B-134262, APRIL 7, 1958, 37 COMP. GEN. 666

B-134262: Apr 7, 1958

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HOUSING - URBAN REDEVELOPMENT - INTEREST ON CAPITAL ADVANCED BY PUBLIC AGENCIES - DECISIONS OF COMPTROLLER GENERAL - ADMINISTRATOR'S DETERMINATIONS AS FINAL AND CONCLUSIVE ALTHOUGH A DECISION THAT THE ALLOWANCE OF INTEREST ON CAPITAL ADVANCED FOR URBAN REDEVELOPMENT BY LOCAL PUBLIC AGENCIES AS AN ITEM IN THE GROSS PROJECT COST IS NOT AUTHORIZED EITHER SPECIFICALLY OR BY NECESSARY IMPLICATION UNDER TITLE I OF THE HOUSING ACT OF 1949. SUCH DECISION IS NOT BINDING ON THE ADMINISTRATOR OF THE HOUSING AND HOME FINANCE AGENCY BECAUSE HIS DETERMINATIONS ARE. IF HE DETERMINES THAT INCLUSION OF INTEREST AS A PROJECT COST IS NECESSARY. THE SITUATION INVOLVED IS STATED IN YOUR LETTER AS FOLLOWS: WHERE THE ONE AND ONLY LOCAL PUBLIC BODY WITH WHICH A CAPITAL GRANT CONTRACT OR A LOAN AND CAPITAL GRANT CONTRACT IS MADE BY THE FEDERAL GOVERNMENT UNDER TITLE I OF THE HOUSING ACT OF 1949.

B-134262, APRIL 7, 1958, 37 COMP. GEN. 666

HOUSING - URBAN REDEVELOPMENT - INTEREST ON CAPITAL ADVANCED BY PUBLIC AGENCIES - DECISIONS OF COMPTROLLER GENERAL - ADMINISTRATOR'S DETERMINATIONS AS FINAL AND CONCLUSIVE ALTHOUGH A DECISION THAT THE ALLOWANCE OF INTEREST ON CAPITAL ADVANCED FOR URBAN REDEVELOPMENT BY LOCAL PUBLIC AGENCIES AS AN ITEM IN THE GROSS PROJECT COST IS NOT AUTHORIZED EITHER SPECIFICALLY OR BY NECESSARY IMPLICATION UNDER TITLE I OF THE HOUSING ACT OF 1949, 42 U.S.C. 1450, SUCH DECISION IS NOT BINDING ON THE ADMINISTRATOR OF THE HOUSING AND HOME FINANCE AGENCY BECAUSE HIS DETERMINATIONS ARE, BY LAW, FINAL AND CONCLUSIVE; HOWEVER, IF HE DETERMINES THAT INCLUSION OF INTEREST AS A PROJECT COST IS NECESSARY, WITHOUT OBTAINING LEGISLATIVE AUTHORITY, THE GENERAL ACCOUNTING OFFICE UNDER THE REPORTING RESPONSIBILITY PROVIDED BY THE GOVERNMENT CORPORATION CONTROL ACT, 31 U.S.C. 846, 851, WOULD BE REQUIRED TO BRING THE MATTER TO THE ATTENTION OF THE CONGRESS

TO THE ADMINISTRATOR, HOUSING AND HOME FINANCE AGENCY, APRIL 7, 1958:

YOUR LETTER OF OCTOBER 30, 1957, REQUESTS OUR VIEWS AS TO WHETHER WE WOULD BE REQUIRED TO OBJECT TO THE INCLUSION OF SO-CALLED INTEREST ON MONEY ADVANCED BY A LOCAL PUBLIC BODY, AS AN ALLOWABLE GROSS PROJECT COST, UNDER THE URBAN RENEWAL PROGRAM AUTHORIZED IN TITLE I OF THE HOUSING ACT OF 1949, 63 STAT. 414, AS AMENDED, 42 U.S.C., SUPP. IV, 1450, ET SEQ.

THE SITUATION INVOLVED IS STATED IN YOUR LETTER AS FOLLOWS:

WHERE THE ONE AND ONLY LOCAL PUBLIC BODY WITH WHICH A CAPITAL GRANT CONTRACT OR A LOAN AND CAPITAL GRANT CONTRACT IS MADE BY THE FEDERAL GOVERNMENT UNDER TITLE I OF THE HOUSING ACT OF 1949, AS AMENDED, ADVANCES A CERTAIN AMOUNT OF MONEY FROM ITS GENERAL FUND OR ITS OTHER LOCAL FUND TO THE " PROJECT EXPENDITURES ACCOUNT," (ESTABLISHED PURSUANT TO THE AFORESAID CONTRACT) FOR EXPENDITURE BY IT FOR COSTS CONSTITUTING A PART OF " ITEM 1 OF GROSS PROJECT COST" OF THE TITLE I PROJECT, AND THE MONEY SO ADVANCED DOES NOT REPRESENT MONEY BORROWED, AT INTEREST, BY THE LOCAL PUBLIC BODY FROM OUTSIDE SOURCES FOR THE PROJECT, MAY THE ADMINISTRATOR (OR THE URA COMMISSIONER) INCLUDE " ITEM 1 OF GROSS PROJECT COST," FOR THE PURPOSES OF MAKING A LOAN AND/OR CAPITAL GRANT FOR THE PROJECT, OR DETERMINING EITHER " GROSS PROJECT COST" OR " NET PROJECT COST," ANY AMOUNT AS SO-CALLED "INTEREST" ON THE AMOUNT SO ADVANCED BY THE LOCAL PUBLIC BODY.

YOU POINT OUT THAT THE FUNDS MADE AVAILABLE BY THE LOCAL PUBLIC BODY FOR ITS PROJECT EXPENDITURES MAY NOT BE IDENTIFIABLE EITHER AS PROCEEDS OF BORROWINGS BY IT DIRECTLY FOR THE PROJECT, OR AS BORROWINGS WHICH BEAR CARRYING CHARGES; AND THAT THE SOURCE THEREOF MAY BE ITS GENERAL MUNICIPAL REVENUES OR GENERAL MUNICIPAL BOND ISSUES. IT IS POINTED OUT FURTHER THAT, WHILE THE SO-CALLED INTEREST WOULD NOT REPRESENT AN ACTUAL EXPENDITURE BY THE LOCAL PUBLIC BODY IN PAYMENT OF A COST ALLOWABLE AS A GROSS PROJECT COST OF ITS PROJECT, IT WOULD REPRESENT THE CARRYING CHARGES WHICH WOULD HAVE BEEN BORNE BY THE PROJECT IF THE LOCAL PUBLIC BODY HAD BORROWED THE MONEY TO PAY PROJECT COSTS RATHER THAN ADVANCE THE MONEY FROM ITS OWN FUNDS.

THIS METHOD OF FINANCING, YOU SAY, DENIES TO THE LOCAL PUBLIC BODY THE USE OF ITS FUNDS FOR OTHER PURPOSES, AND CONSEQUENTLY IT IS DENIED THE INTEREST EARNINGS THAT IT COULD DERIVE IF THE FUNDS WERE USED FOR SUCH OTHER PURPOSES. THUS, YOU SUGGEST THAT THE INCLUSION OF SO-CALLED INTEREST ON SUCH FUNDS AS A GROSS PROJECT COST WOULD, TO SOME EXTENT, COMPENSATE THE LOCAL PUBLIC BODY FOR THE INTEREST WHICH WOULD ACTUALLY HAVE BEEN EARNED IF THE FUNDS HAD BEEN USED FOR PURPOSES OTHER THAN THE PROJECT UNDERTAKING.

THE DOUBT IN THE MATTER IS SAID TO ARISE FROM A DIFFERENCE OF OPINION IN YOUR AGENCY AS TO THE INTERPRETATION OF ITEM 1 OF THE TERM "GROSS PROJECT COST, CONTAINED IN SECTION 110 (E) OF THE HOUSING ACT OF 1949, 63 STAT. 421, AS AMENDED, 42 U.S.C., SUPP. IV, 1460 (E). SAID SECTION 110 (E) DEFINES THE TERM IN PERTINENT PART:

"GROSS PROJECT COST" SHALL COMPRISE (1) THE AMOUNT OF THE EXPENDITURES BY THE LOCAL PUBLIC AGENCY WITH RESPECT TO ANY AND ALL UNDERTAKINGS NECESSARY TO CARRY OUT THE PROJECT (INCLUDING THE PAYMENT OF CARRYING CHARGES, BUT NOT BEYOND THE POINT WHERE THE PROJECT IS COMPLETED) * * *. AND SECTION 110 (F), 42 U.S.C. 1460 (F), DEFINES THE TERM "NET PROJECT COST" AS FOLLOWS:

"NET PROJECT COST" SHALL MEAN THE DIFFERENCE BETWEEN THE GROSS PROJECT COST AND THE AGGREGATE OF (1) THE TOTAL SALES PRICE OF ALL LAND OR OTHER PROPERTY SOLD, AND (2) THE TOTAL CAPITAL VALUES (I) IMPUTED ON BASIS APPROVED BY THE ADMINISTRATOR, TO ALL LAND OR OTHER PROPERTY LEASED, AND (II) USED AS A BASIS FOR DETERMINING THE AMOUNTS TO BE TRANSFERRED TO THE PROJECT FROM OTHER FUNDS OF THE LOCAL PUBLIC AGENCY TO COMPENSATE FOR ANY LAND RETAINED BY IT FOR USE IN ACCORDANCE WITH THE REDEVELOPMENT PLAN.

UNDER TITLE I OF THE HOUSING ACT OF 1949, AS AMENDED, THE HOUSING AND HOME FINANCE AGENCY IS AUTHORIZED TO PROVIDE FEDERAL AID, IN THE FORM OF LOANS AND CAPITAL GRANTS, TO LOCAL PUBLIC AGENCIES AUTHORIZED BY STATE AND LOCAL LAW TO CARRY OUT SLUM CLEARANCE AND URBAN RENEWAL ACTIVITIES. THE FEDERAL CAPITAL GRANTS MAY NOT EXCEED TWO-THIRDS OF THE AGGREGATE OF THE NET COST (DEFICIT) OF PROJECTS; THE REMAINING ONE THIRD THEREOF IS REQUIRED TO BE SUPPLIED BY THE LOCAL PUBLIC AGENCIES LOCAL GRANTS-IN-AID BY WAY OF CASH OR NONCASH. THIS MATCHING GRANT FORMULA IS TO BE APPLIED AND GIVEN EFFECT THROUGH USE OF DEFINITIONS OF THE TERMS QUOTED ABOVE.

THE QUOTED SECTION 110 (E) (1), 42 U.S.C. 1460 (E) (1/--- BY ITS PLAIN TERMS--- MAKES EXPENDITURES BY THE LOCAL PUBLIC AGENCY THAT ARE NECESSARY TO THE ACCOMPLISHMENT OF THE PROJECT AN ELIGIBLE GROSS PROJECT COST FOR PURPOSES OF DETERMINING THE EXTENT OR LIMIT OF FEDERAL ASSISTANCE IN THE FURTHERANCE OF URBAN RENEWAL ACTIVITIES. THE PARENTHETICAL STATEMENT "INCLUDING THE PAYMENT OF CARRYING CHARGES, BUT NOT BEYOND THE POINT WHERE THE PROJECT IS COMPLETED" EMPHASIZES THE CONGRESSIONAL INTENT THAT SUCH PROJECT EXPENDITURES PROPERLY MAY INCLUDE THE PAYMENT OF INTEREST ON ACCOUNT OF BORROWINGS THAT ARE NECESSARY TO CARRY OUT THE PROJECT.

THE WORDS "EXPENDITURE" AND "PAYMENT" IN THEIR ORDINARY SENSE CONNOTE THE DISCHARGE IN MONEY OF A SUM DUE IN THE COURSE OF BUSINESS AND IMPLY THE EXISTENCE OF A DEBT. SEE 23 COMP. GEN. 953. AS USED IN SECTION 110 (E) (1) THESE WORDS CLEARLY CONTEMPLATE THAT ONLY THE ACTUAL EXPENDITURES BY THE LOCAL PUBLIC AGENCY THAT ARE DIRECTLY CONNECTED WITH AND NECESSARY TO THE CARRYING OUT OF AN APPROVED PROJECT PROPERLY MAY BE CONSIDERED A COST ALLOWABLE WITHIN THE SCOPE OF THE TERM "GROSS PROJECT COST.'

THERE IS NOTHING IN TITLE I OF THE HOUSING ACT OF 1949, AS AMENDED, SPECIFICALLY REQUIRING THAT, IN DETERMINING APPROVABLE GROSS PROJECT COSTS UNDER THE URBAN RENEWAL PROGRAM PARTICIPATED IN BY THE FEDERAL GOVERNMENT, THERE IS TO BE INCLUDED SO-CALLED OR IMPUTED INTEREST COSTS ON CAPITAL ADVANCED BY A LOCAL PUBLIC AGENCY FROM TAX RECEIPTS AND OTHER NONBORROWING SOURCES EVEN THOUGH INTEREST IS NOT ACTUALLY PAID; NOR IS SUCH A CONSTRUCTION REQUIRED BY NECESSARY IMPLICATION. TO INTRODUCE THIS ELEMENT AS AN ALLOWABLE GROSS PROJECT COST WOULD LEAD TO CONFUSION AND UNCERTAINTIES IN DETERMINING THE AMOUNT OF THE GOVERNMENT'S CAPITAL GRANTS AUTHORIZED UNDER THE LAW, AND SERVE TO INCREASE THE AMOUNT OF SUCH GRANTS.

UNDER THE PROVISIONS OF SECTION 106 OF THE HOUSING ACT OF 1949, AS AMENDED, 42 U.S.C. SUPP. IV, 1456 (3), YOUR DETERMINATIONS RELATIVE TO FINANCIAL TRANSACTIONS INCLUDING CAPITAL GRANTS UNDER THE PROGRAM ARE MADE FINAL AND CONCLUSIVE UPON ALL OFFICERS OF THE GOVERNMENT; AND YOUR LETTER RECOGNIZES THAT THE SECTION ALSO LIMITS OUR RESPONSIBILITY THEREUNDER TO THAT OF MAKING AN ANNUAL AUDIT OF YOUR ACCOUNTS IN ACCORDANCE WITH THE PRINCIPLES AND PROCEDURES APPLICABLE TO COMMERCIAL TRANSACTIONS AS PROVIDED BY THE GOVERNMENT CORPORATION CONTROL ACT, AS AMENDED, 31 U.S.C. 846, 851, WHICH REQUIRES THAT A REPORT OF THE AUDIT FINDINGS WILL BE PRESENTED TO THE CONGRESS. CONSEQUENTLY, WHILE IN OUR OPINION WE DO NOT REGARD THE STATUTE AS AUTHORIZING THE INCLUSION OF THE SO-CALLED INTEREST CHARGE, WE ARE NOT AUTHORIZED TO RENDER A BINDING DECISION TO YOU IN THIS MATTER.

HOWEVER, IF YOU DETERMINE THAT THE INCLUSION OF SO-CALLED INTEREST AS A GROSS PROJECT COST UNDER THE FACTS OUTLINED ABOVE IS NECESSARY IN ORDER TO OBVIATE FINANCIAL INEQUITIES ON THE PART OF CERTAIN LOCAL PUBLIC AGENCIES, IT IS OUR VIEW THAT THE MATTER PROPERLY SHOULD BE RESOLVED BY OBTAINING LEGISLATIVE AUTHORITY THEREFOR AND THAT, WITHOUT SUCH AUTHORITY, WE WOULD CONSIDER MAKING APPROPRIATE COMMENT THEREON IN AN AUDIT REPORT TO THE CONGRESS.