B-101727, JUNE 24, 1952, 31 COMP. GEN. 672

B-101727: Jun 24, 1952

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IT IS THE RESPONSIBILITY OF THE ADMINISTRATOR OF CIVIL AERONAUTICS TO DETERMINE IN THE FIRST INSTANCE WHETHER A COST INCURRED IN CARRYING OUT A PROJECT IS A COST WHICH IS ALLOWABLE TO THE SPONSOR. THAT DETERMINATION SHOULD BE MADE BEFORE ANY QUESTION RELATING THERETO IS PRESENTED TO THE COMPTROLLER GENERAL FOR AN ADVANCE DECISION. 1952: REFERENCE IS MADE TO LETTER DATED JANUARY 31. THE ESTIMATED FEDERAL SHARE OF THE TOTAL COST WAS $94. IT IS RECITED IN PARAGRAPHS 3 AND 14 OF THE APPLICATION THAT THE SPONSOR HELD FULL TITLE TO TRACT NO. 1. A GRANT OFFER UPON THE BASIS OF SUCH PROJECT APPLICATION WAS MADE BY THE CIVIL AERONAUTICS ADMINISTRATION BUT WAS REJECTED BY THE OFFICIALS OF THE TERRITORY OF ALASKA.

B-101727, JUNE 24, 1952, 31 COMP. GEN. 672

FEDERAL AIRPORT ACT - GRANTS FOR DEVELOPMENT OF AIRPORTS - DETERMINATIONS AS TO ALLOWABILITY OF PROJECT COSTS UNDER SECTION 13 OF THE FEDERAL AIRPORT ACT, 1946, AS AMENDED, PROVIDING FEDERAL AID FOR THE DEVELOPMENT OF PUBLIC AIRPORTS, IT IS THE RESPONSIBILITY OF THE ADMINISTRATOR OF CIVIL AERONAUTICS TO DETERMINE IN THE FIRST INSTANCE WHETHER A COST INCURRED IN CARRYING OUT A PROJECT IS A COST WHICH IS ALLOWABLE TO THE SPONSOR, AND THAT DETERMINATION SHOULD BE MADE BEFORE ANY QUESTION RELATING THERETO IS PRESENTED TO THE COMPTROLLER GENERAL FOR AN ADVANCE DECISION. WHILE UNDER THE FEDERAL AIRPORT ACT, 1946, AS AMENDED, WHICH PROVIDES FEDERAL AID FOR THE DEVELOPMENT OF PUBLIC AIRPORTS, THE VALUE OF LAND DONATED TO A SPONSOR MAY BE CONSIDERED AS PART OR ALL OF THE SPONSOR'S SHARE OF THE PROJECT COST, SUCH VALUE MAY NOT BE ENHANCED BY THE VALUE OR COST OF IMPROVEMENTS TO THE LAND, OTHERWISE UNALLOWABLE, WHICH HAD PREVIOUSLY BEEN ADDED BY THE SPONSOR.

COMPTROLLER GENERAL WARREN TO THE SECRETARY OF COMMERCE, JUNE 24, 1952:

REFERENCE IS MADE TO LETTER DATED JANUARY 31, 1952, FROM THE ACTING SECRETARY OF COMMERCE, REQUESTING A DECISION ON CERTAIN QUESTIONS PRESENTED BY THE ADMINISTRATOR OF CIVIL AERONAUTICS IN A MEMORANDUM ENCLOSED THEREWITH, CONCERNING, IN GENERAL, THE ALLOWABILITY OF COSTS INVOLVED IN THE ACQUISITION OF PROJECT LANDS UNDER THE FEDERAL AIRPORT ACT APPROVED MAY 13, 1946, 60 STAT. 170, AND, IN PARTICULAR, THE PROPRIETY OF MAKING GRANT PAYMENTS ON THE PALMER, ALASKA, AIRPORT PROJECT.

ON JANUARY 9, 1950, THE TERRITORY OF ALASKA, THROUGH THE DIRECTOR OF AVIATION, SUBMITTED A PROJECT APPLICATION TO THE CIVIL AERONAUTICS ADMINISTRATION FOR FEDERAL AID UNDER THE FEDERAL AIRPORT ACT FOR THE DEVELOPMENT OF THE PALMER MUNICIPAL AIRPORT. THE APPLICATION SHOWS THE ESTIMATED COST OF THE LAND AS $5,500 AND OTHER ESTIMATED PROJECT COSTS TOTALING $124,500. THE ESTIMATED FEDERAL SHARE OF THE TOTAL COST WAS $94,750, REPRESENTING 25 PERCENT OF THE COST OF THE LAND AND 75 PERCENT OF THE OTHER PROJECT COSTS. IT IS RECITED IN PARAGRAPHS 3 AND 14 OF THE APPLICATION THAT THE SPONSOR HELD FULL TITLE TO TRACT NO. 1, AS IDENTIFIED ON THE MAP ATTACHED AS EXHIBIT "A," AND WOULD ACQUIRE FULL TITLE TO TRACT NO. 2 AND AVIATION EASEMENTS TO TRACTS 3 AND 4. A GRANT OFFER UPON THE BASIS OF SUCH PROJECT APPLICATION WAS MADE BY THE CIVIL AERONAUTICS ADMINISTRATION BUT WAS REJECTED BY THE OFFICIALS OF THE TERRITORY OF ALASKA.

ON MARCH 17, 1950, A SECOND PROJECT APPLICATION WAS SUBMITTED WHICH SHOWS THE ESTIMATED COST OF THE LAND AS $150,000 AND OTHER ESTIMATED PROJECT COSTS AS $143,500. THE ESTIMATED FEDERAL SHARE OF THE TOTAL COSTS IS SHOWN AS $145,125. THIS PROJECT APPLICATION RECITES IN PARAGRAPH 3 THAT THE SPONSOR WOULD ACQUIRE TITLE TO TRACTS 1 AND 2. GRANT C8CA-3390, OFFERED UPON THE BASIS OF THE SECOND PROJECT APPLICATION, WAS ACCEPTED ON MARCH 31, 1950. THE GRANT AGREEMENT PROVIDES TH GOVERNMENT WOULD PAY, AS ITS SHARE OF THE COST INCURRED IN ACCOMPLISHING THE PROJECT, A MAXIMUM OF $145,125 UPON THE BASIS OF 25 PERCENT COST OF THE LAND AND 75 PERCENT OF OTHER PROJECT COSTS TO THE EXTENT SUCH COSTS ARE DETERMINED TO BE ALLOWABLE.

BY APPLICATION FOR GRANT PAYMENT DATED JUNE 6, 1951, THE SPONSOR APPLIED FOR THE FIRST AND FINAL PAYMENT IN THE TOTAL AMOUNT OF $148,922.68, WHICH IS IN EXCESS OF THE MAXIMUM OF $145,125 SPECIFIED IN THE GRANT AGREEMENT. THE APPLICATION FOR PAYMENT SHOWS THE FEDERAL SHARE OF THE COST OF THE LAND TO BE $38,285.96, REPRESENTING 25 PERCENT OF THE TOTAL ESTIMATED COST OF $153,143.85 AND THE COST OF CONSTRUCTION, ENGINEERING, AND ADMINISTRATION TO BE $110,636.72 REPRESENTING 75 PERCENT OF THE COST OF $147,515.63.

SENATE RESOLUTION 331, 81ST CONGRESS, AUTHORIZED A STUDY AND INVESTIGATION OF THE CIRCUMSTANCES SURROUNDING THE ACQUISITION OF THE PALMER AIRPORT WITH A VIEW TO DETERMINING WHETHER ANY ACTIONS WITH RESPECT THERETO WERE TAKEN FOR THE PURPOSE OF OBTAINING FEDERAL FUNDS IN EXCESS OF THE AMOUNT AUTHORIZED BY LAW AND WHETHER SUCH ACTIONS WERE FRAUDULENT OR OTHERWISE IN VIOLATION OF LAW. AN INQUIRY WAS CONDUCTED BY THE SUBCOMMITTEE ON INVESTIGATIONS, SENATE COMMITTEE ON EXPENDITURES IN THE EXECUTIVE DEPARTMENTS, HEARINGS HAVING BEEN HELD ON JANUARY 18 AND 19, 1951, AND AN INTERIM REPORT WAS FILED, SENATE REPORT NO. 357 82D CONGRESS.

IT APPEARS FROM THE ENTIRE RECORD BEFORE THIS OFFICE THAT ON FEBRUARY 26, 1945, A GROUP OF CITIZENS REPRESENTING THE VARIOUS CIVIC ORGANIZATIONS OF PALMER AND THE MATANUSKA VALLEY ORGANIZED A NONPROFIT ORGANIZATION TO BE KNOWN AS THE PALMER AIRPORT ASSOCIATION FOR THE ANNOUNCED PURPOSE OF ACQUIRING, EQUIPPING, MAINTAINING, AND OTHERWISE OPERATING AN AIRPORT AT PALMER, ALASKA. A LANDING FIELD WAS SELECTED UPON THE RECOMMENDATION OF OFFICIALS OF THE CIVIL AERONAUTICS ADMINISTRATION IN ALASKA AND CONSTRUCTION WAS BEGUN IN 1945. FOLLOWING THE SUBSEQUENT ENACTMENT OF THE FEDERAL AIRPORT ACT, THE PALMER AIRPORT ASSOCIATION REPEATEDLY ATTEMPTED TO OBTAIN FEDERAL AID FOR DEVELOPMENT OF THE AIRPORT THROUGH THE COOPERATION OF THE TERRITORY OF ALASKA. HOWEVER, THERE WAS NO PUBLIC AGENCY IN ALASKA WHICH COULD QUALIFY AS A SPONSOR UNDER SECTION 2 (9) OF THE FEDERAL AIRPORT ACT, 60 STAT. 170, FOR THE PALMER AIRPORT UNTIL PASSAGE OF TERRITORIAL ENABLING LEGISLATION, WHICH BECAME EFFECTIVE JUNE 1, 1949. PRIOR TO THE PASSAGE OF THE ENABLING LEGISLATION, THE TERRITORY OF ALASKA MADE TERRITORIAL FUNDS AVAILABLE TO THE ASSOCIATION FOR AIRPORT CONSTRUCTION, ALLEGEDLY IN THE APPROXIMATE AMOUNT OF $53,000. ALSO EXTENSIVE AND VALUABLE IMPROVEMENTS WERE DONATED BY INDIVIDUALS IN THE FORM OF LABOR AND THE USE OF MACHINERY. THE AIRPORT AS THUS CONSTRUCTED COMPRISED WHAT WAS DESIGNATED IN THE PROJECT APPLICATION AND THE GRANT AGREEMENT AS TRACT NO. 1.

IT APPEARS FROM ALL AVAILABLE EVIDENCE THAT THE TERRITORIAL OFFICIALS CLEARLY INTENDED TO CLAIM REIMBURSEMENT FROM THE FEDERAL GOVERNMENT ON A MATCHING BASIS FOR THEIR EXPENDITURES ON TRACT NO. 1 WHEN THEY COULD QUALIFY AS A SPONSOR. THE SAID OFFICIALS TESTIFIED THAT THE MONEY WAS EXPENDED ON THE STRENGTH OF REPRESENTATIONS MADE BY OFFICIALS OF THE CIVIL AERONAUTICS ADMINISTRATION IN ALASKA THAT A CLAIM FOR REIMBURSEMENT OF SUCH COSTS COULD BE ELIGIBLE AS A PROJECT COST UNDER THE FEDERAL AIRPORT ACT. THE TESTIMONY OF THE CIVIL AERONAUTICS OFFICIALS AS TO SUCH REPRESENTATIONS IS TO THE CONTRARY.

IN ANY EVENT, IT FINALLY WAS LEARNED THAT, BECAUSE OF THE PROHIBITION IN SECTION 13 (2) OF THE FEDERAL AIRPORT ACT, 60 STAT. 177, AGAINST THE ALLOWANCE OF A PROJECT COST (EXCEPT THE COST OF ACQUIRING LAND) INCURRED PRIOR TO THE EXECUTION OF A GRANT AGREEMENT, THE CONSTRUCTION COST EXPENDED ON THE AIRPORT PRIOR TO THE GRANT AGREEMENT, DATED MARCH 31, 1950, COULD NOT BE USED AS A PROJECT COST. THE ALTERNATIVE METHOD OF INCLUDING THE REASONABLE VALUE OF THE LAND AS ENHANCED BY THE AIRPORT IMPROVEMENTS AS A PROJECT COST OF LAND ACQUISITION WAS NOT SUGGESTED TO THE TERRITORIAL OFFICIALS UNTIL AFTER SUBMISSION OF THE PROJECT APPLICATION OF JANUARY 9, 1950.

AFTER SUCH ALTERNATIVE METHOD HAD BEEN SUGGESTED BY THE CIVIL AERONAUTICS OFFICIALS, THE FIRST GRANT OFFER DATED JANUARY 9, 1950, OF $94,750, WAS REJECTED BY LETTER OF MARCH 15, 1950, AND A REVISED PROJECT APPLICATION DATED MARCH 17, 1950, WAS SUBMITTED SHOWING THE ESTIMATED COST OF ALL OF THE LAND AS $150,000 RATHER THAN $5,500 AS SHOWN IN THE FIRST APPLICATION. THE ONLY REASON ASSIGNED FOR THE INCREASE IN LAND VALUE WAS THAT RECENT DEVELOPMENTS ADJACENT TO THE AIRPORT RESULTED IN A SUBSTANTIAL INCREASE OF PROPERTY VALUES. SEE EXHIBIT NO. 6A, PAGE 186 OF THE HEARINGS PURSUANT TO SENATE RESOLUTION 331. THE REGIONAL OFFICE OF THE CIVIL AERONAUTICS ADMINISTRATION FORWARDED THE PROJECT APPLICATION TO THE REGIONAL ADMINISTRATOR, WHO WAS THEN IN WASHINGTON D.C., BY LETTER DATED MARCH 21, 1950 ( EXHIBIT NO. 6B), WHEREIN IT WAS STATED THAT THE LAND COSTS HAVE BEEN INCREASED FROM $5,500 TO $150,000, CONSTRUCTION COSTS FROM $106,500 TO $122,500, AND AN AMOUNT OF $3,000 INSERTED FOR ADMINISTRATIVE COSTS, AND THAT THE STATEMENT CONCERNING LAND OWNERSHIP OF TRACT NO. 1, WHICH APPEARED IN THE ORIGINAL APPLICATION HAD BEEN OMITTED. THE INCREASE WAS EXPLAINED TO THE ADMINISTRATOR OF CIVIL AERONAUTICS IN A MEMORANDUM DATED MARCH 27, 1950 ( EXHIBIT 6C), UPON THE BASIS THAT THE LAND WHICH THE SPONSOR ORIGINALLY THOUGHT WAS TO BE DONATED HAD TO BE PURCHASED, MAKING A CONSIDERABLE INCREASE IN THE PROJECT COSTS.

IN SUGGESTING THE ALTERNATIVE METHOD, ABOVE, THE CIVIL AERONAUTICS ADMINISTRATION OFFICIALS TESTIFIED THAT THEY HAD ADVISED THE TERRITORIAL OFFICIALS, IN EFFECT, THAT THE PRIOR CONSTRUCTION COST COULD BE RECOUPED, IN PART, BY INCLUDING AS A COST OF ACQUIRING LAND THE PURCHASE PRICE OF THE ENTIRE AIRPORT; THAT APPRAISALS BE MADE OF THE VALUE OF THE PROPERTY INCLUDING IMPROVEMENTS AS IT EXISTED AT THE TIME OF ACQUISITION, WHICH WOULD BE REVIEWED BY THE CIVIL AERONAUTICS DMINISTRATION; AND THAT, IF NECESSARY, THE APPRAISED VALUE WOULD BE CONFIRMED BY ADDITIONAL APPRAISALS. THE APPRAISALS WERE MADE AND, RATHER THAN USE THE APPRAISALS TO ESTABLISH THE VALUE OF THE LAND ACQUISITION FOR THE PURPOSES OF EVALUATING A DONATION TO THE TERRITORY, THE TERRITORIAL OFFICIALS FOLLOWED THE HIGHLY IRREGULAR MEANS OF USING A PAPER TRANSACTION WHEREBY THEY ALLEGEDLY PURCHASED THE AIRPORT FOR $150,000 AND THE AIRPORT ASSOCIATION IMMEDIATELY DONATED $145,000 BACK TO THE TERRITORY. THE DIFFERENCE OF $5,000 WAS RETAINED BY THE ASSOCIATION FOR THE ACQUISITION OF THE ADDITIONAL LAND FROM PRIVATE OWNERS. IN REGARD TO THE TITLE TO THE LAND, WHICH WAS CERTIFIED IN THE FIRST APPLICATION AS BEING HELD BY THE TERRITORY, IT WAS TESTIFIED THAT THE CERTIFICATION WAS BASED UPON AN ORAL OPTION AND THAT THE LAND OF THE EXISTING AIRPORT WAS TO BE DONATED WHENEVER DESIRED BY THE TERRITORY. ALSO, THERE WAS TESTIMONY TO THE EFFECT THAT THE ERRONEOUS CERTIFICATION WAS MADE UPON ADVICE OF THE CIVIL AERONAUTICS ADMINISTRATION REGIONAL OFFICIALS WHO WERE OF THE VIEW THAT IT WAS EASIER TO GET APPROVAL OF AN APPLICATION IF A SPONSOR WAS SHOWN TO HAVE TITLE TO THE LAND AND THAT THE TITLE ACTUALLY WAS NOT REQUIRED UNTIL THE APPLICATION WAS MADE FOR A GRANT PAYMENT.

THE SUBCOMMITTEE STATED IN ITS INTERIM REPORT THAT IT WAS OF THE OPINION THE TERRITORY ATTEMPTED BY SUBTERFUGE TO OBTAIN FEDERAL MATCHING FUNDS WHICH COULD NOT HAVE BEEN OBTAINED DIRECTLY UNDER EXISTING LAW; AND THAT AS A RESULT OF COLLUSION BETWEEN OFFICERS OF THE TERRITORY AND THOSE OF CIVIL AERONAUTICS ADMINISTRATION IN ALASKA THERE WAS AN ATTEMPT TO SHIFT THE ENTIRE COST OF THE NEW IMPROVEMENTS ON THE PALMER AIRPORT TO THE FEDERAL GOVERNMENT. THE REPORT OF THE SUBCOMMITTEE SPECIFICALLY RECOMMENDS THAT THE COMPTROLLER GENERAL MAKE A VERY CAREFUL STUDY OF THE FACTS OF THIS CASE BEFORE MAKING ANY FINAL DECISION RELATIVE TO THE DISBURSEMENT OF FEDERAL FUNDS.

THE SPECIFIC QUESTIONS PRESENTED BY THE ADMINISTRATOR OF CIVIL AERONAUTICS IN CONNECTION WITH THE PALMER PROJECT, ON THE BASIS OF THE FOREGOING FACTS, ARE AS FOLLOWS:

QUERY NO. 1. IN VIEW OF THE FACTS AND CIRCUMSTANCES DEVELOPED IN THE SENATE SUBCOMMITTEE'S INVESTIGATION, OF THE PALMER, ALASKA AIRPORT PROJECT, THE INFORMATION CONTAINED HEREIN, AND SUCH ADDITIONAL FACTS AS THE COMPTROLLER GENERAL MAY DEEM IT DESIRABLE TO OBTAIN BY FURTHER INVESTIGATION, IS IT PROPER TO CONSIDER FOR ALLOWANCE AS PROJECT COSTS, ANY OF THE ITEMS OF COST FOR WHICH PAYMENT IS REQUESTED BY THE TERRITORY IN THE SUBJECT APPLICATION FOR FINAL GRANT PAYMENT ( ATTACHMENT NO. 1/?

QUERY NO. 2. IS THE TERRITORY'S CLAIMED ACQUISITION OF THE PALMER MUNICIPAL AIRPORT FROM THE PALMER AIRPORT ASSOCIATION UNDER THE CIRCUMSTANCES AND CONDITIONS DEVELOPED IN THE SENATE SUBCOMMITTEE INVESTIGATION OF THE SUBJECT PROJECT AND AS OUTLINED HEREIN, AN ELIGIBLE ITEM OF AIRPORT DEVELOPMENT UNDER THE FEDERAL AIRPORT ACT?

QUERY NO. 3. IF THE ANSWERS TO QUERIES NOS. 1 AND 2 ARE IN THE AFFIRMATIVE, MAY THE ALLOWABLE PROJECT COSTS OF ACQUISITION BY THE TERRITORY OF THE TWO PARCELS COMPRISING TRACT NO. 2, EXCEED THE SUM OF THE APPROXIMATELY $5,000 OF TERRITORIAL MONEYS WHICH THE TERRITORY APPEARS TO HAVE BEEN "OUT OF POCKET" FOR SUCH ACQUISITION, IF THE TRANSFER OF SUCH PARCELS BY THE ASSOCIATION TO THE TERRITORY IS DETERMINED BY THE ADMINISTRATOR OF CIVIL AERONAUTICS TO BE (A) VALID OR (B) INVALID? WILL BE NOTED THAT THE PALMER AIRPORT ASSOCIATION RETAINED SUCH SUM OF $5,000 FOR USE IN PAYING TO THE RESPECTIVE RECORD OWNERS OF THE TWO PARCELS COMPRISING TRACT NO. 2 THE FULL PURCHASE PRICE OF EACH SUCH PARCEL, AS DESCRIBED IN ATTACHMENT NO. 2.

QUERY NO. 4. IF THE ANSWERS TO QUERIES NOS. 1 AND 2 ARE IN THE AFFIRMATIVE, MAY THE ALLOWABLE PROJECT COSTS OF ACQUISITION BY THE TERRITORY OF THE TWO PARCELS COMPRISING TRACT NO. 1, BEING THE NUCLEUS OF THE AIRPORT, INCLUDE OR REFLECT ANY PORTION OF THE SUM OF APPROXIMATELY $6,000 REPRESENTING THE TOTAL PURCHASE PRICE AND INTEREST ON UNPAID BALANCES WHICH THE PALMER AIRPORT ASSOCIATION PAID DURING THE YEARS 1945- 1949 TO THE RECORD OWNERS OF SUCH PARCELS, IF THE TRANSFER OF TRACT NO. 1 BY THE ASSOCIATION TO THE TERRITORY IS DETERMINED BY THE ADMINISTRATOR OF CIVIL AERONAUTICS TO BE (A) VALID OR (B) INVALID?

QUERY NO. 5. IF THE ANSWER TO EITHER PART OF QUERY NO. 4 IS IN THE AFFIRMATIVE, MAY THE ALLOWABLE PROJECT COSTS OF ACQUISITION BY THE TERRITORY OF THE TWO PARCELS COMPRISING TRACT NO. 1 EXCEED SUCH SUM OF APPROXIMATELY $6,000, THE TOTAL PURCHASE PRICE AND INTEREST PAID THE FORMER RECORD OWNER?

QUERY NO. 6. IF THE ANSWER TO QUERY NO. 5 IS IN THE AFFIRMATIVE, MAY THE ALLOWABLE PROJECT COSTS OF ACQUISITION OF THE TWO PARCELS COMPRISING TRACT NO. 1 INCLUDE OR REFLECT THE REASONABLE VALUE OF AIRPORT IMPROVEMENTS OR CONSTRUCTION ACCOMPLISHED ON SUCH PARCELS PRIOR TO THE DATE OF EXECUTION OF THE SUBJECT GRANT AGREEMENT?

QUERY NO. 7. IF THE ANSWER TO QUERY NO. 6 IS IN THE AFFIRMATIVE, MAY THE ALLOWABLE PROJECT COSTS OF ACQUISITION OF THE TWO PARCELS COMPRISING TRACT NO. 1 INCLUDE OR REFLECT ANY PORTION OF (A) THE COST OF AIRPORT IMPROVEMENTS OR CONSTRUCTION ACCOMPLISHED ON SUCH PARCELS WITH THE AID OF TERRITORIAL FUNDS, TOTALING APPROXIMATELY $53,000, CLAIMED TO HAVE BEEN GRANTED TO THE PALMER AIRPORT ASSOCIATION FOR SUCH PURPOSES, OR (B) THE REASONABLE VALUE OF SUCH AIRPORT IMPROVEMENTS OR CONSTRUCTION AT THE TIME OF THE ALLEGED TRANSFER OF SUCH TRACT NO. 1 TO THE TERRITORY BY THE PALMER AIRPORT ASSOCIATION, WHICH VALUE MAY OR MAY NOT EXCEED SUCH SUM OF $53,000? IN CONNECTION WITH SUCH QUESTIONS, AND WITH GENERAL QUESTIONS 8 AND 9 PRESENTED BY THE ADMINISTRATOR, ATTENTION IS INVITED TO THE FACT THAT, UNDER SECTION 13 OF THE FEDERAL AIRPORT ACT, AS AMENDED, IT IS THE RESPONSIBILITY OF THE ADMINISTRATOR OF CIVIL AERONAUTICS TO DETERMINE IN THE FIRST INSTANCE WHETHER A COST INCURRED IN CARRYING OUT A PROJECT IS ALLOWABLE. THEREFORE, UNLESS A DETERMINATION OF ALLOWABILITY IS MADE BY THE ADMINISTRATOR, THERE ORDINARILY IS NO QUESTION PRESENTED FOR ADVANCE DECISION BY THIS OFFICE AS TO WHETHER THE PROPOSED ACTION IS AUTHORIZED BY LAW AND OTHERWISE IS FREE FROM OBJECTION. THE RECORD HERE INVOLVED INDICATES THAT THE ADMINISTRATOR HAS NOT MADE ANY DETERMINATIONS AS TO WHETHER OR NOT ANY ITEM OF COST IN CONNECTION WITH THE PALMER PROJECT IS ALLOWABLE. HOWEVER, YOU MAY BE ADVISED THAT THE VIEWS OF THIS OFFICE IN THE MATTER ARE AS FOLLOWS:

IT IS FELT THAT THE RECORD OF THE HEARINGS ADEQUATELY SUPPORTS THE VIEWS EXPRESSED IN THE REPORT OF THE SUBCOMMITTEE THAT THERE WAS COLLUSION BETWEEN OFFICIALS OF THE TERRITORY AND THOSE OF CIVIL AERONAUTICS ADMINISTRATION IN ALASKA TO THE END THAT THE TERRITORY MIGHT RECEIVE CREDIT IN THE GRANT AGREEMENT FOR FUNDS WHICH IT HAD PREVIOUSLY EXPENDED IN IMPROVING THE AIRPORT. SUCH OFFICIALS WERE AWARE OF THE PROVISIONS OF SECTION 13 (2) OF THE FEDERAL AIRPORT ACT WHICH PROVIDES IN PART THAT---

A PROJECT COST SHALL BE ALLOWABLE IF---

(2) IT WAS INCURRED SUBSEQUENT TO THE EXECUTION OF THE GRANT AGREEMENT WITH RESPECT TO THE PROJECT, AND IN CONNECTION WITH AIRPORT DEVELOPMENT ACCOMPLISHED UNDER SUCH PROJECT AFTER THE EXECUTION OF SUCH GRANT AGREEMENT * * *.

THOSE OFFICIALS WERE ALSO AWARE OF THE IMPLEMENTING REGULATIONS OF CIVIL AERONAUTICS ADMINISTRATION WHICH PRECLUDED THE ALLOWANCE OF SUCH AN ITEM AS AN ELIGIBLE PROJECT COST.

AS A RESULT OF THE METHODS USED BY TERRITORIAL OFFICIALS TO CONCEAL THE TRUE NATURE OF THE ESTIMATED COSTS OF THE PROJECT AND THE FAILURE OF REGIONAL OFFICIALS TO DISCLOSE FULLY THE FACTS TO THE CIVIL AERONAUTICS ADMINISTRATION OFFICIALS IN WASHINGTON, A GRANT AGREEMENT WAS APPROVED FOR AN AMOUNT IN EXCESS OF THAT WHICH WAS LEGALLY PERMISSIBLE UNDER THE PROVISIONS OF THE BASIC LAW.

THE DECISION OF NOVEMBER 19, 1948, B-81321, HELD THAT THE VALUE OF LAND DONATED TO THE SPONSOR PROPERLY MAY BE FOR CONSIDERATION, UNDER CERTAIN CONDITIONS, AS A PART OR ALL OF THE SPONSOR'S SHARE OF THE PROJECT COST. IT DID NOT HOLD THAT SUCH VALUE MIGHT BE ENHANCED BY THE VALUE OR COST OF IMPROVEMENTS TO THE LAND, OTHERWISE UNALLOWABLE, WHICH HAD PREVIOUSLY BEEN ADDED BY THE SPONSOR; NOR DID IT CONTAIN SUCH ELEMENTS OF IRREGULARITY AND NONDISCLOSURE OF FACTS AS HERE INDICATED. IT DOES NOT APPEAR, THEREFORE, THAT THE CITED DECISION IN ANY RESPECT AUTHORIZES OR SANCTIONS THE TYPE OF TRANSACTION OR THE METHODS USED IN THIS CASE.

ACCORDINGLY, IT IS MY VIEW THAT, ON THE PRESENT RECORD, THE FACTS AND CIRCUMSTANCES WOULD REQUIRE THAT EXCEPTION BE TAKEN TO THE PAYMENT AS PROJECT COSTS OF ANY ITEMS INCLUDED BY THE TERRITORY OF ALASKA ON ITS APPLICATION FOR FINAL GRANT PAYMENT. IN SUCH CONNECTION, IT IS NOTED THAT PARAGRAPH 5 OF THE GRANT AGREEMENT ACCEPTED BY THE TERRITORY OF ALASKA ON MARCH 31, 1950, PROVIDES AS FOLLOWS:

ANY MISREPRESENTATION OR OMISSION OF A MATERIAL FACT BY THE SPONSOR CONCERNING THE PROJECT OR THE SPONSOR'S AUTHORITY OR ABILITY TO CARRY OUT THE OBLIGATIONS ASSUMED BY THE SPONSOR IN ACCEPTING THIS OFFICE SHALL TERMINATE THE OBLIGATION OF THE UNITED STATES, AND IT IS UNDERSTOOD AND AGREED BY THE SPONSOR IN ACCEPTING THIS OFFER THAT IF A MATERIAL FACT HAS BEEN MISREPRESENTED OR OMITTED BY THE SPONSOR, THE ADMINISTRATOR ON BEHALF OF THE UNITED STATES MAY RECOVER ALL GRANT PAYMENTS MADE.

QUESTION NO. 1 IS ANSWERED ACCORDINGLY, MAKING UNNECESSARY REPLIES TO QUESTIONS 2, 3, 4, 5, 6 AND 7.

IT IS FELT THAT QUESTIONS 8 AND 9 ARE TOO INDEFINITE AND GENERAL TO PERMIT OF ANY EXPRESSION OF VIEWS THEREON AT THIS TIME. IF SUCH QUESTIONS ARE INVOLVED IN ANY APPLICATION OR APPLICATIONS FOR PAYMENTS NOW PENDING BEFORE THE CIVIL AERONAUTICS ADMINISTRATION, AND THE ADMINISTRATOR DETERMINES THAT THE TERMS ARE PROPERLY ALLOWABLE, SUBMISSION MAY BE MADE OF THE INDIVIDUAL CASE OR CASES FOR A DECISION AS TO WHETHER OR NOT THIS OFFICE PERCEIVES ANY OBJECTION TO HIS DETERMINATIONS.

THE ADMINISTRATIVE OFFICER'S COPY OF THE ADMINISTRATOR'S MEMORANDUM OF JANUARY 18, 1952, AND THE ACTING SECRETARY'S LETTER OF JANUARY 31, 1952, APPARENTLY FORWARDED HERE BY MISTAKE ARE RETURNED HEREWITH, TOGETHER WITH THE APPLICATION FOR GRANT PAYMENT AND SUPPORTING DOCUMENTS THERETO.