[Query Concerning Administration's Delay in Transferring FICA Funds to Treasury]

B-208951, OCT 5, 1982

DIGEST: 1. BECAUSE OF PRESIDENT'S VETO OF SUPPLEMENTAL APPROPRIATIONS BILL, MILITARY PAY ACCOUNTS WERE INSUFFICIENT TO MEET PAYROLL AND ALSO PAY FEDERAL TAXES DUE TO TREASURY ON AUGUST 31, 1982. BECAUSE TREASURY POSTPONED TAX DUE DATE, DOD WAS ABLE TO USE FULL AMOUNT OF ITS REMAINING APPROPRIATIONS FOR MILITARY MEMBER'S TAKE-HOME PAY. CHANGE OF TREASURY REGULATIONS TO PERMIT LATER DUE DATE DID NOT VIOLATE ARTICLE I, SECTION 9, CLAUSE 7 OF THE CONSTITUTION WHICH PROHIBITS DRAWING MONEY FROM THE TREASURY IN THE ABSENCE OF AN APPROPRIATION. DEFERRAL OF ACCOUNTING TRANSACTION TRANSFERRING FUNDS BETWEEN TREASURY ACCOUNTS DOES NOT CONSTITUTE A WITHDRAWAL FROM THE TREASURY WITHIN THE MEANING OF THE CONSTITUTIONAL PROHIBITION. 2. BECAUSE OF PRESIDENT'S VETO OF SUPPLEMENTAL APPROPRIATIONS BILL, MILITARY PAY ACCOUNTS WERE INSUFFICIENT TO MEET PAYROLL AND ALSO PAY FEDERAL TAXES DUE TO TREASURY ON AUGUST 31, 1982. BECAUSE TREASURY POSTPONED TAX DUE DATE, DOD WAS ABLE TO USE FULL AMOUNT OF ITS REMAINING APPROPRIATIONS FOR MILITARY MEMBERS TAKE-HOME PAY. THE TRANSFER OF TAXES TO TREASURY REMAINS AN OBLIGATION BUT ONE WHICH NEED NOT BE PAID UNTIL THE NEW DUE DATE, SEPTEMBER 30. CHANGE OF TREASURY REGULATIONS TO PERMIT LATER PAYMENT DATE APPEARS EFFECTIVE SINCE IT OCCURRED BEFORE AUGUST 31, AND AGENCY COMPLIED WITH EXCEPTION TO USUAL NOTICE REQUIREMENT UNDER 5 U.S.C. SEC. 533(B)(3) CALLING FOR PUBLICATION IN THE FEDERAL REGISTER. 3. BECAUSE OF PRESIDENT'S VETO OF SUPPLEMENTAL APPROPRIATIONS BILL, MILITARY PAY ACCOUNTS WERE INSUFFICIENT TO MEET PAYROLL AND ALSO PAY FEDERAL TAXES DUE TO TREASURY ON AUGUST 31, 1982. OBLIGATIONS INCURRED FOR PAY AND ALLOWANCES OF MILITARY PERSONNEL NEEDED FOR EMERGENCY DUTY WERE WITHIN EXCEPTION FOR "PROTECTING LIFE AND PROPERTY" OF THE ANTIDEFICIENCY ACT, 31 U.S.C. SEC. 665(B). THEREFORE, THERE WAS STATUTORY AUTHORITY TO INCUR OBLIGATIONS FOR SERVICES, EVEN ABSENT SUFFICIENT AVAILABLE FUNDS.

JAMES R. JONES, HOUSE OF REPRESENTATIVES:

THIS IS IN RESPONSE TO YOUR LETTER OF AUGUST 31, 1982, IN WHICH YOU ASK A NUMBER OF QUESTIONS ABOUT THE RECENT ACTION OF THE ADMINISTRATION IN DELAYING PAYMENT TO THE TREASURY OF $653 MILLION OF FUNDS WITHHELD FOR FEDERAL INSURANCE CONTRIBUTIONS ACT (FICA), SOCIAL SECURITY, AND FEDERAL INCOME TAX OBLIGATIONS, AND ASK FOR LEGISLATIVE RECOMMENDATIONS TO CORRECT THESE "EXTRA-LEGAL" PROCEDURES. YOU STATE THAT BY USING THE WITHHELD FUNDS WHICH WOULD OTHERWISE HAVE BEEN PAID TO THE TREASURY TO COVER A SHORTFALL FOR MILITARY PAY AND ALLOWANCES, THE ADMINISTRATION VIOLATED A CONSTITUTIONAL PROHIBITION AGAINST SPENDING MONEY NOT APPROPRIATED BY LAW. YOU ALSO POINT OUT THAT THE PRIVATE SECTOR AND OTHER GOVERNMENT AGENCIES WERE "NOT ALLOWED TO CIRCUMVENT THE INTERNAL REVENUE CODE."

WE DO NOT ENTIRELY AGREE WITH YOUR CHARACTERIZATION OF THESE ACTIONS AS "EXTRA-LEGAL." THE ADMINISTRATION'S ACTION WAS TAKEN BECAUSE THE PRESIDENT'S VETO OF THE SUPPLEMENTAL APPROPRIATION BILL (WHICH WAS SUBSEQUENTLY ENACTED) LEFT INSUFFICIENT FUNDS REMAINING IN MILITARY PAY APPROPRIATION ACCOUNTS TO MEET THE AUGUST 31, 1982 NET PAYROLL AND ALSO TO TRANSFER TO THE TREASURY THE AMOUNTS NECESSARY FOR FEDERAL INCOME AND OTHER TAX WITHHOLDINGS. THE SECRETARY OF THE TREASURY THEN CHANGED THE DUE DATE FOR PAYMENT OF THE TAXES FROM AUGUST 31 TO SEPTEMBER 30, 1982, THUS FREEING SUFFICIENT FUNDS TO MEET THE NET MILITARY PAYROLL ON AUGUST 31. THE ACTING ATTORNEY GENERAL CONCLUDED THAT THERE WAS NO LEGAL BARRIER TO KEEPING THE MILITARY PERSONNEL ON THE JOB AND TO PAYING THEM THEIR FULL TAKE-HOME PAY WITH FUNDS WHICH, BUT FOR THE POSTPONEMENT OF THE DUE DATE, WOULD OTHERWISE HAVE BEEN REQUIRED TO BE TRANSFERRED TO THE INTERNAL REVENUE SERVICE. IN HIS LETTER OF AUGUST 25, 1982, TO THE SECRETARY OF DEFENSE, THE ACTING ATTORNEY GENERAL INDICATED THAT THERE WAS NO LEGAL REQUIREMENT THAT AGENCIES HAVE IN HAND OR TRANSFER TO THE TREASURY ANY FUNDS "'WITHHELD' FROM AN EMPLOYEE'S PAYCHECK UNTIL SUCH TIME AS UNDER PERTINENT TREASURY REGULATIONS, THOSE PAYMENTS ARE ACTUALLY DUE AT THE TREASURY."

WE AGREE WITH THIS POSITION BUT ONLY TO THE EXTENT THAT THE MILITARY PERSONNEL RETAINED ON THE JOB FIT WITHIN AN EXPLICIT EXCEPTION TO THE STATUTORY PROHIBITIONS FOUND IN 31 U.S.C. SEC. 665, OTHERWISE KNOWN AS THE ANTIDEFICIENCY ACT.

THE ANTIDEFICIENCY ACT FORBIDS ANY OFFICER OR EMPLOYEE OF THE UNITED STATES TO OBLIGATE OR EXPEND FUNDS IN ADVANCE OF OR IN EXCESS OF APPROPRIATIONS MADE FOR THAT PURPOSE, UNLESS OTHERWISE AUTHORIZED BY LAW. 31 U.S.C. SEC. 665(A). ON EVERY DAY THAT AN AGENCY REMAINS OPEN FOR BUSINESS, NUMEROUS OBLIGATIONS ARE AUTOMATICALLY INCURRED; FOR EXAMPLE, WHEN EMPLOYEES ARE PERMITTED TO REPORT FOR WORK, THERE IS AN OBLIGATION TO PAY THEM, TO MAKE RELATED CONTRIBUTIONS FOR RETIREMENT AND HEALTH BENEFITS, TO TRANSFER WITHHELD INCOME TAXES, AND SO FORTH. IN THE ABSENCE OF A STATUTORY EXCEPTION, THERE MUST BE SUFFICIENT FUNDS TO COVER ALL OF THESE OBLIGATIONS AT THE TIME THEY ARE INCURRED, REGARDLESS OF THE DATES ON WHICH ANY PARTICULAR OBLIGATION MUST ACTUALLY BE PAID. B-197841, MARCH 3, 1980. THE SECRETARY OF DEFENSE, HOWEVER, FELT THAT ALL HIS UNIFORMED PERSONNEL COULD CONTINUE TO WORK, IN SPITE OF THE FUNDING SHORTFALL, BECAUSE THE ANTIDEFICIENCY ACT ITSELF CONTAINS AN EXCEPTION FOR PERSONNEL USED "IN CASES OF EMERGENCY INVOLVING THE SAFETY OF HUMAN LIFE OR THE PROTECTION OF PROPERTY." 31 U.S.C. SEC. 665(B). HE CERTIFIED TO THE DIRECTOR OF THE OFFICE OF MANAGEMENT AND BUDGET ON AUGUST 24, 1982, THAT ALL HIS MILITARY PERSONNEL FIT WITHIN THIS EXCEPTION.

WHILE SUBSECTION (B) OF THE ACT PROVIDES THE NECESSARY STATUTORY AUTHORITY TO INCUR OBLIGATIONS FOR SERVICES OF EMPLOYEES EVEN WHEN THERE ARE INSUFFICIENT FUNDS AVAILABLE TO PAY FOR THESE SERVICES AT THE TIME THEY ARE PERFORMED, THE SERVICES MUST FIT WITHIN THE STATUTORY EXCEPTION; THAT IS, EACH EMPLOYEE COVERED MUST ACTUALLY BE ASSIGNED TO EMERGENCY DUTY "INVOLVING THE SAFETY OF HUMAN LIFE OR THE PROTECTION OF PROPERTY," OR TO DUTIES REASONABLY NECESSARY TO SUPPORT THOSE SO ENGAGED. WE ARE NOT CONVINCED THAT EVERY MAN AND WOMAN IN UNIFORM IS NECESSARILY PERFORMING EMERGENCY PROTECTION DUTY. WE RECOGNIZE THE ADMINISTRATIVE DIFFICULTIES OF MAKING FINE DISTINCTIONS BETWEEN ONE MEMBER'S DUTIES AND ANOTHER'S, PARTICULARLY WHEN BOTH SERVE OVERSEAS AND ARE ASSIGNED TO A COMBAT UNIT. WE QUESTION ONLY THE BLANKET ASSUMPTION THAT ALL MILITARY PERSONNEL FIT WITHIN THE EXCEPTION.

AUTHORITY TO OBLIGATE BOTH PAY AND ALLOWANCES DOES NOT NECESSARILY MEAN THAT THERE IS ALSO AUTHORITY TO PAY THOSE OBLIGATIONS. THERE MUST ALSO BE SUFFICIENT FUNDS REMAINING IN THE APPLICABLE APPROPRIATION TO COVER ANY PAYMENTS MADE. YOU MENTIONED A CONSTITUTIONAL PROVISION THAT "NO MONEY SHALL BE SPENT UNLESS APPROPRIATED BY LAW." ACTUALLY, THE PROHIBITION IN ARTICLE I, SECTION 9, CLAUSE 7 OF THE CONSTITUTION IS AGAINST DRAWING MONEY FROM THE TREASURY IN THE ABSENCE OF AN APPROPRIATION. STRICTLY SPEAKING, THE ACCOUNTING TRANSACTION THAT TAKES PLACE WHEN WITHHELD FUNDS ARE TRANSFERRED FROM ONE TREASURY ACCOUNT TO ANOTHER TREASURY ACCOUNT DOES NOT REALLY CONSTITUTE A "WITHDRAWAL" FROM THE TREASURY WITHIN THE MEANING OF THE CONSTITUTIONAL PROHIBITION. NEVERTHELESS, THE TRANSFER MUST STILL BE REGARDED AS A "PAYMENT," WHICH THE ANTIDEFICIENCY ACT EXPLICITLY PROHIBITS IF ADEQUATE APPROPRIATIONS ARE NOT AVAILABLE.

SUFFICIENT APPROPRIATIONS WERE AVAILABLE IN THE DOD SITUATION TO COVER ALL REQUIRED PAYMENTS EXCEPT FOR THE WITHHOLDING DEPOSITS. FOR THESE, THE SECRETARY OF DEFENSE WAS GRANTED A SPECIAL EXTENSION OF THE DEPOSITS' DUE DATE BY THE SECRETARY OF THE TREASURY. EFFECTIVE AUGUST 28, 1982, THE SECRETARY OF THE TREASURY AMENDED HIS REGULATIONS TO EXTEND THE TIME TO SEPTEMBER 30, 1982, FOR THE DEPARTMENT OF DEFENSE TO MAKE DEPOSITS OF WITHHELD INCOME TAXES, FICA TAXES, RAILROAD RETIREMENT TAXES, AND FEDERAL UNEMPLOYMENT TAX ACT (FUTA) TAXES, WHICH, WITHOUT THE AMENDMENT, WOULD HAVE BEEN REQUIRED TO BE DEPOSITED BEFORE THAT DATE. IT WAS STATED THAT THIS WAS DONE TO AVOID THE POTENTIAL FOR DISRUPTION OF VITAL DEFENSE AND NATIONAL SECURITY FUNCTIONS OF THE DEFENSE DEPARTMENT. THIS WAS THE REASON FOR NOT ISSUING THE AMENDMENT IN ACCORDANCE WITH NOTICE AND PUBLIC PROCEDURES UNDER 5 U.S.C. SEC. 533(B). THE USUAL NOTICE REQUIREMENT FOR REGULATIONS OR AMENDMENTS UNDER 5 U.S.C. SEC. 533(B)(3), INCLUDING PUBLICATION IN THE FEDERAL REGISTER, DOES NOT APPLY:

"(B) WHEN THE AGENCY FOR GOOD CAUSE FINDS (AND INCORPORATES THE FINDING AND A BRIEF STATEMENT OF REASONS THEREFOR IN THE RULES ISSUED) THAT NOTICE AND PUBLIC PROCEDURE THEREON ARE IMPRACTICABLE, UNNECESSARY, OR CONTRARY TO THE PUBLIC INTEREST."

SINCE THE CHANGE OF REGULATIONS OCCURRED BEFORE AUGUST 31, 1982, AND APPEARED TO BE IN ACCORDANCE WITH APPLICABLE STATUTES, THE CHANGE IN TREASURY REGULATIONS APPEARS EFFECTIVE TO DELAY THE REQUIRED DATE OF DEPOSIT INTO THE TREASURY UNTIL SEPTEMBER 30, 1982. HAD THE DATE OF DEPOSIT NOT BEEN POSTPONED, AS THE ACTING ATTORNEY GENERAL HIMSELF RECOGNIZED, THE MILITARY PAYROLL COULD NOT HAVE BEEN FULLY MET. WHATEVER LIMITED FUNDS REMAINED IN THE APPROPRIATION WOULD HAVE HAD TO BE APPLIED TO PARTIAL PAYMENT OF THE MEMBERS' TAKE-HOME PAY AND EQUIVALENT CONTRIBUTIONS FOR TAXES, RETIREMENT, ETC.

AS YOU POINT OUT, THIS DISPENSATION WAS NOT AVAILABLE TO THE PRIVATE SECTOR OR TO OTHER FEDERAL AGENCIES. WITH RESPECT TO THE PRIVATE SECTOR, WE THINK THERE IS AN IMPORTANT DIFFERENCE IN THE FISCAL IMPACT SUCH A DISPENSATION WOULD HAVE ON THE FEDERAL TREASURY HAD IT BEEN GRANTED ACROSS THE BOARD TO ALL EMPLOYERS. WITHHELD FUNDS FROM PRIVATE SECTOR EMPLOYMENT BECOME AVAILABLE TO THE TREASURY ONLY WHEN THEY ARE TURNED OVER TO THE INTERNAL REVENUE SERVICE. FEDERAL AGENCY WITHHOLDING FUNDS REMAIN IN THE HANDS OF THE GOVERNMENT, EVEN THOUGH THE FUNDS HAVE NOT YET MOVED FROM ITS RIGHT-HAND POCKET TO ITS LEFT HAND POCKET, AS IT WERE. MOREOVER, AS MENTIONED BEFORE, THE EXTENSION WAS GRANTED ONLY AFTER THE SECRETARY OF THE TREASURY MADE A FINDING IN THE PREAMBLE TO THE REGULATIONS THAT THE EXTENSION WAS NECESSARY TO AVOID THE DISRUPTION OF THE VITAL DEFENSE AND NATIONAL SECURITY FUNCTIONS OF THE DEFENSE DEPARTMENT. WE HAVE NO BASIS TO DISAGREE WITH THIS FINDING THAT THE SPECIAL EXCEPTION FOR DEFENSE WAS CONSISTENT WITH THE PUBLIC INTEREST.

IT IS TRUE THAT OTHER FEDERAL AGENCIES MAY ALSO CLAIM THE RIGHT TO A "PUBLIC INTEREST" EXTENSION ON EQUALLY VALID GROUNDS. HOWEVER, AS DISCUSSED BEFORE, SUCH AN EXTENSION WOULD DO THEM LITTLE GOOD IF THEY COULD NOT FIT UNDER AN EXCEPTION TO THE ANTIDEFICIENCY ACT PROHIBITION AGAINST OBLIGATING IN ADVANCE OF APPROPRIATIONS. IN OTHER WORDS, BY PERMITTING EMPLOYEES TO WORK DURING PERIODS OF EXPIRED OR INSUFFICIENT APPROPRIATIONS, OBLIGATIONS FOR THEIR EMPLOYEES' GROSS PAY - TAKE HOME, CONTRIBUTIONS, AND WITHHOLDINGS - ARE STILL INCURRED ILLEGALLY, EVEN IF THE DATE FOR TRANSFERRING FUNDS ADMINISTRATIVELY TO THE IRS TO PAY THESE OBLIGATIONS IS POSTPONED. SINCE VERY FEW AGENCIES CAN CLAIM THE EMERGENCY PROTECTION OF LIFE AND PROPERTY EXCEPTION, ASSERTED BY DOD, THERE IS NO NEED TO CONSIDER FURTHER ANY INEQUITY IN LIMITING THE PAYMENT EXTENSION DATE TO DOD.

SINCE WE DO NOT FIND THE IRS EXTENSION AMENDMENT TO BE "EXTRA-LEGAL" OR "LEGALLY QUESTIONABLE" UNDER THE CIRCUMSTANCES DISCUSSED BEFORE, WE HAVE NO LEGISLATIVE PROPOSALS TO "CORRECT" OR PREVENT THE USE OF SUCH PROCEDURES IN THE FUTURE. HOWEVER, YOU MAY WISH TO CONSIDER THE ENACTMENT OF PERMANENT LEGISLATION WHICH WOULD ALLOW ALL AGENCIES TO INCUR OBLIGATIONS AT A MINIMAL LEVEL (BUT NOT EXPEND FUNDS), WHEN THE ONLY OTHER OPTION IS THE CLOSING OF THE FEDERAL AGENCY. THIS WOULD ELIMINATE THE NEED FOR THE USE OF AD HOC MEASURES SUCH AS THOSE EMPLOYED BY THE DEPARTMENT OF DEFENSE ON BEHALF OF MEMBERS OF THE UNIFORMED SERVICES, IN THE EVENT THAT A SUPPLEMENTAL APPROPRIATIONS BILL IS NOT ENACTED.

WE WOULD BE HAPPY TO ASSIST YOUR STAFF IN DRAFTING LEGISLATION TO THIS END, IF YOU SO REQUEST.