B-221498.13, SEP 18, 1986

B-221498.13, SEP 18, 1986

PRECIS-UNAVAILABLE

MR. CHARLES B. SAUNDERS, JR.:

VICE PRESIDENT FOR GOVERNMENTAL RELATIONS

AMERICAN COUNCIL ON EDUCATION

ONE DUPONT CIRCLE

WASHINGTON D.C. 20036-1193

THE HONORABLE WILLIAM H. GRAY III, CHAIRMAN OF THE COMMITTEE ON THE BUDGET, U.S. HOUSE OF REPRESENTATIVES, HAS REFERRED TO US YOUR LETTER CONCERNING THE APPLICATION OF THE BALANCED BUDGET AND EMERGENCY DEFICIT CONTROL ACT OF 1985 (PUBLIC LAW 99-177) TO TEACHER LOAN CANCELLATIONS UNDER THE NATIONAL DIRECT STUDENT LOAN (NDSL) PROGRAM, AND TO SUBSIDIZED INTEREST PAYMENTS FOR COLLEGE CONSTRUCTION PROJECTS. /1/ YOU STATE YOUR OPINION THAT BOTH ITEMS ARE CONTRACTURAL OBLIGATIONS OF THE FEDERAL GOVERNMENT, EXEMPT FROM SEQUESTRATION UNDER THE ACT. SECTION 256(1) OF THE ACT PROVIDES THAT OBLIGATED BALANCES ARE NOT TO BE REDUCED UNDER AN ORDER OF THE PRESIDENT MADE PURSUANT TO THE ACT.

AS DISCUSSED BELOW, IT IS OUR VIEW THAT REDUCTIONS MAY BE MADE UNDER THE TEACHER LOAN CANCELLATION PROGRAM WITHOUT AFFECTING BALANCES OBLIGATED PRIOR TO THE EFFECTIVE DATE OF THE PRESIDENT'S SEQUESTRATION ORDER. THE INTEREST SUBSIDY PROGRAM, HOWEVER, MAY BE EXEMPT FROM REDUCTION.

TEACHER LOAN CANCELLATIONS

SECTION 465 OF THE HIGHER EDUCATION ACT, 20 U.S.C. SEC. 1087EE, REQUIRES HIGHER EDUCATION INSTITUTIONS PARTICIPATING IN THE NDSL PROGRAM TO CANCEL SPECIFIED PERCENTAGES OF THE LOANS OF BORROWERS WHO ENGAGE IN CERTAIN AREAS OF TEACHING AND MILITARY SERVICE. THE LOANS IN QUESTION ARE FINANCED BY A REVOLVING LOAN FUND OPERATED BY EACH INSTITUTION AND CAPITALIZED IN PART WITH FEDERAL CONTRIBUTIONS. THE SECRETARY OF EDUCATION IS REQUIRED TO PAY TO EACH INSTITUTION AN AMOUNT EQUAL TO THE AGGREGATE AMOUNT OF LOANS CANCELED IN EACH FISCAL YEAR, LESS ANY AMOUNT FINANCED FROM FEDERAL CAPITAL CONTRIBUTIONS TO THE INSTITUTION'S STUDENT LOAN FUND. 20 U.S.C SEC. 1087EE(B).

APPROPRIATIONS FOR PAYMENTS TO INSTITUTIONS FOR LOAN CANCELLATIONS ARE PROVIDED ANNUALLY AS PART OF THE LUMP SUM APPROPRIATION FOR STUDENT FINANCIAL ASSISTANCE. FOR FISCAL YEAR 1986, $4.9 BILLION WAS APPROPRIATED FOR THE STUDENT FINANCIAL ASSISTANCE ACCOUNT, OF WHICH $28,000,000 WAS DESIGNATED BY THE HOUSE AND SENATE COMMITTEES ON APPROPRIATIONS TO BE USE FOR LOAN CANCELLATIONS. SEE PUB.L. NO. 99 178, 99 STAT. 1123 (1985); H.R. REP. NO. 289, 99TH CONG., 1ST SESS. 127, 129 (1985); S. REP. 151, 99TH CONG., 1ST SESS. 182-84 (1985). FOR FISCAL YEAR 1986, THE PRESIDENT'S ORDER MAKING REDUCTIONS SPECIFIED $210,141,000 IN REDUCTIONS FOR THE STUDENT FINANCIAL ASSISTANCE ACCOUNT, $1,204,000 OF WHICH WOULD BE MADE IN THE LOAN CANCELLATION PROGRAM.

THE AMOUNT APPROPRIATED FOR THIS PROGRAM FOR FISCAL YEAR 1986 WAS THE ESTIMATE OF OBLIGATIONS THAT WOULD BE INCURRED FOR THE ENTIRE FISCAL YEAR. THIS DOES NOT MEAN, HOWEVER, THAT THE FULL AMOUNT OF THE APPROPRIATION IS CONSIDERED TO BE OBLIGATED AT THE BEGINNING OF THE FISCAL YEAR. OBLIGATIONS ARE INCURRED THROUGHOUT THE YEAR AS LOANS ARE ACTUALLY CANCELED, MUCH LIKE OBLIGATIONS UNDER LOAN GUARANTEE AGREEMENTS ARE CONSIDERED TO OCCUR AS LENDERS DEMONSTRATE THAT DEFAULTS HAVE TAKEN PLACE AND THE GOVERNMENT'S REPAYMENT OBLIGATION IS ESTABLISHED. CONSEQUENTLY, ALTHOUGH SECTION 256(1) OF PUBLIC LAW 99 177 PROVIDES THAT OBLIGATED BALANCES ARE NOT TO BE REDUCED UNDER AN ORDER ISSUED BY THE PRESIDENT, THE PROVISION IS APPLICABLE ONLY WITH RESPECT TO LOANS CANCELED AT THE TIME OF THE EFFECTIVE DATE OF THE PRESIDENT'S ORDER; THE REMAINDER OF THE APPROPRIATION WOULD BE SUBJECT TO REDUCTION.

WE UNDERSTAND FROM OUR DISCUSSIONS WITH OFFICIALS OF THE DEPARTMENT OF EDUCATION THAT CURRENT ESTIMATES OF LOAN CANCELLATIONS FOR FISCAL YEAR 1986 ARE AT A LEVEL BELOW THAT USED AS AN ESTIMATE FOR THIS YEAR'S APPROPRIATION. CONSEQUENTLY, IT APPEARS THAT THERE WILL BE SUFFICIENT RESOURCES REMAINING AFTER SEQUESTRATION TO PERMIT FULL REIMBURSEMENT TO EDUCATIONAL INSTITUTIONS UNDER THE LOAN CANCELLATION PROGRAM.

INTEREST SUBSIDY GRANTS FOR IMPROVEMENTS TO ACADEMIC FACILITIES

SECTION 734 OF THE HIGHER EDUCATION ACT OF 1965, 20 U.S.C. SEC. 1132D-3, AUTHORIZES THE SECRETARY OF EDUCATION TO MAKE ANNUAL INTEREST GRANTS TO INSTITUTIONS OF HIGHER EDUCATION (OR HIGHER EDUCATION BUILDING AGENCIES) THAT ENTER INTO LOAN COMMITMENTS FOR THE CONSTRUCTION, RECONSTRUCTION, OR RENOVATION OF ACADEMIC FACILITIES. AN INSTITUTION OR AGENCY MAY OBTAIN A GRANT BY ENTERING INTO A FORMAL AGREEMENT WITH THE SECRETARY OF EDUCATION. THE STANDARD DEPARTMENT OF EDUCATION AGREEMENT GUARANTEES THE ANNUAL PAYMENT OF INTEREST SUBSIDIES SO LONG AS THE INSTITUTION OR AGENCY CARRIES OUT THE TERMS AND CONDITIONS OF THE AGREEMENT. THE ONLY GROUNDS CITED IN THE AGREEMENT THAT WOULD PERMIT A REDUCTION IN THE AMOUNT OF THE GRANT ARE REDUCTIONS IN PROJECT DEVELOPMENT COSTS AND CHANGES IN THE AMOUNT, INTEREST RATE, OR TERM OF THE UNDERLYING LOAN AGREEMENT. THE AGREEMENT IS NOT SPECIFICALLY CONTINGENT UPON THE AVAILABILITY OF APPROPRIATIONS.

WE HAVE BEEN INFORMED BY OFFICIALS OF THE DEPARTMENT OF EDUCATION THAT THE DEPARTMENT HAS NOT ENTERED INTO NEW INTEREST SUBSIDY AGREEMENTS FOR LOAN COMMITMENTS MADE SINCE 1974. THUS, ALL MONIES APPROPRIATED FOR THIS PROGRAM ARE USED TO MEET INTEREST SUBSIDY COSTS OF LOAN COMMITMENTS MADE PRIOR TO 1974.

FOR FISCAL YEAR 1986, THE CONGRESS PROVIDED $23,500,000 FOR THE PROGRAM, WHICH IS INCLUDED AS ONE OF TWENTY "PROGRAMS, PROJECTS, AND ACTIVITIES" OF THE HIGHER EDUCATION ACCOUNT. THE HIGHER EDUCATION ACCOUNT, WITH TOTAL BUDGETARY RESOURCES OF $455,238,000, WAS REDUCED BY $19,575,000 (4.3 PERCENT) UNDER THE PRESIDENT'S ORDER; OF THIS AMOUNT, $1,010,000 WAS ATTRIBUTABLE TO REDUCTIONS IN THE INTEREST SUBSIDY PROGRAM.

THIS OFFICE HAS PREVIOUSLY HAD OCCASION TO DETERMINE THE APPLICABILITY OF SECTION 256(1) OF THE BALANCED BUDGET AND EMERGENCY DEFICIT CONTROL ACT TO AN INTEREST SUBSIDY PROGRAM. IN OUR JANUARY 21, 1986, REPORT TO CONGRESS UNDER SECTION 251(B) OF THE ACT ("BUDGET REDUCTIONS FOR FY 1986," GAO/OCG- 86-1), WE SPECIFICALLY ADDRESSED WHETHER FUNDS FOR FEDERAL INTEREST SUBSIDY PAYMENTS FOR FEDERALLY GUARANTEED BONDS ISSUED BY THE WASHINGTON METROPOLITAN AREA TRANSIT AUTHORITY (WMATA) WERE "OBLIGATED BALANCES," PROTECTED FROM REDUCTION UNDER SECTION 256(1). WE CONCLUDED THAT, BECAUSE OF THE CONTRACTUAL COMMITMENT ESTABLISHED BY THE PRIOR SUBSIDY AGREEMENT, APPROPRIATIONS PROVIDED FOR THE PROGRAM WERE FULLY OBLIGATED PRIOR TO THE EFFECTIVE DATE OF THE PRESIDENT'S ORDER MAKING REDUCTIONS. THUS, WE DETERMINED THAT THE FISCAL YEAR 1986 APPROPRIATIONS FOR THE PROGRAM WERE PROTECTED FROM REDUCTION UNDER SECTION 256(1) OF THE ACT.

LIKE THE WMATA INTEREST SUBSIDY PROGRAM, THE HIGHER EDUCATION INTEREST SUBSIDY PROGRAM INVOLVES PRIOR CONTRACTURAL COMMITMENTS ON THE PART OF THE GOVERNMENT, FOR WHICH APPROPRIATIONS ARE PROVIDED ON AN ANNUAL BASIS. EACH CASE, THE OBLIGATION IS FULLY ESTABLISHED AT THE TIME THAT APPROPRIATIONS ARE PROVIDED BY THE CONGRESS. IN COMPARISON, AS INDICATED EARLIER, OBLIGATIONS UNDER TEACHER AND MILITARY LOAN CANCELLATIONS ARISE DURING THE COURSE OF THE FISCAL YEAR AS LOANS ARE CANCELED. CONSEQUENTLY, AS WAS THE CASE WITH WMATA, WE CONCLUDE THAT APPROPRIATIONS PROVIDED IN FISCAL YEAR 1986 FOR THE HIGHER EDUCATION INTEREST SUBSIDY PROGRAM WERE OBLIGATED PRIOR TO THE EFFECTIVE DATE OF THE PRESIDENT'S ORDER, AND WERE NOT TO BE REDUCED UNDER PUBLIC LAW 99 177. BECAUSE HIGHER EDUCATION INTEREST SUBSIDY AGREEMENTS DO NOT APPEAR TO BE SUBJECT TO THE AVAILABILITY OF APPROPRIATIONS (UNLIKE WMATA), OBLIGATED BALANCES IN THIS PROGRAM WOULD ALSO APPEAR TO BE EXEMPT IN FISCAL YEAR 1987.

IF, AS WITH THE TEACHER AND MILITARY LOAN CANCELLATION PROGRAM, APPROPRIATIONS FOR INTEREST SUBSIDIES EXCEED CURRENT ESTIMATES OF TOTAL PROGRAM OBLIGATIONS, REDUCTIONS IN THIS PROGRAM MAY BE ACCOMPLISHED WITHOUT REDUCING OBLIGATED BALANCES. IF, INSTEAD, ALL APPROPRIATIONS PROVIDED ARE REQUIRED TO MEET PRIOR CONTRACTUAL COMMITMENTS, IT IS OUR VIEW THAT FUNDS FOR OTHER PROGRAMS, PROJECTS, AND ACTIVITIES AMONG THE HIGHER EDUCATION ACCOUNT MUST BE REDUCED BY AN AMOUNT SUFFICIENT TO ENSURE THAT THE FULL AMOUNT OF REDUCTIONS FOR THE HIGHER EDUCATION ACCOUNT ARE MADE, AS SPECIFIED IN THE JANUARY 21, 1986 REPORT OF THE COMPTROLLER GENERAL, AND THE FEBRUARY 1, 1986, ORDER OF THE PRESIDENT. /2/

IN SUMMARY, REDUCTIONS UNDER THE TEACHER LOAN CANCELLATION PROGRAM MAY BE MADE WITHOUT AFFECTING BALANCES OBLIGATED PRIOR TO THE EFFECTIVE DATE OF THE PRESIDENT'S SEQUESTRATION ORDER. ON THE OTHER HAND, APPROPRIATIONS FOR THE INTEREST SUBSIDY PROGRAM, EXCEPT TO THE EXTENT THEY EXCEED CURRENT PROGRAM ESTIMATES, ARE OBLIGATED BALANCES EXEMPT FROM REDUCTION UNDER SECTION 256(1) OF THE ACT.

WE HOPE THAT THE FOREGOING IS OF ASSISTANCE TO YOU.

/1/ ALTHOUGH YOUR LETTER REFERS TO SUBSIDIZED INTEREST PAYMENTS UNDER THE COLLEGE HOUSING LOAN PROGRAM, WE UNDERSTAND THAT THE SUBSIDIZED INTEREST PAYMENTS TO WHICH YOU REFER IN YOUR LETTER ARE ACTUALLY THOSE WITHIN THE HIGHER EDUCATION ACCOUNT.

/2/ WE CONSIDER THE LANGUAGE OF SECTION 256(1) TO GOVERN THE IMPLEMENTATION OF REQUIRED REDUCTIONS, RATHER THAN THE CALCULATION OF THE AMOUNT REQUIRED TO BE REDUCED WITHIN EACH ACCOUNT. THIS IS INDICATED BY THE FACT THAT THE CONGRESS PRORATED THE AMOUNT OF REQUIRED REDUCTIONS IN ALL ACCOUNTS BY SEVEN-TWELFTHS, TO TAKE INTO ACCOUNT THE FIVE-TWELFTHS OF FISCAL YEAR 1986 WOULD HAVE PASSED (AND THEREFORE A LARGE PORTION OF BUDGETARY RESOURCES OBLIGATED) PRIOR TO THE EFFECTIVE DATE OF THE PRESIDENT'S ORDER. SEE, E.G., 251(A)(3)(II)(I). THUS, IT IS OUR VIEW THAT OBLIGATED BALANCES ARE NOT TO BE EXCLUDED FROM THE SEQUESTRABLE BASE IN DETERMINING THE TOTAL AMOUNT TO BE REDUCED IN EACH ACCOUNT. CERTAIN PROGRAMS, PROJECTS, AND ACTIVITIES WITHIN ACCOUNTS MAY THEREFORE BE SUBJECT TO A LARGER PERCENTAGE REDUCTION THAN WOULD OTHERWISE BE REQUIRED, WHERE BALANCES OF OTHER PROGRAMS, PROJECTS, AND ACTIVITIES WITHIN THE SAME ACCOUNT HAVE BEEN OBLIGATED PRIOR TO THE EFFECTIVE DATE OF THE PRESIDENT'S ORDER. WHILE THIS APPEARS TO BE CONTRARY TO SECTION 252(A)(1)(B) (REQUIRING THAT PROGRAMS, PROJECTS, AND ACTIVITIES WITHIN ACCOUNTS BE REDUCED AT THE SAME PERCENTAGE BY WHICH THE ACCOUNT INVOLVED IS REDUCED), WE CONSIDER THE REQUIREMENT THAT ALL ACCOUNTS BE REDUCED BY A UNIFORM PERCENTAGE AMOUNT TO TAKE PRECEDENCE OVER THE LANGUAGE OF SECTION 252(A)(1)(B). SEE, E.G., 251(A)(3)(F)(IV)(I).