B-148819, AUG. 22, 1963, 43 COMP. GEN. 188

B-148819, AUG. 22, 1963, 43 COMP. GEN. 188

FUNDS - FEDERAL GRANTS, ETC., TO OTHER THAN STATES - DEFINITION. INDIAN AFFAIRS - REVOLVING FUNDS - STATUS AS FEDERAL AID. INDIAN AFFAIRS - REVOLVING FUNDS - STATUS AS FEDERAL AID LOANS TO INDIAN TRIBES FROM THE INDIAN REVOLVING FUND FOR DEVELOPMENT OF INDUSTRIAL OR COMMERCIAL PROJECTS WITHIN A REDEVELOPMENT AREA WHICH IS ELIGIBLE FOR FEDERAL ASSISTANCE UNDER THE AREA REDEVELOPMENT ACT, 42 U.S.C. 2505, MUST BE REGARDED AS "FEDERAL AID" WITHIN THE MEANING OF SECTION 6 (B) (9) OF THE ACT, 42 U.S.C. 2505 (B) (9), WHICH REQUIRES OTHER FEDERAL AID TO BE DEDUCTED FROM THE AGGREGATE COST OF THE PROJECTS BEFORE APPLYING THE MAXIMUM LOAN LIMITATION OF 65 PERCENT. A CORPORATION OR BUSINESS ENTITY WHICH IS ORGANIZED BY AN INDIAN TRIBE WITH FUNDS FROM THE INDIAN REVOLVING FUND FOR THE PURPOSE OF ECONOMIC DEVELOPMENT IS IN EFFECT AN AGENT OR CONDUIT THROUGH WHICH THE TRIBES WOULD OBTAIN ADDITIONAL FEDERAL FINANCIAL AID UNDER THE AREA REDEVELOPMENT ACT, 42 U.S.C. 2505, AND, THEREFORE, THE LOANS FROM THE INDIAN REVOLVING FUND MUST BE CONSIDERED ,FEDERAL AID" WITHIN THE MEANING OF SECTION 6 (B) (9) OF THE ACT, 42 U.S.C. 2505 (B) (9), WHICH REQUIRES OTHER AID TO BE DEDUCTED FROM THE AGGREGATE COST OF THE PROJECTS BEFORE THE MAXIMUM LOAN LIMITATION OF 65 PERCENT MAY BE APPLIED. FUNDS OBTAINED FROM THE INDIAN REVOLVING FUND WHICH ARE USED BY INDIAN TRIBES TO LOAN, INVEST OR PURCHASE STOCK IN BUSINESS ENTITIES THAT ARE ORGANIZED TO QUALIFY FOR FEDERAL FINANCIAL ASSISTANCE UNDER THE AREA REDEVELOPMENT ACT HAVE NOT CHANGED THEIR CHARACTER AS FEDERAL FUNDS, EVEN THOUGH NO PRIVITY OF CONTRACT EXISTS BETWEEN THE BUSINESS ENTITIES AND THE GOVERNMENT BY VIRTUE OF THE LOAN, INVESTMENT OR STOCK PURCHASE AND, THEREFORE, THE EXCLUSION OF SUCH INDIAN REVOLVING FUNDS FROM THE AGGREGATE COST OF A REDEVELOPMENT PROJECT IN APPLYING THE LIMIT OF FEDERAL FINANCIAL ASSISTANCE AUTHORIZED IN SECTION 6 (B) (9) OF THE ACT, 42 U.S.C. 2505 (B) (9), WOULD CONTRAVENE THE EXPRESS TERMS OF THE ACT REQUIRING DEDUCTION OF OTHER FEDERAL AID.

TO THE SECRETARY OF THE INTERIOR, AUGUST 22, 1963:

REFERENCE IS MADE TO LETTER DATED APRIL 29, 1963, FROM ASSISTANT SECRETARY OF THE INTERIOR JOHN A. CARVER, JR., WHICH REQUESTS RECONSIDERATION OF OUR DECISION OF JUNE 5, 1962, B-148819, 41 COMP. GEN. 792.

THE DECISION OF JUNE 5, 1962, WAS RENDERED IN RESPONSE TO A REQUEST FROM THE ASSISTANT SECRETARY OF COMMERCE FOR ADMINISTRATION AND PUBLIC AFFAIRS. THE QUESTIONS THERE PRESENTED FOR DETERMINATION WERE WHETHER CONSUMER LOANS MADE BY RURAL ELECTRIFICATION ADMINISTRATION, DEPARTMENT OF AGRICULTURE, FINANCED ELECTRIC COOPERATIVE ORGANIZATIONS, EITHER FROM THE COOPERATIVE ORGANIZATION'S OWN GENERAL FUNDS OR PURSUANT TO A REA LOAN TO THE COOPERATIVE ORGANIZATIONS UNDER SECTION 5 OF THE RURAL ELECTRIFICATION ACT, AS AMENDED, 7 U.S.C. 905, CONSTITUTE "FEDERAL AID" WITHIN THE MEANING OF THAT TERM AS USED IN SUBSECTION 6 (B) (9) OF THE AREA REDEVELOPMENT ACT, PUBLIC LAW 87-27, APPROVED MAY 1, 1961, 75 STAT. 47, 51, 42 U.S.C. 2505 (B) (9) (SUPP. IV).

THE CONCLUSION OF THAT DECISION WAS BASED UPON THE REASONING THAT SINCE LOANS MADE BY REA TO COOPERATIVE ORGANIZATIONS, FOR RELENDING TO COMMERCIAL OR INDUSTRIAL CONSUMERS FOR THE INSTALLATION OF ELECTRICAL EQUIPMENT OR MACHINERY, REPRESENT FINANCIAL TRANSACTIONS PRIMARILY INVOLVING REA AND THE COOPERATIVE ORGANIZATIONS IN THAT REA LOOKS TO THE COOPERATIVES RATHER THAN TO THE CONSUMER-BORROWER FOR REPAYMENT AND SECURITY OF ITS LOANS, AND THAT SINCE THE RELENDING OF FUNDS BY THE COOPERATIVE ORGANIZATIONS TO CONSUMER-BORROWERS CREATES NO PRIVITY OF CONTRACT BETWEEN THE LATTER AND THE GOVERNMENT, SUCH FUNDS IN THE HANDS OF CONSUMER-BORROWERS DO NOT REPRESENT "FEDERAL AID, WITHIN THE MEANING OF THAT TERM AS USED IN SUBSECTION 6 (B) (9) OF THE AREA REDEVELOPMENT ACT.

IT WAS POINTED OUT IN THE DECISION THAT UNDER THE TERMS OF 25 U.S.C. 470, THE SECRETARY OF THE INTERIOR IS AUTHORIZED TO MAKE LOANS TO INDIAN CHARTERED CORPORATIONS TO PROMOTE THE ECONOMIC DEVELOPMENT OF SUCH TRIBES AND ITS MEMBERS, AND THAT SUCH LOAN PROGRAMS OPERATING WITHIN A REDEVELOPMENT AREA HAVE A DIRECT RELATIONSHIP BETWEEN THE GOVERNMENT AND THE BORROWER LOOKING TO THE EFFECTIVE ESTABLISHMENT OR EXPANSION OF INDUSTRIAL OR COMMERCIAL PLANTS WITHIN SUCH AREA. AS INDICATED IN THE ASSISTANT SECRETARY'S LETTER, THE VIEW WAS EXPRESSED THAT IN GIVING EFFECT TO THE LIMIT OF FINANCIAL AID AUTHORIZED IN SUBSECTION 6 (B) (9) TO BE EXTENDED TO APPLICANTS, IN CONNECTION WITH INDUSTRIAL OR COMMERCIAL PROJECTS WITHIN A REDEVELOPMENT AREA, THE AMOUNT OF LOANS MADE UNDER THE TERMS OF 25 U.S.C. 470 WOULD BE REQUIRED TO BE DEDUCTED FROM THE AGGREGATE COST OF THE APPLICANTS OF PROJECTS BEFORE APPLYING THE MAXIMUM LOAN LIMITATION OF 65 PERCENT THEREON.

THE ASSISTANT SECRETARY STATES THAT THE DEPARTMENT MAKES LOANS TO INDIAN TRIBES FOR ANY PURPOSE THAT WILL PROMOTE THE ECONOMIC DEVELOPMENT OF THE ORGANIZATION AND ITS MEMBERS. ENTERPRISES OPERATED BY INDIAN TRIBES OFTEN ARE FINANCED BY A COMBINATION OF FUNDS, VIZ., PRIVATE, TRIBAL, LOANS FROM THE REVOLVING FUND, AND OPERATING PROFITS OF THE ENTERPRISE WHICH ARE RETAINED. NO DISTINCTION IS MADE BETWEEN THE SOURCE OF FUNDS IN ENTERPRISE OPERATIONS AND THE ONLY CONTROLS THE DEPARTMENT EXERCISES OVER THE OPERATIONS FINANCED IN WHOLE OR IN PART WITH LOANS FROM THE REVOLVING FUND, ARE THOSE CONSIDERED NECESSARY FOR LOAN PROTECTION.

THE ASSISTANT SECRETARY MENTIONS THAT THE BUREAU OF INDIAN AFFAIRS AND INDIAN TRIBAL GROUPS ARE CURRENTLY ENGAGED IN AN EXTENSIVE COOPERATIVE ECONOMIC DEVELOPMENT PROGRAM DESIGNED TO DEVELOP PHYSICAL AND MANPOWER RESOURCES ON INDIAN RESERVATIONS FOR MAXIMUM ECONOMIC AND SOCIAL BENEFITS TO INDIANS WITH EMPHASIS PLACED ON PROJECTS TO DEVELOP TOURISM, COMMERCIAL ENTERPRISES, AND INDUSTRY. HE STATES THAT WHILE THERE EXIST SOME SOURCES THAT CAN BE UTILIZED IN OBTAINING FUNDS THEREFOR, THE LOAN PROVISIONS OF THE AREA REDEVELOPMENT ACT OPENED UP AN ADDITIONAL AND VERY SIGNIFICANT SOURCE OF FINANCING TO THE TRIBES. MANY PROJECTS WOULD RECEIVE FINANCING UNDER THE LOAN PROVISIONS OF THIS ACT IF SUPPLEMENTED WITH LOANS FROM THE INDIAN REVOLVING LOAN FUND. IF THE AMOUNT OF SUCH LOANS MUST BE DEDUCTED FROM THE AGGREGATE PROJECT COST BEFORE APPLYING THE MAXIMUM LOAN LIMITATION OF 65 PERCENT, FINANCING OF SUCH PROJECTS MAY NOT BE POSSIBLE. THIS ACTION MAY ALSO ADVERSELY AFFECT THE ENTIRE ECONOMIC DEVELOPMENT PROGRAM IN THAT IT MAY IMPEDE THE PROGRESS OR EVEN THE START OF NEW PROJECTS. ACCORDINGLY, HE REQUESTS RECONSIDERATION AS TO WHETHER LOANS FROM THE INDIAN REVOLVING LOAN FUND TO INDIAN TRIBES CONSTITUTE "FEDERAL AID" WITHIN THE MEANING OF THAT TERM AS USED IN SUBSECTION 6 (B) (9) OF THE AREA REDEVELOPMENT ACT.

FOLLOWING RECEIPT OF THE ASSISTANT SECRETARY'S LETTER OF APRIL 29, A CONFERENCE WAS HAD BETWEEN THE STAFF OF OUR CIVIL ACCOUNTING AND AUDITING DIVISION AND REPRESENTATIVES OF YOUR DEPARTMENT RELATIVE TO THIS MATTER. IT WAS LEARNED THAT THE REQUEST FOR RECONSIDERATION OF OUR DECISION STEMMED FROM CERTAIN PROPOSED LEADING SITUATIONS IN CONNECTION WITH THE INDIAN REVOLVING LOAN FUND EXAMPLES OF WHICH ARE AS FOLLOWS:

1. MESCALERO TOURIST ENTERPRISE. A REPORT PREPARED BY CHECCHI AND COMPANY UNDER CONTRACT WITH ARA ON THE POTENTIAL POWER OF TOURISM, MESCALERO RESERVATION, INDICATES THAT THE ESTABLISHMENT OF A RESORT COMPLEX ON THE RESERVATION, WHICH MAY INVOLVE AN INVESTMENT OF AS MUCH AS $4 MILLION, MAY BE FEASIBLE AND PROMOTE THE ECONOMIC DEVELOPMENT OF THE INDIANS. THERE ARE MANY FACETS OF THE PROPOSAL REQUIRING FURTHER ANALYSIS. THE FORM OF ORGANIZATION AND FINANCING OF THE ENTERPRISE ARE IN EMBRYONIC STAGES. IF THE FEASIBILITY OF THE ENTERPRISE CHECKS OUT, ELIGIBILITY FOR ARA LOANS AND FOR LOANS FROM THE REVOLVING FUND WILL PLAY AN IMPORTANT ROLE IN THE ORGANIZATION AND FINANCING OF THE DEVELOPMENT.

(A) IF THE MESCALERO APACHE TRIBE WERE TO PROCEED WITH THE DEVELOPMENT AS A TRIBAL ENTERPRISE, OWNED AND OPERATED FOR THE BENEFIT OF ALL MEMBERS OF THE TRIBE, AND IF IT WERE SUCCESSFUL IN OBTAINING PRIVATE FINANCING TO BE SUPPLEMENTED BY (1) A LOAN FROM THE ARA, AND (2) A LOAN FROM THE REVOLVING FUND, WOULD THE LOAN FROM THE REVOLVING FUND BE CONSIDERED AS "FEDERAL AID," THUS IN EFFECT REDUCING THE TOTAL AMOUNT OF FINANCING THAT COULD BE SUPPLIED BY THE ARA?

(B) IF A STATE CORPORATION OR OTHER LEGAL ENTITY WERE ORGANIZED TO OWN, DEVELOP, AND OPERATE THE ENTERPRISE, AND IF THE CAPITAL OF THE ENTITY WERE FURNISHED BY THE TRIBE AND PRIVATE ENTREPRENEURS, AND IF A FAVORABLE DETERMINATION WERE MADE THAT FINANCIAL ASSISTANCE COULD BE SUPPLIED BY THE ARA, WOULD AN INVESTMENT BY THE TRIBE IN THE ENTITY, OR A LOAN BY THE TRIBE TO THE ENTITY, CONSTITUTE "FEDERAL AID" IF THE LOAN OR INVESTMENT ORIGINATED IN A LOAN TO THE TRIBE FROM THE REVOLVING FUND?

(C) IF THE STATE CORPORATION OR OTHER LEGAL ENTITY ORGANIZED PURSUANT TO (B) WERE WHOLLY TRIBALLY OWNED, WOULD AN INVESTMENT IN OR LOAN BY THE TRIBE TO THE ENTITY WHICH ORIGINATED IN A LOAN TO THE TRIBE FROM THE REVOLVING FUND, CONSTITUTE "FEDERAL AID?

2. ALEUTIAN DEVELOPMENT CO., UNALASKA, ALASKA. THIS COMPANY IS A NON- NATIVE ORGANIZATION ALTHOUGH IT EMPLOYS MAINLY NATIVES. IT IS NOT ELIGIBLE FOR A LOAN FROM THE REVOLVING FUND. IT IS APPLYING TO THE ARA FOR A LOAN. A LOCAL DEVELOPMENT CORPORATION HAS BEEN ORGANIZED FOR THE PURPOSE OF RAISING THE 10 PERCENT LOCAL PARTICIPATION MONEY REQUIRED BY SECTION 9 (B) OF THE ARA ACT. INDICATIONS ARE THAT THE COMPANY'S OPERATIONS WOULD PROMOTE THE ECONOMIC DEVELOPMENT OF THE NATIVES.

(A) IF THE NATIVES AT UNALASKA WERE TO FORM AN ORGANIZATION RECOGNIZED BY THE COMMISSIONER AND RECEIVE A LOAN FROM THE REVOLVING FUND TO ENABLE THE ORGANIZATION TO RELEND MONEY TO THE ALEUTIAN DEVELOPMENT CO. TO PROVIDE IT WITH LOCAL PARTICIPATION MONEY, WOULD SUCH A LOAN CONSTITUTE ,FEDERAL AID?

(B) IF THE NATIVE ORGANIZATION WERE TO USE THE LOAN FROM THE REVOLVING FUND TO PURCHASE STOCK IN THE LOCAL DEVELOPMENT CORPORATION, AND THE DEVELOPMENT CORPORATION LOANED THE PROCEEDS TO THE ALEUTIAN DEVELOPMENT COMPANY, WOULD THE LOAN BE CONSIDERED AS "FEDERAL AID?

THE CITED SUBSECTION 6 (B) (9) OF THE AREA REDEVELOPMENT ACT PROVIDES, IN PERTINENT PART, AS FOLLOWS:

SUCH ASSISTANCE SHALL NOT EXCEED 65 PERCENTUM OF THE AGGREGATE COST TO THE APPLICANT (EXCLUDING ALL OTHER FEDERAL AID IN CONNECTION WITH THE UNDERTAKING) OF ACQUIRING OR DEVELOPING LAND AND FACILITIES (INCLUDING, IN CASES OF DEMONSTRATED NEED, MACHINERY AND EQUIPMENT), AND OF CONSTRUCTING, ALTERING, CONVERTING, REHABILITATING, OR ENLARGING THE BUILDING OR BUILDINGS OF THE PARTICULAR PROJECT * * *.

IT WAS STATED IN THE REFERRED-TO DECISION THAT THE LANGUAGE OF SUBSECTION 6 (B) (9) QUOTED ABOVE, PLAINLY INDICATES THE PRIMARY OBJECTIVE SOUGHT TO BE ACCOMPLISHED BY THE CONGRESS, NAMELY, TO LIMIT THE AMOUNT OF FEDERAL ASSISTANCE WHICH MAY BE EXTENDED TO INDUSTRIAL AND COMMERCIAL PROJECTS IN INDUSTRIAL AND RURAL REDEVELOPMENT AREAS BY AN AMOUNT NOT TO EXCEED 65 PERCENT OF THE AGGREGATE COST OF THE PROJECT TO THE APPLICANT, EXCLUSIVE OF ALL OTHER FEDERAL AID IN CONNECTION WITH THE UNDERTAKING. FURTHER, THAT THE LEGISLATIVE HISTORY OF THIS SUBSECTION DISCLOSED NOTHING TO INDICATE AN INTENT OF THE CONGRESS TO ATTRIBUTE TO THE TERM "FEDERAL AID" AS USED THEREIN ANY SPECIAL OR TECHNICAL MEANING. AND THAT IT FAIRLY APPEARS THAT THE CONGRESS, BY THE USE OF SUCH TERM, BROADLY HAD REFERENCE TO EXISTING FEDERAL AID PROGRAMS ADMINISTERED BY DEPARTMENTS AND AGENCIES, OTHER THAN THE AREA REDEVELOPMENT ADMINISTRATION, IN THE FIELD OF AREA DEVELOPMENT.

LOANS MADE BY THE DEPARTMENT TO INDIAN TRIBES FROM THE INDIAN REVOLVING LOAN FUND TO PROMOTE THE ECONOMIC DEVELOPMENT OF THE ORGANIZATION AND ITS MEMBERS CONSTITUTE FEDERAL SUPPORT AND ASSISTANCE. WHEN SUCH LOANS ARE MADE AND USED TO DEVELOP INDUSTRIAL OR COMMERCIAL PROJECTS WITHIN REDEVELOPMENT AREA, INCLUDING INDIAN RESERVATIONS, AND AS A BASIS FOR OBTAINING ADDITIONAL FEDERAL FINANCIAL ASSISTANCE UNDER THE PROVISIONS OF THE AREA REDEVELOPMENT ACT, IT FOLLOWS THAT THE LOANS MUST BE REGARDED AS "FEDERAL AID" IN CONNECTION WITH THE UNDERTAKING AND, CONSEQUENTLY, SUBJECT TO THE FINANCING RESTRICTIONS CONTAINED IN SUBSECTION 6 (B) (9) OF THE ACT. EXAMPLE NUMBERED 1 (A) IS ANSWERED ACCORDINGLY.

REGARDING EXAMPLES NUMBERED 1 (C) AND 2 (A), IT WOULD APPEAR THAT THE COMMUNITY OF INTERRELATIONSHIP OF INTEREST BETWEEN THE TRIBE AND THE NATIVES AT UNALASKA, AND THE BUSINESS ENTITIES IN WHICH THEY WOULD INVEST OR TO WHICH THEY WOULD LEND FUNDS OBTAINED AS A LOAN FROM THE INDIAN REVOLVING LOAN FUND IS IDENTICAL. HENCE, THE BUSINESS ENTITIES IN EFFECT ARE MERE AGENTS OR CONDUITS THROUGH WHICH THE TRIBE AND NATIVES AT UNALASKA WOULD OBTAIN ADDITIONAL FEDERAL FINANCIAL AID UNDER THE AREA REDEVELOPMENT ACT. IN SUCH CIRCUMSTANCES WE WOULD BE INCLINED TO REGARD THE LOANS FROM THE INDIAN REVOLVING LOAN FUND AS "FEDERAL AID" IN CONNECTION WITH THE UNDERTAKING AND, THEREFORE, SUBJECT TO THE RESTRICTIONS OF SUBSECTION 6 (B) (9).

WITH REFERENCE TO EXAMPLES NUMBERED 1 (B) AND 2 (B), IT APPEARS THAT THE DISTINCTION BETWEEN THESE SITUATIONS AND THOSE CONSIDERED UNDER EXAMPLES 1 (C) AND 2 (A) IS MAINLY IN THE EXTENT OR DEGREE OF FINANCIAL INTEREST ACQUIRED BY THE TRIBE AND THE NATIVES AT UNALASKA IN A REDEVELOPMENT PROJECT THROUGH THE USE OF FUNDS OBTAINED FROM THE INDIAN REVOLVING LOAN FUND AS A LOAN, INVESTMENT OR STOCK PURCHASE IN BUSINESS ENTITIES SEEKING TO QUALIFY FOR FEDERAL FINANCIAL ASSISTANCE UNDER THE AREA REDEVELOPMENT ACT. WHILE IT MAY BE THAT NO PRIVITY OF CONTRACT IS ESTABLISHED BETWEEN THE BUSINESS ENTITIES AND THE GOVERNMENT BY VIRTUE OF SUCH A LOAN, INVESTMENT OR STOCK PURCHASE, THE NATURE AND SOURCE OF SUCH FUNDS REMAIN UNCHANGED. THE FAILURE TO EXCLUDE SUCH LOAN FUNDS FROM THE AGGREGATE COST OF A REDEVELOPMENT PROJECT, IN APPLYING THE LIMIT OF FEDERAL FINANCIAL ASSISTANCE AUTHORIZED THEREFOR IN SUBSECTION 6 (B) (9), WOULD CONTRAVENE THE EXPRESS TERMS THEREOF AND, CONSEQUENTLY, IS UNAUTHORIZED.

WE APPRECIATE THE CONCERN EXPRESSED IN THE LETTER TO PROMOTE THE ECONOMIC DEVELOPMENT OF THE PHYSICAL AND MANPOWER RESOURCES ON INDIAN RESERVATIONS AND THE NEED TO SUPPLEMENT THE FINANCING AUTHORIZED THEREFOR UNDER THE AREA REDEVELOPMENT ACT WITH LOANS FROM THE INDIAN REVOLVING LOAN FUND. HOWEVER, THE MATTER HAS BEEN CAREFULLY RECONSIDERED BUT WE FIND NO BASIS, UNDER THE CIRCUMSTANCES, FOR REACHING A CONCLUSION DIFFERENT FROM THAT STATED IN OUR DECISION OF JUNE 5, 1962.

A COPY OF THIS DECISION IS BEING FURNISHED TO THE SECRETARY OF COMMERCE.