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[Comments on HUD Commercial Trade Promotion Activities]

B-229732 Published: Dec 22, 1988. Publicly Released: Dec 22, 1988.
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Highlights

GAO reviewed the Department of Housing and Urban Development's (HUD) use of appropriated funds for commercial trade promotion activities relating to an international construction exhibit held in the Soviet Union. GAO held that HUD violated the Antideficiency Act, since it did not have authority to spend appropriated funds for such activities.

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B-229732, Dec 22, 1988

APPROPRIATIONS/FINANCIAL - MANAGEMENT - Appropriation Availability - Purpose availability - Research/development funds APPROPRIATIONS/FINANCIAL - MANAGEMENT - Appropriation Availability - Purpose availability - Salary and expense funds DIGEST: 1. Department of Housing and Urban Development (HUD) appropriations for Research and Technology and for Salaries and Expenses are not available to fund programs primarily intended to promote international trade where HUD's authority to participate in international data exchange programs is limited to those mission related programs which benefit HUD in discharging its statutory responsibility to provide for the nation's housing needs. APPROPRIATIONS/FINANCIAL - MANAGEMENT - Appropriation Availability - Amount availability - Antideficiency prohibition - Violation 2. The Department of Housing and Urban Development has violated the Antideficiency Act, 31 U.S.C. Sec. 1341 (1982), where it has no funds available to fund international trade promotion programs since obligations for such activities may be viewed either as being in excess of the amount (zero) available for that purpose or as in advance of appropriations made for that purpose.

The Honorable Samuel R. Pierce, Jr.

The Secretary of Housing and Urban Development:

On August 3, 1988, in testimony before the Employment and Housing Subcommittee of the House Government Operations Committee, the General Accounting Office reported the results of its review of the commercial trade promotion activities undertaken by the Department of Housing and Urban Development (HUD) in its role as the United States executive agency for implementation of the bilateral Agreement on Cooperation in the Field of Housing and Other Construction, June 28, 1974, United States - Union of Soviet Socialist Republics, TIAS No. 7898 (Agreement). The Assistant Secretary for Policy Development and Research (PD&R) responded to our May 13, 1988 request for HUD'S position on a number of issues by letter dated June 23, 1988. We carefully considered the Assistant Secretary's responses before reporting to the Subcommittee on August 3.

Among the findings that we reported to the Subcommittee was our conclusion that HUD does not have authority to spend its appropriated funds for commercial trade promotion activities. We are now writing to advise you of the basis for this finding and to recommend, for the reasons which follow, that HUD report a violation of the Antideficiency Act to the President and to the Congress in accordance with 31 U.S.C. Sec. 1351 (1982).

BACKGROUND

HUD's commercial trade promotion efforts grew out of its role as the responsible United States agency for implementation of the Agreement. The original purpose of the Agreement was to carry out a mutually beneficial program of technical cooperative projects with the Soviet Union in housing, construction, and urban development. In 1985, HUD and its Soviet counterpart agreed to add a commercial dimension to the Agreement. HUD's agreement to engage in this new undertaking is documented in a protocol signed on September 17, 1985.
/1/ The HUD Assistant Secretary for PD&R
was then appointed as coordinator of United States commercial activities
under the Agreement and was directed to organize "a major United States
presence" at Stroyindustriya '87-- a 10-day international construction
exhibition sponsored by the Soviet government in Moscow in May 1987.

We estimate that HUD spent about $3 million for activities related to the
Agreement during fiscal years 1984 through 1987.
Over half of this amount
was spent, from fiscal year 1987 appropriations, for commercial activities
in support of the trade exhibit.
These commercial activities are to be
distinguished from HUD's traditional technical cooperative projects.

Traditional technical projects frequently involved reciprocal exchange
visits, information exchange and the development of technical papers and
seminars in a manner mutually beneficial to both the United States and the
Soviet Union.
Topics have included utility systems, construction, seismic
effects and urban development, and rehabilitation of buildings.
These
projects necessarily involved private firms with products or technological
expertise in the topic fields.
Although the participating companies
undoubtedly hoped to see business opportunities developing from their
support and participation in the program, HUD's primary purpose in
involving them was to facilitate the exchange of information related to
housing and urban planning and development which would be potentially
useful in developing new methods of meeting problems encountered with the
topic areas in the United States.

HUD's new "commercial activities," on the other hand, were primarily
intended to enhance the business opportunities of the American companies
which desired to do business in the Soviet Union.
According to
information received from HUD, after identifying key Soviet construction
and housing needs and priorities, HUD officials met with Soviet technical
experts in Moscow and reviewed catalogs from the American firms which had
expressed interest in the trade exhibition.
This review was to assure HUD
and the firms that there has Soviet interest in the U.S. products and that
they fit Soviet priorities.
In November 1986, HUD sponsored a delegation
of public and private sector executives to Moscow to conduct another
catalog show and a series of seminars designed to acquaint Soviet
officials with examples of American products and technology that would be
exhibited at Stroyindustriya '87.
The following January, HUD officials
led a delegation of U.S. business men in an advance marketing mission to
Moscow to begin negotiations on machinery, equipment and products that
would be purchased off the floor at Stroyindustriya '87.

In serving as the principal domestic organizer of U.S. participation in
Stroyindustriya '87, HUD identified, contacted, and recruited the
participating U.S. firms.
Some of the companies HUD chose to participate
in the trade show were marketing products which do not directly relate to
housing construction or to community development.
Examples of such
products include airport runway sweepers, protective playground equipment,
potato storage construction technology, add-on green houses, carpeting,
drapery hardware, and upholstered furniture.
In Moscow, HUD and its
contractors handled the details of renting the exhibition building and
other fair logistics.
During the exhibition, HUD staff worked to arrange
individual and group meetings for American exhibitors with Soviet
officials, provided directories of the participating companies, and
sponsored a reception for Soviet officials.

HUD's response to our inquiry indicates that it paid for these and other
Agreement-related activities with funds from its appropriations for
Salaries and Expenses and for Research and Technology.
HUD's response
does not cite any other appropriation which it believes to be available to
pay for activities related to trade promotion.

DISCUSSION

Section 604 of the Housing Act of 1957, as amended, 12 U.S.C. Sec. 1701d-
4 (1982), authorizes the Secretary of HUD to participate, and pay the
expenses of participation, in international conferences and other similar
activities for the purpose of exchange and assembly of information
relating to housing, urban planning, and urban development as deemed
beneficial in carrying out the Secretary's responsibilities under
legislation which he is charged to administer.
Based on our review of the
legislative history of Section 604, we conclude that the Congress intended
the exchanges to be reciprocal as well as useful in developing new methods
of meeting problems encountered in these fields in the United States.
/2/
In the absence of expanded authority in its appropriation acts, HUD's
authority under 12 U.S.C. Sec. 1701d-4, however, does not extend to
participation in international conferences or similar activities if their
purpose is not the exchange and assembly of information relating to
housing, urban planning, and urban development.

HUD's annual appropriation for Salaries and Expenses under the heading
"Management and Administration," provides funding only for "necessary
administrative and nonadministrative expenses of the Department not
otherwise provided for."
It finances all salaries and related costs
associated with administering HUD's programs.
/3/ Accordingly, so long as
(1) the Secretary of HUD deems his international activity under the
Agreement beneficial in discharging his statutory responsibilities and,
(2) those activities are for the purpose of exchanging and assembling
information which relates to housing, urban planning, and urban
development, HUD's information exchange activities in support of the
agreement may be funded from its appropriation for Salaries and Expenses.

With respect to HUD's activities under the commercial Component of the
Agreement /4/ , we examined materials issued by HUD to publicize its new
initiative and concluded that the purpose of the commercial activities
undertaken pursuant to the 1985 Protocol in support of Stroyindustriya '87
was the promotion of international trade rather than an exchange of data
related to housing and urban development.
/5/ HUD's new commercial
emphasis was illustrated by the catalog exhibits, advance marketing
missions, the exhibition itself, and follow-up activities to monitor new
business with the Soviets.
HUD described these initiatives as "a major
departure from past practice."
Expenses relating to the Agreement were
classified as either "technical" or "commercial."
On the basis of these
facts, it is clear that HUD's primary purpose for participating in
Stroyindustriya '87 and its related activities was to facilitate
commercial trade rather than to exchange technical information.
Accordingly, 12 U.S.C. Sec. 1701d-4 does not provide statutory authority
for the activities HUD undertook pursuant to the commercial component of
the agreement.
Absent such statutory authority, HUD's appropriation for
Salaries and Expenses is not available to pay for them.

The HUD Secretary's statutory responsibility to undertake "programs of
research, studies, testing, and demonstrations" under Section 501 of the
Housing and Urban Development Act of 1970, as amended, 12 U.S.C. Sec.
1701z-1 (Supp. IV 1986), is limited to those which relate to the mission
and programs of HUD.
/6/ The primary mission of HUD is stated in the
Declaration of Policy of the Housing and Urban Development Act of 1968,
Sec. 2, 12 U.S.C. Sec. 1701t (1982), in which the Congress affirmed the
national goal, as set forth in section 2 of the Housing Act of 1949, /7/
of "a decent home and suitable living environment for every American
family."
/8/

The Agreement provides for cooperation with the Soviet Union in the areas
of innovative techniques for the improvement of buildings and building
materials; performance criteria for housing and other construction in
seismic areas; improvement of construction methods in areas of extreme
climatic conditions; services to housing and other buildings; and
planning, design, and construction of new towns.
Article II, TIAS 7898.
Under 12 U.S.C. Sec. 1701z-1, HUD is authorized to participate in such
cooperative activities so long as they relate to HUD's mission of
providing for the nation's housing needs.

HUD's appropriations under the heading "Policy Development and Research:
Research and Technology" are available:

"for contracts, grants, and necessary expenses of programs of research
and studies relating to housing and urban problems, not otherwise provided
for, as authorized by title V of the Housing and Urban Development Act of
1970, as amended (12 U.S.C. Sec. 1701z-1 et seq.). ..."
/9/

Therefore, to the extent that a cooperative activity (1) relates to HUD's
mission as required by 12 U.S.C. Sec. 1701z-1 and, (2) qualifies as a
program of research and studies related to housing and urban problems,
HUD's Research and Technology appropriation is available to pay for it.

The Assistant Secretary for PD&R stated in his June 23 response to our
inquiry that HUD's participation in Stroyindustriya '87 and other trade
promotion activities grew from HUD's agreement to support a "commercial"
initiative as documented in the September 1985 protocol.
Neither the
statutes making appropriations to HUD for Research and Technology nor 12
U.S.C. Sec. 1701z-1 contains authority for HUD to undertake commercial
endeavors.
Commercial activities are not analogous to the "technical"
research, study, testing, and demonstration programs authorized by 12
U.S.C. Sec. 1701z-1 nor, do they qualify as a program of research and
study for which Research Technology appropriations are available.

Where, as here, the purpose of providing information on American
construction and building technology to the Soviets was the acquisition of
information of Soviet needs and the potential for sale of American
products and services in the Soviet Union, /10/ we cannot conclude that
the 12 U.S.C. Sec. 1701z-1 requirement for HUD's programs of research,
studies, testing and demonstrations to relate to its mission has been
satisfied.
Had the intended benefit to U.S. commerce been a by-product of
an authorized HUD research, study, or demonstration program to improve
housing in the United States, HUD's appropriations would have been
available to fund such activities.
Here, however, HUD's primary purpose
was to enhance business opportunities for American companies, many of
which marketed products to the housing industry.
Inasmuch as the
promotion of trade does not qualify as a program of Research or Study
related to housing and urban problems, HUD's Appropriations for Research
and Technology are not available for that purpose.

CONCLUSION

When an agency's appropriation is not available for a designated purpose,
and the agency has no other funds available for that purpose, any officer
of the agency who authorizes an obligation or expenditure of agency funds
for that purpose violates the Antideficiency Act.
/11/ Since the Congress
has not appropriated funds for the designated purpose, the obligation may
be viewed either as being in excess of the amount (zero) available for
that purpose or as in advance of appropriations made for that purpose.
either case the Antideficiency Act is violated.
/12/ As discusssed above,
HUD has no funds available for its trade promotion activities.
/13/ This
finding was the basis for our testimony on August 3, 1988, in which we
reported our conclusion that HUD's trade promotion activities had resulted
in a violation of the Antideficiency Act.

/1/ The September 17, 1985 Protocol provides, in relevant part:

"The Committee noted the possibility of building mutually beneficial
cooperation on a commercial basis with respect to individual project areas
and directed Working Group leaders to undertake appropriate steps for
establishing the required contacts prior to and during joint meetings."

/2/ "Section 604 of the bill directs the HUD Secretary to exchange with
other nations data relating to housing and urban planning and
development.
Because of the significant recent progress made in this
country in dealing with problems in these fields, the Secretary is very
frequently called upon to provide information to other countries which the
committee believes is helpful to those countries in solving similar
problems.
Furthermore, the committee believes that the housing and urban
planning experience of many other countries (particularly in specialized
fields) has been and will continue to be helpful to the housing industry,
the Congress, and the Secretary in developing new methods of meeting
related problems in this country."
S. Rep. No. 368, 85th Cong., 1st Sess.
31-32, reprinted in 1957 U.S. Code Cong. & Ad. News 1319, 1349.

/3/ See, e.g., Executive Office of the President, Budget of the United
States Government, 1987 - Appendix, H.R. Doc. No. 144, 99th Cong., 2d
Sess. at 1-M36 (1986).

/4/ By letter of June 23, 1988, HUD stated its position that:

"The Agreement authorizes the parties to agree to areas of cooperation
and to forms of cooperation other than those specifically mentioned in the
Agreement.
Accordingly, the two parties can, by Protocol, expand the
areas and means of cooperation so long as the cooperation continues to be
related to housing and other construction.
There is no question that the
'cooperation on a commercial basis' contemplated in the 1985 Protocol
related to housing and other construction and, even if not totally within
the scope of the original Agreement, is a means of cooperation that could
be mutually agreed upon by the parties under Article III of the
Agreement."

/5/ For example, HUD News Release No. 87-51, May 14, 1987, announced
that:

"Samuel R. Pierce, Jr., Secretary of Housing and Urban Development, will
lead a U.S. delegation of over 200 public and private sector executives to
Moscow to participate in the International Construction exhibition from
May 27 to June 5.
A total of 105 U.S. companies will be represented in
this major effort to generate Soviet commercial interest in American
construction materials and technology.
... The strong American business
participation in STROYINDUSTRIA '87 resulted from a variety of advance
marketing activities, led by Secretary Pierce and Dr. June Q. Koch, HUD
Assistant Secretary for Policy Development and Research, designed to match
Soviet priorities in the civil construction field with capabilities of
American firms.
... As a result of secretary Pierce's initiative, there
is now a significant 'commercial dimension' to the technical exchange
program under the 1974 U.S.-U.S.S.R. Agreement on Housing and other
Construction."

/6/ HUD, in response to our May 13 inquiry, noted that Section 520 of the
1970 Act:

"requires the Secretary of HUD to take measures necessary to encourage
large-scale experimentation in the use of new technologies, methods and
materials in producing housing and related facilities.
Section 502 also
authorizes the Secretary to provide advice and technical assistance in
connection with activities authorized under Section 501 and to pay the
cost of writing and printing reports concerning those activities.
Section
502 further authorizes the Secretary to carry out his responsibilities
under Section 501 either directly or by contract or grant.
Section 502
also contemplates and authorizes mutual cooperation between this
Department HUD and Federal, State and private agencies in furthering this
Department's research missions."

/7/ 42 U.S.C. Sec. 1441 (1982).

/8/ See 7 Warren, Gorham & Lamont, Housing and Development Reporter at 13
(1987).
The responsibilities of the HUD Secretary are further defined at
42 U.S.C. Sec. 3532 (1982), and include the responsibility to:

"... encourage private enterprise to serve as large a part of the
Nation's total housing and urban development needs as it can and develop
the fullest cooperation with private enterprise in achieving the
objectives of the Department; and conduct continuing comprehensive
studies, and make available findings, with respect to the problems of
housing and urban development."

/9/ Department of Housing and Urban Development-Independent Agencies
Appropriations Act, 1986, Pub.L. No. 99-160, 99 Stat. 909 (1985); Joint
Resolution making continuing appropriations for the fiscal year 1987, and
for other purposes, Pub.L. No. 100-202, approved October 30, 1986, 100
Stat. 3341-242.

/10/ See Department of Housing and Urban Development, Construction
Industry Technology of the United States: Stroyindustriya '87, "Fact
Sheet: U.S. Participation in Stroyindustriya '87."

/11/ 31 U.S.C. Sec. 1341(a) provides that:

"(1) An officer or employee of the United States Government or of the
District of Columbia government may not - (A) make or authorize an
expenditure or obligation exceeding an amount available in an
appropriation or fund for the expenditure or obligation; or (B) involve
either government in a contract or obligation for the payment of money
before an appropriation is made unless authorized by law."

/12/ 60 Comp.Gen 440 (1981).
See also, B-204270, Oct. 13, 1981.

/13/ Other than its appropriations for Research and Technology and for
Salaries and Expenses, HUD did not cite any other appropriation which it
believes to be available to pay for activities related to the promotion of
international trade.







































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