B-96983, B-225110 September 3, 1987

B-96983, B-225110 September 3, 1987

The Honorable John C. Stennis Chairman, Committee on Appropriations United States Senate

Dear Mr. Chairman:

In its report on the Department of Defense Appropriations Bill for fiscal year 1987, your Committee asked that we determine the implications under the Impoundment Control Act of the Department's failure to obligate budget authority appropriated for Defense Production Act purchases. S. Rep. No. 446, 99th Cong., 2d Sess. 259 (1986).

The Congress, through fiscal year 1986, had appropriated $41 million for this purpose. Ten million dollars was first appropriated over 2-1/2 years ago, the-other $31 million about 1-1/2 years ago. The Department has failed, thus far, to obligate any of these amounts. Although it-still is not in a position to obligate these fund, the Department, in consultation with the Office of Management and Budget (OMB), has recently taken actions which will result in obligation of the funds.

The determination whether an impoundment occurred is often difficult because not all delays are impoundments. "Programmatic" delays, which are not impoundments, take place when an agency needs a reasonable time to accomplish administrative tasks which are prerequisites to obligation of the funds. The difficulty of determining whether a delay is programmatic or is in fact an impoundment is exacerbated when, as in this case, the events in question took place several years ago the best source of information is the agency suspected of impoundment; and the answer depends in part on the intent of agency officials.

Programmatic considerations--the start-up problems cited by the Department--and the attempts to meet OMB's objections to the Department's drafts were undoubtedly responsible for at least some of the delay in this case. However, the Department's failure to explain these delays in detail, coupled with some evidence that the Department did not make reasonable efforts to avoid the delays, together suggest that for at least a portion of the time between appropriation of these funds and the Department's first formal submission to OMB of justifications for proposed purchases under the Act, an impoundment may have taken place. To prove that hypothesis definitively now, however, might not be possible.

In this connection, your Committee's report asked that we review the handling of this program by OMB, in light of the Impoundment Control Act, to determine whether the delays in obligating funds were inappropriate. The evidence does not permit a definitive determination but, as explained below, it is clear that at least part of the delay attributable to OMB's scrutiny of the DOD submissions was appropriate, and that the Department could have done much more to assure timely obligation of these funds. A detailed explanation follows.

As you know, section 303 of the Defense Production Act, an originally enacted in 1950, permitted the President to purchase, or enter into commitments to purchase, strategic materials. Section 303 was amended in April 1984, to require the President, before he exercises the section 303 authority, to determine that (1) the material is essential to the national defense; (2) United States industry cannot otherwise provide the capability for the material in a -timely manner; (3) the purchase or purchase commitment is the most cost-effective, expedient, and practical method for meeting the government's need; and (4) the national defense demand for the material is equal to, or greater than, the available domestic output. Pub. L. No. 98-265, 98 Stat. 50, 51; 50 U.S.C. App. Sec. 2093 ( Supp. III 1985 ).

In addition, under section 303, as amended, the President may not take any action, except during national emergencies, unless the "industrial resource shortfall" which his action is intended to correct "has been identified in the Budget of the United States, or amendments thereto, submitted to the Congress. . . ." A statement demonstrating that the proposed purchase is in accordance with the four criteria outlined above must be included in the budget submission. The President may execute a purchase agreement 60 days after this submission Id.

Although section 303 was amended in April 1984 and the first $10 million of budget authority here in question was appropriated in October 1984 (Pub. L. No. 98-473, 98 Stat. 1919), the Department had earlier opportunities to anticipate and plan to meet the conditions enacted as part of section 303. As early as January 1983, the Department in effect represented that it could carry out a program essentially equivalent to that later enacted under section 303, as amended. The Department had unsuccessfully sought an appropriation of $200 million for fiscal year 1984 for purchases or commitments under the original version of section 303. With this budget request, submitted to the Congress in January 1983, the Department voluntarily pledged not to use the funds unless essentially the same four conditions later incorporated in the statute were met./

The same pledge was repeated in February 1984, when the Department asked for an appropriation of $25 million for fiscal year 1985 for section 303 purposes. At that time, the Department also said that it would provide the Congress annually with a list of intended uses for section 303 funds. Section 303 was amended shortly thereafter, in April. In October 1984, $10 million was made available for the program. By February 1985, when the first $10 million had already been available for 4 months, and the Department was requesting an additional $59 million in its budget for fiscal year 1986, the Department was able to identify six potential section 303 projects, including one (traveling wave tubes) which has since been reported to the Congress, and to estimate fiscal year 1985 obligations of $7 million. However, fiscal year 1985 ended in September, not only with no funds obligated for the section 303 program, but with no staff office established in the Department, and no messages announcing proposed projects having been sent to the Congress.

The Department said, in its February 1986 budget request for an additional $30 million for the section 303 program, that "We are organizing a full- time staff . . . as the executive agent for the program. That staff is only now, in fiscal year 1987, actually coming into existence.

The Department also said, in that budget request, that "problems have been resolved and we do not anticipate additional delays in obligating funds." Fiscal year 1986 obligations of $11.2 million were estimated. This proved to be overly optimistic.

The first budget submission to the Congress pursuant to section 303 (involving $3 million for weapons grade intrin sically pure polysilicon) was made in September 1986, 2-l/2 years after section 303 was amended and almost 2 years after the first $10 million of budget authority became available. A second budget submission ($7 million for traveling wave tubes) was not made until April 21, 1987. Budget amendments outlining uses for the remainder of the funds were submitted to the Congress on June 2, 1987. None of the funds have yet been obligated, although, according to Department officials, the $3 million for polysilicon is close to being obligated.

Department and OMB officials gave varying reasons for the delays, with each agency, for the most part, attributing the delays to the other. The Department said that the main reason was OMB's refusal to support the program by making unreasonable demands for detailed project determinations, which the Department had difficulty in meeting. Department officials, although they admitted to "start-up problems, " also alluded to policy differences between the Department and OMB as a cause for the delays; OMB, according to the Department, was opposed in principle to the subsidizing of private industry under the Title III program, and raised unjustified objections to DOD's proposals. However, in congressional testimony, DOD officials refused to blame the delay on OMB. "Reauthorization of the Defense Production Act," Hearing before the Subcommittee on Economic Stabilization, House Committee on Banking, Finance and Urban Affairs, 99th Cong., 2d Sess. 24-25, July 24, 1986.

An OMB official explains that the section 303 requirement that intended actions be specified in a Budget or Budget amendment imposes a legal impediment to the obligation of the funds. Even though the Budgets for fiscal years 1985 and 1986 requested funds for section 303 purchases, the President, according to OMB, had not determined, at the times the Budget requests were submitted to the Congress, that any specific purchases met the requirements of section 303. Thus, no particular industrial resource shortfall was identified in either Budget, or in amendments to either Budget, and lump sums were requested and appropriated. /1/ OMB said that the Department was slow in providing the first two project determinations, and that one of the two did not adequately demonstrate that it met Defense Production Act criteria. More generally, OMB did not agree that it was motivated by policy considerations and pointed to DOD's lack of full-time staff and consequent inability to develop adequate justifications for proposed projects as the reasons for the delays.

The Impoundment Control Act defines "deferral of budget authority" as any type of executive inaction which effectively precludes the obligation of budget authority. 2 U.S.C. Sec. 682 (1)(B). Delays in obligation which occur while an agency is moving to carry out a program, but which are attributable to the time it takes to set up the program or meet the statutory conditions for obligating the funds to the Congress under section 1013 of the Impoundment Control Act. The characterization of a delay as programmatic is making able efforts igate the fur the delay is, even with such efforts, unavoidable. For example, the time required in good faith, once a proposed Defense Production Act purchase is before the President, for him to satisfy himself that the statutory conditions are met would be programmatic.

In this case, substantial question exists whether the Department made reasonable efforts. However, as noted above, since any impoundment which may have occurred has now ended, we do not believe it would be useful, if it were possible at all, to attempt to resolve whether the delays went beyond what can be legitimately termed programmatic. For the same reason, we have not attempted, in our effort to ascertain OMB's role in the withholding of the funds, to resolve in detail, where a conflict exists between what the Department and OMB told us, which statements are correct. /2/ However, the evidence does permit us to conclude that the Department must bear a major share of the blame for the delay in obligation of these funds

The Department did not assign permanent staff to the program until this fiscal year. It seems likely that adequate staff would have permitted much earlier completion of satisfactory justifications for purchase of the materials which DOD had decided to recommend. Moreover, OMB's objections to the Department's justifications were acknowledged by the Department to have been warranted: Department officials admitted to us that OMB asked some good questions reviewing the purchases proposed by the Department, and that the Department will probably make fewer mistakes than it would have without an OMB review.

Sincerely yours,

Comptroller General of the United States

1. In his Budget for fiscal year 1987, the President also requested a lump sum, and did not specify what short falls the funds were to correct. OMB indicated to us that in the future, the President's Budget requests will identify specific shortfalls and the actions the President plans to take to correct such shortfalls, and will include statements explaining how these actions satisfy the requirements of section 303.

2. We did review the respective roles of OMB and the Department in developing program requirements, preparing and reviewing the budget, and obligating appropriated funds, and conclude that the policies and procedures are now adequate.