B-175155, JUL 29, 1977

B-175155, JUL 29, 1977

IN THE ABSENCE OF A DEFINITIVE STATEMENT OF THE METHOD FOR DETERMINING THE FEDERAL SHARE OF REIMBURSEMENT FOR CAPITAL COSTS INCURRED IN RAIL SERVICE ASSISTANCE PROGRAMS AUTHORIZED BY SECTIONS 402 AND 803 OF THE RAILROAD REVITALIZATION AND REGULATORY REFORM ACT OF 1976, GAO BELIEVES THAT THE FEDERAL SHARE SHOULD BE DETERMINED ON THE BASIS OF THE YEAR IN WHICH THE GRANT AGREEMENT (OR AMENDMENT THERETO) BECOMES EFFECTIVE.

LOCAL RAIL SERVICE ASSISTANCE PROGRAMS - DECLINING FEDERAL MATCHING SHARE PROVISIONS:

THIS IS IN RESPONSE TO THE REQUEST OF THE DEPUTY GENERAL COUNSEL OF THE DEPARTMENT OF TRANSPORTATION (DOT) FOR OUR DECISION CONCERNING THE APPLICATION OF THE FEDERAL-- NON-FEDERAL MATCHING SHARE PROVISIONS OF SECTION 402(A)(1) OF THE REGIONAL RAIL REORGANIZATION ACT (RRRA), PUB. L. NO. 93-236, 45 U.S.C. 762(A) (SUPP. V, 1975), AS AMENDED BY SECTION 805(A) OF PUB. L. NO. 94-210, 90 STAT. 139 (FEB. 5, 1976), 45 U.S.C.A. 762(A) (JUNE 1976 SUPP.) AND SECTION 5(G) OF THE DEPARTMENT OF TRANSPORTATION ACT (PUB. L. 89-670), AS ADDED BY SECTION 803, PUB. L. NO. 94-210, 90 STAT. 130 (FEB. 5, 1976), 49 U.S.C.A. 1654(G). THE FORMER PROVISION WILL BE REFERRED TO HEREAFTER AS THE "SECTION 402 PROGRAM" AND THE LATTER AS THE "SECTION 803 PROGRAM."

BOTH THE SECTION 402 AND SECTION 803 PROGRAMS WERE CREATED BY THE RAILROAD REVITALIZATION AND REGULATORY REFORM ACT OF 1976 (RRRA), PUB. L. NO. 94-210, ID. THEY PROVIDE, IN SUBSTANTIALLY THE SAME MANNER, FOR A DECLINING FEDERAL SHARE IN LOCAL RAIL SERVICES SUBSIDIES AND ASSISTANCE PROGRAMS OVER A PERIOD OF YEARS BEGINNING APRIL 1, 1977, IN THE CASE OF THE SECTION 402 PROGRAM (THE DATE RAIL PROPERTIES WERE CONVEYED PURSUANT TO 303(B)(1) OF THE REGIONAL RAIL REORGANIZATION ACT) AND BEGINNING JULY 1, 1976, IN THE CASE OF THE SECTION 803 PROGRAM.

THE PERTINENT PORTIONS OF THESE TWO STATUTORY PROVISIONS ARE AS FOLLOWS:

SECTION 402 PROGRAM:

"(A) GENERAL.-- (1) THE SECRETARY SHALL PROVIDE FINANCIAL ASSISTANCE IN ACCORDANCE WITH THIS SECTION TO ASSIST IN THE PROVISION OF RAIL SERVICE CONTINUATION PAYMENTS, THE ACQUISITION OR MODERNIZATION OF RAIL PROPERTIES. * * * THE FEDERAL SHARE OF THE COSTS OF ANY SUCH ASSISTANCE SHALL BE AS FOLLOWS: (A) 100 PERCENT FOR THE 12-MONTH PERIOD FOLLOWING THE DATE THAT RAIL PROPERTIES ARE CONVEYED PURSUANT TO SECTION 303(B)(1) OF THIS ACT; AND (B) 90 PERCENT FOR THE SUCCEEDING 12 MONTH PERIOD."

SECTION 803 PROGRAM:

"THE FEDERAL SHARE OF THE COSTS OF ANY RAIL SERVICE ASSISTANCE PROGRAM SHA-L BE AS FOLLOWS: (1) 100 PERCENT FOR THE PERIOD FROM JULY 1, 1976 TO JUNE 30, 1977; (2) 90 PERCENT FOR THE PERIOD FROM JULY 1, 1977 TO JUNE 30, 1978; (3) 80 PERCENT FOR THE PERIOD FROM JULY 1, 1978 TO JUNE 30, 1979; AND (4) 70 PERCENT FOR THE PERIOD FROM JULY 1, 1979 TO JUNE 30, 1981. * *

THE DEPUTY GENERAL COUNSEL ASKS TWO QUESTIONS:

"(1) HOW SHOULD THE FEDERAL SHARE OF THE COSTS OF AN ASSISTANCE PROGRAM BE DETERMINED WHERE THE GRANT IS MADE DURING THE PERIOD OF 100 PERCENT FEDERAL FUNDING (I.E. PRIOR TO APRIL 1, 1977) AND THE WORK FOR THE CAPITAL PROJECT WHICH IS THE SUBJECT OF THE GRANT IS PERFORMED IN WHOLE OR IN PART AFTER APRIL 1, 1977, WHEN THE 90/10 COST-SHARING PROVISION GOES INTO EFFECT? (2) CAN A GRANT BE MADE FOR 100 PERCENT OF PROJECT COSTS PRIOR TO APRIL 1, 1977 FOR AN ACQUISITION TO BE MADE AFTER APRIL 1, 1977, PROVIDED THE CONTRACT TO BUY IS MADE BEFORE THAT DATE?"

THE DEPUTY GENERAL COUNSEL PROVIDES THE FOLLOWING DESCRIPTION OF THE PROGRAMS INVOLVED:

"THE SECTION 402 LOCAL RAIL SERVICES SUBSIDY PROGRAM UNDER THE RRRA IS PART OF THE PROCESS OF IMPLEMENTING THE RESTRUCTURING OF THE BANKRUPT RAILROADS IN THE NORTHEAST AND MIDWEST. ON APRIL 1, 1976, THE CONSOLIDATED RAIL CORPORATION ("CONRAIL") AND OTHER PROFITABLE CARRIERS TOOK OVER THE OPERATIONS OF THOSE PORTIONS OF THE BANKRUPT LINES DETERMINED TO BE CONTINUED UNDER THE FINAL SYSTEM PLAN ADOPTED UNDER THE RRRA. SERVICE ON THOSE LINES NOT TAKEN BY CONRAIL OR THE OTHER CARRIERS COULD BE DISCONTINUED AND THE LINES ABANDONED UNDER SECTION 304 OF THE RRRA (EXEMPT FROM THE USUAL PROCEEDING BEFORE THE INTERSTATE COMMERCE COMMISSION ("ICC")), UNLESS SUBSIDIES WERE OFFERED TO COVER THE DEFICITS, PAY LEASE PAYMENTS TO THE ESTATES AND PAY AN APPROPRIATE MANAGEMENT FEE. UNDER SECTION 402 STATES ARE ENTITLED TO A SHARE OF PROGRAM FUNDS BASED ON ELIGIBLE MILEAGE IN THE STATE TO CARRY OUT A COMPREHENSIVE LOCAL RAIL SERVICES PROGRAM INCLUDING PLANNING, SUBSIDIES, MODERNIZATION OF ELIGIBLE FACILITIES, ACQUISITION OF LINES AND RAIL BANKING FOR FUTURE RAIL USE. THE PROGRAM CONTINUES FOR TWO YEARS FROM APRIL 1, 1976. AT THAT TIME SECTION 402 LAPSES (SEE SECTION 806 OF THE RRRA) AND THE PROGRAM BECOMES PART OF THE SECTION 803 PROGRAM.

"THE SECTION 803 PROGRAM IS A 5-YEAR PROGRAM OF LOCAL RAIL SERVICE ASSISTANCE TO STATES SUBSTANTIALLY SIMILAR TO THE SECTION 402 PROGRAM. LINES PERMITTED TO BE DISCONTINUED BY THE ICC, AND THOSE ELIGIBLE UNDER THE SECTION 402 PROGRAM WHEN THAT PROGRAM ENDS, CAN BE ASSISTED. * * *

"WITH RESPECT TO OPERATING SUBSIDIES, INCLUDING NECESSARY ALLOWABLE ONGOING MAINTENANCE, THE GRANT FOR THE 100 PERCENT PERIOD IS LIMITED TO ACTIVITIES CONCLUDED DURING THE 100 PERCENT SUBSIDY PERIOD AS DISTINGUISHED FROM THOSE PERFORMED DURING THE 90 PERCENT PERIOD BEGINNING APRIL 1, 1977. IN THE PLANNING AND CAPITAL GRANT AREAS FOR OTHER ALLOWABLE ACTIVITIES, HOWEVER, THERE WOULD SEEM TO BE NO REASON WHY GRANTS MADE PRIOR TO APRIL 1, 1977 AND FOR WHICH THE STATES MAKE BINDING COMMITMENTS PRIOR TO SUCH DATE, CANNOT BE FUNDED AT THE 100 PERCENT RATE REGARDLESS OF WHEN THE WORK IS PERFORMED OR THE ACQUISITION MADE. ALL KINDS OF CONSTRUCTION DELAYS NORMALLY OCCUR. SIMILARLY, ALL KINDS OF DELAYS OCCUR IN CONNECTION WITH THE CLEARING OF TITLE IN BANKRUPTCY CASES."

THE DEPUTY GENERAL COUNSEL RECOMMENDS THE FOLLOWING RESOLUTION OF HIS QUESTION:

"THE ISSUE (OF THE APPLICABLE FEDERAL SHARE) ARISES BECAUSE IT IS UNCLEAR WHAT CONGRESS INTENDED TO BE USED AS THE REFERENCE POINT FOR DETERMINING THE PERIOD TO WHICH ASSISTANCE IS ATTRIBUTABLE FOR COST SHARING PURPOSES. FOR EXAMPLE, THE POINT COULD BE (1) THE EFFECTIVE DATE OF THE GRANT AGREEMENT OR AMENDMENT THERETO BETWEEN FRA AND A STATE PROVIDING ASSISTANCE TO THE PARTICULAR PROJECT IN QUESTION; (2) THE DATE THE GRANT IS PAID BY FRA; (3) THE DATE A COMMITMENT IS MADE BETWEEN THE STATE AND A SUBCONTRACTOR; OR (4) THE DATE THE WORK IS PERFORMED. THE USUAL REFERENCE POINT USED BY A GRANT ASSISTANCE AGENCY WOULD BE THE EFFECTIVE DATE OF A BONA FIDE GRANT AGREEMENT OR AMENDMENT THERETO BETWEEN FRA AND THE STATE PROVIDING FOR ASSISTANCE TO THE PARTICULAR PROJECT IN QUESTION. ADMINISTRATIVELY, IT IS IMPOSSIBLE FOR THE GOVERNMENT TO ESTABLISH A UNIFORM AND RELIABLE PROCEDURE FOR DETERMINING WHEN WORK IS PERFORMED. FURTHER, STATES MAY BE UNABLE TO UNDERTAKE PROJECTS OR TO PLAN EFFECTIVELY FOR THEIR INVESTMENT IF THEY ARE UNAWARE OF THEIR OWN FINANCIAL LIABILITY DUE TO POTENTIAL FOR INADVERTENT DELAYS BEYOND APRIL 1 (OR JUNE 1 UNDER SECTION 803) IN EACH YEAR IN WHICH THE SHARE CHANGES.

"THE LEGISLATIVE HISTORY DOES NOT DEFINITIVELY ANSWER OUR QUESTIONS. GIVEN THE ABSENCE OF A DEFINITIVE STATEMENT OF CONGRESSIONAL INTENT, WE BELIEVE WE ARE JUSTIFIED IN INTERPRETING THE PROVISIONS IN QUESTION IN A MANNER THAT IS NOT INCONSISTENT WITH THE LANGUAGE OF THE STATUTE AND BEST PROVIDES FOR AN ADMINISTRATIVELY WORKABLE PROGRAM. WE, THEREFORE, BELIEVE THAT THE FEDERAL SHARE OF THE COSTS OF CAPITAL PROJECTS SHOULD BE DETERMINED ON THE BASIS OF THE YEAR IN WHICH THE GRANT AGREEMENT OR AMENDMENT TO SUCH AGREEMENT PROVIDING ASSISTANCE TO THE PROJECT BECAME EFFECTIVE."

WE HAVE REVIEWED THE LEGISLATIVE HISTORY OF THESE PROVISIONS AND HAVE FOUND VERY LITTLE DISCUSSION ON THIS POINT. IN NO EVENT CAN THE DISCUSSION BE SAID TO BE DEFINITIVE OF THE MEANS OF DETERMINING THE FEDERAL SHARE OF ASSISTANCE.

ALTHOUGH FUNDS ARE OBLIGATED OR "RESERVED" AT THE TIME A BINDING COMMITMENT IS MADE BY A GRANTEE WITH A THIRD PARTY TO SUPPLY GOODS OR SERVICES, GENERALLY A COST WOULD NOT BE VIEWED AS HAVING BEEN INCURRED BY A GRANTEE UNTIL IT BECOMES LIABLE TO THE THIRD PARTY TO PAY FOR SUCH GOODS OR SERVICES.

HOWEVER, UNDER THE LANGUAGE OF THE STATUTE, THE FEDERAL SHARE OF ASSISTANCE IN THIS PROGRAM NEED NOT BE DETERMINED WITH REFERENCE TO WHEN COSTS ARE INCURRED. IN THE CASE OF THE CAPITAL IMPROVEMENT PROGRAM, AS WE UNDERSTAND IT, SEPARATE GRANTS ARE MADE FOR THE PURPOSE OF ACCOMPLISHING EACH DISCRETE PROJECT. THE AMOUNT OF FEDERAL SUPPORT IS DETERMINED ON THE BASIS OF BUDGET ESTIMATES FOR ACCOMPLISHMENT OF THE WHOLE PROJECT AT THE TIME THE GRANT IS MADE, WHETHER IT TAKES ONE YEAR OR SEVERAL YEARS TO COMPLETE THE PROJECT (WITHIN THE MAXIMUM TIME ALLOWED BY THE GRANT AGREEMENT, OF COURSE). THUS WHILE PERIODIC PAYMENTS TO THE GRANTEE FROM THE GRANT ARE GENERALLY MADE ON THE BASIS OF COSTS INCURRED, THIS DOES NOT AFFECT THE TOTAL SUPPORT AVAILABLE FOR THE PROJECT WHICH IS DETERMINED AT THE TIME THE GRANT WAS MADE.

ACCORDINGLY, PROVIDED THAT THE DEPARTMENT ESTABLISHES A METHOD TO ASSURE THAT GRANTEES ARE NOT UNDERTAKING COMMITMENTS BEYOND THEIR IMMEDIATE CAPACITIES IN ORDER TO TAKE ADVANTAGE OF THE HIGHER SHARE OF FEDERAL ASSISTANCE, WE HAVE NO LEGAL OBJECTION TO THE DEPUTY GENERAL COUNSEL'S RECOMMENDATION THAT THE FEDERAL SHARE OF THE COSTS OF CAPITAL PROJECTS SHOULD BE DETERMINED ON THE BASIS OF THE YEAR IN WHICH THE GRANT AGREEMENT (OR AMENDMENT THERETO) IS ENTERED INTO WITH RESPECT TO ANY GIVEN PROJECT.