A-92117, FEBRUARY 26, 1938, 17 COMP. GEN. 687

A-92117: Feb 26, 1938

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PROJECTS - FEDERAL LOANS AND GRANTS - PAYMENT OF CASH IN LIEU OF CANCELATION OF GRANTEES' BONDS THERE IS NO OBJECTION TO THE USE OF FUNDS REALIZED BY THE FEDERAL EMERGENCY ADMINISTRATION OF PUBLIC WORKS FROM THE SALE OF SECURITIES ACQUIRED BY THE GOVERNMENT FROM GRANTEES IN CONNECTION WITH FEDERAL LOANS MADE UNDER AUTHORITY OF TITLE II OF THE NATIONAL INDUSTRIAL RECOVERY ACT. SUCH PAYMENTS ARE SUBJECT. IS AS FOLLOWS: IN CONTRACTING TO MAKE LOANS AND GRANTS OUT OF FUNDS APPROPRIATED TO CARRY OUT THE PURPOSES OF TITLE II OF THE NATIONAL INDUSTRIAL RECOVERY ACT. THE CONTRACTS INVOLVED PROVIDE THAT THE PUBLIC WORKS ADMINISTRATION WILL MAKE A CASH GRANT IN AN AMOUNT APPROXIMATELY EQUAL TO 25 PERCENT OF THE COST OF THE LABOR AND MATERIALS IT IS ESTIMATED WILL BE EMPLOYED UPON THE PROJECT.

A-92117, FEBRUARY 26, 1938, 17 COMP. GEN. 687

PROJECTS - FEDERAL LOANS AND GRANTS - PAYMENT OF CASH IN LIEU OF CANCELATION OF GRANTEES' BONDS THERE IS NO OBJECTION TO THE USE OF FUNDS REALIZED BY THE FEDERAL EMERGENCY ADMINISTRATION OF PUBLIC WORKS FROM THE SALE OF SECURITIES ACQUIRED BY THE GOVERNMENT FROM GRANTEES IN CONNECTION WITH FEDERAL LOANS MADE UNDER AUTHORITY OF TITLE II OF THE NATIONAL INDUSTRIAL RECOVERY ACT, 48 STAT. 200, FOR THE PURPOSE OF MAKING ADDITIONAL GRANT PAYMENTS TO GRANTEES UNDER THE ORIGINAL GRANT AND LOAN CONTRACTS IN LIEU OF CANCELATION OF BONDS AS PROVIDED FOR IN SUCH CONTRACTS, BUT SUCH PAYMENTS ARE SUBJECT, AS TO TOTAL AMOUNT AUTHORIZED, TO THE GRANT LIMITATIONS OF THE PUBLIC WORKS ADMINISTRATION EXTENSION ACT OF 1937, 50 STAT. 357.

ACTING COMPTROLLER GENERAL ELLIOTT TO THE ADMINISTRATOR, FEDERAL EMERGENCY ADMINISTRATION OF PUBLIC WORKS, FEBRUARY 26, 1938:

YOUR LETTER OF JANUARY 25, 1938, IS AS FOLLOWS:

IN CONTRACTING TO MAKE LOANS AND GRANTS OUT OF FUNDS APPROPRIATED TO CARRY OUT THE PURPOSES OF TITLE II OF THE NATIONAL INDUSTRIAL RECOVERY ACT, THE PUBLIC WORKS ADMINISTRATION HAS AGREED TO MAKE GRANTS OF 30 PERCENT OF THE COST OF THE LABOR AND MATERIALS EMPLOYED UPON THE VARIOUS PROJECTS AIDED BY IT. THE CONTRACTS INVOLVED PROVIDE THAT THE PUBLIC WORKS ADMINISTRATION WILL MAKE A CASH GRANT IN AN AMOUNT APPROXIMATELY EQUAL TO 25 PERCENT OF THE COST OF THE LABOR AND MATERIALS IT IS ESTIMATED WILL BE EMPLOYED UPON THE PROJECT, AND WILL BUY BONDS IN AN AMOUNT EQUAL TO THE DIFFERENCE BETWEEN SUCH CASH GRANT AND THE COST OF THE PROJECT. SUCH CONTRACTS ALSO PROVIDE THAT THE GOVERNMENT WILL MAKE THE BALANCE OF THE EARNED GRANT (IN EXCESS OF THE CASH GRANT) BY A CANCELLATION OF BONDS HELD BY THE GOVERNMENT, UNLESS PAYMENT OF SUCH GRANT HAS BEEN OTHERWISE PROVIDED FOR.

IN A NUMBER OF CASES, ALL THE BONDS SO PURCHASED BY THE PUBLIC WORKS ADMINISTRATION WERE SOLD TO THE RECONSTRUCTION FINANCE CORPORATION FROM TIME TO TIME, AND BY IT TO THE PUBLIC. CONSEQUENTLY, NO BONDS WERE AVAILABLE FOR CANCELLATION, AND PROVISION HAD TO BE MADE FOR THE PAYMENT TO APPLICANTS OF THEIR FULL EARNED GRANT IN SOME OTHER MANNER. IN ORDER THAT FUNDS MIGHT BE AVAILABLE FOR THIS PURPOSE, A PORTION OF THE APPROPRIATION MADE TO CARRY OUT THE PURPOSES OF TITLE II OF THE NATIONAL INDUSTRIAL RECOVERY ACT HAS BEEN HELD AS A RESERVE, UNALLOCATED, AND IS BEING USED, FROM TIME TO TIME, FOR THE PURPOSE OF MAKING ADDITIONAL ALLOTMENTS TO PERMIT CASH PAYMENTS IN LIEU OF BOND CANCELLATION.

THE EMERGENCY RELIEF APPROPRIATION ACT OF 1935 MADE AVAILABLE TO THE PUBLIC WORKS ADMINISTRATION, FOR THE PURPOSE OF MAKING FURTHER LOANS, THE PROCEEDS OF THE SALE OF ANY SECURITIES PURCHASED BY IT. THE APPLICABLE PROVISION READS AS FOLLOWS:

"SEC. 12. * * * THE PRESIDENT IS AUTHORIZED TO SELL ANY SECURITIES ACQUIRED UNDER SAID ACT OR UNDER THIS JOINT RESOLUTION AND ALL MONEYS REALIZED FROM SUCH SALES SHALL BE AVAILABLE TO THE PRESIDENT, IN ADDITION TO THE SUMS HERETOFORE APPROPRIATED UNDER THIS JOINT RESOLUTION, FOR THE MAKING OF FURTHER LOANS UNDER SAID ACT OR UNDER THIS JOINT RESOLUTION.'

THE AUTHORITY CONTAINED IN THE ABOVE QUOTED SECTION WAS DELEGATED TO THE FEDERAL EMERGENCY ADMINISTRATOR OF PUBLIC WORKS BY EXECUTIVE ORDER NO. 7064, DATED JUNE 7, 1935.

THE EMERGENCY RELIEF APPROPRIATION ACT OF 1936 AUTHORIZED THE USE OF SUCH PROCEEDS FOR THE PURPOSE OF MAKING GRANTS, BUT LIMITS THE AMOUNT TO BE SO USED TO $300,000,000. THE LANGUAGE IN THE EMERGENCY RELIEF APPROPRIATION ACT OF 1936 AUTHORIZING SUCH USE OF BOND PROCEEDS IS AS FOLLOWS:

"IN ORDER TO INCREASE EMPLOYMENT BY PROVIDING FOR USEFUL PUBLIC WORKS PROJECTS OF THE KIND AND CHARACTER FOR WHICH THE FEDERAL EMERGENCY ADMINISTRATOR OF PUBLIC WORKS (HEREINAFTER CALLED THE ADMINISTRATOR) HAS HERETOFORE MADE LOANS OR GRANTS PURSUANT TO TITLE II OF THE NATIONAL INDUSTRIAL RECOVERY ACT OR THE EMERGENCY RELIEF APPROPRIATION ACT OF 1935 THE ADMINISTRATOR MAY, UPON THE DIRECTION OF THE PRESIDENT, USE NOT TO EXCEED $300,000,000 FROM FUNDS ON HAND OR TO BE RECEIVED FROM THE SALE OF SECURITIES, FOR THE MAKING OF GRANTS, TO AID IN THE FINANCING OF SUCH PROJECTS * * *.'

THE PUBLIC WORKS ADMINISTRATION EXTENSION ACT OF 1937 CONTINUES THE PUBLIC WORKS ADMINISTRATION UNTIL JULY 1, 1939, AND UNTIL SUCH DATE AUTHORIZES IT TO CONTINUE TO PERFORM ALL FUNCTIONS IT WAS AUTHORIZED TO PERFORM ON JUNE 29, 1937. IT FURTHER PROVIDES THAT ALL PROVISIONS OF LAW EXISTING ON JUNE 29, 1937, AND RELATING TO THE AVAILABILITY OF FUNDS FOR CARRYING OUT ANY OF THE FUNCTIONS OF THE ADMINISTRATION ARE ALSO CONTINUED UNTIL JULY 1, 1939, AND INCREASES THE AFORESAID LIMITATION OF $300,000,000 ON GRANTS TO $359,000,000.

IT IS PROPOSED THAT FUNDS IN THE REVOLVING FUND (I.E., FUNDS REALIZED FROM THE SALE OF SECURITIES) BE USED FOR THE PURPOSE OF MAKING ADDITIONAL ALLOTMENTS, IN LIEU OF BOND CANCELLATION, FOR PROJECTS FINANCED WITH FUNDS APPROPRIATED TO CARRY OUT THE PURPOSES OF TITLE II OF THE NATIONAL INDUSTRIAL RECOVERY ACT. TO DO SO WILL PERMIT THE PUBLIC WORKS ADMINISTRATION TO CARRY OUT ITS CONTRACTUAL OBLIGATIONS UNDER THE TYPE OF CONTRACTS HEREIN REFERRED TO, AND WILL, AT THE SAME TIME, PERMIT THIS ADMINISTRATION TO RETURN TO THE TREASURY THE AMOUNT OF UNOBLIGATED FUNDS (SOMETHING OVER $4,000,000) NOW HELD IN RESERVE FOR THE PURPOSE OF MAKING SUCH ADDITIONAL ALLOTMENTS.

ON THE BASIS OF THE FOREGOING YOUR OPINION IS REQUESTED AS TO WHETHER THE PUBLIC WORKS ADMINISTRATION MAY MAKE USE OF THE PROCEEDS OF THE SALE OF SECURITIES FOR THE PURPOSE INDICATED.

ASSUMING THE ANSWER TO THE QUESTION HEREINABOVE PROPOUNDED IS IN THE AFFIRMATIVE, A FURTHER PROBLEM ARISES AS TO WHETHER ALLOTMENTS SO MADE ARE TO BE CONSIDERED AS AN EXPENDITURE CHARGEABLE AGAINST THE $359,000,000 LIMITATION ON THE PROCEEDS OF THE SALE OF SECURITIES THAT CAN BE USED FOR GRANTS. ALTHOUGH SUCH MONEYS ARE USED TO PAY TO THE APPLICANT THE BALANCE OF THE GRANT TO WHICH IT IS ENTITLED, WE BELIEVE THAT SUCH PAYMENTS ARE IN EFFECT LOANS AND NOT GRANTS, AND HENCE SHOULD NOT BE SUBJECT TO THE ABOVE- MENTIONED LIMITATION. IN THE CASE OF THE ORDINARY GRANT, THE AMOUNT IS PAID TO THE APPLICANT, AND THE GOVERNMENT RECEIVES NO OBLIGATION AND NO PAYMENTS IN RETURN. ON THE OTHER HAND, IN CONNECTION WITH THE PAYMENTS MADE IN LIEU OF BOND CANCELLATION, THE GOVERNMENT RECEIVES FOR EVERY DOLLAR SO PAID AN OBLIGATION OF THE APPLICANT (IN THE FORM OF THE BONDS WHICH WOULD OTHERWISE BE CANCELLED) TO PAY ONE DOLLAR. IN OTHER WORDS, THE AMOUNT IN THE REVOLVING FUND AFTER SUCH PAYMENT (IF WE INCLUDE CASH AND SECURITIES AT PAR) WILL BE EXACTLY THE SAME AS BEFORE SUCH PAYMENT, THE AMOUNT REPRESENTED BY SECURITIES BEING INCREASED IN THE SAME AMOUNT AS THE DECREASE IN CASH. SO LONG AS AN OBLIGATION EXISTS TO RETURN TO THE APPLICANT SECURITIES HELD FOR CANCELLATION THEY CAN NOT BE CONSIDERED AS ASSETS. BY THE PAYMENT OF THAT AMOUNT IN CASH, THE OBLIGATION TO CANCEL THE BONDS IS DISCHARGED AND OUR INTEREST IN THE BONDS INCREASED PRO TANTO. THEREFORE, WE CONCLUDE THAT THE PAYMENT IS IN EFFECT AN INCREASE IN THE LOAN MADE TO THE APPLICANT, THE GRANT REMAINING THE SAME, AND THAT SUCH PAYMENTS SHOULD NOT BE CHARGED AGAINST THE $359,000,000 LIMITATION MENTIONED ABOVE.

WILL YOU KINDLY GIVE US YOUR OPINION ON THE TWO QUESTIONS ABOVE OUTLINED AT YOUR EARLIEST CONVENIENCE.

IN VIEW OF THE EXPENDITURES FOR GRANTS AUTHORIZED IN THE EMERGENCY RELIEF APPROPRIATION ACT OF 1936, AND THE PUBLIC WORKS EXTENSION ACT OF 1937, THIS OFFICE WILL NOT BE REQUIRED TO OBJECT TO THE USE OF FUNDS REALIZED FROM THE SALE OF SECURITIES TO MAKE GRANT PAYMENTS UNDER GRANT AND LOAN CONTRACTS IN LIEU OF THE CANCELATION OF THE BONDS PROVIDED FOR IN SUCH CONTRACTS. AS THE AUTHORITY TO USE SUCH PROCEEDS FOR GRANTS IS ACCOMPANIED BY THE EXPRESS LIMITATION OF $359,000,000, THAT LIMITATION IS FOR APPLICATION IN THE PRESENT MATTER AS GRANT PAYMENTS ARE INVOLVED.

THE STATEMENT IN THE PENULTIMATE PARAGRAPH OF YOUR SUBMISSION THAT SUCH PAYMENTS IN LIEU OF THE CANCELATION OF BONDS WOULD CONSTITUTE LOANS RATHER THAN GRANTS IS NOT UNDERSTOOD. WHEN PAYMENT OR PAYMENTS WERE MADE FOR GRANT AND LOAN IN A PARTICULAR CASE, SECURITIES TO THE FULL AMOUNT OF THE LOAN WERE AND SHOULD HAVE BEEN SURRENDERED TO THE UNITED STATES. THE GRANTS WERE USUALLY SOMEWHAT LESS THAN THE MINIMUM PERMITTED UNDER THE STATUTE UNDER WHICH THE CONTRACT WAS ENTERED INTO AND ACCORDINGLY THERE WAS INCLUDED IN THE CONTRACT AN AGREEMENT TO MAKE A FURTHER GRANT UPON EVIDENCE OF EXPENDITURE FOR LABOR AND MATERIALS TO AN AMOUNT WHICH WOULD WARRANT THE ADDITIONAL GRANT. IT WAS FURTHER PROVIDED THAT SUCH ADDITIONAL GRANT WOULD NOT BE PAID IN CASH BUT BY CANCELING AN EQUIVALENT AMOUNT OF THE BONDS. HOWEVER, THE BONDS ARE NOW REPORTED TO HAVE BEEN SOLD, THUS PREVENTING THEIR CANCELATION SO THAT THE ADDITIONAL GRANT MUST BE BY A CASH PAYMENT. THE FACT THAT SUCH CASH PAYMENT IS MADE FROM THE PROCEEDS OF THE BONDS DOES NOT CHANGE ITS CHARACTER FROM A GRANT TO A LOAN AS IT IS NOT CONTEMPLATED THAT IT WILL BE REPAID, NOR WILL ANY ADDITIONAL BONDS BE RECEIVED WHEN THIS AMOUNT IS TURNED OVER TO THE GRANTEE. YOUR STATEMENT THAT THE GOVERNMENT WILL RECEIVE FOR EVERY DOLLAR SO PAID AN OBLIGATION OF THE APPLICANT OF THE PAYEE TO PAY $1 DOES NOT APPEAR TO BE IN ACCORDANCE WITH THE FACTS AS EACH DOLLAR NOW PAID IS IN ADDITION TO A DOLLAR PREVIOUSLY PAID AND FOR WHICH $1 IN SECURITIES WAS ORIGINALLY RECEIVED BY THE GOVERNMENT.