receipts. E.g., B-302825, Dec. 22, 2004; 49 Comp. Gen. 17 (1969). The
original version of the IOAA specifically included the miscellaneous
receipts requirement (65 Stat. 290). When the IOAA became 31 U.S.C. §
9701 in 1982, the recodifiers dropped the miscellaneous receipts
language because there was no need for the IOAA to repeat what was
already clearly the case by virtue of the general requirement of 31
U.S.C. § 3302(b). See the Revision Note following 31 U.S.C. § 9701. As
the Claims Court has pointed out, there is no other significance to
the deletion. Bunge Corp. v. United States, 5 Cl. Ct. 511, 516 n.2
(1984), aff'd, 765 F.2d 162 (Fed. Cir. 1985).
Of course, Congress is always free to legislate exceptions. Thus, it
is possible to have a fee authorized and governed by the IOAA but with
specific authority for a different disposition in whole or in part.
See B-307319, Aug. 23, 2007; B-215127, Oct. 30, 1984. Several of the
decisions cited in section D.6 of this chapter, in our case study of
U.S. Customs and Border Protection fees, provide specific examples.
b. Fees under Other Authorities:
Again, the rule is the same—the fees are deposited as miscellaneous
receipts unless Congress has provided otherwise. As noted earlier, the
Independent Offices Appropriation Act (IOAA) itself reinforces this
result by expressly preserving, in 31 U.S.C. § 9701(c)(1), any other
statute which addresses the disposition of fees. This provision looks
both forward and backward. For later enacted statutes, the result
would at least arguably be the same under the specific versus general
canon. For statutes predating the IOAA, section 9701(c)(1) eliminates
any possibility of an implied repeal or "later enactment of Congress"
argument. See, e.g., 36 Comp. Gen. 75 (1956). Thus, there is no need
to determine when a given fee statute was enacted. If it is silent as
to disposition, the miscellaneous receipts statute governs. If it
specifically addresses disposition, its own terms control.
It is not at all uncommon for fee statutes to address disposition. The
precise approach varies depending on what Congress is trying to
accomplish, or perhaps what the agency is able to persuade its
oversight committees to permit, but it is nevertheless possible to
identify broad categories.
(1) Miscellaneous receipts:
Although silence would produce the same result, a number of statutes
expressly require that the fees be deposited as miscellaneous
receipts. One example is the statute requiring a percentage deduction
from awards of the Iran-United States Claims Tribunal. The statute
specifies that amounts deducted "shall be deposited into the Treasury
of the United States to the credit of miscellaneous receipts." Pub. L.
No. 99-93, § 502(b), 99 Stat. 405, 438 (Aug. 16, 1985), 50 U.S.C. §
1701 note. Another example is 44 U.S.C. § 1307(b) (fees received by
National Oceanic and Atmospheric Administration from sale and/or
licensing of nautical or aeronautical products).
Congress sometimes uses the term "general fund" which, for deposit
purposes, is synonymous with "miscellaneous receipts." See Chapter 6,
section E.2. Thus, application fees paid to the Federal Communications
Commission are to be "deposited in the general fund of the Treasury."
47 U.S.C. § 158(e). The same language is used for permit fees paid to
the Secretary of Commerce by owners or operators of foreign fishing
vessels. 16 U.S.C. § 1824(b)(10)(B).
Miscellaneous receipts is a particularly appropriate disposition when
the fees are intended to recoup the operating budget of some agency or
activity rather than augment the agency's operating funds. For
example, we noted earlier 42 U.S.C. § 7178, which directs the Federal
Energy Regulatory Commission to assess fees to recover all of its
costs. The statute goes on to provide that "all moneys received under
this section shall be credited to the general fund of the Treasury."
42 U.S.C. § 7178(f).
(2) Credit to agency's appropriation:
Another group of fee statutes authorizes the agency to retain the fees
for credit to its own operating appropriations. This approach is used
when Congress wants to let an agency augment its appropriation and
finance a greater program level than would be possible under the
amount Congress is willing to appropriate directly. Perhaps the
clearest form of augmentation approach is the fee statute for the Food
and Drug Administration (FDA), 21 U.S.C. § 379h. Section 379h(g)(1)
provides in part: "Fees ... shall be collected and made available for
obligation only to the extent and in the amount provided in advance in
appropriations Acts. Such fees are authorized to remain available
until expended."
The augmentation feature is highlighted by 21 U.S.C. § 379h(f)(1),
under which fees in any fiscal year must be triggered by a Salaries
and Expenses appropriation at least equal to a specified base year.
Lest anyone think these user fees are pocket change, the FDA's 2006
appropriation act appropriated over $305 million in fees under section
379h to the FDA's Salaries and Expenses account. Pub. L. No. 109-97,
title VI, 119 Stat. 2120, 2147 (Nov. 10, 2005).
Another situation in which Congress may authorize crediting to an
appropriation account is where the fee amounts primarily to
reimbursement of expenses borne by the receiving appropriation. Some
examples are:
* The Department of Agriculture may sell various products and services
of the National Agricultural Library, at prices set to at least recoup
costs. Sale proceeds "shall be deposited in the Treasury of the United
States to the credit of the applicable appropriation and shall remain
available until expended." 7 U.S.C. § 3125a(f).
* Another Agriculture Department statute authorizes the furnishing of
departmental paper or electronic publications at "reasonable" fees. 7
U.S.C. § 2242a(a)(2). The fees may be used to pay related costs and
"may be credited to appropriations or funds that incur such costs." 7
U.S.C. § 2242a(c)(2).
* The State Department is authorized to incur certain expenses
incident to procuring information for private parties on a
reimbursable basis. Reimbursements are to be "credited to the
appropriation under which the expenditure was charged." 22 U.S.C. §
2661.
* Military departments may furnish stevedoring and terminal services
and facilities to certain vessels at "fair and reasonable rates." 10
U.S.C. § 2633(b). Proceeds "shall be paid to the credit of the
appropriation or fund out of which the services or facilities were
supplied." 10 U.S.C. § 2633(c).
To determine the availability of amounts collected, each statute must
be examined in two important respects. First, statutes which authorize
crediting of fees to operating appropriations may require further
congressional action to make the fees available for obligation, like
21 U.S.C. § 379h, or may, like 7 U.S.C. § 3125a, in effect permanently
appropriate the receipts similar to a revolving fund.
Second, the statute may direct which fiscal year receives the credit.
For example, reimbursements to U.S. Immigration and Customs
Enforcement (ICE) for detention, transportation, hospitalization, and
other expenses of detained aliens "shall be credited to the
appropriation for the enforcement of this chapter for the fiscal year
in which the expenses were incurred." 8 U.S.C. § 1356(a). Although not
a user fee statute, the very next subsection illustrates the
contrasting approach. Moneys spent by ICE to purchase evidence and
subsequently recovered are "reimbursed to the current appropriation"
of ICE. Id. § 1356(b). More directly on point is 10 U.S.C. § 2686(b),
under which proceeds from the sale of certain utilities and related
services by military departments "shall be credited to the
appropriation currently available for the supply of that utility or
service."
Collections credited to appropriation accounts are a form of
offsetting collection (GAO, A Glossary of Terms Used in the Federal
Budget Process, GAO-05-734SP (Washington, D.C.: Sept. 2005), at 29),
and some statutes use this terminology. Federal Communications
Commission regulatory fees "shall be deposited as an offsetting
collection in, and credited to, the account providing appropriations
to carry out the functions of the Commission." 47 U.S.C. § 159(e).
Similarly, the Science, State, Justice, Commerce, and Related Agencies
Appropriations Act, 2006, contains several provisions authorizing
agencies to retain certain fee proceeds as "offsetting collections" to
help fund the activities that generate the fees. See, e.g., Pub. L.
No. 109-108, 119 Stat. 2290, 2292 (Antitrust Division, Department of
Justice), 2330 (Federal Trade Commission), 2331-32 (Securities and
Exchange Commission) (Nov. 22, 2005). Use of the offsetting collection
language is of significance primarily for budgetary purposes and by
itself has no impact on the availability of the money to the agency.
(3) Special account or fund:
In addition to crediting fees to an agency appropriation, Congress can
"dedicate" the fees to a particular purpose by authorizing deposit to
a revolving fund, a trust account, or a "special account," which
simply means a receipt account earmarked by statute for a particular
purpose.[Footnote 132] The special account may be permanently
appropriated, or it may require further congressional action to make
the funds available for obligation. An example of the former is the
treatment of Department of Agriculture grain inspection fees under 7
U.S.C. § 79. Section 79(j) provides:
"Such fees, and the proceeds from the sale of samples obtained for
purposes of official inspection which become the property of the
United States, shall be deposited into a fund which shall be available
without fiscal year limitation for the expenses of the Secretary
incident to providing services under this chapter."
The statute may direct deposit into an already existing fund. The
Agriculture Department also charges fees for grain weighing services;
they are "deposited into the fund created in section 79(j) of this
title." 7 U.S.C. § 79a(/)(1). Another example is 13 U.S.C. § 8(d)
which governs the disposition of fees for certain documents and
services furnished by the Census Bureau:
"All moneys received in payment for work or services enumerated under
this section shall be deposited in a separate account which may be
used to pay directly the costs of such work or services, to repay
appropriations which initially bore all or part of such costs, or to
refund excess sums when necessary."
An example requiring further congressional action is section 304(b) of
the Federal Land Policy and Management Act, 43 U.S.C. § 1734(b), which
provides in part: "The moneys received for reasonable costs under this
subsection shall be deposited with the Treasury in a special account
and are hereby authorized to be appropriated and made available until
expended."
Similar to many of the statutes authorizing credit to appropriations,
statutes establishing special accounts may prescribe that the deposits
be treated as offsetting receipts.[Footnote 133] An example is 21
U.S.C. § 886a, which establishes "in the general fund of the Treasury
a separate account which shall be known as the Diversion Control Fee
Account." Certain fees charged by the Drug Enforcement Administration
(DEA) are deposited in the account "as offsetting receipts," and are
periodically refunded by Treasury to the DEA to reimburse expenses
incurred in the DENs diversion control program, the target being the
recovery of the program's full operating costs. The Department of
Homeland Security has several similar accounts, including 8 U.S.C. §§
1356(h) (Immigration User Fee Account), 1356(m) (Immigration
Examinations Fee Account), and 1356(q) (Land Border Inspection Fee
Account), all of which specify treatment of deposits as offsetting
receipts.
Finally, there are instances where offsetting receipts terminology is
used solely for accounting purposes and not tied in to any form of
dedicated or earmarked account. An example is the following Coast
Guard statute, 14 U.S.C. § 664(b): "Amounts collected by the Secretary
for a service or thing of value provided by the Coast Guard shall be
deposited in the general fund of the Treasury as proprietary receipts
of the department in which the Coast Guard is operating and ascribed
to Coast Guard activities."[Footnote 134]
6. U.S. Customs and Border Protection: A Case Study:
Because of the nature of its mission, U.S. Customs and Border
Protection (CBP) of the Department of Homeland Security, formerly the
Customs Service,[Footnote 135] has considerable exposure to the
private sector in its day-to-day operations. This exposure in turn
enhances the agency's potential for various forms of user financing. A
survey of cases and statutes dealing with user financing in CBP is
instructive because it illustrates in practice virtually every concept
and principle we have covered thus far in our discussion.
In the decades before the Independent Offices Appropriation Act (IOAA)
was enacted, the Customs Service was in the same boat as most other
agencies, and various proposals for user financing had to be rejected.
E.g., 11 Comp. Gen. 153 (1931); 10 Comp. Gen. 209 (1930); 3 Comp. Gen.
128 (1923); 2 Comp. Gen. 775 (1923). It made no difference that the
private parties were perfectly willing to pay, and in many cases had
in fact initiated the offer, in order to get services over and above
what Customs was able or willing to provide. In addition, the
proposals often involved paying the salaries of customs officials
which, without congressional authorization, would have amounted to an
improper augmentation of the agency's appropriations. 2 Comp. Gen. at
776. To make matters worse, a provision of the criminal code (now
found at 18 U.S.C. § 209) makes it illegal for anyone to supplement or
contribute to the salary of a government employee and for the employee
to accept it.
Once the IOAA was enacted, Customs began to explore its new options. A
series of decisions approved proposals to assess user fees for a
variety of services, including the following:
* Preclearance of air passengers at major airports in Canada over and
above what the operation would cost if performed entirely in the
United States. 48 Comp. Gen. 24 (1968). Preclearance, it could be
demonstrated, conferred a financial benefit on the airlines and, some
felt, attracted passengers. Id. at 25.
* Additional costs of extended hours at certain highway crossing
points along the Canadian and Mexican borders. 48 Comp. Gen. 262
(1968). This case, as did 48 Comp. Gen. 24, pointed out that the
charges could include employee compensation. In effect, the authority
of the IOAA removed both the augmentation concern and the potential
bar of 18 U.S.C. § 209.
* Reimbursement for the services of a customs officer upon the
temporary designation of a community airport as an international
airport. B-171027, Dec. 7, 1970.
* Reimbursement (which could include free or reduced-rate
transportation or accommodations) of the costs of providing employees
to train private travel agents in Custom's regulations and procedures.
62 Comp. Gen. 262 (1983).
In addition, each of these decisions noted that Customs could, as
specifically authorized by 19 U.S.C. § 1524, credit the fees to the
appropriations from which the costs in question had been paid. That
statute had been on the books long before the IOAA, and, as we have
seen, 31 U.S.C. § 9701(c) expressly defers to any specific disposition
authority. A similar provision is 19 U.S.C. § 1755(b), reflected in
CBP's regulations at 19 C.F.R. § 147.33, which requires that fair
operators reimburse the United States government for "actual and
necessary" expenses of services provided in connection with trade
fairs, the reimbursement to be credited to the appropriation from
which the expenses were paid.
In a 1980 decision, GAO was called upon to review its 1968
preclearance decision, 48 Comp. Gen. 24, in light of the intervening
judicial decisions which had restrictively interpreted the IOAA. Some
airlines had argued that preclearance was really for the benefit of
the general public. However, Customs pointed out that preclearance was
provided only when an airline specifically requested it. Accordingly,
based on the body of jurisprudence from the Supreme Court and the
courts of appeals, GAO agreed with Customs that the fees were within
the scope of the IOAA. 59 Comp. Gen. 389 (1980). Among the costs
Customs could recover were those specified in its regulations (19
C.F.R. § 24.18), including housing allowances, post of duty
allowances, certain transportation costs, and equipment, supplies, and
administrative costs. In addition, the agency could include that
portion of the costs of its computerized data processing system
attributable to the preclearance sites. 59 Comp. Gen. at 395.
Of course, there are limits on how far you can take the IOAA; another
1980 decision, 59 Comp. Gen. 294, illustrates one of them. The Miami
International Airport is a busy place, and long delays incident to
customs clearance were producing a lot of complaints. Local business
and community leaders suggested that the airport or airlines might
reimburse Customs to permit it to hire additional staff to expedite
clearance during normal business hours. Congress had authorized
Customs to charge for certain overtime services and for certain
"special services" performed during normal duty hours. The Miami
proposal involved neither situation, however. Accordingly, the
decision concluded:
"Since the Congress has appropriated monies to provide for the salary
of Customs inspectors to perform clearance functions during regular
business hours and has authorized the collection of fees only for
certain special services, ... the collection of funds for clearance
services performed during regular business hours on behalf of the
general public would constitute an augmentation of the appropriations
made by the Congress for performing such services."
59 Comp. Gen. at 296.
While all of this IOAA activity was going on, Customs had several
other statutes which authorized it to do certain specific things on a
reimbursable basis. Examples are 19 U.S.C. §§ 1447 (supervise the
unloading of cargo from vessels at locations other than ports of
entry); 1456 (compensation of customs officer stationed on a vessel or
vehicle proceeding from one port of entry to another); 1457 (customs
officer directed to remain on vessel or vehicle to protect revenue);
1458 (supervise unloading of bulk cargo under extension of time
limit); and 1555(a) (supervise receipt and delivery of merchandise to
and from bonded warehouses). These statutes direct that the
compensation of the customs officers performing the services "shall be
reimbursed" by the appropriate owner, proprietor, or "party in
interest."[Footnote 136] These and other situations are set forth in
CBP's regulations, 19 C.F.R. § 24.17. At one time, the reimbursement
obligation was held to include statutorily retroactive salary
increases. 31 Comp. Gen. 417 (1952). However, that is no longer the
case. 55 Comp. Gen. 226 (1975).
The relationship of these specific statutes to the IOAA was the
subject of 55 Comp. Gen. 456 (1975). Under 31 U.S.C. § 9701(c), the
IOAA yields to other statutes which prohibit the collection of a fee,
or either fix the amount of a fee or prescribe the basis for
determining it. The statutes in question do none of these things, nor
was there any indication that any of them were intended to be
exclusive. Accordingly, Customs could recover the kinds of costs
authorized under the IOAA—specifically, administrative overhead—in
addition to the reimbursements required by the other statutes. CBP
regulations (19 C.F.R. § 24.21) now include administrative overhead.
A highly unusual approach is found in 19 U.S.C. § 58a. In addition to
the statutes noted above, Customs had several other user fee statutes,
some of which were old and prescribed fees which had long ago become
economically obsolete (for example, 20 cents for various documents).
Legislation enacted in 1978[Footnote 137] repealed several of these
old laws and replaced them with 19 U.S.C. § 58a, a simple
authorization for the Secretary of the Treasury to charge fees to
recover the costs of services "similar to or the same as services
furnished by customs officers under the sections repealed by
subsection (a)." Problem is, "subsection (a)" refers to the 1978
legislation and is nothing more than the repealer provision.
Therefore, in order to determine what services are covered by section
58a, it is necessary to consult the 1976 edition of the United States
Code. See, for example, 19 U.S.C. § 58 (1976) for the 20-cent items
noted above.
During the mid-1980s, Customs, like other parts of the federal
government, received additional user fee authority. The process
started innocuously enough with a provision of the Trade and Tariff
Act of 1984,[Footnote 138] now codified at 19 U.S.C. § 58b, which
authorized user fees to cover the cost of providing customs service at
a number of small airports, defined as those whose volume or value of
business is not sufficient to otherwise justify the availability of
customs services. Fees were to be deposited in a special account
dedicated to the particular airport which earned them, but required
further appropriation action to make them available for obligation.
Two years later, the Consolidated Omnibus Budget Reconciliation Act of
1985 (COBRA) amended the funding provision to permanently appropriate
the fees, but retained the dedication aspect and emphasized that the
fees could not be used for any other purpose.[Footnote 139] The law
was expanded in 1989 to include seaports and other facilities.
[Footnote 140]
Then came 19 U.S.C. § 58c. Although its origin in COBRA 1985 was
humble enough, it has evolved into a statute of nearly indescribable
complexity.[Footnote 141] Given its level of detail, it clearly
displaces the IOAA to the extent of its coverage. The law prescribes a
schedule of fees, a mixture of fixed fees and ad valorem levies,
applicable to a variety of passenger and merchandise processing
services. It also includes a variety of qualifications and
limitations.[Footnote 142]
Disposition of the fees, which could be the subject of a board game,
is addressed in 19 U.S.C. § 58c(f). Merchandise processing fees—those
prescribed by sections 58c(a)(9) and (a)(10)—are deposited in the
Customs User Fee Account, a separate account in the Treasury, where
they are available, to the extent provided in appropriation acts, to
pay the costs of CBP's commercial operations. The rest of the fees—
those prescribed by 19 U.S.C. § 58c(a) except for subsections (9) and
(10)—are permanently appropriated to be used for a number of purposes
that the statute spells out in great detail, including reimbursement
for costs of premium pay and overtime compensation, agency retirement
and disability contributions, and deficit reduction transfer to the
Treasury.
The advent of statutes like 19 U.S.C. § 58c has an obvious impact on
the kind of analysis needed to resolve problems. Questions of agency
discretion under broad statutory language are necessarily replaced by
an almost algebraic application of excruciatingly detailed provisions.
An example is 71 Comp. Gen. 444 (1992), in which GAO concluded that
Customs was not authorized to charge express air freight carriers for
clearance services at centralized hub facilities during normal duty
hours. Another decision advised that user fees reimbursed to
appropriations under 19 U.S.C. § 58c(f) could be used to defray
inspectional overtime costs in the Commonwealth of Puerto Rico but not
the U.S. Virgin Islands. B-253292, Dec. 30, 1994.
7. User Fee as Grant Condition:
In Chapter 10 on grants, we present the established proposition that
Congress may, within constitutional bounds, attach conditions to the
receipt of federal money. Congress is not required to establish grant
programs, and if it chooses to do so, may use the "carrot and stick"
approach to foster some policy objective. An example is section 204(b)
of the Federal Water Pollution Control Act, also known as the Clean
Water Act, 33 U.S.C. § 1284(b).
As amended in 1972, the Federal Water Pollution Control Act authorizes
the Environmental Protection Agency to make grants for the
construction of publicly owned waste treatment facilities up to a
specified percentage of construction costs. 33 U.S.C. §§ 1281(g),
1282. The law includes the following condition:
"The Administrator shall not approve any grant for any treatment works
under [33 U.S.C. § 1281(g)(1)] ... unless he shall first have
determined that the applicant has adopted or will adopt a system of
charges to assure that each recipient of waste treatment services
within the applicant's jurisdiction ... will pay its proportionate
share ... of the costs of operation and maintenance (including
replacement) of any waste treatment services provided by the
applicant."
33 U.S.C. § 1284(b)(1). The requirement that grant applicants adopt
user charge systems has two purposes: first, to assure adequate
funding once the plant is constructed, and second, to encourage water
conservation. City of New Brunswick v. Borough, of Milltown, 519 F.
Supp. 878, 883 (D.N.J. 1981), affd, 686 F.2d 120 (3rd Cir. 1982),
cert. denied, 459 U.S. 1201 (1983).
A number of localities which employed ad valorem tax systems
complained and argued that an ad valorem tax should be acceptable. An
ad valorem tax is one which is based on the value of the property
being taxed. The question reached the Comptroller General who
concluded in 54 Comp. Gen. 1 (1974) that an ad valorem tax could not
be used to satisfy the user charge requirement of 33 U.S.C. §
1284(b)(1). The decision quoted extensively from legislative history.
As explained in several subsequent letters (e.g., B-183788, Feb. 25,
1976, and B-166506, Oct. 31, 1974), the decision rested on several
grounds:
* The statute, supported by more legislative history than one normally
finds, clearly contemplated a user charge system, not a tax system.
* An ad valorem tax would violate the statutory requirement that each
recipient pay its proportionate share because (a) tax-exempt users
would not contribute, and (b) certain taxable nonusers—industrial
facilities with their own waste treatment systems and residences with
their own septic systems—would pay more than their proportionate share.
* An ad valorem tax system would not further the goal of promoting
water conservation.
GAO emphasized that it was not going to get into the business of
evaluating one user charge system against another, but noted that a
system which included a minimum usage charge did not appear legally
objectionable. B-183788, Feb. 25, 1976; B-183788, Jan. 14, 1976. The
important thing is that whatever system is adopted must "achieve a
greater degree of proportionality among users than is obtainable
through an ad valorem tax system." B-183788, June 13, 1975, at 2.
The controversy continued and, as documented in B-166506, Aug. 26,
1974, at least one major city turned down a grant rather than change
its system. The concluding sentence of 54 Comp. Gen. 1 had advised EPA
to seek a legislative solution if it felt ad valorem taxes would be
appropriate in some circumstances. Id. at 5. This was done, and 33
U.S.C. § 1284(b)(1) was amended in 1977[Footnote 143] to make an ad
valorem tax acceptable if (1) it is a dedicated tax; (2) it was in use
as of December 27, 1977, the date of the amendment; and (3) it
"results in the distribution of operation and maintenance costs for
treatment works within the applicant's jurisdiction, to each user
class, in proportion to the contribution to the total cost of
operation and maintenance of such works by each user class." Thus, the
amended version of the law would continue to use the federal financial
"carrot" to influence the choice in all future cases, but would not
force an applicant who already had a qualifying ad valorem system in
place to change. EPA's regulations, 40 C.F.R. § 35.929-1(b), set forth
the requirements for a "dedicated" tax. GAO's 1974 decision recognized
the difficulty of achieving true proportionality short of using
meters, "which no one contends are required." 54 Comp. Gen. at 5. Some
localities did go to a metering system, and this too produced its
complaints. See, e.g., B-183788, June 13, 1975. The 1977 amendment to
33 U.S.C. § 1284 added subsection (b)(4), which specifies that a
system of charges "may be based on something other than metering," as
long as the applicant has a system to assure that the necessary funds
for operation and maintenance will be available, and residential users
are notified as to what portion of their total payment is allocated to
waste treatment services. Pub. L. No. 95-217, § 22.
The user charge condition has been upheld as a legitimate exercise of
the congressional power to fix the terms on which it disburses federal
money. Middlesex County Utilities Authority v. Borough of Sayreville,
690 F.2d 358 (3rd Cir. 1982), cert. denied, 460 U.S. 1023 (1983); City
of New Brunswick v. Borough of Milltown, 686 F.2d 120 (3rd Cir. 1982),
cert. denied, 459 U.S. 1201 (1983). In addition, both cases upheld
EPA's right to withhold or suspend grant payments for noncompliance.
See also Metropolitan Saint Louis Sewer District v. Ruckelshaus, 590 E
Supp. 385, 388 (E.D. Mo. 1984) (EPA's right to withhold funds
conceded). EPA's remedies are spelled out in its regulations. See 40
C.F.R. §§ 35.929, 35.965.
E. Motor Vehicles:
1. Acquisition:
a. Need for Statutory Authority:
Statutory controls over the acquisition and use of motor vehicles date
back to 1914 with the enactment of what is now 31 U.S.C. § 1343(b).
The 1914 law required specific authority to use appropriated funds
"for the purchase of any motor-propelled or horse-drawn passenger-
carrying vehicle for the service of any of the executive departments
or other Government establishments, or any branch of the Government
service."[Footnote 145] The law was restated and amended as part of
the Administrative Expenses Act of 1946[Footnote 146] to delete the
quadruped reference and to exempt vehicles for the use of the
President, "secretaries to the President," or the heads of the
departments listed in 5 U.S.C. § 101 (the cabinet departments). Other
exemptions are listed in 31 U.S.C. § 1343(e). The statute also
requires specific authority to use appropriations, other than those of
the armed forces, to buy, maintain, or operate aircraft. 31 U.S.C. §
1343(d).
In what may be record time, the first decision under the original law,
21 Comp. Dec. 14 (1914), was issued just seven days after enactment.
In it, the Comptroller of the Treasury confirmed that the statute
applies to the entire federal government regardless of geographical
location, and to all appropriations, no-year as well as annual. It
does not, however, apply to mixed-ownership government corporations. B-
94685-0.M., May 8, 1950 (Federal Deposit Insurance Corporation).
The major issue of the early decades of the statute's life was the
definition of "passenger vehicle," attributable in part perhaps to the
fact that the "motor car" was still somewhat of a novelty. Short of
Rosebud, virtually every contrivance in or on which a human could ride
was the subject of a decision. Of course, this was more than academic.
If a given vehicle did qualify as a passenger vehicle, it was—and is—
subject to the statutory requirement for specific authority. If it did
not so qualify, then unless there was some other applicable
restriction, its acquisition was simply a matter of applying the
"necessary expense" doctrine. E.g., 18 Comp. Gen. 226 (1938).
As one might expect, the key distinction was between a passenger
vehicle and a truck. The statute "has no effect whatever" on the
purchase of trucks. 21 Comp. Dec. 38 (1914). It does not apply to a
pickup truck (16 Comp. Gen. 320 (1936)) or a panel truck (29 Comp.
Gen. 213 (1949)). An agency's appropriations are available to buy a
truck without regard to 31 U.S.C. § 1343(b) if, as noted above, the
expenditure is "reasonably necessary to carry out the object for which
the appropriation is made." 18 Comp. Gen. at 227. The fact that the
truck may be used to transport personnel is not controlling. 2 Comp.
Gen. 573 (1923); B-150028-0.M., Nov. 16, 1962. See also 3 Comp. Gen.
900 (1924).
From these and similar decisions, the following test developed:
"The question whether a vehicle is 'passenger-carrying' must be
determined from the character of the vehicle as shown by its
construction and design, and not from its intended use, and where it
appears that the automobile is in fact a passenger-carrying vehicle,
the prohibition of [31 U.S.C. § 1343(b)] applies irrespective of the
purpose of the Government department or agency involved to convert it
to other usages.... That is to say, the provisions of the act may not
be evaded upon the plea that a passenger-carrying automobile, once
acquired, will be used otherwise than for the transportation of
passengers."
16 Comp. Gen. 260, 261 (1936). Similar statements appear in numerous
decisions, for example, 8 Comp. Gen. 636, 637 (1929) and 23 Comp. Dec.
19, 20 (1916).
Thus, a station wagon clearly is a passenger vehicle. 26 Comp. Gen.
542 (1947); 15 Comp. Gen. 451 (1935); 14 Comp. Gen. 367 (1934). So is
an ordinary motorcycle. 22 Comp. Dec. 324 (1916). And a prison van. 26
Comp. Dec. 879 (1920). However, "jeeps" have been held not to be
passenger vehicles for purposes of 31 U.S.C. § 1343(b). 23 Comp. Gen.
955 (1944).[Footnote 146] Nor are motor boats or aircraft, "vehicle"
being defined in terms of land transportation. 24 Comp. Gen. 184
(1944); 26 Comp. Dec. 904 (1920); 22 Comp. Dec. 262 (1915). Initially,
the Comptroller of the Treasury held the statute inapplicable to
ambulances. 21 Comp. Dec. 830 (1915). However, the specific exemption
for ambulances from the later-enacted price limitation provision of 31
U.S.C. § 1343(c), discussed further below, showed that Congress "has
classified ambulances as passenger vehicles and thus subject to the
prohibition against purchase without specific authorization." 33 Comp.
Gen. 539, 540 (1954). See also 41 Comp. Gen. 227, 229 (1961).
Stating the test in terms of construction and design rather than
intended use inevitably led to a number of cases dealing with a
variety of structural and other alterations. In the most simple
situation, painting "truck" on the door of a limousine does not make
it a truck. See 23 Comp. Dec. 19, 20 (1916). Slight changes, such as
adding a tool box or similar attachment to a passenger vehicle, do not
change the vehicle's character. 21 Comp. Dec. 116 (1914); B-117843-
0.M., Jan. 27, 1954. However, structural alterations which are of
sufficient magnitude to preclude use of a vehicle for carrying
passengers will remove it from the statute's coverage. 24 Comp. Gen.
123 (1944); B-115608, June 16, 1953; B-62865, Jan. 30, 1947. The
converse is equally true. 33 Comp. Gen. 539 (1954) (panel truck
converted to ambulance use thereby became a passenger vehicle).
Similarly, although an ordinary motorcycle is regarded as a passenger
vehicle, a motorcycle constructed and equipped for freight-carrying
purposes loses its character as a passenger vehicle. 4 Comp. Gen. 141
(1924); 27 Comp. Dec. 1016 (1921).
While the statement of the test in many of the decisions suggests that
the intended use of the vehicle is irrelevant, this is not entirely
accurate. In one very early case, for example, GAO advised something
called the Federal Board for Vocational Education that it could,
without specific authority, purchase unserviceable vehicles to be used
for instructional purposes in shops and classrooms. 1 Comp. Gen. 58
(1921). Similarly, passenger automobiles to be used for research or
testing purposes and not as a means of transportation have been viewed
as exempt from 31 U.S.C. § 1343(b). 49 Comp. Gen. 202 (1969) (air
pollution control testing); 1 Comp. Gen. 360 (1922) (fuel consumption
testing). See also 4 Comp. Gen. 270 (1924) (automobile chassis as part
of defense mobile searchlight unit). In such cases, an appropriate
certification should appear on or accompany the voucher. 49 Comp. Gen.
at 204; 1 Comp. Gen. at 361.
The original 1914 version of 31 U.S.C. § 1343(b) used only the word
"purchase." However, it was soon held that purchase included "hire,"
at least hire by the month or year, and certainly an indefinite hire;
otherwise, the prohibition would be a sham. 4 Comp. Gen. 836 (1925);
21 Comp. Dec. 462 (1915). The statutory language was expanded to
"purchase or hire" in the 1946 amendment, and hire became "lease" in
the 1982 codification of title 31 of the United States Code. This does
not apply to the rental of taxicabs or other vehicles on a "per trip"
basis incident to the normal performance of day-to-day business. 33
Comp. Gen. 563 (1954); 2 Comp. Gen. 693 (1923); 21 Comp. Dec. at 463.
Nor does it apply to the rental of vehicles by employees on official
travel. 24 Comp. Dec. 189 (1917). If purchase included hire under the
early decisions for purposes of the prohibition, the authority to
purchase logically should include the authority to hire. 4 Comp. Gen.
453 (1924); 22 Comp. Dec. 187 (1915). The issue has not been revisited
since hire was specifically added to the statute, but there appears to
be no compelling reason for a different result.
The statute specifies that the concept of purchase includes a transfer
between agencies. 31 U.S.C. § 1343(a). Thus, the transfer of a vehicle
declared excess under 40 U.S.C. §§ 521-522, with or without
reimbursement, is a purchase requiring specific authority under 31
U.S.C. § 1343(b). 44 Comp. Gen. 117 (1964). However, this is true only
where the transfer has the effect of augmenting the number of vehicles
the receiving agency is authorized to have. The statute does not apply
to transfers without reimbursement for replacement or upgrading
purposes where the receiving agency reports an equal number of
vehicles as excess. 45 Comp. Gen. 184 (1965).
If the transfer of an excess vehicle to another agency is a purchase
for purposes of 31 U.S.C. § 1343(b), so is a transfer to another
agency's grantee. 55 Comp. Gen. 348 (1975). Custody and accountability
for the transferred vehicle would pass to the grantor agency even
though the grantee would have actual use during the life of the grant.
Also, upon completion of the grant, the vehicle could well revert to
the grantor. Id. at 351. This is distinguishable from a situation,
such as that encountered in 43 Comp. Gen. 697 (1964), in which a
grantee, incident to its performance and where not otherwise
restricted, purchases a vehicle with grant funds. In a case where the
government was authorized to purchase vehicles for use by a
contractor, GAO cautioned that, upon completion of the contract, the
agency could not retain the vehicles to augment its fleet in disregard
of 31 U.S.C. § 1343(b). B-146876-0.M., June 8, 1965.
An acquisition not subject to the statute is illustrated in B-122552,
Feb. 7, 1957. The government seized an automobile which had been
purchased with the proceeds of a forged check. The Secret Service
found that it would be cheaper to retain the car (which the government
was authorized to do under a settlement agreement) and use it than to
convert it to cash. GAO found that the government had acquired the car
"not by purchase, but by operation of law as a partial recovery of the
sum it lost through the forgery." Under the circumstances, 31 U.S.C. §
1343(b) did not apply to the acquisition or to the transfer of the
car's reasonable value from Secret Service appropriations to the
account which had suffered the loss.
The authority required by 31 U.S.C. § 1343(b) must be specific. It
cannot be implied from broad grants of discretionary authority. 13
Comp. Gen. 226 (1934). The authority to purchase necessary supplies
and equipment is not enough. 26 Comp. Dec. 904, 905 (1920). The phrase
"means of transportation" has also been found insufficient. 21 Comp.
Dec. 671 (1915). The authority may be conferred in an appropriation
act or elsewhere, and appears in a variety of forms. Appropriation
language authorizing the purchase and/or hire of passenger motor
vehicles is quite common. For instance, the Science, State, Justice,
Commerce, and Related Agencies Appropriations Act, 2006, Pub. L. No.
109-108, 119 Stat. 2290 (Nov. 22, 2005), contains over 20 such
provisions. The Transportation, Treasury, Housing and Urban
Development, the Judiciary, the District of Columbia, and Independent
Agencies Appropriations Act, 2006, Pub. L. No. 109-115, 119 Stat. 2396
(Nov. 30, 2005), has almost 30. An agency may be authorized to use its
operating appropriations for the purchase and/or hire of motor
vehicles; a specific amount may be earmarked for this purpose from a
lump-sum appropriation; the legislation may specify the number of
vehicles authorized to be acquired. Following are a few random
examples from these and other fiscal year 2006 appropriations acts to
illustrate the variety:
* The United States Marshals Service appropriation for Fees and
Expenses of Witnesses provided that "not to exceed $1,000,000 may be
made available for the purchase and maintenance of armored vehicles
for transportation of protected witnesses." Pub. L. No. 109-108, 119
Stat. at 2293.
* The Federal Bureau of Investigations Salaries and Expense
appropriation was available for "purchase for police-type use of not
to exceed 3,868 passenger motor vehicles, of which 3,039 will be for
replacement only." Id., 119 Stat. at 2294. Similar provisions applied
to the Drug Enforcement Administration and the Bureau of Alcohol,
Tobacco, Firearms, and Explosives. Id., 119 Stat. at 2295.
* A general provision in the Commerce Department's appropriation act
provided that, "during the current fiscal year, appropriations made
available to the Department of Commerce by this Act for salaries and
expenses shall be available for the hire of passenger motor vehicles
as authorized by 31 U.S.C. [§§] 1343 and 1344." Pub. L. No. 109-108, §
202.
* The Department of Transportation's "applicable appropriations" were
available for "hire of passenger motor vehicles and aircraft." Pub. L.
No. 109-115, § 160.
* The Defense Department's Procurement, Defense-Wide appropriation was
available for "the purchase of passenger motor vehicles for
replacement only, and the purchase of 5 vehicles required for physical
security of personnel, notwithstanding prior limitations applicable to
passenger vehicles but not to exceed $255,000 per vehicle." Department
of Defense, Emergency Supplemental Appropriations to Address
Hurricanes in the Gulf of Mexico, and Pandemic Influenza Act, Pub. L.
No. 109-148, 119 Stat. 2680, 2692-93 (Dec. 30, 2005).
* Funding for the Office of the Director, National Institutes of
Health, was "available for the purchase of not to exceed 29 passenger
motor vehicles for replacement only." Departments of Labor, Health and
Human Services, and Education, and Related Agencies Appropriations
Act, 2006, Pub. L. No. 109-149, 119 Stat. 2833, 2849 (Dec. 30, 2005).
For some agencies, authority exists in permanent legislation. An
example is 50 U.S.C. § 403j(a)(1), under which appropriations made
available to the Central Intelligence Agency may be used for
"purchase, maintenance, operation, repair, and hire of passenger motor
vehicles, and aircraft, and vessels of all kinds." An agency with no
authority to purchase or hire motor vehicles can still obtain them
from the General Services Administration's motor pool described
separately below.
b. Price Limitations:
Statutory price limitations on the purchase of passenger motor
vehicles first appeared in the 1934 Treasury and Post Office
Departments Appropriations Act, Pub. L. No. 72-428, § 3, 47 Stat.
1489, 1513 (Mar. 3, 1933). Out of apparent concern that the ceiling
could be evaded by offering essentially a frame at a basic price with
such frills as wheels and an engine priced separately as extras,
section 3(a) prohibited the purchase of "any motor-propelled passenger-
carrying vehicle (exclusive of busses [sic], ambulances, and station
wagons), at a cost, completely equipped for operation, and including
the value of any vehicle exchanged, in excess of $750, unless
otherwise specifically provided for in the appropriation."
This price limitation gave rise to another lengthy series of decisions
holding that such things as heaters (28 Comp. Gen. 720 (1949)) and air
conditioners (40 Comp. Gen. 205 (1960)) had to be charged against the
ceiling. The phrase "completely equipped for operation" came to
include all equipment or accessories permanently attached to the
vehicle which contributed to "the comfort and convenience of the
passengers and the efficient operation of the vehicle." 36 Comp. Gen.
725, 726 (1957). While the decisions doubtlessly reflected the intent
of the legislation, they reached a level of detail such as whether a
replacement gas cap and an extra length of heater hose were chargeable
against the ceiling. See B-140843-0.M., Oct. 19, 1959 (they were).
In 1970, Congress amended the law (Pub. L. No. 91-423, 84 Stat. 879
(Sept. 26, 1970)), and it is now found at 31 U.S.C. § 1343(c) as
follows:
"(1) Except as specifically provided by law, an agency may use an
appropriation to buy a passenger motor vehicle (except a bus or
ambulance) only at a total cost (except costs required only for
transportation) that:
"(A) includes the price of systems and equipment the Administrator of
General Services decides is incorporated customarily in standard
passenger motor vehicles completely equipped for ordinary operation;
"(B) includes the value of a vehicle used in exchange;
"(C) is not more than the maximum price established by the agency
having authority under law to establish a maximum price; and;
"(D) is not more than the amount specified in a law.
"(2) Additional systems and equipment may be bought for a passenger
motor vehicle if the Administrator decides the purchase is
appropriate. The price of additional systems or equipment is not
included in deciding whether the cost of the vehicle is within the
maximum price specified in a law."
The monetary ceiling is adjusted annually and set forth as a
governmentwide general appropriation act provision. For fiscal year
2006, the provision states:
"Unless otherwise specifically provided, the maximum amount allowable
during the current fiscal year in accordance with [31 U.S.C. §
1343(c)], for the purchase of any passenger motor vehicle (exclusive
of buses, ambulances, law enforcement, and undercover surveillance
vehicles), is hereby fixed at $8,100 except station wagons for which
the maximum shall be $9,100: Provided, That these limits may be
exceeded by not to exceed $3,700 for police-type vehicles, and by not
to exceed $4,000 for special heavy-duty vehicles ...."[Footnote 147]
The first feature to note about 31 U.S.C. § 1343 is that the
exemptions for section 1343(b) differ from those for section 1343(c).
Section 1343(b) precludes the use of appropriated funds to acquire
vehicles for the use of anyone other than certain specified officials.
Section 1343(c), however, sets price ceilings on all vehicle
purchases. Thus, the acquisition of a vehicle for the use of a cabinet
secretary does not require specific authority, but it is subject to
the price limitation. 32 Comp. Gen. 345 (1953). Conversely, buses and
ambulances are exempt from the price limitation but require specific
authority 33 Comp. Gen. 539 (1954). Apart from the exemptions
specified in the statute, a passenger vehicle for one subsection is a
passenger vehicle for the other. If, for example, a vehicle to be used
solely for research or testing purposes is not considered a passenger
vehicle for purposes of 31 U.S.C. § 1343(b), it is not subject to the
price limitation of section 1343(c). B-81562, Dec. 1, 1948. The price
limitation has been held inapplicable to purchases from a trust fund
made up of testamentary gifts. B-78578, Aug. 4, 1948.
Under 31 U.S.C. § 1343(c)(1)(A), GSA decides what is or is not
included in a vehicle "completely equipped for ordinary operation,"
and the price ceiling applies to this package. Additional equipment,
again within GSA discretion, is not charged against the ceiling. GSA's
regulations provide that standard passenger vehicles as defined in
Federal Standard No. 122[Footnote 148] will be regarded as "completely
equipped for ordinary operation," with items other than those listed
as standard to be considered additional equipment for purposes of 31
U.S.C. § 1343(c). 41 C.F.R. § 101-26.501(b)(1). GSA has taken the
position, and GAO agrees, that dealers should not be permitted to
circumvent the statutory limitation "by transferring part of the basic
vehicle cost to ... the portion of the bid price allocated to
additional systems and equipment," and that contracting officers
should examine bid prices to guard against this. B-182754, Feb. 18,
1975, at 3. Similarly, GAO sustained GSA rejection of a bid which
attempted to include required options not specified in the
solicitation. B-188439, June 30, 1977.
Section 1343(c)(1)(B) specifies that any trade-in value is part of the
total cost chargeable against the ceiling. This means that the trade-
in value is part of the price and, when added to the balance paid in
cash, may not exceed the limit. 17 Comp. Gen. 215 (1937). Determining
trade-in value is not an exact science. The so-called "blue book"
published by the National Automobile Dealers Association is a guide
but is not conclusive and any reasonable method of valuation is
acceptable. 28 Comp. Gen. 495, 497 (1949); B-74529, Oct. 20, 1948.
However, the valuation must not be a sham to avoid the statutory
limitation. 17 Comp. Gen. 911, 913 (1938) ("ridiculously low" trade-in
allowance an obvious circumvention); 28 Comp. Gen. at 497 (allowance
approximating scrap value questionable where vehicle had not been
wrecked and was not unserviceable). In legitimate circumstances, there
is no legal objection to trading in more than one used vehicle toward
the purchase of a new one. 28 Comp. Gen. 495; 17 Comp. Gen. at 582.
However, if one of the old vehicles is excess, it should be disposed
of in accordance with the Federal Property and Administrative Services
Act. See 27 Comp. Gen. 30 (1947).
While trade-in value of an old vehicle actually traded in must be
factored in, it is improper to consider the future trade-in value of
the vehicle being purchased. This is because anticipated or
prospective depreciation is regarded as too uncertain to be used as a
bid evaluation factor. 33 Comp. Gen. 108 (1953).
Section 1343(c)(1) further provides that transportation costs are to
be excluded for purposes of determining compliance with the price
ceiling. Decisions applying this principle in a variety of factual
contexts and contract terms include 21 Comp. Gen. 474 (1941); 20 Comp.
Gen. 677 (1941); 14 Comp. Gen. 82 (1934); and B-127291, Mar. 22, 1956.
Under a rental agreement whereby title to the vehicle passes to the
government when total rental payments reach a stated value, or sooner
if, upon termination, the government pays the difference between total
payments and the stated value, the total amount paid, rental payments
included, may not exceed the price ceiling. 29 Comp. Gen. 21 (1949).
The decision distinguished 21 Comp. Gen. 548 (1941), in which, for
purposes of exercising a recapture provision in a cost reimbursement
contract, the rentals paid by the contractor prior to recapture were
not required to count against the ceiling.
2. Use:
a. The "Official Purpose" Limitation:
Vehicles purchased or rented by the United States government are
supposed to be used for government business; anything else is illegal.
The first sentence of 31 U.S.C. § 1344(a)(1) makes the point: "Funds
available to a Federal agency, by appropriation or otherwise, may be
expended by the Federal agency for the maintenance, operation, or
repair of any passenger carrier only to the extent that such carrier
is used to provide transportation for official purposes." The
"official purpose" limitation appears to have originated as a
governmentwide general provision in appropriation acts in the 1930s
and early 1940s. 3 Op. Off. Legal Counsel 329, 330 (1979). See A-
19101, July 25, 1942, for an example. It became permanent as part of
section 16 of the Administrative Expenses Act of 1946, Pub. L. No. 79-
600, § 16(a), 60 Stat. 806, 810 (Aug. 2, 1946), and was reenacted in
1986 as part of the general revision of 31 U.S.C. § 1344. See Pub. L.
No. 99-550, §1(a), 100 Stat. 3067 (Oct. 27, 1986).
The coverage of the statute is quite broad. The phrase "appropriation
or otherwise" covers all types of funding. Section 1344(h)(1) defines
"passenger carrier" as any "passenger motor vehicle, aircraft, boat,
ship, or other similar means of transportation that is owned or leased
by the United States Government." Section 1344(h)(2) defines "federal
agency" to include, in addition to the "regular" departments and
agencies, government corporations, mixed-ownership government
corporations, the Executive Office of the President, independent
regulatory agencies, the Smithsonian Institution, and nonappropriated
fund instrumentalities. Section 1344(i) adds in the Postal Service.
The definition does not apply to the legislative and judicial branches
and it excludes the District of Columbia government. However, the
official purposes principle embodied in section 1344 extends to any
entity using appropriated funds by virtue of the fundamental rule of
31 U.S.C. § 1301(a)(1) that appropriations may be applied only to the
objects for which they were made except as otherwise provided by law.
Thus, the legislative history of section 1344 and the case law under
it are relevant to the practices of entities not directly covered by
that section. B-305864, Jan. 5, 2006.
With one significant exception, one thing the law does not do is
define official purposes. In fact, perhaps wisely, apart from the
conventional wisdom that contrasts "official" with "personal," no one
has attempted to do so. Lacking a definition, one is left with
whatever one can glean from the cases.
The overwhelming majority of cases under 31 U.S.C. § 1344 have
involved home-to-work transportation, what one senator once called
"the ultimate status symbol for a Federal bureaucrat."[Footnote 149]
Power to Lenin may have come from the barrel of a gun, but to many in
Washington it comes from being picked up at your front door in a
chauffeured limousine, courtesy of the taxpayers. It is settled beyond
any debate that ordinary home-to-work commuting is the personal
responsibility—and personal expense—of the individual. E.g., B-305864,
Jan. 5, 2006; 27 Comp. Gen. 1 (1947); 19 Comp. Gen. 836 (1940); B-
233591, Sept. 21, 1989. This principle applies to overtime work. Thus,
there is no authority for the government to provide or pay for home-to-
work transportation in connection with the performance of overtime. 16
Comp. Gen. 64 (1936); B-190071, May 1, 1978. It makes no difference
that the additional work is performed on nonregular work days (B-
171969.42, Jan. 9, 1976), or is "call-back" overtime. B-307918, Dec.
20, 2006; 36 Comp. Gen. 171 (1956); B-189061, Mar. 15, 1978.
From the above general principle it is but a small and logical step to
conclude that using a government vehicle for home-to-work
transportation is not an official purpose, unless of course Congress
has authorized it. The motor vehicle provision as amended by the
Administrative Expenses Act of 1946 included a home-to-work
prohibition with a few exceptions.[Footnote 150] While the very
existence of the statute perhaps deterred abuse, some argued that home-
to-work transportation could be provided on the basis of little more
than an "interest of the government" determination. The argument
derived support, according to its proponents, from language in GAO
decisions such as 25 Comp. Gen. 844, 847 (1946), in which GAO observed
that the "primary purpose" of the prohibition against home-to-work
transportation was to prevent the use of government-owned vehicles for
"personal convenience" and, therefore, it should not be interpreted as
precluding such transportation when determined as a matter of
administrative discretion to be "in the interest of the government."
Over time, GAO came to view the law's intent as unclear and advocated
legislative clarification. E.g., B-178342, July 16, 1973; B-178342,
May 8, 1973. However, uncertainty over the extent to which home-to-
work transportation could be authorized continued into the early 1980s
as its widespread use persisted. As GAO observed in 62 Comp. Gen. 438,
440 (1983):
"The use of Government-owned or leased automobiles by high ranking
officials for travel between home and work has been a common practice
for many years in a large number of agencies.... The justification
advanced for this practice is the apparent acquiescence by the
Congress which regularly appropriates funds for limousines and other
passenger automobiles knowing, in many instances, the uses to which
they will be put but not imposing limits on the discretion of the
agencies in determining what uses constitute 'official business.'"
The 1983 decision sought to lay the confusion to rest. In essence, 62
Comp. Gen. 438 held that, apart from those exceptions sanctioned in
the statute plus a couple of fairly narrow nonstatutory exceptions,
the use of government vehicles for home-to-work transportation was
statutorily prohibited, period. Thus, agencies have no discretion to
exercise in the matter. The decision (62 Comp. Gen. at 446) quoted a
Justice Department opinion, 3 Op. Off. Legal Counsel 329 (1979), which
a few years earlier had given very similar advice. If anything,
Justice was even more direct. To those who argued that chauffeured
limousine service enabled them to extend their work day by working
while being transported, the answer was simple: come in earlier, stay
later, or live closer to the office. 3 Op. Off. Legal Counsel at 332.
While the decision in 62 Comp. Gen. 438 lowered the boom on
discretionary use of government vehicles for home-to-work
transportation, it also recognized that GAO, itself, had contributed
to the confusion on this issue. Thus, GAO both applied its decision
prospectively, and suspended its application entirely until the end of
the then-present Congress in order to allow Congress a chance to
legislatively resolve the matter. 62 Comp. Gen. at 440. Meanwhile, GAO
reports continued to document existing practice.[Footnote 151]
In 1986, Congress enacted Pub. L. No. 99-550, 100 Stat. 3067 (Oct. 27,
1986), which completely overhauled 31 U.S.C. § 1344. The objective was
clear "Whatever the cause for the continued violation of 31 USC 1344,
it is obvious that legislation is needed to end the confusion, by
providing clear congressional guidance which will prevent future waste
of government funds." H.R. Rep. No. 99-451, at 5 (1985).
The revised 31 U.S.C. § 1344(a)(1) starts with the general official
purposes requirement quoted above. It then adds: "Notwithstanding any
other provision of law, transporting any individual other than the
individuals listed in subsections (b) and (c) of this section between
such individual's residence and such individual's place of employment
is not transportation for an official purpose." The "notwithstanding
any other provision of law" language was intended to mean that 31
U.S.C. § 1344 prevails over any other inconsistent prior or subsequent
legislation:
"Any legislation authorizing home-to-work transportation for officers
or employees of the Executive Branch enacted prior to the enactment of
this measure is no longer valid unless specifically recognized by this
section. Further, any legislation enacted after this measure
authorizing such transportation ... must specifically indicate that it
is being enacted as an amendment or exception to this law."
H.R. Rep. No. 99-451 at 7. The legislative history makes clear that
residence means "the primary place where an individual resides while
commuting to a place of employment," and is not to be confused with
the concept of legal domicile where the two differ. Id. It also makes
clear that the prohibition does not affect temporary duty situations.
Id. Travel between a temporary duty site and a temporary residence
such as a motel is not regarded as home-to-work transportation for
purposes of 31 U.S.C. § 1344. 41 C.F.R. § 102-5.20(a). This has always
been the case. See, e.g., B-159210-0.M., Jan. 4, 1967.
The statute also specifies the permissible exemptions. They fall into
two categories—position and situation. Section 1344(b) lists the
position exceptions. The list starts, of course, with the President
and Vice-President. The President then is given 16 discretionary
designations, 6 in the Executive Office of the President and 10 in
other federal agencies. The remainder of the list includes: Justices
of the Supreme Court; cabinet heads and a "single principal deputy"
for each; the Ambassador to the United Nations and principal
diplomatic and consular officials abroad; several high-level military
officials; the heads of the Central Intelligence Agency and several
law enforcement agencies; the Administrator of the National
Aeronautics and Space Administration; the Chairman of the Board of
Governors of the Federal Reserve; the Comptroller General; and the
Postmaster General.
What we call the situational exceptions are found in sections
1344(a)(2)(A), (a)(2)(B), (b)(9), and (g). Section 1344(a)(2)(A)
preserves an exception from the 1946 law and provides that home-to-
work transportation "required for the performance of field work," in
accordance with regulations prescribed by the General Services
Administration (GSA), is permissible when approved in writing by the
agency head. The GSA regulations define "field work" as follows:
"Field work means official work requiring the employee's presence at
various locations other than his/her regular place of work (Multiple
stops (itinerant-type travel) within the accepted local commuting
area, limited use beyond the local commuting area, or transportation
to remote locations that are only accessible by Government-provided
transportation are examples of field work.)"
41 C.F.R. § 102-5.30. Section 1344(a)(2)(B) authorizes home-to-work
transportation which is "essential for the safe and efficient
performance of intelligence, counterintelligence, protective services,
or criminal law enforcement duties," again when approved in writing by
the agency head. See, e.g., B-195073, Nov. 21, 1979 (certain Federal
Bureau of Investigation agents authorized to take government vehicles
home in order to maintain emergency response capability).[Footnote
152] The protective services part of this exemption is reinforced by
section 1344(c), which authorizes home-to-work transportation for
anyone entitled to Secret Service protection under 18 U.S.C. § 3056(a)
or those entitled to protection under several other listed authorities.
Section 1344(b)(9) gives a statutory basis to some nonstatutory
exemptions recognized in the prior decisions. GAO had expressed the
view that the law should allow an exception for emergencies. E.g., B-
181212, Aug. 15, 1974. Of course, this presumes a real emergency. B-
152006-0.M., July 26, 1965, quoting B-152006-0.M., Oct. 22, 1963 ("Mt
is difficult to believe that emergencies arise at the Savannah River
plant with such frequency as to warrant an average of 442 trips per
month in connection with overtime work.").
A "clear and present danger" of terrorist activities in foreign
countries became another nonstatutory exception. 54 Comp. Gen. 855
(1975). Now, under 31 U.S.C. § 1344(b)(9), the head of any federal
agency can provide home-to-work transportation to any officer or
employee by making a written determination, in accordance with General
Services Administration (GSA) regulations, "that highly unusual
circumstances present a clear and present danger, that an emergency
exists, or that other compelling operational considerations make such
transportation essential to the conduct of official business."
Transportation under this subsection is for a maximum of 15 calendar
days, but may be extended for additional 90-day periods. 31 U.S.C. §
1344(d)(2). While there is obviously some discretion under these
standards, the statute makes clear that "comfort and convenience" is
not sufficient justification. Id. § 1344(e)(1).
The GSA regulations provide in general that emergency circumstances
"exist whenever there is an immediate, unforeseeable, temporary need
to provide home-to-work transportation for those employees necessary
to the uninterrupted performance of the agency's mission." 41 C.F.R. §
102-5.30. The same regulation uses a public transportation strike as
an example of a circumstance that may trigger the emergency exception:
"An emergency may occur where there is a major disruption of available
means of transportation to or from a work site, an essential
Government service must be provided, and there is no other way to
transport those employees." Id.
Prior GAO decisions, which may be helpful in applying this regulation,
had emphasized that the unavailability of public transportation alone
does not shift to the government the employee's responsibility to get
to work. In other words, a transit strike is not automatically an
emergency justifying home-to-work transportation. 60 Comp. Gen. 420
(1981); B-200022, Aug. 3, 1981. In two other cases, however, the
circumstances were found to justify exceptions. In a 1975 case, the
local Social Security Administration hired buses to transport
employees to work from predetermined pick-up points during a San
Francisco transit strike. Absent this or similar action, the
processing of claims and payments at one of the nation's major Social
Security centers would have come to an abrupt halt. GAO agreed that
the action was within the agency's discretion as a "temporary
emergency measure." 54 Comp. Gen. 1066 (1975). Some years earlier,
during a New York City subway strike, an Internal Revenue Service
supervisor "directed" one of his employees to use his own car to take
five other employees to and from home during the strike. GAO agreed
that the driver's increased commuting costs could be paid. A key
factor here was that the then Civil Service Commission had authorized
employees to stay home without a charge to leave. Thus, the
supervisor's action enabled the work of the office to continue at
minimum expense, as opposed to having to pay the employees anyway for
doing no work. B-158931, May 26, 1966.
The most recent situational exception is in 31 U.S.C. § 1344(g), added
by Pub. L. No. 109-59, § 3049(b), 119 Stat. 1144, 1712 (Aug. 10,
2005). Section 1344(g) authorizes agency heads, in their sole
discretion and subject to certain conditions, to provide employees
shuttle service between their places of employment and mass transit
facilities. The same section of the 2005 law enacted statutory
authority for the provision of subsidies to federal employees in the
National Capital Region who commute by mass transit. The conference
report on the 2005 legislation noted that "[b]y improving access to
commuting alternatives, Federal agencies will be able to provide a
benefit to their employees that will also help to reduce congestion
and improve air quality across the nation." H.R. Rep. No. 109-203, at
975 (2005).
There is no authority to provide home-to-work transportation for
handicapped employees. B-198323-0.M., Mar. 24, 1981. However, the
situation in B-216602, Jan. 4, 1985, could possibly be considered
under the "compelling operational considerations" exception. The
Solicitor of Labor had received a serious injury and during his
recovery period was forbidden to drive an automobile or ride public
transportation. Government transportation was the only way he could
get to work, and the Secretary said his availability was "essential."
GAO agreed that he could receive transportation "during the period in
which he is medically incapable of otherwise commuting to and from his
office," but that he should reimburse the government to the extent of
his normal commuting costs. B-216602, at 3. Alternatively, if GSA were
to conclude that a situation like this is not covered by any of the
statutory exceptions, it might be possible to take advantage of one of
the President's discretionary designations under 31 U.S.C. §
1344(b)(1)(C) if any were available at the time.
The prohibition on home-to-work transportation applies to any portion
of transportation between home and work. Thus, unless one of the
exceptions can be invoked, there is no authority for an agency to
provide shuttle service for its employees to and from various
intermediate areas.
B-162326, Sept. 14, 1967; B-183617-0.M., Aug. 2, 1976. One
illustration of this point is B-261729, Apr. 1, 1996. An agency which
had relocated one of its offices was concerned that many of its
employees were not overly excited over commuting the extra distance.
It proposed to equip a bus with phones and computers, call it a
"mobile work site," and use it to transport employees from the old
location to the new one. Noble motive, the decision concluded, but
it's still commuting and would require statutory authority.[Footnote
153]
Another illustration involves the United States Capitol Police (USCP).
B-305864, Jan. 5, 2006. The USCP provided parking for employees
adjacent to its headquarters building on the Senate side of the
Capitol grounds. Commuting employees would simply park their cars and
walk into the headquarters building to report for work. However, the
USCP needed to move some of its offices to the House of
Representatives side where employee parking was not yet available. The
USCP asked GAO whether it could provide a shuttle to transport
employees from the Senate parking lot to their new work locations on
the House side until regular parking was arranged there. The USPS
reasoned that since appropriated funds are available to provide
employee parking, they likewise should be available to transport
employees from government-provided parking to their actual work
locations. GAO disagreed. First, the fact that USCP provided employee
parking was irrelevant to the issue, GAO said. Instead, the issue was
governed by the longstanding rule regarding the nature of commuting
costs. Citing B-261729, Apr. 1, 1996, GAO concluded:
"In our view, an employee's arrival at a parking lot cannot be
considered the end of the commute. Rather, a parking lot is simply an
intermediate stop—like a subway or bus stop—within the totality of the
commute from home to office. For purposes of section 1344(a)(1),
legislative history suggests that the end of the commute, or 'place of
employment,' is the 'primary place where an officer or employee
performs his or her business.' ..."
B-305864, at 3. Thus, providing a shuttle to enable employees to
complete their commutes to their offices on the House side was not
permissible. On the other hand, GAO observed, if the USCP maintained a
shuttle between its Senate and House offices for operational purposes,
there would be no objection to commuting employees using it on a space-
available basis and at no additional cost to the government. Id. at 3-
4.
The law does not prohibit use of government transportation from an
employee's home to an airport incident to official travel, subject to
whatever guidance the Federal Travel Regulations include. 70 Comp.
Gen. 196 (1991).
Agencies are required to "maintain logs or other records necessary to
establish the official purpose" of home-to-work transportation they
provide. 31 U.S.C. § 1344(f). The information to be recorded is
specified in 41 C.F.R. § 102-5.120. Public access to these records
would be governed by the disclosure requirements and exemptions of the
Freedom of Information Act, 5 U.S.C. § 552. B-233995, Feb. 10, 1989
(nondecision letter). Of course the records must be made available for
legitimate audit purposes. A 1991 GAO study found that the revised 31
U.S.C. § 1344 seemed to be working and that agencies were generally
complying with it. GAO, Government Vehicles: Officials Now Rarely
Receive Unauthorized Home-to-Work Transportation, GAO/GGD-91-27
(Washington, D.C.: Mar. 15, 1991).
Although the home-to-work prohibition captures the lion's share of
attention under 31 U.S.C. § 1344, it is only one form of unauthorized
use. Personal use of a government vehicle on weekends and holidays is
another. E.g., B-216016, Mar. 23, 1987. Still another controversial
area is the use of government vehicles to transport family members. It
does not violate the law for an agency to permit a family member to
accompany an employee while the vehicle is being used for official
business. 68 Comp. Gen. 186 (1989); 57 Comp. Gen. 226 (1978). The same
principle applies to government aircraft. B-192053-0.M., Aug. 3, 1978.
See also B-155950, July 10, 1975. It is illegal, however, to use a
government vehicle to shuttle about family members on personal
errands. B-211586-0.M., July 8, 1983. It is equally unauthorized to
permit a family member to use the vehicle for personal business. E.g.,
Clark v. United States, 162 Ct. Cl. 477, 483-84 (1963).
In B-275365, Dec. 17, 1996, an official used a government car to drive
himself and several other employees to the funeral of another
employee's child because "he wanted to send a message that he cared
for his people." GAO was unwilling to say that there are no
circumstances in which this sort of thing might qualify as an official
purpose, but in this particular case use of the car violated the
statute because, if for no other reason, the official made the
decision himself and did not seek agency approval.
Use of a government vehicle not so much for personal convenience as
for the convenience of an agency was the subject of 63 Comp. Gen. 257
(1984). In that decision, the then Veterans Administration (VA) had
acquired a passenger bus to use in transporting students from a
medical college to a VA hospital as part of a statutory training
program. GAO agreed that the driver could keep the bus at home. The
alternative would have been for the driver to make two round trips—one
to pick up the bus and another to transport the students. Under the
circumstances, any personal benefit to the driver was purely
incidental to carrying out the program. The GSA regulations at 41
C.F.R. § 102-5.90 provide somewhat of a variant on this theme:
"situations may arise where, for cost or other reasons, it is in the
Government's interest to base a Government passenger carrier at a
Government facility located near the employee's home or work rather
than authorize the employee home-to-work transportation."
Providing transportation to individuals may constitute an official
purpose in some circumstances. For example, GAO observed in B-216670,
Dec. 13, 1984:
"The transportation of representatives of foreign nations is a common
practice in the day-to-day conduct of American foreign relations. The
provision of such transportation has evidently been a long-standing
practice of the Defense and State Departments.... Accordingly, in our
view, it would be inappropriate for this office to challenge this long-
standing practice."
In 71 Comp. Gen. 469 (1992), GAO held that use of a government vehicle
to transport students incident to the agency's participation in a
"partnership in education" program did not violate the statute. GAO,
however, discouraged the practice because of the increased potential
for government liability in the event of an accident. 71 Comp. Gen. at
472. This is also the case where an employee is transporting a family
member (68 Comp. Gen. 186 (1989)), or for that matter in any case of
expanded use (B-254296, Nov. 23, 1993). Agencies should take
precautions to limit potential tort liability in these situations. A
device that has been used on occasion in the case of space-available
transportation in government aircraft is the waiver of liability. Such
waivers are generally valid although there is some state-to-state
variation. See B-231930-0.M., Nov. 23, 1988. In any event, there is no
authority to use appropriated funds to purchase, or to reimburse an
employee-driver for, liability insurance. 45 Comp. Gen. 542 (1966).
Another provision of law, 31 U.S.C. § 1349(b), gives 31 U.S.C. § 1344
some teeth. It provides:
"An officer or employee who willfully uses or authorizes the use of a
passenger motor vehicle or aircraft owned or leased by the United
States Government (except for an official purpose authorized by
section 1344 of this title) or otherwise violates section 1344 shall
be suspended without pay by the head of the agency. The officer or
employee shall be suspended for at least one month, and when
circumstances warrant, for a longer period or summarily removed from
office."
The penalty applies only to "willful" violations. For a violation
found to be willful, the minimum penalty of a month's suspension
without pay is mandatory. E.g., Clark v. United States, 162 Ct. CL
477, 486-87 (1963). As such, it cannot be reduced by an arbitrator.
Devine v. Nutt, 718 F.2d 1048, 1055 (Fed. Cir. 1983), rev'd on other
grounds, 472 U.S. 648 (1985).
GAO will not decide whether a violation is willful. B-275365, Dec. 17,
1996. The Merit Systems Protection Board, which sees many of these
cases in its review of adverse actions, has developed a test. The
Board will consider a violation as willful if the employee "had actual
knowledge that the use of the vehicle would be characterized as
nonofficial or that he acted in reckless disregard as to whether the
use was for nonofficial purposes." Fischer v. Department of the
Treasury, 69 M.S.P.R. 614, 617 (1996). The Court of Appeals for the
Federal Circuit endorses this approach. Kimm v. Department of the
Treasury, 61 F.3d 888 (Fed. Cir. 1995); Felton v. Equal Employment
Opportunity Commission, 820 F.2d 391 (Fed. Cir. 1987). In addition,
the Board will not regard a violation as willful if it involves "minor
personal use" while the vehicle is being used primarily on official
business. Fischer, 69 M.S.P.R. at 617; Madrid v. Department of the
Interior, 37 M.S.P.R. 418, 423(1988). Acting with advice of counsel,
however misguided or flat wrong that advice may be, would most likely
preclude a finding that a violation was willful. 64 Comp. Gen. 782,
786 (1985).
Examples of situations in which the Board has sustained imposition of
a penalty include the following:
* Using a government vehicle to commute from duty station to law
school classes. Aiu v. Department of Justice, 70 M.S.P.R. 509, aff'd,
98 F.3d 1359 (Fed. Cir. 1996).
* Driving a government vehicle to lunch. Cantu v. Department of the
Treasury, 88 M.S.P.R. 253 (2001). (To make matters worse, the employee
left about 250 pounds of cocaine—-in his possession for official
purposes-—unguarded in the government vehicle while he was at lunch.)
Similarly, in Utnage v. Department of the Army, 119 Fed. Appx. 269
(2004), the Court of Appeals for the Federal Circuit affirmed a Board
decision upholding the suspension of an employee for driving a
government vehicle home for meal breaks. The employee said he knew he
was not supposed to drive the government car home for lunch. His
defense was that he parked the car one block away from his residence
and walked the final block home, so he had not actually driven to his
home. Unfortunately for the employee, but hardly surprising, neither
the Board nor the court bought this defense. Utnage, 119 Fed. Appx. at
271-72.
* Driving loan officer to lawyer's residence to sign papers on a
personal loan. Madrid, 37 M.S.P.R. 418-23.
* Transporting agency employees and equipment to supervisor's
residence to help build a fish pond. Barrett v. Department of the
Interior, 65 M.S.P.R. 186 (1994).
* Transporting employee's son on personal business. Campbell v.
Department of Health and Human Services, 40 M.S.P.R. 525 (1989). See
also Davis v. Department of the Army, 56 M.S.P.R. 583 (1993). Under
the particular circumstances involved in Kimm v. Department of the
Treasury, 61 F.3d 888, however, driving a child to day care was found
not to constitute a willful violation.
* Being arrested drunk and asleep while parked on the side of the road
with the motor running. Tenorio v. Department of Health and Human
Services, 30 M.S.P.R. 136 (1986). This one got the employee fired.
A car rented by an employee while on official travel is not "owned or
leased by the United States Government" for purposes of 31 U.S.C. §
1349. Chufo v. Department of the Interior, 45 F.3d 419 (Fed. Cir.
1995). When an employee is renting a car while on travel or temporary
duty, there is nothing wrong with using the car for personal business.
The impropriety enters the picture when the employee tries to charge
the government for the personal portion of the use. In contrast, a
government-furnished vehicle may be used only for official purposes.
Federal Travel Regulations, 41 C.F.R. § 301-10.201. The concept of
official purpose is somewhat broader in the travel/temporary duty
context than at the regular duty station. B-254296, Nov. 23, 1993
(limited recreational use permissible at remote location where no
other transportation available).
One final statute that requires mention is section 503 of the Ethics
Reform Act of 1989, Pub. L. No. 101-194, 103 Stat. 1716, 1755 (Nov.
30, 1989), as amended by Pub. L. No. 101-280, § 6(b), 104 Stat. 149,
160 (May 4, 1990), 31 U.S.C. § 1344 note, which provides:
"Notwithstanding any other provision of law, the head of each
department, agency, or other entity of each branch of the Government
may prescribe by rule appropriate conditions for the incidental use,
for other than official business, of vehicles owned or leased by the
Government." The scope and intended effect of this provision are
unclear. A GAO report issued not too long after the enactment of
section 503 noted that the legislative history was silent as to its
intent. GAO, Government Vehicles: Officials Now Rarely Receive
Unauthorized Home-to-Work Transportation, GAO/GGD-91-27 (Washington,
D.C.: Mar. 15, 1991), at 7. The report also observed that some agency
officials thought that section 503 "opens a hole in the home-to-work
law, ...rolls back the restrictions on home-to-work transportation,
and... seems to contradict the home-to-work transportation law." Id.
at 8. However, GAO expressed a "much more restrictive" interpretation:
"Section 503, as we view it, is designed simply to provide reasonable
agency latitude under prescribed rules for minor nonofficial vehicle
use incidental to otherwise authorized official use. Section 503 does
not provide the authority for any agency to ignore the provisions of
the home-to-work transportation law, a specific statutory scheme
designed to be comprehensive in terms of specifying the situations
under which certain officials and employees may be provided home-to-
work transportation in a government vehicle."
Id. As the 1991 GAO report anticipated, section 503 appears to have
had little impact. We have found no judicial or administrative
decision addressing section 503 and only one published substantive
agency regulation explicitly issued pursuant to it. That regulation,
adopted by the National Aeronautics and Space Administration, 14
C.F.R. § 1204.1600, permits employees to drive a government vehicle
home at the close of the day preceding or concluding a temporary duty
assignment if the authorizing official determines that this will
result in significant time savings.
b. General Services Administration Motor Pools:
Under sections 601-611 of title 40, United States Code, the General
Services Administration (GSA) has broad authority to establish,
operate, and discontinue interagency vehicle motor pools.[Footnote
154] Subject to regulations issued by the President under 40 U.S.C. §
603(b) and if determined advantageous in terms of economy, efficiency,
or service, section 602(a)(1) of title 40 provides that GSA shall:
"(1) take over from executive agencies and consolidate, or otherwise
acquire, motor vehicles and related equipment and supplies;
"(2) provide for the establishment, maintenance, and operation
(including servicing and storage) of motor vehicle pools or systems;
and;
"(3) furnish motor vehicles and related services to executive agencies
for the transportation of property and passengers."
The President's regulations, mandated by 40 U.S.C. § 603(b), are
contained in Executive Order No. 10579, Nov. 30, 1954, 40 U.S.C. § 601
note, section 11 of which authorizes GSA to issue supplementary
regulations. GSA regulations are found at 41 C.F.R. part 101-39.
"Executive agency" as used in 40 U.S.C. § 602(a)(1), includes the
judicial branch. B-158712, Mar. 7, 1977. Also, nothing in the statute
or executive order prohibits GSA from permitting the use of motor pool
vehicles by cost-reimbursement contractors. B-157729, Feb. 10, 1966.
The statute quoted above allows GSA, when forming a motor pool, to
"take over" vehicles purchased by another agency with its own
appropriations. See also 41 C.F.R. § 101-39.001. GSA must reimburse
the fair market value only if the vehicle was originally acquired from
a government corporation or through a revolving fund or trust fund and
not previously reimbursed.
40 U.S.C. § 604(a); see also 41 C.F.R. § 101-39.104-2. This does not
include a reimbursable but nonrevolving appropriation. 38 Comp. Gen.
185 (1958).
GSA's activities under 40 U.S.C. §§ 601-611 are financed through GSA
revolving Acquisition Services Fund (40 U.S.C. § 321—formerly known as
the General Supply Fund) and must be reimbursed by the customer
agencies. Under 40 U.S.C. § 605(a), the Acquisition Services Fund is
available to pay the costs of motor pools and related services under
section 602, including the purchase and rental of motor vehicles and
related equipment and supplies. Section 605(b) provides that GSA
should fix reimbursements so as to recover, as far as practicable, all
section 602 costs, including increments to cover estimated replacement
costs. The law further provides that the purchase price of vehicles
and equipment, plus the replacement increments, cannot be charged all
at once but must be recovered through amortization. 40 U.S.C. §
605(c). It also directs GSA to use accrual accounting. Id.; B-139506,
Oct. 1, 1959.
The Acquisition Services Fund is available for improvements to
government-owned property incident to the establishment and operation
of motor pools. This includes such things as fences, gasoline pumps
and storage tanks, parking facilities, service stations, and storage
facilities. B-134511, Mar. 10, 1958. It is also available for the
initial financing, subject to reimbursement as with other costs, of
temporary service facilities and equipment on leased property. 43
Comp. Gen. 738 (1964).
Questions have arisen concerning GSA's authority to charge the using
agency for damage to the vehicle. For many years, GSA regulations
provided that GSA would charge the using agency for damage caused by
negligence or misuse attributable to the using agency, and GAO
consistently upheld GSA authority to include such a provision. The
first decision considering a challenge to the regulation was 37 Comp.
Gen. 306 (1957), in which the Comptroller General stated: "There can
be no question but that the costs of making repairs to vehicles
damaged while being operated in a motor vehicle pool (or the amount of
the loss where the vehicle is incapable of being repaired) are
elements of cost incident to the operation of such motor vehicle
pool." 37 Comp. Gen. at 307. The provision of the statute requiring
amortization of the purchase price has no effect on GSA ability to
charge for damage. Id. at 307-08.
The very next decision, 37 Comp. Gen. 308 (1957), reached the same
conclusion where the damage was caused by an employee of the using
agency other than the vehicle operator, and pointed out that 40 U.S.C.
§ 602 and the implementing regulations override the nonstatutory rule
[Footnote 155] under which an agency is normally not liable for damage
to the property of another agency. The validity of GSA's regulation
was upheld again in 41 Comp. Gen. 199 (1961), and still again in 59
Comp. Gen. 515 (1980).
The regulations have changed since those decisions and now provide
that GSA will charge the using agency for all damage to the vehicle
unless caused by mechanical failure, normal wear and tear, or the
negligence or willful act of an identifiable party other than an
employee of the using agency. 41 C.F.R. § 101-39.406. There is no
apparent reason why the principle of the earlier decisions should not
apply equally to this version of the regulation. The using agency is
responsible for investigating accidents and filing the required
accident and investigation reports with GSA. See id. §§ 101-39.401,
101-39.403. GSA makes the initial determination based on this
material. The using agency can dispute GSA's finding but GSA has the
final word. Id. § 101-39.406(d).
GSA provides a range of services from short-term use to shuttle and
driver services to indefinite assignment. Id. § 101-39.201. An agency
which lacks the specific authority to purchase or hire passenger motor
vehicles as required by 31 U.S.C. § 1343(b) can nevertheless use its
appropriations to reimburse GSA for motor vehicle services provided
under 40 U.S.C. § 602. B-158712, Mar. 7, 1977. In other words, lack of
authority to acquire the vehicles directly is not an impediment to
obtaining them through the GSA interagency fleet system. Similarly, if
GSA delegates leasing authority to a requesting agency because GSA
cannot satisfy the agency's requirements, the agency can use its
appropriations to lease vehicles pursuant to the delegation
notwithstanding any lack of specific authority otherwise required by
31 U.S.C. § 1343(b). B-210657-0.M., July 15, 1983. A delegation from
GSA can also be used to augment an agency's specific statutory
authorization. B-158712-0.M., Jan. 11, 1977.
c. Expenditure Control Requirements:
In fiscal year 1985, the 20 federal agencies with the largest motor
vehicle fleets controlled a total of more than 340,000 vehicles and
spent $915 million on their acquisition, operation, and disposal.
[Footnote 156] Concerned with these numbers, Congress, as part of the
Consolidated Omnibus Budget Reconciliation Act of 1985,[Footnote 157]
enacted the provisions found at 40 U.S.C. §§ 17501-17510. The
legislation applies to executive agencies (excluding the Tennessee
Valley Authority) which operate at least 300 motor vehicles. Twenty
agencies then met this qualification. They are identified in GAO/GGD-
88-40, at 9 n.1. The legislation contained short-term cost-reduction
goals (which GAO found in GAO/GGD-88-40 were generally met) and
permanent requirements.
Each covered agency is to designate an office or officer to establish
a central monitoring system and to provide oversight of the agency's
motor vehicle operations. 40 U.S.C. § 17502. The agency is also
directed to develop a system to "identify, collect, and analyze" cost
data with respect to its motor vehicle operations. Id. § 17503(a).
The agency must include with each appropriation request a statement
specifying total motor vehicle costs (acquisition, maintenance,
leasing, operation, and disposal) for three fiscal years, and
justifying why its requirements cannot be met more cheaply by some
other means, such as increased use of GSA motor pool system. Id. §
17504(a). The President's budget submission is to include a summary
and analysis of these statements. Id. § 17505(a).
GSA has several duties under this legislation. It is to develop
requirements, in cooperation with GAO and the Office of Management and
Budget, for agency data collection systems. Id. § 17503(b). It is also
to reduce vehicle storage and disposal costs, and develop a program of
vehicle reconditioning designed to improve the rate of return on
vehicle sales. Id. § 17506. Very little has been written about the use
of appropriated funds for what may be the most sacred perk of all,
chauffeurs. There is no governmentwide statute or statutory regulation
purporting to authorize, prohibit, or restrict the use of chauffeurs.
Accordingly, most of the GAO reports which broach the subject—and they
are few to begin with—are merely exercises in fact-finding. E.g., GAO,
Use of Government Vehicles for Home-to-Work Transportation, GAO/NSIAD-
84-27 (Washington, D.C.: Dec. 13, 1983) (presenting overtime data in
tabular form).
While there are no governmentwide provisions, there is the occasional
restriction that appears in an appropriation act. For example, section
412 of the 1997 Departments of Veterans Affairs (VA) and Housing and
Urban Development (HUD), and Independent Agencies Appropriations Act
includes the following general provision: "Except as otherwise
provided in section 406, none of the funds provided in this Act to any
department or agency shall be obligated or expended to provide a
personal cook, chauffeur, or other personal servants to any officer or
employee of such department or agency." Pub. L. No. 104-204, § 412,
110 Stat. 2874, 2922 (Sept. 26, 1996). Section 406 is another general
provision that reiterates the home-to-work prohibition and exemptions
of 31 U.S.C. § 1344. Section 412 would not prohibit chauffeured home-
to-work transportation for the Secretaries of HUD and VA, but the then
Veterans Administration was not covered before it became a cabinet
department and a former Administrator reimbursed the government for
the costs of what was then improper. See GAO, Office Refurbishing, Use
of a Government Vehicle and Driver, and Out-of-Town Travel by the
Former Administrator of Veterans Affairs, GAO/HRD-83-10 (Washington,
D.C.: Jan. 18, 1983). GAO suggested in that report that a definition
of "chauffeur" for purposes of section 412 would be helpful. Id. at
20. Is it, for example, intended to cover someone designated to drive
for several officials or who has nondriving duties as well?
The most controversial use of chauffeurs tends to be in the context of
home-to-work transportation. GAO has summarized its position as
follows:
"While the law does not specifically include the employment of
chauffeurs as part of the prohibition in [31 U.S.C. § 1344(a)], GAO
has interpreted this section, in conjunction with other provisions of
law, as authorizing such employment only when the officials being
driven are exempted by [31 U.S.C. § 1344(b)]... from the prohibition."
62 Comp. Gen. 438, 441 (1983). As support for this passage, the 1983
decision cited B-150989, Apr. 17, 1963, which contains the following
statement:
"Chauffeurs for Cabinet officers are not expressly provided for by
law; however, it is implicit in [31 U.S.C. §§ 1343 and 1344] that the
use of automobiles, by Cabinet officers, purchased or leased with
appropriated funds is to be considered as a use for official purposes.
Consequently, the general employment authority conferred upon heads of
Departments by [5 U.S.C. § 3101] constitutes authority to employ
chauffeurs when an appropriation is available for the payment of their
compensation."
B-150989, at 1. These decisions would seem to support the proposition
that an official who is authorized to use a government vehicle for
home-to-work transportation may also use a chauffeur unless restricted
by some agency-specific legislation.
In a 1975 decision, B-162111, Dec. 17, 1975, an official of the
Selective Service System, without seeking agency approval, used an
employee to chauffeur him to and from work in his (the official's) own
car. The agency head, upon learning of the arrangement, disapproved,
and the official resigned. As to what further action should be taken,
GAO first noted that the home-to-work statutes were inapplicable
because the official had used his own car. There might well have been
a violation of 5 U.S.C. § 3103 which provides that an individual may
be employed "only for services actually rendered in connection with
and for the purposes of the appropriation from which he is paid," but
the penalty for violating 5 U.S.C. § 3103 is removal and the violator
was already gone. Accordingly, and since congressional intent in the
area was "quite uncertain," GAO's advice was to consider the case
closed. B-162111, at 2.
A final decision involves a situation other than home-to-work
transportation. The question was whether the Equal Employment
Opportunity Commission could use appropriated funds to hire a
chauffeured limousine to transport a witness (who happened to be a
senator) from the airport to a hearing site and back to the airport.
Since the home-to-work statutes were not involved, and since the
Commission had authority to hire passenger vehicles (assuming it was
needed for this type of hire), the question boiled down to one of
purpose availability. The Commission had statutory authority to
reimburse the expenses of a witness, and could have done so even
without the specific authority. The agency chose to provide
transportation rather than reimburse expenses, and while GAO chided
that it would have been cheaper to call a taxi, the choice could not
be called illegal. B-194881, Dec. 27, 1979.
Chapter 12 Footnotes:
[1] 1n 2002, title 40 of the United States Code was revised and
enacted into positive law. See Pub. L. No. 107-217, 116 Stat. 1062
(Aug. 21, 2002). While the references to sections in title 40
throughout this chapter are to the current provisions, many of the
decisions and letters cited in this chapter refer to prior sections of
title 40. However, the material is still relevant for purposes of the
discussions herein.
[2] This order is available on the GSA Web site at [hyperlink,
www.gsa.gov/Portaligsa/ep/contentView.do?content.Tvpe=GSA_BASIC&contenti
d=8128&noc=T ](last visited Mar. 20, 2008). Our limited coverage here
of the more common GSA supply programs authorized primarily in title
40, United States Code, should not be taken to indicate that other
authorities do not exist. See, for example, 62 Comp. Gen. 245 (1983),
discussing GSA's barter authority under the Strategic and Critical
Materials Stock Piling Act, 50 U.S.C. § 98e(c).
[3] We use the term "multiyear" here to mean contracts which cross
fiscal years. This is not to be confused with the much more specific
and prescribed concept of multiyear contracting and ordering
procedures as provided in the FAR, 48 C.F.R. subpart 17.1. See
especially the definition of a multiyear contract in 48 C.F.R. §
17.103.
[4] But see B-308969, May 31, 2007 (the government incurred a legal
liability in the amount of the guaranteed minimum in an indefinite-
delivery, indefinite-quantity (IDIQ) contract at the time in which the
contract was awarded and the agencies involved should have obligated
that amount at that time); B-302358, Dec. 27, 2004 (upon award of an
IDIQ contract Customs should have obligated the contract minimum of
$25 million in accordance with the recording statute to ensure the
integrity of Customs's obligational accounts records).
[5] Resolution No. 8, 15 Stat. 246 (Jan. 31, 1868).
[6] Eligibility to Use GSA Sources of Supply and Services (Jan. 3,
2000), available at [hyperlink,
www.gsa.gov/Portal/gsa/ep/contentView.do?contentTvpe=GSA_BASIC&contentld
=8128&nor], (last visited Mar. 20, 2008).
[7] GSA regulations contain the following requirement:
"How do I determine whether to do an exchange or a sale?
"You must determine whether an exchange or sale will provide the
greater return for the Government. When estimating the return under
each method, consider all related administrative and overhead costs."
41 C.F.R. § 102-39.35.
[8] Pub. L. No. 78-457, § 25, 58 Stat. 765, 780 (Oct. 3, 1944).
[9] Pub. L. No. 94-519, § 1, 90 Stat. 2451 (Oct. 17, 1976).
[10] Section 571(b) permits the expenses of sale to be deducted,
subject to GSA regulations, so that only the net proceeds must be
deposited.
[11] See also, e.g., 10 Comp. Gen. 193 (1930); 10 Comp. Gen. 131
(1930); 8 Comp. Gen. 600 (1929); 6 Comp. Gen. 81 (1926). Under this
rule, the performing agency could not recover costs it would have
incurred in any event, a prime example being the salaries of personnel
used in providing the service.
[12] This rule was based on 31 U.S.C. § 1301(a), which limits the use
of appropriations to their intended purposes. 7 Comp. Gen. at 711; 3
Comp. Gen. 974, 976 (1924).
[13] A few of the numerous decisions discussing and applying this
provision are 4 Comp. Gen. 674 (1925); 27 Comp. Dec. 684 (1921); 27
Comp. Dec. 106 (1920); A-31068, Mar. 25, 1930.
[14] As we will note in our discussion of interagency details of
personnel, the reason the accounting officers had not previously
espoused this eminently logical application of the purpose statute and
augmentation concept was rooted more in history than in law. Certainly
in non-Economy Act situations, the proposition that using agency A's
appropriations to do agency B's work violates the purpose statute is
stated largely as dogmatic. E.g., 59 Comp. Gen. 403, 404 (1980).
[15] Exempts from H.R. Rep. No. 72-1126 are quoted in 52 Comp. Gen.
128, 131-32 (1972), and the history of section 601 is discussed in
more detail in 57 Comp. Gen. 674. Technically, section 601 was cast as
an amendment to the 1920 statute noted earlier in the text. Certain
documents in the legislative history, one of which is quoted in 57
Comp. Gen. at 679, cite GAO decision A-2272, June 16, 1924. For the
benefit of future researchers, there is no such decision. The correct
reference is A-2272, June 18, 1924, published at 3 Comp. Gen. 974.
[16] Regulations governing the Economy Act can be found in the Federal
Acquisition Regulation at 48 C.F.R. subpart 17.5.
[17] This of course does not mean that an issue has never arisen
regarding a determination that the order is in the best interest of
the government. The issue might involve an internal debate and might
not surface outside of the agency.
[18] As originally enacted, this requirement explicitly referred to
"work or services performed" but not to "materials, supplies, or
equipment furnished." See, e.g., 12 Comp. Gen. 597, 598 (1933). The
substitution of the word "goods" came about as part of the 1982
recodification of title 31, United States Code. See 31 U.S.C. § 1535
(Rev. Notes). While a recodification is not supposed to make
substantive changes, this is nevertheless what the statute now says.
Perhaps it simply reflects the deduction that "work" implies a product.
[19] This decision implies that an agency can enter into an Economy
Act agreement with a nonappropriated fund instrumentality, and to that
extent was modified by 64 Comp. Gen. 110 (1984). It remains valid for
the points for which it is cited in the text.
[20] The recording statute, 31 U.S.C. § 1501, is discussed in Chapter
7, section B.
[21] The decision in 64 Comp. Gen. 370 (1985) overruled other aspects
of 13 Comp. Gen. 234.
[22] The Economy Act originally said "executive department or
independent establishment of the Government" (Act of June 30, 1932,
ch. 314, 47 Stat. 382, 417). The indefatigable researcher will find
one GAO opinion, B-25199, May 15, 1942, holding the Act inapplicable
to the legislative branch. While B-25199 has never been overruled, it
has never been followed either, and the Revision Note to 31 U.S.C. §
1535 explicitly adopts the broader view of 12 Comp. Gen. 442 and the
Mitchell case.
[23] The 1984 decision concerned the United States Department of
Agriculture (USDA) Graduate School, which is a nonappropriated fund
instrumentality. In 1990, Congress granted the school specific
authority to enter into Economy Act agreements to provide training and
services to federal agencies, 7 U.S.C. § 5922(a), but subsequently
repealed this authority in 2002. Pub. L. No. 107-171, § 10705, 116
Stat. 134, 519 (May 13, 2002).
[24] The concept of the Economy Act simply does not "fit" where the
two units are funded under the same appropriation. Presumably,
although we have found no cases, an agency could administratively
apply similar principles since it needs no statutory authority to
shift funds within a lump-sum appropriation. See Chapter 2, section
B.3.b, for a discussion of reprogramming.
[25] The Federal Acquisition Regulation provides that "the
[performing] agency may ask the [ordering] agency, in writing, for
advance payment for all or part of the estimated cost or furnishing
the supplies or services." 48 C.F.R. § 17.505(a). Also, as a practical
matter, if the performing agency is not in a position to use its own
funds initially, or simply does not wish to do so, it does not have to
accept the order.
[26] A working fund is simply an account established to receive
advance payments from other agencies or accounts. 14 Comp. Gen. 25
(1934). Working fund accounts are not used to finance the work
directly but only to reimburse the appropriation or fund account that
will finance the work to be performed.
[27] Retention of the word "executive" in 31 U.S.C. § 1536(b)(2) in
the 1982 recodification of title 31, United States Code, appears to
have been inadvertent because resort to the source provision makes
clear that "agency" as used in 31 U.S.C. § 1536(b) is the same as
"agency" in 31 U.S.C. § 1535(a).
[28] Loathe to summarily throw out the old rule, some early Economy
Act decisions treated the actual cost prescription as discretionary,
holding that agencies could agree to operate under the old rule. E.g.,
13 Comp. Gen. 150, 153 (1933). This "option approach" has long since
been discarded.
[29] Properly payable as a judgment" means payable from the permanent
judgment appropriation (31 U.S.C. § 1304) unless, as was the case
here, the agency has an available appropriation or fund.
[30] Under prior decisions, actual cost could include depreciation.
E.g., 38 Comp. Gen. 734 (1959). This is one of the aspects of the
earlier cases superseded by the 57 Comp. Gen. 674 "family."
[31] This statute applies to transactions between the military
departments and establishments owned by the Department of Defense for
work related to military projects. See Chapter 7, section B.1.i(5),
for a further discussion of this statute.
[32] Act making deficiency appropriations for 1936, June 22, 1936, ch.
689, § 8, 49 Stat. 1597, 1648. The Act of June 26, 1943, ch. 150, 57
Stat. 219, amended the Economy Act itself to reflect the 1936
legislation.
[33] See sections B.2 and C.4.e of this chapter for further
elaboration and case summaries.
[34] The rule quoted in the text from 18 Comp. Gen. 489 refers to the
Economy Act "or similar statutory authority." Hence, the cases cited
in the text commingle Economy Act and non-Economy Act applications
without distinction.
[35] To the extent it supports a contrary proposition, the editors
view 39 Comp. Gen. 548 (1960) as incorrect. It inexplicably fails to
consider the no certification language, and is inconsistent with the
plain terms of the Economy Act itself (see 37 Op. Att'y Gen. 559
(1934)), and with applications of similar language in other statutes,
such as 44 U.S.C. § 310 (payments for printing and binding). See also
56 Comp. Gen. 980 (1977); A-30304-O.M. Feb. 10, 1930.
[36] Oddly, the early decisions were not so rigid when it came to
intra-agency work. Where an employee did work for different bureaus
within the same agency, the agency could prorate the salary among the
appropriations involved, or could pay the entire salary from one
appropriation and seek reimbursement from the others. 5 Comp. Gen.
1036 (1926).
[37] Pub. L. No. 100-690, title I, 102 Stat. 4181 (Nov. 18, 1988).
[38] Pub. L. No. 98-367, § 8(2), 98 Stat. 472, 475 (July 17, 1984).
[39] Subsequent to the Wounded Knee litigation, Congress enacted 10
U.S.C. § 372, which expressly authorizes the Secretary of Defense to
make equipment available to law enforcement organizations. At first,
reimbursement was discretionary. See Pub. L. No. 97-86, § 905(a)(1),
95 Stat. 1099, 1116 (Dec. 1, 1981); 6 Op. Off. Legal Counsel 464
(1982). The reimbursement provision, 10 U.S.C. § 377, was amended in
1988 to require reimbursement, with certain exceptions, "Rio the
extent otherwise required" by the Economy Act or other applicable law.
See Pub. L. No. 100-456, div. A, title XI, § 1104(a), 102 Stat. 1918,
2045 (Sept. 29, 1988).
[40] OMB Press Release No. 2002-11, New E-Government Strategy Is
Roadmap to Better Service: 24 New Initiatives to Help Millions Who
Access the Government Online (Feb. 27, 2002), available at [hyperlink,
http://www.whitehouse.gov/omb/pubpress/2002-11.html] (last visited
Mar. 20, 2008).
[41] These initiatives are available at [hyperlink,
http://www.whitehouse.gov/omb/egov] (last visited Mar. 20, 2008).
[42] OMB also refers to these centers as "Shared Service Centers,"
"Shared Service Providers," and "Cross-Agency Service Providers." See,
e,g., Report to Congress on the Benefits of the President's E-
Government Initiatives: Fiscal Year 2007 (2007), available at
[hyperlink, http://www.whitehouse.gov/omb/egov/e-2-reports.html] (last
visited Mar. 20, 2008); Analytical Perspectives, Budget of the United
States Government for Fiscal Year 2007 (Feb. 6, 2006), at 152-53,
available at [hyperlink, http://www.whitehouse.gov/omb/budget/fy2007]
(last visited Mar. 20, 2008).
[43] Analytical Perspectives, Budget of the United States Government
for Fiscal Year 2006 (Feb. 5, 2005), at 174, available at [hyperlink,
http://www.whitehouse.gov/omb/budgetify2006] (last visited Mar. 20,
2008). For additional information about the E-Government initiatives
and cross-agency service providers, see the Report to Congress on the
Benefits of the President's E-Government Initiatives: Fiscal Year
2007, supra n.42.
[44] This is another example where the Economy Act was used as
authority even though there was no written agreement "up front."
[45] Several additional examples are summarized in Chapter 6, section
E.4.
[46] Pub. L. No. 89-83, 79 Stat. 259 (July 24, 1965).
[47] Reorganization Act of 1981; Amend Economy Act to Provide That AU
Departments and Agencies Obtain Materials of Services from Other
Agencies by Contract; and Amend the Federal Grant and Cooperative
Agreement Act: Hearings on H.R. 2528 et al. Before a Subcommittee of
the House Committee on Government Operations, 97th Cong. 78 (1981)
(statement of Milton J. Socolar, Special Assistant to the Comptroller
General of the United States).
[48] GAO conducted a study in 1995 that indicated reasonable progress
in implementing the controls mandated by the National Defense
Authorization Act for Fiscal Year 1994. See GAO, Interagency
Contracting: Controls Over Economy Act Orders Being Strengthened,
GAO/NSIAD-96-10 (Washington, D.C.: Oct. 20, 1995).
[49] For a discussion of 31 U.S.C. § 1534 in the context of transfers,
see Chapter 2, section B.3.a.
[50] See Chapter 6, section E, for a discussion of augmentation of
appropriations.
[51] Ch. 288, 63 Stat. 377 (June 30, 1949).
[52] This decision addresses the GSA Information Technology Fund,
which in August 2002 was recodified at 40 U.S.C. § 322. In 2006,
Congress merged the Information Technology Fund with the GSA General
Supply Fund to form the Acquisition Services Fund. Pub. L. No. 109-
313, § 3, 120 Stat. 1732, 1735-37 (Oct. 6, 2006), codified at 40
U.S.C. § 321.
[53] The FAR requires executive branch agencies to support each
Economy Act order with a D&E Pursuant to 48 C.F.R. § 17.503, a D&F
must state that: "(1) Use of an interagency acquisition is in the best
interest of the Government; and (2) The supplies or services cannot be
obtained as conveniently or economically by contracting directly with
a private source." 48 C.F.R. § 17.503(a). If the servicing agency is
going to fill the Economy Act order through a contract, the D&F must
also include a specific statement supporting the contract action. 48
C.F.R. § 17.503(b).
[54] A separate statute, 42 U.S.C. § 4742, provides authority to admit
state and local government employees to federal agency training
programs and credit fees to the appropriation or fund used for paying
the training costs.
[55] GSA has specific authority to contract for public utility
services for a period of not more than 10 years. 40 U.S.C. §
501(b)(1)(B).
[56] Available at [hyperlink,
http://www.gao.govispecial.pubs/ppm.html] (last visited Mar. 20, 2008).
[57] Congress, of course, can authorize reimbursements to be made to
appropriations "currently available" or "then current and chargeable."
See B-75345, May 20, 1948. While this affects the agency's ability to
reuse the money, the reimbursement still cannot remain available
beyond the appropriation to which credited.
[58] See Senate Committee on Government Operations, Financial
Management in the Federal Government, S. Doc. No. 87-11, at 267-68
(1961).
[59] As discussed in Chapter 2, section B.4, a provision contained in
an annual appropriations act may not be construed as permanent
legislation unless the language or nature of the provision makes it
clear that Congress intended it to be permanent.
[60] See section C.3.a of this chapter for a discussion of public
enterprise revolving funds.
[61] See GAO, Revolving Funds: Office of the Attending Physician
Revolving Fund Can Be Terminated, GAO/AFMD-89-29 (Washington, D.C.:
Dec. 21, 1988), at 2-3.
[62] These three cases involved the Vessels Operations Revolving Fund,
46 U.S.C. App. § 1241a. While the fund was terminated by Pub. L. No.
109-304, § 19, 120 Stat. 1485, 1710-18 (Oct. 6, 2006), the cases are
interesting illustrations of the relationship of receipts to fund
operations.
[63] The statute in that case, the Office of Personnel Management
revolving fund, was subsequently amended to specifically include
advances. See 5 U.S.C. § 1304(e)(3)(A).
[64] For a detailed analysis of revolving fund use of borrowing
authority, see GAO, Spending Authority Recordings in Certain Revolving
Funds Impair Congressional Budget Control, PAD-80-29 (Washington,
D.C.: July 2, 1980).
[65] Our definitions are culled from several sources: GAO, A Glossary
of Terms Used in the Federal Budget Process, GAO-05-734SP (Washington,
D.C.: Sept. 2005), at 3-5; I TFM § 2-1520; OMB Cir. No. A-11,
Preparation, Submission, and Execution of the Budget, § 20 (July 2,
2007).
[66] In most cases, the type of fund should be apparent from the
statutory language and context. If not, the account symbol will at
least tell you how Treasury regards it. See 1 TFM 2-1530.10 for a list
of fund types and their associated Treasury account symbols. See also
OMB Cir. No. A-11, Preparation, Submission, and Execution of the
Budget, § 20.12 (July 2, 2007).
[67] For an overview of federal trust funds, see GAO, Federal Trust
and Other Earmarked Funds: Answers to Frequently Asked Questions, GAO-
01-199SP (Washington, D.C.: Jan. 2001).
[68] The Acquisition Services Fund replaced the General Services
Administration's General Supply Fund and Information Technology Fund.
[69] Other working capital funds include 7 U.S.C. § 2235
(Agriculture); 15 U.S.C. § 278b (National Institute of Standards and
Technology); 20 U.S.C. § 3483 (Education); 22 U.S.C. § 2684 (State);
28 U.S.C. § 527 (Justice); 29 U.S.C. §§ 563, 563a (Labor); 31 U.S.C. §
322 (Treasury); 40 U.S.C. § 293 (General Services Administration); 42
U.S.C. § 3513 (Health and Human Services); 42 U.S.C. § 3535(f)
(Housing and Urban Development); 43 U.S.C. § 1467 (Interior); 43
U.S.C. § 1472 (Bureau of Reclamation); and 49 U.S.C. § 327
(Transportation). The Defense Department legislation (10 U.S.C. §
2208) is covered separately.
[70] Memorandum of Agreement Between the Department of Defense and the
General Services Administration, Dec. 2006, available at [hyperlink,
http://www.gsa.gov/graphics/fas/DOD_GSA_MOA.doc] (last visited Mar.
20, 2008); Memorandum of Agreement Between the Department of Defense
and the Department of Interior, March 6, 2007, available at
[hyperlink, http://www.govworks.gov/home/MOA_032007.asp] (last visited
Mar. 20, 2008).
[71] Most federal agencies have authority to enter into a 1-year
severable services contract at any time during the fiscal year
extending into the next fiscal year, and to obligate the total amount
of the contract to the appropriation current at the time the agency
entered into the contract. See, e.g., 41 U.S.C. § 2531 and 10 U.S.C. §
2410a. Chapter 5, section B.9.a, provides additional information about
this authority.
[72] See Memorandum from the Under Secretary of Defense to Secretaries
of the Military Departments, Chairman of the Joint Chiefs of Staff,
Under Secretaries of Defense, and other DOD officials, Subject: Non-
Economy Act Orders, Oct. 16, 2006, available at
www.acq.osd.mil/dpap/specificpolicyNon-EconomyActPoliy20061018.pdf]
(last visited Mar. 20, 2008).
[73] U.S. Const. art. I, § 9, cl. 7 (discussed in Chapter 1, section
B).
[74] Some have argued that a law making moneys available from some
source other than the general fund of the Treasury is not an
appropriation. See Chapter 2, section B.1.
[75] A management fund may or may not be a revolving fund. See, e.g.,
10 U.S.C. § 2209.
[76] Technically, 50 Comp. Gen. 323 involved a "special deposit
account," but the decision points out that it was similar to a
revolving fund in that it authorized the crediting of receipts and
their use for specified purposes.
[77] GovWorks is now the Acquisition Services Directorate. See
[hyperlink, http://www.govworks.gov] (last visited Mar. 20, 2008).
[78] The key here is "earned." Earned receipts and collections are the
component of the fee that reimburses the revolving fund for the cost
of its operations. Advances a customer agency makes to a revolving
fund have not yet been earned and retain their fiscal year character.
[79] The Information Technology Fund has since been merged with the
GSA General Supply Fund to become the Acquisition Services Fund. Pub.
L. No. 109-313, § 3, 120 Stat. 1734, 1735-37 (Oct. 6, 2006), codified
at 40 U.S.C. § 321.
[80] An indefinite-delivery, indefinite-quantity (IDIQ) contract is a
form of indefinite-quantity contract, which provides for an indefinite
quantity of supplies or services, within stated limits, during a fixed
period. For a detailed discussion of IDIQ contracts, see Chapter 5,
section B.8.
[81] E.g., B-308944, July 17, 2007 (Department of Interior revolving
fund); B-288142, Sept. 6, 2001 (FEDLINK revolving fund).
[82] E.g., B-286661, Jan. 19, 2001 (United States Enrichment
Corporation Fund).
[83] Both cases discuss the recording of obligations under credit
programs financed by revolving funds. While some of the specifics have
been superseded by the Federal Credit Reform Act of 1990, 2 U.S.C. §§
661-661f, in neither case was the applicability of the recording
statute called into question.
[84] See Chapter 5, section B.8, for a detailed discussion of
multiyear contracts.
[85] The fiscal year 2008 version of this provision is section 8008 of
the Department of Defense Appropriations Act, 2008, Pub. L. No. 110-
116, 121 Stat. 1295, 1314-15 (Nov. 13, 2007).
[86] See Chapter 7, section B.3, for a more detailed discussion of
orders required by law.
[87] The report and legal opinion cited in the text both predated the
current statutory account closing structure, but the principle should
remain valid.
[88] One older case seemingly to the contrary, 14 Comp. Gen. 106
(1934), must be regarded as overruled by 62 Comp. Gen. 678 (1983). See
65 Comp. Gen. 838, 841 (1986), and the detailed coverage in Chapter 6,
section E.2.b(1).
[89] The Acquisition Services Fund replaced the GSA General Supply
Fund and the GSA Information Technology Fund. Pub. L. No. 109-313, §
3, 120 Stat. 1734, 1735-37 (Oct. 6, 2006).
[90] Pub. L. No. 91-189, § 1, 83 Stat. 851 (Dec. 30, 1969).
[91] For further discussion of the interdepartmental waiver doctrine,
see Chapter 6, section E.2.c.
[92] Although the decision specifically notes that the vehicles were
not being used for fund work at the time of the damage, this factor
does not appear necessary to the decision.
[93] GAO, Financial Management: Defense Business Operations Fund
Implementation Status, GAO/T-AFMD-92-8 (Washington, D.C.: Apr. 30,
1992), at 2.
[94] E.g., GAO, Defense Business Operations Fund: DOD Is Experiencing
Difficulty in Managing the Fund's Cash, GAO/AIMD-96-54 (Washington,
D.C.: Apr. 10, 1996); Defense Business Operations Fund: Management
Issues Challenge Fund Implementation, GAO/ABM-95-79 (Washington, D.C.:
Mar. 1, 1995); Financial Management: Status of the Defense Business
Operations Fund, GAO/AIMD-94-80 (Washington, D.C.: Mar. 9, 1994).
[95] Memorandum from the Under Secretary of Defense (Comptroller),
Subject: Working Capital Funds for Defense Support Organizations, Dec.
11, 1996. The reorganization is noted in GAO, Navy Ordnance: Analysis
of Business Area Price Increases and Financial Losses,
GAO/AILVID/NSIAD-97-74 (Washington, D.C.: Mar. 14, 1997).
[96] The authority for the Army, Navy, Air Force, and Defense-wide
working capital funds continues to be 10 U.S.C. § 2208.
[97] See, e.g., GAO, Navy Working Capital Fund: Management Action
Needed to Improve Reliability of the Naval Air Warfare Center's
Reported Carryover Amounts, GAO-07-643 (Washington, D.C.: June
26.2007); Army Depot Maintenance: Ineffective Oversight of Depot
Maintenance Operations and System Implementation Efforts, GAO-05-441
(Washington, D.C.: June 30, 2005); Air Force Depot Maintenance:
Improved Pricing and Cost Reduction Practices Needed, GAO-04-498
(Washington, D.C.: June 17, 2004); Defense Logistics: Better Fuel
Pricing Practices Will Improve Budget Accuracy, GAO-02-582
(Washington, D.C.: June 21, 2002).
[98] The result in B-69238 was modified by B-69238, Sept. 23, 1948,
upon a showing that the services in question were in fact authorized,
although GAO continued to emphasize that receipts had to go to the
Treasury's general fund.
[99] Clayton P. Gillette and Thomas D. Hopkins, Federal User Fees: A
Legal and Economic Analysis, 67 B.U. L. Rev. 795, 800 (1987).
[100] GAO, The Congress Should Consider Exploring Opportunities to
Expand and Improve the Application of User Charges by Federal
Agencies, PAD-80-25 (Washington, D.C.: Mar. 28, 1980), at 1. See also
GAO, A Glossary of Terms Used in the Federal Budget Process, GAO-05-
734SP (Washington, D.C.: Sept. 2005), at 100.
[101] The further categorization of user fees is beyond our scope.
Approaches may be found in studies by the Congressional Budget Office—
Charging for Federal Services, 10 (Dec. 1983), The Growth of Federal
User Charges, 3-7 (Aug. 1993), and The Growth of Federal User Charges:
An Update, 1-11 (Oct. 1995).
[102] See, e.g., United States v. Grimaud, 220 U.S. 506,521-22 (1911),
to the effect that a statute addressing the use or disposition of fees
implicitly authorizes imposition of the fees.
[103] Examples are GAO, National Park Service: Major Operations
Funding Trends and How Selected Park Units Responded to Those Trends
for Fiscal Years 2001 through 2005, GAO-06-431 (Washington, D.C.: Mar.
31, 2006); Recreation Fees: Comments on the Federal Lands Recreation
Enhancement Act, H.R. 3283, GAO-04-745T (Washington, D.C.: May 6,
2004) (a version of this legislation was enacted and is now codified
at 16 U.S.C. §§ 6801-6814); Federal Energy Regulatory Commission:
Charges for Hydropower Projects' Use of Federal Lands Need to be
Reassessed, GAO-03-383 (Washington, D.C.: May 20, 2003); User Fees:
DOD Fees for Providing Information Not Current and Consistent, GAO-02-
34 (Washington, D.C.: Oct. 12, 2001); Federal Lands: Fees for
Communications Sites Are Below Fair Market Value, GAO/RCED-94-248
(Washington, D.C.: July 12, 1994); INS User Fees: INS Working to
Improve Management of User Fee Accounts, GAO/GGD-94-101 (Washington,
D.C.: Apr. 12, 1994); and USDA Revenues: A Descriptive Compendium,
GAO/RCED-93-19FS (Washington, D.C.: Nov. 27, 1992). In addition, PAD-
80-25 includes a 4-page appendix listing reports issued in the 1969-
1978 period.
[104] For a judicial summary of the history outlined in the text, see
Beaver, Bountiful, Enterprise v. Andrus, 637 F.2d 749, 754-55 (10th
Cir. 1980).
[105] One occasionally encounters a description in mandatory terms.
E.g., Bunge Corp. v. United States, 5 Cl. Ct. 511, 515 (1984), affd,
765 F.2d 162 (Fed. Cir. 1985) ("The IOAA directs all federal agencies
to charge fees ..."). However, no one has ever actually applied it
that way.
[106] Certainly some of the costs inured to the benefit of the public,
unless the entire regulatory scheme is a failure, which we refuse to
assume." National Cable Television, 415 U.S. at 343.
[107] The July 8, 1993, revision of OMB Circular No. A-25 changed
"should" to "will" in the introductory sentence of section 6 stating
its general policy. The 1993 revision is the current version of this
circular.
[108] See Clayton P. Gillette and Thomas D. Hopkins, Federal User
Fees: A Legal and Economic Analysis, 67 B.U. L. Rev. 795, 823 (1987).
[109] Some of the examples in the text are now covered by specific
statutory authority and thus reliance on the IOAA may no longer be
necessary. Our examples are intended merely to illustrate the types of
services or activities which have been regarded as within the IOAA's
scope.
[110] Ayuda Inc. v. Attorney General, 848 F.2d 1297, 1300 (D.C. Cir.
1988).
[111] Generally, solicitation documents, including specifications,
technical data, and other pertinent information determined necessary
by the contracting officer, are publicly available at [hyperlink,
http://www.fedbizopps.gov] (last visited Mar. 20, 2008). In certain
circumstances, however, when solicitation documents are not otherwise
publicly available, the contracting officer will provide these
documents and may require payment of a fee, not exceeding the actual
cost of duplication of these documents. See 48 C.F.R. § 5.102.
[112] House Committee on Government Operations, Electronic Collection
and Dissemination of Information by Federal Agencies: A Policy
Overview, H.R. Rep. No. 99-560, at 37-38 (1986).
[113] Even indigents are sometimes liable for fees. In 1996, Congress
amended 28 U.S.C. § 1915(b) to make prisoners financially responsible
for eventually paying the full filing fees in civil actions and
appeals that they bring in forma pauperis. Pub. L. No. 104-134, title
I [title VIII, § 804(a)], 110 Stat. 1321, 1321-73-74 (Apr. 26, 1996).
The statute generally requires that such prisoners pay the fees in
installments, to the extent they have resources in their prison
accounts. Prisoners are not entitled to a refund or to relief of their
indebtedness with respect to the fees if they withdraw their appeals.
Goins v. DeCaro, 241 F.3d 260 (2nd Cir. 2001).
[114] The State Department's 1995 appropriation act provided permanent
authority to credit these charges to the Administration of Foreign
Affairs account as an offsetting collection. Pub. L. No. 103-317, 108
Stat. 1724, 1760 (Aug. 26, 1994).
[115] GAO had also held that a reasonable fee could be charged to
unions for the payroll deduction of union dues (42 Comp. Gen. 342
(1963)), but legislation now prohibits charging either the union or
the employee. 5 U.S.C. § 7115(a).
[116] Engine Manufacturers Ass'n v. EPA, 20 F.3d 1177, 1180 (D.C. Cir.
1994); Phillips Petroleum Co. v. Federal Energy Regulatory Commission,
786 F.2d 370 (10th Cir.), cert. denied, 479 U.S. 823 (1986);
Mississippi Power & Light Co. v. United States Nuclear Regulatory
Commission, 601 F.2d 223, 229-30 (5th Cir. 1979), cert. denied, 444
U.S. 1102 (1980); National Cable Television Ass'n v. FCC, 554 F.2d
1094, 1104 (D.C. Cir. 1976); Electronic Industries Ass'n v. FCC, 554
E2d 1109, 1114-15 (D.C. Cir. 1976). The guidance in OMB Circular No. A-
25, User Charges, § 6a(3) (July 8, 1993), also embodies these
principles. See also B-307319, Aug. 23, 2007.
[117] An article written by an Interior Department attorney explains
that Public Service was not appealed because the Bureau of Land
Management thought that the newly enacted Federal Land Policy and
Management Act provided the necessary authority. Kristina Clark,
Public Lands Rights-of-Way: Who Pays for the Environmental Studies?, 2
Natural Resources & Environment 3, 4 (1986).
[118] Nevada Power also held that EIS costs can be assessed under the
Federal Land Policy and Management Act, but only to the extent
warranted by a consideration of the reasonableness factors listed in
43 U.S.C. § 1734(b). Nevada Power, 711 E2d at 933. See also Alumet v.
Andrus, 607 E2d 911 (10th Cir. 1979).
[119] Gillette and Hopkins conclude that "Pin effect courts limit fees
to either cost to the government or value to the beneficiary,
whichever is lower." Clayton P. Gillette and Thomas D. Hopkins,
Federal User Fees: A Legal and Economic Analysis, 67 B.U. L. Rev. 795,
839 (1987).
[120] Bureau of the Budget, Circular No. A-25, TT 3(b), 4(e) (Sept.
23, 1959).
[121] See National Cable Television Ass'n v. FCC, 554 F.2d 1094, 1098
n.9 (D.C. Cir. 1976).
[122] The question of the amount to be refunded was not raised in the
GAO decision. In any event, to the extent 55 Comp. Gen. 243 implies
that the entire fee should be refunded, it is of course to that extent
superseded by the subsequent D.C. Circuit precedent in National
Association of Broadcasters.
[123] Several important provisions appeared in the Consolidated
Omnibus Budget Reconciliation Act of 1985 (Pub. L. No. 99-272, 100
Stat. 82 (Apr. 7, 1986)), the Omnibus Budget Reconciliation Act of
1986 (Pub. L. No. 99-509, 100 Stat. 1874 (Oct. 21, 1986)), and the
Omnibus Budget Reconciliation Act of 1990 (Pub. L. No. 101-508, 104
Stat. 1388 (Nov. 5, 1990)). For more detail, see Congressional Budget
Office, The Growth of Federal User Charges (Aug. 1993), at 19-22, and
The Growth of Federal User Charges: An Update (Oct. 1995).
[124] In the recodified version carried in the United States Code, the
word "and" appears in place of the words bracketed in the text, which
is clearly erroneous. The meaning is clarified by resort to the source
provision: the IOAA shall not "modify existing statutes prohibiting
the collection, fixing the amount, or directing the disposition of any
fee, charge, or price" (65 Stat. 290). The conjunctive "and" is
meaningless because a statute which prohibits charging a fee would
have no occasion to then address, much less prohibit, disposition.
[125] SBA argued in B-300248 that the agency itself was not imposing a
user fee because the fee was actually assessed and collected by an SBA
contractor. However, GAO viewed this argument as elevating form over
substance.
[126] Pub. L. No. 102-242, § 114(a)(1), 105 Stat. 2236, 2248 (Dec. 19,
1991).
[127] One issue was whether the statute, which requires ticket-issuers
and airlines to collect the fee on behalf of the government, provides
a basis for holding them financially liable for fees they fail to
collect. In American Airlines, Inc. v. United States, 68 Fed. Cl. 723
(2005), the court said no. See also Continental Airlines, Inc. v.
United States, 77 Fed. Cl. 482 (2007).
[128] It seems from these cases that prisoners are particularly
resistant to paying fees and likely to challenge them.
[129] For additional background on the FDA's user fee system, see
James L. Zelenay, Jr., The Prescription Drug User Fee Act: Is a Faster
Food and Drug Administration Always a Better Food and Drug
Administration?, 60 Food & Drug L. J. 261, 275-323 (2005).
[130] The NARA statute at 44 U.S.C. § 2116(c) provides in part: "The
Archivist may charge a fee set to recover the costs for making or
authenticating copies or reproductions of materials transferred to his
custody."
[131] Pub. L. No. 102-395, § 111(b), 106 Stat. 1828, 1843 (Oct. 6,
1992).
[132] See GAO, A Glossary of Terms Used in the Federal Budget Process,
GAO-05-734SP (Washington, D.C.: Sept. 2005), at 4.
[133] An offsetting receipt is a form of offsetting collection which
is credited to a receipt account rather than an appropriation account.
Glossary, at 30-31. Again, the terminology is significant primarily
for budgetary purposes.
[134] A "proprietary receipt" is simply a type of offsetting receipt
representing collections from outside the government. Glossary, at 31.
[135] The Homeland Security Act, Pub. L. No. 107-296, 116 Stat. 2135
(Nov. 25, 2002), established the Department of Homeland Security (DHS)
and provided for the transfer of the U.S. Customs Service from the
Department of the Treasury to DHS, with DHS generally to assume
responsibility for administering the customs laws of the United
States. See 6 U.S.C. §§ 202(6), 203(1), 211. In accordance with
section 1502 of the Act, the President provided a DHS reorganization
plan modification renaming the Customs Service as U.S. Customs and
Border Protection (CBP) and making it responsible for the resources
and missions relating to borders and ports of entry of the Customs
Service and the former Immigration and Naturalization Service of the
Justice Department. See Reorganization Plan Modification for the
Department of Homeland Security, H.R. Doc. No. 108-32, at 4 (2003),
available at [hyperlink,
http://www.gpoaccess.goviserialset/cdocuments/108catl.html] (last
visited Mar. 20, 2008). The older cases discussed and cited in this
section refer to the former Customs Service and we have left those
references for illustrative purposes. Otherwise, we refer to CBP. The
two terms should be considered interchangeable for purposes of this
discussion.
[136] "Party in interest" for purposes of 19 U.S.C. § 1447 can include
another federal agency. See 48 Comp. Gen. 622 (1969) (services
performed on air force base billed to Department of the Air Force).
[137] Pub. L. No. 95-410, § 214, 92 Stat. 888, 904 (Oct. 3, 1978).
[138] Pub. L. No. 98-573, § 236, 98 Stat. 2948, 2992-93 (Oct. 30,
1984).
[139] Pub. L. No. 99-272, § 13032, 100 Stat. 82, 310-11 (Apr. 7, 1986).
[140] Pub. L. No. 101-207, § 3(0, 103 Stat. 1833, 1835 (Dec. 7, 1989).
[141] A good piece, although ending in 1988 because it was written in
1988, is Frederick M. Kaiser, U.S. Customs Service User Fees: A
Variety of Charges and Counter Charges, 8 Public Budgeting & Finance
78 (1988). More recent information may be found in GAO, Customs
Service: Information on User Fees, GAO/GGD-94-165FS (Washington, D.C.:
June 17, 1994).
[142] For a case interpreting 19 U.S.C. § 58c and rejecting a
challenge to one of the fees imposed under it, see Princess Cruises,
Inc. v. United States, 201 E3d 1352,1360-62 (Fed. Cir.), cert. denied,
530 U.S. 1274 (2000).
[143] Pub. L. No. 95-217, § 22, 91 Stat. 1566, 1572-73 (Dec. 25, 1977).
[144] Pub. L. No. 63-127, § 5, 38 Stat. 454, 508 (July 16, 1914).
[145] Pub. L. No. 79-600, § 16(a), 60 Stat. 806, 810 (Aug. 2, 1946).
[146] The courts have held that a jeep is a passenger vehicle for
transportation rate classification purposes. E.g., Union Pacific
Railroad Co. v. United States, 91 F. Supp. 762 (Ct. Cl. 1950) (the
leading case on the point); United States v. Louisville & Nashville
Railroad, 217 E2d 307 (6th Cir. 1954). Although GAO followed these
cases in its former transportation rate decisions (e.g., B-145028,
Aug. 8, 1961), the transportation rate cases have never been held to
affect 23 Comp. Gen. 955.
[147] Pub. L. No. 109-115, § 803, 119 Stat. 2396, 2495-96 (Nov. 30,
2005).
[148] GSA issues Federal Vehicle Standards for passenger motor
vehicles and various classes of trucks, updated for each new model
year. Federal Standard No. 122 is the standard for passenger vehicles.
The standards can be found at [hyperlink,
http://appsiss.gsa.govIvehiclestandards] (last visited Mar. 20, 2008).
[149] 132 Cong. Rec. 30249 (1986) (Sen. Proxmire).
[150] The 1946 version retained the limit on use of passenger motor
vehicles to official purposes and provided that such purposes did not
include home-to-work transportation "except in cases of medical
officers on out-patient medical service and ... officers and employees
engaged in field work the character of whose duties makes such
transportation necessary and then only ... when ... approved by the
head of the department concerned." Willful violations were subject to
suspension or removal. The statute also exempted from its limitations
the President, heads of cabinet departments, and principal diplomatic
and consular officials. Pub. L. No. 79-600, § 16.
[151] E.g., GAO, Use of Government Motor Vehicles for the
Transportation of Government Officials and the Relatives of Government
Officials, GAO/GGD-85-76 (Washington, D.C.: Sept. 16, 1985); Use of
Government Vehicles for Home-to-Work Transportation, GAO/NSIAD-83-3
(Washington, D.C.: Sept. 28, 1983).
[152] Since section 1344(a)(2)(B) did not exist in 1979, the decision
had to strain somewhat to try to apply the field work exception, which
did exist. All pre-1986 decisions should be reexamined in light of the
1986 law and General Services Administration regulations. Those we
cite here illustrate points which appear unaffected by the subsequent
changes.
[153] As noted above, the recently enacted section 1344(g) does
provide specific statutory authority for one form of intermediate
shuttle service.
[154] GSA now calls them "interagency fleet management systems." See
generally 41 C.F.R. pt. 101-39.
[155] See B-302962, June 10, 2005, and cases cited for more on this
general rule, known as the "interdepartmental waiver doctrine."
[156] GAO, Federal Motor Vehicles: Agencies' Progress in Meeting
Expenditure Control Requirements, GAO/GGD-88-40 (Washington, D.C.:
Mar. 2, 1988), at 8.
[157] Pub. L. No. 99-272, title XV, subtitle C, §§ 15301-15313, 100
Stat. 82, 335-38 (Apr. 7, 1986).
[End of Chapter 12]
Chapter 13: Real Property
A. Introduction and Terminology:
B. Acquisition of Real Property for Government Use:
1. The Fifth Amendment:
2. Federal Land Acquisition Policy:
3. Need for Statutory Authority:
a. Applicability:
(1) Debt security:
(2) Donated property/funds:
(3) Options:
(4) Indian tribal funds:
b. Types of Statutory Authority:
(1) Express versus implied authority:
(2) Forms of express authority:
c. Effect of Noncompliance:
4. Title Considerations:
a. Title Approval:
b. Title Evidence:
c. Title Evidence Expenses:
(1) Purchase:
(2) Donation:
(3) Condemnation:
5. Methods of Acquisition:
a. Purchase:
b. Involuntary Acquisition:
(1) Overview:
(2) Legislative taking:
(3) Sources of authority:
(4) "Complaint only" condemnation:
(5) Declaration of Taking Act:
(6) Inverse condemnation:
6. Obligation of Appropriations for Land Acquisition:
a. Voluntary Purchase:
b. Condemnation:
7. Expenses Incident to Real Property Acquisition:
a. Expenses Incident to Title Transfer:
b. Expenses Incident to Litigation:
(1) Attorney's fees:
(2) Litigation expenses:
C. Relocation Assistance:
1. Uniform Relocation Act: Introduction and Overview:
2. The Threshold Determination: Meaning of 13-72 "Displaced Person"
3. Types and Payment of Benefits:
a. Moving and Related Expenses:
(1) Residential displacements:
(2) Commercial displacements:
b. Replacement Housing Benefits:
(1) Homeowners:
(2) Tenants and "90-day homeowners"
c. Advisory Services:
d. "Last Resort" Replacement Housing:
e. Federally Assisted Programs and Projects:
f. Procedures and Payment:
4. Public Utilities:
a The Common Law:
b. Statutory Exceptions:
(1) Uniform Relocation Act:
(2) 23 U.S.C. § 123:
(3) Other statutory provisions:
D. Jurisdiction Over Federal Land: The Federal Enclave:
1. Acquisition of Federal Jurisdiction 13-101:
2. Specific Areas of Concern:
a. Taxation:
b. Criminal Law:
c. State Regulation:
3. Proprietorial Jurisdiction:
E. Leasing:
1. Some General Principles:
a. Acquisition:
b. Application of Fiscal Law Principles:
c. Rights and Obligations:
d. Payment of Rent:
(1) Advance payment:
(2) Payment to legal representative:
(3) Assignment of Claims Act:
2. Statutory Authorities and Limitations:
a. Federal Property and Administrative Services Act:
b. Prospectus Requirement:
c. Site Selection:
d. Parking:
e. Repairs and Alterations:
f. Rental in District of Columbia:
g. Economy Act:
h. Some Agency-Specific Authorities:
3. Foreign Leases:
4. Lease-Purchase Transactions:
F. Public Buildings and Improvements:
1. Construction:
a. General Funding Provisions:
(1) 41 U.S.C. § 12:
(2) Contract authority under partial appropriations:
(3) Duration of construction appropriations:
(4) Design fees:
b. Some Agency-Specific Authorities:
(1) Military construction:
(2) Continuing contracts: two variations:
(3) 7 U.S.C. § 2250:
(4) 15 U.S.C. § 278d:
c. Public Buildings Act and the General Services Administration:
d. Scope of Construction Appropriations:
2. Operation and Control:
a. Who's in Charge?
b. Allocation of Space:
c. Alterations and Repairs:
d. Maintenance and Protective Services:
e. Utilities:
f. Use Restrictions:
g. Payment of Rent by Federal Agencies:
G. Improvements to Property Not Owned By the Government:
1. The Rules:
2. Some Specific Applications:
a. Leased Premises/Property:
b. Research:
c. Public Improvements:
d. Federal Aviation Administration:
e. Private Residences:
H. Disposal:
1. The Property Clause:
2. Disposal under Title 40 of the United States Code:
a. Excess Property:
b. Surplus Property:
c. Disposition of Proceeds:
d. Deduction of Expenses:
e. Disposal under Other Authorities:
3. Use by Nongovernment Parties:
a. Leasing and Concessions:
(1) Outleasing in general:
(2) 40 U.S.C. § 1302:
(3) Concessions:
b. Granting of Revocable License:
4. Adverse Possession:
Chapter 13 Real Property:
A. Introduction and Terminology:
Question: Who is the Nation's biggest landowner?
Answer: Uncle Sam.
The federal government owns about one-fourth of all the land in the
United States. The pattern of ownership is geographically imbalanced,
with the United States owning large portions of land in several
western states and very small amounts in many eastern states. It
averages out, however, to roughly 25 percent.[Footnote 1]
At one time or another, the federal government owned most of the land,
apart from the original 13 colonies, that is now the United States. It
acquired this land by purchase (the Louisiana Purchase of 1803, for
example) and by conquest (the Native Americans). The legal basis of
the federal government's title to its original lands (the theories of
title by discovery and title by conquest) was explored in depth, and
settled, by Chief Justice John Marshall in an early decision of the
Supreme Court, Johnson and Graham's Lessee v. McIntosh, 21 U.S. (8
Wheat.) 543 (1823).
The history of America in the nineteenth century is largely the story
of the acquisition and disposal by the United States of the "public
domain." The land policy of the United States during the nineteenth
century was, in a word, disposal. Land was granted to individuals for
homesteads and farming, to states for various purposes, to railroads,
etc. It is largely in this way that the Nation was built.
Federal "management" over the public domain during this period was
virtually nonexistent. As the public domain diminished, America began
to develop a heightened awareness that its resources were not
unlimited. Gradually toward the close of the nineteenth century, and
more rapidly in the twentieth, federal policy shifted from disposal to
retention.[Footnote 2] Along with retention came the need for
management and conservation.
The first stage of this new policy was "withdrawal." When land is
"withdrawn" from the public domain, it is removed from the operation
of some or all of the disposal laws. All federal land has now been
withdrawn from the homestead laws. The concept of withdrawal is still
used, but it now has a somewhat more limited meaning. When public land
is withdrawn today, it usually means withdrawal from sale or some
form(s) of resource exploitation. Section 103(j) of the Federal Land
Policy and Management Act of 1976 (FLPMA), 43 U.S.C. § 1702(j),
provides a statutory definition:
"The term 'withdrawal' means withholding an area of Federal land from
settlement, sale, location, or entry, under some or all of the general
land laws, for the purpose of limiting activities under those laws in
order to maintain other public values in the area or reserving the
area for a particular public purpose or program ...."
Once public land has been withdrawn, the next step is "reservation."
The reservation of withdrawn land means the dedication of that land to
some specific use or uses. Shoshone-Bannock Tribes v. Reno, 56 F.3d
1476, 1479 (D.C. Cir. 1995). Most federal land is now reserved. The
Supreme Court has upheld the power of Congress to withdraw and reserve
public lands. Light v. United States, 220 U.S. 523 (1911). Withdrawals
and reservations may be temporary or permanent. The concepts would
have no particular relevance to land that is newly acquired now or in
the future for a specific purpose.[Footnote 3]
Withdrawal is usually accomplished by an act of Congress, which may be
specific or may delegate the power to the President or to an executive
department. If Congress chooses to delegate, it may prescribe the
method by which the authority is to be exercised. Lutzenhiser v.
Udall, 432 F.2d 328 (9th Cir. 1970); Mountain States Legal Foundation
v. Andrus, 499 E Supp. 383 (D. Wyo. 1980).
The executive branch has long asserted the inherent authority of the
President to make withdrawals, and some significant withdrawals have
been accomplished by executive order. Prior to 1976, congressional
acquiescence in the executive's assertions of an implied power of
withdrawal was seen as confirming the power's existence. United States
v. Midwest Oil Co., 236 U.S. 459 (1915); Portland General Electric Co.
v. Kleppe, 441 E Supp. 859 (D. Wyo. 1977); 40 Op. Att'y Gen. 73
(1941). In an uncodified section of the FLPMA, Pub. L. No. 94-579, §
704(a), Congress expressly repealed "the implied authority of the
President to make withdrawals and reservations resulting from
acquiescence of the Congress." However, the FLPMA was prospective
only, preserved all existing executive withdrawals (Pub. L. No. 94-
579, § 701(c)), and gave the Secretary of the Interior express new
withdrawal authority to be exercised in accordance with statutory
procedures (id. § 204, 43 U.S.C. § 1714).[Footnote 4]
An exception to the FLPMA withdrawal authority is 43 U.S.C. § 156,
under which a withdrawal or reservation of public land of more than
5,000 acres "for any one defense project or facility of the Department
of Defense" requires an act of Congress. The 1958 enactment of 43
U.S.C. § 156, like FLPMA itself nearly 20 years later, was prospective
only and did not invalidate prior withdrawals by executive action.
Mollohan v. Gray, 413 F.2d 349 (9th Cir. 1969).
Another statute that grants explicit reservation authority is the so-
called Antiquities Act, enacted in 1906, 16 U.S.C. § 431:
"The President of the United States is authorized, in his discretion,
to declare by public proclamation historic landmarks, historic and
prehistoric structures, and other objects of historic or scientific
interest that are situated upon lands owned or controlled by the
Government of the United States to be national monuments, and may
reserve as a part thereof parcels of land, the limits of which in all
cases shall be confined to the smallest area compatible with the
proper care and management of the objects to be protected. When such
objects are situated upon a tract covered by a bona fide unperfected
claim or held in private ownership, the tract, or so much thereof as
may be necessary, for the proper care and management of the object,
may be relinquished to the Government, and the Secretary of the
Interior is authorized to accept the relinquishment of such tracts in
behalf of the Government of the United States."
The courts have consistently upheld the exercise of Presidential
authority under the Antiquities Act in the face of a variety of
challenges. Some recent examples include Tulare County v. Bush,, 306
F.3d 1138 (D.C. Cir. 2002), cert. denied, 540 U.S. 813 (2003);
Mountain States Legal Foundation v. Bush, 306 F.3d 1132 (D.C. Cir.
2002), cert. denied, 540 U.S. 812 (2003); and Utah Ass'n of Counties
v. Bush, 316 F. Supp. 2d 1172 (D. Utah 2004). For additional
discussion of the President's authority under the Antiquities Act, see
Memorandum Opinion for the Solicitor, Department of the Interior, the
General Counsel, National Oceanic and Atmospheric Administration, and
the General Counsel, Council on Environmental Quality, Administration
of Coral Reef Resources in the Northwest Hawaiian Islands, OLC
Opinion, Sept. 15, 2000; Harold H. Bruff, Executive Power and the
Public Lands, 76 U. Colo. L. Rev. 503 (2005).
The last significant body of federal land subject to disposal is in
Alaska. Under several statutes,[Footnote 5] much federal land in
Alaska will ultimately be conveyed to the state of Alaska and to
Alaska natives. While the federal government's conveyance of land to
the state of Alaska and Alaskan natives continues, some serious
conflicts have arisen with Alaska native allotments and preexisting
rights-of-way. See GAO, Alaska Native Allotments: Conflicts with
Utility Rights-of-way Have Not Been Resolved through Existing
Remedies, GAO-04-923 (Washington, D.C.: Sept. 7, 2004). For a more
general discussion of Alaskan land disposal, see GAO, Alaska Land
Conveyance Program: A Slow, Complex, and Costly Process, GAO/RCED84-14
(Washington, D.C.: June 12, 1984).
Today, all federally owned land, regardless of the specificity with
which it has been withdrawn and reserved, is under the jurisdiction of
some federal agency.[Footnote 6] Four agencies—the Departments of the
Interior, Agriculture, Energy, and Defense—manage approximately 99
percent of federally owned land. Interior has jurisdiction of by far
the greatest portion, approximately two-thirds. Within Interior, the
bureaus with the greatest land responsibilities are the National Park
Service (national parks and monuments), the Fish and Wildlife Service
(National Wildlife Refuge System), the Bureau of Reclamation
(reclamation water projects), and the Bureau of Land Management (BLM).
The lands managed by BLM, comprising nearly half of all federal land,
are the most difficult of all to describe. As the policy of disposal
galloped along during the nineteenth century, much of the public
domain that was best suited for uses such as farming and timber was
quickly put to these uses. What was left was used mostly for grazing
Under the "benign neglect" of the time, use too often became overuse
and abuse. The land was withdrawn from the public domain by a series
of statutes and executive orders starting with the Taylor Grazing Act
in 1934. When BLM was established in 1946, it received jurisdiction
over this land. For lack of a better designation, the lands are best
referred to by the simple if nondescriptive term "BLM lands."
The Forest Service, U.S. Department of Agriculture, has jurisdiction
over the approximately 25 percent of federal land which comprises the
National Forest System. The Department of Energy controls property
acquired, mostly during the World War II and Cold War eras, in
connection with the development, production, and testing of nuclear
weapons.
The Defense Department has jurisdiction over a small (approximately 3
percent) but important segment consisting of defense installations and
civil water projects managed by the Army Corps of Engineers.
An agency with control over only a tiny percentage of federal land but
with major responsibilities is the General Services Administration
(GSA). GSA has a variety of functions under the Federal Property and
Administrative Services Act of 1949 and the Public Buildings Act of
1959, some of which will be described later in this chapter. In terms
of the work space in which federal agencies carry out the day-to-day
functions of government, GSA is the "government's landlord."
A term we have already encountered on several occasions is the "public
domain." Although the term is still commonly used, in the traditional
sense of "open land"—federal land you could obtain for homesteading or
upon which you could graze your cattle (and, in the grand tradition of
classic American westerns, chase off those pesky farmers and
sheepherders) free from regulation—the "public domain" no longer
exists.
A related term is "public lands." There is a common-law definition and
a statutory definition. The common-law definition is lands which are
subject to sale or other disposal under the general land laws of the
United States. Newhall v. Sanger, 92 U.S. 761, 763 (1875); Columbia
Basin Land Protection Ass'n v. Schlesinger, 643 F.2d 585, 602 (9th
Cir. 1981); United States v. Kipp, 369 F. Supp. 774, 775 (D. Mont.
1974); 19 Comp. Gen. 608, 611 (1939). The courts have tended to regard
"public domain" as synonymous with "public lands" as defined by Sanger
and its progeny. E.g., Barker v. Harvey, 181 U.S. 481, 490 (1901);
United States v. Holliday, 24 F. Supp. 112, 114 (D. Mont. 1938). The
statutory definition is found in section 103(e) of the FLPMA. For
purposes of the FLPMA, "public lands" means, with certain exceptions,
"any land and interest in land owned by the United States within the
several States and administered by the Secretary of the Interior
through the Bureau of Land Management, without regard to how the
United States acquired ownership," in other words, what we earlier
referred to as the "BLM lands." 43 U.S.C. § 1702(e). The relationship
between the statutory and common-law definitions is not without
controversy. Compare Columbia Basin, 643 F.2d at 601-02 (FLPMA
essentially incorporated the traditional definition) with Sierra Club
v. Watt, 608 F. Supp. 305, 336-38 (E.D. Cal. 1985) (strongly
suggesting that its governing circuit's Columbia Basin decision was
incompatible with prevailing Supreme Court precedents).
Nothing in life is static. The federal government will continue to
acquire land and it will continue to dispose of land. However, apart
from the eventual transfer of the Alaska lands, the massive
acquisitions and disposals of earlier times appear unlikely to recur.
The emphasis is now, and will almost certainly remain, on the complex
issues of classification, economic use, and conservation—in brief, on
public land management.[Footnote 7]
Up to this point, our discussion has focused on land per se. Of
course, real property is much more than the land itself and generally
includes "anything growing on, attached to, or erected on" land.
Black's Law Dictionary, 1254 (8th ed., 2004). It will come as no
surprise that the federal government has vast holdings of real
property assets of various kinds in the United States and throughout
the world. More than 30 federal agencies control about $328 billion in
real property assets worldwide.[Footnote 8] This includes about 3.3
billion square feet of building floor area that the government owns or
leases in roughly a half-million buildings.[Footnote 9] Given the
breadth of these holdings and reported difficulties in accounting for
them, GAO included federal real property management on its 2003 "high-
risk list" of the most serious challenges facing the federal
government. GAO-03-122. This report observed:
"Long-standing problems in the federal real property area include
excess and underutilized property, deteriorating facilities,
unreliable real property data, and costly space.
These factors have multibillion-dollar cost implications and can
seriously jeopardize the ability of federal agencies to accomplish
their missions. Federal agencies also face many challenges securing
real property due to the threat of terrorism. Given the persistence of
these problems and various obstacles that have impeded progress in
resolving them, GAO is designating federal real property as a new high-
risk area."
GAO-03-122, at 1. The designation was continued when the high-risk
list was updated in 2007. GAO, High-Risk Series: An Update, GAO-07-310
(Washington, D.C.: Jan. 2007), at 6.
GAO also testified that the conditions underlying the high-risk
designation persist:
"Many of the assets in the government's vast and diverse portfolio of
real property are not effectively aligned with, or responsive to,
agencies' changing missions and are therefore no longer needed.
Furthermore, many assets are in an alarming state of deterioration;
agencies have estimated restoration and repair needs to be in the tens
of billions of dollars. Additionally, a heavy reliance on costly
leasing, instead of ownership, to meet new needs is a pervasive and
ongoing problem. These problems have been exacerbated by underlying
obstacles that include competing stakeholder interests in real
property decisions, various legal and budget-related disincentives to
businesslike outcomes, and the need for better planning by real
property-holding agencies."
GAO-06-248T, at 1.
The executive branch has also recognized the seriousness of the
federal government's challenges here. On February 4, 2004, the
President issued Executive Order No. 13327 on this subject.[Footnote
10] Among other things, it requires agencies to designate senior-level
real property management officers who shall identify and categorize
all real property that the agency owns, leases, or manages, and
prioritize actions to improve the operational and financial management
of the agency's real property inventory. Exec. Order No. 13327, §§
3(a), 3(b)(i) & (ii). In addition, a federal real property asset
management initiative has been added to the President's Management
Agenda.[Footnote 11]
B. Acquisition of Real Property for Government Use:
If the federal government needs private property, it will normally try
to acquire it in the same manner as a private citizen, through
negotiation and purchase. Purchase negotiations, however, do not
always succeed. The parties may be unable to agree on the price, or
perhaps the owner wants to impose conditions that the acquiring agency
thinks are unacceptable. In such a situation, the government always
holds the ultimate trump card—the power of eminent domain.
Eminent domain is one of the government's most far-reaching powers,
and GAO has cautioned against its overzealous application. See GAO,
The Federal Drive to Acquire Private Lands Should Be Reassessed,
GAO/CED80-14 (Washington, D.C.: Dec. 14, 1979). In reviews of
particular programs, GAO has been critical of excessive and
unnecessary land acquisition by the federal government and has
recommended in such instances that the land be returned to private
ownership. E.g., GAO, Lands in the Lake Chelan National Recreation
Area Should Be Returned to Private Ownership, GAO/CED-81-10
(Washington, D.C.: Jan. 22, 1981); The National Park Service Should
Improve Its Land Acquisition and Management at the Fire Island
National Seashore, GAO/CED-81-78 (Washington, D.C.: May 8, 1981).
[Footnote 12]
1. The Fifth Amendment:
Any discussion of property acquisition by the United States must start
with the eminent domain clause or so-called "takings clause" of the
Fifth Amendment to the United States Constitution. As relevant here,
the Fifth Amendment says that no person shall be deprived of life,
liberty, or property without due process of law, "nor shall private
property be taken for public use, without just compensation." U.S.
Const. amend. V.
The Fifth Amendment is not an affirmative grant of the power to take
private property. The Supreme Court has noted on many occasions that
the power of eminent domain is inherent in the sovereign. It is a
necessary incident or attribute of sovereignty and needs no specific
grant in the Constitution or elsewhere. E.g., Albert Hanson Lumber Co.
v. United States, 261 U.S. 581, 587 (1923); United States v.
Gettysburg Electric Railway Co., 160 U.S. 668, 681 (1896); United
States v. Jones, 109 U.S. 513, 518 (1883). The Court noted in United
States v. Carmack, 329 U.S. 230, 241-42 (1946), that the Fifth
Amendment tacitly recognizes a preexisting power to take private
property for public use. Thus, the Fifth Amendment is not the source
of the government's power of eminent domain. Rather, it is a
limitation on the use of that power.[Footnote `3] As the Supreme Court
recently observed:
"As its text makes plain, the Takings Clause does not prohibit the
taking of private property, but instead places a condition on the
exercise of that power. In other words, it is designed not to limit
the governmental interference with property rights per se, but rather
to secure compensation in the event of otherwise proper interference
amounting to a taking."
Lingle v. Chevron U.S.A., Inc., 544 U.S. 528, 536-37 (2005) (emphasis
in original; citations and internal quotation marks omitted).
While consent of the state in which the land is located may be
relevant to the type of jurisdiction the federal government acquires
(see discussion of the federal enclave in section D of this chapter),
the acquisition of land requires no such consent unless Congress has
expressly provided otherwise. North, Dakota v. United States, 460 U.S.
300, 310 (1983); Kohl v. United States, 91 U.S. 367, 374 (1876).
Examples of statutes requiring state consent are 16 U.S.C. §§ 515
(national forest system acquisitions under the Weeks Act) and 715f
(Migratory Bird Conservation Act).[Footnote 14]
Issues arising under the Eminent Domain Clause can be grouped under
three major headings:
* What is a "taking" for purposes of the Fifth Amendment? The concept
of taking is not limited to condemnation actions initiated by the
government that result in the transfer of title or possession, but has
been construed to embrace a wide variety of government actions that
adversely affect the rights of a property owner. Takings of the latter
kind are often referred to as "inverse condemnations" because it is
the property owner, rather than the government, who initiates a claim
or lawsuit based on an alleged interference with property rights.
Examples include so-called "regulatory takings," which involve
government restrictions on the use of property, as well as physical
encroachments on property such as flooding from government dams or
overflights by government aircraft. The Supreme Court's opinion in
Lingle describes the development of the inverse condemnation concept.
[Footnote 15] Regardless of the type of taking involved, the purpose
of the eminent domain clause of the Fifth Amendment is to "bar
Government from forcing some people alone to bear public burdens
which, in all fairness and justice, should be borne by the public as a
whole." Lingle, 544 U.S. at 537, quoting Armstrong v. United States,
364 U.S. 40, 49 (1960); see also Connolly v. Pension Benefit Guaranty
Corporation, 475 U.S. 211, 227 (1986).
* What is a public use"? Contrary to what the words may seem to imply,
public use does not mean for use by, or accessible to, members of the
general public. According to the Supreme Court, virtually anything the
Congress is empowered to do is a public use sufficient to invoke the
power of eminent domain. E.g., Berman v. Parker, 348 U.S. 26, 33
(1954) ("Once the object is within the authority of Congress, the
right to realize it through the exercise of eminent domain is
clear."). The Supreme Court's decision in Kelo v. City of New London,
545 U.S. 469 (2005), reinforces the breadth of the power of eminent
domain. In Kelo, the Court upheld the City of New London's authority
to take land from individual homeowners as part of an economic
development plan to use the land for a variety of commercial and
recreational purposes.[Footnote 16] The Court reaffirmed that "the
sovereign may not take the property of A for the sole purpose of
transferring it to another private party B"; nor may the government
"be allowed to take property under the mere pretext of a public
purpose, when its actual purpose was to bestow a private benefit."
Kelo, 545 U.S. at 477-78. Beyond this, however, the opinion indicated
that the Fifth Amendment permits government officials wide leeway in
deciding what constitutes a "public use" and does not lend itself to
bright-line rules. Specifically, the Court rejected the petitioners'
proposal to adopt a rule that economic development does not qualify as
a public use:
"Putting aside the unpersuasive suggestion that the City's plan will
provide only purely economic benefits, neither precedent nor logic
supports petitioners' proposal. Promoting economic development is a
traditional and long accepted function of government. There is,
moreover, no principled way of distinguishing economic development
from the other public purposes that we have recognized."
Id. at 484. Kelo was a controversial decision. Indeed, Justice
O'Connor, writing for the four dissenters, observed:
"To reason, as the Court does, that the incidental public benefits
resulting from the subsequent ordinary use of private property render
economic development takings 'for public use' is to wash out any
distinction between private and public use of property—and thereby
effectively to delete the words 'for public use' from the Takings
Clause of the Fifth Amendment."
Id. at 494. Kelo has proven to be controversial outside the Court as
well, prompting legislative proposals to restrict the exercise of
eminent domain.[Footnote 17] One such proposal was enacted as section
726 of the Transportation, Treasury, Housing and Urban Development,
the Judiciary, and Independent Agencies Appropriations Act, 2006, Pub.
L. No. 109-115, div. A, title VII, 119 Stat. 2396, 2494-95 (Nov. 30,
2005). Section 726 prohibited the use of funds appropriated in that
act to support federal, state, or local projects seeking to use
eminent domain for other than a "public use" and provided that "public
use" shall not be construed to include "economic development that
primarily benefits private entities.[Footnote 18]
* What constitutes "just compensation"? As a general proposition, just
compensation in a straightforward condemnation action is the fair
market value of the property at the time of the taking. It is the
price a willing and knowledgeable buyer would pay to a willing and
knowledgeable seller, both free from mistake or coercion, without
regard to increases or decreases attributable to the project for which
the property is being acquired. E.g., United States v. Reynolds, 397
U.S. 14 (1970); United States v. Miller, 317 U.S. 369, 376-77 (1943).
See also 18 Comp. Gen. 245 (1938); B-193234, Dec. 8, 1978. With
respect to takings other than straightforward condemnations, it is
sometimes difficult to define the property interests affected and to
put a price on the interference with them. One general principle is
that just compensation is measured by the property owner's loss rather
than the government's gain. See, for example, Brown v. Legal
Foundation of Washington, 538 U.S. 216, 235-36 (2003), and cases
cited. Thus, it may be, as it was in Brown, that no compensation is
due even where some sort of a taking has occurred.
The federal power of eminent domain extends to Indian tribal lands.
E.g., United States v. 21,250 Acres of Land, 161 F. Supp. 376 (WD.
N.Y. 1957). It also extends to land owned by states. E.g., Oklahoma ex
rel. Phillips v. Guy F Atkinson Co., 313 U.S. 508, 534 (1941). The
Supreme Court has said that the term "private property" in the Fifth
Amendment encompasses the property of state and local governments, and
that the same principles of just compensation presumptively apply.
United States v. 50 Acres of Land, 469 U.S. 24, 31 (1984). The rules
may differ, however, in the case of properties, such as roads, which
are normally not bought and sold in the open market. Id. at 30.
Each of these issues has generated a raft of litigation, with the
scope of the regulatory taking concept being particularly active.
Further detail is beyond our present scope and our statements above
are intended to do nothing more than suggest the applicable
principles.[Footnote 19]
2. Federal Land Acquisition Policy:
The Uniform Relocation Assistance and Real Property Acquisition
Policies Act of 1970 became law on January 2, 1971, and was amended in
1987.[Footnote 20] The major portion of the law, Title II, deals with
relocation assistance and is covered in section C of this chapter.
Title III, 42 U.S.C. §§ 4651-4655, is entitled "Uniform Real Property
Acquisition Policy." The policy provisions of Title III are
independent of the relocation provisions of Title II and apply
regardless of whether anyone will be displaced by the acquisition.
City of Columbia, South, Carolina v. Costle, 710 F.2d 1009 (4th Cir.
1983).
The main section for our purposes is section 301, codified at 42
U.S.C. § 4651. It begins by stating four congressional objectives:
* to encourage and expedite acquisition by voluntary rather than
involuntary means,
* to avoid litigation,
* to assure consistent treatment of property owners, and,
* to promote public confidence in federal land acquisition practices.
Section 301 then goes on to state 10 congressional "policies,"
designated as sections 301(1) through (10). They are:
Subsection (1). Agencies should make "every reasonable effort" to
acquire property by negotiated sale before resorting to involuntary
acquisition. This of course does not mean that the negotiations must
succeed. What it means is that the agency is expected to negotiate
reasonably and in good faith. See B-179059, Oct. 11, 1973.
A device the National Park Service has used to encourage voluntary
sale when acquiring single-family residential property is to permit
the owner to retain a "right of use and occupancy" for a specified
term of years or for the life of the owner and spouse. The owner pays
a fee for this retained interest, determined actuarially in the case
of a life estate, which is deducted from the purchase price. The fee
has traditionally been set below market as an additional inducement.
The device, primarily from the valuation perspective, is discussed in
B-125035-0.M., May 7, 1976.
Subsection (2). Property should be appraised before the negotiations
start, and the owner should be given the opportunity to accompany the
appraiser during the inspection. The agency may waive the appraisal
for property with a "low fair market value." The statute does not
define this term. However, regulations generally governing any
acquisition of real property for a direct federal program or project
permit waiver if an agency determines that the valuation is
uncomplicated and the anticipated value is estimated at $10,000 or
less. 49 C.F.R. § 24.102(c)(2)(ii).
To the extent appropriate, appraisals should follow the Uniform
Appraisal Standards for Federal Land Acquisitions promulgated by the
Interagency Land Acquisition Conference (2000).[Footnote 21] 49 C.F.R.
§ 24.103(a). Subsection (3). This subsection, which deals with the
amount of compensation, includes several distinct points:
* The acquiring agency should establish the "just compensation" amount
before the negotiations start.
* This amount should not be less than the agency's approved appraisal.
[Footnote 22]
* The negotiations should start with an offer of this amount.
* The acquiring agency should provide the owner with a written
statement summarizing the basis for the amount offered.
* Increases or decreases in fair market value attributable to the
federal project or to the likelihood of acquisition are to be
disregarded. This was a codification of existing case law. See the
discussion of what constitutes "just compensation," above. For a
further discussion of this principle, referred to by the courts as the
"scope-of-the-project rule," see United States v. Land, 213 F.3d 830,
834-36 (5th Cir. 2000), cert. denied, 532 U.S. 904 (2001).
The legislative history emphasizes that genuine negotiations are
expected rather than a "take it or leave it" (or perhaps more
appropriately, "take it or we'll condemn it anyway") approach. H.R.
Rep. No. 91-1656, at 22.
Subsection (3) is designed to be fair both to the property owner and
to the taxpayer. Thus, although the statute contemplates that the
ultimate purchase price might end up higher than the agency's
appraisal, the property owner should not receive a windfall. B-193234,
Dec. 8, 1978. Also, as long as there is no pressure or coercion, there
is nothing to prevent an owner from agreeing to accept less than the
government's initial offer. 58 Comp. Gen. 559, 566 (1979); B-148044,
Dec. 9, 1976.
Where the wrong amount is paid through mutual mistake, the
negotiations may be reopened to effect an appropriate adjustment. The
decision B-197623, June 4, 1980, involved acquisitions by the National
Park Service. After some land had been acquired, it was discovered
that two states in which the acquired lands were located had passed
certain zoning restrictions which resulted in lowering property
values. Since the zoning restrictions were viewed as a consequence of
the federal project, the reduction in value should have been
disregarded. The Comptroller General agreed that the Park Service
could reopen the transactions and reappraise the property using the
proper criteria.
If there is a substantial delay between the appraisal and the
acquisition, the agency should consider updating the appraisal or
getting a new one. H.R. Rep. No. 91-1656, at 23; B-193234, Dec. 8,
1978.
The Uniform Relocation Act applies to the acquisition of easements as
well as the acquisition of fee simple title. If the taking of an
easement benefits the remainder of the landowner's property, the
accruing benefit may be set off against the value of the property
interest actually taken. If these accruing benefits exceed the value
of the easement taken, there is no requirement for additional monetary
compensation. 58 Comp. Gen. 559. A case discussing application of
several of the policy elements to the acquisition of scenic easements
is B-179059, Oct. 11, 1973.
Subsection (4). The owner should not be required to surrender
possession until the agency has either (a) paid the agreed purchase
price, in the case of a negotiated purchase, or (b) deposited the
appropriate amount with the court, in the case of a condemnation.
Subsection (5). Insofar as possible, no person lawfully occupying real
property (residence, business, or farm) should be required to move
without at least 90 days' written notice.
Subsection (6). If the acquiring agency permits an owner or tenant to
remain on the premises on a rental basis, rent should not exceed the
property's fair rental value.
Subsection (7). The acquiring agency should take no action (e.g.,
advance or defer the time of condemnation) to coerce or compel an
agreement as to price.
Subsection (8). If involuntary acquisition becomes necessary, the
agency should institute formal condemnation proceedings. An agency
should never intentionally make it necessary for the property owner to
go to court to establish the taking under an inverse condemnation
theory (see section B.5.b(6) of this chapter).
Subsection (9). If the agency needs only part of the property but
partial acquisition would leave the owner with an uneconomic remnant,
the agency should offer to acquire the entire property. The statute
defines "uneconomic remnant" as a remaining interest which the
acquiring agency determines "has little or no value or utility to the
owner."
Subsection (10). An owner who has been "fully informed of his right to
receive just compensation" may choose to donate all or part of the
property to the government.
These, then, are the elements of federal land acquisition policy.
Always on the lookout for catchy phrases, we would be tempted to refer
to 42 U.S.C. § 4651 as the "property owner's bill of rights," except
for one thing—section 4651 does not create any rights. Another
provision of the Uniform Relocation Act, section 102, 42 U.S.C. §
4602, provides:
"(a) The provisions of section 4651 of this title create no rights or
liabilities and shall not affect the validity of any property
acquisitions by purchase or condemnation.
"(b) Nothing in this chapter shall be construed as creating in any
condemnation proceedings brought under the power of eminent domain,
any element of value or of damage not in existence immediately prior
to January 2, 1971."
By virtue of 42 U.S.C. § 4602, the 10 policy elements of 42 U.S.C. §
4651 are guidelines only. There is a considerable body of case law to
the effect that section 4651 does not create rights in favor of
property owners which are enforceable in court. E.g., Rhodes v. City
of Chicago, 516 F.2d 1373 (7th Cir. 1975); Zoeller v. United States,
65 Fed. Cl. 449 (2005); Boston v. United States, 424 F. Supp. 259
(E.D. Mo. 1976); Nall Motors, Inc. v. Iowa City, 410 F. Supp. 111
(S.D. Iowa 1975), aff'd, 533 F.2d 381 (8th Cir. 1976); Barnhart v.
Brinegar, 362 F. Supp. 464 (WD. Mo. 1973).[Footnote 23] If the statute
did not create rights enforceable in court, it followed that GAO, when
it had claims settlement authority, could not consider monetary claims
for alleged violations of section 4651. B-215591, Sept. 5, 1984.
The policy elements of 42 U.S.C. § 4651 are intended to apply to
federally funded state acquisitions as well as to direct federal
acquisitions. Federal agencies are directed by 42 U.S.C. § 4655(a)(1)
not to approve any grant, contract, or agreement to or with a state
agency under which federal money will be available for all or any part
of any program or project which will result in the acquisition of real
property, unless the state agency provides "satisfactory assurances"
that it will "be guided, to the greatest extent practicable under
State law," by the policies of section 4651.[Footnote 24]
One court has found that, although the policy elements of 42 U.S.C. §
4651 are not binding in and of themselves, they may become binding if
included in a contract. The Department of Housing and Urban
Development (HUD) entered into a "contract" with a county for a grant
under the Housing Act. In the agreement, the county represented that
it would follow the policies of 42 U.S.C. § 4651. Plaintiffs alleged
that the county failed to follow several of the policy elements, for
example, by not giving some owners the opportunity to accompany the
appraisers during their inspection. The court found that the plaintiff-
landowners were "donee third party beneficiaries" of the contract
between HUD and the county. The court therefore enjoined the county
from prosecuting condemnation proceedings, and enjoined HUD from
providing any federal money, until the county complied with the items
found to be in violation. Bethune v. United States, 376 F. Supp. 1074
(WD. Mo. 1972).
We mention the Bethune case because it has never been overruled. It
is, however, of doubtful precedential value. The same court (different
judge) rejected the third-party beneficiary theory a year later,
without mentioning Bethune, in Barnhart, 362 F. Supp. 464. The
Barnhart case, because of its exhaustive analysis of legislative
history, has become one of the leading cases in the area Courts which
have considered both cases have rejected Bethune and followed
Barnhart. E.g., Boston, 424 F. Supp. at 264-65; Nall Motors, 410 F.
Supp. at 114-15.
3. Need for Statutory Authority:
Before any federal agency can purchase real property, it must have
statutory authority. Congress originally enacted this requirement in
1820,[Footnote 25] and it is found today, unchanged, in 41 U.S.C. §
14: "No land shall be purchased on account of the United States,
except under a law authorizing such purchase." This is one of the
oldest principles of our government. The Attorney General said well
over a century ago that "[t]here never was a time in the history of
this Government when the purchase of land on account of the United
States without authority of law was a legal act on the part of the
Executive." 11 Op. Att'y Gen. 201, 203 (1865). A similar requirement
is found in 10 U.S.C. § 2664(a), applicable to the military
departments.[Footnote 26]
As discussed below, not all acquisitions are subject to 41 U.S.C. §
14. Where the statute does not apply, the authority for the
expenditure is determined "in accordance with the usual rules of
appropriation law construction," that is, by applying the necessary
expense theory of purpose availability. 38 Comp. Gen. 782, 785 (1959);
B-12021, Sept. 7, 1940.
a. Applicability:
The requirement of 41 U.S.C. § 14 applies to acquisition by
condemnation as well as acquisition by voluntary purchase. 41 Comp.
Gen. 796 (1962). Condemnation is essentially an enforced sale; the
government is still a "buyer." This does not mean that the authorizing
statute must specify "condemnation." As we will see later, a statute
authorizing purchase is sufficient. To restate, although the statute
need not specify condemnation, there must be a statute.
Several decisions have established that 41 U.S.C. § 14 applies not
only to the acquisition of fee simple title, but also to the
acquisition of lesser estates or interests in land, such as permanent
easements or rights-of-way. 17 Comp. Gen. 204 (1937); 21 Comp. Dec.
326 (1914); B-55105, Feb. 26, 1946; A-88061, Aug. 3, 1937; A-31494,
May 8, 1930; A-24745, Oct. 13, 1928. Looking at it from another angle,
the purchase of a permanent easement or right-of-way over land
constitutes the purchase of land for purposes of 41 U.S.C. § 14.
The statute applies as well to the acquisition of a leasehold. 39 Op.
Att'y Gen. 56 (1937); 28 Op. Att'y Gen. 463 (1910). This includes
acquisition for consideration other than money as long as the
consideration is more than nominal. 35 Op. Att'y Gen. 183 (1927). A
lease will normally place the lessee under an obligation, upon
termination of the lease, to restore the property to the condition it
was in when the lease began. A federal agency in temporary occupancy
of real property under such an obligation cannot purchase (or condemn)
the property unless 41 U.S.C. § 14 has been satisfied, even though
acquiring fee title would be cheaper than restoration. 24 Comp. Gen.
339 (1944). See also 26 Comp. Dec. 242 (1919).
The statute applies to the acquisition of new land, not to land
already owned by the government. Thus, it does not apply to the
transfer of excess property to another agency. 38 Comp. Gen. 782
(1959). See also B-71849, Jan. 7, 1948. The statute has also been held
inapplicable to transactions in the nature of "unvouchered
expenditures," that is, transactions funded from appropriations that
were specifically provided to be "expended at the discretion of the
President." 9 Comp. Dec. 805, 806 (1903).
(1) Debt security:
The statute does not prevent acquisition of land where acquired as
security for a debt, nor does it apply to collecting debts by
enforcing such security interests. In this connection, the Supreme
Court has said:
"In our judgment [41 U.S.C. § 14] does not prohibit the acquisition by
the United States of the legal title to land, without express
legislative authority, when it is taken by way of security for a
debt.... To deny [appropriate government officials] the power to take
security for a debt on account of the United States, according to the
usual methods provided by law for that end, would deprive the
government of a means of obtaining payment, often useful, and
sometimes indispensably necessary. That such power exists as an
incident to the general right of sovereignty, and may be exercised by
the proper department if not prohibited by legislation, we consider
settled ...."
Neilson v. Lagow, 53 U.S. (12 How.) 98, 107 (1851). See also Van
Brocklin v. Tennessee, 117 U.S. 151, 154 (1886); 35 Op. Att'y Gen. 474
(1928). Citing Neilson, the Comptroller General held in 34 Comp. Gen.
47 (1954) that 41 U.S.C. § 14 did not preclude the Secretary of
Agriculture from protecting the government's interests under a second
mortgage, either by bidding at a prior lienholder's foreclosure sale,
or, if the prior lienholder foreclosed, by redeeming the property
under state law. Once it was determined that 41 U.S.C. § 14 did not
stand in the way and that there was no other applicable prohibition,
the question was simply one of applying the necessary expense theory
of purpose availability—the Secretary could make the expenditure if it
was administratively determined to be in reasonable furtherance of the
relevant appropriation. See also 36 Comp. Gen. 697 (1957).
(2) Donated property/funds:
An early decision held that 41 U.S.C. § 14 does not apply to land
donated to the United States, provided that the donation does not
involve an expenditure of public funds. 19 Comp. Dec. 1 (1912). In
reaching this conclusion, the Comptroller of the Treasury cited two
1910 opinions of the Attorney General reaching the same result, 28 Op.
Att'y Gen. 413 and 28 Op. Att'y Gen. 463. In the former opinion, the
Attorney General expressed the view that the phrase "on account of the
United States" as used in 41 U.S.C. § 14 means the same thing as "at
the expense or "to be paid for by" the United States. 28 Op. Att'y
Gen. at 416.
If an agency has authority to accept donations of both land and money,
it may use donated funds to purchase land, without regard to 41 U.S.C.
§ 14, if the funds were donated for the same general purpose for which
the land is desired. 2 Comp. Gen. 198 (1922). In that case, the state
of Colorado donated a sum of money to the Interior Department for
"general park purposes" in the Rocky Mountain National Park. Interior
has authority, now found at 16 U.S.C. § 6, to accept land or money
donated for the purposes of the national park and monument system. GAO
advised that Interior could use the donated funds to purchase a tract
of land within the park boundaries which was needed as a site for park
administration and maintenance buildings, without the need for further
statutory authority. See also B-40087, Feb. 28, 1944.
(3) Options:
An option to purchase land is an agreement in which the owner of the
land gives a prospective buyer the right to purchase the land at a
fixed price within a stated time period. The party receiving the
option is under no obligation to exercise it. If consideration is
given, the option is binding. If there is no consideration, the owner
may revoke the option at any time prior to its exercise. An option may
be viewed as a "continuing offer" to sell. The offer is accepted by
exercise of the option within the time period for which it was
granted. Purchase options may be advantageous to the government as a
means of inhibiting price escalation.
A purchase option is not the purchase of land or an interest in land.
Thus, 41 U.S.C. § 14 does not apply to the acquisition of an option,
although it does apply to the exercise of the option. 38 Comp. Gen.
227 (1958); 36 Comp. Gen. 48 (1956).
Notwithstanding the nonapplicability of 41 U.S.C. § 14, other
decisions have held that appropriated funds may not be used to acquire
an option without statutory authority. A-17267, June 28, 1927; 9 Comp.
Dec. 569 (1903).[Footnote 27] The prohibition has not been applied to
options given without monetary consideration. See, e.g., B-103967,
July 7, 1972; A-59458, Jan. 15, 1935.
When you combine these two concepts—the need for statutory authority
and the nonapplicability of 41 U.S.C. § 14—the result is that you need
statutory authorization to use appropriated funds to acquire an option
on land, but it does not have to be tied to the particular
transaction. Several agencies have obtained statutory authority to
acquire options. Examples are:
* 7 U.S.C. § 428a(b): The Department of Agriculture may acquire
purchase options on land. Specific authority is needed if the cost of
the option is more than $1.
* 10 U.S.C. § 2677: Military departments may acquire options on real
property at a cost of not more than 12 percent of the property's
appraised fair market value.
* 16 U.S.C. § 4601-10b: The Interior Department may acquire options on
land to be included in the national park system, up to a maximum
aggregate cost of $500,000 per year. The option must be for a minimum
of 2 years, and the option cost must be credited toward the purchase
price.
* The General Services Administration has received authority in annual
appropriation acts by virtue of language malting the Federal Buildings
Fund appropriation available for "acquisition of options to purchase
buildings and sites." E.g., Pub. L. No. 110-161, 121 Stat. 1844, 2000
(Dec. 26, 2007) (fiscal year 2008).
A purchase option may be acquired by itself or it may be included in a
lease. The decisions in this area do not appear to have applied the
statutory authority requirement to options included in leases,
although we could find no clear statement. Where inclusion of an
option is authorized, it may provide for its exercise at the end of
the basic term of the lease, at the end of any renewal term, or at
staggered periods during the basic term or any renewal term. B-137279,
Nov. 10, 1958, aff'g, 38 Comp. Gen. 227 (1958). Lease transactions
present their own complications and are treated separately later in
this chapter.
(4) Indian tribal funds:
Indian tribal funds are trust funds administered by the Bureau of
Indian Affairs. The purchase of land using Indian tribal funds is not
a purchase "on account of the United States." Thus, 41 U.S.C. § 14
does not apply, even where title to the land is to vest in the United
States to be held in trust for the particular tribe. 19 Comp. Gen. 175
(1939); 5 Comp. Gen. 661 (1926). See also B-126095, Mar. 7, 1956; A-
51705, Nov. 12, 1942.
b. Types of Statutory Authority:
(1) Express versus implied authority For the most part, land
acquisition authority tends to be unmistakably explicit—that is, it
will contain language such as "purchase land" or "acquire land." This
is of course preferable, but it is not absolutely required. It is
clear from the decisions, both administrative and judicial, that 41
U.S.C. § 14 may be satisfied by implication to a limited extent. The
question seems to have arisen most often in connection with the
construction of various facilities or public improvements. Given the
existence of 41 U.S.C. § 14, deriving authority to purchase land by
implication requires a somewhat more rigid test than the "reasonable
relationship" standard used under the necessary expense theory.
Responding to the question of whether congressional authorization for
construction carries with it the implied authority to acquire land,
the Comptroller General stated the test as follows:
"While each individual case must of necessity be determined on the
basis of the specific facts and circumstances pertaining thereto, an
authorization for construction may be deemed to imply authority to
acquire land therefor when such land is so necessary and essential for
that construction that the acquisition thereof must have been
contemplated by the Congress."
B-115456, July 16, 1953, at 7.
In determining whether authority to purchase land may be derived by
implication, it is relevant to examine any pattern Congress may have
developed in similar legislation. To illustrate, in 7 Comp. Dec. 524
(1901), something called the "Fish Commission" had an appropriation
for the "erection of buildings" in connection with the establishment
of a fishery station. The Commission wanted to know if it could use
the appropriation to purchase land for the station. The Comptroller of
the Treasury noted that a pretty good case could be made based on that
appropriation standing alone. However, the Comptroller also noted that
"the country is dotted with stations established by virtue of acts of
Congress" (7 Comp. Dec. at 525), and that these other statutes almost
invariably included the specific authority to purchase land. Viewing
this particular appropriation in light of the established pattern in
similar statutes, the Comptroller concluded that the purchase of land
was not authorized. See also 2 Comp. Gen. 558, 560 (1923); B-115456,
July 16, 1953.
Other authorities supporting the proposition that the authority
required by 41 U.S.C. § 14 may be derived by implication in
appropriate circumstances include United States v. Threlkeld, 72 F.2d
464 (10th Cir.), cert. denied, 293 U.S. 620 (1934); Burns v. United
States, 160 E 631 (2nd Cir. 1908); State of Nevada v. United States,
547 F. Supp. 776 (D. Nev. 1982), aff'd, 731 F.2d 633 (9th Cir. 1984);
21 Comp. Dec. 326, 328 (1914); 11 Comp. Dec. 132 (1904); B-34805, June
15, 1943; 40 Op. Att'y Gen. 69 (1941).
(2) Forms of express authority:
It was long ago recognized that no "specific formula of language" is
required to authorize land acquisition. 11 Comp. Dec. 132, 139 (1904).
To meet the varying needs of different agencies and programs, Congress
has used a number of different statutory configurations to confer land
acquisition authority.
Some agencies have general land acquisition authority in the form of
permanent provisions found in the United States Code which may be
agencywide or limited to a particular bureau or program. Examples are:
* 38 U.S.C. § 2406: authorizes Department of Veterans Affairs to
acquire land for national cemeteries;
* 38 U.S.C. § 8103(a)(1): authorizes Veterans Affairs to acquire land
for medical facilities;
* 40 U.S.C. §§ 3304(b) and 3305(b)(1)(B): authorize General Services
Administration (GSA) to acquire land for purposes of carrying out its
responsibilities for the acquisition, construction, and alteration of
public buildings;
* 42 U.S.C. § 1502(b): authorizes acquisition of land for defense
housing by Departments of Army, Navy, Air Force, and Housing and Urban
Development; and;
* 42 U.S.C. § 2473(c)(3): general land acquisition authority for the
National Aeronautics and Space Administration.
These statutes make no mention of funding. Since they do not authorize
the incurring of obligations in advance of appropriations, specific
acquisitions under them must be funded through the normal budget and
appropriations process. While acquisitions under these statutes are
dependent upon the availability of appropriations, there is no general
legal requirement that there also be a specific authorization of
appropriations. B-173832, Aug. 1, 1975, aff'd, B-173832, July 16,
1976. GAO stressed in both of these letters that it was venturing no
opinion as to whether a point of order might lie, but was addressing
only the legality of the appropriation if enacted.
A variant includes a general reference to the availability of
appropriations. An example is 7 U.S.C. § 428a(a), which authorizes the
Department of Agriculture to acquire land "as may be necessary to
carry out its authorized work," but only when provided for "in the
applicable appropriation or other law." As with 41 U.S.C. § 14 itself,
this statute has been construed as not applying to land already owned
by the government. 38 Comp. Gen. 782, 784-85 (1959).
Another example is 14 U.S.C. § 92(f), which provides general land
acquisition authority for the Coast Guard "for which an appropriation
has been made." This too requires an appropriation which is itself
available for land acquisition. B-148989-0.M., June 18, 1962 (at the
time of this opinion, section 92(f) read, "within the limits of
appropriations made therefor"). A third example is 43 U.S.C. § 36b,
which authorizes the Secretary of the Interior to purchase land for
use by the Geological Survey in "gaging" streams "when funds have been
appropriated by Congress." There is little substantive difference
between this variant and the statutes previously noted because a
general reference to the availability of appropriations merely serves
to emphasize what the law requires anyway.
Another variant includes an authorization of appropriations. These
tend to be specific program statutes, and the authorization may
include restrictions as well as monetary authorizations. Examples are:
* 16 U.S.C. § 1246(e): authorizes land acquisition by the Departments
of Agriculture and the Interior to implement the National Trails
System Act. The authorization of appropriations is found in 16 U.S.C.
§ 1249.
* 16 U.S.C. § 1277(a): authorizes land acquisition by the Departments
of Agriculture and the Interior to implement the Wild and Scenic
Rivers Act. The authorization of appropriations is found in 16 U.S.C.
§ 1287. The provision is discussed generally in B-125035-0.M., May 21,
1979.
Once again, an actual acquisition requires an available appropriation,
in this case one made pursuant to the authorization.
Another form of legislative authority is a statute which authorizes
land acquisition and identifies the appropriation to be charged. An
example is 10 U.S.C. § 2663(d). The land acquisition needs of the
military departments are usually addressed in the annual National
Defense Authorization Acts. However, if land is needed in the interest
of national defense and to maintain the "operational integrity" of a
military installation, and the urgency of the situation does not
permit inclusion in the next authorization act, 10 U.S.C. § 2663(d)
authorizes military departments to use military construction
appropriations to acquire the land. The secretary of the military
department must notify the Senate and House Armed Services Committees
within 10 days following a determination to acquire land under this
section. 10 U.S.C. § 2263(d)(2). The military departments also have
authority to use appropriations available for maintenance or
construction to acquire any interest in land needed for national
defense purposes and which does not cost more than $750,000 or to an
interest in land costing not more than $1.5 million if necessary to
correct a deficiency that threatens life, health, or safety. 10 U.S.C.
§ 2663(c).
Another statute of this type is 16 U.S.C. § 555, which authorizes the
Secretary of Agriculture to purchase land for national forest
headquarters, ranger stations, and other sites required for authorized
activities of the Forest Service, up to a maximum of $50,000 a year,
chargeable not to a specifically named appropriation but to "the
appropriation applicable to the purpose for which the land is to be
used." Decisions applying this statute are 6 Comp. Gen. 437 (1927) (an
earlier version of the statute) and B-125390, Oct. 6, 1955.
If you have one of these statutes, the only other thing you need is a
sufficient amount of available funds in the appropriation to be
charged.
A final category we may note consists of statutes which are
essentially procedural and which GAO has viewed as not constituting
sufficient authority for the purchase of land. Under these, you still
need separate acquisition authority as well as an available
appropriation. Examples are:
* 10 U.S.C. § 2663(a) & (b): gives the military departments what
appears to be general condemnation and purchase authority. GAO's view
is that "this provision is procedural in nature and merely provides
the method whereby land may be acquired where there exists a separate
authorization to acquire and pay for such land," as well as an
available appropriation. B-115456, July 16, 1953, at 6.
* 10 U.S.C. § 9773: GAO reached the same conclusion in the same
decision with respect to this statute, which authorizes the Secretary
of the Air Force to determine sites for establishment and enlargement
of air bases, and to acquire fee simple title to any land deemed
necessary for this purpose.
* 40 U.S.C. § 581(c)(1): land acquisition by GSA. GAO's view of this
provision as merely procedural was based on legislative history and an
established congressional pattern of providing specifically for
acquisitions by GSA. Even if the provision were regarded as general
authority, acquisitions would still require available appropriations.
B-137755-0.M., Dec. 30, 1958.
It is apparent from our survey that Congress has used a variety of
approaches to satisfy the basic requirement of 41 U.S.C. § 14.
Typically, there is some form of authorization, general or specific,
which is then implemented, with few exceptions, through the normal
budget and appropriations process. The one constant is the need for an
available appropriation. See, e.g., 41 Comp. Gen. 796, 798 (1962); 38
Comp. Gen. 227, 229 (1958). Setting aside the question of whether such
a provision would be subject to a point of order, authorization and
appropriation could be combined in an appropriation act; that is, the
appropriation itself could be the source of the acquisition authority.
E.g., United States v. Mock, 476 F.2d 272, 274 (4th Cir. 1973); Poison
Logging Co. v. United States, 160 F.2d 712, 714 (9th Cir. 1947). The
appropriation does not have to specifically address the tract to be
acquired. A lump-sum appropriation, one of whose purposes is land
acquisition, will be sufficient if it can be demonstrated through
legislative history, budget submission materials, etc., that the lump-
sum is available for the specific acquisition in question. The case
most often cited for this proposition is United States v. Kennedy, 278
F.2d 121 (9th Cir. 1960). See also United States v. Right to Use and
Occupy 3.38 Acres of Land, 484 F.2d 1140 (4th Cir. 1973) (Army
research and development appropriation); Perati v. United States, 352
F.2d 788 (9th Cir. 1965), cert. denied, 383 U.S. 957 (1966) (National
Park Service); Seneca Nation of Indians v. Brucker, 262 F.2d 27 (D.C.
Cir. 1958), cert. denied, 360 U.S. 909 (1959) (Corps of Engineers
general construction appropriation); United States v. 0.37 Acres of
Land, 414 F. Supp. 470 (D. Mont. 1976) (Land and Water Conservation
Fund).
An appropriation which itself provides for "purchase of land as
authorized by law" will generally be ineffective without separate
statutory authorization. 19 Comp. Gen. 758 (1940). However, authority
sufficient to satisfy the basic requirement of 41 U.S.C. § 14, such as
a lump-sum appropriation demonstrably available for the specific
acquisition, will also satisfy the "authorized by law" language in the
appropriation act. 3.38 Acres, 484 F.2d at 1142-43; 0.37 Acres, 414 F.
Supp. at 471-72.
The terms of the legislation will define the extent of the agency's
acquisition authority. Naturally, the authority will be circumscribed
by any restrictions contained in the legislation. E.g., Maiatico v.
United States, 302 F.2d 880 (D.C. Cir. 1962).
Similarly, depending on those terms, the agency may or may not be
authorized to acquire less than fee title or fee title subject to
various reservations or covenants. It has been held that the simple
authority to purchase land does not include the authority to purchase
that land subject to reservations or covenants restricting the use of
the land (such as timber or mineral reservations) and which might
impede subsequent sale or disposition by the government. 10 Comp. Gen.
320 (1931); A-34970, Feb. 20, 1931; A-25156, Dec. 15, 1928. In
addition, the Attorney General will probably not approve the title.
See 6 Op. Off. Legal Counsel 431, 435-36 (1982); 3 Op. Off. Legal
Counsel 337, 339 (1979). Congress, of course, can authorize
acquisition subject to reservations. See, e.g., 15 Comp. Gen. 910
(1936). The authority to acquire "lands, easements and rights-of-way"
has been construed as such authority. 40 Op. Att'y Gen. 431 (1945).
There are also nonstatutory exceptions based largely on common sense.
Thus, where acquisition of land for a parkway would end up cutting a
farmer's land in half, there could be no objection to his reserving
the right to cross the parkway to get from one part of his farm to the
other. A-34970, May 15, 1931. In another case, where the land to be
acquired contained buildings which the government neither needed nor
wanted, there was no objection to reserving title to the buildings in
the vendor along with a requirement to remove them within a specified
time. 22 Comp. Gen. 165 (1942).
In any event, care must be taken in this regard because acceptance of
a deed subject to certain covenants may end up binding the government.
E.g., Mississippi State Highway Commission v. Cohn, 217 So. 2d 528
(Miss. 1969) (covenant to construct cattle underpass); B-210361, Aug.
30, 1983 (covenant to pay homeowners' association assessment).
[Footnote 28]
What the agency can or cannot do also depends on the scope of its
acquisition appropriations, which in turn depends on the rules of
statutory and appropriations law construction (purpose, time, and
amount). For example, construction of the Bonneville Dam by the Army
Corps of Engineers resulted in the flooding of certain Forest Service
facilities. While the Army had appropriations to acquire land
necessary for the Bonneville project, it could not use those funds to
purchase land on which to relocate the Forest Service facility since
those lands were not required for that project. 17 Comp. Gen. 791
(1938). The decision was based on two statutes: 31 U.S.C. § 1301(a),
which restricts appropriations to their intended purposes, and 41
U.S.C. § 14 itself, since "such purchase"—purchase of land for use by
another agency—had not been authorized. Similarly, the established
rules regarding the exclusivity of specific appropriations apply
equally to land acquisition appropriations. E.g., B-10122, July 28,
1950; B-10122, May 20, 1940.
c. Effect of Noncompliance:
It will be apparent by now that our discussion of 41 U.S.C. § 14 has
cited very few recent cases. The reason is that there are very few
recent cases. Most issues under the statute are pretty well settled,
and most agencies with significant land acquisition responsibilities
have worked out the necessary legislative framework with their
oversight committees. Perhaps at least in part because of this, there
is very little authority on the question of what happens if an agency
purchases or condemns land without having complied with 41 U.S.C. § 14.
One early case said that a purchase in contravention of 41 U.S.C. § 14
was void. United States v. Tichenor, 12 F. 415 (C.C.D. Ore. 1882).
Tichenor cited an 1865 opinion of the Attorney General, 11 Op. Att'y
Gen. 201 (which used the term "illegal," not "void"), and was in turn
cited by the Comptroller of the Treasury in 6 Comp. Dec. 791, 793
(1900).
A 1908 case, Burns v. United States, 160 F. 631 (2nd Cir. 1908),
concluded, without citing Tichenor, that 41 U.S.C. § 14 "should not be
construed to apply to executed contracts, and so the United States be
prevented from claiming that for which it has paid." Id. at 634.
Our research has disclosed no indication that the issue has ever been
addressed by the Comptroller General, by the Attorney General
subsequent to the 1865 opinion, or by any court subsequent to Burns.
[Footnote 29]
4. Title Considerations:
a. Title Approval:
When you as a private citizen bought your house, a major
consideration, and one which you probably took pretty much for
granted, was the assurance that the people you bought it from actually
owned it. Suppose they did not, or suppose there were "clouds" on the
title you did not know about, such as outstanding tax liens or
judgment liens. You could very well be stuck. You might have a
wonderful cause of action against the sellers, assuming you could
catch them and assuming they still had some money left. It should be
obvious that this is an unacceptable risk. If you financed your house
the way most of us do, with a mortgage, the bank did the worrying for
you. Banks do not like to take unacceptable risks, and most of them
are not about to lend you money unless they are reasonably sure their
investment is safe. This is why one of the things you paid for at
closing was title insurance.
These same considerations are there when the government buys real
estate. There is one important difference in that the government pays
directly; it does not take out mortgages. Nevertheless, the government
would indeed look stupid if it bought land from someone who did not
own it. More realistic possibilities are the acquisition of land which
could not be used for the desired purposes, or the incurring of
additional expenses to clear a defective title.
There is a statute designed to address this problem, 40 U.S.C. § 3111.
Section 3111(a) provides: "Public money may not be expended to
purchase land or any interest in land unless the Attorney General
gives prior written approval of the sufficiency of the title to the
land for the purpose for which the Federal Government is acquiring the
property." Section 3111(b)(1) authorizes the Attorney General to
delegate title approval responsibility to other departments and
agencies, to be exercised subject to the Attorney General's
supervision and in accordance with regulations prescribed by the
Attorney General. Section 3111(b)(2) provides that departments and
agencies with such delegated responsibility may request opinions and
other assistance from the Attorney General on title issues.
As with 41 U.S.C. § 14, the cases involving 40 U.S.C. § 3111 tend to
be older ones.[Footnote 30] There are few relevant GAO decisions from
recent decades, and the statute is hardly mentioned in the published
opinions of the Attorney General since 1940. This would tend to
suggest that the operation of the statute is reasonably well settled.
The purpose of 40 U.S.C. § 3111 is, quite simply, "to protect the
United States against the expenditure of money in the purchase or
improvement of land to which it acquired a doubtful or invalid title."
10 Op. Att'y Gen. 353, 354 (1862), quoted in 18 Comp. Gen. 727, 732
(1939). The statute assigns the responsibility to the Attorney
General.[Footnote 31] 40 U.S.C. § 3111(a). Thus, as far as the
"accounting officers" are concerned, the Attorney General's opinion on
the sufficiency of title under 40 U.S.C. § 3111 is conclusive. 3 Comp.
Dec. 195 (1896); B-78097, June 26, 1950. This would also be true with
respect to the validity of mortgage releases upon which the Attorney
General had conditioned his approval. 1 Comp. Dec. 348 (1895). For
this reason, GAO has relied heavily on the opinions of the Attorney
General when considering questions involving 40 U.S.C. § 3111.
Prior to 1970, the statute was worded in terms of the purchase of land
for the purpose of erecting public buildings. See 40 U.S.C. § 255
(1964). Thus, many early decisions centered around the use to which
the land was to be put. E.g., 9 Comp. Gen. 75 (1929). However, the
Attorney General, the Comptroller of the Treasury, and Comptroller
General liberally construed the statute to apply to acquisitions for
public works or public improvements of virtually any sort. Further,
the fact that the acquiring agency did not intend to erect anything on
the land was often viewed as irrelevant. See, e.g., 18 Comp. Gen. 727
(1939); 18 Comp. Gen. 372 (1938); 3 Comp. Dec. 530 (1897); B-80025,
Oct. 1, 1948; 39 Op. Att'y Gen. 73 (1937).
So broad was this construction that early cases often stated the
following general propositions:
* 40 U.S.C. § 3111 applies "to all land purchased by the United States
for whatever purpose." 9 Comp. Gen. 421, 422 (1930); 1 Comp. Gen. 625,
626 (1922). Both decisions cite 28 Op. Att'y Gen. 413 (1910). See also
28 Op. Att'y Gen. 463 (1910).
* 40 U.S.C. § 3111 "enters into, and forms part of every contract for
the purchase of land by the government. 9 Op. Att'y Gen. 100, 101
(1857), cited in 9 Comp. Gen. at 422 and 1 Comp. Gen. at 626.
A 1970 revision of the statute, Pub. L. No. 91-393, 84 Stat. 835
(Sept. 1, 1970), removed any doubt over the validity of these broad
statements. The statute now refers simply to the "purchase [of] land
or any interest in land." The current view therefore remains that 40
U.S.C. § 3111 applies in the absence of an express statutory
exception. 6 Op. Off. Legal Counsel 431 (1982); 3 Op. Off. Legal
Counsel 337 (1979).
As one might expect from the foregoing, 40 U.S.C. § 3111 has been
applied to a wide variety of situations. Examples are:
* Acquisitions under the Migratory Bird Conservation Act, 16 U.S.C. §§
715-715r. 40 Comp. Gen. 153 (1960); 16 Comp. Gen. 856 (1937); 39 Op.
Att'y Gen. 73 (1937).
* Land purchased for development into forest, grazing, and
recreational areas and wildlife conservation refuges. 15 Comp. Gen.
539 (1935).
* Land acquired for public parks. See Cole v. United States, 28 Ct.
Cl. 501, 511 (1893).
* Flowage easements acquired by the Corps of Engineers. B-139566, June
5, 1959.
* Acquisition of land or an interest in land by the Department of
Energy in order to develop, operate, or maintain the Strategic
Petroleum Reserve under the Energy Policy and Conservation Act, 42
U.S.C. § 6239. 3 Op. Off. Legal Counsel 337 (1979).
The statute has been held applicable to purchases for nominal
consideration,[Footnote 32] to acquisition by donation,[Footnote 33]
and to acquisition by exercise of a purchase option.[Footnote 34] One
situation in which 40 U.S.C. § 3111 has been found not applicable is
monetary contributions by the Department of Defense for common-use
North Atlantic Treaty Organization (NATO) facilities financed under
multilateral cost-sharing agreements. B-114107, Apr. 27, 1953.
A number of early decisions concluded that 40 U.S.C. § 3111 did not
apply where an agency had specific authority to acquire land by
purchase or condemnation. An example was the Reclamation Act of 1902,
43 U.S.C. § 421. The theory was that such authority gave the acquiring
agency discretion to either purchase or condemn, and incidentally to
determine whether title was sufficiently clear to warrant purchase
rather than condemnation. 10 Comp. Gen. 115 (1930); 5 Comp. Gen. 953
(1926); 12 Comp. Dec. 691 (1906); A-39589, Dec. 30, 1931. The theory
was discredited in 18 Comp. Gen. 727, 734-35 (1939) as not being "too
strongly supported by reason." In case anybody missed the point, GAO,
in agreement with the views of the Department of Justice, made it
clear the following year that the old theory would no longer be
applied. 19 Comp. Gen. 739 (1940). The reason, which we will cover
later in section B.5 of this chapter, is that, since 1888, every
agency with statutory authority to acquire land by purchase is also
authorized to resort to condemnation.[Footnote 35] Id. at 744.
Subsequently, the Attorney General determined specifically that
acquisitions under the Reclamation Act were subject to 40 U.S.C. §
3111. See B-80025, Oct. 1, 1948, for citations to and discussion of
Attorney General's letters relating to this subject.
Prior to the 1970 revision, 40 U.S.C. § 3111 included a provision
authorizing the Attorney General to waive the approval requirement
with regard to easements and rights-of-way upon determining that
waiver would not jeopardize the interests of the United States. See,
e.g., 21 Comp. Gen. 125 (1941). The 1970 revision dropped the waiver
provision. However, the statute still provides flexibility in that it
requires not that title be perfect in all instances, but that it be
sufficient for the purpose for which the property is being acquired.
[Footnote 36]
The process of obtaining title approval naturally takes time, and
until it is done, the statute prohibits payment of the purchase price.
This does not necessarily mean that payment must await the Attorney
General's final approval. For example, in 40 Comp. Gen. 153 (1960),
GAO agreed that payment could be made for purchases under the
Migratory Bird Conservation Act, 16 U.S.C. § 715-715r, based on a
"preliminary title opinion" in which the Attorney General stated that
valid title would vest in the United States when specified
requirements and objections had been met and a deed to the United
States recorded, provided that the requirements and objections
involved only routine questions of fact and not questions of law. Of
course, should a question arise as to whether a particular condition
had been properly satisfied, payment should await the Attorney
General's final approval. Somewhat similarly, GAO agreed in an earlier
case that payment could be made for purchases under the Reclamation
Act, 43 U.S.C. § 421, prior to receipt of the Attorney General's
formal opinion where the only objections disclosed by the title
examination were those that would be satisfied out of the purchase
price. B-80025, Oct. 1, 1948. It should go without saying that in both
of these cases the Justice Department had also agreed that the
proposals could be considered as being in compliance with 40 U.S.C. §
3111.
Congress in a few instances has provided exceptions from 40 U.S.C. §
3111. Section 3111(d) itself makes an exception for certain land
acquisitions by the Tennessee Valley Authority. Another example is 42
U.S.C. § 1502(b) relating to defense housing. Where 40 U.S.C. § 3111
does not apply, the acquiring agency should nevertheless determine, in
the exercise of sound discretion, that the title being acquired is
adequate to protect the interests of the government. Cf. 21 Comp. Gen.
125 (1941) (agency discretion under former waiver provision). To take
the obvious illustration, payment would never be justified to "persons
having no color of right, interest, or title in the land to convey."
Id. at 131.
Congress may also authorize the acquiring agency to commence its use
of the land prior to receipt of the Attorney General's approval. Such
a provision is not an exemption from the basic requirement of the
statute but merely a deviation from the otherwise applicable time
sequence. 6 Op. Off. Legal Counsel 431 (1982).
b. Title Evidence:
The traditional form of evidence upon which title opinions are based
is the "abstract of title." This is a rather cumbersome document which
summarizes each transaction and occurrence over a given time period
which may affect title to the property. At one time, real estate
lawyers spent much of their lives squirreled away in the local
registry of deeds, charged with the boring task of making title
searches. In the early decades of the twentieth century, free
enterprise came to the rescue of those poor, lost lawyers in the form
of title companies. Title companies employ professional abstracters to
prepare the abstract, on the basis of which the company issues a
"certificate of title" certifying that title is free and clear except
as shown on the certificate. Another development has been the growth
of title insurance. This is exactly what it sounds like—a policy
issued by an insurance company insuring against title defects.
In 1930, Congress amended the statute that is now 40 U.S.C. § 3111 to
authorize the Attorney General to accept certificates of title as
satisfactory title evidence.[Footnote 37] The statute was amended
again in 1940 to permit acceptance of any other evidence which the
Attorney General deems satisfactory.[Footnote 38] When the statute was
revised in 1970,[Footnote 39] the Justice Department reported that
more than 93 percent of titles it approved were based on title
certificates or title insurance. S. Rep. No. 91-1111, at 5 (1970).
Thus, although the abstract of title is still the document from which
other forms of title evidence spring, the typical government attorney
these days seldom sees one.[Footnote 40] The point to note is that
older cases, to the extent they mention only title abstracts, should
now be read to include other forms of title evidence that the Attorney
General deems acceptable.
Appropriations are available for other forms of title evidence to the
same extent as for title abstracts. A-39589, Jan. 29, 1932; A-39589,
Dec. 30, 1931.[Footnote 41] See also 14 Comp. Gen. 318 (1934).
c. Title Evidence Expenses:
(1) Purchase:
Section 3111(c) of title 40, United States Code, provides:
"Except where otherwise authorized by law or provided by contract, the
expenses of procuring certificates of title or other evidences of
title as the Attorney General may require may be paid out of the
appropriations for the acquisition of land or out of the
appropriations made for the contingencies of the acquiring department
or agency of the Government."
Actually, this provision reflects what the decisions have held for 150
years: expenses of procuring title evidence incident to the purchase
of real property are chargeable to the appropriation from which the
purchase price is to be paid.
When the predecessor of 40 U.S.C. § 3111 was originally enacted in
1841,[Footnote 42] it contained no mention of the use of land
acquisition funds. It contained only the reference to "contingency
appropriations," a type of appropriation common at the time.
Nevertheless, the Comptroller of the Treasury held that the cost of
procuring title evidence incident to purchase was chargeable to land
acquisition appropriations, and commented that this had been "the
established practice for many years—probably over fifty." 3 Comp. Dec.
216, 217 (1896).
The Comptroller went on to explain the statutory reference to
contingency appropriations. The 1841 enactment, the first general
requirement of its type, directed the Attorney General to examine the
titles not only to land to be purchased in the future, but also to
land which had already been purchased. With respect to previously
purchased land, the purchase appropriations for the most part would
have already lapsed. Thus, the reference to contingency appropriations
was intended to provide a source of funds for title expenses relating
to previously purchased land for which no other appropriations were
currently available. 3 Comp. Dec. at 217.
The reference in 40 U.S.C. § 3111 to land acquisition appropriations
was added in 1940.[Footnote 43] By then, the rule of 3 Comp. Dec. 216
had become established beyond dispute.[Footnote 44] Thus, the 1940
amendment formalized the existing case law, and the reference to
contingency appropriations should be viewed as obsolete. There has
been little need to discuss the rule since 1940 because, in addition
to the decisions, it now has a clear statutory basis. See 21 Comp.
Gen. 744 (1942); B-142862, June 21, 1960. The rule applies equally in
situations where 40 U.S.C. § 3111 does not apply. 25 Comp. Dec. 195
(1918).
Land acquisition appropriations are available exclusively. General
operating appropriations may not be used. A-33604, Oct. 11, 1930,
aff'd on reconsideration, A-33604, Nov. 14, 1930.
Several of the early decisions mention a statute enacted in 1889 which
required the seller to furnish title evidence, without expense to the
government, if the land was to be used as the site for a public
building. E.g., 8 Comp. Dec. 212 (1901). It was carried for many years
as part of 40 U.S.C. § 256. It was repealed in 1961. Pub. L. No. 87-
277, 75 Stat. 577 (Sept. 22, 1961).
(2) Donation:
Persons who donate land to the United States are often unwilling to
bear the expense of furnishing proof of their title. If the receiving
agency has an appropriation available for the purchase of land for the
same purpose as that for which the donation is being made, the cost of
title evidence is chargeable to that appropriation. A-97769, Sept. 20,
1938; A-47693, Mar. 31, 1933; A-26824, Apr. 25, 1929. If the agency
has no such appropriation available, the cost of title evidence may be
charged to the current Salaries and Expenses appropriation. A-47693,
Mar. 31, 1933.
We noted previously in our discussion of 41 U.S.C. § 14 that an agency
with authority to accept donations of both land and money may use
donated funds to purchase land if the funds were donated for the
general purpose for which the land is desired. 2 Comp. Gen. 198
(1922). As a logical extension of this principle, the funds are also
available for the procurement of necessary title evidence with respect
to donated land. A-26824, Apr. 25, 1929.
(3) Condemnation:
An early line of GAO decisions addressed the use of Justice Department
appropriations to pay the costs of condemnation proceedings. Although
the decisions have never been overruled or modified, legislative
developments have rendered them largely obsolete. Those early GAO
decisions held that the cost of obtaining title evidence for use in
condemnation proceedings is chargeable to appropriations of the
Department of Justice. E.g., 8 Comp. Gen. 308 (1928).[Footnote 45] In
fact, almost every decision discussing title evidence incident to
purchase points out that the rule for purchase does not apply in
condemnation situations. When those decisions were rendered, the
holding was viewed simply as an application of the general proposition
that the Justice Department receives appropriations to conduct its
litigation, and expenses necessarily incurred incident to that
litigation are chargeable to those appropriations.
There were exceptions even under the early decisions. Thus, land
acquisition appropriations of the acquiring agency were held available
for procuring title evidence incident to condemnation proceedings
where the governing legislation authorized the handling of
condemnation proceedings jointly by the Justice Department and the
acquiring agency (21 Comp. Gen. 744 (1942)); where 40 U.S.C. § 3111
was not applicable (25 Comp. Dec. 195 (1918)); where the title
evidence was to be used "primarily or in the first instance" to
attempt to negotiate a settlement without proceeding to judgment (22
Comp. Gen. 20 (1942)); and where the land acquisition appropriation
was expressly available for expenses incidental to the acquisition
(see B-55181, Feb. 15, 1946). Justice Department appropriations were
also held unavailable where the title evidence was needed for matters
subsequent to the final judgment of condemnation. 23 Comp. Dec. 53
(1916).
The provision that is now 40 U.S.C. § 3111(c), quoted above in
connection with purchase, was traditionally viewed as applicable to
purchase and not to condemnation, both before and after the 1940
amendment which added the reference to land acquisition funds,
notwithstanding that its language is broad enough to encompass
condemnation. 21 Comp. Gen. 744, 748 (1942); 23 Comp. Dec. 53, 56
(1916). Thus, while there was an apparent willingness to find
exceptions at the drop of a hat, the "general rule" remained that
title evidence for use in condemnation proceedings was an expense of
litigation chargeable to Justice Department funds.
Our research has disclosed no mention of this issue after 1960.
However, a subsequent legislative development appears to have changed
things. Earlier in this chapter, in section B.2, we reviewed federal
land acquisition policy under the Uniform Relocation Assistance and
Real Property Acquisition Policies Act of 1970, 42 U.S.C. §§ 4651-
4655. Under 42 U.S.C. § 4651(1), it is now the established federal
policy that agencies are to make every reasonable effort to acquire
real property by negotiation and purchase before resorting to
condemnation.
When an agency is budgeting for its land acquisition needs, it must
generally do so on the assumption that purchase negotiations will
succeed. In other words, it must be prepared to meet the expenses it
will have to bear incident to purchase. One of these, as we have seen,
is the cost of obtaining title evidence. In the typical situation
where an agency resorts to condemnation because purchase negotiations
did not succeed, it may be said that Congress has provided for title
evidence expenses to be borne by the agency's land acquisition funds.
In this situation, shifting the expense to the Justice Department
could be viewed as augmenting the acquiring agency's appropriation.
With no decisions for guidance, it is impossible to define with any
degree of certainty those situations in which the expenses might still
be a proper charge to Justice Department appropriations. Nevertheless,
the policy of the Uniform Relocation Act has largely eliminated any
basis for distinguishing between purchase and condemnation on this
particular issue, and it seems safe to conclude that, at least with
respect to acquisitions subject to the policy guidance of 42 U.S.C. §
4651, what was once the rule is now the exception.
5. Methods of Acquisition:
a. Purchase:
As we have seen, voluntary negotiation and purchase is the preferred
method of federal land acquisition.[Footnote 46] To do this, an agency
needs statutory authority (41 U.S.C. § 14), an available
appropriation, and title approval (40 U.S.C. § 3111). The transaction
itself follows the same steps as one between private parties—a
Purchase-and-Sale Agreement followed by a closing at which the deed is
delivered.
The Purchase-and-Sale Agreement, although certainly a contract, is not
governed by the Contract Disputes Act because the Contract Disputes
Act does not apply to "the procurement of ... real property in being."
41 U.S.C. § 602(a)(1). This exemption does not extend to newly created
lease agreements, which remain subject to the Contract Disputes Act.
Forman v. United States, 767 F.2d 875 (Fed. Cir. 1985); Industry
Associates, Inc. v. United States Postal Service, 133 F. Supp. 2d 194
(E.D.N.Y. 2001).
No law prohibits the government from purchasing property encumbered by
liens. 12 Comp. Dec. 691, 697 (1906); 10 Op. Att'y Gen. 353 (1862).
However, at or before closing, the liens must either be fully
satisfied or "adequate provision should be made therefor." Department
of Justice, Regulations of the Attorney General Promulgated in
Accordance With the Provisions of Public Law 91-393, § 6(a) (1970).
One way to "adequately provide" is to withhold an appropriate amount
from the purchase price. 10 Op. Att'y Gen. at 354-55.
A question applicable to government acquisitions as well as private
transactions is who bears the risk of loss if the property is damaged
or destroyed between the time the Purchase-and-Sale Agreement is
signed and the deed delivered, where the loss or damage is not the
fault of either party. This can result from such things as fire, soil
erosion, or various forms of natural disaster. It is impossible to
give a simple answer because the government's rights are determined by
the law of the state in which the property is located. See, e.g.,
Preseault v. Interstate Commerce Commission, 494 U.S. 1, 20 (1990)
(O'Connor, J., concurring); Foster v. United States, 607 F.2d 943, 948
(Ct. Cl. 1979); United States v. Fallbrook Public Utility District,
165 E Supp. 806, 822 (S.D. Cal. 1958).
Several states have adopted the Uniform Vendor and Purchaser Risk Act,
under which the party in possession bears the risk of loss, if title
has not yet passed from the seller to the buyer. E.g., Acree v.
Hanover Insurance Co., 561 F.2d 216, 219 (10th Cir. 1977) (Oklahoma);
Long v. Keller, 163 Cal. Rptr. 532 (Cal. Ct. App. 1980) (California).
In states which still apply the common law, the majority rule places
the risk of loss on the purchaser on the theory that "equitable title"
passes when the contract of sale is executed. E.g., Zitzelberger v.
Salvatore, 458 A.2d 1021 (Pa. Super. Ct. 1983) (Pennsylvania); Utah,
State Medical Ass'n v. Utah, State Employees Credit Union, 655 P.2d
643 (Utah S.Ct. 1982) (Utah); Ridenour v. France, 442 N.E.2d 716 (Ind.
App. 1982) (Indiana). Other states place the risk on the seller. E.g.,
Laurin v. DeCarolis Construction Co., 363 N.E.2d 675 (Mass. 1977)
(Massachusetts). In one GAO decision, the government had entered into
a contract to acquire an easement, in a state which followed the
majority rule, when erosion caused some of the land to cave into a
river. Since the risk of loss had passed to the government, the
government was liable under the contract. B-148823, July 24, 1962. In
any jurisdiction, the parties can control the issue by specifically
addressing it in the contract of sale.
Once the deed is recorded and legal title passes to the United States,
the government owns the property and must bear any risk of loss even
though it may not yet have taken possession or paid the purchase
price. 23 Comp. Gen. 323 (1943).
The same risk-of-loss rules apply where the government is the seller.
37 Comp. Gen. 700 (1958); 36 Comp. Gen. 90 (1956); B-148823, July 24,
1962; B-137673, Oct. 31, 1958.
It is presumed that the consideration specified in the deed is the
total agreed-upon purchase price. However, this presumption can be
overcome by "clear and convincing" evidence to the contrary, which may
entitle the seller to compensation greater than that specified in the
deed alone. 7 Comp. Gen. 107 (1927). See also 4 Comp. Gen. 21 (1924).
b. Involuntary Acquisition:
(1) Overview:
We saw earlier in this chapter that the power of eminent domain is
inherent in the United States. It has been termed "essential to a
sovereign government." United States v. Carmack, 329 U.S. 230, 236
(1946). See also Albert Hanson Lumber Co. v. United States, 261 U.S.
581, 587 (1923) (the power of eminent domain "is an attribute of
sovereignty"). The reason should be obvious. If the power did not
exist, private citizens could block urgent and necessary federal
projects by simply refusing to sell. Kohl v. United States, 91 U.S.
367, 371 (1875); Norwood v. Homey, 853 N.E.2d 1115, 1129-30 (Ohio
2006).
The power of eminent domain is vested in the legislative branch.
Congress may exercise it directly, or may delegate it to other federal
entities to be exercised in any manner that does not violate the
Constitution. E.g., Ferriera V. United States 2,953.15 Acres of Land
v. United States, 350 F.2d 356 (5th Cir. 1965).
A federal entity exercises the delegated power of eminent domain by
what is called "condemnation." There are two types of condemnation,
direct and inverse. In a direct condemnation the United States brings
a lawsuit, resulting in transfer to the United States of title to the
property and in payment of just compensation to the owner. United
States v. Clarke, 445 U.S. 253, 255 (1980). Direct condemnation is
accomplished either through a "complaint only" filing in a court or a
"declaration of taking" in a court, both discussed below in more
detail. In an inverse condemnation, the property owner brings a
lawsuit, asserting that some action by the government has sufficiently
infringed upon a private property right so as to create a right to
"just compensation." See, e.g., First English Evangelical Lutheran
Church of Glendale v. Los Angeles County, 482 U.S. 304 (1987); Pierce
v. Northeast Lake Washington Sewer and Water District, 870 P.2d 305
(Wash. 1994). It differs from direct condemnation in that the
government did not intend to take the property. The concepts and case
law for both types of condemnation are discussed below in greater
detail. Whichever form is used, condemnation always involves a court
proceeding. There is no such thing as administrative condemnation.
In all condemnation actions, either direct or inverse, cost
limitations in the authorizing legislation or appropriation do not
affect either the authority to condemn or the judicial determination
of just compensation. Hanson Lumber, 261 U.S. at 586-87; Shoemaker v.
United States, 147 U.S. 282, 302 (1893); United States v. Certain Real
Estate Lying on the South Side of Broad Street, 217 F.2d 920, 925 (6th
Cir. 1954).
If land taken by eminent domain is no longer needed, the former owner
stands in the same position as any other member of the public. There
is no automatic right of repurchase. B-165511, Mar. 21, 1978. Of
course, Congress can always provide such a right in a particular
context. Also, the deed conveying the property to the government may
specify a right of repurchase. Id.
(2) Legislative taking:
When Congress exercises the power of eminent domain directly, it is
called a "legislative taking." Congress can accomplish legislative
taking simply by enacting a statute which declares that title to the
property will vest in the United States as of a specified date,
usually the date of enactment. Kirby Forest Industries v. United
States, 467 U.S. 1, 5 (1984); Paulson v. City of San Diego, 475 F.3d
1047, 1048 (9th Cir. 2007). An example is the legislation establishing
the Redwood National Park, 16 U.S.C. §§ 79c, 79c-1. Another example is
the 1988 legislation which expanded the Manassas National Battlefield
Park, 16 U.S.C. § 429b(b). See also Preservation of Mt. Soledad
Veterans Memorial, Pub. L. No. 109-272, 120 Stat. 770 (Aug. 14, 2006)
(transferred title of the Memorial from San Diego, California, to the
United States).
In a legislative taking, since the actual taking is accomplished by
statute, the only thing for the court to do is determine the amount of
compensation. Court action remains necessary even in a legislative
taking because, in any Fifth Amendment taking situation, the
determination of just compensation is a judicial function. Monongahela
Navigation Co. v. United States, 148 U.S. 312, 327 (1893); 59 Comp.
Gen. 380 (1980).
The legislative taking device is infrequently used. With respect to
national parks, the Senate Committee on Interior and Insular Affairs
has stated a policy that "legislative taking is an extraordinary
measure which should be invoked only in those instances in which the
qualities which render an area suitable for national park status are
imminently threatened with destruction." S. Rep. No. 93-875, at 5
(1974), quoted in B-125035-0.M., Apr. 21, 1976, at 2.
This classic use of the term "legislative taking" involves the actual
acquisition of title by the United States. Courts have begun to use
the term in a somewhat broader sense, to describe situations in which
a statute, by its very enactment, deprives a private party of some
lesser interest. An example is Whitney Benefits, Inc. v. United
States, 926 F.2d 1169 (Fed. Cir.), cert. denied, 502 U.S. 952 (1991),
holding that the enactment of the Surface Mining Control and
Reclamation Act of 1977, by prohibiting certain surface mining,
effectively "took" the plaintiff's coal mining rights. When the
government activity does not constitute a physical taking of property
but instead limits the use a property owner may make of the property,
the basic analytical tool for determining whether a taking has
occurred is a three-part test focusing on:
* the character of the governmental action,
* the economic impact on the claimant, and,
* the extent to which the governmental action has interfered with
distinct investment-based expectations.
See Lingle v. Chevron U.S.A., Inc., 544 U.S. 528, 538-40 (2005); Tahoe-
Sierra Preservation Council, Inc. v. Tahoe Regional Planning Agency,
535 U.S. 302 (2002); Penn Central Transportation Co. v. City of New
York, 438 U.S. 104 (1978).
(3) Sources of authority:
Executive branch agencies may condemn property only if they have
statutory authority to do so. 41 U.S.C. § 14. A question that was once
open to some debate was whether an executive agency's statutory
authority to acquire land by purchase also granted the agency power to
condemn property, or whether the authorizing statute needed to
specifically grant authority to condemn. See, e.g., Kohl v. United
States, 91 U.S. 367, 374 (1875). To remove any doubt, Congress enacted
a statute in 1888,[Footnote 47] sometimes called the General
Condemnation Act of 1888 and now found at 40 U.S.C. § 3113,[Footnote
48] which authorizes any federal agency with authority to purchase
land to use condemnation also. It provides:
"An officer of the Federal Government authorized to acquire real
estate for the erection of a public building or for other public uses
may acquire the real estate for the Government by condemnation, under
judicial process, when the officer believes that it is necessary or
advantageous to the Government to do so ...."
Note that 40 U.S.C. § 3113 is not an independent grant of land
acquisition authority. That must exist elsewhere. If an agency has
statutory authority to purchase land, 40 U.S.C. § 3113 supplements it
and permits the agency to use condemnation. United States v. Carmack,
329 U.S. 230, 235 (1946); Albert Hanson Lumber Co. v. United States,
261 U.S. 581, 587 (1923). The constitutionality of 40 U.S.C. § 3113
has long been settled. Chappell v. United States, 160 U.S. 499 (1896).
The significance of 40 U.S.C. § 3113 is that it makes no difference
whether the legislation authorizing a particular acquisition says
"purchase or condemnation" or merely "purchase" or "acquire." If the
authorizing legislation does not specify condemnation, the authority
exists anyway by virtue of 40 U.S.C. § 3113. Of course, Congress is
always free to limit an acquisition statute to voluntary purchase, in
which event 40 U.S.C. § 3113 would be subordinated. United States v.
16.92 Acres of Land, 670 F.2d 1369, 1371-72 (7th Cir. 1982).
Some agencies have their own condemnation authority. Examples are 10
U.S.C. § 2663 (military departments), 33 U.S.C. §§ 591-594 (Secretary
of the Army for river and harbor improvements), and 43 U.S.C. § 421
(Secretary of the Interior under the Reclamation Act of 1902).
Although there is little case law, these statutes stand side-by-side
with 40 U.S.C. § 3113. Hence, an agency with overlapping statutes can
elect which one to proceed under in a given case. See Hanson Lumber,
261 U.S. at 585-86; In re Military Training Camp in Prince George
County, Virginia, 260 F. 986, 990-91 (E.D. Va. 1919); Chappell v.
United States, 81 F. 764, 766 (4th Cir. 1897); B-98346, Oct. 9, 1950.
(Hanson and B-98346 involve the river and harbor legislation; Chappell
and Training Camp involve the predecessor of what is now 10 U.S.C. §
2663.)
In sum, every federal agency which is authorized to acquire real
property is authorized to resort to condemnation. The authority may be
in the form of an agency-specific or program-specific grant of
condemnation authority, or it may be in the form of purchase
authority, with the condemnation authority derived from 40 U.S.C. §
3113.
(4) "Complaint only" condemnation:
The first way a federal agency can condemn property directly is by
filing a complaint initiating a court action. This is sometimes called
a "complaint only" or "straight" condemnation. A complaint only
condemnation is different from a Declaration of Taking Act proceeding,
described in the next section, in several essential respects: there is
no deposit of funds with the court to be used for compensation, no
immediate vesting of title, and no irrevocable commitment on the part
of the United States to pay the award.
The agency initiates a complaint only condemnation by filing a
complaint in the United States district court for the district where
the land is located. 28 U.S.C. §§ 1358, 1403. Procedures are contained
in Rule 71A of the Federal Rules of Civil Procedure,[Footnote 49] and
the United States is the plaintiff. The main purpose of the proceeding
is to determine the amount the government will have to pay if it
chooses to acquire the property. The government may abandon the
proceeding, and is under no obligation to take the land or pay the
award. The award amounts to an offer which the government may accept
by tendering payment. Of course, title does not pass unless and until
the compensation is paid. The proceeding also gives the landowner the
opportunity to contest the taking. Once the award is made, the
decision of whether or not to consummate the condemnation is solely in
the government's hands.[Footnote 50]
If the government abandons the proceeding or chooses not to consummate
the condemnation, it must nevertheless compensate the landowner for
any public use made of the property. E.g., United States v. 14,770.65
Acres of Land, 616 E Supp. 1235, 1251 (D. S.C. 1985).
It has been held that, in a complaint only proceeding under 40 U.S.C.
§ 3113, no officer of the United States has authority to consent to
the entry of a money judgment against the United States, and a
judgment purporting to obligate the government is "void and
unenforceable." Moody v. Wickard, 136 F.2d 801, 803 (D.C. Cir.), cert.
denied, 220 U.S. 775 (1943). This follows from principles of sovereign
immunity and the requirements of the appropriations clause. Thus,
under section 3113:
"an award in condemnation is [merely] an offer subject to acceptance
by the [United States]. The judgment entered is conditional only. The
Government gets no title until payment, ...and if the award is for
more than it is prepared to pay, the proceeding may be abandoned at
any time before payment and transfer of title."
Id. (citations omitted).
(5) Declaration of Taking Act:
The Declaration of Taking Act, enacted in 1931 and found at 40 U.S.C.
§§ 3114-3115,[Footnote 51] provides a procedure under which federal
agencies may condemn and get immediate title to property. The
proceeding begins in a manner identical to that for a "complaint only"
taking described in the previous section—that is, with the
government's filing of a complaint in the United States district court
for the district in which the land is located. To initiate a
Declaration of Taking Act condemnation, the government files with the
court a "declaration of taking" in addition to the original complaint.
The "declaration of taking" document may be filed simultaneously with
the original complaint, or the government may file such a declaration
at any time before judgment. The contents of the declaration are set
out in 40 U.S.C. § 3114(a). Along with the declaration, the acquiring
agency must deposit its estimated just compensation with the court.
Under this statute, once the declaration is filed and the deposit
made, two things happen: (1) title to the land, or lesser interest if
specified in the declaration, vests in the United States, that is, the
land is "taken"; and (2) the right to just compensation vests in the
former owner and the United States becomes irrevocably committed to
payment of the ultimate award. Id. § 3114(b).
The court may order the money on deposit paid over immediately or
during the course of the proceedings, on application of the parties in
interest. If the ultimate award exceeds the amount of the deposit, the
court enters a deficiency judgment against the United States. Id. §
3114(c). If the ultimate award is less than the amount paid over from
the deposit, the United States is entitled to recover the overpayment,
and a judgment to this effect may be entered in the same proceeding.
United States v. Miller, 317 U.S. 369, 380-82 (1943); Fed. R. Civ. P.
71A(j).[Footnote 52]
Once the declaration has been filed and the court deposit made, the
agency may proceed to demolish existing structures or erect new ones,
provided that the Attorney General is of the opinion that title has
vested in the United States or that all interested parties will be
bound by the final judgment. 40 U.S.C. § 3115(b). Also, once title
passes to the government, any rentals accruing from the property are
payable to the United States, not to the former owner. 15 Comp. Gen.
740 (1936).
The purposes of the Declaration of Taking Act are (1) to permit the
government to take immediate possession while simultaneously reducing
costs by avoiding liability for interest on the amount of the deposit,
and (2) to give the former owner with clear title immediate cash
compensation to the extent of the government's estimate. Miller, 317
U.S. at 381.
The Declaration of Taking Act is not an independent grant of
acquisition authority or condemnation authority. It merely provides
procedures which may be used where the acquiring agency already has
the requisite authority to acquire the land in the first place. United
States v. Dow, 357 U.S. 17, 23 (1958); Catlin v. United States, 324
U.S. 229, 240 (1945). The constitutionality of the statute has been
upheld. E.g., Travis v. United States, 287 F.2d 916 (Ct. Cl.), cert.
denied, 368 U.S. 824 (1961).
Apart from issues of just compensation, judicial review is limited to
determining that the taking is for a statutorily authorized purpose
and that it is for a public use. Catlin, 324 U.S. at 240-43; United
States v. Acquisition of 0.3114 Cuerdas, 753 F. Supp. 50, 53 (D. P.R.
1990). In performing this review, the courts will not "second-guess
governmental agencies on issues of necessity and expediency" but will
essentially look only at "the bare issue of whether the limits of
authority were exceeded." United States v. 162.20 Acres of Land, 639
F.2d 299, 303 (5th Cir.), cert. denied, 454 U.S. 828 (1981).
As a general proposition, when several tracts are being acquired in a
single proceeding, the deposit with the court should be allocated by
tract. United States v. 355.70 Acres of Land, 327 F.2d 630 (3rd Cir.
1964). The ultimate award may exceed the allocation for some parcels
but be below it for others. As long as the money came from the same
appropriation, the excess amounts may be used to pay the deficiencies.
19 Comp. Gen. 634 (1940). See also A-88947, Dec. 7, 1937.
As the preceding paragraph suggests, the treatment of money deposited
with the court but not needed for whatever reason for its original
purpose is governed by the usual rules applicable to the obligation
and availability of appropriated funds. Thus, for example, unused
funds could not be reobligated after expiration of the original period
of availability to acquire a tract not encompassed by the original
obligation. A-88947, Oct. 2, 1937.
An area which appears not to have been explored to any great extent is
the relationship of the Declaration of Taking Act to the
Antideficiency Act, 31 U.S.C. § 1341, which prohibits making
obligations or expenditures in excess or advance of appropriations. An
important provision in this connection is 40 U.S.C. § 3115(a):
"Action under section 3114 of this title irrevocably committing the
Federal Government to the payment of the ultimate award shall not be
taken unless the head of the executive department or agency or bureau
of the Government empowered to acquire the land believes that the
ultimate award probably will be within any limits Congress prescribes
on the price to be paid."
Just months after the Declaration of Taking Act was enacted, an agency
needed to acquire a piece of property and was authorized to do so by
purchase or condemnation, subject to a monetary cost ceiling. The
agency had obtained three appraisals, all of which were within the
cost ceiling. The property owner had demanded a price higher than the
appraisals and in excess of the statutory ceiling. The agency thought
the owner's asking price was excessive, and that a condemnation award
would be more in line with the appraisals and within the appropriation
limit. The agency asked GAO whether the Antideficiency Act would
preclude it from filing a declaration of taking, since there was no
guarantee that the ultimate court award would not exceed the
appropriation limit. Since the Declaration of Taking Act does not
require absolute certainty (indeed it could not since the judicial
determination is beyond the control of the acquiring agency), but
merely requires that the agency be of the opinion that the award will
"probably" be within applicable limits, the Comptroller General
advised that the agency could proceed with the condemnation. A-37316,
July 11, 1931. Thus, the mere fact that a final award exceeds an
applicable limit does not produce an Antideficiency Act violation, and
to this extent the Declaration of Taking Act may be said to authorize
the overobligation.[Footnote 53]
This, however, should not be taken to mean that an agency can act
indiscriminately. GAO and the Justice Department have both held that
40 U.S.C. § 3115(a) prohibits the initiation of Declaration of Taking
Act proceedings when the agency knows or believes that the award will
exceed an applicable ceiling.[Footnote 54] 57 Comp. Gen. 591 (1978); 2
Op. Off. Legal Counsel 96 (1978). While the specific limitation
involved in these two cases no longer exists, the basic point remains
valid. Accordingly, while we have found no cases precisely on point,
it does not seem unreasonable to suggest that compliance with 40
U.S.C. § 3115(a), as was clearly the case in the 1931 decision, A-
37316, discussed above, is an important factor in evaluating
compliance with the Antideficiency Act. In other words, compliance
with section 3115(a) should insulate an agency against Antideficiency
Act violations, whereas an agency which violates section 3115(a)
should not be so insulated.
This in turn leads to the question of what constitutes compliance with
40 U.S.C. § 3115(a), and this too is not always clear. Courts have
generally been unwilling to impose a good faith test on the amount of
the agency's deposit. United States v. Cobb, 328 F.2d 115 (9th Cir.
1964); In re United States of America, 257 F.2d 844 (5th Cir.), cert.
denied, 358 U.S. 908 (1958). One court has gone so far as to suggest
that 40 U.S.C. § 3115(a) is satisfied by virtue of the acquiring
agency's request to the Attorney General to initiate condemnation
proceedings. United States v. 40.75 Acres of Land, 76 E Supp. 239, 245-
46 (N.D. Ill. 1948). However, the courts are not unanimous. The Second
Circuit has assumed that it can act when the government's estimate is
made in bad faith. United States v. 44.00 Acres of Land, 234 F.2d 410,
415 (2nd Cir.), cert. denied, 352 U.S. 916 (1956). The Fourth Circuit
was "puzzled" by the actions of an agency in depositing one dollar as
its estimate of just compensation after offering $180,000 to purchase
the land, but resolved the case without having to address the good
faith issue. United States v. 45.33 Acres of Land, 266 F.2d 741 (4th
Cir. 1959).
Condemnation "extinguishes all interests in a piece of property and
vests absolute title in the government." Schoellkopf v. United States,
11 CL Ct. 447, 450 (1987) (emphasis omitted). The United States
acquires title "free from all liens or claims whatsoever." United
States v. 150.29 Acres of Land, 135 F.2d 878, 880 (7th Cir. 1943).
Previous interests "are obliterated." United States v. 25.936 Acres of
Land, 153 F.2d 277, 279 (3rd Cir. 1946). This applies alike to
outstanding mortgages (Schoellkopf), tax liens (150.29 Acres, 25.936
Acres), and judgment liens (10 Comp. Dec. 852 (1904)). While some
jurisdictions may give the creditor a right of action against the
former property owner (see Schoellkopf, 11 Cl. Ct. at 450), the
general rule is that the funds deposited with the court take the place
of the property itself and any liens attach to the funds and not to
the property. E.g., 150.29 Acres, 135 F.2d at 880; United States v.
17,380 Square Feet of Land, 678 E Supp. 443, 445 (S.D. N.Y. 1988);
United States v. Certain Property, 225 E Supp. 498, 504 (S.D. N.Y.
1963). Even where there is no declaration of taking, the recommended
procedure if outstanding liens are known is to either make payment to
the registry of the court or require the owner to satisfy the liens.
11 Comp. Gen. 498 (A-42973, June 28, 1932).
In view of the necessity for a judicial determination, there should be
little, if any, occasion to consider administrative claims in
connection with a Declaration of Taking Act condemnation. An exception
occurred in B-79080, Oct. 12, 1948, allowing a claim for the value of
structures which had been removed prior to, and were not included in,
the judicial award of just compensation. As a general proposition,
however, there is no basis to administratively consider a claim which
could have been raised before the court but was not. E.g., B-107841,
Apr. 18, 1952.[Footnote 55]
It should be apparent that whether to use a declaration of taking or a
complaint only procedure depends on two main factors: the urgency of
the government's need for possession and the availability of funds. In
view of the nature of the proceeding, the insufficiency of funds is
not a bar to initiating a complaint only condemnation. A-5473, Nov.
22, 1924. However, the status of funding is not wholly irrelevant. The
United States does not have an infinite amount of time to respond to
the award. In order not to erode the concept of just compensation, the
United States must act within a reasonable time or risk dismissal of
the proceeding. Miller v. United States, 57 F.2d 424 (D.C. Cir. 1932).
In the case cited, the proceeding was dismissed where there was no
available appropriation at the time of the award and, a year later, no
appropriation had been made nor was a bill pending.
(6) Inverse condemnation:
The term "inverse condemnation" (sometimes called "reverse
condemnation") encompasses a variety of situations with only one thing
in common: they involve government acts, other than an affirmative act
of eminent domain, which the courts view as takings of some interest
in private property for which just compensation is payable under the
Fifth Amendment. The Supreme Court has called it "a shorthand
description of the manner in which a landowner recovers just
compensation for a taking of his property when condemnation
proceedings have not been instituted." United States v. Clarke, 445
U.S. 253, 257 (1980).
The Court of Federal Claims has used the following definition:
"Inverse condemnation, therefore, 'is a legal label for effective
expropriation of private property, the sovereign acting indirectly
without benefit of formal eminent domain proceedings in condemnation;
thus, sovereign acts incompatible with an owner's present enjoyment of
his property rights.'" Schultz v. United States, 5 CL Ct. 412, 415
(1984), quoting Wilfong v. United States, 480 F.2d 1326, 1327 n.2 (Ct.
Cl. 1973). The concept is thus an umbrella which covers a wide variety
of situations ranging from the actual physical seizure of property to
various lesser forms of "invasion."
Inverse condemnation claims are based on the Fifth Amendment. Thus,
the jurisdiction of the courts derives from the Tucker Act, under
which claims not exceeding $10,000 may be brought either in the
district courts or in the Court of Federal Claims, while claims in
excess of $10,000 must be brought in the Court of Federal Claims. 28
U.S.C. §§ 1346(a)(2), 1491.
At one time, it was commonplace to say that the United States may
exercise its power of eminent domain in either of two ways—by
instituting formal condemnation proceedings or by simply taking
physical possession with the owner having a remedy under the Tucker
Act. E.g., United States v. Dow, 357 U.S. 17, 21 (1958). As the
Supreme Court noted in Kirby Forest Industries v. United States, 467
U.S. 1, 5 (1984), this is still true in the sense that land
acquisition by inverse condemnation remains within the power of the
United States, and the parties end up in the same place either way.
However, it has been federal policy since enactment of the Uniform
Relocation Act, 42 U.S.C. §§ 4601-4655, that formal condemnation
proceedings should be instituted if a voluntary purchase cannot be
negotiated, and that an agency should never intentionally force a
property owner to bring an inverse condemnation suit.' 42 U.S.C. §
4651(8). If agencies pay due regard to this established policy,
inverse condemnation cases involving the intentional acquisition of
title should largely disappear, and situations like the one described
in Althaus v. United States, 7 Cl. Ct. 688 (1985), should no longer
happen.[Footnote 57]
In view of this, while one still encounters the statement that private
property can be taken by inverse condemnation, it is more likely to be
found in the context of some form of regulatory taking. E.g.,
Palazzolo v. Rhode Island, 533 U.S. 606, 615 (2001). In this
connection, Executive Order No. 12630, Governmental Actions and
Interference With Constitutionally Protected Property Rights, Mar. 15,
1988, instructs executive agencies to carefully evaluate their
activities to prevent unnecessary takings. See generally GAO,
Regulatory Takings: Implementation of Executive Order on Government
Actions Affecting Private Property Use, GAO-03-1015 (Washington, D.C.:
Sept. 19, 2003).
6. Obligation of Appropriations for Land Acquisition:
a. Voluntary Purchase:
As we have noted, the typical transaction follows the same path as one
between private parties. The government enters into a purchase
contract with the seller, which is later followed by the execution of
a deed. When a formal purchase contract is used, the obligation occurs
when the contract is executed. 17 Comp. Gen. 664, 668 (1938); A-76119,
July 3, 1936; A-59458, Jan. 15, 1935. GAO stated the principle as
follows: "Ordinarily, a contract for the purchase of real property to
supply an existing need executed in good faith prior to the expiration
date of an appropriation is considered sufficient to obligate the
appropriation ..." A-59458, at 2. Since we are dealing with a
contract, the obligation is recorded under 31 U.S.C. § 1501(a)(1).
If there is no formal purchase contract, the obligation occurs when
the deed is executed. 17 Comp. Gen. at 668; 4 Comp. Gen. 371 (1924); A-
76119, July 3, 1936.
Where a purchase option is involved, and the government accepts the
option in accordance with its terms and within the option period,
assuming it has not been sooner revoked, the obligation occurs upon
acceptance of the option. 17 Comp. Gen. at 668. The reason is that
acceptance of the option in these circumstances constitutes a
contract. 56 Comp. Gen. 351, 352 (1977); A-76119, July 3, 1936; A-
59458, Jan. 15, 1935.
Once the money is properly obligated, as with any other obligation, it
remains available to liquidate the obligation until the account is
closed. Thus, in 56 Comp. Gen. 351, GAO advised that there was nothing
objectionable in a proposal to spread payment out over 4 years, as
long as the full amount of the purchase price was obligated in the
year the purchase agreement was executed.[Footnote 58]
b. Condemnation:
A long line of decisions has established that, in a condemnation case,
the obligation occurs when the acquiring agency makes the request to
the Attorney General to institute the condemnation proceedings. E.g.,
34 Comp. Gen. 418, 423 (1955); 34 Comp. Gen. 67, 68 (1954); 17 Comp.
Gen. 664, 668 (1938); 17 Comp. Gen. 631, 632 (1938); 17 Comp. Gen.
111, 113 (1937).[Footnote 59] The fact that the Attorney General may
not actually initiate the proceedings until the following fiscal year
is irrelevant. The reason is that an appropriation can be obligated
only by the agency to which it was made. E.g., 4 Comp. Gen. 206, 207
(1924).
Where the land acquisition appropriation is available for "expenses
incidental" to the acquisition, the obligation for the condemnation
award may be viewed as also encompassing necessary expenses incident
to the condemnation proceeding, even where the expense is not actually
incurred until the following fiscal year. B-55181, Feb. 15, 1946
(title evidence); A-88353, June 18, 1938 (technical studies, etc.).
The exercise of a purchase option followed by condemnation complicates
the picture. This can happen, for example, if the seller's title turns
out to be defective and must be cleared through condemnation. In this
situation, the agency may retain the original obligation, recorded
when the purchase option was accepted, or it may deobligate and record
a new obligation when the request for condemnation is made. If the
agency retains the original obligation and the condemnation award
exceeds the available appropriation, the excess may be charged to
appropriations current when the condemnation proceedings were
requested. 17 Comp. Gen. 664. This decision was "amplified" by 19
Comp. Gen. 944 (1940), to emphasize that the administrative choice is
not absolute. The agency has the election outlined in 17 Comp. Gen.
664 only where "the condemnation proceedings reasonably may be viewed
as a continuation of, and incident to, the land acquisition
transaction initiated by the option acceptance." 19 Comp. Gen. at 947.
In making this determination, the lapse of time between option
acceptance and the condemnation request is relevant but not
conclusive.[Footnote 60] Id. at 947-48. Although there are no
decisions, it would seem rather obvious that the principle of these
two decisions should apply equally where the original obligation is a
formal purchase contract rather than an option acceptance.
The preceding paragraph is best illustrated by a hypothetical example.
Suppose an agency has $1,000,000 in fiscal year 2007 money to acquire
a piece of property. Before the end of fiscal year 2007, the agency
exercises an option or enters into a formal purchase contract for
$1,000,000, and records the obligation against its fiscal year 2007
appropriation. In fiscal year 2008, the agency discovers that the
seller's title is defective and promptly asks the Attorney General to
initiate condemnation. At this point, the agency has a choice. It may
retain the original obligation, or it may deobligate the fiscal year
2007 money and record a new obligation against its fiscal year 2008
land acquisition appropriation (assuming it has one). If the agency
retains the 2007 obligation and the condemnation award turns out to be
$1,200,000, it may charge the $200,000 deficiency to its 2008 funds.
The basic rule for obligating in condemnation cases-—that the
obligation occurs when the Attorney General is asked to initiate the
proceedings—-clearly applies when a declaration of taking is used. 34
Comp. Gen. at 423; 34 Comp. Gen. 67. Indeed, the statutory basis for
recording obligations in this context-31 U.S.C. § 1501(a)(6),
liability resulting from pending litigation—-was intended to address
precisely this situation. 35 Comp. Gen. 185, 187 (1955). The rule also
clearly applies where an agency is operating under condemnation
authority, such as 33 U.S.C. § 594 (Army Corps of Engineers), which
authorizes the taking of immediate possession contingent upon the
malting of adequate provision for the payment of just compensation.
See 1 Comp. Gen. 735 (1922).
In a "complaint only" condemnation, however, the obligational aspects
are different. To be sure, an agency whose acquisitions are funded by
fiscal year appropriations may well find itself in a bind. In many
cases, the agency will already have received appropriations for the
acquisition, and they may expire if they cannot be obligated until
after the award is determined.[Footnote 61] E.g., United States v.
Oregon Railway & Navigation Co., 16 E 524, 530 (C.C.D. Ore. 1883)
(recognizing that funds previously appropriated for the acquisition in
question may already have lapsed). Be that as it may, while we have
found no decision which directly addresses the distinction between
declaration of taking and complaint only condemnation for obligational
purposes, it seems apparent, consistent with the theory underlying 31
U.S.C. § 1501(a), that a recordable obligation in a complaint only
condemnation does not arise until the government tenders payment
because the United States is not obligated to pay the award.
7. Expenses Incident to Real Property Acquisition:
a. Expenses Incident to Title Transfer:
Various expenses in addition to the purchase price arise in connection
with the acquisition of real property. We have previously discussed
one in section B.4.c of this chapter—the cost of procuring evidence of
title. The Uniform Relocation Assistance and Real Property Acquisition
Policies Act, 42 U.S.C. §§ 4601-4655, provides for several others.
Section 303 of the Act, 42 U.S.C. § 4653, directs acquiring agencies
to reimburse property owners, "to the extent the head of such agency
deems fair and reasonable," for certain expenses which are
"necessarily incurred."
Subsection (1) of 42 U.S.C. § 4653 provides that one category of
expenses is "recording fees, transfer taxes, and similar expenses
incidental to conveying such real property to the United States."
Recording fees had long been recognized as an authorized expense,
chargeable to the appropriation from which the purchase price is paid.
A-33604, Oct. 11, 1930. A state tax on gain from the sale of property,
in the nature of a capital gains tax, is not reimbursable, either as a
"transfer tax" or as a "similar expense." Collins v. United States,
946 F.2d 864 (Fed. Cir. 1991).
Section 4653(2) authorizes "penalty costs for prepayment of any
preexisting recorded mortgage entered into in good faith encumbering
such real property." This assumes an actual prepayment of a mortgage
which provides a prepayment penalty. It does not apply to expenses
incident to a "renegotiation" entered into as an alternative to
prepaying a low-interest loan. Schoellkopf v. United States, 11 Cl.
Ct. 447 (1987).
Section 4653(3) authorizes the payment of "the pro rata portion of
real property taxes paid which are allocable to a period subsequent to
the date of vesting title in the United States, or the effective date
of possession of such real property by the United States, whichever is
the earlier."
As a general proposition, land owned by the United States is exempt
from state and local property taxes. Van Brocklin v. Tennessee, 117
U.S. 151 (1886). The inclusion of subsection (3) in 42 U.S.C. § 4653
evolved from the way most jurisdictions assess property taxes.
Commonly, the process begins on a specified date, with a lien
attaching as of that date, even though the precise amount of the
assessment has not yet been determined. Thus, when the United States
purchases real property, there may already be a tax lien covering some
period beyond the date of title transfer.
In United States v. Alabama, 313 U.S. 274 (1941), the Supreme Court
held that the lien could not be enforced against the United States,
but that it nevertheless remained valid. The result was that the
United States did not have clear title, a problem if the land was
later to be sold. The Comptroller General held in a series of
decisions, both before and after Alabama, that (1) the question of
whether to discharge a prior lien in order to obtain a more marketable
title was within the discretion of the acquiring agency, and (2) if
the agency determined that discharge of the lien by payment of the
taxes would further the purpose for which the land was acquired, the
land acquisition appropriation was available. See 19 Comp. Gen. 768
(1940); B-108401, Apr. 7, 1952; B-46548, Jan. 26, 1945; B-21817, Feb.
12, 1942.
The governmentwide regulations issued by the Department of
Transportation instruct agencies, whenever feasible, to pay the items
listed in 42 U.S.C. § 4653 directly rather than having the owner pay
and then seek reimbursement. 49 C.F.R. § 24.106(b).
Taxes attributable to time periods prior to title transfer are the
responsibility of the former owner, not the government. GAO, however,
has approved a consensual arrangement whereby, in order to qualify the
deed for recording, the acquiring agency would pay the outstanding
taxes directly, deduct the amount paid from the purchase price, and
then pay the balance to the seller. 10 Comp. Gen. 92 (1930). GAO has
also approved outright payment of the taxes in a few situations where
payment by the former owner was not a realistic option. 15 Comp. Gen.
179 (1935) (property, mortgaged to government to secure a loan,
obtained by foreclosure); 6 Comp. Gen. 587 (1927) (property purchased
at execution sale to satisfy judgment against former owner); B-65104,
May 19, 1947 (donated property).
b. Expenses Incident to Litigation:
(1) Attorney's fees:
Attorney's fees and expenses are not viewed as an element of just
compensation. E.g., Dohany v. Rogers, 281 U.S. 362 (1930). Thus,
attorney's fees and expenses are recoverable from the United States in
condemnation cases only to the extent authorized by statute.
Compensation is "a matter of legislative grace rather than
constitutional command." United States v. Bodcaw Co., 440 U.S. 202,
204 (1979). Currently, two statutes authorize fee recovery in
condemnation cases in specified situations—section 304 of the Uniform
Relocation Act, 42 U.S.C. § 4654, and the Equal Access to Justice Act,
28 U.S.C. § 2412(d).
Under 42 U.S.C. § 4654(a), a property owner can recover reasonable
costs actually incurred in condemnation proceedings, including
reasonable attorney, appraisal, and engineering fees, in two
situations: (1) if the final judgment is that the federal agency
cannot acquire the real property by condemnation (for example, if the
court finds the condemnation unauthorized), or (2) if the United
States abandons the proceedings. Awards made under 42 U.S.C. § 4654(a)
are paid from the appropriations of the acquiring agency. 42 U.S.C. §
4654(b).
Under 42 U.S.C. § 4654(c), the successful plaintiff in an inverse
condemnation suit, whether by judgment or settlement, can recover the
same types of fees and expenses as under section 4654(a). Awards under
section 4654(c) are generally payable from the permanent judgment
appropriation (31 U.S.C. § 1304). The standards the Court of Federal
Claims applies in making awards under section 4654(c) are discussed in
Foster v. United States, 3 CL Ct. 738 (1983), aff'd, 746 F.2d 1491
(Fed. Cir. 1984), cert. denied, 471 U.S. 1053 (1985). The court has
been critical of section 4654(c)'s potential for excessive and
disproportionate awards, suggesting that another look by Congress
might be in order. Cloverport Sand & Gravel Co. v. United States, 10
Cl. Ct. 121, 127 (1986).[Footnote 62]
Subsections (a) and (c) of 42 U.S.C. § 4654 are distinct attorney fee
authorizations that do not overlap. Thus, property owners who
prevailed on an inverse condemnation claim were entitled to attorney
fees under subsection (c); however, this entitlement did not extend to
attorney fees they incurred in an earlier unsuccessful attempt to
challenge the validity of the taking. See Preseault v. United States,
52 Fed. Cl. 667 (2002). Had they won their initial challenge,
presumably the attorney fees for that action would have been
recoverable under subsection (a). Another distinction between the two
subsections is that subsection (a) applies only to real property while
subsection (c) applies to personal property as well as real property.
Pete v. United States, 569 F.2d 565 (Ct. Cl. 1978).
Fees and expenses under 42 U.S.C. § 4654 are not available in the case
of a legislative taking since the taking of the property must have
been done by a federal agency which is defined in the Uniform
Relocation Assistance Act as "any department, agency, or
instrumentality in the executive branch of the Government." 42 U.S.C.
§ 4601. See Rocca v. United States, 500 F.2d 492 (Ct. Cl. 1974);
Georgia-Pacific Corp. v. United States, 640 F.2d 328, 367 (Ct. Cl.
1980); Miller v. United States, 620 F.2d 812, 840-41 (Ct. Cl. 1980);
Hedstrom Lumber Co. v. United States, 7 Cl. Ct. 16, 34 (1984).
[Footnote 63]
In direct condemnation cases where the United States gets the land,
section 4654 does not apply, but fees may be awarded in certain cases
under the Equal Access to Justice Act, 28 U.S.C. § 2412(d). For a
landowner to be entitled to fees and expenses under 28 U.S.C. §
2412(d), the following tests must be met:
* The landowner must meet the eligibility criteria of 28 U.S.C. §
2412(d)(2)(B), one of which is that the individual's net worth did not
exceed $2 million at the time the action was filed. See Broaddus v.
United States Army Corps of Engineers, 380 F.3d 162 (4th Cir. 2004).
* The landowner must be the prevailing party. The term "prevailing
party" has a special definition for eminent domain cases—the party
whose valuation testimony in court is closer to the amount of the
ultimate award. 28 U.S.C. § 2412(d)(2)(H).
* The court must find that the position of the United States was not
substantially justified. 28 U.S.C. § 2412(d)(1)(A).
* The case must proceed to final judgment. Settlements are expressly
excluded. 28 U.S.C. § 2412(d)(2)(H).
Awards under 28 U.S.C. § 2412(d) are paid from the appropriations of
the acquiring agency. 28 U.S.C. § 2412(d)(4).
(2) Litigation expenses:
Litigation expenses are those expenses incurred by the United States
(as opposed to expenses incurred by the opposing party which may be
assessed against the United States) in preparing and conducting
litigation, such as expenses of witnesses, court fees, process serving
expenses, document printing and reproduction expenses, cost of
transcripts, etc. The general rule is that litigation expenses are
chargeable to the agency conducting the litigation, which is usually
the Department of Justice.
The rule applies equally to litigation relating to real property
acquisition, such as condemnation proceedings[Footnote 64] and actions
to quiet title.[Footnote 65] Where litigation expenses are chargeable
to Justice Department appropriations under this rule, appropriations
of the acquiring agency are not available. As noted earlier in this
chapter, the rule no longer applies to the expenses of obtaining title
evidence.
The fees and expenses of expert witnesses in land condemnation cases
appointed by the court under Rule 706 of the Federal Rules of
Evidence,[Footnote 66] are regarded as litigation expenses payable by
the Justice Department, or by the agency conducting the litigation
where Justice is not involved. 58 Comp. Gen. 259 (1979). See also 59
Comp. Gen. 313 (1980); 1 Op. Off. Legal Counsel 175 (1977); 1 Op. Off.
Legal Counsel 168 (1977).
Under Rule 71A(h) of the Federal Rules of Civil Procedure,[Footnote
67] the court in a condemnation case may direct that the issue of just
compensation be determined by a panel of land commissioners. If the
proceeding is recorded, attendance fees of the court reporter (see 28
U.S.C. § 753) are not litigation expenses but are payable by the
Administrative Office of the United States Courts from judiciary
appropriations. 55 Comp. Gen. 1172 (1976). The cost of transcripts
furnished to the court or to the land commissioners is considered
covered by the reporter's salary or, for contract reporters, is
determined under the provisions of the governing contract. Id.
C. Relocation Assistance:
1. Uniform Relocation Act: Introduction and Overview:
In government usage, the term "relocation assistance" can mean two
different things—(1) allowances payable to federal employees incident
to change of duty station, or (2) assistance to persons forced to
relocate as a result of federal or federally financed programs or
projects. Our concern here is the second type.
When private property is taken by eminent domain, hardship often
follows. Neighborhoods may be disassembled; businesses may be forced
to close. At an absolute minimum, individuals and businesses may be
uprooted against their will. The "just compensation" mandated by the
Fifth Amendment often does not and cannot provide adequate redress.
For example, a tenant renting a house or apartment from month to month
would most likely get nothing except an eviction notice.
While relatively few government agencies conduct or finance programs
which produce significant displacements, the consequences of these
activities by those which do are widespread. In fiscal year 1972, for
example, a GAO study found that programs administered by the Federal
Highway Administration, the Department of Housing and Urban
Development, and the Army Corps of Engineers (which together accounted
for 99 percent of federal and federally funded displacements for that
year) resulted in the relocation of approximately 119,000 people. GAO,
Differences in Administration of the Uniform Relocation Assistance and
Real Property Acquisition Policies Act of 1970, B-148044 (Washington,
D.C.: June 7, 1973), at 6.
Congress has long recognized that the federal government has a major
responsibility in the treatment of those displaced by federal programs
or federal dollars. Prior to 1970, it approached the problem piecemeal
by including relocation assistance provisions in a number of different
program statutes. Although this was better than nothing, treatment
under the various provisions was far from uniform. Uniformity is
important because, from the perspective of the person or business
being uprooted, it makes very little difference which federal agency
or program is on the administering end of the boot.
In early 1971, after a decade of study, Congress enacted an important
piece of legislation with an awkward but descriptive title: the
Uniform Relocation Assistance and Real Property Acquisition Policies
Act of 1970 (Uniform Relocation Act or URA), Pub. L. No. 91-646, 84
Stat. 1894 (Jan. 2, 1971). The law was amended substantially by the
Uniform Relocation Act Amendments of 1987, Pub. L. No. 100-17, title
IV, 101 Stat. 132, 246 (Apr. 2, 1987), which went into effect in April
1989.
The URA consists of three titles. Title I (42 U.S.C. §§ 4601-4605) is
entitled "General Provisions." Section 101, 42 U.S.C. § 4601, defines
a number of terms used in the act. Several of the more important ones—
"displaced person," "comparable replacement dwelling," "federal
financial assistance"—will be discussed in detail later. Title III (42
U.S.C. §§ 46514655), consisting primarily of federal real property
acquisition policy and the authorization for the payment of various
expenses, has been covered previously in section B.2 of this chapter.
Title II (42 U.S.C. §§ 4621-4638) is entitled "Uniform Relocation
Assistance."[Footnote 68] It starts with section 201, 42 U.S.C. §
4621, which sets forth congressional findings and establishes the
underlying policy and purpose of the legislation. Section 4621(b)
provides:
"This [title] establishes a uniform policy for the fair and equitable
treatment of persons displaced as a direct result of programs or
projects undertaken by a Federal agency or with Federal financial
assistance. The primary purpose of this [title] is to ensure that such
persons shall not suffer disproportionate injuries as a result of
programs and projects designed for the benefit of the public as a
whole and to minimize the hardship of displacement on such persons."
The stated intent is to provide equal treatment for persons similarly
situated, while also taking into account their "unique circumstances."
42 U.S.C. § 4621(c)(2).
The remainder of Title II consists of the operational provisions,
which outline the types of assistance authorized. The key "benefit
provisions" are:
* section 202 (42 U.S.C. § 4622)—moving and related expenses,
* sections 203 and 204 (42 U.S.C. §§ 4623 and 4624)—replacement
housing for homeowners and tenants, respectively,
* section 205 (42 U.S.C. § 4625)—relocation planning, assistance
coordination, and advisory services, and,
* section 206 (42 U.S.C. § 4626)—housing replacement by federal agency
as "last resort."
Section 210, 42 U.S.C. § 4630, extends the provisions of 42 U.S.C. §§
46224625 (but not 4626) to any nonfederal entity (state, local,
private) operating with federal financial assistance. Section 216, 42
U.S.C. § 4636, provides that Title II payments are not to be
considered income for purposes of federal income taxation or for
determining eligibility for assistance under the Social Security Act
or any other federal law except low-income housing assistance.
The original law focused on displacements resulting from eminent
domain acquisitions Experience showed that, if the goal was to help
displaced individuals, families, and businesses, this was too narrow.
The 1987 amendments broadened the scope to embrace virtually all
federal or federally assisted acquisitions, as well as certain
nonacquisition displacements.
A significant weakness of the 1970 law was its failure to provide for
centralized administration. Initially, the President assigned the role
of providing some centralized guidance and coordination to the Office
of Management and Budget, transferring this role to the General
Services Administration in 1973, subject to OMB's policy oversight
Nevertheless, since no single agency had the legal authority to
centrally direct and oversee governmentwide relocation procedures,
each agency was free to develop its own regulations, and the
uniformity which the 1970 legislation sought was not achieved.
[Footnote 69] In 1985, the President assigned lead responsibility to
the Department of Transportation. However, there was still no legal
basis for Transportation to regulate the other agencies so, the
following year, the executive branch turned to a "common rule" (set of
regulations published verbatim by 17 different agencies in 17
different places in the Code of Federal Regulations). 51 Fed. Reg.
7000 (Feb. 27, 1986). Congress came to the rescue in the 1987
amendments by statutorily designating Transportation as "lead agency"
(42 U.S.C. § 4601(12)) and by enacting a new 42 U.S.C. § 4633
directing Transportation to issue uniform implementing regulations.
Those regulations are found at 49 C.F.R. part 24. Within
Transportation, the responsibility is assigned to the Federal Highway
Administration. 49 C.F.R. § 24.2(a)(16).
2. The Threshold Determination: Meaning of "Displaced Person":
Section 101(6) of the Uniform Relocation Act (URA), 42 U.S.C. §
4601(6), defines "displaced person." This is the threshold test that
must be met before applying any of the operational provisions. In
other words, before you can determine whether you are entitled to
moving expenses or replacement housing benefits, you must first
qualify as a displaced person under the statutory definition. Of
course you must be a "person" before you can be a displaced person, so
the statute first defines person to mean "any individual, partnership,
corporation, or association." 42 U.S.C. § 4601(5).
Section 4601(6) then defines displaced person as "any person who moves
from real property, or moves his personal property from real property"
in two types of situations. First is "as a direct result of a written
notice of intent to acquire or the acquisition of such real property
in whole or in part for a program or project undertaken by a Federal
agency or with Federal financial assistance." The second type of
situation is permanent displacement of a person who is a residential
tenant, operates a small business or a farm, or erects and maintains
outdoor advertising billboards, "as a direct result of rehabilitation,
demolition, or such other displacing activity as the lead agency may
prescribe, under a program or project undertaken by a Federal agency
or with Federal financial assistance." The original 1970 definition
was limited to acquisitions, essentially the first part of the current
definition. The 1987 amendments added the nonacquisition activities.
Note that there are several elements to the definition. First, you
must either move from real property or move personal property from
real property. Second, the move must result directly from a written
notice of intent to acquire, or the actual acquisition of, the real
property, or from an authorized nonacquisition activity. Third, the
displacing activity must be in connection with a program or project
undertaken, or financially assisted by, a federal agency. All of these
elements must be present. See also 49 C.F.R. § 24.2(a)(9).
When the displacing activity is acquisition, this typically will mean
the acquisition of fee simple title, that is, outright ownership.
Routine leasing transactions are not included. Thus, where a building
is leased to the government in an open market transaction without
condemnation or the threat of condemnation, tenants whose leases are
not renewed or whose tenancies are terminated by their landlord are
not displaced persons for purposes of the URA. 54 Comp. Gen. 841
(1975). Restated, an open-market lease is not an "acquisition" within
the scope of 42 U.S.C. § 4601(6).
Similarly, if acquisition generally contemplates transfer of title,
then the acquisition of easements normally will not produce displaced
persons. See, e.g., 58 Comp. Gen. 559 (1979).
Although a lease is normally not an acquisition for purposes of the
URA, a lease-construction transaction may be. The legislative history
of the 1970 enactment makes it clear that persons displaced by
government lease-construction projects are intended to be covered.
H.R. Rep. No. 91-1656, at 4-5 (1970).[Footnote 70] The concept is
illustrated in 51 Comp. Gen. 660 (1972). The General Services
Administration had signed an agreement to lease a building to be
constructed on a tract of land in Alexandria, Virginia. The land had
been used as a trailer park. Shortly after the agreement was signed,
the owner of the land notified the tenants to vacate. It was held that
the transaction amounted to a government lease-construction project
for URA purposes, and that tenants who vacated after the agreement was
signed qualified as displaced persons. The decision was discussed and
explained further in B-173882, June 8, 1972. However, tenants who had
moved from the trailer park before the agreement was signed could not
qualify. 54 Comp. Gen. 819 (1975). They were not displaced by a
written order to vacate,[Footnote 71] nor were they displaced "as a
result of the acquisition" of the property. URA benefits are not
available to "persons who vacate property in the mere anticipation or
expectation that there may be an acquisition by the United States."
Id. at 822.
Section 4601(6) refers to acquisition "in whole or in part." The court
in Beaird-Poulan v. Department of Highways, 441 E Supp. 866 (W.D. La.
1977), affd per curiam, 616 F.2d 255 (5th Cir.), cert. denied, 449
U.S. 971 (1980), found that this referred to spatial divisions rather
than components of ownership. The state highway department had taken a
portion of a tract of land owned by Beaird-Poulan, a chain saw
manufacturer. The taking severed the property into two roughly equal
tracts. Although no part of the existing manufacturing facility was
located on the lands actually taken, the company was able to establish
that it had previously made management decisions to substantially
expand its physical plant due to increased production needs, but that
it was now forced to relocate in order to do so, as a result of the
taking. In these circumstances, the court held that BeairdPoulan was a
displaced person.
Under the statutory definition, when acquisition is the displacing
activity, displacement must result from either the actual acquisition
of the property or a written notice of intent to acquire. If
displacement occurs as a result of a written notice of intent to
acquire, failure to ultimately acquire the real property will not
defeat the entitlement to benefits, as long as the notice was
generated by a proposed acquisition. See Alexander v. Department of
Housing & Urban Development, 441 U.S. 39, 59 (1979); H.R. Rep. No.
911656, at 4.[Footnote 72]
The acquisition or notice must be for a federal or federally funded
program or project. In Alexander, the Supreme Court held that, when
the Department of Housing and Urban Development (HUD) acquires
property upon default on federally insured loans, tenants displaced by
the acquisition are not displaced persons within the meaning of 42
U.S.C. § 4601(6). Random default acquisitions are not intended to
further a federal program or project. Alexander, 441 U.S. at 63 and
65. Similar lower court decisions are Caramico v. Secretary of Housing
and Urban Development, 509 F.2d 694 (2nd Cir. 1974), and Blount v.
Harris, 593 F.2d 336 (8th Cir. 1979). As the Caramico court pointed
out, default acquisitions represent the failure of the program rather
than its desired result. Caramico, 509 F.2d at 699. The URA, noted the
court, "contemplates normal government acquisitions, which are the
result of conscious decisions to build a highway here or a housing
project or hospital there." Id. at 698.
As noted previously, persons who move without a written notice of
intent to acquire and prior to actual acquisition, based on a mere
expectation of acquisition, will not qualify as displaced persons. 54
Comp. Gen. 819 (1975). A case malting essentially the same point is
Messer v. Virgin Islands Urban Renewal Board, 623 F.2d 303 (3rd Cir.
1980). However, there are situations in which a move without a written
notice and prior to actual acquisition will qualify. In a 1975
decision, for example, GAO concluded that a person who moves after the
government has made a firm purchase offer may be said to have moved
"as a result of the acquisition" of the property if the acquisition is
subsequently completed by purchase or condemnation. 55 Comp. Gen. 595
(1975). Once the offer is made, there is more of a commitment by the
United States to acquire the property. The decision pointed out,
however, that the mere authorization and appropriation of funds for
the acquisition is not sufficient "commitment" by the United States to
justify a move under section 4601(6). Id. at 596-97. See also Lowell
v. Secretary of Housing and Urban Development, 446 E Supp. 859 (N.D.
Cal. 1977) (agency regulation excluding from eligibility persons who
moved prior to execution of federal contract or federal approval of
project budget upheld). The Department of Transportation (DOT)
regulations recognize the concept of 55 Comp. Gen. 595 by including in
the definition of displaced person one who moves as a direct result of
the initiation of negotiations for acquisition of the property. 49
C.F.R. § 24.2(a)(9)(i)(A). The regulations generally define initiation
of negotiations to mean delivery of the agency's initial written
offer. 49 C.F.R. § 24.2(a)(15)(i).
The case of Lathan v. Volpe, 455 F.2d 1111 (9th Cir. 1971),
illustrates a different type of acquisition. DOT had provided by
regulation for "hardship acquisitions" in highway projects. Under this
procedure, once the state had selected a corridor, a property owner
could request immediate purchase of his property by the state upon a
showing that undue hardship would result from following the standard
procedure of deferring acquisition until after federal approval of the
design Applying the agency's regulations, the court viewed the
hardship sale as an acquisition for purposes of 42 U.S.C. § 4601(6),
notwithstanding that the government had not yet committed itself to
the project.
Under the original 1970 legislation, a long line of cases established
that the displacement must be by a governmental entity (federal,
state, or local); a person displaced by a nongovernmental entity
(private party) was not a displaced person and therefore not entitled
to URA benefits, even though the program or project was federally
funded. E.g., Conway v. Harris, 586 F.2d 1137 (7th Cir. 1978); Moorer
v. Department of Housing & Urban Development, 561 F.2d 175 (8th Cir.
1977), cert. denied, 436 U.S. 919 (1978). The 1987 amendments changed
the focus of the inquiry by adding the nonacquisition activities and
by expanding the definition of displacing agency (42 U.S.C. §
4601(11)) to include anyone carrying out a program or project with
federal financial assistance, regardless of the presence or absence of
the power of eminent domain. Thus, for acquisition-based
displacements, the key question is no longer the identity of the party
acquiring the property, but whether it received federal financial
assistance.
In assessing the continued validity of cases decided under the pre-
1987 law, it is therefore necessary to apply the revised definitions
and the appropriate version of the DOT regulations. Conway, for
example, had found the URA inapplicable to residential tenants
displaced from property acquired by a private party who intended to
rehabilitate the property with Department of Housing & Urban
Development (HUD) "section 8" financial assistance. Under the revised
law, the acquisition itself still would not qualify as a displacing
activity because it was privately funded. However, since
rehabilitation is one of the authorized nonacquisition activities that
can trigger entitlement to benefits, the Conway plaintiff would
presumably now be covered. Other cases in this category include Isham
v. Pierce, 694 F.2d 1196 (9th Cir. 1982) (tenant displaced by private
owner for rehabilitation to be financed by loan from HUD), and Devines
v. Maier, 665 F.2d 138 (7th Cir. 1981), cert. denied, 469 U.S. 836
(1984) (tenants evicted from housing found to be unfit for human
habitation under federally assisted housing code enforcement program).
It is significant that the plaintiffs in the three cases cited in the
preceding paragraph were tenants, not owners. The conference report on
the 1987 amendments stressed that the expanded definitions are not
intended to confer benefits on an owner who voluntarily sells in a
noncoercive sale. In contrast, the tenant who is involuntarily evicted
as a result of that sale is covered. H.R. Conf. Rep. No. 100-27, at
246 (1987).
Two cases which appear to remain valid under the revised analysis are
Austin v. Andrus, 638 F.2d 113 (9th Cir. 1981), and Parlane Sportswear
Company, Inc. v. Weinberger, 381 E Supp. 410 (D. Mass. 1974), aff'd,
513 F.2d 835 (1St Cir.), cert. denied, 423 U.S. 925 (1975). Austin
denied the claim of members of the Navajo Indian tribe who were forced
to relocate when the tribe leased to a coal mining company mining
rights on a portion of the reservation. In the Parlane case, Tufts
University owned a building in Boston and had leased several floors to
a clothing manufacturer. Upon expiration of the lease, Tufts evicted
its tenant in order to establish a Cancer Research Center funded by
grants from the then Department of Health, Education, and Welfare. The
clothing manufacturer was held not entitled to URA benefits. Even
under the new analysis, there was neither an acquisition by anyone nor
an authorized nonacquisition activity. As another court put it in a
somewhat different context, there will always be some losses, and the
URA is intended as a supplement, not a guarantee.
Pietroniro v. Borough of Oceanport, 764 F.2d 976, 980 (3rd Cir.),
cert. denied, 474 U.S. 1020 (1985).
The Comptroller General considered an unusual variation in B-213033,
Aug. 7, 1984. A private organization proposed to purchase some land
and then donate it to the Veterans Administration to be used for the
expansion of a VA cemetery. The organization would clear the land of
all structures prior to transfer of title. The question was whether
existing property owners and tenants would be entitled to claim
relocation benefits from the VA. Based on the URA's legislative
history and available precedents, GAO said yes, concluding that the
transaction could be viewed as an acquisition of property for a
federal program.
Thus far, we have been talking about being displaced from the actual
property that is being acquired, rehabilitated, etc. The statute
recognizes situations in which the property from which you move and
the property which is being acquired or rehabilitated do not have to
be the same. Under the statutory definition of displaced person, a
person can qualify for two of the URA benefits—moving expenses and
advisory service—if that person moves from real property, or moves his
personal property from real property, as a direct result of the
federal or federally funded acquisition of, or authorized
nonacquisition activity on, some other real property on which that
person conducts a business or farm operation. 42 U.S.C. §
4601(6)(A)(ii). An example from the 1970 legislative history is "the
acquisition of right-of-way for a highway improvement in a remote
locality [which] may include a general store and gas station, but
exclude the operator's nearby dwelling or storage facility." H.R. Rep.
No. 91-1656, at 5 (1970). Another example is Forman's Dairy Palm
Nursery v. Florida Department of Transportation, 608 So. 2d 76 (Fla.
Dist. Ct. App. 1992) (land used by tree nursery reclaimed by owner as
result of taking for highway construction).
Finally, what about absentee landlords? If the absentee landlord has
personal property to be moved from the acquired or otherwise affected
real property, then he would be covered under the plain terms of 42
U.S.C. § 4601(6). However, the statute does not specify how much
personal property there has to be. Thus, an absentee landlord who had
left a garden rake on the acquired premises would presumably qualify.
This being the case, GAO thought it inequitable to deny benefits to an
absentee landlord who did not have some minimal amount of personal
property to move, and found in B-148044, Mar. 5, 1975, that the
nonresident owner of an apartment building could be considered a
displaced person even with no personal property located on the
acquired real property. A state court reached a seemingly opposite
conclusion in City of Mishawaka v. Knights of Columbus Home
Association, 396 N.E.2d 948 (Ind. Ct. App. 1979). DOT regulations also
seem to contemplate that there be some personal property to move for a
nonoccupant to qualify as a displaced person. The basic definition of
displaced person in the regulations covers only those who move
themselves or those who move personal property from the real property.
49 C.F.R. § 24.2(a)(9)(i).
3. Types and Payment of Benefits:
a. Moving and Related Expenses:
Section 202 of the Uniform Relocation Act (URA), 42 U.S.C. § 4622,
authorizes the payment of moving and certain related expenses
"whenever a program or project to be undertaken by a displacing agency
will result in the displacement of any person." The types of benefits
vary according to whether the displacement is residential or
commercial.
(1) Residential displacements:
A person displaced from a dwelling is entitled to receive "actual
reasonable expenses" incurred in moving self, family, and personal
property. 42 U.S.C. § 4622(a)(1). The types of expenses allowable are
further spelled out in 49 C.F.R. § 24.301. Alternatively, the person
may elect to receive a fixed "expense and dislocation allowance." 42
U.S.C. § 4622(b). The 1970 legislation prescribed the actual amounts
payable. The 1987 amendment deleted the specific amounts, providing
instead for the amount to be determined according to a schedule
established by the Department of Transportation (DOT). Id. DOT
regulations provide for the allowance to be determined "according to
the Fixed Residential Moving Cost Schedule approved by the Federal
Highway Administration and published in the Federal Register on a
periodic basis." 49 C.F.R. § 24.302. The Federal Highway
Administration derives its schedule from data submitted by the various
state highway agencies and, as noted, publishes the schedule as a
Notice in the Federal Register. The Federal Highway Administration
also publishes the schedule on its Web site at [hyperlink,
http://www.fhwa.dot.gov/realestate/fixsch96.htm] (last visited Mar.
25, 2008). The current online version is dated June 15, 2005.
Neither the statute nor the DOT regulations specifically address
persons who move themselves rather than hire commercial movers, but
there is no reason they should be excluded. The self-mover presumably
has the same election as anyone else.
A person who moves onto the property after its acquisition for a
project is not eligible for benefits. 49 C.F.R. § 24.2(a)(9)(ii)(B); B-
148044, Jan. 7, 1974. The reason is that the person cannot be said to
have been displaced as the result of the acquisition. An agency
regulation to this effect was upheld in Lewis v. Brinegar, 372 E Supp.
424 (WD. Mo. 1974). However, a regulation purporting to disqualify
persons who began occupancy after the initiation of negotiations was
invalidated as exceeding statutory authority in Tullock v. State
Highway Commission, 507 F.2d 712 (8th Cir. 1974).
(2) Commercial displacements:
A person displaced from a place of business or farm also has a choice.
Under 42 U.S.C. § 4622(a), the displaced person can receive moving
expenses including (1) actual reasonable moving expenses, (2) actual
direct losses of tangible personal property, (3) actual reasonable
expenses in searching for a replacement business or farm,[Footnote 73]
and (4) actual reasonable expenses, not to exceed $10,000, in
reestablishing a farm, small business, or nonprofit organization. The
specific items allowable are spelled out in 49 C.F.R. §§ 24.301
through 24.305. Payment for losses of personal property is authorized
even where the property is not relocated or the business is
discontinued, not to exceed the cost of actual relocation. 42 U.S.C. §
4622(a)(2). As the legislative history points out, there may be
situations where the property is not suitable at the new location, or
where moving it would be impractical or uneconomical. H.R. Rep. No. 91-
1656, at 6-7 (1970).
Alternatively, the person may elect to receive a fixed payment under
42 U.S.C. § 4622(c), determined in accordance with the Department of
Transportation regulations, of not less than $1,000 nor more than
$20,000. In order for a business to receive a fixed payment under
section 4622(c) of the statute, the agency must determine, among other
things, that:
* the business cannot be relocated without a substantial loss of its
existing patronage;
* the business is not part of a commercial enterprise having at least
three other entities not being acquired which are under the same
ownership and engaged in the same or similar business; and;
* the business contributed materially to the displaced person's income
during the two taxable years prior to displacement.
49 C.F.R. § 24.305(a). The various administrative determinations are
designed to keep the program from becoming a giveaway, and the courts
will generally uphold an agency's decisions under them as long as they
are not arbitrary or capricious. In Starke v. Secretary of Housing and
Urban Development, 454 F. Supp. 477 (W.D. Okla. 1977), for example,
the court upheld the denial of relocation benefits to a lawyer who had
moved his office to a location only three blocks from his former
office and in fact closer to the courthouses in which he practiced.
The fixed payment will be equal to the average annual net earnings of
the business or farm, calculated as prescribed in 49 C.F.R. §
24.305(e), subject to the statutory maximum and minimum. For a
nonprofit, the payment is based on "the average of 2 years annual
gross revenues less administrative expenses." 49 C.F.R. § 24.305(d).
(The net earnings formula, as with some of the administrative
determinations, used to be specified in the statute; the detail was
dropped from the statute in 1987 and is now carried in the
regulations.) The rental of real property is included in the
definition of "business" in 42 U.S.C. § 4601(7) and, prior to the 1987
amendments, could qualify for a fixed payment under 42 U.S.C. §
4622(c) as long as the required determinations could be made. B-
148044, Nov. 18, 1975. While the amendments did not affect this
portion of 42 U.S.C. § 4601(7), they added language to 42 U.S.C. §
4622(c) to expressly disqualify persons "whose sole business at the
displacement dwelling is the rental of such property to others." The
disqualification applies only to the fixed payment option and does not
affect entitlement to actual expenses under 42 U.S.C. § 4622(a).
A displaced owner-occupant of a multifamily dwelling who receives
income from the dwelling is displaced both from his dwelling and from
his place of business for purposes of section 4622, and can receive
appropriate benefits in both capacities (H.R. Rep. No. 91-1656, at 8),
subject to the fixed payment disqualification described above if
applicable.
We have previously noted that an absentee landlord may be considered a
displaced person. Naturally, if he does not move, he cannot claim
actual moving expenses, but he could claim other authorized expenses
as and to the extent applicable. See B-148044, Mar. 5, 1975. (The
landlord in that case was the absentee owner of an apartment building
and would no longer be eligible for the fixed payment option, but the
general proposition remains valid.)
b. Replacement Housing Benefits:
In addition to the moving expenses authorized by 42 U.S.C. § 4622, the
Uniform Relocation Act (URA) authorizes monetary payments to help
displaced persons obtain adequate replacement housing. These
replacement housing benefits are contained in 42 U.S.C. §§ 4623 and
4624, applicable to homeowners and tenants, respectively. As with the
moving expense payments, replacement housing benefits are available
only to those who qualify as displaced persons, and are in addition to
any "fair market value" payments received under the eminent domain
authority.
(1) Homeowners:
Under 42 U.S.C. § 4623(a)(1), a person displaced from a dwelling which
he owned and occupied for at least 180 days prior to the initiation of
negotiations for acquisition of the property is eligible for a
supplemental payment of up to $22,500. The payment consists of the
following elements:
* The difference, if any, between the acquisition cost (the eminent
domain "fair market value" payment) and the reasonable cost of a
comparable replacement dwelling. 42 U.S.C. § 4623(a)(1)(A).
* An "interest differential" if the cost of new financing exceeds the
interest rate on the homeowner's existing mortgage. To qualify for
this payment, there must have been a valid mortgage on the acquired
property for at least 180 days prior to the initiation of acquisition
negotiations. 42 U.S.C. § 4623(a)(1)(B). The regulations provide
guidance on computing the differential. See 49 C.F.R. § 24.401(d) and
appendix A to 49 C.F.R. part 24, at § 24.401.
* Reasonable expenses for evidence of title, recording fees, and other
closing costs (but not including prepaid expenses) incident to
purchase of the replacement dwelling. 42 U.S.C. § 4623(a)(1)(C).
Where displacement is based on an authorized nonacquisition activity,
"initiation of negotiations" means the notice to the person that he or
she will be displaced or, if there is no such notice, the date the
person actually moves from the property 49 C.F.R. § 24.2(a)(15)(ii).
In order to qualify for payment under section 4623(a)(1), the
displaced person must purchase and occupy a replacement dwelling
within 1 year from the date he received the final payment for
acquisition, or the date the agency provided referrals to replacement
housing, whichever is later. 42 U.S.C. § 4623(a)(2). The agency can
extend the 1-year deadline for good cause. Id. Good cause generally
means some event beyond the displaced person's control, such as acute
or life threatening illness, bad weather preventing the completion of
construction, or physical modifications required for reasonable
accommodation of a replacement dwelling. See 49 C.F.R. § 24.401(a)(2),
app. A.
Section 4623 is based on the premise that "a displaced homeowner
should not be left worse off economically than he was before
displacement, and should be able to relocate in a comparable dwelling
which is decent, safe and sanitary, and adequate to accommodate him."
H.R. Rep. No. 91-1656, at 8 (1970). An acquired dwelling is owned if
the displaced person held fee title, a life estate, a land contract, a
99-year lease, a lease including extension options with at least 50
years to run from the date of acquisition, or an interest in a
cooperative housing project which includes the right to occupy a
dwelling. 49 C.F.R. § 24.2(a)(20)(i).
The cost of a comparable replacement dwelling establishes the upper
limit of the benefit payment. 49 C.F.R. § 24.403(a). See also B-203827-
0.M., Oct. 8, 1981 (same point under prior version of regulations). To
promote uniformity, the law defines "comparable replacement dwelling"
as a dwelling that is:
"(A) decent, safe, and sanitary; (B) adequate in size to accommodate
the occupants; (C) within the financial means of the displaced person;
(D) functionally equivalent; (E) in an area not subject to
unreasonable adverse environmental conditions; and (F) in a location
generally not less desirable than the location of the displaced
person's dwelling with respect to public utilities, facilities,
services, and the displaced person's place of employment."
42 U.S.C. § 4601(10).
The "decent, safe, and sanitary" standard is defined in 49 C.F.R. §
24.2(a)(8). Guidance on applying the "functionally equivalent"
standard may be found in the conference report to the 1987 amendments,
which added the definition. H.R. Conf. Rep. No. 100-27, at 247-48
(1987).
In order to qualify for the "interest differential," it is not
necessary that the displaced person be required to obtain a mortgage
on the replacement house, only that he in fact do so. In a Louisiana
case, a person displaced from his dwelling for highway construction
received enough from the eminent domain payment so that he could have
paid cash for his replacement house. Instead, he chose to obtain a
mortgage on the replacement house at an interest rate higher than that
on his old mortgage. The court found that 42 U.S.C. § 4623 does not
restrict eligibility to cases where there is not enough cash left over
after the taking with which to purchase a replacement dwelling. The
homeowner in this case was therefore entitled to an interest
differential payment, subject of course to the statutory ceiling.
Louisiana Department of Highways v. Coleman, 444 E Supp. 151 (M.D. La.
1978).
The regulations recognize a "constructive occupancy" concept (49
C.F.R. § 24.403(d)), and the courts have strongly encouraged it. One
court has gone so far as to suggest that the "fair and equitable
treatment mandate" of the URA requires application of a constructive
occupancy exception in appropriate cases. Nagi v. United States, 751
F.2d 826, 830 (6th Cir. 1985). An illustrative case is Ledesma v.
Urban Renewal Agency, 432 E Supp. 564 (S.D. Tex. 1977). The Ledesmas
had built a house in their hometown of Edinburg, Texas, but Mr.
Ledesma could not find sufficient work in Edinburg to enable them to
pay for the house. They moved to a nearby town where Mr. Ledesma found
work and rented a house. They always intended to return to the
Edinburg house as soon as they could afford to do so. They retained
sole control of the Edinburg house, left their furniture and household
goods there, and permitted no one else to live or even stay briefly in
that house. The court found that the Ledesmas owned the house for the
requisite 180-day period but, due to circumstances beyond their
control, did not physically occupy it during that period. Under these
facts, the court found them entitled to a replacement housing payment.
The constructive occupancy concept is an attempt to "mitigate what
might possibly be harsh and unfair results if the 180-day requirement
were blindly or mechanically imposed." Id. at 567.
In Seeherman v. Lynn, 404 E Supp. 1318 (M.D. Pa. 1975), the Department
of Housing and Urban Development had applied a constructive occupancy
exception in order to authorize the payment of replacement housing
benefits to homeowners who did not physically occupy their homes
immediately prior to acquisition because they had been displaced by a
flood. The court upheld the refusal to apply the same exception to a
husband and wife who had been building a house at the time of the
flood but were not "displaced" from it because they had never occupied
it in the first place. Id. at 1322.
(2) Tenants and "90-day homeowners:"
In enacting the Uniform Relocation Act (URA), Congress recognized that
the lack of adequate and affordable rental housing for displaced lower
income individuals and families "presents the most difficult of all
relocation problems." H.R. Rep. No. 91-1656, at 12 (1970). These are
the persons who would generally receive nothing from the eminent
domain taking. Section 204 of the Act, 42 U.S.C. § 4624, attempts to
address this problem.
Under 42 U.S.C. § 4624, benefits are payable to a displaced person who
(1) is not eligible to receive payments under 42 U.S.C. § 4623, and
(2) lawfully occupied the dwelling from which displaced for at least
90 days prior to the initiation of the acquisition negotiations. In
the case of an authorized nonacquisition displacing activity, the
initiation of negotiations has the same meaning as it does for
purposes of 42 U.S.C. § 4623.
The amount payable is the amount necessary to enable the displaced
person to lease or rent a comparable replacement dwelling for up to 42
months, not to exceed $5,250. 42 U.S.C. § 4624(a). Payment may be in a
lump sum or in periodic installments, in the agency's discretion. Id.
The regulations, 49 C.F.R. § 24.402(b), prescribe the method of
calculating the amount of the benefit. The displaced person, at his or
her election, may use the money as a down payment on the purchase of a
"decent, safe, and sanitary replacement dwelling," in which event the
agency, in its discretion, may pay the maximum amount allowable
without regard to any calculations. 42 U.S.C. § 4624(b); 49 C.F.R. §
24.402(c). This latter option is designed to encourage home ownership.
H.R. Rep. No. 91-1656, at 12.
If a displaced tenant wishes to purchase a replacement home and seeks
down payment assistance under 42 U.S.C. § 4624(b), eligibility is not
affected by the fact that the tenant plans to purchase the home as co-
owner with some other person who is not entitled to URA benefits. B-
148044, June 18, 1975.
Benefits under 42 U.S.C. § 4624 are available not only to rental
tenants but also to homeowners who cannot meet the 180-day test for
benefits under 42 U.S.C. § 4623 but who have owned and occupied the
displacement dwelling for at least 90 days prior to the initiation of
negotiations. Ninety-day homeowners who elect to purchase a
replacement home cannot receive more than they would have received
under 42 U.S.C. § 4623 if they had met the 180-day test. 42 U.S.C. §
4624(b).
Mobile homes present complications and are treated in 49 C.F.R. part
24, subpart F. Mobile homes are considered real property in some
states and personal property in others. Also, a person may own a
mobile home and rent the land on which it sits, or vice-versa, and in
choosing a replacement dwelling may buy one and rent the other. While
there may thus be two different property interests involved, the
displaced person should not receive greater benefits than the
displaced owner of a stationary home in comparable circumstances. 57
Comp. Gen. 613 (1978).
c. Advisory Services:
Section 205 of the Uniform Relocation Act (URA), 42 U.S.C. § 4625,
requires agencies to provide a relocation assistance advisory program
for displaced persons. The advisory services may extend to persons
occupying property immediately adjacent to acquired property (42
U.S.C. § 4625(b)), and to short-term tenants who would not otherwise
qualify as displaced persons (42 U.S.C. § 4625(f)). The advisory
assistance and related activities provided for in section 205 of the
URA were viewed as "key elements" of a successful relocation program.
H.R. Rep. No. 91-1656, at 13 (1970). Thus, the responsibility of an
agency is not limited to merely paying appropriate benefits when
claimed. There is an affirmative requirement to help persons who have
been or are going to be displaced, by developing and making available
a variety of relocation information and assistance.
The statute lists the types of services to be included in the advisory
program, and directs agencies to cooperate with one another and to
coordinate their relocation activities. For example, the program
should "provide current and continuing information on the
availability, sales prices, and rental charges of comparable
replacement dwellings for displaced homeowners and tenants and
suitable locations for businesses and farm operations." 42 U.S.C. §
4625(c)(2).
There is relatively little case law construing the advisory service
requirements of 42 U.S.C. § 4625. One of the required services is to
"assist a person displaced from a business or farm operation in
obtaining and becoming established in a suitable replacement
location." 42 U.S.C. § 4625(c)(4). This, said one court, "requires
only assistance, not assistance guaranteeing a successful result."
American Dry Cleaners and Laundry, Inc. v. United States Department of
Transportation, 722 F.2d 70, 73 (4th Cir. 1983). Another court has
noted that the existence of a file folder that contains lists of
available housing and general information brochures on relocation
assistance does not satisfy the statute. United Family Farmers, Inc.
v. Kleppe, 418 E Supp. 591, 602 (D. S.D. 1976), aff'd, 552 F.2d 823
(8th Cir. 1977).
d. "Last Resort" Replacement Housing:
The Uniform Relocation Act (URA) places considerable emphasis on
adequate replacement housing. Under 42 U.S.C. § 4625(c)(3), one of the
elements agencies are to address in their advisory programs is the
assurance that people will not be forced to move without first being
given a reasonable opportunity to relocate to comparable housing.
However, as anyone who is less than wealthy well knows, providing
adequate and affordable housing is easier said than done.
Section 206 of the URA, 42 U.S.C. § 4626, has rightly been termed an
"innovative" provision. Catherine R. Lazuran, Annotation, Uniform
Relocation Assistance and Real Property Acquisition Policies Act of
1970 (42 U.S.C. § 4601-4655), 33 A.L.R. Fed. 9, 30 (1977). Under 42
U.S.C. § 4626(a), if a federal or federally assisted project "cannot
proceed on a timely basis because comparable replacement dwellings are
not available," the agency head is authorized to "take such action as
is necessary or appropriate to provide such dwellings by use of funds
authorized for such project." This may include the direct construction
of new housing, the acquisition and rehabilitation of existing
housing, the relocation of existing housing, and the stimulation of
housing development through the use of "seed money" loans. H.R. Rep.
No. 91-1656, at 15 (1970); 49 C.F.R. § 24.404(c)(1). Section 4626(a)
also expressly authorizes agencies to exceed the payment ceilings of
42 U.S.C. §§ 4623 and 4624, but only on a case-by-case basis and for
good cause in accordance with the Department of Transportation (DOT)
regulations. DOT has emphasized that "housing of last resort is not an
independent program, but is merely an extension of the replacement
housing function." DOT, Uniform Relocation Assistance and Real
Property Acquisition Regulation for Federal and Federally Assisted
Programs, 53 Fed. Reg. 27598, 27604 (July 21, 1988) (supplementary
information statement on proposed uniform regulations).
An agency cannot require a displaced person to accept agency-provided
housing in lieu of applicable monetary payments (just compensation
payment, if any, and supplemental payment under 42 U.S.C. §§ 4623 or
4624). This can be done only if the displaced person agrees. H.R. Rep.
No. 91-1656, at 14-15; 49 C.F.R. § 24.404(b).
Section 4626(b) states: "No person shall be required to move from his
dwelling on account of any program or project undertaken by a Federal
agency or with Federal financial assistance, unless the head of the
displacing agency is satisfied that comparable replacement housing is
available to such person." The statute itself is not an absolute
guarantee of adequate replacement housing; it provides merely that the
agency head must be satisfied that it is available, whatever that
means. The regulations take it a step further, however. In a paragraph
entitled "Basic rights of persons to be displaced," the regulations
state flatly that "no person shall be required to move from a
displacement dwelling unless comparable replacement housing is
available to such person." For emphasis, the next sentence states that
"[n]o person may be deprived of any rights the person may have under
the Uniform Act or this part." 49 C.F.R. § 24.404(b).
The URA does not require that comparable replacement housing be
located in the immediate neighborhood of the displacement housing,
Mejia v. Department of Housing and Urban Development, 518 F. Supp.
935, 938 (N.D. Ill. 1981), aff'd, 688 F.2d 529 (7th Cir. 1982), or
even in the same county, Katsev v. Coleman, 530 F.2d 176, 180-81 n.7
(8th Cir. 1976). Thus, the lack of suitable replacement housing in the
immediate neighborhood is not sufficient to trigger the "last resort"
housing authority. Mejia, 518 F. Supp. at 938.
Clearly, one effect of the replacement housing program can be to
change the displaced person's status from tenant to homeowner. E.g.,
42 U.S.C. § 4624(b). The reverse possibility raises a very thorny
problem. In B-148044, July 18, 1977, GAO considered this question:
Does 42 U.S.C. § 4626 amount to a guarantee of continued home
ownership, or may rental housing be considered appropriate replacement
housing for displaced homeowners? GAO surveyed agencies with the most
relocation experience, and found considerable disagreement. GAO also
found both the statute and the legislative history ambiguous. On
balance, the decision concluded that the use of rental housing under
42 U.S.C. § 4626 when home ownership is not feasible is not legally
precluded, although it is obviously an undesirable option and should
not be encouraged.[Footnote 74]
e. Federally Assisted Programs and Projects:
The relocation benefits we have been discussing apply not only to
federal programs but also to nonfederal programs carried out with
federal financial assistance. With respect to nonfederal programs, the
federal agency providing the assistance has a limited oversight role.
Under section 210 of the Uniform Relocation Act (URA), 42 U.S.C. §
4630, a nonfederal displacing agency must provide "satisfactory
assurances" that it will comply with 42 U.S.C. §§ 4622 (moving and
related expenses), 4623 and 4624 (replacement housing benefits), and
4625 (advisory services) as a condition of any grant, contract, or
agreement under which federal dollars will be available to pay all or
any part of the cost of any program or project which will displace
anyone. 42 U.S.C. §§ 4630(1) and (2). It must also provide
satisfactory assurances that, except for certain emergency situations,
comparable replacement housing will be available within a reasonable
time prior to displacement. 42 U.S.C. § 4630(3).
A satisfactory assurance for purposes of this provision requires some
reasonable factual basis, but it does not mean a guarantee that the
housing in fact exists. Katsev v. Coleman, 530 F.2d 176, 181 (8th Cir.
1976); Battison v. City of Niles, 445 E Supp. 1082, 1090-91 (N.D. Ohio
1977).
To trigger 42 U.S.C. § 4630, it is not necessary that federal dollars
be used for the specific acquisition. It is sufficient that the
displacing agency's program or project which will result in the
acquisition (or authorized nonacquisition activity) is federally
assisted. H.R. Rep. No. 91-1656, at 4 (1970); Lake Park Home Owners
Association v. Department of Housing and Urban Development, 443 E
Supp. 6 (S.D. Ohio 1976). As the same court explained a few years
later, however, the mere existence of federal assistance is not
enough. There must be "some present nexus" between the federally
assisted program or project and the displacing activity. Day v. City
of Dayton, 604 E Supp. 191, 197 (S.D. Ohio 1984).
A 1976 decision, B-180812, Mar. 25, 1976, discussed the application of
42 U.S.C. § 4630 to waste treatment facility grants by the
Environmental Protection Agency. The decision made two important
points:
* Section 4630 does not require that URA benefits be strictly limited
to cases where displacement occurs after the commitment of federal
financial assistance. Rather, the state or municipal grantee should be
required to provide relocation benefits to those displaced from any
site that, at the time of acquisition (or at any time thereafter prior
to actual displacement), was planned as the site of a federally
assisted facility. GAO recognized the risk to the grantee in that
relocation costs will not be reimbursed if the assistance is
ultimately not granted. However, this approach was viewed as most
consistent with the intent of the URA.
* If a grant application is received from a state or municipality that
has already acquired property or displaced persons without providing
relocation benefits, the applicant should be required to retroactively
"cure" the noncompliance. If substantial compliance with the URA
cannot be achieved in this manner, the application should be denied.
The 1987 amendments to the URA added an alternative to the
"satisfactory assurance" approach of 42 U.S.C. § 4630. A state agency
may certify that it will operate in accordance with state laws that
accomplish the purpose and effect of the URA. 42 U.S.C. § 4604(a). A
federal agency fulfills its responsibility under the URA by accepting
this certification. The Department of Transportation, in coordination
with the program agency, periodically monitors state compliance. If
the state agency violates its certification, the program agency may
withhold its approval of financial assistance, or may rescind its
approval of the certification. 42 U.S.C. § 4604(c); 49 C.F.R. §§
24.4(b), 24.603.
"Federal financial assistance" for URA purposes is defined as "a
grant, loan, or contribution provided by the United States" but
expressly excludes (1) any federal guarantee or insurance, and (2) any
interest reduction payment to an individual in connection with the
purchase and occupancy of a residence by that individual.[Footnote 75]
42 U.S.C. § 4601(4); 49 C.F.R. § 24.2(a)(13). Thus, if the only
federal financial involvement is in the form of a guarantee or
insurance, the URA does not apply regardless of who displaces whom
from what. E.g., Dawson v. Department of Housing and Urban
Development, 428 F. Supp. 328, 332 (N.D. Ga. 1976), aff'd, 592 F.2d
1292 (5th Cir. 1979) (assistance under section 236 of the National
Housing Act is encompassed by the "federal guarantee or insurance"
exclusion).
A question lurking in the bushes is the extent to which the term
"federal financial assistance" does or does not include block grants.
The genesis of the question is a series of cases holding the URA
inapplicable where the only federal funds involved were funds provided
under the now defunct general revenue sharing program. The reason was
that revenue sharing funds were intended to be provided with no
"federal strings"; they were not associated with any particular
project, but could be used by the states as they saw fit. Goolsby v.
Blumenthal, 590 F.2d 1369 (5th Cir.), cert. denied, 444 U.S. 970
(1979); B-148044, Dec. 10, 1973; B-130515-G.94, Mar. 7, 1979.
It is arguable that this analysis applies, at least to some extent, to
block grant programs. For example, one court has found the URA
inapplicable where the federal assistance consisted of Community
Development Block Grant (CDBG) funds, stating that "the URA is only
applicable when the federal financial assistance is provided ... for a
specific program or project." Isham v. Pierce, 694 F.2d 1196, 1204
(9th Cir. 1982). See also Young v. Harris, 599 F.2d 870, 878 (8th
Cir.), cert. denied, 444 U.S. 993 (1979). Other cases have involved
CDBG funds without addressing the issue. E.g., Gomez v. Chody, 867
F.2d 395 (8th Cir. 1989). Relocation costs incurred directly by a
federal agency are treated simply as part of the cost of the program
or project.
Relocation costs incurred by a nonfederal displacing agency are
reimbursable from the federal agency which is providing the financial
assistance "in the same manner and to the same extent" as other
program or project costs. 42 U.S.C. § 4631(a). Thus, for example, if
the relevant program legislation has a matching fund requirement, it
will apply to allowable relocation costs. H.R. Rep. No. 91-1656, at 17
(1970). However, if state eminent domain law provides for payments
which "have substantially the same purpose and effect" as URA
benefits, those payments will not constitute allowable program or
project costs. 42 U.S.C. § 4631(b). The 1987 amendments extended this
anti-duplication provision to apply the "substantially the same
purpose and effect" concept to other federal payments as well.
Examples may be found in H.R. Conf. Rep. No. 100-27, at 255 (1987).
Under 42 U.S.C. § 4631(c) grants and contracts with state agencies
executed prior to the effective date of the URA must be amended to
include URA benefits. In 51 Comp. Gen. 267 (1971), the Comptroller
General advised the Department of Housing and Urban Development that
contracts which provided for full federal funding of certain
relocation costs authorized by the Housing Act still had to be amended
to reflect the new URA benefits, but did not have to include the cost-
sharing requirements of 42 U.S.C. § 4631(a). However, where existing
contracts did not include relocation payments, the amended contracts
would have to reflect the section 4631(a) cost-sharing requirements. B-
173957, Sept. 7, 1972.
f. Procedures and Payment:
The payment of benefits under the Uniform Relocation Act (URA) is not
automatic; the displaced person must apply to the proper agency. The
regulations try to be user-friendly in this regard, placing the
initial burden on the displacing agency. The agency is directed to
give written notification to persons scheduled to be displaced,
including a general description of the types of payments for which the
person may be eligible and applicable procedures. 49 C.F.R. §
24.203(a). Agencies are also directed to provide reasonable assistance
to help persons file their claims. 49 C.F.R. § 24.207(a). Specific
procedures are up to the individual agency.
Subject to waiver for good cause, claims should be filed within 18
months after the date of displacement in the case of tenants, or, in
the case of owners, the date of displacement or the date of the final
payment for acquisition, if applicable, whichever is later. 49 C.F.R.
§ 24.207(d). The regulations further instruct agencies to review
claims "in an expeditious manner" and to make payment "as soon as
feasible" after receipt of sufficient documentation to support
allowance. 49 C.F.R. § 24.207(b).
Any sound claims settlement system should include an administrative
appeal process, the objective being to maximize administrative
resolution and minimize the need to go to court. In the case of the
URA, an appeal process is required. 42 U.S.C. § 4633(b)(3); 49 C.F.R.
§ 24.10. If a claim is denied in whole or in part for any reason, the
agency must notify the claimant in writing, setting out the agency's
appeal procedures. 49 C.F.R. § 24.207(e). If the appeal is denied in
whole or in part, the agency must again provide written notification,
this time advising the claimant of his or her right to seek judicial
review. 49 C.F.R. § 24.10(g).
The URA authorizes advance payments in two situations. First, a
federal agency, upon determining that it is necessary for the
expeditious completion of a program or project, may advance the
federal share of authorized relocation costs to a state agency. 42
U.S.C. § 4631(c). Second, a displaced person, in hardship cases and
upon proper application, may receive advance payment of applicable
relocation benefits. 42 U.S.C. § 4633(b)(2). Advance payment under
section 4633(b)(2) should be "subject to such safeguards as are
appropriate to ensure that the objective of the payment is
accomplished." 49 C.F.R. § 24.207(c).
4. Public Utilities:
A public utility will typically have two different types of facilities
which it may be required to relocate. First, like any other business
entity, it will have business offices-—office space which it may own
or lease, with desks, file cabinets, etc. With respect to these
business offices, the Uniform Relocation Act (URA) applies to the
utility the same as it applies to any other business entity. Norfolk
Redevelopment and Housing Authority v. Chesapeake & Potomac Telephone
Co., 464 U.S. 30, 35 (1983).
Unlike most other business entities, however, the utility has a second
type of property—facilities for the transmission of telephone service,
electric power, natural gas, etc., to the consumer. Perhaps the most
familiar example is the ubiquitous telephone pole. With respect to
these "utility facilities," the situation is more complicated. There
is a common-law rule and several statutory exceptions, all of which
exist side-by-side.
a. The Common Law:
When a utility wishes to place transmission facilities on public
property, it must first obtain permission to do so in the form of a
grant of an appropriate right-of-way. A right-of-way may be in various
forms, such as a license, a franchise, or an easement. The traditional
form of right-of-way for utility lines has been a franchise, a form of
special privilege which is more than a mere license but less than an
easement. E.g., Artesian Water Co. v. Delaware Department of Highways
& Transportation, 330 A.2d 432, 440 (Del. Super. Ct. 1974), modified
and aff'd, 330 A.2d 441 (Del. 1974).
Under the common-law approach, the governmental entity which grants a
special privilege can take it away when some paramount public need so
requires. A utility receiving a franchise does so with this
understanding. "When [the utility] located its pipes it was at the
risk that they might be, at some future time, disturbed, when the
state might require for a necessary public use that changes in
location be made." New Orleans Gas Light Co. v. Drainage Commission,
197 U.S. 453, 461 (1905). Permission to locate utility facilities on
public property "does not create an irrevocable right to have such ...
facilities remain forever in the same place." Tennessee v. United
States, 256 F.2d 244, 258 (6th Cir. 1958). Within this framework
developed the "long-established common law principle that a utility
forced to relocate from a public right-of-way must do so at its own
expense." Norfolk Redevelopment & Housing Authority v. Chesapeake &
Potomac Telephone Co., 464 U.S. 30, 34 (1983) (citing and following
New Orleans Gas Light Co.). For more recent judicial decisions
applying this rule, see Northern States Power Co. v. Federal Transit
Administration, 358 F.3d 1050, 1053 (8th Cir. 2004); AT&T Corp. v.
Lucas County, 381 F. Supp. 2d 714, 717 (N.D. Ohio 2005).
The earliest GAO decision applying this rule appears to be 10 Comp.
Gen. 331 (1931). Underground construction of various distribution
lines from the Capitol power plant to congressional office buildings
necessitated the relocation of utility lines in the District of
Columbia. The Comptroller General advised the Architect of the Capitol
that relocation costs could not be charged to the construction
appropriation, stating:
"Rights of way or franchises granted by municipalities or by State or
Federal authorities to public utility corporations, in public streets,
etc., to operate their business are usually coupled with reservations
that the public utility company will, upon demand of the granting
authority, vacate the streets, etc., or relocate or divert its
conduits, lines, etc., to meet the needs of the granting authority as
they arise."
10 Comp. Gen. at 331.
Another early decision, A-38299, Sept. 8, 1931, quoted in 44 Comp.
Gen. 59, 60-61 (1964), stated the rule as follows:
"The placing of [utility] lines on public lands must be understood as
subject to the paramount needs of the United States, and when their
removal becomes necessary because of interference therewith the
expenses of such removal may not be charged to the United States in
the absence of specific statutory authority to that effect."
A-38299, at 2.
A later decision advised the Architect of the Capitol that there was
no authority to reimburse the local electric company for relocation
costs incident to construction of a Library of Congress building. 51
Comp. Gen. 167 (1971). The Comptroller General discussed the rule in
some detail in 18 Comp. Gen. 806 (1939), a case involving the
relocation of telephone lines incident to the construction of a
highway on government-owned land.
The relocation of utility lines is the exercise by the United States
of its inherent regulatory authority over its property. The United
States has the same "police power" over federal land that the states
have over state land. The legitimate exercise of a police power, at
least in this context, is not a taking of a property interest for
purposes of the constitutional requirement of just compensation. Thus,
as long as the relocation is required for a valid public purpose, the
utility must bear the cost. The decision treated the distinction
between a franchise and a license as essentially immaterial. 18 Comp.
Gen. at 807.
While reaffirming the general rule stated in the foregoing decisions,
GAO more recently distinguished those decisions in holding that
appropriated funds were available to pay certain relocation costs. B-
300538, Mar. 24, 2003. In this case, the Architect of the Capitol
required the Potomac Electric Power Company (PEPCO) to relocate some
of its facilities from one part of the Capitol grounds to another in
order to accommodate construction of the Capitol Visitor Center. PEPCO
sought payment from the Architect for its relocation costs and a
related fee. The utility facilities in question were not part of
PEPCO's overall infrastructure for its customer base, but existed only
to serve the needs of the federal government at the Capitol. GAO
viewed this as a crucial difference from the cases applying the common-
law rule to preclude reimbursement where the relocated facilities are
part of a utility's general operating network. In the PEPCO situation,
GAO reasoned, the sole purpose of the relocation was to better serve
the needs of the federal government:
"We believe there is a distinction between the federal government's
role as the sovereign granting access to the utility company to
federal lands and the federal government's role as a consumer of
utility services. We view utility relocation costs, when the utility
facilities are present to serve the federal government alone and not
as part of the utility company's general operating network, as a
necessary expense of the project requiring the relocation of the
utility facilities. Therefore, we do not object to the use of
appropriations to pay the costs of utility relocations requested by
the government for the benefit of the government in its role as
customer."
Id. at 5. The PEPCO decision thus represents a limited exception to
the common-law rule arising from the unique facts in that case.
Keeping it in mind, we now return to the great majority of the
decisions applying the common-law rule.
If, under the common-law rule, the government can not pay for
relocating utility lines, how about relocating or altering the
government facility? As you may have guessed, there is a decision on
that, too. If an agency's appropriations are not available to pay a
utility's relocation costs in a particular situation, they are equally
unavailable for relocating or altering the government facility as an
alternative. B-33911, May 5, 1943. This point is little more than the
application of common sense. The decision also points out that, for
purposes of the rule, it makes no difference whether the government
facility was in existence when the license or permit was originally
granted, or was subsequently erected.
The common-law rule has been applied with respect to all types of
public lands: land in a national park, A-36464, July 22, 1931; land in
a national forest, A-38299, Sept. 8, 1931; land acquired by a federal
agency for a specific project, 18 Comp. Gen. 806; and unreserved
public land, B-11161, Aug. 21, 1940. However, in 19 Comp. Gen. 608
(1939), it was found inapplicable to certain Indian lands. The land in
question was Pueblo land in New Mexico, title to which, unlike the
more typical reservation, was held communally by the Indians. GAO
found that the lands were not "public lands" as that term had been
judicially defined. 19 Comp. Gen. at 611, citing, e.g., Lane v. Pueblo
of Santa Rosa, 249 U.S. 110, 113 (1919). Therefore, the United States
did not have a right paramount to that of the utility, and project
appropriations were available to pay utility relocation costs.
A few not very recent decisions considered licenses granted by the
then Federal Power Commission (FPC) under the Federal Power Act of
1920, as amended, 16 U.S.C. §§ 791a-823d. Generally, the common-law
rule regarding utility relocation expenses applies. The fact that the
FPC charged the licensee a fee under the statute was not material. B-
33911, May 5, 1943; A-44362, Dec. 1, 1932. In a 1955 case, however,
the FPC determined that, under the terms and conditions of the
specific license involved, the licensee was not obligated to bear the
relocation expenses, and reimbursement was permitted under a
"necessary expense" rationale. B-122171, Apr. 5, 1955.
For purposes of determining whether an agency can pay utility
relocation costs, the difference between a franchise and a license is
largely immaterial. This is not true with respect to an easement,
however, which, unlike a license or a franchise, is generally viewed
as creating a compensable interest in land.[Footnote 76] E.g.,
Artesian Water Co., 330 A.2d at 440. In 36 Comp. Gen. 23 (1956), GAO
recognized the distinction and held that the United States could
participate in utility relocation costs where the utility had been
granted an easement under 43 U.S.C. § 961 over a specific location
where there had been no preexisting government facility. Of course,
the government can always condemn the easement. See B-13574, Dec. 2,
1940. See also 42 Comp. Gen. 177 (1962) (relocation costs denied
because the terms of a special use permit granted by the National Park
Service were regarded as prevailing over an easement which had been
granted to a utility by the party from whom the government acquired
the property).
The Federal Land Policy and Management Act of 1976 (FLPMA), Pub. L.
No. 94-579, 90 Stat. 2743 (Oct. 21, 1976), has its own right-of-way
provisions, found at 43 U.S.C. §§ 1761-1771. With certain exceptions,
they apply generally to land and interests in land owned by the United
States and administered by the Interior Department's Bureau of Land
Management, and to land within the National Forest System under the
jurisdiction of the Secretary of Agriculture. 43 U.S.C. §§ 1702(e),
1761(a). Along with the enactment of these provisions, the FLPMA
repealed a number of pre-existing right-of-way statutes, including 43
U.S.C. § 961, insofar as they apply to lands covered by the FLPMA.
Pub. L. No. 94-579, § 706(a). The FLPMA defines right-of-way as
including "an easement, lease, permit, or license" (43 U.S.C. §
1702(f)), a definition consistent with the consolidation of provisions
addressing these various forms of right-of-way. Accordingly, cases
like 36 Comp. Gen. 23, apart from the fact that they continue to apply
to non-FLPMA lands, would appear to remain valid under FLPMA. In any
event, the essence of 36 Comp. Gen. 23 is the nature of the utility's
property interest and not the statute under which it was granted.
A key factor in establishing the government's liability in 36 Comp.
Gen. 23 was that the easement was for a specific location. The
significance of this can be illustrated by a case involving the
reverse situation—relocation of power lines owned by the government.
The Bonneville Power Administration had acquired by condemnation an
easement for power lines on land owned by a railway company. Expansion
of the railway necessitated relocation of the power lines, and the
question was whether Bonneville or the railway should pay for the
relocation. The government's easement was a general easement to
maintain the lines, not tied in to any specific location, and
unconditional acquiescence by the railway could not be established. In
these circumstances, the government—analogous to the public utility in
the more typical case—had to bear the expense. United States v. Oregon
Electric Railway Co., 195 E Supp. 182 (D. Or. 1961).
b. Statutory Exceptions:
(1) Uniform Relocation Act:
The original enactment of the Uniform Relocation Act (URA) in 1970 did
not address public utilities, and the Supreme Court held that, with
respect to "utility facilities" as opposed to normal business offices,
they were not covered. In Norfolk Redevelopment & Housing Authority v.
Chesapeake & Potomac Telephone Co., 464 U.S. 30 (1983), the Court held
that a public utility forced to relocate telephone transmission
facilities as a result of a federally funded urban renewal project was
not a "displaced person" under the URA. Applying the principle that a
statute should not be construed to repeal or displace the common law
unless the intent to do so is expressed in clear and explicit
language, the Court said:
"Our analysis of the statute and its legislative history convinces us
that in passing the Relocation Act Congress addressed the needs of
residential and business tenants and owners, and did not deal with the
separate problem posed by the relocation of utility service lines. We
hold, therefore, that the Relocation Act did not change the long-
established common law principle that a utility forced to relocate
from a public right-of-way must do so at its own expense; it is not a
`displaced person' as that term is defined in the Act."
Norfolk Redevelopment, 464 U.S. at 34. See also Consumers Power Co. v.
Costle, 615 F.2d 1147 (6th Cir. 1980).
The 1987 amendments to the URA added a provision, 42 U.S.C. § 4622(d),
to authorize limited relocation assistance to public utilities forced
to relocate their facilities incident to a program or project
undertaken by a displacing agency, as long as the program or project
is not one whose purpose is to relocate or reconstruct the facility.
The facility to be displaced may be publicly, privately, or
cooperatively owned, but must be located on public property or
property over which a state or local government has an easement or
right-of-way, and must be operating under a franchise or similar
agreement (or state statute which serves the same purpose). The
authorized payment is limited to the amount of "extraordinary costs"
incurred by the utility in connection with the relocation, "less any
increase in the value of the new utility facility above the value of
the old utility facility and less any salvage value derived from the
old utility facility." 42 U.S.C. § 4622(d)(1). Extraordinary costs are
nonroutine relocation expenses of the type that the owner "ordinarily
does not include in its annual budget as an expense of operation." 42
U.S.C. § 4622(d)(2)(A).
There is an important difference between 42 U.S.C. § 4622(d) and the
other benefit provisions of the URA: while the other provisions are
cast in mandatory language, section 4622(d) is discretionary—the
displacing agency "may" make the relocation payments. In preparing the
uniform implementing regulations for this provision (now found at 49
C.F.R. § 24.306), the Department of Transportation was urged—probably
by the utilities—to make the benefits of section 4622(d) mandatory. It
expressly refused to do so, stating that "[i]t would not be
appropriate to make mandatory by regulation that which was left
clearly permissive by statute." Department of Transportation, Uniform
Relocation Assistance and Real Property Acquisition Regulations for
Federal and Federally Assisted Programs, 54 Fed. Reg. 8912, 8923 (Mar.
2, 1989) (Supplementary Information).
The regulations direct agencies that choose to make payment under
section 4622(d) to reach a prior agreement with the utility owner on
the nature of the relocation work to be done, the allocation of
responsibilities, and the method of determining costs and making
payment. 49 C.F.R. § 24.306(c). For guidance in reaching agreement,
agencies should follow the utility relocation regulations of the
Federal Highway Administration, 23 C.F.R. part 645, subpart A. See 49
C.F.R. app. A to part 24 at § 24.306.
The conference report on the 1987 amendments emphasized that the new
section 4622(d) should "not be construed to supersede 23 U.S.C. 123 or
any other Federal law." H.R. Conf. Rep. No. 100-27, at 251 (1987).
(2) 23 U.S.C. § 123:
Highway construction is one of the most common causes of utility
displacement. Under 23 U.S.C. § 123, originally enacted in 1958,
states may be reimbursed for utility relocation expenses paid in
connection with federally aided highway construction, if those
payments are authorized under state law. Reimbursement is to be in the
same proportion as other project costs. The availability of 23 U.S.C.
§ 123 to a given state depends on the extent to which that state
follows or has departed from the common-law rule.
The statute is not self-executing and does not itself create an
obligation to reimburse. A state's right to reimbursement depends on
project approval by the Federal Highway Administration in accordance
with 23 U.S.C. § 106 and applicable regulations. Approval creates a
contractual obligation. Arizona v. United States, 494 F.2d 1285 (Ct.
Cl. 1974).
In determining the cost of relocation for purposes of section 123, any
increase in the value of the new facility and any salvage value
derived from the old facility must be deducted. 23 U.S.C. § 123(c).
(As noted above, the discretionary authority of 42 U.S.C. § 4622(d)
incorporates this concept.) Cost determinations under section 123 must
be made on the basis of a specific project. Statewide determinations
do not satisfy the statute. B-149833, Jan. 2, 1964; B-149833-0.M.,
June 24, 1963; B-149833-0.M., Nov. 9, 1962.
The purpose of reimbursement under 23 U.S.C. § 123 is to make the
utility whole, not to confer a profit. Thus, where a parent
corporation owned two subsidiaries, one of which earned a profit for
the parent on purchases from it by the other, GAO concluded that the
"intercompany profit" should not be a reimbursable item of cost under
section 123. However, reimbursement would be permissible if it could
adequately be shown that the sales for relocation purposes displaced a
substantially equivalent amount of regular sales which would otherwise
have been made. B-154937, Dec. 16, 1964, modified by B-154937, May 25,
1965.[Footnote 77]
(3) Other statutory provisions:
Several other statutes scattered throughout the United States Code
address utility relocation in various specific contexts, some of which
are quite narrow in scope. Others may exist in addition to those noted
below. These statutes, as with 23 U.S.C. § 123, were unaffected by the
1987 enactment of 42 U.S.C. § 4622(d).
One example is section 2 of the Flood Control Act of 1938, as amended,
33 U.S.C. § 701c-1. This statute authorizes the Secretary of the Army
to acquire, and to reimburse states and municipalities for the
acquisition of, lands, easements, and rights-of-way, expressly
including "utility relocation," deemed necessary in connection with
authorized flood control projects. The statute has been construed as
authorizing the Army to pay utility relocation expenses wholly
independent of any right-of-way acquisition. B-134242, Dec. 24, 1957.
Another example is section 14 of the Reclamation Project Act of 1939,
43 U.S.C. § 389, which provides comparable authority to the Secretary
of the Interior "in connection with the construction or operation and
maintenance of any project." The measure of compensation for utility
relocation is the replacement cost of the facility less an allowance
for depreciation of the old facility. See B-125045-0.M., Sept. 21,
1959.
Still another is 16 U.S.C. § 580b, enacted in 1949, under which the
Forest Service may use its appropriations to correct inductive
interference on Forest Service telephone lines caused by transmission
lines constructed by organizations financed by Rural Electrification
Administration loans. GAO had previously advised that statutory
authority was generally necessary to overcome the common-law
prohibition in this context. B-33911, May 5, 1943;[Footnote 78] B-
33911, B-62187, July 15, 1948. See also B-62187, Dec. 3, 1946
(exception recognized where the work "was prompted by reasons of
expediency wholly unconnected with the prevention or correction of
inductive interference from electric power transmission lines").
Finally, whenever construction of a project administered through the
International Boundary and Water Commission (United States and Mexico)
necessitates the alteration or relocation of structures or other
property "belonging to any municipal or private corporation, company,
association, or individual," the Secretary of State may pick up the
tab. 22 U.S.C. § 277e. This provision has been held sufficient to
overcome the common-law prohibition. B-129757, Nov. 29, 1956; B-5441,
Aug. 29, 1939. Conspicuously absent from the statutory listing of
owners are "states." Therefore, the statute does not encompass
agreements with the state of Texas comparable to the types of
agreements authorized under statutes such as 33 U.S.C. § 701c-1 or 43
U.S.C. § 389. B-76531, Sept. 13, 1948.
In sum, when considering whether a federal agency may use its
appropriated funds to pay all or part of the costs of utility
relocation, the first question to ask is whether the situation is
covered by some specific relocation statute such as 23 U.S.C. § 123 or
one of those noted directly above. If so, then the authorities and
limitations of that specific statute, and any regulations under it,
will govern. If not, the next thing to consider is the availability of
the discretionary authority of the Uniform Relocation Act, 42 U.S.C. §
4622(d). If that authority is not available or if the displacing
agency declines to exercise its discretion in favor of the utility,
the matter is governed by the common-law principles discussed.
D. Jurisdiction over Federal Land: The Federal Enclave:
1. Acquisition of Federal Jurisdiction:
Almost all federally owned land is within the boundaries of one of the
50 states. This leads logically to the question: who controls what?
When we talk about jurisdiction over federal land, we are talking
about the federal-state relationship. The first point is that, whether
the United States has acquired real property voluntarily (purchase,
donation) or involuntarily (condemnation), the mere fact of federal
ownership does not withdraw the land from the jurisdiction of the
state in which it is located. E.g., Silas Mason Co. v. Tax Commission,
302 U.S. 186, 197 (1937); Coso Energy Developers v. County of Inyo, 19
Cal. Rptr. 3d 669 (2004), and cases cited. Acquisition of land and
acquisition of federal jurisdiction over that land are two different
things.
Federal jurisdiction can range from "exclusive jurisdiction" at one
extreme, in which the federal government displaces the state as the
governing authority, to "proprietorial jurisdiction" at the other
extreme, in which the United States has basically the same authority
as it does with respect to other nonfederal land in that state and the
property "is subject to the legislative authority and control of the
States equally with the property of private individuals." Fort
Leavenworth Railroad Co. v. Lowe, 114 U.S. 525, 531 (1885). Thus,
"where the United States is the [proprietary] owner of land within a
state and does not have exclusive jurisdiction over the land, the
state may generally tax private possessory interests in, or private
property situated on, such land." Coso, 19 Cal. Rptr. 3d at 674. In
between exclusive and proprietorial interests, as one study has
reported, federal control "can and does vary to an almost infinite
number of degrees.[Footnote 79] During the last half of the nineteenth
century and the first half of the twentieth, the United States
obtained exclusive federal jurisdiction over most of the land it
acquired.[Footnote 80]
There are two ways in which the United States can acquire exclusive
federal jurisdiction: consent and cession.[Footnote 81] The first
method, consent, is provided for by article I, section 8, clause 17 of
the Constitution, the so-called Jurisdiction Clause, which states that
the Congress shall have power:
"to exercise exclusive Legislation in all Cases whatsoever, over [the
District of Columbia], ... and to exercise like Authority over all
Places purchased by the consent of the Legislature of the State in
which the Same shall be, for the Erection of Forts, Magazines,
Arsenals, dock-Yards, and other needful Buildings."
The term "exclusive legislation" means "exclusive jurisdiction." James
v. Dravo Contracting Co., 302 U.S. 134, 141 (1937); Surplus Trading
Co. v. Cook, 281 U.S. 647, 652 (1930). Or, perhaps more clearly,
"exclusive jurisdiction to legislate." The term "other needful
buildings" includes "whatever structures are found to be necessary in
the performance of the functions of the federal government." Silas
Mason, 302 U.S. at 203; Dravo, 302 U.S. at 143. Legislative consent to
the purchase may be given before, at the time of, or after the
purchase. 13 Op. Att'y Gen. 411 (1871). Consent may be in the form of
a general consent statute or consent to a particular acquisition.
United States v. State Tax Commission of Mississippi, 412 U.S. 363,
372 n.15 (1973). The Jurisdiction Clause has not been strictly
construed, and Justice Frankfurter once commented that its "course of
construction ... cannot be said to have run smooth." Offutt Housing
Co. v. County of Sarpy, 351 U.S. 253, 256 (1956).
The second method, cession, is also accomplished by an enactment of
the state legislature and was recognized by the Supreme Court over a
century ago in the leading case of Fort Leavenworth, 114 U.S. 525.
Some years later, the Court emphasized that the Jurisdiction Clause
"is not the sole authority for the acquisition of jurisdiction. There
is no question about the power of the United States to exercise
jurisdiction secured by cession, though this is not provided for by
clause 17." Collins v. Yosemite Park & Curry Co., 304 U.S. 518, 529
(1938). For similar statements, see Kleppe v. New Mexico, 426 U.S.
529, 542 (1976); Paul v. United States, 371 U.S. 245, 264 (1963); and
United States v. Gliatta, 580 F.2d 156, 158 (5th Cir.), cert. denied,
439 U.S. 1048 (1978).
Apart from procedural distinctions, the differences between consent
and cession are slight, and there appears to be little practical
difference resulting from which method is used. At one time, cession
was viewed as useful primarily in cases where the Jurisdiction Clause
was thought inapplicable, for example, acquisition by condemnation.
See generally Fort Leavenworth, 114 U.S. 525. In more recent cases,
however, the Supreme Court has said that "purchase" for purposes of
the Jurisdiction Clause includes condemnation. State Tax Commission of
Mississippi, 412 U.S. at 372 n.14. The Court has also held that
donation is a purchase for purposes of the Jurisdiction Clause. Humble
Pipe Line Co. v. Waggonner, 376 U.S. 369, 371-73 (1964). Thus, no
practical distinction seems to flow from the method of acquisition of
the land or the timing of the state's "consent."
The applicability or nonapplicability of the Jurisdiction Clause is
still relevant in determining which method must be used in some
situations. For example, the clause comes into play only where the
land is being acquired for one of the purposes specified in the
Jurisdiction Clause. Thus, the Jurisdiction Clause would generally not
apply to land acquired for a national park, and cession would
therefore be the only method of acquiring federal jurisdiction. In
another leading case, Collins, 304 U.S. 518, the Supreme Court
established that jurisdiction by cession is not limited to the
purposes specified in the Jurisdiction Clause. Thus, the United States
can acquire the same jurisdiction over, say, a national park by
cession that it could acquire over a military installation by a
Jurisdiction Clause consent.
Another area in which distinctions once thought important have become
blurred is the extent to which a state may qualify its consent or
cession. Even in the early days, "exclusive jurisdiction" was rarely
absolute. For example, the states, with the express approval of the
Supreme Court, typically reserved the power to serve civil and
criminal process. This was necessary in order to avoid having federal
land become a sanctuary for fugitives, and does not diminish the
exclusiveness. Fort Leavenworth,, 114 U.S. at 533. See also Cornman v.
Dawson, 295 F. Supp. 654, 657 n.5 (D. Md. 1969), aff'd, 398 U.S. 419
(1970); 39 Op. Att'y Gen. 155, 156 (1938); 38 Op. Att'y Gen. 341, 347-
48 (1935).[Footnote 82] However, for several decades, it was thought
that a state's power to qualify its consent was broader under a
cession than under a Jurisdiction Clause consent. By the exercise of
simple logic, the Supreme Court laid this thought to rest in still
another leading case, Dravo, 302 U.S. 134. There was no question that
a state could refuse consent at the time of acquisition, and then
later cede jurisdiction subject to qualifications. Why then, reasoned
the Court, couldn't the state consent to the acquisition with the same
qualifications in the first place? Dravo, 302 U.S. at 147-49.
It has become settled since Dravo that a state can qualify either a
Jurisdiction Clause consent or a cession, as long as the
qualifications are not inconsistent with federal law or federal use.
The theory is clearly stated in Collins, 304 U.S. at 528 (footnotes
omitted):
"The States of the Union and the National Government may make mutually
satisfactory arrangements as to jurisdiction of territory within their
borders and thus in a most effective way, cooperatively adjust
problems flowing from our dual system of government. Jurisdiction
obtained by consent or cession may be qualified by agreement or
through offer and acceptance or ratification. It is a matter of
arrangement. These arrangements the courts will recognize and respect."
Thus, acquisition of federal jurisdiction is not an "all or nothing"
proposition. It has become commonplace to define federal jurisdiction
in terms of four general kinds of federal jurisdiction over federal
lands: "exclusive legislative jurisdiction, concurrent legislative
jurisdiction, partial legislative jurisdiction and proprietorial
legislative jurisdiction." State ex rel. Cox v. Hibbard, 570 P.2d
1190, 1192 (Or. Ct. App. 1977). See also Cornman, 295 F. Supp. at 656
n.4. The terms "concurrent" and "partial" in this context are self-
explanatory and mean exactly what they imply.[Footnote 83]
To summarize what we have said so far:
* The United States can acquire exclusive federal jurisdiction over
land either by consent of the state legislature under the Jurisdiction
Clause, or by cession from the state. Both methods get you essentially
to the same place.
* Whichever method is used, the state may retain partial or concurrent
jurisdiction as long as the powers retained are not inconsistent with
federal law or use.
As noted earlier, the state consent we have been talking about relates
to jurisdiction rather than the acquisition itself. For many years
prior to 1940, there was also a statutory requirement for consent of
the state legislature when land was acquired by the United States for
certain purposes. This provision was eliminated in 1940 and replaced
by 40 U.S.C. § 3112,[Footnote 84] which says several important things:
* The obtaining of exclusive jurisdiction is not required.
* If the United States obtains exclusive or partial jurisdiction by
consent or cession, there must be a formal acceptance by the United
States, either by filing a notice of acceptance with the state
governor or as otherwise provided under state law.
* If the United States has not formally accepted jurisdiction as
prescribed, it is "conclusively presumed" that the jurisdiction does
not exist.
Although the statute mentions only exclusive and partial jurisdiction,
it applies to concurrent jurisdiction as well. Adams v. United States,
319 U.S. 312 (1943). As Adams also established, the statute means
exactly what it says—formal acceptance of federal jurisdiction as
prescribed in 40 U.S.C. § 3112 is a legal prerequisite to the exercise
of that jurisdiction. See also Hankins v. Delo, 977 F.2d 396 (8th Cir.
1992); DeKalb County v. Henry C. Beck Co., 382 F.2d 992 (5th Cir.
1967).
A state may not unilaterally revoke its consent once it has been given
and accepted. North Dakota v. United States, 460 U.S. 300, 313 n.16
(1983), citing United States v. Unzeuta, 281 U.S. 138, 142-43 (1930).
Based on the concepts discussed above, a working definition of
"federal enclave" may be framed as follows: A federal enclave is an
area of land owned by the United States, with respect to which the
United States has obtained exclusive, partial, or concurrent
jurisdiction from the state in which the land is located, either by
consent under the Jurisdiction Clause or by cession.[Footnote 85]
Regardless of the existence or type of federal jurisdiction, some
state law may apply in a federal enclave even without either a
specific reservation or a federal statute making it applicable. The
Supreme Court has recognized that every area within the United States
should have a developed legal system. Thus, state law protecting
private rights which is in existence at the time of the consent or
cession remains applicable in the enclave as long as it does not
interfere with the federal use and is not inconsistent with federal
law, unless and until Congress acts to make it inapplicable. This
principle is called "assimilation." The opposite is true for state
laws enacted after the consent or cession: they do not apply in the
enclave unless Congress acts to make them applicable. James Stewart &
Co. v. Sadrakula, 309 U.S. 94 (1940).[Footnote 86]
One example involved the applicability of the Florida right-to-work
law on two exclusive jurisdiction enclaves in Florida, Patrick Air
Force Base (AFB) and Cape Canaveral Air Force Station (AFS). Finding
that the Florida law was enacted before the transfer of sovereignty
for Cape Canaveral AFS but after the transfer of sovereignty for
Patrick AFB, the district court held the Florida law applicable on the
former but not the latter. On appeal, the Court of Appeals for the
Fifth Circuit affirmed as to Patrick but reversed as to Canaveral,
finding that the Florida law was in conflict with the National Labor
Relations Act. Lord v. Local Union No. 2088, 481 E Supp. 419 (M.D.
Fla. 1979), aff'd in part, rev'd in part, 646 F.2d 1057 (5th Cir.
1981), cert. denied, 458 U.S. 1106 (1982). Another example is Snow v.
Bechtel Construction Inc., 647 E Supp. 1514, 1521 (C.D. Cal. 1986),
finding that an employee of a government contractor working on an
exclusive jurisdiction enclave did not have a cause of action for
wrongful termination because the state wrongful termination law "was
enacted well after the land became a federal enclave." See also
Pacific Coast Dairy, Inc. v. Department of Agriculture of California,
318 U.S. 285, 294 (1943); Macomber v. Bose, 401 F.2d 545 (9th Cir.
1968); Economic Development & Industrial Corp. of Boston v. United
States, 546 E Supp. 1204 (D. Mass. 1982), rev'd on other grounds, 720
F.2d 1 (1st Cir. 1983); Vincent v. General Dynamics Corp., 427 E Supp.
786, 794-95 (N.D. Tex. 1977).
Sometimes the United States does not acquire all land within the
exterior boundaries of a project because it is not needed. When this
happens, there may be privately owned tracts within and surrounded by
federal land, in what may be termed a "checkerboard" pattern. By
analogy from cases dealing with federal land, the courts have held
that the United States can acquire by cession the same types of
exclusive, partial, or concurrent jurisdiction over these privately
owned tracts. E.g., Macomber, 401 F.2d 545; Petersen v. United States,
191 F.2d 154 (9th Cir.), cert. denied, 342 U.S. 885 (1951); United
States v. 319.88 Acres of Land, 498 E Supp. 763 (D. Nev. 1980).
As a general proposition, if the United States disposes of enclave
property, legislative jurisdiction reverts to the state (also called
"re-vesting" or "retrocession"), although the situation can become
complicated by the nature of the particular transaction. See S.R.A.,
Inc. v. Minnesota, 327 U.S. 558 (1946) (retention by United States of
legal title as security interest does not prevent reverter); Humble
Pipe Line Co., 376 U.S. 369 (lease by United States to commercial
interests not sufficient to produce reverter); United States v.
Goings, 504 F.2d 809 (8th Cir. 1974) (retention by United States of
right of emergency use does not prevent reverter). The military
departments have specific statutory authority to "retrocede" federal
legislative jurisdiction, in whole or in part, to the state, if
considered desirable. 10 U.S.C. § 2683.
One of the conditions a state may attach to its consent or cession is
that legislative jurisdiction (title too, if the land was donated)
revert to the state if the property ceases to be used for the purpose
for which jurisdiction was ceded. Illustrative cases are United States
v. Johnson, 994 F.2d 980 (2nd Cir.), cert denied, 510 U.S. 959 (1993);
and Economic Development and Industrial Corp. of Boston v. United
States, 13 CL Ct. 590 (1987). Absent such reservation or condition,
federal jurisdiction is not diminished by the fact that a portion of
the land is put to some use different from that for which it was
acquired. Benson v. United States, 146 U.S. 325, 331 (1892); Baltimore
Gas & Electric Co. v. United States, 133 F. Supp. 2d 721 (D. Md.
2001); United States v. Falibrook Public Utility District, 108 F.
Supp. 72, 85 (S.D. Cal. 1952).
Totally apart from the question of reservation of state powers, it is
fair to say that exclusive federal jurisdiction is not nearly as
exclusive as it used to be. Congress has enacted a number of statutes,
which may be characterized as "partial retrocessions," which have the
effect of returning portions of jurisdiction to the states or
incorporating state law in particular subject areas. Two of the more
important ones, the Buck Act and the Assimilative Crimes Act, will be
discussed in section D.2 of this chapter. Some others are:
* In cases of wrongful death on federal enclaves, the right of action
provided by state law exists as if the enclave were under state
jurisdiction. 16 U.S.C. § 457. This includes changes in applicable
state law as they may occur from time to time. E.g., Ferebee v.
Chevron Chemical Co., 736 F.2d 1529 (D.C. Cir.), cert. denied, 469
U.S. 1062 (1984); Vasina v. Grumman Corp., 644 F.2d 112 (2nd Cir.
1981); Adams v. Alliant Techsystems, Inc., 218 F. Supp. 2d 792 (WD.
Va. 2002). Of course, this statute does not affect the operation of
the Federal Tort Claims Act in cases where it is applicable. E.g.,
Morgan v. United States, 709 F.2d 580, 582 (9th Cir. 1983).
* State unemployment compensation laws apply on federal enclaves. 26
U.S.C. § 3305(d).
* State workers' compensation laws apply on federal enclaves. 40
U.S.C. § 3172.[Footnote 87] The statute merely makes state law
applicable to private employers on federal land; it does not create
any federal liability. Peak v. Small Business Administration, 660 F.2d
375, 376 n.1 (8th Cir. 1981). The constitutionality of 40 U.S.C. §
3172 was upheld in Wallach v. Lieberman, 366 F.2d 254 (2nd Cir.
1966).[Footnote 88] Section 3172 applies equally to federal facilities
that are not enclaves. Goodyear Atomic Corp. v. Miller, 486 U.S. 174,
182 n.4 (1988).
2. Specific Areas of Concern:
a. Taxation:
As a general proposition, a state cannot tax private property in a
federal enclave unless it has reserved the power to do so at the time
of consent or cession. Humble Pipe Line v. Wagoner, 376 U.S. 369
(1964); Collins v. Yosemite Park & Curry Co., 304 U.S. 518 (1938);
James v. Dravo Contracting Co., 302 U.S. 134 (1937); Surplus Trading
Co. v. Cook, 281 U.S. 647 (1930); Fort Leavenworth Railroad Co. v.
Lowe, 114 U.S. 525 (1885).
Congress has modified this rule somewhat by statute. Under the Buck
Act of 1940, currently codified at 4 U.S.C. §§ 105-110, states may
levy sales, use, and income taxes within federal enclaves. The Buck
Act has generated its share of litigation. One type of question that
has arisen is whether various forms of state and local taxation are
sales, use, or income taxes for purposes of the Buck Act. E.g., United
States v. State Tax Commission of Mississippi, 412 U.S. 363, 378-79
(1973); Howard v. Commissioners of The Sinking Fund, 344 U.S. 624
(1953). See also 30 Comp. Gen. 28 (1950) (permit fee charged by city
for construction on exclusive jurisdiction enclave not a "tax" within
scope of state's reservation of jurisdiction in deed of cession). One
court has held a local occupation tax to be an "income tax" for Buck
Act purposes. United States v. Lewisburg Area School District, 398 E
Supp. 948 (M.D. Pa. 1975).
The Buck Act permits sales, use, and income taxes, but not property
taxes. Thus, in B-159835, Feb. 2, 1976, the Comptroller General
advised that a county in Utah had no power to impose an ad valorem tax
on private property within the United States Defense Depot, a federal
enclave in Ogden, Utah, where there had been no reservation of taxing
power at the time of cession.
Another statute, 4 U.S.C. § 104, authorizes the imposition of state
motor fuel taxes on fuel sold on "United States military or other
reservations" if the fuel is not for the exclusive use of the United
States. This includes national parks. 38 Op. Att'y Gen. 522 (1936).
The purpose of this statute was to enhance highway improvement by
increasing state revenues which could be used as matching funds under
the federal-aid highway program. Minnesota v. Keeley, 126 F.2d 863,
864 (8th Cir. 1942); Sanders v. Oklahoma Tax Commission, 169 P.2d 748,
750-51 (Okla.), cert. denied, 329 U.S. 780 (1946).
Still another statute, 10 U.S.C. § 2667(f), permits state and local
taxation of the interests of lessees of property leased by a military
department under the authority of 10 U.S.C. § 2667.
The preceding paragraphs address the power of a state to reach into a
federal enclave to tax private property, private instrumentalities, or
the income of federal employees. Neither the concept of reservation of
powers nor the Buck Act affects the immunity of the United States from
state and local taxation, covered in Chapter 4, section C.15. In fact,
the Buck Act expressly preserves the immunity of the United States. 4
U.S.C. § 107. A case applying section 107 is United States v. Tax
Commission, 421 U.S. 599 (1975).
b. Criminal Law:
The punishment of crimes committed on federal enclaves has been a
subject of congressional attention since the First Congress.[Footnote
89] At the present time, the criminal law structure for federal
enclaves consists of several specific statutes and one general one.
Congress has enacted a number of criminal statutes, found in title 18
of the United States Code, dealing with criminal offenses on federal
enclaves. See, e.g., 18 U.S.C. §§ 81, 113, 114, 661, 662, 1111-1113.
These are generally the "major" crimes such as murder, rape, arson,
etc. About a dozen are listed in United States v. Sharpnack, 355 U.S.
286, 289 n.5 (1958). The statutes use the phrase "special maritime and
territorial jurisdiction of the United States," which, as defined in
18 U.S.C. § 7, would include federal enclaves. These specific statutes
naturally take precedence over state law.
Offenses not covered by one of these specific statutes are covered by
the Assimilative Crimes Act, 18 U.S.C. § 13, under which offenses
committed on federal enclaves which are not otherwise provided for by
Congress are punishable as federal crimes if and to the extent that
they are punishable by the laws of the state in which the enclave is
situated. See generally Lewis v. United States, 523 U.S. 155 (1998);
United States v. Souza, 392 F.3d 1050 (9th Cir. 2004); United States
v. Burruel, No. CR 05-605 TVC DCB (D. Ariz. May 12, 2006).
The state law applicable under the Assimilative Crimes Act is the law
in effect at the time of the offense, which includes laws enacted
after consent or cession. The constitutionality of the Assimilative
Crimes Act was upheld in the Sharpnack case, 355 U.S. 286.
A defendant accused of a crime on a federal enclave may be tried
before a magistrate. There is no requirement that trial be before an
Article BT court. United States v. Jenkins, 734 F.2d 1322 (9th Cir.
1983), cert. denied, 469 U.S. 1217 (1985).
Indian reservations are not federal enclaves. However, under 18 U.S.C.
§ 1152, the federal enclave criminal statutes apply to "Indian
country" unless otherwise provided by law, and except for offenses
committed by one Indian against another Indian, offenses committed
within Indian country by an Indian who has been punished by the local
law of the tribe, and cases where exclusive jurisdiction is secured
for the tribe by treaty stipulation. The historical development of
this statute is discussed in United States v. Cowboy, 694 F.2d 1228
(10th Cir. 1982).
c. State Regulation:
Another area of potential conflict is the extent to which a state can
extend its regulatory arm into a federal enclave. Older cases tend to
involve economic regulation such as licensing laws, permit
requirements, price-fixing laws, etc. Many of the more recent cases
involve environmental regulation. Depending on the interplay of
certain key rules, the state regulatory action may be invalid on all
federal property, nonenclave as well as enclave, valid on both, or
valid on some but not all.
State regulatory action will be invalid to the extent that it violates
the Supremacy Clause of the Constitution (art. VI, clause 2), which
provides that laws of the United States which are within the
constitutional power of the federal government are the "supreme law of
the land" and prevail over inconsistent state laws. State law can
violate the Supremacy Clause by directly regulating the federal
government or discriminating against it and those with whom it does
business (thus violating principles of intergovernmental immunity) or
by conflicting with valid enactments of Congress (thus invoking a
congressional preemption analysis). North Dakota v. United States, 495
U.S. 423, 434 (1990). If a given action is found to violate the
Supremacy Clause, it is irrelevant whether the federal land or
installation in question has enclave status.
An illustration is Leslie Miller, Inc. v. Arkansas, 352 U.S. 187
(1956). The Air Force entered into a contract for construction work on
a base which was not a federal enclave. The contractor was charged and
convicted in state court for failure to obtain a license under state
law. The Supreme Court reversed the conviction, finding that the state
licensing law conflicted with the procuring agency's duty under
federal procurement law to determine the responsibility of bidders.
Similarly, in Paul v. United States, 371 U.S. 245 (1963), the Court
found that California price control regulations on milk conflicted
with federal procurement policy in that "the federal procurement
policy demands competition [while] the California policy ...
effectively eliminates competition." Id. at 253. In neither case was
the status of the particular federal installations a relevant factor.
Two GAO decisions involved contracts for mortuary services at Dover
Air Force Base, Delaware. In both cases, a disappointed bidder
protested that the firm receiving the award, the low bidder, did not
have a Delaware mortuary license. Based primarily on Leslie Miller,
GAO upheld the contract awards in both cases. B-161723, Aug. 1, 1967;
B-159723, Sept. 28, 1966. Both decisions note that Dover was an
exclusive jurisdiction enclave, but this factor was not crucial to the
result.
The Supreme Court distinguishes between direct and indirect regulation
for purposes of intergovernmental immunity analysis under the
Supremacy Clause. As the plain meaning of the term suggests, "direct
regulation" involves attempts to regulate federal entities themselves.
States can directly regulate federal installations and activities only
pursuant to "clear and unambiguous" congressional (statutory)
authorization. Goodyear Atomic Corp. v. Miller, 486 U.S. 174, 180
(1988); EPA v. California, 426 U.S. 200, 211 (1976); Hancock v. Train,
426 U.S. 167, 179 (1976); B-286951, Jan. 10, 2002. "Indirect
regulation" is the regulation of private parties (who may be
government contractors or suppliers) which has an incidental effect on
the government by, for example, causing it to pay higher prices.
North, Dakota, 495 U.S. at 434-35.[Footnote 90] Like direct
regulation, indirect regulation must be neutral (nondiscriminatory) in
order to survive the Supremacy Clause.[Footnote 91] Id. at 435.
The validity of state regulation is also a question of congressional
preemption.[Footnote 92] North, Dakota, 495 U.S. at 435; Goodyear
Atomic Corp., 486 U.S. at 180 n.1. The three major categories of
preemption analyses are summarized in English, v. General Electric
Co., 496 U.S. 72, 78-79 (1990). Preemption occurs when Congress
explicitly defines the extent of preemption, when a state regulates
conduct in a field that Congress intended the federal government to
occupy exclusively, or when state law actually conflicts with federal
law. Id. Federal agencies regulating within the scope of their
delegated authority may also preempt state regulation. Louisiana
Public Service Commission v. FCC, 476 U.S. 355 (1986).
Once you get by the Supremacy Clause hurdles of intergovernmental
immunity and preemption—that is, once it is established that the state
law or regulation does not attempt to impermissibly tax or regulate
the federal government and does not conflict with valid federal law
and does not attempt to impermissibly tax or regulate the federal
government—the jurisdictional status of the federal property becomes
relevant.[Footnote 93] The state law or regulation will then apply to
nonenclave property (there is no longer a reason why it should not),
and may or may not apply to enclaves, depending on factors previously
discussed such as the types of jurisdiction the state may have
reserved at the time of consent or cession and whether the law was in
existence when the property achieved enclave status.
For example, in Pacific Coast Dairy, Inc. v. California Department of
Agriculture, 318 U.S. 285 (1943), the Supreme Court held that a
California statute requiring the licensing of milk distributors and
establishing uniform prices for the sale of milk did not apply to
sales on a federal enclave because the statute was enacted after the
transfer of sovereignty. But the Court, on the same day, upheld a
similar Pennsylvania statute regulating milk prices because it
affected a military encampment on state land rather than a federal
enclave. Penn Dairies, 318 U.S. at 270. By the time the Court again
had occasion to consider the California milk laws in Paul, 371 U.S.
245, the intervening enactment of the Armed Services Procurement Act
of 1947 and the promulgation of implementing regulations brought the
state law into direct conflict with federal procurement policy, with
the result that Paul was primarily decided on the basis of the
Supremacy Clause rather than the enclave status of the military
installations.
The Supremacy Clause resolved purchases to be made from appropriated
funds. However, some of the milk in Paul was to be purchased with
nonappropriated funds (military clubs and post exchanges). Since the
federal procurement statutes and regulations did not apply to
nonappropriated funds, there was no conflict with respect to these
purchases. Accordingly, the applicability of the state law to
nonappropriated fund purchases on exclusive jurisdiction enclaves
depended on whether the state law was in effect when the United States
acquired jurisdiction, a result "on all fours" with Pacific Coast.
Paul, 371 U.S. at 268-69.
GAO has considered problems in this area on several occasions. The
questions usually arise incident to the award of federal procurement
contracts. In 42 Comp. Gen. 704 (1963), the question was whether a
contract for furnishing dairy products on a federal enclave could be
awarded to the low bidder who had not complied with certain aspects of
the state "fair trade" law. GAO found that the state law had been
enacted after the transfer of jurisdiction, and that it was in
conflict with federal procurement policy. Therefore, based largely on
the Supreme Court's decisions in Paul and Pacific Coast, GAO found the
contract award to be proper. Similar cases are 27 Comp. Gen. 782
(1948) and B-151686, July 2, 1965. More recently, GAO found a
solicitation for a contract to privatize utilities on a federal
enclave valid in the face of an effort by a state agency to exert
regulatory restrictions, a decision upheld in district court on
grounds including both immunity and preemption. B-285209, Aug. 2,
2000; Baltimore Gas & Electric Co. v. United States, 133 E Supp. 2d
721 (D. Md. 2001).[Footnote 94]
If none of these approaches applies—that is, you are dealing with an
exclusive jurisdiction enclave and state law enacted after the
acquisition of federal jurisdiction—the state law can apply only
pursuant to "specific congressional action." Paul, 371 U.S. at 263.
See also Black Hills Power & Light Co. v. Weinberger, 808 F.2d 665,
668 (8th Cir. 1987), cert. denied, 484 U.S. 8181.
Precisely how specific the congressional authority must be is somewhat
unsettled. To rephrase the question: Is a federal statute which is
sufficiently specific to allow a state law to survive a Supremacy
Clause challenge also sufficiently specific to permit the application
of that law on an enclave or must it explicitly address enclaves?
Offutt Housing Co. v. County of Sarpy, 351 U.S. 253, 260 (1956), is
capable of being read to suggest that it does not have to explicitly
mention enclaves. But again, compare West River Electric Ass'n v.
Black Hills Power & Light, 918 F.2d 713, 717-20 (8th Cir. 1990)
(Congress did not provide necessary clear authorization to cede its
exclusive jurisdiction over an Air Force base; court distinguished
Offutt because in that case the state tax at issue was directed
against a private party who leased land on an Air Force base). See
also Tacoma Dept of Public Utilities v. United States, 28 Fed. Cl.
637, 646 (1993), aff'd, 31 F.3d 1130 (Fed. Cir. 1994).
For an example of how this plays out in GAO case law, see 64 Comp.
Gen. 813 (1985). This was a bid protest in which a statute required
federal agencies to comply with local requirements on the control and
abatement of solid waste "in the same manner, and to the same extent,
as any person is subject to such requirements." Id. at 815, quoting
the requirements in the Resource Conservation and Recovery Act, at 42
U.S.C. § 6961(a). That language, the Comptroller General held,
"expressly requires federal agencies to obtain waste disposal services
from local governments" when such is required of others. Id. In this
case, two military facilities were directed to cancel their
competitive solicitations in favor of sole source contracts with local
governments and their franchisees. A competitive procurement by
another base was allowed to stand because the enclave was outside of
the local government's jurisdiction and others so situated were not
required to contract with the local authorities. Id. at 816. GAO's
logic in this case was later tested in different cases in federal
court and upheld. Parola v. Weinberger, 848 F.2d 956 (9th Cir. 1988).
See also Solano Garbage v. Cheney, 779 F. Supp. 477 (E.D. Cal. 1991);
72 Comp. Gen. 225, 228 (1993).
A common battleground for these principles is the area of state liquor
control. In United States v. South Carolina, 578 F. Supp. 549 (D. S.C.
1983), based on an essentially straightforward application of Paul and
Leslie Miller, the court enjoined the state from implementing a state
law requiring federal military installations to purchase alcoholic
beverages from wholesalers licensed by the state. The installations in
question were exclusive jurisdiction enclaves. South Carolina, 578 F.
Supp. at 550. On the other hand, in North Dakota, 495 U.S. 423, the
Supreme Court upheld a state requirement that out-of-state liquor
vendors affix labels to each item to be delivered to a federal enclave
in the state where the state and federal government exercised
concurrent jurisdiction. The Court distinguished this type of indirect
regulation, which was permissible even though it incidentally raised
costs to the military, from the types of direct regulation encountered
in cases like Paul and Leslie Miller.
3. Proprietorial Jurisdiction:
A central theme of our discussion is that a federal enclave is
essentially a consensual arrangement. Whether federal jurisdiction is
obtained by Jurisdiction Clause[Footnote 95] consent or by cession, a
federal enclave cannot come into being without the consent of the
state and acceptance by the United States. Thus, enclave status can be
neither coerced from the state nor forced upon the United States. For
the land over which the United States has not obtained exclusive,
partial, or concurrent jurisdiction by consent or cession, federal
jurisdiction is said to be "proprietorial." This term originated from
language in some of the cases to the effect that, absent consent or
cession, the United States has "only the rights of an ordinary
proprietor." E.g., Fort Leavenworth, v. Lowe, 114 U.S. 525, 527 (1885).
While the term proprietorial implies that the United States is in the
same position as any private owner, this is not the case. The United
States may exercise authority over federal land, enclave or
nonenclave, under language in article W, section 3, clause 2 of the
Constitution, the Property Clause: "The Congress shall have Power to
dispose of and make all needful Rules and Regulations respecting the
Territory or other Property belonging to the United States."
The full significance of the Property Clause as an alternative to the
Jurisdiction Clause does not appear to have been realized until the
landmark case of Kleppe v. New Mexico, 426 U.S. 529 (1976). A New
Mexico rancher had obtained a permit from the Bureau of Land
Management (BLM) under the Taylor Grazing Act to graze cattle on
certain BLM land in New Mexico. The rancher complained to a state
agency that wild burros on the BLM land were interfering with his
cattle. The state agency rounded up 19 of the wild burros and sold
them at auction. The BLM demanded that the state recover and return
the burros, claiming that the state's action violated the Wild Free-
Roaming Horses and Burros Act, 16 U.S.C. §§ 1331-1340. New Mexico
brought suit, alleging that the statute was unconstitutional.
The Supreme Court held that the wild burro statute was a valid
exercise of congressional power under the Property Clause, and that it
overrode any inconsistent state law. Congress, said the Court, has the
power of a legislature as well as a proprietor over federal land.
Kleppe, 426 U.S. at 540. That power is "without limitations" (id. at
539) and "complete" (id. at 540). The Court then squarely addressed
the relationship of federal enclaves to the Property Clause:
"Congress may acquire derivative legislative power from a State
pursuant to Art. I, § 8, cl. 17, of the Constitution by consensual
acquisition of land, or by nonconsensual acquisition followed by the
State's subsequent cession of legislative authority over the land....
In either case, the legislative jurisdiction acquired may range from
exclusive federal jurisdiction with no residual state police power...
to concurrent, or partial, federal legislative jurisdiction, which may
allow the State to exercise certain authority...
"But while Congress can acquire exclusive or partial jurisdiction over
lands within a State by the State's consent or cession, the presence
or absence of such jurisdiction has nothing to do with Congress'
powers under the Property Clause. Absent consent or cession a State
undoubtedly retains jurisdiction over federal lands within its
territory, but Congress equally surely retains the power to enact
legislation respecting those lands pursuant to the Property Clause....
And when Congress so acts, the federal legislation necessarily
overrides conflicting state laws under the Supremacy Clause."
Id. at 542-43 (citations omitted).
The Supreme Court's opinion was unanimous. Concurrence of the burros
may be presumed.[Footnote 96]
Both the courts and the Comptroller General have recognized and
reflected the significance of the Kleppe decision. One illustration is
the selection of nuclear waste repository sites. GAO considered the
issue in the late 1970s and concluded that a state could not block the
establishment of a nuclear waste repository merely by withholding or
qualifying consent under the Jurisdiction Clause. Exclusive federal
jurisdiction is not a necessary prerequisite to establishing the
repository, and Congress has adequate power under the Property Clause.
Accordingly, an agreement by the Secretary of Energy purporting to
give a state "veto power" over site selection would be unenforceable.
B-192999, May 22, 1979. See also B-164105, June 19, 1978, reaching the
same conclusion based on the Department of Energy's organic
legislation. Several years later, Congress enacted amendments to the
Nuclear Waste Policy Act designating a site in Nevada for possible
development as a repository. The state went to court, and the Ninth
Circuit held that the legislation was within congressional power under
the Property Clause, and that there was no requirement that the site
be located on a federal enclave. Nevada v. Watkins, 914 F.2d 1545 (9th
Cir. 1990), cert. denied, 499 U.S. 906 (1991). See also Nuclear Energy
Institute, Inc. v. EPA, 373 F.3d 1251 (D.C. Cir. 2004).
Some other examples follow:
* An individual was fined for hunting ducks in a national park in
Minnesota, in violation of National Park Service regulations
prohibiting hunting or the possession of loaded firearms in national
parks. The regulations had been issued pursuant to a statutory
delegation. Even if the state had not ceded jurisdiction to the United
States, the regulation was nevertheless valid under the Property
Clause and took precedence over conflicting state law. This was
equally true with respect to nonfederal waters within the park. United
States v. Brown, 552 F.2d 817 (8th Cir.), cert. denied, 431 U.S. 949
(1977).
* The National Park Service, under a statutory delegation, could issue
a regulation requiring use of seat belts in national parks. The
Defense Department, although it does not have statutory authority to
regulate federal land comparable to that of the Park Service, could
also require seat belt use by regulation, at least on land under
exclusive federal jurisdiction. B-216218, Nov. 30, 1984, aff'd, B-
216218, Sept. 6, 1988.
* Regulations for traffic control on Postal Service property are valid
under the Property Clause, regardless of presence or absence of
enclave jurisdiction. United States v. Gliatta, 580 F.2d 156, 160 (5th
Cir.), cert. denied, 439 U.S. 1048 (1978).
* Federal legislation which authorizes the Secretary of Agriculture to
regulate grazing in the national forests overrides state open range
law. Bilderback v. United States, 558 F. Supp. 903 (D. Ore. 1982).
Notwithstanding the very broad language it used in the Kleppe
decision, the Supreme Court also noted in that case that "the furthest
reaches of the power granted by the Property Clause have not yet been
definitively resolved." Kleppe, 426 U.S. at 539. It thus seems likely
that litigation in this area will continue and that the law will
continue to evolve.[Footnote 97]
E. Leasing:
If the government needs a building, there are several ways it can go
about getting it. It can purchase an existing structure, making
payment directly from appropriations available for that purpose; it
can have the building constructed to order, again making payment
directly from appropriations available for that purpose; it can lease
an existing building; or it can use some form of lease-purchase or
lease-construction arrangement. This section will address the leasing
options.
1. Some General Principles:
a. Acquisition:
A lease in the real property context may be defined as "[a] contract
by which a rightful possessor of real property conveys the right to
use and occupy the property in exchange for consideration, usually
rent." Black's Law Dictionary 907 (8th ed. 2004). Thus, it includes
any agreement that gives rise to a relationship of landlord and
tenant. E.g., National Data Corp. v. United States, 50 Fed. Cl. 24, 28
(2001); B-96826-0.M., Feb. 8, 1967. General Services Administration
(GSA) regulations define the term to mean "a conveyance to the
Government of the right of exclusive possession of real property for a
definite period of time by a landlord." 48 C.F.R. § 570.102.
It is generally recognized that, except for depressed real estate
markets, leasing is less cost-effective than ownership. See generally
GAO, General Services Administration's Comparison of Space Acquisition
Alternatives: Leasing to Lease-Purchase and Leasing to Construction,
GAO/GGD-99-49R (Washington, D.C.: Mar. 12, 1999); Federal Office
Space: Increased Ownership Would Result in Significant Savings,
GAO/GGD-90-11 (Dec. 22, 1989).[Footnote 98] Nevertheless, there are
situations in which leasing is clearly the desirable option, such as
where the government needs the space only for a short term or where it
needs only a small amount of space. GAO/GGD-90-11, at 14-15. Too
often, however, the decision whether to lease or buy is driven by
budgetary considerations rather than the nature of the government's
need. The problem is that budget authority for purchase or direct
construction must be provided "up front," whereas budget authority for
leasing is provided year by year. Not surprisingly, large chunks of
money for purchase or construction have traditionally been prime
targets for budget-cutting by a Congress under constant pressure to
reduce spending. Eliminating tens of millions of dollars to construct
or acquire a building produces an immediately visible result, albeit
only a short-term one, without angering any program's constituents.
Congress has struggled with this problem for many years. The then
Public Works Committee's report accompanying the Public Buildings
Amendments of 1972[Footnote 99] stated that direct construction was
"the most efficient and economical means of meeting Government
building needs," but essentially conceded "the futility of seeking a
billion dollars for direct Federal construction ... in competition
with the present spending priorities." H.R. Rep. No. 92-989, at 3
(1972).
Despite the preference for construction and ownership, the
government's reliance on leased space has become progressively more
pronounced. GAO reported that nearly half (48 percent) of the space
controlled by the General Services Administration as of 1994 was
leased, costing over $2 billion a year. GAO, Federal Office Space:
More Businesslike Leasing Approach Could Reduce Costs and Improve
Performance, GAO/GGD-95-48 (Feb. 10, 1995), at 10. More recently, GAO
pointed to instances in which the use of operating leases to meet
agency space needs instead of construction, purchase, or even lease-
purchase arrangements resulted in almost $1 billion in excess costs.
One prime example was a long-term operating lease for the Patent and
Trademark Office that was estimated to cost $48 million more than
construction and $38 million more than lease-purchase. GAO, Federal
Real Property: Reliance on Costly Leasing to Meet New Space Needs Is
an Ongoing Problem, GAO-06-136T (Washington, D.C.: Oct. 6, 2005), at 5-
6. Indeed, the "pervasive" nature of this problem was one of the major
reasons that GAO designated federal real property management a high-
risk area in 2003.[Footnote 100] Id. at 5. As with the acquisition of
fee title, the government can acquire a lease voluntarily, or it can
acquire it involuntarily. Voluntary acquisition is the preferred
method. As we will discuss later in this section, most leasing for the
federal government is done by, or under delegation from, GSA. Under a
number of statutes and executive branch issuances, GSA plays a central
role in the acquisition of space for federal agencies. It prescribes
governmentwide policies on property and acquisition management through
the Federal Management Regulation, formerly known as the Federal
Property Management Regulations. See 41 C.F.R. §§ 102-2.5. GSA's
policies are contained primarily in 41 C.F.R. part 102-73. As set
forth therein, GSA's stated policy is to lease privately owned space
"only when needs cannot be met satisfactorily in Government-controlled
space" and leasing is more advantageous than construction or
alteration. 41 C.F.R. § 102-73.45. As noted above, however, this
policy is seriously undercut by budgetary and other practical
considerations; thus, GSA will lease when it cannot obtain sufficient
budget authority to do anything else.
A lease of real property is subject to the Competition in Contracting
Act's (CICA) general requirement for full and open competition.
[Footnote 101] 41 U.S.C. § 253; see B-225954, Mar. 30, 1987. The GSA
regulations provide as follows: "Executive agencies must obtain full
and open competition among suitable locations meeting minimum
Government requirements, except as otherwise provided by CICA, 41
U.S.C. 253." 41 C.F.R. § 102-73.100.
The regulations further provide that acquisition by lease must be "on
the most favorable basis to the Federal Government, with due
consideration to maintenance and operational efficiency, and at
charges consistent with prevailing market rates for comparable
facilities in the community." 41 C.F.R. § 102-73.55. Specific
contracting procedures for acquiring leasehold interests in real
property are found in the GSA Acquisition Regulations, 48 C.F.R. part
570.
The evaluation factors in a lease invitation should be as clear and
exact as possible, although a high level of precision is not required.
"It is sufficient ... to prescribe general guidelines of acceptability
which necessarily must be applied as equitably as possible to the
locations of the office spaces tendered." 43 Comp. Gen. 663, 667
(1964), aff'd on reconsideration, B-152768, June 23, 1964.
An incumbent lessor does not have an exclusive right to negotiate
extensions of the lease. See 48 Comp. Gen. 722, 724-25 (1969); B-
251337.2, Apr. 23, 1993. Indeed, there are situations in which the
government is not even required to include the incumbent lessor in the
solicitation for the new lease.[Footnote 102] B-251288, Mar. 18, 1993.
While a lease is the conveyance of a possessory interest in real
property, it is also a contract. E.g., Keydata Corp. v. United States,
504 F.2d 1115, 1123 (Ct. Cl. 1974); Olympia Properties, L.L.C. v.
United States, 54 Fed. Cl. 147, 152 (2002), aff'd, 68 Fed. Appx. 976
(Fed. Cir. 2003). Therefore, it does not come into existence unless
and until both parties execute the required formalities, that is, sign
the lease contract. B-228279, B-228280, Jan. 15, 1988.
Unless required by statute, it is not essential that the lease be
recorded in the jurisdiction in which the property is located. A-
19681, Sept. 28, 1927. Many states, however, have statutes which
require the recording of leases for more than a stated term. The
precise effect of these laws is subject to variation from state to
state, but they are generally regarded as protecting the rights of the
tenant by providing legal notice of the tenancy to subsequent
purchasers or lessees.[Footnote 103] Id.; 26 Comp. Gen. 331 (1946). In
determining whether a lease exceeds the minimum term specified in a
recording statute, the period covered by renewal options should be
added to the basic lease term. 26 Comp. Gen. 335 (1946). While the
government's policy has been that the cost of recording a lease should
be borne by the lessor, recording fees may be charged to operating
appropriations if there is a legitimate reason for the government to
pay. 26 Comp. Gen. 331.
If the government is unable to meet its leasing needs voluntarily, it
can fall back on the power of eminent domain. It has long been settled
that the takings clause of the Fifth Amendment applies to "temporary
takings" as well as the taking of full title. E.g., Phelps v. United
States, 274 U.S. 341 (1927). See also 22 Comp. Gen. 1112, 1114 (1943),
regarding it as "settled law that the use of property can be taken as
well as the title to property."
Involuntary acquisition of a leasehold can take various forms. If
there is already an existing lease, the government can simply condemn
the entire leasehold. E.g., Almota Farmers Elevator & Warehouse Co. v.
United States, 409 U.S. 470 (1973); United States v. Petty Motor Co.,
327 U.S. 372 (1946). If the government needs the property for a
shorter term than that of an existing lease, it can condemn only part
of the existing lease. E.g., United States v. General Motors Corp.,
323 U.S. 373 (1945). Or, if there is no existing lease, the government
can employ condemnation to impose one on the property owner. E.g.,
Kimball Laundry Co. v. United States, 338 U.S. 1 (1949). The elements
of just compensation vary somewhat depending on which of these
scenarios applies. Some of the issues are discussed in the Supreme
Court decisions cited in this paragraph.
If the determination of just compensation can be resolved
administratively, the government is not required to institute formal
condemnation proceedings but should adhere as closely as possible to
the just compensation principles laid down by the Supreme Court. 25
Comp. Gen. 1 (1945).
Private leases may include a clause, known as an "eminent domain"
clause or a "termination on condemnation" clause, which provides that
the lease shall terminate if the property is taken by governmental
authority. If the government condemns an existing leasehold which is
subject to such a provision, the lessee gets nothing. Petty Motor, 327
U.S. at 376; United States v. Advertising Checking Bureau, 204 F.2d
770, 772-73 (7thCir. 1953); Bajwa v. Sunoco, Inc., 320 E Supp. 2d 454
(E.D. Va. 2004); Heir v. Delaware River Port Authority, 218 E Supp. 2d
627 (D.N.J. 2002); 35 Comp. Gen. 85, 87 (1955); 22 Comp. Gen. at 1114.
The theory is that tenants who enter into leases with such clauses
contract away any rights they otherwise might have had. Petty Motor,
327 U.S. at 376; Checking Bureau, 204 F.2d at 772. (These cases
illustrate two variations of the clause.)
As with any other acquisition of real property, condemnation of a
leasehold requires statutory authority. The general condemnation
statute, 40 U.S.C. § 3113, discussed earlier in section B.5.b of this
chapter, operates in exactly the same manner with respect to
leaseholds as it does for fee acquisitions. By virtue of this statute,
the authority to condemn is coextensive with the authority to
purchase. Thus, GSA's general authority (40 U.S.C. § 585), in
conjunction with 40 U.S.C. § 3113, gives GSA the authority to acquire
a leasehold by condemnation. Checking Bureau, 204 F.2d 770; United
States v. Fisk Building, 99 E Supp. 592 (S.D. N.Y. 1951); United
States v. Midland National Bank of Billings, 67 E Supp. 268 (D. Mont.
1946).
In our discussion of 41 U.S.C. § 14 in section B of this chapter, we
noted a line of cases establishing the proposition that the authority
necessary to satisfy that statute can be found in an appropriation, if
it can be shown that the appropriation was intended to be available
for the acquisition in question. If that type of authority is
sufficient, in conjunction with 40 U.S.C. § 3113, to authorize
condemnation of the fee, it should also be sufficient to authorize
condemnation of a leasehold, a lesser interest. One case, which
appears to stand alone, went so far as to find the basic acquisition
authority in a general operation (salaries and expenses)
appropriation, with no apparent demonstration that Congress was aware
of, much less had approved, the lease in question. United States v.
Hibernia Bank Building, 76 F. Supp. 18 (E.D. La. 1948). While Hibernia
does not appear to have been expressly repudiated, it is important to
note that it, as well as Midland Bank and its progeny, was decided
prior to the statutory requirement for prospectus approval which we
will cover later in this discussion. Thus, Hibernia could not be
followed today, at least with respect to a lease within the scope of
the prospectus requirement. See Maiatico v. United States, 302 F.2d
880 (D.C. Cir. 1962).
Another principle which is the same as for fee acquisitions is the
principle that statutory cost limitations on voluntary acquisition do
not apply to condemnations. 22 Comp. Gen. 1112. The reason is that
just compensation is a constitutional right and cannot be limited by
statute. Id. at 1114. (The particular limitation in that case no
longer exists, but the principle remains valid.)
b. Application of Fiscal Law Principles:
A lease, as a contract requiring the obligation and expenditure of
appropriated funds, is subject to the various fiscal statutes and
principles discussed throughout this publication the same as any other
contract. One area meriting some note is the Antideficiency Act, 31
U.S.C. § 1341.[Footnote 104] There are few areas of government
contracting in which the desirability of multiyear commitments is
stronger than in the case of real property leases. For the most part,
Congress has provided multiyear leasing authority. This is fortunate
because it has long been settled that, without either such authority
or a no-year appropriation, a multiyear lease would violate the
Antideficiency Act by purporting to obligate the government for future
years, in advance of appropriations for those years.
The story of one such lease will illustrate. A government agency
leased space in an office building in 1921, purportedly for 5 years,
without statutory authority. At the end of the second year, the
government notified the lessor of its intention to terminate the lease
and vacate the premises. However, the government's new space was not
yet ready, so the agency remained in the leased building and told the
lessor that it would continue to pay rent for the period of actual
occupancy. The lessor argued that, under state law, it was entitled to
rent for at least the full third year. The claim first came to GAO and
the answer was no. Since the multiyear lease was unauthorized in the
first place, terminating it at the end of the second year could not be
a breach. 5 Comp. Gen. 172 (1925).
The lessor did not like this answer and went to court, by now
conceding that it could not establish the lease's validity for the
full 5-year period, but still trying to recover for the entire third
year. The Court of Claims threw the case out on the grounds that it
failed to state a cause of action. Goodyear Tire & Rubber Co. v.
United States, 62 Ct. Cl. 370 (1926), aff'd, 276 U.S. 287 (1928). The
lessor, not overly excited with this result either, took it to the
Supreme Court. Unfortunately for the lessor, the Supreme Court had
just decided a similar case, Leiter v. United States, 271 U.S. 204
(1926), clearly establishing that a multiyear lease without statutory
authority could bind the government only to the end of the fiscal year
in which it was made (or, of course, longer period under a multiple
year appropriation). It could be binding in a subsequent year only if
there was an available appropriation and if the government took
affirmative action—as opposed to mere automatic renewal—to continue
the lease. Leiter, 271 U.S. at 207.[Footnote 105] The disposal of
Goodyear's appeal was a straightforward application of Leiter.
Goodyear, 276 U.S. 287. "Not having affirmatively continued the lease
beyond the actual period of occupancy, the Government cannot, under
the doctrine of the Leiter case, be bound for a longer term." Id. at
293.
Later GAO decisions applying these principles include 24 Comp. Gen.
195 (1944); 20 Comp. Gen. 30 (1940); 19 Comp. Gen. 758 (1940); and B-
7785, Mar. 28, 1940. The sheer number of cases both before and after
Leiter suggests the strength of the need that ultimately generated the
multiyear leasing statutes we will discuss later. Of course, the case
law comes back into play in any situation not covered by one of the
statutes, or if the government were to attempt to enter into a lease
for a time period in excess of that authorized by statute.
The objection, based on the Antideficiency Act, to indefinite or open-
ended indemnification agreements by the government applies fully to
indemnity provisions included in a lease. 35 Comp. Gen. 85 (1955).
The existence of multiyear leasing authority by itself does not
necessarily tell you how to record obligations under a lease. Some
agencies have specific statutory direction. For example, the General
Services Administration is to obligate funds for its multiyear leases
one year at a time. 40 U.S.C. § 585(a)(2). So are the military
departments with respect to leases in foreign countries. 10 U.S.C. §§
2675 (leases for military purposes other than family housing) and
2828(d) (military family housing). Absent such authority, you fall
back on the general rule that obligations are chargeable in full to
appropriations current at the time they are incurred. Thus, in B-
195260, July 11, 1979, GAO advised the Federal Emergency Management
Agency, which had no-year appropriations but no statutory direction
comparable to 40 U.S.C. § 585(a)(2) or 10 U.S.C. § 2675, that it could
enter into a multiyear lease under its no-year appropriation but that
it had to obligate the full amount of its obligations under the lease
at the time the lease was signed. Actual payments, of course, would be
made periodically over the term of the lease.
The constitutional immunity of the United States from state and local
taxes imposed on property which the government owns does not extend to
property which the government leases. Taxes imposed on the owner are
simply part of the consideration or rent which the government, as
tenant, agrees to pay. 24 Comp. Dec. 705 (1918). However, there is no
authority for the government to increase its rent payments to
compensate for tax increases unless there is also some other
modification or amendment to constitute legal consideration. B-169004,
Mar. 6, 1970. Indeed, the current regulations require inclusion of a
clause explicitly stating that no adjustment will be made to cover
increased taxes. 48 C.F.R. § 552.229-70.
c. Rights and Obligations:
While the Contract Disputes Act does not apply to contracts for "the
procurement of ... real property in being" (41 U.S.C. § 602(a)(1)),
this exemption has not been construed as applying to leases.
Therefore, claims and disputes arising under a lease are governed by
the requirements and procedures of the Contract Disputes Act. Forman
v. United States, 767 F.2d 875 (Fed. Cir. 1985) (the leading case);
Jackson v. United States Postal Service, 799 F.2d 1018 (5th Cir.),
reh'g denied, 803 F.2d 717 (5th Cir. 1986); The Federal Group, Inc. v.
United States, 67 Fed. Cl. 87, 96-97 (2005); United States v. Black
Hawk Masonic Temple Ass'n, 798 E Supp. 646 (D. Colo. 1992); Goodfellow
Bros., Inc., AGBCA No. 80-189-3, 81-1 B.C.A. ¶ 14,917 (1981); Robert
J. DiDomenico, GSBCA No. 5539, 80-1 B.C.A. ¶ 14,412 (1980).[Footnote
106] However, as with other types of government contracts, the
Contract Disputes Act does not extend to protests against the award
of, or failure to award, a lease. Arthur S. Curtis, GSBCA No. 8867-P-
R, 88-1 B.C.A. ¶ 20,517 (1988) (government in that case was lessor).
The traditional view among the courts, boards of contract appeals, and
GAO has been that rights and obligations under a lease to which the
federal government is a party are questions of federal, rather than
state, law. E.g., Forman, 767 F.2d 875; Girard Trust Co. v. United
States, 161 F.2d 159 (3rd Cir. 1947); Keydata Corp. v. United States,
504 F.2d 1115 (Ct. Cl. 1974); Brooklyn Waterfront Terminal Corp. v.
United States, 90 E Supp. 943 (Ct. Cl. 1950), cert. denied, 340 U.S.
931 (1951); Goodfellow Bros., Inc., 81-1 B.C.A. ¶ 14,917; 49 Comp.
Gen. 532, 533 (1970); B-174588, May 17, 1972, aff'd on
reconsideration, B-174588, Sept. 6, 1972. The same is true with
respect to lease formation. E.g., United States v. Bedford Associates,
657 F.2d 1300, 1309-10 (2nd Cir. 1981), cert. denied, 456 U.S. 914
(1982). Under this approach, the decision maker is free to choose what
it regards as the better view when state laws are not uniform. E.g.,
Keydata, 504 F.2d at 1122-24.
There is also a line of cases involving United States Postal Service
leases which, while recognizing their power to apply federal law,
decline to do so and instead apply state landlord-tenant law. Powers
v. United States Postal Service, 671 F.2d 1041 (7th Cir. 1982); Reed
v. United States Postal Service, 660 E Supp. 178 (D. Mass. 1987);
Jackson v. United States Postal Service, 611 E Supp. 456 (N.D. Tex.
1985).[Footnote 107] The advantage of using state law is that every
state has an established body of landlord-tenant law whereas federal
courts deal with these issues infrequently. It is no coincidence that
these cases, from the district courts and numbered circuits, all
involve Postal Service leases because federal lease cases involving
agencies other than the Postal Service would mostly go on appeal to
the Court of Appeals for the Federal Circuit. Forman, 767 F.2d at 880
n.6; Reed, 660 E Supp. at 181. Indeed, since appeals under the
Contract Disputes Act go to the Federal Circuit, the Postal Service
Board of Contract Appeals follows its governing circuit (the Forman
case) and applies federal law. N.J. Hastetter, Trustee, PSBCA No.
3064, 92-3 B.C.A. ¶ 25,189 (1992).
As with contracts in general, rights and obligations under a lease are
determined primarily by reference to the terms the parties agreed
upon, as embodied in the lease agreement. E.g., Girard Trust Co., 161
F.2d at 161. A number of contract clauses used in General Services
Administration leases are described in 48 C.F.R. subpart 570.6. In
addition, there are certain "implied covenants" that the courts will
read in unless the lease expressly provides otherwise.
For example, the landlord is frequently obligated to keep the premises
in good repair. See 48 C.F.R. §§ 570.603 and 552.270-6 (clause). If
the landlord violates this provision, the government can make the
repairs and deduct their cost from rent payments. 48 C.F.R. § 552.270-
10. In addition, every lease includes an "implied covenant of quiet
enjoyment." United States v. Bedford Associates, 548 E Supp. 732, 740
(S.D.N.Y. 1982), modified on other grounds and aff'd, 713 F.2d 895
(2nd Cir. 1983). Significant breach of the repair clause or the
implied covenant can trigger the government's right to terminate the
lease under a default clause if the lease contains one or, if the
lease does not contain a default clause, under the common-law concept
of "constructive eviction."
A constructive eviction is wrongful conduct by the lessor which (1)
renders the premises unfit for the purpose leased or (2) deprives the
tenant of the beneficial use and enjoyment of the premises. David
Kwok, GSBCA No. 7933, 90-1 B.C.A. ¶ 22,292 (1989), affd mem., 918 F.2d
187 (Fed. Cir. 1990); Hugh, L. Nathurst III, GSBCA No. 9284, 89-3
B.C.A. ¶ 22,164 (1989); J.H. Millstein and Fanny Millstein, GSBCA Nos.
7665 and 7904, 86-3 B.C.A. ¶ 19,025 (1986). A constructive eviction
requires more than some minor deviation. For a vivid example of facts
supporting a constructive eviction, see Kwok, 90-1 B.C.A. at ¶
111,959. Under a constructive eviction, the government's obligation to
pay rent ceases, but the government, as tenant, must vacate the
premises within a reasonable time. Bedford Associates, 548 E Supp. at
741; Richardson v. United States, 17 Cl. Ct. 355, 357 (1989).
Disruption incident to the making of repairs is not a constructive
eviction. Millstein, 86-3 B.C.A. at ¶ 96,084. Conversely, continued
occupancy in reliance on the lessor's promise of repair does not waive
the government's right to assert a constructive eviction. Nathurst, 89-
3 B.C.A. at ¶ 111,541.
A lease may require the lessee to restore the premises to the
condition they were in at the beginning of the lease, reasonable wear
and tear excepted. As with the "good repair" clause, even in the
absence of an express provision in the lease, there is an implied
covenant which may produce much the same result. Unless the lease
expressly provides otherwise, every lease includes an implied covenant
against voluntary waste, under which the government can be held liable
for negligent damage to the premises. United States v. Bostwick, 94
U.S. 53 (1876); New Rawson Corp. v. United States, 55 E Supp. 291 (D.
Mass. 1943); Mount Manresa v. United States, 70 Ct. Cl. 144 (1930);
Italian National Rifle Shooting Society v. United States, 66 Ct. CL
418 (1928). This covenant "also requires restoration of the premises
to the lessor in the same condition as received, reasonable wear and
tear excepted" when "construed with reference to the intended use of
the property by the lessee." Brooklyn Waterfront Terminal Corp. v.
United States, 90 E Supp. 943, 949 (Ct. Cl. 1950), cert. denied, 340
U.S. 931 (1951). See also United States v. Jordan, 186 F.2d 803, 806
(6th Cir. 1951), affd per curiam, 342 U.S. 911 (1952). By virtue of
the covenant against voluntary waste, appropriate restoration costs
are a proper charge to appropriated funds. 26 Comp. Gen. 585 (1947);
25 Comp. Gen. 349 (1945).
A provision whose status is somewhat clouded is the Termination for
Convenience ("T for C") clause required in government procurement
contracts generally. The government has regarded the "T for C" clause
as inappropriate in leases of real property, and General Services
Administration (GSA) leases do not include a "T for C" clause. The
reason, the GSA Board of Contract Appeals has suggested, is that the
clause "would enable the Government to cancel the lease at any time
without liability for future rent, and would therefore so vitiate the
agreement on a fixed lease term that it might render the apparent
lease agreement nugatory." Yucca, A Joint Venture, GSBCA Nos. 6768,
7319, 85-3 B.C.A. ¶ 18,511 (1985) at ¶ 92,969.
One practical consequence of this is the inability to recommend
termination where a lease is found to have been improperly awarded.
E.g., 72 Comp. Gen. 335, 339 (1993); B-214648, Dec. 26, 1984. However,
one court has stated that a termination for convenience clause is
incorporated in a lease of real property by operation of law.
Aerolease Long Beach v. United States, 31 Fed. Cl. 342, aff'd, 39 F.3d
1198 (Fed. Cir. 1994). Whether a lease could expressly disclaim the "T
for C" authority does not yet appear to have been addressed.
Wholly apart from the presence or absence of a termination for
convenience clause, paragraph 4 of the U.S. Government Lease for Real
Property, Standard Form 2 (June 2, 2003),[Footnote 108] provides as
follows: "The Government may terminate this lease at any time by
giving at least _____ days' notice in writing to the Lessor and no
rental shall accrue after the effective date of termination." The
parties then insert the desired notification period. This provision
has occasionally been stricken from the lease, essentially for the
same reason there is no "T for C" clause—the apparent inconsistency
with the fixed term of the lease. E.g., David Kwok, GSBCA No. 7933, 90-
1 B.C.A. ¶ 22,292 (1989) at ¶ 111,960. However, where the provision is
used, it becomes part of the contract and is enforced as such. Darrel
Stebbins, AGBCA No. 91-164-1, 93-1 B.C.A. ¶ 25,236 (1992); Capricorn
Enterprises, Inc., AGBCA No. 89-125-1, 90-1 B.C.A. ¶ 22,587 (1990).
d. Payment of Rent:
"The primary obligation of a tenant is to pay rent." Jackson v. United
States Postal Service, 611 F. Supp. 456, 460 (N.D. Tex. 1985). Rent
has been defined as "compensation for the use, enjoyment and
occupation of real estate." B-106578, Aug. 29, 1952, at 3. The lease
(paragraph 3 of the U.S. Government Lease for Real Property, Standard
Form 2[Footnote 109]) will state the amount of rent and the intervals
at which it is to be paid. Where rent is paid monthly, the monthly
amount, unless the lease specifies differently, is one-twelfth of the
annual rental regardless of variations in the number of days from
month to month. 24 Comp. Gen. 838 (1945). The government pays by
electronic funds transfer. See 48 C.F.R. §§ 532.908(b)(2) and 552.232-
76. The Prompt Payment Act applies to leases. 31 U.S.C. § 3901(a)(6).
GSA's regulations incorporating this requirement are 48 C.F.R. §§
532.908(b)(1) and 552.232-75. Under the terms of the lease provision,
however, Prompt Payment Act interest penalties do not apply where the
delay in payment is due to a dispute concerning the government's
liability. Modeer v. United States, 68 Fed. CL 131, 144 (2005), aff'd,
183 Fed. Appx. 975 (Fed. Cir. 2006).
(1) Advance payment:
By virtue of the general prohibition against advance payments found in
31 U.S.C. § 3324(b), the United States cannot make rental payments in
advance but must pay in arrears. The prohibition applies to the lease
of "naked lands" as well as buildings. 23 Comp. Dec. 653 (1917). The
General Services Administration's regulations provide that rent will
be paid monthly "in arrears" and is due on the first workday of each
month. 48 C.F.R. § 552.232-75(a)(1). Thus, the payment covers the
month that has just ended rather than the month that is beginning. GPA-
I, LP v. United States, 46 Fed. CL 762, 769-71 (2000).
The same nonstatutory exceptions apply in the case of leases as apply
to advance payments in general. Thus, where the lessor is a state,
rent may be paid in advance because the possibility of loss is
regarded as sufficiently remote. 57 Comp. Gen. 399 (1978). See also B-
207215, Mar. 1, 1983, applying the exception to a National Park
Service lease from a statutorily created nonprofit foundation whose
governing board included the Secretary of the Interior and the
Director of the Park Service. That decision also emphasized that, in
view of the bona fide needs rule, payment in advance means advance for
the fiscal year (or other fixed term of the paying appropriation).
Rent being paid pursuant to a condemnation award may be paid in
advance to the extent necessary to satisfy the award. 22 Comp. Gen.
1112 (1943).
In addition, Congress may legislate exceptions to the advance payment
prohibition and has done so in a number of instances. Examples are 22
U.S.C. § 2670(h) (State Department leases for the use of the Foreign
Service abroad) and 10 U.S.C. § 2661(b)(1) (certain military leases).
(2) Payment to legal representative:
The common-law rule is that rent which has accrued prior to the
lessor's death is payable to the executor or administrator; rent which
accrues after the lessor's death vests in the heir (intestate
succession) or devisee (person named in will), unless otherwise
provided by statute or will or unless the property has been formally
brought into administration proceedings prior to accrual of the rent.
B-116413, Aug. 19, 1953. For an example of a state statute which
modifies the common-law rule by requiring payment of posthumous rent
to the legal representative, see B-36636, Sept. 14, 1943. Of course,
the common-law rule does not apply in the case of property held
jointly with right of survivorship, such as property owned by a
husband and wife as tenants by the entirety, in which case rent is
payable to the surviving co-owner. B-140816, Oct. 27, 1959.
Where rent is being paid to an executor or administrator, the voucher
should include a statement to the effect that the payee is continuing
to serve in that capacity. 9 Comp. Gen. 154 (1929); B-127362, Apr. 13,
1956. The purpose is to safeguard against making payment to someone
who has been discharged as legal representative, an improper payment
which could put a certifying officer at risk. This does not mean that
the certifying officer has to run to the courthouse every month before
certifying the payment voucher. While this would not eliminate the
potential for personal liability, the lessor can be required to submit
a statement to be attached to the voucher. B-57612, June 18, 1946.
Before entering into a new lease with an executor or administrator,
the agency must be careful to determine that the executor or
administrator is authorized to lease the decedent's property. This
usually requires the permission of the probate court. In 16 Comp. Gen.
820 (1937), an executor leased property to the government at a rent
lower than that authorized by the court. Since the executor had
exceeded his authority, no binding lease resulted and the government
was liable for the fair rental value of the property.
(3) Assignment of Claims Act:
The Assignment of Claims Act-31 U.S.C. § 3727 and 41 U.S.C. § 15—
prohibits the assignment of claims against the United States except
under fairly restrictive conditions, prohibits the transfer of
government contracts, and authorizes the assignment of contract
proceeds to financing institutions. This legislation impacts the
payment of rent under leases in several ways. Starting with 31 U.S.C.
§ 3727, the prohibition on assignments applies to a lessor's right to
receive rent. The government is not bound to recognize an assignment
not in compliance with the statute. E.g., Webster Factors, Inc. v.
United States, 436 F.2d 425 (Ct. CL 1971); B-204237, Oct. 13, 1981.
To avoid problems under the anti-assignment legislation, early
decisions[Footnote 110] developed the following guidelines for payment:
* If an agent executes the lease on behalf of the principal under a
proper power of attorney, rent may be paid to the agent.
* Rent may be paid to an agent if the lease itself so specifies.
* If neither of the above applies, the check for rent must be drawn
payable to the principal, although it may be delivered to an agent.
* If payment to an agent is authorized to begin with, it may be made
to a successor agent. 6 Comp. Gen. 737 (1927); B-36636, Sept. 14, 1943.
Application of the Assignment of Claims Act to leases is essentially
the same as in other contexts. Thus, the prohibition applies to
voluntary assignments and not to assignments by operation of law.
E.g., Keydata Corp. v. United States, 504 F.2d 1115 (Ct. CL 1974)
(assignment under court order). Also, since the prohibition is for the
government's protection, the government can choose to waive the
statute and recognize an assignment. Freedman's Saving & Trust Co. v.
Shepherd, 127 U.S. 494 (1888). See also 11 Comp. Gen. 278 (1932). As
with government contracts in general, the government can include a
provision authorizing the assignment of rent payments to a financing
institution, and will then be bound by a proper assignment. See
Webster Factors, 436 F.2d 425.
The prohibition in 41 U.S.C. § 15 on the transfer of contracts comes
into play when the lessor of property leased to the government sells
the property. An early Supreme Court case, Shepherd, 127 U.S. at 505,
held that the prohibition:
"does not embrace a lease of real estate to be used for public
purposes, under which the lessor is not required to perform any
service for the government, and has nothing to do, in respect to the
lease, except to receive from time to time the rent agreed to be paid.
The assignment of such a lease is not within the mischief which
Congress intended to prevent."
There is no reason this holding would not remain valid under the
stated conditions. Especially with respect to buildings, however, many
modern leases are different. The General Services Administration (GSA)
Board of Contract Appeals has held that the principle of the Shepherd
case does not apply to:
"a contemporary GSA lease, involving a host of services and supplies
to be provided by the lessor. The transfer of this lease without the
consent of the Government might not only subject the Government to
multiple litigation with unknown parties, but might, at each turn,
subject the Government to detrimental alteration in the performance of
contractual services."
Broadlake Partners, GSBCA No. 10713, 92-1 B.C.A. ¶ 24,699 (1991), at ¶
123,270. Of course, as with assignments under 31 U.S.C. § 3727, the
government can consent to the transfer. See Albert Ginsberg, GSBCA No.
9911, 91-2 B.C.A. ¶ 23,784 (1991).
In 1992, subsequent to the Broadlake Partners decision, GSA amended
its "successors bound" clause to read as follows: "This lease shall
bind, and inure to the benefit of, the parties and their respective
heirs, executors, administrators, successors and assigns." 48 C.F.R. §
552.270-11 (emphasis added). This clause is required in larger leases
and optional in smaller ones. 48 C.F.R. § 570.603. The 1992 amendment
added the italicized language.[Footnote 111] While there appear to be
no published decisions interpreting the amendment, it is at least
arguable that the clause amounts to a blanket consent. See United
States v. Jordan, 186 F.2d 803, 808 (6th Cir. 1951), aff'd per curiam,
342 U.S. 911 (1952).
2. Statutory Authorities and Limitations:
a. Federal Property and Administrative Services Act:
The major portion of the federal government's leasing is done by the
General Services Administration (GSA), which serves as the government's
chief "leasing agent.[Footnote 112] As a general proposition, an
agency which needs space must get it through GSA. The agency may do
its own leasing only if it has specific statutory authority to do so,
or upon a delegation from GSA. B-309181, Aug. 17, 2007 ("Without a
delegation from the General Services Administration or independent
statutory authority to enter into a lease, neither GovWorks (a
Department of the Interior franchise fund) nor the Counterintelligence
Field Activity ... of the Department of Defense ... had authority to
obtain office space through a third-party lease."); B-202206, June 16,
1981 (the Northern Mariana Islands Commission on Federal Laws, an
independent entity in the legislative branch, may not rent office
space on its own unless it receives a delegation from GSA).
We begin our discussion of GSA's authorities with a brief note on
citations. GSA leasing authority is the combined product of several
provisions of law. The primary original source of these provisions was
the Federal Property and Administrative Services Act of 1949, Pub. L.
No. 81-152, 63 Stat. 377 (June 30, 1949) (Property Act), which also
created GSA. These provisions, with their amendments over the years,
were located in title 40 of the United States Code. They are still in
title 40; however, Congress recently codified title 40 into positive
law. Pub. L. No. 107-217, 116 Stat. 1062 (Aug. 21, 2002). The
codification repealed most of the Property Act and reassigned its
provisions to new sections of title 40, usually retaining the same
substance but making minor wording changes. While the following
discussion cites the current provisions, we will also include the pre-
codification citations since virtually all the cases we will discuss
reference the former sections.
Section 585 of title 40[Footnote 113] authorizes the Administrator of
GSA to enter into leases for terms of up to 20 years. Specifically,
section 585(a) provides:
"(1) Authority.—The Administrator of General Services may enter into a
lease agreement with a person, copartnership, corporation, or other
public or private entity for the accommodation of a federal agency in
a building (or improvement) which is in existence or being erected by
the lessor to accommodate the federal agency. The Administrator may
assign and reassign the leased space to a federal agency.
"(2) Terms.—A lease agreement under this subsection shall be on terms
the Administrator considers to be in the interest of the Federal
Government and necessary for the accommodation of the federal agency.
However, the lease agreement may not bind the Government for more than
20 years and the obligation of amounts for a lease under this
subsection is limited to the current fiscal year for which payments
are due without regard to section 1341(a)(1)(B) of title 31 [of the
United States Code]."
Shortly after enactment of the Property Act, section 1 of
Reorganization Plan No. 18 of 1950, 40 U.S.C. § 301 note, promulgated
pursuant to the Reorganization Act of 1949 (5 U.S.C. §§ 901-912),
transferred "[all functions with respect to acquiring space in
buildings by lease ... from the respective agencies in which such
functions are now vested" to GSA, except for (1) buildings in foreign
countries, (2) buildings on military facilities, (3) post office
buildings, and (4) "special purpose" space not generally suitable for
the use of other agencies, such as hospitals, jails, and laboratories.
Another provision, 40 U.S.C. § 582(b),[Footnote 114] gives the Office
of Management and Budget permanent authority to transfer to GSA
functions "vested in a federal agency with respect to the operation,
maintenance, and custody of an office building" owned or leased by the
government, with exceptions similar to those found in the 1950
reorganization plan.
GSA leasing authority under 40 U.S.C. § 585 is not limited to the
executive branch. This is because the authority applies with respect
to "federal agencies," which term is defined in 40 U.S.C. § 102(5)
[Footnote 115] to mean "an executive agency or an establishment in the
legislative or judicial branch of the Government (except the Senate,
the House of Representatives, and the Architect of the Capitol, and
any activities under the direction of the Architect of the Capitol."
Thus, legislative branch entities except those specified must lease
office space through GSA absent authority to do otherwise by statute
or delegation. B-202206, June 16, 1981. So must the Administrative
Office of the United States Courts. 54 Comp. Gen. 944 (1975). The
Supreme Court building is exempt from GSA authority, however, because
40 U.S.C. § 6111(a)[Footnote 116] places it under the control of the
Architect of the Capitol. 54 Comp. Gen. at 947.
The statute further defines "executive agency" as including wholly
owned government corporations. 40 U.S.C. § 102(4). Therefore, by its
terms, it does not apply to mixed-ownership government corporations.
See Chapter 15, section B. Similarly, Reorganization Plan No. 18 is
regarded as applicable to wholly owned, but not mixed ownership,
government corporations. 38 Comp. Gen. 565 (1959).
The 20-year term authorized by 40 U.S.C. § 585(a)(2) refers to the
length of time that the government is obligated to pay rent. Thus, a
lease-construction agreement which provides for a 2 to 3 year lead
time for construction of the building, with the 20-year term of
occupancy and the government's obligation to pay rent to begin upon
completion of construction, does not violate the statute. B-191888,
May 26, 1978.
GSA finances its leasing operations from the Federal Buildings Fund, a
revolving fund established by 40 U.S.C. § 592.[Footnote 117] Money in
the Fund is available for expenditure as specified in annual
appropriation acts. 40 U.S.C. § 592(c)(1). A recurring general
provision authorizes any department or agency to use its operating
appropriations to pay GSA's charges for space and services furnished
by law. E.g., Consolidated Appropriations Act, 2008, Pub. L. No. 110-
161, § 706, 121 Stat. 1844, 2020 (Dec. 26, 2007). Funds for multiyear
leases are obligated one fiscal year at a time. 40 U.S.C. § 585(a)(2).
This funding scheme does not give the tenant agency the same rights
against GSA that a commercial tenant would have against a commercial
landlord. Thus, GSA is not liable to the tenant agency for damage to
the agency's property caused by building defects, although GSA should
of course try to recover from the lessor. 57 Comp. Gen. 130 (1977).
See also B-308822, May 2, 2007 (operating reserves in the National
Archives and Records Administration's (NARA) records center revolving
fund are available to cover the costs of repairing water damage to
records that NARA stores for its federal agency customers caused by a
GSA building failure; GSA is not required to reimburse NARA for the
property damage).
There is still another funding provision on the books, 40 U.S.C. §
1303(e)(1),[Footnote 118] which predates the Property Act. It provides:
"To the extent that the appropriations of the General Services
Administration not otherwise allocated are inadequate for repairs,
alterations, maintenance, or operation, the Administrator [of GSA] may
require each federal agency to which leased space has been assigned to
pay promptly by check to the Administrator out of its appropriation
for rent any part of the estimated or actual cost of the repairs,
alterations, maintenance, and operation. Payments may be either in
advance of, or on or during, occupancy of the space. The Administrator
shall determine and equitably apportion the total amount to be paid
among the agencies to whom space has been assigned."
While the creation of the Federal Buildings Fund has diminished the
significance of 40 U.S.C. § 1303(e)(1), it remains as a backup. It
does not, however, alter or expand the availability of the tenant
agency's appropriations. B-62051, Jan. 17, 1947.
If GSA enters into a lease under its statutory authorities, GSA, not
the tenant agency, must make any necessary amendments or
modifications. A lease executed by GSA may not be amended or modified
by an agreement between the tenant agency and the lessor. 38 Comp.
Gen. 803 (1959); 32 Comp. Gen. 342 (1953).
It is possible that the tenant agency's needs might change such that
it no longer needs the leased premises for the full term of the lease.
Should this happen, the unexpired term of the lease can be declared
"excess," in which event other government agencies should be
canvassed, the same as with other forms of excess property, to see if
any other agency needs the premises. If not, GSA can declare the
unexpired term "surplus" and sublet the premises, depositing rental
receipts to the Federal Buildings Fund to be used to provide services
to the new tenant or to pay rent to the original lessor. 40 U.S.C. §
585(b)(2). Alternatively, depending on a variety of circumstances, it
may be in the government's interest to invoke whatever cancellation
terms the lease provides. See B-119782, July 9, 1954, in which
cancellation was the cheapest alternative.
GSA implements its leasing authority in the Federal Management
Regulation, specifically 41 C.F.R. part 102-73, subpart B. Subject to
certain exceptions, GSA is authorized to delegate, and to authorize
successive redelegation of, functions transferred to or vested in it.
40 U.S.C. § 121(d).[Footnote 119] This includes leasing, and the GSA
regulations provide for a wide variety of delegations. In this regard,
the regulations state in general: "Federal agencies, upon approval
from GSA, must perform all functions of leasing building space, and
land incidental thereto, for their use except as provided in this
subpart." 41 C.F.R. § 102-73.75. The regulations spell out, at 41
C.F.R. § 102-73.140, terms and conditions that apply to agencies
leasing space pursuant to GSA delegations of authority:
* Agencies may do their own leasing, for terms of not more than 1
year, when space is leased for no rental or a nominal rental of $1 a
year. 41 C.F.R. § 102-73.140(b). • GSA may grant specific delegations
upon request. 41 C.F.R. § 10273.140(c).
* GSA may grant categorical delegations, under which any agency may do
its own leasing for specified purposes.[Footnote 120] 41 C.F.R. § 102-
73.140(d).
* GSA may grant "special purpose" delegations for space not generally
suitable for use by other agencies. 41 C.F.R. § 102-73.140(e). Special
purposes delegations are described in 41 C.F.R. § 102-73.160 and are
listed in 41 C.F.R. §§ 102-73.170-73.225
Since what is being delegated is the authority GSA possesses under 40
U.S.C. § 585, the delegation includes the authority to enter into
multiyear leases for terms of up to 20 years, "except as otherwise
noted." 41 C.F.R. § 102-73.165.
b. Prospectus Requirement:
The acquisition of real property, including leaseholds, requires
legislative authorization. For major leases, a component of this
authorization is the prospectus approval requirement of 40 U.S.C. §
3307.[Footnote 121] As relevant to leases, it provides that no
appropriation shall be made to lease space for a public purpose at an
average annual rental exceeding $1.5 million unless the Senate
Committee on Environment and Public Work and the House Committee on
Transportation and Infrastructure adopt resolutions approving the
purpose for which the appropriation is made. 40 U.S.C. § 3307(a).
Section 3307(b) states that GSA shall seek committee consideration and
approval under section 3307(a) by transmitting a prospectus of the
proposed facility to the Congress. The section goes on to specify that
the prospectus shall include, among other things: a brief description
of the space to be leased, the location of the space, an estimate of
the maximum cost to the United States, a comprehensive plan addressing
the space needs of all government employees in the locality, and a
statement of how much the government is already spending to
accommodate the employees who will occupy the space to be leased.
[Footnote 122]
The application of section 3307 to leases originated in the Public
Buildings Amendments of 1972, Pub. L. No. 92-313, § 2, 86 Stat. 216,
217 (June 16, 1972). It was the outgrowth of appropriation act
provisions used throughout most of the 1960s to control lease-
construction arrangements. See Merriam v. Kunzig, 476 F.2d 1233, 1237-
39 (3rd Cir.), cert. denied, 414 U.S. 911 (1973). As enacted, however,
the requirement applies "to all leases, and not merely to leases for
buildings to be erected by the lessor." Id. at 1239. The threshold,
originally $500,000, was raised to $1,500,000 by the Public Buildings
Amendments of 1988, Pub. L. No. 100-678, § 2, 102 Stat. 4049 (Nov. 17,
1988). GSA can adjust the threshold amount annually in the manner and
to the extent authorized in 40 U.S.C. § 3307(g).[Footnote 123]
The monetary threshold applies to the "average annual rental." GSA and
GAO agree that "rental" in this context means the amount of
consideration for use of the land and buildings, or portions of
buildings, during the firm term of the lease, excluding the cost of
any services such as heat, light, water, and janitorial services. 41
C.F.R. § 102-73.230 (threshold applies to "net" annual rental,
excluding services and utilities). See also 52 Comp. Gen. 230 (1972).
Apart from 40 U.S.C. § 3307(d), which authorizes the rescission of
approval if an appropriation has not been enacted within one year, the
statute does not impose time limits on the approval process. However,
delay may have adverse consequences. One court has held that delay by
GSA in obtaining prospectus approval, during a time when construction
costs were increasing rapidly, excused the lessor from any duty to
renovate the premises. United States v. Bedford Associates, 548 F.
Supp. 732, 737 (S.D. N.Y. 1982), modified on other grounds and aff'd,
713 F.2d 895 (2nd Cir. 1983).
Since the statute requires GSA to submit the prospectus, an agency
which is doing its own leasing under a delegation from GSA must submit
its prospectus to GSA who will in turn submit it to the Congress. 41
C.F.R. § 102-73.230.
c. Site Selection:
It is, as it should be, up to the leasing agency to determine where
those premises should be located, and that determination should not be
second-guessed as long as it has a rational basis. 59 Comp. Gen. 474,
480 (1980); B-190730, Sept. 26, 1978. For example, GAO regards
geographical restrictions, such as "city limits" restrictions, based
on considerations of employee travel time, as reasonable. B-230660,
May 26, 1988; B-227849, Sept. 28, 1987. The GSA regulations likewise
give leasing agencies discretion within the overall statutory and
regulatory framework:
"Each Federal agency is responsible for identifying the delineated
area within which it wishes to locate specific activities, consistent
with its mission and program requirements, and in accordance with all
applicable laws, regulations, and Executive Orders."
41 C.F.R. § 102-83.25. Of course, the leasing of real property, like
virtually every other form of federal contract, is designed to serve
various social and economic purposes in addition to meeting the
government's needs.
One such purpose is the preservation of historic properties. The
National Historic Preservation Act directs agencies to seek out and
use, to the maximum extent feasible, "historic properties available to
the agency" before leasing other buildings. 16 U.S.C. § 470h-2(a)(1).
Another provision of law directs the General Services Administration
(GSA) to "acquire and utilize space in suitable buildings of
historical, architectural, or cultural significance, unless use of the
space would not prove feasible and prudent compared with available
alternatives." 40 U.S.C. § 3306(b)(1).[Footnote 124] "Historical,
architectural, or cultural significance" for the most part means
buildings listed or eligible to be listed on the National Register
established under the Historic Preservation Act. Id. § 3306(a)(4).
While one court has held that 40 U.S.C. § 3306 does not apply to
properties which GSA is leasing for other agencies, the same court
noted that the policy has been incorporated into an executive order
which does apply to leased properties. Birmingham Realty Co. v. GSA,
497 F. Supp. 1377, 1384-86 (N.D. Ala. 1980), citing to Exec. Order No.
12072, Federal Space Management, 43 Fed. Reg. 36,869 (Aug. 16, 1978),
reprinted at 40 U.S.C. § 121 note. The GSA regulations explicitly
affirm that the preference for historic properties applies when
leasing space. 41 C.F.R. §§ 102-73.30, 10283.125. The GSA regulations
provide for preferences to be given to historic buildings. Under a
clause prescribed for major leases, the historic building will get the
award if it meets the terms and conditions of the solicitation, and if
the rental is no more than 10 percent higher than the lowest otherwise
acceptable offer. 48 C.F.R. §§ 570.602, 552.270-2. See also Exec.
Order No. 13006, Locating Federal Facilities on Historic Properties in
Our Nation's Central Cities, 61 Fed. Reg. 26,071 (May 21, 1996); 41
C.F.R. pt. 102-78. A solicitation of offers for a lease should state
how the historic building preference will be applied. 62 Comp. Gen. 50
(1982).
None of the authorities thus far noted purport to address the
consequences of disregarding the historic building preference. In the
Birmingham Realty case cited above, the court found that GSA had
failed to comply with the executive order, but that the unsuitability
of the historic building for the purposes for which the space was
needed outweighed the noncompliance. Birmingham Realty, 497 F. Supp.
at 1386-87.
The choice between urban and rural locations introduces additional
requirements. A provision enacted as part of the Rural Development Act
of 1972, now found at 7 U.S.C. § 2204b-1(b), designed to improve rural
economic and living conditions, requires federal agencies to give
"first priority to the location of new offices and other facilities in
rural areas." Section 1-103 of Executive Order No. 12072, designed to
strengthen cities, requires federal agencies to "give first
consideration to a centralized community business area and adjacent
areas of similar character" when meeting space needs in urban areas.
"First consideration" means preference. City of Reacting v. Austin,
816 F. Supp. 351, 362 (E.D. Pa. 1993).
While these preferences may seem incompatible, they are not. Because
it is statutory, the rural preference must be considered first. The
central business area preference comes into play only after it is
determined that the need must be met in an urban area. 59 Comp. Gen.
474, 480 (1980); 59 Comp. Gen. 409, 414 (1980). Also, the applicable
definitions of urban area and rural area produce an overlap such that
a community with a population between 10,000 and 50,000 is both. 59
Comp. Gen. at 414; B-95136, Mar. 10, 1980.
The City of Reading court held that the city's complaint of
noncompliance with Executive Order No. 12072 was subject to judicial
review. However, the court noted that Executive Order No. 12072
"provides no meaningful benchmarks for a court to effectively evaluate
GSA's ultimate decision," and that the decision involves "managerial
and economic choices dependent on GSA's special expertise ... not
readily subject to judicial review." City of Reading, 816 F. Supp. at
360. Therefore, the review should not be a review of the merits of the
decision, but should seek "to ensure a fully informed and well-
considered decision." Id. Citing City of Reacting, the court in City
of Albuquerque v. Department of the Interior, 379 F.3d 901 (10th Cir.
2004), also concluded that a challenge based on noncompliance with
Executive Order No. 12072 and the GSA regulations in terms of locating
in central business areas was subject to judicial review.
In HG Properties A, L.P., B-284170, Mar. 3, 2000, 2000 CPD ¶ 36, GAO
considered but denied a protest alleging, among other things, that a
federal agency's city-wide solicitation for a lease for office space
violated the central business area preferences in Executive Order No.
12072 and the GSA regulations. The decision concluded that the agency
met its consultation obligations under the executive order and
regulations and that its solicitation complied with the applicable
substantive standards. Specifically, the agency appropriately
concluded that restricting the solicitation to the central business
area would unduly limit competition and impinge upon its mission
requirements. Considering the effects on competition is consistent
with the GSA regulations. See 41 C.F.R. § 10283.35.
A final area which may affect the location decision, at least for
major leases, is environmental impact. The National Environmental
Policy Act does not, by express terms, either include or exclude
leasing actions. The case of S. W. Neighborhood Assembly v. Eckard,
445 F. Supp. 1195 (D.D.C. 1978), held that a congressionally approved
5-year $11 million lease of a 9-story office building to be built in
an industrial/residential neighborhood and which would involve the
relocation of over 2,000 federal employees was a "major Federal
action" for purposes of 42 U.S.C. § 4332, and that the government
therefore was required to prepare an environmental impact statement.
In Birmingham Realty, 497 F. Supp. at 1383-84, on the other hand, the
court found reasonable a GSA policy to categorically exclude leases of
less than 20,000 square feet from environmental impact statement
requirements.
d. Parking:
As discussed in section C.13.j(1) of Chapter 4, a government employee
does not have a right to a parking space, with or without charge, and
an agency is under no obligation to furnish one. See American
Federation of Government Employees v. Freeman, 498 F. Supp. 651, 654-
55 (D.D.C. 1980) (government employee does not have a "property
interest in free parking"); B-168096, Dec. 6, 1975 (furnishing of
parking is not a right but a privilege). Nevertheless, the government
may choose to provide parking facilities as an aid to operating
efficiency and the hiring and retention of personnel. E.g., 63 Comp.
Gen. 270, 271 (1984); B-168096, Jan. 5, 1973 (nondecision letter).
From the availability of appropriations perspective, it makes no
difference whether the employees work in government-owned space or in
leased space. B-152020, July 28, 1970.
When GSA is leasing office space pursuant to its statutory authority
in 40 U.S.C. § 585, it may include parking facilities, and the tenant
agency's appropriations are available to reimburse GSA for the parking
space to the same extent as for the office space itself. 72 Comp. Gen.
139 (1993); 55 Comp. Gen. 897 (1976). See also 49 Comp. Gen. 476
(1970); B-168946, Feb. 26, 1970 (same point prior to establishment of
Federal Buildings Fund).
GSA will not require an agency to accept and pay for parking space it
does not need. 55 Comp. Gen. at 901. If an agency has parking space
which is excess to its needs, it may relinquish that space in
accordance with procedures in GSA Federal Management Regulation,
specifically 41 C.F.R. part 102-75. Id.
In some cases, the office space lease may not include parking, or the
agency's needs may change over time. As with leasing in general, an
agency may not lease its own parking facilities unless it has specific
statutory authority (an example relating to NASA is discussed in B-
155372-0.M., Nov. 6, 1964) or a delegation of authority from GSA. B-
162021, July 6, 1977. At one time, an agency that needed parking
accommodations not included in the basic office space lease would
simply make the request to GSA and GSA would lease the space on behalf
of the agency subject to reimbursement. See 55 Comp. Gen. 1197, 1200
(1976); B-162021, July 6, 1977. Under current procedures, the agency
must first make a request to GSA to determine if any government-
controlled space (owned or leased) is available. If such space is not
available, the agency may then, without any further authorization from
GSA, "use its own procurement authority to acquire parking by service
contract." 41 C.F.R. § 102-73.240. This operates as a blanket
delegation.
The agency is no longer required to certify to GSA that the parking is
needed for purposes of employee retention or operating efficiency,
although it is still expected to use the same standard. 72 Comp. Gen.
139, 141 (1993); 63 Comp. Gen. at 271.
The government has the discretionary authority under the Federal
Property and Administrative Services Act to charge employees for
parking space furnished for their use. American Federation of
Government Employees v. Carmen, 669 F.2d 815 (D.C. Cir. 1981). See
also 55 Comp. Gen. 897 (1976); 52 Comp. Gen. 957, 960-61 (1973); B-
155817, Mar. 11, 1966. The Carmen case involved a plan, subsequently
withdrawn, to phase out free parking as an energy conservation measure.
An airport parking permit, renewable annually, procured for use by
staff on official travel as a cost savings measure, which does not
reserve any particular space or in fact guarantee any space at all if
the parking lot is full, is not a lease for purposes of the Federal
Property Act and regulations. B-259718, Aug. 25, 1995. The purchase is
permissible under the "necessary expense" doctrine. Id.
e. Repairs and Alterations:
The following definitions are taken from 20 Comp. Gen. 105, 109 (1940)
and the specific examples from 20 Comp. Dec. 73, 74 (1913):
* Repair means "to mend, to restore to a sound state whatever has been
partially destroyed, to make good an existing thing, restoration after
decay, injury, or partial destruction," in plain English, to fix
something that needs to be fixed. Examples are replacing a broken pane
of glass in a window or fixing broken stairs.
* Alteration means "a change or substitution in a substantial
particular of one part of a building for another part of a building
different in that particular" or "an installation that becomes an
integral part of the building and changes its structural quality."
Examples are erecting a partition dividing one room from another,
closing up a door or window, or cutting a new door or window.
In addition, the cited decisions define a third term, improvement, to
mean "a valuable and useful addition, something more than a mere
repair or restoration to the original condition," for example,
strengthening the foundation or walls or putting on a new roof. It
should be apparent that these are merely working definitions, not
rigid demarcations. Many "alterations," for example, are also
"improvements."[Footnote 125]
Before funding comes into play, the first question to ask is whether
the given item of work is the responsibility of the lessor or the
lessee. The guiding principle is the rather obvious one that the
government should not be paying for something which is the landlord's
obligation under the lease. E.g., 17 Comp. Gen. 739, 740 (1938). See
also B-198629, July 28, 1980.
The terms of the lease should allocate responsibilities, at least in
general terms. For example, under one clause commonly found in
government leases, the lessor agrees, except for damage resulting from
the government's negligence, to maintain the premises in good repair
and condition suitable for the government's use and capable of
supplying heat, air conditioning, light, and ventilation. 48 C.F.R. §
552.270-6. A provision of this type imposes a continuing obligation on
the lessor to make needed repairs or provide the specified services
throughout the life of the lease in connection with the purpose for
which the space was rented. United Post Offices Corp. v. United
States, 80 Ct. Cl. 785 (1935); United Post Offices Corp. v. United
States, 79 Ct. Cl. 173 (1934); 38 Comp. Gen. 803 (1959); 20 Comp. Gen.
327 (1940); 15 Comp. Gen. 483 (1935); 6 Comp. Gen. 250 (1926). If the
lessor fails or refuses to meet this obligation, the government can
have the necessary work done and deduct the cost from future rent.
E.g., 80 Ct. Cl. at 792; 6 Comp. Gen. at 251-52.
Alterations are of two general types: those necessary at the outset of
the lease to make the space suitable for the government's needs (such
as converting space from one use to another) and those which may
become necessary from time to time over the course of the lease to
meet changing needs. As with repairs, appropriated funds are not
available to make alterations if and to the extent the lessor has
assumed the obligation under the lease. 17 Comp. Gen. 739 (1938). More
often, however, the cost of alterations will be the government's
responsibility. A clause the General Services Administration (GSA)
uses to give the government the right to make alterations during the
course of the lease is found at 48 C.F.R. § 552.270-12. The clause
addresses alterations and should not be used to assume the cost of
items which are more properly classed as repairs which are the
lessor's responsibility. 1 Comp. Gen. 723 (1922). Conversely,
alterations are not an obligation of the lessor under the "good
repair" clause. 39 Comp. Gen. 304, 307 (1959).
Alterations that are the responsibility of GSA are financed from the
Federal Buildings Fund, a revolving fund established by 40 U.S.C. §
592.[Footnote 126] Money in the Fund is available as and to the extent
specified in annual appropriation acts. 40 U.S.C. § 592(c)(1). The
Federal Buildings Fund appropriation typically includes several
distinct line items, two of which are "repairs and alterations" and
"rental of space." See, e.g., Consolidated Appropriations Act, 2008,
Pub. L. No. 110-161, 121 Stat. 1844, 2001-03 (Dec. 26, 2007).
Lump-sum payments for initial space alterations, whether done by the
landlord or some other contractor, are payable from the repairs and
alterations appropriation; alterations made by the landlord and
amortized over the life of the lease are payable from the rental of
space appropriation. B-95136, Aug. 8, 1979. In addition, as with GSA
leasing operations in general, 40 U.S.C. § 1303(e)(2)[Footnote 127]
exists as backup authority for GSA to charge the cost of alterations
to the tenant agency. See B-141560, Jan. 15, 1960.
Major alteration projects require congressional approval under 40
U.S.C. § 3307. When this provision was originally enacted as part of
the Public Buildings Act of 1959,[Footnote 128] it applied to
alterations to government-owned buildings but not to leased buildings.
65 Comp. Gen. 722 (1986). Congress amended the provision in the Public
Buildings Amendments of 1988[Footnote 129] to extend the approval
requirement to lease alterations costing more than $750,000. The
requirement that the Senate Committee on Environment and Public Works
and the House Committee on Transportation and Infrastructure adopt
resolutions approving the appropriation for such alterations appears
at 40 U.S.C. § 3307(a)(3). Approval is secured by submitting a
prospectus to the appropriate committees. 40 U.S.C. §
3307(b).[Footnote 130]
Alterations within the general scope of the lease will normally be
acquired through a modification to the lease. 48 C.F.R. § 570.501(a).
Beyond-scope alterations may be acquired through a separate contract,
a supplemental lease agreement, or by having the work performed by
government employees. Id. § 570.501(b). If the lease is within GSA
responsibility, the tenant agency has no authority to modify the lease
without prior authorization from GSA. 38 Comp. Gen. 803, 805 (1959).
Where the tenant agency violates this principle, it may nevertheless
be possible to pay for the alterations on a quantum meruit basis. See
B-155200-0.M., Nov. 24, 1964. GSA current procedures for obtaining
reimbursable space alterations, described under the rubric of "asset
services," are contained in 41 C.F.R. §§ 102-74.105-102-74.150.
f. Rental in District of Columbia:
Originally enacted in 1877 (19 Stat. 370), 40 U.S.C. § 8141[Footnote
131] provides:
"A contract shall not be made for the rent of a building, or part of a
building, to be used for the purposes of the Federal Government in the
District of Columbia until Congress enacts an appropriation for the
rent. This section is deemed to be notice to all contractors or
lessors of the building or a part of the building."
Early decisions viewed this provision as "too plain to need
interpretation." 4 Comp. Dec. 139, 141 (1897). See also 9 Comp. Dec.
551, 552 (1903). The accounting officers and the Attorney General
uniformly held in holding that space rentals in the District of
Columbia without explicit statutory authority were illega1.[Footnote
132]
The enactment of the Federal Property and Administrative Services Act
in 1949, which provided the General Services Administration (GSA) the
broad leasing authority now contained in 40 U.S.C. § 585 and discussed
in section E.2 of this chapter, considerably diminished the impact of
40 U.S.C. § 8141. GAO commented as follows in B-159633, May 20, 1974,
at 2:
"The Federal Property and Administrative Services Act of 1949 ...
authorizes GSA to enter into leasing agreements for the benefit and
accommodation of Federal agencies.... We consider the language of [40
U.S.C. § 585] together with its legislative history as authorizing the
Administrator of GSA to lease buildings and parts of buildings in the
District of Columbia ... If the Administrator of GSA had authorized
the formation of this rental agreement, the statutory requirement of
40 U.S.C. [§ 8141] ... would have been satisfied."[Footnote 133]
Thus, the rule has developed that 40 U.S.C. § 8141 is satisfied where
GSA arranges for the space under authority of 40 U.S.C. § 585 or
delegates the authority to the renting agency. B-159633, May 20, 1974.
See also 56 Comp. Gen. 572 (1977); B-114827, Oct. 2, 1974; B-159633,
Sept. 10, 1974; B-157512- 0.M., Sept. 1, 1972.
A 1975 GAO decision provided another significant clarification.
Earlier decisions had construed 40 U.S.C. § 8141 as a comprehensive
ban applicable to all space rentals for government use, no matter how
temporary, and therefore fully applicable to the rental of short-term
meeting or conference facilities. E.g., 46 Comp. Gen. 379 (1966); 35
Comp. Gen. 314 (1955);[Footnote 134] 11 Comp. Dec. 678 (1905). GSA
subsequently issued a regulation treating the procurement of short-
term conference facilities as a service contract rather than a rental
contract. GAO considered this regulation in 54 Comp. Gen. 1055 (1975)
and, based on it, modified the prior decisions. "Federal agencies may
now procure the short-term use of conference and meeting facilities
[without regard to 40 U.S.C. § 8141] providing they comply with the
requirement of [the GSA regulations]." Id. at 1058.
For situations where an agency subject to the Act attempts to contract
directly rather than through or under delegation from GSA, 40 U.S.C. §
8141 remains in force. Payment in violation of the statute can put a
certifying officer at risk. See 46 Comp. Gen. 135 (1966). Many of the
earlier interpretations, therefore, are still valid although they now
apply to a smaller universe.
The first point to note is that the statute is expressly limited to
rentals in the District of Columbia. It has no effect on, nor is there
any similar restriction to, rentals elsewhere, even a few minutes away
in the suburbs of Maryland or Virginia. B-140744, Oct. 1, 1959; B-
204730-0.M., July 26, 1982. It applies to all space rentals for
governmental purposes. This includes space for storage. 6 Comp. Gen.
685 (1927); 27 Op. Att'y Gen. 270 (1909). Although, as noted above, it
is no longer regarded as applicable to short-term conference
facilities, the "service contract" concept cannot be extended to
include lodging accommodations, which remain subject to 40 U.S.C. §
8141. 56 Comp. Gen. 572 (1977); see also 41 C.F.R. § 301-74.17(a).
When the statute applies, it requires an "express provision for the
rent of a building, or language equivalent thereto." 10 Comp. Dec.
178, 180 (1903). Obviously, express language in an appropriation act
authorizing renting or leasing in the District of Columbia will do the
job. E.g., 13 Comp. Dec. 644 (1907). Just as clearly, burying the item
in budget justification materials is not sufficient. 46 Comp. Gen.
379, 381 (1966). In 9 Comp. Dec. 831 (1903), an appropriation for
"every other necessary expense" in connection with the storage of
certain records was, given the context of the appropriation, viewed as
sufficiently specific. However, 11 Comp. Dec. 678 (1905) reached the
opposite result where similar language was used in a context which did
not clearly imply the need for space acquisition. The requisite
authority need not be in an appropriation act. It may be contained in
the agency's enabling or program legislation. 23 Comp. Gen. 859
(1944). For example, the Federal Emergency Management Agency's
authority to lease property "wherever situated" is sufficient. B-
195260, July 11, 1979.
An interesting "common sense" exception occurred in 6 Comp. Dec. 75
(1899). The building which housed the Department of Justice had become
"unsafe, overcrowded, and dangerously overloaded." 6 Comp. Dec. at 77.
Congress made an appropriation to construct a new building on the site
of the old building, but there was no mention of interim facilities.
Reasoning that rental of temporary quarters was "absolutely necessary"
to fulfilling the purpose of the appropriation, and that Congress
could not possibly have intended for the Department to cease
operations during the construction period, the Comptroller of the
Treasury held that the construction appropriation was available for
the rental of temporary quarters while the new building was being
erected. "This statute [40 U.S.C. § 8141] will well be fulfilled by
any appropriation for a purpose which necessarily implies renting a
building." Id. at 78-79. However, as the Comptroller explained a few
years later, the necessary implication theory requires more than mere
inconvenience. A rigid interpretation in 6 Comp. Dec. 75 "would have
put the Department of Justice, with its records, in the street." 9
Comp. Dec. 551, 552 (1903). A similar holding is Rives v. United
States, 28 Ct. CL 249 (1893), finding 40 U.S.C. § 8141 inapplicable
where the Public Printer purchased certain material under statutory
direction but, having insufficient storage space available, simply
left it where it was until more space could be obtained.
The statute similarly does not apply in situations which amount to
inverse condemnations. Semmes & Barbour v. United States, 26 Ct. Cl.
119 (1891) (government continued to occupy property after expiration
of lease).
An agency may not avoid 40 U.S.C. § 8141 by entering into a cost
reimbursement contract with someone else to procure space that it
could not do by a direct leasing arrangement. 49 Comp. Gen. 305, 308
(1969). This is nothing more than an application of the fundamental
tenet that an agency may not do indirectly that which it is prohibited
from doing directly. However, GAO advised the National Science
Foundation in 46 Comp. Gen. 379 (1966) that it could use donated
funds, without regard to 40 U.S.C. § 8141, as long as the rental was
in furtherance of an authorized agency purpose.
A related statute is 40 U.S.C. § 8142:[Footnote 135]
"An executive department of the Federal Government renting a building
for public use in the District of Columbia may rent a different
building instead if it is in the public interest to do so. This
section does not authorize an increase in the number of buildings in
use or in the amount paid for rent."
Our research has disclosed no cases interpreting or applying this
provision.
g. Economy Act:
It is necessary to make brief mention of a statute which no longer
exists because it is found in virtually every case involving a
government lease for a period of over 50 years. Section 322 of the
Economy Act of 1932, codified prior to 1988 at 40 U.S.C. § 278a
(1982), prohibited the obligation or expenditure of appropriated funds
(1) for rent in excess of 15 percent of the fair market value of the
rented premises as of the date of the lease,[Footnote 136] and (2) for
repairs, alterations, or improvements to the rented premises in excess
of 25 percent of the first year's rent.[Footnote 137]
This statute generated literally dozens of decisions. In a 1984 case,
the General Services Administration Board of Contract Appeals
described the 15 percent limitation as "a blunt instrument at best,"
adding that it "is totally out of harmony with the economic situation"
of the times, and had become "a fruitful source of litigation in its
own right." Northwestern Development Co., GSBCA Nos. 6821, 7433, 84-3
B.C.A. ¶ 17,613 (1984), at ¶ 87,749. The 25 percent limitation for
alterations and repairs, GAO reported in 1978, was ineffective and
should be repealed. GAO, General Services Administration's Practices
for Altering Leased Buildings Should Be Improved, GAO/LCD-78-338
(Washington, D.C.: Sept. 14, 1978), at 19-22.
The demise of section 322 came about in somewhat byzantine fashion. In
a series of continuing resolutions, Congress suspended the 15 percent
limitation for fiscal year 1982, renewed the suspension for the
following year, made the suspension permanent in 1984, and confirmed
the permanency of the suspension in 1987. See Ralden Partnership v.
United States, 891 F.2d 1575, 1576-77 and 1579 n.5 (Fed. Cir. 1989);
65 Comp. Gen. 302 (1986). Then, in 1988, section 322 was repealed
outright. Public Buildings Amendments of 1988, Pub. L. No. 100-678, §
7, 102 Stat. 4049, 4052 (Nov. 17, 1988). Virtually every pre-1988
leasing case cited throughout this discussion includes at least some
mention of the Economy Act, and while those cases remain valid for the
propositions for which they are cited, the portions dealing with
Economy Act issues are now largely obsolete.[Footnote 138]
h. Some Agency-Specific Authorities:
The General Services Administration (GSA) does the major portion of
the government's space leasing, but it does not do all of it. A number
of other agencies have their own statutory leasing authority, either
agencywide or in specific contexts. We present here a sampling of
those authorities.
The defense establishment has several provisions. The Secretary of
Defense and the Secretary of each military department may provide for
"the leasing of buildings and facilities." 10 U.S.C. § 2661(b)(1).
Before entering into a lease of real property in the United States
whose estimated annual rental is more than $750,000, military
departments must report the transaction to the Senate and House Armed
Services Committees and allow a 30-day waiting period. 10 U.S.C. §§
2662(a)(1)(B) & (a)(3).
Other provisions address military leases overseas. The military
departments are authorized by 10 U.S.C. § 2675 to lease real property
in foreign countries that is "needed for military purposes other than
for military family housing," and by 10 U.S.C. § 2828(c) to lease
housing facilities in foreign countries in specified circumstances.
Both sections generally authorize multiyear leases—up to 10 years—and
permit the leases to be obligated year-by-year against annual
appropriations. 10 U.S.C. §§ 2675, 2828(d). Both sections permit
leases of up to 15 years in Korea.
Some examples from the civilian side of the government are:
* 15 U.S.C. § 78d(b)(3): Securities and Exchange Commission "is
authorized to enter directly into leases for real property" and is
exempt from GSA space management regulations.
* 15 U.S.C. § 2218(b)(3): Federal Emergency Management Agency may
lease any property or interest in property "wherever situated" needed
for activities under the Federal Fire Prevention and Control Act.
* 22 U.S.C. § 2514(d)(9): Funds available to the Peace Corps may be
used for leases abroad not to exceed 5 years.
* 22 U.S.C. § 2670(h): State Department may lease, for terms of up to
10 years, real property in foreign countries for the use of the
Foreign Service.
* 38 U.S.C. § 8122(b): Department of Veterans Affairs may lease
"necessary space for administrative purposes" in connection with
"extending benefits to veterans and dependents."
* 39 U.S.C. § 401(6): general leasing authority for United States
Postal Service.
* 42 U.S.C. § 7256(a): general leasing authority for the Department of
Energy.
3. Foreign Leases:
Because of differences in law and custom, leases of real property in
foreign countries often present problems not found in domestic leases.
The first point to emphasize is that the fiscal laws of the United
States apply in full force just as they apply to domestic leases. An
agency may not disregard the fiscal laws just because the money is
being spent in a foreign country.
One example is the Antideficiency Act, 31 U.S.C. § 1341. As just noted
in the preceding section, agencies with significant presence in
foreign countries (military departments, State Department, Peace
Corps) have been given specific authority to enter into multiyear
leases of real property. Absent such authority, leasing activities are
subject to the rule that leases are construed as binding only to the
end of the fiscal year in which made or to the end of the period of
any available no-year or multiyear authority, and require affirmative
renewal by the government to extend beyond that point. 5 Comp. Gen.
355 (1925); A-91697, Mar. 3, 1938.
Rental escalation clauses purporting to obligate the United States to
indeterminate or indefinite liability, or which may cause the rent to
exceed a statutory ceiling (see, e.g., 10 U.S.C. § 2828(e)), have also
been found to violate the Antideficiency Act. GAO, Leased Military
Housing Costs in Europe Can Be Reduced by Improving Acquisition
Practices and Using Purchase Contracts, GAO/NSIAD-85-113 (July 24,
1985), at 7-8. In one such case involving a lease in Italy which did
not contain a termination clause, the Navy unilaterally modified the
lease so as to keep the rent within the statutory ceiling. GAO advised
that if the landlord were able to recover by lawsuit, the amount of
any judgment or settlement would not be added to the rent payments for
purposes of assessing Antideficiency Act violations. B-227527, B-
227325, Oct. 21, 1987.
In a 1986 case, the Air Force was having difficulty inserting in a
German lease a provision limiting expenditures to the statutory
ceiling. In that case, however, since bona fide cost estimates were
well within the ceiling, the rent itself was fixed, the only exposure
to escalation being maintenance and utility charges, and the lease
included a termination for convenience clause, Antideficiency Act
considerations did not impede entering into the lease. 66 Comp. Gen.
176 (1986).
Another fiscal statute which rears its head in the foreign lease
context is 31 U.S.C. § 3324(b), which prohibits advance payments
unless specifically authorized. The same agencies with multiyear
leasing authority generally also have authority to pay rent in
advance. 10 U.S.C. § 2396(a)(2) (military departments); 22 U.S.C. §
2514(d)(9) (Peace Corps); 22 U.S.C. § 2670(h) (State Department).
Absent such authority, rent could not be paid in advance. 19 Comp.
Gen. 758 (1940); 3 Comp. Gen. 542 (1924). The authority for the
military departments applies only in accordance with local custom. See
B-194353, June 14, 1979. The rental of a grave site in perpetuity, in
apparent accord with local custom, is not regarded as an advance
payment. 11 Comp. Gen. 498 (1932).
The standards for recording obligations, as prescribed by 31 U.S.C. §
1501(a), are the same for foreign leases. See B-192282, Apr. 18, 1979,
described more fully in Chapter 7, section B.1.h, for an unusual
application based on custom in South Korea. The same is true for the
Assignment of Claims Act, 41 U.S.C. § 15. E.g., 11 Comp. Gen. 278
(1932) (illustrating the point that the United States can choose to
recognize an assignment); 10 Comp. Gen. 31 (1930) (rent can be paid to
agent bank in United States if specified in lease).
To restate the point, a government agency entering into a lease of
real property in a foreign country must adhere to the statutes
governing the obligation and expenditure of public funds; deviations
require legislative authorization. When it comes to determining rights
and liabilities under the lease, however, the situation is somewhat
different. Rights and liabilities are governed by the laws of the
place where the premises are located and the lease was executed. B-
120286, July 12, 1954. As that decision pointed out, the
considerations which subordinate state law to federal law in the case
of a domestic lease do not apply to a foreign lease.
In B-120286, to illustrate, the government of the Netherlands passed a
law permitting all landlords to raise rents by a maximum of 17
percent. The question was whether it was appropriate for a federal
agency, as tenant under a lease in the Netherlands, to pay the
lessor's demand for the increased rent. If the landlord sued, he would
sue in a Dutch court which would apply Dutch law and award the rent
increase. Therefore, GAO advised that the voucher should be paid.
Applying the same rule in a 1957 case, GAO allowed the claim of a
Greek landlord for half the fire insurance premium on property leased
in Athens. B-132152-0.M., June 13, 1957.
In 3 Comp. Gen. 864 (1924), GAO applied the law of the Province of
Quebec to construe the repair clause in a lease of space in Montreal.
Under provincial law, repairing an interior wall was a "tenant's
repair" unless otherwise specified in the lease. A similar case is 16
Comp. Gen. 639 (1937), using Dutch law to allocate repair
responsibilities under a lease of property in The Hague.
Currency fluctuations are another source of problems. The lease will
specify whether payment is to be made in U.S. dollars or in foreign
currency. In a 1946 case, a lease in China stipulated payment in yuan.
Extreme inflation in China following World War 11 so devaluated the
yuan that the monthly rental was worth approximately $2, under which
the landlord could not meet his repair and maintenance
responsibilities. The State Department wanted to amend the lease to
provide for payment in U.S. dollars equivalent to the amount
originally bargained for. Concluding that Chinese law would almost
certainly grant the landlord equitable relief, GAO concurred with the
proposal, as long as sufficient appropriations were available for the
increased rent. B-55649, Feb. 19, 1946.
The extreme case occurred in B-189121, Nov. 30, 1977, reconsideration
denied, B-189121, Apr. 15, 1983. A lease in Cambodia provided for
payment in Cambodian riels. For reasons not apparent, the landlord
failed or refused to collect the rent checks when they were tendered.
By the time the landlord filed a claim, the riel had been abolished
and was worthless and there was no basis to direct payment in U.S.
dollars.
Providing for payment in U.S. dollars does not guarantee a claim-free
existence. In B-185960, Aug. 19, 1976, an Italian landlord claimed
additional rent, alleging financial loss resulting from devaluation of
the dollar. Devaluation per se, as a sovereign act, could not form the
basis of relief. However, the claimant also cited a provision of the
Italian Civil Code, the application of which to leases was not clear.
GAO advised the agency (the Navy in that case) that it could pay the
claim if it determined that the provision of Italian law could be
applied. The Armed Services Board of Contract Appeals denied a similar
claim in Alka, S.A., ASBCA No. 38005, 91-3 B.C.A. ¶ 24,107 (1991),
involving a lease in Athens, Greece, which specified that it would be
governed by the laws of the United States, under which the lessor had
to bear the risk.
If foreign law is to be considered and applied, the claimant has the
burden of "proving" what that law is. It is not the responsibility of
the adjudicating tribunal to chase it down. B-189121, Apr. 15, 1983.
4. Lease-Purchase Transactions:
In the context of government real property, the term "lease-purchase"
refers to a transaction in which a building is constructed to
government specifications and then leased to the government under a
long-term lease during which construction costs are amortized, at the
end of which time title passes to the United States. Lease-purchases
are also known as "purchase contracts." Putting things in budgetary
perspective, a Senate committee made the following observation in
connection with 1954 lease-purchase legislation:
"It should be made clear that there are generally three methods
available for providing space for the permanent activities of the
Federal Government. These are (1) by direct construction with
appropriated funds, (2) by lease-purchase contracts with annual
payments applied to the amortization of the initial cost over a period
of years at the end of which title to the property would pass to the
United States, and (3) by straight annual or term leasing under which
no capital equity would accrue to the Government. Of these three
methods, the overall cost of the first would be the lowest, the second
would be the next lowest in cost, and the third would be the most
costly method."[Footnote 139]
A variation is "lease-construction," which is similar to lease-
purchase except that, at the end of the lease, title does not pass to
the government. Lease-construction is the most expensive method of
all.[Footnote 140]
The reason the government resorts to lease-purchase or lease-
construction arrangements is the same reason we noted earlier that the
government often leases space when ownership would be more cost-
effective—budgetary constraints. As far back as the 1954 Public
Buildings Purchase Contract Act, discussed below, the Senate Public
Works Committee, after making the observation quoted above, was forced
to say that "no reliable forecast can be made of the time when
budgetary considerations would permit the appropriation of the huge
sums required to meet these space needs by direct construction.
[Footnote 141] Thus, while Congress has repeatedly resorted to lease-
purchase over the second half of the twentieth century, it has done so
with ambivalence.
The first major lease-purchase program was the Public Buildings
Purchase Contract Act of 1954, Pub. L. No. 83-519, 68 Stat. 518 (July
22, 1954), 40 U.S.C. § 356 (2000), seemingly temporary, stopgap
legislation designed to meet the needs of an expanding government in
the post-World War II era.[Footnote 142] The legislation authorized
the General Services Administration (GSA) to enter into lease-purchase
contracts with terms of at least 10 but not more than 25 years, with
title to the property to vest in the United States not later than the
expiration of the contract term. 40 U.S.C. § 356(a). The "temporary"
nature of this legislation was revealed by a limitation that "no
appropriations shall be made" for lease-purchase contracts not
congressionally approved within 3 years of the legislation's
enactment. Section 411(e) of the Public Buildings Act of 1949, as
added by section 101 of Public Law 83-519. (We will return to section
411(e) below.) The contracts were to provide for equal annual payments
to amortize principal and interest, not to exceed limitations
specified in appropriation acts. 40 U.S.C. § 356(a). GSA's practice
under this legislation was to first enter into contracts for site
acquisition and preparation of plans and specifications, and then
enter into either a single three-party contract (government, builder,
investor) or separate construction and financing contracts. See B-
144680, Nov. 7, 1961; B-130934, June 26, 1957.
Several aspects of the 1954 legislation became prototypes for future
lease-purchase programs, and many of the decisions therefore remain
valid. One provision of the law directed reimbursement to the
contractor of certain expenses, including "costs of carrying
appropriate insurance." 40 U.S.C. § 356(d)(3). This did not authorize
the government to insure the property in its own right, or to require
the contractor to carry insurance for the government's protection. 35
Comp. Gen. 391 (1956). An important element of the program was 40
U.S.C. § 356(h), providing for the property to remain on state and
local tax rolls until title passes to the government. The statute did
not expressly authorize the government to recover improperly assessed
state or local taxes, but the government has this right without the
need for statutory authority. United States v. Dekalb County, 729 F.2d
738 (11th Cir. 1984).
As noted above, section 411(e) of Public Law 83-519 required
prospectus approval by congressional oversight committees as a
prerequisite to the appropriation of funds. If actual costs exceeded
the approved estimate, GAO had advised that there was no need to go
back to the committees as long as the variation was "reasonable." 37
Comp. Gen. 613 (1958); B-129326, Oct. 5, 1956. Of course, what is
reasonable required a case-by-case evaluation. In 37 Comp. Gen. 613,
for example, GAO did not regard a 15 percent increase in construction
costs as a "reasonable variation." As also noted above, section 411(e)
limited the time for prospectus approval to 3 years after the date of
enactment (July 22, 1954). Congressional discomfort with the program
was also evident in another provision of the 1954 law, formerly 40
U.S.C. § 357, stating the congressional intent that the program not
"constitute a substitute for or a replacement of any program for the
construction by the United States of such structures as may be
required from time to time by the Federal Government."
When the 3-year period elapsed, Congress declined to renew the
program. In considering what was to become the Independent Offices
Appropriation Act of 1959, the House Appropriations Committee cited a
GAO study which found that "it costs at least $1.64 under lease-
purchase to buy the same amount of building as $1.00 does by direct
appropriation." H.R. Rep. No. 85-1543, at 3 (1958). Consequently, that
act included a permanent prohibition on the use of funds "in this or
any other Act ... for payment for sites, planning or construction of
any buildings by lease-purchase contracts." Pub. L. No. 85-844, 72
Stat. 1063, 1067 (Aug. 28, 1958). Public Law 85-844 exempted 29
projects started or planned under the 1954 law and authorized one new
project. See B-160929, Apr. 20, 1967.
The prohibition did not, and of course could not, prevent legislating
the occasional exception. E.g., B-139524, June 1, 1959. It also did
not prevent GSA from soliciting bids on alternate bases, one of which
was lease with option to purchase. 38 Comp. Gen. 703 (1959). GSA had
found in that case that, without the purchase option, bidders were
amortizing construction costs over the first few years of the proposed
lease term, so that the government would be paying those costs in any
event. In addition, the military departments asserted the authority to
use lease-purchase under what is now 10 U.S.C. § 2663(b), which
authorizes them to "contract for or buy any interest in land" needed
for specified purposes. GAO agreed, especially for projects which had
been reported to Congress under 10 U.S.C. § 2662. B-154420-0.M., July
7, 1964.
The prohibition of the Independent Offices Appropriation Act of 1959
applied by its terms to lease-purchase. It therefore did not touch
lease-construction which, as we have noted, is even more costly to the
taxpayer.
Congress filled this gap by enacting an appropriation rider for nine
consecutive years starting with 1963, which prohibited the use of
funds for lease-construction projects whose estimated cost exceeded
$200,000 without prospectus approval by the appropriate congressional
committees. The provision is quoted in full in several decisions, for
example, 45 Comp. Gen. 27, 29 (1965) and 44 Comp. Gen. 491, 492
(1965). Even though it was one of GSA general provisions, it applied
to all agencies funded under the act in which it appeared. 44 Comp.
Gen. 491 (1965). It was not governmentwide, however.
The prohibition was not limited to "total or substantially total
occupancy" by the government but applied as well to shared occupancy
situations. 45 Comp. Gen. 27 (1965). However, the fact that an offered
building was not actually in existence was not, in and of itself,
sufficient to invoke the prohibition. The prohibition was regarded as
inapplicable if there was a "bona fide intention on the part of the
offeror to construct the building offered for lease irrespective of
its securing a lease with GSA," 51 Comp. Gen. 573, 576 (1972), or if
it was clear that the offeror was acting at its own risk with no
promise or commitment by the government to lease the space, 45 Comp.
Gen. 506 (1966).
The last such prohibition appeared in the Independent Offices
Appropriation Act for 1971, Pub. L. No. 91-556, 84 Stat. 1442, 1449
(Dec. 17, 1970). Two years later, Congress amended 40 U.S.C. § 3307 to
add the prospectus approval requirement for leases discussed
previously in this section. This evolution is described in Merriam v.
Kunzig, 476 F.2d 1233, 1237-39 Ord Cir.), cert. denied, 414 U.S. 911
(1973).
In considering the 1972 public buildings legislation, Congress faced
the same problem it had faced in 1954—a backlog of needed federal
construction with no foreseeable prospects of being able to
appropriate the necessary amounts. Therefore, it again turned to the
"stop-gap expedient[Footnote 143[ of lease-purchase and enacted
section 5 of the Public Buildings Amendments of 1972, 40 U.S.C. § 602a
(2000).[Footnote 144] The 1972 law authorized GSA to enter into lease-
purchase contracts with up to 30-year terms, with title to the
property to vest in the United States at or before the expiration of
the contract term. 40 U.S.C. § 602a(a). Similar to the 1954 law, the
1972 act gave GSA a 3-year time limit on entering into the contracts.
40 U.S.C. § 602a(g).
Many of the 1972 provisions were patterned after the 1954 Purchase
Contract Act. Payments to the contractor include reimbursement for
"costs of carrying appropriate insurance," and the property is to
remain on state and local tax rolls until title passes to the United
States. 40 U.S.C. §§ 602a(b)(3), 602a(d). Projects were subject to the
prospectus approval requirements of 40 U.S.C. § 606(a). 40 U.S.C. §
60240.
GSA devised what it called a "dual system" of contracting to implement
40 U.S.C. § 602a. GSA would enter into either a single contract or a
series of phased contracts for construction of each project. GSA would
then enter into a financing contract for a group of projects with a
"trustee," who would obtain the necessary funds by selling
"Participation Certificates" to private investors. GAO concurred that
this scheme was within GSA's authority under section 602a. 52 Comp.
Gen. 517 (1973); 52 Comp. Gen. 226 (1972). GAO also agreed that the
statutory 3-year cutoff (June 30, 1975) did not apply to revisions of
projects whose basic purchase contract had been entered into prior to
the cutoff, as long as the modification did not result in so
substantial a change in the project from the one originally approved
as to amount to a "new" project. B-177610, Apr. 26, 1976.
GSA considered refinancing purchase contracts entered into under 40
U.S.C. § 602a by paying off the existing debt with funds obtained from
the Federal Financing Bank. Since the refinancing would not involve
any other project modifications, GAO found the proposal legally
unobjectionable. B-250236, Sept. 9, 1992.
Although the authority of 40 U.S.C. § 602a, like its 1954 predecessor,
is no longer operative, lease-purchase activity goes on under a
variety of other authorities. Congress can always legislate new
projects, and has done so in a number of instances. Some examples are:
* Section 103 of the Energy and Water Development Appropriation Act,
1984, Pub. L. No. 98-50, 97 Stat. 247, 249 (July 14, 1983), authorized
the Army Corps of Engineers to use lease-purchase to acquire an office
building in New Orleans, Louisiana. GAO summarized some of the
financial aspects in Lease-Purchase: Corps of Engineers Acquisition of
Building in New Orleans District, GAO/AFMD-88-56FS (Washington, D.C.:
June 7, 1988).
* The 1988 continuing resolution, Pub. L. No. 100-202, 101 Stat. 1329,
1329-405-07 (Dec. 22, 1987), authorized GSA to engage in several lease-
purchase projects.
* Another 1987 statute, the Federal Triangle Development Act, 40
U.S.C. §§ 1101-1109 (2000), authorized development of a federal
building complex in Washington, D.C., using lease-purchase, with
planning and construction under the supervision of the then
Pennsylvania Avenue Development Corporation. This was the Ronald
Reagan Building and International Trade Center. Financing, discussed
in B-248647.2, Apr. 24, 1995, and B-248647, Dec. 28, 1992, was
provided by the Federal Financing Bank.
* Legislation enacted in 1989 authorizes the Department of Veterans
Affairs to use lease-purchase to provide for the collocation of
certain regional offices with medical centers (38 U.S.C. § 316) and to
acquire up to three medical facilities (38 U.S.C. § 8103(d)). Both
provisions require that obligations be "subject to the availability of
appropriations for that purpose," and therefore do not constitute
contract authority. B-239435, Aug. 24, 1990.
GSA authority is now found in 40 U.S.C. § 585, in conjunction with the
prospectus approval requirement of 40 U.S.C. § 3307. Section
585(a)(1), GSA general leasing authority in the Federal Property and
Administrative Services Act, authorizes leases of up to 20 years "in a
building (or improvement) which is in existence or being erected by
the lessor" to accommodate a federal agency. This provision has been
regarded as sufficient authority for lease-purchase or lease-
construction arrangements, and was in fact used during the time period
between the 1954 and 1972 programs. E.g., 38 Comp. Gen. 703 (1959); B-
166868, July 15, 1969; B-157423-0.M., Sept. 14, 1965; B-156917-0.M.,
June 24, 1965.
Section 585(c), which first made its appearance in the 1987 continuing
resolution, Pub. L. No. 99-500, 100 Stat. 1783, 1783-321 (Oct. 18,
1986), provides: "Amounts made available to the General Services
Administration for the payment of rent may be used to lease space, for
a period of not more than 30 years in buildings erected on land owned
by the Government." This reflects a continuation of the long-standing
policy of the Congress that "no public building shall be erected on
land not owned by the United States." 6 Comp. Dec. 877, 878 (1900).
An aspect of lease-purchase financing that produced controversy in the
1990s is scorekeeping. "Scorekeeping" may be defined as the "process
of estimating the budgetary effects of pending legislation" including,
of course, appropriation bills, "and comparing them to a baseline,
such as a budget resolution, or to any limits that may be set in law."
GAO, A Glossary of Terms Used in the Federal Budget Process, GAO-05-
734SP (Washington, D.C.: Sept. 2005), at 88. See also the closely
related definition of "Scorekeeping Rules" (id. at 88-89) and B-
239435, Aug. 24, 1990, discussing scorekeeping in the context of lease-
purchases. For a number of years, GAO has pointed out the problems
scorekeeping rules pose for real property acquisition. See, e.g., GAO,
Budget Issues: Budget Scorekeeping for Acquisition of Federal
Buildings, GAO/T-AIMD-94-189 (Washington, D.C.: Sept. 20, 1994); The
Budget for Fiscal Year 1991: Scoring of GSA Lease-Purchases, GAO/AFMD-
91-44 (Washington, D.C.: Jan. 15, 1991).
Prior to 1991, lease-purchase was scored the same as a straight lease—
spread over the period of the lease, one year's budget authority at a
time. This produced a budgetary bias in favor of the more expensive
lease-purchase option. Scoring rules were changed in 1990 to require
scoring the full costs of a lease-purchase up front. While this had
the benefit of "eliminating the artificial advantage previously given
to lease-purchases," it introduced a new bias in favor of operating
leases, still scored one year at a time. GAO/T-AIMD-94-189, at 3.
Concern over the scorekeeping issue is one of the factors in GAO's
designation of real property as a high-risk area since 2003. See
section A of this chapter. These rules make operating leases "look
cheaper" even though they are more costly than construction or lease-
purchases. GAO, Federal Real Property: Reliance on Costly Leasing to
Meet New Space Needs Is an Ongoing Problem, GAO-06-136T (Washington,
D.C.: Oct. 6, 2005), at 7-8. For example:
"for lease-purchase arrangements, the net present value of the
government's legal obligations over the life of the contract is to be
scored in the budget in the first year. For construction or purchase,
the budget authority for the full construction costs or purchase price
is to be scored in the first year. However, for many of the
government's operating leases—including GSA leases, which, according
to GSA, account for over 70 percent of the government's leasing
expenditures and are self-insured in the event of cancellation—only
the budget authority to cover the government's commitment for an
annual lease payment is required to be scored in the budget. Given
this, while operating leases are generally more costly over time
compared with other options, they add much less to a single year's
appropriation total than these other arrangements, making operating
leases a more attractive option from the agency's budget perspective."
Id.
The Office of Management and Budget Circular No. A-11, Preparation,
Submission, and Execution of the Budget (July 2, 2007), addresses the
scoring of lease-purchases in some detail in Appendix B. It provides
that, for scorekeeping purposes, when an agency is authorized to enter
into a lease-purchase, budget authority to cover the total costs
expected over the life of the lease is to be scored in the first year
of the lease. OMB Cir. No. A-11, app. B, § 1(a). Outlays for a lease-
purchase in which the federal government assumes substantial risk are
spread across the period during which the contractor constructs,
manufactures, or purchases the asset; where the private sector retains
substantial risk, outlays are spread across the lease term. Id. Where
the contract includes a cancellation clause, an amount sufficient to
cover the costs associated with cancellation of the contract would be
scored. Id. It adds in this regard:
"The up-front budget authority required for both lease-purchases and
capital leases ... equals the present value of the minimum lease
payments excluding payments for identifiable annual operating expenses
... discounted... using the appropriate interest rate.... Additional
budget authority equal to Treasury's cost of financing (i.e., the
imputed interest cost) plus any annual operating expenses will be
recorded on an annual basis over the lease term." Id. § 2(b). However,
as noted previously, 40 U.S.C. § 585(a)(2) provides that the
obligation of amounts for leases under that section is limited to the
current fiscal year for which payments are due notwithstanding the
Antideficiency Act. The relationship of these items has yet to be
definitively resolved, and the budgetary treatment of lease-purchases
is likely to remain a concern.
F. Public Buildings and Improvements:
1. Construction:
a. General Funding Provisions:
(1) 41 U.S.C. § 12:
Originally enacted in 1868,[Footnote 145] 41 U.S.C. § 12 provides: "No
contract shall be entered into for the erection, repair, or furnishing
of any public building, or for any public improvement which shall bind
the Government to pay a larger sum of money than the amount in the
Treasury appropriated for the specific purpose."
This is one of the permanent funding statutes through which Congress
implements its control of the public purse, and has often been cited
in tandem with other funding statutes such as the purpose statute (31
U.S.C. § 1301(a)) or the Antideficiency Act (31 U.S.C. § 1341). E.g.,
42 Comp. Gen. 226, 227 (1962); 41 Comp. Gen. 255, 257-58 (1961); 21
Op. Att'y Gen. 244, 247-48 (1895). Its purpose, as with the other
funding statutes, is to prevent the executive from creating
obligations beyond those contemplated and authorized by Congress. 38
Comp. Gen. 758, 761 (1959), citing 21 Op. Att'y Gen. at 248. A
contractor who does work in excess of the amount appropriated can
recover only up to the limit of the appropriation, even though the
overobligation may have been induced by government error. Sutton v.
United States, 256 U.S. 575 (1921).
In addition, a government officer or employee who knowingly acts in a
way that would violate 41 U.S.C. § 12 "shall be fined under this title
or imprisoned not more than one year," or both. 18 U.S.C. § 435
(enacted as part of the same 1868 legislation as 41 U.S.C. § 12).
[Footnote 146]
For construction within the District of Columbia, 41 U.S.C. § 12 is
reinforced by another statute, 40 U.S.C. § 8106,[Footnote 147] which
provides that "[a] building or structure shall not be erected on any
reservation, park, or public grounds of the Federal Government in the
District of Columbia without express authority of Congress." While 41
U.S.C. § 12 has spawned numerous decisions, one finds little mention
of 40 U.S.C. § 8106 apart from the occasional passing reference such
as in 20 Comp. Gen. 272, 275 (1940).
Much ink has been spilled trying to decide just what is or is not a
"public building" for purposes of 41 U.S.C. § 12. GAO has never
attempted a precise definition, but has used more of what one might
call a "we know one when we see one" approach. Not that difficult, one
decision suggested—"the term 'building' ... instantly calls to mind a
structure of some kind having walls and a roof." 45 Comp. Gen. 525,
526 (1966). See also B-119846, July 23, 1954 ("structure of brick
enclosing a space within its walls and covered with a roof," which
"any average person" would recognize as a building); B-165289-0.M.,
Aug. 26, 1969 (structure with a foundation, walls, separate rooms, and
a roof fits the ordinary meaning of the term).[Footnote 148] Clearly,
the statute applies to public buildings which are more or less
permanent, the term "permanent" referring not so much to the mode of
construction as to contemplated use. Thus, the following have been
treated as public buildings for purposes of 41 U.S.C. § 12:
* Industrial type building with railroad siding for hydrostatic
testing, painting, and maintaining specially designed tank cars used
for transporting helium. 38 Comp. Gen. 392 (1958).
* Quonset hut attached to a poured concrete base to be used for
storage purposes. 30 Comp. Gen. 487 (1951).
* Frame buildings with cement foundations, cement floors, and shingled
roofs, to be used for storage and repair of tools and equipment. 5
Comp. Gen. 575 (1926).
* Hangars, shops, and storehouses on landing fields. 2 Comp. Gen. 14
(1922), modified, 2 Comp. Gen. 133 (1922).
* Pontoon storage shed. 16 Comp. Dec. 685 (1910).
An extension or addition to a public building is also covered. A-
59252, Dec. 28, 1934; A-40231, Jan. 11, 1932. Some examples of
structures which have been held not to be "buildings" within the scope
of 41 U.S.C. § 12, regardless of permanency, are:
* Automated self-service unit covered by canopy and containing various
postal vending machines, weight scales, and a parcel depository unit,
to be placed in shopping center. 45 Comp. Gen. 525 (1966).
* Large testing chamber with 50-inch concrete walls for use in a
research project. 39 Comp. Gen. 822 (1960). See also B-50958, Aug. 9,
1945 (heavy concrete chamber partly above and partly below ground
intended for temporary use in testing explosives).
* Greenhouses. B-141793-0.M., Feb. 17, 1960. Earlier decisions had
exempted temporary greenhouses. E.g., 7 Comp. Gen. 629 (1928). The
1960 case extended the proposition to greenhouses that were more or
less permanent.
With respect to temporary structures, the demarcation between the
permissible and the impermissible is not as bright as one might wish.
The statement found in numerous decisions over the decades is that 41
U.S.C. § 12 applies to "any structure in the form of a building not
clearly of a temporary character." E.g., 42 Comp. Gen. 212, 214
(1962); 9 Comp. Gen. 75, 76 (1929); 2 Comp. Gen. 14 (1922), modified,
2 Comp. Gen. 133 (1922). See also B-303145, Dec. 7, 2005;[Footnote
149] 26 Comp. Dec. 829 (1920). The decisions thus attempt to strike a
balance between the language of the statute, which does not
distinguish between permanent and temporary structures (e.g., 10 Comp.
Gen. 140, 142 (1930)), and a result which could in some cases border
on the ridiculous.
As one example, the statute has been found applicable to a temporary
shed or storehouse of frame construction with sheet metal siding, to
be used to house motor vehicles. 6 Comp. Gen. 619 (1927). Other
examples include "temporary sheds for the shelter of farm animals;
portable houses for temporary use of employees; temporary portable
buildings for use in the detention and treatment of aliens; barns,
sheds, cottages, etc., of frame construction of a temporary nature
with dirt floors and contemplated to be destroyed." 42 Comp. Gen. 212,
214 (1962).[Footnote 150] The fact that a structure is prefabricated
and movable is not dispositive. Id. at 215.
On the other hand, 41 U.S.C. § 12 has been found inapplicable in the
following cases, summarized in 7 Comp. Gen. 629, 630 (1928):
* Wood frame shed to house a fumigation tank used in fumigating cotton
against the pink Mexican bollworm. A-17265, Mar. 16, 1927.
* A cabinet 30 feet square with glass sides, for use in studying light
in relation to certain diseases. A-18335, May 16, 1927.
While these examples do not lend themselves to the formulation of a
black-letter rule, it will be easier to find an exception in the case
of a structure to be used for a clearly temporary experiment or
research project, and correspondingly more difficult to find one where
the structure is to be used for either residential or office space for
employees. See 10 Comp. Gen. 140 (1930); B-50958, Aug. 9, 1945. Also,
a structure is not temporary merely because the agency calls it
temporary. 63 Comp. Gen. 422, 436 (1984) (airfields and other military
facilities in Honduras); 21 Comp. Dec. 420 (1914) (various residential
structures).
The "specific purpose" requirement of 41 U.S.C. § 12 applies not only
to public buildings but to "public improvements" as well. The term in
this context refers to improvements to real property. 45 Comp. Gen.
525, 526 (1966). Thus, major alterations or renovations to a public
building are public improvements for purposes of 41 U.S.C. § 12. E.g.,
39 Comp. Gen. 723 (1960). Several cases in this category have involved
the conversion of a building to a different use: 38 Comp. Gen. 758
(1959) and 38 Comp. Gen. 588 (1959) (conversion of hospital building
for occupancy by federal agency); 37 Comp. Gen. 767 (1958) and B-
135411, Mar. 24, 1958 (conversion of buildings into schools); B-76841,
Aug. 23, 1948 (conversion of school building to clinic); B-170587-
0.M., Oct. 21, 1970 (conversion of office space into laboratories);
and B-151369-0.M., Nov. 15, 1963, and B-151369-0.M., Sept. 10, 1964
(conversion of former bull barn to research laboratory). The work in
all of these cases was held subject to 41 U.S.C. § 12.
Similarly, the term "public improvement" as used in 41 U.S.C. § 12 has
been held to include the installation of an elevator in a government
building (8 Comp. Gen. 335 (1929)); the enlargement and modernization
of a cafeteria (27 Comp. Gen. 634 (1948)); and the installation of
central air conditioning in a library building (B-118779, Nov. 14,
1969).
Another line of cases holds that minor structural alterations
necessary to accommodate specialized equipment needed in the
performance of an authorized function may be funded from general
operating appropriations. 16 Comp. Gen. 816 (1937); 16 Comp. Gen. 160
(1936); 5 Comp. Gen. 1014 (1926); 3 Comp. Gen. 812 (1924). While these
cases do not mention 41 U.S.C. § 12, the clear implication is that the
minor alterations do not rise to the level of public improvements for
purposes of the statute. See B-170587-0.M., Oct. 21, 1970. The
"exception" of 3 Comp. Gen. 812 and its progeny is limited to
specialized work or equipment, and does not extend to alterations
designed to improve a building for office purposes generally. 17 Comp.
Gen. 1050 (1938).
The temporary versus permanent distinction discussed above in the
context of public buildings can also be relevant in the case of
improvements. If an agency would be authorized to construct a
temporary facility without having to comply with 41 U.S.C. § 12, the
statute would be equally inapplicable to the repair of an existing
government-owned facility for the same temporary use. B-117124, Oct.
1, 1953.
The requirement of 41 U.S.C. § 12 also applies to public improvements
which do not involve buildings, such as roads and airfields. 63 Comp.
Gen. 422, 435-36 (1984); 41 Comp. Gen. 255 (1961); 29 Comp. Gen. 235
(1949).
Once it is determined that a given building or improvement is within
the scope of 41 U.S.C. § 12, the clearest way to satisfy the statute
is, naturally, for the item to be explicitly addressed in the relevant
appropriation act. However, this degree of explicitness is not
absolutely required. E.g., B-8816, Mar. 9, 1940 (appropriation for
construction of public works project is available to construct
buildings necessary to the project even though not specified in the
appropriation). The essence of 41 U.S.C. § 12 is not that public
buildings and improvements are in any way bad or undesirable, but
merely that they are sufficiently important—and sufficiently costly—
that agencies should not undertake them without congressional
sanction. Thus, for example, where (1) the Federal Civil Defense Act
authorized an agency to renovate facilities, (2) the relevant
appropriation provided a lump sum to "[carry out] the provisions of
the Federal Civil Defense Act," and (3) the agency had included the
desired renovations in its budget submission, this was enough to
satisfy 41 U.S.C. § 12. 39 Comp. Gen. 723 (1960). In a case which
included elements (1) and (2) of this formula but not (3), GAO
concluded that 41 U.S.C. § 12 was not satisfied and the appropriation
was not available, because "it is clear that the [improvement] is an
entirely different project or purpose from any made known to the
Congress and for which the Congress appropriated funds." 37 Comp. Gen.
767, 771 (1958). Merely burying an item in a budget submission without
the required nexus in the appropriation act (item (3) without item
(2)) is equally insufficient. B-76841, Aug. 23, 1948.
Short of the "formula" of 39 Comp. Gen. 723, or some comparable set of
circumstances from which congressional approval can be necessarily
implied, general operating appropriations are not available for items
within the scope of 41 U.S.C. § 12. The term "necessary expenses" in
an appropriation is not enough. 38 Comp. Gen. 758 (1959); 4 Comp. Gen.
1063 (1925). Similarly, a necessary expense justification as described
in Chapter 4, however legitimate, is not enough to overcome the
statutory hurdle of 41 U.S.C. § 12. 42 Comp. Gen. 212, 215 (1962); 5
Comp. Gen. 575, 577 (1926). Cf., B-303145, Dec. 7, 2005 (making
essentially the same point in relation to title 10 United States Code
provisions, discussed in section F.1.b(1) of this chapter, that
restrict the use of operations and maintenance appropriations for
military construction). Exceptions have occurred in a very few cases
in which failure to construct the building or improvement would
literally "render it impossible to accomplish the purpose for which
the appropriation was made." 10 Comp. Gen. 140, 141 (1930). One
example is 2 Comp. Gen. 133 (1922) (since "it will be impossible to
maintain and operate the airplane mail service via Chicago during the
year for which the appropriation was made without the erection of
hangars, shops, and storehouses on the landing field at Chicago, the
erection of such facilities is authorized notwithstanding the general
restriction on the erection of public buildings and public
improvements not specifically appropriated for"). Use of a general
operating appropriation in disregard of 41 U.S.C. § 12 can result in
violation of the Antideficiency Act. E.g., B-118779, Nov. 14, 1969.
The requirement of 41 U.S.C. § 12 attaches not only to a direct
payment to a contractor, but as well to an advance or reimbursement to
a working capital (or other revolving) fund. 30 Comp. Gen. 453 (1951);
B-119846, May 27, 1954. In other words, the device of a revolving fund
cannot be used to circumvent the statute. However, the statute does
not apply to the expenditure of grant funds by a grantee unless so
provided in the applicable program legislation, regulations, or terms
of the grant agreement. B-173589, Sept. 30, 1971.
A common sense exception is found in 7 Comp. Gen. 472 (1928).
Legislation authorized the appropriation of $150,000 toward the
erection of a memorial building to be built with a mix of appropriated
funds and private donations. The legislation further provided that the
appropriation could constitute no more than half of the total cost.
The Comptroller General advised that once the appropriation was made
and the donations in hand, a contract for the total cost of the
building would not violate 41 U.S.C. § 12, even though it would
obviously involve "a larger sum [of money] than that appropriated for
the specific purpose." Id. at 474.
(2) Contract authority under partial appropriations:
A statute originally enacted in 1908, 40 U.S.C. § 3171,[Footnote 151]
recognizes that, for any number of reasons, Congress may not wish to
fully fund the construction of a public building up front. It provides:
"Unless specifically directed otherwise, the Administrator of General
Services may make a contract within the full limit of the cost fixed
by Congress for the acquisition of land for sites, or for the
enlargement of sites, for public buildings, or for the erection,
remodeling, extension, alteration, and repairs of public buildings,
even though an appropriation is made for only part of the amount
necessary to carry out legislation authorizing that purpose."
Thus, if Congress has established the total cost of the construction
or renovation of a public building, or of related site acquisition,
and subsequently appropriates only part of the money, the General
Services Administration (GSA) may enter into a legally binding
contract for the full project, not to exceed the total authorized cost.
There is surprisingly little discussion of this statute in the
decisions. Our research has disclosed only 20 Comp. Gen. 272, 274
(1940), noting almost in passing that 40 U.S.C. § 3171 effectively
modifies 41 U.S.C. § 12 to the extent of its terms. What is clear is
that, to that extent, 40 U.S.C. § 3171 authorizes GSA to enter into
contracts in excess or advance of appropriations, and therefore is an
exception to the Antideficiency Act. A contract authorized by 40
U.S.C. § 3171 is "authorized by law" for purposes of 31 U.S.C. §
1341(a). See 28 Comp. Gen. 163 (1948) (construing similar authority
appearing in an appropriation act). Without such authority, the
contract would have to be made subject to future appropriations and
could confer no rights beyond the amount of the partial appropriation.
14 Comp. Dec. 755 (1908); 13 Comp. Dec. 478 (1907).
(3) Duration of construction appropriations:
Two provisions of law authorize appropriations for the construction of
public buildings to remain available beyond the end of the fiscal year
in which they are appropriated. First, 31 U.S.C. § 1307 provides as
follows: "Amounts appropriated to construct public buildings remain
available until completion of the work. When a building is completed
and outstanding liabilities for the construction are paid, balances
remaining shall revert immediately to the Treasury."
The second statute is 31 U.S.C. § 1301(c), which prohibits an
appropriation contained in a regular, annual appropriation act from
being construed to be permanent or available beyond the fiscal year
unless it expressly so states or unless it is for one of four
specifically named categories—rivers and harbors, lighthouses, public
buildings, or the pay of the Navy and Marine Corps.[Footnote 152]
Since approximately 1970, most if not all appropriation acts have
included a general provision which states that "no part of any
appropriation contained in this Act shall remain available for
obligation beyond the current fiscal year unless expressly so provided
herein."[Footnote 153] The key phrase is "unless expressly so provided
herein." The effect of this general provision is to override statutes
like 31 U.S.C. § 1307 and to render them little more than
authorizations which require specific language in the appropriation if
they are to be implemented. 58 Comp. Gen. 321 (1979); 50 Comp. Gen.
857 (1971). Consequently, in an appropriation act which contains this
general provision, a construction appropriation is no different from
any other appropriation with respect to duration; it is a 1-year
appropriation unless it expressly specifies otherwise.
Prior to the advent of the general provision quoted above, 31 U.S.C. §
1307 had been construed—and given a fairly narrow application—in
somewhat over a dozen decisions. If an appropriation act were to be
enacted which did not contain the "current fiscal year" general
provision or something comparable, 31 U.S.C. §§ 1301(c) and 1307, and
the related case law, would come into more direct play.
Essentially, the early decisions found 31 U.S.C. §§ 1301(c) and 1307
applicable only to appropriations which provide for the original
construction of public buildings, rejecting attempts to apply the
authority broadly to any appropriation somehow related to a
construction project. 36 Comp. Gen. 790, 793 (1957); 8 Comp. Gen. 519,
520 (1929). Thus, the authority does not apply to appropriations for
the following because they are not appropriations for the construction
of a public building:
* Purchase of land. 17 Comp. Gen. 631 (1938).
* Clearance of a site upon which a building would later be
constructed. 8 Comp. Gen. 519 (1929).
* Preparation of plans or designs 36 Comp. Gen. 790 (1957); 19 Comp.
Gen. 702 (1940).
* Repairs or improvements. 1 Comp. Gen. 435 (1922), aff'd upon
reconsideration, 1 Comp. Gen. 532 (1922).
* Remodeling and/or enlarging. 10 Comp. Gen. 454 (1931); 7 Comp. Gen.
619 (1928).
The no-year authorization of 31 U.S.C. § 1307 also does not apply,
regardless of whether the appropriation is one for public building
construction, if the appropriation contains other language restricting
it to some definite time period. 24 Comp. Gen. 942 (1945); 23 Comp.
Gen. 150 (1943); 18 Comp. Gen. 969 (1939); 6 Comp. Gen. 783 (1927).
Nor does it apply to an amount earmarked for construction in a lump-
sum Salaries and Expenses appropriation. 37 Comp. Gen. 246 (1957). The
earmark has the same obligational availability as the parent
appropriation unless expressly provided otherwise. Id. at 248; A-
25480, Dec. 18, 1928.
In sum, an appropriation (1) for the original construction of a public
building, (2) which does not specify any other period of availability,
and (3) which is contained in an appropriation act which does not
include the "current fiscal year" general provision or some comparable
limitation, may be regarded as a no-year appropriation without the
need for the traditional "to be available until expended" language. 36
Comp. Gen. at 793-94; B-154459, Dec. 9, 1964.[Footnote 154]
(4) Design fees:
Before a shovel ever touches the ground, somebody has to design the
building. Just about every construction project includes the services
of professional architects and engineers (A&E). Those services range
from the preparation of plans and specifications to inspection and
supervisory services during actual construction. At one time, there
was no authority to hire a private architect to prepare plans for a
public building. 21 Comp. Dec. 336 (1914). Today, the United States
Code is dotted with statutes authorizing the government to contract
for A&E services. Among the more important provisions are 40 U.S.C. §
3308 (General Services Administration), 10 U.S.C. §§ 4540(a), 7212(a),
and 9540(a) (Army, Navy, and Air Force, respectively); and 38 U.S.C. §
8106(b) (Veterans Affairs medical facilities).
Contracting for A&E services is governed by 40 U.S.C. §§ 1101-1104,
[Footnote 155] which prescribes a negotiation procedure based on
competence as well as price. In this regard, section 1101 provides:
"The policy of the Federal Government is to publicly announce all
requirements for architectural and engineering services, and to
negotiate contracts for architectural and engineering services on the
basis of demonstrated competence and qualification for the type of
professional services required and at fair and reasonable prices."
These provisions do not apply merely because part of the contract work
will be done by architects or engineers; rather, they apply to a
procurement which "uniquely or to a substantial or dominant extent
logically requires performance by a professionally licensed and
qualified A-E firm." 61 Comp. Gen. 377, 378 (1982). They also apply to
small business set-asides, including those under section 8(a) of the
Small Business Act, 15 U.S.C. § 637(a). 59 Comp. Gen. 20 (1979); B-
129709, Oct. 14, 1976. GAO will not question an agency's decision to
compete an A&E contract rather than negotiate unless the agency's
actions demonstrate a clear intent to circumvent the Act. 62 Comp.
Gen. 297 (1983). For projects within the definition of "public
building" in the Public Buildings Act of 1959, 40 U.S.C. § 3301(a)(5),
[Footnote 156] the A&E procurement is done by the General Services
Administration unless delegated to another agency. 40 U.S.C. §§ 3308,
3313.[Footnote 157]
The Clinger-Cohen Act of 1996, Pub. L. No. 104-106, div. D, § 4105,
110 Stat. 186, 645-49 (Feb. 10, 1996) (often referred to as the
"Federal Acquisition Reform Act of 1996"), authorized "two-phase"
selection procedures for "design-build" acquisitions. These
procedures, codified at 10 U.S.C. § 2305a and 41 U.S.C. § 253m,
authorize the use of two-phase selection procedures for entering into
a contract for the design and construction a public building,
facility, or work. The conference report on the Act indicates that
this provision was "not intended to modify the Brooks Architect-
Engineers Act [40 U.S.C. §§ 1101-1104]." H.R. Rep. No. 104-450, at 966
(1996). Consequently, the two-phase approach represents an alternative
to the "design-bid-build" procedures in 40 U.S.C. §§ 1101-1104. See
Fluor Enterprises, Inc. v. United States, 64 Fed. Cl. 461 (2005),
which discusses at length the interplay between "design-build"
acquisitions and the "design-bid-build" procedures. Fluor describes
the two approaches as follows:
"'Design-Bid-Build' and 'Design-Build' are industry terms referring to
the method by which infrastructure projects are procured. [In] design-
bid-build ... the services of a design professional are procured
first, and the building contractor is selected later, after the design
work is completed. Conversely, in the design-build model, both design
and construction services are procured from a single entity (which
might be a single construction firm with in-house design professionals
or a team of construction and design professionals assembled for a
project) in a single procurement process."
Id. at 482.
Architects and engineers, like the rest of us, expect to be paid for
their services. They should be paid, says the provision in 40 U.S.C. §
1101 quoted above, "at fair and reasonable prices." In order to keep
"fair and reasonable" from becoming excessive, a series of statutes
imposes a percentage ceiling on A&E fees. Civilian procurements are
governed by 41 U.S.C. § 254(b), enacted as part of the Federal
Property and Administrative Services Act of 1949, which provides in
relevant part that:
"a fee inclusive of the contractor's costs and not in excess of 6
percent of the estimated cost, exclusive of fees, as determined by the
agency head at the time of entering into the contract, of the project
to which such fee is applicable is authorized in contracts for
architectural or engineering services relating to any public works or
utility project."
A very similar provision, governing procurements by the armed forces,
is found in 10 U.S.C. § 2306(d). The fee limitation of 41 U.S.C. §
254(b) applies to all civilian A&E procurements unless expressly
exempted. E.g., 46 Comp. Gen. 183, 189-90 (1966) (ceiling applies to
A&E services procured under authority of what is now 38 U.S.C. § 513);
B-152306, Jan. 5, 1967 (limited exemption under 22 U.S.C. § 296). By
its plain terms, 41 U.S.C. § 254(b) applies where A&E services are
used even if they are only a minor part of the overall contract.
Fluor, 64 Fed. Cl. at 479-82.[Footnote 158] The limitation in 10
U.S.C. § 2306(d) applies to the Coast Guard and the National
Aeronautics and Space Administration as well as the military
departments. 10 U.S.C. § 2303.
In addition, the Department of the Army is authorized to procure A&E
services "for producing and delivering designs, plans, drawings, and
specifications needed for any public works or utilities project of the
Department." 10 U.S.C. § 4540(a). Section 4540(b) then provides: "The
fee for any service under this section may not be more than 6 percent
of the estimated cost, as determined by the Secretary, of the project
to which it applies." Nearly identical limitations exist for the Navy
(10 U.S.C. § 7212(b)) and the Air Force (10 U.S.C. § 9540(b)). See 46
Comp. Gen. 556, 559 (1966).
Certain terminology is common to all of the statutes. Thus, the fee is
to be based on the estimated cost of a project relating to public
works or utilities. GAO has offered the following guidance with
respect to "estimated costs":
"In the absence of definite legislative expression otherwise, the term
'estimated cost' of a project may be said to comprehend the reasonable
cost of a project erected in accordance with the plans and
specifications, and that the inclusion of cost elements generally not
covered by the plans and specifications such as furniture and
equipment installed for the occupancy and use of a project would
appear to be questionable."
B-146312-0.M., Nov. 28, 1961, at 8. "Project" means the structure or
public work "for which the architect-engineer undertakes in his
contract to prepare the plans, etc., and not any larger budgetary or
other project of which it may form a part." 40 Comp. Gen. 188, 191
(1960). Thus, if the overall project is to erect a complex of three
buildings, the "project" for purposes of an A&E contract covering one
of the buildings is that one building, not all three. A broader
definition "would allow the architect-engineer's fee to be based on
the cost of work for which he rendered no service." Id. See also 47
Comp. Gen. 61, 67 (1967); B-152306, Jan. 24, 1967; B-115013-0.M., Apr.
28, 1953.
The term "public works" has been addressed under a variety of
statutes. The term generally relates to construction work 17 Comp.
Gen. 545 (1938), modified, A-90922, Feb. 23, 1938. It has been broadly
defined as fixed works or movable property the title to which is
vested in the United States. 35 Comp. Gen. 454, 455 (1956); 19 Comp.
Gen. 467, 470 (1939). A similarly broad definition is "all fixed works
contracted for public use." 35 Comp. Gen. at 455; 19 Comp. Gen. at
469; 38 Op. Att'y Gen. 418, 422 (1936). The term "utilities" in the
construction context "is commonly understood to have reference to such
items as sewer and water facilities, heating devices, electric wires
and fixtures, etc." 21 Comp. Gen. 167, 170 (1941). While these cases
did not involve the A&E fee limitation, the same definitions should
nevertheless be applied. B-146312-0.M., Nov. 28, 1961. The Navy
statute also includes construction of vessels or aircraft. 10 U.S.C. §
7212(a).
The A&E fee limitation statutes-41 U.S.C. § 254(b), 10 U.S.C. §
2306(b), and the three armed forces statutes, 10 U.S.C. §§ 4540, 7212,
and 9540—apply to all contracts regardless of type, cost-plus as well
as fixed-price. 46 Comp. Gen. 556 (1966); 46 Comp. Gen. 183 (1966); B-
115013-0.M., Apr. 28, 1953.
Differences in the statutory language have produced some controversy
over precisely what to include when assessing compliance with the fee
limitation, that is, what amounts are included in the total subject to
the 6 percent limit. The 1939 statutes authorize the procurement of
A&E services for the production and delivery of plans and designs, and
the fee limitation in each of the 1939 statutes applies to services
"under this section." Thus, it is clearly the case that, under 10
U.S.C. §§ 4540, 7212, and 9540, the 6 percent limitation relates only
to the production and delivery of plans and designs. 46 Comp. Gen.
556, 564 (1966); 22 Comp. Gen. 464 (1942). If the A&E contract
includes supervisory services as well as production and delivery, the
6 percent does not apply to those amounts paid to the contractor for
the supervisory services. 22 Comp. Gen. at 466. To take a simplified
illustration, the 6 percent ceiling on a $100 construction contract is
$6. If the A&E contract includes $5 for production and delivery and
another $5 for supervisory services, there is no violation.
The remaining A&E statutes-10 U.S.C. § 2306(d) and 41 U.S.C. § 254(b)—
do not include the specific "production and delivery" language. At one
time, GAO was inclined to view the limitation under these statutes as
applicable to the total contract price under the A&E contract for
whatever services it may have included, not just production and
delivery. 46 Comp. Gen. 573 (1966) (41 U.S.C. § 254(b)); 46 Comp. Gen.
556, 564-65 (1966) (10 U.S.C. § 2306(d)). However, the conclusions
were not free from doubt and GAO was in the process of conducting a
governmentwide review of A&E contracting, so both decisions said, in
effect, to disregard the conclusions pending further developments. In
1982, GAO reviewed those developments and concluded that Congress had
effectively affirmed "that the fee limitation relates only to the
production of plans, drawings, and specifications." B-205793, Jan. 18,
1982, at 3. Accordingly, all of the A&E fee limitation statutes now
have a uniform interpretation—the 6 percent ceiling applies only to
costs relating to the production and delivery of plans and designs.
This of course would include the proportionate share of administrative
costs attributable to support of production and delivery services. B-
258058, May 8, 1995.
The view expressed in B-205793, Jan. 18, 1982, is consistent with the
Federal Acquisition Regulation, which provides: "For architect-
engineer services for public works or utilities, the contract price or
the estimated cost and fee for production and delivery of designs,
plans, drawings, and specifications shall not exceed 6 percent of the
estimated cost of construction of the public work or utility,
excluding fees." 48 C.F.R. § 15.404-4(c)(4)(B).
Once it is determined which services under the A&E contract "count"
against the fee limitation, the total payment to the A&E contractor
for those covered services may not exceed 6 percent of the estimated
cost of the construction contract, regardless of the type of contract
used for the A&E procurement. Thus, if the A&E contract is a cost-plus-
fixed-fee contract, the 6 percent relates to the total payment for
covered services, not just the fixed fee portion. 21 Comp. Gen. 580
(1941), aff'd, B-18126, Mar. 19, 1942. It follows that an A&E contract
in the form of a cost-plus-fixed-fee, with the total payment including
the fixed fee not to exceed a specified dollar amount calculated to
remain within the statutory limitation, is legally unobjectionable. B-
106325, Nov. 15, 1951.
Unless the contract provides otherwise, a mere increase in the cost of
the construction contract—for example, if the lowest bid received
exceeds the estimated cost on which the A&E fee was based—does not
entitle the A&E contractor to an increase in fee. Hengel Associates,
P.C., VABCA No. 3921, 94-3 BCA ¶ 27,080 (1994); R.M. Otto Co., Inc. &
Associates, VABCA No. 1526, 82-2 BCA ¶ 15,889 (1982); Shaw Metz &
Associates, VABCA No. 774, 71-1 BCA ¶ 8679 (1971); William Cramp
Scheetz, Jr., ASBCA No. 9501, 1964 BCA ¶ 4340 (1964). As the Hengel
board in particular emphasized, the 6 percent is a ceiling, not an
entitlement, and does not prohibit the parties from contracting for a
lower amount. Hengel, 94-3 BCA at ¶ 134,965.
Of course, there are situations in which the fee may be increased. If
the A&E contract is modified under the "Changes" clause to increase
the scope of the work, a fee increase is proper, still subject to the
6 percent ceiling. B-152306, Jan. 24, 1967. See also Skidmore, Owings
& Merrill, ASBCA No. 6062, 1962 BCA ¶ 3332 (1962). It is also possible
to increase the fee without regard to the 6 percent limit, as
discussed in the following passage from 47 Comp. Gen. 61, 67 (1967):
"The project to which an architect-engineer fee is applicable is the
project for which the architect-engineer undertakes in his contract to
prepare plans, etc. [Citation omitted.] Where the site and nature of a
project are so changed as to render virtually useless any [A&E] work
done prior to administrative determination to effect such change, it
would be unreasonable, in light of the statutory purpose, to carry
forward against the new project any charges against the fee limitation
incurred under the original project. Although the purpose to be served
by a building project may remain unchanged, that is not to say that
the conceptual design of the building and its location may be
substantially altered without at some point giving rise to a new
project for the purpose of applying the fee limitations in question."
b. Some Agency-Specific Authorities:
If construction were governed solely by the appropriated funding
requirement in 41 U.S.C. § 12, the funding process would be cumbersome
and would afford little flexibility. While 41 U.S.C. § 12 remains the
cornerstone of congressional control of major construction projects,
Congress has enacted various supplemental provisions for agencies with
ongoing construction responsibilities,[Footnote 159] all of which can
be viewed as exceptions to 41 U.S.C. § 12.
(1) Military construction:
Not surprisingly,[Footnote 150] the most detailed and comprehensive
scheme is that applicable to the Defense Department and the military
departments. Typically, construction funds are appropriated to each
department in a lump sum to be used "as authorized by law," which
means in accordance with authorization acts required by 10 U.S.C. §
114(a)(6).[Footnote 161] Most of the funds are authorized by
installation, in line-item format. In addition, each department
receives a lump-sum authorization for "unspecified minor military
construction projects."
Substantive provisions are found in the Military Construction
Codification Act,[Footnote 162] codified chiefly in 10 U.S.C. §§ 2801-
2853. "Military construction" is defined broadly as "any construction,
development, conversion, or extension of any kind carried out with
respect to a military installation, whether to satisfy temporary or
permanent requirements." 10 U.S.C. § 2801(a). A "military construction
project" includes all military construction "necessary to produce a
complete and usable facility or a complete and usable improvement to
an existing facility" or authorized portion thereof. 10 U.S.C. §
2801(b).
Under 10 U.S.C. § 2805(a)(1), "within an amount equal to 125 percent
of the amount authorized by law for such purpose"—that is, the lump-
sum minor military construction authorization—each department may
carry out "unspecified minor military construction projects" that are
"not otherwise authorized by law." An "unspecified minor military
construction project" is one "that has an approved cost equal to or
less than "1,500,000" or equal or less than $3,000,000 if the project
"is intended solely to correct a deficiency that is life-threatening,
health-threatening, or safety-threatening." Id. Projects costing more
than $750,000 must first be reported to Congress.
10 U.S.C. § 2805(b)(2). Section 2805(c)(1) further enhances
flexibility by generally permitting unspecified minor military
construction projects costing not more than $750,000 (or $1,500,000 in
the case of life-threatening, etc., projects) to be charged to
Operation and Maintenance (O&M), rather than military construction,
appropriations. In addition, cost variations are authorized in unusual
and unanticipated situations, up to limits specified in 10 U.S.C. §
2853.
The "minor milcon" provisions are simultaneously authorizations and
limitations. See B-159451, Mar. 20, 1967. Subject to authorized
variations, GAO regards the cost of a minor milcon project as the cost
at the time it is approved by the appropriate departmental official,
regardless of subsequent increases in the statutory ceiling. B-175215,
Apr. 20, 1972.
As noted above, a construction project is defined in terms of a
"complete and usable facility" unless something less is specifically
authorized. It is not permissible to split a single project into
smaller projects (sometimes given the fancy name "incremental
construction") in order to stay below the ceiling for using O&M funds.
B-234326.15, Dec. 24, 1991; B-213137, Jan. 30, 1986; B-159451, Sept.
3, 1969; B-133316-0.M., Aug. 27, 1962. As most of these references
point out, directives of the military departments also prohibit
splitting.
In B-303145, Dec. 7, 2005, GAO raised the issue of whether the Defense
Department may have violated the forgoing statutory limitations in
connection with projects approved as part of the global war on
terrorism near the end of fiscal year 2002. The Defense Department
provided GAO a memorandum asserting its "longstanding view that O&M
funds may be used for construction of a temporary nature in support of
certain military operations." B-303145, at 16-17. While the record was
insufficient to permit a specific determination, GAO offered the
following general observations:
"We have recognized that construction work of a temporary nature may
be funded with DOD's O&M funds in 'extremely limited' circumstances.
In particular, in applying the principles derived from our earlier
cases interpreting a longstanding prohibition [41 U.S.C. § 12] on
using appropriations to fund contracts for construction of 'public
improvements,' we have held that the military construction statutes do
not cover the types of work that are 'clearly of a temporary nature'
as addressed in those cases. In reviewing the limited documentation
provided by DOD, we were unable to determine whether the construction
components of any of the projects were of such a temporary nature that
the military construction statutes would not apply."
Id. at 17-18 (footnotes omitted).
The military departments have traditionally distinguished between
"funded costs" and "unfunded costs," including only the former in
calculating costs for purposes of 10 U.S.C. § 2805. Funded costs
consist primarily of the costs of labor (other than troop labor),
materials, and equipment. Unfunded costs include such things as troop
labor and equipment depreciation. GAO has accepted the legitimacy of
the distinction. B-213137, Jan. 30, 1986; B-133316, Oct. 12, 1962.
Charging a construction project to O&M funds in excess of the
statutory ceiling violates 31 U.S.C. § 1301(a) which prohibits using
appropriated funds for other than their intended purpose. It also
violates the Antideficiency Act unless unobligated construction funds
are available to make an appropriate account adjustment. 63 Comp. Gen.
422, 423-24, 43738 (1984).
(2) Continuing contracts: two variations:
Construction projects often must extend beyond a single fiscal year. A
device Congress has provided some agencies is the "continuing
contract." For example, the Army Corps of Engineers engages in
extensive public works construction activity. A significant authority
available to the Corps is 33 U.S.C. § 621: "Any public work on canals,
rivers, and harbors adopted by Congress may be prosecuted by direct
appropriations, by continuing contracts, or by both direct
appropriations and continuing contracts."
Under a continuing contract, as the term is used in this context, the
Corps enters into a multiyear contract for the completion of a
construction project, although funds are sought and appropriated only
in annual increments to cover work planned for the particular year.
See C.H. Leave11 & Co. v. United States, 530 F.2d 878, 886 (Ct. CL
1976). This statute is an exception to both 41 U.S.C. § 12 and the
Antideficiency Act. It authorizes the Corps to record the full
contract price as an obligation at the time the contract is entered
into, even though appropriations to liquidate the obligation have not
yet been made. 56 Comp. Gen. 437 (1977). The authority of 33 U.S.C. §
621 applies equally to contracts financed by the Civil Works Revolving
Fund (33 U.S.C. § 576). B-242974.6-0.M., Nov. 26, 1991.
To the extent applicable, the laws relating to river and harbor
improvements—including the "continuing contract" authority of 33
U.S.C. § 621—apply also to the Corps' shore protection and flood
control projects.[Footnote 163] 33 U.S.C. §§ 426b, 701.
A different type of continuing contract is authorized by a provision
found in the Reclamation Act, 43 U.S.C. § 388:
"When appropriations have been made for the commencement or
continuation of construction or operation and maintenance of any
project, the Secretary may ... enter into contracts ... for
construction, which may cover such periods of time as the Secretary
may consider necessary but in which the liability of the United States
shall be contingent upon appropriations being made therefor."
To an extent 43 U.S.C. § 388 can also be viewed as an exception to the
Antideficiency Act. PCL Construction Services, Inc. v. United States,
41 Fed. CL 242, 251-57 (1998), aff'd, 96 Fed. Appx. 672 (Fed. Cir.
2004); B-72020, Jan. 9, 1948. However, it is a much more limited one
than 33 U.S.C. § 621. Under 33 U.S.C. § 621, actual payment must await
an appropriation, but the legal obligation arises, and is recordable,
when the contract is entered into. Under 43 U.S.C. § 388, legal
liability does not come into existence until the appropriation is made
and, therefore, the full contract price cannot be recorded as an
obligation at the time the contract is entered into.
The distinction is highlighted in 28 Comp. Gen. 163 (1948), which
compared 43 U.S.C. § 388 with a provision appearing in an
appropriation act which appropriated $1 million for a construction
project and, in addition, authorized the Bureau of Reclamation to
enter into contracts up to $1.6 million. The appropriation act
provision, analogous to 33 U.S.C. § 621 as construed in 56 Comp. Gen.
437, authorized:
"the entering into of a firm contract which fully will obligate the
faith and credit of the United States to its payment. The liability of
the United States, on proper contracts entered into under its
authority, is fixed and clear. It is not contingent in any way on the
appropriation necessary to its fulfillment and the Government is fully
obligated to satisfy its conditions."
28 Comp. Gen. at 165. This is the classic concept of contract
authority. A contract under 43 U.S.C. § 388 is different, however. The
decision continued: "The liability of the United States on contracts
entered into pursuant to [43 U.S.C. § 388], on the other hand, 'shall
be contingent upon appropriations being made therefor.' Under such
contracts, no legal obligation exists to pay their amounts unless and
until appropriation is made therefor." 28 Comp. Gen. at 165-66. See
also B-72020, Jan. 9, 1948.
The rights and obligations of the parties in the event of a funding
shortfall will also vary depending on which type of continuing
contract is in effect. Under the type of contract which amounts to
contract authority such as 33 U.S.C. § 621, the contractor has a legal
right to recover and can sue to enforce it. 56 Comp. Gen. at 442.
While a court can never order Congress to appropriate money, a failure
or refusal to appropriate funds to satisfy an obligation authorized by
statute will not preclude a court from rendering a judgment. E.g., New
York Airways, Inc. v. United States, 369 F.2d 743 (Ct. Cl. 1966).
Under the type of contingent contract authorized by 43 U.S.C. § 388,
the situation is different. In a case where the contracting agency had
requested sufficient funds to finance the contract but Congress
appropriated a much smaller amount, the Court of Claims held that as
long as the agency allocates the funds on a rational and
nondiscriminatory basis, the contractor has no right to recover
damages incurred as a result of the funding shortage. Winston Brothers
Co. v. United States, 130 E Supp. 374 (Ct. CL 1955). A similar holding
is Granite Construction Co., IBCA No. 947-1-72, 72-2 BCA ¶ 9762
(1972), denying recovery where the exhaustion of funds was due to a
presidential impoundment.
In S.A. Healy Co. v. United States, 576 F.2d 299 (Ct. Cl. 1978),
however, the court granted an equitable adjustment where the
contracting agency's budget request was "grossly inadequate" to
support the funding level it had previously approved under the
contract. The difference between Healy on the one hand and Winston and
Granite on the other is that the funding shortfall in Healy was at
least partly the agency's fault. Healy, 576 F.2d at 305.
While there are few cases, it seems fair to say that the extent of the
agency's duty to at least ask for the money is still being formed and
defined. The Healy court was careful to point out that it was not
holding that the agency has an absolute contractual obligation to seek
adequate funding. More precisely, said the court, if the agency
chooses not to seek adequate funding, it can escape liability only if
the contract unambiguously places the entire risk on the contractor,
and if the agency provides "timely and candid" notification to help
the contractor mitigate its loss. Id. at 307. See also San Carlos
Irrigation and Drainage District v. United States, 23 Cl. Ct. 276, 283
(1991). Of course, the question will be foreclosed if the contract
explicitly creates the duty. E.g., Municipal Leasing Corp. v. United
States, 1 Cl. Ct. 771, 774 (1983) (contract clause obligating agency
"to use its best efforts to obtain appropriations of the necessary
funds to meet its obligations and to continue this contract in
force"). Precisely what constitutes "best efforts" has yet to be
determined.
(3) 7 U.S.C. § 2250:
A Department of Agriculture provision, 7 U.S.C. § 2250, illustrates a
different approach:
"The Department of Agriculture is authorized to erect, alter, and
repair such buildings and other public improvements as may be
necessary to carry out its authorized work: Provided, That no building
or improvement shall be erected or altered under this authority unless
provision is made therefor in the applicable appropriation and the
cost thereof is not in excess of limitations prescribed therein."
The purpose of this permanent authorization is to avoid the need for
specific authorizations which 41 U.S.C. § 12 would otherwise require.
Provision can thus be made in annual appropriation acts without being
susceptible to a point of order. The origin and intent of 7 U.S.C. §
2250 are discussed in B-79640, Oct. 18, 1948, and B-151369-0.M., Nov.
15, 1963.
To implement 7 U.S.C. § 2250, the relevant appropriation will
typically specify monetary limits on construction activities, plus
whatever exemptions from those limits Congress may desire. See, for
example, the appropriation under the heading Agricultural Research
Service, Salaries and Expenses in the Agriculture Department's 2006
appropriation act, Pub. L. No. 109-97, 119 Stat. 2120, 2124 (Nov. 10,
2005). Exceeding an applicable limitation violates 41 U.S.C. § 12. B-
151369-0.M., Nov. 15, 1963.
(4) 15 U.S.C. § 278d:
Another permanent authorization is 15 U.S.C. § 278d, applicable to the
National Institute of Standards and Technology:
"Within the limits of funds which are appropriated for the Institute,
the Secretary of Commerce is authorized to undertake such construction
of buildings and other facilities, and to make such improvements to
existing buildings, grounds, and other facilities occupied or used by
the Institute as are necessary for the proper and efficient conduct of
the activities authorized herein."
This statute at one time included language, dropped in 1992, requiring
specific provision in the relevant appropriation in order to construct
a building costing over a specified amount. As the statute now stands,
it is similar to 7 U.S.C. § 2250 in that it will insulate an
appropriation from a point of order under congressional rules
requiring prior authorization. It is also similar in that it, standing
alone, does not satisfy 41 U.S.C. § 12. There would need to be at
least the elements described in 39 Comp. Gen. 723 (1960), previously
discussed in our coverage of 41 U.S.C. § 12.
The Institute finances its construction from a reimbursable Working
Capital Fund pursuant to 15 U.S.C. § 278b. In order to use the Working
Capital Fund, however, the appropriation to be charged with the
reimbursement must itself be available for construction, that is, it
must satisfy 41 U.S.C. § 12. 30 Comp. Gen. 453 (1951); 15 U.S.C. §
278b(b). Reimbursement should include indirect as well as direct
costs. See B-117622, July 13, 1955; 15 U.S.C. § 278b(e).
Section 278d has been construed as applicable only to construction on
government-owned land and not to leased property. B-130564, Mar. 18,
1957; B-124596-0.M., Aug. 26, 1955. A separate provision of law now
authorizes, in the performance of Institute functions, "the erection
on leased property of specialized facilities and working and living
quarters when the Secretary of Commerce determines that this will best
serve the interests of the Government." 15 U.S.C. § 278e(g).
c. Public Buildings Act and the General Services Administration:
As noted previously in section E of this chapter, the Federal Property
and the General Services Administrative Services Act of 1949 created
the General Services Administration (GSA) and centralized a number of
the government's housekeeping functions in that agency. Ten years
later, Congress enacted the Public Buildings Act of 1959, Pub. L. No.
86-249, 73 Stat. 479 (Sept. 9, 1959), to do essentially the same thing
for public buildings acquisition and construction. The act was amended
significantly in 1972, 1976, and again in 1988.[Footnote 164] Most of
the act's provisions, along with their amendments, were—and still are—
contained in title 40 of the United States Code. As also noted
previously, Congress codified title 40 by enacting its provisions into
positive law. As a result of the codification, the Public Buildings
Act technically no longer exists and most of its provisions have found
new homes in different sections of title 40, primarily at 40 U.S.C. §§
3301-3315. We will refer to the current Code sections in the following
discussion. However, we will also identify the prior section numbers
since most of the cited cases refer to them.
The statute gives a fairly complicated definition of "public
building." The term means "a building, whether for single or
multitenant occupancy, and its grounds, approaches, and appurtenances,
which is generally suitable for use as office or storage space or both
by one or more federal agencies or mixed ownership Government
corporations." 40 U.S.C. § 3301(a)(5)(A).[Footnote 165] The definition
then goes on to list a number of specific types of buildings and
facilities that are included in the general definition. Id. §
3301(a)(5)(B). It then lists a number of specific exemptions from the
definition, including buildings on the public domain; on military
installations; on United States property in foreign countries; on
Indian and Eskimo properties held in trust by the United States; on
lands used in federal agricultural, recreational, and conservation
programs, including related research; on or used in connection with
river, harbor, flood control, reclamation, or power projects; used for
nuclear production, research, or development projects; on or used in
connection with housing or residential projects; on Department of
Veterans Affairs installations used for hospital or domiciliary
purposes. Id. § 3301(a)(5)(C). See also the definition in GSA Federal
Management Regulation at 41 C.F.R. § 102-71-20. Thus, wholly apart
from specific exemptions Congress may from time to time legislate, the
basic statute itself carves out several large exemptions from the
definition. What's left is a public building governed by 40 U.S.C. §§
3301-3315.
Section 3302 of title 40[Footnote 166] sets the policy by declaring
that "Only the Administrator of General Services may construct a
public building." Section 3304 of title 40 of the United States Code
deals with site acquisition. GSA is authorized to acquire sites needed
for public buildings "by purchase, condemnation, donation, exchange,
or otherwise." 40 U.S.C. § 3304(a).[Footnote 167] GSA may solicit
proposals but is not required to follow the competition requirements
of the Federal Property and Administrative Services Act or the Federal
Acquisition Regulation. 40 U.S.C. § 3304(d)(2); 71 Comp. Gen. 333
(1992). The site selected should be the one "most advantageous to the
Government, all factors considered." 40 U.S.C. § 3304(d)(1). Meeting
this standard requires "intelligent competition" which includes
informing offerors of the evaluation factors to be applied and their
relative importance. B-256017.4, B-256017.5, June 27, 1994. There is
nothing improper under section 3304 in soliciting expressions of
interest and then, if the parties cannot agree to acceptable terms,
instituting condemnation proceedings. 71 Comp. Gen. 511 (1992). It is
similarly within GSA's discretion to reach agreement with the owner
after requesting the Attorney General to initiate the condemnation. B-
249131.4, June 24, 1993. Condemnation of a site for a public building
is "obviously for a public use" for Fifth Amendment purposes. Certain
Land in the City of Washington, D.C. v. United States, 355 F.2d 825,
826 (D.C. Cir. 1965).
The requirement in Executive Order No. 12072 to give preference to
central business areas, discussed previously in section E of this
chapter in connection with leasing, applies to site selection under 40
U.S.C. § 3304. Exec. Order No. 12072, Federal Space Management, § 1-
103, 43 Fed. Reg. 36,869 (Aug. 16, 1978). Therefore, it is within
GSA's discretion when soliciting sites for public building
construction to limit consideration to a central business area. B-
251581.2, July 13, 1993.
As noted earlier, any construction project requires architectural and
engineering services, and 40 U.S.C. § 3308(a)[Footnote 168] authorizes
GSA to procure those services. However, GSA must retain responsibility
for all construction, including interpreting construction contracts,
approving contract changes, certifying payment vouchers, and making
final contract settlement. 40 U.S.C. § 3308(c). To the maximum extent
feasible, construction should comply with one of the nationally
recognized model building codes, and should take into consideration
state and local zoning laws and laws imposing landscaping, open space,
minimum distance, and maximum height requirements. 40 U.S.C. §§
3312(b), (c).[Footnote 169]
Artistic concerns are also relevant. GSA regulations provide:
"Federal agencies must incorporate fine arts as an integral part of
the total building concept when designing new Federal buildings, and
when making substantial repairs and alterations to existing Federal
buildings, as appropriate. The selected fine arts, including painting,
sculpture, and artistic work in other media, must reflect the national
cultural heritage and emphasize the work of living American artists."
41 C.F.R. § 102-77.10. This provision does not have an explicit
statutory basis, but has long been in the regulations. See B-95136,
Mar. 26, 1976.
Section 3305(b) of title 40[Footnote 170] authorizes GSA to alter
public buildings. "Alter" includes "repairing, remodeling, improving,
or extending or other changes in a public building." 40 U.S.C. §
3301(a)(1)(B). As with construction, the term includes related
planning, engineering, architectural work, and similar actions. 41
C.F.R. § 102-71.20. GSA may do the work itself or may carry out any
authorized construction or alteration by contract if deemed to be
"most advantageous to the Government." 40 U.S.C. § 3305(c).[Footnote
171] It may also contract with other agencies, such as the Army Corps
of Engineers, under the Economy Act, 31 U.S.C. § 1535. See B-172186,
Apr. 5, 1971.
GSA may delegate most of its construction functions. 40 U.S.C. §
3313.[Footnote 172] For projects whose estimated cost does not exceed
$100,000, delegation is mandatory upon request. Id.
An important statutory provision is the prospectus approval
requirement of 40 U.S.C. § 3307,[Footnote 173] which provides in part:
"(a) Resolutions required before appropriations may be made.—The
following appropriations may be made only if the Committee on
Environment and Public Works of the Senate and the Committee on
Transportation and Infrastructure of the House of Representatives
adopt resolutions approving the purpose for which the appropriation is
made:
"(1) An appropriation to construct, alter, or acquire any building to
be used as a public building which involves a total expenditure in
excess of $1,500,000, so that the equitable distribution of public
buildings throughout the United States with due regard for the
comparative urgency of need for the buildings, except as provided in
section 3305(b) of this title, is ensured."[Footnote 174]
The "except as provided in section 3305(b)" refers to 40 U.S.C. §
3305(b), which authorizes GSA to alter public buildings and to acquire
land necessary to carry out the alterations, and then provides:
"Approval under section 3307 of this title is not required for any
alteration and acquisition authorized by this section for which the
estimated maximum cost does not exceed $1,500,000."
Approval is obtained by submitting a prospectus to the specified
committees. The contents of the prospectus, set forth in 40 U.S.C. §
3307(b), include:
* a brief description of the building to be constructed, altered,
purchased, or acquired;
* the location of the building and an estimate of the maximum cost to
the government;
* a comprehensive plan addressing the space needs of all government
employees in the locality;
* if construction is involved, a statement that other suitable space
is not available either in government-owned buildings or at comparable
cost;
* justification for not using buildings identified pursuant to the
National Historic Preservation Act (see 40 U.S.C. § 3303(c)); and;
* a statement of how much the government is already spending to
accommodate the employees who will occupy the building to be
constructed, altered, purchased, or acquired.
The project cost may be increased by up to 10 percent of the
prospectus estimate without having to submit a revised prospectus. 40
U.S.C. § 3307(c). Either committee may rescind its approval in the
case of a project for construction, alteration, or acquisition if an
appropriation has not been made within 1 year after the date of
approval. 40 U.S.C. § 3307(d). GSA may adjust any dollar amount
specified in section 3307 annually "to reflect a percentage increase
or decrease in construction costs during the prior calendar year, as
determined by the composite index of construction costs of the
Department of Commerce," promptly reporting any such adjustments to
the committees. 40 U.S.C. § 3307(g).
Nothing in the statute precludes a situation in which GSA secures the
required approval with the appropriation to be made to some other
agency. 46 Comp. Gen. 427 (1966). Since the approval requirement is a
restriction on the appropriation of funds, it does not apply to the
construction of a building where appropriated funds will not be
involved, even where the building is clearly a "public building" and
will be constructed by GSA. B-143167-0.M., Sept. 27, 1960 (office
building for Federal Deposit Insurance Corporation). It also does not
apply to projects involving the United States Capitol. B-148004, Oct.
20, 1969.
Prospectus approval may precede or follow enactment of the relevant
appropriation. B-95136, Oct. 11, 1979. Limiting language in the
approval is not legally binding unless incorporated in the
appropriation providing funds for the project. B-95136, Feb. 7, 1977.
If GSA does not comply with the prospectus approval requirement and
Congress chooses to appropriate the money anyway, the appropriation
might be subject to a point of order, but it would be a perfectly
valid appropriation if enacted. Id.; B-95136, Sept. 27, 1978; B-95136-
0.M., Dec. 23, 1975. Funds will be available for the project, with or
without compliance with 40 U.S.C. § 3307, if Congress specifically
appropriates funds for the project, or if it can be clearly
established that Congress knowingly included those funds in a lump-sum
appropriation. Merely burying the project in budget justification
material, however, is not enough. B-95136, Oct. 11, 1979; B-95136-
0.M., Dec. 23, 1975.
In accord with these principles is Maiatico v. United States, 302 F.2d
880 (D.C. Cir. 1962), in which the court held that GSA had no
authority to condemn an office building where GSA (1) had not obtained
prospectus approval as required by 40 U.S.C. § 3307, and (2) purported
to act under authority of a lump-sum appropriation which could not be
demonstrated to include the building in question.
d. Scope of Construction Appropriations:
Apart from obvious differences in factual context, determining the
scope of a construction appropriation is not fundamentally different
than for other types of appropriations. The process requires analyzing
the language of the appropriation, the statutes and principles
governing the use of appropriations in general, and the relationship
of the construction appropriation to other appropriations available to
the agency or for the project.
The first and most important determinant is the precise application of
the language of the appropriation. For example, where language which
would have appropriated funds for "beginning construction" was changed
to "preparing for construction," the appropriation was not available
for any of the costs of actual construction. B-122221, Jan. 14, 1955.
If there is any inconsistency between the language of the enacted
appropriation and legislative history or prior bills, the enacted
language must prevail. Id. The statutory language alone will not
always provide the answer, however. Words like "facilities" and
"appurtenances," for example, do not have obvious meanings and, absent
clear instructions in legislative history, it is necessary to resort
to other principles and precedents for guidance. See B-133148-0.M., B-
132109-0.M., Jan. 20, 1959.
The next element in our approach is the application of the statutes
and principles governing the availability of appropriations generally
with respect to purpose, time, and amount. Purpose availability is
governed by the "necessary expense" doctrine discussed in Chapter 4.
One illustration is the treatment of expenses of preparation of plans
and specifications, or what we have previously referred to as "design
fees." Congress may choose to provide separately for these expenses.
E.g., 36 Comp. Gen. 790 (1957). If there is no separate appropriation,
design fees are chargeable to the construction appropriation. As
stated in B-71067, Dec. 9, 1947, at 3:
"When Congress appropriates funds for the construction of a building
and does not otherwise appropriate funds for plans or supervision of
its construction, it is not to be presumed that its intention was that
the building be erected without either plans or supervision, but that
the expenses of planning and superintendence being reasonably
necessary and incident to the construction they are for payment out of
the funds made available for such construction."
This being the case, design fees should not be charged to general
operating appropriations. 18 Comp. Gen. 122 (1938), affg, 18 Comp.
Gen. 71 (1938); 15 Comp. Gen. 389 (1935). The same principle applies
to work which is preliminary to the design work. Unless specifically
provided for, it is chargeable to appropriations available for
construction and not general operating appropriations. 11 Comp. Gen.
313 (1932) (site tests). Of course, the existence of a specific
appropriation will preclude use of construction funds. B-9240, May 2,
1940 (specific appropriation for preliminary surveys). Where
inspection or supervision of construction is performed by regular
government employees, their salaries and related expenses are
chargeable not to the construction appropriation but to the general
Salaries & Expenses appropriation, or its equivalent, for the fiscal
year in which the services are performed. 38 Comp. Gen. 316 (1958); 16
Comp. Gen. 1055 (1937), modified, A-86612, Aug. 16, 1937.
The amount charged by a municipality for the "privilege" of connecting
the sewer line of a government building to the municipal sewer system
is a necessary cost of construction and therefore chargeable to
construction appropriations. 19 Comp. Gen. 778 (1940); 9 Comp. Gen. 41
(1929); B-22714, Mar. 19, 1942. This is true whether the connection is
part of the original construction or subsequent remodeling or
improvement. 39 Comp. Gen. 363 (1959).
We noted in Chapter 4 that reasonable expenses incident to dedication
or cornerstone ceremonies for public buildings are regarded as a
proper charge to appropriated funds. 53 Comp. Gen. 119 (1973)
(engraving a ceremonial shovel); B-158831, June 8, 1966 (flowers for
use as centerpieces); B-11884, Aug. 26, 1940 (printing of programs and
invitations); A-88307, Aug. 21, 1937 (group photograph and recording
of presidential speech). In each case, the proper appropriation to
charge was the construction appropriation, not a general operating
appropriation, the principle being stated in A-88307, at 2, and quoted
in 53 Comp. Gen. at 120, as follows: "The laying of cornerstones has
been connected with the construction of public buildings from time
immemorial and any expenses necessarily incident thereto are generally
chargeable to the appropriation for construction of the building."
Availability as to time is discussed in section F.1.a of this chapter.
With respect to amount, again, a construction appropriation is no
different from any other appropriation. The appropriation of a
specific amount for a construction project is a ceiling on the amount
that can be obligated; it is the exclusive source of funds for the
project and may not be augmented with funds from some other
appropriation without congressional sanction. 20 Comp. Gen. 272
(1940); 19 Comp. Gen. 892 (1940), modified by B-9460, June 11, 1940; B-
122221, Jan. 14, 1955. If you cannot build what you want with the
money Congress has provided, you must either go back to Congress and
ask for more or reduce the scope of your project.
The third basic determinant is the relationship of the construction
appropriation to other appropriations. What Congress has or has not
provided for elsewhere often helps determine what it has or has not
provided as part of the construction appropriation. One line of cases
involves construction appropriations and appropriations available for
repairs and maintenance. For expenses connected with original
construction, the test is stated as follows: "Costs necessary to the
completion of a construction project are, essentially, construction
costs, and not costs of maintenance, operation, repair, alteration, or
improvements, which costs ordinarily arise only after completion of
the project." 19 Comp. Gen. 778, 781 (1940). That case found sewer
connection charges a proper cost of construction. In contrast, items
such as acoustical ceilings, venetian blinds, partitioning, shrubbery,
and other plants, not acquired until after GSA had designated the
building as substantially complete and occupancy had begun, could not
be said to be "necessary for completion of the project," and were
therefore properly chargeable to a repairs and improvements
appropriation rather than construction. B-165152-0.M., Oct. 15, 1968.
For expenses arising after completion of the original construction,
the question is whether they can be legitimately regarded as within
the scope of an appropriation for repairs and maintenance or
improvements, or whether they must be treated as construction items.
The Comptroller General has offered the following broad definitions:
"It has been held that the term 'repair' includes anything that is
reasonably necessary to keep up the premises....
"To 'maintain' means to preserve or keep in an existing state or
condition, and embraces acts of repair and other acts to prevent a
decline, lapse, or cessation from that state or condition, and has
been taken to be synonymous with repair."
21 Comp. Gen. 90, 91-92 (1941).
Thus, an extension or addition to a public building cannot be charged
to an appropriation for repairs. 4 Comp. Gen. 1063 (1925); 20 Comp.
Dec. 73 (1913); 7 Comp. Dec. 684 (1901); 1 Comp. Dec. 33 (1894);
[Footnote 175] A-40231, Jan. 11, 1932; A-1876, July 10, 1924. It is
construction and, as the two unpublished decisions point out, must be
handled as such, which means in compliance with 41 U.S.C. § 12.
Similarly, appropriations for repairs and improvements are not
available for extensive structural changes and replacement of worn-out
equipment in a cafeteria (27 Comp. Gen. 634 (1948)), and certainly not
for replacing a building entirely destroyed by fire (39 Comp. Gen. 784
(1960)). Treatment of walls and ceilings for soundproofing would
qualify as an improvement, but it is not a "repair." 2 Comp. Gen. 301
(1922). If an item cannot be charged to a repair appropriation because
it is more properly regarded as construction, it follows that charging
a general operating appropriation is equally improper. E.g., 10 Comp.
Dec. 633 (1904); B-132109, July 18, 1958.
Another line of cases addresses the relationship between construction
appropriations and appropriations for equipment and furnishings. The
well-settled rule is that "an appropriation for the construction of a
building is available only for the cost of construction proper and for
equipment and/or fixtures permanently attached to the building and so
essentially a part thereof that the removal of the same might cause
substantial damage to the building." 12 Comp. Gen. 488, 489 (1933).
An item of equipment qualifies as a "fixture" for purposes of this
rule if (1) it is permanently attached to the realty, or (2) if not
permanently attached, (a) it is necessary and indispensable to the
completion and operation of the building, or (b) the structure was
designed and built for the purpose of housing the equipment. B-133148-
0.M., B-132109-0.M., Aug. 18, 1959.
Use of construction funds rather than an appropriation for equipment
and furnishings was proper in 9 Comp. Gen. 217 (1929) (installation of
cafeteria and associated equipment), and B-118779, Nov. 14, 1969 (duct
work, acoustical work, sprinklers, electrical fixtures, heating and
cooling equipment). Cases holding construction appropriations to be
the improper source of funds include 12 Comp. Gen. 488 (portable fire
extinguishers); 7 Comp. Gen. 474 (1928) (window shades); and 26 Comp.
Dec. 111 (1919) (linoleum which could be removed or replaced without
material damage to the floor). All of these cases assume the existence
of a separate appropriation for equipment and furnishings. Absent a
separate appropriation, use of the construction appropriation would be
proper if necessary to make the building usable for its intended
purpose (A-43075- 0.M., Aug. 27, 1932), but would not be proper for
furniture or equipment not required for the construction (B-123240,
June 9, 1955). Also, there is of course no problem if the construction
appropriation is expressly made available for the purchase and
installation of furniture. 7 Comp. Gen. 619 (1928).
2. Operation and Control:
a. Who's in Charge?
As with construction and leasing, the operation and control of public
buildings is centralized in the General Services Administration (GSA),
which derives its authority from several sources:
* Various provisions of title 40, United States Code, derived from the
Federal Property and Administrative Services Act of 1949 and the
Public Buildings Act of 1958, noted later in this discussion, which
assign specific responsibilities to GSA.
* Miscellaneous provisions of title 40 which were not part of the
Federal Property or Public Buildings Acts. Examples are 40 U.S.C. §§
8101[Footnote 176] (GSA "shall have charge of the public buildings and
grounds in the District of Columbia"); 3104[Footnote 177] (furniture
for new public buildings must be procured in accordance with plans and
specifications approved by GSA); 3101[Footnote 178] (GSA has exclusive
control over public buildings outside of the District of Columbia
purchased or constructed from appropriations under GSA's control); and
3102[Footnote 179] (GSA authorized to name or rename buildings under
its control, even if previously named by statute).
* Section 303(b) of title 40,[Footnote 180] which transferred to GSA
all functions of its predecessor, the Federal Works Agency.
* Reorganization Plan No. 18 of 1950, sections 1 and 2, 40 U.S.C. §
301 note, which transferred to GSA, respectively, "all functions with
respect to assigning and reassigning space" in buildings owned or
leased by the government and "all functions with respect to the
operation, maintenance, and custody of office buildings" owned or
leased by the government.
While GSA's authority is thus broad and comprehensive, there are
significant exceptions.[Footnote 181] However, unless an agency falls
within one of these exceptions, has its own specific statutory
authority,[Footnote 182] or has a delegation from GSA, GSA's authority
is exclusive and the agency has no authority to procure building
services directly. B-309181, Aug. 17, 2007; 61 Comp. Gen. 658 (1982).
b. Allocation of Space:
One of the General Services Administration's (GSA) functions is to
assign and reassign space of executive agencies in government-owned
and leased buildings. 40 U.S.C. § 585(a).[Footnote 183] Space
assignments should be advantageous in terms of economy, efficiency, or
national security. Id. § 581(c)(4).[Footnote 184]
Space assignment is one of the functions GSA inherited from its
predecessor, the Public Buildings Administration of the Federal Works
Agency. Determinations under this authority, the Attorney General has
noted, as with all discretionary authority, "should not be made
abstractly, or in an arbitrary manner, or without ascertainment and
due consideration of the true needs of an affected department or
agency." 40 Op. Att'y Gen. 140, 143 (1941).
Incident to the assignment of space is the determination—within some
bounds of reason—of how much space to assign. A bankruptcy judge sued
to force GSA to provide more space for the performance of his duties.
He lost. Votolato v. Freeman, 8 B.R. 766 (D.N.H. 1981).
An agency's space needs are subject to change over time as the agency
grows or shrinks or acquires or sheds functions. A recurring question
has been who must bear the expense when substantial growth by one
agency requires the relocation of another agency which shares the
building. GAO originally took the position that the moving agency must
bear its own expenses. E.g., 35 Comp. Gen. 701 (1956); 34 Comp. Gen.
454 (1955). Subsequently, however, after GSA adopted a regulation, 41
C.F.R. § 10121.601(b) (1976), which made agencies that required the
relocation of other agencies responsible for funding the latter's
moving costs, GAO revisited the issue in 56 Comp. Gen. 928 (1977),
agreed with GSA, and overruled the prior line of cases.
The 1977 decision was based on two primary considerations. First, in
issuing the regulation, GSA was exercising its authority under the
Federal Property Act, an exercise which merited deference unless it
exceeded the bounds of GSA statutory authority. Second, the prior
decisions had employed a somewhat strained application of 31 U.S.C. §
1301(a), which restricts appropriations to their intended purposes.
While it is true that agency A does not receive appropriations to pay
for agency B's move, it is equally true that agency B is not moving
for its own benefit. Thus, GAO concluded:
"We are now of the view that when one agency requires the relocation
of another to meet its own space requirements, the relocation is done
for the benefit of the requesting agency.... The costs of the move
must be considered necessary or incident to meeting the space needs of
the requesting agency. Use of the requesting agency's appropriations
would not, therefore, augment the appropriations of the displaced
agency. In fact, to the extent the move and related renovations to
accommodate the displaced agency are made due to the request of
another agency, the costs thereof cannot be considered necessary to
further the purposes of the displaced agency's appropriations."
56 Comp. Gen. at 933. GSA's current regulations, 41 C.F.R. § 102-
85.215, retain the rule that when one GSA customer agency "forces" the
relocation of another, the "forcing" agency is financially responsible
to the relocated agency for all of its reasonable relocation costs as
well as the "undepreciated amount" of any payments by the relocated
agency for alterations. The regulation also holds the forcing agency
financially responsible to GSA for any unpaid tenant improvements
provided to the relocated agency.
c. Alterations and Repairs:
As noted previously, 40 U.S.C. § 3305(b),[Footnote 185] gives the
General Services Administration (GSA) the authority to alter public
buildings. If the total estimated expenditure exceeds $1,500,000, the
alteration is subject to the prospectus approval requirement of 40
U.S.C. § 3307. See 40 U.S.C. §§ 3307(a)(1), 3305(b)(2)(A). This
threshold applies by its terms to the "total expenditure" (40 U.S.C. §
3307(a)(1)) for the "alteration and acquisition" (40 U.S.C. §
3305(b)(2)(A)). Thus, if the alteration requires the acquisition of
land, the $1,500,000 includes the combined cost of the alteration and
acquisition. Of course, an agency which is exempt from GSA authority
or which receives its own specific statutory authority may proceed
accordingly. E.g., B-131887, Aug. 27, 1957 (specific authority for
Army to remodel military warehouse for an office building). The
application of the prospectus requirement, or the existence of a
comparable requirement, depends on the terms of the exempting
legislation. For example, GAO's headquarters building, although exempt
from GSA's custody and control, remains subject to 40 U.S.C. § 3307,
although GAO rather than GSA would submit the prospectus. 31 U.S.C. §
781(a).
As a general proposition, the normal services that GSA provides
include construction, alteration, and finishing space for customer
agency occupancy. These services are covered by what GSA calls a
"tenant improvement (T1) allowance." See 41 C.F.R. § 102-85.35. The
amount of the allowance will vary depending on the agency's mission
needs and other factors. Id. In addition, GSA is authorized to provide
"special services, not included in the standard level user charge, on
a reimbursable basis." 40 U.S.C. § 592(b)(2).[Footnote 186] See also
41 C.F.R. § 102-85.195. Both types of alterations, normal space needs
and special services, are financed from the Federal Buildings Fund
established by 40 U.S.C. § 592.[Footnote 187] GAO has been critical of
"augmenting" the Fund by seeking reimbursement for items which should
have been treated as normal space needs. GAO, The General Services
Administration Should Improve the Management of Its Alterations and
Major Repairs Program, LCD-79-310 (Washington, D.C.: July 17, 1979),
at 26-29. Examples cited include such things as resurfacing a driveway
entrance, installing sprinklers, and conducting a survey to confirm
complaints of inadequate ventilation.
The distinction between normal space needs and special services is
recognized in several decisions. E.g., 38 Comp. Gen. 758 (1959); 38
Comp. Gen. 588 (1959); 38 Comp. Gen. 193 (1958); B-122723, Mar. 10,
1955. With respect to special services, as these cases point out, it
is not enough that GSA is authorized to do the work on a reimbursable
basis. The tenant agency's appropriations must be legally available to
make the reimbursement. See also 39 Comp. Gen. 723 (1960). In
addition, as these cases also address, if the work amounts to a
"public improvement," it is also necessary to satisfy the specific
authorization requirement of 41 U.S.C. § 12.
Since the 1970s, Congress has made the reimbursement question easier
by enacting a general provision annually along these lines:
"Appropriations available to any department or agency during the
current fiscal year for necessary expenses, including maintenance or
operating expenses, shall also be available for payment to the General
Services Administration for charges for space and services and those
expenses of renovation and alteration of buildings and facilities
which constitute public improvements performed in accordance with the
Public Buildings Act of 1959 (73 Stat. 749), the Public Buildings
Amendments of 1972 (87 Stat. 216), or other applicable law."
Consolidated Appropriations Act, 2008, Pub. L. No. 110-161, § 706, 121
Stat. 1844, 2020 (Dec. 26, 2007).
d. Maintenance and Protective Services:
Every government building requires custodial services and, in varying
degrees, protective services. The Federal Buildings Fund is available
"for real property management and related activities." 40 U.S.C. §
592(c)(1). The General Services Administration's (GSA) annual
appropriations language under the Federal Buildings Fund heading is
more descriptive, providing funds, quoting from GSA's 2008
appropriation, "for necessary expenses of real property management and
related activities not otherwise provided for, including operation,
maintenance, and protection of federally owned and leased buildings;
... [and] contractual services incident to cleaning or servicing
buildings." Consolidated Appropriations Act, Pub. L. No. 110-161, 121
Stat. 1844, 2000 (Dec. 26, 2007).
GSA provides a standard level of cleaning services as part of the
package for which the tenant agency pays rent. 41 C.F.R. § 102-85.175.
Section 102-85.165 of the regulations details the cleaning and
maintenance services included in the standard level. The general
objective of the GSA package of services is to provide services
"comparable to those furnished in commercial practice." 41 C.F.R. §
102-85.165(a).
Prior to establishment of the Federal Buildings Fund, agencies could
not reimburse GSA for security services because the funds were
appropriated to GSA. 34 Comp. Gen. 42 (1954); B-139678, Aug. 31, 1959.
Now, the standard level package also includes protective and security
services. See, e.g., 41 C.F.R. §§ 102-85.35, 102-85.55, 102-85.140.
See also 41 C.F.R. pt. 10281. Other aspects of GSA authority to
protect federal property are found in 40 U.S.C. § 1315.1 See generally
B-105291-0.M., Nov. 30, 1976.
Additional restrictions on the procurement of guard and custodial
services have appeared in annual appropriations acts, and varied from
year to year. For example, a provision in the 1995 Treasury, Postal
Service, and General Government appropriations act prohibited the
obligation or expenditure of funds from the Federal Buildings Fund
"for the procurement by contract of any guard, elevator operator,
messenger or custodial services" if the procurement would result in
the displacement of any GSA veterans preference employee, except for
contracts with sheltered workshops employing the severely handicapped.
Pub. L. No. 103-329, § 505, 108 Stat. 2382, 2409 (Sept. 30, 1994).
Similar restrictive language has been codified at 40 U.S.C. § 593.
[Footnote 189]
e. Utilities:
Another indispensable element of building management is the provision
of utility services such as electricity, natural gas, water, and
telecommunications. The General Services Administration (GSA) is
authorized to prescribe policies for the management of public utility
services, subject to Office of Federal Procurement Policy regulations
(40 U.S.C. § 501(b)(2)); procure and supply nonpersonal services for
executive agencies (40 U.S.C. § 501(b)(1)); and represent its client
agencies in negotiations with public utilities and in utility
regulatory proceedings (40 U.S.C. § 501(c)).[Footnote 190] Section
501(a)(2) permits exemptions for the Defense Department when
determined by the Secretary of Defense to be "in the best interests of
national security." See also 40 U.S.C. § 591 with respect to the
purchase of electricity.
Another provision, 40 U.S.C. § 3174,[Footnote 191] authorizes GSA to
"provide and operate public utility communications services serving
any governmental activity when the services are economical and in the
interest of the Federal Government." This has been interpreted to
include telecommunication services. See 66 Comp. Gen. 58 (1986); B-
190142, Feb. 22, 1978, aff'd, B-190142, Dec. 7, 1978. In addition,
utility services would certainly seem to be included in "real property
management and related activities" for purposes of 40 U.S.C. §
592(c)(1).
Absent specific statutory authority[Footnote 192] or a delegation from
GSA, an agency is not authorized to procure utility services directly,
especially in an area covered by a GSA contract. B-152142-0.M., Sept.
17, 1963.
Multiyear utility contracts are authorized by 40 U.S.C. §
501(b)(1)(B),[Footnote 193] which provides that a "contract for public
utility services may be made for a period of not more than 10 years."
This provision was designed to save the government money by enabling
it to take advantage of discounts available under long-term contracts.
62 Comp. Gen. 569, 572 (1983); 35 Comp. Gen. 220, 222-23 (1955).
Although the statute uses the term "public utility services," it is
not limited to the "traditional" regulated public utility. 62 Comp.
Gen. 569 (statute applies to installment purchase contract with a
nontariffed supplier of telephone equipment); 45 Comp. Gen. 59 (1965)
(a contract to furnish public utility gas service by a firm that is
not within the strict legal definition of a public utility is not
prohibited under the statute). The governing factor is the "nature of
the product or service provided and not the nature of the provider of
the product or services." 62 Comp. Gen. at 575. "The Congress in its
judgment determined to categorize the service rather than the
contractor;" the statute applies to "services having public utility
aspects." 45 Comp. Gen. at 64. In any event, the statute clearly
applies to the commonly understood types of "utility services":
telecommunications (62 Comp. Gen. 569), natural gas (45 Comp. Gen.
59),[Footnote 194] and electric power (44 Comp. Gen. 683 (1965)).
While the multiyear authority of 40 U.S.C. § 501(b)(1)(B) has been
liberally applied, it is not unlimited. The statute is intended to
address "incidental utility services needed in connection with
authorized Government business," not any project that happens to
involve utility services. 35 Comp. Gen. at 223. Thus, GAO has found it
inapplicable to an Air Force early warning system (35 Comp. Gen. 220),
and to a proposal to finance construction of power facilities on the
Ryukyu Islands (B-159559, July 29, 1966).
GAO subsequently approved a proposal in the Ryukyu case for privately
financed construction, with the government entering into a 10-year
requirements contract with a renewal option and a guarantee provision.
B-159559, June 19, 1967. The obvious purpose of the guarantee feature
was to enable the utility to recover its capital cost. See also 37
Comp. Gen. 155, 159-60 (1957); 17 Comp. Gen. 126 (1937); 16 Comp. Gen.
136 (1936); 8 Comp. Gen. 654 (1929). While this type of arrangement is
acceptable, a scheme which obligates the government to pay the
contractor's entire capital cost at the outset violates the advance
payment prohibition in 31 U.S.C. § 3324(b). 57 Comp. Gen. 89 (1977);
58 Comp. Gen. 29 (1978).
Contracts under 40 U.S.C. § 501(b)(1)(B) are incrementally funded. The
contracting agency is not required to obligate the total estimated
contract cost in the first year. It needs only sufficient budget
authority at the time the contract is made to obligate the first
year's costs, with subsequent years obligated annually thereafter. 62
Comp. Gen. at 572. See also 44 Comp. Gen. at 688; 35 Comp. Gen. at
223. GSA pays utility invoices by using a combination of statistical
sampling and fast pay procedures. See 67 Comp. Gen. 194 (1988) and 68
Comp. Gen. 618 (1989) for a detailed discussion. See also 31 U.S.C. §
3521(b); GAO, Policy and Procedures Manual for the Guidance of Federal
Agencies, title 7, §§ 7.4.D-7.4.F (Washington, D.C.: May 18, 1993). A
contract for a term of 10 years with an option to renew for an
additional 5 years is within the authority of 40 U.S.C. § 501(b)(1)(B)
because the government is not obligated beyond the initial 10-year
period. B-227850, Oct. 21, 1987, aff'd on reconsideration, B-227850.2,
Mar. 22, 1988.
Except for telecommunication services, utilities are financed from the
Federal Buildings Fund and are part of the "space and services"
package for which federal agencies pay rent. 40 U.S.C. § 592.
Telecommunication services are financed from a separate fund.
Originally designated the Federal Telecommunications Fund, it was
merged in 1987 with an automatic data processing fund and redesignated
as the Information Technology Fund and codified in former 40 U.S.C. §
757.[Footnote 195] See 69 Comp. Gen. 112, 113 (1989). In 2006, the
Information Technology Fund was merged with the General Supply Fund to
form the Acquisition Services Fund, a revolving fund.196 Pub. L. No.
109-313, § 3, 120 Stat. 1734, 1735 (Oct. 6, 2006), codified at 40
U.S.C. § 321. The Acquisition Services Fund is available for, among
other things, personal property, nonpersonal property, and personal
services related to the provision of information technology. 40 U.S.C.
§ 321(c).
Prior to enactment of the Clinger-Cohen Act of 1996,[Footnote 197]
Pub. L. No. 104-106, div. E, 110 Stat. 186, 679 (Feb. 10, 1996), GSA
had comprehensive authority to provide "Automatic Data Processing"
(ADP) equipment and services (including telecommunications services)
to federal agencies under the Brooks Automatic Data Processing Act
(ADP Act). 40 U.S.C. § 759 (1994). Pursuant to this authority, GSA
promulgated the Federal Information Resources Management Regulation
(FIRMR), which governed "the umbrella of local and long distance
telecommunications services ... provided, operated, managed, or
maintained by GSA for the common use of all Federal agencies and other
authorized users." 41 C.F.R. § 201-4.001 (1995). The Comptroller
General had several occasions to interpret GSA authority under the
Brooks ADP Act. See, e.g., 70 Comp. Gen. 238 (1991) (termination
charges); 69 Comp. Gen. 112 (1989) (statistical sampling cost
recovery); 65 Comp. Gen. 380 (1986) (FIRMR applicability).
The Clinger-Cohen Act of 1996 repealed the Brooks ADP Act. Pub. L. No.
104-106, § 5101. GSA abolished the FIRMR in August 1996. The
regulatory scheme of the FIRMR was replaced with directives and
guidance governing "Information Technology," which includes
telecommunications services. See, e.g., OMB Cir. No. A-130, Management
of Federal Information Resources (Nov. 28, 2000); Exec. Order No.
13011, Federal Information Technology, 61 Fed. Reg. 37,657 (July 16,
1996), as amended, 40 U.S.C. § 11101 note; Federal Acquisition
Regulation, Acquisition of Information Technology, 48 C.F.R. pt. 39.
GSA, however, continues to provide governmentwide telecommunications
services through contracts which federal agencies, on a nonmandatory
basis, may use to satisfy their telecommunications needs. Examples
include GSA's FTS-2001 contracts and the Metropolitan Area
Acquisitions (MAA) program.
f. Use Restrictions:
The Property Clause of the Constitution (art. W, § 3) empowers
Congress to "make all needful Rules and regulations" with respect to
government-owned property, which includes the authority to control
what use is made of government property. In addition to the general
purpose restrictions which permeate appropriations law (see Chapter
4), a few restrictions on the use of government property appear in
various parts of title 40 and are not reflected elsewhere. One example
is 40 U.S.C. § 8108,[Footnote 198] which prohibits the use of any
public building in the District of Columbia, except the Capitol
Building and the White House, for "public functions" unless expressly
authorized by law. Another is 40 U.S.C. § 3105,[Footnote 199] which
provides that "no building owned, or used for public purposes, by the
Federal Government shall be draped in mourning nor may public fund
money be used for that purpose." This prohibition applies to buildings
abroad as well as to buildings in the United States, and applies
regardless of who owns the building. 8 Comp. Dec. 317 (1901).
Many of the General Services Administration's (GSA) regulations,
issued under its authority in 40 U.S.C. § 121(c), address issues of
access to, and personal conduct on government property. For example,
they specify when government property will be open and closed to the
public (41 C.F.R. § 102-74.375), and generally ban certain activities
while on federal property, such as gambling (41 C.F.R. § 102-74.395)
and consumption of alcoholic beverages (41 C.F.R. § 102-74.405), etc.
g. Payment of Rent by Federal Agencies:
In 1972, Congress made fundamental changes in the way the government
budgets for and finances its space needs. Prior to that time, the
system was fairly simple: Congress, for the most part, appropriated
the money to the General Services Administration (GSA) and GSA paid
the bills. Under this system, there was little incentive for agencies
to be conservative in their space needs. Also, as we have seen, coming
up with appropriations to fund needed construction work proved to be
extremely difficult.
The Public Buildings Amendments of 1972 made several important
revisions to the Federal Property and Administrative Services Act.
First, the 1972 law created a new revolving fund, later named the
Federal Buildings Fund, to be available to the extent provided in
annual appropriation acts, for GSA to use to finance its real property
management functions. Next, it required agencies to pay rent to GSA,
to be deposited in the revolving fund. Finally, it authorized any
executive agency other than GSA which provides space and services to
charge for the space and services.[Footnote 200] While the concept of
charging rent was not wholly unknown prior to 1972 (see, e.g., 28
Comp. Gen. 221 (1948)), this was the first governmentwide requirement.
Section 586(b) of title 40, providing for rent charges by GSA, states
in part:
"(1) In general.—The Administrator of General Services shall impose a
charge for furnishing space and services.
"(2) Rates.—The Administrator shall, from time to time, determine the
rates to be charged for furnishing space and services and shall
prescribe regulations providing for the rates. The rates shall
approximate commercial charges for comparable pace and services...
"(3) Exemptions.—The Administrator may exempt anyone from the charges
required by this subsection when the Administrator determines that
charges would be infeasible or impractical...."
Section 586(c)(1) of title 40, providing for rent charges by other
agencies, states: "An executive agency, other than the [General
Services] Administration, may impose a charge for furnishing space and
services at rates approved by the Administrator."
Section 592(b)(1)(A) of title 40 directs that user charges under 40
U.S.C. § 586(b) be deposited in the Federal Buildings Fund. Section
586(c)(2) of title 40 authorizes the agency to credit the receipts to
its own appropriations to the extent of recovering the cost of
providing the services. Agency operating appropriations are available
to pay the rent by virtue of the recurring general appropriations act
provision discussed previously.
At first, the space-and-service charges were known as the "standard
level user charge" or "SLUG." They are now simply called "rent." The
rent requirement is intended to reduce cost and encourage more
efficient space utilization by making agencies accountable for the
space they use. H.R. Rep. No. 92-989 (1972). As noted above, rent
charged by GSA is to approximate commercial charges for comparable
space and services. This method was chosen over a cost-recovery basis
in order to produce more income so that the revolving fund could
finance construction and major repairs. See B-95136, May 18, 1971
(GAO's comments on the legislation). This hope has been largely
unfulfilled.[Footnote 201] Under the commercial charge formulation, it
is not inconceivable that an agency occupying space in a leased
building could pay more rent to GSA than GSA is paying to the lessor.
This does not entitle the lessor to a rent increase. See B-95136-0.M.,
Mar. 29, 1976.
GSA defines "rent" in simple terms as meaning "the amounts charged by
GSA for space and related services to the customer agencies with
tenancy in GSA-controlled space." 41 C.F.R. § 102-85.35. Section 102-
85.115 of the regulation describes how rent is determined. According
to an early GSA statement in a December 1972 letter to GAO, rent is
designed to cover:
"the value of the space itself plus cleaning, utilities, operation and
maintenance of elevators and electric heating, air-conditioning,
ventilating, refrigeration, plumbing and sewage systems, repairs and
maintenance, including approaches, sidewalks and roads; the furnishing
and maintenance of building equipment such as directory and bulletin
boards, electrical outlets, door keys, and window shades or venetian
blinds; and overhead (i.e., the total cost of GSA's Public Buildings
Service ... except costs covered by reimbursements)."
52 Comp. Gen. 957, 958-59 (1973).
The services GSA provides as part of the rent do not mean any and all
services the tenant agency may need or want. GSA provides what it
determines to be a "standard level" of service. 41 C.F.R. § 102-
85.165. Over and above that standard level, services are provided on a
reimbursable basis to the extent that GSA is authorized to do the work
or provide the service and the tenant agency's appropriations are
available to pay.
GSA is not limited to charging only federal agencies for space and
services it furnishes. Thus, for example, GSA was authorized to charge
rent to the National Association of Regulatory Utility Commissioners,
to which GSA was then required to furnish space under 49 U.S.C. §
305(f) (1970). B-95136, Nov. 17, 1978. As the result of some
apparently skillful lobbying, the law was changed in 1980 to require
the then Interstate Commerce Commission (i.e., the taxpayers) to pick
up the tab. Pub. L. No. 96-296, § 36, 94 Stat. 793, 826 (July 1, 1980).
A federal office building may house a variety of support concessions
such as blind vending stands operated under the Randolph-Sheppard Act,
Federal Credit Unions, cafeterias, dry cleaning and laundry
facilities, etc. GSA could presumably charge rent directly to the
concessioners. Instead, however, GSA assigns the space for these
support concessions to the tenant agency for purposes of rent
assessment, on the theory that the agency's presence in the building
generated the need for the space. GAO has agreed that this method is
authorized. 52 Comp. Gen. 957 (1973); B-114820-0.M., Dec. 14, 1977.
GSA has "wide discretionary powers consistent with the purposes of the
statute, in the manner of defining and charging for space occupied by
Federal agencies and others." 52 Comp. Gen. at 961. If the building
houses more than one government agency, GSA allocates the joint-use
space (and the rent for it) on a pro rata basis. 41 C.F.R. § 102-
85.115(a).
GSA rental charge also covers assigned parking spaces. Once again,
since GSA is not limited to charging only federal agencies, it could
assign spaces directly to individuals and charge rent to those
individuals. In the exercise of its discretion, however, GSA simply
includes the parking space in the total space charged to the tenant
agency or agencies. See 52 Comp. Gen. at 960-61; 55 Comp. Gen. 897
(1976). See also American Federation of Government Employees v.
Freeman, 498 F. Supp. 651, 656-57 (D.D.C. 1980) (the statute
authorizes, but does not require, GSA to charge parking fees). The
authority of agencies to charge rent under 40 U.S.C. § 586(c) likewise
is not restricted to charging other federal agencies.[Footnote 202]
Therefore, the tenant agency could charge its employees for parking
space. 55 Comp. Gen. at 899-900. However, section 586(c) does not
authorize an agency to collect (and retain) fees from nonagency
participants in an agency-sponsored conference held in procured space.
B-190244, Nov. 28, 1977. (This does not necessarily mean that the
agency cannot charge a fee, merely that it cannot rely on 40 U.S.C. §
586(c) as authority to credit the money to its own appropriation.)
The purpose of 40 U.S.C. § 586(b) is to raise revenue for GSA, not to
create the full equivalent of a commercial landlord-tenant
relationship. Accordingly, a tenant agency may not reduce its rental
payments to recover the cost of property damaged by building failures.
59 Comp. Gen. 515 (1980); 57 Comp. Gen. 130 (1977).
Congress often uses appropriation act provisions to address either
GSA's authority under 40 U.S.C. § 586(b) or the extent of an agency's
liability to pay GSA's charges. Thus, to understand the operation of
the statute for any given year, it is necessary to examine annual
appropriations acts both for any provisions directed at GSA and for
any provisions covering the tenant agency in question. For example, a
provision in GSA's 1995 appropriation directed GSA to reflect in its
rent rates the reductions contained in a particular budget amendment.
Pub. L. No. 103-329, title W, § 5, 108 Stat. 2382, 2404 (Sept. 30,
1994).
Restrictions directed at tenant agencies may take various forms. A
provision imposing a specific dollar limit is discussed in B-204270,
Oct. 13, 1981. A provision imposing a percentage limitation is noted
in 55 Comp.
Gen. 897 (1976). Two additional types appeared in the 1995
appropriations act for the Departments of Labor and of Health and
Human Services (BHS), Pub. L. No. 103-333, 108 Stat. 2539 (Sept. 30,
1994). Section 207 of the BHS general provisions permanently canceled
a specific dollar amount of "budgetary resources available ... for
space rental charges" in 1995, and directed BHS to allocate the
reduction among its various accounts with certain exceptions. The
operating appropriation for the Railroad Retirement Board, Pub. L. No.
103-333, 108 Stat. at 2571, specified that none of the funds shall be
available to pay GSA rental charges. The precise language of the
limitation will determine whether it applies only to rent or to other
reimbursements as well. B-186818, Sept. 22, 1976. Regardless of the
type of limitation, it must appear in the statute, and not merely in
committee reports, in order to be legally binding. Id; B-177610, Sept.
3, 1976.
G. Improvements to Property Not Owned by the Government:
1. The Rules:
The topic of this section is the rule that, unless authorized by
statute, appropriated funds may not be used to make permanent
improvements to property not owned by the federal government. As
numerous decisions have pointed out, the rule is based on the
fundamental tenet, noted in various places throughout the chapters in
these volumes, that no government official is authorized to give away
government property—tangible property, money, legal rights—without
specific statutory authority. E.g., B-286457, Jan. 29, 2001; 53 Comp.
Gen. 351, 352 (1973); 42 Comp. Gen. 480, 481 (1963); 35 Comp. Gen.
715, 716 (1956).
Although derived from the constitutional principle that disposal of
government property is a function of Congress, the rule itself is
decisional rather than statutory, or, to quote a phrase used regularly
in the decisions, the rule "is one of policy and not of positive law."
53 Comp. Gen. at 352; 42 Comp. Gen. at 483. Stated somewhat more
accurately, the rule is "one of public policy, not statutory
prohibition." B-286457, Jan. 29, 2001, at 3; 65 Comp. Gen. 722, 724
(1986). The public policy which the rule reflects—that it is
ordinarily not a particularly good idea for government officials to
give away the taxpayers' money—can be traced back at least to the
early decisions of the Comptroller of the Treasury. E.g., 6 Comp. Dec.
295 (1899).
Due at least in part to the lack of an explicit statutory foundation,
the rule is not and never has been particularly rigid. A considerable
body of exceptions has evolved, in recognition of the fact that there
are situations in which making improvements to nongovernment property
is appropriate to the circumstances and can be justified. Viewing the
body of case law as a whole, it seems fair to say that there is a set
of standards to determine when the expenditure may be authorized, with
the prohibitory rule remaining for those cases in which the
expenditure would amount to giving away government property.
Each of these standards is discussed below. However, there are several
threshold matters to consider in determining whether the rule is even
potentially applicable. To start with, the rule applies only to
improvements. If something does not add to the value of the property
in question, it is not an "improvement" for purposes of the rule.
Thus, in B-301367, Oct. 23, 2003, GAO held that affixing to a utility
company water tower decals of the military units stationed at a nearby
base did not enhance the tower's value and thus did not raise an issue
under the rule. Next, the rule applies only to permanent improvements.
It does not prohibit temporary improvements as long as they remain the
property of the government and the government reserves the right to
remove them at the expiration of the lease or other government use. 43
Comp. Gen. 738 (1964); 20 Comp. Gen. 927 (1941); 15 Comp. Gen. 761
(1936). For example, the 1964 decision concerned nonpermanent
servicing facilities which the General Services Administration (GSA)
needed to install in commercial space leased for motor pool
activities. The propriety of temporary improvements is determined by
applying the standard rules of purpose availability—you look first to
see if the expenditure is expressly authorized by law; if it is
neither expressly authorized nor expressly prohibited, you then apply
the "necessary expense" doctrine discussed in Chapter 4. Of course,
the rule does not apply if an agency has specific statutory authority
to make the permanent improvements in question. Thus, in B-286457,
Jan. 29, 2001, GAO concluded that the rule had no application to the
Federal Aviation Administration's use of funds to demolish the air
traffic control tower at La Guardia Airport since the agency had
specific statutory authority to replace the existing tower with a new
one.
If none of the foregoing threshold considerations makes the rule
facially inapplicable, the expenditure may nevertheless be authorized
if the following standards are met:
* The improvement must be incident to and essential for the effective
accomplishment of an authorized purpose of the appropriation sought to
be charged.
* The amount of the expenditure must be reasonable.
* The improvement must be for the principal benefit of the government.
* The interests of the government in the improvement must be protected.
These standards appear to have been first enunciated in 42 Comp. Gen.
480, 484 (1963), and they have been reiterated in many cases since.
E.g., B-286457, Jan. 29, 2001; 71 Comp. Gen. 4, 5 (1991); 69 Comp.
Gen. 673, 675 (1990); 53 Comp. Gen. 351, 352 (1973); 46 Comp. Gen. 25,
27 (1966).
The first standard—-incident and essential to an authorized purpose of
the appropriation-—is a relative concept, like the "necessary expense"
doctrine from which it is derived. It is applied by evaluating the
proposed expenditure against the authorized purposes of the
appropriation. Thus, incidental improvements to private property,
chargeable to project funds, are unobjectionable if necessary to the
completion of an authorized federal project. B-37747, Nov. 19, 1943; A-
65186, Oct. 19, 1935.
As with the necessary expense doctrine itself, an item may relate
clearly to one appropriation but be totally foreign to another. A good
illustration is the improvement involved in 42 Comp. Gen. 480—-monkey
cages in the San Diego Zoo. It is hard to see how the construction of
monkey cages in a private zoo would further the purposes of a federal
agency's appropriation.[Footnote 203] However, where the appropriation
is for Public Health research and the expenditure stems from a cost-
reimbursable contract for the experimental breeding of primates, the
relationship of the monkey cages to the appropriation takes on a new
perspective. This element shares the common-sense logic of the
necessary expense doctrine. However wonderful an item may appear, if
it does not bear a sufficient relationship to carrying out one of the
agency's authorized programs or functions or to fulfilling the
purposes for which Congress appropriated money to the agency, the
agency has no business doing it.
The second standard-—reasonableness of cost—-is also relative. It is
not enough to just look at the dollar amount in a vacuum. You must
evaluate the cost against such factors as the type of improvement
involved, the uses to which it is to be put, and the length of the
government's contemplated use measured against the residual value, if
any, to the owner. This element has been stated in various ways. The
cost of the improvements must not be "extravagant or disproportionate
to the needs to which the facilities are intended to be put." 35 Comp.
Gen. at 716. If a lease or contract is involved, the cost of the
improvements must be "in reasonable proportion to the overall cost of
the lease or contract price." 53 Comp. Gen. at 352. The monkey cages
in 42 Comp. Gen. 480, for example, cost approximately 10 percent of
the total price of the research contract. Of course, this formulation
is useless where land is being leased to the government for a nominal
rent, in which case other factors must be used to assess
reasonableness. Thus, spending approximately $1,000 to improve an
access road was "relatively small and not disproportionate to the
needs of the Government," and therefore acceptable, in 38 Comp. Gen.
143, 146 (1958), whereas in 47 Comp. Gen. 61, 65 (1967), constructing
a $25 million building on land leased to the government was a
different story, hardly qualifying as "some minor item incidental to a
larger purpose."
For at least the last half century, the amount formula included a
statutory element. As noted previously in section E.2.g of this
chapter, section 322 of the Economy Act of 1932 prohibited the
obligation or expenditure of appropriated funds for "alterations,
improvements, and repairs" of rented premises in excess of 25 percent
of the first year's rent. See 40 U.S.C. § 278a (1982). Section 322 of
the Economy Act was repealed in 1988,[Footnote 204] and the cases must
therefore be regarded as modified to the extent they either impose a
percentage limitation on the amount of otherwise authorized
expenditures or treat section 322 as an independent source of
authority.
The third standard—-principal benefit to the government-—is largely
self-explanatory and is necessary to prevent giveaways. Of course,
words like "principal" or "primary" do not mean "exclusive," and in
many cases there will be some residual, if not contemporaneous,
benefit to the owner. Thus, an otherwise authorized expenditure does
not become objectionable merely because the facility will have an
estimated life of 15 years and the government plans to use it for only
10 years. See B-130515(3), May 8, 1969. Or, turning again to the
monkey cages in 42 Comp. Gen. 480, nothing would prevent the zoo from
cleaning them out and using them to house other monkeys upon
completion of the government research contract. Nevertheless, the
United States must be the primary beneficiary of the improvements.
E.g., B-213379, Oct. 29, 1984 (no authority to pay railroad in Germany
for track improvements where benefit to United States was merely "the
unavoidable result of improvements made to the German rail system as a
whole").
The fourth and final standard-—protection of the government's
interests—-will again vary with the facts and circumstances of the
particular case. For example, in a case where the then Immigration and
Naturalization Service (INS) wanted to erect or repair fences on
private land to help deter the entry of illegal aliens, it would be
necessary for the agency to gain "substantial control" over the land
by some device such as an easement or lease covering the useful life
of the fence. 55 Comp. Gen. 872, 874 (1976). See also A-65186, Oct.
19, 1935, specifying the same condition. Similarly, where the
Department of Agriculture wanted to construct a dam, part of which
would have to be located on Canadian soil, GAO advised that a right in
perpetuity for the construction and maintenance of the dam should
first be obtained from the property owner, as well as, of course, the
consent of the Canadian government. 18 Comp. Gen. 463 (1938). In some
cases, the appropriate device for protecting the government's
interests may be the insertion of appropriate provisions in a
contract. E.g., B-187482, Feb. 17, 1977. In other cases, it may be
necessary to work out an ad hoc agreement with the owner tailored to
the circumstances. See 71 Comp. Gen. at 6.
If these foregoing standards cannot be satisfied, then the expenditure
is unauthorized unless the agency obtains statutory authority. For
example, in B-194031, May 1, 1979, GAO agreed with the then Veterans
Administration (VA) that it could not use its funds for the repair and
maintenance of the Congressional Cemetery in Washington, D.C., a 30-
acre cemetery of which the government owned only half an acre. The
expenditure would primarily benefit the private owners and would be
disproportionately large in relation to the government-owned portion.
Significantly, on a few occasions in the past when Congress had
authorized repairs, it did so explicitly. The VA could, of course,
repair and maintain the government-owned plots.
2. Some Specific Applications:
a. Leased Premises/Property:
The rule prohibiting permanent improvements to nonfederal property
without statutory authority applies to leased property, both
unimproved property (i.e., land)[Footnote 205] and buildings.
[Footnote 206] However, the rule has evolved somewhat differently in
the case of leases because of the contractual nature of the
transaction. It has long been held that appropriated funds are
available for improvements to property being leased by the government
if provided for as part of the consideration under the lease. 65 Comp.
Gen. 722, 723-24 (1986); 18 Comp. Dec. 70 (1911); 6 Comp. Dec. 943
(1900); A-33513, Oct. 10, 1930. Any other rule would make little sense
because alterations are often necessary to make premises suitable for
the government's proposed use, and if the government could not pay
directly, the landlord could make the alterations and factor the cost
into the rent, and the government would end up paying anyway. Of
course, there is a common-sense point beyond which this concept cannot
be stretched. It would not, for example, permit the construction of a
$25 million building on land being leased for a dollar a year. See 47
Comp. Gen. 61 (1967).
As noted in our general discussion, the prohibition does not apply
with respect to alterations or improvements to the leased premises
which are not permanent and which are removable. 43 Comp. Gen. 738
(1964); 5 Comp. Gen. 696 (1926); B-127807, May 14, 1956; A-55493, June
21, 1934; A-54725, Apr. 13, 1934. In the case of a lease, however,
before applying the purpose analysis, it is first necessary to ask
whether the repair or improvement is one which the landlord is
obligated to supply under the terms of the lease. 5 Comp. Gen. at 697.
If it is, then the government is not authorized to, in effect, pay
twice to get what it is entitled to get under the lease. 2 Comp. Gen.
606, 607 (1923); A-50554, Aug. 28, 1933.[Footnote 207]
The General Services Administration (GSA) has its own statutory
authority, discussed generally in 65 Comp. Gen. 722. Under 40 U.S.C. §
581(c)(4),[Footnote 208] GSA is authorized to "repair, alter, and
improve rented premises" if it determines that the work "is
advantageous to the Government in terms of economy, efficiency, or
national security." GSA's determination must show that "the total cost
(rental, repair, alteration, and improvement) for the expected life of
the lease is less than the cost of alternative space not needing
repair, alteration, or improvement." Id. § 581(c)(4)(B). Work under 40
U.S.C. § 581(c)(4) is financed from the Federal Buildings Fund, 40
U.S.C. § 592.
If an agency other than GSA is doing the leasing under its own
authority, what it can or cannot do will depend on the precise terms
of its leasing authority, supplemented or restricted, as the case may
be, by the decisions.
What happens to the improvements at the end of the lease, and related
questions of liability, will depend on the terms of the lease. In one
case, for example, the government had leased unimproved land for 10
years and constructed buildings on it. When the lease was over, the
government removed the buildings and left the concrete foundations.
Unfortunately for the landowner, the lease expressly relieved the
government of any responsibility to restore the land to its prior
condition, and the court refused to construe this in "all or nothing"
terms. M.H. Sherman Co. v. United States, 258 F.2d 881 (9th Cir.
1958). In a similar case where the lease did include the "restore to
prior condition" clause, the government was liable. Atlantic Coast
Line Railroad Co. v. United States, 129 Ct. Cl. 137 (1954).
The restoration clause is not a rigid requirement that the government
remove improvements in any event and at all costs. Thus, in a case
where removal would not have been cost-effective, the Attorney General
approved a settlement whereby the government agreed to leave the
improvements for the use of the lessor in full settlement of all
claims against the government. 39 Op. Att'y Gen. 338 (1939). There can
be no requirement "that improvements attached to leased premises must
be removed when removal would involve the expenditure of public funds
greatly in excess of any salvage value." Id. at 340. See also 20 Comp.
Gen. 105, 111 (1940).
The restoration clause serves more as a method of measuring damages
where the government does not remove the improvements. Whatever the
government does or does not do, liability requires provable damages.
The point is illustrated in Realty Associates v. United States, 138 E
Supp. 875 (Ct. CL 1956), in which the government leased land and
buildings which had been idle for several years and made substantial
improvements to the property. When the lease was over and the property
returned to the lessor, it had so increased in value as a result of
the improvements that it was capable of producing, and did produce,
substantial income. Nevertheless, the lessor sued for the cost of
restoration on a breach of contract theory. Noting that if the
government had restored the property to its former unusable condition,
"no one would have been more unhappy than plaintiff" (Realty
Associates, 138 E Supp. at 877), and invoking Mark Twain's aphorism
that "the difference between a dog and a man is that if you pick up a
starving dog and make him prosperous he will not bite you" (id. at
878), the court held that the lessor could recover only if he could
show that he actually suffered damage as a result of the government's
actions. If the property is worth more in its unrestored condition
than it would be worth if restored, there is no damage. See also Dodge
Street Building Corp. v. United States, 341 F.2d 641 (Ct. Cl. 1965).
This principle has also been applied where the leasehold was acquired
by condemnation. Flood v. United States, 274 F.2d 483 (9th Cir.),
cert. denied, 363 U.S. 805 (1960).
The fact that removal may not be feasible or cost-effective does not
mean that the government has no alternative to simply giving away the
improvements. GAO has recommended that the leasing agency consider, in
appropriate cases:
"the advisability of incorporating in such leases a provision for
reimbursement by the lessor of the residual value of such changes at
the termination of the lease together with the basis for determining
such value.... In determining the residual value there necessarily
would be for consideration such factors as (1) the rental rate, (2)
the lease term, and (3) the type of the alteration, improvement, or
repair with particular consideration as to whether or not such
building changes at the termination of the lease will operate to
enhance the value of the building or be advantageous to the lessor."
39 Comp. Gen. 304, 307 (1959). The lease in that case was subject to
termination by the lessor at the end of each annual renewal term, a
situation in which a provision along the lines suggested is
particularly desirable. Id.
b. Research:
A number of government agencies have research responsibilities not
infrequently involving atypical situations with atypical needs. Thus,
it probably should not be too surprising that some years ago GAO noted
that a common source of exceptions was "improvements (to a
contractor's property) incidental to but necessary to give full force
and effect to research contracts made by the Government with private
parties." 53 Comp. Gen. 351, 352 (1973).
One case is 42 Comp. Gen. 480 (1963). The Public Health Service's
National Cancer Institute had entered into a research contract with
the San Diego Zoo. Part of the contract involved the installation of
cages and related work for the "experimental breeding of primates."
GAO evaluated the administrative justification in light of the rule
and its exceptions, and found the expenditure authorized. This holding
was applied a few years later in another case involving a Public
Health Service cancer research contract, 46 Comp. Gen. 25 (1966),
allowing the costs incurred by the contractor in converting an
unfinished basement into laboratory space for use in performing the
contract. Part of the justification was a response to the logical
question of why the agency had chosen this contractor rather than one
who might have had more suitable facilities.
To avoid the difficult questions cases like these presented, GAO
suggested that the Public Health Service might be better off with more
explicit statutory authority, noting as a model 10 U.S.C. § 2353. 42
Comp. Gen. at 486. Under 10 U.S.C. § 2353(a), the military departments
may fund the acquisition or construction of facilities and equipment
deemed necessary for the performance of research contracts, but this
may not include "new construction or improvements having general
utility." In addition, the statute prohibits the installation or
construction of facilities "that would not be readily removable or
separable without unreasonable expense or unreasonable loss of value"
unless the contract includes specified safeguards. 10 U.S.C. §
2353(b). This statute clearly overcomes the "permanent improvement"
prohibition. B-138868-0.M., June 10, 1959. The Public Health Service
took the hint, and now has the explicit authority to enter into
research contracts in accordance with 10 U.S.C. § 2353. See 42 U.S.C.
§ 241(a)(7).
Another case involving an exception made for a research project
improvement is B-96826-0.M., Feb. 8, 1967. It involved an irrigation
system constructed on unimproved land by the Soil Conservation Service
in connection with statutorily authorized soil erosion research. As
with the Public Health Service cases, this too would now be authorized
by statute. Under 7 U.S.C. § 2250a, Department of Agriculture
appropriations may be used to erect buildings or other structures on
land owned by someone other than the United States, as long as the
government obtains the right to use the land for the estimated life of
or need for the structure, including the right to remove the structure
upon termination of government use.
Another agency with research responsibilities is the National
Institute of Standards and Technology. GAO considered a number of
proposals in the 1950s, concluding in several cases that the Institute
could make improvements to leased property where those improvements
were essential to carrying out the particular projects and could be
removed without material damage to the premises. E.g., B-122439, Feb.
23, 1955 (unimproved land); B-114240, May 8, 1953 (laboratory
alteration). Nevertheless, statutory authority is preferable to case-
by-case determinations, and legislation was enacted in 1958, now found
at 15 U.S.C. § 278e(g), which authorizes the Secretary of Commerce to
erect on leased property facilities needed by the Institute.
As this survey of cases suggests, a number of agencies with
significant research responsibilities now have adequate statutory
authority, with appropriate safeguards (except for 15 U.S.C. §
278e(g), which includes no apparent safeguards), to do what they need
to do.
The Environmental Protection Agency (EPA) presented a somewhat
different situation in B-187482, Feb. 17, 1977. In connection with
authorized research under the Federal Water Pollution Control Act, EPA
wanted to purchase a cooling tower from a private power company,
knowing that it would abandon the facility in a few years upon
completion of the research. EPA thought the situation was analogous to
spending money for permanent improvements to private property. GAO
agreed and applied the tests of 42 Comp. Gen. 480, finding, among
other things, that the purchase price would amount to approximately 25
percent of the total cost of the research project, that constructing a
new tower would have been considerably more expensive, and that the
agreement included appropriate safeguards to protect the government's
interest in the tower. Accordingly, the purchase was authorized.
c. Public Improvements:
By "public improvements" we mean such things as roads and sidewalks.
By their nature, when not located on federal property, they tend to be
located on land owned by state or local governments rather than
private parties. This introduces different factors into the analysis.
Most of the cases involve proposals to construct, repair, or maintain
roads leading or adjacent to some government facility. The earlier
cases just said no, the fact that there would be some resulting
benefit to the government being irrelevant. E.g., 6 Comp. Gen. 353
(1926); 2 Comp. Gen. 308 (1922). Later cases found a basis to say no
in a statute we discussed earlier in section F of this chapter, 41
U.S.C. § 12, which prohibits any contract "for the erection, repair,
or furnishing of any ... public improvement" in excess of the amount
"appropriated for the specific purpose." 39 Comp. Gen. 388 (1959)
(access road); 32 Comp. Gen. 296 (1952) (deceleration lane on state
highway); B-143536, Aug. 15, 1960 (access road). The statement found
almost verbatim in each case is, quoting from B-143536 at 3, that "if
specific action is required by the Congress with respect to public
improvements on Federal property, a fortiori, specific authority would
be required for the financing from Federal funds of public
improvements on State or county property."
Other cases applying this concept include B-211044, June 15, 1984
(crosswalk across the median strip of a public highway), and B-194135,
Nov. 19, 1979 (locally owned wastewater treatment plant). In 38 Comp.
Gen. 143 (1958), however, improvements to an access road on state land
were found authorized under the decisional rules where most of the
contemplated improvements were not of a permanent nature and there
would be no resulting benefit to the state since the road was no more
than a car path leading to the government facility across grazing
land. See also B-126950, Mar. 12, 1956 (similar facts, same result).
[Footnote 209]
The prohibition has also been applied in a case where the government
technically held fee title extending to the center of a public street,
but had no jurisdiction or control over the portion occupied by the
street because it was subject to a permanent easement held by the city
in trust for the public. B-120012, Oct. 15, 1954.
In the case of sidewalks, there is statutory authority for any
executive agency to "install, repair, and replace sidewalks around
buildings, installations, property, or grounds" that are under the
control of the agency, owned by the federal government, and located in
a state, the District of Columbia, Puerto Rico, or a United States
territory or possession. 40 U.S.C. § 589(a). The agency may do the
work directly or by reimbursement to the state or local government, in
accordance with the General Services Administration regulations. Id.
§§ 589(b), (c). Prior to the enactment of this general authority, some
agencies had-—and still have-—their own comparable agency-specific
authority. An example is 16 U.S.C. § 555b for the Forest Service. GAO
has construed "owned" for purposes of the Forest Service provision as
including a 99-year lease. 43 Comp. Gen. 705 (1964). There is no
reason why this holding should not apply as well to 40 U.S.C. § 589.
Section 589(e) of title 40 provides that the statute "does not
increase or enlarge the tort liability of the Government for injuries
to individuals or damages to property." Thus, reimbursement by the
federal government under section 589 does not operate to relieve the
state or local government from any underlying obligation it might
otherwise have to make the repairs, or from liability for failure to
do so. Connor v. United States, 461 F.2d 1259 (D.C. Cir. 1972) (slip-
and-fall on a sidewalk adjacent to a federal building in the District
of Columbia). By the same token, contracting out maintenance of a
sidewalk on federal property will not necessarily absolve the federal
government of any liability as a property owner. See Simpkins v.
United States, 253 E Supp. 2d 4 (D.D.C. 2003) (another slip-and-fall
on a sidewalk located on a parkland owned by the United States but
maintained by a nonfederal entity).
d. Federal Aviation Administration:
The Federal Aviation Administration (FAA) performs its functions at
airports throughout the country and therefore has considerable
presence on property which is not owned by the United States.
Consequently, the FAA has had frequent occasion to consider the use of
its appropriations for various alterations or improvements to
nongovernment property.
The FAA has general authority to "acquire, establish, improve,
operate, and maintain air navigation facilities." 49 U.S.C. §
44502(a)(1)(A). Under this authority, it could, for example, make
repairs and improvements to flight service stations located on
premises leased from airport owners or operators. 53 Comp. Gen. 317
(1973).[Footnote 210] See also B-143536, Aug. 15, 1960 (similar
language in an appropriation act provision applicable to leased as
well as acquired lands).
Under another statute, the FAA may approve an airport development
grant application only upon receipt of written assurances that:
"the airport owner or operator will provide, without charge to the
Government, property interests of the sponsor in land or water areas
or buildings that the Secretary decides are desirable for, and that
will be used for, constructing at Government expense, facilities for
carrying out activities related to air traffic control or navigation."
49 U.S.C. § 47107(a)(12). This is also specific authority sufficient
to overcome the prohibition on improving nongovernment property. 46
Comp. Gen. 60 (1966). That case found FAA appropriations available for
the reinforcement of building foundations and other structural
improvements necessitated by the construction of air traffic control
tower cabs on the roofs of those buildings. Another example involving
FAA's statutory authority is B-286457, Jan. 29, 2001, discussed in
section G.1 of this chapter.
A 1990 case found an exception in a situation not covered by any of
FAA's statutory authorities. The decision, 69 Comp. Gen. 673 (1990),
held that the inclusion in a lump-sum appropriation of funds for
environmental cleanup at a facility being leased by the FAA on a long-
term basis was sufficient to authorize the FAA to make permanent
improvements to the facility deemed necessary for the cleanup. The
expenditure had been specified in committee reports but not the
appropriation act itself. The lesson of this case is that, since the
permanent improvement prohibition is nonstatutory, it can be overcome
by congressional action that would not be sufficient if it were a
statutory requirement.[Footnote 211]
e. Private Residences:
As one might suspect, there should normally be very little occasion to
consider the propriety of using appropriated funds to make permanent
improvements to someone's private residence. However, as if to prove
that one should never say never, the expenditure has been authorized
in two cases.
In 53 Comp. Gen. 351 (1973), the then Veterans Administration (VA)
sought to install central air conditioning in the home of a disabled
veteran. The VA received appropriations for necessary inpatient and
outpatient care, and the applicable program legislation defined
authorized medical care as including home health services. The
legislative history indicated an intent to emphasize nonhospital
treatment. The air conditioning was not just a matter of comfort.
According to the VA, certain disabled veterans "suffer from a severe
impairment of the heat regulatory mechanisms of their bodies to such
an extent that their body temperatures can only be safely maintained
in an artificially controlled physical environment." 53 Comp. Gen. at
351-52. The expenditure could not be justified as an exception under
the tests of 42 Comp. Gen. 480 (1963) and its progeny because the
primary beneficiary would be the disabled veteran, not the government.
Nevertheless, upon an administrative determination that the expense
was necessary for the effective and economical treatment of the
veteran, and that the only alternative would be admission to a
hospital, the expenditure was authorized.
As noted in Chapter 4, decisions have held that an agency may use its
operating appropriations to protect an agency official whose life has
been threatened if the danger may impair the functioning of the
agency. A 1991 case, 71 Comp. Gen. 4, took this one step further and
held that the Drug Enforcement Administration could use its
appropriations to enclose and secure a carport at the leased residence
of its Administrator. Although the decision viewed the improvement as
primarily benefiting the government, it is perhaps more appropriate to
say that, under the circumstances presented—danger to the
Administrator's life—the fact of shared benefit, or of some residual
benefit to the landlord, should not be enough to invalidate an
expenditure which otherwise meets the tests. Of course, the agency
would also have to take appropriate measures, possibly in the form of
a provisional agreement with the landlord, to protect the government's
interest in the improvement. 71 Comp. Gen. at 6.
H. Disposal:
1. The Property Clause:
A fundamental point to understanding the body of law governing the
operation of federal agencies is that no government official may
dispose of government-owned property unless authorized by Congress.
The source of this rule is article IV, section 3, clause 2 of the
United States Constitution, the so-called Property Clause: "The
Congress shall have Power to dispose of and make all needful Rules and
Regulations respecting the Territory or other Property belonging to
the United States ...." By virtue of the Property Clause, no agency or
official of the government is authorized to sell, lease, give away, or
otherwise dispose of government property without statutory authority,
either explicit or by necessary implication. As the Supreme Court put
it in one case:
"Power to release or otherwise dispose of the rights and property of
the United States is lodged in the Congress by the Constitution. Art.
W, § 3, Cl. 2. Subordinate officers of the United States are without
that power, save only as it has been conferred upon them by Act of
Congress or is to be implied from other powers so granted."
Royal Indemnity Co. v. United States, 313 U.S. 289, 294 (1941).
This principle has been consistently recognized and applied by the
courts, the Attorney General, and the Comptroller General. E.g.,
Spirit Lake Tribe v. North Dakota, 262 F.3d 732, 740-41 (8th Cir.
2001), cert. denied, 535 U.S. 988 (2002); 34 Op. Att'y Gen. 320
(1924); 65 Comp. Gen. 339 (1986); 50 Comp. Gen. 63 (1970); B-157578,
Sept. 7, 1965. "Like any other owner [Congress] may provide when, how,
and to whom its land can be sold." United States v. Midwest Oil Co.,
236 U.S. 459, 474 (1915).
The Property Clause is not limited to real property but applies to
personal property as well. As the Supreme Court explained in Ashwander
v. Tennessee Valley Authority, 297 U.S. 288, 331 (1936):
"The occasion for the grant [in the Property Clause] was the obvious
necessity of making provision for the government of the vast territory
acquired by the United States. The power to govern and to dispose of
that territory was deemed to be indispensable to the purposes of the
cessions made by the States.... The grant was made in broad terms, and
the power of regulation and disposition was not confined to territory,
but extended to 'other property belonging to the United States,' so
that the power may be applied, as Story says, 'to the due regulation
of all other personal and real property rightfully belonging to the
United States.' And so, he adds, 'it has been constantly understood
and acted upon.'"
The Property Clause applies to all forms of property, intangible as
well as tangible, and this includes legal rights. One manifestation of
this is the rule that, unless authorized by statute, government
officers have no right to modify existing contracts, or to waive or
surrender contract rights which have vested in the government, without
some compensating benefit to the government. E.g., 47 Comp. Gen. 732,
736 (1968); 40 Comp. Gen. 684, 688 (1961); B-174058, Oct. 18, 1972.
Another is the rule that no government official may, absent statutory
authority, waive a debt owing to the United States. E.g., B-171934,
Apr. 2, 1971. Similarly, an agency may not, unless authorized by
statute, waive the enforcement of a forfeiture accruing to the
government's benefit without consideration. 53 Comp. Gen. 574 (1974);
40 Comp. Gen. 309 (1960). This includes the retention of liquidated
damages. 26 Comp. Gen. 775, 777 (1947).
The interagency transfer of excess real or personal property is not a
disposal for purposes of the Property Clause. 32 Op. Att'y Gen. 511
(1921).
The right to dispose of government property which is no longer needed
has been termed "an essential governmental function in the economic
management of governmental affairs." City of Springfield v. United
States, 99 F.2d 860, 863 (1st Cir. 1938), cert. denied, 306 U.S. 650
(1939). Congress has delegated this authority to executive agencies in
several statutes, the most important of which is the Federal Property
and Administrative Services Act.
2. Disposal under Title 40 of the United States Code:
The provisions of title 40, United States Code, derived from the
Federal Property and Administrative Services Act,[Footnote 212] as
amended, present a fairly complex scheme for the disposal of
government property. The starting point is the definition of two key
terms, "excess property" and "surplus property":
"The term 'excess property' means any property under the control of a
federal agency that the head of the agency determines is not required
to meet the agency's needs and responsibilities."
"The term 'surplus property' means excess property that the
Administrator [of the General Services Administration (GSA)]
determines is not required to meet the needs or responsibilities of
all federal agencies."
40 U.S.C. §§ 102(3) and (10).[Footnote 213]
Note that the using agency declares property to be excess, but GSA
must declare it to be surplus. Property must be excess before it can
be surplus.[Footnote 214] Obviously, the arbitrary classification of
property as excess or surplus in order to provide statutory authority
for disposal which otherwise does not exist, is improper. B-61717,
Apr. 10, 1947.
a. Excess Property:
Agencies have a continuing responsibility to survey property under
their control in order to identify property which has become excess.
40 U.S.C. § 524(a)(2).[Footnote 215] The General Services
Administration (GSA) tells agencies to do this at least annually. 41
C.F.R. § 102-75.60(a). If an agency identifies property which appears
to be excess, it should first see if some other component of the
agency can use it. 40 U.S.C. § 524(a)(3). If the property is not
needed within the agency, it should be promptly reported to GSA as
excess. Id.; 41 C.F.R. § 102-75.60(c). Conversely, if the agency needs
property and cannot fill its need by transfer or improved utilization
of property already under its control, it should report its need to
GSA. 41 C.F.R. § 102.75.65.[Footnote 216]
GSA then has the responsibility of determining if there is a need for
the property by another federal agency, government corporation, or the
District of Columbia, and directing transfer of the property
accordingly. See generally 40 U.S.C. § 521.[Footnote 217] According to
the legislative history of section 521, detailed in B-101646-0.M.,
Nov. 2, 1976, GSA is to do this by conducting a "survey" of the needs
of other agencies. GAO regards the term survey in this context as
flexible. It does not require GSA to follow specifically detailed
procedures. "Rather, [the Administrator of GSA] may execute his survey
on the basis of a broad analysis from an overall viewpoint making use
of his general and specific knowledge of the situation in his role as
the manager of the Government's property." B-165868, June 30, 1971, at
3.
GSA calls its procedure "screening." 41 C.F.R. § 102-75.1220. If GSA
finds a "match" and determines that transfer is in the government's
best interest, the property is transferred. See 41 C.F.R. § 102-75.175.
The statute requires reimbursement by the receiving agency if either
the transferor or the transferee is the District of Columbia or a
government corporation subject to the Government Corporation Control
Act, or if the property was acquired by using a revolving or
reimbursable fund and the transferor agency requests reimbursement of
the net proceeds. In all other cases, the extent of reimbursement, if
any, is left to the determination of GSA and the Office of Management
and Budget (OMB). 40 U.S.C. §§ 522(a), (b).[Footnote 218] GSA's
Federal Management Regulation generally requires reimbursement of 100
percent of estimated fair market value, with qualifications specified
in certain circumstances. See 41 C.F.R. §§ 10275.190-102-75.200. The
transfer is made without reimbursement if it is specifically
nonreimbursable by statute, or if GSA, with OMB's approval, grants an
exception. See 41 C.F.R. §§ 102-75.205-102-75.225.
Since the receiving agency has already demonstrated a need for the
property in order to qualify for the transfer, the amount of the
reimbursement is a necessary expense of, and therefore chargeable to,
operating appropriations for the program for which the property is to
be used. 38 Comp. Gen. 782 (1959). If the property being transferred
is a leasehold, the fair market value should not include any
restoration obligation incurred by the transferring agency. 28 Comp.
Gen. 251 (1948).
Congress occasionally waives the federal government's immunity from
state and local taxation with respect to real property owned by a
government corporation. E.g., 12 U.S.C. § 1825(a) (Federal Deposit
Insurance Corporation). If property subject to such a waiver is
declared excess and transferred to an agency or entity that does not
have such a waiver, the waiver dies with the transfer and the
transferee agency is not authorized to continue paying the taxes. 36
Comp. Gen. 713 (1957); 34 Comp. Gen. 319 (1955); 32 Comp. Gen. 164
(1952). See also Rohr Aircraft Corp. v. County of San Diego, 362 U.S.
628 (1960); Board of County Commissioners of Sedgwick County v. United
States, 105 F. Supp. 995 (Ct. CL 1952) (both cases address the issue
under the Surplus Property Act of 1944, a predecessor of the current
provisions). The immunity attaches on the date the property is
declared excess. 32 Comp. Gen. 574 (1953).
As noted above, a government corporation can receive excess property
but must pay for it. In the case of a mixed-ownership government
corporation, the property loses its federal identity upon being
transferred. Therefore, if the property should later become excess to
the mixed-ownership corporation, the corporation may dispose of it
without having to follow the Federal Property Act. See B-101646, B-
175155-0.M., Sept. 6, 1979 (discussing transfer to Amtrak).
b. Surplus Property:
If no other agency needs the property, the General Services
Administration (GSA) then declares it to be surplus. If some other
agency has requested transfer as excess property, it cannot be
declared surplus until the request has been withdrawn. Skokomish
Indian Tribe v. GSA, 587 F.2d 428 (9th Cir. 1978). GSA is required to
"supervise and direct the disposition of surplus property." 40 U.S.C.
§ 541.[Footnote 219] GSA, or any executive agency so authorized by
GSA, may dispose of surplus property "by sale, exchange, lease,
permit, or transfer, for cash, credit, or other property," and may
"take other action it considers necessary or proper to dispose of the
property." 40 U.S.C. § 543.[Footnote 220] GSA acts as the disposal
agency except "in rare instances" where it delegates disposal
authority to another agency. 41 C.F.R. § 102-75.5. Instances in which
a landholding agency may act as the disposal agency are described in
41 C.F.R. § 102-75.296. Absent some applicable statutory exception, 40
U.S.C. § 541 and its related provisions are the exclusive means for
the government to divest itself of a property interest. United States
v. 434.00 Acres of Land, 792 F.2d 1006 (11th Cir. 1986) (common-law
rule that easement terminates when purpose for which it was created
ceases to exist not applicable to easement held by government).
The "necessary or proper" clause in 40 U.S.C. § 543 "suggests broad
power." United States v. 1.33 Acres of Land, 9 F.3d 70, 73 (9th Cir.
1993). That case held that GSA was authorized to condemn an easement
several years after the sale of adjacent property in order to complete
the sale. (The easement was necessary for access to a highway and the
parties could not come to voluntary terms.) GSA may also, under its
broad statutory authority, authorize the interim nonfederal use of
surplus property by lease or permit. See B-101646-0.M., Oct. 11, 1977.
The statute does not, however, authorize the use of options to
purchase, either standing alone or included in a lease. 41 Op. Att'y
Gen. 294 (1957).
Unless otherwise provided by statute or in the deed by which the
government acquired the property, the person from whom the government
acquired the property does not have an automatic or inherent right to
repurchase it if it is declared surplus. This is true regardless of
how the property was acquired. Harrison v. Phillips, 185 E Supp. 204
(S.D. Tex. 1960), affd, 289 F.2d 927 (5th Cir. 1961), cert. denied,
368 U.S. 835 (1961) (property acquired by voluntary purchase); 34
Comp. Gen. 374 (1955) (donation); B-165511, Mar. 21, 1978 (eminent
domain).
With certain exceptions, the disposal agency should have the property
appraised. 41 C.F.R. § 102-75.300. GSA treats the appraisal results as
confidential so as not to influence the government's ability to sell
at a favorable price. See 41 C.F.R. § 102-75.320. The courts and GAO
agree with this nondisclosure policy. Government Land Bank v. GSA, 671
F.2d 663 (1st Cir. 1982); Martin Marietta Aluminum, Inc. v. GSA, 444
F. Supp. 945 (C.D. Cal. 1977); B-101646, Aug. 16, 1979. The court
directed disclosure in GSA v. Benson, 415 F.2d 878 (9th Cir. 1969),
but the sale had already taken place and the purchaser needed the
information for tax purposes.
Subject to several exceptions, the law provides that disposals of
surplus property may be made "only after publicly advertising for
bids" under regulations prescribed by GSA. 40 U.S.C. § 545(a)(1)(A).
[Footnote 221] While the solicitation is not required to specify a
minimum acceptable bid, the government is also not required to give
the property away and may reject all bids. 40 U.S.C. § 545(b)(6); B-
212285, Nov. 15, 1983. As noted above, the law authorizes sale for
cash or credit. If the solicitation specifies that either is equally
acceptable, the agency cannot give a preference to cash terms after
bids have been opened. B-189500, Mar. 21, 1978. The implied obligation
to treat all bids fairly and honestly applies to sales of property as
well as to procurement contracts. Prineville Sawmill Co. v. United
States, 859 F.2d 905, 909 (Fed. Cir. 1988).
As a general proposition, a wide disparity between appraised values
and bid prices is not enough to put the contracting officer on
constructive notice of a mistake in bid because of the "myriad of
uses" to which the land might be put. B-177695, Jan. 22, 1973.
However, in a case where the appraiser had indicated that the property
would have little value to anyone other than the immediate adjacent
landowner, and there was a large disparity between the appraisal and a
bid by someone other than the adjacent landowner, the contracting
officer should have been put on notice of the possibility of mistake
and should have sought confirmation of the bid. B-160113, Nov. 25,
1966.
If an appraisal is based on a mistake, the resulting contract of sale
may be reformed to permit partial refund of the purchase price. B-
71334, Feb. 3, 1948 (appraisal included irrigation rights which in
fact did not exist). Although not discussed in that decision, this is
not viewed as a surrender of contract rights for purposes of the
Property Clause. Also, depending on the circumstances, it may be
possible to rescind the contract. See Morris v. United States, 33 Fed.
Cl. 733, 744-48 (1995) (discussing the theories of misrepresentation,
mutual mistake, and unilateral mistake in the context of government
real property sales).[Footnote 222]
The solicitation may require bid deposits or "earnest money,"
apparently at the agency's discretion, with the winning bidder's
deposit to be applied to the purchase price. Any time after acceptance
of the offer but prior to the time specified for performance, that is,
while the contract is still executory, the agency may agree to rescind
the contract and refund the earnest money. 26 Comp. Gen. 775 (1947).
Once there has been a breach or default by the purchaser, however, the
deposit belongs to the government and may not be refunded unless
expressly provided by statute or in the contract. Id.; 8 Comp. Gen.
592 (1929); B-160256, Jan. 5, 1967, aff'd on reconsideration, B-
160256, Oct. 18, 1968.
While advertising for bids is the preferred method of disposal, the
statute prescribes a number of situations in which surplus property
can be disposed of by negotiated sale, as long as the government
obtains "competition that is feasible under the circumstances." 40
U.S.C. § 545(b). One is when "the character or condition of the
property or unusual circumstances make it impractical" to advertise
for bids and fair market value can be obtained by negotiation. Id. §
545(b)(7). For an example of a negotiated exchange under this
authority, see B-165868, Nov. 19, 1971; B-165868, June 30, 1971; and B-
165868, Sept. 29, 1970 (all involve the same exchange). Another
situation in which disposal may be negotiated is when "the disposal
will be to a State, territory, or possession of the United States, or
to a political subdivision of, or a tax-supported agency in, a State,
territory, or possession, and the estimated fair market value of the
property and other satisfactory terms of disposal are obtained by
negotiation." 40 U.S.C. § 545(b)(8).
The determination of what constitutes "feasible competition" is within
GSA discretion. Dover Sand & Gravel, Inc. v. Jones, 227 F. Supp. 88
(D.N.H. 1963). When negotiating a disposal under 40 U.S.C. §
545(b)(8), GSA is not required to consider offers from nonpublic
sources. 57 Comp. Gen. 823 (1978). While section 545(b)(8) does not
authorize disposal for less than fair market value, nothing prevents
the government from getting more if it can. Port of Seattle v. United
States, 450 F.2d 1363 (Ct. CL 1971); B-217356-0.M., Apr. 22, 1985.
Since the use of section 545(b)(8) is itself discretionary, there is
also nothing to prevent the government from rejecting an offer of fair
market value. Government Land Bank v. GSA, 671 F.2d 663, 667 (Pt Cir.
1982).
If the government chooses to dispose of surplus property by negotiated
sale, the responsible agency must prepare, with some exceptions
specified in the statute, "an explanatory statement of the
circumstances" and transmit the statement "to the appropriate
committees of the Congress in advance of the disposal." 40 U.S.C. §§
545(e)(1)(A), 545(e)(2). This is nothing more than a "report and wait"
provision and is not subject to attack on constitutional grounds. City
of Alexandria v. United States, 737 F.2d 1022 (Fed. Cir. 1984). If an
agency other than GSA prepares the statement, the agency should submit
it to GSA, which will in turn submit it to the committees. 41 C.F.R. §
102-75.920. Nothing in the statute purports to make the validity of a
disposal in any way contingent upon compliance with the reporting
requirement. See B-116344, July 21, 1955.
In general, it is improper to classify property as excess or surplus
if the holding agency still needs it. This follows from the very
definitions quoted earlier. GAO has looked at several cases where an
agency wanted to sell property and then lease it back, or sell some
facility and then contract with the new owner to provide the same
service the facility was providing when it was in government hands.
These cases are always questionable, and the agency has the burden of
showing that there is some rational basis for its determination.
However, an axiom of life is "never say never," and the legitimacy of
the transaction cannot be categorically foreclosed. For example:
"There may be instances where certain property, such as communication
facilities, could be sold and the purpose for which it was being used
accomplished through private contracts at a cost less than the
Government's costs of operation and maintenance of the property. In
such cases, it could be argued that the Government's need was for the
availability of communication services rather than for a property
right in the facilities."
B-132099, July 22, 1957, at 4.
While the discussion in B-132099 was hypothetical, an actual situation
occurred in B-146494, Dec. 4, 1961, concerning the sale of an ammonium
perchlorate facility. GAO was satisfied that "the only need of the
Government is that sufficient productive capacity be in existence,
without reference to whether such productive capacity is Government-
owned or privately-owned." B-146494, at 2.
Situations like those described in B-132099 and B-146494 are the clear
exception, and in most cases the proper basis for disposal as surplus
property will not exist. B-132099, June 25, 1958. Thus, whatever
justifications might work in the case of industrial facilities do not
work when the need is for office space at a particular location. B-
152223, Nov. 6, 1963. Similarly, there is no authority for a "sale
with lease-back" simply because the agency does not have enough money
for needed renovations. 65 Comp. Gen. 339 (1986). See 45 Comp. Gen.
265 (1965), however, for a case approving the sale of excess property
to the successful bidder on a contract to construct a building on that
property to be leased to a different agency.[Footnote 223]
Section 550 of title 40[Footnote 224] provides for a number of
discretionary types of disposal. GSA can assign surplus property to
the Departments of Education or Health and Human Services for
conveyance to state and local bodies to be used for education or
public health purposes. 40 U.S.C. §§ 550(c) and (d), respectively; see
also 41 C.F.R. §§ 102-75.350-102-75.360. These are called "public
benefit conveyances" or "public benefit discount conveyances." See
Northrop University v. Harper, 580 E Supp. 959, 961 (C.D. Cal. 1983).
In cases where GSA had already contracted to sell the property to the
state or local educational body but title had not yet passed and the
purchase price had not yet been paid, GAO has approved rescission of
the contract to permit transfer under the section 550 procedures. 40
Comp. Gen. 455 (1961); B-157885, Nov. 8, 1965. However, this is not
available where the sale has been consummated and the purchase price
paid. B-162194, Aug. 18, 1967.
In B-109403, June 3, 1952, the government wanted to reserve mineral
rights because a survey suggested the presence of oil. However, a
provision purporting to obligate the United States to pay any damages
resulting from exercise of the mineral rights amounted to an open-
ended indemnification agreement and was therefore unauthorized. (For
more on indemnification agreements, see Chapter 6, section C.2.c.)
Section 550(e) of title 40 authorizes GSA to assign surplus property
to the Interior Department for reconveyance for public park or
recreation purposes. GSA administration of this authority is highly
discretionary. New England Power Co. v. Goulding, 486 F. Supp. 18
(D.D.C. 1979) (entirely proper for GSA to give priority to disposal
under this subsection). See also Northrop University, 580 F. Supp. 959.
Still another subsection of section 550 authorizes GSA to convey to
states or municipalities, without monetary consideration, surplus real
property which is suitable and desirable for use as a historic
monument. 40 U.S.C. § 550(h); 41 C.F.R. §§ 102-75.440-102-75.485. GSA
may authorize use of the property for revenue-producing activities. 40
U.S.C. § 550(h)(2)(A); 60 Comp. Gen. 158 (1981). As with the other
subsections, section 550(h) is limited to surplus property and does
not authorize conveyance of nonsurplus property. B-126823, July 21,
1965.
c. Disposition of Proceeds:
The disposition of the proceeds from the disposal of excess and
surplus property is governed by 40 U.S.C. §§ 571-574,225 as
effectively modified by 16 U.S.C. § 4601-5(a). Section 571(a) of title
40 provides that all proceeds from any transfer of excess property or
sale or other disposition of surplus property, except as otherwise
provided in sections 571 through 574, must be deposited in the
Treasury as miscellaneous receipts. One of the exceptions, already
noted, is property acquired by use of a revolving or reimbursable
fund. 40 U.S.C. § 574(a). Another, 40 U.S.C. § 574(b), permits
agencies to deposit part of the proceeds in a special account in the
Treasury so that they will be available for refunds if necessary.
Section 574(c) recognizes contract provisions which permit the
proceeds of any sale of government property in the contractor's
custody to be credited to the cost or price of work under the contract.
In 1964, Congress enacted the Land and Water Conservation Fund Act of
1965, Pub. L. No. 88-578, 78 Stat. 897 (Sept. 3, 1964). Section 2(b)
of Public Law 88-578, as codified at 16 U.S.C. § 4601-5(a), requires
deposit in the Land and Water Conservation Fund of:
"All proceeds ... hereafter received from any disposal of surplus real
property and related personal property under the Federal Property and
Administrative Services Act of 1949, as amended ... notwithstanding
any provision of law that such proceeds shall be credited to
miscellaneous receipts of the Treasury. Nothing in this part shall
affect existing laws or regulations concerning disposal of real or
personal surplus property to schools, hospitals, and States and their
political subdivisions."
The portion of the above provision not quoted gives two categories of
exceptions. First, the requirement does not apply to the various
subsections of 40 U.S.C. § 574 which themselves provide exceptions to
the miscellaneous receipts requirement of 40 U.S.C. § 571(a). Second,
it does not apply to the following provision which appeared in the
Independent Offices Appropriation Act of 1963, Pub. L. No. 87-741, 76
Stat. 716, 725 (Oct. 3, 1962), under the heading "Operating Expenses,
Utilization and Disposal Service [GSA]" or later appropriations act
language of this nature: "For necessary expenses, not otherwise
provided for, incident to the utilization and disposal of excess and
surplus property, as authorized by law, $8,500,000, to be derived from
proceeds from the transfer of excess property and the disposal of
surplus property." The Land and Water Conservation Fund is a fund in
the Treasury used to finance acquisitions mostly by the Departments of
Interior and Agriculture (national parks, national forests, national
wildlife refuges). 16 U.S.C. § 4601-9. Money in the fund is available
for expenditure "only when appropriated therefor." 16 U.S.C. § 4601-6.
Thus, the 1964 legislation preserved the exceptions of the former
Federal Property Act, and recognized what would be true in any event—
that Congress can legislate exceptions in the future. Subject to these
exceptions, proceeds from the sale of surplus real property go to the
Land and Water Conservation Fund and not the general fund. Nothing in
the 1964 legislation purported to affect the treatment of proceeds
from the transfer of excess property.
Since the disposition of sale proceeds is governed by statute, a 1946
decision found no authority for a proposal to transfer title to a
warehouse (built by the government on leased land) to the landowner
with its value to be amortized against rental payments. The proposal
would have the effect of using the sale proceeds as rent. B-61717,
Dec. 10, 1946.
A 1966 decision, 46 Comp. Gen. 356, considered the operation of 16
U.S.C. § 4601-5(a) in the context of a government corporation which
was in the process of going out of business. The Virgin Islands
Corporation had terminated its operations and wanted to close its
books, but there were some assets remaining to be sold. If the books
remained open, it was clear that the proceeds would be credited to the
corporation's revolving fund, in accordance with 40 U.S.C. § 574(a),
and used to offset the government's equity. It was suggested, however,
that since the revolving fund was no longer needed, the corporation's
accounts could be closed and the proceeds deposited in the Land and
Water Conservation Fund. The decision concluded that closing the
accounts as a matter of administrative convenience should not have the
effect of diverting the proceeds from being used to repay the
government's investment. Since any balances on hand at the time of
closing would be deposited as miscellaneous receipts, that was also
the proper disposition of the sale proceeds.
d. Deduction of Expenses:
Section 571(b) of title 40, United States Code,[Footnote 226] provides:
"Subject to [General Services Administration] regulations ..., the
expenses of the sale of ... public property may be paid from the
proceeds of the sale so that only the net proceeds are deposited in
the Treasury. This subsection applies whether proceeds are deposited
as miscellaneous receipts or to the credit of an appropriation as
authorized by law."
This statute originated in 1896.[Footnote 227] Decisions of the
Comptroller General and Comptroller of the Treasury over the decades
established the rule that this provision allowed the deduction only of
expenses directly connected with the sale and did not authorize
deduction of expenses incurred in connection with preparation of the
property for sale. E.g., 42 Comp. Gen. 212, 213 (1962). Thus, such
things as appraisers' fees, brokerage commissions, auctioneers' fees,
and advertising costs could be deducted from the proceeds prior to
deposit in the Treasury. 37 Comp. Gen. 59 (1957); 33 Comp. Gen. 31
(1953); 16 Comp. Gen. 876 (1937).
e. Disposal under Other Authorities:
While the title 40 provisions described above constitute the primary
regime for disposing of federal property, they are not the only
disposal authority. Exceptions to the title 40 authority tend to be of
three types: (1) those set forth in title 40 itself; (2) those stated
explicitly or arising by necessary implication from general property-
disposition authorities applicable to an agency or program, which
contain their own standards and procedures; and (3) statutes that
provide for the disposition of a specific piece of property in a
specific way.
As to the first type, 40 U.S.C. § 113(a) provides as follows: "Except
as otherwise provided in this section, the authority conferred by this
subtitle is in addition to any other authority conferred by law and is
not subject to any inconsistent provision of law." Section 113(a)
refers to the general range of the General Services Administration's
(GSA) authorities under title 40, including but not limited to
property disposal. The remainder of section 113 recites various
limitations and exceptions, some of which deal with the disposal of
property. For example, sections 113(e)(9) and (10) provide that
"nothing in this subtitle impairs or affects" the property-disposal
authority, respectively, of an official or entity under the Farm
Credit Act (12 U.S.C. ch. 23), or the Secretary of Housing and Urban
Development or the Federal Deposit Insurance Corporation with respect
to certain properties.
As to the second type, a 1992 GAO study identified 17 agencies with
authority to dispose of real property. GAO, Real Property
Dispositions: Flexibility Afforded Agencies to Meet Disposition
Objectives Varies, GAO/GGD-92-144FS (Washington, D.C.: Sept. 18,
1992). As the title implies, GAO found considerable variation in the
programs and their objectives.
In some cases, the statutes deal with property that is explicitly
exempted from the title 40 provisions, such as public domain lands.
See 40 U.S.C. § 102(9)(A)(i) (excluding public domain lands from the
definition of "property"). An example is 43 U.S.C. § 1713, authorizing
the Interior Department to sell tracts of public land meeting
specified disposal criteria. In a case involving the predecessor of
this statute, the Bureau of Land Management vacated a sale when, after
several years of appeals, re-appeals, and cross appeals by the
bidders, it learned that the appraised value of the property had
increased much beyond the amount of the bids. Noting that the courts
had upheld the discretion of the Secretary of the Interior to refuse
to sell for whatever reason he found adequate, GAO concluded that the
Bureau did nothing wrong. B-168879, May 7, 1970.
For property which would otherwise be within the scope of the title 40
provisions, language such as "notwithstanding any other provision of
law" may be sufficient in itself to provide the necessary exemption.
See B-178205.80, Mar. 16, 1976. Other statutes use more specific
exempting language. One example is 7 U.S.C. § 1985(c), authorizing
sales of property in connection with certain Department of Agriculture
activities. Section 1985(c)(4) provides: "The Federal Property and
Administrative Services Act of 1949 shall not apply to any exercise of
authority under this chapter." Another example, from the housing laws,
is 12 U.S.0 § 1750c(f), which authorizes the Secretary of Housing and
Urban Development to sell certain properties "notwithstanding any
other provision of law relating to the acquisition, handling, or
disposal of real property by the United States."
The Internal Revenue Service (IRS) is authorized to sell property
seized under a tax levy. 26 U.S.C. § 6335. While these sales are not
specifically exempted from title 40, they are governed by their own
specific standards and procedures as spelled out in the Tax Code. If
there are no bids from the public at or higher than the minimum price
set by the IRS, the United States may purchase the property at that
minimum price. 26 U.S.C. § 6335(e)(1)(C). The former owner has the
right to redeem the property within 180 days after the sale by paying
the purchase price plus interest. 26 U.S.C. § 6337(b). A sale under 26
U.S.C. § 6335 is a sale only of the taxpayer's interest in the
property—any equity over and above outstanding mortgages and liens.
Belgard v. United States, 232 E Supp. 265, 269 (W.D. La. 1964)
(seizure and sale under section 6335 had no effect on taxpayer's
indebtedness to Small Business Administration).
The third type of exception consists of statutes authorizing or
directing the disposal of a particular piece of property in accordance
with specified standards or procedures set forth in those statutes.
GSA calls these "special statutes," and recognizes that they are not
governed by title 40. 41 C.F.R. § 102-75.110. GAO considered one
example in B-194482, June 15, 1979. The U.S. Fire Administration,
Department of Commerce, had been authorized to purchase, and did
purchase, a site for a National Academy for Fire Prevention and
Control. When problems developed over the use of that site, Congress
enacted legislation authorizing the Fire Administration to sell it,
deposit the proceeds in a special account, and apply those funds to
the acquisition of a new site. Pub. L. No. 95-422, § 4, 92 Stat. 932,
933 (Oct. 5, 1978). Applying two principles of statutory construction—
(1) the specific governs over the general, and (2) if there is any
inconsistency, the later enactment controls—and noting GSA's treatment
of "special statutes," GAO concluded that the Fire Administration
could dispose of the site without regard to the requirements of title
40.
Potentially eligible recipients of federal property can differ
depending on which disposal authority applies. This occasionally leads
to litigation focusing on the interplay between the basic title 40
provisions and other statutory authorities. Two recent decisions
provide examples.
In National Law Center on Homelessness & Poverty v. Veterans
Administration, 98 F. Supp. 2d 25 (D.D.C. 2000), the plaintiffs sought
to acquire a former federal courthouse under a section of the McKinney
Homeless Assistance Act, 42 U.S.C. § 11411, that, in essence, gives a
priority to homeless assistance for excess and surplus property going
through the title 40 disposition process. GSA maintained, however,
that the property at issue was not "excess" or "surplus" for purposes
of title 40. According to GSA, the property was subject to disposal
under an entirely distinct statutory provision, 40 U.S.C. §
1304(a),[Footnote 229] which authorizes GSA to sell to state or local
governments "obsolete" buildings that are being replaced with new
structures. Thus, the title 40 excess and surplus property disposition
authorities, along with the McKinney Act priority attached to them,
were inapplicable. The court agreed with the plaintiffs on the basis
of what it described as the Property Act's "preemption provision." Now
40 U.S.C. § 113(a), this provision was at the time of the National Law
Center decision 40 U.S.C. § 474(c) (2000) and it stated in relevant
part: "The authority conferred by this Act shall be in addition to and
paramount to any authority conferred by any other law and shall not be
subject to the provisions of any law inconsistent herewith." The court
held that there was a clear conflict between section 1304(a) and the
title 40 excess and surplus property disposition provisions read in
conjunction with the McKinney Act. Therefore, by virtue of then 40
U.S.C. § 474(c), the latter provisions took precedence.[Footnote 229]
Shawnee Tribe v. United States, 423 F.3d 1204 (10th Cir. 2005),
concerned a potential conflict between 40 U.S.C. § 523 and a "special
statute" of the type described previously. Section 523 requires that
excess property located within the reservation of a federally
recognized Indian tribe be transferred without compensation to the
Secretary of the Interior to be held in trust for that tribe. The
Shawnee Tribe sought to enforce this provision in the case of an
excess military installation known as the Sunflower Army Ammunition
Plant. GSA determined, however, that section 523 did not apply because
the installation was not within the current boundaries of the
reservation. The tribe appealed to the courts. While the appeal was
pending Congress enacted section 2841 of the Ronald W. Reagan National
Defense Authorization Act for Fiscal Year 2005, Pub. L. No. 108-375,
118 Stat. 1811, 2135 (Oct. 28, 2004), which provided in part:
"The Secretary of the Army, in consultation with the Administrator of
General Services, may convey to an entity selected by the Board of
Commissioners of Johnson County, Kansas ... a parcel of real property
... containing the Sunflower Army Ammunition Plant. The purpose of the
conveyance is to facilitate the re-use of the property for economic
development and revitalization."
GSA argued that the enactment of section 1841 and the Army's
determination to proceed with the authorized conveyance superseded 40
U.S.C. § 523 and nullified any claim to the property that the tribe
may have had under section 523. The tribe countered that section 523
took precedence over the authorization act provision, relying on the
same provision as the plaintiffs in National Law Center, 40 U.S.C.§
113(a), formerly 40 U.S.C. § 474(c).
Unlike the outcome in National Law Center, however, the court sided
with GSA in this case:
"The Shawnee Tribe reads ... § 113(a) to mean that the Property Act
trumps any other inconsistent grant of authority, including § 2841,
and therefore that § 523 still governs this case.
"However, the language of § 113 does not compel this reading. Instead,
the phrase 'in addition to any other authority' suggests the opposite—
that § 523 does not preempt other laws."
Shawnee Tribe, 423 F.3d at 1214 (emphasis in original). The court held
that section 113:
"stand[s] for the relatively unremarkable proposition that the
Property Act trumps any pre-existing laws not specifically excluded by
§ 113 when it was re-enacted in 2002, but that the Congress is, of
course, free to change the Property Act's coverage in the future by
any act enacted after March 31, 2002. Thus, § 2841 of the 2005
National Defense Authorization Act, which was passed in October of
2004, suspends the Property Act's applicability in this case as it
gives discretion to dispose of this particular property to the
Secretary of the Army."
Id. at 1216.
3. Use by Nongovernment Parties:
a. Leasing and Concessions:
(1) Outleasing in general:
The government acquires property in order to perform its own
functions, not for use by nongovernment parties. Nevertheless, there
are situations in which it is clearly desirable to permit use by
nongovernment parties, either in support of the primary government
purpose or as an alternative to letting the property sit idle.
Leasing is a form of disposal for purposes of the Property Clause, and
is therefore a function of Congress. Ashwander v. Tennessee Valley
Authority, 297 U.S. 288, 331 ("This power of disposal was early
construed to embrace leases"). See also United States v. Gratiot, 39
U.S. (14 Pet.) 526 (1840); 50 Comp. Gen. 63 (1970); 14 Comp. Gen. 169
(1934); B-191943, Oct. 16, 1978; 34 Op. Att'y Gen. 320, 322 (1924).
Accordingly, a federal agency needs statutory authority in order to
"outlease" (lease government-owned property to nongovernment parties)
property under its control. Naturally, when and if Congress grants
such authority, it may also impose conditions on it. E.g., Light v.
United States, 220 U.S. 523, 536 (1911) (United States "can prohibit
absolutely or fix the terms on which its property may be used").
One question is how specific the authority needs to be. A 1978 GAO
study found instances where agencies treated the authority to lease as
incident to more general statutory authority giving them custody and
control over certain space. See GAO, Government Space Leased to
Commercial Activities by Agencies Other Than the General Services
Administration, LCD-78-337 (Washington, D.C.: Oct. 13, 1978). GAO drew
no legal conclusions in the cited report because the issue had been
raised in a pending lawsuit. That lawsuit produced Globe, Inc. v.
Federal Home Loan Bank Board, 471 E Supp. 1103 (D.D.C. 1979), in which
the court held that the General Services Administration (GSA)
possessed long-term commercial outleasing authority, but not the
former Federal Home Loan Bank Board. While Globe certainly supports
the proposition that specific authority is required, it was based in
part on provisions of the Board's enabling legislation and the extent
to which it applies to all agencies has not been addressed.
In any event, those agencies most likely to have the need to engage in
outleasing have the necessary statutory authority. GSA's authority is
found in several provisions of title 40, United States Code. Under 40
U.S.C. § 581(d)(1),[Footnote 230] GSA may lease federal building
sites, including improvements, at a "fair rental value," until they
are needed for construction purposes. While this at first blush may
seem like fairly short-term authority, a site may not be needed for
construction for decades. E.g., B-168096, Aug. 5, 1974 (site had been
leased to commercial parking operators since 1930s). GSA is also
authorized to lease space to "a person, firm, or organization engaged
in commercial, cultural, educational, or recreational activities," as
defined in 40 U.S.C. § 3306(a), at rates equivalent to the prevailing
commercial rate for comparable space. 40 U.S.C. § 581(h). Also, 40
U.S.C. § 1303(b)[Footnote 231] authorizes GSA to lease certain excess
property outside the District of Columbia for periods of up to 5 years.
The military departments are authorized to outlease nonexcess property
under their control that is not needed for public use at the time, for
terms of up to 5 years. 10 U.S.C. § 2667. The purpose of this
provision is "to enable property not immediately needed to be leased
in such a manner that it will be utilized with as few changes as
possible in order that the property could immediately be put back into
operation in the event of an emergency." City of San Francisco v.
United States, 443 F. Supp. 1116, 1122 (N.D. Cal. 1977), affd, 615
F.2d 498 (9th Cir. 1980), citing S. Rep. No. 80-626 (1947). The
military departments have had some form of outleasing authority since
1892. See 8 Comp. Gen. 632 (1929). Under this authority, military
departments have leased real property for grazing purposes (56 Comp.
Gen. 655 (1977)) and agricultural purposes (B-174833, Mar. 10, 1972).
They have leased water treatment and transmission facilities to local
water districts which could, after supplying the needs of the military
reservation, sell the remaining capacity. B-162141, Oct. 18, 1967.
They have used the authority of 10 U.S.C. § 2667 to permit former
owners of property acquired by the government to remain as lessees
until the property is needed for project requirements. 52 Comp. Gen.
300 (1972).[Footnote 232] And they have used it to grant rent-free
use, except for maintenance and service charges, to other government
agencies. B-119724-0.M., Apr. 25, 1955.
Leasing authority under 10 U.S.C. § 2667 continues to exist until
there has been a final determination that the property is excess. B-
188246, May 17, 1978 (preliminary or conditional determination does
not terminate the authority). However, it does not apply to property
which usage inescapably shows to be excess notwithstanding the absence
of a formal determination. B-118030, July 23, 1954.
The Small Business Administration is authorized to rent (or sell) any
real property acquired in connection with its loan programs. 15 U.S.C.
§ 634(b)(3); United States v. Schwartz, 278 F. Supp. 328, 330
(S.D.N.Y. 1968). Other agencies with specific outleasing authority
include the Coast Guard (14 U.S.C. § 93(a)(13)), the National
Aeronautics and Space Administration (42 U.S.C. § 2473(c)(3)) the
National Science Foundation (42 U.S.C. § 1870(e)), the Bureau of Land
Management (43 U.S.C. § 1732(b)), the Postal Service (39 U.S.C. §
401(5)), the Internal Revenue Service (26 U.S.C. § 7506(c)), and GAO
(31 U.S.C. § 782).
We saw earlier in this chapter that the rights and obligations of the
parties are determined mostly under federal law when the government is
the lessee. The court in United States v. Morgan, 196 F. Supp. 345 (D.
Md. 1961), affil, 298 F.2d 255 (4th Cir. 1962), applied the same
principle where the government was the lessor. In another case,
however, the United States successfully brought an unlawful detainer
action under a state law which provided for the recovery of double
rent. United States v. Hall, 463 F. Supp. 787 (W.D. Mo. 1978), aff'd,
588 F.2d 1214 (8th Cir. 1978).
The disposition of income received from outleasing varies
considerably. The only safe generalization is the one that applies to
all government receipts under 31 U.S.C. § 3302(b): the money must be
deposited in the Treasury as miscellaneous receipts unless the agency
has statutory authority for some other disposition. In the area of
property leases, this rule is reinforced by 40 U.S.C. § 1302,[Footnote
233] (money derived from the rental of buildings shall be deposited in
the Treasury as miscellaneous receipts). There are, however, a number
of statutory exceptions. Rent received by GSA under the subsections of
40 U.S.C. § 581 cited above is deposited in the Federal Buildings
Fund. 40 U.S.C. §§ 581(d)(3) and (h)(3). Rent received by military
departments under 10 U.S.C. § 2667 is deposited in a special account
in the Treasury to be available, as specified in appropriation acts,
for purposes specified in the statute. 10 U.S.C. § 2667(d). A special
account is also authorized for income received by GAO from renting
space in the GAO headquarters building, the receipts to be available
as specified in appropriation acts, for maintenance, operation, and
repair of the building. 31 U.S.C. § 782.
Many other situations are governed by specific statutory provisions.
For example, rent received by the Corps of Engineers "for rental of
plant owned by the Government in connection with the prosecution of
river and harbor works" shall be credited to "the appropriation to
which the plant belongs." 33 U.S.C. § 559. This includes the revolving
fund established by 33 U.S.C. § 576. B-129718-0.M., Jan. 3, 1957.
Several types of lease income are subject to distribution formulas
which allocate the receipts, with varying degrees of complexity, among
a combination of state and federal purposes. Examples are:
* The Mineral Leasing Act of 1920 and the Mineral Leasing Act for
Acquired Lands, 30 U.S.C. §§ 191 and 355.
* Income received by the Forest Service from activities in the
national forests. 16 U.S.C. §§ 499 and 500.
* Grazing statutes such as the Taylor Grazing Act, 43 U.S.C. § 315i,
and 43 U.S.C. § 1181d relating to certain lands in California and
Oregon. See B-203771, Jan. 13, 1982.
(2) 40 U.S.C. § 1302:
A question that once generated considerable controversy is whether the
"rent" for a lease of government property could include things other
than money, such as making repairs or alterations to the property.
Opinions split among predictable lines. GAO took the position that
rent should be in the form of money only, on the grounds that anything
else would amount to a circumvention of the miscellaneous receipts
requirement. 8 Comp. Gen. 632 (1929); A-38658, July 15, 1932. The
executive branch countered that the authority to lease necessarily
implied the authority to agree to forms of consideration other than
money. 36 Op. Att'y Gen. 282 (1930). Congress entered the fray by
enacting section 321 of the Economy Act of 1932, Pub. L. No. 72-212,
47 Stat. 382, 412 (June 30, 1932), now codified at 40 U.S.C. § 1302,
as follows:
"Except as otherwise specifically provided by law, the leasing of
buildings and property of the Federal Government shall be for a money
consideration only. The lease may not include any provision for the
alteration, repair, or improvement of the buildings or property as a
part of the consideration for the rent to be paid for the use and
occupation of the buildings or property. Money derived from the rent
shall be deposited in the Treasury as miscellaneous receipts."
The Senate Appropriations Committee explained the provision as follows:
"The enactment of this section will put a stop to the more or less
general practice which has been adopted of including as a part of the
rental consideration provisions in the lease that the tenant shall
make certain repairs, alterations, or improvements to public property.
By this method improvements are made on public property which may or
may not be authorized by law, and indirectly there is an expenditure
of funds which should be covered into the Treasury as miscellaneous
receipts."
S. Rep. No. 72-556, at 14-15 (1932), quoted in 41 Comp. Gen. 493, 495
(1962). This did not mean that Congress would be unwilling to consider
exceptions, merely that it wanted to reserve to itself the power to
decide what those exceptions should be.
GAO has held that the statute should apply to any arrangement that
creates essentially the same legal relationship as a lease regardless
of what it is called. 42 Comp. Gen. 650 (1963); 41 Comp. Gen. 493
(1962). In 49 Comp. Gen. 476 (1970), an agency had employees working
in two nearby buildings, one government-owned and one leased. A
private parking operator was charging commercial rates to park in the
leased building. The agency wanted to equalize parking costs for its
employees, and proposed to have the private concern operate parking
facilities in both buildings "as a single facility" at a uniform rate.
The decision concluded that "the contemplated agreement ... while
couched in terms of management services, [amounted to] conferring an
interest in Federal property, a leasehold interest from which revenues
are derived, in contravention of 40 U.S.C. [§ 1302]." Id. at 478.
In B-162986, May 1, 1968, GAO considered a Forest Service proposal for
a graduated rate fee system, based on a percentage of sales, to be
used for national forest special use permits for commercial
enterprises (e.g., ski area operators). Recognizing the relationship
of returns to investment, the decision nevertheless concluded that "it
would be an unwarranted extension of section 321 to view it as
inhibiting any consideration of the permittee's investment for the
purpose of determining the fair amount of fees to be charged." B-
162986, at 4. GAO applied the same approach more than 20 years later
in 70 Comp. Gen. 597 (1991), finding that user fees charged by the
Interstate Commerce Commission to carriers for computer equipment
installed by the carriers at ICC headquarters were unobjectionable
under 40 U.S.C. § 1302.
As noted, Congress has been willing to grant exceptions from 40 U.S.C.
§ 1302 when considered desirable. For example, under 10 U.S.C. §
2667(b)(5), outleases by military departments:
"may provide, notwithstanding section 1302 of title 40, or any other
provision of law, for the alteration, repair, or improvement, by the
lessee, of the property leased as the payment of part or all of the
consideration for the lease."
Within this framework, the exception permits "extraordinary as well as
ordinary items of maintenance." B-145738-0.M., Jan. 18, 1962, at 4. It
is a good idea for the government to reserve the right to approve
repairs and restoration since the leased property still belongs to the
government. B-163784, May 2, 1968.
The statute talks about alteration or repair "of the property leased."
Therefore, it does not authorize a lease of one parcel with the lessee
agreeing to construct a facility for the government's use on a
separate and unleased parcel. B-205685, Dec. 22, 1981. Since the
proposal was not within the exception of 10 U.S.C. § 2667(b)(5), it
was prohibited by 40 U.S.C. § 1302. Also prohibited by section 1302
was a proposal to lease a civilian housing area on Guam to a private
concern for an annual rental of one dollar plus operation and
maintenance of the housing. 27 Comp. Gen. 543 (1948).
As the language of 40 U.S.C. § 1302 requires, exceptions must be
specific. The authority to enter into leases "on such terms and
conditions as the [agency head] deems appropriate" is not enough. B-
117919, Feb. 5, 1954; B-140397-0.M., Aug. 20, 1959. The structure of
10 U.S.C. § 2667, for example, bears this out. Section 2667(a)
authorizes the Secretary of a military department to lease property
"upon such terms as he considers will promote the national defense or
be in the public interest"; section 2667(b)(5) then provides the
specific exemption from 40 U.S.C. § 1302. General authority was enough
in B-159719, Mar. 30, 1972, because it was clear that Congress was
aware of, and had sanctioned, the activity. That case involved
concession agreements with the Federal Aviation Administration for
various support facilities at Washington National Airport.
Some other specific exceptions are 16 U.S.C. § 3b (National Park
Service), 38 U.S.C. §§ 8122(a)(1) and 8201(e) (Department of Veterans
Affairs), 42 U.S.C. § 1544 (Department of Housing and Urban
Development with respect to housing acquired or constructed under the
National Housing Act), and 42 U.S.C. § 2473(c)(11) (National
Aeronautics and Space Administration).
(3) Concessions:
The government uses concession agreements in a wide variety of
situations to support, directly and indirectly, its use of government
facilities. Some, such as cafeterias or dry cleaning facilities, are
found in public buildings.
The major portion in terms of numbers occur on recreational lands
managed by the Park Service, Forest Service, Fish and Wildlife
Service, and Bureau of Land Management. GAO studies in the early 1990s
found that there were approximately 9,000 concession agreements. See
GAO, Federal Lands: Improvements Needed in Managing Short-Term
Concessioners, GAO/RCED-93-177 (Washington, D.C.: Sept. 14, 1993);
Federal Lands: Improvements Needed in Managing Concessioners, GAO/RCED-
91-163 (Washington, D.C.: June 11, 1991). The same studies noted that
there is no single statute authorizing or regulating concessions, and
therefore no uniformity as to their use.
GAO has long espoused the view that "the operation of a concession
utilizing Government-owned facilities constitutes a valuable privilege
for which the Government should be compensated and that contractual
and other arrangements relating to the establishment and operation of
such activities should be subject to existing statutory provisions
governing public contracts." 41 Comp. Gen. 493, 495 (1962). See also B-
129352, Jan. 23, 1957. The most common manifestation of this principle
has been the finding that income an agency receives from a concession
should be deposited in the Treasury as miscellaneous receipts unless
the agency has statutory authority to do something else. E.g., 7 Comp.
Gen. 806 (1928); A-51624, Mar. 25, 1944; A-95642, Nov. 18, 1943; A-
95642, Mar. 19, 1943.
A related issue is the extent to which 40 U.S.C. § 1302 applies to
concession agreements. The following passage from 41 Comp. Gen. 493,
495 (1962) illustrates GAO's general approach:
"For all practical purposes if a concession gives a concessioner the
exclusive right to the use of real property his rights are identical
with [those] of a lessee and the relation of landlord and tenant is
created. If the right is not exclusive the occupant is a mere
licensee. The relationship of persons under such circumstances is
primarily a question of fact .... If exclusive possession or control
of the premises or a portion thereof is granted, even though the use
is restricted by reservations, the instrument or agreement will be
considered to be a lease and not a license."
That case involved National Park Service concessions. The Park Service
uses concessioners to "provide innumerable goods and services
including food, lodging, gasoline and souvenirs. Concession activity
in the national parks is a thriving business which is becoming
increasingly dominated by large corporate concessioners." National
Parks & Conservation Association v. Kleppe, 547 F.2d 673, 675-76 (D.C.
Cir. 1976) (footnotes omitted). Originally, the Justice Department had
concluded that the Park Service was not authorized to permit
concessioners to withhold part of their annual fees for deposit to a
special fund to finance construction work. 41 Op. Att'y Gen. 127
(1953). The 1962 decision quoted above, 41 Comp. Gen. 493, also found
40 U.S.C. § 1302 applicable to certain Park Service concession
contracts. A few years later, in 1965, Congress enacted the National
Park System Concessions Policy Act, Pub. L. No. 89-249, 79 Stat. 969
(Oct. 9, 1965). Section 7 of that Act provides a specific exemption
from 40 U.S.C. § 1302 for the National Park Service. That exemption is
now codified at 16 U.S.C. § 5962.
Section 6 of Public Law 89-249 gave a concessioner who acquired or
constructed improvements a "possessory interest" in those
improvements, consisting of "all incidents of ownership except legal
title" which, of course, remained in the United States. This provision
recognized the government's reliance on concessioners within the
national parks, and was designed to give them a property interest
which they could encumber in order to obtain construction financing.
It also permitted encumbrance to enable a new concessioner to finance
the purchase of an existing concession. 57 Comp. Gen. 607 (1978). The
current law, 16 U.S.C. § 5954, provides a "leasehold surrender
interest" for concessioners who construct capital improvements and
retains special rules for concessioners who acquired possessory
interests under the earlier provision.
In 64 Comp. Gen. 217 (1985), GAO reviewed the concession contract
between GSA and Guest Services, Inc. (GSI), which operated cafeterias
in government buildings in Washington. While GSA charged rent to the
tenant agency for the space the cafeteria occupied, it did not charge
rent to GSI. The contract required GSI to establish a reserve in its
accounting system for the purchase and replacement of equipment.
Thirty years earlier, in 35 Comp. Gen. 113 (1955), GAO had found a
somewhat similar arrangement to be in violation of 40 U.S.C. § 1302.
That contract, however, had required the concessioner to actually
transfer funds into a bank account, whereas the new reserve was "a
mere bookkeeping entry in the internal accounts of GSI." 64 Comp. Gen.
at 219. Also, the agreement was more of a license than a lease. Id. at
220-21. Accordingly, and in view of the "historically unique nature"
of the GSA-GSI agreement, GAO concluded that there was no violation of
40 U.S.C. § 1302. Id. at 221.
b. Granting of Revocable License:
A question that arose with great frequency during the early decades of
the twentieth century was the extent to which the government could
grant a license, as opposed to a lease, to use government-owned
property. Through a large number of cases before both the Attorney
General and the Comptroller General, the following rule developed:
"The head of a Government department or agency has authority to grant
to a private individual or business a revocable license to use
Government property, subject to termination at any time at the will of
the Government, provided that such use does not injure the property in
question and serves some purpose useful or beneficial to the
Government itself."
B-164769, July 16, 1968, at 1-2. The rationale is that a revocable
license is not a property interest, and the granting of such a license
is not a "disposal" for purposes of the Property Clause. Therefore,
specific statutory authority is not required. The most comprehensive
discussion occurs in what is probably the leading case on the subject,
34 Op. Att'y Gen. 320 (1924). Said the Attorney General:
"It is plain that the intent of the Constitutional provision was to
prevent alienation of the title, ownership, or control of Government
property, whether real or personal, without Congressional sanction.
That is the evil which was intended to be avoided, and no construction
beyond that intent should be imposed on the prohibition unless clearly
implied, especially when it would lead to unreasonable and unforeseen
results."
34 Op. Att'y Gen. at 323.
A GAO decision discussing many of the early Attorney General opinions
is 22 Comp. Gen. 563 (1942). If a revocable license or permit is not a
property interest for purposes of the Property Clause, it is equally
not a property interest for purposes of the Fifth Amendment.
Therefore, termination does not trigger a constitutional right to
compensation. E.g., Acton v. United States, 401 F.2d 896 (9th Cir.
1968), cert. denied, 393 U.S. 1121 (1969); Osborne v. United States,
145 F.2d 892 (9th Cir. 1944).
Based on application of the rule, the following activities were found
authorized:
* Cultivation of crops on land on which Federal Communications
Commission radio monitoring stations were located. 22 Comp. Gen. 563
(1942). Permitting the cultivation would not only produce money for
the Treasury but would also help reduce fire hazards by controlling
the growth of grass and weeds.
* Use of government research space and facilities by university
faculty and graduate students. 36 Comp. Gen. 561 (1957).
* Seminar at the United States Merchant Marine Academy. B-168627, May
26, 1970.
* Rock concert on the grounds of the National Institutes of Health. B-
168527, Nov. 19, 1970.[Footnote 234]
* Use of government-owned land by railroads. 30 Op. Att'y Gen. 470
(1915); 22 Op. Att'y Gen. 240 (1898). The Attorney General cautioned
the agency in the 1915 opinion to make sure what it was granting was
really revocable "practically speaking, whatever it might be in form."
30 Op. Att'y Gen. at 483.
A more recent case is B-191943, Oct. 16, 1978. The question was the
extent to which the Bureau of Land Management (BLM) could make BLM
space available to a commercial firm to microfilm public documents.
The firm planned to use the documents to provide a filing service for
mining claim holders, and also intended to sell copies of the
microfilmed documents to the public. If the first purpose were the
only use to be made of the property, the proposal would have been
permissible under the revocable license rule. The second purpose was
more problematic, however, because BLM had a duty under the law to
provide copies of the documents to the public for a reasonable fee and
should either perform the task itself or contract out for it under the
procurement laws. Because it was not realistic to distinguish between
the governmental and the private or commercial purposes, GAO concluded
BLM should not grant the license.
The rule applies to personal property as well as real property. 47
Comp. Gen. 387 (1968); 44 Comp. Gen. 824 (1965). GAO found a proposal
unacceptable in 25 Comp. Gen. 909 (1946) because the arrangement would
have the effect of permanently vesting beneficial ownership of the
government property in a private contractor and would have resulted in
a diminution of government control beyond that contemplated in the
typical revocable license. The proposal was subsequently amended and,
as amended, approved in B-57383, Feb. 25, 1947. While 25 Comp. Gen.
909 involved personal property, the principle would, of course, be
fully applicable to real property. In a similar vein is 38 Comp. Gen.
36 (1958), disapproving a proposal to permit a private utility company
to install connections in a government-owned natural gas line because,
under the proposed arrangement, the company would relinquish its
rights only if it failed to acquire a right to purchase natural gas
from the government.
A statute in this area is 40 U.S.C. § 581(h)(2),[Footnote 235] added
by the Public Buildings Cooperative Use Act of 1976, Pub. L. No. 94-
541, § 104(a), 90 Stat. 2505, 2506 (Oct. 18, 1976). It authorizes the
General Services Administration to:
"make available, on occasion, or to lease at a rate and on terms and
conditions that the Administrator considers to be in the public
interest, an auditorium, meeting room, courtyard, rooftop, or lobby of
a public building to a person, firm, or organization engaged in
cultural, educational, or recreational activity ... that will not
disrupt the operation of the building."
The terms "cultural," "educational," and "recreational" are defined in
40 U.S.C. § 3306. GSA's implementing regulations are found at 41
C.F.R. §§ 102-74.460-102-74.560. Permits may not be issued for more
than 30 calendar days, but they are renewable upon submission of a new
application. Id. § 102-74.485. Permits are generally free of charge,
and this includes the normal level of services that would be provided
to the building during the times of permit use. Services over and
above this level must be reimbursed, but GSA may waive reimbursement
if the cost is "insignificant." Id. §§ 102-74.535-102.74-540.
4. Adverse Possession:
The term "adverse possession" refers to a process whereby one can
obtain title to someone else's property by "exclusive, hostile, open,
and notorious" possession for a period of time. See Black's Law
Dictionary 59 (8th ed. 2004). With respect to property owned by the
United States, the situation is different. The quiet title statute, 28
U.S.C. § 2409a, provides that "nothing in this section shall be
construed to permit suits against the United States based upon adverse
possession." 28 U.S.C. § 2409a(n). In addition, 28 U.S.C. § 2415(c)
provides that "nothing herein shall be deemed to limit the time for
bringing an action to establish the title to, or right of possession
of, real or personal property." The "herein" refers to the various
statutes of limitations on suits brought by the government. Thus, the
government cannot be sued on an adverse possession theory, and there
is no time limit on a suit by the government to eject a trespasser or
"adverse possessor." Therefore, as many courts have noted, no one can
acquire title to government property by adverse possession. E.g., Sea
Hunt, Inc. v. Unidentified Shipwrecked Vessel or Vessels, 221 F.3d
634, 642 (4th Cir. 2000), cert. denied, 531 U.S. 1144 (2001); United
States v. Pappas, 814 F.2d 1342, 1343 n.3 (9th Cir. 1987); Sweeten v.
Department of Agriculture, 684 F.2d 679, 682 (10th Cir. 1982); United
States v. Santos, 878 F. Supp. 1359, 1362 (D. Guam 1993). As the
Supreme Court stated in United States v. California, 332 U.S. 19, 40
(1947) (footnote omitted):
"The Government, which holds its interests here as elsewhere in trust
for all the people, is not to be deprived of those interests by the
ordinary court rules designed particularly for private disputes over
individually owned pieces of property; and officers who have no
authority at all to dispose of Government property cannot by their
conduct cause the Government to lose its valuable rights by their
acquiescence, laches, or failure to act."
There is a limited statutory exception, the Color of Title Act, 43
U.S.C. §§1068-1068b.[Footnote 236] The law was enacted in 1928 to
enable persons, mostly in the western states, to acquire title to
property upon which they resided and which turned out, upon being
surveyed, to be government land.[Footnote 237] There are two classes
of claimants. The first is a person who has possessed the land in good
faith and under claim or color of title for more than 20 years, and
who has either made valuable improvements to the land or placed part
of it under cultivation. 43 U.S.C. § 1068(a). The second is a person
who possesses the land in good faith and who can trace a "chain of
possession" back to at least January 1, 1901, and who has paid state
or local property taxes on that land. Id. § 1068(b). A claimant, by
applying in accordance with Interior Department regulations (43 C.F.R.
part 2540), can purchase up to 160 acres, with mineral rights reserved
to the United States. 43 C.F.R. § 2540.0-3(a).
The statute sets a price of "not less than $1.25 per acre." Under the
regulations, the price is fair market value at the time of appraisal,
reduced to reflect value resulting from improvements or development by
claimants or their predecessors, and giving consideration to "the
equities of the applicant." 43 C.F.R. § 2541.4(a).
A statutory condition for both classes of claimants is that the land
be held in good faith. Under the regulations, knowledge that the land
is owned by the United States precludes a finding of good faith. This
has been upheld as a reasonable interpretation. Day v. Hickel, 481
F.2d 473, 476 (9th Cir. 1973). Until Interior determines that an
application meets the statutory requirements, the applicant does not
have a vested property interest, merely a priority to purchase. Gavin
v. United States, 956 F.2d 1131 (Fed. Cir. 1992) (applicant cannot
maintain inverse condemnation suit).
It has been stated that land which has been withdrawn from the public
domain "is not subject to the Color of Title Act because it is already
appropriated for other purposes." Beaver v. United States, 350 F.2d 4,
10 (9th Cir. 1965), cert. denied, 383 U.S. 937 (1966). Since all
public domain lands have been "withdrawn" at least to some extent,
perhaps it is more accurate today to say that the statute does not
apply to land which has been withdrawn from the public domain and
reserved to some use or uses. E.g., United States v. Vasarajs, 908
F.2d 443, 446 n.4 (9th Cir. 1990) (Color of Title Act not applicable
to land on military reservation).
Chapter 13 Footnotes:
[1] The federal government owns approximately 636 million acres
nationwide. This includes 3.5 percent of all land in the northeastern
and north central United States, 5.1 percent in the south Atlantic and
south central regions, and 56.6 percent of the western United States.
GAO, High-Risk Series: Federal Real Property, GAO-03-122 (Washington,
D.C.: Jan. 2003), at 5-6. The proportion of federal land ownership is
actually decreasing. A 1996 report put the figure at about 650 million
acres or about 30 percent, down from slightly over 700 million acres
in 1964. GAO, Land Ownership: Information on the Acreage, Management,
and Use of Federal and Other Lands, GAO/RCED-96-40 (Washington, D.C.:
Mar. 13, 1996), at 2-4. One major caveat with respect to these figures
is that Uncle Sam does not really know how much property he owns since
available data are unreliable. See generally GAO, Federal Real
Property: Better Governmentwide Data Needed for Strategic
Decisionmaking, GAO-02-342 (Washington, D.C.: Apr. 16, 2002). GAO
recently reported that the federal government has made progress in
revamping its governmentwide real property inventory since GAO's 2003
high-risk designation in GAO-03-122, but data reliability is still a
problem at the agency level. GAO, Federal Real Property: An Update on
High-Risk Issues, GAO-07895T (Washington, D.C.: May 24, 2007), at 14.
See also GAO, Federal Real Property: Progress Made Toward Addressing
Problems, but Underlying Obstacles Continue to Hamper Reform, GAO-07-
349 (Washington, D.C.: Apr. 13, 2007). The material that follows in
this Introduction has been distilled from many sources. They include:
Marla E. Mansfield, A Primer of Public Land Law, 68 Wash. L. Rev. 801,
802 n.1 (1993); George C. Coggins and Charles F. Wilkinson, Federal
Public Land and Resources Law (1981); and Paul W. Gates, Public Land
Law Review Commission, History of Public Land Law Development (1968).
[2] This policy is reflected in the Federal Land Policy and Management
Act of 1976, Pub. L. No. 94-579, 90 Stat. 2743 (Oct. 21, 1976), 43
U.S.C. §§ 1701-1782. Section 102(a)(1) of the act declares it to be
the policy of the United States that "the public lands be retained in
Federal ownership, unless ... it is determined that disposal of a
particular parcel will serve the national interest." 43 U.S.C. §
1701(a)(1).
[3] "Acquired lands" are sometimes distinguished from public domain
lands. See, e.g., 30 U.S.C. § 351. The former are lands granted or
sold to the United States by a state or private party whereas public
domain lands "were usually never in state or private ownership." Watt
v. Alaska, 451 U.S. 259, 264 n.7 (1981), citing Wallis v. Pan American
Petroleum Corp., 384 U.S. 63, 65 n.2 (1966); B-203504, July 22, 1981.
For purposes of our discussion, it is sufficient to note that the
distinction exists.
[4] A brief summary of these developments may be found in Lujan v.
National Wildlife Federation, 497 U.S. 871, 875-79 (1990). For a more
detailed discussion, see David H. Getches, Managing the Public Lands:
The Authority of the Executive to Withdraw Lands, 22 Nat. Resources J.
279 (1982).
[5] Alaska Statehood Act, Pub. L. No. 85-508, 72 Stat. 339 (July 7,
1958), 48 U.S.C. note prec. § 21; Alaska Native Claims Settlement Act,
Pub. L. No. 92-203, 85 Stat. 688 (Dec. 18, 1971), codified at 43
U.S.C. §§ 1601-1629h; Alaska National Interest Lands Conservation Act,
Pub. L. No. 96-487, 94 Stat. 2371 (Dec. 2, 1980), codified at 16
U.S.C. §§ 3101-3233.
[6] Real property management in the executive branch operates under
the policies set forth in Executive Order No. 13327, Federal Real
Property Asset Management, 69 Fed. Reg. 5897 (Feb. 4, 2004), 40 U.S.C.
§ 121 note, discussed hereafter.
[7] Although GAO remains active in these areas from the audit
perspective, they are beyond the scope of this publication.
[8] GAO, Federal Real Property: Further Actions Needed to Address Long-
standing and Complex Problems, GAO-05-848T (Washington, D.C.: June 22,
2005), at 1.
[9] GAO, Federal Real Property: Excess and Underutilized Property Is
an Ongoing Problem, GAO-06-248T (Washington, D.C.: Feb. 6, 2006), at 2.
[10] Exec. Order No. 13327, Federal Real Property Asset Management, 69
Fed. Reg. 5897 (Feb. 6, 2004), 40 U.S.C. § 121 note.
[11] See [hyperlink,
http://www.whitehouse.goviresults/agentia/real_property.html] (last
visited Mar. 25, 2008).
[12] In 2005, Congress mandated that GAO conduct a nationwide study of
the use of eminent domain by state and local governments. Pub. L. No.
109-115, div. A, title VII, § 726, 119 Stat. 2396, 2494-95 (Nov. 30,
2005). GAO reported that the lack of centralized or aggregate national
or state data on the use of eminent domain precluded GAO from any
national or statewide assessments of, among other things, how
frequently eminent domain is used for private-to-public or private-to-
private transfers of property and the purposes of these transfers.
GAO, Eminent Domain: Information about Its Uses and Effect on Property
Owners and Communities Is Limited, GAO-07-28 (Washington, D.C.: Nov.
30, 2006).
[13] However, the fact that the United States has the inherent power
of eminent domain does not mean that any federal agency can exercise
it without further authority. The need for statutory authority is
discussed in section B.3 of this chapter.
[14] Cases discussing and applying the requirement of the Migratory
Bird Conservation Act include United States v. 1,216.83 Acres of Land,
573 E2d 1054 (9th Cir. 1976); Swan Lake Hunting Club v. United States,
381 E2d 238 (5th Cir. 1967).
[15] For additional background, see GAO, Regulatory Takings: Agency
Compliance with Executive Order on Government Actions Affecting
Private Property Use, GAO-04-120T (Washington, D.C.: Oct. 16, 2003);
Regulatory Takings: Implementation of Executive Order on Government
Actions Affecting Private Property Use, GAO-03-1015 (Washington, D.C.:
Sept. 19, 2003); Library of Congress, Congressional Research Service
(CRS), The Constitutional Law of Property Rights "Takings": An
Introduction, No. RS20741 (Dec. 19, 2006); CRS, Takings Decisions of
the U.S. Supreme Court: A Chronology, No. 97-122 (Oct. 19, 2005).
[16] While Kelo did not involve a taking by the federal government,
the decision applied the "federal baseline" standards under the Fifth
Amendment. The opinion noted that state constitutions can and have
imposed stricter "public use" restrictions than the federal baseline.
Kelo, 545 U.S. at 489.
[17] See CRS, Condemnation of Private Property for Economic
Development: Kelo v. City of New London, No. RS22189 (July 11, 2005).
[18] See CRS, Condemnation of Private Property for Economic
Development: Legal Comments on the House-Passed Bill (H.R. 4128) and
Bond Amendment, No. RL33208 (Jan. 20, 2006).
[19] The publications cited in footnote 15 provide a useful starting
point for further exploration.
[20] Pub. L. No. 91-646, 84 Stat. 1894 (Jan. 2, 1971), amended by
Uniform Relocation Act Amendments of 1987, Pub. L. No. 100-17, title
IV, 101 Stat. 132, 246 (Apr. 2, 1987).
[21] The Uniform Appraisal Standards, a compendium of federal eminent
domain appraisal laws, regulations, and practices, can be found online
at [hyperlink, http://www.usdoj.gov/enrd/land-ack/] (last visited Mar.
25, 2008).
[22] What if the agency thinks the appraisal is excessive? The House
Public Works Committee cautioned: "If the amount of just compensation
as determined by the head of the Federal agency is less than the
agency's approved appraisal, it would appear that an in-depth review
of the methods employed in determining the amount of just compensation
or in making the appraisal is called for." H.R. Rep. No. 91-1656, at
23 (1970).
[23] See also Paramount Farms, Inc. v. Morton, 527 F.2d 1301 (7th Cir.
1975); United States v. 416.81 Acres of Land, 525 E2d 450 (7th Cir.
1975); Bunker Properties, Inc. v. Kemp, 524 F. Supp. 109 (D. Kan.
1981); Nelson v. Brinegar, 420 F. Supp. 975 (E.D. Wis. 1976); Rubin v.
Department of Housing & Urban Development, 347 F. Supp. 555 (E.D. Pa.
1972); Will-Tex Plastics Manufacturing, Inc. v. Department of Housing
& Urban Development, 346 F. Supp. 654 (E.D. Pa. 1972), affd mem., 478
E2d 1399 (3rd Cir. 1973).
[24] Title II of the Uniform Relocation Act contains a similar
provision with the "satisfactory assurance" language. 42 U.S.C. §
4630. That provision is noted later in section C.3.e of this chapter
with case citations to the effect that a satisfactory assurance does
not mean a guarantee.
[25] Act of May 1, 1820, ch. 52, § 7, 3 Stat. 567, 568.
[26] Section 2664(a) excludes from its application the acceptance of
property acquired through certain exchanges of government property.
[27] The two decisions used different rationales. The 1927 GAO
decision was based on the purpose restriction of 31 U.S.C. § 1301(a).
The 1903 decision of the Comptroller of the Treasury used as its
rationale an interpretation of the advance payment statute, 31 U.S.C.
§ 3324.
[28] This of course would not apply to illegal covenants like the
infamous "white people only" covenant, an example of which is stated
in 10 Comp. Gen. 320 (1931). The Justice Department advises that
racial and religious covenants should simply be ignored because they
are unenforceable. U.S. Department of Justice, Regulations of the
Attorney General Promulgated in Accordance With the Provisions of
Public Law 91-393, Order No. 440-70, § 5(d) (Oct. 2, 1970).
[29] Burns was quoted for purposes of analogy in Nevada v. United
States, 547 F. Supp. 776, 780 (D. Nev. 1982). While the decision was
affirmed on appeal, 731 E2d 633 (9th Cir. 1984), the court of appeals
criticized that portion of the district court's opinion as unnecessary
dicta, and indicated that, had the district court gone much further,
it would have vacated that portion of the opinion. Thus, the 1982
district court opinion cannot be viewed as especially helpful.
[30] The current provision 40 U.S.C. § 3111 was 40 U.S.C. § 255 prior
to the codification of title 40 of the United States Code in 2002.
Pub. L. No. 107-217, § 1, 116 Stat. 1062, 1144 (Aug. 21, 2002). Thus,
the cases described here use that citation.
[31] Within the Department of Justice, the implementation of 40 U.S.C.
§ 3111 is the responsibility of the Environment and Natural Resources
Division (formerly Land and Natural Resources Division). 28 C.F.R. §
0.66. That division has developed regulations (unpublished) outlining
its standards for title approval, entitled Regulations of the Attorney
General Promulgated in Accordance With the Provisions of Public Law 91-
393, Order No. 440-70 (Oct. 2, 1970). See 6 Op. Off. Legal Counsel 431
(1982); 3 Op. Off. Legal Counsel 337 (1979). The 1970 regulations also
are referenced in the Justice Department's Title Standards 2001 guide,
cited in note 40, infra.
[32] 15 Comp. Gen. 539; 39 Op. Att'y Gen. 99 (1937).
[33] 36 Comp. Gen. 616 (1957); 5 Comp. Dec. 682, 684 (1899).
[34] 1 Comp. Gen. 752 (1922); 1 Comp. Gen. 625 (1922).
[35] A further reason to reject the old theory, which did not exist at
the time of these decisions, is the strong federal policy in favor of
purchase embodied in 42 U.S.C. § 4651, discussed previously in section
B.2. The decision whether to purchase or condemn is no longer supposed
to be purely discretionary.
[36] There are two other obsolete provisions which should be
disregarded when reading the older cases. First, a provision requiring
consent of the state legislature was deleted in 1940. The successor to
this provision is noted later in our discussion of federal enclaves in
section D of this chapter. Second, a provision, formerly found at 40
U.S.C. § 256 (1964), requiring that legal services in connection with
procuring title to public building sites be rendered by United States
Attorneys, was repealed as part of the 1970 legislation.
[37] Act of June 28, 1930, ch. 710, 46 Stat. 828.
[38] Act of Oct. 9, 1940, ch. 793, 54 Stat. 1083, 1084.
[39] Pub. L. No. 91-393, § 1, 84 Stat. 835 (Sept. 1, 1970).
[40] The Justice Department has published a booklet entitled Title
Standards 2001: A Guide for the Preparation of Title Evidence in Land
Acquisitions by the United States (Dec. 29, 2000), which is intended
to apply both to the Justice Department and to agencies which have
been delegated title approval responsibility. Section 5 of this guide
presents and discusses the title insurance policy adopted in 1991 by
the Justice Department and the American Land Title Association. A copy
of this guide can be found online at [hyperlink,
http://www.usdoj.govienrcl/Legal_Topics/Legal_Docs_Title_Standards.html]
(last visited Mar. 25, 2008).
[41] As noted earlier in section B.4.a of this chapter, this decision
has been repudiated to the extent it found 40 U.S.C. § 3111 not
applicable. However, it remains valid for the point cited in the text.
[42] Joint Resolution No. 6, 5 Stat. 468 (Sept. 11, 1841).
[43] Act of Oct. 9, 1940, ch. 793, 54 Stat. 1083, 1084.
[44] Some of the cases are 8 Comp. Gen. 308 (1928); 3 Comp. Gen. 569
(1924); 9 Comp. Dec. 569 (1903); A-97769, Sept. 20, 1938; A-47693,
Mar. 31, 1933; A-39589, Dec. 30, 1931; A-26824, Apr. 25, 1929.
[45] See also 9 Comp. Dec. 569 (1903); 3 Comp. Dec. 216 (1896); B-
142862, June 21, 1960; B-98346, Oct. 9, 1950; A-47693, Mar. 31, 1933;
A-39589, Dec. 30, 1931.
[46] For step-by-step procedural guidance and an appendix of forms,
see Land [now Environment] and Natural Resources Division, U.S.
Department of Justice, A Procedural Guide for the Acquisition of Real
Property by Government Agencies (1972).
[47] Act of August 1, 1888, ch. 728, § 1, 25 Stat. 357.
[48] Formerly 40 U.S.C. § 257.
[49] The Federal Rules of Civil Procedure are available at [hyperlink,
http://www.ludiciary.house.gov/media/pdfs/printers/109th/civi12005.pdf]
(last visited Mar. 25, 2008).
[50] The summary in the text has been distilled from a number of
cases: Kirby Forest Industries, Inc. v. United States, 467 U.S. 1, 3-5
(1984); Danforth v. United States, 308 U.S. 271 (1939); Barnidge v.
United States, 101 F.2d 295 (8th Cir. 1939); United States v. 6,667
Acres of Land, 142 E Supp. 198 (E.D. S.C. 1956); United States v. One
Parcel of Land, 131 F. Supp. 443 (D.D.C. 1955); United States v.
Certain Parcel of Land, 51 F. Supp. 726 (E.D. N.Y. 1943); United
States v. Certain Lands, 46 E Supp. 386 (S.D. N.Y. 1942).
[51] Formerly 40 U.S.C. §§ 258a-258e. The legislation was proposed by
the Attorney General in a December 1930 letter, quoted in full in
United States v. Parcel of Land, 100 E Supp. 498, 502 n.5 (D.D.C.
1951).
[52] The Federal Rules of Civil Procedure are available at [hyperlink,
http://www.judiciary.house.gov/media/pdfs/printers/109th/civi12005.pdf]
(last visited Mar. 25, 2007).
[53] There are statements in two later decisions, one flatly stating
and the other strongly implying, that the Antideficiency Act is
violated by an overobligation resulting from a Declaration of Taking
Act proceeding.
[54] Comp. Gen. 799, 801 (1975); 17 Comp. Gen. 664, 669 (1938).
However, neither decision analyzes what the agency did as opposed to
what the court did, and these statements would therefore seem of
limited value as guidance. 54 A monetary ceiling in a statute which
specifies only purchase will apply to condemnation as well unless the
statute provides otherwise. 10 Comp. Gen. 418 (1931); 6 Comp. Gen. 145
(1926).
[55] In that case, the government returned part of the condemned
property to the former owner who then filed a claim for damages which
allegedly occurred during government occupancy.
[56] An agency might be tempted to do this, for example, if it thought
it could get a "free ride" by having the judgment paid from the
permanent judgment appropriation, 31 U.S.C. § 1304. This is the policy
basis for the position that certain inverse condemnation judgments
should be paid from agency land acquisition funds, the same as direct
condemnations. Within the realm of direct condemnations, the Uniform
Relocation Act does not purport to regulate whether to use a
declaration of taking or complaint only. Kirby, 467 U.S. at 6.
[57] In Althaus, a government representative allegedly threatened
landowners to get them to sell cheaply. There was no recording of what
was actually said, but the court summarized its findings at 7 Cl. Ct.
691-92. Paraphrasing the court's language, the agent, in effect, told
the landowners: "We are going to offer you 30 cents on the dollar and
if you don't take it, we'll condemn the land anyway and you'll have to
hire an expensive lawyer from the big city who'll take a third of what
you get, plus you'll have to pay the court costs." Somehow, he forgot
to add "... and your little dog, too!"
[58] At the time of 56 Comp. Gen. 351, obligated balances remained
available, in one form or another, to liquidate the obligation
indefinitely. While the result of that case remains the same, an
agency should agree to an extended period of time to pay out the
balance of the purchase price only after considering the provisions of
31 U.S.C. §§ 1551-1555 (account closing statute).
[59] A couple of early decisions--1 Comp. Gen. 735 (1922) and 21 Comp.
Dec. 870 (1915)—-intimated that the obligation arises when the
proceeding is actually commenced. Read in the context of later
decisions, although not modified expressly by these decisions, these
cases should not be construed as selecting actual commencement over
the request for obligation purposes.
[60] Unreasonable delay may have other consequences as well. In one
case, an agency accepted a purchase option and, after a largely
unexplained 2-year delay, filed a condemnation complaint with
declaration of taking. The court threw out the option price and
permitted the landowner to establish a current (and higher) market
value as of the declaration of taking. But for this delay, the option
price would have been binding. United States v. 813.96 Acres of Land,
45 F. Supp. 535 (W.D. Ark 1942), aff'd, 140 F.2d 941 (8th Cir. 1944).
See also United States v. 2,974.49 Acres of Land, 308 E2d 641 (4th
Cir. 1962); United States v. 74.12 Acres of Land, 81 F.R.D. 12 (D.
Mass. 1978).
[61] If, as 42 U.S.C. § 4651 directs, you must try to purchase before
you resort to condemnation, the money must be available to obligate in
case the purchase negotiations succeed. Of course, no-year
appropriations, or multiple year appropriations with an adequate
period of availability, will solve the problem.
[62] Cloverport awarded $9,000 as just compensation and over $76,000
in fees and expenses. Foster is another example ($28,000 just
compensation, $186,000 fees and expenses).
[63] For additional background on this attorney's fee provision, see
James Lockhart, Award of Costs and Attorney's Fees Under § 304 of the
Uniform Relocation Assistance and Real Property Acquisition Policies
Act of 1970 (42 U.S. C.A. § 4654), 172 A.L.R. Fed. 507 (2001).
[64] E.g., 18 Comp. Gen. 592, 593-94 (1939); 12 Comp. Dec. 304 (1905);
10 Comp. Dec. 538 (1904); 9 Comp. Dec. 793 (1903).
[65] 32 Comp. Gen. 118 (1952); 18 Comp. Gen. 592 (1939).
[66] The Federal Rules of Evidence are available at [hyperlink,
http://www.judiciary.house.gov/media/pdfs/printers/109th/evid2005.pdf]
Oast visited Mar. 25, 2008).
[67] The Federal Rules of Civil Procedure are available at [hyperlink,
http://www.judiciary.house.gov/media/pdfs/printers/109th/civi12005.pdf]
(last visited Mar. 25, 2008).
[68] Much of Title II was patterned after the relocation provisions of
the Federal-Aid Highway Act of 1968, which the URA repealed. See 23
U.S.C. §§ 501-511 (1964; Supp. V 1969). Interpretive case law arising
during the brief life of these provisions may therefore still be
useful. Lathan v. Volpe, 455 F.2d 1111, 1123 (9th Cir. 1971). See also
Bourne v. Schlesinger, 426 F. Supp. 1025 (E.D. Pa. 1977); 52 Comp.
Gen. 300 (1972).
[69] See GAO, Changes Needed in the Relocation Act to Achieve More
Uniform Treatment of Persons Displaced by Federal Programs, GGD-78-6
(Washington, D.C.: Mar. 8, 1978); Differences in Administration of the
Uniform Relocation Assistance and Real Property Acquisition Policies
Act of 1970, B-148044 (Washington, D.C.: June 7, 1973).
[70] This is the report of the House Public Works Committee on the
bill which became the URA. It contains much useful explanatory
material and has been cited frequently both by GAO and by the courts.
[71] Under the 1970 legislation, entitlement to benefits was triggered
by actual acquisition or by a written order to vacate. The 1987
revision changed "written order to vacate" to "written notice of
intent to acquire."
[72] These authorities address the issue in the context of the now
obsolete "order to vacate" language. There is no reason why the 1987
change to "notice of intent to acquire" should produce a different
result.
[73] The regulations limit this item to $2,500. 49 C.F.R. §
24.301(g)(17). There is no comparable allowance in any amount for
residential displacements. 49 C.F.R. § 24.301(h)(9) (expressly
excluding expenses of searching for a replacement dwelling).
[74] The decision also involved the question of whether 42 U.S.C. §
4626 is subject to the monetary ceiling of 42 U.S.C. § 4623, a
question on which there also was considerable disagreement and which
was resolved in the 1987 amendments to the statute. See 42 U.S.C. §
4626(a) ("The head of the displacing agency may use this section to
exceed the maximum amounts which may be paid under [section] 4623 ...
on a case-by-case basis for good cause as determined in accordance
with such regulations as the head of the lead agency shall issue ...").
[75] The statute also excludes any annual payment or capital loan to
the District of Columbia. 42 U.S.C. § 4601(4).
[76] An interest in land greater than an easement is of course also
compensable. For a case distinguishing between a leasehold interest
(compensable) and a license (noncompensable), see Potomac Electric
Power Co. v. Fugate, 180 S.E.2d 657 (Va. 1971).
[77] These decisions concerned the American Telephone and Telegraph
Company and its subsidiaries prior to the divestiture of the 1980s.
While the decisions may no longer have direct application to "Mother
Bell" and her family, the underlying concepts would appear to remain
nonetheless valid.
[78] This decision dealt with both revocable licenses and easements.
With respect to licenses, the application of the common-law rule and
the concomitant need for statutory authority are still valid. As to
easements, however, the decision relied on 20 Comp. Gen. 379 (1941),
which was effectively, although not explicitly, modified in this
respect by 36 Comp. Gen. 23 (1956), discussed earlier in section C.4.a
of this chapter.
[79] Report of the Interdepartmental Committee for the Study of
Jurisdiction Over Federal Areas Within the States, Jurisdiction Over
Federal Areas Within the States, part I (1956), at 2.
[80] Id. at 8-10.
[81] There is a third method, but it is unlikely to be used with any
frequency in the future. Congress can reserve federal jurisdiction
over federal land within a state at the time the state is admitted to
the Union. Fort Leavenworth, 114 U.S. at 526-27; State v. Galvan
Cardenas, 799 P.2d 19,21 (Ariz. Ct. App. 1990); Coso, 19 Cal. Rptr. 3d
at 674.
[82] Examples of the operation of this principle at the state level
include State v. Lane, 771 P.2d 1150, 1153 (Wash. 1989), and People v.
Dowdell, 440 N.Y.S.2d 528, 529 (Onondaga Cty. Ct. 1981).
[83] Jurisdiction Over Federal Areas Within the States, at 14, supra
note 79.
[84] Formerly 40 U.S.C. § 255.
[85] Some judicial definitions limit the term to exclusive
jurisdiction. E.g., Cooper v. General Dynamics, 378 E Supp. 1258, 1261
(N.D. Tex. 1974), rev'd on other grounds, 533 F.2d 163 (5th Cir.
1976), cert. denied, 433 U.S. 908 (1977); Thiele v. City of Chicago,
145 N.E.2d 637, 638 (Ill.), cert. denied, 355 U.S. 957 (1958).
However, the Supreme Court has used the term in the broader sense.
E.g., North Dakota v. United States, 495 U.S. 423 (1990). In addition,
the United States may obtain federal jurisdiction over leased property
as well as property it owns. Jurisdiction Over Federal Areas Within
the States, supra note 80, at 2.
[86] This assimilated state law is sometimes referred to as
"federalized" state law. E.g., Board of Supervisors of Fairfax County
v. United States, 408 F. Supp. 556, 563 (E.D. Va. 1976), appeal
dismissed mem., 551 F.2d 305 (4th Cir. 1977). The concept has no
application to a concurrent jurisdiction enclave. Sylvane v. Whelan,
506 F. Supp. 1355, 1361 (E.D. N.Y. 1981).
[87] Formerly 40 U.S.C. § 290.
[88] It would appear that the question was not especially close, as
the district judge, referred to the case as "worthless litigation."
Wallach v. Lieberman, 219 F. Supp. 247, 249 (S.D. N.Y. 1963).
[89] As a bit of historical trivia, murder on federal enclaves was
made a federal crime as early as 1790 by the Act of April 30, 1790,
ch. IX, §§ 3-4, 1 Stat. 112, 113. Punishment was death, and if that
wasn't enough, the court could order that the body of the offender,
presumably already executed, "be delivered to a surgeon for
dissection." Sort of "death plus."
[90] Other cases recognizing the distinction include Hancock v. Train,
426 U.S. 167, 179-80 (1976); Mayo v. United States, 319 U.S. 441, 447
(1943); Penn Dairies, Inc. v. Milk Control Commission of Pennsylvania,
318 U.S. 261, 270 (1943).
[91]The direct-indirect distinction is easier to state than it is to
apply. Compare, for example, the plurality and dissenting opinions in
North Dakota to see how two groups of four United States Supreme Court
justices each can read the same cases very differently.
[92] For more information, see the discussion of federalism
presumptions in Chapter 2, section D.7.c.
[93] Some courts reverse the analytical sequence and look first at the
enclave issue and then invoke the Supremacy Clause if necessary.
Either approach should get you to the same place.
[94] The court also noted that even if a state law or regulation is
assimilated by virtue of having been in existence at the time of an
enclave's creation, it becomes "federal law subject to federal
jurisdiction." Baltimore Gas, 133 F. Supp. 2d at 744 n.27. As such,
the state does not retain jurisdiction to enforce the state law within
the enclave. Id.
[95] U.S. Const. art. I, § 8, cl. 17. See discussion of this clause in
section D.1 of this chapter.
[96] It was subsequently established that damage to private land
caused by the wild horses and burros does not amount to a compensable
"taking." Mountain States Legal Foundation v. Hodel, 799 E2d 1423
(10th Cir. 1986), cert. denied, 480 U.S. 951 (1987).
[97] As a final note, the federal government, through legislation
under the "necessary and proper" clause of the Constitution (art. I, §
8, cl. 18), may exercise specific types of jurisdiction over property
which it merely leases. E.g., United States v. Burton, 888 F. 2d 682
(10th Cir. 1989) (upholding General Services Administration's
authority to enforce anti-handbill regulation in leased building).
[98] See also United States v. Bedford Associates, 657 F.2d 1300, 1309
(2nd Cir. 1981), cert. denied, 456 U.S. 914 (1982).
[99] Pub. L. No. 92-313, 86 Stat. 216 (June 16, 1972).
[100] See section A of this chapter for more on this high-risk
designation.
[101] CICA does provide exceptions to the general requirement for full
and open competition in some circumstances. See 41 U.S.C. §§ 253(b),
(c), and (g).
[102] As a general proposition, however, unless a market survey shows
that the incumbent lessor will be unable to meet the government's
needs for the new lease, full and open competition requires that the
incumbent be included. E.g., B-247910.3, June 8, 1993; B-225954, Mar.
30, 1987. See also 48 Comp. Gen. at 725.
[103] This is not always the case. In some states, recording, although
required by state law, may not be necessary to protect the tenant's
rights. See B-27717, Aug. 12, 1942.
[104] The Antideficiency Act is discussed extensively in Chapter 6,
section C.
[105] Although Leiter has come to be cited as the leading case, it
broke little new ground. The principle had already become established
by the courts and the accounting officers. E.g., Chase v. United
States, 155 U.S. 489 (1894); Smoot v. United States, 38 Ct. Cl. 418
(1903); McCollum v. United States, 17 Ct. Cl. 92 (1881); 5 Comp. Gen.
522 (1926); 5 Comp. Gen. 355 (1925); 1 Comp. Gen. 10 (1921). For more
on Leiter, see Chapter 6, section C.2.b(4).
[106] But see Coconut Grove Entertainment, Inc. v. United States, 46
Fed. Cl. 249 (2000), holding that the Contract Disputes Act exemption
did apply to a suit involving a lease where the government agency did
not enter into the lease directly but, through a property acquisition,
had succeeded to the landlord's interest under a pre-existing lease
between two private parties.
[107] One court recognized the conflict between the Forman and Powers
lines of cases, but found it unnecessary to take sides since the
outcome in its case was the same under both state and federal law.
Kerin v. United States Postal Service, 116 F.3d 988, 990-91 (2nd Cir.
1997).
[108] This form is available at [hyperlink,
http://www.gsa.gov/Portaligsa/ep/forrnslibrary.do?formTvpe=SF] (last
visited Mar. 25, 2008).
[109] Id.
[110] 16 Comp. Gen. 867 (1937); 10 Comp. Gen. 31 (1930); 5 Comp. Gen.
749 (1926); 9 Comp. Dec. 611 (1903). (Each case does not include every
point.)
[111] GSA, General Services Administration Acquisition Regulation:
Real Property Leasing Clauses, 57 Fed. Reg. 37889, 37892 (Aug. 21,
1992).
[112] Before GSA was created, many of the government's real property
functions were performed by the Federal Works Agency. See 65 Comp.
Gen. 722, 725 (1986). The functions of this agency, as well as
functions from other agencies, were transferred to GSA when it was
created in 1949. See 40 U.S.C. § 303.
[113] Formerly 40 U.S.C. §§ 490(h), 490d, 490e.
[114] Formerly 40 U.S.C. § 490(d).
[115] Formerly 40 U.S.C. § 472.
[116] Formerly 40 U.S.C. § 13a.
[117] Formerly 40 U.S.C. § 490(1).
[118] Formerly 40 U.S.C. §§ 304b, 304c.
[119] Formerly 40 U.S.C. §§ 486, 486a.
[120] Generally speaking, all agencies are authorized to acquire the
types of space covered by categorical delegations. 41 C.F.R. § 102-
73.150. These types of space are listed in 41 C.F.R. § 102-73.155 and
included greenhouses, hangars, hospitals, housing, and ranger stations.
[121] Formerly 40 U.S.C. § 606.
[122] Section 3307 applies the prospectus requirement to three
distinct types of undertakings that meet specified dollar thresholds:
(1) construction, acquisition, or alteration of public buildings, (2)
leasing, and (3) alteration of leased space. The first and third are
discussed elsewhere in this chapter. To minimize duplication, we have
consolidated our coverage of material which applies equally to all
three types, including the effect of noncompliance, later in section
F.1.c of this chapter. Apart from the prospectus requirement for most
leases whose annual rental exceeds $1.5 million, 40 U.S.C. § 3307(f)
generally prohibits leases for certain purposes that exceed the
threshold. This prohibition is subject to limited exceptions under
section 3307(f)(2).
[123] GSA's regulations, 41 C.F.R. § 102-73.35, note that the current
annual thresholds can be found on GSAs Web site, [hyperlink,
http://www.gsa.gov] by searching under "prospectus thresholds" (last
visited Mar. 25, 2008).
[124] Formerly 40 U.S.C. § 601a(a).
[125] Any discussion of repairs and alterations must necessarily
implicate the general rule against using appropriated funds to make
permanent improvements to private property. That rule and its
application to leased property are discussed later in section G of
this chapter. The remainder of this section presupposes that, for
whatever reason, the rule does not pose an impediment.
[126] Formerly 40 U.S.C. § 490(f).
[127] Formerly 40 U.S.C. § 304c.
[128] Pub. L. No. 86-249, § 7, 73 Stat. 479, 480 (Sept. 9, 1959).
[129] Pub. L. No. 100-678, § 3(a), 102 Stat. 4049 (Nov. 17, 1988).
[130] See section F.1.c of this chapter for further detail.
[131] Formerly 40 U.S.C. § 34; originally enacted in the Act of March
3, 1877, ch. 106, 19 Stat. 363, 370.
[132] E.g., 2 Comp. Gen. 722 (1923); 2 Comp. Gen. 214 (1922); 26 Comp.
Dec. 155 (1919); 17 Op. Att'y Gen. 87 (1881); 15 Op. Att'y Gen. 274
(1877).
[133] The decision in B-159633 was overruled in part by 54 Comp. Gen.
1055 (1975), but the partial overruling involves a separate issue and
has no effect on the point discussed in the text.
[134] This case illustrates what used to be a somewhat bizarre,
although probably intended, consequence of 40 U.S.C. § 8141. The
statute had been construed as applicable to the District of Columbia
government. See also 34 Comp. Gen. 593 (1955); 17 Comp. Gen. 424
(1937); 10 Comp. Dec. 117 (1903). Therefore, prior to home rule, the
government of the District of Columbia could not rent space in the
District of Columbia without specific congressional authorization.
[135] Formerly 40 U.S.C. § 35.
[136] E.g., 57 Comp. Gen. 591 (1978); 21 Comp. Gen. 906 (1942); 12
Comp. Gen. 546 (1933); 12 Comp. Gen. 440 (1932).
[137] E.g., 30 Comp. Gen. 122 (1950); 30 Comp. Gen. 58 (1950); 29
Comp. Gen. 279 (1949); 20 Comp. Gen. 30 (1940).
[138] Under Ralden, the Economy Act restrictions continue to apply
even after section 322's repeal to the extent they were incorporated
in preexisting lease provisions that remain in effect. Ralden, 891
F.2d at 1578. Thus, there may still be some leases with surviving
Economy Act restrictions. See 2160 Partners, GSBCA No. 15973, 03-2
B.C.A. ¶ 32,269 (2003).
[139] S. Rep. No. 83-1084, at 2 (1954). This is the report of the
Senate Committee on Public Works on what became the Public Buildings
Purchase Contract Act of 1954.
[140] See H.R. Rep. No. 87-2050, 13 (1962), quoted in Merriam v.
Kunzig, 476 F.2d 1233, 1237 n.3 (3rd Cir. 1973), and 51 Comp. Gen.
573, 575 (1972). This is the report of the House Committee on
Appropriations on the Independent Offices Appropriation Act for 1963,
Pub. L. No. 87-741, 76 Stat. 716 (Oct. 3, 1962).
[141] S. Rep. No. 83-1084, at 2.
[142] The act, formerly appearing at 40 U.S.C. § 356, was omitted from
the 2002 codification of title 40 on the basis that it is now
obsolete. See Pub. L. No. 107-217, 116 Stat. 1062, 1313, 1319 (Aug.
21, 2002); H.R. Rep. No. 107-479, at 149 (2002).
[143] H.R. Rep. No. 92-989, at 3 (1972) (report of the House Committee
on Public Works).
[144] Like former 40 U.S.C. § 356, section 602a was omitted from the
2002 codification of title 40 on the basis that it was temporary and
is now obsolete. See H.R. Rep. No. 107-479, at 153.
[145] Act of July 25, 1868, ch. 233, § 3, 15 Stat. 171, 177.
[146] The revision notes for this section state that penalties for
such violations were reduced many years ago to avoid having to
classify the offender as a felon. 18 U.S.C. § 435 note. Nevertheless,
inflation being what it is, the fine for a violation of this provision
(a "class A misdemeanor") now can be up to $100,000. 18 U.S.C. §§
3559(a)(6), 3571(b)(5).
[147] Formerly 40 U.S.C. § 68.
[148] Such wisdom is not the exclusive province of GAO. E.g., In re
Amber S., 39 Cal. Rptr. 2d 672 (Cal. Ct. App. 1995) (building for
purposes of state burglary statute is "any structure which has walls
on all sides and is covered by a roof').
[149] This decision raised a similar issue, arising under provisions
of title 10, United States Code, of whether the Defense Department was
properly using operations and maintenance funds as opposed to
construction funds for certain allegedly temporary construction. The
decision and these title 10 provisions are discussed further in
section F.1.b(1) of this chapter.
[150] The alien case, which somewhat inexplicably does not cite 41
U.S.C. § 12, is 13 Comp. Dec. 355 (1906). The other examples in the
quoted passage appear to be from unpublished decisions of the
Comptroller of the Treasury. See 6 Comp. Gen. at 621. Unfortunately,
the actual texts of these are no longer available as a practical
matter.
[151] Formerly 40 U.S.C. § 261 before the codification of title 40.
[152] There are also some agency-specific statutes which authorize
construction appropriations to remain available beyond the end of the
fiscal year. E.g., 10 U.S.C. § 2860 (military construction); 7 U.S.C.
§ 2209b (certain Department of Agriculture appropriations); 14 U.S.C.
§ 656(a) (Coast Guard). Their effect is similar to the general
provisions discussed in the text.
[153] See, e.g., Consolidated Appropriations Act, 2008, Pub. L. No.
121-161, § 603, 121 Stat. 1844, 2013 (Dec. 26, 2007) ("None of the
funds appropriated in this Act shall remain available for obligation
beyond the current fiscal year, nor may any be transferred to other
appropriations, unless expressly so provided herein."). See also
Chapter 2, section C.2.d, for a discussion of this language and its
origin.
[154] Although there was no need for the decisions to so specify at
the time, the appropriation acts in these two cases did not include
the "current fiscal year" provision.
[155] These provisions were formerly known as the "Brooks Architect-
Engineers Act" and appeared at 40 U.S.C. §§ 541-544.
[156] Formerly 40 U.S.C. § 612(1).
[157] Formerly 40 U.S.C. §§ 609 and 614, respectively.
[158] The Fluor court went on to hold that the A&E portion of the
contract in that case was void for failure to comply with the statute,
but recovery of A&E fees was allowed on a quantum meruit basis. Fluor,
64 Fed. Cl. at 495-97.
[159] For example, consider the Department of Veterans Affairs'
authority to build medical facilities under 38 U.S.C. §§ 8103, 8104,
and 8106. Section 8104(a)(2) includes a provision roughly analogous to
41 U.S.C. § 12.
[160] The reason it is not surprising is that, as we will see later,
the Public Buildings Act does not apply to construction on military
installations.
[161] Examples for 2006 are the National Defense Authorization Act for
Fiscal Year 2006, Pub. L. No. 109-163, div. B, 119 Stat. 3136, 3485
(Jan. 6, 2006) and the Military Quality of Life and Veterans Affairs
Appropriations Act, 2006, Pub. L. No. 109-114, title I, 119 Stat. 2372
(Nov. 30, 2005). As these examples illustrate, the authorization and
appropriation acts are occasionally enacted in reverse order.
[162] Pub. L. No. 97-214, 96 Stat. 153 (July 12, 1982). The Act, which
is frequently amended, addresses a variety of construction activities,
although our coverage here is limited to an outline of the provisions
governing minor military construction.
[163] In addition, the Corps is authorized to allocate funds from its
annual appropriations, up to specified limits, for the construction of
small projects which have not been specifically authorized. 33 U.S.C.
§§ 426g (shore protection), 577 (rivers and harbors), 701s (flood
control).
[164] Public Buildings Amendments of 1972, Pub. L. No. 92-313, 86
Stat. 216 (June 16, 1972); Public Buildings Cooperative Use Act of
1976, Pub. L. No. 94-541, 90 Stat. 2505 (Oct. 18, 1976); Public
Buildings Amendments of 1988, Pub. L. No. 100-678, 102 Stat. 4049
(Nov. 17, 1988).
[165] Formerly 40 U.S.C. § 612(1).
[166] Formerly 40 U.S.C. § 601.
[167] Formerly 40 U.S.C. §§ 602, 604.
[168] Formerly 40 U.S.C. § 609(a).
[169] Formerly 40 U.S.C. § 619(a), (b).
[170] Formerly 40 U.S.C. § 603.
[171] Formerly 40 U.S.C. § 608.
[172] Formerly 40 U.S.C. § 614.
[173] Formerly 40 U.S.C. § 606.
[174] Section 3307 also includes approval requirements for leases and
for alterations to leased buildings, covered elsewhere in this
chapter. The discussion in the text, unless the context clearly
indicates differently, applies equally to all three.
[175] Regarding 1 Comp. Dec. 33, did someone wager we could not find a
case on "erecting an outhouse"? You lose.
[176] Formerly 40 U.S.C. § 19.
[177] Formerly 40 U.S.C. § 283.
[178] Formerly 40 U.S.C. § 285.
[179] Formerly 40 U.S.C. § 298d.
[180] Section 103 of the 1949 Act, formerly 40 U.S.C. § 753 (see 40
U.S.C. § 303 note).
[181] Some exceptions are found in the definition of "public
building," noted under the Public Buildings Act heading earlier in
this section. The 1950 reorganization plan includes others, several of
which are noted in our discussion of leasing in section E of this
chapter. Other exceptions are found in 40 U.S.C. §§ 102(9) (definition
of "property") and 113. Still others may be contained in various
agency-specific or program-specific statutes.
[182] GAO, for example, has "exclusive custody and control" over its
main headquarters building in Washington, "including operation,
maintenance, protection, alteration, repair, and assignment of space
therein." 31 U.S.C. § 781(a).
[183] Formerly 40 U.S.C. § 490(h)(1).
[184] Formerly 40 U.S.C. § 490.
[185] Formerly 40 U.S.C. § 603.
[186] Formerly 40 U.S.C. § 490(f)(6).
[187] Formerly 40 U.S.C. § 490(1).
[188] Formerly 40 U.S.C. §§ 318, 318b, and 318d.
[190] A similar provision was formerly carried as 40 U.S.C. § 490c.
[190] These provisions were formerly located in 40 U.S.C. § 481.
[191] Formerly 40 U.S.C. § 295.
[192] E.g., 31 U.S.C. § 781(c)(2), authorizing GAO to contract for
utility services for periods not to exceed 10 years "Rio the extent
that funds are otherwise available for obligation."
[193] Formerly 40 U.S.C. § 481(a)(3).
[194] A 1990 decision, 70 Comp. Gen. 44, held that a procurement of
natural gas was not a contract for utility services for purposes of
the Walsh-Healey Act, 41 U.S.C. §§ 35-45. That case distinguished 45
Comp. Gen. 59 on several grounds. 70 Comp. Gen. at 49.
[195] It is perhaps not intuitively obvious that the term "information
technology resources" includes telephone services, but the origin and
evolution of 40 U.S.C. § 757 remove any doubt. See generally 70 Comp.
Gen. 233 (1991); 69 Comp. Gen. 112 (1989).
[196] For more on revolving funds, see Chapter 12, section C.
[197] So renamed by the Omnibus Consolidated Appropriations Act of
1997, Pub. L. No. 104208, title VIII, § 5808, 110 Stat. 3009, 3009-393
(Sept. 30, 1996).
[198] Formerly 40 U.S.C. § 31.
[199] Formerly 40 U.S.C. § 286.
[200] Pub. L. No. 92-313, §§ 3 and 4, 86 Stat. 216, 218-19 (June 16,
1972), 40 U.S.C. §§ 592 (Federal Buildings Fund); 586(b) (payment of
rent to GSA); and 586(c) (authority of other agencies to charge for
space and services).
[201] See Chapter 1 of GAO, The General Services Administration's
Rental Rates (Standard Level User Charge) for Federal Agencies,
GAO/LCD-78-329 (Washington, D.C.: May 25, 1978), and Chapter 3 of GAO,
Federal Office Space: Increased Ownership Would Result in Significant
Savings, GAO/GGD-90-11 (Washington, D.C.: Dec. 22, 1989).
[202] There is one significant difference between GSA and other rent-
charging agencies under 40 U.S.C. § 586. Section 586(b) requires GSA
to charge rent; section 586(c) merely authorizes other agencies to do
so.
[203] It should be apparent that we are talking about expenditures
which are incident to some other government program or project, as
distinguished from grant programs where making the improvement may be
the very purpose of the federal assistance. Since the grant programs
are statutorily authorized, this analysis would not apply, although
the underlying rationale would bar the expenditure but for the statute.
[204] Public Buildings Amendments of 1988, Pub. L. No. 100-678, § 7,
102 Stat. 4049, 4052 (Nov. 17, 1988).
[205] 47 Comp. Gen. 61 (1967); 38 Comp. Gen. 143 (1958); 35 Comp. Gen.
715 (1956).
[206] 18 Comp. Gen. 144 (1938); 14 Comp. Gen. 97 (1934); 10 Comp. Gen.
149 (1930); 5 Comp. Dec. 478 (1899).
[207] We are somewhat reluctant to admit it, but this case involved an
expenditure of $2.67 for the purchase of a toilet seat. Despite
overwhelming temptations, we will eschew further comment.
[208] Formerly 40 U.S.C. § 490(a)(8).
[209] A factual distinction that did not affect the result is that the
rent being paid by the government in 38 Comp. Gen. 143 was nominal,
whereas in B-126950 it was more of a market rent.
[210] The issue in 53 Comp. Gen. 317 was whether the expenditure was
subject to the 25 percent limitation of section 322 of the Economy Act
of 1932. Following B-152722, Aug. 16, 1965, GAO held that it was. As
noted earlier in section G.1 of this chapter, this provision of the
Economy Act was repealed in 1988. While the percentage limitation no
longer exists, the FAA statute remains as an independent source of
authority.
[211] See the discussion of Tennessee Valley Authority v. Hill, 437
U.S. 153 (1978), in section C.2.h of Chapter 2.
[212[ Pub. L. No. 81-152, 63 Stat. 377 (June 30, 1949). See further
discussion of this legislation in section E.2.a of this chapter.
[213] Formerly 40 U.S.C. §§ 472(e) and (g).
[214] These definitions do not distinguish between real property and
personal property. See the overarching definition of "property" in 40
U.S.C. § 102(9). Thus, the same general scheme applies to both. Some
of the operating provisions apply only to one type or the other,
however.
[215] Formerly 40 U.S.C. § 483.
[216] Here and elsewhere in 41 C.F.R. part 102-75, the regulation
refers to GSA as the "disposal agency." See 41 C.F.R. § 102-75.5.
[217] Formerly 40 U.S.C. § 483(a)(1).
[218] Formerly 40 U.S.C. § 483(a)(1).
[219] Formerly 40 U.S.C. § 484(a).
[220] Formerly 40 U.S.C. § 484(c).
[221] Formerly 40 U.S.C. § 484(e).
[222] See also Dairyland Power Cooperative v. United States, 16 F.3d
1197 (Fed. Cir. 1994); Badgley v. United States, 31 Fed. Cl. 508
(1994); Meek v. United States, 26 Cl. Ct. 1357 (1992), aff'd, 6 F.3d
788 (Fed. Cir. 1993); Hartle v. United States, 22 Cl. Ct. 843 (1991).
[223] The legal dilemma in that case was that there is no authority to
sell excess property to a private party, and no authority to declare
the property surplus if another agency needs it.
[224] Formerly 40 U.S.C. § 484(k).
[225] Formerly 40 U.S.C. §§ 485, 485a.
[226] Formerly 40 U.S.C. § 485a.
[227] Act of June 8, 1896, ch. 373, 29 Stat. 267, 268.
[228] Formerly 40 U.S.C. § 345b.
[229] Interestingly, the current (codified) version of 40 U.S.C.§
474(c) is 40 U.S.C. § 113(a), quoted previously, which refers to "the
authority conferred by this subtitle" rather than the authority
conferred by the Property Act. By virtue of the codification, the
excess and surplus property disposition provisions as well as the
"obsolete" property disposition provision at issue in National Law
Center (then 40 U.S.C. § 345b, now 40 U.S.C. § 1304(a)) all are in
subtitle I of title 40.
[230] Formerly 40 U.S.C. § 490(a)(13).
[231] Formerly 40 U.S.C. § 304a.
[232] When the government does this, the rent it may charge "shall not
exceed the fair rental value of the property to a short-term
occupier." 42 U.S.C. § 4651(6).
[233] Formerly 40 U.S.C. § 303b.
[234] The decision does not specify what was the "purpose useful or
beneficial to the government," but we are sure there was one.
[235] Formerly 40 U.S.C. § 490(a)(17).
[236] Act of December 22, 1928, ch. 47, § 1, 45 Stat. 1069. A very few
similar statutes are also on the books, but they have extremely
limited application, for example, 43 U.S.C. §§ 177 and 178, applicable
only to certain lands in New Mexico.
[237] See M.H. Schwarz, Comment, A Practitioner's Guide to the Federal
Color of Title Act, 20 Nat. Resources J. 681 (1980).
[End of Chapter 13]
Chapter 14: Claims against and by the Government:
A. Introduction:
B. History of Claims Settlement:
C. Claims against the Government:
1. Overview and Sources of Claims Settlement Authority:
a. Legislative Claims Settlement:
(1) Congressionally sponsored bills:
(2) Congressional reference cases:
(3) Meritorious Claims Act:
b. Judicial Claims Settlement:
c. Administrative Claims Settlement:
2. Source of Payment of Claims against the Government:
a. Legislatively Settled Claims:
b. Judicially Settled Claims: the Judgment Fund:
(1) Origins and overview:
(2) Availability and limitations:
c. Administratively Settled Claims:
3. Whom and What to Pay:
a. To Whom Agencies Should Make Payment:
b. Amounts Payable in Addition to the Principal Amount:
(1) Interest:
(2) Costs and attorneys fees:
(3) Deductions:
D. Claims by the Government: Debt Collection:
1. Introduction:
2. The Government's Duty and Authority to Collect Debts Owed to It:
3. Debt Collection in a Nutshell:
4. Common Appropriations Law Issues Associated with Debt Collection
Activities:
a. Diminishing Returns and Cost/Benefit Considerations:
b. Disposition of Proceeds:
(1) The general rule:
(2) Statutory exceptions:
(3) Refund exception:
c. Accountable Officer Issues:
Chapter 14 Claims against and by the Government:
A. Introduction:
Volume III of the second edition of Principles of Appropriations Law
discussed the basic legal authorities and concepts dealing with claims
asserted by and against the United States. Among other things, those
chapters addressed: (1) the administrative settlement of monetary
claims against the federal government; (2) the settlement and payment
of claims against the government that found their way into the courts;
and (3), where the shoe is on the other foot, the collection by the
federal government of claims (also known as "debts"[Footnote 1]) owed
to it. Since the second edition was published, Congress has amended
many of the laws addressed in Volume DI GAO no longer has
governmentwide jurisdiction over the administrative settlement of
claims against the United States, and Congress transferred to the
Treasury Department GAO's Judgment Fund and debt collection
responsibilities. However, the exercise of these responsibilities has
appropriations law consequences. This chapter discusses these
responsibilities in that context.[Footnote 2]
B. History of Claims Settlement:
The United States, as sovereign, cannot be sued without its consent.
[Footnote 3] Neither may the funds, property, or rights of the federal
government be given away without its consent.[Footnote 4] The United
States gives its consent (or, to be more precise, waives its sovereign
immunity) only by clear and explicit legislative acts.[Footnote 5]
Thus, claims against the United States may not be approved, whether
judicially or administratively, and appropriated funds (or other
resources) may not be used to satisfy claims against the United
States, unless there is constitutional and/or statutory authority that
both allows the claim to be pursued and makes funds (or other
resources) available for that purpose.[Footnote 6] Similarly, absent
statutory authority, the officers and agents of the government have no
authority to waive (or fail to pursue) rights that have accrued to the
United States or to modify existing contracts to the detriment of the
United States without adequate legal consideration or a compensating
benefit. B-276550, Dec. 15, 1997; 67 Comp. Gen. 271, 273 (1988).
In the earliest days of the republic, Congress reserved to itself a
very large role in the audit and settlement of claims.[Footnote 7] In
1775, the Continental Congress established the first of a number of
congressional committees to examine and report claims and accounts of
and against the government for congressional approval or disapproval.
[Footnote 8] During the war for independence, the task of settling the
government's claims and accounts grew as the war effort dragged on.
[Footnote 9] To help cope with the volume, Congress established
committees and authorized them to organize administrative offices and
staffs for support.[Footnote 10] In this way, Congress sought to "put
some of the increasing burden of details on officials responsible to
it [Congress] but not a part of it."[Footnote 11] The end of the war
did not bring about an end to the need for these committees or the
administrative offices they relied upon. As a result, the Congress of
the Confederation continued to rely upon them and various
reincarnations of them until the ratification of the U.S. Constitution
in 1798.[Footnote 12] Beginning in 1781, for a time, Congress
abolished its congressional committees and substituted in their place
the Office of the Superintendent of Finance.[Footnote 13] Later in the
same year, Congress replaced the other preexisting administrative
offices with a comptroller, a treasurer, a register, auditors, and
clerics.[Footnote 14] Three years later, in 1784, the Office of the
Superintendent of Finance was itself abolished and the congressional
committees were reauthorized and reconstituted in its place.[Footnote
15]
With the ratification of the Constitution and its establishment of the
federal executive branch came the need to revisit how the government's
interests were being managed. In 1789, early in its first session, the
new United States Congress considered and enacted, piece by piece,
James Madison's proposal[Footnote 16] to establish three departments,
Foreign Affairs,[Footnote 17] War,[Footnote 18] and Treasury.[Footnote
19] (During this same period, Congress also considered and enacted the
beginnings of what would eventually become a fourth department
(Justice) when it authorized the appointment of the first Attorney
General[Footnote 20]) Although Congress left the balance of the
organizational structure and other specifics of the Foreign Affairs
and War Departments for the executive branch to work out, Congress
enacted a much longer and more detailed statute for the Treasury
Department. It has been observed that "at no point was suspicion of
government more definitely written into law and practice than in the
management of federal finance."[Footnote 21] This suspicion, grounded
in the colonies' experience with British financial practices, gave
birth to a deep and abiding congressional desire to maintain close
control over the nation's money.[Footnote 22] In the Treasury
Department act, Congress specifically addressed the structure of the
department, creating a system of checks and balances within the agency
by authorizing and prescribing the precise duties and relationships of
each of six high-ranking officers within the Treasury Department.
[Footnote 23] These officers were the "Secretary of the Treasury, to
be deemed head of the department, a Comptroller, an Auditor, a
Treasurer, a Register, and an Assistant to the Secretary of the
Treasury."[Footnote 24]
Pursuant to the act establishing the Treasury Department in 1789,
claims and accounts were settled in the department.[Footnote 25] The
Auditor examined them and the Comptroller approved or disapproved the
Auditor's findings.[Footnote 26] Under the act creating the
department, the Comptroller's duties included adjusting and preserving
public accounts, as well as examining all accounts settled by the
Auditor.[Footnote 27] In 1817, Congress gave settlement authority to
the Treasury Department, providing that "all claims and demands
whatever, by the United States or against them, and all accounts
whatever, in which the United States are concerned, either as debtors
or as creditors, shall be settled and adjusted in the Treasury
Department.[Footnote 28] The Treasury Department's claim settlement
philosophy was simple and straightforward:
"The accounting officers have jurisdiction to settle, except where
otherwise provided by statute, any and all claims against the
Government, of whatever land or description that may be presented to
them for settlement, and they have the power to allow any legal claim
that is supported by evidence fully showing the liability of the
Government for the amount claimed or allowed."
21 Comp. Dec. 134, 138 (1914) (emphasis in original). Where the facts
were disputed and required the taking of testimony and the weighing of
conflicting evidence, the department's auditors and comptrollers
accepted the government's version of the facts and disallowed the
claim, or only allowed it to the extent of the government's agreement
on the matter. Id. See also, e.g., 18 Comp. Dec. 649 (1912); 5 Comp.
Dec. 273 (1898). Initially, the auditors and comptrollers were
comfortable paying allowed claims from the general, lump-sum
appropriations.[Footnote 29] Before long, however, Congress began
specifying with particularity the uses for each appropriation, and
claims that were allowed for which no funds were legally available had
to wait for further appropriations. 22 Comp. Dec. 37 (1915)
(insufficiency of appropriation to pay all of the claims allowed
dictated that additional appropriations be sought rather than simply
prorating payment using the funds actually available). At that time,
where claims were disallowed by the auditors and comptrollers, the
only means by which to appeal the disallowance was to petition
Congress.[Footnote 30]
By 1855, the workload generated by petitions to Congress for
appropriations to pay claims against the government had become
burdensome and unwieldy. See, e.g., Belt's Executrix v. United States,
15 Ct. Cl. 92, 106 (1879) ("Claimants ... had no remedy except through
Congress."). For this reason, Congress established the Court of Claims
to hear all monetary claims based upon a law, a regulation, or a
federal government contract.[Footnote 31] Initially, however, the
Court of Claims was a "court only in name."[Footnote 32] The court
lacked the authority to issue binding decisions,[Footnote 33] and its
role was "purely advisory" in nature.[Footnote 34] The court's
establishment paralleled the earlier congressional practice of
establishing administrative offices to process claims and report them
for congressional consideration.[Footnote 35]
However, as the Supreme Court noted, by the end of 1861 "it was
apparent that the limited powers conferred on the [Court of Claims]
were insufficient to relieve Congress from the laborious necessity of
examining the merits of private bills." Glidden Co. v. Zdanok, 370
U.S. 530, 553 (1962). In his State of the Union message of 1861,
President Lincoln recommended that the Court of Claims be empowered to
issue final decisions as a true court of the United States.[Footnote
36] In 1863, Congress accepted Lincoln's proposal and authorized the
court to issue binding decisions. Act of March 3, 1863, ch. 92, § 5,
12 Stat. 765, 766. Even then, however, the finality of awards issued
by the Court of Claims was immediately drawn into question based on a
statutory provision that, according to the Supreme Court, authorized
the Treasury Department to review and decline to enforce Court of
Claims decisions. Glidden, 370 U.S. at 569. Based on its
interpretation of that provision, the Supreme Court declined to hear
appeals from the Court of Claims. Gordon v. United States, 117 U.S.
697 (1864). Congress then repealed the offending provision, and the
Supreme Court agreed to hear appeals from the Claims Court. Glidden,
370 U.S. at 554, citing Act of March 17, 1866, ch. 19, § 1, 14 Stat.
9. During this same time, the agency heads and some of the Attorneys
General began asserting the right to overrule the findings of the
comptrollers. Smith, at 38. In 1868, Congress declared that the
certified determinations of the Treasury Department's auditor and
comptroller "shall be taken as final and conclusive upon the executive
branch of the government." Act of March 30, 1868, ch. 36, 15 Stat. 54.
In 1921, Congress, to establish an independent administrative claims
settlement process, enacted the Budget and Accounting Act, creating
GAO and transferring to it from the Treasury Department, among other
things, the authority to administratively and conclusively settle and
adjust all claims of and against the United States, and to superintend
the recovery of all debts owed to the United States. Pub. L. No. 67-
13, §§ 304, 305, 312, 42 Stat. 20, 24-26 (June 10, 1921). Also, GAO
was to report to Congress and the Justice Department on requests for
appropriations to pay judgments. Id. § 304. See, e.g., 34 Comp. Gen.
221, 223 (1954). The transfer of these and other related authorities
to GAO was intended to "strengthen the control of Congress over the
expenditure of funds [by means of] a legislative agency independent of
the administration and responsible directly to Congress.[Footnote 37]
Over the years, GAO picked up additional authorities and
responsibilities that were related in one fashion or another to
settling claims. For example, in 1928, Congress enacted legislation,
known as the Meritorious Claims Act, which charged GAO to report to
Congress claims against the government that, in the opinion of the
Comptroller General, could not be paid under existing law but that
Congress, for legal or equitable reasons, should consider paying. Pub.
L. No. 70-217, 45 Stat. 413 (Apr. 10, 1928), codified at 31 U.S.C. §
3702(d). Also, Congress later assigned to GAO the duty to certify
payments from the so-called "Judgment Fund," a permanent, indefinite
appropriation for the satisfaction of judgments, awards, and
compromise settlements against the United States, 31 U.S.C. §
1304(a)(2) (1994), and the responsibility to prescribe, jointly with
the Justice Department, the debt collection regulations known as the
Federal Claims Collection Standards, 4 C.F.R. parts 101-104 (1994).
In the 1990s, however, Congress transferred a number of these duties
to other agencies. The Legislative Branch Appropriations Act, 1996,
transferred some of these functions to the Office of Management and
Budget (OMB), including the general authority to settle claims of and
against the United States. Pub. L. No. 104-53, § 211, 109 Stat. 514,
535 (Nov. 19, 1995), 31 U.S.C. § 501 note. Congress authorized OMB to
delegate the transferred functions to other agencies.[Footnote 38]
Accordingly, OMB made the following delegations:
* OMB delegated the settlement of federal employee claims for
compensation and leave, and settlement of deceased employees'
accounts, to the Office of Personnel Management, Office of General
Counsel, Claims Adjudication Unit;
* OMB delegated the settlement of federal employee claims for travel,
transportation, and relocation expenses and allowances to the General
Services Administration (GSA) Board of Contract Appeals;
* OMB delegated the settlement of claims for military personnel pay,
allowances, travel, transportation, retired pay, and survivor
benefits, and final settlement of the accounts of such personnel, to
the Department of Defense Office of Hearings and Appeals;
* OMB delegated Judgment Fund payments and setoffs against such
payments to the Judgment Fund Group of the Treasury Department's
Financial Management Service;
* OMB delegated the settlement of transportation carrier requests for
review of GSA audit actions on their bills to the GSA Board of
Contract Appeals; and;
* OMB delegated the settlement of transportation carrier disputes over
collections against them for loss and damage incurred in government
shipments to the Department of Defense Office of Hearings and Appeals.
[Footnote 39]
In the following year, Congress enacted the General Accounting Office
Act of 1996, which made conforming amendments to the United States
Code reflecting the transfers of functions and OMB's delegations. Pub.
L. No. 104-316, 110 Stat. 3826 (Oct. 19, 1996). This act also
transferred from GAO to the Treasury Department the authority to
assume the collection of debts on behalf of other agencies and the
responsibility to prescribe (jointly with the Justice Department) the
Federal Claims Collection Standards, now found in 31 C.F.R. parts 900-
904. Id. § 115(g).
GAO no longer has governmentwide jurisdiction over the administrative
settlement of claims against the United States (31 U.S.C. § 3702), no
longer shares in supervising the collection of debts owed to the
government (31 U.S.C. § 3711), and no longer certifies payments from
the Judgment Fund (31 U.S.C. § 1304). GAO is still charged by law to
administratively settle the accounts of the United States. See 31
U.S.C. §§ 3526-3530. The exercise of the claims settlement functions
has appropriations law consequences[Footnote 40] and consequences for
accounts settlement; that is what this chapter addresses.
C. Claims against the Government:
1. Overview and Sources of Claims Settlement Authority:
The question of what is a claim was long ago answered by the Supreme
Court in Hobbs v. McLean, 117 U.S. 567 (1886). The Court said:
"What is a claim against the United States is well understood. It is a
right to demand money from the United States ... which can be
presented by the claimant to some department or officer of the United
States for payment, or may be prosecuted in the court[s]."
Hobbs, 117 U.S. at 575. See also Page v. United States, 49 Fed. CL
521, 530 (2001). Any federal program that involves the disbursement of
funds can generate claims.
As a result, claims routinely arise in areas covered by other chapters
of Principles. Claims against the United States originate under a
variety of sources and circumstances. For example, Chapter 4 discusses
legal limitations that constrict the purposes to which appropriated
funds may be applied. A claim relevant to Chapter 4 might involve, for
example, the application of statutory restrictions that preclude
active duty and retired military members from receiving retired pay
during any period that they are employed by a foreign government or
its instrumentalities. See, e.g., 53 Comp. Gen. 753 (1974) (a retired
U.S. Air Force colonel was barred from receiving retirement pay from
the U.S. government because he was effectively employed by an Israeli
company). Assistance programs, discussed in Chapters 10 and 11, often
generate claims arising from the application of program restrictions:
restrictions that define the eligibility of applicants for assistance,
or perhaps the total amount of funds available to the agency for
distribution under the program. E.g., 1 Comp. Gen. 429 (1922) (claims
for tuition grants to Native American children enrolled in Montana
public schools). Another example would be situations, discussed in
Chapter 9, under which accountable officers become obligated to
reimburse the government for unlawful expenditures of appropriated
funds that they disbursed or certified. See, e.g., 70 Comp. Gen. 463
(1991) (accountable officer held liable for certifying overpayments in
a travel voucher).
Some claims are authorized directly by the Constitution. For example,
where construction work on government land (or land controlled by the
government) causes the land of another person to be flooded
permanently, the other person's land is considered "taken" and the
government must pay "just compensation" under the Fifth Amendment of
the U.S. Constitution. E.g., B-173971, Oct. 27, 1971. Contractual
relationships often generate claims against the government. A contract
is a legal instrument from which legal rights, duties, and obligations
flow. See, e.g., Black's Law Dictionary 341 (8th ed. 2004). A federal
agency has the inherent power to enter into contracts in the execution
of its duties. E.g., United States v. Tingey, 30 U.S. (5 Pet.) 115,
127-28 (1831). While many (if not most) government contract claims are
now governed by the Contract Disputes Act, 41 U.S.C. §§ 601-613, there
is authority for the proposition that agencies have inherent
authority, as an incident to the power to enter into contracts, to
settle at least certain types of contract claims. See United States v.
Corliss Steam-Engine Co., 91 U.S. 321 (1875); Brock & Blevins Co. v.
United States, 343 F.2d 951 (Ct. Cl. 1965); Cannon Construction Co. v.
United States, 319 F.2d 173 (Ct. Cl. 1963).
There is a fairly large universe of claims statutes that serve a wide
range of functions. Some establish the authority to settle certain
types of claims in situations where that authority would not otherwise
exist. A prime example of this is the Federal Tort Claims Act, 28
U.S.C. ch. 171. Others, the Contract Disputes Act for example, do not
necessarily establish the right to file claims but nevertheless
provide a statutory basis for claims and set out procedures for
addressing claims. Some, as the two statutes cited, are
governmentwide. Many others are agency specific. One example is 31
U.S.C. § 3724, which authorizes the Attorney General to settle
civilian claims that cannot be settled under the Federal Tort Claims
Act.[Footnote 41]
The Constitution gives Congress ultimate authority over the
disposition of the property and resources of the United States. U.S.
Const., art. IV, § 3, cl. 2 ("The Congress shall have Power to dispose
of and make all needful Rules and Regulations respecting the Territory
or other Property belonging to the United States."). See, e.g., Royal
Indemnity Co. v. United States, 313 U.S. 289, 294 (1941); B-276550,
Dec. 15, 1997. Congress has delegated some of its authority to the
courts, some to the executive branch, and it has retained the balance
for itself. This discussion examines claims settlement authorities as
delegated to each of the branches and retained by Congress.
Appropriated funds are available to pay claims against the government
only if the government agrees to pay the claim in exercise of
appropriate claims settlement authority.
a. Legislative Claims Settlement:
(1) Congressionally sponsored bills:
Claims settlement in the federal government derives from the
combination of congressional waivers of the sovereign immunity of the
United States and the plenary constitutional authority of Congress
over the funds and property of the United States.[Footnote 42] In the
executive and judicial branches, claims settlement is generally
limited to dispositions based on legal liability, and no court or
agency may order or pay taxpayers' money based on a perceived moral
obligation, unless so authorized by law.[Footnote 43] Congress,
however, may choose to legislatively recognize claims based on moral
obligations or any other bases, as it chooses. Glidden Co. v. Zdanok,
370 U.S. 530, 567 (1962), citing United States v. Realty Co., 163 U.S.
427 (1896) ("Congress may for reasons adequate to itself confer
bounties upon persons and, by consenting to suit, convert their moral
claim into a legal one enforceable by litigation in an undoubted
constitutional court") (emphasis added). See also B-307681, May 2,
2006, at 7 ("it is for Congress to decide whether to provide equitable
relief").
The time-honored method of pursuing such claims against the United
States has been to persuade a member of your state's congressional
delegation to sponsor a private relief bill. The power of Congress to
appropriate funds in this manner is beyond question. The Supreme Court
said over a century ago:
"Payments to individuals, not of right, or of a merely legal claim,
but payments in the nature of a gratuity, yet having some feature of
moral obligation to support them, have been made by the government by
virtue of acts of Congress appropriating the public money, ever since
its foundation. Some of the acts were based on considerations of pure
charity."
Realty Co., 163 U.S. at 441. See also Pope v. United States, 323 U.S.
1, 9 (1944); Merchants National Bank of Mobile v. United States, 5 CL
Ct. 180, 209 n.32 (1984); B-156080, Sept. 10, 1965.
In its earliest days, Congress resisted the idea of delegating (to the
courts or administrative officers) its authority to settle claims
against the United States. E.g., Judicial Conference of the United
States, The United States Court of Claims: A History, pt. II, § 1
(1978), at 5, 10-11, reprinted in 216 Ct. Cl. following XXVIII (1978).
Periodically, over time, however, concerns over the continually
growing number, amount, and complexity of claims and private relief
legislation that Congress had to consider helped convince Congress
increasingly to waive sovereign immunity and delegate congressional
authority to resolve various types of claims against the United
States. Id.
For example, in proposing what is now known as the Tucker Act, 28
U.S.C. § 1491, Representative Randolph Tucker of Virginia explained
that he intended his bill to relieve his colleagues and himself of "a
large mass of private claims which were encumbering our business and
preventing our discharging our duties to the great public interests of
this country." Id. at 39. Courts have described the "overwhelming
purpose" of the Federal Tort Claims Act as to "relieve Congress of the
pressure of private claims" and "enable it to devote more time to
major public issues." United States v. Yellow Cab Co., 340 U.S. 543,
550-51 (1951). See also Kosak v. United States, 465 U.S. 848, 867
(1984); Costo v. United States, 248 F.3d 863, 872 n.2 (9th Cir. 2001),
cert. denied, 534 U.S. 1078 (2002); In re 'Agent Orange" Product
Liability Litigation, 506 E Supp. 762, 769 (E.D. N.Y. 1980).
Nowadays, Congress has waived federal sovereign immunity for a wide
range of suits, including those that seek traditional money damages,
such as the waivers provided by the Federal Tort Claims Act (28 U.S.C.
ch. 171) and the Tucker Act (28 U.S.C. § 1491). See Department of Army
v. Blue Fox, Inc., 525 U.S. 255, 260 (1999); Culver v. United States,
No. 3: 06cv1865 (M.D. Pa. Oct. 17, 2007). One result of this is that
the volume of private relief legislation has diminished dramatically.
For example, volumes 55 and 56 of Statutes at Large list 635 private
laws enacted by the 77th Congress in 1941 and 1942. Volumes 81 and 82
of Statutes at Large list 362 private laws enacted by the 90th
Congress in 1967 and 1968. By contrast, volumes 113 through 118 of
Statutes at Large (together covering the period from 1999 through
2004) list only 24 private laws for the 106th Congress and 6 private
laws each for the 107th and 108th Congresses.
While private relief legislation is often enacted in the form of a
stand-alone private law, it occasionally takes other forms and appears
in other kinds of laws. Sometimes it has taken the form of a simple
direction in a public law to pay a sum of money to a named individual,
group of individuals (named or unnamed), or some other entity. For
example, the National Defense Authorization Act for Fiscal Year 1997
directed the Secretary of Defense to "make a payment under this
section to any person [or the survivors of a person] who ... was
captured and incarcerated ... as a result of [participating] in
operations conducted under OPLAN 34A [its predecessor, or OPLAN 35]."
[Footnote 44] Pub. L. No. 104-201, div. A, title VI, §§ 657(a), 110
Stat. 2422, 2584-85 (Sept. 23, 1996). See Mattes v. Chairman,
Vietnamese Commandos Compensation Commission, 173 F.3d 817 (11th Cir.
1999) (upholding power of Congress to provide this private relief
without judicial review). Another form of private relief is a bill
relieving someone of indebtedness to the government. In the Omnibus
Consolidated Rescissions and Appropriations Act of 1996, for example,
under the heading of "Debt Forgiveness," Congress directed that the
Secretary of Housing and Urban Development "shall cancel the
indebtedness" of three named hospitals relating to public facilities
loans issued under title II of the Housing Amendments of 1955. Pub. L.
No. 104-134, § 213, 110 Stat. 1321, 1321-28889 (Apr. 26, 1996).
Private relief can also take the form of removing a jurisdictional bar
or waiving some other legal defense. The latter type is discussed in
United States v. Sioux Nation of Indians, 448 U.S. 371 (1980).
(2) Congressional reference cases:
Sometimes, Congress uses a hybrid claims settlement process, known as
"congressional reference," to assist its consideration of private
relief legislation. See 28 U.S.C. §§ 1492, 2509. Under this process,
either house of Congress can refer a private relief bill ("except a
bill for a pension") to the Court of Federal Claims. 28 U.S.C. §
2509(a). The court follows the procedures set forth in 28 U.S.C. §
2509 and makes "findings of fact [and] conclusions sufficient to
inform Congress whether the demand is a legal or equitable claim or a
gratuity, and the amount, if any, legally or equitably due from the
United States to the claimant." 28 U.S.C. § 2509(c). See Office of
Personnel Management v. Richmond, 496 U.S. 414, 431 (1990); B-187806,
Jan. 11, 1979 (discussing Congressional Reference Case No. 1-72,
Arizona Insurance and Investment Co. v. United States (Oct. 29,
1976)). The basic purpose of the congressional reference process is
"to provide judicially determined facts to the Congress for its use in
deciding whether or not certain private claims warrant legislative
relief." Zadeh, v. United States, 111 F. Supp. 248, 251 (Ct. Cl. 1953).
Essentially, a congressional reference case is conducted as a trial
with one judge of the Court of Federal Claims serving as a "hearing
officer" and three other judges serving as a reviewing body. 28 U.S.C.
§ 2509(a). There is a plaintiff (usually the party seeking relief) and
a defendant (often the United States). One example of a congressional
reference case is Land Grantors in Henderson, Union, and Webster
Counties, Kentucky v. United States, 77 Fed. CL 686 (2007). See also
INSLAW, Inc. v. United States, 40 Fed. Cl. 843 (1998). Congressional
reference cases are not subject to judicial review. 28 U.S.C. §
2509(b). Rather, the report goes back to the house of Congress that
requested it. Id. § 2509(e). According to the Court of Federal Claims,
nowadays, these cases are "relatively rare." Wolfchild v. United
States, 77 Fed. CL 22, 28 (2007).
(3) Meritorious Claims Act:
In 1927, GAO recommended that Congress enact legislation authorizing
GAO to report claims against the government that could not be paid
under existing law but that Congress should consider paying for legal
or equitable reasons. GAO, Annual Report of the Comptroller General of
the United States for the Fiscal Year Ended June 30, 1927 (Washington,
D.C.: 1927), at 9-11. This legislation, known as the Meritorious
Claims Act,[Footnote 45] is codified at 31 U.S.C. § 3702(d). Until
1996, the responsibility for submitting these meritorious claims to
Congress rested exclusively with GAO. However, as a result of the
transfer and delegation of claims settlement authority discussed in
section B of this chapter, this responsibility is now widely dispersed
among the agencies of the federal government. Today, section 3702(d)
provides:
"The official responsible ... for settling the claim shall report to
Congress on a claim against the Government that is timely presented
under this section that may not be adjusted by using an existing
appropriation, and that the official believes Congress should consider
for legal or equitable reasons. The report shall include
recommendations of the official."
The Meritorious Claims Act does not authorize agencies to pay claims.
See 22 Op. Off. Legal Counsel 11 (1998). It merely authorizes the
submission of favorable recommendations to Congress. Congress, using
private relief bills or otherwise, will have to enact an appropriation
to pay the claim if it agrees with the agency's recommendation. Unlike
other private relief that is championed by a claimant and the
claimant's representatives, private relief enacted pursuant to a
Meritorious Claims Act recommendation is supported by the agency that
investigated and adjudicated the claim. Presumably, this lends
credibility to the claim and makes the congressional task easier. See
S. Rep. No. 70-684, at 3-4 (1928); H.R. Rep. No. 70-491, at 1-4
(1928). For a recent example of this authority in action, see Private
Law No. 106-6, §§ 1, 2, 114 Stat. 3097 (Oct. 10, 2000). This law
directed the Treasury Secretary to pay $10,208.74 from funds in the
Treasury not otherwise appropriated to Akal Security, Inc., for
security guard services it rendered to the Army in 1991. Id. It also
directed that Akal's liability to the government for $57,771.29
previously paid to it for those same security services was "hereby
extinguished." Id.
The act filters claims through four conditions that Congress imposed
on the authority to submit recommendations. First, claims must be
"timely presented." 31 U.S.C. § 3702(d). In other words,
notwithstanding equitable or other considerations, claims that are
time-barred by the Barring Act, 31 U.S.C. § 3702(b), or another more
specific statutory or regulatory limitation, may not be submitted. 14
Comp. Gen. 324 (1934); B-208290, Sept. 7, 1982.
Second, the act stipulates that claims must be presented to "the
official responsible under subsection (a) for settling the claim." 31
U.S.C. § 3702(d). This means that the act applies only to claims that
an agency may settle pursuant to 31 U.S.C. § 3702, which, as discussed
below, generally empowers agencies to settle claims in situations
where there is no law that otherwise authorizes them to settle such
claims. In 62 Comp. Gen. 280 (1983), for example, GAO held that claims
cognizable, but denied, under the Federal Tort Claims Act (28 U.S.C.
ch. 171) or the Military Claims Act (10 U.S.C. § 2733) could not be
reported to Congress under the Meritorious Claims Act.
Third, this authority does not extend to claims that, if otherwise
allowable, could be paid from existing appropriations. 31 U.S.C. §
3702(d). For example, in B-155149, Oct. 21, 1964, GAO found that the
Meritorious Claims Act was not the appropriate vehicle to address the
claim of an accountable officer who had used personal funds to
reimburse the government to cover a loss of public funds for which the
officer was later found not to have been responsible. The act did not
apply because the officer could have applied for relief (and been
reimbursed from agency operating appropriations) under the applicable
accountable officer relief statute.
The fourth condition is that the claim must have legal or equitable
merit sufficient to warrant special consideration by Congress. 31
U.S.C. § 3702(d). When evaluating whether a claim merits
recommendation to Congress under this authority, it is important to
keep in mind that the act is "limited to extraordinary circumstances."
B-259657, Aug. 15, 1995, at 3; 53 Comp. Gen. 157, 158 (1973).
Reportable cases should be of an unusual nature that are unlikely to
constitute a recurring problem, "since to report to the Congress a
particular case when similar equities exist or are likely to arise
with respect to other claimants would constitute preferential
treatment over others in similar circumstances." 53 Comp. Gen. at 158.
See also B-230871.4, June 19, 1996; 63 Comp. Gen. 93, 95 (1983); B-
210831, Aug. 2, 1983; B-209292, Feb. 1, 1983. Frequently recurring
problems are better left to general remedial legislation. E.g., 17
Comp. Gen. 720, 724 (1938).
GAO invoked this act sparingly. Perhaps because of this, Congress
enacted most of GAO's recommendations. Of the 53 claims GAO reported
in 1928 through 1930, 51 were enacted; out of 31 submitted between
1948 and 1976, 28 were enacted. These statistics are drawn from two
studies by GAO attorneys, B-230950-0.M., Aug. 29, 1988, and B-150882-
0.M., Mar. 17, 1977.
b. Judicial Claims Settlement:
The authority of a federal court to settle a claim derives from a
federal statute authorizing the court to resolve the dispute or
granting it the power to review the administrative determination at
issue in the case. See, e.g., Glidden Co. v. Zdanok, 370 U.S. 530
(1962); Williams v. United States, 289 U.S. 553, 580-81 (1933). For
example, the Fifth Amendment to the U.S. Constitution mandates the
payment of just compensation for governmental takings of private
property,[Footnote 46] so Congress enacted statutes designating which
courts may hear Fifth Amendment takings claims. E.g., 28 U.S.C. §§
1346(a)(2), 1491(a)(1). There are other federal statutes that
authorize the courts to settle certain claims of and against the
United States. Examples of these are provisions of the Federal Tort
Claims Act (28 U.S.C. ch. 171) and 26 U.S.C. § 7433(a) (which allows
taxpayers to bring lawsuits in response to unauthorized tax collection
actions).
Judicial claims settlement also can occur under circumstances and
pursuant to statutes that are not normally understood to contemplate
claims settlement, and might even appear to explicitly preclude the
consideration of monetary claims. In Bowen v. Massachusetts, 487 U.S.
879 (1988), for example, the state of Massachusetts sued the Secretary
of the Department of Health and Human Services (BHS) under the
Administrative Procedures Act (APA), 5 U.S.C. § 702. Massachusetts
believed that BHS had distributed Medicaid reimbursements to the state
governments improperly. In court, it claimed that BHS had
misinterpreted the Medicaid statutes and regulations and owed
Massachusetts more Medicaid reimbursements. Bowen, 487 U.S. at 888
n.10. One of the issues the Court had to deal with in this case was
the language of the APA which specifically allows claims against the
United States for "relief other than money damages." 5 U.S.C. § 702.
As a result of this language, claimants are not normally allowed to
pursue monetary claims under the APA. Bowen, 487 U.S. at 890-91. See
also B-259065, Dec. 21, 1995. In this case the Supreme Court
concluded, however, that the law does not completely foreclose
monetary awards as an APA remedy. Bowen, 487 U.S. at 893. As the Court
noted, neither the APA nor equity authorize courts to consider claims
against the government for "money damages." Here, however, the Supreme
Court distinguished between "money damages" and "money judgments." The
latter, it held, may be allowed under the APA and under equity when
the amount to be awarded represents "injunctive" or "specific" relief.
Id. at 893-901. See also B-259065, Dec. 21, 1995. Massachusetts
convinced the Court that the federal government had not properly
implemented the Medicaid statutes and the Court agreed that an order
should issue requiring BHS to reverse its denial of the state's claim—-
as specific relief.[Footnote 47] Bowen, 487 U.S. at 909-11. Thus, as a
practical matter, while neither the APA nor the Medicaid statutes
expressly authorized the court to settle monetary Medicaid claims, the
process of APA judicial review effectively accomplished just that.
c. Administrative Claims Settlement:
Over 100 years ago, claims settlement was viewed as largely an
adversarial process. The tenor of the times was captured in the
following statement made by the Treasury Department's First
Comptroller in 1883: "The Auditors and Comptrollers, and the
accountants under them, constitute the safeguard of the National
Treasury, and have to withstand the whole army of claimants and their
increased clamor." 4 Lawrence, First Comp. Dec xix (Introduction)
(1883) (emphasis omitted).
Claims settlement was much simpler back then. The key claims-
authorizing statutes had not yet been enacted. The absence of
applicable waivers of sovereign immunity meant that there was no
authority for the agencies to allow claims against the government.
[Footnote 48] Most potential claimants lacked access to the courts for
the same reason.[Footnote 49] Consequently, the possibility of
obtaining redress for claims against the government was limited.
[Footnote 50]
The law has undergone a sea change since then. Now, there are many
statutes that, in varying degrees of detail, waive sovereign immunity
and bestow authority to administratively entertain claims, as well as
case law recognizing and fleshing out bases in the law to settle
claims in a wide variety of contexts and forums. Here is a brief
sampler of the many authorities available today to administratively
settle claims against the federal government.
Tort and tort-related claims:
* Federal Tort Claims Act, 28 U.S.C. ch. 171.
* Small Claims Act, 31 U.S.C. § 3723.
* Tort claims arising in foreign countries, 28 U.S.C. § 2680(k).
* Unauthorized tax collection actions, 26 U.S.C. § 7433(a).
* The Military Claims Act, 10 U.S.C. § 2733.
* The Foreign Claims Act, 10 U.S.C. § 2734.
* The International Claims Act, 10 U.S.C. §§ 2734a, 2734b.
* Military vehicular claims on government installations, 10 U.S.C. §
2737.
* Federal Employees Compensation Act, 5 U.S.C. §§ 8101-8193.
* Military Personnel and Civilian Employees Claims Act, 31 U.S.C. §
3721.
Contract and contract-related claims:
* The Contract Disputes Act, 41 U.S.C. §§ 601-613.
* Ratification, 48 C.F.R. § 1.602-3.[Footnote 51]
* Bid protests under the Competition in Contracting Act of 1984, 31
U.S.C. §§ 3551(1), 3552; 4 C.F.R. § 21.2(a).
* Contracts implied-in-law under quantum meruit/quantum valebant, see,
e.g., B-271163, May 22, 1996; 40 Comp. Gen. 447, 451 (1961).
Miscellaneous claims:
* Unclaimed money/property, 31 U.S.C. §§ 1321 and 1322.
* Voluntary creditors rule, see, e.g., Heirs of Emerson v. Hall, 38
U.S. (13 Pet.) 409, 412-13 (1839); 4 Comp. Dec. 409, 410 (1898); B-
278805, July 21, 1999.
* Estoppel, see, e.g., Office of Personnel Management v. Richmond, 496
U.S. 414 (1990); Perez v. United States, 156 F.3d 1366, 1373 (Fed.
Cir. 1998); B-307681, May 2, 2006; 22 Op. Off. Legal Counsel 127
(1998).
Some of these authorities allow agencies to settle claims in
situations where that authority would not otherwise exist. A prime
example is the Federal Tort Claims Act. Others, such as the Contract
Disputes Act, do not necessarily create the right to file claims but
provide a statutory basis and establish procedures for their
resolution. Some statutes for the resolution of claims, such as the
two just mentioned, provide authority to most, if not all, agencies.
Others provide authority to only one agency. For example:
* 31 U.S.C. § 3724—In situations where the Federal Tort Claims Act
does not apply, the Attorney General may settle claims up to $50,000
for personal injury or property damage caused by law enforcement
officers employed by the Department of Justice.
* 39 U.S.C. § 2008(d)—The United States Postal Service has specific
authority under the Postal Reorganization Act to settle its own
claims. See B-179464, Mar. 27, 1974.
* 12 U.S.C. § 1702—The Federal Housing Administration (FHA) has
specific statutory authority to settle claims against it based on its
authority to sue and be sued and to determine the character and
necessity of its expenditures. 53 Comp. Gen. 337 (1973); 27 Comp. Gen.
429 (1948).
Authority to settle and adjust claims under 31 U.S.C. § 3702:
To the extent that they are not otherwise authorized by law to do so,
31 U.S.C. § 3702 gives agencies general authority to "settle and
adjust" claims arising from their operations. Section 3702 is derived
from legislation dating to 1817. As originally enacted, this authority
was not only comprehensive but exclusive, providing that "all claims
and demands whatever, by the United States or against them, and all
accounts whatever, in which the United States are concerned, either as
debtors or as creditors, shall be settled and adjusted in the Treasury
Department." Act of March 3, 1817, ch. 45, § 2, 3 Stat. 366. It was
this statute that the Supreme Court was construing when it held that
the term "settlement," when used in connection with public
transactions and accounts, describes the "administrative determination
of the amount due." Illinois Surety Co. v. United States, 240 U.S.
214, 219 (1916). The claims settlement function remained in the
Treasury Department until 1921, when it was transferred to GAO. As
discussed in section B of this chapter, in 1996 the claims settlement
function was transferred from GAO to the Office of Management and
Budget (OMB).
The origins and history of this statute are discussed in Lambert
Lumber Co. v. Jones Engineering & Construction Co., 47 F.2d 74 (8th
Cir.), cert. denied, 283 U.S. 842 (1931). Before the 1996 transfer of
the claims settlement function from GAO, the statute provided in
relevant part:
"Except as provided in this chapter or another law, the Comptroller
General shall settle all claims of or against the United States
Government." 31 U.S.C. § 3702(a) (1994). In practice, GAO's exercise
of claims settlement authority was not nearly as sweeping as the
language suggests. GAO's policy was to leave initial settlement of a
claim to the agency from whose activities the claims arose. 4 C.F.R. §
31.4 (1996). If the claimant was not satisfied with the agency's
disposition, he or she could appeal to GAO. Id. Also, an agency could
submit a claim to GAO for settlement if the agency was unable to
resolve it. Id. In addition, an agency official could request an
advance decision from GAO pursuant to 31 U.S.C. § 3529 on issues
concerning a claim.[Footnote 52] Thus, the vast majority of claims
arising under 31 U.S.C. § 3702 were actually settled by the agencies
concerned. GAO claims settlement case law was developed primarily in
response to appeals from disappointed claimants and requests for
decisions from agency officials.
The General Accounting Office Act of 1996 amended 31 U.S.C. § 3702(a)
to reflect the transfer of claims settlement authority from GAO to OMB
and OMB's initial delegations of that authority. Pub. L. No. 104-316,
§ 202(n), 110 Stat. 3826, 3843 (Oct. 19, 1996). The current version of
section 3702(a) retains in substance the language that, except as
otherwise provided by law, "all claims of or against the United States
Government shall be settled" under it. Section 3702(a) goes on to
assign settlement responsibilities as follows:
* The Defense Department settles claims involving uniformed service
members' pay, allowances, and benefits as well as claims by
transportation carriers involving amounts collected from them for
property loss or damage incident to shipments at government expense.
31 U.S.C. § 3702(a)(1).
* The Office of Personnel Management settles claims involving federal
civilian employees' compensation and leave. Id. § 3702(a)(2).
* The General Services Administration settles claims involving federal
civilian employees' official travel, transportation, and relocation
expenses. Id. § 3702(a)(3).
Section 3702(a)(4) left to OMB the responsibility for settling claims
not otherwise assigned by section 3702(a). As discussed in section B
of this chapter, OMB has issued a general delegation of this
responsibility to each individual agency out of whose activity a
particular claim arises. See B-275605, Mar. 17, 1997, at 3 (referring
to OMB's December 17, 1996, general delegation of claims settlement
authority to executive branch agencies). On May 15, 1997, OMB
delegated to legislative and judicial branch agencies settlement
authority arising out of their activities.[Footnote 53]
The reach of 31 U.S.C. § 3702 is subject to a number of conditions and
restrictions.[Footnote 54] First, section 3702 applies "except as
provided in this chapter or another law." 31 U.S.C. § 3702(a). Thus, a
more specifically applicable claims settlement authority will take
precedence over section 3702. For example, section 3702 does not apply
to claims:
* within the scope of the Federal Tort Claims Act (28 U.S.C. ch. 171),
which makes settlement under that statute "final and conclusive"
[Footnote 55] (e.g., B-215494, Sept. 4, 1984);
* involving the United States Postal Service, which has specific
authority to settle its own claims under the Postal Reorganization Act
(B-179464, Mar. 27, 1974);
* involving the District of Columbia government, based in part on its
status as a separate legal entity (e.g., 1 Comp. Gen. 451 (1922); B-
168704, Jan. 16, 1970);
* relating to government checks (see generally 31 U.S.C. §§ 3327-3334;
31 C.F.R. pt. 240); or;
* arising from the operations of government corporations that have the
authorities to sue and be sued and to determine the character and
necessity of their expenditures (e.g., 53 Comp. Gen. 337 (1973); 27
Comp. Gen. 429 (1948)).
Second, for purposes of section 3702, a claim is limited to a monetary
claim, that is, a claim for the payment of money. Thus, the statute
does not permit consideration of nonmonetary claims such as specific
performance (B-179702, Oct. 10, 1973) or issues involving title to
land (19 Comp. Gen. 196 (B-1250, Aug. 14, 1939); B-207613, Apr. 6,
1983).
Third, while section 3702 provides for settling claims, it provides
only the procedural authority to settle claims administratively.
Unlike most of the statutes noted above, section 3702 does not spell
out any substantive criteria upon which claims against the government
may be allowed by agencies. Cf., e.g., Federal Tort Claims Act, 28
U.S.C. ch. 171. Consequently, agencies must be able to identify a
sufficient, independent, substantive basis in the law in order to
allow a claim brought under this provision. As GAO noted, the agency
"performing this function ... is necessarily called upon to construe
the laws and regulations which may be pertinent to an individual's
claim against the government."[Footnote 56] 60 Comp. Gen. 132, 134
(1980).
For example, in B-193987, Feb. 29, 1980, GAO allowed an employee's
claim for additional living quarters allowance while the employee was
serving with the U.S. Customs Service in Hamburg, Germany. GAO noted
that the Secretary of State had prescribed regulations governing the
payment of quarters allowances in accordance with 5 U.S.C. § 5923 to
qualifying individuals defined under 5 U.S.C. § 5922. GAO asserted that
section 3702(a) "leaves to the discretion of this Office what evidence
is required to support such claims." B-193987, at 2-3. On the other
hand, the rule of law allowing the claim was derived not from section
3702(a), but rather from the State Department's regulations—"it is
these regulations which provide the controlling authority in
establishing [this employee's] entitlement to a living quarters
allowance in the circumstances presented." Id., at 3.
Similarly, in 65 Comp. Gen. 177 (1986), GAO was asked to review under
section 3702(a) a claim against a Forest Service employee. GAO
explained that in such cases it engaged in a narrow review of agency
actions: GAO determined whether the agency asserting a claim against
its employee had statutory or regulatory authority to do so and then
asked whether the agency followed that authority in the individual
case. In keeping with this narrow review, GAO examined the Forest
Service regulations and compared the agency's internal reports of the
incident giving rise to the claim. GAO found that the regulations
Forest Service cited in assessing this claim specifically contemplated
an intentional violation of Forest Service regulations. The agency
report stated, however, that while carrying out his official duties
the employee had inadvertently violated the agency's rules. Therefore,
GAO concluded, Forest Service had not adequately established under its
own regulations a legal basis for assessing financial liability
against the employee. GAO directed that Forest Service cease
collection.
Finally, claims settlement under section 3702 is subject to a statute
of limitations imposed in section 3702 itself.[Footnote 57] With
certain exceptions, each claim must be "received by the official
responsible under subsection [3702](a) for settling the claim or by
the agency that conducts the activity from which the claim arises
within 6 years after the claim accrues." 31 U.S.C. § 3702(b). This
provision is often referred to as the "Barring Act." E.g., Hernandez
v. Department of the Air Force, 498 F.3d 1328, 1331 (Fed. Cir. 2007);
B-274195, Oct. 8, 1996. Unless otherwise provided by law, appropriated
funds are not legally available to pay claims on which the applicable
limitation has run.[Footnote 58] See 52 Comp. Gen. 420 (1973).
The Barring Act provides the following special rules:
* When a claim by a member of the armed forces accrues during war or
within 5 years before war begins, the applicable limitation period is
5 years after peace is established or the standard 6 years, whichever
is later.[Footnote 59] 31 U.S.C. § 3702(b)(2).
* A claim on a Treasury check is limited to 1 year after issuance of
the check, but the 1-year limit does not apply to the underlying
obligation for which the check was issued. 31 U.S.C. § 3702(c).
* The Defense Department may waive the Barring Act for claims (not
exceeding $25,000) that it is authorized to settle under section
3702(a)(1). 31 U.S.C. § 3702(e).
Generally speaking, absent statutory authority, agencies may not waive
or extend the time allowed by a statute of limitations. E.g., United
States v. Garbutt Oil Co., 302 U.S. 528, 534-35 (1938); Finn v. United
States, 123 U.S. 227, 233 (1887); Computervision Corp. v. United
States, 445 F.3d 1355, 1367 (Fed. Cir. 2006), cert. denied, U.S. , 127
S. Ct. 2033 (2007). See also, e.g., B-197635, June 6, 1980; 22 Op.
Off. Legal Counsel 127 (1998).
The same is true of the Barring Act.[Footnote 60] E.g., 70 Comp. Gen.
292 (1991); 62 Comp. Gen. 80, 83 (1982); B-249968, Feb. 16, 1993.
2. Source of Payment of Claims against the Government:
Just because a claim is approved through the claims settlement process
does not necessarily mean that it can or will be paid. For the claim
to be paid, appropriated funds must be available for that purpose.
Even where a court has found a claim to be valid under the law, the
claim may not be paid unless Congress has enacted an appropriation
available for that purpose.[Footnote 61] In other words, if the claim
is settled in favor of the claimant, it still must be determined
whether (and which) funds have been appropriated and are legally
available (considering purpose, time, and amount—see Chapters 4, 5,
and 6) to pay it. If so, the payment process may begin. If not, the
claim may not be paid.
a. Legislatively Settled Claims:
A private relief act may or may not include an appropriation. The
test, as described in Chapter 2 for all appropriations, is whether it
includes both a direction to pay, as opposed to a mere authorization
to pay, and a designation of the source of funds. A direction to pay
without designating the source of funds does not constitute an
appropriation. 21 Comp. Dec. 867 (1915); B-26414, Jan. 7, 1944. Relief
acts which do include appropriations may specify payment from the
funds of a designated agency. An example is Private Law No. 97-21, 96
Stat. 2620 (June 1, 1982), directing payment "from the applicable
appropriations" of named agencies. More commonly, however, an act will
direct payment by the Secretary of the Treasury "out of any money in
the Treasury not otherwise appropriated." E.g., Priv. L. No. 108-5, §
1(a), 118 Stat. 4030 (Dec. 3, 2004); Priv. L. No. 107-3, § 1, 116
Stat. 3121 (Oct. 4, 2002); Priv. L. No. 107-2, § 1(a), 116 Stat. 3119
(Oct. 1, 2002); see also 23 Comp. Dec. 167, 170 (1916). If a relief
act directs payment by the Secretary of the Treasury "out of any money
in the Treasury not otherwise appropriated" and does not indicate any
more specific source of funds for payment, payment is charged to the
permanent, indefinite account 20X1706 (Relief of Individuals and
Others by Private and Public Laws) and is made directly by the
Treasury Department. See B-142380, Mar. 24, 1960 (circular letter); I
TFM Announcement No. A-2008-03 (Apr. 8, 2008), at A-69.
The amount specified in a private relief act effectively constitutes a
"final adjudication" and confers no authority to do anything other
than pay it in accordance with its terms. United States v. Price, 116
U.S. 43 (1885); United States v. Jordan, 113 U.S. 418 (1885); 22 Op.
Att'y Gen. 295 (1899); 5 Op. Att'y Gen. 94 (1849). Except for the
possibility of bringing the matter to the attention of Congress, it
must be paid even if it is believed to be erroneous. United States v.
Louisville, 169 U.S. 249 (1898); 2 Comp. Dec. 629 (1896). As the Court
of Claims said: "The disposition of public money is in the discretion
of Congress, and its reasons for passing an act and the consideration
thereof can not be inquired into nor its will thwarted by any
executive officers or by the courts." Mumford v. United States, 31 Ct.
Cl. 210, 215 (1896).
In Chapter 2 we discuss the principle that, except for errors in the
amount appropriated, obvious clerical or typographical errors in a
statute which could change the meaning or render execution impossible
may be disregarded if the intent is clear. This principle applies
equally to private relief acts. Thus, a relief act appropriating money
to pay a claim of Martin and P.W. Murphy which erroneously designated
the payees as "Martin and P.B. Murphy" could be paid to the rightful
claimants because the context clearly established the B as a clerical
error. 18 Op. Att'y Gen. 501 (1886).
b. Judicially Settled Claims: the Judgment Fund:
A judgment by a federal court, like other claims settlements, may
result in an award against the government. Without more, however, it
cannot be paid. The Appropriations Clause of the United States
Constitution (art. I, § 9, cl. 7) applies with equal force to payments
directed by a court. E.g., OPM v. Richmond, 496 U.S. 414, 424-26
(1990).
This section explores how judicial judgments (as well as some other
awards and settlements against the United States) are paid. Because
the Appropriations Clause must be satisfied, payment must be
prescribed by statute. This may take the form of (1) a specific
appropriation for a particular judgment or judgments, (2) a general
appropriation for judgments, or (3) a legislative enactment which
makes a preexisting appropriation available to make the payment. Until
1956, judgments were paid only pursuant to an appropriation specific
to a particular judgment. Since 1956, most judgments have been paid
from the Judgment Fund, 31 U.S.C. § 1304, a permanent, indefinite
appropriation enacted as a source of payment for judgments.
(1) Origins and overview:
It has long been held that, as a general rule, unless otherwise
provided by law, agency operating appropriations are not available to
pay judgments against the United States. E.g., 8 Comp. Dec. 261, 262
(1901); 8 Comp. Dec. 145, 149 (1901). Originally, this rule preserved
for Congress the opportunity to consider the court's decision and
refuse to appropriate funds to pay any judgments with which Congress
disagreed. On those occasions when Congress declined to appropriate
funds, the judgment creditor was left with a judicially approved claim
against the United States but received no payment for it. This was
(and still is) part and parcel of the power of the purse. The courts
adjudicate, but only Congress can appropriate. This result, however,
has rarely happened. In Glidden Co. v. Zdanok, 370 U.S. 530, 570
(1962), for example, the Supreme Court noted a 1933 study which found
only 15 instances in a 70-year period in which Congress had refused to
pay a judgment.
Over time, the process of reviewing and effectively overruling the
courts in this manner evolved from a luxury to a burden. As sovereign
immunity was increasingly waived to allow more and more lawsuits
against the government, the process (in both the executive and the
legislative branches) of preparing, presenting to Congress, and
processing specific appropriations to pay final judgments took an
increasing and inordinate amount of time and resources. In the early
1950s, GAO recommended that Congress create a permanent, indefinite
appropriation for the payment of judgments. That recommendation was
designed to expedite judgment payments by eliminating the need for
specific congressional appropriations. It was also intended to save
the government money both by eliminating the largely ministerial
appropriations processes for paying judgments and reducing post-
judgment interest costs arising from the previous payment delays. The
proposal was eventually enacted as section 1302 of the Supplemental
Appropriation Act of 1957, Pub. L. No. 84-814, 70 Stat. 678, 694-95
(July 27, 1956). Now codified at 31 U.S.C. § 1304, this provision (and
the permanent, indefinite appropriation it created) is commonly
referred to as the "Judgment Fund."
In its current form, as set forth in 31 U.S.C. § 1304(a), the Judgment
Fund constitutes an appropriation of amounts sufficient to pay "final
judgments, awards, compromise settlements, and interest and costs
specified in the judgments or otherwise authorized by law" when (1)
payment is "not otherwise provided for"; (2) payment is certified by
the Secretary of the Treasury; and (3) the judgment, award, or
settlement is payable under the following authorities:
* 28 U.S.C. §§ 2414, 2517;
* Federal Tort Claims Act, 28 U.S.C. §§ 2672 (when the amount exceeds
$2,500; less than that is paid from the concerned agency's
appropriation), 2677;
* Small Claims Act, 31 U.S.C. § 3723;
* decisions of boards of contract appeals (subject to reimbursement by
the contracting agency from current appropriations[Footnote 62]), 41
U.S.C. §§ 612(a)-(c);
* portions of meritorious claims that exceed the amounts payable by
law from agency appropriations, 10 U.S.C. §§ 2733 and 2734, 32 U.S.C.
§ 715, and 42 U.S.C. § 2473(c)(13); or;
* awards arising from express or implied contracts by certain,
specified nonappropriated fund instrumentalities subject to
reimbursement from the activity.
31 U.S.C. §§ 1304(a)(3), 1304(c)(1). While the foregoing captures all
of the items listed in section 1304 itself, Congress sometimes
includes a provision in other legislation making particular items
payable from the Judgment Fund. See, e.g., Pub. L. No. 100-202, § 623,
101 Stat. 1329, 1329-428-29 (Dec. 22, 1987) (amending the Back Pay Act
to authorize interest payments, in certain cases, from the Judgment
Fund).
When enacted in 1956, the Judgment Fund statute required the
Comptroller General to certify all payments made from the fund. Pub.
L. No. 84-14, § 1302. In 1996, Congress transferred this function to
the Secretary of the Treasury.[Footnote 63] Pub. L. No. 104-316, §
202(m), 110 Stat. 3826, 3843 (Oct. 19, 1996); 31 U.S.C. § 1304. See
also 28 U.S.C. § 2414 (federal district court awards); 28 U.S.C. §
2517(a) (Court of Federal Claims awards). GAO has explained that
certifying Judgment Fund payments under section 1304 is essentially a
"ministerial" function. B-259065, Dec. 21, 1995, at 6. What GAO meant
by this is that certification under section 1304 does not involve
reviewing the merits of the awards submitted for payment. As GAO
learned from its own experience, the certification process does
routinely entail making some very complicated legal determinations.
The need for these determinations arises from the restrictions and
limitations in the law. In other words, the legal availability of the
Judgment Fund to pay each award depends upon whether the award
satisfies these conditions. Some of those limitations are specified in
section 1304(a) itself, while others derive from other specifically
applicable statutes or from appropriations law, in general.
While GAO no longer certifies payments from this Judgment Fund, GAO
remains available to assist in determining which appropriations (the
Judgment Fund or agency appropriations, if any) should be used to make
any particular payment. As already noted, the Judgment Fund is a
permanent, indefinite appropriation. GAO's authorities under 31 U.S.C.
§§ 3526 (to settle accounts) and 3529 (to issue decisions on matters
involving the use of appropriations that do not specifically involve
settling a claim) apply equally to the Judgment Fund as to any other
appropriation.
(2) Availability and limitations:
Here are some of the more common conditions imposed on the
availability of the Judgment Fund:
Sovereign immunity:
The Judgment Fund is not itself a waiver of sovereign immunity. Thus,
the legal basis for a judgment or award must be found elsewhere in the
law. OPM v. Richmond, 496 U.S. 414, 432 (1990) (section 1304 "does not
create an all-purpose fund for judicial disbursement.... Rather, funds
may be paid out only on the basis of a judgment based on a substantive
right to compensation based on the express terms of a specific
statute.").
Litigative awards primarily:
The Judgment Fund was created and remains available primarily for
paying court judgments and compromise settlements negotiated under
authority of the Justice Department. Compromise settlements were
included in Judgment Fund coverage in 1961. Pub. L. No. 87-187, 75
Stat. 415, 416 (Aug. 30, 1961). A compromise settlement is an
agreement reached by the parties involving mutual concessions. 38 Op.
Att'y Gen. 94, 95-96 (1933). The Attorney General, as the government's
chief litigator, has broad authority to compromise cases referred to
the Justice Department for prosecution or defense. United States v.
Hercules, Inc., 961 F.2d 796, 798 (8th Cir. 1992); Exec. Order No.
6166, Reorganization of Executive Agencies Generally, § 5 (June 10,
1933); 38 Op. Att'y Gen. 124 (1934); 38 Op. Att'y Gen. 98 (1934). The
power attaches "immediately upon the receipt of a case in the
Department of Justice." 38 Op. Att'y Gen. at 102. However, a
compromise settlement which exceeds the authority of the official
purporting to make it does not bind the government. White v. United
States Department of Interior, 639 F. Supp. 82 (M.D. Pa. 1986), affd
mem., 815 F.2d 697 Ord Cir. 1987); United States v. Irwin, 575 F.
Supp. 405 (N.D. Tex. 1983).
The amendment to 28 U.S.C. § 2414 provided a standard for determining
when compromise settlements are payable from the judgment
appropriation. It states that:
"compromise settlements of claims referred to the Attorney General for
defense of imminent litigation or suits against the United States, ...
made by the Attorney General ... shall be settled and paid in a manner
similar to judgments in like causes and appropriations or funds
available for the payment of such judgments are hereby made available
for the payment of such compromise settlements."
28 U.S.C. § 2414. Thus, the rule is that a compromise settlement is
payable from the same source that would apply to a judgment in the
same suit. If a given action could result in a money judgment payable
from the judgment appropriation, a compromise settlement of that
action will be payable from the judgment appropriation. E.g., B-
212134, June 29, 1983. If the action would not result in a money
judgment payable from the judgment appropriation, then the judgment
appropriation will not be available for a compromise settlement. E.g.,
B-248313-0.M., Apr. 10, 1992; B-246660-0.M., Mar. 20, 1992. See also B-
182219, Oct. 23, 1974 (judgment against official in individual
capacity). The resolution of a case by compromise settlement does not
alter the source of funds. See 13 Op. Off. Legal Counsel 118 (1989). A
contrary view, as Justice points out, might encourage settlements
driven by source-of-funds considerations rather than the best
interests of the United States. Id. at 125.
As quoted above, section 2414 mentions referrals for the "defense of
imminent litigation." Except for a general discussion in a 1979
decision, 58 Comp. Gen. 667, this language has not been addressed. The
"imminent litigation" authority is not a device to enable an agency to
avoid paying from its own funds. The agency must be confronted with a
genuine disagreement or impasse before referring the claim to Justice.
Litigation is not imminent for purposes of this provision merely
because a claimant will sue if the agency does not pay. There must be
a legitimate dispute over either liability or amount. Absent such a
dispute or impasse, there is nothing to refer to the Attorney General.
See B-198352, June 22, 1981. See also 38 Op. Att'y Gen. 98, 99 (1934)
(nothing to compromise where liability is certain; must be a "bona
fide dispute as to either a question of fact or of law"); 38 Op. Att'y
Gen. 94, 96 (1933), quoting 23 Op. Att'y Gen. 18, 20 (1900) (claim
"must in some way be doubtful" to be validly compromised). The fund,
generally, is not available to pay agencies' administrative
settlements. See, e.g., B-257334, June 30, 1995.
Finality required:
The first sentence of 31 U.S.C. § 1304(a) limits the Judgment Fund to
paying "final" awards.[Footnote 64] Finality can mean different things
in different contexts. See McDonald v. Schweiker, 726 F.2d 311, 313
(8th Cir. 1983). For example, finality for purposes of taking an
appeal and finality for payment purposes are two different things. The
true import of this distinction may not be immediately apparent.
Obviously, it is not in the government's interest to pay judgments
while the claimant's entitlement and the government's obligation are
still subject to change. B-208999, Sept. 13, 1982. In fact, the
finality requirement was designed to protect the government "against
loss by premature payment of a judgment which might later through
appeal be amended or reversed." B-129227, Dec. 22, 1960, at 2. As
stated in B-129227, the term "final judgment" for payment purposes
means "such judgments as have become conclusive by reason of loss of
the right of appeal—by expiration of time or otherwise—or by
determination of the appeal by the court of last resort." Id., at 3.
See also Marathon Oil Co. v. United States, 374 F.3d 1123, 1128
(2004), cert. denied, 544 U.S. 1031 (2005); McDonald, 726 F.2d at 313.
Thus, a judgment against the United States is final for payment
purposes when the appellate process is completed. Generally speaking
and subject to the occasional exception, this can happen in one of
three ways: determination by the court of last resort, determination
by the parties not to seek further review, or expiration of the time
available for filing an appeal. [Footnote 65] E.g., 73 Comp. Gen. 46
(1993). Given the finality requirement, GAO has concluded that the
Judgment Fund should not be used to make "intermediate," partial, or
"good faith" payments—even upon the stipulation of the parties. E.g.,
B-164766, June 1, 1979.
Sometimes different aspects of a case become "final" at different
times. The decision in B-164766, for example, concerned a case pending
before the Court of Claims concerning whether a contractor had
realized "excess profits" under a government contract. Pursuant to its
view of the statute governing excess profits, the court ordered the
United States to accept a bond from the contractor. This bond was to
take the place of money that the contractor previously paid to the
government in that case—money that the court ordered to be refunded to
the contractor. The Justice Department was still litigating other
aspects of the case, and had not yet decided whether to appeal this
interlocutory order of the court. The department asked GAO whether the
Judgment Fund could be used to pay the refund order. GAO concluded
that the court's refund order was readily severable from the merits of
the underlying litigation. GAO noted, however, that the court's refund
order was not final because the department had not yet decided whether
to appeal it. GAO advised that after the refund order became final (in
one of the ways noted above), the refund order could be certified for
payment without regard to the status of the balance of the litigation.
The important point is that any amount to be paid under section 1304
must be a final award—not subject to change upon further appeal. See,
e.g., Barnes v. United States, 678 F.2d 10 Ord Cir.), aff'd, 685 F.2d
66 Ord Cir. 1982) (partial summary affirmance of undisputed portion of
lower court's judgment may be treated as a separate final judgment
payable under section 1304 notwithstanding the continuing appeal of
the disputed item); Parker v. Lewis, 670 F.2d 249 (D.C. Cir. 1981)
(summary affirmance of uncontested portion of attorney fees claim
enables payment under section 1304 notwithstanding the pending appeal
of the disputed balance of the award); 60 Comp. Gen. 573 (1981)
("partial awards" made by contract appeals boards under the Contract
Disputes Act may be paid from the Judgment Fund as they become final,
despite the pendency of other portions of the same claim).
Finality issues also arise with "interim" fee awards. Interim fees
represent awards made during the course of the litigation for legal
services rendered to date. In B-190940, Sept. 21, 1978, following the
Supreme Court's rationale in Bradley v. Richmond School Board, 416
U.S. 696, 721-23 (1974), GAO agreed that interim fee awards that can
no longer be appealed are final for purposes of section 1304. See also
McKenzie v. Kennickell, 669 F. Supp. 529 (D.D.C. 1987) (court directed
immediate payment of interim fee award representing what the parties
agreed was the "irreducible minimum" owed to the plaintiffs) Of
course, where the government does not intend to appeal an interim fee
award, as was true in these cases, the Attorney General can certify
this fact under 28 U.S.C. § 2414. The Attorney General's certification
creates finality sufficient for payment under section 1304.
A different finality problem arises when a judgment becomes final but
does not specify the dollar amount to be paid. Such a judgment, even
though it may be final with respect to the plaintiff's right to
recover, is not in and of itself final for Judgment Fund
certification. The reason? The government's computation of the amount
owed would not be binding on the plaintiff and would, itself, be
subject to judicial review. See 58 Comp. Gen. 311 (1979). Before such
a judgment is final, the parties must reach an agreed-upon amount
(including any required deductions), together with written statement
that the plaintiff will accept that amount in satisfaction of the
judgment. Id.
Monetary awards only:
Essentially, section 1304 contemplates a money judgment, that is, a
judgment directing the government "to pay final judgments, awards,
compromise settlements, and interest and costs," as opposed to a
judgment directing the government to perform some specific action. 31
U.S.C. § 1304(a). Any judgment can be translated into a monetary
amount in the sense that the cost of compliance can be calculated, but
this does not mean that the ultimate cost is to be borne by the
judgment appropriation. 70 Comp. Gen. 225 (1991); 13 Op. Off. Legal
Counsel 118 (1989). Thus, court orders and compromise settlements to
do the following things were not money judgments for purposes of
section 1304:
* reconsider benefit program eligibility, 70 Comp. Gen. 225;
* implement a nondiscriminatory employment system, 69 Comp. Gen. 160
(1990);
* hire an equal opportunity expert, B-234793.2, June 5, 1989; and;
* correct structural defects in a building, B-193323, Jan. 31, 1980.
A court order directing the United States to pay the costs of
supervising an election rerun was "more in the nature of injunctive
relief, than a monetary award of damages" and, therefore, not payable
from the Judgment Fund. B-279886, Apr. 28, 1998, at 10. This would be
true even if the court were to award a specific sum equivalent to the
actual or anticipated costs of supervising the rerun. Id.
Money judgments have "traditionally taken the form of a lump sum, paid
at the conclusion of the litigation." Jones & Laughlin Steel Corp. v.
Pfeifer, 462 U.S. 523, 533 (1983). The decades of the 1970s and 1980s
saw the mushrooming of "structured settlements" in personal injury
cases requiring long-term care wherein all or part of the award is
placed in a reversionary trust or used to purchase an annuity. In B-
162924, Dec. 22, 1967, involving a medical malpractice suit brought
under the Federal Tort Claims Act on behalf of a plaintiff expected to
remain comatose for life, the proposed settlement included two parts:
(1) a lump-sum payment covering all damages other than future care and
treatment, and (2) another lump sum payable in trust to a court-
appointed trustee. Upon the death of the plaintiff, any remaining
corpus and income would revert to the United States. GAO found the
proposal legally unobjectionable, cautioning only that the amount paid
to the trustee should represent the government's maximum obligation
and should not exceed the cost of a reasonable fixed settlement. Of
course, money that reverts to the United States under a structured
settlement is credited to the appropriation from which the settlement
was originally disbursed (usually the Judgment Fund). B-209849, Dec.
2, 1982 (nondecision letter).
"Not otherwise provided for:"
Section 1304(a)(1) of title 31, United States Code, limits the
Judgment Fund to paying awards "not otherwise provided for." Payment
is otherwise provided for when another appropriation or fund is
legally available to satisfy the judgment. E.g., 66 Comp. Gen. 157,
160 (1986); 62 Comp. Gen. 12, 14 (1982). See also 22 Op. Off. Legal
Counsel 141 (1998).
Whether payment is otherwise provided for is a question of legal
availability rather than actual funding status. In other words, if
payment of a particular judgment is otherwise provided for as a matter
of law, the fact that the defendant agency has insufficient funds at
that particular time does not operate to make the Judgment Fund
available. 66 Comp. Gen. at 160; 22 Op. Off. Legal Counsel 141. The
agency's only recourse in this situation is to seek additional
appropriations from Congress, as it would have to do in any other
deficiency situation.[Footnote 66] For judgments legally payable from
agency appropriations, the amount and time limitations imposed on that
appropriation apply just as with any other expenditure from that
appropriation.
There is only one proper source of funds in any given case. There is
no election to be made. If agency funds are available, then the
Judgment Fund is not. Conversely, if the Judgment Fund is the proper
source, then payment of the judgment from agency funds would violate
the purpose statute, 31 U.S.C. § 1301(a), and possibly the
Antideficiency Act. See, e.g., B-178551, Jan. 2, 1976. Some specific
examples follow:
Tax refunds. Tax refund judgments are payable from the permanent,
indefinite appropriation, Refunding Internal Revenue Collections.
[Footnote 67] 31 U.S.C. § 1324. This appropriation is also used "for
any overpayment in respect of any internal-revenue tax." 28 U.S.C. §
2411. Thus, judgments representing overpayments to or amounts
improperly collected by IRS are paid from this appropriation.
Judgments in this category may result from suits for refund under 26
U.S.C. § 7422 or suits for wrongful levy under 26 U.S.C. § 7426.
Land condemnation. Land condemnation judgments are generally payable
from the funds of the acquiring agency.[Footnote 68] 66 Comp. Gen. 157
(1986); 54 Comp. Gen. 799 (1975); 17 Comp. Gen. 664 (1938). This rule
predates the creation of the Judgment Fund. 17 Comp. Gen. 664; 5 Comp.
Gen. 737 (1926); A-25484, Jan. 11, 1929; A-12979, Feb. 10, 1926. Any
agency with the authority to acquire land has the authority to acquire
it by mutual agreement or by condemnation. 40 U.S.C. § 257. When an
agency is unable to reach a satisfactory purchase agreement with a
landowner, the agency may condemn the land. (This is known as the
power of eminent domain. For further discussion of real property
acquisition through condemnation, see Chapter 13, section B.) The
condemnation initiates litigation to determine the price ("just
compensation") the agency will pay to acquire the land. Condemnation
can be accomplished only through judicial process. In this way,
condemnation judgments are different from other judgments:
condemnation deploys litigation as a routine tool for the exercise of
a normal program activity. 66 Comp. Gen. at 160-61. Congress
appropriates funds for agency land acquisitions, and these funds are
legally available to make the purchase without regard to which process
was used. Thus, land condemnation judgments are otherwise provided for.
Refunds. Judgments for refunds of money previously paid to or seized
by the federal government are payable from the account to which the
original payment was credited. The rule, as stated in 17 Comp. Gen.
859, 860 (1938) and repeated in 29 Comp. Gen. 78, 79 (1949), is: "When
the amount subject to refund can be traced as having been erroneously
credited to an appropriation account the refund claim is chargeable to
said appropriation whether it be lapsed or current, or reimbursable or
nonreimbursable."[Footnote 69] The order to pay a refund hinges upon
the determination that the government improperly received or retained
the original funds. Cf. 70 Comp. Gen. 225, 228 (1991) (refunds are
more akin to orders of injunctive relief than money judgments). This
disposition prevents augmentation of the appropriation that received
the original payment. See 61 Comp. Gen. 224 (1982) (refund of right-of-
way permit fees, some of which were credited to a special fund
appropriated for Interior and some credited as miscellaneous
receipts); 55 Comp. Gen. 625 (1976) (fines assessed by the IRS and
credited as internal revenue collections). See also B-259065, Dec. 21,
1995.
Postal Service. The Postal Reorganization Act specifically provides
that judgments against the United States arising out of activities of
the Postal Service shall be paid by the Postal Service out of any
funds available to it. 39 U.S.C. § 409(h).
Government corporations. Judgments against a government corporation
generally are paid from the corporation's funds, not the Judgment
Fund. Generally, government corporations are set up to operate in a
business-like manner independent of the Treasury. See Keifer & Keifer
v. Reconstruction Finance Corp., 306 U.S. 381 (1939); Reconstruction
Finance Corp. v. Foust Distilling Co., 204 F.2d 343 (3rd Cir. 1953).
These corporations are free from many of the restrictions on
appropriated funds that apply to agencies. They are usually given
considerable latitude in determining their expenditures, and their
statutory charters typically contain a "sue and be sued" clause. See
Chapter 15, section B.8.c(2). It is logical that losses incurred by
such corporations, whether by judgment or otherwise, should be treated
as liabilities of the corporation and charged to corporate funds, not
to the U.S. Treasury. See, e.g., Far West Federal Bank v. Director,
Office of Thrift Supervision, 930 F.2d 883, 890 (Fed. Cir. 1991); 37
Comp. Gen. 691, 695 (1958); 25 Comp. Gen. 685 (1946); B-164879, Dec.
5, 1973; 39 Op. Att'y Gen. 559 (1938); 22 Op. Off. Legal Counsel 141
(1998); 13 Op. Off. Legal Counsel 436 (1989).
Congress has authorized a number of agencies to conduct commercial-
type programs. Where such a program has "sue and be sued" authority
and is financed from a revolving or other special fund, judgments
arising from program activities are treated as a necessary expense of
the program and are generally payable from agency's funds. See, e.g.,
C.H. Sanders Co. v. BHAP Housing Development Fund Co., 903 F.2d 114,
120 (2nd Cir. 1990); S.S. Silberblatt, Inc. v. East Harlem Pilot
Block, 608 F.2d 28, 35-36 (2nd Cir. 1979), citing Federal Housing
Administration v. Burr, 309 U.S. 242 (1940); 62 Comp. Gen. 12 (1982).
Nonappropriated fund instrumentalities (NAFIs). These are entities or
activities that do not receive appropriations.[Footnote 70] NAFIs
raise their own operating funds through product sales, member fees,
etc. Absent statutory provisions to the contrary, the United States
"assumes none of the financial obligations" of a NAFI. United States
v. Hopkins, 427 U.S. 123, 124 (1976). Thus, the general rule is that
judgments against them are payable from the instrumentality's own
funds. E.g., Cosme Nieves v. Deshler, 786 F.2d 445 (1st Cir.), cert.
denied, 479 U.S. 824 (1986). See also, e.g., B-204703, Sept. 29, 1981
(tort judgments). Cf. B-145762, May 19, 1961 (since the negligence at
issue was imputable to the base engineer, not to an officer or
employee of the NAFI, the tort award was payable from the Judgment
Fund). There is one exception of sorts: Congress designated the
Judgment Fund as the initial source of payment for judgments and
compromise settlements arising from contracts made by the Army and Air
Force Exchange Service, the Navy Exchanges, the Marine Corps
Exchanges, the Coast Guard Exchanges, and the Exchange Councils of the
National Aeronautics and Space Administration; however, the NAFIs must
reimburse the Judgment Fund. 31 U.S.C. § 1304(c).
Agencies receiving funds that are not to be construed as
appropriations. Some agencies have received legislation directing that
the funds they derive and use under statutory authority "shall not be
construed to be Federal Government funds or appropriated moneys." 12
U.S.C. § 2250(b)(2) (Farm Credit Administration); 12 U.S.C. § 244
(Federal Reserve Board); 12 U.S.C. § 481 (Office of the Comptroller of
the Currency). This being the case, the funds of those agencies are
not encumbered by the traditional prohibition on the use of operating
appropriations for judgments. As a result, their funds are legally
available to pay litigative awards, and payment, for the purposes of
section 1304, is otherwise provided for. B-251061.3, Sept. 29, 1993; B-
251061.2, Feb. 10, 1993.
Garnishment. Several statutes make the wages of federal civilian and
military personnel subject to garnishment for certain purposes. See,
e.g., 42 U.S.C. § 659(a) (alimony and child support); 5 U.S.C. § 5520a
(legal debts of employees generally). As a general proposition,
garnishment orders are directed to and paid by the employing agency
from agency funds, but, the Judgment Fund may be used in cases that
involve liability on the part of the government for failure to comply
with an appropriate garnishment order or legal process. 56 Comp. Gen.
592 (1977).
Bankruptcy. Federal bankruptcy law is complex and allows for a wide
variety of awards against the government. The law expressly waives
federal sovereign immunity for orders and awards under 60 specific
sections of the United States Code. 11 U.S.C. § 106(a)(1). It does not
identify, however, the source of payment. What it does say is that:
"enforcement of any such order, process, or judgment against any
governmental unit shall be consistent with appropriate nonbankruptcy
law applicable to such governmental unit and, in the case of a money
judgment against the United States, shall be paid as if it is a
judgment rendered by a district court of the United States."
11 U.S.C. § 106(a)(4). For this reason, in order to determine whether
payment is otherwise provided for, it is necessary to compare each
bankruptcy award with analogous judgments discussed in other contexts
in this chapter. See B-239556-0.M., Oct. 12, 1990. For example,
reference to this chapter's discussion of refunds and tax judgment
should help to resolve most situations. While the federal government
is not subject to punitive damages in a bankruptcy proceeding, 11
U.S.C. § 106(a)(3), it may still be held in "civil contempt" and
assessed compensatory damages including attorney fees and court costs
if it attempts to collect debts discharged in bankruptcy. When made,
such compensatory awards are payable from the Judgment Fund,
notwithstanding their civil contempt status. Id.
c. Administratively Settled Claims:
Claims settled at the administrative level are paid in one of three
ways: (1) from operating appropriations available to the agency whose
activities gave rise to the claims; (2) from some existing
appropriation or fund other than the agency's operating
appropriations; or (3) by submitting the claim to Congress for a
specific appropriation. As is true of most funding source
determinations, there is no option. For any given claim, one of these
methods will apply to the exclusion of the other two. See, e.g., 65
Comp. Gen. 790, 793 (1986).
Some statutes governing specific types of claims contain detailed
provisions governing the payment of those claims. For example, under
the Federal Tort Claims Act, administrative settlements of $2,500 or
less are paid "by the head of the Federal agency concerned out of
appropriations available to that agency." 28 U.S.C. § 2672. Another
example is 16 U.S.C. § 574, which authorizes the Secretary of
Agriculture to reimburse property owners up to $2,500 for loss or
damage caused by the government in connection with the administration
or protection of the national forests, "payment to be made from any
funds appropriated for the protection, administration, and improvement
of the national forests." This authority has been used, for example,
to compensate landowners for damage caused by aerial spraying for pest
control. B-117720, Dec. 23, 1953.
A 1978 amendment to 31 U.S.C. § 1304 allows payment from the Judgment
Fund of claims settled under section 203 of the National Aeronautics
and Space Act of 1958, 42 U.S.C. § 2473(c)(13). This statute
authorizes the Administrator of the National Aeronautics and Space
Administration (NASA) to settle claims for death, personal injury, or
property damage resulting from the conduct of NASA's functions, if the
claim is presented in writing within 2 years after the incident giving
rise to the claim. Claims of $25,000 or less are paid directly by NASA
from its own funds. Claims in excess of $25,000 are paid from the
judgment appropriation. The NASA statute differs from the Military,
Foreign, and National Guard Claims Acts in one important respect.
Under the military statutes, if a claim exceeds the amount payable
from agency funds, only the excess over that amount is paid from the
judgment appropriation. Under the NASA statute, if the amount of a
settled claim exceeds $25,000, the entire amount of the claims is paid
from the judgment appropriation.
When considering what appropriation to use to pay an administratively
settled claim, the first place to look is the statute authorizing the
settlement. If the statute authorizes an agency to settle claims but
is silent with respect to payment, the necessary implication is that
the agency will pay from its operating appropriations. For example,
claims settled under authority of the Military Personnel and Civilian
Employees Claims Act of 1964, 31 U.S.C. § 3721, are paid from
operating appropriations. B-143673, Nov. 11, 1976, overruled on other
grounds by 56 Comp. Gen. 615 (1977); B-174762, Jan. 24, 1972; B-
206856, Apr. 7, 1982 (nondecision letter). Cf. 65 Comp. Gen. 790, 792
(1986) (while claims presented under 31 U.S.C. § 3721 are usually paid
from the agency's operating appropriations, in this case Congress
designated another payment source for the claim). Similarly,
administrative settlements under the Contract Disputes Act (at the
contracting officer level) are paid from the Judgment Fund, which the
contracting agency must reimburse from its procurement appropriations.
63 Comp. Gen. 308 (1984). Another example is 31 U.S.C. § 3724, which
authorizes the Attorney General to settle claims for death, personal
injury, or property damage caused by investigative or law enforcement
officers of the Department of Justice acting within the scope of their
employment, which cannot be settled under the Federal Tort Claims Act.
Settlement authority is limited to "not more than $50,000 in any one
case." 31 U.S.C. § 3724(a). The statute makes no mention of how the
claims are to be paid, but the legislative history of a 1989 revision
recognized that they are paid from the operating funds of the Justice
Department. H.R. Rep. No. 101-46, at 3 (1989).
For the Department of Defense and the military departments, claims
payable from agency funds are paid from Operation and Maintenance
(O&M) appropriations in accordance with 10 U.S.C. § 2732. While terms
of the statute are general ("claims authorized by law to be paid"),
its scope is clarified by its origin. Until fiscal year 1989, the
Defense Department received a separate lump-sum appropriation entitled
"Claims, Defense." It was available for all noncontractual claims
payable from agency funds, including "personnel claims, tort claims,
admiralty claims, and miscellaneous claims." Starting with fiscal year
1989, Congress discontinued the Claims, Defense appropriation and
instructed Defense to charge the claims to O&M appropriations. Pub. L.
No. 100-463, § 8098, 102 Stat. 2270, 2270-35 (Oct. 1, 1988). The
authority was made permanent in 1990. Pub. L. No. 101-510, § 1481(j),
104 Stat. 1485, 1708 (Nov. 5, 1990), codified at 10 U.S.C. § 2732.
When payment is to be made from agency operating appropriations, it is
necessary to determine when the obligation occurs and hence what
fiscal year to charge. The governing principle, stated in a number of
earlier decisions, is that a claim against an annual appropriation is
chargeable to the appropriation for the fiscal year in which the
liability was incurred. E.g., 18 Comp. Gen. 363, 365 (1938). When this
happens depends on the type of claim.
Where the United States is not obligated to pay a claim until a final
determination of liability has been made, the appropriation current at
the time that determination is made is properly chargeable with the
obligation. E.g., 65 Comp. Gen. 533, 541 (1986); 63 Comp. Gen. 308
(1984); 38 Comp. Gen. 338, 340 (1958); B-174762, Jan. 24, 1972. This
rule is "grounded on the theory that the court or administrative award
'creates a new right' in the successful claimant, giving rise to new
Government liability." 63 Comp. Gen. at 310. See also B-272984, Sept.
26, 1996; B-255772, Aug. 22, 1995. As a general proposition, claims
involving property damage or personal injury will fall into this
category. E.g., 38 Comp. Gen. 338; 35 Comp. Gen. 511, 512 (1956).
Thus, administrative awards of $2,500 or less under the Federal Tort
Claims Act are payable from funds currently available at the time the
claim is determined to be proper for payment. 38 Comp. Gen. 338; 35
Comp. Gen. at 512; 27 Comp. Gen. 445 (1948); 27 Comp. Gen. 237 (1947).
Similarly, payments under the Military Personnel and Civilian
Employees' Claims Act of 1964 are chargeable to funds current when a
final determination of liability is made. B-174762, Jan. 24, 1972.
Contract claims arising from changes to an existing contract are
chargeable to appropriations current at the time the basic contract
was executed if the changes were authorized by and enforceable under
the provisions of the original contract. 65 Comp. Gen. 741 (1986); 59
Comp. Gen. 518 (1980). This type of change, commonly referred to as a
within-scope change, is considered an "antecedent liability." 59 Comp.
Gen. at 522. A contract claim is based on antecedent liability if the
modification or adjustment is within the general scope of the original
contract and is made pursuant to a provision, such as a "Changes"
clause, in the original contract. For example, a contractor provided
supplemental research services under a contract with the Interior
Department without the issuance of written contract amendments. Since
the government received the benefit of the services and ratified the
transaction, the contractor was entitled to be paid. The work was
within the general scope of the original contract and the government's
liability was viewed as deriving from the "Changes" clause. Therefore,
the contractor's claim was chargeable to funds available at the time
the original contract was executed. B-197344, Aug. 21, 1980. A
contract change which exceeds the general scope of the original
contract, commonly referred to as an outside-of-scope change, like any
new obligation, is chargeable to funds current at the time the change
is made. 37 Comp. Gen. 861 (1958); B-207433, Sept. 16, 1983. See also
61 Comp. Gen. 184 (1981), affd upon reconsideration, B-202222, Aug. 2,
1983; B-224702, Aug. 5, 1987. With a contract implied-in-law (quantum
meruit), there is no contract to which the allowance of the claim can
relate. The payment is chargeable to the fiscal year in which the
goods were received or the services rendered. B-210808, May 24, 1984;
B-207557, July 11, 1983.
Claims by federal employees for compensation and related allowances
are chargeable to appropriations for the fiscal year in which the work
was performed. If the claim covers more than one fiscal year, the
payment must be prorated accordingly. If the applicable appropriation
account is insufficient to pay the claim, the agency must seek a
deficiency appropriation. 69 Comp. Gen. 40 (1989) (administrative
awards of back pay); 54 Comp. Gen. 393 (1974) (claim for statutory
salary which claimant had previously improperly waived); 47 Comp. Gen.
308 (1967) (payment resulting from recrediting of sick leave); B-
171786, Mar. 2, 1971 (overtime). Interest under the Back Pay Act is
chargeable to the same fiscal year or years as the back pay to which
it relates. 69 Comp. Gen. at 43.
The rule is the same in situations where the claimant did not perform
any work, for example, restoration after an improper termination where
the period of wrongful termination is deemed valid service under the
Back Pay Act. 69 Comp. Gen. at 42; 58 Comp. Gen. 115 (1978). The
latter case held that court-ordered agency contributions to an
employee's retirement account must be prorated among the fiscal years
covered. While the case involved a court order, not an administrative
settlement, it implies that back pay under the Back Pay Act, Title VII
of the Civil Rights Act, and the Veterans Preference Act should be
treated similarly.[Footnote 71]
Several types of administrative claims are payable from the permanent
judgment appropriation established by 31 U.S.C. § 1304. The primary
example is administrative awards in excess of $2,500 under the Federal
Tort Claims Act. 28 U.S.C. § 2672. Monetary awards by agency boards of
contract appeals are payable in the first instance from the judgment
appropriation, subject to reimbursement by the contracting agency from
current appropriations. 41 U.S.C. §§ 612(b), (c). See 63 Comp. Gen.
308 (1984). A 1978 amendment to the judgment appropriation added
several types of claims that previously had required specific
appropriations. Pub. L. No. 95-240, § 201, 92 Stat. 107, 116 (1978).
Those covered elsewhere in this chapter are the Small Claims Act, 31
U.S.C. § 3723, and amounts in excess of amounts payable from agency
appropriations under the Military Claims Act, 10 U.S.C. § 2733,
Foreign Claims Act, 10 U.S.C. § 2734, and National Guard Claims Act,
32 U.S.C. § 715. Unless required by statute, such as the Contract
Disputes Act and the Notification and Federal Employee
Antidiscrimination and Retaliation Act of 2002 ("NoFEAR"),[Footnote
72] agencies do not have to reimburse claims paid from the judgment
appropriation.
There are several instances in which there is no source of funds
available for immediate payment. If the legislation governing a
particular type of claim requires specific appropriations, then
payment must await congressional action. Statutes of this type
frequently require that the agency's determination be reported to
Congress for its consideration or certified to Congress as a "legal
claim." Examples are:
* 10 U.S.C. §§ 4802, 7622, 9802, and 14 U.S.C. § 646: Admiralty claims
settled by the Army, Navy, Air Force, and Coast Guard, respectively.
Under these statutes, the applicable agency head may settle and pay
admiralty claims up to a specified limit ($500,000 for the Army and
Air Force, $15,000,000 for the Navy, and $100,000 for the Coast
Guard). If the settlement exceeds the specified limit, the claim must
be certified to Congress.
* 20 U.S.C. § 975(b): Claims for losses under indemnity agreements
authorized by the Arts and Artifacts Indemnity Act. Certification to
Congress is made by the Federal Council on the Arts and Humanities.
* 31 U.S.C. § 3725: Claims for death or personal injury of a foreign
national caused by a government employee in a foreign country in which
the United States has privileges of extraterritoriality. Settlement
authority is conferred upon the State Department and is limited to
$1,500. See B-120773, Mar. 22, 1955.
* 42 U.S.C. § 2207: Claims resulting from certain nuclear or other
explosive detonations in the conduct of programs undertaken by the
Department of Energy.
* 42 U.S.C. § 2211: Claims resulting from a nuclear incident involving
the nuclear reactor of a United States warship, excluding combat
activities.
3. Whom and What to Pay:
This section addresses the issues of whom to pay (including the
consequences of paying the wrong person) and what amounts—beyond the
principal amount owed—may be paid as a matter of appropriations law.
The government must be assured that it is paying the right person the
right amount, and it must obtain documentation sufficient to
demonstrate that it legally discharged the government's obligation.
See 24 Comp. Gen. 679, 680-81 (1945). The ultimate objective is to
avoid placing the government in a situation where it might later find
itself embroiled in a controversy between competing claimants—facing
the possibility of being required to pay a second time to someone else
and take action to recover the previous payment. See, e.g., B-199455,
Sept. 29, 1980; B-136946, Apr. 8, 1960.
Obviously, payment should include the principal amount properly found
owed to the payee. Often at issue, in addition to the principal
amount, are the payee's claims for interest, costs, and attorney fees.
See, e.g., 63 Comp. Gen. 465 (1984); B-248420, July 30, 1992; B-
246294, Feb. 26, 1992.
a. To Whom Agencies Should Make Payment:
The guiding principle regarding whom to pay is the common-sense
proposition that payment should be made to the person or entity
entitled to receive it. Common sense in this instance is reinforced by
31 U.S.C. § 3322(a)(2)(B), which instructs disbursing officers to draw
public money from the Treasury "payable to persons to whom payment is
to be made." This statutory direction is simple and straightforward,
but complications arise in a number of circumstances, such as when the
payee is a minor,[Footnote 73] mentally incompetent,[Footnote 74] no
longer alive,[Footnote 75] or a corporate entity.[Footnote 76]
Sometimes, the proper payee cannot be determined short of an adversary
proceeding. In that event, GAO held, the proper course of action is to
deny payment administratively and leave the competing claimants to
their remedy in the courts. E.g., 68 Comp. Gen. 284 (1989).
As a general proposition, agencies should deliver government checks
directly to the payees. 16 Comp. Gen. 840 (1937). However, when there
is some valid reason for doing so, an agency may deliver the check to
appropriate agency employees for subsequent forwarding to the payees.
E.g., 65 Comp. Gen. 81 (1985).
Payment to the wrong person obviously does not discharge the
government's obligation. If, through administrative mistake of fact or
law or clerical error, a payment is made to a person not entitled to
it, the government is still obligated to make payment to the proper
claimant. E.g., 37 Comp. Gen. 131, 133 (1957) (payment of death
gratuity to erroneously designated payee). The agency should take
action to recover from the first payee. 31 U.S.C. §§ 3727(c),
3528(b)(2), 3711(a)(1). However, payment to the proper claimant should
not be held up pending recovery of the erroneous payment, even though
this may result in a duplicate payment. Illustrative cases include 66
Comp. Gen. 617 (1987), aff'd on reconsideration, B-226540.2, Aug. 24,
1988; 19 Comp. Gen. 104 (1939); and B-249869, Jan. 25, 1993.
If the government cannot recover the erroneous payment from the
erroneous payee, the certifying officer responsible for that payment
may have to reimburse the government for the unrecovered amount. (For
more information on the liability and relief of accountable officers
under these circumstances, see Chapter 9).
b. Amounts Payable in Addition to the Principal Amount:
(1) Interest:
Claims for interest probably have generated more controversy than any
other aspect of the payment of claims and judgment. The law in this
area is complex and often highly technical. As a general rule,
interest may not be recovered against the United States unless
expressly provided by statute or contract.[Footnote 77] Statutory
interest provisions and some exceptions recognized by the courts,
however, have blunted some of the potentially harsh consequences of
the general rule.
General no-interest rule:
The courts have recognized and applied the general rule on numerous
occasions. For example, in Environmental Tectonics Corp. v. United
States, 72 Fed. Cl. 290 (2006), the court noted that the Supreme Court
has held that the right to recover interest from the United States
requires a waiver of sovereign immunity "separate from a general
waiver of immunity to suit." Environmental Tectonics, 72 Fed. Cl. at
296, quoting Library of Congress v. Shaw, 478 U.S. 310, 314 (1986).
This does not necessarily mean that the interest waiver must be in a
separate statute. Rather, the waiver of sovereign immunity with
respect to interest must itself be explicit, and will not be inferred
from a general waiver of immunity to suit. See, e.g., United States v.
N.Y. Rayon Importing Co., 329 U.S. 654, 659 (1947) ("consent can take
only two forms: (1) a specific provision for the payment of interest
in a statute; [or] (2) an express stipulation for the payment of
interest in a contract duly entered into by agents of the United
States"); Zumerling v. Marsh, 783 F.2d 1032, 1034 (Fed. Cir. 1986),
quoting Fidelity Construction Co. v. United States, 700 F.2d 1379,
1383 (Fed. Cir.), cert. denied, 464 U.S. 826 (1983) ("'express consent
to the payment of interest must be found in either a special statute
or an express contractual provision. The intent by Congress to permit
the recovery of interest cannot be implied,' and must be strictly
construed."); B-206101, May 20, 1982, at 1 (in the absence of
statutory authority, the government must have "affirmatively and
unambiguously contracted to pay interest"). See also Marathon Oil Co.
v. United States, 56 Fed. Cl. 768, 770-71(2003), affd, 374 F.3d 1123
(Fed. Cir. 2004), cert. denied, 544 U.S. 1031 (2005); Alaska Airlines,
Inc. v. Johnson, 8 F.3d 791, 798 (Fed. Cir. 1993).
There are two types of interest: pre-judgment (interest as part of the
claim upon which the judgment was founded) and post-judgment (interest
on the judgment itself). As the cases cited throughout this discussion
make clear, the general rule applies equally to both types. Depending
on the statute authorizing pre-judgment interest, it may run to the
date of payment or the date of judgment. In the latter case, the pre-
judgment interest becomes part of the judgment amount to which any
authorized post-judgment interest is applied. See, e.g., B-111945,
Nov. 13, 1952.
Generally speaking, absent an applicable waiver of sovereign immunity,
courts are not authorized to award interest against the United States
on the basis of equity or because payment has been delayed even if the
delay can be termed unreasonable. E.g., Brazos Electric Power
Cooperative, Inc. v. United States, 52 Fed. CL 121, 134 (2002),
quoting N.Y. Rayon Importing, 329 U.S. at 660; Lichtman v. OPM, 835
F.2d 1427 (Fed. Cir. 1988); B-214289, Oct. 23, 1985; B-206101, May 20,
1982. Interest is often found disguised as something else, but the
courts will penetrate the disguise and see it for what it is. A
leading case in this area is United States v. Mescalero Apache Tribe,
518 F.2d 1309 (Ct. CL 1975), cert. denied, 425 U.S. 911 (1976). As the
Court of Claims explained:
"[The] no-interest rule applies to any incremental damages sought to
be assessed against the Unites States, whether it be designated
interest, as such, or is designated by some other terminology which
has the same effect....
"The character or nature of interest cannot be changed by calling it
damages, loss, earned increment, just compensation, discount, offset,
or penalty, or any other term because it is still interest and the no-
interest rule applies to it."
Mescalero, 518 F.2d at 1321, 1322 (emphasis in original). See also
England v. Contel Advanced Systems, Inc., 384 F.3d 1372, 1378-79 (Fed.
Cir. 2004).
In Shaw, an employee who brought a job-related racial discrimination
action requested an award of attorney fees. The district court obliged
and added interest, as well. The district court, however, did not use
the term "interest." Rather, it increased the attorney fees by 30
percent "to compensate counsel for the delay in receiving payment for
the legal services rendered." Shaw, 478 U.S. at 313. In invalidating
the interest award, the Supreme Court brushed aside the lower court's
designation and looked at the substance. Citing Mescalero with
approval, the Court added that "the force of the no-interest rule
cannot be avoided simply by devising a new name for an old
institution." Id. at 321. As the court observed in District of
Columbia v. United States, 67 Fed. CL 292, 341 (2005), "no matter what
term plaintiff uses, compensation for the belated receipt of money
violates the no-interest rule absent an express ... waiver of
sovereign immunity from liability for interest." Unauthorized
interest, disguised as "liquidated damages" under the Fair Labor
Standards Act, was disallowed in Doyle v. United States, 931 F.2d
1546, 1550-51 (Fed. Cir. 1991), cert. denied, 502 U.S. 1029 (1992). In
Sterling Savings Ass'n v. United States, 80 Fed. Cl. 497, 518-19
(2008), the court faced inflated "wounded bank damages," and in
District of Columbia v. United States, 67 Fed. Cl. 292, 340 (2005),
the court rejected "escalation costs for inflation."
In the context of administrative claims, the general rule manifests
itself in virtually every area in which monetary claims can be brought
against the United States. Examples in which claims for interest have
been disallowed are: 65 Comp. Gen. 598 (1986) (delayed contract
payment to the assignee of a government contract); B-241592.3, Dec.
13, 1991 (duties collected by the Customs Service for the Virgin
Islands); B-236330.2, Feb. 14, 1990 (compensation for the passage of
time between the date a claim accrued and the date it was paid); B-
206101, May 20, 1982 (late payment of Treasury bill); B-195265, Aug.
17, 1979 (delayed reimbursement by Labor Department of benefit
payments to employee trust); B-154102, June 16, 1974 (award under
Military Claims Act). The interest prohibition also applies to claims
arising in foreign countries as well as to claims arising in the
United States. 45 Comp. Gen. 169 (1965).
The general rule also applies to payments under private relief
legislation. United States v. Bayard, 127 U.S. 251, 260 (1888).
However, consistent with the rule, such legislation may provide for
interest in situations where it would not otherwise be payable. See,
e.g., B-182574-0.M., July 19, 1979. In B-187866, Apr. 12, 1977, GAO
concluded that interest could be paid on a claim for which Congress
had made a specific appropriation where the appropriation language did
not specify interest but it was clear from the legislative history
that the amount appropriated included interest. (The specific claim
involved in B-187866 would now be covered by the Contract Disputes
Act.)
A statute originating in 1841 provides that amounts held in trust by
the United States shall be invested in government obligations and
shall bear interest at a minimum annual rate of 5 percent. 31 U.S.C. §
9702. This statute applies only where trust funds are otherwise
required by statute, treaty, or contract to be invested, and is not an
independent authorization for the payment of interest. Mescalero, 518
F.2d at 1323-31; White Mountain Apache Tribe of Arizona v. United
States, 20 Cl. Ct. 371, 380-81 (1990); B-241592.3, Dec. 13, 1991.
If the necessary authority for the payment of interest does not exist
in a particular context, it follows that appropriations are not
legally available for that purpose. Thus, in the absence of
legislation expressly making federal agencies liable for interest and
penalties the same as private parties, appropriations are not
available for the payment of interest or penalties to the Internal
Revenue Service on account of late forwarding or underpayment of
employment taxes. B-161457, May 9, 1978. Similarly, the Internal
Revenue Service is not liable for interest on overpayments of employer
taxes by federal agencies. B-161457, Dec. 5, 1983.
Judicially recognized exceptions:
There are two nonstatutory exceptions to the general rule, both of
which were noted in Library of Congress v. Shaw, 478 U.S. 310, 317 n.5
(1986). The first is a taking of property or a property interest which
entitles a claimant to just compensation under the Fifth Amendment of
the Constitution. The second is "where the Government has cast off the
cloak of sovereignty and assumed the status of a private commercial
enterprise." Shaw, 478 U.S. at 317 n.5.
Fifth Amendment takings. The courts have determined that interest is
inherent in the concept of "just compensation" required by the Fifth
Amendment in order to make the property owner whole.[Footnote 78] See
Phelps v. United States, 274 U.S. 341, 344 (1927). Of course, the
predicate to this constitutional right to interest is a cognizable
claim to just compensation under the Fifth Amendment. The takings
exception is a discrete concept and cannot be used to open the back
door to otherwise unauthorized interest awards where the Fifth
Amendment is not involved. See, e.g., United States v. Alcea Band of
Tillamooks, 341 U.S. 48 (1951); Alaska Airlines, Inc. v. Johnson, 8
F.3d 791, 798 (Fed. Cir. 1993). See also B-180565, May 31, 1974 (there
must be some underlying legal obligation to which interest liability
can attach); B-173904, Feb. 18, 1972 (rejecting claim that payment
delay, alone, in circumstances where payment required congressional
enactment of an appropriation, constituted a compensable Fifth
Amendment taking).
Commercial ventures. The "commercial venture" exception originated in
the Supreme Court's decision in Standard Oil Co. v. United States, 267
U.S. 76 (1925). Under World War I legislation, the United States had
insured a private steamship against certain war risks. The steamship
sank and the main issue in litigation was whether the insurance policy
applied to the facts of the case. The Supreme Court found the policy
applicable, and also awarded interest. Speaking for the Court, Justice
Holmes said:
"Some question was made as to the allowance of interest. When the
United States went into the insurance business, issued policies in
familiar form and provided that in case of disagreement it might be
sued, it must be assumed to have accepted the ordinary incidents of
suits in such business."
Standard Oil, 267 U.S. at 79. See also Bituminous Casualty Corp. v.
Lynn, 503 F.2d 636 (6th Cir. 1974), awarding interest on a recovery
under a reinsurance contract issued by the Department of Housing and
Urban Development (HUD). Citing Standard Oil, the court noted the
"well defined" exception to the general rule when a federal agency
"embarks on a business venture" with the power to sue and be sued.
Bituminous Casualty, 503 F.2d at 643. The court stated three grounds
for the interest award: HUD's sue-and-be-sued clause, the "self-
supporting nature" of the HUD program, and the fact that the
transactions resembled those of private parties. Id. at 645.
Another example is the United States Postal Service. In Loeffler v.
Frank, 486 U.S. 549, 556 (1988) (citations and quotation marks
omitted), the Court observed:
"By launching the Postal Service into the commercial world, and
including a sue-and-be-sued clause in its charter, Congress has cast
off the Service's cloak of sovereignty and given it the status of a
private commercial enterprise.... It follows that Congress is presumed
to have waived any otherwise existing immunity of the Postal Service
from interest awards."
The Court further noted that the interest award would not be
inconsistent with the Postal Service's enabling legislation (Postal
Reorganization Act), would not threaten "grave interference" with the
Service's operations, and was not contrary to anything in the
legislative history of the Service's sue-and-be-sued authority.
Loeffler, 486 U.S. at 556-57.
Based on the Supreme Court's Loeffler formulation, it seems clear that
the "commercial venture" exception to the general rule requires
several things. First, there must be a sue-and-be-sued clause. Fender
Peanut Corp. v. United States, 21 Cl. Ct. 95, 97 (1990). Second, a sue-
and-be-sued clause alone is not enough; the agency or program involved
must be one that Congress has launched into the commercial world. Id.
Finally, liability for interest must not be inconsistent with the
relevant enabling or program legislation. Id. Applying the Loeffler
criteria, courts have refused to invoke the "commercial venture"
exception when a federal agency does not have a sue-and-be-sued clause
and is engaged in primarily governmental, as opposed to commercial,
functions. McGehee v. Panama Canal Commission, 872 F.2d 1213 (5th Cir.
1989) (unlike the Panama Canal Company that it replaced, the
Commission was not given sue-and-be-sued authority); Wilson v. United
States, 756 F. Supp. 213 (D.N.J. 1991) (former Veterans
Administration).
Specific interest statutes:
In the United States Court of Federal Claims, pre-judgment interest,
when not otherwise provided for by law, is governed by 28 U.S.C. §
2516(a), which essentially codifies the general rule: "Interest on a
claim against the United States shall be allowed in a judgment of the
United States Court of Federal Claims only under a contract or Act of
Congress expressly providing for payment thereof." As the Supreme
Court explained in United States v. N.Y. Rayon Importing Co., 329 U.S.
654, 659 (1947), the statute means exactly what it says. The authority
to award interest may not be implied, nor may it be derived from some
expression of intent not reflected in explicit statutory or
contractual language. Id.
With respect to contractual waivers of the government's immunity, it
should be remembered that the government will not be bound by the
unauthorized acts of its officers and employees. E.g., OPM v.
Richmond, 496 U.S. 414, 419-20 (1990). See also B-306353, Oct. 26,
2005; B-290901, Dec. 16, 2002. Accordingly, the courts and GAO have
disallowed monetary claims against the government based on contractual
waivers of sovereign immunity where the persons who contracted on
behalf of the government lacked authority to bind the government to
pay monetary damages. See, e.g., Robbins v. United States Bureau of
Land Management, 438 F.3d 1074, 1084 (10th Cir. 2006); B-258257, Nov.
28, 1994.
In numerous statutes, Congress has authorized the recovery of
prejudgment interest against the United States. Under some of these
statutes, interest is an entitlement; under others, it is merely
authorized and must be affirmatively awarded. The following listing is
by no means comprehensive but is intended to identify some important
examples:
* Back Pay Act. Under 5 U.S.C. § 5596(b)(2), back pay "shall be
payable with interest" calculated from the effective date of the
withdrawal or reduction of pay to a date not more than 30 days prior
to the date of payment. The applicable interest rate is the rate for
tax overpayments determined under 26 U.S.C. § 6621(a)(1). Interest is
payable from the same source as the back pay. E.g., 69 Comp. Gen. 40,
43 (1989). Section 5596(b)(2) applies to both administrative awards
under the Back Pay Act, which are payable from agency funds (69 Comp.
Gen. at 42), as well as judicial awards, which are generally payable
from the Judgment Fund (58 Comp. Gen. 311 (1979)). Sometimes a court
will order "front pay" which is an increment above the employee's
current pay. In 60 Comp. Gen. 375 (1981), GAO concluded that a front
pay award is more in the nature of damages, and it should be paid from
the Judgment Fund.
* Wrongful tax levy. Where a court determines that a tax levy was
improper, interest on the judgment is provided for in 26 U.S.C. §
7426(g). If the levy was executed on money, interest runs from the
date the Internal Revenue Service (IRS) received the money to the date
of payment of the judgment. If the levy was executed on other property
which has been sold, interest runs from the date of the sale to the
date of payment of the judgment. The applicable rate of interest is,
again, the tax overpayment rate under 26 U.S.C. § 6621(a)(1).
* Tax refund judgments. When a taxpayer receives a judgment "for any
overpayment in respect of any internal revenue tax," "interest shall
be allowed" under 28 U.S.C. § 2411 from the date of the payment or
collection of the overpayment to a date, to be determined by the IRS,
preceding the date of the refund check by not more than 30 days. Once
more, the applicable interest rate is the tax overpayment rate.
* Equal Access to Justice Act. Under the Equal Access to Justice Act
(EAJA), 28 U.S.C. § 2412(f), if the United States appeals an EAJA
award of costs or fees and other expenses and the award is affirmed,
in whole or in part, interest shall be paid on the amount of the award
as affirmed. This interest is computed at the 52-week Treasury bill
rate determined under 28 U.S.C. § 1961(a), from the date of the award
"through the day before the date of the mandate of affirmance." See,
e.g., Haitian Refugee Center v. Meese, 791 F.2d 1489, 1501 (11th Cir.
1986).
* Court of International Trade. When a plaintiff obtains monetary
relief by judgment or stipulation in an action under section 515 of
the Tariff Act of 1930, 19 U.S.C. § 1515, interest "shall be allowed,"
running from the filing of the summons to the date of the payment, at
the rate established under 26 U.S.C. § 6621.
* Judgment offsets. Under 31 U.S.C. § 3728, the government is required
to set off debts owed to the United States against awards payable to
the debtor from the Judgment Fund, 31 U.S.C. § 1304. If the debtor
agrees to the setoff, the matter ends there. If the debtor disputes
the setoff, the government must bring a lawsuit against the debtor and
prove the debt in court. If the government ultimately recovers less in
that lawsuit than the amount it set off, the statute requires the
government to repay the balance owed with 6 percent interest for the
time it was withheld. 31 U.S.C. § 3728.
* Contract Disputes Act. The Contract Disputes Act of 1978, 41 U.S.C.
§ 611, requires the government to pay interest on contract claims from
the date the contracting officer receives the claim to the date of
payment. It applies whether the claim is allowed by the contracting
officer, a board of contract appeals, or a court.
* Medicare Provider Reimbursements. Courts are authorized by 42 U.S.C.
§ 139500(0(2) to award interest to Medicare providers during judicial
review of determinations by the Provider Reimbursement Review Board.
See, e.g., Tucson Medical Center v. Sullivan, 947 F.2d 971 (D.C. Cir.
1991).
* Title VII of the Civil Rights Act. As amended in 1991, Title VII, 42
U.S.C. § 2000e-16(d), makes the government liable for interest to
compensate for payment delays in the same manner as private parties.
* Superfund. The Comprehensive Environmental Response, Compensation,
and Liability Act, as amended by the Superfund Amendments and
Reauthorization Act of 1986, makes federal agencies liable for the
same awards, including interest, that nongovernmental entities are
liable for. 42 U.S.C. §§ 9607, 9620. Interest under these laws is paid
at the rate specified for investments of the Hazardous Substance
Superfund under 26 U.S.C. § 9507(d). Similar governmental liability is
provided for Superfund reimbursement claims. See Santa Fe Pacific
Realty Corp. v. United States, 780 E Supp. 687, 696-97 (E.D. Cal.
1991); B-245482-0.M., Apr. 8, 1992.
* Suits in Admiralty Act and Public Vessels Act. A money judgment
against the United States in a libel in personam under the Suits in
Admiralty Act may include 4 percent interest to the date of payment,
unless a higher rate is stipulated in the contract. 46 U.S.C. §
30911(b). Interest may not accrue prior to the filing of the suit
except pursuant to an express contract stipulation. 46 U.S.C. §
30911(a). The Public Vessels Act incorporates the interest provisions
of the Suits in Admiralty Act, except that interest may not accrue
prior to the date of the judgment except pursuant to an express
contract stipulation. 46 U.S.C. § 31107.
Most of the previous discussion has centered on pre-judgment interest—
interest allowed as part of a judgment against the United States. The
same general observations that apply to pre-judgment interest are
equally applicable to post-judgment interest—interest that is payable
on the judgment itself. First, payment of post-judgment interest
requires a clear and explicit waiver of sovereign immunity, with
interpretive ambiguities resolved against a waiver.[Footnote 79]
Second, Congress, in fact, has statutorily waived sovereign immunity
to permit the award of post-judgment interest against the United
States in many situations and circumstances—enacting or amending
legislation in specific contexts as deemed necessary or desirable.
See, e.g., Arvin v. United States, 742 F.2d 1301, 1304 (11th Cir.
1984).
Other waivers apply to awards made by particular courts. The authority
for these post-judgment interest assessments arises under 28 U.S.C. §
2516(b),[Footnote 80] 28 U.S.C. § 1961,[Footnote 81] and 31 U.S.C. §
1304(b)(1)(B).[Footnote 82] Essentially, when read together these
statutes allow post-judgment interest when the United States appeals
and loses in certain situations and subject to certain procedural
requirements.[Footnote 83] See, e.g., Marathon Oil, 374 F.3d at 1128
("a chain of cross-references that links four distinct statutory
provisions").[Footnote 84] See also Globe Savings Bank, F.S.B. v.
United States, 74 Fed. Cl. 736, 74142 (2006); United States v. Wilson,
926 F.2d 725 (8th Cir. 1991); Thompson v. Kennickell, 797 F.2d 1015
(D.C. Cir. 1986), cert. denied, 480 U.S. 905 (1987).
Most court judgments against the United States are paid from the
Judgment Fund, a permanent, indefinite appropriation established by 31
U.S.C. § 1304. See, e.g., B-279886, Apr. 28, 1998. This fact offers a
convenient handle to begin to grasp the authority for post-judgment
interest assessments. Section 1304 appropriates funds and specifies
procedures for the payment of many, if not most, judgments rendered
against the United States. Id. With respect to interest, section
1304(a) states that "necessary amounts are appropriated to pay final
judgments, awards, compromise settlements, and interest and costs
specified in the judgments or otherwise authorized by law" (emphasis
added) when certain procedural requirements have been met. Section
1304(b) adds:
"(1) Interest may be paid from the [Judgment Fund]:
"(A) on a judgment of a district court, only when the judgment becomes
final after review on appeal or petition by the United States
Government, and then only from the date of filing of the transcript of
the judgment with the Secretary of the Treasury through the day before
the date of the mandate of affirmance, or;
"(B) on a judgment of the Court of Appeals for the Federal Circuit or
the United States Court of Federal Claims under section 2516(b) of
title 28, only from the date of filing of the transcript of the
judgment with the Secretary of the Treasury through the day before the
date of the mandate of affirmance.
"(2) Interest payable under this subsection in a proceeding reviewed
by the Supreme Court is not allowed after the end of the term in which
the judgment is affirmed."
As summarized in 73 Comp. Gen. 46, 48 (1993), before payment may be
made from the Judgment Fund, the Secretary of the Treasury[Footnote
85] must certify that an award satisfies four basic criteria. 31
U.S.C. § 1304(a)(2). First, the award must be final. 31 U.S.C. §
1304(a). Second, the award must provide monetary, rather than
injunctive, relief. E.g., 70 Comp. Gen. 225, 228 (1991). Third, the
award must have been made under one of the authorities specified in 31
U.S.C. § 1304(a)(3), which include, but are not limited to, 28 U.S.C.
§ 2414 (United States District Court judgments and compromise
settlements negotiated by the Justice Department to dispose of actual
or imminent litigation) and 28 U.S.C. § 2517 (Court of Federal Claims
judgments). Fourth, payment of the award must not be "otherwise
provided for." 31 U.S.C. § 1304(a)(1). These criteria and conditions
must be strictly complied with. See, e.g., Marathon Oil, 374 F.3d at
1136-37; Dickerson v. United States, 280 F.3d 470, 478-79 (5th Cir.
2002); 44 Comp. Gen. 421 (1965).
To understand how the Judgment Fund statute applies to the payment of
interest awards also requires an understanding of how section 1304
fits into the larger web of federal statutes, such as 28 U.S.C. § 2516
and 18 U.S.C. § 1961, that address the authority to allow and pay
interest awards against the United States under specific programs and
by specific courts. The decision in Globe, 74 Fed. Cl. at 741-42,
concerned a lawsuit brought to recover a great deal of money that
Globe lost beginning in 1990 due to government actions. Globe had
recently won a favorable remand in the matter, but it feared that the
government would appeal again from any final judgment that court might
issue on remand. For this reason, Globe urged the court to enter a
partial final judgment in the amount of $20,902,446. The court
explained to Globe that, under the circumstances of the case and
pursuant to sections 1304, 1961, and 2516, payment could not yet be
made and interest could not be awarded because the matter was not yet
final. Globe, 74 Fed. Cl. at 741-42. The court added, "This result
might not be just or equitable, but it is required by law." Id. at
742. See also Marathon Oil, 374 F.3d 1123;Wilson, 926 F.2d 725;
Thompson, 797 F.2d 1015.
(2) Costs and attorney fees:
We preface this discussion by invoking once again two now familiar
principles: Just as with the case of the award and payment of the
underlying judgment, both a statutory waiver of sovereign immunity and
an appropriation of funds are necessary to permit the award and
payment of costs and attorney fees against the federal government. See
Knight v. United States, 982 F.2d 1573 (Fed. Cir. 1993); Cassata v.
Federal Savings & Loan Insurance Corp., 445 F.2d 122, 125 (7th Cir.
1971); 23 Comp. Gen. 805 (1944). Congress, however, has enacted a host
of statutes that do both. These statutory authorities have generated a
great deal of litigation.[Footnote 86] This prompted one court to
observe: "To the old adage that death and taxes share a certain
inevitable character, federal judges may be excused for adding
attorneys' fees cases."[Footnote 87] Kennedy v. Whitehurst, 690 F.2d
951, 952 (D.C. Cir. 1982). While there is considerable GAO and other
case law in this area, our modest purpose here is to briefly highlight
some of the major statutes and their basic features, particularly from
an appropriations law perspective.
Costs:
In 1966, Congress waived a portion of the government's sovereign
immunity by statutorily allowing courts to assess costs against the
government in all civil actions unless specifically prohibited. See
Pub. L. No. 89-507, § 1, 80 Stat. 308 (July 18, 1966), codified at 28
U.S.C. § 2412(a). These costs are "limited to reimbursing in whole or
in part the prevailing party for the costs incurred by such party in
the litigation." 28 U.S.C. § 2412(a)(1). Congress intended the 1966
amendments to "put private litigants and the United States on an equal
footing regarding cost awards." 54 Comp. Gen. 22, 23 (1974).
Section 2412(a)(1) states that, except as otherwise specifically
provided by statute, costs, "as enumerated in" 28 U.S.C. § 1920, "may
be awarded to the prevailing party in any civil action brought by or
against the United States." The cross-reference in section 2412(a)(1)
to 28 U.S.C. § 1920 serves to identify six categories of permissible
costs. These six categories include:
* fees of the clerk and marshal;
* fees of the court reporter for all or any part of the stenographic
transcript necessarily obtained for use in the case;
* fees and disbursements for printing and witnesses;
* fees for exemplification and copies of papers necessarily obtained
for use in the case;
* docket fees under 28 U.S.C. § 1923; and;
* compensation of court-appointed experts and interpreters, and
salaries, fees, expenses, and costs for special interpretation
services under 28 U.S.C. § 1828.
28 U.S.C. § 1920. This list "now embodies Congress' considered choice
as to the kinds of expenses that a federal court may tax as costs
against the losing party." Crawford Fitting Co. v. J.T. Gibbons, Inc.,
482 U.S. 437, 440 (1987). See also United States Equal Employment
Opportunity Commission v. W&O, Inc., 213 F.3d 600, 620 (11th Cir.
2000). The courts are free to construe the meaning and scope of the
items enumerated in section 1920, and may exercise discretion in
allowing or disallowing them, but may not assess costs beyond those
enumerated.[Footnote 88] See, e.g., Frederick v. City of Portland, 162
F.R.D. 139, 142 (D. Or. 1995).
Section 2412(c)(1) provides that costs awarded under section 2412(a)
shall be in addition to any relief provided in the judgment, and
"shall be paid as provided in sections 2414 and 2517 of this title."
Sections 2414 and 2517 address, among other things, the payment of
awards against the United States rendered in the district courts, the
Court of International Trade, and the United States Court of Federal
Claims. 28 U.S.C. §§ 2414, 2517. Thus, section 2412(c)(1) means that
these cost awards are payable from the Judgment Fund like other
judgments against the United States. However, the authority to award
costs under 28 U.S.C. § 2412(a) is not limited to cases involving
money judgments. B-165149-0.M., Sept. 23, 1968. The statute also
applies to costs awarded on appeal, to the extent authorized by law.
Super Food Services, Inc. v. United States, 416 F.2d 1236, 1241 (7th
Cir. 1969).
Attorney fees[Footnote 89]:
In England, it is customary for the loser to pay the winner's
attorneys fees. E.g., Alyeska Pipeline Service Co. v. Wilderness
Society, 421 U.S. 240, 247 n.18 (1975). This is called the "English
Rule." Anderson v. Griffin, 397 F.3d 515, 522 (7th Cir. 2005). The
United States, by contrast, follows the so-called "American Rule,"
under which each side to a lawsuit bears its own legal expenses. Id.
Here in the United States, absent a specific statutory (or
contractual) authorization, the prevailing litigant or claimant
ordinarily may not recover attorney's fees from the loser. E.g.,
Buckhannon Board and Care Home, Inc. v. West Virginia Department of
Health and Human Resources, 532 U.S. 598, 602 (2001); Summit Valley
Industries, Inc. v. Local 112, United Brotherhood of Carpenters &
Joiners of America, 456 U.S. 717, 721 (1982). In principle, of course,
even without the American Rule, sovereign immunity shields the United
States from attorney fee awards except where the government has waived
its immunity. Ardestani v. Immigration & Naturalization Service, 502
U.S. 129, 137 (1991). Today's reality is that Congress has enacted a
vast host of fee-shifting statutes—so many that some might be tempted
to conclude that the American Rule and this application of the
principle of sovereign immunity had been converted to exceptions.
There are well over 100 federal fee-shifting statutes on the books.
Morillo-Cedron v. District Director for the United States Citizenship
and Immigration Services, 452 E3d 1254, 1257-58 (11th Cir. 2006)
(citing a listing of fee-shifting statutes in an appendix to the
dissenting opinion of Justice Brennan in Marek v. Chesny, 473 U.S. 1,
43-51 (1985)).[Footnote 90]
Once again, our objective here is limited to presenting an overview of
attorney fee awards, as seen from the perspective of appropriations
law. An award of attorney's fees may be included in a judgment on the
merits or may be made in a separate judgment or order. In a few
instances, attorney fees are paid from the amount recovered on the
underlying claim, and are allowable up to a specified maximum
percentage of the recovery.[Footnote 91] Other statutes authorize
courts (or administrative agencies) to award reasonable attorneys fees
to the prevailing party separate from and in addition to any monetary
recovery in the underlying judgment.[Footnote 92] In either case, like
other money judgments against the United States, judicial awards of
attorney fees are payable—unless otherwise provided by law—from the
permanent, indefinite appropriation established by 31 U.S.C. § 1304
and commonly known as the Judgment Fund. E.g., 61 Comp. Gen. 260, 261
(1982); B-239556, Oct. 12, 1990; B-231771, Dec. 7, 1988. Similarly,
unless otherwise provided by law, administrative awards of attorney
fees are payable from the agency's appropriations. B-199291, June 19,
1981. The parties may not alter the correct source of payment by
stipulating a specific payment source in a settlement agreement. 69
Comp. Gen. 114 (1990).
Prior to 1980 Congress had dealt with fee shifting on a piecemeal
basis. That changed in 1980 with the enactment of major fee-shifting
legislation for general application to both administrative and
judicial proceedings. That legislation is the Equal Access to Justice
Act, referred to as "EAJA."[Footnote 93]
EAJA provides for both administrative and judicial awards of attorney
fees. Administrative EAJA awards are covered in 5 U.S.C. § 504. This
section authorizes attorney fee awards and other expenses to a party
who prevails over a federal agency in "an adversary adjudication,"
defined as "an adjudication under section 554 of [the Administrative
Procedure Act]." 5 U.S.C. §§ 504(a)(1), 504(b)(1)(C)(i). It adds,
however, that attorney fee awards must be denied if the official
conducting the adjudication finds that the losing agency's position
was "substantially justified" or that "special circumstances make an
award unjust." Id. § 504(a)(1). These awards are paid by the losing
agency "from any funds made available to the agency by appropriation
or otherwise." Id. § 504(d). Even if the agency ultimately prevails,
section 504(a)(4) requires the hearing officer to award attorney fees
against the agency:
"If, in an adversary adjudication arising from an agency action to
enforce a party's compliance with a statutory or regulatory
requirement, the demand by the agency is substantially in excess of
the decision of the adjudicative officer and is unreasonable when
compared with such decision, under the facts and circumstances of the
case, ... unless the party has committed a willful violation of law or
otherwise acted in bad faith, or special circumstances make an award
unjust. Fees and expenses awarded under this paragraph shall be paid
only as a consequence of appropriations provided in advance."
For judicial awards, EAJA enacted two different fee-shifting
provisions, now codified at 28 U.S.C. § 2412(b) and (d). Section
2412(b) authorizes fee awards to prevailing parties against the United
State in civil actions "unless expressly prohibited by statute, ... to
the same extent that any other party would be liable under the common
law or under the terms of any statute which specifically provides for
such an award." As the quoted language indicates, section 2412(b)
covers two general situations. First, it makes the United States
liable under fee-shifting statutes that do not by their terms apply to
the United States. An example of a statute now applicable to the
United States by virtue of section 2412(b) is the Age Discrimination
in Employment Act, 29 U.S.C. § 621. See Newmark v. Principi, 283 F.3d
172, 178 (3rd Cir. 2002). The Civil Rights Attorney's Fees Award Act
of 1976, 42 U.S.C. § 1988(b), is another. See Premachandra v. Mitts,
753 F.2d 635 (8th Cir. 1985). Section 2412(b) also makes the United
States liable for fee awards under some court rules, such as Rule 37
of the Federal Rules of Civil Procedure[Footnote 94] (certain
discovery violations). M.A. Mortenson Co. V. United States, 996 F.2d
1177 (Fed. Cir. 1993); 6 Op. Off. Legal Counsel 525 (1982). However,
the waiver of sovereign immunity does not extend to court rules that,
unlike the Federal Rules of Civil Procedure, are not reviewed and
approved by Congress and thus lack the force and effect of a federal
statute. Yancheng Baolong Biochemical Products Company, Ltd. v. United
States, 406 F.3d 1377, 1382-83 (Fed. Cl. 2005) (rules of the Court of
International Trade).
Second, it makes the United States liable under various common-law
exceptions to the American Rule that were previously inapplicable to
the federal government. For example, the federal circuit courts
recently have been vigorously discussing the extent to which section
2412(b) applies to the common law authority to award attorney fees
based on a party's "bad faith." See, e.g., Centex Corp. v. United
States, 486 F.3d 1369, 1372-74 (Fed. Cir. 2007). Awards made under
section 2412(b) are paid from the Judgment Fund unless otherwise
provided for by law. One example of when these awards are otherwise
provided for can be seen in 28 U.S.C. § 2412(c)(2), specifying that an
award based on a finding of bad faith under this statutory provision
must be paid from agency funds. See, e.g., 63 Comp. Gen. 260 (1984).
The second EAJA provision, applicable to judicial awards is section
2412(d). It is a "catch-all" provision that generally applies to any
civil action brought by or against the United States except tort cases
or cases subject to another fee-shifting statute. It parallels the
provisions of 5 U.S.C. § 504(a), discussed above. A prevailing party
(other than the United States) who meets specified financial
eligibility criteria may apply to the court for a fee award under this
subsection. Fees will be awarded unless the court finds that "the
position of the United States was substantially justified or that
special circumstances make an award unjust." 28 U.S.C. §
2412(d)(1)(A). The "substantially justified" determination includes
the underlying administrative action, as well as the government's
position in the lawsuit. 28 U.S.C. § 2412(d)(1)(B). Once the party
applies for the fee application, the burden shifts to the United
States to establish that its position was substantially justified.
[Footnote 95] E.g., International Air Response, Inc. v. United States,
80 Fed. Cl. 460, 463 (2008). Fees are limited to $125 per hour, but
courts may award higher amount based on cost-of-living increases or
other special factors. 28 U.S.C. § 2412(d)(2)(A). An award may be
reduced or denied if the prevailing party has "unduly and unreasonably
protracted" the case. 28 U.S.C. § 2412(d)(1)(C).
As amended in 1985,[Footnote 96] EAJA provides that section 2412(d)
awards "shall be paid by any agency over which the party prevails from
any funds made available to the agency by appropriation or otherwise."
28 U.S.C. § 2412(d)(4). Line-item appropriations are not required for
this purpose. E.g., Electrical District No. 1 v. Federal Energy
Regulatory Commission, 813 F.2d 1246 (D.C. Cir. 1987); 63 Comp. Gen.
260, 263 (1984); 6 Op. Off. Legal Counsel 204, 209-12 (1982).
(3) Deductions:
If someone entitled to payment from the Judgment Fund also owes a debt
to the United States, the Secretary of the Treasury is required by 31
U.S.C. § 3728 to set off (withhold) that amount from the Judgment Fund
payment. This set-off requirement has been on the books since 1875.
Act of March 3, 1875, ch. 149, 18 Stat. 481. As the Court of Claims
said in Labadie v. United States, 33 Ct. Cl. 476, 480 (1898): "When
the time of payment comes the statutes give the accounting officers
... abundant authority to set off an indebtedness due from a claimant
to the United States against a judgment in his favor."
It is important, in this context, however, to distinguish between
setoff taken against awards payable from the Judgment Fund pursuant to
section 3728 and setoff taken in other contexts or pursuant to other
statutes or common law authority. The procedures of section 3728 apply
only to setoff against awards payable from the Judgment Fund. Thus,
they do not apply to the government's right of setoff prior to the
entry of judgment on the claim against which offset is sought. E.g.,
Fitzgerald v. Staats, 578 F.2d 435, 439 (D.C. Cir.), cert. denied, 439
U.S. 1004 (1978). The right of setoff against an administrative claim
is wholly independent of section 3728, and there is no requirement to
seek the debtor's consent pursuant to section 3728 when pursuing
setoff in that context.[Footnote 97] E.g., Project Map, Inc. v. United
States, 486 F.2d 1375 (Ct. Cl. 1973); 14 Comp. Gen. 849 (1935).
Likewise, section 3728 has no application to setoff taken by an
executive agency against a judgment payable from agency funds rather
than the Judgment Fund and provides no basis for awarding interest in
conjunction with such an offset. Bianchi v. United States, 46 Fed. Cl.
363 (2000).
Section 3728 both establishes the requirement for setoff and
prescribes the procedures to be followed. If the plaintiff consents,
the amount of the debt is deducted from the amount paid pursuant to 31
U.S.C. § 1304 and the debt is discharged. 31 U.S.C. § 3728(b)(1). If
the plaintiff refuses to consent or denies the indebtedness, the
amount must still be withheld, together with the estimated cost of
prosecuting the debt to final judgment, 31 U.S.C. § 3728(b)(2)(A).
Thereafter, the statute requires, the Secretary shall "have a civil
action brought if one has not already been brought." 31 U.S.C. §
3728(b)(2)(B). If the government loses in this action or if the amount
recovered on the debt and costs is less than the amount withheld, the
balance must be paid over to the plaintiff with 6 percent interest for
the time it was withheld. 31 U.S.C. § 3728(c).
The requirements of 31 U.S.C. § 3728 with respect to judgment
creditors have generally been viewed as mandatory. E.g., B-259532,
Mar. 6, 1995; 37 Op. Att'y Gen. 215, 217-18 (1933). Thus, an agreement
purporting to consent to the entry of final judgment without regard to
setoff is invalid. Eastern Transportation Co. v. United States, 159
F.2d 349, 352 (2nd Cir. 1947).
On the other hand, the award subject to setoff does not have to arise
from a judgment in order to trigger the procedures of 31 U.S.C. §
3728. Where the applicable statute provides for payment from the
Judgment Fund "in a manner similar to judgments and compromises in
like causes," or "in accordance with the procedures provided by"
section 1304, or pursuant to some other similar language, the
procedures of section 3728 will apply. E.g., B-135984, May 21, 1976
(those administrative settlements under the Federal Tort Claims Act
which are payable from the Judgment Fund because they exceed $2,500,
as provided by 28 U.S.C. § 2672); B-210316-0.M., Sept. 16, 1983
(awards made by boards of contract appeals under the Contract Disputes
Act).
As discussed above, administrative back pay awards are normally paid
from agency funds. 69 Comp. Gen. 40, 42 (1989). When an agency pays an
employee's salary, it normally makes several deductions from the gross
amount for such things as income tax and retirement fund
contributions. Typical deductions include federal income tax, state
income tax, retirement fund or social security contribution, Medicare
tax, and Federal Employees Group Life Insurance.[Footnote 98] The
treatment of these types of deductions may become an issue when an
employee receives back pay from the Judgment Fund as the result of a
lawsuit under the Back Pay Act, 5 U.S.C. § 5596, and other statutes.
See, e.g., 58 Comp. Gen. 311 (1979).
Where payment is made on a judgment, deductions may not be made from
the amount owed under the judgment unless the deductions are specified
in the judgment or in a written agreement signed by the judgment
creditor. In B-129346, Sept. 23, 1981, for example, GAO held that is
had no authority to unilaterally withhold taxes from back pay
judgments against the United States unless the judgments specifically
directed the withholdings or the parties involved agreed to the
deduction of specified amounts. The authority to certify judgments
under 31 U.S.C. § 1304, GAO noted, is largely ministerial, and does
not allow certification of judgments for payment "other than in
accordance with their terms." B-124720, B-129346, Aug. 1, 1961, at 1.
See also 44 Comp. Gen. 729 (1965); 8 Comp. Gen. 603, 605 (1929). As a
practical matter, however, if the parties agree to the deduction of a
specified amount of withholding tax, their agreement may be
implemented in making the settlement, even where the judgment itself
is silent because the payee consented to the deduction. B-124720, B-
129346, Sept. 23, 1981.
Some deductions, such as federal retirement and Social Security,
require contributions by the government, as well as by the employee.
As GAO concluded in 58 Comp. Gen. 115 (1978), if a judgment directs
the payment of the government's share, as well as the employee's
share, they become part of the judgment and payable from the permanent
appropriation. If a judgment directs a particular deduction but is
silent with respect to the government's share, the employee's share is
payable from the permanent appropriation because it is part of the
judgment, but the government's share is not and must be paid from the
employing agency's funds. 58 Comp. Gen. at 118-19.
D. Claims by the Government: Debt Collection:
"It is 'as much the duty of the citizen to pay the Government as it is
the duty of the Government to pay the citizen.'"
Cherry Cotton Mills, Inc. v. United States, 327 U.S. 536, 540 (1946),
quoting Cong. Globe, 37L1 Cong., 2nd Sess. 1674 (1862).
1. Introduction:
As discussed above, 31 U.S.C. § 3702 charges agencies to settle "all
claims of or against the United States," while 31 U.S.C. § 3526(a)
charges GAO to settle "all accounts of the United States." Naturally,
the settlement of claims under section 3702 regularly identifies
amounts owed to the United States. This section discusses the accounts
settlement issues encountered by agencies when they go about
collecting these claims of the United States. These claims are
commonly referred to as "debts"[Footnote 99] and this process is
commonly known as "debt collection."[Footnote 100]
The amount of delinquent debt[Footnote 101] owed to the federal
government is enormous. The Treasury Department has estimated that, as
of September 30, 2006, nontax delinquent debt stood at about $91
billion.[Footnote 102] The outstanding tax debt is even more
staggering: As of the same date, the Internal Revenue Service (IRS)
estimated delinquent tax debt at about $245 billion.[Footnote 103]
2. The Government's Duty and Authority to Collect Debts Owed to It
Federal debt collection is a legal duty. Article IV, section 3, clause
2 of the Constitution, the so-called Property Clause, gives Congress
the power to dispose of property belonging to the United States.
[Footnote 104] Thus, the Supreme Court has stated:
"Power to release or otherwise dispose of the rights and property of
the United States is lodged in the Congress by the Constitution. Art.
W, § 3, Cl. 2. Subordinate officers of the United States are without
that power, save only as it has been conferred upon them by Act of
Congress or is to be implied from other powers so granted."
Royal Indemnity Co. v. United States, 313 U.S. 289, 294 (1941). For
example, as the Court of Claims put it in Fansteel Metallurgical Corp.
v. United States, 172 F. Supp. 268, 270 (Ct. Cl. 1959), "when a
payment is erroneously or illegally made it is in direct violation of
article W, section 3, clause 2, of the Constitution.... Under these
circumstances it is not only lawful but the duty of the Government to
sue for a refund thereof." See also Amtec Corp. v. United States, 69
Fed. CL 79, 88 (2005), aff'd, 239 Fed. Appx. 585 (Fed. Cir. 2007).
It follows that, without a clear statutory basis, an agency has no
authority to forgive indebtedness or to waive recovery. E.g., B-
276550, Dec. 15, 1997; 67 Comp. Gen. 471 (1988). The courts have added
that even the mistakes of federal employees will not estop the
government from fulfilling its duty to collect claims of the United
States. E.g., Aetna Casualty & Surety Co. v. United States, 526 F.2d
1127, 1130 (Ct. Cl. 1975), cert. denied, 425 U.S. 973 (1976); Lawrence
v. United States, 69 Fed. Cl. 550, 557, affd, 206 Fed. Appx. 993
(2006); Amtec, 69 Fed. Cl. at 88. See also 51 Comp. Gen. 162, 165
(1971). The duty to recover misspent federal grant funds even extends
to grantees that innocently incur improper expenditures. B-303927,
June 7, 2005.
The courts have long recognized that the government, as sovereign,
also has the inherent right to collect debts owed to it. E.g., United
States v. Wurts, 303 U.S. 414, 415 (1938); United States v. Lahey
Clinic Hospital, Inc., 399 F.3d 1, 15 (1st Cir.), cert. denied, 546
U.S. 815 (2005). "The only time a government agency is barred from
exercising its right to recover overpayments is when Congress has
clearly manifested its intention to raise a statutory barrier." Old
Republic Insurance Co. v. Federal Crop Insurance Corp., 746 E Supp.
767, 770 (N.D. Ill. 1990), aff'd, 947 F.2d 269 (7th Cir. 1991). See
also O'Gilvie v. United States, 66 F.3d 1550, 1554 (10th Cir. 1995),
aff d, 519 U.S. 79 (1996).
Over the years, Congress, through a series of governmentwide statutes,
has acted to affirm, regulate, and augment the government's inherent
and common law duty and powers with respect to debt collection.
[Footnote 105] The first of these governmentwide statutes was the
Federal Claims Collection Act (FCCA). Pub. L. No. 89-508, 80 Stat. 308
(July 19, 1966). See also Debt Collection Act of 1982, Pub. L. No. 97-
365, 96 Stat. 1749 (Oct. 25, 1982); the Federal Debt Recovery Act,
Pub. L. No. 99-578, 100 Stat. 3305 (Oct. 28, 1986); Federal Debt
Collection Procedures Act of 1990, Pub. L. No. 101-647, title XXXVI,
104 Stat. 4789, 4933 (Nov. 29, 1990); Debt Collection Improvement Act
of 1996, Pub. L. No. 104-134, title DI, ch. 10, § 31001, 110 Stat.
1321, 1321-358 (Apr. 26, 1996). Governmentwide regulations, known as
the Federal Claims Collection Standards (FCCS), are found at 31 C.F.R.
ch. IX. Each individual agency has authority and responsibility in the
first instance for collecting debts arising from its own programs and
activities. 31 C.F.R. § 901.1(a) ("Federal agencies shall aggressively
collect all debts arising out of activities of, or referred or
transferred for collection services to, that agency. Collection
activities shall be undertaken promptly with follow-up action taken as
necessary."). The Departments of Treasury and Justice are responsible
for supervising federal debt collection practices. 31 U.S.C. §
3711(d). Prior to 1996, when Congress transferred GAO's responsibility
for supervising federal debt collection activities to the Treasury
Department,[Footnote 106] GAO jointly promulgated the FCCS with the
Justice Department, and issued many decisions and opinions addressing
federal debt collection practices.[Footnote 107]
3. Debt Collection in a Nutshell:
This part of the chapter focuses on how government debt collection
efforts affect and are affected by appropriations law. A very basic
description of how the government collects debts will provide a useful
backdrop.[Footnote 198]
The Federal Claims Collection Standards (FCCS) break down the
governmentwide debt collection regime into the following components:
administrative collection (31 C.F.R. part 901), compromise of claims
(part 902), suspension or termination of collection (part 903), and
referrals for litigation (part 904).
The administrative collection actions described in FCCS, part 901,
include:
* issuing demand letters (31 C.F.R. § 901.2);
* taking administrative offset (31 C.F.R. § 901.3);
* reporting debts to consumer reporting agencies (31 C.F.R. § 901.4);
* contracting with private collection agencies (31 C.F.R. § 901.5);
[Footnote 109]
* suspending federal licenses, permits, and privileges (31 C.F.R. §
901.6);
* liquidating security or collateral (31 C.F.R. § 901.7);
* accepting collection in installments (31 C.F.R. § 901.8); and;
* assessing interest, penalties, and administrative costs (31 C.F.R. §
901.9).
If these tactics do not result in prompt collection of the debt,
agencies are required to refer their debts to the Treasury Department
for further administrative collection efforts. 31 C.F.R. §§ 901.1(d) &
(e).
In the event that collection of the complete amount cannot be
accomplished, the FCCS addresses the authority of the agencies and
Treasury to suspend or terminate collection under certain criteria (31
C.F.R. §§ 903.2 and 903.3). The FCCS also address agency authority to
compromise claims (31 C.F.R. part 902) or refer administratively
uncollectible debts to Justice for litigation (31 C.F.R. part 904). As
a final effort to obtain at least some return on uncollectible debts,
the FCCS requires agencies to attempt to sell nontax debts without
recourse against the government (31 C.F.R. § 903.5(b)). Once all of
these collection avenues have been explored, the FCCS directs agencies
to discharge (also referred to as a close out of the debt) the debts
that remain and report that fact to the Internal Revenue Service. 31
U.S.C. § 3711(a)(3); 31 C.F.R. §§ 903.3(a), 903.5.
4. Common Appropriations Law Issues Associated with Debt Collection
Activities:
a. Diminishing Returns and Cost/Benefit:
Many years ago, GAO approved the establishment of thresholds for small
claims below which initiating or continuing collection action would
not be cost-effective. See, e.g., 65 Comp. Gen. 893, 896 (1986)
(agencies should establish "'minimum debt amounts' and realistic
'points of diminishing returns'"). See also 55 Comp. Gen. 1438, 1439
(1976); 45 Comp. Gen. 553 (1966). In this context, notwithstanding the
duty to collect claims owed to the United States, GAO concluded that,
where the costs of collection would greatly exceed the amounts to be
recovered, agencies should adopt plans to forgo or cease collection in
such case. See, e.g., 65 Comp. Gen. 893; Considerations 18 Comp. Gen.
838 (1939); B-115800, Aug. 17, 1976.
The Federal Claims Collection Standards (FCCS) endorse this approach
and encourage the use of cost-benefit analysis:
"Agency collection procedures should provide for periodic comparison
of costs incurred and amounts collected. Data on costs and
corresponding recovery rates for debts of different types and in
various dollar ranges should be used to compare the cost effectiveness
of alternative collection techniques, establish guidelines with
respect to points at which costs of further collection efforts are
likely to exceed recoveries, assist in evaluating offers of
compromise, and establish minimum debt amounts below which collection
action need not be taken."
31 C.F.R. § 901.10. In this regard, in 58 Comp. Gen. 372, 375 (1979),
GAO held that the Interior Department could forgo collection action on
reclamation fees paid by coal mine operators of underpayments of $1 or
less, noting that "it may safely be presumed, without cost studies,
that in cases of $1 or less collection action will always exceed the
amount recoverable." GAO also waived collection of erroneous
overpayments of compensation over a 1-year period to nearly 5,000
National Guard technicians and small overpayments to approximately
10,000 persons, because of the administrative burden of identifying
the debtors and computing the amounts of the individual claims. B-
206699.1, B-206699.2, Sept. 15, 1988.
b. Disposition of Proceeds:
Once an agency collects a debt owed to the United States, what
can/must it do with that money?
(1) The general rule:
Generally, if an agency collects a debt owed to the United States, it
must deposit the collection in the general fund of the United States
Treasury as "miscellaneous receipts." See, e.g., B-302366, July 12,
2004; 64 Comp. Gen. 395, 402 (1985). This rule is nothing more than an
application of the so-called miscellaneous receipts statute, 31 U.S.C.
§ 3302(b), discussed more fully in Chapter 6, section E.2. Section
3302(b) provides that "an official or agent of the Government
receiving money for the Government from any source shall deposit the
money in the Treasury as soon as practicable without deduction for any
charge or claim." Violation of this statute constitutes an illegal
augmentation of the agency's appropriation. E.g., B-265734, Feb. 13,
1996.
As explained in B-308476, Dec. 20, 2006, appropriations establish
maximum authorized program funding levels. Absent statutory
authorization, agencies may not operate beyond the level that can be
paid for using the funds Congress appropriates to them. Supplementing
appropriations with funds obtained from sources not provided by law
would improperly augment—meaning usurp Congress's fiscal control over—
agency programs. B-308476, citing B-300248, Jan. 15, 2004.
This rule, however, is subject to two classes of exceptions, statutory
exceptions and the refund exception. See, e.g., B-302366, July 12,
2004; 69 Comp. Gen. 260, 262 (1990).
(2) Statutory exceptions:
Statutory exceptions to the miscellaneous receipts statute are laws
that expressly authorize an agency to credit some or all of its
receipts to a particular fund or appropriation (instead of to the
general fund of the Treasury), or allow it to expend those receipts
without depositing them. See, e.g., B-241269, Feb. 28, 1991
(discussing provisions of the Economy Act, 31 U.S.C. §§ 1535, 1536,
and the Government Employees Training Act, 5 U.S.C. § 4104).
One such provision central to federal debt collection is 31 U.S.C. §
3718(d). This law, part of the Federal Claims Collection Act as
amended, states that:
"notwithstanding section 3302(b) of this title, a contract under
subsection (a) [private debt collectors] or (b) [private attorneys] of
this section may provide that a fee a person charges to recover
indebtedness owed, or to locate or recover assets of, the United
States Government is payable from the amount recovered."
In other words, this law allows agencies to use some of their
collection proceeds to pay the fees of private debt collection
contractors and lawyers retained to collect delinquent debts owed to
the United States.
In 64 Comp. Gen. 366 (1985), GAO considered the statutory exception in
section 3718(d). The General Services Administration (GSA) wanted to
conserve its appropriations by using collection proceeds on a
contingency-fee basis to pay contractors to examine bills GSA had
already paid, identify any overcharges or other erroneous payments
made by the government, request repayment for those amounts, and take
other necessary and appropriate actions to effect their collection. 64
Comp. Gen. at 366-67. GAO found that some of the amounts recovered
qualified as proceeds from the collection of delinquent debts and
could be used to pay the contractors under 31 U.S.C. § 3718(d). Id. at
370. The majority of the amounts being recovered by GSA contractors,
however, were not delinquent and arose from "account servicing" rather
than "debt collection." Id. at 369. Section 3718(d) does not apply to
these amounts, and they had to be deposited in full (i.e., without
deductions to pay the contractors) in the Treasury as miscellaneous
receipts. Id. at 370.
(3) Refund exception:
The refund exception to 31 U.S.C. § 3302(b) concerns repayments of
amounts that were erroneously paid from appropriated funds.[Footnote
110] E.g., B-308476, Dec. 20, 2006; 62 Comp. Gen. 70, 73 (1982). This
exception encompasses "refunds of advances, collections for
overpayments made, adjustments for previous amounts disbursed, or
recoveries of erroneous disbursements from appropriation or fund
accounts that are directly related to, and reductions of, previously
recorded payments from the accounts." 69 Comp. Gen. 260, 262 (1990).
Refunds represent repayments for excess payments made by the agency to
outside sources that are to be credited to the appropriation from
which the excess payments were made. B-305402, Jan. 3, 2006.
For example, in B-302366, July 12, 2004, the Department of Energy
asked whether it could retain amounts repaid to the department by one
of its contractors. The repayment represented amounts that the
department's contractor had overpaid for state business and occupation
taxes plus interest on that overpayment. B-302366. GAO agreed that the
principal portion would be considered a refund and could be credited
to the department's appropriation as an overpayment of an expense
under the contract. However, GAO also concluded that the department
could not credit amounts that represented interest. Unlike the
principal amount, the interest did not reflect the restoration of a
previous improper payment or overpayment. Id. Instead, the purpose of
the interest payment was to compensate for the passage of time and the
lost earnings resulting from the state's retention of money to which
it was not entitled. Id. Interest paid on the principal amount is an
amount in excess of the amount originally paid. Thus, the interest did
not qualify as a refund under the refund exception to section 3302(b).
Without express statutory authority, crediting the interest to the
appropriation would augment the department's appropriations and
violate section 3302. Id. Cf. B-310725, May 20, 2008 (the National
Science Foundation Inspector General (IG) may not credit to the IG
appropriation amounts the agency recovered under the False Claims Act
that represent costs incurred by the IG to investigate a False Claims
Act claim; those amounts do not restore to the appropriation amounts
that should not have been paid from the appropriation).
c. Accountable Officer Issues Accountable officers and agencies both
have a duty to collect from people who receive money from the
government to which they were not entitled.[Footnote 111] So strong is
the duty to collect that many of the statutes that address relief for
accountable officers specifically condition relief upon diligent
action to collect the debt. See, e.g., 31 U.S.C. §§ 3527(b)(1)(B)
(certain erroneous payments), 3527(c) (disbursing officers),
3528(b)(2) (certifying officers). See also B-271017, Aug. 12, 1996.
Some statutes even emphasize that granting relief to the accountable
officer does not diminish this duty. E.g., 31 U.S.C. §§ 3333(b),
3343(g), 3526(c)(4), 3527(d)(2).
At the same time, however, the recipient and the responsible
accountable officer share an element of joint liability. See, e.g., B-
228946, Jan. 15, 1988. The agency's first obligation is to seek
recovery from the recipient. B-212602, Apr. 5, 1984. If the agency
cannot collect the full amount from the recipient, the accountable
officer is liable for any remaining balance unless and to the extent
that he or she is granted relief. Id.; 30 Comp. Gen. 298, 300 (1951).
See also 62 Comp. Gen. 476, 478-79 (1983); 54 Comp. Gen. 112, 114
(1974). For more on accountable officers, see Chapter 9.
GAO is reluctant to deny relief solely on the basis of inadequate
collection action because the failure may be attributable to the
agency and beyond the accountable officer's control. See, e.g., B-
239154, Nov. 30, 1990. Nevertheless, GAO may deny relief for lack of
adequate debt collection efforts when such a denial is appropriate to
the facts and circumstances. See, e.g., B-234815, Oct. 3, 1989
(disbursing officer did not initiate collection action despite advice
from agency counsel).
Chapter 14 Footnotes:
[1] See, e.g., 31 U.S.C. § 3701(b)(1); 31 C.F.R. § 900.2(a).
[2] Because Volume III of the second edition provides a useful history
of case law in these areas, it will remain available on GAO's Web
site, [hyperlink, http://www.gao.gov]. For the reasons provided
herein, GAO will not update that volume, however, and it should not be
viewed as a statement of current law. Also, it should not be confused
with Volume III of the third edition, which updates Volume IV of the
second edition; it neither updates, supersedes, nor replaces Volume
III of the second edition.
[3] E.g., United States v. Sherwood, 312 U.S. 584 (1941).
[4] E.g., Bausch & Lomb Optical Company v. United States, 78 Ct. Cl.
584, 607, cert. denied, 292 U.S. 645 (1934); B-307767, Nov. 13, 2006;
B-276550, Dec. 15, 1997; B-159292, July 7, 1988.
[5] E.g., B-276550, Dec. 15, 1997; 67 Comp. Gen. 271, 273 (1988). In
Franconia Associates v. United States, 536 U.S. 129, 141 (2002),
quoting United States v. King, 395 U.S. 1, 4 (1969), the Supreme Court
observed, "A waiver of sovereign immunity of the United States 'cannot
be implied but must be unequivocally expressed." See also United
States v. Mitchell, 445 U.S. 535, 538 (1980); United States v.
Mescalero Apache Tribe, 518 E2d 1309 (Ct. Cl. 1975); cert. denied, 425
U.S. 911 (1976).
[6] E.g., 17 Comp. Gen. 931 (1938). See also 22 Op. Off. Legal Counsel
127 (1998). Over the years, Congress has waived much of its sovereign
immunity by enacting a broad range of legal remedies, both judicial
and administrative, governing claims against the federal government.
These include, to name only a few, the Tucker Act (28 U.S.C. §§
1346(a)(2), 1491(a)(2)), the Federal Tort Claims Act (28 U.S.C. §§
1346(b), 2671-2680), the Military Claims Act (10 U.S.C. § 2733), the
Federal Employees Compensation Act (5 U.S.C. ch. 81), Military
Personnel and Civilian Employees Claims Act (31 U.S.C. § 3721), and
the Contract Disputes Act (41 U.S.C. §§ 601-613). Thus, while
sovereign immunity is still a rule of law in the United States, it
applies to a smaller universe than it did in the early years of the
republic or even a century ago.
[7] Cf, e.g., Office of Personnel Management v. Richmond, 496 U.S.
414,430 (1990) ("Congress' early practice was to adjudicate each
individual money claim against the United States, on the ground that
the Appropriations Clause forbade even a delegation of individual
adjudicatory functions where payment of funds from the Treasury was
involved.").
[8] Roger Trask, Defender of the Public Interest: The General
Accounting Office, 1921-1966, 2-5 (1996) (hereafter Trask).
[9] Id. at 4.
[10] Id. at 2-3; Frederick C. Mosher, The GAO: The Quest for
Accountability in American Government, 20 (1979) (hereafter Mosher);
Harvey C. Mansfield, The Comptroller General: A Study in the Law and
Practice of Financial Administration, 24-26 (1939) (hereafter
Mansfield).
[11] Trask, at 4.
[12] Id. at 5; Mosher, at 21.
[13] Mosher, at 21.
[14] Id.
[15] Id.
[16] Mosher, at 23; Mansfield, at 27.
[17] Act of July 27, 1789, ch. 17, 1 Stat. 28 (later renamed the
Department of State).
[18] Act of August 7, 1789, ch. 7, 1 Stat. 49 (later renamed the
Department of Defense).
[19] Act of September 2, 1789, ch. 12, 1 Stat. 65.
[20] Act of September 24, 1789, ch. 20, § 35, 1 Stat. 73, 92-93. The
Justice Department itself was not established until 1870. Act of June
22, 1870, ch. 150, § 1, 16 Stat. 162.
[21 Leonard D. White, The Federalists: A Study in Administrative
History, 323 (1948).
[22] Id.
[23] 1 Stat. at 65-67.
[24] 1 Stat. 65.
[25] Id.
[26] Mansfield, at 36.
[27] 1 Stat. 66-67.
[28] Act of March 3, 1817, ch. 45, § 2, 3 Stat. 366. This provision,
as amended, is now codified in 31 U.S.C. §§ 3526, 3702.
[29] Darrell Heavenor Smith, The General Accounting Office—Its
History, Activities, and Organization, 83 (1927).
[30] Note, The Distinction Between Legislative and Constitutional
Courts, 43 Yale L. J. 316, 317 (1933).
[31] Act of February 24, 1855, ch. 122, § 1, 10 Stat. 612. See also
Glidden Co. v. Zdanok, 370 U.S. 530, 552-53 (1962) (the Court of
Claims "was created ... primarily to relieve the pressure on Congress
caused by the volume of private bills"); 43 Yale L. J. at 317.
[32] Note, The Court of Claims: Judicial Power and Congressional
Review, 46 Harv. L. Rev. 677, 679 n.15 (1933). See Williams v. United
States, 289 U.S. 553, 565 (1933) ("originally nothing more than an
administrative or advisory body, [that was later] converted into a
court, in fact as well as in name"). See also Nourse v. United States,
2 Ct. Cl. 214 (1866), citing Ferriera v. United States, 54 U.S. [13
How.] 40 (1851).
[33] 10 Stat. at 614 (court's opinions become "conclusive" only if
"confirmed by Congress").
[34] 46 Harv. L. Rev. at 679. See also Glidden, 370 U.S. at 552 ("As
an innovation the court was at first regarded as an experiment, and
some of its creators were reluctant to give it all the attributes of a
court by making its judgments final; instead, it was authorized to
hear claims and report its findings of fact and opinions to Congress,
together with drafts of bills designed to carry its recommendations
into effect.").
[35] See text accompanying notes 7 and 8, supra.
[36] Cong. Globe, 37th Cong., 2nd Sess. (1862), app. at 2.
[37] Smith, at 62. See also Pub. L. No. 67-13, § 301; Mosher, at 48-51.
[38] Pub. L. No. 104-53, § 211. A 1997 GAO memorandum to departments
and agencies describes in detail the statutory functions transferred
to OMB by Public Law 104-53, as well as the delegations that OMB had
made as of that date. B-275605, Mar. 17, 1997. While claims settlement
was transferred from GAO, GAO's account settlement authority was not
altered. Compare Pub. L. No. 104-53, § 211, and 31 U.S.C. §§ 3526,
3529. See also B-275605; Chapter 1, section C.2.
[39] See OMB, Determination with Respect to Transfer of Functions
Pursuant to Public Law 104-53 (June 28, 1996), available at
[hyperlink, http://www.whitehouse.gov/omb/foia/gc_June28.pdf] (last
visited June 10, 2008); B-275605, Mar. 17, 1997.
[40] See Smith, at 82, quoting GAO Letter of January 28, 1927 ("the
question is not so much a settlement of claims as determination of
availability of appropriations"). See also Harts Case, 16 Ct. Cl. 459,
484 (1880), affd, Hart v. United States, 118 U.S. 62 (1886) ("Auditing
and accounting are but parts of a scheme for payment.").
[41] Under 31 U.S.C. § 3724(a), the Attorney General is authorized to
settle claims for "personal injury, death, or damage to, or loss of,
privately owned property, caused by an investigative or law
enforcement officer ... employed by the Department of Justice acting
within the scope of employment that may not be settled under [the
Federal Tort Claims Act]."
[42] See notes 2-4, supra, and the accompanying text.
[43] E.g., Office of Personnel Management v. Richmond, 496 U.S. 414,
429-31 (1990), quoting Subcommittee on Administrative Law and
Governmental Relations of the House Committee on the Judiciary,
Supplemental Rules of Procedure for Private Claims Bills, 101st Cong.
2 (Comm. Print 1989):
"As the business of the Federal Legislature has grown, Congress has
placed the individual adjudication of claims based on the
Constitution, statutes, or contracts, or on specific authorizations of
suit against the Government, with the Judiciary.... But Congress has
always reserved to itself the power to address claims ... founded not
on any statutory authority, but upon the claim that the equities and
circumstances of a case create a moral obligation on the part of the
Government to extend relief to an individual."
See also, e.g., 62 Comp. Gen. 419, 421 (1983), citing 8 Comp. Dec. 582
(1902) ("The claims settlement jurisdiction of the 'accounting
officers' extends only to claims based on legal liability and not to
claims based on equity or moral obligations."); B-175670, May 25,
1972, at 2 ("[W]e may not consider your claim on equitable grounds
since our office is authorized only to settle claims based on
applicable legal principles, and we may not settle a claim on the
basis of moral or equitable obligations of the Government.")
[44] During the Vietnam War, the United States hired commandos to
conduct covert operations deep inside North Vietnam. Prior to this
act, the United States had not acknowledged this fact. Mattes v.
Chairman, Vietnamese Commandos Compensation Commission, 173 F.3d 817,
818 n.2 (11th Cir. 1999). The National Defense Authorization Act for
Fiscal Year 1997 authorized the appropriation of $20 million for his
purpose, with individual payments ranging from $40,000 to $50,000.
Pub. L. No. 104-201, §§ 657(c) & (g). The Secretary's determinations
under this provision were "final and conclusive," and judicial review
was "specifically precluded." Id. § 657(j).
[45] Pub. L. No. 70-217, 45 Stat. 413 (Apr. 10, 1928).
[46] "Nor shall private property be taken for public use without just
compensation." U.S. Const. amend. V. See Chapter 13, section B.5.b.
[47] GAO, taking cognizance of Bowen, held that monetary awards made
under the APA and other equitable authorities should be treated no
differently than other monetary awards when being considered for
payment from the permanent, indefinite appropriation known as the
Judgment Fund, 31 U.S.C.§ 1304. That, however, did not necessarily
make the award payable from the Judgment Fund. Rather, GAO said, "to
the extent that monetary awards made under equitable authorities
otherwise satisfy the statutory criteria governing use of the Judgment
Fund, those awards should be paid in the same manner as other monetary
awards against the United States." B-259065, Dec. 21, 1995, at 4-5.
See also B-279886, Apr. 28, 1998, at 10-11 (the Judgment Fund would
not be available to pay a court order directing the government to pay
the costs of supervising a labor union's election rerun, "even if the
court were to award a specific sum equivalent to the actual or
anticipated costs of supervising the rerun" because such an order
"would appear more in the nature of injunctive relief, than a monetary
award of damages").
[48] Absent an authorizing statute, an agency has no authority to
create liability by regulation. Illinois Central Railroad Co. v.
United States, 52 Ct. Cl. 53, 59 (1917). See also Mitzelfelt v.
Department of Air Force, 903 F.2d 1293 (10th Cir. 1990); B-201054,
Apr. 27, 1981. This principle follows logically and directly from the
more fundamental principle that "[a]gents and officers of the
Government have no authority to give away the money or property of the
United States." Central Engineering & Construction Co. v. United, 59
F. Supp. 553, 568 (Ct. Cl. 1945). See also B-159292-0.M., July 7, 1988
(and cases cited), and notes 2-4, supra, and accompanying text.
[49] Id.
[50] Of course, claimants could petition Congress for private relief
legislation (see section B of this chapter) and the Fifth Amendment of
the U.S. Constitution allowed claims to be asserted against the
government under certain circumstances (see section C.1.b of this
chapter).
[51] When a government agent purports to commit the government to a
transaction that he or she has no actual authority to enter, the
government is not legally obligated to honor the transaction. B-
209132, Oct. 3, 1983. An agency, however, can ratify such an agreement
after the fact. See Federal Acquisition Regulation (FAR), 48 C.F.R. §
1.602-3. The authority to ratify unauthorized transactions and settle
the resulting claims has long been recognized by the courts and
accounting officers of the United States. See, e.g., United States v.
Beebe, 180 U.S. 343 (1901); 22 Comp. Gen. 1083 (1943). To exercise
this authority, the ratifying official, among other things, must have
the authority to enter into the agreement (48 C.F.R. § 1.602-3(c)(2))
and the underlying agreement must be "otherwise proper" (48 C.F.R. §
1.6023(c)(3)). For a discussion of this authority, see B-306353, Oct.
26, 2005, in which GAO determined that the Architect of the Capitol
could use appropriated funds to pay a contractor for services rendered
pursuant to an unauthorized commitment which the Architect of the
Capitol had subsequently ratified.
[52] The authority to issue decisions with respect to claims is now
vested in the head of the agency responsible for settling the claim.
See 31 U.S.C. § 3529(b)(2)(B) (added by Pub. L. No. 104-316, § 204,
110 Stat. 3826, 3845 (Oct. 19, 1996), discussed in section B of this
chapter). See also B-275605, Mar. 17, 1997. Public Law 104-316 did not
transfer, amend, or repeal GAO's authority under 31 U.S.C. § 3529 to
issue decisions on matters involving the use of appropriations that do
not specifically involve settling a claim, or GAO's authorities under
31 U.S.C. §§ 3527 and 3528 to grant relief to disbursing and
certifying officers. Id.
[53] Copies of the OMB delegation orders are available at [hyperlink,
http://www.whitehouse.gov/omb/foia/transfer_gao_auth.html] (last
visited June 10, 2008).
[54] While section 3702 provides an independent administrative claims
handling procedure, it does not provide an independent basis for
paying claims. "Rather, in order for payment of the claim to be
lawful, there must be independent appropriations authority to pay the
claim." 22 Op. Off. Legal Counsel 11, 20 (1998). Identification of the
proper appropriation to use in order to pay a claim is, in large part,
a function of appropriations law. (Note the specific appropriations
usage directed in 31 U.S.C. §§ 3702(d) and (e)(2).) Payment issues are
discussed in greater detail later in this chapter.
[55] A statutory scheme may be regarded as exclusive even without
explicit "final and conclusive" language. E.g., Aamodt v. United
States, 976 E2d 691 (Fed. Cir. 1992); Carter v. Gibbs, 909 F.2d 1452
(Fed. Cir.), cert. denied, 498 U.S. 811 (1990); 71 Comp. Gen. 374
(1992).
[56] Of course, if the law does not provide an adequate basis for
allowing a claim against the government, the agency may consider
whether the claim should be reported to Congress pursuant to the
Meritorious Claims Act, 31 U.S.C. § 3702(d). See sections B and
C.1.a(3) of this chapter.
[57] We are tempted to say that if statutes of limitations did not
exist, we would still be litigating Revolutionary War claims. We
suspect, however, that without a citation, we might be accused of
exaggerating. So, check out Lunaas v. United States, 936 F.2d 1277
(Fed. Cir. 1991), cert. denied, 502 U.S. 1072 (1992). Lunaas involved
just such a claim, arising from loans allegedly made to the
Continental Congress during the winter of 1777-78, never repaid, and
estimated to be worth as much as $140 billion with interest by the
time of this decision. To make a long story short, the court held
that, while there was room for debate as to precisely when the claim
"accrued" for statute of limitations purposes, it had been time-barred
under any theory for over a century. Lunaas, 936 E2d at 1279-80.
[58] It is important, however, to be sure to correctly identify the
applicable statute of limitations. See 29 Comp. Gen. 54 (1949), in
which GAO observed that the expiration of the statute of limitations
for bringing a lawsuit on a claim would not preclude the agency from
administratively paying that claim so long as the time for
administratively settling the claim had not expired and funds to pay
it were still available at that time.
[59] By its terms, this provision applies only to members of the armed
forces. And members on active duty at that. 59 Comp. Gen. 463 (1980).
See also, e.g., Department of Defense Instruction No. 1340.21, § E5.6
(May 12, 2004). Therefore, it could not help a civilian employee of
the Navy Department interned with the crew of the U.S.S. Pueblo in
North Korea in 1968 who filed a claim for overtime compensation for
his internment which was not received until after the statute of
limitations had expired. B-194474, Oct. 24, 1979. Another statutory
provision relevant to claims of military personnel is 50 U.S.C. App. §
526 (formerly 50 U.S.C. App. § 525), which provides that periods of
military service shall not be included in applying a statute of
limitations, whether the claim or cause of action accrued prior to or
during the service. Decisions applying this provision in various
contexts include Conroy v. Anislcoff, 507 U.S. 511 (1993), 63 Comp.
Gen. 70 (1983), and 41 Comp. Gen. 812 (1962).
[60] In Irwin v. Department of Veterans Affairs, 498 U.S. 89 (1990),
the Court held that there is a "rebuttable presumption" that a statute
of limitations is subject to "equitable tolling" in a suit against the
United States in the same manner as in a suit between private parties.
Id. at 95-96. The doctrine of "equitable tolling" permits a court to
waive a statute of limitations based on considerations of equity, such
as where the claimant filed a defective pleading within the deadline
or where the defendant induced the claimant to miss the filing
deadline. Id. at 96. The Justice Department has opined quite
emphatically that congressionally imposed limitation periods must be
strictly followed in claims settlement and that Irwin does not affect
this conclusion. 22 Op. Off. Legal Counsel 127 (1998).
[61] Some rights have no remedies. Cf., e.g., Harts Case, 16 Ct. Cl.
459, 483 (1880), affd, Hart v. United States, 118 U.S. 62 (1886).
While rare in modem appropriations law practice, this is still true,
occasionally. See, e.g., 63 Comp. Gen. 470 (1984) (no appropriation
was legally available to pay a judgment against the United States).
[62] While generally the responsible agencies are not required to
reimburse the Judgment Fund, this is an example of a statutory
exception, which provides that payments made by the Judgment Fund
"shall be reimbursed to the [Judgment Fund] ... by the agency whose
appropriations were used for the contract out of available funds or by
obtaining additional appropriations for such purposes." 41 U.S.C. §
612(c). Under a similar example of a statutory exception, litigative
awards under the Notification and Federal Employee Antidiscrimination
and Retaliation Act of 2002 (or "NoFEAR," for short), are paid
initially from the permanent, indefinite Judgment Fund appropriation,
and then, within a reasonable time thereafter, the federal agency
involved must reimburse the Judgment Fund from its operating
appropriations. Pub. L. No. 107-174, § 201(b), 116 Stat. 566, 568-69
(May 15, 2002). As a result of this law, all awards against federal
agencies for discrimination or whistle-blowing retaliation against
federal employees, former federal employees, or applicants for federal
employment (including associated attorney fee awards)—whether
litigative or administrative—are paid from agency operating
appropriations, which was one of the main goals Congress intended the
law to accomplish. S. Rep. No. 107-143, at 1-3, 7-8 (2002).
[63] Current Treasury guidance on Judgment Fund procedures, such as
that contained in 31 C.F.R. part 256 and I TFM 6-3100, is available at
[hyperlink, http://www.fms.treas.gov/judgefund/regulations.html] (last
visited June 10, 2008).
[64] Finality is also required for Judgment Fund payments made under
28 U.S.C. §§ 2414 and 2517.
[65] "Whenever the Attorney General determines that no appeal shall be
taken from a judgment or that no further review will be sought from a
decision affirming the same, he shall so certify and the judgment
shall be deemed final." 28 U.S.C. § 2414. This provision permits a
judgment to be paid before it has become final by operation of law,
that is, before the time limit for taking an appeal has expired.
[66] It is possible, although remote, that there is no appropriation
legally available to pay a particular judgment. One example, which
apparently resulted from a legislative oversight and was later cured
legislatively, is in 63 Comp. Gen. 470 (1984).
[67] Tax refund judgments must be distinguished from judgments arising
from other Internal Revenue Service (IRS) activities. E.g., B-211389,
July 23, 1984 (damages awarded under the Tucker Act were payable from
the Judgment Fund after IRS seized a building to recover taxes owed by
the building occupant, but not owed by the building owner who sued IRS
for erroneous seizure). In addition, 26 U.S.C. § 7432 (IRS negligent
failure to release a tax lien) and 26 U.S.C. § 7433 (IRS intentional
disregard of tax code or regulations), each contain a payment
provision expressly directing payment under 31 U.S.C. § 1304.
[68] These may be distinguished from "inverse condemnation" judgments,
which the case law holds payable from the Judgment Fund. See 66 Comp.
Gen. at 163. In addition, Congress has enacted a number of exceptions
in connection with some legislative takings. See, e.g., 16 U.S.C. §
79g(b) (expansion of the Redwood National Park); Pub. L. No. 100-647,
title X, § 10002, 102 Stat. 3342, 3819 (Nov. 10, 1988) (expansion of
the Manassas National Battlefield Park).
[69] The decisions cited in the text both predated the current
statutory account closing structure (see Chapter 5, section D). GAO
has not addressed the source of payment for a refund where the
appropriation account has closed or expired under the current account
closing provisions.
[70] For more information on NAFIs, see Chapter 15, section C.
[71] One older case reached a contrary result, concluding that back
pay resulting from restoration could be charged to current year funds
since the administrative action directing the restoration could be
viewed as creating the government's obligation. B-113279-0.M., Jan.
30, 1953. However, it does not appear to have been followed.
[72] See 41 U.S.C. § 612(c); Pub. L. No. 107-174, § 201(b), 116 Stat.
566, 568-69 (May 15, 2002).
[73] E.g., B-176252-0.M., Sept. 5, 1972 (pursuant to state law,
appointment of a legal guardian may be required before payment may be
made).
[74] E.g., 65 Comp. Gen. 621, 624 (1986) (given the substantial
amounts to be paid under the military survivor annuity programs, and
the fact that payments might continue for years, the accounting
officers of the uniformed services should insist on a court-approved
guardianship before making payment on behalf of an incompetent
annuitant).
[75] E.g., Miniafee v. United States, 17 Cl. Ct. 571, 577 (1989)
(payment to the legal representative of the payee's estate); B-234425,
May 30, 1989 (where payee's estate has been closed, state laws
applicable to that situation should be followed).
[76] E.g., B-203676, Sept. 21, 1981 (agency should close its file and
deobligate the amount of the payment where the corporation entitled to
payment was dissolved and potential claimants, including creditors and
stockholders, were unknown).
[77] See 51 Comp. Gen. 251 (1971), citing United States v. Thayer-West
Point Hotel Co., 329 U.S. 585, 590 (1947). See also 70 Comp. Gen. 153,
158 n.5 (1990); 65 Comp. Gen. 842, 843 (1986); B-186494, July 22, 1976.
[78] Apart from legislative takings and physical invasions (which can
give rise to "inverse condemnation" lawsuits), the government may use
the "complaint only" procedure, 40 U.S.C. § 3113, under which the
government does not acquire title until it tenders payment, and by
invoking the Declaration of Taking Act, 40 U.S.C. § 3114-3115, in
which event title vests in the United States the moment the
declaration is filed. (For more on these methods of property
acquisition, see Chapter 13, section B.5.b.) Even though the courts
have ruled that constitutional "just compensation" inherently
authorizes interest against the government, the Declaration of Taking
Act specifically provides for interest.
[79] Citing a number of precedents, the Federal Circuit summarized in
Marathon Oil Co. v. United States, 374 E3d 1123, 1127 (Fed. Cir.
2004), cert. denied, 544 U.S. 1031 (2005), the governing principles of
post-judgment interest: "The no-interest rule applies to claims for
post-judgment interest.... Well established rules of statutory
construction frame the court's analysis of whether Congress has waived
sovereign immunity in a statute or statutory scheme, and they tilt the
interpretive playing field in favor of the government's immunity.... A
waiver of sovereign immunity must be unequivocally expressed or a
court must infer that Congress did not intend to create a waiver....
If a statute is susceptible to a plausible reading under which
sovereign immunity is not waived, the statute fails to establish an
unambiguous waiver and sovereign immunity therefore remains intact."
[80] Under 28 U.S.C. § 2516(b):
"Interest on a judgment against the United States affirmed by the
Supreme Court after review on petition of the United States is paid at
a rate equal to the weekly average 1-year constant maturity Treasury
yield, as published by the Board of Governor of the Federal Reserve
System, for the calendar week preceding the date of the judgment."
[81] The terms of 28 U.S.C. § 1961(c) provide in part that:
"(1) This section shall not apply in any judgment of any court with
respect to any internal revenue tax case. Interest shall be allowed in
such cases at [the rate specified under 26 U.S.C. § 6621].
"(2) Except as otherwise provided in paragraph (1) of this subsection,
interest shall be allowed on all final judgments against the United
States in the United States Court of Appeals for the Federal Circuit,
at the rate provided in subsection (a) and as provided in subsection
(b).
"(3) Interest shall be allowed, computed, and paid on judgments of the
United States Court of Federal Claims only as provided in paragraph
(1) of this subsection or in any other provision of law."
[82] Section 1304 is quoted in the text below.
[83] This authority applies only to the extent that the law governing
the underlying matter does not provide otherwise. See, e.g., 28 U.S.C.
§ 1961(c)(3) (interest shall only be allowed as provided in this
section "or in any other provision of law").
[84] The court's math differs from ours because it counts two
subsections of 28 U.S.C. § 1961 as separate laws.
[85] Effective June 30, 1996, the duty to certify payments from the
Judgment Fund was transferred from GAO to the Treasury Department.
Pub. L. No. 104-53, § 211, 109 Stat. 514, 535 (Nov. 19, 1995); Pub. L.
No. 104-316, §§ 202(k)-202(m), 110 Stat. 3826, 3843 (Oct. 19, 1996).
See B-275605, Mar. 17, 1997 (circular letter announcing the transfer
of functions, including Judgment Fund certification).
[86] In a 1983 decision, the Supreme Court lamented that a "request
for attorney's fees should not result in a second major litigation."
Hensley v. Eckerhart, 461 U.S. 424, 437 (1983).
[87] Check out the quote suggesting an analogy between attorney's fees
and paying tribute to Genghis Khan. In re Four Star Terminals, Inc.,
42 B.R. 419, 428 n.2 (Bankr. D. Alaska 1984).
[88] Notwithstanding this rule, if an item not included in this list
is assessed against the United States and allowed to become final, it
must be certified for payment from the Judgment Fund under 31 U.S.C. §
1304, unless payment is otherwise provided for. See 41 Comp. Gen. 583
(1962). Cf., B-259065, Dec. 21, 1995, at 6 (notwithstanding any errors
that may have occurred, "once all rights of appeal have been exhausted
in any particular case, or it has been decided to forego appeal, the
court's decision becomes final, which is also to say conclusive and
binding upon the government and the Judgment Fund process").
[89] Everyone loves a good lawyer joke. The following quotation is
taken from Judge Wilkey's dissenting opinion in Copeland v. Marshall,
641 F.2d 880, 929-30 n.53 (D.C. Cir. 1980):
"An immediately deceased lawyer arrived at the Pearly Gates to seek
admittance from St. Peter. The Keeper of the Keys was surprisingly
warm in his welcome: 'We are so glad to see you, Mr. _____. We are
particularly happy to have you here, not only because we get so few
lawyers up here, but because you lived to the wonderful age of 165.'
Mr. _____ was a bit doubtful and hesitant. Now, St. Peter, if there's
one place I don't want to get in under false pretenses, it's Heaven. I
really died at age 78.' St. Peter looked perplexed, frowned, and
consulted the scroll in his hand. `Ah, I see where we made our mistake
as to your age. We just added up your time sheets!"
[90] While this is a listing of attorney fee-shifting statutes in
general, a number of the statutes do apply to the federal government
as a defendant. Examples are the Equal Access to Justice Act, 5 U.S.C.
§ 504, 28 U.S.C. §§ 2412(b), (d); Freedom of Information Act, 5 U.S.C.
§§ 552(a)(4)(E), (a)(4)(F); the Privacy Act, 5 U.S.C. §§
552a(g)(2)(B), (g)(4)(B); the Government in the Sunshine Act, 5 U.S.C.
§ 552b(i); the Federal Tort Claims Act, 28 U.S.C. § 2678; and the
Social Security Act, 42 U.S.C. § 406(b).
[91] Examples are the Federal Tort Claims Act and the Social Security
Act, cited in the previous footnote.
[92] A prominent example of this would be awards under the Equal
Access to Justice Act, cited in note 90, supra.
[93] EAJA was first enacted in Public Law No. 96-481, title II, 94
Stat. 2321, 2325 (Oct. 21, 1980). Portions of that law were subject to
a 3-year "sunset" date. Those portions were amended and made permanent
by Pub. L. No. 99-80, 99 Stat. 183 (Aug. 5, 1985).
[94] The Federal Rules of Civil Procedure are available at [hyperlink,
http://www.iudiciary.house.gov/media/pdfs/printers/109thkivi12005.pdf]
(last visited June 10, 2008).
[95] Suffice it to say that the meaning of "substantially justified"
has been much litigated. We will not go into that case law here. See,
e.g., Pierce v. Underwood, 487 U.S. 552 (1988).
[96] Pub. L. No. 99-80, 99 Stat. 183 (Aug. 5, 1985). The 1985 EAJA
amendments also added to the act's coverage what is now the Court of
Federal Claims, 28 U.S.C. § 2412(d)(2)(F), and the boards of contract
appeals, 28 U.S.C. § 2412(d)(2)(E). Later legislation added the Court
of Appeals for Veterans Claims. 28 U.S.C. § 2412(d)(2)(F).
[97] Of course, other procedural requirements may apply to setoffs
taken in other contexts. See, e.g., 5 U.S.C. § 5514 (procedures for
salary offset); 31 U.S.C. § 3728 (procedures for administrative
offset). See also 64 Comp. Gen. 142 (1984) (discussing due process
requirements under various authorities).
[98] Other adjustments which do not involve payments may also be
appropriate. E.g., B-213604, May 15, 1984 (restoration of annual and
sick leave in wrongful separation case).
[99] See Federal Claims Collection Act of 1966 (FCCA), as amended, 31
U.S.C. § 3701(b)(1) ("the term 'claim' or 'debt' means any amount of
funds or property that has been determined by an appropriate official
of the Federal Government to be owed to the United States"). See also
Federal Claims Collection Standards (FCCS), 31 C.F.R. § 900.2(a) (for
purposes of federal debt collection, "the terms 'claim' and 'debt' are
synonymous and interchangeable").
[100] FCCA, 31 U.S.C. § 3711(a)(1) (agencies "shall try to collect ...
claim[s] of the United States Government for money or property").
[101] A "delinquent" debt refers to an amount owed that was not paid
by its due date, whether by the date specified in the agency's written
demand for payment or in a post-delinquency payment agreement. FCCS,
31 C.F.R. § 900.2(b). Thus, the concept and processes of debt
collection come into play only if and when the debtor falls behind in
payments and thereby becomes delinquent. Department of Treasury,
Financial Management Service, Instructional Workbook for Preparing the
"Treasury Report on Receivables and Debt Collection Activities" (May
2006), at 50-51, available at [hyperlink,
http://www.fms.treas.govidebt/dmrpts.html] (last visited June 10,
2008); 64 Comp. Gen. 366, 369 (1985).
[102] See Treasury Department, Fiscal Year 2006 Report to the
Congress: U.S. Government Receivables and Debt Collection Activities
of Federal Agencies (July 2007), at 28, available at [hyperlink,
http://www.fms.treas.govinews/reports/debt06.pdf] (last visited June
10, 2008). According to this report, in fiscal year 2006, total
receivables increased by $8.5 billion and total delinquencies
increased by $2.9 billion. Id. at 4.
[103] See Internal Revenue Service, Financial Statements, Supplemental
Information—Unaudited: For the Fiscal Years Ended September 30, 2006
and 2005, at 27, reprinted in GAO, Fiscal Audit: IRS's Fiscal Years
2006 and 2005 Financial Statements, GAO-06-137 (Washington, D.C.: Nov.
9, 2006), at 116. The $245 billion is made up of about $91 billion in
assessments agreed to by the taxpayers, $57 billion in assessments not
agreed to, and about $97 billion that IRS expects to write off. Of
course, the debt owed to the federal government pales in comparison to
the amount the government owes; consider, if you will, the current
debt ceiling of $9,815 billion. 31 U.S.C. § 3101(b), as amended by
Pub. L. No. 110-91, 121 Stat. 988 (Sept. 29, 2007). See also GAO,
Financial Audit: Bureau of the Public Debt's Fiscal Years 2007 and
2006 Schedules of Federal Debt, GAO-08-168 (Washington, D.C.: Nov. 7,
2007).
[104] The Property Clause states, "The Congress shall have Power to
dispose of and make all needful Rules and Regulations respecting the
Territory or other Property belonging to the United States; and
nothing in this Constitution shall be so construed as to Prejudice any
Claims of the United States, or of any particular State." For
discussion of the Property Clause in the context of real property, see
Chapter 13, sections D.3, F.21, and H.1.
[105] Congress has also enacted laws in the nature of program
legislation and agency organic authority that address the debt
collection activities of specific agencies and specific programs. See,
e.g., 19 U.S.C. § 1505(c) (customs duties); 15 U.S.C. § 634(b)(2)
(Small Business Administration); 38 U.S.C. § 3720(a)(4) (Department of
Veterans Affairs); 42 U.S.C. §§ 2651-2652 (various agencies with
respect to third-party claims for hospital or medical care); 26 U.S.C.
§§ 6321-6326 (tax liens) and 6331 (tax levy). Where such provisions
exist, they and their implementing regulations take precedence over
the more general debt collection statutes. See Federal Claims
Collection Act (FCCA), Pub. L. No. 89-508, § 4, 80 Stat. 308, 309
(July 19, 1966) ("Nothing in this Act shall increase or diminish the
existing authority of the head of an agency to litigate claims, or
diminish his existing authority to settle, compromise, or close
claims."); Federal Claims Collection Standards (FCCS), 31 C.F.R. §
900.4. See, e.g., 62 Comp. Gen. 599 (1983); 62 Comp. Gen. 489 (1983).
[106] General Accounting Office Act of 1996, Pub. L. No. 104-316, §
115(g), 110 Stat. 3826, 383435 (Oct. 19, 1996).
[107] GAO's debt collection case law, while current only as of 1996,
may still be of use to agencies.
[108] For more detail, see the Federal Claims Collection Standards
(FCCS), 31 C.F.R. ch. IX.
[109] The Federal Claims Collection Act also gives the Justice
Department broad authority to contract for legal services to assist in
debt collection, including using private counsel to negotiate,
compromise, settle, and litigate federal debt claims. 31 U.S.C. §
3718(b).
[110] Repayment of an appropriation also includes reimbursements.
Reimbursements are amounts collected by the agency for goods or
services furnished by the agency; an agency may retain reimbursements
only if it has statutory authority. B-305402, Jan. 3, 2006.
[111] People who receive money from the government to which they were
not entitled, no matter how innocently they received it, have no right
to keep it. They must pay it back. See, e.g., B-249371, Apr. 30, 1993;
B-198770, Nov. 13, 1980; B-127649, July 9, 1956.
[End of Chapter 14]
Chapter 15: Miscellaneous Topics:
A. Boards, Committees, and Commissions:
1. Introduction:
2. Title 31 Funding Provisions:
a. 1842: The First Attempt:
b. 1909: The Tawney Amendment:
c. 1944: The Russell Amendment:
3. Interagency Funding:
a. Joint Funding of Common-Interest Project:
b. 1945: The First Interagency Funding Statute:
c. Appropriation Act Provisions:
4. The Federal Advisory Committee Act:
a. Overview and Applicability:
(1) Definition and specific exemptions:
(2) Advisory versus operational:
(3) Who is being advised?
(4) "Established or utilized:"
(5) Other factors:
b. Creation and Funding:
(1) Statutory committees: creation:
(2) Statutory committees: funding:
(3) Committees established by the executive branch:
(4) Donations:
B. Government Use of Corporate Entities:
1. Introduction:
2. The Problem of Definition:
a. Government Corporations:
b. Government-Sponsored Enterprises:
c. Title 36 Patriotic, Fraternal, or Charitable Corporate Entities:
d. Federally Funded Research and Development Centers:
e. Summing Up:
3. Creation:
a. Historical Background and Purpose:
b. Need for Statutory Authority:
4. Management:
a. Government Corporation Control Act:
(1) Origin:
(2) Definitions:
(3) Budget provisions:
(4) Other financial controls:
(5) Audit:
b. Appointment and Control of Directors:
5. Sources of Funds and Financing:
a. Types of Financing: Government:
(1) Direct appropriations:
(2) Federal borrowing:
(3) Federal ownership of stock:
b. Types of Financing: Private:
(1) Sources of private financing:
(2) Market perception of implied backing by United States:
(3) Statutory controls:
6. Fiscal Autonomy:
a Account Settlement:
b. Status of Funds Received by Corporate Entities:
c. Application of Fiscal Laws:
(1) "Character and necessity" provision:
(2) "Without regard" clause:
(3) Laws expressly applicable:
(4) Appropriation act provisions:
(5) Other provisions of title 31, United States Code:
d. Program Implementation:
(1) Commodity Credit Corporation:
(2) Bonneville Power Administration:
(3) Amtrak:
7. Application of Other Laws:
a Civil Service Laws:
b. Procurement Laws and Regulations:
(1) 41 U.S.C. § 5:
(2) Federal Property and Administrative Services Act:
(3) Office of Federal Procurement Policy Act:
(4) Federal Acquisition Regulation:
(5) Competition in Contracting Act:
(6) Other statutes:
c. General Management Laws:
(1) Inspector General Act:
(2) Federal Managers' Financial Integrity Act of 1982:
(3) Chief Financial Officers Act:
(4) Government Performance and Results Act:
(5) Government Management Reform Act of 1994:
(6) Federal Financial Management Improvement Act of 1996:
(7) Improper Payments Information Act of 2002:
d. Property Management:
e. Freedom of Information, Privacy Acts:
f. Printing and Binding:
g. Criminal Code:
8. Claims and Lawsuits:
a. Administrative Claims:
(1) Claims settlement authority:
(2) Federal Tort Claims Act:
(3) Contract Disputes Act:
(4) Assignment of Claims Act:
(5) Estoppel:
(6) Prompt Payment Act:
(7) False Claims Act:
(8) Interagency claims:
b. Debt Collection:
c. Litigation in the Courts:
(1) Sovereign immunity:
(2) "Sue-and-be-sued" clauses:
(3) The Tucker Act:
(4) Liability for costs and remedies of litigation:
(5) Sovereign immunity from state and local taxes:
(6) Litigation authority:
9. Termination of Government Corporations:
C. Nonappropriated Fund Instrumentalities:
1. Introduction:
a. History of Military Morale, Welfare, and Recreation Organizations:
b. Defining the Nonappropriated Fund Instrumentality:
2. Legal Status:
a. Authority for Creation:
b. Relationship to the United States Government:
3. Sources of Funding: The Use of Appropriated Funds for
Nonappropriated Fund Instrumentalities:
a. Self-Supporting or Subsidized?
b. General Rule: Appropriations Not Available for Morale, Welfare, and
Recreation unless Authorized by Congress:
c. The Current Trend: Use of Appropriated Funds:
d. Other Issues in Appropriated Fund Support:
e. Borrowing by Nonappropriated Fund Activities:
4. Transactions with Federal Agencies:
a. Economy Act and Intra-Agency Orders:
b. Contracting to Sell Goods and Services to Agencies:
c. Statutory Authority to Enter into Contracts with Federal Agencies:
5. Nonappropriated Fund Instrumentality Procurement:
6. Debts Due Nonappropriated Fund Instrumentalities:
7. Nonappropriated Fund Instrumentality Property:
8. Management of Nonappropriated Fund Instrumentalities:
a. Regulation and Oversight:
b. Authority to Audit Nonappropriated Fund Activities:
(1) GAO jurisdiction:
(2) Other auditors:
(3) Settlement of accounts:
(4) Bid protests:
9. Sovereign Immunity:
a. Immunity from State and Local Taxation:
b. Immunity from Suit:
c. Payment of Judgments:
10. Status of Nonappropriated Fund Instrumentality Employees:
a. Applicability of Civil Service Laws:
(1) Civil Service Reform Act of 1978:
(2) Other employment related laws:
D. Trust Funds:
1. Federal Funds and Trust Funds:
a. Federal Funds:
b. Trust Funds:
c. Congressional Prerogatives:
2. The Government as Trustee: Creation of a Trust:
a. Property of Others Controlled by the United States:
b. Trust Funds Designated by Statute:
c. Accepting Donated Funds:
3. Application of Fiscal Laws:
a. Permanent Appropriation Repeal Act of 1934:
b. Available Uses of Trust Funds:
(1) Using donated funds:
(2) Property of others:
(3) Statutory trust funds:
c. Intergovernmental Claims:
4. Concepts of Amount and Time:
5. Duty to Invest:
6. Liability for Loss of Trust Funds:
7. Claims:
a. Setoff and Levy against Trust Funds:
b. Unclaimed Moneys:
8. Federal Trust Funds and the Budget:
Chapter 15: Miscellaneous Topics:
A. Boards, Committees, and Commissions:
1. Introduction:
In addition to the "regular" departments and agencies that tend to
attract the most attention, the federal government at any given time
includes—although not in a formal, structural sense—a large number of
miscellaneous bodies designated as boards, committees, commissions,
and various similar names. So pervasive are these miscellaneous bodies
that they have been informally called the "Fifth Branch of
Government."[Footnote 1] This section will address funding aspects of
these entities.
It is always helpful at the outset to define your universe. In this
instance, however, we have been unable to discover or devise a
satisfactory definition for these miscellaneous bodies. As we will see
later, the Federal Advisory Committee Act (FACA) defines "advisory
committee" for purposes of that statute, but advisory committees are
only one type of these miscellaneous bodies, albeit the largest. The
impossibility of crafting a useful definition becomes apparent upon
considering the key elements of function, creation, membership, and
duration:
* Function: Most of the bodies we are talking about are purely
advisory. Some, however, are operational, and others have elements of
both. Functions include, for example, such things as the investigation
of specific incidents, claims adjudication, and the commemoration of
historic persons or events.
* Creation: Advisory bodies can be created by Congress, the President,
or a department head. Bodies that are not purely advisory may or may
not require specific legislation, depending on their exact nature and
functions.
* Membership: The entity may consist entirely of government officers
or employees, entirely of nongovernment parties, or some of each.
* Duration: Some are temporary; some are indefinite; some are
permanent. Some start out as temporary and, in effect, achieve
immortality.[Footnote 2]
One of the earliest instances of the use of presidential commissions—
if not purely advisory ones—occurred in 1794, when George Washington
named a commission to investigate the Whiskey Rebellion in
Pennsylvania.[Footnote 3] Although the explosive growth of these
miscellaneous bodies did not occur until the twentieth century, they
were sufficiently common in 1842 to prompt Henry Clay to observe that
the practice had "grown into use long since in the Executive
Department.[Footnote 4]
No one knows exactly how many miscellaneous boards, committees, and
commissions exist at any given time. The only statistics available are
for advisory committees subject to FACA,[Footnote 5] certainly the
largest single category, and for these there is a clear downward trend
as they are a favorite target of cost-cutters. When Congress was
considering FACA, the House Government Operations Committee reported
that "there are at least 2,600 interagency and advisory committees and
possibly as many as 3,200 presently existing," the uncertainty being
that "many agencies are unable to supply a list of all their advisory
bodies." H.R. Rep. No. 92-1017, at 2 (1972). By the end of fiscal year
1992, there were 1,236 federal advisory committees. General Services
Administration, Twenty-Second Annual Report of the President on
Federal Advisory Committees (1994), at 1. On February 10, 1993,
President Clinton issued Executive Order No. 12838, directing
executive branch departments and agencies to terminate at least one-
third of the "advisory committees subject to FACA (and not required by
statute) that are sponsored by the department or agency." By the end
of fiscal year 1993, the number of advisory committees had dropped to
1,088.[Footnote 6] GSA Report, at 1.
2. Title 31 Funding Provisions:
Regardless of whether one likes or dislikes the use of boards and
committees, there are a lot of them around, they are here to stay, and
someone has to pay their bills. If, as we have noted elsewhere, the
central theme of federal fiscal law is the quest for balance between
executive flexibility and legislative control, the funding of
miscellaneous boards and committees is unquestionably a microcosm of
this reality.
Historically, Congress has asserted its presence in the area by
enacting funding restrictions, now found mostly in title 31 of the
United States Code. The key provisions are 31 U.S.C. §§ 1346 and 1347.
These provisions are an amalgam of over a century's worth of
legislation. We set out section 1346 in full here and will refer to
specific portions in our discussion of this area of the law.
"§ 1346. Commissions, councils, boards, and interagency and similar
groups "(a) Except as provided in this section:
(1) public money and appropriations are not available to pay:
(A) the pay or expenses of a commission, council, board, or similar
group, or a member of that group;
(B) expenses related to the work or the results of work or action of
that group; or
(C) for the detail or cost of personal services of an officer or
employee from an executive agency in connection with that group; and;
(2) an accounting or disbursing official, absent a special
appropriation to pay the account or charge, may not allow or pay an
account or charge related to that group.
"(b) Appropriations of an executive agency are available for the
expenses of an interagency group conducting activities of interest
common to executive agencies when the group includes a representative
of the agency. The representatives receive no additional pay because
of membership in the group. An officer or employee of an executive
agency not a representative of the group may not receive additional
pay for providing services for the group.
"(c) Subject to section 1347 of this title, this section does not
apply to:
(1) commissions, councils, boards, or similar groups authorized by law;
(2) courts-martial or courts of inquiry of the armed forces; or;
(3) the contingent fund related to foreign relations at the disposal
of the President."
Section 1347, also known as the "Russell Amendment," is set out later
in this discussion.
a. 1842: The First Attempt:
The earliest congressional attempt to rein in the use of boards and
committees grew out of controversy surrounding a commission appointed
by President Tyler to investigate certain irregularities at the New
York customs house. The result was section 25 of the Act of August 26,
1842, ch. 202, 5 Stat. 523, 533, which, with certain exceptions,
prohibited the payment of "any account or charge whatever" in
connection with "any commission or inquiry ... until special
appropriations shall have been made by law to pay such accounts and
charges." The prohibition is now found at 31 U.S.C. § 1346(a)(2);
sections 1346(c)(2) and (c)(3) are the exceptions.
Initially, this attempt was successful. The Attorney General had
occasion to consider the statute less than 2 months after it was
enacted. A private relief bill directed the Secretary of the Treasury
to investigate, and estimate the damages resulting from, an incident
involving "emigrating Creek Indians." Treasury asked whether
appointment of an individual to perform the investigation would be
subject to the statute. Yes, replied the Attorney General. "The words
of the law are too comprehensive to admit of any exception, and too
express to warrant any relaxation." 4 Op. Att'y Gen. 106 (1842). The
following year, the Attorney General discussed the statute in this
much-quoted passage:
"The power of appointment results from the obligation of the executive
department of the government 'to take care that the laws be faithfully
executed;' an obligation imposed by the constitution, and from the
authority of which no mere act of legislation can operate a
dispensation. Congress may, however, indirectly limit the exercise of
this power by refusing appropriations to sustain it, and thus paralyze
a function which it is not competent to destroy. This would seem to be
the purpose of the act of 26th August, 1842...."
4 Op. Att'y Gen. 248 (1843). The Attorney General went on to point out
that payment would require a specific appropriation. Charging a
general appropriation would not suffice because general appropriations
must be read as limited by existing prohibitory statutes. Id. at 249.
The "undoing" of the 1842 restriction was furthered by a 1915 decision
of the Comptroller of the Treasury. The Comptroller quoted the
Attorney General's 1843 opinion and agreed that "the purpose of this
provision was to prohibit, indirectly, the creation of commissions by
the executive [branch] ... through its inherent power to make
appointments." 21 Comp. Dec. 442, 443 (1915). However, the Comptroller
continued: "I do not think it was the intent or purpose of this law to
prohibit the use of an appropriation otherwise available, though
general in terms, for the payment of expenses of a commission
specifically authorized by Congress." Id. In this way, a general
appropriation available for the expenses of a body specifically
created by Congress became a "special appropriation" for purposes of
the 1842 law. Id. at 443-44.
Congress's 1842 attempt to restrict funding for boards and committees
was further weakened by a distinction alluded to in an early GAO
decision. This distinction, between a group of persons acting
individually and a group acting collectively, would be invoked in all
subsequent legislation on this subject. In the 1922 case before GAO,
the Secretary of War had sent four men to the Canal Zone to
investigate existing conditions at the Panama Canal. Each had his own
area of expertise, and the governing legislation authorized the
President to appoint or employ persons to carry out these
responsibilities. In finding the 1842 statute inapplicable, the
Comptroller General stated:
"The right of the President to appoint any one of these experts to
advise him in an individual capacity would undoubtedly be
authorized.... If he sees fit to appoint or employ four experts to
make a concurrent investigation and report on the various matters of
which each is an expert in his particular field, it would not appear
that such designation of the individuals thus selected would make them
a 'commission [or] inquiry' in the legal sense of the term."
Review Nos. 2249 et al., Aug. 22, 1922, at 4-5.[Footnote 7] The 1842
enactment never purported to address the extent of the executive's
power to create boards and committees, and even though it is still on
the books, these administrative interpretations mean that it is no
longer a significant funding impediment either.
b. 1909: The Tawney Amendment:
The next congressional attempt to control boards and committees grew
out of President Theodore Roosevelt's creation in 1909 of a Commission
on Fine Arts to advise on artistic aspects of certain public
structures and monuments.[Footnote 8] The following year, Congress
gave the Commission a permanent statutory basis in what is now 40
U.S.C. § 9101. Before doing that, however, Congress, disturbed over
the President's willingness to create such bodies without first
obtaining congressional approval, enacted the Act of March 4, 1909,
ch. 299, § 9, 35 Stat. 945, 1027, which prohibited the use of
appropriated funds to pay any expenses in connection with any
commission, council, board, or similar body, or any members of such a
group, "unless the creation of the [group] shall be or shall have been
authorized by law." This statute, sometimes referred to as the Tawney
Amendment, is now found at 31 U.S.C. §§ 1346(a)(1) (prohibition) and
1346(c)(1) ("authorized by law" exception).
This second congressional attempt met with weakening administrative
interpretations even more swiftly than did the first attempt. Less
than 2 months after it was enacted, the Attorney General concluded
that the 1909 law did not apply to groups consisting entirely of
government officers or employees dealing with matters relating to
their scope of employment. 27 Op. Att'y Gen. 308 (1909) (special
committee appointed by President Roosevelt to conduct an investigation
of agency contracts, composed of a representative official of each
executive agency, was not subject to the prohibition). See also 8
Comp. Gen. 294 (1928); B-79195, Sept. 30, 1948. As the Attorney
General stated in another opinion, it would make no sense to construe
the statute as prohibiting an agency head "from submitting to the
concurrent investigation and report of several employees of his
department any question which he might submit for investigation to any
one of them." 27 Op. Att'y Gen. 300, 307 (1909). The same
interpretation applies to experts and consultants as long as their
employment has been properly authorized. 37 Op. Att'y Gen. 484 (1934).
The key question under the 1909 statute is the meaning of "authorized
by law." In another 1909 opinion, the Attorney General adopted an
interpretation that effectively weakened the law's requirements.
Noting that every action an agency takes does not have to be spelled
out in legislation, he concluded: "Congress did not intend to require
that the creation of the commissions, etc., mentioned should be
specifically authorized by a law of the United States, but that it
would be sufficient if their appointment were authorized in a general
way by law." 27 Op. Att'y Gen. 432, 437 (1909).
The Comptroller of the Treasury followed suit. 16 Comp. Dec. 422
(1910); 16 Comp. Dec. 278 (1909) (quoting extensively from the
Attorney General's opinion). Somewhat inexplicably, several early GAO
decisions took the position that specific authority was required. The
difficulty with this divergence was that the Attorney General's
conclusion was supported by some pretty strong legislative history.
See 27 Op. Att'y Gen. at 437. In 22 Comp. Gen. 140 (1942), the
Comptroller General reviewed this legislative history, repudiated his
earlier "specific authority" decisions, and adopted the Attorney
General's "authorized in a general way" formulation.
To avoid rendering the statute totally meaningless, GAO developed the
following approach:
"There must be sufficient authority in general or specific terms for
the creation of a commission, board, etc., such as an authorization
for work which could be accomplished only by a commission, board,
etc., or authorization for duties of such a nature generally
recognized as best performed by a commission, board, etc."
11 Comp. Gen. 495, 497 (1932). Virtually identical statements are
found in 31 Comp. Gen. 454, 455 (1952) and B-116975, Apr. 27, 1954, at
4.[Footnote 9]
There needs to be something more than just the authority to perform
the function because the "authorized by law" portion of the statute
applies to creation of the body, not performance of the function. See,
e.g., B-51203, Aug. 14, 1945; 6 Op. Off. Legal Counsel 541, 550
(1982). The fact situation in the 1909 Attorney General opinion, 27
Op. Att'y Gen. 432, is a good example. The War Department then, as
does the Army Corps of Engineers now, performed a variety of civil
works functions. Incident to one of them, Congress directed that the
work not injure "the scenic grandeur of Niagara Falls." The Department
pointed out that it did not have on its payroll experts in "scenic
grandeur," and when it had received similar mandates in the past, it
went out and contracted for the necessary expertise, often in the form
of a committee. This was sufficiently "authorized by law" for purposes
of the 1909 prohibition. Similarly sufficient was the situation in 40
Comp. Gen. 478 (1961). The Interior Department had specific authority
to consult with various private parties on certain forest matters. For
decades, it had done this by the use of advisory bodies. In view of
this longstanding practice, the Comptroller General found that the
consultation statute could be viewed as furnishing the necessary
authority.
In contrast, where an agency was authorized to conduct certain
investigations and to employ experts and others for carrying out
agency functions, and where the agency had in fact conducted the
investigations for many years without an advisory body, there was no
basis to find the body authorized by law, even in a "general way." 31
Comp. Gen. 454 (1952).
The "authorized in a general way" standard is also met if a department
includes a board or commission in its budget justification materials
and Congress enacts a lump-sum appropriation without prohibiting the
item. B-38047, Nov. 8, 1943. See also B-116975, Apr. 27, 1954.
However, 31 U.S.C. § 1346(a)(1) does not override 31 U.S.C. § 1301(a),
the purpose statute, discussed in Chapter 4. B-182398(1), Mar. 29,
1976. Nor is it affected in any way by 5 U.S.C. § 5703, the
"invitational travel" statute. 27 Comp. Gen. 630 (1948). Of course, if
the "authorized in a general way" standard is legitimately met, there
should be no problem under either statute.
Applying section 1346(a)(1) to a given entity requires analysis of the
entity's nature and functions. What it happens to be named is not the
controlling factor. 27 Op. Att'y Gen. 406, 409 (1909); A-16348, Dec.
8, 1926. The Justice Department has also cautioned that adding diverse
functions could cause a board or commission to lose its "authorized in
a general way" status. 6 Op. Off. Legal Counsel 541, 550 (1982).
Finally, cases under the 1909 statute continue to recognize the
individual versus unit distinction first noted in connection with the
1842 law. The circumstances in B-116975, Apr. 27, 1954, involved three
people inspecting coffee for the Army. It was significant that,
although the three conducted their inspections independently, a
majority vote determined acceptance or rejection. Thus, the inspectors
acted as a unit and the statute applied. The same reasoning applied to
tea inspectors for the Navy in 6 Comp. Gen. 140 (1926).[Footnote 10]
Setting aside subsequent developments for the moment, the combined
effect of the 1842 and 1909 enactments-31 U.S.C. §§ 1346(a) and (c)—
was that boards and committees created by executive action could be
funded either if their creation was authorized ("in a general way"),
or if Congress appropriated funds for that purpose.
c. 1944: The Russell Amendment:
Peace prevailed between the branches over the use of boards and
committees for a few decades, but ended in 1944 when congressional
concern over some of Franklin D. Roosevelt's creations prompted
another piece of legislation, forming a "veritable Maginot Line of
barriers to funding commissions."[Footnote 11] This third attempt at
congressional control was the so-called Russell Amendment, Pub. L. No.
78-358, § 213, 58 Stat. 361, 387 (June 27, 1944). Now codified at 31
U.S.C. § 1347, it provides:
"(a) An agency in existence for more than one year may not use amounts
otherwise available for obligation to pay its expenses without a
specific appropriation or specific authorization by law. If the
principal duties and powers of the agency are substantially the same
as or similar to the duties and powers of an agency established by
executive order, the agency established later is deemed to have been
in existence from the date the agency established by the order came
into existence.
"(b) Except as specifically authorized by law, another agency may not
use amounts available for obligation to pay expenses to carry out
duties and powers substantially the same as or similar to the
principal duties and powers of an agency that is prohibited from using
amounts under this section."
The amendment's sponsor, Senator Russell, stated its purpose as
follows:
"The purpose of the committee amendment, which is apparent from a
reading thereof, is to retain in the Congress the power of legislating
and creating bureaus and departments of the Government, and of giving
to Congress the right to know what the bureaus and departments of the
Government which have been created by Executive order, are doing.
"Regardless of what agencies might be affected, the purpose of this
amendment is to require them all to come to Congress for their
appropriations after they have been in existence for more than a year."
90 Cong. Rec. 3119 (1944), quoted in 24 Comp. Gen. 241, 243 (1944).
The original language makes this intent a little clearer. "Agency" in
section 1347(a) originally read "any agency or instrumentality
including those established by Executive order," and "specific
authorization by law" originally read specific authorization for "the
expenditure of funds" by the body. Pub. L. No. 78-358, § 213.
As had happened with its predecessors, administrative interpretations
have narrowed the Russell Amendment's scope and impact. In 3 Op. Off.
Legal Counsel 263 (1979), the Justice Department's Office of Legal
Counsel concluded that the Russell Amendment does not apply to boards
or committees that are purely advisory, stating the test as follows:
"Mere advisors are not 'agencies' or 'instrumentalities' of Government
for purposes of the Russell amendment. They do not become 'agencies'
or 'instrumentalities' merely because they meet and advise
collectively. They become `agencies' or 'instrumentalities' for
Russell amendment purposes only if the officer to whom they report
seeks to invest them with actual authority to take substantive action
on his or the Government's behalf."
Id. at 265. See also B-152583, Nov. 7, 1963 (finding the Russell
Amendment not applicable to President's Committee on Equal Opportunity
in the Armed Forces, which was purely advisory). Justice took this a
step further a few years later, concluding that a council under the
United States Information Agency (USIA) whose functions were both
advisory and operational (in this case, solicitation of contributions)
was subject to the Russell Amendment because "it would discharge
responsibilities vested by law in the USIA and would not be purely
advisory." 6 Op. Off. Legal Counsel 541, 551 (1982). The operational
aspect does not have to amount to "substantive action"; the law
applies if the body "acts on behalf of the government or exerts any
governmental power." Id.
3. Interagency Funding:
a. Joint Funding of Common-Interest Project:
It is necessary at the outset to distinguish between joint funding of
a project and joint funding of a board, committee, or similar group.
While statutes address the latter, the former is governed by the
normal rules regarding the obligation and expenditure of appropriated
funds. If a project will benefit more than one agency, and as long as
it is not something one of the agencies is required to do as part of
its mission without reimbursement, then there is nothing that
prohibits the agencies from funding the project in proportion to their
benefit.
This point was made in an early case, A-7571, May 14, 1925. Several
agencies, along with state and local bodies, were interested in
development of the Colorado River and sponsored the construction and
maintenance of three "gauging stations" along the river, under the
supervision of the Interior Department's Geological Survey. Once it
was determined that this was not something the Geological Survey was
required to do anyway as part of its job—that is, that there was no
augmentation problem—it was fairly easy to conclude that "there
appears no legal objection to the allocation of Federal Power
Commission funds to pay for its proper share of the expenses incident
to the maintenance of the stations from which it derives a
corresponding benefit." Id. at 3. See also B-111199, Aug. 20, 1952; B-
51145, Sept. 11, 1945.
A more recent decision dealt with joint funding of mutually beneficial
research and demonstration projects by use of interagency agreements.
Several environmental statutes authorize or direct the Environmental
Protection Agency to cooperate with other federal and nonfederal
entities. These statutes were viewed as sufficient authority for
interagency agreements, to be funded by transfers to the contracting
agency from the other participating agencies. 52 Comp. Gen. 128
(1972). The decision pointed out the distinction between this type of
interagency agreement—in which the participating agencies all had an
interest—and an Economy Act agreement, in which the performing agency
has "no specific interest apart from the provision of a routine
service." Id. at 133. In view of the statutory provisions involved,
there was no need to consider what EPA could or could not have done
without those statutes.
In any joint funding case—-project, board or commission, interagency
agreement, etc.—-the threshold question is purpose availability. Joint
funding cannot be used if the source appropriation is not otherwise
available for the object in question. B-182398, Mar. 29, 1976. In
other words, joint or interagency funding may not be used to expand
the availability of any of the participating appropriations. Once this
threshold is crossed, use of a working fund as a financing device is
permissible, but the money "must be obligated and expended in
accordance with the statutes appropriating such funds and within the
period of availability of the original appropriations." B-111199, Aug.
20, 1952.
b. 1945: The First Interagency Funding Statute:
Earlier in this section, we described the Russell Amendment, 31 U.S.C.
§ 1347. In 1945, less than a year after the Russell Amendment,
Congress enacted section 214 of Pub. L. No. 79-49, 59 Stat. 106, 134
(May 3, 1945). Now codified at 31 U.S.C. § 1346(b), section 214
authorizes interagency funding of groups engaging in activities of
common interest.
Section 214's legislative history indicates that it was intended as an
amendment to the Russell Amendment. Therefore, to the extent of its
terms, it overrides the Russell Amendment's requirement to seek
congressional appropriations after one year. B-75669, June 16, 1948.
Also, because it specifically makes appropriations available, it
overrides, again to the extent of its terms, the prohibition of 31
U.S.C. § 1346(a)(1) (the 1909 statute). 49 Comp. Gen. 305, 307
(1969);[Footnote 12] 26 Comp. Gen. 354 (1946).
The current version of 31 U.S.C. § 1346(b), stemming from the 1982
recodification of title 31, makes appropriations available for
interagency groups "conducting activities of interest common to
executive agencies when the group includes a representative of the
agency." The original language, which governs in a case like this,
[Footnote 13] was "authorized activities of common interest to such
departments and establishments and composed in whole or in part of
representatives thereof." Pub. L. No. 79-49, § 214. It is clear from
the original language ("in whole or in part") that the interagency
group can include private parties in addition to the government
representatives. 26 Comp. Gen. at 358. It also would seem that the
current language requires the group to include at least one
representative from every agency participating in the funding.
The original (governing) language did not necessarily say this, and in
fact a 1962 decision stated:
"We do not read the language of [section 214] as making agency
membership on an interagency board or committee a requisite to the
availability of appropriations for meeting the expenses of such
interagency groups. Nor have we found anything in the legislative
history of the statute which would dictate that such membership is
required. Thus in a proper case we would not be required to object to
contribution by a nonmember agency toward the expenses of an
interagency group, on the sole ground of nonmembership."
B-150511, Dec. 28, 1962, at 2. Accordingly, the controlling factor is
not membership, but "whether the interagency groups are 'engaged in
authorized activities of common interest' to the contributing
agencies." B-150511, Jan. 9, 1963, at 1.
A device commonly used in interagency funding situations is a working
fund. While there is nothing wrong with establishing a working fund as
an accounting device, the Comptroller General has emphasized that this
does not alter the availability of the amounts contributed. The funds
advanced to a common fund by a participating agency remain available
only for their original purposes, and only during the source
appropriation's period of obligational availability. 28 Comp. Gen. 365
(1948); B-150963, July 9, 1963; B-51203, Nov. 14, 1945. A working fund
established to implement 31 U.S.C. § 1346(b) is not an Economy Act
working fund. See 35 Comp. Gen. 201, 202 (1955).
Following are some examples of the application of 31 U.S.C. § 1346(b):
* The Federal Communications Commission, upon making the standard
"necessary expense" determination, could use its appropriated funds to
finance its share of something called the Radio Technical Commission
for Aeronautics (RTCA), an advisory group on aeronautical radio, even
though the RTCA had never been authorized by statute or executive
order. Payment would have been barred under 31 U.S.C. § 1346(a), but
was permissible under 31 U.S.C. § 1346(b). 26 Comp. Gen. 354 (1946).
* The Defense Department could participate in funding an interagency
group called the National Inventors Council because one of the
Council's functions was to encourage and screen inventions which might
be useful in national defense as well as industry. 35 Comp. Gen. 201
(1955).
* The National Service Corps Study Group was established in 1962 to
study the feasibility of a national service program patterned after
the Peace Corps. It consisted of the Attorney General, Secretaries of
Agriculture, Interior, Commerce, Labor, and Health, Education and
Welfare, plus some smaller agencies. Because the study extended into
such fields as health, education, labor, housing, etc., it could
fairly be regarded as being of interest to the agencies asked to
participate in the funding. B-150963, July 9, 1963.
* The Defense Department could contribute to the funding of the
President's Committee on Equal Employment Opportunity. B-148247, Mar.
5, 1962.
* Agencies could pay "dues" to the Federal Automatic Data Processing
Council, as long as the Council was using the money only for the kinds
of expenses for which the source appropriations would be available. B-
161214-0.M., Apr. 24, 1967.
* The Federal Trade Commission could continue to pay the salary of an
employee sent to Japan as part of an interagency trade mission. B-
54464, Dec. 14, 1945.
c. Appropriation Act Provisions:
Each of the title 31, United States Code, provisions discussed thus
far in this section entered the scene in the form of a permanent
general provision contained in an appropriation act. Appropriation
acts also may contain other relevant provisions, which may vary from
agency to agency or year to year.
One such governmentwide provision is of particular importance. In the
1960s, Congress became increasingly concerned over the proliferation
of miscellaneous interagency bodies, created under the apparent carte
blanche authority of 31 U.S.C. § 1346(b). At the time, the executive
could use section 1346(b) to create an interagency body and, assuming
compliance with the membership and common interest requirements, fund
it indefinitely by "passing the hat." Congress once again began
feeling left out.
The result was legislation that effectively modified 31 U.S.C. §
1346(b) by prohibiting the use of appropriated funds for interagency
financing without prior and specific congressional approval for that
type of financing. The provision first appeared in several
appropriation acts for 1969. In 1972, the prohibition was inserted in
the Treasury-General Government Appropriation Act and made
governmentwide ("this or any other act"). This history is outlined in
B-147637-0.M., Dec. 12, 1974.
The original version applied only to interagency groups under 31
U.S.C. § 1346(b). Eventually, Congress realized that this was narrower
than it had intended, and dropped the specific reference to section
1346(b), as well as changed "congressional approval" to "statutory
approval." The provision for fiscal year 2006 states:
"No part of any appropriation contained in this or any other Act shall
be available for interagency financing of boards (except Federal
Executive Boards), commissions, councils, committees, or similar
groups (whether or not they are interagency entities) which do not
have a prior and specific statutory approval to receive financial
support from more than one agency or instrumentality."
Transportation, Treasury, Housing and Urban Development, the
Judiciary, the District of Columbia, and Independent Agencies
Appropriations Act, 2006, Pub. L. No. 109-115, div. A, title VDT, §
810, 119 Stat. 2396, 2497 (Nov. 30, 2005). Note that the group itself
may or may not be an interagency group; the statute is directed solely
at the method of funding. The exemption for Federal Executive Boards
first appeared in 1996.[Footnote 14]
This provision, which for ease of discussion we shall refer to as
section 810, its designation in the statute for fiscal year 2006, does
not apply to a government corporation statutorily authorized to
determine the nature and character of its expenditures. B-174571, Jan.
5, 1972 (Federal Deposit Insurance Corporation). Nor does it apply to
the Comptroller of the Currency, whose funds, by statute, are not to
be construed as appropriated funds. Id. Thus, as the cited decision
concluded, section 810 would not inhibit contributions by either body
to the President's Commission on Financial Structure and Regulation.
GAO's first encounter with the language in section 810 was 49 Comp.
Gen. 305 (1969). The Veterans Administration wanted to contract with
an individual to serve as director of the Interagency Institutes for
Federal Hospital Administrators, the contract cost to be shared by the
participating agencies. To start with, because 31 U.S.C. § 1346(b)
partially superseded 31 U.S.C. § 1346(a) with respect to certain
interagency groups, there was no need to determine whether this
particular group was authorized by law. This was the good news. The
bad news was that 31 U.S.C. § 1346(b) was itself partially overridden
by section 810. Interagency funding would require prior and specific
legislative approval. 49 Comp. Gen. at 307. Similarly, as we have
already noted, 31 U.S.C. § 1346(b), to the extent of certain
interagency bodies, also partially supersedes the 1-year requirement
of the Russell Amendment. Thus, the President could lawfully create an
interagency Radiation Policy Council for a duration in excess of 1
year, but interagency funding would require compliance with section
810. B-196841-0.M., Dec. 18, 1980. Section 810 also has been applied
to a proposal to purchase solicitation services for the Combined
Federal Campaign from an interagency entity. 67 Comp. Gen. 254 (1988).
The "prior and specific" approval can take different forms. One
approach is section 829 of Public Law 109-115: "Notwithstanding
section 1346 of title 31, United States Code, or section 810 of this
Act, funds made available for the current fiscal year by this or any
other Act shall be available for the interagency funding of specific
projects, workshops, studies, and similar efforts to carry out the
purposes of the National Science and Technology Council (authorized by
Executive Order No. 12881), which benefit multiple Federal
departments, agencies, or entities ..." Because the statute authorizes
the concept but not the precise method, there would presumably be some
discretion in this regard—for example, periodic reimbursement,
advances to a working fund, etc.
Another approach is illustrated by the Federal Accounting Standards
Advisory Board (FASAB). FASAB was created administratively in 1990 as
an advisory committee to the Comptroller General of the United States,
the Secretary of the Treasury, and the Director of the Office of
Management and Budget (OMB). FASAB recommends accounting standards and
principles for the federal government that are issued by GAO and OMB.
Further information is available at www.fasab.com (last visited Nov.
28, 2007). GAO covers FASAB's expenses (e.g., executive director and
staff salaries) with GAO's appropriation and then bills the other
sponsors and the Congressional Budget Office, which also participates
on the Board, equal shares of the costs. This funding method is
expressly authorized by a proviso in the general governmentwide
provisions of the annual Transportation, Treasury, Housing and Urban
Development, the Judiciary, the District of Columbia, and Independent
Agencies Appropriations acts. See, e.g., Pub. L. No. 109-115, § 826.
Perhaps the best illustration of the import and impact of the section
810 language is the saga of the Federal Executive Boards. In 1961,
President Kennedy created interagency groups called Federal Executive
Boards (FEBs) to better coordinate federal activities outside of
Washington. Their number has increased over the years.[Footnote 15]
From the outset, the FEBs were funded from the appropriations of the
member agencies rather than by direct appropriations. The enactment of
the section 810 language in the 1969 appropriation acts gave the
agencies something of a jolt because they had been supporting the FEBs
up to that point under 31 U.S.C. § 1346(b),[Footnote 16] entirely
legitimately, and now all of a sudden learned that they no longer had
the authority to do so.
GAO's first written encounter with the problem came in 1973, when
GAO's own field managers asked why they were being asked to pay FEB
assessments from personal funds and whether there was any way GAO
could pick up the tab. GAO reviewed the history of the section 810
language and concluded that there was no way around the statute:
"We see no possible alternative in the instant case to concluding the
language of section [810] ... prohibits the GAO and all other Federal
agencies from using their appropriated funds to provide administrative
support, salaries, and reimbursement or payment of a member's
assessments for Federal Executive Board activities."
B-147637-0.M., Dec. 12, 1974, at 6. The solution, of course, was to
seek specific authorization from Congress. Id.
In 1986, the Veterans Administration and the Small Business
Administration came to the conclusion that the section 810 language
barred interagency financing of the FEB, and sought GAO's concurrence.
They got it. 65 Comp. Gen. 689 (1986). There was one possible—although
probably not very feasible—way out. The decision added, "we see
nothing to prevent a single entity with a primary interest in the
success of the interagency venture, from picking up the entire costs."
Id. at 692. Thus, if one agency could be said to have a "primary
interest" in a particular Board activity, and if that agency were
willing to pay the entire cost without hope of reimbursement, it could
do so. The next question, expectedly, was what does primary interest
mean? It means that "an agency must have a substantial stake in the
outcome of the interagency endeavor and the success of the interagency
venture must further the agency's own mission, programs or functions."
67 Comp. Gen. 27, 29 (1987). This latter decision also reiterated that
section 810 barred in-kind as well as cash support. Mere attendance at
meetings or functions, however, does not constitute support. Id.
One of the things FEBs do is give awards. Absent the requisite
statutory approval, an agency may not pay a pro-rata share of the
expenses of an FEB awards banquet. B-219795, Sept. 29, 1986. It can,
however, pay or reimburse the fee charged to its own nominees, award
recipients, and supervisors, under authority of the Incentive Awards
Act. 70 Comp. Gen. 16 (1990). Under the Incentive Awards Act, it also
can make awards to its own employees for services rendered to an FEB.
B-240316, Mar. 15, 1991. Similarly, an agency may pay a reasonable
registration fee for attendance of its employees at an FEB training
seminar. 71 Comp. Gen. 120 (1991).
Why this situation persisted for so many years is not clear. GAO had
recommended as early as 1977 that the executive branch present the
problem of FEB funding to Congress.[Footnote 17] In any event, as
noted above, the section 810 language was amended in 1996 to exempt
the FEBs.
Another general provision which has been around for about 20 years is
section 815 of the 2006 appropriations act, Pub. L. No. 109-115:
"Notwithstanding section 1346 of title 31, United States Code, or
section 810 of this Act, funds made available for fiscal year 1998 by
this or any other Act shall be available for the interagency funding
of national security and emergency preparedness telecommunications
initiatives which benefit multiple Federal departments, agencies, or
entities, as provided by Executive Order No. 12472 (April 3, 1984)."
This provision first appeared as section 629 of the Treasury, Postal
Service and General Government Appropriations Act, 1988, Pub. L. No.
100-202, 101 Stat. 1329, 1329-431 (Dec. 22, 1987).
If an instance of unauthorized interagency funding does occur, the
appropriate remedy is an adjustment of accounts, that is, the
recipient gives the donor back its money. B-182398-0.M., Sept. 3,
1976. If the period of obligational availability has expired, the
adjustment might not serve any useful purpose, even if the recipient
entity has or can restore sufficient unobligated balances, because the
donor agency could not use the money for new obligations. Id. It also
would be inappropriate to pursue action against the certifying
officers involved because, while there may have been a loss to a
particular agency, there is no loss to the government, assuming the
money was used for some authorized purpose of the recipient. Id.
4. The Federal Advisory Committee Act:
a. Overview and Applicability:
As we have noted, in the world of miscellaneous boards and committees,
advisory committees are by far the largest single group. There are
several types: general advisory committees, scientific and technical
advisory committees, special clientèle (industry) advisory committees,
specific task (or action) advisory committees, research committees,
and public conferences.[Footnote 18] They are popular because they
represent a relatively inexpensive way for the government to get
expert advice, or at least advice from different perspectives; they
are criticized because many tend to outlast their usefulness.
If reining in the proliferation of advisory committees is the measure,
the century-plus series of fiscal statutes must be said to have met
with very limited success. In the report of a 1970 study conducted by
the Special Studies Subcommittee of the House Committee on Government
Operations, Subcommittee Chairman John Monagan described the
committees in the following terms: "Sort of like satellites, I think
of them in that way ... They go out into outer space but they keep
circling around, you know, and no one really knows how many there are
or what direction they are going in, or what duplication there is."
[Footnote 19]
In 1972, Congress made its first attempt to comprehensively regulate
advisory committees—the Federal Advisory Committee Act (FACA), Pub. L.
No. 92-463, 86 Stat. 770 (Oct. 6, 1972), codified in the appendix to
title 5 of the United States Code, sections 1-16, as amended. FACA's
purposes are "to eliminate unnecessary committees; to govern the
administration of those that remain; and to inform the public about
[their] membership and ... activities."[Footnote 20] It does this by
regulating the creation, operation, and termination of executive
branch advisory committees. The theory, in plain English, is to start
when you are needed and quit when you are done. The General Services
Administration (GSA) is given the job of prescribing "administrative
guidelines and management controls applicable to advisory committees."
5 U.S.C. app. § 7(c). GSA's regulations are found in 41 C.F.R. part
102-3.[Footnote 21]
The key issue under FACA, and certainly the most hotly litigated, is
how to determine whether or not the statute applies to a particular
body. As discussed later, this determination has fiscal consequences.
In addition, wholly apart from fiscal matters, a determination that
FACA applies means that, among other things: the committee must
prepare a detailed charter and file it with appropriate officials
before it can meet or take any action (5 U.S.C. app. § 9(c)); its
meetings must be open to the public (5 U.S.C. app. § 10(a)(1)); notice
of each meeting must be published in the Federal Register (5 U.S.C.
app. § 10(a)(2)); it must keep detailed minutes of each meeting (5
U.S.C. app. § 10(c)); a designated officer or employee of the federal
government must call or approve each meeting, and an officer or
employee of the federal government must chair or attend each meeting
(5 U.S.C. app. §§ 10(e), (f)); and it must make transcripts of
meetings available to the public at actual duplication cost (5 U.S.C.
app. § 11(a)). Advisory committees also must "be fairly balanced in
terms of the points of view represented and the functions to be
performed." 5 U.S.C. app. §§ 5(b)(2) and (c); 41 C.F.R. §§ 102-3.30(c)
and 102-3.60(b)(3). See also National Anti-Hunger Coalition v.
Executive Committee of the President's Private Sector Survey on Cost
Control, 711 F.2d 1071, 1073 n.1 (D.C. Cir. 1983).
Courts have held that no private cause of action exists under FACA.
This is because neither FACA's text nor its structure "evinces a
congressional intent to confer on private litigants a right to enforce
the statute's requirements." International Brominated Solvents Ass'n
v. American Conference of Governmental Industrial Hygienists, Inc.,
393 E Supp. 2d 1362, 1377-78 (M.D. Ga. 2005). See also Cheney v.
United States District Court, 542 U.S. 367, 374-75 (2004)
(acknowledging district court's holding that FACA does not create a
private cause of action); Natural Resources Defense Council v.
Abraham, 223 E Supp. 2d 162, 176 (D.D.C. 2002), vacated in part on
other grounds, 353 F.2d 40 (D.C. Cir. 2004) (courts may not imply the
existence of a private cause of action under a statute such as FACA
where the plain intent of that statute does not create a cause of
action). Further, FACA does not prescribe remedies or penalties for
violations. See B-278940, Jan. 13, 1998. Thus, assuming a plaintiff
can establish standing and then establish some violation, it is up to
the court, within the limits of judicial power, to devise an
appropriate remedy that is tailored to further FACA's goals of public
accountability and reduction of economic waste. See California
Forestry Ass'n v. United States Forest Service, 102 F.3d 609 (D.C.
Cir. 1996) (citing Public Citizen, 491 U.S. at 459); Akzo-Nobel, Inc.
v. United States, No. 00-30834 (5th Cir. 2001). One court, after
finding FACA violations, permanently enjoined the agency from using
the advisory body's report, "the product of a tainted procedure."
Alabama-Tombigbee Rivers Coalition v. Department of Interior, 26 F.3d
1103, 1107 (11th Cir. 1994). Another potential form of relief is the
declaratory judgment. E.g., National Nutritional Foods Association v.
Califano, 603 F.2d 327, 336 (2nd Cir. 1979). The Second Circuit
further noted in Califano that, at least as of 1979, no court had used
a FACA violation to "invalidate a regulation adopted under otherwise
appropriate procedures." Id. Other forms of relief might include
orders to open future meetings to the public, produce documents, or
comply with any of FACA's other procedural requirements, depending on
the precise violation. As far as we are aware, no court has yet to
suggest that it could award a judgment for money damages.
(1) Definition and specific exemptions:
The Federal Advisory Committee Act (FACA), as amended by the Federal
Advisory Committee Act Amendments of 1997,[Footnote 22] defines
"advisory committee" as follows:
"The term 'advisory committee' means any committee, board, commission,
council, conference, panel, task force, or other similar group, or any
subcommittee or other subgroup thereof ... which is:
(A) established by statute or reorganization plan, or;
(B) established or utilized by the President, or;
(C) established or utilized by one or more agencies,
in the interest of obtaining advice or recommendations for the
President or one or more agencies or officers of the Federal
Government, except that such term excludes (i) any committee that is
composed wholly of full-time, or permanent part-time, officers or
employees of the Federal Government, and (ii) any committee that is
created by the National Academy of Sciences or the National Academy of
Public Administration."
5 U.S.C. app. § 3(2).
In assessing the scope of section 3(2), the first (and easiest) step
is to exclude those entities FACA itself expressly exempts. Of the
exemptions in section 3(2), the exemption for committees composed
wholly of government officials is the most important. For the most
part, this is relatively straightforward and easy to apply, but not
always. One issue in Association of American Physicians & Surgeons
(AAPS) v. Clinton, 997 F.2d 898 (D.C. Cir. 1993), was the status of
the President's spouse. President Clinton had asked the First Lady to
chair his Task Force on National Health Care Reform. If she could be
regarded as a government official, FACA would not apply because
everyone else on the task force was unquestionably a government
official. While the court believed the question far from easy, id. at
906, it found persuasive the suggestion that "Congress itself has
recognized that the President's spouse acts as the functional
equivalent of an assistant to the President." Id. at 904 (emphasis
omitted). The First Lady could therefore be deemed a de facto officer
of the government for FACA purposes. Id. at 905.
Also at issue in AAPS was whether the interdepartmental working group
established by the President (separate from the task force) for the
purpose of gathering information and developing options on health care
reform for the task force was an advisory committee subject to FACA.
The working group allegedly consisted of both federal employees and
private consultants who attended at least some working group meetings.
Id. at 914-15. The court stated that if a consultant's involvement and
role in an advisory committee is indistinguishable from other members,
for example, the consultant regularly attends and fully participates
in committee meetings as if he were a member, he is a de facto member
of the committee and "his status as a private citizen would disqualify
the working group from the section 3(2) exemption for meetings of full-
time government employees." Id. at 915.
The analysis can also be complicated when there are separation of
powers concerns. For example, in 2001, President Bush created the
National Energy Policy Development Group (NEPDG) to advise and make
recommendations to him regarding energy policy. Although the only
officially named members of the NEPDG were the Vice President, several
cabinet officers, and other high level federal officials, private
sector representatives were alleged to have had extensive
participation in NEPDG meetings and activities as well. Public
interest groups filed suit under FACA against the NEPDG and its
individual members, seeking access to NEPDG records. They argued,
among other things, that the private individuals had played such a
substantial role in the group's activities that under AAPS, they
became de facto members.
In response, the government filed a petition seeking to modify or
dissolve plaintiff's discovery order, among other things, which made
its way to the Supreme Court. The Court was sympathetic to the Vice
President's argument that applying FACA would violate separation-of-
powers principles and interfere with the executive's constitutional
prerogatives. According to the Court, the separation-of-powers
considerations include giving "recognition to the paramount necessity
of protecting the Executive Branch from vexatious litigation that
might distract it from the energetic performance of its constitutional
duties." Cheney v. United States District Court, 542 U.S. 367, 382
(2004). The Supreme Court remanded the case to the D.C. Circuit Court
of Appeals for "reexamination of ... whether [FACA] embodies the de
facto membership doctrine." Id. at 371.
On remand, the D.C. Circuit ruled that the private individuals were
not de facto members and thus that the NEPDG was not subject to FACA.
In re Cheney, 406 F.3d 723 (D.C. Cir. 2005). The court reasoned that
"in light of the severe separation-of-powers problems in applying FACA
on the basis that private parties participated in, or influenced, or
were otherwise involved with a committee in the Executive Office of
the President," strict construction of the statute is required. Id. at
728. Accordingly, the court held that, "if the President has given no
one other than a federal official a vote in or, if the committee acts
by consensus, a veto over the committee's decisions," an advisory
committee is deemed composed wholly of federal officials, and thereby
qualifies for the section 3(2) FACA exemption. Id. Thus, under In re
Cheney, an individual would have to have an official vote or veto to
qualify as a de facto member.
The exemption for committees created by the National Academy of
Sciences or the National Academy of Public Administration was added in
the 1997 amendment.[Footnote 23] While exempt from the section 3(2)
definition, they are nevertheless subject to a set of procedures
included in the 1997 legislation. 5 U.S.C. app. § 15. Section 4 of
FACA further exempts committees whose enabling legislation
specifically provides otherwise (this would be the case in any event);
committees established or utilized by the Central Intelligence Agency
or the Federal Reserve System; and certain state and local bodies.
Exemptions, of course, may appear in other statutes. For example,
section 204(b) of the Unfunded Mandates Reform Act of 1995, Pub. L.
No. 104-4, 109 Stat. 48, 65-66 (Mar. 22, 1995), codified at 2 U.S.C. §
1534(b), renders FACA inapplicable to meetings between federal and
state, local, or tribal officials, if they deal solely with federal
programs "that explicitly or inherently share intergovernmental
responsibilities or administration." See also 41 C.F.R. § 102-3.40(g)
(intergovernmental committees not covered). Similarly, section 3112 of
the National Defense Authorization Act for Fiscal Year 2004 permits an
officer or employee of a management and operating contractor of the
Department of Energy to be treated as an officer or employee of the
Department for purposes of determining whether the group is an
advisory committee within the meaning of section 3 of FACA.[Footnote
24] Pub. L. No. 108-136, div. C, title XXXI, 117 Stat. 1392, 1743
(Nov. 24, 2003), 42 U.S.C. § 7234 note.
Other exemptions have been recognized administratively or derive from
case law. For example, the Justice Department has concluded that FACA
does not apply to a body created jointly by the United States and
another nation. 3 Op. Off. Legal Counsel 321 (1979). The Justice
Department also concluded in 1988 that the Smithsonian Institution is
not a FACA "agency." It reasoned that because FACA incorporates the
definition of agency under the Administrative Procedure Act (APA), 5
U.S.C. § 551(1), and the Smithsonian does not meet the terms of the
APR's definition, the Smithsonian and any of its advisory bodies are
not covered by FACA. 12 Op. Off. Legal Counsel 122 (1988). The D.C.
Circuit has since buttressed this conclusion by confirming that the
Smithsonian is not an APA agency.
Dong v. Smithsonian Institution, 125 F.3d 877 (D.C. Cir. 1997), cert.
denied, 524 U.S. 922 (1998).
If the specific exemptions do not resolve the question, there are
several principles that are relevant in assessing applicability. They
are, unfortunately, often difficult to apply, and we do little more
than note them and allude to the problem areas.[Footnote 25]
(2) Advisory versus operational:
By its terms, the Federal Advisory Committee Act (FACA) applies to
committees which are purely advisory. In general, it does not apply to
bodies that are "operational." See 5 U.S.C. app. § 9(b) ("unless
otherwise specifically provided by statute or Presidential directive,
advisory committees shall be utilized solely for advisory functions");
§ 2(b)(6) ("the function of advisory committees should be advisory
only"). With respect to these provisions, as one court has said,
"Congress intended that federal decision makers, not their advisers or
delegatees, execute federal policy." Consumers Union v. Department of
Health,, Education and Welfare, 409 E Supp. 473, 477 (D.D.C. 1976),
aff'd, 551 F.2d 466 (1977). The Justice Department has offered a
useful test: does the body make or implement decisions itself, or does
it offer advice to federal officials who themselves will then make the
decisions? 5 Op. Off. Legal Counsel 283, 285 (1981).
Illustrative cases include Sofamor Danek Group, Inc. v. Gaus, 61 F.3d
929 (D.C. Cir. 1995), cert. denied, 516 U.S. 1112 (1996) (the Low Back
Panel, although established by the government, was charged with
developing guidelines for health care practitioners rather than
providing advice to the federal government, and was therefore
operational); Public Citizen v. Commission on the Bicentennial of the
United States Constitution, 622 E Supp. 753 (D.D.C. 1985)
(Bicentennial Commission primarily operational and therefore exempt);
57 Comp. Gen. 51 (1977) (same result for National Commission on the
Observance of International Women's Year); B-222831-0.M., May 30, 1986
(Statue of Liberty-Ellis Island Foundation). The fact that the
commission may be required to submit reports to the President and/or
Congress when it has finished its work does not change the result.
Public Citizen, 622 F. Supp. at 758. These cases, by the way (except
for Sofamor), point to one type of body which is almost always
operational—the commemorative or memorial commission. Their role is
usually to plan, coordinate, and implement a particular celebration.
Further examples of this type are the Christopher Columbus
Quincentenary Jubilee Commission, Pub. L. No. 98-375, 98 Stat. 1257
(Aug. 7, 1984); the Civil War Centennial Commission, Pub. L. No. 85-
305, 71 Stat. 626 (Sept. 7, 1957); and the National Capital
Sesquicentennial Commission, Pub. L. No. 80-203, 61 Stat. 396 (July
18, 1947).
The more difficult situation arises when a body has both advisory and
operational functions. FACA clearly anticipates its applicability to
committees with some operational functions. For example, a covered
committee's charter must specify "a description of the duties for
which the committee is responsible, and, if such duties are not solely
advisory, a specification of the authority for such functions." 5
U.S.C. app. § 9(c)(F). Also, the fragment of section 9(b) of FACA
quoted above explicitly recognizes the inclusion of nonadvisory
functions if specifically provided by statute or Presidential
directive. The General Services Administration (GSA) regulations
implement these distinctions by exempting committees which are
"established to perform primarily operational as opposed to advisory
functions." 41 C.F.R. § 102-3.40(k). An illustrative case is Natural
Resources Defense Council v. EPA, 806 F. Supp. 275 (D.D.C. 1992) (the
Environmental Protection Agency's (EPA) Governors' Forum on
Environmental Management primarily operational because participating
state governors acted as independent chief executives in partnership
with EPA in implementing pertinent legislation). GSA regulation
provides further, however, that a primarily operational committee can
become subject to FACA "if it becomes primarily advisory in nature."
41 C.F.R. § 102-3.40(k).
(3) Who is being advised?
The definition of an advisory committee in section 3(2) of the Federal
Advisory Committee Act (FACA), 5 U.S.C. app. § 3(2) quoted above,
refers to bodies established or utilized "in the interest of obtaining
advice or recommendations for the President or one or more agencies or
officers of the Federal Government." Section 3(3) of FACA expressly
incorporates the Administrative Procedure Act definition of "agency,"
5 U.S.C. § 551(1), which specifically excludes Congress. See also 5
U.S.C. app. § 2(a). Thus, assuming the absence of any other
disqualifying factors, an advisory committee will be subject to FACA
if it advises the President and/or an executive agency, but not if it
advises Congress. E.g., B-135945, Mar. 29, 1973 (National Study
Commission established by Federal Water Pollution Control Act exempt
from FACA because it advises Congress). As that decision points out,
language to specifically include Congress was contained in earlier
versions of FACA but was deleted prior to enactment. Similarly, a body
established to advise the Comptroller General, an official of the
legislative branch, is for that reason not subject to FACA. B-130961-
0.M., Feb. 12, 1974.
What if an advisory body is required to report both to Congress and to
the President and/or an executive agency? An early decision espoused
the view that merely including Congress on the list of recipients is
enough to invoke the exemption. B-178395, Apr. 26, 1973. However, this
essentially "form over substance" approach has not been followed, and
later opinions by GAO and the Justice Department stress the need to
examine the committee's nature and essence. For example, the
legislation establishing the National Commission for the Protection of
Human Subjects of Biomedical and Behavioral Research directed the
commission to report to the President, the Congress, and the Secretary
of the then Department of Health, Education, and Welfare. Considering
all relevant factors—the legislative scheme in its entirety, the
legislative history, and the real essence of the commission's
functions—GAO concluded that the commission was "viewed by Congress as
a body intended primarily to provide assistance to the Secretary," and
therefore subject to FACA. B-143181, Oct. 9, 1975. Similarly, the
Justice Department concluded that the Native Hawaiians Study
Commission was established primarily to advise Congress and was
accordingly exempt from FACA, even though it was required to report as
well to the President. 6 Op. Off. Legal Counsel 39 (1982).
Justice has applied the same type of approach where an advisory
committee reports to several executive branch recipients, some of
which are covered by FACA and some of which are exempt. See 12 Op.
Off. Legal Counsel 11 (1988) (Presidential Task Force on Market
Mechanisms exempt from FACA because of its relationship to the Federal
Reserve Board, notwithstanding that it also reports to the President
and Secretary of the Treasury).
(4) "Established or utilized:"
A key portion of section 3(2) of the Federal Advisory Committee Act's
(FACA) definition of advisory committee is that the group be
"established or utilized" by the President or by one or more agencies
"in the interest of obtaining advice or recommendations for the
President or one or more agencies." Of the two words, "established"
tends to be the easier to apply. It generally means created directly
by a statute, the President, or a federal agency. "Established by
statute" requires that the statute at least directly authorize the
creation of advisory committees, if not the specific committee in
question; committees "which merely can be said to owe their existence
to legislation" do not meet the standard. Lombardo v. Handler, 397 E
Supp. 792, 796 (D.D.C. 1975), aff'd mem., 546 F.2d 1043 (D.C. Cir.
1976), cert. denied, 431 U.S. 932 (1977). A group established by a
government contractor is not, for FACA purposes, established by the
government. E.g., Food Chemical News v. Young, 900 F.2d 328 (D.C.
Cir.), cert. denied, 498 U.S. 846 (1990).
Also, since section 3(3) of FACA defines agency by incorporating the
Administrative Procedure Act definition, 5 U.S.C. § 551(1), FACA will
not apply to a body, however advisory it may be, created by a
government entity not covered by the APA definition. For example, an
advisory body established by the United States Sentencing Commission,
an agency in the judicial branch, was found exempt from FACA in
Washington Legal Foundation v. United States Sentencing Commission, 17
F.3d 1446 (D.C. Cir. 1994). The reason is that the APA definition
excludes "the courts" and "the Congress," and the courts have broadly
construed this as excluding basically the entire judicial and
legislative branches. Id. at 1449. See also Aluminum Company of
America v. National Marine Fisheries Service, 92 F.3d 902 (9th Cir.
1996) (group formed by federal and nonfederal litigants to advise on
compliance with court order was prompted, if by any single agency, by
the district court and therefore exempt from FACA).
The word "utilized" is much more difficult. Prior to 1989 at least,
there was no universally accepted approach to its application. The
problem is that giving "utilized" its ordinary meaning, "make use of,"
would bring in a variety of private bodies seemingly beyond the scope
of FACA's intended reach. Some courts applied a fairly straightforward
approach. E.g., Food Chemical News, Inc. v. Davis, 378 E Supp. 1048
(D.D.C. 1974) (agency which solicited comments from private industry
group incident to considering change to regulations indisputably
utilized that group to obtain advice). Others, viewing the term
"utilized" as ambiguous, were guided more by legislative history.
E.g., Lombardo, 397 E Supp. at 800.
The Supreme Court confronted the issue in Public Citizen v. United
States Department of Justice, 491 U.S. 440 (1989). The question was
whether FACA applied to consultations between the Justice Department
and a standing committee of the American Bar Association regarding
potential nominees for federal judgeships. Clearly, the standing
committee was not established by the President or by the Justice
Department. Equally clearly, if "utilized" were given its ordinary
meaning, then the ABA committee was utilized by Justice.
However, the Court realized that a literal reading of section 3(2)
would expand FACA's coverage far beyond what Congress had in mind, and
would also implicate constitutional concerns. In what may become the
most quoted judicial statement since "I know it when I see it," the
Court called the word "utilize" a "woolly verb, its contours left
undefined by the statute itself." Public Citizen, 491 U.S. at 452.
This being the case, the Court looked to legislative history to shear
the wool, and found that Congress seemed concerned mostly with "groups
organized by, or closely tied to, the Federal Government, and thus
enjoying quasi-public status." Id. at 461.
The Court continued:
"The phrase 'or utilized' ... appears to have been added simply to
clarify that FACA applies to advisory committees established by the
Federal Government in a generous sense of that term, encompassing
groups formed indirectly by quasi-public organizations ... 'for'
public agencies as well as `by' such agencies themselves."
Id. at 462. Under this approach, the ABA committee-—privately formed
and "in receipt of no federal funds and not amenable to ... strict
management by agency officials" (id. at 457-58)-—was clearly excluded.
Several lower courts have suggested that Public Citizen treated
"utilize" essentially as a form of "established." E.g., Aluminum
Company of America, 92 F.3d at 905. While there is some truth to this
and the distinction surely has been blurred, the fact remains that the
statute uses the word "or" and that therefore they are two separate
and exclusive concepts. Huron Environmental Activist League v. EPA,
917 F. Supp. 34, 40 n.6 (D.D.C. 1996). "Established" refers to a
government-formed body while "utilized" refers to a group formed by
nongovernment sources but which is nevertheless sufficiently close to
an agency as to be amenable to management or control by that agency.
Food Chemical News, 900 F.2d at 332-33. As the D.C. Circuit phrased it
in Sofamor Danek Group, Inc. v. Gaus, 61 F.3d 929 (D.C. Cir. 1995),
cert. denied, 516 U.S. 1112 (1996), in light of the Public Citizen's
interpretation of "utilize," "FACA can only apply if the committee is
established, managed, or controlled for the purpose of obtaining
advice or recommendations for the federal government." Sofamor, 61
F.3d at 936.
If one point emerges from Public Citizen and its progeny, it is that
FACA will be difficult to apply to a body not established by the
government. To cite a few examples, the courts have found that the
following entities were not subject to FACA because they were not
utilized in the Public Citizen sense:
* Working groups created to aid in implementing a court order
regarding the protection of an endangered species. The groups were not
funded by the government, nor were they subject to federal management.
Aluminum Company of America, 92 F.3d 902.
* A group of experts established by a contractor to advise on food and
cosmetic safety issues. Not only did the contractor, a private
organization, not enjoy "quasi-public status," it set the group's
agenda, scheduled its meetings, and reviewed its work. Food Chemical
News, 900 F.2d at 333.
* A cement industry group that met with EPA. Although EPA determined
the schedule and made other logistical arrangements for meetings with
the cement industry group, there was no showing that the group was
subject to EPA's management or control or that it was "so closely tied
to the executive branch of the government as to render it a
functionary thereof." Huron Environmental Activist League, 917 F.
Supp. at 40.
* An advisory committee to the Sentencing Commission was not utilized
by the Justice Department because, as a judicial branch entity, it was
not, and could not be, managed or controlled by Justice. Minority
membership on the committee (in this case, 2 Justice officials out of
16 members) is not control. Washington Legal Foundation, 17 F.3d at
1450-51. As noted above, all of these cases involved the
interpretation of the term "utilized" in section 3(2) of FACA.
However, the term is also used in section 4(b) of FACA, which
expressly exempts from FACA requirements advisory committees that are
"established or utilized" by the Central Intelligence Agency (CIA):
"Nothing in this Act shall be construed to apply to any advisory
committee established or utilized by—(1) the Central Intelligence
Agency." The use of the term "utilized" in the section 4(b) sense was
addressed in Center for Arms Control and Non-Proliferation v. Lago,
Civ. A. No. 05-682(RMC) (D.D.C. Nov. 15, 2006). By Executive Order No.
13328, Feb. 6, 2004, the President established the Commission on the
Intelligence Capabilities of the United States Regarding Weapons of
Mass Destruction (Commission) to investigate the intelligence
communities' prior assessments of and current capabilities to confront
weapons of mass destruction in Iraq, and submit a report on its
findings and recommendations by March 31, 2005. The Executive Order
also provided that the "Central Intelligence Agency and other
components of the Intelligence Community shall utilize the Commission
and its resulting report." Exec. Order No. 13328, ¶ 2(d). The Center
for Arms Control and Non-Proliferation (Center)[Footnote 26] sought
the materials used in developing the Commission's report, and in the
process the Center brought suit complaining that the Commission had
failed to comply with certain of FACA's requirements, such as keeping
detailed minutes of each meeting and making records available for
public inspection. See 5 U.S.C. app. §§ 10(b), (c), and 11(a).
In determining whether the Commission was an advisory committee under
FACA, the court considered the cases such as Public Citizen and its
progeny, which addressed the definition of "utilized" in the context
of FACA section 3(2), and summarized the definitions in those
circumstances: "[A] committee is 'established' when it is formed by a
Government agency, and 'utilized' when it is organized by a non-
governmental entity 'but nonetheless so closely tied to an agency as
to be amendable to strict management by agency officials.'" Center for
Arms Control and Non-Proliferation, slip op. at 6 (citations omitted).
The court found these definitions did not apply to the concept of
"utilized" as used in FACA section 4(b), which should be read more
broadly to ensure that FACA's requirements "would not interfere with
or jeopardize the confidentiality of the workings of the CIA." Id. at
8. The court instead read the word "utilized" in section 4(b) in light
of its common meaning "to put to use." Id. In this case, although the
CIA did not have any particular management role vis-a-vis the
Commission's work, the fact that the CIA could "utilize" or, using the
court's definition, "put to use" the Commission and its report was
sufficient to trigger the FACA exemption in section 4(b). Id.
(5) Other factors:
The Federal Advisory Committee Act (FACA) applies to a group acting as
a group; it does not apply to individuals acting as individuals just
because they happen to be in the same place while they are doing it.
Association of American Physicians & Surgeons (AAPS) v. Clinton, 997
F.2d 898, 915 (D.C. Cir. 1993) (court opined that FACA does not apply
to a "collection of individuals who do not significantly interact with
each other"); Aluminum Company of America v. National Marine Fisheries
Service, 92 F.3d 902, 907 (9th Cir. 1996) (quoting AAPS). The GSA
regulations reflect this point. See 41 C.F.R. § 102-3.40 (formerly 41
C.F.R. § 101-6.1004), discussed in B-202455, Aug. 30, 1984, and B-
202455, Mar. 21, 1985. As the Justice Department has put it:
"FACA applies by its terms to 'advisory committees.' 'Advisory
committee' is a term that connotes a body that deliberates together to
provide advice. Therefore, as a matter of statutory construction, we
believe that FACA does not apply to a group which simply acts as a
forum to collect individual views rather than to bring a collective
judgment to bear."
14 Op. Off. Legal Counsel 53, 55 (1990). The requirement that a
committee act as a committee does not mean that it must give
"consensus advice." AAPS, 997 F.2d at 913.
Consensus or not, the advice must relate directly to governmental
policy issues. Judicial Watch, Inc. v. Clinton, 76 F.3d 1232, 1233
(D.C. Cir. 1996) (Presidential legal expense trust, established to
help defray personal legal fees, not subject to FACA); Grigsby
Brandford & Co. v. United States, 869 E Supp. 984, 1001 (D.D.C. 1994);
41 C.F.R. § 102-3.25 (the General Services Administration's definition
of advisory committee).
An important, although not in and of itself necessarily conclusive,
factor is the degree of formality attaching to the group. An early and
often-cited FACA case held the statute inapplicable to a group whose
"meetings are unstructured, informal and not conducted for the purpose
of obtaining advice on specific subjects indicated in advance." Nader
v. Baroody, 396 E Supp. 1231, 1234-35 (D.D.C. 1975). Other cases,
however, have applied FACA to informal meetings. E.g., National
Nutritional Foods Ass'n v. Califano, 603 F.2d 327 (2nd Cir. 1979);
Food Chemical News, Inc. v. Davis, 378 E Supp. 1048 (D.D.C. 1974). The
more recent trend seems to be to follow the approach of Baroody. Thus,
the D.C. Circuit has stated: "In order to implicate FACA, the
President, or his subordinates, must create an advisory group that
has, in large measure, an organized structure, a fixed membership, and
a specific purpose." AAPS, 997 F.2d at 914, cited in Aluminum Company
of America, 92 F.3d at 906 ("existence of a formal and structured
group leans toward a finding of FACA applicability"). See also Huron
Environmental Activist League v. EPA, 917 F. Supp. 34, 42 (D.D.C.
1996); Grigsby Brandford & Co., 869 F. Supp. at 1001.
A group's funding is also relevant but not conclusive. One of the
factors the Supreme Court noted in holding FACA inapplicable to the
American Bar Association's committee on federal judgeships was that it
was "in receipt of no federal funds." Public Citizen v. Department of
Justice, 491 U.S. 440, 457 (1989). See also Aluminum Company of
America, 92 F.3d at 906. Thus, the absence of federal funding is a
factor supporting a conclusion of nonapplicability. In view of all the
other ways to fall outside the statute, the presence of federal
funding would not appear to be particularly revealing one way or the
other. While the mere existence of federal funding may not tell you
very much, its precise source may. For example, in determining that a
particular committee was designed primarily to advise Congress rather
than the President, the Justice Department found it relevant that the
committee was originally funded from the contingent fund of the
Senate. 6 Op. Off. Legal Counsel 39, 41-42 (1982). See also 13 Op.
Off. Legal Counsel 285, 290 n.11 (1989) for a case in which no clear
inferences could be drawn.
The status of subcommittees or subgroups is not entirely clear. The
FACA definition expressly includes boards, committees, etc., "or any
subcommittee or other subgroup thereof." 5 U.S.C. app. § 3(2). One
court has found that task forces of the President's Private Sector
Survey on Cost Control were not subject to FACA because "they do not
directly advise the President or any federal agency, but rather
provide information and recommendations for consideration to the
Committee." National Anti-Hunger Coalition v. Executive Committee, 557
F. Supp. 524, 529 (D.D.C.), aff'd, 711 F.2d 1071 (D.C. Cir. 1983).
Under this approach, the subgroup operates essentially as staff of the
parent committee. GAO questioned whether this is really what Congress
had in mind:
"One would expect most subcommittees or subgroups to report to their
parent committee, rather than bypassing the parent committee and
reporting directly to a Federal official.... There is no reason to
presume that Congress intended subcommittees or subgroups to be
included only in those unusual circumstances where they side-step
their parent committees."
B-199008-0.M., June 14, 1983, at 9.
As discussed earlier, the D.C. Circuit revisited the issue in the 1993
case, Association of American Physicians & Surgeons v. Clinton, 997
F.2d 898, where the court examined the status of a working group set
up to assist the President's Task Force on National Health Care
Reform. Although not expressly repudiating the Anti-Hunger reasoning
in all cases, the court now pointed out that "we did not explicitly
approve the judge's reasoning relating to the supposed staff groups."
AAPS, 997 F.2d at 912. While the court did not have sufficient
information to decide the issue, it hinted strongly that subgroups
would be subject to different degrees of stringency depending on
whether the parent group was (as in Anti-Hunger) or was not (as in
AAPS) itself subject to FACA.
"In contrast to the situation here, in Anti-Hunger the top levels of
the outside advisory groups were covered by FACA.... In that scenario,
there is less reason to focus on subordinate advisers or consultants
who are presumably under the control of the superior groups.... But
when the Task Force itself is considered part of the government—due to
the government officials exemption—we must consider more closely
FACA's relevance to the working group. For it is the working group
that now is the point of contact between the public and the
government."
AAPS, 997 F.2d at 913 (emphasis in original). The court did not
address the extent to which the distinction would be relevant, if at
all, where the parent body is exempt from FACA for some reason other
than the government officials' exemption.
b. Creation and Funding:
Funding of a federal advisory committee depends largely on how it was
created. Creation is addressed in section 9(a) of the Federal Advisory
Committee Act:
"(a) No advisory committee shall be established unless such
establishment is:
(1) specifically authorized by statute or by the President; or;
(2) determined as a matter of formal record by the head of the agency
involved after consultation with the Administrator [of General
Services] with timely notice published in the Federal Register, to be
in the public interest in connection with the performance of duties
imposed on that agency by law."
5 U.S.C. app. § 9(a). As this provision indicates, and as the GSA
regulations reflect (41 C.F.R. § 102-3.50), there are several ways to
create an advisory committee:
* by statute;
* by the President, usually by executive order;
* by the President pursuant to statutory authorization;
* by an agency head.
Indeed, one of the significant features of section 9(a) is its
explicit recognition of the nonstatutory creation of advisory
committees by the executive branch.
(1) Statutory committees: creation:
Congress, of course, can legislatively create committees or other
groups, advisory and/or operational. Therefore, the discussion under
this heading is not limited to advisory bodies. Statutes creating a
board, commission, committee, or similar group may include the
following elements:
It may prescribe the group's functions and duties. Unless otherwise
provided, this description will determine whether the group is
"primarily operational" and thus exempt from the Federal Advisory
Committee Act (FACA). If the group's functions include holding
hearings or taking testimony, the statute may address such topics as
the expenses of witnesses and the treatment of subpoenas. E.g., Pub.
L. No. 104-169, § 5(a), 110 Stat. 1482, 1484-85 (Aug. 3, 1996)
(National Gambling Impact Study Commission).
It may address the group's status under FACA. The statute may
expressly provide that the group is subject to FACA. E.g., 20 U.S.C. §
9252(e)(3) (National Institute for Literacy Advisory Board). It may
render the group wholly exempt from FACA. E.g., Pub. L. No. 98-399, §
5(c), 98 Stat. 1473, 1474 (Aug. 27, 1984) (Martin Luther King, Jr.
Federal Holiday Commission). Or, it may exempt the group from certain
portions of FACA. E.g., Pub. L. No. 93-348, § 211(a), 88 Stat. 342,
351-52 (July 12, 1974) (stating that section 14 of FACA—termination
and renewal—shall not be applicable to the National Advisory Council
for the Protection of Subjects of Biomedical and Behavioral Research).
It may prescribe the group's membership and composition. To the extent
the group will include or consist of private members, it will
prescribe who is to appoint them. E.g., Pub. L. No. 86-380, § 3, 73
Stat. 703, 704 (Sept. 24, 1959) (Advisory Commission on
Intergovernmental Relations members shall be appointed by the
President, the President of the Senate, or the Speaker of the House);
Pub. L. No. 93-348, § 211(a) (members shall be appointed by the
department head). The statute may prohibit members from holding any
other position as an officer or employee of the United States during
their period of service.[Footnote 27] E.g., Pub. L. No. 90-515, §
2(b), 82 Stat. 868 (Sept. 26, 1968) (National Water Commission).
Absent a provision of this nature, nothing prohibits a private
individual from serving on more than one committee. Similarly, a
government official may serve on more than one body as long as "the
person receives only one salary, the positions are not 'incompatible'
from the standpoint of public policy, and there is no augmentation of
relevant appropriations." 14 Op. Off. Legal Counsel 157, 160 (1990).
See also 8 Op. Off. Legal Counsel 200, 205-06 (1984).
It may address the compensation of members and, if applicable, the
hiring of staff Members may or may not be compensated for their
services, and members serving without compensation may nevertheless be
allowed travel expenses. An example is Pub. L. No. 98-399, § 4(d)
(Martin Luther King, Jr. Federal Holiday Commission). Enabling
statutes frequently provide that members who are officers or employees
of the government or Members of Congress may not receive compensation
for their service as members (because of the dual compensation laws,
primarily 5 U.S.C. § 5533), but may be allowed travel expenses. E.g.,
Pub. L. No. 91-129, § 5(a), 83 Stat. 269, 271 (Nov. 26, 1969)
(Commission on Government Procurement).
Payment of a per diem amount in lieu of subsistence is available only
where authorized by statute. 20 Comp. Gen. 361, 363 (1941) (Commission
on Fine Arts); 10 Comp. Gen. 239, 240 (1930) (George Washington
Bicentennial Commission). For committees subject to it, FACA provides
the necessary authority. 5 U.S.C. app. § 7(d)(1)(B). For other groups,
the authority must be found elsewhere. E.g., 36 U.S.C. § 2303(a)
(Holocaust Memorial Council).
In most cases, compensation is provided in one of two ways: (1) the
"daily equivalent" of a specified grade/level of the General Schedule
or Executive Schedule, or (2) a per diem basis, that is, a fixed
number of dollars per day. In either case, compensation is payable
only for days the member actually performs duties. The compensation is
payable in full regardless of how much or how little the person works
on any given day. 45 Comp. Gen. 131, 133 (1965) (addressing per diem
payments); 28 Comp. Gen. 211-12 (1948) (same). (Of course, to trigger
the entitlement at all, the "little" must exceed zero.)
Another type of compensation provision authorizes compensation in
accordance with 5 U.S.C. § 3109, the expert and consultant statute.
This will limit compensation to the highest rate for a GS-15 unless a
higher rate is expressly provided by statute. 51 Comp. Gen. 224, 226
(1971); 43 Comp. Gen. 509 (1964); 29 Comp. Gen. 267, 268-69 (1949).
For advisory committees under FACA, the statute imposes a compensation
ceiling of the rate specified for level IV of the Executive Schedule.
5 U.S.C. app. § 7(d); 5 U.S.C. §§ 5315, 5376 note. However, GSA FACA
regulations require the agency head to personally authorize any rate
higher than GS-15. 41 C.F.R. § 102-3.130. Both the statute and
regulations authorize the payment of travel expenses for duties
performed away from home or regular place of business. 5 U.S.C. app. §
7(d); 41 C.F.R. § 102-3.130.
A common provision exempts members and/or staff from the so-called
civil service laws. GAO has held that the phrase "civil service laws"
refers to the statutes and regulations governing appointments, and
does not include the provisions, now also in title 5, United States
Code, addressing salary rates. 53 Comp. Gen. 531, 532 (1974). A more
precise version of this language is "without regard to the provisions
of [5 U.S.C.] governing appointments in the competitive service." Pub.
L. No. 93-348, § 211(a). If exemption from both is desired, the modern
language is "without regard to the provisions of [5 U.S.C.] governing
appointments in the competitive service, and without regard to chapter
51 and subchapter DI of chapter 53 of such title relating to
classification and General Schedule pay rates." E.g., Pub. L. No. 108-
458, § 1061(g)(1), 116 Stat. 3638, 3687-88 (Dec. 17, 2004) (Privacy
and Civil Liberties Oversight Board); Pub. L. No. 100-94, § 5, 101
Stat. 700, 701 (Aug. 18, 1987) (Christopher Columbus Quincentenary
Jubilee Commission).
It may make some provision for support services. The committee may
need office space, office equipment, staff, etc. Especially if the
committee is tied in by subject matter to some existing department,
the legislation may direct that department to provide support
services. Such support services may or may not be reimbursable. For
example, the Interior Department is authorized to provide services and
support to the Holocaust Memorial Council "on a reimbursable basis."
36 U.S.C. § 2304(d). In contrast, support services provided to the
National Commission on Restructuring the Internal Revenue Service by
the General Services Administration or the Treasury Department are to
be "on a nonreimbursable basis." Pub. L. No. 104-52, § 637(d)(4), 109
Stat. 468, 511 (Nov. 19, 1995). Still another variation leaves it to
the parties to fight it out. E.g., Pub. L. No. 93-556, § 7(b), 88
Stat. 1788, 1792 (Dec. 27, 1974) (Commission on Federal Paperwork may
obtain services from any government agency, "reimbursable or
otherwise, as may be agreed" by the Commission and the agency).
It may prescribe applicable reporting requirements. (See section
A.4.a(3) of this chapter.)
It may provide for the group's termination, at least for groups
intended to have a short duration or single-project groups. A common
provision mandates termination a specified number of days or months
after submission of required reports. E.g., Pub. L. No. 88-606, §
4(b), 78 Stat. 982, 983 (Sept. 19, 1964) (Public Land Law Review
Commission shall terminate on the earlier of a fixed date or 6 months
after submission of its report). Some entities may simply terminate on
a fixed date, an approach suitable for memorial commissions, for
example. E.g. Pub. L. No. 98-101, § 7, 97 Stat. 719, 722 (Sept. 29,
1983) (Commission on the Bicentennial of the Constitution "shall
terminate on December 31, 1989").
For groups subject to it, FACA addresses termination if the
establishing legislation is otherwise silent. An advisory committee
will terminate two years after its date of establishment unless its
duration is "otherwise provided for by law." 5 U.S.C. app. §
14(a)(2)(B). The Justice Department has concluded that the nature of a
group's functions may exempt it from the automatic termination of
section 14. Specifically:
"In our view, the duration of a statutorily created advisory committee
may be 'otherwise provided for by law' either expressly or by
implication. Such duration is provided for by implication if the
statute that creates or assigns functions to an advisory committee
provides for it a specific function that is continuing in nature and
is an integral part of the implementation of a statutory scheme."
3 Op. Off. Legal Counsel 170, 171 (1979). The requirement to make
"periodic reports and recommendations" meets this test. Id. at 173-74.
(2) Statutory committees: funding:
A board or committee created by Congress is generally funded under the
standard two-step procedure: "first the program is authorized and,
subsequently, appropriations are made available to carry out the
program." B-39995-0.M., Apr. 28, 1983, at 2 (referring to the Cost
Accounting Standards Board). The Federal Advisory Committee Act
(FACA), 5 U.S.C. app. §§ 5(b)(4) and (5), contains provisions dealing
with authorization of appropriations and the assurance that the
advisory body will have funds available for its necessary expenses
(although no precise mechanism is prescribed).
The authorization of appropriations may be indefinite, that is, such
sums "as may be necessary."[Footnote 28] Others may include a monetary
ceiling. [Footnote 29] Still others may cover multiple year periods
either year-by-year or in the aggregate.[Footnote 30] A variation
provides a specific dollar authorization for the first year and "such
sums as may be necessary" thereafter.[Footnote 31] There appear to be
no significant consequences flowing from which form is used, nor are
we able to generalize as to when a particular form may be regarded as
more appropriate.
The authorization is sometimes combined with language prohibiting
expenditures except to the extent provided in advance in appropriation
acts. E.g., 36 U.S.C. § 2310 (Holocaust Memorial Council); Pub. L. No.
104-169, § 9(b), 110 Stat. 1482, 1488 (Aug. 3, 1996) (National
Gambling Impact Study Commission). Even without language of this sort,
an appropriation would still be necessary to carry out the
authorization.
The next step is the actual appropriation. It can be an appropriation
made directly to the entity; it can be an appropriation to an existing
agency to be funneled to the entity; or it can be included in a lump-
sum appropriation to a department or agency related in subject matter.
The authorization of appropriations may influence this choice. Some
authorizing provisions, for example, expressly authorize funds to be
directly appropriated to the board or commission while others use more
discretionary language (funds appropriated "for the activities or the
particular commission or simply "to carry out this act").
Whichever form is used, there is nothing particularly exotic about an
appropriation for a miscellaneous board or commission. It is
essentially no different from an appropriation for any other entity,
and is governed by the same rules of purpose, time, and amount. The
following paragraphs illustrate the application of some of these rules.
A board, committee, or other such entity must use an appropriation
only for its intended purposes. This means the purposes stated in the
appropriation and other pertinent legislation, as amplified by the
"necessary expense" doctrine expounded in Chapter 4, section B. E.g.,
B-211149, June 22, 1983 (because Holocaust Memorial Council had
specific authority to solicit donations, it could pay employees or
consultants who engage in fund-raising).
Entertainment is not a proper expenditure unless Congress has
authorized it. One way Congress does this is to appropriate part of a
lump sum for "official reception and representation expenses." While
this is the device most commonly used for larger agencies, it works
just as well for a small board or commission. E.g., Pub. L. No. 98-
411, 98 Stat. 1545, 1568 (Aug. 30, 1984) (1985 appropriation for the
Japan-United States Friendship Commission). Another device Congress
has used—primarily with celebration/memorial commissions—is to include
in the enabling statute authority to act "without regard to the laws
and procedures applicable to Federal agencies." A commission with this
authority can expend public funds for food and entertainment virtually
at will. B-138969, Apr. 16, 1959 (Lincoln Sesquicentennial
Commission); B-138925, Apr. 15, 1959 (Civil War Centennial
Commission); B-129102, Oct. 2, 1956 (Woodrow Wilson Centennial
Celebration Commission).
In making expenditures from a lump-sum appropriation, an agency's
discretion is not legally limited by restrictions expressed in
legislative history that are not carried into the statute itself.
E.g., 31 Comp. Gen. 412 (1952) (National Capital Sesquicentennial
Commission could spend its appropriation on authorized activities and
was not bound to follow instructions contained only in a committee
report).
Money received for the use of the government, in accordance with the
so-called miscellaneous receipts statute, 31 U.S.C. § 3302(b), must be
deposited in the general fund of the Treasury, subject to exceptions
discussed in detail in Chapter 6, section E.2.a. For the most part, a
body which is purely advisory should not be in a position to generate
receipts. Operational bodies, on the other hand, are more likely to be
involved in activities that generate receipts and must therefore
contend with the miscellaneous receipts statute.
Specific authority to credit receipts to its operating appropriation
makes those funds available for expenditure without further
congressional action, at least during the appropriation's period of
obligational availability. B-90476, June 14, 1950 (charges for
admission to exhibits, plays, and dramatic productions by the National
Capital Sesquicentennial Commission). As noted above, language
authorizing an agency to act without regard to the laws applicable to
federal agencies is sufficient to remove the restriction on
entertainment expenditures. Such language is equally sufficient to
overcome the miscellaneous receipts statute. B-136051, Aug. 27, 1959
(concerning the sale of publications and commemorative medals by Civil
War Centennial Commission). If the board or commission does not have
specific authority to charge fees, it must rely on the so-called User
Fee Statute, 31 U.S.C. § 9701, in which case the fees are fully
subject to the miscellaneous receipts requirement.
In a 1936 case, the Northwest Territory Celebration Commission found
itself in a dilemma. As part of the celebration, it wanted to print
and sell cartographic maps of the Northwest Territory and to produce a
"moving pageant." The states formed from the Northwest Territory, with
whom the Commission was statutorily charged to cooperate, would each
order, and pay for, the desired number of maps and performances. While
the states were perfectly willing to pay their proportionate shares,
the problem was that the Commission lacked authority to retain the
receipts, and thus would have depleted its appropriation without
reimbursement. The solution was to somehow furnish the goods and
services without charge to the Commission's appropriation. The way to
do this was for each participating state to advance its estimated
share, which would be held in the Treasury in a trust fund account,
from which expenditures could be made. If this approach were followed,
it would be necessary to account for each state's funds separately so
that any remaining unexpended balances could be refunded. A-51645,
Nov. 6, 1936.
In the case of a small celebration/memorial commissions, GAO
recommended that the statute authorize payment of the appropriation to
the commission in one lump sum, at least where the statute does not
otherwise address the handling of the commission's finances:
"It is the view of this office that in cases of small appropriations
for sectional celebrations, memorials, etc., where the authorizing
resolution does not provide for the administrative handling of
obligations and expenditures from such appropriations by an existing
Government agency, it is preferable that the money be appropriated for
payment as a gift in one lump sum to an established local body without
any further accounting to the Federal accounting officers. [This
procedure] ... would remove the task of attempting at considerable
cost to inform the inexperienced local person or body of persons in
the field of the regulations, forms, and procedures required in
accounting for public funds."
B-8474, Feb. 19, 1940, at 2. The subject of that discussion was the
Benjamin Harrison Memorial Commission, established by statute. Pub. L.
No. 76-352, 53 Stat. 1274 (Aug. 9, 1939). Shortly after GAO's opinion,
the authorized amount was appropriated "to be paid to the Commission
for expenditure within its discretion" for authorized purposes. First
Deficiency Appropriation Act, 1940, Pub. L. No. 76-447, 54 Stat. 82,
83 (Apr. 6, 1940). However, it is not free money and the commission
did have a record-keeping responsibility: "[I]t is felt desirable that
[the commission] maintain an adequate record of such funds and of the
expenditure thereof." A-84233, June 3, 1937, at 2 (Charles Carroll of
Carrollton Bicentenary Commission).
Thus far, we have been talking about the fairly straightforward
situation where Congress creates a body, authorizes the appropriation
of funds, and then makes the appropriation. There are variations.
Instead of creating the commission directly, Congress can authorize or
direct the President to create it. E.g., Pub. Res. No. 106, 74th
Cong., ch. 556, 49 Stat. 1516 (June 15, 1936) (President authorized to
establish Charles Carroll of Carrollton Bicentenary Commission);
Department of Defense Authorization Act, 1985, Pub. L. No. 98-525, §
1511, 98 Stat. 2492, 2626 (Oct. 19, 1984) (President directed to
establish Chemical Warfare Review Commission). Congress can fund the
body by a direct appropriation (e.g., First Deficiency Appropriation
Act, Fiscal Year 1937, Pub. L. No. 75-4, 50 Stat. 8, 10 (Feb. 9, 1937)-
Carroll Bicentenary Commission), or it can tell the President, in
effect, to go hunt for the money. See, e.g., 15 U.S.C. § 1022f(b)
(describing compensation for advisory boards on national economic
programs and policies). These statutes tend to be less detailed than
their direct-creation siblings, the detail being filled in by the
implementing executive order. E.g., Exec. Order No. 12502, Chemical
Warfare Review Commission, 50 Fed. Reg. 4,195 (Jan. 28, 1985).
Congress also, either in conjunction with a direct appropriation or
without it, may require an existing department or agency to provide
financial support services. For example, the law creating the Civil
War Centennial Commission provided: "Expenditures of the Commission
shall be paid by the National Park Service as general administrative
agent, which shall keep complete records of such expenditures and
shall account also for all funds received by the Commission." Pub. L.
No. 85-305, § 6(b)(1), 71 Stat. 626, 627 (Sept. 7, 1957). Section 201
of the ICC Termination Act of 1995, Pub. L. No. 104-88, 109 Stat. 803,
939 (Dec. 29, 1995), codified at 49 U.S.C. § 726(d)(2), authorizes the
Secretary of Transportation or the Chairman of the Surface
Transportation Board to "pay the reasonable and necessary expenses
incurred by" the Railroad-Shipper Transportation Advisory Council.
Another variation is to appropriate money to an existing agency, to be
transferred to the board or commission when it is legally capable of
receiving them. E.g., 2 Op. Off. Legal Counsel 366 (1977).[Footnote 32]
Still another variation is found in the law establishing the National
Commission on Restructuring the Internal Revenue Service: "The
Secretary of the Treasury is authorized on a nonreimbursable basis to
provide the Commission with administrative services, funds,
facilities, staff, and other support services for the performance of
the Commission's functions." Treasury, Postal Service, and General
Government Appropriations Act, 1996, Pub. L. No. 104-52, § 637(d)(4),
109 Stat. 468, 511 (Nov. 19, 1995) (emphasis added). Absent a direct
appropriation, this would appear to be sufficient authority for
Treasury to fund the Commission. However, if Congress had been making
direct appropriations and then stopped, a provision of this sort would
enable the supporting agency to provide various kinds of stopgap or
perhaps even supplemental financial assistance, but would not permit
funding of the commission's entire operations. B-39995-0.M., Apr. 28,
1983 (Cost Accounting Standards Board).
A provision for a designated agency to provide support services to a
board or commission would normally imply that the board or commission
is not authorized to obtain the services directly. 61 Comp. Gen. 69,
75 (1981). However, in the cited case, the United States Advisory
Commission on Public Diplomacy was able to bypass its support agency
and contract directly for certain services because it also had
specific authority to hire experts and consultants in accordance with
5 U.S.C. § 3109.
For bodies created and funded by Congress, advisory or nonadvisory,
FACA or non-FACA, the various funding restrictions described earlier
in this section would not apply, except for the requirement for
specific approval of interagency funding. One could concoct a scenario
in which the Russell Amendment, 31 U.S.C. § 1347, might come into play
(e.g., a nonadvisory body created by statute, with no appropriations
of its own but funded by an existing agency), but it would be rare.
To sum up, when Congress statutorily creates a board or commission, or
authorizes or directs the executive branch to do so, it can fund the
entity through the traditional authorization-appropriation process
used for larger agencies, or it can resort to techniques which are
perhaps regarded as more suitable for certain small entities. Whether
the body is advisory subject to FACA, advisory but not subject to
FACA, operational, or mixed, would not appear to make any significant
difference except that operational bodies are more likely to be funded
by direct appropriations. Legislation establishing a FACA committee
will almost surely make some provision for support services, possibly
including some funding, but Congress has used this device in non-FACA
bodies as well.
(3) Committees established by the executive branch:
The Justice Department has concluded that, with the possible exception
of performing constitutional responsibilities in an emergency, the
President lacks the power to create a new operational agency in the
executive branch: legislation is required. 9 Op. Off. Legal Counsel
76, 78 (1985). However, this inhibition on creating agencies does not
exist in the case of an advisory committee. As we have seen, the
Federal Advisory Committee Act (FACA) explicitly recognizes, in 5
U.S.C. app. §§ 3(2) and 9(b), the inherent authority of the President,
and of agency heads, to establish purely advisory bodies.[Footnote 33]
A President creating an advisory body typically does so by issuing an
executive order. The executive order may basically include the same
elements that can be found in an enabling statute as outlined above.
The executive order may establish the body, prescribe its functions,
and address membership and composition, compensation, support
services, and any reporting requirements. It may also address
termination and the applicability of FACA.
As one court has noted, "FACA provides very little guidance as to the
manner in which advisory committees are to be funded." Metcalf v.
National Petroleum Council, 553 F.2d 176, 180 (D.C. Cir. 1977). Be
that as it may, the executive order must also provide for funding.
While most of the committee's needs will be met by the agency assigned
to provide support services, it will still need some money for such
things as travel expenses and printing of reports. The President,
lacking the authority to authorize or appropriate funds, must look to
some existing source. The most common approach is to designate an
existing agency to provide funding, subject to the availability of
appropriations. The funding agency must be sufficiently related in
subject matter to the advisory body so as to pass muster from the
perspective of purpose availability. Some examples, which will also
provide some indication of the range of advisory bodies that are
created, follow:
* Exec. Order No. 13398, § 6(b), 71 Fed. Reg. 20,519 (Apr. 18, 2006):
National Mathematics Advisory Panel, funded by Department of Education.
* Exec. Order No. 13353, § 6, 69 Fed. Reg. 53,585 (Aug. 27, 2004):
President's Board on Safeguarding American Civil Liberties, funded by
Department of Justice.
* Exec. Order No. 13256, § 10(b), 67 Fed. Reg. 6,823 (Feb. 12, 2002):
President's Board of Advisors on Historically Black Colleges and
Universities, funded by Department of Education.
* Exec. Order No. 13037, § 4(b), 62 Fed. Reg. 10,185 (Mar. 3, 1997):
Commission to Study Capital Budgeting, funded by Treasury Department.
* Exec. Order No. 13015, § 3(b), 61 Fed. Reg. 43,937 (Aug. 22, 1996):
White House Commission on Aviation Safety and Security, funded by
Department of Transportation.
* Exec. Order No. 12961, § 3(c), 60 Fed. Reg. 28,507 (May 26, 1995):
Presidential Advisory Committee on Gulf War Veterans' Illnesses,
funded by Department of Defense.
* Exec. Order No. 12546, § 3(c), 51 Fed. Reg. 4,475 (Feb. 3, 1986):
Presidential Commission on the Space Shuttle Challenger Accident,
funded by the National Aeronautics and Space Administration.
* Exec. Order No. 12367, § 3(b), 47 Fed. Reg. 26,119 (June 15, 1982):
President's Committee on the Arts and the Humanities, funded by the
National Endowment for the Arts.
* Exec. Order No. 12345, § 4(d), 47 Fed. Reg. 5,189 (Feb. 2, 1982):
President's Council on Physical Fitness and Sports, funded by
Department of Health and Human Services. (This was originally created
by President Eisenhower in 1956, and has been renewed by successive
Presidents.)
* Exec. Order No. 12229, § 1-301, 45 Fed. Reg. 50,699 (July 29, 1980):
White House Coal Advisory Council, funded by Department of Labor.
The pertinent provisions of FACA are 5 U.S.C. app. §§ 5(b)(5), 5(c),
12, and 14. Section 5(b)(5) advises that support services and funding
should be included in any legislation creating an advisory committee.
Section 5(c) makes this applicable to the President or any other
federal official creating an advisory committee.[Footnote 34] Section
12(a) requires each agency to keep sufficient records to "fully
disclose the disposition of any funds which may be at the disposal of
its advisory committees and the nature and extent of their
activities." The General Services Administration does this for
Presidential committees. Section 12(b) directs each agency to be
"responsible for providing support services for each advisory
committee established by or reporting to it unless the establishing
authority provides otherwise." Section 14 directs each advisory
committee to terminate not later than 2 years after its creation,
except that it can be renewed by the establishing authority for
successive 2-year periods.[Footnote 35] Thus, FACA clearly condones
the practice of using existing agency appropriations to fund advisory
committees. See 63 Comp. Gen. 110, 111 (1983) (President's Commission
on Executive Exchange funded by Office of Personnel Management's
Salaries and Expenses appropriation); 61 Comp. Gen. 69 (1981) (United
States Advisory Commission on Public Diplomacy funded by United States
Information Agency).
If the agency providing funding has several appropriations, as in the
case of cabinet departments, it must select the one most closely
related to the committee's functions, applying the principle that the
specific prevails over the general. See B-202362, Mar. 24, 1981
(funding for United States-Japan Economic Relations Group, provided by
State Department, is chargeable to appropriation for "International
Conferences and Contingencies" rather than Salaries and Expenses).
Of course, any expenditure by the committee must be for an authorized
purpose. E.g., 61 Comp. Gen. 69 (1981) (committee could procure
outside legal advice on the extent of its independence). Restrictions
in the funding agency's appropriation act applicable to all funds
appropriated in that act must be followed. B-222758, June 25, 1986
(Chemical Warfare Review Commission violated anti-lobbying provision
in Defense Department appropriation act). In addition, lobbying is not
an advisory function. Id.
Most committees are funded in the manner described above—from the
appropriations of a designated agency. Some are funded from one of the
discretionary appropriations available to the President. For example,
the so-called Warren Commission (Commission to Report Upon the
Assassination of President John E Kennedy) was funded from the
"Emergency Fund for the President." Exec. Order No. 11130, 28 Fed.
Reg. 12,789 (Nov. 29, 1963). So was an earlier body, the Missouri
Basin Survey Commission. Exec. Order No. 10318, 17 Fed. Reg. 133 (Jan.
3, 1952). (The Emergency Fund was later redesignated "Unanticipated
Needs.")
Some committees have mixed public-private funding. For example, the
President's Commission on Executive Exchange received funding support
from the Office of Personnel Management, and was also statutorily
authorized to impose certain fees and to place them in a revolving
fund in the Treasury. This made it necessary to determine whether a
given expenditure was direct support or a general administrative
expense. GAO concluded in one such case that a word processor and a
postage machine were "direct support" expenses and therefore could be
charged to the private-sector account, whereas reupholstering
furniture and procuring commercial insurance for loaned works of art
were administrative expenses chargeable to OPM funds. 63 Comp. Gen. at
112.
A final funding approach should be noted, although it is not common.
Congress can always choose to appropriate funds for a board or
commission created by executive action, as it did, for example, in the
case of the National Commission on the Observance of International
Women's Year. See B-182398, Mar. 29, 1976.
The Justice Department has concluded that a funding agency may not
delegate the authority to obligate funds to an advisory committee, the
obligation of funds being a nonadvisory function. Memorandum Opinion
for the Executive Director, National Committee on Libraries and
Information Science, Relationship Between National Commission on
Libraries and Information Science and Advisory Committee to White
House Conference on Library and Information Services, OLC Opinion,
Feb. 12, 1990. (The committee in that case was statutory, but the
point is more general.) This led to the question of the potential
liability of the committee chairman, as an accountable officer, for
the unauthorized expenditure. Because, under the particular facts of
that case, the government incurred no loss, it was not necessary to
address this issue. B-241668, Feb. 19, 1991.
As in the case of Presidential committees, Congress may authorize a
particular agency to create advisory committees, either specifically
or in general terms. E.g., 10 U.S.C. § 5024 (authorizing Secretary of
Navy to appoint Naval Research Advisory Committee); 42 U.S.C. § 7234
(authorizing Department of Energy to establish advisory committees).
Alternatively, an agency head can establish an advisory committee
without express statutory authority. The "establishing document" will
vary with the agency's own system of internal directives. For example,
the Attorney General has a numbered series of "Attorney General
Orders," and used one of these to establish Law Enforcement
Coordinating Committees. See 5 Op. Off. Legal Counsel 283 n.2 (1981).
Whatever the precise mechanism, the establishment must be "determined
as a matter of formal record" and published in the Federal Register. 5
U.S.C. app. § 9(a)(2). Other procedures are found in the GSA
regulations. The committees are fully subject to the
termination/renewal provisions of FACA, 5 U.S.C. app. § 14.
If Congress has the greatest latitude in funding options and the
President has somewhat less, the individual agency has least of all.
When an agency creates an advisory committee, it has only one way to
fund it—from its own pocket. An Energy Policy Task Force, for example,
was created by the Department of Energy in the 1980s under its
statutory authority in what was then 15 U.S.C. § 776 (now in 42 U.S.C.
§ 7234). GAO found it legitimate to pay the expenses of a task force
meeting—specifically expenses of travel and recording a transcript—
from the Secretary's salaries and expenses account. 60 Comp. Gen. 386,
397 (1981). As with Presidential bodies, the agency with more than one
appropriation should choose the one most closely related to the
committee's work, and expenditures may be made only for authorized
purposes. It may be possible in some cases to obtain private funding.
See, e.g., Metcalf, 553 F.2d at 180 (noting that the National
Petroleum Council, established by the Secretary of the Interior, was,
apart from support services, "financed entirely from funds provided by
the petroleum industry").
An advisory committee, presidential or agency, subject to FACA will
generally not have to concern itself with the funding restrictions of
31 U.S.C. § 1346 (which is set out in section A.2 of this chapter). A
nonFACA body still must contend with them. Also, the Russell
Amendment, 31 U.S.C. § 1347, does not apply to a FACA committee (see
section A.2 of this chapter). In this connection, the Justice
Department has said:
"Whether or not one assumes that the Russell amendment was originally
intended to apply to nonstatutory advisers or advisory groups, [FACA]
has intervened. It has specifically authorized the creation of purely
advisory committees; it has provided that they may have a 2-year life;
and it has contemplated, and made provision for, the practice of using
agency funds to support advisory committees. Accordingly, if indeed
agency funds may otherwise be lawfully expended for such a purpose,
there is no longer any reason, under the Russell amendment, to bar an
expenditure of funds in support of an advisory committee merely
because the committee has been in existence for more than 1 year."
3 Op. Off. Legal Counsel 263, 266-67 (1979). That opinion also
supports the conclusion that the Russell Amendment does not apply to
purely advisory bodies, FACA or non-FACA. Of the various funding
restrictions discussed earlier, the only one that would apply to a
FACA committee (and alike to non-FACA bodies), as long as it remains
in effect, is the requirement for specific approval for interagency
funding.
In addition to the general funding statutes, there may be agency-
specific laws which authorize or restrict agency activity in this
area. For example, 22 U.S.C. § 2672 authorizes the State Department to
fund the United States' participation in certain international
activities. This was one of the statutes State relied on—properly, GAO
found—to participate in funding the National Commission on the
Observance of International Women's Year in the mid-1970s. See GAO,
Activities of the National Commission on the Observance of
International Women's Year, HRD-77-26 (Washington, D.C.: Jan. 13,
1977), at 5-6. Section 2672(a) includes its own 1-year restriction
similar to the Russell Amendment. See B-202362, Mar. 24, 1981.
(4) Donations:
Given the ever-present pressure on Congress to hold down the costs of
boards and committees, it is not uncommon for an enabling statute to
authorize some level of private funding. Just as with any larger
agency, a board or commission needs statutory authority to accept and
use gifts or contributions. The reason, discussed in Chapter 6,
section E.3, is that without such authority the funds would have to be
deposited in the general fund of the Treasury.
The statute will prescribe exactly what can be accepted. A common
version in statutes creating boards or committees is the authority to
"accept donations of money, property, or personal services." E.g.,
Pub. L. No. 98-375, § 7(a), 98 Stat. 1257, 1260 (Aug. 7, 1984)
(Christopher Columbus Quincentenary Jubilee Commission); Pub. L. No.
85-305, § 5(a), 71 Stat. 626, 627 (Sept. 7, 1957) (Civil War
Centennial Commission).
The statute may go a step farther and set a monetary limit on what can
be accepted in a given year. E.g., Pub. L. No. 98-375, as amended by
Pub. L. No. 100-94, § 4, 101 Stat. 700, 701 (Aug. 18, 1987); Pub. L.
No. 98-101, § 5(h)(2), 97 Stat. 719, 721 (Sept. 29, 1983) (Commission
on the Bicentennial of the U.S. Constitution). Both of these laws
prescribe separate limits, one on gifts from individuals and a
somewhat higher one on gifts from others such as corporations,
partnerships, and foreign governments. The statute will normally not
define who can make the contributions, but there are exceptions, such
as: "The Commission is authorized to receive funds through grants,
contracts, and contributions from State and local governments and
organizations thereof, and from nonprofit organizations." Pub. L. No.
89-733, § 6, 80 Stat. 1162 (Nov. 2, 1966). The "Commission" refers to
the Advisory Commission on Intergovernmental Relations (ACIR). This
provision was not so much a deliberate attempt to exclude individuals,
but a desire to foster increased participation by those most directly
affected by ACIR's work.
It should be apparent from the above statutory references that the
authority to accept gifts occurs most often in statutes establishing
operational bodies, most typically celebration/memorial commissions.
As the ACIR provision shows, however, it can also appear with entities
that are advisory.
The authority to accept gifts does not inherently include the
authority to solicit them, especially since solicitation will almost
invariably involve the use of other government funds, either for staff
salaries and expenses or the procurement of some fund-raising
capacity. E.g., B-211149, June 22, 1983. When Congress wants an entity
to engage in solicitation, it specifically so provides in the gift
acceptance provision. E.g., 36 U.S.C. § 2307 (Holocaust Memorial
Council); Pub. L. No. 98-101, § 5(h)(1) (Commission on the
Bicentennial of the United States Constitution). In order to preclude
questions of interpretation, it is always preferable for the statute
to use the word "solicit" if that is desired. However, something less
may suffice. For example, a statute which provided that nongovernment
sources "shall be encouraged to participate to the maximum extent
feasible ... and to make contributions" has been construed as
authorizing solicitation. 6 Op. Off. Legal Counsel 541, 544-46 (1982).
In most cases, donated funds are seen merely as an authorized
supplementation of the commission's other funding sources. In some
cases, however, there is a clear intent that the commission be funded
in its entirety, or as close thereto as possible, from donated funds.
For example, the statute creating the Martin Luther King, Jr. Federal
Holiday Commission specified that "all expenditures of the Commission
shall be made from donated funds." Pub. L. No. 98-399, § 7, 98 Stat.
1473, 1474 (Aug. 27, 1984). Similarly, the executive order creating
the so-called Grace Commission directed that it be funded "to the
extent practicable and permitted by law, by the private sector without
cost to the Federal Government." Exec. Order No. 12369, § 3(e), 47
Fed. Reg. 28,899 (June 30, 1982). The requirement may be limited to
certain of the commission's functions. E.g., 36 U.S.C. § 2307
(Holocaust Memorial Council may use only donated funds to operate and
maintain the museum). An interesting variation is the Railroad-Shipper
Transportation Advisory Council, which is authorized to receive
government funds and to solicit and use donations, but must "undertake
best efforts to fund [its] activities privately" before making a
request for federal money. Pub. L. No. 104-88, § 201(a), 109 Stat.
803, 939 (Dec. 29, 1995), codified at 49 U.S.C. § 726(d)(4).
Absent statutory authority to the contrary, donated funds must be
deposited in the Treasury in a trust account, and are permanently
appropriated for authorized uses. 31 U.S.C. § 1323(c). This means that
they are available for expenditure without further legislation. B-
90476, June 14, 1950. The fiscal and budgetary issues associated with
federal "trust" funds are discussed in detail later in this chapter.
It is important here to distinguish a trust account for donated funds
from the more traditional fiduciary trust concept. See B-274855, Jan.
23, 1997. Funds "held in trust," as those words are commonly used to
describe a fiduciary relationship, are held for the benefit of
another. By comparison, placing donated funds in a "trust account" is
largely, although not necessarily, an accounting device to distinguish
the funds from general funds and to assure that their use will be
limited to the purposes for which they were given. Id.
The governing legislation may authorize a different treatment. The
Holocaust Memorial Council provides one illustration. In response to a
request from a congressional committee, GAO reviewed the legislative
history of the Council's enabling statute and determined that,
although the statute itself was silent, Congress intended a "no
strings" treatment of donated funds. Accordingly, the Council could
place donated funds in interest-bearing investments outside of the
Treasury. B-211149, Dec. 12, 1985. This case was applied and followed
a few years later with respect to the Christopher Columbus
Quincentenary Jubilee Commission. 68 Comp. Gen. 237, 238-39 (1989). In
the Holocaust Memorial Council decision (B-211149), GAO recommended
that the statute be amended to explicitly recognize the apparent
intent. It was later amended to provide that the Council's donated
funds "are not to be regarded as appropriated funds and are not
subject to any requirements or restrictions applicable to appropriated
funds." See B-275959, May 5, 1998, at 4 (quoting the amendment, 36
U.S.C. § 1407, in confirming the earlier conclusion). A similar
amendment was not so important for the Columbus Commission because it
was a temporary body with a specified termination date, whereas the
Council's duration is permanent, or at least indefinite.
Authority broad enough to permit investing donated funds outside of
the Treasury is also broad enough to authorize operations without
regard to the statutes and regulations governing procurement by
federal agencies. 68 Comp. Gen. at 239; B-211149, Dec. 12, 1985, at 4.
However, GAO declined to apply these cases to the American Battle
Monuments Commission, a permanent entity, because it could find no
comparable authority. B-275669.2, July 30, 1997.
Because title under a legal gift passes to the government, the donor
has no claim for the refund of any unexpended balances upon
termination of the board or commission. B-274855, Jan. 23, 1997.
Unless otherwise provided for by statute, the balances must be
deposited in the Treasury as miscellaneous receipts. Id. A situation
clearly warranting an exception is found in 36 Comp. Gen. 771 (1957).
The Alexander Hamilton Bicentennial Commission thought it would be a
good idea to use private funds to award scholarships to high school
and college students, but it lacked the authority to accept donations.
With this proposal in mind, Congress amended the Commission's enabling
statute to authorize the acceptance of donations. The problem was that
the Commission would almost surely go out of existence before the
disbursement of funds could be completed. Under these circumstances,
GAO concurred with the Commission's proposal to transfer, prior to its
expiration, the balance of its donated funds to a "responsible private
organization" in order to complete the administration of the
scholarship awards. Id. Short of extending the Commission's life for
the sole purpose of disbursing the rest of the funds, this was the
best way to comply with the requirement of 31 U.S.C. § 1323(c) that
the funds be disbursed in accordance with the terms of the "trust."
B. Government Use of Corporate Entities:
1. Introduction:
The federal government has created entities using a corporate device,
in various forms and contexts, for a long time. With respect to the
basic rationale for government corporate entities, the Supreme Court
observed in a 1927 case:
"An important, if not the chief, reason for employing these
incorporated agencies was to enable them to employ commercial methods
and to conduct their operations with a freedom supposed to be
inconsistent with accountability to the treasury under its established
procedure of audit and control over the financial transactions of the
United States."
United States ex rel. Skinner & Eddy Corp. v. McCarl, 275 U.S. 1, 8
(1927).
This points to two key features associated with the use of government-
created corporate entities, at least in theory: commercial activities
and freedom, to a greater or lesser extent, from the laws that govern
accountability to the Treasury of traditional government agencies.
Twenty years after the Skinner & Eddy decision, President Truman's
1948 Budget Message, presented views on the proper standards for using
the corporate device. A corporate form of organization, according to
President Truman, is appropriate for the administration of
governmental programs that:
* are predominantly of a business nature,
* produce revenue and are potentially self-sustaining,
* involve a large number of business-type transactions with the
public, and;
* require greater flexibility than the customary type of
appropriations budget ordinarily permits.[Footnote 36]
We see, again, commercial activities and autonomy from Treasury
controls. President Truman proposed, in addition, that government-
created corporate entities be "potentially self-sustaining." Today,
many, but not all, corporate entities operate using revolving funds.
Although there are no clear and universally accepted standards for
using the corporate model, it is something the government has often
turned to when it wants to do something that, for the most part,
resembles a business enterprise. The practice has, however, engendered
some controversy. As a matter of fact, one commentator in the 1950s
called the government corporation "one of the most controversial
institutional innovations of our time."[Footnote 37] At one extreme
are advocates of the government corporation who view it "with almost
religious devotion" and regard it "as a desirable end in itself,
regardless of the purpose which it serves."[Footnote 38] These
advocates may be driven by what a more recent writer terms a "cultural
norm" that anything the private sector does is automatically and
inherently "better" than anything the public sector does.[Footnote 39]
On the other end of the spectrum, one early critic went so far as to
write that "there is no place in our constitutional government for the
performance of governmental function by means of corporations.
[Footnote 40] And, one more factor cannot, or at least should not, be
ignored:
"Public funds (tax dollars), after all, are not freely given in
voluntary market exchanges for goods and services; ... At this level
... the private and governmental sectors are fundamentally different.
It is for this reason that the standards for governmental control and
enforced adherence to prescribed processes and procedures are—and have
to be—so much higher than those of the private sector."[Footnote 41]
In 1980, the Office of Management and Budget contracted with the
National Academy of Public Administration (NAPA) to produce a report
on existing government corporations and to make policy recommendations
for future creation of corporations. Breaking out "enterprises" as a
separate category, and mindful of the imprecision of definitional
attempts, the report broadly defined "government corporation" as "a
government entity created as a separate legal person by, or pursuant
to, legislation," with the powers to "sue and be sued, use and reuse
revenues, and own assets.[Footnote 42]
The fact that "no two Federal Government corporations are completely
alike[Footnote 43] underscores the importance of the enabling
legislation. A statutorily created entity, whether it be an agency or
embody some form of the corporate model, "possesses only those powers
which are enumerated in the act of Congress creating it."[Footnote 44]
This of course includes any other legislation specifically made
applicable. The governing legislation determines the body's powers and
functions, its financial arrangements, and its degree of operating
flexibility. As one commentator has stated: "Because there is no
general incorporation law defining government corporations, Congress
is free to call any entity a 'corporation' and assign to this
corporation whatever characteristics it chooses."[Footnote 45] Or, as
the court put it in United States v. Nowak, 448 F.2d 134, 138 (7th
Cir. 1971), cert. denied, 404 U.S. 1039 (1972): "If it chooses to make
use of a 'corporation,' Congress is not limited by traditional notions
of corporate powers and organization but may mold its vehicle in any
way which appears useful to the accomplishment of the legislative
purpose."
Some of these variations can be illustrated by looking at the
objectives, degrees of ownership and control, and the extent to which
the corporate entity acts as an agent of the federal government for
three corporate entities: Amtrak, the Boy Scouts of America, and the
Pension Benefit Guarantee Corporation.
(a) Objectives.
* Congress formed Amtrak as a private corporation to ensure
profitability of the failing, but critical, passenger rail service.
* Congress chartered the Boy Scouts of America to help promote the
patriotic and community service objectives of that organization.
* Congress created the Pension Benefit Guaranty Corporation to insure
workers against defaulting pension plans.
(b) Degree of ownership and control by the federal government.
* Congress exercises nearly complete control over Amtrak's assets and
liabilities (and provides substantial annual funding) and its
operations through the presidential appointment of members of its
board of directors.
* The federal government has no ownership in nor does it control the
operations of the Boy Scouts of America. However, Congress by law
established the Boy Scouts of America and the scope of its authorities.
* Congress exercises control over the Pension Benefit Guaranty
Corporation by appointing the board of directors and management
officers, treating its employees like those of the federal government,
and limiting its use of funds for administrative expenses.
(c) Extent to which the corporate entity acts as the agent of the
federal government.
* Congress declared Amtrak to be a private corporation, but specified
in law, for example, that Amtrak is an agency of the government for
purposes of sharing information with the public (i.e., the Freedom of
Information Act).
* The Boy Scouts of America in no way represent or act on behalf of
the U.S. government.
* By law, Congress declared that the Pension Benefit Guaranty
Corporation's liabilities are not liabilities of the U.S. government.
As you can see, depending upon the needs or the circumstances, the
government has been creative in its use of the corporate form.
2. The Problem of Definition:
As noted in the prior section, largely because each corporate entity
is the creature of its enabling legislation, and given the different
forms that such entities can take, it is difficult to have a general
definition applicable to the relationships between the federal
government and the many corporate entities. As one commentator put it:
"Federal corporations should not be treated as if they constitute a
single class of organizations type. Virtually all are unique
creatures, and ... what is distinctive about them as a group is that
each embodies its own calculated mixture of public and private
elements and of financing and controls, and each is a result of a
particular congressional enactment after extensive controversy over
rival policies and interests."[Footnote 46]
Without a single definition covering the universe of corporate bodies,
the better approach may be to examine the common elements of
particular kinds of entities. Therefore, in this section we will
attempt to provide some definitional construct by the consideration of
four types of corporate entities: government corporations; government-
sponsored enterprises (referred to as GSEs); patriotic, fraternal, or
charitable entities designated in title 36 of the United States Code
(commonly referred to as "federally chartered corporations"); and
federally funded research and development centers (FFRDCs).
a. Government Corporations:
"There is at present no universally accepted definition of what
constitutes a government corporation, hence there are several listings
of government corporations, each different and based upon the
definition employed by the compiler," according to one commentator.
[Footnote 47] GAO has also pointed out the lack of a uniform
definition. GAO, Congress Should Consider Revising Basic Corporate
Control Laws, GAO/PAD-83-3 (Washington, D.C.: Apr. 6, 1983), at 8.
Definitions found in the United States Code serve only limited
purposes. For example, 5 U.S.C. § 103(1) defines the term "government
corporation," but only for purposes of title 5 of the United States
Code, as "a corporation owned or controlled by the Government of the
United States." However, in 5 U.S.C. § 103(2), a "government
controlled corporation" is defined as not including a corporation
owned by the government. Noting that government corporations are
operationally defined in 31 U.S.C. § 9101(1) (section 201 of the
Government Corporation Control Act, which will be addressed in detail
in section 4.a of this chapter) as either wholly owned or mixed-
ownership government corporations, GAO has concluded that the term
"government controlled corporation" used in title 5 refers to mixed-
ownership government corporations, such as those listed in 31 U.S.C. §
9101(2) (but not exclusively). B-221677, July 21, 1986. Therefore,
when considering the various laws codified in title 5, it is necessary
to check any separate definitional provisions to determine if a
specific chapter is applicable to both wholly owned and mixed-
ownership corporations. For example, the relocation allowance
provisions in title 5 are covered by the definitional provisions in 5
U.S.C. § 5721, which specifically excludes government controlled
corporations. Thus, wholly owned corporations are subject to the
personnel provisions of title 5 but mixed-ownership government
corporations are not. B-221677, July 21, 1986 (Federal Deposit
Insurance Corporation, as a mixed-ownership government corporation, is
excluded from coverage under the title 5 relocation provisions).
Further discussion of the various title 5 provisions is in section
B.7.a of this chapter.
Also, "executive agency" in 40 U.S.C. § 102(4)(B) expressly includes
"a wholly owned Government corporation" although without further
defining the latter term. Thus, wholly owned government corporations
are subject to much of title 40 of the United States Code as well as
the procurement provisions of 41 U.S.C. §§ 251-266a. They are also
subject to GAO's bid protest jurisdiction under 31 U.S.C. § 3551(3),
which references the 40 U.S.C. § 102 definition of agency. See B-
295737.2, Apr. 19, 2005. While these specialized definitions apply for
certain purposes, the chief (and only) regulatory statute with some
general application, chapter 91 of title 31 of the United States Code
(commonly known as the Government Corporation Control Act), discussed
in detail below, fails to include a specific definition but merely
lists the entities it covers as either wholly owned or mixed-ownership.
The lack of a uniform, governmentwide statutory definition is not the
only complication in determining the status of a corporate-type entity
in relation to federal powers and obligations. Even when Congress has
been quite specific in declaring that a corporation is not a federal
instrumentality, it may still take on that status for constitutional
purposes. This was the holding in Lebron v. National Railroad
Passenger Corp., 513 U.S. 374, 387, 395 (1995).
In Lebron, an artist sued the National Rail Passenger Corporation,
better known as Amtrak, for violating his First Amendment rights by
rejecting a billboard display. Amtrak claimed that it was not a
federal entity for First Amendment purposes since its statutory
charter declared that it "will not be an agency or establishment of
the United States Government.[Footnote 48]
The Supreme Court concluded, however, that Amtrak's reliance on this
statutory disclaimer language was "misplaced":
"[The statutory disclaimer] is assuredly dispositive of Amtrak's
status as a Government entity for purposes of matters that are within
Congress's control—for example, whether it is subject to statutes that
impose obligations or confer powers upon Government entities ... And
even beyond that, we think [the disclaimer] can suffice to deprive
Amtrak of all those inherent powers and immunities of Government
agencies that it is within the power of Congress to eliminate ... But
it is not for Congress to make the final determination of Amtrak's
status as a Government entity for purposes of determining the
constitutional rights of citizens affected by its actions. If Amtrak
is, by its very nature, what the Constitution regards as the
Government, congressional pronouncement that it is not such can no
more relieve it of its First Amendment restrictions than a similar
pronouncement could exempt the Federal Bureau of Investigation from
the Fourth Amendment. The Constitution constrains governmental action
'by whatever instruments or in whatever modes that action may be
taken.' Ex parte Virginia, 100 U.S. 339, 346-347, 25 L. Ed. 676
(1880). And under whatever congressional label."
Lebron, 513 U.S. at 392-93. The Court went on to hold that Amtrak was
"an agency or instrumentality of the United States for the purpose of
individual rights guaranteed against the Government by the
Constitution," a conclusion it viewed as "in accord with public and
judicial understanding of the nature of Government-created and
-controlled corporations over the years." Id. at 394. In this regard,
the Court noted that Amtrak was "established and organized under
federal law for the very purpose of pursuing federal governmental
objectives, under the direction and control of federal governmental
appointees." Id. at 398.[Footnote 49]
The Justice Department's Office of Legal Counsel (OLC) has taken the
Lebron analysis considerably farther. In a memorandum opinion, OLC
held that if a corporate entity would fall within the government for
constitutional purposes, it has the same status for statutory purposes
absent an explicit statutory provision to the contrary. In concluding
that the National Veterans Business Development Corporation (NVBDC)
was a government corporation within the definition of 5 U.S.C. §
103(1), the Office of Legal Counsel stated:
"Although the opinion in Lebron does not state that, if a corporation
is part of the United States Government for constitutional purposes,
it must also be considered an agency of the United States unless
Congress (as in the case of Amtrak) expressly provides otherwise, we
believe that when Congress has created a corporation after the
decision in Lebron—as it has here—and, through the corporation's
structure and purpose, has placed it within the government for
constitutional purposes, there is a strong presumption that the
corporation is also part of the government for purposes of title 5 [of
the United States Code], which deals with the internal organization of
federal government agencies."[Footnote 50]
The opinion then observed that the statute creating the NVBDC lacked
an Amtrak-type disclaimer and contained features suggesting that NVBDC
was a federal instrumentality. Specifically, it was federally
chartered, received federal appropriations, and its fiscal operations
were subject to congressional oversight and regulation. However,
shortly after OLC issued this opinion, Congress amended NVBDC's
statute by adding the following language: "Notwithstanding any other
provision of law, the Corporation is a private entity and is not an
agency, instrumentality, authority, entity, or establishment of the
United States Government.[Footnote 51]
Given the absence of a definitive legal definition of what constitutes
a government corporation, we need to resort to other sources. As we
have seen, one approach is to try to identify common attributes. One
analyst identifies some of these attributes as "a public purpose, a
federal government charter, some form of government supervision, and a
public subsidy.[Footnote 52] While this is useful in establishing a
conceptual framework, it suffers when you break it down to the working
level. If, for example, one equates "charter" with "enabling
legislation"—and it is beyond question that the charter of a
government corporation is its enabling legislation—the attributes
apply equally to any government agency. Similarly, we previously noted
a statement from a GAO report that government corporations "are
generally federally chartered entities created to serve a public
function of a predominantly business nature." GAO, Government
Corporations: Profiles of Existing Government Corporations, GAO/GGD-96-
14 (Washington, D.C.: Dec. 13, 1995), at 1. This again shows the
hazard of generalization, saved by the fortunate inclusion of the word
"generally," since some government corporations may perform primarily
governmental functions (e.g., the Commodity Credit Corporation, which
stabilizes and protects farm income and prices).
Neither is it useful to construct a classification based on the mere
presence or absence of the word "corporation" in the entity's name. An
old state court case, considering the application of sovereign
immunity to a state-created corporation, put it this way: "It is not
necessary that the thing created by the legislature should be named by
it a corporation. Its character depends upon the powers given it, and
not upon the name by which the legislature may call it." Gross v.
Kentucky Board of Managers, 49 S.W. 458, 459 (Ky. Ct. App. 1899).
Acknowledging that any classification is imperfect and open to debate
(in fact, some corporations may fall in more than one category), we
are concerned primarily with the following categories for purposes of
this discussion:
* Entities subject to the Government Corporation Control Act. We say
"entities" because they may or may not be in actual corporate form,
although they usually are, and their names may or may not include the
word corporation. The Control Act subdivides covered entities into two
groups discussed in detail later—wholly owned government corporations
and mixed-ownership government corporations.
* Entities created and fully or substantially funded by the United
States Government, but not subject to the Control Act. Examples
include the Legal Services Corporation, the Corporation for Public
Broadcasting, and the State Justice Institute.[Footnote 53]
* Entities created and at least partially funded by the federal
government which are not designated as corporations but which have
comparable powers, and are also at least partially exempt from the
Control Act. Examples include the U.S. Postal Service, the Smithsonian
Institution, and the Bonneville Power Administration.[Footnote 54]
(The main difference between this group and the second group is that
the legislation creating an entity in this group does not confer
corporate status on it. Of course, other differences flow from that
distinction.)
The above groups, taken together, comprise our working "definition"
for purposes of this discussion.
b. Government-Sponsored Enterprises:
The term government-sponsored enterprise (GSE) refers to a "privately
owned and operated federally chartered financial institution that
facilitates the flow of investment funds to specific economic
sectors."[Footnote 55] A conceptually similar but more detailed
definition is found in the Congressional Budget Act, 2 U.S.C. §
622(8). GSEs are, largely but not exclusively, those entities with
names that "sound like those of aging singers or the latest fast-food
sandwich"[Footnote 56]-—Fannie Mae, Farmer Mac, etc. However, the
Government National Mortgage Association (Ginnie Mae) is a wholly
owned government corporation. 31 U.S.C. § 9101(3)(G).
Legislation creating GSEs has not used consistent terminology. The
Federal Agricultural Mortgage Corporation (Farmer Mac) is a "federally
chartered instrumentality of the United States." 12 U.S.C. § 2279aa-
1(a)(1). So is the Financial Assistance Corporation. 12 U.S.C. §
2278b. The Federal National Mortgage Association (Fannie Mae) is a
"government-sponsored private corporation." 12 U.S.C. § 1716b. The
Federal Home Loan Mortgage Corporation (Freddie Mac) is simply a "body
corporate." 12 U.S.C. § 1452(a).
For purposes of comparing GSEs to other forms of government-created
corporate entities, the important points are that (1) GSEs are
regarded as privately owned (which, in some cases and depending on how
one frames one's definition, may be only partially true); (2) they are
financial institutions; and (3) they are supervised but not directly
managed by the government. Summary information on a number of GSEs may
be found in GAO's Budget Issues: Profiles of Government-Sponsored
Enterprises, GAO/AFMD-91-17 (Washington, D.C.: Feb. 1991). For a more
recent description, see Library of Congress, Congressional Research
Service, Government-Sponsored Enterprises (GSEs): An Institutional
Overview, No. RS21663 (Dec. 20, 2005). GSEs are subject to audit by
GAO only if specifically provided by statute. B-114828, Nov. 25, 1975,
at 2, 4.
While a GSE is, except as expressly provided, not subject to the laws
governing federal agencies, it is nevertheless a creature of statute
and exists to perform only those functions assigned to it in its
enabling legislation. Any activity it undertakes must directly relate
to the performance of one or more of those specified functions.
Association of Data Processing Service Organizations, Inc. v. Federal
Home Loan Bank Board, 568 F.2d 478 (6th Cir. 1977) (federal home loan
banks not authorized to sell on-line data processing services to
member institutions); Arnold Tours, Inc. v. Camp, 472 F.2d 427 (1st
Cir. 1972) (national bank may not operate a full-scale travel agency);
71 Comp. Gen. 49 (1991) (Farmer Mac is authorized to guarantee the
timely payment of principal and interest on certain mortgage-backed
securities but is not authorized to purchase those securities). The
GAO decision stressed that a statute's purpose clause is not an
independent grant of authority. 71 Comp. Gen. at 52.
c. Title 36 Patriotic, Fraternal, or Charitable Corporate Entities:
This group consists of the 80-plus corporate entities whose charters
comprise title 36 of the United States Code, subtitles II and III.
[Footnote 57] Among the best-known examples are the American Red
Cross,[Footnote 58] American Legion, and the United States Olympic
Committee. Each entity occupies its own chapter in title 36, and each
is designated a "body corporate and politic" or a "federally chartered
corporation." In addition, a provision no longer in the Code used the
term "private corporations established under Federal law."[Footnote
59] Of course this terminology can apply equally to GSEs. The
difference is that the title 36 corporations are not business
corporations; they are patriotic, fraternal, or charitable
associations. The granting of a federal charter is viewed as a mark of
prestige. Thus, the purpose of granting a federal charter to the Girl
Scouts was "to bestow public honor and recognition on the works of the
organization." Girl Scouts v. Personality Posters Mfg., Co., 304 F.
Supp. 1228, 1232 (S.D.N.Y. 1969).
Although there is variation, the statutory charters "follow a common
pattern."[Footnote 60] The typical charter starts by identifying the
incorporators by name and declaring their corporate status. The
incorporators range from a few to several dozen. See, e.g., Pub. L.
No. 86-680, 74 Stat. 572 (Aug. 31, 1960) (Agricultural Hall of Fame).
The statute may be creating a new organization (e.g., 36 U.S.C. §
152301—National Music Council), it may merely be giving a federal
charter to an organization already chartered under state law (e.g., 36
U.S.C. § 20902—American Ex-Prisoners of War), or it may direct that a
corporation be incorporated in a state or the District of Columbia
(e.g., 36 U.S.C. § 20301—American Academy of Arts and Letters). The
statute will then state the corporation's purposes and outline its
general powers. A typical "powers" provision will include such things
as to sue and be sued, adopt and use a corporate seal, adopt by-laws,
hold and convey property, and enter into contracts. E.g., 36 U.S.C. §
152305 (National Music Council)[Footnote 61]
Most have perpetual succession, a feature common to private business
corporations. E.g., 36 U.S.C. § 30502 (c) (Blue Star Mothers of
America). A relatively few have limited duration. For example, the
Grand Army of the Republic, chartered in 1924 but in existence long
before, consisted of those who had served in the United States armed
forces during the Civil War and were honorably discharged. The charter
provided that the corporation would terminate when the last of its
members died. Pub. L. No. 68-184, § 6, 43 Stat. 358, 360 (June 3,
1924). This of course happened some time ago, and the charter is no
longer carried in the United States Code.
A common provision prohibits the corporation from issuing stock or
paying dividends. E.g., 36 U.S.C. § 22307(a) (American Symphony
Orchestra League). Some go a step further and explicitly prohibit
activities for pecuniary profit. E.g., 36 U.S.C. § 152307(a) (National
Music Council). Although this language is infrequent, it seems clear
based on the stated purposes of these corporations[Footnote 62] that
they are not designed with profit-making in mind. Several charters
require the corporation to maintain its tax-exempt status under the
Internal Revenue Code. E.g., 36 U.S.C. § 70108(b) (Fleet Reserve
Association).
Another common provision prohibits the corporation or its officers or
members from engaging in political activities. E.g., 36 U.S.C. §
23106(b) (Aviation Hall of Fame). At least one variation includes a
prohibition on attempting to influence legislation. 36 U.S.C. §
150108(b) (National Academy of Public Administration).
The charter will typically give the corporation the sole and exclusive
use of its name. E.g., 36 U.S.C. § 50305 (Disabled American Veterans).
The exclusivity may extend to other symbols and emblems as well. E.g.,
36 U.S.C. § 220506(a)(2) (Olympic symbol of five interlocking rings).
For the most part, title 36 corporations do not receive federal
appropriations. A few do or, at least, are explicitly authorized to
seek federal grants, reimbursements, or other kinds of "support." The
National Film Preservation Foundation, for example, is authorized to
receive up to $530,000 for each of the fiscal years 2005 through 2009
from the Library of Congress, to be used only to match private
contributions and not for administrative expenses. 36 U.S.C. § 151711.
The National Academy of Public Administration is required to study and
report on "any subject of government" when requested by the federal
government, to be paid for from appropriated funds available to the
requestor. 36 U.S.C. § 150104. See also 36 U.S.C. § 150303 (similar
provision for National Academy of Sciences). Even in these instances,
the federal funds are only a portion, substantial though it may be, of
the corporation's revenue. In a few instances, federal agencies are
authorized to provide logistical support. E.g., 36 U.S.C. § 70909
(Department of Education authorized to make available "personnel,
services, and facilities" to the Future Farmers of America); 36 U.S.C.
§ 220107 (Defense Department authorized to make its resources
available to United Service Organizations).
Most of the revenue of these corporations comes from donations and, in
some cases, membership fees. Some of the corporations are expressly
authorized to engage in income-producing activities. E.g., 36 U.S.C. §
220305(7) (United States Capitol Historical Society may sell
commemorative medals and other souvenir items); 36 U.S.C. §§ 40703(5),
40732 (Corporation for the Promotion of Rifle Practice and Firearms
Safety may charge user fees and may sell surplus rifles).
Some title 36 charters include their own audit requirements. The
American Red Cross, for example, must prepare an annual itemized
report of receipts and expenditures, which is audited by the
Department of Defense, and must reimburse the expenses Defense incurs
in conducting these audits. 36 U.S.C. § 300110. Title 36 corporations
whose charters do not include audit provisions are subject to the
general requirements of 36 U.S.C. § 10101, subsection (a) of which
requires an annual audit "in accordance with generally accepted
auditing standards" by independent accountants. GAO does not audit
these corporations. It does, upon request, conduct a limited "report
audit" or "desk review," including a review of the corporation's
financial statements, to determine whether the audit report complies
with the financial reporting requirements of the statutory charter or
36 U.S.C. § 10101. GAO's report of this review is very brief and, if
no problems are found, concludes simply that "we did not identify any
instance of noncompliance with the ... financial reporting
requirements or 36 U.S.C. § 10101. E.g., GAO, Federally Chartered
Corporation: Financial Statement Audit Report for the National Fallen
Firefighters Foundation for Fiscal Years 2003 and 2002, GAO-06-691R
(Washington, D.C.: May 12, 2006), at 1.
The relationship of a title 36 corporation to the federal government
cannot be summarized in a simple statement. Several charters provide
that the corporation "may not claim congressional approval or the
authority of the United States Government for any of its activities."
E.g., 36 U.S.C. § 154708(d) (Non-Commissioned Officers Association of
America). Others include an explicit disclaimer of federal financial
liability: "The United States Government is not liable for any debts,
defaults, acts, or omissions of the corporation. The full faith and
credit of the Government does not extend to any obligation of the
corporation." 36 U.S.C. § 151310 (National Fallen Firefighters
Foundation). For another example, see 36 U.S.C. §§ 151710 (National
Film Preservation Foundation).
Absent an explicit disclaimer provision, the question becomes whether
the corporation can be deemed a "federal actor" or an instrumentality
of the United States, and if so, for what purposes. The starting point
in this analysis is the established proposition that the mere fact
that Congress has conferred a federal charter does not make the
corporation a government agent. San Francisco Arts & Athletics, Inc.
v. United States Olympic Committee, 483 U.S. 522, 543-44 (1987);
Stearns v. Veterans of Foreign Wars, 394 E Supp. 138, 141 (D.D.C.
1975), aff'd mem., 527 F.2d 1387 (D.C. Cir.), cert. denied, 429 U.S.
822 (1976). In many cases this will provide the answer if there is no,
or at least no significant, federal involvement beyond the granting of
the charter and the requirement to submit annual reports to Congress.
If this does not do the job, it becomes necessary to undertake
"further examination of the nexus between the [corporation] and the
Government." Stearns v. Veterans of Foreign Wars, 500 F.2d 788, 790
(D.C. Cir. 1974). Unfortunately, "there is no simple test" for doing
this. Department of Employment v. United States, 385 U.S. 355, 358
(1966).
If the corporation with no federal involvement beyond its charter is
one extreme, the American Red Cross is arguably the other. It has
certainly generated the lion's share of cases. The Supreme Court has
held that the Red Cross is an instrumentality of the United States, at
least for purposes of immunity from state taxation of its operations.
Department of Employment, 385 U.S. at 358-59. Among the factors the
Court found relevant are (1) the provision for audit by the Defense
Department, (2) presidential appointment of the principal officer and
several governors, and (3) the receipt of "substantial material
assistance"—not the least of which is a permanent headquarters
building—from the federal government. Id. at 359.
The lower courts have considered the "instrumentality" status of the
Red Cross in a variety of contexts. For example, the Red Cross cannot
be required to pay state or local taxes on authorized gambling
activities (such as bingo games). United States v. City of Spokane,
918 F.2d 84 (9th Cir. 1990), cert. denied, 501 U.S. 1250 (1991). Its
employees share federal employees' limited immunity from personal
liability. Barton v. American Red Cross, 829 E Supp. 1290 (M.D. Ala.
1993), aff'd mem., 43 F.3d 678 (1161 Cir. 1994), cert. denied, 516
U.S. 822 (1995). However, the Red Cross is not an agency of the
government for purposes of the Freedom of Information Act, 5 U.S.C. §
552. Irwin Memorial Blood Bank v. American National Red Cross, 640
F.2d 1051 (9th Cir. 1981). Nor is it an instrumentality for purposes
of the Religious Freedom Restoration Act of 1993.[Footnote 63] Hall v.
American National Red Cross, 86 F.3d 919 (961 Cir. 1996). Nor is it
covered by the Federal Tort Claims Act (see section B.8.a(2) of this
chapter).
On some issues regarding the Red Cross, the courts are in
disagreement. One is the right to trial by jury. Some courts, treating
the Red Cross more like a private party, have held that parties in
civil litigation against the Red Cross are entitled to a jury trial.
E.g., Marcella v. Brandywine Hospital, 47 F.3d 618 Ord Cir. 1995); Doe
v. American National Red Cross, 847 E Supp. 643 (W.D. Wis. 1994).
Others, placing the Red Cross more on the instrumentality side of the
ledger, have found jury trial unavailable. E.g., Barton v. American
Red Cross, 826 E Supp. 412 (M.D. Ala. 1993), aff'd mem., 43 F.3d 678
(11th Cir. 1994), cert. denied, 516 U.S. 822 (1995). Another issue is
the award against the Red Cross of punitive damages (available against
private litigants but not the United States). Some courts have said
"yes" to such awards. Doe v. American National Red Cross, 845 E Supp.
1152 (S.D. W.Va. 1994). Others have held that the Red Cross shares the
government's immunity from punitive damage awards. Barton v. American
Red Cross, 826 E Supp. 407 (M.D. Ala. 1993), aff'd mem., 43 F.3d 678
(11th Cir. 1994), cert. denied, 516 U.S. 822 (1995); Doe v. American
National Red Cross, 847 E Supp. at 648-49; Doe v. American National
Red Cross, 837 F. Supp. 121 (E.D.N.C. 1992).
There are relatively few cases involving title 36 corporations other
than the Red Cross. The court in United States v. District of
Columbia, 558 E Supp. 213 (D.D.C. 1982), vacated as moot, 709 F.2d
1521 (D.C. Cir. 1983), followed the Red Cross precedent and found the
U.S. Capitol Historical Society to be an instrumentality of the United
States for purposes of tax immunity. Among the facts the court thought
relevant were that the Society receives rent-free space in the Capitol
to operate a visitor's center (see 2 U.S.C. § 2165), and that its
charter expressly prohibits any of the Society's funds from inuring to
the benefit of its members (36 U.S.C. § 220308(b)). The judgment was
vacated on appeal because Congress passed legislation explicitly
giving the Society tax-exempt status with respect to activities
conducted within or on the grounds of the Capitol Building. See 36
U.S.C. § 220307.
In the Stearns litigation cited above, the court held that the
Veterans of Foreign Wars was not a "government actor" for purposes of
the antidiscrimination protections of the Fifth Amendment.[Footnote
64] The Supreme Court reached the same conclusion (although far from
unanimously) with respect to the United States Olympic Committee. San
Francisco Arts & Athletics, Inc. v. United States Olympic Committee,
483 U.S. 522 (1987). Reaffirming that the mere fact of federal
incorporation is not enough, the Court further emphasized that "even
extensive regulation by the government" or the existence of a federal
subsidy may not be enough. Id. at 544.
A charitable and benevolent corporation which operates without
assistance or interference from the government is not a government
agency for purposes of the dual compensation laws, even though
government officials may be involved it its administration. 26 Comp.
Gen. 192 (1946). Similarly, travel for the benefit of such a
corporation is not "official travel" and hence not compensable from
appropriated funds, unless it can be shown that the travel also
reasonably relates to some official duty of the traveler. B-56268,
June 20, 1946.
Another area in which the relationship of title 36 corporations to the
federal government arises is the applicability of the Federal Tort
Claims Act (VIVA), which expressly applies to "corporations primarily
acting as instrumentalities or agencies of the United States." 28
U.S.C. § 2671. Under this standard, the Red Cross is not an agency or
instrumentality for VIVA purposes. Rayzor v. United States, 937 F.
Supp. 115 (D.P.R. 1996), affd mem., 121 F.3d 695 (1st Cir. 1997). Nor
is the Civil Air Patrol, another title 36 corporation. Pearl v. United
States, 230 F.2d 243 (10th Cir. 1956); Kiker v. Estep, 444 E Supp. 563
(N.D. Ga. 1978). See also Nazarro v. United States, 304 E Supp. 2d 605
(D.N.J. 2004) (Civil Air Patrol is a charitable organization entitled
to tort immunity under New Jersey's charitable immunity statute);
Campbell v. Civil Air Patrol, 131 E Supp. 2d 1303 (M.D. Ala. 2001)
(Civil Air Patrol is not a "federal actor" subject to a lawsuit for
violation of constitutional rights "under color of federal law").
It is no accident that the issue has been raised against these two
corporations. Much of what they do seems like "government work" One of
the purposes of the Red Cross is to furnish volunteer aid to sick and
wounded members of the armed forces in time of war. 36 U.S.C. §
300102(1). A purpose of the Civil Air Patrol is to encourage citizen
efforts "in maintaining air supremacy," 36 U.S.0 § 40302(1)(a), a
governmental purpose if there ever was one. Be that as it may, the
corporation's "chameleon-like existence" or the argument that it
amounts to a "part-time federal agency" is not enough to make the FICA
applicable. Estep, 444 E Supp. at 565. The test is whether the
government controls its day-to-day operations. Rayzor, 937 E Supp. at
119, citing United States v. Orleans, 425 U.S. 807, 815 (1976).
Still another area of controversy is the application of 28 U.S.C. §
1349, which prohibits federal courts from taking jurisdiction of a
suit by or against a corporation solely because "it was incorporated
by or under an Act of Congress, unless the United States is the owner
of more than one-half of its capital stock." The typical title 36
corporation being a nonstock corporation, some courts have applied
section 1349 by using a "government control" test. Thus, for example,
the American Red Cross "functions independently and is in no way
controlled by the Government" for purposes of 28 U.S.C. § 1349, one
reason being that the president appoints only 8 of its 50 governors.
C.H. v. American Red Cross, 684 E Supp. 1018, 1022 (E.D. Mo. 1987),
followed in, e.g., Collins v. American Red Cross, 724 E Supp. 353
(E.D. Pa 1989). In Burton v. United States Olympic Committee, 574 E
Supp. 517, 524 (C.D. Cal. 1983), the court reached the same result for
the United States Olympic Committee because (1) the Olympic Committee
was the legal owner of its property, (2) any surplus funds do not
revert to the U.S. Treasury, (3) it is self-governing and operates
independent of federal control, and (4) it is not included in the
Government Corporation Control Act.
Other courts have applied the stock ownership requirement literally
and held that section 1349 can never form the basis of federal
jurisdiction of a nonstock corporation because the government cannot
own half of what does not exist. E.g., Burton, 574 F. Supp. at 523;
Stop the Olympic Prison v. United States Olympic Committee, 489 F.
Supp. 1112, 1117 (S.D.N.Y. 1980). The Supreme Court noted the split,
but did not resolve it in American National Red Cross v. S.G., 505
U.S. 247, 251 and n.3 (1992). Rather, the Court held in this case that
the sue-and-be-sued provision of the Red Cross charter was sufficient
in itself to confer federal jurisdiction. Id.
d. Federally Funded Research and Development Centers:
A Federally Funded Research and Development Center (FFRDC) is a
privately owned but government-funded entity which has a long-term
contractual relationship with one or more federal agencies to perform
research and development and related tasks.[Footnote 65] One authority
refers to them as "'captive corporations' which are legally private,
but are almost entirely government financed."[Footnote 66] The Federal
Acquisition Regulation (FAR) states: "FFRDC's are operated, managed,
and/or administered by either a university or consortium of
universities, other not-for-profit or nonprofit organization, or an
industrial firm, as an autonomous organization or as an identifiable
separate operating unit of a parent organization." 48 C.F.R. §
35.017(a)(3).
The federal executive agency which manages, administers, monitors,
funds, and is responsible for the overall use of the FFRDC, is called
the sponsor.[Footnote 67] 48 C.F.R. § 35.017(b). The FFRDC may be
permitted to accept work from parties other than the sponsor if and to
the extent specified in the sponsoring agreement. 48 C.F.R. § 35.017-
1(c)(5). A sponsoring agreement may not exceed 5 years, but is
renewable in 5-year increments. 48 C.F.R § 35.017-1(e). The FAR tells
agencies to phase out FFRDCs which are no longer needed. 48 C.F.R §
35.017-5. Some better known FFRDCs are the Rand Corporation and the
Massachusetts Institute of Technology's Lincoln Laboratory, both
sponsored by the Department of the Air Force.[Footnote 68] FFRDCs
originated in the World War II era[Footnote 69] and have proliferated
in subsequent decades. The 1972 report of the Commission on Government
Procurement, although expressing concern over the potential pitfalls
of single-agency funding,[Footnote 70] recommended that agencies
continue to have "the option to organize and use FFRDCs to satisfy
needs that cannot be satisfied effectively by other organizational
resources."71 The Office of Management and Budget's Office of Federal
Procurement Policy implemented the Commission's recommendation by
issuing Policy Letter No. 84-1, 49 Fed. Reg. 14462, 14464 (Apr. 11,
1984), which was in turn implemented by the subsequent inclusion of
coverage in the FAR at 48 C.F.R. § 35.017. See 48 C.F.R. §
35.017(a)(2) ("An FFRDC meets some special long-term research or
development need which cannot be met as effectively by existing in-
house or contractor services.").
There is no requirement that the creation of an FFRDC be specifically
authorized by statute. 71 Comp. Gen. 155 (1992) (Government
Corporation Control Act requirement for specific authority not
applicable to FFRDCs); B-145898-0.M., June 30, 1961 (same). The
authority to establish and sponsor FFRDCs is viewed as incident to the
agency's authority to enter into contracts. 71 Comp. Gen. at 157.
Although arguably unnecessary under this theory, in some cases
Congress has specifically authorized agencies to establish FFRDCs,
perhaps because of the amounts involved. For example, the 1991
appropriation for the Internal Revenue Service (IRS) authorized the
IRS to spend up to $15 million to establish an FFRDC as part of its
tax systems modernization program. Pub. L. No. 101-509, 104 Stat.
1389, 1395 (Nov. 5, 1990). Legislation enacted in 1987 authorized the
Secretary of Defense to establish an FFRDC to provide support to the
Strategic Defense Initiative program. Pub. L. No. 100-180, § 227, 101
Stat. 1019, 1057-59 (Dec. 4, 1987), 10 U.S.C. § 2431 note.
While there is no governmentwide statutory guidance on the creation
and use of FFRDCs, there is legislation applicable to the military
departments.
Before obligating or expending funds to operate an FFRDC, the
sponsoring department must report to Congress on the "purpose,
mission, and general scope of effort" of the proposed FFRDC, and must
observe a 60-day waiting period. 10 U.S.C. § 2367(c)(1). An FFRDC
generally may be used only for work that is within the center's
purpose, mission, and general scope of effort, as set forth in the
sponsoring agreement. 10 U.S.C. § 2367(a).[Footnote 72] Defense is to
report to designated congressional committees "the actual obligations
and the actual man-years of effort expended at each" FFRDC for each
fiscal year. 10 U.S.C. § 2367(d).
The FFRDC is not an arm's length contractor. By virtue of its access
to government data, employees, and facilities, it is said to have a
"special relationship" with the government. 48 C.F.R. § 35.017(a)(2).
As one might suspect, the FFRDC concept is not free from controversy.
One commentator states:
"The first FFRDCs were able to provide a research environment, capable
of attracting and retaining the best scientists, which it was
difficult to reproduce within the government structure. It is now
claimed that establishment of FFRDCs sometimes is motivated more by
the desire to evade government personnel and procurement regulations
than by desire to create a research environment. It is alleged that
some are little more than job shops for their government sponsors.
Industry is unhappy because of what it sees as unfair competition."
[Footnote 73]
The "job shop" allegation stems in part from the practice of granting
"fringe benefits" which, although reimbursed directly from
appropriated funds, exceed those of regular government employees,
sometimes by a very wide margin. One example is discussed in a GAO
report whose title is very revealing: University Research: U.S.
Reimbursement of Tuition Costs for University Employee Family Members,
GAO/NSIAD-95-19 (Washington, D.C.: Feb. 15, 1995). The Office of
Management and Budget subsequently inserted language in OMB Circular
No. A-21, Cost Principles for Educational Institutions, § J.10.f(2)
(May 10, 2004), to make tuition benefits allowable only for the
employees themselves.
To help ameliorate industry's concerns, the FAR requires each
sponsoring agreement to prohibit the FFRDC from competing with any non-
FFRDC for government contracts. 48 C.F.R. § 35.017-1(c)(4). This is
not limited to the FFRDC as prime contractor. In a bid protest
decision, for example, GAO found the regulation violated where an
agency accepted a proposal in which an FFRDC would team with the
awardee to perform a substantial amount of the work. B-243650.2, Nov.
18, 1991, aff'd on reconsideration, B-243650.3, May 11, 1992. GAO
explained:
"[The FAR] does not make a distinction between an FFRDC's role as a
prime contractor or subcontractor. We think that the determination
whether an FFRDC is in fact competing with a private firm in violation
of the regulation depends not upon whether the FFRDC has submitted a
proposal in its own name but upon the impact of its participation,
both from a technical and a cost standpoint, upon the procurement."
Id. at 5.
Similarly, where the contracting agency discovered the relationship
after it had awarded the contract, it properly terminated the contract
for the convenience of the government. B-276240 et al., May 23, 1997.
Even though it may be funded entirely, or nearly so, from federal
funds, an FFRDC is regarded as a contractor and not an agency or
instrumentality of the United States. 71 Comp. Gen. 155, 158 (1992).
For example, in deciding a 1981 dispute over reimbursement of costs,
the Armed Services Board of Contract Appeals treated an FFRDC no
differently than any other contractor, notwithstanding that it was
"100 percent funded by the government." Massachusetts Institute of
Technology, ASBCA No. 23079, 81-2 B.C.A. ¶ 15,451 (1981) (cited in 71
Comp. Gen. at 157 n.2). Similarly, GAO analyzed the Mitre Corporation,
an FFRDC, as follows:
"While the MITRE Corporation was established ... for the purpose of
engaging in and procuring services to or for the United States
Government or any department or agency thereof, the company may not be
said to be in any respect an agency or instrumentality of the United
States. The Page 15-84 GAO-08-978SP Appropriations Law—Vol. III
Chapter 15 Miscellaneous Topics affairs of the company are in the
hands of private persons, no element of control being vested in the
United States; and no provision is made for distributing corporate
assets to the United States upon dissolution of the company. Such
interest as the United States might have in MITRE would arise solely
under contracts entered into with the company in the same manner as
under contracts with any other corporation."
B-145898-0.M., June 30, 1961, at 5-6.
The relationship of FFRDCs to the government also comes into play in
protests against the award of subcontracts by FFRDCs. GAO will review
a subcontract award if the subcontract is "by or for a Federal
agency." 4 C.F.R. § 21.13(a). The protester invariably argues that the
FFRDC's contracts are, by virtue of its status, "for the government."
GAO will not draw a conclusion either way solely from the contractor's
status as an FFRDC, but will examine the specific contractual
relationship. The "by or for" standard contemplates situations in
which the FFRDC is effectively acting as the government's agent or is
largely a conduit between the government and the subcontractor. This
could happen, for example, where the FFRDC is operating and/or
managing a government facility (as opposed to simply using government-
furnished facilities), or otherwise providing large-scale management
services. 69 Comp. Gen. 334 (1990); B-244711, Oct. 16, 1991.
Along the same lines, the court in Valtier v. Jet Propulsion
Laboratory, 120 E Supp. 2d 887 (C.D. Cal. 2000), aff'd, 23 Fed. Appx.
803 (9th Cir. 2001), held that the United States had no tort liability
for alleged negligence in the California Institute of Technology's
(Caltech) operation of the laboratory's waste disposal facilities
because Caltech was not an "employee" of the United States under the
Federal Tort Claims Act (VIVA), 28 U.S.C. §§ 2671-2680. The court
found that, although Caltech was subject to detailed federal
regulations and inspections, the federal government did not control
Caltech's day-to-day operation of the laboratory's waste disposal
activities. Vanier, 120 E Supp. 2d at 908. The court also observed
that, unlike the contracts governing some FFRDCs, there was nothing in
Caltech's contract for operation of the laboratory making Caltech a
government "employee" for purposes of the VIVA. Id. at 908-09. The
court distinguished Caltech's contract from others that specifically
stated that the FFRDCs were "agents" of the government for purposes of
the activities in question. Id. at 909.
A variation on the FFRDC theme is the so-called "GOCO"—a government-
owned, contractor-operated facility. See, for example, United States
v. Anderson County, Tennessee, 705 F.2d 184 (6th Cir. 1983), cert.
denied, 464 U.S. 1017 (1983), describing a GOCO used by the Department
of Energy. Energy also funds a group of GOCO research laboratories. A
useful report on these is GAO, Department of Energy: Uncertain
Progress in Implementing National Laboratory Reforms, GAO/RCED-98-197
(Washington, D.C.: Sept. 10, 1998). See also GAO, Department of
Energy: Additional Opportunities Exist for Reducing Laboratory
Contractors Support Costs, GAO-05-897 (Washington, D.C.: Sept. 9,
2005); National Laboratories: Better Performance Reporting Could Aid
Oversight of Laboratory-Directed R&D Program, GAO-01-927 (Washington,
D.C.: Sept. 28, 2001).
e. Summing Up:
"Developments in the last 20 years might make one suspect that the
U.S. government is going quasi."[Footnote 74]
The categories we have described make up the primary ways the
government has used the corporate device. They are, however, by no
means exclusive. Other agency-specific or program-specific examples
dot the federal landscape. One is the Production Credit Association
(PCA). PCAs are corporate financial institutions chartered by the Farm
Credit Administration under statutory authority. 12 U.S.C. §§ 2071-
2077. See also 12 C.F.R. § 614.4040. They are statutorily designated
as instrumentalities of the United States. 12 U.S.C. § 2071(a). As
such, they have been held immune from awards of punitive damages.
Smith v. Russellville Production Credit Ass'n, 777 F.2d 1544 (11th
Cir. 1985); Rohweder v. Aberdeen Production Credit Ass'n, 765 F.2d 109
(8th Cir. 1985); Matter of Sparkman, 703 F.2d 1097 (9th Cir. 1983).
However, they are not "primarily acting as instrumentalities of the
United States" for purposes of the Federal Tort Claims Act. South
Central Iowa Production Credit Ass'n v. Scanlan, 380 N.W.2d 699 (Iowa
1986); Waldschmidt v. Iowa Lakes Production Credit Ass'n, 380 N.W.2d
704 (Iowa 1986). Also, they are sufficiently independent of the
federal government so as not to share the government's exemption from
28 U.S.C. § 1341, which bars federal jurisdiction of state tax cases
in favor of remedies under the state courts. Arkansas v. Farm Credit
Services, 520 U.S. 821 (1997). One court analogized them to national
banks in the Federal Reserve System. United States v. Haynes, 620 E
Supp. 474, 477 (M.D. Tenn. 1985) (holding that they were not
independent agencies for purposes of 18 U.S.C. § 208, the criminal
conflict of interest statute).[Footnote 75]
Another example is the entity addressed in Varicon International v.
OPM, 934 E Supp. 440 (D.D.C. 1996), a corporation formed by former
Office of Personnel Management (OPM) employees, with OPM's
encouragement. OPM awarded it a sole-source contract to conduct
background investigations previously conducted by the agency itself.
The court viewed this as nothing more than "a private corporation
which was awarded a government contract" (id. at 447), and thus not
subject to the Government Corporation Control Act's requirement for
statutory authority. See also 53 Comp. Gen. 86 (1973).
Some analysts believe that an increasing portion of the government's
business is being done outside the traditional structure. They also
suggest that "the line between what is 'public' and what is 'private'
has become indistinct.[Footnote 76] The literature uses terms like
"quasi-private," "quasi-government," and "hybrid organizations."'
Leazes calls them "twilight-zone corporations.[Footnote 78] Moe
regards them as "relatively unaccountable units at the margin of
government.[Footnote 79] Seidman consigns them to a "terra incognita,
somewhere between the public and private sectors."[Footnote 80] The
National Academy of Public Administration (itself a title 36
corporation) has reported that "the boundary between the public and
private sectors has been blurred so that one cannot say with assurance
to which sector many corporations belong or to whom they are
accountable."[Footnote 81]
Students of public administration disagree over whether this blurring
is good or bad.[Footnote 82] Whether it is good, bad, or somewhere in
between, it is here, likely to remain, and must be included in any
consideration of federal spending issues.
3. Creation:
To create a private business corporation, the incorporators file
articles of incorporation with a designated office in the jurisdiction—
state or District of Columbia—in which they wish to incorporate. Each
state, as well as the District of Columbia, has an incorporation
statute that details these procedures and addresses other aspects of
the corporation's existence, such as corporate powers, liability of
officers, and issuance of stock. For example, the D.C. law is the
District of Columbia Business Corporation Act, 29 D.C. Code §§
29.101.01-29.101.170.
There is no such thing as a federal incorporation statute. Rather,
Congress ordinarily provides a charter for a government corporation
[Footnote 83] by specific legislation that sets out its purposes,
powers, structure, obligations, and sources of funding. The statute
may also require the government corporation to incorporate in a
particular state or the District of Columbia. The corporation may be
specifically designated an agency or instrumentality of the United
States government, or it may be specifically designated not to be such
entities, which can be important when it comes to determining whether
particular federal statutes apply to the corporation (discussed in
detail in section B.7 of this chapter). Congress may also charter a
government corporation by delegating the power to the executive branch
or to another government corporation. Either way, the creation of a
government corporation must be explicit; it cannot be implied.
a. Historical Background and Purpose:
While the proliferation of government corporations largely occurred
during the twentieth century, the federal government has created or
used government corporations since the beginning of the republic. The
earliest examples were banking institutions. The first, predating even
the adoption of the Constitution, occurred when the Continental
Congress authorized the Bank of North America in 1781 and the
Superintendent of Finance purchased approximately five-eighths of the
capital stock in the name of the government, making the United States
the majority owner.[Footnote 84] In 1791, Congress created and
incorporated the (First) Bank of the United States, authorizing the
United States to subscribe 20 percent of the corporation's stock.
[Footnote 85] Act of February 25, 1791, ch. 10, 1 Stat. 191. Initial
governmental participation in this and other banking enterprises
consisted of investment in stock as opposed to management of the
corporation.
The Second Bank of the United States was incorporated by the Act of
April 10, 1816, ch. 44, 3 Stat. 266, in which the United States would
subscribe 20 percent of the Bank's capital stock and the President
would appoint, by and with the consent of the Senate, 5 of the Bank's
25 directors, the rest to be elected annually by shareholders other
than the United States. The legality of the Second Bank was
challenged, resulting in the landmark case of McCulloch, v. Maryland,
17 U.S. (4 Wheat.) 316 (1819). In that decision, the Supreme Court
upheld the constitutionality of the Second Bank of the United States
and the federal government's authority to create or involve itself in
commercial enterprises. The Court held that although the Constitution
did not specify creating corporations as one of the federal
government's enumerated powers, the Necessary and Proper Clause of the
Constitution (art. I, § 8, cl. 18) allowed Congress to charter and use
a corporation for the public purpose of banking. Chief Justice
Marshall stated:
"The power of creating a corporation, though appertaining to
sovereignty, is not, like the power of making war, or levying taxes,
or of regulating commerce, a great substantive and independent power,
which cannot be implied as incidental to other powers, or used as a
means of executing them. It is never the end for which other powers
are exercised, but a means by which other objects are accomplished."
Id. at 411.
Later in the opinion, the Chief Justice wrote what has become one of
the most famous statements in American constitutional law: "Let the
end be legitimate, let it be within the scope of the constitution, and
all means which are appropriate, which are plainly adapted to that
end, which are not prohibited, but consistent with the letter and
spirit of the constitution, are constitutional." Id. at 421.
The courts have never seriously questioned Congress's power to create
or employ corporate entities as a means of carrying into effect the
substantive powers granted to it by the Constitution. For example, in
Luxton v. North, River Bridge Co., 153 U.S. 525 (1894), the Supreme
Court held that Congress, in exercising its power to regulate
interstate commerce, indisputably has the power to create a
corporation to construct a bridge across navigable water between two
states.[Footnote 86] Congress is not restricted to creating a new
corporation, but can acquire or employ an existing private corporation
to carry out its substantive constitutional powers. New York ex ret.
Rogers v. Graves, 299 U.S. 401 (1937). Here, Congress acquired the
entire capital stock of a private corporation and elected its board of
directors to carry out constitutional powers of regulating commerce
and providing for national defense in maintaining, operating, and
protecting the Panama Canal.
Congress has created or employed corporations to carry out varied
purposes. Turning again to Chief Justice Marshall's words, "the power
of creating a corporation is never used for its own sake, but for the
purpose of effecting something else." McCulloch,, 17 U.S. at 411. One
analyst has noted that "government-sponsored corporations are simply a
means of securing governmental objectives."[Footnote 87] Some
government corporations are charged with developing projects or
functions not adaptable to private industry while others are
responsible for meeting needs in the market that are unmet by private
industry. Those purposes include governance, as well as social and
educational programs. Government corporations have also been created,
usually in bunches, to meet war or economic emergencies. The twentieth
century saw three such surges: World War I, the Great Depression, and
World War II.
First, during World War I, government corporations were created to
mobilize the war effort by transacting business in the same manner as
private commercial firms. These included the War Finance Corporation,
[Footnote 88] the United States Shipping Board Emergency Fleet
Corporation,[Footnote 89] and the United States Spruce Production
Corporation,[Footnote 90] among others. After the war, many of the
corporations were liquidated since they were intended to be temporary
and had fulfilled their missions to support the war effort.
It was not long after World War I that another crisis erupted and led
to the next surge of government corporations. The role of the federal
government changed dramatically in response to the Great Depression,
even more than it changed as a result of World Wars I and H. During
the Depression, the federal government used government corporations
extensively to stabilize the economy and encourage economic growth.
[Footnote 91] For example, the Reconstruction Finance Corporation had
a central role in planning and financing recovery programs by
providing loans to banks, railroads, business enterprises, mining
interests, public agencies, agricultural marketing organizations, and
purchasing stock in banks, insurance companies, mortgage corporations,
and corporations engaged in defense activities.[Footnote 92] The
Federal Deposit Insurance Corporation was created to promote and
preserve public confidence in banks and protect the money supply by
insuring deposits, periodically examining insured banks, and
regulating certain securities, mergers, consolidations, acquisitions
and assumption transactions of the banking sector.[Footnote 93] The
Commodity Credit Corporation (CCC) was created for the purpose of
"stabilizing, supporting, and protecting farm income and prices, of
assisting in the maintenance of balanced and adequate supplies of
agricultural commodities ... and of facilitating the orderly
distribution of agricultural commodities."[Footnote 94] The primary
method the CCC uses to achieve its purpose is providing loans. The
Federal Housing Administration (FHA) was established to encourage
improvement in housing standards and conditions, to provide an
adequate home financing system by insurance of housing mortgages and
credit, and to exert a stabilizing influence on the mortgage
market.[Footnote 95] The primary method used by FHA to fulfill its
purpose is providing mortgage insurance.
World War II provided the impetus for the third major surge in
twentieth century government corporations. Over 20 government
corporations were created to meet the wartime production needs of
World War II. These included the War Damage Corporation[Footnote 96]
(to provide insurance and reasonable protection against loss or damage
to property, real or personal, resulting from enemy attack, including
any action taken by the military, naval, or air forces of the United
States in resisting enemy attack), the Smaller War Plants Corporation
[Footnote 97] (to aid in mobilizing the productive facilities of small
business in the interest of successful prosecution of the war), and
the Defense Plant Corporation[Footnote 98] (to aid the Government in
its national defense by financing or engaging in the construction,
extension, and operation of plants engaged in war production).
Of course, the end of World War II did not end the practice of
creating and using government corporations. Since then, government
corporations have continued to be created to address myriad economic,
social, and other issues affecting the nation. For example, Congress
created the Government National Mortgage Association (Ginnie Mae) in
1968 to provide the means of transferring funds from the nation's
securities markets into the residential housing mortgage market. 12
U.S.C. §§ 1716b, 1717. The Pension Benefit Guaranty Corporation was
created in 1974 to administer the pension plan termination insurance
program created under the Employee Retirement Income Security Act of
1974 (ERISA) by encouraging the continuation and maintenance of
voluntary private pension plans, providing uninterrupted payment of
pension benefits to beneficiaries under plans covered by ERISA and
maintaining premiums at the lowest level consistent with carrying out
its obligations under ERISA. 29 U.S.C. § 1302. The Resolution Trust
Corporation was established in 1989, in response to the savings and
loan crisis, to manage and resolve all cases involving failed
depository institutions insured by the Federal Savings and Loan
Insurance Corporation before the enactment of the Financial
Institutions Reform, Recovery and Enforcement Act (FIRREA) of 1989. 12
U.S.C. § 1441a(b).[Footnote 99]
At any given time, it seems, several new corporations are being
proposed or studied. See, e.g., GAO, Government Corporations: Profiles
of Recent Proposals, GAO/GGD-95-57FS (Washington, D.C.: Mar. 30,
1995). The Office of Management and Budget (OMB) issued a document in
1995 entitled Specifications for Creating Government Corporations (OMB
Memorandum M-96-05, (Dec. 8, 1995)). This presents OMB's standards and
approach for evaluating proposals for new corporations. The OMB paper
incorporates many of the principles of the 1981 National Academy of
Public Administration report noted in section B.1 of this chapter.
Congress has categorized or designated some government corporations as
nonprofit (e.g., Legal Services Corporation, 42 U.S.C. § 2996b(a))
while others are designated as for-profit. For example, the United
States Enrichment Corporation (USEC) was created to operate as a
business enterprise on a profitable and efficient basis by marketing
and selling enriched uranium, and uranium enrichment and related
services, primarily for use by electric utilities worldwide. 42 U.S.C.
§§ 2297b, 2297b-2 (1994).[Footnote 100] Another example is Amtrak,
whose organic legislation currently specifies that it "shall be
operated and managed as a for-profit corporation." 49 U.S.C. §
24301(a)(2). Originally, Amtrak's statute simply declared it to be a
"for profit corporation" (Pub. L. No. 91-518, § 301, 84 Stat. 1327,
1330 (Oct. 30, 1970)), but the language was changed to recognize the
realities of the situation. For a history of Amtrak's legislation vis-
a-vis corporate status, see Lebron v. National Railroad Passenger
Corp., 513 U.S. 374, 388-89 (1995).
b. Need for Statutory Authority:
Prior to 1946, government corporations came into being in one of three
ways. They were (1) specifically created by statute, (2) created by an
executive branch department or another government corporation under
statutory authorization or delegation, or (3) created by the executive
branch through purely administrative action, with no specific
statutory authorization. Lebron v. National Railroad Passenger Corp.,
513 U.S. 374, 388-89 (1995). The power of Congress to create
government corporations, either directly or by delegation, had been
settled since McCulloch v. Maryland[Footnote 101] in 1819. The issue
of executive authority to create corporations came to a head in the
1940s. The lines of battle were formed when the Farm Security
Administration, which wanted to purchase land but lacked the requisite
statutory authority, created several corporations whose officers and
directors were Department of Agriculture employees. The Department
then made loans to the corporations, which in turn bought the land.
Not surprisingly, the legality of this arrangement was questioned. On
the issue of whether the Department could create corporations without
statutory authority, the parties split along predictable lines. The
Comptroller General said "No." B-23881, Mar. 5, 1942. See also 21
Comp. Gen. 892, 893 (1942). The Attorney General said "Yes." 40 Op.
Att'y Gen. 193 (1942). See also 37 Op. Att'y Gen. 288 (1933).
GAO's conclusion was based partially on considerations of sovereign
immunity. The power to sue and be sued is an important power of any
corporation. The Supreme Court had recently decided Federal Housing
Administration v. Burr, 309 U.S. 242 (1940), and Keifer & Keifer v.
Reconstruction Finance Corp., 306 U.S. 381 (1939), which strongly
implied that this power could be granted only by Congress. B-23881,
Mar. 5, 1942, at 18. It was not necessary for the Court to directly
address the question because neither case dealt with a corporation
created purely by executive action, but it would seem fundamental that
an agency could not confer powers, authorities, or exemptions it did
not have, unless of course it was operating under express statutory
authority.[Footnote 102]
Of course, as the sue-and-be-sued point suggests, the heart of the
question was never the creation of corporate entities per se. Rather,
the issue centered on the powers that could be given to them. One
decision stated that "the Virgin Islands Co. was created without
specific Congressional authorization and ... therefore, the corporate
character of the company did not serve to free its funds from the
provisions of law to which they would have been subject if
administered by an unincorporated Government agency." 21 Comp. Gen.
928, 930 (1942).
After its creation, however, Congress had given the corporation
statutory recognition. In light of this, GAO concluded that the
corporation could, if reasonably necessary to corporate business, go
beyond certain use limitations imposed as a matter of policy on funds
available to other agencies, and advised that the corporation could
use its funds to buy insurance on its property. Id. at 931. A 1934
decision contained a stronger statement:
"There is a clear and vital difference between a corporation created
pursuant to statutory direction with clear statutory grant to remove
its transactions from the safeguards surrounding appropriations and to
avoid not only Executive direction but accountability for the public
moneys entrusted to it, and a corporation created within the
Government [without such specific authority].... In some instances, it
is true, the laws creating corporations have been so broad as to
exclude Executive control and permit escape from accountability. A
corporation of the other class, however, created as an additional
administrative agency, can have no such status or uncontrolled
authority. It can exercise no wider authority than as though operating
as an unincorporated unit in the Executive branch. By the act of
incorporating Executive responsibility is not shifted, Executive
control avoided, nor accountability escaped."
A-53085, Jan. 11, 1934, at 5.
The idea of a legislative requirement was not new. Interestingly,
opposition to government corporations in the 1930s stemmed not so much
from the accountability perspective as from the fact that they
competed with the private sector. As a congressional report put it,
"government corporations to a great degree do business in competition
with private enterprise. They encroach upon and compete with business,
which is under serious disadvantage [while the government corporation's
advantages, like tax exemptions and cheap credit, make it] an
invincible competitor."[Footnote 103]
The idea of a legislative charter became law several years later as
section 304(a) of the Government Corporation Control Act, Pub. L. No.
79-248, 59 Stat. 597, 602 (Dec. 6, 1945). Now codified at 31 U.S.C. §
9102, it provides: "An agency may establish or acquire a corporation
to act as an agency only by or under a law of the United States
specifically authorizing the action."
The legislative history of the Government Corporation Control Act
noted the existence of several government corporations created without
legislative authority and the potential for problems arising when such
corporations were created under state law.[Footnote 104] The House
Report accompanying the legislation stated:
"The committee does not consider the practices of chartering wholly
owned Government corporations without prior authorization by the
Congress or under State charters to be desirable. It believes that all
such corporations should be authorized and chartered under Federal
statute. The bill provides that in the future all corporations which
are to be established for the purpose of acting as agencies or
instrumentalities of the United States must be established by act of
Congress or pursuant to an act of Congress specifically authorizing
such action."
H.R. Rep. No. 79-856, at 11 (1945).
Section 9102 by its terms applies to acquisition as well as creation
of corporations. With respect to existing nonstatutory corporations,
the statute directed them to either seek a legislative charter or
liquidate. Pub. L. No. 79-248, § 304(b).
There is little case law, administrative or judicial, invoking the
requirements of 31 U.S.C. § 9102. However, a number of cases have
found section 9102 inapplicable. We have previously noted two of
these: 71 Comp. Gen. 155 (1992) (federally funded research and
development centers) and Varicon International v. OPM, 934 F. Supp.
440 (D.D.C. 1996) (corporation formed by former government employees
to do the same work they did when they were on the payroll). A 1975
GAO opinion to a committee chairman also found the statute
inapplicable to so-called "proprietaries" of the Central Intelligence
Agency (CIA)—corporations formed by CIA largely to provide "cover" for
CIA activities. GAO found "irreconcilable conflict" between the public
accountability requirements of section 9102 and CIA's need to keep
these corporations "covert." This being the case, GAO concluded that
Ms mandate had to "prevail ... over the general requirements otherwise
applicable to Government corporations, in the absence of any
indication that Congress intended to curtail or control the use of
corporations for covert purposes incident to accomplishment of [Ms]
mission." B-179296, Dec. 10, 1975, at 3-4. A later opinion found the
statute inapplicable to the creation of subsidiaries by a federally
chartered private institution which had been converted from a mixed-
ownership government corporation. B-219801, Oct. 10, 1986. Had the
institution still been a mixed-ownership government corporation,
section 9102 would have applied. Id.
A 1970 GAO case dealt with grants by the old Office of Economic
Opportunity (OEO) to a nonprofit corporation established for the
purpose of carrying out OEO programs by hopefully generating closer
private-sector involvement. The question was whether the nonprofit was
a legitimate grantee or merely an agent of the OEO. GAO's review
showed that the nonprofit was wholly independent of the OEO and was
not a disguised government corporation. Therefore, there was no
violation of 31 U.S.C. § 9102. B-130515, Aug. 11, 1970. The analysis
was very similar to that employed in B-145898-0.M., June 30, 1961,
with respect to the MITRE Corporation.
An example of what GAO regarded as a clear violation of the statute is
found in B-278820, Feb. 10, 1998. The question was whether the Federal
Communications Commission (FCC) was authorized to establish two not-
for-profit corporations to administer certain functions of the
universal service program for schools, libraries, and rural health
care providers.[Footnote 105] The FCC argued that it did not establish
or acquire the corporations, but had directed the National Exchange
Carrier Association, Inc. to create them. While it was true that the
Association and not the FCC was the incorporator, an examination of
the FCC's role showed that it was involved in approving the proposed
articles of incorporation and bylaws, approving the chief executive
officers of the corporations, determining the size, composition, and
term of office of the boards of directors, as well as selecting or
approving the directors themselves. In GAO's view, the corporations
were created to carry out governmental functions (specifically, the
implementation of a statutory mandate), and the Association had simply
acted as the incorporator for the convenience of the FCC. Under these
circumstances, although the FCC did not directly establish or acquire
the corporations, GAO held that section 9102 applied. The identity of
the incorporator was not the determinant of section 9102's
applicability; the prohibition would be meaningless if agencies could
avoid it simply by using another party to act as incorporator. Thus,
for purposes of 31 U.S.C. § 9102, an agency may not cause, directly or
indirectly, a corporation to be created to carry out government
functions without specific statutory authority.
Once GAO determined that the FCC had "established" a corporation
within the meaning of section 9102, the next issue was whether the FCC
had the requisite statutory authority. The FCC suggested that it was
authorized to establish the corporations pursuant to sections 254 and
4(i) of the Communications Act. Section 254, 47 U.S.C. § 254, assigns
the FCC a variety of universal service program functions, such as
defining universal service, developing specific and predictable
support mechanisms, and providing for equitable contributions by
service providers. However, nowhere does it authorize the creation of
corporations. Section 4(i), 47 U.S.C. § 154(i), provides: "The
Commission may perform any and all acts, make such rules and
regulations, and issue such orders, not inconsistent with this chapter
[the Communications Act], as may be necessary in the execution of its
functions."
GAO held that this admittedly broad but nevertheless general authority
was not sufficient to satisfy the specific requirement of section
9102. GAO concluded that the FCC exceeded its authority and violated
section 9102 when it directed the creation of the corporations in
question. In reaching this conclusion, GAO noted a line of judicial
decisions treating section 4(i), part of the FCC's 1934 organic
legislation, as the agency's "necessary and proper" clause. None of
them, however, stands for the proposition that the FCC may invoke
section 4(i) to disregard specific requirements of later-enacted
statutes. Citing Lebron v. National Railroad Passenger Corp., 513 U.S.
374, 396 (1995), GAO noted that the Supreme Court had described
section 9102 as "evidently intended to restrict the creation of all
Government-controlled policy-implementing corporations, and not just
some of them." B-278820, at 7. The FCC not unexpectedly disagreed. The
two corporations in question were subsequently merged into a larger
entity.
Another skirmish involved creation of the now-defunct Federal Asset
Disposition Association (FADA). In a series of assignments relating to
the Federal Home Loan Bank Board, GAO reviewed the Board's authority
to create various entities operating under its direction. One of those
entities was FADA, created pursuant to statutory authority to organize
new federal savings and loan associations. Problem was, GAO reasoned
that an entity created under that authority should bear some
resemblance to a federal savings and loan association. FADA, on the
contrary, exercised none of the basic functions of a savings and loan
association. Most tellingly, it did not accept savings and it did not
make loans. B-226708.4, Mar. 15, 1989 (Enclosure at 4). In fact, GAO
found that the Federal Savings and Loan Insurance Corporation (FSLIC)
held all of FADA's stock, the Bank Board appointed its board of
directors, and FADA's self-described sole purpose was to assist FSLIC
in managing and disposing of assets. It was hard to escape the
conclusion that FADA was a federal savings and loan association "only
on paper." Id. at 3-4. Accordingly, GAO concluded that FADA was in
fact a corporation wholly owned and controlled by the federal
government and engaged in the performance of federal functions, and
that its creation exceeded the Bank Board's authority.[Footnote 106]
In addition to B-226708.4 cited above, see B-226708.3, Dec. 12, 1988,
B-226708.2, Sept. 29, 1988, B-226708, Sept. 6, 1988, and GAO, Failed
Thrifts: No Compelling Evidence of a Need for the Federal Asset
Disposition Association, GAO/GGD-89-26 (Washington, D.C.: Dec. 12,
1988).
The Justice Department's Office of Legal Counsel (OLC) addressed 31
U.S.C. § 9102 in the Memorandum Opinion for the General Counsel,
Office of Management and Budget, Status of National Veterans Business
Development Corporation, OLC Opinion, Mar. 19, 2004, which held that
the National Veterans Business Development Corporation (NVBDC) was a
government corporation for purposes of title 5, United States Code.
For essentially the same reasons that the opinion viewed NVBDC as a
government corporation, it also concluded that NVBDC was an agency for
purposes of 31 U.S.C. § 9102. NVBDC was created by the government to
perform federal functions and received federal funding. Thus, NVBDC
could not establish or acquire other corporations without specific
statutory authority.
A corporation created without legislative authority can be, in effect,
"ratified" by subsequent legislation. An example is 21 Comp. Gen. 928
(1942), the Virgin Islands case discussed earlier in this section.
Although the corporation in that case had been created without
statutory authority, subsequent legislation made it clear that
"Congress has recognized ... the corporate existence and status." Id.
at 930. See 17 Comp. Gen. 50 (1937) for another example. Subsequent
legislation was also involved in the FADA case, but GAO did not regard
it as rising to the level of congressional ratification. B-226708,
Sept. 6, 1988.
As noted previously, Congress may create a corporation directly or it
may authorize another agency or government corporation to do the
creating. This is the reason for the "by or under" language in 31
U.S.C. § 9102. Of course this was true even prior to the Government
Corporation Control Act. For example, the Reconstruction Finance
Corporation (RFC), described briefly earlier, was so authorized and
did in fact create several other government corporations.[Footnote
107] For a more recent example, the Farm Credit System banks, which
include the federal land banks, federal intermediate credit banks, and
banks for cooperatives, are mixed-ownership government corporations
listed in 31 U.S.C. § 9101(2) and are therefore governed by the
restriction contained in 31 U.S.C. § 9102. Thus, when it became
desirable for Farm Credit System banks to be able to organize
subsidiary corporations to perform certain functions the banks were
authorized to perform, Congress enacted that specific statutory
authority.[Footnote 108]
Where Congress authorizes or delegates the creation of a corporation
to some existing agency, the statute necessarily implies the authority
for the creating agency to use its funds for the expenses of
incorporation. 21 Comp. Gen. 892 (1942). This can include subscription
to initial capital stock where required. 37 Op. Att'y Gen. 437 (1934).
Logically enough, incorporation expenses of a corporation whose
creation is not statutorily authorized are improper. A-90344, Sept.
30, 1938; A-71172, Feb. 26, 1936.
4. Management:
(1) Origin:
a. Government Corporation Control Act:
Many of the government corporations[Footnote 109] created to meet
production needs during World War I were liquidated promptly after the
war. As a result, before the 1930s, "there was not a pressing need for
general procedures to govern the management of government
corporations." GAO, Congress Should Consider Revising Basic Corporate
Control Laws, GAO/PAD-83-3 (Washington, D.C.: Apr. 6, 1983), at 3. See
also B-103455, May 21, 1951. During the Depression and New Deal eras,
many corporations were formed to serve various economic needs, and
others were created to meet the production needs of World War II.
These were not so quick to go away. By the mid-1940s, "there were 63
wholly owned and 38 partly owned Federal corporations." GAO/PAD-83-3,
at 3. Government corporations "had gotten out of hand, in both their
number and their lack of accountability." Lebron v. National Railroad
Passenger Corp., 513 U.S. 374, 389 (1995). Control procedures, such as
they were, were developed through piecemeal administrative action that
was not necessarily consistent and did not include all government
corporations.
The initial congressional response was a 2-year study by the Joint
Committee on Reduction of Nonessential Federal Expenditures. Noting
the lack of overall control, the resulting report recommended the
prompt enactment of legislation to (1) require government corporations
to prepare business-type budgets for inclusion in the President's
budget submitted to Congress; (2) provide for a measure of Treasury
control over a corporation's accounts; and (3) require GAO audits.
[Footnote 110] This became the blueprint for what was to become the
Government Corporation Control Act.
The first legislative step to implement these recommendations was the
so-called George Act, Pub. L. No. 79-4, § 5, 59 Stat. 5, 6 (Feb. 24,
1945). This statute required GAO to audit the financial transactions
of all government corporations annually, in accordance with the
principles and procedures applicable to commercial corporate
transactions and under rules prescribed by GAO. The law further
required that each audit report "shall also show specifically every
program, expenditure, or other financial transaction or undertaking,
which, in the opinion of the Comptroller General, has been carried on
or made without authority of law." Id. § 5(b). Because the statute
used the words "all Government corporations," it applied to mixed-
ownership as well as wholly owned corporations. 25 Comp. Gen. 7
(1945). Under section 5(c) of the George Act, the cost of the audits
was to be borne by GAO's own appropriations, but a corporation could
agree to pick up the audit tab. (Why it might want to do so is not
clear.)
When Congress enacted the Government Corporation Control Act (GCCA),
Pub. L. No. 79-248, 59 Stat. 597, (Dec. 6, 1945) (now codified at 31
U.S.C. §§ 9101-9110), the audit requirements of the George Act were
essentially incorporated into the GCCA. The new law was designed to
provide an overall control of government corporations by making them
more accountable to Congress for their operations while allowing them
the flexibility and autonomy needed for their commercial activities.
[Footnote 111] The declared congressional policy was "to bring
Government corporations and their transactions and operations under
annual scrutiny by the Congress and provide current financial control
thereof."[Footnote 112] The GCCA addresses budget controls, financial
controls, and audit controls.
(2) Definitions:
As noted earlier, the Government Corporation Control Act (GCCA) made
no attempt to define the term "government corporation." Instead, it
merely declared that there were two types of corporations subject to
its provisions—the wholly owned government corporation and the mixed-
ownership government corporation. See 31 U.S.C. § 9101(1). The GCCA
lists the entities covered under each type. Wholly owned government
corporations include the Commodity Credit Corporation, Export-Import
Bank, Federal Prison Industries, Government National Mortgage
Association, Overseas Private Investment Corporation, Pension Benefit
Guaranty Corporation, Saint Lawrence Seaway Development Corporation,
and the Tennessee Valley Authority, plus several others. 31 U.S.C. §
9101(3). Examples of mixed-ownership government corporations are the
Federal Deposit Insurance Corporation, Federal Home Loan Banks,
Federal Land Banks, and the Central Liquidity Facility of the National
Credit Union Administration. 31 U.S.C. § 9101(2).
In trying to understand the two types of GCCA corporations, the plain
meaning of the law's language is the proper starting point, although
in this instance it does not help very much. The House report
accompanying the original GCCA legislation stated: "The bill
distinguishes between wholly owned Government corporations, in which
the Government holds all the stock or other capital interests, and
mixed-ownership Government corporations, in which the Government has
only a partial interest." H.R. Rep. No. 79-856, at 5 (1945).
The 1981 report of the National Academy of Public Administration
followed suit. Wholly owned corporations "pursue a governmental
mission assigned in their enabling statute and are financed by
appropriations. Their assets are owned by the government and managed
by board members or an administrator appointed by the President or
Secretary of a Department." On the other hand, mixed-ownership
corporations "have a combination of governmental and private equity;
hence their assets are owned and managed by board members selected by
both the President and private stockholders. They are usually intended
for transition to the private sector."[Footnote 113]
Thus, one might conceptualize the two types as corporations owned in
their entirety by the federal government and corporations with some
nonfederal ownership or joint financial participation. This, however,
is not always the case. For example, the now-defunct United States
Railway Association was designated as a mixed-ownership government
corporation when in fact it operated solely and exclusively under
direct annual appropriations from Congress, the same as a typical
federal agency.[Footnote 114]
The only safe generalization is that a wholly owned government
corporation is one listed in 31 U.S.C. § 9101(3) or so designated in
its enabling legislation; a mixed-ownership government corporation is
one listed in 31 U.S.C. § 9101(2) or so designated in its enabling
legislation.[Footnote 115] Of course, Congress remains free to create
corporations wholly outside the GCCA structure. Examples are the Legal
Services Corporation and the Corporation for Public Broadcasting.
Accordingly, the wholly owned/mixed-ownership classification is
relevant only for purposes of applying the rest of the GCCA.
The express language of the GCCA underscores this point. The lead to
31 U.S.C. § 9101 is "in this chapter." (The original language, 59
Stat. at 597, was "[a]s used in this Act.") Applying this limitation,
GAO concluded in 38 Comp. Gen. 565 (1959), that the Federal National
Mortgage Association (Fannie Mae) was a wholly owned corporation for
some purposes and a mixed-ownership corporation for others, both at
the same time. Fannie Mae had originally been chartered as a wholly
owned corporation. It was rechartered in 1954 as a mixed-ownership
corporation, but kept its place on the GCCA's list of wholly owned
corporations, apparently out of a desire to remain subject to the
wholly owned provisions of the GCCA. (It subsequently became a
government-sponsored enterprise.) The question in 38 Comp. Gen. 565
was whether Fannie Mae was authorized to lease space independent of
the General Services Administration (GSA). Wholly owned corporations
have to utilize GSA, mixed-ownership corporations do not. GAO
concluded that the proper approach was to look at what the corporation
was in reality—-mixed-ownership—-especially since the GCCA
designations do not purport to apply to other laws.
The GCCA did not attempt to address corporations created after its
enactment—nor could it, since one Congress cannot bind a subsequent
Congress. There is evidence in the legislative history, however, of an
expectation that the act would be made applicable to future
corporations. In this connection, the report of the Senate Committee
on Banking and Currency stated: "The committee contemplates that any
new corporation so created or authorized hereafter will be made
subject to the appropriate provisions of this bill by the creating or
authorizing legislation." S. Rep. No. 79-694, at 14 (1945).
This expectation has met with limited success. Of the 30 corporations
created by Congress from the mid-1960s to the mid-1980s, 17 were not
made subject to the GCCA. GAO, Congress Should Consider Revising Basic
Corporate Control Laws, GAO/PAD-83-3 (Washington, D.C.: Apr. 6, 1983),
at 5; Harold Seidman and Robert Gilmour, Politics, Position, and
Power, 285 (1986).
(3) Budget provisions:
A key feature of the Government Corporation Control Act (GCCA) is the
imposition of budgetary controls on wholly owned government
corporations. Under 31 U.S.C. § 9103, each wholly owned government
corporation must submit a "business-type budget" to the President each
year. Neither the statute nor its legislative history attempts to
define "business-type budget," but the law sets forth minimum
requirements. These, set forth in 31 U.S.C. § 9103(b), include the
following:
* Estimates of the financial condition and operations of the
corporation for the current and following fiscal years and the
condition and results of operations in the last fiscal year.
* Statements of financial condition, income and expense, and sources
and use of money as well as information regarding its financial
condition and operation.
* Estimates of administrative expenses (similarly not defined),
borrowing, the amount of United States Government capital that will be
returned to the Treasury during the fiscal year, and the
appropriations needed to restore capital impairments.
* Provision for emergencies and contingencies.
Apart from these minimum requirements, the President, acting through
the Office of Management and Budget, has broad discretion to determine
the form and content of the corporate budgets. 31 U.S.C. § 9103(a).
[Footnote 116] The President may revise a corporation's budget
program. 31 U.S.C. § 9103(c). The President then must include it as
part of the budget submitted to Congress under 31 U.S.C. § 1105. Id.
For examples of what this all looks like in real life, see Budget of
the United States Government for Fiscal Year 2008—Appendix, at 89-90
(Federal Crop Insurance Corporation), 98-104 (Commodity Credit
Corporation), 690-91 (Pension Benefit Guaranty Corporation), and 1132-
34 (Tennessee Valley Authority).[Footnote 117]
Congress then considers the budget programs for wholly owned
government corporations along with the rest of the federal budget,
which may include making appropriations as authorized by law; making
corporate financial resources available for operating and
administrative expenses; and providing for repaying capital and the
payment of dividends. 31 U.S.C. § 9104. Section 9104 does not prevent
a corporation from carrying out or financing its activities as
authorized by some other law, nor does it affect the corporation's
authority to make commitments without fiscal year limitation. 31
U.S.C. § 9104(b). An example of a budget approval provision is the
following from the Transportation, Treasury, Housing and Urban
Development, the Judiciary, the District of Columbia, and Independent
Agencies Appropriations Act, 2006, Pub. L. No. 109-115, 119 Stat.
2396, 2421 (Nov. 30, 2005):
"The Saint Lawrence Seaway Development Corporation is hereby
authorized to make such expenditures, within the limits of funds and
borrowing authority available to the Corporation, and in accord with
law, and to make such contracts and commitments without regard to
fiscal year limitations as provided by [31 U.S.C. § 9104], as may be
necessary in carrying out the programs set forth in the Corporation's
budget for the current fiscal year."
The statute then goes on to appropriate funds to the Corporation from
the Harbor Maintenance Trust Fund. Id.
The President may include with the budget submission a recommendation
that a wholly owned corporation be treated as an agency for fiscal
purposes. If Congress approves, the corporation retains its corporate
identity, but is thereafter subject to the laws governing budgets,
appropriations, expenditures, receipts, accounting, and other fiscal
matters in the same manner as agencies. 31 U.S.C. § 9109.
In addition to 31 U.S.C. § 9109, sections 9103 (GCCA's budget
provisions) and 9104 (congressional action on budgets) apply only to
wholly owned corporations. The exclusion of mixed-ownership
corporations was deliberate. The legislative history explains the
rationale: "The budget provisions of the bill do not apply to the
mixed-ownership corporations in which private stockholders have an
interest in the net worth and in the profits or losses of the
corporations." S. Rep. No. 79-694, at 7 (1945). See also H.R. Rep. No.
79-856, at 7 (1945). Although subsequent changes in the nature of
government corporations have made this premise inapplicable in many
cases, the fact remains that the budget provisions apply only to
wholly owned corporations.
The only budget-related provision of the Government Corporation
Control Act applicable to mixed-ownership corporations was relocated
as part of the 1982 recodification of title 31 and is now found at 31
U.S.C. § 1105(a)(24). It provides that the President's budget
submission to the Congress may include "recommendations on the return
of Government capital to the Treasury by a mixed-ownership corporation
(as defined in section 9101(2) of this title) that the President
decides are desirable."
(4) Other financial controls:
While the corporation control legislation was being considered, the
Treasury Department was urging that all government funds should be
kept in the Treasury. The statute addressed this concern in what is
now 31 U.S.C. §§ 9107(b) and (c). Subsection (b) requires that the
accounts of all government corporations, both wholly owned and mixed-
ownership, be kept in the Treasury. However, if the Secretary of the
Treasury approves, they may be kept in a Federal Reserve Bank or a
bank designated as a depositary or fiscal agent of the United States.
Treasury is authorized to waive these requirements. Such an account
might include, for example, a corporate checking account whose checks
would be signed by authorized corporation officials accountable
directly to the board of directors. E.g., B-68830, Oct. 6, 1947.
Section 9107(c) exempts the following from the requirements of section
9107(b):
* A temporary account of not more than $50,000 in one bank.
* A mixed-ownership corporation from which government capital has been
entirely withdrawn, during the period it remains without government
capital.
* Certain specified farm credit institutions, which are nevertheless
required to report to Treasury annually the names of depositories in
which their accounts are kept.
Congress regarded these provisions as "both practical and desirable as
a matter of fiscal policy" (S. Rep. No. 79-694, at 11 (1945)), and
felt that they would "contribute toward a unification of the
[government's] depositary system" (H.R. Rep. No. 79-856, at 10 (1945)).
Three years later, in 1949, Congress added to the Government
Corporation Control Act what is now 31 U.S.C. § 9107(a), which
authorizes government corporations, with the Comptroller General's
concurrence, to consolidate their cash, from whatever source,
including appropriations, into one or more accounts for banking and
checking purposes.[Footnote 118] Of course, the funds are to be used
only for authorized purposes. In reviewing proposals under this
provision, GAO's concern is to avoid the diminution of internal
controls. E.g., B-58312, Nov. 14, 1950 (approving an unspecified
proposal by the Tennessee Valley Authority because it would simplify
procedures without lessening internal control).
Unless specifically authorized by statute, a corporation maintaining
an account in the Treasury under 31 U.S.C. § 9107(b) is not entitled
to receive interest on those funds, directly or indirectly. B-114839-
0.M., Jan. 9, 1976. The law also includes provisions, which we will
address later, dealing with Treasury control over the debt obligations
of government corporations.
(5) Audit:
In the 1940s, any discussion of government auditing meant auditing by
GAO. The original Government Corporation Control Act (GCCA)
essentially incorporated the audit provisions of the George Act, which
had been enacted less than a year earlier. Under these provisions, GAO
was to audit annually every wholly owned government corporation and
every mixed-ownership government corporation for any period in which
government capital was invested in it, and report the results to
Congress. Pub. L. No. 79-248, §§ 105, 106, 202, 203, 59 Stat. 597, 599-
600 (Dec. 6, 1945).
The audit was to be a "commercial-type audit" rather than the
customary governmental audit. The customary governmental audit
principally included examining and passing upon each voucher prepared
by the agencies' clerks and each account maintained by the agencies
and their accountable officers. The legislative history explained:
"The Comptroller General and the Congress have recognized that the
regular governmental type of audit may not be suitable to the
operations of a Government corporation. In general, the purpose of the
governmental type of audit is to determine the validity of
expenditures under appropriations made by the Congress in the light of
restrictions and limitations placed by the Congress generally upon
expenditures from appropriated funds.... On the other hand, the
commercial type of audit, as applied to a business corporation, is
separate and distinct from the accounting system and internal
financial controls of the corporation, and is designed to determine
the financial condition of the corporation as of a given date and the
results of its financial operations during the period under audit, and
to establish whether the corporate funds have been regularly expended
in accordance with corporate authorization."
H.R. Rep. No. 79-856, at 7-8 (1945). For further elaboration, see
pages 95-96 of the House report and S. Rep. No. 79-694, at 8-9 (1945).
In 1975, the audit requirement was reduced from every year to at least
once every 3 years.[Footnote 119] GAO's auditing of government
corporations, first under the George Act and then under the GCCA, is
widely credited with providing the stimulus for GAO to modernize its
audit concepts and practices from the old "voucher auditing" system.
[Footnote 120]
The GCCA's audit and reporting provisions were completely overhauled
by sections 305 and 306 of the Chief Financial Officers Act of 1990,
Pub. L. No. 101-576,104 Stat. 2838,2853-54, (Nov. 15, 1990), amending
31 U.S.C. §§ 9105 (audits) and 9106 (management reports). Under these
amendments, an audit of the financial statements required under 31
U.S.C. § 9106 is now to be conducted by the corporation's Inspector
General or by an independent external auditor chosen by the inspector
general. For a corporation that does not have an inspector general,
the head of the corporation selects the independent auditor. 31 U.S.C.
§ 9105(a)(1). The audit is to be conducted "in accordance with
applicable generally accepted government auditing standards." 31
U.S.C. § 9105(a)(2). This means the standards set forth in GAO's so-
called "Yellow Book," Government Auditing Standards, GAO-07-162G
(Washington, D.C.: Jan. 2007). These differ from the more commonly
known "generally accepted auditing standards" in that the government
auditing standards require reporting on internal controls and
compliance with laws and regulations. GAO, Government Corporations:
CFO Act Management Reporting Could Be Enhanced, GAO/AIMD-94-73
(Washington, D.C.: Sept. 19, 1994), at 4 n.2. Audit reports are to be
submitted to the head of the corporation and to the Senate Committee
on Homeland Security and Governmental Affairs and the House Committee
on Government Reform. 31 U.S.C. § 9105(a)(3).
The revised 31 U.S.C. § 9106 requires each government corporation to
submit a management report each fiscal year to Congress, with copies
to the President, the Director of OMB and the Comptroller General. The
management report must include statements of financial position,
operations, cash flows, a reconciliation to the corporation's budget
report where applicable, a statement on internal accounting and
administrative control systems, the report regarding the audit of the
corporation's financial statements, and any other comments and
information necessary to inform Congress about the operations and
financial condition of the corporation. The Office of Management and
Budget issues instructions to government corporations on the
submission of annual management reports. OMB Cir. No. A-136, Financial
Reporting Requirements, §§ 1.5-1.6 (June 29, 2007).
Nothing in 31 U.S.C. § 9105 specifies the timing of the audits, but,
as noted, section 9106 requires the annual management report to
include the report of the audit conducted under section 9105. Thus,
audit frequency returned to annual, and in this sense the 1990
legislation can be said to have strengthened the audit requirement.
See GAO/AIMD-94-73, at 3. Sections 9105 and 9106 do not distinguish
between wholly owned and mixed-ownership corporations.
While the 1990 revision of 31 U.S.C. § 9105 shifted primary
responsibility for auditing government corporations from GAO to the
inspectors general, GAO continues to have a role. GAO (1) may review
any audit conducted under section 9105(a)(1), reporting its results to
Congress, the Office of Management and Budget, and the head of the
corporation, and (2) may conduct its own financial statement audit at
the discretion of the Comptroller General or at the request of a
congressional committee. 31 U.S.C. § 9105(a)(4).
The original GCCA generally prohibited government corporations from
using their funds to pay for private audits. Pub. L. No. 79-248, §
301(d). This was intended to prevent duplication of efforts during the
time that the law required GAO to conduct the audits. B-205488-0.M.,
Jan. 19, 1982. Since the statute now explicitly permits the use of
external auditors, this prohibition was dropped. However, the concern
over duplication is reflected in 31 U.S.C. §§ 9105(a)(4) and (c).
Section 9105(a)(4) provides that an audit by GAO under that subsection
will be in lieu of the otherwise required inspector general audit.
Section 9105(c) recognizes that other laws include specific audit
requirements for GAO to carry out. It provides that Comptroller
General audits made under section 9105 are "in lieu or any audit of a
government corporation's financial transactions that is required by
another law. Id. Reconciling GCCA audits with other statutory audits
is largely an exercise in common sense. For example, where other
legislation requires GAO to conduct annual audits of a corporation's
financial statements, the audits serve the purposes of section 9105 as
well, obviating the need for the inspector general audit. B-239201.3,
July 25, 1991 (finding that an audit of the Federal Deposit Insurance
Corporation conducted by GAO under the requirements of 12 U.S.C. §
1827(d) would satisfy the audit requirements of 31 U.S.C. § 9105). An
enabling act provision authorizing or directing GAO to audit the
"operations" of a corporation gives GAO broad discretion over how to
conduct that audit. While such a requirement can be satisfied by a
financial audit, it can also extend to a full program audit. B-200951-
0.M., Dec. 24, 1980, as clarified by B-200951-0.M., May 11, 1981.
A GAO audit under the GCCA is financed initially from GAO's own
appropriations, but its "full cost ... as determined by the
Comptroller General" must be reimbursed by the corporation.[Footnote
121] 31 U.S.C. § 9105(a)(5). The purpose of the reimbursement
requirement is to prevent government corporations from receiving a
hidden subsidy from the taxpayers. B-207203-0.M., June 4, 1982. "Full
cost," GAO has determined, includes both direct costs (employee
salaries and travel expenses, for example) and indirect costs,
including overhead. Id. See also B-96792, Aug. 10, 1950 (GAO billed
Federal Prison Industries for every last penny in its administrative
expense allocation). Section 9105(a)(5) further requires that the
reimbursements be deposited as miscellaneous receipts. However, this
requirement was superseded by the following proviso attached to GAO's
appropriation in the Legislative Branch Appropriations Act, 1995, Pub.
L. No. 103-283, 108 Stat. 1423, 1440 (July 22, 1994):
"Notwithstanding 31 U.S.C. 9105 hereafter amounts reimbursed to the
Comptroller General pursuant to that section shall be deposited to the
appropriation of the [GAO] then available and remain available until
expended, and not more than $6,000,000 of such funds shall be
available for use in fiscal year 1995."
This language provides permanent authority for GAO to credit the
reimbursements to its then-current appropriation, to remain available
until expended. Congress can then, as it did in Public Law 103-283,
appropriate a specific sum from the "no-year" account for use during
the current fiscal year.
The original GCCA authorized GAO's audit reports to include
essentially the items now included by the corporations in their
management reports, plus several other things, such as any impairments
of capital, any recommendations for the return of government capital,
and any transactions or expenditures believed to be illegal. Pub. L.
No. 79-248, §§ 106 and 203. That reporting requirement displaced GAO's
authority to disallow corporate expenditures. 37 Comp. Gen. 666, 668-
69 (1958); B-58302, Apr. 29, 1947. The current reporting language,
codified at 31 U.S.C. § 9105(a)(4)(B), is more general, providing that
GAO shall report "the results of the review and make any
recommendation [it] considers appropriate." This language certainly is
broad enough to include the elements that the original GCCA specified.
When GAO makes an audit recommendation to the head of an agency, the
agency head must, within specified time limits, submit a written
report on the action taken on the recommendation to certain
congressional committees. 31 U.S.C. § 720(b). For purposes of this
requirement, "agency" includes wholly owned but not mixed-ownership
government corporations. 31 U.S.C. § 720(a); B-114831-0.M., July 28,
1975 (requirement for compliance report not applicable to Federal
Deposit Insurance Corporation).
b. Appointment and Control of Directors:
A government corporation's management, like its other key features, is
determined by its enabling legislation. For the great majority of
corporations, this means a board of directors. However, there is no
statutory model for government corporations, nor is there any legal
requirement for a board of directors.
The need for a board of directors has been questioned from the
managerial perspective, as well. For example, one commentator wrote:
"Even the use of the term 'corporation' is unfortunate because it
tends to encourage improper borrowing of concepts from the private
sector. For instance, there is no particular reason for government
corporations to have boards of directors, yet this feature is found in
most proposals for new corporations apparently because corporations in
the private sector have boards of directors."[Footnote 122]
Another commentator agreed, quoting a Brookings Institution report to
the effect that "there appears to be nothing inherent in the corporate
form of organization to require a board instead of a single
administrator."[Footnote 123] Be that as it may, if a government
corporation does have a board of directors it should, of course, be a
good one. According to Marshall Dimock, an early observer of
government corporations, "an effective board of directors is the key
to program success."[Footnote 124]
The federal government's involvement in the selection or appointment
of directors has evolved along with the development of government
corporations. As we have seen, the United States' initial
participation in the creation of government corporations involved
chartering of the entity and ownership of stock. However, with the
creation of the Second Bank of the United States in 1816, the
President was authorized to appoint, by and with the consent of the
Senate, 5 of the Bank's 25 directors. The rest were to be elected
annually by shareholders other than the United States. During the
nineteenth century, the federal government "continued to charter
private corporations ... but only once participated in such a venture
itself," that being the Union Pacific Railroad. Lebron v. National
Railroad Passenger Corp., 513 U.S. 374, 387 (1995). The Union Pacific
Railroad was chartered in 1862 with the President appointing two of
its directors. Act of July 1, 1862, ch. 120, § 1, 12 Stat. 489.
The twentieth century saw considerable variation in the managerial
structure of corporations, mostly within a framework of increased
government involvement. In 1902, as part of the statute providing for
construction of the Panama Canal, Congress authorized the President to
purchase all stock and property of the Panama Railroad Company, making
the government the sole shareholder. Pub. L. No. 57-183, 32 Stat. 481
(June 28, 1902). The Secretary of War, as holder of the stock,
appointed all of the company's directors. According to Lebron, 513
U.S. at 387, this was the first instance in which the government
appointed a majority of directors.
The most common management system, at least with respect to
corporations subject to the GCCA, is a board of directors appointed
entirely by the President. The typical statutory provision will (1)
vest the corporation's management and control in the board of
directors, (2) prescribe the number of directors and how they are to
be appointed, (3) specify what will constitute a quorum, (4) set forth
the powers and duties of the directors, and (5) address their
compensation. E.g., 22 U.S.C. § 2193(b) (Overseas Private Investment
Corporation). In addition, the statute may (1) specify the number of
directors to come from various sources (government, industry, etc.),
or prescribe other qualifications, (2) designate certain government
officials to serve ex officio, and (3) address the board's political
composition. Additional examples of government corporations all of
whose directors are appointed by the President are the African
Development Foundation,[Footnote 125] Commodity Credit Corporation,
Export-Import Bank, and the Tennessee Valley Authority.[Footnote 126]
In at least one instance, certain directors are appointed by a
department head. See 7 U.S.C. § 1505(a) (Federal Crop Insurance
Corporation's private sector directors appointed by Secretary of
Agriculture). The Tennessee Valley Authority legislation includes an
interesting qualification: directors must "affirm support for the
objectives and missions of the Corporation." 16 U.S.C. § 831a(b)(5).
When Congress wants the federal government to participate more
actively in the management of a government corporation and to ensure
that the government's views and interests are represented, the
enabling statute designates specified officials to serve as directors
ex officio. These are usually heads of departments or agencies with a
logical subject-matter relationship to the corporation. For example,
two of the five directors of the Federal Deposit Insurance Corporation
are the Comptroller of the Currency and the Director of the Office of
Thrift Supervision. 12 U.S.C. § 1812. See also 7 U.S.C. § 1505(a)
(certain Agriculture Department officials are ex officio directors of
the Federal Crop Insurance Corporation). Sometimes Congress also takes
the next step and makes all of the directors government officials.
E.g., 29 U.S.C. § 1302(d) (directors of the Pension Benefit Guaranty
Corporation are the Secretaries of Labor, Treasury, and Commerce).
Cabinet members serving ex officio may delegate their functions as
directors even if the enabling statute does not expressly authorize
it. 6 Op. Off. Legal Counsel 257 (1982). This follows from the nature
of ex officio service. Such appointments are made "based not on
individual personal attributes, but on the contribution Congress
believed each one's agency could make to the [corporation's]
operations." Id. at 260.
Another way the government can exert management influence or control
is to designate a corporation as an entity within a particular
department or agency and under the control of the head of that
department or agency. For example:
* the Commodity Credit Corporation is "an agency and instrumentality
of the United States, within the Department of Agriculture" (15 U.S.C.
§ 714);
* the Saint Lawrence Seaway Development Corporation is "subject to the
direction and supervision of the Secretary of Transportation" (33
U.S.C. § 981);
* the Overseas Private Investment Corporation is "an agency of the
United States under the policy guidance of the Secretary of State" (22
U.S.C. § 2191);
* Federal Prison Industries, Inc. is in the Department of Justice
(Reorg. Plan No. 2 of 1939, § 3(a), 53 Stat. 1431, noted at 5 U.S.C.
app. I.).
The enabling legislation will also provide for officers of the
corporation. In many instances, the officers are appointed by the
President. E.g., 22 U.S.C. § 2193 (Overseas Private Investment
Corporation). In other instances, the board of directors appoints the
officers. E.g., 16 U.S.C. § 831b (Tennessee Valley Authority). Whether
the board of directors or the "chief executive officer" is the "head"
of the corporation depends on the statutory powers Oven to each. If
the enabling legislation vests management and control in the board of
directors, the head of that corporation, unless the statute provides
differently, is the board of directors acting as a body. 25 Comp. Gen.
467 (1945). An example of a different statutory model is the
Corporation for National and Community Service. It has a board of
directors, 42 U.S.C. § 12651a, but the law specifies that the
Corporation "shall be headed by ... [a] Chief Executive Officer ...
appointed by the President, by and with the advice and consent of the
Senate." 42 U.S.C. § 12651c. A few government corporations (e.g.,
Amtrak and the Legal Services Corporation) are subject to the
Inspector General Act, discussed in section B.7.c(1) of this chapter,
which assigns certain duties to the head of the entity. For purposes
of the act, the Office and Management and Budget annually identifies
the heads of these entities and publishes them in the Federal
Register. See, e.g., OMB, Revised 2006 List of Designated Federal
Entities and Federal Entities, 71 Fed. Reg. 39690 (July 13, 2006).
A board of directors can delegate power to an executive committee, but
this has been construed to apply to ordinary and routine matters, not
radical departures from corporate policy. B-58302-0.M., Sept. 14,
1949. This device cannot be used, however, to avoid a statutory quorum
requirement. See B-197710-0.M., Jan. 14, 1983. In that case, a
government corporation had only two directors out of five, and the
statute designated a majority of the board as a quorum. Under the
circumstances, GAO thought it unlikely that a court would support
treating those two directors as an executive committee. The answer
would have been different if the statute permitted a majority of board
members currently in office to constitute a quorum. Id.
As noted earlier, while most government corporations have boards of
directors, a few do not. One commentator identified three which, at
the time he wrote, did not have boards of directors—the Government
National Mortgage Association, Resolution Trust Corporation (since
terminated), and the Saint Lawrence Seaway Development Corporation.
[Footnote 127] Another such corporation that was later created is the
Community Development Financial Institutions Fund, which is not
subject to GCCA. 12 U.S.C. § 4703(f). Its management consists of a
presidentially appointed administrator and an advisory board. 12
U.S.C. § 4703.[Footnote 128]
The appointment of most or all of a board of directors by federal
officials is most appropriate for corporations owned or controlled by
the United States. As you move farther away from federal ownership or
control, the government's managerial involvement usually diminishes as
well. For example, in the typical government-sponsored enterprise, the
government will appoint some directors to make sure its voice will be
heard, but the majority is appointed by nongovernment sources. Thus,
the President appoints 5 out of 18 of Fannie Mae's directors (12
U.S.C. § 1723(b)), 5 out of 18 for Freddie Mac (12 U.S.C. §
1452(a)(2)(A)), and 5 out of 15 for Farmer Mac (12 U.S.C. § 2279aa-
2(b)(2)).
One would expect a minimal federal managerial role in a federally
chartered corporation expressly designated as not an agency or
instrumentality of the United States. However, this is not always the
case. Both the Corporation for Public Broadcasting and the Legal
Services Corporation are chartered as nonprofit corporations and are
not to be regarded as agencies or establishments of the United States.
See, respectively, 47 U.S.C. § 396(b), 42 U.S.C. §§ 2996b and
2996d(e)(1). Neither is subject to the GCCA. Nevertheless, perhaps
because both are federally funded as well as federally created and
perform essentially public service rather than commercial functions,
their entire boards of directors are appointed by the President and
subject to Senate confirmation. 47 U.S.C. § 396(c); 42 U.S.C. § 2996c.
5. Sources of Funds and Financing:
There is no single model for the funding structure of a government
corporation.[Footnote 129] The corporate form alone does not dictate
any particular type of funding. Just as with the corporation's
organization and powers, its funding structure varies according to its
purpose and activities as reflected in the enabling legislation. As
one court has noted, "Congress is not limited by traditional notions
of corporate powers and organization" and it "need not capitalize
corporate instrumentalities of the United States in any rigidly
prescribed manner."[Footnote 130] United States v. Nowak, 448 F.2d
134, 138 (7111Cir. 1971), cert. denied, 404 U.S. 1039 (1972). In fact,
Congress has funded government corporations using a variety of sources
and methods: direct appropriations of funds, federal borrowing,
authorizing user fees or other charges for services provided to the
public, federal ownership of stock, private investment or financing
(e.g., sale of debt securities) with actual or implied backing by the
United States, or some combination of these methods.
a. Types of Financing:
(1) Direct appropriations:
Government One funding option is the direct appropriation of funds
from the general fund of the Treasury, the same method used for most
federal agencies. In its 1995 study, GAO found that, out of 24
corporations then listed in the Government Corporation Control Act
(GCCA), 15 had received federal appropriations in fiscal year 1994.
GAO, Government Corporations: Profiles of Existing Government
Corporations, GAO/GGD-96-14 (Washington, D.C.: Dec. 13, 1995), at 21-
22. As a general proposition, wholly owned corporations were more
likely to receive direct appropriations than mixed-ownership
corporations. However, some mixed-ownership corporations received
appropriations while some wholly owned corporations did not. In
addition, several corporate entities not subject to the GCCA received
appropriations. Id.
Direct appropriations may provide all or part of a corporation's
funding. Examples of government-created corporations substantially
funded by congressional appropriations are the Corporation for
National and Community Service and the Legal Services Corporation.
[Footnote 131] Fully funded corporations tend to be those with
noncommercial functions. There is no nexus between full funding status
and inclusion in the GCCA. For example, the Corporation for National
and Community Service is subject to the GCCA, while Legal Services is
not. An example of partial funding by direct appropriations is the
Commodity Credit Corporation (CCC). Largely because the CCC
administers a variety of relatively high-risk programs, the typical
year produces nonrecoverable losses which are funded from a "net
realized losses" appropriation.[Footnote 132] Congress may provide
appropriations for certain start-up costs, with the expectation that
private financing will then take over. An example is discussed in 69
Comp. Gen. 289 (1990) (Pennsylvania Avenue Development Corporation
could amortize construction consultants' fees as a cost of
construction because they were not the kind of start-up costs for
which Congress had provided appropriations).
Congress can structure a corporation's appropriation however it
wishes. For example, the appropriation cited above for the Legal
Services Corporation is relatively brief and consists of five major
line items.[Footnote 133] By contrast, the appropriation for the
Corporation for National and Community Service takes up several pages
of the appropriation act and contains numerous line items and other
specifications.[Footnote 134]
Most corporate appropriations are definite in amount; some are not.
For example, the Federal Crop Insurance Corporation's (FCIC) 2006
appropriation to the FCIC Fund was "such sums as may be necessary, to
remain available until expended," that is, an indefinite, no-year
appropriation.[Footnote 135] The CCC is authorized to receive its "net
realized losses" appropriation on a "current, indefinite" basis. 15
U.S.C. § 713a-11. This is merely an authorization, however, and
Congress remains free to structure the appropriation some other way.
67 Comp. Gen. 332 (1988). The CCC's 2006 appropriation was "for the
current fiscal year, such sums as may be necessary," but subject to a
monetary ceiling.[Footnote 136] Since the CCC receives a direct
appropriation for net losses, it is logical that net gains, should
they ever occur, would be deposited in the Treasury as miscellaneous
receipts, and this is what the law requires. 15 U.S.C. § 713a-12. Cf.
Knowles v. War Damage Corp., 171 F.2d 15, 19-20 (D.C. Cir. 1948),
cert. denied, 336 U.S. 914 (1949) (not "invalid" for a statute to
require a government corporation to pay its surplus funds into the
Treasury).
(2) Federal borrowing:
Another method of funding for government corporations is borrowing
authority, also known as public debt financing. This means the
authority to borrow money from the Treasury and to issue obligations
to the Treasury to evidence the indebtedness. This authority must be
conferred by statute. Examples include 29 U.S.C. § 1305(c) (Pension
Benefit Guaranty Corporation (PBGC)), 15 U.S.C. § 713a-4 (Commodity
Credit Corporation), and 7 U.S.C. § 947 (Rural Telephone Bank). The
PBGC provision is fairly typical:
"The [PBGC] is authorized to issue to the Secretary of the Treasury
notes or other obligations in an aggregate amount of not to exceed
$100,000,000, in such forms and denominations, bearing such
maturities, and subject to such terms and conditions as may be
prescribed by the Secretary of the Treasury. Such notes or other
obligations shall bear interest at a rate determined by the Secretary
of the Treasury .... The Secretary of the Treasury is authorized and
directed to purchase any notes or other obligations issued by the
[PBGC] under this subsection ...."
29 U.S.C. § 1305(c). Some borrowing provisions, like the PBGC statute,
have a fixed dollar ceiling. Others have a variable ceiling, like 7
U.S.C. § 947(a) (amount borrowed by Rural Telephone Bank which is
outstanding at any one time "shall not exceed twenty times the paid-in
capital and retained earnings" of the Bank). In determining the amount
of unused borrowing authority, a corporation may exclude interest on
outstanding obligations already held by the Treasury. B-89366-0.M.,
Sept. 9, 1964. If a contrary congressional intent can be established,
however, the answer will be different. See B-125007, B-127378, July
20, 1956.
Treasury may be required to purchase the obligations, as in the PBGC
provision quoted above, or may have discretion in the matter as is the
case for the Commodity Credit Corporation and the Rural Telephone Bank
(15 U.S.C. § 713a-4, 7 U.S.C. § 947(b), respectively). Congress may
specify the time period within which the borrowing authority must be
used. If it does not, the authority remains available until used or
repealed. See Nowak, 448 F.2d at 138 n.4.
In lieu of direct borrowing from the Treasury, a corporation's
borrowing may go through an intermediary, the Federal Financing Bank
(FFB). The FFB was created in 1973 to coordinate federal and federally
assisted borrowings in order to reduce their costs. 12 U.S.C. § 2281.
The FFB is itself a corporate entity under the general direction and
supervision of the Secretary of the Treasury, and an instrumentality
of the United States. 12 U.S.C. § 2283. While not listed in the GCCA,
the FFB is subject to the GCCA's budget and audit provisions for
wholly owned government corporations. 12 U.S.C. § 2293. For present
purposes, two provisions of the act creating the FFB are relevant.
Under 12 U.S.C. § 2285(a), "any Federal agency which is authorized to
issue, sell, or guarantee any obligation is authorized to issue or
sell such obligations directly to the [FFB]." "Federal agency"
includes "a corporation or other entity established by the Congress
which is owned in whole or in part by the United States." 12 U.S.C. §
2282(1). Thus, at least certain corporations with statutory borrowing
authority can issue their obligations directly to the FFB, which can
then issue its own securities either in the private market or, more
likely, to the Treasury. 12 U.S.C. § 2288. For information on the
background of the FFB, see GAO, Federal Financing Bank: The Government
Incurred a Cost of $2 Billion on Loan Prepayments, GAO/AFMD-89-59
(Washington, D.C.: Aug. 22, 1989); The Federal Financing Bank, No.
121084 (Washington, D.C.: Apr. 5, 1983) (GAO testimony before the
Senate Subcommittee on Federal Credit Programs).
In 14 Op. Off. Legal Counsel 20 (1990), the Justice Department's
Office of Legal Counsel (OLC) tackled the question of how to determine
which corporations could avail themselves of the FFB. A detailed
analysis led the OLC to conclude that Congress intended to include
corporations "that receive substantial funding from the government,
that are subject to significant federal control, and that issue
obligations guaranteed by the federal government." Id. at 26. This
being the case, corporations "that are wholly privately funded, that
have a significant measure of independence in their management, and
that issue obligations not backed by the full faith and credit" of the
United States are excluded. Id. OLC recognized that a given
corporation may not have all of the principal characteristics of
either the included or excluded corporations, or may have a mix. The
approach in such a case is to determine "whether the corporation's
principal characteristics render it most analogous to those
corporations that were intended to be covered by the [law creating the
FFB] or to those that were not." Id. at 26 n.14. Applying this
analysis, OLC concluded that the former Resolution Trust Corporation
was a federal agency for purposes of 12 U.S.C. § 2282(1), and could
therefore issue promissory notes directly to the FFB.
In two opinions to Members of Congress, GAO reviewed the financing
arrangements for building construction at the government-owned Federal
Triangle site in the District of Columbia. The former Pennsylvania
Avenue Development Corporation, a wholly owned government corporation,
was responsible for the planning, development, and construction
oversight of the project. The original plan was to obtain private
financing for the construction. It was later decided, however, that
financing through the FFB would save the government interest costs.
The project's trustee obtained the financing through a promissory note
issued to the FFB, and secured by the trustee's assignment to the FFB
of the trustee's rights to receive statutorily required rental
payments from the General Services Administration. GAO concluded that
the FFB was an appropriate source of financing because the Federal
Triangle building—designated the Ronald Reagan Federal Building—was
fundamentally a project being constructed by the federal government.
Several factors supported this conclusion. The federal government, by
statute, bore the full risks of developing and owning the project; the
land on which the project was being built belonged to the United
States; and the government carried the principal rights and
obligations associated with ownership of the project, including the
project's design and specifications for construction. The Pennsylvania
Avenue Development Corporation most likely would have met the Justice
Department's eligibility criteria, except that there was no need to
apply that test because, under the Federal Triangle legislation, the
promissory note issued for financing purposes was in effect an
obligation of GSA rather than the Corporation. B-248647, Dec. 28,
1992; B-248647.2, Apr. 24, 1995.
As the 1995 opinion pointed out, a corporation (or agency, for that
matter) with statutory borrowing authority does not need further
specific authority to use the FFB. The provisions of the law creating
the FFB noted above supply the necessary authority. B-248647.2, Apr.
24, 1995.
(3) Federal ownership of stock:
The federal government has also funded government corporations by
subscribing to part or all of a corporation's capital stock. As we saw
in our historical summary above, the government's early involvement in
government corporations consisted of purchasing stock in the name of
the United States. In the case of the Panama Railroad Company, the
government acquired the entire capital stock of a private corporation,
elected its board of directors, and used it to carry out commerce and
defense functions in the Panama Canal. See New York ex rel. Rogers v.
Graves, 299 U.S. 401 (1937).
Of the modern (post-Government Corporation Control Act) government
corporations, some issue stock, many do not. A government corporation
issues stock if it is authorized to do so in its enabling legislation.
The statute will specify the amount of stock that may be issued and
who may or must subscribe to it. For example, the federal government
owns 100 percent of the capital stock of the Commodity Credit
Corporation (15 U.S.C. § 714e), the Export-Import Bank (12 U.S.C. §
635b), and the Federal Crop Insurance Corporation (7 U.S.C. §
1504(a)). The Rural Telephone Bank is authorized to issue three
classes of stock, one owned by the government, one by loan recipients,
and one by specified classes of purchasers. 7 U.S.C. § 946.
b. Types of Financing: Private:
(1) Sources of private financing:
Private financing can take one of three forms: fees and charges, stock
ownership, and borrowing. For the most part, authority to assess fees
and charges will be spelled out in the pertinent legislation. The
kinds of receipts vary with the type of program being administered.
The Tennessee Valley Authority receives income from the sale of
electric power (including sales to government agencies, 44 Comp. Gen.
683 (1965)). The Pension Benefit Guaranty Corporation collects
premiums from sponsors of covered pension plans. 29 U.S.C. § 1306. The
Saint Lawrence Seaway Development Corporation for many years received
its income from tolls (33 U.S.C. § 988; 35 Comp. Gen. 267 (1955)), but
Congress suspended this authority with respect to commercial vessels
in 1994 (33 U.S.C. § 988a), and began funding the Corporation from the
Harbor Maintenance Trust Fund. See 33 U.S.C. § 2238; 26 U.S.C. § 9505.
Before its termination on October 1, 2004, the Panama Canal
Commission's revolving fund received toll receipts and was authorized
to retain interest generated by amounts deposited in financial
institutions outside the Treasury. 22 U.S.C. § 3712(c).
If there is no express authority, it may nevertheless be possible for
a corporation to assess fees under 31 U.S.C. § 9701, the so-called
"user charge statute," covered in detail in Chapter 12, section D.
Section 9701 by its terms applies to wholly owned, but not mixed-
ownership, government corporations. The limitation to wholly owned
corporations is because they are the closest to regular government
agencies. This does not mean that other types of government-created
corporations may not charge fees, merely that they must find the
authority elsewhere.
A government-created corporation designated as private may also find
itself on the other end of the transaction—having to pay government
agencies for services rendered to it. For example, the Communications
Satellite Act authorized certain services to be provided to Comsat on
a reimbursable basis, but did not further address how the charges were
to be determined. Absent anything to the contrary in the law or its
legislative history, GAO found it legitimate to determine the charges
in accordance with the standards under 31 U.S.C. § 9701. B-168707-
0.M., May 11, 1970.
Of course, statutory authorizations to charge fees have their
limitations. The Export-Import Bank, for example, is authorized to
charge fees for conferences, seminars, and publications. 12 U.S.C. §
635(a)(1). Then, similar to authority given to the executive branch
generally, the statute authorizes the Bank to accept voluntary
contributions for travel and subsistence expenses incurred by its
officers or employees. Such amounts received are credited to the fund
which initially paid for such activities and are to be offset against
the expenses of the Bank for such activities. Id. However, GAO found
that this statute did not go so far as to authorize the Bank to
require its customers to pay its travel and subsistence expenses. B-
272254, Mar. 5, 1997. The decision reasoned that the statute was not
intended to sanction what would clearly amount to an augmentation of
the Bank's appropriations.
The second form of private financing is private subscription to stock.
Naturally, one would not expect to find this in the case of a wholly
owned government corporation, but it is a theoretical option for
Congress to consider for mixed-ownership corporations and it is
commonly found in government-sponsored enterprises (GSE). Statutory
provisions for GSEs may prescribe classes of common stock, voting and
nonvoting stock, preferred stock, and may address institutional versus
general subscription. Examples are 12 U.S.C. § 1453 (Freddie Mac); 12
U.S.C. § 2124 (banks for cooperatives); and 12 U.S.C. § 2279aa-4
(Farmer Mac). The Justice Department has concluded that, as long as no
statute prohibits it, a corporation can use preferred stock as a
dividend to its shareholders of common stock. 9 Op. Off. Legal Counsel
19 (1985). (This case involved Freddie Mac, whose legislation later
changed, but the point is still good.)
The third type of private financing is borrowing—the issuance of
promissory notes, bonds, or other debt obligations to the public. An
example is 7 U.S.C. § 947, which authorizes the Rural Telephone Bank
to borrow from the public as well as from the Treasury. The Commodity
Credit Corporation has comparable authority in 15 U.S.C. § 713a-4.
The obligations may be expressly guaranteed by the United States.
Commodity Credit Corporation obligations, for example, "shall be fully
and unconditionally guaranteed both as to interest and principal by
the United States." Id. A question given much attention has been the
extent to which obligations of government corporations are backed by
the "full faith and credit" of the United States in the absence of
express statutory provision to that effect. Attorney General opinions
addressing whether a bond or other obligation is a valid obligation of
the United States, even in the absence of full faith and credit
language, are set forth and discussed in more detail in Chapter 11,
section D.1. It is sufficient here to note that two of the Attorney
General's opinions concerned government corporations-42 Op. Att'y Gen.
21 (1961) (Development Loan Fund) and 42 Op. Att'y Gen. 327 (1966)
(Export-Import Bank). In both cases the Attorney General concluded
that Congress's choice of the corporate form did not alter the status
of its obligations. Thus, if the underlying statutory provisions are
sufficient to authorize the creation of obligations of the United
States, it is immaterial that this authority is vested in a corporate
entity. GAO adopted the Attorney General's position in 68 Comp. Gen.
14 (1988) (promissory notes and assistance guarantees issued by the
now-defunct Federal Savings and Loan Insurance Corporation were
obligations of the United States).
Congress can include express disclaimer language in the statute, which
will then of course control. E.g., 12 U.S.C. § 1721(b) (Ginnie Mae's
obligations "are not guaranteed by the United States and do not
constitute a debt or obligation of the United States or of any agency
or instrumentality thereof' other than Ginnie Mae). If, however, the
test for an obligation of the United States (as set out in the
Attorney General's opinions) is met, disclaimer language found only in
legislative history is not enough. 68 Comp. Gen. at 18-19.
As with borrowing from the Treasury, borrowing from the public can
also be handled through the Federal Financing Bank. Indeed, individual
agency offerings to the public were the main focus of the law creating
the Federal Financing Bank. See, in this regard, 12 U.S.C. § 2281. See
also H.R. Rep. No. 93-299, at 2 (1973).
(2) Market perception of implied backing by United States:
"As one wag puts it: With GSEs, you privatize the profits and
socialize the risk."[Footnote 137]
The preceding discussion outlines when a government corporation's
obligations may be backed by the full faith and credit of the United
States. Government-sponsored enterprises (GSEs), introduced in section
B.2.b of this chapter, are generally regarded as one step further
removed from "government status" and, therefore, further removed from
government backing, at least official backing. Of course, Congress is
free to provide federal backing whenever it wishes. E.g., 12 U.S.C. §
2278b-6(d)(4)(A) (if Financial Assistance Corporation is unable to pay
principal or interest on its obligations, Treasury is required to pay
and try to recover from the defaulting bank). More often than not in
the case of GSEs, however, Congress has enacted express disclaimers.
For example, 12 U.S.C. § 4503 disclaims any federal guarantee of the
obligations or liability of the Federal National Mortgage Association
(Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie
Mac), and the Federal Home Loan Banks, and any implication that they
are backed by the full faith and credit of the United States. (The
Home Loan Banks are mixed-ownership government corporations; the other
two are GSEs.)
Even in the presence of a statutory disclaimer, many commentators who
have examined GSEs emphasized the existence of a market perception of
implied backing by the United States because, presumably, the GSE will
not be allowed to fail. As one commentator stated, very simply, "the
Federal Government implicitly guarantees the value of GSE obligations
and mortgage-backed securities."[Footnote 138] This implied guarantee
has been called the "single most distinguishing characteristic"
[Footnote 139] of GSEs and their "most valuable perk."[Footnote 140]
Another writer suggests that in the event of GSE failure, the
government would have "no real alternative but to deliver on the
implicit guarantee" in order to avoid disruption in the credit
markets.[Footnote 141]
The perception of an implied guarantee arises because GSEs are
regarded as instrumentalities of the United States, and their
obligations have many of the characteristics of Treasury
obligations.[Footnote 142] As another commentator has pointed out,
some of the most prominent private credit-rating agencies "have rated
enterprise securities based on the strength of this implied government
guarantee, in spite of the knowledge that no actual guarantee exists."
[Footnote 143]
This market perception of a federal guarantee confers significant
economic benefits on GSEs. Primarily, it enables them to borrow money
at rates much lower than private corporate obligations, and almost as
low as the rates Treasury itself pays on its borrowings.[Footnote 144]
GAO has issued detailed reports on the government's exposure to risks
stemming from its use of GSEs. See GAO, Government-Sponsored
Enterprises: The Government's Exposure to Risks, GAO/GGD-90-97
(Washington, D.C.: Aug. 15, 1990); Government-Sponsored Enterprises: A
Framework for Limiting the Government's Exposure to Risks, GAO/GGD91-
90 (Washington, D.C.: May 22, 1991). In 1992, Congress enacted the
Federal Housing Enterprises Financial Safety and Soundness Act,
[Footnote 145] 12 U.S.C. §§ 4501-4641, to provide a measure of federal
supervision and regulation over Fannie Mae and Freddie Mac. The law
established an Office of Federal Housing Enterprise Oversight (OFHEO)
whose job it is to see that Fannie and Freddie are adequately
capitalized and operating safely. 12 U.S.C. §§ 4502(6), 4511, 4513(a).
Nevertheless, the risks associated with the GSEs have become more
severe in recent years as both their financial exposure and questions
about their management have increased dramatically. The combined
obligations of five GSEs was $4.4 trillion as of September 30, 2003.
[Footnote 146] See GAO, Government-Sponsored Enterprises: A Framework
for Strengthening GSE Governance and Management, GAO-04-269T
(Washington, D.C.: Feb. 10, 2004), at 1. The GSEs also pose risks to
the stability of the United States financial system. Because the
financial markets expect that the United States will be unwilling to
permit GSE obligations to fail, the volume of GSE obligations,
potentially, may have consequences for the federal taxpayer. See GAO-
04-269T, at 5-6. Unfortunately, there are serious concerns over the
management of the GSEs and federal oversight of their operations. By
way of summary, GAO's 2004 testimony observed in this regard:
"To ensure that the GSEs operate in a safe and sound manner, it is
essential that effective governance, reasonable transparency, and
effective oversight systems are established and maintained. In
particular, the GSEs should lead by example in the area of corporate
governance; GSE regulators must be strong, independent, and have
necessary expertise; and GSE mission definitions and benefit measures
need to be established. However, our work found that GSE corporate
governance does not always reflect best practices ... Furthermore, the
regulatory structure for the housing GSEs is fragmented and serious
questions exist as to the capacity of GSE regulators to fulfill their
responsibilities."
Id. at 2. Among other remedial measures, GAO recommended that Congress
establish a single federal regulator for the housing GSEs and equip it
with the necessary authorities to carry out its mission.
GAO is far from alone in identifying problems with the GSEs. One
commentator described Fannie Mae and Freddie Mac as "huge, fast-
growing, highly leveraged, lightly regulated, and susceptible to
failure." Richard Scott Carnell, Handling the Failure of a Government-
Sponsored Enterprise, 80 Wash. L. Rev. 565, 567 (2005). Another said:
"GSEs are completely excluded from the presidential budget and the
congressional budget resolution; they simply are not reported in
either the on-budget or the off-budget figures. Although GSEs were
originally designed to serve a public purpose, they can easily be used
as a budget accounting gimmick to reduce the size of apparent
deficits."
Cheryl D. Block, Congress and Accounting Scandals: Is the Pot Calling
the Kettle Black?, 82 Neb. L. Rev. 365, 438-39 (2003) (footnotes
omitted).
In May 2006, Fannie Mae agreed to pay a $400 million penalty to settle
charges brought against it by the Securities and Exchange Commission
relating to misstatements in its financial statements from at least
1998 through 2004 that gave its shareholders and the public the false
impression of stable and predictable earnings. In announcing the
settlement, the Commission observed:
"In its settlement with the Commission, the company agreed, without
admitting or denying the allegations, to the entry of a final judgment
that permanently enjoins the company from violations of the anti-
fraud, reporting, books and records and internal controls provisions
of the federal securities laws. The root cause of the accounting fraud
described in the Commission's Complaint, was a corporate culture that
placed significant emphasis on stable earnings growth and avoidance of
income statement volatility, and insufficient emphasis on ensuring
compliance with applicable accounting regulations and federal
securities laws. The company's misconduct took various forms. For
example: At the end of 1998, senior management manipulated the
company's earnings in order to obtain bonuses they otherwise would not
have received."[Footnote 147]
(3) Statutory controls:
In addition to the budget, audit, and accounting controls previously
described, the Government Corporation Control Act (GCCA), 31 U.S.C. §
9108, addresses the debt obligations of all government corporations,
wholly owned and mixed-ownership, covered by the act (see discussion
of GCCA in section B.4.a of this chapter). Under section 9108(a), a
GCCA government corporation may not issue or offer obligations to the
public unless the Secretary of the Treasury has prescribed the form,
denomination, maturity, and interest rate of the obligations and the
conditions to which they will be subject; the manner and times of
their issuance; and the price for which they will be sold.
Under section 9108(b), a GCCA government corporation must get the
Secretary of the Treasury's approval (or waiver) before buying or
selling either a direct obligation of the United States or an
obligation whose principal, interest, or both is guaranteed by the
United States, if the obligations aggregate over $100,000.
Section 9108(c) authorizes the Secretary of the Treasury to delegate
functions under sections 9108(a) and (b) to any officer or employee of
any federal agency.
Section 9108(d) contains the exemptions. The approval requirements of
sections 9108(a) and (b) do not apply to certain named mixed-ownership
government corporations, nor to any mixed-ownership corporation when
the corporation has no government capital.
Finally, a provision added to the GCCA in 1986 directs the Secretary
of the Treasury to issue standards for depositary institutions
concerning the safeguarding and use of GSE securities that they hold
for their customers. 31 U.S.C. § 9110.
6. Fiscal Autonomy:
a. Account Settlement:
GAO's "account settlement" authority refers to the first portion of 31
U.S.C. § 3526(a)—"The Comptroller General shall settle all accounts of
the United States Government." During the pre-World War II period and
for a while thereafter, this meant that all accounts had to be
physically transmitted to GAO, where GAO auditors scrutinized them,
line by line, "disallowing" or "taking an exception to" expenditures
found to be illegal. Subsequently, GAO's application of this authority
underwent major evolution. Now, agencies retain their own accounts,
keeping them available for audit,[Footnote 148] and an account is
regarded as "settled" by operation of law after 3 years except for
unresolved items. See 31 U.S.C. § 3526(c). Nevertheless account
settlement remains relevant in determining such things as (1) the
kinds of audit GAO is authorized to perform, (2) who may request a
legal decision from GAO, and (3) the application of the accountable
officer relief statutes. See 31 U.S.C. §§ 3523, 3526, 3527, 3528, 3529.
During the decades preceding enactment of the Government Corporation
Control Act, 31 U.S.C. §§ 9101-9110, the relationship of GAO to
government corporations was a major battlefield. The corporations
argued that they should be exempt from GAO's account settlement
authority; GAO argued the opposite.[Footnote 149] In 1927, the Supreme
Court decided the case of United States ex rel. Skinner & Eddy Corp.
v. McCall, 275 U.S. 1 (1927). A contractor sought a writ of mandamus
to compel GAO to consider its claim against the United States Shipping
Board Emergency Fleet Corporation. The Supreme Court affirmed the
determination of the lower court that the claim was not within GAO's
claims settlement jurisdiction,[Footnote 150] which was separate from
GAO's account settlement authority. The executive branch cited this
case to support a blanket proposition that GAO's account settlement
authority did not extend to government-owned corporations. E.g., 40
Op. Att'y Gen. 84 (1941). While this was certainly an arguable
position, GAO's initial reaction was to distinguish Skinner & Eddy,
pointing out that the Court had not directly ruled on the question of
GAO's account settlement authority over government corporations. B-
29072, Nov. 16, 1943. GAO tried to reconcile the conflicting views,
holding that accountable officers still had to render their accounts,
but that GAO, in performing its settlement audit, would recognize the
corporations' exemption from various laws. B-24827, May 22, 1942.
Two developments have largely resolved the issue. First was the
enactment of the Government Corporation Control Act (GCCA), which
mandated a commercial-type audit—as opposed to the traditional
governmental audit—and told GAO to include in its audit reports
anything it believed to be illegal (see discussion of GCCA in section
B.4.a of this chapter). 31 U.S.C. § 9105. Although some decisions
reflect ambivalence,[Footnote 151] GAO tended to view the GCCA
requirements as supplanting its account settlement authority with
respect to the corporations. E.g., B-150556, May 29, 1968 (Commodity
Credit Corporation); B-146820, June 2, 1967 (Commodity Credit
Corporation); B-152534-0.M., Dec. 4, 1963 (Panama Canal Company); B-
58302, Apr. 29, 1947 (former Reconstruction Finance Corporation).
The second development was the refinement of certain charter
provisions and a trend toward standardization. Congress has authorized
most post-Government Corporation Control Act corporations to determine
the character and necessity of their expenditures. For example, the
Federal Crop Insurance Corporation provision states:
"The Corporation shall determine the character and necessity for its
expenditures ... and the manner in which they shall be incurred,
allowed, and paid, without regard to the provisions of any other laws
governing the expenditure of public funds and such determinations
shall be final and conclusive upon all other officers of the
Government."
7 U.S.C. § 1506(i).
There are variations in language. GAO views the "character and
necessity" provision as precluding its account settlement authority.
E.g., B-226708.3, Dec. 12, 1988 (then Federal Savings and Loan
Insurance Corporation); B-200103, Mar. 5, 1981 (Commodity Credit
Corporation); B-34706, Dec. 5, 1947 (government corporations in
general). Some decisions also mention other corporate powers like the
power to sue and be sued or to conclusively settle claims, but the
"character and necessity" power is the crucial element.
The first step in the analysis is to examine a corporation's
particular legislation. If Congress has addressed the matter one way
or the other, there is no need to go further. Congress is always free
to make a particular corporation subject to GAO's account settlement.
E.g., B-123943-0.M., July 1, 1955. An example is Federal Prison
Industries, whose legislation provides: "Accounts of all receipts and
disbursements of the corporation shall be rendered to the Government
Accountability Office for settlement and adjustment, as required by
the Comptroller General." 18 U.S.C. § 4126(d). See B-98983-0.M., Dec.
18, 1950. The Tennessee Valley Authority (TVA) has an interesting
structure. The TVA is expressly made subject to the account settlement
laws, but a determination of necessity by the TVA Board of Directors
will override a GAO finding to the contrary. 16 U.S.C. § 831h(b). See,
e.g., B-209585, Jan. 26, 1983; B-114850-0.M., Sept. 21, 1977.
If a corporation's enabling legislation does not address account
settlement, then, for the two reasons noted above, GAO will conclude
that the authority does not exist. Most of the cases cited in the
preceding paragraphs have involved wholly owned corporations.[Footnote
152] However, the same is true for mixed-ownership corporations like
the Federal Deposit Insurance Corporation (B-210496, Feb. 1, 1983),
and for corporations created and funded by the government but
designated as "private," like the Legal Services Corporation (B-
241591, Mar. 1, 1991; B-203901, July 9, 1982; B-204886, Oct. 21,
1981). [Footnote 153]
If the account settlement laws do not apply to a particular
corporation, neither do the laws providing for the relief of
accountable officers. In such a case, any accountability of officers
or employees of the corporation is up to the corporation itself to
determine; accountability would be to the corporation, not the United
States.[Footnote 154] B-88578-0.M., Aug. 21, 1951. See also B-83360-
0.M., Apr. 8, 1949 (Certifying Officers' Act, ch. 641, 55 Stat. 875
(Dec. 29, 1941), not applicable to Federal Crop Insurance Corporation).
Page 15-136 GAO-08-978SP Appropriations Law—Vol. III Chapter 15
Miscellaneous Topics
b. Status of Funds Received by Corporate Entities:
If money received by a government agency must be deposited in the
Treasury and an appropriation is needed to get it back out, logic
would seem to dictate that statutory authority for an agency to retain
specified receipts and to spend them for specified purposes is a
permanent or continuing appropriation of those receipts. GAO has
consistently applied this principle to a variety of revolving funds,
user fee accounts, proceeds from sales of goods or services, etc. This
principle is explored in more detail, with case citations, in Chapter
2, section B.1. Further support is found in the title 31, United
States Code, definition of "appropriations," which is not limited to
direct appropriations from the general fund of the Treasury but
includes "other authority making amounts available for obligation or
expenditure." 31 U.S.C. §§ 701(2)(C), 1101(2)(C).
Viewing the principle in the abstract, that is, setting aside for the
moment the question of the consequences of the status determination,
there is no reason the principle should not apply to government
corporations as well as unincorporated agencies. Thus, GAO has applied
the principle and found that there was a statute which authorized the
deposits of receipts in a specific fund, and made the fund available
for carrying out specific purposes without needing further
congressional action, which constituted a permanent or continuing
appropriation, in the following situations:
* Tolls assessed and collected by the Saint Lawrence Seaway
Development Corporation. B-193573, Jan. 8, 1979, modified and affd, B-
193573, Dec. 19, 1979, restated in B-217578, Oct. 16, 1986. (The
Corporation stopped being funded from tolls in the mid-1990s.)
* The Prison Industries Fund operated by Federal Prison Industries,
Inc. (FPI), the receipts of which consist primarily of proceeds from
the sale of FPI products and services. 60 Comp. Gen. 323 (1981); B-
230304, Mar. 18, 1988.[Footnote 155]
* Revolving funds of the Pension Benefit Guaranty Corporation in its
capacity as insurer of private pension plans. B-223146, Oct. 7, 1986;
B-217281-0.M., Mar. 27, 1985; GAO, Pension Benefit Guaranty
Corporation: Statutory Limitation on Administrative Expenses Does Not
Provide Meaningful Control, GAO-03-301 (Washington, D.C.: Feb. 28,
2003), at app. II. Compare B-307849, Mar. 1, 2007 (since PBGC did not
have authority to retain reimbursements for financial analysis
services, amounts received must be deposited into the general fund of
the Treasury).
* Power program funds (revenue and bonds) of the Tennessee Valley
Authority. 64 Comp. Gen. 756, 761-62 (1985).
* Bonneville Power Administration Fund, a revolving fund consisting of
all receipts of the Bonneville Power Administration, proceeds from the
sale of its bonds, and appropriations Congress may make (16 U.S.C. §
838i). 67 Comp. Gen. 8, 10 (1987).
* Capitalization obtained from the United States Treasury under
borrowing authority. B-223857, Feb. 27, 1987 (Commodity Credit
Corporation); B-193573, Dec. 19, 1979 (Saint Lawrence Seaway
Development Corporation).
* Filing fees collected under 28 U.S.C. § 1931 collected and retained
for the operation and maintenance of the courts of the United States.
73 Comp. Gen. 321 (1994).
It makes no difference whether the statutory language authorizing
retention and use is found in an appropriation act or in other
legislation. B-193573, Dec. 19, 1979. The fact that the fund has
repaid its initial capitalization to the Treasury and has become self-
supporting is also immaterial. 60 Comp. Gen. 323, 326 (1981).
These cases have one important thing in common—they all involve wholly
owned government corporations (plus Bonneville, the functional
equivalent of one). This should not seem strange because, considering
the various types of government-created corporations (wholly owned,
mixed-ownership, GSEs, so-called "private," etc.), the wholly owned
government corporation is closest to an agency.
This being the case, application of the principle to a mixed-ownership
government corporation, although possible in theory and perhaps even
desirable in some instances, would seem less appropriate. Thus,
assessments levied on insured banks by the Federal Deposit Insurance
Corporation (FDIC) and used to pay the FDIC's operating expenses are
not regarded as "appropriated funds." 23 Comp. Gen. 83 (1943); B-
20892, Dec. 11, 1941; B-214157-0.M., Apr. 2, 1984, at 8-9. See also A-
91137, Apr. 11, 1938 (FDIC's assessment-derived funds, while not an
appropriation, are the equivalent of an appropriation for purposes of
availability for necessary expenses). (None of these cases use the
term "mixed-ownership" corporation because they all predate the
explicit legislative recognition of that term in the Government
Corporation Control Act.)
The Pension Benefit Guaranty Corporation (PBGC) illustrates a
situation in which funds in the hands of a wholly owned corporation
are not regarded as appropriated funds. The PBGC has two very
different functions: it insures certain private pension plans, and it
is authorized to serve as trustee for terminated plans. In B-217281-
0.M., Mar. 27, 1985, the issue was whether the PBGC had to follow the
federal procurement regulations in obtaining investment manager
services for (1) excess capital in its revolving funds and (2) assets
of terminated plans in its hands as trustee. As noted above, when the
PBGC is acting in its capacity as pension plan insurer, its revolving
funds are treated as appropriated funds. Accordingly, the procurement
regulations applied to PBGC when procuring services for the revolving
funds. However, when serving in its trustee capacity, the PBGC is
treated as a private fiduciary and its powers include collecting
amounts due the plan, paying plan benefits, liquidating plan assets,
and recapturing prior payments. 29 U.S.C. § 1342(d)(1)(B).[Footnote
156] The funds of terminated plans PBGC administers are trust funds,
privately created and privately funded, and are not appropriated
funds. Therefore, the PBGC is not bound by the federal procurement
regulations when procuring services for its trust funds. Similarly,
when using trust funds in its trustee capacity, the PBGC could modify
existing contracts and could enter into a contingent-fee arrangement
with outside counsel for litigation, without regard to the laws
governing the expenditure of appropriated funds. B-223146, Oct. 7,
1986; GAO-03-301, at app. II. In the case of an unincorporated agency,
the question of whether certain funds are appropriated funds has very
significant consequences. Appropriated funds, unlike nonappropriated
or private funds held by agencies for the benefit of others, "are
subject to the various restrictions and limitations on the uses of
appropriated moneys." 35 Comp. Gen. 615, 618 (1956). In the case of a
government corporation, the result is still to subject the corporation
to certain laws governing appropriated funds (or to determine the
scope of exemptions for "nonappropriated funds"), but, as discussed
next, the range of applicable laws is much narrower and varies
depending on the precise terms of a given corporation's governing
legislation.
c. Application of Fiscal Laws:
As we have seen, fiscal autonomy is one of the key features of
government corporations, and, in some cases, the primary impetus for
their creation. "Government corporations," GAO conceded long ago, "are
conceived not for the purpose of limiting the Government prerogative
... but of accelerating and enlarging it and of making it more
flexible." B-37981, June 1, 1944, at 52. The earliest battles,
centering on the effect of corporate status per se, were
inconclusive.[Footnote 157] Changes in the law since that time now
provide a framework
(1) "Character and necessity" provision:
GAO has often stated that the funds of "regular" agencies, including
the various forms of authority to retain and use receipts, are, absent
statutory provision to the contrary, "subject to the statutory
controls and restrictions applicable to appropriated funds." E.g., 63
Comp. Gen. 285, 287 (1984). In the corporate context, however, this
statement is too broad and must be qualified. B-193573, Dec. 19, 1979,
restated, B-217578, Oct. 16, 1986. The reason, and perhaps the most
significant element in the fiscal autonomy of a government
corporation, is what we will call the "character and necessity"
provision appearing in many, if not most, legislative charters. The
provision seems to have originated in the 1930s and there are several
variations. An example of the simplest form is 15 U.S.C. § 714b(j),
which provides that the Commodity Credit Corporation "shall determine
the character of and the necessity for its obligations and
expenditures and the manner in which they shall be incurred, allowed,
and paid." A variation is 33 U.S.C. § 984(a)(9), providing that the
Saint Lawrence Seaway Development Corporation "shall determine the
character of and the necessity for its obligations and expenditures,
and the manner in which they shall be incurred, allowed, and paid,
subject to provisions of law specifically applicable to Government
corporations." There is no material difference between these versions.
As we discussed throughout Chapter 4, the so-called purpose statute,
31 U.S.C. § 1301(a), prohibits the use of appropriations for other
than their intended purpose, although purposes are stated in
appropriations acts with varying degrees of specificity, leaving room
for administrative discretion. When you add "character and necessity"
authority to the discretion already inherent under 31 U.S.C. §
1301(a), the result is that a government corporation has much more
spending discretion than agencies do. In addition, it has the power to
make its own final and conclusive decisions. However, it is still
subject to the overall limitation that its discretion be exercised
"within the limitations and for the purposes of the statutes providing
[its] funds and prescribing [its] activities." 14 Comp. Gen. 698, 700
(1935). In this sense, the concept of purpose—using the standards of
corporate autonomy—along with the public policy concerns noted
earlier, may be said to define the outer limits of a corporation's
discretion. There is a further discussion of this with specific
corporate case studies in the section on program implementation in
section B.6.d of this chapter.
Another thing a "character and necessity" provision does is it permits
the corporation to avoid various rules established in case law that
result from application of the "necessary expense" rule to an agency's
appropriation. See Chapter 4, section C.5. The one that comes
immediately to mind is entertainment. A corporation empowered to
determine the character and necessity of its expenditures can spend
its money on the range of items discussed in Chapter 4, section C.5,
subject of course to any applicable statutory restrictions. B-127549,
May 18, 1956; B-35062, July 28, 1943. Accordingly, a corporation
operating with appropriated funds but without the "character and
necessity" provision, is subject to the same entertainment rules
agencies are. B-270199, Aug. 6, 1996. (The decision does not mention
the lack of "character and necessity" authority, but that was in fact
the case and indeed the essential prerequisite to applying the
rules.)[Footnote 158]
A corporation statutorily designated as "private," even though
government-created and government-financed, does not need the
"character and necessity" language, and may spend money on
entertainment unless statutorily restricted. B-131935, July 16, 1975
(Corporation for Public Broadcasting). Congress subsequently amended
the Corporation for Public Broadcasting's enabling legislation to
prohibit the use of appropriated funds for the entertainment of
federal, state, or local officials. 47 U.S.C. § 396(k)(2)(A).
Another category of expenditures legally unobjectionable under
"character and necessity" authority are items discussed in Chapter 4,
section C.13. Examples are:
* Physical examinations for certain employees of the Saint Lawrence
Seaway Development Corporation. 41 Comp. Gen. 531 (1962).
* Expenses necessary to qualify an employee to do his or her job. B-
2835, Apr. 18, 1939 (qualification as notary).
* Payment of travel expenses for chairman's spouse; installing storm
windows and door and window locks on chairman's house; paying for his
membership in a private tennis club. GAO, FOD-77-14 (Washington, D.C.:
Nov. 29, 1977) (untitled letter report).
Hazard insurance on various types of property is another type of
expenditure that is permissible under a corporations "character and
necessity" provision but is generally not available to agencies (see
Chapter 4, section 10). 16 Comp. Gen. 453 (1936) (Federal Housing
Administrator can insure property acquired in exchange for
debentures); B-200103, Mar. 5, 1981 (Commodity Credit Corporation
(CCC) can pay for hazard insurance on CCC-owned and stored
commodities). See also B-290162, Oct. 22, 2002; B-287209, June 3,
2002; 55 Comp. Gen. 1321 (1976); 11 Comp. Gen. 59 (1931). This applies
as well to creating a reserve for fire, theft, and similar losses. B-
123709-0.M., June 29, 1955.
Another major consequence of "character and necessity" authority is to
permit the corporation to avoid general statutory restrictions (as
opposed to restrictions specifically applicable to government
corporations). As GAO put it in B-34706, Dec. 5, 1947, at 3:
"Where [character and necessity] language appears in the act
chartering the corporation, there can be no question but that Congress
has determined that the Congressional or statutory rules otherwise
directing how the public monies shall be spent are not of their own
force to apply to the corporation, but rather that the corporation
shall determine for itself what methods, procedures, etc. should be
employed."
One example of a general statutory provision that corporations with
"character and necessity" language need not follow is 44 U.S.C. § 501,
requiring the Government Printing Office to do all printing and
binding for the government. (This provision is discussed in more
detail in section B.7.f of this chapter.) Two additional examples,
noted in B-193573, Dec. 19, 1979, are 5 U.S.C. § 3107 (prohibiting use
of appropriated funds to pay publicity experts) and 31 U.S.C. § 1345
[Footnote 159] (prohibiting use of appropriated funds to pay lodging
or feeding of nongovernment persons at meetings or conventions). See
also B-7067, July 10, 1940; B-3163, Apr. 24, 1939 (both decisions
examined now-obsolete portions of predecessor of 5 U.S.C. § 3106
restricting hiring of attorneys).
A formulation GAO has often used is that a wholly owned government
corporation with the power to determine the character and necessity of
its expenditures is subject to (1) its own charter (i.e., enabling
legislation); (2) the Government Corporation Control Act, if and to
the extent applicable; (3) applicable restrictions contained in annual
appropriation acts; and (4) statutes expressly applicable to wholly
owned corporations. E.g., B-58305-0.M., Apr. 10, 1951 (Federal
Intermediate Credit Banks, subsequently converted to mixed-ownership
but listed as wholly owned in the original Government Corporation
Control Act); B-58305-0.M., Mar. 8, 1951 (then Production Credit
Corporation); B-58306(2)-0.M., Nov. 14, 1950 (Commodity Credit
Corporation); B-58318-0.M., Oct. 27, 1950 (Export-Import Bank); B-
90250-0.M., Mar. 28, 1950 (corporate functions of Federal Housing
Administration).[Footnote 160] Similar statements appear in a number
of more recent decisions. E.g., B-289219, Oct. 29, 2002; B-217578,
Oct. 16, 1986.
A mixed-ownership corporation is subject to its own statutory charter,
the Government Corporation Control Act, if and to the extent
applicable, and applicable provisions in appropriation act. In
addition, it is subject to laws enacted after its enabling statute
that are specifically applicable to mixed-ownership corporations. See
B-58300-0.M., Nov. 30, 1950 (Federal Deposit Insurance Corporation
(FDIC)). Some earlier mixed-ownership corporations included the
"character and necessity" authority or its functional equivalent in
their enabling legislation. E.g., 12 U.S.C. § 1820(a) (FDIC "shall
determine and prescribe the manner in which its obligations shall be
incurred and its expenses allowed and paid"). Later legislation may
not have such language. E.g., Pub. L. No. 93-236, title II, 87 Stat.
985, 990 (Jan. 2, 1974) (the now-defunct U.S. Railway Association).
For a mixed-ownership corporation, at least one not receiving a direct
appropriation, this specific language is probably not necessary. Our
review of cases involving the FDIC indicates that its autonomy is
abetted by the "character and necessity" clause, but that it would
most likely have the same degree of autonomy without it, by virtue of
its mixed-ownership status and the source of its funding. For example,
the FDIC is not required to follow the obligation recording statute,
31 U.S.C. § 1501 (B-121541, Dec. 30, 1954); the statutory restrictions
on the purchase of motor vehicles and aircraft, 31 U.S.C. § 1343 (B-
94685-0.M., May 8, 1950); or the statutory provision restricting the
funding of interagency groups, 31 U.S.C. § 1346 (B-174571, Jan. 5,
1972).
(2) "Without regard" clause:
In addition to the various minor linguistic variations, there is one
major variety of the "character and necessity" clause, illustrated by
the Federal Crop Insurance Corporation statute quoted above in section
6.a of this chapter. It confers the "character and necessity" power,
"without regard to the provisions of any other laws governing the
expenditure of public funds." 7 U.S.C. § 1506(i). Clearly, as a matter
of basic statutory construction (or reading the English language),
this version confers more than the basic "character and necessity"
clause that does not include the "without regard" language. For
example, in B-94115, Nov. 15, 1950, GAO reviewed the "without regard"
clause of the Reconstruction Finance Corporation (RFC). GAO determined
that the clause permitted the RFC to avoid laws existing on May 25,
1948, the date of the clause's enactment, even laws expressly
applicable to government corporations. However, the broad latitude of
the "without regard" clause had been modified by the enactment after
1948 of legislation expressly applicable to government corporations.
Id. Several months earlier, the Comptroller General had told GAO's
auditors essentially the same thing with respect to the corporate
functions of the Federal Housing Administration. B-90250-0.M., Mar.
28, 1950. The "without regard" language, then, gives the corporation,
in addition to everything it gets under the basic "character and
necessity" clause, the further ability to avoid laws expressly
applicable to government corporations (but not, of course,
specifically applicable to the particular corporation), provided the
laws are on the books at the time the "without regard" language was
enacted.[Footnote 161]
While a government corporation with a "character and necessity"
provision which includes the "without regard" clause has considerable
discretion, the discretion is not unlimited. It is "a legal discretion
to be exercised within the limitations and for the purposes of the
statutes providing the funds and prescribing the activities of the
[corporation]." 14 Comp. Gen. 698, 700 (1935). Nor does the "without
regard" clause place the corporation "beyond all law or accountability
with respect to its expenditures." 14 Comp. Gen. 755, 758 (1935). GAO
has not attempted to draw the outer limits of this discretion, other
than to suggest a broad "public policy" limitation. The practice GAO
found illegal in 14 Comp. Gen. 755 was permitting attorneys employed
by a government corporation to represent, on a fee basis, private
parties in their dealings with the corporation. "The permitting of
employees to practice before the public agency by which employed would
seem so improper and so out of line with sound public policy as to
suggest no need for a prohibiting statute." Id. at 758.
The corporation's discretion must be exercised in accordance with the
corporation's established decision-making machinery and procedures.
Rubber-stamping an expenditure already made—merely because it was made—
"does not constitute the exercise of discretion ... but a condoning of
what has already been done." 14 Comp. Gen. 698, 700. See also 18 Comp.
Gen. 479 (1938); B-56550, Mar. 28, 1946. This does not mean that the
decision-making machinery must be invoked for each individual
transaction. In some cases, the exercise of discretion on a
categorical basis is legitimate, as long as it is done under the
established procedures and documented. E.g., A-98289, A-60495, Jan.
18, 1939 (corporation's board issued the requisite formal board
resolution stating that the requirement to have printing done at
Government Printing Office is not applicable to the corporation).
(3) Laws expressly applicable:
It is clear at this point that it is important to know what laws are
expressly applicable to government corporations. GAO prepared a list
many years ago which is still useful (B-34706, B-56550-0.M., Nov. 9,
1949), but amendments, recodifications, and inter-title transfers,
etc., over the years have in many cases separated the substantive and
definitional provisions. Consider, for example, the Administrative
Expenses Act of 1946, ch. 744, 60 Stat. 806 (Aug. 2, 1946). After the
first 17 sections set out substantive provisions, section 18 provided
the following definitions: "The word `department' as used in this Act
shall be construed to include wholly owned Government corporations....
The word 'appropriation' shall be construed as including funds made
available by legislation under ... the Government Corporation Control
Act." Id.
Thus, any of the first 17 provisions containing the word "department"
or the word "appropriation" is expressly applicable to wholly owned
government corporations. E.g., 27 Comp. Gen. 757, 758 (1948)
(Tennessee Valley Authority may avail itself of authority in section 1
of Administrative Expenses Act, now found in 5 U.S.C. § 5724, to pay
travel expenses incident to permanent change of station). The
provisions of the Administrative Expenses Act ended up in various
locations in the United States Code. Some of the provisions that found
their way into title 5 of the United States Code have retained the
appropriate definitional language. E.g., 5 U.S.C. §§ 3109 (employment
of experts and consultants), 7903 (purchase of special clothing or
protective equipment). As we noted in section B.2.a of this chapter,
sometimes it is necessary to look beyond the provision itself. For
example, for purposes of title 5, the term "executive agency" includes
government corporations (5 U.S.C. § 105), which in turn means
corporations "owned or controlled by the government of the United
States" (5 U.S.0 § 103(1)). Under 5 U.S.C. § 103(2), the term
"government controlled corporation" does not include "a corporation
owned by the government of the United States," and, as we noted in
section B.2.a. of this chapter, refers to mixed-ownership government
corporations such as those listed in 31 U.S.C. § 9101(2).
The travel expense authority of 5 U.S.C. § 5724 requires this kind of
analysis. Section 5724(a) of title 5 of the United States Code refers
to "agency." Section 5701(1) of title 5 defines agency as including
"executive agency" (which includes wholly owned corporations) but not
"government controlled corporation." See 5 U.S.C. § 5701 note.
Applying 5 U.S.C. § 103 again, section 5724 is applicable to wholly
owned government corporations but not mixed-ownership corporations.
Some of the provisions of the Administrative Expenses Act are now in
title 31 of the United States Code. For example, section 11 amended
the first sentence of the advance payment statute to read, "No advance
of public money shall be made in any case unless authorized by the
appropriation concerned or other law." See 31 U.S.C. § 3324. The 1982
recodification of title 31 was not intended to make substantive
changes. Therefore, applying the definitions contained in section 18,
the advance payment statute applies to wholly owned corporations. GAO
applied the identical reasoning to conclude that statutory
restrictions on home-to-work transportation, 31 U.S.C. § 1344 (whose
source is section 16 of the Administrative Expenses Act) apply
expressly to wholly owned government corporations. B-210555.11, Apr.
1, 1986. However, that home-to-work statute was completely overhauled
later in 1986. The revised statute expressly applies to government
corporations and government controlled corporations as defined in 5
U.S.C. § 103 (31 U.S.C. §§ 1344(h)(2)(D) and (E)) and specifically
includes mixed-ownership corporations subject to the Government
Corporation Control Act in 31 U.S.C. §§ 9101-9110 (31 U.S.C. §
1344(h)(2)(F)), thus covering all the terminology.
Still another provision of the Administrative Expenses Act, section 9,
amended the statutory requirement for advertising proposals for
purchases and contracts for supplies and services now found in 41
U.S.C. § 5. That provision specifically applies only to the
administrative transactions of wholly owned corporations.
A similar situation occurs in the apportionment requirement of 31
U.S.C. § 1512. The apportionment provisions were substantially
overhauled in 1950. The revision included language making these
provisions applicable to "any corporation wholly or partly owned by
the United States which is an instrumentality of the United States"
(Act of September 6, 1950, ch. 896, § 1211, 64 Stat. 595, 766). The
1982 recodification of title 31, United States Code, dropped this
definitional language. The former Federal Savings and Loan Insurance
Corporation, chartered in the 1930s, argued that its nonadministrative
funds should not be subject to apportionment because it was empowered
to determine the character and necessity of its expenditures without
regard to any other provision of law governing the expenditure of
public funds. Upon a detailed analysis, the Justice Department's
Office of Legal Counsel concluded that the "specifically crafted,
later-enacted" apportionment law applied to all of the corporation's
funds, administrative and nonadministrative. 7 Op. Off. Legal Counsel
22, 26 (1983). GAO had reached the same conclusion in 43 Comp. Gen.
759 (1964). (Apparently, the FSLIC never tried to argue in either case
that its "without regard" power should affect the applicability of the
later-enacted apportionment provisions to its administrative funds.) A
statutory exception is 12 U.S.C. § 1817(d) (funds of Federal Deposit
Insurance Corporation, however derived, not subject to apportionment).
(4) Appropriation act provisions:
Another source of expressly applicable laws is appropriation acts.
Worthy of note is section 808 of the Transportation, Treasury, Housing
and Urban Development, the Judiciary, the District of Columbia, and
Independent Agencies Appropriation Act, 2006, Pub. L. No. 109-115,
title VIII, § 808, 119 Stat. 2396, 2497 (Oct. 30, 2005) (emphasis
added):
"Funds made available by this or any other Act for administrative
expenses in the current fiscal year of the corporations and agencies
subject to [the Government Corporation Control Act] shall be
available, in addition to objects for which such funds are otherwise
available, for rent in the District of Columbia; services in
accordance with 5 U.S.C. 3109; and the objects specified under this
head, all the provisions of which shall be applicable to the
expenditure of such funds unless otherwise specified in the Act by
which they are made available ..."
The ancestor of this provision first appeared in the very first
Government Corporation Appropriation Act, 1947 (Act of July 20, 1946,
ch. 589, § 301, 60 Stat. 586, 595), enacted a short 6 months after the
Government Corporation Control Act. Since 1972, this provision has
appeared in the Treasury-General Government appropriation acts, now
the Transportation, Treasury, Housing and Urban Development, the
Judiciary, the District of Columbia, and Independent Agencies
appropriation acts, in the title containing the governmentwide general
provisions, so "this head" refers to that title (e.g., title VIII in
Public Law 109-115). Therefore, there may be other laws expressly
applicable to government corporations, by virtue of the italicized
language above, in the pertinent title each year. Although this
provision has been around since 1946, GAO does not appear to have
addressed the italicized language in any decision or opinion.
There is no governmentwide definition of "administrative expenses."
Generally, the term refers to overhead-type expenses, like certain
salaries, office supplies and equipment, payroll taxes, and telephone
and other utility expenses. Leonard v. S.G. Frantz Co., 49 N.Y.S.2d
329, 332-33 (N.Y. App. Div. 1944). In contrast, nonadministrative or
program expenses are things such as loan guarantee or subsidy
payments. GAO has suggested that a fixed definition in other than the
most general terms would probably be impossible because the status of
a given expense depends on the particular program, the governing
legislation, and congressional intent, and what may be an
administrative expense under one program or law may not be under
another. B-24341, Mar. 12, 1942. Program statutes or regulations may
include their own definitions, which of course would control. E.g., 12
U.S.C. § 1702 (National Housing Act). Congress may also address the
issue in appropriation acts by providing that specific items of
expense shall or shall not be considered administrative expenses for
purposes of a statutory limit. E.g., Pub. L. No. 105-78, 111 Stat.
1467, 1472 (Nov. 13, 1997) (Pension Benefit Guaranty Corporation);
Pub. L. No. 105-118, 111 Stat. 2386, 2387 (Nov. 26, 1997) (Export-
Import Bank).
Another form of language Congress has used is a restriction applicable
to "any appropriation contained in this or any other Act, or of the
funds available for expenditure by any corporation or agency."
[Footnote 162] This language has been held to embrace both wholly
owned corporations (B-114823, Dec. 23, 1974, Export-Import Bank) and
mixed-ownership corporations (B-164497(5), Mar. 10, 1977, U.S. Railway
Association).
(5) Other provisions of title 31, United States Code:
The post-recodification title 31 defines "agency" to mean "a
department, agency, or instrumentality of the United States
Government." 31 U.S.C. § 101. The codification note following 31
U.S.C. § 1511 makes it clear that "instrumentality" is intended to
include those government corporations which are instrumentalities of
the United States. This applies to all of title 31 unless another more
specific provision intervenes, which it does on several occasions. For
example, GAO's authority to prescribe accounting principles and
standards (31 U.S.C. § 3511) does not apply to government
corporations. B-207435, July 7, 1982. This is because, for purposes of
the chapter in which section 3511 appears, the definition of
"executive agency" specifically excludes corporations or other
entities subject to the Government Corporation Control Act. 31 U.S.C.
§ 3501. Similarly, 31 U.S.C. §§ 717 (program evaluations) and 720
(agency reports on GAO recommendations) include their own definitions
under which they apply to wholly owned, but not mixed-ownership,
government corporations.
The Antideficiency Act's prohibition against overobligation and
overspending, 31 U.S.C. § 1341, has been applied to wholly owned
corporations with "character and necessity" authority (see section
B.6.c(1) of this chapter) because the funds used by the corporations
to finance their operations were appropriated funds subject to the
restrictions imposed by the Antideficiency Act. B-223857, Feb. 27,
1987 (Commodity Credit Corporation); B-135075-0.M., Feb. 14, 1975
(Inter-American Foundation). In B-223857, GAO found also that the
Commodity Credit Corporation violated the voluntary services
prohibition, 31 U.S.C. § 1342, by directing contractors to continue
performance after its borrowing authority had been depleted. A
government-created corporation statutorily designated as private or
not an agency or instrumentality of the United States is not subject
to the Antideficiency Act. B-308037, Sept. 14, 2006 (Legal Services
Corporation). Congress, of course, could choose to subject such a
corporation to the Antideficiency Act by amending its enabling statute
or imposing restrictions specifically when it appropriates funds to
the corporation. 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 fund appropriated herein which is prohibited by this
Act shall be deemed a violation of 31 U.S.C. § 1341").
The statute which prescribes the standards for recording obligations,
31 U.S.C. § 1501, also applies to government corporations which are
agencies or instrumentalities of the United States. E.g., 34 Comp.
Gen. 825 (1954) (GAO's initial guidance on implementing the then
recording statute); B-123943-0.M., July 1, 1955 (Institute of Inter-
American Affairs) See also United States v. American Renaissance
Lines, Inc., 494 F.2d 1059 (D.C. Cir.), cert. denied, 419 U.S. 1020
(1974) (Commodity Credit Corporation), and 37 Comp. Gen. 691 (1958)
(Saint Lawrence Seaway Development Corporation), in which the court
and GAO, respectively, treated the statute as applicable without
directly addressing the issue. The original enactment of 31 U.S.C. §
1501 was section 1311 of the Supplemental Appropriations Act for 1955
(Pub. L. No. 83-663, ch. 935, 68 Stat. 800, 830 (Aug. 26, 1954)).
The Economy Act, Act of June 30, 1932, § 601, 47 Stat. 417, as
amended, applies to "independent establishments of the Government,"
which would include wholly owned government corporations and entities
chartered as "instrumentalities of the government." See 31 U.S.C. §
1535 note; B-116194, Oct. 5, 1953 (since the Panama Canal Company was
created as an instrumentality of the government, it is an independent
establishment within the meaning of that term in the Economy Act); B-
39199, Jan. 19, 1944 (Rubber Development Corporation, as a wholly
owned subsidiary of the Reconstruction Finance Corporation, which in
turn is owned by the United States, is an independent establishment
under the Economy Act). The corporation can be the requisitioning
agency (13 Comp. Gen. 138 (1933); B-27842, Aug. 13, 1942), or the
performing agency (B-116194, Oct. 5, 1953; B-39199, Jan. 19, 1944; A-
46332, Jan. 9, 1933). If a corporation has specific charter authority
to provide goods or services to other government establishments, the
specific authority will displace the Economy Act. E.g., 44 Comp. Gen.
683 (1965) (sale of electric power by Tennessee Valley Authority to
other government agencies).
The so-called "Stale Check Act," Pub. L. No. 80-171, ch. 222, 61 Stat.
308 (July 11, 1947), codified at 31 U.S.C. § 3328, prescribes
requirements for handling Treasury checks. The original language
applied expressly to checks "drawn by wholly owned and mixed-ownership
Government corporations," except for "transactions regarding the
administration of banking and currency laws." Pub. L. No. 80-171, § 1.
The 1982 recodification dropped the definitional language as
"surplus." See 31 U.S.C. § 3328 note. Nevertheless, in view of the
original language, the statute still applies to both wholly owned and
mixed-ownership government corporations. Id.; see also B-70248, Nov.
6, 1947; B-100893-0.M., Mar. 27, 1951. The statute also has been held
applicable to a government corporation with "character and necessity"
power including the "without regard" clause (see sections B.6.c(1) and
(2) of this chapter for a discussion of these clauses). B-70248, Sept.
1, 1950.
The decision in B-70248, Sept. 1, 1950, involved the Reconstruction
Finance Corporation, which received its "without regard" authority in
1948, a year after enactment of the Stale Check Act. At first glance,
therefore, this would appear to contradict our earlier discussion in
section B.6.c(2) that a "without regard" clause permits the
corporation to avoid expressly applicable laws already in existence.
The answer is that it depends on what kind of law you're talking about
and whose discretion or responsibility is at issue. The decision
stated:
"Where the Corporation has decided a payment should be made, and
issued a check drawn on the Treasurer of the United States, it appears
that the discretion of the Corporation has then been exercised.... The
obligation after issuance of the checks ... appears clearly to be a
Treasury obligation, not one of the Reconstruction Finance
Corporation. As such, it does not appear to be one over which the
Corporation's determination is final and conclusive, but one over
which the Treasury Department ... under the 'Stale Check Act' [has]
jurisdiction."
B-70248, Sept. 1, 1950, at 5.
Another provision with relevance to government corporations is 31
U.S.C. § 3301(a)(1), which directs the Secretary of the Treasury to
"receive and keep public money." This provision, as reinforced by the
Government Corporation Control Act (31 U.S.C. §§ 9107(b) and (c)),
applies to the appropriated funds of a government corporation (both
wholly owned and mixed-ownership) unless waived pursuant to section
9107(c). Thus, a government corporation is not entitled, solely by
virtue of its corporate status, to have its appropriation paid over
directly to it "up front" in a lump sum. Rather, like any other
agency, the money stays in the Treasury until needed for a valid
purpose. 21 Comp. Gen. 489 (1941). Congress can, of course, provide
differently. An example is the Corporation for Public Broadcasting,
whose appropriations "shall be disbursed by the Secretary of the
Treasury on a fiscal year basis." 47 U.S.C. § 396(k)(2)(B).
A final provision we will note is 31 U.S.C. § 3302(b), the
miscellaneous receipts statute. If "character and necessity" authority
is one major leg upon which the fiscal autonomy of a government
corporation rests, user fee or revolving fund-type financing is the
second. If a government corporation is realistically expected to
perform business-type functions with any efficiency, the requirement
to deposit all receipts in the Treasury and await congressional
appropriations would be a serious impediment, especially for federally
chartered but private, nonprofit entities like the State Justice
Institute, which by statute is not to be considered a department,
agency, or instrumentality of the government. B-307317, Sept. 13,
2006. Therefore, money received by the State Justice Institute would
not be money received "for the government," so the miscellaneous
receipts statute does not apply. Id. However, other types of
government corporate entities, which act as agents of the government
would need statutory authority to overcome 31 U.S.C. § 3302(b);
corporate status alone is not enough. B-300218, Mar. 17, 2003; 52
Comp. Gen. 54, 55 (1972); 5 Comp. Gen. 1004 (1926). For most
corporations, the solution is the charter authority to retain and
reuse receipts, the exact type of receipts varying with the particular
corporation. These are called "public enterprise revolving funds" and
effectively displace 31 U.S.C. § 3302(b).[Footnote 163] Revolving
funds are covered in Chapter 12, section C, and we will not repeat
that discussion here, except to emphasize that the legislation
creating the fund determines what can go into it and what it can be
used for. For example, the statute for the Overseas Private Investment
Corporation (OPIC), 22 U.S.C. § 2196, uses very broad language—"all
revenues and income... from whatever source derived." See 52 Comp.
Gen. 54 (1972) (interest earned by OPIC on foreign currencies held in
designated depositaries pending their sale for dollars may be retained
and used).
Along similar lines, a provision in a 1945 appropriation act limited
expenditures for long-distance telephone calls to 90 percent of the
agency's budget estimate for that purpose. The resulting savings were
to be deposited as miscellaneous receipts. GAO interpreted the
provision as contemplating "the return of such funds to the source
from which made available," and advised the Commodity Credit
Corporation that it could retain its savings and did not have to
deposit them in the general fund of the Treasury. 24 Comp. Gen. 514,
517 (1945).
d. Program Implementation:
Thus far, our discussion of fiscal autonomy has focused on the ability
of a government corporation to avoid laws applicable to the rest of
the government. There is another dimension, however. The discretion of
a government corporation also helps determine the scope of the
corporation's program activities, wholly apart from questions of
compliance with specific laws.
It would seem hardly open to question that the very common-sense
statute, 31 U.S.C. § 1301(a), which prohibits the use of
appropriations for other than their intended purposes, applies to the
"appropriated funds"—-as we have described that term earlier—-of a
government corporation. The analytical approach to purpose
availability is essentially the same for a corporation as for
agencies. The expenditure must bear a logical relationship to
furthering some authorized function or activity, and must not be
otherwise prohibited or otherwise expressly provided for. For example,
it is within the discretion of Federal Prison Industries, Inc., (FPI)
to engage in the business of manufacturing envelopes for sale to the
rest of the government. B-240914, Aug. 14, 1991. While FPI is
generally supposed to seek out more labor-intensive activities, this
is not an absolute legal requirement, and the corporation could
properly determine that envelope manufacturing would further its
objectives. Similarly, the Saint Lawrence Seaway Development
Corporation could use its funds for minor work on the Canadian side of
the border if closely related and ancillary to its primary works on
the United States side. 34 Comp. Gen. 309 (1954).
While the corporations cited in the preceding paragraph are wholly
owned, the principle applies equally to funds appropriated to a mixed-
ownership corporation. For example, the National Credit Union
Administration could not avoid restrictions on paying relocation
expenses to one of its officials by transferring the charge to the
accounts of the Central Liquidity Facility (CLF) where the official
was clearly an employee of, and whose salary was paid entirely by, the
Administration and not the CLF. 63 Comp. Gen. 31, 36-37 (1983).
As we noted in section B.6.c(1) of this chapter, when you add
"character and necessity" authority to the discretion already inherent
under 31 U.S.C. § 1301(a), the result is that a government corporation
has much more spending discretion than other agencies, although it is
still subject to the overall limitation that its discretion be
exercised "within the limitations and for the purposes of the statutes
providing [its] funds and prescribing [its] activities." 14 Comp. Gen.
698, 700 (1935).
An illustration of how all this can work is B-48184, Mar. 14, 1945.
The Federal Housing Administration (FHA) had acquired title to a
rental housing development under its mortgage insurance program. The
FHA could retain and operate the development or could, within its
discretion, sell it. A major drawback was that, except for a "low
grade combination grocery store and beer parlor," there were no
shopping facilities in the development or nearby area. After
unsuccessfully trying to interest private capital, the FHA proposed
using its own funds to provide a shopping center consisting of a food
store, drug store, barber shop, beauty shop, shoe repair shop,
laundry, gasoline station, and a management office. FHA thought that
the shopping center would help significantly to make the development
livable during the period of FHA operation, and would enhance its
value if and when the FHA decided to sell it. The FHA had statutory
authority to "deal with, complete, rent, renovate, modernize ... or
sell" the property, and to determine the necessity of its
expenditures. Id. at 4. In light of this authority and the FHA's
justification, GAO concurred with the proposal, notwithstanding the
lack of statutory authority for new construction.
A sampling of cases involving three additional entities—the Commodity
Credit Corporation, the Bonneville Power Administration, and Amtrak—
further illustrates the role of corporate discretion, and its
limitations, in program implementation.
(1) Commodity Credit Corporation:
Created in 1933, the Commodity Credit Corporation (CCC) operates a
variety of price support programs for agricultural commodities
(including such things as direct subsidy payments and loans) and
export programs designed to develop foreign markets for American
agricultural products. It is a wholly owned government corporation and
"an agency and instrumentality of the United States, within the
Department of Agriculture." 15 U.S.C. § 714. It is unusual in that it
has no employees. It is managed by a presidentially appointed board of
directors (15 U.S.C. § 714g), but its day-to-day operations are
carried out by Department of Agriculture employees who, in effect,
wear two hats. It has the authority to determine the character and
necessity of its expenditures. 15 U.S.C. § 714b(j).
In a 1982 case, the Justice Department's Office of Legal Counsel
reviewed two programs that CCC had created to promote agricultural
exports by guaranteeing exporters or their financing institutions
against certain risks. There was no explicit statutory authority for
the programs, but CCC is authorized to "use its general powers" to
"export or cause to be exported, or aid in the development of foreign
markets for, agricultural commodities." 15 U.S.C. § 714c(f). One of
those general powers is the "character and necessity" power discussed
in section B.6.c(1) of this chapter. Since the programs were
unquestionably designed to promote exports, they had adequate
statutory authority. 6 Op. Off. Legal Counsel 233 (1982). The
following year, GAO reviewed payments made under these programs to
United States banks which had financed exports to the then Polish
People's Republic. While the CCC had not strictly complied with its
own regulations, the deviations were essentially on matters of
procedure, which the CCC could waive. Therefore, GAO found nothing
objectionable. B-208610, Sept. 1, 1983.
In B-213761, July 27, 1984, GAO considered aspects of the CCC's
tobacco price support program. Specifically, there were differences
between the procedures Treasury used in charging interest and
crediting repayments against loans to the CCC and the procedures the
CCC used in charging interest and crediting repayments on loans it
made to tobacco producers. The impact was to increase the amount of
the CCC's net losses, for which appropriations are made annually.
While GAO felt that the CCC should change its procedures to more
closely align with Treasury's procedures, and had made this
recommendation on more than one occasion, the CCC was under no legal
requirement to do so. The terms and conditions of its loans were
within its discretion.
Much of the detail in CCC's programs comes from its regulations. See
generally 7 C.F.R. subtitle B, ch. XIV. The extent to which it may
deviate with impunity from the terms of its regulations suggests
another test of the range of the corporation's discretion. A 1965 case
involved price support payments to tobacco producers under regulations
which made the payments available only for sales within the annual
normal marketing season. A temporary funding shortage forced
suspension of payments. The question was whether, once the funds
became available, the CCC could make payments to producers for sales
occurring shortly after the normal marketing season. If legal
liability to those producers could be established, the answer of
course would be yes. GAO did not think it could, but found the matter
sufficiently doubtful, especially in light of prior practice, and
therefore advised the CCC that the payments would be unobjectionable.
44 Comp. Gen. 735 (1965). As noted above, the CCC, like any other
government agency, can deviate from procedural regulations, at least
as long as the action does not prejudice other parties. Its discretion
does not extend, however, to retroactively waiving substantive
regulations without statutory authority. 53 Comp. Gen. 364 (1973); B-
208610, Sept. 1, 1983.
Cases involving the price support program for milk and milk products
illustrate a situation in which corporate discretion must be
subordinated to the terms of the program statute. The pertinent law
provided that price support "shall be provided through loans on, or
purchases of, milk and the products of milk and butterfat."
Agricultural Act of 1949, Pub. L. No. 81439, title II, § 201(c), 63
Stat. 1051, 1053 (Oct. 31, 1949), currently amended and codified at 7
U.S.C. § 1446(c). Some within Agriculture wanted to make direct price
support payments, relying on CCC's broad general powers. Both the
Department's Solicitor and the Attorney General agreed that under
existing law the CCC is limited to loans on, and purchases of, dairy
products "in supporting the price of milk and butterfat to producers."
See 41 Op. Att'y Gen. 183, 187 (1954). The CCC's general powers
"cannot reasonably be deemed to enlarge the specific powers granted in
[the price support statute]." Id. at 186. Agriculture then proposed to
purchase the products at one price and sell them back to the same
parties at a lower price, without the products ever moving. GAO
determined that this was not a bona fide purchase and that the
payments were therefore unauthorized. B-124910, Aug. 15, 1955. Upon
GAO's determination of unauthorized payments, Justice proceeded to
initiate recovery of the amounts improperly paid. This determination
has been upheld by at least three courts of appeals, which agreed that
the payments were illegal and could be recovered.[Footnote 164] See
also B-211462-0.M., Oct. 31, 1983 (statutory payment limitation
applies to in-kind payments as well as cash, CCC's broad discretion
notwithstanding).
In 1961, CCC made another proposal, strikingly similar on the surface.
The CCC would accept grain in satisfaction of loans it had made to the
producer, and then sell the grain—which never moved—back to the same
producer at current support rates. This case was different, however.
The resale back to the producer was under an emergency assistance
program, separate and distinct from the program under which the loans
had been made. There was no lack of genuineness to the transaction,
and selling back to the same producer made sense because it would save
money for all concerned by eliminating moving and handling charges.
Accordingly, GAO found this proposal to be within the CCC's authority
and discretion. 40 Comp. Gen. 571 (1961).
An illustration of an expenditure expressly "otherwise provided for"
is B-142011, June 19, 1969, very similar in principle to 63 Comp. Gen.
31 (1983), the Central Liquidity Facility decision summarized earlier
in section B.6.d of this chapter. Some had suggested that the
Agriculture Department could avoid a limitation in its salaries and
expenses appropriation by having certain salaries paid from CCC funds.
Agriculture felt this would be improper. GAO agreed:
"We see no significant distinction between using an otherwise
available general appropriation for a particular object, when there is
a specific appropriation for such object, and using corporate funds
for a purpose for which a specific appropriation has been made, in
order to avoid a limitation pertaining to the specific appropriation."
B-142011, June 19, 1969, at 12.
A case in which the expenditure bore no relationship to a legitimate
corporate purpose is B-129650, May 11, 1977. A practice had developed
of using the CCC revolving fund to purchase foreign currencies to be
used for congressional travel expenses, beyond the limited authority
then found in 22 U.S.C. § 1754(b) (1975). Finding no authority for
this practice, the decision stated, at page 3:
"While included among the general powers of the CCC is the authority
to determine the character and necessity of its expenditures ... the
broad administrative discretion thereby conferred must be exercised in
conformity with the congressional purpose of the CCC ... and in
accordance with the specific powers granted to the CCC [by
statute].... Nothing in these provisions ... suggest[s] a
congressional intent to allow conversions of dollar funds to foreign
currencies for use for congressional travel."[Footnote 165]
(2) Bonneville Power Administration:
The Bonneville Power Administration is one of the four Department of
Energy regional power marketing administrations, which were
established to "sell and transmit the power generated at various
federal hydroelectric plants."[Footnote 166] Created in 1937,
Bonneville markets and transmits electric power in the Pacific
Northwest.[Footnote 167] It is not a government corporation but "an
office in the Department of [Energy] ... under the jurisdiction and
control of the Secretary of [Energy]." 16 U.S.C. § 832a(a).[Footnote
168] Nevertheless, its statutory powers are comparable to those of a
wholly owned government corporation. It is financed through a
revolving fund,[Footnote 169] 16 U.S.C. § 838i, and has the following
general powers:
"Subject only to the provisions of this Act, the Administrator is
authorized to enter into such contracts, agreements, and arrangements,
including the amendment, modification, adjustment, or cancellation
thereof and the compromise or final settlement of any claim arising
thereunder, and to make such expenditures, upon such terms and
conditions and in such manner as he may deem necessary."
"The administrator may make such expenditures for offices, vehicles,
furnishings, equipment, supplies, and books; for attendance at
meetings; and for such other facilities and services as he may find
necessary for the proper administration of this Act."
16 U.S.C. §§ 832a(f), 832h(b) (respectively).
Although not a corporation, Bonneville is subject to the Government
Corporation Control Act provisions for wholly owned corporations. 16
U.S.C. § 838i(c). Thus, Bonneville has essentially the same range of
spending discretion as a wholly owned corporation. It is also subject
to the same overall purpose limitation which, in addition to 31 U.S.C.
§ 1301(a) (the purpose statute), is spelled out in 16 U.S.C. § 838i(c)
("Moneys heretofore or hereafter appropriated shall be used only for
the purposes for which appropriated").
Before the enactment of 16 U.S.C. § 832a(f), Bonneville's spending
discretion was not materially different from that of other government
agencies. E.g., B-49169, May 5, 1945 (appropriations unavailable for
entertainment). However, the enactment of that provision in October
1945 made a material change:
"The legislative history of [16 U.S.C. § 832a(f)] indicates that its
purpose was to free the Administration from the requirements and
restrictions ordinarily applicable to the conduct of Government
business and to enable the Administrator to conduct the business of
the project with a freedom similar to that which has been conferred on
public corporations carrying on similar or comparable activities."
B-105397, Sept. 21, 1951, at 3.
Naturally, anything Bonneville could do before the amendment was
unaffected. An example would be 20 Comp. Gen. 566 (1941) (Bonneville's
appropriations available for photographic identification cards for its
employees). Other examples, validated under 16 U.S.C. § 832h(b), which
predated § 832a(f), are 18 Comp. Gen. 843 (1939) (purchase of motion
picture equipment to record key aspects of construction program), and
B-25800, May 20, 1942 (expenses of attendance at meetings).
The latitude given Bonneville has enabled it to structure its dealings
to reflect the nature of the business in which it is involved, the
characteristics of the geographical region in which it operates, and
changing circumstances. In a 1962 case, for example, Bonneville
proposed an agreement with the Washington Public Power Supply System
(WPPSS) under which WPPSS would furnish to Bonneville electric power
purchased from the Atomic Energy Commission's Hanford reactor, and
Bonneville would provide "firm power" (i.e., not subject to
interruptions) in exchange. The agreement would terminate if the
reactor were discontinued prior to commencement of commercial
operations, in which event Bonneville would reimburse WPPSS for
certain expenses incurred up to that point. As long as the Atomic
Energy Commission's participation received congressional approval, GAO
found no problem with Bonneville's authority to enter into the
agreement. B-149016, B-149083, July 6, 1962.[Footnote 170]
In 46 Comp. Gen. 349 (1966), Bonneville was acquiring high-powered
circuit breakers, and decided to spread the risk among several
manufacturers to minimize risk of major power failure until the
circuit breakers had been in service for sufficient time to assure
that they were free from defects. Bonneville's discretion permitted it
to do this, and to exclude from the solicitation two firms from which
it had already purchased circuit breakers.
Bonneville is required to give "preference and priority to public
bodies and cooperatives" in disposing of electric energy generated at
a Bonneville project. 16 U.S.C. § 832c(a). It is also authorized to
sell electric power "either for resale or direct consumption, to
public bodies and cooperatives and to private agencies and persons,"
as well as to other federal agencies. 16 U.S.C. § 832d(a). While
Bonneville is thus authorized to sell directly to private consumers,
it is not legally required to do so, and is therefore under no
obligation to sell power to every applicant. B-158903, July 6, 1966.
A concept frequently arising in the Bonneville cases is the concept of
"net billing." This is, in oversimplified terms, a system under which
Bonneville, in billing its customers, liquidates certain of its
payment obligations by reducing the bill by the amount the customer
has paid either to Bonneville under some separate arrangement or to
some other party under a variety of complex arrangements. GAO approved
the concept as within Bonneville's authority in B-170878, Oct. 21,
1970. (Congress had already recognized the concept in legislation.) A
few years later, it became apparent that, in the particular situation
addressed in B-170878, net billing would be inadequate to sustain the
purchase of sufficient power. Bonneville then proposed to purchase
power for its preference customers under what it called a "trust-
agency" agreement. While finding this authorized as well, GAO stressed
the purpose limitation on Bonneville's discretion: "While 16 U.S.C. §
832a(f) is intended to confer broad administrative discretion on the
Administrator, that discretion must always be exercised in furtherance
of the purposes, and subject to the provisions, of the [program
legislation]." B-137458, Sept. 13, 1974, at 5.
The financing mechanism of net billing agreements has been judicially
approved, as well. In City of Springfield v. Washington Public Power
Supply System, 564 E Supp. 90, 95 (D. Ore. 1983), the court described
one system as follows.
"The net billing agreements are contracts between the United States,
acting through BPA, WPPSS, and the Northwest utilities. Under these
contracts, utilities buy power from BPA. Instead of paying BPA,
however, utilities pay WPPSS, which uses the money to retire bonds....
Thus BPA 'net-bills' for power and those bills are paid to WPPSS as
third party beneficiary of the BPA-utility contracts and in
satisfaction of WPPSS' rights under the net billing agreements."
The Ninth Circuit Court of Appeals modified the district court's
decision in certain respects, but affirmed its holding that these were
essentially contracts for the purchase of electricity and thus within
Bonneville's authority. City of Springfield v. Washington Public Power
Supply System, 752 F.2d 1423 (9th Cir. 1985), cert. denied, 474 U.S.
1055 (1986). One factor both courts noted was that Bonneville had
assumed "dry-hole risk," that is, Bonneville would pay even if the
generating plants were never completed or never produced saleable
power, thus insulating public bodies from having to resort to future
taxation. City of Springfield, 564 E Supp. at 93, 95; 752 F.2d at 1429.
The extent to which Bonneville's range of discretion permits it to
tailor arrangements to fit specific program needs is illustrated in B-
210929, Aug. 2, 1983. As construction of one of the WPPSS plants
approached completion, WPPSS found itself unable to obtain further
bond financing. Bonneville proposed, and GAO concurred, to pay, by
direct disbursement or net billing, to complete construction of the
WPPSS project. The argument against direct payment was that Bonneville
had not presented this as an option when seeking congressional
approval. However, GAO found that direct payment would not be
inconsistent with congressional approval of the net billing approach
since direct payment funds would be derived at least ultimately from
rate adjustments, and the end result—costs borne by Bonneville's
ratepayers rather than taxpayers—would be the same. It would amount
simply to "[doing] directly what Congress otherwise authorized it to
do indirectly." Id. at 16.
Still another area in which Bonneville's discretion has been upheld is
the Pacific Northwest-Pacific Southwest Intertie, a system of high-
voltage transmission lines partially owned by Bonneville and designed
to permit the regions to help each other during times of heavy demand.
Bonneville is required to first give itself preference and then to
make excess capacity available to others. 16 U.S.C. § 837e. The courts
have upheld Bonneville's policies for the allocation of excess
Intertie capacity as within its discretion, as long as done in a fair
and nondiscriminatory manner (16 U.S.C. § 838d). California Energy
Resources Conservation and Development Commission v. Bonneville Power
Administration, 831 F.2d 1467 (9th Cir. 1987); Department of Water and
Power of Los Angeles v. Bonneville Power Administration, 759 F.2d 684
(9th Cir. 1985).
Rate-making decisions under 16 U.S.C. § 839e have also been accorded
deference by the courts, as long as the rates are supported by sound
business practices. See, e.g., Public Power Council, Inc. v.
Bonneville Power Administration, 442 F.3d 1204, 1209 (9th Cir. 2006);
California Energy Commission v. Bonneville Power Administration, 909
F.2d 1298, 1306 (9th Cir. 1990).
Finally, Bonneville has the discretionary authority to engage in
certain energy conservation programs. B-114858, July 10, 1979; 3 Op.
Off. Legal Counsel 419 (1979). The question was whether energy
conservation is consistent with Bonneville's statutory mandate to
encourage widespread use of federally generated power. In other words,
is its main job to push the stuff, or save it? Bonneville's argument,
successful as it turned out, was that it viewed conservation as an
investment in increased production rather than a demand reduction
device. Once again, the GAO opinion stressed that Bonneville's
discretion, broad though it may be, "must always be exercised in
furtherance of the purposes, and subject to the provisions, of BPA's
enabling legislation." B-114858, July 10, 1979, at 4.
(3) Amtrak:
Amtrak was created by the Rail Passenger Service Act of 1970, Pub. L.
No. 91-518, title III, § 301, 84 Stat. 1327, 1330 (Oct. 30, 1970).
[Footnote 171] Its purpose is to provide modern and efficient
intercity and commuter rail passenger transportation. 49 U.S.C. §
24101(b). Amtrak was the federal government's response to declining
railroad passenger ridership resulting in the railroad companies
losing money on a service they were legally required to provide.
Congress created Amtrak to ensure a minimum level of intercity
passenger rail service for the public while relieving the railroad
companies of this financial burden so that they could focus on the
more profitable freight services. See Library of Congress,
Congressional Research Service, Amtrak Profitability: An Analysis of
Congressional Expectations at Amtrak's Creation, No. RL 31473 (June
26, 2002), at 1-3. Congressional and administration leaders in 1970
predicted that Amtrak would ultimately be profitable as a result of
reductions in money-losing routes and federal investment that would
yield faster, safer rail travel, neither of which have occurred. Id.
at 7. See also B-277814, Oct. 20, 1997. The current status of Amtrak
and passenger rail travel is addressed in GAO, Intercity Passenger
Rail: National Policy and Strategies Needed to Maximize Public
Benefits from Federal Expenditures, GAO-07-15 (Washington, D.C.: Nov.
13, 2006).
Although federally created and receiving substantial federal financial
assistance, Amtrak is to be "operated and managed as a for-profit
corporation," and is "not a department, agency, or instrumentality of
the United States Government, and shall not be subject to title 31 [of
the United States Code]." 49 U.S.C. §§ 24301(a)(2) and (3).[Footnote
172] It was originally designated a mixed-ownership government
corporation,[Footnote 173] but this was dropped in 1997.[Footnote 174]
It is also classed as a railroad carrier for purposes of certain
portions of the Interstate Commerce Act (49 U.S.C. § 24301(a)(1)), and
is thus subject to the jurisdiction of the Surface Transportation
Board, successor to the Interstate Commerce Commission, to that
limited extent.[Footnote 175] GAO is authorized to conduct
"performance audits of [Amtrak's] activities and transactions." 49
U.S.C. § 24315(e); B-175155-0.M., Oct. 21, 1981.
The congressional objective is eventual profitability and elimination
or at least minimization of federal subsidies. See 49 U.S.C. §
24101(d), as amended by Public Law 105-134, § 201, mandating that
Amtrak operate without federal operating grants by fiscal year 2004.
Section 301 of Public Law 105-134, codified at 49 U.S.C. § 24104(a),
authorized to be appropriated to the Secretary of the Treasury
declining amounts ranging from $1.14 billion in fiscal year 1998 to
$0.96 billion in fiscal year 2002 to support Amtrak. Nevertheless,
federal financial assistance has always been necessary. Despite the
goals set out in the 1997 act, fiscal year 2004 has come and gone, and
Amtrak still cannot operate without federal subsidies. In fact, GAO
reported that between 1971 and 2005, Amtrak received cumulative
subsidies of $29 billion. See GAO, Amtrak Management: Systemic
Problems Require Actions to Improve Efficiency, Effectiveness, and
Accountability, GAO-06-145 (Washington, D.C.: Oct. 4, 2005), at 2.
This federal financial assistance takes the form of appropriations
made to the Secretary of Transportation for the purpose of making
grants to Amtrak. For example, in the Department of Transportation
appropriations act for 2006, $495 million was made available until
expended for Amtrak operational subsidy grants. Pub. L. No. 109-115,
119 Stat. 2396, 2413-15 (Nov. 30, 2005). Congress also appropriated
$780 million for capital and debt service grants and $40 million for
efficiency incentive grants, both amounts also to be available until
expended, for a total of $1.315 billion in appropriations for fiscal
year 2006. Id.[Footnote 176] Amtrak makes its funding requests to the
Secretary of Transportation, who in turn includes them as part of
Transportation's portion of the President's budget. B-175155, Sept.
26, 1978 (requirement in 31 U.S.C. § 1105(a)(5) for 5-year projection
not applicable to Amtrak's funding requests to Secretary). As with the
fiscal year 2006 appropriation, the funds are made available until
expended, and may include separate amounts for operating losses and
capital improvements.
The statutory payout schedule "has virtually assured" that Amtrak will
receive more money that it immediately needs for current expenses. B-
175155(2), Apr. 22, 1975, at 4. Congress did not restrict the use of
these funds but "expects Amtrak to utilize them in accordance with its
best business judgment." Id. Thus, a line of Comptroller General
decisions held that Amtrak could use its grant funds for such things
as advances on capital equipment (B-175155(2), Apr. 22, 1975);
investment to the extent funds are not currently needed (B-175155,
June 11, 1975); payment of operating expenses while funds from other
sources are temporarily invested (id.); retirement of long-term debt
obligations under a since-repealed provision for the Secretary of
Transportation to guarantee loans to Amtrak (B-175155(2), July 26,
1976); and installing fire fighting equipment in railroad tunnels in
New York City to comply with a safety order of the New York City Fire
Department (B-175155, May 22, 1978). When investing excess funds,
Amtrak may retain the interest earned notwithstanding their
designation as grant funds. B-175155, June 11, 1975.
In surveying decisions and opinions relating to Amtrak, the details
are of secondary importance because virtually every provision of
Amtrak's legislation has changed, sometimes repeatedly. The cases are
intended to illustrate the operational and spending freedom of a
noninstrumentality corporation in principle. The Supreme Court has
said that Amtrak's noninstrumentality disclaimer "is assuredly
dispositive of Amtrak's status ... for purposes of matters that are
within Congress' control." Lebron v. National Railroad Passenger
Corp., 513 U.S. 374, 392 (1995). Thus, the answer to the typical
question of whether this or that law applicable to government entities
applies to Amtrak is "no." E.g., National Railroad Passenger Corp. v.
Commonwealth, of Pennsylvania Public Utility Commission, No. Civ. A.
86-5357 (E.D. Pa. Sept. 15, 1997) (Amtrak does not share the
government's Eleventh Amendment rights in relation to jurisdiction to
suit in state courts); Hill International, Inc. v. National Railroad
Passenger Corp., 957 E Supp. 548 (D.N.J. 1996) (Amtrak is not subject
to federal procurement regulations); Sentner v. Amtrak, 540 E Supp.
557 (D.N.J. 1982) (Amtrak does not share the government's immunity
from awards of punitive damages). See also B-277814, Oct. 20, 1997
(U.S. government is not liable for Amtrak's debts in the event of an
Amtrak bankruptcy); B-252085, Jan. 26, 1993, and B-215893, Oct. 29,
1984 (GAO does not have jurisdiction to hear a protest of an Amtrak
procurement award); B-206638-0.M., Apr. 1, 1982 (Amtrak not required
to follow the Federal Acquisition Regulations or the mandatory
provisions of the Federal Supply Schedule).
Of course, since we are talking about matters within Congress's
control, Congress does have a certain freedom in defining the
applicability of laws. For example, Amtrak is not subject to the
Antideficiency Act, 31 U.S.C. § 1341. See B-175155, July 26, 1976.
Yet, as noted above, Amtrak's 1998 appropriation included a proviso
that "the incurrence of any obligation or commitment by the
Corporation 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. 1341." Pub. L. No. 105-66. However, this
Antideficiency Act proviso expired at the end of fiscal year 1998, and
Congress did not include the proviso in the Amtrak appropriation for
any subsequent fiscal year, such as fiscal year 2006. See Pub. L. No.
109-115. The point is that making the Antideficiency Act applicable,
even to the limited extent in Public Law 105-66, required legislation
specifically applicable to Amtrak.
Another group of GAO cases deals with compensation issues. The 1970
legislation creating Amtrak placed no limit on the compensation of the
corporation's officers. A 1972 amendment limited compensation to level
1 of the Executive Schedule.[Footnote 177] A question arose as to
whether the value of fringe benefits had to be counted in applying the
ceiling. Amtrak wanted to provide fringe benefits normal in the rail
industry. These included group life insurance, travel accident
insurance, long-term disability benefits, hospital surgical and major
medical coverage, noncontributory retirement benefits, and free
transportation for employees and their dependents on Amtrak trains.
Noting that the ceiling was the same as that for cabinet members, who
receive fringe benefits in addition to their statutory compensation,
and finding nothing to indicate a contrary intent for Amtrak officers,
GAO concluded that the fringe benefits need not be considered
compensation for purposes of the ceiling. B-175155, Jan. 7, 1974. The
limitation was changed in 1988[Footnote 178] to prohibit rates of
compensation greater than "the general level of pay for officers of
rail carriers with comparable responsibility." 49 U.S.C. § 24303(b).
While the ceiling is now more amorphous than the fixed-dollar ceiling
of 1974, the principle of B-175155, Jan. 7, 1974, should remain valid,
unless practices in the private rail industry change so as to include
fringe benefits as part of compensation.
Amtrak was also offering its officers separation agreements, under
which they would receive an additional payment of up to a year's
salary upon termination of their services. If somehow the payments
could be regarded as payments for post-termination services, they
would be permissible. If, however, they were nothing more than a form
of deferred compensation to avoid the statutory limitation, they would
violate the statute. B-175155, May 1, 1974; B-175155, Jan. 7, 1974.
Amtrak developed an agreement under which the officer agreed to
perform whatever services might be necessary, for a period of 6
months, to accomplish an orderly transition of responsibilities to his
or her successor, and to complete unfinished assignments. This was
sufficient to avoid the "deferred compensation" objection and
therefore did not violate the limitation. B-175155, Oct. 3, 1974; B-
175155, Sept. 5, 1974.
Another source of Amtrak's powers is the District of Columbia Business
Corporation Act, which applies to Amtrak to the extent consistent with
the Rail Passenger Service Act. 49 U.S.C. § 24301(e). Thus, Amtrak can
sell real property (B-175155, June 14, 1978),[Footnote 179] and it can
make loans provided they serve a corporate purpose (B-207880-0.M.,
Nov. 5, 1982), because both actions are authorized under the District
of Columbia law.
7. Application of Other Laws:
As discussed in the previous sections, a government corporation's
[Footnote 180] autonomy, while conferring considerable spending
discretion, does not remove it from the coverage of various laws of
the United States. We set forth here several other laws governing the
operations of federal agencies. As one would expect, wholly owned
corporations are subject to more of the laws than mixed-ownership
corporations, which are in turn subject to more than the so-called
noninstrumentality corporations. A summary chart, including some laws
not covered here, may be found in GAO, Government Corporations:
Profiles of Existing Government Corporations, GAO/GGD-96-14
(Washington, D.C.: Dec. 13, 1995), app. III. See also Library of
Congress, Congressional Research Service, Federal Government
Corporations: An Overview, No. RL30365 (Mar. 15, 2005), at app. 1;
Thomas H. Stanton and Ronald C. Moe, "Government Corporations and
Government-Sponsored Enterprises," in Lester M. Salaman, The Tools of
Government: A Guide to the New Governance, 80, 92 table 3-1 (2002).
a. Civil Service Laws:
We use the term "civil service laws" to mean the body of laws in title
5 of the United States Code governing the appointment, classification,
pay, allowances, and other benefits of federal officers and employees.
The applicability of title 5, or portions thereof, to a government
corporation depends on (1) the definitions in title 5, and (2) the
corporation's own charter.[Footnote 181] Title 5 includes a few
general definitions and a great many specific ones. As discussed in
section B.2.a of this chapter, section 105 of title 5 defines
"executive agency" to include government corporations. "Government
corporation" is defined as "a corporation owned or controlled by the
Government of the United States." 5 U.S.C. § 103(1). "Government
controlled corporation" does not include a corporation owned by the
government of the United States. 5 U.S.C. § 103(2). In addition, 5
U.S.C. § 2105(a) defines "employee" as someone appointed in the civil
service by, as pertinent here, the President, "an individual who is an
employee under this section" (which would include wholly owned
corporations), or "the head of a Government controlled corporation."
GAO has interpreted the term "government controlled corporation" in
these definitions to mean a mixed-ownership government corporation. B-
221677, July 21, 1986.
Thus, unless it specifically provides otherwise, a provision in title
5 that applies to an executive agency, a government corporation, or an
employee applies to wholly owned and mixed-ownership government
corporations. E.g., 5 U.S.C. § 2301(a) (merit system principles apply
to "an Executive agency"); 5 U.S.C. §§ 8701(a)(1) and 8901(1)(A)
(provisions for group life and group health insurance, respectively,
apply to an employee as defined in § 2105).
Some provisions of title 5 do specifically provide otherwise. A
provision applicable to an "executive agency" but not a "government
controlled corporation" applies to wholly owned, but not mixed-
ownership, government corporations. A good example is what is perhaps
the heart of the civil service system, the provisions governing
classification (5 U.S.C. §§ 5101-5115) and General Schedule pay rates
(5 U.S.C. §§ 5331-5338). The classification provisions apply to
executive agencies (5 U.S.C. § 5102(a)(1)(A)), but specifically do not
apply to government controlled corporations. 5 U.S.C. § 5102(a)(1)(i).
The General Schedule pay provisions adopt the definition of section
5102. 5 U.S.C. § 5331(a). Thus, unless specified otherwise, the
classification and pay provisions apply to wholly owned, but not mixed-
ownership, corporations. An illustrative case containing important
discussion is Dockery v. Federal Deposit Insurance Corp., 64 M.S.P.R.
458, 460-62 (1994) (FDIC, as a mixed-ownership corporation, held not
subject to the classification provisions).
The following inventory does not purport to be complete:
* Whistleblower Protection Act—excludes both wholly owned and mixed-
ownership government corporations, except with respect to improper
personnel actions resulting from disclosure of information the
employee reasonably believes evidences a violation of law, gross
mismanagement, gross waste of funds, an abuse of authority, or
substantial danger to public health or safety, with certain
qualifications. 5 U.S.C. §§ 2302(a)(2)(C), (b)(8).
* Experts and consultants—applies to wholly owned, but not mixed-
ownership, government corporations. 5 U.S.C. § 3109(a) (incorporating
the definition for agency included in 5 U.S.C. § 5721(1), which
includes an executive agency but specifically excludes a government
controlled corporation).
* Senior Executive Service—not applicable to either wholly owned or
mixed-ownership government corporations. 5 U.S.C. § 3132(a)(1).
* Government Employees Training Act—applies to a "Government
corporation subject to chapter 91 of title 31," that is, both wholly
owned and mixed-ownership corporations subject to the Government
Corporation Control Act (see section B.4.a of this chapter). 5 U.S.C.
§ 4101(1)(C).
* Performance appraisal system—not applicable to either wholly owned
or mixed-ownership government corporations. 5 U.S.C. § 4301(1)(i).
E.g., B-233528, Dec. 14, 1988 (Overseas Private Investment Corporation
not required to submit its performance appraisal system for review by
Office of Personnel Management).
* Government Employees Incentive Awards Act—applies to both wholly
owned and mixed-ownership corporations (5 U.S.C. §§ 4501(1)(A),
(2)(A)), except it specifically excludes the Tennessee Valley
Authority and the Central Bank for Cooperatives (5 U.S.C. §§
4501(1)(i), (ii)).
* Dual compensation laws—apply to both wholly owned and mixed-
ownership government corporations. 5 U.S.C. § 5531(2). E.g., B-238303,
B-236399, May 29, 1991 (retired military officer employed by Federal
Deposit Insurance Corporation).[Footnote 182] However, they do not
apply to corporations statutorily designated as not agencies or
instrumentalities of the United States. B-170582, July 15, 1976. For a
corporation subject to the dual compensation laws, using a personal
services contract rather than employment in order to avoid the
statutory restrictions is improper. B-222334, June 2,1986.[Footnote
183]
* Severance pay—applies to both wholly owned and mixed-ownership
government corporations. 5 U.S.C. § 5595(a)(1)(A). E.g., B-114839-
0.M., Aug. 11,1978 (former Panama Canal Company). The statute
expressly excludes employees, other than members of the Senior
Executive Service (SES), paid at or in excess of Executive Schedule
levels. 5 U.S.C. § 5595(a)(2)(i). Since the SES does not extend to
government corporations, the president of a government corporation who
is compensated at an Executive Schedule level is not entitled to
severance pay. B-215273, June 28,1984.
* Back Pay Act—applies to both wholly owned and mixed-ownership
government corporations. 5 U.S.C. § 5596(a)(1). E.g., Payne v. Panama
Canal Co., 607 F.2d 155 (5th Cir. 1979) (former Panama Canal Company
subject to Back Pay Act notwithstanding its power to sue and be sued
in its own name).
* Travel and transportation—The travel and transportation provisions
in 5 U.S.C. §§ 5701-5739 apply to wholly owned, but not mixed-
ownership, corporations. 5 U.S.C. §§ 5701(1)(A), (i) and 5721(1).
E.g., B-214811-0.M., July 25,1984 (Saint Lawrence Seaway Development
Corporation, a wholly owned corporation, should not reimburse travel
expenses of official's spouse unless spouse was providing some sort of
direct service to government). The Federal Deposit Insurance
Corporation, as a mixed-ownership corporation, is not subject to the
provisions governing service agreements in return for payment of
relocation expenses. However, work for the FDIC qualifies as
"government service" for purposes of fulfilling the agreement. B-
221677, July 21,1986.
* Uniform allowance—applies to wholly owned government corporations
but not mixed-ownership government corporations. 5 U.S.C. § 5901(a).
* Annual and sick leave—applies to both wholly owned and mixed-
ownership government corporations. 5 U.S.C. § 6301(2)(A).
* Federal Employees Compensation Act—FECA's definition of employee
includes "an officer or employee of an instrumentality wholly owned by
the United States." 5 U.S.C. § 8101(1)(A). FECA, where it applies, is
the employee's exclusive remedy just as it is for employees of
agencies. Posey v. Tennessee Valley Authority, 93 F.2d 726 (5th Cir.
1937) (TVA); Pinto v. Vessel "Santa Isabel," 492 E Supp. 689 (D.C.Z.
1980) (former Panama Canal Company).
* Retirement—Both the Civil Service Retirement System (CSRS) and the
Federal Employees Retirement System (FERS) apply to employees as
defined in 5 U.S.C. § 2105, and therefore apply to both wholly owned
and mixed-ownership government corporations. 5 U.S.C. §§ 8331(1)(A)
(CSRS), 8401(11)(A) (FERS).
A law related in subject matter to title 5 of the United States Code
is the Fair Labor Standards Act (FLSA), 29 U.S.C. §§ 201-219, which
provides, among other things, for overtime compensation for
nonexempted employees for time worked in excess of 40 hours in a week
29 U.S.C. § 207(a)(1). The FLSA adopts the definition of executive
agency of 5 U.S.C. § 105, and therefore includes both wholly owned and
mixed-ownership government corporations. 29 U.S.C. § 203(e)(2)(A)(ii).
E.g., 54 Comp. Gen. 617 (1975) (FLSA applicable to former Panama Canal
Company). Another relevant statute is Title VII of the Civil Rights
Act of 1964. Its employment discrimination provisions apply to
"executive agencies as defined in section 105 of title 5, United
States Code (including employees and applicants for employment who are
paid from nonappropriated funds)." 42 U.S.C. § 2000e-16(a).
The general and specific title 5 definitions determine the
applicability of various provisions to government corporations only in
the absence of more specific direction in the legislative charter.
Government corporations are commonly empowered to "appoint and fix the
compensation of such officers, attorneys, employees, and agents as may
be required." E.g., 29 U.S.C. § 1302(b)(6) (Pension Benefit Guaranty
Corporation). This alone, while affording some discretion, does little
more than authorize appointment and compensation within the civil
service structure. A variation specifically makes the authority
subject to the civil service laws. E.g., 33 U.S.C. § 984(a)(7) (Saint
Lawrence Seaway Development Corporation). The comparable provision for
the Inter-American Foundation limits the total number of employees. 22
U.S.C. § 290f(e)(5). An example of seemingly broader language is
section 723 of the Federal Agriculture Improvement and Reform Act of
1996, Pub. L. No. 104-127, 110 Stat. 888, 1115-18 (Apr. 4, 1996),
providing that officers or employees of the now-defunct Alternative
Agricultural Research and Commercialization Corporation "shall be
subject to all laws of the United States relating to governmental
employment."[Footnote 184]
An important variation authorizes appointment and compensation
"without regard" to the civil service laws applicable to officers and
employees of the government. E.g., 16 U.S.C. § 831b (Tennessee Valley
Authority (TVA)); 7 U.S.C. § 943(d) (Rural Telephone Bank). The
"without regard" authority is not an all or nothing proposition. The
corporation, in its discretion, may appoint some employees in
accordance with the civil service laws and invoke the exemption for
others. 37 Op. Att'y Gen. 7 (1932). Of course, the discretion should
be reasoned and not arbitrary. Some charters exempt only a portion of
the corporation's employees from the civil service laws. E.g., 22
U.S.C. § 2193(d) (Overseas Private Investment Corporation may hire,
pay, and fire up to 20 of its employees without regard to civil
service laws). A corporation possessing the "without regard" authority
is, to the extent of its coverage, not required to follow, for
example, the dual compensation laws (19 Comp. Gen. 926 (1940); B-9113,
Apr. 30, 1940),[Footnote 185] or the laws governing annual and sick
leave (A-49652, June 28, 1933). It is free to set up its own parallel
system. See, e.g., Tennessee Valley Authority v. Kinzer, 142 F.2d 833
(6th Cir. 1944), discussing TV/Vs retirement system. As the Attorney
General has pointed out, the inclusion of the "without regard" clause
in some charters evidences the congressional understanding that the
employees would otherwise be subject to the civil service system, else
there would be no need to exempt them. 39 Op. Att'y Gen. 238, 241
(1939). (For more on "without regard" clauses, see section B.6.c(2) of
this chapter.)
One thing GAO has been reluctant to sanction is the making of
deductions from an employee's salary for payment to private
organizations, and has advised that statutory authority should be
obtained before making deductions for union dues (B-105819, Dec. 19,
1951) or a union pension and welfare fund (32 Comp. Gen. 572 (1953)).
Both decisions suggest, however, that the corporation could use its
power to fix compensation to include these items in the amount of
compensation actually paid to the employee, who would then make the
contributions, subject to any statutory limits on total compensation
payable. See also B-82293, Jan. 3, 1949 (similar holding with respect
to life and health insurance premiums prior to the enactment of the
general legislation now in title 5 of the United States Code).
Presumably, had the authority to fix compensation in these cases
included the "without regard" clause, there would have been no
objection to making the deductions.
The "without regard" authority may itself have qualifications which
may extend beneficial provisions and/or impose restrictions. For
example, 16 U.S.C. § 831b includes two qualifications for TVA
employees: they are covered by the Federal Employees Compensation Act,
and their salaries may not exceed that of board members. In GAO's
view, the authority to fix compensation, even with the "without regard
language," is not sufficient to overcome explicit salary restrictions
in TVA's charter, and GAO has found unauthorized payments variously
called retention payments, management staffing incentive payments,
merit incentive supplemental retirement income payments, etc.,
although TVA itself has the last word, at least at the administrative
level. B-222334, June 2, 1986; B-205284, Nov. 16, 1981.
In addition to charter exemptions, other specific exemptions are
scattered throughout title 5. For example, the Government Employees
Incentive Awards Act does not apply to TVA or the Central Bank for
Cooperatives, 5 U.S.C. § 4501(1)(i), (ii); the severance pay statute
does not apply to TVA, 5 U.S.C. § 5595(a)(2)(vii); and the annual and
sick leave laws and the group health insurance provisions do not apply
to corporations supervised by the Farm Credit Administration "if
private interests elect or appoint a member of the board of
directors," 5 U.S.C. §§ 6301(2)(vii), 8901(1)(i). The exemption for
the farm credit corporations is repeated in 5 U.S.C. § 6308(a), which
authorizes the transfer of annual and sick leave balances when an
employee transfers to a position under a different leave system
without break in service. The exemption was repeated to permit those
corporations to make lump-sum payments for leave rather than
transferring the balances. See B-124592, Dec. 1, 1955.
If a corporation is designated as not an agency or instrumentality of
the United States, its employees are not employees of the United
States. Hrubec v. National Railroad Passenger Corp., 49 F.3d 1269,
1270 (7th Cir. 1995) (Amtrak). Accordingly, title 5 of the United
States Code would not apply. However, Congress may incorporate
restrictions in the corporate charter. For example, employees of the
Legal Services Corporation are not considered employees of the United
States but are subject to title 5 provisions relating to retirement,
life insurance, health insurance, and work injuries. 42 U.S.C. §§
2996d(e), (f). Officers and employees of the Corporation for Public
Broadcasting are similarly not officers or employees of the United
States, but their annual rate of pay may not exceed the "rate of basic
pay in effect from time to time for level I of the Executive
Schedule." 47 U.S.C. § 396(e)(1).
b. Procurement Laws and Regulations:
In contrast to the civil service laws, the applicability of
procurement laws and regulations to government corporations is fairly
simple: By statute, they apply, for the most part, to wholly owned
government corporations, but not to mixed-ownership corporations and
certainly not to noninstrumentalities.
(1) 41 U.S.C. § 5:
Perhaps the oldest general procurement law still on the books, 41
U.S.C. § 5—the old Revised Statutes § 3709—requires that, unless
otherwise provided and with several stated exceptions, "purchases and
contracts for supplies or services for the Government may be made or
entered into only after advertising a sufficient time previously for
proposals." As noted in our earlier discussion of the applicability of
fiscal laws in section B.6.c of this chapter, this statute was revised
as part of the Administrative Expenses Act of 1946, Pub. L. No. 79-
600, § 9, 60 Stat. 806, 809 (Aug. 2, 1946). It applies to the
administrative expenses of wholly owned government corporations. 41
U.S.C. §§ 5 (last sentence), 5a. It does not apply to any transactions
of mixed-ownership corporations. E.g., B-138105-0.M., Mar. 4, 1959
(Federal National Mortgage Association).
GAO has not attempted to define "administrative expenses" for this
statute. Rather, GAO has followed a case-by-case approach. For
example, "the procurement of grain storage structures [by the
Commodity Credit Corporation] obviously is not an administrative
expense" for purposes of the advertising statute. B-119791, Oct. 22,
1954, at 2. Nor is the construction and equipping of a substation by
the former Panama Canal Company. B-122655, Apr. 7, 1955. Nor is the
purchase of a generating set for supplying electric power. B-114990,
Aug. 19, 1953. See generally GAO, Pension Benefit Guaranty
Corporation's Statutory Limitation on Administrative Expenses Does Not
Provide Meaningful Control, GAO-03-301 (Washington, D.C.: Feb. 28,
2003); Corporation for Public Broadcasting: Congressional Guidance
Needed on Administrative Expenses, GAO/HRD-90-5 (Washington, D.C.:
Jan. 22, 1990).
(2) Federal Property and Administrative Services Act:
The primary statute governing the procurement of goods and services by
the civilian agencies of the federal government is title III of the
Federal Property and Administrative Services Act of 1949 (the Property
Act), Pub. L. No. 81-152, §§ 301-310, 63 Stat. 377, 393-97 (June 30,
1949), as amended, codified at 41 U.S.C. §§ 251-266a. Sections 3(a)
and (b) of the original Property Act defined "federal agency" to
include "executive agency," which in turn includes "any wholly owned
Government corporation." Therefore, the procurement provisions of the
Property Act, as amended, apply to wholly owned government
corporations (but not mixed-ownership corporations) unless exempt
under 40 U.S.C. § 113 or comparable statutory authority.[Footnote 186]
The Property Act applies to the procurement of property and services,
but not to every type of contractual arrangement an agency or
corporation may enter into. For example, the Overseas Private
Investment Corporation is authorized to enter into arrangements with
the private insurance industry for risk sharing under its foreign
investment insurance program. 22 U.S.C. § 2194(f). GAO reviewed one
such pooling proposal and found that it was not the procurement of
goods or services, but was more in the nature of a cooperative
agreement. Therefore, it was not subject to the procurement laws and
regulations. B-173240, June 16, 1975.
The statute also addresses the relationship of the Property Act
procurement provisions to 41 U.S.C. § 5. Basically, 41 U.S.C. § 5 does
not apply to procurements under the Property Act. An agency or wholly
owned corporation which is exempt from the Property Act provisions
remains subject to 41 U.S.C. § 5 unless it has specific authority to
contract without regard to 41 U.S.C. § 5. An entity with such
authority must still follow the Property Act provisions for other than
sealed-bid procedures unless exempt from that too. 41 U.S.C. §§
252(a)(2), 260.
(3) Office of Federal Procurement Policy Act:
The Office of Federal Procurement Policy Act, Pub. L. No. 93-400, 88
Stat. 796 (Aug. 30, 1974), established the Office of Federal
Procurement Policy in the Office of Management and Budget to "provide
overall direction of Government-wide procurement policies,
regulations, procedures, and forms for executive agencies." 41 U.S.C.
§ 404(a). This Act defines executive agency to include "a wholly owned
Government corporation fully subject to the provisions of [the
Government Corporation Control Act]." 41 U.S.C. § 403(1)(D). Thus,
wholly owned government corporations must comply with governmentwide
procurement polices and procedures.
(4) Federal Acquisition Regulation:
The Federal Acquisition Regulation (FAR), found in title 48 of the
Code of Federal Regulations, is the governmentwide body of procurement
regulations which implement the Property Act and the Office of Federal
Procurement Policy Act. The FAR defines the term "federal agency" as
including an executive agency, and the term "executive agency" as
including any wholly owned government corporation listed in the
Government Corporation Control Act. 48 C.F.R. § 2.101.
The Pension Benefit Guaranty Corporation, as a wholly owned
corporation, is subject to the FAR for purposes of its administrative
activities, but not when serving as trustee for terminated pension
plans. Of course, as with any exemption, the corporation can, in its
discretion, elect to follow the established procedures. B-217281-0.M.,
Mar. 27, 1985 (procurement of investment manager services in its
trustee capacity).
The procurement statutes and the FAR have no application to
corporations which are designated as not agencies or instrumentalities
of the United States, even though they may be federally created and
funded. B-223852, Sept. 9, 1986 (Legal Services Corporation); GAO,
Analysis of Amtrak's Acquisition of Office Copying Equipment, GAO/CED-
82-111 (Washington, D.C.: July 12, 1982).
(5) Competition in Contracting Act:
The Competition in Contracting Act (CICA), title VII of the massive
Deficit Reduction Act of 1974, Pub. L. No. 98-369, thy. B, title VII,
98 Stat. 494, 1175 (July 18, 1984), made a number of revisions in
procurement-related provisions. As relevant here, section 2741 of CICA
gave a statutory basis to GAO's bid protest function (31 U.S.C. §§
3551-3556). Prior to CICA, GAO's bid protest authority was not
explicit but was derived from its account settlement authority. E.g.,
Wheelabrator Corp. v. Chafee, 455 F.2d 1306, 1313-14 (D.C. Cir. 1971).
CICA divorced the bid protest function from account settlement. CICA
applies to procurements by a "federal agency," which it defines by
reference to the Federal Property and Administrative Services Act
(Property Act), 40 U.S.C. § 102(5). In other words, it expressly
includes wholly owned government corporations. E.g., B-295737, B-
295737.2, Apr. 19, 2005 (under CICA GAO has jurisdiction over bid
protests involving procurements by wholly owned corporations such as
the Federal Prison Industries).
Since CICA hinges on the definition of federal agency, account
settlement authority is irrelevant, and GAO has CICA jurisdiction over
corporations exempt under the pre-CICA system. 64 Comp. Gen. 756
(1985) (Tennessee Valley Authority). As with the pre-CICA system, the
jurisdiction does not extend to mixed-ownership corporations. E.g., B-
252085, Jan. 26, 1993 (Amtrak); B-220302, Sept. 24, 1985 (Federal
Deposit Insurance Corporation).
Also not dispositive is the applicability or nonapplicability of the
Property Act and the Federal Acquisition Regulation (FAR). The
Bonneville Power Administration, for example, is not subject to the
Property Act's procurement provisions or to the FAR. See 16 U.S.C. §
832a(f); 40 U.S.C. § 113(e)(18). Nevertheless, it meets the CICA
definition of federal agency, and is therefore subject to GAO's bid
protest jurisdiction. 68 Comp. Gen. 447 (1989); 67 Comp. Gen. 8
(1987). Naturally, as was done in the two cited cases, GAO will apply
Bonneville's own regulations rather than the FAR in evaluating the
protest.
(6) Other statutes:
The laws listed above are the ones we regard as most important to the
procurement function in terms of the breadth of procurement
activities. There are, however, several other procurement-related
statutes, some of which address their applicability to government
corporations. For example, the Walsh-Healey Act (which mandates wage
and labor standards for supply or equipment contracts over $10,000)
applies to contracts made by "any corporation all the stock of which
is beneficially owned by the United States." 41 U.S.C. § 35. Others do
not expressly define their applicability as, for example, the
Competition in Contracting Act and the Property Act do. One example is
the Brooks Architect-Engineers Act, 40 U.S.C. §§ 1101-1104, which
establishes procedures for the acquisition of architectural and
engineering services. It uses, but does not define, the term "agency."
40 U.S.C. § 1102(1). In an internal memorandum, B-215818- 0.M., Aug.
10, 1984, GAO considered whether this act applies to the Federal
Deposit Insurance Corporation, and concluded that it does not,
consistent with the clear congressional pattern of excluding mixed-
ownership corporations from the coverage of procurement laws.
Another example is the Service Contract Act of 1965, 41 U.S.C. § 351,
which prescribes minimum standards for wages and working conditions
under contracts "the principal purpose of which is to furnish services
in the United States through the use of service employees." 41 U.S.C.
§ 351(a). Like the Brooks Architect-Engineers Act, it does not define
its own applicability. It has been held applicable to Federal Reserve
banks. 2 Op. Off. Legal Counsel 211 (1978), approved and followed in
Brink's, Inc. v. Board of Governors of the Federal Reserve System, 466
F. Supp. 116 (D.D.C. 1979). It has also been held applicable to a
contract between a personnel referral firm and a federally funded
research and development center, even though it would not apply to the
contract between the center and its sponsoring agency because the
latter would not meet the "principal purpose" qualification quoted
above. Menlo Service Corp. v. United States, 765 F.2d 805 (9th Cir.
1985).
c. General Management Laws:
We have included under this caption the series of laws, enacted during
the last quarter of the twentieth century, designed to enhance the
management, general and financial, of government entities in the broad
sense.
(1) Inspector General Act:
The Inspector General Act of 1978 (Pub. L. No. 95-452, 92 Stat. 1101
(Oct. 12, 1978)), as amended, is found in the appendix to title 5 of
the United States Code. Its purpose is to create independent and
objective units to conduct audits and investigations of the agency's
programs and operations. 5 U.S.C. app. § 2.
This Act divides the federal government into three categories—
establishments, designated federal entities, and other federal
entities. The Act defines "establishment" by listing the agencies and
instrumentalities covered, starting with the cabinet departments. 5
U.S.C. app. § 11(2). The listing includes a few government
corporations, such as the Federal Deposit Insurance Corporation, the
Corporation for National and Community Service, and the Tennessee
Valley Authority. Id. Each establishment is required to have an Office
of Inspector General, the head of which is appointed by the President
with the advice and consent of the Senate. 5 U.S.C. app. §§ 2, 3(a).
"Designated federal entity" is similarly defined by listing the
entities covered, and includes several more government corporations
and several noninstrumentalities—Amtrak,[Footnote 187] the Corporation
for Public Broadcasting, the Legal Services Corporation, and the
Pension Benefit Guaranty Corporation. 5 U.S.C. app. § 8G(a)(2). It
also includes the Farm Credit Administration and the National Credit
Union Administration, which are not themselves government corporations
but which supervise government corporations. A designated federal
entity must have an Office of Inspector General, whose head is
appointed by the head of the entity. 5 U.S.C. app. § 8G(b), (c).
The term "federal entity" includes government corporations as defined
in 5 U.S.C. § 103, which means both wholly owned and mixed-ownership,
except for corporations already listed as either establishments or
designated federal entities, or which are part of an entity in either
of those groups. 5 U.S.C. app. § 8G(a)(1). A federal entity is not
statutorily required to have an Office of Inspector General, but must
report annually on its internal audit structure to the Office of
Management and Budget and to the Congress. 5 U.S.C. app. § 8G(h)(2).
The corporations selected for "designated federal entity" status are
those receiving over $100 million annually in federal funds. See H.R.
Rep. No. 100-771, at 2 (1988).
(2) Federal Managers' Financial Integrity Act of 1982:
The Federal Managers' Financial Integrity Act of 1982 (FMFIA), Pub. L.
No. 97-255, 96 Stat. 814 (Sept. 8, 1982),[Footnote 188] sets out a
framework for establishing and evaluating internal controls. Section 2
requires each executive agency to develop, in accordance with
standards prescribed by the Comptroller General,[Footnote 189] a
system of internal accounting and administrative controls, and to
report each year, under Office of Management and Budget
guidelines,[Footnote 190] on the extent of its compliance. The
applicable definitional section is 31 U.S.C. § 3501, which excludes "a
corporation, agency, or instrumentality subject to [the Government
Corporation Control Act (GCCA), 31 U.S.C. §§ 9101-9110]." Therefore,
section 2 of finFIA by its own force has no application to government
corporations listed in the GCCA, 31 U.S.C. § 9101. However, because
GCCA corporations were specifically excluded from the definition of
"executive agency" by 31 U.S.C. § 3501, other non-GCCA corporate
entities specifically designated as "agencies or instrumentalities"
may be subject to finFIA, since the general title 31 definition of
"executive agency" in 31 U.S.C. § 102 includes agencies and
instrumentalities in the executive branch of the government.
Also, the annual management report, added to the Government
Corporation Control Act by the Chief Financial Officers Act (see
below), requires the inclusion of "a statement on internal accounting
and administrative control systems by the head of the management of
the corporation, consistent with the requirements for agency
statements on internal accounting and administrative control systems
under the amendments made by the Federal Managers' Financial Integrity
Act of 1982." 31 U.S.C. § 9106(a)(2)(E). Accordingly, while finFIA
does not apply to GCCA corporations by its own terms, the GCCA
contains a parallel requirement.
(3) Chief Financial Officers Act:
The Chief Financial Officers Act of 1990 (CFO Act), Pub. L. No. 101-
576, 104 Stat. 2838 (Nov. 15, 1990), which enacted, among other
things, provisions in 31 U.S.C. §§ 901-903, as amended, requires the
establishment of Chief Financial Officers in specified agencies, but
includes no government corporations. 31 U.S.C. § 901. However, other
statutes do require some government corporations to establish Chief
Financial Officers. For example, the Corporation for National and
Community Service has a presidentially appointed, Senate-confirmed
Chief Financial Officer. 42 U.S.C. § 12651e(c). The Federal Deposit
Insurance Corporation has an internally appointed Chief Financial
Officer. 12 U.S.C. § 1821(a)(6)(E)(vi).
The CFO Act did, however, revise the audit and management reporting
provisions of the Government Corporation Control Act, as summarized in
our coverage of that act in section B.4.a of this chapter. Section 301
of the CFO Act, 31 U.S.C. § 3512(a), requires the Office of Management
and Budget to include information about government corporations in the
financial management status reports and governmentwide 5-year
financial management plans it must prepare for the Congress.
(4) Government Performance and Results Act:
The Government Performance and Results Act of 1993 (GPRA), Pub. L. No.
103-62, 107 Stat. 285 (Aug. 3, 1993), is designed to improve
efficiency and effectiveness in the federal government by requiring
agencies to set performance goals and to measure results against those
goals. Section 3 of GPRA, 5 U.S.C. § 306, requires each agency to
submit to Congress, and requires the Office of Management and Budget
to update periodically, a strategic plan, which must include a mission
statement and the agency's goals and objectives for at least a 5-year
period. Section 4 of GPRA, 31 U.S.C. §§ 1115 and 1116, requires
agencies to prepare annual performance plans and program performance
reports. GPRNs definition of agency is "an Executive agency defined
under [5 U.S.C. §1 105," with several exceptions not relevant here. 5
U.S.C. § 306(f); 31 U.S.C. § 1115(g)(1). Therefore, GPRA applies to
both wholly owned and mixed-ownership government corporations.
(5) Government Management Reform Act of 1994:
The Government Management Reform Act of 1994 requires Treasury to
prepare annual consolidated financial statements "covering all
accounts and associated activities of the executive branch of the
United States Government." Pub. L. No. 103-356, § 405(c), 108 Stat.
3410, 3416 (Oct. 13, 1994), 31 U.S.C. § 331(e)(1). GAO is required to
audit these consolidated statements. 31 U.S.C. § 331(e)(2). Since the
statements are to cover the entire executive branch, they include
those government corporations that are in the executive branch. See
U.S. Department of Treasury, 2005 Financial Report of the U.S.
Government, Appendix: Significant Government Entities Included and
Excluded from the Financial Statements (December 2005), at 133-34.
[Footnote 191] In fact, the Office of Management and Budget and
Treasury direct certain government corporations to submit special
audit financial information to Treasury for consolidation. OMB Cir.
No. A-136, Financial Reporting Requirements, § I.3 (June 29, 2007); I
TFM 2-4700.
(6) Federal Financial Management Improvement Act of 1996:
This law requires agencies to comply with federal accounting
standards, financial management system requirements, and the United
States Government Standard General Ledger. Pub. L. No. 104-208, thy.
A, § 101(f) [title VDT, § 803(a)], 110 Stat. 3009, 3009-390-92 (Sept.
30, 1996). It does not apply to government corporations because it
defines agency by incorporating the definition in 31 U.S.C. § 901(b),
which does not include any government corporations. Pub. L. No. 104-
208, § 806(1).
(7) Improper Payments Information Act of 2002:
This statute requires agencies to identify programs or activities that
are susceptible to significant improper payments, annually estimate
the amount of improper payments, and report those estimates and
actions taken to reduce improper payments for highly-susceptible
programs. Pub. L. No. 107-300, 116 Stat. 2350 (Nov. 26, 2002), 31
U.S.C. § 3321 note. The act uses the broad definition of executive
agency in 31 U.S.C. § 102, which includes instrumentalities in the
executive branch, meaning that both wholly owned and mixed-ownership
government corporations designated as executive branch
instrumentalities are covered. Pub. L. No. 107-300, § 2(d)(1).
d. Property Management:
The primary law governing the use and disposal of property is the
Federal Property and Administrative Services Act of 1949. The
pertinent definitions are found in 40 U.S.C. §§ 102(4) and (5), under
which the term "federal agency" includes executive agency, and
"executive agency" includes any wholly owned government corporation.
Naturally, there are exceptions. For example, 40 U.S.C. § 113(c)
exempts both wholly owned and mixed-ownership government corporations
subject to the Government Corporation Control Act (31 U.S.C. §§ 9101-
9110) from the provisions relating to GAO approval of property
accounting systems (40 U.S.C. § 121(b)) and GAO audit of property
accounts (40 U.S.C. § 506(c)). The Tennessee Valley Authority is
partially exempt by virtue of 40 U.S.C. § 113(e)(11). The rule is,
therefore, that absent an applicable exemption, provisions of the
Property Act applicable to federal agencies or executive agencies
apply to wholly owned government corporations.
Section 501 of 40 U.S.C. gives the General Services Administration a
variety of responsibilities with respect to the procurement and
storage of personal property, including public utility services. This
applies to wholly owned corporations by virtue of 40 U.S.C. § 102. The
law further directs GSA to provide these services upon request to
mixed-ownership corporations as well. 40 U.S.C. § 502(a)(2). This
would include such services as the use of federal supply schedules.
The disposition of excess property is covered in 40 U.S.C. §§ 521-529.
Reimbursement of fair value is required in the case of a transfer from
one agency to another when either the transferring agency or the
receiving agency is a corporation under the Government Corporation
Control Act. 40 U.S.C. § 522(b). The purpose of this provision is to
"maintain the integrity of the corporate accounts; that is, to prevent
the impairment of the capital assets of a corporation disposing of
excess property or the unjust enrichment of a corporation receiving
such excess property." B-119819, Dec. 1,1954, at 2.
Transfer may be made without reimbursement in situations where it
would not impair a corporation's capital structure—uncommon in the
case of a government corporation, but possible nevertheless. Id.; B-
129149, Sept. 28, 1956.
Section 543 of title 40, United States Code, addresses surplus
property and is also applicable to wholly owned corporations. Under
this provision, the disposing agency may "execute documents to
transfer title or other interest in the property and may take other
action it considers necessary or proper to dispose of the property."
This includes transfers of title to real property from a wholly owned
corporation to the United States, as and to the extent required by
regulation. 41 Op. Att'y Gen. 15 (1949) (dealing with similar language
in a predecessor statute).
Proceeds from the sale of surplus property, as well as reimbursements
from the transfer of excess property, are governed by 40 U.S.C. §§ 571-
574, which generally direct their deposit as miscellaneous receipts.
40 U.S.C. § 571. However, an exception specified in 40 U.S.C. § 574(a)
provides that where the property transferred or disposed of was
acquired by the use of funds either not appropriated from the general
fund of the Treasury, or appropriated from the general fund but by law
reimbursable from assessment, tax, or other revenue or receipts, then
the net proceeds of the disposition or transfer shall be credited to
the reimbursable fund or paid to the agency that determined the
property to be excess.
GSA leasing authority is found in 40 U.S.C. § 581(d). It, too, applies
to wholly owned corporations by virtue of 40 U.S.C. § 102. As with
personal property services, GSA may extend its buildings services
(operation, maintenance, protection) to a mixed-ownership corporation
upon request. 40 U.S.C. § 582(a). An odd situation occurred in 38
Comp. Gen. 565 (1959). The Federal National Mortgage Association
(Fannie Mae) started out in life as a wholly owned government
corporation, was rechartered as a mixed-ownership government
corporation, and is now a government-sponsored enterprise. In 1959, it
was a mixed-ownership corporation, but Congress had chosen to retain
it in the Government Corporation Control Act as a wholly owned
corporation. The question was whether Fannie Mae was required to do
its leasing through GSA. The continued listing as a wholly owned
corporation, the decision reasoned, was only for purposes of the
Control Act. Absent some other definition, the "actual organic
structure of the corporation" should determine its status. 38 Comp.
Gen. at 567. Therefore, for purposes of leasing authority, Fannie Mae
was a mixed-ownership corporation and thus not required to lease
office space through GSA. See also B-161531, June 29, 1967.
Another pertinent statute is the Public Buildings Act.[Footnote 192]
It applies to wholly owned corporations and to several specified mixed-
ownership corporations, one of which is the Federal Deposit Insurance
Corporation (FDIC). 40 U.S.C. § 3301(a)(3)(E). Thus, an office
building proposed to be constructed by the FDIC would be a "public
building" and therefore subject to the Public Buildings Act, except
for the prospectus approval requirement. B-143167-0.M., Sept. 27, 1960.
The Uniform Relocation Assistance and Real Property Acquisition
Policies Act of 1970,[Footnote 193] which authorizes relocation
assistance to individuals affected by federal projects, also applies
to wholly owned government corporations. 42 U.S.C. § 4601(1).
e. Freedom of Information, Privacy Acts:
The Administrative Procedure Act defines agency to mean "each
authority of the Government of the United States, whether or not it is
within or subject to review by another agency," with a list of
exceptions not relevant to this discussion. 5 U.S.C. § 551(1). The
Freedom of Information Act (FOIA) provides that "'agency' as defined
in section 551(1) of this title includes any ... Government
corporation [or] Government controlled corporation," which includes
both wholly owned and mixed-ownership government corporations. 5
U.S.C. § 552(0(1). The Privacy Act provides that "the term 'agency'
means agency as defined in section 552([f]) of this title." 5 U.S.C. §
552a(a)(1). Thus, the extent to which FOIA and the Privacy Act apply
to government corporations should be the same since they use the same
definition.
Given the plain statutory language, the traditional types of
government corporations—wholly owned and mixed-ownership—do not appear
to have presented problems. E.g., Dean v. Federal Deposit Insurance
Corp., 389 F. Supp. 2d 780 (E.D. Ky. 2005) (FOIA and Privacy Act held
applicable in suit against the Federal Deposit Insurance Corporation);
Stephens v. Tennessee Valley Authority, 754 F. Supp. 579 (E.D. Tenn.
1990) (Privacy Act suit against the Tennessee Valley Authority with no
suggestion of concern over applicability); Jones v. United States
Nuclear Regulatory Commission, 654 F. Supp. 130, 131 (D.D.C. 1987)
(FOIA applies to the Tennessee Valley Authority). If these traditional
government corporations are at the "clearly covered" extreme, at the
other, "clearly not covered" extreme, are private corporations which
receive federal financial assistance, even with a slight amount of
federal supervision. Irwin Memorial Blood Bank v. American National
Red Cross, 640 F.2d 1051 (9th Cir. 1981) (holding FOIA inapplicable to
the Red Cross); Forsham v. Harris, 445 U.S. 169 (1980) (holding FOIA
inapplicable to a private grantee).
The difficult cases occupy the gray area between these poles. The case
of Rocap v. Indiek, 539 F.2d 174 (D.C. Cir. 1976), found FOIA
applicable to the Federal Home Loan Mortgage Corporation (Freddie
Mac), a government-sponsored enterprise. The court listed the factors
it found relevant, acknowledging that none of them alone would be
sufficient:
"It is federally chartered, its Board of Directors is Presidentially
appointed, it is subject to close governmental supervision and control
over its business transactions, and to federal audit and reporting
requirements. In addition, the Corporation is expressly designated an
'agency,' and its employees are officers and employees of the United
States, for a number of purposes."
Id. at 180.
Taken together, these "federal characteristics dictate the conclusion
that it is the kind of federally created and controlled entity" that
Congress intended to include under the term government-controlled
corporation. Id. at 181.[Footnote 194]
Amtrak is subject to FOIA by virtue of 49 U.S.C. § 24301(e), which
makes FOIA applicable for any year in which Amtrak receives a federal
subsidy. However, it is not a government-controlled corporation for
purposes of the Privacy Act. United States v. Jackson, 381 F.3d 984
(10th Cir. 2004), cert. denied, 544 U.S. 963 (2005); Ehm v. National
Railroad Passenger Corporation, 732 F.2d 1250 (5th Cir.), cert.
denied, 469 U.S. 982 (1984). The issue had become somewhat clouded by
some legislative history that could be used to support applicability,
as GAO had done in 57 Comp. Gen. 773 (1978). The Ehm court reviewed
the legislative history, found it inconclusive, and found Amtrak
closer to the Corporation for Public Broadcasting, which was
indisputably intended to be excluded. Ehm, 732 F.2d at 1253-55.
A related statute is the Government in the Sunshine Act, 5 U.S.C. §
552b, which requires, among other things, that every meeting of an
agency be announced in advance and open to the public, unless
otherwise excepted. It defines agency as an agency (1) within the
FOIA/Privacy Act definition, which explicitly includes both wholly
owned and mixed-ownership government corporations, and which is (2)
"headed by a collegial body composed of two or more individual
members, a majority of whom are appointed to such position by the
President." 5 U.S.C. § 552b(a)(1). A corporation's board of directors
is a "collegial body." 63 Comp. Gen. 98,99 (1983); 57 Comp. Gen. at
775. While Ehm supersedes these cases insofar as they deal with
Amtrak, the general points remain valid, and many government
corporations are subject to the Sunshine Act.
Of course, as it did with Amtrak, Congress can exclude or include
government corporations under these laws. 1 Op. Off. Legal Counsel
126, 131-32 (1977).
Another information-related statute is the Paperwork Reduction Act of
1980 (which replaced the Federal Reports Act of 1942), 44 U.S.C. §§
35013520, which gives the Office of Management and Budget certain
oversight and regulatory responsibilities with respect to the
collection of information from the public. The statute's definition of
agency is essentially the same as that of FOIA and the Privacy Act in
that it expressly includes both wholly owned and mixed-ownership
government corporations. 44 U.S.C. § 3502(1).
In 2002, Congress passed the E-Government Act to enhance access to
government information, to promote electronic government services, and
to increase federal information security. Pub. L. No. 107-347, 116
Stat. 2899 (Dec. 17, 2002). The majority of the statute's provisions
employ the definition of agency in the Paperwork Reduction Act and
thus apply to both wholly owned and mixed-ownership government
corporations. Pub. L. No. 107-347, §§ 201, 301. Title II of Public Law
107-347 ensures the acceptance by agencies, government corporations,
and government controlled corporations of electronic signatures and
requires the development of standards for agency Web sites. Title III
of Public Law 107-347, titled the Federal Information Security
Management Act, sets security standards for agencies' information
systems, which also apply to both wholly owned and mixed-ownership
government corporations.
f. Printing and Binding:
Subject to a few exceptions, all printing and binding for "every
executive department, independent office and establishment of the
Government, shall be done at the Government Printing Office." 44
U.S.C. § 501. Title 44 does not further define the applicability of
this provision. Although the cases must be approached with some
caution, the rule developed in the cases presented below is that a
government corporation empowered to determine the character and
necessity of its expenditures is not required to comply with 44 U.S.C.
§ 501.
The earliest decision appears to be A-49652, June 28, 1933, in which
GAO advised that the Home Owners' Loan Corporation (HOLC) was not
required to have its printing done at the Government Printing Office.
Yet in 14 Comp. Gen. 695 (1935), GAO held that the Federal Savings and
Loan Insurance Corporation (FSLIC) was subject to the requirement. The
difference was that the Home Owners' Loan Corporation had the
statutory "character and necessity" power, whereas the FSLIC did not.
FSLIC was given that power shortly thereafter, and GAO then confirmed
that it, too, was now exempt. A-60495, Oct. 4, 1938. The two
corporations subsequently adopted resolutions to serve as their
determination of nonapplicability, and GAO concurred. A-98289, Jan.
18, 1939 (HOLC); A-98289, A-60495, Jan. 18, 1939 (FSLIC). See also 18
Comp. Gen. 479 (1938); 14 Comp. Gen. 698 (1935). GAO has applied the
same result to other government corporations and similar entities.
E.g., B-209585, Jan. 26, 1983 (Tennessee Valley Authority); B-114829,
July 8, 1975 (U.S. Postal Service). A corporation not subject to 44
U.S.C. § 501 may still elect to follow it. A-49217, June 5, 1933.
By coincidence, all of the government corporations GAO had considered
possessed the variety of "character and necessity" authority which
included the "without regard to other provisions of law" clause. See
sections B.6.c(1) and (2) of this chapter. A 1986 decision, 65 Comp.
Gen. 226, misinterpreted this coincidence and treated the "without
regard" clause, rather than the basic "character and necessity"
provision, as the basis for the exemption. While the actual holding of
65 Comp. Gen. 226 is correct—that a corporation not possessing the
"character and necessity" power must follow 44 U.S.C. § 501—the
discussion of the "without regard" clause is not. This is because 44
U.S.C. § 501 is a general statute; it does not expressly apply to
government corporations. Therefore, as discussed in section B.6.c of
this chapter, a "character and necessity" provision is sufficient to
permit its avoidance, without the need for the additional "without
regard" clause.
As further evidence, in 1949, the Institute of Inter-American Affairs
responded to a budget cut by firing all of its auditors. An angered
Congress threatened to respond by repealing its "character and
necessity" power. See B-24827, Mar. 24, 1949. As part of this process,
GAO was asked to study which laws would be affected by such a repeal.
The resulting statement listed the printing statute as one of the laws
that had not previously applied but would in the event of repeal. See
GAO, General Accounting Office Statement Concerning Effect of
"Determine and Prescribe" Language on Conduct of Business by the
Institute of Inter-American Affairs, June 22, 1949, 334 MS 1805A.
[Footnote 195]
g. Criminal Code:
Regardless of a corporation's autonomy, it is within the power of
Congress to provide that a crime against a government corporation is a
crime against the United States. The Supreme Court has said:
"The United States can protect its property by criminal laws, and its
constitutional power would not be affected if it saw fit to create a
corporation of its own for purposes of the Government, under laws
emanating directly or indirectly from itself, and turned the property
over to its creature. The creator would not be subordinated to its own
machinery."
United States v. Walter, 263 U.S. 15, 17 (1923).
Congress has implemented this power through several provisions of the
Criminal Code in title 18 of the United States Code. The definition of
agency includes "any corporation in which the United States has a
proprietary interest, unless the context shows that such term was
intended to be used in a more limited sense." 18 U.S.C. § 6.
Some statutes in which this definition can come into play are 18
U.S.C. §§ 286 (conspiracy to defraud the United States or agency
thereof through a false claim); 287 (presenting a false claim to the
United States or agency thereof); and 371 (conspiracy to defraud the
United States or agency thereof "in any manner or for any purpose").
An illustrative case is United States v. Samuel Dunkel & Co., 184 F.2d
894 (2nd Cir. 1950), cert. denied, 340 U.S. 930 (1951), holding that
fraud upon the former Federal Surplus Commodities Corporation was the
same as fraud upon the United States for purposes of 18 U.S.C. § 371.
This was an easy case since the corporation in question was
statutorily designated as an agency of the United States. Id. at 898.
In view of the language of 18 U.S.C. § 6, however, that designation
would not appear to be necessary. See Walter, 263 U.S. at 18.
The "proprietary interest" language of 18 U.S.C. § 6 replaced language
in prior laws referring to "any corporation in which the United States
is a stockholder." See 18 U.S.C. §§ 286, 287 (Revision Notes). No
minimum proprietary interest is specified to trigger applicability.
Thus, the statute would apply to a corporation in which the
proprietary interest is slight, the only qualification being that it
must be an instrumentality of the government. Walter, 263 U.S. at 18.
This ensures that the statute is restricted to its intended purpose,
government corporations, and eliminates situations in which the United
States might, for example, acquire an interest in a private
corporation through some sort of forfeiture.
Proprietary interest also includes nonstock government corporations.
The Revision Note to 18 U.S.C. § 6 makes clear that this phrase "is
intended to include those governmental corporations in which stock is
not actually issued." A case applying this concept is Acron
Investments, Inc. v. Federal Savings and Loan Insurance Corporation,
363 F.2d 236, 239-40 (9th Cir.), cert. denied, 385 U.S. 970 (1966),
dealing with the identical proprietary interest language in 28 U.S.C.
§ 451 which was intended to parallel 18 U.S.C. § 6. Another is
Government National Mortgage Association v. Terry, 608 F.2d 614 (5th
Cir. 1979), applying Acron to Ginnie Mae.
8. Claims and Lawsuits:
a. Administrative Claims :
(1) Claims settlement authority:
The structure of administrative claims settlement in the federal
government consists of (1) a series of statutes, one example being the
Federal Tort Claims Act, authorizing the final and conclusive
settlement of claims either with or without judicial review, and (2) a
general claims settlement statute, 31 U.S.C. § 3702(a), which picks up
claims not covered by any of the specific statutes.
Government corporations[Footnote 196] generally have their own claims
settlement authority by virtue of specific charter provisions, and are
therefore not subject to 31 U.S.C. § 3702(a). The most direct approach
is illustrated by 15 U.S.C. § 714b(k), which provides that the
Commodity Credit Corporation may "make final and conclusive settlement
and adjustment of any claims by or against the Corporation or the
accounts of its fiscal officers."
While often cited in conjunction with a "sue-and-be-sued" clause (see
section B.8.c(2) of this chapter) or a "character and necessity"
clause (see section B.6.c(1) of this chapter), this provision is
sufficient to permit the corporation to administratively settle its
own claims. Government corporations with this type of authority
include the Tennessee Valley Authority,[Footnote 197] and the
Bonneville Power Administration.[Footnote 198]
GAO also has held that the power to sue and be sued, combined with the
power to determine the character and necessity of expenditures, even
without the explicit claims settlement power, is still sufficient to
remove the corporation from the scope of 31 U.S.C. § 3702(a). B-
179464, Mar. 27, 1974; B-109766, Jan. 20, 1959 (both dealing with the
former Panama Canal Company). The Federal Housing Administration has
similar authority, from which it derives its claims settlement
authority. 12 U.S.C. § 1702; 53 Comp. Gen. 337 (1973); 27 Comp. Gen.
429, 432 (1948); B-156202, Mar. 9, 1965.
(2) Federal Tort Claims Act:
Prior to the Federal Tort Claims Act (FICA), 28 U.S.C. §§ 1346(b),
2671-2680, it was somewhat unclear whether government corporations
were subject to common-law tort suits. By 1939, the answer became
settled in the affirmative. Keifer & Keifer v. Reconstruction Finance
Corporation, 306 U.S. 381 (1939); Prato v. Home Owners' Loan
Corporation, 106 F.2d 128 (1st Cir. 1939). See also 25 Comp. Gen. 685
(1946). When the FICA was enacted in 1946 to remove much of the
government's tort immunity, it included most, if not all, of the then-
existing government corporations in the waiver. The Act defines
federal agency as including "corporations primarily acting as
instrumentalities or agencies of the United States." 28 U.S.C. § 2671.
Far from establishing a black-letter rule, however, the definition
raises as many questions as it answers.
At a minimum, the definition should pick up wholly owned government
corporations. The following have been found subject to the Act:
* The former Inland Waterways Corporation. Wickman v. Inland Waterways
Corporation, 78 F. Supp. 284 (D. Minn. 1948). This appears to be the
earliest published decision on the applicability of the VIVA to a
government corporation.
* The former Federal Savings and Loan Insurance Corporation. Federal
Savings & Loan Insurance Corp. v. Quinn, 419 F.2d 1014 (7th Cir.
1969); Kohlbeck v. Kis, 651 E Supp. 1233 (D. Mont. 1987); Colony First
Federal Savings and Loan Ass'n v. Federal Savings & Loan Insurance
Corp., 643 F. Supp. 410 (C.D. Cal. 1986).
* Saint Lawrence Seaway Development Corporation. Handley v. Tecon
Corp., 172 E Supp. 565 (N.D.N.Y. 1959).
* Federal Housing Administration. Edelman v. Federal Housing
Administration, 382 F.2d 594 (2nd Cir. 1967).
* Federal Prison Industries (FPI). See United States v. Demko, 385
U.S. 149 (1966). The Court in that case held that a prisoner injured
while working for FPI could not sue under the VIVA because the
compensation remedy provided under 18 U.S.C. § 4126 was his exclusive
remedy. If the VIVA did not apply to FPI, there would have been no
need to tackle the exclusivity question.
Our research has disclosed no case in which the VIVA was found
inapplicable to a wholly owned government corporation on the basis of
the section 2671 definition.
Turning to mixed-ownership corporations, the situation is less
uniform. One court has held a Federal Home Loan Bank is not a federal
agency for VIVA purposes. Rheams v. Bankston, Wright & Greenhill, 756
E Supp. 1004 (WD. Tex. 1991). Another court reached the opposite
result for the former Resolution Trust Corporation (RTC), influenced
largely by the fact that "the RTC is an organization similar to, and
in fact replaces the FSLIC," which, as noted above, was an agency
under the VIVA. Park Club, Inc. v. Resolution Trust [Corporation], 742
E Supp. 395, 398 (S.D. Tex. 1990), aff'd in part and rev'd in part on
other grounds, 967 F.2d 1053 (5th Cir. 1992).
A sampling of cases involving the Federal Deposit Insurance
Corporation (FDIC), another mixed-ownership corporation, indicates
some of the consequences of the FICA's applicability. Numerous cases
have held that the FDIC is a federal agency for VIVA purposes. E.g.,
Davis v. Federal Deposit Insurance Corp., 369 E Supp. 277 (D. Colo.
1974). This is true regardless of whether the FDIC is acting in its
receiver capacity or its corporate capacity. Federal Deposit Insurance
Corp. v. Hartford Insurance Co., 877 F.2d 590 (7th Cir. 1989), cert.
denied, 493 U.S. 1056 (1990); Federal Deposit Insurance Corp. v.
diStefano, 839 E Supp. 110, 121 (D.R.I. 1993). One important
consequence is that if the tort is subject to one of the exemptions
listed in 28 U.S.C. § 2680, recovery is precluded just as if the
agency involved were not a corporation, and the corporation's "sue and
be sued" power (see section B.8.c(2) of this chapter) cannot be used
to get in through the back door. Federal Deposit Insurance Corp. v.
Citizens Bank & Trust Co., 592 F.2d 364 (7th Cir.), cert. denied, 444
U.S. 829 (1979) (misrepresentation); Safeway Portland Employees'
Federal Credit Union v. Federal Deposit Insurance Corp., 506 F.2d 1213
(9th Cir. 1974) (misrepresentation and deceit); Mill Creek Group, Inc.
v. Federal Deposit Insurance Corp., 136 E Supp. 2d 36 (D.Conn. 2001)
(misrepresentation, fraud, and breach of fiduciary duty); Freeling v.
Federal Deposit Insurance Corp., 221 E Supp. 955 (W.D. Okla. 1962),
aff'd, 326 F.2d 971 (10th Cir. 1963) (slander). One possible way
around this is a valid recoupment claim, whereby a defendant can
reduce a plaintiff's monetary recovery because of a counterclaim
arising out of the same transaction. diStefano, 839 E Supp. at 123.
Another important consequence of applicability is the requirement to
attempt administrative resolution before going to court. E.g., Federal
Deposit Insurance Corp. v. Cheng, 787 E Supp. 625, 631 (N.D. Tex.
1991).
If the seemingly uniform application in the case of wholly owned
corporations begins to break down with respect to mixed-ownership
corporations, it breaks down even further for the government-sponsored
enterprise (GSE). For example, the Federal Home Loan Mortgage
Corporation (Freddie Mac) has been held not a federal agency under the
FICA. Mendrala v. Crown Mortgage Co., 955 F.2d 1132 (7th Cir. 1992).
The original definitional language, quoted in Wickman, 78 E Supp. at
285 (emphasis added) "corporations whose primary function is to act
as, and while acting as, instrumentalities or agencies of the United
States," suggests an interesting twist.[Footnote 199] At least in
theory, it seems possible for a government corporation or GSE to be
subject to the FICA with respect to its primary function, but not
subject while performing some ancillary or incidental function.
As to the remaining types of government corporations, applicability of
the FICA would seem quite remote. In our definitional discussion in
section B.2.c of this chapter we noted cases refusing to apply the
VIVA to the American Red Cross and to the Civil Air Patrol. And, the
VIVA does not apply to Amtrak. Sentner v. Amtrak, 540 F. Supp. 557,
561 (D.N.J. 1982).
For most government corporations, applicability of the FICA is
determined under the definitional language of 28 U.S.C. § 2671. In a
few instances, inclusion or exclusion is the subject of other specific
legislation. For example, the Commodity Credit Corporation is subject
to the FICA by virtue of express language in 15 U.S.C. § 714b(c),
although it is not clear why the CCC would not qualify under the
definitional language in any event. The FICA itself provides a few
exemptions. Under 28 U.S.C. § 2680(n), the law does not apply to
claims "arising from the activities of a Federal land bank, a Federal
intermediate credit bank, or a bank for cooperatives."
Another significant exemption is 28 U.S.C. § 2680(1): the VIVA does
not apply to "any claim arising from the activities of the Tennessee
Valley Authority." From this, it is clear that the FICA cannot form
the basis of a claim or suit against the Tennessee Valley Authority
(TVA). E.g., Robinson v. United States, 422 F. Supp. 121 (M.D. Tenn.
1976); Latch v. Tennessee Valley Authority, 312 F. Supp. 1069 (N.D.
Miss. 1970). However, TVA still can be sued in tort under its "sue and
be sued" clause. Courts have held that, subject to public policy
limitations, it is "subject to common law liability and may be sued
and held liable as may be a private individual." Brewer v. Sheco
Construction Co., 327 F. Supp. 1017, 1019 (W.D. Ky. 1971). See Smith
v. Tennessee Valley Authority, 436 F. Supp. 151, 153-54 (E.D. Tenn.
1977) (following Brewer). Well, maybe not exactly like a private
individual because TVA is an agency or instrumentality of the United
States and the Fifth Circuit has held that it cannot be held liable
for punitive damages without statutory authority. Painter v. Tennessee
Valley Authority, 476 F.2d 943 (5th Cir. 1973).
(3) Contract Disputes Act:
The Contract Disputes Act (CDA), 41 U.S.C. §§ 601-613, applies to each
executive agency, which includes a wholly owned government corporation
as defined by 31 U.S.C. § 9101(3). 41 U.S.C. § 601(2). See APA, Inc.
v. Federal Savings and Loan Insurance Corp., 562 E Supp. 884 (WD. La.
1983) (CDA applied to former FSLIC because it was listed as a wholly
owned government corporation). However, the Federal Circuit has ruled
that the Contract Disputes Act does not apply to the Federal Prison
Industries (FPI) because the CDA requires judgments rendered against
the United States to be paid out of appropriated funds, and FPI is a
nonappropriated fund instrumentality. Core Concepts of Florida, Inc.
v. United States, 327 F.3d 1331, 1338 (Fed. Cir.), cert. denied, 540
U.S. 1046 (2003).
As is often the case, the Tennessee Valley Authority (TVA) has its own
specific provisions. TVA contracts "for the sale of fertilizer or
electric power or related to the conduct or operation of the electric
power system" are excluded from the CDA. 41 U.S.C. § 602(b). Other TVA
contracts are covered only if they include a disputes clause mandating
administrative resolution. 41 U.S.C. §602(b). The TVA is authorized to
establish its own board of contract appeals, and has its own direct
payment authority. 41 U.S.C. §§ 607(a)(2), 612(d).
(4) Assignment of Claims Act:
The Assignment of Claims Act (31 U.S.C. § 3727, 41 U.S.C. § 15) does
not explicitly define its applicability. Therefore, absent some
charter provision resolving the issue, applicability has been
determined through case law.
The first wave of cases involved the U.S. Emergency Fleet Corporation,
which seems to have spent as much time litigating as shipping cargo.
The Comptroller of the Treasury ruled in 1919 that the statute should
apply whenever payment is to be made from appropriated funds, and
therefore it was not necessary to determine whether claims against the
Corporation were claims against the United States. 25 Comp. Dec. 701,
703 (1919). The courts disagreed, however, and held that the Fleet
Corporation, because of its distinct corporate entity, was not subject
to the Act. Rhodes v. United States, 8 E Supp. 124 (E.D.N.Y. 1934);
Charles Nelson Co. v. United States, 11 F.2d 906 (W.D. Wash. 1926);
Providence Engineering Corp. v. Downey Shipbuilding Corp., 3 F.2d 154
(E.D.N.Y. 1924).
What was distinct about the Fleet Corporation, although not spelled
out in the cases cited, was that the Shipping Board, which had
organized the Fleet Corporation under statutory authority, was
authorized to sell Fleet Corporation stock to the public as long as
the Shipping Board remained majority stockholder. See Pub. L. No. 64-
260, § 11, 39 Stat. 728, 731 (Sept. 7, 1916). The Corporation had been
organized "so that private parties could share stock ownership with
the United States." Rainwater v. United States, 356 U.S. 590, 593
(1958). While this may never have actually happened,[Footnote 200] the
Corporation was nevertheless legally designed to be more of a mixed-
ownership corporation. Accordingly, the Rainwater Court noted in
another context that enactments dealing with corporations like the
Fleet Corporation were "of little value" in assessing "wholly owned
and closely controlled" government corporations. Id. at 593-94. (A
cynic might say that is equally true for case law.)
Later cases involving wholly owned corporations tend to regard the
Assignment of Claims Act as applicable. The court in Federal Insurance
Co. v. Hardy, 222 F. Supp. 68 (E.D. Mo. 1963), found it applicable to
the Federal Housing Administration. Other cases have applied the
Assignment of Claims Act to the Tennessee Valley Authority (Sigmon
Fuel Co. v. Tennessee Valley Authority, 709 F.2d 440 (6th Cir. 1983)),
and the Export-Import Bank (Balfour Maclaine International, Ltd. v.
Hanson, 876 F. Supp. 52, 57 (S.D.N.Y. 1995)). See also In re Sunberg,
35 B.R. 777 (Bankr. S.D. Iowa 1983), aff'd, 729 F.2d 561 (8th Cir.
1984) (Commodity Credit Corporation).
It is also possible for a government corporation or government-
sponsored enterprise which qualifies as a "financing institution" to
be the assignee of the proceeds of a contract between the contractor
and some other government agency. For example, in In re Peoria
Consolidated Manufacturers, Inc., 286 F.2d 642 (7th Cir. 1961), the
court noted that the plaintiff manufacturing company had obtained a
loan from the Reconstruction Finance Corporation and, as security
assigned, to the corporation money due under a contract with the Army.
Id. at 644.
(5) Estoppel:
The classic case on estoppel against the government, Federal Crop
Insurance Corp. v. Merrill, 332 U.S. 380 (1947), involved a wholly
owned government corporation. The Corporation had denied a claim based
on the eligibility criteria in its regulations. The Supreme Court
upheld the denial, notwithstanding that the farmer had been misled
into believing that his crop would be covered. Speaking through
Justice Frankfurter, the Court explained:
"We assume that recovery could be had against a private insurance
company. But the Corporation is not a private insurance company....
The Government may carry on its operations through conventional
executive agencies or through corporate forms especially created for
defined ends.... Whatever the form in which the Government functions,
anyone entering into an arrangement with the Government takes the risk
of having accurately ascertained that he who purports to act for the
Government stays within the bounds of his authority."
Id. at 383-84.
The D.C. Circuit has held Freddie Mac—the Federal Home Loan Mortgage
Corporation—to be a federal entity for purposes of a promissory
estoppel claim. McCauley v. Thygerson, 732 F.2d 978 (D.C. Cir. 1984).
(This was the preprivatization version of Freddie Mac dealt with in
Rocap v. Indiek, 539 F.2d 174 (D.C. Cir. 1976), discussed in section
B.7.e of this chapter in connection with the Freedom of Information
Act.)
(6) Prompt Payment Act:
The Prompt Payment Act, 31 U.S.C. §§ 3901-3907, requires the payment
of an interest penalty when an agency makes late payment for the
acquisition of property or services from a business concern. The
definition of agency in 31 U.S.C. § 3901(a)(1) adopts the definition
of the Administrative Procedure Act, 5 U.S.C. § 551(1), which is broad
enough to include government corporations but does not explicitly
apply to them. GAO has regarded this language as clearly applying, for
example, to the Commodity Credit Corporation. B-223857, Feb. 27, 1987.
Subsection (b) of 31 U.S.C. § 3901 states that the Act applies to the
Tennessee Valley Authority (TVA), but that "regulations prescribed
under this chapter do not apply" to the TVA, which is authorized to
prescribe its own implementing regulations.
Congress amended the Act in 1988 to make it applicable to certain
assistance payments to farmers by the Commodity Credit Corporation
(CCC) which are not payments for the acquisition of goods or services.
Pub. L. No. 100-496, § 3, 102 Stat. 2455, 2456 (Oct. 17, 1988),
codified at 31 U.S.C. § 3902(h). Under 31 U.S.C. § 3907, a claim for
an interest penalty may be brought under the Contract Disputes Act
but, since that act has its own interest provision, Prompt Payment Act
interest is limited to 1 year. However, by virtue of 31 U.S.C. §
3902(h)(4), section 3907 does not apply to payments owed by the CCC
for agricultural commodity pricing and disaster assistance programs.
Therefore, the 1-year limitation on interest payments does not apply
to those payments. Doane v. Espy, 873 E Supp. 1277 (WD. Wis. 1995). As
with any other statute, and subject, of course, to constitutional
restrictions, Congress can expand or restrict the scope or
applicability of 31 U.S.C. § 3902(h). See Huntsman Farms, Inc. v.
Espy, 928 F. Supp. 1451 (E.D. Ark. 1996), aff d, 105 F.3d 662 (8th
Cir. 1997), for one example.
(7) False Claims Act:
The False Claims Act, 31 U.S.C. §§ 3729-3733, imposes liability for
presenting a false claim to, or conspiring to defraud, "the
Government." 31 U.S.C. § 3729(a). The question in the present context
is whether defrauding a government corporation is the same as
defrauding "the Government" for False Claims Act purposes. With
respect to wholly owned corporations at least, the answer appears to
be “yes.”[Footnote 201]
One line of cases involves the Commodity Credit Corporation (CCC). The
Supreme Court has held that a claim against the CCC is a claim against
the government under the False Claims Act. Rainwater v. United States,
356 U.S. 590 (1958). See also United States v. McNinch, 356 U.S. 595
(1958); United States v. Brown, 274 F.2d 107 (4th Cir. 1960). As the
Rainwater Court put it: "In brief, Commodity is simply an
administrative device established by Congress for the purpose of
carrying out federal farm programs with public funds.... In our
judgment Commodity is a part of `the Government of the United States'
for purposes of the False Claims Act." Rainwater, 356 U.S. at 592.
Another line of cases says essentially the same thing with respect to
the Federal Housing Administration (FHA). McNinelt, 356 U.S. at 598;
United States v. Veneziale, 268 F.2d 504 (3rd Cir. 1959); United
States v. Globe Remodeling Co., 196 F. Supp. 652 (D. Vt. 1960).
However, the McNinch, Court held that a lending institution's
application for credit insurance from the FHA is not a claim under the
False Claims Act, because an application for credit insurance is not
usually understood as a claim against the government. McNinch, 356
U.S. at 598.
Other wholly owned corporations which have been regarded as part of
"the Government" under the False Claims Act include the Federal Crop
Insurance Corporation (Kelsoe v. Federal Crop Insurance Corp., 724 F.
Supp. 448 (E.D. Tex. 1988)), and the former Reconstruction Finance
Corporation (United States v. Borin, 209 F.2d 145 (5th Cir.), cert.
denied, 348 U.S. 821 (1954)). Whether there might be any basis for
distinguishing these corporations from any other wholly owned
corporation does not appear to have been addressed.
The Federal Deposit Insurance Corporation—a mixed-ownership government
corporation—has also been treated as part of the government under the
False Claims Act. United States ex rel. Prawer & Co. v. Verrill &
Dana, 946 F. Supp. 87 (D. Maine 1996), reconsideration denied, 962 F.
Supp. 206 (D. Maine 1997). This case involved the so-called "reverse
claim" provision of the False Claims Act, 31 U.S.C. § 3729(a)(7),
imposing liability for knowingly making or using a false record or
statement "to conceal, avoid, or decrease an obligation to pay or
transmit money or property to the Government."
In a 2004 decision, the D.C. Circuit held that Amtrak is not part of
the government for purposes of the False Claims Act. United States ex
rel. Totten v. Bombardier Corp., 380 F.3d 488 (D.C. Cir. 2004), cert.
denied, 544 U.S. 1032 (2005). The court concluded that Congress had
clearly specified that Amtrak is not an agency of the government, and
that the False Claims Act requires presentment of a claim to a federal
employee, which Amtrak employees are not.
When a government corporation recovers damages under the False Claims
Act, it is entitled to retain those funds that represent reimbursement
for actual losses and for investigative costs. However, double and
treble damages recovered under the Act must be deposited into the
Treasury as miscellaneous receipts. B-281064, Feb. 14, 2000
(disposition of damages recovered by the Tennessee Valley Authority
under the False Claims Act).
(8) Interagency claims:
The conventional wisdom has traditionally been that an agency of the
federal government may not sue the United States or another agency
because the same person may not be on both ends of the same lawsuit.
E.g., Defense Supplies Corporation v. United States Lines Co., 148
F.2d 311 (2nd Cir.), cert. denied, 326 U.S. 746 (1945). Based in part
on this reasoning, GAO had held that an agency's appropriations were
not available to pay a claim for damage to the property of a
government corporation. 25 Comp. Gen. 49 (1945). This was a
straightforward application of the so-called "interdepartmental waiver
doctrine," which prohibits a federal agency or instrumentality from
paying for the use or repair of real property controlled by another
federal agency or instrumentality unless authorized by statute. See
Chapter 6, section E.2.c. This doctrine is based on the concept that
the property of instrumentalities of the government is not the
property of separate entities but rather of the government as a single
entity. 71 Comp. Gen. 1 (1991), and cases cited. However, this theory
of the government as a single entity, while still true for the most
part, is not an absolute. See, e.g., United States v. Interstate
Commerce Commission, 337 U.S. 426 (1949) (suit by the United States to
review a decision by the Interstate Commerce Commission); Tennessee
Valley Authority v. EPA, 278 F.3d 1184 (11th Cir. 2003), opinion
withdrawn in part, 336 F.3d 1236 (11th Cir. 2003), cert. denied, 541
U. 5.1030 (2004) (dispute between the Tennessee Valley Authority (TVA)
and EPA over the meaning of the Clean Air Act); Dean v. Herrington,
668 E Supp. 646 (E.D. Tenn. 1987) (suit by TVA against the Department
of Energy over two long-term power contracts).
Other decisions have recognized the availability of an agency's
appropriations to pay damage claims to at least certain government
corporations and corporate-like entities. For example, the Bonneville
Power Administration could charge the National Weather Service for
damage resulting from its use of Bonneville property. 71 Comp. Gen. 1
(1991). Under Bonneville's financing structure, the burden otherwise
would have fallen on Bonneville's customers through rate increases
caused by unrelated activities. Id. at 3-4. The Bonneville decision
was followed and applied in B-253613, Dec. 3, 1993, holding that the
Federal Highway Administration could pay TVA for damage its
construction caused to TVA's electrical transmission towers because
the burden would otherwise have fallen on TVA's customers.
The reverse situation—-payment by a government corporation to another
agency or government corporation—-occurred in 26 Comp. Gen. 235
(1946). GAO concluded that the corporation could pay the claim as long
as its funds were available for the payment of damages incurred in the
course of its operations. In the cited case, the funds of the former
Inland Waterways Corporation were available to operate the business of
a common carrier by water, and therefore available to pay any lawful
claims arising from that activity. The claimant in the 1946 case
happened to be another government corporation. Either way, the fact
that the agency or corporation suffering the damage may not have a
legally enforceable claim does not prevent administrative settlement.
Of course, the charter power to make final and conclusive claim
settlements provides this authority too.
b. Debt Collection:
The United States has inherent authority to recover amounts owed to it
and does not need any special statutory authority to do so. United
States v. Wurts, 303 U.S. 414, 416 (1938). There is no apparent reason
this should not apply equally to government corporations. See Bechtel
v. Pension Benefit Guaranty Corporation, 624 F. Supp. 590 (D.D.C.
1984), aff'd, 781 F.2d 906 (D.C. Cir. 1986).
The typical claims settlement charter provision of government
corporations applies to debt claims as well as payment claims. For
example, 15 U.S.C. § 714b(k) authorizes the Commodity Credit
Corporation to "make final and conclusive settlement and adjustment of
any claims by or against the Corporation." Just as with payment
claims, this authority removes the corporation from the coverage of 31
U.S.C. § 3702(a), the general claims settlement statute. Since most
debt collection became statutory during the last third of the
twentieth century, this has less significance than it does in the
payment context.
Much of the governmentwide debt collection legislation applies
expressly to government corporations. The first governmentwide
statute, the Federal Claims Collection Act of 1966, defined "agency"
as including "government corporations," which in turn includes both
wholly owned and mixed-ownership government corporations. Pub. L. No.
89-508, § 2(a), 80 Stat. 308 (July 19, 1966). The provisions which
originated in the 1966 Act are the duty to pursue collection action
and the compromise, suspension, and termination authorities, all of
which are now found in 31 U.S.C. § 3711. The Debt Collection Act of
1982 (Pub. L. No. 97-365, 96 Stat. 1749 (Oct. 25, 1982)) did not
include its own definition, but many of its provisions were cast as
amendments to the Federal Claims Collection Act, such as sections 10
(31 U.S.C. § 3716, administrative offset), 11 (31 U.S.C. § 3717,
interest), and 13 (31 U.S.C. § 3718, contracts for collection
services). Thus, these became subject to the 1966 definition.
The 1982 recodification of title 31 of the United States Code dropped
the definition as unnecessary. While this made no substantive change,
it then required several steps of statutory construction to figure out
which provisions applied to government corporations. In 1996, as part
of the Debt Collection Improvement Act of 1996, the express reference
to government corporations was restored. 31 U.S.C. § 3701(a)(4), as
amended by Pub. L. No. 104-134, § 31001(c)(2), 110 Stat. 1321, 1321-
359 (Apr. 26, 1996). Thus, for example, the Pension Benefit Guaranty
Corporation is subject to 31 U.S.C. § 3718 and may contract for
collection services to collect delinquent debts, but not for audit
services to identify the debts. B-276628, Aug. 19, 1998.
One authority a government corporation has which a regular agency does
not (by virtue of either its specific claims settlement power or its
sue-and-be-sued power in conjunction with other charter powers) is the
authority to waive indebtedness independent of the waiver statutes
applicable to the rest of the government. B-194628, July 3, 1979
(Government National Mortgage Association); B-190806, Apr. 13, 1978
(Pension Benefit Guaranty Corporation). The power to waive includes
the power to rescind a previously granted waiver if found to have been
obtained under a material mistake of fact, error of law, fraud, or
misrepresentation. B-272467.2, Aug. 28, 1998 (Export-Import Bank).
In the majority of cases in which the fact that a government
corporation is involved is relevant, the issue is whether a debt owed
to the corporation is the same as a debt owed to the United States.
The largest group of cases involves 31 U.S.C. § 3713, which gives
priority to government claims under certain circumstances, and the
earliest of these dealt with the Emergency Fleet Corporation. The
courts held that debts owed to the Fleet Corporation were not entitled
to the statutory priority. Sloan Shipyards Corp. v. United States
Shipping Board Emergency Fleet Corp., 258 U.S. 549 (1922);[Footnote
202] United States v. Wood, 290 F. 109 (2nd Cir.), aff'd mem., 263
U.S. 680 (1923); West Virginia Rail Co. v. Jewett Bigelow & Brooks
Co., 26 F.2d 503 (E.D. Ky. 1928).
As we have seen in section B.8.a(4) of this chapter, Fleet Corporation
cases must be applied with great caution, but this is one instance in
which the courts have generally reached the same result. Debts to the
following corporations have been held not to constitute debts to the
United States for purposes of the priority statute: Government
National Mortgage Association or "Ginnie Mae" (United States v.
Blumenfeld, 128 B.R. 918 (E.D. Penn. 1991)); Federal Deposit Insurance
Corporation (Lapadula & Villani, Inc. v. United States, 563 E Supp.
782 (S.D.N.Y. 1983)); and the former Reconstruction Finance
Corporation (RFC) (Reconstruction Finance Corporation v. Brady, 150
S.W.2d 357 (Tex. Civ. App. 1941)). Two cases giving priority to RFC
debts are In re Peoria Consolidated Manufacturers, Inc., 286 F.2d 642
(6th Cir. 1961), and In re Tennessee Central Railway, 463 F.2d 73 (6th
Cir.), cert. denied, 409 U.S. 893 (1972). Peoria involved a loan
program given to the RFC under the Defense Production Act of 1950, the
funds for which "were obtained from the Treasury of the United States
and did not involve the capital or assets of RFC." Peoria, 286 F.2d at
645. The Tennessee litigation occurred long after the RFC had been
liquidated and its assets transferred to various government agencies.
See RFC Liquidation Act, Pub. L. No. 83-163, 67 Stat. 230 (July 30,
1953).
Since the fact of corporate identity seems to be the key factor in
these cases, the courts have reached a different result with respect
to the Federal Housing Administration (FHA), which has corporate
powers but is not organized as a corporation. Debts owed to the FHA
are debts owed to the United States under 31 U.S.C. § 3713. Korman v.
Federal Housing Administrator, 113 F.2d 743 (D.C. Cir. 1940). Also,
Congress can extend the government's priority to any government
corporation by expressly so providing in the charter, as it has done,
for example, for the Commodity Credit Corporation, which "shall have
all the rights, privileges, and immunities of the United States with
respect to the right to priority of payment with respect to debts due
from insolvent, deceased, or bankrupt debtors." 15 U.S.C. § 714b(e).
See Engleman v. Commodity Credit Corp., 107 E Supp. 930 (S.D. Cal.
1952) (recognizing the priority but finding the statute inapplicable
where the government acquired its claim after an assignment for the
benefit of creditors).
In the area of offset, GAO and the courts have mostly recognized the
concept of the government as a single entity ("unitary government")
and treated debts to government corporations as debts to the United
States. Applying the common-law offset inherent under the general
settlement authority of 31 U.S.C. § 3702(a), GAO took the position
that a refund of certain taxes was subject to offset to collect a debt
owed to the Reconstruction Finance Corporation. B-35182, Aug. 16,
1943. The debtor sued, the government filed a counterclaim, and the
Supreme Court effectively upheld the offset. Cherry Cotton Mills, Inc.
v. United States, 327 U.S. 536 (1946). The Court said:
"Every reason that could have prompted Congress to authorize the
Government to plead counterclaims for debts owed to any of its other
agencies applies with equal force to debts owed to the R.F.C.... That
the Congress chose to call it a corporation does not alter its
characteristics so as to make it something other than what it actually
is, an agency selected by Government to accomplish purely governmental
purposes."
Id. at 539.
While the Court was ruling, strictly speaking, on the propriety of the
counterclaim and not the propriety of the administrative action, the
rationale clearly fits. See also B-35182, Nov. 30, 1945. While there
now exists a comprehensive statutory provision for administrative
offset, 31 U.S.C. § 3716, which applies to government corporations
under 31 U.S.C. § 3701(a)(4), the common-law principles remain
relevant in cases in which section 3716 does not apply. See McBride
Cotton & Cattle Corp. v. Veneman, 296 F. Supp. 2d 1125 (D.Ariz. 2003)
(the Commodity Credit Corporation has administrative offset authority
outside of 31 U.S.C. § 3716 by virtue of its statutory authority to
settle and adjust claims and to determine its obligations and
expenditures). Just like an agency, a government corporation cannot
use 31 U.S.C. § 3716 unless it has issued implementing regulations. In
re Art Metal U.S.A., Inc., 109 B.R. 74, 81 (Bankr. D.N.J. 1989).
The unitary government concept also applies for the most part in
setoffs under the Bankruptcy Code. E.g., In re Turner, 84 F.3d 1294
(10th Cir. 1996). The bankruptcy law regarding setoff, 11 U.S.C. §
553, preserves any common-law offset arising before commencement of
the bankruptcy case. 11 U.S.C. § 553(a). For purposes of this
provision, most government corporations are part of the unitary
government. This had also been the case under prior versions of the
Bankruptcy Code. Luther v. United States, 225 F.2d 495, 498 (10th Cir.
1954); B-120801, July 7, 1955. There is an exception, however, for
"certain federal agencies such as the Federal Deposit Insurance
Corporation [which] are viewed as separate governmental units when
they act in their private receivership capacity." Doe v. United
States, 58 F.3d 494, 498 (9th Cir. 1995); In re Lopes, 211 B.R. 443,
447 n.3 (D.R.I. 1997). Another exception which fits this formulation
is the Pension Benefit Guaranty Corporation when serving as trustee
for terminated plans. The fact that the Pension Benefit Guaranty
Corporation is a wholly owned government corporation had no impact on
the court's decision. In re Art Metal U.S.A., Inc., 109 B.R. at 78.
In one early case predating Cherry Cotton Mills, GAO applied the
precedents under the priority statute in determining which debts can
be collected by offset against judgments under 31 U.S.C. § 3728. A-
97085, June 13, 1942 (a debt owed to the Federal Deposit Insurance
Corporation was not a debt owed to the United States for judgment
offset purposes). While the result might still be the same for the
corporation under the "private capacity" exception, the analysis
probably should start by applying the offset cases rather than the
priority cases.
c. Litigation in the Courts:
(1) Sovereign immunity:
We begin with the well-recognized principle that sovereign immunity
protects the federal government and its agencies from suit. E.g.,
Federal Deposit Insurance Corp. v. Meyer, 510 U.S. 471, 475 (1994). Of
course, the United States may waive that immunity by consenting to be
sued. Id. The Supreme Court in Meyer described sovereign immunity as
being jurisdictional in nature—"the terms of [the United States']
consent to be sued in any court define that court's jurisdiction to
entertain the suit." Id. at 475, quoting United States v. Sherwood,
312 U.S. 584, 586 (1941). Since government corporations are not always
considered to "be" the United States, we cannot rely solely upon the
general theories of sovereign immunity to determine the status of
government corporations.
(2) "Sue-and-be-sued" clauses:
Most government corporation charters provide the power to sue and be
sued; that is, sue and be sued in the name of the corporation rather
than the United States. The simplest charter provision empowers the
corporation to "sue and be sued in its corporate name." E.g., 16
U.S.C. § 831c(b) (Tennessee Valley Authority); 7 U.S.C. § 942 (Rural
Telephone Bank). See also B-281064, Feb. 14, 2000 (discussing the
Tennessee Valley Authority's power to sue and be sued). A variation
includes one or two additional elements, such as 29 U.S.C. §
1302(b)(1), which authorizes the Pension Benefit Guaranty Corporation
(PBGC) to "sue and be sued, complain and defend, in its corporate name
and through its own counsel, in any court, State or Federal." See also
B-289219, Oct. 29, 2002 (describing PBGC's authority to sue and be
sued in its own name). Another version adds a whole paragraph of
instructions on such things as jurisdiction, venue, and the time
limitations in which suit may be filed. E.g., 7 U.S.C. § 1506(d)
(Federal Crop Insurance Corporation (FCIC)); 15 U.S.C. § 714b(c)
(Commodity Credit Corporation). See, e.g., Texas Peanut Farmers v.
United States, 409 F.3d 1370 (Fed. Cir. 2005) (discussing proper venue
for suit against FCIC under 7 U.S.C. § 1506(d)).
Whether a government corporation without a sue-and-be-sued clause also
has sovereign immunity is open to some debate. In Keifer & Keifer v.
Reconstruction Finance Corp., 306 U.S. 381, 389 (1939), the Supreme
Court said that the mere fact that corporations are created by
Congress and act as agencies of the United States "would not confer on
such corporations legal immunity even if the conventional to-sue-and-
be-sued clause were omitted." Other courts seized upon this
proposition and proclaimed that a government corporation does not
share the government's sovereign immunity unless Congress expressly
grants it. E.g., Reconstruction Finance Corp. v. Langham, 208 F.2d 556
(6th Cir. 1953); United States v. Edgerton & Sons, 178 F.2d 763 (2nd
Cir. 1949). Taken to its logical conclusion, this position would
render the sue-and-be-sued clause surplusage—the situation would be
the same with or without it. In Keifer, however, the Court was dealing
with legislation which authorized the Reconstruction Finance
Corporation to create certain regional corporations, and found that
Congress contemplated that the powers of the parent corporation would
flow through to its progeny. Many government corporations have come
and gone in the decades since the Keifer decision, virtually all
possessing the sue-and-be-sued power. It would seem that the omission
of that power from a new statutory charter could not be summarily
dismissed. Be that as it may, the question would likely turn on
congressional intent (Federal Land Bank v. Priddy, 295 U.S. 229, 231
(1935)) and may well remain academic if Congress continues to
routinely include the sue-and-be-sued clause.
Regardless of the arguable consequences of silence in a legislative
charter, the important starting principle is that Congress has the
power to control the matter by including appropriate language, one way
or the other, in the charter. Keifer, 306 U.S. at 389; Priddy, 295
U.S. at 231-32. As the Supreme Court put it in Federal Housing
Administration v. Burr, 309 U.S. 242, 244 (1940), "there can be no
doubt that Congress has full power to endow [a government corporation]
with the government's immunity from suit or to determine the extent to
which it may be subjected to the judicial process."
A very similar statement is found in Prickly, 295 U.S. at 231:
"Immunity from suit is ... given up when the language of the organic
statute specifically waives it." See also Dollar v. Land, 154 F.2d
307, 312 (D.C. Cir. 1946), affd, 330 U.S. 731 (1947). The most common
legislative device for waiving sovereign immunity is the sue-and-be-
sued clause. When Congress passes enabling legislation allowing a
federal entity to be sued under a sue-and-be-sued clause, that waiver
of sovereign immunity "should be given a liberal—that is to say,
expansive—construction." United States Postal Service v. Flamingo
Industries, Ltd., 540 U.S. 736, 741 (2004). The Supreme Court
emphasized that sue-and-be-sued clauses could only be limited by
implication in certain circumstances where there has been a:
"`clear showing that certain types of suits are not consistent with
the statutory or constitutional scheme, that an implied restriction of
the general authority is necessary to avoid grave interference with
the performance of a governmental function, or that for other reasons
it was plainly the purpose of Congress to use the 'sue and be sued'
clause in a narrow sense.'"
Federal Deposit Insurance Corp. v. Meyer, 510 U.S. 471, 480 (1994),
quoting Burr, 309 U.S. at 245.
The fact that a government corporation can sue or be sued does not
mean that it can be hauled into court for any perceived wrong. The
Supreme Court pointed out in Meyer that the sovereign immunity waiver
is only the first step in a two-step process: "The first inquiry is
whether there has been a waiver of sovereign immunity. If there has
been such a waiver, as in this case, the second inquiry comes into
play—that is, whether the source of substantive law upon which the
claimant relies provides an avenue for relief." Meyer, 510 U.S. at 484.
The Meyer Court held that the sue-and-be-sued clause of the former
Federal Savings and Loan Insurance Corporation waived its immunity
with respect to a constitutional tort claim, but that there was no
legal basis—and the Court emphatically refused to create one—for
asserting a constitutional tort claim against the corporation itself.
In the Meyer case, the source of the substantive law upon which the
suit relied did not provide an avenue for relief. Id. at 483-86. Thus,
a sue-and-be-sued clause does not furnish the legal basis for
"liability if the substantive law in question is not intended to reach
the federal entity." Flamingo Industries, 540 U.S. at 744. See also
Young v. Federal Deposit Insurance Corp., 763 E Supp. 485 (D. Colo.
1991); Atchley v. Tennessee Valley Authority, 69 E Supp. 952 (N.D.
Ala. 1947); Grant v. Tennessee Valley Authority, 49 E Supp. 564 (E.D.
Tenn. 1942). The Atchley court put it this way:
"A distinction must be recognized between the procedural question of
whether a government corporation is subject to suit and the
substantive question of whether a given set of facts establishes its
liability as a matter of substantive law. The sue-and-be-sued clause
in the TVA Act does nothing but remove the procedural bar to suit
against an agency of the Federal Government. It does not engender
liability in a case where liability would not otherwise exist."
Atchley, 69 F. Supp. at 954.
Some conflict has arisen regarding the source of payments for
potential judgments and the effect, if any, on jurisdiction. The
source of that conflict can be found in the Burr case. In Burr, the
Supreme Court held that garnishment was available to litigants against
the Federal Housing Administration (FHA), but stated that this did not
mean "that any funds or property of the United States [could] be held
responsible for this judgment." Burr, 309 U.S. at 250. The Supreme
Court pointed out that claims against private corporations are
normally only collectible against corporate assets and that the same
was true for the FHA. The National Housing Act directed that claims
against the FHA involved in this case "shall be paid out of funds made
available by this Act." Id. at 250, quoting Pub. L. No. 73-479, §1, 48
Stat. 1246 (June 27, 1934). Thus, the Supreme Court concluded that
only funds which were actually in the possession of FHA, "severed from
Treasury funds and Treasury control, are subject to execution." Burr,
309 U.S. at 250. On the other hand, FHA funds deposited with the
Treasury were not subject to execution because there had been no
consent to reach them and allowing execution "would be to allow
proceedings against the United States where it had not waived its
immunity." Id. Recognizing that this restriction on execution deprived
it of utility, the Supreme Court emphasized that this was an inherent
limitation on the statutory scheme and remedies provided by Congress.
Id. at 251.
Federal courts have differed in interpreting the Burr holding. Some
courts have held that, in order to establish the government's waiver
of sovereign immunity, the party suing a government corporation with a
sue-and-be-sued clause must show that a judgment against the
government corporation would come from funds in its possession and
control. Johnson v. Secretary of Housing & Urban Development, 710 F.2d
1130, 1138 (5th Cir. 1983); S.S. Silberblatt, Inc. v. East Harlem
Pilot Block, 608 F.2d 28, 36 (2nd Cir. 1979); Marcus Garvey Square,
Inc. v. Winston Burnett Construction Co., 595 F.2d 1126, 1131 (9th
Cir. 1979); Rawlins v. M&T Mortgage Corp., No. 05 Civ. 2572(RCC)
(S.D.N.Y. Sept. 1, 2005); Thomas v. Pierce, 662 E Supp. 519, 526 (D.
Kan. 1987). See also Oklahoma Mortgage Co. v. Government National
Mortgage Association, 831 F. Supp. 821, 823 (W.D. Okla. 1993) (the
Government National Mortgage Association has no funds in its
possession and control separate from Treasury funds, and statute
precludes recovery from its assets, so claims against it were, in
reality, claims against the United States barred by sovereign
immunity).
Other courts reason that even if funds are in the possession and
control of the federal entity, the action must be brought against the
United States if the funds originated from the public treasury.
Housing Products Co. v. Flint Housing Commission, No. 99-1551 (6th
Cir. Nov. 7, 2000) (per curiam); Portsmouth Redevelopment and Housing
Authority v. Pierce, 706 F.2d 471 (4th Cir. 1983). These courts note
that funds appropriated to a federal entity "do not cease to be public
funds after they are appropriated." Pierce, 706 F.2d at 473-74. At
least one court has criticized this approach on the basis that if
funds appropriated to federal entities cannot be used to satisfy
judgments acquired by the waiver of immunity provided by a sue-or-be-
sued clause, it would "render such clauses ineffectual." C.D. Barnes
Associates, Inc. v. Grand Haven Hideaway Ltd., 406 E Supp. 2d 801, 818
(W.D. Mich. 2005).
Some courts have rejected both these approaches, reasoning that those
cases misinterpret Burr. Auction Co. of America v. Federal Deposit
Insurance Corp., 132 F.3d 746 (D.C. Cir. 1997). In deciding
jurisdictional issues involving the FDIC, the Auction court criticized
the distinction between suits against agencies and those against the
United States because "this test was designed to distinguish suits
against private individuals from ones against the sovereign," and
"federal agencies or instrumentalities performing federal functions
always fall on the 'sovereign' side of [the] fault line; that is why
they possess immunity that requires waiver." Id. at 752. The Auction
court stated that although the source of funds for recovery may become
an issue, "it is not jurisdictional and does not bear on whether a
suit against the FDIC as Receiver is a suit against the United
States." Id. at 752-53.
Other courts have held that when sovereign immunity is waived by a sue-
and-be sued clause, the court does not need to analyze whether there
are funds within the government corporation's control for
jurisdictional purposes. C.H. Sanders Co.v. BHAP Housing Development
Fund, 903 F.2d 114, 120 (2nd Cir. 1990);[Footnote 203] Jackson Square
Ass'n v. Department of Housing & Urban Development, 797 F. Supp. 242,
245-46 (W.D.N.Y. 1992). Upon consideration of the government's
petition for rehearing in the C.H. Sanders case, the Second Circuit
addressed the concern that the Department of Housing and Urban
Development (HUD) was obliged to satisfy any judgment that might be
rendered out of Treasury funds. C.H. Sanders Co. v. BHAP Housing
Development Fund, 910 F.2d 33 (2nd Cir. 1990) (denying petition for
rehearing). The Second Circuit held that HUD would be obliged to
satisfy any judgment only out of non-Treasury funds that are available
to it and would have no payment obligation if no such funds were
available. Id.
Another court distinguished Burr on the basis that jurisdiction was
derived from another source, such as the Tucker Act, which does not
limit the source of judgment, instead of FHA's sue and be sued clause.
National State Bank of Newark v. United States, 357 F.2d 704, 711 (Ct.
Cl. 1966).
Finally, the court in Far West Federal Bank v. Office of Thrift
Supervision, 930 F.2d 883, 890 (Fed. Cir. 1991), recognized the split,
but avoided choosing one or the other because the court was able to
identify funds in control of the government corporation from which any
judgments would be paid. In Far West, the government argued that any
judgment would be paid from Treasury funds and not funds in control of
the government corporation and such a claim could only be asserted in
the Claims Court under the Tucker Act. Id. at 890. The government's
argument was based upon a "Treasury backup" provision stating that the
Secretary of Treasury will fund amounts as may be necessary for fund
purposes. Id. However, the court held that the liabilities of the fund
were to be paid from the fund, the fund was to be administered by the
government corporation and the Treasury backup provision simply
implemented congressional intent that the fund have sufficient
resources to carry out its obligations. Id. at 88990. Thus, the court
concluded that the Treasury backup provision did not bar recovery
under the sue-and-be-sued clause or impose exclusive Tucker Act
jurisdiction. Id. at 890.
Notwithstanding the differences discussed above, generally, judgments
against a government corporation are paid by the government
corporation rather than from the Judgment Fund.[Footnote 204]
Judgments against government corporations are "otherwise provided
for," so when judgments are obtained against government corporations
they can pay them, like private corporations, from those corporate
assets. Both GAO and the Attorney General recognize this rule. See,
e.g., 62 Comp. Gen. 12 (1982); B-236414, Feb. 22, 1991; 22 Op. Off.
Legal Counsel 141 (1998); 13 Op. Off. Legal Counsel 362 (1989).
(3) The Tucker Act:
Sue-and-be-sued clauses are not the only waivers of sovereign immunity
for government corporations. The Tucker Act waives sovereign immunity
of the United States and sets out jurisdictional parameters for
certain monetary claims against the United States, including those
founded upon the Constitution, any act of Congress, any regulation of
an executive department, or any express or implied contract with the
United States. 28 U.S.C. § 1491(a)(1). Under the Tucker Act, the
United States Court of Federal Claims has exclusive jurisdiction for
civil suits of more than $10,000 and concurrent jurisdiction with
federal district courts for civil suits not exceeding $10,000. 28
U.S.C. §§ 1346(a)(2) and 1491(a)(1). The Tucker Act provides
jurisdiction for suits against the United States "whenever 'a federal
instrumentality acts within its statutory authority to carry out [the
government's] purposes' as long as no other specific statutory
provision bars jurisdiction." Auction Co. of America v. Federal
Deposit Insurance Corp., 141 F.3d 1198, 1199 (1998) (Auction II),
quoting Butz Engineering Corp. v. United States, 499 F.2d 619, 622
(Ct. Cl. 1974). Several mixed-ownership government corporations, such
as the Federal Deposit Insurance Corporation (FDIC) as receiver, the
Office of Thrift Supervision, and the Resolution Trust Corporation
have been held to be federal instrumentalities for Tucker Act
purposes. Auction II, 141 F.3d at 1199; Auction Co. of America v.
Federal Deposit Insurance Corp., 132 F.3d 746, 750 (D.C. Cir. 1997)
(Auction I). See, e.g., Slattery v. United States, 35 Fed. CL 180
(1996); Seuss v. United States, 33 Fed. CL 89 (1995).
A wholly owned government corporation is clearly a federal
instrumentality for Tucker Act purposes where it can be demonstrated
"that it is an agency selected by the Government to accomplish purely
governmental purposes ... and that it is doing work of the
Government." Breitbeck v. United States, 500 F.2d 556, 558 (1974)
(Saint Lawrence Seaway Development Corporation). See also Oklahoma
Mortgage Co. v. Government National Mortgage Association, 831 F. Supp.
821 (1993) (company's claim was an action founded upon a contract,
against the United States, seeking relief in excess of $10,000 which
was within the exclusive jurisdiction of the United States Claims
Court). Even where wholly owned government corporations carry out
commercial activities that can be characterized as private, if their
purpose is to further the policy interests of the government, they are
considered to be federal instrumentalities for Tucker Act purposes.
Optiperu, S.A., v. Overseas Private Investment Corp., 640 F. Supp.
420, 424 (D.D.C. 1986). The Optiperu court reviewed the legislative
history of the Overseas Private Investment Corporation (OPIC) and
found several instances where Congress set out OPIC's governmental
policy objectives while carrying out transactions that would otherwise
normally be characterized as private, such as issuing and guaranteeing
loans and insurance. Id. at 424-25. The court noted that under 22
U.S.C. § 2191 OPIC is "an agency of the United States under the policy
guidance of the Secretary of State." Optiperu, 640 F. Supp. at 424.
The court also pointed out that OPIC was listed as a wholly owned
government corporation in the Government Corporation Control Act, 31
U.S.C. § 9101(3)(H), and noted the various provisions dealing with
OPIC's budget submissions, appropriations, financial audits and
account requirements with the government. Optiperu, 640 F. Supp. at
424 n.2. Finally, the court found that even if OPIC had to pay any
judgments out of its funds rather than the Treasury, this did not
eliminate its status as a federal instrumentality. Id. at 425-26.
Rather, the United States would be jointly or severally liable for any
money damages obtained against OPIC. Id. at 426.
The various waivers of sovereign immunity and jurisdictional authority
may provide plaintiffs with several choices of forum. For example, in
Auction I, 132 F.3d at 753, the court pointed out that plaintiffs
suing the FDIC in contract could sue in the Court of Federal Claims
for Tucker Act suits of more than $10,000, in the Court of Federal
Claims or federal district court for Tucker Act claims of less than
$10,000, or in any court of law or equity under the FDIC sue-or-be-
sued clause.
(4) Liability for costs and remedies of litigation:
Once government corporations sue, or are sued, they can expect to be
subject to at least some of the typical costs of litigation. Courts
have analyzed the sue-and-be-sued clauses of government corporations
in order to determine which costs can be assessed against government
corporations. In Federal Housing Administration v. Burr, 309 U.S. 242
(1940), for example, the Supreme Court held that the Federal Housing
Administration (FHA) was subject to all civil process incident to the
commencement or continuance of legal proceedings which included the
garnishment of the wages of an FHA employee sought in that case.
[Footnote 205] The Supreme Court noted that garnishment is a well-
known remedy available to litigants and "[t]o say that Congress did
not intend to include such civil process in the words 'sue and be
sued' would in general deprive suits of some of their efficacy." Id.
at 246. The Court pointed out two examples of government agencies with
sue-and-be-sued clauses with specific prohibitions against attachment
and garnishment, which added weight to the Court's conclusion that
Congress ordinarily intended that such civil process apply or it would
have specifically prohibited them. Id. at 247 n.10.
The Supreme Court considered whether the Reconstruction Finance
Corporation (RFC), as the unsuccessful litigant, could be held liable
for costs incident to litigation. Reconstruction Finance Corp. v.
Menihan Corp., 312 U.S. 81 (1941). The Supreme Court noted that
although the RFC acted as a governmental agency "its transactions are
akin to those of private enterprises" and Congress provided it with
the power to sue and be sued. Id. at 83. The Supreme Court held that
sue-and-be-sued clauses "normally include the natural and appropriate
incidents of legal proceedings" and that the "payment of costs by the
unsuccessful litigant, awarded by the court in the proper exercise of
the authority it possesses in similar cases, is manifestly such an
incident." Id. at 85. Although this statement was very broad, its
application has been somewhat limited.
Generally, interest cannot be recovered in a suit against the United
States unless there is an express waiver of sovereign immunity from an
award of interest. Library of Congress v. Shaw, 478 U.S. 310, 311
(1986);[Footnote 206] see also B-243029, Mar. 25, 1991. Where a
government corporation does not act like a private corporation, but
acts as an agent for the government and there is no statue or
authority for paying interest, interest cannot be imposed upon the
United States directly or indirectly through the agent government
corporation. Riverview Packing Co. v. Reconstruction Finance Corp.,
207 F.2d 361, 370 (3rd Cir. 1953).
However, interest can and has been recovered against government
corporations under certain circumstances. A "commercial venture"
exception to the no-interest rule has developed. Generally this
exception recognizes that where an agency of the United States is
involved in an essentially commercial and for-profit venture, its sue-
and-be-sued clause waives sovereign immunity and may allow liability
for pre- or post-judgment interest. Standard Oil Co. v. United States,
267 U.S. 76, 79 (1925); R&R Farm Enterprises, Inc. v. Federal Crop
Insurance Corp., 788 F.2d 1148 (5th Cir. 1986). If the party seeking
payment of interest is a recipient of government benefits arising out
of the agency's noncommercial ventures, courts have refused to award
interest because the payment would be in excess of what Congress or
the agency has authorized by law or regulation. R&R Farm Enterprises,
788 F.2d at 1153. The waiver of sovereign immunity does not create a
new liability upon the government for the payment of interest. See
McGehee v. Panama Canal Commission, 872 F.2d 1213 (5th Cir.),
rehearing denied, 880 F.2d 413 (5th Cir. 1989); Fender Peanut Corp. v.
United States, 21 Cl. Ct. 95 (1990).
In cases where the government corporation is not engaged in a
commercial enterprise, but is acting as a governmental, regulatory
entity, it is not subject to prejudgment interest awards even where it
has a sue-and-be-sued clause. For example, where the Federal Deposit
Insurance Corporation (FDIC) is acting as a regulatory agency
protecting the banking system, it is not subject to prejudgment
interest awards. Far West Federal Bank v. Office of Thrift
Supervision, 119 F.3d 1358, 1366-67 (9th Cir. 1994); Spawn v. Western
Bank-Westheimer, 989 F.2d 830, 833-38 (5th Cir. 1993), cert. denied,
510 U.S. 1109 (1994); Gilbert v. Federal Deposit Insurance Corp., 950
F. Supp. 1194, 1199-1200 (D.D.C. 1997).
The award of prejudgment interest may also be imposed against
government corporations under the analysis recognized by the Supreme
Court in Loeffler v. Frank, 486 U.S. 549, 556 (1988). Under Title VII
of the Civil Rights Act of 1964, Congress waived sovereign immunity
for actions against federal agencies, but not for interest awards.
Shaw, 478 U.S. at 323. In Loeffler, the Supreme Court identified two
factors which waived any existing immunity of the Postal Service.
[Footnote 207] First, the Supreme Court recognized that Congress had
designed the Postal Service to be run like a business by "launching"
it into the commercial world. Loeffler, 486 U.S. at 556. Second,
Congress included a sue-and-be-sued clause in the Postal Service's
charter. Id. However, since Congress did not expressly limit the
waiver of sovereign immunity effected by the Postal Service's sue-and-
be-sued clause, interest could be recovered against the Postal Service
in Title VII cases even though it could not be recovered against other
agencies. The Supreme Court concluded that "Congress is presumed to
have waived any otherwise existing immunity of the Postal Service from
interest awards" which could be recovered from the Postal Service "to
the extent that interest is recoverable against a private party as a
normal incident of suit." Id. at 556-57.
Finally, like federal agencies, government corporations may not be
sued for punitive damages unless expressly authorized by Congress.
Springer v. Bryant, 897 F.2d 1085, 1089 (11th Cir. 1990). The Equal
Access to Justice Act (EAJA) also authorizes fee awards against the
United States, in various administrative and judicial actions which
were not previously authorized. Pub. L. No. 96-481, 94 Stat. 2321,
2325-30 (Oct. 21, 1980), amended by Pub. L. No. 99-80, 99 Stat. 183-87
(Aug. 5, 1985). See also 63 Comp. Gen. 260, 261 (1984). Prior to the
EAJA's implementation, the award of attorney's fees against the
government was barred and a sue-and-be-sued clause that did not
directly or expressly authorize an award of fees was not sufficient to
override that bar.
Resolution Trust Corp. v. Miramon, 935 F. Supp. 838, 842 (E.D. La.
1996), citing Knights of the Ku Klux Klan v. East Baton Rouge Parish
School Board, 679 F.2d 64, 66 (5th Cir. 1982).
The EAJA addressed judicial fee awards by extensively revising 28
U.S.C. § 2412. Section 2412 applies to the United States or "any
agency and any official of the United States acting in his or her
official capacity." 28 U.S.C. § 2412(c)(2). The EAJA has been applied
to both mixed-ownership and wholly owned government corporations,
although without addressing the issue of the EAJA's application to
them. See, e.g., Resolution Trust Corp. v. Eason, 17 F.3d 1126 (8th
Cir. 1994); Miramon, 935 E Supp. 838; Olenhouse v. Commodity Credit
Corp., 922 E Supp. 489 (D. Kan. 1996).
As is true with other federal agencies, the EAJA operates as a limited
waiver of a government corporation's sovereign immunity by permitting
courts to award reasonable attorney's fees to prevailing parties under
common law or the terms of a statute, but the waiver must be strictly
construed in favor of the government. Eason, 17 F.3d at 1134. In that
case, the Resolution Trust Corporation (RTC) sued officers of a failed
savings and loan association alleging negligence and breach of
fiduciary duty. Id. at 1128. The officers successfully defended
against the action and attempted to recover attorney's fees from RTC
relying on a regulation that authorized indemnification for expenses
incurred in defending charges arising out of their official conduct.
Id. at 1135. However, that regulation only applied during the "life"
of the savings and loan. By the time RTC brought the action, the
entity had failed and RTC was not acting in the capacity of the
savings and loan. Id. Thus, the regulation did not apply and the
officers could not recover attorney's fees. Id. at 1136.
The EAJA is specific in the items that may be awarded in a judgment
against the United States for costs, fees and expenses, but does not
authorize general compensatory damages for embarrassment or loss of
reputation. Miramon, 935 E Supp. at 843-44. Neither does a "naked" sue-
and-be-sued clause, that is, one which does not directly or expressly
authorize an award of fees. Id. at 843.
Finally, the terms "common law" and "statute" as used in the EAJA's
authorization of fees refers to federal common law or a federal
statute, not state law. Eason, 17 F.3d at 1134 n.6; Miramon, 935 E
Supp. at 846.
(5) Sovereign immunity from state and local taxes:
The oft-quoted principle that the federal government and its
activities[Footnote 208] are immune from taxation by state and local
governments was recognized by the Supreme Court in a case involving a
government corporation. McCulloch, v. Maryland, 17 U.S. (4 Wheat.) 316
(1819).[Footnote 209] The application of this principle to government
corporations has varied since McCulloch,, but the main debate has
centered on whether one should assume that an entity has such immunity
due to its status as a corporation carrying out governmental purposes,
or whether Congress must expressly grant such immunity by statute.
McCulloch, involved the Second Bank of the United States, which was
chartered by Congress, had 20 percent of its capital stock subscribed
to by the United States, and several of its directors appointed by the
President. The Second Bank of the United States established a branch
in Maryland. The state of Maryland imposed a tax on all banks or
branches of banks in the state which were not chartered by the
Maryland state legislature. The Supreme Court held that the Supremacy
clause of the Constitution prevents a state from exercising any power,
by taxation or otherwise, to retard, impede, burden, or in any manner
control the operations of the federal government or its constitutional
means of carrying out its powers. Id. at 436. The Supreme Court
emphasized that the bank's purpose was to carry out a governmental
function, and concluded that any effort to tax the bank directly
affected the government. The Supreme Court put it this way: "But this
is a tax on the operations of the bank, and is, consequently, a tax on
the operation of an instrument employed by the government of the Union
to carry its powers into execution. Such a tax must be
unconstitutional." Id. at 436-37.
Although the act creating the Bank did not expressly prohibit the
states from taxing it, the Supreme Court in McCulloch, did not address
that issue. Five years later, the Supreme Court took up this issue in
Osborn v. The Bank of the United States, 22 U.S. (9 Wheat.) 738
(1824). In Osborn, the Supreme Court held that although Congress did
not expressly prohibit taxing the Bank, immunity was implied as a
consequence of Congress's power to create and protect the Bank. Id. at
865.
In later cases, the Supreme Court addressed Congress's power to exempt
government corporations from state taxation without relying upon the
"implied" immunity of the McCulloch, and Osborn cases. Federal Land
Bank v. Crosland, 261 U.S. 374 (1923); Smith v. Kansas City Title &
Trust Co., 255 U.S. 180 (1921). In those cases, Congress created
government corporations—federal land banks—and specifically exempted
their bonds and mortgages from state and local taxation. The Supreme
Court held that Congress not only had the power to create the
corporations, but to protect their operations by exempting them from
taxation. Crosland, 261 U.S. at 377; Smith, 255 U.S. at 211-12. A few
months after it decided Crosland, the Supreme Court returned to the
McCulloch analysis in a case involving state taxation of another
government corporation, the Spruce Production Corporation. Clallam
County v. United States, 263 U.S. 341 (1923). In the words of the
Supreme Court:
"It is true that no specific words forbid the tax, but the prohibition
established by McCulloch v. Maryland, ... was established on the
ground that the power to tax assumed by the State was in its nature
'repugnant to the constitutional laws of the Union' and therefore was
one that under the Constitution the State could not use.... The
immunity is derived from the Constitution in the same sense and upon
the same principle that it would be if expressed in so many words."
Id. at 344, quoting McCulloch, 17 U.S. (4 Wheat.) at 425, 426, 430.
A statement by the Clallam court provides a clue as to what appears to
be the distinction between these approaches. The Supreme Court noted
that, unlike "the case of a corporation having its own purposes, as
well as those of the United States and interested in profit on its own
account," the Spruce Production Corporation was incorporated only for
the convenience of the United States to carry out its ends. Clallam,
263 U.S. at 345. Although not addressed in either the Smith or
Crosland cases, the federal land banks were mixed-ownership government
corporations with private (read profit), as well as government
purposes. See also Federal Land Bank v. Priddy, 295 U.S. 229, 234-35
(1935) (noting that Congress provided a specific grant of immunity
from taxation to a corporation having its own as well as government
purposes).
Subsequent decisions by the Supreme Court continued this analysis. For
example, recognizing that Congress may grant immunity from state and
local taxation to a federal instrumentality or government corporation
in Pittman v. Home Owners' Loan Corp., 308 U.S. 21 (1939), the Supreme
Court explained that "Congress has not only the power to create a
corporation to facilitate the performance of governmental functions,
but has the power to protect the operations thus validly authorized."
Id. at 32-33.[Footnote 210] The Supreme Court held that the creation
of the corporation "was a constitutional exercise of the congressional
power and that the activities of the Corporation through which the
national government lawfully acts must be regarded as governmental
functions and as entitled to whatever immunity attaches to those
functions when performed by the government itself through its
departments." Id. at 32. See also Federal Lank Bank v. Bismark Lumber
Co., 314 U.S. 95, 99 (1941) (statutory exemption from taxation for
federal land banks includes sales taxes).
As seen in the cases discussed above, Congress has specifically
prescribed the scope of immunity for many government corporations by
wholly or partially exempting them from state and local taxation.
[Footnote 211] In other instances, Congress expressly waived immunity
from taxation of any real property belonging to a government
corporation. For example, under the provisions of the statute
establishing the Reconstruction Finance Corporation (RFC), Congress
waived the immunity of real property of the RFC and its subsidiary
corporations.[Footnote 212] Board of County Commissioners v. United
States, 123 Ct. CL 304 (1952). However, the RFC's authority to pay
taxes was contingent upon the corporation's holding legal title and
having full control and dominion over the property. 32 Comp. Gen. 164
(1952). Once the RFC declared property to be surplus and transferred
the title to the United States, the property was held by and for the
use of the United States. Thus, the "cloak of immunity descended upon
the property" so that no tax liability for state and local taxes could
be imposed and agencies could not use appropriated funds to pay such
taxes. Board of County Commissioners, 123 Ct. Cl. at 324 (property
transferred to the Bureau of Mines). See also 36 Comp. Gen. 713 (1957)
(property transferred to the General Services Administration); 34
Comp. Gen. 319 (1955) (same).
(6) Litigation authority:
Once a government corporation decides to sue, or is sued, it must
determine whether it must be represented in litigation by the Justice
Department, or whether it can use or hire its own attorneys. The
Justice Department has extremely broad authority with respect to
litigation involving the federal government. "Except as otherwise
authorized by law, the conduct of litigation in which the United
States, an agency, or officer thereof is a party, or is interested" is
reserved to the Justice Department. 28 U.S.C. § 516. Further, "the
Attorney General shall supervise all litigation to which the United
States, an agency, or officer thereof is a party." Id. § 519. The term
"agency" is defined for purposes of title 28 of the United States Code
as including "any corporation in which the United States has a
proprietary interest." Id. § 451. Therefore, absent some form of
exemption, 28 U.S.C. §§ 516 and 519 apply to wholly owned and at least
some mixed-ownership government corporations. In some cases, the
authority is reinforced by charter language. For example, 7 U.S.C. §
943(e) expressly makes the Rural Telephone Bank subject to the
Attorney General's litigation authority.
The Justice Department has expressed the position that exemptions from
the Attorney General's litigation authority should be clear and
specific. See Department of Justice, Civil Division, Compendium of
Departments and Agencies With Authority Either by Statute or Agreement
to Represent Themselves in Civil Litigation (October 1982), at 9-10
(hereafter, Civil Litigation Compendium). The Department does not
regard a simple sue-and-be-sued clause as enough. Id. at 11. An
example of explicit authority is the Pension Benefit Guaranty
Corporation statute, which provides that the Corporation may complain
or defend a lawsuit "through its own counsel." 29 U.S.C. § 1302(b)(1).
Even where a corporation has independent litigating authority, Justice
believes the corporation should invoke that authority only in
programmatic litigation. In nonprogrammatic litigation which is of
governmentwide import, like suits under the Freedom of Information Act
or Federal Tort Claims Act, Justice urges the corporations to avail
themselves of Department representation. Civil Litigation Compendium,
at 18-19. The Department's litigating authority does not apply to
noninstrumentality corporations. Id. at 22 n.13.
The Civil Litigation Compendium recognizes that Justice has acquiesced
in self-representation by two corporations, the Federal Deposit
Insurance Corporation (FDIC) and the Tennessee Valley Authority (TVA),
which possess only the simple version of the sue-and-be-sued clause.
Id. at 26-27. The courts have held Justice to that acquiescence and
have upheld self-representation authority for FDIC and TVA. Tennessee
Valley Authority v. EPA, 278 F.3d 1184,1191-93 (11th Cir. 2002),
withdrawn in part on other grounds, 376 F.2d 1236 (11th Cir. 2003),
cert. denied, 541 U.S. 1030 (2004); Cooper v. Tennessee Valley
Authority, 723 F.2d 1560 (Fed. Cir. 1983); Federal Deposit Insurance
Corp. v. Irwin, 727 E Supp. 1073 (N.D. Tex. 1989), affd on other
grounds, 916 F.2d 1051 (5th Cir. 1990); Algernon Blair Industrial
Contractors, Inc. v. Tennessee Valley Authority, 540 E Supp. 551 (M.D.
Ala. 1982).
Exemptions may be partial as well as complete. For example, the Export-
Import Bank may represent itself "in all legal and arbitral
proceedings outside the United States." 12 U.S.C. § 635(a)(1). Under
this provision, Justice has advised that it is required to conduct the
Bank's litigation inside the United States, and in addition may
represent the Bank in stateside arbitration proceedings. 3 Op. Off.
Legal Counsel 226 (1979).
One consequence of self-representation is that the corporation must
pick up the responsibility of paying the actual representation costs
and the various expenses of preparing and presenting the case which
would otherwise be borne by the Justice Department's litigation
budget. 38 Comp. Gen. 343 (1958) (requiring the Federal Housing
Administration to bear the costs of auctioneer fees and advertising
costs incident to foreclosure proceedings); B-9850, May 23,1940
(requiring the Home Owners' Loan Corporation to bear the costs of
attorney fees, cost of printing an appellate brief, and other
miscellaneous expenses); B-3163, Apr. 24, 1939 (requiring the Federal
Housing Administration to bear the cost of legal services necessary
for foreclosing a defaulted mortgage or regaining possession of
property).
9. Termination of Government Corporations:
Unlike a private corporation, a government corporation cannot
terminate its existence on its own authority.[Footnote 213] The power
to terminate a government corporation flows from the power to create
one, a power clearly held by Congress. Congress may terminate a
government corporation for any of a number of reasons. For example,
many government corporations were created to address short-term or
temporary issues or crises. Logically, once the issue or crisis is
resolved, the need for the government corporation is eliminated and it
can be terminated. For example, many corporations created to meet the
wartime needs of World Wars I and II, and the social and economic
crises of the Great Depression, were dissolved once those crises had
passed.
Congress terminated all government corporations in order to bring them
under its control upon the enactment of the Government Corporation
Control Act (GCCA). GCCA required all government corporations then
existing to institute dissolution or liquidation proceedings on or
before June 30, 1948, subject to reincorporation by act of Congress
for such purposes, powers and duties as might be authorized by law.
Pub. L. No. 79-248, § 304(b), 59 Stat. 597, 602 (Dec. 6, 1945). See
Lebron v. National Railroad Passenger Corp., 513 U.S. 374, 390 (1995).
Sometimes Congress provides itself with a built-in opportunity to
determine whether it wants to continue a program carried out by a
government corporation. Congress may provide a termination date in the
enabling legislation or charter of some government corporations that
must be reauthorized if Congress wants them to continue in existence.
In other situations, Congress may impose a deadline for a government
corporation to fulfill its goals. For example, Congress directed the
Resolution Trust Corporation (RTC), created to manage and resolve
failed savings institutions and recover funds by managing and selling
the institutions' assets, to terminate no later than December 31,
1995. 12 U.S.C. § 1441a(m).
RTC did terminate by that date, having substantially completed its
mission. GAO, Financial Audit: Resolution Trust Corporation's 1995
Financial Statements, GAO/AIMD-96-123 (Washington, D.C.: July 2,
1996), at 8-9.
Congress may take actions short of termination by converting a
government corporation into a private institution. For example,
Congress converted the National Consumer Cooperative Bank from a mixed-
ownership government corporation to a federally chartered, private
banking institution. Pub. L. No. 97-35, title DI, subtitle C, §§ 390-
396, 95 Stat. 357, 433-41 (Aug. 13, 1981). See B-219801, Oct. 10,
1986. Other government corporations are created with the goal of
privatization. For example, Congress directed the United States
Enrichment Corporation (USEC) to operate as a for-profit government
corporation and work towards privatization.[Footnote 214] In 1996,
Congress enacted legislation to privatize the USEC.[Footnote 215]
Congress may also terminate a government corporation due to its
dissatisfaction with the corporation's purpose and management. For
example, Congress abolished the Synthetic Fuels Corporation in 1985 by
rescinding its funding and giving it 120 days to wind up its affairs.
[Footnote 216] Pub. L. No. 99-190, 99 Stat. 1185, 1249-50 (Dec. 19,
1985). The Federal Asset Disposition Association met a similar fate.
In the face of mounting criticism regarding its method of creation,
its purpose, and management, Congress dissolved it as part of the
Financial Institutions Reform, Recovery, and Enforcement Act of 1989,
Pub. L. No. 101-73, § 501(a), 103 Stat. 183, 383 (Aug. 9, 1989).
[Footnote 217]
In other cases, Congress has changed its view and gone back and forth
on the form of a government corporation. For example, Congress
replaced the Panama Canal Company, a government corporation, with the
Panama Canal Commission, an appropriated fund agency, because it
wanted to maintain greater oversight of the Canal during the remaining
years of U.S. control. Pub. L. No. 96-70, §§ 1101, 1302, 93 Stat. 452,
456, 477 (Sept. 27, 1979). See B-280951, Dec. 3, 1998. Subsequently,
Congress granted the Commission greater autonomy and converted it into
a revolving-fund agency. Pub. L. No. 100-203, title V, subtitle E, pt.
2, § 5422(a), 101 Stat. 1330, 1330-271 (Dec. 22, 1987); B-280951, at
6. Finally, Congress expanded the Commission's business-like powers to
its final status as a wholly owned government corporation,[Footnote
218] when the canal was transferred from U.S. control, "as an
autonomous entity that [could] compete as a commercial enterprise in
international transportation markets." B-280951, at 8.
C. Nonappropriated Fund Instrumentalities:
"Their birth is funded by the Government. The seed money for their
creation came from the Government. They are managed by Government
people who are paid Government salaries. They usually occupy
Government facilities, perhaps on some cost-reimbursable arrangement,
but on Government real estate, using Government facilities. They
perform essentially a morale-building function for Government
personnel, which the Government would otherwise have to appropriate
funds for if it weren't having it done in this manner. There is a very
close identity between them and the Government people with whom they
are working every day. They are providing service to Government people
engaged in a Government mission. As I say, this is just off the top of
my head."
Testimony of Louis Spector, Commissioner of the Court of Claims, on
nonappropriated fund instrumentalities.[Footnote 219]
1. Introduction:
The term nonappropriated fund instrumentality (NAFI) has a variety of
meanings based on the particular context. In a report in 1977, GAO
noted that there is no official definition or commonly understood
opinion of what is or is not a nonappropriated fund activity.[Footnote
220] At the outset, then, it is useful to be cognizant of the danger
of relying merely on a NAFI label to determine what laws apply to an
entity, its relationship with the United States government, how the
entity was created, its source of funding, or what authorities it can
exercise. These issues can only be addressed in the context of a
particular entity. We start our discussion with the "oldest" of these
NAFIs—morale, welfare, and recreation organizations attached to the
military.
a. History of Military Morale, and Welfare, and Recreation
Organizations:
The need to provide services and items to fulfill the morale, welfare,
recreational needs of officers and employees of armed forces
originated long before the establishment of the United States
government and far from our shores. Persons providing such support
have existed since the times of the Roman Legions. "Caesar alludes to
the itinerant merchants who followed the legions, selling items not
considered necessaries by quartermasters."[Footnote 221] From the time
of the Roman Legions to the European armies and navies of the
seventeenth and eighteenth centuries,[Footnote 222] these men, known
as sutlers,[Footnote 223] followed armies and met ships in port in
order to supply the soldiers and sailors with provisions and
contraband.[Footnote 224] Due to the monopolistic prices charged by
sutlers, sailors organized their own ship cooperatives called "slop
chests."[Footnote 225]
The United States government, at times, has directly provided items
and services to meet the morale, welfare, and recreational needs of
its officers and employees of the armed forces while, at other times,
it has relied upon private sources, albeit under governmental control,
to provide such goods and services. Beginning with the American
Articles of War of 1775, sutlers, itinerant or camp-following
merchants, were authorized to sell to the troops items not provided by
the government such as "victuals, liquors, or other necessaries of
life' for the use of soldiers.[Footnote 227] The American Articles of
War of 1775 also regulated the sutlers' conduct, hours, and quality of
items sold.[Footnote 228] For example, although sutlers were not a
component part of the Army, they were subject to the orders and
regulations of the Continental Army.[Footnote 229] Sutlers were not
permitted to sell liquor, victuals, or provide entertainment after
nine at night, before the beating of the reveille's, or during Sunday
religious services.[Footnote 230] Commanding officers' duties included
monitoring sutlers to ensure that they supplied soldiers with good and
wholesome provisions at a reasonable price.[Footnote 231] The Articles
also prohibited commanding officers from charging exorbitant prices
for houses or stalls let out to sutlers or charging any duty upon
sales or having any financial interest in sales.[Footnote 232] The
Articles further established a fund for fines collected from soldiers
and officers for behaving indecently or irreverently during religious
services.[Footnote 233] The fund benefited sick soldiers of the troop
or company to which the offenders belonged.[Footnote 234] This is the
first record we have of a United States government nonappropriated
fund instrumentality (NAFI).[Footnote 235]
Sutlers were permitted to sell to the soldiers on credit and the
paymaster could deduct the amount from the soldier's pay and pay the
sutler directly.[Footnote 236] In 1847, Congress abolished sutlers'
rights to have such a lien on a soldier's pay. Act of March 3, 1847,
ch. 61, § 11, 9 Stat. 184, 185. Congress reinstated and abolished the
sutlers' right to have a lien on a soldier's pay several times
throughout the next decades.[Footnote 237] In 1862, Congress enacted a
bill which provided for the appointment of sutlers in the Volunteer
Service, set out their duties, and authorized sutlers to have a lien
on part of a soldier's pay. Act of March 19, 1862, ch. 47, 12 Stat.
371. This act established guidelines for the activities and service of
sutlers to the Army and their regulation by the War Department. The
commanding officer of each brigade was required to have the
commissioned officers of each regiment in the brigade select a sutler
for their regiment, who would be the sole sutler for that regiment.
Id., 12 Stat. 372. The act listed specific articles that sutlers could
sell to soldiers including food, toiletries, reading materials,
tobacco, stationery, and other items which in the judgment of the
inspectors general were for the good of the service. Id., 12 Stat.
371. However, the sale of liquor was prohibited. Id.
The sutlers paid fees based upon the average number of soldiers in a
unit for the privilege of doing business in that unit. Fines were
imposed on sutlers for violation of regulations. All fees and fines
were deposited into the "post fund" administered by a group of
officers, known as the "Council of Administration," along with the
post commander. Kovar, at 97. The post fund aided indigent widows or
children of deceased soldiers or disabled soldiers discharged without
pensions, bought books and periodicals for the post library, and
supported the post school and band. Id. In 1835, company funds,
subject to the control of the post commander, were authorized by Army
regulations to derive income from rental of billiard tables, the sale
of grease from the company mess, and savings from the economical use
of food. Noone, at 363.
The sutler system was subject to many abuses; soldiers were cheated
and charged usurious interest and military officials and the merchants
were involved in fraud and corruption. GAO, Appropriated Fund Support
for Nonappropriated Fund and Related Activities in the Department of
Defense, FPCD-77-58 (Washington, D.C.: Aug. 31, 1977), at 4. In 1866,
Congress responded to these abuses by abolishing the office of sutler
effective July 1, 1867. Act of July 28, 1866, ch. 298, § 25, 14 Stat.
328, 336; see FPCD-77-58, at 4. With the abolishment of sutlers,
Congress required the subsistence department of the Army to sell
articles, designated by the inspectors general, at cost. 14 Stat. at
336. In 1867, Congress authorized the Commanding General of the Army
to permit the establishment of trading posts on certain military
posts. Resolution No. 33 of March 30, 1867, 15 Stat. 29. Where the
commissary department was prepared to supply stores to soldiers,
traders were not permitted to remain at such posts or sell any goods
kept by the commissary department. Id.
In 1870, Congress repealed Resolution No. 33 and enacted legislation
authorizing the establishment of post traders in certain locations to
be under the protection and control of the military as camp followers
and subject to the War Department's regulations.[Footnote 238] Act of
July 15, 1870, ch. 294, § 22, 16 Stat. 315, 319-20. The War Department
established general policies regulating the post traders which were
carried out by a council of administration for the post. Kovar, at 100
n.28. Unlike the sutlers before them, the post traders did not have
the right to a lien on a soldier's pay. Id.
The Secretary of War did not appoint a post trader at all military
posts. Kovar, at 101. At posts where there were no post traders, the
Secretary authorized commanders to establish canteens to supply troops
with articles for their entertainment and comfort at moderate prices.
Id., citing General Order No. 10, 1889. The following year, in 1890,
the Secretary authorized all posts to establish canteens. Post
commanders could make government buildings available to house canteens
and its activities. An officer "in charge of canteen" managed the
canteen assisted by a "canteen council" and its profits were
distributed among the participating companies. Id., citing General
Order No. 51, May 18, 1890. A canteen was established either on credit
or from funds of the companies benefiting from the canteen. To promote
and expand canteens, the War Department prohibited company fund
activities from selling any item sold by the canteen. Id., citing
Circular No. 1, Adjutant General's Office, Feb. 9, 1891. Canteens were
authorized to use profits to purchase sporting equipment and any items
that would contribute to the "rational enjoyment and contentment of
the soldiers." Id., citing Circular No. 7, Adjutant General's Office,
June 10, 1890.
Canteens evolved into the post exchanges which performed essentially
the same functions. Kovar, at 102; Noone, at 365. By 1893, the post
exchange had taken over the services provided by the post trader and
Congress prohibited the Secretary of War from making further
appointments of post traders or from filling vacancies. Act of January
28, 1893, ch. 51, 27 Stat. 426. In 1895, the War Department
established post exchanges at all military posts. Kovar, at 102,
citing General Order Number 46, July 25, 1895. The post exchanges were
to provide a reading and recreation room, a store, a restaurant, and
other facilities to supply at reasonable prices, articles (not
supplied by the government) for rational recreation and amusement. Id.
Post exchanges were authorized to use government buildings and were
managed by an "officer in charge" and a council who reported to the
post commander. Id.
Although the Army regulated post exchanges and provided direct support
through free government space and the use of military officers to
manage their operations, the post exchanges were not considered to be
an agency or instrumentality of the United States. Noone, at 365. The
Judge Advocate General of the Army described the legal status of the
post exchange in an 1893 opinion:
"Now the Post Exchange is not a United States institution or branch of
the United States military establishment, but a trading store
permitted to be kept at a military post for the convenience of the
soldiers. It is set up and stocked, not by means of an appropriation
of public moneys, but by means of the funds of companies, etc.; the
officers ordering the purchases ... [are] responsible for the payment,
not the Government."
Noone, at 365, citing 61 JAG Record Book, 1882-1895, 479 (1893).
Congress limited the aid that the Army could provide to the post
exchanges in the Army's Appropriations Act for Fiscal Year 1893 as
follows:
"And provided further, That hereafter no money appropriated for the
support of the Army shall be expended for post gardens or exchanges,
but this proviso shall not be construed to prohibit the use by post
exchanges of public buildings or public transportation when, in the
opinion of the Quartermaster-General, not required for other purposes."
Act of July 16, 1892, ch. 195, 27 Stat. 174, 178 (emphasis in
original).[Footnote 239]
The post exchange and post and company funds continued to carry out
morale, welfare, and recreation (MWR) functions until after World War
I. Kovar, at 102. After World War I, the War Department created and
expanded organizations and functions to provide services such as
motion pictures and library facilities, recreation centers and
programs, child care centers, restaurants and other services for both
service members and their family members. Castlen, at 9; Kovar, at 102-
03. The War Department established a Morale Branch in 1941 to provide
MWR services. Castlen, at 9. During World War II, the post exchanges
were reorganized into a central organization known as the Army
Exchange Service (currently in operation and now known as the Army and
Air Force Exchange Service or AAFES) within the Morale Branch of the
War Department. Id.
b. Defining the Nonappropriated Fund Instrumentality :
"I am worried about the definition of `nonappropriated funds.' Every
time I think of one, you give me another one; then I think of another
possibility."
Rep. Wiggins, House of Representatives (1969).[Footnote 240]
In 1975, Congress authorized GAO to audit the operations and accounts
of nonappropriated fund activities authorized or operated by the head
of an executive agency to sell goods or services to U.S. government
personnel and their dependents.[Footnote 241] In a 1977 report, GAO
listed those activities, a brief description of each one, their
assets, and gross revenues. GAO, Magnitude of Nonappropriated Fund and
Related Activities in the Executive Branch, FPCD-77-28 (Washington,
D.C.: Apr. 25, 1977). The report noted that some agencies maintained
that their programs were not nonappropriated fund activities, but
rather, private associations not officially a part of the government.
"Varying interpretations are understandable," the report stated,
"since there is no official definition or commonly understood opinion
of what is or is not a nonappropriated fund activity." Id. at i. GAO
cited an earlier Office of Management and Budget (OMB) study which
found that the lack of a governmentwide definition of NAFIs caused
confusion and precluded a reliable review of all nonappropriated fund
instrumentalities (NAFIs). Id., citing OMB, Study of Procurement
Payable for Nonappropriated Funds (Aug. 1975).
As noted in the 1977 GAO report, defining the terms "nonappropriated
funds," "nonappropriated fund instrumentalities" (NAFIs), or
"nonappropriated fund activities" poses challenges. Contributing to
the confusion is that the terms have been used interchangeably and
without necessarily recognizing the differences between appropriated
and nonappropriated funds. The term "appropriated funds" refers to
funds provided in a regular annual appropriation act or a law enacting
a permanent, indefinite appropriation.[Footnote 242] Both types of
legislation authorize the obligation and expenditure of funds and
designate the funds to be used. 63 Comp. Gen. 331, 335 (1984). See
also GAO, A Glossary of Terms Used in the Federal Budget Process, GAO-
05-734SP (Washington, D.C.: Sept. 2005), at 21. Permanent, indefinite
appropriations include gift acceptance and use authority, revolving
funds, working capital funds, and franchise funds. Nonappropriated
funds would include funds that are not derived from an annual
appropriation act or a law enacting a permanent, indefinite
appropriation. As such, these funds are generally not subject to the
same fiscal controls as appropriations.
In a broad sense, there are two types of NAFIs: morale, welfare, and
recreational (MWR) entities (armed forces NAFIs with an historical
basis) and all other NAFIs. While the armed forces NAFIs have common
historical roots, there often is not much commonality among non-armed
forces NAFIs. Historically, the armed forces NAFIs were organized to
meet MWR needs of military and their dependents.[Footnote 243] DOD
describes the importance of MWR programs as follows:
"MWR programs are vital to mission accomplishment and form an integral
part of the non-pay compensation system. These programs provide a
sense of community among patrons and provide support services commonly
furnished by other employers, or other State and local governments to
their employees and citizens. MWR programs encourage positive
individual values, and aid in the recruitment and retention of
personnel. They provide for the physical, cultural, and social needs
and general well-being of Service members and their families,
providing community support systems that make [DOD] bases temporary
hometowns for a mobile military population."
DOD Instruction 1015.10, Programs for Military Morale, Welfare, and
Recreation (MWR), ¶ 4.2 (Nov. 3, 1995). See also 58 Comp. Gen. 94, 98
(1958) (noting that DOD "NAFIs exist to help foster the morale and
welfare of military personnel and their dependents").
DOD defines NAFIs as:
"Nonappropriated Fund Instrumentality (NAFI). A [DOD] organizational
and fiscal entity that is supported, in whole or in part by
[nonappropriated funds]. It acts in its own name to provide or assist
the Secretaries of the Military Departments in providing programs for
[DOD] personnel. It is not incorporated under the law of any State or
the District of Columbia, but has the legal status of an
instrumentality of the United States."
Department of Defense Instruction 1015.15, Procedures for
Establishment, Management, and Control of Nonappropriated Fund
Instrumentalities and Financial Management of Supporting Resources,
end. 2, ¶ E2.1.12 (May 25, 2005). In discussing a suit brought by an
employee of a military officers' club (a DOD NAFI), one court, using
the phrase "nonappropriated fund activity" instead of NAFIs, said:
"A non-appropriated fund activity is one to which the government has
initially provided funds to permit it to begin operation. The
governmental loan is repaid out of the profits earned by the activity.
Thus, the activity is created by the government with governmental
funds for governmental personnel, and is administered by governmental
employees for the use and benefit of the United States."
Bowen v. Culotta, 294 E Supp. 183, 185 (E.D. Va. 1968).
Although NAFIs are considered United States government
instrumentalities, NAFIs are not federal agencies or government
corporations. They also are not typical private or commercial
enterprises. Like DOD, GAO has noted that a NAFI mainly operates with
funds generated from its own activities:
"NAFIs encompass a wide range of activities and resist a general
definition. They share common characteristics in that they are
associated with governmental entities and, to some extent, are
controlled by and operated for the benefit of those Governmental
entities. However, the essence of a NAFI is that it is operated with
the proceeds of its activities, rather than with appropriated funds."
64 Comp. Gen. 110, 110-11 (1984). See also B-289605.2, July 5, 2002.
GAO has identified several characteristics of MWR NAFIs:
* The activity is established under the authority or sanction of a
government agency with or without an initial advance of government
funds.
* The activity is created and run by government officers or employees.
* The activity is operated for the benefit of government officers or
employees and/or their dependents.
* The operations of the activity are financed by the proceeds
therefrom.
B-167710-0.M., May 6, 1976, at 4. Although many NAFIs demonstrate
these characteristics, GAO noted that they are not absolute and should
be applied on a case-by-case basis. Id.
Other government entities funded with permanent, indefinite
appropriations also may operate with the proceeds from their
activities, including revolving funds and working capital funds, but
those entities are not NAFIs unless Congress has established them as
NAFIs. Unlike activities funded with permanent, indefinite
appropriations, the common thread among armed forces NAFIs is that
while they operate from the proceeds of their activities, the funds
they collect are used for the collective benefit of the members of the
armed forces, government officers or employees, and their dependents
who generate them.
Congress has created some government entities and designated that they
operate as nonappropriated fund instrumentalities or with
nonappropriated funds. See, e.g., 7 U.S.C. § 2279b (Graduate School of
Department of Agriculture); 12 U.S.C. § 244 (Board of Governors of the
Federal Reserve); see also B-217578, Oct. 16, 1986. These entities do
not serve MWR needs of government employees. Unlike the armed forces
NAFIs already discussed, these entities are statutory creations and
any fiscal limitations are defined by their organic statutes. Armed
forces NAFIs fulfilling MWR purposes have an historical basis and were
not created by statute, although Congress, in some cases, has approved
of or authorized such NAFI operations. See, e.g., 10 U.S.C. § 2488.
Further complicating the discussion of NAFIs is the use of the term
NAFI by some federal courts. The Federal Circuit and the Court of
Federal Claims have used the term in cases discussing their
jurisdiction. See, e.g., AINS, Inc. v. United States, 365 F.3d 1333,
1343 (Fed. Cir. 2004) (holding that the court had no jurisdiction to
hear case against U.S. Mint because it was a NAFI). See also O'Quin v.
United States, 72 Fed. Cl. 20, 23-24 (2006); McCafferty v. United
States, 61 Fed. Cl. 615, 616 (2004). The Federal Circuit's definition
of a NAFI for purposes of its jurisdiction has resulted in classifying
entities that operate with permanent, indefinite appropriations as
NAFIs. See AINS, 365 F.3d 1333; Core Concepts of Florida, Inc. v.
United States, 327 F.3d 1331 (Fed. Cir. 2003). See also Furash & Co.
v. United States, 252 F.3d 1336 (Fed. Cir. 2001) (holding that the
court had no jurisdiction to hear claims against the Federal Housing
Finance Board because it was a NAFI).[Footnote 244]
Although a permanent, indefinite appropriation is not reenacted each
year in the annual appropriations process, it is an appropriation
nonetheless. Consequently, GAO does not view revolving funds
(permanent, indefinite appropriations) as NAFIs. GAO does not
question, nor has it the authority to question, a court's
determination of its own subject matter jurisdiction. The Federal
Circuit recognizes that the weight of its authorities is limited in
scope to its jurisdiction determination: "The authorities cited by the
GAO to support [its position on what constitutes an appropriation],
however, are not applicable to the [court's] non-appropriated funds
doctrine in the same sense that they are applicable to federal
appropriations law." Core Concepts, 327 F.3d at 1338.
2. Legal Status:
a. Authority for Creation:
As noted above, for the most part armed forces nonappropriated fund
instrumentalities (NAFIs) are rooted in history and regulated by the
military departments to assist in meeting the moral, welfare, and
recreation (MWR) needs of their personnel. Some of these NAFIs later
received statutory recognition. See, e.g., 10 U.S.C. § 2488 (Secretary
of Defense may authorize a NAFI to operate a military exchange and
commissary store on a military base). See also B-167710-0.M., May 6,
1976 (noting that military departments established NAFIs under the
departments' general regulatory authority). The fact that NAFIs
originated from historical practice and later received congressional
recognition does not affect their status. Indeed, with regard to
military post exchanges, the Supreme Court stated: "That the
establishment and control of post exchanges have been in accordance
with regulations rather than specific statutory directions does not
alter their status, for authorized War Department regulations have the
force of law." Standard Oil Co. v. Johnson, 316 U.S. 481, 484 (1942).
b. Relationship to the United States Government:
"It would not be an exaggeration to call their legal status bizarre.
They are operations of the federal government, yet they are not."
[Footnote 245]
Despite their peculiarities, nonappropriated fund instrumentalities
(NAFIs) are now recognized as being federal instrumentalities, albeit
"a special breed of federal instrumentality, which cannot be fully
analogized to the typical federal agency supported by federal funds."
Cosme Nieves v. Deshler, 786 F.2d 445, 448 (1st Cir. 1986), cert.
denied, 479 U.S. 824 (1986).
In Standard Oil Co. v. Johnson, 316 U.S. 481 (1942), the State of
California attempted to levy a tax upon military post exchanges. The
California Motor Vehicle Fuel License Tax Act imposed a license tax on
the privilege of distributing motor vehicle fuel. By its terms, the
tax was inapplicable to fuel sold to the United States government.
California insisted that Standard Oil levy the tax on sales it made to
the U.S. Army Post Exchanges in California. In the suit to recover
payment, Standard Oil (with the United States as amicus curiae)
claimed the sales to the Post Exchanges were exempt under the Act.
Standard Oil also argued that if the Act were construed to require
payment on such sales, it would impose an unconstitutional burden upon
instrumentalities or agencies of the United States. The California
courts found for the state on both issues. Standard Oil, 316 U.S. at
482. The decision was appealed, however.
Upon appeal to the Supreme Court, the Court looked first to the legal
status of the post exchange, examining the relationship between the
United States and the post exchanges as demonstrated through the
creation, regulation, and practices of the activity. Id. at 484. The
Court recognized several factors: The post exchanges were established
pursuant to regulations of the Secretary of War under authority
granted by Congress originally in the Act of July 15, 1870, 16 Stat.
315, 319, and Act of March 1, 1875, 18 Stat. 337. Id. The commanding
officer of an army post had virtually total authority to establish and
manage the exchange. The supervisory councils for the exchanges
consisted of the commanding officers of the post units and they served
in that capacity without any compensation other than their regular
pay. Id. The purpose of the post exchanges was to provide a convenient
source of low priced goods for soldiers. Id. at 484-85. The government
did not assume any of the financial obligations of the post exchanges,
but government officers were responsible for the funds obtained.
Profits were used only for the welfare, pleasure, and comfort of the
troops. Id. at 485.
"From all this, we conclude that post exchanges as now operated are
arms of the government deemed by it essential for the performance of
governmental functions. They are integral parts of the War Department,
share in fulfilling the duties entrusted to it, and partake of
whatever immunities it may have under the Constitution and federal
statutes."
Id. Accordingly, the Supreme Court concluded, the state could not tax
the fuel sold to the post exchanges. Id.
Lower federal courts have applied the Standard Oil analysis to
determine whether NAFIs are immune from suit involving contract
matters. In Nimro v. Davis, 204 F.2d 734 (D.C. Cir.), cert. denied,
346 U.S. 901 (1953), Nimro brought suit against the board members of a
Naval Gun Factory Lunchroom Committee for "services rendered and
expenses incurred." Nimro, 204 F.2d at 734. The board, composed of
naval officers and civilian employees, argued that it was an
instrumentality of the Navy Department, and therefore was immune from
suit to the same extent as the department itself. To counter this
defense, Nimro maintained that he was suing the members of the board
in their representative capacity as custodians of a private fund, not
as government employees. Id. at 735.
Noting the several factors considered in Standard Oil, the court held
that the Naval Gun Factory Lunchroom Committee, a NAFI, was a United
States government instrumentality because it was made up of the
department's own personnel, acting officially under authority and
direction of the Secretary in accordance with his instructions, to
carry out a purpose declared by him to be an integral part of the
department. Id. at 736. The court found the individuals comprising the
Lunchroom Committee's board to be acting for and on behalf of the
United States, and not in any private capacity. As such, the suit
comprised an action against the United States that could not be
maintained without its consent.[Footnote 246] Id. at 736.
In Automatic Retailers of America, Inc. v. Ruppert, 269 F. Supp. 588
(S.D. Iowa 1967), Automatic Retailers sued members of the Employees
Welfare Committee of the Des Moines Post Office Employees Association
to enforce a contract for vending machine services. Automatic
Retailers, 269 F. Supp. at 590. One employee member moved to dismiss
the case, arguing that the suit was in essence against the Employee
Welfare Committee, an instrumentality of the United States that was
immune from suit.
Applying the elements set forth in the Standard Oil decision, the
court held that the Employee Welfare Committee constituted an integral
part of the Postal Service and was an instrumentality of the United
States for purposes of suit. Automatic Retailers, 269 F. Supp. at 591.
The court further determined that, although Automatic Retailers had
named committee members in their individual capacity, the suit sought
to compel the Employees Welfare Committee, and thus the United States,
to act. Since the United States had not consented to suit, the court
dismissed the case. Id. at 592. See also Employees Welfare Commission
v. Daws, 599 F.2d 1375, 1378-79 (5th Cir. 1979). The court found that
the committee was established pursuant to regulatory authority, the
Postal Service appointed employees to carry out the contractual and
managerial duties of the committee, the Postal Service regulated and
controlled vending stands and machines, and the primary objective of
the committee was to further the interests of the Postal Service.
Automatic Retailers, 269 F. Supp. at 591.
However, there are also times when the action of a NAFI or its
employees will not be attributable to the government. There was a time
when, under contract with base exchanges, telegraph offices were
routinely operated on military bases by NAFI employees. In 50 Comp.
Gen. 76 (1970), the Nellis Air Force Base Exchange operated a
telegraph office on the base under contract with Western Union. The
contract between the exchange and Western Union stipulated that the
exchange acted as the agent for Western Union. 50 Comp. Gen. at 77.
Prospective government contract bidders telegraphed their bids within
the required time frame for bid acceptance, but the bids were
nevertheless delivered late to the contracting office by the telegraph
office run by the base exchange. Under Army regulations, late bids are
accepted if the delay is due to the government's mishandling of the
bid but precludes consideration of late bids delayed by the telegraph
company's error. Id. GAO held that where the base exchange acts as the
agent for the telegraph company, as the contract stipulated in this
case, the activity was not an instrumentality of the government and
the exchange's actions were not attributable to the government.
Accordingly, the bid here was deemed late due to mishandling by a
telegraphy company's error and not considered in the procurement
process. Id. at 80. See also B-186794, Nov. 11, 1976.
3. Sources of Funding: The Use of Appropriated Funds for
Nonappropriated Fund Instrumentalities:
"Although for some purposes nonappropriated fund activities are
considered instrumentalities of the Government, they are generally
self-supporting and do not receive appropriated funds from the
Congress."
B-215398, Oct. 30, 1984.
a. Self-Supporting or Subsidized?
As the name suggests, a nonappropriated fund instrumentality (NAFI) is
"operated with the proceeds of its activities, rather than with
appropriated funds." 64 Comp. Gen. 110, 111 (1984). That sounds simple
enough, but the reality is not so simple. Part of the reason for this
is that some people think the government should fund morale, welfare,
and recreation (MWR) using appropriated funds, while others find that
suggestion outrageous. Some argue for direct government support for
the MWR services provided by NAFIs because there is a legitimate
business need to provide MWR support for members of the armed forces.
Others, like private retailers in competition with NAFIs, argue that
recreational expenses should be paid for by the government through
traditional procurement from the private sector, not by making NAFIs
compete with the private sector. Still others argue that the taxpayers
should not pay for any employee recreational expenses, advocating that
NAFIs should be self-supporting and their profits used for MWR
expenses. The tension between these factions has led to a complicated
mix of appropriated and nonappropriated funding for NAFIs.
b. General Rule: Appropriations Not Available for Morale, Welfare, and
Recreation unless Authorized by Congress:
The general rule, established in early decisions, is that expenses
associated with employee morale, welfare, and recreation (MWR) cannot
be paid from appropriated funds unless specifically authorized by law.
See 27 Comp. Gen. 679 (1948) (Navy appropriations not available to
hire full-time or part-time employees for recreational programs for
civilian employees of Navy); 18 Comp. Gen. 147 (1938) (river and
harbor appropriation not available to provide recreational activities
for workers). The rationale for the rule was that those types of
expenditures would only have an indirect bearing on the purposes for
which the appropriations were made. 27 Comp. Gen. at 681.
In addition, several laws specifically prohibited the use of
appropriated funds for certain MWR expenses. As early as 1892,
Congress passed legislation prohibiting the use of appropriated funds
of the various armed forces for the exchanges; that legislation
authorized the exchanges to use military buildings and transportation
when not being used by the military. Act of July 16, 1892, ch. 195, 27
Stat. 174, 178, codified at 10 U.S.C. §§ 4779, 9779 (Army and Air
Force, respectively). Congress has also specifically authorized the
use of certain appropriated funds for MWR expenses. See 10 U.S.C. §
2241(a)(1) (authorizing the use of Operation and Maintenance (O&M)
appropriations for MWR).[Footnote 247] At the same time, however,
Congress expressly prohibited the Department of Defense (DOD) from
using appropriated funds for equipping, operating, or maintaining golf
courses at DOD facilities or installations. Pub. L. No. 130-160, div.
A, title DI, § 312, 107 Stat. 1547, 1618 (Nov. 30, 1993), codified at
10 U.S.C. § 2491a(a).[Footnote 248] In 1998, GAO interpreted this
prohibition as precluding the use of appropriated funds to install or
maintain pipelines for watering an Army golf course. B-277905, Mar.
17, 1998.[Footnote 249] DOD argued that other laws permitted DOD to
participate in water conservation projects and federal agency
cooperative efforts to resolve water resource issues in concert with
conservation of endangered species. GAO concluded that those laws did
not override the prohibition of section 2491a. Id.
In a 1949 report on nonappropriated funds, GAO reported on the
improper use of appropriated funds to support activities such as
restaurants, stores, golf courses, and theaters, and recommended
changes in accounting, billing, reimbursements, and legislation. GAO
reported that there was a "widespread and growing practice ... of
withholding from the Treasury and diverting to unauthorized purposes
substantial sums of money coming into the hands of persons in the
service of the United States in connection with the performance of
their official duties." B-45101, Aug. 10, 1949, at 1. GAO had several
concerns: (1) whether these activities were authorized to withhold
revenues, donations, and contributions arising from such activities;
(2) the unreimbursed or "free" use of public property and funds in
connection with revenue producing activities; and (3) GAO's lack of
specific authority to audit NAFIs. Id. at 5-7. While not questioning
the validity of NAFI purposes to meet MWR needs, GAO questioned
whether Congress had by law authorized these types of expenditures and
whether they should not be self-supporting. Id. at 7-8.
The rule appears to be simple—-an agency may not use appropriated
funds to support MWR needs or nonappropriated fund instrumentalities
providing those needs unless specifically authorized by law. However,
like many things in law and life, it is not, in fact, that simple.
c. The Current Trend: Use of Appropriated Funds:
We have used the necessary expense doctrine to address whether
appropriations are legally available for certain morale, welfare, and
recreation (MWR) expenses of some agencies without nonappropriated
fund instrumentalities (NAFIs). The cases have increasingly recognized
that, given isolated or remote working conditions, certain items or
services contribute directly to an agency's mission by enhancing
employee morale and productivity. For example, in cases where
employees are located at a remote site where MWR items and equipment
would not otherwise be available and such expenses would be necessary
for recruitment and retention of personnel, GAO has held that
appropriated funds may be used to pay for MWR expenditures. See, e.g.,
54 Comp. Gen. 1075 (1975) (purchase of television set for crew on
Environmental Protection Agency ship gathering and evaluating water
samples on multiday cruises); B-144237, Nov. 7, 1960 (transportation
of musical instruments, sports, and recreational equipment to isolated
Weather Bureau installations in the Arctic); B-61076, Feb. 25, 1947
(purchase of ping pong paddles and balls by Corps of Engineers to
equip recreation room on a seagoing dredge justified by policy in War
Department regulations and necessary expense for the recruitment and
retention of employees).
The military's use of appropriated funds for MWR expenses has differed
from civilian agencies because, in the context of the necessary
expense rule, it is easier for the military to justify MWR expenses
due to the nature of its mission, the remoteness of many of its
locations, and hardships imposed on military members and families.
In 1954, GAO considered whether the Department of the Air Force could
use appropriated funds to pay for travel relating to the business of
the Army and Air Force Exchange Service (AAFES). B-120139-0.M., Aug.
16, 1954. Since expenses for travel involving public business could be
paid from appropriated funds, GAO analyzed whether travel involving
AAFES business qualified as public business. The Comptroller General
noted that AAFES is a government instrumentality under the executive
control of officers of the services, who receive pay and allowances
from appropriated funds while assigned to the exchanges. Thus, travel
involving command supervision of exchanges is public business and the
use of appropriated funds is reasonable. Command supervision may
include travel for the purposes of inspecting, auditing, or
investigating exchange activities, attending exchange conferences,
coordinating exchange matters, or attending exchange schools and may
be paid from appropriated funds as travel in connection with public
business. The Department of the Air Force, however, could not use
appropriations to pay for AAFES's operational expenses. Travel for the
purpose of purchasing exchange supplies for resale related more to
operational expense and not to command supervision and could not be
considered as travel on public business. Id.
A few years later, GAO considered whether the Department of the Army
could use appropriated funds to pay for travel by a member of the Army
in order to participate in a field artillery basketball tournament as
a nonparticipating coach. B-133763, Nov. 13, 1957. At issue was
whether the travel was for public business. Army regulations provided
that nonappropriated funds could be used to pay the expenses of
military members participating in sports program activities. However,
nonappropriated funds could not be used to pay expenses of official
travel of military personnel when performing command supervision of
the Army sports programs. Applicable travel regulations provided that
travel conducted for public business (defined as relating to
activities or functions of the service to which the traveler was
attached) could be paid with appropriated funds. So, was the
nonparticipating coach engaged in official government business or not?
GAO held that while a tournament was recognized as part of athletic or
recreational programs of the Army, it did not appear to be an activity
or function of a field artillery battalion and would not constitute
public business under the regulations. GAO advised the requestor to
seek reimbursement from nonappropriated funds. Id.
In 1962, the Comptroller General was asked whether it was proper for
the Air Force to use appropriated funds to pay for the modification,
alteration, or repair of buildings or facilities used by a post
exchange. B-147516-0.M., Jan. 24, 1962. Both the Secretary of
Defense's authority and Air Force regulations supported the use of
appropriations to maintain MWR programs. Id., citing DOD Directive
1330.2 (Aug. 31, 1956), and Air Force Regulation 170-4A (July 1,
1958). GAO noted that Congress had authorized exchanges' use of public
buildings and in the past had authorized the use of appropriated funds
for construction, equipment and maintenance of buildings for exchange
activities. B-147516-0.M., at 3. While current appropriations did not
include specific authorization for such expenses, GAO deferred to the
interpretation of the military departments that when Operation and
Maintenance appropriations were available for repair and maintenance
of facilities generally, reference to "facilities" would include those
used for MWR activities. For these reasons, the Air Force could use
appropriated funds to pay for the repair and alteration of NAFI
facilities. Id.
In other cases, GAO addressed whether military departments could use
appropriated funds for leasing and other property services on behalf
of NAFIs. In B-154547-0.M., Oct. 20, 1964, GAO was asked whether the
Department of Defense (DOD) could use appropriated funds to lease
hotel facilities for a NAFI. The business of the NAFI was to provide
quarters for transient and retired military personnel and their
families. GAO answered, "yes," albeit with some hesitation. DOD cited
its authority to conduct all affairs for the department, including
welfare activities, in addition to the availability of Operation and
Maintenance (O&M) appropriation for welfare and morale. GAO originally
said "not good enough," noting that DOD had no specific authority to
lease a building for a NAFI. Unless DOD could provide another
interpretation of its authority to lease facilities for NAFIs, GAO
would conclude that DOD could not do so. Id. Subsequently, GAO altered
course, because DOD was authorized to lease buildings for military
purposes and MWR use could reasonably be construed to constitute a
military purpose. B-154547-0.M., July 7, 1965.
In 1975, GAO analyzed whether the Air Force could acquire land solely
for recreational purposes.[Footnote 250] GAO looked to the Air Force's
authority to conduct welfare functions and the availability of DOD O&M
appropriations for welfare and recreation in conjunction with the
availability of appropriations to acquire land by lease or purchase.
Deferring to DOD's discretion in interpreting the extent of its
authority and responsibilities, GAO agreed that sponsoring
recreational and social activities could be considered activities with
a military purpose and the Air Force could acquire land interests for
such activities.
In 1977, GAO reported on NAFIs in DOD and concluded that, while NAFIs
operated mainly with self-generated revenue, DOD was providing some
appropriated fund support, including funding transportation which
should have been funded by the NAFIs, for example, for transportation
of merchandise for resale by NAFIs. GAO, Unauthorized and Questionable
Use of Appropriated Funds to Pay Transportation Costs of Non-
Appropriated Fund Activities, LCD-76-233 (Washington, D.C.: June 3,
1977). While GAO noted that annual DOD appropriation acts had
generally provided funds for welfare and recreation, Congress had not
specifically provided funds for transportation of merchandise for
resale through NAFIs. Id. at 1. Thus, the use of appropriated funds
for transportation of exchange goods was only permitted when the goods
were carried on conveyances that are owned, leased, or chartered by
the government, where the government was already obligated to pay for
the space whether used or not. Id. GAO recommended that the Secretary
of Defense: (1) direct the NAFIs to reimburse the paying appropriation
for excess transportation costs; (2) institute procedures for properly
charging NAFIs for transportation services; and (3) recover costs for
improper appropriated fund support provided to NAFIs. Id. at ii-iii.
GAO also reported that the government spent over $600 million each
year to subsidize DOD NAFIs. GAO, Appropriated Fund Support for
Nonappropriated Fund and Related Activities in the Department of
Defense, FPCD-77-58 (Washington, D.C.: Aug. 31, 1977). GAO reported
that appropriated fund support was understated because of the failure
to include certain costs, such as personnel costs, indirect costs, and
other unrecognized costs. Id. at 19-25. In testimony on the findings
of this report, GAO stated that the three major concerns with
appropriated fund support were: (1) the use of military personnel to
perform nonmilitary duties in NAFI activities; (2) the lack of a
system for accurately reporting appropriated fund support; and (3) the
lack of specific guidelines for providing appropriated fund support.
GAO, Appropriated Fund Support for Nonappropriated Fund and Related
Activities of the Department of Defense: Testimony before the House
Committee on Armed Services, Investigations Subcommittee (Washington,
D.C.: Sept. 27, 1977).
d. Other Issues in Appropriated Fund Support:
Questions arise as to whether an agency may reimburse a
nonappropriated fund instrumentality (NAFI) with appropriated funds
for goods or services that the NAFI provides. In B-192859, Apr. 17,
1979, the Comptroller General considered whether the Army could
reimburse a NAFI, a consolidated post housing fund that provided maid
and custodian services, mowing and watering services, maintenance of
roads, snow removal, and general policing services for common use
areas in post housing. Although the Army was responsible for providing
those services, it did not. The NAFI decided to provide the services
and pay for them by charging the housing residents. Later, the NAFI
decided to bill the Army for those services and seek reimbursements
from the Army for the residents. GAO concluded that the NAFI could be
reimbursed for those services for which the Army was responsible. The
decision noted that obtaining services from a NAFI is tantamount to
obtaining them from a nongovernmental source and that regular purchase
orders should be used. In B-192859, the documents prepared and actions
taken by the Army and the NAFI did not create a binding contract and
no binding obligation on the government was created. Accordingly, any
voucher to pay the NAFI for goods and services could not be repaid.
However, for those services for which the Army was responsible and had
received a benefit, the NAFI could be reimbursed on a quantum meruit
basis. For those services that were not the responsibility of the
Army, the NAFI could not be reimbursed with appropriated funds. For
further discussion regarding contracting with a NAFI for goods and
services see section C.4.b. of this chapter.
A related issue affecting NAFIs is the proper disposal or deposit of
receipts from the sale of NAFI property or resulting from NAFI
operations. In B-156167, July 18, 1967, the Navy asked whether the
proceeds from a contemplated sale of the Naval Academy dairy farm
could be credited to the Midshipmen's Store Fund. GAO noted that, by
statute, federal agencies are required to deposit all proceeds from
the disposition of excess property in the Treasury as miscellaneous
receipts. Exceptions to this statute include property acquired with
nonappropriated funds or appropriated funds that by law are
reimbursable. The funds used to purchase the dairy farm were derived
from the Midshipmen's Store Fund, a NAFI, or from an advance of
appropriated funds that were by law reimbursable at the time of the
advance. Consequently, any realized gain from the sale of the dairy
farm could be credited to the Midshipmen's Store Fund. Id.
A different result is obtained when the proceeds of a transaction
derive not from NAFI operations, but from official business of the
government. The miscellaneous receipts statute (as discussed in
Chapter 6, section E.2) requires government officials receiving money
for the use of the United States to deposit the money in the Treasury.
31 U.S.C. § 3302(b). In Reeve Aleutian Airways, Inc. v. Rice, 789 E
Supp. 417 (D.D.C. 1992), the Air Force awarded a contract to a
commercial air carrier to provide passenger and cargo service to a
remote base in the Aleutian Islands. Id. at 419-20. Fares purchased
directly or reimbursed by the government for its personnel,
dependents, and contractor employees would provide the carrier's
revenue. Id. at 421. In return for landing rights and ground support
the contractor would pay a "concession fee" (i.e., a rebate) for
deposit to the base morale, welfare, and recreation (MWR) fund, a
NAFI. The court found that the fees for the use of property of the
United States were "public monies" and there was no authority in this
case to divert those funds to an MWR fund. Id. Accordingly, the
miscellaneous receipts statute required that such fees be deposited in
the Treasury. Id.
In Scheduled Airlines Traffic Offices, Inc. (SATO) v. Department of
Defense, 87 F.3d 1356 (D.C. Cir. 1996) (SATO), the Defense
Construction Supply Center, a DOD agency, awarded a commercial travel
office contract requiring the contractor to offer both official
(government business) and unofficial (personal travel for government
employees and dependents) travel services. The contractor was required
to pay the government concession fees on both official and unofficial
travel. Concession fees for official travel were deposited to the
Treasury and fees for unofficial travel were deposited to the local
MWR fund, a NAFI. SATO, 87 F.3d at 1357-58. The travel agency, SATO,
had bid unsuccessfully on similar contracts in the past, losing the
bid to a company that agreed to pay larger concession fees for
unofficial travel. Through informal channels, it learned that the
agency made its award determinations "largely to maximize payments to
the local Morale Funds." Id. at 1358. SATO filed suit seeking
declaratory and injunctive relief to prohibit the award of the
contract. Id. Among other things, SATO claimed that the miscellaneous
receipts statute did not permit the deposit of the concession fees
into MWR funds, but compelled their deposit into the Treasury. Id. The
government argued that this contract was different from the one in
Reeve Aleutian: The concession fees were derived solely from
unofficial travel paid for by private funds and were not government
funds. Id. at 1362.
The Court of Appeals for the District of Columbia Circuit concluded
that the fees were government funds. Id. at 1362-63. The travel agents
paid them in consideration for government resources, such as the right
to occupy agency space, utilize government services associated with
the space, and serve as an exclusive on-site travel agent. Id. at
1362. Since the miscellaneous receipts statute requires the deposit
into Treasury of "money for the government from any source," the
government's argument about the private source of funds was rejected.
Id. (emphasis in original). The SATO court noted that the concession
fees were derived from procurements administered by a government
agency in which the Morale Fund played no role. Id. at 1363. The court
observed that "not only does the travel scheme at issue here divert to
Morale Funds revenues that should be deposited in the Treasury, but it
also creates incentives for government officials to reduce even those
funds that are deposited in the Treasury." Id. Depositing the fees
into MWR funds violated the miscellaneous receipts statute. Id. The
decision left open the question of whether unofficial travel
concession fees could be retained by an MWR fund if a NAFI administers
the contract.
e. Borrowing by Nonappropriated Fund Activities:
GAO has determined that some nonappropriated fund instrumentalities
(NAFIs) have the authority to borrow funds from commercial sources. In
B-148581-0.M., Dec. 18, 1970, GAO found that no federal law
specifically prohibited the Army and Air Force Exchange Services
(AAFES) (a military post exchange NAFI) from borrowing funds. GAO
observed that the general laws governing borrowing by the United
States, the use of appropriated funds and other financial transactions
of the government have not been applied to NAFIs. Moreover, the United
States is not a party to nor is it legally bound or obligated by the
financial transactions of NAFIs, notwithstanding their status as
federal instrumentalities immune from state taxation. GAO had
previously noted that an Army regulation authorizes the borrowing of
funds by post restaurants. 9 Comp. Gen. 411 (1930). Then current DOD
regulations granted AAFES implied authority to borrow funds from
private sources and such authority was considered a normal practice
for a business operation like AAFES. B-148581-0.M., Dec. 18, 1970.
However, GAO emphasized that such loans could not be on the credit of
the United States.
4. Transactions with Federal Agencies:
Since they are so closely involved with the federal government, it is
not surprising that nonappropriated fund instrumentalities and the
agencies they are associated with want to enter into transactions for
the provision of goods and services. This section addresses these
practices and the legal authority for such transactions.
a. Economy Act and IntraAgency Orders:
As a general matter, the federal government is one entity (or
"person") for legal purposes. So, when agencies wish to obtain items
or services from one another, they do not enter into contracts per se—
a person cannot contract with himself. See Chapter 12, section B.1.
One source of authority for agencies to obtain services from one
another is by entering into reimbursable interagency agreements under
the Economy Act. 31 U.S.C. § 1535. However, although nonappropriated
fund instrumentalities (NAFIs) are instrumentalities of the United
States government, the Economy Act does not apply to NAFIs. 58 Comp.
Gen. 94 (1978) (Army and NAFIs could not enter into intra-agency
orders for services provided to Army).
The Comptroller General explained the rationale for this result in 58
Comp. Gen. 94 which involved the Army's use of intra-Army orders for
obtaining goods and services from NAFIs. GAO emphasized that the
Economy Act authority involves the transfer of moneys from one
appropriation account to another for services provided. In the case of
a NAFI, by definition, the transfer would not involve an appropriation
account. (While an instrumentality of the government, NAFIs are not
federal agencies and do not have appropriated fund accounts.)
Recognizing their connection to the government, the Comptroller
General noted that "they differ significantly from other Governmental
activities, particularly with respect to budgetary and appropriation
requirements." Id. at 97. It was those differences, rather than their
status as government instrumentalities, which the Comptroller General
found controlling. 58 Comp. Gen. at 97. The Comptroller General
further noted that Congress has no direct control, through
appropriations, over the accounts of the NAFI (and neither did GAO,
through its account settlement authority). Thus, obtaining goods and
services from a NAFI is "tantamount to obtaining them from non-
Governmental, commercial sources." Id. at 98.
Similarly, when considering the use of interagency agreements between
federal agencies and the Graduate School of the Department of
Agriculture, the Comptroller General again determined that the Economy
Act did not apply to this statutorily created NAFI. 64 Comp. Gen. 110,
113 (1984) (decision concluded that the Government Employees Training
Act, 5 U.S.C. § 4104, also did not constitute authority for agreements
between federal agencies and NAFIs for the same reasons).
b. Contracting to Sell Goods and Services to Agencies:
Noting that nonappropriated fund instrumentalities (NAFIs) exist
primarily to help foster the morale, welfare, and recreation needs of
government officers and employees, the Comptroller General, at times,
has questioned whether it is appropriate for federal agencies to
procure goods and services from the NAFI for the benefit of the
federal agency. 58 Comp. Gen. 94, 98 (1978). Despite this observation,
GAO has recognized circumstances in which it may be appropriate for
agencies to procure goods and services from NAFIs through the
competitive procurement process and sole sourcing procurements.
With regard to participation in the competitive procurement process,
the Comptroller General has stated that obtaining services from a NAFI
is "tantamount to obtaining services from nongovernment commercial
sources" and, therefore, NAFIs may compete to provide goods or
services to agencies in the competitive procurement process. 68 Comp.
Gen. 62, 66 (1988) (Department of Agriculture Graduate School may
compete in competitive procurement for operation and maintenance of a
federal agency's training laboratory); 64 Comp. Gen. 110, 111-12
(1984) (Department of Agriculture Graduate School may be an
appropriate recipient of sole source or competitive contract for
training of federal employees); B-215580, Dec. 31, 1984 (Army could
not purchase child care services from a NAFI via intra-agency order,
but could use a regular purchase order). The Comptroller General has
also stated that "a NAFI may compete in, and be awarded a contract
under a competitive procurement unless otherwise precluded by its
charter from doing so." 64 Comp. Gen. at 112. See also B-289605.2,
July 5, 2002; B-274795, Jan. 6, 1997.
Sole-sourcing is another matter. There may be circumstances where an
agency's contract with a NAFI for goods or services might be proper,
such as where it is impracticable for an agency to obtain goods or
services from sources other than NAFIs, or where only a NAFI could
provide the urgently required goods or services. 58 Comp. Gen. at 98.
In such cases, a sole source contract would be proper with appropriate
justifications. Id. See also B-235742, Apr. 24, 1990 (proposed sole-
source award to a NAFI for lunchroom monitoring services at Department
of Defense dependent schools was proper). Whether a NAFI should
provide goods or services will depend upon the factual circumstances.
In 58 Comp. Gen. 94 (1978), it was improper for a NAFI to provide
mattresses to the Army, but GAO did not have enough information on the
record to determine whether the provision of janitorial and dry-
cleaning services was also inappropriate. 58 Comp. Gen. at 99. In
circumstances where it is impracticable for an agency to obtain goods
or services from sources other than NAFIs, or where only a NAFI could
provide the urgently required goods or services, sole-source contracts
may be proper. Id. at 98.
In another case, the Army wanted to purchase "health and comfort kits"
(shampoo, razors, chewing gum, and shoe polish) for soldiers in Korea
from the Army and Air Force Exchange Service on a sole-source basis. B-
190650, Sept. 2, 1980. GAO noted that the Army had not alleged that
other sources were not capable of furnishing the items (nor could it
make that statement since other sources were currently providing the
items) and held that the fact that a NAFI is able to perform a
contract with greater ease or at less cost than any other concern does
not justify a noncompetitive procurement. Id. See also 58 Comp. Gen.
at 98-99 (noting that, where circumstances require services or goods
to be supplied by a NAFI because of exigent circumstances or
practicality, appropriate sole source justifications should be
prepared); B-235742, Apr. 24, 1990 (finding that use of sole-source
justification papers prepared by the Army for contract with a NAFI for
lunch room monitoring services was proper).
Where NAFIs provided services to federal agencies under inter- or
intraagency orders later found to be improper, GAO has allowed the
activities to be reimbursed on a quantum meruit or quantum valebant
basis, if ratified by an authorized contracting official. 58 Comp.
Gen. 94, 100 (1978); B-199533, Aug. 25, 1980; B-192859, Apr. 17, 1979.
c. Statutory Authority to Enter into Contracts with Federal Agencies:
Congress provided statutory authority for certain nonappropriated fund
instrumentalities (NAFIs) to enter into contracts and agreements with
other federal agencies or instrumentalities.
As part of the 1997 National Defense Authorization Act, Congress
authorized agencies and instrumentalities of the Department of Defense
that support operation of the exchange system, or a morale, welfare,
and recreation (MWR) system to enter into contracts or other
agreements with other federal agencies or instrumentalities. That
statute specifically provides:
"An agency or instrumentality of the Department of Defense that
supports the operation of the exchange system, or the operation of a
morale, welfare, and recreation system, of the Department of Defense
may enter into a contract or other agreement with another element of
the Department of Defense or with another Federal department, agency,
or instrumentality to provide or obtain goods and services beneficial
to the efficient management and operation of the exchange system or
that morale, welfare, and recreation system."
Pub. L. No. 104-201, div. A, title Ill, § 341(a)(1), 110 Stat. 2422,
2488 (Sept. 23, 1996), codified at 10 U.S.C. § 2492.
The House Committee on National Security noted that exchanges and the
MWR programs need to become more efficient, and determined that this
could be achieved by permitting contracting between those activities
and federal agencies. H.R. Rep. No. 104-563, at 278 (1996).
5. Nonappropriated Fund Instrumentality Procurement:
Obviously, the armed forces nonappropriated fund instrumentalities
(NAFIs) have to procure goods and services for morale, welfare, and
recreation programs. This section addresses the applicable procurement
policies and procedures. It is important not to just categorize an
entity as a NAFI and then think it obvious what laws apply to the
entity. For example, Federal Prison Industries, Inc (FPI) has been
described by the Federal Circuit as a NAFI for purposes of its
jurisdiction, but FPI was created by statute as a wholly owned
government corporation. As such, FPI is subject to the Competition in
Contracting Act. B-295737, B-295737.2, Apr. 19, 2005.
41 U.S.C. § 5—This law specifies that, subject to other authority or
stated exceptions, "purchases and contracts for supplies or services
for the government may be made or entered into only after advertising
a sufficient time previously for proposals." 41 U.S.C. § 5. NAFI
contracts are made for the benefit of government officers or employees
in their individual personal capacity, not in their official capacity.
There is no case law, however, addressing whether 41 U.S.C. § 5
applies to NAFI contracting.
Competition in Contracting Act—The Competition in Contracting Act of
1984 (CICA)[Footnote 251] made several changes to procurement
provisions, including GAO's bid protest authority (which we will
discuss in section C.8.b(4) of this chapter). Its applicability
depends on the definition of "federal agency" found in the Federal
Property and Administrative Services Act of 1949, ch. 288, 63 Stat.
377, 378 (June 30, 1949), codified at 40 U.S.C. § 102. Federal agency
includes an executive branch agency. 40 U.S.C. § 102(5). An executive
branch agency includes any executive department or independent
establishment, including wholly owned government corporations. 40
U.S.C. § 102(4). However, it does not include NAFIs which, although
recognized as government instrumentalities associated with and
supervised by government entities, operate without appropriated funds
and are not federal agencies. B-270109, Feb. 6, 1996; B-228895, Dec.
29, 1987.
Armed Services Procurement Act of 1947[Footnote 252]—Although many
NAFIs are related to the Department of Defense (DOD), the Armed
Services Procurement Act and armed services and defense acquisition
regulations do not apply to NAFIs because they operate with
nonappropriated funds. 10 U.S.C. § 2303(a) (chapter applies to
procurements for which payments are to be made from appropriated
funds). See also Ellsworth, Bottling Company v. United States, 408 E
Supp. 280, 285 (WD. Okla. 1975); 58 Comp. Gen. 94, 98 (1978).
The armed forces have some regulations applicable to armed forces NAFI
procurements with nonappropriated funds. See, e.g., Army Regulation
215-1, Military Morale, Welfare, and Recreation Programs and
Nonappropriated Fund Instrumentalities, ch. 5 (Oct. 24, 2006); Army
Regulation 215-4, Nonappropriated Fund Contracting (Mar. 11, 2005).
However, there are circumstances in which appropriated funds are used
for armed forces NAFI purchases. See, e.g., Army Regulation 215-1, ch.
5. In those cases, defense acquisition regulations will apply.
Federal Property and Administrative Services Act of 1949—NAFIs are not
federal agencies for purposes of the Federal Property and
Administrative Services Act of 1949 (Property Act). See B-270109, Feb.
6, 1996. Also, the provisions of the Property Act would not apply to
armed forces NAFIs since section 302 of the Act excludes DOD
instrumentalities from the provisions of title DI of that Act. 41
U.S.C. § 252(a). See 66 Comp. Gen. 231, 235 (1987). See also
Ellsworth, Bottling Co., 408 E Supp. at 28384. (Army and Air Force
Exchange Service is not subject to the FPASA as it is part of the
Departments of Army and Air Force).
Federal Acquisition Regulation—The Federal Acquisition Regulation
(FAR), the governmentwide regulation which implements the Federal
Property and Administrative Services Act, applies to federal agencies
and acquisitions with appropriated funds. This would not include NAFI
procurements with nonappropriated funds. 48 C.F.R. § 2.101(b).
However, there are circumstances in which appropriated funds are used
for NAFI purchases. See, e.g., Army Regulation 215-1, ch. 5. If
appropriated funds are used for a NAFI purchase, FAR and agency
regulations would apply to the procurement. See id.; Army Regulation
215-4.
6. Debts Due Nonappropriated Fund Instrumentalities:
Despite their close association with the government, debts owed
nonappropriated fund instrumentalities (NAFIs) are not debts owed the
United States. Until 1966, this had a profound impact on the debt
collection tools available to nonappropriated fund instrumentalities
(NAFIs). In Kenny v. United States, 62 Ct. CL 328 (1926), an Army
officer was assigned to serve as superintendent of a post exchange. A
post exchange civilian employee lost post exchange receipts in the
amount of $2,557.60. The superintendent was ultimately held
responsible for payment of the amount not recovered and the amount was
withheld from his pay. The court held that the receipts of a post
exchange were not the property of the United States, the
superintendent was not in arrears to the United States, and therefore,
the loss could not be deducted from his statutory pay as an Army
officer. Id.
Similarly, in 43 Comp. Gen. 431 (1963), GAO held that a debt owed to
the Officer's Mess, a NAFI, could not be set off against an enlisted
member's final pay because it did not constitute a debt to the United
States. The result was the same in B-170400, Sept. 21, 1970, aff'd, B-
170400, Feb. 2, 1971, where GAO held that a debt owed by a former
employee of the Defense Supply Agency to the Officer's Mess and Post
Restaurant, a NAFI, could not be set off against his final
compensation or the amount to his credit in the Civil Service
Retirement Fund.
Various federal laws, including the Federal Claims Collection Act of
1966,[Footnote 253] as amended by the Debt Collection Act of
1982[Footnote 254] and the Debt Collection Improvement Act of 1996,
[Footnote 255] provide federal entities, including "instrumentalities"
of the government, with methods to collect their debts, such as salary
offset and administrative offset of monies otherwise payable to
debtors. 31 U.S.C. § 3701(a)(4) (includes instrumentality in the
definition of executive, judicial, or legislative agency). The Debt
Collection Improvement Act of 1996 amended the terms "claim" or "debt"
to include "expenditures of nonappropriated funds." 31 U.S.C. §
3701(b)(1)(B). Also, Congress authorized the Department of Defense to
collect debts owed by service members to its instrumentalities,
including NAFIs, by deducting that amount from the member's pay in
monthly installments. 37 U.S.C. § 1007(c).
Courts have held that for purposes of setoff under the Bankruptcy
Code, where a debtor to a NAFI is owed a refund from the Internal
Revenue Service (IRS), the refund may be set off against a debt owed
to the NAFI. In re Hanssen, 203 B.R. 149 (Bankr. E.D. Ark. 1996).
7. Nonappropriated Fund Instrumentality Property:
While a nonappropriated fund instrumentality (NAFI) is not a federal
agency and in many cases is not supported by appropriated funds, its
property is under government control. 40 Comp. Gen. 587 (1961). This
case involved the commercial aircraft purchased by "military aero
clubs" or "flying clubs," NAFIs which provide flying instruction,
practice, and recreation for active duty and retired military
personnel, Department of Defense civilian personnel, their families,
and other personnel designated by the Department of Defense. GAO held
that the aero club, as a NAFI, owned and used equipment in its
capacity as a government enterprise and may own and use property and
equipment only in that capacity. Id. at 589. Thus, GAO concluded that
commercial aircraft purchased by the aero club were to be regarded as
government conveyances under government travel regulations and
government travelers could be reimbursed for the expenses of their
operation in the circumstances specified by those regulations. Id. at
590.
In other cases involving property, the courts have held that NAFI
property is property of the United States for purposes of a statute
prohibiting theft of anything of value from the United States or any
department or agency thereof. See United States v. Sanders, 793 F.2d
107 (5th Cir. 1986) (merchandise from the Army and Air Force Exchange
Service is a "thing of value from the United States" under 18 U.S.C. §
641). See also United States v. Towns, 842 F.2d 740 (4th Cir.), cert.
denied, 487 U.S. 1240 (1988) (the Army and Air Force Exchange Service,
as an instrumentality of the United States, is an agency or department
of the United States for purposes of 18 U.S.C. § 641 and theft of its
property causes property loss to the United States).
8. Management of Nonappropriated Fund Instrumentalities:
a. Regulation and Oversight:
For armed forces nonappropriated fund instrumentalities (NAFIs), the
Department of Defense (DOD) provides for their operations and carries
out its oversight by regulation.[Footnote 256] DOD's regulations cover
everything from the creation of NAFIs, their purpose, funding,
contracting, employment, audits, financial management, property
management, to their dissolution.
Congress has also approved regulations of DOD's NAFIs, requiring
specific departments and agencies to regulate such entities, and
imposed specific requirements by statute. For example, in 1821
Congress approved the General Regulations for the Army which contained
specific regulations regarding sutlers, the predecessors of Army MWR
activities. Act of March 2, 1821, ch. 13, § 14, 3 Stat. 615, 616.
Under 10 U.S.C. § 2783, the Secretary of Defense is required to
establish regulations for DOD's NAFIs governing the purposes for which
nonappropriated funds may be expended and the financial management of
such funds to prevent, waste, loss, or unauthorized use. Section 2783
also establishes penalties for violations of the financial management
regulations for civilian employees of DOD and members of the armed
forces. Under 10 U.S.C. § 136(b), Congress established the position of
the Under Secretary of Defense for Personnel and Readiness who is to
perform duties which include exchanges, commissaries, and NAFIs.
b. Authority to Audit Nonappropriated Fund Activities:
(1) GAO jurisdiction:
In 1975, Congress gave GAO the authority to audit the operations and
accounts of nonappropriated fund activities authorized or operated by
the head of an executive agency to sell goods or services to government
personnel and their dependents.[Footnote 257] Several questions came
up regarding what types of activities were covered under this
authority. B-167710-0.M., May 6, 1976. GAO explained that the scope of
the audit authority was not intended to apply to every nonappropriated
fund activity since "the primary responsibility should rest with the
operating agencies concerned." Id. at 1. GAO pointed out that the
statute listed the military and National Aeronautics and Safety
Administration exchanges and similar entities as examples of the types
of activities to be audited under this authority.[Footnote 258] Id.
Since GAO could not identify a workable definition of a
nonappropriated fund activity, it relied on the case law and statutes
dealing with nonappropriated fund operations to identify the
applicable elements used for determining whether a particular activity
should be audited.[Footnote 259]
The Comptroller General may audit the accounting systems and internal
controls of nonappropriated fund instrumentalities (NAFIs) as well as
internal or independent audits or reviews of those funds. 31 U.S.C. §
3525(a)(1)-(3). To carry out this authority, records and property of
NAFIs are to be made available to the Comptroller General. 31 U.S.C. §
3525(c). The Comptroller General is authorized to audit NAFIs which
receive income from vending machines on federal property and has
access to any records necessary to conduct such audits. 20 U.S.C. §
107b-3.
(2) Other auditors:
GAO has concluded that the Secretary of Defense was authorized by
statute and regulations to require Department of Defense (DOD)
internal auditors to audit DOD nonappropriated fund instrumentalities
(NAFIs). B-148581.14-0.M., Aug. 17, 1976. Military audit agencies or
certified public accountants may audit military department NAFIs in
accordance with DOD regulations and instructions. DOD Instruction
7600.6, Audit of Nonappropriated Fund Instrumentalities and Related
Activities (Jan. 16, 2004); Army Regulation 215-1, Military Morale,
Welfare, and Recreation Programs and Nonappropriated Fund
Instrumentalities, ch. 18 (Oct. 24, 2006).
(3) Settlement of accounts:
Under 31 U.S.C. § 3526 the Comptroller General adjusts and settles the
accounts of the United States government and certifies balances in the
accounts of accountable officers. Under the accounts settlement
authority, the Comptroller General can take exception to an improper
transaction, and hold the certifying or disbursing officer personally
liable for the amount of money erroneously or improperly expended. 62
Comp. Gen. 40, 41 (1982). GAO can exercise its account settlement
authority over government agencies, departments, or independent
establishments. While 31 U.S.C. § 3525 provides GAO with audit
authority over nonappropriated fund instrumentalities (NAFIs), it does
not include accounts settlement authority over NAFIs. B-187004, Aug.
12, 1976; B-183034, Apr. 18, 1975.
(4) Bid protests:
Prior to the enactment of the Competition in Contracting Act (CICA),
[Footnote 260] GAO's accounts settlement authority was the basis for
its bid protest jurisdiction. B-218441, Aug. 8, 1985. Stated slightly
differently, GAO viewed its authority to consider protests of contract
awards as an extension of its authority to settle appropriated funds
accounts of the government. B-185084, Nov. 28, 1975. The fact that an
agency labeled funds as nonappropriated was not determinative of
whether GAO would exercise jurisdiction over a bid protest. For
example, in B-188770, Feb. 24, 1978, GAO reviewed the protest of a
procurement for the design and construction of a commissary which was
to be paid from a trust revolving fund account in which commissary
surcharges were deposited. Originally, GAO dismissed the protest
because the agency asserted that these funds were nonappropriated. B-
188770, Apr. 14, 1977. Upon reconsideration, GAO determined that the
commissary surcharge funds were appropriated funds because Congress
had authorized the collection of the surcharge and its use for
commissary construction. 57 Comp. Gen. 311 (1978). GAO noted that this
was consistent with its prior analysis that statutes authorizing the
collection and credit of fees to a particular fund and making the fund
available for specified expenditures constituted appropriations of
funds.[Footnote 261] Id. at 313. Since these were, in fact,
appropriated funds, GAO did have accounts settlement authority for the
funds and bid protest jurisdiction over the protest.[Footnote 262] Id.
at 315.
Since the enactment of CICA, GAO's jurisdiction over bid protests is
no longer defined by its accounts settlement authority; rather, CICA
established GAO bid protest jurisdiction over procurements by federal
agencies as defined in the Federal Property and Administrative
Services Act of 1949 (Property Act), Act of June 30, 1949, ch. 288, 63
Stat. 377, codified at 40 U.S.C. § 472. The definition of federal
agency includes an executive branch agency.[Footnote 263] 40 U.S.C. §
102(5). The definition of an executive branch agency includes any
executive department or independent establishment in the executive
branch of the government and wholly owned government corporations. 40
U.S.C. § 102(4). However, it does not include nonappropriated fund
instrumentalities (NAFIs) which, although recognized as government
instrumentalities associated with and supervised by government
entities, operate without appropriated funds and are not, in that
sense, federal agencies. B-270109, Feb. 6, 1996. See also 4 C.F.R. §
21.5(g).
This does not mean that GAO will never consider a protest involving a
procurement by a NAFI. GAO will review a NAFI procurement where the
protester asserts that the NAFI is acting as a conduit for the federal
agency in order for the agency to circumvent applicable procurement
statutes and regulations. B-270109, Feb. 6, 1996. For example, in B-
256560, July 5, 1994, GAO considered a protest concerning a
procurement by an employees' association, which was a NAFI. The
protester, a private-sector contractor, alleged that the Bureau of
Prisons (BOP) was improperly diverting to the NAFI requirements for
the procurement of vending machines used in its employee and visitor
lounge areas in order to avoid applying procurement statutes and
regulations, specifically, CICA's mandate for full and open
competition. GAO determined that the vending machines in question were
not part of BOP's requirements, and did not represent BOP's needs or
objectives, and, therefore, BOP could not be said to be diverting a
requirement to the employees' association. GAO concluded that the
procurement was a legitimate NAFI procurement, properly intended to
serve the needs of the employees' association and its members.
Further, the fact that an agency will receive some incidental benefit
from a NAFI procurement does not convert it into an agency
requirement. In B-256560, the protester argued that BOP was going to
receive benefits from the vending machines being procured by the NAFI
and, as such, the agency's appropriations would be improperly
augmented. Notwithstanding the fact that the inmates may have had some
limited access to buy items from the visitor lounge vending machines
during prison visiting hours, the record showed, and GAO concluded,
that these machines were not necessary to serve BOP's mission of
inmate care. In other words, the vending machines in the visitor
lounge primarily existed for the benefit of the employees' association
and its members, and inmate use and benefit was only incidental.
Access by the inmates did not convert the machines into an agency need
or benefit.
GAO will make its own determination regarding its jurisdiction over a
bid protest under CICA. In B-295737, B-295737.2, Apr. 19, 2005,
Federal Prison Industries, Inc. (FPI), citing Core Concepts of
Florida, Inc. v. United States, 327 F.3d 1331 (Fed. Cir. 2003), argued
that GAO lacked jurisdiction to hear a protest of an FPI solicitation
for shirt fabric because FPI is a NAFI. GAO disagreed with the court's
characterization of FPI as a NAFI. FPI by statute is a wholly owned
government corporation. See 31 U.S.C. § 9101(3)(E) (includes FPI in a
list of wholly owned government corporations). Noting that the
Property Act clearly included wholly owned government corporations in
its definition of a federal agency, 40 U.S.C. § 102(4), a definition
which, as previously noted, was adopted in CICA, GAO concluded that it
has jurisdiction under CICA to hear protests arising out of
procurements by wholly owned government corporations, such as FPI.
9. Sovereign Immunity:
As instrumentalities of the United States government, nonappropriated
fund instrumentalities are subject to and entitled to various duties
and privileges of the United States government. One of these is the
principle of sovereign immunity: The United States, as sovereign,
cannot be sued without its consent.
a. Immunity from State and Local Taxation:
Under the doctrine of sovereign immunity, the federal government of
the United States is immune from taxation by state and local
governments, a principle recognized by the Supreme Court in McCulloch
v. Maryland, 17 U.S.(4 Wheat.) 316 (1819). This constitutional
immunity extends to federal instrumentalities, including
nonappropriated fund instrumentalities (NAFIs). Standard Oil v.
Johnson, 316 U.S. 481, 485 (1942). This immunity prohibits a state
taxing authority from imposing a markup on the purchases of NAFIs.
United States v. State Tax Commission of Mississippi, 421 U.S. 599,
604-05 (1975). This is so even where that markup is not collected
directly from the NAFI, but is collected by suppliers. Id. at 608-09.
The United States may consent to state taxation of its
instrumentalities. For example, Congress permits collection of state
taxes on gasoline and other fuels sold through post exchanges and
other retail sales agencies of the federal government on military
installations when such fuels are not for the exclusive use of the
United States. 4 U.S.C. § 104. Congress also permitted states to levy
taxes within federal areas to the same extent as though the area were
not a federal area, with certain exceptions not relevant here.
[Footnote 264] U.S.C. §§ 105-107.
b. Immunity from Suit:
In 1970, Congress amended the Tucker Act to waive immunity for claims
arising from some armed forces and National Aeronautics and Space
Administration (NASA) nonappropriated fund instrumentalities (NAFIs)
contracts. Pub. L. No. 91-350, 84 Stat. 449 (July 23, 1970), codified
at 28 U.S.C. § 1491(a). Prior to 1970, the courts had consistently
held that neither the NAFI, nor the agency supervising the NAFI, could
be sued. E.g., Jaeger v. United States, 394 F.2d 944 (D.C. Cir. 1968);
Kyer v. United States, 369 F.2d 714 (Ct. Cl. 1966); Keetz v. United
States, 168 Ct. Cl. 205 (1964); Pulaski Cab Co. v. United States, 157
F. Supp. 955 (Ct. Cl. 1958); Borden v. United States, 116 F. Supp. 873
(Ct. Cl. 1953). The most famous of these decisions, the Borden case,
involved a chief accountant employed by the American Army Exchange
Service. He brought suit against the United States to recover salary
withheld to recoup the loss of money stolen from a safe at the post
exchange. Mr. Borden had contracted with the American Army Exchange
Service to serve as a senior accountant. His contract stipulated that
the employer could withhold salary for claims against him on account
of fraud, breach of contract, or negligence. Army regulations
regarding NAFIs stated that: "Exchange contracts are solely the
obligation of the exchange. They are not government contracts and the
distinction between exchange contracts and government contracts will
be observed and clearly indicated at all times." Borden, 116 F. Supp.
at 877.
The Court of Claims held that, under the Standard Oil decision,
[Footnote 265] Mr. Borden could not sue the Exchange Service because
it was part of the government and the government had not consented to
a suit against the Exchange Service. Id. In addition, Mr. Borden was
precluded from suing the government because Exchange contracts were
not contracts of the United States and the United States was not
liable on such contracts. Id.
The dilemma for Mr. Borden was not lost on the Court of Claims. The
court put its concerns this way:
"The Army officers are given complete supervision of these Post
Exchanges. They handle the money. They have control of the funds. The
funds are used to make the Army more effective. In other words the
officers run the show. The Exchanges are established and maintained
for the benefit of Army personnel. That is their major, in fact their
sole purpose. Even the civilian employees are subject to the Articles
of War. For the Army to contend and to provide by regulation that it
is not liable since it did not act in its official capacity would be
like a man charged with extramarital activity pleading that whatever
he may have done was done in his individual capacity and not in his
capacity as a husband.
"We think it is proper that this situation should be called to the
attention of the Congress. It seems fair that either the Post
Exchanges or the Government should be subject to suit and liable for
any breach of contract that had been duly signed by the Army Exchange
Service."
Borden, 116 E Supp. at 877-78.
Some nonmilitary NAFIs have benefited from this same paradox. For
example, several courts have held that Post Office employee welfare
committees constitute integral parts of the Postal Service and were
instrumentalities of the United States immune from suit without the
United States' consent. Employees Welfare Committee v. Daws, 599 F.2d
1375 (5th Cir. 1979); Automatic Retailers v. Ruppert, 269 E Supp. 588
(S.D. Ia. 1967).
In response to these decisions, Congress, amended the Tucker Act (28
U.S.C. § 1491) in 1970 to waive sovereign immunity for claims arising
from some armed forces and NASA NAFI contracts. The amendment to the
Tucker Act provided that express or implied contracts with these
specified NAFIs are considered express or implied contracts with the
United States. Pub. L. No. 91-350, codified at 28 U.S.C. § 1491(a).
Section 1491(a) now reads as follows:
"The United States Court of Federal Claims shall have jurisdiction to
render judgment upon any claim against the United States founded
either upon the Constitution or any Act of Congress or any regulation
of an executive department, or upon any express or implied contract
with the United States, or for liquidated or unliquidated damages in
cases not sounding in tort. For the purpose of this paragraph, an
express or implied contract with the Army and Air Force Exchange
Service, Navy Exchanges, Marine Corps Exchanges, Coast Guard
Exchanges, or Exchange Councils of the National Aeronautics and Space
Administration shall be considered an express or implied contract with
the United States."
The purpose of the amendment was to afford contractors a federal forum
in which to sue the specified NAFIs by "doing away with the
inequitable `loophole' in the Tucker Act." United States v. Hopkins,
427 U.S. 123, 126 (1976) (holding that an employment contract may
qualify as an expressed or implied contract of the United States for
purposes of Tucker Act jurisdiction). See also H.R. Rep. No. 91-933,
at 2 (1970). That waiver of sovereign immunity only applied to the
NAFIs specifically designated in the amendment to the Tucker Act. See
Sodexho Marriott Management, Inc. v. United States, 61 Fed. Cl. 229,
232-33 (2004) (MWR activity at Marine Corps installation); Research
Triangle Institute v. Board of Governors of the Federal Reserve
System, 962 E Supp. 61 (M.D.N.C. 1997) (Board of Governors of the
Federal Reserve System); McDonald's Corp. v. United States, 926 F.2d
1126, 1132-33 (Fed. Cir. 1991) (Navy Resale and Service Support
Office). See also Wolverine Supply, Inc. v. United States, 17 Cl. Ct.
190 (1989) (applying the same standard for determining immunity from
suit under the Tucker Act to suits under the Contract Disputes Act, 41
U.S.C. §§ 601-613).
According to the Federal Circuit, as originally proposed, the
amendment would have applied to all NAFIs. Denkler v. United States,
782 F.2d 1003, 1007 (Fed. Cir. 1986), citing H.R. Rep. No. 91-933, at
6-7. It was changed to cover the armed forces and NASA NAFIs named in
the amendment because some government agencies protested that certain
activities that operated incidentally to them, like bowling leagues or
baseball teams, should not be covered by the amendment. Id. The court
said that Congress decided to include only those activities which it
believed would have sufficient assets to pay costs resulting from the
expanded jurisdiction. Id. Subsequently, the Court of Claims and the
Federal Circuit have addressed their jurisdiction under the Tucker Act
amended on a number of occasions. For additional discussion see
section C.1.b of this chapter and subsequent case law.
c. Payment of Judgments:
If a party overcomes the jurisdictional barriers to suing a
nonappropriated fund instrumentality (NAFI) and prevails in the
action, who pays the judgment? One of the most commonly cited
principles regarding NAFIs is that the United States "assumes none of
the financial obligations" of NAFIs. Standard Oil Co. v. Johnson, 316
U.S. 481, 485 (1942). The same is true of judgments against NAFIs.
NAFIs generally pay tort judgments entered against them from their own
funds. They may not use appropriated funds and have no access to the
permanent, indefinite appropriation known as the Judgment Fund, 31
U.S.C. § 1304. See B-204703, Sept. 29, 1981. See also Mignogna v. Sair
Aviation, Inc., 937 F.2d 37, 42-43 (2nd Cir. 1991).
When a judgment arises out of an express or implied contract made by
the Army and Air Force Exchange Service, the Navy Exchanges, the
Marine Corps Exchanges, the Coast Guard Exchanges, or the Exchange
Councils of NASA, the Judgment Fund pays the judgment. 31 U.S.C. §
1304(c)(1). The Exchange making the contract is required to reimburse
the Fund for the amount paid. 31 U.S.C. § 1304(c)(2).
10. Status of Nonappropriated Fund Instrumentality Employees:
a. Applicability of Civil Service Laws:
Employees of armed forces nonappropriated fund instrumentalities
(NAFIs) are neither employees of federal agencies nor employees of the
United States government. Pub. L. No. 82-397, ch. 444, § 1, 66 Stat.
138 (June 19, 1952).[Footnote 266] Public Law 82-397 provides that
armed forces NAFI employees "shall not be held and considered as
employees of the United States for the purpose of any laws
administered by the Civil Service Commission." Id. Rather, they are
employees of the instrumentality. United States v. Hopkins, 427 U.S.
123, 127 (1976). Congress never intended that armed forces NAFI
employees receive the same level of protection as other federal
employees. McAuliffe v. Rice, 966 F.2d 979, 980 (5th Cir. 1992). See
also B-289605.2, July 5, 2002 (Armed forces NAFI employees are not
covered by civil service laws). Congress enacted Public Law 82-397 in
response to the Department of Defense's desire for flexibility by
exempting armed forces NAFI employees from civil service type
protections. See McAuliffe, 966 F.2d at 980. Where Congress has made
NAFI employees subject to laws applicable to other federal employees,
it has done so by expressly including them within the coverage of
specific statutes. See Perez v. Army and Air Force Exchange Service,
680 F.2d 779, 787 (D.C. Cir. 1982).
a. Applicability of Civil Service Laws:
Armed forces nonappropriated fund instrumentality (NAFI) employees are
generally not deemed to be employees of the United States except as
specifically provided by statute. 5 U.S.C. § 2105(c). Section 2105(c)
provides:
"An employee paid from nonappropriated funds of the Army and Air Force
Exchange Service, Army and Air Force Motion Picture Service, Navy
Ship's Stores Ashore, Navy exchanges, Marine Corps exchanges, Coast
Guard exchanges, and other instrumentalities of the United States
under the jurisdiction of the armed forces conducted for the comfort,
pleasure, contentment, and mental and physical improvement of
personnel of the armed forces is deemed not an employee for the
purpose of:
"(1) laws administered by the Office of Personnel Management, except:
(A) section 7204;
(B) as otherwise specifically provided in this title;
(C) the Fair Labor Standards Act of 1938;
(D) for the purpose of entering into an interchange agreement to
provide for the noncompetitive movement of employees between such
instrumentalities and the competitive service; or;
(E) subchapter V of chapter 63, which shall be applied so as to
construe references to benefit programs to refer to applicable
programs for employees paid from nonappropriated funds; or;
"(2) subchapter I of chapter 81, chapter 84 (except to the extent
specifically provided therein), and section 7902 of this title."
The final sentence of 5 U.S.C. § 2105(c) states that it does not
affect the status of the specified NAFIs as federal instrumentalities.
(1) Civil Service Reform Act of 1978:
The Civil Service Reform Act of 1978[Footnote 267] and the Supreme
Court in United States v. Fausto, 484 U.S. 439 (1988), streamlined and
simplified the remedies available to federal employees for adverse
employment actions. McAuliffe v. Rice, 966 F.2d 979, 981 (5th Cir.
1992). The Civil Service Reform Act of 1978 created a comprehensive
framework providing substantive and procedural rights and remedies for
federal employees for performance actions, removals, or other adverse
actions.[Footnote 268] In Fausto, the Supreme Court held that the
Civil Service Reform Act was the exclusive substantive and procedural
framework for federal employee actions, and precluded judicial review
of an employee's action under other laws. To conclude otherwise, said
the Court, would allow such claims to undermine the goals of unitary
decision making and consistency intended by the Act. Fausto, 484 U.S.
at 449-51. Thus, the Supreme Court held that the Civil Service Reform
Act precluded an employee who otherwise did not qualify for review
under the Act from bringing a claim under the Back Pay Act. Id. at 454-
55.
Congress deliberately exempted armed forces nonappropriated fund
instrumentality (NAFI) employees from federal civil service rules.
This enabled the armed forces to carry out the missions of NAFIs with
the maximum possible personnel flexibility. McAuliffe, 966 F.2d at
981. With a few exceptions, armed forces NAFI employees are not
covered by laws which apply to employees within the general federal
service, including the Civil Service Reform Act. McAuliffe, 966 F.2d
at 980-81; Perez v. Army & Air Force Exchange Service, 680 F.2d
779,785-87 (1982). See 5 U.S.C. § 2105(c). Thus, the remedies
available to NAFI employees are established by regulation of the
agency administering the NAFI. See McAuliffe, 966 F.2d at 981;
Castella v. Long, 701 F. Supp. 578 (N.D. Tex. 1988). Accordingly, NAFI
employees are not entitled to appeal adverse actions to the Merit
Systems Protection Board. Perez, 680 F.2d at 787; Taylor v. Department
of the Navy, 1 M.S.P.R. 591 (1980). In the McAuliffe case, a former
civilian employee of an Air Force NAFI sought review of the decision
to terminate her employment under the Administrative Procedure Act, 5
U.S.C. § 701-706. The court held that the exclusivity of the Civil
Service Reform Act precluded judicial review under the Administrative
Procedure Act.[Footnote 269] McAuliffe, 966 F.2d at 981.
Since they are not covered by the Civil Service Reform Act, armed
forces NAFI employees have attempted to challenge actions taken
against them through other statutory and constitutional rights. These
include invoking Tucker Act jurisdiction, 28 U.S.C. § 1491, for
certain NAFI contracts, and seeking damages for constitutional
deprivations by a government official, as established in Bivens v. Six
Unknown Named Agents of the Federal Bureau of Narcotics, 403 U.S. 388
(1971).
As we previously discussed, the Tucker Act waives sovereign immunity
for claims arising from contracts of certain post exchanges described
in 28 U.S.C. § 1491(a). The Supreme Court has recognized that Tucker
Act jurisdiction may be premised on an employment contract, as well as
on one for goods or other services. Army & Air Force Exchange Service
(AAFES) v. Sheehan, 456 U.S. 728,735 (1982). Relying on this theory,
Army and Air Force Exchange Service employees sued their employers
alleging that they were employed by contract. Id. at 735; Moore v.
United States, 21 Cl. Ct. 537 (1990); Orona v. United States, 4 Cl.
Ct. 81 (1983). However, the courts found that the specific employees
in those cases, in fact, were not serving under employment contracts
but had been appointed to their positions. Sheehan, 456 U.S. at 736-
38. Consequently, the courts lacked jurisdiction over their claims.
Id. at 741; Moore, 21 Cl. Ct. at 539-40; Orona, 4 Cl. Ct. at 84. Where
an employee holds his employment through appointment, claims for
entitlements to pay and allowances derive from applicable statutes and
regulations not from a claimed contract of employment. B-280764, May
4,2000 (citing AAFES, 456 U.S. at 735).
Feeling confused? This next case is not going to make you feel a whole
lot better. In Castella v. Long, 701 E Supp. 578 (N.D. Tex.), affd,
862 F.2d 872 (5th Cir. 1988), cert. denied, 493 U.S. 936 (1989), a
former Army and Air Force Exchange Service (AAFES) employee sued for
damages after he was fired for making false claims for travel expense
reimbursements. Id. at 580-81. The court recognized that AAFES
employees were not federal employees with rights under the Civil
Service System. Instead, AAFES employees fall under the Army and Air
Force regulations. Id. at 581. Based on sovereign immunity, the court
dismissed those claims which sought relief from the NAFI, the
government, and the individuals who acted in their official capacities
to fire the claimant. Id. at 582. The court then dismissed those
claims against the individuals acting in their personal capacities,
[Footnote 270] based on Bush, v. Lucas, 462 U.S. 367 (1983). See
Castella, 701 F. Supp. at 583-84.
Bush, held that Bivens-type constitutional damage claims could not be
brought for alleged constitutional violations associated with a
claimant's employment in the federal government. The reason for this
was that Congress had established "an elaborate remedial system" which
was intended to address employment-related claims by federal
employees. Bivens-type actions would unduly disrupt that statutory
scheme. Bush, 462 U.S. at 388.
The Castella court realized that Bush, involved federal employees
subject to the Civil Service System, not armed forces NAFI employees.
Castella, 701 F. Supp. at 583. (As we noted earlier, Congress
intentionally exempted armed forces NAFI employees from that system.)
Nevertheless, it noted that some other courts (including its own
circuit court) had applied (or endorsed applying) Bush, to armed
forces NAFI employee claims. The courts rationalized their position
with the explanation that while the Army and Air Force regulations
were not approved by Congress, they were, nevertheless, "an elaborate
remedial system" that should not be augmented by Bivens-style
constitutional claims. Castella, 701 F. Supp. at 584.
Strange as it may seem, by treating NAFI employees the same as federal
employees under Bush,, the courts may actually have reinforced the
congressional intention that armed forces NAFI employees be treated
differently than federal employees, since absent a Bivens-type claim,
the NAFI employees are left more to the regulatory mercy of the
agencies than are federal employees under the statutory civil service
rules.
The Castella court also held that the NAFI employee could not use the
Privacy Act challenging the correctness of the records that supported
the decision to remove him, to attack the removal decision. Castella,
701 F. Supp. 585. The court explained that the purpose of the Privacy
Act was to allow for the correction of factual or historical errors.
It was not intended to permit a plaintiff to reopen consideration of
unfavorable federal agency decisions. The court found that the
plaintiff was really alleging only a wrongful personnel decision. Id.
at 584-85.
(2) Other employment related laws:
The following list of laws typically associated with federal
employment discusses their applicability to armed forces
nonappropriated fund instrumentalities (NAFIs).
Whistleblower Protection Act of 1989[Footnote 271]—Employees of armed
forces NAFIs are not protected by the Whistleblower Protection Act
because they are excluded from the definition of employee for purposes
of title 5, United States Code. Clark v. Merit Protection Systems
Board, 361 F.3d 647, 650-52 (Fed. Cir. 2004) (adopting the analysis of
Clark v. Army & Air Force Exchange Service, 57 M.S.P.R. 43, 46
(1993)). However, pursuant to 10 U.S.C. § 1587, armed forces NAFI
employees are protected from reprisal for whistleblowing under
procedures adopted by the Secretary of Defense.
Classification and Pay Rates and Systems—As stated in 5 U.S.C. §
2105(c), armed forces NAFI employees are federal employees for
purposes of: 5 U.S.C. § 7204, which prohibits discrimination because
of race, color, creed, sex, or marital status against individuals in
the classification of employees, administration of pay rates and
systems of employees; appointments to positions above GS-15 under 5
U.S.C. § 3324; and the systematic agency review of operations under 5
U.S.C. § 305.
Fair Labor Standards Act of 1938—NAFI employees under the jurisdiction
of the armed forces fall within the coverage of the Fair Labor
Standards Act of 1938 (FLSA). 29 U.S.C. § 203(e)(2)(A)(iv). Unlike
federal employees in the competitive or excepted service, armed forces
NAFI employees are under another personnel system pursuant to 5 U.S.C.
§ 2105(c). Since such employees are not covered by the laws which
apply to federal employees, procedural protections for removals or
other adverse actions affecting those employees are established by
regulation of the agency supervising the armed forces NAFI. American
Federation of Government Employees, Local 1799 and Department of Army,
Aberdeen Proving Ground, Maryland, 22 FLRA 574, 576 (1986). An FLSA
claim may be brought against an armed forces NAFI, to the extent of
nonappropriated funds, since the government has waived immunity with
regard to wage claims under the FLSA. El-Sheikh, v. United States, 177
F.3d 1321, 1323-24 (Fed. Cir. 1999); Cosme Nieves v. Deshler, 786 F.2d
445, 450 (1st Cir.), cert. denied, 479 U.S. 824 (1986) (an FLSA claim
does not come within the limited exceptions of the Tucker Act);
Morales v. Senior Petty Officers' Mess, 366 E Supp. 1305 (D.P.R. 1973).
Family and Medical Leave Act of 1993[Footnote 272] Armed forces NAFI
employees are federal employees for purposes of Title II of the Family
and Medical Leave Act of 1993. 5 U.S.C. § 2105(c)(1)(E). Title II of
the Family Medical Leave Act grants federal employees, including armed
forces NAFI employees, rights to leave from work in enumerated
circumstances, but no private right of action to enforce the leave
rights. Mann v. Haigh, 120 F.3d 34, 37 (4th Cir. 1997). In the Mann
decision, since the plaintiff was not a federal employee covered by
the Civil Service Reform Act of 1978, and he was not entitled to a
judicial review under the Administrative Procedure Act, his right to
appeal his termination was limited to procedural safeguards provided
by the NAFI. Id. at 37-38.
Civil Service Retirement Act{footnote 273]—The Civil Service
Retirement Act entitles certain government employees to deferred
retirement annuities. Typically, in order to be eligible for a
retirement annuity under the Civil Service Retirement Act, an
individual must complete at least 5 years of "creditable" civilian
service and must complete at least 1 year of "covered" civilian
service in the final 2 years of employment. 5 U.S.C. §§ 8333(a), (b);
Dupo v. OPM, 69 F.3d 1125, 1128 (Fed. Cir. 1995). Although most
service in the federal government is creditable, service with an armed
forces NAFI is not, as a general rule, creditable service for purposes
of the Civil Service Retirement Act. Armed forces NAFI employees are
excluded from the definition of an employee for purposes of laws
administered by the Office of Personnel Management which includes the
Civil Service Retirement Act. 5 U.S.C. § 2105(c). See also Dupo, 69
F.3d at 1128. However, Congress has provided that in limited
circumstances, service with an armed forces NAFI may be creditable for
purposes of the Civil Service Retirement Act. The Nonappropriated Fund
Instrumentalities Employees' Retirement Credit Act of 1986, Pub. L.
No. 99-638, 100 Stat. 3535 (Nov. 10, 1986), codified at 5 U.S.C. §
8332(b)(16), provides that the following service is creditable:
"Service performed by any individual as an employee described in
section 2105(c) of this title after June 18, 1952, and before January
1, 1966, if (A) such service involved conducting an arts and crafts,
drama, music, library, service club, youth activities, sports or
recreation program (including any outdoor recreation program) for
personnel of the armed forces, and (B) such individual is an employee
subject to this subchapter on the day before the date of the enactment
of The Nonappropriated Fund Instrumentalities Employees' Retirement
Credit Act of 1986."
Therefore, armed forces NAFI employees are entitled to civil service
retirement credit for that service only if they meet the following
criteria: (1) the service to be credited was performed for an armed
forces NAFI between June 18, 1952, and January 1, 1966; (2) the
service performed during that period involved conducting certain
activities as listed in 5 U.S.C. § 8332(b)(16); and (3) the individual
was an employee subject to the Civil Service Retirement Act on
November 9, 1986. Dupo, 69 F.3d at 1128. In the Dupo case, the Federal
Circuit found that Mr. Dupo was employed by a Navy Exchange for the
time periods required for creditable service. Id. at 1128-29. However,
he had not conducted the activities listed in section 8332(b)(16). The
Dupo court held that for purposes of section 8332(b)(16), "conducting"
means "to lead from a position of command" or "to direct the
performance or and employees who were administrative or support
workers, such as Mr. Dupo, generally did not satisfy this requirement.
Id. at 1129. Furthermore, Mr. Dupo had been separated from service
prior to November 9, 1986 and did not meet the third requirement. Id.
Thus, he was not entitled to a civil service retirement annuity.
Relocation Expenses—Sections 5724 and 5724a of title 5, United States
Code, authorize an agency to pay transferred employees travel and
transportation expenses, various allowances, and relocation expenses.
However, these expenses are allowable only for "an individual employed
in or under an agency." 5 U.S.C. § 5721(2). Thus, an individual is
entitled to these expenses if the agency from which he transfers and
the agency to which he transfers are within this coverage. NAFIs are
not considered federal agencies for the purpose of receipt and
disbursement of funds, including payments to their employees. B-
215398, Oct. 30, 1984. Employees of a NAFI are not employed by an
agency within the meaning of section 5721(1) and are not entitled to
relocation expenses under sections 5724 and 5724a when they transfer
to a federal agency. In 1996, however, Congress authorized the
Department of Defense to pay for travel, transportation, and
relocation expenses for employees of the department and Coast Guard
NAFIs to the same extent authorized for transferred employees.
[Footnote 274] Pub. L. No. 104-201, div. A, title XVI, § 1605(a)(1),
110 Stat. 2422, 2736 (Sept. 23, 1996), codified at 5 U.S.C. § 5736.
Dual Compensation Laws—The dual compensation laws were intended to
preclude "double dipping"—in other words, to protect the taxpayer from
paying the same individual two salaries. One way this has been
manifested is in a provision which dictated that the retired pay of a
regular retired officer be reduced if he held a position with the
United States government or if his retired pay together with his
civilian pay exceeded level V of the Executive Schedule. 5 U.S.C. §§
5531, 5532, 5533.[Footnote 275] In this context, "position" is defined
as:
"a civilian office or position (including a temporary, part-time, or
intermittent position), appointive or elective, in the legislative,
executive, or judicial branch of the Government of the United States
(including a Government corporation and a nonappropriated fund
instrumentality under the jurisdiction of the armed forces) or in the
government of the District of Columbia."
5 U.S.C. § 5531(2) (emphasis added).
Thus, for example, the retired pay of regular retired officers of the
armed forces who are employed with armed forces NAFIs is subject to
reduction in order to avert dual compensation.
There are NAFIs outside the Department of Defense that employ retired
officers of the armed forces, and the courts have considered the
applicability of the dual compensation laws to them. In Denkler v.
United States, 782 F.2d 1003 (Fed. Cir. 1986), the Federal Circuit
considered whether the phrase "including ... a nonappropriated fund
instrumentality under the jurisdiction of the armed forces" was
intended to include other NAFIs such as the Federal Reserve Board, a
statutorily designated NAFI. The Federal Circuit concluded that
although there did not appear to be a reason for Congress to limit the
purpose of the dual compensation laws, Congress had limited the
provision to retired military officers employed by NAFIs of the armed
forces and the court would not legislate in its stead. Id. at 1008.
Thus, in the Denkler case, the salary of employees of Federal Reserve
Board was not subject to pay reduction under dual compensation
principles. Id.
GAO followed the Denkler decision in 67 Comp. Gen. 436 (1988) in a
case involving three retired military officers who were employed by
the Federal Reserve System (FRS), holding that the FRS was a NAFI not
under the jurisdiction of the armed forces and therefore not subject
to the dual compensation pay reduction. Id. at 440. In that decision,
GAO also analyzed the laws governing the Office of Civilian
Radioactive Waste Management, an organization within the Department of
Energy, to determine whether this entity was a NAFI. Because its funds
came from user fees which were deposited in the Treasury for use in
paying the Office's expenses, GAO concluded that it was not a NAFI.
Id. at 441. Thus, the Denkler decision was not applicable, and
employees of the Office of Civilian Radioactive Waste Management were
subject to the dual compensation provisions. Id. See also B-236979,
Apr. 19, 1990 (since the Panama Canal Commission collects funds,
deposits them into a revolving fund in the Treasury, and withdraws
from the fund pursuant to appropriation acts, the Commission is not a
NAFI and its employees are subject to dual compensation reductions).
Title VII of the Civil Rights Act and Age Discrimination in Employment
Act—Employees and applicants for employment in the military
departments and executive agencies as defined by title 5 of the United
States Code are entitled to maintain actions under Title VII of the
Civil Rights Act. 42 U.S.C. § 2000e-16(a). The Act defines executive
agency employees to include "employees and applicants for employment
who are paid from nonappropriated funds." Id.; see B-234746-0.M., Mar.
10, 1989. Such persons also are entitled to maintain actions under the
Age Discrimination in Employment Act. 29 U.S.C. § 633a. The proper
defendant to be sued under these statutes is the head of the
department, agency, or unit, which in the case of the Army and Air
Force Exchange Service (AAFES) is the Secretary of Defense or the
Secretary of the Air Force and the Secretary of the Army jointly.
Honeycutt v. Long, 861 F.2d 1346, 1349 (5th Cir. 1988) (AAFES is not
an executive department, agency, or unit; it is an instrumentality of
the United States operating under the Department of Defense).
Employment for Purposes of Immigration Laws—Under the Immigration and
Nationality Act, an employee of the United States, upon the completion
of 15 years of service, is eligible for classification as a special
immigrant entitled to special consideration with his application for
admission to the United States. 8 U.S.C. § 1101(a)(27). Public Law 82-
397, 66 Stat. 138 (June 19, 1952), now codified at 5 U.S.C. § 2105,
includes employees of armed services NAFIs in the definition of United
States employee. The Office of Legal Counsel has concluded that armed
forces NAFI employees are to be considered employees of the United
States for the purposes of applying 8 U.S.C. § 1101(a)(27). 1 Op. Off.
Legal Counsel 258 (1977). The Office of Legal Counsel determined that
as a general rule, armed forces NAFI employees should be regarded as
employees of the United States unless a federal statute provides
otherwise. Id. In the case of the Immigration and Nationality Act, the
Office of Legal Counsel concluded that neither the language or history
of the Act suggested that employee of the United States was intended
to have a restricted meaning. Further, since Congress's primary
intention was to facilitate the immigration of persons serving the
government abroad and NAFI employees were not excluded, they were
eligible for classification as special immigrants under the Act. There
is no GAO case law addressing the application of immigration laws to
NAFI employees.
Criminal Statutes—Some NAFI employees, when charged with bribery under
a federal statute, have offered as a defense that they are not federal
employees. See Harlow v. United States, 301 F.2d 361 (5th Cir.), cert.
denied, 371 U.S. 814, reh'g denied, 371 U.S. 906 (1962). Mr. Harlow
and his co-conspirators were employed by the European Exchange System,
which was established to operate various facilities, including
military Post Exchanges. They were responsible for contracting for the
Exchanges. They established various Swiss bank accounts, solicited
bribes from vendors seeking to do business with the Exchanges, and
deposited the bribes into those accounts. In appealing their
convictions for corruption, the defendants argued that, as NAFI
employees, they were not federal employees and could not be charged
under a federal statute making it a crime for any employee or person
acting for or on behalf of the United States to solicit or receive
bribes. Although the court agreed that they were not federal
employees, it declined to dismiss those charges because the defendants
could be included under the term "person acting for or on behalf of
the United States." The court reasoned that NAFIs are
instrumentalities of the United States government and the employees,
acting on behalf of the Exchanges in making contracting decisions,
were acting on behalf of the United States. Id. at 370-71.
Tort Claims—The Federal Tort Claims Act (VIVA), 28 U.S.C. §§ 1346(b),
2671-2680, waived most of the government's sovereign immunity from
torts. While the VIVA does not specifically refer to NAFIs, courts in
certain instances have interpreted the FICA's coverage to include some
NAFIs that the courts consider to be federal instrumentalities. See,
e.g., Brucker v. United States, 338 F.2d 427, 430 (9th Cir. 1964)
(military flying club); United States v. Hainline, 315 F.2d 153, 156
(10th Cir.), cert. denied, 375 U.S. 895 (1963) (military flying club);
United States v. Holcombe, 277 F.2d 143, 144 (4th Cir. 1960) (Naval
Officers' Mess). However, an equestrian club on an Army base was not
covered under the VIVA. Scott v. United States, 226 F. Supp. 864 (M.D.
Ga. 1963), aff'd, 337 F.2d 471 (5th Cir. 1964), cert. denied, 380 U.S.
933 (1965). The court concluded that the club differed from other
activities such as post exchanges because the club was not an integral
part of the Army and not subject to the requisite degree of control
and supervision by the Army. Id. at 868-69.
Injuries to military service members when they are involved in NAFI
activities, such as social or flying clubs, are considered to be in
connection with their military service, which bars recovery under the
FICA. Pringle v. United States, 44 E Supp. 2d 1168 (D. Kan. 1999),
aff'd, 208 F.3d 1220 (10th Cir. 2000); Eckles v. United States, 471 E
Supp. 108, 110-11 (M.D. Pa. 1979) (and cases cited therein).
The federal courts have found that injuries to employees of armed
forces NAFIs arising in the course of employment are covered under the
Longshoremen's and Harbor Workers' Compensation Act (33 U.S.C. ch. 18;
see 5 U.S.C. §§ 8171, 8173), and not the Federal Employees
Compensation Act (5 U.S.C. § 8101) or the FICA. Traywick v. Juhola,
922 F.2d 786 (11th Cir. 1991); Vilanova v. United States, 851 F.2d 1
(1st Cir. 1988), cert. denied, 488 U.S. 1016 (1989); Calder v. Crall,
726 F.2d 598 (9th Cir.), cert. denied, 469 U.S. 857 (1984).
D. Trust Funds:
On June 27, 1829, an English chemist and mineralogist, James Smithson,
died in Genoa, Italy. In 1835, in Pisa, Italy, James Smithson's nephew
died without heirs. Smithson's will had stipulated that, if his nephew
died without heirs, his estate should go, in trust, "to the United
States of America, to found at Washington, under the name of the
Smithsonian Institution, an Establishment for the increase and
diffusion of knowledge."
The President expressed doubts about the legality of accepting the
gift and sought statutory authority to do so. In Congress, the
decision to accept Mr. Smithson's gift was not open and shut. Senator
John C. Calhoun led a determined minority that opposed accepting the
gift. Senator Calhoun argued that the gift abridged states' rights and
was beneath the dignity of the government to accept. Federalism and
dignity aside, money was then, and still is, a useful commodity.
Accordingly, by Act of July 1, 1836, ch. 252, 5 Stat. 64, Congress
authorized the acceptance of the Smithson bequest. Shortly thereafter,
President Andrew Jackson appointed Mr. Richard Rush to pursue the
claim of the United States in the Court of Chancery of England. Two
years later, the Chancery Court awarded Smithson's estate to the
United States.
Mr. Rush sold Mr. Smithson's properties, converting the proceeds into
gold sovereigns. On July 17, 1838, he sailed for home, taking with him
11 boxes containing 104,960 sovereigns, 8 shillings, and 7 pence, as
well as Mr. Smithson's mineral collection, library, scientific notes,
and personal effects. Arriving in New York after a 6-week voyage, Mr.
Rush transferred the gold coins to the Treasury to be melted down.
Eight years passed before the Congress resolved what should be done
with Smithson's bequest. Suggestions included a national university, a
public library, common schools, and an astronomical observatory.
Congress settled the matter by Act of August 10, 1846, ch. 178, 9
Stat. 102, creating the Smithsonian Institution and leaving it up to
the new Institution's Board of Regents to decide on the specific
activities to undertake for the faithful execution of the Smithson
trust. Congress directed that the principal of the Smithson bequest,
"being the sum of $541,379.63," be lent to the United States Treasury
and invested in public debt securities. 20 U.S.C. § 54. Congress
provided an appropriation of the interest from the securities for the
perpetual maintenance and support of the Smithsonian Institution. Id.
The legislative history surrounding acceptance of the Smithson Bequest
and the founding of the Smithsonian Institution suggests that this may
well have been one of the earliest instances of the United States
accepting the role and responsibilities of "trustee" for private
funds.[Footnote 276] Today the United States has many different "trust
funds."
As a general proposition, the United States holds funds or property
"in trust" in three different situations. Like the Smithson bequest,
the federal government may hold funds in trust that are donated to
(and accepted by) the United States.[Footnote 277] Second, the United
States may have a trust obligation with respect to property of others
that it controls and manages. Third, the United States holds dedicated
receipts appropriated to statutorily designated trust funds. In this
last form of "trust funds" the funds are owned by the federal
government and are not "trusts" in the common, legal sense of the
word; rather, they are accounting mechanisms within the context of the
federal budget.
These days, it is clear that the federal government may hold funds "in
trust" for any number of reasons and for any number of groups. Equally
clear is that further generalizations are fraught with danger. In
particular, care needs to be exercised with respect to the scope of
the government's legal obligations to trust beneficiaries.
Usually, the creation, terms, and conditions of a trust depend solely
upon the statute creating or authorizing the trust. However, from a
fiscal law perspective, there can be other factors in the equation.
The source of the funds held in trust is one of those factors. As the
discussion below shows, sometimes the source of the funds determines
whether the United States has a trust obligation with respect to the
funds it holds. It can also be significant where statutory
restrictions on the use of appropriated funds are at issue.
Another factor is the "common law." The decisions of the accounting
officers of the government, as well as those of the courts, frequently
refer to or use common law trust concepts to analyze or resolve issues
concerning property of others that the government holds or possesses.
In this way, common law trust concepts inform the decision makers'
judgment as they give meaning to the governing statutes. However,
sometimes it is the common law alone which creates and controls the
government's obligations with respect to property it holds "in trust."
See, e.g., United States v. Mitchell, 463 U.S. 206, 225 (1983); White
Mountain Apache Tribe v. United States, 249 F.3d 1364, 1377-79 (Fed.
Cir. 2001). As the court observed in Cobell v. Norton, 240 F.3d 1081,
1101 (D.C. Cir. 2001), "the general 'contours' of the government's
obligations may be defined by statute, but the interstices must be
filled in through reference to general trust law." That is, once a
statutory obligation is identified, courts may look to the common law
trust principles to particularize that obligation. Cobell v. Norton,
392 F.3d 461, 473 (D.C. Cir. 2004).[Footnote 278]
One further word of caution: As suggested earlier, there is no one
model of a federal trust fund. In certain situations the federal
government may act and may have the legal obligation to act as a
fiduciary with respect to funds or property it holds for the benefit
of specified groups or individuals. In dollar terms, the amounts held
in these "true" trusts are relatively minor. There are, however, a
relatively small number of statutorily designated "trust fund"
accounts. While these accounts are designated trust funds for
bookkeeping and accounting purposes, they are not trusts in the sense
that Congress may not redefine eligibility of beneficiaries, alter
benefit amounts, or redirect receipts to other programs or purposes.
Cf. OMB Cir. No. A-11, Preparation, Submission, and Execution of the
Budget, § 20.12(d) (July 2, 2007). It is these statutorily designated
trust accounts that contain the overwhelming amount of federal trust
fund dollars. The use of the term "trust" in connection with these
funds, however, implies greater rights in the "beneficiaries" and
obligations in the "trustee," vis-a-vis the trust corpus, than the law
actually recognizes.
1. Federal Funds and Trust Funds:
The federal government holds funds in over 1,000 accounts. GAO,
Compendium of Budget Accounts: Fiscal Year 2001, GAO/AIMD-00-143
(Washington, D.C.: Apr. 2000). At the highest level of generality,
these accounts are divided into two[Footnote 279] major groups:
federal funds and trust funds. OMB Cir. No. A-11, Preparation,
Submission, and Execution of the Budget, § 20.12(b) (July 2, 2007).
Within each of these two groups there are several types of accounts.
a. Federal Funds:
Federal funds include general fund expenditure and receipt accounts,
special fund expenditure and receipt accounts, and intragovernmental,
management, and public enterprise revolving fund accounts. OMB Cir.
No. A-11, Preparation, Submission, and Execution of the Budget, §
20.12(c) (July 2, 2007). Of these accounts only the general fund
receipt accounts are typically used to account for collections that
are not earmarked by law for a specific purpose. See, e.g., GAO,
Federal Trust and Other Earmarked Funds: Answers to Frequently Asked
Questions, GAO-01-199SP (Washington, D.C.: Jan. 2001), at 9-10.
Public enterprise revolving funds and special funds are financed by
earmarked receipts. A public enterprise revolving fund is credited
with receipts generated by a cycle of businesslike operations with the
public "in which the agency charges for the sale of products or
services and uses the proceeds to finance its spending." GAO, A
Glossary of Terms Used in the Federal Budget Process, GAO-05-734SP
(Washington, D.C.: Sept. 2005), at 4. The Postal Fund is an example of
such a fund. 39 U.S.C. § 2003. Its receipts come primarily from mail
and service revenues and are available, through a permanent,
indefinite appropriation, for authorized activities and functions of
the Postal Service without further appropriation action. 39 U.S.C. §
2003(a).
Special fund accounts are established to record receipts collected
from a specific source and earmarked by law for a specific purpose or
program. OMB Cir. No. A-11, §§ 20.3, 20.12. As a general proposition,
special funds operate like statutorily designated trust fund accounts
with little substantive difference other than that the authorizing
legislation does not designate them as trust funds.[Footnote 280] GAO-
01-199SP, at 10. The Nuclear Waste Fund, 42 U.S.C. § 10222(c), is an
example. It receives mainly two kinds of receipts: fees collected from
civilian nuclear power operators and interest income from investments
in United States securities. 42 U.S.C. §§ 10222(a), (e). The amounts
in this fund are only available for radioactive waste disposal
activities including the development, construction, and operation of
authorized facilities for the disposal of high-level nuclear waste. 42
U.S.C. § 10222(d).
b. Trust Funds:
The trust fund group is comprised of trust fund expenditure accounts,
trust fund receipt accounts, and trust revolving fund accounts.
[Footnote 281] OMB Cir. No. A-11, Preparation, Submission, and
Execution of the Budget, § 20.12(b) (July 2, 2007). The distinguishing
characteristic of these accounts is that they represent accounts,
designated by law as trust funds, for receipts earmarked for specific
purposes and sometimes, but not always, for the expenditure of these
receipts. Id. Trust fund expenditure accounts record appropriated
amounts of trust fund receipts used to finance specific purposes or
programs under a trust agreement or statute. Trust fund receipt
accounts capture collections generated by the terms of the trust
agreement or statute. 1 TFM 2-1520. These include nonrevolving
accounts finance programs such as the Social Security and Medicare
programs.[Footnote 282] The other type of trust account, trust
revolving fund accounts, cover the permanent appropriation and
expenditure of collections used to carry out a cycle of businesslike
operations in accordance with a statute that designates the fund as a
trust fund. One example is the Commissary Funds, Federal Prisons, 31
U.S.C. § 1321(a)(22), which uses profits earned on sales of goods and
articles not regularly provided to inmates by the federal prisons for
recreational and general welfare items. This category also includes a
number of small trusts created to account for the expenditure of funds
in accordance with a trust agreement where the government may act as a
fiduciary. See 31 U.S.C. §§ 1321(b), 1323(c).
Over the last 50 years, trust fund receipts have grown both as a share
of total federal receipts and as a share of Gross Domestic Product
(GDP). Today, annual trust fund receipts make up about half of all
federal receipts and about 10 percent of GDP. GAO-01-199SP, at 31. In
fiscal year 1999, GAO identified 130 federal trust funds. Id. at 12.
c. Congressional Prerogatives:
Generally accepted governmental definitions do not constrain Congress
in its designation of an account as a trust fund or special fund
account.[Footnote 283] Congress may and does approach the matter on a
case-by-case basis. As a result, it is possible to find trust funds
that share features of special funds and vice versa. For example,
Congress designated the Environmental Protection Agency's Hazardous
Substance Superfund as a trust fund, 26 U.S.C. § 9507, while it
established the Department of Energy's similar Nuclear Waste Fund as a
special fund on the books of the Treasury. 42 U.S.C. § 10222(c).
2. The Government as Trustee: Creation of a Trust:
In governmental parlance, the term "trust funds" covers a lot of
territory. Of course, it is applied in the classical sense to
nongovernmental funds entrusted to the government. But it is also
applied to certain governmental funds held by the government that have
been designated as trust funds by statute. In addition, it is applied
to funds that are donated to the government for specified purposes.
Each of these uses of the term is discussed below.
a. Property of Others Controlled by the United States:
At common law, a trust is "a fiduciary relationship with respect to
property." Under it, the person holding title to the property has
"equitable duties" to manage the property for the benefit of another
person. This fiduciary relationship arises as a result of an expressed
intention to create it. Restatement (Third) of Trusts, § 2 (2003).
Clearly, the United States can act as a trustee. E.g., Memorandum for
the Assistant Attorney General, Civil Division, Fiduciary Obligations
Regarding Bureau of Prisons Commissary Fund, OLC Opinion, May 22,
1995, citing 2 Scott & Fratcher, The Law of Trusts § 95 (4th ed. 1987)
("as sovereign, the United States has the capacity to act as a common
law trustee"). Equally clear is that the terms on which the United
States agrees to act as trustee vary widely. Thus, the initial
questions are when does a trust arise and what are the conditions
under which the government, as trustee, operates. The discussion that
follows examines these issues.
Two Supreme Court decisions involving claimed breaches by the United
States of trust obligations owed to Quinault Reservation Indian
allottees address when an actionable trust may arise. In United States
v. Mitchell, 445 U.S. 535, reh'g denied, 446 U.S. 992 (1980) (Mitchell
l), Indian allottees sued the United States for damages for
mismanagement of forest resources. The Indian allottees argued that
the General Allotment Act imposed on the United States a fiduciary
obligation to manage the forest resources for their benefit.[Footnote
284] The Indian allottees claimed that the breach of the fiduciary
obligation created by the General Allotment Act entitled them to money
damages for a breach of trust. The General Allotment Act required the
United States to "hold the land ... in trust for the sole use and
benefit" of the allottees. Mitchell I, 445 U.S. at 541 (quoting the
General Allotment Act, codified as amended at 25 U.S.C. § 348). The
Supreme Court rejected the Indian allottee's argument, reasoning that
Congress used the trust language of the General Allotment Act for the
limited purpose of preventing alienation of allotted lands and
immunizing the lands from state taxation. The act created only a
"limited trust relationship" for those purposes, and did not
"unambiguously provide that the United States has undertaken full
fiduciary responsibilities as to the management of allotted lands."
Id. at 542. Absent such responsibilities, the United States was not
answerable for damages. Id. "Any right of the [allottees] to recover
money damages for Government mismanagement of timber resources must be
found in some source other than the [General Allotment Act]." Id. at
546.
Fortunately for the Indian allottees, another source of authority was
available to support their claim, and Mitchell I was not the last word
on the matter. In United States v. Mitchell, 463 U.S. 206 (1983)
(Mitchell II), the Supreme Court found that a trust duty did arise
under several other statutes and regulations which, unlike the General
Allotment Act, did expressly authorize or direct the Secretary of
Interior to manage forests on Indian lands. Id. at 224. The Court
explained that "a fiduciary relationship necessarily arises when the
Government assumes such elaborate control over forests and property
belonging to Indians. All of the necessary elements of a common-law
trust are present: a trustee (the United States), a beneficiary (the
Indian Allottees), and a trust corpus (Indian timber, lands, and
funds)." Id. at 225.
Quoting from the Court of Claims decision in Navajo Tribe of Indians
v. United States, 224 Ct. CL 171, 183 (1980), the Supreme Court
emphasized that "where the Federal Government takes on or has control
or supervision over tribal monies or properties, the fiduciary
relationship normally exists." Mitchell II, 463 U.S. at 225. This
remains true even if "nothing is said expressly in the authorizing or
underlying statute ... about a trust fund, or a trust or fiduciary
connection." Id. Of course, where Congress has provided otherwise with
respect to such moneys or property, those directions will control. Id.
In other words, to recover for a breach of trust, the beneficiaries
must be able to establish a trust responsibility that mandates
monetary relief by statute, treaty, or the government's assumption of
management and control over the funds or assets.
Ten years after Mitchell II, the Supreme Court decided two companion
cases brought by Indian tribes alleging breach of trust obligations by
the United States. In White Mountain Apache Tribe, 537 U.S. 465, the
Tribe sought compensation from the United States for breach of a
fiduciary duty to maintain land and improvements at Fort Apache
Military Reservation in Arizona held in trust for the Tribe but
occupied by the federal government. Dating to 1870, Fort Apache was
established on territory that later became the Tribe's reservation. In
1923 and again in 1960 Congress provided by statute that the fort
would be "held by the United States in trust for the White Mountain
Apache Tribe, subject to the right of the Secretary of the Interior to
use any part of the land and improvements for administrative or school
purposes for as long as they are needed for that purpose." Pub. L. No.
86-392, 74 Stat. 8 (Mar. 18, 1960). Exercising that right, the
Department of the Interior had allowed the historic buildings to fall
into such disrepair that some were condemned and others demolished.
Citing the terms of the 1960 statute, the Tribe brought suit against
the United States in the Court of Federal Claims for money damages to
restore the properties.
Affirming Mitchell I and II, the Supreme Court ruled for the White
Mountain Apache Tribe, finding that the federal government had
breached its duty as trustee to preserve the trust corpus. Like the
statutes at issue in Mitchell II, the court found:
"The 1960 Act goes beyond a bare trust and permits a fair inference
that the Government is subject to duties as a trustee and liable in
damages for breach.... The statute [invests] the United States with
discretionary authority to make direct use of portions of the trust
corpus ... An obligation to preserve the property improvements was
incumbent on the United States as trustee. This is so because
elementary trust law, after all, confirms the commonsense assumption
that a fiduciary actually administering trust property may not allow
it to fall into ruin on his watch. 'One of the fundamental common-law
duties of a trustee is to preserve and maintain trust assets.'"
Id. at 474-75 (citations omitted).
In the companion case to White Mountain Apache Tribe, the Supreme
Court found that the Indian Mineral Leasing Act of 1938 (IMLA), 25
U.S.C. § 396a, does not assign managerial control to the Secretary of
Interior over coal leasing on Navajo land and, as in Mitchell I,
imposing fiduciary duties on the government would be out of line with
one of IMLNs principal purposes. United States v. Navajo Nation, 537
U.S. 488,508 (2003). IMLA requires Secretarial approval before coal
mining leases negotiated between Tribes and third parties become
effective. Id. at 507. IMLA also authorizes the Secretary generally to
promulgate regulations governing mining operations, 25 U.S.C. § 396d.
Id. The Navajo Nation sought money damages from the United States,
alleging a breach of trust in connection with the Secretary of
Interior's approval of a coal lease amendment negotiated by the Tribe
and a third party. Unlike the elaborate provisions at issue in
Mitchell II, the Court found the IMLA and its regulations, like the
Allotment Act in Mitchell I, do not give the federal government full
responsibility to manage Indian resources for the benefit of the
Indians. Nor does IMLA establish even a limited trust relationship.
Rather, IMLA aims to enhance tribal self-determination by giving
Tribes, not the government, the lead role in negotiating mining leases
on tribal lands with third parties. Navajo Nation, 537 U.S. at 507-08.
Consistent with Mitchell II, one court recently observed: "The federal
government has substantial trust responsibilities toward Native
Americans. This is undeniable." Cobell v. Norton, 240 F.3d 1081 (D.C.
Cir. 2001).
In fact, the Supreme Court has recognized a general trust relationship
with Indian tribes since 1831.[Footnote 285] United States v. White
Mountain Apache Tribe, 537 U.S. 465, 476 (2003), citing Cherokee
Nation v. Georgia, 30 U.S. (5 Pet.) 1, 17 (1831) (characterizing the
relationship between Indian tribes and the United States as "a ward to
his guardian"). In recent years, Indian claimants have sought to
compel the government to properly account for the funds it holds for
them. For its part, the government has had to acknowledge that it does
not know how many accounts it is responsible for, is uncertain of the
balances in them, and lacks the records necessary to determine that
information.[Footnote 286] See, e.g., GAO, Financial Management: BIA's
Tribal Trust Fund Account Reconciliation Results, GAO/AIMD-96-63
(Washington, D.C.: May 3, 1996). See generally GAO, Indian Issues:
BLM's Program for Issuing Individual Indian Allotments on Public Lands
Is No Longer Viable, GAO-07-23R (Washington, D.C.: Oct. 20, 2006).
The claimants in Cobell brought a class action for injunctive relief
and damages in response to the government's alleged mismanagement of
individual Indian trust accounts. Cobell v. Babbitt, 30 F. Supp. 2d 24
(D.D.C. 1998). (The district court bifurcated the proceedings and
placed the reconciliation of the accounts and the claims for damages
on hold pending completion of the court's investigation regarding the
claims of inadequate accounting.) Finding that the government had
breached its fiduciary duties, the trial court remanded the matter to
the government with orders to promptly discharge its fiduciary duties
in accord with the court's delineation of them. The court also
retained jurisdiction over the matter and directed the government to
file quarterly reports. Cobell v. Babbitt, 91 F. Supp. 2d 1, 56-57
(D.D.C. 1999). See also Cobell, 240 F.3d at 1092-94 (discussing the
procedural history of the Cobell litigation). The government appealed.
Citing Mitchell II, the Circuit Court of Appeals for the District of
Columbia agreed that the government owes common law fiduciary
obligations to the Indians. Id. at 1098. The court noted that those
obligations have been reaffirmed in a number of statutory provisions
which specify how those duties are to be carried out. Id. at 1100-02.
Those obligations include, the circuit court held, a "duty to account"
which can be compelled by the courts if unreasonably delayed or
withheld. Id. at 110204. The circuit court agreed it had been delayed,
and affirmed and remanded the matter to the district court. Id. at
1110.
Following years of appeals and some reversals of high profile contempt
citations against cabinet secretaries, the District of Columbia
circuit, in reassigning the case to a different federal district court
judge below, expressed its frustration that "five years later, no
remedy is in sight, the case continues to consume vast amounts of
judicial resources, and growing hostility between the parties
distracts from the serious issues in the case." Cobell v. Kempthorne,
455 F.3d 317, 335 (D.C. Cir. 2006), cert. denied, _____ U.S. _____,
127 S. Ct. 1876 (2007). On April 20, 2007, the district court ordered
a hearing on the government's accounting project to determine, among
other things, whether the government has cured the breaches of its
fiduciary duty. Cobell v. Kempthorne, Civ. A. No. 96-1285 (JR) (D.D.C.
Apr. 20, 2007). While the Cobell litigation continues, a similar
Indian trust case brought by over 4,000 individuals is winding its way
through the court of federal claims. See Wolfchild v. United States,
72 Fed. Cl. 511 (2006).[Footnote 287]
In Fors v. United States, 14 Cl. Ct. 709 (1988), the Claims Court
rejected claimant's argument that the Marine Corps had a fiduciary
duty to invest[Footnote 288] the accumulated back pay of a deceased
Marine Corps pilot either as a result of the Missing Persons Act or
the common law. The court pointed out that essential to the holding in
Mitchell II was the Supreme Court's finding that the statutes and
regulations at issue established fiduciary obligations of the United
States in the management of Indian resources.[Footnote 289] For the
period at issue in Fors, there was no statutory or regulatory basis to
charge the government with the fiduciary duties of a common law
trustee. Id. at 718-19. To the contrary, the applicable statutes and
regulations limited the Marine Corps authority to pay interest only
until 90 days after a determination of death. Id.
Likewise, in Franklin Savings Corp. v. United States, 56 Fed. CL 720
(2003), the Claims Court rejected the argument of a failed savings and
loans institution that the government's seizure of the savings and
loans under the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 (FIRREA), 12 U.S.C. § 1464(d)(2)(F), imposed
Mitchell II-type fiduciary duties on the government. Unlike the timber
management statutes at issue in Mitchell II, the claims court found
that FIRREA, the banking statute relied on by the failed savings and
loans, did not provide a substantive source of law which imposes
fiduciary duties on the government. Id. at 752. "Nothing in FIRREA
demonstrates congressional intent to create a fiduciary duty whereby
government must assure profits when seizing [a savings and loans]....
Imposing an enforceable trust relationship on the government in this
case is simply antithetical to the regulatory purpose and
congressional intent of FIRREA and the banking statutes in general."
Id. at 753.
The Department of Veterans Affairs (VA) "personal funds of patients"
trust fund (discussed in Chapter 9, section B.3.c) contains moneys of
patients who, as a matter of convenience, deposit money with VA for
safekeeping and use during their stay at VA hospitals. See 38 U.S.C. §
5504. The money is patient money, not government money, and the
Comptroller General has treated such funds as held in trust by the
United States. 68 Comp. Gen. 600 (1989).
The Office of Legal Counsel (OLC) has applied a Mitchell II analysis
with respect to moneys contained in inmates' Prisoners' Trust Fund
accounts. Memorandum for the Assistant Attorney General, Civil
Division, Fiduciary Obligations Regarding Bureau of Prisons Commissary
Fund, OLC Opinion, May 22, 1995. In the 1930s, the Department of
Justice established Prisoners' Trust Funds at each federal prison for
inmates to deposit money earned or sent to them while in prison.
Inmates could use amounts in their accounts to purchase articles from
prison commissaries. In the Permanent Appropriation Repeal Act of
1934, ch. 756, 48 Stat. 1224 (June 26, 1934), Congress classified the
Prisoners' Trust Fund (and the related Commissary Fund discussed
below) as a "trust fund." See 31 U.S.C. §§ 1321(a)(21), (a)(22).
OLC found three reasons to conclude that 31 U.S.C. § 1321 and the
rules set forth in the Justice Department circular establishing the
funds impose fiduciary obligations on the Bureau of Prisons with
respect to amounts held in the Prisoners' Trust Funds. First, the
money in the Prisoners' Trust Fund account is the inmate's property
even though the Bureau of Prisons has assumed control over the
property. Second, the circular establishing the funds requires the
Bureau of the Prisons to act in the best interest of the prisoners in
managing their funds, and third, the Bureau has always viewed its
relationship to the Prisoners' Trust Funds as a fiduciary one.
[Footnote 290]
The Thrift Savings Fund established by the Federal Employees'
Retirement System Act of 1986, 5 U.S.C. §§ 8401-8479, is also a trust
in the classic sense of the term. The act provides federal employees a
capital accumulation plan similar to those found in the private
sector. Employees and the employing agencies contribute to the Thrift
Savings Fund. Earnings on investments supplement amounts contributed
to the fund. 5 U.S.C. §§ 8432(a), (c), and 8437(b). All sums
contributed to the Thrift Savings Fund by or on behalf of an employee
as well as earnings on those contributions are held in trust for the
employee. 5 U.S.C. § 8437(g). The Thrift Savings Fund is managed in
accordance with the investment policies established by the Federal
Retirement Thrift Investment Board. 5 U.S.C. § 8472. The members of
the Board are specifically designated fiduciaries.
5 U.S.C. §§ 8477(a), (b). Any fiduciary who breaches the
responsibilities, duties, and obligations set out in the authorizing
statute is personally liable to the Thrift Savings Fund for any losses
and profits realized as a result of a breach of trust.[Footnote 291] 5
U.S.C. § 8477(e).
Claimants have sought to use trust concepts to recoup funds in the
Treasury. In Stitzel-Weller Distillery v. Wickard, 118 F.2d 19 (D.C.
Cir. 1941), distillers sought to recover contributions paid into the
Treasury pursuant to marketing agreements authorized by the
Agricultural Adjustment Act. Previously, in United States v. Butler,
297 U.S. 1 (1936), the Supreme Court had declared related provisions
of the act unconstitutional. Then, given the constitutional defects of
the authorizing legislation, the Comptroller General concluded that
the moneys could no longer be applied to the agreed upon purposes and
had to be deposited into the general fund of the Treasury. 15 Comp.
Gen. 681 (1936). In response, the distillers claimed that their
contributions were impressed with a trust by virtue of section 20 of
the Permanent Appropriation Repeal Act of 1934. That act recognized
the existence of trust funds "analogous" to those specified in it and
provided a permanent appropriation for payment of amounts held in such
trust accounts. 31 U.S.C. § 1321(b). The claimants also argued that
the contributions should be returned to them based on the general
equitable doctrine that upon the failure of a trust, the trustee must
return the trust corpus to the creator of the trust, in this case, the
contributors. The court in Stitzel-Weller rejected the notion that the
marketing agreement either explicitly or by analogy to other funds
classified as trusts by the Permanent Appropriation Repeal Act of
1934, created a trust for the benefit of the contributors. Since there
was no trust, there was no appropriation nor other authority to return
the funds from the Treasury to the contributing distilleries. Stitzel-
Weller, 118 F.2d at 21-23 (citing 15 Comp. Gen. 681).
Similarly, in United States v. $57,480.05 United States Currency and
Other Coins, 722 F.2d 1457 (9th Cir. 1984), a claimant sought recovery
of $57,480.05 forfeited and paid into the Treasury. In dismissing the
case for lack of jurisdiction over the res, the court pointed out that
a judgment for the claimant "would require an impermissible payment of
public funds not appropriated by Congress." Id. at 1459. The court
rejected the claimant's suggested solution of "enforcing a
constructive trust on the government," noting that such a trust "would
violate sovereign immunity in the absence of statutes or regulations
clearly establishing fiduciary obligations." Id.
The two preceding cases involved unsuccessful attempts to recover
funds in the Treasury by impressing them with an implicit common law
trust. However, other cases have held the government liable for funds
received in trust for others. For example, as discussed in Chapter 6,
section E.2.h, and Chapter 9, section B.3.c, the government receives
moneys to reimburse injured or overcharged consumers or residents that
the government holds in trust to disburse to the injured parties.
Emery v. United States, 186 F.2d 900 (9th Cir.), cert. denied, 341
U.S. 925 (1951); 60 Comp. Gen. 15 (1980). Since these moneys are not
received for the use of the United States, they are not for deposit in
the Treasury of the United States, nor is an appropriation needed for
the Treasurer to disburse such funds. Cf. Varney v. United States, 147
F.2d 238 (6th Cir.), cert. denied, 325 U.S. 882, reh'g denied, 326
U.S. 805 (1945) (moneys received by War Food Administrator were "trust
funds" retained and disbursed by market agents appointed by
Administrator without deposit into the Treasury of the United States).
Simply because a government official has custody of nongovernment
funds does not mean that they are held in a trust capacity. In B-
164419-0.M., May 20, 1969, GAO distinguished between funds of a
foreign government held by the United States incident to a cooperative
agreement (trust funds), and funds of a private contractor held by a
government official for safekeeping as a favor to the contractor. The
latter situation was a mere bailment for the benefit of the
contractor. Although the United States may have an obligation to
exercise ordinary care with respect to bailed funds in its custody
[Footnote 292] (55 Comp. Gen. 356 (1975); 23 Comp. Gen. 907 (1944)),
the government official with custody of the funds is not an
accountable officer with respect to those funds. See also GAO, White
House: Travel Office Operations, GAO/GGD-94-132 (Washington, D.C.: May
2, 1994), at 85 (government would be "morally or legally" liable for
loss of funds collected by White House staff from press corps members
to pay for press corps members' travel expenses as they accompany the
President on trips; therefore, those funds shall be deposited in a
Treasury account for safekeeping).
b. Trust Funds Designated by Statute:
Earmarking alone does not create a trust fund since earmarked receipts
can finance other types of accounts such as special funds. For
example, Congress created the Vaccine Injury Compensation Trust Fund
to compensate victims of vaccine-related injury or death. 26 U.S.C. §
9510. The Fund is financed by a tax on certain vaccines. Id. On the
other hand, the North Pacific Fishery Observer Fund covers the cost of
observers stationed on fishing vessels to collect information for fish
management and conservation. Congress finances the program by
assessing fees on fishing vessels and fish processors. 16 U.S.C. §
1862(d). Since Congress did not by statute designate the Observer Fund
as a trust fund, Treasury classified it as a special fund.
The fact that money is held in a trust account does not necessarily
create fiduciary obligations where they do not otherwise exist. See B-
274855, Jan. 23, 1997. Most federal trust funds are trust funds simply
because Congress says so, or, euphemistically, because the law
designates them as such. Typically, the enabling legislation will
earmark receipts or other money generated by a program for deposit in
a fund designated by the program legislation as a trust fund. See the
Trust Fund Code, 26 U.S.C. §§ 9500-9510, for a listing of trust funds.
These trust funds serve as accounting devices to distinguish the funds
earmarked for deposit to the trust funds from general funds. The scope
of the trustee's duties with respect to a trust fund will necessarily
depend on the substantive law creating those duties. See, e.g., United
States v. Mitchell, 463 U.S. 206, 224 (1983) (Mitchell II) (statutes
and regulations "establish a fiduciary relationship and define the
contours of the United States' fiduciary responsibilities.")
The fact that Congress has designated a fund which finances a social
service, public works, or revenue sharing program as a trust fund does
not mean that the administering agency has a full range of fiduciary
obligations. A leading case on this matter (not involving Indian lands
or property) is National Ass'n of Counties v. Baker, 842 F.2d 369
(D.C. Cir. 1988), rev'g, 669 F. Supp. 518 (D.D.C. 1987), cert. denied,
488 U.S. 1005 (1989). In that case a number of local governments sued
the Secretary of the Treasury seeking an order requiring the Treasury
to release $180 million of Revenue Sharing Trust Fund moneys
sequestered pursuant to Gramm-Rudman-Hollings, Pub. L. No. 99-177, 99
Stat. 1037 (Dec. 12, 1985). The district court issued an order
requiring the Secretary to disburse the funds, and the Secretary
appealed.
The Secretary argued that the district court lacked subject matter
jurisdiction because the local governments were in effect asserting a
money damage claim that only may be brought in the Claims Court.
National Ass'n of Counties, 842 F.2d at 372. To sustain this argument
the Secretary had to establish that substantive law mandated
compensation for damages. The Secretary argued that because the
Revenue Sharing Act created a trust fund with the Secretary as
trustee, the statute was similar to the statutes found by the Supreme
Court in Mitchell II to create a fiduciary duty in the United States,
the breach of which mandated compensation.
The court of appeals rejected the Secretary's reliance on Mitchell II.
The court concluded instead that the Revenue Sharing Act created only
a limited trust relationship similar to the General Allotment Act
trust in United States v. Mitchell, 445 U.S. 535, reh'g denied, 446
U.S. 992 (1980) (Mitchell l). National Ass'n of Counties, 842 F.2d at
375. Congress created the Revenue Sharing Trust Fund for budgetary
reasons, not to subject the Secretary to actions for mismanagement of
the trust. Id. at 376. "Indeed, there is no indication in the Revenue
Sharing Act or its legislative history that the Secretary owes any
common law fiduciary obligations to Trust Fund recipients." Id. The
Court rejected an implied right of action in favor of trust recipients
based on a generalized common law trust theory because the substantive
statute at issue did not make the United States expressly liable for
mismanagement of the trust.
Applying the analysis used in Mitchell I and II and in National Ass'n
of Counties, the Office of Legal Counsel (OLC) has construed the
Bureau of Prison's obligations for the Commissary Trust Fund,
classified as a trust fund under 31 U.S.C. § 1321, to not include
common law fiduciary duties. Memorandum for the Assistant Attorney
General, Civil Division, Fiduciary Obligations Regarding Bureau of
Prisons Commissary Fund, May 22, 1995. OLC discerned no indication in
the legislative history of the Permanent Appropriation Repeal Act of
1934, the source statute for 31 U.S.C. § 1321, that Congress intended
to subject the United States to suit for breach of fiduciary
obligations in the management of the Commissary Fund. Unlike the
Prisoners' Trust Fund accounts discussed earlier in this part, the
moneys in the Commissary Fund were not the personal funds of the
inmates, but resulted from a continuous cycle of business operations.
The Bureau of Prisons retained the authority to decide whether and how
much of any profits were to be disbursed through the welfare fund for
the benefit of the inmate population. See Washington v. Reno, 35 F.3d
1093 (6th Cir. 1994) (district court did not abuse discretion in
preliminarily enjoining Bureau of Prisons from alleged
misappropriation of Commissary funds for purchase of telephone system
to support prison security).
c. Accepting Donated Funds:
As noted earlier in this publication, a number of departments and
agencies have specific statutory authority to accept gifts. See
Chapter 6, section E.3.a. The level of detail addressed by these
statutory authorities varies. Compare, e.g., 22 U.S.C. § 2697
(acceptance of unconditional and conditional gifts by the Secretary of
State) with 31 U.S.C. § 3113 (acceptance of gifts to reduce the public
debt). Section 19 of the Permanent Appropriation Repeal Act of 1934,
31 U.S.C. § 1323(c), provides general guidance concerning accounting
for gifts and donations. Pursuant to this statute, donations or gifts
are treated as trust funds and must be deposited in the Treasury as
such. Like the statutory trust funds catalogued at 31 U.S.C. § 1321(a)
and the analogous trust funds established pursuant to 31 U.S.C. §
1321(b), Congress has provided a permanent appropriation for donated
funds. 31 U.S.C. § 1323(c) ("Donations ... shall be deposited in the
Treasury as trust funds and are appropriated for disbursement under
the terms of the trusts.").
Before a government officer may accept a donation that would require
the management of a trust, the officer must have the authority to bind
the government to act as a trustee, with the attendant
responsibilities and cost.[Footnote 293] This was the issue in 11
Comp. Gen. 355 (1932). The Secretary of the Navy asked whether he was
authorized to accept a bequest to the United States Naval Hospital in
Brooklyn, New York, to be invested in a memorial fund. The proceeds of
the trust were to be used for the maintenance and comfort of sailors
in that hospital. The Comptroller General concluded that the
President's gift acceptance authority was limited to hospitals for
merchant seamen, not naval hospitals. Observing that if the
testamentary gift was accepted, the United States would "become, in
effect, a trustee for charitable uses," the Comptroller General ruled
"that such an obligation could not legally be assumed by an officer on
behalf of the United States without express statutory authority
therefor." Id. at 356. To drive home the point, the Comptroller
General further noted that without such authority, there would be no
basis to use any appropriations to cover the necessary expenses of
administering such a trust fund. Id.
A similar issue was touched on in 27 Comp. Gen. 641 (1948). In that
decision, the issue was whether the Department of State created a
trust fund for the education of Persian students in the United States
as part of a settlement of claims of the United States against the
Persian government. The answer to that question seems to have been
that the President acting through the State Department had the
authority to agree to the creation of trust. However, the decision
ultimately turned not on the scope of the President's authority, but
on "precisely what the terms of the agreement were." Id. at 645. The
Comptroller General concluded that the agreement reached did not
include the use of the funds for the benefit of the Persian students.
Accordingly, the Secretary could not later, without additional
consideration, modify the agreement to create a trust obligation on
the part of the United States. Id. at 646.
3. Application of Fiscal Laws:
a. Permanent Appropriation Repeal Act of 1934:
Prior to 1934, government officials held a number of trust fund
accounts outside the Treasury. The Comptroller General had directed
the deposit of the funds to the accounts of Treasury officials in
order to ensure that a proper accounting and audit was made of all
disbursements. The Comptroller General permitted the withdrawal of
trust funds, after deposit in the Treasury, without an express
appropriation from Congress. Congress objected to the Comptroller
General's approval of withdrawals of trust fund moneys without an
appropriation as a violation of the constitutional prohibition that
"no moneys shall be drawn from the Treasury but in consequence of an
appropriation made by law." H.R. Rep. No. 73-1414, at 12 (1934).
Ironically the solution was to provide a permanent appropriation for
trust funds as part of legislation designed to repeal permanent
appropriations in general. Id. Accordingly, in section 20 of the
Permanent Appropriation Repeal Act of 1934, ch. 756, 48 Stat. 1233
(June 26, 1934), codified at 31 U.S.C. § 1321(a), Congress listed all
funds of a trust nature that Congress wanted to maintain on the books
of the government and provided a permanent appropriation for these
funds. See also S. Rep. No. 73-1195, at 1-3 (1934); H.R. Conf. Rep.
No. 73-2039, at 6-9 (1934). See 16 Comp. Gen. 147 (1936) for a
comprehensive discussion of the Permanent Appropriation Repeal Act.
Section 20 of this act also provides prospective guidance. Any amounts
received by the United States as trustee which are analogous to the
funds listed in subsection (a) are for deposit in a trust account of
the Treasury. Amounts "accruing to these funds" are permanently
appropriated for expenditure in accordance with the terms of the
trust. 31 U.S.C. § 1321(b). See also 31 U.S.C. § 1323(c).
b. Available Uses of Trust Funds:
(1) Using donated funds:
Funds held in trust are available only for trust purposes. Where an
agency is authorized to accept a donation of funds for specified
purposes, the funds may only be used for purposes necessary to carry
out the trust. 17 Comp. Gen. 732 (1938). For the accepting agency to
do otherwise would be a clear breach of the terms of the agreement
governing the gift. See 47 Comp. Gen. 314 (1967). (Of course, an
agency's authority to agree to any particular use of donated funds is
limited by the terms of its statutory authority to accept donations.
11 Comp. Gen. 355 (1932).)
Appropriated funds are subject to many use restrictions. See generally
Chapter 6. Depending on the terms of the donation, some of those
restrictions may not apply to donations accepted by authorized
officers of the United States. In several cases GAO has held that:
"where the Congress authorizes Federal officers to accept private
gifts or bequests for a specific purpose, ... authority must of
necessity be reposed in the custodians of the trust fund to make
expenditures for administration in such a manner as to carry out the
purposes of the trust ... without reference to general regulatory and
prohibitory statutes applicable to public funds."
16 Comp. Gen. 650, 655 (1937). See 36 Comp. Gen. 771 (1957); B-195492,
Mar. 18, 1980; B-170938, Oct. 30, 1972; B-131278, Sept. 9, 1957; B-
135255-0.M., Mar. 21, 1958. In 23 Comp. Gen. 726 (1944), the
Comptroller General was asked what the National Park Trust Fund Board
could do with the principal of gifts received in trust for the benefit
of the National Park Service where the donor had not prescribed a
particular purpose for the gift. The Board's statutory authority was
silent on this point. See Pub. L. No. 74-201, § 2, 49 Stat. 477 (July
10, 1935), codified at 16 U.S.C. §§ 19e-19m. The statute did direct
the Secretary of Treasury to invest donations for the account of the
Board consistent with the laws applicable to a trust company in the
District of Columbia and to credit the income from such investments to
the National Park Trust Fund. Since the Board's statute did not
authorize use of the principal of a gift, the Board could not invade
the principal. However, to give "some effect to the action of the
respective donors" in making a gift, the Board could use investment
income for the presumed purpose of the gift—the general benefit of the
National Park Service, its activities, or its services.
Another decision, B-274855, Jan. 23, 1997, discussed the range of
permissible uses of donated funds available to the now defunct United
States Advisory Commission on Intergovernmental Relations (ACIR).
Congress created ACIR to give continuing attention to
intergovernmental problems.[Footnote 294] To finance its activities,
Congress authorized ACIR to solicit and receive contributions from,
among others, state governments. In 1995,
Congress terminated ACIR effective September 30, 1996.[Footnote 295]
Two months prior to termination, Congress directed the National
Gambling Impact Study Commission to contract with ACIR for research
and authorized ACIR to continue in existence solely to perform the
contract.[Footnote 296]
The question was whether prior unconditional state contributions were
available to cover ACIR's salaries and expenses until the National
Gambling Commission awarded ACIR a contract. The states contributed
funds to support ACIR's authorized activities. The Comptroller General
viewed the funds as unrestricted gifts. As unrestricted gifts, they
were available for ACIR activities authorized by Congress at the time
of obligation and expenditure regardless of the activities
contemplated by ACIR and the states at the time the gifts were made.
The Comptroller General further concluded that after ACIR completed
its authorized study, any unused contributions were for deposit in the
Treasury as miscellaneous receipts. Cf. 15 Comp. Gen. 681 (1936)
(moneys received that could no longer be applied to agreed upon
purposes due to constitutional defects of authorizing legislation are
for deposit as miscellaneous receipts).
Like direct appropriations, moneys donated in trust are available for
expenses reasonably related to the purpose of the trust. That is the
message of 23 Comp. Gen. 726 and B-274855, Jan. 23, 1997. In 55 Comp.
Gen. 1059 (1976), for example, GAO held that the Forest Service could
not transfer funds donated to establish and operate a research
facility to a private foundation to invest and use for a purpose other
than establishing and operating a research facility.
GAO also has considered whether donated funds could be used for
expenses that the Comptroller General traditionally has viewed as
personal. In 47 Comp. Gen. 314 (1967), GAO concluded that the purchase
of seasonal greeting cards remained unallowable regardless of the fact
that the Interior Department would pay for the cards from a trust fund
for donations to the National Park Service. Donated funds, as a
general matter, are no more available for personal expenditures than
appropriated funds, unless, of course, the personal expense would
serve the purpose of the donation and would otherwise fall within the
agency's gift acceptance authority.
In B-195492, Mar. 18, 1980, Senator Proxmire questioned Interior's use
of amounts held in its Cooperating Association Fund. The Secretary of
the Interior maintains this discretionary fund under authority of 16
U.S.C. § 6, which permits the Department of Interior to accept lands,
rights-of-way, buildings or other property, and money which may be
donated "for the purposes of the national park and monument system."
Interior was using these funds for contest entry fees, receptions for
very important guests, gifts, and refreshments. While GAO reiterated
that donated funds are not available for personal expenses, GAO noted
that the strictures on the use of donated funds do not necessarily
mirror those applicable to the use of appropriated funds. With respect
to the "`entertainment,' 'gifts,' and other so called 'personal'
items," GAO pointed out that the restrictions on the use of general
agency appropriations for these purposes derived not from the idea
that these could never be "official" expenses but that "such purposes
are so subject to abuse as to require specific Congressional
authorization before general agency appropriations may be so used."
Since those expenses are not prohibited, where agencies can justify
the use of donated funds as incident to the terms of the donation for
what would otherwise be viewed as an improper personal use of general
agency appropriations, we would not object. On the other hand, GAO
noted that the availability of donated funds for travel and
subsistence expenses is subject to the same rules as govern the use of
appropriated funds because of statutory language that precluded the
use of "funds appropriated for any purpose" for travel expenses of the
kind at issue there.
(2) Property of others:
General use restrictions have less applicability to the property of
others being held in trust. In B-33020, Apr. 1, 1943, GAO did not
object to use of Osage Indian Trust Funds to cover the cost of
telegrams sent to members of Congress concerning pending legislation
affecting the tribe that would have been prohibited by legislation
concerning the use of appropriated funds to influence Congress. GAO
did not object to these expenditures since Congress had appropriated
the funds to be used for the benefit of the tribe and authorized the
tribe to organize for its common welfare and to negotiate with
federal, state, and local governments.
A slightly different twist on these concepts occurred in 20 Comp. Gen.
581 (1941). In that decision, the Library of Congress Trust Board
held, as trustee, legal title to some improved real estate that the
Federal Works Administrator wanted to lease. Standing in the way of
the transaction was the longstanding rule of the accounting officers
of the government that, absent statutory authority, the payment of
rent by one agency to another for premises under the control of
another is unauthorized. Since the United States did not in its own
right hold legal title to, or have the beneficial right to the use of,
the property, there was no objection to the payment of rent to the
Library of Congress Trust Board in its capacity as trustee.
Similarly, the authority of the Pension Benefit Guaranty Corporation
(PBGC), when acting as a trustee for terminated pension plans, is not
constrained by laws applicable to contracting by federal agencies or
the expenditure of public funds. B-223146, Oct. 7, 1986. One issue
addressed by the decision was PBGC's authority to modify the fee
provision of an existing contract with outside litigation counsel to
include a contingent fee arrangement. Since PBGC was authorized by law
to serve as a trustee for terminated pension plans, possessing all the
rights and duties to act as a private trustee similarly situated, GAO
could find no legal or public policy considerations which precluded
PBGC's modifications of its contracts with outside counsel. (We can
assume that we would have held otherwise if public funds were at
issue. See Chapter 6, section C). Also, since any recoveries resulting
from the litigation accrued to the terminated pension plan, the use by
PBGC (in its capacity as trustee) of a portion of the recoveries to
pay its contingent fee obligation would not violate the deposit
requirements of the miscellaneous receipts statute.
(3) Statutory trust funds:
Like donated funds held in trust, where Congress designates a trust
account to receive dedicated tax receipts, the corpus of the trust is
only available for trust purposes. The rationale for this axiom
differs from cases where the government holds donated funds accepted
in trust. As noted earlier, in the latter case, the limitation on the
use of funds derives in the first instance from the agreement with the
donor. While an agency's statutory authority to accept a gift is
relevant in prescribing the range of uses to which an agency may
agree, it is the donor's action in making a restricted gift, that is,
one for designated purposes, that controls the particular use.
[Footnote 297]
Where the corpus of the trust account consists of dedicated tax
receipts, the rationale for the rule is a function of Congress's
constitutional prerogative to allocate resources for the general
welfare. In other words, the limitation on the use of the funds for
other than trust purposes derives from the terms of the statute
creating the trust account and 31 U.S.C. § 1301(a), limiting the use
of appropriated funds only to purposes for which appropriated. One
consequence of this distinction concerning the source of the
limitation on use manifests itself when Congress decides to modify the
authorized uses of the trust funds. In the case of trust funds
designed to serve as accounting mechanisms for dedicated tax receipts,
Congress as the creator of the trust can change or modify the
permissible uses of the trust funds. Cf. 36 Comp. Gen. 712 (1957). For
an example of Congress changing the uses of a statutory trust fund
filled with tax revenues, see the legislative history recounted in B-
281779, Feb. 12, 1999.
As the prior discussion suggests, when resolving issues involving the
application of statutory restrictions to this type of trust fund the
Comptroller General will treat them more like a direct appropriation.
In B-191761, Sept. 22, 1978, an agency of the Department of
Agriculture wanted to dip into a user fee trust fund to provide a
uniform allowance to its employees. Section 5901 of title 5, United
States Code, requires that before an agency may use appropriated funds
for uniforms, it must have specific statutory authority to do so. GAO
resolved the issue on the basis of authority in Agriculture's
appropriation act, which provided that "funds available to the
Department" may be used for employee uniforms. Arguably, if donated
funds were involved, the Department would have had a greater ability
to use the funds for trust purposes unfettered by general regulatory
statutes applicable to appropriated funds.
The essential point is that, if viewed like any other appropriation,
amounts in a trust fund account may only be used for the purposes for
which they were appropriated. As suggested above, depending on the
source of funds, this may translate to mean no more than the
authorized purposes of the trust.
c. Intergovernmental Claims:
Another consequence of the distinction is seen in decisions involving
intergovernmental claims. As a general proposition, a federal agency
or establishment that damages public property, real or personal, under
the control of another federal agency or establishment may not pay a
claim for that damage. Put another way, federal agencies may not
assert damage claims against one another. E.g., 60 Comp. Gen. 710, 714
(1981).
Claims involving property or funds held by the government in a trust
capacity are an exception to this rule. In 41 Comp. Gen. 235 (1961),
GAO found that the Bureau of Indian Affairs (BIA) could present a
claim against the Air Force for damage to the San Carlos Irrigation
Project caused by the crash of a Civil Air Patrol plane. Although the
San Carlos Irrigation Project was an instrumentality of the United
States, the project benefited the Pima Indians and was funded from
moneys held in trust by the government for the Pima. The question was
whether the BIA claim against the Air Force for damage to the project
would constitute a claim by one government agency against another. The
decision held that it would not. As BIA was acting in a trust capacity
on behalf of the Pima, if the general rule were applied, the expense
of repairing the damage would be borne not by the government but by
the Pima. Thus, the claim was not that of one agency against another.
Applying similar reasoning, the Comptroller General found Navy
appropriations available to pay a claim for damage to property of the
Ryukyu Electric Power Corporation. B-159559, Aug. 12, 1968. The
corporation, while an instrumentality of the United States Civil
Administration of the Ryukyu Islands, was not an instrumentality of
the United States government. Further, while funds available to the
Civil Administration were government funds, they were in the nature of
a trust account held for the sole benefit of the Ryukyu people.
Another case applying the trust reasoning is B-35478, July 24, 1943
(since timberland was held in trust for counties, Bonneville Power
Administration should pay for timber destroyed).
The trust exception of cases like 41 Comp. Gen. 235 and B-159559, Aug.
12, 1968, has its limits and does not apply where the trust fund is
more in the nature of an accounting or bookkeeping device. An
illustrative case is 65 Comp. Gen. 464 (1986). A Navy plane had
crashed into and destroyed a Federal Aviation Administration (FAA)
instrument landing system.
Although the FAA used funds from the Airport and Airway Trust Fund to
repair its facility, the Comptroller General viewed this trust fund as
little more than an earmarked appropriation, not involving the same
kind of trust relationship as in the San Carlos and Ryukyu cases.
Accordingly, the general rule controlled, and Navy appropriations were
not available to reimburse the FAA.
4. Concepts of Amount and Time:
Concepts of amount and time which are so important to general
appropriations law (see Chapters 5 and 6) also come into play with
trust funds. With respect to "amount," this would include concerns
that trust funds are being used to augment regular appropriations. In
B-107662, Apr. 23, 1952, GAO reviewed a Commerce procedure for
charging trust funds with the cost of employees assigned full time to
activities funded by regular appropriations, but assigned
intermittently for short periods to activities financed by trust
funds. GAO had no objection to the Commerce procedure, but cautioned
that the proper records needed to be kept to ensure that trust funds
did not augment general fund appropriations. See also B-138841, Sept.
18, 1959 (payment of regular weather bureau employees from Department
of Commerce trust fund for intermittent services performed on trust
fund projects).
As with other types of accounts, errors can and do occur that effect
the amount properly credited to trust fund balances. When they do, the
obvious solution is to correct them. GAO generally recognizes that an
act of Congress is not necessary to correct clerical or administrative
errors when dealing with the nontrust fund accounts of the government.
41 Comp. Gen. 16, 19 (1961). Where the evidence of an error is
unreliable or inconclusive, the Comptroller General has objected to
administrative adjustment of account balances. B-2369400, Oct. 17,
1989. This is particularly true where (as in the immediately preceding
decision) the adjustment would result in additional budget authority
being available to an agency.
In B-275490, Dec. 5, 1996, GAO concluded that Treasury could credit to
the Highway Trust Fund $1.59 billion mistakenly not credited to that
account. Each month, Treasury transferred from the general fund of the
Treasury amounts appropriated to the Trust Fund based on Treasury
estimates of the specified excise taxes for the month. The Treasury
then adjusted the amounts originally credited to the fund to the
extent the estimates differed from actual receipts. Due to a change in
reporting format and a resulting transcription error, Treasury
substantially understated the adjustments to the income credited to
the trust fund. The Department of Transportation and Treasury
discovered the error when the year-end statement was prepared. GAO
agreed with Treasury that, as trustee of the Fund, Treasury should
adjust the fiscal year 1994 and 1995 Trust Fund income statements to
credit the Fund with the excise taxes originally not included in the
Highway Trust Fund income statements just as if Treasury had credited
such amounts upon receipt of the reports from the IRS. The Comptroller
General made the following observation:
"Apart from whatever responsibilities the Secretary may have to
accurately state the accounts of the United States, the Secretary in
his capacity as trustee of the [Highway Trust] Fund has the duty to
accurately account for the amounts in the Fund consistent with the
terms of the appropriation made thereto and the applicable
administrative procedures adopted to effectuate his statutory
responsibilities."
Id. See also 67 Comp. Gen. 342 (1988) (Bureau of Indian Affairs has
duty to make prompt corrective payments to trust account beneficiary
before collecting from an erroneous payee; to avoid overdraft of an
Individual Trust Account, BIA could use funds from its Operation of
Indian Programs appropriations to correct the erroneous payment from
the Individual Trust Account); 65 Comp. Gen. 533 (1986) (funds
returned to Individual Indian Money Account, which were earlier
improperly recovered, should be repaid from appropriations currently
available for the activity involved); 41 Comp. Gen. 16 (1961)
(incorrect allocation of federal highway funds to states was an act in
excess of statutory authority and consequently must be corrected
through appropriate adjustments). In addition see the discussion of
restoration in Chapter 9, section H.2.
The Comptroller General has recognized that the miscellaneous receipts
statute does not apply to trust funds. 60 Comp. Gen. 15, 26 (1980); 27
Comp. Gen. 641 (1948). See discussion in Chapter 6, section E.2.h. The
miscellaneous receipts statute directs that all moneys received for
the use of the United States must be deposited in the general fund of
the Treasury. 31 U.S.C. § 3302(b). The very terms of the statute call
into question its application to moneys the government receives in
trust. As a practical matter, in most instances, it is clear when the
United States has received funds for its use. Occasionally a question
does arise whether the funds are for credit to the general fund of the
Treasury as a miscellaneous receipt or to a trust account. In 25 Comp.
Gen. 637 (1946), GAO concluded that payments made in conjunction with
making movies in national parks were payments made in consideration of
the privilege to film in the park and, hence, were properly accounted
for as miscellaneous receipts, not donations to the National Park
Trust Fund. On the other hand, in B-195492, Mar. 18, 1980, GAO found
no elements of an exchange and accordingly held that payments by
nonprofit associations operating in national parks of one-half of 1
percent of their gross sales were properly treated as contributions to
the Cooperating Associations Trust Fund, not as miscellaneous receipts.
In 60 Comp. Gen. 15 (1980) the Comptroller General expanded on the
concept of "received in trust." The Department of Energy had received
$25 million under the terms of a consent order settling disputes
between Energy and the Getty Oil Company concerning compliance with
oil price and allocation regulations. The order provided that Getty
would deposit $25 million into a bank escrow account. The order did
not specify how the money was to be distributed. Energy announced that
the money would be distributed to state governments in proportion to
the oil company's sales in that state and directed that the states use
the money to defray the heating oil costs of low-income persons. GAO
found that, to the extent the money would be returned as restitution
to victims of Getty's alleged violation of oil and price allocation
regulations, Energy was acting as a trustee and the funds need not be
deposited to the Treasury as miscellaneous receipts. However, to the
extent that Energy sought to distribute funds to a class of
individuals other than to those overcharged, those funds were not held
in trust and must be deposited in the Treasury as miscellaneous
receipts. (This opinion was the first of several to address this
matter. See 63 Comp. Gen. 189 (1984); 62 Comp. Gen. 379 (1983); B-
210176, Oct. 4, 1984; B-200170, Apr. 1, 1981.)
For other cases treating amounts received as trust funds exempt from
the miscellaneous receipts statute, see 51 Comp. Gen. 506 (1972)
(National Zoo receipts are for deposit to the credit of the
Smithsonian Institution, not as miscellaneous receipts, even though
activities in question were supported mostly by appropriated funds
because the Zoo operates under a trust charter); B-192035, Aug. 25,
1978 (income derived from local currency trust fund operations not for
deposit as miscellaneous receipts since Agency for International
Development is merely a trustee of host country funds); B-166059, July
10, 1969 (recovery for damage to property purchased with trust funds
credited to trust fund account); B-4906, Oct. 11, 1951 (recoveries for
lost or damaged property financed from Federal Old-Age and Survivors
Insurance Trust Fund are creditable to the trust fund).
One decision applying "time" concepts to a statutory trust fund
reached a predictable result. In B-171277, Apr. 2, 1971, amounts in
the trust fund, which consisted of fees received from commercial
testing labs for testing agricultural products, were available until
expended. The "available until expended" language made the trust fund
a no-year appropriation and thus available for multiyear contracts. So
long as the fund contained amounts sufficient to cover all obligations
under the contract, there would be no Antideficiency Act concerns. See
Chapter 5 for a general discussion of no-year funds and multiyear
contracts.
5. Duty to Invest:
Under the common law, it is the trustee's duty to make the trust
corpus productive. Restatement (Third) of Trusts, § 181 (1992).
Obviously the issue is of more than passing importance to the trust
beneficiaries. For amounts held in trust by the United States, the
trustee's duty to make the trust corpus productive, and the trustee's
corresponding liability to the beneficiary for failure to do so, are
limited by the concept of sovereign immunity. As a general rule, the
United States is not liable for interest unless it has consented to
the payment of interest. Library of Congress v. Shaw, 478 U.S. 310,
314-17 (1986); United States v. Alcea Band of Tillamooks, 341 U.S. 48,
49 (1951). The Supreme Court has insisted that any such consent be
express and clear, stating that "there can be no consent by
implication or by use of ambiguous language. Nor can an intent on the
part of the framers of a statute ... to permit the recovery of
interest suffice where the intent is not translated into affirmative
statutory... terms." United States v. N.Y. Rayon Importing Co., 329
U.S. 654, 659 (1947). See B-272979, Aug. 23, 1996. See also 65 Comp.
Gen. 533, 539-40 (1986) (no difference whether interest is
characterized as "damages, loss, earned increment, just compensation,
discount, offset, penalty or any other term"); B-241592.3, Dec. 13,
1991 (no authority to pay interest on funds held by Customs on behalf
of the Virgin Islands, absent an agreement or statute).
Various arguments have been made that 31 U.S.C. § 9702 provides the
requisite authority to pay interest on trust funds. Section 9702
provides that "except as required by a treaty of the United States,
amounts held in trust by the United States Government (including
annual interest earned on the amounts)—(1) shall be invested in
Government obligations; and (2) shall earn interest at an annual rate
of at least 5 percent." This statute was intended to end the practice
of investing United States trust funds in state obligations. Despite
its seemingly straightforward language, this statute applies only
where a statute, treaty, or contract requires trust funds to be
invested. It is not an independent authorization for the payment of
interest. B-241592.3, Dec. 13, 1991.
A comprehensive discussion of 31 U.S.C. § 9702 is contained in United
States v. Mescalero Apache Tribe, 518 F.2d 1309, 1324 (Ct. Cl. 1975),
cert. denied, 425 U.S. 911 (1976) and the cases cited therein. In
Mescalero, the Court of Claims explained the purpose of the Act of
September 11, 1841, ch. 25, § 2, 5 Stat. 465, now codified at 31
U.S.C. § 9702. Congress wanted to prohibit the investment of United
States trust funds, otherwise required by treaty or statute to be
invested, in state bonds and to require instead their investment in
safer United States securities. The court held that the 1841 act did
not require the payment by the United States of interest on any fund
that was not expressly required to be invested by a contract, treaty,
or a statute. The lesson of Mescalero and subsequent cases is that one
must examine the statute or other legal source for the fund to
determine whether any requirement to invest the trust fund exists.
Alcea Band of Tillamooks, 341 U.S. 48 (interest on amount of
compensation awarded for taking of original Indian title by United
States in 1855 not allowed where jurisdictional act contained no
provision authorizing award of interest); B-226801-0.M., May 4, 1988
(section 9702 did not require the Veteran's Administration to invest
the Post-Vietnam Era Veterans Education Account, listed as a trust
fund at 31 U.S.C. § 1321(a)(82)).
An example of a specific requirement for investment and the payment of
interest is found at 25 U.S.C. § 161a. It requires that all funds held
in trust by the United States to the credit of Indian tribes or
individual Indians be invested by the Secretary of the Treasury, with
interest at rates determined by the Secretary of the Treasury. GAO has
considered the payment of interest on government held Indian funds
numerous times. E.g., 52 Comp. Gen. 248 (1972); 8 Comp. Gen. 625
(1929); B-272979, Aug. 23, 1996; B-243029, Mar. 25, 1991; B-108439,
Dec. 28, 1973; B-126459, Feb. 20, 1956. The obligation to invest under
section 161a does not arise prior to the date that Congress has
specified for deposit of funds to the trust. B-108439, Apr. 13, 1978.
In 2001, the Department of Justice Office of Legal Counsel held that
section 604(c) of the Water Resources Development Act of 1999, Pub. L.
No. 106-53, 113 Stat. 269, 389-90 (Aug. 17, 1999), required the
Treasury to invest the trust fund for two South Dakota Indian tribes
in "available obligations" bearing the highest rate of interest, even
when those obligations do not have the highest yields. Memorandum
Opinion for the General Counsel, Department of the Treasury,
Investment of Federal Trust Funds for Cheyenne River and Lower Brule
Sioux, OLC Opinion, Jan. 19, 2001. Recognizing that this statute is
unique among federal trust funds, this opinion supports the general
rule that the extent of a trustee's duties and powers is determined by
the trust instrument and the specific rules of the applicable law. See
also Chippewa Cree Tribe of Rocky Boy's Reservation v. United States,
73 Fed. Cl. 154 (2006).
6. Liability for Loss of Trust Funds:
Where the government acts in the capacity of a trustee with respect to
a fund it holds, the government must see to the proper application of
the trust funds like a private trustee. Julia A. L. Burnell v. United
States, 44 Ct. Cl. 535 (1909). In the cited case, the Treasury paid
the wrong party through a mistake of law. The Claims Court held that
the government remained responsible to the rightful owner of the
securities. Id.
The decisions of the Comptroller General are to the same effect. For
example, the Department of Veterans Affairs (VA) holds "personal funds
of patients" for safekeeping and use during their stay at VA
hospitals. The government is accountable to the patients for these
funds like a private trustee would be.[Footnote 298] 68 Comp. Gen.
600, 603 (1989). Accordingly, where an erroneous payment is made, the
government is chargeable with any loss resulting from the breach of
trust. In this case, VA was advised to make the trust fund whole by
charging the deficiency to the VA's operating appropriation as a
necessary expense of administering the trust. Id. To the same effect
is 67 Comp. Gen. 342 (1988) (use of Bureau of Indian Affairs operating
appropriation to adjust deficiency in Bureau trust fund). See also B-
288284.2, Mar. 7, 2003.
The liability of an accountable officer for loss of funds in a trust
account is no different than any other loss of government funds.
Although the funds are not strictly speaking public funds, they are
nevertheless funds for which the government is accountable. The
absence of a beneficial interest in the funds does not alter the
liability equation; by accepting custody of them, the United States
assumes a trust responsibility for their care and safekeeping. B-
200108, B-198558, Jan. 23, 1981. If a trustee commits a breach of
trust, the trustee is chargeable with any loss resulting from that
breach. B-248715, Jan. 13, 1993. See generally United States v.
Mitchell, 463 U.S. 206, 226 (1983); White Mountain Apache Tribe v.
United States, 249 F.3d 1364 (Fed. Cir. 2001), aff'd, 537 U.S. 465
(2003). See also Confederated Salish and Kootenai Tribes of Flathead
Reservation, Montana v. United States, 175 Ct. Cl. 451, 455-56 (1966)
(misuse of trust funds is a breach of trust, not Fifth Amendment
taking). The responsibility of the accountable officer has been
described as follows: "the same relationship between an accountable
officer and the United States is required with respect to trust funds
of a private character obtained and held for some particular purpose
sanctioned by law as is required with respect to public funds." 6
Comp. Gen. 515, 517 (1927) (funds in retirement account of embezzling
employee used to satisfy loss of private trust funds). See also Osborn
v. United States, 91 U.S. 474 (1876) (court can summarily compel
restitution of funds improperly withdrawn from registry account by
former officers). The rules that apply for the relief of an
accountable officer for the loss of appropriated funds also apply for
the relief of an accountable officer for the loss of trust funds. B-
288163, June 4, 2002. See Chapter 9, section B.3.c.
Other situations involving accountability for funds held in trust or
trust-like circumstances include:
* VA patient funds: 68 Comp. Gen. 600 (1989); B-226911, Oct. 19, 1987;
B-221447, Apr. 2, 1986; B-215477, Nov. 5, 1984; B-208888, Sept. 28,
1984.
* Erroneous payment to Individual Indian Money Account: 65 Comp. Gen.
533 (1986).
* Registry accounts of courts of the United States: B-288163, June 4,
2002; 64 Comp. Gen. 535 (1985); 63 Comp. Gen. 489, 490 n.1 (1984); B-
200108, B-198558, Jan. 23, 1981.
* United States Naval Academy laundry fund: 17 Comp. Gen. 786 (1938).
* Prisoners' money held in Brig Officer's Safekeeping Fund: B-248715,
Jan. 13, 1993.
* Mutilated and worn currency sent by private bank to Treasury for
redemption: B-239955, June 18, 1991.
* Overseas Consular Service Trust Fund holding private funds to pay
for funeral expenses: B-238955, Apr. 3, 1991.
* Foreign currencies accepted in connection with accommodation
exchanges: B-190205, Nov. 14, 1977.
7. Claims:
a. Setoff and Levy against Trust Funds:
In 38 Comp. Gen. 23 (1958), GAO held that a delinquent taxpayer's
postal savings deposits are property subject to Internal Revenue
Service (IRS) levy and the fact that the postmaster held the deposits
as a trust fund does not protect them from IRS levy. Similarly, in B-
165138, Mar. 12, 1969, we advised the Bureau of Prisons that
prisoners' funds it held as "trust funds" under 31 U.S.C. § 1321, are
property subject to tax lien and levy under sections 6321 and 6331,
respectively, of the Internal Revenue Code of 1954 (IRC). The literal
language of section 6334(c) of the IRC compelled this result. That
section provides that no property rights would be exempt from levy
unless specifically exempted in section 6334(a). See also 63 Comp.
Gen. 498 (1984) (honoring a levy against a judgment award did not give
rise to a breach of trust); 34 Comp. Gen. 152 (1954) (government may
take setoff against funds held by it in trust to recoup a debt owed to
the government as sovereign).
Contrast the preceding decisions (involving the collection of taxes
from trust funds held by the government) with 48 Comp. Gen. 249 (1968)
(reversing B-72968, Apr. 21, 1948), where the Comptroller General held
that the Bureau of Prisons could not set off prisoners' trust funds to
satisfy claims of the United States arising from an inmate's
destruction of government property. In reversing his earlier decision,
the Comptroller General pointed out that he had not known at the time
of his 1948 decision that the terms of the trust expressly required
the prisoner's consent prior to a withdrawal of funds. Accordingly,
given the new information, the Comptroller General held that absent a
change in the terms of the trust agreement, the Bureau could not use
prisoner trust funds to satisfy a writ of execution issued pursuant to
a court judgment against the inmate. Id. Cf. 65 Comp. Gen. 533 (1986)
(United States will absorb the loss for moneys erroneously paid from
an Individual Indian Money account and forego collection from the
erroneous payee—another Indian—in light of the moral obligations of
the United States in dealing with the Indians).
b. Unclaimed Moneys:
At the end of each fiscal year, money which has been in any of the
trust accounts identified in or established pursuant to 31 U.S.C. §
1321 for more than a year and which represents money belonging to
individuals whose location is unknown is transferred to a Treasury
trust fund receipt account entitled "Unclaimed Moneys of Individuals
Whose Whereabouts are Unknown." 31 U.S.C. § 1322(a). Section
1322(b)(1) establishes a permanent, indefinite appropriation to pay
claims from the Unclaimed Moneys account. Instructions to implement 31
U.S.C. § 1322 are contained in the Treasury Financial Manual, 1 TFM. 6-
3000.
Under 31 U.S.C. § 3702(b), a claim against the government ordinarily
cannot be considered unless the claim is received within 6 years of
the date it accrues. The Comptroller General has held, however, that
the 6-year statute of limitations in 31 U.S.C. § 3702(b) does not bar
claims to recover moneys held in trust. See B-201669, Nov. 26, 1985
and decisions cited therein. Since the trustee holds property for the
beneficiary's benefit, unless there is a breach of some duty owed by
the trustee to a beneficiary, such as a repudiation of the trust,
there is no claim or cause of action that would trigger the running of
the statute. Id. See Bogert, Trusts & Trustees, 951 (2nd ed. rev.
1995). In keeping with the general rule, GAO has deemed the statute
inapplicable to claims of beneficiaries payable from money held in
trust. See 70 Comp. Gen. 612 (1991); 66 Comp. Gen. 40 (1986); 55 Comp.
Gen. 1234 (1976); B-201669, Nov. 26, 1985. See also B-155963, Mar. 19,
1965 (special deposit account for the proceeds of withheld foreign
checks); B-139963, July 6, 1959 (soldiers' deposit savings accounts);
B-103575, Aug. 27, 1951 (unclaimed moneys of individuals whose
whereabouts are unknown).
The agency that received and transferred the funds to the Treasury
handles any claims relating to those funds. If a claim is determined
to be valid, the agency may certify a payment voucher to Treasury. If
the money was transferred to the trust account, payment is made
directly from that account. See GAO, Unclaimed Money: Proposals for
Transferring Unclaimed Funds to States, GAO/AFMD-89-44 (Washington,
D.C.: May 9, 1989), at 10.
8. Federal Trust Funds and the Budget:
As suggested earlier, certain federal trust funds (those with the
largest amount of federal trust fund dollars) are bookkeeping devices
to capture receipts earmarked for certain programs or
purposes.[Footnote 299] They do not hold cash separate from the
Treasury—all moneys received by the Treasury are commingled and used
to pay government obligations as they come due. In effect, Treasury
borrows the earmarked receipts in exchange for interest-bearing,
nonmarketable Treasury securities. As a result, a trust fund balance
reflects federal debt, that is, debt held by a government account.
[Footnote 300] To the extent that the receipts credited to a trust
fund (i.e., fees, employee contributions, tax receipts, and interest
earned on Treasury securities) exceed expenditures charged to the
fund, the trust fund balance grows. The converse, of course, is also
true—to the extent that expenditures exceed receipts, the balance
decreases.
The Social Security trust funds are the largest federal trust funds
both in terms of annual spending and account balance. They are also
the largest single item in the federal budget. See GAO, Fiscal
Stewardship: A Critical Challenge Facing Our Nation, GAO-07-362SP
(Washington, D.C.: Jan. 2007), at 6. See also GAO, Social Security
Reform: Answers to Key Questions, GAO-05-193SP (Washington, D.C.: May
2005); Social Security Financing: Implications of Government Stock
Investing for the Trust Fund, the Federal Budget, and the Economy,
GAO/AIMD/HEHS-98-74 (Washington, D.C.: Apr. 22, 1998), at 29. See also
Library of Congress, Congressional Research Service, Social Security's
Treatment Under the Federal Budget: A Summary, No. 95-206 (Mar. 20,
2002). Congress created the Social Security program in 1935 in
response to the economic deprivations of the Depression. Originally
created as a benefit system for retired workers, over time, Congress
has expanded Social Security to insure disabled workers and the
families of retired, disabled, and deceased workers. GAO, Social
Security: Different Approaches for Addressing Program Solvency,
GAO/HEHS-98-33 (Washington, D.C.: July 22, 1998), at 4.
Social Security consists of two separate trust funds, the Federal Old-
Age and Survivors Insurance Trust Fund, which covers retirement and
survivor benefits, and the Federal Disability Insurance Trust Fund,
which provides benefits to disabled workers and their families.
[Footnote 301] Congress has provided a permanent indefinite
appropriation from the general fund of the Treasury to the Social
Security trust funds of an amount determined by applying the
applicable employment tax rate to wages reported to the Secretary of
Treasury or his delegate. 42 U.S.C. § 401(a)(3). As a check on the
amount credited to these trust funds, the Commissioner of Social
Security is to certify the amount of wages (or self- employment
income) reported to the Internal Revenue Service (IRS). Id. See B-
261522, Sept. 29, 1995 (Social Security Administration may use wage
data collected by IRS in certifying to Treasury the amount of wages
reported by employers and the amount of funds appropriated to the
Social Security trust funds).
A Board of Trustees holds the Social Security trust funds. 42 U.S.C. §
401(c). The Board of Trustees is composed of the Secretary of the
Treasury as Managing Trustee, the Commissioner of Social Security, the
Secretary of Labor, the Secretary of Health and Human Services, all ex
officio, and two members of the public nominated by the President and
confirmed by the Senate. Id. In addition to holding the fund, it is
the duty of the Board of Trustees to report to the Congress on the
operation and status of the Funds and to review and recommend
improvements in the administrative procedures and policies followed in
managing the Funds. Id. A "person serving on the Board of Trustees"
does not have a fiduciary duty vis-a-vis the trust funds and "shall
not be personally liable for actions taken [as a member of the Board
of Trustees] with respect to the Trust Funds." Id.
There are a number of large trust funds that finance public works,
notably transportation, programs. A prominent example is the Federal
Aid Highway Program which distributes billions of dollars of federal
funding annually to the 50 states, the District of Columbia, and
Puerto Rico for highway construction, repair, and related activities.
To finance the highway program, Congress established the Highway Trust
Fund account in the Treasury, 26 U.S.C. § 9503(a), designating the
Secretary of Treasury as trustee, 26 U.S.C. § 9602(a).[Footnote 302]
Congress has provided the fund with a permanent, indefinite
appropriation of amounts received in the Treasury from certain
gasoline, diesel fuel, and other excise taxes paid by highway users.
26 U.S.C. § 9503(b). In fiscal year 1997, these earmarked revenues
brought in $23.9 billion to the fund.[Footnote 303] In 2006, the
amount was $38.5 billion.[Footnote 304] The Secretary of the Treasury
is responsible for holding the Highway Trust Fund, reporting annually
to Congress on the financial condition and operation of the fund, and
investing any amounts in the fund not needed to meet current needs in
interest-bearing Treasury securities. 26 U.S.C. § 9602. See B-275490,
Dec. 5, 1996 (Treasury, as trustee, could credit Highway Trust Fund
income statements with $1.59 billion in excise taxes mistakenly not
credited to the Fund as the result of accounting and reporting
errors).[Footnote 305]
Chapter 98 of title 26, United State Code, contains a number of other
trust funds established to finance social insurance, public works or
environmental programs. For example, the Black Lung Disability Trust
Fund finances the payment of benefits to eligible miners under the
Black Lung Benefits Act. 26 U.S.C. § 9501. Another social insurance
fund is the Vaccine Injury Compensation Trust Fund, 26 U.S.C. § 9510.
In addition to the Highway Trust Fund, other public works trust funds
include the Airport and Airway Trust Fund, 26 U.S.C. § 9502, the
Harbor Maintenance Trust Fund, 26 U.S.C. § 9505, and the Inland
Waterways Trust Fund, 26 U.S.C. § 9506. Examples of trust funds
designed to finance environmental remediation programs are the
Hazardous Substance Superfund, 26 U.S.C. § 9507, and the Leaking
Underground Storage Tank Trust Fund, 26 U.S.C. § 9508.
There has been an ongoing debate over whether the trust funds,
particularly Social Security and the large infrastructure trust funds
such as the Federal Highway Trust Fund and the Airport and Airways
Development Trust Fund should be included in the budget. In other
words, whether they should be "off budget," which are "those budgetary
accounts (either federal or trust funds) designated by law as excluded
from budget totals." GAO, A Glossary of Terms Used in the Federal
Budget Process, GAO-05-734SP (Washington, D.C.: Sept. 2005), at 72.
[Footnote 306] Since fiscal year 1969 the President has submitted a
unified budget that covers both trust and nontrust fund activities.
The unified budget merges trust and nontrust outlays and receipts into
a consolidated budget surplus or deficit. As a result, the growing
positive trust fund balances, particularly in the Social Security
trust funds, "[mask] the basic imbalance in the government's financial
affairs." GAO, The Budget Treatment of Trust Funds, GAO/T-AFMD-90-3
(Washington, D.C.: Oct. 18, 1989), at 5. In other words, the trust
fund surpluses disguise the severity of the deficit (or the amount of
surplus) on the nontrust fund side of the government's ledgers.
Related to the on- or off-budget issue are allegations of misuse of
the major trust funds such as the Highway and the Airport and Airway
trust funds. Proponents of this view charge that, while the trust
funds have a steady dedicated stream of tax receipts, budgeting
actions have restricted fund outlays to create trust fund surpluses
for budgetary reasons, namely, to lower the deficit. GAO, Budget
Issues: Trust Funds and their Relationship to the Federal Budget,
GAO/AFMD 88-55 (Washington, D.C.: Sept. 30, 1988), at 4. This
practice, proponents argue, breaks the implied agreement underlying
the original enactment of the "trust fund"-—full use of dedicated tax
receipts for the trust fund program. Opponents of off-budget
designations argue that changing the label or category does not make
an activity less federal, does not change total federal revenues or
spending, and contributes to a more confusing picture of the federal
government's total taxes and spending. This simply highlights the
tension that Congress faces between the collection and expenditure of
earmarked revenues, whether trust funds or special funds, and the
tradeoffs Congress must make with respect to spending priorities in
general. GAO, Budget Issues: Trust Funds in the Budget, GAO/T-AIMD-99-
110 (Washington, D.C.: Mar. 9, 1999), at 1.
A number of different approaches have been offered. One proposed
approach is to take the fund "off budget." See, e.g., H.R. 798, 106th
Cong., § 7 (1999) (a bill to provide funding and off-budget treatment
for the protection and enhancement of natural and cultural resources);
H.R. 4, 105th Cong., § 2 (1997) (a bill proposing to provide off-
budget treatment for the Highway, Airport and Airway, Inland Waterways
and Harbor Maintenance Trust Funds). GAO has suggested that Congress
could address the matter in the context of the unified budget by
separately displaying trust funds, federal funds, and government
sponsored enterprises in the budget. GAO/T-AFMD-90-3. In the
Transportation Equity Act for the 21st Century, Pub. L. No. 105-178,
112 Stat. 107 (June 9, 1998) (TEA-21), Congress took yet a different
approach with respect to the highway and mass transit programs. In TEA-
21 Congress established outlay caps that apply separately to the
highway and mass transit programs for fiscal years 1999 through 2003.
In addition to carving out outlay caps for these programs separate
from the dollar caps applicable to discretionary spending in general,
Congress also specified annual guaranteed minimum spending levels
tied, in the case of highways, to Highway Trust Fund receipts. For a
discussion of the implications of this approach, see GAO, Cap
Structure and Guaranteed Funding, GAO/TAIMD-99-210 (Washington, D.C.:
July 21, 1999).
In addition to transparency of trust fund balances through the budget
process, another issue that has arisen is whether and to what extent
the long-term actuarial costs of the largest social insurance trust
funds (Social Security, Medicare, and Medicaid) should be reported on
the balance sheet of the consolidated financial statements of the
United States government as liability of the government. See FASAB,
Preliminary Views—Accounting for Social Insurance, Revised (Oct. 23,
2006), available at [hyperlink,
http://www.fasab.gov/pdffiles/social_insurance92006.pdf] (last visited
Nov. 28, 2007). While these trust funds presently show a surplus
(thus, the investment of excess receipts in Treasury securities), the
long-term cost of these programs is expected to reach nearly $40
trillion—over and above the anticipated future tax receipts. See GAO-
07-362SP; GAO, The Nation's Long-Term Fiscal Outlook: September 2006
Update, GAO-06-1077R (Washington, D.C.: Sept. 2006). As of fiscal year
2006, the consolidated financial statements included a Statement of
Social Insurance that reports the long-term actuarial costs of these
programs, but the balance sheet reports as a liability only the
amounts that are "due and payable" at fiscal year end under the
programs. See FASAB, Preliminary Views, supra.
Chapter 15 Footnotes:
[1] E.g., House Committee on Government Operations, The Role and
Effectiveness of Federal Advisory Committees, H.R. Rep. No. 91-1731,
at 4-5 (1970). The independent regulatory agencies—which also tend to
be called "commissions"—comprise the so-called Fourth Branch. Id.
[2] We are not talking about the so-called independent regulatory
agencies such as the Securities and Exchange Commission, Federal
Communications Commission, Surface Transportation Board, etc., which,
notwithstanding their designation as commissions or boards, are
permanent federal agencies, and are funded as such.
[3] E.g., David Flitner Jr., The Politics of Presidential Commissions,
7 (1986).
[4] Cong. Globe, 27th Cong., 2nd I Sess. 231 (1842), quoted in Jay S.
Bybee, Advising the President: Separation of Powers and the Federal
Advisory Committee Act, 104 Yale L.J. 51, 61 (1994).
[5] The General Services Administration maintains data for advisory
committees in a "Governmentwide shared Internet-based system ..." 41
C.F.R. § 102-3.100(b)(4).
[6] Although the number was to drop still further, GAO found that the
costs and number of members per committee had increased. GAO, Federal
Advisory Committee Act: Overview of Advisory Committees Since 1993,
GAO/T-GGD-98-24 (Washington, D.C.: Nov. 5, 1997). The number of such
committees fell to approximately 950 in fiscal year 2003. GAO, Federal
Advisory Committees: Additional Guidance Could Help Agencies Better
Ensure Independence and Balance, GAO-04-328 (Washington, D.C.: Apr.
16, 2004), at 10.
[7] The 1922 decision failed to address 4 Op. Att'y Gen. 106, which
found the statute applicable to the appointment of a single
individual, but the point would appear moot in view of the authority
to hire experts and consultants now found in 5 U.S.C. § 3109.
[8] Jay S. Bybee, Advising the President: Separation of Powers and the
Federal Advisory Committee Act, 104 Yale L.J. 51, 63-65 (1994).
[9] Another decision stated the principle with a minor change in
language: "[The 1909 law] does not necessarily require that
commissions, councils, boards, and other such bodies be specifically
established by statute.... General or specific authority to perform
functions or duties is sufficient to allow payment of the expenses of
boards, commissions, etc., if such duties or functions can be
performed only by such a group or if it is generally accepted that
such duties can be performed best by such a group." 40 Comp. Gen. 478,
479 (1961) (citations omitted).
[10] 6 Comp. Gen. 140 is one of the "specific authority" cases and to
that extent has been modified by 22 Comp. Gen. 140. This, however, has
no bearing on the point noted in the text.
[11] Thomas R. Wolanin, Presidential Advisory Commissions—Truman to
Nixon, 66 (1975).
[12] The decision in 49 Comp. Gen. 305 was erroneously overruled in
part by 54 Comp. Gen. 1055 (1975), and was reinstated by 56 Comp. Gen.
572 (1977).
[13] See, e.g., Fourco Glass Co. v. Transmirra Products Corp., 353
U.S. 222, 227 (1957).
[14] Omnibus Consolidated Appropriations Act, 1997, Pub. L. No. 104-
208, § 613, 110 Stat. 3009, 3009-356 (Sept. 30, 1996).
[15] GAO, Standardized Federal Regions—Little Effect on Agency
Management of Personnel, FPCD-77-39 (Washington, D.C.: Aug. 17, 1977),
at 2.
[16] This fact may help suggest why Congress wanted to reinsert itself
in the process.
[17] FPCD-77-39, at 24.
[18] David S. Brown, The Management of Advisory Committees: An
Assignment for the '70's, 32 Pub. Ad. Rev. 334, 335 (1972); Richard 0.
Levine, Comment, The Federal Advisory Committee Act, 10 Harv. J. on
Legis. 217, 217-18 (1973).
[19] House Committee on Government Operations, The Role and
Effectiveness of Federal Advisory Committees, H.R. Rep. No. 91-1731,
at 2 (1970) (quoting a statement made in committee hearings).
[20] Michael H. Cardozo, The Federal Advisory Committee Act in
Operation, 33 Admin. L. Rev. 1, 10 (1981). The quoted passage is
distilled from 5 U.S.C. app. § 2 (Findings and purpose). With respect
to the objective of eliminating useless committees, see Carpenter v.
Morton, 424 F. Supp. 603 (D. Nev. 1976); GAO, Better Evaluations
Needed to Weed Out Useless Federal Advisory Committees, GGD-76-104
(Washington, D.C.: Apr. 7, 1977).
[21] The Supreme Court has said that the GSA regulations merit
"diminished deference" because they were not issued contemporaneous
with the statute and because 5 U.S.C. app. § 7(c), the statutory
authority pursuant to which the GSA regulations were promulgated, does
not impose liability for violation of the GSA regulations nor has
Congress otherwise declared that such regulations shall have the force
of law. Public Citizen v. Department of Justice, 491 U.S. 440, 463-65
n.12 (1989). The D.C. Circuit accords them no deference because FACA
is "applicable to all agencies." Association of American Physicians &
Surgeons, Inc. v. Clinton, 997 F.2d 898, 913 (D.C. Cir. 1993). See
also Collins v. National Transportation Safety Board, 351 F.3d 1246
(D.C. Cir. 2003) (noting that for generic statutes like FACA, their
broad applicability undermines any basis for deference and courts,
therefore, must review interpretive questions de novo).
[22] Pub. L. No. 105-153, § 2(a), 111 Stat. 2689 (Dec. 17, 1997).
[23] The original version of section 3(2), until the 1997 amendment,
exempted the Commission on Government Procurement and the Advisory
Committee on Intergovernmental Relations (ACIR). The Procurement
Commission finished its job in 1973. The ACIR was terminated in 1995,
but extended the following year for the sole and limited purpose of
performing a contract with the National Gambling Impact Study
Commission. Treasury, Postal Service, and General Government
Appropriations Act, 1996, Pub. L. No. 104-52, title IV, 109 Stat. 468,
480 (Nov. 19, 1995) (termination); Pub. L. No. 104-328, 110 Stat. 4004
(Oct. 19, 1996) (extension).
[24] This provision was enacted following the district court's
decision in Natural Resources Defense Council v. Abraham, 223 F. Supp.
2d 162 (D.D.C. 2002). The court held that FACA applied to a committee
that consisted of federal employees and employees of contractors who
managed and operated Department of Energy-owned laboratories, where
the contractors were providing advice on a project that lay outside of
their specific contract. Id. at 192. As a result of the enactment of
the statute, the district court order pertaining to the FACA violation
was set aside in Natural Resources Defense Council v. Department of
Energy, 353 F.3d 40 (D.C. Cir. 2004).
[25] Good references are Stephen P. Croley, Practical Guidance on the
Applicability of the Federal Advisory Committee Act, 10 Admin. L.J.
111 (1996); Stephen P. Croley and William F. Funk, The Federal
Advisory Committee Act and Good Government, 14 Yale J. on Reg. 451
(1997).
[26] The Center is a private, nonprofit policy organization that seeks
the reduction and eventual elimination of all weapons of mass
destruction as a significant tool of U.S. national security policy.
More information is available at the Center's Web site, [hyperlink,
http://www.armscontrolcenter.org] (last visited Nov. 28, 2007).
[27] See 50 Comp. Gen. 736 (1971) (holding that membership on an
advisory council was a position as an officer or employee of the
United States for purposes of such a provision). For similar holdings
in other contexts, see 24 Comp. Gen. 498, 500 (1945); 16 Comp. Gen.
495, 497 (1936); 23 Comp. Dec. 372, 374 (1917); 3 Op. Off. Legal
Counsel 321, 322-23 (1979).
[28] Examples are the Glass Ceiling Commission, Pub. L. No. 102-166, §
209, 105 Stat. 1071, 1087 (Nov. 21, 1991); the Commission on
Government Procurement, Pub. L. No. 91-129, § 9, 83 Stat. 269, 272
(Nov. 2, 1969), and the Commission on Organization of the Executive
Branch of the Government (the so-called Second Hoover Commission),
Pub. L. No. 83-108, § 8, 67 Stat. 142, 144 (July 10, 1953).
[29] E.g., Civil War Centennial Commission, Pub. L. No. 85-305, § 9,
71 Stat. 626, 628 (Sept. 7, 1957).
[30] E.g., Christopher Columbus Quincentenary Jubilee Commission, Pub.
L. No. 98-375, § 11(a), 98 Stat. 1257, 1262 (Aug. 7, 1984) (year-by-
year); Commission on Merchant Marine and Defense, Pub. L. No. 98-525,
§ 1536(i), 98 Stat. 2492, 2635 (Oct. 19, 1984) (aggregate).
[31] Commission on the Bicentennial of the Constitution, Pub. L. No.
98-101, § 8, 97 Stat. 719, 723 (Sept. 29, 1983).
[32] Although not germane to the result or to the point made in the
text, the “appropriation” cited in the Office of Legal Counsel opinion
was merely an authorization.
[33] Cf., e.g., Association of American Physicians & Surgeons v.
Clinton, 997 F.2d 898, 908 (D.C. Cir. 1993) (court refuses to apply
FACA in a way that would interfere with "the President's capacity to
solicit direct advice on any subject related to his duties from a
group of private citizens, separate from or together with his closest
governmental associates").
[34] National Anti-Hunger Coalition v. Executive Committee of the
President's Private Sector Survey on Cost Control, 711 F.2d 1071, 1073
& n.1 (D.C. Cir. 1983); Metcalf, 553 F.2d at 179 n.35.
[35] A FACA committee can be terminated by its establishing authority
or by operation of law. The General Services Administration cannot
abolish another agency's committee or refuse to recharter it. 5 U.S.C.
app. § 7; B-127685-0.M., Apr. 5, 1976. (To our knowledge, GSA has
never tried to do so; the GAO memorandum refers to the Office of
Management and Budget, whose FACA functions were later transferred to
GSA.)
[36] Budget Message of the President, H.R. Doc. No. 80-19, at M61
(1948), cited in, e.g., Ronald C. Moe, Congressional Research Service,
Managing the Public's Business: Federal Government Corporations, S.
Prt. No. 104-18, at 7-8 (1995) (Moe 1995).
[37] Harold Seidman, The Theory of the Autonomous Government
Corporation: A Critical Appraisal, 12 Pub. Admin. Rev. 89, 90 (1952)
(Seidman 1952).
[38] Id.
[39] Francis J. Leazes, Jr., Accountability and the Business State:
The Structure of Federal Corporation, 4 (1987) (Leazes).
[40] O.R. McGuire, Government by Corporations, 14 Va. L. Rev. 182, 186
(1928).
[41] Ronald C. Moe and Robert S. Gilmour, Rediscovering Principles of
Public Administration: The Neglected Foundation of Public Law, 55 Pub.
Admin. Rev. 135, 143 (1995).
[42] National Academy of Public Administration, I Report on Government
Corporations 21 (1981) (NAPA 1981). For a more recent publication
along these general lines, see Library of Congress, Congressional
Research Service, Federal Government Corporations: An Overview, No.
RL30365 (Mar. 23, 2006). This report notes that while the number of
federal corporations "is in moderate flux" (id. at 2), the corporate
model seems to hold ever-enhanced appeal to federal policymakers.
[43] Moe 1995, at 47.
[44] Seidman 1952, at 93.
[45] Ronald C. Moe, Administering Public Functions at the Margin of
Government: The Case of Federal Corporations, CRS No. 83-236GOV, 33
(1983).
[46] Francis J. Leazes, Jr., Accountability and the Business State:
The Structure of Federal Corporation, 7 (1987).
[47] Ronald C. Moe, Congressional Research Service, Managing the
Public's Business: Federal Government Corporations, S. Prt. No. 104-18
(1995), at xii. For similar comments, see John T. Tierney, Government
Corporations and Managing the Public's Business, 99 Pol. Sci. Q. 73,
76 n.6 (1984), and Ronald C. Moe, Congressional Research Service,
Administering Public Functions at the Margin of Government: The Case
of Federal Corporations, No. 83-236GOV (1983), at 5.
[48] Rail Passenger Service Act of 1970, Pub. L. No. 91-518, § 301, 84
Stat. 1327, 1330 (Oct. 30, 1970). The current version of this
language, codified at 49 U.S.C. § 24301(a)(3), provides that Amtrak
"is not a department, agency, or instrumentality of the United States
Government, and shall not be subject to title 31 [of the United States
Code]." Over the years, Congress has continued to put distance between
Amtrak and federal control for statutory purposes. For example, while
Amtrak was originally designated a mixed-ownership government
corporation, that designation was later dropped. For a discussion of
the evolution of the statutory provisions affecting Amtrak, see United
States v. Bombardier Corp., 286 E3d 542, 545 (D.C. Cir. 2002); see
also United States v. Bombardier Corp., 380 F.3d 488, 491-92 (D.C.
Cir. 2004), cert. denied, 544 U.S. 1032 (2005).
[49] The Supreme Court remanded the case for consideration of the
First Amendment claims. On remand, the district court held that Amtrak
had exercised its right to reject proposed advertising in good faith,
given the artist/advertiser's deception in concealing the political
nature of the billboard display. Lebrun v. National Railroad Passenger
Corp., 981 F. Supp. 279 (S.D.N.Y. 1997).
[50] Memorandum Opinion for the General Counsel, Office of Management
and Budget, Status of National Veterans Business Development
Corporation, OLC Opinion, Mar. 19, 2004.
[51] 15 U.S.C. § 657c(a). Congress drove its point home, perhaps
unintentionally, since it actually added the quoted language twice in
the same appropriation act. Consolidated Appropriations Act, 2005,
Pub. L. No. 108-447, div. B, title VI, § 636 and div. K, title I, §
146, 118 Stat. 2809, 2922, 3455 (Dec. 8, 2004).
[52] Francis J. Leazes, Jr., Accountability and the Business State:
The Structure of Federal Corporations, 18 (1987). Leazes also adopts
the definitional approach of the Government Corporation Control Act by
specifically identifying, by name, the entities he includes under his
government corporation aegis. Id. at 9-10.
[53] The Corporation for Public Broadcasting has strenuously objected
to being included under any "government corporation" umbrella. See
National Academy of Public Administration, I Report on Government
Corporations app. 3 (1981). We include it under our umbrella listing
because (1) it was statutorily created as a corporation and (2) it
receives and spends federal money. See generally GAO,
Telecommunications: Issues Related to Federal Funding for Public
Television by the Corporation for Public Broadcasting, GAO-04-284
(Washington, D.C.: Apr. 30, 2004). For information about the Legal
Services Corporation and the State Justice Institute, see B-308037,
Sept. 14, 2006, and B-307317, Sept. 13, 2006, respectively.
[54] The Bonneville Power Administration (BPA) is a true hybrid. It is
not a government corporation although it has many of the powers of one
and operates from a revolving fund. The office of the Administrator of
BPA is an office in the Department of Energy and is under the
jurisdiction and control of the Secretary of the department, although
BPA is subject to many but not all of the provisions of the Government
Corporation Control Act. See 16 U.S.C. §§ 832a(a), 838i(c) and (d).
Also, the Administration's contracting activities are governed by its
own unique statutory and regulatory requirements. See B-291642.2, July
16, 2003, at n.l. Our discussion does not further address the
Smithsonian, which the Supreme Court has called "the oldest surviving
government corporation." Keifer & Keifer v. Reconstruction Finance
Corp., 306 U.S. 381, 391 (1939).
[55] GAO, A Glossary of Terms Used in the Federal Budget Process, GAO-
05-734SP (Washington, D.C.: Sept. 2005), at 59.
[56] Lori Nitschke, Private Enterprise With Official Advantages, 56
Cong. Q. Wkly. 1578 (1998).
[57] All but one of these entities can be found in subtitle II, which
consists of 36 U.S.C. §§ 10101 through 240112. Subtitle III, 36 U.S.C.
§§ 300101-300111, is devoted entirely to the Red Cross.
[58] While commonly known as the American Red Cross, or more simply as
the Red Cross, this organization's proper name is really "The American
National Red Cross." 36 U.S.C. § 300101(b).
[59] 36 U.S.C. § 1101 (1994). Title 36 was recodified in 1998 by Pub.
L. No. 105-225, 112 Stat. 1253 (Aug. 12, 1998). The former section
1101 was omitted as unnecessary. In addition, the American Red Cross
was given its own subtitle, as indicated in note 58.
[60] Wesley A. Sturges, The Legal Status of the Red Cross, 56 Mich. L.
Rev. 1, 23 (1957).
[61] Our choice of examples is intended to convey some idea of the
types and range of organizations title 36 encompasses. By the way, in
case you find our citation to 36 U.S.C. § 152305 for the National
Music Council (as well as those for the other organizations in this
discussion) a bit odd, rest assured that it is correct. The section
numbers in title 36 of the United States Code go rather higher than
seems normal for the Code—up to section 300111 at the writing of this
chapter, to be precise.
[62] E.g., 36 U.S.C. §§ 20302 (American Academy of Arts and Letters—
furthering the interests of literature and the fine arts); 20903
(American Ex-prisoners of War—encouraging fraternity, fostering
patriotism, maintaining historical records); 21302 (American
Historical Association—promoting historical studies collecting and
preserving historical manuscripts); 21003 (American GI Forum of the
United States—educational, patriotic, civic, historical, and research
organization).
[63] 42 U.S.C. §§ 2000bb-2000bb-4. This act was held to be
unconstitutional as applied to state and local governments. See City
of Boerne v. Flores, 521 U.S. 507 (1987).
[64] The Stearns litigation originated with a district court decision,
Stearns v. Veterans of Foreign Wars, 353 F. Supp. 473 (D.D.C. 1972),
which dismissed the suit on the ground that the Veterans of Foreign
Wars' federal charter alone did not constitute governmental action.
The D.C. Circuit reversed this decision in Stearns v. Veterans of
Foreign Wars, 500 E2d 788 (D.C. Cir. 1974), suggesting that while the
charter alone probably was not sufficient, there might be other
factors to establish enough governmental action to support the suit.
On remand, the district court found in Stearns v. Veterans of Foreign
Wars, 394 F. Supp. 138 (D.D.C. 1975), that additional factors were not
sufficient in this regard. That decision was summarily affirmed on
appeal. Stearns v. Veterans of Foreign Wars, 527 F.2d 1387 (D.C.
Cir.), cert. denied, 429 U.S. 822 (1976).
[65] See 71 Comp. Gen. 155 (1992). Apart from this overview treatment,
our discussion does not further address these entities.
[66] Harold Seidman, Government Corporations in the United States, 22
Optimum 40, 43 (1991) (Seidman 1991).
[67] Under 48 C.F.R. § 35.017(b), it is possible for an FFRDC to have
multiple federal agency sponsorship. The regulation calls for a lead
agency to be designated as primary sponsor.
[68] The National Science Foundation provides a list of FFRDCs as of
February 2005 on its Web site at [hyperlink,
http://www.nsf.gov/statistics/nsf05306] (last visited Nov. 28, 2007).
[69] 2 Report of the Commission on Government Procurement 17 (1972).
[70] Id. at 18.
[71] Id. at 64 (app. E., Recommendation No. 5).
[72] This limitation does not apply to an FFRDC that performs applied
scientific research under laboratory conditions. 10 U.S.C. § 2367(b).
[73] Seidman 1991, at 43-44. For further discussion of the competition
aspects, see GAO, Competition: Issues on Establishing and Using
Federally Funded Research and Development Centers, GAO/NSIAD-88-22
(Washington, D.C.: Mar. 7, 1988).
[74] Harold Seidman, The Quasi World of the Federal Government, 6
Brookings Rev. 23 (1988) (Seidman 1988).
[75] For cases reaching similar results with respect to other
corporations under an earlier version of the statute, see United
States v. Chemical Foundation, Inc., 272 U.S. 1 (1926), and 16 Comp.
Gen. 613 (1936).
[76] Ronald C. Moe and Thomas H. Stanton, Government-Sponsored
Enterprises as Federal Instrumentalities: Reconciling Private
Management with Public Accountability, 49 Pub. Admin. Rev. 321 (1989);
Lloyd D. Musolf and Harold Seidman, The Blurred Boundaries of Public
Administration, 40 Pub. Admin. Rev. 124, 125 (1980). Adding those
purely private entities whose doors would close in a matter of weeks
if the federal money stopped flowing further emphasizes the point.
[77] See Musolf and Seidman, at 124.
[78] Francis J. Leazes, Jr., Accountability and the Business State:
The Structure of Federal Corporations, 36 (1987).
[79] Ronald C. Moe, Administering Public Functions at the Margin of
Government: The Case of Federal Corporations, 3 (1983).
[80] Seidman 1988, at 25.
[81] National Academy of Public Administration, I Report on Government
Corporations 4 (1981). If this passage is evocative of Moe and
Seidman, it may be because both were members of the panel which
conducted the NAPA study. Id. at app. 1.
[82] See, e.g., Benjamin A. Templin, Comment on Neil H. Buchanan's
Social Security and Government Deficits: When Should We Worry?, 92
Cornell L. Rev. 291, 295-96 (2007); Richard Scott Carnell, Handling
the Failure of a Government-Sponsored Enterprise, 80 Washington L.
Rev. 565 (2005); Donna M. Nagy, Playing Peekaboo with Constitutional
Law: The PCAOB (Public Company Accounting Oversight Board) and Its
Public/Private Status, 80 Notre Dame L. Rev. 975 (2005); Seidman 1988,
at 23-24. For an examination of the hybrid nature of Amtrak, see
Arnold Adams, The National Railroad Passenger Corporation [Amtrak] A
Modern Hybrid Corporation Neither Private Nor Public, 31 Bus. Law. 601
(1976).
[83] For ease of discussion in this section, we will use the term
"government corporation" to refer generically to the various corporate
devices discussed in section B.2 of this chapter unless a more
specific term is warranted.
[84] John McDiarmid, Government Corporations and Federal Funds, 21
(1938).
[85] A capsule history starting with the 1791 act may be found in
Lebron v. National Railroad Passenger Corporation, 513 U.S. 374, 386-
91 (1995).
[86] Other cases upholding the constitutionality of various government
corporations include Smith v. Kansas City Title & Trust Co., 255 U.S.
180 (1921) (federal land banks); Doherty v. United States, 94 F.2d 495
(8th Cir.), cert. denied, 303 U.S. 658 (1938) (Federal Deposit
Insurance Corporation); Weir v. United States, 92 F.2d 634 (7th Cir.),
cert. denied, 302 U.S. 761 (1937) (same); Langer v. United States, 76
F.2d 817 (8th Cir. 1935) (Reconstruction Finance Corporation).
[87] Ronald J. Krotoszynski, Jr., Back to the Briarpatch: An Argument
in Favor of Constitutional Meta Analysis in State Action
Determinations, 94 Mich. L. Rev. 302, 312 (1995).
[88] The War Finance Corporation was organized under Pub. L. No. 65-
121, 40 Stat. 506 (Apr. 5, 1918), to provide financial assistance to
industries important to the successful prosecution of the war.
[89] The Emergency Fleet Corporation was organized on April 16, 1917
to purchase, construct, and operate merchant vessels under the
authority of the original Shipping Board Act, Pub. L. No. 64-260, §
11, 39 Stat. 728, 731 (Sept. 7, 1916). See John McDiarmid, Government
Corporations and Federal Funds, 21, 24-25 (1938).
[90] Public Law No. 65-193, 40 Stat. 845, 888 (July 9, 1918),
authorized the War Department's Director of Aircraft Production to
form corporations to aid the government's production of aircraft and
related equipment. Under this authority, the United States Spruce
Production Corporation was created on August 20, 1918, to make
available aircraft lumber for war use.
[91] Francis J. Leazes, Jr., Accountability and the Business State:
The Structure of Federal Corporations, 21 (1987).
[92] Pub. L. No. 72-2, 47 Stat. 5 (Jan. 22, 1932). See also Pub. L.
No. 76-664, § 6, 54 Stat. 572, 574 (June 25, 1940).
[93] Banking Act of 1933, Pub. L. No. 73-66, § 8, 48 Stat. 162, 168
(June 16, 1933), superseded by Federal Deposit Insurance Act, Pub. L.
No. 81-797, 64 Stat. 873 (Sept. 21, 1950), codified as amended at 12
U.S.C. §§ 1811-1831z.
[94] 15 U.S.C. § 714. The Commodity Credit Corporation was given a
statutory charter in 1948 by Public Law No. 80-806, 62 Stat. 1070
(June 29, 1948).
[95] National Housing Act, Pub. L. No. 73-479, § 1, 48 Stat. 1246
(June 27, 1934). Its provisions now appear primarily at 12 U.S.C. §§
1707-1715z-22a. The Federal Housing Administration is now part of the
Department of Housing and Urban Development. Some interesting
statutory phrasing provides that " 'wholly owned Government
corporation' means ... the Secretary of Housing and Urban Development
when carrying out duties and powers related to the Federal Housing
Administration Fund." 31 U.S.C. § 9101(3)(M).
[96] The War Damage Corporation was actually created by the
Reconstruction Finance Corporation under statutory authority. See 15
U.S.C. § 606b (1946).
[97] The Smaller War Plants Corporation was created by Public Law No.
77-603, § 4, 56 Stat. 351, 353 (June 11, 1942).
[98] The Defense Plant Corporation was created by the Reconstruction
Finance Corporation on August 22, 1940, under the same statutory
authority as the War Damage Corporation. See GAO, Reference Manual of
Government Corporations, S. Doc. No. 79-86, at 32 (1945).
[99] The Resolution Trust Corporation has terminated and its remaining
responsibilities were transferred to the Federal Deposit Insurance
Corporation. See 12 U.S.C. § 1441a(m).
[100] Congress enacted legislation in 1996 to "privatize" USEC. See
USEC Privatization Act, enacted as part of the massive Omnibus
Consolidated Rescissions and Appropriations Act of 1996, Pub. L. No.
104-134, title III, ch. 1, subch. A, 110 Stat. 1321, 1321-335 (Apr.
26, 1996). For background, see B-307137, July 12, 2006; B-286661, Jan.
19, 2001; GAO, U.S. Enrichment Corporation Privatization: USEC's
Delays in Providing Data Hinder DOE's Oversight of the Uranium
Decontamination Agreement, GAO-06-723 (Washington, D.C.: June 16,
2006); Uranium Enrichment: Observations on the Privatization of the
United States Enrichment Corporation, GAO/T-RCED-95-116 (Washington,
D.C.: Feb. 24, 1995). The "omnibus" act is itself a fascinating
document. Its publication in Statutes at Large begins with a footnote
stating that the act's "original hand enrollment as signed by the
President... is printed without corrections. Footnotes indicate
missing or illegible text in the original."
[101] 17 U.S. (4 Wheat.) 316 (1819). See the discussion in section
B.3.a of this chapter.
[102] The Attorney General's opinion did not address this point, but
did remind GAO that GAO had at least implicitly condoned the practice
by issuing decisions concerning nonstatutory corporations—without
questioning the legality of their creation. 40 Op. Att'y Gen. at 201.
[103] Joint Committee on Reduction of Nonessential Federal
Expenditures, Reduction of Nonessential Federal Expenditures—
Government Corporations, S. Doc. No. 78-227, at 25 (1944).
[104] S. Rep. No. 79-694, at 13 (1945).
[105] The statutory mandate for this program is section 254(h) of the
Communications Act of 1934, as added by the Telecommunications Act of
1996, 47 U.S.C. § 254(h). The two not-for-profit corporations at issue
were the Schools and Libraries Corporation and the Rural Health Care
Corporation.
[106] FADA was dissolved under the provisions of the Financial
Institutions Reform Recovery and Enforcement Act of 1989 (FIRREA).
Pub. L. No. 101-73, 103 Stat. 183 (Aug. 9, 1989). FIRREA also
abolished both the Federal Home Loan Bank Board and the FSLIC. Id. §
401. Thus, all of the principal entities discussed in the GAO
materials cited in the text are gone. The case remains useful,
however, to illustrate the proposition that a goose does not become a
swan merely because someone calls it one. For more on the FADA saga,
see Ronald C. Moe, Managing the Public's Business: Federal Government
Corporations, S. Prt. No. 104-18, at 22-26 (1995); and Harold Seidman,
The Quasi World of the Federal Government, 6 Brookings Rev. 23, 26
(1988).
[107] Section 5d of the Reconstruction Finance Corporation Act, as
amended by Pub. L. No. 76-664, § 5, 54 Stat. 572, 573 (June 25, 1940).
The RFC seized the opportunity "with gusto." Lebron, 513 U.S. at 389.
Some of the government corporations the RFC created are the Defense
Plant Corporation, Defense Supplies Corporation, Rubber Reserve
Company, Metals Reserve Company, War Damage Corporation, United States
Commercial Company, Petroleum Reserves Corporation, and the Rubber
Development Corporation. See S. Doc. No. 78-227, at 10-14.
[108] 12 U.S.C. §§ 2211 and 2212; H.R. Rep. No. 96-1287, at 23, 42
(1980) (accompanying report of House Agriculture Committee).
[109] For ease of discussion in this section, we will use the term
"government corporation" to refer generically to the various corporate
devices discussed in section B.2 of this chapter unless a more
specific term is warranted.
[110] Joint Committee on Reduction of Nonessential Federal
Expenditures, Reduction of Nonessential Federal Expenditures—
Government Corporations, S. Doc. No. 78-227, at 30 (1944).
[111] H.R. Rep. No. 79-856, at 3 (1945). An unimpressed Dr. Seidman
has called the law the "government corporation de-control act." Harold
Seidman, Government Corporations in the United States, 22 Optimum 40,
41 (1991).
[112] Pub. L. No. 79-248 § 2.
[113] National Academy of Public Administration, I Report on
Government Corporations, 21 (1981). An example of such a transition is
discussed in B-219801, Oct. 10, 1986 (National Consumer Cooperative
Bank).
[114] GAO, Is the Administrative Flexibility Originally Provided to
the U.S. Railway Association Still Needed?, CED-78-19 (Washington,
D.C.: Feb. 22, 1978), at 2. The U.S. Railway Association was created
by Pub. L. No. 93-236, title II, 87 Stat. 985, 988 (Jan. 2, 1974). The
mixed-ownership designation was in section 202(g). A typical
appropriation was Pub. L. No. 94-134, 89 Stat. 695, 709 (Nov. 24,
1975). The association was abolished in 1987. See 45 U.S.C. § 1341(a).
[115] See also GAO, A Glossary of Terms Used in the Federal Budget
Process, GAO-05-734SP (Washington, D.C.: Sept. 2005), at 67, 101.
[116] The source provision is more explicit on this point. See Pub. L.
No. 79-248, § 102, 59 Stat. 597, 598 (Dec. 6, 1945) ("the budget
program shall be a business-type budget, or plan of operations").
[117] This budget material is available at [hyperlink,
http://www.omb.gov/budget/fy2008/appendix.html] (last visited Nov. 28,
2007).
[118] Independent Offices Appropriation Act, 1950, Pub. L. No. 81-266,
§ 309, 63 Stat. 631, 662 (Aug. 24, 1949).
[119] General Accounting Office Act of 1974, Pub. L. No. 93-604, §
601, 88 Stat. 1959, 1962 (Jan. 2, 1975).
[120] See Frederick C. Mosher, The GAO: The Quest for Accountability
in American Government, 105-08 (1979); Ellsworth H. Morse, Jr., The
Government Corporation Control Legislation of 1945, 10 GAO Rev. 11
(No. 4, 1975).
[121] Mandatory reimbursement originated with language in GAO's
appropriation in the First Deficiency Appropriation Act for 1945, Pub.
L. No. 79-40, 59 Stat. 77, 81 (Apr. 25, 1945), enacted just 2 months
after the George Act.
[122] Ronald C. Moe, Congressional Research Service, Administering
Public Functions at the Margin of Government: The Case of Federal
Corporations, No. 83-236GOV (Dec. 1, 1983), at 3-4.
[123] Harold Seidman, The Theory of the Autonomous Government
Corporation: A Critical Appraisal, 12 Pub. Admin. Rev. 89, 92 (1952).
[124] Marshall E. Dimock, Government Corporations; A Focus of Policy
and Administration (Part I), 43 Am. Pol. Sci. Rev. 899, 915 (1949).
[125] The African Development Foundation is not listed in the GCCA,
but its enabling legislation makes it subject to the act's provisions
for wholly owned corporations. See 22 U.S.C. § 290h-6.
[126] Our source for these examples is GAO, Government Corporations:
Profiles of Existing Government Corporations, GAO/GGD-96-14
(Washington, D.C.: Dec. 13, 1995). The information for each
corporation includes a "management structure" summary and a citation
to the corporation's enabling legislation.
[127] Ronald C. Moe, Managing the Public's Business: Federal
Government Corporations, S. Prt. No. 104-18, at 58 (1995).
[128] For several years in the mid-1990s, this provision was
overridden by an appropriation act proviso which made the Secretary of
the Treasury the Administrator and placed the Fund in the Treasury
Department. E.g., Pub. L. No. 104-134, 110 Stat. 1321, 1321-294 (Apr.
26, 1996) (fiscal year 1996). The proviso was dropped in fiscal year
1997. See Pub. L. No. 104-204, 110 Stat. 2874, 2907 (Sept. 26, 1996).
[129] For ease of discussion in this section, we will use the term
"government corporation" to refer generically to the various corporate
devices discussed in section B.2 of this chapter unless a more
specific term is warranted.
[130] "Capitalize" in this context means simply "to furnish with
capital, to provide capital for the [corporation's] operation." B-
24827, Apr. 3, 1942, at 11.
[131] See, respectively, the Departments of Labor, Health and Human
Services, and Education, and Related Agencies Appropriations Act,
2006, Pub. L. No. 109-149, 119 Stat. 2833, 2871-73 (Dec. 30, 2005)
("For expenses necessary for the Corporation for National and
Community Service to carry out the provisions of the Domestic
Volunteer Service Act of 1973, as amended, $316,212,000 ..."), and the
Science, State, Justice, Commerce, and Related Agencies Appropriations
Act, 2006, Pub. L. No. 109-108, 119 Stat, 2290, 2330-31 (Nov. 22,
2005) ("For payment to the Legal Services Corporation to carry out the
purposes of the Legal Services Corporation Act of 1974, $330,803,000
...).
[132] E.g., Agriculture, Rural Development, Food and Drug
Administration, and Related Agencies Appropriations Act, 2006, Pub. L.
No. 109-97, 119 Stat. 2120, 2133 (Nov. 10, 2005).
[133] Pub. L. No. 109-108.
[134] Pub. L. No. 109-149.
[135] Pub. L. No. 109-97.
[136] Pub. L. No. 109-97.
[137] Ronald C. Moe, The "Reinventing Government" Exercise:
Misinterpreting the Problem, Misjudging the Consequences, 54 Public
Administration Review 111, 113 (1994).
[138] Ronald C. Moe, Managing the Public's Business: Federal
Government Corporations, S. Prt. No. 104-18, at 38 (1995) (Moe 1995).
[139] Ronald C. Moe and Thomas H. Stanton, Government-Sponsored
Enterprises as Federal Instrumentalities: Reconciling Private
Management with Public Accountability, 49 Pub. Admin. Rev. 321, 322
(1989); Ronald C. Moe, Liabilities of the Quasi Government, 20
Government Executive 47, 49 (1988). Moe and Stanton, at 321, go so far
as to include the implicit guarantee as an element of the definition
of a GSE. See also Moe 1995, at 38.
[140] Lori Nitschke, Private Enterprise With Official Advantages, 56
Cong. Q. Wkly. 1578, 1580 (1998).
[141] A. Michael Froomkin, Reinventing the Government Corporation,
1995 U. Ill. L. Rev. 543, 580 (1995).
[142] The common characteristics are listed in Thomas H. Stanton,
Federal Supervision of Safety and Soundness of Government-Sponsored
Enterprises, 5 Admin. L.J. 395, 404-05 (1991).
[143] Carrie Stradley Lavargna, Government-Sponsored Enterprises Are
Too Big to Fail': Balancing Public and Private Interests, 44 Hastings
L.J. 991, 1011 (1993).
[144] See, e,g., GAO, Budget Issues: Profiles of Government-Sponsored
Enterprises, GAO/AFMD-91-17 (Washington, D.C.: Feb. 1991), at 7;
Lavargna, at 1010-11; Thomas H. Stanton, Federal Supervision of Safety
and Soundness of Government-Sponsored Enterprises, 5 Admin. L.J. 395,
404 (1991).
[145] Pub. L. No. 102-550, title XIII, 106 Stat. 3672, 3941 (Oct. 28,
1992).
[146] The five GSEs examined in the cited GAO testimony were Fannie
Mae, Freddie Mac, Farmer Mac, the Federal Home Loan Banks (FHLBanks),
and the Farm Credit System (FCS).
[147] Securities and Exchange Commission, SEC and OFHEO Announce
Resolution of Investigation and Special Examination of Fannie Mae:
Fannie Mae Agrees to Pay $400 Million Penalty, Press Release No. 2006-
80 (May 23, 2006), available at [hyperlink,
http://www.sec.gov/news/press.shtml (last visited Nov. 28, 2007). See
also OFHEO, Report to Congress 2007 (Mar. 30, 2007), available at
[hyperlink,
http://www.ofheo.gov/media/annualreports/OFHEOReporttoCongress07.pdf]
(last visited Nov. 28, 2007) (annual examination of Fannie Mae and
Freddie Mac revealed inadequacies in the areas of accounting systems,
internal controls, risk management, human resources, and corporate
governance).
[148] GAO advised government corporations to this effect in 27 Comp.
Gen. 429 (1948).
[149] Many of the squabbles are recorded in John McDiarmid, Government
Corporations and Federal Funds (1938).
[150] This claims settlement authority is discussed in detail in
Chapter 14, section B.
[151] The ambivalence of the accounting officers did not start with
GAO. For example, in 24 Comp. Dec. 118 (1917), the Comptroller of the
Treasury held that the United States Shipping Board Emergency Fleet
Corporation was not required to account to the Treasury for the use of
its funds, yet held in later decisions that the corporation had
violated laws governing the purchase of typewriters (27 Comp. Dec. 140
(1920)) and prohibiting advance payments (27 Comp. Dec. 311 (1920)).
[152] For example, under 31 U.S.C. § 9101(3)(M), the Secretary of the
Department of Housing and Urban Development (HUD) is considered to be
acting as a wholly owned government corporation when carrying out
duties and powers related to the Federal Housing Administration Fund.
For a discussion of GAO's limited authority with respect to this HUD
program, see B-182653, Jan. 16, 1975; B-181961, B-182280, Nov. 26,
1974; B-99262-0.M., Jan. 11, 1951.
[153] Several of the cases cited in this paragraph are bid protest
decisions. Prior to the 1984 enactment of the Competition in
Contracting Act, account settlement authority was the basis for GAO
bid protest jurisdiction.
[154] GAO did not always feel this way. Earlier decisions purporting
to grant or deny relief to certifying officers of the Federal Crop
Insurance Corporation, such as B-44435, Oct. 5, 1944 (or for that
matter any government corporation with the "character and necessity"
authority), have been effectively superseded and should be disregarded
to that extent.
[155] No less a supporter of corporate autonomy than John McDiarmid
has referred to the Prison Industries Fund as a "permanent
appropriation." See John M. McDiarmid, Government Corporations and
Federal Funds, 55 (1938). On the other hand, the U.S. Court of Appeals
for the Federal Circuit, discussing 60 Comp. Gen. 323, declined to
adopt GAO's characterization of the Prison Industries Fund as an
appropriation for the purpose of determining whether jurisdiction
exists under the Tucker Act. Core Concepts of Florida, Inc. v. United
States, 327 F.3d 1331, 1337-38 (Fed. Cir. 2003). See the discussion of
these decisions in section B.1 of Chapter 2.
[156] An illustrative case of the Corporation's activities under this
authority is Pension Benefit Guaranty Corp. v. Carter & Tillery
Enterprises, 133 E3d 1183 (9th Cir. 1998).
[157] My attention has never been drawn to an act of Congress
specifying that the laws of the land do not apply to Government
corporations merely because they are Government corporations." B-
34706, Dec. 5, 1947, at 4 (letter from Comptroller General to
committee chairman).
[158] As is probably obvious from the case law applying "character and
necessity" provisions, a "character and necessity" provision limits
the Comptroller General's role in settling the accounts of the
corporate entity. See, e.g., 64 Comp. Gen. 124 (1984); B-209585, Jan.
26, 1983; B-200103, Mar. 5, 1981.
[159] A 1935 decision, 14 Comp. Gen. 638, seemed to say the opposite
with respect to this statute, but it apparently overlooked the
significance of the "character and necessity" power, although it was
mentioned in the request for decision, and for that reason and to that
extent should be disregarded.
[160] These examples are from a series of internal GAO memoranda dated
shortly after enactment of the Government Corporation Control Act,
when GAO was refining its conduct of corporate audits.
[161] We are aware of the seemingly inconsistent discussion in 65
Comp. Gen. 226 (1986). While that case was correctly decided, some of
the discussion appears to misinterpret earlier decisions. The matter
is covered in more detail in section B.7.f of this chapter.
[162] See, e.g., Pub. L. No. 96-74, title VI, § 607(a), 93 Stat. 559,
575 (Sept. 29, 1979).
[163] For the distinctions between government corporation revolving
funds and those of agencies, see Ronald C. Moe, Managing the Public's
Business: Federal Government Corporations, S. Prt. No. 104-18, at 62
(1995).
[164] Kraft Foods Co. v. Commodity Credit Corporation, 266 E2d 254
(7th Cir.), cert. denied, 361 U.S. 832 (1959); Land O'Lakes
Creameries, Inc. v. Commodity Credit Corporation, 265 F.2d 163 (8th
Cir. 1959); Swift & Co. v. United States, 257 E2d 787 (4th Cir.),
cert. denied, 358 U.S. 837 (1958).
[165] The statute was subsequently amended to give Treasury a
permanent indefinite appropriation to purchase the necessary
currencies. International Security Assistance Act of 1978, Pub. L. No.
95-384, § 22, 92 Stat. 730, 742 (Sept. 26, 1978); see also B-129650,
Mar. 27, 1979.
[166] See B-303180, July 26, 2004, for a detailed background
description of power marketing administrations. See also GAO, Power
Marketing Administrations: Their Ratesetting Practices Compared with
Those of Nonfederal Utilities, GAO/AIMD-00-114 (Washington, D.C.: Mar.
30, 2000), at 6-8.
[167] Bonneville Project Act of 1937, Pub. L. No. 75-329, 50 Stat. 731
(Aug. 20, 1937), codified at 16 U.S.C. §§ 832-832m. As summarized in
one opinion, Bonneville's main purposes as set forth in 16 U.S.C. §
832a are "to operate and maintain the Federal electric power
transmission system in the Pacific Northwest and to market the
electric power generated by the Federal generating plants in that
area." 3 Op. Off. Legal Counsel 419 (1979). See also 16 U.S.C. § 832a.
[168] Bonneville Power Administration was transferred from the
Department of the Interior to the Department of Energy in 1977 when
the Department of Energy was created. See Pub. L. No. 95-91, title
III, § 302(a), 91 Stat. 565, 578 (Aug. 4, 1977), codified at 42 U.S.C.
§ 7152(a)(1)(c). See also B-303180, July 26, 2004.
[169] As discussed in more detail in Chapter 6, section E.2.g, a
revolving fund is generally a statutorily created fund in which
receipts are credited to the fund and are then available for fund
purposes without the need for further appropriation. However, BPAs
revolving fund is "subject to such limitations as may be prescribed by
any applicable appropriation act effective during such period as may
elapse between [the funds] transfer and the approval by the Congress
of the first subsequent annual budget program of the [BPA]
Administrator." 16 U.S.C. § 838i(a).
[170] For more information on the relationship between Bonneville and
WPPSS, see GAO, GAO Products on Bonneville Power Administration, RCED-
93-133R (Washington, D.C.: Mar. 31, 1993), at enclosure VII; The
Bonneville Power Administration's Oversight Activities Related to
Washington Public Power Supply System, No. 123637 (Washington, D.C.:
Mar. 12, 1984) (testimony); Bonneville Power Administration and Rural
Electrification Administration Actions and Activities Affecting
Utility Participation in Washington Public Power Supply System Plants
4 and 5, GAO/EMD-82-105 (Washington, D.C.: July 30, 1982).
[171] Much of Amtrak's legislation was transferred from title 45 of
the United States Code to title 49 as part of a 1994 recodification.
While 45 U.S.C. § 1104(1) still defines Amtrak as the National
Railroad Passenger Corporation, the recodified provisions in title 49
have dropped that designation and use only "Amtrak." See the
codifier's note to 49 U.S.C. § 24101.
[172] The version in effect immediately prior to the 1994
recodification said that Amtrak will not be "an agency,
instrumentality, authority, or entity, or establishment" of the United
States. 45 U.S.C. § 541 (1988). The Amtrak Reform and Accountability
Act of 1997 amended 49 U.S.C. § 24301(a)(3) to specify that Amtrak
"shall not be subject to title 31." Pub. L. No. 105-134, § 415(d)(1),
111 Stat. 2570, 2590 (Dec. 2, 1997). That same year, however, the
annual appropriation act provided that "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. § 1341," the Antideficiency Act. Department of
Transportation and Related Agencies Appropriations Act, 1988, Pub. L.
No. 105-66, 111 Stat. 1425, 1435 (Oct. 27, 1997).
[173] Pub. L. No. 91-518, § 804.
[174] Pub. L. No. 105-134, § 415(d)(2), which amended 31 U.S.C. § 9101
to delete Amtrak from the list of agencies statutorily defined as
mixed-ownership government corporations for purposes of title 31 of
the United States Code.
[175] Section 24301(a)(1) was amended by Pub. L. No. 105-134, § 401,
to clarify Amtrak's relationship to the Interstate Commerce Act. See
H.R. Rep. No. 105-251, at 36 (1997).
[176] These are the amounts before an across-the-board rescission that
was enacted as part of the Department of Defense Appropriations Act,
2006, Pub. L. No 109-148, § 3801, 119 Stat. 2680, 2791-92 (Dec. 30,
2005).
[177] Pub. L. No. 92-316, § 1(a), 86 Stat. 227 (June 22, 1972).
[178] Pub. L. No. 100-342, § 18(c), 102 Stat. 624, 636 (June 22, 1988).
[179] Sometimes, dealing with GAO case law can be a complicated,
confusing, and even daunting task. For one thing, in the past GAO
sometimes reused "B" file designations for similar subjects—counting
on "subnumbers" like (2) and dates to distinguish between different
cases. This made proofing this manual difficult and careful reading of
it critical. For example, in the preceding textual discussion of
Amtrak, how many different GAO items with the B-file designation "B-
175155" can you find? (Hint: There are 11.)
[180] For ease of discussion in this section, we will use the term
"government corporation" to refer generically to the various corporate
devices discussed in section B.2 of this chapter unless a more
specific term is warranted.
[181] GAO observed in 1943 that "there can not be stated any broad
generality that persons employed by the Government's corporations are
or are not employees of the United States for all purposes." B-37559,
Nov. 5, 1943, at 3, quoted in 23 Comp. Gen. 815, 816 (1944). A
commentator wrote in 1995 that approximately one half of the
government corporations were subject to the civil service laws and
that the exemptions, "both partial and complete," were "numerous and
complex." That statement has retained its veracity. Ronald C. Moe,
Managing the Public's Business: Federal Government Corporations, S.
Prt. No. 104-18, at 56 (1995).
[182] Under an earlier version of the statute without the explicit
definition, the Court of Claims had held that the United States
Shipping Board Emergency Fleet Corporation was a private corporation
and not part of the government for purposes of the dual compensation
laws. Dalton v. United States, 71 Ct. Cl. 421 (1931). Apart from the
statutory changes, the case can be disregarded, even though not
directly overruled, because it was one of the rare instances in which
Congress refused to appropriate funds to pay the judgment. See First
Deficiency Act, 1932, Pub. L. No. 72-5, title II, § 3, 47 Stat. 15, 28
(Feb. 2, 1932); 23 Comp. Gen. 815, 817 (1944).
[183] As noted earlier, a government corporation empowered to
determine the character and necessity of its expenditures, as was the
Tennessee Valley Authority in this case, is not required to follow the
government's policy on personal service contracts. Intimations to the
contrary notwithstanding, the contract in B-222334 was objectionable,
not because it was a personal services contract per se, but because it
was used to circumvent the statutory restriction on compensation.
[184] The Farm Security and Rural Investment Act of 2002, Pub. L. No.
107-171, § 6201(a), 116 Stat. 134, 418 (May 13, 2002), repealed the
authorization for the Alternative Agricultural Research and
Commercialization Corporation, but we include this for illustrative
purposes.
[185] Earlier decisions to the contrary, such as 14 Comp. Gen. 527
(1935) and 14 Comp. Gen. 822 (1935), must be regarded as implicitly
overruled by the decisions cited in the text. Why this was not done
explicitly is not clear.
[186] The Property Act addresses property management as well as
procurement. The property management portions are located in title 40
of the United States Code, along with the definitions, now found in 40
U.S.C. §§ 102(4) and (5). Placing the operative provisions in more
than one title of the United States Code does not change the
application of the statutory definitions.
[187] Amtrak will be dropped from the statutory coverage when it is
able to operate for a fiscal year without federal subsidy. Pub. L. No.
105-134, § 409, 111 Stat. 2570, 2586 (Dec. 2, 1997).
[188] Actually, the FMFIA was repealed by Public Law 97-452, § 4b, 96
Stat. 2467, 2480 (Jan. 12, 1983), but its operative provisions were
codified at 31 U.S.C. §§ 3512(c) and (d).
[189] The Comptroller General's standards are commonly referred to as
the "Green Book." GAO, Standards for Internal Control in the Federal
Government, GAO/AIMD-00-21.3.1 (Washington, D.C.: Nov. 1999).
[190] OMB Cir. No. A-123, Management's Responsibility for Internal
Control (Dec. 21, 2004).
[191] In fact, the Office of 191 This report is available at
[hyperlink, http://www.gao.gov/financial/fy2005financialreport.html]
(last visited Nov. 28, 2007).
[192] Pub. L. No. 86-249, 73 Stat. 479 (Sept. 9, 1959).
[193] Pub. L. No. 91-646, 84 Stat. 1894 (Jan. 2, 1971).
[194] Legislation in 1989 largely privatized Freddie Mac and severed
most of its federal ties. We cite Rocap merely to illustrate the kinds
of factors that influenced the court. The holding is no longer
directly applicable. See American Bankers Mortgage Corp. v. Federal
Home Loan Mortgage Corp., 75 E3d 1401, 1408 (9th Cir.), cert. denied,
519 U.S. 812 (1996).
[195] For an explanation of this citation format, see Chapter 1,
section E.2.d, n.78.
[196] For ease of discussion in this section, we will use the term
"government corporation" to refer generically to the various corporate
devices discussed in section B.2 of this chapter unless a more
specific term is warranted.
[197] 16 U.S.C. § 831h(b); B-124078, June 7, 1955. Naturally, the GAO
decisions and opinions we cite involve claims submitted to GAO during
the 75-year span that GAO possessed the general claims settlement
authority. While GAO is no longer directly involved in the process,
the principles themselves remain sound. For details of the transfer of
the general claims settlement authority, see B-275605, Mar. 17, 1997,
and Chapter 14, section B.
[198] U.S.C. § 832a(f); B-129395, Jan. 22, 1957; B-132855-0.M., Oct.
1, 1957.
[199] The linguistic change resulting from the 1948 recodification of
title 28 presumably works no substantive change.
[200] As of at least 1927, the Shipping Board still held all of the
stock. See United States ex rel. Skinner & Eddy Corp. v. McCarl, 275
U.S. 1, 5 (1927).
[201] There are cases where qui tam plaintiffs attempted to file False
Claims Act actions against government corporations, but the courts
rejected such claims. For example, the D.C. Circuit rejected a qui tam
action alleging that the Federal Prison Industries (FPI) was filing
false claims against the United States, because the claim was barred
by FPI's sovereign immunity. Galvan v. Federal Prison Industries,
Inc., 199 F.3d 461 (D.C. Cir. 1999). See also Wood ex rel. United
States v. American Institute in Taiwan, 286 F.3d 526 (D.C. Cir. 2002).
[202] The summary treatment in Sloan, 258 U.S. at 570, did not cite
the priority statute but the lower court opinion, which Sloan
affirmed, did. See In re Eastern Shore Shipbuilding Corp., 274 F. 893
(2nd Cir. 1921), aff'd, 258 U.S. 549 (1922).
[203] We note that the sue-or-be-sued clause at issue in C.H. Sanders
has been amended since the case was decided. See 12 U.S.C. § 1701q.
Although the clause has been superseded (see United American Inc. v.
N.B.C.-U.S.A. Housing Inc. Twenty Seven, 400 F. Supp. 2d 59, 6365
(D.C. Cir. 2005)), the proposition for which the case is cited (i.e.,
waiver of sovereign immunity by a sue-or-be-sued clause) has not been
disturbed.
[204] Under section 1304 of title 31, United States Code, a permanent
appropriation, commonly know as the Judgment Fund, was created to pay
judgments against the United States when, among other things, "the
payment is not otherwise provided for." If an appropriation or fund
under the control of the agency involved in the litigation is legally
available to satisfy a particular judgment, then the judgment
appropriation may not be used. See, e.g., 62 Comp. Gen. 12 (1982); B-
236414, Feb. 22, 1991; B-211389, July 23, 1984.
[205] Compare 26 Comp. Gen. 907 (1947) (finding that a sue-and-be-sued
clause did not authorize collection of an FHA employee's federal tax
indebtedness); 19 Comp. Gen. 798 (1940) (finding that a sue-and-be-
sued clause did not authorize the FHA to purchase insurance to cover
potential tort liability).
[206] The Civil Rights Act has been amended to allow interest on
judgments against the United States since Shaw was decided. See Pub.
L. No. 102-166, § 114, 105 Stat. 1071, 1079 (Nov. 21, 1991). While the
statutory provision at issue in the case has been superseded (see
Landgraf v. U.S.I. Film Products, 511 U.S. 244, 251 (1994)), the
proposition for which the case is cited (i.e., the need for an express
waiver of immunity from an interest award) has not been overturned.
[207] The U.S. Postal Service is an independent establishment of the
executive branch. 39 U.S.C. § 201. However, it shares many
characteristics of government corporations including commercial or
business-type operations and a sue-and-be-sued clause. 39 U.S.C. § 401.
[208] A federal instrumentality is also immune from state and local
taxation if it is "so assimilated by the Government as to become one
of its constituent parts." United States v. Township of Muskegon, 355
U.S. 484, 486 (1958) (here state taxation was not unconstitutional as
applied to a corporation which was permitted to use government
property in the performance of government contracts because the
government had no control over the activities of the corporation or
any other interest which would make the corporation part of the
government). The Supreme Court has added that tax immunity for a
federal instrumentality is appropriate when the agency or
instrumentality is "so closely connected to the Government that the
two cannot be realistically viewed as separate entities, at least
insofar as the activity being taxed is concerned." United States v.
New Mexico, 455 U.S. 720, 735 (1982).
[209] The United States' immunity from state and local taxation is
discussed in Chapter 4, section C.15.
[210] The Pittman case involved the Home Owners' Loan Corporation, a
wholly owned and controlled government corporation, upon whose
mortgages the state of Maryland imposed a tax. The act establishing
the Home Owners' Loan Corporation provided that it, its franchises,
capital, reserves, surplus, loans and income shall be exempt from all
state and municipal taxes.
[211] Other examples include, but are not limited to, 7 U.S.C. § 1511
(Federal Crop Insurance Corporation); 22 U.S.C. § 2199(j) (Overseas
Private Investment Corporation); 33 U.S.C. § 986 (Saint Lawrence
Seaway Development Corporation); 29 U.S.C. § 1302(g) (Pension Benefit
Guarantee Corporation).
[212] Act of January 22, 1932, § 10, 47 Stat. 10, as amended by Act of
June 10, 1941, § 3, 55 Stat. 248.
[213] See Ronald C. Moe, Managing the Public Business: Federal
Government Corporations, S. Prt. No. 104-18, at 29 (1995) (Moe 1995).
[214] Energy Policy Act of 1992, Pub. L. No. 102-486, title IX, § 901,
106 Stat. 2776, 2937-38 (Oct. 24, 1992), repealed by United States
Enrichment Corporation Privatization Act, Pub. L. No. 104-134, title
III, § 3116(a)(1), 110 Stat. 1321, 1321-349 (Apr. 26, 1996).
[215] Pub. L. No. 104-134, §§ 3101-3117.
[216] For a more detailed discussion on this, see Moe 1995, at 19-22.
[217] For a more detailed discussion on this, see Moe 1995, at pages
22-26.
[218] Pub. L. No. 104-106, div. C, title )00CV, § 3522(a), 110 Stat.
186, 638 (Feb. 10, 1996), codified at 22 U.S.C. § 3611.
[219] Jurisdiction of U.S. Courts, Nonappropriated Fund Activities:
Hearings on S. 980 Before Subcommittee No. 4 of the House Committee on
the Judiciary, 91st Cong., Pt Sess. 9 (1969), quoted in McDonald's
Corp. v. United States, 926 F.2d 1126, 1129-30 (Fed. Cir. 1991).
[220] GAO, Magnitude of Nonappropriated Fund and Related Activities in
the Executive Branch, FPCD-77-28 (Washington, D.C: Apr. 25, 1977).
[221] Michael Francis Noone, Legal Problems of Non-Appropriated Funds,
Mil. L. Rev. Bicentennial Issue, 357, 361 (1975). This article was
originally published as appendix 1 of the Senate Judiciary Committee,
Hearings on S. 3163, Subcommittee on Improvements in Judicial
Machinery, 90th Cong. 2nd Sess. 201, 203-08 (1968). We will cite to
pages in Noone's Military Law Review article.
[222] Stephen Castlen, Let the Good Times Role: Morale, Welfare, and
Recreation Operations, Army Lawyer 3, 6 (1996).
[223] The term "sutler" means a small vendor, derived from the word
"soltelen" which means to befoul or perform mean duties. Noone, at 361.
[224] Id.
[225] Id.
[226] Winthrop's Military Law and Precedents, American Articles of War
of 1775, Article LXVI, 953, 958 (2nd ed., 1920 reprint) (Winthrop).
[227] Paul J. Rover, Legal Aspects of Nonappropriated Fund Activities,
1 Mil. L. Rev. 95, 96 (1958).
[228] Winthrop, Art. XXXII, LXIV, LXV, and LXVI, at 956, 958.
[229] Id., Art. XXXII, at 956.
[230] Id., Art. LXIV, at 958.
[231] Id., Art. LXV, at 958.
[232] Id., Art LXVI, at 958.
[233] Id., Art. II, at 953.
[234] Id.
[235] Castlen, at 6.
[236] Id. at 6.
[237] E.g., Act of June 12, 1858, ch. 156, § 5, 11 Stat. 332, 336
(repealed the legislation depriving sutlers of the right to have a
lien on a soldier's pay); Act of December 24, 1861, ch. 4, § 3, 12
Stat. 331 (abolished the sutlers right to have a lien on a soldier's
pay).
[238] This act authorized the establishment of post traders at certain
posts on the frontier not in the vicinity of any city or town when, in
the Secretary of War's judgment, such posts were necessary to
accommodate emigrants, freighters, and other citizens. In 1876,
Congress authorized the Secretary of War to appoint post traders at
all military posts regardless of location. Act of July 24, 1876, 19
Stat. 100.
[239] This law is now codified at 10 U.S.C. § 4779(b).
[240] Nonappropriated Fund Activities: Hearings on S. 980 Before
Subcommittee No. 4 of the House Committee on the Judiciary, 91' Cong.,
Pt Sess. 18-19 (1969), quoted in McDonald's Corp. v. United States,
926 F.2d 1126, 1130 (Fed. Cir. 1991) (statement made in discussion of
amending the Tucker Act, 28 U.S.C. § 1491, to waive sovereign immunity
for all nonappropriated fund instrumentalities, not only those
administered by the Department of Defense).
[241] Pub. L. No. 93-604, § 301, 88 Stat. 1959, 1961-62 (Jan. 2,
1975), codified at 31 U.S.C. § 3525.
[242] There has been some controversy over what constitutes a
continuing permanent, indefinite appropriation, a discussion of which
is contained in Chapter 2, section B.1.
[243] Serving the MWR needs of the armed forces members and their
families with goods and merchandise purchased through NAFIs is not
limitless. NAFIs provide items and services for personal consumption,
not for business, profit-making motives. See generally Covill v.
United States, 959 E2d 58, 59 (6th Cir. 1992) (noting that a Coast
Guard warrant officer received a punitive letter of reprimand because
he purchased merchandise from an armed forces NAFI purportedly for
personal use, but instead used the merchandise in his restaurant where
he sold it at retail to the general public).
[244] For a further discussion of these decisions, see Chapter 2,
section B.1.
[245] Michael Francis Noone, Legal Problems of Non-Appropriated Funds,
Mil. L. Rev. Bicentennial Issue, 357, 359 (1975).
[246] In 1970, Congress waived sovereign immunity for contract claims
arising against some NAFIs, including NAFIs closely affiliated with
the Army and Air Force Exchange Service, Navy Exchanges, Marine Corps
Exchanges, Coast Guard Exchanges, and Exchange Councils of the
National Aeronautics and Space Administration. Pub. L. No. 91-350, 84
Stat. 449 (July 23, 1970), codified at 28 U.S.C. § 1491. See also
McDonald's Corp. v. United States, 926 F.2d 1126, 1132-33 (Fed. Cir.
1991).
[247] Congress also has appropriated advances for the establishment of
nonappropriated fund instrumentalities (NAFIs) which were to be repaid
to the Treasury. See B-156167, July 18, 1967 (advanced appropriations
to Midshipmen's Store Fund, a NAFI, to acquire a dairy farm). In some
cases, Congress later repealed the requirement that a NAFI repay the
Treasury the sums advanced. Id.
[248] Section 2491a(b) exempts from this prohibition golf courses at
installations outside the United States or at remote and isolated
locations as designated by the Secretary of Defense.
[249] B-277905 refers to 10 U.S.C. § 2246(a) as the statutory
prohibition. In 2004, section 2246 was renumbered to be section 2491a.
Pub. L. No. 108-375, div. A, title VI, § 651(d), 118 Stat. 1811, 1972
(Oct. 28, 2004).
[250] Unnumbered case dated February 21, 1975, found in GAO Manuscript
Volume 642, part B, appendix 10.
[251] Pub. L. No. 98-369, div. B, title VII, 98 Stat. 494, 1175 (July
18, 1984), codified in scattered sections of titles 10, 31, and 41,
United States Code.
[252] Pub. L. No. 80-413, 62 Stat. 21 (Feb. 19, 1948), codified at 10
U.S.C. §§ 2202, 2301-2314, 2381, 2383.
[253] Pub. L. No. 89-508, 80 Stat. 308 (July 19, 1966), codified at 31
U.S.C. §§ 3701-3733.
[254] Pub. L. No. 97-365, 96 Stat. 1749 (Oct. 25, 1982).
[255] Pub. L. No. 104-134, § 31001, 110 Stat. 1321, 1321-358 (Apr. 26,
1996).
[256] See, e.g., Department of Defense Instruction 1015.08, DoD
Civilian Employee Morale, Welfare, and Recreation Activities (MWR) and
Supporting Nonappropriated Fund Instrumentalities (NAFI) (Dec. 3,
2005); Department of Defense Directive 1015.2, Military Morale,
Welfare, and Recreation, June 14, 1995; Department of Defense
Financial Management Regulation 7000.14-R, vol. 13, Nonappropriated
Funds Policy and Procedures (Aug. 1994); Army Regulation 215-1,
Military Morale, Welfare, and Recreation Programs and Nonappropriated
Fund Instrumentalities, (Oct. 24, 2006); Army Regulation 215-4,
Nonappropriated Fund Contracting (Mar. 11, 2005).
[257] The General Accounting Office Act of 1974, Pub. L. No. 93-604, §
301, 88 Stat. 1959, 1961 (Jan. 2, 1975), codified at 31 U.S.C. § 3525.
[258] In the recodification of this provision in Pub. L. No. 97-258,
96 Stat. 963 (Sept. 13, 1982), the words "military or other ... such
as the Army and Air Force Exchange Service, Navy Exchanges, Marine
Corps Exchanges, Coast Guard Exchanges, Exchange Councils of the
National Aeronautics and Space Administration, commissaries, clubs,
and theaters" were omitted as surplus. See 31 U.S.C. § 3525, Revision
Notes.
[259] These elements include whether: (1) the activity was established
under the authority or sanction of a government agency with or without
an initial advance of government funds; (2) the activity is created
and run by government officers or employees and/or their dependents;
(3) the activity is operated for the benefit of government officers or
employees and/or their dependents; and (4) the operations of the
activity are financed by the proceeds therefrom rather than by
appropriations. B-167710-0.M., May 6, 1976.
[260] Pub. L. No. 98-369, div. B, title VII, 98 Stat. 494, 1175 (July
18, 1984). GAO's bid protest responsibilities under CICA are codified
at 31 U.S.C. §§ 3551-3556.
[261] Legally these funds were offsetting collections, a permanent,
indefinite appropriation. See the discussion of various types of
budget authority in Chapter 2, section A.2.
[262] In B-188770, GAO expressly overruled prior bid protest decisions
to the extent that these prior decisions held that commissary funds
were nonappropriated and that GAO would not consider protests
involving procurements financed with such funds.
[263] The Property Act defines a federal agency as an executive agency
or an establishment in the legislative or judicial branch of the
government (except the Senate, the House of Representatives, and the
Architect of the Capitol, including any activities under the
Architect's direction). 40 U.S.C. § 102(5). This definition of a
federal agency is adopted in CICA at 31 U.S.C. § 3551(3), and appears
in GAO's bid protest regulations at 4 C.F.R. § 21.0(c).
[264] This also had the effect of removing any immunity previously
enjoyed by private concessionaires located on military installations
since they are not instrumentalities of the United States. Stephen
Castlen, Let the Good Times Role: Morale, Welfare, and Recreation
Operations, Army Lawyer 3, 11 n.69 (1996).
[265] Standard Oil v. Johnson, 316 U.S. 481 (1942).
[266] Public Law 82-397 is codified at 5 U.S.C. § 2105(c) and
incorporated within the Civil Service Reform Act of 1978.
[267] Pub. L. No. 95-454, 92 Stat. 1111 (Oct. 13, 1978).
[268] For a detailed discussion of the Civil Service Reform Act, see
Fausto, 484 U.S. at 443-47.
[269] But compare Helsabeck v. United States, 821 E Supp. 404
(E.D.N.C. 1993), in which the district court held that the Civil
Service Reform Act did not preclude judicial review of a claim for
nonmonetary damages against the government by an employee for the
Cherry Point Marine Air Station food service for procedures used to
discharge him. While the court permitted the plaintiff to amend his
complaint with respect to nonmonetary claims, it did not specify what
the nature of the review would be. There is no subsequent history of
the case to determine what, if anything, the plaintiff did as a
result, so we are unable to infer what effect this would have on NAFI
employee rights.
[270] In the Bivens case, the Supreme Court held that an individual
citizen was entitled to sue for damages for alleged constitutional
deprivations by a government official. Bivens, 403 U.S. at 396-97. The
Bivens remedy, it should be noted, runs against the offending official
in his private capacity, not against the government.
[271] Pub. L. No. 101-12, 103 Stat. 16 (Apr. 10, 1989), codified at 5
U.S.C. §§ 1201-1222.
[272] Pub. L. No. 103-3, 107 Stat. 6 (Feb. 5, 1993), codified at 28
U.S.C. §§ 2601-2654. 273 Pub. L. No. 95-454, 92 Stat. 1111 (Oct. 13,
1978), codified as amended in scattered sections of title 5, United
States Code.
[274] The General Services Administration Board of Contract Appeals
concluded that an employee transferring from an armed forces NAFI to a
civilian agency was entitled to relocation expenses under the 1996
law. See In the Matter of Emma Jane Medina, GSBCA No. 16,136, 04-1
B.C.A. ¶ 32,423 (2003); In the Matter of Kenneth A. Hack, GSBCA No.
15,758, 02-2 B.C.A. ¶ 31,926 (2002).
[275] Section 5532 was repealed, effective October 1, 1999. Pub. L.
No. 106-65, div. A, title VI, § 656(a)(1), 113 Stat. 512, 664 (Oct. 5,
1999). We mention this provision nevertheless because the cases which
apply it also apply other dual compensation provisions. Both those
cases and the other dual compensation statutory provisions remain
valid.
[276] See National Intelligence"; Smithson Legacy, May 2, 1836,
available at [hyperlink, http://www.sil.si.edu/Exhibitions/Smithson-to-
Smithsonian/natinte3.html] (last visited Nov. 28, 2007) (congressional
debates focused on whether sovereign governments can accept funds in
trust).
[277] These privately owned trust funds are not included in budget
totals and are referred to as deposit funds. See generally Analytical
Perspectives, Budget of the United States Government for Fiscal Year
2008 (Feb. 5, 2007), at 342, 359, available at [hyperlink,
http://www.whitehouse.gov/omb/budget/fy2008] (last visited Nov. 28,
2007).
[278] That same court, however, cautioned the district court below
against abstracting common law trust duties from any federal statutory
basis or simply copying a list of common law trust duties from the
Restatement of Trusts and imposing them on federal trustees. Cobell,
392 E3d at 471.
[279] Compare 1 TFM 2-1520, which breaks down the accounts into three
classifications: general funds, trust funds, and special funds.
[280] The fact that other general authority would provide for the
moneys in the fund to be accounted for and disbursed as trust funds
does not affect their classification where Congress has specifically
provided for deposit of the funds in a special deposit account. 16
Comp. Gen. 940 (1937).
[281] See GAO, Federal Trust and Other Earmarked Funds, GAO-01-199SP
(Washington, D.C.: Jan. 2001), for a discussion of the composition of
trusts and other earmarked funds, including their treatment in the
federal budget process.
[282] The Social Security and Medicare programs are each funded out of
two trust funds—Social Security from the Federal Old-Age and Survivors
Insurance Trust Fund and the Federal Disability Trust Fund, and
Medicare from the Federal Hospital Insurance Trust Fund and the
Federal Supplementary Medical Insurance Trust Fund. 42 U.S.C. §§
401(h), 1395i, 1395t.
[283] "When I use a word ... it means just what I choose it to mean—-
neither more nor less." Spoken by Humpty Dumpty in Lewis Carroll,
Alice's Adventures in Wonderland and Through the Looking Glass 213
(1871) (reprinted Holt Rinehart, and Winston, 1961).
[284] Under the General Allotment Act, the federal government had
allotted all of the Reservation's land in trust to individual Indians,
or "allottees."
[285] Congress's power under the Indian Commerce Clause, U.S. Const.
art. I, § 8, cl. 3, however, is not limited by this general trust
relationship with Indians. Lac Courte Oreilles Band of Lake Superior
Chippewa Indians v. United States, 367 F.3d 650, 665-67 (7th Cir.
2004), cert. denied, 543 U.S. 1051 (2005). In that case, the court
rejected the Tribe's argument that a gubernatorial concurrence
provision in the Indian Gaming Regulations Act, 25 U.S.C. §
2719(b)(1)(A), violated the federal government's trust responsibility
to Indians and rejected the Tribes argument that all Indian
legislation enacted pursuant to the Indian Commerce Clause, which
confers "plenary power to legislate in the field of Indian affairs" to
Congress, must be rationally related to furthering that trust
relationship. Id.
[286] Beginning in fiscal year 2000 the federal budget no longer
included funds that are owned by Indian tribes but are held and
managed in a fiduciary capacity by the government on behalf of the
tribes. These Indian tribal funds were included in the budget totals
beginning with the adoption of the unified budget in 1969 through
fiscal year 1999 under the generic title "tribal trust funds." See
GAO, Federal Trust and Other Earmarked Funds: Answers to Frequently
Asked Questions, GAO-01-199SP (Washington, D.C.: Jan. 2001), at 8.
[287] For more information on the Indian trust litigation, see Ross 0.
Swimmer, Separating Fact from Fiction: The Department of the Interior
and the Cobell Litigation, 33-SPG Hum. Rts. 7 (2006); Jamin B. Raskin,
Professor Richard J. Pierce's Reign of Error in the Administrative Law
Review, 57 Admin. L. Rev. 229 (2005).
[288] For more on a trustee's "duty to invest," see section D.5 of
this chapter.
[289] See also Hohri v. United States, 782 F.2d 227, 243-44 (D.C. Cir.
1986), vacated and remanded on jurisdictional grounds, 482 U.S. 64
(1987) (neither narrow regulatory obligations or alleged contractual
commitments impose fiduciary obligations on the United States with
respect to Japanese-American internees during World War II); Han v.
United States, 45 E3d 333 (9th Cir. 1995) (United States has no
general fiduciary obligation to bring suit against the State of Hawaii
for alleged breach of trust obligations owed by the state to native
Hawaiians).
[290] There can be no doubt that the government has fiduciary
obligations with respect to the Prisoners' Trust Fund and VA Patient
Funds mentioned above. Yet, we wonder: Do those funds really
constitute "trusts" or are they "bailments"? Cf. B-153479, Apr. 15,
1964 (funds in the Prisoners' Trust Fund at issue regarded as held in
bailment not trust). As OLC observed, fiduciary relationship can arise
in many different contexts. This is important because, as OLC also
observed quoting Restatement (Second) of Trusts § 2, comment b,
(1959), at 7, "the duties of a trustee are more intensive than the
duties of some other fiduciaries." May 22, 1995, OLC Opinion, at n.5.
For one thing, no one has held—so far—that the government has a duty
to invest those funds and make them productive. See section D.5 of
this chapter.
[291] Given the nature of these accounts, GAO recommended removal of
the fund from the federal budget. B-227344, May 29, 1987. And, it was
done. See Analytical Perspectives, Budget of the United States
Government for Fiscal Year 2001 (Feb. 2000), at 377. Beginning in
fiscal year 2000, the federal budget also excludes funds owned by
Indian tribes but held in trust by the government. As the notes to the
federal budget explains, "the transactions of these funds are not
transactions of the Government itself." Id. The Budget notes refer to
these (and the Thrift Savings Fund moneys) as "deposit Funds." Id.
[292] A bailment is a "species" of trust. 8 C.J.S. Bailments § 1
(2005). A bailment arises when the owner delivers personal property to
another for some particular purpose upon an express or implied
contract to redeliver the property when the purpose of the bailment
has been fulfilled. 53 Comp. Gen. 607, 609 (1974). Unlike a trust
where title to the trust corpus passes to the trustee, in a bailment,
title to the bailed property does not transfer. 8 C.J.S. Bailments §
32. The level of care required of a bailee depends on whether the
bailment is for the benefit of the bailee, the bailor, or for their
mutual benefit. Id. § 58. Though not treated as fiduciaries for all
purposes, bailees have long been included within "the more general
class of fiduciaries" since they hold a thing in trust for another.
E.g., In re Holman, 42 B.R. 848, 851 (1984). See also United States v.
Kehoe, 365 E Supp. 920, 922 (S.D. Tex. 1973) ("It was this failure of
the common law to provide any criminal remedy for these breaches of
trust ... on the part of ... bailees, trustees, and other persons
occupying fiduciary positions that led to the enactment of the present
Penal Code provision dealing with embezzlement.") quoting 21 Tex. Jur.
2d, Embezzlement and Conversion § 2, at 579-80 (1961) (emphasis added).
[293] Cf. 4 First Comp. Dec. 457, 458 (1883), citing United States v.
Morris, 23 U.S. (10 Wheat.) 246, 303 (1825) ("The Government cannot,
without its authorized express consent, be forced to occupy the
position of a trustee.").
[294] Pub. L. No. 86-380, 73 Stat. 703 (Sept. 24, 1959).
[295] Pub. L. No. 104-52, 109 Stat. 468, 480 (Nov. 19, 1995).
[296] Pub. L. No. 104-169, 110 Stat. 1482, 1487 (Aug. 3, 1996).
[297] An argument has been made that funds held in trust and expended
pursuant to the permanent appropriation of moneys "accruing to these
trust funds" contained in the Permanent Appropriation Repeal Act of
1934, 31 U.S.C. § 1321(b), are appropriated funds subject to the laws
governing the obligation and expenditure of any other appropriated
funds. See Soboleski v. Commissioner, 88 T.C. 1024, 1034 (1987), affd,
842 F.2d 1292 (4th Cir. 1988).
[298] Cf. B-153479, Apr. 15, 1964 (prisoners' trust funds).
[299] In B-274855, Jan. 23, 1997, for example, GAO noted that:
"Donations are accounted for as trust funds and must be deposited in
the Treasury as such under 31 U.S.C. § 1323(c), to be disbursed in
accordance with the terms of the trust and the scope of the agency's
statutory authority. Although contributions to [the Advisory
Commission on Intergovernmental Relations] have been maintained
separately from direct appropriations and held in a 'trust fund
account' to carry out authorized purposes, they are not `held in
trust' as those words are commonly used to describe a fiduciary
relationship to keep money for the benefit of another."
[300] Debt held by the government, about $8.5 trillion at the
beginning of fiscal year 2007, primarily reflects debt owned by
federal trust funds, such as the Social Security trust funds. GAO,
Bureau of the Public Debt's Fiscal Years 2006 and 2005 Schedule of
Federal Debt, GAO-07-127 (Washington, D.C.: Nov. 7, 2006), at 3-4.
[301] See generally GAO-05-193SP; GAO, Disability Insurance: SSA
Should Strengthen Its Efforts to Detect and Prevent Overpayments, GAO-
04-929 (Washington, D.C.: Sept. 10, 2004); Social Security Reform:
Analysis of a Trust Fund Exhaustion Scenario, GAO-03907 (Washington,
D.C.: July 29, 2003).
[302] The Highway Trust Fund actually contains two accounts. The
oldest and most well-known of the two accounts is the highway account.
The other, more recent account is the Mass Transit Account, 26 U.S.C.
§ 9503(e).
[303] Department of Transportation, Highway Trust Fund Primer (Nov.
1998), at 1, available at [hyperlink,
http://www.fhwa.dot.gov/aap/PRIMER98.PDF] (last visited Nov. 28, 2007).
[304] Budget of the United States Government for Fiscal Year 2006,
Appendix (Feb. 7, 2005), at 807, available at [hyperlink,
http://www.whitehouse.gov/omb/budget/fy2006] (last visited Nov. 28,
2007).
[305] For more information on the history and operation of the Highway
Trust Fund, see GAO, Highway Trust Fund: Overview of Highway Trust
Fund Estimates, GAO-06-572T (Washington, D.C.: Apr. 4, 2006); Federal-
Aid Highways: Trends, Effect on State Spending, and Options for Future
Program Design, GAO-04-802 (Washington, D.C.: Aug. 31, 2004); Highway
Financing: Factors Affecting Highway Trust Fund Revenues, GAO-02-667T
(Washington, D.C.: May 9, 2002); and Highway Trust Fund: Overview of
Highway Trust Fund Financing, GAO-02-435T (Washington, D.C.: Feb. 11,
2002). See also Library of Congress, Congressional Research Service
(CRS), The Federal Excise Tax on Gasoline and the Highway Trust Fund:
A Short History, No. RL30304 (Apr. 4, 2006).
[306] A better sense of what it means to be "off budget" can be
gleaned from the statutory provision prescribing the budgetary
treatment of the Postal Service Fund. 39 U.S.C. § 2009a. Section 2009a
directs that the receipts and disbursements of the Postal Service Fund
shall be excluded from the budget totals, exempt from any statutory
budget limitations, and exempt from sequestration orders under the
Balanced Budget and Emergency Deficit Control Act of 1985. For
additional discussion, see the CRS reports Social Security and the
Federal Budget: What Does Social Security's Being "Off Budget" Mean?,
No. 98-422 (Aug. 29, 2001) and Appropriations for FY 2000: Department
of Transportation and Related Agencies, No. RL30208 (Feb. 4, 2000).
[End of Chapter 15]