B-143573, MAY 7, 1962

B-143573, MAY 7, 1962

TO STATE HIGHWAY ENGINEER, TEXAS HIGHWAY DEPARTMENT:

THIS IS A RESPONSE TO YOUR LETTER OF APRIL 12, 1962, FILE REFERENCE DOG, CONCERNING AMOUNTS WITHHELD AND TO BE WITHHELD BY THIS OFFICE FOR SET-OFF AGAINST INDEBTEDNESSES OF THE STATE OF TEXAS ARISING OUT OF THE MISUSE OF FUNDS ADVANCED BY THE UNITED STATES DEPARTMENT OF AGRICULTURE UNDER THE EMERGENCY HAY PROGRAM OF 1953 AND 1954 PURSUANT TO THE PROVISIONS OF PUBLIC LAW 875, 81ST CONGRESS, 64 STAT. 1109, AS AMENDED, 42 U.S.C. 1855, AND SUPPLEMENTED BY PUBLIC LAW 115, 83RD CONGRESS, 67 STAT. 149, AND PUBLIC LAW 357, 83RD CONGRESS, 68 STAT. 81, 88.

YOU POINT OUT THAT THE SUM OF $74,843.66 DETERMINED TO BE DUE THE UNITED STATES IN CONNECTION WITH THE 1954 PROGRAM HAS BEEN SET-OFF AGAINST PAYMENTS OTHERWISE DUE THE STATE OF TEXAS UNDER CONTRACTS WITH THE UNITED STATES DEPARTMENT OF THE ARMY, CORPS OF ENGINEERS, AND THAT AN ADDITIONAL AMOUNT OF $160,768.77 DETERMINED TO BE DUE IN CONNECTION WITH THE 1953 PROGRAM IS TO BE DEDUCTED FROM FUTURE PAYMENTS UNDER CONTRACTS WITH THE CORPS OF ENGINEERS. YOU STATE THAT THE CORPS OF ENGINEERS CONTRACTS INVOLVED WERE ENTERED INTO TO REPAY THE STATE FOR DAMAGES TO ITS HIGHWAY SYSTEM AND CONSTITUTE LEGAL OBLIGATIONS OF THE FEDERAL GOVERNMENT; THAT IN THESE CONTRACTS, THE STATE AGREED TO EXPEND ITS OWN FUNDS SUBJECT TO REIMBURSEMENT; THAT THE STATE IN GOOD FAITH CARRIED OUT ITS PART OF THE AGREEMENTS UTILIZING FUNDS DERIVED FROM TAXES ON MOTOR FUEL AND MOTOR VEHICLES WHICH FUNDS CAN BE USED UNDER TEXAS LAW ONLY FOR THE CONSTRUCTION AND MAINTENANCE OF PUBLIC ROADS; AND THAT DIVERSION OF THESE FUNDS TO THE UNITED STATES DEPARTMENT OF AGRICULTURE VIOLATES SECTION 7A OF ARTICLE 8 OF THE TEXAS CONSTITUTION AND THE PROVISIONS OF SECTION 126 OF TITLE 23, U.S.C. DENYING FEDERAL AID FOR HIGHWAY CONSTRUCTION TO THOSE STATES WHICH DIVERT MOTOR VEHICLE TRANSPORTATION TAXES TO OTHER THAN HIGHWAY USES. AND YOU CALL OUR ATTENTION TO THE PROVISIONS OF SECTION 227 OF TITLE 31, U.S.C. WHICH DEALS WITH OUR AUTHORITY TO SET-OFF CLAIMS OF THE UNITED STATES AGAINST JUDGMENTS ADVERSE TO THE UNITED STATES BUT REQUIRES, WHERE THE VALIDITY OF THE GOVERNMENT'S SET-OFF CLAIM IS QUESTIONED, THAT WE PROMPTLY CAUSE LEGAL PROCEEDINGS TO BE INSTITUTED TO TEST THE VALIDITY OF THE CLAIM. YOU STATE THAT THERE IS A SERIOUS LEGAL QUESTION AS TO THE ACTUAL EXISTENCE OF ANY DEBT; THAT IF SOME DEBT DOES EXIST, THE AMOUNT IS NOT CERTAIN; AND THAT THE AMOUNT ALLEGED BY THIS OFFICE TO BE DUE IS SUBJECT TO QUESTION.

IN VIEW OF THE UNIQUE NATURE OF THE FUNDS WE ARE WITHHOLDING, YOU SUGGEST THAT THE FOLLOWING COURSE OF ACTION BE FOLLOWED:

"1. THAT YOUR PREVIOUS INSTRUCTIONS TO THE CORPS OF ENGINEERS BE RESCINDED AND THAT ALL PAST AND FUTURE PAYMENTS DUE THE STATES UNDER THESE CONTRACTS BE REMITTED AT ONCE OR AS THEY COME DUE.

"2. THAT THE QUESTION OF THE ALLEGED DEBTS OWED THE UNITED STATES BY THE STATE OF TEXAS BE TURNED OVER TO THE JUSTICE DEPARTMENT SO THAT SUIT MAY BE BROUGHT TO DETERMINE THE AMOUNT OF SUCH DEBT, IF ANY; AND

"3. THAT ANY JUDGMENT OBTAINED AGAINST THE STATE BE PRESENTED TO THE TEXAS LEGISLATURE SO THAT THEY MAY APPROPRIATE THE MONEY TO PAY SAME FROM FUNDS WHOSE EXPENDITURE FOR SUCH PURPOSES WOULD NOT VIOLATE THE STATE CONSTITUTION AND THE POLICIES OF U.S. CONGRESS.'

THE DEBT OF $74,843.66 AROSE UNDER AN AGREEMENT BETWEEN THE UNITED STATES AND THE STATE OF TEXAS ENTERED INTO ON JULY 29, 1954, PURSUANT TO PUBLIC LAW 115 AND PUBLIC LAW 357, ABOVE. THE PURPOSE OF THE AGREEMENT WAS TO ENABLE THE GOVERNMENT AND THE STATE TO ASSIST IN MAKING HAY AVAILABLE TO ELIGIBLE FARMERS IN DISASTER AREAS OF THE STATE. THE GOVERNMENT ALLOCATED $500,000, AMENDED TO $1,000,000 ON JANUARY 17, 1955, TO THE STATE FOR USE IN CARRYING OUT THE AGREEMENT SUBJECT TO THE CONDITIONS SET FORTH THEREIN. SECTION 4 OF THE AGREEMENT PROVIDES, IN PERTINENT PART, THAT:

"STATE RESPONSIBILITY. THE FUNDS ADVANCED HEREUNDER SHALL BE USED BY THE STATE TO PAY FOR 50 PERCENT OF THE ACTUAL COST OF TRANSPORTING ELIGIBLE HAY TO ELIGIBLE LIVESTOCK OF ELIGIBLE FARMERS AND RANCHERS IN THE DISASTER AREA, PROVIDED THE ACTUAL COST FOR THE PURPOSES OF THIS AGREEMENT SHALL BE DEEMED NOT TO EXCEED THE COST CALCULATED AT THE LOWEST PUBLISHED TARIFF, OR A COMPARABLE AMOUNT AS DETERMINED BY THE STATE IN THE CASE OF HAY MOVED BY CONTRACT CARRIER OR BY AN ELIGIBLE FARMER OR RANCHER USING HIS OWN TRANSPORTATION FACILITIES, BUT IN NO EVENT SHALL THE CONTRIBUTION OF THE GOVERNMENT EXCEED $10 PER TON OF HAY TRANSPORTED NOR SHALL ANY CONTRIBUTION BE MADE WITH RESPECT TO THE INTRA-FARM OR RANCH MOVEMENT OF HAY.

"WITH RESPECT TO OPERATIONS UNDER THIS AGREEMENT, THE STATE WILL SUBMIT PERIODIC REPORTS AT THE REQUEST OF THE GOVERNMENT AND WITHIN 60 DAYS AFTER THE DATE SET OUT IN PARAGRAPH 6 HEREOF GIVE A COMPLETE ACCOUNTING TO THE GOVERNMENT AND RETURN ALL SUMS OBTAINED FROM THE GOVERNMENT HEREUNDER AND NOT USED PURSUANT TO THE TERMS OF THIS AGREEMENT.'

THE FOLLOWING PERTINENT DEFINITIONS ARE CONTAINED IN SECTION 1 OF THE AGREEMENT:

"AS USED HEREIN THE TERM "DISASTER AREA" SHALL MEAN THOSE COUNTIES NOW AND HEREAFTER DESIGNATED PURSUANT TO PUBLIC LAW 875 AS BEING IN THE DROUGHT AREA OF THE STATE;

"THE TERM "ELIGIBLE FARMERS OR RANCHERS" SHALL MEAN FARMERS OR RANCHERS WHO HAVE BEEN CERTIFIED AS ELIGIBLE FOR PARTICIPATION IN THE PROGRAM CONTEMPLATED BY THIS AGREEMENT BY THE APPROPRIATE COUNTY COMMITTEE UNDER THE RULES OF ELIGIBILITY ESTABLISHED BY THE GOVERNMENT;

"THE TERM "ELIGIBLE HAY" SHALL MEAN HAY WHICH IS COVERED BY A CERTIFICATE ISSUED BY THE APPROPRIATE COUNTY COMMITTEE PURSUANT TO REGULATIONS ISSUED BY THE GOVERNMENT.'

THE DEPARTMENT OF AGRICULTURE MADE AN AUDIT OF TRANSACTIONS UNDER THE AGREEMENT AND FOUND THE FOLLOWING EXPENDITURES OF FEDERAL FUNDS TO BE IMPROPER AND REFUNDABLE:

TABLE

HAY FOR NON-DISASTER AREAS $42,288.23

HAY FOR NON-ELIGIBLE RANCHERS 21,255.57

EXCESSIVE FREIGHT PAYMENTS 2,742.56

OVERPAYMENTS 1,921.68

MISCELLANEOUS 2,735.28

TOTAL $70,943.32

IN ADDITION TO THE SUM OF $70,943.32 FOUND TO HAVE BEEN IMPROPERLY DISBURSED BY THE DEPARTMENT'S AUDITORS, $1,235.60 WHICH HAD NOT BEEN EXPENDED BY THE STATE IS ADMITTEDLY DUE FROM THE STATE TO THE FEDERAL GOVERNMENT AND DISBURSEMENTS TOTALING $2,664.74 WERE LISTED BY THE STATE AUDITOR OF TEXAS AS OVERPAYMENTS, PRIMARILY FOR EXCESS FREIGHT. THESE THREE AMOUNTS TOTAL THE $74,843.66 WHICH WE SET-OFF AGAINST THE PAYMENTS OTHERWISE DUE THE STATE OF TEXAS UNDER ITS CONTRACTS WITH THE CORPS OF ENGINEERS.

THE REPORT OF THE DEPARTMENT'S AUDITORS SHOWS THAT THE FINDINGS CONTAINED THEREIN AND SHOWN ABOVE WERE DISCUSSED WITH RESPONSIBLE STATE OFFICIALS. BY LETTER OF SEPTEMBER 16, 1958, THE DEPARTMENT TRANSMITTED A COPY OF ITS AUDIT REPORT TO THE GOVERNOR OF TEXAS REQUESTING REFUND OF $72,178.92. THROUGH INADVERTENCE THE DEPARTMENT FAILED TO INCLUDE THE $2,664.74 OF EXCEPTIONS BY THE STATE AUDITOR, BUT REQUEST FOR THIS AMOUNT WAS MADE BY LETTER OF SEPTEMBER 26, 1958. THE STATE DID NOT REPLY TO THE DEPARTMENT'S REQUEST FOR PAYMENT AND THE DEPARTMENT REFERRED THE MATTER TO THIS OFFICE ON APRIL 4, 1960. WE WROTE TO THE TREASURER, STATE OF TEXAS, ON MAY 10, 1960, ADVISING HIM OF THE AMOUNT DUE AND POINTING OUT THAT UNLESS THE DEBT WAS SETTLED IMMEDIATELY, EITHER BY DIRECT PAYMENT OR SET-OFF, WE WOULD HAVE NO ALTERNATIVE BUT TO TAKE SUCH ACTION AS MIGHT BE REQUIRED UNDER THE CIRCUMSTANCES. COMMISSIONER JOHN C. WHITE OF THE TEXAS DEPARTMENT OF AGRICULTURE ADVISED US BY LETTER OF JUNE 28, 1960, THAT EXCEPT FOR THE $1,235.60 OF UNUSED FUNDS, HIS DEPARTMENT COULD NOT RECOGNIZE THE CLAIM. UPON RECEIPT OF COMMISSIONER WHITE'S LETTER AND AFTER RECONSIDERATION OF THE CLAIM IN LIGHT OF HIS LETTER, WE EFFECTED COLLECTION OF THE ENTIRE CLAIM BY SET-OFF.

THE RECORD FAILS TO SHOW THAT THE STATE OF TEXAS EVER CONTESTED THE VALIDITY OF THE FEDERAL GOVERNMENT'S CLAIM ON ITS MERITS. WE FIND ONLY THE BARE STATEMENT THAT THE STATE CANNOT RECOGNIZE THE CLAIM EXCEPT FOR A SMALL PORTION THEREOF. WITHOUT REPEATING IN DETAIL THE CONTENTS OF THE AUDIT REPORT PREPARED BY THE DEPARTMENT OF AGRICULTURE, A COPY OF WHICH WAS FURNISHED THE STATE, IT MAY FAIRLY BE STATED THAT THE REPORT MAKES OUT A PRIMA FACIE CASE OF INDEBTEDNESS IN THE AMOUNT STATED. IN VIEW OF THE PRIMA FACIE CASE WHICH HAS BEEN ESTABLISHED AND IN THE ABSENCE OF ANY SUBSTANTIVE REBUTTAL THERETO, WE HAVE NO OTHER COURSE BUT TO SUSTAIN THE PREVIOUS FINDINGS MADE IN THE CASE.

THIS LEAVES FOR CONSIDERATION ONLY THE QUESTION OF WHETHER WE HAVE USED PROPER MEANS FOR EFFECTING COLLECTION OF THE STATE'S INDEBTEDNESS. SECTION 236, REVISED STATUTES, AS AMENDED BY SECTION 305 OF THE BUDGET AND ACCOUNTING ACT OF JUNE 10, 1921, 41 STAT. 24, 31 U.S.C. 71, PROVIDES THAT:

"ALL CLAIMS AND DEMANDS WHATEVER BY THE GOVERNMENT OF THE UNITED STATES OR AGAINST IT, AND ALL ACCOUNTS WHATEVER IN WHICH THE GOVERNMENT OF THE UNITED STATES IS CONCERNED, EITHER AS DEBTOR OR CREDITOR, SHALL BE SETTLED AND ADJUSTED IN THE GENERAL ACCOUNTING OFFICE.'

BY NECESSARY IMPLICATION, WHENEVER THERE IS INVOLVED ANY CLAIM OR DEMAND WHATEVER BY THE UNITED STATES AGAINST ANY PERSON OR ENTITY HAVING A CLAIM AGAINST THE GOVERNMENT, THIS OFFICE NOT ONLY HAS THE AUTHORITY BUT IS REQUIRED IN THE PROPER EXERCISE OF ITS DUTIES TO SET OFF ONE INDEBTEDNESS AGAINST THE OTHER AND TO CERTIFY FOR PAYMENT, OR COLLECTION, ONLY THE BALANCE FOUND DUE ON ONE SIDE OR THE OTHER. SEE TAGGART V. UNITED STATES, 17 CT.CL. 322 (1881); UNITED STATES V. MUNSEY TRUST CO. OF WASHINGTON, D.C., 332 U.S. 234 (1947); AND SEABOARD SURETY CO. V. UNITED STATES, 67 F.SUPP. 969 (1946). MOREOVER, IT IS WELL ESTABLISHED THAT AMOUNTS FOR WHICH A STATE IS INDEBTED TO THE UNITED STATES ARE FOR SET-OFF AGAINST AMOUNTS DUE AGENCIES OF A STATE, EVEN THOUGH THE OPPOSING CLAIMS AROSE FROM SEPARATE TRANSACTIONS. SEE UNITED STATES V. LOUISIANA, 127 U.S. 182 (1887).

CONCERNING YOUR REFERENCE TO THE PROVISIONS OF SECTION 227 OF TITLE 31, U.S.C. AN EXAMINATION OF THE LEGISLATIVE HISTORY SHOWS CLEARLY THAT SECTION 227 IS APPLICABLE SOLELY TO SET-OFF AGAINST JUDGMENTS AND IS NOT FOR CONSIDERATION HERE. THE SECTION DERIVES FROM THE ACT OF MARCH 3, 1875, 18 STAT. 481, WHICH PROVIDED FOR SET-OFF AGAINST JUDGMENTS RECOVERED AGAINST THE UNITED STATES AND OTHER CLAIMS DULY ALLOWED BY LEGAL AUTHORITY. THE ACT WAS AMENDED GENERALLY BY SECTION 13 OF TITLE II OF THE ACT OF MARCH 3, 1933, 47 STAT. 1516, WHICH, AMONG OTHER THINGS, ELIMINATED REFERENCE TO CLAIMS AS DISTINGUISHED FROM JUDGMENTS. THE PURPOSE OF THE AMENDMENT IS EXPLAINED IN SENATE REPORT NO. 1021, 72D CONGRESS, AT PAGE 8, AS FOLLOWS:

"THE COMMITTEE RECOMMENDATION (SEC. 13) AMENDS THE ACT OF MARCH 3, 1875, RELATING TO THE PROCEDURE FOR SET-OFFS AGAINST CREDITORS OF THE UNITED STATES. WHILE THAT ACT APPARENTLY WAS INTENDED TO GRANT TO JUDGMENT CREDITORS RIGHTS SUPERIOR TO THOSE ENJOYED BY OTHER CREDITORS OF THE UNITED STATES, IT CONTAINS LANGUAGE WITH RESPECT TO CLAIMS, AS DISTINGUISHED FROM JUDGMENTS, THAT MIGHT BE CONSTRUED TO DENY THE GOVERNMENT THE RIGHT TO APPLY TOWARD LIQUIDATION OF DEBTS DUE SUCH DEBTORS THE AMOUNTS DUE THE UNITED STATES. SUCH A CONSTRUCTION MIGHT NECESSITATE THE BRINGING OF A SUIT BY THE GOVERNMENT TO AVOID MAKING FULL PAYMENT TO A DEBTOR OF AN AMOUNT OTHERWISE DUE EVEN IF HIS INDEBTEDNESS TO THE UNITED STATES SHOULD BE ONLY $1 AND CLEARLY DUE, AND THE DEBTOR MIGHT CONTINUE TO DEMAND AND RECEIVE AMOUNTS BECOMING DUE HIM FROM THE GOVERNMENT WITHOUT PAYING HIS DEBT, UNLESS THE GOVERNMENT SHOULD GO TO THE EXPENSE OF BRINGING SUIT TO REDUCE TO JUDGMENT THE AMOUNT OF THE DEBT. THE AMENDMENTS ELIMINATE FROM THE STATUTE THE LANGUAGE WITH RESPECT TO CLAIMS, LIMITING THE APPLICATION OF THE STATUTE TO JUDGMENT CREDITORS.'

WE CANNOT AGREE THAT THE GOVERNMENT'S SET-OFF IN THIS CASE AGAINST FUNDS DUE THE STATE OF TEXAS FOR HIGHWAY WORK CONSTITUTES A DIVERSION BY THE GOVERNMENT OF STATE MOTOR VEHICLE AND FUEL TAX FUNDS. THE GOVERNMENT HAS MERELY USED FUNDS IN ITS POSSESSION OTHERWISE DUE THE STATE TO LIQUIDATE A DEBT WHICH THE STATE HAS REFUSED TO HONOR. ANY DIVERSION OF FUNDS INVOLVED IN THE RESPONSIBILITY OF THE STATE WHICH HAS MADE IT NECESSARY TO FORCE THE USE OF ITS HIGHWAY FUNDS TO LIQUIDATE A DEBT PAYABLE BY IT FROM OTHER FUNDS. RESTORATION OF THE STATE HIGHWAY FUND UNDER THESE CIRCUMSTANCES WOULD APPEAR TO BE A STATE RESPONSIBILITY. AS TO THE SUM OF $160,768.77 WHICH THE DEPARTMENT OF AGRICULTURE FOUND DUE UNDER THE 1953 PROGRAM, OUR ACTION TO WITHHOLD AS AVAILABLE FOR SET-OFF FUNDS OTHERWISE DUE THE STATE OF TEXAS WAS INITIATED AT THE REQUEST OF THE DEPARTMENT OF JUSTICE. THIS CLAIM UNDER THE 1953 PROGRAM WAS SUBMITTED BY THE DEPARTMENT OF AGRICULTURE DIRECTLY TO THE JUSTICE DEPARTMENT AND IS BEING HANDLED BY THE JUSTICE DEPARTMENT. OUR COMMENTS WITH RESPECT TO THE 1954 CLAIM ARE EQUALLY APPLICABLE TO THE 1953 CLAIM.

ACCORDINGLY, WE DO NOT BELIEVE WE WOULD BE JUSTIFIED IN RESCINDING OUR INSTRUCTIONS TO THE CORPS OF ENGINEERS NOR DO WE BELIEVE THAT THERE IS ANY REAL BASIS AT THIS TIME FOR REVERSING OUR SET-OFF ACTION ON THE 1954 CLAIM AND REMITTING THE AMOUNT INVOLVED TO THE STATE OF TEXAS.

SINCE THE DEPARTMENT OF JUSTICE IS NOW HANDLING THE 1953 CLAIM A COPY OF THIS LETTER IS BEING SENT TO THAT AGENCY.