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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.—Th