a

GAO

United States Government Accountability Office

Office of the General Counsel

September 2008 Principles of 

Federal 

Appropriations 

Law

Third Edition

Volume III

GAO-08-978SP

This volume supersedes the Volume IV, Second Edition of the 

Principles of Federal Appropriations Law, 2001.

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Page i GAO-08-978SP Appropriations Law—Vol. III

Foreword

This is Volume III of Principles of Federal Appropriations Law, third 

edition. Publication of this volume completes our process of revising and 

updating the second edition of the “Red Book” and reissuing it in a 

3-volume looseleaf set with cumulative annual updates. This volume and 

all other updated volumes of Principles, including the annual updates, are 

available on GAO’s Web site (www.gao.gov) under “Key References.” The 

annual updates are only available online. The online updated versions 

contain hyperlinks to the GAO material cited. Check the GAO Web site for 

other interesting information, for example, materials from our annual 

Appropriations Law Forum.

This volume updates chapters found in Volume IV of the second edition. 

We did not update Volume III of the second edition, which deals with 

functions that were transferred to the executive branch, including claims 

against the United States, debt collection, and payment of judgments 

against the United States. However, since the exercise of these 

responsibilities has appropriations law consequences, we include in this 

volume a new Chapter 14 that discusses these responsibilities in that 

context. Because Volume III of the second edition provides a useful history 

of case law in these areas, it will remain available on GAO’s Web site. 

However, inasmuch as it has not been updated and was last revised in 1994, 

it should not be viewed as a statement of current law. Also, it should not be 

confused with this Volume III of the third edition, which updates Volume IV 

of the second edition.

Our objective in Principles is to present a basic reference work covering 

those areas of law in which the Comptroller General issues decisions, using 

text discussion with specific legal authorities to illustrate the principles 

discussed, their application, and exceptions. As we noted in our first 

volume, Principles should be used as a general guide and starting point, 

not as a substitute for original legal research. We measure our success in 
Page ii GAO-08-978SP Appropriations Law—Vol. III

this endeavor by Principles’ day-to-day utility to its federal and nonfederal 

audience. In this regard, we appreciate the many comments and 

suggestions we have received to date, and hope that our publication will 

continue to serve as a useful reference.

Gary L. Kepplinger

General Counsel

September 2008
Page iii GAO-08-978SP Appropriations Law—Vol. III

Detailed Table of Contents

Volume III

Chapters 12–15

Chapter 12

Acquisition of Goods 

and Services

A. Acquisition and Disposal of Property for 

Government Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-4

1. General Services Administration Schedule Programs . . . . . . . . . 12-4

2. Governmentwide Acquisition Contracts . . . . . . . . . . . . . . . . . . . . 12-8

3. Stationery and Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-9

4. Exchange/Sale Authority in Acquiring Personal Property . . . . 12-11

5. Disposal of Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-15

B. Interagency Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-22

1. The Economy Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-22

a. Origin, Legislative History, General Requirements . . . . . . . . 12-22

(1) Funds available . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-26

(2) Interest of the government . . . . . . . . . . . . . . . . . . . . . . . . 12-27

(3) Performing agency’s “position” . . . . . . . . . . . . . . . . . . . . 12-27

(4) Lower cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-29

(5) Written agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-30

b. Who Is Covered . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-31

c. Fiscal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-33

(1) Payment: types and accounting . . . . . . . . . . . . . . . . . . . . 12-33

(2) “Actual cost”: meaning and application . . . . . . . . . . . . . 12-37

(3) Obligation and deobligation . . . . . . . . . . . . . . . . . . . . . . . 12-43

(4) Applicability of limitations and restrictions . . . . . . . . . . 12-46

(5) Accountability issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-50

d. What Work or Services May Be Performed . . . . . . . . . . . . . . . 12-54

(1) Details of personnel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-54

(2) Loans of personal property . . . . . . . . . . . . . . . . . . . . . . . 12-59

(3) Common services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-62

(4) Other examples . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-64

e. What Work or Services May Not Be Performed . . . . . . . . . . . 12-68

f. Contracting Out and “Off-Loading” . . . . . . . . . . . . . . . . . . . . . 12-72

2. Account Adjustment Statute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-76

3. Other Authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-79

C. Revolving Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-85

1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-85

a. Concept and Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-85

b. Creation/Establishment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-89

2. Receipts and Reimbursements . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-92

3. Types . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-97

a. Public Enterprise Revolving Fund . . . . . . . . . . . . . . . . . . . . . . 12-97

b. Trust Revolving Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-98

c. Intragovernmental Revolving Fund . . . . . . . . . . . . . . . . . . . . . 12-98

(1) Working capital funds . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-100
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Page iv GAO-08-978SP Appropriations Law—Vol. III

(2) Franchise and other revolving funds . . . . . . . . . . . . . . . 12-101

(3) Contracting services and revolving funds . . . . . . . . . . 12-104

4. Expenditures/Availability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-106

a. Status as Appropriation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-106

b. Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-109

c. Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-114

(1) Earned receipts and collection . . . . . . . . . . . . . . . . . . . 12-114

(2) Appropriations of revolving funds’ customer agencies 12-115

d. Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-118

e. Obligation Requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-122

5. Augmentation and Impairment . . . . . . . . . . . . . . . . . . . . . . . . . . 12-125

6. Property Management and Utilization . . . . . . . . . . . . . . . . . . . . 12-130

7. Revolving Funds in the Department of Defense . . . . . . . . . . . . 12-136

D. User Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-140

1. Providing Goods or Services to Private Parties . . . . . . . . . . . . 12-141

2. The Concept of User Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-143

3. The Independent Offices Appropriation Act . . . . . . . . . . . . . . . 12-146

a. Origin and Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-146

b. Fees versus Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-149

c. Establishing the Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-152

(1) Need for regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-152

(2) Benefit under the Independent Offices Appropriation 

Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-152

(3) Public versus private benefit . . . . . . . . . . . . . . . . . . . . . 12-158

(4) Calculation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-161

d. Refunds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-166

4. Other Authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-169

a. Subsection (c) of the Independent Offices Appropriation 

Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-169

b. Independent Offices Appropriation Act Incorporated 

by Reference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-171

c. Statutes In Pari Materia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-172

d. Statutes Entirely Independent of the Independent 

Offices Appropriation Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-174

5. Disposition of Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-182

a. Fees under the Independent Offices Appropriation Act . . . 12-183

b. Fees under Other Authorities . . . . . . . . . . . . . . . . . . . . . . . . . 12-183

(1) Miscellaneous receipts . . . . . . . . . . . . . . . . . . . . . . . . . . 12-183

(2) Credit to agency’s appropriation . . . . . . . . . . . . . . . . . . 12-184

(3) Special account or fund . . . . . . . . . . . . . . . . . . . . . . . . . 12-186

6. U.S. Customs and Border Protection: A Case Study . . . . . . . . 12-188

7. User Fee as Grant Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-193
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Page v GAO-08-978SP Appropriations Law—Vol. III

E. Motor Vehicles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-196

1. Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-196

a. Need for Statutory Authority . . . . . . . . . . . . . . . . . . . . . . . . . 12-196

b. Price Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-202

2. Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-205

a. The “Official Purpose” Limitation . . . . . . . . . . . . . . . . . . . . . 12-205

b. General Services Administration Motor Pools . . . . . . . . . . . 12-219

c. Expenditure Control Requirements . . . . . . . . . . . . . . . . . . . . 12-221

3. Chauffeurs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-222

Chapter 13

Real Property

A. Introduction and Terminology . . . . . . . . . . . . . . . . . . . . . . . . . . 13-5

B. Acquisition of Real Property for Government Use . . . . . 13-13

1. The Fifth Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-13

2. Federal Land Acquisition Policy . . . . . . . . . . . . . . . . . . . . . . . . . . 13-18

3. Need for Statutory Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-24

a. Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-24

(1) Debt security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-25

(2) Donated property/funds . . . . . . . . . . . . . . . . . . . . . . . . . . 13-26

(3) Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-26

(4) Indian tribal funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-28

b. Types of Statutory Authority . . . . . . . . . . . . . . . . . . . . . . . . . . 13-28

(1) Express versus implied authority . . . . . . . . . . . . . . . . . . 13-28

(2) Forms of express authority . . . . . . . . . . . . . . . . . . . . . . . 13-29

c. Effect of Noncompliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-35

4. Title Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-36

a. Title Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-36

b. Title Evidence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-41

c. Title Evidence Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-42

(1) Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-42

(2) Donation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-44

(3) Condemnation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-44

5. Methods of Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-46

a. Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-46

b. Involuntary Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-48

(1) Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-48

(2) Legislative taking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-49

(3) Sources of authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-50

(4) “Complaint only” condemnation . . . . . . . . . . . . . . . . . . . 13-52

(5) Declaration of Taking Act . . . . . . . . . . . . . . . . . . . . . . . . . 13-53

(6) Inverse condemnation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-58

6. Obligation of Appropriations for Land Acquisition . . . . . . . . . . 13-60
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Page vi GAO-08-978SP Appropriations Law—Vol. III

a. Voluntary Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-60

b. Condemnation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-61

7. Expenses Incident to Real Property Acquisition . . . . . . . . . . . . 13-63

a. Expenses Incident to Title Transfer . . . . . . . . . . . . . . . . . . . . . 13-63

b. Expenses Incident to Litigation . . . . . . . . . . . . . . . . . . . . . . . . 13-65

(1) Attorney’s fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-65

(2) Litigation expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-67

C. Relocation Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-68

1. Uniform Relocation Act: Introduction and Overview . . . . . . . . 13-68

2. The Threshold Determination: Meaning of “Displaced 

Person” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-72

3. Types and Payment of Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-78

a. Moving and Related Expenses . . . . . . . . . . . . . . . . . . . . . . . . . 13-78

(1) Residential displacements . . . . . . . . . . . . . . . . . . . . . . . . 13-78

(2) Commercial displacements . . . . . . . . . . . . . . . . . . . . . . . 13-79

b. Replacement Housing Benefits . . . . . . . . . . . . . . . . . . . . . . . . . 13-81

(1) Homeowners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-81

(2) Tenants and “90-day homeowners” . . . . . . . . . . . . . . . . . 13-84

c. Advisory Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-85

d. “Last Resort” Replacement Housing . . . . . . . . . . . . . . . . . . . . 13-86

e. Federally Assisted Programs and Projects . . . . . . . . . . . . . . . 13-88

f. Procedures and Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-91

4. Public Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-92

a. The Common Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-92

b. Statutory Exceptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-97

(1) Uniform Relocation Act . . . . . . . . . . . . . . . . . . . . . . . . . . 13-97

(2) 23 U.S.C. § 123 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-98

(3) Other statutory provisions . . . . . . . . . . . . . . . . . . . . . . . . 13-99

D. Jurisdiction over Federal Land: The Federal 

Enclave . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-101

1. Acquisition of Federal Jurisdiction . . . . . . . . . . . . . . . . . . . . . . 13-101

2. Specific Areas of Concern . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-109

a. Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-109

b. Criminal Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-110

c. State Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-111

3. Proprietorial Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-116

E. Leasing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-120

1. Some General Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-120

a. Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-120

b. Application of Fiscal Law Principles . . . . . . . . . . . . . . . . . . . 13-125

c. Rights and Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-127

d. Payment of Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-131
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(1) Advance payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-132

(2) Payment to legal representative . . . . . . . . . . . . . . . . . . . 13-132

(3) Assignment of Claims Act . . . . . . . . . . . . . . . . . . . . . . . . 13-133

2. Statutory Authorities and Limitations . . . . . . . . . . . . . . . . . . . . 13-135

a. Federal Property and Administrative Services Act . . . . . . . 13-135

b. Prospectus Requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-141

c. Site Selection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-142

d. Parking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-145

e. Repairs and Alterations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-147

f. Rental in District of Columbia . . . . . . . . . . . . . . . . . . . . . . . . 13-150

g. Economy Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-153

h. Some Agency-Specific Authorities . . . . . . . . . . . . . . . . . . . . . 13-154

3. Foreign Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-155

4. Lease-Purchase Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-158

F. Public Buildings and Improvements . . . . . . . . . . . . . . . . . . . 13-167

1. Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-167

a. General Funding Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . 13-167

(1) 41 U.S.C. § 12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-167

(2) Contract authority under partial appropriations . . . . . 13-173

(3) Duration of construction appropriations . . . . . . . . . . . 13-174

(4) Design fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-176

b. Some Agency-Specific Authorities . . . . . . . . . . . . . . . . . . . . 13-182

(1) Military construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-183

(2) Continuing contracts: two variations . . . . . . . . . . . . . . 13-185

(3) 7 U.S.C. § 2250 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-188

(4) 15 U.S.C. § 278d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-189

c. Public Buildings Act and the General Services 

Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-190

d. Scope of Construction Appropriations . . . . . . . . . . . . . . . . . 13-195

2. Operation and Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-200

a. Who’s in Charge? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-200

b. Allocation of Space . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-201

c. Alterations and Repairs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-203

d. Maintenance and Protective Services . . . . . . . . . . . . . . . . . . 13-204

e. Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-205

f. Use Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-209

g. Payment of Rent by Federal Agencies . . . . . . . . . . . . . . . . . . 13-210

G. Improvements to Property Not Owned by the 

Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-214

1. The Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-214

2. Some Specific Applications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-219

a. Leased Premises/Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-219
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b. Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-222

c. Public Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-224

d. Federal Aviation Administration . . . . . . . . . . . . . . . . . . . . . . 13-225

e. Private Residences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-227

H. Disposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-228

1. The Property Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-228

2. Disposal under Title 40 of the United States Code . . . . . . . . . . 13-230

a. Excess Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-230

b. Surplus Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-232

c. Disposition of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-238

d. Deduction of Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-240

e. Disposal under Other Authorities . . . . . . . . . . . . . . . . . . . . . 13-241

3. Use by Nongovernment Parties . . . . . . . . . . . . . . . . . . . . . . . . . 13-245

a. Leasing and Concessions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-245

(1) Outleasing in general . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-245

(2) 40 U.S.C. § 1302 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-249

(3) Concessions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-251

b. Granting of Revocable License . . . . . . . . . . . . . . . . . . . . . . . . 13-254

4. Adverse Possession . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-256

Chapter 14

Claims against and by 

the Government

A. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-2

B. History of Claims Settlement. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-2

C. Claims against the Government . . . . . . . . . . . . . . . . . . . . . . . . 14-10

1. Overview and Sources of Claims Settlement Authority . . . . . . 14-10

a. Legislative Claims Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . 14-12

(1) Congressionally sponsored bills . . . . . . . . . . . . . . . . . . . 14-12

(2) Congressional reference cases . . . . . . . . . . . . . . . . . . . . . 14-15

(3) Meritorious Claims Act . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-16

b. Judicial Claims Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-18

c. Administrative Claims Settlement . . . . . . . . . . . . . . . . . . . . . . 14-20

2. Source of Payment of Claims against the Government . . . . . . . 14-29

a. Legislatively Settled Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-29

b. Judicially Settled Claims: the Judgment Fund . . . . . . . . . . . . 14-30

(1) Origins and overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-31

(2) Availability and limitations . . . . . . . . . . . . . . . . . . . . . . . . 14-34

c. Administratively Settled Claims . . . . . . . . . . . . . . . . . . . . . . . . 14-44

3. Whom and What to Pay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-49

a. To Whom Agencies Should Make Payment . . . . . . . . . . . . . . 14-49

b. Amounts Payable in Addition to the Principal Amount . . . . 14-51

(1) Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-51

(2) Costs and attorneys fees . . . . . . . . . . . . . . . . . . . . . . . . . . 14-63
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Page ix GAO-08-978SP Appropriations Law—Vol. III

(3) Deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-70

D. Claims by the Government: Debt Collection . . . . . . . . . . . 14-73

1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-73

2. The Government’s Duty and Authority to Collect 

Debts Owed to It . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-74

3. Debt Collection in a Nutshell . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-77

4. Common Appropriations Law Issues Associated with Debt 

Collection Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-78

a. Diminishing Returns and Cost/Benefit Considerations . . . . . 14-78

b. Disposition of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-79

(1) The general rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-79

(2) Statutory exceptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-80

(3) Refund exception . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-81

c. Accountable Officer Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-82

Chapter 15

Miscellaneous Topics

A. Boards, Committees, and Commissions . . . . . . . . . . . . . . . . . 15-6

1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-6

2. Title 31 Funding Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-8

a. 1842: The First Attempt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-9

b. 1909: The Tawney Amendment . . . . . . . . . . . . . . . . . . . . . . . . . 15-11

c. 1944: The Russell Amendment . . . . . . . . . . . . . . . . . . . . . . . . . 15-15

3. Interagency Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-17

a. Joint Funding of Common-Interest Project . . . . . . . . . . . . . . 15-17

b. 1945: The First Interagency Funding Statute . . . . . . . . . . . . . 15-18

c. Appropriation Act Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . 15-20

4. The Federal Advisory Committee Act . . . . . . . . . . . . . . . . . . . . . 15-25

a. Overview and Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-25

(1) Definition and specific exemptions . . . . . . . . . . . . . . . . . 15-28

(2) Advisory versus operational . . . . . . . . . . . . . . . . . . . . . . . 15-32

(3) Who is being advised? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-33

(4) “Established or utilized” . . . . . . . . . . . . . . . . . . . . . . . . . . 15-34

(5) Other factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-39

b. Creation and Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-41

(1) Statutory committees: creation . . . . . . . . . . . . . . . . . . . . 15-42

(2) Statutory committees: funding . . . . . . . . . . . . . . . . . . . . . 15-46

(3) Committees established by the executive branch . . . . . 15-52

(4) Donations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-58

B. Government Use of Corporate Entities . . . . . . . . . . . . . . . . 15-61

1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-61

2. The Problem of Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-65

a. Government Corporations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-66
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b. Government-Sponsored Enterprises . . . . . . . . . . . . . . . . . . . . 15-72

c. Title 36 Patriotic, Fraternal, or Charitable Corporate

Entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-73

d. Federally Funded Research and Development Centers . . . . 15-81

e. Summing Up . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-86

3. Creation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-88

a. Historical Background and Purpose . . . . . . . . . . . . . . . . . . . . 15-89

b. Need for Statutory Authority . . . . . . . . . . . . . . . . . . . . . . . . . . 15-95

4. Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-102

a. Government Corporation Control Act . . . . . . . . . . . . . . . . . . 15-102

(1) Origin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-102

(2) Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-104

(3) Budget provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-107

(4) Other financial controls . . . . . . . . . . . . . . . . . . . . . . . . . 15-109

(5) Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-110

b. Appointment and Control of Directors . . . . . . . . . . . . . . . . . 15-115

5. Sources of Funds and Financing . . . . . . . . . . . . . . . . . . . . . . . . 15-120

a. Types of Financing: Government . . . . . . . . . . . . . . . . . . . . . . 15-120

(1) Direct appropriations . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-120

(2) Federal borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-122

(3) Federal ownership of stock . . . . . . . . . . . . . . . . . . . . . . 15-125

b. Types of Financing: Private . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-126

(1) Sources of private financing . . . . . . . . . . . . . . . . . . . . . . 15-126

(2) Market perception of implied backing by 

United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-128

(3) Statutory controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-132

6. Fiscal Autonomy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-133

a. Account Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-133

b. Status of Funds Received by Corporate Entities . . . . . . . . . 15-137

c. Application of Fiscal Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-140

(1) “Character and necessity” provision . . . . . . . . . . . . . . . 15-140

(2) “Without regard” clause . . . . . . . . . . . . . . . . . . . . . . . . . 15-144

(3) Laws expressly applicable . . . . . . . . . . . . . . . . . . . . . . . 15-146

(4) Appropriation act provisions . . . . . . . . . . . . . . . . . . . . . 15-148

(5) Other provisions of title 31, United States Code . . . . . 15-149

d. Program Implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-153

(1) Commodity Credit Corporation . . . . . . . . . . . . . . . . . . . 15-155

(2) Bonneville Power Administration . . . . . . . . . . . . . . . . . 15-158

(3) Amtrak . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-164

7. Application of Other Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-169

a. Civil Service Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-169

b. Procurement Laws and Regulations . . . . . . . . . . . . . . . . . . . 15-176
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(1) 41 U.S.C. § 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-176

(2) Federal Property and Administrative Services Act . . . 15-177

(3) Office of Federal Procurement Policy Act . . . . . . . . . . 15-178

(4) Federal Acquisition Regulation . . . . . . . . . . . . . . . . . . . 15-178

(5) Competition in Contracting Act . . . . . . . . . . . . . . . . . . . 15-178

(6) Other statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-179

c. General Management Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-180

(1) Inspector General Act . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-180

(2) Federal Managers’ Financial Integrity Act of 1982 . . . 15-181

(3) Chief Financial Officers Act . . . . . . . . . . . . . . . . . . . . . . 15-182

(4) Government Performance and Results Act . . . . . . . . . 15-183

(5) Government Management Reform Act of 1994 . . . . . . 15-183

(6) Federal Financial Management Improvement Act 

of 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-184

(7) Improper Payments Information Act of 2002 . . . . . . . . 15-184

d. Property Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-184

e. Freedom of Information, Privacy Acts . . . . . . . . . . . . . . . . . 15-186

f. Printing and Binding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-189

g. Criminal Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-190

8. Claims and Lawsuits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-192

a. Administrative Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-192

(1) Claims settlement authority . . . . . . . . . . . . . . . . . . . . . . 15-192

(2) Federal Tort Claims Act . . . . . . . . . . . . . . . . . . . . . . . . . 15-193

(3) Contract Disputes Act . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-196

(4) Assignment of Claims Act . . . . . . . . . . . . . . . . . . . . . . . . 15-197

(5) Estoppel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-198

(6) Prompt Payment Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-199

(7) False Claims Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-200

(8) Interagency claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-202

b. Debt Collection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-203

c. Litigation in the Courts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-207

(1) Sovereign immunity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-207

(2) “Sue-and-be-sued” clauses . . . . . . . . . . . . . . . . . . . . . . . 15-207

(3) The Tucker Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-213

(4) Liability for costs and remedies of litigation . . . . . . . . 15-215

(5) Sovereign immunity from state and local taxes . . . . . . 15-219

(6) Litigation authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-222

9. Termination of Government Corporations . . . . . . . . . . . . . . . . 15-224

C. Nonappropriated Fund Instrumentalities . . . . . . . . . . . . . 15-226

1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-226

a. History of Military Morale, Welfare, and Recreation 

Organizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-227
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b. Defining the Nonappropriated Fund Instrumentality . . . . . 15-232

2. Legal Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-237

a. Authority for Creation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-237

b. Relationship to the United States Government . . . . . . . . . . 15-238

3. Sources of Funding: The Use of Appropriated Funds for 

Nonappropriated Fund Instrumentalities . . . . . . . . . . . . . . . . . 15-241

a. Self-Supporting or Subsidized? . . . . . . . . . . . . . . . . . . . . . . . 15-241

b. General Rule: Appropriations Not Available for 

Morale, Welfare, and Recreation unless Authorized by

Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-241

c. The Current Trend: Use of Appropriated Funds . . . . . . . . . 15-243

d. Other Issues in Appropriated Fund Support . . . . . . . . . . . . . 15-246

e. Borrowing by Nonappropriated Fund Activities . . . . . . . . . 15-249

4. Transactions with Federal Agencies . . . . . . . . . . . . . . . . . . . . . 15-249

a. Economy Act and Intra-Agency Orders . . . . . . . . . . . . . . . . 15-249

b. Contracting to Sell Goods and Services to Agencies . . . . . . 15-250

c. Statutory Authority to Enter into Contracts with 

Federal Agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-252

5. Nonappropriated Fund Instrumentality Procurement . . . . . . . 15-253

6. Debts Due Nonappropriated Fund Instrumentalities . . . . . . . 15-255

7. Nonappropriated Fund Instrumentality Property . . . . . . . . . . 15-256

8. Management of Nonappropriated Fund Instrumentalities . . . 15-257

a. Regulation and Oversight . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-257

b. Authority to Audit Nonappropriated Fund Activities . . . . . 15-257

(1) GAO jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-257

(2) Other auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-258

(3) Settlement of accounts . . . . . . . . . . . . . . . . . . . . . . . . . . 15-259

(4) Bid protests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-259

9. Sovereign Immunity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-262

a. Immunity from State and Local Taxation . . . . . . . . . . . . . . . 15-262

b. Immunity from Suit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-262

c. Payment of Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-265

10. Status of Nonappropriated Fund Instrumentality 

Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-266

a. Applicability of Civil Service Laws . . . . . . . . . . . . . . . . . . . . 15-266

(1) Civil Service Reform Act of 1978 . . . . . . . . . . . . . . . . . . 15-267

(2) Other employment related laws . . . . . . . . . . . . . . . . . . . 15-271

D. Trust Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-277

1. Federal Funds and Trust Funds . . . . . . . . . . . . . . . . . . . . . . . . . 15-280

a. Federal Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-281

b. Trust Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-282

c. Congressional Prerogatives . . . . . . . . . . . . . . . . . . . . . . . . . . 15-283
 Contents

Page xiii GAO-08-978SP Appropriations Law—Vol. III

2. The Government as Trustee: Creation of a Trust . . . . . . . . . . . 15-283

a. Property of Others Controlled by the United States . . . . . . 15-283

b. Trust Funds Designated by Statute . . . . . . . . . . . . . . . . . . . . 15-293

c. Accepting Donated Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-295

3. Application of Fiscal Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-297

a. Permanent Appropriation Repeal Act of 1934 . . . . . . . . . . . 15-297

b. Available Uses of Trust Funds . . . . . . . . . . . . . . . . . . . . . . . . 15-297

(1) Using donated funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-297

(2) Property of others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-300

(3) Statutory trust funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-301

c. Intergovernmental Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-303

4. Concepts of Amount and Time . . . . . . . . . . . . . . . . . . . . . . . . . . 15-304

5. Duty to Invest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-307

6. Liability for Loss of Trust Funds . . . . . . . . . . . . . . . . . . . . . . . . . 15-309

7. Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-311

a. Setoff and Levy against Trust Funds . . . . . . . . . . . . . . . . . . . 15-311

b. Unclaimed Moneys . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-311

8. Federal Trust Funds and the Budget . . . . . . . . . . . . . . . . . . . . . 15-313
 Contents

Page xiv GAO-08-978SP Appropriations Law—Vol. III
Page 12-1 GAO-08-978SP Appropriations Law—Vol. III

Chapter 12

Acquisition of Goods and Services

A. Acquisition and Disposal of Property for 

Government Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-4

1. General Services Administration Schedule Programs . . . . . . . . . 12-4

2. Governmentwide Acquisition Contracts . . . . . . . . . . . . . . . . . . . . 12-8

3. Stationery and Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-9

4. Exchange/Sale Authority in Acquiring Personal Property . . . . 12-11

5. Disposal of Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-15

B. Interagency Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-22

1. The Economy Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-22

a. Origin, Legislative History, General Requirements . . . . . . . . 12-22

(1) Funds available . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-26

(2) Interest of the government . . . . . . . . . . . . . . . . . . . . . . . . 12-27

(3) Performing agency’s “position” . . . . . . . . . . . . . . . . . . . . 12-27

(4) Lower cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-29

(5) Written agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-30

b. Who Is Covered . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-31

c. Fiscal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-33

(1) Payment: types and accounting . . . . . . . . . . . . . . . . . . . . 12-33

(2) “Actual cost”: meaning and application . . . . . . . . . . . . . 12-37

(3) Obligation and deobligation . . . . . . . . . . . . . . . . . . . . . . . 12-43

(4) Applicability of limitations and restrictions . . . . . . . . . . 12-46

(5) Accountability issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-50

d. What Work or Services May Be Performed . . . . . . . . . . . . . . . 12-54

(1) Details of personnel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-54

(2) Loans of personal property . . . . . . . . . . . . . . . . . . . . . . . 12-59

(3) Common services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-62

(4) Other examples . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-64

e. What Work or Services May Not Be Performed . . . . . . . . . . . 12-68

f. Contracting Out and “Off-Loading” . . . . . . . . . . . . . . . . . . . . . 12-72

2. Account Adjustment Statute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-76

3. Other Authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-79

C. Revolving Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-85

1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-85

a. Concept and Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-85

b. Creation/Establishment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-89

2. Receipts and Reimbursements . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-92

3. Types . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-97

a. Public Enterprise Revolving Fund . . . . . . . . . . . . . . . . . . . . . . 12-97

b. Trust Revolving Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-98

c. Intragovernmental Revolving Fund . . . . . . . . . . . . . . . . . . . . . 12-98

(1) Working capital funds . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-100

(2) Franchise and other revolving funds . . . . . . . . . . . . . . . 12-101
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Acquisition of Goods and Services

Page 12-2 GAO-08-978SP Appropriations Law—Vol. III

(3) Contracting services and revolving funds . . . . . . . . . . 12-104

4. Expenditures/Availability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-106

a. Status as Appropriation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-106

b. Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-109

c. Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-114

(1) Earned receipts and collection . . . . . . . . . . . . . . . . . . . 12-114

(2) Appropriations of revolving funds’ customer 

agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-115

d. Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-118

e. Obligation Requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-122

5. Augmentation and Impairment . . . . . . . . . . . . . . . . . . . . . . . . . . 12-125

6. Property Management and Utilization . . . . . . . . . . . . . . . . . . . . 12-130

7. Revolving Funds in the Department of Defense . . . . . . . . . . . . 12-136

D. User Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-140

1. Providing Goods or Services to Private Parties . . . . . . . . . . . . 12-141

2. The Concept of User Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-143

3. The Independent Offices Appropriation Act . . . . . . . . . . . . . . . 12-146

a. Origin and Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-146

b. Fees versus Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-149

c. Establishing the Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-152

(1) Need for regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-152

(2) Benefit under the Independent Offices Appropriation 

Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-152

(3) Public versus private benefit . . . . . . . . . . . . . . . . . . . . . 12-158

(4) Calculation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-161

d. Refunds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-166

4. Other Authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-169

a. Subsection (c) of the Independent Offices 

Appropriation Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-169

b. Independent Offices Appropriation Act Incorporated 

by Reference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-171

c. Statutes In Pari Materia . . . . . . . . . . . . . . . . . . . . . . . . . . 12-172

d. Statutes Entirely Independent of the Independent 

Offices Appropriation Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-174

5. Disposition of Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-182

a. Fees under the Independent Offices Appropriation Act . . . 12-183

b. Fees under Other Authorities . . . . . . . . . . . . . . . . . . . . . . . . . 12-183

(1) Miscellaneous receipts . . . . . . . . . . . . . . . . . . . . . . . . . . 12-183

(2) Credit to agency’s appropriation . . . . . . . . . . . . . . . . . . 12-184

(3) Special account or fund . . . . . . . . . . . . . . . . . . . . . . . . . 12-186

6. U.S. Customs and Border Protection: A Case Study . . . . . . . . 12-188

7. User Fee as Grant Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-193
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Page 12-3 GAO-08-978SP Appropriations Law—Vol. III

E. Motor Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-196

1. Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-196

a. Need for Statutory Authority . . . . . . . . . . . . . . . . . . . . . . . . . 12-196

b. Price Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-202

2. Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-205

a. The “Official Purpose” Limitation . . . . . . . . . . . . . . . . . . . . . 12-205

b. General Services Administration Motor Pools . . . . . . . . . . . 12-219

c. Expenditure Control Requirements . . . . . . . . . . . . . . . . . . . . 12-221

3. Chauffeurs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-222
Page 12-4 GAO-08-978SP Appropriations Law—Vol. III

Chapter 12

Acquisition of Goods and Services Chap1etr

In the course of performing its lawful duties, a government agency 

routinely needs to acquire various goods and services from outside 

sources. These outside sources may include federal entities as well as 

private parties. The agency may also have to dispose of property or 

equipment which it no longer needs, or it may be authorized to provide 

certain goods or services to others as part of its mission. Fiscal aspects of 

government contracting are dealt with in virtually every chapter of this 

publication. This chapter addresses several topics not covered elsewhere 

whose only common thread is that they relate loosely to the general theme 

of how the government “does business.”

A. Acquisition and 

Disposal of 

Property for 

Government Use

1. General Services 

Administration 

Schedule Programs

The General Services Administration (GSA) has broad authority over the 

acquisition of personal property and nonpersonal services for other 

government agencies. Section 501(b)(1)(A) of title 40, United States Code,1

provides that GSA—

“shall procure and supply personal property and 

nonpersonal services for executive agencies to use in the 

proper discharge of their responsibilities, and perform 

functions related to procurement and supply including 

contracting, inspection, storage, issue, property 

identification and classification, transportation and traffic 

management, management of public utility services, and 

repairing and converting.”

1

 In 2002, title 40 of the United States Code was revised and enacted into positive law. See 

Pub. L. No. 107-217, 116 Stat. 1062 (Aug. 21, 2002). While the references to sections in 

title 40 throughout this chapter are to the current provisions, many of the decisions and 

letters cited in this chapter refer to prior sections of title 40. However, the material is still 

relevant for purposes of the discussions herein.
Chapter 12

Acquisition of Goods and Services

Page 12-5 GAO-08-978SP Appropriations Law—Vol. III

Section 501(b)(2)(A) requires GSA to “prescribe policies and methods for 

executive agencies regarding the procurement and supply of personal 

property and nonpersonal services and related functions.” These GSA 

policies and methods are subject to regulations prescribed by the 

Administrator for Federal Procurement Policy. 40 U.S.C. § 501(b)(2)(B).

Section 501(d) requires GSA to “operate, for executive agencies, 

warehouses, supply centers, repair shops, fuel yards, and other similar 

facilities” and, after consultation with the affected agencies, to 

“consolidate, take over, or arrange for executive agencies to operate the 

facilities.”

Section 502(a) of title 40, United States Code, authorizes GSA to provide 

the same services, upon request, to a federal agency, mixed-ownership 

government corporation as defined in 31 U.S.C. § 9101, or the District of 

Columbia. The term “federal agency” brings in the legislative and judicial 

branches except for the Senate, House of Representatives, and Architect of 

the Capitol. See 40 U.S.C. § 102(5). GSA published a detailed explanation 

and listing of who is eligible to use its programs in GSA Order No. ADM 

4800.2E, Eligibility to Use GSA Sources of Supply and Services (Jan. 3, 

2000).2

GSA administers the Federal Supply Schedule (FSS) program, also known 

as the GSA Schedules Program or the Multiple Award Schedule Program 

(MAS), which is a simplified process for federal agencies to obtain 

commercial supplies and services at prices associated with volume buying. 

See generally Federal Acquisition Regulation (FAR), 48 C.F.R. pt. 8.4. 

Indefinite delivery contracts are awarded to provide supplies and services 

at stated prices for given periods of time. 48 C.F.R. § 8.402(a). Ordering 

agencies are authorized to place orders, or to establish blanket purchase 

agreements, against a vendor’s FSS contract. Id. § 8.401. Orders and 

blanket purchasing agreements are considered to be issued using full and 

open competition; therefore, when placing orders under FSS contracts or 

2

 This order is available on the GSA Web site at 

www.gsa.gov/Portal/gsa/ep/contentView.do?contentType=GSA_BASIC&contentId=8128&no

c=T (last visited Mar. 20, 2008). Our limited coverage here of the more common GSA supply 

programs authorized primarily in title 40, United States Code, should not be taken to indicate 

that other authorities do not exist. See, for example, 62 Comp. Gen. 245 (1983), discussing 

GSA’s barter authority under the Strategic and Critical Materials Stock Piling Act, 50 U.S.C. 

§ 98e(c).
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Page 12-6 GAO-08-978SP Appropriations Law—Vol. III

when establishing a blanket purchasing agreement, ordering agencies do 

not need to seek competition outside the FSS. Id. § 8.404(a).

GSA schedule contracts require all FSS contractors to publish an 

“Authorized Federal Supply Schedule Pricelist,” which contains all supplies 

and services offered by an FSS vendor, as well as the pricing and terms and 

conditions pertaining to each Special Item Number that is on the schedule 

(that is, a group of generically similar, but not identical, supplies or services 

that are intended to serve the same general purpose or function). 48 C.F.R. 

§§ 8.401, 8.402(b). GSA for many years included ordering instructions in 

the Federal Property Management Regulations, but dropped them in 1995. 

60 Fed. Reg. 19674 (Apr. 20, 1995). GSA’s Web site contains extensive 

information on the schedules at www.gsa.gov/schedules (last visited 

Mar. 20, 2008).

In the early 1980s, GSA developed a system, which GAO approved in 

63 Comp. Gen. 129 (1983), for entering into MAS contracts on a multiyear 

basis.3

 This is in accord with the bona fide needs rule (see Chapter 5) and 

does not violate the Antideficiency Act (see Chapter 6) since there is no 

obligation of appropriations until a using agency determines that it has a 

requirement and issues a delivery or task order.4

 Id. Of course, the agency 

must have available appropriations when it does that.

For FSS contracts, GSA has already determined that the vendors’ prices of 

supplies and fixed-price services and rates for services offered at hourly 

rates are fair and reasonable. Therefore, ordering agencies are not required 

to make a separate determination of fair and reasonable pricing, except for 

a price evaluation as required by section 8.405-2(d) of the FAR. 48 C.F.R. 

§ 8.404(d). By placing an order against an FSS contract using the 

procedures in section 8.405 of the FAR, the ordering agency has concluded 

that the order represents the best value (as defined in 48 C.F.R. § 2.101) and 

3

 We use the term “multiyear” here to mean contracts which cross fiscal years. This is not to 

be confused with the much more specific and prescribed concept of multiyear contracting 

and ordering procedures as provided in the FAR, 48 C.F.R. subpart 17.1. See especially the 

definition of a multiyear contract in 48 C.F.R. § 17.103.

4 But see B-308969, May 31, 2007 (the government incurred a legal liability in the amount of 

the guaranteed minimum in an indefinite-delivery, indefinite-quantity (IDIQ) contract at the 

time in which the contract was awarded and the agencies involved should have obligated 

that amount at that time); B-302358, Dec. 27, 2004 (upon award of an IDIQ contract Customs 

should have obligated the contract minimum of $25 million in accordance with the 

recording statute to ensure the integrity of Customs’s obligational accounts records).
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Page 12-7 GAO-08-978SP Appropriations Law—Vol. III

results in the lowest overall cost alternative (considering price, special 

features, administrative costs, etc.) to meet the government’s needs. 

Although GSA has already negotiated fair and reasonable pricing, ordering 

agencies may seek additional discounts before placing an order. Id. 

§§ 8.404(d), 8.405-4.

Under the FSS program, agencies may place orders using a request for 

quotations (RFQ). Id. § 8.405-1. A quotation is not a submission for 

acceptance by the government to form a binding contract; rather, vendor 

quotations are purely informational. In the context of an RFQ, it is the 

government that makes the offer, albeit generally based on the information 

provided by the vendor in its quotation, and no binding agreement is 

created until the vendor accepts the offer. 48 C.F.R. § 13.0004(a). 

Generally, a vendor submitting a price quotation, therefore, can reject an 

offer from the government at the vendor’s quoted price. B-292708, Oct. 3, 

2003.

However, where an agency issues an RFQ under FAR subpart 8.4 and 

conducts a competition (see 48 C.F.R. § 8.405-2), GAO, in a bid protest, will 

review the record to ensure that the agency’s evaluation was fair and 

reasonable and consistent with the terms of the solicitation. See B-297210, 

Nov. 28, 2005; B-278343, B-278343.2, Jan. 20, 1998. In such a competition, it 

is the vendor’s burden to submit a quotation that is adequately written and 

establishes the merits of the quotation, or else the vendor runs the risk of 

the agency rejecting the quotation as technically unacceptable. B-293527, 

Mar. 26, 2004; B-290291, June 17, 2002.

The FSS program applies to services (priced at either hourly rates or at a 

fixed price for performance of a specific task) as well as supplies (listed at 

fixed prices). For example, GSA is acting within its authority in 

establishing a mandatory supply schedule for debt collection services. The 

using agency’s authority in 31 U.S.C. § 3718 to contract for debt collection 

services does not override GSA’s authority to determine how the 

procurement is to be accomplished. B-259975, Sept. 18, 1995.

For administrative convenience, an ordering agency may add items not on 

the FSS (that is, open market items) to an FSS blanket purchase agreement 

or to an individual task or delivery order only if all applicable acquisition 

regulations with respect to non-FSS items have been followed (e.g., 

publication (48 C.F.R. part 5), competition requirements (48 C.F.R. part 6), 

acquisition of commercial items (48 C.F.R. part 12), contracting methods 

(48 C.F.R. parts 13, 14, and 15), and small business programs (48 C.F.R. 
Chapter 12

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Page 12-8 GAO-08-978SP Appropriations Law—Vol. III

part 19)), and the ordering agency has determined that the price for the 

non-FSS is fair and reasonable, the items are clearly labeled on the order as 

non-FSS items, and all applicable clauses with respect to non-FSS items are 

included in the order. 48 C.F.R. § 8.402(f)(1)–(4). A nonschedule 

procurement in violation of the regulations is an unauthorized act, but 

again as with stock items, the agency may pay the vendor if the quantum 

meruit/quantum valebant standards are met. B-213489, Mar. 13, 1984; 

B-195123, July 11, 1979.

As with any other agency program, there are certain expenses GSA must 

bear incident to administering the Federal Supply Schedule program. One 

example is discussed in 42 Comp. Gen. 563 (1963), in which GSA directed a 

supply schedule gasoline contractor to litigate the constitutionality of a 

state gasoline tax. The cost was simply a cost of carrying out GSA’s normal 

duties and there was no basis for passing it on to user agencies.

2. Governmentwide 

Acquisition Contracts

In 1996, the Clinger-Cohen Act authorized the creation of Governmentwide 

Acquisition Contracts (GWAC), which are contracts for information 

technology (IT) goods and services that are established by one agency for 

governmentwide use, with deliveries scheduled through orders with the 

contractor. Pub. L. No. 104-106, div. E, 110 Stat. 186, 679 (Feb. 10, 1996). 

See also GAO, Contract Management: Interagency Contract Program Fees 

Need More Oversight, GAO-02-734 (Washington, D.C.: July 25, 2002); 

Interagency Contracting: Improved Guidance, Planning, and Oversight 

Would Enable the Department of Homeland Security to Address Risks,

GAO-06-996 (Washington, D.C.: Sept. 27, 2006). GWACs are generally 

indefinite-delivery, indefinite-quantity (IDIQ) contracts. Chapter 7, 

section B.1.e discusses requirements for obligating IDIQs. Each GWAC is 

operated by an executive agency designated by the Office of Management 

and Budget pursuant to section 5112(e) of the Clinger-Cohen Act, Pub. L. 

No. 104-106. An agency placing an order under a GWAC incurs an 

obligation directly against the contract; accordingly, as with MAS contracts, 

interagency agreements, discussed in section B of this chapter, are not 

required when placing orders against a GWAC. See GSA Schedules 

Frequently Asked Questions, available at www.gsa.gov/schedules (last 

visited Mar. 20, 2008).
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3. Stationery and Supplies Originally enacted in 1868,5

 41 U.S.C. § 13 provides: “Except as otherwise 

provided, it shall not be lawful for any of the executive departments to 

make contracts for stationery or other supplies for a longer term than one 

year from the time the contract is made.” Our research failed to disclose a 

definition of “supplies” for purposes of this statute, although the request for 

decision in one case assumed it meant “supplies which are consumed in the 

use thereof, such as food, gasoline,” etc., and nothing in the decision 

contradicted that assumption. 19 Comp. Gen. 980, 981 (1940). The statute 

was often cited along with other fiscal control laws such as the 

Antideficiency Act, Adequacy of Appropriations Act, bona fide needs 

statute, etc., and its independent significance received little attention. E.g.,

36 Comp. Gen. 683, 684 (1957). Apart from certain indefinite-quantity or 

requirements contracts (e.g., A-60589, July 12, 1935), it added little to what 

was already prohibited by the other statutes.

In any event, while the law is still on the books, statutory exemptions have 

whittled it down to virtually nothing. The Federal Property and 

Administrative Services Act of 1949, ch. 288, 63 Stat. 377 (June 30, 1949) 

(Property Act), included an exemption for the General Services 

Administration (GSA) and agencies acting under a GSA delegation, later 

expanded to what is now the first sentence of 41 U.S.C. § 260: “Sections 5, 

8, and 13 of this title shall not apply to the procurement of property or 

services made by an executive agency pursuant to this subchapter.” Since 

this provision originated in the Property Act, the definition of “executive 

agency” in the codified version of title 40 derived from that act, contained 

in 40 U.S.C. § 102(4), would presumably apply:

“The term ‘executive agency’ means—

“(A) an executive department or independent establishment 

in the executive branch of the Government; and

“(B) a wholly owned Government corporation.”

5

 Resolution No. 8, 15 Stat. 246 (Jan. 31, 1868).
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GSA published a detailed explanation and listing of who is eligible to use its 

supply services in GSA’s Order No. ADM 4800.2E,6

 which includes 

executive, legislative, and judicial branch agencies as well as other federal 

entities. Section 7.b of the GSA order states:

“Subsection 201(b) of the Property Act authorizes the 

Administrator [of GSA] to provide GSA sources of supply to 

these organizations upon request. . .

“(1) Other Federal Agencies. These are Federal agencies 

defined in subsection 3(b) of the Property Act that are not in 

the executive branch; i.e., any establishment in the 

legislative or judicial branch of the Government . . . To the 

extent that GSA has made such determinations, the 

organizations qualifying under this authority are listed in 

app. B.”

Appendix B to the order contains a list of “Other Eligible Users,” which 

includes legislative branch agencies (e.g., GAO and the Library of 

Congress); judicial branch agencies (e.g., the Administrative Office of the 

U.S. Courts); and a number of government boards, commissions, and 

corporate entities. 

In addition, 10 U.S.C. § 2314 provides: “Sections 3709 and 3735 of the 

Revised Statutes (41 U.S.C. [§§] 5 and 13) do not apply to the procurement 

or sale of property or services by the agencies named in section 2303 of this 

title [10 U.S.C. § 2303].” Section 2303 lists the Departments of Defense, 

Army, Navy, Air Force, the Coast Guard, and the National Aeronautics and 

Space Administration.

GAO has pointed out that these exemptions are just that—exemptions from 

41 U.S.C. § 13—and do not by themselves authorize anyone to obligate 

funds in advance of appropriations. 63 Comp. Gen. 129, 135 (1983); 

48 Comp. Gen. 497, 500 (1969).

6 Eligibility to Use GSA Sources of Supply and Services (Jan. 3, 2000), available at

www.gsa.gov/Portal/gsa/ep/contentView.do?contentType=GSA_BASIC&contentId=8128&no

c=T (last visited Mar. 20, 2008).
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4. Exchange/Sale 

Authority in Acquiring 

Personal Property

Section 503(a) of title 40, United States Code, provides: “In acquiring 

personal property, an executive agency may exchange or sell similar items 

and may apply the exchange allowance or proceeds of sale in whole or in 

part payment for the property acquired.” Section 503(b) provides that a 

transaction under 40 U.S.C. § 503(a) must be in writing and carried out in 

accordance with General Services Administration (GSA) regulations, 

which in turn are subject to regulations of the Office of Federal 

Procurement Policy.

The reason for section 503 is that, without it, the acquiring agency would 

have to charge the full purchase price to its appropriation while depositing 

the proceeds from the disposition of old material in the Treasury as 

miscellaneous receipts, even though it may have budgeted on the basis of 

net cost. For an example of this problem, see 21 Comp. Gen. 294 (1941). 

This was true regardless of whether the old material was sold for cash 

(15 Op. Att’y Gen. 322 (1877)) or traded in for an allowance against the 

purchase price (5 Comp. Dec. 716 (1899)). GAO had come to the 

conclusion that there was “no complete and satisfactory solution of the 

problem except by obtaining necessary legislation.” 21 Comp. Gen. at 297. 

Section 503 was the culmination of legislative attempts that began decades 

earlier. The first statutes tended to be limited either to a particular agency 

or to particular types of personal property such as automobiles. See, e.g.,

19 Comp. Gen. 906 (1940). The origins and history of section 503 (formerly 

section 201(c) of the Federal Property and Administrative Services Act of 

1949, ch. 288, 63 Stat. 377 (June 30, 1949)) are outlined in B-169903-O.M., 

Jan. 8, 1973. Although the statute uses the term “executive agency,” GAO 

regards it as applicable to itself by virtue of 31 U.S.C. § 704(a) which makes 

laws “generally related to administering an agency” applicable to GAO. 

B-201082-O.M., Dec. 2, 1980.

Implementation of the exchange/sale authority is the primary responsibility 

of GSA, whose regulations are found in 41 C.F.R. part 102-39, part of the 

Federal Management Regulation. GAO has considered various aspects of 

the exchange/sale authority on many occasions, but relies heavily on the 

GSA regulations and will not interfere with any reasonable application by 

GSA. See B-189300, May 5, 1978 (nondecision letter).

The regulations authorize use of the exchange/sale authority only when the 

following conditions apply:

• The property sold or exchanged must be “similar to the property 

acquired.”
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• The property sold or exchanged must not be excess or surplus, and the 

agency must have a continuing need for the property acquired.

• Subject to certain exceptions, “the number of items acquired must 

equal the number of items exchanged or sold.”

• The property exchanged or sold cannot have been acquired for the 

principal purpose of exchange or sale.

• There must be documentation that the exchange allowance or sale 

proceeds will be applied to the acquisition of replacement property.

41 C.F.R. § 102-39.50. If the exchange/sale authority applies, the agency is 

under no obligation to give precedence to other statutory disposal options, 

such as donation programs. B-153771, June 12, 1964.

The first listed condition is simply a restatement of the requirement of the 

statute that the items be “similar.” GAO has observed that “‘similar items’ is 

not a precise term” and that the law “affords [GSA] a flexible standard in 

the promulgation of regulations.” 41 Comp. Gen. 227, 228–29 (1961). GSA 

regards items as similar for purposes of the exchange/sale statute when— 

• the replaced item and the acquired item are identical;

• the acquired and replaced item “are designed and constructed for the 

same purpose”;

• both items constitute parts or containers for identical or similar end 

items; or

• the acquired item and the replaced item both fall within a single Federal 

Supply Classification group of property that is eligible for handling 

under the exchange/sale authority.

41 C.F.R. § 102-39.20. 

Under the second standard, items need not be identical if they are designed 

and constructed for the same purpose. Thus, ambulances and station 

wagons adapted for use as ambulances are similar for purposes of the 

statute. 41 Comp. Gen. 227 (1961). Different types of trucks qualify 

because they are designed and intended to be used for the transportation of 

property. B-47592, Feb. 14, 1945. So do vessels designed for hydrographic 
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surveying, notwithstanding differences in size and capacity which would 

preclude their operation under the same conditions. B-127659, June 5, 

1956.

The statute and regulations are designed to facilitate the legitimate 

replacement of property and should not be used for what amounts to a new 

acquisition in the guise of an exchange. In 55 Comp. Gen. 1268 (1976), GSA 

had disapproved an exchange of gold for silver proposed by the Defense 

Department and the National Aeronautics and Space Administration. 

Notwithstanding the assertion that the two were “virtually 

interchangeable,” an examination of the proposal showed that they would 

not serve the same specific purpose, and that GSA was therefore correct. 

See also B-149858-O.M., Feb. 25, 1963 (diamonds not similar to rubies). The 

purpose to be served must be specific. Intermingling dissimilar items for 

use on a common project—unless they are within the same Federal Supply 

Classification group—is not enough. Thus, trucks and shovels, for 

example, are not similar simply because they will be used as “road building 

equipment.” 27 Comp. Gen. 540 (1948). In general, “in the purchase of a 

truck only a truck may be sold or exchanged, a tractor for a tractor, a boat 

for a boat, etc.” 23 Comp. Gen. 931, 934 (1944).

The regulations also treat items as similar if they are parts for similar end 

items. See, e.g., 34 Comp. Gen. 452 (1955) (United States Mint at 

Philadelphia could sell high-frequency motor-generator set and use 

proceeds for parts for high-frequency melting units); B-126544, Feb. 17, 

1956 (another case involving U.S. Mint equipment). The 1955 decision 

cautioned that while the proceeds could be applied to the purchase of the 

new equipment, they could not be used for such things as removal, 

modification, installation, or assembly. 34 Comp. Gen. at 454.

Sales proceeds can be applied to a different program or activity in the same 

agency as long as they are applied to the purchase of similar items. This 

follows logically from the requirement under 40 U.S.C. § 524(b)(1) that, as 

far as practicable, an agency reassign property within the agency before 

reporting it to GSA as excess. B-153771, June 12, 1964.

There are a number of important exclusions from the exchange/sale 

authority. One is mandated by the very premise of the statute—it applies 

only to personal property, not to real property. E.g., B-128706, Aug. 14, 

1956 (41 miles of telephone line are not “personal property”). Others are 

contained in the regulations. Items are not eligible for exchange/sale 

treatment if they are found in any of the Federal Supply Classification 
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groups listed in 41 C.F.R. § 102-39.45(a). The groups listed range from hand 

tools and clothing to weapons and nuclear ordnance. Other provisions 

specify that the exchange/sale authority may not be used if the acquisition 

is not otherwise authorized by law or is in contravention of an applicable 

restriction. 41 C.F.R. §§ 102-39.45(j), (k), 102-39.30. For example, it could 

not be used to acquire a passenger motor vehicle by an agency which lacks 

the specific authority required by 31 U.S.C. § 1343(b). 27 Comp. Gen. 105 

(1947). As noted above, the exchange/sale authority may not be used to 

dispose of excess or surplus property. 41 C.F.R. § 102-39.50(b). See

B-163084, Feb. 5, 1979; B-169903, July 27, 1970. Nor may it be used to 

dispose of scrap materials except scrap gold for fine gold. 41 C.F.R. 

§ 102-39.45(e); see B-163084, Feb. 5, 1979.

Long before the enactment of 40 U.S.C. § 503, GAO had taken the position 

that an agency disposing of personal property through competitive bids 

should solicit cash bids as well as trade-in offers, and should accept 

whichever was more favorable to the government. E.g., 5 Comp. Gen. 798 

(1926). This position continued after enactment of section 503. 45 Comp. 

Gen. 671 (1966); B-150296, Mar. 14, 1963.7

 In 64 Comp. Gen. 132 (1984), 

GAO sustained a bid protest where the solicitation failed to include the 

cash option. The decision stated:

“[W]here an agency contemplates considering offers for the 

government’s old equipment in conjunction with an 

acquisition of new equipment, we question whether it is fair 

or even in the government’s best interest to limit offers for 

the old equipment to firms also offering to supply the new 

equipment, if there exists a third-party market for the old 

equipment that might be willing to offer more on a cash 

basis than the government could have obtained from any 

exchange allowance.”

7

 GSA regulations contain the following requirement:

“How do I determine whether to do an exchange or a sale?

“You must determine whether an exchange or sale will provide the greater 

return for the Government. When estimating the return under each method, 

consider all related administrative and overhead costs.”

41 C.F.R. § 102-39.35. 
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64 Comp. Gen. at 134. 

GAO has approved issuing a request for quotations for the sole purpose of 

comparing trade-in offers where the agency contemplated making the 

actual acquisition by purchase request from the Federal Supply Schedule. 

B-181146, Nov. 21, 1974. GAO has also concurred with a proposal by GSA 

to sell used cars, many of which are exchange/sale cars, on consignment 

through private auction houses. 64 Comp. Gen. 149 (1984).

Of course, the main reason for the enactment of 40 U.S.C. § 503 was to 

permit the proceeds of the exchange or sale to be applied towards 

acquisition of the new item. Applicable requirements are set forth in GAO’s 

Policy and Procedures Manual for Guidance of Federal Agencies, title 7, 

§ 5.5.D (Washington, D.C.: May 18, 1993), some of which have been 

incorporated into GSA’s regulations at 41 C.F.R. §§ 102-39.15(a), 102-

39.40(a)(3), and 102-39.70. If the proceeds are received after the obligation 

for the replacement property has been incurred, they may be credited 

directly to the appropriation account charged. If the proceeds are received 

before the obligation for the replacement property has been incurred, they 

remain available for the purchase during the fiscal year in which the 

property was sold and for one fiscal year thereafter. 41 C.F.R. § 102-39.70. 

If an administrative determination to use the proceeds has been made and 

documented, the money should be credited to the appropriate budget 

clearing account. When the obligation is incurred, the clearing account is 

charged and the appropriation account credited. This prevents expiration 

of the appropriation from thwarting the legitimate exercise of the 

exchange/sale authority. If the obligation does not occur within the 

prescribed time period, the money goes to the Treasury as miscellaneous 

receipts, the theory being that it would no longer be a bona fide

replacement. Id.

5. Disposal of Personal 

Property

The principles which govern the disposal of government property are, for 

the most part, the same for real and personal property although they differ 

in detail. We discuss the disposal of real property in Chapter 13. The 

principles are:

• Under the Property Clause of the Constitution (art. IV, § 3, cl. 2), 

disposal of government property requires statutory authority.

• Congress has implemented the Property Clause mainly through 

provisions of title 40, United States Code. The General Services 
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Administration (GSA) has primary responsibility for administering 

these provisions, and does so in turn through the Federal Management 

Regulation, 41 C.F.R. chapter 102.

• Disposal is a three-stage process: reassignment within the agency; 

transfer to other federal agencies (excess property); sale or other 

authorized disposal outside of the government (surplus property). The 

definitions of excess and surplus property are the same for real and 

personal property.

Upon determining that an item of personal property is no longer needed 

“for the purposes of the appropriation used to make the purchase,” the 

agency’s first task is to see if it can be reassigned for use elsewhere in the 

agency. 40 U.S.C. § 524(b)(1); 41 C.F.R. § 102-36.35(a). The statutory 

language makes clear that this includes activities within the agency 

financed by different appropriations. B-139655-O.M., July 20, 1959. If the 

property is not needed elsewhere in the agency, it is declared excess and 

reported to GSA. GSA can then direct transfer to another agency, a 

government corporation, or the District of Columbia, or can redistribute 

the property through its own supply centers. 40 U.S.C. §§ 521–522.

As with real property, the statute requires reimbursement by the receiving 

agency of the property’s “fair value” if either the transferor or the transferee 

is the District of Columbia or a government corporation subject to the 

Government Corporation Control Act, 31 U.S.C. §§ 9101–9110, or if the 

property was acquired by using a revolving or reimbursable fund and the 

transferor agency requests reimbursement of the net proceeds. In all other 

cases, the extent of reimbursement is left to the determination of GSA and 

the Office of Management and Budget. 40 U.S.C. §§ 522(a), (b). The 

regulations provide that, except for the situations mandated by the statute 

and a few others, transfers of excess personal property are without 

reimbursement. 41 C.F.R. § 102-36.75. This “no reimbursement” policy is 

within GSA’s discretion under the law. B-101646-O.M., Feb. 11, 1977.

A little-known statute is 40 U.S.C. § 528, which prohibits any department or 

agency of the federal government from using appropriated funds “to 

purchase furniture if the Administrator of General Services determines that 

requirements can reasonably be met by transferring excess furniture, 

including rehabilitated furniture, from other departments or agencies” in 

accordance with the title 40 provisions. 
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Excess property in a foreign country is subject to different provisions of 

the law. Each agency is responsible for disposing of its own foreign excess 

property. 40 U.S.C. § 701(b)(1). Methods of disposal include sale, 

exchange, lease, or transfer, or the property can be returned to the United 

States for handling as domestic excess property. Id. §§ 702–704. This 

broad authority includes transfer to another federal agency without 

reimbursement. 42 Comp. Gen. 21 (1962).

If the property is found to be excess to all federal agencies, GSA declares it 

to be surplus. GSA has general supervision and direction over the 

disposition of surplus property. 40 U.S.C. § 541. Another agency can sell 

surplus property only if it has specific authority which overrides the title 40 

provisions or upon delegation from GSA. 56 Comp. Gen. 754 (1977). GSA’s 

regulations amount to a blanket delegation by authorizing agencies to 

either sell their own surplus property or to have GSA, a contractor, or 

another agency sell it for them. 41 C.F.R. § 102-38.40.

Section 543 of title 40 provides that agencies authorized by GSA to dispose 

of surplus property—

“may do so by sale, exchange, lease, permit, or transfer, for 

cash, credit, or other property, with or without warranty, on 

terms and conditions that the Administrator considers 

proper. The agency may execute documents to transfer title 

or other interest in the property and may take other action it 

considers necessary or proper to dispose of the property 

under this chapter [chapter 5 of title 40].”

Note that section 543 authorizes sales for credit as well as cash. The 

regulations permit accepting payment by either credit or debit card. 

41 C.F.R. § 102-38.290. 

The procedures for disposal are contained in 40 U.S.C. § 545. Section 545 

generally requires advertising for bids for disposal and contracts for 

disposal, although, as discussed below, it includes a number of exceptions 

to this requirement. The statute further provides that— 

“an award shall be made with reasonable promptness by 

notice to the responsible bidder whose bid, conforming to 

the invitation for bids, is most advantageous to the Federal 

Government, price and other factors considered. However, 
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all bids may be rejected if it is in the public interest to do 

so.” 

40 U.S.C. § 545(a)(4). Generally speaking, this requires award to the 

highest bidder. 36 Comp. Gen. 94 (1956); B-192592, Nov. 16, 1978. The 

winning bidder must be responsive and responsible. These terms have the 

same meaning as in the procurement arena. Responsive means that the bid 

must conform to the advertised terms and conditions (49 Comp. 

Gen. 244, 246 (1969)); responsible refers to ability to perform (B-160179, 

Dec. 12, 1966).

Section 545(b) sets forth nine situations in which the sale may be 

negotiated rather than advertised. They include such things as national 

emergency; estimated fair market value does not exceed $15,000; and 

advertisement fails to produce reasonable bids. Another situation is where 

sale by competitive bidding “would impact an industry to an extent that 

would adversely affect the national economy,” provided that negotiation 

will produce the estimated fair market value and other satisfactory terms. 

40 U.S.C. § 545(b)(4). This does not authorize an agency to address 

economic impact by advertising a sale with the condition that the property 

must be scrapped by the purchaser. 43 Comp. Gen. 15 (1963). Another 

provision of the statute, 40 U.S.C. § 545(d), authorizes GSA to sell surplus 

personal property by negotiation at fixed prices which reflect estimated 

fair market value, without regard to section 545(a).

A provision that has generated some attention in judicial and GAO 

decisions is 40 U.S.C. § 544:

“A deed, bill of sale, lease, or other instrument executed by 

or on behalf of an executive agency purporting to transfer 

title or other interest in surplus property under this chapter 

[chapter 5 of title 40] is conclusive evidence of compliance 

with the provisions of this chapter concerning title or other 

interest of a bona fide grantee or transferee for value and 

without notice of lack of compliance.”
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This language originated in a very similar provision in the Surplus Property 

Act of 1944,8

 designed to protect the good-faith purchaser, in the absence of 

fraud, against attack based on mistake or lack of authority. United 

States v. Jones, 176 F.2d 278 (9th Cir. 1949). See also East Tennessee Iron & 

Metal Co. v. United States, 218 F. Supp. 377 (E.D. Tenn. 1963) (mutual 

mistake). It will protect an otherwise innocent party who acquires title 

from a fraudulent vendee. United States v. Mailet, 294 F. Supp. 761 

(D. Mass. 1968). The provision has also been viewed as a protection for the 

title of a good-faith purchaser where the property had never been declared 

surplus and was therefore disposed of in violation of law and regulations. 

International Air Response v. United States, 75 Fed. Cl. 604 (2007); 

Pacific Harbor Capital, Inc. v. United States Department of Agriculture,

845 F. Supp. 1 (D.D.C. 1993). GAO has held that, where the notice of award 

specifies that title does not pass until the property is removed, section 544 

does not apply until the property is removed. 58 Comp. Gen. 240 (1979). 

GAO has also suggested that the statute should not be read as, in effect, 

permitting disregard of any statutory violation. B-150468, Dec. 23, 1963.

One situation in which 40 U.S.C. § 544 will not prevail is illustrated in 

Dubin v. United States, 289 F.2d 651 (Ct. Cl. 1961). The government had 

erroneously sold certain defense articles as surplus. A provision of the 

Espionage Act, 18 U.S.C. § 793(d), gives the government the right to 

recover the articles in the interests of national security, a right which 

prevails over the purchaser’s claim to title under 40 U.S.C. § 544. In Dubin, 

the person surrendering the property was entitled to recover only his outof-pocket expenses. See also B-247981, July 24, 1992.

Another major method of disposal of surplus personal property is donation 

to the states, set out in 40 U.S.C. § 549. For decades, federal law has 

authorized the donation of surplus personal property to states for 

educational, public health, or civil defense purposes. Congress 

significantly revised the law in 1976 to expand the range of authorized 

purposes.9

 In brief, GSA transfers surplus property, without cost, to state 

agencies designated under state law to receive surplus federal property. 

GSA is supposed to try to allocate property among the states on a fair and 

equitable basis. The state agency may then distribute the property—

8

 Pub. L. No. 78-457, § 25, 58 Stat. 765, 780 (Oct. 3, 1944).

9 Pub. L. No. 94-519, § 1, 90 Stat. 2451 (Oct. 17, 1976).
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“(A) to a public agency for use in carrying out or promoting, 

for residents of a given political area, a public purpose, 

including conservation, economic development, education, 

parks and recreation, public health, and public safety; or

“(B) for purposes of education or public health (including 

research), to a nonprofit educational or public health 

institution or organization that is exempt from [federal] 

taxation . . .”

40 U.S.C. § 549(c)(3). GSA regulations governing the donation program are 

in 41 C.F.R. part 102-37. According to 41 C.F.R. § 102-37.120, all donations 

have to go through GSA except those listed in 41 C.F.R. § 102-37.125.

Title to property in the custody of the state receiving agency remains with 

the United States. 41 C.F.R. § 102-37.205(b). Upon executing the required 

certifications and taking possession from the state agency, the donee 

receives “conditional title.” Id. According to 41 C.F.R. § 102-37.450(d): 

“Full title to the property will vest in the donee only after the donee has met 

all of the requirements of this part.” The donee must return the property if 

it is not used for the donated purpose within 1 year of donation, or if it 

ceases being used within 1 year after being placed in use. 40 U.S.C. 

§ 549(e)(3)(D); 41 C.F.R. § 102-37.450(b). In addition, there are recapture 

provisions for noncompliance. 41 C.F.R. § 102-37.485. 

The statute provides no standards as to when property should be sold or 

when it should be donated. It does not require GSA to consider various 

policy factors in making the determination. Northrop University v. 

Harper, 580 F. Supp. 959, 963 (C.D. Cal. 1983). It confers “unfettered 

discretion” on GSA. Id. at 964.

In addition to the more general features noted above, provisions in title 40 

of the United States Code address many highly specialized situations. For 

example, 40 U.S.C. § 548 authorizes the Maritime Administration to dispose 

of surplus vessels determined to be “merchant vessels or capable of 

conversion to merchant use,” in accordance with the Merchant Marine Act 

of 1936, as amended, 46 U.S.C. app. §§ 1101–1295g. The procedures of the 

Merchant Marine Act take precedence over those in title 40. 42 Comp. 

Gen. 69 (1962). Dredges are apparently not regarded as within the scope of 

40 U.S.C. § 548 (B-158429, Apr. 20, 1966), so there is separate authority in 

40 U.S.C. § 556 to dispose of dredges.
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A situation the statute does not address is the disposal of property held by a 

commission composed equally of federal and state members. Confronted 

with one such situation, GAO said there is a choice: divide the property in 

half with the federal portion of the commission disposing of its half in 

accordance with the title 40 provisions, or sell it with the United States 

receiving half the proceeds. Absent statutory guidance, the choice is up to 

the commission. B-185203, Apr. 8, 1976 (Federal-State Land Use Planning 

Commission for Alaska). 

Unless one of several statutory exceptions applies, the net proceeds from 

the sale of surplus personal property must be deposited in the Treasury as 

miscellaneous receipts. 40 U.S.C. § 571;10 41 C.F.R. § 102-38.300. See also

B-200962, May 26, 1981. One exception (40 U.S.C. § 572) is personal 

property related to real property sold by GSA. Another (40 U.S.C. § 574(a)) 

is property originally acquired with amounts not appropriated from the 

general fund of the Treasury or with reimbursable appropriations from the 

general fund. E.g., B-162337-O.M., Oct. 2, 1967 (“proceeds from the sale of 

surplus and excess property and from salvage and scrap shall be deposited 

into the industrial fund when such property is held in the industrial fund”). 

Another (40 U.S.C. § 574(b)) permits a portion of the proceeds to be 

deposited in a special account from which to pay refunds or payments for 

breach of warranty that may become necessary. When property is 

recovered under the Espionage Act noted earlier, for example, the 

expenses may be paid from one of these accounts. B-163028, Jan. 8, 1968. 

Still another (40 U.S.C. § 574(c)) permits proceeds from the sale of 

property in the custody of a contractor or subcontractor to be applied 

against the contract price when so provided in the contract. E.g.,

B-140689-O.M., Feb. 1, 1980; B-139655-O.M., July 20, 1959. When GSA sells 

surplus personal property, it may deduct from the proceeds its costs of 

conducting the sale, and may deposit those amounts in the Acquisition 

Services Fund. 40 U.S.C. § 573.

Finally, while the title 40, United States Code, provisions discussed above 

govern the vast majority of disposals, other authorities exist in specific 

contexts. For example:

10 Section 571(b) permits the expenses of sale to be deducted, subject to GSA regulations, so 

that only the net proceeds must be deposited.
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• With the approval of the President, the Secretary of the Treasury is 

authorized to sell gold and silver. 31 U.S.C. § 5116. GSA can conduct 

the sale as Treasury’s agent. See B-87620, Jan. 27, 1976.

• Various statutory provisions summarized in B-225008, Feb. 24, 1987, 

afford several options for the use and disposition of forfeited property. 

The provisions still in effect include: 18 U.S.C. § 1963; 19 U.S.C. 

§ 1616a; 21 U.S.C. §§ 853 and 881; and 28 U.S.C. § 524(c).

• Excess and surplus personal property can be donated to Indian tribes 

and tribal organizations under the Indian Self-Determination Act, 

25 U.S.C. § 450j(f). If someone obtains property under this authority to 

sell to third parties, the government may bring criminal charges. E.g., 

United States v. Hacker, 883 F. Supp. 444 (D.S.D. 1994). 

B. Interagency 

Transactions

1. The Economy Act

a. Origin, Legislative History, 

General Requirements

In 1932, as part of a package of measures designed to reduce government 

spending and help the nation fight its way out of the Great Depression, 

Congress enacted the first governmentwide statutory authorization for 

federal agencies to provide work, services, or materials to other federal 

agencies on a reimbursable basis. Act of June 30, 1932, ch. 314, 47 Stat. 

382. The advantages of interagency dealings had long been apparent, but 

widespread use had been discouraged by the “well established rule that one 

Government activity may not be reimbursed for services performed for 

another except to the extent that it is shown that increased costs have been 

incurred.” A-31040, May 6, 1930.11 In addition, the early decisions held that 

11 See also, e.g., 10 Comp. Gen. 193 (1930); 10 Comp. Gen. 131 (1930); 8 Comp. Gen. 600 

(1929); 6 Comp. Gen. 81 (1926). Under this rule, the performing agency could not recover 

costs it would have incurred in any event, a prime example being the salaries of personnel 

used in providing the service.
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statutory authority was necessary if doing work for another agency would 

require an increase in the plant or personnel of the performing agency.12 

10 Comp. Gen. 131, 134 (1930); 7 Comp. Gen. 709, 710 (1928). Furthermore, 

there was discomfort with the concept of the government contracting with 

itself. See, e.g., 26 Comp. Dec. 1022, 1023 (1920); 22 Comp. Dec. 684, 685 

(1916).

The 1932 legislation did not hatch fully grown. A general, albeit limited 

provision, had been enacted in 1920 authorizing ordering agencies to 

transfer appropriations to performing agencies “for direct expenditure.” 

Act of May 21, 1920, ch. 194, § 7, 41 Stat. 607, 613.13 In addition, a number of 

agency-specific statutes were on the books. For example, a permanent 

provision in the Navy Department’s 1927 appropriation act, Act of May 21, 

1926, ch. 355, 44 Stat. 591, 605, directed agencies ordering services or 

materials from the Navy to pay the actual cost to the Navy’s working fund, 

either in advance or by reimbursement. This law, quoted in 10 Comp. 

Gen. 275, 277 (1930), was the source of some of the language used a few 

years later in the Economy Act.

Against this backdrop, Representative Burton French sponsored legislation 

in 1930 to provide general authority for reimbursable interagency 

transactions. The purpose of the legislation, Representative French 

testified, was “to permit the utilization of facilities and personnel belonging 

to one department by another department or establishment and to enact a 

simple and uniform procedure for effecting the appropriation adjustments 

involved.” Interdepartmental Work: Hearings on H.R. 10199 Before the 

Committee on Expenditures in the Executive Departments, 71st Cong. 3 

(1930), quoted in 57 Comp. Gen. 674, 678 (1978). Representative French 

explained how the bill conformed with certain fundamental tenets of 

appropriations law:

“It is also a requirement of law, in using appropriations for 

the support of any activity that the appropriation be 

expended only for the objects specified therein. . . .

12 This rule was based on 31 U.S.C. § 1301(a), which limits the use of appropriations to their 

intended purposes. 7 Comp. Gen. at 711; 3 Comp. Gen. 974, 976 (1924).

13 A few of the numerous decisions discussing and applying this provision are 4 Comp. 

Gen. 674 (1925); 27 Comp. Dec. 684 (1921); 27 Comp. Dec. 106 (1920); A-31068, Mar. 25, 1930.
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“This requires that when one department obtains work, 

materials or services from another department it should pay 

the full cost of such work, materials or services.

“If full cost is not paid, then such part of the cost as is not 

reimbursed must fall upon the department doing the work, 

which is contrary to [31 U.S.C. § 1301(a)] and the 

appropriation of the department for which the work was 

done will be illegally augmented because it does not bear all 

of the cost of the work done for it.”

Id. at 4, 57 Comp. Gen. at 678.14

The report of the House Committee on Expenditures in the Executive 

Departments mirrored the sponsor’s testimony:

“The purpose of this bill is to permit the utilization of the 

materials, supplies, facilities, and personnel belonging to 

one department by another department or independent 

establishment which is not equipped to furnish the 

materials, work, or services for itself, and to provide a 

uniform procedure so far as practicable for all departments.

“Your committee also believes that very substantial 

economies can be realized by one department availing itself 

of the equipment and services of another department in 

proper cases. A free interchange of work as contemplated 

by this bill will enable all bureaus and activities of the 

Government to be utilized to their fullest and in many cases 

make it unnecessary for departments to set up duplicating 

and overlapping activities of [their] own.

* * * * * * * * *

14 As we will note in our discussion of interagency details of personnel, the reason the 

accounting officers had not previously espoused this eminently logical application of the 

purpose statute and augmentation concept was rooted more in history than in law. 

Certainly in non-Economy Act situations, the proposition that using agency A’s 

appropriations to do agency B’s work violates the purpose statute is stated largely as 

dogmatic. E.g., 59 Comp. Gen. 403, 404 (1980).
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“Heretofore the cost of such services as have been 

performed by one department for another has frequently 

been paid for out of the appropriations for the department 

furnishing the materials and services. This is unfair to the 

department doing the work. All materials furnished and 

work done should be paid for by the department requiring 

such materials and services. [The bill’s funding provisions] 

will hold each department to strict accountability for its 

own expenditures and result in more satisfactory budgeting 

and accounting.”

H.R. Rep. No. 71-2201, at 2–3 (1931), quoted in 57 Comp. Gen. at 674. The 

bill was not enacted immediately, however. The following year, it was 

again reported favorably, in the same language as quoted above, by the 

House Committee on Economy. H.R. Rep. No. 72-1126, at 15–16 (1932). 

This time it became law as section 601 of the Legislative Branch 

Appropriation Act for 1933, ch. 314, 47 Stat. 382, 417 (1932), which almost 

immediately upon enactment became popularly known as the “Economy 

Act.”15

Section 601 has been amended several times, receiving its current structure 

and designation in the 1982 recodification of title 31, United States Code, 

and is now found at 31 U.S.C. §§ 1535 and 1536.16 The basic authority is set 

out in 31 U.S.C. § 1535(a):

“(a) The head of an agency or major organizational unit 

within an agency may place an order with a major 

organizational unit within the same agency or another 

agency for goods or services if—

“(1) amounts are available;

15 Excerpts from H.R. Rep. No. 72-1126 are quoted in 52 Comp. Gen. 128, 131–32 (1972), and 

the history of section 601 is discussed in more detail in 57 Comp. Gen. 674. Technically, 

section 601 was cast as an amendment to the 1920 statute noted earlier in the text. Certain 

documents in the legislative history, one of which is quoted in 57 Comp. Gen. at 679, cite 

GAO decision A-2272, June 16, 1924. For the benefit of future researchers, there is no such 

decision. The correct reference is A-2272, June 18, 1924, published at 3 Comp. Gen. 974.

16 Regulations governing the Economy Act can be found in the Federal Acquisition 

Regulation at 48 C.F.R. subpart 17.5.
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“(2) the head of the ordering agency or unit decides the order is 

in the best interest of the United States government;

“(3) the agency or unit to fill the order is able to provide 

or get by contract the ordered goods or services; and

“(4) the head of the agency decides ordered goods or 

services cannot be provided by contract as 

conveniently or cheaply by a commercial enterprise.”

The introductory portion of 31 U.S.C. § 1535(a) tells you who can use the 

authority and what they can use it for. Both points will be explored later in 

more detail. The numbered subsections establish four basic conditions on 

use of the authority.

(1) Funds available

The first condition is that “amounts are available” or, in the original 

language, “if funds are available therefor” (47 Stat. 417–18). Since nothing 

in the Economy Act in any way abrogates or diminishes 31 U.S.C. § 1301(a), 

the ordering agency must have funds which are available for the 

contemplated purpose, or, in other words, the purpose of the transaction 

must be something the ordering agency is authorized to do. 26 Comp. 

Gen. 545, 548 (1947); 16 Comp. Gen. 3, 4 (1936); 15 Comp. Gen. 704 (1936); 

15 Comp. Gen. 5 (1935); B-259499, Aug. 22, 1995. The ordering agency does 

not need specific authority in its appropriation language to use the 

Economy Act, but of course must adhere to any monetary limits Congress 

may choose to impose. 19 Comp. Gen. 585 (1939). 

In brief, the Economy Act does not authorize an agency to use another 

agency to do anything it could not lawfully do itself. This is merely a 

continuation of the rule in effect under the Economy Act’s 1920 

predecessor. E.g., 5 Comp. Gen. 757 (1926). This point—that transfer of 

funds to another agency cannot be used to circumvent 31 U.S.C. 

§ 1301(a)—is not limited to Economy Act transactions but applies to all 

transfers, whether in advance or by reimbursement, to working funds or 

otherwise, unless authorized under a statute which expressly provides 

differently. See, e.g., Federal Deposit Insurance Corp. v. Hurwitz, 

384 F. Supp. 2d 1039 (S.D. Tex. 2005) (reimbursable agreement under which 

the Federal Deposit Insurance Corporation (FDIC) transferred funds to the 

Office of Thrift Supervision (OTS) violated the Economy Act because FDIC 

had transferred resources to OTS to bring claims that FDIC could not); 
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7 Comp. Gen. 524, 526 (1928) (emphasizing that since the appropriation in 

question “is not available for direct expenditure for such purpose . . . it can 

not be made available for such purpose by transfer” to another agency). 

See also 30 Comp. Gen. 453 (1951); 28 Comp. Gen. 365 (1948); 22 Comp. 

Gen. 462 (1942), overruled on other grounds, 56 Comp. Gen. 928 (1977); 

19 Comp. Gen. 774 (1940).

(2) Interest of the government

The second condition is that the head of the ordering agency must 

determine that the order is in the best interests of the government. This 

appears to offer little impediment, and our research has disclosed no case 

law applying this provision.17

(3) Performing agency’s “position”

The third condition—agency is “able to provide” the goods or services—is 

best understood by again referring to the original language: the performing 

agency must be “in a position to supply or equipped to render” the 

materials or services in question (Act of June 30, 1932, ch. 314, 47 Stat. 382, 

418). (The “get by contract” part was added by amendments starting in 

1942, and will be addressed later in our discussion.) This requirement goes 

to the essence of the Economy Act. The objective of the statute is to permit 

an agency to take advantage of another agency’s experience or expertise, 

not merely to “dump” either work or funds or to avoid legislative 

restrictions. A good example of one agency taking advantage of another 

agency’s expertise is 13 Comp. Gen. 138 (1933), in which a government 

corporation issuing its own securities sought Economy Act assistance quite 

logically from the forerunner of the Bureau of the Public Debt.

The “in a position” requirement does not mean that the performing agency 

must have all required equipment and personnel already on hand before it 

may validly accept an Economy Act order. If necessary, the agency may, as 

long as the work or service is within the scope of activities it normally 

performs, procure additional supplies or equipment or add additional 

temporary personnel. B-197686, Dec. 18, 1980. For example, the 

agreement in 13 Comp. Gen. 138 was not objectionable merely because the 

17 This of course does not mean that an issue has never arisen regarding a determination that 

the order is in the best interest of the government. The issue might involve an internal 

debate and might not surface outside of the agency.
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Public Debt Service had to take on some additional personnel in order to 

handle the increased workload. Similarly, GAO found a proposed transfer 

of funds to enable the performing agency to hire additional personnel 

authorized in 14 Comp. Gen. 526 (1935). GAO noted in B-119846, Sept. 8, 

1955, that this authority is not unlimited; however, no case thus far has 

defined precisely what those limits might be.

Property purchased incident to an Economy Act transaction is, upon 

completion of the work, “an asset of the agency bearing the cost of its 

acquisition.” 33 Comp. Gen. 565, 567 (1954). If the ordering agency has 

paid for the entire asset through an advance of funds to the performing 

agency, then whatever remains when performance is done should be 

returned to the ordering agency for use or disposal as appropriate. Id. If 

several agencies have advanced funds to cover the cost, the property is 

regarded as “owned” by all of the agencies on a pro rata basis. 38 Comp. 

Gen. 36 (1958). However, if the ordering agency does not pay in advance 

but pays upon completion of its order, and the performing agency acquires 

property with its own funds, the property remains under the control of the 

performing agency and only the amount of depreciation of the property 

during its work for the ordering agency should be charged to such agency. 

Id. 

It is one thing to acquire property incident to performing an Economy Act 

order. It is entirely different, and far more questionable, to acquire 

substantial equipment—or to solicit funds from potential customer 

agencies to do so—solely to put yourself “in a position” to perform 

Economy Act services. B-119846, July 23, 1954. And, of course, in order to 

be “in a position” to do anything under the Economy Act, the performing 

agency must be in existence. B-37273, Oct. 16, 1943. 

Whether an agency is in a position to do Economy Act work is primarily the 

agency’s own determination, one which merits substantial weight. 

23 Comp. Gen. 935, 937 (1944). However, the agency’s status includes legal 

as well as factual considerations. The legal part of the formula is the 

absence of any statutory prohibitions or restrictions which would obstruct 

performance. Id. at 937–38. The Economy Act does not give a performing 

agency any authority which it would not otherwise have. 18 Comp. 

Gen. 262, 266 (1938).
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(4) Lower cost

The Economy Act was never intended to foster an incestuous relationship 

in lieu of normal contracting with private business concerns. Hence the 

fourth condition of 31 U.S.C. § 1535(a)—the ordering agency must 

determine that it cannot obtain the goods or services “as conveniently or 

cheaply” from a private contractor.18 It should be apparent that this refers 

to services which are “lawfully procurable” from private sources in the first 

place and not to “regular governmental functions.” 19 Comp. Gen. 941 

(1940).

In making the lower cost determination, it is permissible to solicit bids and 

then reject all bids if they exceed the cost of dealing with another agency. 

37 Comp. Gen. 16 (1957).19 Even if the determination is made, however, the 

authority to use the Economy Act is permissive rather than mandatory. Id. 

If the agency cannot make the determination, although the title 31 

recodified language is less explicit in this regard (compare the original 

language, Act of June 30, 1932, ch. 314, 47 Stat. 382, 418), use of the 

Economy Act is improper.

The Economy Act itself does not require that agencies document the two 

determinations called for by 31 U.S.C. §§ 1535(a)(2) and (a)(4) (interest of 

the government and lower cost). However, GAO regards documenting the 

determinations as “sound practice” and a desirable internal control. GAO, 

Interagency Agreements: Fiscal Year 1988 Agreements at Selected 

Agencies Were Proper, GAO/AFMD-88-72 (Washington, D.C.: Sept. 28, 

1988), at 8. The Federal Acquisition Regulation was amended in 1995 to 

require that the two determinations be documented in a Determination and 

Finding. 48 C.F.R. § 17.503(a) (60 Fed. Reg. 49721, Sept. 26, 1995).

18 As originally enacted, this requirement explicitly referred to “work or services performed” 

but not to “materials, supplies, or equipment furnished.” See, e.g., 12 Comp. Gen. 597, 598 

(1933). The substitution of the word “goods” came about as part of the 1982 recodification 

of title 31, United States Code. See 31 U.S.C. § 1535 (Rev. Notes). While a recodification is 

not supposed to make substantive changes, this is nevertheless what the statute now says. 

Perhaps it simply reflects the deduction that “work” implies a product.

19 This decision implies that an agency can enter into an Economy Act agreement with a 

nonappropriated fund instrumentality, and to that extent was modified by 64 Comp.

Gen. 110 (1984). It remains valid for the points for which it is cited in the text.
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(5) Written agreement

Another important requirement which should be emphasized at the outset 

is not specified in the statute but finds its authority in common sense and in 

the recording statute.20 An Economy Act transaction should be evidenced 

by a “written order or agreement in advance, signed by the responsible 

administrative officer of each of the departments or offices concerned.” 

13 Comp. Gen. 234, 237 (1934).21 A written agreement is important 

because, as in any contract situation, the terms to which the parties agree, 

as reflected in the writing, establish the scope of the undertaking and the 

rights and obligations of the parties. Also, the written agreement can 

establish a ceiling on the ordering agency’s financial obligation. 22 Comp. 

Gen. 74 (1942).

While an advance agreement normally “should be regarded as 

essential . . . the lack of a specific agreement does not necessarily preclude 

reimbursement” in appropriate cases. B-39297, Jan. 20, 1944. An 

“appropriate case,” although the decisions do not use this language, 

generally means one in which the facts are sufficient to establish an implied 

contract, or an express contract which was not finalized. In A-85201, 

Apr. 15, 1937, for example, an agreement had been in effect for several 

prior years and the facts showed an intent to continue the agreement for 

the year in question. Another appropriate case is where there is a written 

agreement and the parties subsequently agree to an “adjustment” for some 

additional amount or item which is otherwise proper but was not included 

in the original agreement. 22 Comp. Gen. 74; B-31862, Feb. 27, 1943.

Apart from common sense, another reason for an advance agreement is 

that documentation is necessary in order to record an obligation under 

31 U.S.C. § 1501(a). See 34 Comp. Gen. 418, 421 (1955).

GAO recommends that the agreement specify at least the following:

• Legal authority for the agreement;

• Terms and conditions of performance;

20 The recording statute, 31 U.S.C. § 1501, is discussed in Chapter 7, section B.

21 The decision in 64 Comp. Gen. 370 (1985) overruled other aspects of 13 Comp. Gen. 234.
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• The cost of performance, including appropriate ceilings when cost is 

based on estimates;

• Mode of payment (advance or reimbursement);

• Any applicable special requirements or procedures for assuring 

compliance; and

• Approvals by authorized officials.

GAO, Policy and Procedures Manual for Guidance of Federal Agencies,

title 7, § 2.4-C.2(e) (hereafter GAO-PPM). The documentation 

requirements of the Federal Acquisition Regulation are found in 48 C.F.R. 

§ 17.504(b). In addition, it is extremely useful for the agreement to set forth 

a requirement and procedures for the performing agency to notify the 

ordering agency if it appears that performance will exceed estimated costs 

and to cease or curtail performance as may be necessary. This is an 

important safeguard to protect the performing agency against 

Antideficiency Act violations. See 7 GAO-PPM § 2.4-C.2(g); B-234427, 

Aug. 10, 1989 (nondecision letter).

b. Who Is Covered The coverage of the Economy Act is broad, and there is no distinction 

between who can place an order and who can perform one. The statute 

says that “[t]he head of an agency or major organizational unit within an 

agency may place an order with a major organizational unit within the same 

agency or another agency.” 31 U.S.C. § 1535(a). This embraces all three 

branches of the federal government. Within the legislative branch, for 

example, one of the earliest Economy Act decisions applied the statute to 

the Architect of the Capitol. 12 Comp. Gen. 442 (1932). Financial audits of 

legislative branch agencies include the Economy Act as one of the laws 

tested for compliance. E.g., GAO, Financial Audit: First Audit of the 

Library of Congress Discloses Significant Problems, GAO/AFMD-91-13 

(Washington, D.C.: Aug. 22, 1991), at 29. And GAO has always viewed the 

law as applicable to itself. B-156022-O.M., Jan. 6, 1972; B-130496-O.M., 

Mar. 13, 1957; B-13988, Jan. 7, 1941. See also A-31068, Mar. 25, 1930 

(Economy Act’s 1920 predecessor applicable to Botanic Garden). The 
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court in United States v. Mitchell, 425 F. Supp. 917, 918 (D.D.C. 1976), 

regarded the law as applicable to the judicial branch.22

The Economy Act applies to government corporations. 13 Comp. Gen. 138 

(1933); B-116194, Oct. 5, 1953; B-39199, Jan. 19, 1944; B-27842, Aug. 13, 

1942; A-46332, Jan. 9, 1933. The cited decisions involve a variety of 

government corporations in the capacity of both ordering agency and 

performing agency. Although the specific corporations in those cases are 

now defunct, the point remains valid.

The Act also applies to temporary boards and commissions. See B-157312, 

Aug. 2, 1965 (Public Land Law Review Commission). However, GAO found 

it inapplicable to the land and timber appraisal committee established by 

43 U.S.C. § 1181f-1 even though it was to be federally funded and 

permanent, because two of its three members could not be employees of 

the United States. 33 Comp. Gen. 115, 116–17 (1953).

The common thread of applicability is that the entity in question must be an 

agency or instrumentality of the United States government. Accordingly, 

the Economy Act does not apply to the District of Columbia Government. 

50 Comp. Gen. 553, 556 (1971); B-107612, Feb. 8, 1952. (As we will see later, 

there is separate legislation applicable to the District of Columbia.) It also 

does not apply to the National Guard, except possibly when the Guard is 

called into federal service. B-152420, Oct. 3, 1963, aff’d on 

reconsideration, B-152420, Feb. 25, 1964. Nor does it apply to Indian tribes 

(B-44174, Sept. 6, 1944), agencies of the United Nations (23 Comp. Gen. 564 

(1944)), American Samoa (B-194321, Aug. 7, 1979), or a presidential 

inaugural committee (62 Comp. Gen. 323, 330 (1983)).

There are also a few instances in which entities that clearly are agencies or 

instrumentalities of the United States, or which are treated as such for 

other purposes, are not covered. For example, the Postal Service, although 

clearly an instrumentality of the United States, is subject only to those 

statutes specifically designated in the Postal Reorganization Act; however, 

the Economy Act is not one of the statutes designated. 58 Comp. 

22 The Economy Act originally said “executive department or independent establishment of 

the Government” (Act of June 30, 1932, ch. 314, 47 Stat. 382, 417). The indefatigable 

researcher will find one GAO opinion, B-25199, May 15, 1942, holding the Act inapplicable to 

the legislative branch. While B-25199 has never been overruled, it has never been followed 

either, and the Revision Note to 31 U.S.C. § 1535 explicitly adopts the broader view of 

12 Comp. Gen. 442 and the Mitchell case.
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Gen. 451, 459 (1979). It also does not apply to nonappropriated fund 

instrumentalities. 64 Comp. Gen. 110 (1984).23

Finally, it is important to note that the Economy Act authorizes intraagency, as well as interagency, transactions. E.g., 57 Comp. Gen. 674 

(1978); 25 Comp. Gen. 322 (1945); B-77791, July 23, 1948. While the 

decisions had consistently taken this position, this is one instance in which 

the recodified language of 31 U.S.C. § 1535(a) (“major organizational unit 

within the same agency”) is more precise than the original language. While 

the two bureaus or offices may be part of the same department or agency, 

they must be funded under separate appropriations.24 38 Comp. 

Gen. 734, 737–38 (1959); B-60609, Sept. 26, 1946. GAO has stated in the past 

that the Economy Act does not apply with respect to separate 

appropriations of a single bureau or office. See, e.g., 38 Comp. 

Gen. at 737–38. GAO, however, has not addressed such circumstances 

since 1959.

c. Fiscal Matters (1) Payment: types and accounting

The payment provision of the Economy Act is 31 U.S.C. § 1535(b):

“Payment shall be made promptly by check on the written 

request of the agency or unit filling the order. Payment may 

be in advance or on providing the goods or services ordered 

and shall be for any part of the estimated or actual cost as 

determined by the agency or unit filling the order. A bill 

submitted or a request for payment is not subject to audit or 

certification in advance of payment. Proper adjustment of 

amounts paid in advance shall be made as agreed to by the 

heads of the agencies or units on the basis of the actual cost 

of goods or services provided.”

23 The 1984 decision concerned the United States Department of Agriculture (USDA) 

Graduate School, which is a nonappropriated fund instrumentality. In 1990, Congress 

granted the school specific authority to enter into Economy Act agreements to provide 

training and services to federal agencies, 7 U.S.C. § 5922(a), but subsequently repealed this 

authority in 2002. Pub. L. No. 107-171, § 10705, 116 Stat. 134, 519 (May 13, 2002).

24 The concept of the Economy Act simply does not “fit” where the two units are funded 

under the same appropriation. Presumably, although we have found no cases, an agency 

could administratively apply similar principles since it needs no statutory authority to shift 

funds within a lump-sum appropriation. See Chapter 2, section B.3.b, for a discussion of 

reprogramming.
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This provision authorizes two types of payment, advance and 

reimbursement. The decision is up to the performing agency.25 Payment 

may be in a lump sum or in installments. Audit or certification in advance 

of payment is not required. The Federal Acquisition Regulation restates 

this. 48 C.F.R. § 17.505(c) (bills rendered or requests for advance payment 

shall not be subject to audit or certification in advance of payment).

Payments made in advance will often necessarily be based on estimates, in 

which event the amounts should be adjusted, up or down as the case may 

be, when the actual cost is known. Any excess (the amount by which the 

advance exceeds actual cost) should be returned to the ordering agency. 

Retention of the excess amount by the performing agency is an improper 

augmentation of its funds. 72 Comp. Gen. 120 (1993). If the account to 

which the excess would otherwise be returned has been closed, the money 

should be deposited in the Treasury as miscellaneous receipts. 31 U.S.C. 

§ 1552(b). 

If the excess is determined while the appropriation charged with the 

advance is still available for obligation, the performing agency should pay 

special attention to returning the funds in time for the ordering agency to 

be able to use them. GAO, Policy and Procedures Manual for Guidance of 

Federal Agencies, title 7, § 2.4-C.2(d) (Washington, D.C.: May 18, 1993).

The authority to pay by reimbursement amounts to an exception to 

31 U.S.C. § 1301(a) by implicitly authorizing the performing agency to 

temporarily use its own funds to do the ordering agency’s work. See

B-6124-O.M., Oct. 11, 1939; B-234427, Aug. 10, 1989 (nondecision letter). 

The statute requires that payment be made “promptly.”

Accounting for payments is addressed in 31 U.S.C. § 1536. Section 1536(a) 

sets forth general requirements; section 1536(b) deals with goods provided 

from stock. Section 1536(a) provides:

“An advance payment made on an order under section 1535 

of this title is credited to a special working fund that the 

Secretary of the Treasury considers necessary to be 

25 The Federal Acquisition Regulation provides that “the [performing] agency may ask the 

[ordering] agency, in writing, for advance payment for all or part of the estimated cost or 

furnishing the supplies or services.” 48 C.F.R. § 17.505(a). Also, as a practical matter, if the 

performing agency is not in a position to use its own funds initially, or simply does not wish 

to do so, it does not have to accept the order.
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established. Except as provided in this section, any other 

payment is credited to the appropriation or fund against 

which charges were made to fill the order.”

This provision amounts to an exception—albeit a necessary one if the 

Economy Act is to succeed—to the “miscellaneous receipts” statute, 

31 U.S.C. § 3302(b). 56 Comp. Gen. 275, 278 (1977).

Advance payments are to be credited to special working funds created for 

that purpose. 31 U.S.C. § 1536(a).26 The House report accompanying the 

original legislation stated that the Secretary of the Treasury was required to 

establish a working fund when requested by the performing agency. 

H.R. Rep. No. 72-1126, at 16 (1932). The language of the Act itself would 

appear to give Treasury the final decision on the need to create such a fund. 

When the work is completed, the amount of the advance is adjusted as 

noted above.

Payments made as reimbursements are credited to the appropriation(s) of 

the performing agency “against which charges were made” in effecting 

performance. This means that the reimbursement must be credited to the 

fiscal year in which it was “earned,” that is, the fiscal year actually charged 

by the performing agency, without regard to when the reimbursement is 

made. If the appropriation which earned the reimbursement is still 

available for obligation at the time of reimbursement, the money may be 

used for any authorized purposes of that appropriation. 31 U.S.C. 

§ 1536(b). (This would be true as a matter of general appropriations law 

even if the statute were silent.) If the appropriation is no longer available 

for new obligations, the reimbursement must be credited to the appropriate 

expired account or, if the account has been closed, to miscellaneous 

receipts. 31 U.S.C. § 1552(b); B-260993, June 26, 1996. See also B-211953, 

Dec. 7, 1984, n.8; B-194711-O.M., Jan. 15, 1980.

If this causes problems for the performing agency, its choices are to 

(1) seek advance payment, (2) bill the ordering agency promptly as soon as 

the work is completed, or (3) bill periodically as portions of the work are 

done. See GAO, Program to Improve Federal Records Management 

26 A working fund is simply an account established to receive advance payments from other 

agencies or accounts. 14 Comp. Gen. 25 (1934). Working fund accounts are not used to 

finance the work directly but only to reimburse the appropriation or fund account that will 

finance the work to be performed.
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Practices Should Be Funded by Direct Appropriations, LCD-80-68 

(Washington, D.C.: June 23, 1980), at 12.

Although not expressly provided in the Economy Act, an agency, if it 

chooses, may deposit reimbursements in the Treasury as miscellaneous 

receipts. 57 Comp. Gen. 674, 685 (1978) (direct costs); 56 Comp. 

Gen. 275, 278–79 (1977) (applying same conclusion to indirect costs). The 

decision in 57 Comp. Gen. 674 pointed out that crediting a reimbursement 

to an appropriation against which no charges had been made would 

amount to an improper augmentation. Thus, there could be situations—the 

closed account being one example—where the performing agency has no 

choice but to deposit the reimbursement as miscellaneous receipts. 

57 Comp. Gen. at 685–86.

A significant exception to 31 U.S.C. § 1536(b) exists for the Department of 

Defense. By virtue of 10 U.S.C. §§ 2205(a) and 2210(a), if an appropriation 

has expired, Defense, at its option, may credit Economy Act 

reimbursements to the expired appropriation which earned the 

reimbursement or to the appropriation current at the time of collection. 

See B-179708-O.M., Dec. 1, 1975, at 16. 

With respect to items provided from stock, 31 U.S.C. § 1536(b) provides in 

part:

“Where goods are provided from stocks on hand, the 

amount received in payment is credited so as to be available 

to replace the goods unless—

“(1) another law authorizes the amount to be credited to 

some other appropriation or fund; or
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“(2) the head of the executive agency filling the order 

decides that replacement is not necessary, in which 

case the amount received is deposited in the Treasury 

as miscellaneous receipts.”27

This provision, which limits the performing agency’s authority to retain 

payment to cases where replacement is necessary, illustrates the Economy 

Act’s approach of structuring the transaction so that the performing agency 

neither profits nor is penalized. It does not say merely that payments are 

available for replacement, but limits their availability to cases where 

replacement is necessary. B-36541, Sept. 9, 1943. The apparent theory is 

that retaining payment when replacement is not necessary would amount 

to a form of profit. 41 Comp. Gen. 671, 674 (1962) (purpose of provision is 

“to preclude augmentation of the appropriations involved”).

While the replacement items need not be identical, the Economy Act does 

not authorize exchange of dissimilar items. 41 Comp. Gen. 671 (1962). 

That case involved a proposal by the Public Health Service and the Defense 

Supply Agency to exchange lists of medical goods and equipment in long 

supply or available for rotation and, in effect, to swap supplies and 

equipment not presently needed, making necessary appropriation 

adjustments periodically. GAO recognized that the proposal had merit and 

suggested that the agencies seek legislative authority, but was forced to 

conclude that 31 U.S.C. § 1536(b) does not authorize what amounts to 

“program replacements,” that is, replacements of excess materials with 

other materials within the general area covered by the appropriation.

(2) “Actual cost”: meaning and application

Payment under the Economy Act, whether by advance with subsequent 

adjustment or by reimbursement, must be based on “the actual cost of 

goods or services provided.” 31 U.S.C. § 1535(b). This applies to both 

intra- and interagency transactions under the Act. 57 Comp. Gen. 674, 684 

(1978). Unfortunately, as the decisions have pointed out, neither the 

statute nor its legislative history address the meaning of the term “actual 

cost.” Id. at 681.

27 Retention of the word “executive” in 31 U.S.C. § 1536(b)(2) in the 1982 recodification of 

title 31, United States Code, appears to have been inadvertent because resort to the source 

provision makes clear that “agency” as used in 31 U.S.C. § 1536(b) is the same as “agency” in 

31 U.S.C. § 1535(a).
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In setting out an analytical framework, it is useful to start by recalling that 

agencies using the Economy Act must avoid the unauthorized 

augmentation of their appropriations. B-250377, Jan. 28, 1993. Charging 

too much augments the appropriations of the performing agency. B-45108, 

B-48124, Feb. 3, 1955; B-101911-O.M., Apr. 4, 1951. Charging too little 

augments the appropriations of the ordering agency. 57 Comp. Gen. at 682. 

In connection with this latter proposition, GAO quickly recognized that the 

Economy Act legislatively abolished the prior decisional rule that limited 

the performing agency’s recovery to additional costs. 12 Comp. Gen. 442 

(1932).28 Once this is accepted, the approach then becomes a matter of 

seeking to apply the concept of actual cost consistent with the statutory 

objectives and such guidance as the legislative history does provide.

The following passage from 57 Comp. Gen. at 681, describes this approach:

“While the law and its legislative history are silent as to what 

was meant by the term ‘actual cost’ . . . the legislative history 

does indicate that . . . Congress intended to effect savings 

for the Government as a whole by: (1) generally authorizing 

the performance of work or services or the furnishing of 

materials pursuant to inter- and intra-agency orders by an 

agency of Government in a position to perform the work or 

service; (2) diminishing the reluctance of other Government 

agencies to accept such orders by removing the limitation 

upon reimbursements imposed by prior [GAO] decisions 

[footnote omitted]; and (3) authorizing inter- and intradepartmental orders only when the work could be as 

cheaply or more conveniently performed within the 

Government as by a private source. Thus in determining the 

elements of actual cost under the Economy Act, it would 

seem that the only elements of cost that the Act requires to 

be included in computing reimbursements are those which 

accomplish these identified congressional goals. Whether 

any additional elements of cost should be included would 

depend upon the circumstances surrounding the 

transaction.”

28 Loathe to summarily throw out the old rule, some early Economy Act decisions treated 

the actual cost prescription as discretionary, holding that agencies could agree to operate 

under the old rule. E.g., 13 Comp. Gen. 150, 153 (1933). This “option approach” has long 

since been discarded.
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Thus, the universe of costs may be divided into required costs and what we 

may term “situational” costs. 

Required costs consist in large measure of direct costs—expenditures 

incurred by the performing agency which are specifically identifiable and 

attributable to performing the transaction in question. As stated in 

57 Comp. Gen. at 682: “The Economy Act clearly requires the inclusion as 

actual cost of all direct costs attributable to the performance of a service or 

the furnishing of materials, regardless of whether expenditures by the 

performing agency were thereby increased.”

One element of direct cost is the salary of employees engaged in doing the 

work. 12 Comp. Gen. 442 (1932). This means gross compensation. 

14 Comp. Gen. 452 (1934). It includes, for example, the accrual of annual 

leave. 32 Comp. Gen. 521 (1953); 17 Comp. Gen. 571 (1938).

Another common element is the cost of materials or equipment furnished 

to the ordering agency or consumed in the course of performance. Actual 

cost in this context means historical cost and not current replacement or 

production cost. B-130007, Dec. 7, 1956. See also 58 Comp. Gen. 9, 14 

(1978). This does not necessarily have to be the original acquisition cost, 

however, but may be the most recent acquisition cost of the specific kind of 

item provided to the requesting agency. B-250377, Jan. 28, 1993. Related 

transportation costs are another reimbursable direct cost item. Id.

Not every identifiable direct cost is reimbursable under the actual cost 

formulation. An illustration is 39 Comp. Gen. 650 (1960). The Maritime 

Administration was activating several tankers for use by the Navy. In the 

course of performing this activity, an employee of the Maritime 

Administration’s contractor was injured, sued the United States under the 

Suits in Admiralty Act, and recovered a judgment which the Maritime 

Administration paid from an available revolving fund. While certainly a 

very real cost actually incurred in the course of performance, the judgment 

was not “necessary or required in order to condition the tanker for use by 

the Navy” (id. at 653), and therefore was properly payable as a judgment 

and not as a reimbursable cost which could be billed to Navy.29 

29 “Properly payable as a judgment” means payable from the permanent judgment 

appropriation (31 U.S.C. § 1304) unless, as was the case here, the agency has an available 

appropriation or fund.
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In addition to direct costs, it has long been recognized that actual cost for 

Economy Act purposes includes as well certain indirect costs (overhead) 

proportionately allocable to the transaction. E.g., B-301714, Jan. 30, 2004; 

22 Comp. Gen. 74 (1942). Indirect costs are “items which commonly are 

recognized as elements of cost notwithstanding such items may not have 

resulted in direct expenditures.” 56 Comp. Gen. 275 (1977); 22 Comp. 

Gen. 74. Indirect costs which (1) are funded out of currently available 

appropriations, and (2) bear a significant relationship to the service or 

work performed or the materials furnished, are recoverable in an Economy 

Act transaction the same as direct costs. 56 Comp. Gen. 275 (1977), as 

modified by 57 Comp. Gen. 674 (1978), as modified in turn by B-211953, 

Dec. 7, 1984. Examples of indirect costs include administrative overhead 

applicable to supervision (56 Comp. Gen. 275); billable time not directly 

chargeable to any particular customer (B-257823, Jan. 22, 1998); and rent 

paid to the General Services Administration attributable to space used in 

the course of performing Economy Act work (B-211953, Dec. 7, 1984). 

The costs discussed thus far are those which the Economy Act can fairly be 

said to require. In addition, there may be others, so-called situational costs. 

The discussion in 57 Comp. Gen. 674 goes on to say:

“[The Economy Act] is not so rigid and inflexible as to 

require a blanket rule for costing throughout the 

Government . . . . Certainly neither the language of the 

Economy Act nor its legislative history requires uniform 

costing beyond what is practicable under the 

circumstances. This is not to say that costing is expected to 

be different in a substantial number of circumstances. We 

are merely recognizing that in some circumstances, other 

competing congressional goals, policies or interests might 

require recoveries beyond that necessary to effectuate the 

purposes of the Economy Act.

* * * * * * * * *

“[T]he term [‘actual costs’] has a flexible meaning and 

recognizes distinctions or differences in the nature of the 

performing agency, and the purposes or goals intended to be 

accomplished.”

Id. at 683, 685. For example, under the rules stated above, depreciation is 

normally not recoverable, however, because it is not funded out of 
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currently available appropriations. 72 Comp. Gen. 159, 162 (1993); 

57 Comp. Gen. 674.30 However, in 57 Comp. Gen. 674, in view of the 

congressionally established goal that the performing agency (the 

government entity which operated Washington National and Dulles 

International Airports) be self-sustaining and recover its operating costs 

and a fair return on the government’s investment, it was appropriate to 

include depreciation and interest as indirect costs. The performing agency 

chose to deposit the amounts so recovered in the general fund of the 

Treasury as miscellaneous receipts. Id. at 685–86.

Another example of permissible situational costs is where the performing 

agency is funded by a statutorily authorized stock, industrial, or similar 

fund which provides for full cost recovery, that is, beyond what the 

Economy Act would otherwise require, and the fund’s Economy Act work 

is an insignificant portion of its overall work. In such a situation, there 

might be sound reasons for charging all customers alike. B-250377, Jan. 28, 

1993.

While particular circumstances might authorize some indirect costs beyond 

what the Economy Act requires, their inclusion in the performing agency’s 

charges is not required but is discretionary. Failure to recover them is not 

legally objectionable, except in the unlikely event it could be shown to be 

an abuse of discretion. B-198531, Sept. 25, 1980.

The Economy Act was intended to promote interagency cooperation, not 

interagency bickering over billings. Hence, the statutory scheme 

emphasizes the role of agreement. It contemplates that application of the 

actual cost standard in a given case should be “primarily for administrative 

consideration, to be determined by agreement between the agencies 

concerned.” 22 Comp. Gen. 74, 78 (1942). In the interest of 

intragovernmental harmony, it has been held that the Economy Act does 

not require the ordering agency to conduct an audit or certification in 

advance of payment. 39 Comp. Gen. 548, 549–50 (1960); 32 Comp. Gen. 479 

(1953). Nor does it require the performing agency to provide a detailed 

breakdown unless the agreement provides otherwise. B-116194, Oct. 5, 

1953. Payment is authorized “at rates established by the servicing agency 

30 Under prior decisions, actual cost could include depreciation. E.g., 38 Comp. Gen. 734 

(1959). This is one of the aspects of the earlier cases superseded by the 57 Comp. Gen. 674 

“family.”
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so long as they are reported to be based upon the cost of rendition of the 

service and do not appear to be excessive.” 32 Comp. Gen. at 481.

While at times actual cost can be computed with precision, the Economy 

Act does not require that the determination be an exact science. Cases on 

reimbursable work even before the Economy Act recognized the 

acceptability of a reasonable and appropriate methodology over 

“absolutely accurate ascertainment” which might entail considerable 

burden and expense. 3 Comp. Gen. 974 (1924). As stated in B-133913, 

Jan. 21, 1958, “[a]s long as the amount agreed upon results from a bona fide

attempt to determine the actual cost and, in fact, reasonably approximates 

the actual cost,” the Economy Act is satisfied. One methodology GAO has 

found to be reasonable and “consistent with the minimum legal 

requirements of the Economy Act” is billing on the basis of standard costs 

derived from documented costs of the last acquisition or production. 

B-250377, Jan. 28, 1993 (containing a detailed discussion); GAO, Iran Arms 

Sales: DOD’s Transfer of Arms to the Central Intelligence Agency,

GAO/NSIAD-87-114 (Washington, D.C.: Mar. 13, 1987), at 8.

There are limits, however, and the “methodology” cannot be totally 

divorced from the determination or reasonable approximation of actual 

costs. Thus, a cost allocation in which some customers are paying 

excessive amounts and effectively subsidizing others is improper. 

70 Comp. Gen. 592 (1991). So is an allocation based on the availability of 

appropriations (B-114821-O.M., Nov. 12, 1958), or a per capita funding 

arrangement not related to the goods or services actually received 

(67 Comp. Gen. 254, 258 (1988)).

Agencies may waive the recovery of small amounts where processing 

would be uneconomical. An agency wishing to do this should set a 

minimum billing figure based on a cost study. B-156022, Apr. 28, 1966. The 

case for waiver is even stronger when the account to be credited with the 

payment is no longer available for obligation. See B-120978-O.M., Oct. 19, 

1954.

Finally, while the statute talks about the “actual cost of goods or services 

provided,” there is one situation in which payment of actual costs will have 

no relationship to anything “provided.” For various reasons, an agency may 

find it necessary to terminate an Economy Act contract before it is 

completed. It can terminate the contract “for convenience,” the same as it 

could with a commercial contract, in which event the performing agency 

should not have to bear the loss for any expenses it has already incurred. 
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The Comptroller General addressed the situation as follows in B-61814, 

Jan. 3, 1947, at 3: 

“[W]here an order issued pursuant to [the Economy Act] is 

terminated after the establishment receiving said order has 

incurred expenses incident thereto the amount of such 

expenses or costs is for determination and adjustment by 

agreement between such agencies . . . . [T]here would 

appear to be ample authority for an agreement between the 

agencies . . . to effect an adjustment of the appropriations 

and/or funds of said agencies on the basis of the actual 

amount of the costs or expenses incurred.”

(3) Obligation and deobligation

The obligational treatment of Economy Act transactions is addressed in 

31 U.S.C. § 1535(d) (emphasis added):

“An order placed or agreement made under this section 

obligates an appropriation of the ordering agency or unit. 

The amount obligated is deobligated to the extent that the 

agency or unit filling the order has not incurred obligations, 

before the end of the period of availability of the 

appropriation, in—

“(1) providing goods or services; or

“(2) making an authorized contract with another person to 

provide the requested goods or services.”

The first sentence of section 1535(d) establishes that an Economy Act 

agreement is sufficient to obligate the ordering agency’s appropriations 

even though the agency’s liability is not subject to enforcement the same as 

a contract with a private party. This sentence must be read in conjunction 

with 31 U.S.C. § 1501(a)(1), which recognizes interagency agreements and 

prescribes the requirements for a valid obligation. Under 

section 1501(a)(1) (emphasis added), an obligation is recordable when 

supported by documentary evidence of—

“(1) a binding agreement between an agency and another 

person (including an agency) that is—
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“(A) in writing, in a way and form, and for a purpose 

authorized by law; and

“(B) executed before the end of the period of 

availability for obligation of the appropriation or fund 

used for specific goods to be delivered, real property to 

be bought or leased, or work or service to be 

provided[.]”

Thus, an Economy Act agreement is recordable as an obligation under 

31 U.S.C. § 1501(a)(1) if it meets the requirements specified in that section. 

39 Comp. Gen. 317, 318–19 (1959); 34 Comp. Gen. 418, 421 (1955). It must, 

for example, involve a definite commitment for specific equipment, work, 

or services. See, e.g., 15 Comp. Gen. 863 (1936). Also, the recording statute 

reinforces a point in the Economy Act itself which we noted earlier, that 

the order or agreement must be for a purpose the ordering agency is 

authorized to accomplish.

In addition, a valid Economy Act obligation must satisfy the basic fiscal 

requirements applicable to obligations in general. Specifically, it must 

comply with the bona fide needs rule. E.g., 58 Comp. Gen. 471 (1979); 

B-195432, July 19, 1979. And, of course, the ordering agency must have 

sufficient budget authority to satisfy the Antideficiency Act.

The second sentence of section 1535(d) lays out the requirement that the 

performing agency must incur obligations to fill the order within the period 

of availability of the appropriation being used. Otherwise the funds must 

be deobligated. In the case of a contract with a private party, as discussed 

in Chapter 5, obligated funds remain available to fund work performed in a 

subsequent fiscal year as long as the obligation met bona fide need 

concerns when it was incurred. Some statutes authorizing interagency 

transactions specifically provide for obligations to be treated the same as 

obligations with private contractors. E.g., 41 U.S.C. § 23.31 The original 

Economy Act contained similar language (Act of June 30, 1932, ch. 314, 

47 Stat. 382, 418). However, a concern soon arose that the Economy Act 

was being used to effectively extend the obligational life of appropriations 

beyond that which Congress had provided. Legislative resolution came 

31 This statute applies to transactions between the military departments and establishments 

owned by the Department of Defense for work related to military projects. See Chapter 7, 

section B.1.i(5), for a further discussion of this statute.
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about in stages. A 1936 statute restricted the period of availability of 

advance payments under the Economy Act to that provided in the source 

appropriation.32 See 16 Comp. Gen. 752, 754 (1937); 16 Comp. Gen. 575, 577 

(1936); 15 Comp. Gen. 1125 (1936).

A more comprehensive provision was enacted as part of the General 

Appropriation Act for 1951, ch. 896, § 1210, 64 Stat. 595, 765 (Sept. 6, 1950). 

This provision, the origin of what is now the second sentence of 31 U.S.C. 

§ 1535(d), restricted the availability of any funds “withdrawn and credited” 

under the Economy Act to the period provided in the act which 

appropriated them. The obvious purpose, as reflected in pertinent 

committee reports, was to prevent use of the Economy Act as a subterfuge 

to continue the availability of appropriations beyond the period provided in 

the appropriating act. See 31 Comp. Gen. 83, 85 (1951); B-95760, June 27, 

1950. Thus, funds obligated under the Economy Act must be deobligated at 

the end of their period of availability (fiscal year or multiple year period, as 

applicable) to the extent the performing agency has not performed or itself 

incurred valid obligations as part of its performance. 34 Comp. 

Gen. 418, 421–22 (1955). The 1982 recodification of title 31 of the United 

States Code restated the provision as a positive requirement to deobligate. 

The deobligation requirement is not limited to advance payments but 

applies as well to payment by way of reimbursement. 31 Comp. 

Gen. 83 (1951). Accordingly, as stated in 31 Comp. Gen. at 86, “where work 

is performed or services rendered on a reimbursable basis by one agency 

for another over a period covering more than one fiscal year, the respective 

annual appropriations of the serviced agency must be charged pro tanto

with the work performed or services rendered in the particular fiscal year.” 

See also B-301561, June 14, 2004. The deobligation requirement of 

31 U.S.C. § 1535(d) does not apply where the appropriation originally 

obligated is a no-year appropriation. 39 Comp. Gen. 317 (1959).

If it is determined, after an Economy Act agreement is completed and the 

ordering agency’s appropriation has closed pursuant to 31 U.S.C. § 1552, 

that the ordering agency owes the performing agency additional amounts, 

current appropriations available for the same purpose should be used to 

32 Act making deficiency appropriations for 1936, June 22, 1936, ch. 689, § 8, 49 Stat. 1597, 

1648. The Act of June 26, 1943, ch. 150, 57 Stat. 219, amended the Economy Act itself to 

reflect the 1936 legislation.
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reimburse the performing agency. 31 U.S.C. § 1553(b); B-301561, June 14, 

2004; B-260993, June 26, 1996. 

A concrete example will illustrate the difference between a commercial 

contract and an Economy Act agreement. Suppose that, towards the end of 

fiscal year 2006, an agency develops the need for some sort of statistical 

study. It enters into a contract with a private party a few days before the 

end of the fiscal year, obligating fiscal year 2006 appropriations, knowing 

full well that most of the work will be done in the following year. Assuming 

the need was legitimate, the obligated funds remain available to pay for the 

work. Now take the same situation except the contract is with another 

government agency under the Economy Act and the work is to be done by 

personnel of the performing agency. The 2006 funds may be used only for 

work actually done in the remaining days of that fiscal year. The remainder 

must be deobligated and reobligated against fiscal year 2007 

appropriations. See B-223833, Nov. 5, 1987; B-134099, Dec. 13, 1957.

The deobligation requirement of 31 U.S.C. § 1535(d) applies only to 

obligations under the Economy Act and has no effect on obligations for 

interagency transactions under other statutory authorities.33 E.g.,

B-302760, May 17, 2004; B-289380, July 31, 2002; B-286929, Apr. 25, 2001; 

55 Comp. Gen. 1497 (1976). 

(4) Applicability of limitations and restrictions

Every agency is subject to a variety of authorities, limitations, restrictions, 

and exemptions. Some are governmentwide. Others are agency-specific. 

Still others may be bureau- or even program-specific. In analyzing the 

relationship of such provisions to an Economy Act transaction, it is 

important to start with an understanding of what the Economy Act is and is 

not supposed to do. As we have noted previously, the law is designed to 

permit an agency to accomplish some authorized task more simply and 

economically by using another agency’s experience and/or expertise. It is 

not intended to permit an agency to avoid legislative restrictions on the use 

of its funds, nor is it intended to permit an agency running short of money 

to dip into the pocket of another vulnerable and more budgetarily secure 

agency.

The rule, as stated in 18 Comp. Gen. 489, 490–91 (1938), is as follows:

33 See sections B.2 and C.4.e of this chapter for further elaboration and case summaries.
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“Funds transferred from the appropriations under one 

department to another department for the performance of 

work or services under authority of [the Economy Act], or 

similar statutory authority, are available for the purposes for 

which the appropriation from which transferred are 

available, and also subject to the same limitations fixed in 

the appropriations from which the funds are transferred.”

Under the first part of this rule, the purpose availability of the funds is 

determined by reference to the purpose availability of the source 

appropriation. This is closely related to the rule discussed earlier in 

section B.1.a(1) of this chapter, that an Economy Act transfer cannot 

expand that purpose availability. 

The second part of the rule is easier to state than to apply. Transferred 

funds remain subject to limitations and restrictions applicable to the 

transferring agency, as a general rule. One example is expenditure 

limitations applicable to the source appropriation. 17 Comp. Gen. 900 

(1938); 17 Comp. Gen. 73 (1937); 16 Comp. Gen. 545 (1936).34 A 1951 

decision, 31 Comp. Gen. 109, held that an appropriation rider which limited 

the filling of vacancies arising during the fiscal year followed an advance of 

funds to a working fund. A decision just 2 months later found the result 

equally applicable to payment by reimbursement. B-106101, Nov. 15, 1951.

The same rule applies to exemptions from general prohibitions. For 

example, a statute long since repealed prohibited what GAO’s decisions 

referred to as “the employment of personal services” in the District of 

Columbia without express authority. The Navy had a statutory exemption. 

The Army had one too, but it was much more limited. In a case where the 

Army was doing Economy Act work for the Navy, GAO held that the 

exemption applicable to the Navy controlled. Therefore, the Army could 

proceed without regard to the restriction it would have had to follow when 

making direct expenditures for its own work. 18 Comp. Gen. 489. In a 

similar case, the Commerce Department needed to procure supplies for use 

in Economy Act work it was doing for the Army. Both agencies had 

exemptions from the advertising requirement of 41 U.S.C. § 5 for small 

dollar amounts—$500 for the Army but only $25 for Commerce. The 

34 The rule quoted in the text from 18 Comp. Gen. 489 refers to the Economy Act “or similar 

statutory authority.” Hence, the cases cited in the text commingle Economy Act and nonEconomy Act applications without distinction.
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Comptroller General advised that even though Commerce was doing the 

purchasing, it could do so under the Army’s more liberal exemption 

because it would be using Army money to make the purchase. 21 Comp. 

Gen. 254 (1941). See also B-54171, Dec. 6, 1945.

There have been a number of exceptions to the rule that Economy Act 

transfers are subject to the limitations of the source appropriation. The 

substantive aspects of the exceptions are less important than their 

rationale. One case, B-106002, Oct. 30, 1951, concluded that funds 

advanced or reimbursed in Economy Act transactions were not subject to a 

monetary limit on personal services contained in the ordering agency’s 

appropriation, because it could be clearly demonstrated that the ceiling 

was based on the cost of employees on the agency’s payroll and did not 

include the estimated cost of Economy Act services either performed by 

the agency or reimbursed to it.

A similar limitation for the Bureau of Reclamation was the subject of 

another exception in B-79709, Oct. 1, 1948. Legislative history revealed that 

the limitation stemmed from a congressional concern over an excessive 

number of administrative and supervisory personnel employed by the 

Bureau. The limitation was more on the Bureau than on the funds in the 

sense that it was apparently not intended to limit funds which could be 

transferred to some other agency, and spent by it to pay its own personnel 

used in performing Economy Act work requested by the Bureau. Thus, the 

Bureau could pay for Economy Act work without regard to the ceiling. 

However, work the Bureau did for other agencies had to be charged against 

the ceiling because, unlike the situation in B-106002 noted above, the 

figures upon which the ceiling in B-79709 was based did include transfers 

from other agencies.

Still another group of exceptions involved the authority to employ (and 

pay) personnel without regard to certain of the civil service laws. The issue 

first arose in 21 Comp. Gen. 749 (1942), in connection with Economy Act 

work being performed by the Bureau of the Census for various national 

defense agencies. The question was whether the Census Bureau was 

bound by limitations in the source appropriations. The decision noted the 

line of cases applying the general rule, such as 18 Comp. Gen. 489 and 

21 Comp. Gen. 254, summarizing them as follows:

“[S]uch decisions involved cases in which it was sought to 

employ transferred funds for purposes for which the funds 

would not have been available in the transferring agency; or 
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where it was sought to use transferred funds to employ 

personal services when such services could not have been 

employed (regardless of the method of appointment or the 

rates of pay) by the transferring agency; or where the 

transferred funds were directly subject to restrictions 

regarding the amount expendable therefrom for passengercarrying automobiles, or for procurements without 

advertising, etc.”

Id. at 752. The decision then went on to distinguish the prior cases on the 

following grounds:

“What is involved in the instant matter is essentially 

different, being the accomplishment of certain objects for 

which the funds of the transferring agency are available and 

which the agency to which the transfer is made is equipped 

to accomplish by the use of personnel and equipment it 

already has or is otherwise authorized to procure. Under 

such circumstances, the charge to be made by the 

performing agency against the funds of the agency desiring 

the services—whether under a reimbursement or advanceof-funds procedure—should be on the basis of the rates of 

compensation which the performing agency is otherwise 

authorized by law to pay to its personnel used in the 

performance of the services.”

Id. Later cases applying this holding are B-38515, Dec. 22, 1943, B-43377, 

Aug. 14, 1944, and B-76808, July 29, 1948. A similar rationale is found in 

B-259499, Aug. 22, 1995, advising the Central Intelligence Agency (CIA) on 

the extent to which it could use its own personal services contractors in 

performing Economy Act orders where the ordering agency lacks authority 

to contract for personal services. Where the CIA is merely using the 

contractors along with its own employees to perform otherwise authorized 

work, there is no violation. This is merely “a means to an otherwise 

authorized end, and not an end in itself.” Id. at 8. However, B-259459 

noted, the Economy Act would be violated by placing the contractors 

under the direct supervision and control of the ordering agency, or by 

procuring the contractors solely in response to the ordering agency’s 

needs. The latter two situations would amount to using the Economy Act 

to circumvent limitations on the ordering agency’s authority.
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We have noted that one of the Economy Act’s objectives is to avoid 

improper augmentations. An Economy Act transaction carried out in 

accordance with law serves this purpose. It has been stated that Economy 

Act agreements “do not increase or decrease the appropriation of the 

requisitioned agency.” A-99125, Nov. 21, 1938. That case held that 

Economy Act transactions would not violate an appropriation proviso 

which limited the amounts available to a particular agency to the funds 

appropriated in that act. Similarly, absent some indication of a contrary 

intent, a monetary limit on general transfer authority is aimed at transfers 

which supplement the appropriation in question, and does not apply to 

credits to that appropriation incident to otherwise proper Economy Act 

transactions. B-120414, June 17, 1954. Variations in discernible intent may 

change the result. See B-30084, Nov. 18, 1942.

In 31 Comp. Gen. 190 (1951), an agency whose appropriation contained a 

monetary ceiling on personal services asked whether the ceiling applied to 

services provided to others under the Economy Act or, more precisely, 

whether reimbursements received from ordering agencies counted against 

the ceiling. Viewing the limitation as applicable to expenses incurred for 

the agency itself, and noting the point from A-99125, Nov. 21, 1938, that 

Economy Act transactions do not serve to increase or decrease the 

performing agency’s appropriation, the decision said no. Absent evidence 

of a contrary intent, the rationale of 31 Comp. Gen. 190 would presumably 

apply as well to other types of limitations on the performing agency.

(5) Accountability issues

A payment to another federal agency differs from a payment to a private 

party in that an overpayment or erroneous payment to another agency does 

not result in an actual loss of funds to the United States. 24 Comp. 

Gen. 851, 853 (1945); B-156022, Apr. 28, 1966; B-116194, Oct. 5, 1953; 

B-44293, Sept. 15, 1944. As stated in 24 Comp. Gen. at 853: “The question 

here presented does not involve the discharge of a Government obligation 

to a non-Government agency or individual where an excess payment might 

result in a loss to the United States. In case of an overpayment by one 

department to another, the matter can be adjusted upon discovery.”

Consistent with this, the Economy Act includes in its payment provision 

the statement that a “bill submitted or a request for payment is not subject 

to audit or certification in advance of payment.” 31 U.S.C. § 1535(b). The 

language had appeared in various places prior to the Economy Act, one 

example being the 1926 Navy working fund statute noted in our 
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introductory comments. While research discloses no attempt to define 

“certification” for purposes of these statutes, the term does have a plain 

and well-known meaning in the payment context—the verification and 

endorsement of a payment voucher by a certifying officer or other 

authorized official—normally performed in advance of payment. See 

31 U.S.C. § 3528. As the narrower and more specific provision, the no 

advance certification language in 31 U.S.C. § 1535(b) would take 

precedence over the more general certification requirements of 31 U.S.C. 

§ 3528.

Thus, an ordering agency is not required to certify vouchers prior to 

payment when making payment to another federal entity, whether in 

advance or by reimbursement, in an Economy Act transaction.35 However, 

keeping in mind that the ordering agency “remains accountable to the 

Congress for activities under appropriations made to it” (46 Comp. 

Gen. 73, 76 (1966)), an agency could presumably, on a voluntary basis, pass 

vouchers through some form of limited certification process as an internal 

control device, at least as long as it does not materially delay payment. 

Certainly the no audit or certification language does not permit the agency 

to disregard the preconditions set forth in 31 U.S.C. § 1535(a). 16 Comp. 

Gen. 3, 4–5 (1936). Of course, the “no advance certification” language has 

no application to disbursements by a performing agency.

The preceding paragraphs presuppose a two-step payment process—

payment by the ordering agency to the performing agency either preceded 

or followed by obligation and payment by the performing agency. There is 

an approach, described and approved in 44 Comp. Gen. 100 (1964), that 

consolidates these into a single step and effectively removes the no 

advance certification language from consideration. In that case, the former 

Department of Health, Education, and Welfare (HEW) was performing 

Economy Act services for the Agency for International Development (AID). 

Under the terms of the arrangement, AID would establish appropriate fund 

limitations and HEW certifying officers would certify vouchers directly 

against AID appropriations for direct payment of costs incurred in 

performing, with HEW being responsible for staying within the established 

35 To the extent it supports a contrary proposition, the editors view 39 Comp. Gen. 548 

(1960) as incorrect. It inexplicably fails to consider the no certification language, and is 

inconsistent with the plain terms of the Economy Act itself (see 37 Op. Att’y Gen. 559 

(1934)), and with applications of similar language in other statutes, such as 44 U.S.C. § 310 

(payments for printing and binding). See also 56 Comp. Gen. 980 (1977); A-30304-O.M. 

Feb. 10, 1930.
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fund limitations. Once it was established that the agencies were agreeable 

to operating this way, the primary legal obstacle was that certifying officers 

are normally supposed to be employees of the agency whose funds they are 

certifying. The solution was a slight bit of legerdemain that could be 

referred to as “cross-certification.” The ordering agency appoints the 

performing agency’s certifying officer as an officer or employee of it, the 

ordering agency, without compensation, and then designates him or her as 

one of its own certifying officers. Voila!

The concept of cross-certification has a number of applications in 

situations where financial services are themselves the subject of an 

Economy Act agreement. For example, the General Services 

Administration (GSA) not infrequently enters into Economy Act “support 

agreements” with smaller agencies, boards, or commissions to provide 

administrative support services, including the processing of payment 

vouchers. In 55 Comp. Gen. 388 (1975), GSA inquired as to the potential 

liability of its certifying officers in such a situation. The answer is that it 

depends on exactly what has preceded the GSA certifying officer’s actions. 

Certainly, GSA could provide full certification under the agreement, in 

which event the GSA certifying officer would be the equivalent of the HEW 

certifying officer in 44 Comp. Gen. 100. However, if an official of the client 

agency certifies the voucher before it gets to GSA, GSA’s administrative 

processing is not certification for purposes of the accountable officer laws, 

and the GSA official will be liable only for errors made during his or her 

final processing.

For temporary agencies, the support agreement may include the payment 

of obligations after the agency has gone out of existence. However, the 

“appointment without compensation” sleight-of-hand cannot possibly be 

stretched to apply where the agency no longer exists. In such a case, the 

GSA certifying officer can certify the voucher provided (1) the agencies 

must have entered into an Economy Act agreement while the client agency 

was still “alive,” (2) the agreement must expressly authorize GSA to 

perform this function, and (3) the debt in question must have been incurred 

prior to the client agency’s expiration. 59 Comp. Gen. 471 (1980).

The cross-certification concept has also found overseas applications. For 

example, State Department officials may perform certifying and disbursing 

functions for military departments overseas, charging payments directly to 

the applicable military appropriations. 44 Comp. Gen. 818 (1965); 22 Comp. 

Gen. 48 (1942). Similarly, when the Department of Education was created 

and took over responsibility for the Defense Department’s Overseas 
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Dependents’ Schools, Education wanted to retain Defense’s financial 

support services which had been in place for decades. It could accomplish 

this with an Economy Act agreement, applying guidance from decisions 

such as 44 Comp. Gen. 100 and 55 Comp. Gen. 388. B-200309-O.M., Apr. 3, 

1981.

Anyone processing payments for the Defense Department will sooner or 

later run into a confidential “emergency or extraordinary expense” 

payment. In a 1993 case, a State Department certifying officer in Haiti 

asked whether he could properly certify a voucher for unspecified 

“emergency or extraordinary” expenses where nobody would furnish 

supporting documentation or tell him what the money was for. Under 

10 U.S.C. § 127, all that is required is a certification of confidentiality by an 

authorized military official. The State Department official could not 

question that certification. Under these circumstances, the State 

Department certifying officer’s “certification”—certifying merely that the 

payment was being charged to the emergency expense appropriation for 

that fiscal year—was little more than “subsequent administrative 

processing” as discussed in cases like 55 Comp. Gen. 388. 72 Comp. 

Gen. 279 (1993).

Fiscal services provided under an Economy Act agreement, in appropriate 

circumstances, can include disbursing cash from an imprest fund. The fact 

that the cashier is disbursing another agency’s money has no effect on 

accountability or liability. 65 Comp. Gen. 666, 675–77 (1986).

As discussed in section A.4 of this chapter, agencies are increasingly relying 

on the contracts and contracting services of other agencies. As a result, 

authority for contract oversight and administration is often delegated 

among multiple agencies. The ordering agency, however, ultimately 

remains accountable for the use of its funds. GAO, Department of Energy, 

Office of Worker Advocacy: Deficient Controls Led to Millions of Dollars 

in Improper and Questionable Payments to Contractors, GAO-06-547 

(Washington, D.C.: May 31, 2006). The Department of Energy had entered 

into an interagency agreement with the Space and Naval Warfare Systems 

Center, New Orleans (SSC NOLA) to obtain a contractor, but had not 

established adequate controls over payments to the contractors, which led 

to millions of dollars in improper and questionable payments. GAO stated 

that while responsibility for review and approval of invoices rested with the 

performing agency, Energy, as the ordering agency, must ensure that the 

performing agency carried out proper oversight. Id. at 43. See also GAO, 

Federal Bureau of Investigation: Weak Controls over Trilogy Project Led 
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to Payment of Questionable Contractor Costs and Missing Assets, GAO06-306 (Washington, D.C.: Feb. 28, 2006) (interagency agreement under 

authority other than the Economy Act). 

d. What Work or Services May 

Be Performed

(1) Details of personnel

A very common type of interagency service is the loan or detail of 

personnel. A detail is “the temporary assignment of an employee to a 

different position for a specified period, with the employee returning to 

regular duties at the end of the detail.” 64 Comp. Gen. 370, 376 (1985). 

Some of the earliest administrative decisions deal with details of personnel.

In 14 Comp. Dec. 294 (1907), the Comptroller of the Treasury was asked to 

advise the Secretary of the Treasury on a proposal to loan an employee to 

another agency, with the “borrowing agency” to reimburse only the 

employee’s travel and incidental expenses, but not basic salary. The 

Comptroller knew what the answer should be: “If these were questions of 

first impression I would be impelled to answer each of them in the 

negative, because of that provision of the statute [31 U.S.C. § 1301(a)] 

which requires all appropriations to be used exclusively for the purposes 

for which made.” 14 Comp. Dec. at 295. However, he continued, “they are 

not questions of first impression.” Id. The practice had developed in the 

executive branch of loaning employees without reimbursement except for 

extra expenses incurred on account of the detail. This practice had been 

around for so long, according to the Comptroller, that it was virtually 

etched in stone. Id. at 295–96. As long as the agency could spare the 

employee for the requested time, it would be—

“in the interest of good government and economy to so 

utilize his services. His regular salary would be earned in 

any event, and in all probability without rendering in his 

own Department adequate services therefor. Therefore 

reimbursement has never, to my knowledge, been made on 

such details for regular salaries. But where additional 

expenses have accrued because of such detail such 

expenses have always been reimbursed to the regular 

appropriation from which originally paid . . . .”

Id. at 296. This rationale was quite remarkable. Subsequent comptrollers 

obviously struggled with the rationale’s weakness and were careful not to 

expand the rule of the 1907 case. Thus, if the loaning agency had to employ 

someone else to do the detailed employee’s job while he was gone, the 
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salary was reimbursable. 22 Comp. Dec. 145 (1915). A 1916 case, 23 Comp. 

Dec. 242, soundly attacked the rationale of 14 Comp. Dec. 294, specifically 

the assumption that the employee “would have remained idle if he had not 

been loaned,” 23 Comp. Dec. at 245, and came close to throwing it out, but 

did not. Early GAO decisions failed to seize the opportunity but instead 

adhered to the “no reimbursement” rule. E.g., 6 Comp. Gen. 217 (1926).36

The 1932 enactment of the Economy Act provided the vehicle for change, 

but it was slow to implement. It was quickly recognized that the Economy 

Act authorized fully reimbursable details of personnel. 13 Comp. Gen. 234 

(1934). However, as with the first round of Economy Act decisions in other 

contexts, the early decisions held that agencies had a choice. If they chose 

not to enter into a written Economy Act agreement expressly providing for 

full reimbursement, they could continue to operate under the old rules. Id. 

at 237. The question of how you could have nonreimbursable details in 

light of 31 U.S.C. § 1301(a) never went away but, like a stubborn weed in 

the garden, the “informal accommodation” approach survived (e.g.,

B-182398, Mar. 29, 1976; B-30084, Nov. 18, 1942), and was reaffirmed as late 

as 59 Comp. Gen. 366 (1980).

If enactment of the Economy Act was the first shoe dropping, the second 

shoe did not drop until 64 Comp. Gen. 370 (1985). After reviewing the prior 

decisions and the legislative history of the Economy Act, the Comptroller 

General said in 1985 what the Economy Act probably thought it was saying 

in 1932, and certainly what the Comptroller of the Treasury really wanted 

to say in 1907:

“Although Federal agencies may be part of a whole system 

of Government, appropriations to an agency are limited to 

the purposes for which appropriated, generally to the 

execution of particular agency functions. Absent statutory 

authority, those purposes would not include expenditures 

for programs of another agency. Since the receiving agency 

is gaining the benefit of work for programs for which funds 

have been appropriated to it, those appropriations should 

be used to pay for that work. Thus, a violation of the 

36 Oddly, the early decisions were not so rigid when it came to intra-agency work. Where an 

employee did work for different bureaus within the same agency, the agency could prorate 

the salary among the appropriations involved, or could pay the entire salary from one 

appropriation and seek reimbursement from the others. 5 Comp. Gen. 1036 (1926).
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purpose law does occur when an agency spends money on 

salaries of employees detailed to another agency for work 

essentially unrelated to the loaning agency’s functions.”

64 Comp. Gen. at 379. Accordingly, absent specific statutory authority to 

the contrary, details of personnel between agencies or between separately 

funded components of the same agency may not be done on a 

nonreimbursable basis, but must be done in accordance with the Economy 

Act, which requires full reimbursement of actual costs, one of which is the 

employee’s salary. The fact that the loaning agency pays the employee from 

a revolving fund changes nothing; a nonreimbursable detail still creates an 

unauthorized augmentation of the receiving agency’s appropriation as well 

as violates the purpose limitations of 31 U.S.C. § 1301(a). B-247348, 

June 22, 1992. 

Apart from details which may be nonreimbursable under some specific 

statutory authority, the decisions recognize two exceptions. First, 

nonreimbursable details are permissible “where they involve a matter 

similar or related to matters ordinarily handled by the loaning agency and 

will aid the loaning agency in accomplishing a purpose for which its 

appropriations are provided.” 64 Comp. Gen. at 380. Second, details “for 

brief periods when . . . the numbers of persons and cost involved are 

minimal” and “the fiscal impact on the appropriation is negligible” do not 

require reimbursement. Id. at 381. GAO has declined to attempt to specify 

the limits of the de minimis exception but it could not, for example, be 

stretched to cover a detail of 15–20 people. 65 Comp. Gen. 635 (1986).

The Department of Justice’s Office of Legal Counsel has taken essentially 

the same position as 64 Comp. Gen. 370. 13 Op. Off. Legal Counsel 188 

(1989) (United States Attorney’s Office for the District of Columbia must 

reimburse Defense Department for year-long detail of 10 lawyers); 12 Op. 

Off. Legal Counsel 233 (1988) (detail of Internal Revenue Service agents to 

investigate tax fraud for an Independent Counsel could be 

nonreimbursable under the commonality of functions exception). While 

the OLC’s approach and analysis are otherwise the same, it has misgivings 

over the propriety of a de minimis exception. 13 Op. Off. Legal Counsel 

at 190.

While the agreement should normally precede the detail, an agreement 

entered into after the detail has started can include the services already 

performed. B-75052, May 14, 1948. Reimbursement should include accrued 

annual and sick leave. 17 Comp. Gen. 571 (1938). It should also include 
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travel expenses incurred in connection with the detail work. 15 Comp. 

Gen. 334 (1935); B-141349, Dec. 9, 1959. If the detail is to be for a 

substantial period of time, the loaning agency should change the 

employee’s official duty station to the location of the detail and then restore 

it when the assignment is done. If applicable to the distances involved, the 

employee may then become entitled to allowances incident to a permanent 

change of station, such as shipment of household goods. 24 Comp. 

Gen. 420 (1944). A case where this was done is B-224055, May 21, 1987.

If interagency details are authorized under statutory authority other than 

the Economy Act, whether or not they are reimbursable will naturally 

depend on the terms of the statute. A statute which is silent on the issue 

will generally be construed as not precluding reimbursement unless a 

contrary intent is manifested. For example, 5 U.S.C. § 3341 authorizes 

intra-agency details within the executive branch for renewable periods of 

not more than 120 days. The statute says nothing about reimbursement. 

GAO regards this as merely providing authority to make the details and not 

as exhibiting an intent that they be nonreimbursable. 64 Comp. Gen. 

at 381–82. The same applies to 5 U.S.C. § 3344 which authorizes detailing of 

administrative law judges but is similarly silent on the issue of 

reimbursement. 65 Comp. Gen. 635 (1986). The Justice Department has 

said the same thing with respect to “temporary reassignments” under the 

Anti-Drug Abuse Act of 1988.37 13 Op. Off. Legal Counsel 188 (1989). An 

example of a statute which addresses reimbursement is 3 U.S.C. § 112, 

which authorizes details of executive branch employees to various White 

House offices and requires reimbursement for details exceeding 

180 calendar days in any fiscal year. See 64 Comp. Gen. at 380; 

B-224033-O.M., May 26, 1987.

A different type of statute, discussed and applied in B-247348, June 22, 

1992, is 44 U.S.C. § 316, which prohibits details of Government Printing 

Office employees “to duties not pertaining to the work of public printing 

and binding . . . unless expressly authorized by law.”

Finally, it is not uncommon for agencies to detail employees to 

congressional committees. Two 1942 decisions, 21 Comp. Gen. 954 and 

21 Comp. Gen. 1055, addressed this situation and held essentially that the 

details could be nonreimbursable if the committee’s work for which the 

detail was sought could be said to help the agency accomplish some 

37 Pub. L. No. 100-690, title I, 102 Stat. 4181 (Nov. 18, 1988).
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purpose of its own appropriations. These cases were the source of the 

“commonality of function” exception which 64 Comp. Gen. 370 applied 

across the board. See 64 Comp. Gen. at 379. The second 1942 decision 

emphasized that “mutuality of interest” is not enough: 

“[I]t must appear that the work of the committee to which 

the detail or loan of the employee is made will actually aid 

the agency in the accomplishment of a purpose for which its 

appropriation was made such as by obviating the necessity 

for the performance by such agency of the same or similar 

work.”

21 Comp. Gen. at 1058. A 1988 decision applied these precedents to 

conclude that the Treasury Department could detail two employees to the 

House Committee on Government Operations on a nonreimbursable basis 

to work with the committee on the oversight and review of the FTS-2000 

telecommunications project. B-230960, Apr. 11, 1988.

As to reimbursable details, 2 U.S.C. § 72a(f) provides that “[n]o committee 

[of the Congress] shall appoint to its staff any experts or other personnel 

detailed or assigned from any department or agency of the Government, 

except with the written permission of” specified committees. The Justice 

Department’s Office of Legal Counsel (OLC) regards this as implicit 

authority for reimbursable details of executive branch personnel to 

congressional committees, the theory being that a restriction like 2 U.S.C. 

§ 72a(f) would be rather pointless if the authority did not already exist. 

12 Op. Off. Legal Counsel 184, 185 (1988). See also 1 Op. Off. Legal Counsel 

108 (1977). However, OLC cautions that agencies should have due regard 

for potential ethics and separation-of-powers concerns. 12 Op. Off. Legal 

Counsel at 186–89. GAO has pointed out that 2 U.S.C. § 72a(f) is a 

limitation on the authority of congressional committees to appoint staff 

assigned or detailed to the committee, not a limitation on agencies to 

assign or detail employees to committees. B-129874, Jan. 4, 1971. 

Accordingly, the responsibility for compliance with section 72a(f) rests 

with the committee making the request for personnel rather than with the 

loaning agency. Id.

GAO details its own personnel to congressional committees under various 

authorities. A provision in GAO’s organic legislation, 31 U.S.C. § 712(5), 

requires the agency to provide requested help, presumably including loans 

of personnel, to committees “having jurisdiction over revenue, 

appropriations, or expenditures.” Details under this provision are not 
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required to be reimbursed. B-129874, Jan. 4, 1971; B-130496-O.M., Mar. 13, 

1957. In addition, GAO has applied the two 1942 decisions, 21 Comp. 

Gen. 954 and 21 Comp. Gen. 1055, to itself. B-41849, May 9, 1944; B-130496-

O.M., Mar. 13, 1957. Another statute, 31 U.S.C. § 734, provides that the 

Comptroller General “may assign or detail [GAO employees] to full-time 

continuous duty with a committee of Congress for not more than one year.” 

A part of this statute which required reimbursement by the Senate was 

deleted in the 1985 Legislative Branch Appropriations Act38 “to put the 

Senate on the same basis as the House in this regard.” S. Rep. No. 98-515, 

at 15 (1984). 

(2) Loans of personal property

Another area where the Economy Act wrought considerable change was 

reimbursement for interagency loans of equipment and other personal 

property. Prior to 1932, there was no authority to charge another 

government agency for the use of borrowed property. E.g., 9 Comp. 

Gen. 415 (1930). Also, the borrowing agency lacked authority to use its 

appropriations to repair the borrowed property unless for its own 

continued use, the theory being that the property belonged to the United 

States and not to any individual agency. To some extent at least, the 

Economy Act amounts to “tacit recognition of property ownership rights in 

the various departments and agencies possessing such property.” 30 Comp. 

Gen. 295, 296 (1951).

Thus, one early case held that the Economy Act provided sufficient 

authority for the old Civil Aeronautics Board to lease surplus aircraft from 

another government agency. 24 Comp. Gen. 184 (1944). It also authorized 

the Soil Conservation Service to borrow a shallow draft river boat from the 

Bureau of Land Management for certain work in Alaska. 30 Comp. 

Gen. 295 (1951). The logic of the 1951 decision is simple. If the Economy 

Act authorizes the permanent transfer of equipment, and it unquestionably 

does, then it must also authorize “lesser transactions between departments 

on a temporary loan basis.” Id. at 296. Another boat was involved in 

38 Comp. Gen. 558 (1959). The Maritime Administration wanted to loan a 

tug to the Coast Guard and asked if the transaction was within the scope of 

24 Comp. Gen. 184. Sure it was, GAO replied. There was no “essential 

difference” between the lease in the 1944 case and the loan in this one 

38 Pub. L. No. 98-367, § 8(2), 98 Stat. 472, 475 (July 17, 1984).
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(38 Comp. Gen. at 559), and therefore no reason not to follow 24 Comp. 

Gen. 184 and 30 Comp. Gen. 295.

That the Economy Act authorizes interagency loans of personal property 

has been confirmed in several judicial decisions, a rare example of the 

Economy Act coming before the courts in any context. The cases arose out 

of the 1973 occupation of the village of Wounded Knee, South Dakota, by 

members of a group called the American Indian Movement. Various law 

enforcement agencies had been called in, including the United States 

marshals and the Federal Bureau of Investigation. The Army provided 

substantial amounts of equipment, such as sniper rifles, protective vests, 

and armored personnel carriers. Defendants charged with obstructing law 

enforcement officers tried to argue that the Army’s involvement violated 

18 U.S.C. § 1385, the so-called Posse Comitatus Act, which prohibits use of 

the Army or Air Force for law enforcement unless specifically authorized. 

With one exception, the courts held that the Posse Comitatus Act applies 

to personnel, not to equipment, and in any event providing the equipment 

was authorized by the Economy Act. United States v. McArthur,

419 F. Supp. 186, 194 (D.N.D. 1975), aff’d, 541 F.2d 1275 (8th Cir. 1976), cert. 

denied, 430 U.S. 970 (1977); United States v. Red Feather, 392 F. Supp. 916, 

923 (D.S.D. 1975); United States v. Jaramillo, 380 F. Supp. 1375, 1379 

(D. Neb. 1974), appeal dismissed, 510 F.2d 808 (8th Cir. 1975). As the 

McArthur court noted, borrowing “highly technical equipment . . . for a 

specific, limited, temporary purpose is far preferable” to having to maintain 

the equipment permanently. McArthur, 419 F. Supp. at 194. One court 

disagreed, holding that the Economy Act applies “only to sales, and not to 

loans.” United States v. Banks, 383 F. Supp. 368, 376 (D.S.D. 1974). 

However, Banks goes against the clear weight of authority in this respect.39

The reimbursement of actual costs is somewhat different for loans of 

personal property than for other Economy Act transactions. If an agency 

loans a piece of equipment to another agency and the borrowing agency 

returns it in as good condition as when loaned, the loaning agency has not 

39 Subsequent to the Wounded Knee litigation, Congress enacted 10 U.S.C. § 372, which 

expressly authorizes the Secretary of Defense to make equipment available to law 

enforcement organizations. At first, reimbursement was discretionary. See Pub. L. 

No. 97-86, § 905(a)(1), 95 Stat. 1099, 1116 (Dec. 1, 1981); 6 Op. Off. Legal Counsel 464 (1982). 

The reimbursement provision, 10 U.S.C. § 377, was amended in 1988 to require 

reimbursement, with certain exceptions, “[t]o the extent otherwise required” by the 

Economy Act or other applicable law. See Pub. L. No. 100-456, div. A, title XI, § 1104(a), 

102 Stat. 1918, 2045 (Sept. 29, 1988).
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incurred any direct costs. Thus, the decision at 24 Comp. Gen. 184 (lease of 

surplus aircraft) said merely that the borrowing agency should agree “to 

reimburse the department for the cost, if any, necessarily incurred by it in 

connection with such transaction,” plus repair costs. Id. at 186. 

Depreciation is an identifiable indirect cost, but recovery of depreciation is 

normally inappropriate under the standard of 57 Comp. Gen. 674 (1978), 

previously discussed in section B.1.c(2) of this chapter. Reimbursable 

costs (or costs the borrowing agency should pay directly in the first 

instance) include such things, to the extent applicable, as transportation, 

activation, operation, maintenance, and repair. See, e.g., 38 Comp. 

Gen. 558, 560 (1959). Another permissible item of cost is a refundable 

deposit on containers. B-125414, Sept. 30, 1955. An important expense 

which the borrowing agency should assume under the agreement is the 

cost of repairing and/or restoring the property so as to return it to the 

lending agency in the same condition as when borrowed. E.g., 30 Comp. 

Gen. 295 (1951).

While there is no payment for the bare use of the property, that is, divorced 

from some cost actually incurred by one of the agencies, the Economy Act 

should not be used for loans for indefinite periods which amount to 

permanent transfers in disguise. The reason is that a permanent transfer, 

while authorized under the Economy Act, requires payment for the 

property. 59 Comp. Gen. 366, 368 (1980); 38 Comp. Gen. 558, 560 (1959). In 

16 Comp. Gen. 730 (1937), for example, an agency had loaned office 

equipment to another agency. When the borrowing agency’s need for the 

property continued to the point where the lending agency had to replace it 

for its own use, the borrowing agency paid for the equipment. Agencies 

desiring a permanent transfer without reimbursement should seek 

statutory authority. 38 Comp. Gen. at 560.

A permanent transfer raises the question of how to value the property. The 

same question arises when property loaned under the Economy Act is 

totally destroyed. The decision at 16 Comp. Gen. 730 does not specify how 

the amount of the payment was calculated. In a case where property was 

destroyed, the question was whether value should be set at acquisition 

value or the value of similar property being disposed of as surplus property. 

GAO declined to choose, advising that the amount to be billed “is primarily 

a matter for adjustment and settlement” between the agencies concerned. 

B-146588, Aug. 23, 1961, at 2. In 25 Comp. Gen. 322 (1945), however, a case 

involving lost property, the answer was zero. The parties could have 

provided for the situation in an Economy Act agreement, except they did 

not enter into one. Once the property was lost, “there existed no proper 
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subject of a purchase or sale,” and, absent a prior agreement to that effect, 

the borrowing agency’s appropriations were not available to purchase 

nonexistent property. Id. at 325.

(3) Common services

It often makes sense, economically as well as operationally, to provide 

certain common services centrally, procurement for example. 

Centralization often occurs within larger agencies made up of component 

bureaus or offices funded under separate appropriations. It also occurs 

across government agencies, with one agency providing a common service 

to other agencies. 

How an agency that is made up of component bureaus or offices provides 

common services within the agency depends primarily on its 

appropriations structure. One approach is to appropriate specifically for 

common services from a single, centralized appropriation. For example, a 

department might receive an appropriation which is available for certain 

specified departmentwide services such as personnel, information 

resources management, and other necessary expenses for management 

support services. Under this type of structure, questions of reimbursement 

should not arise. Indeed, requiring reimbursement from the component 

bureaus when Congress has provided funding in the departmental 

appropriation would be improper. B-202979-O.M., Sept. 28, 1981.

A different legislative approach is illustrated by 43 U.S.C. § 1467, which 

establishes a working capital fund for the Interior Department to be 

available for specified common services—reproduction (of documents, we 

think), communication, supply, library, and health—plus “such other 

similar service functions as the Secretary determines may be performed 

more advantageously on a reimbursable basis.” The receiving components 

are required to reimburse the fund “at rates which will return in full all 

expenses of operation, including reserves for accrued annual leave and 

depreciation of equipment.” Id. Under this structure, services within the 

scope of the working fund are provided centrally, but each component 

bureau must budget for its own needs, much as agencies budget for and 

pay rent to the General Services Administration.

If each bureau receives its own appropriations for support services and 

there is no further statutory guidance, the agency may centralize the 

provision of common services on a reimbursable basis under authority of 

the Economy Act provided the reimbursements correspond to the value 
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actually received. B-308762, Sept. 17, 2007 (human capital management, 

budget support, and systems maintenance); 70 Comp. Gen. 592, 595 (1991) 

(executive computer network); B-77791, July 23, 1948 (procurement of 

office supplies); B-202979-O.M., Sept. 28, 1981 (legal services).

In 1962, the Bureau of the Census sought and received specific authority to 

charge common services to any available appropriation, provided the 

benefiting appropriation(s) reimbursed the financing appropriation no later 

than the end of the fiscal year. Pub. L. No. 87-489, 76 Stat. 104 (June 19, 

1962). Other agencies sought similar authority and GAO supported the 

enactment of governmentwide legislation. See B-136318, Dec. 20, 1963. 

This authority is now found at 31 U.S.C. § 1534, referred to as the “account 

adjustment statute,” and is discussed in section B.2 of this chapter. 

Agencies are also increasingly using common services provided by another 

agency. In 2002, the Office of Management and Budget (OMB) encouraged 

centralizing the provision of common goods and services across agencies 

by introducing 24 initiatives to use technology to eliminate redundant 

systems and improve the government’s quality of customer service for 

citizens and business.40 These initiatives are referred to as Electronic 

Government or E-Gov initiatives.41 Congress subsequently enacted the 

E-Government Act of 2002, Pub. L. No. 107-347, 116 Stat. 2899 (Dec. 17, 

2002), which, among other things, required agencies to support the E-Gov 

initiatives and established the Office of Management and Budget’s (OMB) 

role in administrating the initiatives.

In order to facilitate centralization, OMB designated a number of agencies 

as “centers of excellence.”42 These centers function as governmentwide 

service providers and make their services available to other agencies on a 

40 OMB Press Release No. 2002-11, New E-Government Strategy Is Roadmap to Better 

Service: 24 New Initiatives to Help Millions Who Access the Government Online (Feb. 27, 

2002), available at www.whitehouse.gov/omb/pubpress/2002-11.html (last visited Mar. 20, 

2008).

41 These initiatives are available at www.whitehouse.gov/omb/egov (last visited Mar. 20, 

2008).

42 OMB also refers to these centers as “Shared Service Centers,” “Shared Service Providers,” 

and “Cross-Agency Service Providers.” See, e,g., Report to Congress on the Benefits of the 

President’s E-Government Initiatives: Fiscal Year 2007 (2007), available at

www.whitehouse.gov/omb/egov/e-2-reports.html (last visited Mar. 20, 2008); Analytical 

Perspectives, Budget of the United States Government for Fiscal Year 2007 (Feb. 6, 2006), 

at 152–53, available at www.whitehouse.gov/omb/budget/fy2007 (last visited Mar. 20, 2008).
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fee-for-service basis.43 Whether an agency will use the Economy Act or 

some other specific statutory authority to enter into an agreement to 

purchase these common goods and services will depend on the statutory 

authority of the performing agency.

Agencies also obtain common goods and services through franchise funds 

and other similar intragovernmental revolving funds that provide services 

governmentwide on a fee-for-service basis. These types of funds are 

discussed in section C.3.c of this chapter.

(4) Other examples

As summarized earlier, the subject of an Economy Act transaction must be 

something the ordering agency is authorized to do and the performing 

agency is in a position to provide. Also, there must be direct benefit to the 

paying agency. B-16828, May 21, 1941; B-170587-O.M., Oct. 21, 1970. Apart 

from these general prescriptions, the Economy Act makes no attempt to 

define the kinds of work, services, or materials that can be ordered. This is 

in apparent recognition of the great diversity of tasks and functions one 

encounters in the federal universe, and the fact that these tasks and 

functions are subject to change over time. The legislative history gives 

some illumination:

“For illustration, the Navy maintains a highly specialized 

and trained inspection service. Why should not this 

personnel, when available, be used by other departments to 

inspect materials and supplies ordered to make certain that 

such materials comply strictly with specifications? Or if a 

department needs statistical work that can be more 

expeditiously done by another department it should have 

the right to call upon the agency especially equipped to 

perform the work. The Bureau of Standards is a highly 

specialized agency and its equipment and technical 

personnel should be made available to other services. 

Frequently the engineering staff of one department might be 

utilized by another department to great advantage.

43 Analytical Perspectives, Budget of the United States Government for Fiscal Year 2006 

(Feb. 5, 2005), at 174, available at www.whitehouse.gov/omb/budget/fy2006 (last visited 

Mar. 20, 2008). For additional information about the E-Government initiatives and crossagency service providers, see the Report to Congress on the Benefits of the President’s 

E-Government Initiatives: Fiscal Year 2007, supra n.42.
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“The War and Navy Departments are especially well 

equipped to furnish materials, work, and services for other 

departments. . . . 

“The Treasury Department, Department of Justice, Interior 

Department, and Shipping Board have many vessels at sea. 

The Government navy yards should be available to these 

whenever repairs or other work can be done by the Navy 

Department as expeditiously and for less money than the 

materials and services will cost elsewhere.

“Illustrations might be multiplied but the above are 

sufficient to give a general idea of what may reasonably be 

expected under the [bill].”

H.R. Rep. No. 72-1126, at 15–16 (1932). 

The examples we offer here are cases in which the cited decision or 

opinion either directly approved the proposed transaction (which does not 

necessarily mean that it actually took place), or at least noted it without 

further question in a context which can fairly be viewed as implicit 

approval.

One situation we have already noted is the provision of administrative 

support services. The Economy Act is used to enable the General Services 

Administration (GSA) to provide certain support services to smaller 

agencies. E.g., B-130961, Apr. 21, 1976 (Federal Election Commission). In 

the case of a temporary agency or commission, the agreement may 

authorize GSA to perform various “posthumous” functions necessary for 

the liquidation of the agency’s assets and liabilities. E.g., B-210226, May 28, 

1985. However, there is no authority for anyone to do anything until the 

agency actually comes into existence. B-230727, Aug. 1, 1988 (legislative 

authority would be necessary to enable GSA or Treasury or anyone else to 

accept or act as custodian of private funds donated for use of commission 

prior to its statutory effective date).

Another group of cases involves the use of federal facilities (real property) 

of one type or another. A long line of decisions predating the Federal 

Property and Administrative Services Act of 1949, ch. 288, 63 Stat. 377, 380 

(June 30, 1949), established the proposition that an agency could, under 

authority of the Economy Act, make surplus space available to other 

agencies. For government-owned buildings, the amount charged could 
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include special services such as utilities and janitor services, but not rent. 

26 Comp. Gen. 677 (1947); B-70978, Dec. 5, 1947. For leased premises, the 

charge could include a proportionate share of the rent. 27 Comp. Gen. 317 

(1947); 24 Comp. Gen. 851 (1945); B-74905, May 13, 1948; B-48853, Apr. 21, 

1945. It could also include alterations made by the agency holding the lease 

to adapt the space for use by the new tenant. B-72269, Jan. 16, 1948. 

Agencies subject to the Federal Property Act now obtain their space 

requirements through GSA and no longer need to rely on the Economy Act. 

However, in situations not covered by the Federal Property Act, the old 

cases continue to apply. E.g., 43 Comp. Gen. 687 (1964). That case 

involved a proposal to make space in leased Postal Service facilities 

available to the Customs Service for it to perform its mail examining 

responsibilities. Since the Postal Service has its own space acquisition 

authorities, and since GSA regarded Customs’ space as “special purpose 

space” and hence beyond GSA’s responsibility, the solution was an 

Economy Act agreement based on the precedent of 24 Comp. Gen. 851 and 

its progeny.

Similarly, when the Coast Guard needed temporary residential facilities at 

an airport in Alaska pending construction of permanent quarters, it could 

obtain them from the Federal Aviation Administration under the Economy 

Act. B-150530, Jan. 28, 1963. See also B-14855, Feb. 8, 1941 (agency can 

store and service another agency’s motor vehicles if it can do so at less cost 

than private sources).

Medical services and facilities are not treated any differently. Thus, the 

Department of Veterans Affairs can make its hospitals available to 

nonveteran beneficiaries of other agencies, such as the Public Health 

Service, on a space-available basis, but cannot “bump” its own veteran 

beneficiaries in order to put itself in a position to do so. B-156510, Feb. 23, 

1971; B-156510, June 7, 1965. See also B-133044-O.M., Aug. 11, 1976; 

B-183256-O.M., Dec. 22, 1975 (Economy Act authorizes VA to provide 

medical services to persons eligible for medical assistance from the 

Defense Department). A variation is B-171924, Apr. 7, 1971, holding that an 

Air Force hospital on Clark Air Force Base in the Philippines could provide 

services to a child struck by a Coast Guard vehicle, to be reimbursed by the 

Coast Guard under the Economy Act.44 Another medical case is B-62540, 

Feb. 12, 1947, holding that the Economy Act was the appropriate authority 

44 This is another example where the Economy Act was used as authority even though there 

was no written agreement “up front.”
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for using agencies to pay proportionate shares of the operating cost of an 

emergency room run by the Public Health Service in a federal office 

building.

Another broad area in which the Economy Act is particularly useful is the 

occasional need by one agency of something another agency performs or 

produces on a regular basis. One example noted earlier is 13 Comp. 

Gen. 138 (1933), in which a government corporation authorized to issue 

securities sought help from what is now the Bureau of the Public Debt. 

Similarly, when Congress directed the Treasury Department to sell a 

portion of the nation’s gold reserves, Treasury entered into an Economy 

Act agreement with the General Services Administration to conduct the 

sale. B-183192, July 17, 1975. Again, when the Defense Department wanted 

to conduct examinations of credit unions at U.S. military installations 

overseas, it logically turned to what is now the National Credit Union 

Administration, which routinely conducts similar examinations of credit 

unions stateside. B-158818, May 19, 1966. Other examples in this family are 

54 Comp. Gen. 624, 630 (1975) (Secret Service protection for government 

officials other than those statutorily entitled to receive it); B-192875, 

Jan. 15, 1980 (hearing examiners provided to other agencies by the Equal 

Employment Opportunity Commission in discrimination complaints); 

B-98216, Oct. 2, 1950 (purchase by Defense Department of surplus potatoes 

from Department of Agriculture); B-95094, June 2, 1950 (technical services 

by National Bureau of Standards for the Bureau of the Mint).

Finally, we note a few miscellaneous cases, primarily to try to give some 

idea of the variety of transactions that can fit under the Economy Act’s 

umbrella. The Economy Act has been used in, or at least was recognized as 

available for, the following situations:

• Sale of arms by Defense Department to Central Intelligence Agency for 

use in covert operations. B-225832-O.M., Feb. 25, 1987.

• Civic/humanitarian assistance activities by the Defense Department 

overseas. 63 Comp. Gen. 422, 443–46 (1984).

• Agreement between Veterans Administration and Navy whereby Navy 

would execute and superintend a contract for the construction of the 

Corregidor-Bataan Memorial. 46 Comp. Gen. 73 (1966).
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• Purchase by Walter Reed Army Medical Center of motion picture 

supplies and services from Department of Agriculture. B-140652, 

Nov. 9, 1959.

• Agreement between Bureau of Land Management and Fish and Wildlife 

Service for “control of predatory animals and rodents” on public 

domain lands. A-82570, B-120739 Aug. 21, 1957.

• Services of National Park Service in planning and supervising 

installation of equipment in Franklin D. Roosevelt Library. B-64762, 

Mar. 31, 1947.

Also, a congressional subcommittee study concluded that agencies could 

and should share federal laboratories under the Economy Act if no more 

specific authority was available. Subcommittee on Science, Research, and 

Development, House Committee on Science and Astronautics, Utilization 

of Federal Laboratories, H.R. Print No. H1203 (1968). See also 48 C.F.R. 

§ 35.017(a)(2) (“a Federally Funded Research and Development Center 

may perform work for other than the sponsoring agency under the 

Economy Act . . . when the work is otherwise not available from the private 

sector”).

e. What Work or Services May 

Not Be Performed

Apart from the restrictions specified in the Economy Act itself, limitations 

on what can be done under the Economy Act derive largely from common 

sense and axiomatic requirements of the appropriations process. One rule 

frequently encountered is that the Economy Act may not be used for 

services which the performing agency is required by law to provide and for 

which it receives appropriations. As the Department of Justice has noted, 

this rule “is required in order to prevent agencies from agreeing to 

reallocate funds between themselves in circumvention of the 

appropriations process.” 9 Op. Off. Legal Counsel 81, 83 (1985). See also

61 Comp. Gen. 419, 421 (1982) (charging the receiving agency “would 

compromise the basic integrity of the appropriations process” and would 

amount to a “usurpation of the congressional prerogative”).

For example, if a GAO audit enables an agency to recover overcharges, the 

amounts recovered may not be paid over to GAO to help defray the cost of 

conducting the audit. B-163758-O.M., Dec. 3, 1973. The reason is that 

conducting audits is GAO’s job and it receives appropriations for that 

purpose. Similarly, the Social Security Administration is not authorized to 
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charge the Railroad Retirement Board for information it is required to 

furnish under 45 U.S.C. § 231f(b)(7). 44 Comp. Gen. 56 (1964).45

Nor may the Justice Department, which is required by law to conduct the 

government’s litigation and which receives appropriations for its litigation 

functions, pass the costs on to the “client agency.” 16 Comp. Gen. 333 

(1936). However, while Justice must conduct the litigation, the client 

agency typically provides a variety of support to the Justice Department, 

and to that extent Economy Act agreements are possible, even extending to 

the hiring of additional attorneys, provided that the work for which the 

client agency is paying is work it is authorized to do itself. 9 Op. Off. Legal 

Counsel 81 (1985); 2 Op. Off. Legal Counsel 302 (1978). The types and 

extent of support depend in part on the breadth of the client agency’s own 

statutory authority. 2 Op. Off. Legal Counsel at 305–06. 

If a service is required to be provided on a nonreimbursable basis, the 

inadequacy of the providing agency’s appropriations is legally irrelevant 

and does not permit reimbursement by the receiving agency. 18 Comp. 

Gen. 389, 391 (1938). If the service is authorized but not required, there 

may be circumstances under which reimbursement is permissible. An 

internal memorandum, B-194711-O.M., Jan. 15, 1980, discussed one such 

situation. Each agency is required by 44 U.S.C. § 3102 to have a records 

management program. In addition, the National Archives and Records 

Administration (NARA) has oversight and assistance responsibilities, 

which include conducting surveys and inspections. When NARA is 

performing its oversight function, or conducts a study on its own initiative, 

the general rule applies and NARA’s appropriations must bear the cost. 

However, if an agency wants to conduct a study of its own program and 

asks NARA to do it, and NARA’s appropriations are insufficient, nothing 

precludes a reimbursable arrangement under the Economy Act. Also, as 

discussed in B-165117-O.M., Dec. 23, 1975, if Congress has provided 

appropriations for a particular activity for an initial start-up period, and 

later discontinues funding with the intent that the activity become selfsufficient, reimbursement under the Economy Act is authorized. 

An agency providing services over and above what it is required by law to 

provide may invoke the Economy Act to recover the actual costs of the 

nonrequired services. For example, 44 U.S.C. § 1701 requires the 

Government Printing Office to provide addressing, wrapping, and mailing 

45 Several additional examples are summarized in Chapter 6, section E.4.
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services for certain public documents. It cannot charge for these required 

services. 29 Comp. Gen. 327 (1950). However, section 1701 specifically 

excludes certain documents from its mandate. Since GPO was also in a 

position to provide those services in an efficient and economical manner 

with respect to the excluded documents, it could do so on a reimbursable 

basis under the Economy Act. Id. Similarly, the Secret Service is 

statutorily required to provide protective services to specified officials. 

Officials other than those specified may obtain the services only by 

“purchasing” them under the Economy Act. 54 Comp. Gen. 624 (1975), 

modified on other grounds, 55 Comp. Gen. 578 (1975).

A variation worthy of note occurred in 34 Comp. Gen. 340 (1955). A series 

of decisions in the early 1950s had held that the Patent and Trademark 

Office could not charge fees to other government agencies for services 

performed in administering the patent and trademark laws. 33 Comp. 

Gen. 559 (1954), modified, 34 Comp. Gen. 340 (1955); 33 Comp. Gen. 27 

(1953); 32 Comp. Gen. 392 (1953). In 34 Comp. Gen. 340, the Army had 

entered into an agreement with the United Kingdom for a royalty-free 

license to an invention, with the Army to bear all costs associated with 

filing and prosecuting a patent application in the United States. GAO 

agreed with the Patent Office that the rule need not apply because the 

services were not really being rendered to another government agency. 

The fees were essentially part of the consideration for the license. The law 

was changed in 196546 to authorize the Patent Office to charge fees to other 

government agencies, subject to discretionary waiver in the case of an 

“occasional or incidental request.” 35 U.S.C. § 41(e). While the payment in 

34 Comp. Gen. 340 would now be authorized under the statute, the 

approach of that decision could still be useful in analogous situations.

Closely related in both concept and rationale is the principle that an agency 

may not transfer administrative functions to another agency under the 

aegis of the Economy Act. Even under the Economy Act’s 1920 

predecessor, the Comptroller of the Treasury had held that “a particular 

duty placed on one branch of the Government by enactment of Congress or 

going to the essence of its existence” could not be transferred to another 

agency without statutory authority. 27 Comp. Dec. 892, 893 (1921). See 

also 8 Comp. Gen. 116 (1928). The rule continued under the Economy Act, 

its rationale being stated as follows in B-45488, Nov. 11, 1944, at 3:

46 Pub. L. No. 89-83, 79 Stat. 259 (July 24, 1965).
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“The theory . . . is that there is inherent in a grant of 

authority to a department or agency to perform a certain 

function, and to expend public funds in connection 

therewith, a responsibility which, having been reposed 

specifically in such department or agency by the Congress, 

may not be transferred except by specific action of the 

Congress. The soundness of this principle is without 

question . . . .” 

The difficulty in applying the rule is that no one has ever attempted to 

define the admittedly vague term “administrative function” in this 

particular context, although as the rule has evolved a definition is arguably 

unnecessary. Certainly it would prohibit transfer of an entire 

appropriation. Decision of July 7, 1923 (no file designation), 23A MS 101, 

quoted in 8 Comp. Gen. 116, 118 (1928). That decision stated the following 

rather fundamental proposition: “The intent of the Congress in requiring 

estimates and the making of appropriations thereon is the imposition of a 

duty upon the department to which [the appropriations are] made to act 

and be responsible for the expenditures made under the appropriations.”

The rule has been held to embrace functions with respect to which an 

agency has authority to make “final and conclusive” determinations. Thus, 

the Veterans Administration could not transfer to the Federal Housing 

Administration management and disposal functions with respect to 

property acquired incident to its credit programs. B-156010-O.M., Mar. 16, 

1965. Equally unauthorized is the transfer of debt collection 

responsibilities under the Federal Claims Collection Act, 31 U.S.C. 

§§ 3701, 3711. While debt collection services can be provided under the 

Economy Act, they may not include the taking of final compromise or 

termination action. B-117604(7)-O.M., June 30, 1970. Both of these cases 

involve functions subject to final and conclusive authority. See also

17 Comp. Gen. 1054 (1938) holding, in a case predating the Federal Claims 

Collection Act, that there was no authority for an agency to transfer its debt 

collection responsibilities. In any event, while final and conclusive 

authority will most likely bring a function under the rule, it is not an 

indispensable prerequisite.

Earlier decisions addressing the transfer of administrative functions 

seemed to emphasize the permanency of the proposed transfer. E.g.,

14 Comp. Gen. 455 (1934). However, later decisions recognize the crucial 

factor as who ends up exercising ultimate control. The first case to adopt 

this approach appears to have been B-45488, Nov. 11, 1944. The Civil 
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Service Commission proposed, at least for the duration of wartime 

conditions, to advance to the Army funds from the Civil Service Retirement 

and Disability Fund. The Army would hold the money in a trust account 

and treat it as a working fund from which to make refunds of retirement 

deductions to certain separating civilian employees. All concerned seemed 

to accept, as a starting premise, that the proposal amounted to 

performance by the Army of an administrative function of the Civil Service 

Commission. However, the proposal also contemplated that the 

Commission would audit all cases of refunds, and this, said the decision, 

“must be considered as a retention of a certain degree of supervision and 

control.” Id. at 5. Thus, while the Army would be actually making the 

refunds, “responsibility for the performance of the function generally 

would remain” in the Commission. Id. Therefore, the proposal was 

authorized under the Economy Act. 

In sum, the lesson of B-45488 is that, for purposes of applying the 

administrative function rule, the allocation of ultimate responsibility is 

more important than becoming immersed in a semantic morass over what 

does or does not constitute an administrative function. An agency can 

acquire services under the Economy Act, but cannot turn over the ultimate 

responsibility for administering its programs or activities.

f. Contracting Out and “OffLoading”

As originally enacted, the Economy Act made no provision for the 

performing agency to contract out all or any part of its performance. 

Indeed, the law authorized only work or services the performing agency 

was “in a position” to provide, and GAO construed this as precluding 

performance by use of contracts with third parties. 20 Comp. Gen. 264 

(1940); 19 Comp. Gen. 544 (1939). Notwithstanding this limitation, it soon 

became clear that the use of commercial contracts in performing Economy 

Act orders could in certain circumstances be advantageous.

In 1942, Congress considered legislation which would have amended the 

Economy Act to authorize all agencies to use private contracts in 

performing Economy Act orders. GAO found the proposal 

unobjectionable. See B-18980, Feb. 13, 1942. However, the legislation as 

enacted (Act of July 20, 1942, ch. 507, 56 Stat. 661) authorized contracting 

out only if the ordering agency was one of five specified agencies—Army, 

Navy, Treasury, Federal Aviation Administration, and Maritime 

Administration. The only explanation appearing in any printed legislative 

history materials was some concern over “trading going on among too 

many departments.” See 52 Comp. Gen. 128, 133 (1972), citing 88 Cong. 

Rec. 5622 (1942) (remarks of Mr. May). This remained the law for 40 years.
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In a 1972 decision, however, GAO advised the Environmental Protection 

Agency (EPA) that the Economy Act did not inhibit the joint funding of 

contracts to carry out mutually beneficial projects where EPA was 

statutorily authorized to cooperate with the other participating agencies. 

The decision further noted that the Economy Act would not preclude EPA 

from entering into mutually beneficial projects with other agencies, which 

might in turn use contracts as part of their performance. 52 Comp. 

Gen. 128, 134 (1972).

In 1982, Congress again amended the Economy Act, this time authorizing 

all agencies to obtain goods and services by contract in fulfilling Economy 

Act orders. Pub. L. No. 97-332, 96 Stat. 1622 (Oct. 15, 1982). The legislative 

history described some of the potential advantages:

“Since 1942, when the Economy Act was amended to allow 

agencies to contract out for goods and services on behalf of 

only 5 specified agencies, numerous areas of agency 

expertise have been developed. With the authority 

extended to allow agencies to contract out on behalf of any 

other Federal agency, an agency having only an occasional 

requirement in a specific area could turn to an agency with 

substantial experience in the area for assistance. This 

would eliminate the need to duplicate the requisite 

expertise. For instance, if the [then] Immigration and 

Naturalization Service has a requirement for night sensors 

for border protection, that agency could seek assistance 

from the Department of Defense which presumably has 

already developed expertise in that area. Or, if the Coast 

Guard had a requirement for navigational equipment, it 

could seek assistance from the Department of the Navy to 

acquire such, rather than duplicate research and 

development already under way or completed. Various 

statutes now permit such interagency requisitioning in 

specific areas; however, removal of the general restriction 

allows the maximum utilization by the Government of 

valuable expertise developed over the years in the various 

Government agencies. In addition, such generally-available 

authority creates the potential for wider use by the 

Government of quantity discounts or other benefits which 

may not have been available in the past. It will also permit 

an agency to use another agency which has some, though 

not all, of the capability to do the requisitioned work by 
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allowing the requisitioned agency to simply contract out the 

part of the work that it cannot do.”

H.R. Rep. No 97-456, at 4 (1982).

The 1982 amendment changed the Economy Act in three ways. First, it 

amended 31 U.S.C. § 1535(a)(3) to generally authorize performing agencies 

to obtain ordered goods and services by contract, and deleted the 

limitation to the five named agencies. This eliminated the existing 

inhibition. Second, it amended 31 U.S.C. § 1535(a)(4)—the “lower cost” 

determination quoted at the beginning of our coverage—to replace the 

specific reference to competitive bids with a more general reference to 

providing the goods or services simply “by contract.” The intent of this 

change was to permit the performing agency to use whatever methods of 

procurement are available to it. H.R. Rep. No. 97-456 at 5. 

Finally, it added 31 U.S.C. § 1535(c): “A condition or limitation applicable 

to amounts for procurement of an agency or unit placing an order or 

making a contract under this section applies to the placing of the order or 

the making of the contract.” This provision is designed to preclude use of 

the Economy Act to avoid legal restrictions on the availability of 

appropriated funds. Originally recommended by GAO,47 it “prevents the 

ordering agency from accomplishing under the guise of an Economy Act 

transaction, objects or purposes outside the scope of its authority.” 

B-259499, Aug. 22, 1995, at 8. 

The Competition in Contracting Act requires that procuring agencies obtain 

full and open competition “except in the case of procurement procedures 

otherwise expressly authorized by statute.” 41 U.S.C. § 253(a)(1) (civilian 

procurements); 10 U.S.C. § 2304(a)(1) (military procurements). For 

purposes of this provision, the Economy Act is one of the otherwise 

authorized procedures. National Gateway Telecommunications, Inc. v. 

Aldridge, 701 F. Supp. 1104, 1113 (D.N.J. 1988), aff’d mem., 879 F.2d 858 

(3rd Cir. 1989) (10 U.S.C. § 2304); 70 Comp. Gen. 448, 453–54 (1991)

(41 U.S.C. § 253). Thus, an agency can obtain its needs under another 

47 Reorganization Act of 1981; Amend Economy Act to Provide That All Departments and 

Agencies Obtain Materials of Services from Other Agencies by Contract; and Amend the 

Federal Grant and Cooperative Agreement Act: Hearings on H.R. 2528 et al. Before a 

Subcommittee of the House Committee on Government Operations, 97th Cong. 78 (1981) 

(statement of Milton J. Socolar, Special Assistant to the Comptroller General of the United 

States).
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agency’s requirements contract, as long as the transaction is in compliance 

with the Economy Act and the action is permissible under the performing 

agency’s contract. National Gateway, 701 F. Supp. at 1114; 70 Comp. Gen. 

at 454; B-244691.2, Nov. 25, 1992, reconsideration denied, B-244691.3, 

Jan. 5, 1993. Exceeding a maximum quantity specified in the contract, 

however, would be outside the scope of the contract and would violate 

CICA’s competition requirements. 70 Comp. Gen. at 457.

One of the Economy Act requirements the ordering agency must satisfy is 

the “lower cost” determination, 31 U.S.C. § 1535(a)(4). For example, in 

B-244691.2, Nov. 25, 1992, the ordering agency made the determination 

without testing the open market because the price under the performing 

agency’s requirements contract was lower than the current Federal Supply 

Schedule price, and agencies are permitted to purchase from a Supply 

Schedule contract without seeking further competition. This, GAO found, 

was perfectly reasonable.

As long as the various requirements of the Economy Act are satisfied, the 

ordering agency may also legitimately take into consideration such factors 

as administrative convenience or procurement risks, 70 Comp. Gen. at 454 

n.5, or the need to obligate funds to avoid future funding cuts, National 

Gateway, 701 F. Supp. at 1111.

In the late 1980s and early 1990s, congressional attention to reported 

abuses under the Economy Act resulted in a detailed report by the 

Subcommittee on Oversight of Government Management, Senate 

Committee on Governmental Affairs, Off-Loading: The Abuse of InterAgency Contracting to Avoid Competition and Oversight Requirement,

S. Prt. No. 103-61 (1994). The report’s title reflects the birth of a new term, 

off-loading, defined (on page 1 of the Senate report) as “when one agency 

buys goods or services under a contract entered and administered by 

another agency.” The report found that government agencies “off-load 

billions of dollars of contracts every year,” and that “improper off-loads 

total at least in the hundreds of millions of dollars, and losses to the 

taxpayers are at least in the tens of millions of dollars.” Id. at 5. Among the 

abuses the report cited were the use of off-loading to avoid competition, to 

direct contracts to favored contractors, to improperly obligate expiring 

year-end appropriations, and to make a variety of inappropriate purchases. 

Id. at 6. The report recommended that off-loading be limited and subject to 

stronger regulatory controls. Id. at 44–46.
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Congress responded with two pieces of legislation: for military 

procurements, section 844 of the National Defense Authorization Act for 

Fiscal Year 1994, Pub. L. No. 103-160, 107 Stat. 1547, 1720–21 (Nov. 30, 

1993), enacted into law as the Senate report was being written; and for 

civilian procurements, section 1074 of the Federal Acquisition Streamlining 

Act of 1974, Pub. L. No. 103-355, 108 Stat. 3243, 3271–72 (Oct. 13, 1994). 

The two provisions are virtually identical and require that the governing 

procurement regulations be amended to:

• permit off-loading only if the performing agency (a) has an existing 

contract for the same or similar goods or services, (b) is better qualified 

to enter into or administer the contract by reason of capabilities or 

expertise the ordering agency does not have, or (c) is specifically 

authorized by law to act in that capacity;

• require that off-loads be approved in advance by an authorized official 

of the ordering agency; and

• prohibit the payment of any fee in excess of the performing agency’s 

actual costs or, if not known, estimated costs.

Implementing regulations are found in the Federal Acquisition Regulation, 

48 C.F.R. subpart 17.5.48 In addition, the law directed the Secretary of 

Defense and the Administrator for Federal Procurement Policy to develop 

systems to collect and evaluate data in order to monitor compliance. See 

Pub. L. No. 103-355, § 1074(c); Pub. L. No. 103-160, § 844(c).

2. Account Adjustment 

Statute

The “account adjustment statute,” 31 U .S.C. § 1534, authorizes an agency 

to temporarily charge one appropriation for an expenditure benefiting 

other appropriations within the same agency, as long as (1) amounts are 

available in the appropriation to be charged and in the benefiting 

appropriation and (2) the accounts are adjusted to reimburse the 

appropriation initially charged during or as of the close of the same fiscal 

48 GAO conducted a study in 1995 that indicated reasonable progress in implementing the 

controls mandated by the National Defense Authorization Act for Fiscal Year 1994. See

GAO, Interagency Contracting: Controls Over Economy Act Orders Being Strengthened,

GAO/NSIAD-96-10 (Washington, D.C.: Oct. 20, 1995).
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year.49 For example, an agency procuring equipment to be used jointly by 

several of the agency’s bureaus or offices that are funded under separate 

appropriations may initially charge the entire cost of this equipment to a 

single appropriation and later allocate the cost among the appropriations of 

the benefiting components. B-308762, Sept. 17, 2007; 70 Comp. Gen. 601 

(1991); 70 Comp. Gen. 592 (1991).

Agencies sought this authority to facilitate the acquisition of common 

services. The Bureau of the Census received this authority in 1962. Pub. L. 

No. 87-489, 76 Stat. 104 (June 19, 1962). Other agencies sought similar 

authority, and GAO supported the enactment of governmentwide 

legislation. See B-136318, Dec. 20, 1963. Governmentwide authority was 

provided in Public Law 89-473, § 1, 80 Stat. 221, June 29, 1966. The Senate 

report accompanying the public law explained that the legislation is 

“primarily a bookkeeping convenience” that will facilitate the accounting 

and payment of common-service types of activities, and “promote 

economies by making unnecessary the estimating and precharging of 

various accounts and appropriations.” S. Rep. No. 89-1284 (1966), at 1–2. 

In a 1991 decision, GAO found that, because the Army Civilian Appellate 

Review Agency charged another component’s appropriation for the actual 

costs involved in investigating grievances filed by employees of the 

benefiting component, the agency did not augment its appropriation. 

70 Comp. Gen. 601.

An agency using the authority of 31 U.S.C. § 1534 must be careful to charge 

the benefiting appropriations an amount that is commensurate with the 

value each benefiting appropriation receives, or the transaction may result 

in an augmentation to one or more appropriations.50 For example, in a 2007 

decision, GAO found that the Department of Homeland Security’s (DHS) 

Preparedness Directorate may have improperly augmented several 

appropriations when it failed to allocate costs of shared services to all 

benefiting appropriations. B-308762, Sept. 17, 2007. The Preparedness 

Directorate, which was dissolved in 2007, developed a complex system in 

order to provide cross-cutting services to multiple appropriations within 

the directorate. One appropriation entered into contracts for services that 

benefited most of the appropriations throughout the directorate. These 

49 For a discussion of 31 U.S.C. § 1534 in the context of transfers, see Chapter 2, 

section B.3.a. 

50 See Chapter 6, section E, for a discussion of augmentation of appropriations.
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services included human capital management, budget justification 

preparation, budget execution, program review and analysis, and facilities 

management. GAO found that the Preparedness Directorate had authority, 

pursuant either to the Economy Act or to 31 U.S.C. § 1534, to draw on 

multiple appropriations to fund the shared services. The directorate, 

however, did not enter into valid written Economy Act agreements and 

thus could not rely on the Economy Act to justify the shared services 

transactions. And, while DHS had authority to carry out these transactions 

pursuant to section 1534, DHS could not provide GAO with documentation 

showing that the directorate properly recorded allocated charges against 

each of the benefiting appropriations. The directorate improperly 

augmented the benefiting appropriations to the extent it did not record an 

obligation against the appropriations for the estimated value of the services 

each appropriation received. To the extent DHS did not charge all of the 

benefiting appropriations, it was required to adjust its expired 

appropriations so that each benefiting appropriation was charged for the 

value received. If insufficient unobligated balances remained in any of the 

appropriations accounts, DHS was required to report a violation of the 

Antideficiency Act. 31 U.S.C. § 1351. 

In a 1991 decision, GAO examined the Department of Labor’s (DOL) use of 

the appropriations of nine agencies within DOL to finance computer 

equipment for a communications network linking executive staff 

throughout DOL. 70 Comp. Gen. 592. GAO found that DOL could arguably 

have used either the Economy Act or the account adjustment statute to 

finance a network benefiting multiple agencies within DOL. GAO also 

found, however, that DOL’s cost allocation methodology exceeded the 

authority granted by these statutes in that it required several of the 

appropriations to subsidize costs allocable to other appropriations, 

resulting in an improper augmentation of the subsidized appropriations. 

70 Comp. Gen. at 596. As in the decision regarding the Preparedness 

Directorate’s use of shared services, DOL was required to adjust its 

appropriation accounts, and to the extent it did not have available 

unobligated balances adequate to make the adjustments, it was required to 

report an Antideficiency Act violation.
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3. Other Authorities Although the best known interagency authority is the Economy Act, there 

are many others. One such authority is the Federal Property and 

Administrative Services Act,51 which is discussed in various sections in this 

chapter. Revolving funds, discussed in section C of this chapter, also 

provide agencies with authority to enter into interagency transactions 

independent of the Economy Act. 

The Economy Act will not apply in the face of a more specific statute. E.g.,

44 Comp. Gen. 683 (1965); B-301561, June 14, 2004 (nondecision letter); 

6 Op. Off. Legal Counsel 464 (1982); Integrated Systems Group, Inc. v. 

GSA, GSBCA No. 13108-P, 95-1 BCA ¶ 27,484 (1995). Having said this, there 

are still situations in which it is legitimate to look to the Economy Act for 

guidance even though, strictly speaking, it does not apply, an example 

being where the statute prescribes reimbursement only in general terms. 

E.g., 72 Comp. Gen. 159, 163–64 (1993) (term “reimbursable basis” in 

statute directing agencies to furnish certain services to Nuclear Regulatory 

Commission can include “added factor” for overhead). Be that as it may, 

the starting point is that each statute stands on its own with respect to what 

services can be provided, who the customers may be, and who bears the 

costs.

It is important to understand what authority an agency is using to enter into 

its agreements because of the different statutory requirements. For 

example, for interagency transactions governed by authorities other than 

the Economy Act the ordering agency is not required to deobligate funds at 

the end of the fiscal year if the performing agency has not performed or 

incurred a valid obligation, as is required by the Economy Act. In B-302760, 

May 17, 2004, the Library of Congress entered into an interagency 

agreement with the Architect of the Capitol for the redesign and renovation 

of a loading dock at the Library. The Library entered into the agreement 

under its transfer authority, 2 U.S.C. § 141(c), which specifically authorizes 

the Architect and the Library to “enter into agreements with each other to 

perform work under this section” and to “transfer between themselves 

appropriations . . . to pay the cost therefor.” Accordingly, this transaction 

was not governed by the Economy Act. As explained in B-302760, an 

interagency transaction, like that authorized by section 141(c), is, in some 

ways, not unlike a contractual transaction. Similar to a contractual 

transaction for a nonseverable service, at the time the agencies involved in 

51 Ch. 288, 63 Stat. 377 (June 30, 1949).
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the transaction enter into an interagency agreement, the ordering agency 

incurs an obligation for the costs of the work to be performed. B-302760, 

May 17, 2004. See also B-286929, Apr. 25, 2001 (interagency obligations 

pursuant to 40 U.S.C. § 75752 are treated like other agency obligations 

rather than like Economy Act obligations, and the existence of a defined 

requirement at the time the agreement is executed forms the basis for 

incurring and recording a financial obligation).

An agency that enters into an interagency agreement governed by an 

authority other than the Economy Act also is not required to prepare a 

Determination and Finding (D&F) as required by the Federal Acquisition 

Regulation (FAR) for Economy Act transactions.53 See 48 C.F.R. 

subpt. 17.5. In a 2000 decision, a contractor contended that a procurement 

conducted by the General Services Administration (GSA) on behalf of the 

Army violated the Economy Act and constituted an “illegal off-load” by the 

Army because the Army neglected to prepare a D&F. GAO concluded that 

because GSA had authority to conduct this procurement under the Federal 

Property and Administrative Services Act (currently codified at 40 U.S.C. 

§ 501(b)), the Economy Act was not applicable to this transaction. 

Accordingly, the Army was not required to prepare a D&F, and the 

procurement was not an illegal off-load. B-285451, Oct. 25, 2000.

A few other interagency authorities are described below.

Government Employees Training Act. Under the Government Employees 

Training Act, an agency covered by the act (as defined in 5 U.S.C. § 4101) 

can extend its training to employees of other government agencies. The 

key provision is 5 U.S.C. § 4104:

52 This decision addresses the GSA Information Technology Fund, which in August 2002 was 

recodified at 40 U.S.C. § 322. In 2006, Congress merged the Information Technology Fund 

with the GSA General Supply Fund to form the Acquisition Services Fund. Pub. L. 

No. 109-313, § 3, 120 Stat. 1732, 1735–37 (Oct. 6, 2006), codified at 40 U.S.C. § 321.

53 The FAR requires executive branch agencies to support each Economy Act order with a 

D&F. Pursuant to 48 C.F.R. § 17.503, a D&F must state that: “(1) Use of an interagency 

acquisition is in the best interest of the Government; and (2) The supplies or services cannot 

be obtained as conveniently or economically by contracting directly with a private source.” 

48 C.F.R. § 17.503(a). If the servicing agency is going to fill the Economy Act order through 

a contract, the D&F must also include a specific statement supporting the contract action. 

48 C.F.R. § 17.503(b).
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“An agency program for the training of employees by, in, and 

through Government facilities under this chapter shall—

“. . . (2) provide for the making by the agency, to the extent 

necessary and appropriate, of agreements with other 

agencies in any branch of the Government, on a 

reimbursable basis when requested by the other agencies, 

for—

“(A) use of Government facilities under the jurisdiction 

or control of the other agencies in any branch of the 

Government; and

“(B) extension to employees of the agency of training 

programs of other agencies.”

The legislative history of this provision, discussed in B-193293, Nov. 13, 

1978, makes clear that training can be reimbursable or nonreimbursable, in 

the discretion of the agency providing it. Thus, the Defense Department 

may, in its discretion, make its procurement training courses available on a 

space-available and tuition-free basis to employees of civilian agencies. Id. 

An agency choosing to charge a fee for its training under this provision is 

equally free to do so, and may credit fees received from other federal 

agencies to the appropriation which financed the training.54 B-271894, 

July 24, 1997; B-247966, June 16, 1993; B-241269, Feb. 28, 1991. An agency 

may provide training to private sector personnel on a space-available basis, 

provided that the fees received for the training are deposited in the 

Treasury as miscellaneous receipts. B-271894, July 24, 1997.

Department of Defense. The Defense Department has the following 

provision: “If its head approves, a department or organization within the 

Department of Defense may, upon request, perform work and services for, 

or furnish supplies to, any other of those departments or organizations, 

without reimbursement or transfer of funds.” 10 U.S.C. § 2571(b). 

Authority to furnish the supplies or perform the services already exists 

under the Economy Act, so this provision adds nothing in that respect. 

What it does is authorize the military department or organization, at its 

54 A separate statute, 42 U.S.C. § 4742, provides authority to admit state and local 

government employees to federal agency training programs and credit fees to the 

appropriation or fund used for paying the training costs.
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discretion, to provide the supplies or services to another military entity on 

a nonreimbursable basis, that is, free.

Tennessee Valley Authority. The Tennessee Valley Authority (TVA) is 

authorized to “provide and operate facilities for the generation of electric 

energy . . . for the use of the United States or any agency thereof.” 16 U.S.C. 

§ 831h-1. TVA is required to charge rates to produce revenue “sufficient to 

provide funds for operation, maintenance, and administration of its power 

system; payments to States and counties in lieu of taxes,” required 

payments to the United States Treasury, and commitments to bondholders, 

among other things. Id. § 831n-4(f). This is an example of a statute which 

is sufficiently specific and detailed to wholly displace the Economy Act. 

44 Comp. Gen. 683 (1965). Since electric power is a utility service, GSA, 

under 40 U.S.C. § 501(b)(1)(B), can contract with TVA for periods of up to 

10 years,55 and can delegate this authority to other agencies. 40 U.S.C. 

§ 121(d); 48 C.F.R. § 41.103.

District of Columbia. Enacted as part of the 1973 District of Columbia 

home rule legislation, 31 U.S.C. § 1537 authorizes the United States 

government and the District of Columbia government to provide 

reimbursable services to each other. Services provided under this 

authority are to be documented in an agreement negotiated by the 

respective governments and approved by the Director of the Office of 

Management and Budget and the Mayor of the District of Columbia. 

Section 1537(c) provides that—

“(1) costs incurred by the United States Government may be 

paid from appropriations available to the District of 

Columbia government officer or employee to whom the 

services were provided; and

“(2) costs incurred by the District of Columbia government 

may be paid from amounts available to the United States 

Government officer or employee to whom the services were 

provided.”

Charges are to be “based on the actual cost of providing the services.” Id. 

§ 1537(b)(2). Under this authority, for example, the Bureau of Prisons 

55 GSA has specific authority to contract for public utility services for a period of not more 

than 10 years. 40 U.S.C. § 501(b)(1)(B).
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could provide personnel to the District of Columbia Department of 

Corrections in the event of a strike by District employees. 4B Op. Off. Legal 

Counsel 826 (1980). Another example is printing done for the District of 

Columbia by the Government Printing Office. 60 Comp. Gen. 710 (1981). 

That decision pointed out that, since the District is not a federal agency, the 

federal agency providing the services can charge interest on overdue 

accounts, and can collect a debt by administrative offset, but not against 

amounts withheld from the salaries of federal employees for D.C. income 

tax.

National Academy of Sciences. A statute dating back to the Civil War era 

(1863, to be precise) provides that—

“[o]n request of the United States Government, [the 

National Academy of Sciences] shall investigate, examine, 

experiment, and report upon any subject of science or art. 

The [National Academy] may not receive compensation for 

services to the Government, but the actual expense of the 

investigation, examination, experimentation, and report 

shall be paid by the Government from an appropriation for 

that purpose.”

36 U.S.C. § 150303. This statute authorizes the Academy to be reimbursed 

for its “actual expenses,” but nothing beyond that. A formal contract is not 

required, although the documentation used should adequately describe the 

services to be provided and the payment terms. B-37018, Oct. 14, 1943.

An agreement calling for a fixed price which is not confined to 

reimbursement of actual expenses has been said to violate the statute. 

B-4252, June 21, 1939. It is probably more accurate to say that it creates no 

obligation over and above the payment of actual expenses. The other side 

of the coin is that the Academy has been permitted to recover the excess 

where its actual expenses exceeded the fixed price. 39 Comp. Gen. 71 

(1959), as modified by 39 Comp. Gen. 391 (1959). GAO’s suggestion is that 

the agreement should provide for the reimbursement of actual expenses up 

to a stipulated maximum, and should also provide that no costs be incurred 

above that amount unless authorized by some form of supplemental 

agreement. 39 Comp. Gen. at 392. A flat surcharge for overhead also 

violates the statute, but if the interagency work causes the Academy to 

increase its normal overhead, the amount of the increase (or a reasonable 

approximation) constitutes part of the actual expenses. B-19556, Aug. 28, 

1941. Cases like these do not stand for the proposition that the Academy’s 
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cost recovery cannot be subjected to contractual limits. Thus, a 1977 

decision held the Academy’s recovery of Independent Research and 

Development costs limited by provisions in procurement regulations to 

which it had agreed to be bound. B-58911, Aug. 1, 1977.

Inspection of Personal Property. Section 201(d) of the Federal Property 

and Administrative Services Act, 40 U.S.C. § 504, provides the following, 

subject to GSA regulations:

“(a) Receiving Assistance.—An executive agency may use 

the services, work, materials, and equipment of another 

executive agency, with the consent of the other executive 

agency, to inspect personal property incident to procuring 

the property.

(b) Providing Assistance.—Notwithstanding section 1301(a) 

of title 31 or any other law, an executive agency may provide 

services, work, materials, and equipment for purposes of 

this section without reimbursement or transfer of amounts.”

This provision is similar to the Defense Department statute noted above in 

that the service involved—property inspection in this case—could have 

been furnished under the Economy Act. Like the Defense Department 

statute, the significance of 40 U.S.C. § 504 is that it authorizes the providing 

agency to waive reimbursement.

National Archives and Records Administration (NARA). The Archivist of 

the United States has a range of duties and responsibilities with respect to 

the custody and preservation of government records. The Archivist is 

authorized by 44 U.S.C. § 2116(c) to charge a user fee for making or 

authenticating copies or reproductions of materials in his custody, 

calculated to recover costs including increments for the estimated cost of 

equipment replacement. The statute further provides: “The Archivist may 

not charge for making or authenticating copies or reproductions of 

materials for official use by the United States Government unless 

appropriations available to the Archivist for this purpose are insufficient to 

cover the cost of performing the work.” Id.

The problem with this is that NARA receives a lump-sum operating 

appropriation and has the normal range of discretion in using it. Therefore, 

unless the Office of Management and Budget were to apportion a specific 

amount for reproducing documents for other agencies, when could it fairly 
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be said that appropriations were insufficient? To avoid this problem, 

NARA simply stopped requesting appropriations for that specific purpose 

and funded the entire program on a reimbursable basis, an approach GAO 

approved in 64 Comp. Gen. 724 (1985). This, observed GAO, was “the most 

equitable way of allocating cost in performing this activity,” since any other 

approach would inevitably favor early (in the fiscal year) users over later 

ones. Id. at 726.

Consumer Product Safety Commission. Section 27(g) of the Consumer 

Product Safety Act, 15 U.S.C. § 2076(g), provides that: “The Commission is 

authorized to enter into contracts with governmental entities, private 

organizations, or individuals for the conduct of activities authorized by this 

chapter.” GAO concluded that based on the plain meaning of the language 

in section 27(g), as confirmed by the legislative history of the Consumer 

Product Safety Act, the Commission had authority pursuant to 

section 27(g) to enter into agreements with other federal agencies for any 

purpose authorized by the Consumer Product Safety Act. B-289380, 

July 31, 2002. Consequently, the agreements were not subject to the 

Economy Act. Id. 

C. Revolving Funds

1. Introduction

a. Concept and Definition A recurrent theme throughout much of this publication is the attempt to 

balance the legitimate need for executive flexibility with the constitutional 

role of the legislature as controller of the purse. While this theme underlies 

much of federal fiscal law, it is perhaps nowhere as clear as in the area of 

revolving funds. A revolving fund authorizes an agency to retain receipts 

and deposit them into the fund to finance the fund’s operations. The 

concept of a revolving fund is to permit the financing of some entity or 

activity on what is regarded as a more “business-like” basis. Laws that 

establish revolving funds may authorize agencies to perform reimbursable 

work for either the public or other federal agencies, or both. 

Most Treasury accounts are either receipt accounts or expenditure 

accounts. Under the typical or “traditional” funding arrangement, any 

money an agency receives from any source outside of its congressional 

appropriations must, unless Congress has provided otherwise, be 
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deposited in the Treasury to the credit of the appropriate general fund 

receipt account. 31 U.S.C. § 3302(b). Absent an appropriation, an agency 

may not withdraw money from a general fund receipt account. Congress 

provides the agency’s operating funds by making direct appropriations 

from the general fund of the Treasury. These are carried on Treasury’s 

books in the form of general fund expenditure accounts. It is possible to 

credit money to an appropriation (expenditure) account—if specifically 

authorized by statute or if the money qualifies as a “repayment,” such as the 

recovery of an erroneous payment, but the money is subject to the same 

limitations as the appropriation to which credited. 65 Comp. Gen. 600, 602 

(1986), citing Treasury Department-GAO Joint Regulation No. 1, reprinted 

in GAO, Policy and Procedures Manual for Guidance of Federal Agencies, 

title 7, app. II.56 Most importantly, its obligational availability expires along 

with the rest of the appropriation, and if the appropriation has already 

expired for obligational purposes at the time of the deposit, the funds 

deposited have only the limited availability of expired balances.57 It should 

be apparent that a key element of congressional control is the ability to 

control the disposition and use of receipts. For a further description of 

accounts relating to the government’s financial operations, see the 

Treasury Financial Manual, 1 TFM 2-1500, and GAO, A Glossary of Terms 

Used in the Federal Budget Process, GAO-05-734SP (Washington, D.C.: 

Sept. 2005), at 2–5 (Budget Glossary). 

A revolving fund, while classified as an expenditure account, combines 

elements of both receipt and expenditure accounts. The term “revolving 

fund” may be defined as “a fund established by Congress to finance a cycle 

of businesslike operations through amounts received by the fund.” Budget 

Glossary, at 88. See I TFM 2-1520.45 (also defining revolving funds); OMB 

Cir. No. A-11, Preparation, Submission, and Execution of the Budget, 

§ 20.3 (July 2, 2007). See also 38 Comp. Gen. 185, 186 (1958). A 1977 GAO 

report explained that:

“In concept, expenditures from the revolving fund generate 

receipts which, in turn, are earmarked for new 

expenditures, thereby making the Government activity a 

56 Available at www.gao.gov/special.pubs/ppm.html (last visited Mar. 20, 2008).

57 Congress, of course, can authorize reimbursements to be made to appropriations 

“currently available” or “then current and chargeable.” See B-75345, May 20, 1948. While 

this affects the agency’s ability to reuse the money, the reimbursement still cannot remain 

available beyond the appropriation to which credited. 
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self-sustaining enterprise. The concept is aimed at selected 

Government programs in which a buyer/seller relationship 

exists to foster an awareness of receipts versus outlays 

through business-like programming, planning, and 

budgeting. Such a market atmosphere is intended to create 

incentives for customers and managers of revolving funds to 

protect their self-interest through cost control and 

economic restraint, similar to those that exist in the private 

business sector.”

GAO, Revolving Funds: Full Disclosure Needed for Better Congressional 

Control, GAO/PAD-77-25 (Washington, D.C.: Aug. 30, 1977), at 2. Because a 

revolving fund authorizes the agency to retain receipts and deposit them 

into the fund, the miscellaneous receipts requirement of 31 U.S.C. § 3302(b) 

does not apply. The legislation authorizing a revolving fund is a permanent, 

indefinite appropriation.

Revolving funds in the federal government appear to have developed in the 

latter part of the nineteenth century. Although we have not been able to 

identify the first revolving fund, the Navy is said to have had one as far back 

as 1878. GAO/PAD-77-25 at 11. Some years later, as part of the Navy’s 1894 

appropriation act, Congress created a permanent naval supply fund for the 

purchase of “ordinary commercial supplies . . ., to be reimbursed from the 

proper naval appropriations whenever the supplies purchased under said 

fund are issued for use.” Act of March 3, 1893, 27 Stat. 715, 723–24. The 

term “revolving fund” does not appear in the early statutes, but seems to 

have come into use in the early 1900s. Thus, the Comptroller of the 

Treasury was able to observe in a 1919 decision:

“The Congress has at times barred the application of

 [31 U.S.C. § 3302(b)] by authorizing expenditures under 

appropriations to be reimbursed such appropriations, and in 

recent years has used the term revolving fund for such 

purpose and the further purpose generally of permitting the 

use of the moneys without the fiscal year limitations which 

usually attend appropriations.”

26 Comp. Dec. 295 (1919). Within just a few more years, the term could be 

said to have an established meaning as a fund which functioned as both a 

receipt account and an expenditure account, and which authorized receipts 

the fund earned through its operations to remain available without fiscal 
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year limitation. 1 Comp. Gen. 704 (1922). These, then, are the two key 

features of a revolving fund:

• A revolving fund is a single combined account to which receipts are 

credited and from which expenditures are made. Treasury does not 

assign separate “receipt” and “appropriation” accounts.

• The generated or collected receipts are available for expenditure for 

the authorized purposes of the fund without the need for further 

congressional action and without fiscal year limitation.

Thus, a revolving fund amounts to “a permanent authorization for a 

program to be financed, in whole or in part, through the use of its 

collections to carry out future operations.” GAO/PAD-77-25 at 47. 

Therefore, as explained below, a revolving fund is a permanent 

appropriation. The fund’s continuing availability is what distinguishes a 

revolving fund from a reimbursable appropriation. In the case of a 

reimbursable appropriation, the reimbursements are available only during 

the same period that the appropriation itself is available, whereas in a 

revolving fund, “monies are paid in and out over and over again for the 

same purpose.” B-75345, May 20, 1948, at 2. It is important to note, 

however, that only the receipts or collections that the fund has earned 

through its operations are available without fiscal year limitation. For 

example, advances made by a customer agency to a revolving fund to cover 

the costs of the order have not been earned by the fund and retain the fiscal 

year limitations of the customer agency. See, e.g., B-288142, Sept. 6, 2001 

(customer agency funds advanced to the Library of Congress Federal 

Library and Information Network revolving fund are not available without 

fiscal year limitation; amounts transferred do not take on the character of 

the revolving fund). The time availability of funds an agency transfers to a 

revolving funds is discussed in more detail in section C.4.c of this chapter. 

Proponents of revolving funds cite several advantages.58 Since it involves 

only one “pocket,” a revolving fund provides a simpler funding structure. A 

revolving fund presents a clearer picture of an activity’s profit or loss. Also, 

reflecting expenditures in budget totals on a net basis, as is done with 

revolving funds, helps reduce budget distortion. Revolving funds also 

provide increased flexibility since the agency does not have to ask 

58 See Senate Committee on Government Operations, Financial Management in the Federal 

Government, S. Doc. No. 87-11, at 267–68 (1961).
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Congress for the money. In addition, as discussed above, revolving funds 

provide agencies with authority to enter into interagency agreements 

independent of the Economy Act, and thus the customer agency is not 

subject to the deobligation requirements of 31 U.S.C. § 1535(d). See 

B-288142, Sept. 6, 2001; B-286929, Apr. 25, 2001; B-301561, June 14, 2004 

(nondecision letter). For these reasons, most executive agencies, naturally 

and understandably, will take all the revolving funds they can get.

b. Creation/Establishment Perhaps the most fundamental rule relating to revolving funds is that a 

federal agency may not establish a revolving fund unless it has specific 

statutory authority to do so. 44 Comp. Gen. 87, 88 (1964); A-68410, Jan. 20, 

1936; A-65286, Oct. 1, 1935. The reason is that 31 U.S.C. § 3302(b), the socalled “miscellaneous receipts statute,” requires that any money a federal 

agency receives from any source outside of its congressional 

appropriations be deposited in the general fund of the Treasury unless 

otherwise provided. Since this requirement is statutory, exceptions must 

be statutory. Thus, agencies have no authority to administratively establish 

revolving funds.

The legislative authority creating a revolving fund must be explicit. 

Authority to reimburse an appropriation does not authorize the creation of 

a revolving fund. See 38 Comp. Gen. 185 (1958); B-75345, May 20, 1948. The 

authority to establish a revolving fund, of course, may be contained in an 

appropriation act.59 The National Technical Information Service revolving 

fund, for example, was created in the 1993 appropriation act for the 

Departments of Commerce, Justice, and State. See Pub. L. No. 102-395, 

title II, 106 Stat. 1828, 1853 (Oct. 6, 1992), 15 U.S.C. § 3704b note. See also

B-127121, Apr. 3, 1956 (appropriation act riders used over long period of 

time to modify restrictive provision in the Alaska Railroad’s revolving 

fund).

While the authority must be explicit, there is no prescribed formula. 

Certainly the words “revolving fund” will do the job. As noted earlier, there 

is a long-established congressional pattern of using the term “revolving 

fund” to mean the authority to retain specified receipts and to use them for 

authorized purposes without further congressional action and without 

fiscal year limitation. 1 Comp. Gen. 704 (1922); 26 Comp. Dec. 295 (1919); 

59 As discussed in Chapter 2, section B.4, a provision contained in an annual appropriations 

act may not be construed as permanent legislation unless the language or nature of the 

provision makes it clear that Congress intended it to be permanent.
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B-209680, Feb. 24, 1983. However, as long as the statute contains the 

required elements, use of the words revolving fund is not necessary and 

failure to use them is not controlling. B-135037-O.M., June 19, 1958.

In order to create a revolving fund, a statute, at a minimum, must do the 

following:

• It must specify the receipts or collections which the agency is 

authorized to credit to the fund (user charges, for example).

• It must define the fund’s authorized uses, that is, the purpose or 

purposes for which the funds may be expended.

• It must authorize the agency to use receipts for those purposes without 

fiscal year limitation. However, as explained above, only receipts and 

collections that the fund has earned through its operations are available 

without fiscal year limitation.

A statute illustrating several of these points is 15 U.S.C. § 1527a, the 

Commerce Department’s Economics and Statistics Administration 

Revolving Fund:

“There is hereby established the Economics and Statistics 

Administration Revolving Fund which shall be available 

without fiscal year limitation. For initial capitalization, 

there is appropriated $1,677,000 to the Fund: Provided,

That the Secretary of Commerce is authorized to 

disseminate economic and statistical data products as 

authorized by [15 U.S.C. §§ 1525–1527] and charge fees 

necessary to recover the full costs incurred in their 

production. Notwithstanding [31 U.S.C. § 3302], receipts 

received from these data dissemination activities shall be 

credited to this account as offsetting collections, to be 

available for carrying out these purposes without further 

appropriation.”

First, it specifies the receipts for credit to the fund—the fees charged to 

recover the costs in production of the data products to be disseminated. 

Second, it defines the authorized uses of the fund—to carry out the 

purposes of 15 U.S.C. §§ 1525–1527. Third, the statute uses the term 

“revolving fund” and states the fund “shall be available without fiscal year 

limitation.” Statutes creating revolving funds often specify additional 
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features. For example, such statutes may fix the amount of the fund’s 

capital; authorize the fund to be maintained at the desired level by periodic 

appropriations as needed; direct that the fund be self-sustaining, or 

substantially so; require the return of excess amounts to the Treasury or, 

alternatively, authorize investment of these funds; or impose reporting 

requirements or other congressional control devices.

A statute which does not use the words “revolving fund” is 12 U.S.C. § 1755, 

the National Credit Union Administration’s operating fund. However, it 

contains the attributes of a revolving fund. For example, it specifies that 

the National Credit Union Administration is authorized to collect annual 

operating fees. It defines the purpose for which these collections may be 

used. Also, the Administration is implicitly authorized to use the 

collections without fiscal year limitation. It says that the National Credit 

Union Administration Board may invest “such portions of the annual 

operating fees . . . as the Board determines are not need for current 

operations.” If the collections were not available without fiscal year 

limitation, any unused collections would have to be deposited in 

miscellaneous receipts at the end of the fiscal year. The Treasury 

Department’s Federal Account Symbols and Titles in fact classifies this 

fund as a public enterprise revolving fund.60 See I TFM, FAST, at A-95.

Examples of statutes requiring the return of excess amounts to the 

Treasury are cited later in section C.5 of this chapter. Examples of the 

alternative approach— authorizing investment of funds not needed for 

current operations—are 12 U.S.C. § 1755(e), the revolving fund of the 

National Credit Union Administration, and 42 U.S.C. § 2000e-4(k)(3), the 

Equal Employment Opportunity Commission’s Education, Technical 

Assistance, and Training Revolving Fund. Typically, as in these two 

instances, the statute authorizes investment only in obligations of, or 

whose principal is guaranteed by, the United States, and authorizes income 

from the investment to be retained by the fund.

The requirement for specific statutory authority applies to federal agencies. 

It does not apply to the use of revolving funds by grantees and contractors 

unless prohibited by the relevant grant agreement or contract. The 

question in 44 Comp. Gen. 87 (1964) was whether an educational institution 

funded by a State Department grant could use a revolving fund to finance 

the printing and sale of publications. The answer was yes, because nothing 

60 See section C.3.a of this chapter for a discussion of public enterprise revolving funds.
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in the grant documents prohibited it and the miscellaneous receipts statute 

does not apply to funds in the hands of a grantee. A 1974 case, 

B-164031(1)-O.M., Oct. 3, 1974, applied the same result to the publishing 

activities of a contractor. A requirement in the contract that unexpended 

funds be returned to the government upon completion did not stand in the 

way; the contractor’s accountability upon completion of the contract did 

not alter its discretionary authority during the course of performance.

If it takes a statute to create a revolving fund, it logically follows that it also 

takes a statute to terminate one, unless the law establishing the fund 

includes some sort of built-in termination mechanism. Legislation 

terminating a revolving fund should address the payment of existing debts 

if any remain, and the disposition of the fund’s balance and future 

receipts.61 As discussed in section C.4.c of this chapter, GAO, in the past, 

has also regarded the account closing statute as applicable to revolving 

funds. Section 1555 of title 31, United States Code, provides that a no-year 

account shall be closed if the agency head determines that the purposes of 

the appropriation have been carried out and no disbursement has been 

made against the appropriation for two consecutive fiscal years.

2. Receipts and 

Reimbursements

Since a revolving fund is a creature of statute, the statute which established 

the fund (or subsequent amendments or appropriation acts) will determine 

what may go into the fund. Receipts may be lumped generally into two 

categories, initial and ongoing or operational.

The typical revolving fund may receive an initial infusion of working capital 

(called the fund’s “corpus”) to enable it to finance operations until the 

“operational receipts” start coming in. This initial capitalization, which the 

fund may be required to repay, is normally furnished as part of the 

legislation establishing the fund. It may be in the form of an initial lumpsum appropriation, a transfer of balances from some existing appropriation 

or fund, a transfer of property and/or equipment, borrowing authority, or 

some combination of these. 

An example of a fund capitalized by a direct appropriation is the 

Economics and Statistics Administration Revolving Fund, 15 U.S.C. § 1527a 

(“For initial capitalization, there is appropriated $1,677,000 to the Fund”). 

61 See GAO, Revolving Funds: Office of the Attending Physician Revolving Fund Can Be 

Terminated, GAO/AFMD-89-29 (Washington, D.C.: Dec. 21, 1988), at 2–3.
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Capitalization by transfer is illustrated by the Equal Employment 

Opportunity Commission Education, Technical Assistance, and Training 

Revolving Fund, which received its initial working capital by a transfer of 

$1,000,000 from the Commission’s Salaries and Expenses appropriation. 

42 U.S.C. § 2000e-4(k)(4). The Corps of Engineers Civil Revolving Fund 

authorized the Secretary of the Army “to provide capital for the fund by 

capitalizing the present inventories, plant and equipment of the civil works 

functions of the Corps of Engineers.” 33 U.S.C. § 576. An example of one 

form of borrowing authority to capitalize a fund is 31 U.S.C. § 5136, the 

United States Mint Public Enterprise Fund, which authorized the Secretary 

of the Treasury, subject to reimbursement within 1 year, to “borrow such 

funds from the General Fund as may be necessary to meet existing 

liabilities and obligations incurred prior to the receipt of revenues into the 

Fund.”

After the initial capitalization, the defining feature of a revolving fund is, as 

we have seen, its ability to retain and use receipts. Normally, the receipts 

will be those generated by the fund’s operations as this is the very concept 

of a revolving fund. See, e.g., B-124995, Sept. 27, 1955; B-112395, Oct. 20, 

1952; B-105693, Oct. 22, 1951.62 This is not a firm legal requirement, 

however, and a revolving fund can mean “a fund which when reduced is 

replenished by new funds from specific sources,” whether or not generated 

by the fund’s operations. 23 Comp. Gen. 986, 988 (1944). However the fund 

is capitalized, the authority to retain receipts is an exception to 31 U.S.C. 

§ 3302(b). E.g., 20 Comp. Gen. 280 (1940); 19 Comp. Gen. 791 (1940). 

When describing 31 U.S.C. § 3302(b), we usually say that it requires that all 

receipts be deposited in the Treasury as miscellaneous receipts absent 

statutory authority for some other disposition. However, the portion of the 

statute requiring that all receipts be deposited in the Treasury promptly and 

without deduction also applies to receipts credited to an appropriation 

pursuant to a specific statutory authority. Accordingly, the requirement 

that all receipts be deposited in the Treasury promptly and without 

deduction applies fully to revolving funds deposits. B-305402, Jan. 3, 2006; 

B-72105, Nov. 7, 1963. 

62 These three cases involved the Vessels Operations Revolving Fund, 46 U.S.C. App. § 1241a. 

While the fund was terminated by Pub. L. No. 109-304, § 19, 120 Stat. 1485, 1710–18 (Oct. 6, 

2006), the cases are interesting illustrations of the relationship of receipts to fund 

operations.
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The statute will prescribe the types of receipts which may be credited to 

the fund and, where contextually appropriate, the method of payment. The 

prescription of sources is found in varying degrees of specificity, depending 

on the purpose of the fund. A fund intended to finance an entity rather than 

a particular activity tends to have broader language, an example being the 

Bonneville Power Administration’s provision, 16 U.S.C. § 838i(a) (“all 

receipts, collections, and recoveries . . . from all sources”). Some funds 

expressly authorize the crediting of receipts from the sale or exchange of, 

and payments for loss or damage to, fund property. E.g., 5 U.S.C. 

§ 1304(e)(3) (Office of Personnel Management investigation/training fund); 

44 U.S.C. § 309(b)(2) (Government Printing Office revolving fund). Unlike 

an activity funded by direct appropriations, a revolving fund would, even 

without this explicit authority, be able to retain payments for loss or 

damage to fund property. B-302962, June 10, 2005; 50 Comp. Gen. 545 

(1971).

The specification of authorized receipts operates, as one might expect, as a 

limitation as well as an authorization, although this principle should not be 

applied to the exclusion of common sense. Thus, a provision of the 

Agricultural Marketing Act providing that payments of principal or interest 

on loans be deposited in a revolving fund (12 U.S.C. § 1141f(b)) includes 

sale proceeds obtained in a foreclosure proceeding as well as voluntary 

payments. 12 Comp. Gen. 553 (1933).

Revolving fund legislation may or may not authorize advance payments. If 

the statute specifies reimbursement and is silent as to advances, advances 

are not authorized. 32 Comp. Gen. 99 (1952). But see 32 Comp. Gen. 45 

(1952), in which legislative history was used to conclude that while the 

statute did not specifically authorize advance payments, it did not preclude 

payment in advance. While the approach in 32 Comp. Gen. 45 appears 

questionable as a general proposition, the apparent congressional intent in 

that case was buttressed by a separate provision in the same appropriation 

act which made the appropriations of the client agencies available “for 

advances or reimbursements” to the fund.63 An interesting linguistic 

variation found in several of the working capital fund statutes is 

“reimbursed in advance.” E.g., 20 U.S.C. § 3483(b) (Department of 

Education); 42 U.S.C. § 3513 (Health and Human Services); 49 U.S.C. 

63 The statute in that case, the Office of Personnel Management revolving fund, was 

subsequently amended to specifically include advances. See 5 U.S.C. § 1304(e)(3)(A).
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§ 327(d) (Transportation). Cf. B-286929, Apr. 25, 2001 (Economy Act 

authorizes transactions on a “reimbursable advance payment basis”).

Customer agencies receiving goods or services from the Government 

Printing Office’s revolving fund are required to pay promptly upon the 

Public Printer’s written request, “either in advance or upon completion of 

the work, all or part of the estimated or actual cost, as the case may be, and 

bills rendered by the Public Printer are not subject to audit or certification 

in advance of payment.” 44 U.S.C. § 310. Under this provision, regardless 

of the status of the work, “[p]ayment of an acceptable invoice may not be 

delayed in order to complete a prepayment audit.” 56 Comp. Gen. 980, 981 

(1977).

Where receipts are based on the cost of work or services, such as the 

typical working capital fund, the statute will generally require the recovery 

of indirect costs (overhead) as well as direct costs. For example, the Corps 

of Engineers Civil Revolving Fund, 33 U.S.C. § 576, requires payment “at 

rates which shall include charges for overhead and related expenses, 

depreciation of plant and equipment, and accrued leave.” In B-167790, 

Dec. 23, 1977, an agency whose regulations precluded reimbursement of 

administrative overhead nevertheless entered into an agreement with the 

Corps for revolving fund work. Since the requirement to charge for 

overhead was statutory, it had to prevail over the contrary provision in the 

customer agency’s regulations. The burden properly fell upon the agency 

even if it did not fully understand that the Corps would be using its 

revolving fund. A 1995 decision involving the same revolving fund advised 

that the fund could recover its costs for “idle time” where fund property 

was forced to remain idle as the result of a congressional enactment, even 

though the effect may be that the reimbursing appropriations are paying for 

periods of nonuse. B-257064, Apr. 3, 1995. Precisely how to account for 

these costs (allotments, rate adjustments, etc.) is within the Corps’ 

discretion.

The statutory language may be less explicit, providing merely for recovery 

on an actual cost basis, an example being the Office of Personnel 

Management revolving fund, 5 U.S.C. § 1304(e)(1). GAO has construed this 

language to include indirect costs, consistent with similar language in the 

Economy Act. B-206231-O.M., Sept. 12, 1986. See also 72 Comp. Gen. 159 

(1993) (similar interpretation of term “reimbursable basis”). In a more 

recent decision, GAO found an administrative fee that a Library of 

Congress revolving fund charged to each customer agency was consistent 

with GAO’s long held view that, pursuant to the Economy Act, it is 
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appropriate for agencies to assess administrative fees to other agencies in 

the course of providing goods and services, in order to recover overhead 

and other indirect costs. B-301714, Jan. 30, 2004. 

As discussed above, it is not uncommon for revolving funds to enter into 

contracts with private parties as part of their performance. If a customer 

agency cancels an order and the revolving fund is forced to terminate the 

commercial contract for the convenience of the government and bear the 

resultant termination costs, the revolving fund may recover these costs 

from the customer agency. 60 Comp. Gen. 520 (1981). However, the fund 

itself should bear the loss if it terminates a contract it entered into merely 

to build up its inventory in anticipation of customer orders. Id. at 523. In 

accord is 69 Comp. Gen. 112 (1989), holding that the General Services 

Administration (GSA) could assess termination charges, payable to its then 

Information Technology revolving fund, against an agency which had 

withdrawn from GSA’s telecommunications system. The alternative in both 

cases would have been to pass those costs on to other customers.

A more recent GAO decision involved a somewhat different situation in 

which the revolving fund was required to bear the loss. In B-301714, 

Jan. 30, 2004, the Library of Congress incurred losses as a result of advance 

payments that the Federal Library and Information Network (FEDLINK) 

revolving fund made for the acquisition of subscriptions to a contractor 

who subsequently defaulted and declared bankruptcy. The FEDLINK fund 

has two components: (1) advance payments made by agencies to cover 

their orders for goods and services, and (2) administrative fees to 

reimburse the Library for its administrative costs, both direct and indirect, 

of operating the program. The Library also uses the administrative fees to 

build a reserve in the revolving fund to finance future improvements and to 

replace outdated equipment. In an earlier FEDLINK decision, GAO agreed 

that it was prudent for the Library to reserve some of the administrative 

fees, not spending all of them in the same fiscal year in which they were 

collected, so that they might be used for “legitimate business costs” which 

arise in subsequent years. B-288142, Sept. 6, 2001. GAO considered the 

losses associated with the bankruptcy to be “legitimate business costs” of 

the FEDLINK fund. Accordingly, GAO concluded that the Library should 

use the administrative fees that it collects from all FEDLINK customers to 

cover this loss, rather than assign the loss to the specific agencies whose 

orders were placed with the contractor. B-301714, Jan. 30, 2004. 

We should note one final potential source of capital for a revolving fund—

the United States Treasury. If a fund is falling behind its goal of self-
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sufficiency, or if there has been a significant impairment of capital, or if 

Congress wishes to increase the fund’s capital, Congress can enact 

additional appropriations. Some revolving fund statutes expressly 

recognize this possibility (for example, 31 U.S.C. § 5142, the Bureau of 

Engraving and Printing Fund), although, subject to a possible point of 

order, absence of the language can not stop Congress from making the 

appropriation. Also, some revolving funds have borrowing authority, one 

example being the Rural Electrification and Telephone Revolving Fund, 

7 U.S.C. § 931.64

3. Types There are three broad categories of revolving funds—public enterprise, 

trust, and intragovernmental.65 Since they are all revolving funds, they 

share the common elements of revolving funds discussed below: they are 

created by act of Congress, they operate as combined receipt and 

expenditure accounts, and they authorize use of the receipts without 

further congressional action.

a. Public Enterprise Revolving 

Fund

A public enterprise revolving fund is a revolving fund which derives most of 

its receipts from sources outside of the federal government. It usually 

involves a business-type operation, which generates receipts, that are in 

turn used to finance a continuing cycle of operations. Although not a legal 

requirement, like a self-sustaining business operation the fund should be 

self-sustaining or nearly so. B-302962, June 10, 2005; 65 Comp. Gen. 910 

(1986); GAO, Revolving Funds: Full Disclosure Needed for Better 

Congressional Control, GAO/PAD-77-25 (Washington, D.C.: Aug. 30, 1977), 

at 7, 51.

Many wholly owned government corporations are financed, at least in part, 

by public enterprise revolving funds. They are also commonly used for 

credit programs (direct loan, loan guarantee) of agencies such as the 

Department of Housing and Urban Development and the Small Business 

Administration. Although not necessary, the governing legislation 

64 For a detailed analysis of revolving fund use of borrowing authority, see GAO, Spending 

Authority Recordings in Certain Revolving Funds Impair Congressional Budget Control,

PAD-80-29 (Washington, D.C.: July 2, 1980).

65 Our definitions are culled from several sources: GAO, A Glossary of Terms Used in the 

Federal Budget Process, GAO-05-734SP (Washington, D.C.: Sept. 2005), at 3–5; I TFM 

§ 2-1520; OMB Cir. No. A-11, Preparation, Submission, and Execution of the Budget,

§ 20 (July 2, 2007).
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sometimes explicitly designates the fund as a “public enterprise” fund. An 

example is 31 U.S.C. § 5136, the United States Mint Public Enterprise Fund. 

Either way, if it meets the criteria, Treasury will assign it an account symbol 

from the 4000–4499 group reserved for public enterprise revolving funds.66 

An example is the Senate Restaurant Revolving Fund, which is 

Account 4022. See GAO, Financial Audit: Senate Restaurants Revolving 

Fund for Fiscal Years 2006 and 2005, GAO-07-462 (Washington, D.C.: 

Mar. 13, 2007).

b. Trust Revolving Fund A trust revolving fund account (Treasury accounts 8400–8499) is similar to 

other types of revolving funds—a fund permanently established to finance 

a continuing cycle of business-type operations—except that it is used for 

specific purposes or programs in accordance with a statute that designates 

the fund as a trust fund.67 Examples of trust revolving funds include the 

Employees’ Life Insurance Fund, 5 U.S.C. § 8714, and the Veterans Special 

Life Insurance Fund, 38 U.S.C. § 1923. Chapter 15, section D, provides an 

in-depth discussion of federal trust funds.

c. Intragovernmental 

Revolving Fund

An intragovernmental revolving fund (Treasury accounts 4500–4999) is, as 

the name implies, a revolving fund whose receipts come primarily from 

other government agencies, programs, or activities. It is designed to carry 

out a cycle of business-type operations with other federal agencies or 

separately funded components of the same agency. Some 

intragovernmental revolving funds perform the services or provide the 

requested goods primarily themselves, such as the Transportation Systems 

Center working capital fund (49 U.S.C. § 328). Others enter into contracts 

with private vendors to provide the customer agency with the agreed upon 

goods or services. Examples of such intragovernmental revolving funds 

include the Federal Library and Information Network (FEDLINK) revolving 

fund (2 U.S.C. § 182c), which the Library of Congress uses to provide other 

federal agencies online access to databases, periodical subscriptions, and 

other related reimbursable services, and the Acquisition Services Fund 

66 In most cases, the type of fund should be apparent from the statutory language and 

context. If not, the account symbol will at least tell you how Treasury regards it. See 1 TFM 

2-1530.10 for a list of fund types and their associated Treasury account symbols. See also 

OMB Cir. No. A-11, Preparation, Submission, and Execution of the Budget, § 20.12 (July 2, 

2007). 

67 For an overview of federal trust funds, see GAO, Federal Trust and Other Earmarked 

Funds: Answers to Frequently Asked Questions, GAO-01-199SP (Washington, D.C.: Jan. 

2001). 
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(40 U.S.C. § 321),68 which provides federal agencies with supplies, services, 

personal property management, and telecommunications services and 

support. See General Services Administration Modernization Act, Pub. L. 

No. 109-313, § 3, 120 Stat. 1734, 1735–37 (Oct. 6, 2006). For additional 

examples of intragovernmental revolving funds, see GAO, Budget Issues: 

Franchise Fund Pilot Review, GAO-03-1069 (Washington, D.C.: Aug. 22, 

2003), at 50–51.

Intragovernmental revolving funds have common elements:

• As with all revolving funds, receipts that the fund has earned through 

its operations are available without fiscal year limitation. B-288142, 

Sept. 6, 2001; 1 Comp. Gen. 704 (1922); 26 Comp. Dec. 295 (1919); 

B-209680, Feb. 24, 1983.

• The authorizing statute will address the services to be covered in one of 

three ways: it may list the services (e.g., 42 U.S.C. § 3513), leave it to 

the agency’s discretion (e.g., 42 U.S.C. § 3535(f)), or provide some 

combination. Discretion is not unbridled, but must remain within the 

scope of the fund statute. 6 Op. Off. Legal Counsel 384, 386 n. 8 (1982).

• The authorizing statute will require payment for goods or services the 

fund provides. Some authorize advance payments, while others do not. 

An advance payment provision may limit the advance’s period of 

availability to that of the paying appropriation. E.g., 7 U.S.C. § 2235.

• The authorizing statute may require some form of budgetary disclosure. 

Authorizing statutes usually include some direction on determining the 

amount of reimbursement, the inclusion of depreciation being the most 

common.

• The authorizing statutes may also have a provision limiting the amount 

the fund may retain and requiring return of amounts exceeding the 

limitation to the general fund of the Treasury. E.g., 15 U.S.C. § 278b(f).

Intragovernmental revolving funds include stock funds, industrial funds, 

supply funds, working capital funds, and franchise funds. We will discuss 

the latter two in more detail below. Stock funds finance inventories of 

68 The Acquisition Services Fund replaced the General Services Administration’s General 

Supply Fund and Information Technology Fund.
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consumable items and industrial funds generally finance industrial- and 

commercial-type activities. See Senate Committee on Government 

Operations, Financial Management in the Federal Government, S. Doc. 

No. 87-11, at 171 (1961). Both are found primarily within the Defense 

establishment. See section C.7 of this chapter for more information on 

stock and industrial funds. A supply fund is largely self-explanatory and is 

used to finance the operation and maintenance of an agency’s supply 

system, plus whatever else the governing legislation may specify. 

Examples include a revolving supply fund within the Department of 

Veterans Affairs (38 U.S.C. § 8121) and the Coast Guard Supply Fund 

(14 U.S.C. § 650). 

(1) Working capital funds

A working capital fund is a form of intragovernmental revolving fund that 

generally finances the centralized provision of common services within an 

agency. A typical example69 of a working capital fund that is used to 

finance the centralized provision of common services within an agency is 

the Commerce Department’s working capital fund, 15 U.S.C. § 1521:

“There is established a working capital fund of $100,000, 

without fiscal year limitation, for the payment of salaries 

and other expenses necessary to the maintenance and 

operation of (1) central duplicating, photographic, drafting, 

and photostating services and (2) such other services as the 

Secretary, with the approval of the Director of the [Office of 

Management and Budget], determines may be performed 

more advantageously as central services; said fund to be 

reimbursed from applicable funds of bureaus, offices, and 

agencies for which services are performed on the basis of 

rates which shall include estimated or actual charges for 

personal services, materials, equipment (including 

maintenance, repairs, and depreciation) and other 

expenses: Provided, That such central services shall, to the 

69 Other working capital funds include 7 U.S.C. § 2235 (Agriculture); 15 U.S.C. § 278b 

(National Institute of Standards and Technology); 20 U.S.C. § 3483 (Education); 22 U.S.C. 

§ 2684 (State); 28 U.S.C. § 527 (Justice); 29 U.S.C. §§ 563, 563a (Labor); 31 U.S.C. § 322 

(Treasury); 40 U.S.C. § 293 (General Services Administration); 42 U.S.C. § 3513 (Health and 

Human Services); 42 U.S.C. § 3535(f) (Housing and Urban Development); 43 U.S.C. § 1467 

(Interior); 43 U.S.C. § 1472 (Bureau of Reclamation); and 49 U.S.C. § 327 (Transportation). 

The Defense Department legislation (10 U.S.C. § 2208) is covered separately.
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fullest extent practicable, be used to make unnecessary the 

maintenance of separate like services in the bureaus, 

offices, and agencies of the Department . . .” 

As the Justice Department has pointed out, a working capital fund statute 

like 15 U.S.C. § 1521 provides the necessary authority to tap the 

appropriations of the component bureaus to pay for the services, 

regardless of whether they were previously funded on a centralized or 

decentralized basis. 6 Op. Off. Legal Counsel 384 (1982). 

A working capital fund may also provide goods or services to other 

agencies on a reimbursable basis. See, e.g., 43 U.S.C. § 50a, the United 

States Geological Survey Working Capital Fund (“the fund shall be credited 

with appropriations and other funds of the Survey, and other agencies of 

the Department of the Interior, other Federal agencies, and other sources, 

for providing materials, supplies, equipment, work and services”). These 

working capital funds may operate similarly to the franchise and other 

entrepreneurial revolving funds described below. 

In recent years, federal agencies have turned increasingly to contracting 

services provided through fee-for-service intragovernmental revolving 

funds, and to contracts one agency makes available governmentwide, such 

as Governmentwide Acquisition Contracts (GWACs), and Multiple Award 

Schedule (MAS) Contracts. Under GWACs and MAS contracts, the 

purchasing agency incurs an obligation directly against the contract; 

accordingly, interagency agreements are not required when placing orders 

against these contracts. Section A of this chapter discusses MAS contracts 

and GWACs.

(2) Franchise and other revolving funds

In the 1990s, in an attempt to foster competition among agencies in the area 

of providing common services in order to increase efficiency at reduced 

cost, Congress introduced the concept of the “franchise fund” as a pilot. 

Government Management Reform Act of 1994, Pub. L. No. 103-356, § 403, 

108 Stat. 3410, 3413 (Oct. 13, 1994), codified at 31 U.S.C. § 501 note. 

Section 403(a) authorized the establishment of franchise fund pilots in six 

executive agencies to be selected by the Office of Management and Budget 

(OMB) in consultation with specified congressional committees. 

Section 403(b) provides:
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“Each such fund may provide, consistent with guidelines 

established by the Director [of OMB], such common 

administrative support services to the agency and to other 

agencies as the head of such agency, with the concurrence 

of the Director, determines can be provided more efficiently 

through such a fund than by other means. To provide such 

services, each such fund is authorized to acquire the capital 

equipment, automated data processing systems, and 

financial management and management information 

systems needed. Services shall be provided by such funds 

on a competitive basis.”

Section 403(c) addresses funding by providing those elements commonly 

found in revolving fund legislation. It authorizes the necessary start-up 

appropriations and the transfer of certain unexpended balances and 

inventories. It also addresses the charging and disposition of fees as 

follows:

“Fees for services shall be established by the head of the 

agency at a level to cover the total estimated costs of 

providing such services. Such fees shall be deposited in the 

agency’s fund to remain available until expended, and may 

be used to carry out the purposes of the fund.”

Pub. L. No. 103-356, § 403(c)(2). Thus, a franchise fund is a type of 

intragovernmental revolving fund designed to compete with similar funds 

of other agencies to provide common administrative services. Examples of 

such services include accounting, financial management, information 

resources management, personnel, contracting, payroll, security, and 

training.

The six executive agencies selected by OMB in consultation with specified 

congressional committees were the Department of Commerce, the 

Department of Health and Human Services, the Department of the Interior, 

the Department of Veterans Affairs, the Environmental Protection Agency, 

and the Department of the Treasury. See OMB and Chief Financial Officers 

Council, 2000 Federal Financial Management Report (Nov. 20, 2000), 

at 23, available at www.whitehouse.gov/omb/financial/2000_ffm.pdf (last 

visited Mar. 20, 2008); Report to Congress: The Franchise Fund Program, 

An Interim Progress Report (Apr. 1998). The specific statutory authority 

for each fund is as follows:
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• Department of Commerce: Pub. L. No. 105-277, div. A, title II, § 209, 

112 Stat. 2681, 2681-87 (Oct. 21, 1998), 31 U.S.C. § 501 note.

• Department of Health and Human Services (HHS): This franchise fund 

operates under the authority of the HHS Service and Supply Fund. 

42 U.S.C. § 231.

• Department of the Interior: Pub. L. No. 104-208, div. A, title I, § 113, 

110 Stat. 3009, 3009-200–201 (Sept. 30, 1996), 31 U.S.C. § 501 note 

(Acquisition Services Directorate, formerly GovWorks).

• Department of Veterans Affairs (VA): Pub. L. No. 104-204, title I, 

110 Stat. 2874, 2880 (Sept. 26, 1996), 31 U.S.C. § 501 note.

• Environmental Protection Agency (EPA): Pub. L. No. 104-204, 110 Stat. 

at 2912–13. EPA’s franchise fund was subsequently reclassified as a 

working capital fund and not a franchise fund pilot. See Pub. L. 

No. 105-65, title III, 111 Stat. 1344, 1374 (Oct. 27, 1997), codified at 

42 U.S.C. § 4370e. 

• Department of the Treasury: Pub. L. No. 104-208, 110 Stat. 

at 3009-316–317.

The provisions for Commerce, Interior, VA, and Treasury are similar and 

track the enabling legislation. The Interior and Commerce statutes 

mandate payment in advance (as did the EPA statute). The HHS, Treasury, 

and VA statutes permit advance payment but do not require it.

As explained in section C.6 of this chapter, a common feature of most 

revolving funds is that they are intended to operate on a break-even basis 

or reasonably close to it, over the long term. Most of the franchise fund 

pilots authorize the funds to charge a fee at rates which will return in full 

all expenses of operation, including an amount necessary to maintain a 

reasonable operating reserve, as well as to retain up to 4 percent of total 

annual income as a reserve for acquisition of capital equipment and 

enhancement of support systems, with any excess to be transferred to the 

Treasury. See, e.g., Pub. L. No. 104-208, § 113. Revolving fund statutes may 

also limit the amount the revolving fund may retain and require periodic 

payments of surplus amounts to the general fund of the Treasury. 

The Department of Transportation and Related Agencies Appropriations 

Act established a new franchise fund at the Federal Aviation 
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Administration. See Pub. L. No. 104-205, 110 Stat. 2951, 2957 (Sept. 30, 

1996). It has authorities similar to those of the Commerce, Interior, 

Treasury, and VA franchise funds. Id.

Other agencies also have revolving funds that operate on a fee-for-service 

basis, but these funds generally do not have the authority to retain up to

4 percent of total annual income as a reserve for capital equipment. See, 

e.g., Federal Library and Information Network’s (FEDLINK) revolving fund 

(2 U.S.C. § 182c); General Services Administration’s Acquisition Services 

Fund (40 U.S.C. § 321); Department of Interior’s Working Capital Fund 

(43 U.S.C. § 1467).

(3) Contracting services and revolving funds

GAO and inspectors general of several agencies have identified numerous 

issues in contracting services provided by revolving funds, including 

possible Antideficiency Act violations. GAO added management of 

interagency contracting to the High Risk List in 2005. GAO, High-Risk 

Series: An Update, GAO-05-207 (Washington, D.C.: Jan. 2005). The report 

discussed both interagency agreements through which one agency uses the 

contracting services of another agency, and contracts that one agency 

makes available to other agencies governmentwide. See also GAO, 

Interagency Contracting: Improved Guidance, Planning, and Oversight 

Would Enable the Department of Homeland Security to Address Risks, 

GAO-06-996 (Washington, D.C.: Sept. 27, 2006). 

Inspectors General of DOD, GSA, and Interior have been critical of their 

agencies with respect to obtaining or providing goods and services through 

interagency agreements with revolving funds. For example, the DOD 

Inspector General reported that guidance on the use of GSA’s then 

Information Technology Fund was widely misunderstood and that DOD 

may have violated the Antideficiency Act. See DOD Office of Inspector 

General, Acquisition: DOD Purchases Made Through the General Services 

Administration, Report No. D-2005-096 (July 29, 2005), available at

www.dodig.mil/audit/reports/05report.htm (last visited Mar. 20, 2008). 

A General Services Administration Inspector General report identified 

instances of inappropriate contracting practices, including misuse by GSA 

of contract vehicles, inadequate competition, nonexistent or ineffective 

contract administration, misleading descriptions of work, and awarding 

contracts outside of the scope of the then Information Technology Fund. 

See GSA, Office of the Inspector General, Compendium of Audits of 
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Federal Technology Service Client Support Centers (Dec. 14, 2004), 

at 5, available at www.gsa.gov, under About GSA, OIG Reports, Special 

Reports (last visited Mar. 20, 2008). 

A subsequent report by the DOD Inspector General in 2006 found that 

although GSA and DOD contracting and management officials improved 

the interagency acquisition process, they continued to purchase goods and 

services without fully complying with appropriations law and federal 

regulations. DOD Office of Inspector General, Acquisition: FY 2005 DoD 

Purchases Made Through the General Services Administration, Report 

No. D-2007-007 (Oct. 30, 2006), at i, available at

www.dodig.mil/audit/reports/07report.htm (last visited Mar. 20, 2008).

The Department of Defense Inspector General also reported numerous 

appropriations and procurement issues regarding the goods and services 

the Department of Interior revolving funds provided to DOD. Department 

of Interior Office of Inspector General, Audit of FY2005 Department of the 

Interior Purchases Made on Behalf of the Department of Defense,

Report No. X-IN-MOA-0018-2005 (Jan. 9, 2007), available at

www.doioig.gov/upload/2007-G-0002.txt (last visited Mar. 20, 2008). 

DOD, in an effort to improve its compliance with appropriations and 

procurement laws, entered into agreements with both GSA and Interior 

outlining more than 20 areas in which GSA and Interior agreed to work 

with DOD to achieve “acquisition excellence,” and to ensure the acquisition 

practices comply with all statutory, regulatory, and policy requirements.70 

One area was severable services and compliance with 41 U.S.C. § 253l and 

10 U.S.C. § 2410a.71 In particular, GSA and Interior agreed that if DOD has 

transferred fiscal year appropriations to them, they will return those 

appropriations to DOD when they expire unless the agency has obligated 

70 Memorandum of Agreement Between the Department of Defense and the General 

Services Administration, Dec. 2006, available at

www.gsa.gov/graphics/fas/DOD_GSA_MOA.doc (last visited Mar. 20, 2008); Memorandum 

of Agreement Between the Department of Defense and the Department of Interior, 

March 6, 2007, available at www.govworks.gov/home/MOA_032007.asp (last visited 

Mar. 20, 2008). 

71 Most federal agencies have authority to enter into a 1-year severable services contract at 

any time during the fiscal year extending into the next fiscal year, and to obligate the total 

amount of the contract to the appropriation current at the time the agency entered into the 

contract. See, e.g., 41 U.S.C. § 253l and 10 U.S.C. § 2410a. Chapter 5, section B.9.a, provides 

additional information about this authority.
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those appropriations for a severable services contract for DOD during the 

appropriation’s period of availability and the contract’s performance period 

does not exceed 1 year. In establishing this practice, DOD, GSA, and 

Interior will prevent use of an expired appropriation to fund a new 

contract.72

Recent GAO decisions have examined interagency agreements and 

revolving funds and found that customer and performing agencies are 

violating the bona fide needs statute and trying to “park” or “bank” expiring 

appropriations. B-308944, July 17, 2007, and discussion in section C.4.c.2 of 

this chapter. For a discussion of “parking,” see Chapter 5, section B.1.c. 

We also found that agencies cannot use a revolving fund to acquire office 

space when neither the customer nor performing agency has authority to 

enter into leases. B-309181, Aug. 17, 2007, and the discussion in 

section C.4.b of this chapter. The next section examines interagency 

agreements in the context of purpose, time, and amount.

4. Expenditures/Availability

a. Status as Appropriation There are perhaps two “fundamental rules” pertaining to revolving funds 

from which all else flows. One, discussed earlier, is that specific statutory 

authority is necessary to create a revolving fund. The second is that a 

revolving fund is an appropriation. Hence, funds in a revolving fund are 

appropriated funds. The significance of this second rule is twofold. First, 

except as may be otherwise specified by statute, a revolving fund is 

available for expenditure without further appropriation action by 

Congress. It “is in no way dependent on the existence of [a separate] 

appropriation for the same purpose.” B-209680, Feb. 24, 1983, at 4. Second, 

unless specifically exempted, funds in a revolving fund are subject to the 

various purpose, time, and amount limitations and restrictions applicable 

to appropriated funds.

As discussed in Chapter 2, the reason for the rule that revolving funds are 

appropriated funds follows from the Miscellaneous Receipts Act, 31 U.S.C. 

72 See Memorandum from the Under Secretary of Defense to Secretaries of the Military 

Departments, Chairman of the Joint Chiefs of Staff, Under Secretaries of Defense, and other 

DOD officials, Subject: Non-Economy Act Orders, Oct. 16, 2006, available at 

www.acq.osd.mil/dpap/specificpolicy/Non-EconomyActPolicy20061018.pdf (last visited 

Mar. 20, 2008).
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§ 3302(b), and the Appropriations Clause, U.S. Const., art. I, § 9, cl. 7. 

Under 31 U.S.C. § 3302(b) all moneys received for the use of the United 

States must be deposited in the general fund of the Treasury absent 

statutory authority for some other disposition. B-271894, July 24, 1997. 

Pursuant to the Appropriations Clause, once the money is in the Treasury, it 

can be withdrawn only if Congress appropriates it.73 Therefore, the 

authority for an agency to obligate or expend collections without further 

congressional action amounts to a continuing appropriation or permanent 

appropriation of the collections.74 E.g., United Biscuit Co. v. Wirtz,

359 F.2d 206, 212 (D.C. Cir. 1965), cert. denied, 384 U.S. 971 (1966); 

73 Comp. Gen. 321 (1994); 69 Comp. Gen. 260, 262 (1990). 

In addition, 31 U.S.C. §§ 701(2)(C) and 1101(2)(C) define “appropriation” as 

including “other authority making amounts available for obligation or 

expenditure.” A revolving fund certainly fits this definition. Discussing a 

now-obsolete fund called the “Farm Labor Supply Revolving Fund,” the 

Comptroller General set forth the principle in these terms:

“The payments received from the growers who make use of 

the workers represent moneys collected for the use of the 

United States and in the absence of specific statutory 

authority would be required to be deposited into the general 

fund of the Treasury as miscellaneous receipts under 

[31 U.S.C. § 3302(b)]. In this case, the specific statutory 

authority to use the moneys is supplied by the referred-to 

legislation establishing the Fund. The result of such 

legislation is to continuously appropriate such collections 

for the authorized expenditures for which the Fund is 

available . . . . Thus, we conclude that the ‘Farm Labor 

Supply Revolving Fund’ does represent an 

‘appropriation’ . . . .”

35 Comp. Gen. 436, 438 (1956).

GAO has expressed this principle on numerous occasions. E.g., B-289219, 

Oct. 29, 2002 (revolving funds of the Pension Benefit Guarantee 

73 U.S. Const. art. I, § 9, cl. 7 (discussed in Chapter 1, section B).

74 Some have argued that a law making moneys available from some source other than the 

general fund of the Treasury is not an appropriation. See Chapter 2, section B.1.
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Corporation, a wholly owned government corporation, are appropriated 

funds and are subject to statutory restrictions governing appropriated 

monies); 63 Comp. Gen. 31 (1983), aff’d on reconsideration, B-210657, 

May 25, 1984 (operating fund of National Credit Union Administration is an 

appropriation and thus subject to certain employee compensation 

provisions in title 5 of the United States Code; the 1984 decision includes 

the more detailed discussion of the appropriation issue); 60 Comp. 

Gen. 323 (1981) (Federal Prison Industries revolving fund is an 

appropriated fund for purposes of surplus personal property provisions of 

Federal Property and Administrative Services Act); 35 Comp. Gen. 615 

(1956) (statutory restriction on use of appropriated funds applies to 

operating fund of National Credit Union Administration’s predecessor); 

B-204078.2, May 6, 1988 (Panama Canal Revolving Fund); B-217281-O.M., 

Mar. 27, 1985 (revolving funds of Pension Benefit Guaranty Corporation 

subject to federal procurement laws and regulations); B-148229-O.M., 

May 15, 1962 (General Services Administration’s General Supply Fund is an 

appropriated fund for purposes of administrative payment under Federal 

Tort Claims Act). The decisions have consistently rejected the suggestion 

that revolving funds should be regarded as nonappropriated funds. E.g.,

60 Comp. Gen. at 327; B-210657, May 25, 1984.

The fact that the initial capitalization has been paid back to the general 

fund of the Treasury and the revolving fund has thereafter become fully 

self-sustaining through collections from private parties does not change the 

fund’s character as an appropriation. 60 Comp. Gen. at 326; 35 Comp. 

Gen. at 438.

Most of the cases involve public enterprise revolving funds because it is 

there that the miscellaneous receipts statute comes into play. It is much 

harder to try to suggest that an intragovernmental revolving fund is not an 

appropriated fund, in effect, that moving money from one government 

pocket to another changes its status. E.g., 31 Comp. Gen. 7 (1951) (Navy 

Management Fund is an appropriation).75 See also Pulsar Data Systems, 

Inc. v. GSA, GSBCA No. 13223, 96-2 B.C.A. ¶ 28, 407 (1996) (involving a 

lease funded under GSA’s working capital fund in which there is not the 

slightest suggestion that the monies are anything but appropriated funds). 

The Court of Appeals for the District of Columbia Circuit is in agreement. 

Holding a military stock fund subject to certain procurement laws, the 

75 A management fund may or may not be a revolving fund. See, e.g., 10 U.S.C. § 2209.
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court stated that the revolving fund legislation “eliminated the need for a 

new appropriation each fiscal year by creating what was, in effect, an ongoing appropriation.” United Biscuit Co. v. Wirtz, 359 F.2d 206, 212 (D.C. 

Cir. 1965), cert. denied, 384 U.S. 971 (1966). Indeed, the court went on to 

note, in view of the Appropriations Clause of the Constitution, if a revolving 

fund is not an appropriation, its constitutionality is cast into doubt. Id. 

at 213 n.14. See also B-67175, July 16, 1947.

b. Purpose Since funds in a revolving fund are appropriated funds, they are fully 

subject to 31 U.S.C. § 1301(a) which restricts the use of appropriated funds 

to their intended purpose(s). 63 Comp. Gen. 110, 112 (1983); 37 Comp. 

Gen. 564 (1958); B-203087, July 7, 1981. The purpose requirement, as 

discussed in detail in Chapter 4, applies to revolving funds in exactly the 

same manner that it applies to direct appropriations.

You look first and foremost to the statute creating the fund, that is, the 

appropriation, to identify the fund’s authorized purposes. Since revolving 

funds are by definition creatures of statute, this step is of paramount 

importance. The governing legislation may be somewhat general, or it may 

be painstakingly specific. Either way, the rule is the same: the terms of the 

statute, in conjunction with other applicable statutory provisions, define 

the fund’s availability. Thus, for example, revolving funds for the Senate 

Recording and Photographic Studios, without further statutory authority, 

may not be invested in short-term certificates of deposit since this is not a 

specified purpose under the enabling legislation (2 U.S.C. §§ 123b(g) and 

(h)). B-203087, July 7, 1981. Similarly, the General Services 

Administration’s Working Capital Fund, which is available for the expenses 

of operating “a central blueprinting, photostating, and duplicating service” 

(40 U.S.C. § 3173), may not be used to finance the agency’s central library 

or travel office. B-208697, Sept. 28, 1983. While reimbursing the Working 

Capital Fund from the appropriations which should have been charged in 

the first instance will avoid an Antideficiency Act violation, use of the Fund 

for unauthorized items was nevertheless improper. Id.

While the statute is the first and most important source for determining 

purpose availability, it cannot be expected to spell out every detail. If the 

statute does not directly address the item in question one way or the other, 

the next step is to apply the “necessary expense” rule the same as with any 

other appropriation. E.g., 63 Comp. Gen. 110, 112 (1983); B-230304, 

Mar. 18, 1988; B-216943, Mar. 21, 1985. This means that a revolving fund is 

available for expenditures which are directly related to, and which 
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materially contribute to accomplishing an authorized purpose of, the fund 

and which are not otherwise specifically provided for or prohibited.

One revolving fund whose purpose statement is quite general is 31 U.S.C. 

§ 5142, the Bureau of Engraving and Printing Fund. The Fund is available 

“to operate the Bureau of Engraving and Printing” (id. § 5142(a)(1)) or, in 

the original language, “for financing all costs and expenses of operating and 

maintaining the Bureau” (Act of August 4, 1950, ch. 558, § 2, 64 Stat. 409). 

Under this language, the Fund has been held available for various 

alterations and improvements to the Bureau’s real property (replacements 

and additions of elevators, air conditioning, electrical, plumbing and 

heating equipment, partitions, flooring, etc.), as these are clearly necessary 

costs of operating and maintaining the Bureau. B-104492, Oct. 4, 1951. It 

may be used to send representatives to meetings of societies of coin 

collectors as this is sufficiently related to the Bureau’s activities for 

purposes of 5 U.S.C. § 4110. B-152624, Feb. 18, 1965. And, in view of 

legislative history strongly indicating an intent that the language be broadly 

construed, it satisfies the requirement of 5 U.S.C. § 3109(b) that the 

procurement of experts and consultants be “authorized by an appropriation 

or other statute.” B-122562, May 26, 1955. 

Another illustration is the Rural Housing Insurance Fund, which, under 

42 U.S.C. § 1487(j)(3), is available, for “servicing of loans, and other related 

program services and expenses.” One “related expense” chargeable to the 

fund is the purchase of surety bonds needed to obtain the release of deeds 

of trust for borrowers where the Farmers Home Administration could not 

find, and therefore could not deliver, the original canceled promissory note. 

B-114860, Dec. 19, 1979. GAO also regards the fund as available to pay the 

pro rata share of developing and installing a new computerized program 

accounting system, intended in part to permit prompter and more accurate 

loan servicing. B-226249-O.M., Mar. 2, 1988.

A somewhat more specific purpose statement was contained in the nowdefunct Farm Labor Supply Revolving Fund. The Agricultural Act of 1949, 

as amended by Pub. L. No. 82-78, 65 Stat. 119 (July 12, 1951), authorized the 

Department of Labor to incur, on a reimbursable basis, certain expenses 

incident to the transportation and subsistence of farm workers. Under the 

legislation establishing the revolving fund, the fund was available “for 

payment of transportation, subsistence, and all other expenses” which 

were reimbursable under the Agricultural Act. See Supplemental 

Appropriation Act, 1952, 65 Stat. 741 (Nov. 1, 1951). One decision 

concluded that the fund was available for the cost of physical examinations 
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because they could be regarded as directly connected with the 

transportation of the workers into the country. Of course this also meant 

that the costs were reimbursable and would ultimately be borne by the 

employers of the imported workers and not the taxpayers. 33 Comp. 

Gen. 425 (1954). GAO determined, however, that the necessary expense 

rationale could not be stretched far enough to justify charging the revolving 

fund for the cost of a management survey of the program. B-119354, 

Mar. 30, 1959. It is not clear whether GAO would reach this same 

conclusion today.

An example of an expenditure which is otherwise provided for is B-230304, 

Mar. 18, 1988, concluding that the Federal Prison Industries’ revolving fund 

was not available to construct a prison camp because Congress had 

provided statutory procedures and specific appropriations for prison 

construction. An expenditure which is otherwise prohibited is illustrated 

in B-67175, July 16, 1947, finding a revolving fund unavailable for the 

purchase of motor vehicles without the specific authority required by 

31 U.S.C. § 1343(b). By way of contrast, in B-122562, May 26, 1955, one of 

the Bureau of Engraving and Printing cases noted above, explicit legislative 

history combined with sufficiently broad statutory language was found to 

supply the necessary authority.

In analyzing the purpose availability of a revolving fund, as with any other 

appropriation, the agency has reasonable discretion in selecting means of 

implementation, as long as its exercise is consistent with the statutory 

objectives. Since the 1970s, the Department of Housing and Urban 

Development (HUD) had a revolving fund to finance something called the 

New Community Development Program. The fund was available for 

specified forms of credit and other financial assistance, and for “any other 

program expenditures.” When the program failed and the incipient new 

communities raced toward insolvency, HUD was faced with a variety of 

options. In one decision, GAO advised that, under the statute, HUD could 

acquire the property by foreclosing on its security and undertake a variety 

of expenditures incident to engaging a new builder. Actions specifically 

authorized by the statute had to be regarded as “program expenditures,” 

and nothing in the law required HUD to choose the option which would 

minimize the government’s loss. B-170971, July 9, 1976. The discretion was 

not open-ended, however. Another decision, cautioning that “program 

expenditures” means “expenses of the program established by other 

sections” of the statute, found no basis for using the revolving fund to, in 

effect, step into the developer’s shoes and maintain and operate a 
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development, except pursuant to a bona fide determination to acquire a 

given security. B-170971, Jan. 22, 1976.

The desirability of a proposed expenditure is not enough to supply legal 

authority which is otherwise lacking. In 40 Comp. Gen. 356 (1960), for 

example, the Veterans Administration (VA) proposed using its revolving 

supply fund to finance a program to recover silver from x-ray developing 

solutions. There was no question that the proposal was a good idea. The 

problem was that recovering silver was more of an industrial-type 

operation than the furnishing of supplies and the reclaimed silver was 

apparently of no benefit to any of the appropriations which supported the 

supply fund. Therefore, GAO was forced to conclude that the proposal was 

not an authorized revolving fund activity, but urged the VA to seek an 

amendment to its statute. This was done, and the statute now specifically 

includes the “reclamation of used, spent, or excess personal property.” 

38 U.S.C. § 8121(a).

Chapter 4 uses over a dozen broad subject areas to illustrate different 

aspects of purpose availability. The same authorities and limitations apply 

to revolving funds. For example:

• Statutes dealing with the use of appropriated funds to pay the expenses 

of attendance at meetings apply to revolving funds. 34 Comp. Gen. 573 

(1955) (37 U.S.C. § 412 (Department of Defense)); B-152624, Feb. 18, 

1965 (5 U.S.C. § 4110).

• Employees paid from revolving funds are subject to the statutory 

restriction on payment of compensation to noncitizens. 50 Comp. 

Gen. 323 (1970);76 B-161976, Aug. 10, 1967.

• Like other appropriations, revolving funds are not available for 

entertainment without statutory authority. B-170938, Oct. 30, 1972.

• Revolving fund may be used to subsidize employee cafeteria if properly 

justified under the necessary expense rule. B-216943, Mar. 21, 1985.

76 Technically, 50 Comp. Gen. 323 involved a “special deposit account,” but the decision 

points out that it was similar to a revolving fund in that it authorized the crediting of receipts 

and their use for specified purposes.
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• Revolving funds are subject to the prohibition in 31 U.S.C. § 1348(a)(1) 

on providing telephone service to private residences. 35 Comp. 

Gen. 615 (1956), aff’d on reconsideration, B-126760, Aug. 21, 1972.

A revolving fund cannot be used to permit the customer agency to evade 

restrictions on its funds or to accomplish some purpose it is not authorized 

to do directly. E.g., 30 Comp. Gen. 453 (1951) (working capital fund not 

available for construction where customer agency lacks the authority 

required by 41 U.S.C. § 12). See also 34 Comp. Gen. 573 (1955); B-161976, 

Aug. 10, 1967.

A similar situation was presented in a transaction involving the DOD’s 

Counterintelligence Field Activity (CIFA) and GovWorks77 for acquisition of 

space to consolidate CIFA’s activities. B-309181, Aug. 17, 2007. GovWorks 

is a revolving fund. CIFA entered into an interagency agreement with 

GovWorks for GovWorks to consolidate CIFA programs and provide space 

for multiple activities. CIFA directed GovWorks to enter into a contract 

with a vendor for services, including supplying office space and facilities 

management services. The vendor then signed a lease with a property 

owner for office space for use by CIFA. GAO concluded that without a 

delegation from GSA or independent statutory authority to enter into a 

lease, neither GovWorks nor CIFA had authority to obtain office space 

through a third-party lease. Unless ratified by an appropriate government 

official, the agreement for office space was unenforceable against the 

government. The decision stressed that GovWorks and CIFA could not 

circumvent federal statutory and regulatory requirements on leasing by 

bundling the lease agreement in a contract for services, and that without 

ratification, all payments under this third-party lease were improper 

payments. 

The purpose for which a revolving fund may be used, of course, is governed 

by the statute which created the fund. See, for example, 40 Comp. Gen. 356 

(1960), holding that a revolving supply fund is available to finance a supply 

operation and not an industrial-type program. In addition, it is necessary to 

consider the purpose availability of the supporting appropriations, that is, 

the appropriations from which the revolving fund is advanced or 

reimbursed. A decision addressing the Navy Industrial Fund stated the rule 

that the Fund is “available only for the purposes permissible under [the] 

77 GovWorks is now the Acquisition Services Directorate. See www.govworks.gov (last 

visited Mar. 20, 2008). 
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source appropriation, and subject to the source restrictions.” 63 Comp. 

Gen. 145, 150 (1984). See also, e.g., 18 Comp. Gen. 489, 490–91 (1938); 

B-106101, Nov. 15, 1951. For related material, see section B.1.c(4) of this 

chapter.

c. Time (1) Earned receipts and collection

As pointed out earlier in this discussion, one of the key features of a 

revolving fund is that receipts and collections earned through the fund’s 

operations and credited to the fund are available without further 

congressional action and without fiscal year limitation.78 This continuing 

availability of receipts and collections that a revolving fund has earned 

through its operations has long been recognized as an inherent 

characteristic of a revolving fund, at least as that term is used in statutes 

enacted by Congress. While the more modern statutes tend to include 

explicit language such as “without fiscal year limitation” without more, the 

term “revolving fund” alone would be construed to mean the same thing. 

1 Comp. Gen. 704 (1922); 26 Comp. Dec. 296 (1919).

Thus, the various rules discussed in Chapter 5 governing the obligation and 

expenditure of fixed-year appropriations with respect to time generally do 

not apply to receipts and collections that a revolving fund has earned 

through its operations. For purposes of comparison, the time availability of 

receipts and collections that a revolving fund earns through its operations, 

unless otherwise restricted by statute, is similar to that of a no-year 

appropriation—the money is “available until expended.” This being the 

case, the rules for no-year appropriations provide a useful analogy. Under a 

no-year appropriation—and therefore a revolving fund as well—“all 

statutory time limits as to when the funds may be obligated and expended 

are removed.” 40 Comp. Gen. 694, 696 (1961). Amounts earned and 

credited to the fund are treated as unobligated balances and are available 

for obligation the same as any other unobligated money in the fund. Id. 

at 697. Deobligated funds are treated the same way. B-200519, Nov. 28, 

1980. 

78 The key here is “earned.” Earned receipts and collections are the component of the fee 

that reimburses the revolving fund for the cost of its operations. Advances a customer 

agency makes to a revolving fund have not yet been earned and retain their fiscal year 

character.
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A question that appears to have drawn little attention is whether 31 U.S.C. 

§ 1555 applies to revolving funds. That statute permits an agency to close a 

no-year account if the agency head determines that the purposes of the 

appropriation have been carried out and if there have been no 

disbursements from the account for two consecutive fiscal years. In 

72 Comp. Gen. 295 (1993), the Treasury Department had invoked 31 U.S.C. 

§ 1555 to terminate the Check Forgery Insurance Fund, a revolving fund. 

GAO found closure improper because the reasons the fund had been 

created continued to exist. While the issue was not directly raised in the 

decision, apparently both Treasury and GAO regarded 31 U.S.C. § 1555 as 

applicable to the revolving fund without question.

(2) Appropriations of revolving funds’ customer agencies

When entering into a transaction with a revolving fund, the customer 

agency still must satisfy the various time rules to its own appropriation. 

Specifically, the customer agency must obligate its appropriation for a bona 

fide need within the specified period of availability. 

In order for the customer agency to incur an obligation when it enters into 

an interagency agreement with the revolving fund, the customer agency 

must have documentary evidence of a binding agreement between the two 

agencies for specific goods or services. 31 U.S.C. § 1501(a). In addition, an 

appropriation is available for obligation only to fulfill a bona fide need of 

the period of availability for which it was made. 31 U.S.C. § 1502(a). In 

B-308944, July 17, 2007, GAO found that a Department of Interior revolving 

fund accepted Military Interdepartmental Purchase Requests (MIPRS), 

which DOD used to document interagency agreements with Interior, that 

did not identify the specific items or services that DOD wanted the 

revolving fund to acquire on its behalf. Lacking the necessary specificity as 

to the items or services ordered, these MIPRs did not obligate DOD’s funds. 

DOD sent more specific information to the revolving fund at a later date, 

which served to perfect the orders and obligate DOD’s appropriations; 

however, at this point, DOD’s appropriations had expired, and they were 

not available for obligation in the fiscal year when the orders were 

perfected and the funds were used. Accordingly, when the revolving fund 

later used these funds for three contracts, the revolving fund improperly 

used prior year funds. 

Funds transferred to a revolving fund through an interagency agreement 

must comply with the bona fide needs rule. So when DOD ordered laser 

printers (a readily available commercial item) from a revolving fund at the 
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Department of Interior, and the revolving fund did not execute a contract 

on DOD’s behalf until 17 months later and 11 months after funds 

transferred expired, GAO found that the contract did not fulfill a bona fide

need arising during the funds’ period of availability. B-308944, July 17, 

2007.

When an agency withdraws funds from its appropriation and makes them 

available for credit to another appropriation, like a revolving fund, the 

withdrawn amounts retain their time character and do not assume the time 

character of the appropriation to which they are credited until they are 

earned. See B-306975, Feb. 27, 2006; B-288142, Sept. 6, 2001; 31 Comp. 

Gen. 109, 114–15 (1951). Consequently, unless otherwise specifically 

provided by law, unexpended expired balances must be returned to the 

customer agency.

GAO addressed the time availability of funds a customer agency transfers 

to a revolving fund in a 2001 decision which involved the Library of 

Congress Federal Library and Information Network (FEDLINK) revolving 

fund. B-288142, Sept. 6, 2001. Section 103(e) of the Library of Congress 

Fiscal Operations Improvement Act of 2000, Pub. L. No. 106-481, 114 Stat. 

2187, 2189–90 (Nov. 9, 2000), specifies that amounts in the FEDLINK 

revolving fund are available to the Librarian “without fiscal year limitation” 

to carry out the FEDLINK program. GAO explained that this language did 

not permit the Library to retain unexpended fiscal year appropriations 

advanced by a customer agency that were not needed for costs the Library 

had incurred in filling the order. B-288142. The Library could not reserve 

the unexpended amounts to cover future year orders placed by the 

customer agency but was required to return excess funds to the customer 

agency. Id. If the period of availability of the customer’s appropriation has 

not expired, the customer agency may deobligate the returned funds and 

use them to place a new order. However, remaining balances are not 

available to enter into a new obligation once the period of availability of the 

customer agency’s appropriation has expired. Id.; 51 Comp. Gen. 766 

(1972). See also B-306975, Feb. 27, 2006 (if a customer agency advances 

fiscal year funds to the National Archives and Records Administration 

(NARA) Revolving Fund for September’s estimated costs, NARA may not 

credit excess amount in adjusting October’s bill). 

GAO addressed a bona fide need issue in a decision involving GSA’s 

Federal Systems Integration and Management Center (FEDSIM), which 
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was financed through GSA’s Information Technology Fund.79 B-286929, 

Apr. 25, 2001. The U.S. Total Army Personnel Command (PERSCOM) 

entered into an interagency agreement with the revolving fund using fiscal 

year 2007 funds and transferred funds to the revolving fund. While the 

agencies envisioned a three-phase project, PERSCOM actually entered into 

an agreement for only the first phase of the project. Because PERSCOM 

entered into an agreement for only the first phase of the project and 

incurred an obligation during the period of availability of the appropriation 

only for the first phase, PERSCOM could not apply the expired balance of 

the amount originally transferred to the revolving fund to complete the 

remaining project phases. Even if PERSCOM could have established 

phases II and III as a bona fide need of fiscal year 2007, PERSCOM did not 

take appropriate action to satisfy that need during the fiscal year by 

contracting for additional phases during the period of availability of the 

appropriation. 

It is also improper for a customer agency using a fiscal-year appropriation 

to place an order with an industrial fund at the end of the fiscal year 

without a legitimate need, thereby using the revolving fund to extend the 

life of the appropriation. GAO, Improper Use of Industrial Funds by 

Defense Extended the Life of Appropriations Which Otherwise Would 

Have Expired, GAO/AFMD-84-34 (Washington, D.C.: June 5, 1984). 

Similarly, a customer agency, using fiscal year appropriations, may not 

amend a properly placed order in a subsequent fiscal year to widen the 

scope of work and charge the increased costs to expired funds of the prior 

year. Id. app. I at 9. 

While the funds a customer agency advances to a revolving fund to cover 

its order for goods or services are not available without fiscal year 

limitation, the “earned fee,” that is, the component of the fee that 

reimburses the revolving fund for the cost of its operations is available until 

expended. In the FEDLINK example discussed above, fees for service 

under the FEDLINK revolving fund had two components: (1) advances the 

customer agency provides the Library of Congress to cover the customer’s 

order for goods and services, and (2) reimbursements to the Library for the 

accounting services and its other administrative costs, both direct and 

indirect, of operating the program. Because the Library intended for these 

79 The Information Technology Fund has since been merged with the GSA General Supply 

Fund to become the Acquisition Services Fund. Pub. L. No. 109-313, § 3, 120 Stat. 1734, 

1735–37 (Oct. 6, 2006), codified at 40 U.S.C. § 321.
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amounts to reimburse the Library for administrative costs of running the 

program rather than as an advance to cover the customer’s order for goods 

and services, GAO agreed with the Library’s conclusion that it could retain 

these amounts without fiscal year limitation. B-288142, Sept. 6, 2001.

Revolving funds must also abide by time restrictions when entering into an 

indefinite-delivery, indefinite-quantity contract (IDIQ)80 on behalf of a 

customer agency. In B-308969, May 31, 2007, the Department of Interior’s 

(DOI) National Business Center Acquisition Services Division, Southwest 

Branch (SWB), awarded a 1-year indefinite-delivery, indefinite-quantity 

contract on behalf of DOD, having a period of performance from July 1, 

2003, to June 30, 2004. This transaction was funded through DOI’s working 

capital fund. The contract required the government to purchase a 

minimum of $1 million in services from the contractor. SWB, however, 

obligated only $45,000 of $1 million from DOD’s fiscal year 2003 

appropriation and incorrectly obligated the balance from DOD’s fiscal year 

2004 appropriation, using fiscal year 2004 funds to satisfy an obligation 

established in fiscal year 2003. 

d. Amount As with other appropriations, authorities and limitations relating to the 

amount that can be obligated or expended apply to revolving funds unless 

specifically exempted. Limitations fall into three categories. First are 

governmentwide limitations. An example is 35 Comp. Gen. 436 (1956), 

finding a revolving fund bound by a governmentwide statute, since 

repealed, limiting obligations or expenditures for improvements to real 

property to 25 percent of the first year’s rent. Because the Farm Labor 

supply revolving fund constituted an appropriation, the statute applied.

Next are limitations or restrictions specific to the particular fund. An 

unusual situation occurred in 46 Comp. Gen. 198 (1966). Hurricane Betsy 

caused considerable damage in several southern states in 1965. Part of the 

congressional response was a law authorizing the Small Business 

Administration (SBA) to cancel portions of outstanding indebtedness. The 

indebtedness to be forgiven stemmed from loans financed by a revolving 

fund. The law authorized the appropriation of $70 million. Congress 

subsequently appropriated half that amount, $35 million. The SBA asked if 

80 An indefinite-delivery, indefinite-quantity (IDIQ) contract is a form of indefinite-quantity 

contract, which provides for an indefinite quantity of supplies or services, within stated 

limits, during a fixed period. For a detailed discussion of IDIQ contracts, see Chapter 5, 

section B.8. 
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it could grant relief in excess of $35 million, noting quite logically that 

forgiving an obligation does not require an appropriation. The decision 

concluded that SBA may not have needed an appropriation, but since it 

received one, it could not ignore it. The authorization and appropriation 

reflected the congressional determination to maintain the revolving fund 

for future program use. (The alternative would have been to let the fund 

dwindle and pump more money into it later.) Congress chose to enact the 

limitation, and the agency could not disregard it.

The final category, applicable in the case of intragovernmental revolving 

funds, consists of limitations on the appropriation from which the fund will 

be reimbursed. For example, Defense Department industrial funds can 

finance authorized military construction, reimbursable from Operation and 

Maintenance appropriations. “Minor military construction” projects may 

be charged to O&M appropriations up to a monetary ceiling set by 10 U.S.C. 

§ 2805. It is improper to use the industrial fund for a construction project 

whose cost has been split to evade the ceiling. B-234326.15, Dec. 24, 1991. 

Similarly improper is the use of revolving fund financing to exceed a ceiling 

on travel expenses applicable to the reimbursing appropriation. B-120480, 

Sept. 6, 1967.

Of course, the most important law relating to amount is the Antideficiency 

Act, which by its terms applies to an “appropriation or fund.” 31 U.S.C. 

§ 1341(a)(1)(A). It is clear that the statutory prohibition against 

overobligating applies to revolving funds. E.g., 72 Comp. Gen. 59 (1992). It 

also applies to annual obligation limitations on revolving funds. 

B-248967.2, Apr. 21, 1993, at 3 (Antideficiency Act applies “to any fund 

administered by a federal employee”). See also OMB Cir. No. A-11, 

Preparation, Submission, and Execution of the Budget, § 145.4 (July 2, 

2007).

The law is violated by creating an obligation in excess of available 

budgetary resources. 60 Comp. Gen. 520, 522 (1981). Depending on 

whether the revolving fund is an intragovernmental revolving fund or a 

public enterprise revolving fund, available budgetary resources may 

include (a) amounts received from other government accounts that 

represent valid obligations of the ordering account,81 and (b) amounts 

81 E.g., B-308944, July 17, 2007 (Department of Interior revolving fund); B-288142, Sept. 6, 

2001 (FEDLINK revolving fund).
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received from the public.82 However, the concept does not include 

inventory. 72 Comp. Gen. at 61; 60 Comp. Gen. 520. Nor does it include 

anticipated receipts from transactions that have not yet occurred. GAO, 

The Air Force Has Incurred Numerous Overobligations in Its Industrial 

Fund, AFMD-81-53 (Washington, D.C.: Aug. 14, 1981); B-195316-O.M., 

Jan. 30, 1980; OMB Cir. No. A-11, § 20.13. A statutory exception is 10 U.S.C. 

§ 2210(b), which authorizes Defense Department stock funds (but not 

industrial funds) to obligate against anticipated reimbursements if 

necessary to maintain stock levels planned for the next fiscal year. The 

Coast Guard Supply Fund has similar authority. 14 U.S.C. § 650(b). The 

rules relating to indemnification discussed in detail in Chapter 6 apply fully 

to revolving funds. 63 Comp. Gen. 145 (1984).

A revolving fund can also violate the Antideficiency Act by overspending a 

specific monetary limitation. B-120480, Sept. 6, 1967. However, if the 

overobligation or overexpenditure is authorized under some other 

appropriation or fund available at the time of the overobligation or 

overexpenditure, the revolving fund can make an accounting adjustment 

and charge the proper source—assuming it is still available. This would 

not constitute an Antideficiency Act violation. B-208697, Sept. 28, 1983.

As discussed in Chapter 6, a violation may also occur when an agency 

charges an obligation or expenditure to an appropriation that is not legally 

available for that item, regardless of how much money is in the account. 

The same is true if the proper funding source does not contain adequate 

budgetary resources to cover the obligation or expenditure when the 

accounts are adjusted. A problem of this sort arose when the Defense 

Supply Agency charged the Defense Stock Fund with a renewal option on a 

multiyear fuel storage service contract. The contractor argued that 

exercise of the option violated the Antideficiency Act because a Defense 

Department Directive required that supply administration contracts be 

charged to Operation and Maintenance appropriations and not to stock 

funds. There was no question that charging the stock fund was 

unauthorized. The Armed Services Board of Contract Appeals, however, 

found that the Defense Directive was merely an “in-house accounting 

[measure] not relevant to determining the availability of appropriated 

funds.” Therefore, and since there was no statutory limitation on using 

stock funds for otherwise authorized fuel storage contacts, there was no 

Antideficiency Act violation. The Board further noted that, even if the 

82 E.g., B-286661, Jan. 19, 2001 (United States Enrichment Corporation Fund).
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stock fund was considered to be legally unavailable, there would be no 

violation as long as a funding adjustment could be made. New England 

Tank Industries of New Hampshire, Inc., ASBCA No. 26474, 88-1 BCA 

¶ 20,395, at 103,169 and n.23 (1987). While vacating and remanding the 

Board’s decision on other grounds, the Court of Appeals for the Federal 

Circuit expressly agreed that using the stock fund, although unauthorized, 

did not violate the Antideficiency Act. New England Tank Industries of 

New Hampshire, Inc. v. United States, 861 F.2d 685, 692 n.15 (Fed. Cir. 

1988).

Another part of the Antideficiency Act requires the apportionment of 

“appropriations and funds” by the Office of Management and Budget 

(OMB). 31 U.S.C. §§ 1511(a), 1512, 1513. While fixed-year appropriations 

are generally apportioned by time, appropriations for an indefinite period 

are apportioned “to achieve the most effective and economical use.” Id. 

§ 1512(a). Overobligating or overspending an apportionment is just as 

illegal as overobligating or overspending the appropriation itself. Id. 

§ 1517(a). That the apportionment statutes apply to revolving funds is 

reinforced by 31 U.S.C. § 1516(2), which authorizes OMB to exempt from 

apportionment “a working capital fund or a revolving fund established for 

intragovernmental operations.”

The applicability of the apportionment laws to revolving funds is reflected 

in OMB Circular No. A-11. OMB’s illustration of the Standard Form 132 

Apportionment and Reapportionment Schedule (Exhibit 121G) includes 

both public enterprise and intragovernmental revolving funds, while 

section 120.7 restates OMB’s authority to exempt particular 

intragovernmental funds. For purposes of assessing violations, the fact 

that the fund includes unapportioned budgetary resources greater than the 

amount of the deficiency is irrelevant. OMB Cir. No. A-11, § 145.4. The 

authority of 10 U.S.C. § 2210(b), mentioned above, can be exercised only 

“with the approval of the President.” This means OMB apportionment. 

B-179708-O.M., July 10, 1975.

An important concept covered in Chapter 4 is the agency’s spending 

discretion under a lump-sum appropriation, illustrated in decisions such as 

B-279338, Jan. 4, 1999; 55 Comp. Gen. 307 (1975); and 55 Comp. Gen. 812 

(1976). The same discretion applies under a revolving fund. In one year, 

for example, committee reports expressed the view that the Economic 

Development Administration not make any direct loans in the upcoming 

fiscal year. Since this desire did not find its way into any statutory 

language, the agency’s revolving fund was legally available to make the 
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loans. Of course, the agency was also within its discretion to comply with 

the committee preference and not make any direct loans. B-209680, 

Feb. 24, 1983.

e. Obligation Requirement Nothing exempts revolving funds from the obligation recording provisions 

of 31 U.S.C. § 1501. When a revolving fund does something that meets one 

of the statutory recording criteria, it must, just like other appropriations, 

record an obligation. 72 Comp. Gen. 59 (1992) (entering into contract to 

procure equipment). See also 60 Comp. Gen. 700, 703 (1981); 51 Comp. 

Gen. 631 (1972).83

Under a multiyear or base-year-plus-options contract, the amount to be 

recorded as an obligation depends on the nature and extent of the 

government’s commitment. For example, if a multiyear contract does not 

restrict the government’s obligation to less than the full contract amount, 

then the full contract amount is the amount of the obligation. 

B-104492-O.M., Apr. 23, 1976. If the contract consists of a base period plus 

renewal options, the obligation is the cost of the base period plus any 

amounts payable for failure to exercise the options (termination costs), 

this being the least amount of the government’s potential liability.84 

62 Comp. Gen. 143 (1983); 48 Comp. Gen. 497, 502 (1969). 

Congress, of course, can vary the above treatment by statute. Statutory 

exceptions have tended to involve multiyear contracts under the rather 

large Defense Department revolving funds where the chances of premature 

termination are, from practical and political perspectives, remote. Under a 

Navy ship-leasing program financed by the Navy industrial fund, for 

example, Congress enacted a provision authorizing the Navy to obligate 

only 10 percent of the outstanding gross termination liability. See B-174839, 

Mar. 20, 1984. A case several years earlier considered a recurring Defense 

appropriation act provision which authorized Defense working capital 

funds to maintain cash balances only to the extent necessary to cover cash 

disbursements at any time, and further authorized transfers between such 

83 Both cases discuss the recording of obligations under credit programs financed by 

revolving funds. While some of the specifics have been superseded by the Federal Credit 

Reform Act of 1990, 2 U.S.C. §§ 661–661f, in neither case was the applicability of the 

recording statute called into question.

84 See Chapter 5, section B.8, for a detailed discussion of multiyear contracts.
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funds when and if necessary.85 This provision amounted to an exception to 

the requirement to obligate for termination liability. 51 Comp. Gen. 598 

(1972).

With an intragovernmental revolving fund, it is also necessary to consider 

the obligational treatment of the supporting appropriations. 

Section 1501(a)(1) of the recording statute (31 U.S.C. § 1501) applies to 

contracts “between an agency and another person (including other 

agencies)” and thus applies to interagency agreements with revolving 

funds. At the time the agencies involved in the transaction enter into a 

written, binding agreement, the customer agency incurs an obligation for 

the costs of the work to be performed. See, e.g., B-308944, July 17, 2007; 

B-302760, May 17, 2004. In B-308944, July 17, 2007, GAO found that Military 

Interdepartmental Purchase Requests (MIPRs ) used to document 

interagency agreements between DOD and a revolving fund in the 

Department of Interior (GovWorks, now called the Acquisition Services 

Directorate) lacked the specificity necessary to comply with the recording 

statute. Consequently, the DOD funds expired before being properly 

obligated. 

For some types of transactions, however, orders are required by law to be 

placed with another agency. With these types of transactions, 

section 1501(a)(3) applies, and the obligation occurs when the order is 

placed.86 The same holds true for interagency transactions with a revolving 

fund. For example, when an agency places an order with the General 

Services Administration (GSA) for work to be financed from one of GSA’s 

revolving funds, placing the order obligates the customer agency’s 

appropriations if the order is one which is required by law—including 

GSA’s statutory regulations—to be placed with GSA. If the order is not 

required by law to be placed with GSA, the job order itself does not obligate 

the customer’s funds. 34 Comp. Gen. 705 (1955). 

Obligating for purchases from stock or supply funds (Defense Department 

stock funds or GSA’s General Supply Fund, for example) has its own set of 

conventions. For common-use stock items which are on hand or on order 

and expected to be delivered promptly, placing the order obligates the 

85 The fiscal year 2008 version of this provision is section 8008 of the Department of Defense 

Appropriations Act, 2008, Pub. L. No. 110-116, 121 Stat. 1295, 1314–15 (Nov. 13, 2007).

86 See Chapter 7, section B.3, for a more detailed discussion of orders required by law.
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customer agency’s appropriation. 73 Comp. Gen. 259 (1994); 34 Comp. 

Gen. at 707; 34 Comp. Gen. 418, 422 (1955); 32 Comp. Gen. 436 (1953). For 

other orders of items which are part of the stock fund system, there is a 

measure of discretion. The fund can develop a system—for example, a list 

of items which constitutes an offer to sell at the published prices—under 

which placing the order “accepts” the offer and creates the recordable 

obligation. See B-208863-O.M., Apr. 11, 1983; GAO, Criteria for Recording 

Obligations for Defense Stock Fund Purchases Should Be Changed,

GAO/AFMD-83-54 (Washington, D.C.: Aug. 19, 1983). Otherwise, if the 

customer’s order is the offer, a recordable obligation requires acceptance 

by the revolving fund unless the order is required by law to be placed with 

the fund. 34 Comp. Gen. at 707–08; 34 Comp. Gen. at 422; 32 Comp. 

Gen. 436. For items which are not part of the stock fund system, the order 

must be accepted before an obligation can be recorded. GAO/AFMD-83-54, 

app. I at 5.

If a revolving fund finds that it has undercharged the supporting (customer) 

appropriations, and those appropriations have expired for obligational 

purposes, the customer agency should use its expired appropriation to 

reimburse the revolving fund. See 31 U.S.C. § 1553(a). The customer 

agency incurred an obligation for the order at the time it entered into the 

interagency agreement with the revolving fund. The undercharge relates 

back in time to when the customer agency and the revolving fund entered 

into the interagency agreement. Under 31 U.S.C. § 1553(a), the customer 

agency’s expired appropriation would remain available to make 

adjustments to obligations that were properly incurred during the period of 

availability of the appropriation. GAO has taken the position that any such 

restoration should be supported by adequate documentation of the 

underlying obligations. Use of statistical methods is not sufficient where 

the agency cannot identify the underlying transactions. B-236940, Oct. 17, 

1989; GAO, Financial Management: Defense Accounting Adjustments for 

Stock Fund Obligations Are Illegal, GAO/AFMD-87-1 (Washington, D.C.: 

Mar. 11, 1987).87 Presumably, although we have found no published 

decision, if the customer account has been closed pursuant to 31 U.S.C. 

§ 1552(a), a validly supported reimbursement could be charged to current 

appropriations in accordance with, and subject to the limitations of, 

31 U.S.C. § 1553(b).

87 The report and legal opinion cited in the text both predated the current statutory account 

closing structure, but the principle should remain valid.
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Any statement of obligations an agency furnishes either to the Office of 

Management and Budget in connection with an appropriation request, or to 

the Congress or a congressional committee, is required to be consistent 

with the obligational criteria of 31 U.S.C. § 1501(a). Id. §§ 1108(c), 1501(b). 

5. Augmentation and 

Impairment

One of the cornerstones of congressional control of the purse is the rule, 

covered extensively in Chapter 6, that an agency may not augment its 

appropriations without authority of law, or, in other words, may not retain 

for credit to its own appropriations anything Congress has not expressly 

authorized. The primary statutory manifestation of this rule is the 

miscellaneous receipts requirement of 31 U.S.C. § 3302(b). We have 

previously noted that a revolving fund is an exception to the miscellaneous 

receipts requirement. While this is certainly true, it is not a blanket 

exemption but goes only so far as the governing legislation specifies. The 

improper augmentation of a revolving fund can occur in either of two ways: 

(1) putting something in the fund which Congress has not authorized to be 

put there, or (2) leaving something in the fund, regardless of the propriety 

of the original deposit, beyond the point Congress has said to take it out. 

The presence or absence of a fixed dollar ceiling on the fund’s capital is 

irrelevant.

GAO has frequently used the following formulation of the antiaugmentation rule: “[W]hen Congress specifies the source of money and 

property that go to make up the permanent working capital of revolving 

funds there may not be added additional sources which serve to increase 

the working capital in the absence of specific statutory authority therefor.” 

B-149858-O.M., Aug. 15, 1968, at 5. The legislation establishing a revolving 

fund will prescribe what may go into the fund. Depositing anything not 

expressly authorized by the statute is an improper augmentation. E.g.,

23 Comp. Gen. 986 (1944); 20 Comp. Gen. 280 (1940); 19 Comp. Gen. 791 

(1940). In these cases, all related and dealing with the same fund, a statute 

authorized an agency to use, as a revolving fund, income derived from 

operations of a particularly special fund. It did not authorize the agency to 

retain and reuse income from any other source, including operations of the 

revolving fund itself (as opposed to the special fund from whose income 

the revolving fund was derived), and this income therefore had to be 

treated as miscellaneous receipts. The situation was admittedly unusual in 

that the typical revolving fund does depend on self-generated receipts, but 

in this case Congress had chosen a different approach. “The statute thus 

having expressly specified the sources of the money that comprise the 
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revolving fund, other sources may not be added by construction.” 

23 Comp. Gen. at 988.

The lesson of the preceding paragraph is simple: the precise terms of the 

statute control. Another illustration, closely related to the cases cited 

above, is the treatment of interest income. Interest income earned on 

revolving fund operations can be added to the fund if and only if the statute 

says so. An example is the revolving fund created by the Agricultural 

Marketing Act, 12 U.S.C. § 1141d. Payments of “principal or interest” on 

authorized loans “shall be covered into the revolving fund.” Id. § 1141f(b). 

Another example is interest on rural electrification loans. 7 U.S.C. § 931(3). 

Of course, general language which is sufficiently inclusive will also do the 

job, for example, the Bonneville Power Administration’s authority in 

16 U.S.C. § 838i(a) to retain “all receipts, collections, and recoveries . . . 

from all sources.” Alternatively, Congress may authorize interest to be 

deposited to a revolving fund and later paid over to the general fund in 

whole or under some statutory formula. See, e.g., 15 U.S.C. § 633(c) (Small 

Business Administration Business Loan and Investment Fund). If the 

statute does not include authority of the types noted, interest income must 

be deposited in the Treasury as miscellaneous receipts. 26 Comp. Dec. 295 

(1919); A-96531, Oct. 24, 1940. See also 1 Comp. Gen. 656 (1922) (same 

principle applies to reimbursable appropriation as opposed to revolving 

fund). Contrary to the impression a superficial look might give, this is not 

an example of logic versus the law. It is a matter of the choices Congress 

has made as to the scope and purposes of the revolving fund. 

Some further examples of unauthorized augmentations are:

• Increasing a revolving fund’s working capital by transferring funds to it 

from other revolving funds (or nonrevolving appropriation accounts, 

for that matter) either without statutory authority or in excess of 

applicable statutory authority. See GAO, Operations of General 

Services Administration’s General Supply Fund, GAO/LCD-76-421 

(Washington, D.C.: Mar. 19, 1976).

• Retention of funded reserve for accrued annual leave after the 

employees have transferred to another agency. B-149858-O.M., Aug. 15, 

1968.

• Retention of jury service fees remitted by an employee paid from a 

revolving fund. B-113214-O.M., Jan. 16, 1953.
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Our discussion thus far has emphasized the need to follow the precise 

statutory language. In addition, there are, as discussed in Chapter 6, 

section E.2, certain nonstatutory exceptions to the miscellaneous receipts 

requirement, and these apply to revolving funds just as to other 

appropriations. For example, receipts which qualify as “refunds,” such as 

the recovery of overpayments or erroneous payments, may be credited to a 

revolving fund even though not specified in the governing legislation. 

69 Comp. Gen. 260 (1990). That decision held that the Federal Emergency 

Management Agency could deposit in its revolving fund recoveries under 

the False Claims Act sufficient to reimburse the fund for losses suffered as 

a result of the false claim, including administrative expenses incurred in 

investigating and prosecuting the case, but must deposit any recoveries in 

excess of those amounts (treble damages, for example) in the Treasury as 

miscellaneous receipts. See also B-281064, Feb. 14, 2000 (Tennessee Valley 

Authority (TVA) may credit the TVA Fund (a public enterprise revolving 

fund) with that portion of a False Claims Act award or settlement that 

represents a refund of moneys erroneously disbursed from the fund). 

Similarly, although we do not have a case precisely on point, a revolving 

fund may retain excess reprocurement costs recovered from a defaulting 

contractor, at least to the extent necessary to fund the reprocurement or 

corrective work, regardless of whether the recovery occurs before or after 

the fund has incurred the additional costs. As discussed in Chapter 6, this 

is the case where the procurement is funded under a no-year appropriation. 

If it is true for a no-year appropriation, it is true for a revolving fund.88

A variation on this principle is illustrated in two cases involving the Corps 

of Engineers Civil Revolving Fund, 33 U.S.C. § 576. When supervising 

military construction under 10 U.S.C. § 2851, the Corps charges its 

“customer” a flat percentage (5.5 percent in the cases discussed here) of 

the contract price for “supervision and administration” (S&A). The charge 

is designed to enable the revolving fund to break even over the long term. 

In one case, faulty design caused the Air Force to incur additional 

construction costs, which in turn increased the Corps’ S&A charge. GAO 

advised the Air Force that it could retain the money recovered from the 

architect to cover its increased construction costs and the S&A fees 

actually paid to the revolving fund. However, the portion of the recovery 

88 One older case seemingly to the contrary, 14 Comp. Gen. 106 (1934), must be regarded as 

overruled by 62 Comp. Gen. 678 (1983). See 65 Comp. Gen. 838, 841 (1986), and the detailed 

coverage in Chapter 6, section E.2.b(1).
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representing S&A expenses over and above the 5.5 percent, which the 

revolving fund had absorbed, had to go to the Treasury as miscellaneous 

receipts. Had the fund been charging its customers on an actual cost basis, 

it could have been reimbursed the entire amount of S&A expenses actually 

incurred. However, since the percentage fee was designed to recover 

actual costs over time, and the Corps had already received this from the Air 

Force, any additional reimbursement would amount to an unauthorized 

augmentation of the fund. 65 Comp. Gen. 838 (1986). On the other hand, 

the fund can be reimbursed for expenses actually incurred which are not 

covered by the flat rate. B-237421, Sept. 11, 1991 (additional S&A costs 

resulting from contractor delay can be reimbursed from recovery of 

liquidated damages since delay costs are not factored into uniform rate).

The cases cited in the preceding paragraph point to a common feature of 

most revolving funds—they are intended to operate on a break-even basis 

or reasonably close to it, over the long term. One thing this means is that 

the fund should not augment its working capital by retaining funds in 

excess of what it needs to cover its costs. To nudge this process along, 

revolving fund statutes frequently include the requirement for the periodic 

payment of surplus amounts to the general fund of the Treasury. We quote 

three variations:

• General Services Administration’s (GSA) Acquisition Services Fund, 

40 U.S.C. § 321(f):89

“Transfer of Uncommitted Balances.—Following the close 

of each fiscal year, after making provision for a sufficient 

level of inventory of personal property to meet the needs of 

Federal agencies, the replacement cost of motor vehicles, 

and other anticipated operating needs reflected in the cost 

and capital plan . . ., the uncommitted balance of any funds 

remaining in the Fund shall be transferred to the general 

fund of the Treasury as miscellaneous receipts.”

• Bureau of Engraving and Printing Fund, 31 U.S.C. § 5142(d):

89 The Acquisition Services Fund replaced the GSA General Supply Fund and the GSA 

Information Technology Fund. Pub. L. No. 109-313, § 3, 120 Stat. 1734, 1735–37 (Oct. 6, 

2006). 
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“The Secretary shall deposit each fiscal year, in the Treasury 

as miscellaneous receipts, amounts accruing to the Fund in 

the prior fiscal year that the Secretary decides are in excess 

of the needs of the Fund. However, the Secretary may use 

the excess amounts to restore capital of the Fund reduced 

by the difference between the charges for services of the 

Bureau and the cost of providing those services.”

• Office of Personnel Management (OPM) Revolving Fund, 5 U.S.C. 

§ 1304(e)(4):

“Any unobligated and unexpended balances in the fund 

which the Office determines to be in excess of amounts 

needed for activities financed by the fund shall be deposited 

in the Treasury . . . as miscellaneous receipts.”

The Acquisition Services Fund provision is the most restrictive, at least on 

its face. The other two examples confer more discretion. The OPM 

provision is the most discretionary and permits OPM to reduce retained 

earnings by freezing or reducing fees, purchasing equipment, or using the 

money essentially for any authorized purpose, or depositing surplus as 

miscellaneous receipts. B-206231-O.M., Sept. 12, 1986. While this provision 

clearly does not require the OPM fund to operate on a break-even basis 

each year, GAO has voiced the opinion that operating with deficits or 

surpluses for periods of several years is not consistent with the statutory 

objective. GAO, OPM’s Revolving Fund Policy Should Be Clarified and 

Management Controls Strengthened, GAO/GGD-84-23 (Washington, D.C.: 

Oct. 13, 1983), at 9.

The absence of a provision requiring periodic payments of surplus to the 

Treasury does not eliminate augmentation as a concern. For example, the 

Defense Department working capital fund authority, 10 U.S.C. § 2208, 

contains no such provision. It nevertheless remains the case that the fund 

should try to minimize annual gains or losses. Absence of statutory 

limitation merely means that the fund has more discretion in adjusting its 

charges periodically to recover losses or offset profits of prior periods. 

B-181714-O.M., Jan. 3, 1975.

The provision quoted above for the Bureau of Engraving and Printing Fund 

expressly authorizes reductions from surplus for certain capital 

restoration, with the net amount then to be paid over to the Treasury. This 

introduces a concept which does not exist in the case of other 
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appropriations—the concept of capital impairment. If the objective is to 

maintain a revolving fund at a certain level, then impairment—diminution 

of fund capital—is as important to guard against as augmentation.

This concern manifests itself in the statutes in various ways. The revolving 

fund of the National Institute of Standards and Technology, for example, 

directs that earned net income be paid over to the general fund of the 

Treasury at the close of each fiscal year, but may first be applied “to restore 

any prior impairment of the fund.” 15 U.S.C. § 278b(f). GAO considered 

the meaning of this provision in 58 Comp. Gen. 9 (1978). The decision first 

noted that “impairment” is not a term of art with an established meaning in 

the accounting world. Id. at 10. Then, after reviewing legislative history 

and similar provisions in other laws, GAO concluded that impairment in the 

context of a revolving fund statute means operating losses, specifically, 

losses sustained by providing services at prices which do not recover costs. 

Id. at 12. The term does not include losses caused by inflation. Under the 

language of the statute as it then existed, the fund could not retain profits 

to offset increased equipment replacement costs. (The statute was 

subsequently amended to permit this.) One of the statutes GAO reviewed 

in the course of reaching its conclusion was the Bureau of Engraving and 

Printing provision, a linguistic variation of the anti-impairment concept. Id. 

at 12–13.

The original version of the OPM statute included anti-impairment language 

similar to 15 U.S.C. § 278b, but it was deleted in the 1969 amendment90

which recast the provision in the form quoted above. In view of the 

discretionary language used, the amendment in no way diminished OPM’s 

ability to restore capital impairment. Rather, it expanded OPM’s authority 

to use surplus—from the limited purpose of the restoration of impairment, 

to any authorized fund purpose. See B-110497, May 10, 1968 (GAO’s 

comments on the proposed amendment); B-206231-O.M., Sept. 12, 1986.

6. Property Management 

and Utilization

Items of property and equipment that revolving funds use in their 

operations are typically treated as assets of the fund itself. This in turn 

raises issues which implicate augmentation and impairment concerns.

90 Pub. L. No. 91-189, § 1, 83 Stat. 851 (Dec. 30, 1969).
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One type of cost the fund will necessarily incur is the cost of equipment 

replacement. The fund anticipates this by including depreciation in its 

charges and fees, and establishing a reserve for this purpose. E.g., B-75212, 

June 16, 1955. The problem is that inflationary pressures drive prices up 

over time, and a piece of replacement equipment will almost certainly cost 

more than the original equipment did, sometimes a lot more. Simple 

enough, you say, just raise prices. The obstacle here is that statutory 

authority is needed in order to avoid an augmentation. The agency had no 

such authority in 58 Comp. Gen. 9 (1978), discussed in section C.5 above. 

The decision explained:

“We believe that the term ‘cost,’ absent something in the law 

or its legislative history indicating otherwise, means 

historical cost, and not replacement cost. Thus, when 

capitalizing fixed assets in the fund, the value of the asset is 

determined by historical cost (e.g., acquisition cost) and it is 

this value that depreciation allocates over the useful life of 

the asset.”

Id. at 14. See also B-151204-O.M., Dec. 9, 1971. Since the agency could not 

base depreciation on replacement cost, its next thought was to treat the 

difference between the depreciation reserve and replacement cost as an 

impairment of capital and to take the difference from surplus before 

turning it over to the Treasury. As explained above, GAO concluded that 

impairment did not include losses caused by inflation and that the fund 

could not retain profits to offset increased equipment replacement costs. 

58 Comp. Gen. 9. 

In some cases, the rule that depreciation refers to historical cost and not 

replacement cost is expressed in the statute. For example, the Bureau of 

Engraving and Printing is directed to provide for equipment replacement 

“by maintaining adequate depreciation reserves based on original cost or 

appraised values.” 31 U.S.C. § 5141(b)(1)(C). In view of this language, and 

the rule that would have been applied even without it, the Bureau had no 

authority to augment its depreciation reserve through a surcharge. 

B-104492-O.M., Apr. 23, 1976. 

One solution is to amend the statute. The statute in 58 Comp. Gen. 9, 

15 U.S.C. § 278b(f), was later amended to authorize the application of net 

income “to ensure the availability of working capital necessary to replace 

equipment and inventories.” The Bureau of Engraving and Printing statute 

also received a legislative solution with the 1977 enactment of 31 U.S.C. 
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§ 5142(c)(3), which permits it to adjust its prices “to permit buying capital 

equipment and to provide future working capital.” Pursuant to this 

authority, the Bureau can levy a surcharge, or it can simply raise its prices. 

B-114801-O.M., Nov. 19, 1979. Similarly, at one time, the General Services 

Administration (GSA) could not charge using agencies the replacement 

cost of motor pool vehicles as it would have amounted to an unauthorized 

augmentation of the former General Supply Fund. B-158712-O.M., Oct. 4, 

1976. Legislation was enacted in 1978, 40 U.S.C. § 605(b)(2) (formerly cited 

as 40 U.S.C. § 491(d)(2)) to authorize GSA to charge for estimated 

replacement costs and to retain those increments in the fund, but only for 

replacement purposes. Still another statutory approach is to require 

payment to the Treasury at the end of a fiscal year of any balance “in excess 

of the estimated requirements for the ensuing fiscal year.” See B-100831-

O.M., Mar. 1, 1951. Or, a statute may specify the actual amount an agency 

may retain. For example, many of the franchise fund pilot programs have 

authority to retain up to 4 percent of total annual income as a reserve for 

acquisition of capital equipment and enhancement of support systems, with 

any excess to be transferred to the Treasury. See, e.g., Pub. L. No. 104-208, 

div. A, title I, § 113, 110 Stat. 3009, 3009-200–01 (Sept. 30, 1996), 31 U.S.C. 

§ 501 note (Department of Interior franchise fund). In addition, the 

exchange/sale authority of 40 U.S.C. § 503 (formerly cited as 40 U.S.C. 

§ 481(c)) is available to a revolving fund. See B-149858-O.M., Feb. 25, 1963. 

If none of these approaches affords a solution, the fund has little choice but 

to seek additional appropriations from Congress. 58 Comp. Gen. at 14.

It has also been stated as a general proposition that “the corpus of [a] 

revolving fund should not be impaired by the transfer of assets.” B-121695, 

Feb. 3, 1955, at 2. Of course, transfers authorized by law to be made 

without reimbursement are an exception. Id.; B-149858-O.M., Feb. 25, 

1963. Property can become excess to a revolving fund just as it can to any 

other entity. Unless the fund’s own legislation provides specific authority, 

the disposal of excess property should be handled under authority of the 

Federal Property and Administrative Services Act and GSA’s implementing 

regulations. 56 Comp. Gen. 754 (1977); B-121695, Feb. 3, 1955.

One section of the Federal Property Act, 40 U.S.C. § 574(a) (formerly cited 

as 40 U.S.C. § 485(c)), provides that transfers shall be reimbursable when 

the property transferred or disposed of was acquired by the use of funds 

either “not appropriated from the general fund of the Treasury” or 

appropriated therefrom “but by law reimbursable from assessment, tax, or 

other revenue or receipts.” This language includes revolving funds. 

56 Comp. Gen. at 757; B-116731, Nov. 4, 1953. Another section of the 
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Federal Property Act, 40 U.S.C. § 522(b) (formerly cited as 40 U.S.C. 

§ 483(a)(1)), states that reimbursement of the fair value of transferred 

excess property is required if “net proceeds are requested under 

section 574(a).” In view of these provisions, unless the revolving fund 

legislation itself requires reimbursement, the rule is that the transfer of 

excess property from a revolving fund is reimbursable if and when 

requested by the transferring agency. The agency has discretion in the 

matter. 35 Comp. Gen. 207 (1955); B-233847, Apr. 14, 1989. The same 

rationale authorizes a military department to credit to its industrial fund 

the proceeds from the sale of scrap and salvage generated by fund 

operations, regardless of the potentially large amounts of money involved. 

B-162337-O.M., Oct. 2, 1967.

Some revolving fund statutes require reimbursement. An example is the 

Veterans Affairs Supply Fund, which provides that the fund shall be 

“credited with . . . all other receipts resulting from the operation of the 

funds, including . . . the proceeds of disposal of scraps, excess or surplus 

personal property of the fund.” 38 U.S.C. § 8121(a)(3). Under this type of 

legislation, the disposal would still be done under the authority and 

procedures of the Federal Property Act and GSA regulations, except that 

the agency no longer has the discretion to decline reimbursement. The 

mandatory language of the statute overcomes the discretionary language of 

40 U.S.C. § 522(b) and the statement in 41 C.F.R. § 102-36.285(a)(3) that “[i]t 

is the current executive branch policy that working capital fund property 

shall be transferred without reimbursement.”

If the authorized transfer of excess property from a revolving fund without 

reimbursement is not an impairment of the fund, it is equally true that the 

transfer of excess property to a revolving fund without reimbursement, 

when authorized by law, is not an improper augmentation. B-110497, 

Aug. 28, 1952.

Thus far, we have been talking about fund property as opposed to property 

purchased by the fund on behalf of a customer. Property in the latter 

category no longer needed by the customer agency, apart from transactions 

which may be authorized under the Federal Property Act, does not revert 

to the revolving fund simply because it was initially purchased by the fund; 

converting the property to cash and then retaining and using those 

proceeds improperly augments the revolving fund because it would credit 

the revolving fund with amounts supplied by the customer. 40 Comp. 

Gen. 356 (1960). Somewhat similarly, if an agency using fund property has 

paid the full cost of the item and then no longer needs it, nothing prevents 
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the fund from making the property available to a second user at rates based 

on fair market value. The income should not be used to augment the fund’s 

capital, however, but should, to the extent it exceeds costs, be treated as 

net income subject to a “transfer to Treasury” provision if there is one. 

B-151204-O.M., Dec. 9, 1971. 

An unusual provision of law is found in 22 U.S.C. § 2358(a), which 

authorizes the Agency for International Development (AID) to receive 

excess property from other agencies for foreign assistance purposes, and 

to stockpile that property “in advance of known requirements therefor,” up 

to a specified monetary ceiling. In determining compliance with the 

ceiling, AID may properly deduct the amount of unfilled orders received 

from overseas missions since the receipt of an order represents a known 

requirement. B-160485-O.M., Jan. 17, 1967.

The Federal Property and Administrative Services Act does not apply to the 

Senate or House of Representatives. However, they may purchase services 

under the act from GSA if they choose. 40 U.S.C. § 113(d). Therefore, 

when a revolving fund of the Senate or House of Representatives has 

excess property, it may either request GSA’s assistance or dispose of the 

property through the official or body with operational control of the 

particular fund. B-205013, Jan. 27, 1982 (Senate); B-114842, Oct. 17, 1979 

(House).

Under the “interdepartmental waiver doctrine,” the general rule is that if 

one agency damages the personal property of another agency, funds 

available to the agency causing the damage may not be used to pay claims 

for damages by the agency whose property suffered the damage.91 The 

general rule, however, does not apply to revolving fund activities. A 1986 

decision, 65 Comp. Gen. 910, held that a revolving fund which had loaned 

vehicles to another agency for use on a project unrelated to the fund’s 

purpose should be reimbursed for damage which occurred while the 

vehicles were in the borrower’s custody.92 Acknowledging the general 

prohibition on interagency damage liability, the decision states: “It is our 

opinion, however, that even in the absence of an Economy Act or similar 

agreement, the prohibition should not apply where the fund that would be 

91 For further discussion of the interdepartmental waiver doctrine, see Chapter 6, 

section E.2.c.

92 Although the decision specifically notes that the vehicles were not being used for fund 

work at the time of the damage, this factor does not appear necessary to the decision.
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charged with the cost of repair if reimbursement were not permitted is a 

reimbursable or revolving fund.” Id. at 911. The decision further pointed 

out that the fund in that case, the Air Force Industrial Fund, treated repair 

costs as an indirect cost factored into its charges, but it is assumed that this 

referred to damage which occurred while the property was being used by 

the Air Force on fund work, not damage caused by another agency. Id.

The view that a revolving fund should be reimbursed for damage to fund 

property caused by another agency is supported by the approach taken in 

59 Comp. Gen. 515 (1980). GSA regulations provide that GSA will charge 

the using agency for damage to motor pool vehicles which occurs while the 

vehicle is assigned or issued to that agency, unless the damage can be 

attributed to the fault of an identifiable party other than the using agency or 

its employee. 41 C.F.R. § 101-39.406(a). Motor pool vehicles are financed 

under GSA’s Acquisition Services Fund (formerly its General Supply Fund). 

Reviewing an earlier (but not substantially different in principle) version of 

the regulations, GAO agreed that GSA was well within its discretion 

because repair cost is certainly a cost of maintaining the service. The 

decision further noted: “In addition, since the GSA revolving fund is 

intended to be operated on a businesslike basis, it is inequitable to impose 

upon the revolving fund a loss for which the managing agency is in no way 

responsible.” 59 Comp. Gen. at 518.

A 2005 GAO decision held that a federal agency should collect for damages 

to property financed by a revolving fund either from the customer agency, 

the customer agency’s contractor, or the revolving fund agency’s own 

contractor, as the case may be. B-302962, June 10, 2005. The National 

Archives and Records Administration (NARA) asked GAO whether it could 

collect and retain in its Records Center revolving fund payments for 

damages to a Records Center storage facility caused by a customer agency 

or the agency’s contractor. GAO concluded that NARA should collect 

amounts sufficient to repair damages to the facilities, whether the damage 

was caused by NARA’s customer, the customer’s contractor, or NARA’s own 

contractor, depending on which entity was responsible for the damages, 

and deposit these amounts into the Records Center revolving fund. Id.

Similarly, in 50 Comp. Gen. 545 (1971), GAO advised the National Credit 

Union Administration that it could credit to its revolving fund recoveries 

for property lost or damaged in transit. The fund consists of fees paid by 

member credit unions, and the decision emphasized legislative history 

expressing the intent that “the Administration will not cost the taxpayers a 

single penny.” Id. at 546. Several revolving fund statutes—mostly 
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intragovernmental funds where the “not cost the taxpayers a penny” 

rationale has no meaning—expressly authorize the retention of payments 

for loss or damage to fund property. E.g., 5 U.S.C. § 1304(e)(3)(B) (Office 

of Personnel Management revolving fund); 38 U.S.C. § 8121(a)(3) (Veterans 

Affairs Supply Fund); 40 U.S.C. § 321(b)(2) (Acquisition Services Fund); 

44 U.S.C. § 309(b)(2) (Government Printing Office revolving fund).

7. Revolving Funds in the 

Department of Defense

At the outset of our discussion, we noted that revolving funds in the federal 

government appear to have originated within the defense establishment. 

Their use in that establishment has grown over the course of the past 

century so that they now play a highly significant role in financing defense 

operations. For example, the Defense-wide Working Capital Fund is 

estimated to have financed about $49 billion in defense operations in fiscal 

year 2008. Budget of the United States Government, Fiscal Year 2009 

Appendix (Feb. 4, 2008), at 317, available at 

www.whitehouse.gov/omb/budget/fy2009/appendix.html (last visited 

Mar. 20, 2008).

The most important piece of legislation was section 405 of the National 

Security Act Amendments of 1949, which enacted what is now 10 U.S.C. 

§ 2208. Pleased with the success of the Navy’s working capital funds 

through two World Wars, Congress decided to expand the concept and 

extend it to all of the military departments. The objectives Congress 

sought to achieve were “most effectively to control and account for the 

cost of the programs and work performed, to provide adequate, accurate, 

and current cost data which can be used as a measure of efficiency, and to 

facilitate the most economical administration and operation of the military 

departments.” S. Rep. No. 81-366, at 17 (1949).

Section 2208(a) of title 10, United States Code authorizes the Secretary of 

Defense to create working capital funds to: “(1) finance inventories of such 

supplies as he may designate; and (2) provide working capital for such 

industrial-type activities, and such commercial-type activities that provide 

common services within or among departments and agencies of the 

Department of Defense, as he may designate.” These are known as, 

respectively, stock funds and industrial funds. The stock fund concept was 

intended to standardize procurement, storage, and issue policies and 

thereby encourage interservice utilization; reduce over-all inventory 

requirements; facilitate procurement of seasonal items at times when the 

market is most favorable; facilitate cost control; and permit standard 
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pricing. S. Rep. No. 81-366, at 19. The Senate report described the intended 

operation of industrial funds as follows:

“All costs of the operation of [the] industrial-type or 

commercial-type activity would be paid from the working 

capital fund, utilizing standard, accepted, and approved 

commercial practices for the distribution of direct and 

indirect costs to jobs in process. . . . The activity which 

places a work order with the industrial-type or commercialtype activity would establish proper commitments and 

obligations against moneys appropriated to it—generally in 

the same manner as would be followed if the order were 

placed for the work to be done by a private concern. The 

industrial plant would enter the order and distribute the 

work in the plant by its own job orders—a fundamentally 

sound procedure. When the work is completed and the cost 

of the job ascertained, the plant will invoice or bill the cost 

to the ordering military agency and its proper appropriation 

and budget program. . . . The invoice charges would include 

items of cost for labor, material, and current operating 

expense.”

Id. at 20–21.

Section 2208(b) of title 10 directs the Secretary of the Treasury to establish 

the appropriate accounts on Treasury’s books upon request of the 

Secretary of Defense. Section 2208(c) authorizes the revolving funds to be 

charged with the cost of supplies and services, including administrative 

expenses, and to be reimbursed from available appropriations. 

Section 2208(d) authorizes the capitalization of existing inventories and the 

appropriation of necessary amounts. Section 2208(e) authorizes internal 

reorganization of military departments in order to take maximum 

advantage of the revolving funds. Section 2208(f) prohibits a requisitioning 

agency from incurring costs for supplies or services from any of the 

revolving funds in excess of “the amount of appropriations or other funds 

available for those purposes.” The Senate Committee described this 

subsection as the means by which Congress controls the amount of money 

that may be spent by the department and agencies for supplies or services. 

S. Rep. No. 81-366, at 18.

Under section 2208(g), supplies returned to inventory are charged to the 

applicable revolving fund and the proceeds credited to “current applicable 
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appropriations” of the customer agency. Where the return takes place in a 

subsequent fiscal year, this amounts to an augmentation of the current 

appropriation (B-132900-O.M., Feb. 1, 1974), but it is expressly authorized. 

This procedure is intended to encourage the return of materials found not 

to be immediately needed and to “reduce the temptation to overbuy.” 

S. Rep. No. 81-366, at 18. Section 2208(h) authorizes implementing 

regulations. The remaining portions of the statute were added in later 

amendments.

According to one commentator, performance of the military revolving 

funds “is not well documented.” Although there is “some evidence” that 

they are achieving the desired benefits, the evidence is “mixed.” 

Patricia E. Byrnes, Defense Business Operating [sic] Fund: Description 

and Implementation Issues, 13 Public Budgeting and Finance 29, 32 

(No. 4, 1993). According to Byrnes:

“Revolving funds are intended to provide at least three 

important benefits. First, in contrast to the services 

budgeted and financed through the appropriations process, 

the contractual relationship between the fund activity 

(supplier) and the customer improves supplier incentives 

for efficient, demand-driven production. Second, because 

revolving funds are intended to operate across organization 

boundaries, economies of scale can be achieved in 

procurement and use of facilities. Finally, in addition to 

reduced rates from more efficient provision of services, the 

customers should also realize advantages of stabilized rates 

typical of contractual arrangements.” 

Id. at 31–32. 

While, as Byrnes points out, the measure of success of an activity intended 

to be businesslike is how closely it resembles a commercial activity, the 

goal of a government revolving fund, in sharp contrast with a private 

business’s goal of profit maximization, is “a zero fund balance.” Id. at 32.

In any event, after operating under the structure established by the 1949 

legislation for over four decades, the next major development took place in 

late 1991 with the introduction of the Defense Business Operations Fund 

(DBOF). The Defense Department had proposed the DBOF as a 

consolidation of the various stock and industrial funds already in 

existence, together with other activities, such as the Defense Commissary 
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Agency and the Defense Finance and Accounting Service, which would be 

converted to revolving fund status. Considering the proposal as part of 

Defense’s 1992 appropriations package, the congressional reception was 

cautious. The Senate Appropriations Committee reported:

“The DBOF proposal has been met with both antipathy and 

confusion. The antipathy arises, for the most part, from the 

perception of Congress losing influence on and oversight of 

programs to be subsumed in the fund. The confusion arises 

from several factors; probably the most important of these 

was the Department having not clearly defined the 

advantages of establishing DBOF when the proposal was 

first made to Congress.”

S. Rep. No. 102-154, at 354 (1991). The conference committee shared the 

concern over the potential loss of oversight. H.R. Conf. Rep. No. 102-328, 

at 176 (1991). These concerns notwithstanding, Congress gave the DBOF 

its initial statutory basis in section 8121 of the 1992 Department of Defense 

Appropriations Act, Pub. L. No. 102-172, title VIII, § 8121, 105 Stat. 

1150, 1204–05 (Nov. 26, 1991), as “a working capital fund under the 

provisions of” 10 U.S.C. § 2208.

To call the DBOF “big” would be somewhat of an understatement. 

Testifying before a congressional subcommittee only 6 months after the 

DBOF was established GAO noted that for fiscal year 1993, when compared 

with the “Fortune 500,” the DBOF’s sales “would make the Fund equivalent 

to the fifth largest corporation in the world.”93 The Fund experienced a 

number of management problems, and GAO issued a steady stream of 

reports over the next few years.94

In 1996, as part of the National Defense Authorization Act for Fiscal Year 

1996 (Pub. L. No. 104-106, § 371, 110 Stat. 186, 277–80 (Feb. 10, 1996)), 

Congress repealed the 1991 provision and codified the DBOF in more 

93 GAO, Financial Management: Defense Business Operations Fund Implementation 

Status, GAO/T-AFMD-92-8 (Washington, D.C.: Apr. 30, 1992), at 2.

94 E.g., GAO, Defense Business Operations Fund: DOD Is Experiencing Difficulty in 

Managing the Fund’s Cash, GAO/AIMD-96-54 (Washington, D.C.: Apr. 10, 1996); Defense 

Business Operations Fund: Management Issues Challenge Fund Implementation,

GAO/AIMD-95-79 (Washington, D.C.: Mar. 1, 1995); Financial Management: Status of the 

Defense Business Operations Fund, GAO/AIMD-94-80 (Washington, D.C.: Mar. 9, 1994).
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detailed legislation, 10 U.S.C. § 2216a, which restricted the DBOF to a list of 

specified funds and activities. Later that year Congress directed the 

Secretary of Defense to prepare and submit a comprehensive plan to 

improve the management and performance of the DBOF. Pub. L. 

No. 104-201, § 363, 110 Stat. 2422, 2493–94 (Sept. 23, 1996). In December 

1996, the Defense Department initiated a reorganization, and in effect a 

“de-consolidation,” of the DBOF and created four new working capital 

funds—Army, Navy, Air Force, and Defense-wide.95 The authority to 

manage working capital funds and certain activities through the DBOF was 

terminated when section 2216a was repealed in 1998. Pub. L. No. 105-261, 

div. A, title X, § 1008, 112 Stat. 1920, 2115–17 (Oct. 17, 1998).96 The military 

working capital funds, however, continued to face management problems 

following the de-consolidation of DBOF, and GAO continued to issue 

reports examining the funds.97

The funds’ various permutations notwithstanding, the legal issues they 

raise and the analytical approach used in resolving them are not 

fundamentally different from other revolving funds, and cases and reports 

dealing with the military funds have been included in the various topics 

throughout our discussion. While the funds are certainly here to stay in 

one form or another, their precise scope and direction will almost certainly 

continue to evolve.

D. User Charges This section, like our earlier coverage of the Economy Act in section B.1 of 

this chapter, deals with the authority of federal agencies to charge for 

goods and services they provide—to other federal entities in the case of the 

95 Memorandum from the Under Secretary of Defense (Comptroller), Subject: Working 

Capital Funds for Defense Support Organizations, Dec. 11, 1996. The reorganization is 

noted in GAO, Navy Ordnance: Analysis of Business Area Price Increases and Financial 

Losses, GAO/AIMD/NSIAD-97-74 (Washington, D.C.: Mar. 14, 1997).

96 The authority for the Army, Navy, Air Force, and Defense-wide working capital funds 

continues to be 10 U.S.C. § 2208.

97 See, e.g., GAO, Navy Working Capital Fund: Management Action Needed to Improve 

Reliability of the Naval Air Warfare Center’s Reported Carryover Amounts, GAO-07-643 

(Washington, D.C.: June 26. 2007); Army Depot Maintenance: Ineffective Oversight of 

Depot Maintenance Operations and System Implementation Efforts, GAO-05-441 

(Washington, D.C.: June 30, 2005); Air Force Depot Maintenance: Improved Pricing and 

Cost Reduction Practices Needed, GAO-04-498 (Washington, D.C.: June 17, 2004); Defense 

Logistics: Better Fuel Pricing Practices Will Improve Budget Accuracy, GAO-02-582 

(Washington, D.C.: June 21, 2002).
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Economy Act; to mostly private parties under the authorities discussed in 

this section.

1. Providing Goods or 

Services to Private 

Parties

We start with a principle regarded as so elementary that references to it 

invariably include the word “fundamental,” as in the following statement 

from 28 Comp. Gen. 38, 40 (1948): “It is fundamental that Federal agencies 

cannot make use of appropriated funds to manufacture products or 

materials for, or otherwise supply services to, private parties, in the 

absence of specific authority therefor.” Not surprisingly, GAO has 

reiterated this principle in many subsequent decisions. See, e.g., B-300218, 

Mar. 17, 2003; 62 Comp. Gen. 323, 335 (1983); 31 Comp. Gen. 624, 626 

(1952). 

This simple-sounding principle goes to the essence of the relationship 

between the federal government and the taxpayers. When Congress 

creates and funds a department or agency, it does so to serve one or more 

public purposes. If accomplishing these public purposes produces 

incidental benefit to some private interest, no harm is done. If the roles 

become reversed, however, and the public purpose becomes incidental to 

the private benefit, or the private benefit exists independent of any public 

purpose, closer scrutiny is warranted. The theory, abetted by the statutory 

bar on using appropriated funds for unauthorized purposes (31 U.S.C. 

§ 1301(a)), is that the activity should be undertaken only if it has been 

explicitly authorized by the elected representatives of the taxpayers. The 

miscellaneous receipts statute, 31 U.S.C. § 3302(b), discourages violations 

by prohibiting agencies from keeping any proceeds they may receive from 

the private parties.

The earliest administrative decisions dealt with the sale of commodities. In 

15 Comp. Dec. 178 (1908), the Army, which manufactured hydrogen for use 

in aviation balloons, asked if it could sell hydrogen to private individuals 

for the inflation of private balloons. The agency cannot sell it to private 

parties “at any price or for any purpose,” the Comptroller of the Treasury 

responded. Since the miscellaneous receipts act would require the 

proceeds to go into the general fund of the Treasury, the practical effect 

would be to deplete the Army’s appropriation for the manufacture of 

hydrogen on purposes not contemplated by Congress. Id. at 179. However, 

the manufacturing process produced oxygen as a by-product, for which the 

Army had no use. This could be sold to the private sector, the Comptroller 

continued, but the proceeds would have to be deposited as miscellaneous 

receipts. Id. at 181. 
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Restated, 15 Comp. Dec. 178 said two things. First, a government agency 

has no authority, on its own initiative, to produce something in order to sell 

it to a private interest. Second, an agency, which in the ordinary course of 

its operations, necessarily produces a surplus of any commodity may sell 

that surplus, but must account for the proceeds as miscellaneous receipts 

unless it has statutory authority for some other disposition. The portion of 

the rule dealing with the sale of surplus commodities has been applied to 

surplus electric power produced by government-owned generating plants 

(28 Comp. Gen. 38 (1948); 5 Comp. Gen. 389 (1925)); excess water 

produced by a then Veterans Administration hospital water filtration plant 

(55 Comp. Gen. 688 (1976)); and surplus steam from a government power 

plant (A-34549, Dec. 19, 1930). As several of these cases point out 

(e.g., 5 Comp. Gen. at 391), the alternative would be to let the surplus 

commodity go to waste.

Turning from goods to services, the concept of “surplus” of course has no 

relevance (notwithstanding the reference to “surplus services” in 55 Comp. 

Gen. at 690), and we are left with the prohibitory rule as quoted above and 

as applied in the first portion of 15 Comp. Dec. 178. It makes no difference 

that the recipient is willing to reimburse the government. B-69238, July 13, 

1948.98 Nor does it matter that the proposed reimbursement is in the form 

of credits rather than cash. 28 Comp. Gen. 38, 41 (1948) (pointing out that 

even where the service or sale is authorized, the agency would have to 

transfer the value of the credit from its appropriations to miscellaneous 

receipts). The rule is not limited to private interests but applies as well to 

governmental units. 31 Comp. Gen. 624 (1952). Applications of the rule 

include B-300218, Mar. 17, 2003 (provision of technical assistance services 

to a foreign government outside the scope of an agency’s statutory grantmaking authority); 34 Comp. Gen. 599 (1955) (construction of a sewerage 

system in excess of the government’s needs so that it may be shared with a 

local government); and 62 Comp. Gen. 323, 334–35 (1983) (use of military 

personnel as chauffeurs and personal escorts at presidential inaugural and 

pre-inaugural activities).

A judicial application of the rule may be found in the case of National 

Forest Preservation Group v. Volpe, 352 F. Supp. 123 (D. Mont. 1972), 

reconsideration denied, 359 F. Supp. 136 (D. Mont. 1973), in which the 

98 The result in B-69238 was modified by B-69238, Sept. 23, 1948, upon a showing that the 

services in question were in fact authorized, although GAO continued to emphasize that 

receipts had to go to the Treasury’s general fund. 
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court, holding that the designation of an access road as a “federal-aid 

primary highway” exceeded the Department of Transportation’s statutory 

authority, enjoined federal funding of the construction. The road would 

primarily have served the interests of private corporations who wanted to 

develop recreational property. The court stated:

“There is no rationale for the expenditure of federal funds 

which serve to benefit directly this type of private business 

venture without explicit congressional authorization. To 

allow the primary highway designation to stand would have 

the effect of holding that the [Federal Highway 

Administration] may become a partner in private enterprise 

without explicit statutory authority.”

Volpe, 352 F. Supp. at 130.

To sum up, regardless of who pays or what happens to the money, a 

government agency needs statutory authority in order to provide goods or 

services to nongovernment parties. Fiscal issues come into play only after 

this authority has been established.

2. The Concept of User 

Charges

When Congress authorizes a program or activity that will benefit private 

interests, it must also decide how to finance that program or activity. 

Basically, the choices are subsidization, user financing, or some 

combination of the two. Subsidization means funding the activity from 

appropriated funds, thus spreading the cost among all taxpayers. The user 

financing option involves some form of user charge or fee, under which 

part or all of the cost is borne by the recipients of the benefit. A user fee 

may be defined as “a price charged by a governmental agency for a service 

or product whose distribution it controls,”99 or “any charge collected from 

recipients of Government goods, services, or other benefits not shared by 

the public.”100

99 Clayton P. Gillette and Thomas D. Hopkins, Federal User Fees: A Legal and Economic 

Analysis, 67 B.U. L. Rev. 795, 800 (1987). 

100 GAO, The Congress Should Consider Exploring Opportunities to Expand and Improve 

the Application of User Charges by Federal Agencies, PAD-80-25 (Washington, D.C.: 

Mar. 28, 1980), at 1. See also GAO, A Glossary of Terms Used in the Federal Budget 

Process, GAO-05-734SP (Washington, D.C.: Sept. 2005), at 100. 
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We all pay a variety of user fees. When you buy postage stamps at your 

local post office, buy a fishing license, or pay highway tolls, you are paying 

a user fee. These common examples show some of the different types of 

user fees. You pay the toll only when you use the highway; if you never use 

the highway, you never need to pay the toll. Similarly, if you have no 

intention of going fishing, you do not need to buy a fishing license. Once 

you buy the license, however, whether you ever use it or not is irrelevant to 

the issuing authority. You can use it as often as you like during the fishing 

season, but it becomes worthless once the season or specified time period 

is over, and even if you have never used it you cannot get your money back. 

You can use the postage stamp for its intended purpose, or you can save it. 

Although you cannot sell it back to the post office, it never loses its face 

value as long as it remains unused.101

The advantages and disadvantages of user financing are much discussed 

and debated in the public financing literature. Supporters of user fees 

regard them as equitable because they place the economic burden on those 

receiving the benefit. They are also politically and “budgetarily” attractive 

as an alternative to general tax increases. This was especially true during 

the budgetary shortfalls of the 1980s and early 1990s. The Congressional 

Budget Office (CBO) has noted that “[m]ost of the new and increased [user 

fee] charges of the 1980s followed the passage of the Balanced Budget Act 

of 1985. As the search for new sources of funds intensified, changes in law 

and budget processes helped assure the enactment of new user charges.” 

CBO, The Growth of Federal User Charges xi (Aug. 1993). Moreover, the 

legal basis for setting user charges expanded from reimbursing an agency’s 

costs of providing services, to financing all or specified portions of the 

agency’s budget. Id.

While user fees at the federal level are not new,102 they received relatively 

little attention prior to the final third of the twentieth century. In March 

1980, GAO issued its report The Congress Should Consider Exploring 

Opportunities to Expand and Improve the Application of User Charges 

101 The further categorization of user fees is beyond our scope. Approaches may be found in 

studies by the Congressional Budget Office—Charging for Federal Services, 10 (Dec. 1983), 

The Growth of Federal User Charges, 3–7 (Aug. 1993), and The Growth of Federal User 

Charges: An Update, 1–11 (Oct. 1995).

102 See, e.g., United States v. Grimaud, 220 U.S. 506, 521–22 (1911), to the effect that a 

statute addressing the use or disposition of fees implicitly authorizes imposition of the fees.
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by Federal Agencies, PAD-80-25, the thrust of which is evident from its title. 

Page 1 of that report stated:

“Both individuals and businesses are concerned with tax 

burdens. Businesses are also concerned with the fact that 

compliance with Federal regulations is often expensive. 

Both concerns can be addressed by the Government’s 

promotion of economy and efficiency through actively 

employing user charges. [Footnote omitted.]

“User charges can reduce Federal taxes, as well as the costs 

of certain types of regulation. They are a source of revenue 

that can partially replace general taxation of individuals and 

businesses. They also reduce the amount of taxes needed to 

finance the production of goods and the delivery of services 

to the extent that charging higher prices reduces recipient 

demand.”

In addition, GAO has issued a minor deluge of reports analyzing, and 

encouraging optimum use of, user fees in specific contexts.103 The fever 

spread to Congress generally as well as the Office of Management and 

Budget and the rest of the executive branch, with the result that the growth 

of user fees mushroomed. Between 1980 and 1991, CBO found, user 

charges increased by 54 percent in constant dollars, and financed much 

larger shares of many agencies’ budgets. CBO, The Growth of Federal User 

Charges. A later GAO report supports the notion that this trend continued 

during the 1990s, as many agencies became increasingly more reliant upon 

user fees, over general tax revenues, to fund their programs and 

103 Examples are GAO, National Park Service: Major Operations Funding Trends and How 

Selected Park Units Responded to Those Trends for Fiscal Years 2001 through 2005, GAO06-431 (Washington, D.C.: Mar. 31, 2006); Recreation Fees: Comments on the Federal Lands 

Recreation Enhancement Act, H.R. 3283, GAO-04-745T (Washington, D.C.: May 6, 2004) 

(a version of this legislation was enacted and is now codified at 16 U.S.C. §§ 6801–6814); 

Federal Energy Regulatory Commission: Charges for Hydropower Projects’ Use of Federal 

Lands Need to be Reassessed, GAO-03-383 (Washington, D.C.: May 20, 2003); User Fees: 

DOD Fees for Providing Information Not Current and Consistent, GAO-02-34 

(Washington, D.C.: Oct. 12, 2001); Federal Lands: Fees for Communications Sites Are 

Below Fair Market Value, GAO/RCED-94-248 (Washington, D.C.: July 12, 1994); INS User 

Fees: INS Working to Improve Management of User Fee Accounts, GAO/GGD-94-101 

(Washington, D.C.: Apr. 12, 1994); and USDA Revenues: A Descriptive Compendium,

GAO/RCED-93-19FS (Washington, D.C.: Nov. 27, 1992). In addition, PAD-80-25 includes a 

4-page appendix listing reports issued in the 1969–1978 period.
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operations. GAO, Federal User Fees: Budgetary Treatment, Status, and 

Emerging Management Issues, GAO/AIMD-98-11 (Dec. 19, 1997). While 

user fees have not expanded as dramatically in more recent years, they are 

generally still on the increase. GAO’s 1997 report indicated that user fees 

produced $196.4 billion in fiscal year 1996 revenues. Id. at 1. The Office of 

Management and Budget (OMB) estimates user fee receipts will increase to 

$243.2 billion for fiscal year 2007. See Analytical Perspectives, Budget of 

the United States Government for Fiscal Year 2007 (Feb. 6, 2006), at 272, 

available at www.whitehouse.gov/omb/budget/fy2007 (last visited Mar. 20, 

2008). OMB projects that such fees will grow to over $258 billion in 2011. 

Id. However, the latter figure assumes implementation of OMB’s proposals 

for new user fees and for extension of expiring fees. 

Political attractions aside, levying user fees is not simply a question of 

raising revenue, but can implicate a variety of other economic and public 

policy issues as well. For example, increasing a user fee can result in 

capital losses in the form of decreased asset values. This in turn raises 

questions as to the desirability of some form of compensation for these 

losses. A GAO analysis of these issues can be found in Congressional 

Attention Is Warranted When User Charges or Other Policy Changes 

Cause Capital Losses, GAO/PAD-83-10 (Washington, D.C.: Oct. 13, 1982). 

The case study presented in that report is the use of water in the Columbia 

Basin Project in the Pacific Northwest. The study showed that, if the price 

charged for water provided to farmers for irrigation purposes were raised 

to market levels, water would be diverted from farming to the production 

of electricity, and the value of farmland would drop significantly.

3. The Independent 

Offices Appropriation 

Act

a. Origin and Overview In 1950, the Senate Committee on Expenditures in the Executive 

Departments (a forerunner of the Committee on Homeland Security and 

Governmental Affairs) conducted a study of user fees in the federal 

government, and issued a report entitled Fees for Special Services, S. Rep. 

No. 81-2120 (1950). The committee’s governing philosophy was that “those 

who receive the benefit of services rendered by the Government especially 

for them should pay the costs thereof.” S. Rep. No. 81-2120, at 3. The 

report concluded: “On the basis of the limited study reported upon herein, 

the committee has established conclusively that opportunity exists for the 
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equitable transfer of many financial burdens from the shoulders of the 

taxpaying general public to the direct and special beneficiaries.” Id. at 15. 

The report did not recommend any particular legislation, but left it to the 

jurisdictional committees to consider and develop legislative proposals 

within their respective areas of responsibility.

Several committees then began their own studies. The following year, 

while many of these studies were in process, Congress enacted general 

user fee authority to fill in the gaps. Its intent, the House Appropriations 

Committee reported, was to—

“provide authority for Government agencies to make 

charges for . . . services in cases where no charge is made at 

present, and to revise charges where present charges are 

too low, except in cases where the charge is specifically 

fixed by law or the law specifically provides that no charge 

shall be made.”

H.R. Rep. No. 82-384, at 3 (1951). The new legislation was title V of the 

Independent Offices Appropriation Act, 1952, Pub. L. No. 82-137, 65 Stat. 

268, 290 (Aug. 31, 1951), known as the “IOAA” or the “User Charge 

Statute.”104 Codified at 31 U.S.C. § 9701, the law provides in part as follows:

“(a) It is the sense of Congress that each service or thing of 

value provided by an agency (except a mixed-ownership 

Government corporation) to a person (except a person on 

official business of the United States Government) is to be 

self-sustaining to the extent possible.

“(b) The head of each agency (except a mixed-ownership 

Government corporation) may prescribe regulations 

establishing the charge for a service or thing of value 

provided by the agency. Regulations prescribed by the 

heads of executive agencies are subject to policies 

prescribed by the President and shall be as uniform as 

practicable. Each charge shall be—

104 For a judicial summary of the history outlined in the text, see Beaver, Bountiful, 

Enterprise v. Andrus, 637 F.2d 749, 754–55 (10th Cir. 1980). 
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“(1) fair; and

“(2) based on—

“(A) the costs to the Government;

“(B) the value of the service or thing to the 

recipient;

“(C) public policy or interest served; and 

“(D) other relevant facts.”

Although enacted as an appropriation act rider, the IOAA is permanent 

legislation and applies to all agencies, not just those funded by the act in 

which it originally appeared. B-178865, Apr. 19, 1974. The statute is 

permissive rather than mandatory. It authorizes fees; it does not require 

them. Aeronautical Radio, Inc. v. United States, 335 F.2d 304, 307 (7th Cir. 

1964), cert. denied, 379 U.S. 966 (1965); 42 Comp. Gen. 663, 665–66 (1963); 

B-128056, July 8, 1966. Thus, while the law encourages uniformity, an 

agency’s authority to charge a fee under the IOAA is not diminished by the 

fact that other agencies may choose not to charge for similar services. 

Ayuda, Inc. v. Attorney General, 661 F. Supp. 33, 36 (D.D.C. 1987), aff’d,

848 F.2d 1297 (D.C. Cir. 1988); B-167087, July 25, 1969. Nor is failing to 

charge a fee where one could have been charged a violation of law. 

B-130961-O.M., Sept. 10, 1976; B-114829-O.M., June 1l, 1975.105 Guidance for 

the executive branch is found in Office of Management and Budget Circular 

No. A-25, User Charges (July 8, 1993).

It is also important to note that the IOAA merely provides authority to 

charge fees, not authority to provide the underlying services. The legal 

basis for the services—which, as noted at the outset of this section, must 

exist before you ever get to the question of fees—must be found elsewhere. 

62 Comp. Gen. 262, 263 (1983).

105 One occasionally encounters a description in mandatory terms. E.g., Bunge Corp. v. 

United States, 5 Cl. Ct. 511, 515 (1984), aff’d, 765 F.2d 162 (Fed. Cir. 1985) (“The IOAA 

directs all federal agencies to charge fees . . .”). However, no one has ever actually applied it 

that way. 
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The IOAA is not free from difficulty or controversy. Gillette and Hopkins 

offer the following rather harsh assessment:

“[T]he IOAA does not constitute a model of clarity and 

precision. To the contrary, the statute uses vague terms and 

invokes ephemeral principles that demand substantial 

interpretation. The statute provides little guidance 

concerning the constituents of a ‘service or thing of value’ 

and leaves fairly open the appropriate mechanisms for 

computing a proper charge. Instead, the statute recites 

considerations that are, at best, inconclusive, and, at worst, 

inherently conflicting.”

Clayton P. Gillette and Thomas D. Hopkins, Federal User Fees: A Legal and 

Economic Analysis, 67 B.U. L. Rev. 795, 826–27 (1987) (footnote omitted).

b. Fees versus Taxes The government has many ways to get money from your pocket. In 

National Cable Television Ass’n v. United States, 415 U.S. 336 (1974), the 

Supreme Court distinguished two of them, fees and taxes. A fee is 

something you pay incident to a voluntary act on your part, for some 

benefit the government has bestowed or will bestow on you which is not 

shared by other members of society, examples being “a request that a 

public agency permit an applicant to practice law or medicine or construct 

a house or run a broadcast station.” National Cable Television, 415 U.S.

at 340. Taxes, on the other hand, need not be related to any specific 

benefits: “Taxation is a legislative function, and Congress . . . may act 

arbitrarily and disregard benefits bestowed by the Government on a 

taxpayer and go solely on ability to pay, based on property or income.” Id. 

(footnote omitted). The distinction had lurked in the bushes since shortly 

after the Independent Offices Appropriation Act (IOAA) was enacted. In 

B-108429, Mar. 24, 1952, for example, GAO advised a Member of Congress 

that “in the absence of clear and convincing evidence to the contrary,” GAO 

would be unwilling “to assume that [any government agency] would 

attempt to levy a tax . . . under the guise of a fee” as authorized by the 

IOAA.

The issue remained largely dormant until the National Cable Television

decision, in which the Supreme Court held that the IOAA authorizes fees 

but not taxes. In that case, the cable TV industry challenged fees assessed 

by the Federal Communications Commission (FCC), which had been under 

pressure from both Congress and the Office of Management and Budget to 

recoup its full costs from the industry it regulated “to fully support all its 
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activities so the taxpayer will not be required to bear any part of the load in 

view of the profits regulated.” National Cable Television, 415 U.S. at 339 

(citations omitted). After drawing the distinction noted above, the Court 

added that the primary measure of a fee under the IOAA is the “value of the 

service or thing to the recipient” standard of 31 U.S.C. § 9701(b)(2)(B). An 

attempt to recoup total cost would go beyond this by charging recipients 

for the public as well as private benefits of the FCC’s regulatory 

activities,106 which would at least arguably amount to levying a tax. 

Holding that the FCC could not do so, the Court said: “It would be such a 

sharp break with our traditions to conclude that Congress had bestowed on 

a federal agency the taxing power that we read [the IOAA] narrowly as 

authorizing not a ‘tax’ but a ‘fee.’” National Cable Television, 415 U.S. 

at 341. By adopting this interpretation, the Court was able to avoid having 

to directly confront the constitutional issue of the extent to which 

Congress could delegate its power to tax.

In determining the proper scope of the IOAA’s fee-setting authority, the 

Court suggested extreme caution in applying the criteria of 31 U.S.C. 

§§ 9701(b)(2)(C) and (D)—“public policy or interest served” and “other 

relevant facts”—which “if read literally, carr[y] an agency far from its 

customary orbit and pu[t] it in search of revenue” and thereby tend to 

indicate assessments more in the nature of taxes. National Cable 

Television, 415 U.S. at 341. Indeed, the Court concluded: “The phrase 

‘value to the recipient’ is, we believe, the measure of the authorized fee.” 

Id. at 342–43. Thus, some lower courts have stated that National Cable 

Television “effectively read[s] out of the statute” the “public policy and 

interest served” and “other relevant facts” criteria. Bunge Corp. v. United 

States, 5 Cl. Ct. 511, 515 (1984), aff’d, 765 F.2d 162 (Fed. Cir. 1985). See also

Seafarers International Union v. United States Coast Guard, 81 F.3d 

179, 183 (D.C. Cir. 1996).

On the same day it decided National Cable Television, the Court also 

decided the companion case of Federal Power Commission v. New 

England Power Co., 415 U.S. 345 (1974), applying National Cable 

Television to invalidate annual assessments levied on pipeline companies 

by the then Federal Power Commission. The Court agreed with the lower 

court that the IOAA does not authorize assessments on whole industries, 

but applies only with respect to “specific charges for specific services to 

106 “Certainly some of the costs inured to the benefit of the public, unless the entire regulatory 

scheme is a failure, which we refuse to assume.” National Cable Television, 415 U.S. at 343. 
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specific individuals or companies.” New England Power, 415 U.S. at 349. 

The Court noted with approval portions of OMB Circular A-25, User 

Charges, now found at sections 6 (agencies should assess user charges to 

“each identifiable recipient” of a special benefit),107 and 6a(4) (agencies 

should not assess fees “when the identification of the specific beneficiary is 

obscure”). This, said the Court, “is the proper construction of the [IOAA]” 

and helps to restrain it from crossing the line into the realm of taxes. New 

England Power, 415 U.S. at 351.

Thereafter, the Court of Appeals for the District of Columbia Circuit issued 

a series of decisions elaborating on the standards laid down in National 

Cable Television and New England Power. See, e.g., National Association 

of Broadcasters v. Federal Communications Commission, 554 F.2d 1118 

(D.C. Cir. 1976); Electronic Industries Ass’n v. Federal Communications 

Commission, 554 F.2d 1109 (D.C. Cir. 1976). The court particularly focused 

on the importance of cost in the analysis:

“When the cost of the benefit conferred is exceeded by any 

material amount, one immediately gets into the taxing area 

and the result is revenue and not a fee . . . We do not mean to 

circumscribe the ingenuity of the agencies in dealing with 

this problem. But there still remains the overall 

requirement that the process be fairly related to costs and 

that a proper nexus exist between the service, the cost of 

the service and the fee charged for the service. The fee 

must bear some reasonable relation to the cost or it ceases 

to be a fee and [National Cable Television] does indicate 

that it cannot go beyond being a ‘fee.’ ”

National Ass’n of Broadcasters, 554 F.2d at 1130 n. 28.

Notwithstanding overbroad language occasionally encountered in some 

lower court decisions,108 National Cable Television and New England 

Power do not stand for the proposition that Congress may not delegate the 

authority to assess charges which are more appropriately categorized as 

107 The July 8, 1993, revision of OMB Circular No. A-25 changed “should” to “will” in the 

introductory sentence of section 6 stating its general policy. The 1993 revision is the current 

version of this circular. 

108 See Clayton P. Gillette and Thomas D. Hopkins, Federal User Fees: A Legal and Economic 

Analysis, 67 B.U. L. Rev. 795, 823 (1987). 
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taxes. Indeed, as we will see later in section D.4 of this chapter, it is now 

settled that Congress can do so as long as the statutory delegation is 

sufficiently explicit and provides intelligible guidelines. Rather, these cases 

hold merely that Congress did not do so in the IOAA.

c. Establishing the Fee (1) Need for regulations

Some courts have held that in order to assess fees under the Independent 

Offices Appropriation Act (IOAA), an agency must first issue regulations. 

See, e.g., Sohio Transportation Co. v. United States, 766 F.2d 499, 502 

(Fed. Cir. 1985); Alyeska Pipeline Service Co. v. United States, 624 F.2d 

1005, 1009 (Ct. Cl. 1980); Alaskan Arctic Gas Pipeline Co. v. United States,

9 Cl. Ct. 723, 732–33 (1986), aff’d, 831 F.2d 1043 (Fed. Cir. 1987) (issuance 

of regulations a “condition precedent”). A simple policy statement to the 

effect that fees will be charged for special services has been held too vague 

to support fee assessment. Diapulse Corp. of America v. FDA, 500 F.2d 75, 

79 (2nd Cir. 1974). Rather, since rulemaking under the Administrative 

Procedure Act generally must provide the opportunity for public comment, 

5 U.S.C. § 553, the agency’s notice must include, or make available on 

request, a reasonable explanation of the basis for the proposed fee. This, 

one court has held, must be one that “the concerned public could 

understand.” Engine Manufacturers Association v. EPA, 20 F.3d 

1177, 1181 (D.C. Cir. 1994). In that case, the court rejected as inadequate an 

agency cost analysis which, according to the court, “contains page after 

page of impressive looking but utterly useless tables” and some “complete 

gibberish.” Id. It is probably impossible to predict what would be 

acceptable to any given court at any given time, but cases like this 

demonstrate the need for the agency to observe at least some minimal level 

of clarity and provide its explanation “in intelligible if not plain English.” 

Id. at 1183. The Court of Appeals for the District of Columbia Circuit has 

also stressed the need for the agency to make a clear public statement of 

the basis for its fees so that a reviewing court can measure the agency’s 

action against the Supreme Court’s standards. National Cable Television 

Association v. FCC, 554 F.2d 1094, 1100, 1104–05 (D.C. Cir. 1976).

(2) Benefit under the Independent Offices Appropriation Act

The first step in establishing a fee or fee schedule under the Independent 

Offices Appropriation Act (IOAA) is to “identify the activity which justifies 

each particular fee” the agency wishes to assess. National Cable 

Television Association v. FCC, 554 F.2d 1094, 1100 (D.C. Cir. 1976). Thus, 

the threshold question is what kinds of government services or activities 
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are regarded as conferring special benefits for purposes of the IOAA?109 

The statute itself refers merely to “each service or thing of value provided 

by the agency.” 31 U.S.C. § 9701(a). That this phrase should be construed 

broadly110 is made clear by the source language, 65 Stat. 290, which 

authorized fees for “any work, service, publication, report, document, 

benefit, privilege, authority, use, franchise, license, permit, certificate, 

registration, or similar thing of value or utility performed, furnished, 

provided, granted, prepared, or issued by any Federal agency . . . to or for 

any person (including groups, associations, organizations, partnerships 

corporations or businesses).” OMB Circular No. A-25, User Charges, § 6a 

(July 8, 1993), provides further guidance, stating that, for example—

“a special benefit will be considered to accrue and a user 

charge will be imposed when a Government service:

“(a) enables the beneficiary to obtain more immediate 

or substantial gains or values . . . than those that accrue 

to the general public . . . ; or

“(b) provides business stability or contributes to public 

confidence in the business activity of the beneficiary

 . . . ; or

“(c) is performed at the request of or for the 

convenience of the recipient, and is beyond the services 

regularly received by other members of the same 

industry or group or by the general public . . . .”

One area in which the issue has arisen with some frequency is the 

government’s regulatory activities. On the one hand, the mere fact of 

regulation is not enough to justify a fee. Engine Manufacturers Ass’n v. 

EPA, 20 F.3d 1177, 1180 (D.C. Cir. 1994); Central & Southern Motor Freight 

Tariff Ass’n v. United States, 777 F.2d 722, 729 (D.C. Cir. 1985). On the 

other hand, however, the granting of a license or similar operating authority 

109 Some of the examples in the text are now covered by specific statutory authority and thus 

reliance on the IOAA may no longer be necessary. Our examples are intended merely to 

illustrate the types of services or activities which have been regarded as within the IOAA’s 

scope. 

110 Ayuda, Inc. v. Attorney General, 848 F.2d 1297, 1300 (D.C. Cir. 1988).
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clearly is enough. Seafarers International Union v. United States Coast 

Guard, 81 F.3d 179 (D.C. Cir. 1996) (merchant marine licensing by Coast 

Guard); Engine Manufacturers Ass’n, 20 F.3d at 1180 (EPA certificate of 

approval for motor vehicles); Mississippi Power & Light Co. v. United 

States Nuclear Regulatory Commission, 601 F.2d 223, 229 (5th Cir. 1979), 

cert. denied, 444 U.S. 1102 (1980) (license from the Commission to operate 

nuclear facility); National Cable Television, 554 F.2d at 1103 (grant of 

operating authority by the Federal Communication Commission); 

B-217931-O.M., Apr. 2, 1985 (drug and antibiotic review and approval by the 

Food and Drug Administration).

Where an application is voluntarily withdrawn before final agency action, 

the First Circuit has held that the agency can charge a fee for work done 

prior to withdrawal. New England Power Co. v. United States Nuclear 

Regulatory Commission, 683 F.2d 12 (1st Cir. 1982). The agency’s intent to 

do so must be specified in its regulations. Id. If failure to process is 

attributable to the government, for example, a change in program 

requirements, no fee should be charged and any amounts collected should 

be refunded to the applicants. 53 Comp. Gen. 580 (1974).

An agency may also charge a fee under the IOAA for services which assist 

regulated entities in complying with statutory duties. Electronic 

Industries Ass’n v. FCC, 554 F.2d 1109, 1115 (D.C. Cir. 1976) (tariff filings, 

equipment testing and approval); Raton Gas Transmission Co. v. Federal 

Energy Regulatory Commission, 852 F.2d 612, 617 (D.C. Cir. 1988) (rate 

reduction application); Phillips Petroleum Co. v. Federal Energy 

Regulatory Commission, 786 F.2d 370, 376 (10th Cir. 1986), cert. denied,

479 U.S. 823 (1986) (tariff filings, certifications, charges for transportation 

of natural gas); Mississippi Power & Light, 601 F.2d at 231 (routine safety 

inspections of nuclear facilities); B-216876-O.M., Jan. 30, 1985 (pipeline 

safety inspection). This is particularly true where the statute was enacted 

“in large measure for the benefit of the individuals, firms, or industry upon 

which the agency seeks to impose a fee.” Central & Southern Tariff Ass’n,

777 F.2d at 734 (tariff filing requirement of Interstate Commerce Act and 

Motor Carrier Act).

Use of government property is another activity for which fees may be 

charged under the IOAA. A common example is the granting of a right-ofway over public lands. B-307319, Aug. 23, 2007; B-118678, May 11, 1976. 

Rights-of-way are sought for such things as the construction of power 

transmission facilities and energy pipelines. E.g., Nevada Power Co. v. 

Watt, 711 F.2d 913 (10th Cir. 1983) (electricity transmission lines); Alaskan 
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Arctic Gas Pipeline Co. v. United States, 9 Cl. Ct. 723 (1986), aff’d,

831 F.2d 1043 (Fed. Cir. 1987) (gas pipeline); Sohio Transportation Co. v. 

United States, 5 Cl. Ct. 620 (1984); aff’d, 766 F.2d 499 (Fed. Cir. 1985) (oil 

pipeline). Other examples are nonfederal use under a revocable license 

(B-180221, Aug. 20, 1976 (nondecision letter)), and commercial leasing by 

the Alaska Railroad (B-124195-O.M., Apr. 12, 1977). This category also 

illustrates the point that those liable for fees under the IOAA can, in 

appropriate circumstances, include government employees. E.g.,

B-148736, Apr. 6, 1976 (use of facilities at certain national parks as “guest 

houses” for federal officials); B-212397-O.M., July 13, 1984 (locker room 

facilities in government building).

Information is certainly a “thing of value.” Accordingly, the dissemination 

or distribution of information is another area subject to the IOAA to the 

extent not governed by some other statute such as the Freedom of 

Information Act. See 5 U.S.C. § 552. IOAA user fees have been held 

appropriate for such things as copying and delivery of materials requested 

in discovery by parties to an agency enforcement action (B-302825, Dec. 22, 

2004), subscriptions to government publications (B-110418, July 8, 1952), 

subscription to a Department of Agriculture market news wire service 

(B-128056, July 8, 1966), and international flight documentation provided to 

aviation interests by the National Weather Service (B-133202-O.M., Sept. 17, 

1976). Examples from the procurement arena are B-236822, Sept. 8, 1989 

(fee for copies of specifications and drawings); B-209933, June 6, 1983 (fee 

for solicitation documents); and B-184007, Sept. 24, 1975 (fee for copy of 

bid abstract).111 The statute applies even to requests for information 

directly about the requester. Reinoehl v. Hershey, 426 F.2d 815 (9th Cir. 

1970) (pre-indictment request for documents from Selective Service file).

Starting in the 1980s, emphasis began to shift to electronic dissemination. 

A 1986 congressional study found the IOAA not particularly suited to 

information services but still better than nothing, and told agencies to do 

111 Generally, solicitation documents, including specifications, technical data, and other 

pertinent information determined necessary by the contracting officer, are publicly 

available at www.fedbizopps.gov (last visited Mar. 20, 2008). In certain circumstances, 

however, when solicitation documents are not otherwise publicly available, the contracting 

officer will provide these documents and may require payment of a fee, not exceeding the 

actual cost of duplication of these documents. See 48 C.F.R. § 5.102.
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the best they could under it until something better comes along.112 Some of 

the complexities are illustrated in B-219338, June 2, 1987, discussing a 

Department of Agriculture system established under a statute (7 U.S.C. 

§ 2242a) which mandates consistency with the IOAA.

An agency may permit a contractor to provide information to the public, 

with the contractor assessing and retaining the fees, but the fees may not 

exceed what the agency could have charged had it provided the 

information directly. 61 Comp. Gen. 285 (1982); B-166506, Oct. 20, 1975. 

See also chapter 3 of GAO’s report ADP Acquisition: SEC Needs to Resolve 

Key Issues Before Proceeding With Its EDGAR System, GAO/IMTEC-87-2 

(Washington, D.C.: Oct. 9, 1986).

Another activity susceptible to IOAA fees is adjudicatory services by an 

administrative agency. The services may or may not be incident to a 

regulatory program. An example of the former is Federal Energy 

Regulatory Commission review of administrative appeals of remedial 

orders. B-224596, Aug. 21, 1987. An example of the latter is the range of 

adjudicatory services rendered to aliens by the U.S. Citizenship and 

Immigration Services in the Department of Homeland Security (previously 

provided by the then Immigration and Naturalization Service in the 

Department of Justice). Ayuda, Inc. v. Attorney General, 661 F. Supp. 33 

(D.D.C. 1987), aff’d, 848 F.2d 1297 (D.C. Cir. 1988); B-125031-O.M., July 23, 

1974. As the Ayuda appellate court stressed, the procedures “are triggered 

only at the instance of the individual who seeks, obviously, to benefit from 

them.” Ayuda, 848 F.2d at 1301. Another example is B-167062, June 13, 

1969 (IOAA reimbursement to former Civil Service Commission for 

advisory opinions rendered at request of foreign military representatives in 

United States).

Fees incident to litigation in the courts are also commonplace, but they 

implicate certain constitutional considerations and are prescribed under 

statutes other than the IOAA. See 28 U.S.C. §§ 1911 (Supreme Court), 1913 

(courts of appeals), 1914 (district courts), 1926 (Court of Federal Claims), 

1930 (bankruptcy fees). The rule is that, with the exception of certain 

indigent situations, reasonable fees may be charged to those seeking 

access to the courts. E.g., Lumbert v. Illinois Department of Corrections,

112 House Committee on Government Operations, Electronic Collection and Dissemination 

of Information by Federal Agencies: A Policy Overview, H.R. Rep. No. 99-560, at 37–38 

(1986).
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827 F.2d 257 (7th Cir. 1987).113 Fees may be charged even to involuntary 

litigants provided they do not unduly burden access to the judicial process, 

determined by balancing the litigant’s interest against the government’s 

interest in assessing the fee. In re South, 689 F.2d 162 (10th Cir. 1982), cert. 

denied, 460 U.S. 1069 (1983); In re Red Barn, Inc., 23 B.R. 593 (Bankr. D. 

Me. 1982).

Still another example is transportation services. Thus, if local services are 

not available, the National Park Service may provide transportation to 

injured or ill visitors in national parks, but should attempt to recover its 

costs under the IOAA. B-198032, June 3, 1981. A case analogous to the 

“information contractor” cases noted above is 46 Comp. Gen. 616 (1967). 

Public transportation to a then Veterans Administration hospital in an 

isolated area had been discontinued due to a low level of usage. Aware that 

visits by family members often have significant therapeutic value to 

patients, GAO agreed that the VA could use its appropriated funds to 

remedy the situation. One approach would have been for the VA to furnish 

transportation directly, presumably charging the riders under authority of 

the IOAA. However, the VA found it would be substantially less expensive 

to enter into a “subsidy contract” with a private carrier under which the 

carrier would be paid a guaranteed annual amount less fares collected, the 

fares to be comparable to commercial common carrier fares. GAO 

concurred, advising that payment should be on a net balance basis and that 

the contract should include adequate controls to insure proper accounting 

of the fares collected.

While it is possible to categorize a great many of the user fee situations as 

we have tried to do here—regulatory activities, use of government 

property, dissemination of information, adjudicatory services, 

transportation services—there are also many situations which defy further 

generalization, the test being simply whether an activity fits the terms of 

the statute as the courts have construed it. Thus, GAO has regarded the 

IOAA’s authority as extending to the following:

113 Even indigents are sometimes liable for fees. In 1996, Congress amended 28 U.S.C. 

§ 1915(b) to make prisoners financially responsible for eventually paying the full filing fees 

in civil actions and appeals that they bring in forma pauperis. Pub. L. No. 104-134, title I 

[title VIII, § 804(a)], 110 Stat. 1321, 1321-73–74 (Apr. 26, 1996). The statute generally requires 

that such prisoners pay the fees in installments, to the extent they have resources in their 

prison accounts. Prisoners are not entitled to a refund or to relief of their indebtedness with 

respect to the fees if they withdraw their appeals. Goins v. DeCaro, 241 F.3d 260 (2nd Cir. 

2001).
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• Fees charged to nonfederal participants in government-sponsored 

conference. B-190244, Nov. 28, 1977.

• Surcharge for expedited processing of passport applications. B-118682, 

June 22, 1970.114 (The basic fee is authorized by 22 U.S.C. § 214.)

• Fees for certain allotments from the pay of civilian employees under 

5 U.S.C. § 5525. 42 Comp. Gen. 663 (1963) (state income tax where 

withholding is not required); B-152032, Aug. 1, 1963 (private disability 

income insurance).115 The Office of Personnel Management’s 

regulations implementing 5 U.S.C. § 5525 are found at 5 C.F.R. part 550, 

subpart C.

(3) Public versus private benefit

The Supreme Court, in National Cable Television Ass’n v. United States, 

415 U.S. 336 (1974), cautioned that an attempt by a regulatory agency to 

recover its full operating costs would amount to charging the regulated 

entities for those portions of the program that benefit the public as a whole. 

This would go beyond the concept of a “fee,” which is all the Independent 

Offices Appropriation Act (IOAA) authorizes. Implicit in this is the 

recognition that a government activity which benefits a private party also 

to greater or lesser extent includes an element of public benefit, and it may 

not always be possible to draw a clear line of demarcation.

114 The State Department’s 1995 appropriation act provided permanent authority to credit 

these charges to the Administration of Foreign Affairs account as an offsetting collection. 

Pub. L. No. 103-317, 108 Stat. 1724, 1760 (Aug. 26, 1994).

115 GAO had also held that a reasonable fee could be charged to unions for the payroll 

deduction of union dues (42 Comp. Gen. 342 (1963)), but legislation now prohibits charging 

either the union or the employee. 5 U.S.C. § 7115(a).
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Although the Supreme Court has not revisited the IOAA since 1974, two 

important principles have emerged from the body of lower court 

jurisprudence:116

• When establishing a fee for a specific benefit conferred on an 

identifiable beneficiary in a regulatory context, the agency must 

exclude expenses incurred in serving some independent public 

interest.

• Once it is established that a given activity confers a specific benefit on 

an identifiable beneficiary, the agency may charge its full costs of 

providing the service, regardless of the fact that the service may 

incidentally benefit the general public as well. 

The D.C. Circuit has offered the following test: “If the asserted public 

benefits are the necessary consequence of the agency’s provision of the 

relevant private benefits, then the public benefits are not independent, and 

the agency would therefore not need to allocate any costs to the public.” 

Central & Southern Motor Freight Tariff Ass’n v. United States, 777 F.2d 

722, 732 (D.C. Cir. 1985).

More recently, the D.C. Circuit has come to view the term “private benefit” 

with disfavor because it can mislead parties into attempting to weigh the 

“public” versus “private” benefits of a given government activity. The 

correct principle, said the court, is simply that the IOAA authorizes an 

agency to charge the full cost of a service which confers a specific benefit 

on an identifiable beneficiary, notwithstanding any incidental benefit to the 

general public. There is no need to weigh the relative public and private 

interests. Seafarers International Union v. United States Coast Guard,

81 F.3d 179, 183–85 (D.C. Cir. 1996). The Seafarers decision also contains 

an illustration of an “independent” public benefit although the court uses a 

slightly different characterization. If, as part of the process of issuing 

merchant marine licenses to qualified individuals, the Coast Guard chooses 

116 Engine Manufacturers Ass’n v. EPA, 20 F.3d 1177, 1180 (D.C. Cir. 1994); Phillips 

Petroleum Co. v. Federal Energy Regulatory Commission, 786 F.2d 370 (10th Cir.), cert. 

denied, 479 U.S. 823 (1986); Mississippi Power & Light Co. v. United States Nuclear 

Regulatory Commission, 601 F.2d 223, 229–30 (5th Cir. 1979), cert. denied, 444 U.S. 1102 

(1980); National Cable Television Ass’n v. FCC, 554 F.2d 1094, 1104 (D.C. Cir. 1976); 

Electronic Industries Ass’n v. FCC, 554 F.2d 1109, 1114–15 (D.C. Cir. 1976). The guidance in 

OMB Circular No. A-25, User Charges, § 6a(3) (July 8, 1993), also embodies these principles. 

See also B-307319, Aug. 23, 2007.
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to conduct boat inspections, it cannot include the cost of the boat 

inspections in the fee charged to the applicants because those costs are not 

“materially related” to the statutory license requirements. Id. at 186.

One issue which has provided a battleground for these concepts is whether 

a fee authorized by the IOAA can include the cost of preparing an 

environmental impact statement (EIS) required by the National 

Environmental Policy Act, 42 U.S.C. § 4332(2)(C). In a 1976 opinion to a 

Member of Congress, GAO expressed what would later become the 

established rule: “[W]here an impact statement is required to be prepared 

in connection with the processing of a right-of-way, we believe that the 

agency may include its cost as a direct cost attributable to the special 

benefit represented by the right-of-way which is chargeable to the applicant 

under 31 U.S.C. § [9701].” B-118678, May 11, 1976, at 2.

In view of the substantial sums involved, however, it was inevitable that the 

issue would find its way to the courts—again and again. The first published 

court decision to consider the question was Public Service Co. v. Andrus,

433 F. Supp. 144 (D. Colo. 1977), in which the plaintiffs had sought rights-ofway over federal lands for electric power transmission lines. The plaintiffs 

argued—as they would in every case—that the National Environmental 

Policy Act was enacted for the primary benefit of the general public, not 

them. The court agreed, holding that EIS costs “are not of primary benefit 

to the right of way applicant, and thus cannot properly be charged as fees” 

under the IOAA. Public Service, 433 F. Supp. at 153.

While Public Service has never been directly overruled,117 this portion of it 

has been effectively repudiated. The Fifth Circuit considered the issue in 

connection with Nuclear Regulatory Commission (NRC) licensing fees, 

holding that the NRC could include the EIS costs notwithstanding the 

“obvious public benefit” because they are a mandatory prerequisite to the 

issuance of a license and hence properly chargeable as part of the full cost 

of conferring the benefit. Mississippi Power & Light Co., 601 F.2d at 231. 

A few years later, the Tenth Circuit, the governing circuit of the Colorado 

117 An article written by an Interior Department attorney explains that Public Service was 

not appealed because the Bureau of Land Management thought that the newly enacted 

Federal Land Policy and Management Act provided the necessary authority. Kristina Clark, 

Public Lands Rights-of-Way: Who Pays for the Environmental Studies?, 2 Natural 

Resources & Environment 3, 4 (1986).
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court which decided the Public Service case, said the same thing. Nevada 

Power Co. v. Watt, 711 F.2d 913, 933 (10th Cir. 1983).118 Other cases reaching 

the same result are Alaskan Arctic Gas Pipeline Co. v. United States,

9 Cl. Ct. 723 (1986), aff’d, 831 F.2d 1043 (Fed. Cir. 1987), and Sohio 

Transportation Co. v. United States, 5 Cl. Ct. 620 (1984), aff’d, 766 F.2d 499 

(Fed. Cir. 1985).

(4) Calculation

Up to this point, we have established that the agency must identify its 

activities which provide specific services within the scope of the 

Independent Offices Appropriation Act (IOAA) and must be able to identify 

specific beneficiaries; having done this, it may charge those beneficiaries 

the full cost of providing the services, any incidental benefits to the general 

public notwithstanding, but excluding the cost of independent public 

benefits. OMB Circular No. A-25 sets out two methodologies for setting 

fees:

• fees based on an agency’s costs, such that the agency gets a “full cost” 

recovery, which should be used when the government is acting in it 

capacity as sovereign; and

• fees based on “market price” (i.e., the market value of the goods or 

services provided), which should be used under business-type 

conditions, such as when leasing or selling goods or resources. 

OMB Cir. No. A-25, User Charges, § 6.a (July 8, 1993). It remains to 

translate this into dollars and cents.

Fees based on costs in regulatory context

Courts have had many occasions to review fees of regulatory agencies. The 

agency must first separate its beneficiaries into “recipient classes” 

(applicants, grantees, carriers, etc.), among which costs will be allocated. 

Each recipient class should be “the smallest unit that is practical.” 

Electronic Industries Ass’n v. FCC, 554 F.2d 1109, 1116 (D.C. Cir. 1976). 

118 Nevada Power also held that EIS costs can be assessed under the Federal Land Policy 

and Management Act, but only to the extent warranted by a consideration of the 

reasonableness factors listed in 43 U.S.C. § 1734(b). Nevada Power, 711 F.2d at 933. See 

also Alumet v. Andrus, 607 F.2d 911 (10th Cir. 1979).
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The agency then proceeds to calculate the cost basis for each fee assessed 

against each recipient class.

Full cost for purposes of the IOAA includes both direct and indirect costs. 

Engine Manufacturers Ass’n v. EPA, 20 F.3d 1177, 1181 (D.C. Cir. 1994); 

Electronic Industries Ass’n, 554 F.2d at 1117; Public Service Co. v. 

Andrus, 433 F. Supp. 144, 155 (D. Colo. 1977); B-237546, Jan. 12, 1990; OMB 

Cir. No. A-25, User Charges, § 6d (July 8, 1993). As GAO pointed out, the 

original version of the IOAA specified that the fee take into consideration 

“direct and indirect” cost to the government (65 Stat. 290), but the 1982 

recodification in 31 U.S.C. § 9701 dropped these words as unnecessary. 

B-237546, Jan. 12, 1990. Indirect costs include administrative overhead. 

55 Comp. Gen. 456 (1975). They also include depreciation of plant and 

equipment. 38 Comp. Gen. 734 (1959), aff’d, 56 Comp. Gen. 275, 277 (1977). 

The Fifth Circuit has offered the following explanation: 

“The cost of performing a service, such as granting a license 

to construct a nuclear reactor, involves a greater cost to the 

agency than merely the salary of the professional employee 

who reviews the application. The individual must be 

supplied working space, heating, lighting, telephone service 

and secretarial support. Arrangements must be made so 

that he is hired, paid on a regular basis and provided 

specialized training courses. These and other costs such as 

depreciation and interest on plant and capital equipment are 

all necessarily incurred in the process of reviewing an 

application. Without these supporting services, professional 

employees could not perform the services requested by 

applicants.

“Such costs may be assessed against an applicant as part of 

the total cost of processing and approving a license; we 

emphasize again that the Commission may recover the full 

cost of providing a service to a beneficiary.”

Mississippi Power & Light Co. v. United States Nuclear Regulatory 

Commission, 601 F.2d 223, 232 (5th Cir. 1979), cert denied, 444 U.S. 1102 

(1980) (emphasis in original).

The agency is not required to calculate its costs with “scientific precision.” 

Central & Southern Motor Freight Tariff Ass’n v. United States, 777 F.2d 

722, 736 (D.C. Cir. 1985). Reasonable approximations will suffice. Id.; 
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Mississippi Power & Light, 601 F.2d at 232; National Cable Television 

Ass’n v. FCC, 554 F.2d 1094, 1105 (D.C. Cir. 1976); 36 Comp. Gen. 75 (1956). 

Thus, it was “entirely sensible and reasonable” for an agency to use the 

governmental fringe benefit cost percentage from an existing Office of 

Management and Budget source rather than conduct its own probably 

duplicative study. Central & Southern Tariff Ass’n, 777 F.2d at 736.

The final step is for the agency to “divide that cost among the members of 

the recipient class . . . in such a way as to assess each a fee which is roughly 

proportional to the ‘value’ which that member has thereby received.” 

National Cable Television Ass’n, 554 F.2d at 1105–06.

In the regulatory context, the fee cannot exceed the agency’s cost of 

rendering the service. Central & Southern Motor Freight Tariff Ass’n,

777 F.2d at 729; Mississippi Power & Light, 601 F.2d at 230; Electronic 

Industries Ass’n, 554 F.2d at 1114. The fee must also be reasonably related 

to the value of the service to the recipient, and may not unreasonably 

exceed that value. Central & Southern Motor Freight Tariff Ass’n,

777 F.2d at 729; National Cable Television Ass’n, 554 F.2d at 1106. This is 

because the IOAA requires that the fee be based on both factors and that it 

be “fair.” 31 U.S.C. §§ 9701(b)(1), (b)(2)(A) and (B). While the courts have 

not suggested that the agency must engage in a separate calculation of 

“value to the recipient” in order to compare it to the government’s costs, 

neither have they furnished instruction on how to measure that value. The 

D.C. Circuit, in a 1996 case, tried to simplify matters by stating that “the 

measure of fees is the cost to the government of providing the service, not 

the intrinsic value of the service to the recipient,” but acknowledged that 

this would still be subject to the statutory fairness prescription. Seafarers 

International Union v. United States Coast Guard, 81 F.3d 179, 185 and 

n.4 (D.C. Cir. 1996). Thus, the agency must calculate its fee on the basis of 

its actual or estimated costs. 

When an agency applies these principles, the agency might well not be able 

to recover its full costs in the case of a high-cost but low-value service.119 

Conversely, in a situation where the value to the recipient may substantially 

exceed the cost to the government, the agency will be able to recover its 

119 Gillette and Hopkins conclude that “[i]n effect courts limit fees to either cost to the 

government or value to the beneficiary, whichever is lower.” Clayton P. Gillette and 

Thomas D. Hopkins, Federal User Fees: A Legal and Economic Analysis, 67 B.U. L. 

Rev. 795, 839 (1987).
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full costs but no more. It is improper, for example, to look to the value the 

recipient may derive from the service, such as anticipated profits. National 

Cable Television Ass’n, 554 F.2d at 1107. In the cited case, the fee charged 

to cable operators was based on the number of subscribers. The court 

recognized the possibility that increased numbers of subscribers could 

produce increases in agency regulatory costs, but required evidence of that 

linkage to avoid concluding that the fee was based on revenues, which the 

IOAA does not authorize. Id. at 1108. Similarly, the IOAA does not 

authorize an agency to levy a surcharge over and above its costs, or to vary 

its fees among beneficiaries. Capital Cities Communications, Inc. v. 

FCC, 554 F.2d 1135, 1138 (D.C. Cir. 1976); B-237546, Jan. 12, 1990. Of 

course there is no objection to use of a sliding scale if the graduated fees in 

fact reflect graduated costs. Electronic Industries Ass’n, 554 F.2d at 1116; 

B-237546, Jan. 12, 1990.

Depending on the circumstances, a fee system which permits deviation 

from established schedules may be acceptable. The case of Phillips 

Petroleum Co. v. Federal Energy Regulatory Commission, 786 F.2d 370 

(10th Cir.), cert. denied, 479 U.S. 823 (1986), provides an illustration. The 

agency had a fee schedule for regulatory filings, but occasionally received 

filings which were much more extensive than average. Factoring the 

extraordinary cases into the regular schedule would have meant that the 

average filings would be subsidizing the extensive ones. To avoid this, the 

agency developed a system, published in its orders, whereby an 

extraordinary filing would be billed not under the schedules but on the 

basis of the direct and indirect costs associated with that specific filing. 

The court found this system in accord with the IOAA and a reasonable 

exercise of the agency’s discretion, not just a pretext to avoid work. 

Phillips Petroleum, 786 F.2d at 378–79.

If any of this sounds easy, it is not. The D.C. Circuit conceded the “extreme 

difficulty” of the task, which it said, “resembles unscrambling eggs.” 

Electronic Industries Ass’n, 554 F.2d at 1117. GAO in its many reports on 

the IOAA also acknowledges the difficulty of the task but regards the 

obstacles as not insurmountable. B-201667-O.M., May 5, 1981. A more 

detailed discussion may be found in GAO, Establishing a Proper Fee 

Schedule Under the Independent Offices Appropriation Act, 1952,

CED-77-70 (Washington, D.C.: May 6, 1977).
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Fees based on market value

The foregoing discussion has all been in the regulatory context with the 

government acting in its capacity as sovereign. The same rules do not 

necessarily apply when the government is selling goods, property, or 

services. 

In 1982, the then Court of Claims examined a contract dispute between the 

National Park Service (NPS) and a concessioner in Yosemite National Park, 

the Yosemite Park and Curry Company. Yosemite Park & Curry Co. v. 

United States, 686 F.2d 925, 929 (Ct. Cl. 1982). As part of the concession, 

the concessioner purchased electricity from NPS. NPS is authorized by 

16 U.S.C. § 1b(4) to provide electricity to concessioners on a reimbursable 

basis. The concessioner asserted that NPS was overcharging for the 

electricity it supplied because NPS charged rates based on local utility 

rates, which could exceed NPS costs. The Court of Claims referred to a 

variety of authorities, including the then Bureau of the Budget 

Circular A-25 and IOAA, in concluding that the NPS rate-setting 

methodology was “reasonable” within the meaning of the contract, 

although it, in fact, might result in NPS charging a rate in excess of cost. Id. 

at 930. Circular A-25 at the time provided that “[w]here federally owned 

resources or property are leased or sold, a fair market value should be 

obtained,” as determined by the application of “sound business 

management principles and comparable commercial practices.”120

In referring to IOAA, the Court of Claims acknowledged the line of federal 

cases interpreting IOAA to “mandate a cost based fee schedule” and 

establish that “cost must be the ultimate basis of fees,” but found that those 

cases were “not apposite” to NPS’s authority under 16 U.S.C. § 1b(4). Id. 

at 930–32. Instead, the court relied on the fact that the government was not 

acting, in that instance, as a sovereign: “In the present case . . . the 

Government has not created the need for electricity, nor is the service 

provided a regulatory one.” Id. at 932. In selling electricity to the 

concessioner, the government was entering into a voluntary contract for 

the sale of electricity to a willing partner. Id. at 934. This is fundamentally 

different from the circumstances in National Cable Television Ass’n v. 

United States, 415 U.S. 766 (1974), for instance, where “the Government’s 

power to allocate the airwaves and to issue licenses came not from its 

ownership of the airwaves but from its sovereign power to regulate certain 

120 Bureau of the Budget, Circular No. A-25, ¶¶ 3(b), 4(e) (Sept. 23, 1959). 
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activities . . .” Id. Thus, the Court of Claims found the comparative-rate 

system methodology used by NPS to set rates for electricity acceptable, 

despite the fact that those rates could exceed NPS costs. See also 

B-307319, Aug. 23, 2007.

Subsequently, the Office of Management and Budget adopted the court’s 

distinction between the government acting as a sovereign and the 

government acting commercially in setting user fees for goods and services 

in the 1993 revision to its Circular No. A-25 (which is the current version) 

as follows:

“[U]ser charges will be based on market prices (as defined 

in Section 6d) when the Government, not acting in its 

capacity as sovereign, is leasing or selling goods or 

resources, or is providing a service (e.g., leasing space in 

federally owned buildings). Under these business-type 

conditions, user charges need not be limited to the recovery 

of full cost and may yield net revenues.”

OMB Circular No. A-25, User Charges, § 6a(2)(b) (July 8, 1993).

d. Refunds It would seem an elementary proposition that money collected in excess of 

what is due should be refunded, and there is no reason this should not 

apply to fees under the Independent Offices Appropriation Act (IOAA). 

After the Supreme Court handed down its decision in National Cable 

Television Ass’n v. United States, 415 U.S. 336 (1974), holding that the 

IOAA authorized only fees, not taxes, the Federal Communications 

Commission (FCC) refunded the cable television fees it had collected 

under the schedule the Court struck down.121 Shortly thereafter, other 

regulated entities which had paid fees under the same schedule sued the 

FCC to have their fees refunded. In National Association of 

Broadcasters v. FCC, 554 F.2d 1118 (D.C. Cir. 1976), the court held that the 

FCC’s broadcast system fees were vulnerable under the Supreme Court’s 

interpretation the same as its cable television fees. It did not follow, 

however, that the entire fee was invalid. Noting what it called the 

“mandate” of the IOAA that government services to identifiable 

beneficiaries should be self-sustaining to the extent possible (31 U.S.C. 

§ 9701(a)), the court said: “It is our interpretation of this mandate that the 

121 See National Cable Television Ass’n v. FCC, 554 F.2d 1094, 1098 n.9 (D.C. Cir. 1976). 
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Commission should retain the maximum portion of the fees collected that 

would be permissible under the principles announced in [cited Supreme 

Court decisions] and the statute.” National Association of Broadcasters, 

554 F.2d at 1133. Accordingly, the court remanded the case to the FCC to 

calculate a proper fee under the court’s guidelines and to then “refund that 

portion of the money which was collected in excess thereof.” Id.

The court was careful to point out that it was not asking the agency to 

engage in “retroactive rulemaking.” Id. at 1133 n.42. The D.C. Circuit 

revisited this concept several years later in Air Transport Ass’n of 

America v. Civil Aeronautics Board, 732 F.2d 219 (D.C. Cir. 1984). The 

defendant agency had revised its fee schedules following the fee/tax refund 

litigation of the mid-1970s and announced a refund policy under which it 

would offset the total amount of fees a claimant had paid during a calendar 

year against the total amount of recalculated fees the agency could have 

charged, and actually pay a refund only if and to the extent the former 

exceeded the latter. Finding that this offset policy amounted to unlawful 

retroactive rulemaking, the court emphasized that the principle of National 

Association of Broadcasters must be applied on an individual fee basis. 

Air Transport, 732 F.2d at 226–28. The court also flatly rejected a claim for 

the refund of the full amount of the fees as “irreconcilable” with National 

Association of Broadcasters. Id. at 228 n.17.

If the principle of National Association of Broadcasters—that the agency 

may retain what it could have charged under a properly established fee and 

must refund only the excess—is circumscribed by considerations of 

retroactive rulemaking, one situation in which refund of the entire fee may 

appear appropriate is where the agency did not have regulations to begin 

with. The Court of Claims reached this result in Alyeska Pipeline Service 

Co. v. United States, 624 F.2d 1005 (Ct. Cl. 1980). See also B-145252-O.M., 

Nov. 12, 1976.

If an agency is refunding fees which were improperly assessed under IOAA 

guidelines, and if those fees were deposited in the Treasury as 

miscellaneous receipts as the IOAA requires, then the refund is chargeable 

to the permanent, indefinite appropriation entitled “Refund of Moneys 

Erroneously Received and Covered,” established by 31 U.S.C. § 1322(b)(2). 
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55 Comp. Gen. 243 (1975);122 B-181025, July 11, 1974. If the agency has been 

authorized to credit the fee to some other appropriation or fund, the refund 

is chargeable to the appropriation or fund to which the fee was credited. 

See, e.g., 55 Comp. Gen. 625 (1976).

Absent statutory direction to the contrary, the rules of the preceding 

paragraph apply equally to refunds of fees collected under statutes other 

than the IOAA. For example, fees under the Federal Land Policy and 

Management Act are deposited in a “special account” from which they are 

authorized to be appropriated. 43 U.S.C. § 1734(b). Erroneous or 

excessive fees may be refunded “from applicable funds.” Id. § 1734(c). 

Where an appropriation from the special account has actually been made, 

that appropriation is the “applicable fund.” 61 Comp. Gen. 224 (1982). If 

the statute is silent as to disposition, the fees are properly treated as 

miscellaneous receipts, in which event refunds of erroneous or excessive 

fees are chargeable to the “Erroneously Received and Covered” account. 

Id.

OMB Circular No. A-25, User Charges, § 6a(2)(c) (July 8, 1993), tells 

agencies to collect user fees “in advance of, or simultaneously with, the 

rendering of services unless appropriations and authority are provided in 

advance to allow reimbursable services.” An agency collecting a fee in 

advance should use common sense to avoid depositing the money in the 

general fund prematurely. In 53 Comp. Gen. 580 (1974), for example, fees 

for certain permits had been deposited as miscellaneous receipts when a 

change in the law authorized transfer of permit issuance to the states but 

made no provision for transfer of funds. When the state also charged a fee, 

applicants naturally sought refund of the fees they had already paid to the 

federal government and for which they had received nothing. Although not 

discussed in the decision, the “Erroneously Received and Covered” 

appropriation was not available because the receipt of the fees had been 

entirely proper. The solution was a two-step procedure—make an 

adjustment from the receipt account to the agency’s suspense account to 

correct the erroneous deposit, then make the refund from the suspense 

account. The proper accounting treatment should have been to retain the 

fees in the suspense account or a trust account until they were “earned” by 

122 The question of the amount to be refunded was not raised in the GAO decision. In any 

event, to the extent 55 Comp. Gen. 243 implies that the entire fee should be refunded, it is of 

course to that extent superseded by the subsequent D.C. Circuit precedent in National 

Association of Broadcasters.
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performance, then transferred to the appropriate general fund receipt 

account. See, e.g., A-44005, Apr. 24, 1935.

For refund purposes, whether or not the fees were paid under protest is 

immaterial. Alyeska Pipeline Service Co., 624 F.2d at 1018; 55 Comp. Gen. 

at 244. However, waiting too long to assert a claim could be fatal under the 

doctrine of laches if, for example, through no fault on the part of the 

agency, records are no longer available from which the fees could be 

recalculated. Air Transport, 732 F.2d at 225–26. Laches will not help an 

agency which fails to retain adequate records if it is on notice of a challenge 

to its fee schedule. Id. at 226 n.14. Whether a simple payment under 

protest will serve this purpose is not clear.

4. Other Authorities

a. Subsection (c) of the 

Independent Offices 

Appropriation Act

For approximately 35 years, although there were other fee statutes on the 

books, the Independent Offices Appropriation Act (IOAA) was the 

predominant federal user fee statute; it remains the only governmentwide 

authority. In the mid-1980s, however, as the need to attack the growing 

budget deficit took center stage, and general tax increases were not 

forthcoming, congressional attention turned increasingly to user fees as a 

revenue source. Starting in 1986, Congress enacted dozens of fee 

provisions directed at particular agencies or activities.123

The relationship between the IOAA and these other statutes is addressed in 

the IOAA itself, specifically 31 U.S.C. § 9701(c):

“(c) This section does not affect a law of the United States—

“(1) prohibiting the determination and collection of 

charges [or directing] the disposition of those charges; 

and

123 Several important provisions appeared in the Consolidated Omnibus Budget 

Reconciliation Act of 1985 (Pub. L. No. 99-272, 100 Stat. 82 (Apr. 7, 1986)), the Omnibus 

Budget Reconciliation Act of 1986 (Pub. L. No. 99-509, 100 Stat. 1874 (Oct. 21, 1986)), and 

the Omnibus Budget Reconciliation Act of 1990 (Pub. L. No. 101-508, 104 Stat. 1388 (Nov. 5, 

1990)). For more detail, see Congressional Budget Office, The Growth of Federal User 

Charges (Aug. 1993), at 19–22, and The Growth of Federal User Charges: An Update 

(Oct. 1995).
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“(2) prescribing bases for determining charges, but a 

charge may be redetermined under this section 

consistent with the prescribed bases.”124

This is largely a codification of the canon of construction that a general 

statute must yield to the terms of a specific statute addressing the same 

subject matter. 

Perhaps the simplest application of section 9701(c) is the prohibitory 

statute, in which case the IOAA is knocked out of the picture. An example 

is 21 U.S.C. § 695 which provides that, except for certain overtime services, 

the “cost of inspection . . . under the requirements of laws relating to 

Federal inspection of meat and meat food products shall be borne by the 

United States.” Enacted in 1948, this statute replaced an unsuccessful 

1-year experiment in financing federal meat inspections through user fees. 

See S. Rep. No. 81-2120, at 5 (1950); Combs v. United States, 98 F. Supp. 749 

(D. Vt. 1951). Unlike the broad proscription of the meat inspection statute, 

a prohibitory statute may simply have the effect of barring reliance on the 

IOAA, effectively requiring more explicit authority. The Food and Drug 

Administration’s (FDA) appropriation, for example, regularly carries a 

proviso that prohibits use of the FDA’s Salaries and Expenses money “to 

develop, establish, or operate any program of user fees authorized by 

31 U.S.C. § 9701.” For the fiscal year 2006 version, see Pub. L. No. 109-97, 

title VI, 119 Stat. 2120, 2148 (Nov. 10, 2005). The origin of this proviso is 

discussed in B-217931, July 31, 1985. The FDA does have a user fee system, 

but it is authorized under the FDA’s own detailed and specific legislation 

(21 U.S.C. § 379h), not the IOAA.

The Small Business Administration (SBA) is another agency with a specific, 

and exclusive, statutory user fee system. Section 634(b)(12) of title 15, 

United States Code, provides that SBA may “impose, retain, and use only 

those fees which are specifically authorized by law or which are in effect 

on September 30, 1994.” It goes on to authorize certain specific fees to be 

imposed and used subject to approval in appropriation acts. Relying on 

124 In the recodified version carried in the United States Code, the word “and” appears in 

place of the words bracketed in the text, which is clearly erroneous. The meaning is 

clarified by resort to the source provision: the IOAA shall not “modify existing statutes 

prohibiting the collection, fixing the amount, or directing the disposition of any fee, charge, 

or price” (65 Stat. 290). The conjunctive “and” is meaningless because a statute which 

prohibits charging a fee would have no occasion to then address, much less prohibit, 

disposition.
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section 634(b)(12), GAO held in B-300248, Jan. 15, 2004, that SBA could not 

impose certain fees on lenders in its Preferred Lender Program since such 

fees were not specifically authorized under SBA’s statutes and the IOAA 

was not available to SBA as an independent source of authority.125

GAO stated its approach to 31 U.S.C. § 9701(c) vis-à-vis other fee statutes 

in 55 Comp. Gen. 456, 461 (1975): “[I]t has consistently been our view 

that . . . 31 U.S.C. § [9701(c)] preclude[s] the imposition of additional user 

charges under that section only to the extent that another statute expressly 

or by clear design constitutes the only source of assessments for a service.” 

See also B-307319, Aug. 23, 2007.

b. Independent Offices 

Appropriation Act 

Incorporated by Reference

One form of user fee statute is based directly on the Independent Offices 

Appropriation Act (IOAA) and makes explicit reference to it. An example 

is 14 U.S.C. § 664(a): “A fee or charge for a service or thing of value 

provided by the Coast Guard shall be prescribed as provided in 

section 9701 of title 31.” Another very similar Coast Guard statute is 

46 U.S.C. § 2110(a)(1). 

The main thrust of statutes like these is to remove the discretionary aspect 

of the IOAA and to make the authority mandatory. See Boat Owners Ass’n 

of the United States v. United States, 834 F. Supp. 7, 12 (D.D.C. 1993). A 

statute of this type may include its own limitations on use of the authority. 

For example, the Coast Guard legislation prohibits charging a fee for any 

search or rescue service. 46 U.S.C. § 2110(a)(5). 

Another example is 42 U.S.C. § 2214(b), applicable to the Nuclear 

Regulatory Commission, enacted as part of the 1990 Omnibus Budget 

Reconciliation Act: “Pursuant to section 9701 of Title 31, any person who 

receives a service or thing of value from the Commission shall pay fees to 

cover the Commission’s costs in providing any such service or thing of 

value.” Like the Coast Guard statutes, use of the word “shall” makes 

mandatory what would otherwise be discretionary under the IOAA.

One step removed from these is a statute which authorizes or directs the 

charging of fees, with the link to the IOAA appearing in legislative history 

rather than the statute itself. An example is the original version of the 

125 SBA argued in B-300248 that the agency itself was not imposing a user fee because the fee 

was actually assessed and collected by an SBA contractor. However, GAO viewed this 

argument as elevating form over substance .
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Freedom of Information Act which specified merely “fees to the extent 

authorized by statute.” Committee reports made it clear that the IOAA was 

the statute Congress had in mind. See Diapulse Corp. v. Food and Drug 

Administration, 500 F.2d 75, 78 (2nd Cir. 1974); B-161499-O.M., Aug. 13, 

1971. The Freedom of Information Act now includes its own detailed fee 

provision in 5 U.S.C. § 552(a)(4).

A variation is 7 U.S.C. § 2242a. Section 2242a(a) authorizes the Department 

of Agriculture to charge reasonable user fees for departmental publications 

or software. Section 2242a(b) then goes on to state that “[t]he imposition 

of such charges shall be consistent with section 9701 of title 31.” GAO 

analyzed Agriculture’s authority under this provision in B-219338, June 2, 

1987. Finding no legislative history to explain what Congress intended by 

the “consistent with” terminology, GAO concluded that the agency was not 

required to adopt every wrinkle of judicial interpretation under the IOAA. 

GAO advised:

“At a minimum . . . we take it to mean that the charges may 

be cost-related under any of the various formulations 

sanctioned by the decisions of the courts, or, in the absence 

of a cost based fee schedule, reasonable. Also, the 

requirement that fees be ‘consistent’ with section 9701 fees 

clearly does not mean that they must be identical to those 

that would be imposed under section 9701 or that they must 

have been promulgated in accordance with all the 

procedural requirements [of the IOAA].”

B-219338, June 2, 1987, enclosure at 16–17.

c. Statutes In Pari Materia Another type of user fee statute one encounters is a statute which 

authorizes or directs an agency to charge a fee or to recover costs in 

general terms, without making specific reference to the Independent 

Offices Appropriation Act (IOAA). The statute may apply to a specific type 

of activity or to a broader range. Unless there is something in the statute or 

its legislative history to compel a different result, the approach is to regard 

it as being in pari materia with the IOAA—that is, statutes dealing with 

the same subject matter or having a common purpose (Black’s Law 

Dictionary 807 (8th ed. 2004))—and to construe them together as part of an 

overall statutory scheme. Where this principle applies, it is legitimate to 

look to the body of law developed under the IOAA for guidance in 

construing the other statute. 
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For example, the National Park Service is authorized to furnish utility 

services to concessioners “on a reimbursement of appropriation basis.” 

16 U.S.C. § 1b(4). In Yosemite Park & Curry Co. v. United States, 686 F.2d 

925 (Ct. Cl. 1982), a concessioner at Yosemite National Park who had been 

purchasing electricity from the Park Service challenged the Park Service’s 

rate structure, which was based on the average of rates charged by other 

area utilities rather than cost reimbursement. Viewing 16 U.S.C. § 1b(4) 

and the IOAA as being in pari materia, the court analogized to the fee 

structure under the IOAA, as implemented by the then Bureau of the 

Budget Circular No. A-25 (Sept. 23, 1959)), and found it reasonable under 

both statutes. Yosemite, 686 F.2d at 928.

Another illustration is 30 U.S.C. § 185(l), part of the Mineral Leasing Act:

“The applicant for a right-of-way or permit shall reimburse 

the United States for administrative and other costs 

incurred in processing the application, and the holder of the 

right-of-way or permit shall reimburse the United States for 

the costs incurred in monitoring the construction, 

operation, maintenance, and termination of any pipeline and 

related facilities on such right-of-way or permit area . . . .”

The then Court of Claims held that this provision did not supersede or 

override the requirement of the IOAA that fees be assessed only pursuant 

to regulations. Alyeska Pipeline Service Co. v. United States, 624 F.2d 

1005 (Ct. Cl. 1980). See also Sohio Transportation Co. v. United States,

5 Cl. Ct. 620 (1984), aff’d, 766 F.2d 499 (Fed. Cir. 1985). The lower court in 

the Sohio litigation also looked to precedent under the IOAA to determine 

that the Bureau of Land Management’s pipeline right-of-way fees were not 

taxes. 5 Cl. Ct. at 628.

Another illustration is the legislation governing the Comptroller of the 

Currency’s assessments against national banks. At one time, the law 

directed the Comptroller to recover the expense of required examinations 

by assessments on the national banks in proportion to their assets or 

resources. 12 U.S.C. § 482 (1988). Applying the pari materia concept in 

effect if not in terms, one court sustained the Comptroller’s assessment 

regulations, concluding that “the Comptroller is directed, to the fullest 

possible extent, to assess fees reflective of the actual cost of examination 

while adhering to the statutory guideline of asset and resource size.” First 

National Bank of Milaca v. Smith, 445 F. Supp. 1117, 1123 (D. Minn. 1977). 

See also First National Bank of Milaca v. Smith, 572 F.2d 1244 (8th Cir. 
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1978). The district court rejected the bank’s argument that 31 U.S.C. 

§ 9701(c) rendered the IOAA inapplicable (see section D.4.a of this 

chapter); 12 U.S.C. § 482 did not fix the amount of the fee but merely 

provided a basis for calculation, in which event section 9701(c) encourages 

fee recalculation to more fully achieve, or at least approach, selfsufficiency. First National, 445 F. Supp. at 1123. A 1991 amendment126 to 

12 U.S.C. § 482 deleted the asset/resource size requirement and the statute 

now merely provides a general assessment requirement with respect to 

fees. The amendment does not appear to affect the relationship of 

section 482 to the IOAA.

d. Statutes Entirely 

Independent of the 

Independent Offices 

Appropriation Act

Once you eliminate those user fee statutes that are tied in to the 

Independent Offices Appropriation Act (IOAA) either expressly or by a 

pari materia rationale, those that are left have little in common other than 

their independence of the IOAA by virtue of 31 U.S.C. § 9701(c) (see 

section D.4.a of this chapter). The only safe generalization is that each 

statute stands alone and its own terms determine its coverage and 

limitations. Many of the laws stem from the post-1985 period and there is 

little interpretive case law. Accordingly, our objective here is essentially to 

present a typology to illustrate the different kinds of user fee laws and the 

different things Congress has tried to do with them.

Perhaps the simplest type is a provision that directly fixes the amount of 

the fee. An example is 8 U.S.C. § 1356(d):

“In addition to any other fee authorized by law, the Attorney 

General shall charge and collect $7 per individual for the 

immigration inspection of each passenger arriving at a port 

of entry in the United States, or for the preinspection of a 

passenger in a place outside of the United States prior to 

such arrival, aboard a commercial aircraft or commercial 

vessel.”

126 Pub. L. No. 102-242, § 114(a)(1), 105 Stat. 2236, 2248 (Dec. 19, 1991).
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Section 1356(e) sets forth limitations. While this type of statute may 

generate other questions of interpretation,127 it eliminates the calculation 

nightmare. Of course, a fixed-fee approach is not always viable. 

Conceptually similar is a statute which fixes the amount of the fee and 

provides a mechanism for periodic adjustment by the administering agency. 

An example is 47 U.S.C. § 158 (Federal Communications Commission 

application fees).

Another simple type, at least simple to administer, is a fee set as a 

percentage of some reference amount. Congress enacted legislation in 

1985 directing the Federal Reserve Bank of New York to deduct 

1-1/2 percent of the first $5 million and 1 percent of any amount over 

$5 million from every award by the Iran-United States Claims Tribunal in 

favor of a United States claimant. The deduction was intended to 

reimburse the government for expenses of its participation in the claims 

program. Pub. L. No. 99-93, § 502, 99 Stat. 405, 438 (Aug. 16, 1985), 

50 U.S.C. § 1701 note. In United States v. Sperry Corp., 493 U.S. 52 (1989), 

the Supreme Court upheld the deduction against a variety of challenges, 

one of which was that the government had failed to demonstrate the 

relationship of the amount of the deduction to the costs presumably being 

reimbursed. The Court responded:

“This Court has never held that the amount of a user fee 

must be precisely calibrated to the use that a party makes of 

Government services. Nor does the Government need to 

record invoices and billable hours to justify the cost of its 

services. All that we have required is that the user fee be a 

‘fair approximation of the cost of benefits supplied.’”

Sperry, 493 U.S. at 60, citing Massachusetts v. United States, 435 U.S. 

444, 463, n.19 (1978). The statute declared the deduction to be a user fee, 

and it is the claimant’s burden to demonstrate otherwise. Sperry, 493 U.S. 

at 60. Of course there are limits to this rationale. The Court continued:

127 One issue was whether the statute, which requires ticket-issuers and airlines to collect 

the fee on behalf of the government, provides a basis for holding them financially liable for 

fees they fail to collect. In American Airlines, Inc. v. United States, 68 Fed. Cl. 723 (2005), 

the court said no. See also Continental Airlines, Inc. v. United States, 77 Fed. Cl. 482 

(2007).
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“The deductions authorized by § 502 are not so clearly 

excessive as to belie their purported character as user fees. 

This is not a situation where the Government has 

appropriated all, or most, of the award to itself and labeled 

the booty as a user fee. . . . We need not state what 

percentage of the award would be too great a take to qualify 

as a user fee, for we are convinced that on the facts of this 

case, 1-1/2% does not qualify as a ‘taking’ by any standard of 

excessiveness.”

Id. at 62 (citations and footnotes omitted). There is no apparent reason 

why the Court’s approach in Sperry would not apply equally to a fee in the 

form of a fixed dollar amount. Also, as the statute in Sperry illustrates, a 

fixed-amount fee or a fixed-percentage fee can be in the form of a sliding 

scale. Indeed, a number of lower courts have applied, or suggested in dicta

that they would apply, the Sperry approach to both fixed and variable fees. 

See, e.g., Slade v. Hampton Roads Regional Jail, 407 F.3d 243 (4th Cir. 

2005) ($1 per day charge to pretrial detainee to partially defray the costs of 

incarceration); Vance v. Barrett, 345 F.3d 1083 (9th Cir. 2003) (charges to 

cover administrative costs of prisoner personal property and savings 

accounts); Owens v. Sebelius, 357 F. Supp. 2d 1281 (D. Kan. 2005) 

($25 monthly supervision fee for parolees); Dudley v. United States,

61 Fed. Cl. 685 (2004) (filing fees pursuant to 28 U.S.C. § 1915(b), for civil 

actions and appeals brought by prisoners).128

Most user fee statutes are not this simple. Rather than fixing the amount of 

the fee, they tend to prescribe the basis for determining the fee and vary 

greatly in their level of detail. At one end of the spectrum are laws that 

prescribe a cost basis and include some additional detail. Section 304(a) of 

the Federal Land Policy and Management Act, for example, 43 U.S.C. 

§ 1734(a), authorizes fees “with respect to applications and other 

documents relating to the public lands” and lists several factors to be 

considered in determining reasonableness. See Nevada Power Co. v. Watt,

711 F.2d 913 (10th Cir. 1983). Additional examples are the fee provisions of 

the Grain Standards Act, 7 U.S.C. §§ 79(j) (inspection) and 79a(1) 

(weighing). In holding the IOAA inapplicable to these statutes, the Claims 

Court noted that “accepted principles of statutory construction require that 

a specific legislative enactment be given effect to the exclusion of a more 

128 It seems from these cases that prisoners are particularly resistant to paying fees and 

likely to challenge them.
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general one.” Bunge Corp. v. United States, 5 Cl. Ct. 511, 516 (1984), 

aff’d mem., 765 F.2d 162 (Fed. Cir. 1985).

At the other end of the spectrum are statutes containing a complex feesetting mechanism set forth in considerable detail, often including waiver 

authority. One example is 7 U.S.C. § 136a-1(i), prescribing fees for 

pesticide registration under the Federal Insecticide, Fungicide, and 

Rodenticide Act. The law combines fixed fees for certain pesticides, fees 

set administratively within limits for other pesticides, and formula fees for 

reregistration. The law also includes annual ceilings per registrant and an 

aggregate target revenue amount.

Another example is 21 U.S.C. § 379h, fees for the Food and Drug 

Administration (FDA). The law authorizes three fees—human drug 

application and supplement fees, prescription drug establishment fees, and 

prescription drug product fees. 21 U.S.C. § 379h(a). The fees are fixed 

dollar amounts subject to an adjustment mechanism. The law also 

specifies aggregate fee revenue amounts which the fees are to generate. Id. 

§ 379h(b). Section 379h(f)(1) requires FDA to refund fees unless its 

Salaries and Expenses appropriations meet or exceed certain levels for a 

given fiscal year. Section 379h(g) provides that the fees shall be collected 

and available only to the extent provided in advance in appropriation 

acts.129

A well-known user fee system is the one prescribed in the Freedom of 

Information Act (FOIA), 5 U.S.C. § 552(a)(4), which illustrates still a 

different fee-setting approach. FOIA’s fee provisions are quite complex. 

Fees are set at three levels varying with the purpose and identity of the 

requester. At the highest level are fees charged to commercial-use 

requesters, who pay for search, duplication, and review. 5 U.S.C.

§ 552(a)(4)(A)(ii)(I). The lowest level fees are charged to educational or 

noncommercial scientific institutions and the news media, who pay only 

for duplication provided that they are not seeking information for 

commercial purposes. Id. § 552(a)(4)(A)(ii)(II). All others are charged for 

search and duplication. Id. § 552(a)(4)(A)(ii)(III). Each agency is to issue 

its own fee regulations, but in the interest of uniformity they must conform 

to Office of Management and Budget (OMB) guidelines. Id. 

129 For additional background on the FDA’s user fee system, see James L. Zelenay, Jr., The 

Prescription Drug User Fee Act: Is a Faster Food and Drug Administration Always a 

Better Food and Drug Administration?, 60 Food & Drug L. J. 261, 275–323 (2005).
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§ 552(a)(4)(A)(i). OMB’s guidelines are found in 52 Fed. Reg. 10012 

(Mar. 27, 1987). An agency’s own regulations may simply adopt the OMB 

guidelines. Media Access Project v. FCC, 883 F.2d 1063 (D.C. Cir. 1989). 

FOIA explicitly limits fees for all categories of requesters to “reasonable 

standard charges”; restricts fees to the direct costs of search, duplication, 

and review; and specifies what may be included in review costs. 5 U.S.C. 

§ 552(a)(4)(A)(iv). No fee may be charged any requester if the fee is likely 

to be less than the cost of collecting and processing it, and all 

noncommercial requesters are entitled to two free hours of search time and 

100 pages of free duplication. Id.

Section 552(a)(4)(A)(iii) of FOIA entitles educational, noncommercial 

scientific, and media requesters to a fee waiver or reduction “if disclosure 

of the information is in the public interest because it is likely to contribute 

significantly to public understanding of the operations or activities of the 

government and is not primarily in the commercial interest of the 

requester.” This provision has generated extensive litigation. The 

following cases illustrate the standards that courts have applied in 

adjudicating waiver requests: Environmental Protection Information 

Center v. Forest Service, 432 F.3d 945 (9th Cir. 2005); Forest Guardians v. 

Department of the Interior, 416 F.3d 1173 (10th Cir. 2005); Judicial Watch, 

Inc. v. Department of Justice, 365 F.3d 1108 (D.C. Cir. 2004); Community 

Legal Services, Inc. v. Department of Housing and Urban Development, 

405 F. Supp. 2d 553 (E.D. Pa. 2005); Southern Utah Wilderness Alliance v. 

Bureau of Land Management, 402 F. Supp. 2d 82 (D.D.C. 2005); Electronic 

Privacy Information Center v. Department of Defense, 241 F. Supp. 2d 5 

(D.D.C. 2003). A number of these cases emphasize the admonition in the 

legislative history of FOIA that the act “is to be liberally construed in favor 

of waivers for noncommercial requesters.” 132 Cong. Rec. 514,298 

(Sept. 30, 1986) (statement of Senator Leahy). See, e.g., Environmental 

Protection Information Center, 432 F.3d at 947; Forest Guardians, 

416 F.3d at 1178.

Finally, section 552(a)(4)(A)(vi) of FOIA provides: “Nothing in this 

subparagraph [covering all of the provisions described above] shall 

supersede fees chargeable under a statute specifically providing for setting 

the level of fees for particular types of records.” This provision has been 

raised in some of the waiver litigation, including two decisions that 

represent a possible split in the circuits concerning its scope. In 

Environmental Protection Information Center, 432 F.3d at 947–49, the 

Ninth Circuit held that the exception under section 552(a)(4)(A)(vi) 

extended only to another statute that mandated the imposition of fees. 
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Thus, an otherwise qualified requester was entitled to a fee-waiver under 

FOIA even if the information requested was covered by another statute that 

permitted but did not require the charging of fees. Environmental 

Protection Information Center, 432 F.3d at 947–49. In reaching this 

conclusion, the court quoted from and relied on the OMB guidelines, which 

clearly state that the FOIA fee provisions are superseded only by another 

statute that specifically requires an agency to set fees. The court 

acknowledged that its “result may be at odds with” Oglesby v. Department 

of the Army, 79 F.3d 1172 (D.C. Cir. 1996), which held that a discretionary 

fee-setting statute came within the section 552(a)(4)(A)(vi) exception. 

However, the court noted that the Oglesby decision did not consider the 

OMB guidelines. Environmental Protection Information Center, 432 F.3d 

at 949.

In Oglesby, a FOIA requester sought records from the National Archives 

and Records Administration (NARA), among other sources. NARA denied 

the requester a FOIA fee waiver on the basis that its statute, which permits 

but does not require charges, constituted an exception to FOIA.130 The D.C. 

Circuit agreed with NARA. The court concluded that under the plain 

meaning of both statutes, the NARA provision “fits comfortably within the 

exception carved out in FOIA” section 552(a)(4)(A)(vi). Oglesby, 79 F.3d 

at 1177. However, the Oglesby opinion went on to limit its holding:

“We wish . . . to make it clear that we are in no way ruling on 

a separate argument which Oglesby failed to raise in a 

timely fashion. In a motion filed after oral argument, 

Oglesby pressed the claim that the FOIA subsection (vi) 

exception excuses a qualified agency only from FOIA’s feesetting requirements, and not from the fee-waiver 

provision.”

Oglesby, 79 F.3d at 1178. The Ninth Circuit court took a more definitive 

approach, specifically giving deference to the OMB guidelines and 

concluding that only statutes setting mandatory fees, rather than statutes 

setting discretionary ones, could satisfy the exception in 5 U.S.C. 

§ 552(a)(4)(A)(vi). Environmental Protection Information Center v. 

Forest Service, 432 F.3d 945, 948–49 (9th Cir. 2005).

130 The NARA statute at 44 U.S.C. § 2116(c) provides in part: “The Archivist may charge a fee 

set to recover the costs for making or authenticating copies or reproductions of materials 

transferred to his custody.”
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Several user fee provisions were included in the Consolidated Omnibus 

Budget Reconciliation Act of 1985 (COBRA), Pub. L. No. 99-272, 100 Stat. 

82 (Apr. 7, 1986). The Congressional Budget Office (CBO) has observed 

that if the IOAA was the first turning point in user fee legislation in the postWorld War II era, COBRA was the second. CBO, The Growth of Federal 

User Charges 19 (1993). This is because several of the COBRA provisions 

departed from the traditional approach of basing fees on the cost of 

specific benefits, and instead linked fees to recovering part or all of an 

agency’s operating budget.

One provision of COBRA, the amended version of which is found at 

42 U.S.C. § 2213, directed the Nuclear Regulatory Commission (NRC) to 

assess annual charges on its licensees so that the annual charges, when 

added to the fees the NRC was already assessing under the IOAA, would 

approximate 33 percent of the NRC’s operating budget. The annual charges 

“shall be reasonably related to the regulatory service provided by the 

Commission and shall fairly reflect the cost to the Commission of providing 

such service.” 42 U.S.C. § 2213(1)(B). A group of licensees sued, arguing 

that the COBRA provision must be read as incorporating the limitations of 

the IOAA, otherwise it would amount to an unconstitutional delegation by 

Congress of its power to tax. The challenge was rejected in Florida 

Power & Light Co. v. United States, 846 F.2d 765 (D.C. Cir. 1988), cert. 

denied, 490 U.S. 1045 (1989). The court first held that COBRA was 

intended to go beyond the IOAA by authorizing the NRC to recover “generic 

costs, that is, costs which do not have a specific, identifiable beneficiary.” 

Florida Power & Light Co., 846 F.2d at 769. The court then went on to hold 

that, even if you wanted to call the annual charges a “tax,” the COBRA 

provision satisfied the Supreme Court’s test for a permissible delegation 

because it provided adequate standards for the implementing agency to 

apply. Id. at 772–76.

The Omnibus Budget Reconciliation Act of 1990 added a provision, 

codified as amended at 42 U.S.C. § 2214, directing the NRC to collect 

additional fees and charges. Originally, the collections were to 

approximate 100 percent of NRC’s budget authority. Section 2214 now 

provides a sliding scale that reduces the collections to 90 percent of the 

agency’s budget. The Justice Department’s Office of Legal Counsel has 

determined that this fee extends to and is payable by other federal agencies 

which hold NRC licenses. 15 Op. Off. Legal Counsel 91 (1991).

Another COBRA provision, now codified at 49 U.S.C. § 60301, directs the 

Secretary of Transportation to collect annual fees from operators of 
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various pipeline facilities. The fees are to be calculated to cover the costs 

of activities under the Natural Gas Pipeline Safety Act of 1968 and the 

Hazardous Liquid Pipeline Safety Act of 1979, not to exceed 105 percent of 

the total appropriations made for those activities in a given year. As with 

the NRC provision noted above, there was no way this provision could pass 

muster under the rigid interpretations of the IOAA, and, again as with the 

NRC provision, the operators were in court before the ink on the statute 

was dry. This time, the litigation produced a Supreme Court decision 

which once and for all laid to rest the “taxing issue” (bad pun) which had 

hovered over all user fee statutes since the 1974 IOAA decisions. The case 

is Skinner v. Mid-America Pipeline Co., 490 U.S. 212 (1989). This time, the 

plaintiffs conceded that the statute satisfied the requirements of the 

nondelegation doctrine, but argued that the standards should be tighter 

when Congress is delegating authority under its taxing power. Not so, held 

the Court: “Even if the user fees are a form of taxation, we hold that the 

delegation of discretionary authority under Congress’ taxing power is 

subject to no constitutional scrutiny greater than that we have applied to 

other nondelegation challenges.” Skinner, 490 U.S. at 223. As to the 1974 

IOAA cases:

“National Cable Television [415 U.S. 336] and New England 

Power [415 U.S. 345] stand only for the proposition that 

Congress must indicate clearly its intention to delegate to 

the Executive the discretionary authority to recover 

administrative costs not inuring directly to the benefit of 

regulated parties by imposing additional financial burdens, 

whether characterized as ‘fees’ or ‘taxes,’ on those 

parties. . . . Of course, any such delegation must also meet 

the normal requirements of the nondelegation doctrine.”

Id. at 224. Thus, what is important is not whether you call something a fee 

or a tax, but whether Congress has legislated its intention with sufficient 

clarity.

Another COBRA provision in this family is 42 U.S.C. § 7178, which directs 

the Federal Energy Regulatory Commission to “assess and collect fees and 

annual charges in any fiscal year in amounts equal to all of the costs 

incurred by the Commission in that fiscal year.” Id. § 7178(a)(1). Like the 

NRC statute noted above, this provision does not replace fees charged 

under other laws but prescribes charges which, when added to those other 

fees, will reach the desired budgetary goal. In this case, the fees expressly 

preserved are those authorized under the Federal Power Act. Id. 
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§ 7178(a)(2). A case interpreting the Power Act fee provision is City of 

Vanceburg v. Federal Energy Regulatory Commission, 571 F.2d 630 (D.C. 

Cir. 1977), cert. denied, 439 U.S. 818 (1978). Cases interpreting the COBRA 

provision, 42 U.S.C. § 7178, include Michigan Public Power Agency v. 

Federal Energy Regulatory Commission, 405 F.3d 8 (D.C. Cir. 2005); 

Midwest Independent Transmission System Operator, Inc. v. Federal 

Energy Regulatory Commission, 388 F.3d 903 (D.C. Cir. 2004); and City of 

Tacoma v. Federal Energy Regulatory Commission, 331 F.3d 106 (D.C. Cir. 

2003).

A final example is 21 U.S.C. § 886a, enacted as part of the Justice 

Department’s 1993 appropriation act.131 It directs the Drug Enforcement 

Administration to set fees under its diversion control program “at a level 

that ensures the recovery of the full costs of operating the various aspects 

of that program.” 21 U.S.C. § 886a(1)(C). In American Medical Ass’n v. 

Reno, 857 F. Supp. 80 (D.D.C. 1994), the court held the IOAA inapplicable, 

rejecting what has become almost a ritualistic challenge that the restrictive 

IOAA standards should continue to govern. The Reno decision was 

remanded on appeal. American Medical Ass’n v. Reno, 57 F.3d 1129 

(D.C. Cir. 1995). The court of appeals did not challenge the underlying 

legality of the fee nor did it address the IOAA issue. Rather, it held only 

that the rulemaking on which the fees were based violated the 

Administrative Procedure Act, 5 U.S.C §§ 553(b)–(c), by providing 

inadequate information as to how the components of the fee were 

determined. Indeed, the appeals court declined to vacate the rule at the 

time of remand in view of the likelihood that the fees were not “grossly out 

of line” and that the agency could come up with the necessary explanation 

to justify them. Reno, 57 F.3d at 135. Presumably, the agency did so since 

there is no reported subsequent history for this case. 

5. Disposition of Fees The rule governing the accounting and disposition of user fees is the same 

rule that governs the accounting and disposition of receipts in general—

they must, as required by 31 U.S.C. § 3302(b), be deposited in the general 

fund of the Treasury as miscellaneous receipts unless the agency has 

statutory authority to do something else.

131 Pub. L. No. 102-395, § 111(b), 106 Stat. 1828, 1843 (Oct. 6, 1992).
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a. Fees under the Independent 

Offices Appropriation Act

Normally, fees collected under the authority of the Independent Offices 

Appropriation Act (IOAA) must be deposited as miscellaneous receipts. 

E.g., B-302825, Dec. 22, 2004; 49 Comp. Gen. 17 (1969). The original version 

of the IOAA specifically included the miscellaneous receipts requirement 

(65 Stat. 290). When the IOAA became 31 U.S.C. § 9701 in 1982, the 

recodifiers dropped the miscellaneous receipts language because there was 

no need for the IOAA to repeat what was already clearly the case by virtue 

of the general requirement of 31 U.S.C. § 3302(b). See the Revision Note 

following 31 U.S.C. § 9701. As the Claims Court has pointed out, there is no 

other significance to the deletion. Bunge Corp. v. United States, 5 Cl. Ct. 

511, 516 n.2 (1984), aff’d, 765 F.2d 162 (Fed. Cir. 1985).

Of course, Congress is always free to legislate exceptions. Thus, it is 

possible to have a fee authorized and governed by the IOAA but with 

specific authority for a different disposition in whole or in part. See

B-307319, Aug. 23, 2007; B-215127, Oct. 30, 1984. Several of the decisions 

cited in section D.6 of this chapter, in our case study of U.S. Customs and 

Border Protection fees, provide specific examples.

b. Fees under Other 

Authorities

Again, the rule is the same—the fees are deposited as miscellaneous 

receipts unless Congress has provided otherwise. As noted earlier, the 

Independent Offices Appropriation Act (IOAA) itself reinforces this result 

by expressly preserving, in 31 U.S.C. § 9701(c)(1), any other statute which 

addresses the disposition of fees. This provision looks both forward and 

backward. For later enacted statutes, the result would at least arguably be 

the same under the specific versus general canon. For statutes predating 

the IOAA, section 9701(c)(1) eliminates any possibility of an implied repeal 

or “later enactment of Congress” argument. See, e.g., 36 Comp. Gen. 75 

(1956). Thus, there is no need to determine when a given fee statute was 

enacted. If it is silent as to disposition, the miscellaneous receipts statute 

governs. If it specifically addresses disposition, its own terms control.

It is not at all uncommon for fee statutes to address disposition. The 

precise approach varies depending on what Congress is trying to 

accomplish, or perhaps what the agency is able to persuade its oversight 

committees to permit, but it is nevertheless possible to identify broad 

categories.

(1) Miscellaneous receipts

Although silence would produce the same result, a number of statutes 

expressly require that the fees be deposited as miscellaneous receipts. One 
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example is the statute requiring a percentage deduction from awards of the 

Iran-United States Claims Tribunal. The statute specifies that amounts 

deducted “shall be deposited into the Treasury of the United States to the 

credit of miscellaneous receipts.” Pub. L. No. 99-93, § 502(b), 99 Stat. 

405, 438 (Aug. 16, 1985), 50 U.S.C. § 1701 note. Another example is 

44 U.S.C. § 1307(b) (fees received by National Oceanic and Atmospheric 

Administration from sale and/or licensing of nautical or aeronautical 

products).

Congress sometimes uses the term “general fund” which, for deposit 

purposes, is synonymous with “miscellaneous receipts.” See Chapter 6, 

section E.2. Thus, application fees paid to the Federal Communications 

Commission are to be “deposited in the general fund of the Treasury.” 

47 U.S.C. § 158(e). The same language is used for permit fees paid to the 

Secretary of Commerce by owners or operators of foreign fishing vessels. 

16 U.S.C. § 1824(b)(10)(B).

Miscellaneous receipts is a particularly appropriate disposition when the 

fees are intended to recoup the operating budget of some agency or activity 

rather than augment the agency’s operating funds. For example, we noted 

earlier 42 U.S.C. § 7178, which directs the Federal Energy Regulatory 

Commission to assess fees to recover all of its costs. The statute goes on to 

provide that “[a]ll moneys received under this section shall be credited to 

the general fund of the Treasury.” 42 U.S.C. § 7178(f).

(2) Credit to agency’s appropriation

Another group of fee statutes authorizes the agency to retain the fees for 

credit to its own operating appropriations. This approach is used when 

Congress wants to let an agency augment its appropriation and finance a 

greater program level than would be possible under the amount Congress is 

willing to appropriate directly. Perhaps the clearest form of augmentation 

approach is the fee statute for the Food and Drug Administration (FDA), 

21 U.S.C. § 379h. Section 379h(g)(1) provides in part: “Fees . . . shall be 

collected and made available for obligation only to the extent and in the 

amount provided in advance in appropriations Acts. Such fees are 

authorized to remain available until expended.”

The augmentation feature is highlighted by 21 U.S.C. § 379h(f)(1), under 

which fees in any fiscal year must be triggered by a Salaries and Expenses 

appropriation at least equal to a specified base year. Lest anyone think 

these user fees are pocket change, the FDA’s 2006 appropriation act 
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appropriated over $305 million in fees under section 379h to the FDA’s 

Salaries and Expenses account. Pub. L. No. 109-97, title VI, 119 Stat. 

2120, 2147 (Nov. 10, 2005). 

Another situation in which Congress may authorize crediting to an 

appropriation account is where the fee amounts primarily to 

reimbursement of expenses borne by the receiving appropriation. Some 

examples are:

• The Department of Agriculture may sell various products and services 

of the National Agricultural Library, at prices set to at least recoup 

costs. Sale proceeds “shall be deposited in the Treasury of the United 

States to the credit of the applicable appropriation and shall remain 

available until expended.” 7 U.S.C. § 3125a(f).

• Another Agriculture Department statute authorizes the furnishing of 

departmental paper or electronic publications at “reasonable” fees. 

7 U.S.C. § 2242a(a)(2). The fees may be used to pay related costs and 

“may be credited to appropriations or funds that incur such costs.” 

7 U.S.C. § 2242a(c)(2).

• The State Department is authorized to incur certain expenses incident 

to procuring information for private parties on a reimbursable basis. 

Reimbursements are to be “credited to the appropriation under which 

the expenditure was charged.” 22 U.S.C. § 2661.

• Military departments may furnish stevedoring and terminal services 

and facilities to certain vessels at “fair and reasonable rates.” 10 U.S.C. 

§ 2633(b). Proceeds “shall be paid to the credit of the appropriation or 

fund out of which the services or facilities were supplied.” 10 U.S.C. 

§ 2633(c).

To determine the availability of amounts collected, each statute must be 

examined in two important respects. First, statutes which authorize 

crediting of fees to operating appropriations may require further 

congressional action to make the fees available for obligation, like 

21 U.S.C. § 379h, or may, like 7 U.S.C. § 3125a, in effect permanently 

appropriate the receipts similar to a revolving fund.

Second, the statute may direct which fiscal year receives the credit. For 

example, reimbursements to U.S. Immigration and Customs Enforcement 

(ICE) for detention, transportation, hospitalization, and other expenses of 
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detained aliens “shall be credited to the appropriation for the enforcement 

of this chapter for the fiscal year in which the expenses were incurred.” 

8 U.S.C. § 1356(a). Although not a user fee statute, the very next subsection 

illustrates the contrasting approach. Moneys spent by ICE to purchase 

evidence and subsequently recovered are “reimbursed to the current 

appropriation” of ICE. Id. § 1356(b). More directly on point is 10 U.S.C. 

§ 2686(b), under which proceeds from the sale of certain utilities and 

related services by military departments “shall be credited to the 

appropriation currently available for the supply of that utility or service.”

Collections credited to appropriation accounts are a form of offsetting 

collection (GAO, A Glossary of Terms Used in the Federal Budget Process, 

GAO-05-734SP (Washington, D.C.: Sept. 2005), at 29), and some statutes use 

this terminology. Federal Communications Commission regulatory fees 

“shall be deposited as an offsetting collection in, and credited to, the 

account providing appropriations to carry out the functions of the 

Commission.” 47 U.S.C. § 159(e). Similarly, the Science, State, Justice, 

Commerce, and Related Agencies Appropriations Act, 2006, contains 

several provisions authorizing agencies to retain certain fee proceeds as 

“offsetting collections” to help fund the activities that generate the fees. 

See, e.g., Pub. L. No. 109-108, 119 Stat. 2290, 2292 (Antitrust Division, 

Department of Justice), 2330 (Federal Trade Commission), 2331–32 

(Securities and Exchange Commission) (Nov. 22, 2005). Use of the 

offsetting collection language is of significance primarily for budgetary 

purposes and by itself has no impact on the availability of the money to the 

agency.

(3) Special account or fund

In addition to crediting fees to an agency appropriation, Congress can 

“dedicate” the fees to a particular purpose by authorizing deposit to a 

revolving fund, a trust account, or a “special account,” which simply means 

a receipt account earmarked by statute for a particular purpose.132 The 

special account may be permanently appropriated, or it may require further 

congressional action to make the funds available for obligation. An 

example of the former is the treatment of Department of Agriculture grain 

inspection fees under 7 U.S.C. § 79. Section 79(j) provides:

132 See GAO, A Glossary of Terms Used in the Federal Budget Process, GAO-05-734SP 

(Washington, D.C.: Sept. 2005), at 4.
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“Such fees, and the proceeds from the sale of samples 

obtained for purposes of official inspection which become 

the property of the United States, shall be deposited into a 

fund which shall be available without fiscal year limitation 

for the expenses of the Secretary incident to providing 

services under this chapter.”

The statute may direct deposit into an already existing fund. The 

Agriculture Department also charges fees for grain weighing services; they 

are “deposited into the fund created in section 79(j) of this title.” 7 U.S.C.

§ 79a(l)(1). Another example is 13 U.S.C. § 8(d) which governs the 

disposition of fees for certain documents and services furnished by the 

Census Bureau:

“All moneys received in payment for work or services 

enumerated under this section shall be deposited in a 

separate account which may be used to pay directly the 

costs of such work or services, to repay appropriations 

which initially bore all or part of such costs, or to refund 

excess sums when necessary.” 

An example requiring further congressional action is section 304(b) of the 

Federal Land Policy and Management Act, 43 U.S.C. § 1734(b), which 

provides in part: “The moneys received for reasonable costs under this 

subsection shall be deposited with the Treasury in a special account and 

are hereby authorized to be appropriated and made available until 

expended.”

Similar to many of the statutes authorizing credit to appropriations, 

statutes establishing special accounts may prescribe that the deposits be 

treated as offsetting receipts.133 An example is 21 U.S.C. § 886a, which 

establishes “in the general fund of the Treasury a separate account which 

shall be known as the Diversion Control Fee Account.” Certain fees 

charged by the Drug Enforcement Administration (DEA) are deposited in 

the account “as offsetting receipts,” and are periodically refunded by 

Treasury to the DEA to reimburse expenses incurred in the DEA’s diversion 

control program, the target being the recovery of the program’s full 

133 An offsetting receipt is a form of offsetting collection which is credited to a receipt 

account rather than an appropriation account. Glossary, at 30–31. Again, the terminology is 

significant primarily for budgetary purposes. 
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operating costs. The Department of Homeland Security has several similar 

accounts, including 8 U.S.C. §§ 1356(h) (Immigration User Fee Account), 

1356(m) (Immigration Examinations Fee Account), and 1356(q) (Land 

Border Inspection Fee Account), all of which specify treatment of deposits 

as offsetting receipts.

Finally, there are instances where offsetting receipts terminology is used 

solely for accounting purposes and not tied in to any form of dedicated or 

earmarked account. An example is the following Coast Guard statute, 

14 U.S.C. § 664(b): “Amounts collected by the Secretary for a service or 

thing of value provided by the Coast Guard shall be deposited in the general 

fund of the Treasury as proprietary receipts of the department in which the 

Coast Guard is operating and ascribed to Coast Guard activities.”134

6. U.S. Customs and 

Border Protection: A 

Case Study

Because of the nature of its mission, U.S. Customs and Border Protection 

(CBP) of the Department of Homeland Security, formerly the Customs 

Service,135 has considerable exposure to the private sector in its day-to-day 

operations. This exposure in turn enhances the agency’s potential for 

various forms of user financing. A survey of cases and statutes dealing 

with user financing in CBP is instructive because it illustrates in practice 

virtually every concept and principle we have covered thus far in our 

discussion.

134 A “proprietary receipt” is simply a type of offsetting receipt representing collections from 

outside the government. Glossary, at 31.

135 The Homeland Security Act, Pub. L. No. 107-296, 116 Stat. 2135 (Nov. 25, 2002), 

established the Department of Homeland Security (DHS) and provided for the transfer of 

the U.S. Customs Service from the Department of the Treasury to DHS, with DHS generally 

to assume responsibility for administering the customs laws of the United States. See 

6 U.S.C. §§ 202(6), 203(1), 211. In accordance with section 1502 of the Act, the President 

provided a DHS reorganization plan modification renaming the Customs Service as U.S. 

Customs and Border Protection (CBP) and making it responsible for the resources and 

missions relating to borders and ports of entry of the Customs Service and the former 

Immigration and Naturalization Service of the Justice Department. See Reorganization 

Plan Modification for the Department of Homeland Security, H.R. Doc. No. 108-32, at 4 

(2003), available at www.gpoaccess.gov/serialset/cdocuments/108cat1.html (last visited 

Mar. 20, 2008). The older cases discussed and cited in this section refer to the former 

Customs Service and we have left those references for illustrative purposes. Otherwise, we 

refer to CBP. The two terms should be considered interchangeable for purposes of this 

discussion.
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In the decades before the Independent Offices Appropriation Act (IOAA) 

was enacted, the Customs Service was in the same boat as most other 

agencies, and various proposals for user financing had to be rejected. E.g.,

11 Comp. Gen. 153 (1931); 10 Comp. Gen. 209 (1930); 3 Comp. Gen. 128 

(1923); 2 Comp. Gen. 775 (1923). It made no difference that the private 

parties were perfectly willing to pay, and in many cases had in fact initiated 

the offer, in order to get services over and above what Customs was able or 

willing to provide. In addition, the proposals often involved paying the 

salaries of customs officials which, without congressional authorization, 

would have amounted to an improper augmentation of the agency’s 

appropriations. 2 Comp. Gen. at 776. To make matters worse, a provision 

of the criminal code (now found at 18 U.S.C. § 209) makes it illegal for 

anyone to supplement or contribute to the salary of a government 

employee and for the employee to accept it.

Once the IOAA was enacted, Customs began to explore its new options. A 

series of decisions approved proposals to assess user fees for a variety of 

services, including the following:

• Preclearance of air passengers at major airports in Canada over and 

above what the operation would cost if performed entirely in the 

United States. 48 Comp. Gen. 24 (1968). Preclearance, it could be 

demonstrated, conferred a financial benefit on the airlines and, some 

felt, attracted passengers. Id. at 25.

• Additional costs of extended hours at certain highway crossing points 

along the Canadian and Mexican borders. 48 Comp. Gen. 262 (1968). 

This case, as did 48 Comp. Gen. 24, pointed out that the charges could 

include employee compensation. In effect, the authority of the IOAA 

removed both the augmentation concern and the potential bar of 

18 U.S.C. § 209.

• Reimbursement for the services of a customs officer upon the 

temporary designation of a community airport as an international 

airport. B-171027, Dec. 7, 1970.

• Reimbursement (which could include free or reduced-rate 

transportation or accommodations) of the costs of providing 

employees to train private travel agents in Custom’s regulations and 

procedures. 62 Comp. Gen. 262 (1983).
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In addition, each of these decisions noted that Customs could, as 

specifically authorized by 19 U.S.C. § 1524, credit the fees to the 

appropriations from which the costs in question had been paid. That 

statute had been on the books long before the IOAA, and, as we have seen, 

31 U.S.C. § 9701(c) expressly defers to any specific disposition authority. A 

similar provision is 19 U.S.C. § 1755(b), reflected in CBP’s regulations at 

19 C.F.R. § 147.33, which requires that fair operators reimburse the United 

States government for “actual and necessary” expenses of services 

provided in connection with trade fairs, the reimbursement to be credited 

to the appropriation from which the expenses were paid.

In a 1980 decision, GAO was called upon to review its 1968 preclearance 

decision, 48 Comp. Gen. 24, in light of the intervening judicial decisions 

which had restrictively interpreted the IOAA. Some airlines had argued 

that preclearance was really for the benefit of the general public. However, 

Customs pointed out that preclearance was provided only when an airline 

specifically requested it. Accordingly, based on the body of jurisprudence 

from the Supreme Court and the courts of appeals, GAO agreed with 

Customs that the fees were within the scope of the IOAA. 59 Comp. 

Gen. 389 (1980). Among the costs Customs could recover were those 

specified in its regulations (19 C.F.R. § 24.18), including housing 

allowances, post of duty allowances, certain transportation costs, and 

equipment, supplies, and administrative costs. In addition, the agency 

could include that portion of the costs of its computerized data processing 

system attributable to the preclearance sites. 59 Comp. Gen. at 395.

Of course, there are limits on how far you can take the IOAA; another 1980 

decision, 59 Comp. Gen. 294, illustrates one of them. The Miami 

International Airport is a busy place, and long delays incident to customs 

clearance were producing a lot of complaints. Local business and 

community leaders suggested that the airport or airlines might reimburse 

Customs to permit it to hire additional staff to expedite clearance during 

normal business hours. Congress had authorized Customs to charge for 

certain overtime services and for certain “special services” performed 

during normal duty hours. The Miami proposal involved neither situation, 

however. Accordingly, the decision concluded:

“Since the Congress has appropriated monies to provide for 

the salary of Customs inspectors to perform clearance 

functions during regular business hours and has authorized 

the collection of fees only for certain special services, . . . 

the collection of funds for clearance services performed 
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during regular business hours on behalf of the general 

public would constitute an augmentation of the 

appropriations made by the Congress for performing such 

services.”

59 Comp. Gen. at 296.

While all of this IOAA activity was going on, Customs had several other 

statutes which authorized it to do certain specific things on a reimbursable 

basis. Examples are 19 U.S.C. §§ 1447 (supervise the unloading of cargo 

from vessels at locations other than ports of entry); 1456 (compensation of 

customs officer stationed on a vessel or vehicle proceeding from one port 

of entry to another); 1457 (customs officer directed to remain on vessel or 

vehicle to protect revenue); 1458 (supervise unloading of bulk cargo under 

extension of time limit); and 1555(a) (supervise receipt and delivery of 

merchandise to and from bonded warehouses). These statutes direct that 

the compensation of the customs officers performing the services “shall be 

reimbursed” by the appropriate owner, proprietor, or “party in interest.”136 

These and other situations are set forth in CBP’s regulations, 19 C.F.R.

§ 24.17. At one time, the reimbursement obligation was held to include 

statutorily retroactive salary increases. 31 Comp. Gen. 417 (1952). 

However, that is no longer the case. 55 Comp. Gen. 226 (1975).

The relationship of these specific statutes to the IOAA was the subject of 

55 Comp. Gen. 456 (1975). Under 31 U.S.C. § 9701(c), the IOAA yields to 

other statutes which prohibit the collection of a fee, or either fix the 

amount of a fee or prescribe the basis for determining it. The statutes in 

question do none of these things, nor was there any indication that any of 

them were intended to be exclusive. Accordingly, Customs could recover 

the kinds of costs authorized under the IOAA—specifically, administrative 

overhead—in addition to the reimbursements required by the other 

statutes. CBP regulations (19 C.F.R. § 24.21) now include administrative 

overhead.

A highly unusual approach is found in 19 U.S.C. § 58a. In addition to the 

statutes noted above, Customs had several other user fee statutes, some of 

which were old and prescribed fees which had long ago become 

136 “Party in interest” for purposes of 19 U.S.C. § 1447 can include another federal agency. 

See 48 Comp. Gen. 622 (1969) (services performed on air force base billed to Department of 

the Air Force).
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economically obsolete (for example, 20 cents for various documents). 

Legislation enacted in 1978137 repealed several of these old laws and 

replaced them with 19 U.S.C. § 58a, a simple authorization for the Secretary 

of the Treasury to charge fees to recover the costs of services “similar to or 

the same as services furnished by customs officers under the sections 

repealed by subsection (a).” Problem is, “subsection (a)” refers to the 1978 

legislation and is nothing more than the repealer provision. Therefore, in 

order to determine what services are covered by section 58a, it is necessary 

to consult the 1976 edition of the United States Code. See, for example, 

19 U.S.C. § 58 (1976) for the 20-cent items noted above.

During the mid-1980s, Customs, like other parts of the federal government, 

received additional user fee authority. The process started innocuously 

enough with a provision of the Trade and Tariff Act of 1984,138 now codified 

at 19 U.S.C. § 58b, which authorized user fees to cover the cost of providing 

customs service at a number of small airports, defined as those whose 

volume or value of business is not sufficient to otherwise justify the 

availability of customs services. Fees were to be deposited in a special 

account dedicated to the particular airport which earned them, but 

required further appropriation action to make them available for 

obligation. Two years later, the Consolidated Omnibus Budget 

Reconciliation Act of 1985 (COBRA) amended the funding provision to 

permanently appropriate the fees, but retained the dedication aspect and 

emphasized that the fees could not be used for any other purpose.139 The 

law was expanded in 1989 to include seaports and other facilities.140 

Then came 19 U.S.C. § 58c. Although its origin in COBRA 1985 was humble 

enough, it has evolved into a statute of nearly indescribable complexity.141 

Given its level of detail, it clearly displaces the IOAA to the extent of its 

coverage. The law prescribes a schedule of fees, a mixture of fixed fees 

137 Pub. L. No. 95-410, § 214, 92 Stat. 888, 904 (Oct. 3, 1978).

138 Pub. L. No. 98-573, § 236, 98 Stat. 2948, 2992–93 (Oct. 30, 1984).

139 Pub. L. No. 99-272, § 13032, 100 Stat. 82, 310–11 (Apr. 7, 1986).

140 Pub. L. No. 101-207, § 3(f), 103 Stat. 1833, 1835 (Dec. 7, 1989).

141 A good piece, although ending in 1988 because it was written in 1988, is Frederick M. 

Kaiser, U.S. Customs Service User Fees: A Variety of Charges and Counter Charges,

8 Public Budgeting & Finance 78 (1988). More recent information may be found in GAO, 

Customs Service: Information on User Fees, GAO/GGD-94-165FS (Washington, D.C.: 

June 17, 1994).
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and ad valorem levies, applicable to a variety of passenger and 

merchandise processing services. It also includes a variety of 

qualifications and limitations.142

Disposition of the fees, which could be the subject of a board game, is 

addressed in 19 U.S.C. § 58c(f). Merchandise processing fees—those 

prescribed by sections 58c(a)(9) and (a)(10)—are deposited in the 

Customs User Fee Account, a separate account in the Treasury, where they 

are available, to the extent provided in appropriation acts, to pay the costs 

of CBP’s commercial operations. The rest of the fees—those prescribed by 

19 U.S.C. § 58c(a) except for subsections (9) and (10)—are permanently 

appropriated to be used for a number of purposes that the statute spells out 

in great detail, including reimbursement for costs of premium pay and 

overtime compensation, agency retirement and disability contributions, 

and deficit reduction transfer to the Treasury.

The advent of statutes like 19 U.S.C. § 58c has an obvious impact on the 

kind of analysis needed to resolve problems. Questions of agency 

discretion under broad statutory language are necessarily replaced by an 

almost algebraic application of excruciatingly detailed provisions. An 

example is 71 Comp. Gen. 444 (1992), in which GAO concluded that 

Customs was not authorized to charge express air freight carriers for 

clearance services at centralized hub facilities during normal duty hours. 

Another decision advised that user fees reimbursed to appropriations 

under 19 U.S.C. § 58c(f) could be used to defray inspectional overtime 

costs in the Commonwealth of Puerto Rico but not the U.S. Virgin Islands. 

B-253292, Dec. 30, 1994.

7. User Fee as Grant 

Condition

In Chapter 10 on grants, we present the established proposition that 

Congress may, within constitutional bounds, attach conditions to the 

receipt of federal money. Congress is not required to establish grant 

programs, and if it chooses to do so, may use the “carrot and stick” 

approach to foster some policy objective. An example is section 204(b) of 

the Federal Water Pollution Control Act, also known as the Clean Water 

Act, 33 U.S.C. § 1284(b).

142 For a case interpreting 19 U.S.C. § 58c and rejecting a challenge to one of the fees 

imposed under it, see Princess Cruises, Inc. v. United States, 201 F.3d 1352,1360–62 (Fed. 

Cir.), cert. denied, 530 U.S. 1274 (2000).
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As amended in 1972, the Federal Water Pollution Control Act authorizes the 

Environmental Protection Agency to make grants for the construction of 

publicly owned waste treatment facilities up to a specified percentage of 

construction costs. 33 U.S.C. §§ 1281(g), 1282. The law includes the 

following condition:

“[T]he Administrator shall not approve any grant for any 

treatment works under [33 U.S.C. § 1281(g)(1)] . . . unless he 

shall first have determined that the applicant has adopted or 

will adopt a system of charges to assure that each recipient 

of waste treatment services within the applicant’s 

jurisdiction . . . will pay its proportionate share . . . of the 

costs of operation and maintenance (including 

replacement) of any waste treatment services provided by 

the applicant[.]”

33 U.S.C. § 1284(b)(1). The requirement that grant applicants adopt user 

charge systems has two purposes: first, to assure adequate funding once 

the plant is constructed, and second, to encourage water conservation. 

City of New Brunswick v. Borough of Milltown, 519 F. Supp. 878, 883 

(D.N.J. 1981), aff’d, 686 F.2d 120 (3rd Cir. 1982), cert. denied, 459 U.S. 1201 

(1983).

A number of localities which employed ad valorem tax systems 

complained and argued that an ad valorem tax should be acceptable. An 

ad valorem tax is one which is based on the value of the property being 

taxed. The question reached the Comptroller General who concluded in 

54 Comp. Gen. 1 (1974) that an ad valorem tax could not be used to satisfy 

the user charge requirement of 33 U.S.C. § 1284(b)(1). The decision quoted 

extensively from legislative history. As explained in several subsequent 

letters (e.g., B-183788, Feb. 25, 1976, and B-166506, Oct. 31, 1974), the 

decision rested on several grounds:

• The statute, supported by more legislative history than one normally 

finds, clearly contemplated a user charge system, not a tax system.

• An ad valorem tax would violate the statutory requirement that each 

recipient pay its proportionate share because (a) tax-exempt users 

would not contribute, and (b) certain taxable nonusers—industrial 

facilities with their own waste treatment systems and residences with 

their own septic systems—would pay more than their proportionate 

share.
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• An ad valorem tax system would not further the goal of promoting 

water conservation.

GAO emphasized that it was not going to get into the business of evaluating 

one user charge system against another, but noted that a system which 

included a minimum usage charge did not appear legally objectionable. 

B-183788, Feb. 25, 1976; B-183788, Jan. 14, 1976. The important thing is that 

whatever system is adopted must “achieve a greater degree of 

proportionality among users than is obtainable through an ad valorem tax 

system.” B-183788, June 13, 1975, at 2.

The controversy continued and, as documented in B-166506, Aug. 26, 1974, 

at least one major city turned down a grant rather than change its system. 

The concluding sentence of 54 Comp. Gen. 1 had advised EPA to seek a 

legislative solution if it felt ad valorem taxes would be appropriate in some 

circumstances. Id. at 5. This was done, and 33 U.S.C. § 1284(b)(1) was 

amended in 1977143 to make an ad valorem tax acceptable if (1) it is a 

dedicated tax; (2) it was in use as of December 27, 1977, the date of the 

amendment; and (3) it “results in the distribution of operation and 

maintenance costs for treatment works within the applicant’s jurisdiction, 

to each user class, in proportion to the contribution to the total cost of 

operation and maintenance of such works by each user class.” Thus, the 

amended version of the law would continue to use the federal financial 

“carrot” to influence the choice in all future cases, but would not force an 

applicant who already had a qualifying ad valorem system in place to 

change. EPA’s regulations, 40 C.F.R. § 35.929-1(b), set forth the 

requirements for a “dedicated” tax.

GAO’s 1974 decision recognized the difficulty of achieving true 

proportionality short of using meters, “which no one contends are 

required.” 54 Comp. Gen. at 5. Some localities did go to a metering system, 

and this too produced its complaints. See, e.g., B-183788, June 13, 1975. 

The 1977 amendment to 33 U.S.C. § 1284 added subsection (b)(4), which 

specifies that a system of charges “may be based on something other than 

metering,” as long as the applicant has a system to assure that the 

necessary funds for operation and maintenance will be available, and 

residential users are notified as to what portion of their total payment is 

allocated to waste treatment services. Pub. L. No. 95-217, § 22.

143 Pub. L. No. 95-217, § 22, 91 Stat. 1566, 1572–73 (Dec. 25, 1977).
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The user charge condition has been upheld as a legitimate exercise of the 

congressional power to fix the terms on which it disburses federal money. 

Middlesex County Utilities Authority v. Borough of Sayreville, 690 F.2d 

358 (3rd Cir. 1982), cert. denied, 460 U.S. 1023 (1983); City of New 

Brunswick v. Borough of Milltown, 686 F.2d 120 (3rd Cir. 1982), cert. 

denied, 459 U.S. 1201 (1983). In addition, both cases upheld EPA’s right to 

withhold or suspend grant payments for noncompliance. See also 

Metropolitan Saint Louis Sewer District v. Ruckelshaus, 590 F. Supp. 385, 

388 (E.D. Mo. 1984) (EPA’s right to withhold funds conceded). EPA’s 

remedies are spelled out in its regulations. See 40 C.F.R. §§ 35.929, 35.965.

E. Motor Vehicles

1. Acquisition

a. Need for Statutory 

Authority

Statutory controls over the acquisition and use of motor vehicles date back 

to 1914 with the enactment of what is now 31 U.S.C. § 1343(b). The 1914 

law required specific authority to use appropriated funds “for the purchase 

of any motor-propelled or horse-drawn passenger-carrying vehicle for the 

service of any of the executive departments or other Government 

establishments, or any branch of the Government service.”144 The law was 

restated and amended as part of the Administrative Expenses Act of 1946145

to delete the quadruped reference and to exempt vehicles for the use of the 

President, “secretaries to the President,” or the heads of the departments 

listed in 5 U.S.C. § 101 (the cabinet departments). Other exemptions are 

listed in 31 U.S.C. § 1343(e). The statute also requires specific authority to 

use appropriations, other than those of the armed forces, to buy, maintain, 

or operate aircraft. 31 U.S.C. § 1343(d).

In what may be record time, the first decision under the original law, 

21 Comp. Dec. 14 (1914), was issued just seven days after enactment. In it, 

the Comptroller of the Treasury confirmed that the statute applies to the 

entire federal government regardless of geographical location, and to all 

appropriations, no-year as well as annual. It does not, however, apply to 

144 Pub. L. No. 63-127, § 5, 38 Stat. 454, 508 (July 16, 1914).

145 Pub. L. No. 79-600, § 16(a), 60 Stat. 806, 810 (Aug. 2, 1946).
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mixed-ownership government corporations. B-94685-O.M., May 8, 1950 

(Federal Deposit Insurance Corporation).

The major issue of the early decades of the statute’s life was the definition 

of “passenger vehicle,” attributable in part perhaps to the fact that the 

“motor car” was still somewhat of a novelty. Short of Rosebud, virtually 

every contrivance in or on which a human could ride was the subject of a 

decision. Of course, this was more than academic. If a given vehicle did 

qualify as a passenger vehicle, it was—and is—subject to the statutory 

requirement for specific authority. If it did not so qualify, then unless there 

was some other applicable restriction, its acquisition was simply a matter 

of applying the “necessary expense” doctrine. E.g., 18 Comp. Gen. 226 

(1938).

As one might expect, the key distinction was between a passenger vehicle 

and a truck. The statute “has no effect whatever” on the purchase of 

trucks. 21 Comp. Dec. 38 (1914). It does not apply to a pickup truck 

(16 Comp. Gen. 320 (1936)) or a panel truck (29 Comp. Gen. 213 (1949)). 

An agency’s appropriations are available to buy a truck without regard to 

31 U.S.C. § 1343(b) if, as noted above, the expenditure is “reasonably 

necessary to carry out the object for which the appropriation is made.” 

18 Comp. Gen. at 227. The fact that the truck may be used to transport 

personnel is not controlling. 2 Comp. Gen. 573 (1923); B-150028-O.M., 

Nov. 16, 1962. See also 3 Comp. Gen. 900 (1924).

From these and similar decisions, the following test developed:

“[T]he question whether a vehicle is ‘passenger-carrying’ 

must be determined from the character of the vehicle as 

shown by its construction and design, and not from its 

intended use, and where it appears that the automobile is in 

fact a passenger-carrying vehicle, the prohibition of 

[31 U.S.C. § 1343(b)] applies irrespective of the purpose of 

the Government department or agency involved to convert 

it to other usages. . . . That is to say, the provisions of the act 

may not be evaded upon the plea that a passenger-carrying 

automobile, once acquired, will be used otherwise than for 

the transportation of passengers.”

16 Comp. Gen. 260, 261 (1936). Similar statements appear in numerous 

decisions, for example, 8 Comp. Gen. 636, 637 (1929) and 23 Comp. 

Dec. 19, 20 (1916).
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Thus, a station wagon clearly is a passenger vehicle. 26 Comp. Gen. 542 

(1947); 15 Comp. Gen. 451 (1935); 14 Comp. Gen. 367 (1934). So is an 

ordinary motorcycle. 22 Comp. Dec. 324 (1916). And a prison van. 

26 Comp. Dec. 879 (1920). However, “jeeps” have been held not to be 

passenger vehicles for purposes of 31 U.S.C. § 1343(b). 23 Comp. Gen. 955 

(1944).146 Nor are motor boats or aircraft, “vehicle” being defined in terms 

of land transportation. 24 Comp. Gen. 184 (1944); 26 Comp. Dec. 904 

(1920); 22 Comp. Dec. 262 (1915). Initially, the Comptroller of the Treasury 

held the statute inapplicable to ambulances. 21 Comp. Dec. 830 (1915). 

However, the specific exemption for ambulances from the later-enacted 

price limitation provision of 31 U.S.C. § 1343(c), discussed further below, 

showed that Congress “has classified ambulances as passenger vehicles 

and thus subject to the prohibition against purchase without specific 

authorization.” 33 Comp. Gen. 539, 540 (1954). See also 41 Comp. 

Gen. 227, 229 (1961).

Stating the test in terms of construction and design rather than intended 

use inevitably led to a number of cases dealing with a variety of structural 

and other alterations. In the most simple situation, painting “truck” on the 

door of a limousine does not make it a truck. See 23 Comp. Dec. 19, 20 

(1916). Slight changes, such as adding a tool box or similar attachment to a 

passenger vehicle, do not change the vehicle’s character. 21 Comp. 

Dec. 116 (1914); B-117843-O.M., Jan. 27, 1954. However, structural 

alterations which are of sufficient magnitude to preclude use of a vehicle 

for carrying passengers will remove it from the statute’s coverage. 

24 Comp. Gen. 123 (1944); B-115608, June 16, 1953; B-62865, Jan. 30, 1947. 

The converse is equally true. 33 Comp. Gen. 539 (1954) (panel truck 

converted to ambulance use thereby became a passenger vehicle). 

Similarly, although an ordinary motorcycle is regarded as a passenger 

vehicle, a motorcycle constructed and equipped for freight-carrying 

purposes loses its character as a passenger vehicle. 4 Comp. Gen. 141 

(1924); 27 Comp. Dec. 1016 (1921).

146 The courts have held that a jeep is a passenger vehicle for transportation rate 

classification purposes. E.g., Union Pacific Railroad Co. v. United States, 91 F. Supp. 762 

(Ct. Cl. 1950) (the leading case on the point); United States v. Louisville & Nashville 

Railroad, 217 F.2d 307 (6th Cir. 1954). Although GAO followed these cases in its former 

transportation rate decisions (e.g., B-145028, Aug. 8, 1961), the transportation rate cases 

have never been held to affect 23 Comp. Gen. 955.
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While the statement of the test in many of the decisions suggests that the 

intended use of the vehicle is irrelevant, this is not entirely accurate. In one 

very early case, for example, GAO advised something called the Federal 

Board for Vocational Education that it could, without specific authority, 

purchase unserviceable vehicles to be used for instructional purposes in 

shops and classrooms. 1 Comp. Gen. 58 (1921). Similarly, passenger 

automobiles to be used for research or testing purposes and not as a means 

of transportation have been viewed as exempt from 31 U.S.C. § 1343(b). 

49 Comp. Gen. 202 (1969) (air pollution control testing); 1 Comp. Gen. 360 

(1922) (fuel consumption testing). See also 4 Comp. Gen. 270 (1924) 

(automobile chassis as part of defense mobile searchlight unit). In such 

cases, an appropriate certification should appear on or accompany the 

voucher. 49 Comp. Gen. at 204; 1 Comp. Gen. at 361.

The original 1914 version of 31 U.S.C. § 1343(b) used only the word 

“purchase.” However, it was soon held that purchase included “hire,” at 

least hire by the month or year, and certainly an indefinite hire; otherwise, 

the prohibition would be a sham. 4 Comp. Gen. 836 (1925); 21 Comp. 

Dec. 462 (1915). The statutory language was expanded to “purchase or 

hire” in the 1946 amendment, and hire became “lease” in the 1982 

codification of title 31 of the United States Code. This does not apply to the 

rental of taxicabs or other vehicles on a “per trip” basis incident to the 

normal performance of day-to-day business. 33 Comp. Gen. 563 (1954); 

2 Comp. Gen. 693 (1923); 21 Comp. Dec. at 463. Nor does it apply to the 

rental of vehicles by employees on official travel. 24 Comp. Dec. 189 

(1917). If purchase included hire under the early decisions for purposes of 

the prohibition, the authority to purchase logically should include the 

authority to hire. 4 Comp. Gen. 453 (1924); 22 Comp. Dec. 187 (1915). The 

issue has not been revisited since hire was specifically added to the statute, 

but there appears to be no compelling reason for a different result.

The statute specifies that the concept of purchase includes a transfer 

between agencies. 31 U.S.C. § 1343(a). Thus, the transfer of a vehicle 

declared excess under 40 U.S.C. §§ 521–522, with or without 

reimbursement, is a purchase requiring specific authority under 31 U.S.C. 

§ 1343(b). 44 Comp. Gen. 117 (1964). However, this is true only where the 

transfer has the effect of augmenting the number of vehicles the receiving 

agency is authorized to have. The statute does not apply to transfers 

without reimbursement for replacement or upgrading purposes where the 

receiving agency reports an equal number of vehicles as excess. 45 Comp. 

Gen. 184 (1965).
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If the transfer of an excess vehicle to another agency is a purchase for 

purposes of 31 U.S.C. § 1343(b), so is a transfer to another agency’s grantee. 

55 Comp. Gen. 348 (1975). Custody and accountability for the transferred 

vehicle would pass to the grantor agency even though the grantee would 

have actual use during the life of the grant. Also, upon completion of the 

grant, the vehicle could well revert to the grantor. Id. at 351. This is 

distinguishable from a situation, such as that encountered in 43 Comp. 

Gen. 697 (1964), in which a grantee, incident to its performance and where 

not otherwise restricted, purchases a vehicle with grant funds. In a case 

where the government was authorized to purchase vehicles for use by a 

contractor, GAO cautioned that, upon completion of the contract, the 

agency could not retain the vehicles to augment its fleet in disregard of 

31 U.S.C. § 1343(b). B-146876-O.M., June 8, 1965.

An acquisition not subject to the statute is illustrated in B-122552, Feb. 7, 

1957. The government seized an automobile which had been purchased 

with the proceeds of a forged check. The Secret Service found that it 

would be cheaper to retain the car (which the government was authorized 

to do under a settlement agreement) and use it than to convert it to cash. 

GAO found that the government had acquired the car “not by purchase, but 

by operation of law as a partial recovery of the sum it lost through the 

forgery.” Under the circumstances, 31 U.S.C. § 1343(b) did not apply to the 

acquisition or to the transfer of the car’s reasonable value from Secret 

Service appropriations to the account which had suffered the loss.

The authority required by 31 U.S.C. § 1343(b) must be specific. It cannot be 

implied from broad grants of discretionary authority. 13 Comp. Gen. 226 

(1934). The authority to purchase necessary supplies and equipment is not 

enough. 26 Comp. Dec. 904, 905 (1920). The phrase “means of 

transportation” has also been found insufficient. 21 Comp. Dec. 671 (1915). 

The authority may be conferred in an appropriation act or elsewhere, and 

appears in a variety of forms. Appropriation language authorizing the 

purchase and/or hire of passenger motor vehicles is quite common. For 

instance, the Science, State, Justice, Commerce, and Related Agencies 

Appropriations Act, 2006, Pub. L. No. 109-108, 119 Stat. 2290 (Nov. 22, 

2005), contains over 20 such provisions. The Transportation, Treasury, 

Housing and Urban Development, the Judiciary, the District of Columbia, 

and Independent Agencies Appropriations Act, 2006, Pub. L. No. 109-115, 

119 Stat. 2396 (Nov. 30, 2005), has almost 30. An agency may be authorized 

to use its operating appropriations for the purchase and/or hire of motor 

vehicles; a specific amount may be earmarked for this purpose from a 

lump-sum appropriation; the legislation may specify the number of vehicles 
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authorized to be acquired. Following are a few random examples from 

these and other fiscal year 2006 appropriations acts to illustrate the variety:

• The United States Marshals Service appropriation for Fees and 

Expenses of Witnesses provided that “not to exceed $1,000,000 may be 

made available for the purchase and maintenance of armored vehicles 

for transportation of protected witnesses.” Pub. L. No. 109-108, 

119 Stat. at 2293.

• The Federal Bureau of Investigations Salaries and Expense 

appropriation was available for “purchase for police-type use of not to 

exceed 3,868 passenger motor vehicles, of which 3,039 will be for 

replacement only.” Id., 119 Stat. at 2294. Similar provisions applied to 

the Drug Enforcement Administration and the Bureau of Alcohol, 

Tobacco, Firearms, and Explosives. Id., 119 Stat. at 2295.

• A general provision in the Commerce Department’s appropriation act 

provided that, “[d]uring the current fiscal year, appropriations made 

available to the Department of Commerce by this Act for salaries and 

expenses shall be available for the hire of passenger motor vehicles as 

authorized by 31 U.S.C. [§§] 1343 and 1344.” Pub. L. No. 109-108, § 202.

• The Department of Transportation’s “applicable appropriations” were 

available for “hire of passenger motor vehicles and aircraft.” Pub. L. 

No. 109-115, § 160.

• The Defense Department’s Procurement, Defense-Wide appropriation 

was available for “the purchase of passenger motor vehicles for 

replacement only, and the purchase of 5 vehicles required for physical 

security of personnel, notwithstanding prior limitations applicable to 

passenger vehicles but not to exceed $255,000 per vehicle.” 

Department of Defense, Emergency Supplemental Appropriations to 

Address Hurricanes in the Gulf of Mexico, and Pandemic Influenza Act, 

Pub. L. No. 109-148, 119 Stat. 2680, 2692–93 (Dec. 30, 2005).

• Funding for the Office of the Director, National Institutes of Health, 

was “available for the purchase of not to exceed 29 passenger motor 

vehicles for replacement only.” Departments of Labor, Health and 

Human Services, and Education, and Related Agencies Appropriations 

Act, 2006, Pub. L. No. 109-149, 119 Stat. 2833, 2849 (Dec. 30, 2005).
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For some agencies, authority exists in permanent legislation. An example 

is 50 U.S.C. § 403j(a)(1), under which appropriations made available to the 

Central Intelligence Agency may be used for “purchase, maintenance, 

operation, repair, and hire of passenger motor vehicles, and aircraft, and 

vessels of all kinds.” An agency with no authority to purchase or hire 

motor vehicles can still obtain them from the General Services 

Administration’s motor pool described separately below.

b. Price Limitations Statutory price limitations on the purchase of passenger motor vehicles 

first appeared in the 1934 Treasury and Post Office Departments 

Appropriations Act, Pub. L. No. 72-428, § 3, 47 Stat. 1489, 1513 (Mar. 3, 

1933). Out of apparent concern that the ceiling could be evaded by offering 

essentially a frame at a basic price with such frills as wheels and an engine 

priced separately as extras, section 3(a) prohibited the purchase of “any 

motor-propelled passenger-carrying vehicle (exclusive of busses [sic], 

ambulances, and station wagons), at a cost, completely equipped for 

operation, and including the value of any vehicle exchanged, in excess of 

$750, unless otherwise specifically provided for in the appropriation.”

This price limitation gave rise to another lengthy series of decisions holding 

that such things as heaters (28 Comp. Gen. 720 (1949)) and air conditioners 

(40 Comp. Gen. 205 (1960)) had to be charged against the ceiling. The 

phrase “completely equipped for operation” came to include all equipment 

or accessories permanently attached to the vehicle which contributed to 

“the comfort and convenience of the passengers and the efficient operation 

of the vehicle.” 36 Comp. Gen. 725, 726 (1957). While the decisions 

doubtlessly reflected the intent of the legislation, they reached a level of 

detail such as whether a replacement gas cap and an extra length of heater 

hose were chargeable against the ceiling. See B-140843-O.M., Oct. 19, 1959 

(they were).

In 1970, Congress amended the law (Pub. L. No. 91-423, 84 Stat. 879 

(Sept. 26, 1970)), and it is now found at 31 U.S.C. § 1343(c) as follows:

“(1) Except as specifically provided by law, an agency may 

use an appropriation to buy a passenger motor vehicle 

(except a bus or ambulance) only at a total cost (except 

costs required only for transportation) that—

“(A) includes the price of systems and equipment the 

Administrator of General Services decides is 
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incorporated customarily in standard passenger motor 

vehicles completely equipped for ordinary operation;

“(B) includes the value of a vehicle used in exchange;

“(C) is not more than the maximum price established by 

the agency having authority under law to establish a 

maximum price; and

“(D) is not more than the amount specified in a law.

“(2) Additional systems and equipment may be bought for a 

passenger motor vehicle if the Administrator decides the 

purchase is appropriate. The price of additional systems or 

equipment is not included in deciding whether the cost of 

the vehicle is within the maximum price specified in a law.”

The monetary ceiling is adjusted annually and set forth as a 

governmentwide general appropriation act provision. For fiscal year 2006, 

the provision states:

“Unless otherwise specifically provided, the maximum 

amount allowable during the current fiscal year in 

accordance with [31 U.S.C. § 1343(c)], for the purchase of 

any passenger motor vehicle (exclusive of buses, 

ambulances, law enforcement, and undercover surveillance 

vehicles), is hereby fixed at $8,100 except station wagons 

for which the maximum shall be $9,100: Provided, That 

these limits may be exceeded by not to exceed $3,700 for 

police-type vehicles, and by not to exceed $4,000 for special 

heavy-duty vehicles . . . .”147

The first feature to note about 31 U.S.C. § 1343 is that the exemptions for 

section 1343(b) differ from those for section 1343(c). Section 1343(b) 

precludes the use of appropriated funds to acquire vehicles for the use of 

anyone other than certain specified officials. Section 1343(c), however, 

sets price ceilings on all vehicle purchases. Thus, the acquisition of a 

vehicle for the use of a cabinet secretary does not require specific 

147 Pub. L. No. 109-115, § 803, 119 Stat. 2396, 2495–96 (Nov. 30, 2005).
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authority, but it is subject to the price limitation. 32 Comp. Gen. 345 (1953). 

Conversely, buses and ambulances are exempt from the price limitation but 

require specific authority. 33 Comp. Gen. 539 (1954). Apart from the 

exemptions specified in the statute, a passenger vehicle for one subsection 

is a passenger vehicle for the other. If, for example, a vehicle to be used 

solely for research or testing purposes is not considered a passenger 

vehicle for purposes of 31 U.S.C. § 1343(b), it is not subject to the price 

limitation of section 1343(c). B-81562, Dec. 1, 1948. The price limitation 

has been held inapplicable to purchases from a trust fund made up of 

testamentary gifts. B-78578, Aug. 4, 1948.

Under 31 U.S.C. § 1343(c)(1)(A), GSA decides what is or is not included in a 

vehicle “completely equipped for ordinary operation,” and the price ceiling 

applies to this package. Additional equipment, again within GSA’s 

discretion, is not charged against the ceiling. GSA’s regulations provide 

that standard passenger vehicles as defined in Federal Standard No. 122148

will be regarded as “completely equipped for ordinary operation,” with 

items other than those listed as standard to be considered additional 

equipment for purposes of 31 U.S.C. § 1343(c). 41 C.F.R. § 101-26.501(b)(1). 

GSA has taken the position, and GAO agrees, that dealers should not be 

permitted to circumvent the statutory limitation “by transferring part of the 

basic vehicle cost to . . . the portion of the bid price allocated to additional 

systems and equipment,” and that contracting officers should examine bid 

prices to guard against this. B-182754, Feb. 18, 1975, at 3. Similarly, GAO 

sustained GSA’s rejection of a bid which attempted to include required 

options not specified in the solicitation. B-188439, June 30, 1977.

Section 1343(c)(1)(B) specifies that any trade-in value is part of the total 

cost chargeable against the ceiling. This means that the trade-in value is 

part of the price and, when added to the balance paid in cash, may not 

exceed the limit. 17 Comp. Gen. 215 (1937). Determining trade-in value is 

not an exact science. The so-called “blue book” published by the National 

Automobile Dealers Association is a guide but is not conclusive and any 

reasonable method of valuation is acceptable. 28 Comp. Gen. 495, 497 

(1949); B-74529, Oct. 20, 1948. However, the valuation must not be a sham 

to avoid the statutory limitation. 17 Comp. Gen. 911, 913 (1938) 

148 GSA issues Federal Vehicle Standards for passenger motor vehicles and various classes 

of trucks, updated for each new model year. Federal Standard No. 122 is the standard for 

passenger vehicles. The standards can be found at http://apps.fss.gsa.gov/vehiclestandards

(last visited Mar. 20, 2008).
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(“ridiculously low” trade-in allowance an obvious circumvention); 

28 Comp. Gen. at 497 (allowance approximating scrap value questionable 

where vehicle had not been wrecked and was not unserviceable). In 

legitimate circumstances, there is no legal objection to trading in more than 

one used vehicle toward the purchase of a new one. 28 Comp. Gen. 495; 

17 Comp. Gen. at 582. However, if one of the old vehicles is excess, it 

should be disposed of in accordance with the Federal Property and 

Administrative Services Act. See 27 Comp. Gen. 30 (1947).

While trade-in value of an old vehicle actually traded in must be factored in, 

it is improper to consider the future trade-in value of the vehicle being 

purchased. This is because anticipated or prospective depreciation is 

regarded as too uncertain to be used as a bid evaluation factor. 33 Comp. 

Gen. 108 (1953).

Section 1343(c)(1) further provides that transportation costs are to be 

excluded for purposes of determining compliance with the price ceiling. 

Decisions applying this principle in a variety of factual contexts and 

contract terms include 21 Comp. Gen. 474 (1941); 20 Comp. Gen. 677 

(1941); 14 Comp. Gen. 82 (1934); and B-127291, Mar. 22, 1956.

Under a rental agreement whereby title to the vehicle passes to the 

government when total rental payments reach a stated value, or sooner if, 

upon termination, the government pays the difference between total 

payments and the stated value, the total amount paid, rental payments 

included, may not exceed the price ceiling. 29 Comp. Gen. 21 (1949). The 

decision distinguished 21 Comp. Gen. 548 (1941), in which, for purposes of 

exercising a recapture provision in a cost reimbursement contract, the 

rentals paid by the contractor prior to recapture were not required to count 

against the ceiling.

2. Use

a. The “Official Purpose” 

Limitation

Vehicles purchased or rented by the United States government are 

supposed to be used for government business; anything else is illegal. The 

first sentence of 31 U.S.C. § 1344(a)(1) makes the point: “Funds available 

to a Federal agency, by appropriation or otherwise, may be expended by 

the Federal agency for the maintenance, operation, or repair of any 

passenger carrier only to the extent that such carrier is used to provide 

transportation for official purposes.” The “official purpose” limitation 
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appears to have originated as a governmentwide general provision in 

appropriation acts in the 1930s and early 1940s. 3 Op. Off. Legal Counsel 

329, 330 (1979). See A-19101, July 25, 1942, for an example. It became 

permanent as part of section 16 of the Administrative Expenses Act of 

1946, Pub. L. No. 79-600, § 16(a), 60 Stat. 806, 810 (Aug. 2, 1946), and was 

reenacted in 1986 as part of the general revision of 31 U.S.C. § 1344. See

Pub. L. No. 99-550, §1(a), 100 Stat. 3067 (Oct. 27, 1986).

The coverage of the statute is quite broad. The phrase “appropriation or 

otherwise” covers all types of funding. Section 1344(h)(1) defines 

“passenger carrier” as any “passenger motor vehicle, aircraft, boat, ship, or 

other similar means of transportation that is owned or leased by the United 

States Government.” Section 1344(h)(2) defines “federal agency” to 

include, in addition to the “regular” departments and agencies, government 

corporations, mixed-ownership government corporations, the Executive 

Office of the President, independent regulatory agencies, the Smithsonian 

Institution, and nonappropriated fund instrumentalities. Section 1344(i) 

adds in the Postal Service. The definition does not apply to the legislative 

and judicial branches and it excludes the District of Columbia government. 

However, the official purposes principle embodied in section 1344 extends 

to any entity using appropriated funds by virtue of the fundamental rule of 

31 U.S.C. § 1301(a)(1) that appropriations may be applied only to the 

objects for which they were made except as otherwise provided by law. 

Thus, the legislative history of section 1344 and the case law under it are 

relevant to the practices of entities not directly covered by that section. 

B-305864, Jan. 5, 2006.

With one significant exception, one thing the law does not do is define 

official purposes. In fact, perhaps wisely, apart from the conventional 

wisdom that contrasts “official” with “personal,” no one has attempted to 

do so. Lacking a definition, one is left with whatever one can glean from 

the cases.

The overwhelming majority of cases under 31 U.S.C. § 1344 have involved 

home-to-work transportation, what one senator once called “the ultimate 

status symbol for a Federal bureaucrat.”149 Power to Lenin may have come 

from the barrel of a gun, but to many in Washington it comes from being 

picked up at your front door in a chauffeured limousine, courtesy of the 

taxpayers. It is settled beyond any debate that ordinary home-to-work 

149 132 Cong. Rec. 30249 (1986) (Sen. Proxmire).
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commuting is the personal responsibility—and personal expense—of the 

individual. E.g., B-305864, Jan. 5, 2006; 27 Comp. Gen. 1 (1947); 19 Comp. 

Gen. 836 (1940); B-233591, Sept. 21, 1989. This principle applies to 

overtime work. Thus, there is no authority for the government to provide 

or pay for home-to-work transportation in connection with the 

performance of overtime. 16 Comp. Gen. 64 (1936); B-190071, May 1, 1978. 

It makes no difference that the additional work is performed on nonregular 

work days (B-171969.42, Jan. 9, 1976), or is “call-back” overtime. B-307918, 

Dec. 20, 2006; 36 Comp. Gen. 171 (1956); B-189061, Mar. 15, 1978. 

From the above general principle it is but a small and logical step to 

conclude that using a government vehicle for home-to-work transportation 

is not an official purpose, unless of course Congress has authorized it. The 

motor vehicle provision as amended by the Administrative Expenses Act of 

1946 included a home-to-work prohibition with a few exceptions.150 While 

the very existence of the statute perhaps deterred abuse, some argued that 

home-to-work transportation could be provided on the basis of little more 

than an “interest of the government” determination. The argument derived 

support, according to its proponents, from language in GAO decisions such 

as 25 Comp. Gen. 844, 847 (1946), in which GAO observed that the “primary 

purpose” of the prohibition against home-to-work transportation was to 

prevent the use of government-owned vehicles for “personal convenience” 

and, therefore, it should not be interpreted as precluding such 

transportation when determined as a matter of administrative discretion to 

be “in the interest of the government.” 

Over time, GAO came to view the law’s intent as unclear and advocated 

legislative clarification. E.g., B-178342, July 16, 1973; B-178342, May 8, 

1973. However, uncertainty over the extent to which home-to-work 

transportation could be authorized continued into the early 1980s as its 

widespread use persisted. As GAO observed in 62 Comp. Gen. 438, 440 

(1983):

150 The 1946 version retained the limit on use of passenger motor vehicles to official 

purposes and provided that such purposes did not include home-to-work transportation 

“except in cases of medical officers on out-patient medical service and . . . officers and 

employees engaged in field work the character of whose duties makes such transportation 

necessary and then only . . . when . . . approved by the head of the department concerned.” 

Willful violations were subject to suspension or removal. The statute also exempted from 

its limitations the President, heads of cabinet departments, and principal diplomatic and 

consular officials. Pub. L. No. 79-600, § 16.
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“[T]he use of Government-owned or leased automobiles by 

high ranking officials for travel between home and work has 

been a common practice for many years in a large number 

of agencies. . . . The justification advanced for this practice 

is the apparent acquiescence by the Congress which 

regularly appropriates funds for limousines and other 

passenger automobiles knowing, in many instances, the 

uses to which they will be put but not imposing limits on the 

discretion of the agencies in determining what uses 

constitute ‘official business.’”

The 1983 decision sought to lay the confusion to rest. In essence, 62 Comp. 

Gen. 438 held that, apart from those exceptions sanctioned in the statute 

plus a couple of fairly narrow nonstatutory exceptions, the use of 

government vehicles for home-to-work transportation was statutorily 

prohibited, period. Thus, agencies have no discretion to exercise in the 

matter. The decision (62 Comp. Gen. at 446) quoted a Justice Department 

opinion, 3 Op. Off. Legal Counsel 329 (1979), which a few years earlier had 

given very similar advice. If anything, Justice was even more direct. To 

those who argued that chauffeured limousine service enabled them to 

extend their work day by working while being transported, the answer was 

simple: come in earlier, stay later, or live closer to the office. 3 Op. 

Off. Legal Counsel at 332. While the decision in 62 Comp. Gen. 438 lowered 

the boom on discretionary use of government vehicles for home-to-work 

transportation, it also recognized that GAO, itself, had contributed to the 

confusion on this issue. Thus, GAO both applied its decision prospectively, 

and suspended its application entirely until the end of the then-present 

Congress in order to allow Congress a chance to legislatively resolve the 

matter. 62 Comp. Gen. at 440. Meanwhile, GAO reports continued to 

document existing practice.151

In 1986, Congress enacted Pub. L. No. 99-550, 100 Stat. 3067 (Oct. 27, 1986), 

which completely overhauled 31 U.S.C. § 1344. The objective was clear: 

“Whatever the cause for the continued violation of 31 USC 1344, it is 

obvious that legislation is needed to end the confusion, by providing clear 

151 E.g., GAO, Use of Government Motor Vehicles for the Transportation of Government 

Officials and the Relatives of Government Officials, GAO/GGD-85-76 (Washington, D.C.: 

Sept. 16, 1985); Use of Government Vehicles for Home-to-Work Transportation,

GAO/NSIAD-83-3 (Washington, D.C.: Sept. 28, 1983).
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congressional guidance which will prevent future waste of government 

funds.” H.R. Rep. No. 99-451, at 5 (1985).

The revised 31 U.S.C. § 1344(a)(1) starts with the general official purposes 

requirement quoted above. It then adds: “Notwithstanding any other 

provision of law, transporting any individual other than the individuals 

listed in subsections (b) and (c) of this section between such individual’s 

residence and such individual’s place of employment is not transportation 

for an official purpose.” The “notwithstanding any other provision of law” 

language was intended to mean that 31 U.S.C. § 1344 prevails over any 

other inconsistent prior or subsequent legislation:

“Any legislation authorizing home-to-work transportation 

for officers or employees of the Executive Branch enacted 

prior to the enactment of this measure is no longer valid 

unless specifically recognized by this section. Further, any 

legislation enacted after this measure authorizing such 

transportation . . . must specifically indicate that it is being 

enacted as an amendment or exception to this law.”

H.R. Rep. No. 99-451 at 7. The legislative history makes clear that residence 

means “the primary place where an individual resides while commuting to 

a place of employment,” and is not to be confused with the concept of legal 

domicile where the two differ. Id. It also makes clear that the prohibition 

does not affect temporary duty situations. Id. Travel between a temporary 

duty site and a temporary residence such as a motel is not regarded as 

home-to-work transportation for purposes of 31 U.S.C. § 1344. 41 C.F.R. 

§ 102-5.20(a). This has always been the case. See, e.g., B-159210-O.M., 

Jan. 4, 1967.

The statute also specifies the permissible exemptions. They fall into two 

categories—position and situation. Section 1344(b) lists the position 

exceptions. The list starts, of course, with the President and VicePresident. The President then is given 16 discretionary designations, 6 in 

the Executive Office of the President and 10 in other federal agencies. The 

remainder of the list includes: Justices of the Supreme Court; cabinet 

heads and a “single principal deputy” for each; the Ambassador to the 

United Nations and principal diplomatic and consular officials abroad; 

several high-level military officials; the heads of the Central Intelligence 

Agency and several law enforcement agencies; the Administrator of the 

National Aeronautics and Space Administration; the Chairman of the Board 
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of Governors of the Federal Reserve; the Comptroller General; and the 

Postmaster General.

What we call the situational exceptions are found in sections 

1344(a)(2)(A), (a)(2)(B), (b)(9), and (g). Section 1344(a)(2)(A) preserves 

an exception from the 1946 law and provides that home-to-work 

transportation “required for the performance of field work,” in accordance 

with regulations prescribed by the General Services Administration (GSA), 

is permissible when approved in writing by the agency head. The GSA 

regulations define “field work” as follows: 

“Field work means official work requiring the employee’s 

presence at various locations other than his/her regular 

place of work. (Multiple stops (itinerant-type travel) within 

the accepted local commuting area, limited use beyond the 

local commuting area, or transportation to remote locations 

that are only accessible by Government-provided 

transportation are examples of field work.)”

41 C.F.R. § 102-5.30. Section 1344(a)(2)(B) authorizes home-to-work 

transportation which is “essential for the safe and efficient performance of 

intelligence, counterintelligence, protective services, or criminal law 

enforcement duties,” again when approved in writing by the agency head. 

See, e.g., B-195073, Nov. 21, 1979 (certain Federal Bureau of Investigation 

agents authorized to take government vehicles home in order to maintain 

emergency response capability).152 The protective services part of this 

exemption is reinforced by section 1344(c), which authorizes home-towork transportation for anyone entitled to Secret Service protection under 

18 U.S.C. § 3056(a) or those entitled to protection under several other listed 

authorities.

Section 1344(b)(9) gives a statutory basis to some nonstatutory exemptions 

recognized in the prior decisions. GAO had expressed the view that the law 

should allow an exception for emergencies. E.g., B-181212, Aug. 15, 1974. 

Of course, this presumes a real emergency. B-152006-O.M., July 26, 1965, 

quoting B-152006-O.M., Oct. 22, 1963 (“[I]t is difficult to believe that 

152 Since section 1344(a)(2)(B) did not exist in 1979, the decision had to strain somewhat to 

try to apply the field work exception, which did exist. All pre-1986 decisions should be 

reexamined in light of the 1986 law and General Services Administration regulations. Those 

we cite here illustrate points which appear unaffected by the subsequent changes.
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emergencies arise at the Savannah River plant with such frequency as to 

warrant an average of 442 trips per month in connection with overtime 

work.”). 

A “clear and present danger” of terrorist activities in foreign countries 

became another nonstatutory exception. 54 Comp. Gen. 855 (1975). Now, 

under 31 U.S.C. § 1344(b)(9), the head of any federal agency can provide 

home-to-work transportation to any officer or employee by making a 

written determination, in accordance with General Services Administration 

(GSA) regulations, “that highly unusual circumstances present a clear and 

present danger, that an emergency exists, or that other compelling 

operational considerations make such transportation essential to the 

conduct of official business.” Transportation under this subsection is for a 

maximum of 15 calendar days, but may be extended for additional 90-day 

periods. 31 U.S.C. § 1344(d)(2). While there is obviously some discretion 

under these standards, the statute makes clear that “comfort and 

convenience” is not sufficient justification. Id. § 1344(e)(1).

The GSA regulations provide in general that emergency circumstances 

“exist whenever there is an immediate, unforeseeable, temporary need to 

provide home-to-work transportation for those employees necessary to the 

uninterrupted performance of the agency’s mission.” 41 C.F.R. § 102-5.30. 

The same regulation uses a public transportation strike as an example of a 

circumstance that may trigger the emergency exception: “An emergency 

may occur where there is a major disruption of available means of 

transportation to or from a work site, an essential Government service 

must be provided, and there is no other way to transport those employees.” 

Id. 

Prior GAO decisions, which may be helpful in applying this regulation, had 

emphasized that the unavailability of public transportation alone does not 

shift to the government the employee’s responsibility to get to work. In 

other words, a transit strike is not automatically an emergency justifying 

home-to-work transportation. 60 Comp. Gen. 420 (1981); B-200022, Aug. 3, 

1981. In two other cases, however, the circumstances were found to justify 

exceptions. In a 1975 case, the local Social Security Administration hired 

buses to transport employees to work from predetermined pick-up points 

during a San Francisco transit strike. Absent this or similar action, the 

processing of claims and payments at one of the nation’s major Social 

Security centers would have come to an abrupt halt. GAO agreed that the 

action was within the agency’s discretion as a “temporary emergency 

measure.” 54 Comp. Gen. 1066 (1975). Some years earlier, during a New 
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York City subway strike, an Internal Revenue Service supervisor “directed” 

one of his employees to use his own car to take five other employees to and 

from home during the strike. GAO agreed that the driver’s increased 

commuting costs could be paid. A key factor here was that the then Civil 

Service Commission had authorized employees to stay home without a 

charge to leave. Thus, the supervisor’s action enabled the work of the 

office to continue at minimum expense, as opposed to having to pay the 

employees anyway for doing no work. B-158931, May 26, 1966.

The most recent situational exception is in 31 U.S.C. § 1344(g), added by 

Pub. L. No. 109-59, § 3049(b), 119 Stat. 1144, 1712 (Aug. 10, 2005). 

Section 1344(g) authorizes agency heads, in their sole discretion and 

subject to certain conditions, to provide employees shuttle service between 

their places of employment and mass transit facilities. The same section of 

the 2005 law enacted statutory authority for the provision of subsidies to 

federal employees in the National Capital Region who commute by mass 

transit. The conference report on the 2005 legislation noted that “[b]y 

improving access to commuting alternatives, Federal agencies will be able 

to provide a benefit to their employees that will also help to reduce 

congestion and improve air quality across the nation.” H.R. Rep. 

No. 109-203, at 975 (2005).

There is no authority to provide home-to-work transportation for 

handicapped employees. B-198323-O.M., Mar. 24, 1981. However, the 

situation in B-216602, Jan. 4, 1985, could possibly be considered under the 

“compelling operational considerations” exception. The Solicitor of Labor 

had received a serious injury and during his recovery period was forbidden 

to drive an automobile or ride public transportation. Government 

transportation was the only way he could get to work, and the Secretary 

said his availability was “essential.” GAO agreed that he could receive 

transportation “during the period in which he is medically incapable of 

otherwise commuting to and from his office,” but that he should reimburse 

the government to the extent of his normal commuting costs. B-216602, 

at 3. Alternatively, if GSA were to conclude that a situation like this is not 

covered by any of the statutory exceptions, it might be possible to take 

advantage of one of the President’s discretionary designations under 

31 U.S.C. § 1344(b)(1)(C) if any were available at the time.

The prohibition on home-to-work transportation applies to any portion of 

transportation between home and work. Thus, unless one of the 

exceptions can be invoked, there is no authority for an agency to provide 

shuttle service for its employees to and from various intermediate areas. 
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B-162326, Sept. 14, 1967; B-183617-O.M., Aug. 2, 1976. One illustration of 

this point is B-261729, Apr. 1, 1996. An agency which had relocated one of 

its offices was concerned that many of its employees were not overly 

excited over commuting the extra distance. It proposed to equip a bus with 

phones and computers, call it a “mobile work site,” and use it to transport 

employees from the old location to the new one. Noble motive, the 

decision concluded, but it’s still commuting and would require statutory 

authority.153

Another illustration involves the United States Capitol Police (USCP). 

B-305864, Jan. 5, 2006. The USCP provided parking for employees adjacent 

to its headquarters building on the Senate side of the Capitol grounds. 

Commuting employees would simply park their cars and walk into the 

headquarters building to report for work. However, the USCP needed to 

move some of its offices to the House of Representatives side where 

employee parking was not yet available. The USCP asked GAO whether it 

could provide a shuttle to transport employees from the Senate parking lot 

to their new work locations on the House side until regular parking was 

arranged there. The USPS reasoned that since appropriated funds are 

available to provide employee parking, they likewise should be available to 

transport employees from government-provided parking to their actual 

work locations. GAO disagreed. First, the fact that USCP provided 

employee parking was irrelevant to the issue, GAO said. Instead, the issue 

was governed by the longstanding rule regarding the nature of commuting 

costs. Citing B-261729, Apr. 1, 1996, GAO concluded:

“In our view, an employee’s arrival at a parking lot cannot be 

considered the end of the commute. Rather, a parking lot is 

simply an intermediate stop—like a subway or bus stop—

within the totality of the commute from home to office. For 

purposes of section 1344(a)(1), legislative history suggests 

that the end of the commute, or ‘place of employment,’ is 

the ‘primary place where an officer or employee performs 

his or her business.’ . . .”

B-305864, at 3. Thus, providing a shuttle to enable employees to complete 

their commutes to their offices on the House side was not permissible. On 

the other hand, GAO observed, if the USCP maintained a shuttle between 

153 As noted above, the recently enacted section 1344(g) does provide specific statutory 

authority for one form of intermediate shuttle service.
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its Senate and House offices for operational purposes, there would be no 

objection to commuting employees using it on a space-available basis and 

at no additional cost to the government. Id. at 3–4. 

The law does not prohibit use of government transportation from an 

employee’s home to an airport incident to official travel, subject to 

whatever guidance the Federal Travel Regulations include. 70 Comp. 

Gen. 196 (1991).

Agencies are required to “maintain logs or other records necessary to 

establish the official purpose” of home-to-work transportation they 

provide. 31 U.S.C. § 1344(f). The information to be recorded is specified in 

41 C.F.R. § 102-5.120. Public access to these records would be governed by 

the disclosure requirements and exemptions of the Freedom of Information 

Act, 5 U.S.C. § 552. B-233995, Feb. 10, 1989 (nondecision letter). Of course 

the records must be made available for legitimate audit purposes. A 1991 

GAO study found that the revised 31 U.S.C. § 1344 seemed to be working 

and that agencies were generally complying with it. GAO, Government 

Vehicles: Officials Now Rarely Receive Unauthorized Home-to-Work 

Transportation, GAO/GGD-91-27 (Washington, D.C.: Mar. 15, 1991).

Although the home-to-work prohibition captures the lion’s share of 

attention under 31 U.S.C. § 1344, it is only one form of unauthorized use. 

Personal use of a government vehicle on weekends and holidays is another. 

E.g., B-216016, Mar. 23, 1987. Still another controversial area is the use of 

government vehicles to transport family members. It does not violate the 

law for an agency to permit a family member to accompany an employee 

while the vehicle is being used for official business. 68 Comp. Gen. 186 

(1989); 57 Comp. Gen. 226 (1978). The same principle applies to 

government aircraft. B-192053-O.M., Aug. 3, 1978. See also B-155950, 

July 10, 1975. It is illegal, however, to use a government vehicle to shuttle 

about family members on personal errands. B-211586-O.M., July 8, 1983. It 

is equally unauthorized to permit a family member to use the vehicle for 

personal business. E.g., Clark v. United States, 162 Ct. Cl. 477, 483–84 

(1963).

In B-275365, Dec. 17, 1996, an official used a government car to drive 

himself and several other employees to the funeral of another employee’s 

child because “he wanted to send a message that he cared for his people.” 

GAO was unwilling to say that there are no circumstances in which this 

sort of thing might qualify as an official purpose, but in this particular case 
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use of the car violated the statute because, if for no other reason, the 

official made the decision himself and did not seek agency approval.

Use of a government vehicle not so much for personal convenience as for 

the convenience of an agency was the subject of 63 Comp. Gen. 257 (1984). 

In that decision, the then Veterans Administration (VA) had acquired a 

passenger bus to use in transporting students from a medical college to a 

VA hospital as part of a statutory training program. GAO agreed that the 

driver could keep the bus at home. The alternative would have been for the 

driver to make two round trips—one to pick up the bus and another to 

transport the students. Under the circumstances, any personal benefit to 

the driver was purely incidental to carrying out the program. The GSA 

regulations at 41 C.F.R. § 102-5.90 provide somewhat of a variant on this 

theme: “situations may arise where, for cost or other reasons, it is in the 

Government’s interest to base a Government passenger carrier at a 

Government facility located near the employee’s home or work rather than 

authorize the employee home-to-work transportation.” 

Providing transportation to individuals may constitute an official purpose 

in some circumstances. For example, GAO observed in B-216670, Dec. 13, 

1984:

“[T]he transportation of representatives of foreign nations is 

a common practice in the day-to-day conduct of American 

foreign relations. The provision of such transportation has 

evidently been a long-standing practice of the Defense and 

State Departments. . . . Accordingly, in our view, it would be 

inappropriate for this office to challenge this long-standing 

practice.”

In 71 Comp. Gen. 469 (1992), GAO held that use of a government vehicle to 

transport students incident to the agency’s participation in a “partnership in 

education” program did not violate the statute. GAO, however, 

discouraged the practice because of the increased potential for government 

liability in the event of an accident. 71 Comp. Gen. at 472. This is also the 

case where an employee is transporting a family member (68 Comp. 

Gen. 186 (1989)), or for that matter in any case of expanded use (B-254296, 

Nov. 23, 1993). Agencies should take precautions to limit potential tort 

liability in these situations. A device that has been used on occasion in the 

case of space-available transportation in government aircraft is the waiver 

of liability. Such waivers are generally valid although there is some stateto-state variation. See B-231930-O.M., Nov. 23, 1988. In any event, there is 
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no authority to use appropriated funds to purchase, or to reimburse an 

employee-driver for, liability insurance. 45 Comp. Gen. 542 (1966).

Another provision of law, 31 U.S.C. § 1349(b), gives 31 U.S.C. § 1344 some 

teeth. It provides:

“An officer or employee who willful1y uses or authorizes the 

use of a passenger motor vehicle or aircraft owned or leased 

by the United States Government (except for an official 

purpose authorized by section 1344 of this title) or 

otherwise violates section 1344 shall be suspended without 

pay by the head of the agency. The officer or employee shall 

be suspended for at least one month, and when 

circumstances warrant, for a longer period or summarily 

removed from office.”

The penalty applies only to “willful” violations. For a violation found to be 

willful, the minimum penalty of a month’s suspension without pay is 

mandatory. E.g., Clark v. United States, 162 Ct. Cl. 477, 486–87 (1963). As 

such, it cannot be reduced by an arbitrator. Devine v. Nutt, 718 F.2d 

1048, 1055 (Fed. Cir. 1983), rev’d on other grounds, 472 U.S. 648 (1985).

GAO will not decide whether a violation is willful. B-275365, Dec. 17, 1996. 

The Merit Systems Protection Board, which sees many of these cases in its 

review of adverse actions, has developed a test. The Board will consider a 

violation as willful if the employee “had actual knowledge that the use of 

the vehicle would be characterized as nonofficial or that he acted in 

reckless disregard as to whether the use was for nonofficial purposes.” 

Fischer v. Department of the Treasury, 69 M.S.P.R. 614, 617 (1996). The 

Court of Appeals for the Federal Circuit endorses this approach. Kimm v. 

Department of the Treasury, 61 F.3d 888 (Fed. Cir. 1995); Felton v. Equal 

Employment Opportunity Commission, 820 F.2d 391 (Fed. Cir. 1987). In 

addition, the Board will not regard a violation as willful if it involves “minor 

personal use” while the vehicle is being used primarily on official business. 

Fischer, 69 M.S.P.R. at 617; Madrid v. Department of the Interior,

37 M.S.P.R. 418, 423(1988). Acting with advice of counsel, however 

misguided or flat wrong that advice may be, would most likely preclude a 

finding that a violation was willful. 64 Comp. Gen. 782, 786 (1985).

Examples of situations in which the Board has sustained imposition of a 

penalty include the following:
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• Using a government vehicle to commute from duty station to law 

school classes. Aiu v. Department of Justice, 70 M.S.P.R. 509, aff’d, 

98 F.3d 1359 (Fed. Cir. 1996).

• Driving a government vehicle to lunch. Cantu v. Department of the 

Treasury, 88 M.S.P.R. 253 (2001). (To make matters worse, the 

employee left about 250 pounds of cocaine—in his possession for 

official purposes—unguarded in the government vehicle while he was 

at lunch.) Similarly, in Utnage v. Department of the Army, 119 Fed. 

Appx. 269 (2004), the Court of Appeals for the Federal Circuit affirmed 

a Board decision upholding the suspension of an employee for driving a 

government vehicle home for meal breaks. The employee said he knew 

he was not supposed to drive the government car home for lunch. His 

defense was that he parked the car one block away from his residence 

and walked the final block home, so he had not actually driven to his 

home. Unfortunately for the employee, but hardly surprising, neither 

the Board nor the court bought this defense. Utnage, 119 Fed. Appx.

at 271–72. 

• Driving loan officer to lawyer’s residence to sign papers on a personal 

loan. Madrid, 37 M.S.P.R. 418–23.

• Transporting agency employees and equipment to supervisor’s 

residence to help build a fish pond. Barrett v. Department of the 

Interior, 65 M.S.P.R. 186 (1994).

• Transporting employee’s son on personal business. Campbell v. 

Department of Health and Human Services, 40 M.S.P.R. 525 (1989). 

See also Davis v. Department of the Army, 56 M.S.P.R. 583 (1993). 

Under the particular circumstances involved in Kimm v. Department 

of the Treasury, 61 F.3d 888, however, driving a child to day care was 

found not to constitute a willful violation.

• Being arrested drunk and asleep while parked on the side of the road 

with the motor running. Tenorio v. Department of Health and Human 

Services, 30 M.S.P.R. 136 (1986). This one got the employee fired.

A car rented by an employee while on official travel is not “owned or leased 

by the United States Government” for purposes of 31 U.S.C. § 1349. 

Chufo v. Department of the Interior, 45 F.3d 419 (Fed. Cir. 1995). When an 

employee is renting a car while on travel or temporary duty, there is 

nothing wrong with using the car for personal business. The impropriety 
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enters the picture when the employee tries to charge the government for 

the personal portion of the use. In contrast, a government-furnished 

vehicle may be used only for official purposes. Federal Travel Regulations, 

41 C.F.R. § 301-10.201. The concept of official purpose is somewhat 

broader in the travel/temporary duty context than at the regular duty 

station. B-254296, Nov. 23, 1993 (limited recreational use permissible at 

remote location where no other transportation available).

One final statute that requires mention is section 503 of the Ethics Reform 

Act of 1989, Pub. L. No. 101-194, 103 Stat. 1716, 1755 (Nov. 30, 1989), as 

amended by Pub. L. No. 101-280, § 6(b), 104 Stat. 149, 160 (May 4, 1990), 

31 U.S.C. § 1344 note, which provides: “Notwithstanding any other 

provision of law, the head of each department, agency, or other entity of 

each branch of the Government may prescribe by rule appropriate 

conditions for the incidental use, for other than official business, of 

vehicles owned or leased by the Government.” The scope and intended 

effect of this provision are unclear. A GAO report issued not too long after 

the enactment of section 503 noted that the legislative history was silent as 

to its intent. GAO, Government Vehicles: Officials Now Rarely Receive 

Unauthorized Home-to-Work Transportation, GAO/GGD-91-27 

(Washington, D.C.: Mar. 15, 1991), at 7. The report also observed that some 

agency officials thought that section 503 “opens a hole in the home-to-work 

law, . . . rolls back the restrictions on home-to-work transportation, and . . . 

seems to contradict the home-to-work transportation law.” Id. at 8. 

However, GAO expressed a “much more restrictive” interpretation: 

“Section 503, as we view it, is designed simply to provide 

reasonable agency latitude under prescribed rules for minor 

nonofficial vehicle use incidental to otherwise authorized 

official use. Section 503 does not provide the authority for 

any agency to ignore the provisions of the home-to-work 

transportation law, a specific statutory scheme designed to 

be comprehensive in terms of specifying the situations 

under which certain officials and employees may be 

provided home-to-work transportation in a government 

vehicle.” 

Id. As the 1991 GAO report anticipated, section 503 appears to have had 

little impact. We have found no judicial or administrative decision 

addressing section 503 and only one published substantive agency 

regulation explicitly issued pursuant to it. That regulation, adopted by the 

National Aeronautics and Space Administration, 14 C.F.R. § 1204.1600, 
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permits employees to drive a government vehicle home at the close of the 

day preceding or concluding a temporary duty assignment if the 

authorizing official determines that this will result in significant time 

savings.

b. General Services 

Administration Motor Pools 

Under sections 601–611 of title 40, United States Code, the General 

Services Administration (GSA) has broad authority to establish, operate, 

and discontinue interagency vehicle motor pools.154 Subject to regulations 

issued by the President under 40 U.S.C. § 603(b) and if determined 

advantageous in terms of economy, efficiency, or service, section 602(a)(1) 

of title 40 provides that GSA shall—

“(1) take over from executive agencies and consolidate, or 

otherwise acquire, motor vehicles and related equipment 

and supplies;

“(2) provide for the establishment, maintenance, and 

operation (including servicing and storage) of motor vehicle 

pools or systems; and

“(3) furnish motor vehicles and related services to executive 

agencies for the transportation of property and passengers.”

The President’s regulations, mandated by 40 U.S.C. § 603(b), are contained 

in Executive Order No. 10579, Nov. 30, 1954, 40 U.S.C. § 601 note, section 1l 

of which authorizes GSA to issue supplementary regulations. GSA’s 

regulations are found at 41 C.F.R. part 101-39. “Executive agency” as used 

in 40 U.S.C. § 602(a)(1), includes the judicial branch. B-158712, Mar. 7, 

1977. Also, nothing in the statute or executive order prohibits GSA from 

permitting the use of motor pool vehicles by cost-reimbursement 

contractors. B-157729, Feb. 10, 1966.

The statute quoted above allows GSA, when forming a motor pool, to “take 

over” vehicles purchased by another agency with its own appropriations. 

See also 41 C.F.R. § 101-39.001. GSA must reimburse the fair market value 

only if the vehicle was originally acquired from a government corporation 

or through a revolving fund or trust fund and not previously reimbursed. 

154 GSA now calls them “interagency fleet management systems.” See generally 41 C.F.R. 

pt. 101-39.
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40 U.S.C. § 604(a); see also 41 C.F.R. § 101-39.104-2. This does not include a 

reimbursable but nonrevolving appropriation. 38 Comp. Gen. 185 (1958).

GSA’s activities under 40 U.S.C. §§ 601–611 are financed through GSA’s 

revolving Acquisition Services Fund (40 U.S.C. § 321—formerly known as 

the General Supply Fund) and must be reimbursed by the customer 

agencies. Under 40 U.S.C. § 605(a), the Acquisition Services Fund is 

available to pay the costs of motor pools and related services under 

section 602, including the purchase and rental of motor vehicles and 

related equipment and supplies. Section 605(b) provides that GSA should 

fix reimbursements so as to recover, as far as practicable, all section 602 

costs, including increments to cover estimated replacement costs. The law 

further provides that the purchase price of vehicles and equipment, plus 

the replacement increments, cannot be charged all at once but must be 

recovered through amortization. 40 U.S.C. § 605(c). It also directs GSA to 

use accrual accounting. Id.; B-139506, Oct. 1, 1959.

The Acquisition Services Fund is available for improvements to 

government-owned property incident to the establishment and operation of 

motor pools. This includes such things as fences, gasoline pumps and 

storage tanks, parking facilities, service stations, and storage facilities. 

B-134511, Mar. 10, 1958. It is also available for the initial financing, subject 

to reimbursement as with other costs, of temporary service facilities and 

equipment on leased property. 43 Comp. Gen. 738 (1964).

Questions have arisen concerning GSA’s authority to charge the using 

agency for damage to the vehicle. For many years, GSA’s regulations 

provided that GSA would charge the using agency for damage caused by 

negligence or misuse attributable to the using agency, and GAO 

consistently upheld GSA’s authority to include such a provision. The first 

decision considering a challenge to the regulation was 37 Comp. Gen. 306 

(1957), in which the Comptroller General stated: “There can be no question 

but that the costs of making repairs to vehicles damaged while being 

operated in a motor vehicle pool (or the amount of the loss where the 

vehicle is incapable of being repaired) are elements of cost incident to the 

operation of such motor vehicle pool.” 37 Comp. Gen. at 307. The 

provision of the statute requiring amortization of the purchase price has no 

effect on GSA’s ability to charge for damage. Id. at 307–08. 

The very next decision, 37 Comp. Gen. 308 (1957), reached the same 

conclusion where the damage was caused by an employee of the using 

agency other than the vehicle operator, and pointed out that 40 U.S.C. 
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§ 602 and the implementing regulations override the nonstatutory rule155

under which an agency is normally not liable for damage to the property of 

another agency. The validity of GSA’s regulation was upheld again in 

41 Comp. Gen. 199 (1961), and still again in 59 Comp. Gen. 515 (1980).

The regulations have changed since those decisions and now provide that 

GSA will charge the using agency for all damage to the vehicle unless 

caused by mechanical failure, normal wear and tear, or the negligence or 

willful act of an identifiable party other than an employee of the using 

agency. 41 C.F.R. § 101-39.406. There is no apparent reason why the 

principle of the earlier decisions should not apply equally to this version of 

the regulation. The using agency is responsible for investigating accidents 

and filing the required accident and investigation reports with GSA. See id. 

§§ 101-39.401, 101-39.403. GSA makes the initial determination based on 

this material. The using agency can dispute GSA’s finding but GSA has the 

final word. Id. § 101-39.406(d).

GSA provides a range of services from short-term use to shuttle and driver 

services to indefinite assignment. Id. § 101-39.201. An agency which lacks 

the specific authority to purchase or hire passenger motor vehicles as 

required by 31 U.S.C. § 1343(b) can nevertheless use its appropriations to 

reimburse GSA for motor vehicle services provided under 40 U.S.C. § 602. 

B-158712, Mar. 7, 1977. In other words, lack of authority to acquire the 

vehicles directly is not an impediment to obtaining them through the GSA 

interagency fleet system. Similarly, if GSA delegates leasing authority to a 

requesting agency because GSA cannot satisfy the agency’s requirements, 

the agency can use its appropriations to lease vehicles pursuant to the 

delegation notwithstanding any lack of specific authority otherwise 

required by 31 U.S.C. § 1343(b). B-210657-O.M., July 15, 1983. A delegation 

from GSA can also be used to augment an agency’s specific statutory 

authorization. B-158712-O.M., Jan. 11, 1977.

c. Expenditure Control 

Requirements

In fiscal year 1985, the 20 federal agencies with the largest motor vehicle 

fleets controlled a total of more than 340,000 vehicles and spent 

$915 million on their acquisition, operation, and disposal.156 Concerned 

155 See B-302962, June 10, 2005, and cases cited for more on this general rule, known as the 

“interdepartmental waiver doctrine.”

156 GAO, Federal Motor Vehicles: Agencies’ Progress in Meeting Expenditure Control 

Requirements, GAO/GGD-88-40 (Washington, D.C.: Mar. 2, 1988), at 8. 
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with these numbers, Congress, as part of the Consolidated Omnibus Budget 

Reconciliation Act of 1985,157 enacted the provisions found at 40 U.S.C. 

§§ 17501–17510. The legislation applies to executive agencies (excluding 

the Tennessee Valley Authority) which operate at least 300 motor vehicles. 

Twenty agencies then met this qualification. They are identified in 

GAO/GGD-88-40, at 9 n.1. The legislation contained short-term costreduction goals (which GAO found in GAO/GGD-88-40 were generally met) 

and permanent requirements.

Each covered agency is to designate an office or officer to establish a 

central monitoring system and to provide oversight of the agency’s motor 

vehicle operations. 40 U.S.C. § 17502. The agency is also directed to 

develop a system to “identify, collect, and analyze” cost data with respect to 

its motor vehicle operations. Id. § 17503(a).

The agency must include with each appropriation request a statement 

specifying total motor vehicle costs (acquisition, maintenance, leasing, 

operation, and disposal) for three fiscal years, and justifying why its 

requirements cannot be met more cheaply by some other means, such as 

increased use of GSA’s motor pool system. Id. § 17504(a). The President’s 

budget submission is to include a summary and analysis of these 

statements. Id. § 17505(a).

GSA has several duties under this legislation. It is to develop requirements, 

in cooperation with GAO and the Office of Management and Budget, for 

agency data collection systems. Id. § 17503(b). It is also to reduce vehicle 

storage and disposal costs, and develop a program of vehicle 

reconditioning designed to improve the rate of return on vehicle sales. Id. 

§ 17506.

3. Chauffeurs Very little has been written about the use of appropriated funds for what 

may be the most sacred perk of all, chauffeurs. There is no 

governmentwide statute or statutory regulation purporting to authorize, 

prohibit, or restrict the use of chauffeurs. Accordingly, most of the GAO 

reports which broach the subject—and they are few to begin with—are 

merely exercises in fact-finding. E.g., GAO, Use of Government Vehicles 

157 Pub. L. No. 99-272, title XV, subtitle C, §§ 15301–15313, 100 Stat. 82, 335–38 (Apr. 7, 1986).
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for Home-to-Work Transportation, GAO/NSIAD-84-27 (Washington, D.C.: 

Dec. 13, 1983) (presenting overtime data in tabular form).

While there are no governmentwide provisions, there is the occasional 

restriction that appears in an appropriation act. For example, section 412 

of the 1997 Departments of Veterans Affairs (VA) and Housing and Urban 

Development (HUD), and Independent Agencies Appropriations Act 

includes the following general provision: “Except as otherwise provided in 

section 406, none of the funds provided in this Act to any department or 

agency shall be obligated or expended to provide a personal cook, 

chauffeur, or other personal servants to any officer or employee of such 

department or agency.” Pub. L. No. 104-204, § 412, 110 Stat. 2874, 2922 

(Sept. 26, 1996). Section 406 is another general provision that reiterates the 

home-to-work prohibition and exemptions of 31 U.S.C. § 1344. Section 412 

would not prohibit chauffeured home-to-work transportation for the 

Secretaries of HUD and VA, but the then Veterans Administration was not 

covered before it became a cabinet department and a former Administrator 

reimbursed the government for the costs of what was then improper. See

GAO, Office Refurbishing, Use of a Government Vehicle and Driver, and 

Out-of-Town Travel by the Former Administrator of Veterans Affairs,

GAO/HRD-83-10 (Washington, D.C.: Jan. 18, 1983). GAO suggested in that 

report that a definition of “chauffeur” for purposes of section 412 would be 

helpful. Id. at 20. Is it, for example, intended to cover someone designated 

to drive for several officials or who has nondriving duties as well?

The most controversial use of chauffeurs tends to be in the context of 

home-to-work transportation. GAO has summarized its position as follows:

“While the law does not specifically include the employment 

of chauffeurs as part of the prohibition in [31 U.S.C. 

§ 1344(a)], GAO has interpreted this section, in conjunction 

with other provisions of law, as authorizing such 

employment only when the officials being driven are 

exempted by [31 U.S.C. § 1344(b)]. . . from the prohibition.”

62 Comp. Gen. 438, 441 (1983). As support for this passage, the 1983 

decision cited B-150989, Apr. 17, 1963, which contains the following 

statement:

“Chauffeurs for Cabinet officers are not expressly provided 

for by law; however, it is implicit in [31 U.S.C. §§ 1343 and 

1344] that the use of automobiles, by Cabinet officers, 
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purchased or leased with appropriated funds is to be 

considered as a use for official purposes. Consequently, the 

general employment authority conferred upon heads of 

Departments by [5 U.S.C. § 3101] constitutes authority to 

employ chauffeurs when an appropriation is available for 

the payment of their compensation.”

B-150989, at 1. These decisions would seem to support the proposition that 

an official who is authorized to use a government vehicle for home-to-work 

transportation may also use a chauffeur unless restricted by some agencyspecific legislation.

In a 1975 decision, B-162111, Dec. 17, 1975, an official of the Selective 

Service System, without seeking agency approval, used an employee to 

chauffeur him to and from work in his (the official’s) own car. The agency 

head, upon learning of the arrangement, disapproved, and the official 

resigned. As to what further action should be taken, GAO first noted that 

the home-to-work statutes were inapplicable because the official had used 

his own car. There might well have been a violation of 5 U.S.C. § 3103 

which provides that an individual may be employed “only for services 

actually rendered in connection with and for the purposes of the 

appropriation from which he is paid,” but the penalty for violating 5 U.S.C. 

§ 3103 is removal and the violator was already gone. Accordingly, and since 

congressional intent in the area was “quite uncertain,” GAO’s advice was to 

consider the case closed. B-162111, at 2.

A final decision involves a situation other than home-to-work 

transportation. The question was whether the Equal Employment 

Opportunity Commission could use appropriated funds to hire a 

chauffeured limousine to transport a witness (who happened to be a 

senator) from the airport to a hearing site and back to the airport. Since 

the home-to-work statutes were not involved, and since the Commission 

had authority to hire passenger vehicles (assuming it was needed for this 

type of hire), the question boiled down to one of purpose availability. The 

Commission had statutory authority to reimburse the expenses of a 

witness, and could have done so even without the specific authority. The 

agency chose to provide transportation rather than reimburse expenses, 

and while GAO chided that it would have been cheaper to call a taxi, the 

choice could not be called illegal. B-194881, Dec. 27, 1979.
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Chapter 13

Real Property

A. Introduction and Terminology. . . . . . . . . . . . . . . . . . . . . . . . 13-5

B. Acquisition of Real Property for Government Use . . . . 13-13

1. The Fifth Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-13

2. Federal Land Acquisition Policy . . . . . . . . . . . . . . . . . . . . . . . . . . 13-18

3. Need for Statutory Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-24

a. Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-24

(1) Debt security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-25

(2) Donated property/funds . . . . . . . . . . . . . . . . . . . . . . . . . . 13-26

(3) Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-26

(4) Indian tribal funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-28

b. Types of Statutory Authority . . . . . . . . . . . . . . . . . . . . . . . . . . 13-28

(1) Express versus implied authority . . . . . . . . . . . . . . . . . . 13-28

(2) Forms of express authority . . . . . . . . . . . . . . . . . . . . . . . 13-29

c. Effect of Noncompliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-35

4. Title Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-36

a. Title Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-36

b. Title Evidence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-41

c. Title Evidence Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-42

(1) Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-42

(2) Donation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-44

(3) Condemnation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-44

5. Methods of Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-46

a. Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-46

b. Involuntary Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-48

(1) Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-48

(2) Legislative taking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-49

(3) Sources of authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-50

(4) “Complaint only” condemnation . . . . . . . . . . . . . . . . . . . 13-52

(5) Declaration of Taking Act . . . . . . . . . . . . . . . . . . . . . . . . . 13-53

(6) Inverse condemnation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-58

6. Obligation of Appropriations for Land Acquisition . . . . . . . . . . 13-60

a. Voluntary Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-60

b. Condemnation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-61

7. Expenses Incident to Real Property Acquisition . . . . . . . . . . . . 13-63

a. Expenses Incident to Title Transfer . . . . . . . . . . . . . . . . . . . . . 13-63

b. Expenses Incident to Litigation . . . . . . . . . . . . . . . . . . . . . . . . 13-65

(1) Attorney’s fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-65

(2) Litigation expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-67

C. Relocation Assistance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-68

1. Uniform Relocation Act: Introduction and Overview . . . . . . . . 13-68

2. The Threshold Determination: Meaning of “Displaced 

Person” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-72
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3. Types and Payment of Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-78

a. Moving and Related Expenses . . . . . . . . . . . . . . . . . . . . . . . . . 13-78

(1) Residential displacements . . . . . . . . . . . . . . . . . . . . . . . . 13-78

(2) Commercial displacements . . . . . . . . . . . . . . . . . . . . . . . 13-79

b. Replacement Housing Benefits . . . . . . . . . . . . . . . . . . . . . . . . . 13-81

(1) Homeowners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-81

(2) Tenants and “90-day homeowners” . . . . . . . . . . . . . . . . . 13-84

c. Advisory Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-85

d. “Last Resort” Replacement Housing . . . . . . . . . . . . . . . . . . . . 13-86

e. Federally Assisted Programs and Projects . . . . . . . . . . . . . . . 13-88

f. Procedures and Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-91

4. Public Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-92

a. The Common Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-92

b. Statutory Exceptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-97

(1) Uniform Relocation Act . . . . . . . . . . . . . . . . . . . . . . . . . . 13-97

(2) 23 U.S.C. § 123 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-98

(3) Other statutory provisions . . . . . . . . . . . . . . . . . . . . . . . . 13-99

D. Jurisdiction over Federal Land: The Federal 

Enclave . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-101

1. Acquisition of Federal Jurisdiction . . . . . . . . . . . . . . . . . . . . . . 13-101

2. Specific Areas of Concern . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-109

a. Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-109

b. Criminal Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-110

c. State Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-111

3. Proprietorial Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-116

E. Leasing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-120

1. Some General Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-120

a. Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-120

b. Application of Fiscal Law Principles . . . . . . . . . . . . . . . . . . . 13-125

c. Rights and Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-127

d. Payment of Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-131

(1) Advance payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-132

(2) Payment to legal representative . . . . . . . . . . . . . . . . . . . 13-132

(3) Assignment of Claims Act . . . . . . . . . . . . . . . . . . . . . . . . 13-133

2. Statutory Authorities and Limitations . . . . . . . . . . . . . . . . . . . . 13-135

a. Federal Property and Administrative Services Act . . . . . . . 13-135

b. Prospectus Requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-141

c. Site Selection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-142

d. Parking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-145

e. Repairs and Alterations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-147

f. Rental in District of Columbia . . . . . . . . . . . . . . . . . . . . . . . . 13-150

g. Economy Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-153
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h. Some Agency-Specific Authorities . . . . . . . . . . . . . . . . . . . . . 13-154

3. Foreign Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-155

4. Lease-Purchase Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-158

F. Public Buildings and Improvements. . . . . . . . . . . . . . . . . 13-167

1. Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-167

a. General Funding Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . 13-167

(1) 41 U.S.C. § 12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-167

(2) Contract authority under partial appropriations . . . . . 13-173

(3) Duration of construction appropriations . . . . . . . . . . . 13-174

(4) Design fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-176

b. Some Agency-Specific Authorities . . . . . . . . . . . . . . . . . . . . 13-182

(1) Military construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-183

(2) Continuing contracts: two variations . . . . . . . . . . . . . . 13-185

(3) 7 U.S.C. § 2250 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-188

(4) 15 U.S.C. § 278d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-189

c. Public Buildings Act and the General Services 

Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-190

d. Scope of Construction Appropriations . . . . . . . . . . . . . . . . . 13-195

2. Operation and Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-200

a. Who’s in Charge? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-200

b. Allocation of Space . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-201

c. Alterations and Repairs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-203

d. Maintenance and Protective Services . . . . . . . . . . . . . . . . . . 13-204

e. Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-205

f. Use Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-209

g. Payment of Rent by Federal Agencies . . . . . . . . . . . . . . . . . . 13-210

G. Improvements to Property Not Owned by 

the Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-214

1. The Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-214

2. Some Specific Applications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-219

a. Leased Premises/Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-219

b. Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-222

c. Public Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-224

d. Federal Aviation Administration . . . . . . . . . . . . . . . . . . . . . . 13-225

e. Private Residences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-227

H. Disposal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-228

1. The Property Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-228

2. Disposal under Title 40 of the United States Code . . . . . . . . . . 13-230

a. Excess Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-230

b. Surplus Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-232

c. Disposition of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-238

d. Deduction of Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-240
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e. Disposal under Other Authorities . . . . . . . . . . . . . . . . . . . . . 13-241

3. Use by Nongovernment Parties . . . . . . . . . . . . . . . . . . . . . . . . . 13-245

a. Leasing and Concessions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-245

(1) Outleasing in general . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-245

(2) 40 U.S.C. § 1302 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-249

(3) Concessions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-251

b. Granting of Revocable License . . . . . . . . . . . . . . . . . . . . . . . . 13-254

4. Adverse Possession . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-256
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Chapter 13

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A. Introduction and 

Terminology

Question: Who is the Nation’s biggest landowner?

Answer: Uncle Sam.

The federal government owns about one-fourth of all the land in the United 

States. The pattern of ownership is geographically imbalanced, with the 

United States owning large portions of land in several western states and 

very small amounts in many eastern states. It averages out, however, to 

roughly 25 percent.1

At one time or another, the federal government owned most of the land, 

apart from the original 13 colonies, that is now the United States. It 

acquired this land by purchase (the Louisiana Purchase of 1803, for 

example) and by conquest (the Native Americans). The legal basis of the 

federal government’s title to its original lands (the theories of title by 

discovery and title by conquest) was explored in depth, and settled, by 

Chief Justice John Marshall in an early decision of the Supreme Court, 

Johnson and Graham’s Lessee v. McIntosh, 21 U.S. (8 Wheat.) 543 (1823).

The history of America in the nineteenth century is largely the story of the 

acquisition and disposal by the United States of the “public domain.” The 

land policy of the United States during the nineteenth century was, in a 

1

 The federal government owns approximately 636 million acres nationwide. This includes 

3.5 percent of all land in the northeastern and north central United States, 5.1 percent in the 

south Atlantic and south central regions, and 56.6 percent of the western United States. 

GAO, High-Risk Series: Federal Real Property, GAO-03-122 (Washington, D.C.: Jan. 2003), 

at 5–6. The proportion of federal land ownership is actually decreasing. A 1996 report put 

the figure at about 650 million acres or about 30 percent, down from slightly over 700 million 

acres in 1964. GAO, Land Ownership: Information on the Acreage, Management, and Use 

of Federal and Other Lands, GAO/RCED-96-40 (Washington, D.C.: Mar. 13, 1996), at 2–4. 

One major caveat with respect to these figures is that Uncle Sam does not really know how 

much property he owns since available data are unreliable. See generally GAO, Federal 

Real Property: Better Governmentwide Data Needed for Strategic Decisionmaking, 

GAO-02-342 (Washington, D.C.: Apr. 16, 2002). GAO recently reported that the federal 

government has made progress in revamping its governmentwide real property inventory 

since GAO’s 2003 high-risk designation in GAO-03-122, but data reliability is still a problem 

at the agency level. GAO, Federal Real Property: An Update on High-Risk Issues, GAO-07-

895T (Washington, D.C.: May 24, 2007), at 14. See also GAO, Federal Real Property: 

Progress Made Toward Addressing Problems, but Underlying Obstacles Continue to 

Hamper Reform, GAO-07-349 (Washington, D.C.: Apr. 13, 2007). The material that follows in 

this Introduction has been distilled from many sources. They include: Marla E. Mansfield, A 

Primer of Public Land Law, 68 Wash. L. Rev. 801, 802 n.1 (1993); George C. Coggins and 

Charles F. Wilkinson, Federal Public Land and Resources Law (1981); and Paul W. Gates, 

Public Land Law Review Commission, History of Public Land Law Development (1968). 
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word, disposal. Land was granted to individuals for homesteads and 

farming, to states for various purposes, to railroads, etc. It is largely in this 

way that the Nation was built.

Federal “management” over the public domain during this period was 

virtually nonexistent. As the public domain diminished, America began to 

develop a heightened awareness that its resources were not unlimited. 

Gradually toward the close of the nineteenth century, and more rapidly in 

the twentieth, federal policy shifted from disposal to retention.2

 Along with 

retention came the need for management and conservation.

The first stage of this new policy was “withdrawal.” When land is 

“withdrawn” from the public domain, it is removed from the operation of 

some or all of the disposal laws. All federal land has now been withdrawn 

from the homestead laws. The concept of withdrawal is still used, but it 

now has a somewhat more limited meaning. When public land is 

withdrawn today, it usually means withdrawal from sale or some form(s) of 

resource exploitation. Section 103(j) of the Federal Land Policy and 

Management Act of 1976 (FLPMA), 43 U.S.C. § 1702(j), provides a statutory 

definition:

“The term ‘withdrawal’ means withholding an area of 

Federal land from settlement, sale, location, or entry, under 

some or all of the general land laws, for the purpose of 

limiting activities under those laws in order to maintain 

other public values in the area or reserving the area for a 

particular public purpose or program . . . .”

Once public land has been withdrawn, the next step is “reservation.” The 

reservation of withdrawn land means the dedication of that land to some 

specific use or uses. Shoshone-Bannock Tribes v. Reno, 56 F.3d 1476, 1479 

(D.C. Cir. 1995). Most federal land is now reserved. The Supreme Court 

has upheld the power of Congress to withdraw and reserve public lands. 

Light v. United States, 220 U.S. 523 (1911). Withdrawals and reservations 

may be temporary or permanent. The concepts would have no particular 

2

 This policy is reflected in the Federal Land Policy and Management Act of 1976, Pub. L. 

No. 94-579, 90 Stat. 2743 (Oct. 21, 1976), 43 U.S.C. §§ 1701–1782. Section 102(a)(1) of the act 

declares it to be the policy of the United States that “the public lands be retained in Federal 

ownership, unless . . . it is determined that disposal of a particular parcel will serve the 

national interest.” 43 U.S.C. § 1701(a)(1).
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relevance to land that is newly acquired now or in the future for a specific 

purpose.3

Withdrawal is usually accomplished by an act of Congress, which may be 

specific or may delegate the power to the President or to an executive 

department. If Congress chooses to delegate, it may prescribe the method 

by which the authority is to be exercised. Lutzenhiser v. Udall, 432 F.2d 

328 (9th Cir. 1970); Mountain States Legal Foundation v. Andrus,

499 F. Supp. 383 (D. Wyo. 1980).

The executive branch has long asserted the inherent authority of the 

President to make withdrawals, and some significant withdrawals have 

been accomplished by executive order. Prior to 1976, congressional 

acquiescence in the executive’s assertions of an implied power of 

withdrawal was seen as confirming the power’s existence. United States v. 

Midwest Oil Co., 236 U.S. 459 (1915); Portland General Electric Co. v. 

Kleppe, 441 F. Supp. 859 (D. Wyo. 1977); 40 Op. Att’y Gen. 73 (1941). In an 

uncodified section of the FLPMA, Pub. L. No. 94-579, § 704(a), Congress 

expressly repealed “the implied authority of the President to make 

withdrawals and reservations resulting from acquiescence of the 

Congress.” However, the FLPMA was prospective only, preserved all 

existing executive withdrawals (Pub. L. No. 94-579, § 701(c)), and gave the 

Secretary of the Interior express new withdrawal authority to be exercised 

in accordance with statutory procedures (id. § 204, 43 U.S.C. § 1714).4

An exception to the FLPMA withdrawal authority is 43 U.S.C. § 156, under 

which a withdrawal or reservation of public land of more than 5,000 acres 

“for any one defense project or facility of the Department of Defense” 

requires an act of Congress. The 1958 enactment of 43 U.S.C. § 156, like 

FLPMA itself nearly 20 years later, was prospective only and did not 

3

 “Acquired lands” are sometimes distinguished from public domain lands. See, e.g.,

30 U.S.C. § 351. The former are lands granted or sold to the United States by a state or 

private party whereas public domain lands “were usually never in state or private 

ownership.” Watt v. Alaska, 451 U.S. 259, 264 n.7 (1981), citing Wallis v. Pan American 

Petroleum Corp., 384 U.S. 63, 65 n.2 (1966); B-203504, July 22, 1981. For purposes of our 

discussion, it is sufficient to note that the distinction exists. 

4

 A brief summary of these developments may be found in Lujan v. National Wildlife 

Federation, 497 U.S. 871, 875–79 (1990). For a more detailed discussion, see David H. 

Getches, Managing the Public Lands: The Authority of the Executive to Withdraw Lands, 

22 Nat. Resources J. 279 (1982). 
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invalidate prior withdrawals by executive action. Mollohan v. Gray,

413 F.2d 349 (9th Cir. 1969).

Another statute that grants explicit reservation authority is the so-called 

Antiquities Act, enacted in 1906, 16 U.S.C. § 431:

“The President of the United States is authorized, in his 

discretion, to declare by public proclamation historic 

landmarks, historic and prehistoric structures, and other 

objects of historic or scientific interest that are situated 

upon lands owned or controlled by the Government of the 

United States to be national monuments, and may reserve as 

a part thereof parcels of land, the limits of which in all cases 

shall be confined to the smallest area compatible with the 

proper care and management of the objects to be protected. 

When such objects are situated upon a tract covered by a 

bona fide unperfected claim or held in private ownership, 

the tract, or so much thereof as may be necessary, for the 

proper care and management of the object, may be 

relinquished to the Government, and the Secretary of the 

Interior is authorized to accept the relinquishment of such 

tracts in behalf of the Government of the United States.”

The courts have consistently upheld the exercise of Presidential authority 

under the Antiquities Act in the face of a variety of challenges. Some recent 

examples include Tulare County v. Bush, 306 F.3d 1138 (D.C. Cir. 2002), 

cert. denied, 540 U.S. 813 (2003); Mountain States Legal Foundation v. 

Bush, 306 F.3d 1132 (D.C. Cir. 2002), cert. denied, 540 U.S. 812 (2003); and 

Utah Ass’n of Counties v. Bush, 316 F. Supp. 2d 1172 (D. Utah 2004). For 

additional discussion of the President’s authority under the Antiquities Act, 

see Memorandum Opinion for the Solicitor, Department of the Interior, the 

General Counsel, National Oceanic and Atmospheric Administration, and 

the General Counsel, Council on Environmental Quality, Administration of 

Coral Reef Resources in the Northwest Hawaiian Islands, OLC Opinion, 

Sept. 15, 2000; Harold H. Bruff, Executive Power and the Public Lands, 

76 U. Colo. L. Rev. 503 (2005).
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The last significant body of federal land subject to disposal is in Alaska. 

Under several statutes,5

 much federal land in Alaska will ultimately be 

conveyed to the state of Alaska and to Alaska natives. While the federal 

government’s conveyance of land to the state of Alaska and Alaskan natives 

continues, some serious conflicts have arisen with Alaska native allotments 

and preexisting rights-of-way. See GAO, Alaska Native Allotments: 

Conflicts with Utility Rights-of-way Have Not Been Resolved through 

Existing Remedies, GAO-04-923 (Washington, D.C.: Sept. 7, 2004). For a 

more general discussion of Alaskan land disposal, see GAO, Alaska Land 

Conveyance Program: A Slow, Complex, and Costly Process, GAO/RCED84-14 (Washington, D.C.: June 12, 1984).

Today, all federally owned land, regardless of the specificity with which it 

has been withdrawn and reserved, is under the jurisdiction of some federal 

agency.6

 Four agencies—the Departments of the Interior, Agriculture, 

Energy, and Defense—manage approximately 99 percent of federally 

owned land. Interior has jurisdiction of by far the greatest portion, 

approximately two-thirds. Within Interior, the bureaus with the greatest 

land responsibilities are the National Park Service (national parks and 

monuments), the Fish and Wildlife Service (National Wildlife Refuge 

System), the Bureau of Reclamation (reclamation water projects), and the 

Bureau of Land Management (BLM).

The lands managed by BLM, comprising nearly half of all federal land, are 

the most difficult of all to describe. As the policy of disposal galloped along 

during the nineteenth century, much of the public domain that was best 

suited for uses such as farming and timber was quickly put to these uses. 

What was left was used mostly for grazing. Under the “benign neglect” of 

the time, use too often became overuse and abuse. The land was 

withdrawn from the public domain by a series of statutes and executive 

orders starting with the Taylor Grazing Act in 1934. When BLM was 

established in 1946, it received jurisdiction over this land. For lack of a 

5

 Alaska Statehood Act, Pub. L. No. 85-508, 72 Stat. 339 (July 7, 1958), 48 U.S.C. note prec. 

§ 21; Alaska Native Claims Settlement Act, Pub. L. No. 92-203, 85 Stat. 688 (Dec. 18, 1971), 

codified at 43 U.S.C. §§ 1601–1629h; Alaska National Interest Lands Conservation Act, 

Pub. L. No. 96-487, 94 Stat. 2371 (Dec. 2, 1980), codified at 16 U.S.C. §§ 3101–3233.

6

 Real property management in the executive branch operates under the policies set forth in 

Executive Order No. 13327, Federal Real Property Asset Management, 69 Fed. Reg. 5897 

(Feb. 4, 2004), 40 U.S.C. § 121 note, discussed hereafter.
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better designation, the lands are best referred to by the simple if 

nondescriptive term “BLM lands.” 

The Forest Service, U.S. Department of Agriculture, has jurisdiction over 

the approximately 25 percent of federal land which comprises the National 

Forest System. The Department of Energy controls property acquired, 

mostly during the World War II and Cold War eras, in connection with the 

development, production, and testing of nuclear weapons.

The Defense Department has jurisdiction over a small (approximately 

3 percent) but important segment consisting of defense installations and 

civil water projects managed by the Army Corps of Engineers.

An agency with control over only a tiny percentage of federal land but with 

major responsibilities is the General Services Administration (GSA). GSA 

has a variety of functions under the Federal Property and Administrative 

Services Act of 1949 and the Public Buildings Act of 1959, some of which 

will be described later in this chapter. In terms of the work space in which 

federal agencies carry out the day-to-day functions of government, GSA is 

the “government’s landlord.”

A term we have already encountered on several occasions is the “public 

domain.” Although the term is still commonly used, in the traditional sense 

of “open land”—federal land you could obtain for homesteading or upon 

which you could graze your cattle (and, in the grand tradition of classic 

American westerns, chase off those pesky farmers and sheepherders) free 

from regulation—the “public domain” no longer exists.

A related term is “public lands.” There is a common-law definition and a 

statutory definition. The common-law definition is lands which are subject 

to sale or other disposal under the general land laws of the United States. 

Newhall v. Sanger, 92 U.S. 761, 763 (1875); Columbia Basin Land 

Protection Ass’n v. Schlesinger, 643 F.2d 585, 602 (9th Cir. 1981); United 

States v. Kipp, 369 F. Supp. 774, 775 (D. Mont. 1974); 19 Comp. Gen. 608, 

611 (1939). The courts have tended to regard “public domain” as 

synonymous with “public lands” as defined by Sanger and its progeny. 

E.g., Barker v. Harvey, 181 U.S. 481, 490 (1901); United States v. Holliday,

24 F. Supp. 112, 114 (D. Mont. 1938). The statutory definition is found in 

section 103(e) of the FLPMA. For purposes of the FLPMA, “public lands” 

means, with certain exceptions, “any land and interest in land owned by the 

United States within the several States and administered by the Secretary 

of the Interior through the Bureau of Land Management, without regard to 
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how the United States acquired ownership,” in other words, what we 

earlier referred to as the “BLM lands.” 43 U.S.C. § 1702(e). The 

relationship between the statutory and common-law definitions is not 

without controversy. Compare Columbia Basin, 643 F.2d at 601–02 

(FLPMA essentially incorporated the traditional definition) with Sierra 

Club v. Watt, 608 F. Supp. 305, 336–38 (E.D. Cal. 1985) (strongly suggesting 

that its governing circuit’s Columbia Basin decision was incompatible with 

prevailing Supreme Court precedents).

Nothing in life is static. The federal government will continue to acquire 

land and it will continue to dispose of land. However, apart from the 

eventual transfer of the Alaska lands, the massive acquisitions and 

disposals of earlier times appear unlikely to recur. The emphasis is now, 

and will almost certainly remain, on the complex issues of classification, 

economic use, and conservation—in brief, on public land management.7

Up to this point, our discussion has focused on land per se. Of course, real 

property is much more than the land itself and generally includes “anything 

growing on, attached to, or erected on” land. Black’s Law Dictionary, 1254 

(8th ed., 2004). It will come as no surprise that the federal government has 

vast holdings of real property assets of various kinds in the United States 

and throughout the world. More than 30 federal agencies control about 

$328 billion in real property assets worldwide.8

 This includes about 

3.3 billion square feet of building floor area that the government owns or 

leases in roughly a half-million buildings.9

 Given the breadth of these 

holdings and reported difficulties in accounting for them, GAO included 

federal real property management on its 2003 “high-risk list” of the most 

serious challenges facing the federal government. GAO-03-122. This report 

observed:

“Long-standing problems in the federal real property area 

include excess and underutilized property, deteriorating 

facilities, unreliable real property data, and costly space. 

7

 Although GAO remains active in these areas from the audit perspective, they are beyond 

the scope of this publication. 

8

 GAO, Federal Real Property: Further Actions Needed to Address Long-standing and 

Complex Problems, GAO-05-848T (Washington, D.C.: June 22, 2005), at 1.

9

 GAO, Federal Real Property: Excess and Underutilized Property Is an Ongoing Problem, 

GAO-06-248T (Washington, D.C.: Feb. 6, 2006), at 2.
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These factors have multibillion-dollar cost implications and 

can seriously jeopardize the ability of federal agencies to 

accomplish their missions. Federal agencies also face many 

challenges securing real property due to the threat of 

terrorism. Given the persistence of these problems and 

various obstacles that have impeded progress in resolving 

them, GAO is designating federal real property as a new 

high-risk area.”

GAO-03-122, at 1. The designation was continued when the high-risk list 

was updated in 2007. GAO, High-Risk Series: An Update, GAO-07-310 

(Washington, D.C.: Jan. 2007), at 6.

GAO also testified that the conditions underlying the high-risk designation 

persist:

“Many of the assets in the government’s vast and diverse 

portfolio of real property are not effectively aligned with, or 

responsive to, agencies’ changing missions and are 

therefore no longer needed. Furthermore, many assets are 

in an alarming state of deterioration; agencies have 

estimated restoration and repair needs to be in the tens of 

billions of dollars. Additionally, a heavy reliance on costly 

leasing, instead of ownership, to meet new needs is a 

pervasive and ongoing problem. These problems have been 

exacerbated by underlying obstacles that include competing 

stakeholder interests in real property decisions, various 

legal and budget-related disincentives to businesslike 

outcomes, and the need for better planning by real propertyholding agencies.”

GAO-06-248T, at 1.

The executive branch has also recognized the seriousness of the federal 

government’s challenges here. On February 4, 2004, the President issued 

Executive Order No. 13327 on this subject.10 Among other things, it 

requires agencies to designate senior-level real property management 

officers who shall identify and categorize all real property that the agency 

10 Exec. Order No. 13327, Federal Real Property Asset Management, 69 Fed. Reg. 5897 

(Feb. 6, 2004), 40 U.S.C. § 121 note.
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owns, leases, or manages, and prioritize actions to improve the operational 

and financial management of the agency’s real property inventory. Exec. 

Order No. 13327, §§ 3(a), 3(b)(i) & (ii). In addition, a federal real property 

asset management initiative has been added to the President’s Management 

Agenda.11

B. Acquisition of Real 

Property for 

Government Use

If the federal government needs private property, it will normally try to 

acquire it in the same manner as a private citizen, through negotiation and 

purchase. Purchase negotiations, however, do not always succeed. The 

parties may be unable to agree on the price, or perhaps the owner wants to 

impose conditions that the acquiring agency thinks are unacceptable. In 

such a situation, the government always holds the ultimate trump card—

the power of eminent domain. 

Eminent domain is one of the government’s most far-reaching powers, and 

GAO has cautioned against its overzealous application. See GAO, The 

Federal Drive to Acquire Private Lands Should Be Reassessed, GAO/CED80-14 (Washington, D.C.: Dec. 14, 1979). In reviews of particular programs, 

GAO has been critical of excessive and unnecessary land acquisition by the 

federal government and has recommended in such instances that the land 

be returned to private ownership. E.g., GAO, Lands in the Lake Chelan 

National Recreation Area Should Be Returned to Private Ownership,

GAO/CED-81-10 (Washington, D.C.: Jan. 22, 1981); The National Park 

Service Should Improve Its Land Acquisition and Management at the 

Fire Island National Seashore, GAO/CED-81-78 (Washington, D.C.: 

May 8, 1981).12

1. The Fifth Amendment Any discussion of property acquisition by the United States must start with 

the eminent domain clause or so-called “takings clause” of the Fifth 

11 See www.whitehouse.gov/results/agenda/real_property.html (last visited Mar. 25, 2008).

12 In 2005, Congress mandated that GAO conduct a nationwide study of the use of eminent 

domain by state and local governments. Pub. L. No. 109-115, div. A, title VII, § 726, 119 Stat. 

2396, 2494–95 (Nov. 30, 2005). GAO reported that the lack of centralized or aggregate 

national or state data on the use of eminent domain precluded GAO from any national or 

statewide assessments of, among other things, how frequently eminent domain is used for 

private-to-public or private-to-private transfers of property and the purposes of these 

transfers. GAO, Eminent Domain: Information about Its Uses and Effect on Property 

Owners and Communities Is Limited, GAO-07-28 (Washington, D.C.: Nov. 30, 2006).
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Amendment to the United States Constitution. As relevant here, the Fifth 

Amendment says that no person shall be deprived of life, liberty, or 

property without due process of law, “nor shall private property be taken 

for public use, without just compensation.” U.S. Const. amend. V.

The Fifth Amendment is not an affirmative grant of the power to take 

private property. The Supreme Court has noted on many occasions that the 

power of eminent domain is inherent in the sovereign. It is a necessary 

incident or attribute of sovereignty and needs no specific grant in the 

Constitution or elsewhere. E.g., Albert Hanson Lumber Co. v. United 

States, 261 U.S. 581, 587 (1923); United States v. Gettysburg Electric 

Railway Co., 160 U.S. 668, 681 (1896); United States v. Jones, 109 U.S. 

513, 518 (1883). The Court noted in United States v. Carmack, 329 U.S. 

230, 241–42 (1946), that the Fifth Amendment tacitly recognizes a 

preexisting power to take private property for public use. Thus, the Fifth 

Amendment is not the source of the government’s power of eminent 

domain. Rather, it is a limitation on the use of that power.13 As the 

Supreme Court recently observed:

“As its text makes plain, the Takings Clause does not 

prohibit the taking of private property, but instead places a 

condition on the exercise of that power. In other words, it is 

designed not to limit the governmental interference with 

property rights per se, but rather to secure compensation in 

the event of otherwise proper interference amounting to a 

taking.”

Lingle v. Chevron U.S.A., Inc., 544 U.S. 528, 536–37 (2005) (emphasis in 

original; citations and internal quotation marks omitted).

While consent of the state in which the land is located may be relevant to 

the type of jurisdiction the federal government acquires (see discussion of 

the federal enclave in section D of this chapter), the acquisition of land 

requires no such consent unless Congress has expressly provided 

otherwise. North Dakota v. United States, 460 U.S. 300, 310 (1983); Kohl v. 

United States, 91 U.S. 367, 374 (1876). Examples of statutes requiring state 

13 However, the fact that the United States has the inherent power of eminent domain does 

not mean that any federal agency can exercise it without further authority. The need for 

statutory authority is discussed in section B.3 of this chapter.
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consent are 16 U.S.C. §§ 515 (national forest system acquisitions under the 

Weeks Act) and 715f (Migratory Bird Conservation Act).14

Issues arising under the Eminent Domain Clause can be grouped under 

three major headings:

• What is a “taking” for purposes of the Fifth Amendment? The 

concept of taking is not limited to condemnation actions initiated by 

the government that result in the transfer of title or possession, but has 

been construed to embrace a wide variety of government actions that 

adversely affect the rights of a property owner. Takings of the latter 

kind are often referred to as “inverse condemnations” because it is the 

property owner, rather than the government, who initiates a claim or 

lawsuit based on an alleged interference with property rights. 

Examples include so-called “regulatory takings,” which involve 

government restrictions on the use of property, as well as physical 

encroachments on property such as flooding from government dams or 

overflights by government aircraft. The Supreme Court’s opinion in 

Lingle describes the development of the inverse condemnation 

concept.15 Regardless of the type of taking involved, the purpose of the 

eminent domain clause of the Fifth Amendment is to “ba[r] 

Government from forcing some people alone to bear public burdens 

which, in all fairness and justice, should be borne by the public as a 

whole.” Lingle, 544 U.S. at 537, quoting Armstrong v. United States,

364 U.S. 40, 49 (1960); see also Connolly v. Pension Benefit Guaranty 

Corporation, 475 U.S. 211, 227 (1986).

• What is a “public use”? Contrary to what the words may seem to 

imply, public use does not mean for use by, or accessible to, members 

of the general public. According to the Supreme Court, virtually 

14 Cases discussing and applying the requirement of the Migratory Bird Conservation Act 

include United States v. 1,216.83 Acres of Land, 573 F.2d 1054 (9th Cir. 1976); Swan Lake 

Hunting Club v. United States, 381 F.2d 238 (5th Cir. 1967).

15 For additional background, see GAO, Regulatory Takings: Agency Compliance with 

Executive Order on Government Actions Affecting Private Property Use, GAO-04-120T 

(Washington, D.C.: Oct. 16, 2003); Regulatory Takings: Implementation of Executive Order 

on Government Actions Affecting Private Property Use, GAO-03-1015 (Washington, D.C.: 

Sept. 19, 2003); Library of Congress, Congressional Research Service (CRS), The 

Constitutional Law of Property Rights “Takings”: An Introduction, No. RS20741 (Dec. 19, 

2006); CRS, Takings Decisions of the U.S. Supreme Court: A Chronology, No. 97-122 

(Oct. 19, 2005).
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anything the Congress is empowered to do is a public use sufficient to 

invoke the power of eminent domain. E.g., Berman v. Parker, 348 U.S. 

26, 33 (1954) (“Once the object is within the authority of Congress, the 

right to realize it through the exercise of eminent domain is clear.”). 

The Supreme Court’s decision in Kelo v. City of New London, 545 U.S. 

469 (2005), reenforces the breadth of the power of eminent domain. In 

Kelo, the Court upheld the City of New London’s authority to take land 

from individual homeowners as part of an economic development plan 

to use the land for a variety of commercial and recreational purposes.16 

The Court reaffirmed that “the sovereign may not take the property of A 

for the sole purpose of transferring it to another private party B”; nor 

may the government “be allowed to take property under the mere 

pretext of a public purpose, when its actual purpose was to bestow a 

private benefit.” Kelo, 545 U.S. at 477–78. Beyond this, however, the 

opinion indicated that the Fifth Amendment permits government 

officials wide leeway in deciding what constitutes a “public use” and 

does not lend itself to bright-line rules. Specifically, the Court rejected 

the petitioners’ proposal to adopt a rule that economic development 

does not qualify as a public use:

“Putting aside the unpersuasive suggestion that the City’s 

plan will provide only purely economic benefits, neither 

precedent nor logic supports petitioners’ proposal. 

Promoting economic development is a traditional and long 

accepted function of government. There is, moreover, no 

principled way of distinguishing economic development 

from the other public purposes that we have recognized.”

Id. at 484. Kelo was a controversial decision. Indeed, Justice O’Connor, 

writing for the four dissenters, observed:

“To reason, as the Court does, that the incidental public 

benefits resulting from the subsequent ordinary use of 

private property render economic development takings ‘for 

public use’ is to wash out any distinction between private 

and public use of property—and thereby effectively to 

16 While Kelo did not involve a taking by the federal government, the decision applied the 

“federal baseline” standards under the Fifth Amendment. The opinion noted that state 

constitutions can and have imposed stricter “public use” restrictions than the federal 

baseline. Kelo, 545 U.S. at 489.
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delete the words ‘for public use’ from the Takings Clause of 

the Fifth Amendment.”

Id. at 494. Kelo has proven to be controversial outside the Court as well, 

prompting legislative proposals to restrict the exercise of eminent 

domain.17 One such proposal was enacted as section 726 of the 

Transportation, Treasury, Housing and Urban Development, the Judiciary, 

and Independent Agencies Appropriations Act, 2006, Pub. L. No. 109-115, 

div. A, title VII, 119 Stat. 2396, 2494–95 (Nov. 30, 2005). Section 726 

prohibited the use of funds appropriated in that act to support federal, 

state, or local projects seeking to use eminent domain for other than a 

“public use” and provided that “public use” shall not be construed to 

include “economic development that primarily benefits private entities.”18

• What constitutes “just compensation”? As a general proposition, just 

compensation in a straightforward condemnation action is the fair 

market value of the property at the time of the taking. It is the price a 

willing and knowledgeable buyer would pay to a willing and 

knowledgeable seller, both free from mistake or coercion, without 

regard to increases or decreases attributable to the project for which 

the property is being acquired. E.g., United States v. Reynolds,

397 U.S. 14 (1970); United States v. Miller, 317 U.S. 369, 376–77 (1943). 

See also 18 Comp. Gen. 245 (1938); B-193234, Dec. 8, 1978. With respect 

to takings other than straightforward condemnations, it is sometimes 

difficult to define the property interests affected and to put a price on 

the interference with them. One general principle is that just 

compensation is measured by the property owner’s loss rather than the 

government’s gain. See, for example, Brown v. Legal Foundation of 

Washington, 538 U.S. 216, 235–36 (2003), and cases cited. Thus, it may 

be, as it was in Brown, that no compensation is due even where some 

sort of a taking has occurred.

The federal power of eminent domain extends to Indian tribal lands. E.g., 

United States v. 21,250 Acres of Land, 161 F. Supp. 376 (W.D. N.Y. 1957). It 

also extends to land owned by states. E.g., Oklahoma ex rel. Phillips v. 

17 See CRS, Condemnation of Private Property for Economic Development: Kelo v. City of 

New London, No. RS22189 (July 11, 2005).

18 See CRS, Condemnation of Private Property for Economic Development: Legal 

Comments on the House-Passed Bill (H.R. 4128) and Bond Amendment, No. RL33208 

(Jan. 20, 2006).
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Guy F. Atkinson Co., 313 U.S. 508, 534 (1941). The Supreme Court has said 

that the term “private property” in the Fifth Amendment encompasses the 

property of state and local governments, and that the same principles of 

just compensation presumptively apply. United States v. 50 Acres of Land,

469 U.S. 24, 31 (1984). The rules may differ, however, in the case of 

properties, such as roads, which are normally not bought and sold in the 

open market. Id. at 30.

Each of these issues has generated a raft of litigation, with the scope of the 

regulatory taking concept being particularly active. Further detail is 

beyond our present scope and our statements above are intended to do 

nothing more than suggest the applicable principles.19

2. Federal Land 

Acquisition Policy

The Uniform Relocation Assistance and Real Property Acquisition Policies 

Act of 1970 became law on January 2, 1971, and was amended in 1987.20 

The major portion of the law, Title II, deals with relocation assistance and is 

covered in section C of this chapter. Title III, 42 U.S.C. §§ 4651–4655, is 

entitled “Uniform Real Property Acquisition Policy.” The policy provisions 

of Title III are independent of the relocation provisions of Title II and apply 

regardless of whether anyone will be displaced by the acquisition. City of 

Columbia, South Carolina v. Costle, 710 F.2d 1009 (4th Cir. 1983).

The main section for our purposes is section 301, codified at 42 U.S.C. 

§ 4651. It begins by stating four congressional objectives: 

• to encourage and expedite acquisition by voluntary rather than 

involuntary means, 

• to avoid litigation, 

• to assure consistent treatment of property owners, and 

• to promote public confidence in federal land acquisition practices.

19 The publications cited in footnote 15 provide a useful starting point for further 

exploration.

20 Pub. L. No. 91-646, 84 Stat. 1894 (Jan. 2, 1971), amended by Uniform Relocation Act 

Amendments of 1987, Pub. L. No. 100-17, title IV, 101 Stat. 132, 246 (Apr. 2, 1987).
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Section 301 then goes on to state 10 congressional “policies,” designated as 

sections 301(1) through (10). They are:

Subsection (1). Agencies should make “every reasonable effort” to acquire 

property by negotiated sale before resorting to involuntary acquisition. 

This of course does not mean that the negotiations must succeed. What it 

means is that the agency is expected to negotiate reasonably and in good 

faith. See B-179059, Oct. 11, 1973.

A device the National Park Service has used to encourage voluntary sale 

when acquiring single-family residential property is to permit the owner to 

retain a “right of use and occupancy” for a specified term of years or for the 

life of the owner and spouse. The owner pays a fee for this retained 

interest, determined actuarially in the case of a life estate, which is 

deducted from the purchase price. The fee has traditionally been set below 

market as an additional inducement. The device, primarily from the 

valuation perspective, is discussed in B-125035-O.M., May 7, 1976.

Subsection (2). Property should be appraised before the negotiations 

start, and the owner should be given the opportunity to accompany the 

appraiser during the inspection. The agency may waive the appraisal for 

property with a “low fair market value.” The statute does not define this 

term. However, regulations generally governing any acquisition of real 

property for a direct federal program or project permit waiver if an agency 

determines that the valuation is uncomplicated and the anticipated value is 

estimated at $10,000 or less. 49 C.F.R. § 24.102(c)(2)(ii).

To the extent appropriate, appraisals should follow the Uniform Appraisal 

Standards for Federal Land Acquisitions promulgated by the Interagency 

Land Acquisition Conference (2000).21 49 C.F.R. § 24.103(a).

Subsection (3). This subsection, which deals with the amount of 

compensation, includes several distinct points:

• The acquiring agency should establish the “just compensation” amount 

before the negotiations start.

21 The Uniform Appraisal Standards, a compendium of federal eminent domain appraisal 

laws, regulations, and practices, can be found online at www.usdoj.gov/enrd/land-ack/ (last 

visited Mar. 25, 2008).
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• This amount should not be less than the agency’s approved appraisal.22

• The negotiations should start with an offer of this amount.

• The acquiring agency should provide the owner with a written 

statement summarizing the basis for the amount offered.

• Increases or decreases in fair market value attributable to the federal 

project or to the likelihood of acquisition are to be disregarded. This 

was a codification of existing case law. See the discussion of what 

constitutes “just compensation,” above. For a further discussion of this 

principle, referred to by the courts as the “scope-of-the-project rule,” 

see United States v. Land, 213 F.3d 830, 834–36 (5th Cir. 2000), cert. 

denied, 532 U.S. 904 (2001). 

The legislative history emphasizes that genuine negotiations are expected 

rather than a “take it or leave it” (or perhaps more appropriately, “take it or 

we’ll condemn it anyway”) approach. H.R. Rep. No. 91-1656, at 22.

Subsection (3) is designed to be fair both to the property owner and to the 

taxpayer. Thus, although the statute contemplates that the ultimate 

purchase price might end up higher than the agency’s appraisal, the 

property owner should not receive a windfall. B-193234, Dec. 8, 1978. Also, 

as long as there is no pressure or coercion, there is nothing to prevent an 

owner from agreeing to accept less than the government’s initial offer. 

58 Comp. Gen. 559, 566 (1979); B-148044, Dec. 9, 1976.

Where the wrong amount is paid through mutual mistake, the negotiations 

may be reopened to effect an appropriate adjustment. The decision 

B-197623, June 4, 1980, involved acquisitions by the National Park Service. 

After some land had been acquired, it was discovered that two states in 

which the acquired lands were located had passed certain zoning 

restrictions which resulted in lowering property values. Since the zoning 

restrictions were viewed as a consequence of the federal project, the 

reduction in value should have been disregarded. The Comptroller General 

22 What if the agency thinks the appraisal is excessive? The House Public Works Committee 

cautioned: “If the amount of just compensation as determined by the head of the Federal 

agency is less than the agency’s approved appraisal, it would appear that an in-depth review 

of the methods employed in determining the amount of just compensation or in making the 

appraisal is called for.” H.R. Rep. No. 91-1656, at 23 (1970).
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agreed that the Park Service could reopen the transactions and reappraise 

the property using the proper criteria.

If there is a substantial delay between the appraisal and the acquisition, the 

agency should consider updating the appraisal or getting a new one. 

H.R. Rep. No. 91-1656, at 23; B-193234, Dec. 8, 1978.

The Uniform Relocation Act applies to the acquisition of easements as well 

as the acquisition of fee simple title. If the taking of an easement benefits 

the remainder of the landowner’s property, the accruing benefit may be set 

off against the value of the property interest actually taken. If these 

accruing benefits exceed the value of the easement taken, there is no 

requirement for additional monetary compensation. 58 Comp. Gen. 559. A 

case discussing application of several of the policy elements to the 

acquisition of scenic easements is B-179059, Oct. 11, 1973.

Subsection (4). The owner should not be required to surrender possession 

until the agency has either (a) paid the agreed purchase price, in the case of 

a negotiated purchase, or (b) deposited the appropriate amount with the 

court, in the case of a condemnation.

Subsection (5). Insofar as possible, no person lawfully occupying real 

property (residence, business, or farm) should be required to move without 

at least 90 days’ written notice.

Subsection (6). If the acquiring agency permits an owner or tenant to 

remain on the premises on a rental basis, rent should not exceed the 

property’s fair rental value.

Subsection (7). The acquiring agency should take no action (e.g., advance 

or defer the time of condemnation) to coerce or compel an agreement as to 

price.

Subsection (8). If involuntary acquisition becomes necessary, the agency 

should institute formal condemnation proceedings. An agency should 

never intentionally make it necessary for the property owner to go to court 

to establish the taking under an inverse condemnation theory (see 

section B.5.b(6) of this chapter).

Subsection (9). If the agency needs only part of the property but partial 

acquisition would leave the owner with an uneconomic remnant, the 

agency should offer to acquire the entire property. The statute defines 
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“uneconomic remnant” as a remaining interest which the acquiring agency 

determines “has little or no value or utility to the owner.”

Subsection (10). An owner who has been “fully informed of his right to 

receive just compensation” may choose to donate all or part of the property 

to the government.

These, then, are the elements of federal land acquisition policy. Always on 

the lookout for catchy phrases, we would be tempted to refer to 42 U.S.C. 

§ 4651 as the “property owner’s bill of rights,” except for one thing—

section 4651 does not create any rights. Another provision of the Uniform 

Relocation Act, section 102, 42 U.S.C. § 4602, provides:

“(a) The provisions of section 4651 of this title create no 

rights or liabilities and shall not affect the validity of any 

property acquisitions by purchase or condemnation.

“(b) Nothing in this chapter shall be construed as creating in 

any condemnation proceedings brought under the power of 

eminent domain, any element of value or of damage not in 

existence immediately prior to January 2, 1971.”

By virtue of 42 U.S.C. § 4602, the 10 policy elements of 42 U.S.C. § 4651 are 

guidelines only. There is a considerable body of case law to the effect that 

section 4651 does not create rights in favor of property owners which are 

enforceable in court. E.g., Rhodes v. City of Chicago, 516 F.2d 1373 

(7th Cir. 1975); Zoeller v. United States, 65 Fed. Cl. 449 (2005); Boston v. 

United States, 424 F. Supp. 259 (E.D. Mo. 1976); Nall Motors, Inc. v. Iowa 

City, 410 F. Supp. 111 (S.D. Iowa 1975), aff’d, 533 F.2d 381 (8th Cir. 1976); 

Barnhart v. Brinegar, 362 F. Supp. 464 (W.D. Mo. 1973).23 If the statute did 

not create rights enforceable in court, it followed that GAO, when it had 

claims settlement authority, could not consider monetary claims for alleged 

violations of section 4651. B-215591, Sept. 5, 1984.

23 See also Paramount Farms, Inc. v. Morton, 527 F.2d 1301 (7th Cir. 1975); United States v. 

416.81 Acres of Land, 525 F.2d 450 (7th Cir. 1975); Bunker Properties, Inc. v. Kemp,

524 F. Supp. 109 (D. Kan. 1981); Nelson v. Brinegar, 420 F. Supp. 975 (E.D. Wis. 1976); 

Rubin v. Department of Housing & Urban Development, 347 F. Supp. 555 (E.D. Pa. 1972); 

Will-Tex Plastics Manufacturing, Inc. v. Department of Housing & Urban Development,

346 F. Supp. 654 (E.D. Pa. 1972), aff’d mem., 478 F.2d 1399 (3rd Cir. 1973). 
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The policy elements of 42 U.S.C. § 4651 are intended to apply to federally 

funded state acquisitions as well as to direct federal acquisitions. Federal 

agencies are directed by 42 U.S.C. § 4655(a)(1) not to approve any grant, 

contract, or agreement to or with a state agency under which federal 

money will be available for all or any part of any program or project which 

will result in the acquisition of real property, unless the state agency 

provides “satisfactory assurances” that it will “be guided, to the greatest 

extent practicable under State law,” by the policies of section 4651.24

One court has found that, although the policy elements of 42 U.S.C. § 4651 

are not binding in and of themselves, they may become binding if included 

in a contract. The Department of Housing and Urban Development (HUD) 

entered into a “contract” with a county for a grant under the Housing Act. 

In the agreement, the county represented that it would follow the policies 

of 42 U.S.C. § 4651. Plaintiffs alleged that the county failed to follow 

several of the policy elements, for example, by not giving some owners the 

opportunity to accompany the appraisers during their inspection. The 

court found that the plaintiff-landowners were “donee third party 

beneficiaries” of the contract between HUD and the county. The court 

therefore enjoined the county from prosecuting condemnation 

proceedings, and enjoined HUD from providing any federal money, until 

the county complied with the items found to be in violation. Bethune v. 

United States, 376 F. Supp. 1074 (W.D. Mo. 1972).

We mention the Bethune case because it has never been overruled. It is, 

however, of doubtful precedential value. The same court (different judge) 

rejected the third-party beneficiary theory a year later, without mentioning 

Bethune, in Barnhart, 362 F. Supp. 464. The Barnhart case, because of its 

exhaustive analysis of legislative history, has become one of the leading 

cases in the area. Courts which have considered both cases have rejected 

Bethune and followed Barnhart. E.g., Boston, 424 F. Supp. at 264–65; Nall 

Motors, 410 F. Supp. at 114–15.

24 Title II of the Uniform Relocation Act contains a similar provision with the “satisfactory 

assurance” language. 42 U.S.C. § 4630. That provision is noted later in section C.3.e of this 

chapter with case citations to the effect that a satisfactory assurance does not mean a 

guarantee.
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3. Need for Statutory 

Authority

Before any federal agency can purchase real property, it must have 

statutory authority. Congress originally enacted this requirement in 1820,25

and it is found today, unchanged, in 41 U.S.C. § 14: “No land shall be 

purchased on account of the United States, except under a law authorizing 

such purchase.” This is one of the oldest principles of our government. 

The Attorney General said well over a century ago that “[t]here never was a 

time in the history of this Government when the purchase of land on 

account of the United States without authority of law was a legal act on the 

part of the Executive.” 11 Op. Att’y Gen. 201, 203 (1865). A similar 

requirement is found in 10 U.S.C. § 2664(a), applicable to the military 

departments.26

As discussed below, not all acquisitions are subject to 41 U.S.C. § 14. 

Where the statute does not apply, the authority for the expenditure is 

determined “in accordance with the usual rules of appropriation law 

construction,” that is, by applying the necessary expense theory of purpose 

availability. 38 Comp. Gen. 782, 785 (1959); B-12021, Sept. 7, 1940.

a. Applicability The requirement of 41 U.S.C. § 14 applies to acquisition by condemnation 

as well as acquisition by voluntary purchase. 41 Comp. Gen. 796 (1962). 

Condemnation is essentially an enforced sale; the government is still a 

“buyer.” This does not mean that the authorizing statute must specify 

“condemnation.” As we will see later, a statute authorizing purchase is 

sufficient. To restate, although the statute need not specify condemnation, 

there must be a statute.

Several decisions have established that 41 U.S.C. § 14 applies not only to 

the acquisition of fee simple title, but also to the acquisition of lesser 

estates or interests in land, such as permanent easements or rights-of-way. 

17 Comp. Gen. 204 (1937); 21 Comp. Dec. 326 (1914); B-55105, Feb. 26, 

1946; A-88061, Aug. 3, 1937; A-31494, May 8, 1930; A-24745, Oct. 13, 1928. 

Looking at it from another angle, the purchase of a permanent easement or 

right-of-way over land constitutes the purchase of land for purposes of 

41 U.S.C. § 14.

25 Act of May 1, 1820, ch. 52, § 7, 3 Stat. 567, 568.

26 Section 2664(a) excludes from its application the acceptance of property acquired through 

certain exchanges of government property.
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The statute applies as well to the acquisition of a leasehold. 39 Op. Att’y 

Gen. 56 (1937); 28 Op. Att’y Gen. 463 (1910). This includes acquisition for 

consideration other than money as long as the consideration is more than 

nominal. 35 Op. Att’y Gen. 183 (1927). A lease will normally place the 

lessee under an obligation, upon termination of the lease, to restore the 

property to the condition it was in when the lease began. A federal agency 

in temporary occupancy of real property under such an obligation cannot 

purchase (or condemn) the property unless 41 U.S.C. § 14 has been 

satisfied, even though acquiring fee title would be cheaper than restoration. 

24 Comp. Gen. 339 (1944). See also 26 Comp. Dec. 242 (1919).

The statute applies to the acquisition of new land, not to land already 

owned by the government. Thus, it does not apply to the transfer of excess 

property to another agency. 38 Comp. Gen. 782 (1959). See also B-71849, 

Jan. 7, 1948. The statute has also been held inapplicable to transactions in 

the nature of “unvouchered expenditures,” that is, transactions funded 

from appropriations that were specifically provided to be “expended at the 

discretion of the President.” 9 Comp. Dec. 805, 806 (1903).

(1) Debt security

The statute does not prevent acquisition of land where acquired as security 

for a debt, nor does it apply to collecting debts by enforcing such security 

interests. In this connection, the Supreme Court has said:

“[I]n our judgment [41 U.S.C. § 14] does not prohibit the 

acquisition by the United States of the legal title to land, 

without express legislative authority, when it is taken by 

way of security for a debt. . . . To deny [appropriate 

government officials] the power to take security for a debt 

on account of the United States, according to the usual 

methods provided by law for that end, would deprive the 

government of a means of obtaining payment, often useful, 

and sometimes indispensably necessary. That such power 

exists as an incident to the general right of sovereignty, and 

may be exercised by the proper department if not prohibited 

by legislation, we consider settled . . . .” 

Neilson v. Lagow, 53 U.S. (12 How.) 98, 107 (1851). See also Van 

Brocklin v. Tennessee, 117 U.S. 151, 154 (1886); 35 Op. Att’y Gen. 474 

(1928).
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Citing Neilson, the Comptroller General held in 34 Comp. Gen. 47 (1954) 

that 41 U.S.C. § 14 did not preclude the Secretary of Agriculture from 

protecting the government’s interests under a second mortgage, either by 

bidding at a prior lienholder’s foreclosure sale, or, if the prior lienholder 

foreclosed, by redeeming the property under state law. Once it was 

determined that 41 U.S.C. § 14 did not stand in the way and that there was 

no other applicable prohibition, the question was simply one of applying 

the necessary expense theory of purpose availability—the Secretary could 

make the expenditure if it was administratively determined to be in 

reasonable furtherance of the relevant appropriation. See also 36 Comp. 

Gen. 697 (1957).

(2) Donated property/funds

An early decision held that 41 U.S.C. § 14 does not apply to land donated to 

the United States, provided that the donation does not involve an 

expenditure of public funds. 19 Comp. Dec. 1 (1912). In reaching this 

conclusion, the Comptroller of the Treasury cited two 1910 opinions of the 

Attorney General reaching the same result, 28 Op. Att’y Gen. 413 and 

28 Op. Att’y Gen. 463. In the former opinion, the Attorney General 

expressed the view that the phrase “on account of the United States” as 

used in 41 U.S.C. § 14 means the same thing as “at the expense of” or “to be 

paid for by” the United States. 28 Op. Att’y Gen. at 416.

If an agency has authority to accept donations of both land and money, it 

may use donated funds to purchase land, without regard to 41 U.S.C. § 14, if 

the funds were donated for the same general purpose for which the land is 

desired. 2 Comp. Gen. 198 (1922). In that case, the state of Colorado 

donated a sum of money to the Interior Department for “general park 

purposes” in the Rocky Mountain National Park. Interior has authority, 

now found at 16 U.S.C. § 6, to accept land or money donated for the 

purposes of the national park and monument system. GAO advised that 

Interior could use the donated funds to purchase a tract of land within the 

park boundaries which was needed as a site for park administration and 

maintenance buildings, without the need for further statutory authority. 

See also B-40087, Feb. 28, 1944.

(3) Options

An option to purchase land is an agreement in which the owner of the land 

gives a prospective buyer the right to purchase the land at a fixed price 

within a stated time period. The party receiving the option is under no 
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obligation to exercise it. If consideration is given, the option is binding. If 

there is no consideration, the owner may revoke the option at any time 

prior to its exercise. An option may be viewed as a “continuing offer” to 

sell. The offer is accepted by exercise of the option within the time period 

for which it was granted. Purchase options may be advantageous to the 

government as a means of inhibiting price escalation.

A purchase option is not the purchase of land or an interest in land. Thus, 

41 U.S.C. § 14 does not apply to the acquisition of an option, although it 

does apply to the exercise of the option. 38 Comp. Gen. 227 (1958); 

36 Comp. Gen. 48 (1956).

Notwithstanding the nonapplicability of 41 U.S.C. § 14, other decisions 

have held that appropriated funds may not be used to acquire an option 

without statutory authority. A-17267, June 28, 1927; 9 Comp. Dec. 569 

(1903).27 The prohibition has not been applied to options given without 

monetary consideration. See, e.g., B-103967, July 7, 1972; A-59458, Jan. 15, 

1935.

When you combine these two concepts—the need for statutory authority 

and the nonapplicability of 41 U.S.C. § 14—the result is that you need 

statutory authorization to use appropriated funds to acquire an option on 

land, but it does not have to be tied to the particular transaction. Several 

agencies have obtained statutory authority to acquire options. Examples 

are:

• 7 U.S.C. § 428a(b): The Department of Agriculture may acquire 

purchase options on land. Specific authority is needed if the cost of the 

option is more than $1.

• 10 U.S.C. § 2677: Military departments may acquire options on real 

property at a cost of not more than 12 percent of the property’s 

appraised fair market value.

• 16 U.S.C. § 460l-10b: The Interior Department may acquire options on 

land to be included in the national park system, up to a maximum 

27 The two decisions used different rationales. The 1927 GAO decision was based on the 

purpose restriction of 31 U.S.C. § 1301(a). The 1903 decision of the Comptroller of the 

Treasury used as its rationale an interpretation of the advance payment statute, 31 U.S.C. 

§ 3324.
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aggregate cost of $500,000 per year. The option must be for a minimum 

of 2 years, and the option cost must be credited toward the purchase 

price.

• The General Services Administration has received authority in annual 

appropriation acts by virtue of language making the Federal Buildings 

Fund appropriation available for “acquisition of options to purchase 

buildings and sites.” E.g., Pub. L. No. 110-161, 121 Stat. 1844, 2000 

(Dec. 26, 2007) (fiscal year 2008).

A purchase option may be acquired by itself or it may be included in a 

lease. The decisions in this area do not appear to have applied the 

statutory authority requirement to options included in leases, although we 

could find no clear statement. Where inclusion of an option is authorized, 

it may provide for its exercise at the end of the basic term of the lease, at 

the end of any renewal term, or at staggered periods during the basic term 

or any renewal term. B-137279, Nov. 10, 1958, aff’g, 38 Comp. Gen. 227 

(1958). Lease transactions present their own complications and are treated 

separately later in this chapter.

(4) Indian tribal funds

Indian tribal funds are trust funds administered by the Bureau of Indian 

Affairs. The purchase of land using Indian tribal funds is not a purchase 

“on account of the United States.” Thus, 41 U.S.C. § 14 does not apply, even 

where title to the land is to vest in the United States to be held in trust for 

the particular tribe. 19 Comp. Gen. 175 (1939); 5 Comp. Gen. 661 (1926). 

See also B-126095, Mar. 7, 1956; A-51705, Nov. 12, 1942.

b. Types of Statutory 

Authority

(1) Express versus implied authority

For the most part, land acquisition authority tends to be unmistakably 

explicit—that is, it will contain language such as “purchase land” or 

“acquire land.” This is of course preferable, but it is not absolutely 

required. It is clear from the decisions, both administrative and judicial, 

that 41 U.S.C. § 14 may be satisfied by implication to a limited extent. The 

question seems to have arisen most often in connection with the 

construction of various facilities or public improvements. Given the 

existence of 41 U.S.C. § 14, deriving authority to purchase land by 

implication requires a somewhat more rigid test than the “reasonable 

relationship” standard used under the necessary expense theory. 

Responding to the question of whether congressional authorization for 
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construction carries with it the implied authority to acquire land, the 

Comptroller General stated the test as follows: 

“[W]hile each individual case must of necessity be 

determined on the basis of the specific facts and 

circumstances pertaining thereto, an authorization for 

construction may be deemed to imply authority to acquire 

land therefor when such land is so necessary and essential 

for that construction that the acquisition thereof must have 

been contemplated by the Congress.”

B-115456, July 16, 1953, at 7.

In determining whether authority to purchase land may be derived by 

implication, it is relevant to examine any pattern Congress may have 

developed in similar legislation. To illustrate, in 7 Comp. Dec. 524 (1901), 

something called the “Fish Commission” had an appropriation for the 

“erection of buildings” in connection with the establishment of a fishery 

station. The Commission wanted to know if it could use the appropriation 

to purchase land for the station. The Comptroller of the Treasury noted 

that a pretty good case could be made based on that appropriation standing 

alone. However, the Comptroller also noted that “the country is dotted 

with stations established by virtue of acts of Congress” (7 Comp. Dec. 

at 525), and that these other statutes almost invariably included the specific 

authority to purchase land. Viewing this particular appropriation in light of 

the established pattern in similar statutes, the Comptroller concluded that 

the purchase of land was not authorized. See also 2 Comp. Gen. 558, 560 

(1923); B-115456, July 16, 1953.

Other authorities supporting the proposition that the authority required by 

41 U.S.C. § 14 may be derived by implication in appropriate circumstances 

include United States v. Threlkeld, 72 F.2d 464 (10th Cir.), cert. denied,

293 U.S. 620 (1934); Burns v. United States, 160 F. 631 (2nd Cir. 1908); State 

of Nevada v. United States, 547 F. Supp. 776 (D. Nev. 1982), aff’d, 731 F.2d 

633 (9th Cir. 1984); 21 Comp. Dec. 326, 328 (1914); 11 Comp. Dec. 132 (1904); 

B-34805, June 15, 1943; 40 Op. Att’y Gen. 69 (1941).

(2) Forms of express authority

It was long ago recognized that no “specific formula of language” is 

required to authorize land acquisition. 11 Comp. Dec. 132, 139 (1904). To 

meet the varying needs of different agencies and programs, Congress has 
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used a number of different statutory configurations to confer land 

acquisition authority.

Some agencies have general land acquisition authority in the form of 

permanent provisions found in the United States Code which may be 

agencywide or limited to a particular bureau or program. Examples are:

• 38 U.S.C. § 2406: authorizes Department of Veterans Affairs to acquire 

land for national cemeteries;

• 38 U.S.C. § 8103(a)(1): authorizes Veterans Affairs to acquire land for 

medical facilities;

• 40 U.S.C. §§ 3304(b) and 3305(b)(1)(B): authorize General Services 

Administration (GSA) to acquire land for purposes of carrying out its 

responsibilities for the acquisition, construction, and alteration of 

public buildings;

• 42 U.S.C. § 1502(b): authorizes acquisition of land for defense housing 

by Departments of Army, Navy, Air Force, and Housing and Urban 

Development; and

• 42 U.S.C. § 2473(c)(3): general land acquisition authority for the 

National Aeronautics and Space Administration.

These statutes make no mention of funding. Since they do not authorize 

the incurring of obligations in advance of appropriations, specific 

acquisitions under them must be funded through the normal budget and 

appropriations process. While acquisitions under these statutes are 

dependent upon the availability of appropriations, there is no general legal 

requirement that there also be a specific authorization of appropriations. 

B-173832, Aug. 1, 1975, aff’d, B-173832, July 16, 1976. GAO stressed in both 

of these letters that it was venturing no opinion as to whether a point of 

order might lie, but was addressing only the legality of the appropriation if 

enacted.

A variant includes a general reference to the availability of appropriations. 

An example is 7 U.S.C. § 428a(a), which authorizes the Department of 

Agriculture to acquire land “as may be necessary to carry out its authorized 

work,” but only when provided for “in the applicable appropriation or other 

law.” As with 41 U.S.C. § 14 itself, this statute has been construed as not 
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applying to land already owned by the government. 38 Comp. Gen. 782, 

784–85 (1959).

Another example is 14 U.S.C. § 92(f), which provides general land 

acquisition authority for the Coast Guard “for which an appropriation has 

been made.” This too requires an appropriation which is itself available for 

land acquisition. B-148989-O.M., June 18, 1962 (at the time of this opinion, 

section 92(f) read, “within the limits of appropriations made therefor”). A 

third example is 43 U.S.C. § 36b, which authorizes the Secretary of the 

Interior to purchase land for use by the Geological Survey in “gaging” 

streams “when funds have been appropriated by Congress.” There is little 

substantive difference between this variant and the statutes previously 

noted because a general reference to the availability of appropriations 

merely serves to emphasize what the law requires anyway.

Another variant includes an authorization of appropriations. These tend to 

be specific program statutes, and the authorization may include 

restrictions as well as monetary authorizations. Examples are:

• 16 U.S.C. § 1246(e): authorizes land acquisition by the Departments of 

Agriculture and the Interior to implement the National Trails System 

Act. The authorization of appropriations is found in 16 U.S.C. § 1249.

• 16 U.S.C. § 1277(a): authorizes land acquisition by the Departments of 

Agriculture and the Interior to implement the Wild and Scenic Rivers 

Act. The authorization of appropriations is found in 16 U.S.C. § 1287. 

The provision is discussed generally in B-125035-O.M., May 21, 1979.

Once again, an actual acquisition requires an available appropriation, in 

this case one made pursuant to the authorization.

Another form of legislative authority is a statute which authorizes land 

acquisition and identifies the appropriation to be charged. An example is 

10 U.S.C. § 2663(d). The land acquisition needs of the military departments 

are usually addressed in the annual National Defense Authorization Acts. 

However, if land is needed in the interest of national defense and to 

maintain the “operational integrity” of a military installation, and the 

urgency of the situation does not permit inclusion in the next authorization 

act, 10 U.S.C. § 2663(d) authorizes military departments to use military 

construction appropriations to acquire the land. The secretary of the 

military department must notify the Senate and House Armed Services 

Committees within 10 days following a determination to acquire land under 
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this section. 10 U.S.C. § 2263(d)(2). The military departments also have 

authority to use appropriations available for maintenance or construction 

to acquire any interest in land needed for national defense purposes and 

which does not cost more than $750,000 or to an interest in land costing not 

more than $1.5 million if necessary to correct a deficiency that threatens 

life, health, or safety. 10 U.S.C. § 2663(c).

Another statute of this type is 16 U.S.C. § 555, which authorizes the 

Secretary of Agriculture to purchase land for national forest headquarters, 

ranger stations, and other sites required for authorized activities of the 

Forest Service, up to a maximum of $50,000 a year, chargeable not to a 

specifically named appropriation but to “the appropriation applicable to 

the purpose for which the land is to be used.” Decisions applying this 

statute are 6 Comp. Gen. 437 (1927) (an earlier version of the statute) and 

B-125390, Oct. 6, 1955.

If you have one of these statutes, the only other thing you need is a 

sufficient amount of available funds in the appropriation to be charged.

A final category we may note consists of statutes which are essentially 

procedural and which GAO has viewed as not constituting sufficient 

authority for the purchase of land. Under these, you still need separate 

acquisition authority as well as an available appropriation. Examples are:

• 10 U.S.C. § 2663(a) & (b): gives the military departments what appears 

to be general condemnation and purchase authority. GAO’s view is that 

“this provision is procedural in nature and merely provides the method 

whereby land may be acquired where there exists a separate 

authorization to acquire and pay for such land,” as well as an available 

appropriation. B-115456, July 16, 1953, at 6.

• 10 U.S.C. § 9773: GAO reached the same conclusion in the same 

decision with respect to this statute, which authorizes the Secretary of 

the Air Force to determine sites for establishment and enlargement of 

air bases, and to acquire fee simple title to any land deemed necessary 

for this purpose.

• 40 U.S.C. § 581(c)(1): land acquisition by GSA. GAO’s view of this 

provision as merely procedural was based on legislative history and an 

established congressional pattern of providing specifically for 

acquisitions by GSA. Even if the provision were regarded as general 
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authority, acquisitions would still require available appropriations. 

B-137755-O.M., Dec. 30, 1958.

It is apparent from our survey that Congress has used a variety of 

approaches to satisfy the basic requirement of 41 U.S.C. § 14. Typically, 

there is some form of authorization, general or specific, which is then 

implemented, with few exceptions, through the normal budget and 

appropriations process. The one constant is the need for an available 

appropriation. See, e.g., 41 Comp. Gen. 796, 798 (1962); 38 Comp. Gen. 227, 

229 (1958). Setting aside the question of whether such a provision would 

be subject to a point of order, authorization and appropriation could be 

combined in an appropriation act; that is, the appropriation itself could be 

the source of the acquisition authority. E.g., United States v. Mock, 

476 F.2d 272, 274 (4th Cir. 1973); Polson Logging Co. v. United States,

160 F.2d 712, 714 (9th Cir. 1947). The appropriation does not have to 

specifically address the tract to be acquired. A lump-sum appropriation, 

one of whose purposes is land acquisition, will be sufficient if it can be 

demonstrated through legislative history, budget submission materials, etc.,

that the lump-sum is available for the specific acquisition in question. The 

case most often cited for this proposition is United States v. Kennedy,

278 F.2d 121 (9th Cir. 1960). See also United States v. Right to Use and 

Occupy 3.38 Acres of Land, 484 F.2d 1140 (4th Cir. 1973) (Army research 

and development appropriation); Perati v. United States, 352 F.2d 788 

(9th Cir. 1965), cert. denied, 383 U.S. 957 (1966) (National Park Service); 

Seneca Nation of Indians v. Brucker, 262 F.2d 27 (D.C. Cir. 1958), cert. 

denied, 360 U.S. 909 (1959) (Corps of Engineers general construction 

appropriation); United States v. 0.37 Acres of Land, 414 F. Supp. 470 

(D. Mont. 1976) (Land and Water Conservation Fund).

An appropriation which itself provides for “purchase of land as authorized 

by law” will generally be ineffective without separate statutory 

authorization. 19 Comp. Gen. 758 (1940). However, authority sufficient to 

satisfy the basic requirement of 41 U.S.C. § 14, such as a lump-sum 

appropriation demonstrably available for the specific acquisition, will also 

satisfy the “authorized by law” language in the appropriation act. 

3.38 Acres, 484 F.2d at 1142–43; 0.37 Acres, 414 F. Supp. at 471–72.

The terms of the legislation will define the extent of the agency’s 

acquisition authority. Naturally, the authority will be circumscribed by any 

restrictions contained in the legislation. E.g., Maiatico v. United States,

302 F.2d 880 (D.C. Cir. 1962).
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Similarly, depending on those terms, the agency may or may not be 

authorized to acquire less than fee title or fee title subject to various 

reservations or covenants. It has been held that the simple authority to 

purchase land does not include the authority to purchase that land subject 

to reservations or covenants restricting the use of the land (such as timber 

or mineral reservations) and which might impede subsequent sale or 

disposition by the government. 10 Comp. Gen. 320 (1931); A-34970, Feb. 20, 

1931; A-25156, Dec. 15, 1928. In addition, the Attorney General will 

probably not approve the title. See 6 Op. Off. Legal Counsel 431, 435–36 

(1982); 3 Op. Off. Legal Counsel 337, 339 (1979). Congress, of course, can 

authorize acquisition subject to reservations. See, e.g., 15 Comp. Gen. 910 

(1936). The authority to acquire “lands, easements and rights-of-way” has 

been construed as such authority. 40 Op. Att’y Gen. 431 (1945). There are 

also nonstatutory exceptions based largely on common sense. Thus, where 

acquisition of land for a parkway would end up cutting a farmer’s land in 

half, there could be no objection to his reserving the right to cross the 

parkway to get from one part of his farm to the other. A-34970, May 15, 

1931. In another case, where the land to be acquired contained buildings 

which the government neither needed nor wanted, there was no objection 

to reserving title to the buildings in the vendor along with a requirement to 

remove them within a specified time. 22 Comp. Gen. 165 (1942).

In any event, care must be taken in this regard because acceptance of a 

deed subject to certain covenants may end up binding the government. 

E.g., Mississippi State Highway Commission v. Cohn, 217 So. 2d 528 

(Miss. 1969) (covenant to construct cattle underpass); B-210361, Aug. 30, 

1983 (covenant to pay homeowners’ association assessment).28

What the agency can or cannot do also depends on the scope of its 

acquisition appropriations, which in turn depends on the rules of statutory 

and appropriations law construction (purpose, time, and amount). For 

example, construction of the Bonneville Dam by the Army Corps of 

Engineers resulted in the flooding of certain Forest Service facilities. While 

the Army had appropriations to acquire land necessary for the Bonneville 

project, it could not use those funds to purchase land on which to relocate 

28 This of course would not apply to illegal covenants like the infamous “white people only” 

covenant, an example of which is stated in 10 Comp. Gen. 320 (1931). The Justice 

Department advises that racial and religious covenants should simply be ignored because 

they are unenforceable. U.S. Department of Justice, Regulations of the Attorney General 

Promulgated in Accordance With the Provisions of Public Law 91-393, Order No. 440-70, 

§ 5(d) (Oct. 2, 1970).
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the Forest Service facility since those lands were not required for that 

project. 17 Comp. Gen. 791 (1938). The decision was based on two 

statutes: 31 U.S.C. § 1301(a), which restricts appropriations to their 

intended purposes, and 41 U.S.C. § 14 itself, since “such purchase”—

purchase of land for use by another agency—had not been authorized. 

Similarly, the established rules regarding the exclusivity of specific 

appropriations apply equally to land acquisition appropriations. E.g.,

B-10122, July 28, 1950; B-10122, May 20, 1940.

c. Effect of Noncompliance It will be apparent by now that our discussion of 41 U.S.C. § 14 has cited 

very few recent cases. The reason is that there are very few recent cases. 

Most issues under the statute are pretty well settled, and most agencies 

with significant land acquisition responsibilities have worked out the 

necessary legislative framework with their oversight committees. Perhaps 

at least in part because of this, there is very little authority on the question 

of what happens if an agency purchases or condemns land without having 

complied with 41 U.S.C. § 14.

One early case said that a purchase in contravention of 41 U.S.C. § 14 was 

void. United States v. Tichenor, 12 F. 415 (C.C.D. Ore. 1882). Tichenor

cited an 1865 opinion of the Attorney General, 11 Op. Att’y Gen. 201 (which 

used the term “illegal,” not “void”), and was in turn cited by the Comptroller 

of the Treasury in 6 Comp. Dec. 791, 793 (1900).

A 1908 case, Burns v. United States, 160 F. 631 (2nd Cir. 1908), concluded, 

without citing Tichenor, that 41 U.S.C. § 14 “should not be construed to 

apply to executed contracts, and so the United States be prevented from 

claiming that for which it has paid.” Id. at 634.

Our research has disclosed no indication that the issue has ever been 

addressed by the Comptroller General, by the Attorney General subsequent 

to the 1865 opinion, or by any court subsequent to Burns.

29

29 Burns was quoted for purposes of analogy in Nevada v. United States, 547 F. Supp. 776, 

780 (D. Nev. 1982). While the decision was affirmed on appeal, 731 F.2d 633 (9th Cir. 1984), 

the court of appeals criticized that portion of the district court’s opinion as unnecessary 

dicta, and indicated that, had the district court gone much further, it would have vacated 

that portion of the opinion. Thus, the 1982 district court opinion cannot be viewed as 

especially helpful.
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4. Title Considerations

a. Title Approval When you as a private citizen bought your house, a major consideration, 

and one which you probably took pretty much for granted, was the 

assurance that the people you bought it from actually owned it. Suppose 

they did not, or suppose there were “clouds” on the title you did not know 

about, such as outstanding tax liens or judgment liens. You could very well 

be stuck. You might have a wonderful cause of action against the sellers, 

assuming you could catch them and assuming they still had some money 

left. It should be obvious that this is an unacceptable risk. If you financed 

your house the way most of us do, with a mortgage, the bank did the 

worrying for you. Banks do not like to take unacceptable risks, and most 

of them are not about to lend you money unless they are reasonably sure 

their investment is safe. This is why one of the things you paid for at 

closing was title insurance.

These same considerations are there when the government buys real 

estate. There is one important difference in that the government pays 

directly; it does not take out mortgages. Nevertheless, the government 

would indeed look stupid if it bought land from someone who did not own 

it. More realistic possibilities are the acquisition of land which could not be 

used for the desired purposes, or the incurring of additional expenses to 

clear a defective title.

There is a statute designed to address this problem, 40 U.S.C. § 3111. 

Section 3111(a) provides: “Public money may not be expended to purchase 

land or any interest in land unless the Attorney General gives prior written 

approval of the sufficiency of the title to the land for the purpose for which 

the Federal Government is acquiring the property.” Section 3111(b)(1) 

authorizes the Attorney General to delegate title approval responsibility to 

other departments and agencies, to be exercised subject to the Attorney 

General’s supervision and in accordance with regulations prescribed by the 

Attorney General. Section 3111(b)(2) provides that departments and 

agencies with such delegated responsibility may request opinions and other 

assistance from the Attorney General on title issues. 
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As with 41 U.S.C. § 14, the cases involving 40 U.S.C. § 3111 tend to be older 

ones.30 There are few relevant GAO decisions from recent decades, and the 

statute is hardly mentioned in the published opinions of the Attorney 

General since 1940. This would tend to suggest that the operation of the 

statute is reasonably well settled.

The purpose of 40 U.S.C. § 3111 is, quite simply, “to protect the United 

States against the expenditure of money in the purchase or improvement of 

land to which it acquired a doubtful or invalid title.” 10 Op. Att’y Gen. 353, 

354 (1862), quoted in 18 Comp. Gen. 727, 732 (1939). The statute assigns 

the responsibility to the Attorney General.31 40 U.S.C. § 3111(a). Thus, as 

far as the “accounting officers” are concerned, the Attorney General’s 

opinion on the sufficiency of title under 40 U.S.C. § 3111 is conclusive. 

3 Comp. Dec. 195 (1896); B-78097, June 26, 1950. This would also be true 

with respect to the validity of mortgage releases upon which the Attorney 

General had conditioned his approval. 1 Comp. Dec. 348 (1895). For this 

reason, GAO has relied heavily on the opinions of the Attorney General 

when considering questions involving 40 U.S.C. § 3111.

Prior to 1970, the statute was worded in terms of the purchase of land for 

the purpose of erecting public buildings. See 40 U.S.C. § 255 (1964). Thus, 

many early decisions centered around the use to which the land was to be 

put. E.g., 9 Comp. Gen. 75 (1929). However, the Attorney General, the 

Comptroller of the Treasury, and Comptroller General liberally construed 

the statute to apply to acquisitions for public works or public 

improvements of virtually any sort. Further, the fact that the acquiring 

agency did not intend to erect anything on the land was often viewed as 

irrelevant. See, e.g., 18 Comp. Gen. 727 (1939); 18 Comp. Gen. 372 (1938); 

3 Comp. Dec. 530 (1897); B-80025, Oct. 1, 1948; 39 Op. Att’y Gen. 73 (1937). 

30 The current provision 40 U.S.C. § 3111 was 40 U.S.C. § 255 prior to the codification of

 title 40 of the United States Code in 2002. Pub. L. No. 107-217, § 1, 116 Stat. 1062, 1144 

(Aug. 21, 2002). Thus, the cases described here use that citation.

31 Within the Department of Justice, the implementation of 40 U.S.C. § 3111 is the 

responsibility of the Environment and Natural Resources Division (formerly Land and 

Natural Resources Division). 28 C.F.R. § 0.66. That division has developed regulations 

(unpublished) outlining its standards for title approval, entitled Regulations of the Attorney 

General Promulgated in Accordance With the Provisions of Public Law 91-393, Order 

No. 440-70 (Oct. 2, 1970). See 6 Op. Off. Legal Counsel 431 (1982); 3 Op. Off. Legal 

Counsel 337 (1979). The 1970 regulations also are referenced in the Justice Department’s 

Title Standards 2001 guide, cited in note 40, infra. 
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So broad was this construction that early cases often stated the following 

general propositions:

• 40 U.S.C. § 3111 applies “to all land purchased by the United States for 

whatever purpose.” 9 Comp. Gen. 421, 422 (1930); 1 Comp. Gen. 625, 

626 (1922). Both decisions cite 28 Op. Att’y Gen. 413 (1910). See also

28 Op. Att’y Gen. 463 (1910).

• 40 U.S.C. § 3111 “enters into, and forms part of” every contract for the 

purchase of land by the government. 9 Op. Att’y Gen. 100, 101 (1857), 

cited in 9 Comp. Gen. at 422 and 1 Comp. Gen. at 626.

A 1970 revision of the statute, Pub. L. No. 91-393, 84 Stat. 835 (Sept. 1, 

1970), removed any doubt over the validity of these broad statements. The 

statute now refers simply to the “purchase [of] land or any interest in land.” 

The current view therefore remains that 40 U.S.C. § 3111 applies in the 

absence of an express statutory exception. 6 Op. Off. Legal Counsel 431 

(1982); 3 Op. Off. Legal Counsel 337 (1979).

As one might expect from the foregoing, 40 U.S.C. § 3111 has been applied 

to a wide variety of situations. Examples are:

• Acquisitions under the Migratory Bird Conservation Act, 16 U.S.C. 

§§ 715–715r. 40 Comp. Gen. 153 (1960); 16 Comp. Gen. 856 (1937); 

39 Op. Att’y Gen. 73 (1937).

• Land purchased for development into forest, grazing, and recreational 

areas and wildlife conservation refuges. 15 Comp. Gen. 539 (1935).

• Land acquired for public parks. See Cole v. United States, 28 Ct. Cl. 

501, 511 (1893).

• Flowage easements acquired by the Corps of Engineers. B-139566, 

June 5, 1959.

• Acquisition of land or an interest in land by the Department of Energy 

in order to develop, operate, or maintain the Strategic Petroleum 

Reserve under the Energy Policy and Conservation Act, 42 U.S.C. 

§ 6239. 3 Op. Off. Legal Counsel 337 (1979).
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The statute has been held applicable to purchases for nominal 

consideration,32 to acquisition by donation,33 and to acquisition by exercise 

of a purchase option.34 One situation in which 40 U.S.C. § 3111 has been 

found not applicable is monetary contributions by the Department of 

Defense for common-use North Atlantic Treaty Organization (NATO) 

facilities financed under multilateral cost-sharing agreements. B-114107, 

Apr. 27, 1953.

A number of early decisions concluded that 40 U.S.C. § 3111 did not apply 

where an agency had specific authority to acquire land by purchase or 

condemnation. An example was the Reclamation Act of 1902, 43 U.S.C. 

§ 421. The theory was that such authority gave the acquiring agency 

discretion to either purchase or condemn, and incidentally to determine 

whether title was sufficiently clear to warrant purchase rather than 

condemnation. 10 Comp. Gen. 115 (1930); 5 Comp. Gen. 953 (1926); 

12 Comp. Dec. 691 (1906); A-39589, Dec. 30, 1931. The theory was 

discredited in 18 Comp. Gen. 727, 734–35 (1939) as not being “too strongly 

supported by reason.” In case anybody missed the point, GAO, in 

agreement with the views of the Department of Justice, made it clear the 

following year that the old theory would no longer be applied. 19 Comp. 

Gen. 739 (1940). The reason, which we will cover later in section B.5 of this 

chapter, is that, since 1888, every agency with statutory authority to acquire 

land by purchase is also authorized to resort to condemnation.35 Id. at 744. 

Subsequently, the Attorney General determined specifically that 

acquisitions under the Reclamation Act were subject to 40 U.S.C. § 3111. 

See B-80025, Oct. 1, 1948, for citations to and discussion of Attorney 

General’s letters relating to this subject.

Prior to the 1970 revision, 40 U.S.C. § 3111 included a provision authorizing 

the Attorney General to waive the approval requirement with regard to 

easements and rights-of-way upon determining that waiver would not 

jeopardize the interests of the United States. See, e.g., 21 Comp. Gen. 125 

32 15 Comp. Gen. 539; 39 Op. Att’y Gen. 99 (1937).

33 36 Comp. Gen. 616 (1957); 5 Comp. Dec. 682, 684 (1899).

34 1 Comp. Gen. 752 (1922); 1 Comp. Gen. 625 (1922).

35 A further reason to reject the old theory, which did not exist at the time of these decisions, 

is the strong federal policy in favor of purchase embodied in 42 U.S.C. § 4651, discussed 

previously in section B.2. The decision whether to purchase or condemn is no longer 

supposed to be purely discretionary. 
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(1941). The 1970 revision dropped the waiver provision. However, the 

statute still provides flexibility in that it requires not that title be perfect in 

all instances, but that it be sufficient for the purpose for which the property 

is being acquired.36

The process of obtaining title approval naturally takes time, and until it is 

done, the statute prohibits payment of the purchase price. This does not 

necessarily mean that payment must await the Attorney General’s final 

approval. For example, in 40 Comp. Gen. 153 (1960), GAO agreed that 

payment could be made for purchases under the Migratory Bird 

Conservation Act, 16 U.S.C. § 715–715r, based on a “preliminary title 

opinion” in which the Attorney General stated that valid title would vest in 

the United States when specified requirements and objections had been 

met and a deed to the United States recorded, provided that the 

requirements and objections involved only routine questions of fact and not 

questions of law. Of course, should a question arise as to whether a 

particular condition had been properly satisfied, payment should await the 

Attorney General’s final approval. Somewhat similarly, GAO agreed in an 

earlier case that payment could be made for purchases under the 

Reclamation Act, 43 U.S.C. § 421, prior to receipt of the Attorney General’s 

formal opinion where the only objections disclosed by the title examination 

were those that would be satisfied out of the purchase price. B-80025, 

Oct. 1, 1948. It should go without saying that in both of these cases the 

Justice Department had also agreed that the proposals could be considered 

as being in compliance with 40 U.S.C. § 3111.

Congress in a few instances has provided exceptions from 40 U.S.C. § 3111. 

Section 3111(d) itself makes an exception for certain land acquisitions by 

the Tennessee Valley Authority. Another example is 42 U.S.C. § 1502(b) 

relating to defense housing. Where 40 U.S.C. § 3111 does not apply, the 

acquiring agency should nevertheless determine, in the exercise of sound 

discretion, that the title being acquired is adequate to protect the interests 

of the government. Cf. 21 Comp. Gen. 125 (1941) (agency discretion under 

former waiver provision). To take the obvious illustration, payment would 

36 There are two other obsolete provisions which should be disregarded when reading the 

older cases. First, a provision requiring consent of the state legislature was deleted in 1940. 

The successor to this provision is noted later in our discussion of federal enclaves in 

section D of this chapter. Second, a provision, formerly found at 40 U.S.C. § 256 (1964), 

requiring that legal services in connection with procuring title to public building sites be 

rendered by United States Attorneys, was repealed as part of the 1970 legislation.
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never be justified to “persons having no color of right, interest, or title in 

the land to convey.” Id. at 131.

Congress may also authorize the acquiring agency to commence its use of 

the land prior to receipt of the Attorney General’s approval. Such a 

provision is not an exemption from the basic requirement of the statute but 

merely a deviation from the otherwise applicable time sequence. 6 Op. Off. 

Legal Counsel 431 (1982).

b. Title Evidence The traditional form of evidence upon which title opinions are based is the 

“abstract of title.” This is a rather cumbersome document which 

summarizes each transaction and occurrence over a given time period 

which may affect title to the property. At one time, real estate lawyers 

spent much of their lives squirreled away in the local registry of deeds, 

charged with the boring task of making title searches. In the early decades 

of the twentieth century, free enterprise came to the rescue of those poor, 

lost lawyers in the form of title companies. Title companies employ 

professional abstracters to prepare the abstract, on the basis of which the 

company issues a “certificate of title” certifying that title is free and clear 

except as shown on the certificate. Another development has been the 

growth of title insurance. This is exactly what it sounds like—a policy 

issued by an insurance company insuring against title defects.

In 1930, Congress amended the statute that is now 40 U.S.C. § 3111 to 

authorize the Attorney General to accept certificates of title as satisfactory 

title evidence.37 The statute was amended again in 1940 to permit 

acceptance of any other evidence which the Attorney General deems 

satisfactory.38 When the statute was revised in 1970,39 the Justice 

Department reported that more than 93 percent of titles it approved were 

based on title certificates or title insurance. S. Rep. No. 91-1111, at 5 

(1970). Thus, although the abstract of title is still the document from which 

other forms of title evidence spring, the typical government attorney these 

37 Act of June 28, 1930, ch. 710, 46 Stat. 828.

38 Act of Oct. 9, 1940, ch. 793, 54 Stat. 1083, 1084.

39 Pub. L. No. 91-393, § 1, 84 Stat. 835 (Sept. 1, 1970).
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days seldom sees one.40 The point to note is that older cases, to the extent 

they mention only title abstracts, should now be read to include other 

forms of title evidence that the Attorney General deems acceptable.

Appropriations are available for other forms of title evidence to the same 

extent as for title abstracts. A-39589, Jan. 29, 1932; A-39589, Dec. 30, 1931.41 

See also 14 Comp. Gen. 318 (1934).

c. Title Evidence Expenses (1) Purchase

Section 3111(c) of title 40, United States Code, provides:

“Except where otherwise authorized by law or provided by 

contract, the expenses of procuring certificates of title or 

other evidences of title as the Attorney General may require 

may be paid out of the appropriations for the acquisition of 

land or out of the appropriations made for the contingencies 

of the acquiring department or agency of the Government.”

Actually, this provision reflects what the decisions have held for 150 years: 

expenses of procuring title evidence incident to the purchase of real 

property are chargeable to the appropriation from which the purchase 

price is to be paid.

When the predecessor of 40 U.S.C. § 3111 was originally enacted in 1841,42

it contained no mention of the use of land acquisition funds. It contained 

only the reference to “contingency appropriations,” a type of appropriation 

common at the time. Nevertheless, the Comptroller of the Treasury held 

40 The Justice Department has published a booklet entitled Title Standards 2001: A Guide 

for the Preparation of Title Evidence in Land Acquisitions by the United States 

(Dec. 29, 2000), which is intended to apply both to the Justice Department and to agencies 

which have been delegated title approval responsibility. Section 5 of this guide presents and 

discusses the title insurance policy adopted in 1991 by the Justice Department and the 

American Land Title Association. A copy of this guide can be found online at 

www.usdoj.gov/enrd/Legal_Topics/Legal_Docs_Title_Standards.html (last visited 

Mar. 25, 2008).

41 As noted earlier in section B.4.a of this chapter, this decision has been repudiated to the 

extent it found 40 U.S.C. § 3111 not applicable. However, it remains valid for the point cited 

in the text. 

42 Joint Resolution No. 6, 5 Stat. 468 (Sept. 11, 1841).
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that the cost of procuring title evidence incident to purchase was 

chargeable to land acquisition appropriations, and commented that this 

had been “the established practice for many years—probably over fifty.” 

3 Comp. Dec. 216, 217 (1896).

The Comptroller went on to explain the statutory reference to contingency 

appropriations. The 1841 enactment, the first general requirement of its 

type, directed the Attorney General to examine the titles not only to land to 

be purchased in the future, but also to land which had already been 

purchased. With respect to previously purchased land, the purchase 

appropriations for the most part would have already lapsed. Thus, the 

reference to contingency appropriations was intended to provide a source 

of funds for title expenses relating to previously purchased land for which 

no other appropriations were currently available. 3 Comp. Dec. at 217.

The reference in 40 U.S.C. § 3111 to land acquisition appropriations was 

added in 1940.43 By then, the rule of 3 Comp. Dec. 216 had become 

established beyond dispute.44 Thus, the 1940 amendment formalized the 

existing case law, and the reference to contingency appropriations should 

be viewed as obsolete. There has been little need to discuss the rule since 

1940 because, in addition to the decisions, it now has a clear statutory 

basis. See 21 Comp. Gen. 744 (1942); B-142862, June 21, 1960. The rule 

applies equally in situations where 40 U.S.C. § 3111 does not apply. 

25 Comp. Dec. 195 (1918).

Land acquisition appropriations are available exclusively. General 

operating appropriations may not be used. A-33604, Oct. 11, 1930, aff’d on 

reconsideration, A-33604, Nov. 14, 1930.

Several of the early decisions mention a statute enacted in 1889 which 

required the seller to furnish title evidence, without expense to the 

government, if the land was to be used as the site for a public building. 

E.g., 8 Comp. Dec. 212 (1901). It was carried for many years as part of 

40 U.S.C. § 256. It was repealed in 1961. Pub. L. No. 87-277, 75 Stat. 577 

(Sept. 22, 1961).

43 Act of Oct. 9, 1940, ch. 793, 54 Stat. 1083, 1084.

44 Some of the cases are 8 Comp. Gen. 308 (1928); 3 Comp. Gen. 569 (1924); 9 Comp. Dec. 569 

(1903); A-97769, Sept. 20, 1938; A-47693, Mar. 31, 1933; A-39589, Dec. 30, 1931; A-26824, 

Apr. 25, 1929. 
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(2) Donation

Persons who donate land to the United States are often unwilling to bear 

the expense of furnishing proof of their title. If the receiving agency has an 

appropriation available for the purchase of land for the same purpose as 

that for which the donation is being made, the cost of title evidence is 

chargeable to that appropriation. A-97769, Sept. 20, 1938; A-47693, Mar. 31, 

1933; A-26824, Apr. 25, 1929. If the agency has no such appropriation 

available, the cost of title evidence may be charged to the current Salaries 

and Expenses appropriation. A-47693, Mar. 31, 1933.

We noted previously in our discussion of 41 U.S.C. § 14 that an agency with 

authority to accept donations of both land and money may use donated 

funds to purchase land if the funds were donated for the general purpose 

for which the land is desired. 2 Comp. Gen. 198 (1922). As a logical 

extension of this principle, the funds are also available for the procurement 

of necessary title evidence with respect to donated land. A-26824, Apr. 25, 

1929.

(3) Condemnation

An early line of GAO decisions addressed the use of Justice Department 

appropriations to pay the costs of condemnation proceedings. Although 

the decisions have never been overruled or modified, legislative 

developments have rendered them largely obsolete. Those early GAO 

decisions held that the cost of obtaining title evidence for use in 

condemnation proceedings is chargeable to appropriations of the 

Department of Justice. E.g., 8 Comp. Gen. 308 (1928).45 In fact, almost 

every decision discussing title evidence incident to purchase points out 

that the rule for purchase does not apply in condemnation situations. 

When those decisions were rendered, the holding was viewed simply as an 

application of the general proposition that the Justice Department receives 

appropriations to conduct its litigation, and expenses necessarily incurred 

incident to that litigation are chargeable to those appropriations.

There were exceptions even under the early decisions. Thus, land 

acquisition appropriations of the acquiring agency were held available for 

procuring title evidence incident to condemnation proceedings where the 

45 See also 9 Comp. Dec. 569 (1903); 3 Comp. Dec. 216 (1896); B-142862, June 21, 1960; 

B-98346, Oct. 9, 1950; A-47693, Mar. 31, 1933; A-39589, Dec. 30, 1931.
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governing legislation authorized the handling of condemnation proceedings 

jointly by the Justice Department and the acquiring agency (21 Comp. 

Gen. 744 (1942)); where 40 U.S.C. § 3111 was not applicable (25 Comp. 

Dec. 195 (1918)); where the title evidence was to be used “primarily or in 

the first instance” to attempt to negotiate a settlement without proceeding 

to judgment (22 Comp. Gen. 20 (1942)); and where the land acquisition 

appropriation was expressly available for expenses incidental to the 

acquisition (see B-55181, Feb. 15, 1946). Justice Department 

appropriations were also held unavailable where the title evidence was 

needed for matters subsequent to the final judgment of condemnation. 

23 Comp. Dec. 53 (1916).

The provision that is now 40 U.S.C. § 3111(c), quoted above in connection 

with purchase, was traditionally viewed as applicable to purchase and not 

to condemnation, both before and after the 1940 amendment which added 

the reference to land acquisition funds, notwithstanding that its language is 

broad enough to encompass condemnation. 21 Comp. Gen. 744, 748 (1942); 

23 Comp. Dec. 53, 56 (1916). Thus, while there was an apparent willingness 

to find exceptions at the drop of a hat, the “general rule” remained that title 

evidence for use in condemnation proceedings was an expense of litigation 

chargeable to Justice Department funds.

Our research has disclosed no mention of this issue after 1960. However, a 

subsequent legislative development appears to have changed things. 

Earlier in this chapter, in section B.2, we reviewed federal land acquisition 

policy under the Uniform Relocation Assistance and Real Property 

Acquisition Policies Act of 1970, 42 U.S.C. §§ 4651–4655. Under 42 U.S.C. 

§ 4651(1), it is now the established federal policy that agencies are to make 

every reasonable effort to acquire real property by negotiation and 

purchase before resorting to condemnation.

When an agency is budgeting for its land acquisition needs, it must 

generally do so on the assumption that purchase negotiations will succeed. 

In other words, it must be prepared to meet the expenses it will have to 

bear incident to purchase. One of these, as we have seen, is the cost of 

obtaining title evidence. In the typical situation where an agency resorts to 

condemnation because purchase negotiations did not succeed, it may be 

said that Congress has provided for title evidence expenses to be borne by 

the agency’s land acquisition funds. In this situation, shifting the expense 

to the Justice Department could be viewed as augmenting the acquiring 

agency’s appropriation.
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With no decisions for guidance, it is impossible to define with any degree of 

certainty those situations in which the expenses might still be a proper 

charge to Justice Department appropriations. Nevertheless, the policy of 

the Uniform Relocation Act has largely eliminated any basis for 

distinguishing between purchase and condemnation on this particular 

issue, and it seems safe to conclude that, at least with respect to 

acquisitions subject to the policy guidance of 42 U.S.C. § 4651, what was 

once the rule is now the exception.

5. Methods of Acquisition

a. Purchase As we have seen, voluntary negotiation and purchase is the preferred 

method of federal land acquisition.46 To do this, an agency needs statutory 

authority (41 U.S.C. § 14), an available appropriation, and title approval 

(40 U.S.C. § 3111). The transaction itself follows the same steps as one 

between private parties—a Purchase-and-Sale Agreement followed by a 

closing at which the deed is delivered.

The Purchase-and-Sale Agreement, although certainly a contract, is not 

governed by the Contract Disputes Act because the Contract Disputes Act 

does not apply to “the procurement of . . . real property in being.” 41 U.S.C. 

§ 602(a)(1). This exemption does not extend to newly created lease 

agreements, which remain subject to the Contract Disputes Act. Forman v. 

United States, 767 F.2d 875 (Fed. Cir. 1985); Industry Associates, Inc. v. 

United States Postal Service, 133 F. Supp. 2d 194 (E.D.N.Y. 2001).

No law prohibits the government from purchasing property encumbered by 

liens. 12 Comp. Dec. 691, 697 (1906); 10 Op. Att’y Gen. 353 (1862). 

However, at or before closing, the liens must either be fully satisfied or 

“adequate provision should be made therefor.” Department of Justice, 

Regulations of the Attorney General Promulgated in Accordance With the 

Provisions of Public Law 91-393, § 6(a) (1970). One way to “adequately 

provide” is to withhold an appropriate amount from the purchase price. 

10 Op. Att’y Gen. at 354–55. 

46 For step-by-step procedural guidance and an appendix of forms, see Land [now 

Environment] and Natural Resources Division, U.S. Department of Justice, A Procedural 

Guide for the Acquisition of Real Property by Government Agencies (1972).
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A question applicable to government acquisitions as well as private 

transactions is who bears the risk of loss if the property is damaged or 

destroyed between the time the Purchase-and-Sale Agreement is signed 

and the deed delivered, where the loss or damage is not the fault of either 

party. This can result from such things as fire, soil erosion, or various 

forms of natural disaster. It is impossible to give a simple answer because 

the government’s rights are determined by the law of the state in which the 

property is located. See, e.g., Preseault v. Interstate Commerce 

Commission, 494 U.S. 1, 20 (1990) (O’Connor, J., concurring); Foster v. 

United States, 607 F.2d 943, 948 (Ct. Cl. 1979); United States v. Fallbrook 

Public Utility District, 165 F. Supp. 806, 822 (S.D. Cal. 1958).

Several states have adopted the Uniform Vendor and Purchaser Risk Act, 

under which the party in possession bears the risk of loss, if title has not 

yet passed from the seller to the buyer. E.g., Acree v. Hanover Insurance 

Co., 561 F.2d 216, 219 (10thCir. 1977) (Oklahoma); Long v. Keller, 163 Cal. 

Rptr. 532 (Cal. Ct. App. 1980) (California). In states which still apply the 

common law, the majority rule places the risk of loss on the purchaser on 

the theory that “equitable title” passes when the contract of sale is 

executed. E.g., Zitzelberger v. Salvatore, 458 A.2d 1021 (Pa. Super. Ct. 

1983) (Pennsylvania); Utah State Medical Ass’n v. Utah State Employees 

Credit Union, 655 P.2d 643 (Utah S.Ct. 1982) (Utah); Ridenour v. France, 

442 N.E.2d 716 (Ind. App. 1982) (Indiana). Other states place the risk on 

the seller. E.g., Laurin v. DeCarolis Construction Co., 363 N.E.2d 675 

(Mass. 1977) (Massachusetts). In one GAO decision, the government had 

entered into a contract to acquire an easement, in a state which followed 

the majority rule, when erosion caused some of the land to cave into a river. 

Since the risk of loss had passed to the government, the government was 

liable under the contract. B-148823, July 24, 1962. In any jurisdiction, the 

parties can control the issue by specifically addressing it in the contract of 

sale.

Once the deed is recorded and legal title passes to the United States, the 

government owns the property and must bear any risk of loss even though 

it may not yet have taken possession or paid the purchase price. 23 Comp. 

Gen. 323 (1943).

The same risk-of-loss rules apply where the government is the seller. 

37 Comp. Gen. 700 (1958); 36 Comp. Gen. 90 (1956); B-148823, July 24, 1962; 

B-137673, Oct. 31, 1958.
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It is presumed that the consideration specified in the deed is the total 

agreed-upon purchase price. However, this presumption can be overcome 

by “clear and convincing” evidence to the contrary, which may entitle the 

seller to compensation greater than that specified in the deed alone. 

7 Comp. Gen. 107 (1927). See also 4 Comp. Gen. 21 (1924).

b. Involuntary Acquisition (1) Overview

We saw earlier in this chapter that the power of eminent domain is inherent 

in the United States. It has been termed “essential to a sovereign 

government.” United States v. Carmack, 329 U.S. 230, 236 (1946). See also 

Albert Hanson Lumber Co. v. United States, 261 U.S. 581, 587 (1923) (the 

power of eminent domain “is an attribute of sovereignty”). The reason 

should be obvious. If the power did not exist, private citizens could block 

urgent and necessary federal projects by simply refusing to sell. Kohl v. 

United States, 91 U.S. 367, 371 (1875); Norwood v. Horney, 853 N.E.2d 

1115, 1129–30 (Ohio 2006).

The power of eminent domain is vested in the legislative branch. Congress 

may exercise it directly, or may delegate it to other federal entities to be 

exercised in any manner that does not violate the Constitution. E.g., 

2,953.15 Acres of Land v. United States, 350 F.2d 356 (5th Cir. 1965).

A federal entity exercises the delegated power of eminent domain by what 

is called “condemnation.” There are two types of condemnation, direct and 

inverse. In a direct condemnation the United States brings a lawsuit, 

resulting in transfer to the United States of title to the property and in 

payment of just compensation to the owner. United States v. Clarke,

445 U.S. 253, 255 (1980). Direct condemnation is accomplished either 

through a “complaint only” filing in a court or a “declaration of taking” in a 

court, both discussed below in more detail. In an inverse condemnation, 

the property owner brings a lawsuit, asserting that some action by the 

government has sufficiently infringed upon a private property right so as to 

create a right to “just compensation.” See, e.g., First English Evangelical 

Lutheran Church of Glendale v. Los Angeles County, 482 U.S. 304 (1987); 

Pierce v. Northeast Lake Washington Sewer and Water District, 870 P.2d 

305 (Wash. 1994). It differs from direct condemnation in that the 

government did not intend to take the property. The concepts and case law 

for both types of condemnation are discussed below in greater detail. 

Whichever form is used, condemnation always involves a court proceeding. 

There is no such thing as administrative condemnation.
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In all condemnation actions, either direct or inverse, cost limitations in the 

authorizing legislation or appropriation do not affect either the authority to 

condemn or the judicial determination of just compensation. Hanson 

Lumber, 261 U.S. at 586–87; Shoemaker v. United States, 147 U.S. 282, 302 

(1893); United States v. Certain Real Estate Lying on the South Side of 

Broad Street, 217 F.2d 920, 925 (6th Cir. 1954). 

If land taken by eminent domain is no longer needed, the former owner 

stands in the same position as any other member of the public. There is no 

automatic right of repurchase. B-165511, Mar. 21, 1978. Of course, 

Congress can always provide such a right in a particular context. Also, the 

deed conveying the property to the government may specify a right of 

repurchase. Id.

(2) Legislative taking

When Congress exercises the power of eminent domain directly, it is called 

a “legislative taking.” Congress can accomplish legislative taking simply by 

enacting a statute which declares that title to the property will vest in the 

United States as of a specified date, usually the date of enactment. Kirby 

Forest Industries v. United States, 467 U.S. 1, 5 (1984); Paulson v. City of 

San Diego, 475 F.3d 1047, 1048 (9th Cir. 2007). An example is the legislation 

establishing the Redwood National Park, 16 U.S.C. §§ 79c, 79c-1. Another 

example is the 1988 legislation which expanded the Manassas National 

Battlefield Park, 16 U.S.C. § 429b(b). See also Preservation of Mt. Soledad 

Veterans Memorial, Pub. L. No. 109-272, 120 Stat. 770 (Aug. 14, 2006) 

(transferred title of the Memorial from San Diego, California, to the United 

States).

In a legislative taking, since the actual taking is accomplished by statute, 

the only thing for the court to do is determine the amount of compensation. 

Court action remains necessary even in a legislative taking because, in any 

Fifth Amendment taking situation, the determination of just compensation 

is a judicial function. Monongahela Navigation Co. v. United States,

148 U.S. 312, 327 (1893); 59 Comp. Gen. 380 (1980).

The legislative taking device is infrequently used. With respect to national 

parks, the Senate Committee on Interior and Insular Affairs has stated a 

policy that “legislative taking is an extraordinary measure which should be 

invoked only in those instances in which the qualities which render an area 

suitable for national park status are imminently threatened with 
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destruction.” S. Rep. No. 93-875, at 5 (1974), quoted in B-125035-O.M., 

Apr. 21, 1976, at 2.

This classic use of the term “legislative taking” involves the actual 

acquisition of title by the United States. Courts have begun to use the term 

in a somewhat broader sense, to describe situations in which a statute, by 

its very enactment, deprives a private party of some lesser interest. An 

example is Whitney Benefits, Inc. v. United States, 926 F.2d 1169 (Fed. 

Cir.), cert. denied, 502 U.S. 952 (1991), holding that the enactment of the 

Surface Mining Control and Reclamation Act of 1977, by prohibiting certain 

surface mining, effectively “took” the plaintiff’s coal mining rights. When 

the government activity does not constitute a physical taking of property 

but instead limits the use a property owner may make of the property, the 

basic analytical tool for determining whether a taking has occurred is a 

three-part test focusing on:

• the character of the governmental action,

• the economic impact on the claimant, and

• the extent to which the governmental action has interfered with 

distinct investment-based expectations.

See Lingle v. Chevron U.S.A., Inc., 544 U.S. 528, 538–40 (2005); TahoeSierra Preservation Council, Inc. v. Tahoe Regional Planning Agency, 

535 U.S. 302 (2002); Penn Central Transportation Co. v. City of New York, 

438 U.S. 104 (1978).

(3) Sources of authority

Executive branch agencies may condemn property only if they have 

statutory authority to do so. 41 U.S.C. § 14. A question that was once open 

to some debate was whether an executive agency’s statutory authority to 

acquire land by purchase also granted the agency power to condemn 

property, or whether the authorizing statute needed to specifically grant 

authority to condemn. See, e.g., Kohl v. United States, 91 U.S. 367, 374 

(1875). To remove any doubt, Congress enacted a statute in 1888,47

sometimes called the General Condemnation Act of 1888 and now found at 

47 Act of August 1, 1888, ch. 728, § 1, 25 Stat. 357.
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40 U.S.C. § 3113,48 which authorizes any federal agency with authority to 

purchase land to use condemnation also. It provides:

“An officer of the Federal Government authorized to acquire 

real estate for the erection of a public building or for other 

public uses may acquire the real estate for the Government 

by condemnation, under judicial process, when the officer 

believes that it is necessary or advantageous to the 

Government to do so . . . .”

Note that 40 U.S.C. § 3113 is not an independent grant of land acquisition 

authority. That must exist elsewhere. If an agency has statutory authority 

to purchase land, 40 U.S.C. § 3113 supplements it and permits the agency to 

use condemnation. United States v. Carmack, 329 U.S. 230, 235 (1946); 

Albert Hanson Lumber Co. v. United States, 261 U.S. 581, 587 (1923). The 

constitutionality of 40 U.S.C. § 3113 has long been settled. Chappell v. 

United States, 160 U.S. 499 (1896).

The significance of 40 U.S.C. § 3113 is that it makes no difference whether 

the legislation authorizing a particular acquisition says “purchase or 

condemnation” or merely “purchase” or “acquire.” If the authorizing 

legislation does not specify condemnation, the authority exists anyway by 

virtue of 40 U.S.C. § 3113. Of course, Congress is always free to limit an 

acquisition statute to voluntary purchase, in which event 40 U.S.C. § 3113 

would be subordinated. United States v. 16.92 Acres of Land, 670 F.2d 

1369, 1371–72 (7th Cir. 1982).

Some agencies have their own condemnation authority. Examples are 

10 U.S.C. § 2663 (military departments), 33 U.S.C. §§ 591–594 (Secretary of 

the Army for river and harbor improvements), and 43 U.S.C. § 421 

(Secretary of the Interior under the Reclamation Act of 1902). Although 

there is little case law, these statutes stand side-by-side with 40 U.S.C. 

§ 3113. Hence, an agency with overlapping statutes can elect which one to 

proceed under in a given case. See Hanson Lumber, 261 U.S. at 585–86; In 

re Military Training Camp in Prince George County, Virginia, 260 F. 986, 

990–91 (E.D. Va. 1919); Chappell v. United States, 81 F. 764, 766 (4th Cir. 

1897); B-98346, Oct. 9, 1950. (Hanson and B-98346 involve the river and 

48 Formerly 40 U.S.C. § 257.
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harbor legislation; Chappell and Training Camp involve the predecessor of 

what is now 10 U.S.C. § 2663.)

In sum, every federal agency which is authorized to acquire real property is 

authorized to resort to condemnation. The authority may be in the form of 

an agency-specific or program-specific grant of condemnation authority, or 

it may be in the form of purchase authority, with the condemnation 

authority derived from 40 U.S.C. § 3113.

(4) “Complaint only” condemnation

The first way a federal agency can condemn property directly is by filing a 

complaint initiating a court action. This is sometimes called a “complaint 

only” or “straight” condemnation. A complaint only condemnation is 

different from a Declaration of Taking Act proceeding, described in the 

next section, in several essential respects: there is no deposit of funds with 

the court to be used for compensation, no immediate vesting of title, and no 

irrevocable commitment on the part of the United States to pay the award.

The agency initiates a complaint only condemnation by filing a complaint in 

the United States district court for the district where the land is located. 

28 U.S.C. §§ 1358, 1403. Procedures are contained in Rule 71A of the 

Federal Rules of Civil Procedure,49 and the United States is the plaintiff. 

The main purpose of the proceeding is to determine the amount the 

government will have to pay if it chooses to acquire the property. The 

government may abandon the proceeding, and is under no obligation to 

take the land or pay the award. The award amounts to an offer which the 

government may accept by tendering payment. Of course, title does not 

pass unless and until the compensation is paid. The proceeding also gives 

the landowner the opportunity to contest the taking. Once the award is 

made, the decision of whether or not to consummate the condemnation is 

solely in the government’s hands.50

49 The Federal Rules of Civil Procedure are available at

www.judiciary.house.gov/media/pdfs/printers/109th/civil2005.pdf (last visited Mar. 25, 2008).

50 The summary in the text has been distilled from a number of cases: Kirby Forest 

Industries, Inc. v. United States, 467 U.S. 1, 3–5 (1984); Danforth v. United States, 308 U.S. 

271 (1939); Barnidge v. United States, 101 F.2d 295 (8th Cir. 1939); United States v. 

6,667 Acres of Land, 142 F. Supp. 198 (E.D. S.C. 1956); United States v. One Parcel of Land,

131 F. Supp. 443 (D.D.C. 1955); United States v. Certain Parcel of Land, 51 F. Supp. 726 

(E.D. N.Y. 1943); United States v. Certain Lands, 46 F. Supp. 386 (S.D. N.Y. 1942). 
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If the government abandons the proceeding or chooses not to consummate 

the condemnation, it must nevertheless compensate the landowner for any 

public use made of the property. E.g., United States v. 14,770.65 Acres of 

Land, 616 F. Supp. 1235, 1251 (D. S.C. 1985).

It has been held that, in a complaint only proceeding under 40 U.S.C. 

§ 3113, no officer of the United States has authority to consent to the entry 

of a money judgment against the United States, and a judgment purporting 

to obligate the government is “void and unenforceable.” Moody v. Wickard,

136 F.2d 801, 803 (D.C. Cir.), cert. denied, 220 U.S. 775 (1943). This follows 

from principles of sovereign immunity and the requirements of the 

appropriations clause. Thus, under section 3113— 

“an award in condemnation is [merely] an offer subject to 

acceptance by the [United States]. The judgment entered is 

conditional only. The Government gets no title until 

payment, . . . and if the award is for more than it is prepared 

to pay, the proceeding may be abandoned at any time before 

payment and transfer of title.” 

Id. (citations omitted).

(5) Declaration of Taking Act

The Declaration of Taking Act, enacted in 1931 and found at 40 U.S.C. 

§§ 3114–3115,51 provides a procedure under which federal agencies may 

condemn and get immediate title to property. The proceeding begins in a 

manner identical to that for a “complaint only” taking described in the 

previous section—that is, with the government’s filing of a complaint in the 

United States district court for the district in which the land is located. To 

initiate a Declaration of Taking Act condemnation, the government files 

with the court a “declaration of taking” in addition to the original 

complaint. The “declaration of taking” document may be filed 

simultaneously with the original complaint, or the government may file 

such a declaration at any time before judgment. The contents of the 

declaration are set out in 40 U.S.C. § 3114(a). Along with the declaration, 

the acquiring agency must deposit its estimated just compensation with the 

51 Formerly 40 U.S.C. §§ 258a–258e. The legislation was proposed by the Attorney General in 

a December 1930 letter, quoted in full in United States v. Parcel of Land, 100 F. Supp. 498, 

502 n.5 (D.D.C. 1951).
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court. Under this statute, once the declaration is filed and the deposit 

made, two things happen: (1) title to the land, or lesser interest if specified 

in the declaration, vests in the United States, that is, the land is “taken”; and 

(2) the right to just compensation vests in the former owner and the United 

States becomes irrevocably committed to payment of the ultimate award. 

Id. § 3114(b).

The court may order the money on deposit paid over immediately or during 

the course of the proceedings, on application of the parties in interest. If 

the ultimate award exceeds the amount of the deposit, the court enters a 

deficiency judgment against the United States. Id. § 3114(c). If the 

ultimate award is less than the amount paid over from the deposit, the 

United States is entitled to recover the overpayment, and a judgment to this 

effect may be entered in the same proceeding. United States v. Miller,

317 U.S. 369, 380–82 (1943); Fed. R. Civ. P. 71A(j).52

Once the declaration has been filed and the court deposit made, the agency 

may proceed to demolish existing structures or erect new ones, provided 

that the Attorney General is of the opinion that title has vested in the 

United States or that all interested parties will be bound by the final 

judgment. 40 U.S.C. § 3115(b). Also, once title passes to the government, 

any rentals accruing from the property are payable to the United States, not 

to the former owner. 15 Comp. Gen. 740 (1936).

The purposes of the Declaration of Taking Act are (1) to permit the 

government to take immediate possession while simultaneously reducing 

costs by avoiding liability for interest on the amount of the deposit, and 

(2) to give the former owner with clear title immediate cash compensation 

to the extent of the government’s estimate. Miller, 317 U.S. at 381.

The Declaration of Taking Act is not an independent grant of acquisition 

authority or condemnation authority. It merely provides procedures which 

may be used where the acquiring agency already has the requisite authority 

to acquire the land in the first place. United States v. Dow, 357 U.S. 17, 23 

(1958); Catlin v. United States, 324 U.S. 229, 240 (1945). The 

constitutionality of the statute has been upheld. E.g., Travis v. United 

States, 287 F.2d 916 (Ct. Cl.), cert. denied, 368 U.S. 824 (1961).

52 The Federal Rules of Civil Procedure are available at

www.judiciary.house.gov/media/pdfs/printers/109th/civil2005.pdf (last visited Mar. 25, 2007).
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Apart from issues of just compensation, judicial review is limited to 

determining that the taking is for a statutorily authorized purpose and that 

it is for a public use. Catlin, 324 U.S. at 240–43; United States v. 

Acquisition of 0.3114 Cuerdas, 753 F. Supp. 50, 53 (D. P.R. 1990). In 

performing this review, the courts will not “second-guess governmental 

agencies on issues of necessity and expediency” but will essentially look 

only at “the bare issue of whether the limits of authority were exceeded.” 

United States v. 162.20 Acres of Land, 639 F.2d 299, 303 (5th Cir.), cert. 

denied, 454 U.S. 828 (1981).

As a general proposition, when several tracts are being acquired in a single 

proceeding, the deposit with the court should be allocated by tract. United 

States v. 355.70 Acres of Land, 327 F.2d 630 (3rd Cir. 1964). The ultimate 

award may exceed the allocation for some parcels but be below it for 

others. As long as the money came from the same appropriation, the 

excess amounts may be used to pay the deficiencies. 19 Comp. Gen. 634 

(1940). See also A-88947, Dec. 7, 1937.

As the preceding paragraph suggests, the treatment of money deposited 

with the court but not needed for whatever reason for its original purpose 

is governed by the usual rules applicable to the obligation and availability 

of appropriated funds. Thus, for example, unused funds could not be 

reobligated after expiration of the original period of availability to acquire a 

tract not encompassed by the original obligation. A-88947, Oct. 2, 1937.

An area which appears not to have been explored to any great extent is the 

relationship of the Declaration of Taking Act to the Antideficiency Act, 

31 U.S.C. § 1341, which prohibits making obligations or expenditures in 

excess or advance of appropriations. An important provision in this 

connection is 40 U.S.C. § 3115(a):

“Action under section 3114 of this title irrevocably 

committing the Federal Government to the payment of the 

ultimate award shall not be taken unless the head of the 

executive department or agency or bureau of the 

Government empowered to acquire the land believes that 

the ultimate award probably will be within any limits 

Congress prescribes on the price to be paid.”

Just months after the Declaration of Taking Act was enacted, an agency 

needed to acquire a piece of property and was authorized to do so by 

purchase or condemnation, subject to a monetary cost ceiling. The agency 
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had obtained three appraisals, all of which were within the cost ceiling. 

The property owner had demanded a price higher than the appraisals and 

in excess of the statutory ceiling. The agency thought the owner’s asking 

price was excessive, and that a condemnation award would be more in line 

with the appraisals and within the appropriation limit. The agency asked 

GAO whether the Antideficiency Act would preclude it from filing a 

declaration of taking, since there was no guarantee that the ultimate court 

award would not exceed the appropriation limit. Since the Declaration of 

Taking Act does not require absolute certainty (indeed it could not since 

the judicial determination is beyond the control of the acquiring agency), 

but merely requires that the agency be of the opinion that the award will 

“probably” be within applicable limits, the Comptroller General advised 

that the agency could proceed with the condemnation. A-37316, July 11, 

1931. Thus, the mere fact that a final award exceeds an applicable limit 

does not produce an Antideficiency Act violation, and to this extent the 

Declaration of Taking Act may be said to authorize the overobligation.53

This, however, should not be taken to mean that an agency can act 

indiscriminately. GAO and the Justice Department have both held that 

40 U.S.C. § 3115(a) prohibits the initiation of Declaration of Taking Act 

proceedings when the agency knows or believes that the award will exceed 

an applicable ceiling.54 57 Comp. Gen. 591 (1978); 2 Op. Off. Legal 

Counsel 96 (1978). While the specific limitation involved in these two cases 

no longer exists, the basic point remains valid. Accordingly, while we have 

found no cases precisely on point, it does not seem unreasonable to 

suggest that compliance with 40 U.S.C. § 3115(a), as was clearly the case in 

the 1931 decision, A-37316, discussed above, is an important factor in 

evaluating compliance with the Antideficiency Act. In other words, 

compliance with section 3115(a) should insulate an agency against 

Antideficiency Act violations, whereas an agency which violates 

section 3115(a) should not be so insulated.

53 There are statements in two later decisions, one flatly stating and the other strongly 

implying, that the Antideficiency Act is violated by an overobligation resulting from a 

Declaration of Taking Act proceeding. 54 Comp. Gen. 799, 801 (1975); 17 Comp. Gen. 664, 

669 (1938). However, neither decision analyzes what the agency did as opposed to what the 

court did, and these statements would therefore seem of limited value as guidance.

54 A monetary ceiling in a statute which specifies only purchase will apply to condemnation 

as well unless the statute provides otherwise. 10 Comp. Gen. 418 (1931); 6 Comp. Gen. 145 

(1926).
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This in turn leads to the question of what constitutes compliance with 

40 U.S.C. § 3115(a), and this too is not always clear. Courts have generally 

been unwilling to impose a good faith test on the amount of the agency’s 

deposit. United States v. Cobb, 328 F.2d 115 (9th Cir. 1964); In re United 

States of America, 257 F.2d 844 (5th Cir.), cert. denied, 358 U.S. 908 (1958). 

One court has gone so far as to suggest that 40 U.S.C. § 3115(a) is satisfied 

by virtue of the acquiring agency’s request to the Attorney General to 

initiate condemnation proceedings. United States v. 40.75 Acres of Land,

76 F. Supp. 239, 245–46 (N.D. Ill. 1948). However, the courts are not 

unanimous. The Second Circuit has assumed that it can act when the 

government’s estimate is made in bad faith. United States v. 44.00 Acres of 

Land, 234 F.2d 410, 415 (2nd Cir.), cert. denied, 352 U.S. 916 (1956). The 

Fourth Circuit was “puzzled” by the actions of an agency in depositing one 

dollar as its estimate of just compensation after offering $180,000 to 

purchase the land, but resolved the case without having to address the 

good faith issue. United States v. 45.33 Acres of Land, 266 F.2d 741 

(4th Cir. 1959).

Condemnation “extinguishes all interests in a piece of property and vests 

absolute title in the government.” Schoellkopf v. United States, 11 Cl. Ct. 

447, 450 (1987) (emphasis omitted). The United States acquires title “free 

from all liens or claims whatsoever.” United States v. 150.29 Acres of 

Land, 135 F.2d 878, 880 (7th Cir. 1943). Previous interests “are obliterated.” 

United States v. 25.936 Acres of Land, 153 F.2d 277, 279 (3rd Cir. 1946). 

This applies alike to outstanding mortgages (Schoellkopf), tax liens 

(150.29 Acres, 25.936 Acres), and judgment liens (10 Comp. Dec. 852 

(1904)). While some jurisdictions may give the creditor a right of action 

against the former property owner (see Schoellkopf, 11 Cl. Ct. at 450), the 

general rule is that the funds deposited with the court take the place of the 

property itself and any liens attach to the funds and not to the property. 

E.g., 150.29 Acres, 135 F.2d at 880; United States v. 17,380 Square Feet of 

Land, 678 F. Supp. 443, 445 (S.D. N.Y. 1988); United States v. Certain 

Property, 225 F. Supp. 498, 504 (S.D. N.Y. 1963). Even where there is no 

declaration of taking, the recommended procedure if outstanding liens are 

known is to either make payment to the registry of the court or require the 

owner to satisfy the liens. 11 Comp. Gen. 498 (A-42973, June 28, 1932).

In view of the necessity for a judicial determination, there should be little, if 

any, occasion to consider administrative claims in connection with a 

Declaration of Taking Act condemnation. An exception occurred in 

B-79080, Oct. 12, 1948, allowing a claim for the value of structures which 

had been removed prior to, and were not included in, the judicial award of 
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just compensation. As a general proposition, however, there is no basis to 

administratively consider a claim which could have been raised before the 

court but was not. E.g., B-107841, Apr. 18, 1952.55

It should be apparent that whether to use a declaration of taking or a 

complaint only procedure depends on two main factors: the urgency of the 

government’s need for possession and the availability of funds. In view of 

the nature of the proceeding, the insufficiency of funds is not a bar to 

initiating a complaint only condemnation. A-5473, Nov. 22, 1924. However, 

the status of funding is not wholly irrelevant. The United States does not 

have an infinite amount of time to respond to the award. In order not to 

erode the concept of just compensation, the United States must act within 

a reasonable time or risk dismissal of the proceeding. Miller v. United 

States, 57 F.2d 424 (D.C. Cir. 1932). In the case cited, the proceeding was 

dismissed where there was no available appropriation at the time of the 

award and, a year later, no appropriation had been made nor was a bill 

pending. 

(6) Inverse condemnation

The term “inverse condemnation” (sometimes called “reverse 

condemnation”) encompasses a variety of situations with only one thing in 

common: they involve government acts, other than an affirmative act of 

eminent domain, which the courts view as takings of some interest in 

private property for which just compensation is payable under the Fifth 

Amendment. The Supreme Court has called it “a shorthand description of 

the manner in which a landowner recovers just compensation for a taking 

of his property when condemnation proceedings have not been instituted.” 

United States v. Clarke, 445 U.S. 253, 257 (1980).

The Court of Federal Claims has used the following definition: “Inverse 

condemnation, therefore, ‘is a legal label for effective expropriation of 

private property, the sovereign acting indirectly without benefit of formal 

eminent domain proceedings in condemnation; thus, sovereign acts 

incompatible with an owner’s present enjoyment of his property rights.’” 

Schultz v. United States, 5 Cl. Ct. 412, 415 (1984), quoting Wilfong v. 

United States, 480 F.2d 1326, 1327 n.2 (Ct. Cl. 1973). The concept is thus an 

55 In that case, the government returned part of the condemned property to the former 

owner who then filed a claim for damages which allegedly occurred during government 

occupancy. 
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umbrella which covers a wide variety of situations ranging from the actual 

physical seizure of property to various lesser forms of “invasion.”

Inverse condemnation claims are based on the Fifth Amendment. Thus, the 

jurisdiction of the courts derives from the Tucker Act, under which claims 

not exceeding $10,000 may be brought either in the district courts or in the 

Court of Federal Claims, while claims in excess of $10,000 must be brought 

in the Court of Federal Claims. 28 U.S.C. §§ 1346(a)(2), 1491.

At one time, it was commonplace to say that the United States may 

exercise its power of eminent domain in either of two ways—by instituting 

formal condemnation proceedings or by simply taking physical possession 

with the owner having a remedy under the Tucker Act. E.g., United 

States v. Dow, 357 U.S. 17, 21 (1958). As the Supreme Court noted in Kirby 

Forest Industries v. United States, 467 U.S. 1, 5 (1984), this is still true in 

the sense that land acquisition by inverse condemnation remains within the 

power of the United States, and the parties end up in the same place either 

way. However, it has been federal policy since enactment of the Uniform 

Relocation Act, 42 U.S.C. §§ 4601–4655, that formal condemnation 

proceedings should be instituted if a voluntary purchase cannot be 

negotiated, and that an agency should never intentionally force a property 

owner to bring an inverse condemnation suit.56 42 U.S.C. § 4651(8). If 

agencies pay due regard to this established policy, inverse condemnation 

cases involving the intentional acquisition of title should largely disappear, 

and situations like the one described in Althaus v. United States, 7 Cl. Ct. 

688 (1985), should no longer happen.57

In view of this, while one still encounters the statement that private 

property can be taken by inverse condemnation, it is more likely to be 

56 An agency might be tempted to do this, for example, if it thought it could get a “free ride” 

by having the judgment paid from the permanent judgment appropriation, 31 U.S.C. § 1304. 

This is the policy basis for the position that certain inverse condemnation judgments should 

be paid from agency land acquisition funds, the same as direct condemnations. Within the 

realm of direct condemnations, the Uniform Relocation Act does not purport to regulate 

whether to use a declaration of taking or complaint only. Kirby, 467 U.S. at 6.

57 In Althaus, a government representative allegedly threatened landowners to get them to 

sell cheaply. There was no recording of what was actually said, but the court summarized 

its findings at 7 Cl. Ct. 691–92. Paraphrasing the court’s language, the agent, in effect, told 

the landowners: “We are going to offer you 30 cents on the dollar and if you don’t take it, 

we’ll condemn the land anyway and you’ll have to hire an expensive lawyer from the big city 

who’ll take a third of what you get, plus you’ll have to pay the court costs.” Somehow, he 

forgot to add “. . . and your little dog, too!” 
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found in the context of some form of regulatory taking. E.g., Palazzolo v. 

Rhode Island, 533 U.S. 606, 615 (2001). In this connection, Executive Order 

No. 12630, Governmental Actions and Interference With Constitutionally 

Protected Property Rights, Mar. 15, 1988, instructs executive agencies to 

carefully evaluate their activities to prevent unnecessary takings. See 

generally GAO, Regulatory Takings: Implementation of Executive Order 

on Government Actions Affecting Private Property Use, GAO-03-1015 

(Washington, D.C.: Sept. 19, 2003).

6. Obligation of 

Appropriations for 

Land Acquisition

a. Voluntary Purchase As we have noted, the typical transaction follows the same path as one 

between private parties. The government enters into a purchase contract 

with the seller, which is later followed by the execution of a deed. When a 

formal purchase contract is used, the obligation occurs when the contract 

is executed. 17 Comp. Gen. 664, 668 (1938); A-76119, July 3, 1936; A-59458, 

Jan. 15, 1935. GAO stated the principle as follows: “Ordinarily, a contract 

for the purchase of real property to supply an existing need executed in 

good faith prior to the expiration date of an appropriation is considered 

sufficient to obligate the appropriation . . .” A-59458, at 2. Since we are 

dealing with a contract, the obligation is recorded under 31 U.S.C. 

§ 1501(a)(1). 

If there is no formal purchase contract, the obligation occurs when the 

deed is executed. 17 Comp. Gen. at 668; 4 Comp. Gen. 371 (1924); A-76119, 

July 3, 1936.

Where a purchase option is involved, and the government accepts the 

option in accordance with its terms and within the option period, assuming 

it has not been sooner revoked, the obligation occurs upon acceptance of 

the option. 17 Comp. Gen. at 668. The reason is that acceptance of the 

option in these circumstances constitutes a contract. 56 Comp. Gen. 351, 

352 (1977); A-76119, July 3, 1936; A-59458, Jan. 15, 1935.

Once the money is properly obligated, as with any other obligation, it 

remains available to liquidate the obligation until the account is closed. 

Thus, in 56 Comp. Gen. 351, GAO advised that there was nothing 

objectionable in a proposal to spread payment out over 4 years, as long as 
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the full amount of the purchase price was obligated in the year the 

purchase agreement was executed.58

b. Condemnation A long line of decisions has established that, in a condemnation case, the 

obligation occurs when the acquiring agency makes the request to the 

Attorney General to institute the condemnation proceedings. E.g.,

34 Comp. Gen. 418, 423 (1955); 34 Comp. Gen. 67, 68 (1954); 17 Comp. 

Gen. 664, 668 (1938); 17 Comp. Gen. 631, 632 (1938); 17 Comp. Gen. 111, 113 

(1937).59 The fact that the Attorney General may not actually initiate the 

proceedings until the following fiscal year is irrelevant. The reason is that 

an appropriation can be obligated only by the agency to which it was made. 

E.g., 4 Comp. Gen. 206, 207 (1924).

Where the land acquisition appropriation is available for “expenses 

incidental” to the acquisition, the obligation for the condemnation award 

may be viewed as also encompassing necessary expenses incident to the 

condemnation proceeding, even where the expense is not actually incurred 

until the following fiscal year. B-55181, Feb. 15, 1946 (title evidence); 

A-88353, June 18, 1938 (technical studies, etc.).

The exercise of a purchase option followed by condemnation complicates 

the picture. This can happen, for example, if the seller’s title turns out to be 

defective and must be cleared through condemnation. In this situation, the 

agency may retain the original obligation, recorded when the purchase 

option was accepted, or it may deobligate and record a new obligation 

when the request for condemnation is made. If the agency retains the 

original obligation and the condemnation award exceeds the available 

appropriation, the excess may be charged to appropriations current when 

the condemnation proceedings were requested. 17 Comp. Gen. 664. This 

decision was “amplified” by 19 Comp. Gen. 944 (1940), to emphasize that 

the administrative choice is not absolute. The agency has the election 

58 At the time of 56 Comp. Gen. 351, obligated balances remained available, in one form or 

another, to liquidate the obligation indefinitely. While the result of that case remains the 

same, an agency should agree to an extended period of time to pay out the balance of the 

purchase price only after considering the provisions of 31 U.S.C. §§ 1551–1555 (account 

closing statute). 

59 A couple of early decisions—1 Comp. Gen. 735 (1922) and 21 Comp. Dec. 870 (1915)—

intimated that the obligation arises when the proceeding is actually commenced. Read in 

the context of later decisions, although not modified expressly by these decisions, these 

cases should not be construed as selecting actual commencement over the request for 

obligation purposes. 
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outlined in 17 Comp. Gen. 664 only where “the condemnation proceedings 

reasonably may be viewed as a continuation of, and incident to, the land 

acquisition transaction initiated by the option acceptance.” 19 Comp. 

Gen. at 947. In making this determination, the lapse of time between option 

acceptance and the condemnation request is relevant but not conclusive.60 

Id. at 947–48. Although there are no decisions, it would seem rather 

obvious that the principle of these two decisions should apply equally 

where the original obligation is a formal purchase contract rather than an 

option acceptance.

The preceding paragraph is best illustrated by a hypothetical example. 

Suppose an agency has $1,000,000 in fiscal year 2007 money to acquire a 

piece of property. Before the end of fiscal year 2007, the agency exercises 

an option or enters into a formal purchase contract for $1,000,000, and 

records the obligation against its fiscal year 2007 appropriation. In fiscal 

year 2008, the agency discovers that the seller’s title is defective and 

promptly asks the Attorney General to initiate condemnation. At this point, 

the agency has a choice. It may retain the original obligation, or it may 

deobligate the fiscal year 2007 money and record a new obligation against 

its fiscal year 2008 land acquisition appropriation (assuming it has one). If 

the agency retains the 2007 obligation and the condemnation award turns 

out to be $1,200,000, it may charge the $200,000 deficiency to its 2008 funds.

The basic rule for obligating in condemnation cases—that the obligation 

occurs when the Attorney General is asked to initiate the proceedings—

clearly applies when a declaration of taking is used. 34 Comp. Gen. at 423; 

34 Comp. Gen. 67. Indeed, the statutory basis for recording obligations in 

this context—31 U.S.C. § 1501(a)(6), liability resulting from pending 

litigation—was intended to address precisely this situation. 35 Comp. 

Gen. 185, 187 (1955). The rule also clearly applies where an agency is 

operating under condemnation authority, such as 33 U.S.C. § 594 (Army 

Corps of Engineers), which authorizes the taking of immediate possession 

60 Unreasonable delay may have other consequences as well. In one case, an agency 

accepted a purchase option and, after a largely unexplained 2-year delay, filed a 

condemnation complaint with declaration of taking. The court threw out the option price 

and permitted the landowner to establish a current (and higher) market value as of the 

declaration of taking. But for this delay, the option price would have been binding. United 

States v. 813.96 Acres of Land, 45 F. Supp. 535 (W.D. Ark. 1942), aff’d, 140 F.2d 941 (8th Cir. 

1944). See also United States v. 2,974.49 Acres of Land, 308 F.2d 641 (4th Cir. 1962); United 

States v. 74.12 Acres of Land, 81 F.R.D. 12 (D. Mass. 1978). 
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contingent upon the making of adequate provision for the payment of just 

compensation. See 1 Comp. Gen. 735 (1922).

In a “complaint only” condemnation, however, the obligational aspects are 

different. To be sure, an agency whose acquisitions are funded by fiscal 

year appropriations may well find itself in a bind. In many cases, the 

agency will already have received appropriations for the acquisition, and 

they may expire if they cannot be obligated until after the award is 

determined.61 E.g., United States v. Oregon Railway & Navigation Co.,

16 F. 524, 530 (C.C.D. Ore. 1883) (recognizing that funds previously 

appropriated for the acquisition in question may already have lapsed). Be 

that as it may, while we have found no decision which directly addresses 

the distinction between declaration of taking and complaint only 

condemnation for obligational purposes, it seems apparent, consistent with 

the theory underlying 31 U.S.C. § 1501(a), that a recordable obligation in a 

complaint only condemnation does not arise until the government tenders 

payment because the United States is not obligated to pay the award.

7. Expenses Incident to 

Real Property 

Acquisition

a. Expenses Incident to Title 

Transfer

Various expenses in addition to the purchase price arise in connection with 

the acquisition of real property. We have previously discussed one in 

section B.4.c of this chapter—the cost of procuring evidence of title. The 

Uniform Relocation Assistance and Real Property Acquisition Policies Act, 

42 U.S.C. §§ 4601–4655, provides for several others. Section 303 of the Act, 

42 U.S.C. § 4653, directs acquiring agencies to reimburse property owners, 

“to the extent the head of such agency deems fair and reasonable,” for 

certain expenses which are “necessarily incurred.”

Subsection (1) of 42 U.S.C. § 4653 provides that one category of expenses is 

“recording fees, transfer taxes, and similar expenses incidental to 

conveying such real property to the United States.” Recording fees had 

61 If, as 42 U.S.C. § 4651 directs, you must try to purchase before you resort to 

condemnation, the money must be available to obligate in case the purchase negotiations 

succeed. Of course, no-year appropriations, or multiple year appropriations with an 

adequate period of availability, will solve the problem.
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long been recognized as an authorized expense, chargeable to the 

appropriation from which the purchase price is paid. A-33604, Oct. 11, 

1930. A state tax on gain from the sale of property, in the nature of a capital 

gains tax, is not reimbursable, either as a “transfer tax” or as a “similar 

expense.” Collins v. United States, 946 F.2d 864 (Fed. Cir. 1991).

Section 4653(2) authorizes “penalty costs for prepayment of any 

preexisting recorded mortgage entered into in good faith encumbering 

such real property.” This assumes an actual prepayment of a mortgage 

which provides a prepayment penalty. It does not apply to expenses 

incident to a “renegotiation” entered into as an alternative to prepaying a 

low-interest loan. Schoellkopf v. United States, 11 Cl. Ct. 447 (1987).

Section 4653(3) authorizes the payment of “the pro rata portion of real 

property taxes paid which are allocable to a period subsequent to the date 

of vesting title in the United States, or the effective date of possession of 

such real property by the United States, whichever is the earlier.”

As a general proposition, land owned by the United States is exempt from 

state and local property taxes. Van Brocklin v. Tennessee, 117 U.S. 151 

(1886). The inclusion of subsection (3) in 42 U.S.C. § 4653 evolved from the 

way most jurisdictions assess property taxes. Commonly, the process 

begins on a specified date, with a lien attaching as of that date, even though 

the precise amount of the assessment has not yet been determined. Thus, 

when the United States purchases real property, there may already be a tax 

lien covering some period beyond the date of title transfer.

In United States v. Alabama, 313 U.S. 274 (1941), the Supreme Court held 

that the lien could not be enforced against the United States, but that it 

nevertheless remained valid. The result was that the United States did not 

have clear title, a problem if the land was later to be sold. The Comptroller 

General held in a series of decisions, both before and after Alabama, that 

(1) the question of whether to discharge a prior lien in order to obtain a 

more marketable title was within the discretion of the acquiring agency, 

and (2) if the agency determined that discharge of the lien by payment of 

the taxes would further the purpose for which the land was acquired, the 

land acquisition appropriation was available. See 19 Comp. Gen. 768 

(1940); B-108401, Apr. 7, 1952; B-46548, Jan. 26, 1945; B-21817, Feb. 12, 

1942.

The governmentwide regulations issued by the Department of 

Transportation instruct agencies, whenever feasible, to pay the items listed 
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in 42 U.S.C. § 4653 directly rather than having the owner pay and then seek 

reimbursement. 49 C.F.R. § 24.106(b).

Taxes attributable to time periods prior to title transfer are the 

responsibility of the former owner, not the government. GAO, however, 

has approved a consensual arrangement whereby, in order to qualify the 

deed for recording, the acquiring agency would pay the outstanding taxes 

directly, deduct the amount paid from the purchase price, and then pay the 

balance to the seller. 10 Comp. Gen. 92 (1930). GAO has also approved 

outright payment of the taxes in a few situations where payment by the 

former owner was not a realistic option. 15 Comp. Gen. 179 (1935) 

(property, mortgaged to government to secure a loan, obtained by 

foreclosure); 6 Comp. Gen. 587 (1927) (property purchased at execution 

sale to satisfy judgment against former owner); B-65104, May 19, 1947 

(donated property).

b. Expenses Incident to 

Litigation

(1) Attorney’s fees

Attorney’s fees and expenses are not viewed as an element of just 

compensation. E.g., Dohany v. Rogers, 281 U.S. 362 (1930). Thus, 

attorney’s fees and expenses are recoverable from the United States in 

condemnation cases only to the extent authorized by statute. 

Compensation is “a matter of legislative grace rather than constitutional 

command.” United States v. Bodcaw Co., 440 U.S. 202, 204 (1979). 

Currently, two statutes authorize fee recovery in condemnation cases in 

specified situations—section 304 of the Uniform Relocation Act, 42 U.S.C. 

§ 4654, and the Equal Access to Justice Act, 28 U.S.C. § 2412(d).

Under 42 U.S.C. § 4654(a), a property owner can recover reasonable costs 

actually incurred in condemnation proceedings, including reasonable 

attorney, appraisal, and engineering fees, in two situations: (1) if the final 

judgment is that the federal agency cannot acquire the real property by 

condemnation (for example, if the court finds the condemnation 

unauthorized), or (2) if the United States abandons the proceedings. 

Awards made under 42 U.S.C. § 4654(a) are paid from the appropriations of 

the acquiring agency. 42 U.S.C. § 4654(b). 

Under 42 U.S.C. § 4654(c), the successful plaintiff in an inverse 

condemnation suit, whether by judgment or settlement, can recover the 

same types of fees and expenses as under section 4654(a). Awards under 

section 4654(c) are generally payable from the permanent judgment 

appropriation (31 U.S.C. § 1304). The standards the Court of Federal 
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Claims applies in making awards under section 4654(c) are discussed in 

Foster v. United States, 3 Cl. Ct. 738 (1983), aff’d, 746 F.2d 1491 (Fed. Cir. 

1984), cert. denied, 471 U.S. 1053 (1985). The court has been critical of 

section 4654(c)’s potential for excessive and disproportionate awards, 

suggesting that another look by Congress might be in order. Cloverport 

Sand & Gravel Co. v. United States, 10 Cl. Ct. 121, 127 (1986).62

Subsections (a) and (c) of 42 U.S.C. § 4654 are distinct attorney fee 

authorizations that do not overlap. Thus, property owners who prevailed 

on an inverse condemnation claim were entitled to attorney fees under 

subsection (c); however, this entitlement did not extend to attorney fees 

they incurred in an earlier unsuccessful attempt to challenge the validity of 

the taking. See Preseault v. United States, 52 Fed. Cl. 667 (2002). Had they 

won their initial challenge, presumably the attorney fees for that action 

would have been recoverable under subsection (a). Another distinction 

between the two subsections is that subsection (a) applies only to real 

property while subsection (c) applies to personal property as well as real 

property. Pete v. United States, 569 F.2d 565 (Ct. Cl. 1978).

Fees and expenses under 42 U.S.C. § 4654 are not available in the case of a 

legislative taking since the taking of the property must have been done by a 

federal agency which is defined in the Uniform Relocation Assistance Act 

as “any department, agency, or instrumentality in the executive branch of 

the Government.” 42 U.S.C. § 4601. See Rocca v. United States, 500 F.2d 

492 (Ct. Cl. 1974); Georgia-Pacific Corp. v. United States, 640 F.2d 328, 367 

(Ct. Cl. 1980); Miller v. United States, 620 F.2d 812, 840–41 (Ct. Cl. 1980); 

Hedstrom Lumber Co. v. United States, 7 Cl. Ct. 16, 34 (1984).63

In direct condemnation cases where the United States gets the land, 

section 4654 does not apply, but fees may be awarded in certain cases 

under the Equal Access to Justice Act, 28 U.S.C. § 2412(d). For a 

landowner to be entitled to fees and expenses under 28 U.S.C. § 2412(d), 

the following tests must be met:

62 Cloverport awarded $9,000 as just compensation and over $76,000 in fees and expenses. 

Foster is another example ($28,000 just compensation, $186,000 fees and expenses).

63 For additional background on this attorney’s fee provision, see James Lockhart, Award of 

Costs and Attorney’s Fees Under § 304 of the Uniform Relocation Assistance and Real 

Property Acquisition Policies Act of 1970 (42 U.S.C.A. § 4654), 172 A.L.R. Fed. 507 (2001).
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• The landowner must meet the eligibility criteria of 28 U.S.C. 

§ 2412(d)(2)(B), one of which is that the individual’s net worth did not 

exceed $2 million at the time the action was filed. See Broaddus v. 

United States Army Corps of Engineers, 380 F.3d 162 (4th Cir. 2004).

• The landowner must be the prevailing party. The term “prevailing 

party” has a special definition for eminent domain cases—the party 

whose valuation testimony in court is closer to the amount of the 

ultimate award. 28 U.S.C. § 2412(d)(2)(H).

• The court must find that the position of the United States was not 

substantially justified. 28 U.S.C. § 2412(d)(1)(A).

• The case must proceed to final judgment. Settlements are expressly 

excluded. 28 U.S.C. § 2412(d)(2)(H).

Awards under 28 U.S.C. § 2412(d) are paid from the appropriations of the 

acquiring agency. 28 U.S.C. § 2412(d)(4).

(2) Litigation expenses

Litigation expenses are those expenses incurred by the United States (as 

opposed to expenses incurred by the opposing party which may be 

assessed against the United States) in preparing and conducting litigation, 

such as expenses of witnesses, court fees, process serving expenses, 

document printing and reproduction expenses, cost of transcripts, etc. The 

general rule is that litigation expenses are chargeable to the agency 

conducting the litigation, which is usually the Department of Justice.

The rule applies equally to litigation relating to real property acquisition, 

such as condemnation proceedings64 and actions to quiet title.65 Where 

litigation expenses are chargeable to Justice Department appropriations 

under this rule, appropriations of the acquiring agency are not available. As 

noted earlier in this chapter, the rule no longer applies to the expenses of 

obtaining title evidence.

64 E.g., 18 Comp. Gen. 592, 593–94 (1939); 12 Comp. Dec. 304 (1905); 10 Comp. Dec. 538 

(1904); 9 Comp. Dec. 793 (1903).

65 32 Comp. Gen. 118 (1952); 18 Comp. Gen. 592 (1939).
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The fees and expenses of expert witnesses in land condemnation cases 

appointed by the court under Rule 706 of the Federal Rules of Evidence,66

are regarded as litigation expenses payable by the Justice Department, or 

by the agency conducting the litigation where Justice is not involved. 

58 Comp. Gen. 259 (1979). See also 59 Comp. Gen. 313 (1980); 1 Op. Off. 

Legal Counsel 175 (1977); 1 Op. Off. Legal Counsel 168 (1977).

Under Rule 71A(h) of the Federal Rules of Civil Procedure,67 the court in a 

condemnation case may direct that the issue of just compensation be 

determined by a panel of land commissioners. If the proceeding is 

recorded, attendance fees of the court reporter (see 28 U.S.C. § 753) are not 

litigation expenses but are payable by the Administrative Office of the 

United States Courts from judiciary appropriations. 55 Comp. Gen. 1172 

(1976). The cost of transcripts furnished to the court or to the land 

commissioners is considered covered by the reporter’s salary or, for 

contract reporters, is determined under the provisions of the governing 

contract. Id.

C. Relocation 

Assistance

1. Uniform Relocation 

Act: Introduction and 

Overview

In government usage, the term “relocation assistance” can mean two 

different things—(1) allowances payable to federal employees incident to 

change of duty station, or (2) assistance to persons forced to relocate as a 

result of federal or federally financed programs or projects. Our concern 

here is the second type.

When private property is taken by eminent domain, hardship often follows. 

Neighborhoods may be disassembled; businesses may be forced to close. 

At an absolute minimum, individuals and businesses may be uprooted 

against their will. The “just compensation” mandated by the Fifth 

Amendment often does not and cannot provide adequate redress. For 

66 The Federal Rules of Evidence are available at 

www.judiciary.house.gov/media/pdfs/printers/109th/evid2005.pdf (last visited Mar. 25, 2008). 

67 The Federal Rules of Civil Procedure are available at

www.judiciary.house.gov/media/pdfs/printers/109th/civil2005.pdf (last visited Mar. 25, 2008).
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example, a tenant renting a house or apartment from month to month 

would most likely get nothing except an eviction notice.

While relatively few government agencies conduct or finance programs 

which produce significant displacements, the consequences of these 

activities by those which do are widespread. In fiscal year 1972, for 

example, a GAO study found that programs administered by the Federal 

Highway Administration, the Department of Housing and Urban 

Development, and the Army Corps of Engineers (which together accounted 

for 99 percent of federal and federally funded displacements for that year) 

resulted in the relocation of approximately 119,000 people. GAO, 

Differences in Administration of the Uniform Relocation Assistance and 

Real Property Acquisition Policies Act of 1970, B-148044 (Washington, 

D.C.: June 7, 1973), at 6.

Congress has long recognized that the federal government has a major 

responsibility in the treatment of those displaced by federal programs or 

federal dollars. Prior to 1970, it approached the problem piecemeal by 

including relocation assistance provisions in a number of different program 

statutes. Although this was better than nothing, treatment under the 

various provisions was far from uniform. Uniformity is important because, 

from the perspective of the person or business being uprooted, it makes 

very little difference which federal agency or program is on the 

administering end of the boot.

In early 1971, after a decade of study, Congress enacted an important piece 

of legislation with an awkward but descriptive title: the Uniform 

Relocation Assistance and Real Property Acquisition Policies Act of 1970 

(Uniform Relocation Act or URA), Pub. L. No. 91-646, 84 Stat. 1894 (Jan. 2, 

1971). The law was amended substantially by the Uniform Relocation Act 

Amendments of 1987, Pub. L. No. 100-17, title IV, 101 Stat. 132, 246 (Apr. 2, 

1987), which went into effect in April 1989.

The URA consists of three titles. Title I (42 U.S.C. §§ 4601–4605) is entitled 

“General Provisions.” Section 101, 42 U.S.C. § 4601, defines a number of 

terms used in the act. Several of the more important ones—“displaced 

person,” “comparable replacement dwelling,” “federal financial 

assistance”—will be discussed in detail later. Title III (42 U.S.C. §§ 4651–

4655), consisting primarily of federal real property acquisition policy and 

the authorization for the payment of various expenses, has been covered 

previously in section B.2 of this chapter.
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Title II (42 U.S.C. §§ 4621–4638) is entitled “Uniform Relocation 

Assistance.”68 It starts with section 201, 42 U.S.C. § 4621, which sets forth 

congressional findings and establishes the underlying policy and purpose 

of the legislation. Section 4621(b) provides:

“This [title] establishes a uniform policy for the fair and 

equitable treatment of persons displaced as a direct result of 

programs or projects undertaken by a Federal agency or 

with Federal financial assistance. The primary purpose of 

this [title] is to ensure that such persons shall not suffer 

disproportionate injuries as a result of programs and 

projects designed for the benefit of the public as a whole 

and to minimize the hardship of displacement on such 

persons.”

The stated intent is to provide equal treatment for persons similarly 

situated, while also taking into account their “unique circumstances.” 

42 U.S.C. § 4621(c)(2).

The remainder of Title II consists of the operational provisions, which 

outline the types of assistance authorized. The key “benefit provisions” 

are:

• section 202 (42 U.S.C. § 4622)—moving and related expenses,

• sections 203 and 204 (42 U.S.C. §§ 4623 and 4624)—replacement 

housing for homeowners and tenants, respectively,

• section 205 (42 U.S.C. § 4625)—relocation planning, assistance 

coordination, and advisory services, and

• section 206 (42 U.S.C. § 4626)—housing replacement by federal agency 

as “last resort.”

68 Much of Title II was patterned after the relocation provisions of the Federal-Aid Highway 

Act of 1968, which the URA repealed. See 23 U.S.C. §§ 501–511 (1964; Supp. V 1969). 

Interpretive case law arising during the brief life of these provisions may therefore still be 

useful. Lathan v. Volpe, 455 F.2d 1111, 1123 (9th Cir. 1971). See also Bourne v. Schlesinger,

426 F. Supp. 1025 (E.D. Pa. 1977); 52 Comp. Gen. 300 (1972).
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Section 210, 42 U.S.C. § 4630, extends the provisions of 42 U.S.C. §§ 4622–

4625 (but not 4626) to any nonfederal entity (state, local, private) operating 

with federal financial assistance. Section 216, 42 U.S.C. § 4636, provides 

that Title II payments are not to be considered income for purposes of 

federal income taxation or for determining eligibility for assistance under 

the Social Security Act or any other federal law except low-income housing 

assistance.

The original law focused on displacements resulting from eminent domain 

acquisitions. Experience showed that, if the goal was to help displaced 

individuals, families, and businesses, this was too narrow. The 1987 

amendments broadened the scope to embrace virtually all federal or 

federally assisted acquisitions, as well as certain nonacquisition 

displacements.

A significant weakness of the 1970 law was its failure to provide for 

centralized administration. Initially, the President assigned the role of 

providing some centralized guidance and coordination to the Office of 

Management and Budget, transferring this role to the General Services 

Administration in 1973, subject to OMB’s policy oversight. Nevertheless, 

since no single agency had the legal authority to centrally direct and 

oversee governmentwide relocation procedures, each agency was free to 

develop its own regulations, and the uniformity which the 1970 legislation 

sought was not achieved.69 In 1985, the President assigned lead 

responsibility to the Department of Transportation. However, there was 

still no legal basis for Transportation to regulate the other agencies so, the 

following year, the executive branch turned to a “common rule” (set of 

regulations published verbatim by 17 different agencies in 17 different 

places in the Code of Federal Regulations). 51 Fed. Reg. 7000 (Feb. 27, 

1986). Congress came to the rescue in the 1987 amendments by statutorily 

designating Transportation as “lead agency” (42 U.S.C. § 4601(12)) and by 

enacting a new 42 U.S.C. § 4633 directing Transportation to issue uniform 

implementing regulations. Those regulations are found at 49 C.F.R. part 24. 

Within Transportation, the responsibility is assigned to the Federal 

Highway Administration. 49 C.F.R. § 24.2(a)(16).

69 See GAO, Changes Needed in the Relocation Act to Achieve More Uniform Treatment of 

Persons Displaced by Federal Programs, GGD-78-6 (Washington, D.C.: Mar. 8, 1978); 

Differences in Administration of the Uniform Relocation Assistance and Real Property 

Acquisition Policies Act of 1970, B-148044 (Washington, D.C.: June 7, 1973). 
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2. The Threshold 

Determination: 

Meaning of “Displaced 

Person”

Section 101(6) of the Uniform Relocation Act (URA), 42 U.S.C. § 4601(6), 

defines “displaced person.” This is the threshold test that must be met 

before applying any of the operational provisions. In other words, before 

you can determine whether you are entitled to moving expenses or 

replacement housing benefits, you must first qualify as a displaced person 

under the statutory definition. Of course you must be a “person” before 

you can be a displaced person, so the statute first defines person to mean 

“any individual, partnership, corporation, or association.” 42 U.S.C. 

§ 4601(5).

Section 4601(6) then defines displaced person as “any person who moves 

from real property, or moves his personal property from real property” in 

two types of situations. First is “as a direct result of a written notice of 

intent to acquire or the acquisition of such real property in whole or in part 

for a program or project undertaken by a Federal agency or with Federal 

financial assistance.” The second type of situation is permanent 

displacement of a person who is a residential tenant, operates a small 

business or a farm, or erects and maintains outdoor advertising billboards, 

“as a direct result of rehabilitation, demolition, or such other displacing 

activity as the lead agency may prescribe, under a program or project 

undertaken by a Federal agency or with Federal financial assistance.” The 

original 1970 definition was limited to acquisitions, essentially the first part 

of the current definition. The 1987 amendments added the nonacquisition 

activities.

Note that there are several elements to the definition. First, you must 

either move from real property or move personal property from real 

property. Second, the move must result directly from a written notice of 

intent to acquire, or the actual acquisition of, the real property, or from an 

authorized nonacquisition activity. Third, the displacing activity must be in 

connection with a program or project undertaken, or financially assisted 

by, a federal agency. All of these elements must be present. See also 

49 C.F.R. § 24.2(a)(9).

When the displacing activity is acquisition, this typically will mean the 

acquisition of fee simple title, that is, outright ownership. Routine leasing 

transactions are not included. Thus, where a building is leased to the 

government in an open market transaction without condemnation or the 

threat of condemnation, tenants whose leases are not renewed or whose 

tenancies are terminated by their landlord are not displaced persons for 

purposes of the URA. 54 Comp. Gen. 841 (1975). Restated, an open-market 

lease is not an “acquisition” within the scope of 42 U.S.C. § 4601(6). 
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Similarly, if acquisition generally contemplates transfer of title, then the 

acquisition of easements normally will not produce displaced persons. See, 

e.g., 58 Comp. Gen. 559 (1979).

Although a lease is normally not an acquisition for purposes of the URA, a 

lease-construction transaction may be. The legislative history of the 1970 

enactment makes it clear that persons displaced by government leaseconstruction projects are intended to be covered. H.R. Rep. No. 91-1656, 

at 4-5 (1970).70 The concept is illustrated in 51 Comp. Gen. 660 (1972). The 

General Services Administration had signed an agreement to lease a 

building to be constructed on a tract of land in Alexandria, Virginia. The 

land had been used as a trailer park. Shortly after the agreement was 

signed, the owner of the land notified the tenants to vacate. It was held that 

the transaction amounted to a government lease-construction project for 

URA purposes, and that tenants who vacated after the agreement was 

signed qualified as displaced persons. The decision was discussed and 

explained further in B-173882, June 8, 1972. However, tenants who had 

moved from the trailer park before the agreement was signed could not 

qualify. 54 Comp. Gen. 819 (1975). They were not displaced by a written 

order to vacate,71 nor were they displaced “as a result of the acquisition” of 

the property. URA benefits are not available to “persons who vacate 

property in the mere anticipation or expectation that there may be an 

acquisition by the United States.” Id. at 822.

Section 4601(6) refers to acquisition “in whole or in part.” The court in 

Beaird-Poulan v. Department of Highways, 441 F. Supp. 866 (W.D. La. 

1977), aff’d per curiam, 616 F.2d 255 (5th Cir.), cert. denied, 449 U.S. 971 

(1980), found that this referred to spatial divisions rather than components 

of ownership. The state highway department had taken a portion of a tract 

of land owned by Beaird-Poulan, a chain saw manufacturer. The taking 

severed the property into two roughly equal tracts. Although no part of the 

existing manufacturing facility was located on the lands actually taken, the 

company was able to establish that it had previously made management 

decisions to substantially expand its physical plant due to increased 

70 This is the report of the House Public Works Committee on the bill which became the 

URA. It contains much useful explanatory material and has been cited frequently both by 

GAO and by the courts.

71 Under the 1970 legislation, entitlement to benefits was triggered by actual acquisition or 

by a written order to vacate. The 1987 revision changed “written order to vacate” to “written 

notice of intent to acquire.”
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production needs, but that it was now forced to relocate in order to do so, 

as a result of the taking. In these circumstances, the court held that BeairdPoulan was a displaced person.

Under the statutory definition, when acquisition is the displacing activity, 

displacement must result from either the actual acquisition of the property 

or a written notice of intent to acquire. If displacement occurs as a result 

of a written notice of intent to acquire, failure to ultimately acquire the real 

property will not defeat the entitlement to benefits, as long as the notice 

was generated by a proposed acquisition. See Alexander v. Department of 

Housing & Urban Development, 441 U.S. 39, 59 (1979); H.R. Rep. No. 91-

1656, at 4.72

The acquisition or notice must be for a federal or federally funded program 

or project. In Alexander, the Supreme Court held that, when the 

Department of Housing and Urban Development (HUD) acquires property 

upon default on federally insured loans, tenants displaced by the 

acquisition are not displaced persons within the meaning of 42 U.S.C. 

§ 4601(6). Random default acquisitions are not intended to further a 

federal program or project. Alexander, 441 U.S. at 63 and 65. Similar lower 

court decisions are Caramico v. Secretary of Housing and Urban 

Development, 509 F.2d 694 (2nd Cir. 1974), and Blount v. Harris, 593 F.2d 

336 (8th Cir. 1979). As the Caramico court pointed out, default acquisitions 

represent the failure of the program rather than its desired result. 

Caramico, 509 F.2d at 699. The URA, noted the court, “contemplates 

normal government acquisitions, which are the result of conscious 

decisions to build a highway here or a housing project or hospital there.” 

Id. at 698.

As noted previously, persons who move without a written notice of intent 

to acquire and prior to actual acquisition, based on a mere expectation of 

acquisition, will not qualify as displaced persons. 54 Comp. Gen. 819 

(1975). A case making essentially the same point is Messer v. Virgin 

Islands Urban Renewal Board, 623 F.2d 303 (3rd Cir. 1980). However, there 

are situations in which a move without a written notice and prior to actual 

acquisition will qualify. In a 1975 decision, for example, GAO concluded 

that a person who moves after the government has made a firm purchase 

72 These authorities address the issue in the context of the now obsolete “order to vacate” 

language. There is no reason why the 1987 change to “notice of intent to acquire” should 

produce a different result. 
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offer may be said to have moved “as a result of the acquisition” of the 

property if the acquisition is subsequently completed by purchase or 

condemnation. 55 Comp. Gen. 595 (1975). Once the offer is made, there is 

more of a commitment by the United States to acquire the property. The 

decision pointed out, however, that the mere authorization and 

appropriation of funds for the acquisition is not sufficient “commitment” by 

the United States to justify a move under section 4601(6). Id. at 596–97. 

See also Lowell v. Secretary of Housing and Urban Development,

446 F. Supp. 859 (N.D. Cal. 1977) (agency regulation excluding from 

eligibility persons who moved prior to execution of federal contract or 

federal approval of project budget upheld). The Department of 

Transportation (DOT) regulations recognize the concept of 55 Comp. 

Gen. 595 by including in the definition of displaced person one who moves 

as a direct result of the initiation of negotiations for acquisition of the 

property. 49 C.F.R. § 24.2(a)(9)(i)(A). The regulations generally define 

initiation of negotiations to mean delivery of the agency’s initial written 

offer. 49 C.F.R. § 24.2(a)(15)(i).

The case of Lathan v. Volpe, 455 F.2d 1111 (9th Cir. 1971), illustrates a 

different type of acquisition. DOT had provided by regulation for “hardship 

acquisitions” in highway projects. Under this procedure, once the state had 

selected a corridor, a property owner could request immediate purchase of 

his property by the state upon a showing that undue hardship would result 

from following the standard procedure of deferring acquisition until after 

federal approval of the design. Applying the agency’s regulations, the court 

viewed the hardship sale as an acquisition for purposes of 42 U.S.C. 

§ 4601(6), notwithstanding that the government had not yet committed 

itself to the project.

Under the original 1970 legislation, a long line of cases established that the 

displacement must be by a governmental entity (federal, state, or local); a 

person displaced by a nongovernmental entity (private party) was not a 

displaced person and therefore not entitled to URA benefits, even though 

the program or project was federally funded. E.g., Conway v. Harris,

586 F.2d 1137 (7th Cir. 1978); Moorer v. Department of Housing & Urban 

Development, 561 F.2d 175 (8th Cir. 1977), cert. denied, 436 U.S. 919 (1978). 

The 1987 amendments changed the focus of the inquiry by adding the 

nonacquisition activities and by expanding the definition of displacing 

agency (42 U.S.C. § 4601(11)) to include anyone carrying out a program or 

project with federal financial assistance, regardless of the presence or 

absence of the power of eminent domain. Thus, for acquisition-based 
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displacements, the key question is no longer the identity of the party 

acquiring the property, but whether it received federal financial assistance.

In assessing the continued validity of cases decided under the pre-1987 law, 

it is therefore necessary to apply the revised definitions and the 

appropriate version of the DOT regulations. Conway, for example, had 

found the URA inapplicable to residential tenants displaced from property 

acquired by a private party who intended to rehabilitate the property with 

Department of Housing & Urban Development (HUD) “section 8” financial 

assistance. Under the revised law, the acquisition itself still would not 

qualify as a displacing activity because it was privately funded. However, 

since rehabilitation is one of the authorized nonacquisition activities that 

can trigger entitlement to benefits, the Conway plaintiff would presumably 

now be covered. Other cases in this category include Isham v. Pierce,

694 F.2d 1196 (9th Cir. 1982) (tenant displaced by private owner for 

rehabilitation to be financed by loan from HUD), and Devines v. Maier,

665 F.2d 138 (7th Cir. 1981), cert. denied, 469 U.S. 836 (1984) (tenants 

evicted from housing found to be unfit for human habitation under 

federally assisted housing code enforcement program).

It is significant that the plaintiffs in the three cases cited in the preceding 

paragraph were tenants, not owners. The conference report on the 1987 

amendments stressed that the expanded definitions are not intended to 

confer benefits on an owner who voluntarily sells in a noncoercive sale. In 

contrast, the tenant who is involuntarily evicted as a result of that sale is 

covered. H.R. Conf. Rep. No. 100-27, at 246 (1987).

Two cases which appear to remain valid under the revised analysis are 

Austin v. Andrus, 638 F.2d 113 (9th Cir. 1981), and Parlane Sportswear 

Company, Inc. v. Weinberger, 381 F. Supp. 410 (D. Mass. 1974), aff’d,

513 F.2d 835 (1st Cir.), cert. denied, 423 U.S. 925 (1975). Austin denied the 

claim of members of the Navajo Indian tribe who were forced to relocate 

when the tribe leased to a coal mining company mining rights on a portion 

of the reservation. In the Parlane case, Tufts University owned a building 

in Boston and had leased several floors to a clothing manufacturer. Upon 

expiration of the lease, Tufts evicted its tenant in order to establish a 

Cancer Research Center funded by grants from the then Department of 

Health, Education, and Welfare. The clothing manufacturer was held not 

entitled to URA benefits. Even under the new analysis, there was neither 

an acquisition by anyone nor an authorized nonacquisition activity. As 

another court put it in a somewhat different context, there will always be 

some losses, and the URA is intended as a supplement, not a guarantee. 
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Pietroniro v. Borough of Oceanport, 764 F.2d 976, 980 (3rd Cir.), cert. 

denied, 474 U.S. 1020 (1985).

The Comptroller General considered an unusual variation in B-213033, 

Aug. 7, 1984. A private organization proposed to purchase some land and 

then donate it to the Veterans Administration to be used for the expansion 

of a VA cemetery. The organization would clear the land of all structures 

prior to transfer of title. The question was whether existing property 

owners and tenants would be entitled to claim relocation benefits from the 

VA. Based on the URA’s legislative history and available precedents, GAO 

said yes, concluding that the transaction could be viewed as an acquisition 

of property for a federal program.

Thus far, we have been talking about being displaced from the actual 

property that is being acquired, rehabilitated, etc. The statute recognizes 

situations in which the property from which you move and the property 

which is being acquired or rehabilitated do not have to be the same. Under 

the statutory definition of displaced person, a person can qualify for two of 

the URA benefits—moving expenses and advisory service—if that person 

moves from real property, or moves his personal property from real 

property, as a direct result of the federal or federally funded acquisition of, 

or authorized nonacquisition activity on, some other real property on which 

that person conducts a business or farm operation. 42 U.S.C. 

§ 4601(6)(A)(ii). An example from the 1970 legislative history is “the 

acquisition of right-of-way for a highway improvement in a remote locality 

[which] may include a general store and gas station, but exclude the 

operator’s nearby dwelling or storage facility.” H.R. Rep. No. 91-1656, at 5 

(1970). Another example is Forman’s Dairy Palm Nursery v. Florida 

Department of Transportation, 608 So. 2d 76 (Fla. Dist. Ct. App. 1992) 

(land used by tree nursery reclaimed by owner as result of taking for 

highway construction).

Finally, what about absentee landlords? If the absentee landlord has 

personal property to be moved from the acquired or otherwise affected real 

property, then he would be covered under the plain terms of 42 U.S.C. 

§ 4601(6). However, the statute does not specify how much personal 

property there has to be. Thus, an absentee landlord who had left a garden 

rake on the acquired premises would presumably qualify. This being the 

case, GAO thought it inequitable to deny benefits to an absentee landlord 

who did not have some minimal amount of personal property to move, and 

found in B-148044, Mar. 5, 1975, that the nonresident owner of an 

apartment building could be considered a displaced person even with no 
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personal property located on the acquired real property. A state court 

reached a seemingly opposite conclusion in City of Mishawaka v. Knights 

of Columbus Home Association, 396 N.E.2d 948 (Ind. Ct. App. 1979). DOT 

regulations also seem to contemplate that there be some personal property 

to move for a nonoccupant to qualify as a displaced person. The basic 

definition of displaced person in the regulations covers only those who 

move themselves or those who move personal property from the real 

property. 49 C.F.R. § 24.2(a)(9)(i).

3. Types and Payment of 

Benefits

a. Moving and Related 

Expenses

Section 202 of the Uniform Relocation Act (URA), 42 U.S.C. § 4622, 

authorizes the payment of moving and certain related expenses 

“[w]henever a program or project to be undertaken by a displacing agency 

will result in the displacement of any person.” The types of benefits vary 

according to whether the displacement is residential or commercial.

(1) Residential displacements

A person displaced from a dwelling is entitled to receive “actual reasonable 

expenses” incurred in moving self, family, and personal property. 42 U.S.C. 

§ 4622(a)(1). The types of expenses allowable are further spelled out in 

49 C.F.R. § 24.301. Alternatively, the person may elect to receive a fixed 

“expense and dislocation allowance.” 42 U.S.C. § 4622(b). The 1970 

legislation prescribed the actual amounts payable. The 1987 amendment 

deleted the specific amounts, providing instead for the amount to be 

determined according to a schedule established by the Department of 

Transportation (DOT). Id. DOT regulations provide for the allowance to 

be determined “according to the Fixed Residential Moving Cost Schedule 

approved by the Federal Highway Administration and published in the 

Federal Register on a periodic basis.” 49 C.F.R. § 24.302. The Federal 

Highway Administration derives its schedule from data submitted by the 

various state highway agencies and, as noted, publishes the schedule as a 

Notice in the Federal Register. The Federal Highway Administration also 

publishes the schedule on its Web site at 

www.fhwa.dot.gov/realestate/fixsch96.htm (last visited Mar. 25, 2008). The 

current online version is dated June 15, 2005.
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Neither the statute nor the DOT regulations specifically address persons 

who move themselves rather than hire commercial movers, but there is no 

reason they should be excluded. The self-mover presumably has the same 

election as anyone else.

A person who moves onto the property after its acquisition for a project is 

not eligible for benefits. 49 C.F.R. § 24.2(a)(9)(ii)(B); B-148044, Jan. 7, 1974. 

The reason is that the person cannot be said to have been displaced as the 

result of the acquisition. An agency regulation to this effect was upheld in 

Lewis v. Brinegar, 372 F. Supp. 424 (W.D. Mo. 1974). However, a regulation 

purporting to disqualify persons who began occupancy after the initiation 

of negotiations was invalidated as exceeding statutory authority in 

Tullock v. State Highway Commission, 507 F.2d 712 (8th Cir. 1974).

(2) Commercial displacements

A person displaced from a place of business or farm also has a choice. 

Under 42 U.S.C. § 4622(a), the displaced person can receive moving 

expenses including (1) actual reasonable moving expenses, (2) actual 

direct losses of tangible personal property, (3) actual reasonable expenses 

in searching for a replacement business or farm,73 and (4) actual reasonable 

expenses, not to exceed $10,000, in reestablishing a farm, small business, 

or nonprofit organization. The specific items allowable are spelled out in 

49 C.F.R. §§ 24.301 through 24.305. Payment for losses of personal property 

is authorized even where the property is not relocated or the business is 

discontinued, not to exceed the cost of actual relocation. 42 U.S.C. 

§ 4622(a)(2). As the legislative history points out, there may be situations 

where the property is not suitable at the new location, or where moving it 

would be impractical or uneconomical. H.R. Rep. No. 91-1656, at 6–7 

(1970).

Alternatively, the person may elect to receive a fixed payment under 

42 U.S.C. § 4622(c), determined in accordance with the Department of 

Transportation regulations, of not less than $1,000 nor more than $20,000. 

In order for a business to receive a fixed payment under section 4622(c) of 

the statute, the agency must determine, among other things, that:

73 The regulations limit this item to $2,500. 49 C.F.R. § 24.301(g)(17). There is no 

comparable allowance in any amount for residential displacements. 49 C.F.R. § 24.301(h)(9) 

(expressly excluding expenses of searching for a replacement dwelling). 
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• the business cannot be relocated without a substantial loss of its 

existing patronage;

• the business is not part of a commercial enterprise having at least three 

other entities not being acquired which are under the same ownership 

and engaged in the same or similar business; and

• the business contributed materially to the displaced person’s income 

during the two taxable years prior to displacement.

49 C.F.R. § 24.305(a). The various administrative determinations are 

designed to keep the program from becoming a giveaway, and the courts 

will generally uphold an agency’s decisions under them as long as they are 

not arbitrary or capricious. In Starke v. Secretary of Housing and Urban 

Development, 454 F. Supp. 477 (W.D. Okla. 1977), for example, the court 

upheld the denial of relocation benefits to a lawyer who had moved his 

office to a location only three blocks from his former office and in fact 

closer to the courthouses in which he practiced.

The fixed payment will be equal to the average annual net earnings of the 

business or farm, calculated as prescribed in 49 C.F.R. § 24.305(e), subject 

to the statutory maximum and minimum. For a nonprofit, the payment is 

based on “the average of 2 years annual gross revenues less administrative 

expenses.” 49 C.F.R. § 24.305(d). (The net earnings formula, as with some 

of the administrative determinations, used to be specified in the statute; the 

detail was dropped from the statute in 1987 and is now carried in the 

regulations.)

The rental of real property is included in the definition of “business” in 

42 U.S.C. § 4601(7) and, prior to the 1987 amendments, could qualify for a 

fixed payment under 42 U.S.C. § 4622(c) as long as the required 

determinations could be made. B-148044, Nov. 18, 1975. While the 

amendments did not affect this portion of 42 U.S.C. § 4601(7), they added 

language to 42 U.S.C. § 4622(c) to expressly disqualify persons “whose sole 

business at the displacement dwelling is the rental of such property to 

others.” The disqualification applies only to the fixed payment option and 

does not affect entitlement to actual expenses under 42 U.S.C. § 4622(a).

A displaced owner-occupant of a multifamily dwelling who receives income 

from the dwelling is displaced both from his dwelling and from his place of 

business for purposes of section 4622, and can receive appropriate benefits 
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in both capacities (H.R. Rep. No. 91-1656, at 8), subject to the fixed 

payment disqualification described above if applicable.

We have previously noted that an absentee landlord may be considered a 

displaced person. Naturally, if he does not move, he cannot claim actual 

moving expenses, but he could claim other authorized expenses as and to 

the extent applicable. See B-148044, Mar. 5, 1975. (The landlord in that 

case was the absentee owner of an apartment building and would no longer 

be eligible for the fixed payment option, but the general proposition 

remains valid.)

b. Replacement Housing 

Benefits

In addition to the moving expenses authorized by 42 U.S.C. § 4622, the 

Uniform Relocation Act (URA) authorizes monetary payments to help 

displaced persons obtain adequate replacement housing. These 

replacement housing benefits are contained in 42 U.S.C. §§ 4623 and 4624, 

applicable to homeowners and tenants, respectively. As with the moving 

expense payments, replacement housing benefits are available only to 

those who qualify as displaced persons, and are in addition to any “fair 

market value” payments received under the eminent domain authority.

(1) Homeowners

Under 42 U.S.C. § 4623(a)(1), a person displaced from a dwelling which he 

owned and occupied for at least 180 days prior to the initiation of 

negotiations for acquisition of the property is eligible for a supplemental 

payment of up to $22,500. The payment consists of the following elements:

• The difference, if any, between the acquisition cost (the eminent 

domain “fair market value” payment) and the reasonable cost of a 

comparable replacement dwelling. 42 U.S.C. § 4623(a)(1)(A).

• An “interest differential” if the cost of new financing exceeds the 

interest rate on the homeowner’s existing mortgage. To qualify for this 

payment, there must have been a valid mortgage on the acquired 

property for at least 180 days prior to the initiation of acquisition 

negotiations. 42 U.S.C. § 4623(a)(1)(B). The regulations provide 

guidance on computing the differential. See 49 C.F.R. § 24.401(d) and 

appendix A to 49 C.F.R. part 24, at § 24.401.

• Reasonable expenses for evidence of title, recording fees, and other 

closing costs (but not including prepaid expenses) incident to purchase 

of the replacement dwelling. 42 U.S.C. § 4623(a)(1)(C).
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Where displacement is based on an authorized nonacquisition activity, 

“initiation of negotiations” means the notice to the person that he or she 

will be displaced or, if there is no such notice, the date the person actually 

moves from the property. 49 C.F.R. § 24.2(a)(15)(ii).

In order to qualify for payment under section 4623(a)(1), the displaced 

person must purchase and occupy a replacement dwelling within 1 year 

from the date he received the final payment for acquisition, or the date the 

agency provided referrals to replacement housing, whichever is later. 

42 U.S.C. § 4623(a)(2). The agency can extend the 1-year deadline for good 

cause. Id. Good cause generally means some event beyond the displaced 

person’s control, such as acute or life threatening illness, bad weather 

preventing the completion of construction, or physical modifications 

required for reasonable accommodation of a replacement dwelling. See

49 C.F.R. § 24.401(a)(2), app. A.

Section 4623 is based on the premise that “a displaced homeowner should 

not be left worse off economically than he was before displacement, and 

should be able to relocate in a comparable dwelling which is decent, safe 

and sanitary, and adequate to accommodate him.” H.R. Rep. No. 91-1656, 

at 8 (1970). An acquired dwelling is owned if the displaced person held fee 

title, a life estate, a land contract, a 99-year lease, a lease including 

extension options with at least 50 years to run from the date of acquisition, 

or an interest in a cooperative housing project which includes the right to 

occupy a dwelling. 49 C.F.R. § 24.2(a)(20)(i).

The cost of a comparable replacement dwelling establishes the upper limit 

of the benefit payment. 49 C.F.R. § 24.403(a). See also B-203827-O.M., 

Oct. 8, 1981 (same point under prior version of regulations). To promote 

uniformity, the law defines “comparable replacement dwelling” as a 

dwelling that is—

“(A) decent, safe, and sanitary; (B) adequate in size to 

accommodate the occupants; (C) within the financial means 

of the displaced person; (D) functionally equivalent; (E) in 

an area not subject to unreasonable adverse environmental 

conditions; and (F) in a location generally not less desirable 

than the location of the displaced person’s dwelling with 

respect to public utilities, facilities, services, and the 

displaced person’s place of employment.” 

42 U.S.C. § 4601(10). 
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The “decent, safe, and sanitary” standard is defined in 49 C.F.R. 

§ 24.2(a)(8). Guidance on applying the “functionally equivalent” standard 

may be found in the conference report to the 1987 amendments, which 

added the definition. H.R. Conf. Rep. No. 100-27, at 247–48 (1987).

In order to qualify for the “interest differential,” it is not necessary that the 

displaced person be required to obtain a mortgage on the replacement 

house, only that he in fact do so. In a Louisiana case, a person displaced 

from his dwelling for highway construction received enough from the 

eminent domain payment so that he could have paid cash for his 

replacement house. Instead, he chose to obtain a mortgage on the 

replacement house at an interest rate higher than that on his old mortgage. 

The court found that 42 U.S.C. § 4623 does not restrict eligibility to cases 

where there is not enough cash left over after the taking with which to 

purchase a replacement dwelling. The homeowner in this case was 

therefore entitled to an interest differential payment, subject of course to 

the statutory ceiling. Louisiana Department of Highways v. Coleman,

444 F. Supp. 151 (M.D. La. 1978).

The regulations recognize a “constructive occupancy” concept (49 C.F.R. 

§ 24.403(d)), and the courts have strongly encouraged it. One court has 

gone so far as to suggest that the “fair and equitable treatment mandate” of 

the URA requires application of a constructive occupancy exception in 

appropriate cases. Nagi v. United States, 751 F.2d 826, 830 (6th Cir. 1985). 

An illustrative case is Ledesma v. Urban Renewal Agency, 432 F. Supp. 564 

(S.D. Tex. 1977). The Ledesmas had built a house in their hometown of 

Edinburg, Texas, but Mr. Ledesma could not find sufficient work in 

Edinburg to enable them to pay for the house. They moved to a nearby 

town where Mr. Ledesma found work and rented a house. They always 

intended to return to the Edinburg house as soon as they could afford to do 

so. They retained sole control of the Edinburg house, left their furniture 

and household goods there, and permitted no one else to live or even stay 

briefly in that house. The court found that the Ledesmas owned the house 

for the requisite 180-day period but, due to circumstances beyond their 

control, did not physically occupy it during that period. Under these facts, 

the court found them entitled to a replacement housing payment. The 

constructive occupancy concept is an attempt to “mitigate what might 

possibly be harsh and unfair results if the 180-day requirement were blindly 

or mechanically imposed.” Id. at 567.

In Seeherman v. Lynn, 404 F. Supp. 1318 (M.D. Pa. 1975), the Department 

of Housing and Urban Development had applied a constructive occupancy 
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exception in order to authorize the payment of replacement housing 

benefits to homeowners who did not physically occupy their homes 

immediately prior to acquisition because they had been displaced by a 

flood. The court upheld the refusal to apply the same exception to a 

husband and wife who had been building a house at the time of the flood 

but were not “displaced” from it because they had never occupied it in the 

first place. Id. at 1322.

(2) Tenants and “90-day homeowners”

In enacting the Uniform Relocation Act (URA), Congress recognized that 

the lack of adequate and affordable rental housing for displaced lower 

income individuals and families “presents the most difficult of all 

relocation problems.” H.R. Rep. No. 91-1656, at 12 (1970). These are the 

persons who would generally receive nothing from the eminent domain 

taking. Section 204 of the Act, 42 U.S.C. § 4624, attempts to address this 

problem.

Under 42 U.S.C. § 4624, benefits are payable to a displaced person who 

(1) is not eligible to receive payments under 42 U.S.C. § 4623, and

(2) lawfully occupied the dwelling from which displaced for at least 90 days 

prior to the initiation of the acquisition negotiations. In the case of an 

authorized nonacquisition displacing activity, the initiation of negotiations 

has the same meaning as it does for purposes of 42 U.S.C. § 4623.

The amount payable is the amount necessary to enable the displaced 

person to lease or rent a comparable replacement dwelling for up to 

42 months, not to exceed $5,250. 42 U.S.C. § 4624(a). Payment may be in a 

lump sum or in periodic installments, in the agency’s discretion. Id. The 

regulations, 49 C.F.R. § 24.402(b), prescribe the method of calculating the 

amount of the benefit. The displaced person, at his or her election, may use 

the money as a down payment on the purchase of a “decent, safe, and 

sanitary replacement dwelling,” in which event the agency, in its discretion, 

may pay the maximum amount allowable without regard to any 

calculations. 42 U.S.C. § 4624(b); 49 C.F.R. § 24.402(c). This latter option is 

designed to encourage home ownership. H.R. Rep. No. 91-1656, at 12.

If a displaced tenant wishes to purchase a replacement home and seeks 

down payment assistance under 42 U.S.C. § 4624(b), eligibility is not 

affected by the fact that the tenant plans to purchase the home as co-owner 

with some other person who is not entitled to URA benefits. B-148044, 

June 18, 1975.
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Benefits under 42 U.S.C. § 4624 are available not only to rental tenants but 

also to homeowners who cannot meet the 180-day test for benefits under 

42 U.S.C. § 4623 but who have owned and occupied the displacement 

dwelling for at least 90 days prior to the initiation of negotiations. Ninetyday homeowners who elect to purchase a replacement home cannot 

receive more than they would have received under 42 U.S.C. § 4623 if they 

had met the 180-day test. 42 U.S.C. § 4624(b).

Mobile homes present complications and are treated in 49 C.F.R. part 24, 

subpart F. Mobile homes are considered real property in some states and 

personal property in others. Also, a person may own a mobile home and 

rent the land on which it sits, or vice-versa, and in choosing a replacement 

dwelling may buy one and rent the other. While there may thus be two 

different property interests involved, the displaced person should not 

receive greater benefits than the displaced owner of a stationary home in 

comparable circumstances. 57 Comp. Gen. 613 (1978). 

c. Advisory Services Section 205 of the Uniform Relocation Act (URA), 42 U.S.C. § 4625, requires 

agencies to provide a relocation assistance advisory program for displaced 

persons. The advisory services may extend to persons occupying property 

immediately adjacent to acquired property (42 U.S.C. § 4625(b)), and to 

short-term tenants who would not otherwise qualify as displaced persons 

(42 U.S.C. § 4625(f)). The advisory assistance and related activities 

provided for in section 205 of the URA were viewed as “key elements” of a 

successful relocation program. H.R. Rep. No. 91-1656, at 13 (1970). Thus, 

the responsibility of an agency is not limited to merely paying appropriate 

benefits when claimed. There is an affirmative requirement to help persons 

who have been or are going to be displaced, by developing and making 

available a variety of relocation information and assistance.

The statute lists the types of services to be included in the advisory 

program, and directs agencies to cooperate with one another and to 

coordinate their relocation activities. For example, the program should 

“provide current and continuing information on the availability, sales 

prices, and rental charges of comparable replacement dwellings for 

displaced homeowners and tenants and suitable locations for businesses 

and farm operations.” 42 U.S.C. § 4625(c)(2).

There is relatively little case law construing the advisory service 

requirements of 42 U.S.C. § 4625. One of the required services is to “assist a 

person displaced from a business or farm operation in obtaining and 

becoming established in a suitable replacement location.” 42 U.S.C. 
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§ 4625(c)(4). This, said one court, “requires only assistance, not assistance 

guaranteeing a successful result.” American Dry Cleaners and Laundry, 

Inc. v. United States Department of Transportation, 722 F.2d 70, 73 

(4th Cir. 1983). Another court has noted that the existence of a file folder 

that contains lists of available housing and general information brochures 

on relocation assistance does not satisfy the statute. United Family 

Farmers, Inc. v. Kleppe, 418 F. Supp. 591, 602 (D. S.D. 1976), aff’d, 552 F.2d 

823 (8th Cir. 1977).

d. “Last Resort” Replacement 

Housing

The Uniform Relocation Act (URA) places considerable emphasis on 

adequate replacement housing. Under 42 U.S.C. § 4625(c)(3), one of the 

elements agencies are to address in their advisory programs is the 

assurance that people will not be forced to move without first being given a 

reasonable opportunity to relocate to comparable housing. However, as 

anyone who is less than wealthy well knows, providing adequate and 

affordable housing is easier said than done.

Section 206 of the URA, 42 U.S.C. § 4626, has rightly been termed an 

“innovative” provision. Catherine R. Lazuran, Annotation, Uniform 

Relocation Assistance and Real Property Acquisition Policies Act of 1970 

(42 U.S.C. §§ 4601–4655), 33 A.L.R. Fed. 9, 30 (1977). Under 42 U.S.C. 

§ 4626(a), if a federal or federally assisted project “cannot proceed on a 

timely basis because comparable replacement dwellings are not available,” 

the agency head is authorized to “take such action as is necessary or 

appropriate to provide such dwellings by use of funds authorized for such 

project.” This may include the direct construction of new housing, the 

acquisition and rehabilitation of existing housing, the relocation of existing 

housing, and the stimulation of housing development through the use of 

“seed money” loans. H.R. Rep. No. 91-1656, at 15 (1970); 49 C.F.R. 

§ 24.404(c)(1). Section 4626(a) also expressly authorizes agencies to 

exceed the payment ceilings of 42 U.S.C. §§ 4623 and 4624, but only on a 

case-by-case basis and for good cause in accordance with the Department 

of Transportation (DOT) regulations. DOT has emphasized that “housing 

of last resort is not an independent program, but is merely an extension of 

the replacement housing function.” DOT, Uniform Relocation Assistance 

and Real Property Acquisition Regulation for Federal and Federally 

Assisted Programs, 53 Fed. Reg. 27598, 27604 (July 21, 1988) 

(supplementary information statement on proposed uniform regulations).

An agency cannot require a displaced person to accept agency-provided 

housing in lieu of applicable monetary payments (just compensation 

payment, if any, and supplemental payment under 42 U.S.C. §§ 4623 or 
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4624). This can be done only if the displaced person agrees. H.R. Rep. 

No. 91-1656, at 14–15; 49 C.F.R. § 24.404(b).

Section 4626(b) states: “No person shall be required to move from his 

dwelling on account of any program or project undertaken by a Federal 

agency or with Federal financial assistance, unless the head of the 

displacing agency is satisfied that comparable replacement housing is 

available to such person.” The statute itself is not an absolute guarantee of 

adequate replacement housing; it provides merely that the agency head 

must be satisfied that it is available, whatever that means. The regulations 

take it a step further, however. In a paragraph entitled “Basic rights of 

persons to be displaced,” the regulations state flatly that “no person shall 

be required to move from a displacement dwelling unless comparable 

replacement housing is available to such person.” For emphasis, the next 

sentence states that “[n]o person may be deprived of any rights the person 

may have under the Uniform Act or this part.” 49 C.F.R. § 24.404(b). 

The URA does not require that comparable replacement housing be located 

in the immediate neighborhood of the displacement housing, Mejia v. 

Department of Housing and Urban Development, 518 F. Supp. 935, 938 

(N.D. Ill. 1981), aff’d, 688 F.2d 529 (7th Cir. 1982), or even in the same 

county, Katsev v. Coleman, 530 F.2d 176, 180–81 n.7 (8th Cir. 1976). Thus, 

the lack of suitable replacement housing in the immediate neighborhood is 

not sufficient to trigger the “last resort” housing authority. Mejia,

518 F. Supp. at 938. 

Clearly, one effect of the replacement housing program can be to change 

the displaced person’s status from tenant to homeowner. E.g., 42 U.S.C. 

§ 4624(b). The reverse possibility raises a very thorny problem. In 

B-148044, July 18, 1977, GAO considered this question: Does 42 U.S.C. 

§ 4626 amount to a guarantee of continued home ownership, or may rental 

housing be considered appropriate replacement housing for displaced 

homeowners? GAO surveyed agencies with the most relocation 

experience, and found considerable disagreement. GAO also found both 

the statute and the legislative history ambiguous. On balance, the decision 

concluded that the use of rental housing under 42 U.S.C. § 4626 when home 
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ownership is not feasible is not legally precluded, although it is obviously 

an undesirable option and should not be encouraged.74 

e. Federally Assisted 

Programs and Projects

The relocation benefits we have been discussing apply not only to federal 

programs but also to nonfederal programs carried out with federal financial 

assistance. With respect to nonfederal programs, the federal agency 

providing the assistance has a limited oversight role. Under section 210 of 

the Uniform Relocation Act (URA), 42 U.S.C. § 4630, a nonfederal 

displacing agency must provide “satisfactory assurances” that it will 

comply with 42 U.S.C. §§ 4622 (moving and related expenses), 4623 and 

4624 (replacement housing benefits), and 4625 (advisory services) as a 

condition of any grant, contract, or agreement under which federal dollars 

will be available to pay all or any part of the cost of any program or project 

which will displace anyone. 42 U.S.C. §§ 4630(1) and (2). It must also 

provide satisfactory assurances that, except for certain emergency 

situations, comparable replacement housing will be available within a 

reasonable time prior to displacement. 42 U.S.C. § 4630(3).

A satisfactory assurance for purposes of this provision requires some 

reasonable factual basis, but it does not mean a guarantee that the housing 

in fact exists. Katsev v. Coleman, 530 F.2d 176, 181 (8th Cir. 1976); 

Battison v. City of Niles, 445 F. Supp. 1082, 1090–91 (N.D. Ohio 1977).

To trigger 42 U.S.C. § 4630, it is not necessary that federal dollars be used 

for the specific acquisition. It is sufficient that the displacing agency’s 

program or project which will result in the acquisition (or authorized 

nonacquisition activity) is federally assisted. H.R. Rep. No. 91-1656, at 4 

(1970); Lake Park Home Owners Association v. Department of Housing 

and Urban Development, 443 F. Supp. 6 (S.D. Ohio 1976). As the same 

court explained a few years later, however, the mere existence of federal 

assistance is not enough. There must be “some present nexus” between the 

federally assisted program or project and the displacing activity. Day v. 

City of Dayton, 604 F. Supp. 191, 197 (S.D. Ohio 1984).

74 The decision also involved the question of whether 42 U.S.C. § 4626 is subject to the 

monetary ceiling of 42 U.S.C. § 4623, a question on which there also was considerable 

disagreement and which was resolved in the 1987 amendments to the statute. See 42 U.S.C. 

§ 4626(a) (“The head of the displacing agency may use this section to exceed the maximum 

amounts which may be paid under [section] 4623 . . . on a case-by-case basis for good cause 

as determined in accordance with such regulations as the head of the lead agency shall 

issue . . .”). 
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A 1976 decision, B-180812, Mar. 25, 1976, discussed the application of 

42 U.S.C. § 4630 to waste treatment facility grants by the Environmental 

Protection Agency. The decision made two important points:

• Section 4630 does not require that URA benefits be strictly limited to 

cases where displacement occurs after the commitment of federal 

financial assistance. Rather, the state or municipal grantee should be 

required to provide relocation benefits to those displaced from any site 

that, at the time of acquisition (or at any time thereafter prior to actual 

displacement), was planned as the site of a federally assisted facility. 

GAO recognized the risk to the grantee in that relocation costs will not 

be reimbursed if the assistance is ultimately not granted. However, this 

approach was viewed as most consistent with the intent of the URA.

• If a grant application is received from a state or municipality that has 

already acquired property or displaced persons without providing 

relocation benefits, the applicant should be required to retroactively 

“cure” the noncompliance. If substantial compliance with the URA 

cannot be achieved in this manner, the application should be denied.

The 1987 amendments to the URA added an alternative to the “satisfactory 

assurance” approach of 42 U.S.C. § 4630. A state agency may certify that it 

will operate in accordance with state laws that accomplish the purpose and 

effect of the URA. 42 U.S.C. § 4604(a). A federal agency fulfills its 

responsibility under the URA by accepting this certification. The 

Department of Transportation, in coordination with the program agency, 

periodically monitors state compliance. If the state agency violates its 

certification, the program agency may withhold its approval of financial 

assistance, or may rescind its approval of the certification. 42 U.S.C. 

§ 4604(c); 49 C.F.R. §§ 24.4(b), 24.603.

“Federal financial assistance” for URA purposes is defined as “a grant, loan, 

or contribution provided by the United States” but expressly excludes 

(1) any federal guarantee or insurance, and (2) any interest reduction 

payment to an individual in connection with the purchase and occupancy 

of a residence by that individual.75 42 U.S.C. § 4601(4); 49 C.F.R. 

§ 24.2(a)(13). Thus, if the only federal financial involvement is in the form 

of a guarantee or insurance, the URA does not apply regardless of who 

75 The statute also excludes any annual payment or capital loan to the District of Columbia. 

42 U.S.C. § 4601(4).
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displaces whom from what. E.g., Dawson v. Department of Housing and 

Urban Development, 428 F. Supp. 328, 332 (N.D. Ga. 1976), aff’d, 592 F.2d 

1292 (5th Cir. 1979) (assistance under section 236 of the National Housing 

Act is encompassed by the “federal guarantee or insurance” exclusion).

A question lurking in the bushes is the extent to which the term “federal 

financial assistance” does or does not include block grants. The genesis of 

the question is a series of cases holding the URA inapplicable where the 

only federal funds involved were funds provided under the now defunct 

general revenue sharing program. The reason was that revenue sharing 

funds were intended to be provided with no “federal strings”; they were not 

associated with any particular project, but could be used by the states as 

they saw fit. Goolsby v. Blumenthal, 590 F.2d 1369 (5th Cir.), cert. denied,

444 U.S. 970 (1979); B-148044, Dec. 10, 1973; B-130515-G.94, Mar. 7, 1979.

It is arguable that this analysis applies, at least to some extent, to block 

grant programs. For example, one court has found the URA inapplicable 

where the federal assistance consisted of Community Development Block 

Grant (CDBG) funds, stating that “the URA is only applicable when the 

federal financial assistance is provided . . . for a specific program or 

project.” Isham v. Pierce, 694 F.2d 1196, 1204 (9th Cir. 1982). See also 

Young v. Harris, 599 F.2d 870, 878 (8th Cir.), cert. denied, 444 U.S. 993 

(1979). Other cases have involved CDBG funds without addressing the 

issue. E.g., Gomez v. Chody, 867 F.2d 395 (7th Cir. 1989).

Relocation costs incurred directly by a federal agency are treated simply as 

part of the cost of the program or project. Relocation costs incurred by a 

nonfederal displacing agency are reimbursable from the federal agency 

which is providing the financial assistance “in the same manner and to the 

same extent” as other program or project costs. 42 U.S.C. § 4631(a). Thus, 

for example, if the relevant program legislation has a matching fund 

requirement, it will apply to allowable relocation costs. H.R. Rep. 

No. 91-1656, at 17 (1970). However, if state eminent domain law provides 

for payments which “have substantially the same purpose and effect” as 

URA benefits, those payments will not constitute allowable program or 

project costs. 42 U.S.C. § 4631(b). The 1987 amendments extended this 

anti-duplication provision to apply the “substantially the same purpose and 

effect” concept to other federal payments as well. Examples may be found 

in H.R. Conf. Rep. No. 100-27, at 255 (1987).

Under 42 U.S.C. § 4631(c) grants and contracts with state agencies 

executed prior to the effective date of the URA must be amended to include 
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URA benefits. In 51 Comp. Gen. 267 (1971), the Comptroller General 

advised the Department of Housing and Urban Development that contracts 

which provided for full federal funding of certain relocation costs 

authorized by the Housing Act still had to be amended to reflect the new 

URA benefits, but did not have to include the cost-sharing requirements of 

42 U.S.C. § 4631(a). However, where existing contracts did not include 

relocation payments, the amended contracts would have to reflect the 

section 4631(a) cost-sharing requirements. B-173957, Sept. 7, 1972.

f. Procedures and Payment The payment of benefits under the Uniform Relocation Act (URA) is not 

automatic; the displaced person must apply to the proper agency. The 

regulations try to be user-friendly in this regard, placing the initial burden 

on the displacing agency. The agency is directed to give written 

notification to persons scheduled to be displaced, including a general 

description of the types of payments for which the person may be eligible 

and applicable procedures. 49 C.F.R. § 24.203(a). Agencies are also 

directed to provide reasonable assistance to help persons file their claims. 

49 C.F.R. § 24.207(a). Specific procedures are up to the individual agency.

Subject to waiver for good cause, claims should be filed within 18 months 

after the date of displacement in the case of tenants, or, in the case of 

owners, the date of displacement or the date of the final payment for 

acquisition, if applicable, whichever is later. 49 C.F.R. § 24.207(d). The 

regulations further instruct agencies to review claims “in an expeditious 

manner” and to make payment “as soon as feasible” after receipt of 

sufficient documentation to support allowance. 49 C.F.R. § 24.207(b).

Any sound claims settlement system should include an administrative 

appeal process, the objective being to maximize administrative resolution 

and minimize the need to go to court. In the case of the URA, an appeal 

process is required. 42 U.S.C. § 4633(b)(3); 49 C.F.R. § 24.10. If a claim is 

denied in whole or in part for any reason, the agency must notify the 

claimant in writing, setting out the agency’s appeal procedures. 49 C.F.R.

§ 24.207(e). If the appeal is denied in whole or in part, the agency must 

again provide written notification, this time advising the claimant of his or 

her right to seek judicial review. 49 C.F.R. § 24.10(g).

The URA authorizes advance payments in two situations. First, a federal 

agency, upon determining that it is necessary for the expeditious 

completion of a program or project, may advance the federal share of 

authorized relocation costs to a state agency. 42 U.S.C. § 4631(c). Second, 

a displaced person, in hardship cases and upon proper application, may 
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receive advance payment of applicable relocation benefits. 42 U.S.C. 

§ 4633(b)(2). Advance payment under section 4633(b)(2) should be 

“subject to such safeguards as are appropriate to ensure that the objective 

of the payment is accomplished.” 49 C.F.R. § 24.207(c).

4. Public Utilities A public utility will typically have two different types of facilities which it 

may be required to relocate. First, like any other business entity, it will 

have business offices—office space which it may own or lease, with desks, 

file cabinets, etc. With respect to these business offices, the Uniform 

Relocation Act (URA) applies to the utility the same as it applies to any 

other business entity. Norfolk Redevelopment and Housing Authority v. 

Chesapeake & Potomac Telephone Co., 464 U.S. 30, 35 (1983).

Unlike most other business entities, however, the utility has a second type 

of property—facilities for the transmission of telephone service, electric 

power, natural gas, etc., to the consumer. Perhaps the most familiar 

example is the ubiquitous telephone pole. With respect to these “utility 

facilities,” the situation is more complicated. There is a common-law rule 

and several statutory exceptions, all of which exist side-by-side.

a. The Common Law When a utility wishes to place transmission facilities on public property, it 

must first obtain permission to do so in the form of a grant of an 

appropriate right-of-way. A right-of-way may be in various forms, such as a 

license, a franchise, or an easement. The traditional form of right-of-way 

for utility lines has been a franchise, a form of special privilege which is 

more than a mere license but less than an easement. E.g., Artesian Water 

Co. v. Delaware Department of Highways & Transportation, 330 A.2d 432, 

440 (Del. Super. Ct. 1974), modified and aff’d, 330 A.2d 441 (Del. 1974).

Under the common-law approach, the governmental entity which grants a 

special privilege can take it away when some paramount public need so 

requires. A utility receiving a franchise does so with this understanding. 

“[W]hen [the utility] located its pipes it was at the risk that they might be, at 

some future time, disturbed, when the state might require for a necessary 

public use that changes in location be made.” New Orleans Gas Light 

Co. v. Drainage Commission, 197 U.S. 453, 461 (1905). Permission to 

locate utility facilities on public property “does not create an irrevocable 

right to have such . . . facilities remain forever in the same place.” 

Tennessee v. United States, 256 F.2d 244, 258 (6th Cir. 1958). Within this 

framework developed the “long-established common law principle that a 

utility forced to relocate from a public right-of-way must do so at its own 
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expense.” Norfolk Redevelopment & Housing Authority v. Chesapeake & 

Potomac Telephone Co., 464 U.S. 30, 34 (1983) (citing and following New 

Orleans Gas Light Co.). For more recent judicial decisions applying this 

rule, see Northern States Power Co. v. Federal Transit Administration, 

358 F.3d 1050, 1053 (8th Cir. 2004); AT&T Corp. v. Lucas County, 

381 F. Supp. 2d 714, 717 (N.D. Ohio 2005).

The earliest GAO decision applying this rule appears to be 10 Comp. 

Gen. 331 (1931). Underground construction of various distribution lines 

from the Capitol power plant to congressional office buildings necessitated 

the relocation of utility lines in the District of Columbia. The Comptroller 

General advised the Architect of the Capitol that relocation costs could not 

be charged to the construction appropriation, stating:

“Rights of way or franchises granted by municipalities or by 

State or Federal authorities to public utility corporations, in 

public streets, etc., to operate their business are usually 

coupled with reservations that the public utility company 

will, upon demand of the granting authority, vacate the 

streets, etc., or relocate or divert its conduits, lines, etc., to 

meet the needs of the granting authority as they arise.” 

10 Comp. Gen. at 331. 

Another early decision, A-38299, Sept. 8, 1931, quoted in 44 Comp. Gen. 59, 

60–61 (1964), stated the rule as follows:

“The placing of [utility] lines on public lands must be 

understood as subject to the paramount needs of the United 

States, and when their removal becomes necessary because 

of interference therewith the expenses of such removal may 

not be charged to the United States in the absence of 

specific statutory authority to that effect.”

A-38299, at 2.

A later decision advised the Architect of the Capitol that there was no 

authority to reimburse the local electric company for relocation costs 

incident to construction of a Library of Congress building. 51 Comp.

Gen. 167 (1971). The Comptroller General discussed the rule in some detail 

in 18 Comp. Gen. 806 (1939), a case involving the relocation of telephone 

lines incident to the construction of a highway on government-owned land. 
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The relocation of utility lines is the exercise by the United States of its 

inherent regulatory authority over its property. The United States has the 

same “police power” over federal land that the states have over state land. 

The legitimate exercise of a police power, at least in this context, is not a 

taking of a property interest for purposes of the constitutional requirement 

of just compensation. Thus, as long as the relocation is required for a valid 

public purpose, the utility must bear the cost. The decision treated the 

distinction between a franchise and a license as essentially immaterial. 

18 Comp. Gen. at 807.

While reaffirming the general rule stated in the foregoing decisions, GAO 

more recently distinguished those decisions in holding that appropriated 

funds were available to pay certain relocation costs. B-300538, Mar. 24, 

2003. In this case, the Architect of the Capitol required the Potomac 

Electric Power Company (PEPCO) to relocate some of its facilities from 

one part of the Capitol grounds to another in order to accommodate 

construction of the Capitol Visitor Center. PEPCO sought payment from 

the Architect for its relocation costs and a related fee. The utility facilities 

in question were not part of PEPCO’s overall infrastructure for its customer 

base, but existed only to serve the needs of the federal government at the 

Capitol. GAO viewed this as a crucial difference from the cases applying 

the common-law rule to preclude reimbursement where the relocated 

facilities are part of a utility’s general operating network. In the PEPCO 

situation, GAO reasoned, the sole purpose of the relocation was to better 

serve the needs of the federal government:

“[W]e believe there is a distinction between the federal 

government’s role as the sovereign granting access to the 

utility company to federal lands and the federal 

government’s role as a consumer of utility services. We 

view utility relocation costs, when the utility facilities are 

present to serve the federal government alone and not as 

part of the utility company’s general operating network, as a 

necessary expense of the project requiring the relocation of 

the utility facilities. Therefore, we do not object to the use 

of appropriations to pay the costs of utility relocations 

requested by the government for the benefit of the 

government in its role as customer.”

Id. at 5. The PEPCO decision thus represents a limited exception to the 

common-law rule arising from the unique facts in that case. Keeping it in 
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mind, we now return to the great majority of the decisions applying the 

common-law rule.

If, under the common-law rule, the government can not pay for relocating 

utility lines, how about relocating or altering the government facility? As 

you may have guessed, there is a decision on that, too. If an agency’s 

appropriations are not available to pay a utility’s relocation costs in a 

particular situation, they are equally unavailable for relocating or altering 

the government facility as an alternative. B-33911, May 5, 1943. This point 

is little more than the application of common sense. The decision also 

points out that, for purposes of the rule, it makes no difference whether the 

government facility was in existence when the license or permit was 

originally granted, or was subsequently erected.

The common-law rule has been applied with respect to all types of public 

lands: land in a national park, A-36464, July 22, 1931; land in a national 

forest, A-38299, Sept. 8, 1931; land acquired by a federal agency for a 

specific project, 18 Comp. Gen. 806; and unreserved public land, B-11161, 

Aug. 21, 1940. However, in 19 Comp. Gen. 608 (1939), it was found 

inapplicable to certain Indian lands. The land in question was Pueblo land 

in New Mexico, title to which, unlike the more typical reservation, was held 

communally by the Indians. GAO found that the lands were not “public 

lands” as that term had been judicially defined. 19 Comp. Gen. at 611, 

citing, e.g., Lane v. Pueblo of Santa Rosa, 249 U.S. 110, 113 (1919). 

Therefore, the United States did not have a right paramount to that of the 

utility, and project appropriations were available to pay utility relocation 

costs.

A few not very recent decisions considered licenses granted by the then 

Federal Power Commission (FPC) under the Federal Power Act of 1920, as 

amended, 16 U.S.C. §§ 791a–823d. Generally, the common-law rule 

regarding utility relocation expenses applies. The fact that the FPC 

charged the licensee a fee under the statute was not material. B-33911, 

May 5, 1943; A-44362, Dec. 1, 1932. In a 1955 case, however, the FPC 

determined that, under the terms and conditions of the specific license 

involved, the licensee was not obligated to bear the relocation expenses, 

and reimbursement was permitted under a “necessary expense” rationale. 

B-122171, Apr. 5, 1955.

For purposes of determining whether an agency can pay utility relocation 

costs, the difference between a franchise and a license is largely 

immaterial. This is not true with respect to an easement, however, which, 
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unlike a license or a franchise, is generally viewed as creating a 

compensable interest in land.76 E.g., Artesian Water Co., 330 A.2d at 440. 

In 36 Comp. Gen. 23 (1956), GAO recognized the distinction and held that 

the United States could participate in utility relocation costs where the 

utility had been granted an easement under 43 U.S.C. § 961 over a specific 

location where there had been no preexisting government facility. Of 

course, the government can always condemn the easement. See B-13574, 

Dec. 2, 1940. See also 42 Comp. Gen. 177 (1962) (relocation costs denied 

because the terms of a special use permit granted by the National Park 

Service were regarded as prevailing over an easement which had been 

granted to a utility by the party from whom the government acquired the 

property).

The Federal Land Policy and Management Act of 1976 (FLPMA), Pub. L. 

No. 94-579, 90 Stat. 2743 (Oct. 21, 1976), has its own right-of-way 

provisions, found at 43 U.S.C. §§ 1761–1771. With certain exceptions, they 

apply generally to land and interests in land owned by the United States 

and administered by the Interior Department’s Bureau of Land 

Management, and to land within the National Forest System under the 

jurisdiction of the Secretary of Agriculture. 43 U.S.C. §§ 1702(e), 1761(a). 

Along with the enactment of these provisions, the FLPMA repealed a 

number of pre-existing right-of-way statutes, including 43 U.S.C. § 961, 

insofar as they apply to lands covered by the FLPMA. Pub. L. No. 94-579, 

§ 706(a). The FLPMA defines right-of-way as including “an easement, lease, 

permit, or license” (43 U.S.C. § 1702(f)), a definition consistent with the 

consolidation of provisions addressing these various forms of right-of-way. 

Accordingly, cases like 36 Comp. Gen. 23, apart from the fact that they 

continue to apply to non-FLPMA lands, would appear to remain valid under 

FLPMA. In any event, the essence of 36 Comp. Gen. 23 is the nature of the 

utility’s property interest and not the statute under which it was granted.

A key factor in establishing the government’s liability in 36 Comp. Gen. 23 

was that the easement was for a specific location. The significance of this 

can be illustrated by a case involving the reverse situation—relocation of 

power lines owned by the government. The Bonneville Power 

Administration had acquired by condemnation an easement for power lines 

on land owned by a railway company. Expansion of the railway 

76 An interest in land greater than an easement is of course also compensable. For a case 

distinguishing between a leasehold interest (compensable) and a license 

(noncompensable), see Potomac Electric Power Co. v. Fugate, 180 S.E.2d 657 (Va. 1971).
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necessitated relocation of the power lines, and the question was whether 

Bonneville or the railway should pay for the relocation. The government’s 

easement was a general easement to maintain the lines, not tied in to any 

specific location, and unconditional acquiescence by the railway could not 

be established. In these circumstances, the government—analogous to the 

public utility in the more typical case—had to bear the expense. United 

States v. Oregon Electric Railway Co., 195 F. Supp. 182 (D. Or. 1961).

b. Statutory Exceptions (1) Uniform Relocation Act

The original enactment of the Uniform Relocation Act (URA) in 1970 did 

not address public utilities, and the Supreme Court held that, with respect 

to “utility facilities” as opposed to normal business offices, they were not 

covered. In Norfolk Redevelopment & Housing Authority v. Chesapeake & 

Potomac Telephone Co., 464 U.S. 30 (1983), the Court held that a public 

utility forced to relocate telephone transmission facilities as a result of a 

federally funded urban renewal project was not a “displaced person” under 

the URA. Applying the principle that a statute should not be construed to 

repeal or displace the common law unless the intent to do so is expressed 

in clear and explicit language, the Court said:

“Our analysis of the statute and its legislative history 

convinces us that in passing the Relocation Act Congress 

addressed the needs of residential and business tenants and 

owners, and did not deal with the separate problem posed 

by the relocation of utility service lines. We hold, therefore, 

that the Relocation Act did not change the long-established 

common law principle that a utility forced to relocate from a 

public right-of-way must do so at its own expense; it is not a 

‘displaced person’ as that term is defined in the Act.” 

Norfolk Redevelopment, 464 U.S. at 34. See also Consumers Power Co. v. 

Costle, 615 F.2d 1147 (6th Cir. 1980).

The 1987 amendments to the URA added a provision, 42 U.S.C. § 4622(d), to 

authorize limited relocation assistance to public utilities forced to relocate 

their facilities incident to a program or project undertaken by a displacing 

agency, as long as the program or project is not one whose purpose is to 

relocate or reconstruct the facility. The facility to be displaced may be 

publicly, privately, or cooperatively owned, but must be located on public 

property or property over which a state or local government has an 

easement or right-of-way, and must be operating under a franchise or 
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similar agreement (or state statute which serves the same purpose). The 

authorized payment is limited to the amount of “extraordinary costs” 

incurred by the utility in connection with the relocation, “less any increase 

in the value of the new utility facility above the value of the old utility 

facility and less any salvage value derived from the old utility facility.” 

42 U.S.C. § 4622(d)(1). Extraordinary costs are nonroutine relocation 

expenses of the type that the owner “ordinarily does not include in its 

annual budget as an expense of operation.” 42 U.S.C. § 4622(d)(2)(A).

There is an important difference between 42 U.S.C. § 4622(d) and the other 

benefit provisions of the URA: while the other provisions are cast in 

mandatory language, section 4622(d) is discretionary—the displacing 

agency “may” make the relocation payments. In preparing the uniform 

implementing regulations for this provision (now found at 49 C.F.R. 

§ 24.306), the Department of Transportation was urged—probably by the 

utilities—to make the benefits of section 4622(d) mandatory. It expressly 

refused to do so, stating that “[i]t would not be appropriate to make 

mandatory by regulation that which was left clearly permissive by statute.” 

Department of Transportation, Uniform Relocation Assistance and Real 

Property Acquisition Regulations for Federal and Federally Assisted 

Programs, 54 Fed. Reg. 8912, 8923 (Mar. 2, 1989) (Supplementary 

Information).

The regulations direct agencies that choose to make payment under 

section 4622(d) to reach a prior agreement with the utility owner on the 

nature of the relocation work to be done, the allocation of responsibilities, 

and the method of determining costs and making payment. 49 C.F.R. 

§ 24.306(c). For guidance in reaching agreement, agencies should follow 

the utility relocation regulations of the Federal Highway Administration, 

23 C.F.R. part 645, subpart A. See 49 C.F.R. app. A to part 24 at § 24.306.

The conference report on the 1987 amendments emphasized that the new 

section 4622(d) should “not be construed to supersede 23 U.S.C. 123 or any 

other Federal law.” H.R. Conf. Rep. No. 100-27, at 251 (1987).

(2) 23 U.S.C. § 123

Highway construction is one of the most common causes of utility 

displacement. Under 23 U.S.C. § 123, originally enacted in 1958, states may 

be reimbursed for utility relocation expenses paid in connection with 

federally aided highway construction, if those payments are authorized 

under state law. Reimbursement is to be in the same proportion as other 
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project costs. The availability of 23 U.S.C. § 123 to a given state depends on 

the extent to which that state follows or has departed from the commonlaw rule.

The statute is not self-executing and does not itself create an obligation to 

reimburse. A state’s right to reimbursement depends on project approval 

by the Federal Highway Administration in accordance with 23 U.S.C. § 106 

and applicable regulations. Approval creates a contractual obligation. 

Arizona v. United States, 494 F.2d 1285 (Ct. Cl. 1974).

In determining the cost of relocation for purposes of section 123, any 

increase in the value of the new facility and any salvage value derived from 

the old facility must be deducted. 23 U.S.C. § 123(c). (As noted above, the 

discretionary authority of 42 U.S.C. § 4622(d) incorporates this concept.) 

Cost determinations under section 123 must be made on the basis of a 

specific project. Statewide determinations do not satisfy the statute. 

B-149833, Jan. 2, 1964; B-149833-O.M., June 24, 1963; B-149833-O.M., Nov. 9, 

1962.

The purpose of reimbursement under 23 U.S.C. § 123 is to make the utility 

whole, not to confer a profit. Thus, where a parent corporation owned two 

subsidiaries, one of which earned a profit for the parent on purchases from 

it by the other, GAO concluded that the “intercompany profit” should not 

be a reimbursable item of cost under section 123. However, reimbursement 

would be permissible if it could adequately be shown that the sales for 

relocation purposes displaced a substantially equivalent amount of regular 

sales which would otherwise have been made. B-154937, Dec. 16, 1964, 

modified by B-154937, May 25, 1965.77

(3) Other statutory provisions

Several other statutes scattered throughout the United States Code address 

utility relocation in various specific contexts, some of which are quite 

narrow in scope. Others may exist in addition to those noted below. These 

statutes, as with 23 U.S.C. § 123, were unaffected by the 1987 enactment of 

42 U.S.C. § 4622(d).

77 These decisions concerned the American Telephone and Telegraph Company and its 

subsidiaries prior to the divestiture of the 1980s. While the decisions may no longer have 

direct application to “Mother Bell” and her family, the underlying concepts would appear to 

remain nonetheless valid.
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One example is section 2 of the Flood Control Act of 1938, as amended, 

33 U.S.C. § 701c-1. This statute authorizes the Secretary of the Army to 

acquire, and to reimburse states and municipalities for the acquisition of, 

lands, easements, and rights-of-way, expressly including “utility 

relocation,” deemed necessary in connection with authorized flood control 

projects. The statute has been construed as authorizing the Army to pay 

utility relocation expenses wholly independent of any right-of-way 

acquisition. B-134242, Dec. 24, 1957.

Another example is section 14 of the Reclamation Project Act of 1939, 

43 U.S.C. § 389, which provides comparable authority to the Secretary of 

the Interior “in connection with the construction or operation and 

maintenance of any project.” The measure of compensation for utility 

relocation is the replacement cost of the facility less an allowance for 

depreciation of the old facility. See B-125045-O.M., Sept. 21, 1959.

Still another is 16 U.S.C. § 580b, enacted in 1949, under which the Forest 

Service may use its appropriations to correct inductive interference on 

Forest Service telephone lines caused by transmission lines constructed by 

organizations financed by Rural Electrification Administration loans. GAO 

had previously advised that statutory authority was generally necessary to 

overcome the common-law prohibition in this context. B-33911, May 5, 

1943;78 B-33911, B-62187, July 15, 1948. See also B-62187, Dec. 3, 1946 

(exception recognized where the work “was prompted by reasons of 

expediency wholly unconnected with the prevention or correction of 

inductive interference from electric power transmission lines”).

Finally, whenever construction of a project administered through the 

International Boundary and Water Commission (United States and Mexico) 

necessitates the alteration or relocation of structures or other property 

“belonging to any municipal or private corporation, company, association, 

or individual,” the Secretary of State may pick up the tab. 22 U.S.C. § 277e. 

This provision has been held sufficient to overcome the common-law 

prohibition. B-129757, Nov. 29, 1956; B-5441, Aug. 29, 1939. Conspicuously 

absent from the statutory listing of owners are “states.” Therefore, the 

statute does not encompass agreements with the state of Texas comparable 

78 This decision dealt with both revocable licenses and easements. With respect to licenses, 

the application of the common-law rule and the concomitant need for statutory authority 

are still valid. As to easements, however, the decision relied on 20 Comp. Gen. 379 (1941), 

which was effectively, although not explicitly, modified in this respect by 36 Comp. Gen. 23 

(1956), discussed earlier in section C.4.a of this chapter.
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to the types of agreements authorized under statutes such as 33 U.S.C. 

§ 701c-1 or 43 U.S.C. § 389. B-76531, Sept. 13, 1948.

In sum, when considering whether a federal agency may use its 

appropriated funds to pay all or part of the costs of utility relocation, the 

first question to ask is whether the situation is covered by some specific 

relocation statute such as 23 U.S.C. § 123 or one of those noted directly 

above. If so, then the authorities and limitations of that specific statute, 

and any regulations under it, will govern. If not, the next thing to consider 

is the availability of the discretionary authority of the Uniform Relocation 

Act, 42 U.S.C. § 4622(d). If that authority is not available or if the displacing 

agency declines to exercise its discretion in favor of the utility, the matter is 

governed by the common-law principles discussed.

D. Jurisdiction over 

Federal Land: The 

Federal Enclave

1. Acquisition of Federal 

Jurisdiction

Almost all federally owned land is within the boundaries of one of the 

50 states. This leads logically to the question: who controls what? When 

we talk about jurisdiction over federal land, we are talking about the 

federal-state relationship. The first point is that, whether the United States 

has acquired real property voluntarily (purchase, donation) or involuntarily 

(condemnation), the mere fact of federal ownership does not withdraw the 

land from the jurisdiction of the state in which it is located. E.g., Silas 

Mason Co. v. Tax Commission, 302 U.S. 186, 197 (1937); Coso Energy 

Developers v. County of Inyo, 19 Cal. Rptr. 3d 669 (2004), and cases cited. 

Acquisition of land and acquisition of federal jurisdiction over that land are 

two different things.

Federal jurisdiction can range from “exclusive jurisdiction” at one extreme, 

in which the federal government displaces the state as the governing 

authority, to “proprietorial jurisdiction” at the other extreme, in which the 

United States has basically the same authority as it does with respect to 

other nonfederal land in that state and the property “is subject to the 

legislative authority and control of the States equally with the property of 

private individuals.” Fort Leavenworth Railroad Co. v. Lowe, 114 U.S. 

525, 531 (1885). Thus, “where the United States is the [proprietary] owner 
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of land within a state and does not have exclusive jurisdiction over the 

land, the state may generally tax private possessory interests in, or private 

property situated on, such land.” Coso, 19 Cal. Rptr. 3d at 674. In between 

exclusive and proprietorial interests, as one study has reported, federal 

control “can and does vary to an almost infinite number of degrees.”79 

During the last half of the nineteenth century and the first half of the 

twentieth, the United States obtained exclusive federal jurisdiction over 

most of the land it acquired.80

There are two ways in which the United States can acquire exclusive 

federal jurisdiction: consent and cession.81 The first method, consent, is 

provided for by article I, section 8, clause 17 of the Constitution, the socalled Jurisdiction Clause, which states that the Congress shall have 

power—

“to exercise exclusive Legislation in all Cases whatsoever, 

over [the District of Columbia], . . . and to exercise like 

Authority over all Places purchased by the consent of the 

Legislature of the State in which the Same shall be, for the 

Erection of Forts, Magazines, Arsenals, dock-Yards, and 

other needful Buildings.”

The term “exclusive legislation” means “exclusive jurisdiction.” James v. 

Dravo Contracting Co., 302 U.S. 134, 141 (1937); Surplus Trading Co. v. 

Cook, 281 U.S. 647, 652 (1930). Or, perhaps more clearly, “exclusive 

jurisdiction to legislate.” The term “other needful buildings” includes 

“whatever structures are found to be necessary in the performance of the 

functions of the federal government.” Silas Mason, 302 U.S. at 203; Dravo,

302 U.S. at 143. Legislative consent to the purchase may be given before, at 

the time of, or after the purchase. 13 Op. Att’y Gen. 411 (1871). Consent 

may be in the form of a general consent statute or consent to a particular 

acquisition. United States v. State Tax Commission of Mississippi, 

79 Report of the Interdepartmental Committee for the Study of Jurisdiction Over Federal 

Areas Within the States, Jurisdiction Over Federal Areas Within the States, part I (1956), 

at 2.

80 Id. at 8–10.

81 There is a third method, but it is unlikely to be used with any frequency in the future. 

Congress can reserve federal jurisdiction over federal land within a state at the time the 

state is admitted to the Union. Fort Leavenworth, 114 U.S. at 526–27; State v. GalvanCardenas, 799 P.2d 19, 21 (Ariz. Ct. App. 1990); Coso, 19 Cal. Rptr. 3d at 674.
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412 U.S. 363, 372 n.15 (1973). The Jurisdiction Clause has not been strictly 

construed, and Justice Frankfurter once commented that its “course of 

construction . . . cannot be said to have run smooth.” Offutt Housing Co. v. 

County of Sarpy, 351 U.S. 253, 256 (1956).

The second method, cession, is also accomplished by an enactment of the 

state legislature and was recognized by the Supreme Court over a century 

ago in the leading case of Fort Leavenworth, 114 U.S. 525. Some years 

later, the Court emphasized that the Jurisdiction Clause “is not the sole 

authority for the acquisition of jurisdiction. There is no question about the 

power of the United States to exercise jurisdiction secured by cession, 

though this is not provided for by clause 17.” Collins v. Yosemite Park & 

Curry Co., 304 U.S. 518, 529 (1938). For similar statements, see Kleppe v. 

New Mexico, 426 U.S. 529, 542 (1976); Paul v. United States, 371 U.S. 245, 

264 (1963); and United States v. Gliatta, 580 F.2d 156, 158 (5th Cir.), cert. 

denied, 439 U.S. 1048 (1978).

Apart from procedural distinctions, the differences between consent and 

cession are slight, and there appears to be little practical difference 

resulting from which method is used. At one time, cession was viewed as 

useful primarily in cases where the Jurisdiction Clause was thought 

inapplicable, for example, acquisition by condemnation. See generally Fort 

Leavenworth, 114 U.S. 525. In more recent cases, however, the Supreme 

Court has said that “purchase” for purposes of the Jurisdiction Clause 

includes condemnation. State Tax Commission of Mississippi, 412 U.S. 

at 372 n.14. The Court has also held that donation is a purchase for 

purposes of the Jurisdiction Clause. Humble Pipe Line Co. v. Waggonner,

376 U.S. 369, 371–73 (1964). Thus, no practical distinction seems to flow 

from the method of acquisition of the land or the timing of the state’s 

“consent.”

The applicability or nonapplicability of the Jurisdiction Clause is still 

relevant in determining which method must be used in some situations. 

For example, the clause comes into play only where the land is being 

acquired for one of the purposes specified in the Jurisdiction Clause. Thus, 

the Jurisdiction Clause would generally not apply to land acquired for a 

national park, and cession would therefore be the only method of acquiring 

federal jurisdiction. In another leading case, Collins, 304 U.S. 518, the 

Supreme Court established that jurisdiction by cession is not limited to the 

purposes specified in the Jurisdiction Clause. Thus, the United States can 

acquire the same jurisdiction over, say, a national park by cession that it 

could acquire over a military installation by a Jurisdiction Clause consent.
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Another area in which distinctions once thought important have become 

blurred is the extent to which a state may qualify its consent or cession. 

Even in the early days, “exclusive jurisdiction” was rarely absolute. For 

example, the states, with the express approval of the Supreme Court, 

typically reserved the power to serve civil and criminal process. This was 

necessary in order to avoid having federal land become a sanctuary for 

fugitives, and does not diminish the exclusiveness. Fort Leavenworth,

114 U.S. at 533. See also Cornman v. Dawson, 295 F. Supp. 654, 657 n.5 

(D. Md. 1969), aff’d, 398 U.S. 419 (1970); 39 Op. Att’y Gen. 155, 156 (1938); 

38 Op. Att’y Gen. 341, 347–48 (1935).82 However, for several decades, it was 

thought that a state’s power to qualify its consent was broader under a 

cession than under a Jurisdiction Clause consent. By the exercise of 

simple logic, the Supreme Court laid this thought to rest in still another 

leading case, Dravo, 302 U.S. 134. There was no question that a state could 

refuse consent at the time of acquisition, and then later cede jurisdiction 

subject to qualifications. Why then, reasoned the Court, couldn’t the state 

consent to the acquisition with the same qualifications in the first place? 

Dravo, 302 U.S. at 147–49.

It has become settled since Dravo that a state can qualify either a 

Jurisdiction Clause consent or a cession, as long as the qualifications are 

not inconsistent with federal law or federal use. The theory is clearly 

stated in Collins, 304 U.S. at 528 (footnotes omitted):

“The States of the Union and the National Government may 

make mutually satisfactory arrangements as to jurisdiction 

of territory within their borders and thus in a most effective 

way, cooperatively adjust problems flowing from our dual 

system of government. Jurisdiction obtained by consent or 

cession may be qualified by agreement or through offer and 

acceptance or ratification. It is a matter of arrangement. 

These arrangements the courts will recognize and respect.” 

Thus, acquisition of federal jurisdiction is not an “all or nothing” 

proposition. It has become commonplace to define federal jurisdiction in 

terms of four general kinds of federal jurisdiction over federal lands: 

“exclusive legislative jurisdiction, concurrent legislative jurisdiction, 

82 Examples of the operation of this principle at the state level include State v. Lane,

771 P.2d 1150, 1153 (Wash. 1989), and People v. Dowdell, 440 N.Y.S.2d 528, 529 (Onondaga 

Cty. Ct. 1981).
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partial legislative jurisdiction and proprietorial legislative jurisdiction.” 

State ex rel. Cox v. Hibbard, 570 P.2d 1190, 1192 (Or. Ct. App. 1977). See 

also Cornman, 295 F. Supp. at 656 n.4. The terms “concurrent” and 

“partial” in this context are self-explanatory and mean exactly what they 

imply.83

To summarize what we have said so far:

• The United States can acquire exclusive federal jurisdiction over land 

either by consent of the state legislature under the Jurisdiction Clause, 

or by cession from the state. Both methods get you essentially to the 

same place.

• Whichever method is used, the state may retain partial or concurrent 

jurisdiction as long as the powers retained are not inconsistent with 

federal law or use.

As noted earlier, the state consent we have been talking about relates to 

jurisdiction rather than the acquisition itself. For many years prior to 1940, 

there was also a statutory requirement for consent of the state legislature 

when land was acquired by the United States for certain purposes. This 

provision was eliminated in 1940 and replaced by 40 U.S.C. § 3112,84 which 

says several important things:

• The obtaining of exclusive jurisdiction is not required.

• If the United States obtains exclusive or partial jurisdiction by consent 

or cession, there must be a formal acceptance by the United States, 

either by filing a notice of acceptance with the state governor or as 

otherwise provided under state law.

• If the United States has not formally accepted jurisdiction as 

prescribed, it is “conclusively presumed” that the jurisdiction does not 

exist.

Although the statute mentions only exclusive and partial jurisdiction, it 

applies to concurrent jurisdiction as well. Adams v. United States,

83 Jurisdiction Over Federal Areas Within the States, at 14, supra note 79.

84 Formerly 40 U.S.C. § 255.
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319 U.S. 312 (1943). As Adams also established, the statute means exactly 

what it says—formal acceptance of federal jurisdiction as prescribed in 

40 U.S.C. § 3112 is a legal prerequisite to the exercise of that jurisdiction. 

See also Hankins v. Delo, 977 F.2d 396 (8th Cir. 1992); DeKalb County v. 

Henry C. Beck Co., 382 F.2d 992 (5th Cir. 1967).

A state may not unilaterally revoke its consent once it has been given and 

accepted. North Dakota v. United States, 460 U.S. 300, 313 n.16 (1983), 

citing United States v. Unzeuta, 281 U.S. 138, 142–43 (1930).

Based on the concepts discussed above, a working definition of “federal 

enclave” may be framed as follows: A federal enclave is an area of land 

owned by the United States, with respect to which the United States has 

obtained exclusive, partial, or concurrent jurisdiction from the state in 

which the land is located, either by consent under the Jurisdiction Clause 

or by cession.85

Regardless of the existence or type of federal jurisdiction, some state law 

may apply in a federal enclave even without either a specific reservation or 

a federal statute making it applicable. The Supreme Court has recognized 

that every area within the United States should have a developed legal 

system. Thus, state law protecting private rights which is in existence at 

the time of the consent or cession remains applicable in the enclave as long 

as it does not interfere with the federal use and is not inconsistent with 

federal law, unless and until Congress acts to make it inapplicable. This 

principle is called “assimilation.” The opposite is true for state laws 

enacted after the consent or cession: they do not apply in the enclave 

unless Congress acts to make them applicable. James Stewart & Co. v. 

Sadrakula, 309 U.S. 94 (1940).86

85 Some judicial definitions limit the term to exclusive jurisdiction. E.g., Cooper v. General 

Dynamics, 378 F. Supp. 1258, 1261 (N.D. Tex. 1974), rev’d on other grounds, 533 F.2d 163 

(5th Cir. 1976), cert. denied, 433 U.S. 908 (1977); Thiele v. City of Chicago, 145 N.E.2d 637, 

638 (Ill.), cert. denied, 355 U.S. 957 (1958). However, the Supreme Court has used the term 

in the broader sense. E.g., North Dakota v. United States, 495 U.S. 423 (1990). In addition, 

the United States may obtain federal jurisdiction over leased property as well as property it 

owns. Jurisdiction Over Federal Areas Within the States, supra note 80, at 2.

86 This assimilated state law is sometimes referred to as “federalized” state law. E.g., Board 

of Supervisors of Fairfax County v. United States, 408 F. Supp. 556, 563 (E.D. Va. 1976), 

appeal dismissed mem., 551 F.2d 305 (4th Cir. 1977). The concept has no application to a 

concurrent jurisdiction enclave. Sylvane v. Whelan, 506 F. Supp. 1355, 1361 (E.D. N.Y. 

1981). 
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One example involved the applicability of the Florida right-to-work law on 

two exclusive jurisdiction enclaves in Florida, Patrick Air Force Base 

(AFB) and Cape Canaveral Air Force Station (AFS). Finding that the 

Florida law was enacted before the transfer of sovereignty for Cape 

Canaveral AFS but after the transfer of sovereignty for Patrick AFB, the 

district court held the Florida law applicable on the former but not the 

latter. On appeal, the Court of Appeals for the Fifth Circuit affirmed as to 

Patrick but reversed as to Canaveral, finding that the Florida law was in 

conflict with the National Labor Relations Act. Lord v. Local Union

No. 2088, 481 F. Supp. 419 (M.D. Fla. 1979), aff’d in part, rev’d in part,

646 F.2d 1057 (5th Cir. 1981), cert. denied, 458 U.S. 1106 (1982). Another 

example is Snow v. Bechtel Construction Inc., 647 F. Supp. 1514, 1521 

(C.D. Cal. 1986), finding that an employee of a government contractor 

working on an exclusive jurisdiction enclave did not have a cause of action 

for wrongful termination because the state wrongful termination law “was 

enacted well after the land became a federal enclave.” See also Pacific 

Coast Dairy, Inc. v. Department of Agriculture of California, 318 U.S. 

285, 294 (1943); Macomber v. Bose, 401 F.2d 545 (9th Cir. 1968); Economic 

Development & Industrial Corp. of Boston v. United States, 546 F. Supp. 

1204 (D. Mass. 1982), rev’d on other grounds, 720 F.2d 1 (1st Cir. 1983); 

Vincent v. General Dynamics Corp., 427 F. Supp. 786, 794–95 (N.D. Tex. 

1977).

Sometimes the United States does not acquire all land within the exterior 

boundaries of a project because it is not needed. When this happens, there 

may be privately owned tracts within and surrounded by federal land, in 

what may be termed a “checkerboard” pattern. By analogy from cases 

dealing with federal land, the courts have held that the United States can 

acquire by cession the same types of exclusive, partial, or concurrent 

jurisdiction over these privately owned tracts. E.g., Macomber, 401 F.2d 

545; Petersen v. United States, 191 F.2d 154 (9th Cir.), cert. denied, 342 U.S. 

885 (1951); United States v. 319.88 Acres of Land, 498 F. Supp. 763 

(D. Nev. 1980).

As a general proposition, if the United States disposes of enclave property, 

legislative jurisdiction reverts to the state (also called “re-vesting” or 

“retrocession”), although the situation can become complicated by the 

nature of the particular transaction. See S.R.A., Inc. v. Minnesota, 327 U.S. 

558 (1946) (retention by United States of legal title as security interest does 

not prevent reverter); Humble Pipe Line Co., 376 U.S. 369 (lease by United 

States to commercial interests not sufficient to produce reverter); United 

States v. Goings, 504 F.2d 809 (8th Cir. 1974) (retention by United States of 
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right of emergency use does not prevent reverter). The military 

departments have specific statutory authority to “retrocede” federal 

legislative jurisdiction, in whole or in part, to the state, if considered 

desirable. 10 U.S.C. § 2683.

One of the conditions a state may attach to its consent or cession is that 

legislative jurisdiction (title too, if the land was donated) revert to the state 

if the property ceases to be used for the purpose for which jurisdiction was 

ceded. Illustrative cases are United States v. Johnson, 994 F.2d 980 

(2nd Cir.), cert denied, 510 U.S. 959 (1993); and Economic Development and 

Industrial Corp. of Boston v. United States, 13 Cl. Ct. 590 (1987). Absent 

such reservation or condition, federal jurisdiction is not diminished by the 

fact that a portion of the land is put to some use different from that for 

which it was acquired. Benson v. United States, 146 U.S. 325, 331 (1892); 

Baltimore Gas & Electric Co. v. United States, 133 F. Supp. 2d 721 (D. Md. 

2001); United States v. Fallbrook Public Utility District, 108 F. Supp. 

72, 85 (S.D. Cal. 1952).

Totally apart from the question of reservation of state powers, it is fair to 

say that exclusive federal jurisdiction is not nearly as exclusive as it used to 

be. Congress has enacted a number of statutes, which may be 

characterized as “partial retrocessions,” which have the effect of returning 

portions of jurisdiction to the states or incorporating state law in particular 

subject areas. Two of the more important ones, the Buck Act and the 

Assimilative Crimes Act, will be discussed in section D.2 of this chapter. 

Some others are:

• In cases of wrongful death on federal enclaves, the right of action 

provided by state law exists as if the enclave were under state 

jurisdiction. 16 U.S.C. § 457. This includes changes in applicable state 

law as they may occur from time to time. E.g., Ferebee v. Chevron 

Chemical Co., 736 F.2d 1529 (D.C. Cir.), cert. denied, 469 U.S. 1062 

(1984); Vasina v. Grumman Corp., 644 F.2d 112 (2nd Cir. 1981); 

Adams v. Alliant Techsystems, Inc., 218 F. Supp. 2d 792 (W.D. Va. 

2002). Of course, this statute does not affect the operation of the 

Federal Tort Claims Act in cases where it is applicable. E.g., Morgan v. 

United States, 709 F.2d 580, 582 (9th Cir. 1983).

• State unemployment compensation laws apply on federal enclaves. 

26 U.S.C. § 3305(d).
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• State workers’ compensation laws apply on federal enclaves. 40 U.S.C. 

§ 3172.87 The statute merely makes state law applicable to private 

employers on federal land; it does not create any federal liability. 

Peak v. Small Business Administration, 660 F.2d 375, 376 n.1 (8th Cir. 

1981). The constitutionality of 40 U.S.C. § 3172 was upheld in 

Wallach v. Lieberman, 366 F.2d 254 (2nd Cir. 1966).88 Section 3172 

applies equally to federal facilities that are not enclaves. Goodyear 

Atomic Corp. v. Miller, 486 U.S. 174, 182 n.4 (1988).

2. Specific Areas of 

Concern

a. Taxation As a general proposition, a state cannot tax private property in a federal 

enclave unless it has reserved the power to do so at the time of consent or 

cession. Humble Pipe Line v. Wagoner, 376 U.S. 369 (1964); Collins v. 

Yosemite Park & Curry Co., 304 U.S. 518 (1938); James v. Dravo 

Contracting Co., 302 U.S. 134 (1937); Surplus Trading Co. v. Cook,

281 U.S. 647 (1930); Fort Leavenworth Railroad Co. v. Lowe, 114 U.S. 525 

(1885).

Congress has modified this rule somewhat by statute. Under the Buck Act 

of 1940, currently codified at 4 U.S.C. §§ 105–110, states may levy sales, use, 

and income taxes within federal enclaves. The Buck Act has generated its 

share of litigation. One type of question that has arisen is whether various 

forms of state and local taxation are sales, use, or income taxes for 

purposes of the Buck Act. E.g., United States v. State Tax Commission of 

Mississippi, 412 U.S. 363, 378–79 (1973); Howard v. Commissioners of 

The Sinking Fund, 344 U.S. 624 (1953). See also 30 Comp. Gen. 28 (1950) 

(permit fee charged by city for construction on exclusive jurisdiction 

enclave not a “tax” within scope of state’s reservation of jurisdiction in 

deed of cession). One court has held a local occupation tax to be an 

“income tax” for Buck Act purposes. United States v. Lewisburg Area 

School District, 398 F. Supp. 948 (M.D. Pa. 1975).

87 Formerly 40 U.S.C. § 290.

88 It would appear that the question was not especially close, as the district judge, referred to 

the case as “worthless litigation.” Wallach v. Lieberman, 219 F. Supp. 247, 249 (S.D. N.Y. 

1963). 
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The Buck Act permits sales, use, and income taxes, but not property taxes. 

Thus, in B-159835, Feb. 2, 1976, the Comptroller General advised that a 

county in Utah had no power to impose an ad valorem tax on private 

property within the United States Defense Depot, a federal enclave in 

Ogden, Utah, where there had been no reservation of taxing power at the 

time of cession.

Another statute, 4 U.S.C. § 104, authorizes the imposition of state motor 

fuel taxes on fuel sold on “United States military or other reservations” if 

the fuel is not for the exclusive use of the United States. This includes 

national parks. 38 Op. Att’y Gen. 522 (1936). The purpose of this statute 

was to enhance highway improvement by increasing state revenues which 

could be used as matching funds under the federal-aid highway program. 

Minnesota v. Keeley, 126 F.2d 863, 864 (8th Cir. 1942); Sanders v. Oklahoma 

Tax Commission, 169 P.2d 748, 750–51 (Okla.), cert. denied, 329 U.S. 780 

(1946).

Still another statute, 10 U.S.C. § 2667(f), permits state and local taxation of 

the interests of lessees of property leased by a military department under 

the authority of 10 U.S.C. § 2667.

The preceding paragraphs address the power of a state to reach into a 

federal enclave to tax private property, private instrumentalities, or the 

income of federal employees. Neither the concept of reservation of powers 

nor the Buck Act affects the immunity of the United States from state and 

local taxation, covered in Chapter 4, section C.15. In fact, the Buck Act 

expressly preserves the immunity of the United States. 4 U.S.C. § 107. A 

case applying section 107 is United States v. Tax Commission, 421 U.S. 

599 (1975).

b. Criminal Law The punishment of crimes committed on federal enclaves has been a 

subject of congressional attention since the First Congress.89 At the 

present time, the criminal law structure for federal enclaves consists of 

several specific statutes and one general one.

89 As a bit of historical trivia, murder on federal enclaves was made a federal crime as early 

as 1790 by the Act of April 30, 1790, ch. IX, §§ 3–4, 1 Stat. 112, 113. Punishment was death, 

and if that wasn’t enough, the court could order that the body of the offender, presumably 

already executed, “be delivered to a surgeon for dissection.” Sort of “death plus.” 
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Congress has enacted a number of criminal statutes, found in title 18 of the 

United States Code, dealing with criminal offenses on federal enclaves. 

See, e.g., 18 U.S.C. §§ 81, 113, 114, 661, 662, 1111–1113. These are generally 

the “major” crimes such as murder, rape, arson, etc. About a dozen are 

listed in United States v. Sharpnack, 355 U.S. 286, 289 n.5 (1958). The 

statutes use the phrase “special maritime and territorial jurisdiction of the 

United States,” which, as defined in 18 U.S.C. § 7, would include federal 

enclaves. These specific statutes naturally take precedence over state law.

Offenses not covered by one of these specific statutes are covered by the 

Assimilative Crimes Act, 18 U.S.C. § 13, under which offenses committed 

on federal enclaves which are not otherwise provided for by Congress are 

punishable as federal crimes if and to the extent that they are punishable by 

the laws of the state in which the enclave is situated. See generally 

Lewis v. United States, 523 U.S. 155 (1998); United States v. Souza, 

392 F.3d 1050 (9th Cir. 2004); United States v. Burruel, No. CR 05-605 TVC 

DCB (D. Ariz. May 12, 2006).

The state law applicable under the Assimilative Crimes Act is the law in 

effect at the time of the offense, which includes laws enacted after consent 

or cession. The constitutionality of the Assimilative Crimes Act was upheld 

in the Sharpnack case, 355 U.S. 286.

A defendant accused of a crime on a federal enclave may be tried before a 

magistrate. There is no requirement that trial be before an Article III court. 

United States v. Jenkins, 734 F.2d 1322 (9th Cir. 1983), cert. denied, 469 U.S. 

1217 (1985).

Indian reservations are not federal enclaves. However, under 18 U.S.C. 

§ 1152, the federal enclave criminal statutes apply to “Indian country” 

unless otherwise provided by law, and except for offenses committed by 

one Indian against another Indian, offenses committed within Indian 

country by an Indian who has been punished by the local law of the tribe, 

and cases where exclusive jurisdiction is secured for the tribe by treaty 

stipulation. The historical development of this statute is discussed in 

United States v. Cowboy, 694 F.2d 1228 (10th Cir. 1982).

c. State Regulation Another area of potential conflict is the extent to which a state can extend 

its regulatory arm into a federal enclave. Older cases tend to involve 

economic regulation such as licensing laws, permit requirements, pricefixing laws, etc. Many of the more recent cases involve environmental 

regulation. Depending on the interplay of certain key rules, the state 
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regulatory action may be invalid on all federal property, nonenclave as well 

as enclave, valid on both, or valid on some but not all.

State regulatory action will be invalid to the extent that it violates the 

Supremacy Clause of the Constitution (art. VI, clause 2), which provides 

that laws of the United States which are within the constitutional power of 

the federal government are the “supreme law of the land” and prevail over 

inconsistent state laws. State law can violate the Supremacy Clause by 

directly regulating the federal government or discriminating against it and 

those with whom it does business (thus violating principles of 

intergovernmental immunity) or by conflicting with valid enactments of 

Congress (thus invoking a congressional preemption analysis). North 

Dakota v. United States, 495 U.S. 423, 434 (1990). If a given action is found 

to violate the Supremacy Clause, it is irrelevant whether the federal land or 

installation in question has enclave status.

An illustration is Leslie Miller, Inc. v. Arkansas, 352 U.S. 187 (1956). The 

Air Force entered into a contract for construction work on a base which 

was not a federal enclave. The contractor was charged and convicted in 

state court for failure to obtain a license under state law. The Supreme 

Court reversed the conviction, finding that the state licensing law 

conflicted with the procuring agency’s duty under federal procurement law 

to determine the responsibility of bidders. Similarly, in Paul v. United 

States, 371 U.S. 245 (1963), the Court found that California price control 

regulations on milk conflicted with federal procurement policy in that “the 

federal procurement policy demands competition [while] the California 

policy . . . effectively eliminates competition.” Id. at 253. In neither case 

was the status of the particular federal installations a relevant factor.

Two GAO decisions involved contracts for mortuary services at Dover Air 

Force Base, Delaware. In both cases, a disappointed bidder protested that 

the firm receiving the award, the low bidder, did not have a Delaware 

mortuary license. Based primarily on Leslie Miller, GAO upheld the 

contract awards in both cases. B-161723, Aug. 1, 1967; B-159723, Sept. 28, 

1966. Both decisions note that Dover was an exclusive jurisdiction enclave, 

but this factor was not crucial to the result.

The Supreme Court distinguishes between direct and indirect regulation 

for purposes of intergovernmental immunity analysis under the Supremacy 

Clause. As the plain meaning of the term suggests, “direct regulation” 

involves attempts to regulate federal entities themselves. States can 

directly regulate federal installations and activities only pursuant to “clear 
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and unambiguous” congressional (statutory) authorization. Goodyear 

Atomic Corp. v. Miller, 486 U.S. 174, 180 (1988); EPA v. California, 

426 U.S. 200, 211 (1976); Hancock v. Train, 426 U.S. 167, 179 (1976); 

B-286951, Jan. 10, 2002. “Indirect regulation” is the regulation of private 

parties (who may be government contractors or suppliers) which has an 

incidental effect on the government by, for example, causing it to pay 

higher prices. North Dakota, 495 U.S. at 434–35.90 Like direct regulation, 

indirect regulation must be neutral (nondiscriminatory) in order to survive 

the Supremacy Clause.91 Id. at 435. 

The validity of state regulation is also a question of congressional 

preemption.92 North Dakota, 495 U.S. at 435; Goodyear Atomic Corp.,

486 U.S. at 180 n.1. The three major categories of preemption analyses are 

summarized in English v. General Electric Co., 496 U.S. 72, 78–79 (1990). 

Preemption occurs when Congress explicitly defines the extent of 

preemption, when a state regulates conduct in a field that Congress 

intended the federal government to occupy exclusively, or when state law 

actually conflicts with federal law. Id. Federal agencies regulating within 

the scope of their delegated authority may also preempt state regulation. 

Louisiana Public Service Commission v. FCC, 476 U.S. 355 (1986).

Once you get by the Supremacy Clause hurdles of intergovernmental 

immunity and preemption—that is, once it is established that the state law 

or regulation does not attempt to impermissibly tax or regulate the federal 

government and does not conflict with valid federal law and does not 

attempt to impermissibly tax or regulate the federal government—the 

jurisdictional status of the federal property becomes relevant.93 The state 

law or regulation will then apply to nonenclave property (there is no longer 

a reason why it should not), and may or may not apply to enclaves, 

90 Other cases recognizing the distinction include Hancock v. Train, 426 U.S. 167, 179–80 

(1976); Mayo v. United States, 319 U.S. 441, 447 (1943); Penn Dairies, Inc. v. Milk Control 

Commission of Pennsylvania, 318 U.S. 261, 270 (1943).

91 The direct-indirect distinction is easier to state than it is to apply. Compare, for example, 

the plurality and dissenting opinions in North Dakota to see how two groups of four United 

States Supreme Court justices each can read the same cases very differently.

92 For more information, see the discussion of federalism presumptions in Chapter 2, 

section D.7.c.

93 Some courts reverse the analytical sequence and look first at the enclave issue and then 

invoke the Supremacy Clause if necessary. Either approach should get you to the same 

place.
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depending on factors previously discussed such as the types of jurisdiction 

the state may have reserved at the time of consent or cession and whether 

the law was in existence when the property achieved enclave status.

For example, in Pacific Coast Dairy, Inc. v. California Department of 

Agriculture, 318 U.S. 285 (1943), the Supreme Court held that a California 

statute requiring the licensing of milk distributors and establishing uniform 

prices for the sale of milk did not apply to sales on a federal enclave 

because the statute was enacted after the transfer of sovereignty. But the 

Court, on the same day, upheld a similar Pennsylvania statute regulating 

milk prices because it affected a military encampment on state land rather 

than a federal enclave. Penn Dairies, 318 U.S. at 270. By the time the 

Court again had occasion to consider the California milk laws in Paul,

371 U.S. 245, the intervening enactment of the Armed Services 

Procurement Act of 1947 and the promulgation of implementing 

regulations brought the state law into direct conflict with federal 

procurement policy, with the result that Paul was primarily decided on the 

basis of the Supremacy Clause rather than the enclave status of the military 

installations.

The Supremacy Clause resolved purchases to be made from appropriated 

funds. However, some of the milk in Paul was to be purchased with 

nonappropriated funds (military clubs and post exchanges). Since the 

federal procurement statutes and regulations did not apply to 

nonappropriated funds, there was no conflict with respect to these 

purchases. Accordingly, the applicability of the state law to 

nonappropriated fund purchases on exclusive jurisdiction enclaves 

depended on whether the state law was in effect when the United States 

acquired jurisdiction, a result “on all fours” with Pacific Coast. Paul, 

371 U.S. at 268–69.

GAO has considered problems in this area on several occasions. The 

questions usually arise incident to the award of federal procurement 

contracts. In 42 Comp. Gen. 704 (1963), the question was whether a 

contract for furnishing dairy products on a federal enclave could be 

awarded to the low bidder who had not complied with certain aspects of 

the state “fair trade” law. GAO found that the state law had been enacted 

after the transfer of jurisdiction, and that it was in conflict with federal 

procurement policy. Therefore, based largely on the Supreme Court’s 

decisions in Paul and Pacific Coast, GAO found the contract award to be 

proper. Similar cases are 27 Comp. Gen. 782 (1948) and B-151686, July 2, 

1965. More recently, GAO found a solicitation for a contract to privatize 
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utilities on a federal enclave valid in the face of an effort by a state agency 

to exert regulatory restrictions, a decision upheld in district court on 

grounds including both immunity and preemption. B-285209, Aug. 2, 2000; 

Baltimore Gas & Electric Co. v. United States, 133 F. Supp. 2d 721 (D. Md. 

2001).94

If none of these approaches applies—that is, you are dealing with an 

exclusive jurisdiction enclave and state law enacted after the acquisition of 

federal jurisdiction—the state law can apply only pursuant to “specific 

congressional action.” Paul, 371 U.S. at 263. See also Black Hills Power & 

Light Co. v. Weinberger, 808 F.2d 665, 668 (8th Cir. 1987), cert. denied,

484 U.S. 818l. 

Precisely how specific the congressional authority must be is somewhat 

unsettled. To rephrase the question: Is a federal statute which is 

sufficiently specific to allow a state law to survive a Supremacy Clause 

challenge also sufficiently specific to permit the application of that law on 

an enclave or must it explicitly address enclaves? Offutt Housing Co. v. 

County of Sarpy, 351 U.S. 253, 260 (1956), is capable of being read to 

suggest that it does not have to explicitly mention enclaves. But again, 

compare West River Electric Ass’n v. Black Hills Power & Light, 918 F.2d 

713, 717–20 (8th Cir. 1990) (Congress did not provide necessary clear 

authorization to cede its exclusive jurisdiction over an Air Force base; 

court distinguished Offutt because in that case the state tax at issue was 

directed against a private party who leased land on an Air Force base). See 

also Tacoma Dept of Public Utilities v. United States, 28 Fed. Cl. 637, 646 

(1993), aff’d, 31 F.3d 1130 (Fed. Cir. 1994). 

For an example of how this plays out in GAO case law, see 64 Comp. 

Gen. 813 (1985). This was a bid protest in which a statute required federal 

agencies to comply with local requirements on the control and abatement 

of solid waste “in the same manner, and to the same extent, as any person is 

subject to such requirements.” Id. at 815, quoting the requirements in the 

Resource Conservation and Recovery Act, at 42 U.S.C. § 6961(a). That 

language, the Comptroller General held, “expressly requires federal 

agencies to obtain waste disposal services from local governments” when 

94 The court also noted that even if a state law or regulation is assimilated by virtue of having 

been in existence at the time of an enclave’s creation, it becomes “federal law subject to 

federal jurisdiction.” Baltimore Gas, 133 F. Supp. 2d at 744 n.27. As such, the state does not 

retain jurisdiction to enforce the state law within the enclave. Id.
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such is required of others. Id. In this case, two military facilities were 

directed to cancel their competitive solicitations in favor of sole source 

contracts with local governments and their franchisees. A competitive 

procurement by another base was allowed to stand because the enclave 

was outside of the local government’s jurisdiction and others so situated 

were not required to contract with the local authorities. Id. at 816. GAO’s 

logic in this case was later tested in different cases in federal court and 

upheld. Parola v. Weinberger, 848 F.2d 956 (9th Cir. 1988). See also Solano 

Garbage v. Cheney, 779 F. Supp. 477 (E.D. Cal. 1991); 72 Comp. 

Gen. 225, 228 (1993). 

A common battleground for these principles is the area of state liquor 

control. In United States v. South Carolina, 578 F. Supp. 549 (D. S.C. 

1983), based on an essentially straightforward application of Paul and 

Leslie Miller, the court enjoined the state from implementing a state law 

requiring federal military installations to purchase alcoholic beverages 

from wholesalers licensed by the state. The installations in question were 

exclusive jurisdiction enclaves. South Carolina, 578 F. Supp. at 550. On 

the other hand, in North Dakota, 495 U.S. 423, the Supreme Court upheld a 

state requirement that out-of-state liquor vendors affix labels to each item 

to be delivered to a federal enclave in the state where the state and federal 

government exercised concurrent jurisdiction. The Court distinguished 

this type of indirect regulation, which was permissible even though it 

incidentally raised costs to the military, from the types of direct regulation 

encountered in cases like Paul and Leslie Miller.

3. Proprietorial 

Jurisdiction

A central theme of our discussion is that a federal enclave is essentially a 

consensual arrangement. Whether federal jurisdiction is obtained by 

Jurisdiction Clause95 consent or by cession, a federal enclave cannot come 

into being without the consent of the state and acceptance by the United 

States. Thus, enclave status can be neither coerced from the state nor 

forced upon the United States.

For the land over which the United States has not obtained exclusive, 

partial, or concurrent jurisdiction by consent or cession, federal 

jurisdiction is said to be “proprietorial.” This term originated from 

language in some of the cases to the effect that, absent consent or cession, 

95 U.S. Const. art. I, § 8, cl. 17. See discussion of this clause in section D.1 of this chapter.
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the United States has “only the rights of an ordinary proprietor.” E.g., Fort 

Leavenworth v. Lowe, 114 U.S. 525, 527 (1885).

While the term proprietorial implies that the United States is in the same 

position as any private owner, this is not the case. The United States may 

exercise authority over federal land, enclave or nonenclave, under 

language in article IV, section 3, clause 2 of the Constitution, the Property 

Clause: “The Congress shall have Power to dispose of and make all needful 

Rules and Regulations respecting the Territory or other Property belonging 

to the United States.”

The full significance of the Property Clause as an alternative to the 

Jurisdiction Clause does not appear to have been realized until the 

landmark case of Kleppe v. New Mexico, 426 U.S. 529 (1976). A New 

Mexico rancher had obtained a permit from the Bureau of Land 

Management (BLM) under the Taylor Grazing Act to graze cattle on certain 

BLM land in New Mexico. The rancher complained to a state agency that 

wild burros on the BLM land were interfering with his cattle. The state 

agency rounded up 19 of the wild burros and sold them at auction. The 

BLM demanded that the state recover and return the burros, claiming that 

the state’s action violated the Wild Free-Roaming Horses and Burros Act, 

16 U.S.C. §§ 1331–1340. New Mexico brought suit, alleging that the statute 

was unconstitutional.

The Supreme Court held that the wild burro statute was a valid exercise of 

congressional power under the Property Clause, and that it overrode any 

inconsistent state law. Congress, said the Court, has the power of a 

legislature as well as a proprietor over federal land. Kleppe, 426 U.S. at 540. 

That power is “without limitations” (id. at 539) and “complete” (id. at 540). 

The Court then squarely addressed the relationship of federal enclaves to 

the Property Clause:

“Congress may acquire derivative legislative power from a 

State pursuant to Art. I, § 8, cl. 17, of the Constitution by 

consensual acquisition of land, or by nonconsensual 

acquisition followed by the State’s subsequent cession of 

legislative authority over the land. . . . In either case, the 

legislative jurisdiction acquired may range from exclusive 

federal jurisdiction with no residual state police power . . . 

to concurrent, or partial, federal legislative jurisdiction, 

which may allow the State to exercise certain authority. . . .
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“But while Congress can acquire exclusive or partial 

jurisdiction over lands within a State by the State’s consent 

or cession, the presence or absence of such jurisdiction has 

nothing to do with Congress’ powers under the Property 

Clause. Absent consent or cession a State undoubtedly 

retains jurisdiction over federal lands within its territory, 

but Congress equally surely retains the power to enact 

legislation respecting those lands pursuant to the Property 

Clause. . . . And when Congress so acts, the federal 

legislation necessarily overrides conflicting state laws under 

the Supremacy Clause.” 

Id. at 542–43 (citations omitted). 

The Supreme Court’s opinion was unanimous. Concurrence of the burros 

may be presumed.96

Both the courts and the Comptroller General have recognized and reflected 

the significance of the Kleppe decision. One illustration is the selection of 

nuclear waste repository sites. GAO considered the issue in the late 1970s 

and concluded that a state could not block the establishment of a nuclear 

waste repository merely by withholding or qualifying consent under the 

Jurisdiction Clause. Exclusive federal jurisdiction is not a necessary 

prerequisite to establishing the repository, and Congress has adequate 

power under the Property Clause. Accordingly, an agreement by the 

Secretary of Energy purporting to give a state “veto power” over site 

selection would be unenforceable. B-192999, May 22, 1979. See also

B-164105, June 19, 1978, reaching the same conclusion based on the 

Department of Energy’s organic legislation. Several years later, Congress 

enacted amendments to the Nuclear Waste Policy Act designating a site in 

Nevada for possible development as a repository. The state went to court, 

and the Ninth Circuit held that the legislation was within congressional 

power under the Property Clause, and that there was no requirement that 

the site be located on a federal enclave. Nevada v. Watkins, 914 F.2d 1545 

(9th Cir. 1990), cert. denied, 499 U.S. 906 (1991). See also Nuclear Energy 

Institute, Inc. v. EPA, 373 F.3d 1251 (D.C. Cir. 2004).

96 It was subsequently established that damage to private land caused by the wild horses and 

burros does not amount to a compensable “taking.” Mountain States Legal Foundation v. 

Hodel, 799 F.2d 1423 (10th Cir. 1986), cert. denied, 480 U.S. 951 (1987). 
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Some other examples follow:

• An individual was fined for hunting ducks in a national park in 

Minnesota, in violation of National Park Service regulations prohibiting 

hunting or the possession of loaded firearms in national parks. The 

regulations had been issued pursuant to a statutory delegation. Even if 

the state had not ceded jurisdiction to the United States, the regulation 

was nevertheless valid under the Property Clause and took precedence 

over conflicting state law. This was equally true with respect to 

nonfederal waters within the park. United States v. Brown, 552 F.2d 

817 (8th Cir.), cert. denied, 431 U.S. 949 (1977).

• The National Park Service, under a statutory delegation, could issue a 

regulation requiring use of seat belts in national parks. The Defense 

Department, although it does not have statutory authority to regulate 

federal land comparable to that of the Park Service, could also require 

seat belt use by regulation, at least on land under exclusive federal 

jurisdiction. B-216218, Nov. 30, 1984, aff’d, B-216218, Sept. 6, 1988.

• Regulations for traffic control on Postal Service property are valid 

under the Property Clause, regardless of presence or absence of 

enclave jurisdiction. United States v. Gliatta, 580 F.2d 156, 160 

(5th Cir.), cert. denied, 439 U.S. 1048 (1978).

• Federal legislation which authorizes the Secretary of Agriculture to 

regulate grazing in the national forests overrides state open range law. 

Bilderback v. United States, 558 F. Supp. 903 (D. Ore. 1982).

Notwithstanding the very broad language it used in the Kleppe decision, the 

Supreme Court also noted in that case that “the furthest reaches of the 

power granted by the Property Clause have not yet been definitively 

resolved.” Kleppe, 426 U.S. at 539. It thus seems likely that litigation in this 

area will continue and that the law will continue to evolve.97

97 As a final note, the federal government, through legislation under the “necessary and 

proper” clause of the Constitution (art. I, § 8, cl. 18), may exercise specific types of 

jurisdiction over property which it merely leases. E.g., United States v. Burton, 888 F. 2d 

682 (10th Cir. 1989) (upholding General Services Administration’s authority to enforce antihandbill regulation in leased building). 
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E. Leasing If the government needs a building, there are several ways it can go about 

getting it. It can purchase an existing structure, making payment directly 

from appropriations available for that purpose; it can have the building 

constructed to order, again making payment directly from appropriations 

available for that purpose; it can lease an existing building; or it can use 

some form of lease-purchase or lease-construction arrangement. This 

section will address the leasing options.

1. Some General 

Principles

a. Acquisition A lease in the real property context may be defined as “[a] contract by 

which a rightful possessor of real property conveys the right to use and 

occupy the property in exchange for consideration, usu[ally] rent.” Black’s 

Law Dictionary 907 (8th ed. 2004). Thus, it includes any agreement that 

gives rise to a relationship of landlord and tenant. E.g., National Data 

Corp. v. United States, 50 Fed. Cl. 24, 28 (2001); B-96826-O.M., Feb. 8, 1967. 

General Services Administration (GSA) regulations define the term to mean 

“a conveyance to the Government of the right of exclusive possession of 

real property for a definite period of time by a landlord.” 48 C.F.R. 

§ 570.102.

It is generally recognized that, except for depressed real estate markets, 

leasing is less cost-effective than ownership. See generally GAO, General 

Services Administration’s Comparison of Space Acquisition 

Alternatives: Leasing to Lease-Purchase and Leasing to Construction, 

GAO/GGD-99-49R (Washington, D.C.: Mar. 12, 1999); Federal Office Space: 

Increased Ownership Would Result in Significant Savings, GAO/GGD-90-

11 (Dec. 22, 1989).98 Nevertheless, there are situations in which leasing is 

clearly the desirable option, such as where the government needs the space 

only for a short term or where it needs only a small amount of space. 

GAO/GGD-90-11, at 14–15. Too often, however, the decision whether to 

lease or buy is driven by budgetary considerations rather than the nature of 

the government’s need. The problem is that budget authority for purchase 

or direct construction must be provided “up front,” whereas budget 

98 See also United States v. Bedford Associates, 657 F.2d 1300, 1309 (2nd Cir. 1981), cert. 

denied, 456 U.S. 914 (1982).
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authority for leasing is provided year by year. Not surprisingly, large 

chunks of money for purchase or construction have traditionally been 

prime targets for budget-cutting by a Congress under constant pressure to 

reduce spending. Eliminating tens of millions of dollars to construct or 

acquire a building produces an immediately visible result, albeit only a 

short-term one, without angering any program’s constituents. Congress has 

struggled with this problem for many years. The then Public Works 

Committee’s report accompanying the Public Buildings Amendments of 

197299 stated that direct construction was “the most efficient and 

economical means of meeting Government building needs,” but essentially 

conceded “the futility of seeking a billion dollars for direct Federal 

construction . . . in competition with the present spending priorities.” 

H.R. Rep. No. 92-989, at 3 (1972). 

Despite the preference for construction and ownership, the government’s 

reliance on leased space has become progressively more pronounced. 

GAO reported that nearly half (48 percent) of the space controlled by the 

General Services Administration as of 1994 was leased, costing over 

$2 billion a year. GAO, Federal Office Space: More Businesslike Leasing 

Approach Could Reduce Costs and Improve Performance, GAO/GGD-95-48 

(Feb. 10, 1995), at 10. More recently, GAO pointed to instances in which 

the use of operating leases to meet agency space needs instead of 

construction, purchase, or even lease-purchase arrangements resulted in 

almost $1 billion in excess costs. One prime example was a long-term 

operating lease for the Patent and Trademark Office that was estimated to 

cost $48 million more than construction and $38 million more than leasepurchase. GAO, Federal Real Property: Reliance on Costly Leasing to 

Meet New Space Needs Is an Ongoing Problem, GAO-06-136T (Washington, 

D.C.: Oct. 6, 2005), at 5–6. Indeed, the “pervasive” nature of this problem 

was one of the major reasons that GAO designated federal real property 

management a high-risk area in 2003.100 Id. at 5.

As with the acquisition of fee title, the government can acquire a lease 

voluntarily, or it can acquire it involuntarily. Voluntary acquisition is the 

preferred method. As we will discuss later in this section, most leasing for 

the federal government is done by, or under delegation from, GSA. Under a 

number of statutes and executive branch issuances, GSA plays a central 

99 Pub. L. No. 92-313, 86 Stat. 216 (June 16, 1972).

100 See section A of this chapter for more on this high-risk designation.
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role in the acquisition of space for federal agencies. It prescribes 

governmentwide policies on property and acquisition management through 

the Federal Management Regulation, formerly known as the Federal 

Property Management Regulations. See 41 C.F.R. §§ 102-2.5. GSA’s policies 

are contained primarily in 41 C.F.R. part 102-73. As set forth therein, GSA’s 

stated policy is to lease privately owned space “only when needs cannot be 

met satisfactorily in Government-controlled space” and leasing is more 

advantageous than construction or alteration. 41 C.F.R. § 102-73.45. As 

noted above, however, this policy is seriously undercut by budgetary and 

other practical considerations; thus, GSA will lease when it cannot obtain 

sufficient budget authority to do anything else.

A lease of real property is subject to the Competition in Contracting Act’s 

(CICA) general requirement for full and open competition.101 41 U.S.C. 

§ 253; see B-225954, Mar. 30, 1987. The GSA regulations provide as follows: 

“Executive agencies must obtain full and open competition among suitable 

locations meeting minimum Government requirements, except as 

otherwise provided by CICA, 41 U.S.C. 253.” 41 C.F.R. § 102-73.100. 

The regulations further provide that acquisition by lease must be “on the 

most favorable basis to the Federal Government, with due consideration to 

maintenance and operational efficiency, and at charges consistent with 

prevailing market rates for comparable facilities in the community.” 

41 C.F.R. § 102-73.55. Specific contracting procedures for acquiring 

leasehold interests in real property are found in the GSA Acquisition 

Regulations, 48 C.F.R. part 570.

The evaluation factors in a lease invitation should be as clear and exact as 

possible, although a high level of precision is not required. “It is 

sufficient . . . to prescribe general guidelines of acceptability which 

necessarily must be applied as equitably as possible to the locations of the 

office spaces tendered.” 43 Comp. Gen. 663, 667 (1964), aff’d on 

reconsideration, B-152768, June 23, 1964.

An incumbent lessor does not have an exclusive right to negotiate 

extensions of the lease. See 48 Comp. Gen. 722, 724–25 (1969); B-251337.2, 

Apr. 23, 1993. Indeed, there are situations in which the government is not 

101 CICA does provide exceptions to the general requirement for full and open competition in 

some circumstances. See 41 U.S.C. §§ 253(b), (c), and (g).
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even required to include the incumbent lessor in the solicitation for the 

new lease.102 B-251288, Mar. 18, 1993.

While a lease is the conveyance of a possessory interest in real property, it 

is also a contract. E.g., Keydata Corp. v. United States, 504 F.2d 1115, 1123 

(Ct. Cl. 1974); Olympia Properties, L.L.C. v. United States, 54 Fed. Cl. 147, 

152 (2002), aff’d, 68 Fed. Appx. 976 (Fed. Cir. 2003). Therefore, it does not 

come into existence unless and until both parties execute the required 

formalities, that is, sign the lease contract. B-228279, B-228280, Jan. 15, 

1988.

Unless required by statute, it is not essential that the lease be recorded in 

the jurisdiction in which the property is located. A-19681, Sept. 28, 1927. 

Many states, however, have statutes which require the recording of leases 

for more than a stated term. The precise effect of these laws is subject to 

variation from state to state, but they are generally regarded as protecting 

the rights of the tenant by providing legal notice of the tenancy to 

subsequent purchasers or lessees.103 Id.; 26 Comp. Gen. 331 (1946). In 

determining whether a lease exceeds the minimum term specified in a 

recording statute, the period covered by renewal options should be added 

to the basic lease term. 26 Comp. Gen. 335 (1946). While the government’s 

policy has been that the cost of recording a lease should be borne by the 

lessor, recording fees may be charged to operating appropriations if there 

is a legitimate reason for the government to pay. 26 Comp. Gen. 331.

If the government is unable to meet its leasing needs voluntarily, it can fall 

back on the power of eminent domain. It has long been settled that the 

takings clause of the Fifth Amendment applies to “temporary takings” as 

well as the taking of full title. E.g., Phelps v. United States, 274 U.S. 341 

(1927). See also 22 Comp. Gen. 1112, 1114 (1943), regarding it as “settled 

law that the use of property can be taken as well as the title to property.”

Involuntary acquisition of a leasehold can take various forms. If there is 

already an existing lease, the government can simply condemn the entire 

102 As a general proposition, however, unless a market survey shows that the incumbent 

lessor will be unable to meet the government’s needs for the new lease, full and open 

competition requires that the incumbent be included. E.g., B-247910.3, June 8, 1993; 

B-225954, Mar. 30, 1987. See also 48 Comp. Gen. at 725.

103 This is not always the case. In some states, recording, although required by state law, 

may not be necessary to protect the tenant’s rights. See B-27717, Aug. 12, 1942.
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leasehold. E.g., Almota Farmers Elevator & Warehouse Co. v. United 

States, 409 U.S. 470 (1973); United States v. Petty Motor Co., 327 U.S. 372 

(1946). If the government needs the property for a shorter term than that of 

an existing lease, it can condemn only part of the existing lease. E.g., 

United States v. General Motors Corp., 323 U.S. 373 (1945). Or, if there is 

no existing lease, the government can employ condemnation to impose one 

on the property owner. E.g., Kimball Laundry Co. v. United States,

338 U.S. 1 (1949). The elements of just compensation vary somewhat 

depending on which of these scenarios applies. Some of the issues are 

discussed in the Supreme Court decisions cited in this paragraph.

If the determination of just compensation can be resolved administratively, 

the government is not required to institute formal condemnation 

proceedings but should adhere as closely as possible to the just 

compensation principles laid down by the Supreme Court. 25 Comp. Gen. 1 

(1945).

Private leases may include a clause, known as an “eminent domain” clause 

or a “termination on condemnation” clause, which provides that the lease 

shall terminate if the property is taken by governmental authority. If the 

government condemns an existing leasehold which is subject to such a 

provision, the lessee gets nothing. Petty Motor, 327 U.S. at 376; United 

States v. Advertising Checking Bureau, 204 F.2d 770, 772–73 (7th Cir. 1953); 

Bajwa v. Sunoco, Inc., 320 F. Supp. 2d 454 (E.D. Va. 2004); Heir v. 

Delaware River Port Authority, 218 F. Supp. 2d 627 (D.N.J. 2002); 

35 Comp. Gen. 85, 87 (1955); 22 Comp. Gen. at 1114. The theory is that 

tenants who enter into leases with such clauses contract away any rights 

they otherwise might have had. Petty Motor, 327 U.S. at 376; Checking 

Bureau, 204 F.2d at 772. (These cases illustrate two variations of the 

clause.)

As with any other acquisition of real property, condemnation of a leasehold 

requires statutory authority. The general condemnation statute, 40 U.S.C. 

§ 3113, discussed earlier in section B.5.b of this chapter, operates in exactly 

the same manner with respect to leaseholds as it does for fee acquisitions. 

By virtue of this statute, the authority to condemn is coextensive with the 

authority to purchase. Thus, GSA’s general authority (40 U.S.C. § 585), in 

conjunction with 40 U.S.C. § 3113, gives GSA the authority to acquire a 

leasehold by condemnation. Checking Bureau, 204 F.2d 770; United 

States v. Fisk Building, 99 F. Supp. 592 (S.D. N.Y. 1951); United States v. 

Midland National Bank of Billings, 67 F. Supp. 268 (D. Mont. 1946).
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In our discussion of 41 U.S.C. § 14 in section B of this chapter, we noted a 

line of cases establishing the proposition that the authority necessary to 

satisfy that statute can be found in an appropriation, if it can be shown that 

the appropriation was intended to be available for the acquisition in 

question. If that type of authority is sufficient, in conjunction with 

40 U.S.C. § 3113, to authorize condemnation of the fee, it should also be 

sufficient to authorize condemnation of a leasehold, a lesser interest. One 

case, which appears to stand alone, went so far as to find the basic 

acquisition authority in a general operation (salaries and expenses) 

appropriation, with no apparent demonstration that Congress was aware 

of, much less had approved, the lease in question. United States v. 

Hibernia Bank Building, 76 F. Supp. 18 (E.D. La. 1948). While Hibernia 

does not appear to have been expressly repudiated, it is important to note 

that it, as well as Midland Bank and its progeny, was decided prior to the 

statutory requirement for prospectus approval which we will cover later in 

this discussion. Thus, Hibernia could not be followed today, at least with 

respect to a lease within the scope of the prospectus requirement. See 

Maiatico v. United States, 302 F.2d 880 (D.C. Cir. 1962).

Another principle which is the same as for fee acquisitions is the principle 

that statutory cost limitations on voluntary acquisition do not apply to 

condemnations. 22 Comp. Gen. 1112. The reason is that just compensation 

is a constitutional right and cannot be limited by statute. Id. at 1114. (The 

particular limitation in that case no longer exists, but the principle remains 

valid.)

b. Application of Fiscal Law 

Principles

A lease, as a contract requiring the obligation and expenditure of 

appropriated funds, is subject to the various fiscal statutes and principles 

discussed throughout this publication the same as any other contract. One 

area meriting some note is the Antideficiency Act, 31 U.S.C. § 1341.104 

There are few areas of government contracting in which the desirability of 

multiyear commitments is stronger than in the case of real property leases. 

For the most part, Congress has provided multiyear leasing authority. This 

is fortunate because it has long been settled that, without either such 

authority or a no-year appropriation, a multiyear lease would violate the 

Antideficiency Act by purporting to obligate the government for future 

years, in advance of appropriations for those years.

104 The Antideficiency Act is discussed extensively in Chapter 6, section C. 
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The story of one such lease will illustrate. A government agency leased 

space in an office building in 1921, purportedly for 5 years, without 

statutory authority. At the end of the second year, the government notified 

the lessor of its intention to terminate the lease and vacate the premises. 

However, the government’s new space was not yet ready, so the agency 

remained in the leased building and told the lessor that it would continue to 

pay rent for the period of actual occupancy. The lessor argued that, under 

state law, it was entitled to rent for at least the full third year. The claim 

first came to GAO and the answer was no. Since the multiyear lease was 

unauthorized in the first place, terminating it at the end of the second year 

could not be a breach. 5 Comp. Gen. 172 (1925). The lessor did not like 

this answer and went to court, by now conceding that it could not establish 

the lease’s validity for the full 5-year period, but still trying to recover for 

the entire third year. The Court of Claims threw the case out on the 

grounds that it failed to state a cause of action. Goodyear Tire & Rubber 

Co. v. United States, 62 Ct. Cl. 370 (1926), aff’d, 276 U.S. 287 (1928).

The lessor, not overly excited with this result either, took it to the Supreme 

Court. Unfortunately for the lessor, the Supreme Court had just decided a 

similar case, Leiter v. United States, 271 U.S. 204 (1926), clearly 

establishing that a multiyear lease without statutory authority could bind 

the government only to the end of the fiscal year in which it was made (or, 

of course, longer period under a multiple year appropriation). It could be 

binding in a subsequent year only if there was an available appropriation 

and if the government took affirmative action—as opposed to mere 

automatic renewal—to continue the lease. Leiter, 271 U.S. at 207.105 The 

disposal of Goodyear’s appeal was a straightforward application of Leiter. 

Goodyear, 276 U.S. 287. “Not having affirmatively continued the lease 

beyond the actual period of occupancy, the Government cannot, under the 

doctrine of the Leiter case, be bound for a longer term.” Id. at 293.

Later GAO decisions applying these principles include 24 Comp. Gen. 195 

(1944); 20 Comp. Gen. 30 (1940); 19 Comp. Gen. 758 (1940); and B-7785, 

Mar. 28, 1940. The sheer number of cases both before and after Leiter

suggests the strength of the need that ultimately generated the multiyear 

leasing statutes we will discuss later. Of course, the case law comes back 

105 Although Leiter has come to be cited as the leading case, it broke little new ground. The 

principle had already become established by the courts and the accounting officers. E.g., 

Chase v. United States, 155 U.S. 489 (1894); Smoot v. United States, 38 Ct. Cl. 418 (1903); 

McCollum v. United States, 17 Ct. Cl. 92 (1881); 5 Comp. Gen. 522 (1926); 5 Comp. Gen. 355 

(1925); 1 Comp. Gen. 10 (1921). For more on Leiter, see Chapter 6, section C.2.b(4).
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into play in any situation not covered by one of the statutes, or if the 

government were to attempt to enter into a lease for a time period in excess 

of that authorized by statute.

The objection, based on the Antideficiency Act, to indefinite or open-ended 

indemnification agreements by the government applies fully to indemnity 

provisions included in a lease. 35 Comp. Gen. 85 (1955).

The existence of multiyear leasing authority by itself does not necessarily 

tell you how to record obligations under a lease. Some agencies have 

specific statutory direction. For example, the General Services 

Administration is to obligate funds for its multiyear leases one year at a 

time. 40 U.S.C. § 585(a)(2). So are the military departments with respect to 

leases in foreign countries. 10 U.S.C. §§ 2675 (leases for military purposes 

other than family housing) and 2828(d) (military family housing). Absent 

such authority, you fall back on the general rule that obligations are 

chargeable in full to appropriations current at the time they are incurred. 

Thus, in B-195260, July 11, 1979, GAO advised the Federal Emergency 

Management Agency, which had no-year appropriations but no statutory 

direction comparable to 40 U.S.C. § 585(a)(2) or 10 U.S.C. § 2675, that it 

could enter into a multiyear lease under its no-year appropriation but that it 

had to obligate the full amount of its obligations under the lease at the time 

the lease was signed. Actual payments, of course, would be made 

periodically over the term of the lease.

The constitutional immunity of the United States from state and local taxes 

imposed on property which the government owns does not extend to 

property which the government leases. Taxes imposed on the owner are 

simply part of the consideration or rent which the government, as tenant, 

agrees to pay. 24 Comp. Dec. 705 (1918). However, there is no authority for 

the government to increase its rent payments to compensate for tax 

increases unless there is also some other modification or amendment to 

constitute legal consideration. B-169004, Mar. 6, 1970. Indeed, the current 

regulations require inclusion of a clause explicitly stating that no 

adjustment will be made to cover increased taxes. 48 C.F.R. § 552.229-70.

c. Rights and Obligations While the Contract Disputes Act does not apply to contracts for “the 

procurement of . . . real property in being” (41 U.S.C. § 602(a)(1)), this 

exemption has not been construed as applying to leases. Therefore, claims 

and disputes arising under a lease are governed by the requirements and 

procedures of the Contract Disputes Act. Forman v. United States,

767 F.2d 875 (Fed. Cir. 1985) (the leading case); Jackson v. United States 
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Postal Service, 799 F.2d 1018 (5th Cir.), reh’g denied, 803 F.2d 717 (5th Cir. 

1986); The Federal Group, Inc. v. United States, 67 Fed. Cl. 87, 96–97 

(2005); United States v. Black Hawk Masonic Temple Ass’n, 798 F. Supp. 

646 (D. Colo. 1992); Goodfellow Bros., Inc., AGBCA No. 80-189-3, 

81-1 B.C.A. ¶ 14,917 (1981); Robert J. DiDomenico, GSBCA No. 5539, 

80-1 B.C.A. ¶ 14,412 (1980).106 However, as with other types of government 

contracts, the Contract Disputes Act does not extend to protests against 

the award of, or failure to award, a lease. Arthur S. Curtis, GSBCA 

No. 8867-P-R, 88-1 B.C.A. ¶ 20,517 (1988) (government in that case was 

lessor).

The traditional view among the courts, boards of contract appeals, and 

GAO has been that rights and obligations under a lease to which the federal 

government is a party are questions of federal, rather than state, law. E.g., 

Forman, 767 F.2d 875; Girard Trust Co. v. United States, 161 F.2d 159 

(3rd Cir. 1947); Keydata Corp. v. United States, 504 F.2d 1115 (Ct. Cl. 1974); 

Brooklyn Waterfront Terminal Corp. v. United States, 90 F. Supp. 943 

(Ct. Cl. 1950), cert. denied, 340 U.S. 931 (1951); Goodfellow Bros., Inc., 

81-1 B.C.A. ¶ 14,917; 49 Comp. Gen. 532, 533 (1970); B-174588, May 17, 

1972, aff’d on reconsideration, B-174588, Sept. 6, 1972. The same is true 

with respect to lease formation. E.g., United States v. Bedford Associates,

657 F.2d 1300, 1309–10 (2nd Cir. 1981), cert. denied, 456 U.S. 914 (1982). 

Under this approach, the decision maker is free to choose what it regards 

as the better view when state laws are not uniform. E.g., Keydata, 504 F.2d 

at 1122–24.

There is also a line of cases involving United States Postal Service leases 

which, while recognizing their power to apply federal law, decline to do so 

and instead apply state landlord-tenant law. Powers v. United States Postal 

Service, 671 F.2d 1041 (7th Cir. 1982); Reed v. United States Postal Service,

660 F. Supp. 178 (D. Mass. 1987); Jackson v. United States Postal Service,

611 F. Supp. 456 (N.D. Tex. 1985).107 The advantage of using state law is that 

106 But see Coconut Grove Entertainment, Inc. v. United States, 46 Fed. Cl. 249 (2000), 

holding that the Contract Disputes Act exemption did apply to a suit involving a lease where 

the government agency did not enter into the lease directly but, through a property 

acquisition, had succeeded to the landlord’s interest under a pre-existing lease between two 

private parties.

107 One court recognized the conflict between the Forman and Powers lines of cases, but 

found it unnecessary to take sides since the outcome in its case was the same under both 

state and federal law. Kerin v. United States Postal Service, 116 F.3d 988, 990–91 (2nd Cir. 

1997). 
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every state has an established body of landlord-tenant law whereas federal 

courts deal with these issues infrequently. It is no coincidence that these 

cases, from the district courts and numbered circuits, all involve Postal 

Service leases because federal lease cases involving agencies other than 

the Postal Service would mostly go on appeal to the Court of Appeals for 

the Federal Circuit. Forman, 767 F.2d at 880 n.6; Reed, 660 F. Supp. at 181. 

Indeed, since appeals under the Contract Disputes Act go to the Federal 

Circuit, the Postal Service Board of Contract Appeals follows its governing 

circuit (the Forman case) and applies federal law. N.J. Hastetter, Trustee, 

PSBCA No. 3064, 92-3 B.C.A. ¶ 25,189 (1992).

As with contracts in general, rights and obligations under a lease are 

determined primarily by reference to the terms the parties agreed upon, as 

embodied in the lease agreement. E.g., Girard Trust Co., 161 F.2d at 161. 

A number of contract clauses used in General Services Administration 

leases are described in 48 C.F.R. subpart 570.6. In addition, there are 

certain “implied covenants” that the courts will read in unless the lease 

expressly provides otherwise.

For example, the landlord is frequently obligated to keep the premises in 

good repair. See 48 C.F.R. §§ 570.603 and 552.270-6 (clause). If the landlord 

violates this provision, the government can make the repairs and deduct 

their cost from rent payments. 48 C.F.R. § 552.270-10. In addition, every 

lease includes an “implied covenant of quiet enjoyment.” United States v. 

Bedford Associates, 548 F. Supp. 732, 740 (S.D.N.Y. 1982), modified on 

other grounds and aff’d, 713 F.2d 895 (2nd Cir. 1983). Significant breach of 

the repair clause or the implied covenant can trigger the government’s right 

to terminate the lease under a default clause if the lease contains one or, if 

the lease does not contain a default clause, under the common-law concept 

of “constructive eviction.”

A constructive eviction is wrongful conduct by the lessor which (1) renders 

the premises unfit for the purpose leased or (2) deprives the tenant of the 

beneficial use and enjoyment of the premises. David Kwok, GSBCA 

No. 7933, 90-1 B.C.A. ¶ 22,292 (1989), aff’d mem., 918 F.2d 187 (Fed. Cir. 

1990); Hugh L. Nathurst III, GSBCA No. 9284, 89-3 B.C.A. ¶ 22,164 (1989); 

J.H. Millstein and Fanny Millstein, GSBCA Nos. 7665 and 7904, 86-3 

B.C.A. ¶ 19,025 (1986). A constructive eviction requires more than some 

minor deviation. For a vivid example of facts supporting a constructive 

eviction, see Kwok, 90-1 B.C.A. at ¶ 111,959. Under a constructive eviction, 

the government’s obligation to pay rent ceases, but the government, as 

tenant, must vacate the premises within a reasonable time. Bedford 
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Associates, 548 F. Supp. at 741; Richardson v. United States, 17 Cl. Ct. 

355, 357 (1989). Disruption incident to the making of repairs is not a 

constructive eviction. Millstein, 86-3 B.C.A. at ¶ 96,084. Conversely, 

continued occupancy in reliance on the lessor’s promise of repair does not 

waive the government’s right to assert a constructive eviction. Nathurst,

89-3 B.C.A. at ¶ 111,541.

A lease may require the lessee to restore the premises to the condition they 

were in at the beginning of the lease, reasonable wear and tear excepted. 

As with the “good repair” clause, even in the absence of an express 

provision in the lease, there is an implied covenant which may produce 

much the same result. Unless the lease expressly provides otherwise, 

every lease includes an implied covenant against voluntary waste, under 

which the government can be held liable for negligent damage to the 

premises. United States v. Bostwick, 94 U.S. 53 (1876); New Rawson 

Corp. v. United States, 55 F. Supp. 291 (D. Mass. 1943); Mount Manresa v. 

United States, 70 Ct. Cl. 144 (1930); Italian National Rifle Shooting 

Society v. United States, 66 Ct. Cl. 418 (1928). This covenant “also requires 

restoration of the premises to the lessor in the same condition as received, 

reasonable wear and tear excepted” when “construed with reference to the 

intended use of the property by the lessee.” Brooklyn Waterfront Terminal 

Corp. v. United States, 90 F. Supp. 943, 949 (Ct. Cl. 1950), cert. denied, 

340 U.S. 931 (1951). See also United States v. Jordan, 186 F.2d 803, 806 

(6th Cir. 1951), aff’d per curiam, 342 U.S. 911 (1952). By virtue of the 

covenant against voluntary waste, appropriate restoration costs are a 

proper charge to appropriated funds. 26 Comp. Gen. 585 (1947); 25 Comp. 

Gen. 349 (1945).

A provision whose status is somewhat clouded is the Termination for 

Convenience (“T for C”) clause required in government procurement 

contracts generally. The government has regarded the “T for C” clause as 

inappropriate in leases of real property, and General Services 

Administration (GSA) leases do not include a “T for C” clause. The reason, 

the GSA Board of Contract Appeals has suggested, is that the clause “would 

enable the Government to cancel the lease at any time without liability for 

future rent, and would therefore so vitiate the agreement on a fixed lease 

term that it might render the apparent lease agreement nugatory.” Yucca, A 

Joint Venture, GSBCA Nos. 6768, 7319, 85-3 B.C.A. ¶ 18,511 (1985) 

at ¶ 92,969. 

One practical consequence of this is the inability to recommend 

termination where a lease is found to have been improperly awarded. E.g.,
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72 Comp. Gen. 335, 339 (1993); B-214648, Dec. 26, 1984. However, one 

court has stated that a termination for convenience clause is incorporated 

in a lease of real property by operation of law. Aerolease Long Beach v. 

United States, 31 Fed. Cl. 342, aff’d, 39 F.3d 1198 (Fed. Cir. 1994). Whether 

a lease could expressly disclaim the “T for C” authority does not yet appear 

to have been addressed.

Wholly apart from the presence or absence of a termination for 

convenience clause, paragraph 4 of the U.S. Government Lease for Real 

Property, Standard Form 2 (June 2, 2003),108 provides as follows: “The 

Government may terminate this lease at any time by giving at 

least ___ days’ notice in writing to the Lessor and no rental shall accrue 

after the effective date of termination.” The parties then insert the desired 

notification period. This provision has occasionally been stricken from the 

lease, essentially for the same reason there is no “T for C” clause—the 

apparent inconsistency with the fixed term of the lease. E.g., David Kwok,

GSBCA No. 7933, 90-1 B.C.A. ¶ 22,292 (1989) at ¶ 111,960. However, where 

the provision is used, it becomes part of the contract and is enforced as 

such. Darrel Stebbins, AGBCA No. 91-164-1, 93-1 B.C.A. ¶ 25,236 (1992); 

Capricorn Enterprises, Inc., AGBCA No. 89-125-1, 90-1 B.C.A. ¶ 22,587 

(1990).

d. Payment of Rent “The primary obligation of a tenant is to pay rent.” Jackson v. United 

States Postal Service, 611 F. Supp. 456, 460 (N.D. Tex. 1985). Rent has been 

defined as “compensation for the use, enjoyment and occupation of real 

estate.” B-106578, Aug. 29, 1952, at 3. The lease (paragraph 3 of the U.S. 

Government Lease for Real Property, Standard Form 2109) will state the 

amount of rent and the intervals at which it is to be paid. Where rent is paid 

monthly, the monthly amount, unless the lease specifies differently, is onetwelfth of the annual rental regardless of variations in the number of days 

from month to month. 24 Comp. Gen. 838 (1945).

The government pays by electronic funds transfer. See 48 C.F.R. 

§§ 532.908(b)(2) and 552.232-76. The Prompt Payment Act applies to 

leases. 31 U.S.C. § 3901(a)(6). GSA’s regulations incorporating this 

requirement are 48 C.F.R. §§ 532.908(b)(1) and 552.232-75. Under the terms 

108 This form is available at www.gsa.gov/Portal/gsa/ep/formslibrary.do?formType=SF (last 

visited Mar. 25, 2008). 

109 Id.
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of the lease provision, however, Prompt Payment Act interest penalties do 

not apply where the delay in payment is due to a dispute concerning the 

government’s liability. Modeer v. United States, 68 Fed. Cl. 131, 144 (2005), 

aff’d, 183 Fed. Appx. 975 (Fed. Cir. 2006).

(1) Advance payment

By virtue of the general prohibition against advance payments found in 

31 U.S.C. § 3324(b), the United States cannot make rental payments in 

advance but must pay in arrears. The prohibition applies to the lease of 

“naked lands” as well as buildings. 23 Comp. Dec. 653 (1917). The General 

Services Administration’s regulations provide that rent will be paid monthly 

“in arrears” and is due on the first workday of each month. 48 C.F.R. 

§ 552.232-75(a)(1). Thus, the payment covers the month that has just ended 

rather than the month that is beginning. GPA-I, LP v. United States, 

46 Fed. Cl. 762, 769–71 (2000).

The same nonstatutory exceptions apply in the case of leases as apply to 

advance payments in general. Thus, where the lessor is a state, rent may be 

paid in advance because the possibility of loss is regarded as sufficiently 

remote. 57 Comp. Gen. 399 (1978). See also B-207215, Mar. 1, 1983, 

applying the exception to a National Park Service lease from a statutorily 

created nonprofit foundation whose governing board included the 

Secretary of the Interior and the Director of the Park Service. That 

decision also emphasized that, in view of the bona fide needs rule, payment 

in advance means advance for the fiscal year (or other fixed term of the 

paying appropriation). Rent being paid pursuant to a condemnation award 

may be paid in advance to the extent necessary to satisfy the award. 

22 Comp. Gen. 1112 (1943).

In addition, Congress may legislate exceptions to the advance payment 

prohibition and has done so in a number of instances. Examples are 

22 U.S.C. § 2670(h) (State Department leases for the use of the Foreign 

Service abroad) and 10 U.S.C. § 2661(b)(1) (certain military leases).

(2) Payment to legal representative

The common-law rule is that rent which has accrued prior to the lessor’s 

death is payable to the executor or administrator; rent which accrues after 

the lessor’s death vests in the heir (intestate succession) or devisee (person 

named in will), unless otherwise provided by statute or will or unless the 

property has been formally brought into administration proceedings prior 
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to accrual of the rent. B-116413, Aug. 19, 1953. For an example of a state 

statute which modifies the common-law rule by requiring payment of 

posthumous rent to the legal representative, see B-36636, Sept. 14, 1943. Of 

course, the common-law rule does not apply in the case of property held 

jointly with right of survivorship, such as property owned by a husband and 

wife as tenants by the entirety, in which case rent is payable to the 

surviving co-owner. B-140816, Oct. 27, 1959.

Where rent is being paid to an executor or administrator, the voucher 

should include a statement to the effect that the payee is continuing to 

serve in that capacity. 9 Comp. Gen. 154 (1929); B-127362, Apr. 13, 1956. 

The purpose is to safeguard against making payment to someone who has 

been discharged as legal representative, an improper payment which could 

put a certifying officer at risk. This does not mean that the certifying 

officer has to run to the courthouse every month before certifying the 

payment voucher. While this would not eliminate the potential for personal 

liability, the lessor can be required to submit a statement to be attached to 

the voucher. B-57612, June 18, 1946.

Before entering into a new lease with an executor or administrator, the 

agency must be careful to determine that the executor or administrator is 

authorized to lease the decedent’s property. This usually requires the 

permission of the probate court. In 16 Comp. Gen. 820 (1937), an executor 

leased property to the government at a rent lower than that authorized by 

the court. Since the executor had exceeded his authority, no binding lease 

resulted and the government was liable for the fair rental value of the 

property.

(3) Assignment of Claims Act

The Assignment of Claims Act—31 U.S.C. § 3727 and 41 U.S.C. § 15—

prohibits the assignment of claims against the United States except under 

fairly restrictive conditions, prohibits the transfer of government contracts, 

and authorizes the assignment of contract proceeds to financing 

institutions. This legislation impacts the payment of rent under leases in 

several ways. Starting with 31 U.S.C. § 3727, the prohibition on 

assignments applies to a lessor’s right to receive rent. The government is 

not bound to recognize an assignment not in compliance with the statute. 

E.g., Webster Factors, Inc. v. United States, 436 F.2d 425 (Ct. Cl. 1971); 

B-204237, Oct. 13, 1981.
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To avoid problems under the anti-assignment legislation, early decisions110

developed the following guidelines for payment:

• If an agent executes the lease on behalf of the principal under a proper 

power of attorney, rent may be paid to the agent.

• Rent may be paid to an agent if the lease itself so specifies.

• If neither of the above applies, the check for rent must be drawn 

payable to the principal, although it may be delivered to an agent.

• If payment to an agent is authorized to begin with, it may be made to a 

successor agent. 6 Comp. Gen. 737 (1927); B-36636, Sept. 14, 1943.

Application of the Assignment of Claims Act to leases is essentially the 

same as in other contexts. Thus, the prohibition applies to voluntary 

assignments and not to assignments by operation of law. E.g., Keydata 

Corp. v. United States, 504 F.2d 1115 (Ct. Cl. 1974) (assignment under court 

order). Also, since the prohibition is for the government’s protection, the 

government can choose to waive the statute and recognize an assignment. 

Freedman’s Saving & Trust Co. v. Shepherd, 127 U.S. 494 (1888). See also

11 Comp. Gen. 278 (1932). As with government contracts in general, the 

government can include a provision authorizing the assignment of rent 

payments to a financing institution, and will then be bound by a proper 

assignment. See Webster Factors, 436 F.2d 425.

The prohibition in 41 U.S.C. § 15 on the transfer of contracts comes into 

play when the lessor of property leased to the government sells the 

property. An early Supreme Court case, Shepherd, 127 U.S. at 505, held that 

the prohibition—

“does not embrace a lease of real estate to be used for 

public purposes, under which the lessor is not required to 

perform any service for the government, and has nothing to 

do, in respect to the lease, except to receive from time to 

time the rent agreed to be paid. The assignment of such a 

lease is not within the mischief which Congress intended to 

prevent.” 

110 16 Comp. Gen. 867 (1937); 10 Comp. Gen. 31 (1930); 5 Comp. Gen. 749 (1926); 9 Comp. 

Dec. 611 (1903). (Each case does not include every point.) 
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There is no reason this holding would not remain valid under the stated 

conditions. Especially with respect to buildings, however, many modern 

leases are different. The General Services Administration (GSA) Board of 

Contract Appeals has held that the principle of the Shepherd case does not 

apply to—

“a contemporary GSA lease, involving a host of services and 

supplies to be provided by the lessor. The transfer of this 

lease without the consent of the Government might not only 

subject the Government to multiple litigation with unknown 

parties, but might, at each turn, subject the Government to 

detrimental alteration in the performance of contractual 

services.” 

Broadlake Partners, GSBCA No. 10713, 92-1 B.C.A. ¶ 24,699 (1991), 

at ¶ 123,270. Of course, as with assignments under 31 U.S.C. § 3727, the 

government can consent to the transfer. See Albert Ginsberg, GSBCA 

No. 9911, 91-2 B.C.A. ¶ 23,784 (1991).

In 1992, subsequent to the Broadlake Partners decision, GSA amended its 

“successors bound” clause to read as follows: “This lease shall bind, and 

inure to the benefit of, the parties and their respective heirs, executors, 

administrators, successors and assigns.” 48 C.F.R. § 552.270-11 (emphasis 

added). This clause is required in larger leases and optional in smaller 

ones. 48 C.F.R. § 570.603. The 1992 amendment added the italicized 

language.111 While there appear to be no published decisions interpreting 

the amendment, it is at least arguable that the clause amounts to a blanket 

consent. See United States v. Jordan, 186 F.2d 803, 808 (6th Cir. 1951), aff’d 

per curiam, 342 U.S. 911 (1952).

2. Statutory Authorities 

and Limitations

a. Federal Property and 

Administrative Services Act

The major portion of the federal government’s leasing is done by the 

General Services Administration (GSA), which serves as the government’s 

111 GSA, General Services Administration Acquisition Regulation: Real Property Leasing 

Clauses, 57 Fed. Reg. 37889, 37892 (Aug. 21, 1992).
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chief “leasing agent.”112 As a general proposition, an agency which needs 

space must get it through GSA. The agency may do its own leasing only if it 

has specific statutory authority to do so, or upon a delegation from GSA. 

B-309181, Aug. 17, 2007 (“Without a delegation from the General Services 

Administration or independent statutory authority to enter into a lease, 

neither GovWorks (a Department of the Interior franchise fund) nor the 

Counterintelligence Field Activity . . . of the Department of Defense . . . had 

authority to obtain office space through a third-party lease.”); B-202206, 

June 16, 1981 (the Northern Mariana Islands Commission on Federal Laws, 

an independent entity in the legislative branch, may not rent office space 

on its own unless it receives a delegation from GSA).

We begin our discussion of GSA’s authorities with a brief note on citations. 

GSA’s leasing authority is the combined product of several provisions of 

law. The primary original source of these provisions was the Federal 

Property and Administrative Services Act of 1949, Pub. L. No. 81-152, 

63 Stat. 377 (June 30, 1949) (Property Act), which also created GSA. These 

provisions, with their amendments over the years, were located in title 40 

of the United States Code. They are still in title 40; however, Congress 

recently codified title 40 into positive law. Pub. L. No. 107-217, 116 Stat. 

1062 (Aug. 21, 2002). The codification repealed most of the Property Act 

and reassigned its provisions to new sections of title 40, usually retaining 

the same substance but making minor wording changes. While the 

following discussion cites the current provisions, we will also include the 

pre-codification citations since virtually all the cases we will discuss 

reference the former sections. 

Section 585 of title 40113 authorizes the Administrator of GSA to enter into 

leases for terms of up to 20 years. Specifically, section 585(a) provides:

“(1) Authority.—The Administrator of General Services may 

enter into a lease agreement with a person, copartnership, 

corporation, or other public or private entity for the 

accommodation of a federal agency in a building (or 

improvement) which is in existence or being erected by the 

112 Before GSA was created, many of the government’s real property functions were 

performed by the Federal Works Agency. See 65 Comp. Gen. 722, 725 (1986). The functions 

of this agency, as well as functions from other agencies, were transferred to GSA when it 

was created in 1949. See 40 U.S.C. § 303.

113 Formerly 40 U.S.C. §§ 490(h), 490d, 490e.
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lessor to accommodate the federal agency. The 

Administrator may assign and reassign the leased space to a 

federal agency.

“(2) Terms.—A lease agreement under this subsection shall 

be on terms the Administrator considers to be in the interest 

of the Federal Government and necessary for the 

accommodation of the federal agency. However, the lease 

agreement may not bind the Government for more than 

20 years and the obligation of amounts for a lease under this 

subsection is limited to the current fiscal year for which 

payments are due without regard to section 1341(a)(1)(B) of 

title 31 [of the United States Code].”

Shortly after enactment of the Property Act, section 1 of Reorganization 

Plan No. 18 of 1950, 40 U.S.C. § 301 note, promulgated pursuant to the 

Reorganization Act of 1949 (5 U.S.C. §§ 901–912), transferred “[a]ll 

functions with respect to acquiring space in buildings by lease . . . from the 

respective agencies in which such functions are now vested” to GSA, 

except for (1) buildings in foreign countries, (2) buildings on military 

facilities, (3) post office buildings, and (4) “special purpose” space not 

generally suitable for the use of other agencies, such as hospitals, jails, and 

laboratories. Another provision, 40 U.S.C. § 582(b),114 gives the Office of 

Management and Budget permanent authority to transfer to GSA functions 

“vested in a federal agency with respect to the operation, maintenance, and 

custody of an office building” owned or leased by the government, with 

exceptions similar to those found in the 1950 reorganization plan.

GSA’s leasing authority under 40 U.S.C. § 585 is not limited to the executive 

branch. This is because the authority applies with respect to “federal 

agencies,” which term is defined in 40 U.S.C. § 102(5)115 to mean “an 

executive agency or an establishment in the legislative or judicial branch of 

the Government (except the Senate, the House of Representatives, and the 

Architect of the Capitol, and any activities under the direction of the 

Architect of the Capitol.”

114 Formerly 40 U.S.C. § 490(d).

115 Formerly 40 U.S.C. § 472.
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Thus, legislative branch entities except those specified must lease office 

space through GSA absent authority to do otherwise by statute or 

delegation. B-202206, June 16, 1981. So must the Administrative Office of 

the United States Courts. 54 Comp. Gen. 944 (1975). The Supreme Court 

building is exempt from GSA’s authority, however, because 40 U.S.C. 

§ 6111(a)116 places it under the control of the Architect of the Capitol. 

54 Comp. Gen. at 947.

The statute further defines “executive agency” as including wholly owned 

government corporations. 40 U.S.C. § 102(4). Therefore, by its terms, it 

does not apply to mixed-ownership government corporations. See 

Chapter 15, section B. Similarly, Reorganization Plan No. 18 is regarded as 

applicable to wholly owned, but not mixed ownership, government 

corporations. 38 Comp. Gen. 565 (1959).

The 20-year term authorized by 40 U.S.C. § 585(a)(2) refers to the length of 

time that the government is obligated to pay rent. Thus, a leaseconstruction agreement which provides for a 2 to 3 year lead time for 

construction of the building, with the 20-year term of occupancy and the 

government’s obligation to pay rent to begin upon completion of 

construction, does not violate the statute. B-191888, May 26, 1978.

GSA finances its leasing operations from the Federal Buildings Fund, a 

revolving fund established by 40 U.S.C. § 592.117 Money in the Fund is 

available for expenditure as specified in annual appropriation acts. 

40 U.S.C. § 592(c)(1). A recurring general provision authorizes any 

department or agency to use its operating appropriations to pay GSA’s 

charges for space and services furnished by law. E.g., Consolidated 

Appropriations Act, 2008, Pub. L. No. 110-161, § 706, 121 Stat. 1844, 2020 

(Dec. 26, 2007). Funds for multiyear leases are obligated one fiscal year at 

a time. 40 U.S.C. § 585(a)(2).

This funding scheme does not give the tenant agency the same rights 

against GSA that a commercial tenant would have against a commercial 

landlord. Thus, GSA is not liable to the tenant agency for damage to the 

agency’s property caused by building defects, although GSA should of 

course try to recover from the lessor. 57 Comp. Gen. 130 (1977). See also 

116 Formerly 40 U.S.C. § 13a.

117 Formerly 40 U.S.C. § 490(f).
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B-308822, May 2, 2007 (operating reserves in the National Archives and 

Records Administration’s (NARA) records center revolving fund are 

available to cover the costs of repairing water damage to records that 

NARA stores for its federal agency customers caused by a GSA building 

failure; GSA is not required to reimburse NARA for the property damage).

There is still another funding provision on the books, 40 U.S.C. 

§ 1303(e)(1),118 which predates the Property Act. It provides:

“To the extent that the appropriations of the General 

Services Administration not otherwise allocated are 

inadequate for repairs, alterations, maintenance, or 

operation, the Administrator [of GSA] may require each 

federal agency to which leased space has been assigned to 

pay promptly by check to the Administrator out of its 

appropriation for rent any part of the estimated or actual 

cost of the repairs, alterations, maintenance, and operation. 

Payments may be either in advance of, or on or during, 

occupancy of the space. The Administrator shall determine 

and equitably apportion the total amount to be paid among 

the agencies to whom space has been assigned.”

While the creation of the Federal Buildings Fund has diminished the 

significance of 40 U.S.C. § 1303(e)(1), it remains as a backup. It does not, 

however, alter or expand the availability of the tenant agency’s 

appropriations. B-62051, Jan. 17, 1947.

If GSA enters into a lease under its statutory authorities, GSA, not the 

tenant agency, must make any necessary amendments or modifications. A 

lease executed by GSA may not be amended or modified by an agreement 

between the tenant agency and the lessor. 38 Comp. Gen. 803 (1959); 

32 Comp. Gen. 342 (1953).

It is possible that the tenant agency’s needs might change such that it no 

longer needs the leased premises for the full term of the lease. Should this 

happen, the unexpired term of the lease can be declared “excess,” in which 

event other government agencies should be canvassed, the same as with 

other forms of excess property, to see if any other agency needs the 

118 Formerly 40 U.S.C. §§ 304b, 304c.
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premises. If not, GSA can declare the unexpired term “surplus” and sublet 

the premises, depositing rental receipts to the Federal Buildings Fund to be 

used to provide services to the new tenant or to pay rent to the original 

lessor. 40 U.S.C. § 585(b)(2). Alternatively, depending on a variety of 

circumstances, it may be in the government’s interest to invoke whatever 

cancellation terms the lease provides. See B-119782, July 9, 1954, in which 

cancellation was the cheapest alternative.

GSA implements its leasing authority in the Federal Management 

Regulation, specifically 41 C.F.R. part 102-73, subpart B. Subject to certain 

exceptions, GSA is authorized to delegate, and to authorize successive 

redelegation of, functions transferred to or vested in it. 40 U.S.C.

§ 121(d).119 This includes leasing, and the GSA regulations provide for a 

wide variety of delegations. In this regard, the regulations state in general: 

“Federal agencies, upon approval from GSA, must perform all functions of 

leasing building space, and land incidental thereto, for their use except as 

provided in this subpart.” 41 C.F.R. § 102-73.75. The regulations spell out, 

at 41 C.F.R. § 102-73.140, terms and conditions that apply to agencies 

leasing space pursuant to GSA delegations of authority: 

• Agencies may do their own leasing, for terms of not more than 1 year, 

when space is leased for no rental or a nominal rental of $1 a year. 

41 C.F.R. § 102-73.140(b).

• GSA may grant specific delegations upon request. 41 C.F.R. § 102-

73.140(c).

• GSA may grant categorical delegations, under which any agency may 

do its own leasing for specified purposes.120 41 C.F.R. § 102-73.140(d). 

• GSA may grant “special purpose” delegations for space not generally 

suitable for use by other agencies. 41 C.F.R. § 102-73.140(e). Special 

purposes delegations are described in 41 C.F.R. § 102-73.160 and are 

listed in 41 C.F.R. §§ 102-73.170–73.225 

119 Formerly 40 U.S.C. §§ 486, 486a.

120 Generally speaking, all agencies are authorized to acquire the types of space covered by 

categorical delegations. 41 C.F.R. § 102-73.150. These types of space are listed in 41 C.F.R. 

§ 102-73.155 and included greenhouses, hangars, hospitals, housing, and ranger stations.
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Since what is being delegated is the authority GSA possesses under 

40 U.S.C. § 585, the delegation includes the authority to enter into multiyear 

leases for terms of up to 20 years, “except as otherwise noted.” 41 C.F.R. 

§ 102-73.165.

b. Prospectus Requirement The acquisition of real property, including leaseholds, requires legislative 

authorization. For major leases, a component of this authorization is the 

prospectus approval requirement of 40 U.S.C. § 3307.121 As relevant to 

leases, it provides that no appropriation shall be made to lease space for a 

public purpose at an average annual rental exceeding $1.5 million unless 

the Senate Committee on Environment and Public Work and the House 

Committee on Transportation and Infrastructure adopt resolutions 

approving the purpose for which the appropriation is made. 40 U.S.C. 

§ 3307(a).

Section 3307(b) states that GSA shall seek committee consideration and 

approval under section 3307(a) by transmitting a prospectus of the 

proposed facility to the Congress. The section goes on to specify that the 

prospectus shall include, among other things: a brief description of the 

space to be leased, the location of the space, an estimate of the maximum 

cost to the United States, a comprehensive plan addressing the space needs 

of all government employees in the locality, and a statement of how much 

the government is already spending to accommodate the employees who 

will occupy the space to be leased.122

The application of section 3307 to leases originated in the Public Buildings 

Amendments of 1972, Pub. L. No. 92-313, § 2, 86 Stat. 216, 217 (June 16, 

1972). It was the outgrowth of appropriation act provisions used 

throughout most of the 1960s to control lease-construction arrangements. 

See Merriam v. Kunzig, 476 F.2d 1233, 1237–39 (3rd Cir.), cert. denied,

414 U.S. 911 (1973). As enacted, however, the requirement applies “to all 

121 Formerly 40 U.S.C. § 606.

122 Section 3307 applies the prospectus requirement to three distinct types of undertakings 

that meet specified dollar thresholds: (1) construction, acquisition, or alteration of public 

buildings, (2) leasing, and (3) alteration of leased space. The first and third are discussed 

elsewhere in this chapter. To minimize duplication, we have consolidated our coverage of 

material which applies equally to all three types, including the effect of noncompliance, later 

in section F.1.c of this chapter. Apart from the prospectus requirement for most leases 

whose annual rental exceeds $1.5 million, 40 U.S.C. § 3307(f) generally prohibits leases for 

certain purposes that exceed the threshold. This prohibition is subject to limited exceptions 

under section 3307(f)(2).
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leases, and not merely to leases for buildings to be erected by the lessor.” 

Id. at 1239. The threshold, originally $500,000, was raised to $1,500,000 by 

the Public Buildings Amendments of 1988, Pub. L. No. 100-678, § 2, 102 Stat. 

4049 (Nov. 17, 1988). GSA can adjust the threshold amount annually in the 

manner and to the extent authorized in 40 U.S.C. § 3307(g).123

The monetary threshold applies to the “average annual rental.” GSA and 

GAO agree that “rental” in this context means the amount of consideration 

for use of the land and buildings, or portions of buildings, during the firm 

term of the lease, excluding the cost of any services such as heat, light, 

water, and janitorial services. 41 C.F.R. § 102-73.230 (threshold applies to 

“net” annual rental, excluding services and utilities). See also 52 Comp. 

Gen. 230 (1972). Apart from 40 U.S.C. § 3307(d), which authorizes the 

rescission of approval if an appropriation has not been enacted within one 

year, the statute does not impose time limits on the approval process. 

However, delay may have adverse consequences. One court has held that 

delay by GSA in obtaining prospectus approval, during a time when 

construction costs were increasing rapidly, excused the lessor from any 

duty to renovate the premises. United States v. Bedford Associates,

548 F. Supp. 732, 737 (S.D. N.Y. 1982), modified on other grounds and aff’d,

713 F.2d 895 (2nd Cir. 1983).

Since the statute requires GSA to submit the prospectus, an agency which 

is doing its own leasing under a delegation from GSA must submit its 

prospectus to GSA who will in turn submit it to the Congress. 41 C.F.R. 

§ 102-73.230.

c. Site Selection It is, as it should be, up to the leasing agency to determine where those 

premises should be located, and that determination should not be secondguessed as long as it has a rational basis. 59 Comp. Gen. 474, 480 (1980); 

B-190730, Sept. 26, 1978. For example, GAO regards geographical 

restrictions, such as “city limits” restrictions, based on considerations of 

employee travel time, as reasonable. B-230660, May 26, 1988; B-227849, 

Sept. 28, 1987. The GSA regulations likewise give leasing agencies 

discretion within the overall statutory and regulatory framework:

123 GSA’s regulations, 41 C.F.R. § 102-73.35, note that the current annual thresholds can be 

found on GSA’s Web site, www.gsa.gov by searching under “prospectus thresholds” (last 

visited Mar. 25, 2008).
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“Each Federal agency is responsible for identifying the 

delineated area within which it wishes to locate specific 

activities, consistent with its mission and program 

requirements, and in accordance with all applicable laws, 

regulations, and Executive Orders.”

41 C.F.R. § 102-83.25. Of course, the leasing of real property, like virtually 

every other form of federal contract, is designed to serve various social and 

economic purposes in addition to meeting the government’s needs.

One such purpose is the preservation of historic properties. The National 

Historic Preservation Act directs agencies to seek out and use, to the 

maximum extent feasible, “historic properties available to the agency” 

before leasing other buildings. 16 U.S.C. § 470h-2(a)(1). Another provision 

of law directs the General Services Administration (GSA) to “acquire and 

utilize space in suitable buildings of historical, architectural, or cultural 

significance, unless use of the space would not prove feasible and prudent 

compared with available alternatives.” 40 U.S.C. § 3306(b)(1).124

“Historical, architectural, or cultural significance” for the most part means 

buildings listed or eligible to be listed on the National Register established 

under the Historic Preservation Act. Id. § 3306(a)(4). While one court has 

held that 40 U.S.C. § 3306 does not apply to properties which GSA is leasing 

for other agencies, the same court noted that the policy has been 

incorporated into an executive order which does apply to leased 

properties. Birmingham Realty Co. v. GSA, 497 F. Supp. 1377, 1384–86 

(N.D. Ala. 1980), citing to Exec. Order No. 12072, Federal Space 

Management, 43 Fed. Reg. 36,869 (Aug. 16, 1978), reprinted at 40 U.S.C. 

§ 121 note. The GSA regulations explicitly affirm that the preference for 

historic properties applies when leasing space. 41 C.F.R. §§ 102-73.30, 102-

83.125. The GSA regulations provide for preferences to be given to historic 

buildings. Under a clause prescribed for major leases, the historic building 

will get the award if it meets the terms and conditions of the solicitation, 

and if the rental is no more than 10 percent higher than the lowest 

otherwise acceptable offer. 48 C.F.R. §§ 570.602, 552.270-2. See also Exec. 

Order No. 13006, Locating Federal Facilities on Historic Properties in 

Our Nation’s Central Cities, 61 Fed. Reg. 26,071 (May 21, 1996); 41 C.F.R. 

pt. 102-78. A solicitation of offers for a lease should state how the historic 

building preference will be applied. 62 Comp. Gen. 50 (1982).

124 Formerly 40 U.S.C. § 601a(a). 
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None of the authorities thus far noted purport to address the consequences 

of disregarding the historic building preference. In the Birmingham 

Realty case cited above, the court found that GSA had failed to comply 

with the executive order, but that the unsuitability of the historic building 

for the purposes for which the space was needed outweighed the 

noncompliance. Birmingham Realty, 497 F. Supp. at 1386–87.

The choice between urban and rural locations introduces additional 

requirements. A provision enacted as part of the Rural Development Act of 

1972, now found at 7 U.S.C. § 2204b-1(b), designed to improve rural 

economic and living conditions, requires federal agencies to give “first 

priority to the location of new offices and other facilities in rural areas.” 

Section 1-103 of Executive Order No. 12072, designed to strengthen cities, 

requires federal agencies to “give first consideration to a centralized 

community business area and adjacent areas of similar character” when 

meeting space needs in urban areas. “First consideration” means 

preference. City of Reading v. Austin, 816 F. Supp. 351, 362 (E.D. Pa. 

1993).

While these preferences may seem incompatible, they are not. Because it is 

statutory, the rural preference must be considered first. The central 

business area preference comes into play only after it is determined that 

the need must be met in an urban area. 59 Comp. Gen. 474, 480 (1980); 

59 Comp. Gen. 409, 414 (1980). Also, the applicable definitions of urban 

area and rural area produce an overlap such that a community with a 

population between 10,000 and 50,000 is both. 59 Comp. Gen. at 414; 

B-95136, Mar. 10, 1980.

The City of Reading court held that the city’s complaint of noncompliance 

with Executive Order No. 12072 was subject to judicial review. However, 

the court noted that Executive Order No. 12072 “provides no meaningful 

benchmarks for a court to effectively evaluate GSA’s ultimate decision,” 

and that the decision involves “managerial and economic choices 

dependent on GSA’s special expertise . . . not readily subject to judicial 

review.” City of Reading, 816 F. Supp. at 360. Therefore, the review should 

not be a review of the merits of the decision, but should seek “to ensure a 

fully informed and well-considered decision.” Id. Citing City of Reading, 

the court in City of Albuquerque v. Department of the Interior, 379 F.3d 

901 (10th Cir. 2004), also concluded that a challenge based on 

noncompliance with Executive Order No. 12072 and the GSA regulations in 

terms of locating in central business areas was subject to judicial review.
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In HG Properties A, L.P., B-284170, Mar. 3, 2000, 2000 CPD ¶ 36, GAO 

considered but denied a protest alleging, among other things, that a federal 

agency’s city-wide solicitation for a lease for office space violated the 

central business area preferences in Executive Order No. 12072 and the 

GSA regulations. The decision concluded that the agency met its 

consultation obligations under the executive order and regulations and that 

its solicitation complied with the applicable substantive standards. 

Specifically, the agency appropriately concluded that restricting the 

solicitation to the central business area would unduly limit competition and 

impinge upon its mission requirements. Considering the effects on 

competition is consistent with the GSA regulations. See 41 C.F.R. § 102-

83.35.

A final area which may affect the location decision, at least for major 

leases, is environmental impact. The National Environmental Policy Act 

does not, by express terms, either include or exclude leasing actions. The 

case of S.W. Neighborhood Assembly v. Eckard, 445 F. Supp. 1195 (D.D.C. 

1978), held that a congressionally approved 5-year $11 million lease of a 

9-story office building to be built in an industrial/residential neighborhood 

and which would involve the relocation of over 2,000 federal employees 

was a “major Federal action” for purposes of 42 U.S.C. § 4332, and that the 

government therefore was required to prepare an environmental impact 

statement. In Birmingham Realty, 497 F. Supp. at 1383–84, on the other 

hand, the court found reasonable a GSA policy to categorically exclude 

leases of less than 20,000 square feet from environmental impact statement 

requirements.

d. Parking As discussed in section C.13.j(1) of Chapter 4, a government employee does 

not have a right to a parking space, with or without charge, and an agency 

is under no obligation to furnish one. See American Federation of 

Government Employees v. Freeman, 498 F. Supp. 651, 654–55 (D.D.C. 1980) 

(government employee does not have a “property interest in free parking”); 

B-168096, Dec. 6, 1975 (furnishing of parking is not a right but a privilege). 

Nevertheless, the government may choose to provide parking facilities as 

an aid to operating efficiency and the hiring and retention of personnel. 

E.g., 63 Comp. Gen. 270, 271 (1984); B-168096, Jan. 5, 1973 (nondecision 

letter). From the availability of appropriations perspective, it makes no 

difference whether the employees work in government-owned space or in 

leased space. B-152020, July 28, 1970.

When GSA is leasing office space pursuant to its statutory authority in 

40 U.S.C. § 585, it may include parking facilities, and the tenant agency’s 
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appropriations are available to reimburse GSA for the parking space to the 

same extent as for the office space itself. 72 Comp. Gen. 139 (1993); 

55 Comp. Gen. 897 (1976). See also 49 Comp. Gen. 476 (1970); B-168946, 

Feb. 26, 1970 (same point prior to establishment of Federal Buildings 

Fund).

GSA will not require an agency to accept and pay for parking space it does 

not need. 55 Comp. Gen. at 901. If an agency has parking space which is 

excess to its needs, it may relinquish that space in accordance with 

procedures in GSA’s Federal Management Regulation, specifically 41 C.F.R. 

part 102-75. Id.

In some cases, the office space lease may not include parking, or the 

agency’s needs may change over time. As with leasing in general, an agency 

may not lease its own parking facilities unless it has specific statutory 

authority (an example relating to NASA is discussed in B-155372-O.M., 

Nov. 6, 1964) or a delegation of authority from GSA. B-162021, July 6, 1977. 

At one time, an agency that needed parking accommodations not included 

in the basic office space lease would simply make the request to GSA and 

GSA would lease the space on behalf of the agency subject to 

reimbursement. See 55 Comp. Gen. 1197, 1200 (1976); B-162021, July 6, 

1977. Under current procedures, the agency must first make a request to 

GSA to determine if any government-controlled space (owned or leased) is 

available. If such space is not available, the agency may then, without any 

further authorization from GSA, “use its own procurement authority to 

acquire parking by service contract.” 41 C.F.R. § 102-73.240. This operates 

as a blanket delegation.

The agency is no longer required to certify to GSA that the parking is 

needed for purposes of employee retention or operating efficiency, 

although it is still expected to use the same standard. 72 Comp. Gen. 139, 

141 (1993); 63 Comp. Gen. at 271.

The government has the discretionary authority under the Federal Property 

and Administrative Services Act to charge employees for parking space 

furnished for their use. American Federation of Government 

Employees v. Carmen, 669 F.2d 815 (D.C. Cir. 1981). See also 55 Comp. 

Gen. 897 (1976); 52 Comp. Gen. 957, 960–61 (1973); B-155817, Mar. 11, 1966. 

The Carmen case involved a plan, subsequently withdrawn, to phase out 

free parking as an energy conservation measure.
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An airport parking permit, renewable annually, procured for use by staff on 

official travel as a cost savings measure, which does not reserve any 

particular space or in fact guarantee any space at all if the parking lot is 

full, is not a lease for purposes of the Federal Property Act and regulations. 

B-259718, Aug. 25, 1995. The purchase is permissible under the “necessary 

expense” doctrine. Id.

e. Repairs and Alterations The following definitions are taken from 20 Comp. Gen. 105, 109 (1940) and 

the specific examples from 20 Comp. Dec. 73, 74 (1913):

• Repair means “to mend, to restore to a sound state whatever has been 

partially destroyed, to make good an existing thing, restoration after 

decay, injury, or partial destruction,” in plain English, to fix something 

that needs to be fixed. Examples are replacing a broken pane of glass 

in a window or fixing broken stairs.

• Alteration means “a change or substitution in a substantial particular of 

one part of a building for another part of a building different in that 

particular” or “an installation that becomes an integral part of the 

building and changes its structural quality.” Examples are erecting a 

partition dividing one room from another, closing up a door or window, 

or cutting a new door or window.

In addition, the cited decisions define a third term, improvement, to mean 

“a valuable and useful addition, something more than a mere repair or 

restoration to the original condition,” for example, strengthening the 

foundation or walls or putting on a new roof. It should be apparent that 

these are merely working definitions, not rigid demarcations. Many 

“alterations,” for example, are also “improvements.”125

Before funding comes into play, the first question to ask is whether the 

given item of work is the responsibility of the lessor or the lessee. The 

guiding principle is the rather obvious one that the government should not 

be paying for something which is the landlord’s obligation under the lease. 

E.g., 17 Comp. Gen. 739, 740 (1938). See also B-198629, July 28, 1980.

125 Any discussion of repairs and alterations must necessarily implicate the general rule 

against using appropriated funds to make permanent improvements to private property. 

That rule and its application to leased property are discussed later in section G of this 

chapter. The remainder of this section presupposes that, for whatever reason, the rule does 

not pose an impediment.
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The terms of the lease should allocate responsibilities, at least in general 

terms. For example, under one clause commonly found in government 

leases, the lessor agrees, except for damage resulting from the 

government’s negligence, to maintain the premises in good repair and 

condition suitable for the government’s use and capable of supplying heat, 

air conditioning, light, and ventilation. 48 C.F.R. § 552.270-6. A provision of 

this type imposes a continuing obligation on the lessor to make needed 

repairs or provide the specified services throughout the life of the lease in 

connection with the purpose for which the space was rented. United Post 

Offices Corp. v. United States, 80 Ct. Cl. 785 (1935); United Post Offices 

Corp. v. United States, 79 Ct. Cl. 173 (1934); 38 Comp. Gen. 803 (1959); 

20 Comp. Gen. 327 (1940); 15 Comp. Gen. 483 (1935); 6 Comp. Gen. 250 

(1926). If the lessor fails or refuses to meet this obligation, the government 

can have the necessary work done and deduct the cost from future rent. 

E.g., 80 Ct. Cl. at 792; 6 Comp. Gen. at 251–52.

Alterations are of two general types: those necessary at the outset of the 

lease to make the space suitable for the government’s needs (such as 

converting space from one use to another) and those which may become 

necessary from time to time over the course of the lease to meet changing 

needs. As with repairs, appropriated funds are not available to make 

alterations if and to the extent the lessor has assumed the obligation under 

the lease. 17 Comp. Gen. 739 (1938). More often, however, the cost of 

alterations will be the government’s responsibility. A clause the General 

Services Administration (GSA) uses to give the government the right to 

make alterations during the course of the lease is found at 48 C.F.R. 

§ 552.270-12. The clause addresses alterations and should not be used to 

assume the cost of items which are more properly classed as repairs which 

are the lessor’s responsibility. 1 Comp. Gen. 723 (1922). Conversely, 

alterations are not an obligation of the lessor under the “good repair” 

clause. 39 Comp. Gen. 304, 307 (1959).

Alterations that are the responsibility of GSA are financed from the Federal 

Buildings Fund, a revolving fund established by 40 U.S.C. § 592.126 Money in 

the Fund is available as and to the extent specified in annual appropriation 

acts. 40 U.S.C. § 592(c)(1). The Federal Buildings Fund appropriation 

typically includes several distinct line items, two of which are “repairs and 

alterations” and “rental of space.” See, e.g., Consolidated Appropriations 

Act, 2008, Pub. L. No. 110-161, 121 Stat. 1844, 2001–03 (Dec. 26, 2007). 

126 Formerly 40 U.S.C. § 490(f).
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Lump-sum payments for initial space alterations, whether done by the 

landlord or some other contractor, are payable from the repairs and 

alterations appropriation; alterations made by the landlord and amortized 

over the life of the lease are payable from the rental of space appropriation. 

B-95136, Aug. 8, 1979. In addition, as with GSA’s leasing operations in 

general, 40 U.S.C. § 1303(e)(2)127 exists as backup authority for GSA to 

charge the cost of alterations to the tenant agency. See B-141560, Jan. 15, 

1960.

Major alteration projects require congressional approval under 40 U.S.C.

§ 3307. When this provision was originally enacted as part of the Public 

Buildings Act of 1959,128 it applied to alterations to government-owned 

buildings but not to leased buildings. 65 Comp. Gen. 722 (1986). Congress 

amended the provision in the Public Buildings Amendments of 1988129 to 

extend the approval requirement to lease alterations costing more than 

$750,000. The requirement that the Senate Committee on Environment and 

Public Works and the House Committee on Transportation and 

Infrastructure adopt resolutions approving the appropriation for such 

alterations appears at 40 U.S.C. § 3307(a)(3). Approval is secured by 

submitting a prospectus to the appropriate committees. 40 U.S.C. 

§ 3307(b).130

Alterations within the general scope of the lease will normally be acquired 

through a modification to the lease. 48 C.F.R. § 570.501(a). Beyond-scope 

alterations may be acquired through a separate contract, a supplemental 

lease agreement, or by having the work performed by government 

employees. Id. § 570.501(b). If the lease is within GSA’s responsibility, the 

tenant agency has no authority to modify the lease without prior 

authorization from GSA. 38 Comp. Gen. 803, 805 (1959). Where the tenant 

agency violates this principle, it may nevertheless be possible to pay for the 

alterations on a quantum meruit basis. See B-155200-O.M., Nov. 24, 1964. 

GSA’s current procedures for obtaining reimbursable space alterations, 

described under the rubric of “asset services,” are contained in 41 C.F.R. 

§§ 102-74.105–102-74.150.

127 Formerly 40 U.S.C. § 304c.

128 Pub. L. No. 86-249, § 7, 73 Stat. 479, 480 (Sept. 9, 1959).

129 Pub. L. No. 100-678, § 3(a), 102 Stat. 4049 (Nov. 17, 1988).

130 See section F.1.c of this chapter for further detail.
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f. Rental in District of 

Columbia

Originally enacted in 1877 (19 Stat. 370), 40 U.S.C. § 8141131 provides:

“A contract shall not be made for the rent of a building, or 

part of a building, to be used for the purposes of the Federal 

Government in the District of Columbia until Congress 

enacts an appropriation for the rent. This section is deemed 

to be notice to all contractors or lessors of the building or a 

part of the building.”

Early decisions viewed this provision as “too plain to need interpretation.” 

4 Comp. Dec. 139, 141 (1897). See also 9 Comp. Dec. 551, 552 (1903). The 

accounting officers and the Attorney General uniformly held in holding that 

space rentals in the District of Columbia without explicit statutory 

authority were illegal.132

The enactment of the Federal Property and Administrative Services Act in 

1949, which provided the General Services Administration (GSA) the broad 

leasing authority now contained in 40 U.S.C. § 585 and discussed in 

section E.2 of this chapter, considerably diminished the impact of 40 U.S.C. 

§ 8141. GAO commented as follows in B-159633, May 20, 1974, at 2:

“[T]he Federal Property and Administrative Services Act of 

1949 . . . authorizes GSA to enter into leasing agreements for 

the benefit and accommodation of Federal agencies. . . . We 

consider the language of [40 U.S.C. § 585] together with its 

legislative history as authorizing the Administrator of GSA 

to lease buildings and parts of buildings in the District of 

Columbia . . . . [I]f the Administrator of GSA had authorized 

the formation of this rental agreement, the statutory 

requirement of 40 U.S.C. [§ 8141] . . . would have been 

satisfied.”133

131 Formerly 40 U.S.C. § 34; originally enacted in the Act of March 3, 1877, ch. 106, 19 Stat. 

363, 370.

132 E.g., 2 Comp. Gen. 722 (1923); 2 Comp. Gen. 214 (1922); 26 Comp. Dec. 155 (1919); 17 Op. 

Att’y Gen. 87 (1881); 15 Op. Att’y Gen. 274 (1877).

133 The decision in B-159633 was overruled in part by 54 Comp. Gen. 1055 (1975), but the 

partial overruling involves a separate issue and has no effect on the point discussed in the 

text. 
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Thus, the rule has developed that 40 U.S.C. § 8141 is satisfied where GSA 

arranges for the space under authority of 40 U.S.C. § 585 or delegates the 

authority to the renting agency. B-159633, May 20, 1974. See also 56 Comp. 

Gen. 572 (1977); B-114827, Oct. 2, 1974; B-159633, Sept. 10, 1974; B-157512-

O.M., Sept. 1, 1972.

A 1975 GAO decision provided another significant clarification. Earlier 

decisions had construed 40 U.S.C. § 8141 as a comprehensive ban 

applicable to all space rentals for government use, no matter how 

temporary, and therefore fully applicable to the rental of short-term 

meeting or conference facilities. E.g., 46 Comp. Gen. 379 (1966); 35 Comp. 

Gen. 314 (1955);134 11 Comp. Dec. 678 (1905). GSA subsequently issued a 

regulation treating the procurement of short-term conference facilities as a 

service contract rather than a rental contract. GAO considered this 

regulation in 54 Comp. Gen. 1055 (1975) and, based on it, modified the prior 

decisions. “Federal agencies may now procure the short-term use of 

conference and meeting facilities [without regard to 40 U.S.C. § 8141] 

providing they comply with the requirement of [the GSA regulations].” Id.

at 1058.

For situations where an agency subject to the Act attempts to contract 

directly rather than through or under delegation from GSA, 40 U.S.C. § 8141 

remains in force. Payment in violation of the statute can put a certifying 

officer at risk. See 46 Comp. Gen. 135 (1966). Many of the earlier 

interpretations, therefore, are still valid although they now apply to a 

smaller universe.

The first point to note is that the statute is expressly limited to rentals in 

the District of Columbia. It has no effect on, nor is there any similar 

restriction to, rentals elsewhere, even a few minutes away in the suburbs of 

Maryland or Virginia. B-140744, Oct. 1, 1959; B-204730-O.M., July 26, 1982. 

It applies to all space rentals for governmental purposes. This includes 

space for storage. 6 Comp. Gen. 685 (1927); 27 Op. Att’y Gen. 270 (1909). 

Although, as noted above, it is no longer regarded as applicable to shortterm conference facilities, the “service contract” concept cannot be 

134 This case illustrates what used to be a somewhat bizarre, although probably intended, 

consequence of 40 U.S.C. § 8141. The statute had been construed as applicable to the 

District of Columbia government. See also 34 Comp. Gen. 593 (1955); 17 Comp. Gen. 424 

(1937); 10 Comp. Dec. 117 (1903). Therefore, prior to home rule, the government of the 

District of Columbia could not rent space in the District of Columbia without specific 

congressional authorization. 
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extended to include lodging accommodations, which remain subject to 

40 U.S.C. § 8141. 56 Comp. Gen. 572 (1977); see also 41 C.F.R. 

§ 301-74.17(a).

When the statute applies, it requires an “express provision for the rent of a 

building, or language equivalent thereto.” 10 Comp. Dec. 178, 180 (1903). 

Obviously, express language in an appropriation act authorizing renting or 

leasing in the District of Columbia will do the job. E.g., 13 Comp. Dec. 644 

(1907). Just as clearly, burying the item in budget justification materials is 

not sufficient. 46 Comp. Gen. 379, 381 (1966). In 9 Comp. Dec. 831 (1903), 

an appropriation for “every other necessary expense” in connection with 

the storage of certain records was, given the context of the appropriation, 

viewed as sufficiently specific. However, 11 Comp. Dec. 678 (1905) 

reached the opposite result where similar language was used in a context 

which did not clearly imply the need for space acquisition. The requisite 

authority need not be in an appropriation act. It may be contained in the 

agency’s enabling or program legislation. 23 Comp. Gen. 859 (1944). For 

example, the Federal Emergency Management Agency’s authority to lease 

property “wherever situated” is sufficient. B-195260, July 11, 1979.

An interesting “common sense” exception occurred in 6 Comp. Dec. 75 

(1899). The building which housed the Department of Justice had become 

“unsafe, overcrowded, and dangerously overloaded.” 6 Comp. Dec. at 77. 

Congress made an appropriation to construct a new building on the site of 

the old building, but there was no mention of interim facilities. Reasoning 

that rental of temporary quarters was “absolutely necessary” to fulfilling 

the purpose of the appropriation, and that Congress could not possibly 

have intended for the Department to cease operations during the 

construction period, the Comptroller of the Treasury held that the 

construction appropriation was available for the rental of temporary 

quarters while the new building was being erected. “This statute [40 U.S.C. 

§ 8141] will well be fulfilled by any appropriation for a purpose which 

necessarily implies renting a building.” Id. at 78–79. However, as the 

Comptroller explained a few years later, the necessary implication theory 

requires more than mere inconvenience. A rigid interpretation in 6 Comp. 

Dec. 75 “would have put the Department of Justice, with its records, in the 

street.” 9 Comp. Dec. 551, 552 (1903). A similar holding is Rives v. United 

States, 28 Ct. Cl. 249 (1893), finding 40 U.S.C. § 8141 inapplicable where the 

Public Printer purchased certain material under statutory direction but, 

having insufficient storage space available, simply left it where it was until 

more space could be obtained.
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The statute similarly does not apply in situations which amount to inverse 

condemnations. Semmes & Barbour v. United States, 26 Ct. Cl. 119 (1891) 

(government continued to occupy property after expiration of lease).

An agency may not avoid 40 U.S.C. § 8141 by entering into a cost 

reimbursement contract with someone else to procure space that it could 

not do by a direct leasing arrangement. 49 Comp. Gen. 305, 308 (1969). 

This is nothing more than an application of the fundamental tenet that an 

agency may not do indirectly that which it is prohibited from doing directly. 

However, GAO advised the National Science Foundation in 46 Comp. 

Gen. 379 (1966) that it could use donated funds, without regard to 40 U.S.C. 

§ 8141, as long as the rental was in furtherance of an authorized agency 

purpose.

A related statute is 40 U.S.C. § 8142:135

“An executive department of the Federal Government 

renting a building for public use in the District of Columbia 

may rent a different building instead if it is in the public 

interest to do so. This section does not authorize an 

increase in the number of buildings in use or in the amount 

paid for rent.”

Our research has disclosed no cases interpreting or applying this provision.

g. Economy Act It is necessary to make brief mention of a statute which no longer exists 

because it is found in virtually every case involving a government lease for 

a period of over 50 years. Section 322 of the Economy Act of 1932, codified 

prior to 1988 at 40 U.S.C. § 278a (1982), prohibited the obligation or 

expenditure of appropriated funds (1) for rent in excess of 15 percent of 

the fair market value of the rented premises as of the date of the lease,136

and (2) for repairs, alterations, or improvements to the rented premises in 

excess of 25 percent of the first year’s rent.137

135 Formerly 40 U.S.C. § 35.

136 E.g., 57 Comp. Gen. 591 (1978); 21 Comp. Gen. 906 (1942); 12 Comp. Gen. 546 (1933); 

12 Comp. Gen. 440 (1932).

137 E.g., 30 Comp. Gen. 122 (1950); 30 Comp. Gen. 58 (1950); 29 Comp. Gen. 279 (1949); 

20 Comp. Gen. 30 (1940).
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This statute generated literally dozens of decisions. In a 1984 case, the 

General Services Administration Board of Contract Appeals described the 

15 percent limitation as “a blunt instrument at best,” adding that it “is 

totally out of harmony with the economic situation” of the times, and had 

become “a fruitful source of litigation in its own right.” Northwestern 

Development Co., GSBCA Nos. 6821, 7433, 84-3 B.C.A. ¶ 17,613 (1984), 

at ¶ 87,749. The 25 percent limitation for alterations and repairs, GAO 

reported in 1978, was ineffective and should be repealed. GAO, General 

Services Administration’s Practices for Altering Leased Buildings Should 

Be Improved, GAO/LCD-78-338 (Washington, D.C.: Sept. 14, 1978), at 19–22.

The demise of section 322 came about in somewhat byzantine fashion. In a 

series of continuing resolutions, Congress suspended the 15 percent 

limitation for fiscal year 1982, renewed the suspension for the following 

year, made the suspension permanent in 1984, and confirmed the 

permanency of the suspension in 1987. See Ralden Partnership v. United 

States, 891 F.2d 1575, 1576–77 and 1579 n.5 (Fed. Cir. 1989); 65 Comp. 

Gen. 302 (1986). Then, in 1988, section 322 was repealed outright. Public 

Buildings Amendments of 1988, Pub. L. No. 100-678, § 7, 102 Stat. 4049, 

4052 (Nov. 17, 1988). Virtually every pre-1988 leasing case cited throughout 

this discussion includes at least some mention of the Economy Act, and 

while those cases remain valid for the propositions for which they are 

cited, the portions dealing with Economy Act issues are now largely 

obsolete.138

h. Some Agency-Specific 

Authorities

The General Services Administration (GSA) does the major portion of the 

government’s space leasing, but it does not do all of it. A number of other 

agencies have their own statutory leasing authority, either agencywide or in 

specific contexts. We present here a sampling of those authorities.

The defense establishment has several provisions. The Secretary of 

Defense and the Secretary of each military department may provide for 

“[t]he leasing of buildings and facilities.” 10 U.S.C. § 2661(b)(1). Before 

entering into a lease of real property in the United States whose estimated 

annual rental is more than $750,000, military departments must report the 

138 Under Ralden, the Economy Act restrictions continue to apply even after section 322’s 

repeal to the extent they were incorporated in preexisting lease provisions that remain in 

effect. Ralden, 891 F.2d at 1578. Thus, there may still be some leases with surviving 

Economy Act restrictions. See 2160 Partners, GSBCA No. 15973, 03-2 B.C.A. ¶ 32,269 

(2003).
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transaction to the Senate and House Armed Services Committees and allow 

a 30-day waiting period. 10 U.S.C. §§ 2662(a)(1)(B) & (a)(3).

Other provisions address military leases overseas. The military 

departments are authorized by 10 U.S.C. § 2675 to lease real property in 

foreign countries that is “needed for military purposes other than for 

military family housing,” and by 10 U.S.C. § 2828(c) to lease housing 

facilities in foreign countries in specified circumstances. Both sections 

generally authorize multiyear leases—up to 10 years—and permit the 

leases to be obligated year-by-year against annual appropriations. 10 U.S.C. 

§§ 2675, 2828(d). Both sections permit leases of up to 15 years in Korea.

Some examples from the civilian side of the government are:

• 15 U.S.C. § 78d(b)(3): Securities and Exchange Commission “is 

authorized to enter directly into leases for real property” and is exempt 

from GSA’s space management regulations.

• 15 U.S.C. § 2218(b)(3): Federal Emergency Management Agency may 

lease any property or interest in property “wherever situated” needed 

for activities under the Federal Fire Prevention and Control Act.

• 22 U.S.C. § 2514(d)(9): Funds available to the Peace Corps may be used 

for leases abroad not to exceed 5 years.

• 22 U.S.C. § 2670(h): State Department may lease, for terms of up to 

10 years, real property in foreign countries for the use of the Foreign 

Service.

• 38 U.S.C. § 8122(b): Department of Veterans Affairs may lease 

“necessary space for administrative purposes” in connection with 

“extending benefits to veterans and dependents.”

• 39 U.S.C. § 401(6): general leasing authority for United States Postal 

Service.

• 42 U.S.C. § 7256(a): general leasing authority for the Department of 

Energy.

3. Foreign Leases Because of differences in law and custom, leases of real property in foreign 

countries often present problems not found in domestic leases. The first 
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point to emphasize is that the fiscal laws of the United States apply in full 

force just as they apply to domestic leases. An agency may not disregard 

the fiscal laws just because the money is being spent in a foreign country.

One example is the Antideficiency Act, 31 U.S.C. § 1341. As just noted in 

the preceding section, agencies with significant presence in foreign 

countries (military departments, State Department, Peace Corps) have 

been given specific authority to enter into multiyear leases of real property. 

Absent such authority, leasing activities are subject to the rule that leases 

are construed as binding only to the end of the fiscal year in which made or 

to the end of the period of any available no-year or multiyear authority, and 

require affirmative renewal by the government to extend beyond that point. 

5 Comp. Gen. 355 (1925); A-91697, Mar. 3, 1938.

Rental escalation clauses purporting to obligate the United States to 

indeterminate or indefinite liability, or which may cause the rent to exceed 

a statutory ceiling (see, e.g., 10 U.S.C. § 2828(e)), have also been found to 

violate the Antideficiency Act. GAO, Leased Military Housing Costs in 

Europe Can Be Reduced by Improving Acquisition Practices and Using 

Purchase Contracts, GAO/NSIAD-85-113 (July 24, 1985), at 7–8. In one 

such case involving a lease in Italy which did not contain a termination 

clause, the Navy unilaterally modified the lease so as to keep the rent 

within the statutory ceiling. GAO advised that if the landlord were able to 

recover by lawsuit, the amount of any judgment or settlement would not be 

added to the rent payments for purposes of assessing Antideficiency Act 

violations. B-227527, B-227325, Oct. 21, 1987.

In a 1986 case, the Air Force was having difficulty inserting in a German 

lease a provision limiting expenditures to the statutory ceiling. In that case, 

however, since bona fide cost estimates were well within the ceiling, the 

rent itself was fixed, the only exposure to escalation being maintenance 

and utility charges, and the lease included a termination for convenience 

clause, Antideficiency Act considerations did not impede entering into the 

lease. 66 Comp. Gen. 176 (1986).

Another fiscal statute which rears its head in the foreign lease context is 

31 U.S.C. § 3324(b), which prohibits advance payments unless specifically 

authorized. The same agencies with multiyear leasing authority generally 

also have authority to pay rent in advance. 10 U.S.C. § 2396(a)(2) (military 

departments); 22 U.S.C. § 2514(d)(9) (Peace Corps); 22 U.S.C. § 2670(h) 

(State Department). Absent such authority, rent could not be paid in 

advance. 19 Comp. Gen. 758 (1940); 3 Comp. Gen. 542 (1924). The 
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authority for the military departments applies only in accordance with local 

custom. See B-194353, June 14, 1979. The rental of a grave site in 

perpetuity, in apparent accord with local custom, is not regarded as an 

advance payment. 11 Comp. Gen. 498 (1932).

The standards for recording obligations, as prescribed by 31 U.S.C. 

§ 1501(a), are the same for foreign leases. See B-192282, Apr. 18, 1979, 

described more fully in Chapter 7, section B.1.h, for an unusual application 

based on custom in South Korea. The same is true for the Assignment of 

Claims Act, 41 U.S.C. § 15. E.g., 11 Comp. Gen. 278 (1932) (illustrating the 

point that the United States can choose to recognize an assignment); 

10 Comp. Gen. 31 (1930) (rent can be paid to agent bank in United States if 

specified in lease).

To restate the point, a government agency entering into a lease of real 

property in a foreign country must adhere to the statutes governing the 

obligation and expenditure of public funds; deviations require legislative 

authorization. When it comes to determining rights and liabilities under the 

lease, however, the situation is somewhat different. Rights and liabilities 

are governed by the laws of the place where the premises are located and 

the lease was executed. B-120286, July 12, 1954. As that decision pointed 

out, the considerations which subordinate state law to federal law in the 

case of a domestic lease do not apply to a foreign lease.

In B-120286, to illustrate, the government of the Netherlands passed a law 

permitting all landlords to raise rents by a maximum of 17 percent. The 

question was whether it was appropriate for a federal agency, as tenant 

under a lease in the Netherlands, to pay the lessor’s demand for the 

increased rent. If the landlord sued, he would sue in a Dutch court which 

would apply Dutch law and award the rent increase. Therefore, GAO 

advised that the voucher should be paid. Applying the same rule in a 1957 

case, GAO allowed the claim of a Greek landlord for half the fire insurance 

premium on property leased in Athens. B-132152-O.M., June 13, 1957.

In 3 Comp. Gen. 864 (1924), GAO applied the law of the Province of Quebec 

to construe the repair clause in a lease of space in Montreal. Under 

provincial law, repairing an interior wall was a “tenant’s repair” unless 

otherwise specified in the lease. A similar case is 16 Comp. Gen. 639 

(1937), using Dutch law to allocate repair responsibilities under a lease of 

property in The Hague.
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Currency fluctuations are another source of problems. The lease will 

specify whether payment is to be made in U.S. dollars or in foreign 

currency. In a 1946 case, a lease in China stipulated payment in yuan. 

Extreme inflation in China following World War II so devaluated the yuan 

that the monthly rental was worth approximately $2, under which the 

landlord could not meet his repair and maintenance responsibilities. The 

State Department wanted to amend the lease to provide for payment in U.S. 

dollars equivalent to the amount originally bargained for. Concluding that 

Chinese law would almost certainly grant the landlord equitable relief, 

GAO concurred with the proposal, as long as sufficient appropriations 

were available for the increased rent. B-55649, Feb. 19, 1946.

The extreme case occurred in B-189121, Nov. 30, 1977, reconsideration 

denied, B-189121, Apr. 15, 1983. A lease in Cambodia provided for payment 

in Cambodian riels. For reasons not apparent, the landlord failed or 

refused to collect the rent checks when they were tendered. By the time 

the landlord filed a claim, the riel had been abolished and was worthless 

and there was no basis to direct payment in U.S. dollars.

Providing for payment in U.S. dollars does not guarantee a claim-free 

existence. In B-185960, Aug. 19, 1976, an Italian landlord claimed 

additional rent, alleging financial loss resulting from devaluation of the 

dollar. Devaluation per se, as a sovereign act, could not form the basis of 

relief. However, the claimant also cited a provision of the Italian Civil 

Code, the application of which to leases was not clear. GAO advised the 

agency (the Navy in that case) that it could pay the claim if it determined 

that the provision of Italian law could be applied. The Armed Services 

Board of Contract Appeals denied a similar claim in Alka, S.A., ASBCA 

No. 38005, 91-3 B.C.A. ¶ 24,107 (1991), involving a lease in Athens, Greece, 

which specified that it would be governed by the laws of the United States, 

under which the lessor had to bear the risk.

If foreign law is to be considered and applied, the claimant has the burden 

of “proving” what that law is. It is not the responsibility of the adjudicating 

tribunal to chase it down. B-189121, Apr. 15, 1983.

4. Lease-Purchase 

Transactions

In the context of government real property, the term “lease-purchase” 

refers to a transaction in which a building is constructed to government 

specifications and then leased to the government under a long-term lease 

during which construction costs are amortized, at the end of which time 

title passes to the United States. Lease-purchases are also known as 
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“purchase contracts.” Putting things in budgetary perspective, a Senate 

committee made the following observation in connection with 1954 leasepurchase legislation:

“It should be made clear that there are generally three 

methods available for providing space for the permanent 

activities of the Federal Government. These are (1) by 

direct construction with appropriated funds, (2) by leasepurchase contracts with annual payments applied to the 

amortization of the initial cost over a period of years at the 

end of which title to the property would pass to the United 

States, and (3) by straight annual or term leasing under 

which no capital equity would accrue to the Government. 

Of these three methods, the overall cost of the first would 

be the lowest, the second would be the next lowest in cost, 

and the third would be the most costly method.”139

A variation is “lease-construction,” which is similar to lease-purchase 

except that, at the end of the lease, title does not pass to the government. 

Lease-construction is the most expensive method of all.140

The reason the government resorts to lease-purchase or lease-construction 

arrangements is the same reason we noted earlier that the government 

often leases space when ownership would be more cost-effective—

budgetary constraints. As far back as the 1954 Public Buildings Purchase 

Contract Act, discussed below, the Senate Public Works Committee, after 

making the observation quoted above, was forced to say that “no reliable 

forecast can be made of the time when budgetary considerations would 

permit the appropriation of the huge sums required to meet these space 

needs by direct construction.”141 Thus, while Congress has repeatedly 

resorted to lease-purchase over the second half of the twentieth century, it 

has done so with ambivalence.

139 S. Rep. No. 83-1084, at 2 (1954). This is the report of the Senate Committee on Public 

Works on what became the Public Buildings Purchase Contract Act of 1954.

140 See H.R. Rep. No. 87-2050, 13 (1962), quoted in Merriam v. Kunzig, 476 F.2d 1233, 1237 

n.3 (3rd Cir. 1973), and 51 Comp. Gen. 573, 575 (1972). This is the report of the House 

Committee on Appropriations on the Independent Offices Appropriation Act for 1963, 

Pub. L. No. 87-741, 76 Stat. 716 (Oct. 3, 1962).

141 S. Rep. No. 83-1084, at 2.
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The first major lease-purchase program was the Public Buildings Purchase 

Contract Act of 1954, Pub. L. No. 83-519, 68 Stat. 518 (July 22, 1954), 

40 U.S.C. § 356 (2000), seemingly temporary, stopgap legislation designed 

to meet the needs of an expanding government in the post-World War II 

era.142 The legislation authorized the General Services Administration 

(GSA) to enter into lease-purchase contracts with terms of at least 10 but 

not more than 25 years, with title to the property to vest in the United 

States not later than the expiration of the contract term. 40 U.S.C. § 356(a). 

The “temporary” nature of this legislation was revealed by a limitation that 

“no appropriations shall be made” for lease-purchase contracts not 

congressionally approved within 3 years of the legislation’s enactment. 

Section 411(e) of the Public Buildings Act of 1949, as added by section 101 

of Public Law 83-519. (We will return to section 411(e) below.) The 

contracts were to provide for equal annual payments to amortize principal 

and interest, not to exceed limitations specified in appropriation acts. 

40 U.S.C. § 356(a). GSA’s practice under this legislation was to first enter 

into contracts for site acquisition and preparation of plans and 

specifications, and then enter into either a single three-party contract 

(government, builder, investor) or separate construction and financing 

contracts. See B-144680, Nov. 7, 1961; B-130934, June 26, 1957.

Several aspects of the 1954 legislation became prototypes for future leasepurchase programs, and many of the decisions therefore remain valid. One 

provision of the law directed reimbursement to the contractor of certain 

expenses, including “costs of carrying appropriate insurance.” 40 U.S.C. 

§ 356(d)(3). This did not authorize the government to insure the property 

in its own right, or to require the contractor to carry insurance for the 

government’s protection. 35 Comp. Gen. 391 (1956). An important element 

of the program was 40 U.S.C. § 356(h), providing for the property to remain 

on state and local tax rolls until title passes to the government. The statute 

did not expressly authorize the government to recover improperly assessed 

state or local taxes, but the government has this right without the need for 

statutory authority. United States v. Dekalb County, 729 F.2d 738 (11th Cir. 

1984).

As noted above, section 411(e) of Public Law 83-519 required prospectus 

approval by congressional oversight committees as a prerequisite to the 

142 The act, formerly appearing at 40 U.S.C. § 356, was omitted from the 2002 codification of 

title 40 on the basis that it is now obsolete. See Pub. L. No. 107-217, 116 Stat. 1062, 1313, 

1319 (Aug. 21, 2002); H.R. Rep. No. 107-479, at 149 (2002). 
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appropriation of funds. If actual costs exceeded the approved estimate, 

GAO had advised that there was no need to go back to the committees as 

long as the variation was “reasonable.” 37 Comp. Gen. 613 (1958); 

B-129326, Oct. 5, 1956. Of course, what is reasonable required a case-bycase evaluation. In 37 Comp. Gen. 613, for example, GAO did not regard a 

15 percent increase in construction costs as a “reasonable variation.” As 

also noted above, section 411(e) limited the time for prospectus approval 

to 3 years after the date of enactment (July 22, 1954). Congressional 

discomfort with the program was also evident in another provision of the 

1954 law, formerly 40 U.S.C. § 357, stating the congressional intent that the 

program not “constitute a substitute for or a replacement of any program 

for the construction by the United States of such structures as may be 

required from time to time by the Federal Government.”

When the 3-year period elapsed, Congress declined to renew the program. 

In considering what was to become the Independent Offices Appropriation 

Act of 1959, the House Appropriations Committee cited a GAO study which 

found that “it costs at least $1.64 under lease-purchase to buy the same 

amount of building as $1.00 does by direct appropriation.” H.R. Rep. 

No. 85-1543, at 3 (1958). Consequently, that act included a permanent 

prohibition on the use of funds “in this or any other Act . . . for payment for 

sites, planning or construction of any buildings by lease-purchase 

contracts.” Pub. L. No. 85-844, 72 Stat. 1063, 1067 (Aug. 28, 1958). Public 

Law 85-844 exempted 29 projects started or planned under the 1954 law 

and authorized one new project. See B-160929, Apr. 20, 1967.

The prohibition did not, and of course could not, prevent legislating the 

occasional exception. E.g., B-139524, June 1, 1959. It also did not prevent 

GSA from soliciting bids on alternate bases, one of which was lease with 

option to purchase. 38 Comp. Gen. 703 (1959). GSA had found in that case 

that, without the purchase option, bidders were amortizing construction 

costs over the first few years of the proposed lease term, so that the 

government would be paying those costs in any event. In addition, the 

military departments asserted the authority to use lease-purchase under 

what is now 10 U.S.C. § 2663(b), which authorizes them to “contract for or 

buy any interest in land” needed for specified purposes. GAO agreed, 

especially for projects which had been reported to Congress under 

10 U.S.C. § 2662. B-154420-O.M., July 7, 1964. 

The prohibition of the Independent Offices Appropriation Act of 1959 

applied by its terms to lease-purchase. It therefore did not touch leaseconstruction which, as we have noted, is even more costly to the taxpayer. 
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Congress filled this gap by enacting an appropriation rider for nine 

consecutive years starting with 1963, which prohibited the use of funds for 

lease-construction projects whose estimated cost exceeded $200,000 

without prospectus approval by the appropriate congressional committees. 

The provision is quoted in full in several decisions, for example, 45 Comp. 

Gen. 27, 29 (1965) and 44 Comp. Gen. 491, 492 (1965). Even though it was 

one of GSA’s general provisions, it applied to all agencies funded under the 

act in which it appeared. 44 Comp. Gen. 491 (1965). It was not 

governmentwide, however.

The prohibition was not limited to “total or substantially total occupancy” 

by the government but applied as well to shared occupancy situations. 

45 Comp. Gen. 27 (1965). However, the fact that an offered building was 

not actually in existence was not, in and of itself, sufficient to invoke the 

prohibition. The prohibition was regarded as inapplicable if there was a 

“bona fide intention on the part of the offeror to construct the building 

offered for lease irrespective of its securing a lease with GSA,” 51 Comp. 

Gen. 573, 576 (1972), or if it was clear that the offeror was acting at its own 

risk with no promise or commitment by the government to lease the space, 

45 Comp. Gen. 506 (1966).

The last such prohibition appeared in the Independent Offices 

Appropriation Act for 1971, Pub. L. No. 91-556, 84 Stat. 1442, 1449 (Dec. 17, 

1970). Two years later, Congress amended 40 U.S.C. § 3307 to add the 

prospectus approval requirement for leases discussed previously in this 

section. This evolution is described in Merriam v. Kunzig, 476 F.2d 1233, 

1237–39 (3rd Cir.), cert. denied, 414 U.S. 911 (1973).

In considering the 1972 public buildings legislation, Congress faced the 

same problem it had faced in 1954—a backlog of needed federal 

construction with no foreseeable prospects of being able to appropriate the 

necessary amounts. Therefore, it again turned to the “stop-gap 

expedient”143 of lease-purchase and enacted section 5 of the Public 

Buildings Amendments of 1972, 40 U.S.C. § 602a (2000).144 The 1972 law 

authorized GSA to enter into lease-purchase contracts with up to 30-year 

terms, with title to the property to vest in the United States at or before the 

143 H.R. Rep. No. 92-989, at 3 (1972) (report of the House Committee on Public Works).

144 Like former 40 U.S.C. § 356, section 602a was omitted from the 2002 codification of 

title 40 on the basis that it was temporary and is now obsolete. See H.R. Rep. No. 107-479, 

at 153.
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expiration of the contract term. 40 U.S.C. § 602a(a). Similar to the 1954 

law, the 1972 act gave GSA a 3-year time limit on entering into the 

contracts. 40 U.S.C. § 602a(g).

Many of the 1972 provisions were patterned after the 1954 Purchase 

Contract Act. Payments to the contractor include reimbursement for 

“costs of carrying appropriate insurance,” and the property is to remain on 

state and local tax rolls until title passes to the United States. 40 U.S.C. 

§§ 602a(b)(3), 602a(d). Projects were subject to the prospectus approval 

requirements of 40 U.S.C. § 606(a). 40 U.S.C. § 602a(f).

GSA devised what it called a “dual system” of contracting to implement 

40 U.S.C. § 602a. GSA would enter into either a single contract or a series 

of phased contracts for construction of each project. GSA would then 

enter into a financing contract for a group of projects with a “trustee,” who 

would obtain the necessary funds by selling “Participation Certificates” to 

private investors. GAO concurred that this scheme was within GSA’s 

authority under section 602a. 52 Comp. Gen. 517 (1973); 52 Comp. Gen. 226 

(1972). GAO also agreed that the statutory 3-year cutoff (June 30, 1975) did 

not apply to revisions of projects whose basic purchase contract had been 

entered into prior to the cutoff, as long as the modification did not result in 

so substantial a change in the project from the one originally approved as 

to amount to a “new” project. B-177610, Apr. 26, 1976.

GSA considered refinancing purchase contracts entered into under 

40 U.S.C. § 602a by paying off the existing debt with funds obtained from 

the Federal Financing Bank. Since the refinancing would not involve any 

other project modifications, GAO found the proposal legally 

unobjectionable. B-250236, Sept. 9, 1992.

Although the authority of 40 U.S.C. § 602a, like its 1954 predecessor, is no 

longer operative, lease-purchase activity goes on under a variety of other 

authorities. Congress can always legislate new projects, and has done so in 

a number of instances. Some examples are:

• Section 103 of the Energy and Water Development Appropriation Act, 

1984, Pub. L. No. 98-50, 97 Stat. 247, 249 (July 14, 1983), authorized the 

Army Corps of Engineers to use lease-purchase to acquire an office 

building in New Orleans, Louisiana. GAO summarized some of the 

financial aspects in Lease-Purchase: Corps of Engineers Acquisition 

of Building in New Orleans District, GAO/AFMD-88-56FS 

(Washington, D.C.: June 7, 1988).
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• The 1988 continuing resolution, Pub. L. No. 100-202, 101 Stat. 1329, 

1329-405–07 (Dec. 22, 1987), authorized GSA to engage in several leasepurchase projects. 

• Another 1987 statute, the Federal Triangle Development Act, 40 U.S.C. 

§§ 1101–1109 (2000), authorized development of a federal building 

complex in Washington, D.C., using lease-purchase, with planning and 

construction under the supervision of the then Pennsylvania Avenue 

Development Corporation. This was the Ronald Reagan Building and 

International Trade Center. Financing, discussed in B-248647.2, Apr. 24, 

1995, and B-248647, Dec. 28, 1992, was provided by the Federal 

Financing Bank.

• Legislation enacted in 1989 authorizes the Department of Veterans 

Affairs to use lease-purchase to provide for the collocation of certain 

regional offices with medical centers (38 U.S.C. § 316) and to acquire up 

to three medical facilities (38 U.S.C. § 8103(d)). Both provisions 

require that obligations be “subject to the availability of appropriations 

for that purpose,” and therefore do not constitute contract authority. 

B-239435, Aug. 24, 1990.

GSA’s authority is now found in 40 U.S.C. § 585, in conjunction with the 

prospectus approval requirement of 40 U.S.C. § 3307. Section 585(a)(1), 

GSA’s general leasing authority in the Federal Property and Administrative 

Services Act, authorizes leases of up to 20 years “in a building (or 

improvement) which is in existence or being erected by the lessor” to 

accommodate a federal agency. This provision has been regarded as 

sufficient authority for lease-purchase or lease-construction arrangements, 

and was in fact used during the time period between the 1954 and 1972 

programs. E.g., 38 Comp. Gen. 703 (1959); B-166868, July 15, 1969; 

B-157423-O.M., Sept. 14, 1965; B-156917-O.M., June 24, 1965.

Section 585(c), which first made its appearance in the 1987 continuing 

resolution, Pub. L. No. 99-500, 100 Stat. 1783, 1783-321 (Oct. 18, 1986), 

provides: “Amounts made available to the General Services Administration 

for the payment of rent may be used to lease space, for a period of not more 

than 30 years in buildings erected on land owned by the Government.” This 

reflects a continuation of the long-standing policy of the Congress that “no 

public building shall be erected on land not owned by the United States.” 

6 Comp. Dec. 877, 878 (1900).
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An aspect of lease-purchase financing that produced controversy in the 

1990s is scorekeeping. “Scorekeeping” may be defined as the “process of 

estimating the budgetary effects of pending legislation” including, of 

course, appropriation bills, “and comparing them to a baseline, such as a 

budget resolution, or to any limits that may be set in law.” GAO, A Glossary 

of Terms Used in the Federal Budget Process, GAO-05-734SP (Washington, 

D.C.: Sept. 2005), at 88. See also the closely related definition of 

“Scorekeeping Rules” (id. at 88–89) and B-239435, Aug. 24, 1990, discussing 

scorekeeping in the context of lease-purchases. For a number of years, 

GAO has pointed out the problems scorekeeping rules pose for real 

property acquisition. See, e.g., GAO, Budget Issues: Budget Scorekeeping 

for Acquisition of Federal Buildings, GAO/T-AIMD-94-189 (Washington, 

D.C.: Sept. 20, 1994); The Budget for Fiscal Year 1991: Scoring of GSA 

Lease-Purchases, GAO/AFMD-91-44 (Washington, D.C.: Jan. 15, 1991). 

Prior to 1991, lease-purchase was scored the same as a straight lease—

spread over the period of the lease, one year’s budget authority at a time. 

This produced a budgetary bias in favor of the more expensive leasepurchase option. Scoring rules were changed in 1990 to require scoring the 

full costs of a lease-purchase up front. While this had the benefit of 

“eliminating the artificial advantage previously given to lease-purchases,” it 

introduced a new bias in favor of operating leases, still scored one year at a 

time. GAO/T-AIMD-94-189, at 3. 

Concern over the scorekeeping issue is one of the factors in GAO’s 

designation of real property as a high-risk area since 2003. See section A of 

this chapter. These rules make operating leases “look cheaper” even 

though they are more costly than construction or lease-purchases. GAO, 

Federal Real Property: Reliance on Costly Leasing to Meet New Space 

Needs Is an Ongoing Problem, GAO-06-136T (Washington, D.C.: Oct. 6, 

2005), at 7–8. For example—

“for lease-purchase arrangements, the net present value of 

the government’s legal obligations over the life of the 

contract is to be scored in the budget in the first year. For 

construction or purchase, the budget authority for the full 

construction costs or purchase price is to be scored in the 

first year. However, for many of the government’s operating 

leases—including GSA leases, which, according to GSA, 

account for over 70 percent of the government’s leasing 

expenditures and are self-insured in the event of 

cancellation—only the budget authority to cover the 
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government’s commitment for an annual lease payment is 

required to be scored in the budget. Given this, while 

operating leases are generally more costly over time 

compared with other options, they add much less to a single 

year’s appropriation total than these other arrangements, 

making operating leases a more attractive option from the 

agency’s budget perspective.”

Id.

The Office of Management and Budget Circular No. A-11, Preparation, 

Submission, and Execution of the Budget (July 2, 2007), addresses the 

scoring of lease-purchases in some detail in Appendix B. It provides that, 

for scorekeeping purposes, when an agency is authorized to enter into a 

lease-purchase, budget authority to cover the total costs expected over the 

life of the lease is to be scored in the first year of the lease. OMB Cir. 

No. A-11, app. B, § 1(a). Outlays for a lease-purchase in which the federal 

government assumes substantial risk are spread across the period during 

which the contractor constructs, manufactures, or purchases the asset; 

where the private sector retains substantial risk, outlays are spread across 

the lease term. Id. Where the contract includes a cancellation clause, an 

amount sufficient to cover the costs associated with cancellation of the 

contract would be scored. Id. It adds in this regard:

“The up-front budget authority required for both leasepurchases and capital leases . . . equals the present value of 

the minimum lease payments excluding payments for 

identifiable annual operating expenses . . . discounted . . . 

using the appropriate interest rate. . . . Additional budget 

authority equal to Treasury’s cost of financing (i.e., the 

imputed interest cost) plus any annual operating expenses 

will be recorded on an annual basis over the lease term.” 

Id. § 2(b). However, as noted previously, 40 U.S.C. § 585(a)(2) provides 

that the obligation of amounts for leases under that section is limited to the 

current fiscal year for which payments are due notwithstanding the 

Antideficiency Act. The relationship of these items has yet to be 

definitively resolved, and the budgetary treatment of lease-purchases is 

likely to remain a concern. 
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F. Public Buildings 

and Improvements 

1. Construction 

a. General Funding Provisions (1) 41 U.S.C. § 12

Originally enacted in 1868,145 41 U.S.C. § 12 provides: “No contract shall be 

entered into for the erection, repair, or furnishing of any public building, or 

for any public improvement which shall bind the Government to pay a 

larger sum of money than the amount in the Treasury appropriated for the 

specific purpose.” 

This is one of the permanent funding statutes through which Congress 

implements its control of the public purse, and has often been cited in 

tandem with other funding statutes such as the purpose statute (31 U.S.C. 

§ 1301(a)) or the Antideficiency Act (31 U.S.C. § 1341). E.g., 42 Comp. 

Gen. 226, 227 (1962); 41 Comp. Gen. 255, 257–58 (1961); 21 Op. Att’y 

Gen. 244, 247–48 (1895). Its purpose, as with the other funding statutes, is 

to prevent the executive from creating obligations beyond those 

contemplated and authorized by Congress. 38 Comp. Gen. 758, 761 (1959), 

citing 21 Op. Att’y Gen. at 248. A contractor who does work in excess of 

the amount appropriated can recover only up to the limit of the 

appropriation, even though the overobligation may have been induced by 

government error. Sutton v. United States, 256 U.S. 575 (1921). 

In addition, a government officer or employee who knowingly acts in a way 

that would violate 41 U.S.C. § 12 “shall be fined under this title or 

imprisoned not more than one year,” or both. 18 U.S.C. § 435 (enacted as 

part of the same 1868 legislation as 41 U.S.C. § 12).146

145 Act of July 25, 1868, ch. 233, § 3, 15 Stat. 171, 177.

146 The revision notes for this section state that penalties for such violations were reduced 

many years ago to avoid having to classify the offender as a felon. 18 U.S.C. § 435 note. 

Nevertheless, inflation being what it is, the fine for a violation of this provision (a “class A 

misdemeanor”) now can be up to $100,000. 18 U.S.C. §§ 3559(a)(6), 3571(b)(5). 
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For construction within the District of Columbia, 41 U.S.C. § 12 is 

reinforced by another statute, 40 U.S.C. § 8106,147 which provides that “[a] 

building or structure shall not be erected on any reservation, park, or 

public grounds of the Federal Government in the District of Columbia 

without express authority of Congress.” While 41 U.S.C. § 12 has spawned 

numerous decisions, one finds little mention of 40 U.S.C. § 8106 apart from 

the occasional passing reference such as in 20 Comp. Gen. 272, 275 (1940). 

Much ink has been spilled trying to decide just what is or is not a “public 

building” for purposes of 41 U.S.C. § 12. GAO has never attempted a 

precise definition, but has used more of what one might call a “we know 

one when we see one” approach. Not that difficult, one decision 

suggested—“the term ‘building’ . . . instantly calls to mind a structure of 

some kind having walls and a roof.” 45 Comp. Gen. 525, 526 (1966). See 

also B-119846, July 23, 1954 (“structure of brick enclosing a space within its 

walls and covered with a roof,” which “any average person” would 

recognize as a building); B-165289-O.M., Aug. 26, 1969 (structure with a 

foundation, walls, separate rooms, and a roof fits the ordinary meaning of 

the term).148 Clearly, the statute applies to public buildings which are more 

or less permanent, the term “permanent” referring not so much to the mode 

of construction as to contemplated use. Thus, the following have been 

treated as public buildings for purposes of 41 U.S.C. § 12: 

• Industrial type building with railroad siding for hydrostatic testing, 

painting, and maintaining specially designed tank cars used for 

transporting helium. 38 Comp. Gen. 392 (1958). 

• Quonset hut attached to a poured concrete base to be used for storage 

purposes. 30 Comp. Gen. 487 (1951). 

• Frame buildings with cement foundations, cement floors, and shingled 

roofs, to be used for storage and repair of tools and equipment. 

5 Comp. Gen. 575 (1926). 

• Hangars, shops, and storehouses on landing fields. 2 Comp. Gen. 14 

(1922), modified, 2 Comp. Gen. 133 (1922). 

147 Formerly 40 U.S.C. § 68.

148 Such wisdom is not the exclusive province of GAO. E.g., In re Amber S., 39 Cal. Rptr. 2d 

672 (Cal. Ct. App. 1995) (building for purposes of state burglary statute is “any structure 

which has walls on all sides and is covered by a roof”). 
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• Pontoon storage shed. 16 Comp. Dec. 685 (1910). 

An extension or addition to a public building is also covered. A-59252, 

Dec. 28, 1934; A-40231, Jan. 11, 1932. 

Some examples of structures which have been held not to be “buildings” 

within the scope of 41 U.S.C. § 12, regardless of permanency, are: 

• Automated self-service unit covered by canopy and containing various 

postal vending machines, weight scales, and a parcel depository unit, to 

be placed in shopping center. 45 Comp. Gen. 525 (1966). 

• Large testing chamber with 50-inch concrete walls for use in a research 

project. 39 Comp. Gen. 822 (1960). See also B-50958, Aug. 9, 1945 

(heavy concrete chamber partly above and partly below ground 

intended for temporary use in testing explosives). 

• Greenhouses. B-141793-O.M., Feb. 17, 1960. Earlier decisions had 

exempted temporary greenhouses. E.g., 7 Comp. Gen. 629 (1928). The 

1960 case extended the proposition to greenhouses that were more or 

less permanent. 

With respect to temporary structures, the demarcation between the 

permissible and the impermissible is not as bright as one might wish. The 

statement found in numerous decisions over the decades is that 41 U.S.C. 

§ 12 applies to “any structure in the form of a building not clearly of a 

temporary character.” E.g., 42 Comp. Gen. 212, 214 (1962); 9 Comp. 

Gen. 75, 76 (1929); 2 Comp. Gen. 14 (1922), modified, 2 Comp. Gen. 133 

(1922). See also B-303145, Dec. 7, 2005;149 26 Comp. Dec. 829 (1920). The 

decisions thus attempt to strike a balance between the language of the 

statute, which does not distinguish between permanent and temporary 

structures (e.g., 10 Comp. Gen. 140, 142 (1930)), and a result which could in 

some cases border on the ridiculous. 

As one example, the statute has been found applicable to a temporary shed 

or storehouse of frame construction with sheet metal siding, to be used to 

149 This decision raised a similar issue, arising under provisions of title 10, United States 

Code, of whether the Defense Department was properly using operations and maintenance 

funds as opposed to construction funds for certain allegedly temporary construction. The 

decision and these title 10 provisions are discussed further in section F.1.b(1) of this 

chapter.
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house motor vehicles. 6 Comp. Gen. 619 (1927). Other examples include 

“temporary sheds for the shelter of farm animals; portable houses for 

temporary use of employees; temporary portable buildings for use in the 

detention and treatment of aliens; barns, sheds, cottages, etc., of frame 

construction of a temporary nature with dirt floors and contemplated to be 

destroyed.” 42 Comp. Gen. 212, 214 (1962).150 The fact that a structure is 

prefabricated and movable is not dispositive. Id. at 215. 

On the other hand, 41 U.S.C. § 12 has been found inapplicable in the 

following cases, summarized in 7 Comp. Gen. 629, 630 (1928): 

• Wood frame shed to house a fumigation tank used in fumigating cotton 

against the pink Mexican bollworm. A-17265, Mar. 16, 1927. 

• A cabinet 30 feet square with glass sides, for use in studying light in 

relation to certain diseases. A-18335, May 16, 1927. 

While these examples do not lend themselves to the formulation of a blackletter rule, it will be easier to find an exception in the case of a structure to 

be used for a clearly temporary experiment or research project, and 

correspondingly more difficult to find one where the structure is to be used 

for either residential or office space for employees. See 10 Comp. Gen. 140 

(1930); B-50958, Aug. 9, 1945. Also, a structure is not temporary merely 

because the agency calls it temporary. 63 Comp. Gen. 422, 436 (1984) 

(airfields and other military facilities in Honduras); 21 Comp. Dec. 420 

(1914) (various residential structures). 

The “specific purpose” requirement of 41 U.S.C. § 12 applies not only to 

public buildings but to “public improvements” as well. The term in this 

context refers to improvements to real property. 45 Comp. Gen. 525, 526 

(1966). Thus, major alterations or renovations to a public building are 

public improvements for purposes of 41 U.S.C. § 12. E.g., 39 Comp. 

Gen. 723 (1960). Several cases in this category have involved the 

conversion of a building to a different use: 38 Comp. Gen. 758 (1959) and 

38 Comp. Gen. 588 (1959) (conversion of hospital building for occupancy 

by federal agency); 37 Comp. Gen. 767 (1958) and B-135411, Mar. 24, 1958 

150 The alien case, which somewhat inexplicably does not cite 41 U.S.C. § 12, is 13 Comp. 

Dec. 355 (1906). The other examples in the quoted passage appear to be from unpublished 

decisions of the Comptroller of the Treasury. See 6 Comp. Gen. at 621. Unfortunately, the 

actual texts of these are no longer available as a practical matter.
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(conversion of buildings into schools); B-76841, Aug. 23, 1948 (conversion 

of school building to clinic); B-170587-O.M., Oct. 21, 1970 (conversion of 

office space into laboratories); and B-151369-O.M., Nov. 15, 1963, and 

B-151369-O.M., Sept. 10, 1964 (conversion of former bull barn to research 

laboratory). The work in all of these cases was held subject to 41 U.S.C. 

§ 12. 

Similarly, the term “public improvement” as used in 41 U.S.C. § 12 has been 

held to include the installation of an elevator in a government building 

(8 Comp. Gen. 335 (1929)); the enlargement and modernization of a 

cafeteria (27 Comp. Gen. 634 (1948)); and the installation of central air 

conditioning in a library building (B-118779, Nov. 14, 1969). 

Another line of cases holds that minor structural alterations necessary to 

accommodate specialized equipment needed in the performance of an 

authorized function may be funded from general operating appropriations. 

16 Comp. Gen. 816 (1937); 16 Comp. Gen. 160 (1936); 5 Comp. Gen. 1014 

(1926); 3 Comp. Gen. 812 (1924). While these cases do not mention 

41 U.S.C. § 12, the clear implication is that the minor alterations do not rise 

to the level of public improvements for purposes of the statute. See

B-170587-O.M., Oct. 21, 1970. The “exception” of 3 Comp. Gen. 812 and its 

progeny is limited to specialized work or equipment, and does not extend 

to alterations designed to improve a building for office purposes generally. 

17 Comp. Gen. 1050 (1938). 

The temporary versus permanent distinction discussed above in the 

context of public buildings can also be relevant in the case of 

improvements. If an agency would be authorized to construct a temporary 

facility without having to comply with 41 U.S.C. § 12, the statute would be 

equally inapplicable to the repair of an existing government-owned facility 

for the same temporary use. B-117124, Oct. 1, 1953. 

The requirement of 41 U.S.C. § 12 also applies to public improvements 

which do not involve buildings, such as roads and airfields. 63 Comp. 

Gen. 422, 435–36 (1984); 41 Comp. Gen. 255 (1961); 29 Comp. Gen. 235 

(1949). 

Once it is determined that a given building or improvement is within the 

scope of 41 U.S.C. § 12, the clearest way to satisfy the statute is, naturally, 

for the item to be explicitly addressed in the relevant appropriation act. 

However, this degree of explicitness is not absolutely required. E.g.,

B-8816, Mar. 9, 1940 (appropriation for construction of public works 
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project is available to construct buildings necessary to the project even 

though not specified in the appropriation). The essence of 41 U.S.C. § 12 is 

not that public buildings and improvements are in any way bad or 

undesirable, but merely that they are sufficiently important—and 

sufficiently costly—that agencies should not undertake them without 

congressional sanction. Thus, for example, where (1) the Federal Civil 

Defense Act authorized an agency to renovate facilities, (2) the relevant 

appropriation provided a lump sum to “[carry out] the provisions of the 

Federal Civil Defense Act,” and (3) the agency had included the desired 

renovations in its budget submission, this was enough to satisfy 41 U.S.C. 

§ 12. 39 Comp. Gen. 723 (1960). In a case which included elements (1) and 

(2) of this formula but not (3), GAO concluded that 41 U.S.C. § 12 was not 

satisfied and the appropriation was not available, because “it is clear that 

the [improvement] is an entirely different project or purpose from any 

made known to the Congress and for which the Congress appropriated 

funds.” 37 Comp. Gen. 767, 771 (1958). Merely burying an item in a budget 

submission without the required nexus in the appropriation act 

(item (3) without item (2)) is equally insufficient. B-76841, Aug. 23, 1948. 

Short of the “formula” of 39 Comp. Gen. 723, or some comparable set of 

circumstances from which congressional approval can be necessarily 

implied, general operating appropriations are not available for items within 

the scope of 41 U.S.C. § 12. The term “necessary expenses” in an 

appropriation is not enough. 38 Comp. Gen. 758 (1959); 4 Comp. Gen. 1063 

(1925). Similarly, a necessary expense justification as described in 

Chapter 4, however legitimate, is not enough to overcome the statutory 

hurdle of 41 U.S.C. § 12. 42 Comp. Gen. 212, 215 (1962); 5 Comp. 

Gen. 575, 577 (1926). Cf., B-303145, Dec. 7, 2005 (making essentially the 

same point in relation to title 10 United States Code provisions, discussed 

in section F.1.b(1) of this chapter, that restrict the use of operations and 

maintenance appropriations for military construction). Exceptions have 

occurred in a very few cases in which failure to construct the building or 

improvement would literally “render it impossible to accomplish the 

purpose for which the appropriation was made.” 10 Comp. Gen. 140, 141 

(1930). One example is 2 Comp. Gen. 133 (1922) (since “it will be 

impossible to maintain and operate the airplane mail service via Chicago 

during the year for which the appropriation was made without the erection 

of hangars, shops, and storehouses on the landing field at Chicago, the 

erection of such facilities is authorized notwithstanding the general 

restriction on the erection of public buildings and public improvements not 

specifically appropriated for”). Use of a general operating appropriation in 
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disregard of 41 U.S.C. § 12 can result in violation of the Antideficiency Act. 

E.g., B-118779, Nov. 14, 1969. 

The requirement of 41 U.S.C. § 12 attaches not only to a direct payment to a 

contractor, but as well to an advance or reimbursement to a working 

capital (or other revolving) fund. 30 Comp. Gen. 453 (1951); B-119846, 

May 27, 1954. In other words, the device of a revolving fund cannot be used 

to circumvent the statute. However, the statute does not apply to the 

expenditure of grant funds by a grantee unless so provided in the 

applicable program legislation, regulations, or terms of the grant 

agreement. B-173589, Sept. 30, 1971. 

A common sense exception is found in 7 Comp. Gen. 472 (1928). 

Legislation authorized the appropriation of $150,000 toward the erection of 

a memorial building to be built with a mix of appropriated funds and 

private donations. The legislation further provided that the appropriation 

could constitute no more than half of the total cost. The Comptroller 

General advised that once the appropriation was made and the donations in 

hand, a contract for the total cost of the building would not violate 

41 U.S.C. § 12, even though it would obviously involve “a larger sum [of 

money] than that appropriated for the specific purpose.” Id. at 474. 

(2) Contract authority under partial appropriations

A statute originally enacted in 1908, 40 U.S.C. § 3171,151 recognizes that, for 

any number of reasons, Congress may not wish to fully fund the 

construction of a public building up front. It provides: 

“Unless specifically directed otherwise, the Administrator of 

General Services may make a contract within the full limit 

of the cost fixed by Congress for the acquisition of land for 

sites, or for the enlargement of sites, for public buildings, or 

for the erection, remodeling, extension, alteration, and 

repairs of public buildings, even though an appropriation is 

made for only part of the amount necessary to carry out 

legislation authorizing that purpose.” 

151 Formerly 40 U.S.C. § 261 before the codification of title 40.
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Thus, if Congress has established the total cost of the construction or 

renovation of a public building, or of related site acquisition, and 

subsequently appropriates only part of the money, the General Services 

Administration (GSA) may enter into a legally binding contract for the full 

project, not to exceed the total authorized cost. 

There is surprisingly little discussion of this statute in the decisions. Our 

research has disclosed only 20 Comp. Gen. 272, 274 (1940), noting almost in 

passing that 40 U.S.C. § 3171 effectively modifies 41 U.S.C. § 12 to the 

extent of its terms. What is clear is that, to that extent, 40 U.S.C. § 3171 

authorizes GSA to enter into contracts in excess or advance of 

appropriations, and therefore is an exception to the Antideficiency Act. A 

contract authorized by 40 U.S.C. § 3171 is “authorized by law” for purposes 

of 31 U.S.C. § 1341(a). See 28 Comp. Gen. 163 (1948) (construing similar 

authority appearing in an appropriation act). Without such authority, the 

contract would have to be made subject to future appropriations and could 

confer no rights beyond the amount of the partial appropriation. 14 Comp. 

Dec. 755 (1908); 13 Comp. Dec. 478 (1907). 

(3) Duration of construction appropriations

Two provisions of law authorize appropriations for the construction of 

public buildings to remain available beyond the end of the fiscal year in 

which they are appropriated. First, 31 U.S.C. § 1307 provides as follows: 

“Amounts appropriated to construct public buildings remain available until 

completion of the work. When a building is completed and outstanding 

liabilities for the construction are paid, balances remaining shall revert 

immediately to the Treasury.” 

The second statute is 31 U.S.C. § 1301(c), which prohibits an appropriation 

contained in a regular, annual appropriation act from being construed to be 

permanent or available beyond the fiscal year unless it expressly so states 

or unless it is for one of four specifically named categories—rivers and 

harbors, lighthouses, public buildings, or the pay of the Navy and Marine 

Corps.152

152 There are also some agency-specific statutes which authorize construction 

appropriations to remain available beyond the end of the fiscal year. E.g., 10 U.S.C. § 2860 

(military construction); 7 U.S.C. § 2209b (certain Department of Agriculture 

appropriations); 14 U.S.C. § 656(a) (Coast Guard). Their effect is similar to the general 

provisions discussed in the text.
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Since approximately 1970, most if not all appropriation acts have included 

a general provision which states that “[n]o part of any appropriation 

contained in this Act shall remain available for obligation beyond the 

current fiscal year unless expressly so provided herein.”153 The key phrase 

is “unless expressly so provided herein.” The effect of this general 

provision is to override statutes like 31 U.S.C. § 1307 and to render them 

little more than authorizations which require specific language in the 

appropriation if they are to be implemented. 58 Comp. Gen. 321 (1979); 

50 Comp. Gen. 857 (1971). Consequently, in an appropriation act which 

contains this general provision, a construction appropriation is no different 

from any other appropriation with respect to duration; it is a 1-year 

appropriation unless it expressly specifies otherwise. 

Prior to the advent of the general provision quoted above, 31 U.S.C. § 1307 

had been construed—and given a fairly narrow application—in somewhat 

over a dozen decisions. If an appropriation act were to be enacted which 

did not contain the “current fiscal year” general provision or something 

comparable, 31 U.S.C. §§ 1301(c) and 1307, and the related case law, would 

come into more direct play. 

Essentially, the early decisions found 31 U.S.C. §§ 1301(c) and 1307 

applicable only to appropriations which provide for the original 

construction of public buildings, rejecting attempts to apply the authority 

broadly to any appropriation somehow related to a construction project. 

36 Comp. Gen. 790, 793 (1957); 8 Comp. Gen. 519, 520 (1929). Thus, the 

authority does not apply to appropriations for the following because they 

are not appropriations for the construction of a public building: 

• Purchase of land. 17 Comp. Gen. 631 (1938). 

• Clearance of a site upon which a building would later be constructed. 

8 Comp. Gen. 519 (1929). 

• Preparation of plans or designs. 36 Comp. Gen. 790 (1957); 19 Comp. 

Gen. 702 (1940). 

153 See, e.g., Consolidated Appropriations Act, 2008, Pub. L. No. 121-161, § 603, 121 Stat. 1844, 

2013 (Dec. 26, 2007) (“None of the funds appropriated in this Act shall remain available for 

obligation beyond the current fiscal year, nor may any be transferred to other 

appropriations, unless expressly so provided herein.”). See also Chapter 2, section C.2.d, for 

a discussion of this language and its origin.
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• Repairs or improvements. 1 Comp. Gen. 435 (1922), aff’d upon 

reconsideration, 1 Comp. Gen. 532 (1922). 

• Remodeling and/or enlarging. 10 Comp. Gen. 454 (1931); 7 Comp. 

Gen. 619 (1928). 

The no-year authorization of 31 U.S.C. § 1307 also does not apply, 

regardless of whether the appropriation is one for public building 

construction, if the appropriation contains other language restricting it to 

some definite time period. 24 Comp. Gen. 942 (1945); 23 Comp. Gen. 150 

(1943); 18 Comp. Gen. 969 (1939); 6 Comp. Gen. 783 (1927). Nor does it 

apply to an amount earmarked for construction in a lump-sum Salaries and 

Expenses appropriation. 37 Comp. Gen. 246 (1957). The earmark has the 

same obligational availability as the parent appropriation unless expressly 

provided otherwise. Id. at 248; A-25480, Dec. 18, 1928. 

In sum, an appropriation (1) for the original construction of a public 

building, (2) which does not specify any other period of availability, and 

(3) which is contained in an appropriation act which does not include the 

“current fiscal year” general provision or some comparable limitation, may 

be regarded as a no-year appropriation without the need for the traditional 

“to be available until expended” language. 36 Comp. Gen. at 793–94; 

B-154459, Dec. 9, 1964.154

(4) Design fees

Before a shovel ever touches the ground, somebody has to design the 

building. Just about every construction project includes the services of 

professional architects and engineers (A&E). Those services range from 

the preparation of plans and specifications to inspection and supervisory 

services during actual construction. At one time, there was no authority to 

hire a private architect to prepare plans for a public building. 21 Comp. 

Dec. 336 (1914). Today, the United States Code is dotted with statutes 

authorizing the government to contract for A&E services. Among the more 

important provisions are 40 U.S.C. § 3308 (General Services 

Administration), 10 U.S.C. §§ 4540(a), 7212(a), and 9540(a) (Army, Navy, 

and Air Force, respectively); and 38 U.S.C. § 8106(b) (Veterans Affairs 

medical facilities). 

154 Although there was no need for the decisions to so specify at the time, the appropriation 

acts in these two cases did not include the “current fiscal year” provision.
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Contracting for A&E services is governed by 40 U.S.C. §§ 1101–1104,155

which prescribes a negotiation procedure based on competence as well as 

price. In this regard, section 1101 provides: “The policy of the Federal 

Government is to publicly announce all requirements for architectural and 

engineering services, and to negotiate contracts for architectural and 

engineering services on the basis of demonstrated competence and 

qualification for the type of professional services required and at fair and 

reasonable prices.” 

These provisions do not apply merely because part of the contract work 

will be done by architects or engineers; rather, they apply to a procurement 

which “uniquely or to a substantial or dominant extent logically requires 

performance by a professionally licensed and qualified A-E firm.” 

61 Comp. Gen. 377, 378 (1982). They also apply to small business setasides, including those under section 8(a) of the Small Business Act, 

15 U.S.C. § 637(a). 59 Comp. Gen. 20 (1979); B-129709, Oct. 14, 1976. GAO 

will not question an agency’s decision to compete an A&E contract rather 

than negotiate unless the agency’s actions demonstrate a clear intent to 

circumvent the Act. 62 Comp. Gen. 297 (1983). For projects within the 

definition of “public building” in the Public Buildings Act of 1959, 40 U.S.C. 

§ 3301(a)(5),156 the A&E procurement is done by the General Services 

Administration unless delegated to another agency. 40 U.S.C. §§ 3308, 

3313.157

The Clinger-Cohen Act of 1996, Pub. L. No. 104-106, div. D, § 4105, 110 Stat. 

186, 645–49 (Feb. 10, 1996) (often referred to as the “Federal Acquisition 

Reform Act of 1996”), authorized “two-phase” selection procedures for 

“design-build” acquisitions. These procedures, codified at 10 U.S.C. § 2305a 

and 41 U.S.C. § 253m, authorize the use of two-phase selection procedures 

for entering into a contract for the design and construction a public 

building, facility, or work. The conference report on the Act indicates that 

this provision was “not intended to modify the Brooks Architect-Engineers 

Act [40 U.S.C. §§ 1101–1104].” H.R. Rep. No. 104-450, at 966 (1996). 

Consequently, the two-phase approach represents an alternative to the 

“design-bid-build” procedures in 40 U.S.C. §§ 1101–1104. See Fluor 

155 These provisions were formerly known as the “Brooks Architect-Engineers Act” and 

appeared at 40 U.S.C. §§ 541–544.

156 Formerly 40 U.S.C. § 612(1).

157 Formerly 40 U.S.C. §§ 609 and 614, respectively. 
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Enterprises, Inc. v. United States, 64 Fed. Cl. 461 (2005), which discusses 

at length the interplay between “design-build” acquisitions and the “designbid-build” procedures. Fluor describes the two approaches as follows:

“‘Design-Bid-Build’ and ‘Design-Build’ are industry terms 

referring to the method by which infrastructure projects are 

procured. [In] [d]esign-bid-build . . . the services of a design 

professional are procured first, and the building contractor 

is selected later, after the design work is completed. 

Conversely, in the design-build model, both design and 

construction services are procured from a single entity 

(which might be a single construction firm with in-house 

design professionals or a team of construction and design 

professionals assembled for a project) in a single 

procurement process.”

Id. at 482. 

Architects and engineers, like the rest of us, expect to be paid for their 

services. They should be paid, says the provision in 40 U.S.C. § 1101 quoted 

above, “at fair and reasonable prices.” In order to keep “fair and 

reasonable” from becoming excessive, a series of statutes imposes a 

percentage ceiling on A&E fees. Civilian procurements are governed by 

41 U.S.C. § 254(b), enacted as part of the Federal Property and 

Administrative Services Act of 1949, which provides in relevant part that— 

“a fee inclusive of the contractor’s costs and not in excess of 

6 percent of the estimated cost, exclusive of fees, as 

determined by the agency head at the time of entering into 

the contract, of the project to which such fee is applicable is 

authorized in contracts for architectural or engineering 

services relating to any public works or utility project.” 

A very similar provision, governing procurements by the armed forces, is 

found in 10 U.S.C. § 2306(d). The fee limitation of 41 U.S.C. § 254(b) 

applies to all civilian A&E procurements unless expressly exempted. E.g.,

46 Comp. Gen. 183, 189–90 (1966) (ceiling applies to A&E services 

procured under authority of what is now 38 U.S.C. § 513); B-152306, Jan. 5, 

1967 (limited exemption under 22 U.S.C. § 296). By its plain terms, 

41 U.S.C. § 254(b) applies where A&E services are used even if they are 
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only a minor part of the overall contract. Fluor, 64 Fed. Cl. at 479–82.158 

The limitation in 10 U.S.C. § 2306(d) applies to the Coast Guard and the 

National Aeronautics and Space Administration as well as the military 

departments. 10 U.S.C. § 2303. 

In addition, the Department of the Army is authorized to procure A&E 

services “for producing and delivering designs, plans, drawings, and 

specifications needed for any public works or utilities project of the 

Department.” 10 U.S.C. § 4540(a). Section 4540(b) then provides: “The fee 

for any service under this section may not be more than 6 percent of the 

estimated cost, as determined by the Secretary, of the project to which it 

applies.” Nearly identical limitations exist for the Navy (10 U.S.C. 

§ 7212(b)) and the Air Force (10 U.S.C. § 9540(b)). See 46 Comp. Gen. 556, 

559 (1966). 

Certain terminology is common to all of the statutes. Thus, the fee is to be 

based on the estimated cost of a project relating to public works or 

utilities. GAO has offered the following guidance with respect to 

“estimated costs”: 

“[I]n the absence of definite legislative expression 

otherwise, the term ‘estimated cost’ of a project may be said 

to comprehend the reasonable cost of a project erected in 

accordance with the plans and specifications, and that the 

inclusion of cost elements generally not covered by the 

plans and specifications such as furniture and equipment 

installed for the occupancy and use of a project would 

appear to be questionable.” 

B-146312-O.M., Nov. 28, 1961, at 8. “Project” means the structure or public 

work “for which the architect-engineer undertakes in his contract to 

prepare the plans, etc., and not any larger budgetary or other project of 

which it may form a part.” 40 Comp. Gen. 188, 191 (1960). Thus, if the 

overall project is to erect a complex of three buildings, the “project” for 

purposes of an A&E contract covering one of the buildings is that one 

building, not all three. A broader definition “would allow the architectengineer’s fee to be based on the cost of work for which he rendered no 

158 The Fluor court went on to hold that the A&E portion of the contract in that case was 

void for failure to comply with the statute, but recovery of A&E fees was allowed on a 

quantum meruit basis. Fluor, 64 Fed. Cl. at 495–97.
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service.” Id. See also 47 Comp. Gen. 61, 67 (1967); B-152306, Jan. 24, 1967; 

B-115013-O.M., Apr. 28, 1953. 

The term “public works” has been addressed under a variety of statutes. 

The term generally relates to construction work. 17 Comp. Gen. 545 (1938), 

modified, A-90922, Feb. 23, 1938. It has been broadly defined as fixed 

works or movable property the title to which is vested in the United States. 

35 Comp. Gen. 454, 455 (1956); 19 Comp. Gen. 467, 470 (1939). A similarly 

broad definition is “all fixed works contracted for public use.” 35 Comp. 

Gen. at 455; 19 Comp. Gen. at 469; 38 Op. Att’y Gen. 418, 422 (1936). The 

term “utilities” in the construction context “is commonly understood to 

have reference to such items as sewer and water facilities, heating devices, 

electric wires and fixtures, etc.” 21 Comp. Gen. 167, 170 (1941). While 

these cases did not involve the A&E fee limitation, the same definitions 

should nevertheless be applied. B-146312-O.M., Nov. 28, 1961. The Navy 

statute also includes construction of vessels or aircraft. 10 U.S.C. 

§ 7212(a). 

The A&E fee limitation statutes—41 U.S.C. § 254(b), 10 U.S.C. § 2306(b), 

and the three armed forces statutes, 10 U.S.C. §§ 4540, 7212, and 9540—

apply to all contracts regardless of type, cost-plus as well as fixed-price. 

46 Comp. Gen. 556 (1966); 46 Comp. Gen. 183 (1966); B-115013-O.M., 

Apr. 28, 1953. 

Differences in the statutory language have produced some controversy 

over precisely what to include when assessing compliance with the fee 

limitation, that is, what amounts are included in the total subject to the 

6 percent limit. The 1939 statutes authorize the procurement of A&E 

services for the production and delivery of plans and designs, and the fee 

limitation in each of the 1939 statutes applies to services “under this 

section.” Thus, it is clearly the case that, under 10 U.S.C. §§ 4540, 7212, and 

9540, the 6 percent limitation relates only to the production and delivery of 

plans and designs. 46 Comp. Gen. 556, 564 (1966); 22 Comp. Gen. 464 

(1942). If the A&E contract includes supervisory services as well as 

production and delivery, the 6 percent does not apply to those amounts 

paid to the contractor for the supervisory services. 22 Comp. Gen. at 466. 

To take a simplified illustration, the 6 percent ceiling on a $100 

construction contract is $6. If the A&E contract includes $5 for production 

and delivery and another $5 for supervisory services, there is no violation. 

The remaining A&E statutes—10 U.S.C. § 2306(d) and 41 U.S.C. § 254(b)—

do not include the specific “production and delivery” language. At one 
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time, GAO was inclined to view the limitation under these statutes as 

applicable to the total contract price under the A&E contract for whatever 

services it may have included, not just production and delivery. 46 Comp. 

Gen. 573 (1966) (41 U.S.C. § 254(b)); 46 Comp. Gen. 556, 564–65 (1966) 

(10 U.S.C. § 2306(d)). However, the conclusions were not free from doubt 

and GAO was in the process of conducting a governmentwide review of 

A&E contracting, so both decisions said, in effect, to disregard the 

conclusions pending further developments. In 1982, GAO reviewed those 

developments and concluded that Congress had effectively affirmed “that 

the fee limitation relates only to the production of plans, drawings, and 

specifications.” B-205793, Jan. 18, 1982, at 3. Accordingly, all of the A&E 

fee limitation statutes now have a uniform interpretation—the 6 percent 

ceiling applies only to costs relating to the production and delivery of plans 

and designs. This of course would include the proportionate share of 

administrative costs attributable to support of production and delivery 

services. B-258058, May 8, 1995. 

The view expressed in B-205793, Jan. 18, 1982, is consistent with the 

Federal Acquisition Regulation, which provides: “For architect-engineer 

services for public works or utilities, the contract price or the estimated 

cost and fee for production and delivery of designs, plans, drawings, and 

specifications shall not exceed 6 percent of the estimated cost of 

construction of the public work or utility, excluding fees.” 48 C.F.R.

§ 15.404-4(c)(4)(B). 

Once it is determined which services under the A&E contract “count” 

against the fee limitation, the total payment to the A&E contractor for 

those covered services may not exceed 6 percent of the estimated cost of 

the construction contract, regardless of the type of contract used for the 

A&E procurement. Thus, if the A&E contract is a cost-plus-fixed-fee 

contract, the 6 percent relates to the total payment for covered services, 

not just the fixed fee portion. 21 Comp. Gen. 580 (1941), aff’d, B-18126, 

Mar. 19, 1942. It follows that an A&E contract in the form of a cost-plusfixed-fee, with the total payment including the fixed fee not to exceed a 

specified dollar amount calculated to remain within the statutory 

limitation, is legally unobjectionable. B-106325, Nov. 15, 1951. 

Unless the contract provides otherwise, a mere increase in the cost of the 

construction contract—for example, if the lowest bid received exceeds the 

estimated cost on which the A&E fee was based—does not entitle the A&E 

contractor to an increase in fee. Hengel Associates, P.C., VABCA No. 3921, 

94-3 BCA ¶ 27,080 (1994); R.M. Otto Co., Inc. & Associates, VABCA 
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No. 1526, 82-2 BCA ¶ 15,889 (1982); Shaw Metz & Associates, VABCA 

No. 774, 71-1 BCA ¶ 8679 (1971); William Cramp Scheetz, Jr., ASBCA 

No. 9501, 1964 BCA ¶ 4340 (1964). As the Hengel board in particular 

emphasized, the 6 percent is a ceiling, not an entitlement, and does not 

prohibit the parties from contracting for a lower amount. Hengel, 94-3 BCA 

at ¶ 134,965. 

Of course, there are situations in which the fee may be increased. If the 

A&E contract is modified under the “Changes” clause to increase the scope 

of the work, a fee increase is proper, still subject to the 6 percent ceiling. 

B-152306, Jan. 24, 1967. See also Skidmore, Owings & Merrill, ASBCA 

No. 6062, 1962 BCA ¶ 3332 (1962). It is also possible to increase the fee 

without regard to the 6 percent limit, as discussed in the following passage 

from 47 Comp. Gen. 61, 67 (1967): 

“The project to which an architect-engineer fee is applicable 

is the project for which the architect-engineer undertakes in 

his contract to prepare plans, etc. [Citation omitted.] Where 

the site and nature of a project are so changed as to render 

virtually useless any [A&E] work done prior to 

administrative determination to effect such change, it would 

be unreasonable, in light of the statutory purpose, to carry 

forward against the new project any charges against the fee 

limitation incurred under the original project. Although the 

purpose to be served by a building project may remain 

unchanged, that is not to say that the conceptual design of 

the building and its location may be substantially altered 

without at some point giving rise to a new project for the 

purpose of applying the fee limitations in question.”

b. Some Agency-Specific 

Authorities 

If construction were governed solely by the appropriated funding 

requirement in 41 U.S.C. § 12, the funding process would be cumbersome 

and would afford little flexibility. While 41 U.S.C. § 12 remains the 

cornerstone of congressional control of major construction projects, 

Congress has enacted various supplemental provisions for agencies with 

ongoing construction responsibilities,159 all of which can be viewed as 

exceptions to 41 U.S.C. § 12. 

159 For example, consider the Department of Veterans Affairs’ authority to build medical 

facilities under 38 U.S.C. §§ 8103, 8104, and 8106. Section 8104(a)(2) includes a provision 

roughly analogous to 41 U.S.C. § 12. 
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(1) Military construction

Not surprisingly,160 the most detailed and comprehensive scheme is that 

applicable to the Defense Department and the military departments. 

Typically, construction funds are appropriated to each department in a 

lump sum to be used “as authorized by law,” which means in accordance 

with authorization acts required by 10 U.S.C. § 114(a)(6).161 Most of the 

funds are authorized by installation, in line-item format. In addition, each 

department receives a lump-sum authorization for “unspecified minor 

military construction projects.” 

Substantive provisions are found in the Military Construction Codification 

Act,162 codified chiefly in 10 U.S.C. §§ 2801–2853. “Military construction” is 

defined broadly as “any construction, development, conversion, or 

extension of any kind carried out with respect to a military installation, 

whether to satisfy temporary or permanent requirements.” 10 U.S.C. 

§ 2801(a). A “military construction project” includes all military 

construction “necessary to produce a complete and usable facility or a 

complete and usable improvement to an existing facility” or authorized 

portion thereof. 10 U.S.C. § 2801(b). 

Under 10 U.S.C. § 2805(a)(1), “within an amount equal to 125 percent of the 

amount authorized by law for such purpose”—that is, the lump-sum minor 

military construction authorization—each department may carry out 

“unspecified minor military construction projects” that are “not otherwise 

authorized by law.” An “unspecified minor military construction project” is 

one “that has an approved cost equal to or less than “1,500,000” or equal or 

less than $3,000,000 if the project “is intended solely to correct a deficiency 

that is life-threatening, health-threatening, or safety-threatening.” Id. 

Projects costing more than $750,000 must first be reported to Congress. 

160 The reason it is not surprising is that, as we will see later, the Public Buildings Act does 

not apply to construction on military installations.

161 Examples for 2006 are the National Defense Authorization Act for Fiscal Year 2006, 

Pub. L. No. 109-163, div. B, 119 Stat. 3136, 3485 (Jan. 6, 2006) and the Military Quality of Life 

and Veterans Affairs Appropriations Act, 2006, Pub. L. No. 109-114, title I, 119 Stat. 2372 

(Nov. 30, 2005). As these examples illustrate, the authorization and appropriation acts are 

occasionally enacted in reverse order.

162 Pub. L. No. 97-214, 96 Stat. 153 (July 12, 1982). The Act, which is frequently amended, 

addresses a variety of construction activities, although our coverage here is limited to an 

outline of the provisions governing minor military construction. 
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10 U.S.C. § 2805(b)(2). Section 2805(c)(1) further enhances flexibility by 

generally permitting unspecified minor military construction projects 

costing not more than $750,000 (or $1,500,000 in the case of lifethreatening, etc., projects) to be charged to Operation and Maintenance 

(O&M), rather than military construction, appropriations. In addition, cost 

variations are authorized in unusual and unanticipated situations, up to 

limits specified in 10 U.S.C. § 2853. 

The “minor milcon” provisions are simultaneously authorizations and 

limitations. See B-159451, Mar. 20, 1967. Subject to authorized variations, 

GAO regards the cost of a minor milcon project as the cost at the time it is 

approved by the appropriate departmental official, regardless of 

subsequent increases in the statutory ceiling. B-175215, Apr. 20, 1972. 

As noted above, a construction project is defined in terms of a “complete 

and usable facility” unless something less is specifically authorized. It is 

not permissible to split a single project into smaller projects (sometimes 

given the fancy name “incremental construction”) in order to stay below 

the ceiling for using O&M funds. B-234326.15, Dec. 24, 1991; B-213137, 

Jan. 30, 1986; B-159451, Sept. 3, 1969; B-133316-O.M., Aug. 27, 1962. As 

most of these references point out, directives of the military departments 

also prohibit splitting. 

In B-303145, Dec. 7, 2005, GAO raised the issue of whether the Defense 

Department may have violated the forgoing statutory limitations in 

connection with projects approved as part of the global war on terrorism 

near the end of fiscal year 2002. The Defense Department provided GAO a 

memorandum asserting its “longstanding view that O&M funds may be 

used for construction of a temporary nature in support of certain military 

operations.” B-303145, at 16–17. While the record was insufficient to 

permit a specific determination, GAO offered the following general 

observations:

“We have recognized that construction work of a temporary 

nature may be funded with DOD’s O&M funds in ‘extremely 

limited’ circumstances. In particular, in applying the 

principles derived from our earlier cases interpreting a 

longstanding prohibition [41 U.S.C. § 12] on using 

appropriations to fund contracts for construction of ‘public 

improvements,’ we have held that the military construction 

statutes do not cover the types of work that are ‘clearly of a 

temporary nature’ as addressed in those cases. In reviewing 
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the limited documentation provided by DOD, we were 

unable to determine whether the construction components 

of any of the projects were of such a temporary nature that 

the military construction statutes would not apply.”

Id. at 17–18 (footnotes omitted).

The military departments have traditionally distinguished between “funded 

costs” and “unfunded costs,” including only the former in calculating costs 

for purposes of 10 U.S.C. § 2805. Funded costs consist primarily of the 

costs of labor (other than troop labor), materials, and equipment. 

Unfunded costs include such things as troop labor and equipment 

depreciation. GAO has accepted the legitimacy of the distinction. 

B-213137, Jan. 30, 1986; B-133316, Oct. 12, 1962. 

Charging a construction project to O&M funds in excess of the statutory 

ceiling violates 31 U.S.C. § 1301(a) which prohibits using appropriated 

funds for other than their intended purpose. It also violates the 

Antideficiency Act unless unobligated construction funds are available to 

make an appropriate account adjustment. 63 Comp. Gen. 422, 423–24, 437–

38 (1984). 

(2) Continuing contracts: two variations

Construction projects often must extend beyond a single fiscal year. A 

device Congress has provided some agencies is the “continuing contract.” 

For example, the Army Corps of Engineers engages in extensive public 

works construction activity. A significant authority available to the Corps 

is 33 U.S.C. § 621: “Any public work on canals, rivers, and harbors adopted 

by Congress may be prosecuted by direct appropriations, by continuing 

contracts, or by both direct appropriations and continuing contracts.” 

Under a continuing contract, as the term is used in this context, the Corps 

enters into a multiyear contract for the completion of a construction 

project, although funds are sought and appropriated only in annual 

increments to cover work planned for the particular year. See 

C.H. Leavell & Co. v. United States, 530 F.2d 878, 886 (Ct. Cl. 1976). This 

statute is an exception to both 41 U.S.C. § 12 and the Antideficiency Act. It 

authorizes the Corps to record the full contract price as an obligation at the 

time the contract is entered into, even though appropriations to liquidate 

the obligation have not yet been made. 56 Comp. Gen. 437 (1977). The 

authority of 33 U.S.C. § 621 applies equally to contracts financed by the 
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Civil Works Revolving Fund (33 U.S.C. § 576). B-242974.6-O.M., Nov. 26, 

1991. 

To the extent applicable, the laws relating to river and harbor 

improvements—including the “continuing contract” authority of 33 U.S.C. 

§ 621—apply also to the Corps’ shore protection and flood control 

projects.163 33 U.S.C. §§ 426b, 701. 

A different type of continuing contract is authorized by a provision found in 

the Reclamation Act, 43 U.S.C. § 388: 

“When appropriations have been made for the 

commencement or continuation of construction or 

operation and maintenance of any project, the Secretary 

may . . . enter into contracts . . . for construction, which may 

cover such periods of time as the Secretary may consider 

necessary but in which the liability of the United States shall 

be contingent upon appropriations being made therefor.” 

To an extent 43 U.S.C. § 388 can also be viewed as an exception to the 

Antideficiency Act. PCL Construction Services, Inc. v. United States, 

41 Fed. Cl. 242, 251–57 (1998), aff’d, 96 Fed. Appx. 672 (Fed. Cir. 2004); 

B-72020, Jan. 9, 1948. However, it is a much more limited one than 

33 U.S.C. § 621. Under 33 U.S.C. § 621, actual payment must await an 

appropriation, but the legal obligation arises, and is recordable, when the 

contract is entered into. Under 43 U.S.C. § 388, legal liability does not come 

into existence until the appropriation is made and, therefore, the full 

contract price cannot be recorded as an obligation at the time the contract 

is entered into. 

The distinction is highlighted in 28 Comp. Gen. 163 (1948), which compared 

43 U.S.C. § 388 with a provision appearing in an appropriation act which 

appropriated $1 million for a construction project and, in addition, 

authorized the Bureau of Reclamation to enter into contracts up to 

$1.6 million. The appropriation act provision, analogous to 33 U.S.C. § 621 

as construed in 56 Comp. Gen. 437, authorized— 

163 In addition, the Corps is authorized to allocate funds from its annual appropriations, up to 

specified limits, for the construction of small projects which have not been specifically 

authorized. 33 U.S.C. §§ 426g (shore protection), 577 (rivers and harbors), 701s (flood 

control).
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“the entering into of a firm contract which fully will obligate 

the faith and credit of the United States to its payment. The 

liability of the United States, on proper contracts entered 

into under its authority, is fixed and clear. It is not 

contingent in any way on the appropriation necessary to its 

fulfillment and the Government is fully obligated to satisfy 

its conditions.” 

28 Comp. Gen. at 165. This is the classic concept of contract authority. A 

contract under 43 U.S.C. § 388 is different, however. The decision 

continued: “The liability of the United States on contracts entered into 

pursuant to [43 U.S.C. § 388], on the other hand, ‘shall be contingent upon 

appropriations being made therefor.’ Under such contracts, no legal 

obligation exists to pay their amounts unless and until appropriation is 

made therefor.” 28 Comp. Gen. at 165–66. See also B-72020, Jan. 9, 1948. 

The rights and obligations of the parties in the event of a funding shortfall 

will also vary depending on which type of continuing contract is in effect. 

Under the type of contract which amounts to contract authority such as 

33 U.S.C. § 621, the contractor has a legal right to recover and can sue to 

enforce it. 56 Comp. Gen. at 442. While a court can never order Congress 

to appropriate money, a failure or refusal to appropriate funds to satisfy an 

obligation authorized by statute will not preclude a court from rendering a 

judgment. E.g., New York Airways, Inc. v. United States, 369 F.2d 743 

(Ct. Cl. 1966). 

Under the type of contingent contract authorized by 43 U.S.C. § 388, the 

situation is different. In a case where the contracting agency had requested 

sufficient funds to finance the contract but Congress appropriated a much 

smaller amount, the Court of Claims held that as long as the agency 

allocates the funds on a rational and nondiscriminatory basis, the 

contractor has no right to recover damages incurred as a result of the 

funding shortage. Winston Brothers Co. v. United States, 130 F. Supp. 374 

(Ct. Cl. 1955). A similar holding is Granite Construction Co., IBCA 

No. 947-1-72, 72-2 BCA ¶ 9762 (1972), denying recovery where the 

exhaustion of funds was due to a presidential impoundment. 

In S.A. Healy Co. v. United States, 576 F.2d 299 (Ct. Cl. 1978), however, the 

court granted an equitable adjustment where the contracting agency’s 

budget request was “grossly inadequate” to support the funding level it had 

previously approved under the contract. The difference between Healy on 

the one hand and Winston and Granite on the other is that the funding 
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shortfall in Healy was at least partly the agency’s fault. Healy, 576 F.2d 

at 305. 

While there are few cases, it seems fair to say that the extent of the 

agency’s duty to at least ask for the money is still being formed and defined. 

The Healy court was careful to point out that it was not holding that the 

agency has an absolute contractual obligation to seek adequate funding. 

More precisely, said the court, if the agency chooses not to seek adequate 

funding, it can escape liability only if the contract unambiguously places 

the entire risk on the contractor, and if the agency provides “timely and 

candid” notification to help the contractor mitigate its loss. Id. at 307. See 

also San Carlos Irrigation and Drainage District v. United States, 23 Cl. 

Ct. 276, 283 (1991). Of course, the question will be foreclosed if the 

contract explicitly creates the duty. E.g., Municipal Leasing Corp. v. 

United States, 1 Cl. Ct. 771, 774 (1983) (contract clause obligating agency 

“to use its best efforts to obtain appropriations of the necessary funds to 

meet its obligations and to continue this contract in force”). Precisely what 

constitutes “best efforts” has yet to be determined. 

(3) 7 U.S.C. § 2250

A Department of Agriculture provision, 7 U.S.C. § 2250, illustrates a 

different approach: 

“The Department of Agriculture is authorized to erect, alter, 

and repair such buildings and other public improvements as 

may be necessary to carry out its authorized work: 

Provided, That no building or improvement shall be erected 

or altered under this authority unless provision is made 

therefor in the applicable appropriation and the cost thereof 

is not in excess of limitations prescribed therein.” 

The purpose of this permanent authorization is to avoid the need for 

specific authorizations which 41 U.S.C. § 12 would otherwise require. 

Provision can thus be made in annual appropriation acts without being 

susceptible to a point of order. The origin and intent of 7 U.S.C. § 2250 are 

discussed in B-79640, Oct. 18, 1948, and B-151369-O.M., Nov. 15, 1963. 

To implement 7 U.S.C. § 2250, the relevant appropriation will typically 

specify monetary limits on construction activities, plus whatever 

exemptions from those limits Congress may desire. See, for example, the 

appropriation under the heading Agricultural Research Service, Salaries 
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and Expenses in the Agriculture Department’s 2006 appropriation act, 

Pub. L. No. 109-97, 119 Stat. 2120, 2124 (Nov. 10, 2005). Exceeding an 

applicable limitation violates 41 U.S.C. § 12. B-151369-O.M., Nov. 15, 1963. 

(4) 15 U.S.C. § 278d

Another permanent authorization is 15 U.S.C. § 278d, applicable to the 

National Institute of Standards and Technology: 

“Within the limits of funds which are appropriated for the 

Institute, the Secretary of Commerce is authorized to 

undertake such construction of buildings and other 

facilities, and to make such improvements to existing 

buildings, grounds, and other facilities occupied or used by 

the Institute as are necessary for the proper and efficient 

conduct of the activities authorized herein.” 

This statute at one time included language, dropped in 1992, requiring 

specific provision in the relevant appropriation in order to construct a 

building costing over a specified amount. As the statute now stands, it is 

similar to 7 U.S.C. § 2250 in that it will insulate an appropriation from a 

point of order under congressional rules requiring prior authorization. It is 

also similar in that it, standing alone, does not satisfy 41 U.S.C. § 12. There 

would need to be at least the elements described in 39 Comp. Gen. 723 

(1960), previously discussed in our coverage of 41 U.S.C. § 12. 

The Institute finances its construction from a reimbursable Working 

Capital Fund pursuant to 15 U.S.C. § 278b. In order to use the Working 

Capital Fund, however, the appropriation to be charged with the 

reimbursement must itself be available for construction, that is, it must 

satisfy 41 U.S.C. § 12. 30 Comp. Gen. 453 (1951); 15 U.S.C. § 278b(b). 

Reimbursement should include indirect as well as direct costs. See

B-117622, July 13, 1955; 15 U.S.C. § 278b(e). 

Section 278d has been construed as applicable only to construction on 

government-owned land and not to leased property. B-130564, Mar. 18, 

1957; B-124596-O.M., Aug. 26, 1955. A separate provision of law now 

authorizes, in the performance of Institute functions, “the erection on 

leased property of specialized facilities and working and living quarters 

when the Secretary of Commerce determines that this will best serve the 

interests of the Government.” 15 U.S.C. § 278e(g). 
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c. Public Buildings Act and 

the General Services 

Administration 

As noted previously in section E of this chapter, the Federal Property and 

Administrative Services Act of 1949 created the General Services 

Administration (GSA) and centralized a number of the government’s 

housekeeping functions in that agency. Ten years later, Congress enacted 

the Public Buildings Act of 1959, Pub. L. No. 86-249, 73 Stat. 479 (Sept. 9, 

1959), to do essentially the same thing for public buildings acquisition and 

construction. The act was amended significantly in 1972, 1976, and again in 

1988.164 Most of the act’s provisions, along with their amendments, were—

and still are—contained in title 40 of the United States Code. As also noted 

previously, Congress codified title 40 by enacting its provisions into 

positive law. As a result of the codification, the Public Buildings Act 

technically no longer exists and most of its provisions have found new 

homes in different sections of title 40, primarily at 40 U.S.C. §§ 3301–3315. 

We will refer to the current Code sections in the following discussion. 

However, we will also identify the prior section numbers since most of the 

cited cases refer to them. 

The statute gives a fairly complicated definition of “public building.” The 

term means “a building, whether for single or multitenant occupancy, and 

its grounds, approaches, and appurtenances, which is generally suitable for 

use as office or storage space or both by one or more federal agencies or 

mixed ownership Government corporations.” 40 U.S.C. § 3301(a)(5)(A).165 

The definition then goes on to list a number of specific types of buildings 

and facilities that are included in the general definition. Id. 

§ 3301(a)(5)(B). It then lists a number of specific exemptions from the 

definition, including buildings on the public domain; on military 

installations; on United States property in foreign countries; on Indian and 

Eskimo properties held in trust by the United States; on lands used in 

federal agricultural, recreational, and conservation programs, including 

related research; on or used in connection with river, harbor, flood control, 

reclamation, or power projects; used for nuclear production, research, or 

development projects; on or used in connection with housing or residential 

projects; on Department of Veterans Affairs installations used for hospital 

or domiciliary purposes. Id. § 3301(a)(5)(C). See also the definition in 

GSA’s Federal Management Regulation at 41 C.F.R. § 102-71-20. Thus, 

164 Public Buildings Amendments of 1972, Pub. L. No. 92-313, 86 Stat. 216 (June 16, 1972); 

Public Buildings Cooperative Use Act of 1976, Pub. L. No. 94-541, 90 Stat. 2505 (Oct. 18, 

1976); Public Buildings Amendments of 1988, Pub. L. No. 100-678, 102 Stat. 4049 (Nov. 17, 

1988).

165 Formerly 40 U.S.C. § 612(1).
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wholly apart from specific exemptions Congress may from time to time 

legislate, the basic statute itself carves out several large exemptions from 

the definition. What’s left is a public building governed by 40 U.S.C. 

§§ 3301–3315. 

Section 3302 of title 40166 sets the policy by declaring that “Only the 

Administrator of General Services may construct a public building.” 

Section 3304 of title 40 of the United States Code deals with site 

acquisition. GSA is authorized to acquire sites needed for public buildings 

“by purchase, condemnation, donation, exchange, or otherwise.” 40 U.S.C. 

§ 3304(a).167 GSA may solicit proposals but is not required to follow the 

competition requirements of the Federal Property and Administrative 

Services Act or the Federal Acquisition Regulation. 40 U.S.C. § 3304(d)(2); 

71 Comp. Gen. 333 (1992). The site selected should be the one “most 

advantageous to the Government, all factors considered.” 40 U.S.C. 

§ 3304(d)(1). Meeting this standard requires “intelligent competition” 

which includes informing offerors of the evaluation factors to be applied 

and their relative importance. B-256017.4, B-256017.5, June 27, 1994. There 

is nothing improper under section 3304 in soliciting expressions of interest 

and then, if the parties cannot agree to acceptable terms, instituting 

condemnation proceedings. 71 Comp. Gen. 511 (1992). It is similarly 

within GSA’s discretion to reach agreement with the owner after requesting 

the Attorney General to initiate the condemnation. B-249131.4, June 24, 

1993. Condemnation of a site for a public building is “obviously for a public 

use” for Fifth Amendment purposes. Certain Land in the City of 

Washington, D.C. v. United States, 355 F.2d 825, 826 (D.C. Cir. 1965). 

The requirement in Executive Order No. 12072 to give preference to central 

business areas, discussed previously in section E of this chapter in 

connection with leasing, applies to site selection under 40 U.S.C. § 3304. 

Exec. Order No. 12072, Federal Space Management, § 1-103, 43 Fed. 

Reg. 36,869 (Aug. 16, 1978). Therefore, it is within GSA’s discretion when 

soliciting sites for public building construction to limit consideration to a 

central business area. B-251581.2, July 13, 1993. 

166 Formerly 40 U.S.C. § 601.

167 Formerly 40 U.S.C. §§ 602, 604.
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As noted earlier, any construction project requires architectural and 

engineering services, and 40 U.S.C. § 3308(a)168 authorizes GSA to procure 

those services. However, GSA must retain responsibility for all 

construction, including interpreting construction contracts, approving 

contract changes, certifying payment vouchers, and making final contract 

settlement. 40 U.S.C. § 3308(c). To the maximum extent feasible, 

construction should comply with one of the nationally recognized model 

building codes, and should take into consideration state and local zoning 

laws and laws imposing landscaping, open space, minimum distance, and 

maximum height requirements. 40 U.S.C. §§ 3312(b), (c).169

Artistic concerns are also relevant. GSA regulations provide: 

“Federal agencies must incorporate fine arts as an integral 

part of the total building concept when designing new 

Federal buildings, and when making substantial repairs and 

alterations to existing Federal buildings, as appropriate. 

The selected fine arts, including painting, sculpture, and 

artistic work in other media, must reflect the national 

cultural heritage and emphasize the work of living American 

artists.” 

41 C.F.R. § 102-77.10. This provision does not have an explicit statutory 

basis, but has long been in the regulations. See B-95136, Mar. 26, 1976. 

Section 3305(b) of title 40170 authorizes GSA to alter public buildings. 

“Alter” includes “repairing, remodeling, improving, or extending or other 

changes in a public building.” 40 U.S.C. § 3301(a)(1)(B). As with 

construction, the term includes related planning, engineering, architectural 

work, and similar actions. 41 C.F.R. § 102-71.20. GSA may do the work 

itself or may carry out any authorized construction or alteration by 

contract if deemed to be “most advantageous to the Government.” 

40 U.S.C. § 3305(c).171 It may also contract with other agencies, such as the 

168 Formerly 40 U.S.C. § 609(a).

169 Formerly 40 U.S.C. § 619(a), (b).

170 Formerly 40 U.S.C. § 603.

171 Formerly 40 U.S.C. § 608.
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Army Corps of Engineers, under the Economy Act, 31 U.S.C. § 1535. See

B-172186, Apr. 5, 1971. 

GSA may delegate most of its construction functions. 40 U.S.C. § 3313.172 

For projects whose estimated cost does not exceed $100,000, delegation is 

mandatory upon request. Id. 

An important statutory provision is the prospectus approval requirement of 

40 U.S.C. § 3307,173 which provides in part: 

“(a) Resolutions required before appropriations may be 

made.—The following appropriations may be made only if 

the Committee on Environment and Public Works of the 

Senate and the Committee on Transportation and 

Infrastructure of the House of Representatives adopt 

resolutions approving the purpose for which the 

appropriation is made:

“(1) An appropriation to construct, alter, or acquire 

any building to be used as a public building which 

involves a total expenditure in excess of $1,500,000, so 

that the equitable distribution of public buildings 

throughout the United States with due regard for the 

comparative urgency of need for the buildings, except 

as provided in section 3305(b) of this title, is 

ensured.”174

The “except as provided in section 3305(b)” refers to 40 U.S.C. § 3305(b), 

which authorizes GSA to alter public buildings and to acquire land 

necessary to carry out the alterations, and then provides: “Approval under 

section 3307 of this title is not required for any alteration and acquisition 

authorized by this section for which the estimated maximum cost does not 

exceed $1,500,000.” 

172 Formerly 40 U.S.C. § 614. 

173 Formerly 40 U.S.C. § 606.

174 Section 3307 also includes approval requirements for leases and for alterations to leased 

buildings, covered elsewhere in this chapter. The discussion in the text, unless the context 

clearly indicates differently, applies equally to all three.
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Approval is obtained by submitting a prospectus to the specified 

committees. The contents of the prospectus, set forth in 40 U.S.C. 

§ 3307(b), include— 

• a brief description of the building to be constructed, altered, purchased, 

or acquired; 

• the location of the building and an estimate of the maximum cost to the 

government; 

• a comprehensive plan addressing the space needs of all government 

employees in the locality; 

• if construction is involved, a statement that other suitable space is not 

available either in government-owned buildings or at comparable cost; 

• justification for not using buildings identified pursuant to the National 

Historic Preservation Act (see 40 U.S.C. § 3303(c)); and 

• a statement of how much the government is already spending to 

accommodate the employees who will occupy the building to be 

constructed, altered, purchased, or acquired. 

The project cost may be increased by up to 10 percent of the prospectus 

estimate without having to submit a revised prospectus. 40 U.S.C. 

§ 3307(c). Either committee may rescind its approval in the case of a 

project for construction, alteration, or acquisition if an appropriation has 

not been made within 1 year after the date of approval. 40 U.S.C. § 3307(d). 

GSA may adjust any dollar amount specified in section 3307 annually “to 

reflect a percentage increase or decrease in construction costs during the 

prior calendar year, as determined by the composite index of construction 

costs of the Department of Commerce,” promptly reporting any such 

adjustments to the committees. 40 U.S.C. § 3307(g). 

Nothing in the statute precludes a situation in which GSA secures the 

required approval with the appropriation to be made to some other agency. 

46 Comp. Gen. 427 (1966). Since the approval requirement is a restriction 

on the appropriation of funds, it does not apply to the construction of a 

building where appropriated funds will not be involved, even where the 

building is clearly a “public building” and will be constructed by GSA. 

B-143167-O.M., Sept. 27, 1960 (office building for Federal Deposit 
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Insurance Corporation). It also does not apply to projects involving the 

United States Capitol. B-148004, Oct. 20, 1969. 

Prospectus approval may precede or follow enactment of the relevant 

appropriation. B-95136, Oct. 11, 1979. Limiting language in the approval is 

not legally binding unless incorporated in the appropriation providing 

funds for the project. B-95136, Feb. 7, 1977. If GSA does not comply with 

the prospectus approval requirement and Congress chooses to appropriate 

the money anyway, the appropriation might be subject to a point of order, 

but it would be a perfectly valid appropriation if enacted. Id.; B-95136, 

Sept. 27, 1978; B-95136-O.M., Dec. 23, 1975. Funds will be available for the 

project, with or without compliance with 40 U.S.C. § 3307, if Congress 

specifically appropriates funds for the project, or if it can be clearly 

established that Congress knowingly included those funds in a lump-sum 

appropriation. Merely burying the project in budget justification material, 

however, is not enough. B-95136, Oct. 11, 1979; B-95136-O.M., Dec. 23, 

1975. 

In accord with these principles is Maiatico v. United States, 302 F.2d 880 

(D.C. Cir. 1962), in which the court held that GSA had no authority to 

condemn an office building where GSA (1) had not obtained prospectus 

approval as required by 40 U.S.C. § 3307, and (2) purported to act under 

authority of a lump-sum appropriation which could not be demonstrated to 

include the building in question. 

d. Scope of Construction 

Appropriations 

Apart from obvious differences in factual context, determining the scope of 

a construction appropriation is not fundamentally different than for other 

types of appropriations. The process requires analyzing the language of the 

appropriation, the statutes and principles governing the use of 

appropriations in general, and the relationship of the construction 

appropriation to other appropriations available to the agency or for the 

project. 

The first and most important determinant is the precise application of the 

language of the appropriation. For example, where language which would 

have appropriated funds for “beginning construction” was changed to 

“preparing for construction,” the appropriation was not available for any of 

the costs of actual construction. B-122221, Jan. 14, 1955. If there is any 

inconsistency between the language of the enacted appropriation and 

legislative history or prior bills, the enacted language must prevail. Id. The 

statutory language alone will not always provide the answer, however. 

Words like “facilities” and “appurtenances,” for example, do not have 
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obvious meanings and, absent clear instructions in legislative history, it is 

necessary to resort to other principles and precedents for guidance. See 

B-133148-O.M., B-132109-O.M., Jan. 20, 1959. 

The next element in our approach is the application of the statutes and 

principles governing the availability of appropriations generally with 

respect to purpose, time, and amount. Purpose availability is governed by 

the “necessary expense” doctrine discussed in Chapter 4. One illustration 

is the treatment of expenses of preparation of plans and specifications, or 

what we have previously referred to as “design fees.” Congress may 

choose to provide separately for these expenses. E.g., 36 Comp. Gen. 790 

(1957). If there is no separate appropriation, design fees are chargeable to 

the construction appropriation. As stated in B-71067, Dec. 9, 1947, at 3: 

“[W]hen Congress appropriates funds for the construction 

of a building and does not otherwise appropriate funds for 

plans or supervision of its construction, it is not to be 

presumed that its intention was that the building be erected 

without either plans or supervision, but that the expenses of 

planning and superintendence being reasonably necessary 

and incident to the construction they are for payment out of 

the funds made available for such construction.” 

This being the case, design fees should not be charged to general operating 

appropriations. 18 Comp. Gen. 122 (1938), aff’g, 18 Comp. Gen. 71 (1938); 

15 Comp. Gen. 389 (1935). The same principle applies to work which is 

preliminary to the design work. Unless specifically provided for, it is 

chargeable to appropriations available for construction and not general 

operating appropriations. 11 Comp. Gen. 313 (1932) (site tests). Of course, 

the existence of a specific appropriation will preclude use of construction 

funds. B-9240, May 2, 1940 (specific appropriation for preliminary 

surveys). Where inspection or supervision of construction is performed by 

regular government employees, their salaries and related expenses are 

chargeable not to the construction appropriation but to the general 

Salaries & Expenses appropriation, or its equivalent, for the fiscal year in 

which the services are performed. 38 Comp. Gen. 316 (1958); 16 Comp. 

Gen. 1055 (1937), modified, A-86612, Aug. 16, 1937. 

The amount charged by a municipality for the “privilege” of connecting the 

sewer line of a government building to the municipal sewer system is a 

necessary cost of construction and therefore chargeable to construction 

appropriations. 19 Comp. Gen. 778 (1940); 9 Comp. Gen. 41 (1929); 
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B-22714, Mar. 19, 1942. This is true whether the connection is part of the 

original construction or subsequent remodeling or improvement. 39 Comp. 

Gen. 363 (1959). 

We noted in Chapter 4 that reasonable expenses incident to dedication or 

cornerstone ceremonies for public buildings are regarded as a proper 

charge to appropriated funds. 53 Comp. Gen. 119 (1973) (engraving a 

ceremonial shovel); B-158831, June 8, 1966 (flowers for use as 

centerpieces); B-11884, Aug. 26, 1940 (printing of programs and 

invitations); A-88307, Aug. 21, 1937 (group photograph and recording of 

presidential speech). In each case, the proper appropriation to charge was 

the construction appropriation, not a general operating appropriation, the 

principle being stated in A-88307, at 2, and quoted in 53 Comp. Gen. at 120, 

as follows: “The laying of cornerstones has been connected with the 

construction of public buildings from time immemorial and any expenses 

necessarily incident thereto are generally chargeable to the appropriation 

for construction of the building.” 

Availability as to time is discussed in section F.1.a of this chapter. With 

respect to amount, again, a construction appropriation is no different from 

any other appropriation. The appropriation of a specific amount for a 

construction project is a ceiling on the amount that can be obligated; it is 

the exclusive source of funds for the project and may not be augmented 

with funds from some other appropriation without congressional sanction. 

20 Comp. Gen. 272 (1940); 19 Comp. Gen. 892 (1940), modified by B-9460, 

June 11, 1940; B-122221, Jan. 14, 1955. If you cannot build what you want 

with the money Congress has provided, you must either go back to 

Congress and ask for more or reduce the scope of your project. 

The third basic determinant is the relationship of the construction 

appropriation to other appropriations. What Congress has or has not 

provided for elsewhere often helps determine what it has or has not 

provided as part of the construction appropriation. One line of cases 

involves construction appropriations and appropriations available for 

repairs and maintenance. For expenses connected with original 

construction, the test is stated as follows: “Costs necessary to the 

completion of a construction project are, essentially, construction costs, 

and not costs of maintenance, operation, repair, alteration, or 

improvements, which costs ordinarily arise only after completion of the 

project.” 19 Comp. Gen. 778, 781 (1940). That case found sewer 

connection charges a proper cost of construction. In contrast, items such 

as acoustical ceilings, venetian blinds, partitioning, shrubbery, and other 
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plants, not acquired until after GSA had designated the building as 

substantially complete and occupancy had begun, could not be said to be 

“necessary for completion of the project,” and were therefore properly 

chargeable to a repairs and improvements appropriation rather than 

construction. B-165152-O.M., Oct. 15, 1968. 

For expenses arising after completion of the original construction, the 

question is whether they can be legitimately regarded as within the scope 

of an appropriation for repairs and maintenance or improvements, or 

whether they must be treated as construction items. The Comptroller 

General has offered the following broad definitions: 

“It has been held that the term ‘repair’ includes anything that 

is reasonably necessary to keep up the premises. . . . 

 * * * * * * * 

“To ‘maintain’ means to preserve or keep in an existing state 

or condition, and embraces acts of repair and other acts to 

prevent a decline, lapse, or cessation from that state or 

condition, and has been taken to be synonymous with 

repair.” 

21 Comp. Gen. 90, 91–92 (1941). 

Thus, an extension or addition to a public building cannot be charged to an 

appropriation for repairs. 4 Comp. Gen. 1063 (1925); 20 Comp. Dec. 73 

(1913); 7 Comp. Dec. 684 (1901); 1 Comp. Dec. 33 (1894);175 A-40231, 

Jan. 11, 1932; A-1876, July 10, 1924. It is construction and, as the two 

unpublished decisions point out, must be handled as such, which means in 

compliance with 41 U.S.C. § 12. Similarly, appropriations for repairs and 

improvements are not available for extensive structural changes and 

replacement of worn-out equipment in a cafeteria (27 Comp. Gen. 634 

(1948)), and certainly not for replacing a building entirely destroyed by fire 

(39 Comp. Gen. 784 (1960)). Treatment of walls and ceilings for 

soundproofing would qualify as an improvement, but it is not a “repair.” 

2 Comp. Gen. 301 (1922). If an item cannot be charged to a repair 

175 Regarding 1 Comp. Dec. 33, did someone wager we could not find a case on “erecting an 

outhouse”? You lose. 
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appropriation because it is more properly regarded as construction, it 

follows that charging a general operating appropriation is equally improper. 

E.g., 10 Comp. Dec. 633 (1904); B-132109, July 18, 1958. 

Another line of cases addresses the relationship between construction 

appropriations and appropriations for equipment and furnishings. The 

well-settled rule is that “an appropriation for the construction of a building 

is available only for the cost of construction proper and for equipment 

and/or fixtures permanently attached to the building and so essentially a 

part thereof that the removal of the same might cause substantial damage 

to the building.” 12 Comp. Gen. 488, 489 (1933). 

An item of equipment qualifies as a “fixture” for purposes of this rule if 

(1) it is permanently attached to the realty, or (2) if not permanently 

attached, (a) it is necessary and indispensable to the completion and 

operation of the building, or (b) the structure was designed and built for 

the purpose of housing the equipment. B-133148-O.M., B-132109-O.M., 

Aug. 18, 1959. 

Use of construction funds rather than an appropriation for equipment and 

furnishings was proper in 9 Comp. Gen. 217 (1929) (installation of cafeteria 

and associated equipment), and B-118779, Nov. 14, 1969 (duct work, 

acoustical work, sprinklers, electrical fixtures, heating and cooling 

equipment). Cases holding construction appropriations to be the improper 

source of funds include 12 Comp. Gen. 488 (portable fire extinguishers); 

7 Comp. Gen. 474 (1928) (window shades); and 26 Comp. Dec. 111 (1919) 

(linoleum which could be removed or replaced without material damage to 

the floor). All of these cases assume the existence of a separate 

appropriation for equipment and furnishings. Absent a separate 

appropriation, use of the construction appropriation would be proper if 

necessary to make the building usable for its intended purpose (A-43075-

O.M., Aug. 27, 1932), but would not be proper for furniture or equipment 

not required for the construction (B-123240, June 9, 1955). Also, there is of 

course no problem if the construction appropriation is expressly made 

available for the purchase and installation of furniture. 7 Comp. Gen. 619 

(1928). 
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2. Operation and Control

a. Who’s in Charge? As with construction and leasing, the operation and control of public 

buildings is centralized in the General Services Administration (GSA), 

which derives its authority from several sources: 

• Various provisions of title 40, United States Code, derived from the 

Federal Property and Administrative Services Act of 1949 and the 

Public Buildings Act of 1958, noted later in this discussion, which 

assign specific responsibilities to GSA. 

• Miscellaneous provisions of title 40 which were not part of the Federal 

Property or Public Buildings Acts. Examples are 40 U.S.C. §§ 8101176

(GSA “shall have charge of the public buildings and grounds in the 

District of Columbia”); 3104177 (furniture for new public buildings must 

be procured in accordance with plans and specifications approved by 

GSA); 3101178 (GSA has exclusive control over public buildings outside 

of the District of Columbia purchased or constructed from 

appropriations under GSA’s control); and 3102179 (GSA authorized to 

name or rename buildings under its control, even if previously named 

by statute). 

• Section 303(b) of title 40,180 which transferred to GSA all functions of its 

predecessor, the Federal Works Agency. 

• Reorganization Plan No. 18 of 1950, sections 1 and 2, 40 U.S.C. § 301 

note, which transferred to GSA, respectively, “all functions with respect 

to assigning and reassigning space” in buildings owned or leased by the 

government and “[a]ll functions with respect to the operation, 

maintenance, and custody of office buildings” owned or leased by the 

government. 

176 Formerly 40 U.S.C. § 19.

177 Formerly 40 U.S.C. § 283.

178 Formerly 40 U.S.C. § 285.

179 Formerly 40 U.S.C. § 298d.

180 Section 103 of the 1949 Act, formerly 40 U.S.C. § 753 (see 40 U.S.C. § 303 note).
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While GSA’s authority is thus broad and comprehensive, there are 

significant exceptions.181 However, unless an agency falls within one of 

these exceptions, has its own specific statutory authority,182 or has a 

delegation from GSA, GSA’s authority is exclusive and the agency has no 

authority to procure building services directly. B-309181, Aug. 17, 2007; 

61 Comp. Gen. 658 (1982). 

b. Allocation of Space One of the General Services Administration’s (GSA) functions is to assign 

and reassign space of executive agencies in government-owned and leased 

buildings. 40 U.S.C. § 585(a).183 Space assignments should be 

advantageous in terms of economy, efficiency, or national security. Id.

§ 581(c)(4).184 

Space assignment is one of the functions GSA inherited from its 

predecessor, the Public Buildings Administration of the Federal Works 

Agency. Determinations under this authority, the Attorney General has 

noted, as with all discretionary authority, “should not be made abstractly, 

or in an arbitrary manner, or without ascertainment and due consideration 

of the true needs of an affected department or agency.” 40 Op. Att’y 

Gen. 140, 143 (1941). 

Incident to the assignment of space is the determination—within some 

bounds of reason—of how much space to assign. A bankruptcy judge sued 

to force GSA to provide more space for the performance of his duties. He 

lost. Votolato v. Freeman, 8 B.R. 766 (D.N.H. 1981). 

An agency’s space needs are subject to change over time as the agency 

grows or shrinks or acquires or sheds functions. A recurring question has 

been who must bear the expense when substantial growth by one agency 

181 Some exceptions are found in the definition of “public building,” noted under the Public 

Buildings Act heading earlier in this section. The 1950 reorganization plan includes others, 

several of which are noted in our discussion of leasing in section E of this chapter. Other 

exceptions are found in 40 U.S.C. §§ 102(9) (definition of “property”) and 113. Still others 

may be contained in various agency-specific or program-specific statutes.

182 GAO, for example, has “exclusive custody and control” over its main headquarters 

building in Washington, “including operation, maintenance, protection, alteration, repair, 

and assignment of space therein.” 31 U.S.C. § 781(a).

183 Formerly 40 U.S.C. § 490(h)(1).

184 Formerly 40 U.S.C. § 490.
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requires the relocation of another agency which shares the building. GAO 

originally took the position that the moving agency must bear its own 

expenses. E.g., 35 Comp. Gen. 701 (1956); 34 Comp. Gen. 454 (1955). 

Subsequently, however, after GSA adopted a regulation, 41 C.F.R. § 101-

21.601(b) (1976), which made agencies that required the relocation of other 

agencies responsible for funding the latter’s moving costs, GAO revisited 

the issue in 56 Comp. Gen. 928 (1977), agreed with GSA, and overruled the 

prior line of cases. 

The 1977 decision was based on two primary considerations. First, in 

issuing the regulation, GSA was exercising its authority under the Federal 

Property Act, an exercise which merited deference unless it exceeded the 

bounds of GSA’s statutory authority. Second, the prior decisions had 

employed a somewhat strained application of 31 U.S.C. § 1301(a), which 

restricts appropriations to their intended purposes. While it is true that 

agency A does not receive appropriations to pay for agency B’s move, it is 

equally true that agency B is not moving for its own benefit. Thus, GAO 

concluded: 

“[W]e are now of the view that when one agency requires 

the relocation of another to meet its own space 

requirements, the relocation is done for the benefit of the 

requesting agency. . . . [T]he costs of the move must be 

considered necessary or incident to meeting the space 

needs of the requesting agency. Use of the requesting 

agency’s appropriations would not, therefore, augment the 

appropriations of the displaced agency. In fact, to the 

extent the move and related renovations to accommodate 

the displaced agency are made due to the request of another 

agency, the costs thereof cannot be considered necessary to 

further the purposes of the displaced agency’s 

appropriations.” 

56 Comp. Gen. at 933. GSA’s current regulations, 41 C.F.R. § 102-85.215, 

retain the rule that when one GSA customer agency “forces” the relocation 

of another, the “forcing” agency is financially responsible to the relocated 

agency for all of its reasonable relocation costs as well as the 

“undepreciated amount” of any payments by the relocated agency for 

alterations. The regulation also holds the forcing agency financially 

responsible to GSA for any unpaid tenant improvements provided to the 

relocated agency.
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c. Alterations and Repairs As noted previously, 40 U.S.C. § 3305(b),185 gives the General Services 

Administration (GSA) the authority to alter public buildings. If the total 

estimated expenditure exceeds $1,500,000, the alteration is subject to the 

prospectus approval requirement of 40 U.S.C. § 3307. See 40 U.S.C. 

§§ 3307(a)(1), 3305(b)(2)(A). This threshold applies by its terms to the 

“total expenditure” (40 U.S.C. § 3307(a)(1)) for the “alteration and 

acquisition” (40 U.S.C. § 3305(b)(2)(A)). Thus, if the alteration requires the 

acquisition of land, the $1,500,000 includes the combined cost of the 

alteration and acquisition. Of course, an agency which is exempt from 

GSA’s authority or which receives its own specific statutory authority may 

proceed accordingly. E.g., B-131887, Aug. 27, 1957 (specific authority for 

Army to remodel military warehouse for an office building). The 

application of the prospectus requirement, or the existence of a 

comparable requirement, depends on the terms of the exempting 

legislation. For example, GAO’s headquarters building, although exempt 

from GSA’s custody and control, remains subject to 40 U.S.C. § 3307, 

although GAO rather than GSA would submit the prospectus. 31 U.S.C. 

§ 781(a). 

As a general proposition, the normal services that GSA provides include 

construction, alteration, and finishing space for customer agency 

occupancy. These services are covered by what GSA calls a “tenant 

improvement (TI) allowance.” See 41 C.F.R. § 102-85.35. The amount of the 

allowance will vary depending on the agency’s mission needs and other 

factors. Id. In addition, GSA is authorized to provide “special services, not 

included in the standard level user charge, on a reimbursable basis.” 

40 U.S.C. § 592(b)(2).186 See also 41 C.F.R. § 102-85.195. Both types of 

alterations, normal space needs and special services, are financed from the 

Federal Buildings Fund established by 40 U.S.C. § 592.187 GAO has been 

critical of “augmenting” the Fund by seeking reimbursement for items 

which should have been treated as normal space needs. GAO, The General 

Services Administration Should Improve the Management of Its 

Alterations and Major Repairs Program, LCD-79-310 (Washington, D.C.: 

July 17, 1979), at 26–29. Examples cited include such things as resurfacing 

a driveway entrance, installing sprinklers, and conducting a survey to 

confirm complaints of inadequate ventilation. 

185 Formerly 40 U.S.C. § 603.

186 Formerly 40 U.S.C. § 490(f)(6).

187 Formerly 40 U.S.C. § 490(f).
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The distinction between normal space needs and special services is 

recognized in several decisions. E.g., 38 Comp. Gen. 758 (1959); 38 Comp. 

Gen. 588 (1959); 38 Comp. Gen. 193 (1958); B-122723, Mar. 10, 1955. With 

respect to special services, as these cases point out, it is not enough that 

GSA is authorized to do the work on a reimbursable basis. The tenant 

agency’s appropriations must be legally available to make the 

reimbursement. See also 39 Comp. Gen. 723 (1960). In addition, as these 

cases also address, if the work amounts to a “public improvement,” it is 

also necessary to satisfy the specific authorization requirement of 41 U.S.C. 

§ 12. 

Since the 1970s, Congress has made the reimbursement question easier by 

enacting a general provision annually along these lines: 

“Appropriations available to any department or agency 

during the current fiscal year for necessary expenses, 

including maintenance or operating expenses, shall also be 

available for payment to the General Services 

Administration for charges for space and services and those 

expenses of renovation and alteration of buildings and 

facilities which constitute public improvements performed 

in accordance with the Public Buildings Act of 1959 (73 Stat. 

749), the Public Buildings Amendments of 1972 (87 Stat. 

216), or other applicable law.” 

Consolidated Appropriations Act, 2008, Pub. L. No. 110-161, § 706, 121 Stat. 

1844, 2020 (Dec. 26, 2007). 

d. Maintenance and Protective 

Services 

Every government building requires custodial services and, in varying 

degrees, protective services. The Federal Buildings Fund is available “for 

real property management and related activities.” 40 U.S.C. § 592(c)(1). 

The General Services Administration’s (GSA) annual appropriations 

language under the Federal Buildings Fund heading is more descriptive, 

providing funds, quoting from GSA’s 2008 appropriation, “for necessary 

expenses of real property management and related activities not otherwise 

provided for, including operation, maintenance, and protection of federally 

owned and leased buildings; . . . [and] contractual services incident to 

cleaning or servicing buildings.” Consolidated Appropriations Act, Pub. L. 

No. 110-161, 121 Stat. 1844, 2000 (Dec. 26, 2007). 

GSA provides a standard level of cleaning services as part of the package 

for which the tenant agency pays rent. 41 C.F.R. § 102-85.175. 
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Section 102-85.165 of the regulations details the cleaning and maintenance 

services included in the standard level. The general objective of the GSA 

package of services is to provide services “comparable to those furnished 

in commercial practice.” 41 C.F.R. § 102-85.165(a). 

Prior to establishment of the Federal Buildings Fund, agencies could not 

reimburse GSA for security services because the funds were appropriated 

to GSA. 34 Comp. Gen. 42 (1954); B-139678, Aug. 31, 1959. Now, the 

standard level package also includes protective and security services. See, 

e.g., 41 C.F.R. §§ 102-85.35, 102-85.55, 102-85.140. See also 41 C.F.R. pt. 102-

81. Other aspects of GSA’s authority to protect federal property are found 

in 40 U.S.C. § 1315.188 See generally B-105291-O.M., Nov. 30, 1976. 

Additional restrictions on the procurement of guard and custodial services 

have appeared in annual appropriations acts, and varied from year to year. 

For example, a provision in the 1995 Treasury, Postal Service, and General 

Government appropriations act prohibited the obligation or expenditure of 

funds from the Federal Buildings Fund “for the procurement by contract of 

any guard, elevator operator, messenger or custodial services” if the 

procurement would result in the displacement of any GSA veterans 

preference employee, except for contracts with sheltered workshops 

employing the severely handicapped. Pub. L. No. 103-329, § 505, 108 Stat. 

2382, 2409 (Sept. 30, 1994). Similar restrictive language has been codified 

at 40 U.S.C. § 593.189

e. Utilities Another indispensable element of building management is the provision of 

utility services such as electricity, natural gas, water, and 

telecommunications. The General Services Administration (GSA) is 

authorized to prescribe policies for the management of public utility 

services, subject to Office of Federal Procurement Policy regulations 

(40 U.S.C. § 501(b)(2)); procure and supply nonpersonal services for 

executive agencies (40 U.S.C. § 501(b)(1)); and represent its client agencies 

in negotiations with public utilities and in utility regulatory proceedings

(40 U.S.C. § 501(c)).190 Section 501(a)(2) permits exemptions for the 

Defense Department when determined by the Secretary of Defense to be 

188 Formerly 40 U.S.C. §§ 318, 318b, and 318d.

189 A similar provision was formerly carried as 40 U.S.C. § 490c.

190 These provisions were formerly located in 40 U.S.C. § 481.
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“in the best interests of national security.” See also 40 U.S.C. § 591 with 

respect to the purchase of electricity. 

Another provision, 40 U.S.C. § 3174,191 authorizes GSA to “provide and 

operate public utility communications services serving any governmental 

activity when the services are economical and in the interest of the Federal 

Government.” This has been interpreted to include telecommunication 

services. See 66 Comp. Gen. 58 (1986); B-190142, Feb. 22, 1978, aff’d,

B-190142, Dec. 7, 1978. In addition, utility services would certainly seem to 

be included in “real property management and related activities” for 

purposes of 40 U.S.C. § 592(c)(1). 

Absent specific statutory authority192 or a delegation from GSA, an agency 

is not authorized to procure utility services directly, especially in an area 

covered by a GSA contract. B-152142-O.M., Sept. 17, 1963. 

Multiyear utility contracts are authorized by 40 U.S.C. § 501(b)(1)(B),193

which provides that a “contract for public utility services may be made for 

a period of not more than 10 years.” This provision was designed to save 

the government money by enabling it to take advantage of discounts 

available under long-term contracts. 62 Comp. Gen. 569, 572 (1983); 

35 Comp. Gen. 220, 222–23 (1955). 

Although the statute uses the term “public utility services,” it is not limited 

to the “traditional” regulated public utility. 62 Comp. Gen. 569 (statute 

applies to installment purchase contract with a nontariffed supplier of 

telephone equipment); 45 Comp. Gen. 59 (1965) (a contract to furnish 

public utility gas service by a firm that is not within the strict legal 

definition of a public utility is not prohibited under the statute). The 

governing factor is the “nature of the product or service provided and not 

the nature of the provider of the product or services.” 62 Comp. Gen. 

at 575. “[T]he Congress in its judgment determined to categorize the 

service rather than the contractor;” the statute applies to “services having 

public utility aspects.” 45 Comp. Gen. at 64. In any event, the statute 

clearly applies to the commonly understood types of “utility services”—

191 Formerly 40 U.S.C. § 295.

192 E.g., 31 U.S.C. § 781(c)(2), authorizing GAO to contract for utility services for periods not 

to exceed 10 years “[t]o the extent that funds are otherwise available for obligation.”

193 Formerly 40 U.S.C. § 481(a)(3).
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telecommunications (62 Comp. Gen. 569), natural gas (45 Comp. 

Gen. 59),194 and electric power (44 Comp. Gen. 683 (1965)). 

While the multiyear authority of 40 U.S.C. § 501(b)(1)(B) has been liberally 

applied, it is not unlimited. The statute is intended to address “incidental 

utility services needed in connection with authorized Government 

business,” not any project that happens to involve utility services. 

35 Comp. Gen. at 223. Thus, GAO has found it inapplicable to an Air Force 

early warning system (35 Comp. Gen. 220), and to a proposal to finance 

construction of power facilities on the Ryukyu Islands (B-159559, July 29, 

1966). 

GAO subsequently approved a proposal in the Ryukyu case for privately 

financed construction, with the government entering into a 10-year 

requirements contract with a renewal option and a guarantee provision. 

B-159559, June 19, 1967. The obvious purpose of the guarantee feature was 

to enable the utility to recover its capital cost. See also 37 Comp. Gen. 155, 

159–60 (1957); 17 Comp. Gen. 126 (1937); 16 Comp. Gen. 136 (1936); 

8 Comp. Gen. 654 (1929). While this type of arrangement is acceptable, a 

scheme which obligates the government to pay the contractor’s entire 

capital cost at the outset violates the advance payment prohibition in 

31 U.S.C. § 3324(b). 57 Comp. Gen. 89 (1977); 58 Comp. Gen. 29 (1978). 

Contracts under 40 U.S.C. § 501(b)(1)(B) are incrementally funded. The 

contracting agency is not required to obligate the total estimated contract 

cost in the first year. It needs only sufficient budget authority at the time 

the contract is made to obligate the first year’s costs, with subsequent years 

obligated annually thereafter. 62 Comp. Gen. at 572. See also 44 Comp. 

Gen. at 688; 35 Comp. Gen. at 223. GSA pays utility invoices by using a 

combination of statistical sampling and fast pay procedures. See 67 Comp. 

Gen. 194 (1988) and 68 Comp. Gen. 618 (1989) for a detailed discussion. 

See also 31 U.S.C. § 3521(b); GAO, Policy and Procedures Manual for the 

Guidance of Federal Agencies, title 7, §§ 7.4.D–7.4.F (Washington, D.C.: 

May 18, 1993).

A contract for a term of 10 years with an option to renew for an additional 

5 years is within the authority of 40 U.S.C. § 501(b)(1)(B) because the 

194 A 1990 decision, 70 Comp. Gen. 44, held that a procurement of natural gas was not a 

contract for utility services for purposes of the Walsh-Healey Act, 41 U.S.C. §§ 35–45. That 

case distinguished 45 Comp. Gen. 59 on several grounds. 70 Comp. Gen. at 49.
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government is not obligated beyond the initial 10-year period. B-227850, 

Oct. 21, 1987, aff’d on reconsideration, B-227850.2, Mar. 22, 1988. 

Except for telecommunication services, utilities are financed from the 

Federal Buildings Fund and are part of the “space and services” package 

for which federal agencies pay rent. 40 U.S.C. § 592. Telecommunication 

services are financed from a separate fund. Originally designated the 

Federal Telecommunications Fund, it was merged in 1987 with an 

automatic data processing fund and redesignated as the Information 

Technology Fund and codified in former 40 U.S.C. § 757.195 See 69 Comp. 

Gen. 112, 113 (1989). In 2006, the Information Technology Fund was 

merged with the General Supply Fund to form the Acquisition Services 

Fund, a revolving fund.196 Pub. L. No. 109-313, § 3, 120 Stat. 1734, 1735 

(Oct. 6, 2006), codified at 40 U.S.C. § 321. The Acquisition Services Fund is 

available for, among other things, personal property, nonpersonal property, 

and personal services related to the provision of information technology. 

40 U.S.C. § 321(c). 

Prior to enactment of the Clinger-Cohen Act of 1996,197 Pub. L. No. 104-106, 

div. E, 110 Stat. 186, 679 (Feb. 10, 1996), GSA had comprehensive authority 

to provide “Automatic Data Processing” (ADP) equipment and services 

(including telecommunications services) to federal agencies under the 

Brooks Automatic Data Processing Act (ADP Act). 40 U.S.C. § 759 (1994). 

Pursuant to this authority, GSA promulgated the Federal Information 

Resources Management Regulation (FIRMR), which governed “the 

umbrella of local and long distance telecommunications services . . . 

provided, operated, managed, or maintained by GSA for the common use of 

all Federal agencies and other authorized users.” 41 C.F.R. § 201-4.001 

(1995). The Comptroller General had several occasions to interpret GSA’s 

authority under the Brooks ADP Act. See, e.g., 70 Comp. Gen. 238 (1991) 

(termination charges); 69 Comp. Gen. 112 (1989) (statistical sampling cost 

recovery); 65 Comp. Gen. 380 (1986) (FIRMR applicability).

195 It is perhaps not intuitively obvious that the term “information technology resources” 

includes telephone services, but the origin and evolution of 40 U.S.C. § 757 remove any 

doubt. See generally 70 Comp. Gen. 233 (1991); 69 Comp. Gen. 112 (1989).

196 For more on revolving funds, see Chapter 12, section C.

197 So renamed by the Omnibus Consolidated Appropriations Act of 1997, Pub. L. No. 104-

208, title VIII, § 5808, 110 Stat. 3009, 3009-393 (Sept. 30, 1996).
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The Clinger-Cohen Act of 1996 repealed the Brooks ADP Act. Pub. L. 

No. 104-106, § 5101. GSA abolished the FIRMR in August 1996. The 

regulatory scheme of the FIRMR was replaced with directives and guidance 

governing “Information Technology,” which includes telecommunications 

services. See, e.g., OMB Cir. No. A-130, Management of Federal 

Information Resources (Nov. 28, 2000); Exec. Order No. 13011, Federal 

Information Technology, 61 Fed. Reg. 37,657 (July 16, 1996), as amended, 

40 U.S.C. § 11101 note; Federal Acquisition Regulation, Acquisition of 

Information Technology, 48 C.F.R. pt. 39. GSA, however, continues to 

provide governmentwide telecommunications services through contracts 

which federal agencies, on a nonmandatory basis, may use to satisfy their 

telecommunications needs. Examples include GSA’s FTS-2001 contracts 

and the Metropolitan Area Acquisitions (MAA) program.

f. Use Restrictions The Property Clause of the Constitution (art. IV, § 3) empowers Congress to 

“make all needful Rules and regulations” with respect to governmentowned property, which includes the authority to control what use is made 

of government property. In addition to the general purpose restrictions 

which permeate appropriations law (see Chapter 4), a few restrictions on 

the use of government property appear in various parts of title 40 and are 

not reflected elsewhere. One example is 40 U.S.C. § 8108,198 which 

prohibits the use of any public building in the District of Columbia, except 

the Capitol Building and the White House, for “public functions” unless 

expressly authorized by law. Another is 40 U.S.C. § 3105,199 which provides 

that “no building owned, or used for public purposes, by the Federal 

Government shall be draped in mourning nor may public fund money be 

used for that purpose.” This prohibition applies to buildings abroad as well 

as to buildings in the United States, and applies regardless of who owns the 

building. 8 Comp. Dec. 317 (1901). 

Many of the General Services Administration’s (GSA) regulations, issued 

under its authority in 40 U.S.C. § 121(c), address issues of access to, and 

personal conduct on government property. For example, they specify 

when government property will be open and closed to the public (41 C.F.R. 

§ 102-74.375), and generally ban certain activities while on federal property, 

such as gambling (41 C.F.R. § 102-74.395) and consumption of alcoholic 

beverages (41 C.F.R. § 102-74.405), etc.

198 Formerly 40 U.S.C. § 31.

199 Formerly 40 U.S.C. § 286.
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g. Payment of Rent by Federal 

Agencies 

In 1972, Congress made fundamental changes in the way the government 

budgets for and finances its space needs. Prior to that time, the system was 

fairly simple: Congress, for the most part, appropriated the money to the 

General Services Administration (GSA) and GSA paid the bills. Under this 

system, there was little incentive for agencies to be conservative in their 

space needs. Also, as we have seen, coming up with appropriations to fund 

needed construction work proved to be extremely difficult. 

The Public Buildings Amendments of 1972 made several important 

revisions to the Federal Property and Administrative Services Act. First, 

the 1972 law created a new revolving fund, later named the Federal 

Buildings Fund, to be available to the extent provided in annual 

appropriation acts, for GSA to use to finance its real property management 

functions. Next, it required agencies to pay rent to GSA, to be deposited in 

the revolving fund. Finally, it authorized any executive agency other than 

GSA which provides space and services to charge for the space and 

services.200 While the concept of charging rent was not wholly unknown 

prior to 1972 (see, e.g., 28 Comp. Gen. 221 (1948)), this was the first 

governmentwide requirement. 

Section 586(b) of title 40, providing for rent charges by GSA, states in part: 

“(1) In general.—The Administrator of General Services 

shall impose a charge for furnishing space and services.

“(2) Rates.—The Administrator shall, from time to time, 

determine the rates to be charged for furnishing space and 

services and shall prescribe regulations providing for the 

rates. The rates shall approximate commercial charges for 

comparable pace and services . . .

“(3) Exemptions.—The Administrator may exempt anyone 

from the charges required by this subsection when the 

Administrator determines that charges would be infeasible 

or impractical. . . .”

200 Pub. L. No. 92-313, §§ 3 and 4, 86 Stat. 216, 218–19 (June 16, 1972), 40 U.S.C. §§ 592 

(Federal Buildings Fund); 586(b) (payment of rent to GSA); and 586(c) (authority of other 

agencies to charge for space and services).
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Section 586(c)(1) of title 40, providing for rent charges by other agencies, 

states: “An executive agency, other than the [General Services] 

Administration, may impose a charge for furnishing space and services at 

rates approved by the Administrator.”

Section 592(b)(1)(A) of title 40 directs that user charges under 40 U.S.C. 

§ 586(b) be deposited in the Federal Buildings Fund. Section 586(c)(2) of 

title 40 authorizes the agency to credit the receipts to its own 

appropriations to the extent of recovering the cost of providing the 

services. Agency operating appropriations are available to pay the rent by 

virtue of the recurring general appropriations act provision discussed 

previously. 

At first, the space-and-service charges were known as the “standard level 

user charge” or “SLUC.” They are now simply called “rent.” The rent 

requirement is intended to reduce cost and encourage more efficient space 

utilization by making agencies accountable for the space they use. 

H.R. Rep. No. 92-989 (1972). As noted above, rent charged by GSA is to 

approximate commercial charges for comparable space and services. This 

method was chosen over a cost-recovery basis in order to produce more 

income so that the revolving fund could finance construction and major 

repairs. See B-95136, May 18, 1971 (GAO’s comments on the legislation). 

This hope has been largely unfulfilled.201 Under the commercial charge 

formulation, it is not inconceivable that an agency occupying space in a 

leased building could pay more rent to GSA than GSA is paying to the 

lessor. This does not entitle the lessor to a rent increase. See B-95136-O.M., 

Mar. 29, 1976. 

GSA defines “rent” in simple terms as meaning “the amounts charged by 

GSA for space and related services to the customer agencies with tenancy 

in GSA-controlled space.” 41 C.F.R. § 102-85.35. Section 102-85.115 of the 

regulation describes how rent is determined. According to an early GSA 

statement in a December 1972 letter to GAO, rent is designed to cover— 

“the value of the space itself plus cleaning, utilities, 

operation and maintenance of elevators and electric 

201 See Chapter 1 of GAO, The General Services Administration’s Rental Rates (Standard 

Level User Charge) for Federal Agencies, GAO/LCD-78-329 (Washington, D.C.: May 25, 

1978), and Chapter 3 of GAO, Federal Office Space: Increased Ownership Would Result in 

Significant Savings, GAO/GGD-90-11 (Washington, D.C.: Dec. 22, 1989).
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heating, air-conditioning, ventilating, refrigeration, 

plumbing and sewage systems, repairs and maintenance, 

including approaches, sidewalks and roads; the furnishing 

and maintenance of building equipment such as directory 

and bulletin boards, electrical outlets, door keys, and 

window shades or venetian blinds; and overhead (i.e., the 

total cost of GSA’s Public Buildings Service . . . except costs 

covered by reimbursements).” 

52 Comp. Gen. 957, 958–59 (1973). 

The services GSA provides as part of the rent do not mean any and all 

services the tenant agency may need or want. GSA provides what it 

determines to be a “standard level” of service. 41 C.F.R. § 102-85.165. Over 

and above that standard level, services are provided on a reimbursable 

basis to the extent that GSA is authorized to do the work or provide the 

service and the tenant agency’s appropriations are available to pay. 

GSA is not limited to charging only federal agencies for space and services 

it furnishes. Thus, for example, GSA was authorized to charge rent to the 

National Association of Regulatory Utility Commissioners, to which GSA 

was then required to furnish space under 49 U.S.C. § 305(f) (1970). 

B-95136, Nov. 17, 1978. As the result of some apparently skillful lobbying, 

the law was changed in 1980 to require the then Interstate Commerce 

Commission (i.e., the taxpayers) to pick up the tab. Pub. L. No. 96-296, 

§ 36, 94 Stat. 793, 826 (July 1, 1980). 

A federal office building may house a variety of support concessions such 

as blind vending stands operated under the Randolph-Sheppard Act, 

Federal Credit Unions, cafeterias, dry cleaning and laundry facilities, etc. 

GSA could presumably charge rent directly to the concessioners. Instead, 

however, GSA assigns the space for these support concessions to the 

tenant agency for purposes of rent assessment, on the theory that the 

agency’s presence in the building generated the need for the space. GAO 

has agreed that this method is authorized. 52 Comp. Gen. 957 (1973); 

B-114820-O.M., Dec. 14, 1977. GSA has “wide discretionary powers 

consistent with the purposes of the statute, in the manner of defining and 

charging for space occupied by Federal agencies and others.” 52 Comp. 

Gen. at 961. If the building houses more than one government agency, GSA 

allocates the joint-use space (and the rent for it) on a pro rata basis. 

41 C.F.R. § 102-85.115(a). 
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GSA’s rental charge also covers assigned parking spaces. Once again, since 

GSA is not limited to charging only federal agencies, it could assign spaces 

directly to individuals and charge rent to those individuals. In the exercise 

of its discretion, however, GSA simply includes the parking space in the 

total space charged to the tenant agency or agencies. See 52 Comp. Gen. 

at 960–61; 55 Comp. Gen. 897 (1976). See also American Federation of 

Government Employees v. Freeman, 498 F. Supp. 651, 656–57 (D.D.C. 

1980) (the statute authorizes, but does not require, GSA to charge parking 

fees). The authority of agencies to charge rent under 40 U.S.C. § 586(c) 

likewise is not restricted to charging other federal agencies.202 Therefore, 

the tenant agency could charge its employees for parking space. 55 Comp. 

Gen. at 899–900. However, section 586(c) does not authorize an agency to 

collect (and retain) fees from nonagency participants in an agencysponsored conference held in procured space. B-190244, Nov. 28, 1977. 

(This does not necessarily mean that the agency cannot charge a fee, 

merely that it cannot rely on 40 U.S.C. § 586(c) as authority to credit the 

money to its own appropriation.) 

The purpose of 40 U.S.C. § 586(b) is to raise revenue for GSA, not to create 

the full equivalent of a commercial landlord-tenant relationship. 

Accordingly, a tenant agency may not reduce its rental payments to recover 

the cost of property damaged by building failures. 59 Comp. Gen. 515 

(1980); 57 Comp. Gen. 130 (1977). 

Congress often uses appropriation act provisions to address either GSA’s 

authority under 40 U.S.C. § 586(b) or the extent of an agency’s liability to 

pay GSA’s charges. Thus, to understand the operation of the statute for any 

given year, it is necessary to examine annual appropriations acts both for 

any provisions directed at GSA and for any provisions covering the tenant 

agency in question. For example, a provision in GSA’s 1995 appropriation 

directed GSA to reflect in its rent rates the reductions contained in a 

particular budget amendment. Pub. L. No. 103-329, title IV, § 5, 108 Stat. 

2382, 2404 (Sept. 30, 1994). 

Restrictions directed at tenant agencies may take various forms. A 

provision imposing a specific dollar limit is discussed in B-204270, Oct. 13, 

1981. A provision imposing a percentage limitation is noted in 55 Comp. 

202 There is one significant difference between GSA and other rent-charging agencies under 

40 U.S.C. § 586. Section 586(b) requires GSA to charge rent; section 586(c) merely 

authorizes other agencies to do so. 
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Gen. 897 (1976). Two additional types appeared in the 1995 appropriations 

act for the Departments of Labor and of Health and Human Services (HHS), 

Pub. L. No. 103-333, 108 Stat. 2539 (Sept. 30, 1994). Section 207 of the HHS 

general provisions permanently canceled a specific dollar amount of 

“budgetary resources available . . . for space rental charges” in 1995, and 

directed HHS to allocate the reduction among its various accounts with 

certain exceptions. The operating appropriation for the Railroad 

Retirement Board, Pub. L. No. 103-333, 108 Stat. at 2571, specified that 

none of the funds shall be available to pay GSA rental charges. The precise 

language of the limitation will determine whether it applies only to rent or 

to other reimbursements as well. B-186818, Sept. 22, 1976. Regardless of 

the type of limitation, it must appear in the statute, and not merely in 

committee reports, in order to be legally binding. Id; B-177610, Sept. 3, 

1976. 

G. Improvements to 

Property Not 

Owned by the 

Government 

1. The Rules The topic of this section is the rule that, unless authorized by statute, 

appropriated funds may not be used to make permanent improvements to 

property not owned by the federal government. As numerous decisions 

have pointed out, the rule is based on the fundamental tenet, noted in 

various places throughout the chapters in these volumes, that no 

government official is authorized to give away government property—

tangible property, money, legal rights—without specific statutory authority. 

E.g., B-286457, Jan. 29, 2001; 53 Comp. Gen. 351, 352 (1973); 42 Comp. 

Gen. 480, 481 (1963); 35 Comp. Gen. 715, 716 (1956). 

Although derived from the constitutional principle that disposal of 

government property is a function of Congress, the rule itself is decisional 

rather than statutory, or, to quote a phrase used regularly in the decisions, 

the rule “is one of policy and not of positive law.” 53 Comp. Gen. at 352; 

42 Comp. Gen. at 483. Stated somewhat more accurately, the rule is “one of 

public policy, not statutory prohibition.” B-286457, Jan. 29, 2001, at 3; 

65 Comp. Gen. 722, 724 (1986). The public policy which the rule reflects—

that it is ordinarily not a particularly good idea for government officials to 
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give away the taxpayers’ money—can be traced back at least to the early 

decisions of the Comptroller of the Treasury. E.g., 6 Comp. Dec. 295 

(1899). 

Due at least in part to the lack of an explicit statutory foundation, the rule 

is not and never has been particularly rigid. A considerable body of 

exceptions has evolved, in recognition of the fact that there are situations 

in which making improvements to nongovernment property is appropriate 

to the circumstances and can be justified. Viewing the body of case law as 

a whole, it seems fair to say that there is a set of standards to determine 

when the expenditure may be authorized, with the prohibitory rule 

remaining for those cases in which the expenditure would amount to giving 

away government property. 

Each of these standards is discussed below. However, there are several 

threshold matters to consider in determining whether the rule is even 

potentially applicable. To start with, the rule applies only to improvements. 

If something does not add to the value of the property in question, it is not 

an “improvement” for purposes of the rule. Thus, in B-301367, Oct. 23, 

2003, GAO held that affixing to a utility company water tower decals of the 

military units stationed at a nearby base did not enhance the tower’s value 

and thus did not raise an issue under the rule. Next, the rule applies only to 

permanent improvements. It does not prohibit temporary improvements 

as long as they remain the property of the government and the government 

reserves the right to remove them at the expiration of the lease or other 

government use. 43 Comp. Gen. 738 (1964); 20 Comp. Gen. 927 (1941); 

15 Comp. Gen. 761 (1936). For example, the 1964 decision concerned 

nonpermanent servicing facilities which the General Services 

Administration (GSA) needed to install in commercial space leased for 

motor pool activities. The propriety of temporary improvements is 

determined by applying the standard rules of purpose availability—you 

look first to see if the expenditure is expressly authorized by law; if it is 

neither expressly authorized nor expressly prohibited, you then apply the 

“necessary expense” doctrine discussed in Chapter 4. Of course, the rule 

does not apply if an agency has specific statutory authority to make the 

permanent improvements in question. Thus, in B-286457, Jan. 29, 2001, 

GAO concluded that the rule had no application to the Federal Aviation 

Administration’s use of funds to demolish the air traffic control tower at 

La Guardia Airport since the agency had specific statutory authority to 

replace the existing tower with a new one.
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If none of the foregoing threshold considerations makes the rule facially 

inapplicable, the expenditure may nevertheless be authorized if the 

following standards are met: 

• The improvement must be incident to and essential for the effective 

accomplishment of an authorized purpose of the appropriation sought 

to be charged. 

• The amount of the expenditure must be reasonable. 

• The improvement must be for the principal benefit of the government. 

• The interests of the government in the improvement must be protected. 

These standards appear to have been first enunciated in 42 Comp. Gen. 480, 

484 (1963), and they have been reiterated in many cases since. E.g.,

B-286457, Jan. 29, 2001; 71 Comp. Gen. 4, 5 (1991); 69 Comp. Gen. 673, 675 

(1990); 53 Comp. Gen. 351, 352 (1973); 46 Comp. Gen. 25, 27 (1966). 

The first standard—incident and essential to an authorized purpose of the 

appropriation—is a relative concept, like the “necessary expense” doctrine 

from which it is derived. It is applied by evaluating the proposed 

expenditure against the authorized purposes of the appropriation. Thus, 

incidental improvements to private property, chargeable to project funds, 

are unobjectionable if necessary to the completion of an authorized federal 

project. B-37747, Nov. 19, 1943; A-65186, Oct. 19, 1935. 

As with the necessary expense doctrine itself, an item may relate clearly to 

one appropriation but be totally foreign to another. A good illustration is 

the improvement involved in 42 Comp. Gen. 480—monkey cages in the 

San Diego Zoo. It is hard to see how the construction of monkey cages in a 

private zoo would further the purposes of a federal agency’s 

appropriation.203 However, where the appropriation is for Public Health 

research and the expenditure stems from a cost-reimbursable contract for 

the experimental breeding of primates, the relationship of the monkey 

cages to the appropriation takes on a new perspective. This element shares 

203 It should be apparent that we are talking about expenditures which are incident to some 

other government program or project, as distinguished from grant programs where making 

the improvement may be the very purpose of the federal assistance. Since the grant 

programs are statutorily authorized, this analysis would not apply, although the underlying 

rationale would bar the expenditure but for the statute. 
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the common-sense logic of the necessary expense doctrine. However 

wonderful an item may appear, if it does not bear a sufficient relationship 

to carrying out one of the agency’s authorized programs or functions or to 

fulfilling the purposes for which Congress appropriated money to the 

agency, the agency has no business doing it. 

The second standard—reasonableness of cost—is also relative. It is not 

enough to just look at the dollar amount in a vacuum. You must evaluate 

the cost against such factors as the type of improvement involved, the uses 

to which it is to be put, and the length of the government’s contemplated 

use measured against the residual value, if any, to the owner. This element 

has been stated in various ways. The cost of the improvements must not be 

“extravagant or disproportionate to the needs to which the facilities are 

intended to be put.” 35 Comp. Gen. at 716. If a lease or contract is 

involved, the cost of the improvements must be “in reasonable proportion 

to the overall cost of the lease or contract price.” 53 Comp. Gen. at 352. 

The monkey cages in 42 Comp. Gen. 480, for example, cost approximately 

10 percent of the total price of the research contract. Of course, this 

formulation is useless where land is being leased to the government for a 

nominal rent, in which case other factors must be used to assess 

reasonableness. Thus, spending approximately $1,000 to improve an 

access road was “relatively small and not disproportionate to the needs of 

the Government,” and therefore acceptable, in 38 Comp. Gen. 143, 146 

(1958), whereas in 47 Comp. Gen. 61, 65 (1967), constructing a $25 million 

building on land leased to the government was a different story, hardly 

qualifying as “some minor item incidental to a larger purpose.” 

For at least the last half century, the amount formula included a statutory 

element. As noted previously in section E.2.g of this chapter, section 322 of 

the Economy Act of 1932 prohibited the obligation or expenditure of 

appropriated funds for “alterations, improvements, and repairs” of rented 

premises in excess of 25 percent of the first year’s rent. See 40 U.S.C. 

§ 278a (1982). Section 322 of the Economy Act was repealed in 1988,204 and 

the cases must therefore be regarded as modified to the extent they either 

impose a percentage limitation on the amount of otherwise authorized 

expenditures or treat section 322 as an independent source of authority. 

204 Public Buildings Amendments of 1988, Pub. L. No. 100-678, § 7, 102 Stat. 4049, 4052 

(Nov. 17, 1988).
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The third standard—principal benefit to the government—is largely selfexplanatory and is necessary to prevent giveaways. Of course, words like 

“principal” or “primary” do not mean “exclusive,” and in many cases there 

will be some residual, if not contemporaneous, benefit to the owner. Thus, 

an otherwise authorized expenditure does not become objectionable 

merely because the facility will have an estimated life of 15 years and the 

government plans to use it for only 10 years. See B-130515(3), May 8, 1969. 

Or, turning again to the monkey cages in 42 Comp. Gen. 480, nothing would 

prevent the zoo from cleaning them out and using them to house other 

monkeys upon completion of the government research contract. 

Nevertheless, the United States must be the primary beneficiary of the 

improvements. E.g., B-213379, Oct. 29, 1984 (no authority to pay railroad in 

Germany for track improvements where benefit to United States was 

merely “the unavoidable result of improvements made to the German rail 

system as a whole”). 

The fourth and final standard—protection of the government’s interests—

will again vary with the facts and circumstances of the particular case. For 

example, in a case where the then Immigration and Naturalization Service 

(INS) wanted to erect or repair fences on private land to help deter the 

entry of illegal aliens, it would be necessary for the agency to gain 

“substantial control” over the land by some device such as an easement or 

lease covering the useful life of the fence. 55 Comp. Gen. 872, 874 (1976). 

See also A-65186, Oct. 19, 1935, specifying the same condition. Similarly, 

where the Department of Agriculture wanted to construct a dam, part of 

which would have to be located on Canadian soil, GAO advised that a right 

in perpetuity for the construction and maintenance of the dam should first 

be obtained from the property owner, as well as, of course, the consent of 

the Canadian government. 18 Comp. Gen. 463 (1938). In some cases, the 

appropriate device for protecting the government’s interests may be the 

insertion of appropriate provisions in a contract. E.g., B-187482, Feb. 17, 

1977. In other cases, it may be necessary to work out an ad hoc agreement 

with the owner tailored to the circumstances. See 71 Comp. Gen. at 6. 

If these foregoing standards cannot be satisfied, then the expenditure is 

unauthorized unless the agency obtains statutory authority. For example, 

in B-194031, May 1, 1979, GAO agreed with the then Veterans 

Administration (VA) that it could not use its funds for the repair and 

maintenance of the Congressional Cemetery in Washington, D.C., a 30-acre 

cemetery of which the government owned only half an acre. The 

expenditure would primarily benefit the private owners and would be 

disproportionately large in relation to the government-owned portion. 
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Significantly, on a few occasions in the past when Congress had authorized 

repairs, it did so explicitly. The VA could, of course, repair and maintain 

the government-owned plots. 

2. Some Specific 

Applications 

a. Leased Premises/Property The rule prohibiting permanent improvements to nonfederal property 

without statutory authority applies to leased property, both unimproved 

property (i.e., land)205 and buildings.206 However, the rule has evolved 

somewhat differently in the case of leases because of the contractual 

nature of the transaction. It has long been held that appropriated funds are 

available for improvements to property being leased by the government if 

provided for as part of the consideration under the lease. 65 Comp. 

Gen. 722, 723–24 (1986); 18 Comp. Dec. 70 (1911); 6 Comp. Dec. 943 (1900); 

A-33513, Oct. 10, 1930. Any other rule would make little sense because 

alterations are often necessary to make premises suitable for the 

government’s proposed use, and if the government could not pay directly, 

the landlord could make the alterations and factor the cost into the rent, 

and the government would end up paying anyway. Of course, there is a 

common-sense point beyond which this concept cannot be stretched. It 

would not, for example, permit the construction of a $25 million building 

on land being leased for a dollar a year. See 47 Comp. Gen. 61 (1967). 

As noted in our general discussion, the prohibition does not apply with 

respect to alterations or improvements to the leased premises which are 

not permanent and which are removable. 43 Comp. Gen. 738 (1964); 

5 Comp. Gen. 696 (1926); B-127807, May 14, 1956; A-55493, June 21, 1934; 

A-54725, Apr. 13, 1934. In the case of a lease, however, before applying the 

purpose analysis, it is first necessary to ask whether the repair or 

improvement is one which the landlord is obligated to supply under the 

terms of the lease. 5 Comp. Gen. at 697. If it is, then the government is not 

205 47 Comp. Gen. 61 (1967); 38 Comp. Gen. 143 (1958); 35 Comp. Gen. 715 (1956).

206 18 Comp. Gen. 144 (1938); 14 Comp. Gen. 97 (1934); 10 Comp. Gen. 149 (1930); 5 Comp. 

Dec. 478 (1899).
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authorized to, in effect, pay twice to get what it is entitled to get under the 

lease. 2 Comp. Gen. 606, 607 (1923); A-50554, Aug. 28, 1933.207

The General Services Administration (GSA) has its own statutory authority, 

discussed generally in 65 Comp. Gen. 722. Under 40 U.S.C. § 581(c)(4),208

GSA is authorized to “repair, alter, and improve rented premises” if it 

determines that the work “is advantageous to the Government in terms of 

economy, efficiency, or national security.” GSA’s determination must show 

that “the total cost (rental, repair, alteration, and improvement) for the 

expected life of the lease is less than the cost of alternative space not 

needing repair, alteration, or improvement.” Id. § 581(c)(4)(B). Work 

under 40 U.S.C. § 581(c)(4) is financed from the Federal Buildings Fund, 

40 U.S.C. § 592. 

If an agency other than GSA is doing the leasing under its own authority, 

what it can or cannot do will depend on the precise terms of its leasing 

authority, supplemented or restricted, as the case may be, by the decisions. 

What happens to the improvements at the end of the lease, and related 

questions of liability, will depend on the terms of the lease. In one case, for 

example, the government had leased unimproved land for 10 years and 

constructed buildings on it. When the lease was over, the government 

removed the buildings and left the concrete foundations. Unfortunately for 

the landowner, the lease expressly relieved the government of any 

responsibility to restore the land to its prior condition, and the court 

refused to construe this in “all or nothing” terms. M.H. Sherman Co. v. 

United States, 258 F.2d 881 (9th Cir. 1958). In a similar case where the lease 

did include the “restore to prior condition” clause, the government was 

liable. Atlantic Coast Line Railroad Co. v. United States, 129 Ct. Cl. 137 

(1954). 

The restoration clause is not a rigid requirement that the government 

remove improvements in any event and at all costs. Thus, in a case where 

removal would not have been cost-effective, the Attorney General 

approved a settlement whereby the government agreed to leave the 

improvements for the use of the lessor in full settlement of all claims 

207 We are somewhat reluctant to admit it, but this case involved an expenditure of $2.67 for 

the purchase of a toilet seat. Despite overwhelming temptations, we will eschew further 

comment. 

208 Formerly 40 U.S.C. § 490(a)(8).
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against the government. 39 Op. Att’y Gen. 338 (1939). There can be no 

requirement “that improvements attached to leased premises must be 

removed when removal would involve the expenditure of public funds 

greatly in excess of any salvage value.” Id. at 340. See also 20 Comp. 

Gen. 105, 111 (1940). 

The restoration clause serves more as a method of measuring damages 

where the government does not remove the improvements. Whatever the 

government does or does not do, liability requires provable damages. The 

point is illustrated in Realty Associates v. United States, 138 F. Supp. 875 

(Ct. Cl. 1956), in which the government leased land and buildings which 

had been idle for several years and made substantial improvements to the 

property. When the lease was over and the property returned to the lessor, 

it had so increased in value as a result of the improvements that it was 

capable of producing, and did produce, substantial income. Nevertheless, 

the lessor sued for the cost of restoration on a breach of contract theory. 

Noting that if the government had restored the property to its former 

unusable condition, “no one would have been more unhappy than plaintiff” 

(Realty Associates, 138 F. Supp. at 877), and invoking Mark Twain’s 

aphorism that “the difference between a dog and a man is that if you pick 

up a starving dog and make him prosperous he will not bite you” (id. 

at 878), the court held that the lessor could recover only if he could show 

that he actually suffered damage as a result of the government’s actions. If 

the property is worth more in its unrestored condition than it would be 

worth if restored, there is no damage. See also Dodge Street Building 

Corp. v. United States, 341 F.2d 641 (Ct. Cl. 1965). This principle has also 

been applied where the leasehold was acquired by condemnation. Flood v. 

United States, 274 F.2d 483 (9th Cir.), cert. denied, 363 U.S. 805 (1960). 

The fact that removal may not be feasible or cost-effective does not mean 

that the government has no alternative to simply giving away the 

improvements. GAO has recommended that the leasing agency consider, in 

appropriate cases— 

“the advisability of incorporating in such leases a provision 

for reimbursement by the lessor of the residual value of 

such changes at the termination of the lease together with 

the basis for determining such value. . . . In determining the 

residual value there necessarily would be for consideration 

such factors as (1) the rental rate, (2) the lease term, and 

(3) the type of the alteration, improvement, or repair with 

particular consideration as to whether or not such building 
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changes at the termination of the lease will operate to 

enhance the value of the building or be advantageous to the 

lessor.” 

39 Comp. Gen. 304, 307 (1959). The lease in that case was subject to 

termination by the lessor at the end of each annual renewal term, a 

situation in which a provision along the lines suggested is particularly 

desirable. Id. 

b. Research A number of government agencies have research responsibilities not 

infrequently involving atypical situations with atypical needs. Thus, it 

probably should not be too surprising that some years ago GAO noted that 

a common source of exceptions was “improvements (to a contractor’s 

property) incidental to but necessary to give full force and effect to 

research contracts made by the Government with private parties.” 

53 Comp. Gen. 351, 352 (1973). 

One case is 42 Comp. Gen. 480 (1963). The Public Health Service’s National 

Cancer Institute had entered into a research contract with the San Diego 

Zoo. Part of the contract involved the installation of cages and related 

work for the “experimental breeding of primates.” GAO evaluated the 

administrative justification in light of the rule and its exceptions, and found 

the expenditure authorized. This holding was applied a few years later in 

another case involving a Public Health Service cancer research contract, 

46 Comp. Gen. 25 (1966), allowing the costs incurred by the contractor in 

converting an unfinished basement into laboratory space for use in 

performing the contract. Part of the justification was a response to the 

logical question of why the agency had chosen this contractor rather than 

one who might have had more suitable facilities. 

To avoid the difficult questions cases like these presented, GAO suggested 

that the Public Health Service might be better off with more explicit 

statutory authority, noting as a model 10 U.S.C. § 2353. 42 Comp. Gen. 

at 486. Under 10 U.S.C. § 2353(a), the military departments may fund the 

acquisition or construction of facilities and equipment deemed necessary 

for the performance of research contracts, but this may not include “new 

construction or improvements having general utility.” In addition, the 

statute prohibits the installation or construction of facilities “that would 

not be readily removable or separable without unreasonable expense or 

unreasonable loss of value” unless the contract includes specified 

safeguards. 10 U.S.C. § 2353(b). This statute clearly overcomes the 

“permanent improvement” prohibition. B-138868-O.M., June 10, 1959. The 
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Public Health Service took the hint, and now has the explicit authority to 

enter into research contracts in accordance with 10 U.S.C. § 2353. See

42 U.S.C. § 241(a)(7). 

Another case involving an exception made for a research project 

improvement is B-96826-O.M., Feb. 8, 1967. It involved an irrigation system 

constructed on unimproved land by the Soil Conservation Service in 

connection with statutorily authorized soil erosion research. As with the 

Public Health Service cases, this too would now be authorized by statute. 

Under 7 U.S.C. § 2250a, Department of Agriculture appropriations may be 

used to erect buildings or other structures on land owned by someone 

other than the United States, as long as the government obtains the right to 

use the land for the estimated life of or need for the structure, including the 

right to remove the structure upon termination of government use. 

Another agency with research responsibilities is the National Institute of 

Standards and Technology. GAO considered a number of proposals in the 

1950s, concluding in several cases that the Institute could make 

improvements to leased property where those improvements were 

essential to carrying out the particular projects and could be removed 

without material damage to the premises. E.g., B-122439, Feb. 23, 1955 

(unimproved land); B-114240, May 8, 1953 (laboratory alteration). 

Nevertheless, statutory authority is preferable to case-by-case 

determinations, and legislation was enacted in 1958, now found at 15 U.S.C. 

§ 278e(g), which authorizes the Secretary of Commerce to erect on leased 

property facilities needed by the Institute. 

As this survey of cases suggests, a number of agencies with significant 

research responsibilities now have adequate statutory authority, with 

appropriate safeguards (except for 15 U.S.C. § 278e(g), which includes no 

apparent safeguards), to do what they need to do. 

The Environmental Protection Agency (EPA) presented a somewhat 

different situation in B-187482, Feb. 17, 1977. In connection with 

authorized research under the Federal Water Pollution Control Act, EPA 

wanted to purchase a cooling tower from a private power company, 

knowing that it would abandon the facility in a few years upon completion 

of the research. EPA thought the situation was analogous to spending 

money for permanent improvements to private property. GAO agreed and 

applied the tests of 42 Comp. Gen. 480, finding, among other things, that the 

purchase price would amount to approximately 25 percent of the total cost 

of the research project, that constructing a new tower would have been 
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considerably more expensive, and that the agreement included appropriate 

safeguards to protect the government’s interest in the tower. Accordingly, 

the purchase was authorized. 

c. Public Improvements By “public improvements” we mean such things as roads and sidewalks. 

By their nature, when not located on federal property, they tend to be 

located on land owned by state or local governments rather than private 

parties. This introduces different factors into the analysis. 

Most of the cases involve proposals to construct, repair, or maintain roads 

leading or adjacent to some government facility. The earlier cases just said 

no, the fact that there would be some resulting benefit to the government 

being irrelevant. E.g., 6 Comp. Gen. 353 (1926); 2 Comp. Gen. 308 (1922). 

Later cases found a basis to say no in a statute we discussed earlier in 

section F of this chapter, 41 U.S.C. § 12, which prohibits any contract “for 

the erection, repair, or furnishing of any . . . public improvement” in excess 

of the amount “appropriated for the specific purpose.” 39 Comp. Gen. 388 

(1959) (access road); 32 Comp. Gen. 296 (1952) (deceleration lane on state 

highway); B-143536, Aug. 15, 1960 (access road). The statement found 

almost verbatim in each case is, quoting from B-143536 at 3, that “if specific 

action is required by the Congress with respect to public improvements on 

Federal property, a fortiori, specific authority would be required for the 

financing from Federal funds of public improvements on State or county 

property.” 

Other cases applying this concept include B-211044, June 15, 1984 

(crosswalk across the median strip of a public highway), and B-194135, 

Nov. 19, 1979 (locally owned wastewater treatment plant). In 38 Comp. 

Gen. 143 (1958), however, improvements to an access road on state land 

were found authorized under the decisional rules where most of the 

contemplated improvements were not of a permanent nature and there 

would be no resulting benefit to the state since the road was no more than 

a car path leading to the government facility across grazing land. See also

B-126950, Mar. 12, 1956 (similar facts, same result).209

The prohibition has also been applied in a case where the government 

technically held fee title extending to the center of a public street, but had 

209 A factual distinction that did not affect the result is that the rent being paid by the 

government in 38 Comp. Gen. 143 was nominal, whereas in B-126950 it was more of a 

market rent.
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no jurisdiction or control over the portion occupied by the street because it 

was subject to a permanent easement held by the city in trust for the 

public. B-120012, Oct. 15, 1954. 

In the case of sidewalks, there is statutory authority for any executive 

agency to “install, repair, and replace sidewalks around buildings, 

installations, property, or grounds” that are under the control of the agency, 

owned by the federal government, and located in a state, the District of 

Columbia, Puerto Rico, or a United States territory or possession. 40 U.S.C. 

§ 589(a). The agency may do the work directly or by reimbursement to the 

state or local government, in accordance with the General Services 

Administration regulations. Id. §§ 589(b), (c). Prior to the enactment of 

this general authority, some agencies had—and still have—their own 

comparable agency-specific authority. An example is 16 U.S.C. § 555b for 

the Forest Service. GAO has construed “owned” for purposes of the Forest 

Service provision as including a 99-year lease. 43 Comp. Gen. 705 (1964). 

There is no reason why this holding should not apply as well to 40 U.S.C. 

§ 589. 

Section 589(e) of title 40 provides that the statute “does not increase or 

enlarge the tort liability of the Government for injuries to individuals or 

damages to property.” Thus, reimbursement by the federal government 

under section 589 does not operate to relieve the state or local government 

from any underlying obligation it might otherwise have to make the repairs, 

or from liability for failure to do so. Connor v. United States, 461 F.2d 1259 

(D.C. Cir. 1972) (slip-and-fall on a sidewalk adjacent to a federal building in 

the District of Columbia). By the same token, contracting out maintenance 

of a sidewalk on federal property will not necessarily absolve the federal 

government of any liability as a property owner. See Simpkins v. United 

States, 253 F. Supp. 2d 4 (D.D.C. 2003) (another slip-and-fall on a sidewalk 

located on a parkland owned by the United States but maintained by a 

nonfederal entity). 

d. Federal Aviation 

Administration 

The Federal Aviation Administration (FAA) performs its functions at 

airports throughout the country and therefore has considerable presence 

on property which is not owned by the United States. Consequently, the 

FAA has had frequent occasion to consider the use of its appropriations for 

various alterations or improvements to nongovernment property. 

The FAA has general authority to “acquire, establish, improve, operate, and 

maintain air navigation facilities.” 49 U.S.C. § 44502(a)(1)(A). Under this 

authority, it could, for example, make repairs and improvements to flight 
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service stations located on premises leased from airport owners or 

operators. 53 Comp. Gen. 317 (1973).210 See also B-143536, Aug. 15, 1960 

(similar language in an appropriation act provision applicable to leased as 

well as acquired lands). 

Under another statute, the FAA may approve an airport development grant 

application only upon receipt of written assurances that— 

“the airport owner or operator will provide, without charge 

to the Government, property interests of the sponsor in land 

or water areas or buildings that the Secretary decides are 

desirable for, and that will be used for, constructing at 

Government expense, facilities for carrying out activities 

related to air traffic control or navigation.” 

49 U.S.C. § 47107(a)(12). This is also specific authority sufficient to 

overcome the prohibition on improving nongovernment property. 

46 Comp. Gen. 60 (1966). That case found FAA appropriations available for 

the reinforcement of building foundations and other structural 

improvements necessitated by the construction of air traffic control tower 

cabs on the roofs of those buildings. Another example involving FAA’s 

statutory authority is B-286457, Jan. 29, 2001, discussed in section G.1 of 

this chapter.

A 1990 case found an exception in a situation not covered by any of FAA’s 

statutory authorities. The decision, 69 Comp. Gen. 673 (1990), held that the 

inclusion in a lump-sum appropriation of funds for environmental cleanup 

at a facility being leased by the FAA on a long-term basis was sufficient to 

authorize the FAA to make permanent improvements to the facility deemed 

necessary for the cleanup. The expenditure had been specified in 

committee reports but not the appropriation act itself. The lesson of this 

case is that, since the permanent improvement prohibition is nonstatutory, 

210 The issue in 53 Comp. Gen. 317 was whether the expenditure was subject to the 

25 percent limitation of section 322 of the Economy Act of 1932. Following B-152722, 

Aug. 16, 1965, GAO held that it was. As noted earlier in section G.1 of this chapter, this 

provision of the Economy Act was repealed in 1988. While the percentage limitation no 

longer exists, the FAA statute remains as an independent source of authority. 
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it can be overcome by congressional action that would not be sufficient if it 

were a statutory requirement.211

e. Private Residences As one might suspect, there should normally be very little occasion to 

consider the propriety of using appropriated funds to make permanent 

improvements to someone’s private residence. However, as if to prove that 

one should never say never, the expenditure has been authorized in two 

cases. 

In 53 Comp. Gen. 351 (1973), the then Veterans Administration (VA) sought 

to install central air conditioning in the home of a disabled veteran. The VA 

received appropriations for necessary inpatient and outpatient care, and 

the applicable program legislation defined authorized medical care as 

including home health services. The legislative history indicated an intent 

to emphasize nonhospital treatment. The air conditioning was not just a 

matter of comfort. According to the VA, certain disabled veterans “suffer 

from a severe impairment of the heat regulatory mechanisms of their 

bodies to such an extent that their body temperatures can only be safely 

maintained in an artificially controlled physical environment.” 53 Comp. 

Gen. at 351–52. The expenditure could not be justified as an exception 

under the tests of 42 Comp. Gen. 480 (1963) and its progeny because the 

primary beneficiary would be the disabled veteran, not the government. 

Nevertheless, upon an administrative determination that the expense was 

necessary for the effective and economical treatment of the veteran, and 

that the only alternative would be admission to a hospital, the expenditure 

was authorized. 

As noted in Chapter 4, decisions have held that an agency may use its 

operating appropriations to protect an agency official whose life has been 

threatened if the danger may impair the functioning of the agency. A 1991 

case, 71 Comp. Gen. 4, took this one step further and held that the Drug 

Enforcement Administration could use its appropriations to enclose and 

secure a carport at the leased residence of its Administrator. Although the 

decision viewed the improvement as primarily benefiting the government, 

it is perhaps more appropriate to say that, under the circumstances 

presented—danger to the Administrator’s life—the fact of shared benefit, 

or of some residual benefit to the landlord, should not be enough to 

invalidate an expenditure which otherwise meets the tests. Of course, the 

211 See the discussion of Tennessee Valley Authority v. Hill, 437 U.S. 153 (1978), in 

section C.2.h of Chapter 2.
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agency would also have to take appropriate measures, possibly in the form 

of a provisional agreement with the landlord, to protect the government’s 

interest in the improvement. 71 Comp. Gen. at 6.

H. Disposal 

1. The Property Clause A fundamental point to understanding the body of law governing the 

operation of federal agencies is that no government official may dispose of 

government-owned property unless authorized by Congress. The source of 

this rule is article IV, section 3, clause 2 of the United States Constitution, 

the so-called Property Clause: “The Congress shall have Power to dispose 

of and make all needful Rules and Regulations respecting the Territory or 

other Property belonging to the United States . . . .” By virtue of the 

Property Clause, no agency or official of the government is authorized to 

sell, lease, give away, or otherwise dispose of government property without 

statutory authority, either explicit or by necessary implication. As the 

Supreme Court put it in one case: 

“Power to release or otherwise dispose of the rights and 

property of the United States is lodged in the Congress by 

the Constitution. Art. IV, § 3, Cl. 2. Subordinate officers of 

the United States are without that power, save only as it has 

been conferred upon them by Act of Congress or is to be 

implied from other powers so granted.” 

Royal Indemnity Co. v. United States, 313 U.S. 289, 294 (1941). 

This principle has been consistently recognized and applied by the courts, 

the Attorney General, and the Comptroller General. E.g., Spirit Lake 

Tribe v. North Dakota, 262 F.3d 732, 740–41 (8th Cir. 2001), cert. denied, 

535 U.S. 988 (2002); 34 Op. Att’y Gen. 320 (1924); 65 Comp. Gen. 339 (1986); 

50 Comp. Gen. 63 (1970); B-157578, Sept. 7, 1965. “Like any other owner 

[Congress] may provide when, how, and to whom its land can be sold.” 

United States v. Midwest Oil Co., 236 U.S. 459, 474 (1915). 

The Property Clause is not limited to real property but applies to personal 

property as well. As the Supreme Court explained in Ashwander v. 

Tennessee Valley Authority, 297 U.S. 288, 331 (1936): 
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“The occasion for the grant [in the Property Clause] was the 

obvious necessity of making provision for the government 

of the vast territory acquired by the United States. The 

power to govern and to dispose of that territory was deemed 

to be indispensable to the purposes of the cessions made by 

the States. . . . The grant was made in broad terms, and the 

power of regulation and disposition was not confined to 

territory, but extended to ‘other property belonging to the 

United States,’ so that the power may be applied, as Story 

says, ‘to the due regulation of all other personal and real 

property rightfully belonging to the United States.’ And so, 

he adds, ‘it has been constantly understood and acted 

upon.’” 

The Property Clause applies to all forms of property, intangible as well as 

tangible, and this includes legal rights. One manifestation of this is the rule 

that, unless authorized by statute, government officers have no right to 

modify existing contracts, or to waive or surrender contract rights which 

have vested in the government, without some compensating benefit to the 

government. E.g., 47 Comp. Gen. 732, 736 (1968); 40 Comp. Gen. 684, 688 

(1961); B-174058, Oct. 18, 1972. Another is the rule that no government 

official may, absent statutory authority, waive a debt owing to the United 

States. E.g., B-171934, Apr. 2, 1971. Similarly, an agency may not, unless 

authorized by statute, waive the enforcement of a forfeiture accruing to the 

government’s benefit without consideration. 53 Comp. Gen. 574 (1974); 

40 Comp. Gen. 309 (1960). This includes the retention of liquidated 

damages. 26 Comp. Gen. 775, 777 (1947). 

The interagency transfer of excess real or personal property is not a 

disposal for purposes of the Property Clause. 32 Op. Att’y Gen. 511 (1921). 

The right to dispose of government property which is no longer needed has 

been termed “an essential governmental function in the economic 

management of governmental affairs.” City of Springfield v. United 

States, 99 F.2d 860, 863 (1st Cir. 1938), cert. denied, 306 U.S. 650 (1939). 

Congress has delegated this authority to executive agencies in several 

statutes, the most important of which is the Federal Property and 

Administrative Services Act. 
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2. Disposal under Title 40 

of the United States 

Code 

The provisions of title 40, United States Code, derived from the Federal 

Property and Administrative Services Act,212 as amended, present a fairly 

complex scheme for the disposal of government property. The starting 

point is the definition of two key terms, “excess property” and “surplus 

property”: 

“The term ‘excess property’ means any property under the 

control of a federal agency that the head of the agency 

determines is not required to meet the agency’s needs and 

responsibilities.” 

“The term ‘surplus property’ means excess property that the 

Administrator [of the General Services Administration 

(GSA)] determines is not required to meet the needs or 

responsibilities of all federal agencies.” 

40 U.S.C. §§ 102(3) and (10).213 

Note that the using agency declares property to be excess, but GSA must 

declare it to be surplus. Property must be excess before it can be 

surplus.214 Obviously, the arbitrary classification of property as excess or 

surplus in order to provide statutory authority for disposal which otherwise 

does not exist, is improper. B-61717, Apr. 10, 1947. 

a. Excess Property Agencies have a continuing responsibility to survey property under their 

control in order to identify property which has become excess. 40 U.S.C. 

§ 524(a)(2).215 The General Services Administration (GSA) tells agencies to 

do this at least annually. 41 C.F.R. § 102-75.60(a). If an agency identifies 

property which appears to be excess, it should first see if some other 

component of the agency can use it. 40 U.S.C. § 524(a)(3). If the property 

212 Pub. L. No. 81-152, 63 Stat. 377 (June 30, 1949). See further discussion of this legislation 

in section E.2.a of this chapter.

213 Formerly 40 U.S.C. §§ 472(e) and (g).

214 These definitions do not distinguish between real property and personal property. See 

the overarching definition of “property” in 40 U.S.C. § 102(9). Thus, the same general 

scheme applies to both. Some of the operating provisions apply only to one type or the 

other, however.

215 Formerly 40 U.S.C. § 483.
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is not needed within the agency, it should be promptly reported to GSA as 

excess. Id.; 41 C.F.R. § 102-75.60(c). Conversely, if the agency needs 

property and cannot fill its need by transfer or improved utilization of 

property already under its control, it should report its need to GSA. 

41 C.F.R. § 102.75.65.216

GSA then has the responsibility of determining if there is a need for the 

property by another federal agency, government corporation, or the 

District of Columbia, and directing transfer of the property accordingly. 

See generally 40 U.S.C. § 521.217 According to the legislative history of 

section 521, detailed in B-101646-O.M., Nov. 2, 1976, GSA is to do this by 

conducting a “survey” of the needs of other agencies. GAO regards the 

term survey in this context as flexible. It does not require GSA to follow 

specifically detailed procedures. “Rather, [the Administrator of GSA] may 

execute his survey on the basis of a broad analysis from an overall 

viewpoint making use of his general and specific knowledge of the 

situation in his role as the manager of the Government’s property.” 

B-165868, June 30, 1971, at 3. 

GSA calls its procedure “screening.” 41 C.F.R. § 102-75.1220. If GSA finds a 

“match” and determines that transfer is in the government’s best interest, 

the property is transferred. See 41 C.F.R. § 102-75.175. 

The statute requires reimbursement by the receiving agency if either the 

transferor or the transferee is the District of Columbia or a government 

corporation subject to the Government Corporation Control Act, or if the 

property was acquired by using a revolving or reimbursable fund and the 

transferor agency requests reimbursement of the net proceeds. In all other 

cases, the extent of reimbursement, if any, is left to the determination of 

GSA and the Office of Management and Budget (OMB). 40 U.S.C. §§ 522(a), 

(b).218 GSA’s Federal Management Regulation generally requires 

reimbursement of 100 percent of estimated fair market value, with 

qualifications specified in certain circumstances. See 41 C.F.R. §§ 102-

75.190–102-75.200. The transfer is made without reimbursement if it is 

216 Here and elsewhere in 41 C.F.R. part 102-75, the regulation refers to GSA as the “disposal 

agency.” See 41 C.F.R. § 102-75.5.

217 Formerly 40 U.S.C. § 483(a)(1).

218 Formerly 40 U.S.C. § 483(a)(1).
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specifically nonreimbursable by statute, or if GSA, with OMB’s approval, 

grants an exception. See 41 C.F.R. §§ 102-75.205–102-75.225. 

Since the receiving agency has already demonstrated a need for the 

property in order to qualify for the transfer, the amount of the 

reimbursement is a necessary expense of, and therefore chargeable to, 

operating appropriations for the program for which the property is to be 

used. 38 Comp. Gen. 782 (1959). If the property being transferred is a 

leasehold, the fair market value should not include any restoration 

obligation incurred by the transferring agency. 28 Comp. Gen. 251 (1948). 

Congress occasionally waives the federal government’s immunity from 

state and local taxation with respect to real property owned by a 

government corporation. E.g., 12 U.S.C. § 1825(a) (Federal Deposit 

Insurance Corporation). If property subject to such a waiver is declared 

excess and transferred to an agency or entity that does not have such a 

waiver, the waiver dies with the transfer and the transferee agency is not 

authorized to continue paying the taxes. 36 Comp. Gen. 713 (1957); 

34 Comp. Gen. 319 (1955); 32 Comp. Gen. 164 (1952). See also Rohr 

Aircraft Corp. v. County of San Diego, 362 U.S. 628 (1960); Board of 

County Commissioners of Sedgwick County v. United States,

105 F. Supp. 995 (Ct. Cl. 1952) (both cases address the issue under the 

Surplus Property Act of 1944, a predecessor of the current provisions). The 

immunity attaches on the date the property is declared excess. 32 Comp. 

Gen. 574 (1953). 

As noted above, a government corporation can receive excess property but 

must pay for it. In the case of a mixed-ownership government corporation, 

the property loses its federal identity upon being transferred. Therefore, if 

the property should later become excess to the mixed-ownership 

corporation, the corporation may dispose of it without having to follow the 

Federal Property Act. See B-101646, B-175155-O.M., Sept. 6, 1979 

(discussing transfer to Amtrak). 

b. Surplus Property If no other agency needs the property, the General Services Administration 

(GSA) then declares it to be surplus. If some other agency has requested 

transfer as excess property, it cannot be declared surplus until the request 

has been withdrawn. Skokomish Indian Tribe v. GSA, 587 F.2d 428 (9th Cir. 

1978). GSA is required to “supervise and direct the disposition of surplus 
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property.” 40 U.S.C. § 541.219 GSA, or any executive agency so authorized 

by GSA, may dispose of surplus property “by sale, exchange, lease, permit, 

or transfer, for cash, credit, or other property,” and may “take other action 

it considers necessary or proper to dispose of the property.” 40 U.S.C. 

§ 543.220 GSA acts as the disposal agency except “in rare instances” where 

it delegates disposal authority to another agency. 41 C.F.R. § 102-75.5. 

Instances in which a landholding agency may act as the disposal agency are 

described in 41 C.F.R. § 102-75.296. Absent some applicable statutory 

exception, 40 U.S.C. § 541 and its related provisions are the exclusive 

means for the government to divest itself of a property interest. United 

States v. 434.00 Acres of Land, 792 F.2d 1006 (11th Cir. 1986) (common-law 

rule that easement terminates when purpose for which it was created 

ceases to exist not applicable to easement held by government). 

The “necessary or proper” clause in 40 U.S.C. § 543 “suggests broad power.” 

United States v. 1.33 Acres of Land, 9 F.3d 70, 73 (9th Cir. 1993). That case 

held that GSA was authorized to condemn an easement several years after 

the sale of adjacent property in order to complete the sale. (The easement 

was necessary for access to a highway and the parties could not come to 

voluntary terms.) GSA may also, under its broad statutory authority, 

authorize the interim nonfederal use of surplus property by lease or permit. 

See B-101646-O.M., Oct. 11, 1977. The statute does not, however, authorize 

the use of options to purchase, either standing alone or included in a lease. 

41 Op. Att’y Gen. 294 (1957). 

Unless otherwise provided by statute or in the deed by which the 

government acquired the property, the person from whom the government 

acquired the property does not have an automatic or inherent right to 

repurchase it if it is declared surplus. This is true regardless of how the 

property was acquired. Harrison v. Phillips, 185 F. Supp. 204 (S.D. Tex. 

1960), aff’d, 289 F.2d 927 (5th Cir. 1961), cert. denied, 368 U.S. 835 (1961) 

(property acquired by voluntary purchase); 34 Comp. Gen. 374 (1955) 

(donation); B-165511, Mar. 21, 1978 (eminent domain). 

With certain exceptions, the disposal agency should have the property 

appraised. 41 C.F.R. § 102-75.300. GSA treats the appraisal results as 

confidential so as not to influence the government’s ability to sell at a 

219 Formerly 40 U.S.C. § 484(a).

220 Formerly 40 U.S.C. § 484(c).
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favorable price. See 41 C.F.R. § 102-75.320. The courts and GAO agree with 

this nondisclosure policy. Government Land Bank v. GSA, 671 F.2d 663 

(1st Cir. 1982); Martin Marietta Aluminum, Inc. v. GSA, 444 F. Supp. 945 

(C.D. Cal. 1977); B-101646, Aug. 16, 1979. The court directed disclosure in 

GSA v. Benson, 415 F.2d 878 (9th Cir. 1969), but the sale had already taken 

place and the purchaser needed the information for tax purposes. 

Subject to several exceptions, the law provides that disposals of surplus 

property may be made “only after publicly advertising for bids” under 

regulations prescribed by GSA. 40 U.S.C. § 545(a)(1)(A).221 While the 

solicitation is not required to specify a minimum acceptable bid, the 

government is also not required to give the property away and may reject 

all bids. 40 U.S.C. § 545(b)(6); B-212285, Nov. 15, 1983. As noted above, the 

law authorizes sale for cash or credit. If the solicitation specifies that 

either is equally acceptable, the agency cannot give a preference to cash 

terms after bids have been opened. B-189500, Mar. 21, 1978. The implied 

obligation to treat all bids fairly and honestly applies to sales of property as 

well as to procurement contracts. Prineville Sawmill Co. v. United States,

859 F.2d 905, 909 (Fed. Cir. 1988). 

As a general proposition, a wide disparity between appraised values and 

bid prices is not enough to put the contracting officer on constructive 

notice of a mistake in bid because of the “myriad of uses” to which the land 

might be put. B-177695, Jan. 22, 1973. However, in a case where the 

appraiser had indicated that the property would have little value to anyone 

other than the immediate adjacent landowner, and there was a large 

disparity between the appraisal and a bid by someone other than the 

adjacent landowner, the contracting officer should have been put on notice 

of the possibility of mistake and should have sought confirmation of the 

bid. B-160113, Nov. 25, 1966. 

If an appraisal is based on a mistake, the resulting contract of sale may be 

reformed to permit partial refund of the purchase price. B-71334, Feb. 3, 

1948 (appraisal included irrigation rights which in fact did not exist). 

Although not discussed in that decision, this is not viewed as a surrender of 

contract rights for purposes of the Property Clause. Also, depending on the 

circumstances, it may be possible to rescind the contract. See Morris v. 

United States, 33 Fed. Cl. 733, 744–48 (1995) (discussing the theories of 

221 Formerly 40 U.S.C. § 484(e).
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misrepresentation, mutual mistake, and unilateral mistake in the context of 

government real property sales).222

The solicitation may require bid deposits or “earnest money,” apparently at 

the agency’s discretion, with the winning bidder’s deposit to be applied to 

the purchase price. Any time after acceptance of the offer but prior to the 

time specified for performance, that is, while the contract is still executory, 

the agency may agree to rescind the contract and refund the earnest 

money. 26 Comp. Gen. 775 (1947). Once there has been a breach or default 

by the purchaser, however, the deposit belongs to the government and may 

not be refunded unless expressly provided by statute or in the contract. 

Id.; 8 Comp. Gen. 592 (1929); B-160256, Jan. 5, 1967, aff’d on 

reconsideration, B-160256, Oct. 18, 1968. 

While advertising for bids is the preferred method of disposal, the statute 

prescribes a number of situations in which surplus property can be 

disposed of by negotiated sale, as long as the government obtains 

“competition that is feasible under the circumstances.” 40 U.S.C. § 545(b). 

One is when “the character or condition of the property or unusual 

circumstances make it impractical” to advertise for bids and fair market 

value can be obtained by negotiation. Id. § 545(b)(7). For an example of a 

negotiated exchange under this authority, see B-165868, Nov. 19, 1971; 

B-165868, June 30, 1971; and B-165868, Sept. 29, 1970 (all involve the same 

exchange). Another situation in which disposal may be negotiated is when 

“the disposal will be to a State, territory, or possession of the United States, 

or to a political subdivision of, or a tax-supported agency in, a State, 

territory, or possession, and the estimated fair market value of the property 

and other satisfactory terms of disposal are obtained by negotiation.” 

40 U.S.C. § 545(b)(8). 

The determination of what constitutes “feasible competition” is within 

GSA’s discretion. Dover Sand & Gravel, Inc. v. Jones, 227 F. Supp. 88 

(D.N.H. 1963). When negotiating a disposal under 40 U.S.C. § 545(b)(8), 

GSA is not required to consider offers from nonpublic sources. 57 Comp. 

Gen. 823 (1978). While section 545(b)(8) does not authorize disposal for 

less than fair market value, nothing prevents the government from getting 

more if it can. Port of Seattle v. United States, 450 F.2d 1363 (Ct. Cl. 1971); 

222 See also Dairyland Power Cooperative v. United States, 16 F.3d 1197 (Fed. Cir. 1994); 

Badgley v. United States, 31 Fed. Cl. 508 (1994); Meek v. United States, 26 Cl. Ct. 1357 

(1992), aff’d, 6 F.3d 788 (Fed. Cir. 1993); Hartle v. United States, 22 Cl. Ct. 843 (1991).
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B-217356-O.M., Apr. 22, 1985. Since the use of section 545(b)(8) is itself 

discretionary, there is also nothing to prevent the government from 

rejecting an offer of fair market value. Government Land Bank v. GSA,

671 F.2d 663, 667 (1st Cir. 1982). 

If the government chooses to dispose of surplus property by negotiated 

sale, the responsible agency must prepare, with some exceptions specified 

in the statute, “an explanatory statement of the circumstances” and 

transmit the statement “to the appropriate committees of the Congress in 

advance of the disposal.” 40 U.S.C. §§ 545(e)(1)(A), 545(e)(2). This is 

nothing more than a “report and wait” provision and is not subject to attack 

on constitutional grounds. City of Alexandria v. United States, 737 F.2d 

1022 (Fed. Cir. 1984). If an agency other than GSA prepares the statement, 

the agency should submit it to GSA, which will in turn submit it to the 

committees. 41 C.F.R. § 102-75.920. Nothing in the statute purports to 

make the validity of a disposal in any way contingent upon compliance with 

the reporting requirement. See B-116344, July 21, 1955. 

In general, it is improper to classify property as excess or surplus if the 

holding agency still needs it. This follows from the very definitions quoted 

earlier. GAO has looked at several cases where an agency wanted to sell 

property and then lease it back, or sell some facility and then contract with 

the new owner to provide the same service the facility was providing when 

it was in government hands. These cases are always questionable, and the 

agency has the burden of showing that there is some rational basis for its 

determination. However, an axiom of life is “never say never,” and the 

legitimacy of the transaction cannot be categorically foreclosed. For 

example: 

“There may be instances where certain property, such as 

communication facilities, could be sold and the purpose for 

which it was being used accomplished through private 

contracts at a cost less than the Government’s costs of 

operation and maintenance of the property. In such cases, it 

could be argued that the Government’s need was for the 

availability of communication services rather than for a 

property right in the facilities.” 

B-132099, July 22, 1957, at 4. 

While the discussion in B-132099 was hypothetical, an actual situation 

occurred in B-146494, Dec. 4, 1961, concerning the sale of an ammonium 
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perchlorate facility. GAO was satisfied that “the only need of the 

Government is that sufficient productive capacity be in existence, without 

reference to whether such productive capacity is Government-owned or 

privately-owned.” B-146494, at 2.

Situations like those described in B-132099 and B-146494 are the clear 

exception, and in most cases the proper basis for disposal as surplus 

property will not exist. B-132099, June 25, 1958. Thus, whatever 

justifications might work in the case of industrial facilities do not work 

when the need is for office space at a particular location. B-152223, 

Nov. 6, 1963. Similarly, there is no authority for a “sale with lease-back” 

simply because the agency does not have enough money for needed 

renovations. 65 Comp. Gen. 339 (1986). See 45 Comp. Gen. 265 (1965), 

however, for a case approving the sale of excess property to the successful 

bidder on a contract to construct a building on that property to be leased to 

a different agency.223

Section 550 of title 40224 provides for a number of discretionary types of 

disposal. GSA can assign surplus property to the Departments of 

Education or Health and Human Services for conveyance to state and local 

bodies to be used for education or public health purposes. 40 U.S.C. 

§§ 550(c) and (d), respectively; see also 41 C.F.R. §§ 102-75.350–102-75.360. 

These are called “public benefit conveyances” or “public benefit discount 

conveyances.” See Northrop University v. Harper, 580 F. Supp. 959, 961 

(C.D. Cal. 1983). In cases where GSA had already contracted to sell the 

property to the state or local educational body but title had not yet passed 

and the purchase price had not yet been paid, GAO has approved rescission 

of the contract to permit transfer under the section 550 procedures. 

40 Comp. Gen. 455 (1961); B-157885, Nov. 8, 1965. However, this is not 

available where the sale has been consummated and the purchase price 

paid. B-162194, Aug. 18, 1967. 

In B-109403, June 3, 1952, the government wanted to reserve mineral rights 

because a survey suggested the presence of oil. However, a provision 

purporting to obligate the United States to pay any damages resulting from 

exercise of the mineral rights amounted to an open-ended indemnification 

223 The legal dilemma in that case was that there is no authority to sell excess property to a 

private party, and no authority to declare the property surplus if another agency needs it.

224 Formerly 40 U.S.C. § 484(k).
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agreement and was therefore unauthorized. (For more on indemnification 

agreements, see Chapter 6, section C.2.c.) 

Section 550(e) of title 40 authorizes GSA to assign surplus property to the 

Interior Department for reconveyance for public park or recreation 

purposes. GSA’s administration of this authority is highly discretionary. 

New England Power Co. v. Goulding, 486 F. Supp. 18 (D.D.C. 1979) 

(entirely proper for GSA to give priority to disposal under this subsection). 

See also Northrop University, 580 F. Supp. 959. 

Still another subsection of section 550 authorizes GSA to convey to states 

or municipalities, without monetary consideration, surplus real property 

which is suitable and desirable for use as a historic monument. 40 U.S.C. 

§ 550(h); 41 C.F.R. §§ 102-75.440–102-75.485. GSA may authorize use of the 

property for revenue-producing activities. 40 U.S.C. § 550(h)(2)(A); 

60 Comp. Gen. 158 (1981). As with the other subsections, section 550(h) is 

limited to surplus property and does not authorize conveyance of 

nonsurplus property. B-126823, July 21, 1965. 

c. Disposition of Proceeds The disposition of the proceeds from the disposal of excess and surplus 

property is governed by 40 U.S.C. §§ 571–574,225 as effectively modified by 

16 U.S.C. § 460l-5(a). Section 571(a) of title 40 provides that all proceeds 

from any transfer of excess property or sale or other disposition of surplus 

property, except as otherwise provided in sections 571 through 574, must 

be deposited in the Treasury as miscellaneous receipts. One of the 

exceptions, already noted, is property acquired by use of a revolving or 

reimbursable fund. 40 U.S.C. § 574(a). Another, 40 U.S.C. § 574(b), permits 

agencies to deposit part of the proceeds in a special account in the 

Treasury so that they will be available for refunds if necessary. 

Section 574(c) recognizes contract provisions which permit the proceeds 

of any sale of government property in the contractor’s custody to be 

credited to the cost or price of work under the contract. 

In 1964, Congress enacted the Land and Water Conservation Fund Act of 

1965, Pub. L. No. 88-578, 78 Stat. 897 (Sept. 3, 1964). Section 2(b) of Public 

Law 88-578, as codified at 16 U.S.C. § 460l-5(a), requires deposit in the Land 

and Water Conservation Fund of: 

225 Formerly 40 U.S.C. §§ 485, 485a.
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“All proceeds . . . hereafter received from any disposal of 

surplus real property and related personal property under 

the Federal Property and Administrative Services Act of 

1949, as amended . . . notwithstanding any provision of law 

that such proceeds shall be credited to miscellaneous 

receipts of the Treasury. Nothing in this part shall affect 

existing laws or regulations concerning disposal of real or 

personal surplus property to schools, hospitals, and States 

and their political subdivisions.” 

The portion of the above provision not quoted gives two categories of 

exceptions. First, the requirement does not apply to the various 

subsections of 40 U.S.C. § 574 which themselves provide exceptions to the 

miscellaneous receipts requirement of 40 U.S.C. § 571(a). Second, it does 

not apply to the following provision which appeared in the Independent 

Offices Appropriation Act of 1963, Pub. L. No. 87-741, 76 Stat. 716, 725 

(Oct. 3, 1962), under the heading “Operating Expenses, Utilization and 

Disposal Service [GSA]” or later appropriations act language of this nature: 

“For necessary expenses, not otherwise provided for, incident to the 

utilization and disposal of excess and surplus property, as authorized by 

law, $8,500,000, to be derived from proceeds from the transfer of excess 

property and the disposal of surplus property.” The Land and Water 

Conservation Fund is a fund in the Treasury used to finance acquisitions 

mostly by the Departments of Interior and Agriculture (national parks, 

national forests, national wildlife refuges). 16 U.S.C. § 460l-9. Money in the 

fund is available for expenditure “only when appropriated therefor.” 

16 U.S.C. § 460l-6. 

Thus, the 1964 legislation preserved the exceptions of the former Federal 

Property Act, and recognized what would be true in any event—that 

Congress can legislate exceptions in the future. Subject to these 

exceptions, proceeds from the sale of surplus real property go to the Land 

and Water Conservation Fund and not the general fund. Nothing in the 

1964 legislation purported to affect the treatment of proceeds from the 

transfer of excess property. 

Since the disposition of sale proceeds is governed by statute, a 1946 

decision found no authority for a proposal to transfer title to a warehouse 

(built by the government on leased land) to the landowner with its value to 

be amortized against rental payments. The proposal would have the effect 

of using the sale proceeds as rent. B-61717, Dec. 10, 1946. 
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A 1966 decision, 46 Comp. Gen. 356, considered the operation of 16 U.S.C. 

§ 460l-5(a) in the context of a government corporation which was in the 

process of going out of business. The Virgin Islands Corporation had 

terminated its operations and wanted to close its books, but there were 

some assets remaining to be sold. If the books remained open, it was clear 

that the proceeds would be credited to the corporation’s revolving fund, in 

accordance with 40 U.S.C. § 574(a), and used to offset the government’s 

equity. It was suggested, however, that since the revolving fund was no 

longer needed, the corporation’s accounts could be closed and the 

proceeds deposited in the Land and Water Conservation Fund. The 

decision concluded that closing the accounts as a matter of administrative 

convenience should not have the effect of diverting the proceeds from 

being used to repay the government’s investment. Since any balances on 

hand at the time of closing would be deposited as miscellaneous receipts, 

that was also the proper disposition of the sale proceeds. 

d. Deduction of Expenses Section 571(b) of title 40, United States Code,226 provides: 

“Subject to [General Services Administration] 

regulations . . ., the expenses of the sale of . . . public 

property may be paid from the proceeds of the sale so that 

only the net proceeds are deposited in the Treasury. This 

subsection applies whether proceeds are deposited as 

miscellaneous receipts or to the credit of an appropriation 

as authorized by law.” 

This statute originated in 1896.227 Decisions of the Comptroller General and 

Comptroller of the Treasury over the decades established the rule that this 

provision allowed the deduction only of expenses directly connected with 

the sale and did not authorize deduction of expenses incurred in 

connection with preparation of the property for sale. E.g., 42 Comp. 

Gen. 212, 213 (1962). Thus, such things as appraisers’ fees, brokerage 

commissions, auctioneers’ fees, and advertising costs could be deducted 

from the proceeds prior to deposit in the Treasury. 37 Comp. Gen. 59 

(1957); 33 Comp. Gen. 31 (1953); 16 Comp. Gen. 876 (1937). 

226 Formerly 40 U.S.C. § 485a.

227 Act of June 8, 1896, ch. 373, 29 Stat. 267, 268.
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e. Disposal under Other 

Authorities 

While the title 40 provisions described above constitute the primary regime 

for disposing of federal property, they are not the only disposal authority. 

Exceptions to the title 40 authority tend to be of three types: (1) those set 

forth in title 40 itself; (2) those stated explicitly or arising by necessary 

implication from general property-disposition authorities applicable to an 

agency or program, which contain their own standards and procedures; 

and (3) statutes that provide for the disposition of a specific piece of 

property in a specific way.

As to the first type, 40 U.S.C. § 113(a) provides as follows: “Except as 

otherwise provided in this section, the authority conferred by this subtitle 

is in addition to any other authority conferred by law and is not subject to 

any inconsistent provision of law.” Section 113(a) refers to the general 

range of the General Services Administration’s (GSA) authorities under title 

40, including but not limited to property disposal. The remainder of 

section 113 recites various limitations and exceptions, some of which deal 

with the disposal of property. For example, sections 113(e)(9) and (10) 

provide that “[n]othing in this subtitle impairs or affects” the propertydisposal authority, respectively, of an official or entity under the Farm 

Credit Act (12 U.S.C. ch. 23), or the Secretary of Housing and Urban 

Development or the Federal Deposit Insurance Corporation with respect to 

certain properties.

As to the second type, a 1992 GAO study identified 17 agencies with 

authority to dispose of real property. GAO, Real Property Dispositions: 

Flexibility Afforded Agencies to Meet Disposition Objectives Varies,

GAO/GGD-92-144FS (Washington, D.C.: Sept. 18, 1992). As the title implies, 

GAO found considerable variation in the programs and their objectives.

In some cases, the statutes deal with property that is explicitly exempted 

from the title 40 provisions, such as public domain lands. See 40 U.S.C. 

§ 102(9)(A)(i) (excluding public domain lands from the definition of 

“property”). An example is 43 U.S.C. § 1713, authorizing the Interior 

Department to sell tracts of public land meeting specified disposal criteria. 

In a case involving the predecessor of this statute, the Bureau of Land 

Management vacated a sale when, after several years of appeals, reappeals, and cross appeals by the bidders, it learned that the appraised 

value of the property had increased much beyond the amount of the bids. 

Noting that the courts had upheld the discretion of the Secretary of the 

Interior to refuse to sell for whatever reason he found adequate, GAO 

concluded that the Bureau did nothing wrong. B-168879, May 7, 1970. 
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For property which would otherwise be within the scope of the title 40 

provisions, language such as “notwithstanding any other provision of law” 

may be sufficient in itself to provide the necessary exemption. See 

B-178205.80, Mar. 16, 1976. Other statutes use more specific exempting 

language. One example is 7 U.S.C. § 1985(c), authorizing sales of property 

in connection with certain Department of Agriculture activities. 

Section 1985(c)(4) provides: “The Federal Property and Administrative 

Services Act of 1949 shall not apply to any exercise of authority under this 

chapter.” Another example, from the housing laws, is 12 U.S.C § 1750c(f), 

which authorizes the Secretary of Housing and Urban Development to sell 

certain properties “[n]otwithstanding any other provision of law relating to 

the acquisition, handling, or disposal of real property by the United States.” 

The Internal Revenue Service (IRS) is authorized to sell property seized 

under a tax levy. 26 U.S.C. § 6335. While these sales are not specifically 

exempted from title 40, they are governed by their own specific standards 

and procedures as spelled out in the Tax Code. If there are no bids from 

the public at or higher than the minimum price set by the IRS, the United 

States may purchase the property at that minimum price. 26 U.S.C. 

§ 6335(e)(1)(C). The former owner has the right to redeem the property 

within 180 days after the sale by paying the purchase price plus interest. 

26 U.S.C. § 6337(b). A sale under 26 U.S.C. § 6335 is a sale only of the 

taxpayer’s interest in the property—any equity over and above outstanding 

mortgages and liens. Belgard v. United States, 232 F. Supp. 265, 269 (W.D. 

La. 1964) (seizure and sale under section 6335 had no effect on taxpayer’s 

indebtedness to Small Business Administration). 

The third type of exception consists of statutes authorizing or directing the 

disposal of a particular piece of property in accordance with specified 

standards or procedures set forth in those statutes. GSA calls these 

“special statutes,” and recognizes that they are not governed by title 40. 

41 C.F.R. § 102-75.110. GAO considered one example in B-194482, June 15, 

1979. The U.S. Fire Administration, Department of Commerce, had been 

authorized to purchase, and did purchase, a site for a National Academy for 

Fire Prevention and Control. When problems developed over the use of 

that site, Congress enacted legislation authorizing the Fire Administration 

to sell it, deposit the proceeds in a special account, and apply those funds 

to the acquisition of a new site. Pub. L. No. 95-422, § 4, 92 Stat. 932, 933 

(Oct. 5, 1978). Applying two principles of statutory construction—(1) the 

specific governs over the general, and (2) if there is any inconsistency, the 

later enactment controls—and noting GSA’s treatment of “special statutes,” 
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GAO concluded that the Fire Administration could dispose of the site 

without regard to the requirements of title 40.

Potentially eligible recipients of federal property can differ depending on 

which disposal authority applies. This occasionally leads to litigation 

focusing on the interplay between the basic title 40 provisions and other 

statutory authorities. Two recent decisions provide examples.

In National Law Center on Homelessness & Poverty v. Veterans 

Administration, 98 F. Supp. 2d 25 (D.D.C. 2000), the plaintiffs sought to 

acquire a former federal courthouse under a section of the McKinney 

Homeless Assistance Act, 42 U.S.C. § 11411, that, in essence, gives a 

priority to homeless assistance for excess and surplus property going 

through the title 40 disposition process. GSA maintained, however, that the 

property at issue was not “excess” or “surplus” for purposes of title 40. 

According to GSA, the property was subject to disposal under an entirely 

distinct statutory provision, 40 U.S.C. § 1304(a),228 which authorizes GSA to 

sell to state or local governments “obsolete” buildings that are being 

replaced with new structures. Thus, the title 40 excess and surplus 

property disposition authorities, along with the McKinney Act priority 

attached to them, were inapplicable. The court agreed with the plaintiffs 

on the basis of what it described as the Property Act’s “preemption 

provision.” Now 40 U.S.C. § 113(a), this provision was at the time of the 

National Law Center decision 40 U.S.C. § 474(c) (2000) and it stated in 

relevant part: “The authority conferred by this Act shall be in addition to 

and paramount to any authority conferred by any other law and shall not be 

subject to the provisions of any law inconsistent herewith.” The court held 

that there was a clear conflict between section 1304(a) and the title 40 

excess and surplus property disposition provisions read in conjunction 

with the McKinney Act. Therefore, by virtue of then 40 U.S.C. § 474(c), the 

latter provisions took precedence.229

228 Formerly 40 U.S.C. § 345b.

229 Interestingly, the current (codified) version of 40 U.S.C.§ 474(c) is 40 U.S.C. § 113(a), 

quoted previously, which refers to “the authority conferred by this subtitle” rather than the 

authority conferred by the Property Act. By virtue of the codification, the excess and 

surplus property disposition provisions as well as the “obsolete” property disposition 

provision at issue in National Law Center (then 40 U.S.C. § 345b, now 40 U.S.C. § 1304(a)) 

all are in subtitle I of title 40.
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Shawnee Tribe v. United States, 423 F.3d 1204 (10th Cir. 2005), concerned a 

potential conflict between 40 U.S.C. § 523 and a “special statute” of the type 

described previously. Section 523 requires that excess property located 

within the reservation of a federally recognized Indian tribe be transferred 

without compensation to the Secretary of the Interior to be held in trust for 

that tribe. The Shawnee Tribe sought to enforce this provision in the case 

of an excess military installation known as the Sunflower Army 

Ammunition Plant. GSA determined, however, that section 523 did not 

apply because the installation was not within the current boundaries of the 

reservation. The tribe appealed to the courts. While the appeal was 

pending Congress enacted section 2841 of the Ronald W. Reagan National 

Defense Authorization Act for Fiscal Year 2005, Pub. L. No. 108-375, 

118 Stat. 1811, 2135 (Oct. 28, 2004), which provided in part:

“The Secretary of the Army, in consultation with the 

Administrator of General Services, may convey to an entity 

selected by the Board of Commissioners of Johnson County, 

Kansas . . . a parcel of real property . . . containing the 

Sunflower Army Ammunition Plant. The purpose of the 

conveyance is to facilitate the re-use of the property for 

economic development and revitalization.”

GSA argued that the enactment of section 1841 and the Army’s 

determination to proceed with the authorized conveyance superseded 

40 U.S.C. § 523 and nullified any claim to the property that the tribe may 

have had under section 523. The tribe countered that section 523 took 

precedence over the authorization act provision, relying on the same 

provision as the plaintiffs in National Law Center, 40 U.S.C.§ 113(a), 

formerly 40 U.S.C. § 474(c).

Unlike the outcome in National Law Center, however, the court sided with 

GSA in this case:

“[T]he Shawnee Tribe reads . . . § 113(a) to mean that the 

Property Act trumps any other inconsistent grant of 

authority, including § 2841, and therefore that § 523 still 

governs this case.

“However, the language of § 113 does not compel this 

reading. Instead, the phrase ‘in addition to any other 

authority’ suggests the opposite—that § 523 does not 

preempt other laws.”
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Shawnee Tribe, 423 F.3d at 1214 (emphasis in original). The court held that 

section 113—

“stand[s] for the relatively unremarkable proposition that 

the Property Act trumps any pre-existing laws not 

specifically excluded by § 113 when it was re-enacted in 

2002, but that the Congress is, of course, free to change the 

Property Act’s coverage in the future by any act enacted 

after March 31, 2002. Thus, § 2841 of the 2005 National 

Defense Authorization Act, which was passed in October of 

2004, suspends the Property Act’s applicability in this case 

as it gives discretion to dispose of this particular property to 

the Secretary of the Army.”

Id. at 1216.

3. Use by Nongovernment 

Parties 

a. Leasing and Concessions (1) Outleasing in general

The government acquires property in order to perform its own functions, 

not for use by nongovernment parties. Nevertheless, there are situations in 

which it is clearly desirable to permit use by nongovernment parties, either 

in support of the primary government purpose or as an alternative to letting 

the property sit idle. 

Leasing is a form of disposal for purposes of the Property Clause, and is 

therefore a function of Congress. Ashwander v. Tennessee Valley 

Authority, 297 U.S. 288, 331 (“This power of disposal was early construed 

to embrace leases”). See also United States v. Gratiot, 39 U.S. (14 Pet.) 526 

(1840); 50 Comp. Gen. 63 (1970); 14 Comp. Gen. 169 (1934); B-191943, 

Oct. 16, 1978; 34 Op. Att’y Gen. 320, 322 (1924). Accordingly, a federal 

agency needs statutory authority in order to “outlease” (lease governmentowned property to nongovernment parties) property under its control. 

Naturally, when and if Congress grants such authority, it may also impose 

conditions on it. E.g., Light v. United States, 220 U.S. 523, 536 (1911) 

(United States “can prohibit absolutely or fix the terms on which its 

property may be used”). 
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One question is how specific the authority needs to be. A 1978 GAO study 

found instances where agencies treated the authority to lease as incident to 

more general statutory authority giving them custody and control over 

certain space. See GAO, Government Space Leased to Commercial 

Activities by Agencies Other Than the General Services Administration,

LCD-78-337 (Washington, D.C.: Oct. 13, 1978). GAO drew no legal 

conclusions in the cited report because the issue had been raised in a 

pending lawsuit. That lawsuit produced Globe, Inc. v. Federal Home Loan 

Bank Board, 471 F. Supp. 1103 (D.D.C. 1979), in which the court held that 

the General Services Administration (GSA) possessed long-term 

commercial outleasing authority, but not the former Federal Home Loan 

Bank Board. While Globe certainly supports the proposition that specific 

authority is required, it was based in part on provisions of the Board’s 

enabling legislation and the extent to which it applies to all agencies has 

not been addressed. 

In any event, those agencies most likely to have the need to engage in 

outleasing have the necessary statutory authority. GSA’s authority is found 

in several provisions of title 40, United States Code. Under 40 U.S.C. 

§ 581(d)(1),230 GSA may lease federal building sites, including 

improvements, at a “fair rental value,” until they are needed for 

construction purposes. While this at first blush may seem like fairly shortterm authority, a site may not be needed for construction for decades. E.g.,

B-168096, Aug. 5, 1974 (site had been leased to commercial parking 

operators since 1930s). GSA is also authorized to lease space to “a person, 

firm, or organization engaged in commercial, cultural, educational, or 

recreational activities,” as defined in 40 U.S.C. § 3306(a), at rates equivalent 

to the prevailing commercial rate for comparable space. 40 U.S.C. § 581(h). 

Also, 40 U.S.C. § 1303(b)231 authorizes GSA to lease certain excess property 

outside the District of Columbia for periods of up to 5 years. 

The military departments are authorized to outlease nonexcess property 

under their control that is not needed for public use at the time, for terms 

of up to 5 years. 10 U.S.C. § 2667. The purpose of this provision is “to 

enable property not immediately needed to be leased in such a manner that 

it will be utilized with as few changes as possible in order that the property 

could immediately be put back into operation in the event of an 

230 Formerly 40 U.S.C. § 490(a)(13).

231 Formerly 40 U.S.C. § 304a.
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emergency.” City of San Francisco v. United States, 443 F. Supp. 

1116, 1122 (N.D. Cal. 1977), aff’d, 615 F.2d 498 (9th Cir. 1980), citing S. Rep. 

No. 80-626 (1947). The military departments have had some form of 

outleasing authority since 1892. See 8 Comp. Gen. 632 (1929). Under this 

authority, military departments have leased real property for grazing 

purposes (56 Comp. Gen. 655 (1977)) and agricultural purposes (B-174833, 

Mar. 10, 1972). They have leased water treatment and transmission 

facilities to local water districts which could, after supplying the needs of 

the military reservation, sell the remaining capacity. B-162141, Oct. 18, 

1967. They have used the authority of 10 U.S.C. § 2667 to permit former 

owners of property acquired by the government to remain as lessees until 

the property is needed for project requirements. 52 Comp. Gen. 300 

(1972).232 And they have used it to grant rent-free use, except for 

maintenance and service charges, to other government agencies. B-119724-

O.M., Apr. 25, 1955. 

Leasing authority under 10 U.S.C. § 2667 continues to exist until there has 

been a final determination that the property is excess. B-188246, May 17, 

1978 (preliminary or conditional determination does not terminate the 

authority). However, it does not apply to property which usage inescapably 

shows to be excess notwithstanding the absence of a formal determination. 

B-118030, July 23, 1954.

The Small Business Administration is authorized to rent (or sell) any real 

property acquired in connection with its loan programs. 15 U.S.C. 

§ 634(b)(3); United States v. Schwartz, 278 F. Supp. 328, 330 (S.D.N.Y. 

1968). Other agencies with specific outleasing authority include the Coast 

Guard (14 U.S.C. § 93(a)(13)), the National Aeronautics and Space 

Administration (42 U.S.C. § 2473(c)(3)) the National Science Foundation 

(42 U.S.C. § 1870(e)), the Bureau of Land Management (43 U.S.C. 

§ 1732(b)), the Postal Service (39 U.S.C. § 401(5)), the Internal Revenue 

Service (26 U.S.C. § 7506(c)), and GAO (31 U.S.C. § 782). 

We saw earlier in this chapter that the rights and obligations of the parties 

are determined mostly under federal law when the government is the 

lessee. The court in United States v. Morgan, 196 F. Supp. 345 (D. Md. 

1961), aff’d, 298 F.2d 255 (4th Cir. 1962), applied the same principle where 

the government was the lessor. In another case, however, the United States 

232 When the government does this, the rent it may charge “shall not exceed the fair rental 

value of the property to a short-term occupier.” 42 U.S.C. § 4651(6).
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successfully brought an unlawful detainer action under a state law which 

provided for the recovery of double rent. United States v. Hall,

463 F. Supp. 787 (W.D. Mo. 1978), aff’d, 588 F.2d 1214 (8th Cir. 1978). 

The disposition of income received from outleasing varies considerably. 

The only safe generalization is the one that applies to all government 

receipts under 31 U.S.C. § 3302(b): the money must be deposited in the 

Treasury as miscellaneous receipts unless the agency has statutory 

authority for some other disposition. In the area of property leases, this 

rule is reinforced by 40 U.S.C. § 1302,233 (money derived from the rental of 

buildings shall be deposited in the Treasury as miscellaneous receipts). 

There are, however, a number of statutory exceptions. Rent received by 

GSA under the subsections of 40 U.S.C. § 581 cited above is deposited in 

the Federal Buildings Fund. 40 U.S.C. §§ 581(d)(3) and (h)(3). Rent 

received by military departments under 10 U.S.C. § 2667 is deposited in a 

special account in the Treasury to be available, as specified in 

appropriation acts, for purposes specified in the statute. 10 U.S.C. 

§ 2667(d). A special account is also authorized for income received by 

GAO from renting space in the GAO headquarters building, the receipts to 

be available as specified in appropriation acts, for maintenance, operation, 

and repair of the building. 31 U.S.C. § 782. 

Many other situations are governed by specific statutory provisions. For 

example, rent received by the Corps of Engineers “for rental of plant 

owned by the Government in connection with the prosecution of river and 

harbor works” shall be credited to “the appropriation to which the plant 

belongs.” 33 U.S.C. § 559. This includes the revolving fund established by 

33 U.S.C. § 576. B-129718-O.M., Jan. 3, 1957. Several types of lease income 

are subject to distribution formulas which allocate the receipts, with 

varying degrees of complexity, among a combination of state and federal 

purposes. Examples are: 

• The Mineral Leasing Act of 1920 and the Mineral Leasing Act for 

Acquired Lands, 30 U.S.C. §§ 191 and 355. 

• Income received by the Forest Service from activities in the national 

forests. 16 U.S.C. §§ 499 and 500. 

233 Formerly 40 U.S.C. § 303b.
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• Grazing statutes such as the Taylor Grazing Act, 43 U.S.C. § 315i, and 

43 U.S.C. § 1181d relating to certain lands in California and Oregon. See

B-203771, Jan. 13, 1982. 

(2) 40 U.S.C. § 1302

A question that once generated considerable controversy is whether the 

“rent” for a lease of government property could include things other than 

money, such as making repairs or alterations to the property. Opinions 

split among predictable lines. GAO took the position that rent should be in 

the form of money only, on the grounds that anything else would amount to 

a circumvention of the miscellaneous receipts requirement. 8 Comp. 

Gen. 632 (1929); A-38658, July 15, 1932. The executive branch countered 

that the authority to lease necessarily implied the authority to agree to 

forms of consideration other than money. 36 Op. Att’y Gen. 282 (1930). 

Congress entered the fray by enacting section 321 of the Economy Act of 

1932, Pub. L. No. 72-212, 47 Stat. 382, 412 (June 30, 1932), now codified at 

40 U.S.C. § 1302, as follows: 

“Except as otherwise specifically provided by law, the 

leasing of buildings and property of the Federal Government 

shall be for a money consideration only. The lease may not 

include any provision for the alteration, repair, or 

improvement of the buildings or property as a part of the 

consideration for the rent to be paid for the use and 

occupation of the buildings or property. Money derived 

from the rent shall be deposited in the Treasury as 

miscellaneous receipts.” 

The Senate Appropriations Committee explained the provision as follows: 

“The enactment of this section will put a stop to the more or 

less general practice which has been adopted of including as 

a part of the rental consideration provisions in the lease that 

the tenant shall make certain repairs, alterations, or 

improvements to public property. By this method 

improvements are made on public property which may or 

may not be authorized by law, and indirectly there is an 

expenditure of funds which should be covered into the 

Treasury as miscellaneous receipts.” 
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S. Rep. No. 72-556, at 14–15 (1932), quoted in 41 Comp. Gen. 493, 495 

(1962). This did not mean that Congress would be unwilling to consider 

exceptions, merely that it wanted to reserve to itself the power to decide 

what those exceptions should be. 

GAO has held that the statute should apply to any arrangement that creates 

essentially the same legal relationship as a lease regardless of what it is 

called. 42 Comp. Gen. 650 (1963); 41 Comp. Gen. 493 (1962). In 49 Comp. 

Gen. 476 (1970), an agency had employees working in two nearby 

buildings, one government-owned and one leased. A private parking 

operator was charging commercial rates to park in the leased building. The 

agency wanted to equalize parking costs for its employees, and proposed to 

have the private concern operate parking facilities in both buildings “as a 

single facility” at a uniform rate. The decision concluded that “the 

contemplated agreement . . . while couched in terms of management 

services, [amounted to] conferring an interest in Federal property, a 

leasehold interest from which revenues are derived, in contravention of 

40 U.S.C. [§ 1302].” Id. at 478. 

In B-162986, May 1, 1968, GAO considered a Forest Service proposal for a 

graduated rate fee system, based on a percentage of sales, to be used for 

national forest special use permits for commercial enterprises (e.g., ski 

area operators). Recognizing the relationship of returns to investment, the 

decision nevertheless concluded that “it would be an unwarranted 

extension of section 321 to view it as inhibiting any consideration of the 

permittee’s investment for the purpose of determining the fair amount of 

fees to be charged.” B-162986, at 4. GAO applied the same approach more 

than 20 years later in 70 Comp. Gen. 597 (1991), finding that user fees 

charged by the Interstate Commerce Commission to carriers for computer 

equipment installed by the carriers at ICC headquarters were 

unobjectionable under 40 U.S.C. § 1302. 

As noted, Congress has been willing to grant exceptions from 40 U.S.C.

§ 1302 when considered desirable. For example, under 10 U.S.C. 

§ 2667(b)(5), outleases by military departments— 

“may provide, notwithstanding section 1302 of title 40, or 

any other provision of law, for the alteration, repair, or 

improvement, by the lessee, of the property leased as the 

payment of part or all of the consideration for the lease.” 
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Within this framework, the exception permits “extraordinary as well as 

ordinary items of maintenance.” B-145738-O.M., Jan. 18, 1962, at 4. It is a 

good idea for the government to reserve the right to approve repairs and 

restoration since the leased property still belongs to the government. 

B-163784, May 2, 1968. 

The statute talks about alteration or repair “of the property leased.” 

Therefore, it does not authorize a lease of one parcel with the lessee 

agreeing to construct a facility for the government’s use on a separate and 

unleased parcel. B-205685, Dec. 22, 1981. Since the proposal was not 

within the exception of 10 U.S.C. § 2667(b)(5), it was prohibited by 

40 U.S.C. § 1302. Also prohibited by section 1302 was a proposal to lease a 

civilian housing area on Guam to a private concern for an annual rental of 

one dollar plus operation and maintenance of the housing. 27 Comp. 

Gen. 543 (1948). 

As the language of 40 U.S.C. § 1302 requires, exceptions must be specific. 

The authority to enter into leases “on such terms and conditions as the 

[agency head] deems appropriate” is not enough. B-117919, Feb. 5, 1954; 

B-140397-O.M., Aug. 20, 1959. The structure of 10 U.S.C. § 2667, for 

example, bears this out. Section 2667(a) authorizes the Secretary of a 

military department to lease property “upon such terms as he considers 

will promote the national defense or be in the public interest”; 

section 2667(b)(5) then provides the specific exemption from 40 U.S.C. 

§ 1302. General authority was enough in B-159719, Mar. 30, 1972, because it 

was clear that Congress was aware of, and had sanctioned, the activity. 

That case involved concession agreements with the Federal Aviation 

Administration for various support facilities at Washington National 

Airport. 

Some other specific exceptions are 16 U.S.C. § 3b (National Park Service), 

38 U.S.C. §§ 8122(a)(1) and 8201(e) (Department of Veterans Affairs), 

42 U.S.C. § 1544 (Department of Housing and Urban Development with 

respect to housing acquired or constructed under the National Housing 

Act), and 42 U.S.C. § 2473(c)(11) (National Aeronautics and Space 

Administration). 

(3) Concessions

The government uses concession agreements in a wide variety of situations 

to support, directly and indirectly, its use of government facilities. Some, 

such as cafeterias or dry cleaning facilities, are found in public buildings. 
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The major portion in terms of numbers occur on recreational lands 

managed by the Park Service, Forest Service, Fish and Wildlife Service, and 

Bureau of Land Management. GAO studies in the early 1990s found that 

there were approximately 9,000 concession agreements. See GAO, Federal 

Lands: Improvements Needed in Managing Short-Term Concessioners,

GAO/RCED-93-177 (Washington, D.C.: Sept. 14, 1993); Federal Lands: 

Improvements Needed in Managing Concessioners, GAO/RCED-91-163 

(Washington, D.C.: June 11, 1991). The same studies noted that there is no 

single statute authorizing or regulating concessions, and therefore no 

uniformity as to their use. 

GAO has long espoused the view that “the operation of a concession 

utilizing Government-owned facilities constitutes a valuable privilege for 

which the Government should be compensated and that contractual and 

other arrangements relating to the establishment and operation of such 

activities should be subject to existing statutory provisions governing 

public contracts.” 41 Comp. Gen. 493, 495 (1962). See also B-129352, 

Jan. 23, 1957. The most common manifestation of this principle has been 

the finding that income an agency receives from a concession should be 

deposited in the Treasury as miscellaneous receipts unless the agency has 

statutory authority to do something else. E.g., 7 Comp. Gen. 806 (1928); 

A-51624, Mar. 25, 1944; A-95642, Nov. 18, 1943; A-95642, Mar. 19, 1943. 

A related issue is the extent to which 40 U.S.C. § 1302 applies to concession 

agreements. The following passage from 41 Comp. Gen. 493, 495 (1962) 

illustrates GAO’s general approach: 

“For all practical purposes if a concession gives a 

concessioner the exclusive right to the use of real property 

his rights are identical with [those] of a lessee and the 

relation of landlord and tenant is created. If the right is not 

exclusive the occupant is a mere licensee. The relationship 

of persons under such circumstances is primarily a question 

of fact . . . . If exclusive possession or control of the 

premises or a portion thereof is granted, even though the 

use is restricted by reservations, the instrument or 

agreement will be considered to be a lease and not a 

license.” 

That case involved National Park Service concessions. The Park Service 

uses concessioners to “provide innumerable goods and services including 

food, lodging, gasoline and souvenirs. Concession activity in the national 
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parks is a thriving business which is becoming increasingly dominated by 

large corporate concessioners.” National Parks & Conservation 

Association v. Kleppe, 547 F.2d 673, 675–76 (D.C. Cir. 1976) (footnotes 

omitted). Originally, the Justice Department had concluded that the Park 

Service was not authorized to permit concessioners to withhold part of 

their annual fees for deposit to a special fund to finance construction work. 

41 Op. Att’y Gen. 127 (1953). The 1962 decision quoted above, 41 Comp. 

Gen. 493, also found 40 U.S.C. § 1302 applicable to certain Park Service 

concession contracts. A few years later, in 1965, Congress enacted the 

National Park System Concessions Policy Act, Pub. L. No. 89-249, 79 Stat. 

969 (Oct. 9, 1965). Section 7 of that Act provides a specific exemption from 

40 U.S.C. § 1302 for the National Park Service. That exemption is now 

codified at 16 U.S.C. § 5962.

Section 6 of Public Law 89-249 gave a concessioner who acquired or 

constructed improvements a “possessory interest” in those improvements, 

consisting of “all incidents of ownership except legal title” which, of 

course, remained in the United States. This provision recognized the 

government’s reliance on concessioners within the national parks, and was 

designed to give them a property interest which they could encumber in 

order to obtain construction financing. It also permitted encumbrance to 

enable a new concessioner to finance the purchase of an existing 

concession. 57 Comp. Gen. 607 (1978). The current law, 16 U.S.C. § 5954, 

provides a “leasehold surrender interest” for concessioners who construct 

capital improvements and retains special rules for concessioners who 

acquired possessory interests under the earlier provision.

In 64 Comp. Gen. 217 (1985), GAO reviewed the concession contract 

between GSA and Guest Services, Inc. (GSI), which operated cafeterias in 

government buildings in Washington. While GSA charged rent to the tenant 

agency for the space the cafeteria occupied, it did not charge rent to GSI. 

The contract required GSI to establish a reserve in its accounting system 

for the purchase and replacement of equipment. Thirty years earlier, in 

35 Comp. Gen. 113 (1955), GAO had found a somewhat similar arrangement 

to be in violation of 40 U.S.C. § 1302. That contract, however, had required 

the concessioner to actually transfer funds into a bank account, whereas 

the new reserve was “a mere bookkeeping entry in the internal accounts of 

GSI.” 64 Comp. Gen. at 219. Also, the agreement was more of a license 

than a lease. Id. at 220–21. Accordingly, and in view of the “historically 

unique nature” of the GSA-GSI agreement, GAO concluded that there was 

no violation of 40 U.S.C. § 1302. Id. at 221. 
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b. Granting of Revocable 

License 

A question that arose with great frequency during the early decades of the 

twentieth century was the extent to which the government could grant a 

license, as opposed to a lease, to use government-owned property. 

Through a large number of cases before both the Attorney General and the 

Comptroller General, the following rule developed: 

“[T]he head of a Government department or agency has 

authority to grant to a private individual or business a 

revocable license to use Government property, subject to 

termination at any time at the will of the Government, 

provided that such use does not injure the property in 

question and serves some purpose useful or beneficial to the 

Government itself.” 

B-164769, July 16, 1968, at 1–2. The rationale is that a revocable license is 

not a property interest, and the granting of such a license is not a “disposal” 

for purposes of the Property Clause. Therefore, specific statutory authority 

is not required. The most comprehensive discussion occurs in what is 

probably the leading case on the subject, 34 Op. Att’y Gen. 320 (1924). Said 

the Attorney General: 

“It is plain that the intent of the Constitutional provision was 

to prevent alienation of the title, ownership, or control of 

Government property, whether real or personal, without 

Congressional sanction. That is the evil which was intended 

to be avoided, and no construction beyond that intent 

should be imposed on the prohibition unless clearly implied, 

especially when it would lead to unreasonable and 

unforeseen results.” 

34 Op. Att’y Gen. at 323. 

A GAO decision discussing many of the early Attorney General opinions is 

22 Comp. Gen. 563 (1942). If a revocable license or permit is not a property 

interest for purposes of the Property Clause, it is equally not a property 

interest for purposes of the Fifth Amendment. Therefore, termination does 

not trigger a constitutional right to compensation. E.g., Acton v. United 

States, 401 F.2d 896 (9th Cir. 1968), cert. denied, 393 U.S. 1121 (1969); 

Osborne v. United States, 145 F.2d 892 (9th Cir. 1944). 

Based on application of the rule, the following activities were found 

authorized: 
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• Cultivation of crops on land on which Federal Communications 

Commission radio monitoring stations were located. 22 Comp. 

Gen. 563 (1942). Permitting the cultivation would not only produce 

money for the Treasury but would also help reduce fire hazards by 

controlling the growth of grass and weeds. 

• Use of government research space and facilities by university faculty 

and graduate students. 36 Comp. Gen. 561 (1957). 

• Seminar at the United States Merchant Marine Academy. B-168627, 

May 26, 1970. 

• Rock concert on the grounds of the National Institutes of Health. 

B-168527, Nov. 19, 1970.234

• Use of government-owned land by railroads. 30 Op. Att’y Gen. 470 

(1915); 22 Op. Att’y Gen. 240 (1898). The Attorney General cautioned 

the agency in the 1915 opinion to make sure what it was granting was 

really revocable “practically speaking, whatever it might be in form.” 

30 Op. Att’y Gen. at 483. 

A more recent case is B-191943, Oct. 16, 1978. The question was the extent 

to which the Bureau of Land Management (BLM) could make BLM space 

available to a commercial firm to microfilm public documents. The firm 

planned to use the documents to provide a filing service for mining claim 

holders, and also intended to sell copies of the microfilmed documents to 

the public. If the first purpose were the only use to be made of the 

property, the proposal would have been permissible under the revocable 

license rule. The second purpose was more problematic, however, because 

BLM had a duty under the law to provide copies of the documents to the 

public for a reasonable fee and should either perform the task itself or 

contract out for it under the procurement laws. Because it was not realistic 

to distinguish between the governmental and the private or commercial 

purposes, GAO concluded BLM should not grant the license. 

The rule applies to personal property as well as real property. 47 Comp. 

Gen. 387 (1968); 44 Comp. Gen. 824 (1965). GAO found a proposal 

unacceptable in 25 Comp. Gen. 909 (1946) because the arrangement would 

234 The decision does not specify what was the “purpose useful or beneficial to the 

government,” but we are sure there was one.
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have the effect of permanently vesting beneficial ownership of the 

government property in a private contractor and would have resulted in a 

diminution of government control beyond that contemplated in the typical 

revocable license. The proposal was subsequently amended and, as 

amended, approved in B-57383, Feb. 25, 1947. While 25 Comp. Gen. 909 

involved personal property, the principle would, of course, be fully 

applicable to real property. In a similar vein is 38 Comp. Gen. 36 (1958), 

disapproving a proposal to permit a private utility company to install 

connections in a government-owned natural gas line because, under the 

proposed arrangement, the company would relinquish its rights only if it 

failed to acquire a right to purchase natural gas from the government.

A statute in this area is 40 U.S.C. § 581(h)(2),235 added by the Public 

Buildings Cooperative Use Act of 1976, Pub. L. No. 94-541, § 104(a), 90 Stat. 

2505, 2506 (Oct. 18, 1976). It authorizes the General Services 

Administration to— 

“make available, on occasion, or to lease at a rate and on 

terms and conditions that the Administrator considers to be 

in the public interest, an auditorium, meeting room, 

courtyard, rooftop, or lobby of a public building to a person, 

firm, or organization engaged in cultural, educational, or 

recreational activity . . . that will not disrupt the operation of 

the building.” 

The terms “cultural,” “educational,” and “recreational” are defined in 

40 U.S.C. § 3306. GSA’s implementing regulations are found at 41 C.F.R. 

§§ 102-74.460–102-74.560. Permits may not be issued for more than 

30 calendar days, but they are renewable upon submission of a new 

application. Id. § 102-74.485. Permits are generally free of charge, and this 

includes the normal level of services that would be provided to the building 

during the times of permit use. Services over and above this level must be 

reimbursed, but GSA may waive reimbursement if the cost is 

“insignificant.” Id. §§ 102-74.535–102.74-540. 

4. Adverse Possession The term “adverse possession” refers to a process whereby one can obtain 

title to someone else’s property by “exclusive, hostile, open, and notorious” 

235 Formerly 40 U.S.C. § 490(a)(17).
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possession for a period of time. See Black’s Law Dictionary 59 (8th ed. 

2004). With respect to property owned by the United States, the situation is 

different. The quiet title statute, 28 U.S.C. § 2409a, provides that “[n]othing 

in this section shall be construed to permit suits against the United States 

based upon adverse possession.” 28 U.S.C. § 2409a(n). In addition, 

28 U.S.C. § 2415(c) provides that “[n]othing herein shall be deemed to limit 

the time for bringing an action to establish the title to, or right of 

possession of, real or personal property.” The “herein” refers to the various 

statutes of limitations on suits brought by the government. Thus, the 

government cannot be sued on an adverse possession theory, and there is 

no time limit on a suit by the government to eject a trespasser or “adverse 

possessor.” Therefore, as many courts have noted, no one can acquire title 

to government property by adverse possession. E.g., Sea Hunt, Inc. v. 

Unidentified Shipwrecked Vessel or Vessels, 221 F.3d 634, 642 (4th Cir. 

2000), cert. denied, 531 U.S. 1144 (2001); United States v. Pappas, 814 F.2d 

1342, 1343 n.3 (9th Cir. 1987); Sweeten v. Department of Agriculture,

 684 F.2d 679, 682 (10th Cir. 1982); United States v. Santos, 878 F. Supp. 

1359, 1362 (D. Guam 1993). As the Supreme Court stated in United 

States v. California, 332 U.S. 19, 40 (1947) (footnote omitted): 

“The Government, which holds its interests here as 

elsewhere in trust for all the people, is not to be deprived of 

those interests by the ordinary court rules designed 

particularly for private disputes over individually owned 

pieces of property; and officers who have no authority at all 

to dispose of Government property cannot by their conduct 

cause the Government to lose its valuable rights by their 

acquiescence, laches, or failure to act.” 

There is a limited statutory exception, the Color of Title Act, 43 U.S.C. 

§§1068–1068b.236 The law was enacted in 1928 to enable persons, mostly in 

the western states, to acquire title to property upon which they resided and 

which turned out, upon being surveyed, to be government land.237 There 

are two classes of claimants. The first is a person who has possessed the 

land in good faith and under claim or color of title for more than 20 years, 

236 Act of December 22, 1928, ch. 47, § 1, 45 Stat. 1069. A very few similar statutes are also on 

the books, but they have extremely limited application, for example, 43 U.S.C. §§ 177 and 

178, applicable only to certain lands in New Mexico

237 See M.H. Schwarz, Comment, A Practitioner’s Guide to the Federal Color of Title Act,

20 Nat. Resources J. 681 (1980).
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and who has either made valuable improvements to the land or placed part 

of it under cultivation. 43 U.S.C. § 1068(a). The second is a person who 

possesses the land in good faith and who can trace a “chain of possession” 

back to at least January 1, 1901, and who has paid state or local property 

taxes on that land. Id. § 1068(b). A claimant, by applying in accordance 

with Interior Department regulations (43 C.F.R. part 2540), can purchase up 

to 160 acres, with mineral rights reserved to the United States. 43 C.F.R.

§ 2540.0-3(a). 

The statute sets a price of “not less than $1.25 per acre.” Under the 

regulations, the price is fair market value at the time of appraisal, reduced 

to reflect value resulting from improvements or development by claimants 

or their predecessors, and giving consideration to “the equities of the 

applicant.” 43 C.F.R. § 2541.4(a). 

A statutory condition for both classes of claimants is that the land be held 

in good faith. Under the regulations, knowledge that the land is owned by 

the United States precludes a finding of good faith. This has been upheld as 

a reasonable interpretation. Day v. Hickel, 481 F.2d 473, 476 (9th Cir. 1973). 

Until Interior determines that an application meets the statutory 

requirements, the applicant does not have a vested property interest, 

merely a priority to purchase. Cavin v. United States, 956 F.2d 1131 

(Fed. Cir. 1992) (applicant cannot maintain inverse condemnation suit). 

It has been stated that land which has been withdrawn from the public 

domain “is not subject to the Color of Title Act because it is already 

appropriated for other purposes.” Beaver v. United States, 350 F.2d 4, 10 

(9th Cir. 1965), cert. denied, 383 U.S. 937 (1966). Since all public domain 

lands have been “withdrawn” at least to some extent, perhaps it is more 

accurate today to say that the statute does not apply to land which has been 

withdrawn from the public domain and reserved to some use or uses. E.g., 

United States v. Vasarajs, 908 F.2d 443, 446 n.4 (9th Cir. 1990) (Color of 

Title Act not applicable to land on military reservation). 
Page 14-1 GAO-08-978SP Appropriations Law—Vol. III

Chapter 14

Claims against and by the Government

A. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-2

B. History of Claims Settlement . . . . . . . . . . . . . . . . . . . . . . . . . 14-2

C. Claims against the Government. . . . . . . . . . . . . . . . . . . . . . 14-10

1. Overview and Sources of Claims Settlement Authority . . . . . . 14-10

a. Legislative Claims Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . 14-12

(1) Congressionally sponsored bills . . . . . . . . . . . . . . . . . . . 14-12

(2) Congressional reference cases . . . . . . . . . . . . . . . . . . . . . 14-15

(3) Meritorious Claims Act . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-16

b. Judicial Claims Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-18

c. Administrative Claims Settlement . . . . . . . . . . . . . . . . . . . . . . 14-20

2. Source of Payment of Claims against the Government . . . . . . . 14-29

a. Legislatively Settled Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-29

b. Judicially Settled Claims: the Judgment Fund . . . . . . . . . . . . 14-30

(1) Origins and overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-31

(2) Availability and limitations . . . . . . . . . . . . . . . . . . . . . . . . 14-34

c. Administratively Settled Claims . . . . . . . . . . . . . . . . . . . . . . . . 14-44

3. Whom and What to Pay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-49

a. To Whom Agencies Should Make Payment . . . . . . . . . . . . . . 14-49

b. Amounts Payable in Addition to the Principal Amount . . . . 14-51

(1) Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-51

(2) Costs and attorneys fees . . . . . . . . . . . . . . . . . . . . . . . . . . 14-63

(3) Deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-70

D. Claims by the Government: Debt Collection . . . . . . . . . . 14-73

1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-73

2. The Government’s Duty and Authority to Collect Debts 

Owed to It . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-74

3. Debt Collection in a Nutshell . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-77

4. Common Appropriations Law Issues Associated with Debt 

Collection Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-78

a. Diminishing Returns and Cost/Benefit Considerations . . . . . 14-78

b. Disposition of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-79

(1) The general rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-79

(2) Statutory exceptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-80

(3) Refund exception . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-81

c. Accountable Officer Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-82
Page 14-2 GAO-08-978SP Appropriations Law—Vol. III

Chapter 14

Claims against and by the Government Chap1etr

A. Introduction Volume III of the second edition of Principles of Appropriations Law 

discussed the basic legal authorities and concepts dealing with claims 

asserted by and against the United States. Among other things, those 

chapters addressed: (1) the administrative settlement of monetary claims 

against the federal government; (2) the settlement and payment of claims 

against the government that found their way into the courts; and (3), where 

the shoe is on the other foot, the collection by the federal government of 

claims (also known as “debts”1

) owed to it.

Since the second edition was published, Congress has amended many of 

the laws addressed in Volume III. GAO no longer has governmentwide 

jurisdiction over the administrative settlement of claims against the United 

States, and Congress transferred to the Treasury Department GAO’s 

Judgment Fund and debt collection responsibilities. However, the exercise 

of these responsibilities has appropriations law consequences. This 

chapter discusses these responsibilities in that context.2

B. History of Claims 

Settlement

The United States, as sovereign, cannot be sued without its consent.3 

Neither may the funds, property, or rights of the federal government be 

given away without its consent.4

 The United States gives its consent (or, to 

be more precise, waives its sovereign immunity) only by clear and explicit 

legislative acts.5

 Thus, claims against the United States may not be 

1 See, e.g., 31 U.S.C. § 3701(b)(1); 31 C.F.R. § 900.2(a).

2

 Because Volume III of the second edition provides a useful history of case law in these 

areas, it will remain available on GAO’s Web site, www.gao.gov. For the reasons provided 

herein, GAO will not update that volume, however, and it should not be viewed as a 

statement of current law. Also, it should not be confused with Volume III of the third 

edition, which updates Volume IV of the second edition; it neither updates, supersedes, nor 

replaces Volume III of the second edition. 

3 E.g., United States v. Sherwood, 312 U.S. 584 (1941).

4 E.g., Bausch & Lomb Optical Company v. United States, 78 Ct. Cl. 584, 607, cert. denied, 

292 U.S. 645 (1934); B-307767, Nov. 13, 2006; B-276550, Dec. 15, 1997; B-159292, July 7, 1988.

5 E.g., B-276550, Dec. 15, 1997; 67 Comp. Gen. 271, 273 (1988). In Franconia Associates v. 

United States, 536 U.S. 129, 141 (2002), quoting United States v. King, 395 U.S. 1, 4 (1969), 

the Supreme Court observed, “A waiver of sovereign immunity of the United States ‘cannot 

be implied but must be unequivocally expressed.’” See also United States v. Mitchell, 

445 U.S. 535, 538 (1980); United States v. Mescalero Apache Tribe, 518 F.2d 1309 

(Ct. Cl. 1975); cert. denied, 425 U.S. 911 (1976).
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approved, whether judicially or administratively, and appropriated funds 

(or other resources) may not be used to satisfy claims against the United 

States, unless there is constitutional and/or statutory authority that both 

allows the claim to be pursued and makes funds (or other resources) 

available for that purpose.6

 Similarly, absent statutory authority, the 

officers and agents of the government have no authority to waive (or fail to 

pursue) rights that have accrued to the United States or to modify existing 

contracts to the detriment of the United States without adequate legal 

consideration or a compensating benefit. B-276550, Dec. 15, 1997; 

67 Comp. Gen. 271, 273 (1988).

In the earliest days of the republic, Congress reserved to itself a very large 

role in the audit and settlement of claims.7

 In 1775, the Continental 

Congress established the first of a number of congressional committees to 

examine and report claims and accounts of and against the government for 

congressional approval or disapproval.8

 During the war for independence, 

the task of settling the government’s claims and accounts grew as the war 

effort dragged on.9

 To help cope with the volume, Congress established 

committees and authorized them to organize administrative offices and 

staffs for support.10 In this way, Congress sought to “put some of the 

6 E.g., 17 Comp. Gen. 931 (1938). See also 22 Op. Off. Legal Counsel 127 (1998). Over the 

years, Congress has waived much of its sovereign immunity by enacting a broad range of 

legal remedies, both judicial and administrative, governing claims against the federal 

government. These include, to name only a few, the Tucker Act (28 U.S.C. §§ 1346(a)(2), 

1491(a)(2)), the Federal Tort Claims Act (28 U.S.C. §§ 1346(b), 2671–2680), the Military 

Claims Act (10 U.S.C. § 2733), the Federal Employees Compensation Act (5 U.S.C. ch. 81), 

Military Personnel and Civilian Employees Claims Act (31 U.S.C. § 3721), and the Contract 

Disputes Act (41 U.S.C. §§ 601–613). Thus, while sovereign immunity is still a rule of law in 

the United States, it applies to a smaller universe than it did in the early years of the republic 

or even a century ago. 

7 Cf., e.g., Office of Personnel Management v. Richmond, 496 U.S. 414, 430 (1990) 

(“Congress’ early practice was to adjudicate each individual money claim against the United 

States, on the ground that the Appropriations Clause forbade even a delegation of individual 

adjudicatory functions where payment of funds from the Treasury was involved.”).

8

 Roger Trask, Defender of the Public Interest: The General Accounting Office, 1921–1966, 

2–5 (1996) (hereafter Trask).

9 Id. at 4.

10 Id. at 2–3; Frederick C. Mosher, The GAO: The Quest for Accountability in American 

Government, 20 (1979) (hereafter Mosher); Harvey C. Mansfield, The Comptroller General: 

A Study in the Law and Practice of Financial Administration, 24–26 (1939) (hereafter 

Mansfield).
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increasing burden of details on officials responsible to it [Congress] but not 

a part of it.”11 The end of the war did not bring about an end to the need for 

these committees or the administrative offices they relied upon. As a 

result, the Congress of the Confederation continued to rely upon them and 

various reincarnations of them until the ratification of the U.S. Constitution 

in 1798.12 Beginning in 1781, for a time, Congress abolished its 

congressional committees and substituted in their place the Office of the 

Superintendent of Finance.13 Later in the same year, Congress replaced the 

other preexisting administrative offices with a comptroller, a treasurer, a 

register, auditors, and clerks.14 Three years later, in 1784, the Office of the 

Superintendent of Finance was itself abolished and the congressional 

committees were reauthorized and reconstituted in its place.15

With the ratification of the Constitution and its establishment of the federal 

executive branch came the need to revisit how the government’s interests 

were being managed. In 1789, early in its first session, the new United 

States Congress considered and enacted, piece by piece, James Madison’s 

proposal16 to establish three departments, Foreign Affairs,17 War,18 and 

Treasury.19 (During this same period, Congress also considered and 

enacted the beginnings of what would eventually become a fourth 

department (Justice) when it authorized the appointment of the first 

Attorney General.20) Although Congress left the balance of the 

organizational structure and other specifics of the Foreign Affairs and War 

Departments for the executive branch to work out, Congress enacted a 

11 Trask, at 4.

12 Id. at 5; Mosher, at 21. 

13 Mosher, at 21.

14 Id.

15 Id.

16 Mosher, at 23; Mansfield, at 27.

17 Act of July 27, 1789, ch. 17, 1 Stat. 28 (later renamed the Department of State).

18 Act of August 7, 1789, ch. 7, 1 Stat. 49 (later renamed the Department of Defense).

19 Act of September 2, 1789, ch. 12, 1 Stat. 65.

20 Act of September 24, 1789, ch. 20, § 35, 1 Stat. 73, 92–93. The Justice Department itself 

was not established until 1870. Act of June 22, 1870, ch. 150, § 1, 16 Stat. 162.
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much longer and more detailed statute for the Treasury Department. It has 

been observed that “[a]t no point was suspicion of government more 

definitely written into law and practice than in the management of federal 

finance.”21 This suspicion, grounded in the colonies’ experience with 

British financial practices, gave birth to a deep and abiding congressional 

desire to maintain close control over the nation’s money.22 In the Treasury 

Department act, Congress specifically addressed the structure of the 

department, creating a system of checks and balances within the agency by 

authorizing and prescribing the precise duties and relationships of each of 

six high-ranking officers within the Treasury Department.23 These officers 

were the “Secretary of the Treasury, to be deemed head of the department, 

a Comptroller, an Auditor, a Treasurer, a Register, and an Assistant to the 

Secretary of the Treasury.”24 

Pursuant to the act establishing the Treasury Department in 1789, claims 

and accounts were settled in the department.25 The Auditor examined 

them and the Comptroller approved or disapproved the Auditor’s findings.26 

Under the act creating the department, the Comptroller’s duties included 

adjusting and preserving public accounts, as well as examining all accounts 

settled by the Auditor.27 In 1817, Congress gave settlement authority to the 

Treasury Department, providing that “all claims and demands whatever, by 

the United States or against them, and all accounts whatever, in which the 

United States are concerned, either as debtors or as creditors, shall be 

settled and adjusted in the Treasury Department.”28 The Treasury 

Department’s claim settlement philosophy was simple and straightforward:

21 Leonard D. White, The Federalists: A Study in Administrative History, 323 (1948). 

22 Id.

23 1 Stat. at 65–67. 

24 1 Stat. 65.

25 Id.

26 Mansfield, at 36.

27 1 Stat. 66–67.

28 Act of March 3, 1817, ch. 45, § 2, 3 Stat. 366. This provision, as amended, is now codified in 

31 U.S.C. §§ 3526, 3702.
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“The accounting officers have jurisdiction to settle, except 

where otherwise provided by statute, any and all claims 

against the Government, of whatever kind or description 

that may be presented to them for settlement, and they have 

the power to allow any legal claim that is supported by 

evidence fully showing the liability of the Government for 

the amount claimed or allowed.”

21 Comp. Dec. 134, 138 (1914) (emphasis in original). Where the facts were 

disputed and required the taking of testimony and the weighing of 

conflicting evidence, the department’s auditors and comptrollers accepted 

the government’s version of the facts and disallowed the claim, or only 

allowed it to the extent of the government’s agreement on the matter. Id. 

See also, e.g., 18 Comp. Dec. 649 (1912); 5 Comp. Dec. 273 (1898). Initially, 

the auditors and comptrollers were comfortable paying allowed claims 

from the general, lump-sum appropriations.29 Before long, however, 

Congress began specifying with particularity the uses for each 

appropriation, and claims that were allowed for which no funds were 

legally available had to wait for further appropriations. 22 Comp. Dec. 37 

(1915) (insufficiency of appropriation to pay all of the claims allowed 

dictated that additional appropriations be sought rather than simply 

prorating payment using the funds actually available). At that time, where 

claims were disallowed by the auditors and comptrollers, the only means 

by which to appeal the disallowance was to petition Congress.30

By 1855, the workload generated by petitions to Congress for 

appropriations to pay claims against the government had become 

burdensome and unwieldy. See, e.g., Belt’s Executrix v. United States, 

15 Ct. Cl. 92, 106 (1879) (“Claimants . . . had no remedy except through 

Congress.”). For this reason, Congress established the Court of Claims to 

hear all monetary claims based upon a law, a regulation, or a federal 

government contract.31 Initially, however, the Court of Claims was a “court 

29 Darrell Heavenor Smith, The General Accounting Office—Its History, Activities, and 

Organization, 83 (1927).

30 Note, The Distinction Between Legislative and Constitutional Courts, 43 Yale L. J. 316, 

317 (1933).

31 Act of February 24, 1855, ch. 122, § 1, 10 Stat. 612. See also Glidden Co. v. Zdanok, 

370 U.S. 530, 552–53 (1962) (the Court of Claims “was created . . . primarily to relieve the 

pressure on Congress caused by the volume of private bills”); 43 Yale L. J. at 317.
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only in name.”32 The court lacked the authority to issue binding decisions,33

and its role was “purely advisory” in nature.34 The court’s establishment 

paralleled the earlier congressional practice of establishing administrative 

offices to process claims and report them for congressional 

consideration.35

However, as the Supreme Court noted, by the end of 1861 “it was apparent 

that the limited powers conferred on the [Court of Claims] were 

insufficient to relieve Congress from the laborious necessity of examining 

the merits of private bills.” Glidden Co. v. Zdanok, 370 U.S. 530, 553 

(1962). In his State of the Union message of 1861, President Lincoln 

recommended that the Court of Claims be empowered to issue final 

decisions as a true court of the United States.36 In 1863, Congress accepted 

Lincoln’s proposal and authorized the court to issue binding decisions. Act 

of March 3, 1863, ch. 92, § 5, 12 Stat. 765, 766. Even then, however, the 

finality of awards issued by the Court of Claims was immediately drawn 

into question based on a statutory provision that, according to the Supreme 

Court, authorized the Treasury Department to review and decline to 

enforce Court of Claims decisions. Glidden, 370 U.S. at 569. Based on its 

interpretation of that provision, the Supreme Court declined to hear 

appeals from the Court of Claims. Gordon v. United States, 117 U.S. 697 

(1864). Congress then repealed the offending provision, and the Supreme 

Court agreed to hear appeals from the Claims Court. Glidden, 370 U.S. 

at 554, citing Act of March 17, 1866, ch. 19, § 1, 14 Stat. 9. During this same 

time, the agency heads and some of the Attorneys General began asserting 

the right to overrule the findings of the comptrollers. Smith, at 38. In 1868, 

32 Note, The Court of Claims: Judicial Power and Congressional Review, 46 Harv. L. 

Rev. 677, 679 n.15 (1933). See Williams v. United States, 289 U.S. 553, 565 (1933) 

(“originally nothing more than an administrative or advisory body, [that was later] converted 

into a court, in fact as well as in name”). See also Nourse v. United States, 2 Ct. Cl. 214 

(1866), citing Ferriera v. United States, 54 U.S. [13 How.] 40 (1851).

33 10 Stat. at 614 (court’s opinions become “conclusive” only if “confirmed by Congress”).

34 46 Harv. L. Rev. at 679. See also Glidden, 370 U.S. at 552 (“As an innovation the court was 

at first regarded as an experiment, and some of its creators were reluctant to give it all the 

attributes of a court by making its judgments final; instead, it was authorized to hear claims 

and report its findings of fact and opinions to Congress, together with drafts of bills 

designed to carry its recommendations into effect.”).

35 See text accompanying notes 7 and 8, supra.

36 Cong. Globe, 37th Cong., 2nd Sess. (1862), app. at 2.
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Congress declared that the certified determinations of the Treasury 

Department’s auditor and comptroller “shall be taken as final and 

conclusive upon the executive branch of the government.” Act of 

March 30, 1868, ch. 36, 15 Stat. 54. 

In 1921, Congress, to establish an independent administrative claims 

settlement process, enacted the Budget and Accounting Act, creating GAO 

and transferring to it from the Treasury Department, among other things, 

the authority to administratively and conclusively settle and adjust all 

claims of and against the United States, and to superintend the recovery of 

all debts owed to the United States. Pub. L. No. 67-13, §§ 304, 305, 312, 

42 Stat. 20, 24–26 (June 10, 1921). Also, GAO was to report to Congress and 

the Justice Department on requests for appropriations to pay judgments. 

Id. § 304. See, e.g., 34 Comp. Gen. 221, 223 (1954). The transfer of these 

and other related authorities to GAO was intended to “strengthen the 

control of Congress over the expenditure of funds [by means of] a 

legislative agency independent of the administration and responsible 

directly to Congress.”37

Over the years, GAO picked up additional authorities and responsibilities 

that were related in one fashion or another to settling claims. For example, 

in 1928, Congress enacted legislation, known as the Meritorious Claims 

Act, which charged GAO to report to Congress claims against the 

government that, in the opinion of the Comptroller General, could not be 

paid under existing law but that Congress, for legal or equitable reasons, 

should consider paying. Pub. L. No. 70-217, 45 Stat. 413 (Apr. 10, 1928), 

codified at 31 U.S.C. § 3702(d). Also, Congress later assigned to GAO the 

duty to certify payments from the so-called “Judgment Fund,” a permanent, 

indefinite appropriation for the satisfaction of judgments, awards, and 

compromise settlements against the United States, 31 U.S.C. § 1304(a)(2) 

(1994), and the responsibility to prescribe, jointly with the Justice 

Department, the debt collection regulations known as the Federal Claims 

Collection Standards, 4 C.F.R. parts 101–104 (1994).

In the 1990s, however, Congress transferred a number of these duties to 

other agencies. The Legislative Branch Appropriations Act, 1996, 

transferred some of these functions to the Office of Management and 

Budget (OMB), including the general authority to settle claims of and 

against the United States. Pub. L. No. 104-53, § 211, 109 Stat. 514, 535 

37 Smith, at 62. See also Pub. L. No. 67-13, § 301; Mosher, at 48–51.
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(Nov. 19, 1995), 31 U.S.C. § 501 note. Congress authorized OMB to delegate 

the transferred functions to other agencies.38 Accordingly, OMB made the 

following delegations:

• OMB delegated the settlement of federal employee claims for 

compensation and leave, and settlement of deceased employees’ 

accounts, to the Office of Personnel Management, Office of General 

Counsel, Claims Adjudication Unit;

• OMB delegated the settlement of federal employee claims for travel, 

transportation, and relocation expenses and allowances to the General 

Services Administration (GSA) Board of Contract Appeals;

• OMB delegated the settlement of claims for military personnel pay, 

allowances, travel, transportation, retired pay, and survivor benefits, 

and final settlement of the accounts of such personnel, to the 

Department of Defense Office of Hearings and Appeals;

• OMB delegated Judgment Fund payments and setoffs against such 

payments to the Judgment Fund Group of the Treasury Department’s 

Financial Management Service;

• OMB delegated the settlement of transportation carrier requests for 

review of GSA audit actions on their bills to the GSA Board of Contract 

Appeals; and

• OMB delegated the settlement of transportation carrier disputes over 

collections against them for loss and damage incurred in government 

shipments to the Department of Defense Office of Hearings and 

Appeals.39

38 Pub. L. No. 104-53, § 211. A 1997 GAO memorandum to departments and agencies 

describes in detail the statutory functions transferred to OMB by Public Law 104-53, as well 

as the delegations that OMB had made as of that date. B-275605, Mar. 17, 1997. While claims 

settlement was transferred from GAO, GAO’s account settlement authority was not altered. 

Compare Pub. L. No. 104-53, § 211, and 31 U.S.C. §§ 3526, 3529. See also B-275605; 

Chapter 1, section C.2.

39 See OMB, Determination with Respect to Transfer of Functions Pursuant to Public 

Law 104-53 (June 28, 1996), available at www.whitehouse.gov/omb/foia/gc_June 28.pdf

(last visited June 10, 2008); B-275605, Mar. 17, 1997.
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In the following year, Congress enacted the General Accounting Office Act 

of 1996, which made conforming amendments to the United States Code 

reflecting the transfers of functions and OMB’s delegations. Pub. L. 

No. 104-316, 110 Stat. 3826 (Oct. 19, 1996). This act also transferred from 

GAO to the Treasury Department the authority to assume the collection of 

debts on behalf of other agencies and the responsibility to prescribe 

(jointly with the Justice Department) the Federal Claims Collection 

Standards, now found in 31 C.F.R. parts 900–904. Id. § 115(g). 

GAO no longer has governmentwide jurisdiction over the administrative 

settlement of claims against the United States (31 U.S.C. § 3702), no longer 

shares in supervising the collection of debts owed to the government 

(31 U.S.C. § 3711), and no longer certifies payments from the Judgment 

Fund (31 U.S.C. § 1304). GAO is still charged by law to administratively 

settle the accounts of the United States. See 31 U.S.C. §§ 3526–3530. The 

exercise of the claims settlement functions has appropriations law 

consequences40 and consequences for accounts settlement; that is what this 

chapter addresses.

C. Claims against the 

Government

1. Overview and Sources 

of Claims Settlement 

Authority

The question of what is a claim was long ago answered by the Supreme 

Court in Hobbs v. McLean, 117 U.S. 567 (1886). The Court said: 

“What is a claim against the United States is well 

understood. It is a right to demand money from the United 

States . . . which can be presented by the claimant to some 

department or officer of the United States for payment, or 

may be prosecuted in the court[s].”

40 See Smith, at 82, quoting GAO Letter of January 28, 1927 (“the question is not so much a 

settlement of claims as determination of availability of appropriations”). See also Harts 

Case, 16 Ct. Cl. 459, 484 (1880), aff’d, Hart v. United States, 118 U.S. 62 (1886) (“Auditing 

and accounting are but parts of a scheme for payment.”).
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Hobbs, 117 U.S. at 575. See also Page v. United States, 49 Fed. Cl. 521, 530 

(2001). Any federal program that involves the disbursement of funds can 

generate claims.

As a result, claims routinely arise in areas covered by other chapters of 

Principles. Claims against the United States originate under a variety of 

sources and circumstances. For example, Chapter 4 discusses legal 

limitations that constrict the purposes to which appropriated funds may be 

applied. A claim relevant to Chapter 4 might involve, for example, the 

application of statutory restrictions that preclude active duty and retired 

military members from receiving retired pay during any period that they are 

employed by a foreign government or its instrumentalities. See, e.g., 

53 Comp. Gen. 753 (1974) (a retired U.S. Air Force colonel was barred from 

receiving retirement pay from the U.S. government because he was 

effectively employed by an Israeli company). Assistance programs, 

discussed in Chapters 10 and 11, often generate claims arising from the 

application of program restrictions: restrictions that define the eligibility 

of applicants for assistance, or perhaps the total amount of funds available 

to the agency for distribution under the program. E.g., 1 Comp. Gen. 429 

(1922) (claims for tuition grants to Native American children enrolled in 

Montana public schools). Another example would be situations, discussed 

in Chapter 9, under which accountable officers become obligated to 

reimburse the government for unlawful expenditures of appropriated funds 

that they disbursed or certified. See, e.g., 70 Comp. Gen. 463 (1991) 

(accountable officer held liable for certifying overpayments in a travel 

voucher).

Some claims are authorized directly by the Constitution. For example, 

where construction work on government land (or land controlled by the 

government) causes the land of another person to be flooded permanently, 

the other person’s land is considered “taken” and the government must pay 

“just compensation” under the Fifth Amendment of the U.S. Constitution. 

E.g., B-173971, Oct. 27, 1971. Contractual relationships often generate 

claims against the government. A contract is a legal instrument from which 

legal rights, duties, and obligations flow. See, e.g., Black’s Law Dictionary 

341 (8th ed. 2004). A federal agency has the inherent power to enter into 

contracts in the execution of its duties. E.g., United States v. Tingey, 

30 U.S. (5 Pet.) 115, 127–28 (1831). While many (if not most) government 

contract claims are now governed by the Contract Disputes Act, 41 U.S.C. 

§§ 601–613, there is authority for the proposition that agencies have 

inherent authority, as an incident to the power to enter into contracts, to 

settle at least certain types of contract claims. See United States v. Corliss 
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Steam-Engine Co., 91 U.S. 321 (1875); Brock & Blevins Co. v. United 

States, 343 F.2d 951 (Ct. Cl. 1965); Cannon Construction Co. v. United 

States, 319 F.2d 173 (Ct. Cl. 1963).

There is a fairly large universe of claims statutes that serve a wide range of 

functions. Some establish the authority to settle certain types of claims in 

situations where that authority would not otherwise exist. A prime 

example of this is the Federal Tort Claims Act, 28 U.S.C. ch. 171. Others, 

the Contract Disputes Act for example, do not necessarily establish the 

right to file claims but nevertheless provide a statutory basis for claims and 

set out procedures for addressing claims. Some, as the two statutes cited, 

are governmentwide. Many others are agency specific. One example is 

31 U.S.C. § 3724, which authorizes the Attorney General to settle civilian 

claims that cannot be settled under the Federal Tort Claims Act.41

The Constitution gives Congress ultimate authority over the disposition of 

the property and resources of the United States. U.S. Const., art. IV, § 3, 

cl. 2 (“The Congress shall have Power to dispose of and make all needful 

Rules and Regulations respecting the Territory or other Property belonging 

to the United States.”). See, e.g., Royal Indemnity Co. v. United States, 

313 U.S. 289, 294 (1941); B-276550, Dec. 15, 1997. Congress has delegated 

some of its authority to the courts, some to the executive branch, and it has 

retained the balance for itself. This discussion examines claims settlement 

authorities as delegated to each of the branches and retained by Congress. 

Appropriated funds are available to pay claims against the government only 

if the government agrees to pay the claim in exercise of appropriate claims 

settlement authority.

a. Legislative Claims 

Settlement

(1) Congressionally sponsored bills

Claims settlement in the federal government derives from the combination 

of congressional waivers of the sovereign immunity of the United States 

and the plenary constitutional authority of Congress over the funds and 

property of the United States.42 In the executive and judicial branches, 

claims settlement is generally limited to dispositions based on legal 

41 Under 31 U.S.C. § 3724(a), the Attorney General is authorized to settle claims for “personal 

injury, death, or damage to, or loss of, privately owned property, caused by an investigative 

or law enforcement officer . . . employed by the Department of Justice acting within the 

scope of employment that may not be settled under [the Federal Tort Claims Act].” 

42 See notes 2–4, supra, and the accompanying text.
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liability, and no court or agency may order or pay taxpayers’ money based 

on a perceived moral obligation, unless so authorized by law.43 Congress, 

however, may choose to legislatively recognize claims based on moral 

obligations or any other bases, as it chooses. Glidden Co. v. Zdanok, 

370 U.S. 530, 567 (1962), citing United States v. Realty Co., 163 U.S. 427 

(1896) (“Congress may for reasons adequate to itself confer bounties upon 

persons and, by consenting to suit, convert their moral claim into a legal 

one enforceable by litigation in an undoubted constitutional court”) 

(emphasis added). See also B-307681, May 2, 2006, at 7 (“it is for Congress 

to decide whether to provide equitable relief”).

The time-honored method of pursuing such claims against the United 

States has been to persuade a member of your state’s congressional 

delegation to sponsor a private relief bill. The power of Congress to 

appropriate funds in this manner is beyond question. The Supreme Court 

said over a century ago:

“Payments to individuals, not of right, or of a merely legal 

claim, but payments in the nature of a gratuity, yet having 

some feature of moral obligation to support them, have 

been made by the government by virtue of acts of Congress 

appropriating the public money, ever since its foundation. 

Some of the acts were based on considerations of pure 

charity.”

43 E.g., Office of Personnel Management v. Richmond, 496 U.S. 414, 429–31 (1990), quoting

Subcommittee on Administrative Law and Governmental Relations of the House Committee 

on the Judiciary, Supplemental Rules of Procedure for Private Claims Bills, 101st Cong. 2 

(Comm. Print 1989):

“As the business of the Federal Legislature has grown, Congress has placed 

the individual adjudication of claims based on the Constitution, statutes, or 

contracts, or on specific authorizations of suit against the Government, with 

the Judiciary. . . . But Congress has always reserved to itself the power to 

address claims . . . founded not on any statutory authority, but upon the claim 

that ‘the equities and circumstances of a case create a moral obligation on the 

part of the Government to extend relief to an individual.’”

See also, e.g., 62 Comp. Gen. 419, 421 (1983), citing 8 Comp. Dec. 582 (1902) (“The claims 

settlement jurisdiction of the ‘accounting officers’ extends only to claims based on legal 

liability and not to claims based on equity or moral obligations.”); B-175670, May 25, 1972, 

at 2 (“[W]e may not consider your claim on equitable grounds since our office is authorized 

only to settle claims based on applicable legal principles, and we may not settle a claim on 

the basis of moral or equitable obligations of the Government.”).
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Realty Co., 163 U.S. at 441. See also Pope v. United States, 323 U.S. 1, 9 

(1944); Merchants National Bank of Mobile v. United States, 5 Cl. Ct. 180, 

209 n.32 (1984); B-156080, Sept. 10, 1965.

In its earliest days, Congress resisted the idea of delegating (to the courts 

or administrative officers) its authority to settle claims against the United 

States. E.g., Judicial Conference of the United States, The United States 

Court of Claims: A History, pt. II, § 1 (1978), at 5, 10–11, reprinted in 

216 Ct. Cl. following XXVIII (1978). Periodically, over time, however, 

concerns over the continually growing number, amount, and complexity of 

claims and private relief legislation that Congress had to consider helped 

convince Congress increasingly to waive sovereign immunity and delegate 

congressional authority to resolve various types of claims against the 

United States. Id.

For example, in proposing what is now known as the Tucker Act, 28 U.S.C. 

§ 1491, Representative Randolph Tucker of Virginia explained that he 

intended his bill to relieve his colleagues and himself of “a large mass of 

private claims which were encumbering our business and preventing our 

discharging our duties to the great public interests of this country.” Id. 

at 39. Courts have described the “overwhelming purpose” of the Federal 

Tort Claims Act as to “reliev[e] Congress of the pressure of private claims” 

and “enable it to devote more time to major public issues.” United States v. 

Yellow Cab Co., 340 U.S. 543, 550–51 (1951). See also Kosak v. United 

States, 465 U.S. 848, 867 (1984); Costo v. United States, 248 F.3d 863, 872 

n.2 (9th Cir. 2001), cert. denied, 534 U.S. 1078 (2002); In re “Agent Orange” 

Product Liability Litigation, 506 F. Supp. 762, 769 (E.D. N.Y. 1980).

Nowadays, Congress has waived federal sovereign immunity for a wide 

range of suits, including those that seek traditional money damages, such 

as the waivers provided by the Federal Tort Claims Act (28 U.S.C. ch. 171) 

and the Tucker Act (28 U.S.C. § 1491). See Department of Army v. Blue 

Fox, Inc., 525 U.S. 255, 260 (1999); Culver v. United States, No. 3:06cv1865 

(M.D. Pa. Oct. 17, 2007). One result of this is that the volume of private 

relief legislation has diminished dramatically. For example, volumes 55 

and 56 of Statutes at Large list 635 private laws enacted by the 77th

Congress in 1941 and 1942. Volumes 81 and 82 of Statutes at Large list 362 

private laws enacted by the 90th Congress in 1967 and 1968. By contrast, 

volumes 113 through 118 of Statutes at Large (together covering the period 

from 1999 through 2004) list only 24 private laws for the 106thCongress and 

6 private laws each for the 107th and 108th Congresses.
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While private relief legislation is often enacted in the form of a stand-alone 

private law, it occasionally takes other forms and appears in other kinds of 

laws. Sometimes it has taken the form of a simple direction in a public law 

to pay a sum of money to a named individual, group of individuals (named 

or unnamed), or some other entity. For example, the National Defense 

Authorization Act for Fiscal Year 1997 directed the Secretary of Defense to 

“make a payment under this section to a[ny] person [or the survivors of a 

person] who . . . was captured and incarcerated . . . as a result of 

[participating] in operations conducted under OPLAN 34A [its predecessor, 

or OPLAN 35].”44 Pub. L. No. 104-201, div. A, title VI, §§ 657(a), 110 Stat. 

2422, 2584–85 (Sept. 23, 1996). See Mattes v. Chairman, Vietnamese 

Commandos Compensation Commission, 173 F.3d 817 (11th Cir. 1999) 

(upholding power of Congress to provide this private relief without judicial 

review). Another form of private relief is a bill relieving someone of 

indebtedness to the government. In the Omnibus Consolidated Rescissions 

and Appropriations Act of 1996, for example, under the heading of “Debt 

Forgiveness,” Congress directed that the Secretary of Housing and Urban 

Development “shall cancel the indebtedness” of three named hospitals 

relating to public facilities loans issued under title II of the Housing 

Amendments of 1955. Pub. L. No. 104-134, § 213, 110 Stat. 1321, 1321-288–

89 (Apr. 26, 1996). Private relief can also take the form of removing a 

jurisdictional bar or waiving some other legal defense. The latter type is 

discussed in United States v. Sioux Nation of Indians, 448 U.S. 371 (1980).

(2) Congressional reference cases

Sometimes, Congress uses a hybrid claims settlement process, known as 

“congressional reference,” to assist its consideration of private relief 

legislation. See 28 U.S.C. §§ 1492, 2509. Under this process, either house of 

Congress can refer a private relief bill (“except a bill for a pension”) to the 

Court of Federal Claims. 28 U.S.C. § 2509(a). The court follows the 

procedures set forth in 28 U.S.C. § 2509 and makes “findings of fact [and] 

conclusions sufficient to inform Congress whether the demand is a legal or 

44 During the Vietnam War, the United States hired commandos to conduct covert operations 

deep inside North Vietnam. Prior to this act, the United States had not acknowledged this 

fact. Mattes v. Chairman, Vietnamese Commandos Compensation Commission, 173 F.3d 

817, 818 n.2 (11th Cir. 1999). The National Defense Authorization Act for Fiscal Year 1997 

authorized the appropriation of $20 million for his purpose, with individual payments 

ranging from $40,000 to $50,000. Pub. L. No. 104-201, §§ 657(c) & (g). The Secretary’s 

determinations under this provision were “final and conclusive,” and judicial review was 

“specifically precluded.” Id. § 657(j).
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equitable claim or a gratuity, and the amount, if any, legally or equitably due 

from the United States to the claimant.” 28 U.S.C. § 2509(c). See Office of 

Personnel Management v. Richmond, 496 U.S. 414, 431 (1990); B-187806, 

Jan. 11, 1979 (discussing Congressional Reference Case No. 1-72, Arizona 

Insurance and Investment Co. v. United States (Oct. 29, 1976)). The basic 

purpose of the congressional reference process is “to provide judicially 

determined facts to the Congress for its use in deciding whether or not 

certain private claims warrant legislative relief.” Zadeh v. United States, 

111 F. Supp. 248, 251 (Ct. Cl. 1953).

Essentially, a congressional reference case is conducted as a trial with one 

judge of the Court of Federal Claims serving as a “hearing officer” and three 

other judges serving as a reviewing body. 28 U.S.C. § 2509(a). There is a 

plaintiff (usually the party seeking relief) and a defendant (often the United 

States). One example of a congressional reference case is Land Grantors 

in Henderson, Union, and Webster Counties, Kentucky v. United States, 

77 Fed. Cl. 686 (2007). See also INSLAW, Inc. v. United States, 40 Fed. 

Cl. 843 (1998). Congressional reference cases are not subject to judicial 

review. 28 U.S.C. § 2509(b). Rather, the report goes back to the house of 

Congress that requested it. Id. § 2509(e). According to the Court of 

Federal Claims, nowadays, these cases are “relatively rare.” Wolfchild v. 

United States, 77 Fed. Cl. 22, 28 (2007).

(3) Meritorious Claims Act

In 1927, GAO recommended that Congress enact legislation authorizing 

GAO to report claims against the government that could not be paid under 

existing law but that Congress should consider paying for legal or equitable 

reasons. GAO, Annual Report of the Comptroller General of the United 

States for the Fiscal Year Ended June 30, 1927 (Washington, D.C.: 1927), 

at 9–11. This legislation, known as the Meritorious Claims Act,45 is codified 

at 31 U.S.C. § 3702(d). Until 1996, the responsibility for submitting these 

meritorious claims to Congress rested exclusively with GAO. However, as 

a result of the transfer and delegation of claims settlement authority 

discussed in section B of this chapter, this responsibility is now widely 

dispersed among the agencies of the federal government. Today, 

section 3702(d) provides: 

45 Pub. L. No. 70-217, 45 Stat. 413 (Apr. 10, 1928).
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“The official responsible . . . for settling the claim shall 

report to Congress on a claim against the Government that 

is timely presented under this section that may not be 

adjusted by using an existing appropriation, and that the 

official believes Congress should consider for legal or 

equitable reasons. The report shall include 

recommendations of the official.”

The Meritorious Claims Act does not authorize agencies to pay claims. See 

22 Op. Off. Legal Counsel 11 (1998). It merely authorizes the submission of 

favorable recommendations to Congress. Congress, using private relief 

bills or otherwise, will have to enact an appropriation to pay the claim if it 

agrees with the agency’s recommendation. Unlike other private relief that 

is championed by a claimant and the claimant’s representatives, private 

relief enacted pursuant to a Meritorious Claims Act recommendation is 

supported by the agency that investigated and adjudicated the claim. 

Presumably, this lends credibility to the claim and makes the congressional 

task easier. See S. Rep. No. 70-684, at 3–4 (1928); H.R. Rep. No. 70-491, 

at 1–4 (1928). For a recent example of this authority in action, see Private 

Law No. 106-6, §§ 1, 2, 114 Stat. 3097 (Oct. 10, 2000). This law directed the 

Treasury Secretary to pay $10,208.74 from funds in the Treasury not 

otherwise appropriated to Akal Security, Inc., for security guard services it 

rendered to the Army in 1991. Id. It also directed that Akal’s liability to the 

government for $57,771.29 previously paid to it for those same security 

services was “hereby extinguished.” Id.

The act filters claims through four conditions that Congress imposed on the 

authority to submit recommendations. First, claims must be “timely 

presented.” 31 U.S.C. § 3702(d). In other words, notwithstanding equitable 

or other considerations, claims that are time-barred by the Barring Act, 

31 U.S.C. § 3702(b), or another more specific statutory or regulatory 

limitation, may not be submitted. 14 Comp. Gen. 324 (1934); B-208290, 

Sept. 7, 1982.

Second, the act stipulates that claims must be presented to “the official 

responsible under subsection (a) for settling the claim.” 31 U.S.C. 

§ 3702(d). This means that the act applies only to claims that an agency 

may settle pursuant to 31 U.S.C. § 3702, which, as discussed below, 

generally empowers agencies to settle claims in situations where there is 

no law that otherwise authorizes them to settle such claims. In 62 Comp. 

Gen. 280 (1983), for example, GAO held that claims cognizable, but denied, 

under the Federal Tort Claims Act (28 U.S.C. ch. 171) or the Military Claims 
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Act (10 U.S.C. § 2733) could not be reported to Congress under the 

Meritorious Claims Act.

Third, this authority does not extend to claims that, if otherwise allowable, 

could be paid from existing appropriations. 31 U.S.C. § 3702(d). For 

example, in B-155149, Oct. 21, 1964, GAO found that the Meritorious Claims 

Act was not the appropriate vehicle to address the claim of an accountable 

officer who had used personal funds to reimburse the government to cover 

a loss of public funds for which the officer was later found not to have been 

responsible. The act did not apply because the officer could have applied 

for relief (and been reimbursed from agency operating appropriations) 

under the applicable accountable officer relief statute.

The fourth condition is that the claim must have legal or equitable merit 

sufficient to warrant special consideration by Congress. 31 U.S.C. 

§ 3702(d). When evaluating whether a claim merits recommendation to 

Congress under this authority, it is important to keep in mind that the act is 

“limited to extraordinary circumstances.” B-259657, Aug. 15, 1995, at 3; 

53 Comp. Gen. 157, 158 (1973). Reportable cases should be of an unusual 

nature that are unlikely to constitute a recurring problem, “since to report 

to the Congress a particular case when similar equities exist or are likely to 

arise with respect to other claimants would constitute preferential 

treatment over others in similar circumstances.” 53 Comp. Gen. at 158. See 

also B-230871.4, June 19, 1996; 63 Comp. Gen. 93, 95 (1983); B-210831, 

Aug. 2, 1983; B-209292, Feb. 1, 1983. Frequently recurring problems are 

better left to general remedial legislation. E.g., 17 Comp. Gen. 720, 724 

(1938).

GAO invoked this act sparingly. Perhaps because of this, Congress enacted 

most of GAO’s recommendations. Of the 53 claims GAO reported in 1928 

through 1930, 51 were enacted; out of 31 submitted between 1948 and 1976, 

28 were enacted. These statistics are drawn from two studies by GAO 

attorneys, B-230950-O.M., Aug. 29, 1988, and B-150882-O.M., Mar. 17, 1977.

b. Judicial Claims Settlement The authority of a federal court to settle a claim derives from a federal 

statute authorizing the court to resolve the dispute or granting it the power 

to review the administrative determination at issue in the case. See, e.g., 

Glidden Co. v. Zdanok, 370 U.S. 530 (1962); Williams v. United States, 

289 U.S. 553, 580–81 (1933). For example, the Fifth Amendment to the 

U.S. Constitution mandates the payment of just compensation for 
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governmental takings of private property,46 so Congress enacted statutes 

designating which courts may hear Fifth Amendment takings claims. E.g., 

28 U.S.C. §§ 1346(a)(2), 1491(a)(1). There are other federal statutes that 

authorize the courts to settle certain claims of and against the United 

States. Examples of these are provisions of the Federal Tort Claims Act 

(28 U.S.C. ch. 171) and 26 U.S.C. § 7433(a) (which allows taxpayers to bring 

lawsuits in response to unauthorized tax collection actions).

Judicial claims settlement also can occur under circumstances and 

pursuant to statutes that are not normally understood to contemplate 

claims settlement, and might even appear to explicitly preclude the 

consideration of monetary claims. In Bowen v. Massachusetts, 487 U.S. 

879 (1988), for example, the state of Massachusetts sued the Secretary of 

the Department of Health and Human Services (HHS) under the 

Administrative Procedures Act (APA), 5 U.S.C. § 702. Massachusetts 

believed that HHS had distributed Medicaid reimbursements to the state 

governments improperly. In court, it claimed that HHS had misinterpreted 

the Medicaid statutes and regulations and owed Massachusetts more 

Medicaid reimbursements. Bowen, 487 U.S. at 888 n.10. One of the issues 

the Court had to deal with in this case was the language of the APA which 

specifically allows claims against the United States for “relief other than 

money damages.” 5 U.S.C. § 702. As a result of this language, claimants are 

not normally allowed to pursue monetary claims under the APA. Bowen, 

487 U.S. at 890–91. See also B-259065, Dec. 21, 1995. In this case the 

Supreme Court concluded, however, that the law does not completely 

foreclose monetary awards as an APA remedy. Bowen, 487 U.S. at 893. As 

the Court noted, neither the APA nor equity authorize courts to consider 

claims against the government for “money damages.” Here, however, the 

Supreme Court distinguished between “money damages” and “money 

judgments.” The latter, it held, may be allowed under the APA and under 

equity when the amount to be awarded represents “injunctive” or “specific” 

relief. Id. at 893–901. See also B-259065, Dec. 21, 1995. Massachusetts 

convinced the Court that the federal government had not properly 

implemented the Medicaid statutes and the Court agreed that an order 

should issue requiring HHS to reverse its denial of the state’s claim—as 

46 “Nor shall private property be taken for public use without just compensation.” 

U.S. Const. amend. V. See Chapter 13, section B.5.b.
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specific relief.47 Bowen, 487 U.S. at 909–11. Thus, as a practical matter, 

while neither the APA nor the Medicaid statutes expressly authorized the 

court to settle monetary Medicaid claims, the process of APA judicial 

review effectively accomplished just that.

c. Administrative Claims 

Settlement

Over 100 years ago, claims settlement was viewed as largely an adversarial 

process. The tenor of the times was captured in the following statement 

made by the Treasury Department’s First Comptroller in 1883: “The 

Auditors and Comptrollers, and the accountants under them, constitute the 

safeguard of the National Treasury, and have to withstand the whole army 

of claimants and their increased clamor.” 4 Lawrence, First Comp. Dec. xix 

(Introduction) (1883) (emphasis omitted).

Claims settlement was much simpler back then. The key claimsauthorizing statutes had not yet been enacted. The absence of applicable 

waivers of sovereign immunity meant that there was no authority for the 

agencies to allow claims against the government.48 Most potential 

claimants lacked access to the courts for the same reason.49 Consequently, 

47 GAO, taking cognizance of Bowen, held that monetary awards made under the APA and 

other equitable authorities should be treated no differently than other monetary awards 

when being considered for payment from the permanent, indefinite appropriation known as 

the Judgment Fund, 31 U.S.C.§ 1304. That, however, did not necessarily make the award 

payable from the Judgment Fund. Rather, GAO said, “to the extent that monetary awards 

made under equitable authorities otherwise satisfy the statutory criteria governing use of 

the Judgment Fund, those awards should be paid in the same manner as other monetary 

awards against the United States.” B-259065, Dec. 21, 1995, at 4–5. See also B-279886, 

Apr. 28, 1998, at 10–11 (the Judgment Fund would not be available to pay a court order 

directing the government to pay the costs of supervising a labor union’s election rerun, 

“even if the court were to award a specific sum equivalent to the actual or anticipated costs 

of supervising the rerun” because such an order “would appear more in the nature of 

injunctive relief, than a monetary award of damages”).

48 Absent an authorizing statute, an agency has no authority to create liability by regulation. 

Illinois Central Railroad Co. v. United States, 52 Ct. Cl. 53, 59 (1917). See also Mitzelfelt v. 

Department of Air Force, 903 F.2d 1293 (10th Cir. 1990); B-201054, Apr. 27, 1981. This 

principle follows logically and directly from the more fundamental principle that “[a]gents 

and officers of the Government have no authority to give away the money or property of the 

United States.” Central Engineering & Construction Co. v. United, 59 F. Supp. 553, 568 

(Ct. Cl. 1945). See also B-159292-O.M., July 7, 1988 (and cases cited), and notes 2–4, supra, 

and accompanying text.

49 Id.
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the possibility of obtaining redress for claims against the government was 

limited.50

The law has undergone a sea change since then. Now, there are many 

statutes that, in varying degrees of detail, waive sovereign immunity and 

bestow authority to administratively entertain claims, as well as case law 

recognizing and fleshing out bases in the law to settle claims in a wide 

variety of contexts and forums. Here is a brief sampler of the many 

authorities available today to administratively settle claims against the 

federal government.

Tort and tort-related claims

• Federal Tort Claims Act, 28 U.S.C. ch. 171.

• Small Claims Act, 31 U.S.C. § 3723.

• Tort claims arising in foreign countries, 28 U.S.C. § 2680(k).

• Unauthorized tax collection actions, 26 U.S.C. § 7433(a).

• The Military Claims Act, 10 U.S.C. § 2733.

• The Foreign Claims Act, 10 U.S.C. § 2734.

• The International Claims Act, 10 U.S.C. §§ 2734a, 2734b.

• Military vehicular claims on government installations, 10 U.S.C. § 2737.

• Federal Employees Compensation Act, 5 U.S.C. §§ 8101–8193.

• Military Personnel and Civilian Employees Claims Act, 31 U.S.C. § 3721.

50 Of course, claimants could petition Congress for private relief legislation (see section B of 

this chapter) and the Fifth Amendment of the U.S. Constitution allowed claims to be 

asserted against the government under certain circumstances (see section C.1.b of this 

chapter). 
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Contract and contract-related claims

• The Contract Disputes Act, 41 U.S.C. §§ 601–613.

• Ratification, 48 C.F.R. § 1.602-3.51

• Bid protests under the Competition in Contracting Act of 1984, 

31 U.S.C. §§ 3551(1), 3552; 4 C.F.R. § 21.2(a).

• Contracts implied-in-law under quantum meruit/quantum valebant, 

see, e.g., B-271163, May 22, 1996; 40 Comp. Gen. 447, 451 (1961).

Miscellaneous claims

• Unclaimed money/property, 31 U.S.C. §§ 1321 and 1322.

• Voluntary creditors rule, see, e.g., Heirs of Emerson v. Hall, 38 U.S. 

(13 Pet.) 409, 412–13 (1839); 4 Comp. Dec. 409, 410 (1898); B-278805, 

July 21, 1999.

• Estoppel, see, e.g., Office of Personnel Management v. Richmond, 

496 U.S. 414 (1990); Perez v. United States, 156 F.3d 1366, 1373 

(Fed. Cir. 1998); B-307681, May 2, 2006; 22 Op. Off. Legal Counsel 127 

(1998).

Some of these authorities allow agencies to settle claims in situations 

where that authority would not otherwise exist. A prime example is the 

Federal Tort Claims Act. Others, such as the Contract Disputes Act, do not 

necessarily create the right to file claims but provide a statutory basis and 

establish procedures for their resolution. Some statutes for the resolution 

51 When a government agent purports to commit the government to a transaction that he or 

she has no actual authority to enter, the government is not legally obligated to honor the 

transaction. B-209132, Oct. 3, 1983. An agency, however, can ratify such an agreement after 

the fact. See Federal Acquisition Regulation (FAR), 48 C.F.R. § 1.602-3. The authority to 

ratify unauthorized transactions and settle the resulting claims has long been recognized by 

the courts and accounting officers of the United States. See, e.g., United States v. Beebe, 

180 U.S. 343 (1901); 22 Comp. Gen. 1083 (1943). To exercise this authority, the ratifying 

official, among other things, must have the authority to enter into the agreement (48 C.F.R. 

§ 1.602-3(c)(2)) and the underlying agreement must be “otherwise proper” (48 C.F.R. § 1.602-

3(c)(3)). For a discussion of this authority, see B-306353, Oct. 26, 2005, in which GAO 

determined that the Architect of the Capitol could use appropriated funds to pay a 

contractor for services rendered pursuant to an unauthorized commitment which the 

Architect of the Capitol had subsequently ratified.
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of claims, such as the two just mentioned, provide authority to most, if not 

all, agencies. Others provide authority to only one agency. For example:

• 31 U.S.C. § 3724—In situations where the Federal Tort Claims Act does 

not apply, the Attorney General may settle claims up to $50,000 for 

personal injury or property damage caused by law enforcement officers 

employed by the Department of Justice.

• 39 U.S.C. § 2008(d)—The United States Postal Service has specific 

authority under the Postal Reorganization Act to settle its own claims. 

See B-179464, Mar. 27, 1974.

• 12 U.S.C. § 1702—The Federal Housing Administration (FHA) has 

specific statutory authority to settle claims against it based on its 

authority to sue and be sued and to determine the character and 

necessity of its expenditures. 53 Comp. Gen. 337 (1973); 27 Comp. 

Gen. 429 (1948).

Authority to settle and adjust claims under 31 U.S.C. § 3702

To the extent that they are not otherwise authorized by law to do so, 

31 U.S.C. § 3702 gives agencies general authority to “settle and adjust” 

claims arising from their operations. Section 3702 is derived from 

legislation dating to 1817. As originally enacted, this authority was not only 

comprehensive but exclusive, providing that “all claims and demands 

whatever, by the United States or against them, and all accounts whatever, 

in which the United States are concerned, either as debtors or as creditors, 

shall be settled and adjusted in the Treasury Department.” Act of March 3, 

1817, ch. 45, § 2, 3 Stat. 366. It was this statute that the Supreme Court was 

construing when it held that the term “settlement,” when used in 

connection with public transactions and accounts, describes the 

“administrative determination of the amount due.” Illinois Surety Co. v. 

United States, 240 U.S. 214, 219 (1916). The claims settlement function 

remained in the Treasury Department until 1921, when it was transferred to 

GAO. As discussed in section B of this chapter, in 1996 the claims 

settlement function was transferred from GAO to the Office of 

Management and Budget (OMB).

The origins and history of this statute are discussed in Lambert Lumber 

Co. v. Jones Engineering & Construction Co., 47 F.2d 74 (8th Cir.), cert. 

denied, 283 U.S. 842 (1931). Before the 1996 transfer of the claims 

settlement function from GAO, the statute provided in relevant part: 
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“Except as provided in this chapter or another law, the Comptroller 

General shall settle all claims of or against the United States Government.” 

31 U.S.C. § 3702(a) (1994). In practice, GAO’s exercise of claims settlement 

authority was not nearly as sweeping as the language suggests. GAO’s 

policy was to leave initial settlement of a claim to the agency from whose 

activities the claims arose. 4 C.F.R. § 31.4 (1996). If the claimant was not 

satisfied with the agency’s disposition, he or she could appeal to GAO. Id. 

Also, an agency could submit a claim to GAO for settlement if the agency 

was unable to resolve it. Id. In addition, an agency official could request 

an advance decision from GAO pursuant to 31 U.S.C. § 3529 on issues 

concerning a claim.52 Thus, the vast majority of claims arising under 

31 U.S.C. § 3702 were actually settled by the agencies concerned. GAO 

claims settlement case law was developed primarily in response to appeals 

from disappointed claimants and requests for decisions from agency 

officials.

The General Accounting Office Act of 1996 amended 31 U.S.C. § 3702(a) to 

reflect the transfer of claims settlement authority from GAO to OMB and 

OMB’s initial delegations of that authority. Pub. L. No. 104-316, § 202(n), 

110 Stat. 3826, 3843 (Oct. 19, 1996). The current version of section 3702(a) 

retains in substance the language that, except as otherwise provided by 

law, “all claims of or against the United States Government shall be settled” 

under it. Section 3702(a) goes on to assign settlement responsibilities as 

follows:

• The Defense Department settles claims involving uniformed service 

members’ pay, allowances, and benefits as well as claims by 

transportation carriers involving amounts collected from them for 

property loss or damage incident to shipments at government expense. 

31 U.S.C. § 3702(a)(1).

• The Office of Personnel Management settles claims involving federal 

civilian employees’ compensation and leave. Id. § 3702(a)(2).

52 The authority to issue decisions with respect to claims is now vested in the head of the 

agency responsible for settling the claim. See 31 U.S.C. § 3529(b)(2)(B) (added by Pub. L. 

No. 104-316, § 204, 110 Stat. 3826, 3845 (Oct. 19, 1996), discussed in section B of this 

chapter). See also B-275605, Mar. 17, 1997. Public Law 104-316 did not transfer, amend, or 

repeal GAO’s authority under 31 U.S.C. § 3529 to issue decisions on matters involving the 

use of appropriations that do not specifically involve settling a claim, or GAO’s authorities 

under 31 U.S.C. §§ 3527 and 3528 to grant relief to disbursing and certifying officers. Id.
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• The General Services Administration settles claims involving federal 

civilian employees’ official travel, transportation, and relocation 

expenses. Id. § 3702(a)(3).

Section 3702(a)(4) left to OMB the responsibility for settling claims not 

otherwise assigned by section 3702(a). As discussed in section B of this 

chapter, OMB has issued a general delegation of this responsibility to each 

individual agency out of whose activity a particular claim arises. See 

B-275605, Mar. 17, 1997, at 3 (referring to OMB’s December 17, 1996, 

general delegation of claims settlement authority to executive branch 

agencies). On May 15, 1997, OMB delegated to legislative and judicial 

branch agencies settlement authority arising out of their activities.53

The reach of 31 U.S.C. § 3702 is subject to a number of conditions and 

restrictions.54 First, section 3702 applies “[e]xcept as provided in this 

chapter or another law.” 31 U.S.C. § 3702(a). Thus, a more specifically 

applicable claims settlement authority will take precedence over 

section 3702. For example, section 3702 does not apply to claims—

• within the scope of the Federal Tort Claims Act (28 U.S.C. ch. 171), 

which makes settlement under that statute “final and conclusive”55

(e.g., B-215494, Sept. 4, 1984);

• involving the United States Postal Service, which has specific authority 

to settle its own claims under the Postal Reorganization Act (B-179464, 

Mar. 27, 1974);

53 Copies of the OMB delegation orders are available at 

www.whitehouse.gov/omb/foia/transfer_gao_auth.html (last visited June 10, 2008).

54 While section 3702 provides an independent administrative claims handling procedure, it 

does not provide an independent basis for paying claims. “Rather, in order for payment of 

the claim to be lawful, there must be independent appropriations authority to pay the 

claim.” 22 Op. Off. Legal Counsel 11, 20 (1998). Identification of the proper appropriation to 

use in order to pay a claim is, in large part, a function of appropriations law. (Note the 

specific appropriations usage directed in 31 U.S.C. §§ 3702(d) and (e)(2).) Payment issues 

are discussed in greater detail later in this chapter.

55 A statutory scheme may be regarded as exclusive even without explicit “final and 

conclusive” language. E.g., Aamodt v. United States, 976 F.2d 691 (Fed. Cir. 1992); Carter v. 

Gibbs, 909 F.2d 1452 (Fed. Cir.), cert. denied, 498 U.S. 811 (1990); 71 Comp. Gen. 374 (1992).
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• involving the District of Columbia government, based in part on its 

status as a separate legal entity (e.g., 1 Comp. Gen. 451 (1922); 

B-168704, Jan. 16, 1970);

• relating to government checks (see generally 31 U.S.C. §§ 3327–3334; 

31 C.F.R. pt. 240); or 

• arising from the operations of government corporations that have the 

authorities to sue and be sued and to determine the character and 

necessity of their expenditures (e.g., 53 Comp. Gen. 337 (1973);

27 Comp. Gen. 429 (1948)).

Second, for purposes of section 3702, a claim is limited to a monetary

claim, that is, a claim for the payment of money. Thus, the statute does not 

permit consideration of nonmonetary claims such as specific performance 

(B-179702, Oct. 10, 1973) or issues involving title to land (19 Comp. 

Gen. 196 (B-1250, Aug. 14, 1939); B-207613, Apr. 6, 1983).

Third, while section 3702 provides for settling claims, it provides only the 

procedural authority to settle claims administratively. Unlike most of the 

statutes noted above, section 3702 does not spell out any substantive 

criteria upon which claims against the government may be allowed by 

agencies. Cf., e.g., Federal Tort Claims Act, 28 U.S.C. ch. 171. 

Consequently, agencies must be able to identify a sufficient, independent, 

substantive basis in the law in order to allow a claim brought under this 

provision. As GAO noted, the agency “performing this function . . . is 

necessarily called upon to construe the laws and regulations which may be 

pertinent to an individual’s claim against the government.”56 60 Comp. 

Gen. 132, 134 (1980).

For example, in B-193987, Feb. 29, 1980, GAO allowed an employee’s claim 

for additional living quarters allowance while the employee was serving 

with the U.S. Customs Service in Hamburg, Germany. GAO noted that the 

Secretary of State had prescribed regulations governing the payment of 

quarters allowances in accordance with 5 U.S.C. § 5923 to qualifying 

individuals defined under 5 U.S.C. § 5922. GAO asserted that 

56 Of course, if the law does not provide an adequate basis for allowing a claim against the 

government, the agency may consider whether the claim should be reported to Congress 

pursuant to the Meritorious Claims Act, 31 U.S.C. § 3702(d). See sections B and C.1.a(3) of 

this chapter.
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section 3702(a) “leaves to the discretion of this Office what evidence is 

required to support such claims.” B-193987, at 2–3. On the other hand, the 

rule of law allowing the claim was derived not from section 3702(a), but 

rather from the State Department’s regulations—“it is these regulations 

which provide the controlling authority in establishing [this employee’s] 

entitlement to a living quarters allowance in the circumstances presented.” 

Id., at 3.

Similarly, in 65 Comp. Gen. 177 (1986), GAO was asked to review under 

section 3702(a) a claim against a Forest Service employee. GAO explained 

that in such cases it engaged in a narrow review of agency actions: GAO 

determined whether the agency asserting a claim against its employee had 

statutory or regulatory authority to do so and then asked whether the 

agency followed that authority in the individual case. In keeping with this 

narrow review, GAO examined the Forest Service regulations and 

compared the agency’s internal reports of the incident giving rise to the 

claim. GAO found that the regulations Forest Service cited in assessing 

this claim specifically contemplated an intentional violation of Forest 

Service regulations. The agency report stated, however, that while carrying 

out his official duties the employee had inadvertently violated the agency’s 

rules. Therefore, GAO concluded, Forest Service had not adequately 

established under its own regulations a legal basis for assessing financial 

liability against the employee. GAO directed that Forest Service cease 

collection.

Finally, claims settlement under section 3702 is subject to a statute of 

limitations imposed in section 3702 itself. 57 With certain exceptions, each 

claim must be “received by the official responsible under subsection 

[3702](a) for settling the claim or by the agency that conducts the activity 

from which the claim arises within 6 years after the claim accrues.” 

31 U.S.C. § 3702(b). This provision is often referred to as the “Barring Act.” 

E.g., Hernandez v. Department of the Air Force, 498 F.3d 1328, 1331 

(Fed. Cir. 2007); B-274195, Oct. 8, 1996. Unless otherwise provided by law, 

57 We are tempted to say that if statutes of limitations did not exist, we would still be 

litigating Revolutionary War claims. We suspect, however, that without a citation, we might 

be accused of exaggerating. So, check out Lunaas v. United States, 936 F.2d 1277 (Fed. Cir. 

1991), cert. denied, 502 U.S. 1072 (1992). Lunaas involved just such a claim, arising from 

loans allegedly made to the Continental Congress during the winter of 1777–78, never 

repaid, and estimated to be worth as much as $140 billion with interest by the time of this 

decision. To make a long story short, the court held that, while there was room for debate 

as to precisely when the claim “accrued” for statute of limitations purposes, it had been 

time-barred under any theory for over a century. Lunaas, 936 F.2d at 1279–80.
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appropriated funds are not legally available to pay claims on which the 

applicable limitation has run.58 See 52 Comp. Gen. 420 (1973).

The Barring Act provides the following special rules:

• When a claim by a member of the armed forces accrues during war or 

within 5 years before war begins, the applicable limitation period is 

5 years after peace is established or the standard 6 years, whichever is 

later.59 31 U.S.C. § 3702(b)(2).

• A claim on a Treasury check is limited to 1 year after issuance of the 

check, but the 1-year limit does not apply to the underlying obligation 

for which the check was issued. 31 U.S.C. § 3702(c).

• The Defense Department may waive the Barring Act for claims (not 

exceeding $25,000) that it is authorized to settle under 

section 3702(a)(1). 31 U.S.C. § 3702(e).

Generally speaking, absent statutory authority, agencies may not waive or 

extend the time allowed by a statute of limitations. E.g., United States v. 

Garbutt Oil Co., 302 U.S. 528, 534–35 (1938); Finn v. United States, 

123 U.S. 227, 233 (1887); Computervision Corp. v. United States, 445 F.3d 

1355, 1367 (Fed. Cir. 2006), cert. denied, __ U.S. __, 127 S. Ct. 2033 (2007). 

See also, e.g., B-197635, June 6, 1980; 22 Op. Off. Legal Counsel 127 (1998). 

58 It is important, however, to be sure to correctly identify the applicable statute of 

limitations. See 29 Comp. Gen. 54 (1949), in which GAO observed that the expiration of the 

statute of limitations for bringing a lawsuit on a claim would not preclude the agency from 

administratively paying that claim so long as the time for administratively settling the 

claim had not expired and funds to pay it were still available at that time.

59 By its terms, this provision applies only to members of the armed forces. And members on 

active duty at that. 59 Comp. Gen. 463 (1980). See also, e.g., Department of Defense 

Instruction No. 1340.21, § E5.6 (May 12, 2004). Therefore, it could not help a civilian 

employee of the Navy Department interned with the crew of the U.S.S. Pueblo in North 

Korea in 1968 who filed a claim for overtime compensation for his internment which was 

not received until after the statute of limitations had expired. B-194474, Oct. 24, 1979. 

Another statutory provision relevant to claims of military personnel is 50 U.S.C. App. § 526 

(formerly 50 U.S.C. App. § 525), which provides that periods of military service shall not be 

included in applying a statute of limitations, whether the claim or cause of action accrued 

prior to or during the service. Decisions applying this provision in various contexts include 

Conroy v. Aniskoff, 507 U.S. 511 (1993), 63 Comp. Gen. 70 (1983), and 41 Comp. Gen. 812 

(1962). 
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The same is true of the Barring Act.60 E.g., 70 Comp. Gen. 292 (1991); 

62 Comp. Gen. 80, 83 (1982); B-249968, Feb. 16, 1993. 

2. Source of Payment of 

Claims against the 

Government

Just because a claim is approved through the claims settlement process 

does not necessarily mean that it can or will be paid. For the claim to be 

paid, appropriated funds must be available for that purpose. Even where a 

court has found a claim to be valid under the law, the claim may not be paid 

unless Congress has enacted an appropriation available for that purpose.61 

In other words, if the claim is settled in favor of the claimant, it still must be 

determined whether (and which) funds have been appropriated and are 

legally available (considering purpose, time, and amount—see Chapters 4, 

5, and 6) to pay it. If so, the payment process may begin. If not, the claim 

may not be paid.

a. Legislatively Settled Claims A private relief act may or may not include an appropriation. The test, as 

described in Chapter 2 for all appropriations, is whether it includes both a 

direction to pay, as opposed to a mere authorization to pay, and a 

designation of the source of funds. A direction to pay without designating 

the source of funds does not constitute an appropriation. 21 Comp. 

Dec. 867 (1915); B-26414, Jan. 7, 1944. Relief acts which do include 

appropriations may specify payment from the funds of a designated agency. 

An example is Private Law No. 97-21, 96 Stat. 2620 (June 1, 1982), directing 

payment “from the applicable appropriations” of named agencies. More 

commonly, however, an act will direct payment by the Secretary of the 

Treasury “out of any money in the Treasury not otherwise appropriated.” 

E.g., Priv. L. No. 108-5, § 1(a), 118 Stat. 4030 (Dec. 3, 2004); Priv. L. 

No. 107-3, § 1, 116 Stat. 3121 (Oct. 4, 2002); Priv. L. No. 107-2, § 1(a), 

60 In Irwin v. Department of Veterans Affairs, 498 U.S. 89 (1990), the Court held that there 

is a “rebuttable presumption” that a statute of limitations is subject to “equitable tolling” in a 

suit against the United States in the same manner as in a suit between private parties. Id. 

at 95–96. The doctrine of “equitable tolling” permits a court to waive a statute of limitations 

based on considerations of equity, such as where the claimant filed a defective pleading 

within the deadline or where the defendant induced the claimant to miss the filing deadline. 

Id. at 96. The Justice Department has opined quite emphatically that congressionally 

imposed limitation periods must be strictly followed in claims settlement and that Irwin 

does not affect this conclusion. 22 Op. Off. Legal Counsel 127 (1998). 

61 Some rights have no remedies. Cf., e.g., Harts Case, 16 Ct. Cl. 459, 483 (1880), aff’d, 

Hart v. United States, 118 U.S. 62 (1886). While rare in modern appropriations law practice, 

this is still true, occasionally. See, e.g., 63 Comp. Gen. 470 (1984) (no appropriation was 

legally available to pay a judgment against the United States). 
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116 Stat. 3119 (Oct. 1, 2002); see also 23 Comp. Dec. 167, 170 (1916). If a 

relief act directs payment by the Secretary of the Treasury “out of any 

money in the Treasury not otherwise appropriated” and does not indicate 

any more specific source of funds for payment, payment is charged to the 

permanent, indefinite account 20X1706 (Relief of Individuals and Others by 

Private and Public Laws) and is made directly by the Treasury Department. 

See B-142380, Mar. 24, 1960 (circular letter); I TFM Announcement 

No. A-2008-03 (Apr. 8, 2008), at A-69.

The amount specified in a private relief act effectively constitutes a “final 

adjudication” and confers no authority to do anything other than pay it in 

accordance with its terms. United States v. Price, 116 U.S. 43 (1885); 

United States v. Jordan, 113 U.S. 418 (1885); 22 Op. Att’y Gen. 295 (1899); 

5 Op. Att’y Gen. 94 (1849). Except for the possibility of bringing the matter 

to the attention of Congress, it must be paid even if it is believed to be 

erroneous. United States v. Louisville, 169 U.S. 249 (1898); 2 Comp. 

Dec. 629 (1896). As the Court of Claims said: “The disposition of public 

money is in the discretion of Congress, and its reasons for passing an act 

and the consideration thereof can not be inquired into nor its will thwarted 

by any executive officers or by the courts.” Mumford v. United States, 

31 Ct. Cl. 210, 215 (1896).

In Chapter 2 we discuss the principle that, except for errors in the amount 

appropriated, obvious clerical or typographical errors in a statute which 

could change the meaning or render execution impossible may be 

disregarded if the intent is clear. This principle applies equally to private 

relief acts. Thus, a relief act appropriating money to pay a claim of Martin 

and P.W. Murphy which erroneously designated the payees as “Martin and 

P.B. Murphy” could be paid to the rightful claimants because the context 

clearly established the B as a clerical error. 18 Op. Att’y Gen. 501 (1886).

b. Judicially Settled Claims: 

the Judgment Fund

A judgment by a federal court, like other claims settlements, may result in 

an award against the government. Without more, however, it cannot be 

paid. The Appropriations Clause of the United States Constitution (art. I, 

§ 9, cl. 7) applies with equal force to payments directed by a court. E.g., 

OPM v. Richmond, 496 U.S. 414, 424–26 (1990).

This section explores how judicial judgments (as well as some other 

awards and settlements against the United States) are paid. Because the 

Appropriations Clause must be satisfied, payment must be prescribed by 

statute. This may take the form of (1) a specific appropriation for a 

particular judgment or judgments, (2) a general appropriation for 
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judgments, or (3) a legislative enactment which makes a preexisting 

appropriation available to make the payment. Until 1956, judgments were 

paid only pursuant to an appropriation specific to a particular judgment. 

Since 1956, most judgments have been paid from the Judgment Fund, 

31 U.S.C. § 1304, a permanent, indefinite appropriation enacted as a source 

of payment for judgments.

(1) Origins and overview

It has long been held that, as a general rule, unless otherwise provided by 

law, agency operating appropriations are not available to pay judgments 

against the United States. E.g., 8 Comp. Dec. 261, 262 (1901); 8 Comp. 

Dec. 145, 149 (1901). Originally, this rule preserved for Congress the 

opportunity to consider the court’s decision and refuse to appropriate 

funds to pay any judgments with which Congress disagreed. On those 

occasions when Congress declined to appropriate funds, the judgment 

creditor was left with a judicially approved claim against the United States 

but received no payment for it. This was (and still is) part and parcel of the 

power of the purse. The courts adjudicate, but only Congress can 

appropriate. This result, however, has rarely happened. In Glidden Co. v. 

Zdanok, 370 U.S. 530, 570 (1962), for example, the Supreme Court noted a 

1933 study which found only 15 instances in a 70-year period in which 

Congress had refused to pay a judgment.

Over time, the process of reviewing and effectively overruling the courts in 

this manner evolved from a luxury to a burden. As sovereign immunity was 

increasingly waived to allow more and more lawsuits against the 

government, the process (in both the executive and the legislative 

branches) of preparing, presenting to Congress, and processing specific 

appropriations to pay final judgments took an increasing and inordinate 

amount of time and resources. In the early 1950s, GAO recommended that 

Congress create a permanent, indefinite appropriation for the payment of 

judgments. That recommendation was designed to expedite judgment 

payments by eliminating the need for specific congressional 

appropriations. It was also intended to save the government money both 

by eliminating the largely ministerial appropriations processes for paying 

judgments and reducing post-judgment interest costs arising from the 

previous payment delays. The proposal was eventually enacted as 

section 1302 of the Supplemental Appropriation Act of 1957, Pub. L. 

No. 84-814, 70 Stat. 678, 694–95 (July 27, 1956). Now codified at 31 U.S.C.

§ 1304, this provision (and the permanent, indefinite appropriation it 

created) is commonly referred to as the “Judgment Fund.”
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In its current form, as set forth in 31 U.S.C. § 1304(a), the Judgment Fund 

constitutes an appropriation of amounts sufficient to pay “final judgments, 

awards, compromise settlements, and interest and costs specified in the 

judgments or otherwise authorized by law” when (1) payment is “not 

otherwise provided for”; (2) payment is certified by the Secretary of the 

Treasury; and (3) the judgment, award, or settlement is payable under the 

following authorities:

• 28 U.S.C. §§ 2414, 2517;

• Federal Tort Claims Act, 28 U.S.C. §§ 2672 (when the amount exceeds 

$2,500; less than that is paid from the concerned agency’s 

appropriation), 2677;

• Small Claims Act, 31 U.S.C. § 3723;

• decisions of boards of contract appeals (subject to reimbursement by 

the contracting agency from current appropriations62), 41 U.S.C. 

§§ 612(a)–(c);

• portions of meritorious claims that exceed the amounts payable by law 

from agency appropriations, 10 U.S.C. §§ 2733 and 2734, 32 U.S.C. § 715, 

and 42 U.S.C. § 2473(c)(13); or

• awards arising from express or implied contracts by certain, specified 

nonappropriated fund instrumentalities subject to reimbursement from 

the activity. 

62 While generally the responsible agencies are not required to reimburse the Judgment 

Fund, this is an example of a statutory exception, which provides that payments made by 

the Judgment Fund “shall be reimbursed to the [Judgment Fund] . . . by the agency whose 

appropriations were used for the contract out of available funds or by obtaining additional 

appropriations for such purposes.” 41 U.S.C. § 612(c). Under a similar example of a 

statutory exception, litigative awards under the Notification and Federal Employee 

Antidiscrimination and Retaliation Act of 2002 (or “NoFEAR,” for short), are paid initially 

from the permanent, indefinite Judgment Fund appropriation, and then, within a reasonable 

time thereafter, the federal agency involved must reimburse the Judgment Fund from its 

operating appropriations. Pub. L. No. 107-174, § 201(b), 116 Stat. 566, 568–69 (May 15, 2002). 

As a result of this law, all awards against federal agencies for discrimination or whistleblowing retaliation against federal employees, former federal employees, or applicants for 

federal employment (including associated attorney fee awards)—whether litigative or 

administrative—are paid from agency operating appropriations, which was one of the main 

goals Congress intended the law to accomplish. S. Rep. No. 107-143, at 1–3, 7–8 (2002).
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31 U.S.C. §§ 1304(a)(3), 1304(c)(1). While the foregoing captures all of the 

items listed in section 1304 itself, Congress sometimes includes a provision 

in other legislation making particular items payable from the Judgment 

Fund. See, e.g., Pub. L. No. 100-202, § 623, 101 Stat. 1329, 1329-428–29 

(Dec. 22, 1987) (amending the Back Pay Act to authorize interest payments, 

in certain cases, from the Judgment Fund).

When enacted in 1956, the Judgment Fund statute required the Comptroller 

General to certify all payments made from the fund. Pub. L. No. 84-14,

§ 1302. In 1996, Congress transferred this function to the Secretary of the 

Treasury.63 Pub. L. No. 104-316, § 202(m), 110 Stat. 3826, 3843 (Oct. 19, 

1996); 31 U.S.C. § 1304. See also 28 U.S.C. § 2414 (federal district court 

awards); 28 U.S.C. § 2517(a) (Court of Federal Claims awards). GAO has 

explained that certifying Judgment Fund payments under section 1304 is 

essentially a “ministerial” function. B-259065, Dec. 21, 1995, at 6. What 

GAO meant by this is that certification under section 1304 does not involve 

reviewing the merits of the awards submitted for payment. As GAO 

learned from its own experience, the certification process does routinely 

entail making some very complicated legal determinations. The need for 

these determinations arises from the restrictions and limitations in the law. 

In other words, the legal availability of the Judgment Fund to pay each 

award depends upon whether the award satisfies these conditions. Some 

of those limitations are specified in section 1304(a) itself, while others 

derive from other specifically applicable statutes or from appropriations 

law, in general.

While GAO no longer certifies payments from this Judgment Fund, GAO 

remains available to assist in determining which appropriations (the 

Judgment Fund or agency appropriations, if any) should be used to make 

any particular payment. As already noted, the Judgment Fund is a 

permanent, indefinite appropriation. GAO’s authorities under 31 U.S.C. 

§§ 3526 (to settle accounts) and 3529 (to issue decisions on matters 

involving the use of appropriations that do not specifically involve settling 

a claim) apply equally to the Judgment Fund as to any other appropriation.

63 Current Treasury guidance on Judgment Fund procedures, such as that contained in 

31 C.F.R. part 256 and I TFM 6-3100, is available at 

www.fms.treas.gov/judgefund/regulations.html (last visited June 10, 2008).
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(2) Availability and limitations

Here are some of the more common conditions imposed on the availability 

of the Judgment Fund:

Sovereign immunity 

The Judgment Fund is not itself a waiver of sovereign immunity. Thus, the 

legal basis for a judgment or award must be found elsewhere in the law. 

OPM v. Richmond, 496 U.S. 414, 432 (1990) (section 1304 “does not create 

an all-purpose fund for judicial disbursement. . . . Rather, funds may be paid 

out only on the basis of a judgment based on a substantive right to 

compensation based on the express terms of a specific statute.”).

Litigative awards primarily

The Judgment Fund was created and remains available primarily for paying 

court judgments and compromise settlements negotiated under authority 

of the Justice Department. Compromise settlements were included in 

Judgment Fund coverage in 1961. Pub. L. No. 87-187, 75 Stat. 415, 416 

(Aug. 30, 1961). A compromise settlement is an agreement reached by the 

parties involving mutual concessions. 38 Op. Att’y Gen. 94, 95–96 (1933). 

The Attorney General, as the government’s chief litigator, has broad 

authority to compromise cases referred to the Justice Department for 

prosecution or defense. United States v. Hercules, Inc., 961 F.2d 796, 798 

(8th Cir. 1992); Exec. Order No. 6166, Reorganization of Executive 

Agencies Generally, § 5 (June 10, 1933); 38 Op. Att’y Gen. 124 (1934); 38 Op. 

Att’y Gen. 98 (1934). The power attaches “immediately upon the receipt of 

a case in the Department of Justice.” 38 Op. Att’y Gen. at 102. However, a 

compromise settlement which exceeds the authority of the official 

purporting to make it does not bind the government. White v. United 

States Department of Interior, 639 F. Supp. 82 (M.D. Pa. 1986), aff’d mem., 

815 F.2d 697 (3rd Cir. 1987); United States v. Irwin, 575 F. Supp. 405 (N.D. 

Tex. 1983).

The amendment to 28 U.S.C. § 2414 provided a standard for determining 

when compromise settlements are payable from the judgment 

appropriation. It states that—

“compromise settlements of claims referred to the Attorney 

General for defense of imminent litigation or suits against 

the United States, . . . made by the Attorney General . . . shall 
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be settled and paid in a manner similar to judgments in like 

causes and appropriations or funds available for the 

payment of such judgments are hereby made available for 

the payment of such compromise settlements.”

28 U.S.C. § 2414. Thus, the rule is that a compromise settlement is payable 

from the same source that would apply to a judgment in the same suit. If a 

given action could result in a money judgment payable from the judgment 

appropriation, a compromise settlement of that action will be payable from 

the judgment appropriation. E.g., B-212134, June 29, 1983. If the action 

would not result in a money judgment payable from the judgment 

appropriation, then the judgment appropriation will not be available for a 

compromise settlement. E.g., B-248313-O.M., Apr. 10, 1992; B-246660-O.M., 

Mar. 20, 1992. See also B-182219, Oct. 23, 1974 (judgment against official in 

individual capacity). The resolution of a case by compromise settlement 

does not alter the source of funds. See 13 Op. Off. Legal Counsel 118 

(1989). A contrary view, as Justice points out, might encourage settlements 

driven by source-of-funds considerations rather than the best interests of 

the United States. Id. at 125. 

As quoted above, section 2414 mentions referrals for the “defense of 

imminent litigation.” Except for a general discussion in a 1979 decision, 

58 Comp. Gen. 667, this language has not been addressed. The “imminent 

litigation” authority is not a device to enable an agency to avoid paying 

from its own funds. The agency must be confronted with a genuine 

disagreement or impasse before referring the claim to Justice. Litigation is 

not imminent for purposes of this provision merely because a claimant will 

sue if the agency does not pay. There must be a legitimate dispute over 

either liability or amount. Absent such a dispute or impasse, there is 

nothing to refer to the Attorney General. See B-198352, June 22, 1981. See 

also 38 Op. Att’y Gen. 98, 99 (1934) (nothing to compromise where liability 

is certain; must be a “bona fide dispute as to either a question of fact or of 

law”); 38 Op. Att’y Gen. 94, 96 (1933), quoting 23 Op. Att’y Gen. 18, 20 

(1900) (claim “must in some way be doubtful” to be validly compromised). 

The fund, generally, is not available to pay agencies’ administrative 

settlements. See, e.g., B-257334, June 30, 1995.
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Finality required

The first sentence of 31 U.S.C. § 1304(a) limits the Judgment Fund to 

paying “final” awards.64 Finality can mean different things in different 

contexts. See McDonald v. Schweiker, 726 F.2d 311, 313 (7th Cir. 1983). For 

example, finality for purposes of taking an appeal and finality for payment 

purposes are two different things. The true import of this distinction may 

not be immediately apparent. Obviously, it is not in the government’s 

interest to pay judgments while the claimant’s entitlement and the 

government’s obligation are still subject to change. B-208999, Sept. 13, 

1982. In fact, the finality requirement was designed to protect the 

government “against loss by premature payment of a judgment which might 

later through appeal be amended or reversed.” B-129227, Dec. 22, 1960, 

at 2. As stated in B-129227, the term “final judgment” for payment purposes 

means “such judgments as have become conclusive by reason of loss of the 

right of appeal—by expiration of time or otherwise—or by determination 

of the appeal by the court of last resort.” Id., at 3. See also Marathon Oil 

Co. v. United States, 374 F.3d 1123, 1128 (2004), cert. denied, 544 U.S. 1031 

(2005); McDonald, 726 F.2d at 313. Thus, a judgment against the United 

States is final for payment purposes when the appellate process is 

completed. Generally speaking and subject to the occasional exception, 

this can happen in one of three ways: determination by the court of last 

resort, determination by the parties not to seek further review, or 

expiration of the time available for filing an appeal.65 E.g., 73 Comp. 

Gen. 46 (1993). Given the finality requirement, GAO has concluded that the 

Judgment Fund should not be used to make “intermediate,” partial, or 

“good faith” payments—even upon the stipulation of the parties. E.g., 

B-164766, June 1, 1979.

Sometimes different aspects of a case become “final” at different times. 

The decision in B-164766, for example, concerned a case pending before 

the Court of Claims concerning whether a contractor had realized “excess 

profits” under a government contract. Pursuant to its view of the statute 

64 Finality is also required for Judgment Fund payments made under 28 U.S.C. §§ 2414 and 

2517. 

65 “Whenever the Attorney General determines that no appeal shall be taken from a 

judgment or that no further review will be sought from a decision affirming the same, he 

shall so certify and the judgment shall be deemed final.” 28 U.S.C. § 2414. This provision 

permits a judgment to be paid before it has become final by operation of law, that is, before 

the time limit for taking an appeal has expired.
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governing excess profits, the court ordered the United States to accept a 

bond from the contractor. This bond was to take the place of money that 

the contractor previously paid to the government in that case—money that 

the court ordered to be refunded to the contractor. The Justice 

Department was still litigating other aspects of the case, and had not yet 

decided whether to appeal this interlocutory order of the court. The 

department asked GAO whether the Judgment Fund could be used to pay 

the refund order. GAO concluded that the court’s refund order was readily 

severable from the merits of the underlying litigation. GAO noted, 

however, that the court’s refund order was not final because the 

department had not yet decided whether to appeal it. GAO advised that 

after the refund order became final (in one of the ways noted above), the 

refund order could be certified for payment without regard to the status of 

the balance of the litigation.

The important point is that any amount to be paid under section 1304 must 

be a final award—not subject to change upon further appeal. See, e.g., 

Barnes v. United States, 678 F.2d 10 (3rd Cir.), aff’d, 685 F.2d 66 (3rd Cir. 

1982) (partial summary affirmance of undisputed portion of lower court’s 

judgment may be treated as a separate final judgment payable under 

section 1304 notwithstanding the continuing appeal of the disputed item); 

Parker v. Lewis, 670 F.2d 249 (D.C. Cir. 1981) (summary affirmance of 

uncontested portion of attorney fees claim enables payment under section 

1304 notwithstanding the pending appeal of the disputed balance of the 

award); 60 Comp. Gen. 573 (1981) (“partial awards” made by contract 

appeals boards under the Contract Disputes Act may be paid from the 

Judgment Fund as they become final, despite the pendency of other 

portions of the same claim). 

Finality issues also arise with “interim” fee awards. Interim fees represent 

awards made during the course of the litigation for legal services rendered 

to date. In B-190940, Sept. 21, 1978, following the Supreme Court’s 

rationale in Bradley v. Richmond School Board, 416 U.S. 696, 721–23 

(1974), GAO agreed that interim fee awards that can no longer be appealed 

are final for purposes of section 1304. See also McKenzie v. Kennickell, 

669 F. Supp. 529 (D.D.C. 1987) (court directed immediate payment of 

interim fee award representing what the parties agreed was the “irreducible 

minimum” owed to the plaintiffs). Of course, where the government does 

not intend to appeal an interim fee award, as was true in these cases, the 

Attorney General can certify this fact under 28 U.S.C. § 2414. The Attorney 

General’s certification creates finality sufficient for payment under 

section 1304.
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A different finality problem arises when a judgment becomes final but does 

not specify the dollar amount to be paid. Such a judgment, even though it 

may be final with respect to the plaintiff’s right to recover, is not in and of 

itself final for Judgment Fund certification. The reason? The government’s 

computation of the amount owed would not be binding on the plaintiff and 

would, itself, be subject to judicial review. See 58 Comp. Gen. 311 (1979). 

Before such a judgment is final, the parties must reach an agreed-upon 

amount (including any required deductions), together with written 

statement that the plaintiff will accept that amount in satisfaction of the 

judgment. Id.

Monetary awards only

Essentially, section 1304 contemplates a money judgment, that is, a 

judgment directing the government “to pay final judgments, awards, 

compromise settlements, and interest and costs,” as opposed to a judgment 

directing the government to perform some specific action. 31 U.S.C. 

§ 1304(a). Any judgment can be translated into a monetary amount in the 

sense that the cost of compliance can be calculated, but this does not mean 

that the ultimate cost is to be borne by the judgment appropriation. 

70 Comp. Gen. 225 (1991); 13 Op. Off. Legal Counsel 118 (1989). Thus, 

court orders and compromise settlements to do the following things were 

not money judgments for purposes of section 1304:

• reconsider benefit program eligibility, 70 Comp. Gen. 225;

• implement a nondiscriminatory employment system, 69 Comp. 

Gen. 160 (1990);

• hire an equal opportunity expert, B-234793.2, June 5, 1989; and

• correct structural defects in a building, B-193323, Jan. 31, 1980.

A court order directing the United States to pay the costs of supervising an 

election rerun was “more in the nature of injunctive relief, than a monetary 

award of damages” and, therefore, not payable from the Judgment Fund. 

B-279886, Apr. 28, 1998, at 10. This would be true even if the court were to 

award a specific sum equivalent to the actual or anticipated costs of 

supervising the rerun. Id.

Money judgments have “traditionally taken the form of a lump sum, paid at 

the conclusion of the litigation.” Jones & Laughlin Steel Corp. v. Pfeifer, 
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462 U.S. 523, 533 (1983). The decades of the 1970s and 1980s saw the 

mushrooming of “structured settlements” in personal injury cases requiring 

long-term care wherein all or part of the award is placed in a reversionary 

trust or used to purchase an annuity. In B-162924, Dec. 22, 1967, involving a 

medical malpractice suit brought under the Federal Tort Claims Act on 

behalf of a plaintiff expected to remain comatose for life, the proposed 

settlement included two parts: (1) a lump-sum payment covering all 

damages other than future care and treatment, and (2) another lump sum 

payable in trust to a court-appointed trustee. Upon the death of the 

plaintiff, any remaining corpus and income would revert to the United 

States. GAO found the proposal legally unobjectionable, cautioning only 

that the amount paid to the trustee should represent the government’s 

maximum obligation and should not exceed the cost of a reasonable fixed 

settlement. Of course, money that reverts to the United States under a 

structured settlement is credited to the appropriation from which the 

settlement was originally disbursed (usually the Judgment Fund). 

B-209849, Dec. 2, 1982 (nondecision letter).

“Not otherwise provided for”

Section 1304(a)(1) of title 31, United States Code, limits the Judgment Fund 

to paying awards “not otherwise provided for.” Payment is otherwise 

provided for when another appropriation or fund is legally available to 

satisfy the judgment. E.g., 66 Comp. Gen. 157, 160 (1986); 62 Comp. 

Gen. 12, 14 (1982). See also 22 Op. Off. Legal Counsel 141 (1998).

Whether payment is otherwise provided for is a question of legal 

availability rather than actual funding status. In other words, if payment of 

a particular judgment is otherwise provided for as a matter of law, the fact 

that the defendant agency has insufficient funds at that particular time does 

not operate to make the Judgment Fund available. 66 Comp. Gen. at 160; 

22 Op. Off. Legal Counsel 141. The agency’s only recourse in this situation 

is to seek additional appropriations from Congress, as it would have to do 

in any other deficiency situation.66 For judgments legally payable from 

agency appropriations, the amount and time limitations imposed on that 

appropriation apply just as with any other expenditure from that 

appropriation.

66 It is possible, although remote, that there is no appropriation legally available to pay a 

particular judgment. One example, which apparently resulted from a legislative oversight 

and was later cured legislatively, is in 63 Comp. Gen. 470 (1984).
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There is only one proper source of funds in any given case. There is no 

election to be made. If agency funds are available, then the Judgment Fund 

is not. Conversely, if the Judgment Fund is the proper source, then 

payment of the judgment from agency funds would violate the purpose 

statute, 31 U.S.C. § 1301(a), and possibly the Antideficiency Act. See, e.g., 

B-178551, Jan. 2, 1976. Some specific examples follow:

Tax refunds. Tax refund judgments are payable from the permanent, 

indefinite appropriation, Refunding Internal Revenue Collections.

67 

31 U.S.C. § 1324. This appropriation is also used “for any overpayment in 

respect of any internal-revenue tax.” 28 U.S.C. § 2411. Thus, judgments 

representing overpayments to or amounts improperly collected by IRS are 

paid from this appropriation. Judgments in this category may result from 

suits for refund under 26 U.S.C. § 7422 or suits for wrongful levy under 

26 U.S.C. § 7426.

Land condemnation. Land condemnation judgments are generally payable 

from the funds of the acquiring agency.68 66 Comp. Gen. 157 (1986); 

54 Comp. Gen. 799 (1975); 17 Comp. Gen. 664 (1938). This rule predates 

the creation of the Judgment Fund. 17 Comp. Gen. 664; 5 Comp. Gen. 737 

(1926); A-25484, Jan. 11, 1929; A-12979, Feb. 10, 1926. Any agency with the 

authority to acquire land has the authority to acquire it by mutual 

agreement or by condemnation. 40 U.S.C. § 257. When an agency is unable 

to reach a satisfactory purchase agreement with a landowner, the agency 

may condemn the land. (This is known as the power of eminent domain. 

For further discussion of real property acquisition through condemnation, 

see Chapter 13, section B.) The condemnation initiates litigation to 

determine the price (“just compensation”) the agency will pay to acquire 

the land. Condemnation can be accomplished only through judicial 

67 Tax refund judgments must be distinguished from judgments arising from other Internal 

Revenue Service (IRS) activities. E.g., B-211389, July 23, 1984 (damages awarded under the 

Tucker Act were payable from the Judgment Fund after IRS seized a building to recover 

taxes owed by the building occupant, but not owed by the building owner who sued IRS for 

erroneous seizure). In addition, 26 U.S.C. § 7432 (IRS negligent failure to release a tax lien) 

and 26 U.S.C. § 7433 (IRS intentional disregard of tax code or regulations), each contain a 

payment provision expressly directing payment under 31 U.S.C. § 1304.

68 These may be distinguished from “inverse condemnation” judgments, which the case law 

holds payable from the Judgment Fund. See 66 Comp. Gen. at 163. In addition, Congress 

has enacted a number of exceptions in connection with some legislative takings. See, e.g., 

16 U.S.C. § 79g(b) (expansion of the Redwood National Park); Pub. L. No. 100-647, title X,

§ 10002, 102 Stat. 3342, 3819 (Nov. 10, 1988) (expansion of the Manassas National Battlefield 

Park). 
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process. In this way, condemnation judgments are different from other 

judgments: condemnation deploys litigation as a routine tool for the 

exercise of a normal program activity. 66 Comp. Gen. at 160–61. Congress 

appropriates funds for agency land acquisitions, and these funds are legally 

available to make the purchase without regard to which process was used. 

Thus, land condemnation judgments are otherwise provided for.

Refunds. Judgments for refunds of money previously paid to or seized by 

the federal government are payable from the account to which the original 

payment was credited. The rule, as stated in 17 Comp. Gen. 859, 860 (1938) 

and repeated in 29 Comp. Gen. 78, 79 (1949), is: “When the amount subject 

to refund can be traced as having been erroneously credited to an 

appropriation account the refund claim is chargeable to said appropriation 

whether it be lapsed or current, or reimbursable or nonreimbursable.”69 

The order to pay a refund hinges upon the determination that the 

government improperly received or retained the original funds. Cf. 

70 Comp. Gen. 225, 228 (1991) (refunds are more akin to orders of 

injunctive relief than money judgments). This disposition prevents 

augmentation of the appropriation that received the original payment. See 

61 Comp. Gen. 224 (1982) (refund of right-of-way permit fees, some of 

which were credited to a special fund appropriated for Interior and some 

credited as miscellaneous receipts); 55 Comp. Gen. 625 (1976) (fines 

assessed by the IRS and credited as internal revenue collections). See also 

B-259065, Dec. 21, 1995.

Postal Service. The Postal Reorganization Act specifically provides that 

judgments against the United States arising out of activities of the Postal 

Service shall be paid by the Postal Service out of any funds available to it. 

39 U.S.C. § 409(h).

Government corporations. Judgments against a government corporation 

generally are paid from the corporation’s funds, not the Judgment Fund. 

Generally, government corporations are set up to operate in a business-like 

manner independent of the Treasury. See Keifer & Keifer v. 

Reconstruction Finance Corp., 306 U.S. 381 (1939); Reconstruction 

Finance Corp. v. Foust Distilling Co., 204 F.2d 343 (3rd Cir. 1953). These 

69 The decisions cited in the text both predated the current statutory account closing 

structure (see Chapter 5, section D). GAO has not addressed the source of payment for a 

refund where the appropriation account has closed or expired under the current account 

closing provisions.
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corporations are free from many of the restrictions on appropriated funds 

that apply to agencies. They are usually given considerable latitude in 

determining their expenditures, and their statutory charters typically 

contain a “sue and be sued” clause. See Chapter 15, section B.8.c(2). It is 

logical that losses incurred by such corporations, whether by judgment or 

otherwise, should be treated as liabilities of the corporation and charged to 

corporate funds, not to the U.S. Treasury. See, e.g., Far West Federal 

Bank v. Director, Office of Thrift Supervision, 930 F.2d 883, 890 (Fed. Cir. 

1991); 37 Comp. Gen. 691, 695 (1958); 25 Comp. Gen. 685 (1946); B-164879, 

Dec. 5, 1973; 39 Op. Att’y Gen. 559 (1938); 22 Op. Off. Legal Counsel 141 

(1998); 13 Op. Off. Legal Counsel 436 (1989).

Congress has authorized a number of agencies to conduct commercial-type 

programs. Where such a program has “sue and be sued” authority and is 

financed from a revolving or other special fund, judgments arising from 

program activities are treated as a necessary expense of the program and 

are generally payable from agency’s funds. See, e.g., C.H. Sanders Co. v. 

BHAP Housing Development Fund Co., 903 F.2d 114, 120 (2nd Cir. 1990); 

S.S. Silberblatt, Inc. v. East Harlem Pilot Block, 608 F.2d 28, 35–36 

(2nd Cir. 1979), citing Federal Housing Administration v. Burr, 309 U.S. 

242 (1940); 62 Comp. Gen. 12 (1982).

Nonappropriated fund instrumentalities (NAFIs). These are entities or 

activities that do not receive appropriations.70 NAFIs raise their own 

operating funds through product sales, member fees, etc. Absent statutory 

provisions to the contrary, the United States “assumes none of the financial 

obligations” of a NAFI. United States v. Hopkins, 427 U.S. 123, 124 (1976). 

Thus, the general rule is that judgments against them are payable from the 

instrumentality’s own funds. E.g., Cosme Nieves v. Deshler, 786 F.2d 445 

(1st Cir.), cert. denied, 479 U.S. 824 (1986). See also, e.g., B-204703, 

Sept. 29, 1981 (tort judgments). Cf. B-145762, May 19, 1961 (since the 

negligence at issue was imputable to the base engineer, not to an officer or 

employee of the NAFI, the tort award was payable from the Judgment 

Fund). There is one exception of sorts: Congress designated the Judgment 

Fund as the initial source of payment for judgments and compromise 

settlements arising from contracts made by the Army and Air Force 

Exchange Service, the Navy Exchanges, the Marine Corps Exchanges, the 

Coast Guard Exchanges, and the Exchange Councils of the National 

70 For more information on NAFIs, see Chapter 15, section C.
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Aeronautics and Space Administration; however, the NAFIs must 

reimburse the Judgment Fund. 31 U.S.C. § 1304(c).

Agencies receiving funds that are not to be construed as appropriations. 

Some agencies have received legislation directing that the funds they 

derive and use under statutory authority “shall not be construed to be 

Federal Government funds or appropriated moneys.” 12 U.S.C. 

§ 2250(b)(2) (Farm Credit Administration); 12 U.S.C. § 244 (Federal 

Reserve Board); 12 U.S.C. § 481 (Office of the Comptroller of the 

Currency). This being the case, the funds of those agencies are not 

encumbered by the traditional prohibition on the use of operating 

appropriations for judgments. As a result, their funds are legally available 

to pay litigative awards, and payment, for the purposes of section 1304, is 

otherwise provided for. B-251061.3, Sept. 29, 1993; B-251061.2, Feb. 10, 

1993.

Garnishment. Several statutes make the wages of federal civilian and 

military personnel subject to garnishment for certain purposes. See, e.g., 

42 U.S.C. § 659(a) (alimony and child support); 5 U.S.C. § 5520a (legal debts 

of employees generally). As a general proposition, garnishment orders are 

directed to and paid by the employing agency from agency funds, but, the 

Judgment Fund may be used in cases that involve liability on the part of the 

government for failure to comply with an appropriate garnishment order or 

legal process. 56 Comp. Gen. 592 (1977).

Bankruptcy. Federal bankruptcy law is complex and allows for a wide 

variety of awards against the government. The law expressly waives 

federal sovereign immunity for orders and awards under 60 specific 

sections of the United States Code. 11 U.S.C. § 106(a)(1). It does not 

identify, however, the source of payment. What it does say is that— 

 “enforcement of any such order, process, or judgment 

against any governmental unit shall be consistent with 

appropriate nonbankruptcy law applicable to such 

governmental unit and, in the case of a money judgment 

against the United States, shall be paid as if it is a judgment 

rendered by a district court of the United States.” 

11 U.S.C. § 106(a)(4).

For this reason, in order to determine whether payment is otherwise 

provided for, it is necessary to compare each bankruptcy award with 
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analogous judgments discussed in other contexts in this chapter. See 

B-239556-O.M., Oct. 12, 1990. For example, reference to this chapter’s 

discussion of refunds and tax judgment should help to resolve most 

situations. While the federal government is not subject to punitive 

damages in a bankruptcy proceeding, 11 U.S.C. § 106(a)(3), it may still be 

held in “civil contempt” and assessed compensatory damages including 

attorney fees and court costs if it attempts to collect debts discharged in 

bankruptcy. When made, such compensatory awards are payable from the 

Judgment Fund, notwithstanding their civil contempt status. Id.

c. Administratively Settled 

Claims

Claims settled at the administrative level are paid in one of three ways: 

(1) from operating appropriations available to the agency whose activities 

gave rise to the claims; (2) from some existing appropriation or fund other 

than the agency’s operating appropriations; or (3) by submitting the claim 

to Congress for a specific appropriation. As is true of most funding source 

determinations, there is no option. For any given claim, one of these 

methods will apply to the exclusion of the other two. See, e.g., 65 Comp. 

Gen. 790, 793 (1986).

Some statutes governing specific types of claims contain detailed 

provisions governing the payment of those claims. For example, under the 

Federal Tort Claims Act, administrative settlements of $2,500 or less are 

paid “by the head of the Federal agency concerned out of appropriations 

available to that agency.” 28 U.S.C. § 2672. Another example is 16 U.S.C. 

§ 574, which authorizes the Secretary of Agriculture to reimburse property 

owners up to $2,500 for loss or damage caused by the government in 

connection with the administration or protection of the national forests, 

“payment to be made from any funds appropriated for the protection, 

administration, and improvement of the national forests.” This authority 

has been used, for example, to compensate landowners for damage caused 

by aerial spraying for pest control. B-117720, Dec. 23, 1953.

A 1978 amendment to 31 U.S.C. § 1304 allows payment from the Judgment 

Fund of claims settled under section 203 of the National Aeronautics and 

Space Act of 1958, 42 U.S.C. § 2473(c)(13). This statute authorizes the 

Administrator of the National Aeronautics and Space Administration 

(NASA) to settle claims for death, personal injury, or property damage 

resulting from the conduct of NASA’s functions, if the claim is presented in 

writing within 2 years after the incident giving rise to the claim. Claims of 

$25,000 or less are paid directly by NASA from its own funds. Claims in 

excess of $25,000 are paid from the judgment appropriation. The NASA 

statute differs from the Military, Foreign, and National Guard Claims Acts 
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in one important respect. Under the military statutes, if a claim exceeds 

the amount payable from agency funds, only the excess over that amount is 

paid from the judgment appropriation. Under the NASA statute, if the 

amount of a settled claim exceeds $25,000, the entire amount of the claims 

is paid from the judgment appropriation.

When considering what appropriation to use to pay an administratively 

settled claim, the first place to look is the statute authorizing the 

settlement. If the statute authorizes an agency to settle claims but is silent 

with respect to payment, the necessary implication is that the agency will 

pay from its operating appropriations. For example, claims settled under 

authority of the Military Personnel and Civilian Employees Claims Act of 

1964, 31 U.S.C. § 3721, are paid from operating appropriations. B-143673, 

Nov. 11, 1976, overruled on other grounds by 56 Comp. Gen. 615 (1977); 

B-174762, Jan. 24, 1972; B-206856, Apr. 7, 1982 (nondecision letter). Cf. 

65 Comp. Gen. 790, 792 (1986) (while claims presented under 31 U.S.C. 

§ 3721 are usually paid from the agency’s operating appropriations, in this 

case Congress designated another payment source for the claim). 

Similarly, administrative settlements under the Contract Disputes Act (at 

the contracting officer level) are paid from the Judgment Fund, which the 

contracting agency must reimburse from its procurement appropriations. 

63 Comp. Gen. 308 (1984). Another example is 31 U.S.C.§ 3724, which 

authorizes the Attorney General to settle claims for death, personal injury, 

or property damage caused by investigative or law enforcement officers of 

the Department of Justice acting within the scope of their employment, 

which cannot be settled under the Federal Tort Claims Act. Settlement 

authority is limited to “not more than $50,000 in any one case.” 31 U.S.C. 

§ 3724(a). The statute makes no mention of how the claims are to be paid, 

but the legislative history of a 1989 revision recognized that they are paid 

from the operating funds of the Justice Department. H.R. Rep. No. 101-46, 

at 3 (1989).

For the Department of Defense and the military departments, claims 

payable from agency funds are paid from Operation and Maintenance 

(O&M) appropriations in accordance with 10 U.S.C. § 2732. While terms of 

the statute are general (“claims authorized by law to be paid”), its scope is 

clarified by its origin. Until fiscal year 1989, the Defense Department 

received a separate lump-sum appropriation entitled “Claims, Defense.” It 

was available for all noncontractual claims payable from agency funds, 

including “personnel claims, tort claims, admiralty claims, and 

miscellaneous claims.” Starting with fiscal year 1989, Congress 

discontinued the Claims, Defense appropriation and instructed Defense to 
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charge the claims to O&M appropriations. Pub. L. No. 100-463, § 8098, 

102 Stat. 2270, 2270-35 (Oct. 1, 1988). The authority was made permanent 

in 1990. Pub. L. No. 101-510, § 1481(j), 104 Stat. 1485, 1708 (Nov. 5, 1990), 

codified at 10 U.S.C. § 2732.

When payment is to be made from agency operating appropriations, it is 

necessary to determine when the obligation occurs and hence what fiscal 

year to charge. The governing principle, stated in a number of earlier 

decisions, is that a claim against an annual appropriation is chargeable to 

the appropriation for the fiscal year in which the liability was incurred. 

E.g., 18 Comp. Gen. 363, 365 (1938). When this happens depends on the 

type of claim.

Where the United States is not obligated to pay a claim until a final 

determination of liability has been made, the appropriation current at the 

time that determination is made is properly chargeable with the obligation. 

E.g., 65 Comp. Gen. 533, 541 (1986); 63 Comp. Gen. 308 (1984); 38 Comp. 

Gen. 338, 340 (1958); B-174762, Jan. 24, 1972. This rule is “grounded on the 

theory that the court or administrative award ‘creates a new right’ in the 

successful claimant, giving rise to new Government liability.” 63 Comp. 

Gen. at 310. See also B-272984, Sept. 26, 1996; B-255772, Aug. 22, 1995. As a 

general proposition, claims involving property damage or personal injury 

will fall into this category. E.g., 38 Comp. Gen. 338; 35 Comp. Gen. 511, 512 

(1956). Thus, administrative awards of $2,500 or less under the Federal 

Tort Claims Act are payable from funds currently available at the time the 

claim is determined to be proper for payment. 38 Comp. Gen. 338; 

35 Comp. Gen. at 512; 27 Comp. Gen. 445 (1948); 27 Comp. Gen. 237 (1947). 

Similarly, payments under the Military Personnel and Civilian Employees’ 

Claims Act of 1964 are chargeable to funds current when a final 

determination of liability is made. B-174762, Jan. 24, 1972.

Contract claims arising from changes to an existing contract are chargeable 

to appropriations current at the time the basic contract was executed if the 

changes were authorized by and enforceable under the provisions of the 

original contract. 65 Comp. Gen. 741 (1986); 59 Comp. Gen. 518 (1980). 

This type of change, commonly referred to as a within-scope change, is 

considered an “antecedent liability.” 59 Comp. Gen. at 522. A contract 

claim is based on antecedent liability if the modification or adjustment is 

within the general scope of the original contract and is made pursuant to a 

provision, such as a “Changes” clause, in the original contract. For 

example, a contractor provided supplemental research services under a 

contract with the Interior Department without the issuance of written 
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contract amendments. Since the government received the benefit of the 

services and ratified the transaction, the contractor was entitled to be paid. 

The work was within the general scope of the original contract and the 

government’s liability was viewed as deriving from the “Changes” clause. 

Therefore, the contractor’s claim was chargeable to funds available at the 

time the original contract was executed. B-197344, Aug. 21, 1980. A 

contract change which exceeds the general scope of the original contract, 

commonly referred to as an outside-of-scope change, like any new 

obligation, is chargeable to funds current at the time the change is made. 

37 Comp. Gen. 861 (1958); B-207433, Sept. 16, 1983. See also 61 Comp. 

Gen. 184 (1981), aff’d upon reconsideration, B-202222, Aug. 2, 1983; 

B-224702, Aug. 5, 1987. With a contract implied-in-law (quantum meruit), 

there is no contract to which the allowance of the claim can relate. The 

payment is chargeable to the fiscal year in which the goods were received 

or the services rendered. B-210808, May 24, 1984; B-207557, July 11, 1983. 

Claims by federal employees for compensation and related allowances are 

chargeable to appropriations for the fiscal year in which the work was 

performed. If the claim covers more than one fiscal year, the payment must 

be prorated accordingly. If the applicable appropriation account is 

insufficient to pay the claim, the agency must seek a deficiency 

appropriation. 69 Comp. Gen. 40 (1989) (administrative awards of back 

pay); 54 Comp. Gen. 393 (1974) (claim for statutory salary which claimant 

had previously improperly waived); 47 Comp. Gen. 308 (1967) (payment 

resulting from recrediting of sick leave); B-171786, Mar. 2, 1971 (overtime). 

Interest under the Back Pay Act is chargeable to the same fiscal year or 

years as the back pay to which it relates. 69 Comp. Gen. at 43.

The rule is the same in situations where the claimant did not perform any 

work, for example, restoration after an improper termination where the 

period of wrongful termination is deemed valid service under the Back Pay 

Act. 69 Comp. Gen. at 42; 58 Comp. Gen. 115 (1978). The latter case held 

that court-ordered agency contributions to an employee’s retirement 

account must be prorated among the fiscal years covered. While the case 

involved a court order, not an administrative settlement, it implies that 
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back pay under the Back Pay Act, Title VII of the Civil Rights Act, and the 

Veterans Preference Act should be treated similarly.71

Several types of administrative claims are payable from the permanent 

judgment appropriation established by 31 U.S.C. § 1304. The primary 

example is administrative awards in excess of $2,500 under the Federal 

Tort Claims Act. 28 U.S.C. § 2672. Monetary awards by agency boards of 

contract appeals are payable in the first instance from the judgment 

appropriation, subject to reimbursement by the contracting agency from 

current appropriations. 41 U.S.C. §§ 612(b), (c). See 63 Comp. Gen. 308 

(1984). A 1978 amendment to the judgment appropriation added several 

types of claims that previously had required specific appropriations. 

Pub. L. No. 95-240, § 201, 92 Stat. 107, 116 (1978). Those covered elsewhere 

in this chapter are the Small Claims Act, 31 U.S.C. § 3723, and amounts in 

excess of amounts payable from agency appropriations under the Military 

Claims Act, 10 U.S.C. § 2733, Foreign Claims Act, 10 U.S.C. § 2734, and 

National Guard Claims Act, 32 U.S.C. § 715. Unless required by statute, 

such as the Contract Disputes Act and the Notification and Federal 

Employee Antidiscrimination and Retaliation Act of 2002 (“NoFEAR”),72

agencies do not have to reimburse claims paid from the judgment 

appropriation. 

There are several instances in which there is no source of funds available 

for immediate payment. If the legislation governing a particular type of 

claim requires specific appropriations, then payment must await 

congressional action. Statutes of this type frequently require that the 

agency’s determination be reported to Congress for its consideration or 

certified to Congress as a “legal claim.” Examples are:

• 10 U.S.C. §§ 4802, 7622, 9802, and 14 U.S.C. § 646: Admiralty claims 

settled by the Army, Navy, Air Force, and Coast Guard, respectively. 

Under these statutes, the applicable agency head may settle and pay 

admiralty claims up to a specified limit ($500,000 for the Army and Air 

Force, $15,000,000 for the Navy, and $100,000 for the Coast Guard). If 

71 One older case reached a contrary result, concluding that back pay resulting from 

restoration could be charged to current year funds since the administrative action directing 

the restoration could be viewed as creating the government’s obligation. B-113279-O.M., 

Jan. 30, 1953. However, it does not appear to have been followed.

72 See 41 U.S.C. § 612(c); Pub. L. No. 107-174, § 201(b), 116 Stat. 566, 568–69 (May 15, 2002).
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the settlement exceeds the specified limit, the claim must be certified 

to Congress.

• 20 U.S.C. § 975(b): Claims for losses under indemnity agreements 

authorized by the Arts and Artifacts Indemnity Act. Certification to 

Congress is made by the Federal Council on the Arts and Humanities.

• 31 U.S.C. § 3725: Claims for death or personal injury of a foreign 

national caused by a government employee in a foreign country in 

which the United States has privileges of extraterritoriality. Settlement 

authority is conferred upon the State Department and is limited to 

$1,500. See B-120773, Mar. 22, 1955.

• 42 U.S.C. § 2207: Claims resulting from certain nuclear or other 

explosive detonations in the conduct of programs undertaken by the 

Department of Energy.

• 42 U.S.C. § 2211: Claims resulting from a nuclear incident involving the 

nuclear reactor of a United States warship, excluding combat activities. 

3. Whom and What to Pay This section addresses the issues of whom to pay (including the 

consequences of paying the wrong person) and what amounts—beyond the 

principal amount owed—may be paid as a matter of appropriations law. 

The government must be assured that it is paying the right person the right 

amount, and it must obtain documentation sufficient to demonstrate that it 

legally discharged the government’s obligation. See 24 Comp. Gen. 679, 

680–81 (1945). The ultimate objective is to avoid placing the government in 

a situation where it might later find itself embroiled in a controversy 

between competing claimants—facing the possibility of being required to 

pay a second time to someone else and take action to recover the previous 

payment. See, e.g., B-199455, Sept. 29, 1980; B-136946, Apr. 8, 1960.

Obviously, payment should include the principal amount properly found 

owed to the payee. Often at issue, in addition to the principal amount, are 

the payee’s claims for interest, costs, and attorney fees. See, e.g., 63 Comp. 

Gen. 465 (1984); B-248420, July 30, 1992; B-246294, Feb. 26, 1992.

a. To Whom Agencies Should 

Make Payment

The guiding principle regarding whom to pay is the common-sense 

proposition that payment should be made to the person or entity entitled to 

receive it. Common sense in this instance is reinforced by 31 U.S.C. 
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§ 3322(a)(2)(B), which instructs disbursing officers to draw public money 

from the Treasury “payable to persons to whom payment is to be made.” 

This statutory direction is simple and straightforward, but complications 

arise in a number of circumstances, such as when the payee is a minor,73

mentally incompetent,74 no longer alive,75 or a corporate entity.76 

Sometimes, the proper payee cannot be determined short of an adversary 

proceeding. In that event, GAO held, the proper course of action is to deny 

payment administratively and leave the competing claimants to their 

remedy in the courts. E.g., 68 Comp. Gen. 284 (1989).

As a general proposition, agencies should deliver government checks 

directly to the payees. 16 Comp. Gen. 840 (1937). However, when there is 

some valid reason for doing so, an agency may deliver the check to 

appropriate agency employees for subsequent forwarding to the payees. 

E.g., 65 Comp. Gen. 81 (1985).

Payment to the wrong person obviously does not discharge the 

government’s obligation. If, through administrative mistake of fact or law 

or clerical error, a payment is made to a person not entitled to it, the 

government is still obligated to make payment to the proper claimant. E.g., 

37 Comp. Gen. 131, 133 (1957) (payment of death gratuity to erroneously 

designated payee). The agency should take action to recover from the first 

payee. 31 U.S.C. §§ 3727(c), 3528(b)(2), 3711(a)(1). However, payment to 

the proper claimant should not be held up pending recovery of the 

erroneous payment, even though this may result in a duplicate payment. 

Illustrative cases include 66 Comp. Gen. 617 (1987), aff’d on 

reconsideration, B-226540.2, Aug. 24, 1988; 19 Comp. Gen. 104 (1939); and 

B-249869, Jan. 25, 1993.

73 E.g., B-176252-O.M., Sept. 5, 1972 (pursuant to state law, appointment of a legal guardian 

may be required before payment may be made). 

74 E.g., 65 Comp. Gen. 621, 624 (1986) (given the substantial amounts to be paid under the 

military survivor annuity programs, and the fact that payments might continue for years, the 

accounting officers of the uniformed services should insist on a court-approved 

guardianship before making payment on behalf of an incompetent annuitant).

75 E.g., Miniafee v. United States, 17 Cl. Ct. 571, 577 (1989) (payment to the legal 

representative of the payee’s estate); B-234425, May 30, 1989 (where payee’s estate has been 

closed, state laws applicable to that situation should be followed).

76 E.g., B-203676, Sept. 21, 1981 (agency should close its file and deobligate the amount of 

the payment where the corporation entitled to payment was dissolved and potential 

claimants, including creditors and stockholders, were unknown).
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If the government cannot recover the erroneous payment from the 

erroneous payee, the certifying officer responsible for that payment may 

have to reimburse the government for the unrecovered amount. (For more 

information on the liability and relief of accountable officers under these 

circumstances, see Chapter 9).

b. Amounts Payable in 

Addition to the Principal 

Amount

(1) Interest

Claims for interest probably have generated more controversy than any 

other aspect of the payment of claims and judgment. The law in this area is 

complex and often highly technical. As a general rule, interest may not be 

recovered against the United States unless expressly provided by statute or 

contract.77 Statutory interest provisions and some exceptions recognized 

by the courts, however, have blunted some of the potentially harsh 

consequences of the general rule.

General no-interest rule

The courts have recognized and applied the general rule on numerous 

occasions. For example, in Environmental Tectonics Corp. v. United 

States, 72 Fed. Cl. 290 (2006), the court noted that the Supreme Court has 

held that the right to recover interest from the United States requires a 

waiver of sovereign immunity “separate from a general waiver of immunity 

to suit.” Environmental Tectonics, 72 Fed. Cl. at 296, quoting Library of 

Congress v. Shaw, 478 U.S. 310, 314 (1986). This does not necessarily mean 

that the interest waiver must be in a separate statute. Rather, the waiver of 

sovereign immunity with respect to interest must itself be explicit, and will 

not be inferred from a general waiver of immunity to suit. See, e.g., United 

States v. N.Y. Rayon Importing Co., 329 U.S. 654, 659 (1947) (“consent can 

take only two forms: (1) a specific provision for the payment of interest in 

a statute; [or] (2) an express stipulation for the payment of interest in a 

contract duly entered into by agents of the United States”); Zumerling v. 

Marsh, 783 F.2d 1032, 1034 (Fed. Cir. 1986), quoting Fidelity Construction 

Co. v. United States, 700 F.2d 1379, 1383 (Fed. Cir.), cert. denied, 464 U.S. 

826 (1983) (“‘express consent to the payment of interest must be found in 

either a special statute or an express contractual provision. The intent by 

Congress to permit the recovery of interest cannot be implied,’ and must be 

77 See 51 Comp. Gen. 251 (1971), citing United States v. Thayer-West Point Hotel Co., 

329 U.S. 585, 590 (1947). See also 70 Comp. Gen. 153, 158 n.5 (1990); 65 Comp. Gen. 842, 843 

(1986); B-186494, July 22, 1976. 
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strictly construed.”); B-206101, May 20, 1982, at 1 (in the absence of 

statutory authority, the government must have “affirmatively and 

unambiguously contracted to pay interest”). See also Marathon Oil Co. v. 

United States, 56 Fed. Cl. 768, 770–71 (2003), aff’d, 374 F.3d 1123 (Fed. Cir. 

2004), cert. denied, 544 U.S. 1031 (2005); Alaska Airline, Inc. v. Johnson, 

8 F.3d 791, 798 (Fed. Cir. 1993).

There are two types of interest: pre-judgment (interest as part of the claim 

upon which the judgment was founded) and post-judgment (interest on the 

judgment itself). As the cases cited throughout this discussion make clear, 

the general rule applies equally to both types. Depending on the statute 

authorizing pre-judgment interest, it may run to the date of payment or the 

date of judgment. In the latter case, the pre-judgment interest becomes 

part of the judgment amount to which any authorized post-judgment 

interest is applied. See, e.g., B-111945, Nov. 13, 1952.

Generally speaking, absent an applicable waiver of sovereign immunity, 

courts are not authorized to award interest against the United States on the 

basis of equity or because payment has been delayed even if the delay can 

be termed unreasonable. E.g., Brazos Electric Power Cooperative, Inc. v. 

United States, 52 Fed. Cl. 121, 134 (2002), quoting N.Y. Rayon Importing, 

329 U.S. at 660; Lichtman v. OPM, 835 F.2d 1427 (Fed. Cir. 1988); B-214289, 

Oct. 23, 1985; B-206101, May 20, 1982. Interest is often found disguised as 

something else, but the courts will penetrate the disguise and see it for 

what it is. A leading case in this area is United States v. Mescalero Apache 

Tribe, 518 F.2d 1309 (Ct. Cl. 1975), cert. denied, 425 U.S. 911 (1976). As the 

Court of Claims explained:

“[The] no-interest rule applies to any incremental damages 

sought to be assessed against the Unites States, whether it 

be designated interest, as such, or is designated by some 

other terminology which has the same effect. . . .

“[T]he character or nature of interest cannot be changed by 

calling it damages, loss, earned increment, just 

compensation, discount, offset, or penalty, or any other 

term because it is still interest and the no-interest rule 

applies to it.”

Mescalero, 518 F.2d at 1321, 1322 (emphasis in original). See also 

England v. Contel Advanced Systems, Inc., 384 F.3d 1372, 1378–79 (Fed. 

Cir. 2004).
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In Shaw, an employee who brought a job-related racial discrimination 

action requested an award of attorney fees. The district court obliged and 

added interest, as well. The district court, however, did not use the term 

“interest.” Rather, it increased the attorney fees by 30 percent “to 

compensate counsel for the delay in receiving payment for the legal 

services rendered.” Shaw, 478 U.S. at 313. In invalidating the interest 

award, the Supreme Court brushed aside the lower court’s designation and 

looked at the substance. Citing Mescalero with approval, the Court added 

that “the force of the no-interest rule cannot be avoided simply by devising 

a new name for an old institution.” Id. at 321. As the court observed in 

District of Columbia v. United States, 67 Fed. Cl. 292, 341 (2005), “no 

matter what term plaintiff uses, compensation for the belated receipt of 

money violates the no-interest rule absent an express . . . waiver of 

sovereign immunity from liability for interest.” Unauthorized interest, 

disguised as “liquidated damages” under the Fair Labor Standards Act, was 

disallowed in Doyle v. United States, 931 F.2d 1546, 1550–51 (Fed. Cir. 

1991), cert. denied, 502 U.S. 1029 (1992). In Sterling Savings 

Ass’n v. United States, 80 Fed. Cl. 497, 518–19 (2008), the court faced 

inflated “wounded bank damages,” and in District of Columbia v. United 

States, 67 Fed. Cl. 292, 340 (2005), the court rejected “escalation costs for 

inflation.”

In the context of administrative claims, the general rule manifests itself in 

virtually every area in which monetary claims can be brought against the 

United States. Examples in which claims for interest have been disallowed 

are: 65 Comp. Gen. 598 (1986) (delayed contract payment to the assignee 

of a government contract); B-241592.3, Dec. 13, 1991 (duties collected by 

the Customs Service for the Virgin Islands); B-236330.2, Feb. 14, 1990 

(compensation for the passage of time between the date a claim accrued 

and the date it was paid); B-206101, May 20, 1982 (late payment of Treasury 

bill); B-195265, Aug. 17, 1979 (delayed reimbursement by Labor Department 

of benefit payments to employee trust); B-154102, June 16, 1974 (award 

under Military Claims Act). The interest prohibition also applies to claims 

arising in foreign countries as well as to claims arising in the United States. 

45 Comp. Gen. 169 (1965).

The general rule also applies to payments under private relief legislation. 

United States v. Bayard, 127 U.S. 251, 260 (1888). However, consistent 

with the rule, such legislation may provide for interest in situations where 

it would not otherwise be payable. See, e.g., B-182574-O.M., July 19, 1979. 

In B-187866, Apr. 12, 1977, GAO concluded that interest could be paid on a 

claim for which Congress had made a specific appropriation where the 
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appropriation language did not specify interest but it was clear from the 

legislative history that the amount appropriated included interest. (The 

specific claim involved in B-187866 would now be covered by the Contract 

Disputes Act.)

A statute originating in 1841 provides that amounts held in trust by the 

United States shall be invested in government obligations and shall bear 

interest at a minimum annual rate of 5 percent. 31 U.S.C. § 9702. This 

statute applies only where trust funds are otherwise required by statute, 

treaty, or contract to be invested, and is not an independent authorization 

for the payment of interest. Mescalero, 518 F.2d at 1323–31; White 

Mountain Apache Tribe of Arizona v. United States, 20 Cl. Ct. 371, 380–81 

(1990); B-241592.3, Dec. 13, 1991.

If the necessary authority for the payment of interest does not exist in a 

particular context, it follows that appropriations are not legally available 

for that purpose. Thus, in the absence of legislation expressly making 

federal agencies liable for interest and penalties the same as private 

parties, appropriations are not available for the payment of interest or 

penalties to the Internal Revenue Service on account of late forwarding or 

underpayment of employment taxes. B-161457, May 9, 1978. Similarly, the 

Internal Revenue Service is not liable for interest on overpayments of 

employer taxes by federal agencies. B-161457, Dec. 5, 1983.

Judicially recognized exceptions

There are two nonstatutory exceptions to the general rule, both of which 

were noted in Library of Congress v. Shaw, 478 U.S. 310, 317 n.5 (1986). 

The first is a taking of property or a property interest which entitles a 

claimant to just compensation under the Fifth Amendment of the 

Constitution. The second is “where the Government has cast off the cloak 

of sovereignty and assumed the status of a private commercial enterprise.” 

Shaw, 478 U.S. at 317 n.5. 
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Fifth Amendment takings. The courts have determined that interest is 

inherent in the concept of “just compensation” required by the Fifth 

Amendment in order to make the property owner whole.78 See Phelps v. 

United States, 274 U.S. 341, 344 (1927). Of course, the predicate to this 

constitutional right to interest is a cognizable claim to just compensation 

under the Fifth Amendment. The takings exception is a discrete concept 

and cannot be used to open the back door to otherwise unauthorized 

interest awards where the Fifth Amendment is not involved. See, e.g., 

United States v. Alcea Band of Tillamooks, 341 U.S. 48 (1951); Alaska 

Airlines, Inc. v. Johnson, 8 F.3d 791, 798 (Fed. Cir. 1993). See also 

B-180565, May 31, 1974 (there must be some underlying legal obligation to 

which interest liability can attach); B-173904, Feb. 18, 1972 (rejecting claim 

that payment delay, alone, in circumstances where payment required 

congressional enactment of an appropriation, constituted a compensable 

Fifth Amendment taking).

Commercial ventures. The “commercial venture” exception originated in 

the Supreme Court’s decision in Standard Oil Co. v. United States, 

267 U.S. 76 (1925). Under World War I legislation, the United States had 

insured a private steamship against certain war risks. The steamship sank 

and the main issue in litigation was whether the insurance policy applied to 

the facts of the case. The Supreme Court found the policy applicable, and 

also awarded interest. Speaking for the Court, Justice Holmes said:

“Some question was made as to the allowance of interest. 

When the United States went into the insurance business, 

issued policies in familiar form and provided that in case of 

disagreement it might be sued, it must be assumed to have 

accepted the ordinary incidents of suits in such business.” 

Standard Oil, 267 U.S. at 79. See also Bituminous Casualty Corp. v. 

Lynn, 503 F.2d 636 (6th Cir. 1974), awarding interest on a recovery under a 

reinsurance contract issued by the Department of Housing and Urban 

78 Apart from legislative takings and physical invasions (which can give rise to “inverse 

condemnation” lawsuits), the government may use the “complaint only” procedure, 

40 U.S.C. § 3113, under which the government does not acquire title until it tenders payment, 

and by invoking the Declaration of Taking Act, 40 U.S.C. § 3114–3115, in which event title 

vests in the United States the moment the declaration is filed. (For more on these methods 

of property acquisition, see Chapter 13, section B.5.b.) Even though the courts have ruled 

that constitutional “just compensation” inherently authorizes interest against the 

government, the Declaration of Taking Act specifically provides for interest.
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Development (HUD). Citing Standard Oil, the court noted the “well 

defined” exception to the general rule when a federal agency “embarks on a 

business venture” with the power to sue and be sued. Bituminous 

Casualty, 503 F.2d at 643. The court stated three grounds for the interest 

award: HUD’s sue-and-be-sued clause, the “self-supporting nature” of the 

HUD program, and the fact that the transactions resembled those of private 

parties. Id. at 645.

Another example is the United States Postal Service. In Loeffler v. Frank, 

486 U.S. 549, 556 (1988) (citations and quotation marks omitted), the Court 

observed:

“By launching the Postal Service into the commercial world, 

and including a sue-and-be-sued clause in its charter, 

Congress has cast off the Service’s cloak of sovereignty and 

given it the status of a private commercial enterprise. . . . It 

follows that Congress is presumed to have waived any 

otherwise existing immunity of the Postal Service from 

interest awards.”

The Court further noted that the interest award would not be inconsistent 

with the Postal Service’s enabling legislation (Postal Reorganization Act), 

would not threaten “grave interference” with the Service’s operations, and 

was not contrary to anything in the legislative history of the Service’s sueand-be-sued authority. Loeffler, 486 U.S. at 556–57.

Based on the Supreme Court’s Loeffler formulation, it seems clear that the 

“commercial venture” exception to the general rule requires several things. 

First, there must be a sue-and-be-sued clause. Pender Peanut Corp. v. 

United States, 21 Cl. Ct. 95, 97 (1990). Second, a sue-and-be-sued clause 

alone is not enough; the agency or program involved must be one that 

Congress has launched into the commercial world. Id. Finally, liability for 

interest must not be inconsistent with the relevant enabling or program 

legislation. Id. Applying the Loeffler criteria, courts have refused to 

invoke the “commercial venture” exception when a federal agency does not 

have a sue-and-be-sued clause and is engaged in primarily governmental, as 

opposed to commercial, functions. McGehee v. Panama Canal 

Commission, 872 F.2d 1213 (5th Cir. 1989) (unlike the Panama Canal 

Company that it replaced, the Commission was not given sue-and-be-sued 

authority); Wilson v. United States, 756 F. Supp. 213 (D.N.J. 1991) (former 

Veterans Administration).
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Specific interest statutes

In the United States Court of Federal Claims, pre-judgment interest, when 

not otherwise provided for by law, is governed by 28 U.S.C. § 2516(a), 

which essentially codifies the general rule: “Interest on a claim against the 

United States shall be allowed in a judgment of the United States Court of 

Federal Claims only under a contract or Act of Congress expressly 

providing for payment thereof.” As the Supreme Court explained in United 

States v. N.Y. Rayon Importing Co., 329 U.S. 654, 659 (1947), the statute 

means exactly what it says. The authority to award interest may not be 

implied, nor may it be derived from some expression of intent not reflected 

in explicit statutory or contractual language. Id.

With respect to contractual waivers of the government’s immunity, it 

should be remembered that the government will not be bound by the 

unauthorized acts of its officers and employees. E.g., OPM v. Richmond, 

496 U.S. 414, 419–20 (1990). See also B-306353, Oct. 26, 2005; B-290901, 

Dec. 16, 2002. Accordingly, the courts and GAO have disallowed monetary 

claims against the government based on contractual waivers of sovereign 

immunity where the persons who contracted on behalf of the government 

lacked authority to bind the government to pay monetary damages. See, 

e.g., Robbins v. United States Bureau of Land Management, 438 F.3d 1074, 

1084 (10th Cir. 2006); B-258257, Nov. 28, 1994.

In numerous statutes, Congress has authorized the recovery of prejudgment interest against the United States. Under some of these statutes, 

interest is an entitlement; under others, it is merely authorized and must be 

affirmatively awarded. The following listing is by no means comprehensive 

but is intended to identify some important examples:

• Back Pay Act. Under 5 U.S.C. § 5596(b)(2), back pay “shall be payable 

with interest” calculated from the effective date of the withdrawal or 

reduction of pay to a date not more than 30 days prior to the date of 

payment. The applicable interest rate is the rate for tax overpayments 

determined under 26 U.S.C. § 6621(a)(1). Interest is payable from the 

same source as the back pay. E.g., 69 Comp. Gen. 40, 43 (1989). 

Section 5596(b)(2) applies to both administrative awards under the 

Back Pay Act, which are payable from agency funds (69 Comp. Gen. 

at 42), as well as judicial awards, which are generally payable from the 

Judgment Fund (58 Comp. Gen. 311 (1979)). Sometimes a court will 

order “front pay” which is an increment above the employee’s current 

pay. In 60 Comp. Gen. 375 (1981), GAO concluded that a front pay 
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award is more in the nature of damages, and it should be paid from the 

Judgment Fund.

• Wrongful tax levy. Where a court determines that a tax levy was 

improper, interest on the judgment is provided for in 26 U.S.C. 

§ 7426(g). If the levy was executed on money, interest runs from the 

date the Internal Revenue Service (IRS) received the money to the date 

of payment of the judgment. If the levy was executed on other property 

which has been sold, interest runs from the date of the sale to the date 

of payment of the judgment. The applicable rate of interest is, again, 

the tax overpayment rate under 26 U.S.C. § 6621(a)(1).

• Tax refund judgments. When a taxpayer receives a judgment “for any 

overpayment in respect of any internal revenue tax,” “interest shall be 

allowed” under 28 U.S.C. § 2411 from the date of the payment or 

collection of the overpayment to a date, to be determined by the IRS, 

preceding the date of the refund check by not more than 30 days. Once 

more, the applicable interest rate is the tax overpayment rate.

• Equal Access to Justice Act. Under the Equal Access to Justice Act 

(EAJA), 28 U.S.C. § 2412(f), if the United States appeals an EAJA award 

of costs or fees and other expenses and the award is affirmed, in whole 

or in part, interest shall be paid on the amount of the award as affirmed. 

This interest is computed at the 52-week Treasury bill rate determined 

under 28 U.S.C. § 1961(a), from the date of the award “through the day 

before the date of the mandate of affirmance.” See, e.g., Haitian 

Refugee Center v. Meese, 791 F.2d 1489, 1501 (11th Cir. 1986).

• Court of International Trade. When a plaintiff obtains monetary relief 

by judgment or stipulation in an action under section 515 of the Tariff 

Act of 1930, 19 U.S.C. § 1515, interest “shall be allowed,” running from 

the filing of the summons to the date of the payment, at the rate 

established under 26 U.S.C. § 6621.

• Judgment offsets. Under 31 U.S.C. § 3728, the government is required 

to set off debts owed to the United States against awards payable to the 

debtor from the Judgment Fund, 31 U.S.C. § 1304. If the debtor agrees 

to the setoff, the matter ends there. If the debtor disputes the setoff, 

the government must bring a lawsuit against the debtor and prove the 

debt in court. If the government ultimately recovers less in that lawsuit 

than the amount it set off, the statute requires the government to repay 
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the balance owed with 6 percent interest for the time it was withheld. 

31 U.S.C. § 3728.

• Contract Disputes Act. The Contract Disputes Act of 1978, 41 U.S.C. 

§ 611, requires the government to pay interest on contract claims from 

the date the contracting officer receives the claim to the date of 

payment. It applies whether the claim is allowed by the contracting 

officer, a board of contract appeals, or a court.

• Medicare Provider Reimbursements. Courts are authorized by 

42 U.S.C. § 1395oo(f)(2) to award interest to Medicare providers during 

judicial review of determinations by the Provider Reimbursement 

Review Board. See, e.g., Tucson Medical Center v. Sullivan, 947 F.2d 

971 (D.C. Cir. 1991).

• Title VII of the Civil Rights Act. As amended in 1991, Title VII, 

42 U.S.C. § 2000e-16(d), makes the government liable for interest to 

compensate for payment delays in the same manner as private parties.

• Superfund. The Comprehensive Environmental Response, 

Compensation, and Liability Act, as amended by the Superfund 

Amendments and Reauthorization Act of 1986, makes federal agencies 

liable for the same awards, including interest, that nongovernmental 

entities are liable for. 42 U.S.C. §§ 9607, 9620. Interest under these laws 

is paid at the rate specified for investments of the Hazardous Substance 

Superfund under 26 U.S.C. § 9507(d). Similar governmental liability is 

provided for Superfund reimbursement claims. See Santa Fe Pacific 

Realty Corp. v. United States, 780 F. Supp. 687, 696–97 (E.D. Cal. 1991); 

B-245482-O.M., Apr. 8, 1992.

• Suits in Admiralty Act and Public Vessels Act. A money judgment 

against the United States in a libel in personam under the Suits in 

Admiralty Act may include 4 percent interest to the date of payment, 

unless a higher rate is stipulated in the contract. 46 U.S.C. § 30911(b). 

Interest may not accrue prior to the filing of the suit except pursuant to 

an express contract stipulation. 46 U.S.C. § 30911(a). The Public 

Vessels Act incorporates the interest provisions of the Suits in 

Admiralty Act, except that interest may not accrue prior to the date of 

the judgment except pursuant to an express contract stipulation. 

46 U.S.C. § 31107.
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Most of the previous discussion has centered on pre-judgment interest—

interest allowed as part of a judgment against the United States. The same 

general observations that apply to pre-judgment interest are equally 

applicable to post-judgment interest—interest that is payable on the 

judgment itself. First, payment of post-judgment interest requires a clear 

and explicit waiver of sovereign immunity, with interpretive ambiguities 

resolved against a waiver.79 Second, Congress, in fact, has statutorily 

waived sovereign immunity to permit the award of post-judgment interest 

against the United States in many situations and circumstances—enacting 

or amending legislation in specific contexts as deemed necessary or 

desirable. See, e.g., Arvin v. United States, 742 F.2d 1301, 1304 (11th Cir. 

1984).

79 Citing a number of precedents, the Federal Circuit summarized in Marathon Oil Co. v. 

United States, 374 F.3d 1123, 1127 (Fed. Cir. 2004), cert. denied, 544 U.S. 1031 (2005), the 

governing principles of post-judgment interest:

“The no-interest rule applies to claims for post-judgment interest. . . . Well 

established rules of statutory construction frame the court’s analysis of 

whether Congress has waived sovereign immunity in a statute or statutory 

scheme, and they tilt the interpretive playing field in favor of the government’s 

immunity. . . . A waiver of sovereign immunity must be unequivocally 

expressed or a court must infer that Congress did not intend to create a 

waiver. . . . If a statute is susceptible to a plausible reading under which 

sovereign immunity is not waived, the statute fails to establish an 

unambiguous waiver and sovereign immunity therefore remains intact.”
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Other waivers apply to awards made by particular courts. The authority for 

these post-judgment interest assessments arises under 28 U.S.C.

§ 2516(b),80 28 U.S.C. § 1961,81 and 31 U.S.C. § 1304(b)(1)(B).82 Essentially, 

when read together these statutes allow post-judgment interest when the 

United States appeals and loses in certain situations and subject to certain 

procedural requirements.83 See, e.g., Marathon Oil, 374 F.3d at 1128 (“a 

chain of cross-references that links four distinct statutory provisions”).84 

See also Globe Savings Bank, F.S.B. v. United States, 74 Fed. Cl. 736, 741–

42 (2006); United States v. Wilson, 926 F.2d 725 (8th Cir. 1991); Thompson v. 

Kennickell, 797 F.2d 1015 (D.C. Cir. 1986), cert. denied, 480 U.S. 905 (1987).

Most court judgments against the United States are paid from the Judgment 

Fund, a permanent, indefinite appropriation established by 31 U.S.C. 

§ 1304. See, e.g., B-279886, Apr. 28, 1998. This fact offers a convenient 

handle to begin to grasp the authority for post-judgment interest 

assessments. Section 1304 appropriates funds and specifies procedures for 

80 Under 28 U.S.C. § 2516(b):

“Interest on a judgment against the United States affirmed by the Supreme 

Court after review on petition of the United States is paid at a rate equal to the 

weekly average 1-year constant maturity Treasury yield, as published by the 

Board of Governor of the Federal Reserve System, for the calendar week 

preceding the date of the judgment.”

81 The terms of 28 U.S.C. § 1961(c) provide in part that:

“(1) This section shall not apply in any judgment of any court with respect to 

any internal revenue tax case. Interest shall be allowed in such cases at [the 

rate specified under 26 U.S.C. § 6621].

“(2) Except as otherwise provided in paragraph (1) of this subsection, interest 

shall be allowed on all final judgments against the United States in the United 

States Court of Appeals for the Federal [C]ircuit, at the rate provided in 

subsection (a) and as provided in subsection (b).

“(3) Interest shall be allowed, computed, and paid on judgments of the United 

States Court of Federal Claims only as provided in paragraph (1) of this 

subsection or in any other provision of law.”

82 Section 1304 is quoted in the text below.

83 This authority applies only to the extent that the law governing the underlying matter does 

not provide otherwise. See, e.g., 28 U.S.C. § 1961(c)(3) (interest shall only be allowed as 

provided in this section “or in any other provision of law”).

84 The court’s math differs from ours because it counts two subsections of 28 U.S.C. § 1961 

as separate laws.
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the payment of many, if not most, judgments rendered against the United 

States. Id. With respect to interest, section 1304(a) states that “[n]ecessary 

amounts are appropriated to pay final judgments, awards, compromise 

settlements, and interest and costs specified in the judgments or otherwise 

authorized by law” (emphasis added) when certain procedural 

requirements have been met. Section 1304(b) adds:

“(1) Interest may be paid from the [Judgment Fund]—

“(A) on a judgment of a district court, only when the 

judgment becomes final after review on appeal or 

petition by the United States Government, and then only 

from the date of filing of the transcript of the judgment 

with the Secretary of the Treasury through the day 

before the date of the mandate of affirmance, or

“(B) on a judgment of the Court of Appeals for the 

Federal Circuit or the United States Court of Federal 

Claims under section 2516(b) of title 28, only from the 

date of filing of the transcript of the judgment with the 

Secretary of the Treasury through the day before the 

date of the mandate of affirmance.

“(2) Interest payable under this subsection in a proceeding 

reviewed by the Supreme Court is not allowed after the end 

of the term in which the judgment is affirmed.”

As summarized in 73 Comp. Gen. 46, 48 (1993), before payment may be 

made from the Judgment Fund, the Secretary of the Treasury85 must certify 

that an award satisfies four basic criteria. 31 U.S.C. § 1304(a)(2). First, the 

award must be final. 31 U.S.C. § 1304(a). Second, the award must provide 

monetary, rather than injunctive, relief. E.g., 70 Comp. Gen. 225, 228 

(1991). Third, the award must have been made under one of the authorities 

specified in 31 U.S.C. § 1304(a)(3), which include, but are not limited to, 

28 U.S.C. § 2414 (United States District Court judgments and compromise 

85 Effective June 30, 1996, the duty to certify payments from the Judgment Fund was 

transferred from GAO to the Treasury Department. Pub. L. No. 104-53, § 211, 109 Stat. 514, 

535 (Nov. 19, 1995); Pub. L. No. 104-316, §§ 202(k)–202(m), 110 Stat. 3826, 3843 (Oct. 19, 

1996). See B-275605, Mar. 17, 1997 (circular letter announcing the transfer of functions, 

including Judgment Fund certification).
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settlements negotiated by the Justice Department to dispose of actual or 

imminent litigation) and 28 U.S.C. § 2517 (Court of Federal Claims 

judgments). Fourth, payment of the award must not be “otherwise 

provided for.” 31 U.S.C. § 1304(a)(1). These criteria and conditions must 

be strictly complied with. See, e.g., Marathon Oil, 374 F.3d at 1136–37; 

Dickerson v. United States, 280 F.3d 470, 478–79 (5th Cir. 2002); 44 Comp. 

Gen. 421 (1965).

To understand how the Judgment Fund statute applies to the payment of 

interest awards also requires an understanding of how section 1304 fits into 

the larger web of federal statutes, such as 28 U.S.C. § 2516 and 18 U.S.C. 

§ 1961, that address the authority to allow and pay interest awards against 

the United States under specific programs and by specific courts. The 

decision in Globe, 74 Fed. Cl. at 741–42, concerned a lawsuit brought to 

recover a great deal of money that Globe lost beginning in 1990 due to 

government actions. Globe had recently won a favorable remand in the 

matter, but it feared that the government would appeal again from any final 

judgment that court might issue on remand. For this reason, Globe urged 

the court to enter a partial final judgment in the amount of $20,902,446. 

The court explained to Globe that, under the circumstances of the case and 

pursuant to sections 1304, 1961, and 2516, payment could not yet be made 

and interest could not be awarded because the matter was not yet final. 

Globe, 74 Fed. Cl. at 741–42. The court added, “This result might not be just 

or equitable, but it is required by law.” Id. at 742. See also Marathon Oil, 

374 F.3d 1123; Wilson, 926 F.2d 725; Thompson, 797 F.2d 1015.

(2) Costs and attorney fees

We preface this discussion by invoking once again two now familiar 

principles: Just as with the case of the award and payment of the 

underlying judgment, both a statutory waiver of sovereign immunity and an 

appropriation of funds are necessary to permit the award and payment of 

costs and attorney fees against the federal government. See Knight v. 

United States, 982 F.2d 1573 (Fed. Cir. 1993); Cassata v. Federal Savings & 

Loan Insurance Corp., 445 F.2d 122, 125 (7th Cir. 1971); 23 Comp. Gen. 805 

(1944). Congress, however, has enacted a host of statutes that do both. 

These statutory authorities have generated a great deal of litigation.86 This 

prompted one court to observe: “To the old adage that death and taxes 

86 In a 1983 decision, the Supreme Court lamented that a “request for attorney’s fees should 

not result in a second major litigation.” Hensley v. Eckerhart, 461 U.S. 424, 437 (1983).
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share a certain inevitable character, federal judges may be excused for 

adding attorneys’ fees cases.”87 Kennedy v. Whitehurst, 690 F.2d 951, 952 

(D.C. Cir. 1982). While there is considerable GAO and other case law in this 

area, our modest purpose here is to briefly highlight some of the major 

statutes and their basic features, particularly from an appropriations law 

perspective.

Costs

In 1966, Congress waived a portion of the government’s sovereign 

immunity by statutorily allowing courts to assess costs against the 

government in all civil actions unless specifically prohibited. See Pub. L. 

No. 89-507, § 1, 80 Stat. 308 (July 18, 1966), codified at 28 U.S.C. § 2412(a). 

These costs are “limited to reimbursing in whole or in part the prevailing 

party for the costs incurred by such party in the litigation.” 28 U.S.C. 

§ 2412(a)(1). Congress intended the 1966 amendments to “put private 

litigants and the United States on an equal footing regarding cost awards.” 

54 Comp. Gen. 22, 23 (1974).

Section 2412(a)(1) states that, except as otherwise specifically provided by 

statute, costs, “as enumerated in” 28 U.S.C. § 1920, “may be awarded to the 

prevailing party in any civil action brought by or against the United States.” 

The cross-reference in section 2412(a)(1) to 28 U.S.C. § 1920 serves to 

identify six categories of permissible costs. These six categories include:

• fees of the clerk and marshal;

• fees of the court reporter for all or any part of the stenographic 

transcript necessarily obtained for use in the case;

• fees and disbursements for printing and witnesses;

• fees for exemplification and copies of papers necessarily obtained for 

use in the case;

• docket fees under 28 U.S.C. § 1923; and

87 Check out the quote suggesting an analogy between attorney’s fees and paying tribute to 

Genghis Khan. In re Four Star Terminals, Inc., 42 B.R. 419, 428 n.2 (Bankr. D. Alaska 

1984). 
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• compensation of court-appointed experts and interpreters, and 

salaries, fees, expenses, and costs for special interpretation services 

under 28 U.S.C. § 1828.

28 U.S.C. § 1920. This list “now embodies Congress’ considered choice as 

to the kinds of expenses that a federal court may tax as costs against the 

losing party.” Crawford Fitting Co. v. J.T. Gibbons, Inc., 482 U.S. 437, 440 

(1987). See also United States Equal Employment Opportunity 

Commission v. W&O, Inc., 213 F.3d 600, 620 (11th Cir. 2000). The courts 

are free to construe the meaning and scope of the items enumerated in 

section 1920, and may exercise discretion in allowing or disallowing them, 

but may not assess costs beyond those enumerated.88 See, e.g., 

Frederick v. City of Portland, 162 F.R.D. 139, 142 (D. Or. 1995).

Section 2412(c)(1) provides that costs awarded under section 2412(a) shall 

be in addition to any relief provided in the judgment, and “shall be paid as 

provided in sections 2414 and 2517 of this title.” Sections 2414 and 2517 

address, among other things, the payment of awards against the United 

States rendered in the district courts, the Court of International Trade, and 

the United States Court of Federal Claims. 28 U.S.C. §§ 2414, 2517. Thus, 

section 2412(c)(1) means that these cost awards are payable from the 

Judgment Fund like other judgments against the United States. However, 

the authority to award costs under 28 U.S.C. § 2412(a) is not limited to 

cases involving money judgments. B-165149-O.M., Sept. 23, 1968. The 

statute also applies to costs awarded on appeal, to the extent authorized by 

law. Super Food Services, Inc. v. United States, 416 F.2d 1236, 1241 (7thCir. 

1969).

88 Notwithstanding this rule, if an item not included in this list is assessed against the United 

States and allowed to become final, it must be certified for payment from the Judgment 

Fund under 31 U.S.C. § 1304, unless payment is otherwise provided for. See 41 Comp. 

Gen. 583 (1962). Cf., B-259065, Dec. 21, 1995, at 6 (notwithstanding any errors that may 

have occurred, “[o]nce all rights of appeal have been exhausted in any particular case, or it 

has been decided to forego appeal, the court’s decision becomes final, which is also to say 

conclusive and binding upon the government and the Judgment Fund process”).
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Attorney fees89

In England, it is customary for the loser to pay the winner’s attorneys fees. 

E.g., Alyeska Pipeline Service Co. v. Wilderness Society, 421 U.S. 240, 247 

n.18 (1975). This is called the “English Rule.” Anderson v. Griffin, 

397 F.3d 515, 522 (7th Cir. 2005). The United States, by contrast, follows the 

so-called “American Rule,” under which each side to a lawsuit bears its 

own legal expenses. Id. Here in the United States, absent a specific 

statutory (or contractual) authorization, the prevailing litigant or claimant 

ordinarily may not recover attorney’s fees from the loser. E.g., 

Buckhannon Board and Care Home, Inc. v. West Virginia Department of 

Health and Human Resources, 532 U.S. 598, 602 (2001); Summit Valley 

Industries, Inc. v. Local 112, United Brotherhood of Carpenters & Joiners 

of America, 456 U.S. 717, 721 (1982). In principle, of course, even without 

the American Rule, sovereign immunity shields the United States from 

attorney fee awards except where the government has waived its immunity. 

Ardestani v. Immigration & Naturalization Service, 502 U.S. 129, 137 

(1991). Today’s reality is that Congress has enacted a vast host of feeshifting statutes—so many that some might be tempted to conclude that 

the American Rule and this application of the principle of sovereign 

immunity had been converted to exceptions. There are well over 

100 federal fee-shifting statutes on the books. Morillo-Cedron v. District 

Director for the United States Citizenship and Immigration Services, 

452 F.3d 1254, 1257–58 (11th Cir. 2006) (citing a listing of fee-shifting 

89 Everyone loves a good lawyer joke. The following quotation is taken from Judge Wilkey’s 

dissenting opinion in Copeland v. Marshall, 641 F.2d 880, 929–30 n.53 (D.C. Cir. 1980):

“An immediately deceased lawyer arrived at the Pearly Gates to seek 

admittance from St. Peter. The Keeper of the Keys was surprisingly warm in 

his welcome: ‘We are so glad to see you, Mr. ___. We are particularly happy to 

have you here, not only because we get so few lawyers up here, but because 

you lived to the wonderful age of 165.’ Mr. ___ was a bit doubtful and hesitant. 

‘Now, St. Peter, if there’s one place I don’t want to get in under false pretenses, 

it’s Heaven. I really died at age 78.’ St. Peter looked perplexed, frowned, and 

consulted the scroll in his hand. ‘Ah, I see where we made our mistake as to 

your age. We just added up your time sheets!’”
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statutes in an appendix to the dissenting opinion of Justice Brennan in 

Marek v. Chesny, 473 U.S. 1, 43–51 (1985)).90

Once again, our objective here is limited to presenting an overview of 

attorney fee awards, as seen from the perspective of appropriations law. 

An award of attorney’s fees may be included in a judgment on the merits or 

may be made in a separate judgment or order. In a few instances, attorney 

fees are paid from the amount recovered on the underlying claim, and are 

allowable up to a specified maximum percentage of the recovery.91 Other 

statutes authorize courts (or administrative agencies) to award reasonable 

attorneys fees to the prevailing party separate from and in addition to any 

monetary recovery in the underlying judgment.92 In either case, like other 

money judgments against the United States, judicial awards of attorney 

fees are payable—unless otherwise provided by law—from the permanent, 

indefinite appropriation established by 31 U.S.C. § 1304 and commonly 

known as the Judgment Fund. E.g., 61 Comp. Gen. 260, 261 (1982); 

B-239556, Oct. 12, 1990; B-231771, Dec. 7, 1988. Similarly, unless otherwise 

provided by law, administrative awards of attorney fees are payable from 

the agency’s appropriations. B-199291, June 19, 1981. The parties may not 

alter the correct source of payment by stipulating a specific payment 

source in a settlement agreement. 69 Comp. Gen. 114 (1990).

Prior to 1980 Congress had dealt with fee shifting on a piecemeal basis. 

That changed in 1980 with the enactment of major fee-shifting legislation 

for general application to both administrative and judicial proceedings. 

That legislation is the Equal Access to Justice Act, referred to as “EAJA.”93

90 While this is a listing of attorney fee-shifting statutes in general, a number of the statutes 

do apply to the federal government as a defendant. Examples are the Equal Access to 

Justice Act, 5 U.S.C. § 504, 28 U.S.C. §§ 2412(b), (d); Freedom of Information Act, 5 U.S.C. 

§§ 552(a)(4)(E), (a)(4)(F); the Privacy Act, 5 U.S.C. §§ 552a(g)(2)(B), (g)(4)(B); the 

Government in the Sunshine Act, 5 U.S.C. § 552b(i); the Federal Tort Claims Act, 28 U.S.C. 

§ 2678; and the Social Security Act, 42 U.S.C. § 406(b).

91 Examples are the Federal Tort Claims Act and the Social Security Act, cited in the 

previous footnote.

92 A prominent example of this would be awards under the Equal Access to Justice Act, cited 

in note 90, supra.

93 EAJA was first enacted in Public Law No. 96-481, title II, 94 Stat. 2321, 2325 (Oct. 21, 1980). 

Portions of that law were subject to a 3-year “sunset” date. Those portions were amended 

and made permanent by Pub. L. No. 99-80, 99 Stat. 183 (Aug. 5, 1985).
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EAJA provides for both administrative and judicial awards of attorney fees. 

Administrative EAJA awards are covered in 5 U.S.C. § 504. This section 

authorizes attorney fee awards and other expenses to a party who prevails 

over a federal agency in “an adversary adjudication,” defined as “an 

adjudication under section 554 of [the Administrative Procedure Act].” 

5 U.S.C. §§ 504(a)(1), 504(b)(1)(C)(i). It adds, however, that attorney fee 

awards must be denied if the official conducting the adjudication finds that 

the losing agency’s position was “substantially justified” or that “special 

circumstances make an award unjust.” Id. § 504(a)(1). These awards are 

paid by the losing agency “from any funds made available to the agency by 

appropriation or otherwise.” Id. § 504(d). Even if the agency ultimately 

prevails, section 504(a)(4) requires the hearing officer to award attorney 

fees against the agency:

“If, in an adversary adjudication arising from an agency 

action to enforce a party’s compliance with a statutory or 

regulatory requirement, the demand by the agency is 

substantially in excess of the decision of the adjudicative 

officer and is unreasonable when compared with such 

decision, under the facts and circumstances of the case, . . . 

unless the party has committed a willful violation of law or 

otherwise acted in bad faith, or special circumstances make 

an award unjust. Fees and expenses awarded under this 

paragraph shall be paid only as a consequence of 

appropriations provided in advance.”

For judicial awards, EAJA enacted two different fee-shifting provisions, 

now codified at 28 U.S.C. § 2412(b) and (d). Section 2412(b) authorizes fee 

awards to prevailing parties against the United State in civil actions 

“[u]nless expressly prohibited by statute, . . . to the same extent that any 

other party would be liable under the common law or under the terms of 

any statute which specifically provides for such an award.” As the quoted 

language indicates, section 2412(b) covers two general situations. First, it 

makes the United States liable under fee-shifting statutes that do not by 

their terms apply to the United States. An example of a statute now 

applicable to the United States by virtue of section 2412(b) is the Age 

Discrimination in Employment Act, 29 U.S.C. § 621. See Newmark v. 

Principi, 283 F.3d 172, 178 (3rd Cir. 2002). The Civil Rights Attorney’s Fees 

Award Act of 1976, 42 U.S.C. § 1988(b), is another. See Premachandra v. 

Mitts, 753 F.2d 635 (8th Cir. 1985). Section 2412(b) also makes the United 

States liable for fee awards under some court rules, such as Rule 37 of the 
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Federal Rules of Civil Procedure94 (certain discovery violations). 

M.A. Mortenson Co. V. United States, 996 F.2d 1177 (Fed. Cir. 1993); 6 Op. 

Off. Legal Counsel 525 (1982). However, the waiver of sovereign immunity 

does not extend to court rules that, unlike the Federal Rules of Civil 

Procedure, are not reviewed and approved by Congress and thus lack the 

force and effect of a federal statute. Yancheng Baolong Biochemical 

Products Company, Ltd. v. United States, 406 F.3d 1377, 1382–83 (Fed. Cl. 

2005) (rules of the Court of International Trade).

Second, it makes the United States liable under various common-law 

exceptions to the American Rule that were previously inapplicable to the 

federal government. For example, the federal circuit courts recently have 

been vigorously discussing the extent to which section 2412(b) applies to 

the common law authority to award attorney fees based on a party’s “bad 

faith.” See, e.g., Centex Corp. v. United States, 486 F.3d 1369, 1372–74 

(Fed. Cir. 2007). Awards made under section 2412(b) are paid from the 

Judgment Fund unless otherwise provided for by law. One example of 

when these awards are otherwise provided for can be seen in 28 U.S.C. 

§ 2412(c)(2), specifying that an award based on a finding of bad faith under 

this statutory provision must be paid from agency funds. See, e.g., 

63 Comp. Gen. 260 (1984).

The second EAJA provision, applicable to judicial awards is 

section 2412(d). It is a “catch-all” provision that generally applies to any 

civil action brought by or against the United States except tort cases or 

cases subject to another fee-shifting statute. It parallels the provisions of 

5 U.S.C. § 504(a), discussed above. A prevailing party (other than the 

United States) who meets specified financial eligibility criteria may apply 

to the court for a fee award under this subsection. Fees will be awarded 

unless the court finds that “the position of the United States was 

substantially justified or that special circumstances make an award unjust.” 

28 U.S.C. § 2412(d)(1)(A). The “substantially justified” determination 

includes the underlying administrative action, as well as the government’s 

position in the lawsuit. 28 U.S.C. § 2412(d)(1)(B). Once the party applies 

for the fee application, the burden shifts to the United States to establish 

94 The Federal Rules of Civil Procedure are available at

www.judiciary.house.gov/media/pdfs/printers/109th/civil2005.pdf (last visited June 10, 

2008). 
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that its position was substantially justified.95 E.g., International Air 

Response, Inc. v. United States, 80 Fed. Cl. 460, 463 (2008). Fees are 

limited to $125 per hour, but courts may award higher amount based on 

cost-of-living increases or other special factors. 28 U.S.C. § 2412(d)(2)(A). 

An award may be reduced or denied if the prevailing party has “unduly and 

unreasonably protracted” the case. 28 U.S.C. § 2412(d)(1)(C).

As amended in 1985,96 EAJA provides that section 2412(d) awards “shall be 

paid by any agency over which the party prevails from any funds made 

available to the agency by appropriation or otherwise.” 28 U.S.C. 

§ 2412(d)(4). Line-item appropriations are not required for this purpose. 

E.g., Electrical District No. 1 v. Federal Energy Regulatory Commission, 

813 F.2d 1246 (D.C. Cir. 1987); 63 Comp. Gen. 260, 263 (1984); 6 Op. Off. 

Legal Counsel 204, 209–12 (1982).

(3) Deductions

If someone entitled to payment from the Judgment Fund also owes a debt 

to the United States, the Secretary of the Treasury is required by 31 U.S.C. 

§ 3728 to set off (withhold) that amount from the Judgment Fund payment. 

This set-off requirement has been on the books since 1875. Act of March 3, 

1875, ch. 149, 18 Stat. 481. As the Court of Claims said in Labadie v. United 

States, 33 Ct. Cl. 476, 480 (1898): “When the time of payment comes the 

statutes give the accounting officers . . . abundant authority to set off an 

indebtedness due from a claimant to the United States against a judgment 

in his favor.”

It is important, in this context, however, to distinguish between setoff 

taken against awards payable from the Judgment Fund pursuant to 

section 3728 and setoff taken in other contexts or pursuant to other 

statutes or common law authority. The procedures of section 3728 apply 

only to setoff against awards payable from the Judgment Fund. Thus, they 

do not apply to the government’s right of setoff prior to the entry of 

judgment on the claim against which offset is sought. E.g., Fitzgerald v. 

95 Suffice it to say that the meaning of “substantially justified” has been much litigated. We 

will not go into that case law here. See, e.g., Pierce v. Underwood, 487 U.S. 552 (1988).

96 Pub. L. No. 99-80, 99 Stat. 183 (Aug. 5, 1985). The 1985 EAJA amendments also added to 

the act’s coverage what is now the Court of Federal Claims, 28 U.S.C. § 2412(d)(2)(F), and 

the boards of contract appeals, 28 U.S.C. § 2412(d)(2)(E). Later legislation added the Court 

of Appeals for Veterans Claims. 28 U.S.C. § 2412(d)(2)(F).
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Staats, 578 F.2d 435, 439 (D.C. Cir.), cert. denied, 439 U.S. 1004 (1978). The 

right of setoff against an administrative claim is wholly independent of 

section 3728, and there is no requirement to seek the debtor’s consent 

pursuant to section 3728 when pursuing setoff in that context.97 E.g., 

Project Map, Inc. v. United States, 486 F.2d 1375 (Ct. Cl. 1973); 14 Comp. 

Gen. 849 (1935). Likewise, section 3728 has no application to setoff taken 

by an executive agency against a judgment payable from agency funds 

rather than the Judgment Fund and provides no basis for awarding interest 

in conjunction with such an offset. Bianchi v. United States, 46 Fed. Cl. 

363 (2000).

Section 3728 both establishes the requirement for setoff and prescribes the 

procedures to be followed. If the plaintiff consents, the amount of the debt 

is deducted from the amount paid pursuant to 31 U.S.C. § 1304 and the debt 

is discharged. 31 U.S.C. § 3728(b)(1). If the plaintiff refuses to consent or 

denies the indebtedness, the amount must still be withheld, together with 

the estimated cost of prosecuting the debt to final judgment, 31 U.S.C. 

§ 3728(b)(2)(A). Thereafter, the statute requires, the Secretary shall “have 

a civil action brought if one has not already been brought.” 31 U.S.C. 

§ 3728(b)(2)(B). If the government loses in this action or if the amount 

recovered on the debt and costs is less than the amount withheld, the 

balance must be paid over to the plaintiff with 6 percent interest for the 

time it was withheld. 31 U.S.C. § 3728(c).

The requirements of 31 U.S.C. § 3728 with respect to judgment creditors 

have generally been viewed as mandatory. E.g., B-259532, Mar. 6, 1995; 

37 Op. Att’y Gen. 215, 217–18 (1933). Thus, an agreement purporting to 

consent to the entry of final judgment without regard to setoff is invalid. 

Eastern Transportation Co. v. United States, 159 F.2d 349, 352 (2nd Cir. 

1947).

On the other hand, the award subject to setoff does not have to arise from a 

judgment in order to trigger the procedures of 31 U.S.C. § 3728. Where the 

applicable statute provides for payment from the Judgment Fund “in a 

manner similar to judgments and compromises in like causes,” or “in 

accordance with the procedures provided by” section 1304, or pursuant to 

97 Of course, other procedural requirements may apply to setoffs taken in other contexts. 

See, e.g., 5 U.S.C. § 5514 (procedures for salary offset); 31 U.S.C. § 3728 (procedures for 

administrative offset). See also 64 Comp. Gen. 142 (1984) (discussing due process 

requirements under various authorities).
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some other similar language, the procedures of section 3728 will apply. 

E.g., B-135984, May 21, 1976 (those administrative settlements under the 

Federal Tort Claims Act which are payable from the Judgment Fund 

because they exceed $2,500, as provided by 28 U.S.C. § 2672); B-210316-

O.M., Sept. 16, 1983 (awards made by boards of contract appeals under the 

Contract Disputes Act).

As discussed above, administrative back pay awards are normally paid 

from agency funds. 69 Comp. Gen. 40, 42 (1989). When an agency pays an 

employee’s salary, it normally makes several deductions from the gross 

amount for such things as income tax and retirement fund contributions. 

Typical deductions include federal income tax, state income tax, retirement 

fund or social security contribution, Medicare tax, and Federal Employees 

Group Life Insurance.98 The treatment of these types of deductions may 

become an issue when an employee receives back pay from the Judgment 

Fund as the result of a lawsuit under the Back Pay Act, 5 U.S.C. § 5596, and 

other statutes. See, e.g., 58 Comp. Gen. 311 (1979).

Where payment is made on a judgment, deductions may not be made from 

the amount owed under the judgment unless the deductions are specified 

in the judgment or in a written agreement signed by the judgment creditor. 

In B-129346, Sept. 23, 1981, for example, GAO held that is had no authority 

to unilaterally withhold taxes from back pay judgments against the United 

States unless the judgments specifically directed the withholdings or the 

parties involved agreed to the deduction of specified amounts. The 

authority to certify judgments under 31 U.S.C. § 1304, GAO noted, is largely 

ministerial, and does not allow certification of judgments for payment 

“other than in accordance with their terms.” B-124720, B-129346, Aug. 1, 

1961, at 1. See also 44 Comp. Gen. 729 (1965); 8 Comp. Gen. 603, 605 

(1929). As a practical matter, however, if the parties agree to the deduction 

of a specified amount of withholding tax, their agreement may be 

implemented in making the settlement, even where the judgment itself is 

silent because the payee consented to the deduction. B-124720, B-129346, 

Sept. 23, 1981.

Some deductions, such as federal retirement and Social Security, require 

contributions by the government, as well as by the employee. As GAO 

concluded in 58 Comp. Gen. 115 (1978), if a judgment directs the payment 

98 Other adjustments which do not involve payments may also be appropriate. E.g., 

B-213604, May 15, 1984 (restoration of annual and sick leave in wrongful separation case).
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of the government’s share, as well as the employee’s share, they become 

part of the judgment and payable from the permanent appropriation. If a 

judgment directs a particular deduction but is silent with respect to the 

government’s share, the employee’s share is payable from the permanent 

appropriation because it is part of the judgment, but the government’s 

share is not and must be paid from the employing agency’s funds. 58 Comp. 

Gen. at 118–19. 

D. Claims by the 

Government: Debt 

Collection

“It is ‘as much the duty of the citizen to pay the Government 

as it is the duty of the Government to pay the citizen.’”

Cherry Cotton Mills, Inc. v. United States, 327 U.S. 536, 540 (1946), 

quoting Cong. Globe, 37th Cong., 2nd Sess. 1674 (1862).

1. Introduction As discussed above, 31 U.S.C. § 3702 charges agencies to settle “all claims 

of or against the United States,” while 31 U.S.C. § 3526(a) charges GAO to 

settle “all accounts of the United States.” Naturally, the settlement of 

claims under section 3702 regularly identifies amounts owed to the United 

States. This section discusses the accounts settlement issues encountered 

by agencies when they go about collecting these claims of the United 

States. These claims are commonly referred to as “debts”99 and this 

process is commonly known as “debt collection.”100

99 See Federal Claims Collection Act of 1966 (FCCA), as amended, 31 U.S.C. § 3701(b)(1) 

(“the term ‘claim’ or ‘debt’ means any amount of funds or property that has been determined 

by an appropriate official of the Federal Government to be owed to the United States”). See 

also Federal Claims Collection Standards (FCCS), 31 C.F.R. § 900.2(a) (for purposes of 

federal debt collection, “the terms ‘claim’ and ‘debt’ are synonymous and interchangeable”).

100 FCCA, 31 U.S.C. § 3711(a)(1) (agencies “shall try to collect . . . claim[s] of the United 

States Government for money or property”).
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The amount of delinquent debt101 owed to the federal government is 

enormous. The Treasury Department has estimated that, as of 

September 30, 2006, nontax delinquent debt stood at about $91 billion.102 

The outstanding tax debt is even more staggering: As of the same date, the 

Internal Revenue Service (IRS) estimated delinquent tax debt at about 

$245 billion.103

2. The Government’s Duty 

and Authority to Collect 

Debts Owed to It

Federal debt collection is a legal duty. Article IV, section 3, clause 2 of the 

Constitution, the so-called Property Clause, gives Congress the power to 

dispose of property belonging to the United States.104 Thus, the Supreme 

Court has stated:

101 A “delinquent” debt refers to an amount owed that was not paid by its due date, whether 

by the date specified in the agency’s written demand for payment or in a post-delinquency 

payment agreement. FCCS, 31 C.F.R. § 900.2(b). Thus, the concept and processes of debt 

collection come into play only if and when the debtor falls behind in payments and thereby 

becomes delinquent. Department of Treasury, Financial Management Service, Instructional 

Workbook for Preparing the “Treasury Report on Receivables and Debt Collection 

Activities” (May 2006), at 50–51, available at www.fms.treas.gov/debt/dmrpts.html (last 

visited June 10, 2008); 64 Comp. Gen. 366, 369 (1985). 

102 See Treasury Department, Fiscal Year 2006 Report to the Congress: U.S. Government 

Receivables and Debt Collection Activities of Federal Agencies (July 2007), at 28, available 

at www.fms.treas.gov/news/reports/debt06.pdf (last visited June 10, 2008). According to 

this report, in fiscal year 2006, total receivables increased by $8.5 billion and total 

delinquencies increased by $2.9 billion. Id. at 4.

103 See Internal Revenue Service, Financial Statements, Supplemental Information—

Unaudited: For the Fiscal Years Ended September 30, 2006 and 2005, at 27, reprinted in 

GAO, Fiscal Audit: IRS’s Fiscal Years 2006 and 2005 Financial Statements, GAO-06-137 

(Washington, D.C.: Nov. 9, 2006), at 116. The $245 billion is made up of about $91 billion in 

assessments agreed to by the taxpayers, $57 billion in assessments not agreed to, and about 

$97 billion that IRS expects to write off. Of course, the debt owed to the federal government 

pales in comparison to the amount the government owes; consider, if you will, the current 

debt ceiling of $9,815 billion. 31 U.S.C. § 3101(b), as amended by Pub. L. No. 110-91, 

121 Stat. 988 (Sept. 29, 2007). See also GAO, Financial Audit: Bureau of the Public Debt’s 

Fiscal Years 2007 and 2006 Schedules of Federal Debt, GAO-08-168 (Washington, D.C.: 

Nov. 7, 2007).

104 The Property Clause states, “The Congress shall have Power to dispose of and make all 

needful Rules and Regulations respecting the Territory or other Property belonging to the 

United States; and nothing in this Constitution shall be so construed as to Prejudice any 

Claims of the United States, or of any particular State.” For discussion of the Property 

Clause in the context of real property, see Chapter 13, sections D.3, F.2.f, and H.1.
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“Power to release or otherwise dispose of the rights and 

property of the United States is lodged in the Congress by 

the Constitution. Art. IV, § 3, Cl. 2. Subordinate officers of 

the United States are without that power, save only as it has 

been conferred upon them by Act of Congress or is to be 

implied from other powers so granted.”

Royal Indemnity Co. v. United States, 313 U.S. 289, 294 (1941). For 

example, as the Court of Claims put it in Fansteel Metallurgical Corp. v. 

United States, 172 F. Supp. 268, 270 (Ct. Cl. 1959), “when a payment is 

erroneously or illegally made it is in direct violation of article IV, section 3, 

clause 2, of the Constitution. . . . Under these circumstances it is not only 

lawful but the duty of the Government to sue for a refund thereof.” See also 

Amtec Corp. v. United States, 69 Fed. Cl. 79, 88 (2005), aff’d, 239 Fed. 

Appx. 585 (Fed. Cir. 2007).

It follows that, without a clear statutory basis, an agency has no authority 

to forgive indebtedness or to waive recovery. E.g., B-276550, Dec. 15, 1997; 

67 Comp. Gen. 471 (1988). The courts have added that even the mistakes of 

federal employees will not estop the government from fulfilling its duty to 

collect claims of the United States. E.g., Aetna Casualty & Surety Co. v. 

United States, 526 F.2d 1127, 1130 (Ct. Cl. 1975), cert. denied, 425 U.S. 973 

(1976); Lawrence v. United States, 69 Fed. Cl. 550, 557, aff’d, 206 Fed. 

Appx. 993 (2006); Amtec, 69 Fed. Cl. at 88. See also 51 Comp. Gen. 162, 165 

(1971). The duty to recover misspent federal grant funds even extends to 

grantees that innocently incur improper expenditures. B-303927, June 7, 

2005.

The courts have long recognized that the government, as sovereign, also 

has the inherent right to collect debts owed to it. E.g., United States v. 

Wurts, 303 U.S. 414, 415 (1938); United States v. Lahey Clinic Hospital, 

Inc., 399 F.3d 1, 15 (1st Cir.), cert. denied, 546 U.S. 815 (2005). “The only 

time a government agency is barred from exercising its right to recover 

overpayments is when Congress has clearly manifested its intention to 

raise a statutory barrier.” Old Republic Insurance Co. v. Federal Crop 

Insurance Corp., 746 F. Supp. 767, 770 (N.D. Ill. 1990), aff’d, 947 F.2d 269 

(7th Cir. 1991). See also O’Gilvie v. United States, 66 F.3d 1550, 1554 

(10th Cir. 1995), aff’d, 519 U.S. 79 (1996).
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Over the years, Congress, through a series of governmentwide statutes, has 

acted to affirm, regulate, and augment the government’s inherent and 

common law duty and powers with respect to debt collection.105 The first 

of these governmentwide statutes was the Federal Claims Collection Act 

(FCCA). Pub. L. No. 89-508, 80 Stat. 308 (July 19, 1966). See also Debt 

Collection Act of 1982, Pub. L. No. 97-365, 96 Stat. 1749 (Oct. 25, 1982); the 

Federal Debt Recovery Act, Pub. L. No. 99-578, 100 Stat. 3305 (Oct. 28, 

1986); Federal Debt Collection Procedures Act of 1990, Pub. L. No. 101-647, 

title XXXVI, 104 Stat. 4789, 4933 (Nov. 29, 1990); Debt Collection 

Improvement Act of 1996, Pub. L. No. 104-134, title III, ch. 10, § 31001, 

110 Stat. 1321, 1321-358 (Apr. 26, 1996). Governmentwide regulations, 

known as the Federal Claims Collection Standards (FCCS), are found at 

31 C.F.R. ch. IX. Each individual agency has authority and responsibility in 

the first instance for collecting debts arising from its own programs and 

activities. 31 C.F.R. § 901.1(a) (“Federal agencies shall aggressively collect 

all debts arising out of activities of, or referred or transferred for collection 

services to, that agency. Collection activities shall be undertaken promptly 

with follow-up action taken as necessary.”). The Departments of Treasury 

and Justice are responsible for supervising federal debt collection 

practices. 31 U.S.C. § 3711(d). Prior to 1996, when Congress transferred 

GAO’s responsibility for supervising federal debt collection activities to the 

Treasury Department,106 GAO jointly promulgated the FCCS with the 

Justice Department, and issued many decisions and opinions addressing 

federal debt collection practices.107 

105 Congress has also enacted laws in the nature of program legislation and agency organic 

authority that address the debt collection activities of specific agencies and specific 

programs. See, e.g., 19 U.S.C. § 1505(c) (customs duties); 15 U.S.C. § 634(b)(2) (Small 

Business Administration); 38 U.S.C. § 3720(a)(4) (Department of Veterans Affairs); 42 U.S.C. 

§§ 2651–2652 (various agencies with respect to third-party claims for hospital or medical 

care); 26 U.S.C. §§ 6321–6326 (tax liens) and 6331 (tax levy). Where such provisions exist, 

they and their implementing regulations take precedence over the more general debt 

collection statutes. See Federal Claims Collection Act (FCCA), Pub. L. No. 89-508, § 4, 

80 Stat. 308, 309 (July 19, 1966) (“Nothing in this Act shall increase or diminish the existing 

authority of the head of an agency to litigate claims, or diminish his existing authority to 

settle, compromise, or close claims.”); Federal Claims Collection Standards (FCCS), 

31 C.F.R. § 900.4. See, e.g., 62 Comp. Gen. 599 (1983); 62 Comp. Gen. 489 (1983).

106 General Accounting Office Act of 1996, Pub. L. No. 104-316, § 115(g), 110 Stat. 3826, 3834–

35 (Oct. 19, 1996).

107 GAO’s debt collection case law, while current only as of 1996, may still be of use to 

agencies.
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3. Debt Collection in a 

Nutshell

This part of the chapter focuses on how government debt collection efforts 

affect and are affected by appropriations law. A very basic description of 

how the government collects debts will provide a useful backdrop.108

The Federal Claims Collection Standards (FCCS) break down the 

governmentwide debt collection regime into the following components: 

administrative collection (31 C.F.R. part 901), compromise of claims (part 

902), suspension or termination of collection (part 903), and referrals for 

litigation (part 904).

The administrative collection actions described in FCCS, part 901, include:

• issuing demand letters (31 C.F.R. § 901.2);

• taking administrative offset (31 C.F.R. § 901.3);

• reporting debts to consumer reporting agencies (31 C.F.R. § 901.4);

• contracting with private collection agencies (31 C.F.R. § 901.5);109

• suspending federal licenses, permits, and privileges (31 C.F.R. § 901.6);

• liquidating security or collateral (31 C.F.R. § 901.7);

• accepting collection in installments (31 C.F.R. § 901.8); and

• assessing interest, penalties, and administrative costs (31 C.F.R. 

§ 901.9).

If these tactics do not result in prompt collection of the debt, agencies are 

required to refer their debts to the Treasury Department for further 

administrative collection efforts. 31 C.F.R. §§ 901.1(d) & (e).

In the event that collection of the complete amount cannot be 

accomplished, the FCCS addresses the authority of the agencies and 

108 For more detail, see the Federal Claims Collection Standards (FCCS), 31 C.F.R. ch. IX.

109 The Federal Claims Collection Act also gives the Justice Department broad authority to 

contract for legal services to assist in debt collection, including using private counsel to 

negotiate, compromise, settle, and litigate federal debt claims. 31 U.S.C. § 3718(b).
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Treasury to suspend or terminate collection under certain criteria 

(31 C.F.R. §§ 903.2 and 903.3). The FCCS also address agency authority to 

compromise claims (31 C.F.R. part 902) or refer administratively 

uncollectible debts to Justice for litigation (31 C.F.R. part 904). As a final 

effort to obtain at least some return on uncollectible debts, the FCCS 

requires agencies to attempt to sell nontax debts without recourse against 

the government (31 C.F.R. § 903.5(b)). Once all of these collection avenues 

have been explored, the FCCS directs agencies to discharge (also referred 

to as a close out of the debt) the debts that remain and report that fact to 

the Internal Revenue Service. 31 U.S.C. § 3711(a)(3); 31 C.F.R. §§ 903.3(a), 

903.5.

4. Common 

Appropriations Law 

Issues Associated with 

Debt Collection 

Activities

a. Diminishing Returns and 

Cost/Benefit 

Considerations

Many years ago, GAO approved the establishment of thresholds for small 

claims below which initiating or continuing collection action would not be 

cost-effective. See, e.g., 65 Comp. Gen. 893, 896 (1986) (agencies should 

establish “‘minimum debt amounts’ and realistic ‘points of diminishing 

returns’”). See also 55 Comp. Gen. 1438, 1439 (1976); 45 Comp. Gen. 553 

(1966). In this context, notwithstanding the duty to collect claims owed to 

the United States, GAO concluded that, where the costs of collection would 

greatly exceed the amounts to be recovered, agencies should adopt plans 

to forgo or cease collection in such case. See, e.g., 65 Comp. Gen. 893; 

18 Comp. Gen. 838 (1939); B-115800, Aug. 17, 1976.

The Federal Claims Collection Standards (FCCS) endorse this approach 

and encourage the use of cost-benefit analysis:

“Agency collection procedures should provide for periodic 

comparison of costs incurred and amounts collected. Data 

on costs and corresponding recovery rates for debts of 

different types and in various dollar ranges should be used 

to compare the cost effectiveness of alternative collection 

techniques, establish guidelines with respect to points at 

which costs of further collection efforts are likely to exceed 

recoveries, assist in evaluating offers of compromise, and 
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establish minimum debt amounts below which collection 

action need not be taken.”

31 C.F.R. § 901.10. In this regard, in 58 Comp. Gen. 372, 375 (1979), GAO 

held that the Interior Department could forgo collection action on 

reclamation fees paid by coal mine operators of underpayments of $1 or 

less, noting that “it may safely be presumed, without cost studies, that in 

cases of $1 or less collection action will always exceed the amount 

recoverable.” GAO also waived collection of erroneous overpayments of 

compensation over a 1-year period to nearly 5,000 National Guard 

technicians and small overpayments to approximately 10,000 persons, 

because of the administrative burden of identifying the debtors and 

computing the amounts of the individual claims. B-206699.1, B-206699.2, 

Sept. 15, 1988.

b. Disposition of Proceeds Once an agency collects a debt owed to the United States, what can/must it 

do with that money?

(1) The general rule

Generally, if an agency collects a debt owed to the United States, it must 

deposit the collection in the general fund of the United States Treasury as 

“miscellaneous receipts.” See, e.g., B-302366, July 12, 2004; 64 Comp. 

Gen. 395, 402 (1985). This rule is nothing more than an application of the 

so-called miscellaneous receipts statute, 31 U.S.C. § 3302(b), discussed 

more fully in Chapter 6, section E.2. Section 3302(b) provides that “an 

official or agent of the Government receiving money for the Government 

from any source shall deposit the money in the Treasury as soon as 

practicable without deduction for any charge or claim.” Violation of this 

statute constitutes an illegal augmentation of the agency’s appropriation. 

E.g., B-265734, Feb. 13, 1996.

As explained in B-308476, Dec. 20, 2006, appropriations establish maximum 

authorized program funding levels. Absent statutory authorization, 

agencies may not operate beyond the level that can be paid for using the 

funds Congress appropriates to them. Supplementing appropriations with 

funds obtained from sources not provided by law would improperly 

augment—meaning usurp Congress’s fiscal control over—agency 

programs. B-308476, citing B-300248, Jan. 15, 2004.
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This rule, however, is subject to two classes of exceptions, statutory 

exceptions and the refund exception. See, e.g., B-302366, July 12, 2004; 

69 Comp. Gen. 260, 262 (1990).

(2) Statutory exceptions

Statutory exceptions to the miscellaneous receipts statute are laws that 

expressly authorize an agency to credit some or all of its receipts to a 

particular fund or appropriation (instead of to the general fund of the 

Treasury), or allow it to expend those receipts without depositing them. 

See, e.g., B-241269, Feb. 28, 1991 (discussing provisions of the Economy 

Act, 31 U.S.C. §§ 1535, 1536, and the Government Employees Training Act, 

5 U.S.C. § 4104).

One such provision central to federal debt collection is 31 U.S.C. § 3718(d). 

This law, part of the Federal Claims Collection Act as amended, states 

that— 

“[n]otwithstanding section 3302(b) of this title, a contract 

under subsection (a) [private debt collectors] or (b) [private 

attorneys] of this section may provide that a fee a person 

charges to recover indebtedness owed, or to locate or 

recover assets of, the United States Government is payable 

from the amount recovered.”

In other words, this law allows agencies to use some of their collection 

proceeds to pay the fees of private debt collection contractors and lawyers 

retained to collect delinquent debts owed to the United States.

In 64 Comp. Gen. 366 (1985), GAO considered the statutory exception in 

section 3718(d). The General Services Administration (GSA) wanted to 

conserve its appropriations by using collection proceeds on a contingencyfee basis to pay contractors to examine bills GSA had already paid, identify 

any overcharges or other erroneous payments made by the government, 

request repayment for those amounts, and take other necessary and 

appropriate actions to effect their collection. 64 Comp. Gen. at 366–67. 

GAO found that some of the amounts recovered qualified as proceeds from 

the collection of delinquent debts and could be used to pay the contractors 

under 31 U.S.C. § 3718(d). Id. at 370. The majority of the amounts being 

recovered by GSA’s contractors, however, were not delinquent and arose 

from “account servicing” rather than “debt collection.” Id. at 369. 

Section 3718(d) does not apply to these amounts, and they had to be 
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deposited in full (i.e., without deductions to pay the contractors) in the 

Treasury as miscellaneous receipts. Id. at 370.

(3) Refund exception

The refund exception to 31 U.S.C. § 3302(b) concerns repayments of 

amounts that were erroneously paid from appropriated funds.110 E.g., 

B-308476, Dec. 20, 2006; 62 Comp. Gen. 70, 73 (1982). This exception 

encompasses “refunds of advances, collections for overpayments made, 

adjustments for previous amounts disbursed, or recoveries of erroneous 

disbursements from appropriation or fund accounts that are directly 

related to, and reductions of, previously recorded payments from the 

accounts.” 69 Comp. Gen. 260, 262 (1990). Refunds represent repayments 

for excess payments made by the agency to outside sources that are to be 

credited to the appropriation from which the excess payments were made. 

B-305402, Jan. 3, 2006.

For example, in B-302366, July 12, 2004, the Department of Energy asked 

whether it could retain amounts repaid to the department by one of its 

contractors. The repayment represented amounts that the department’s 

contractor had overpaid for state business and occupation taxes plus 

interest on that overpayment. B-302366. GAO agreed that the principal 

portion would be considered a refund and could be credited to the 

department’s appropriation as an overpayment of an expense under the 

contract. However, GAO also concluded that the department could not 

credit amounts that represented interest. Unlike the principal amount, the 

interest did not reflect the restoration of a previous improper payment or 

overpayment. Id. Instead, the purpose of the interest payment was to 

compensate for the passage of time and the lost earnings resulting from the 

state’s retention of money to which it was not entitled. Id. Interest paid on 

the principal amount is an amount in excess of the amount originally paid. 

Thus, the interest did not qualify as a refund under the refund exception to 

section 3302(b). Without express statutory authority, crediting the interest 

to the appropriation would augment the department’s appropriations and 

violate section 3302. Id. Cf. B-310725, May 20, 2008 (the National Science 

Foundation Inspector General (IG) may not credit to the IG appropriation 

amounts the agency recovered under the False Claims Act that represent 

110 Repayment of an appropriation also includes reimbursements. Reimbursements are 

amounts collected by the agency for goods or services furnished by the agency; an agency 

may retain reimbursements only if it has statutory authority. B-305402, Jan. 3, 2006. 
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costs incurred by the IG to investigate a False Claims Act claim; those 

amounts do not restore to the appropriation amounts that should not have 

been paid from the appropriation).

c. Accountable Officer Issues Accountable officers and agencies both have a duty to collect from people 

who receive money from the government to which they were not entitled.111 

So strong is the duty to collect that many of the statutes that address relief 

for accountable officers specifically condition relief upon diligent action to 

collect the debt. See, e.g., 31 U.S.C. §§ 3527(b)(1)(B) (certain erroneous 

payments), 3527(c) (disbursing officers), 3528(b)(2) (certifying officers). 

See also B-271017, Aug. 12, 1996. Some statutes even emphasize that 

granting relief to the accountable officer does not diminish this duty. E.g., 

31 U.S.C. §§ 3333(b), 3343(g), 3526(c)(4), 3527(d)(2).

At the same time, however, the recipient and the responsible accountable 

officer share an element of joint liability. See, e.g., B-228946, Jan. 15, 1988. 

The agency’s first obligation is to seek recovery from the recipient. 

B-212602, Apr. 5, 1984. If the agency cannot collect the full amount from 

the recipient, the accountable officer is liable for any remaining balance 

unless and to the extent that he or she is granted relief. Id.; 30 Comp. 

Gen. 298, 300 (1951). See also 62 Comp. Gen. 476, 478–79 (1983); 54 Comp. 

Gen. 112, 114 (1974). For more on accountable officers, see Chapter 9.

GAO is reluctant to deny relief solely on the basis of inadequate collection 

action because the failure may be attributable to the agency and beyond the 

accountable officer’s control. See, e.g., B-239154, Nov. 30, 1990. 

Nevertheless, GAO may deny relief for lack of adequate debt collection 

efforts when such a denial is appropriate to the facts and circumstances. 

See, e.g., B-234815, Oct. 3, 1989 (disbursing officer did not initiate 

collection action despite advice from agency counsel). 

111 People who receive money from the government to which they were not entitled, no 

matter how innocently they received it, have no right to keep it. They must pay it back. See, 

e.g., B-249371, Apr. 30, 1993; B-198770, Nov. 13, 1980; B-127649, July 9, 1956.
Page 15-1 GAO-08-978SP Appropriations Law—Vol. III

Chapter 15

Miscellaneous Topics

A. Boards, Committees, and Commissions . . . . . . . . . . . . . . . 15-6

1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-6

2. Title 31 Funding Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-8

a. 1842: The First Attempt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-9

b. 1909: The Tawney Amendment . . . . . . . . . . . . . . . . . . . . . . . . . 15-11

c. 1944: The Russell Amendment . . . . . . . . . . . . . . . . . . . . . . . . . 15-15

3. Interagency Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-17

a. Joint Funding of Common-Interest Project . . . . . . . . . . . . . . 15-17

b. 1945: The First Interagency Funding Statute . . . . . . . . . . . . . 15-18

c. Appropriation Act Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . 15-20

4. The Federal Advisory Committee Act . . . . . . . . . . . . . . . . . . . . . 15-25

a. Overview and Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-25

(1) Definition and specific exemptions . . . . . . . . . . . . . . . . . 15-28

(2) Advisory versus operational . . . . . . . . . . . . . . . . . . . . . . . 15-32

(3) Who is being advised? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-33

(4) “Established or utilized” . . . . . . . . . . . . . . . . . . . . . . . . . . 15-34

(5) Other factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-39

b. Creation and Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-41

(1) Statutory committees: creation . . . . . . . . . . . . . . . . . . . . 15-42

(2) Statutory committees: funding . . . . . . . . . . . . . . . . . . . . . 15-46

(3) Committees established by the executive branch . . . . . 15-52

(4) Donations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-58

B. Government Use of Corporate Entities . . . . . . . . . . . . . . 15-61

1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-61

2. The Problem of Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-65

a. Government Corporations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-66

b. Government-Sponsored Enterprises . . . . . . . . . . . . . . . . . . . . 15-72

c. Title 36 Patriotic, Fraternal, or Charitable Corporate 

Entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-73

d. Federally Funded Research and Development Centers . . . . 15-81

e. Summing Up . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-86

3. Creation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-88

a. Historical Background and Purpose . . . . . . . . . . . . . . . . . . . . 15-89

b. Need for Statutory Authority . . . . . . . . . . . . . . . . . . . . . . . . . . 15-95

4. Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-102

a. Government Corporation Control Act . . . . . . . . . . . . . . . . . . 15-102

(1) Origin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-102

(2) Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-104

(3) Budget provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-107

(4) Other financial controls . . . . . . . . . . . . . . . . . . . . . . . . . 15-109

(5) Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-110

b. Appointment and Control of Directors . . . . . . . . . . . . . . . . . 15-115
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5. Sources of Funds and Financing . . . . . . . . . . . . . . . . . . . . . . . . 15-120

a. Types of Financing: Government . . . . . . . . . . . . . . . . . . . . . . 15-120

(1) Direct appropriations . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-120

(2) Federal borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-122

(3) Federal ownership of stock . . . . . . . . . . . . . . . . . . . . . . 15-125

b. Types of Financing: Private . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-126

(1) Sources of private financing . . . . . . . . . . . . . . . . . . . . . . 15-126

(2) Market perception of implied backing by United 

States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-128

(3) Statutory controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-132

6. Fiscal Autonomy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-133

a. Account Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-133

b. Status of Funds Received by Corporate Entities . . . . . . . . . 15-137

c. Application of Fiscal Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-140

(1) “Character and necessity” provision . . . . . . . . . . . . . . . 15-140

(2) “Without regard” clause . . . . . . . . . . . . . . . . . . . . . . . . . 15-144

(3) Laws expressly applicable . . . . . . . . . . . . . . . . . . . . . . . 15-146

(4) Appropriation act provisions . . . . . . . . . . . . . . . . . . . . . 15-148

(5) Other provisions of title 31, United States Code . . . . . 15-149

d. Program Implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-153

(1) Commodity Credit Corporation . . . . . . . . . . . . . . . . . . . 15-155

(2) Bonneville Power Administration . . . . . . . . . . . . . . . . . 15-158

(3) Amtrak . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-164

7. Application of Other Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-169

a. Civil Service Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-169

b. Procurement Laws and Regulations . . . . . . . . . . . . . . . . . . . 15-176

(1) 41 U.S.C. § 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-176

(2) Federal Property and Administrative Services Act . . . 15-177

(3) Office of Federal Procurement Policy Act . . . . . . . . . . 15-178

(4) Federal Acquisition Regulation . . . . . . . . . . . . . . . . . . . 15-178

(5) Competition in Contracting Act . . . . . . . . . . . . . . . . . . . 15-178

(6) Other statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-179

c. General Management Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-180

(1) Inspector General Act . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-180

(2) Federal Managers’ Financial Integrity Act of 1982 . . . 15-181

(3) Chief Financial Officers Act . . . . . . . . . . . . . . . . . . . . . . 15-182

(4) Government Performance and Results Act . . . . . . . . . 15-183

(5) Government Management Reform Act of 1994 . . . . . . 15-183

(6) Federal Financial Management Improvement Act 

of 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-184

(7) Improper Payments Information Act of 2002 . . . . . . . . 15-184

d. Property Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-184
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e. Freedom of Information, Privacy Acts . . . . . . . . . . . . . . . . . 15-186

f. Printing and Binding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-189

g. Criminal Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-190

8. Claims and Lawsuits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-192

a. Administrative Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-192

(1) Claims settlement authority . . . . . . . . . . . . . . . . . . . . . . 15-192

(2) Federal Tort Claims Act . . . . . . . . . . . . . . . . . . . . . . . . . 15-193

(3) Contract Disputes Act . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-196

(4) Assignment of Claims Act . . . . . . . . . . . . . . . . . . . . . . . . 15-197

(5) Estoppel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-198

(6) Prompt Payment Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-199

(7) False Claims Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-200

(8) Interagency claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-202

b. Debt Collection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-203

c. Litigation in the Courts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-207

(1) Sovereign immunity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-207

(2) “Sue-and-be-sued” clauses . . . . . . . . . . . . . . . . . . . . . . . 15-207

(3) The Tucker Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-213

(4) Liability for costs and remedies of litigation . . . . . . . . 15-215

(5) Sovereign immunity from state and local taxes . . . . . . 15-219

(6) Litigation authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-222

9. Termination of Government Corporations . . . . . . . . . . . . . . . . 15-224

C. Nonappropriated Fund Instrumentalities . . . . . . . . . . . 15-226

1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-226

a. History of Military Morale, Welfare, and Recreation 

Organizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-227

b. Defining the Nonappropriated Fund Instrumentality . . . . . 15-232

2. Legal Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-237

a. Authority for Creation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-237

b. Relationship to the United States Government . . . . . . . . . . 15-238

3. Sources of Funding: The Use of Appropriated Funds for 

Nonappropriated Fund Instrumentalities . . . . . . . . . . . . . . . . . 15-241

a. Self-Supporting or Subsidized? . . . . . . . . . . . . . . . . . . . . . . . 15-241

b. General Rule: Appropriations Not Available for 

Morale, Welfare, and Recreation unless Authorized 

by Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-241

c. The Current Trend: Use of Appropriated Funds . . . . . . . . . 15-243

d. Other Issues in Appropriated Fund Support . . . . . . . . . . . . . 15-246

e. Borrowing by Nonappropriated Fund Activities . . . . . . . . . 15-249

4. Transactions with Federal Agencies . . . . . . . . . . . . . . . . . . . . . 15-249

a. Economy Act and Intra-Agency Orders . . . . . . . . . . . . . . . . 15-249

b. Contracting to Sell Goods and Services to Agencies . . . . . . 15-250
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c. Statutory Authority to Enter into Contracts with 

Federal Agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-252

5. Nonappropriated Fund Instrumentality Procurement . . . . . . . 15-253

6. Debts Due Nonappropriated Fund Instrumentalities . . . . . . . 15-255

7. Nonappropriated Fund Instrumentality Property . . . . . . . . . . 15-256

8. Management of Nonappropriated Fund Instrumentalities . . . 15-257

a. Regulation and Oversight . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-257

b. Authority to Audit Nonappropriated Fund Activities . . . . . 15-257

(1) GAO jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-257

(2) Other auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-258

(3) Settlement of accounts . . . . . . . . . . . . . . . . . . . . . . . . . . 15-259

(4) Bid protests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-259

9. Sovereign Immunity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-262

a. Immunity from State and Local Taxation . . . . . . . . . . . . . . . 15-262

b. Immunity from Suit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-262

c. Payment of Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-265

10. Status of Nonappropriated Fund Instrumentality 

Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-266

a. Applicability of Civil Service Laws . . . . . . . . . . . . . . . . . . . . 15-266

(1) Civil Service Reform Act of 1978 . . . . . . . . . . . . . . . . . . 15-267

(2) Other employment related laws . . . . . . . . . . . . . . . . . . . 15-271

D. Trust Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-277

1. Federal Funds and Trust Funds . . . . . . . . . . . . . . . . . . . . . . . . . 15-280

a. Federal Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-281

b. Trust Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-282

c. Congressional Prerogatives . . . . . . . . . . . . . . . . . . . . . . . . . . 15-283

2. The Government as Trustee: Creation of a Trust . . . . . . . . . . . 15-283

a. Property of Others Controlled by the United States . . . . . . 15-283

b. Trust Funds Designated by Statute . . . . . . . . . . . . . . . . . . . . 15-293

c. Accepting Donated Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-295

3. Application of Fiscal Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-297

a. Permanent Appropriation Repeal Act of 1934 . . . . . . . . . . . 15-297

b. Available Uses of Trust Funds . . . . . . . . . . . . . . . . . . . . . . . . 15-297

(1) Using donated funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-297

(2) Property of others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-300

(3) Statutory trust funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-301

c. Intergovernmental Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-303

4. Concepts of Amount and Time . . . . . . . . . . . . . . . . . . . . . . . . . . 15-304

5. Duty to Invest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-307

6. Liability for Loss of Trust Funds . . . . . . . . . . . . . . . . . . . . . . . . . 15-309

7. Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-311
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a. Setoff and Levy against Trust Funds . . . . . . . . . . . . . . . . . . . 15-311

b. Unclaimed Moneys . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-311

8. Federal Trust Funds and the Budget . . . . . . . . . . . . . . . . . . . . . 15-313
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Chapter 15

Miscellaneous Topics Chap1etr

A. Boards, 

Committees, and 

Commissions

1. Introduction In addition to the “regular” departments and agencies that tend to attract 

the most attention, the federal government at any given time includes—

although not in a formal, structural sense—a large number of 

miscellaneous bodies designated as boards, committees, commissions, and 

various similar names. So pervasive are these miscellaneous bodies that 

they have been informally called the “Fifth Branch of Government.”1

 This 

section will address funding aspects of these entities.

It is always helpful at the outset to define your universe. In this instance, 

however, we have been unable to discover or devise a satisfactory 

definition for these miscellaneous bodies. As we will see later, the Federal 

Advisory Committee Act (FACA) defines “advisory committee” for 

purposes of that statute, but advisory committees are only one type of 

these miscellaneous bodies, albeit the largest. The impossibility of crafting 

a useful definition becomes apparent upon considering the key elements of 

function, creation, membership, and duration:

• Function: Most of the bodies we are talking about are purely advisory. 

Some, however, are operational, and others have elements of both. 

Functions include, for example, such things as the investigation of 

specific incidents, claims adjudication, and the commemoration of 

historic persons or events.

• Creation: Advisory bodies can be created by Congress, the President, 

or a department head. Bodies that are not purely advisory may or may 

not require specific legislation, depending on their exact nature and 

functions.

1

 E.g., House Committee on Government Operations, The Role and Effectiveness of Federal 

Advisory Committees, H.R. Rep. No. 91-1731, at 4–5 (1970). The independent regulatory 

agencies—which also tend to be called “commissions”—comprise the so-called Fourth 

Branch. Id. 
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• Membership: The entity may consist entirely of government officers or 

employees, entirely of nongovernment parties, or some of each.

• Duration: Some are temporary; some are indefinite; some are 

permanent. Some start out as temporary and, in effect, achieve 

immortality.2

One of the earliest instances of the use of presidential commissions—if not 

purely advisory ones—occurred in 1794, when George Washington named a 

commission to investigate the Whiskey Rebellion in Pennsylvania.3

 

Although the explosive growth of these miscellaneous bodies did not occur 

until the twentieth century, they were sufficiently common in 1842 to 

prompt Henry Clay to observe that the practice had “grown into use long 

since in the Executive Department.”4

No one knows exactly how many miscellaneous boards, committees, and 

commissions exist at any given time. The only statistics available are for 

advisory committees subject to FACA,5

 certainly the largest single category, 

and for these there is a clear downward trend as they are a favorite target 

of cost-cutters. When Congress was considering FACA, the House 

Government Operations Committee reported that “there are at least 2,600 

interagency and advisory committees and possibly as many as 3,200 

presently existing,” the uncertainty being that “many agencies are unable to 

supply a list of all their advisory bodies.” H.R. Rep. No. 92-1017, at 2 (1972). 

By the end of fiscal year 1992, there were 1,236 federal advisory 

committees. General Services Administration, Twenty-Second Annual 

Report of the President on Federal Advisory Committees (1994), at 1. On 

February 10, 1993, President Clinton issued Executive Order No. 12838, 

directing executive branch departments and agencies to terminate at least 

one-third of the “advisory committees subject to FACA (and not required by 

2

 We are not talking about the so-called independent regulatory agencies such as the 

Securities and Exchange Commission, Federal Communications Commission, Surface 

Transportation Board, etc., which, notwithstanding their designation as commissions or 

boards, are permanent federal agencies, and are funded as such. 

3

 E.g., David Flitner Jr., The Politics of Presidential Commissions, 7 (1986).

4

 Cong. Globe, 27th Cong., 2nd Sess. 231 (1842), quoted in Jay S. Bybee, Advising the 

President: Separation of Powers and the Federal Advisory Committee Act, 104 Yale L.J. 

51, 61 (1994).

5

 The General Services Administration maintains data for advisory committees in a 

“Governmentwide shared Internet-based system . . .” 41 C.F.R. § 102-3.100(b)(4).
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statute) that are sponsored by the department or agency.” By the end of 

fiscal year 1993, the number of advisory committees had dropped to 1,088.6

 

GSA Report, at 1. 

2. Title 31 Funding 

Provisions

Regardless of whether one likes or dislikes the use of boards and 

committees, there are a lot of them around, they are here to stay, and 

someone has to pay their bills. If, as we have noted elsewhere, the central 

theme of federal fiscal law is the quest for balance between executive 

flexibility and legislative control, the funding of miscellaneous boards and 

committees is unquestionably a microcosm of this reality.

Historically, Congress has asserted its presence in the area by enacting 

funding restrictions, now found mostly in title 31 of the United States Code. 

The key provisions are 31 U.S.C. §§ 1346 and 1347. These provisions are an 

amalgam of over a century’s worth of legislation. We set out section 1346 in 

full here and will refer to specific portions in our discussion of this area of 

the law. 

“§ 1346. Commissions, councils, boards, and interagency 

and similar groups

“(a) Except as provided in this section—

(1) public money and appropriations are not

available to pay—

(A) the pay or expenses of a commission, council, 

board, or similar group, or a member of that group;

(B) expenses related to the work or the results of 

work or action of that group; or

6

 Although the number was to drop still further, GAO found that the costs and number of 

members per committee had increased. GAO, Federal Advisory Committee Act: Overview 

of Advisory Committees Since 1993, GAO/T-GGD-98-24 (Washington, D.C.: Nov. 5, 1997). 

The number of such committees fell to approximately 950 in fiscal year 2003. GAO, Federal 

Advisory Committees: Additional Guidance Could Help Agencies Better Ensure 

Independence and Balance, GAO-04-328 (Washington, D.C.: Apr. 16, 2004), at 10.
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(C) for the detail or cost of personal services of an 

officer or employee from an executive agency in 

connection with that group; and

(2) an accounting or disbursing official, absent a special 

appropriation to pay the account or charge, may not allow 

or pay an account or charge related to that group.

“(b) Appropriations of an executive agency are available for 

the expenses of an interagency group conducting activities 

of interest common to executive agencies when the group 

includes a representative of the agency. The representatives 

receive no additional pay because of membership in the 

group. An officer or employee of an executive agency not a 

representative of the group may not receive additional pay 

for providing services for the group.

“(c) Subject to section 1347 of this title, this section does 

not apply to—

(1) commissions, councils, boards, or similar groups authorized 

by law;

(2) courts-martial or courts of inquiry of the armed forces; or

(3) the contingent fund related to foreign relations at the 

disposal of the President.”

Section 1347, also known as the “Russell Amendment,” is set out later in 

this discussion.

a. 1842: The First Attempt The earliest congressional attempt to rein in the use of boards and 

committees grew out of controversy surrounding a commission appointed 

by President Tyler to investigate certain irregularities at the New York 

customs house. The result was section 25 of the Act of August 26, 1842, 

ch. 202, 5 Stat. 523, 533, which, with certain exceptions, prohibited the 

payment of “any account or charge whatever” in connection with “any 

commission or inquiry . . . until special appropriations shall have been 

made by law to pay such accounts and charges.” The prohibition is now 

found at 31 U.S.C. § 1346(a)(2); sections 1346(c)(2) and (c)(3) are the 

exceptions.
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Initially, this attempt was successful. The Attorney General had occasion 

to consider the statute less than 2 months after it was enacted. A private 

relief bill directed the Secretary of the Treasury to investigate, and estimate 

the damages resulting from, an incident involving “emigrating Creek 

Indians.” Treasury asked whether appointment of an individual to perform 

the investigation would be subject to the statute. Yes, replied the Attorney 

General. “The words of the law are too comprehensive to admit of any 

exception, and too express to warrant any relaxation.” 4 Op. Att’y Gen. 106 

(1842). The following year, the Attorney General discussed the statute in 

this much-quoted passage:

“The power of appointment results from the obligation of 

the executive department of the government ‘to take care 

that the laws be faithfully executed;’ an obligation imposed 

by the constitution, and from the authority of which no 

mere act of legislation can operate a dispensation. 

Congress may, however, indirectly limit the exercise of this 

power by refusing appropriations to sustain it, and thus 

paralyze a function which it is not competent to destroy. 

This would seem to be the purpose of the act of 26th August, 

1842. . . .” 

4 Op. Att’y Gen. 248 (1843). The Attorney General went on to point out that 

payment would require a specific appropriation. Charging a general 

appropriation would not suffice because general appropriations must be 

read as limited by existing prohibitory statutes. Id. at 249.

The “undoing” of the 1842 restriction was furthered by a 1915 decision of 

the Comptroller of the Treasury. The Comptroller quoted the Attorney 

General’s 1843 opinion and agreed that “the purpose of this provision was 

to prohibit, indirectly, the creation of commissions by the executive 

[branch] . . . through its inherent power to make appointments.” 21 Comp. 

Dec. 442, 443 (1915). However, the Comptroller continued: “I do not think 

it was the intent or purpose of this law to prohibit the use of an 

appropriation otherwise available, though general in terms, for the 

payment of expenses of a commission specifically authorized by 

Congress.” Id. In this way, a general appropriation available for the 

expenses of a body specifically created by Congress became a “special 

appropriation” for purposes of the 1842 law. Id. at 443–44.

Congress’s 1842 attempt to restrict funding for boards and committees was 

further weakened by a distinction alluded to in an early GAO decision. This 
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distinction, between a group of persons acting individually and a group 

acting collectively, would be invoked in all subsequent legislation on this 

subject. In the 1922 case before GAO, the Secretary of War had sent four 

men to the Canal Zone to investigate existing conditions at the Panama 

Canal. Each had his own area of expertise, and the governing legislation 

authorized the President to appoint or employ persons to carry out these 

responsibilities. In finding the 1842 statute inapplicable, the Comptroller 

General stated:

“The right of the President to appoint any one of these 

experts to advise him in an individual capacity would 

undoubtedly be authorized. . . . If he sees fit to appoint or 

employ four experts to make a concurrent investigation and 

report on the various matters of which each is an expert in 

his particular field, it would not appear that such 

designation of the individuals thus selected would make 

them a ‘commission [or] inquiry’ in the legal sense of the 

term.” 

Review Nos. 2249 et al., Aug. 22, 1922, at 4–5.7

 The 1842 enactment never 

purported to address the extent of the executive’s power to create boards 

and committees, and even though it is still on the books, these 

administrative interpretations mean that it is no longer a significant funding 

impediment either.

b. 1909: The Tawney 

Amendment

The next congressional attempt to control boards and committees grew out 

of President Theodore Roosevelt’s creation in 1909 of a Commission on 

Fine Arts to advise on artistic aspects of certain public structures and 

monuments.8

 The following year, Congress gave the Commission a 

permanent statutory basis in what is now 40 U.S.C. § 9101. Before doing 

that, however, Congress, disturbed over the President’s willingness to 

create such bodies without first obtaining congressional approval, enacted 

the Act of March 4, 1909, ch. 299, § 9, 35 Stat. 945, 1027, which prohibited 

the use of appropriated funds to pay any expenses in connection with any 

7

 The 1922 decision failed to address 4 Op. Att’y Gen. 106, which found the statute applicable 

to the appointment of a single individual, but the point would appear moot in view of the 

authority to hire experts and consultants now found in 5 U.S.C. § 3109.

8

 Jay S. Bybee, Advising the President: Separation of Powers and the Federal Advisory 

Committee Act, 104 Yale L.J. 51, 63–65 (1994).
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commission, council, board, or similar body, or any members of such a 

group, “unless the creation of the [group] shall be or shall have been 

authorized by law.” This statute, sometimes referred to as the Tawney 

Amendment, is now found at 31 U.S.C. §§ 1346(a)(1) (prohibition) and 

1346(c)(1) (“authorized by law” exception).

This second congressional attempt met with weakening administrative 

interpretations even more swiftly than did the first attempt. Less than 

2 months after it was enacted, the Attorney General concluded that the 

1909 law did not apply to groups consisting entirely of government officers 

or employees dealing with matters relating to their scope of employment. 

27 Op. Att’y Gen. 308 (1909) (special committee appointed by President 

Roosevelt to conduct an investigation of agency contracts, composed of a 

representative official of each executive agency, was not subject to the 

prohibition). See also 8 Comp. Gen. 294 (1928); B-79195, Sept. 30, 1948. As 

the Attorney General stated in another opinion, it would make no sense to 

construe the statute as prohibiting an agency head “from submitting to the 

concurrent investigation and report of several employees of his department 

any question which he might submit for investigation to any one of them.” 

27 Op. Att’y Gen. 300, 307 (1909). The same interpretation applies to 

experts and consultants as long as their employment has been properly 

authorized. 37 Op. Att’y Gen. 484 (1934).

The key question under the 1909 statute is the meaning of “authorized by 

law.” In another 1909 opinion, the Attorney General adopted an 

interpretation that effectively weakened the law’s requirements. Noting 

that every action an agency takes does not have to be spelled out in 

legislation, he concluded: “Congress did not intend to require that the 

creation of the commissions, etc., mentioned should be specifically 

authorized by a law of the United States, but that it would be sufficient if 

their appointment were authorized in a general way by law.” 27 Op. 

Att’y Gen. 432, 437 (1909). 

The Comptroller of the Treasury followed suit. 16 Comp. Dec. 422 (1910); 

16 Comp. Dec. 278 (1909) (quoting extensively from the Attorney General’s 

opinion). Somewhat inexplicably, several early GAO decisions took the 

position that specific authority was required. The difficulty with this 

divergence was that the Attorney General’s conclusion was supported by 

some pretty strong legislative history. See 27 Op. Att’y Gen. at 437. In 

22 Comp. Gen. 140 (1942), the Comptroller General reviewed this 

legislative history, repudiated his earlier “specific authority” decisions, and 

adopted the Attorney General’s “authorized in a general way” formulation.
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To avoid rendering the statute totally meaningless, GAO developed the 

following approach: 

“[T]here must be sufficient authority in general or specific 

terms for the creation of a commission, board, etc., such as 

an authorization for work which could be accomplished 

only by a commission, board, etc., or authorization for 

duties of such a nature generally recognized as best 

performed by a commission, board, etc.” 

11 Comp. Gen. 495, 497 (1932). Virtually identical statements are found in 

31 Comp. Gen. 454, 455 (1952) and B-116975, Apr. 27, 1954, at 4.9

 

There needs to be something more than just the authority to perform the 

function because the “authorized by law” portion of the statute applies to 

creation of the body, not performance of the function. See, e.g., B-51203, 

Aug. 14, 1945; 6 Op. Off. Legal Counsel 541, 550 (1982). The fact situation in 

the 1909 Attorney General opinion, 27 Op. Att’y Gen. 432, is a good 

example. The War Department then, as does the Army Corps of Engineers 

now, performed a variety of civil works functions. Incident to one of them, 

Congress directed that the work not injure “the scenic grandeur of Niagara 

Falls.” The Department pointed out that it did not have on its payroll 

experts in “scenic grandeur,” and when it had received similar mandates in 

the past, it went out and contracted for the necessary expertise, often in the 

form of a committee. This was sufficiently “authorized by law” for 

purposes of the 1909 prohibition. Similarly sufficient was the situation in 

40 Comp. Gen. 478 (1961). The Interior Department had specific authority 

to consult with various private parties on certain forest matters. For 

decades, it had done this by the use of advisory bodies. In view of this 

longstanding practice, the Comptroller General found that the consultation 

statute could be viewed as furnishing the necessary authority.

9

 Another decision stated the principle with a minor change in language:

“[The 1909 law] does not necessarily require that commissions, councils, 

boards, and other such bodies be specifically established by statute. . . . 

General or specific authority to perform functions or duties is sufficient to 

allow payment of the expenses of boards, commissions, etc., if such duties or 

functions can be performed only by such a group or if it is generally accepted 

that such duties can be performed best by such a group.” 

40 Comp. Gen. 478, 479 (1961) (citations omitted).
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In contrast, where an agency was authorized to conduct certain 

investigations and to employ experts and others for carrying out agency 

functions, and where the agency had in fact conducted the investigations 

for many years without an advisory body, there was no basis to find the 

body authorized by law, even in a “general way.” 31 Comp. Gen. 454 (1952).

The “authorized in a general way” standard is also met if a department 

includes a board or commission in its budget justification materials and 

Congress enacts a lump-sum appropriation without prohibiting the item. 

B-38047, Nov. 8, 1943. See also B-116975, Apr. 27, 1954.

However, 31 U.S.C. § 1346(a)(1) does not override 31 U.S.C. § 1301(a), the 

purpose statute, discussed in Chapter 4. B-182398(1), Mar. 29, 1976. Nor is 

it affected in any way by 5 U.S.C. § 5703, the “invitational travel” statute. 

27 Comp. Gen. 630 (1948). Of course, if the “authorized in a general way” 

standard is legitimately met, there should be no problem under either 

statute.

Applying section 1346(a)(1) to a given entity requires analysis of the entity’s 

nature and functions. What it happens to be named is not the controlling 

factor. 27 Op. Att’y Gen. 406, 409 (1909); A-16348, Dec. 8, 1926. The Justice 

Department has also cautioned that adding diverse functions could cause a 

board or commission to lose its “authorized in a general way” status. 

6 Op. Off. Legal Counsel 541, 550 (1982).

Finally, cases under the 1909 statute continue to recognize the individual 

versus unit distinction first noted in connection with the 1842 law. The 

circumstances in B-116975, Apr. 27, 1954, involved three people inspecting 

coffee for the Army. It was significant that, although the three conducted 

their inspections independently, a majority vote determined acceptance or 

rejection. Thus, the inspectors acted as a unit and the statute applied. The 

same reasoning applied to tea inspectors for the Navy in 6 Comp. Gen. 140 

(1926).10

Setting aside subsequent developments for the moment, the combined 

effect of the 1842 and 1909 enactments—31 U.S.C. §§ 1346(a) and (c)—was 

that boards and committees created by executive action could be funded 

10 6 Comp. Gen. 140 is one of the “specific authority” cases and to that extent has been 

modified by 22 Comp. Gen. 140. This, however, has no bearing on the point noted in the 

text. 
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either if their creation was authorized (“in a general way”), or if Congress 

appropriated funds for that purpose.

c. 1944: The Russell 

Amendment

Peace prevailed between the branches over the use of boards and 

committees for a few decades, but ended in 1944 when congressional 

concern over some of Franklin D. Roosevelt’s creations prompted another 

piece of legislation, forming a “veritable Maginot Line of barriers to funding 

commissions.”11 This third attempt at congressional control was the socalled Russell Amendment, Pub. L. No. 78-358, § 213, 58 Stat. 361, 387 

(June 27, 1944). Now codified at 31 U.S.C. § 1347, it provides:

“(a) An agency in existence for more than one year may not 

use amounts otherwise available for obligation to pay its 

expenses without a specific appropriation or specific 

authorization by law. If the principal duties and powers of 

the agency are substantially the same as or similar to the 

duties and powers of an agency established by executive 

order, the agency established later is deemed to have been 

in existence from the date the agency established by the 

order came into existence.

“(b) Except as specifically authorized by law, another 

agency may not use amounts available for obligation to pay 

expenses to carry out duties and powers substantially the 

same as or similar to the principal duties and powers of an 

agency that is prohibited from using amounts under this 

section.”

The amendment’s sponsor, Senator Russell, stated its purpose as follows:

“[T]he purpose of the committee amendment, which is 

apparent from a reading thereof, is to retain in the Congress 

the power of legislating and creating bureaus and 

departments of the Government, and of giving to Congress 

the right to know what the bureaus and departments of the 

Government which have been created by Executive order, 

are doing.

11 Thomas R. Wolanin, Presidential Advisory Commissions—Truman to Nixon, 66 (1975).
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“Regardless of what agencies might be affected, the purpose 

of this amendment is to require them all to come to 

Congress for their appropriations after they have been in 

existence for more than a year.” 

90 Cong. Rec. 3119 (1944), quoted in 24 Comp. Gen. 241, 243 (1944). 

The original language makes this intent a little clearer. “Agency” in 

section 1347(a) originally read “any agency or instrumentality including 

those established by Executive order,” and “specific authorization by law” 

originally read specific authorization for “the expenditure of funds” by the 

body. Pub. L. No. 78-358, § 213.

As had happened with its predecessors, administrative interpretations have 

narrowed the Russell Amendment’s scope and impact. In 3 Op. Off. Legal 

Counsel 263 (1979), the Justice Department’s Office of Legal Counsel 

concluded that the Russell Amendment does not apply to boards or 

committees that are purely advisory, stating the test as follows:

“Mere advisors are not ‘agencies’ or ‘instrumentalities’ of 

Government for purposes of the Russell amendment. They 

do not become ‘agencies’ or ‘instrumentalities’ merely 

because they meet and advise collectively. They become 

‘agencies’ or ‘instrumentalities’ for Russell amendment 

purposes only if the officer to whom they report seeks to 

invest them with actual authority to take substantive action 

on his or the Government’s behalf.” 

Id. at 265. See also B-152583, Nov. 7, 1963 (finding the Russell Amendment 

not applicable to President’s Committee on Equal Opportunity in the 

Armed Forces, which was purely advisory). Justice took this a step further 

a few years later, concluding that a council under the United States 

Information Agency (USIA) whose functions were both advisory and 

operational (in this case, solicitation of contributions) was subject to the 

Russell Amendment because “it would discharge responsibilities vested by 

law in the USIA and would not be purely advisory.” 6 Op. Off. 

Legal Counsel 541, 551 (1982). The operational aspect does not have to 

amount to “substantive action”; the law applies if the body “acts on behalf 

of the government or exerts any governmental power.” Id.
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3. Interagency Funding

a. Joint Funding of CommonInterest Project

It is necessary at the outset to distinguish between joint funding of a 

project and joint funding of a board, committee, or similar group. While 

statutes address the latter, the former is governed by the normal rules 

regarding the obligation and expenditure of appropriated funds. If a 

project will benefit more than one agency, and as long as it is not something 

one of the agencies is required to do as part of its mission without 

reimbursement, then there is nothing that prohibits the agencies from 

funding the project in proportion to their benefit.

This point was made in an early case, A-7571, May 14, 1925. Several 

agencies, along with state and local bodies, were interested in development 

of the Colorado River and sponsored the construction and maintenance of 

three “gauging stations” along the river, under the supervision of the 

Interior Department’s Geological Survey. Once it was determined that this 

was not something the Geological Survey was required to do anyway as 

part of its job—that is, that there was no augmentation problem—it was 

fairly easy to conclude that “there appears no legal objection to the 

allocation of Federal Power Commission funds to pay for its proper share 

of the expenses incident to the maintenance of the stations from which it 

derives a corresponding benefit.” Id. at 3. See also B-111199, Aug. 20, 1952; 

B-51145, Sept. 11, 1945.

A more recent decision dealt with joint funding of mutually beneficial 

research and demonstration projects by use of interagency agreements. 

Several environmental statutes authorize or direct the Environmental 

Protection Agency to cooperate with other federal and nonfederal entities. 

These statutes were viewed as sufficient authority for interagency 

agreements, to be funded by transfers to the contracting agency from the 

other participating agencies. 52 Comp. Gen. 128 (1972). The decision 

pointed out the distinction between this type of interagency agreement—in 

which the participating agencies all had an interest—and an Economy Act 

agreement, in which the performing agency has “no specific interest apart 

from the provision of a routine service.” Id. at 133. In view of the statutory 

provisions involved, there was no need to consider what EPA could or 

could not have done without those statutes.

In any joint funding case—project, board or commission, interagency 

agreement, etc.—the threshold question is purpose availability. Joint 

funding cannot be used if the source appropriation is not otherwise 
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available for the object in question. B-182398, Mar. 29, 1976. In other 

words, joint or interagency funding may not be used to expand the 

availability of any of the participating appropriations. Once this threshold 

is crossed, use of a working fund as a financing device is permissible, but 

the money “must be obligated and expended in accordance with the 

statutes appropriating such funds and within the period of availability of 

the original appropriations.” B-111199, Aug. 20, 1952.

b. 1945: The First Interagency 

Funding Statute

Earlier in this section, we described the Russell Amendment, 31 U.S.C. 

§ 1347. In 1945, less than a year after the Russell Amendment, Congress 

enacted section 214 of Pub. L. No. 79-49, 59 Stat. 106, 134 (May 3, 1945). 

Now codified at 31 U.S.C. § 1346(b), section 214 authorizes interagency 

funding of groups engaging in activities of common interest.

Section 214’s legislative history indicates that it was intended as an 

amendment to the Russell Amendment. Therefore, to the extent of its 

terms, it overrides the Russell Amendment’s requirement to seek 

congressional appropriations after one year. B-75669, June 16, 1948. Also, 

because it specifically makes appropriations available, it overrides, again to 

the extent of its terms, the prohibition of 31 U.S.C. § 1346(a)(1) (the 1909 

statute). 49 Comp. Gen. 305, 307 (1969);12 26 Comp. Gen. 354 (1946).

The current version of 31 U.S.C. § 1346(b), stemming from the 1982 

recodification of title 31, makes appropriations available for interagency 

groups “conducting activities of interest common to executive agencies 

when the group includes a representative of the agency.” The original 

language, which governs in a case like this,13 was “authorized activities of 

common interest to such departments and establishments and composed in 

whole or in part of representatives thereof.” Pub. L. No. 79-49, § 214. It is 

clear from the original language (“in whole or in part”) that the interagency 

group can include private parties in addition to the government 

representatives. 26 Comp. Gen. at 358.

It also would seem that the current language requires the group to include 

at least one representative from every agency participating in the funding. 

12 The decision in 49 Comp. Gen. 305 was erroneously overruled in part by 54 Comp. 

Gen. 1055 (1975), and was reinstated by 56 Comp. Gen. 572 (1977).

13 See, e.g., Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222, 227 (1957).
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The original (governing) language did not necessarily say this, and in fact a 

1962 decision stated:

“We do not read the language of [section 214] as making 

agency membership on an interagency board or committee 

a requisite to the availability of appropriations for meeting 

the expenses of such interagency groups. Nor have we 

found anything in the legislative history of the statute which 

would dictate that such membership is required. Thus in a 

proper case we would not be required to object to 

contribution by a nonmember agency toward the expenses 

of an interagency group, on the sole ground of 

nonmembership.” 

B-150511, Dec. 28, 1962, at 2. Accordingly, the controlling factor is not 

membership, but “whether the interagency groups are ‘engaged in 

authorized activities of common interest’ to the contributing agencies.” 

B-150511, Jan. 9, 1963, at 1.

A device commonly used in interagency funding situations is a working 

fund. While there is nothing wrong with establishing a working fund as an 

accounting device, the Comptroller General has emphasized that this does 

not alter the availability of the amounts contributed. The funds advanced 

to a common fund by a participating agency remain available only for their 

original purposes, and only during the source appropriation’s period of 

obligational availability. 28 Comp. Gen. 365 (1948); B-150963, July 9, 1963; 

B-51203, Nov. 14, 1945. A working fund established to implement 

31 U.S.C. § 1346(b) is not an Economy Act working fund. See 35 Comp. 

Gen. 201, 202 (1955).

Following are some examples of the application of 31 U.S.C. § 1346(b):

• The Federal Communications Commission, upon making the standard 

“necessary expense” determination, could use its appropriated funds to 

finance its share of something called the Radio Technical Commission 

for Aeronautics (RTCA), an advisory group on aeronautical radio, even 

though the RTCA had never been authorized by statute or executive 

order. Payment would have been barred under 31 U.S.C. § 1346(a), but 

was permissible under 31 U.S.C. § 1346(b). 26 Comp. Gen. 354 (1946).

• The Defense Department could participate in funding an interagency 

group called the National Inventors Council because one of the 
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Council’s functions was to encourage and screen inventions which 

might be useful in national defense as well as industry. 35 Comp. 

Gen. 201 (1955).

• The National Service Corps Study Group was established in 1962 to 

study the feasibility of a national service program patterned after the 

Peace Corps. It consisted of the Attorney General, Secretaries of 

Agriculture, Interior, Commerce, Labor, and Health, Education and 

Welfare, plus some smaller agencies. Because the study extended into 

such fields as health, education, labor, housing, etc., it could fairly be 

regarded as being of interest to the agencies asked to participate in the 

funding. B-150963, July 9, 1963.

• The Defense Department could contribute to the funding of the 

President’s Committee on Equal Employment Opportunity. B-148247, 

Mar. 5, 1962.

• Agencies could pay “dues” to the Federal Automatic Data Processing 

Council, as long as the Council was using the money only for the kinds 

of expenses for which the source appropriations would be available. 

B-161214-O.M., Apr. 24, 1967.

• The Federal Trade Commission could continue to pay the salary of an 

employee sent to Japan as part of an interagency trade mission. 

B-54464, Dec. 14, 1945.

c. Appropriation Act 

Provisions

Each of the title 31, United States Code, provisions discussed thus far in 

this section entered the scene in the form of a permanent general provision 

contained in an appropriation act. Appropriation acts also may contain 

other relevant provisions, which may vary from agency to agency or year to 

year.

One such governmentwide provision is of particular importance. In the 

1960s, Congress became increasingly concerned over the proliferation of 

miscellaneous interagency bodies, created under the apparent carte 

blanche authority of 31 U.S.C. § 1346(b). At the time, the executive could 

use section 1346(b) to create an interagency body and, assuming 

compliance with the membership and common interest requirements, fund 

it indefinitely by “passing the hat.” Congress once again began feeling left 

out.
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The result was legislation that effectively modified 31 U.S.C. § 1346(b) by 

prohibiting the use of appropriated funds for interagency financing without 

prior and specific congressional approval for that type of financing. The 

provision first appeared in several appropriation acts for 1969. In 1972, the 

prohibition was inserted in the Treasury-General Government 

Appropriation Act and made governmentwide (“this or any other act”). 

This history is outlined in B-147637-O.M., Dec. 12, 1974.

The original version applied only to interagency groups under 31 U.S.C. 

§ 1346(b). Eventually, Congress realized that this was narrower than it had 

intended, and dropped the specific reference to section 1346(b), as well as 

changed “congressional approval” to “statutory approval.” The provision 

for fiscal year 2006 states:

“No part of any appropriation contained in this or any other 

Act shall be available for interagency financing of boards 

(except Federal Executive Boards), commissions, councils, 

committees, or similar groups (whether or not they are 

interagency entities) which do not have a prior and specific 

statutory approval to receive financial support from more 

than one agency or instrumentality.” 

Transportation, Treasury, Housing and Urban Development, the Judiciary, 

the District of Columbia, and Independent Agencies Appropriations Act, 

2006, Pub. L. No. 109-115, div. A, title VIII, § 810, 119 Stat. 2396, 2497 

(Nov. 30, 2005). Note that the group itself may or may not be an 

interagency group; the statute is directed solely at the method of funding. 

The exemption for Federal Executive Boards first appeared in 1996.14 

This provision, which for ease of discussion we shall refer to as section 810, 

its designation in the statute for fiscal year 2006, does not apply to a 

government corporation statutorily authorized to determine the nature and 

character of its expenditures. B-174571, Jan. 5, 1972 (Federal Deposit 

Insurance Corporation). Nor does it apply to the Comptroller of the 

Currency, whose funds, by statute, are not to be construed as appropriated 

funds. Id. Thus, as the cited decision concluded, section 810 would not 

inhibit contributions by either body to the President’s Commission on 

Financial Structure and Regulation.

14 Omnibus Consolidated Appropriations Act, 1997, Pub. L. No. 104-208, § 613, 110 Stat. 3009, 

3009-356 (Sept. 30, 1996).
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GAO’s first encounter with the language in section 810 was 49 Comp. 

Gen. 305 (1969). The Veterans Administration wanted to contract with an 

individual to serve as director of the Interagency Institutes for Federal 

Hospital Administrators, the contract cost to be shared by the participating 

agencies. To start with, because 31 U.S.C. § 1346(b) partially superseded 

31 U.S.C. § 1346(a) with respect to certain interagency groups, there was 

no need to determine whether this particular group was authorized by law. 

This was the good news. The bad news was that 31 U.S.C. § 1346(b) was 

itself partially overridden by section 810. Interagency funding would 

require prior and specific legislative approval. 49 Comp. Gen. at 307. 

Similarly, as we have already noted, 31 U.S.C. § 1346(b), to the extent of 

certain interagency bodies, also partially supersedes the 1-year 

requirement of the Russell Amendment. Thus, the President could lawfully 

create an interagency Radiation Policy Council for a duration in excess of 

1 year, but interagency funding would require compliance with section 810. 

B-196841-O.M., Dec. 18, 1980. Section 810 also has been applied to a 

proposal to purchase solicitation services for the Combined Federal 

Campaign from an interagency entity. 67 Comp. Gen. 254 (1988).

The “prior and specific” approval can take different forms. One approach 

is section 829 of Public Law 109-115: “Notwithstanding section 1346 of 

title 31, United States Code, or section 810 of this Act, funds made available 

for the current fiscal year by this or any other Act shall be available for the 

interagency funding of specific projects, workshops, studies, and similar 

efforts to carry out the purposes of the National Science and Technology 

Council (authorized by Executive Order No. 12881), which benefit multiple 

Federal departments, agencies, or entities . . .” Because the statute 

authorizes the concept but not the precise method, there would 

presumably be some discretion in this regard—for example, periodic 

reimbursement, advances to a working fund, etc.

Another approach is illustrated by the Federal Accounting Standards 

Advisory Board (FASAB). FASAB was created administratively in 1990 as 

an advisory committee to the Comptroller General of the United States, the 

Secretary of the Treasury, and the Director of the Office of Management 

and Budget (OMB). FASAB recommends accounting standards and 

principles for the federal government that are issued by GAO and OMB. 

Further information is available at www.fasab.com (last visited Nov. 28, 

2007). GAO covers FASAB’s expenses (e.g., executive director and staff 

salaries) with GAO’s appropriation and then bills the other sponsors and 

the Congressional Budget Office, which also participates on the Board, 

equal shares of the costs. This funding method is expressly authorized by a 
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proviso in the general governmentwide provisions of the annual 

Transportation, Treasury, Housing and Urban Development, the Judiciary, 

the District of Columbia, and Independent Agencies Appropriations acts. 

See, e.g., Pub. L. No. 109-115, § 826. 

Perhaps the best illustration of the import and impact of the section 810 

language is the saga of the Federal Executive Boards. In 1961, President 

Kennedy created interagency groups called Federal Executive Boards 

(FEBs) to better coordinate federal activities outside of Washington. Their 

number has increased over the years.15 From the outset, the FEBs were 

funded from the appropriations of the member agencies rather than by 

direct appropriations. The enactment of the section 810 language in the 

1969 appropriation acts gave the agencies something of a jolt because they 

had been supporting the FEBs up to that point under 31 U.S.C. § 1346(b),16

entirely legitimately, and now all of a sudden learned that they no longer 

had the authority to do so.

GAO’s first written encounter with the problem came in 1973, when GAO’s 

own field managers asked why they were being asked to pay FEB 

assessments from personal funds and whether there was any way GAO 

could pick up the tab. GAO reviewed the history of the section 810 

language and concluded that there was no way around the statute:

“We see no possible alternative in the instant case to 

concluding the language of section [810] . . . prohibits the 

GAO and all other Federal agencies from using their 

appropriated funds to provide administrative support, 

salaries, and reimbursement or payment of a member’s 

assessments for Federal Executive Board activities.” 

B-147637-O.M., Dec. 12, 1974, at 6. The solution, of course, was to seek 

specific authorization from Congress. Id.

In 1986, the Veterans Administration and the Small Business 

Administration came to the conclusion that the section 810 language barred 

interagency financing of the FEB, and sought GAO’s concurrence. They got 

15 GAO, Standardized Federal Regions—Little Effect on Agency Management of Personnel,

FPCD-77-39 (Washington, D.C.: Aug. 17, 1977), at 2.

16 This fact may help suggest why Congress wanted to reinsert itself in the process.
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it. 65 Comp. Gen. 689 (1986). There was one possible—although probably 

not very feasible—way out. The decision added, “we see nothing to 

prevent a single entity with a primary interest in the success of the 

interagency venture, from picking up the entire costs.” Id. at 692. Thus, if 

one agency could be said to have a “primary interest” in a particular Board 

activity, and if that agency were willing to pay the entire cost without hope 

of reimbursement, it could do so. The next question, expectedly, was what 

does primary interest mean? It means that “an agency must have a 

substantial stake in the outcome of the interagency endeavor and the 

success of the interagency venture must further the agency’s own mission, 

programs or functions.” 67 Comp. Gen. 27, 29 (1987). This latter decision 

also reiterated that section 810 barred in-kind as well as cash support. 

Mere attendance at meetings or functions, however, does not constitute 

support. Id.

One of the things FEBs do is give awards. Absent the requisite statutory 

approval, an agency may not pay a pro-rata share of the expenses of an 

FEB awards banquet. B-219795, Sept. 29, 1986. It can, however, pay or 

reimburse the fee charged to its own nominees, award recipients, and 

supervisors, under authority of the Incentive Awards Act. 70 Comp. 

Gen. 16 (1990). Under the Incentive Awards Act, it also can make awards 

to its own employees for services rendered to an FEB. B-240316, 

Mar. 15, 1991. Similarly, an agency may pay a reasonable registration fee 

for attendance of its employees at an FEB training seminar. 71 Comp. 

Gen. 120 (1991).

Why this situation persisted for so many years is not clear. GAO had 

recommended as early as 1977 that the executive branch present the 

problem of FEB funding to Congress.17 In any event, as noted above, the 

section 810 language was amended in 1996 to exempt the FEBs.

Another general provision which has been around for about 20 years is 

section 815 of the 2006 appropriations act, Pub. L. No. 109-115:

“Notwithstanding section 1346 of title 31, United States 

Code, or section 810 of this Act, funds made available for 

fiscal year 1998 by this or any other Act shall be available for 

the interagency funding of national security and emergency 

preparedness telecommunications initiatives which benefit 

17 FPCD-77-39, at 24.
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multiple Federal departments, agencies, or entities, as 

provided by Executive Order No. 12472 (April 3, 1984).”

This provision first appeared as section 629 of the Treasury, Postal Service 

and General Government Appropriations Act, 1988, Pub. L. 

No. 100-202, 101 Stat. 1329, 1329-431 (Dec. 22, 1987).

If an instance of unauthorized interagency funding does occur, the 

appropriate remedy is an adjustment of accounts, that is, the recipient 

gives the donor back its money. B-182398-O.M., Sept. 3, 1976. If the period 

of obligational availability has expired, the adjustment might not serve any 

useful purpose, even if the recipient entity has or can restore sufficient 

unobligated balances, because the donor agency could not use the money 

for new obligations. Id. It also would be inappropriate to pursue action 

against the certifying officers involved because, while there may have been 

a loss to a particular agency, there is no loss to the government, assuming 

the money was used for some authorized purpose of the recipient. Id.

4. The Federal Advisory 

Committee Act

a. Overview and Applicability As we have noted, in the world of miscellaneous boards and committees, 

advisory committees are by far the largest single group. There are several 

types: general advisory committees, scientific and technical advisory 

committees, special clientele (industry) advisory committees, specific task 

(or action) advisory committees, research committees, and public 

conferences.18 They are popular because they represent a relatively 

inexpensive way for the government to get expert advice, or at least advice 

from different perspectives; they are criticized because many tend to 

outlast their usefulness.

If reining in the proliferation of advisory committees is the measure, the 

century-plus series of fiscal statutes must be said to have met with very 

limited success. In the report of a 1970 study conducted by the Special 

Studies Subcommittee of the House Committee on Government 

18 David S. Brown, The Management of Advisory Committees: An Assignment for the ’70’s, 

32 Pub. Ad. Rev. 334, 335 (1972); Richard O. Levine, Comment, The Federal Advisory 

Committee Act, 10 Harv. J. on Legis. 217, 217–18 (1973).
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Operations, Subcommittee Chairman John Monagan described the 

committees in the following terms: “Sort of like satellites, I think of them in 

that way . . . They go out into outer space but they keep circling around, 

you know, and no one really knows how many there are or what direction 

they are going in, or what duplication there is.”19

In 1972, Congress made its first attempt to comprehensively regulate 

advisory committees—the Federal Advisory Committee Act (FACA), 

Pub. L. No. 92-463, 86 Stat. 770 (Oct. 6, 1972), codified in the appendix to 

title 5 of the United States Code, sections 1–16, as amended. FACA’s 

purposes are “to eliminate unnecessary committees; to govern the 

administration of those that remain; and to inform the public about [their] 

membership and . . . activities.”20 It does this by regulating the creation, 

operation, and termination of executive branch advisory committees. The 

theory, in plain English, is to start when you are needed and quit when you 

are done. The General Services Administration (GSA) is given the job of 

prescribing “administrative guidelines and management controls applicable 

to advisory committees.” 5 U.S.C. app. § 7(c). GSA’s regulations are found 

in 41 C.F.R. part 102-3.21

The key issue under FACA, and certainly the most hotly litigated, is how to 

determine whether or not the statute applies to a particular body. As 

discussed later, this determination has fiscal consequences. In addition, 

19 House Committee on Government Operations, The Role and Effectiveness of Federal 

Advisory Committees, H.R. Rep. No. 91-1731, at 2 (1970) (quoting a statement made in 

committee hearings).

20 Michael H. Cardozo, The Federal Advisory Committee Act in Operation, 33 Admin. L. 

Rev. 1, 10 (1981). The quoted passage is distilled from 5 U.S.C. app. § 2 (Findings and 

purpose). With respect to the objective of eliminating useless committees, see Carpenter v. 

Morton, 424 F. Supp. 603 (D. Nev. 1976); GAO, Better Evaluations Needed to Weed Out 

Useless Federal Advisory Committees, GGD-76-104 (Washington, D.C.: Apr. 7, 1977).

21 The Supreme Court has said that the GSA regulations merit “diminished deference” 

because they were not issued contemporaneous with the statute and because 5 U.S.C. app. 

§ 7(c), the statutory authority pursuant to which the GSA regulations were promulgated, 

does not impose liability for violation of the GSA regulations nor has Congress otherwise 

declared that such regulations shall have the force of law. Public Citizen v. Department of 

Justice, 491 U.S. 440, 463–65 n.12 (1989). The D.C. Circuit accords them no deference 

because FACA is “applicable to all agencies.” Association of American Physicians & 

Surgeons, Inc. v. Clinton, 997 F.2d 898, 913 (D.C. Cir. 1993). See also Collins v. National 

Transportation Safety Board, 351 F.3d 1246 (D.C. Cir. 2003) (noting that for generic statutes 

like FACA, their broad applicability undermines any basis for deference and courts, 

therefore, must review interpretive questions de novo).
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wholly apart from fiscal matters, a determination that FACA applies means 

that, among other things: the committee must prepare a detailed charter 

and file it with appropriate officials before it can meet or take any action 

(5 U.S.C. app. § 9(c)); its meetings must be open to the public (5 U.S.C. app. 

§ 10(a)(1)); notice of each meeting must be published in the Federal 

Register (5 U.S.C. app. § 10(a)(2)); it must keep detailed minutes of each 

meeting (5 U.S.C. app. § 10(c)); a designated officer or employee of the 

federal government must call or approve each meeting, and an officer or 

employee of the federal government must chair or attend each meeting 

(5 U.S.C. app. §§ 10(e), (f)); and it must make transcripts of meetings 

available to the public at actual duplication cost (5 U.S.C. app. § 11(a)). 

Advisory committees also must “be fairly balanced in terms of the points of 

view represented and the functions to be performed.” 5 U.S.C. app. 

§§ 5(b)(2) and (c); 41 C.F.R. §§ 102-3.30(c) and 102-3.60(b)(3). See also

National Anti-Hunger Coalition v. Executive Committee of the 

President’s Private Sector Survey on Cost Control, 711 F.2d 1071, 1073 n.1 

(D.C. Cir. 1983).

Courts have held that no private cause of action exists under FACA. This is 

because neither FACA’s text nor its structure “evinces a congressional 

intent to confer on private litigants a right to enforce the statute’s 

requirements.” International Brominated Solvents Ass’n v. American 

Conference of Governmental Industrial Hygienists, Inc., 393 F. Supp. 2d 

1362, 1377–78 (M.D. Ga. 2005). See also Cheney v. United States District 

Court, 542 U.S. 367, 374–75 (2004) (acknowledging district court’s holding 

that FACA does not create a private cause of action); Natural Resources 

Defense Council v. Abraham, 223 F. Supp. 2d 162, 176 (D.D.C. 2002), 

vacated in part on other grounds, 353 F.2d 40 (D.C. Cir. 2004) (courts may 

not imply the existence of a private cause of action under a statute such as 

FACA where the plain intent of that statute does not create a cause of 

action). Further, FACA does not prescribe remedies or penalties for 

violations. See B-278940, Jan. 13, 1998. Thus, assuming a plaintiff can 

establish standing and then establish some violation, it is up to the court, 

within the limits of judicial power, to devise an appropriate remedy that is 

tailored to further FACA’s goals of public accountability and reduction of 

economic waste. See California Forestry Ass’n v. United States Forest 

Service, 102 F.3d 609 (D.C. Cir. 1996) (citing Public Citizen, 491 U.S. 

at 459); Akzo-Nobel, Inc. v. United States, No. 00-30834 (5th Cir. 2001). One 

court, after finding FACA violations, permanently enjoined the agency from 

using the advisory body’s report, “the product of a tainted procedure.” 

Alabama-Tombigbee Rivers Coalition v. Department of Interior, 26 F.3d 

1103, 1107 (11th Cir. 1994). Another potential form of relief is the 
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declaratory judgment. E.g., National Nutritional Foods Association v. 

Califano, 603 F.2d 327, 336 (2nd Cir. 1979). The Second Circuit further 

noted in Califano that, at least as of 1979, no court had used a FACA 

violation to “invalidate a regulation adopted under otherwise appropriate 

procedures.” Id. Other forms of relief might include orders to open future 

meetings to the public, produce documents, or comply with any of FACA’s 

other procedural requirements, depending on the precise violation. As far 

as we are aware, no court has yet to suggest that it could award a judgment 

for money damages.

(1) Definition and specific exemptions

The Federal Advisory Committee Act (FACA), as amended by the Federal 

Advisory Committee Act Amendments of 1997,22 defines “advisory 

committee” as follows:

“The term ‘advisory committee’ means any committee, 

board, commission, council, conference, panel, task force, 

or other similar group, or any subcommittee or other 

subgroup thereof . . . which is—

(A) established by statute or reorganization plan, or

(B) established or utilized by the President, or

(C) established or utilized by one or more agencies,

in the interest of obtaining advice or recommendations for 

the President or one or more agencies or officers of the 

Federal Government, except that such term excludes (i) any 

committee that is composed wholly of full-time, or 

permanent part-time, officers or employees of the Federal 

Government, and (ii) any committee that is created by the 

National Academy of Sciences or the National Academy of 

Public Administration.”

5 U.S.C. app. § 3(2).

22 Pub. L. No. 105-153, § 2(a), 111 Stat. 2689 (Dec. 17, 1997).
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In assessing the scope of section 3(2), the first (and easiest) step is to 

exclude those entities FACA itself expressly exempts. Of the exemptions 

in section 3(2), the exemption for committees composed wholly of 

government officials is the most important. For the most part, this is 

relatively straightforward and easy to apply, but not always. One issue in 

Association of American Physicians & Surgeons (AAPS) v. Clinton,

997 F.2d 898 (D.C. Cir. 1993), was the status of the President’s spouse. 

President Clinton had asked the First Lady to chair his Task Force on 

National Health Care Reform. If she could be regarded as a government 

official, FACA would not apply because everyone else on the task force was 

unquestionably a government official. While the court believed the 

question far from easy, id. at 906, it found persuasive the suggestion that 

“Congress itself has recognized that the President’s spouse acts as the 

functional equivalent of an assistant to the President.” Id. at 904 (emphasis 

omitted). The First Lady could therefore be deemed a de facto officer of 

the government for FACA purposes. Id. at 905.

Also at issue in AAPS was whether the interdepartmental working group 

established by the President (separate from the task force) for the purpose 

of gathering information and developing options on health care reform for 

the task force was an advisory committee subject to FACA. The working 

group allegedly consisted of both federal employees and private 

consultants who attended at least some working group meetings. Id. 

at 914–15. The court stated that if a consultant’s involvement and role in an 

advisory committee is indistinguishable from other members, for example, 

the consultant regularly attends and fully participates in committee 

meetings as if he were a member, he is a de facto member of the committee 

and “his status as a private citizen would disqualify the working group from 

the section 3(2) exemption for meetings of full-time government 

employees.” Id. at 915.

The analysis can also be complicated when there are separation of powers 

concerns. For example, in 2001, President Bush created the National 

Energy Policy Development Group (NEPDG) to advise and make 

recommendations to him regarding energy policy. Although the only 

officially named members of the NEPDG were the Vice President, several 

cabinet officers, and other high level federal officials, private sector 

representatives were alleged to have had extensive participation in NEPDG 

meetings and activities as well. Public interest groups filed suit under 

FACA against the NEPDG and its individual members, seeking access to 

NEPDG records. They argued, among other things, that the private 
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individuals had played such a substantial role in the group’s activities that 

under AAPS, they became de facto members.

In response, the government filed a petition seeking to modify or dissolve 

plaintiff’s discovery order, among other things, which made its way to the 

Supreme Court. The Court was sympathetic to the Vice President’s 

argument that applying FACA would violate separation-of-powers 

principles and interfere with the executive’s constitutional prerogatives. 

According to the Court, the separation-of-powers considerations include 

giving “recognition to the paramount necessity of protecting the Executive 

Branch from vexatious litigation that might distract it from the energetic 

performance of its constitutional duties.” Cheney v. United States District 

Court, 542 U.S. 367, 382 (2004). The Supreme Court remanded the case to 

the D.C. Circuit Court of Appeals for “reexamin[ation of] . . . whether 

[FACA] embodies the de facto membership doctrine.” Id. at 371.

On remand, the D.C. Circuit ruled that the private individuals were not de 

facto members and thus that the NEPDG was not subject to FACA. In re 

Cheney, 406 F.3d 723 (D.C. Cir. 2005). The court reasoned that “[i]n light of 

the severe separation-of-powers problems in applying FACA on the basis 

that private parties participated in, or influenced, or were otherwise 

involved with a committee in the Executive Office of the President,” strict 

construction of the statute is required. Id. at 728. Accordingly, the court 

held that, “if the President has given no one other than a federal official a 

vote in or, if the committee acts by consensus, a veto over the committee’s 

decisions,” an advisory committee is deemed composed wholly of federal 

officials, and thereby qualifies for the section 3(2) FACA exemption. Id. 

Thus, under In re Cheney, an individual would have to have an official vote 

or veto to qualify as a de facto member. 

The exemption for committees created by the National Academy of 

Sciences or the National Academy of Public Administration was added in 

the 1997 amendment.23 While exempt from the section 3(2) definition, they 

23 The original version of section 3(2), until the 1997 amendment, exempted the Commission 

on Government Procurement and the Advisory Committee on Intergovernmental Relations 

(ACIR). The Procurement Commission finished its job in 1973. The ACIR was terminated in 

1995, but extended the following year for the sole and limited purpose of performing a 

contract with the National Gambling Impact Study Commission. Treasury, Postal Service, 

and General Government Appropriations Act, 1996, Pub. L. No. 104-52, title IV, 109 Stat. 468, 

480 (Nov. 19, 1995) (termination); Pub. L. No. 104-328, 110 Stat. 4004 (Oct. 19, 1996) 

(extension).
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are nevertheless subject to a set of procedures included in the 1997 

legislation. 5 U.S.C. app. § 15. Section 4 of FACA further exempts 

committees whose enabling legislation specifically provides otherwise 

(this would be the case in any event); committees established or utilized by 

the Central Intelligence Agency or the Federal Reserve System; and certain 

state and local bodies.

Exemptions, of course, may appear in other statutes. For example, 

section 204(b) of the Unfunded Mandates Reform Act of 1995, Pub. L. 

No. 104-4, 109 Stat. 48, 65–66 (Mar. 22, 1995), codified at 2 U.S.C. § 1534(b), 

renders FACA inapplicable to meetings between federal and state, local, or 

tribal officials, if they deal solely with federal programs “that explicitly or 

inherently share intergovernmental responsibilities or administration.” See 

also 41 C.F.R. § 102-3.40(g) (intergovernmental committees not covered). 

Similarly, section 3112 of the National Defense Authorization Act for Fiscal 

Year 2004 permits an officer or employee of a management and operating 

contractor of the Department of Energy to be treated as an officer or 

employee of the Department for purposes of determining whether the 

group is an advisory committee within the meaning of section 3 of FACA.24 

Pub. L. No. 108-136, div. C, title XXXI, 117 Stat. 1392, 1743 (Nov. 24, 2003), 

42 U.S.C. § 7234 note.

Other exemptions have been recognized administratively or derive from 

case law. For example, the Justice Department has concluded that FACA 

does not apply to a body created jointly by the United States and another 

nation. 3 Op. Off. Legal Counsel 321 (1979). The Justice Department also 

concluded in 1988 that the Smithsonian Institution is not a FACA “agency.” 

It reasoned that because FACA incorporates the definition of agency under 

the Administrative Procedure Act (APA), 5 U.S.C. § 551(1), and the 

Smithsonian does not meet the terms of the APA’s definition, the 

Smithsonian and any of its advisory bodies are not covered by FACA. 

12 Op. Off. Legal Counsel 122 (1988). The D.C. Circuit has since buttressed 

this conclusion by confirming that the Smithsonian is not an APA agency. 

24 This provision was enacted following the district court’s decision in Natural Resources 

Defense Council v. Abraham, 223 F. Supp. 2d 162 (D.D.C. 2002). The court held that FACA 

applied to a committee that consisted of federal employees and employees of contractors 

who managed and operated Department of Energy-owned laboratories, where the 

contractors were providing advice on a project that lay outside of their specific contract. Id. 

at 192. As a result of the enactment of the statute, the district court order pertaining to the 

FACA violation was set aside in Natural Resources Defense Council v. Department of 

Energy, 353 F.3d 40 (D.C. Cir. 2004).
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Dong v. Smithsonian Institution, 125 F.3d 877 (D.C. Cir. 1997), cert. 

denied, 524 U.S. 922 (1998).

If the specific exemptions do not resolve the question, there are several 

principles that are relevant in assessing applicability. They are, 

unfortunately, often difficult to apply, and we do little more than note them 

and allude to the problem areas.25

(2) Advisory versus operational

By its terms, the Federal Advisory Committee Act (FACA) applies to 

committees which are purely advisory. In general, it does not apply to 

bodies that are “operational.” See 5 U.S.C. app. § 9(b) (“[u]nless otherwise 

specifically provided by statute or Presidential directive, advisory 

committees shall be utilized solely for advisory functions”); § 2(b)(6) (“the 

function of advisory committees should be advisory only”). With respect to 

these provisions, as one court has said, “Congress intended that federal 

decision makers, not their advisers or delegatees, execute federal policy.” 

Consumers Union v. Department of Health, Education and Welfare,

409 F. Supp. 473, 477 (D.D.C. 1976), aff’d, 551 F.2d 466 (1977). The Justice 

Department has offered a useful test: does the body make or implement 

decisions itself, or does it offer advice to federal officials who themselves 

will then make the decisions? 5 Op. Off. Legal Counsel 283, 285 (1981).

Illustrative cases include Sofamor Danek Group, Inc. v. Gaus, 61 F.3d 929 

(D.C. Cir. 1995), cert. denied, 516 U.S. 1112 (1996) (the Low Back Panel, 

although established by the government, was charged with developing 

guidelines for health care practitioners rather than providing advice to the 

federal government, and was therefore operational); Public Citizen v. 

Commission on the Bicentennial of the United States Constitution,

622 F. Supp. 753 (D.D.C. 1985) (Bicentennial Commission primarily 

operational and therefore exempt); 57 Comp. Gen. 51 (1977) (same result 

for National Commission on the Observance of International Women’s 

Year); B-222831-O.M., May 30, 1986 (Statue of Liberty-Ellis Island 

Foundation). The fact that the commission may be required to submit 

reports to the President and/or Congress when it has finished its work does 

25 Good references are Stephen P. Croley, Practical Guidance on the Applicability of the 

Federal Advisory Committee Act, 10 Admin. L.J. 111 (1996); Stephen P. Croley and 

William F. Funk, The Federal Advisory Committee Act and Good Government, 14 Yale J. on 

Reg. 451 (1997).
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not change the result. Public Citizen, 622 F. Supp. at 758. These cases, by 

the way (except for Sofamor), point to one type of body which is almost 

always operational—the commemorative or memorial commission. Their 

role is usually to plan, coordinate, and implement a particular celebration. 

Further examples of this type are the Christopher Columbus 

Quincentenary Jubilee Commission, Pub. L. No. 98-375, 98 Stat. 1257

(Aug. 7, 1984); the Civil War Centennial Commission, Pub. L. No. 85-305, 

71 Stat. 626 (Sept. 7, 1957); and the National Capital Sesquicentennial 

Commission, Pub. L. No. 80-203, 61 Stat. 396 (July 18, 1947).

The more difficult situation arises when a body has both advisory and 

operational functions. FACA clearly anticipates its applicability to 

committees with some operational functions. For example, a covered 

committee’s charter must specify “a description of the duties for which the 

committee is responsible, and, if such duties are not solely advisory, a 

specification of the authority for such functions.” 5 U.S.C. app. § 9(c)(F). 

Also, the fragment of section 9(b) of FACA quoted above explicitly 

recognizes the inclusion of nonadvisory functions if specifically provided 

by statute or Presidential directive. The General Services Administration 

(GSA) regulations implement these distinctions by exempting committees 

which are “established to perform primarily operational as opposed to 

advisory functions.” 41 C.F.R. § 102-3.40(k). An illustrative case is Natural 

Resources Defense Council v. EPA, 806 F. Supp. 275 (D.D.C. 1992) (the 

Environmental Protection Agency’s (EPA) Governors’ Forum on 

Environmental Management primarily operational because participating 

state governors acted as independent chief executives in partnership with 

EPA in implementing pertinent legislation). GSA’s regulation provides 

further, however, that a primarily operational committee can become 

subject to FACA “if it becomes primarily advisory in nature.” 41 C.F.R.

§ 102-3.40(k).

(3) Who is being advised?

The definition of an advisory committee in section 3(2) of the Federal 

Advisory Committee Act (FACA), 5 U.S.C. app. § 3(2) quoted above, refers 

to bodies established or utilized “in the interest of obtaining advice or 

recommendations for the President or one or more agencies or officers of 

the Federal Government.” Section 3(3) of FACA expressly incorporates the 

Administrative Procedure Act definition of “agency,” 5 U.S.C. § 551(1), 

which specifically excludes Congress. See also 5 U.S.C. app. § 2(a). Thus, 

assuming the absence of any other disqualifying factors, an advisory 

committee will be subject to FACA if it advises the President and/or an 
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executive agency, but not if it advises Congress. E.g., B-135945, Mar. 29, 

1973 (National Study Commission established by Federal Water Pollution 

Control Act exempt from FACA because it advises Congress). As that 

decision points out, language to specifically include Congress was 

contained in earlier versions of FACA but was deleted prior to enactment. 

Similarly, a body established to advise the Comptroller General, an official 

of the legislative branch, is for that reason not subject to FACA. B-130961-

O.M., Feb. 12, 1974.

What if an advisory body is required to report both to Congress and to the 

President and/or an executive agency? An early decision espoused the 

view that merely including Congress on the list of recipients is enough to 

invoke the exemption. B-178395, Apr. 26, 1973. However, this essentially 

“form over substance” approach has not been followed, and later opinions 

by GAO and the Justice Department stress the need to examine the 

committee’s nature and essence. For example, the legislation establishing 

the National Commission for the Protection of Human Subjects of 

Biomedical and Behavioral Research directed the commission to report to 

the President, the Congress, and the Secretary of the then Department of 

Health, Education, and Welfare. Considering all relevant factors—the 

legislative scheme in its entirety, the legislative history, and the real 

essence of the commission’s functions—GAO concluded that the 

commission was “viewed by Congress as a body intended primarily to 

provide assistance to the Secretary,” and therefore subject to FACA. 

B-143181, Oct. 9, 1975. Similarly, the Justice Department concluded that 

the Native Hawaiians Study Commission was established primarily to 

advise Congress and was accordingly exempt from FACA, even though it 

was required to report as well to the President. 6 Op. Off. Legal Counsel 39 

(1982).

Justice has applied the same type of approach where an advisory 

committee reports to several executive branch recipients, some of which 

are covered by FACA and some of which are exempt. See 12 Op. Off. Legal 

Counsel 11 (1988) (Presidential Task Force on Market Mechanisms exempt 

from FACA because of its relationship to the Federal Reserve Board, 

notwithstanding that it also reports to the President and Secretary of the 

Treasury).

(4) “Established or utilized”

A key portion of section 3(2) of the Federal Advisory Committee Act’s 

(FACA) definition of advisory committee is that the group be “established 
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or utilized” by the President or by one or more agencies “in the interest of 

obtaining advice or recommendations for the President or one or more 

agencies.” Of the two words, “established” tends to be the easier to apply. 

It generally means created directly by a statute, the President, or a federal 

agency. “Established by statute” requires that the statute at least directly 

authorize the creation of advisory committees, if not the specific 

committee in question; committees “which merely can be said to owe their 

existence to legislation” do not meet the standard. Lombardo v. Handler,

397 F. Supp. 792, 796 (D.D.C. 1975), aff’d mem., 546 F.2d 1043 (D.C. Cir. 

1976), cert. denied, 431 U.S. 932 (1977). A group established by a 

government contractor is not, for FACA purposes, established by the 

government. E.g., Food Chemical News v. Young, 900 F.2d 328 (D.C. Cir.), 

cert. denied, 498 U.S. 846 (1990).

Also, since section 3(3) of FACA defines agency by incorporating the 

Administrative Procedure Act definition, 5 U.S.C. § 551(1), FACA will not 

apply to a body, however advisory it may be, created by a government 

entity not covered by the APA definition. For example, an advisory body 

established by the United States Sentencing Commission, an agency in the 

judicial branch, was found exempt from FACA in Washington Legal 

Foundation v. United States Sentencing Commission, 17 F.3d 1446 (D.C. 

Cir. 1994). The reason is that the APA definition excludes “the courts” and 

“the Congress,” and the courts have broadly construed this as excluding 

basically the entire judicial and legislative branches. Id. at 1449. See also 

Aluminum Company of America v. National Marine Fisheries Service,

92 F.3d 902 (9th Cir. 1996) (group formed by federal and nonfederal litigants 

to advise on compliance with court order was prompted, if by any single 

agency, by the district court and therefore exempt from FACA).

The word “utilized” is much more difficult. Prior to 1989 at least, there was 

no universally accepted approach to its application. The problem is that 

giving “utilized” its ordinary meaning, “make use of,” would bring in a 

variety of private bodies seemingly beyond the scope of FACA’s intended 

reach. Some courts applied a fairly straightforward approach. E.g., Food 

Chemical News, Inc. v. Davis, 378 F. Supp. 1048 (D.D.C. 1974) (agency 

which solicited comments from private industry group incident to 

considering change to regulations indisputably utilized that group to obtain 

advice). Others, viewing the term “utilized” as ambiguous, were guided 

more by legislative history. E.g., Lombardo, 397 F. Supp. at 800.

The Supreme Court confronted the issue in Public Citizen v. United States 

Department of Justice, 491 U.S. 440 (1989). The question was whether 
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FACA applied to consultations between the Justice Department and a 

standing committee of the American Bar Association regarding potential 

nominees for federal judgeships. Clearly, the standing committee was not 

established by the President or by the Justice Department. Equally clearly, 

if “utilized” were given its ordinary meaning, then the ABA committee was 

utilized by Justice.

However, the Court realized that a literal reading of section 3(2) would 

expand FACA’s coverage far beyond what Congress had in mind, and would 

also implicate constitutional concerns. In what may become the most 

quoted judicial statement since “I know it when I see it,” the Court called 

the word “utilize” a “woolly verb, its contours left undefined by the statute 

itself.” Public Citizen, 491 U.S. at 452. This being the case, the Court 

looked to legislative history to shear the wool, and found that Congress 

seemed concerned mostly with “groups organized by, or closely tied to, the 

Federal Government, and thus enjoying quasi-public status.” Id. at 461. 

The Court continued:

“The phrase ‘or utilized’ . . . appears to have been added 

simply to clarify that FACA applies to advisory committees 

established by the Federal Government in a generous sense 

of that term, encompassing groups formed indirectly by 

quasi-public organizations . . . ‘for’ public agencies as well as 

‘by’ such agencies themselves.” 

Id. at 462. Under this approach, the ABA committee—privately formed and 

“in receipt of no federal funds and not amenable to . . . strict management 

by agency officials” (id. at 457–58)—was clearly excluded.

Several lower courts have suggested that Public Citizen treated “utilize” 

essentially as a form of “established.” E.g., Aluminum Company of 

America, 92 F.3d at 905. While there is some truth to this and the 

distinction surely has been blurred, the fact remains that the statute uses 

the word “or” and that therefore they are two separate and exclusive 

concepts. Huron Environmental Activist League v. EPA, 917 F. Supp. 34, 

40 n.6 (D.D.C. 1996). “Established” refers to a government-formed body 

while “utilized” refers to a group formed by nongovernment sources but 

which is nevertheless sufficiently close to an agency as to be amenable to 

management or control by that agency. Food Chemical News, 900 F.2d 

at 332–33. As the D.C. Circuit phrased it in Sofamor Danek Group, Inc. v. 

Gaus, 61 F.3d 929 (D.C. Cir. 1995), cert. denied, 516 U.S. 1112 (1996), in 

light of the Public Citizen’s interpretation of “utilize,” “FACA can only 
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apply if the committee is established, managed, or controlled for the 

purpose of obtaining advice or recommendations for the federal 

government.” Sofamor, 61 F.3d at 936.

If one point emerges from Public Citizen and its progeny, it is that FACA 

will be difficult to apply to a body not established by the government. To 

cite a few examples, the courts have found that the following entities were 

not subject to FACA because they were not utilized in the Public Citizen

sense:

• Working groups created to aid in implementing a court order regarding 

the protection of an endangered species. The groups were not funded 

by the government, nor were they subject to federal management. 

Aluminum Company of America, 92 F.3d 902.

• A group of experts established by a contractor to advise on food and 

cosmetic safety issues. Not only did the contractor, a private 

organization, not enjoy “quasi-public status,” it set the group’s agenda, 

scheduled its meetings, and reviewed its work. Food Chemical News,

900 F.2d at 333.

• A cement industry group that met with EPA. Although EPA determined 

the schedule and made other logistical arrangements for meetings with 

the cement industry group, there was no showing that the group was 

subject to EPA’s management or control or that it was “so closely tied to 

the executive branch of the government as to render it a functionary 

thereof.” Huron Environmental Activist League, 917 F. Supp. at 40.

• An advisory committee to the Sentencing Commission was not utilized 

by the Justice Department because, as a judicial branch entity, it was 

not, and could not be, managed or controlled by Justice. Minority 

membership on the committee (in this case, 2 Justice officials out of 

16 members) is not control. Washington Legal Foundation, 17 F.3d 

at 1450–51.

As noted above, all of these cases involved the interpretation of the term 

“utilized” in section 3(2) of FACA. However, the term is also used in 

section 4(b) of FACA, which expressly exempts from FACA requirements 

advisory committees that are “established or utilized” by the Central 

Intelligence Agency (CIA): “Nothing in this Act shall be construed to apply 

to any advisory committee established or utilized by—(1) the Central 

Intelligence Agency.” The use of the term “utilized” in the section 4(b) 
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sense was addressed in Center for Arms Control and Non-Proliferation v. 

Lago, Civ. A. No. 05-682(RMC) (D.D.C. Nov. 15, 2006). By Executive Order 

No. 13328, Feb. 6, 2004, the President established the Commission on the 

Intelligence Capabilities of the United States Regarding Weapons of Mass 

Destruction (Commission) to investigate the intelligence communities’ 

prior assessments of and current capabilities to confront weapons of mass 

destruction in Iraq, and submit a report on its findings and 

recommendations by March 31, 2005. The Executive Order also provided 

that the “Central Intelligence Agency and other components of the 

Intelligence Community shall utilize the Commission and its resulting 

report.” Exec. Order No. 13328, ¶ 2(d). The Center for Arms Control and 

Non-Proliferation (Center)26 sought the materials used in developing the 

Commission’s report, and in the process the Center brought suit 

complaining that the Commission had failed to comply with certain of 

FACA’s requirements, such as keeping detailed minutes of each meeting 

and making records available for public inspection. See 5 U.S.C. app.

§§ 10(b), (c), and 11(a). 

In determining whether the Commission was an advisory committee under 

FACA, the court considered the cases such as Public Citizen and its 

progeny, which addressed the definition of “utilized” in the context of 

FACA section 3(2), and summarized the definitions in those circumstances: 

“[A] committee is ‘established’ when it is formed by a Government agency, 

and ‘utilized’ when it is organized by a non-governmental entity ‘but 

nonetheless so closely tied to an agency as to be amendable to strict 

management by agency officials.’” Center for Arms Control and NonProliferation, slip op. at 6 (citations omitted). The court found these 

definitions did not apply to the concept of “utilized” as used in FACA 

section 4(b), which should be read more broadly to ensure that FACA’s 

requirements “would not interfere with or jeopardize the confidentiality of 

the workings of the CIA.” Id. at 8. The court instead read the word 

“utilized” in section 4(b) in light of its common meaning “to put to use.” Id. 

In this case, although the CIA did not have any particular management role 

vis-à-vis the Commission’s work, the fact that the CIA could “utilize” or, 

using the court’s definition, “put to use” the Commission and its report was 

sufficient to trigger the FACA exemption in section 4(b). Id. 

26 The Center is a private, nonprofit policy organization that seeks the reduction and 

eventual elimination of all weapons of mass destruction as a significant tool of U.S. national 

security policy. More information is available at the Center’s Web site, 

www.armscontrolcenter.org (last visited Nov. 28, 2007).
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(5) Other factors

The Federal Advisory Committee Act (FACA) applies to a group acting as a 

group; it does not apply to individuals acting as individuals just because 

they happen to be in the same place while they are doing it. Association of 

American Physicians & Surgeons (AAPS) v. Clinton, 997 F.2d 898, 915 

(D.C. Cir. 1993) (court opined that FACA does not apply to a “collection of 

individuals who do not significantly interact with each other”); Aluminum 

Company of America v. National Marine Fisheries Service, 92 F.3d

902, 907 (9th Cir. 1996) (quoting AAPS). The GSA regulations reflect this 

point. See 41 C.F.R. § 102-3.40 (formerly 41 C.F.R. § 101-6.1004), discussed 

in B-202455, Aug. 30, 1984, and B-202455, Mar. 21, 1985. As the Justice 

Department has put it:

“FACA applies by its terms to ‘advisory committees.’ 

‘Advisory committee’ is a term that connotes a body that 

deliberates together to provide advice. Therefore, as a 

matter of statutory construction, we believe that FACA does 

not apply to a group which simply acts as a forum to collect 

individual views rather than to bring a collective judgment 

to bear.” 

14 Op. Off. Legal Counsel 53, 55 (1990). The requirement that a committee 

act as a committee does not mean that it must give “consensus advice.” 

AAPS, 997 F.2d at 913.

Consensus or not, the advice must relate directly to governmental policy 

issues. Judicial Watch, Inc. v. Clinton, 76 F.3d 1232, 1233 (D.C. Cir. 1996) 

(Presidential legal expense trust, established to help defray personal legal 

fees, not subject to FACA); Grigsby Brandford & Co. v. United States,

869 F. Supp. 984, 1001 (D.D.C. 1994); 41 C.F.R. § 102-3.25 (the General 

Services Administration’s definition of advisory committee).

An important, although not in and of itself necessarily conclusive, factor is 

the degree of formality attaching to the group. An early and often-cited 

FACA case held the statute inapplicable to a group whose “meetings are 

unstructured, informal and not conducted for the purpose of obtaining 

advice on specific subjects indicated in advance.” Nader v. Baroody,

396 F. Supp. 1231, 1234–35 (D.D.C. 1975). Other cases, however, have 

applied FACA to informal meetings. E.g., National Nutritional Foods 

Ass’n v. Califano, 603 F.2d 327 (2nd Cir. 1979); Food Chemical News, Inc. v. 

Davis, 378 F. Supp. 1048 (D.D.C. 1974). The more recent trend seems to be 
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to follow the approach of Baroody. Thus, the D.C. Circuit has stated: “In 

order to implicate FACA, the President, or his subordinates, must create an 

advisory group that has, in large measure, an organized structure, a fixed 

membership, and a specific purpose.” AAPS, 997 F.2d at 914, cited in 

Aluminum Company of America, 92 F.3d at 906 (“existence of a formal 

and structured group leans toward a finding of FACA applicability”). See 

also Huron Environmental Activist League v. EPA, 917 F. Supp. 34, 42 

(D.D.C. 1996); Grigsby Brandford & Co., 869 F. Supp. at 1001.

A group’s funding is also relevant but not conclusive. One of the factors the 

Supreme Court noted in holding FACA inapplicable to the American Bar 

Association’s committee on federal judgeships was that it was “in receipt of 

no federal funds.” Public Citizen v. Department of Justice, 491 U.S. 440, 

457 (1989). See also Aluminum Company of America, 92 F.3d at 906. 

Thus, the absence of federal funding is a factor supporting a conclusion of 

nonapplicability. In view of all the other ways to fall outside the statute, the 

presence of federal funding would not appear to be particularly revealing 

one way or the other. While the mere existence of federal funding may not 

tell you very much, its precise source may. For example, in determining 

that a particular committee was designed primarily to advise Congress 

rather than the President, the Justice Department found it relevant that the 

committee was originally funded from the contingent fund of the Senate. 

6 Op. Off. Legal Counsel 39, 41–42 (1982). See also 13 Op. Off. Legal 

Counsel 285, 290 n.11 (1989) for a case in which no clear inferences could 

be drawn.

The status of subcommittees or subgroups is not entirely clear. The FACA 

definition expressly includes boards, committees, etc., “or any 

subcommittee or other subgroup thereof.” 5 U.S.C. app. § 3(2). One court 

has found that task forces of the President’s Private Sector Survey on Cost 

Control were not subject to FACA because “[t]hey do not directly advise 

the President or any federal agency, but rather provide information and 

recommendations for consideration to the Committee.” National AntiHunger Coalition v. Executive Committee, 557 F. Supp. 524, 529 (D.D.C.), 

aff’d, 711 F.2d 1071 (D.C. Cir. 1983). Under this approach, the subgroup 

operates essentially as staff of the parent committee. GAO questioned 

whether this is really what Congress had in mind:

“One would expect most subcommittees or subgroups to 

report to their parent committee, rather than bypassing the 

parent committee and reporting directly to a Federal 

official. . . . There is no reason to presume that Congress 
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intended subcommittees or subgroups to be included only 

in those unusual circumstances where they side-step their 

parent committees.”

B-199008-O.M., June 14, 1983, at 9.

As discussed earlier, the D.C. Circuit revisited the issue in the 1993 case, 

Association of American Physicians & Surgeons v. Clinton, 997 F.2d 898, 

where the court examined the status of a working group set up to assist the 

President’s Task Force on National Health Care Reform. Although not 

expressly repudiating the Anti-Hunger reasoning in all cases, the court 

now pointed out that “we did not explicitly approve the judge’s reasoning 

relating to the supposed staff groups.” AAPS, 997 F.2d at 912. While the 

court did not have sufficient information to decide the issue, it hinted 

strongly that subgroups would be subject to different degrees of stringency 

depending on whether the parent group was (as in Anti-Hunger) or was 

not (as in AAPS) itself subject to FACA.

“In contrast to the situation here, in Anti-Hunger the top 

levels of the outside advisory groups were covered by 

FACA. . . . In that scenario, there is less reason to focus on 

subordinate advisers or consultants who are presumably 

under the control of the superior groups. . . . But when the 

Task Force itself is considered part of the government—due 

to the government officials exemption—we must consider 

more closely FACA’s relevance to the working group. For it 

is the working group that now is the point of contact 

between the public and the government.” 

AAPS, 997 F.2d at 913 (emphasis in original). The court did not address the 

extent to which the distinction would be relevant, if at all, where the parent 

body is exempt from FACA for some reason other than the government 

officials’ exemption.

b. Creation and Funding Funding of a federal advisory committee depends largely on how it was 

created. Creation is addressed in section 9(a) of the Federal Advisory 

Committee Act:

“(a) No advisory committee shall be established unless such 

establishment is—
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(1) specifically authorized by statute or by the President; or

(2) determined as a matter of formal record by the head of the 

agency involved after consultation with the Administrator [of 

General Services] with timely notice published in the Federal 

Register, to be in the public interest in connection with the 

performance of duties imposed on that agency by law.”

5 U.S.C. app. § 9(a). As this provision indicates, and as the GSA regulations 

reflect (41 C.F.R. § 102-3.50), there are several ways to create an advisory 

committee:

• by statute;

• by the President, usually by executive order;

• by the President pursuant to statutory authorization;

• by an agency head.

Indeed, one of the significant features of section 9(a) is its explicit 

recognition of the nonstatutory creation of advisory committees by the 

executive branch.

(1) Statutory committees: creation

Congress, of course, can legislatively create committees or other groups, 

advisory and/or operational. Therefore, the discussion under this heading 

is not limited to advisory bodies. Statutes creating a board, commission, 

committee, or similar group may include the following elements:

It may prescribe the group’s functions and duties. Unless otherwise 

provided, this description will determine whether the group is “primarily 

operational” and thus exempt from the Federal Advisory Committee Act 

(FACA). If the group’s functions include holding hearings or taking 

testimony, the statute may address such topics as the expenses of 

witnesses and the treatment of subpoenas. E.g., Pub. L. No. 104-169, § 5(a), 

110 Stat. 1482, 1484–85 (Aug. 3, 1996) (National Gambling Impact Study 

Commission).

It may address the group’s status under FACA. The statute may expressly 

provide that the group is subject to FACA. E.g., 20 U.S.C. § 9252(e)(3) 
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(National Institute for Literacy Advisory Board). It may render the group 

wholly exempt from FACA. E.g., Pub. L. No. 98-399, § 5(c), 98 Stat. 

1473, 1474 (Aug. 27, 1984) (Martin Luther King, Jr. Federal Holiday 

Commission). Or, it may exempt the group from certain portions of FACA. 

E.g., Pub. L. No. 93-348, § 211(a), 88 Stat. 342, 351–52 (July 12, 1974) 

(stating that section 14 of FACA—termination and renewal—shall not be 

applicable to the National Advisory Council for the Protection of Subjects 

of Biomedical and Behavioral Research).

It may prescribe the group’s membership and composition. To the extent 

the group will include or consist of private members, it will prescribe who 

is to appoint them. E.g., Pub. L. No. 86-380, § 3, 73 Stat. 703, 704 (Sept. 24, 

1959) (Advisory Commission on Intergovernmental Relations members 

shall be appointed by the President, the President of the Senate, or the 

Speaker of the House); Pub. L. No. 93-348, § 211(a) (members shall be 

appointed by the department head). The statute may prohibit members 

from holding any other position as an officer or employee of the United 

States during their period of service.27 E.g., Pub. L. No. 90-515, § 2(b), 

82 Stat. 868 (Sept. 26, 1968) (National Water Commission). Absent a 

provision of this nature, nothing prohibits a private individual from serving 

on more than one committee. Similarly, a government official may serve on 

more than one body as long as “the person receives only one salary, the 

positions are not ‘incompatible’ from the standpoint of public policy, and 

there is no augmentation of relevant appropriations.” 14 Op. Off. Legal 

Counsel 157, 160 (1990). See also 8 Op. Off. Legal Counsel 200, 205–06 

(1984).

It may address the compensation of members and, if applicable, the 

hiring of staff. Members may or may not be compensated for their 

services, and members serving without compensation may nevertheless be 

allowed travel expenses. An example is Pub. L. No. 98-399, § 4(d) (Martin 

Luther King, Jr. Federal Holiday Commission). Enabling statutes 

frequently provide that members who are officers or employees of the 

government or Members of Congress may not receive compensation for 

their service as members (because of the dual compensation laws, 

primarily 5 U.S.C. § 5533), but may be allowed travel expenses. E.g.,

27 See 50 Comp. Gen. 736 (1971) (holding that membership on an advisory council was a 

position as an officer or employee of the United States for purposes of such a provision). 

For similar holdings in other contexts, see 24 Comp. Gen. 498, 500 (1945); 16 Comp. 

Gen. 495, 497 (1936); 23 Comp. Dec. 372, 374 (1917); 3 Op. Off. Legal Counsel 321, 322–23 

(1979). 
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Pub. L. No. 91-129, § 5(a), 83 Stat. 269, 271 (Nov. 26, 1969) (Commission on 

Government Procurement).

Payment of a per diem amount in lieu of subsistence is available only 

where authorized by statute. 20 Comp. Gen. 361, 363 (1941) (Commission 

on Fine Arts); 10 Comp. Gen. 239, 240 (1930) (George Washington 

Bicentennial Commission). For committees subject to it, FACA provides 

the necessary authority. 5 U.S.C. app. § 7(d)(1)(B). For other groups, the 

authority must be found elsewhere. E.g., 36 U.S.C. § 2303(a) (Holocaust 

Memorial Council).

In most cases, compensation is provided in one of two ways: (1) the “daily 

equivalent” of a specified grade/level of the General Schedule or Executive 

Schedule, or (2) a per diem basis, that is, a fixed number of dollars per day. 

In either case, compensation is payable only for days the member actually 

performs duties. The compensation is payable in full regardless of how 

much or how little the person works on any given day. 45 Comp. Gen. 131, 

133 (1965) (addressing per diem payments); 28 Comp. Gen. 211–12 (1948) 

(same). (Of course, to trigger the entitlement at all, the “little” must exceed 

zero.)

Another type of compensation provision authorizes compensation in 

accordance with 5 U.S.C. § 3109, the expert and consultant statute. This 

will limit compensation to the highest rate for a GS-15 unless a higher rate 

is expressly provided by statute. 51 Comp. Gen. 224, 226 (1971); 43 Comp. 

Gen. 509 (1964); 29 Comp. Gen. 267, 268–69 (1949).

For advisory committees under FACA, the statute imposes a compensation 

ceiling of the rate specified for level IV of the Executive Schedule. 5 U.S.C. 

app. § 7(d); 5 U.S.C. §§ 5315, 5376 note. However, GSA’s FACA regulations 

require the agency head to personally authorize any rate higher than GS-15. 

41 C.F.R. § 102-3.130. Both the statute and regulations authorize the 

payment of travel expenses for duties performed away from home or 

regular place of business. 5 U.S.C. app. § 7(d); 41 C.F.R. § 102-3.130.

A common provision exempts members and/or staff from the so-called civil 

service laws. GAO has held that the phrase “civil service laws” refers to the 

statutes and regulations governing appointments, and does not include the 

provisions, now also in title 5, United States Code, addressing salary rates. 

53 Comp. Gen. 531, 532 (1974). A more precise version of this language is 

“without regard to the provisions of [5 U.S.C.] governing appointments in 

the competitive service.” Pub. L. No. 93-348, § 211(a). If exemption from 
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both is desired, the modern language is “without regard to the provisions of 

[5 U.S.C.] governing appointments in the competitive service, and without 

regard to chapter 51 and subchapter III of chapter 53 of such title relating 

to classification and General Schedule pay rates.” E.g., Pub. L. No. 108-458, 

§ 1061(g)(1), 116 Stat. 3638, 3687–88 (Dec. 17, 2004) (Privacy and Civil 

Liberties Oversight Board); Pub. L. No. 100-94, § 5, 101 Stat. 700, 701 

(Aug. 18, 1987) (Christopher Columbus Quincentenary Jubilee 

Commission).

It may make some provision for support services. The committee may 

need office space, office equipment, staff, etc. Especially if the committee 

is tied in by subject matter to some existing department, the legislation may 

direct that department to provide support services. Such support services 

may or may not be reimbursable. For example, the Interior Department is 

authorized to provide services and support to the Holocaust Memorial 

Council “on a reimbursable basis.” 36 U.S.C. § 2304(d). In contrast, 

support services provided to the National Commission on Restructuring 

the Internal Revenue Service by the General Services Administration or the 

Treasury Department are to be “on a nonreimbursable basis.” Pub. L. 

No. 104-52, § 637(d)(4), 109 Stat. 468, 511 (Nov. 19, 1995). Still another 

variation leaves it to the parties to fight it out. E.g., Pub. L. No. 93-556,

§ 7(b), 88 Stat. 1788, 1792 (Dec. 27, 1974) (Commission on Federal 

Paperwork may obtain services from any government agency, 

“reimbursable or otherwise, as may be agreed” by the Commission and the 

agency).

It may prescribe applicable reporting requirements. (See section A.4.a(3) 

of this chapter.)

It may provide for the group’s termination, at least for groups intended 

to have a short duration or single-project groups. A common provision 

mandates termination a specified number of days or months after 

submission of required reports. E.g., Pub. L. No. 88-606, § 4(b), 78 Stat.

982, 983 (Sept. 19, 1964) (Public Land Law Review Commission shall 

terminate on the earlier of a fixed date or 6 months after submission of its 

report). Some entities may simply terminate on a fixed date, an approach 

suitable for memorial commissions, for example. E.g. Pub. L. No. 98-101, 

§ 7, 97 Stat. 719, 722 (Sept. 29, 1983) (Commission on the Bicentennial of 

the Constitution “shall terminate on December 31, 1989”).

For groups subject to it, FACA addresses termination if the establishing 

legislation is otherwise silent. An advisory committee will terminate two 
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years after its date of establishment unless its duration is “otherwise 

provided for by law.” 5 U.S.C. app. § 14(a)(2)(B). The Justice Department 

has concluded that the nature of a group’s functions may exempt it from 

the automatic termination of section 14. Specifically:

“In our view, the duration of a statutorily created advisory 

committee may be ‘otherwise provided for by law’ either 

expressly or by implication. Such duration is provided for 

by implication if the statute that creates or assigns functions 

to an advisory committee provides for it a specific function 

that is continuing in nature and is an integral part of the 

implementation of a statutory scheme.” 

3 Op. Off. Legal Counsel 170, 171 (1979). The requirement to make 

“periodic reports and recommendations” meets this test. Id. at 173–74.

(2) Statutory committees: funding

A board or committee created by Congress is generally funded under the 

standard two-step procedure: “first the program is authorized and, 

subsequently, appropriations are made available to carry out the program.” 

B-39995-O.M., Apr. 28, 1983, at 2 (referring to the Cost Accounting 

Standards Board). The Federal Advisory Committee Act (FACA), 5 U.S.C. 

app. §§ 5(b)(4) and (5), contains provisions dealing with authorization of 

appropriations and the assurance that the advisory body will have funds 

available for its necessary expenses (although no precise mechanism is 

prescribed).

The authorization of appropriations may be indefinite, that is, such sums 

“as may be necessary.”28 Others may include a monetary ceiling.29 Still 

others may cover multiple year periods either year-by-year or in the 

28 Examples are the Glass Ceiling Commission, Pub. L. No. 102-166, § 209, 105 Stat. 

1071, 1087 (Nov. 21, 1991); the Commission on Government Procurement, Pub. L. 

No. 91-129, § 9, 83 Stat. 269, 272 (Nov. 2, 1969), and the Commission on Organization of the 

Executive Branch of the Government (the so-called Second Hoover Commission), Pub. L. 

No. 83-108, § 8, 67 Stat. 142, 144 (July 10, 1953).

29 E.g., Civil War Centennial Commission, Pub. L. No. 85-305, § 9, 71 Stat. 626, 628 (Sept. 7, 

1957).
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aggregate.30 A variation provides a specific dollar authorization for the first 

year and “such sums as may be necessary” thereafter.31 There appear to be 

no significant consequences flowing from which form is used, nor are we 

able to generalize as to when a particular form may be regarded as more 

appropriate.

The authorization is sometimes combined with language prohibiting 

expenditures except to the extent provided in advance in appropriation 

acts. E.g., 36 U.S.C. § 2310 (Holocaust Memorial Council); Pub. L. 

No. 104-169, § 9(b), 110 Stat. 1482, 1488 (Aug. 3, 1996) (National Gambling 

Impact Study Commission). Even without language of this sort, an 

appropriation would still be necessary to carry out the authorization.

The next step is the actual appropriation. It can be an appropriation made 

directly to the entity; it can be an appropriation to an existing agency to be 

funneled to the entity; or it can be included in a lump-sum appropriation to 

a department or agency related in subject matter. The authorization of 

appropriations may influence this choice. Some authorizing provisions, for 

example, expressly authorize funds to be directly appropriated to the board 

or commission while others use more discretionary language (funds 

appropriated “for the activities of” the particular commission or simply “to 

carry out this act”).

Whichever form is used, there is nothing particularly exotic about an 

appropriation for a miscellaneous board or commission. It is essentially no 

different from an appropriation for any other entity, and is governed by the 

same rules of purpose, time, and amount. The following paragraphs 

illustrate the application of some of these rules.

A board, committee, or other such entity must use an appropriation only 

for its intended purposes. This means the purposes stated in the 

appropriation and other pertinent legislation, as amplified by the 

“necessary expense” doctrine expounded in Chapter 4, section B. E.g.,

B-211149, June 22, 1983 (because Holocaust Memorial Council had specific 

30 E.g., Christopher Columbus Quincentenary Jubilee Commission, Pub. L. No. 98-375, 

§ 11(a), 98 Stat. 1257, 1262 (Aug. 7, 1984) (year-by-year); Commission on Merchant Marine 

and Defense, Pub. L. No. 98-525, § 1536(i), 98 Stat. 2492, 2635 (Oct. 19, 1984) (aggregate).

31 Commission on the Bicentennial of the Constitution, Pub. L. No. 98-101, § 8, 97 Stat. 

719, 723 (Sept. 29, 1983).
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authority to solicit donations, it could pay employees or consultants who 

engage in fund-raising).

Entertainment is not a proper expenditure unless Congress has authorized 

it. One way Congress does this is to appropriate part of a lump sum for 

“official reception and representation expenses.” While this is the device 

most commonly used for larger agencies, it works just as well for a small 

board or commission. E.g., Pub. L. No. 98-411, 98 Stat. 1545, 1568 (Aug. 30, 

1984) (1985 appropriation for the Japan-United States Friendship 

Commission). Another device Congress has used—primarily with 

celebration/memorial commissions—is to include in the enabling statute 

authority to act “without regard to the laws and procedures applicable to 

Federal agencies.” A commission with this authority can expend public 

funds for food and entertainment virtually at will. B-138969, Apr. 16, 1959 

(Lincoln Sesquicentennial Commission); B-138925, Apr. 15, 1959 (Civil War 

Centennial Commission); B-129102, Oct. 2, 1956 (Woodrow Wilson 

Centennial Celebration Commission).

In making expenditures from a lump-sum appropriation, an agency’s 

discretion is not legally limited by restrictions expressed in legislative 

history that are not carried into the statute itself. E.g., 31 Comp. Gen. 412 

(1952) (National Capital Sesquicentennial Commission could spend its 

appropriation on authorized activities and was not bound to follow 

instructions contained only in a committee report).

Money received for the use of the government, in accordance with the socalled miscellaneous receipts statute, 31 U.S.C. § 3302(b), must be 

deposited in the general fund of the Treasury, subject to exceptions 

discussed in detail in Chapter 6, section E.2.a. For the most part, a body 

which is purely advisory should not be in a position to generate receipts. 

Operational bodies, on the other hand, are more likely to be involved in 

activities that generate receipts and must therefore contend with the 

miscellaneous receipts statute.

Specific authority to credit receipts to its operating appropriation makes 

those funds available for expenditure without further congressional action, 

at least during the appropriation’s period of obligational availability. 

B-90476, June 14, 1950 (charges for admission to exhibits, plays, and 

dramatic productions by the National Capital Sesquicentennial 

Commission). As noted above, language authorizing an agency to act 

without regard to the laws applicable to federal agencies is sufficient to 

remove the restriction on entertainment expenditures. Such language is 
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equally sufficient to overcome the miscellaneous receipts statute. 

B-136051, Aug. 27, 1959 (concerning the sale of publications and 

commemorative medals by Civil War Centennial Commission). If the board 

or commission does not have specific authority to charge fees, it must rely 

on the so-called User Fee Statute, 31 U.S.C. § 9701, in which case the fees 

are fully subject to the miscellaneous receipts requirement. 

In a 1936 case, the Northwest Territory Celebration Commission found 

itself in a dilemma. As part of the celebration, it wanted to print and sell 

cartographic maps of the Northwest Territory and to produce a “moving 

pageant.” The states formed from the Northwest Territory, with whom the 

Commission was statutorily charged to cooperate, would each order, and 

pay for, the desired number of maps and performances. While the states 

were perfectly willing to pay their proportionate shares, the problem was 

that the Commission lacked authority to retain the receipts, and thus would 

have depleted its appropriation without reimbursement. The solution was 

to somehow furnish the goods and services without charge to the 

Commission’s appropriation. The way to do this was for each participating 

state to advance its estimated share, which would be held in the Treasury in 

a trust fund account, from which expenditures could be made. If this 

approach were followed, it would be necessary to account for each state’s 

funds separately so that any remaining unexpended balances could be 

refunded. A-51645, Nov. 6, 1936.

In the case of a small celebration/memorial commissions, GAO 

recommended that the statute authorize payment of the appropriation to 

the commission in one lump sum, at least where the statute does not 

otherwise address the handling of the commission’s finances:

“It is the view of this office that in cases of small 

appropriations for sectional celebrations, memorials, etc., 

where the authorizing resolution does not provide for the 

administrative handling of obligations and expenditures 

from such appropriations by an existing Government 

agency, it is preferable that the money be appropriated for 

payment as a gift in one lump sum to an established local 

body without any further accounting to the Federal 

accounting officers. [This procedure] . . . would remove the 

task of attempting at considerable cost to inform the 

inexperienced local person or body of persons in the field of 

the regulations, forms, and procedures required in 

accounting for public funds.” 
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B-8474, Feb. 19, 1940, at 2. The subject of that discussion was the Benjamin 

Harrison Memorial Commission, established by statute. Pub. L. No. 76-352, 

53 Stat. 1274 (Aug. 9, 1939). Shortly after GAO’s opinion, the authorized 

amount was appropriated “to be paid to the Commission for expenditure 

within its discretion” for authorized purposes. First Deficiency 

Appropriation Act, 1940, Pub. L. No. 76-447, 54 Stat. 82, 83 (Apr. 6, 1940). 

However, it is not free money and the commission did have a recordkeeping responsibility: “[I]t is felt desirable that [the commission] maintain 

an adequate record of such funds and of the expenditure thereof.” A-84233, 

June 3, 1937, at 2 (Charles Carroll of Carrollton Bicentenary Commission).

Thus far, we have been talking about the fairly straightforward situation 

where Congress creates a body, authorizes the appropriation of funds, and 

then makes the appropriation. There are variations. Instead of creating the 

commission directly, Congress can authorize or direct the President to 

create it. E.g., Pub. Res. No. 106, 74th Cong., ch. 556, 49 Stat. 1516 (June 15, 

1936) (President authorized to establish Charles Carroll of Carrollton 

Bicentenary Commission); Department of Defense Authorization Act, 1985, 

Pub. L. No. 98-525, § 1511, 98 Stat. 2492, 2626 (Oct. 19, 1984) (President 

directed to establish Chemical Warfare Review Commission). Congress 

can fund the body by a direct appropriation (e.g., First Deficiency 

Appropriation Act, Fiscal Year 1937, Pub. L. No. 75-4, 50 Stat. 8, 10 (Feb. 9, 

1937)—Carroll Bicentenary Commission), or it can tell the President, in 

effect, to go hunt for the money. See, e.g., 15 U.S.C. § 1022f(b) (describing 

compensation for advisory boards on national economic programs and 

policies). These statutes tend to be less detailed than their direct-creation 

siblings, the detail being filled in by the implementing executive order. 

E.g., Exec. Order No. 12502, Chemical Warfare Review Commission, 

50 Fed. Reg. 4,195 (Jan. 28, 1985).

Congress also, either in conjunction with a direct appropriation or without 

it, may require an existing department or agency to provide financial 

support services. For example, the law creating the Civil War Centennial 

Commission provided: “Expenditures of the Commission shall be paid by 

the National Park Service as general administrative agent, which shall keep 

complete records of such expenditures and shall account also for all funds 

received by the Commission.” Pub. L. No. 85-305, § 6(b)(1), 71 Stat. 

626, 627 (Sept. 7, 1957). Section 201 of the ICC Termination Act of 1995, 

Pub. L. No. 104-88, 109 Stat. 803, 939 (Dec. 29, 1995), codified at 49 U.S.C. 

§ 726(d)(2), authorizes the Secretary of Transportation or the Chairman of 

the Surface Transportation Board to “pay the reasonable and necessary 

expenses incurred by” the Railroad-Shipper Transportation Advisory 
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Council. Another variation is to appropriate money to an existing agency, 

to be transferred to the board or commission when it is legally capable of 

receiving them. E.g., 2 Op. Off. Legal Counsel 366 (1977).32

Still another variation is found in the law establishing the National 

Commission on Restructuring the Internal Revenue Service: “The 

Secretary of the Treasury is authorized on a nonreimbursable basis to 

provide the Commission with administrative services, funds, facilities, 

staff, and other support services for the performance of the Commission’s 

functions.” Treasury, Postal Service, and General Government 

Appropriations Act, 1996, Pub. L. No. 104-52, § 637(d)(4), 109 Stat. 468, 511 

(Nov. 19, 1995) (emphasis added). Absent a direct appropriation, this 

would appear to be sufficient authority for Treasury to fund the 

Commission. However, if Congress had been making direct appropriations 

and then stopped, a provision of this sort would enable the supporting 

agency to provide various kinds of stopgap or perhaps even supplemental 

financial assistance, but would not permit funding of the commission’s 

entire operations. B-39995-O.M., Apr. 28, 1983 (Cost Accounting Standards 

Board).

A provision for a designated agency to provide support services to a board 

or commission would normally imply that the board or commission is not 

authorized to obtain the services directly. 61 Comp. Gen. 69, 75 (1981). 

However, in the cited case, the United States Advisory Commission on 

Public Diplomacy was able to bypass its support agency and contract 

directly for certain services because it also had specific authority to hire 

experts and consultants in accordance with 5 U.S.C. § 3109.

For bodies created and funded by Congress, advisory or nonadvisory, 

FACA or non-FACA, the various funding restrictions described earlier in 

this section would not apply, except for the requirement for specific 

approval of interagency funding. One could concoct a scenario in which 

the Russell Amendment, 31 U.S.C. § 1347, might come into play (e.g., a 

nonadvisory body created by statute, with no appropriations of its own but 

funded by an existing agency), but it would be rare.

To sum up, when Congress statutorily creates a board or commission, or 

authorizes or directs the executive branch to do so, it can fund the entity 

32 Although not germane to the result or to the point made in the text, the “appropriation” 

cited in the Office of Legal Counsel opinion was merely an authorization.
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through the traditional authorization-appropriation process used for larger 

agencies, or it can resort to techniques which are perhaps regarded as more 

suitable for certain small entities. Whether the body is advisory subject to 

FACA, advisory but not subject to FACA, operational, or mixed, would not 

appear to make any significant difference except that operational bodies 

are more likely to be funded by direct appropriations. Legislation 

establishing a FACA committee will almost surely make some provision for 

support services, possibly including some funding, but Congress has used 

this device in non-FACA bodies as well.

(3) Committees established by the executive branch

The Justice Department has concluded that, with the possible exception of 

performing constitutional responsibilities in an emergency, the President 

lacks the power to create a new operational agency in the executive 

branch: legislation is required. 9 Op. Off. Legal Counsel 76, 78 (1985). 

However, this inhibition on creating agencies does not exist in the case of 

an advisory committee. As we have seen, the Federal Advisory Committee 

Act (FACA) explicitly recognizes, in 5 U.S.C. app. §§ 3(2) and 9(b), the 

inherent authority of the President, and of agency heads, to establish purely 

advisory bodies.33

A President creating an advisory body typically does so by issuing an 

executive order. The executive order may basically include the same 

elements that can be found in an enabling statute as outlined above. The 

executive order may establish the body, prescribe its functions, and 

address membership and composition, compensation, support services, 

and any reporting requirements. It may also address termination and the 

applicability of FACA.

As one court has noted, “FACA provides very little guidance as to the 

manner in which advisory committees are to be funded.” Metcalf v. 

National Petroleum Council, 553 F.2d 176, 180 (D.C. Cir. 1977). Be that as 

it may, the executive order must also provide for funding. While most of 

the committee’s needs will be met by the agency assigned to provide 

support services, it will still need some money for such things as travel 

33 Cf., e.g., Association of American Physicians & Surgeons v. Clinton, 997 F.2d 898, 908 

(D.C. Cir. 1993) (court refuses to apply FACA in a way that would interfere with “the 

President’s capacity to solicit direct advice on any subject related to his duties from a group 

of private citizens, separate from or together with his closest governmental associates”).
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expenses and printing of reports. The President, lacking the authority to 

authorize or appropriate funds, must look to some existing source. The 

most common approach is to designate an existing agency to provide 

funding, subject to the availability of appropriations. The funding agency 

must be sufficiently related in subject matter to the advisory body so as to 

pass muster from the perspective of purpose availability. Some examples, 

which will also provide some indication of the range of advisory bodies that 

are created, follow:

• Exec. Order No. 13398, § 6(b), 71 Fed. Reg. 20,519 (Apr. 18, 2006): 

National Mathematics Advisory Panel, funded by Department of 

Education.

• Exec. Order No. 13353, § 6, 69 Fed. Reg. 53,585 (Aug. 27, 2004): 

President’s Board on Safeguarding American Civil Liberties, funded by 

Department of Justice.

• Exec. Order No. 13256, § 10(b), 67 Fed. Reg. 6,823 (Feb. 12, 2002): 

President’s Board of Advisors on Historically Black Colleges and 

Universities, funded by Department of Education.

• Exec. Order No. 13037, § 4(b), 62 Fed. Reg. 10,185 (Mar. 3, 1997): 

Commission to Study Capital Budgeting, funded by Treasury 

Department.

• Exec. Order No. 13015, § 3(b), 61 Fed. Reg. 43,937 (Aug. 22, 1996): 

White House Commission on Aviation Safety and Security, funded by 

Department of Transportation.

• Exec. Order No. 12961, § 3(c), 60 Fed. Reg. 28,507 (May 26, 1995): 

Presidential Advisory Committee on Gulf War Veterans’ Illnesses, 

funded by Department of Defense.

• Exec. Order No. 12546, § 3(c), 51 Fed. Reg. 4,475 (Feb. 3, 1986): 

Presidential Commission on the Space Shuttle Challenger Accident, 

funded by the National Aeronautics and Space Administration.

• Exec. Order No. 12367, § 3(b), 47 Fed. Reg. 26,119 (June 15, 1982): 

President’s Committee on the Arts and the Humanities, funded by the 

National Endowment for the Arts.
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• Exec. Order No. 12345, § 4(d), 47 Fed. Reg. 5,189 (Feb. 2, 1982): 

President’s Council on Physical Fitness and Sports, funded by 

Department of Health and Human Services. (This was originally 

created by President Eisenhower in 1956, and has been renewed by 

successive Presidents.)

• Exec. Order No. 12229, § 1-301, 45 Fed. Reg. 50,699 (July 29, 1980): 

White House Coal Advisory Council, funded by Department of Labor.

The pertinent provisions of FACA are 5 U.S.C. app. §§ 5(b)(5), 5(c), 12, and 

14. Section 5(b)(5) advises that support services and funding should be 

included in any legislation creating an advisory committee. Section 5(c) 

makes this applicable to the President or any other federal official creating 

an advisory committee.34 Section 12(a) requires each agency to keep 

sufficient records to “fully disclose the disposition of any funds which may 

be at the disposal of its advisory committees and the nature and extent of 

their activities.” The General Services Administration does this for 

Presidential committees. Section 12(b) directs each agency to be 

“responsible for providing support services for each advisory committee 

established by or reporting to it unless the establishing authority provides 

otherwise.” Section 14 directs each advisory committee to terminate not 

later than 2 years after its creation, except that it can be renewed by the 

establishing authority for successive 2-year periods.35 Thus, FACA clearly 

condones the practice of using existing agency appropriations to fund 

advisory committees. See 63 Comp. Gen. 110, 111 (1983) (President’s 

Commission on Executive Exchange funded by Office of Personnel 

Management’s Salaries and Expenses appropriation); 61 Comp. Gen. 69 

(1981) (United States Advisory Commission on Public Diplomacy funded 

by United States Information Agency).

If the agency providing funding has several appropriations, as in the case of 

cabinet departments, it must select the one most closely related to the 

committee’s functions, applying the principle that the specific prevails over 

34 National Anti-Hunger Coalition v. Executive Committee of the President’s Private 

Sector Survey on Cost Control, 711 F.2d 1071, 1073 & n.1 (D.C. Cir. 1983); Metcalf, 553 F.2d 

at 179 n.35.

35 A FACA committee can be terminated by its establishing authority or by operation of law. 

The General Services Administration cannot abolish another agency’s committee or refuse 

to recharter it. 5 U.S.C. app. § 7; B-127685-O.M., Apr. 5, 1976. (To our knowledge, GSA has 

never tried to do so; the GAO memorandum refers to the Office of Management and Budget, 

whose FACA functions were later transferred to GSA.)
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the general. See B-202362, Mar. 24, 1981 (funding for United States-Japan 

Economic Relations Group, provided by State Department, is chargeable to 

appropriation for “International Conferences and Contingencies” rather 

than Salaries and Expenses).

Of course, any expenditure by the committee must be for an authorized 

purpose. E.g., 61 Comp. Gen. 69 (1981) (committee could procure outside 

legal advice on the extent of its independence). Restrictions in the funding 

agency’s appropriation act applicable to all funds appropriated in that act 

must be followed. B-222758, June 25, 1986 (Chemical Warfare Review 

Commission violated anti-lobbying provision in Defense Department 

appropriation act). In addition, lobbying is not an advisory function. Id.

Most committees are funded in the manner described above—from the 

appropriations of a designated agency. Some are funded from one of the 

discretionary appropriations available to the President. For example, the 

so-called Warren Commission (Commission to Report Upon the 

Assassination of President John F. Kennedy) was funded from the 

“Emergency Fund for the President.” Exec. Order No. 11130, 28 Fed. 

Reg. 12,789 (Nov. 29, 1963). So was an earlier body, the Missouri Basin 

Survey Commission. Exec. Order No. 10318, 17 Fed. Reg. 133 (Jan. 3, 

1952). (The Emergency Fund was later redesignated “Unanticipated 

Needs.”)

Some committees have mixed public-private funding. For example, the 

President’s Commission on Executive Exchange received funding support 

from the Office of Personnel Management, and was also statutorily 

authorized to impose certain fees and to place them in a revolving fund in 

the Treasury. This made it necessary to determine whether a given 

expenditure was direct support or a general administrative expense. GAO 

concluded in one such case that a word processor and a postage machine 

were “direct support” expenses and therefore could be charged to the 

private-sector account, whereas reupholstering furniture and procuring 

commercial insurance for loaned works of art were administrative 

expenses chargeable to OPM funds. 63 Comp. Gen. at 112.

A final funding approach should be noted, although it is not common. 

Congress can always choose to appropriate funds for a board or 

commission created by executive action, as it did, for example, in the case 

of the National Commission on the Observance of International Women’s 

Year. See B-182398, Mar. 29, 1976.
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The Justice Department has concluded that a funding agency may not 

delegate the authority to obligate funds to an advisory committee, the 

obligation of funds being a nonadvisory function. Memorandum Opinion 

for the Executive Director, National Committee on Libraries and 

Information Science, Relationship Between National Commission on 

Libraries and Information Science and Advisory Committee to White 

House Conference on Library and Information Services, OLC Opinion, 

Feb. 12, 1990. (The committee in that case was statutory, but the point is 

more general.) This led to the question of the potential liability of the 

committee chairman, as an accountable officer, for the unauthorized 

expenditure. Because, under the particular facts of that case, the 

government incurred no loss, it was not necessary to address this issue. 

B-241668, Feb. 19, 1991.

As in the case of Presidential committees, Congress may authorize a 

particular agency to create advisory committees, either specifically or in 

general terms. E.g., 10 U.S.C. § 5024 (authorizing Secretary of Navy to 

appoint Naval Research Advisory Committee); 42 U.S.C. § 7234 

(authorizing Department of Energy to establish advisory committees). 

Alternatively, an agency head can establish an advisory committee without 

express statutory authority. The “establishing document” will vary with the 

agency’s own system of internal directives. For example, the Attorney 

General has a numbered series of “Attorney General Orders,” and used one 

of these to establish Law Enforcement Coordinating Committees. See 5 Op. 

Off. Legal Counsel 283 n.2 (1981). Whatever the precise mechanism, the 

establishment must be “determined as a matter of formal record” and 

published in the Federal Register. 5 U.S.C. app. § 9(a)(2). Other 

procedures are found in the GSA regulations. The committees are fully 

subject to the termination/renewal provisions of FACA, 5 U.S.C. app. § 14.

If Congress has the greatest latitude in funding options and the President 

has somewhat less, the individual agency has least of all. When an agency 

creates an advisory committee, it has only one way to fund it—from its own 

pocket. An Energy Policy Task Force, for example, was created by the 

Department of Energy in the 1980s under its statutory authority in what 

was then 15 U.S.C. § 776 (now in 42 U.S.C. § 7234). GAO found it legitimate 

to pay the expenses of a task force meeting—specifically expenses of travel 

and recording a transcript—from the Secretary’s salaries and expenses 

account. 60 Comp. Gen. 386, 397 (1981). As with Presidential bodies, the 

agency with more than one appropriation should choose the one most 

closely related to the committee’s work, and expenditures may be made 

only for authorized purposes. It may be possible in some cases to obtain 
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private funding. See, e.g., Metcalf, 553 F.2d at 180 (noting that the National 

Petroleum Council, established by the Secretary of the Interior, was, apart 

from support services, “financed entirely from funds provided by the 

petroleum industry”). 

An advisory committee, presidential or agency, subject to FACA will 

generally not have to concern itself with the funding restrictions of 

31 U.S.C. § 1346 (which is set out in section A.2 of this chapter). A nonFACA body still must contend with them. Also, the Russell Amendment, 

31 U.S.C. § 1347, does not apply to a FACA committee (see section A.2 of 

this chapter). In this connection, the Justice Department has said:

“Whether or not one assumes that the Russell amendment 

was originally intended to apply to nonstatutory advisers or 

advisory groups, [FACA] has intervened. It has specifically 

authorized the creation of purely advisory committees; it 

has provided that they may have a 2-year life; and it has 

contemplated, and made provision for, the practice of using 

agency funds to support advisory committees. Accordingly, 

if indeed agency funds may otherwise be lawfully expended 

for such a purpose, there is no longer any reason, under the 

Russell amendment, to bar an expenditure of funds in 

support of an advisory committee merely because the 

committee has been in existence for more than 1 year.” 

3 Op. Off. Legal Counsel 263, 266–67 (1979). That opinion also supports the 

conclusion that the Russell Amendment does not apply to purely advisory 

bodies, FACA or non-FACA. Of the various funding restrictions discussed 

earlier, the only one that would apply to a FACA committee (and alike to 

non-FACA bodies), as long as it remains in effect, is the requirement for 

specific approval for interagency funding.

In addition to the general funding statutes, there may be agency-specific 

laws which authorize or restrict agency activity in this area. For example, 

22 U.S.C. § 2672 authorizes the State Department to fund the United States’ 

participation in certain international activities. This was one of the statutes 

State relied on—properly, GAO found—to participate in funding the 

National Commission on the Observance of International Women’s Year in 

the mid-1970s. See GAO, Activities of the National Commission on the 

Observance of International Women’s Year, HRD-77-26 (Washington, D.C.: 

Jan. 13, 1977), at 5–6. Section 2672(a) includes its own 1-year restriction 

similar to the Russell Amendment. See B-202362, Mar. 24, 1981.
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(4) Donations

Given the ever-present pressure on Congress to hold down the costs of 

boards and committees, it is not uncommon for an enabling statute to 

authorize some level of private funding. Just as with any larger agency, a 

board or commission needs statutory authority to accept and use gifts or 

contributions. The reason, discussed in Chapter 6, section E.3, is that 

without such authority the funds would have to be deposited in the general 

fund of the Treasury.

The statute will prescribe exactly what can be accepted. A common 

version in statutes creating boards or committees is the authority to 

“accept donations of money, property, or personal services.” E.g.,

Pub. L. No. 98-375, § 7(a), 98 Stat. 1257, 1260 (Aug. 7, 1984) (Christopher 

Columbus Quincentenary Jubilee Commission); Pub. L. No. 85-305, § 5(a), 

71 Stat. 626, 627 (Sept. 7, 1957) (Civil War Centennial Commission). The 

statute may go a step farther and set a monetary limit on what can be 

accepted in a given year. E.g., Pub. L. No. 98-375, as amended by 

Pub. L. No. 100-94, § 4, 101 Stat. 700, 701 (Aug. 18, 1987); Pub. L. No. 98-101, 

§ 5(h)(2), 97 Stat. 719, 721 (Sept. 29, 1983) (Commission on the 

Bicentennial of the U.S. Constitution). Both of these laws prescribe 

separate limits, one on gifts from individuals and a somewhat higher one on 

gifts from others such as corporations, partnerships, and foreign 

governments.

The statute will normally not define who can make the contributions, but 

there are exceptions, such as: “The Commission is authorized to receive 

funds through grants, contracts, and contributions from State and local 

governments and organizations thereof, and from nonprofit organizations.” 

Pub. L. No. 89-733, § 6, 80 Stat. 1162 (Nov. 2, 1966). The “Commission” 

refers to the Advisory Commission on Intergovernmental Relations (ACIR). 

This provision was not so much a deliberate attempt to exclude individuals, 

but a desire to foster increased participation by those most directly 

affected by ACIR’s work.

It should be apparent from the above statutory references that the 

authority to accept gifts occurs most often in statutes establishing 

operational bodies, most typically celebration/memorial commissions. As 

the ACIR provision shows, however, it can also appear with entities that are 

advisory.
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The authority to accept gifts does not inherently include the authority to 

solicit them, especially since solicitation will almost invariably involve the 

use of other government funds, either for staff salaries and expenses or the 

procurement of some fund-raising capacity. E.g., B-211149, June 22, 1983. 

When Congress wants an entity to engage in solicitation, it specifically so 

provides in the gift acceptance provision. E.g., 36 U.S.C. § 2307 (Holocaust 

Memorial Council); Pub. L. No. 98-101, § 5(h)(1) (Commission on the 

Bicentennial of the United States Constitution). In order to preclude 

questions of interpretation, it is always preferable for the statute to use the 

word “solicit” if that is desired. However, something less may suffice. For 

example, a statute which provided that nongovernment sources “shall be 

encouraged to participate to the maximum extent feasible . . . and to make 

contributions” has been construed as authorizing solicitation. 6 Op. Off. 

Legal Counsel 541, 544–46 (1982).

In most cases, donated funds are seen merely as an authorized 

supplementation of the commission’s other funding sources. In some 

cases, however, there is a clear intent that the commission be funded in its 

entirety, or as close thereto as possible, from donated funds. For example, 

the statute creating the Martin Luther King, Jr. Federal Holiday 

Commission specified that “[a]ll expenditures of the Commission shall be 

made from donated funds.” Pub. L. No. 98-399, § 7, 98 Stat. 1473, 1474 

(Aug. 27, 1984). Similarly, the executive order creating the so-called Grace 

Commission directed that it be funded “to the extent practicable and 

permitted by law, by the private sector without cost to the Federal 

Government.” Exec. Order No. 12369, § 3(e), 47 Fed. Reg. 28,899 

(June 30, 1982). The requirement may be limited to certain of the 

commission’s functions. E.g., 36 U.S.C. § 2307 (Holocaust Memorial 

Council may use only donated funds to operate and maintain the museum). 

An interesting variation is the Railroad-Shipper Transportation Advisory 

Council, which is authorized to receive government funds and to solicit and 

use donations, but must “undertake best efforts to fund [its] activities 

privately” before making a request for federal money. Pub. L. No. 104-88,

§ 201(a), 109 Stat. 803, 939 (Dec. 29, 1995), codified at 49 U.S.C. § 726(d)(4).

Absent statutory authority to the contrary, donated funds must be 

deposited in the Treasury in a trust account, and are permanently 

appropriated for authorized uses. 31 U.S.C. § 1323(c). This means that 

they are available for expenditure without further legislation. B-90476, 

June 14, 1950. The fiscal and budgetary issues associated with federal 

“trust” funds are discussed in detail later in this chapter. It is important 

here to distinguish a trust account for donated funds from the more 
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traditional fiduciary trust concept. See B-274855, Jan. 23, 1997. Funds 

“held in trust,” as those words are commonly used to describe a fiduciary 

relationship, are held for the benefit of another. By comparison, placing 

donated funds in a “trust account” is largely, although not necessarily, an 

accounting device to distinguish the funds from general funds and to assure 

that their use will be limited to the purposes for which they were given. Id.

The governing legislation may authorize a different treatment. The 

Holocaust Memorial Council provides one illustration. In response to a 

request from a congressional committee, GAO reviewed the legislative 

history of the Council’s enabling statute and determined that, although the 

statute itself was silent, Congress intended a “no strings” treatment of 

donated funds. Accordingly, the Council could place donated funds in 

interest-bearing investments outside of the Treasury. B-211149, Dec. 12, 

1985. This case was applied and followed a few years later with respect to 

the Christopher Columbus Quincentenary Jubilee Commission. 68 Comp. 

Gen. 237, 238–39 (1989). In the Holocaust Memorial Council decision 

(B-211149), GAO recommended that the statute be amended to explicitly 

recognize the apparent intent. It was later amended to provide that the 

Council’s donated funds “are not to be regarded as appropriated funds and 

are not subject to any requirements or restrictions applicable to 

appropriated funds.” See B-275959, May 5, 1998, at 4 (quoting the 

amendment, 36 U.S.C. § 1407, in confirming the earlier conclusion). A 

similar amendment was not so important for the Columbus Commission 

because it was a temporary body with a specified termination date, 

whereas the Council’s duration is permanent, or at least indefinite.

Authority broad enough to permit investing donated funds outside of the 

Treasury is also broad enough to authorize operations without regard to the 

statutes and regulations governing procurement by federal agencies. 

68 Comp. Gen. at 239; B-211149, Dec. 12, 1985, at 4. However, GAO 

declined to apply these cases to the American Battle Monuments 

Commission, a permanent entity, because it could find no comparable 

authority. B-275669.2, July 30, 1997.

Because title under a legal gift passes to the government, the donor has no 

claim for the refund of any unexpended balances upon termination of the 

board or commission. B-274855, Jan. 23, 1997. Unless otherwise provided 

for by statute, the balances must be deposited in the Treasury as 

miscellaneous receipts. Id. A situation clearly warranting an exception is 

found in 36 Comp. Gen. 771 (1957). The Alexander Hamilton Bicentennial 

Commission thought it would be a good idea to use private funds to award 
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scholarships to high school and college students, but it lacked the authority 

to accept donations. With this proposal in mind, Congress amended the 

Commission’s enabling statute to authorize the acceptance of donations. 

The problem was that the Commission would almost surely go out of 

existence before the disbursement of funds could be completed. Under 

these circumstances, GAO concurred with the Commission’s proposal to 

transfer, prior to its expiration, the balance of its donated funds to a 

“responsible private organization” in order to complete the administration 

of the scholarship awards. Id. Short of extending the Commission’s life for 

the sole purpose of disbursing the rest of the funds, this was the best way 

to comply with the requirement of 31 U.S.C. § 1323(c) that the funds be 

disbursed in accordance with the terms of the “trust.”

B. Government Use of 

Corporate Entities

1. Introduction The federal government has created entities using a corporate device, in 

various forms and contexts, for a long time. With respect to the basic 

rationale for government corporate entities, the Supreme Court observed 

in a 1927 case:

“[A]n important, if not the chief, reason for employing these 

incorporated agencies was to enable them to employ 

commercial methods and to conduct their operations with a 

freedom supposed to be inconsistent with accountability to 

the treasury under its established procedure of audit and 

control over the financial transactions of the United States.” 

United States ex rel. Skinner & Eddy Corp. v. McCarl, 275 U.S. 1, 8 (1927). 

This points to two key features associated with the use of governmentcreated corporate entities, at least in theory: commercial activities and 

freedom, to a greater or lesser extent, from the laws that govern 

accountability to the Treasury of traditional government agencies.

Twenty years after the Skinner & Eddy decision, President Truman’s 1948 

Budget Message, presented views on the proper standards for using the 

corporate device. A corporate form of organization, according to President 
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Truman, is appropriate for the administration of governmental programs 

that— 

• are predominantly of a business nature, 

• produce revenue and are potentially self-sustaining, 

• involve a large number of business-type transactions with the public, 

and 

• require greater flexibility than the customary type of appropriations 

budget ordinarily permits.36 

We see, again, commercial activities and autonomy from Treasury controls. 

President Truman proposed, in addition, that government-created 

corporate entities be “potentially self-sustaining.” Today, many, but not all, 

corporate entities operate using revolving funds.

Although there are no clear and universally accepted standards for using 

the corporate model, it is something the government has often turned to 

when it wants to do something that, for the most part, resembles a business 

enterprise. The practice has, however, engendered some controversy. As a 

matter of fact, one commentator in the 1950s called the government 

corporation “one of the most controversial institutional innovations of our 

time.”37 At one extreme are advocates of the government corporation who 

view it “with almost religious devotion” and regard it “as a desirable end in 

itself, regardless of the purpose which it serves.”38 These advocates may be 

driven by what a more recent writer terms a “cultural norm” that anything 

the private sector does is automatically and inherently “better” than 

anything the public sector does.39 On the other end of the spectrum, one 

early critic went so far as to write that “there is no place in our 

36 Budget Message of the President, H.R. Doc. No. 80-19, at M61 (1948), cited in, e.g., 

Ronald C. Moe, Congressional Research Service, Managing the Public’s Business: Federal 

Government Corporations, S. Prt. No. 104-18, at 7–8 (1995) (Moe 1995).

37 Harold Seidman, The Theory of the Autonomous Government Corporation: A Critical 

Appraisal, 12 Pub. Admin. Rev. 89, 90 (1952) (Seidman 1952).

38 Id.

39 Francis J. Leazes, Jr., Accountability and the Business State: The Structure of Federal 

Corporation, 4 (1987) (Leazes).
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constitutional government for the performance of governmental function 

by means of corporations.”40 And, one more factor cannot, or at least 

should not, be ignored:

“Public funds (tax dollars), after all, are not freely given in 

voluntary market exchanges for goods and services; . . . At 

this level . . . the private and governmental sectors are 

fundamentally different. It is for this reason that the 

standards for governmental control and enforced adherence 

to prescribed processes and procedures are—and have to 

be—so much higher than those of the private sector.”41

In 1980, the Office of Management and Budget contracted with the National 

Academy of Public Administration (NAPA) to produce a report on existing 

government corporations and to make policy recommendations for future 

creation of corporations. Breaking out “enterprises” as a separate 

category, and mindful of the imprecision of definitional attempts, the report 

broadly defined “government corporation” as “a government entity created 

as a separate legal person by, or pursuant to, legislation,” with the powers 

to “sue and be sued, use and reuse revenues, and own assets.”42 

The fact that “[n]o two Federal Government corporations are completely 

alike”43 underscores the importance of the enabling legislation. A 

statutorily created entity, whether it be an agency or embody some form of 

the corporate model, “possesses only those powers which are enumerated 

in the act of Congress creating it.”44 This of course includes any other 

legislation specifically made applicable. The governing legislation 

40 O.R. McGuire, Government by Corporations, 14 Va. L. Rev. 182, 186 (1928).

41 Ronald C. Moe and Robert S. Gilmour, Rediscovering Principles of Public 

Administration: The Neglected Foundation of Public Law, 55 Pub. Admin. Rev. 135, 143 

(1995).

42 National Academy of Public Administration, I Report on Government Corporations 21 

(1981) (NAPA 1981). For a more recent publication along these general lines, see Library of 

Congress, Congressional Research Service, Federal Government Corporations: An 

Overview, No. RL30365 (Mar. 23, 2006). This report notes that while the number of federal 

corporations “is in moderate flux” (id. at 2), the corporate model seems to hold everenhanced appeal to federal policymakers. 

43 Moe 1995, at 47.

44 Seidman 1952, at 93.
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determines the body’s powers and functions, its financial arrangements, 

and its degree of operating flexibility. As one commentator has stated: 

“Because there is no general incorporation law defining government 

corporations, Congress is free to call any entity a ‘corporation’ and assign 

to this corporation whatever characteristics it chooses.”45 Or, as the court 

put it in United States v. Nowak, 448 F.2d 134, 138 (7th Cir. 1971), cert. 

denied, 404 U.S. 1039 (1972): “If it chooses to make use of a ‘corporation,’ 

Congress is not limited by traditional notions of corporate powers and 

organization but may mold its vehicle in any way which appears useful to 

the accomplishment of the legislative purpose.”

Some of these variations can be illustrated by looking at the objectives, 

degrees of ownership and control, and the extent to which the corporate 

entity acts as an agent of the federal government for three corporate 

entities: Amtrak, the Boy Scouts of America, and the Pension Benefit 

Guarantee Corporation.

(a) Objectives.

• Congress formed Amtrak as a private corporation to ensure 

profitability of the failing, but critical, passenger rail service.

• Congress chartered the Boy Scouts of America to help promote the 

patriotic and community service objectives of that organization.

• Congress created the Pension Benefit Guaranty Corporation to insure 

workers against defaulting pension plans.

(b) Degree of ownership and control by the federal government.

• Congress exercises nearly complete control over Amtrak’s assets and 

liabilities (and provides substantial annual funding) and its operations 

through the presidential appointment of members of its board of 

directors.

• The federal government has no ownership in nor does it control the 

operations of the Boy Scouts of America. However, Congress by law 

established the Boy Scouts of America and the scope of its authorities.

45 Ronald C. Moe, Administering Public Functions at the Margin of Government: The Case 

of Federal Corporations, CRS No. 83-236GOV, 33 (1983).
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• Congress exercises control over the Pension Benefit Guaranty 

Corporation by appointing the board of directors and management 

officers, treating its employees like those of the federal government, 

and limiting its use of funds for administrative expenses.

(c) Extent to which the corporate entity acts as the agent of the federal 

government.

• Congress declared Amtrak to be a private corporation, but specified in 

law, for example, that Amtrak is an agency of the government for 

purposes of sharing information with the public (i.e., the Freedom of 

Information Act).

• The Boy Scouts of America in no way represent or act on behalf of the 

U.S. government.

• By law, Congress declared that the Pension Benefit Guaranty 

Corporation’s liabilities are not liabilities of the U.S. government.

As you can see, depending upon the needs or the circumstances, the 

government has been creative in its use of the corporate form.

2. The Problem of 

Definition

As noted in the prior section, largely because each corporate entity is the 

creature of its enabling legislation, and given the different forms that such 

entities can take, it is difficult to have a general definition applicable to the 

relationships between the federal government and the many corporate 

entities. As one commentator put it:

“Federal corporations should not be treated as if they 

constitute a single class of organizations type. Virtually all 

are unique creatures, and . . . what is distinctive about them 

as a group is that each embodies its own calculated mixture 

of public and private elements and of financing and 

controls, and each is a result of a particular congressional 

enactment after extensive controversy over rival policies 

and interests.”46

46 Francis J. Leazes, Jr., Accountability and the Business State: The Structure of Federal 

Corporation, 7 (1987).
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Without a single definition covering the universe of corporate bodies, the 

better approach may be to examine the common elements of particular 

kinds of entities. Therefore, in this section we will attempt to provide some 

definitional construct by the consideration of four types of corporate 

entities: government corporations; government-sponsored enterprises 

(referred to as GSEs); patriotic, fraternal, or charitable entities designated 

in title 36 of the United States Code (commonly referred to as “federally 

chartered corporations”); and federally funded research and development 

centers (FFRDCs).

a. Government Corporations “There is at present no universally accepted definition of what constitutes a 

government corporation, hence there are several listings of government 

corporations, each different and based upon the definition employed by the 

compiler,” according to one commentator.47 GAO has also pointed out the 

lack of a uniform definition. GAO, Congress Should Consider Revising 

Basic Corporate Control Laws, GAO/PAD-83-3 (Washington, D.C.: Apr. 6, 

1983), at 8. Definitions found in the United States Code serve only limited 

purposes. For example, 5 U.S.C. § 103(1) defines the term “government 

corporation,” but only for purposes of title 5 of the United States Code, as 

“a corporation owned or controlled by the Government of the United 

States.” However, in 5 U.S.C. § 103(2), a “government controlled 

corporation” is defined as not including a corporation owned by the 

government. Noting that government corporations are operationally 

defined in 31 U.S.C. § 9101(1) (section 201 of the Government Corporation 

Control Act, which will be addressed in detail in section 4.a of this chapter) 

as either wholly owned or mixed-ownership government corporations, 

GAO has concluded that the term “government controlled corporation” 

used in title 5 refers to mixed-ownership government corporations, such as 

those listed in 31 U.S.C. § 9101(2) (but not exclusively). B-221677, July 21, 

1986. Therefore, when considering the various laws codified in title 5, it is 

necessary to check any separate definitional provisions to determine if a 

specific chapter is applicable to both wholly owned and mixed-ownership 

corporations. For example, the relocation allowance provisions in title 5 

are covered by the definitional provisions in 5 U.S.C. § 5721, which 

specifically excludes government controlled corporations. Thus, wholly 

47 Ronald C. Moe, Congressional Research Service, Managing the Public’s Business: 

Federal Government Corporations, S. Prt. No. 104-18 (1995), at xii. For similar comments, 

see John T. Tierney, Government Corporations and Managing the Public’s Business,

99 Pol. Sci. Q. 73, 76 n.6 (1984), and Ronald C. Moe, Congressional Research Service, 

Administering Public Functions at the Margin of Government: The Case of Federal 

Corporations, No. 83-236GOV (1983), at 5. 
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owned corporations are subject to the personnel provisions of title 5 but 

mixed-ownership government corporations are not. B-221677, July 21, 

1986 (Federal Deposit Insurance Corporation, as a mixed-ownership 

government corporation, is excluded from coverage under the title 5 

relocation provisions). Further discussion of the various title 5 provisions 

is in section B.7.a of this chapter. 

Also, “executive agency” in 40 U.S.C. § 102(4)(B) expressly includes “a 

wholly owned Government corporation” although without further defining 

the latter term. Thus, wholly owned government corporations are subject 

to much of title 40 of the United States Code as well as the procurement 

provisions of 41 U.S.C. §§ 251–266a. They are also subject to GAO’s bid 

protest jurisdiction under 31 U.S.C. § 3551(3), which references the 

40 U.S.C. § 102 definition of agency. See B-295737.2, Apr. 19, 2005. While 

these specialized definitions apply for certain purposes, the chief (and 

only) regulatory statute with some general application, chapter 91 of 

title 31 of the United States Code (commonly known as the Government 

Corporation Control Act), discussed in detail below, fails to include a 

specific definition but merely lists the entities it covers as either wholly 

owned or mixed-ownership. 

The lack of a uniform, governmentwide statutory definition is not the only 

complication in determining the status of a corporate-type entity in relation 

to federal powers and obligations. Even when Congress has been quite 

specific in declaring that a corporation is not a federal instrumentality, it 

may still take on that status for constitutional purposes. This was the 

holding in Lebron v. National Railroad Passenger Corp., 513 U.S. 

374, 387, 395 (1995).

In Lebron, an artist sued the National Rail Passenger Corporation, better 

known as Amtrak, for violating his First Amendment rights by rejecting a 

billboard display. Amtrak claimed that it was not a federal entity for First 
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Amendment purposes since its statutory charter declared that it “will not 

be an agency or establishment of the United States Government.”48

The Supreme Court concluded, however, that Amtrak’s reliance on this 

statutory disclaimer language was “misplaced”:

“[The statutory disclaimer] is assuredly dispositive of 

Amtrak’s status as a Government entity for purposes of 

matters that are within Congress’s control—for example, 

whether it is subject to statutes that impose obligations or 

confer powers upon Government entities . . . And even 

beyond that, we think [the disclaimer] can suffice to deprive 

Amtrak of all those inherent powers and immunities of 

Government agencies that it is within the power of Congress 

to eliminate . . . But it is not for Congress to make the final 

determination of Amtrak’s status as a Government entity for 

purposes of determining the constitutional rights of citizens 

affected by its actions. If Amtrak is, by its very nature, what 

the Constitution regards as the Government, congressional 

pronouncement that it is not such can no more relieve it of 

its First Amendment restrictions than a similar 

pronouncement could exempt the Federal Bureau of 

Investigation from the Fourth Amendment. The 

Constitution constrains governmental action ‘by whatever 

instruments or in whatever modes that action may be 

taken.’ Ex parte Virginia, 100 U.S. 339, 346–347, 25 L. Ed. 

676 (1880). And under whatever congressional label.”

Lebron, 513 U.S. at 392–93. The Court went on to hold that Amtrak was “an 

agency or instrumentality of the United States for the purpose of individual 

rights guaranteed against the Government by the Constitution,” a 

conclusion it viewed as “in accord with public and judicial understanding 

48 Rail Passenger Service Act of 1970, Pub. L. No. 91-518, § 301, 84 Stat. 1327, 1330 (Oct. 30, 

1970). The current version of this language, codified at 49 U.S.C. § 24301(a)(3), provides 

that Amtrak “is not a department, agency, or instrumentality of the United States 

Government, and shall not be subject to title 31 [of the United States Code].” Over the years, 

Congress has continued to put distance between Amtrak and federal control for statutory 

purposes. For example, while Amtrak was originally designated a mixed-ownership 

government corporation, that designation was later dropped. For a discussion of the 

evolution of the statutory provisions affecting Amtrak, see United States v. Bombardier 

Corp., 286 F.3d 542, 545 (D.C. Cir. 2002); see also United States v. Bombardier Corp., 

380 F.3d 488, 491–92 (D.C. Cir. 2004), cert. denied, 544 U.S. 1032 (2005).
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of the nature of Government-created and -controlled corporations over the 

years.” Id. at 394. In this regard, the Court noted that Amtrak was 

“established and organized under federal law for the very purpose of 

pursuing federal governmental objectives, under the direction and control 

of federal governmental appointees.” Id. at 398.49

The Justice Department’s Office of Legal Counsel (OLC) has taken the 

Lebron analysis considerably farther. In a memorandum opinion, OLC held 

that if a corporate entity would fall within the government for 

constitutional purposes, it has the same status for statutory purposes 

absent an explicit statutory provision to the contrary. In concluding that 

the National Veterans Business Development Corporation (NVBDC) was a 

government corporation within the definition of 5 U.S.C. § 103(1), the 

Office of Legal Counsel stated:

“Although the opinion in Lebron does not state that, if a 

corporation is part of the United States Government for 

constitutional purposes, it must also be considered an 

agency of the United States unless Congress (as in the case 

of Amtrak) expressly provides otherwise, we believe that 

when Congress has created a corporation after the decision 

in Lebron—as it has here—and, through the corporation’s 

structure and purpose, has placed it within the government 

for constitutional purposes, there is a strong presumption 

that the corporation is also part of the government for 

purposes of title 5 [of the United States Code], which deals 

with the internal organization of federal government 

agencies.”50

The opinion then observed that the statute creating the NVBDC lacked an 

Amtrak-type disclaimer and contained features suggesting that NVBDC was 

a federal instrumentality. Specifically, it was federally chartered, received 

federal appropriations, and its fiscal operations were subject to 

49 The Supreme Court remanded the case for consideration of the First Amendment claims. 

On remand, the district court held that Amtrak had exercised its right to reject proposed 

advertising in good faith, given the artist/advertiser’s deception in concealing the political 

nature of the billboard display. Lebron v. National Railroad Passenger Corp.,

981 F. Supp. 279 (S.D.N.Y. 1997).

50 Memorandum Opinion for the General Counsel, Office of Management and Budget, Status 

of National Veterans Business Development Corporation, OLC Opinion, Mar. 19, 2004.
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congressional oversight and regulation. However, shortly after OLC issued 

this opinion, Congress amended NVBDC’s statute by adding the following 

language: “Notwithstanding any other provision of law, the Corporation is 

a private entity and is not an agency, instrumentality, authority, entity, or 

establishment of the United States Government.”51

Given the absence of a definitive legal definition of what constitutes a 

government corporation, we need to resort to other sources. As we have 

seen, one approach is to try to identify common attributes. One analyst 

identifies some of these attributes as “a public purpose, a federal 

government charter, some form of government supervision, and a public 

subsidy.”52 While this is useful in establishing a conceptual framework, it 

suffers when you break it down to the working level. If, for example, one 

equates “charter” with “enabling legislation”—and it is beyond question 

that the charter of a government corporation is its enabling legislation—the 

attributes apply equally to any government agency. Similarly, we 

previously noted a statement from a GAO report that government 

corporations “are generally federally chartered entities created to serve a 

public function of a predominantly business nature.” GAO, Government 

Corporations: Profiles of Existing Government Corporations, 

GAO/GGD-96-14 (Washington, D.C.: Dec. 13, 1995), at 1. This again shows 

the hazard of generalization, saved by the fortunate inclusion of the word 

“generally,” since some government corporations may perform primarily 

governmental functions (e.g., the Commodity Credit Corporation, which 

stabilizes and protects farm income and prices).

Neither is it useful to construct a classification based on the mere presence 

or absence of the word “corporation” in the entity’s name. An old state 

court case, considering the application of sovereign immunity to a statecreated corporation, put it this way: “It is not necessary that the thing 

created by the legislature should be named by it a corporation. Its 

character depends upon the powers given it, and not upon the name by 

51 15 U.S.C. § 657c(a). Congress drove its point home, perhaps unintentionally, since it 

actually added the quoted language twice in the same appropriation act. Consolidated 

Appropriations Act, 2005, Pub. L. No. 108-447, div. B, title VI, § 636 and div. K, title I, 

§ 146, 118 Stat. 2809, 2922, 3455 (Dec. 8, 2004).

52 Francis J. Leazes, Jr., Accountability and the Business State: The Structure of Federal 

Corporations, 18 (1987). Leazes also adopts the definitional approach of the Government 

Corporation Control Act by specifically identifying, by name, the entities he includes under 

his government corporation aegis. Id. at 9–10.
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which the legislature may call it.” Gross v. Kentucky Board of Managers,

49 S.W. 458, 459 (Ky. Ct. App. 1899).

Acknowledging that any classification is imperfect and open to debate (in 

fact, some corporations may fall in more than one category), we are 

concerned primarily with the following categories for purposes of this 

discussion:

• Entities subject to the Government Corporation Control Act. We say 

“entities” because they may or may not be in actual corporate form, 

although they usually are, and their names may or may not include the 

word corporation. The Control Act subdivides covered entities into 

two groups discussed in detail later—wholly owned government 

corporations and mixed-ownership government corporations.

• Entities created and fully or substantially funded by the United States 

Government, but not subject to the Control Act. Examples include the 

Legal Services Corporation, the Corporation for Public Broadcasting, 

and the State Justice Institute.53

• Entities created and at least partially funded by the federal government 

which are not designated as corporations but which have comparable 

powers, and are also at least partially exempt from the Control Act. 

Examples include the U.S. Postal Service, the Smithsonian Institution,

53 The Corporation for Public Broadcasting has strenuously objected to being included 

under any “government corporation” umbrella. See National Academy of Public 

Administration, I Report on Government Corporations app. 3 (1981). We include it under 

our umbrella listing because (1) it was statutorily created as a corporation and (2) it 

receives and spends federal money. See generally GAO, Telecommunications: Issues 

Related to Federal Funding for Public Television by the Corporation for Public 

Broadcasting, GAO-04-284 (Washington, D.C.: Apr. 30, 2004). For information about the 

Legal Services Corporation and the State Justice Institute, see B-308037, Sept. 14, 2006, and 

B-307317, Sept. 13, 2006, respectively.
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and the Bonneville Power Administration.54 (The main difference 

between this group and the second group is that the legislation creating 

an entity in this group does not confer corporate status on it. Of 

course, other differences flow from that distinction.)

The above groups, taken together, comprise our working “definition” for 

purposes of this discussion.

b. Government-Sponsored 

Enterprises

The term government-sponsored enterprise (GSE) refers to a “privately 

owned and operated federally chartered financial institution that facilitates 

the flow of investment funds to specific economic sectors.”55 A 

conceptually similar but more detailed definition is found in the 

Congressional Budget Act, 2 U.S.C. § 622(8). GSEs are, largely but not 

exclusively, those entities with names that “sound like those of aging 

singers or the latest fast-food sandwich”56—Fannie Mae, Farmer Mac, etc. 

However, the Government National Mortgage Association (Ginnie Mae) is a 

wholly owned government corporation. 31 U.S.C. § 9101(3)(G). 

Legislation creating GSEs has not used consistent terminology. The 

Federal Agricultural Mortgage Corporation (Farmer Mac) is a “federally 

chartered instrumentality of the United States.” 12 U.S.C. § 2279aa-1(a)(1). 

So is the Financial Assistance Corporation. 12 U.S.C. § 2278b. The Federal 

National Mortgage Association (Fannie Mae) is a “government-sponsored 

private corporation.” 12 U.S.C. § 1716b. The Federal Home Loan Mortgage 

Corporation (Freddie Mac) is simply a “body corporate.” 12 U.S.C.

§ 1452(a). 

54 The Bonneville Power Administration (BPA) is a true hybrid. It is not a government 

corporation although it has many of the powers of one and operates from a revolving fund. 

The office of the Administrator of BPA is an office in the Department of Energy and is under 

the jurisdiction and control of the Secretary of the department, although BPA is subject to 

many but not all of the provisions of the Government Corporation Control Act. See

16 U.S.C. §§ 832a(a), 838i(c) and (d). Also, the Administration’s contracting activities are 

governed by its own unique statutory and regulatory requirements. See B-291642.2, July 16, 

2003, at n.1. Our discussion does not further address the Smithsonian, which the Supreme 

Court has called “the oldest surviving government corporation.” Keifer & Keifer v. 

Reconstruction Finance Corp., 306 U.S. 381, 391 (1939).

55 GAO, A Glossary of Terms Used in the Federal Budget Process, GAO-05-734SP 

(Washington, D.C.: Sept. 2005), at 59.

56 Lori Nitschke, Private Enterprise With Official Advantages, 56 Cong. Q. Wkly. 1578 

(1998).
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For purposes of comparing GSEs to other forms of government-created 

corporate entities, the important points are that (1) GSEs are regarded as 

privately owned (which, in some cases and depending on how one frames 

one’s definition, may be only partially true); (2) they are financial 

institutions; and (3) they are supervised but not directly managed by the 

government. Summary information on a number of GSEs may be found in 

GAO’s Budget Issues: Profiles of Government-Sponsored Enterprises,

GAO/AFMD-91-17 (Washington, D.C.: Feb. 1991). For a more recent 

description, see Library of Congress, Congressional Research Service, 

Government-Sponsored Enterprises (GSEs): An Institutional Overview, 

No. RS21663 (Dec. 20, 2005). GSEs are subject to audit by GAO only if 

specifically provided by statute. B-114828, Nov. 25, 1975, at 2, 4.

While a GSE is, except as expressly provided, not subject to the laws 

governing federal agencies, it is nevertheless a creature of statute and 

exists to perform only those functions assigned to it in its enabling 

legislation. Any activity it undertakes must directly relate to the 

performance of one or more of those specified functions. Association of 

Data Processing Service Organizations, Inc. v. Federal Home Loan Bank 

Board, 568 F.2d 478 (6th Cir. 1977) (federal home loan banks not authorized 

to sell on-line data processing services to member institutions); Arnold 

Tours, Inc. v. Camp, 472 F.2d 427 (1st Cir. 1972) (national bank may not 

operate a full-scale travel agency); 71 Comp. Gen. 49 (1991) (Farmer Mac is 

authorized to guarantee the timely payment of principal and interest on 

certain mortgage-backed securities but is not authorized to purchase those 

securities). The GAO decision stressed that a statute’s purpose clause is 

not an independent grant of authority. 71 Comp. Gen. at 52.

c. Title 36 Patriotic, Fraternal, 

or Charitable Corporate 

Entities

This group consists of the 80-plus corporate entities whose charters 

comprise title 36 of the United States Code, subtitles II and III.57 Among the 

best-known examples are the American Red Cross,58 American Legion, and 

the United States Olympic Committee. Each entity occupies its own 

chapter in title 36, and each is designated a “body corporate and politic” or 

a “federally chartered corporation.” In addition, a provision no longer in 

57 All but one of these entities can be found in subtitle II, which consists of 36 U.S.C. 

§§ 10101 through 240112. Subtitle III, 36 U.S.C. §§ 300101–300111, is devoted entirely to the 

Red Cross.

58 While commonly known as the American Red Cross, or more simply as the Red Cross, this 

organization’s proper name is really “The American National Red Cross.” 36 U.S.C. 

§ 300101(b).
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the Code used the term “private corporations established under Federal 

law.”59 Of course this terminology can apply equally to GSEs. The 

difference is that the title 36 corporations are not business corporations; 

they are patriotic, fraternal, or charitable associations. The granting of a 

federal charter is viewed as a mark of prestige. Thus, the purpose of 

granting a federal charter to the Girl Scouts was “to bestow public honor 

and recognition on the works of the organization.” Girl Scouts v. 

Personality Posters Mfg., Co., 304 F. Supp. 1228, 1232 (S.D.N.Y. 1969).

Although there is variation, the statutory charters “follow a common 

pattern.”60 The typical charter starts by identifying the incorporators by 

name and declaring their corporate status. The incorporators range from a 

few to several dozen. See, e.g., Pub. L. No. 86-680, 74 Stat. 572 (Aug. 31, 

1960) (Agricultural Hall of Fame). The statute may be creating a new 

organization (e.g., 36 U.S.C. § 152301—National Music Council), it may 

merely be giving a federal charter to an organization already chartered 

under state law (e.g., 36 U.S.C. § 20902—American Ex-Prisoners of War), or 

it may direct that a corporation be incorporated in a state or the District of 

Columbia (e.g., 36 U.S.C. § 20301—American Academy of Arts and Letters). 

The statute will then state the corporation’s purposes and outline its 

general powers. A typical “powers” provision will include such things as to 

sue and be sued, adopt and use a corporate seal, adopt by-laws, hold and 

convey property, and enter into contracts. E.g., 36 U.S.C. § 152305 

(National Music Council).61

Most have perpetual succession, a feature common to private business 

corporations. E.g., 36 U.S.C. § 30502 (c) (Blue Star Mothers of America). A 

relatively few have limited duration. For example, the Grand Army of the 

Republic, chartered in 1924 but in existence long before, consisted of those 

who had served in the United States armed forces during the Civil War and 

59 36 U.S.C. § 1101 (1994). Title 36 was recodified in 1998 by Pub. L. No. 105-225, 112 Stat. 

1253 (Aug. 12, 1998). The former section 1101 was omitted as unnecessary. In addition, the 

American Red Cross was given its own subtitle, as indicated in note 58.

60 Wesley A. Sturges, The Legal Status of the Red Cross, 56 Mich. L. Rev. 1, 23 (1957).

61 Our choice of examples is intended to convey some idea of the types and range of 

organizations title 36 encompasses. By the way, in case you find our citation to 36 U.S.C. 

§ 152305 for the National Music Council (as well as those for the other organizations in this 

discussion) a bit odd, rest assured that it is correct. The section numbers in title 36 of the 

United States Code go rather higher than seems normal for the Code—up to section 300111 

at the writing of this chapter, to be precise.
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were honorably discharged. The charter provided that the corporation 

would terminate when the last of its members died. Pub. L. No. 68-184, § 6, 

43 Stat. 358, 360 (June 3, 1924). This of course happened some time ago, 

and the charter is no longer carried in the United States Code.

A common provision prohibits the corporation from issuing stock or paying 

dividends. E.g., 36 U.S.C. § 22307(a) (American Symphony Orchestra 

League). Some go a step further and explicitly prohibit activities for 

pecuniary profit. E.g., 36 U.S.C. § 152307(a) (National Music Council). 

Although this language is infrequent, it seems clear based on the stated 

purposes of these corporations62 that they are not designed with profitmaking in mind. Several charters require the corporation to maintain its 

tax-exempt status under the Internal Revenue Code. E.g., 36 U.S.C. 

§ 70108(b) (Fleet Reserve Association).

Another common provision prohibits the corporation or its officers or 

members from engaging in political activities. E.g., 36 U.S.C. § 23106(b) 

(Aviation Hall of Fame). At least one variation includes a prohibition on 

attempting to influence legislation. 36 U.S.C. § 150108(b) (National 

Academy of Public Administration).

The charter will typically give the corporation the sole and exclusive use of 

its name. E.g., 36 U.S.C. § 50305 (Disabled American Veterans). The 

exclusivity may extend to other symbols and emblems as well. E.g.,

36 U.S.C. § 220506(a)(2) (Olympic symbol of five interlocking rings).

For the most part, title 36 corporations do not receive federal 

appropriations. A few do or, at least, are explicitly authorized to seek 

federal grants, reimbursements, or other kinds of “support.” The National 

Film Preservation Foundation, for example, is authorized to receive up to 

$530,000 for each of the fiscal years 2005 through 2009 from the Library of 

Congress, to be used only to match private contributions and not for 

administrative expenses. 36 U.S.C. § 151711. The National Academy of 

Public Administration is required to study and report on “any subject of 

government” when requested by the federal government, to be paid for 

62 E.g., 36 U.S.C. §§ 20302 (American Academy of Arts and Letters—furthering the interests 

of literature and the fine arts); 20903 (American Ex-prisoners of War—encouraging 

fraternity, fostering patriotism, maintaining historical records); 21302 (American Historical 

Association—promoting historical studies collecting and preserving historical 

manuscripts); 21003 (American GI Forum of the United States—educational, patriotic, civic, 

historical, and research organization). 
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from appropriated funds available to the requestor. 36 U.S.C. § 150104. See 

also 36 U.S.C. § 150303 (similar provision for National Academy of 

Sciences). Even in these instances, the federal funds are only a portion, 

substantial though it may be, of the corporation’s revenue. In a few 

instances, federal agencies are authorized to provide logistical support. 

E.g., 36 U.S.C. § 70909 (Department of Education authorized to make 

available “personnel, services, and facilities” to the Future Farmers of 

America); 36 U.S.C. § 220107 (Defense Department authorized to make its 

resources available to United Service Organizations).

Most of the revenue of these corporations comes from donations and, in 

some cases, membership fees. Some of the corporations are expressly 

authorized to engage in income-producing activities. E.g., 36 U.S.C. 

§ 220305(7) (United States Capitol Historical Society may sell 

commemorative medals and other souvenir items); 36 U.S.C. §§ 40703(5), 

40732 (Corporation for the Promotion of Rifle Practice and Firearms Safety 

may charge user fees and may sell surplus rifles). 

Some title 36 charters include their own audit requirements. The American 

Red Cross, for example, must prepare an annual itemized report of receipts 

and expenditures, which is audited by the Department of Defense, and 

must reimburse the expenses Defense incurs in conducting these audits. 

36 U.S.C. § 300110. Title 36 corporations whose charters do not include 

audit provisions are subject to the general requirements of 36 U.S.C. 

§ 10101, subsection (a) of which requires an annual audit “in accordance 

with generally accepted auditing standards” by independent accountants. 

GAO does not audit these corporations. It does, upon request, conduct a 

limited “report audit” or “desk review,” including a review of the 

corporation’s financial statements, to determine whether the audit report 

complies with the financial reporting requirements of the statutory charter 

or 36 U.S.C. § 10101. GAO’s report of this review is very brief and, if no 

problems are found, concludes simply that “[w]e did not identify any 

instance of noncompliance with the . . . financial reporting requirements of” 

36 U.S.C. § 10101. E.g., GAO, Federally Chartered Corporation: Financial 

Statement Audit Report for the National Fallen Firefighters Foundation 

for Fiscal Years 2003 and 2002, GAO-06-691R (Washington, D.C.: May 12, 

2006), at 1.

The relationship of a title 36 corporation to the federal government cannot 

be summarized in a simple statement. Several charters provide that the 

corporation “may not claim congressional approval or the authority of the 

United States Government for any of its activities.” E.g., 36 U.S.C.
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§ 154708(d) (Non-Commissioned Officers Association of America). Others 

include an explicit disclaimer of federal financial liability: “The United 

States Government is not liable for any debts, defaults, acts, or omissions 

of the corporation. The full faith and credit of the Government does not 

extend to any obligation of the corporation.” 36 U.S.C. § 151310 (National 

Fallen Firefighters Foundation). For another example, see 36 U.S.C. 

§§ 151710 (National Film Preservation Foundation).

Absent an explicit disclaimer provision, the question becomes whether the 

corporation can be deemed a “federal actor” or an instrumentality of the 

United States, and if so, for what purposes. The starting point in this 

analysis is the established proposition that the mere fact that Congress has 

conferred a federal charter does not make the corporation a government 

agent. San Francisco Arts & Athletics, Inc. v. United States Olympic 

Committee, 483 U.S. 522, 543–44 (1987); Stearns v. Veterans of Foreign 

Wars, 394 F. Supp. 138, 141 (D.D.C. 1975), aff’d mem., 527 F.2d 1387 (D.C. 

Cir.), cert. denied, 429 U.S. 822 (1976). In many cases this will provide the 

answer if there is no, or at least no significant, federal involvement beyond 

the granting of the charter and the requirement to submit annual reports to 

Congress. If this does not do the job, it becomes necessary to undertake 

“further examination of the nexus between the [corporation] and the 

Government.” Stearns v. Veterans of Foreign Wars, 500 F.2d 788, 790 (D.C. 

Cir. 1974). Unfortunately, “there is no simple test” for doing this. 

Department of Employment v. United States, 385 U.S. 355, 358 (1966).

If the corporation with no federal involvement beyond its charter is one 

extreme, the American Red Cross is arguably the other. It has certainly 

generated the lion’s share of cases. The Supreme Court has held that the 

Red Cross is an instrumentality of the United States, at least for purposes 

of immunity from state taxation of its operations. Department of 

Employment, 385 U.S. at 358–59. Among the factors the Court found 

relevant are (1) the provision for audit by the Defense Department, 

(2) presidential appointment of the principal officer and several governors, 

and (3) the receipt of “substantial material assistance”—not the least of 

which is a permanent headquarters building—from the federal government. 

Id. at 359.

The lower courts have considered the “instrumentality” status of the Red 

Cross in a variety of contexts. For example, the Red Cross cannot be 

required to pay state or local taxes on authorized gambling activities (such 

as bingo games). United States v. City of Spokane, 918 F.2d 84 (9th Cir. 

1990), cert. denied, 501 U.S. 1250 (1991). Its employees share federal 
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employees’ limited immunity from personal liability. Barton v. American 

Red Cross, 829 F. Supp. 1290 (M.D. Ala. 1993), aff’d mem., 43 F.3d 678 

(11th Cir. 1994), cert. denied, 516 U.S. 822 (1995). However, the Red Cross 

is not an agency of the government for purposes of the Freedom of 

Information Act, 5 U.S.C. § 552. Irwin Memorial Blood Bank v. 

American National Red Cross, 640 F.2d 1051 (9th Cir. 1981). Nor is it an 

instrumentality for purposes of the Religious Freedom Restoration Act of 

1993.63 Hall v. American National Red Cross, 86 F.3d 919 (9th Cir. 1996). 

Nor is it covered by the Federal Tort Claims Act (see section B.8.a(2) of this 

chapter).

On some issues regarding the Red Cross, the courts are in disagreement. 

One is the right to trial by jury. Some courts, treating the Red Cross more 

like a private party, have held that parties in civil litigation against the Red 

Cross are entitled to a jury trial. E.g., Marcella v. Brandywine Hospital,

47 F.3d 618 (3rd Cir. 1995); Doe v. American National Red Cross,

847 F. Supp. 643 (W.D. Wis. 1994). Others, placing the Red Cross more on 

the instrumentality side of the ledger, have found jury trial unavailable. 

E.g., Barton v. American Red Cross, 826 F. Supp. 412 (M.D. Ala. 1993), 

aff’d mem., 43 F.3d 678 (11th Cir. 1994), cert. denied, 516 U.S. 822 (1995). 

Another issue is the award against the Red Cross of punitive damages 

(available against private litigants but not the United States). Some courts 

have said “yes” to such awards. Doe v. American National Red Cross,

845 F. Supp. 1152 (S.D. W.Va. 1994). Others have held that the Red Cross 

shares the government’s immunity from punitive damage awards. 

Barton v. American Red Cross, 826 F. Supp. 407 (M.D. Ala. 1993), 

aff’d mem., 43 F.3d 678 (11th Cir. 1994), cert. denied, 516 U.S. 822 (1995); 

Doe v. American National Red Cross, 847 F. Supp. at 648–49; Doe v. 

American National Red Cross, 837 F. Supp. 121 (E.D.N.C. 1992).

There are relatively few cases involving title 36 corporations other than the 

Red Cross. The court in United States v. District of Columbia,

558 F. Supp. 213 (D.D.C. 1982), vacated as moot, 709 F.2d 1521 (D.C. Cir. 

1983), followed the Red Cross precedent and found the U.S. Capitol 

Historical Society to be an instrumentality of the United States for 

purposes of tax immunity. Among the facts the court thought relevant 

were that the Society receives rent-free space in the Capitol to operate a 

visitor’s center (see 2 U.S.C. § 2165), and that its charter expressly prohibits 

63 42 U.S.C. §§ 2000bb–2000bb-4. This act was held to be unconstitutional as applied to state 

and local governments. See City of Boerne v. Flores, 521 U.S. 507 (1987).
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any of the Society’s funds from inuring to the benefit of its members 

(36 U.S.C. § 220308(b)). The judgment was vacated on appeal because 

Congress passed legislation explicitly giving the Society tax-exempt status 

with respect to activities conducted within or on the grounds of the Capitol 

Building. See 36 U.S.C. § 220307.

In the Stearns litigation cited above, the court held that the Veterans of 

Foreign Wars was not a “government actor” for purposes of the 

antidiscrimination protections of the Fifth Amendment.64 The Supreme 

Court reached the same conclusion (although far from unanimously) with 

respect to the United States Olympic Committee. San Francisco Arts & 

Athletics, Inc. v. United States Olympic Committee, 483 U.S. 522 (1987). 

Reaffirming that the mere fact of federal incorporation is not enough, the 

Court further emphasized that “[e]ven extensive regulation by the 

government” or the existence of a federal subsidy may not be enough. Id.

at 544. 

A charitable and benevolent corporation which operates without 

assistance or interference from the government is not a government agency 

for purposes of the dual compensation laws, even though government 

officials may be involved it its administration. 26 Comp. Gen. 192 (1946). 

Similarly, travel for the benefit of such a corporation is not “official travel” 

and hence not compensable from appropriated funds, unless it can be 

shown that the travel also reasonably relates to some official duty of the 

traveler. B-56268, June 20, 1946.

Another area in which the relationship of title 36 corporations to the 

federal government arises is the applicability of the Federal Tort Claims Act 

(FTCA), which expressly applies to “corporations primarily acting as 

instrumentalities or agencies of the United States.” 28 U.S.C. § 2671. Under 

this standard, the Red Cross is not an agency or instrumentality for FTCA 

purposes. Rayzor v. United States, 937 F. Supp. 115 (D.P.R. 1996), aff’d 

64 The Stearns litigation originated with a district court decision, Stearns v. Veterans of 

Foreign Wars, 353 F. Supp. 473 (D.D.C. 1972), which dismissed the suit on the ground that 

the Veterans of Foreign Wars’ federal charter alone did not constitute governmental action. 

The D.C. Circuit reversed this decision in Stearns v. Veterans of Foreign Wars, 500 F.2d 788 

(D.C. Cir. 1974), suggesting that while the charter alone probably was not sufficient, there 

might be other factors to establish enough governmental action to support the suit. On 

remand, the district court found in Stearns v. Veterans of Foreign Wars, 394 F. Supp. 138 

(D.D.C. 1975), that additional factors were not sufficient in this regard. That decision was 

summarily affirmed on appeal. Stearns v. Veterans of Foreign Wars, 527 F.2d 1387 (D.C. 

Cir.), cert. denied, 429 U.S. 822 (1976).
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mem., 121 F.3d 695 (1st Cir. 1997). Nor is the Civil Air Patrol, another 

title 36 corporation. Pearl v. United States, 230 F.2d 243 (10th Cir. 1956); 

Kiker v. Estep, 444 F. Supp. 563 (N.D. Ga. 1978). See also Nazarro v. 

United States, 304 F. Supp. 2d 605 (D.N.J. 2004) (Civil Air Patrol is a 

charitable organization entitled to tort immunity under New Jersey’s 

charitable immunity statute); Campbell v. Civil Air Patrol, 131 F. 

Supp. 2d 1303 (M.D. Ala. 2001) (Civil Air Patrol is not a “federal actor” 

subject to a lawsuit for violation of constitutional rights “under color of 

federal law”). 

It is no accident that the issue has been raised against these two 

corporations. Much of what they do seems like “government work.” One 

of the purposes of the Red Cross is to furnish volunteer aid to sick and 

wounded members of the armed forces in time of war. 36 U.S.C. 

§ 300102(1). A purpose of the Civil Air Patrol is to encourage citizen efforts 

“in maintaining air supremacy,” 36 U.S.C § 40302(1)(a), a governmental 

purpose if there ever was one. Be that as it may, the corporation’s 

“chameleon-like existence” or the argument that it amounts to a “part-time 

federal agency” is not enough to make the FTCA applicable. Estep, 444 F. 

Supp. at 565. The test is whether the government controls its day-to-day 

operations. Rayzor, 937 F. Supp. at 119, citing United States v. Orleans,

425 U.S. 807, 815 (1976).

Still another area of controversy is the application of 28 U.S.C. § 1349, 

which prohibits federal courts from taking jurisdiction of a suit by or 

against a corporation solely because “it was incorporated by or under an 

Act of Congress, unless the United States is the owner of more than onehalf of its capital stock.” The typical title 36 corporation being a nonstock 

corporation, some courts have applied section 1349 by using a “government 

control” test. Thus, for example, the American Red Cross “functions 

independently and is in no way controlled by the Government” for 

purposes of 28 U.S.C. § 1349, one reason being that the president appoints 

only 8 of its 50 governors. C.H. v. American Red Cross, 684 F. Supp. 

1018, 1022 (E.D. Mo. 1987), followed in, e.g., Collins v. American Red 

Cross, 724 F. Supp. 353 (E.D. Pa. 1989). In Burton v. United States 

Olympic Committee, 574 F. Supp. 517, 524 (C.D. Cal. 1983), the court 

reached the same result for the United States Olympic Committee because 

(1) the Olympic Committee was the legal owner of its property, (2) any 

surplus funds do not revert to the U.S. Treasury, (3) it is self-governing and 

operates independent of federal control, and (4) it is not included in the 

Government Corporation Control Act.
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Other courts have applied the stock ownership requirement literally and 

held that section 1349 can never form the basis of federal jurisdiction of a 

nonstock corporation because the government cannot own half of what 

does not exist. E.g., Burton, 574 F. Supp. at 523; Stop the Olympic 

Prison v. United States Olympic Committee, 489 F. Supp. 1112, 1117 

(S.D.N.Y. 1980). The Supreme Court noted the split, but did not resolve it in 

American National Red Cross v. S.G., 505 U.S. 247, 251 and n.3 (1992). 

Rather, the Court held in this case that the sue-and-be-sued provision of the 

Red Cross charter was sufficient in itself to confer federal jurisdiction. Id.

d. Federally Funded Research 

and Development Centers

A Federally Funded Research and Development Center (FFRDC) is a 

privately owned but government-funded entity which has a long-term 

contractual relationship with one or more federal agencies to perform 

research and development and related tasks.65 One authority refers to 

them as “‘captive corporations’ which are legally private, but are almost 

entirely government financed.”66 The Federal Acquisition Regulation (FAR) 

states: “FFRDC’s are operated, managed, and/or administered by either a 

university or consortium of universities, other not-for-profit or nonprofit 

organization, or an industrial firm, as an autonomous organization or as an 

identifiable separate operating unit of a parent organization.” 48 C.F.R. 

§ 35.017(a)(3).

The federal executive agency which manages, administers, monitors, 

funds, and is responsible for the overall use of the FFRDC, is called the 

sponsor.67 48 C.F.R. § 35.017(b). The FFRDC may be permitted to accept 

work from parties other than the sponsor if and to the extent specified in 

the sponsoring agreement. 48 C.F.R. § 35.017-1(c)(5). A sponsoring 

agreement may not exceed 5 years, but is renewable in 5-year increments. 

48 C.F.R § 35.017-1(e). The FAR tells agencies to phase out FFRDCs which 

are no longer needed. 48 C.F.R § 35.017-5. Some better known FFRDCs are 

the Rand Corporation and the Massachusetts Institute of Technology’s 

65 See 71 Comp. Gen. 155 (1992). Apart from this overview treatment, our discussion does 

not further address these entities.

66 Harold Seidman, Government Corporations in the United States, 22 Optimum 40, 43 

(1991) (Seidman 1991).

67 Under 48 C.F.R. § 35.017(b), it is possible for an FFRDC to have multiple federal agency 

sponsorship. The regulation calls for a lead agency to be designated as primary sponsor. 
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Lincoln Laboratory, both sponsored by the Department of the Air Force.68

FFRDCs originated in the World War II era69 and have proliferated in 

subsequent decades. The 1972 report of the Commission on Government 

Procurement, although expressing concern over the potential pitfalls of 

single-agency funding,70 recommended that agencies continue to have “the 

option to organize and use FFRDCs to satisfy needs that cannot be satisfied 

effectively by other organizational resources.”71 The Office of Management 

and Budget’s Office of Federal Procurement Policy implemented the 

Commission’s recommendation by issuing Policy Letter No. 84-1, 

49 Fed. Reg. 14462, 14464 (Apr. 11, 1984), which was in turn implemented 

by the subsequent inclusion of coverage in the FAR at 48 C.F.R. § 35.017. 

See 48 C.F.R. § 35.017(a)(2) (“An FFRDC meets some special long-term 

research or development need which cannot be met as effectively by 

existing in-house or contractor services.”).

There is no requirement that the creation of an FFRDC be specifically 

authorized by statute. 71 Comp. Gen. 155 (1992) (Government Corporation 

Control Act requirement for specific authority not applicable to FFRDCs); 

B-145898-O.M., June 30, 1961 (same). The authority to establish and 

sponsor FFRDCs is viewed as incident to the agency’s authority to enter 

into contracts. 71 Comp. Gen. at 157. Although arguably unnecessary 

under this theory, in some cases Congress has specifically authorized 

agencies to establish FFRDCs, perhaps because of the amounts involved. 

For example, the 1991 appropriation for the Internal Revenue Service (IRS) 

authorized the IRS to spend up to $15 million to establish an FFRDC as part 

of its tax systems modernization program. Pub. L. No. 101-509, 104 Stat. 

1389, 1395 (Nov. 5, 1990). Legislation enacted in 1987 authorized the 

Secretary of Defense to establish an FFRDC to provide support to the 

Strategic Defense Initiative program. Pub. L. No. 100-180, § 227, 101 Stat. 

1019, 1057–59 (Dec. 4, 1987), 10 U.S.C. § 2431 note.

While there is no governmentwide statutory guidance on the creation and 

use of FFRDCs, there is legislation applicable to the military departments. 

68 The National Science Foundation provides a list of FFRDCs as of February 2005 on its 

Web site at www.nsf.gov/statistics/nsf05306 (last visited Nov. 28, 2007).

69 2 Report of the Commission on Government Procurement 17 (1972).

70 Id. at 18.

71 Id. at 64 (app. E., Recommendation No. 5).
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Before obligating or expending funds to operate an FFRDC, the sponsoring 

department must report to Congress on the “purpose, mission, and general 

scope of effort” of the proposed FFRDC, and must observe a 60-day waiting 

period. 10 U.S.C. § 2367(c)(1). An FFRDC generally may be used only for 

work that is within the center’s purpose, mission, and general scope of 

effort, as set forth in the sponsoring agreement. 10 U.S.C. § 2367(a).72 

Defense is to report to designated congressional committees “the actual 

obligations and the actual man-years of effort expended at each” FFRDC 

for each fiscal year. 10 U.S.C. § 2367(d).

The FFRDC is not an arm’s length contractor. By virtue of its access to 

government data, employees, and facilities, it is said to have a “special 

relationship” with the government. 48 C.F.R. § 35.017(a)(2). As one might 

suspect, the FFRDC concept is not free from controversy. One 

commentator states:

“The first FFRDCs were able to provide a research 

environment, capable of attracting and retaining the best 

scientists, which it was difficult to reproduce within the 

government structure. It is now claimed that establishment 

of FFRDCs sometimes is motivated more by the desire to 

evade government personnel and procurement regulations 

than by desire to create a research environment. It is 

alleged that some are little more than job shops for their 

government sponsors. Industry is unhappy because of what 

it sees as unfair competition.”73

The “job shop” allegation stems in part from the practice of granting “fringe 

benefits” which, although reimbursed directly from appropriated funds, 

exceed those of regular government employees, sometimes by a very wide 

margin. One example is discussed in a GAO report whose title is very 

revealing: University Research: U.S. Reimbursement of Tuition Costs for 

University Employee Family Members, GAO/NSIAD-95-19 (Washington, 

D.C.: Feb. 15, 1995). The Office of Management and Budget subsequently 

inserted language in OMB Circular No. A-21, Cost Principles for 

72 This limitation does not apply to an FFRDC that performs applied scientific research 

under laboratory conditions. 10 U.S.C. § 2367(b). 

73 Seidman 1991, at 43–44. For further discussion of the competition aspects, see GAO, 

Competition: Issues on Establishing and Using Federally Funded Research and 

Development Centers, GAO/NSIAD-88-22 (Washington, D.C.: Mar. 7, 1988). 
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Educational Institutions, § J.10.f(2) (May 10, 2004), to make tuition 

benefits allowable only for the employees themselves.

To help ameliorate industry’s concerns, the FAR requires each sponsoring 

agreement to prohibit the FFRDC from competing with any non-FFRDC for 

government contracts. 48 C.F.R. § 35.017-1(c)(4). This is not limited to the 

FFRDC as prime contractor. In a bid protest decision, for example, GAO 

found the regulation violated where an agency accepted a proposal in 

which an FFRDC would team with the awardee to perform a substantial 

amount of the work. B-243650.2, Nov. 18, 1991, aff’d on reconsideration, 

B-243650.3, May 11, 1992. GAO explained:

“[The FAR] does not make a distinction between an 

FFRDC’s role as a prime contractor or subcontractor. We 

think that the determination whether an FFRDC is in fact 

competing with a private firm in violation of the regulation 

depends not upon whether the FFRDC has submitted a 

proposal in its own name but upon the impact of its 

participation, both from a technical and a cost standpoint, 

upon the procurement.” 

Id. at 5.

Similarly, where the contracting agency discovered the relationship after it 

had awarded the contract, it properly terminated the contract for the 

convenience of the government. B-276240 et al., May 23, 1997.

Even though it may be funded entirely, or nearly so, from federal funds, an 

FFRDC is regarded as a contractor and not an agency or instrumentality of 

the United States. 71 Comp. Gen. 155, 158 (1992). For example, in deciding 

a 1981 dispute over reimbursement of costs, the Armed Services Board of 

Contract Appeals treated an FFRDC no differently than any other 

contractor, notwithstanding that it was “100 percent funded by the 

government.” Massachusetts Institute of Technology, ASBCA No. 23079, 

81-2 B.C.A. ¶ 15,451 (1981) (cited in 71 Comp. Gen. at 157 n.2). Similarly, 

GAO analyzed the Mitre Corporation, an FFRDC, as follows:

“While the MITRE Corporation was established . . . for the 

purpose of engaging in and procuring services to or for the 

United States Government or any department or agency 

thereof, the company may not be said to be in any respect 

an agency or instrumentality of the United States. The 
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affairs of the company are in the hands of private persons, 

no element of control being vested in the United States; and 

no provision is made for distributing corporate assets to the 

United States upon dissolution of the company. Such 

interest as the United States might have in MITRE would 

arise solely under contracts entered into with the company 

in the same manner as under contracts with any other 

corporation.” 

B-145898-O.M., June 30, 1961, at 5–6.

The relationship of FFRDCs to the government also comes into play in 

protests against the award of subcontracts by FFRDCs. GAO will review a 

subcontract award if the subcontract is “by or for a Federal agency.” 

4 C.F.R. § 21.13(a). The protester invariably argues that the FFRDC’s 

contracts are, by virtue of its status, “for the government.” GAO will not 

draw a conclusion either way solely from the contractor’s status as an 

FFRDC, but will examine the specific contractual relationship. The “by or 

for” standard contemplates situations in which the FFRDC is effectively 

acting as the government’s agent or is largely a conduit between the 

government and the subcontractor. This could happen, for example, where 

the FFRDC is operating and/or managing a government facility (as opposed 

to simply using government-furnished facilities), or otherwise providing 

large-scale management services. 69 Comp. Gen. 334 (1990); B-244711, 

Oct. 16, 1991.

Along the same lines, the court in Vallier v. Jet Propulsion Laboratory, 

120 F. Supp. 2d 887 (C.D. Cal. 2000), aff’d, 23 Fed. Appx. 803 (9th Cir. 2001), 

held that the United States had no tort liability for alleged negligence in the 

California Institute of Technology’s (Caltech) operation of the laboratory’s 

waste disposal facilities because Caltech was not an “employee” of the 

United States under the Federal Tort Claims Act (FTCA), 28 U.S.C. 

§§ 2671–2680. The court found that, although Caltech was subject to 

detailed federal regulations and inspections, the federal government did 

not control Caltech’s day-to-day operation of the laboratory’s waste 

disposal activities. Vallier, 120 F. Supp. 2d at 908. The court also observed 

that, unlike the contracts governing some FFRDCs, there was nothing in 

Caltech’s contract for operation of the laboratory making Caltech a 

government “employee” for purposes of the FTCA. Id. at 908–09. The 

court distinguished Caltech’s contract from others that specifically stated 

that the FFRDCs were “agents” of the government for purposes of the 

activities in question. Id. at 909.
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A variation on the FFRDC theme is the so-called “GOCO”—a governmentowned, contractor-operated facility. See, for example, United States v. 

Anderson County, Tennessee, 705 F.2d 184 (6th Cir. 1983), cert. denied, 

464 U.S. 1017 (1983), describing a GOCO used by the Department of 

Energy. Energy also funds a group of GOCO research laboratories. A 

useful report on these is GAO, Department of Energy: Uncertain Progress 

in Implementing National Laboratory Reforms, GAO/RCED-98-197 

(Washington, D.C.: Sept. 10, 1998). See also GAO, Department of Energy: 

Additional Opportunities Exist for Reducing Laboratory Contractors 

Support Costs, GAO-05-897 (Washington, D.C.: Sept. 9, 2005); National 

Laboratories: Better Performance Reporting Could Aid Oversight of 

Laboratory-Directed R&D Program, GAO-01-927 (Washington, D.C.: 

Sept. 28, 2001).

e. Summing Up “Developments in the last 20 years might make one suspect 

that the U.S. government is going quasi.”74

The categories we have described make up the primary ways the 

government has used the corporate device. They are, however, by no 

means exclusive. Other agency-specific or program-specific examples dot 

the federal landscape. One is the Production Credit Association (PCA). 

PCAs are corporate financial institutions chartered by the Farm Credit 

Administration under statutory authority. 12 U.S.C. §§ 2071–2077. See also 

12 C.F.R. § 614.4040. They are statutorily designated as instrumentalities of 

the United States. 12 U.S.C. § 2071(a). As such, they have been held 

immune from awards of punitive damages. Smith v. Russellville 

Production Credit Ass’n, 777 F.2d 1544 (11th Cir. 1985); Rohweder v. 

Aberdeen Production Credit Ass’n, 765 F.2d 109 (8th Cir. 1985); Matter of 

Sparkman, 703 F.2d 1097 (9th Cir. 1983). However, they are not “primarily 

acting as instrumentalities of the United States” for purposes of the Federal 

Tort Claims Act. South Central Iowa Production Credit Ass’n v. Scanlan,

380 N.W.2d 699 (Iowa 1986); Waldschmidt v. Iowa Lakes Production 

Credit Ass’n, 380 N.W.2d 704 (Iowa 1986). Also, they are sufficiently 

independent of the federal government so as not to share the government’s 

exemption from 28 U.S.C. § 1341, which bars federal jurisdiction of state 

tax cases in favor of remedies under the state courts. Arkansas v. 

Farm Credit Services, 520 U.S. 821 (1997). One court analogized them to 

national banks in the Federal Reserve System. United States v. Haynes, 

74 Harold Seidman, The Quasi World of the Federal Government, 6 Brookings Rev. 23 (1988) 

(Seidman 1988). 
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620 F. Supp. 474, 477 (M.D. Tenn. 1985) (holding that they were not 

independent agencies for purposes of 18 U.S.C. § 208, the criminal conflict 

of interest statute).75

Another example is the entity addressed in Varicon International v. 

OPM, 934 F. Supp. 440 (D.D.C. 1996), a corporation formed by former 

Office of Personnel Management (OPM) employees, with OPM’s 

encouragement. OPM awarded it a sole-source contract to conduct 

background investigations previously conducted by the agency itself. The 

court viewed this as nothing more than “a private corporation which was 

awarded a government contract” (id. at 447), and thus not subject to the 

Government Corporation Control Act’s requirement for statutory authority. 

See also 53 Comp. Gen. 86 (1973).

Some analysts believe that an increasing portion of the government’s 

business is being done outside the traditional structure. They also suggest 

that “[t]he line between what is ‘public’ and what is ‘private’ has become 

indistinct.”76 The literature uses terms like “quasi-private,” “quasigovernment,” and “hybrid organizations.”77 Leazes calls them “twilightzone corporations.”78 Moe regards them as “relatively unaccountable units 

at the margin of government.”79 Seidman consigns them to a “terra 

incognita, somewhere between the public and private sectors.”80 The 

National Academy of Public Administration (itself a title 36 corporation) 

has reported that “[t]he boundary between the public and private sectors 

75 For cases reaching similar results with respect to other corporations under an earlier 

version of the statute, see United States v. Chemical Foundation, Inc., 272 U.S. 1 (1926), 

and 16 Comp. Gen. 613 (1936). 

76 Ronald C. Moe and Thomas H. Stanton, Government-Sponsored Enterprises as Federal 

Instrumentalities: Reconciling Private Management with Public Accountability, 49 Pub. 

Admin. Rev. 321 (1989); Lloyd D. Musolf and Harold Seidman, The Blurred Boundaries of 

Public Administration, 40 Pub. Admin. Rev. 124, 125 (1980). Adding those purely private 

entities whose doors would close in a matter of weeks if the federal money stopped flowing 

further emphasizes the point.

77 See Musolf and Seidman, at 124.

78 Francis J. Leazes, Jr., Accountability and the Business State: The Structure of Federal 

Corporations, 36 (1987).

79 Ronald C. Moe, Administering Public Functions at the Margin of Government: The Case 

of Federal Corporations, 3 (1983).

80 Seidman 1988, at 25. 
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has been blurred so that one cannot say with assurance to which sector 

many corporations belong or to whom they are accountable.”81

Students of public administration disagree over whether this blurring is 

good or bad.82 Whether it is good, bad, or somewhere in between, it is here, 

likely to remain, and must be included in any consideration of federal 

spending issues.

3. Creation To create a private business corporation, the incorporators file articles of 

incorporation with a designated office in the jurisdiction—state or District 

of Columbia—in which they wish to incorporate. Each state, as well as the 

District of Columbia, has an incorporation statute that details these 

procedures and addresses other aspects of the corporation’s existence, 

such as corporate powers, liability of officers, and issuance of stock. For 

example, the D.C. law is the District of Columbia Business Corporation Act, 

29 D.C. Code §§ 29.101.01–29.101.170.

There is no such thing as a federal incorporation statute. Rather, Congress 

ordinarily provides a charter for a government corporation83 by specific 

legislation that sets out its purposes, powers, structure, obligations, and 

sources of funding. The statute may also require the government 

corporation to incorporate in a particular state or the District of Columbia. 

The corporation may be specifically designated an agency or 

instrumentality of the United States government, or it may be specifically 

designated not to be such entities, which can be important when it comes 

81 National Academy of Public Administration, I Report on Government Corporations 4 

(1981). If this passage is evocative of Moe and Seidman, it may be because both were 

members of the panel which conducted the NAPA study. Id. at app. 1.

82 See, e.g., Benjamin A. Templin, Comment on Neil H. Buchanan’s Social Security and 

Government Deficits: When Should We Worry?, 92 Cornell L. Rev. 291, 295–96 (2007); 

Richard Scott Carnell, Handling the Failure of a Government-Sponsored Enterprise, 

80 Washington L. Rev. 565 (2005); Donna M. Nagy, Playing Peekaboo with Constitutional 

Law: The PCAOB (Public Company Accounting Oversight Board) and Its Public/Private 

Status, 80 Notre Dame L. Rev. 975 (2005); Seidman 1988, at 23–24. For an examination of 

the hybrid nature of Amtrak, see Arnold Adams, The National Railroad Passenger 

Corporation [Amtrak]—A Modern Hybrid Corporation Neither Private Nor Public,

31 Bus. Law. 601 (1976).

83 For ease of discussion in this section, we will use the term “government corporation” to 

refer generically to the various corporate devices discussed in section B.2 of this chapter 

unless a more specific term is warranted.
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to determining whether particular federal statutes apply to the corporation 

(discussed in detail in section B.7 of this chapter). Congress may also 

charter a government corporation by delegating the power to the executive 

branch or to another government corporation. Either way, the creation of a 

government corporation must be explicit; it cannot be implied.

a. Historical Background and 

Purpose

While the proliferation of government corporations largely occurred during 

the twentieth century, the federal government has created or used 

government corporations since the beginning of the republic. The earliest 

examples were banking institutions. The first, predating even the adoption 

of the Constitution, occurred when the Continental Congress authorized 

the Bank of North America in 1781 and the Superintendent of Finance 

purchased approximately five-eighths of the capital stock in the name of 

the government, making the United States the majority owner.84 In 1791, 

Congress created and incorporated the (First) Bank of the United States, 

authorizing the United States to subscribe 20 percent of the corporation’s 

stock.85 Act of February 25, 1791, ch. 10, 1 Stat. 191. Initial governmental 

participation in this and other banking enterprises consisted of investment 

in stock as opposed to management of the corporation.

The Second Bank of the United States was incorporated by the Act of 

April 10, 1816, ch. 44, 3 Stat. 266, in which the United States would 

subscribe 20 percent of the Bank’s capital stock and the President would 

appoint, by and with the consent of the Senate, 5 of the Bank’s 25 directors, 

the rest to be elected annually by shareholders other than the United 

States. The legality of the Second Bank was challenged, resulting in the 

landmark case of McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316 (1819). In 

that decision, the Supreme Court upheld the constitutionality of the Second 

Bank of the United States and the federal government’s authority to create 

or involve itself in commercial enterprises. The Court held that although 

the Constitution did not specify creating corporations as one of the federal 

government’s enumerated powers, the Necessary and Proper Clause of the 

Constitution (art. I, § 8, cl. 18) allowed Congress to charter and use a 

corporation for the public purpose of banking. Chief Justice Marshall 

stated:

84 John McDiarmid, Government Corporations and Federal Funds, 21 (1938).

85 A capsule history starting with the 1791 act may be found in Lebron v. National Railroad 

Passenger Corporation, 513 U.S. 374, 386–91 (1995).
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“The power of creating a corporation, though appertaining 

to sovereignty, is not, like the power of making war, or 

levying taxes, or of regulating commerce, a great 

substantive and independent power, which cannot be 

implied as incidental to other powers, or used as a means of 

executing them. It is never the end for which other powers 

are exercised, but a means by which other objects are 

accomplished.” 

Id. at 411. 

Later in the opinion, the Chief Justice wrote what has become one of the 

most famous statements in American constitutional law: “Let the end be 

legitimate, let it be within the scope of the constitution, and all means 

which are appropriate, which are plainly adapted to that end, which are not 

prohibited, but consist[ent] with the letter and spirit of the constitution, are 

constitutional.” Id. at 421.

The courts have never seriously questioned Congress’s power to create or 

employ corporate entities as a means of carrying into effect the substantive 

powers granted to it by the Constitution. For example, in Luxton v. North 

River Bridge Co., 153 U.S. 525 (1894), the Supreme Court held that 

Congress, in exercising its power to regulate interstate commerce, 

indisputably has the power to create a corporation to construct a bridge 

across navigable water between two states.86 Congress is not restricted to 

creating a new corporation, but can acquire or employ an existing private 

corporation to carry out its substantive constitutional powers. New York 

ex rel. Rogers v. Graves, 299 U.S. 401 (1937). Here, Congress acquired the 

entire capital stock of a private corporation and elected its board of 

directors to carry out constitutional powers of regulating commerce and 

providing for national defense in maintaining, operating, and protecting the 

Panama Canal.

Congress has created or employed corporations to carry out varied 

purposes. Turning again to Chief Justice Marshall’s words, “[t]he power of 

86 Other cases upholding the constitutionality of various government corporations include 

Smith v. Kansas City Title & Trust Co., 255 U.S. 180 (1921) (federal land banks); Doherty v. 

United States, 94 F.2d 495 (8th Cir.), cert. denied, 303 U.S. 658 (1938) (Federal Deposit 

Insurance Corporation); Weir v. United States, 92 F.2d 634 (7th Cir.), cert. denied, 

302 U.S. 761 (1937) (same); Langer v. United States, 76 F.2d 817 (8th Cir. 1935) 

(Reconstruction Finance Corporation).
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creating a corporation is never used for its own sake, but for the purpose of 

effecting something else.” McCulloch, 17 U.S. at 411. One analyst has 

noted that “[g]overnment-sponsored corporations are simply a means of 

securing governmental objectives.”87 Some government corporations are 

charged with developing projects or functions not adaptable to private 

industry while others are responsible for meeting needs in the market that 

are unmet by private industry. Those purposes include governance, as well 

as social and educational programs. Government corporations have also 

been created, usually in bunches, to meet war or economic emergencies. 

The twentieth century saw three such surges: World War I, the Great 

Depression, and World War II.

First, during World War I, government corporations were created to 

mobilize the war effort by transacting business in the same manner as 

private commercial firms. These included the War Finance Corporation,88

the United States Shipping Board Emergency Fleet Corporation,89 and the 

United States Spruce Production Corporation,90 among others. After the 

war, many of the corporations were liquidated since they were intended to 

be temporary and had fulfilled their missions to support the war effort.

It was not long after World War I that another crisis erupted and led to the 

next surge of government corporations. The role of the federal government 

changed dramatically in response to the Great Depression, even more than 

it changed as a result of World Wars I and II. During the Depression, the 

federal government used government corporations extensively to stabilize 

87 Ronald J. Krotoszynski, Jr., Back to the Briarpatch: An Argument in Favor of 

Constitutional Meta-Analysis in State Action Determinations, 94 Mich. L. Rev. 302, 312 

(1995).

88 The War Finance Corporation was organized under Pub. L. No. 65-121, 40 Stat. 506 (Apr. 5, 

1918), to provide financial assistance to industries important to the successful prosecution 

of the war.

89 The Emergency Fleet Corporation was organized on April 16, 1917 to purchase, construct, 

and operate merchant vessels under the authority of the original Shipping Board Act, Pub. L. 

No. 64-260, § 11, 39 Stat. 728, 731 (Sept. 7, 1916). See John McDiarmid, Government 

Corporations and Federal Funds, 21, 24–25 (1938). 

90 Public Law No. 65-193, 40 Stat. 845, 888 (July 9, 1918), authorized the War Department’s 

Director of Aircraft Production to form corporations to aid the government’s production of 

aircraft and related equipment. Under this authority, the United States Spruce Production 

Corporation was created on August 20, 1918, to make available aircraft lumber for war use.
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the economy and encourage economic growth.91 For example, the 

Reconstruction Finance Corporation had a central role in planning and 

financing recovery programs by providing loans to banks, railroads, 

business enterprises, mining interests, public agencies, agricultural 

marketing organizations, and purchasing stock in banks, insurance 

companies, mortgage corporations, and corporations engaged in defense 

activities.92 The Federal Deposit Insurance Corporation was created to 

promote and preserve public confidence in banks and protect the money 

supply by insuring deposits, periodically examining insured banks, and 

regulating certain securities, mergers, consolidations, acquisitions and 

assumption transactions of the banking sector.93 The Commodity Credit 

Corporation (CCC) was created for the purpose of “stabilizing, supporting, 

and protecting farm income and prices, of assisting in the maintenance of 

balanced and adequate supplies of agricultural commodities . . . and of 

facilitating the orderly distribution of agricultural commodities.”94 The 

primary method the CCC uses to achieve its purpose is providing loans. 

The Federal Housing Administration (FHA) was established to encourage 

improvement in housing standards and conditions, to provide an adequate 

home financing system by insurance of housing mortgages and credit, and 

to exert a stabilizing influence on the mortgage market.95 The primary 

method used by FHA to fulfill its purpose is providing mortgage insurance.

World War II provided the impetus for the third major surge in twentieth 

century government corporations. Over 20 government corporations were 

91 Francis J. Leazes, Jr., Accountability and the Business State: The Structure of Federal 

Corporations, 21 (1987).

92 Pub. L. No. 72-2, 47 Stat. 5 (Jan. 22, 1932). See also Pub. L. No. 76-664, § 6, 54 Stat. 572, 574 

(June 25, 1940). 

93 Banking Act of 1933, Pub. L. No. 73-66, § 8, 48 Stat. 162, 168 (June 16, 1933), superseded by 

Federal Deposit Insurance Act, Pub. L. No. 81-797, 64 Stat. 873 (Sept. 21, 1950), codified as 

amended at 12 U.S.C. §§ 1811–1831z. 

94 15 U.S.C. § 714. The Commodity Credit Corporation was given a statutory charter in 1948 

by Public Law No. 80-806, 62 Stat. 1070 (June 29, 1948).

95 National Housing Act, Pub. L. No. 73-479, § 1, 48 Stat. 1246 (June 27, 1934). Its provisions 

now appear primarily at 12 U.S.C. §§ 1707–1715z-22a. The Federal Housing Administration 

is now part of the Department of Housing and Urban Development. Some interesting 

statutory phrasing provides that “ ‘wholly owned Government corporation’ means . . . the 

Secretary of Housing and Urban Development when carrying out duties and powers related 

to the Federal Housing Administration Fund.” 31 U.S.C. § 9101(3)(M).
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created to meet the wartime production needs of World War II. These 

included the War Damage Corporation96 (to provide insurance and 

reasonable protection against loss or damage to property, real or personal, 

resulting from enemy attack, including any action taken by the military, 

naval, or air forces of the United States in resisting enemy attack), the 

Smaller War Plants Corporation97 (to aid in mobilizing the productive 

facilities of small business in the interest of successful prosecution of the 

war), and the Defense Plant Corporation98 (to aid the Government in its 

national defense by financing or engaging in the construction, extension, 

and operation of plants engaged in war production).

Of course, the end of World War II did not end the practice of creating and 

using government corporations. Since then, government corporations have 

continued to be created to address myriad economic, social, and other 

issues affecting the nation. For example, Congress created the 

Government National Mortgage Association (Ginnie Mae) in 1968 to 

provide the means of transferring funds from the nation’s securities 

markets into the residential housing mortgage market. 12 U.S.C. §§ 1716b, 

1717. The Pension Benefit Guaranty Corporation was created in 1974 to 

administer the pension plan termination insurance program created under 

the Employee Retirement Income Security Act of 1974 (ERISA) by 

encouraging the continuation and maintenance of voluntary private 

pension plans, providing uninterrupted payment of pension benefits to 

beneficiaries under plans covered by ERISA and maintaining premiums at 

the lowest level consistent with carrying out its obligations under ERISA. 

29 U.S.C. § 1302. The Resolution Trust Corporation was established in 

1989, in response to the savings and loan crisis, to manage and resolve all 

cases involving failed depository institutions insured by the Federal 

Savings and Loan Insurance Corporation before the enactment of the 

96 The War Damage Corporation was actually created by the Reconstruction Finance 

Corporation under statutory authority. See 15 U.S.C. § 606b (1946). 

97 The Smaller War Plants Corporation was created by Public Law No. 77-603, § 4, 56 Stat. 

351, 353 (June 11, 1942).

98 The Defense Plant Corporation was created by the Reconstruction Finance Corporation 

on August 22, 1940, under the same statutory authority as the War Damage Corporation. See

GAO, Reference Manual of Government Corporations, S. Doc. No. 79-86, at 32 (1945). 
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Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) of 

1989. 12 U.S.C. § 1441a(b).99

At any given time, it seems, several new corporations are being proposed or 

studied. See, e.g., GAO, Government Corporations: Profiles of Recent 

Proposals, GAO/GGD-95-57FS (Washington, D.C.: Mar. 30, 1995). The 

Office of Management and Budget (OMB) issued a document in 1995 

entitled Specifications for Creating Government Corporations (OMB 

Memorandum M-96-05, (Dec. 8, 1995)). This presents OMB’s standards and 

approach for evaluating proposals for new corporations. The OMB paper 

incorporates many of the principles of the 1981 National Academy of Public 

Administration report noted in section B.1 of this chapter.

Congress has categorized or designated some government corporations as 

nonprofit (e.g., Legal Services Corporation, 42 U.S.C. § 2996b(a)) while 

others are designated as for-profit. For example, the United States 

Enrichment Corporation (USEC) was created to operate as a business 

enterprise on a profitable and efficient basis by marketing and selling 

enriched uranium, and uranium enrichment and related services, primarily 

for use by electric utilities worldwide. 42 U.S.C. §§ 2297b, 2297b-2 

(1994).100 Another example is Amtrak, whose organic legislation currently 

specifies that it “shall be operated and managed as a for-profit 

corporation.” 49 U.S.C. § 24301(a)(2). Originally, Amtrak’s statute simply 

declared it to be a “for profit corporation” (Pub. L. No. 91-518, § 301, 

84 Stat. 1327, 1330 (Oct. 30, 1970)), but the language was changed to 

recognize the realities of the situation. For a history of Amtrak’s legislation 

vis-à-vis corporate status, see Lebron v. National Railroad Passenger 

Corp., 513 U.S. 374, 388–89 (1995).

99 The Resolution Trust Corporation has terminated and its remaining responsibilities were 

transferred to the Federal Deposit Insurance Corporation. See 12 U.S.C. § 1441a(m).

100 Congress enacted legislation in 1996 to “privatize” USEC. See USEC Privatization Act, 

enacted as part of the massive Omnibus Consolidated Rescissions and Appropriations Act 

of 1996, Pub. L. No. 104-134, title III, ch. 1, subch. A, 110 Stat. 1321, 1321-335 (Apr. 26, 1996). 

For background, see B-307137, July 12, 2006; B-286661, Jan. 19, 2001; GAO, U.S. Enrichment 

Corporation Privatization: USEC’s Delays in Providing Data Hinder DOE’s Oversight of 

the Uranium Decontamination Agreement, GAO-06-723 (Washington, D.C.: June 16, 2006); 

Uranium Enrichment: Observations on the Privatization of the United States 

Enrichment Corporation, GAO/T-RCED-95-116 (Washington, D.C.: Feb. 24, 1995). The 

“omnibus” act is itself a fascinating document. Its publication in Statutes at Large begins 

with a footnote stating that the act’s “original hand enrollment as signed by the President . . . 

is printed without corrections. Footnotes indicate missing or illegible text in the original.” 
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b. Need for Statutory 

Authority

Prior to 1946, government corporations came into being in one of three 

ways. They were (1) specifically created by statute, (2) created by an 

executive branch department or another government corporation under 

statutory authorization or delegation, or (3) created by the executive 

branch through purely administrative action, with no specific statutory 

authorization. Lebron v. National Railroad Passenger Corp., 513 U.S. 374, 

388–89 (1995). The power of Congress to create government corporations, 

either directly or by delegation, had been settled since McCulloch v. 

Maryland101 in 1819. The issue of executive authority to create 

corporations came to a head in the 1940s. The lines of battle were formed 

when the Farm Security Administration, which wanted to purchase land 

but lacked the requisite statutory authority, created several corporations 

whose officers and directors were Department of Agriculture employees. 

The Department then made loans to the corporations, which in turn bought 

the land. Not surprisingly, the legality of this arrangement was questioned. 

On the issue of whether the Department could create corporations without 

statutory authority, the parties split along predictable lines. The 

Comptroller General said “No.” B-23881, Mar. 5, 1942. See also 21 Comp. 

Gen. 892, 893 (1942). The Attorney General said “Yes.” 40 Op. Att’y 

Gen. 193 (1942). See also 37 Op. Att’y Gen. 288 (1933).

GAO’s conclusion was based partially on considerations of sovereign 

immunity. The power to sue and be sued is an important power of any 

corporation. The Supreme Court had recently decided Federal Housing 

Administration v. Burr, 309 U.S. 242 (1940), and Keifer & Keifer v. 

Reconstruction Finance Corp., 306 U.S. 381 (1939), which strongly implied 

that this power could be granted only by Congress. B-23881, Mar. 5, 1942, 

at 18. It was not necessary for the Court to directly address the question 

because neither case dealt with a corporation created purely by executive 

action, but it would seem fundamental that an agency could not confer 

powers, authorities, or exemptions it did not have, unless of course it was 

operating under express statutory authority.102

Of course, as the sue-and-be-sued point suggests, the heart of the question 

was never the creation of corporate entities per se. Rather, the issue 

centered on the powers that could be given to them. One decision stated 

101 17 U.S. (4 Wheat.) 316 (1819). See the discussion in section B.3.a of this chapter.

102 The Attorney General’s opinion did not address this point, but did remind GAO that GAO 

had at least implicitly condoned the practice by issuing decisions concerning nonstatutory 

corporations—without questioning the legality of their creation. 40 Op. Att’y Gen. at 201.
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that “the Virgin Islands Co. was created without specific Congressional 

authorization and . . . therefore, the corporate character of the company did 

not serve to free its funds from the provisions of law to which they would 

have been subject if administered by an unincorporated Government 

agency.” 21 Comp. Gen. 928, 930 (1942). 

After its creation, however, Congress had given the corporation statutory 

recognition. In light of this, GAO concluded that the corporation could, if 

reasonably necessary to corporate business, go beyond certain use 

limitations imposed as a matter of policy on funds available to other 

agencies, and advised that the corporation could use its funds to buy 

insurance on its property. Id. at 931. A 1934 decision contained a stronger 

statement:

“There is a clear and vital difference between a corporation 

created pursuant to statutory direction with clear statutory 

grant to remove its transactions from the safeguards 

surrounding appropriations and to avoid not only Executive 

direction but accountability for the public moneys entrusted 

to it, and a corporation created within the Government 

[without such specific authority]. . . . In some instances, it is 

true, the laws creating corporations have been so broad as 

to exclude Executive control and permit escape from 

accountability. A corporation of the other class, however, 

created as an additional administrative agency, can have no 

such status or uncontrolled authority. It can exercise no 

wider authority than as though operating as an 

unincorporated unit in the Executive branch. By the act of 

incorporating Executive responsibility is not shifted, 

Executive control avoided, nor accountability escaped.” 

A-53085, Jan. 11, 1934, at 5. 

The idea of a legislative requirement was not new. Interestingly, opposition 

to government corporations in the 1930s stemmed not so much from the 

accountability perspective as from the fact that they competed with the 

private sector. As a congressional report put it, “[g]overnment 

corporations to a great degree do business in competition with private 

enterprise. They encroach upon and compete with business, which is 

under serious disadvantage [while the government corporation’s 
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advantages, like tax exemptions and cheap credit, make it] an invincible 

competitor.”103

The idea of a legislative charter became law several years later as section 

304(a) of the Government Corporation Control Act, Pub. L. No. 79-248, 

59 Stat. 597, 602 (Dec. 6, 1945). Now codified at 31 U.S.C. § 9102, it 

provides: “An agency may establish or acquire a corporation to act as an 

agency only by or under a law of the United States specifically authorizing 

the action.”

The legislative history of the Government Corporation Control Act noted 

the existence of several government corporations created without 

legislative authority and the potential for problems arising when such 

corporations were created under state law.104 The House Report 

accompanying the legislation stated:

“The committee does not consider the practices of 

chartering wholly owned Government corporations without 

prior authorization by the Congress or under State charters 

to be desirable. It believes that all such corporations should 

be authorized and chartered under Federal statute. The bill 

provides that in the future all corporations which are to be 

established for the purpose of acting as agencies or 

instrumentalities of the United States must be established 

by act of Congress or pursuant to an act of Congress 

specifically authorizing such action.” 

H.R. Rep. No. 79-856, at 11 (1945).

Section 9102 by its terms applies to acquisition as well as creation of 

corporations. With respect to existing nonstatutory corporations, the 

statute directed them to either seek a legislative charter or liquidate. 

Pub. L. No. 79-248, § 304(b).

103 Joint Committee on Reduction of Nonessential Federal Expenditures, Reduction of 

Nonessential Federal Expenditures—Government Corporations, S. Doc. No. 78-227, at 25 

(1944).

104 S. Rep. No. 79-694, at 13 (1945).
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There is little case law, administrative or judicial, invoking the 

requirements of 31 U.S.C. § 9102. However, a number of cases have found 

section 9102 inapplicable. We have previously noted two of these: 

71 Comp. Gen. 155 (1992) (federally funded research and development 

centers) and Varicon International v. OPM, 934 F. Supp. 440 (D.D.C. 1996) 

(corporation formed by former government employees to do the same 

work they did when they were on the payroll). A 1975 GAO opinion to a 

committee chairman also found the statute inapplicable to so-called 

“proprietaries” of the Central Intelligence Agency (CIA)—corporations 

formed by CIA largely to provide “cover” for CIA activities. GAO found 

“irreconcilable conflict” between the public accountability requirements of 

section 9102 and CIA’s need to keep these corporations “covert.” This 

being the case, GAO concluded that CIA’s mandate had to “prevail . . . over 

the general requirements otherwise applicable to Government 

corporations, in the absence of any indication that Congress intended to 

curtail or control the use of corporations for covert purposes incident to 

accomplishment of [CIA’s] mission.” B-179296, Dec. 10, 1975, at 3–4. A 

later opinion found the statute inapplicable to the creation of subsidiaries 

by a federally chartered private institution which had been converted from 

a mixed-ownership government corporation. B-219801, Oct. 10, 1986. Had 

the institution still been a mixed-ownership government corporation, 

section 9102 would have applied. Id.

A 1970 GAO case dealt with grants by the old Office of Economic 

Opportunity (OEO) to a nonprofit corporation established for the purpose 

of carrying out OEO programs by hopefully generating closer private-sector 

involvement. The question was whether the nonprofit was a legitimate 

grantee or merely an agent of the OEO. GAO’s review showed that the 

nonprofit was wholly independent of the OEO and was not a disguised 

government corporation. Therefore, there was no violation of 31 U.S.C. 

§ 9102. B-130515, Aug. 11, 1970. The analysis was very similar to that 

employed in B-145898-O.M., June 30, 1961, with respect to the MITRE 

Corporation.

An example of what GAO regarded as a clear violation of the statute is 

found in B-278820, Feb. 10, 1998. The question was whether the Federal 

Communications Commission (FCC) was authorized to establish two notfor-profit corporations to administer certain functions of the universal 
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service program for schools, libraries, and rural health care providers.105 

The FCC argued that it did not establish or acquire the corporations, but 

had directed the National Exchange Carrier Association, Inc. to create 

them. While it was true that the Association and not the FCC was the 

incorporator, an examination of the FCC’s role showed that it was involved 

in approving the proposed articles of incorporation and bylaws, approving 

the chief executive officers of the corporations, determining the size, 

composition, and term of office of the boards of directors, as well as 

selecting or approving the directors themselves. In GAO’s view, the 

corporations were created to carry out governmental functions 

(specifically, the implementation of a statutory mandate), and the 

Association had simply acted as the incorporator for the convenience of 

the FCC. Under these circumstances, although the FCC did not directly 

establish or acquire the corporations, GAO held that section 9102 applied. 

The identity of the incorporator was not the determinant of section 9102’s 

applicability; the prohibition would be meaningless if agencies could avoid 

it simply by using another party to act as incorporator. Thus, for purposes 

of 31 U.S.C. § 9102, an agency may not cause, directly or indirectly, a 

corporation to be created to carry out government functions without 

specific statutory authority.

Once GAO determined that the FCC had “established” a corporation within 

the meaning of section 9102, the next issue was whether the FCC had the 

requisite statutory authority. The FCC suggested that it was authorized to 

establish the corporations pursuant to sections 254 and 4(i) of the 

Communications Act. Section 254, 47 U.S.C. § 254, assigns the FCC a 

variety of universal service program functions, such as defining universal 

service, developing specific and predictable support mechanisms, and 

providing for equitable contributions by service providers. However, 

nowhere does it authorize the creation of corporations. Section 4(i),

47 U.S.C. § 154(i), provides: “The Commission may perform any and all 

acts, make such rules and regulations, and issue such orders, not 

inconsistent with this chapter [the Communications Act], as may be 

necessary in the execution of its functions.”

105 The statutory mandate for this program is section 254(h) of the Communications Act of 

1934, as added by the Telecommunications Act of 1996, 47 U.S.C. § 254(h). The two not-forprofit corporations at issue were the Schools and Libraries Corporation and the Rural 

Health Care Corporation.
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GAO held that this admittedly broad but nevertheless general authority was 

not sufficient to satisfy the specific requirement of section 9102. GAO 

concluded that the FCC exceeded its authority and violated section 9102 

when it directed the creation of the corporations in question. In reaching 

this conclusion, GAO noted a line of judicial decisions treating section 4(i), 

part of the FCC’s 1934 organic legislation, as the agency’s “necessary and 

proper” clause. None of them, however, stands for the proposition that the 

FCC may invoke section 4(i) to disregard specific requirements of laterenacted statutes. Citing Lebron v. National Railroad Passenger Corp.,

513 U.S. 374, 396 (1995), GAO noted that the Supreme Court had described 

section 9102 as “evidently intended to restrict the creation of all

Government-controlled policy-implementing corporations, and not just 

some of them.” B-278820, at 7. The FCC not unexpectedly disagreed. The 

two corporations in question were subsequently merged into a larger entity.

Another skirmish involved creation of the now-defunct Federal Asset 

Disposition Association (FADA). In a series of assignments relating to the 

Federal Home Loan Bank Board, GAO reviewed the Board’s authority to 

create various entities operating under its direction. One of those entities 

was FADA, created pursuant to statutory authority to organize new federal 

savings and loan associations. Problem was, GAO reasoned that an entity 

created under that authority should bear some resemblance to a federal 

savings and loan association. FADA, on the contrary, exercised none of the 

basic functions of a savings and loan association. Most tellingly, it did not 

accept savings and it did not make loans. B-226708.4, Mar. 15, 1989 

(Enclosure at 4). In fact, GAO found that the Federal Savings and Loan 

Insurance Corporation (FSLIC) held all of FADA’s stock, the Bank Board 

appointed its board of directors, and FADA’s self-described sole purpose 

was to assist FSLIC in managing and disposing of assets. It was hard to 

escape the conclusion that FADA was a federal savings and loan 

association “only on paper.” Id. at 3–4. Accordingly, GAO concluded that 

FADA was in fact a corporation wholly owned and controlled by the federal 

government and engaged in the performance of federal functions, and that 
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its creation exceeded the Bank Board’s authority.106 In addition to 

B-226708.4 cited above, see B-226708.3, Dec. 12, 1988, B-226708.2, Sept. 29, 

1988, B-226708, Sept. 6, 1988, and GAO, Failed Thrifts: No Compelling 

Evidence of a Need for the Federal Asset Disposition Association,

GAO/GGD-89-26 (Washington, D.C.: Dec. 12, 1988). 

The Justice Department’s Office of Legal Counsel (OLC) addressed 

31 U.S.C. § 9102 in the Memorandum Opinion for the General Counsel, 

Office of Management and Budget, Status of National Veterans Business 

Development Corporation, OLC Opinion, Mar. 19, 2004, which held that the 

National Veterans Business Development Corporation (NVBDC) was a 

government corporation for purposes of title 5, United States Code. For 

essentially the same reasons that the opinion viewed NVBDC as a 

government corporation, it also concluded that NVBDC was an agency for 

purposes of 31 U.S.C. § 9102. NVBDC was created by the government to 

perform federal functions and received federal funding. Thus, NVBDC 

could not establish or acquire other corporations without specific statutory 

authority.

A corporation created without legislative authority can be, in effect, 

“ratified” by subsequent legislation. An example is 21 Comp. Gen. 928 

(1942), the Virgin Islands case discussed earlier in this section. Although 

the corporation in that case had been created without statutory authority, 

subsequent legislation made it clear that “Congress has recognized . . . the 

corporate existence and status.” Id. at 930. See 17 Comp. Gen. 50 (1937) 

for another example. Subsequent legislation was also involved in the FADA 

case, but GAO did not regard it as rising to the level of congressional 

ratification. B-226708, Sept. 6, 1988.

As noted previously, Congress may create a corporation directly or it may 

authorize another agency or government corporation to do the creating. 

This is the reason for the “by or under” language in 31 U.S.C. § 9102. Of 

course this was true even prior to the Government Corporation Control 

106 FADA was dissolved under the provisions of the Financial Institutions Reform Recovery 

and Enforcement Act of 1989 (FIRREA). Pub. L. No. 101-73, 103 Stat. 183 (Aug. 9, 1989). 

FIRREA also abolished both the Federal Home Loan Bank Board and the FSLIC. Id. § 401. 

Thus, all of the principal entities discussed in the GAO materials cited in the text are gone. 

The case remains useful, however, to illustrate the proposition that a goose does not 

become a swan merely because someone calls it one. For more on the FADA saga, see 

Ronald C. Moe, Managing the Public’s Business: Federal Government Corporations, S. Prt. 

No. 104-18, at 22–26 (1995); and Harold Seidman, The Quasi World of the Federal 

Government, 6 Brookings Rev. 23, 26 (1988). 
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Act. For example, the Reconstruction Finance Corporation (RFC), 

described briefly earlier, was so authorized and did in fact create several 

other government corporations.107 For a more recent example, the Farm 

Credit System banks, which include the federal land banks, federal 

intermediate credit banks, and banks for cooperatives, are mixedownership government corporations listed in 31 U.S.C. § 9101(2) and are 

therefore governed by the restriction contained in 31 U.S.C. § 9102. Thus, 

when it became desirable for Farm Credit System banks to be able to 

organize subsidiary corporations to perform certain functions the banks 

were authorized to perform, Congress enacted that specific statutory 

authority.108

Where Congress authorizes or delegates the creation of a corporation to 

some existing agency, the statute necessarily implies the authority for the 

creating agency to use its funds for the expenses of incorporation. 

21 Comp. Gen. 892 (1942). This can include subscription to initial capital 

stock where required. 37 Op. Att’y Gen. 437 (1934). Logically enough, 

incorporation expenses of a corporation whose creation is not statutorily 

authorized are improper. A-90344, Sept. 30, 1938; A-71172, Feb. 26, 1936.

4. Management

a. Government Corporation 

Control Act

(1) Origin

Many of the government corporations109 created to meet production needs 

during World War I were liquidated promptly after the war. As a result, 

before the 1930s, “there was not a pressing need for general procedures to 

107 Section 5d of the Reconstruction Finance Corporation Act, as amended by Pub. L. 

No. 76-664, § 5, 54 Stat. 572, 573 (June 25, 1940). The RFC seized the opportunity “with 

gusto.” Lebron, 513 U.S. at 389. Some of the government corporations the RFC created are 

the Defense Plant Corporation, Defense Supplies Corporation, Rubber Reserve Company, 

Metals Reserve Company, War Damage Corporation, United States Commercial Company, 

Petroleum Reserves Corporation, and the Rubber Development Corporation. See S. Doc. 

No. 78-227, at 10–14.

108 12 U.S.C. §§ 2211 and 2212; H.R. Rep. No. 96-1287, at 23, 42 (1980) (accompanying report 

of House Agriculture Committee).

109 For ease of discussion in this section, we will use the term “government corporation” to 

refer generically to the various corporate devices discussed in section B.2 of this chapter 

unless a more specific term is warranted.
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govern the management of government corporations.” GAO, Congress 

Should Consider Revising Basic Corporate Control Laws, GAO/PAD-83-3 

(Washington, D.C.: Apr. 6, 1983), at 3. See also B-103455, May 21, 1951. 

During the Depression and New Deal eras, many corporations were formed 

to serve various economic needs, and others were created to meet the 

production needs of World War II. These were not so quick to go away. By 

the mid-1940s, “there were 63 wholly owned and 38 partly owned Federal 

corporations.” GAO/PAD-83-3, at 3. Government corporations “had gotten 

out of hand, in both their number and their lack of accountability.” 

Lebron v. National Railroad Passenger Corp., 513 U.S. 374, 389 (1995). 

Control procedures, such as they were, were developed through piecemeal 

administrative action that was not necessarily consistent and did not 

include all government corporations.

The initial congressional response was a 2-year study by the Joint 

Committee on Reduction of Nonessential Federal Expenditures. Noting 

the lack of overall control, the resulting report recommended the prompt 

enactment of legislation to (1) require government corporations to prepare 

business-type budgets for inclusion in the President’s budget submitted to 

Congress; (2) provide for a measure of Treasury control over a 

corporation’s accounts; and (3) require GAO audits.110 This became the 

blueprint for what was to become the Government Corporation Control 

Act.

The first legislative step to implement these recommendations was the socalled George Act, Pub. L. No. 79-4, § 5, 59 Stat. 5, 6 (Feb. 24, 1945). This 

statute required GAO to audit the financial transactions of all government 

corporations annually, in accordance with the principles and procedures 

applicable to commercial corporate transactions and under rules 

prescribed by GAO. The law further required that each audit report “shall 

also show specifically every program, expenditure, or other financial 

transaction or undertaking, which, in the opinion of the Comptroller 

General, has been carried on or made without authority of law.” Id. § 5(b). 

Because the statute used the words “all Government corporations,” it 

applied to mixed-ownership as well as wholly owned corporations. 

25 Comp. Gen. 7 (1945). Under section 5(c) of the George Act, the cost of 

the audits was to be borne by GAO’s own appropriations, but a corporation 

110 Joint Committee on Reduction of Nonessential Federal Expenditures, Reduction of 

Nonessential Federal Expenditures—Government Corporations, S. Doc. No. 78-227, at 30 

(1944).
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could agree to pick up the audit tab. (Why it might want to do so is not 

clear.)

When Congress enacted the Government Corporation Control Act (GCCA), 

Pub. L. No. 79-248, 59 Stat. 597, (Dec. 6, 1945) (now codified at 31 U.S.C. 

§§ 9101–9110), the audit requirements of the George Act were essentially 

incorporated into the GCCA. The new law was designed to provide an 

overall control of government corporations by making them more 

accountable to Congress for their operations while allowing them the 

flexibility and autonomy needed for their commercial activities.111 The 

declared congressional policy was “to bring Government corporations and 

their transactions and operations under annual scrutiny by the Congress 

and provide current financial control thereof.”112 The GCCA addresses 

budget controls, financial controls, and audit controls.

(2) Definitions

As noted earlier, the Government Corporation Control Act (GCCA) made 

no attempt to define the term “government corporation.” Instead, it merely 

declared that there were two types of corporations subject to its 

provisions—the wholly owned government corporation and the mixedownership government corporation. See 31 U.S.C. § 9101(1). The GCCA 

lists the entities covered under each type. Wholly owned government 

corporations include the Commodity Credit Corporation, Export-Import 

Bank, Federal Prison Industries, Government National Mortgage 

Association, Overseas Private Investment Corporation, Pension Benefit 

Guaranty Corporation, Saint Lawrence Seaway Development Corporation, 

and the Tennessee Valley Authority, plus several others. 31 U.S.C. 

§ 9101(3). Examples of mixed-ownership government corporations are the 

Federal Deposit Insurance Corporation, Federal Home Loan Banks, 

Federal Land Banks, and the Central Liquidity Facility of the National 

Credit Union Administration. 31 U.S.C. § 9101(2).

In trying to understand the two types of GCCA corporations, the plain 

meaning of the law’s language is the proper starting point, although in this 

instance it does not help very much. The House report accompanying the 

111 H.R. Rep. No. 79-856, at 3 (1945). An unimpressed Dr. Seidman has called the law the 

“government corporation de-control act.” Harold Seidman, Government Corporations in 

the United States, 22 Optimum 40, 41 (1991).

112 Pub. L. No. 79-248 § 2.
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original GCCA legislation stated: “The bill distinguishes between wholly 

owned Government corporations, in which the Government holds all the 

stock or other capital interests, and mixed-ownership Government 

corporations, in which the Government has only a partial interest.” 

H.R. Rep. No. 79-856, at 5 (1945).

The 1981 report of the National Academy of Public Administration followed 

suit. Wholly owned corporations “pursue a governmental mission assigned 

in their enabling statute and are financed by appropriations. Their assets 

are owned by the government and managed by board members or an 

administrator appointed by the President or Secretary of a Department.” 

On the other hand, mixed-ownership corporations “have a combination of 

governmental and private equity; hence their assets are owned and 

managed by board members selected by both the President and private 

stockholders. They are usually intended for transition to the private 

sector.”113

Thus, one might conceptualize the two types as corporations owned in 

their entirety by the federal government and corporations with some 

nonfederal ownership or joint financial participation. This, however, is not 

always the case. For example, the now-defunct United States Railway 

Association was designated as a mixed-ownership government corporation 

when in fact it operated solely and exclusively under direct annual 

appropriations from Congress, the same as a typical federal agency.114

The only safe generalization is that a wholly owned government 

corporation is one listed in 31 U.S.C. § 9101(3) or so designated in its 

enabling legislation; a mixed-ownership government corporation is one 

listed in 31 U.S.C. § 9101(2) or so designated in its enabling legislation.115 

Of course, Congress remains free to create corporations wholly outside the 

113 National Academy of Public Administration, I Report on Government Corporations, 21 

(1981). An example of such a transition is discussed in B-219801, Oct. 10, 1986 (National 

Consumer Cooperative Bank).

114 GAO, Is the Administrative Flexibility Originally Provided to the U.S. Railway 

Association Still Needed?, CED-78-19 (Washington, D.C.: Feb. 22, 1978), at 2. The U.S. 

Railway Association was created by Pub. L. No. 93-236, title II, 87 Stat. 985, 988 (Jan. 2, 

1974). The mixed-ownership designation was in section 202(g). A typical appropriation was 

Pub. L. No. 94-134, 89 Stat. 695, 709 (Nov. 24, 1975). The association was abolished in 1987. 

See 45 U.S.C. § 1341(a).

115 See also GAO, A Glossary of Terms Used in the Federal Budget Process, GAO-05-734SP 

(Washington, D.C.: Sept. 2005), at 67, 101.
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GCCA structure. Examples are the Legal Services Corporation and the 

Corporation for Public Broadcasting. Accordingly, the wholly 

owned/mixed-ownership classification is relevant only for purposes of 

applying the rest of the GCCA.

The express language of the GCCA underscores this point. The lead to 

31 U.S.C. § 9101 is “[i]n this chapter.” (The original language, 59 Stat. 

at 597, was “[a]s used in this Act.”) Applying this limitation, GAO 

concluded in 38 Comp. Gen. 565 (1959), that the Federal National Mortgage 

Association (Fannie Mae) was a wholly owned corporation for some 

purposes and a mixed-ownership corporation for others, both at the same 

time. Fannie Mae had originally been chartered as a wholly owned 

corporation. It was rechartered in 1954 as a mixed-ownership corporation, 

but kept its place on the GCCA’s list of wholly owned corporations, 

apparently out of a desire to remain subject to the wholly owned provisions 

of the GCCA. (It subsequently became a government-sponsored 

enterprise.) The question in 38 Comp. Gen. 565 was whether Fannie Mae 

was authorized to lease space independent of the General Services 

Administration (GSA). Wholly owned corporations have to utilize GSA, 

mixed-ownership corporations do not. GAO concluded that the proper 

approach was to look at what the corporation was in reality—mixedownership—especially since the GCCA designations do not purport to 

apply to other laws.

The GCCA did not attempt to address corporations created after its 

enactment—nor could it, since one Congress cannot bind a subsequent 

Congress. There is evidence in the legislative history, however, of an 

expectation that the act would be made applicable to future corporations. 

In this connection, the report of the Senate Committee on Banking and 

Currency stated: “The committee contemplates that any new corporation 

so created or authorized hereafter will be made subject to the appropriate 

provisions of this bill by the creating or authorizing legislation.” S. Rep. 

No. 79-694, at 14 (1945).

This expectation has met with limited success. Of the 30 corporations 

created by Congress from the mid-1960s to the mid-1980s, 17 were not 

made subject to the GCCA. GAO, Congress Should Consider Revising 

Basic Corporate Control Laws, GAO/PAD-83-3 (Washington, D.C.: Apr. 6, 

1983), at 5; Harold Seidman and Robert Gilmour, Politics, Position, and 

Power, 285 (1986).
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(3) Budget provisions

A key feature of the Government Corporation Control Act (GCCA) is the 

imposition of budgetary controls on wholly owned government 

corporations. Under 31 U.S.C. § 9103, each wholly owned government 

corporation must submit a “business-type budget” to the President each 

year. Neither the statute nor its legislative history attempts to define 

“business-type budget,” but the law sets forth minimum requirements. 

These, set forth in 31 U.S.C. § 9103(b), include the following:

• Estimates of the financial condition and operations of the corporation 

for the current and following fiscal years and the condition and results 

of operations in the last fiscal year.

• Statements of financial condition, income and expense, and sources 

and use of money as well as information regarding its financial 

condition and operation.

• Estimates of administrative expenses (similarly not defined), 

borrowing, the amount of United States Government capital that will be 

returned to the Treasury during the fiscal year, and the appropriations 

needed to restore capital impairments.

• Provision for emergencies and contingencies.

Apart from these minimum requirements, the President, acting through the 

Office of Management and Budget, has broad discretion to determine the 

form and content of the corporate budgets. 31 U.S.C. § 9103(a).116 The 

President may revise a corporation’s budget program. 31 U.S.C. § 9103(c). 

The President then must include it as part of the budget submitted to 

Congress under 31 U.S.C. § 1105. Id. For examples of what this all looks 

like in real life, see Budget of the United States Government for Fiscal 

Year 2008—Appendix, at 89–90 (Federal Crop Insurance Corporation), 

98–104 (Commodity Credit Corporation), 690–91 (Pension Benefit 

Guaranty Corporation), and 1132–34 (Tennessee Valley Authority).117

116 The source provision is more explicit on this point. See Pub. L. No. 79-248, § 102, 59 Stat. 

597, 598 (Dec. 6, 1945) (“[t]he budget program shall be a business-type budget, or plan of 

operations”).

117 This budget material is available at www.omb.gov/budget/fy2008/appendix.html (last 

visited Nov. 28, 2007).
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Congress then considers the budget programs for wholly owned 

government corporations along with the rest of the federal budget, which 

may include making appropriations as authorized by law; making corporate 

financial resources available for operating and administrative expenses; 

and providing for repaying capital and the payment of dividends. 31 U.S.C. 

§ 9104. Section 9104 does not prevent a corporation from carrying out or 

financing its activities as authorized by some other law, nor does it affect 

the corporation’s authority to make commitments without fiscal year 

limitation. 31 U.S.C. § 9104(b). An example of a budget approval provision 

is the following from the Transportation, Treasury, Housing and Urban 

Development, the Judiciary, the District of Columbia, and Independent 

Agencies Appropriations Act, 2006, Pub. L. No. 109-115, 119 Stat. 2396, 2421 

(Nov. 30, 2005):

“The Saint Lawrence Seaway Development Corporation is 

hereby authorized to make such expenditures, within the 

limits of funds and borrowing authority available to the 

Corporation, and in accord with law, and to make such 

contracts and commitments without regard to fiscal year 

limitations as provided by [31 U.S.C. § 9104], as may be 

necessary in carrying out the programs set forth in the 

Corporation's budget for the current fiscal year.”

The statute then goes on to appropriate funds to the Corporation from the 

Harbor Maintenance Trust Fund. Id.

The President may include with the budget submission a recommendation 

that a wholly owned corporation be treated as an agency for fiscal 

purposes. If Congress approves, the corporation retains its corporate 

identity, but is thereafter subject to the laws governing budgets, 

appropriations, expenditures, receipts, accounting, and other fiscal matters 

in the same manner as agencies. 31 U.S.C. § 9109. 

In addition to 31 U.S.C. § 9109, sections 9103 (GCCA’s budget provisions) 

and 9104 (congressional action on budgets) apply only to wholly owned 

corporations. The exclusion of mixed-ownership corporations was 

deliberate. The legislative history explains the rationale: “The budget 

provisions of the bill do not apply to the mixed-ownership corporations in 

which private stockholders have an interest in the net worth and in the 

profits or losses of the corporations.” S. Rep. No. 79-694, at 7 (1945). See 

also H.R. Rep. No. 79-856, at 7 (1945). Although subsequent changes in the 

nature of government corporations have made this premise inapplicable in 
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many cases, the fact remains that the budget provisions apply only to 

wholly owned corporations.

The only budget-related provision of the Government Corporation Control 

Act applicable to mixed-ownership corporations was relocated as part of 

the 1982 recodification of title 31 and is now found at 31 U.S.C. 

§ 1105(a)(24). It provides that the President’s budget submission to the 

Congress may include “recommendations on the return of Government 

capital to the Treasury by a mixed-ownership corporation (as defined in 

section 9101(2) of this title) that the President decides are desirable.”

(4) Other financial controls

While the corporation control legislation was being considered, the 

Treasury Department was urging that all government funds should be kept 

in the Treasury. The statute addressed this concern in what is now 

31 U.S.C. §§ 9107(b) and (c). Subsection (b) requires that the accounts of 

all government corporations, both wholly owned and mixed-ownership, be 

kept in the Treasury. However, if the Secretary of the Treasury approves, 

they may be kept in a Federal Reserve Bank or a bank designated as a 

depositary or fiscal agent of the United States. Treasury is authorized to 

waive these requirements. Such an account might include, for example, a 

corporate checking account whose checks would be signed by authorized 

corporation officials accountable directly to the board of directors. E.g.,

B-68830, Oct. 6, 1947.

Section 9107(c) exempts the following from the requirements of 

section 9107(b):

• A temporary account of not more than $50,000 in one bank.

• A mixed-ownership corporation from which government capital has 

been entirely withdrawn, during the period it remains without 

government capital.

• Certain specified farm credit institutions, which are nevertheless 

required to report to Treasury annually the names of depositaries in 

which their accounts are kept.

Congress regarded these provisions as “both practical and desirable as a 

matter of fiscal policy” (S. Rep. No. 79-694, at 11 (1945)), and felt that they 
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would “contribute toward a unification of the [government’s] depositary 

system” (H.R. Rep. No. 79-856, at 10 (1945)).

Three years later, in 1949, Congress added to the Government Corporation 

Control Act what is now 31 U.S.C. § 9107(a), which authorizes government 

corporations, with the Comptroller General’s concurrence, to consolidate 

their cash, from whatever source, including appropriations, into one or 

more accounts for banking and checking purposes.118 Of course, the funds 

are to be used only for authorized purposes. In reviewing proposals under 

this provision, GAO’s concern is to avoid the diminution of internal 

controls. E.g., B-58312, Nov. 14, 1950 (approving an unspecified proposal 

by the Tennessee Valley Authority because it would simplify procedures 

without lessening internal control).

Unless specifically authorized by statute, a corporation maintaining an 

account in the Treasury under 31 U.S.C. § 9107(b) is not entitled to receive 

interest on those funds, directly or indirectly. B-114839-O.M., Jan. 9, 1976. 

The law also includes provisions, which we will address later, dealing with 

Treasury control over the debt obligations of government corporations.

(5) Audit

In the 1940s, any discussion of government auditing meant auditing by 

GAO. The original Government Corporation Control Act (GCCA) 

essentially incorporated the audit provisions of the George Act, which had 

been enacted less than a year earlier. Under these provisions, GAO was to 

audit annually every wholly owned government corporation and every 

mixed-ownership government corporation for any period in which 

government capital was invested in it, and report the results to Congress. 

Pub. L. No. 79-248, §§ 105, 106, 202, 203, 59 Stat. 597, 599–600 (Dec. 6, 1945).

The audit was to be a “commercial-type audit” rather than the customary 

governmental audit. The customary governmental audit principally 

included examining and passing upon each voucher prepared by the 

agencies’ clerks and each account maintained by the agencies and their 

accountable officers. The legislative history explained:

118 Independent Offices Appropriation Act, 1950, Pub. L. No. 81-266, § 309, 63 Stat. 631, 662 

(Aug. 24, 1949).
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“The Comptroller General and the Congress have 

recognized that the regular governmental type of audit may 

not be suitable to the operations of a Government 

corporation. In general, the purpose of the governmental 

type of audit is to determine the validity of expenditures 

under appropriations made by the Congress in the light of 

restrictions and limitations placed by the Congress 

generally upon expenditures from appropriated funds. . . . 

On the other hand, the commercial type of audit, as applied 

to a business corporation, is separate and distinct from the 

accounting system and internal financial controls of the 

corporation, and is designed to determine the financial 

condition of the corporation as of a given date and the 

results of its financial operations during the period under 

audit, and to establish whether the corporate funds have 

been regularly expended in accordance with corporate 

authorization.” 

H.R. Rep. No. 79-856, at 7–8 (1945). For further elaboration, see pages 

95–96 of the House report and S. Rep. No. 79-694, at 8–9 (1945). In 1975, the 

audit requirement was reduced from every year to at least once every 

3 years.119 GAO’s auditing of government corporations, first under the 

George Act and then under the GCCA, is widely credited with providing the 

stimulus for GAO to modernize its audit concepts and practices from the 

old “voucher auditing” system.120

The GCCA’s audit and reporting provisions were completely overhauled by 

sections 305 and 306 of the Chief Financial Officers Act of 1990, Pub. L. 

No. 101-576, 104 Stat. 2838, 2853–54, (Nov. 15, 1990), amending 31 U.S.C. 

§§ 9105 (audits) and 9106 (management reports). Under these 

amendments, an audit of the financial statements required under 31 U.S.C. 

§ 9106 is now to be conducted by the corporation’s Inspector General or by 

an independent external auditor chosen by the inspector general. For a 

corporation that does not have an inspector general, the head of the 

corporation selects the independent auditor. 31 U.S.C. § 9105(a)(1). The 

119 General Accounting Office Act of 1974, Pub. L. No. 93-604, § 601, 88 Stat. 1959, 1962 

(Jan. 2, 1975).

120 See Frederick C. Mosher, The GAO: The Quest for Accountability in American 

Government, 105–08 (1979); Ellsworth H. Morse, Jr., The Government Corporation Control 

Legislation of 1945, 10 GAO Rev. 11 (No. 4, 1975). 
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audit is to be conducted “in accordance with applicable generally accepted 

government auditing standards.” 31 U.S.C. § 9105(a)(2). This means the 

standards set forth in GAO’s so-called “Yellow Book,” Government 

Auditing Standards, GAO-07-162G (Washington, D.C.: Jan. 2007). These 

differ from the more commonly known “generally accepted auditing 

standards” in that the government auditing standards require reporting on 

internal controls and compliance with laws and regulations. GAO, 

Government Corporations: CFO Act Management Reporting Could Be 

Enhanced, GAO/AIMD-94-73 (Washington, D.C.: Sept. 19, 1994), at 4 n.2. 

Audit reports are to be submitted to the head of the corporation and to the 

Senate Committee on Homeland Security and Governmental Affairs and 

the House Committee on Government Reform. 31 U.S.C. § 9105(a)(3).

The revised 31 U.S.C. § 9106 requires each government corporation to 

submit a management report each fiscal year to Congress, with copies to 

the President, the Director of OMB and the Comptroller General. The 

management report must include statements of financial position, 

operations, cash flows, a reconciliation to the corporation’s budget report 

where applicable, a statement on internal accounting and administrative 

control systems, the report regarding the audit of the corporation’s 

financial statements, and any other comments and information necessary 

to inform Congress about the operations and financial condition of the 

corporation. The Office of Management and Budget issues instructions to 

government corporations on the submission of annual management 

reports. OMB Cir. No. A-136, Financial Reporting Requirements, 

§§ I.5–I.6 (June 29, 2007).

Nothing in 31 U.S.C. § 9105 specifies the timing of the audits, but, as noted, 

section 9106 requires the annual management report to include the report 

of the audit conducted under section 9105. Thus, audit frequency returned 

to annual, and in this sense the 1990 legislation can be said to have 

strengthened the audit requirement. See GAO/AIMD-94-73, at 3. 

Sections 9105 and 9106 do not distinguish between wholly owned and 

mixed-ownership corporations.

While the 1990 revision of 31 U.S.C. § 9105 shifted primary responsibility 

for auditing government corporations from GAO to the inspectors general, 

GAO continues to have a role. GAO (1) may review any audit conducted 

under section 9105(a)(1), reporting its results to Congress, the Office of 

Management and Budget, and the head of the corporation, and (2) may 

conduct its own financial statement audit at the discretion of the 
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Comptroller General or at the request of a congressional committee. 

31 U.S.C. § 9105(a)(4).

The original GCCA generally prohibited government corporations from 

using their funds to pay for private audits. Pub. L. No. 79-248, § 301(d). 

This was intended to prevent duplication of efforts during the time that the 

law required GAO to conduct the audits. B-205488-O.M., Jan. 19, 1982. 

Since the statute now explicitly permits the use of external auditors, this 

prohibition was dropped. However, the concern over duplication is 

reflected in 31 U.S.C. §§ 9105(a)(4) and (c). Section 9105(a)(4) provides 

that an audit by GAO under that subsection will be in lieu of the otherwise 

required inspector general audit. 

Section 9105(c) recognizes that other laws include specific audit 

requirements for GAO to carry out. It provides that Comptroller General 

audits made under section 9105 are “in lieu of” any audit of a government 

corporation’s financial transactions that is required by another law. Id. 

Reconciling GCCA audits with other statutory audits is largely an exercise 

in common sense. For example, where other legislation requires GAO to 

conduct annual audits of a corporation’s financial statements, the audits 

serve the purposes of section 9105 as well, obviating the need for the 

inspector general audit. B-239201.3, July 25, 1991 (finding that an audit of 

the Federal Deposit Insurance Corporation conducted by GAO under the 

requirements of 12 U.S.C. § 1827(d) would satisfy the audit requirements of 

31 U.S.C. § 9105). An enabling act provision authorizing or directing GAO 

to audit the “operations” of a corporation gives GAO broad discretion over 

how to conduct that audit. While such a requirement can be satisfied by a 

financial audit, it can also extend to a full program audit. B-200951-O.M., 

Dec. 24, 1980, as clarified by B-200951-O.M., May 11, 1981.

A GAO audit under the GCCA is financed initially from GAO’s own 

appropriations, but its “full cost . . . as determined by the Comptroller 

General” must be reimbursed by the corporation.121 31 U.S.C. § 9105(a)(5). 

The purpose of the reimbursement requirement is to prevent government 

corporations from receiving a hidden subsidy from the taxpayers. 

B-207203-O.M., June 4, 1982. “Full cost,” GAO has determined, includes 

both direct costs (employee salaries and travel expenses, for example) and 

121 Mandatory reimbursement originated with language in GAO’s appropriation in the First 

Deficiency Appropriation Act for 1945, Pub. L. No. 79-40, 59 Stat. 77, 81 (Apr. 25, 1945), 

enacted just 2 months after the George Act.
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indirect costs, including overhead. Id. See also B-96792, Aug. 10, 1950 

(GAO billed Federal Prison Industries for every last penny in its 

administrative expense allocation). Section 9105(a)(5) further requires 

that the reimbursements be deposited as miscellaneous receipts. However, 

this requirement was superseded by the following proviso attached to 

GAO’s appropriation in the Legislative Branch Appropriations Act, 1995, 

Pub. L. No. 103-283, 108 Stat. 1423, 1440 (July 22, 1994):

“[N]otwithstanding 31 U.S.C. 9105 hereafter amounts 

reimbursed to the Comptroller General pursuant to that 

section shall be deposited to the appropriation of the [GAO] 

then available and remain available until expended, and not 

more than $6,000,000 of such funds shall be available for use 

in fiscal year 1995.”

This language provides permanent authority for GAO to credit the 

reimbursements to its then-current appropriation, to remain available until 

expended. Congress can then, as it did in Public Law 103-283, appropriate 

a specific sum from the “no-year” account for use during the current fiscal 

year.

The original GCCA authorized GAO’s audit reports to include essentially 

the items now included by the corporations in their management reports, 

plus several other things, such as any impairments of capital, any 

recommendations for the return of government capital, and any 

transactions or expenditures believed to be illegal. Pub. L. No. 79-248, 

§§ 106 and 203. That reporting requirement displaced GAO’s authority to 

disallow corporate expenditures. 37 Comp. Gen. 666, 668–69 (1958); 

B-58302, Apr. 29, 1947. The current reporting language, codified at 

31 U.S.C. § 9105(a)(4)(B), is more general, providing that GAO shall report 

“the results of the review and make any recommendation [it] considers 

appropriate.” This language certainly is broad enough to include the 

elements that the original GCCA specified.

When GAO makes an audit recommendation to the head of an agency, the 

agency head must, within specified time limits, submit a written report on 

the action taken on the recommendation to certain congressional 

committees. 31 U.S.C. § 720(b). For purposes of this requirement, 

“agency” includes wholly owned but not mixed-ownership government 

corporations. 31 U.S.C. § 720(a); B-114831-O.M., July 28, 1975 (requirement 

for compliance report not applicable to Federal Deposit Insurance 

Corporation).
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b. Appointment and Control of 

Directors

A government corporation’s management, like its other key features, is 

determined by its enabling legislation. For the great majority of 

corporations, this means a board of directors. However, there is no 

statutory model for government corporations, nor is there any legal 

requirement for a board of directors.

The need for a board of directors has been questioned from the managerial 

perspective, as well. For example, one commentator wrote:

“Even the use of the term ‘corporation’ is unfortunate 

because it tends to encourage improper borrowing of 

concepts from the private sector. For instance, there is no 

particular reason for government corporations to have 

boards of directors, yet this feature is found in most 

proposals for new corporations apparently because 

corporations in the private sector have boards of 

directors.”122

Another commentator agreed, quoting a Brookings Institution report to the 

effect that “there appears to be nothing inherent in the corporate form of 

organization to require a board instead of a single administrator.”123 Be that 

as it may, if a government corporation does have a board of directors it 

should, of course, be a good one. According to Marshall Dimock, an early 

observer of government corporations, “[a]n effective board of directors is 

the key to program success.”124

The federal government’s involvement in the selection or appointment of 

directors has evolved along with the development of government 

corporations. As we have seen, the United States’ initial participation in 

the creation of government corporations involved chartering of the entity 

and ownership of stock. However, with the creation of the Second Bank of 

the United States in 1816, the President was authorized to appoint, by and 

122 Ronald C. Moe, Congressional Research Service, Administering Public Functions at the 

Margin of Government: The Case of Federal Corporations, No. 83-236GOV (Dec. 1, 1983), 

at 3–4.

123 Harold Seidman, The Theory of the Autonomous Government Corporation: A Critical 

Appraisal, 12 Pub. Admin. Rev. 89, 92 (1952).

124 Marshall E. Dimock, Government Corporations; A Focus of Policy and Administration 

(Part I), 43 Am. Pol. Sci. Rev. 899, 915 (1949).
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with the consent of the Senate, 5 of the Bank’s 25 directors. The rest were 

to be elected annually by shareholders other than the United States. 

During the nineteenth century, the federal government “continued to 

charter private corporations . . . but only once participated in such a 

venture itself,” that being the Union Pacific Railroad. Lebron v. 

National Railroad Passenger Corp., 513 U.S. 374, 387 (1995). The Union 

Pacific Railroad was chartered in 1862 with the President appointing two of 

its directors. Act of July 1, 1862, ch. 120, § 1, 12 Stat. 489. 

The twentieth century saw considerable variation in the managerial 

structure of corporations, mostly within a framework of increased 

government involvement. In 1902, as part of the statute providing for 

construction of the Panama Canal, Congress authorized the President to 

purchase all stock and property of the Panama Railroad Company, making 

the government the sole shareholder. Pub. L. No. 57-183, 32 Stat. 481 

(June 28, 1902). The Secretary of War, as holder of the stock, appointed all 

of the company’s directors. According to Lebron, 513 U.S. at 387, this was 

the first instance in which the government appointed a majority of 

directors.

The most common management system, at least with respect to 

corporations subject to the GCCA, is a board of directors appointed 

entirely by the President. The typical statutory provision will (1) vest the 

corporation’s management and control in the board of directors, 

(2) prescribe the number of directors and how they are to be appointed, 

(3) specify what will constitute a quorum, (4) set forth the powers and 

duties of the directors, and (5) address their compensation. E.g., 22 U.S.C.

§ 2193(b) (Overseas Private Investment Corporation). In addition, the 

statute may (1) specify the number of directors to come from various 

sources (government, industry, etc.), or prescribe other qualifications, 

(2) designate certain government officials to serve ex officio, and 

(3) address the board’s political composition. Additional examples of 

government corporations all of whose directors are appointed by the 

President are the African Development Foundation,125 Commodity Credit 

125 The African Development Foundation is not listed in the GCCA, but its enabling 

legislation makes it subject to the act’s provisions for wholly owned corporations. See

22 U.S.C. § 290h-6.
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Corporation, Export-Import Bank, and the Tennessee Valley Authority.126 In 

at least one instance, certain directors are appointed by a department head. 

See 7 U.S.C. § 1505(a) (Federal Crop Insurance Corporation’s private sector 

directors appointed by Secretary of Agriculture). The Tennessee Valley 

Authority legislation includes an interesting qualification: directors must 

“affirm support for the objectives and missions of the Corporation.” 

16 U.S.C. § 831a(b)(5).

When Congress wants the federal government to participate more actively 

in the management of a government corporation and to ensure that the 

government’s views and interests are represented, the enabling statute 

designates specified officials to serve as directors ex officio. These are 

usually heads of departments or agencies with a logical subject-matter 

relationship to the corporation. For example, two of the five directors of 

the Federal Deposit Insurance Corporation are the Comptroller of the 

Currency and the Director of the Office of Thrift Supervision. 12 U.S.C. 

§ 1812. See also 7 U.S.C. § 1505(a) (certain Agriculture Department 

officials are ex officio directors of the Federal Crop Insurance 

Corporation). Sometimes Congress also takes the next step and makes all 

of the directors government officials. E.g., 29 U.S.C. § 1302(d) (directors of 

the Pension Benefit Guaranty Corporation are the Secretaries of Labor, 

Treasury, and Commerce).

Cabinet members serving ex officio may delegate their functions as 

directors even if the enabling statute does not expressly authorize it. 6 Op. 

Off. Legal Counsel 257 (1982). This follows from the nature of ex officio

service. Such appointments are made “based not on individual personal 

attributes, but on the contribution Congress believed each one’s agency 

could make to the [corporation’s] operations.” Id. at 260.

Another way the government can exert management influence or control is 

to designate a corporation as an entity within a particular department or 

agency and under the control of the head of that department or agency. For 

example— 

126 Our source for these examples is GAO, Government Corporations: Profiles of Existing 

Government Corporations, GAO/GGD-96-14 (Washington, D.C.: Dec. 13, 1995). The 

information for each corporation includes a “management structure” summary and a 

citation to the corporation’s enabling legislation.
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• the Commodity Credit Corporation is “an agency and instrumentality of 

the United States, within the Department of Agriculture” (15 U.S.C. 

§ 714); 

• the Saint Lawrence Seaway Development Corporation is “subject to the 

direction and supervision of the Secretary of Transportation” (33 U.S.C. 

§ 981); 

• the Overseas Private Investment Corporation is “an agency of the 

United States under the policy guidance of the Secretary of State” 

(22 U.S.C. § 2191); 

• Federal Prison Industries, Inc. is in the Department of Justice (Reorg. 

Plan No. 2 of 1939, § 3(a), 53 Stat. 1431, noted at 5 U.S.C. app. I.). 

The enabling legislation will also provide for officers of the corporation. In 

many instances, the officers are appointed by the President. E.g., 22 U.S.C. 

§ 2193 (Overseas Private Investment Corporation). In other instances, the 

board of directors appoints the officers. E.g., 16 U.S.C. § 831b (Tennessee 

Valley Authority). Whether the board of directors or the “chief executive 

officer” is the “head” of the corporation depends on the statutory powers 

given to each. If the enabling legislation vests management and control in 

the board of directors, the head of that corporation, unless the statute 

provides differently, is the board of directors acting as a body. 25 Comp. 

Gen. 467 (1945). An example of a different statutory model is the 

Corporation for National and Community Service. It has a board of 

directors, 42 U.S.C. § 12651a, but the law specifies that the Corporation 

“shall be headed by . . . [a] Chief Executive Officer . . . appointed by the 

President, by and with the advice and consent of the Senate.” 42 U.S.C. 

§ 12651c. A few government corporations (e.g., Amtrak and the Legal 

Services Corporation) are subject to the Inspector General Act, discussed 

in section B.7.c(1) of this chapter, which assigns certain duties to the head 

of the entity. For purposes of the act, the Office and Management and 

Budget annually identifies the heads of these entities and publishes them in 

the Federal Register. See, e.g., OMB, Revised 2006 List of Designated 

Federal Entities and Federal Entities, 71 Fed. Reg. 39690 (July 13, 2006).

A board of directors can delegate power to an executive committee, but 

this has been construed to apply to ordinary and routine matters, not 

radical departures from corporate policy. B-58302-O.M., Sept. 14, 1949. 

This device cannot be used, however, to avoid a statutory quorum 

requirement. See B-197710-O.M., Jan. 14, 1983. In that case, a government 
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corporation had only two directors out of five, and the statute designated a 

majority of the board as a quorum. Under the circumstances, GAO thought 

it unlikely that a court would support treating those two directors as an 

executive committee. The answer would have been different if the statute 

permitted a majority of board members currently in office to constitute a 

quorum. Id.

As noted earlier, while most government corporations have boards of 

directors, a few do not. One commentator identified three which, at the 

time he wrote, did not have boards of directors—the Government National 

Mortgage Association, Resolution Trust Corporation (since terminated), 

and the Saint Lawrence Seaway Development Corporation.127 Another 

such corporation that was later created is the Community Development 

Financial Institutions Fund, which is not subject to GCCA. 12 U.S.C. 

§ 4703(f). Its management consists of a presidentially appointed 

administrator and an advisory board. 12 U.S.C. § 4703.128

The appointment of most or all of a board of directors by federal officials is 

most appropriate for corporations owned or controlled by the United 

States. As you move farther away from federal ownership or control, the 

government’s managerial involvement usually diminishes as well. For 

example, in the typical government-sponsored enterprise, the government 

will appoint some directors to make sure its voice will be heard, but the 

majority is appointed by nongovernment sources. Thus, the President 

appoints 5 out of 18 of Fannie Mae’s directors (12 U.S.C. § 1723(b)), 5 out of 

18 for Freddie Mac (12 U.S.C. § 1452(a)(2)(A)), and 5 out of 15 for Farmer 

Mac (12 U.S.C. § 2279aa-2(b)(2)). 

One would expect a minimal federal managerial role in a federally 

chartered corporation expressly designated as not an agency or 

instrumentality of the United States. However, this is not always the case. 

Both the Corporation for Public Broadcasting and the Legal Services 

Corporation are chartered as nonprofit corporations and are not to be 

127 Ronald C. Moe, Managing the Public’s Business: Federal Government Corporations, 

S. Prt. No. 104-18, at 58 (1995). 

128 For several years in the mid-1990s, this provision was overridden by an appropriation act 

proviso which made the Secretary of the Treasury the Administrator and placed the Fund in 

the Treasury Department. E.g., Pub. L. No. 104-134, 110 Stat. 1321, 1321-294 (Apr. 26, 1996) 

(fiscal year 1996). The proviso was dropped in fiscal year 1997. See Pub. L. No. 104-204, 

110 Stat. 2874, 2907 (Sept. 26, 1996).
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regarded as agencies or establishments of the United States. See, 

respectively, 47 U.S.C. § 396(b), 42 U.S.C. §§ 2996b and 2996d(e)(1). 

Neither is subject to the GCCA. Nevertheless, perhaps because both are 

federally funded as well as federally created and perform essentially public 

service rather than commercial functions, their entire boards of directors 

are appointed by the President and subject to Senate confirmation. 

47 U.S.C. § 396(c); 42 U.S.C. § 2996c.

5. Sources of Funds and 

Financing

There is no single model for the funding structure of a government 

corporation.129 The corporate form alone does not dictate any particular 

type of funding. Just as with the corporation’s organization and powers, its 

funding structure varies according to its purpose and activities as reflected 

in the enabling legislation. As one court has noted, “Congress is not limited 

by traditional notions of corporate powers and organization” and it “need 

not capitalize corporate instrumentalities of the United States in any rigidly 

prescribed manner.”130 United States v. Nowak, 448 F.2d 134, 138 (7th Cir. 

1971), cert. denied, 404 U.S. 1039 (1972). In fact, Congress has funded 

government corporations using a variety of sources and methods: direct 

appropriations of funds, federal borrowing, authorizing user fees or other 

charges for services provided to the public, federal ownership of stock, 

private investment or financing (e.g., sale of debt securities) with actual or 

implied backing by the United States, or some combination of these 

methods.

a. Types of Financing: 

Government

(1) Direct appropriations

One funding option is the direct appropriation of funds from the general 

fund of the Treasury, the same method used for most federal agencies. In 

its 1995 study, GAO found that, out of 24 corporations then listed in the 

Government Corporation Control Act (GCCA), 15 had received federal 

appropriations in fiscal year 1994. GAO, Government Corporations: 

Profiles of Existing Government Corporations, GAO/GGD-96-14 

(Washington, D.C.: Dec. 13, 1995), at 21–22. As a general proposition, 

129 For ease of discussion in this section, we will use the term “government corporation” to 

refer generically to the various corporate devices discussed in section B.2 of this chapter 

unless a more specific term is warranted.

130 “Capitalize” in this context means simply “to furnish with capital, to provide capital for 

the [corporation’s] operation.” B-24827, Apr. 3, 1942, at 11.
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wholly owned corporations were more likely to receive direct 

appropriations than mixed-ownership corporations. However, some 

mixed-ownership corporations received appropriations while some wholly 

owned corporations did not. In addition, several corporate entities not 

subject to the GCCA received appropriations. Id.

Direct appropriations may provide all or part of a corporation’s funding. 

Examples of government-created corporations substantially funded by 

congressional appropriations are the Corporation for National and 

Community Service and the Legal Services Corporation.131 Fully funded 

corporations tend to be those with noncommercial functions. There is no 

nexus between full funding status and inclusion in the GCCA. For example, 

the Corporation for National and Community Service is subject to the 

GCCA, while Legal Services is not. An example of partial funding by direct 

appropriations is the Commodity Credit Corporation (CCC). Largely 

because the CCC administers a variety of relatively high-risk programs, the 

typical year produces nonrecoverable losses which are funded from a “net 

realized losses” appropriation.132 Congress may provide appropriations for 

certain start-up costs, with the expectation that private financing will then 

take over. An example is discussed in 69 Comp. Gen. 289 (1990) 

(Pennsylvania Avenue Development Corporation could amortize 

construction consultants’ fees as a cost of construction because they were 

not the kind of start-up costs for which Congress had provided 

appropriations).

Congress can structure a corporation’s appropriation however it wishes. 

For example, the appropriation cited above for the Legal Services 

Corporation is relatively brief and consists of five major line items.133 By 

contrast, the appropriation for the Corporation for National and 

131 See, respectively, the Departments of Labor, Health and Human Services, and Education, 

and Related Agencies Appropriations Act, 2006, Pub. L. No. 109-149, 119 Stat. 2833, 2871–73 

(Dec. 30, 2005) (“For expenses necessary for the Corporation for National and Community 

Service to carry out the provisions of the Domestic Volunteer Service Act of 1973, as 

amended, $316,212,000 . . .”), and the Science, State, Justice, Commerce, and Related 

Agencies Appropriations Act, 2006, Pub. L. No. 109-108, 119 Stat, 2290, 2330–31 (Nov. 22, 

2005) (“For payment to the Legal Services Corporation to carry out the purposes of the 

Legal Services Corporation Act of 1974, $330,803,000 . . .).

132 E.g., Agriculture, Rural Development, Food and Drug Administration, and Related 

Agencies Appropriations Act, 2006, Pub. L. No. 109-97, 119 Stat. 2120, 2133 (Nov. 10, 2005).

133 Pub. L. No. 109-108. 
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Community Service takes up several pages of the appropriation act and 

contains numerous line items and other specifications.134 

Most corporate appropriations are definite in amount; some are not. For 

example, the Federal Crop Insurance Corporation’s (FCIC) 2006 

appropriation to the FCIC Fund was “such sums as may be necessary, to 

remain available until expended,” that is, an indefinite, no-year 

appropriation.135 The CCC is authorized to receive its “net realized losses” 

appropriation on a “current, indefinite” basis. 15 U.S.C. § 713a-11. This is 

merely an authorization, however, and Congress remains free to structure 

the appropriation some other way. 67 Comp. Gen. 332 (1988). The CCC’s 

2006 appropriation was “[f]or the current fiscal year, such sums as may be 

necessary,” but subject to a monetary ceiling.136 Since the CCC receives a 

direct appropriation for net losses, it is logical that net gains, should they 

ever occur, would be deposited in the Treasury as miscellaneous receipts, 

and this is what the law requires. 15 U.S.C. § 713a-12. Cf. Knowles v. 

War Damage Corp., 171 F.2d 15, 19–20 (D.C. Cir. 1948), cert. denied, 

336 U.S. 914 (1949) (not “invalid” for a statute to require a government 

corporation to pay its surplus funds into the Treasury).

(2) Federal borrowing

Another method of funding for government corporations is borrowing 

authority, also known as public debt financing. This means the authority to 

borrow money from the Treasury and to issue obligations to the Treasury to 

evidence the indebtedness. This authority must be conferred by statute. 

Examples include 29 U.S.C. § 1305(c) (Pension Benefit Guaranty 

Corporation (PBGC)), 15 U.S.C. § 713a-4 (Commodity Credit Corporation), 

and 7 U.S.C. § 947 (Rural Telephone Bank). The PBGC provision is fairly 

typical:

“The [PBGC] is authorized to issue to the Secretary of the 

Treasury notes or other obligations in an aggregate amount 

of not to exceed $100,000,000, in such forms and 

denominations, bearing such maturities, and subject to such 

terms and conditions as may be prescribed by the Secretary 

134 Pub. L. No. 109-149.

135 Pub. L. No. 109-97.

136 Pub. L. No. 109-97.
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of the Treasury. Such notes or other obligations shall bear 

interest at a rate determined by the Secretary of the 

Treasury . . . . The Secretary of the Treasury is authorized 

and directed to purchase any notes or other obligations 

issued by the [PBGC] under this subsection . . . .”

29 U.S.C. § 1305(c). Some borrowing provisions, like the PBGC statute, 

have a fixed dollar ceiling. Others have a variable ceiling, like 7 U.S.C. 

§ 947(a) (amount borrowed by Rural Telephone Bank which is outstanding 

at any one time “shall not exceed twenty times the paid-in capital and 

retained earnings” of the Bank). In determining the amount of unused 

borrowing authority, a corporation may exclude interest on outstanding 

obligations already held by the Treasury. B-89366-O.M., Sept. 9, 1964. If a 

contrary congressional intent can be established, however, the answer will 

be different. See B-125007, B-127378, July 20, 1956.

Treasury may be required to purchase the obligations, as in the PBGC 

provision quoted above, or may have discretion in the matter as is the case 

for the Commodity Credit Corporation and the Rural Telephone Bank 

(15 U.S.C. § 713a-4, 7 U.S.C. § 947(b), respectively). Congress may specify 

the time period within which the borrowing authority must be used. If it 

does not, the authority remains available until used or repealed. See 

Nowak, 448 F.2d at 138 n.4.

In lieu of direct borrowing from the Treasury, a corporation’s borrowing 

may go through an intermediary, the Federal Financing Bank (FFB). The 

FFB was created in 1973 to coordinate federal and federally assisted 

borrowings in order to reduce their costs. 12 U.S.C. § 2281. The FFB is 

itself a corporate entity under the general direction and supervision of the 

Secretary of the Treasury, and an instrumentality of the United States. 

12 U.S.C. § 2283. While not listed in the GCCA, the FFB is subject to the 

GCCA’s budget and audit provisions for wholly owned government 

corporations. 12 U.S.C. § 2293. For present purposes, two provisions of 

the act creating the FFB are relevant. Under 12 U.S.C. § 2285(a), “[a]ny 

Federal agency which is authorized to issue, sell, or guarantee any 

obligation is authorized to issue or sell such obligations directly to the 

[FFB].” “Federal agency” includes “a corporation or other entity 

established by the Congress which is owned in whole or in part by the 

United States.” 12 U.S.C. § 2282(1). Thus, at least certain corporations 

with statutory borrowing authority can issue their obligations directly to 

the FFB, which can then issue its own securities either in the private 

market or, more likely, to the Treasury. 12 U.S.C. § 2288. For information 
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on the background of the FFB, see GAO, Federal Financing Bank: The 

Government Incurred a Cost of $2 Billion on Loan Prepayments, 

GAO/AFMD-89-59 (Washington, D.C.: Aug. 22, 1989); The Federal 

Financing Bank, No. 121084 (Washington, D.C.: Apr. 5, 1983) (GAO 

testimony before the Senate Subcommittee on Federal Credit Programs).

In 14 Op. Off. Legal Counsel 20 (1990), the Justice Department’s Office of 

Legal Counsel (OLC) tackled the question of how to determine which 

corporations could avail themselves of the FFB. A detailed analysis led the 

OLC to conclude that Congress intended to include corporations “that 

receive substantial funding from the government, that are subject to 

significant federal control, and that issue obligations guaranteed by the 

federal government.” Id. at 26. This being the case, corporations “that are 

wholly privately funded, that have a significant measure of independence in 

their management, and that issue obligations not backed by the full faith 

and credit” of the United States are excluded. Id. OLC recognized that a 

given corporation may not have all of the principal characteristics of either 

the included or excluded corporations, or may have a mix. The approach 

in such a case is to determine “whether the corporation’s principal 

characteristics render it most analogous to those corporations that were 

intended to be covered by the [law creating the FFB] or to those that were 

not.” Id. at 26 n.14. Applying this analysis, OLC concluded that the former 

Resolution Trust Corporation was a federal agency for purposes of 

12 U.S.C. § 2282(1), and could therefore issue promissory notes directly to 

the FFB.

In two opinions to Members of Congress, GAO reviewed the financing 

arrangements for building construction at the government-owned Federal 

Triangle site in the District of Columbia. The former Pennsylvania Avenue 

Development Corporation, a wholly owned government corporation, was 

responsible for the planning, development, and construction oversight of 

the project. The original plan was to obtain private financing for the 

construction. It was later decided, however, that financing through the 

FFB would save the government interest costs. The project’s trustee 

obtained the financing through a promissory note issued to the FFB, and 

secured by the trustee’s assignment to the FFB of the trustee’s rights to 

receive statutorily required rental payments from the General Services 

Administration. GAO concluded that the FFB was an appropriate source of 

financing because the Federal Triangle building—designated the Ronald 

Reagan Federal Building—was fundamentally a project being constructed 

by the federal government. Several factors supported this conclusion. The 

federal government, by statute, bore the full risks of developing and owning 
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the project; the land on which the project was being built belonged to the 

United States; and the government carried the principal rights and 

obligations associated with ownership of the project, including the 

project’s design and specifications for construction. The Pennsylvania 

Avenue Development Corporation most likely would have met the Justice 

Department’s eligibility criteria, except that there was no need to apply that 

test because, under the Federal Triangle legislation, the promissory note 

issued for financing purposes was in effect an obligation of GSA rather than 

the Corporation. B-248647, Dec. 28, 1992; B-248647.2, Apr. 24, 1995.

As the 1995 opinion pointed out, a corporation (or agency, for that matter) 

with statutory borrowing authority does not need further specific authority 

to use the FFB. The provisions of the law creating the FFB noted above 

supply the necessary authority. B-248647.2, Apr. 24, 1995.

(3) Federal ownership of stock

The federal government has also funded government corporations by 

subscribing to part or all of a corporation’s capital stock. As we saw in our 

historical summary above, the government’s early involvement in 

government corporations consisted of purchasing stock in the name of the 

United States. In the case of the Panama Railroad Company, the 

government acquired the entire capital stock of a private corporation, 

elected its board of directors, and used it to carry out commerce and 

defense functions in the Panama Canal. See New York ex rel. Rogers v. 

Graves, 299 U.S. 401 (1937).

Of the modern (post-Government Corporation Control Act) government 

corporations, some issue stock, many do not. A government corporation 

issues stock if it is authorized to do so in its enabling legislation. The 

statute will specify the amount of stock that may be issued and who may or 

must subscribe to it. For example, the federal government owns 

100 percent of the capital stock of the Commodity Credit Corporation 

(15 U.S.C. § 714e), the Export-Import Bank (12 U.S.C. § 635b), and the 

Federal Crop Insurance Corporation (7 U.S.C. § 1504(a)). The Rural 

Telephone Bank is authorized to issue three classes of stock, one owned by 

the government, one by loan recipients, and one by specified classes of 

purchasers. 7 U.S.C. § 946. 
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b. Types of Financing: Private (1) Sources of private financing

Private financing can take one of three forms: fees and charges, stock 

ownership, and borrowing. For the most part, authority to assess fees and 

charges will be spelled out in the pertinent legislation. The kinds of 

receipts vary with the type of program being administered. The Tennessee 

Valley Authority receives income from the sale of electric power (including 

sales to government agencies, 44 Comp. Gen. 683 (1965)). The Pension 

Benefit Guaranty Corporation collects premiums from sponsors of covered 

pension plans. 29 U.S.C. § 1306. The Saint Lawrence Seaway Development 

Corporation for many years received its income from tolls (33 U.S.C. § 988; 

35 Comp. Gen. 267 (1955)), but Congress suspended this authority with 

respect to commercial vessels in 1994 (33 U.S.C. § 988a), and began funding 

the Corporation from the Harbor Maintenance Trust Fund. See 33 U.S.C. 

§ 2238; 26 U.S.C. § 9505. Before its termination on October 1, 2004, the 

Panama Canal Commission’s revolving fund received toll receipts and was 

authorized to retain interest generated by amounts deposited in financial 

institutions outside the Treasury. 22 U.S.C. § 3712(c).

If there is no express authority, it may nevertheless be possible for a 

corporation to assess fees under 31 U.S.C. § 9701, the so-called “user 

charge statute,” covered in detail in Chapter 12, section D. Section 9701 by 

its terms applies to wholly owned, but not mixed-ownership, government 

corporations. The limitation to wholly owned corporations is because they 

are the closest to regular government agencies. This does not mean that 

other types of government-created corporations may not charge fees, 

merely that they must find the authority elsewhere.

A government-created corporation designated as private may also find 

itself on the other end of the transaction—having to pay government 

agencies for services rendered to it. For example, the Communications 

Satellite Act authorized certain services to be provided to Comsat on a 

reimbursable basis, but did not further address how the charges were to be 

determined. Absent anything to the contrary in the law or its legislative 

history, GAO found it legitimate to determine the charges in accordance 

with the standards under 31 U.S.C. § 9701. B-168707-O.M., May 11, 1970.

Of course, statutory authorizations to charge fees have their limitations. 

The Export-Import Bank, for example, is authorized to charge fees for 

conferences, seminars, and publications. 12 U.S.C. § 635(a)(1). Then, 

similar to authority given to the executive branch generally, the statute 

authorizes the Bank to accept voluntary contributions for travel and 
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subsistence expenses incurred by its officers or employees. Such amounts 

received are credited to the fund which initially paid for such activities and 

are to be offset against the expenses of the Bank for such activities. Id. 

However, GAO found that this statute did not go so far as to authorize the 

Bank to require its customers to pay its travel and subsistence expenses. 

B-272254, Mar. 5, 1997. The decision reasoned that the statute was not 

intended to sanction what would clearly amount to an augmentation of the 

Bank’s appropriations.

The second form of private financing is private subscription to stock. 

Naturally, one would not expect to find this in the case of a wholly owned 

government corporation, but it is a theoretical option for Congress to 

consider for mixed-ownership corporations and it is commonly found in 

government-sponsored enterprises (GSE). Statutory provisions for GSEs 

may prescribe classes of common stock, voting and nonvoting stock, 

preferred stock, and may address institutional versus general subscription. 

Examples are 12 U.S.C. § 1453 (Freddie Mac); 12 U.S.C. § 2124 (banks for 

cooperatives); and 12 U.S.C. § 2279aa-4 (Farmer Mac). The Justice 

Department has concluded that, as long as no statute prohibits it, a 

corporation can use preferred stock as a dividend to its shareholders of 

common stock. 9 Op. Off. Legal Counsel 19 (1985). (This case involved 

Freddie Mac, whose legislation later changed, but the point is still good.) 

The third type of private financing is borrowing—the issuance of 

promissory notes, bonds, or other debt obligations to the public. An 

example is 7 U.S.C. § 947, which authorizes the Rural Telephone Bank to 

borrow from the public as well as from the Treasury. The Commodity 

Credit Corporation has comparable authority in 15 U.S.C. § 713a-4.

The obligations may be expressly guaranteed by the United States. 

Commodity Credit Corporation obligations, for example, “shall be fully and 

unconditionally guaranteed both as to interest and principal by the United 

States.” Id. A question given much attention has been the extent to which 

obligations of government corporations are backed by the “full faith and 

credit” of the United States in the absence of express statutory provision to 

that effect. Attorney General opinions addressing whether a bond or other 

obligation is a valid obligation of the United States, even in the absence of 

full faith and credit language, are set forth and discussed in more detail in 

Chapter 11, section D.1. It is sufficient here to note that two of the 

Attorney General’s opinions concerned government corporations—42 Op. 

Att’y Gen. 21 (1961) (Development Loan Fund) and 42 Op. Att’y Gen. 327 

(1966) (Export-Import Bank). In both cases the Attorney General 
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concluded that Congress’s choice of the corporate form did not alter the 

status of its obligations. Thus, if the underlying statutory provisions are 

sufficient to authorize the creation of obligations of the United States, it is 

immaterial that this authority is vested in a corporate entity. GAO adopted 

the Attorney General’s position in 68 Comp. Gen. 14 (1988) (promissory 

notes and assistance guarantees issued by the now-defunct Federal Savings 

and Loan Insurance Corporation were obligations of the United States).

Congress can include express disclaimer language in the statute, which will 

then of course control. E.g., 12 U.S.C. § 1721(b) (Ginnie Mae’s obligations 

“are not guaranteed by the United States and do not constitute a debt or 

obligation of the United States or of any agency or instrumentality thereof” 

other than Ginnie Mae). If, however, the test for an obligation of the United 

States (as set out in the Attorney General’s opinions) is met, disclaimer 

language found only in legislative history is not enough. 68 Comp. Gen. 

at 18–19.

As with borrowing from the Treasury, borrowing from the public can also 

be handled through the Federal Financing Bank. Indeed, individual agency 

offerings to the public were the main focus of the law creating the Federal 

Financing Bank. See, in this regard, 12 U.S.C. § 2281. See also H.R. Rep. 

No. 93-299, at 2 (1973).

(2) Market perception of implied backing by United States

“As one wag puts it: With GSEs, you privatize the profits 

and socialize the risk.”137

The preceding discussion outlines when a government corporation’s 

obligations may be backed by the full faith and credit of the United States. 

Government-sponsored enterprises (GSEs), introduced in section B.2.b of 

this chapter, are generally regarded as one step further removed from 

“government status” and, therefore, further removed from government 

backing, at least official backing. Of course, Congress is free to provide 

federal backing whenever it wishes. E.g., 12 U.S.C. § 2278b-6(d)(4)(A) (if 

Financial Assistance Corporation is unable to pay principal or interest on 

its obligations, Treasury is required to pay and try to recover from the 

defaulting bank). More often than not in the case of GSEs, however, 

137 Ronald C. Moe, The “Reinventing Government” Exercise: Misinterpreting the Problem, 

Misjudging the Consequences, 54 Public Administration Review 111, 113 (1994). 
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Congress has enacted express disclaimers. For example, 12 U.S.C. § 4503 

disclaims any federal guarantee of the obligations or liability of the Federal 

National Mortgage Association (Fannie Mae), the Federal Home Loan 

Mortgage Corporation (Freddie Mac), and the Federal Home Loan Banks, 

and any implication that they are backed by the full faith and credit of the 

United States. (The Home Loan Banks are mixed-ownership government 

corporations; the other two are GSEs.)

Even in the presence of a statutory disclaimer, many commentators who 

have examined GSEs emphasized the existence of a market perception of 

implied backing by the United States because, presumably, the GSE will not 

be allowed to fail. As one commentator stated, very simply, “[t]he Federal 

Government implicitly guarantees the value of GSE obligations and 

mortgage-backed securities.”138 This implied guarantee has been called the 

“single most distinguishing characteristic”139 of GSEs and their “most 

valuable perk.”140 Another writer suggests that in the event of GSE failure, 

the government would have “no real alternative but to deliver on the 

implicit guarantee” in order to avoid disruption in the credit markets.141

The perception of an implied guarantee arises because GSEs are regarded 

as instrumentalities of the United States, and their obligations have many 

of the characteristics of Treasury obligations.142 As another commentator 

has pointed out, some of the most prominent private credit-rating agencies 

138 Ronald C. Moe, Managing the Public’s Business: Federal Government Corporations, 

S. Prt. No. 104-18, at 38 (1995) (Moe 1995).

139 Ronald C. Moe and Thomas H. Stanton, Government-Sponsored Enterprises as Federal 

Instrumentalities: Reconciling Private Management with Public Accountability, 49 Pub. 

Admin. Rev. 321, 322 (1989); Ronald C. Moe, Liabilities of the Quasi Government,

20 Government Executive 47, 49 (1988). Moe and Stanton, at 321, go so far as to include the 

implicit guarantee as an element of the definition of a GSE. See also Moe 1995, at 38. 

140 Lori Nitschke, Private Enterprise With Official Advantages, 56 Cong. Q. Wkly. 1578, 1580 

(1998). 

141 A. Michael Froomkin, Reinventing the Government Corporation, 1995 U. Ill. L. Rev. 543, 

580 (1995).

142 The common characteristics are listed in Thomas H. Stanton, Federal Supervision of 

Safety and Soundness of Government-Sponsored Enterprises, 5 Admin. L.J. 395, 404–05 

(1991).
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“have rated enterprise securities based on the strength of this implied 

government guarantee, in spite of the knowledge that no actual guarantee 

exists.”143

This market perception of a federal guarantee confers significant economic 

benefits on GSEs. Primarily, it enables them to borrow money at rates 

much lower than private corporate obligations, and almost as low as the 

rates Treasury itself pays on its borrowings.144

GAO has issued detailed reports on the government’s exposure to risks 

stemming from its use of GSEs. See GAO, Government-Sponsored 

Enterprises: The Government’s Exposure to Risks, GAO/GGD-90-97 

(Washington, D.C.: Aug. 15, 1990); Government-Sponsored Enterprises: A 

Framework for Limiting the Government’s Exposure to Risks, GAO/GGD91-90 (Washington, D.C.: May 22, 1991). In 1992, Congress enacted the 

Federal Housing Enterprises Financial Safety and Soundness Act,145

12 U.S.C. §§ 4501–4641, to provide a measure of federal supervision and 

regulation over Fannie Mae and Freddie Mac. The law established an 

Office of Federal Housing Enterprise Oversight (OFHEO) whose job it is to 

see that Fannie and Freddie are adequately capitalized and operating safely. 

12 U.S.C. §§ 4502(6), 4511, 4513(a).

Nevertheless, the risks associated with the GSEs have become more severe 

in recent years as both their financial exposure and questions about their 

management have increased dramatically. The combined obligations of 

five GSEs was $4.4 trillion as of September 30, 2003.146 See GAO, 

Government-Sponsored Enterprises: A Framework for Strengthening 

GSE Governance and Management, GAO-04-269T (Washington, D.C.: 

Feb. 10, 2004), at 1. The GSEs also pose risks to the stability of the United 

States financial system. Because the financial markets expect that the 

143 Carrie Stradley Lavargna, Government-Sponsored Enterprises Are ‘Too Big to Fail’: 

Balancing Public and Private Interests, 44 Hastings L.J. 991, 1011 (1993).

144 See, e,g., GAO, Budget Issues: Profiles of Government-Sponsored Enterprises,

GAO/AFMD-91-17 (Washington, D.C.: Feb. 1991), at 7; Lavargna, at 1010–11; Thomas H. 

Stanton, Federal Supervision of Safety and Soundness of Government-Sponsored 

Enterprises, 5 Admin. L.J. 395, 404 (1991). 

145 Pub. L. No. 102-550, title XIII, 106 Stat. 3672, 3941 (Oct. 28, 1992).

146 The five GSEs examined in the cited GAO testimony were Fannie Mae, Freddie Mac, 

Farmer Mac, the Federal Home Loan Banks (FHLBanks), and the Farm Credit System 

(FCS).
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United States will be unwilling to permit GSE obligations to fail, the volume 

of GSE obligations, potentially, may have consequences for the federal 

taxpayer. See GAO-04-269T, at 5–6. Unfortunately, there are serious 

concerns over the management of the GSEs and federal oversight of their 

operations. By way of summary, GAO’s 2004 testimony observed in this 

regard:

“[T]o ensure that the GSEs operate in a safe and sound 

manner, it is essential that effective governance, reasonable 

transparency, and effective oversight systems are 

established and maintained. In particular, the GSEs should 

lead by example in the area of corporate governance; GSE 

regulators must be strong, independent, and have necessary 

expertise; and GSE mission definitions and benefit 

measures need to be established. However, our work found 

that GSE corporate governance does not always reflect best 

practices . . . Furthermore, the regulatory structure for the 

housing GSEs is fragmented and serious questions exist as 

to the capacity of GSE regulators to fulfill their 

responsibilities.”

Id. at 2. Among other remedial measures, GAO recommended that 

Congress establish a single federal regulator for the housing GSEs and 

equip it with the necessary authorities to carry out its mission.

GAO is far from alone in identifying problems with the GSEs. One 

commentator described Fannie Mae and Freddie Mac as “huge, fastgrowing, highly leveraged, lightly regulated, and susceptible to failure.” 

Richard Scott Carnell, Handling the Failure of a Government-Sponsored 

Enterprise, 80 Wash. L. Rev. 565, 567 (2005). Another said:

“GSEs are completely excluded from the presidential 

budget and the congressional budget resolution; they simply 

are not reported in either the on-budget or the off-budget 

figures. Although GSEs were originally designed to serve a 

public purpose, they can easily be used as a budget 

accounting gimmick to reduce the size of apparent deficits.”

Cheryl D. Block, Congress and Accounting Scandals: Is the Pot Calling the 

Kettle Black?, 82 Neb. L. Rev. 365, 438–39 (2003) (footnotes omitted).
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In May 2006, Fannie Mae agreed to pay a $400 million penalty to settle 

charges brought against it by the Securities and Exchange Commission 

relating to misstatements in its financial statements from at least 1998 

through 2004 that gave its shareholders and the public the false impression 

of stable and predictable earnings. In announcing the settlement, the 

Commission observed:

“In its settlement with the Commission, the company 

agreed, without admitting or denying the allegations, to the 

entry of a final judgment that permanently enjoins the 

company from violations of the anti-fraud, reporting, books 

and records and internal controls provisions of the federal 

securities laws. The root cause of the accounting fraud 

described in the Commission’s Complaint, was a corporate 

culture that placed significant emphasis on stable earnings 

growth and avoidance of income statement volatility, and 

insufficient emphasis on ensuring compliance with 

applicable accounting regulations and federal securities 

laws. The company’s misconduct took various forms. For 

example: At the end of 1998, senior management 

manipulated the company’s earnings in order to obtain 

bonuses they otherwise would not have received.”147

(3) Statutory controls

In addition to the budget, audit, and accounting controls previously 

described, the Government Corporation Control Act (GCCA), 31 U.S.C. 

§ 9108, addresses the debt obligations of all government corporations, 

wholly owned and mixed-ownership, covered by the act (see discussion of 

GCCA in section B.4.a of this chapter). Under section 9108(a), a GCCA 

government corporation may not issue or offer obligations to the public 

unless the Secretary of the Treasury has prescribed the form, 

denomination, maturity, and interest rate of the obligations and the 

147 Securities and Exchange Commission, SEC and OFHEO Announce Resolution of 

Investigation and Special Examination of Fannie Mae: Fannie Mae Agrees to Pay 

$400 Million Penalty, Press Release No. 2006-80 (May 23, 2006), available at 

www.sec.gov/news/press.shtml (last visited Nov. 28, 2007). See also OFHEO, Report to 

Congress 2007 (Mar. 30, 2007), available at www.ofheo.gov/media/annual 

reports/OFHEOReporttoCongress07.pdf (last visited Nov. 28, 2007) (annual examination of 

Fannie Mae and Freddie Mac revealed inadequacies in the areas of accounting systems, 

internal controls, risk management, human resources, and corporate governance). 
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conditions to which they will be subject; the manner and times of their 

issuance; and the price for which they will be sold.

Under section 9108(b), a GCCA government corporation must get the 

Secretary of the Treasury’s approval (or waiver) before buying or selling 

either a direct obligation of the United States or an obligation whose 

principal, interest, or both is guaranteed by the United States, if the 

obligations aggregate over $100,000.

Section 9108(c) authorizes the Secretary of the Treasury to delegate 

functions under sections 9108(a) and (b) to any officer or employee of any 

federal agency.

Section 9108(d) contains the exemptions. The approval requirements of 

sections 9108(a) and (b) do not apply to certain named mixed-ownership 

government corporations, nor to any mixed-ownership corporation when 

the corporation has no government capital.

Finally, a provision added to the GCCA in 1986 directs the Secretary of the 

Treasury to issue standards for depositary institutions concerning the 

safeguarding and use of GSE securities that they hold for their customers. 

31 U.S.C. § 9110.

6. Fiscal Autonomy

a. Account Settlement GAO’s “account settlement” authority refers to the first portion of 

31 U.S.C. § 3526(a)—“The Comptroller General shall settle all accounts of 

the United States Government.” During the pre-World War II period and for 

a while thereafter, this meant that all accounts had to be physically 

transmitted to GAO, where GAO auditors scrutinized them, line by line, 

“disallowing” or “taking an exception to” expenditures found to be illegal. 

Subsequently, GAO’s application of this authority underwent major 

evolution. Now, agencies retain their own accounts, keeping them 

available for audit,148 and an account is regarded as “settled” by operation 

of law after 3 years except for unresolved items. See 31 U.S.C. § 3526(c). 

Nevertheless account settlement remains relevant in determining such 

things as (1) the kinds of audit GAO is authorized to perform, (2) who may 

148 GAO advised government corporations to this effect in 27 Comp. Gen. 429 (1948).
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request a legal decision from GAO, and (3) the application of the 

accountable officer relief statutes. See 31 U.S.C. §§ 3523, 3526, 3527, 3528, 

3529.

During the decades preceding enactment of the Government Corporation 

Control Act, 31 U.S.C. §§ 9101–9110, the relationship of GAO to government 

corporations was a major battlefield. The corporations argued that they 

should be exempt from GAO’s account settlement authority; GAO argued 

the opposite.149 In 1927, the Supreme Court decided the case of United 

States ex rel. Skinner & Eddy Corp. v. McCarl, 275 U.S. 1 (1927). A 

contractor sought a writ of mandamus to compel GAO to consider its claim 

against the United States Shipping Board Emergency Fleet Corporation. 

The Supreme Court affirmed the determination of the lower court that the 

claim was not within GAO’s claims settlement jurisdiction,150 which was 

separate from GAO’s account settlement authority. The executive branch 

cited this case to support a blanket proposition that GAO’s account 

settlement authority did not extend to government-owned corporations. 

E.g., 40 Op. Att’y Gen. 84 (1941). While this was certainly an arguable 

position, GAO’s initial reaction was to distinguish Skinner & Eddy,

pointing out that the Court had not directly ruled on the question of GAO’s 

account settlement authority over government corporations. B-29072, 

Nov. 16, 1943. GAO tried to reconcile the conflicting views, holding that 

accountable officers still had to render their accounts, but that GAO, in 

performing its settlement audit, would recognize the corporations’ 

exemption from various laws. B-24827, May 22, 1942.

Two developments have largely resolved the issue. First was the 

enactment of the Government Corporation Control Act (GCCA), which 

mandated a commercial-type audit—as opposed to the traditional 

governmental audit—and told GAO to include in its audit reports anything 

it believed to be illegal (see discussion of GCCA in section B.4.a of this 

chapter). 31 U.S.C. § 9105. Although some decisions reflect 

149 Many of the squabbles are recorded in John McDiarmid, Government Corporations and 

Federal Funds (1938).

150 This claims settlement authority is discussed in detail in Chapter 14, section B.
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ambivalence,151 GAO tended to view the GCCA requirements as supplanting 

its account settlement authority with respect to the corporations. E.g.,

B-150556, May 29, 1968 (Commodity Credit Corporation); B-146820, June 2, 

1967 (Commodity Credit Corporation); B-152534-O.M., Dec. 4, 1963 

(Panama Canal Company); B-58302, Apr. 29, 1947 (former Reconstruction 

Finance Corporation).

The second development was the refinement of certain charter provisions 

and a trend toward standardization. Congress has authorized most postGovernment Corporation Control Act corporations to determine the 

character and necessity of their expenditures. For example, the Federal 

Crop Insurance Corporation provision states:

“The Corporation shall determine the character and 

necessity for its expenditures . . . and the manner in which 

they shall be incurred, allowed, and paid, without regard to 

the provisions of any other laws governing the expenditure 

of public funds and such determinations shall be final and 

conclusive upon all other officers of the Government.” 

7 U.S.C. § 1506(i). 

There are variations in language. GAO views the “character and necessity” 

provision as precluding its account settlement authority. E.g., B-226708.3, 

Dec. 12, 1988 (then Federal Savings and Loan Insurance Corporation);

B-200103, Mar. 5, 1981 (Commodity Credit Corporation); B-34706, Dec. 5, 

1947 (government corporations in general). Some decisions also mention 

other corporate powers like the power to sue and be sued or to 

conclusively settle claims, but the “character and necessity” power is the 

crucial element.

The first step in the analysis is to examine a corporation’s particular 

legislation. If Congress has addressed the matter one way or the other, 

there is no need to go further. Congress is always free to make a particular 

corporation subject to GAO’s account settlement. E.g., B-123943-O.M., 

151 The ambivalence of the accounting officers did not start with GAO. For example, in 

24 Comp. Dec. 118 (1917), the Comptroller of the Treasury held that the United States 

Shipping Board Emergency Fleet Corporation was not required to account to the Treasury 

for the use of its funds, yet held in later decisions that the corporation had violated laws 

governing the purchase of typewriters (27 Comp. Dec. 140 (1920)) and prohibiting advance 

payments (27 Comp. Dec. 311 (1920)).
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July 1, 1955. An example is Federal Prison Industries, whose legislation 

provides: “Accounts of all receipts and disbursements of the corporation 

shall be rendered to the Government Accountability Office for settlement 

and adjustment, as required by the Comptroller General.” 18 U.S.C.

§ 4126(d). See B-98983-O.M., Dec. 18, 1950. The Tennessee Valley Authority 

(TVA) has an interesting structure. The TVA is expressly made subject to 

the account settlement laws, but a determination of necessity by the TVA 

Board of Directors will override a GAO finding to the contrary. 16 U.S.C. 

§ 831h(b). See, e.g., B-209585, Jan. 26, 1983; B-114850-O.M., Sept. 21, 1977.

If a corporation’s enabling legislation does not address account settlement, 

then, for the two reasons noted above, GAO will conclude that the 

authority does not exist. Most of the cases cited in the preceding 

paragraphs have involved wholly owned corporations.152 However, the 

same is true for mixed-ownership corporations like the Federal Deposit 

Insurance Corporation (B-210496, Feb. 1, 1983), and for corporations 

created and funded by the government but designated as “private,” like the 

Legal Services Corporation (B-241591, Mar. 1, 1991; B-203901, July 9, 1982; 

B-204886, Oct. 21, 1981).153

If the account settlement laws do not apply to a particular corporation, 

neither do the laws providing for the relief of accountable officers. In such 

a case, any accountability of officers or employees of the corporation is up 

to the corporation itself to determine; accountability would be to the 

corporation, not the United States.154 B-88578-O.M., Aug. 21, 1951. See also

B-83360-O.M., Apr. 8, 1949 (Certifying Officers’ Act, ch. 641, 55 Stat. 875 

(Dec. 29, 1941), not applicable to Federal Crop Insurance Corporation).

152 For example, under 31 U.S.C. § 9101(3)(M), the Secretary of the Department of Housing 

and Urban Development (HUD) is considered to be acting as a wholly owned government 

corporation when carrying out duties and powers related to the Federal Housing 

Administration Fund. For a discussion of GAO’s limited authority with respect to this HUD 

program, see B-182653, Jan. 16, 1975; B-181961, B-182280, Nov. 26, 1974; B-99262-O.M., 

Jan. 11, 1951.

153 Several of the cases cited in this paragraph are bid protest decisions. Prior to the 1984 

enactment of the Competition in Contracting Act, account settlement authority was the 

basis for GAO bid protest jurisdiction.

154 GAO did not always feel this way. Earlier decisions purporting to grant or deny relief to 

certifying officers of the Federal Crop Insurance Corporation, such as B-44435, Oct. 5, 1944 

(or for that matter any government corporation with the “character and necessity” 

authority), have been effectively superseded and should be disregarded to that extent.
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b. Status of Funds Received 

by Corporate Entities

If money received by a government agency must be deposited in the 

Treasury and an appropriation is needed to get it back out, logic would 

seem to dictate that statutory authority for an agency to retain specified 

receipts and to spend them for specified purposes is a permanent or 

continuing appropriation of those receipts. GAO has consistently applied 

this principle to a variety of revolving funds, user fee accounts, proceeds 

from sales of goods or services, etc. This principle is explored in more 

detail, with case citations, in Chapter 2, section B.1. Further support is 

found in the title 31, United States Code, definition of “appropriations,” 

which is not limited to direct appropriations from the general fund of the 

Treasury but includes “other authority making amounts available for 

obligation or expenditure.” 31 U.S.C. §§ 701(2)(C), 1101(2)(C). 

Viewing the principle in the abstract, that is, setting aside for the moment 

the question of the consequences of the status determination, there is no 

reason the principle should not apply to government corporations as well 

as unincorporated agencies. Thus, GAO has applied the principle and 

found that there was a statute which authorized the deposits of receipts in 

a specific fund, and made the fund available for carrying out specific 

purposes without needing further congressional action, which constituted 

a permanent or continuing appropriation, in the following situations:

• Tolls assessed and collected by the Saint Lawrence Seaway 

Development Corporation. B-193573, Jan. 8, 1979, modified and aff’d,

B-193573, Dec. 19, 1979, restated in B-217578, Oct. 16, 1986. (The 

Corporation stopped being funded from tolls in the mid-1990s.)

• The Prison Industries Fund operated by Federal Prison Industries, Inc. 

(FPI), the receipts of which consist primarily of proceeds from the sale 

of FPI products and services. 60 Comp. Gen. 323 (1981); B-230304, 

Mar. 18, 1988.155

155 No less a supporter of corporate autonomy than John McDiarmid has referred to the 

Prison Industries Fund as a “permanent appropriation.” See John M. McDiarmid, 

Government Corporations and Federal Funds, 55 (1938). On the other hand, the U.S. Court 

of Appeals for the Federal Circuit, discussing 60 Comp. Gen. 323, declined to adopt GAO’s 

characterization of the Prison Industries Fund as an appropriation for the purpose of 

determining whether jurisdiction exists under the Tucker Act. Core Concepts of Florida, 

Inc. v. United States, 327 F.3d 1331, 1337-38 (Fed. Cir. 2003). See the discussion of these 

decisions in section B.1 of Chapter 2.
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• Revolving funds of the Pension Benefit Guaranty Corporation in its 

capacity as insurer of private pension plans. B-223146, Oct. 7, 1986; 

B-217281-O.M., Mar. 27, 1985; GAO, Pension Benefit Guaranty 

Corporation: Statutory Limitation on Administrative Expenses Does 

Not Provide Meaningful Control, GAO-03-301 (Washington, D.C.: 

Feb. 28, 2003), at app. II. Compare B-307849, Mar. 1, 2007 (since PBGC 

did not have authority to retain reimbursements for financial analysis 

services, amounts received must be deposited into the general fund of 

the Treasury).

• Power program funds (revenue and bonds) of the Tennessee Valley 

Authority. 64 Comp. Gen. 756, 761–62 (1985).

• Bonneville Power Administration Fund, a revolving fund consisting of 

all receipts of the Bonneville Power Administration, proceeds from the 

sale of its bonds, and appropriations Congress may make (16 U.S.C. 

§ 838i). 67 Comp. Gen. 8, 10 (1987).

• Capitalization obtained from the United States Treasury under 

borrowing authority. B-223857, Feb. 27, 1987 (Commodity Credit 

Corporation); B-193573, Dec. 19, 1979 (Saint Lawrence Seaway 

Development Corporation).

• Filing fees collected under 28 U.S.C. § 1931 collected and retained for 

the operation and maintenance of the courts of the United States. 

73 Comp. Gen. 321 (1994).

It makes no difference whether the statutory language authorizing 

retention and use is found in an appropriation act or in other legislation. 

B-193573, Dec. 19, 1979. The fact that the fund has repaid its initial 

capitalization to the Treasury and has become self-supporting is also 

immaterial. 60 Comp. Gen. 323, 326 (1981).

These cases have one important thing in common—they all involve wholly 

owned government corporations (plus Bonneville, the functional 

equivalent of one). This should not seem strange because, considering the 

various types of government-created corporations (wholly owned, mixedownership, GSEs, so-called “private,” etc.), the wholly owned government 

corporation is closest to an agency.

This being the case, application of the principle to a mixed-ownership 

government corporation, although possible in theory and perhaps even 
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desirable in some instances, would seem less appropriate. Thus, 

assessments levied on insured banks by the Federal Deposit Insurance 

Corporation (FDIC) and used to pay the FDIC’s operating expenses are not 

regarded as “appropriated funds.” 23 Comp. Gen. 83 (1943); B-20892, 

Dec. 11, 1941; B-214157-O.M., Apr. 2, 1984, at 8–9. See also A-91137, Apr. 11, 

1938 (FDIC’s assessment-derived funds, while not an appropriation, are the 

equivalent of an appropriation for purposes of availability for necessary 

expenses). (None of these cases use the term “mixed-ownership” 

corporation because they all predate the explicit legislative recognition of 

that term in the Government Corporation Control Act.)

The Pension Benefit Guaranty Corporation (PBGC) illustrates a situation in 

which funds in the hands of a wholly owned corporation are not regarded 

as appropriated funds. The PBGC has two very different functions: it 

insures certain private pension plans, and it is authorized to serve as 

trustee for terminated plans. In B-217281-O.M., Mar. 27, 1985, the issue was 

whether the PBGC had to follow the federal procurement regulations in 

obtaining investment manager services for (1) excess capital in its 

revolving funds and (2) assets of terminated plans in its hands as trustee. 

As noted above, when the PBGC is acting in its capacity as pension plan 

insurer, its revolving funds are treated as appropriated funds. Accordingly, 

the procurement regulations applied to PBGC when procuring services for 

the revolving funds. However, when serving in its trustee capacity, the 

PBGC is treated as a private fiduciary and its powers include collecting 

amounts due the plan, paying plan benefits, liquidating plan assets, and 

recapturing prior payments. 29 U.S.C. § 1342(d)(1)(B).156 The funds of 

terminated plans PBGC administers are trust funds, privately created and 

privately funded, and are not appropriated funds. Therefore, the PBGC is 

not bound by the federal procurement regulations when procuring services 

for its trust funds. Similarly, when using trust funds in its trustee capacity, 

the PBGC could modify existing contracts and could enter into a 

contingent-fee arrangement with outside counsel for litigation, without 

regard to the laws governing the expenditure of appropriated funds. 

B-223146, Oct. 7, 1986; GAO-03-301, at app. II.

In the case of an unincorporated agency, the question of whether certain 

funds are appropriated funds has very significant consequences. 

Appropriated funds, unlike nonappropriated or private funds held by 

156 An illustrative case of the Corporation’s activities under this authority is Pension Benefit 

Guaranty Corp. v. Carter & Tillery Enterprises, 133 F.3d 1183 (9th Cir. 1998).
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agencies for the benefit of others, “are subject to the various restrictions 

and limitations on the uses of appropriated moneys.” 35 Comp. Gen. 615, 

618 (1956). In the case of a government corporation, the result is still to 

subject the corporation to certain laws governing appropriated funds (or to 

determine the scope of exemptions for “nonappropriated funds”), but, as 

discussed next, the range of applicable laws is much narrower and varies 

depending on the precise terms of a given corporation’s governing 

legislation.

c. Application of Fiscal Laws As we have seen, fiscal autonomy is one of the key features of government 

corporations, and, in some cases, the primary impetus for their creation. 

“Government corporations,” GAO conceded long ago, “are conceived not 

for the purpose of limiting the Government prerogative . . . but of 

accelerating and enlarging it and of making it more flexible.” B-37981, 

June 1, 1944, at 52. The earliest battles, centering on the effect of corporate 

status per se, were inconclusive.157 Changes in the law since that time now 

provide a framework.

(1) “Character and necessity” provision

GAO has often stated that the funds of “regular” agencies, including the 

various forms of authority to retain and use receipts, are, absent statutory 

provision to the contrary, “subject to the statutory controls and restrictions 

applicable to appropriated funds.” E.g., 63 Comp. Gen. 285, 287 (1984). In 

the corporate context, however, this statement is too broad and must be 

qualified. B-193573, Dec. 19, 1979, restated, B-217578, Oct. 16, 1986. The 

reason, and perhaps the most significant element in the fiscal autonomy of 

a government corporation, is what we will call the “character and 

necessity” provision appearing in many, if not most, legislative charters. 

The provision seems to have originated in the 1930s and there are several 

variations. An example of the simplest form is 15 U.S.C. § 714b(j), which 

provides that the Commodity Credit Corporation “[s]hall determine the 

character of and the necessity for its obligations and expenditures and the 

manner in which they shall be incurred, allowed, and paid.” A variation is 

33 U.S.C. § 984(a)(9), providing that the Saint Lawrence Seaway 

Development Corporation “shall determine the character of and the 

157 “[M]y attention has never been drawn to an act of Congress specifying that the laws of the 

land do not apply to Government corporations merely because they are Government 

corporations.” B-34706, Dec. 5, 1947, at 4 (letter from Comptroller General to committee 

chairman). 
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necessity for its obligations and expenditures, and the manner in which 

they shall be incurred, allowed, and paid, subject to provisions of law 

specifically applicable to Government corporations.” There is no material 

difference between these versions.

As we discussed throughout Chapter 4, the so-called purpose statute, 

31 U.S.C. § 1301(a), prohibits the use of appropriations for other than their 

intended purpose, although purposes are stated in appropriations acts with 

varying degrees of specificity, leaving room for administrative discretion. 

When you add “character and necessity” authority to the discretion already 

inherent under 31 U.S.C. § 1301(a), the result is that a government 

corporation has much more spending discretion than agencies do. In 

addition, it has the power to make its own final and conclusive decisions. 

However, it is still subject to the overall limitation that its discretion be 

exercised “within the limitations and for the purposes of the statutes 

providing [its] funds and prescribing [its] activities.” 14 Comp. Gen. 698, 

700 (1935). In this sense, the concept of purpose—using the standards of 

corporate autonomy—along with the public policy concerns noted earlier, 

may be said to define the outer limits of a corporation’s discretion. There is 

a further discussion of this with specific corporate case studies in the 

section on program implementation in section B.6.d of this chapter.

Another thing a “character and necessity” provision does is it permits the 

corporation to avoid various rules established in case law that result from 

application of the “necessary expense” rule to an agency’s appropriation. 

See Chapter 4, section C.5. The one that comes immediately to mind is 

entertainment. A corporation empowered to determine the character and 

necessity of its expenditures can spend its money on the range of items 

discussed in Chapter 4, section C.5, subject of course to any applicable 

statutory restrictions. B-127549, May 18, 1956; B-35062, July 28, 1943. 

Accordingly, a corporation operating with appropriated funds but without 

the “character and necessity” provision, is subject to the same 

entertainment rules agencies are. B-270199, Aug. 6, 1996. (The decision 

does not mention the lack of “character and necessity” authority, but that 

was in fact the case and indeed the essential prerequisite to applying the 

rules.)158

158 As is probably obvious from the case law applying “character and necessity” provisions, a 

“character and necessity” provision limits the Comptroller General’s role in settling the 

accounts of the corporate entity. See, e.g., 64 Comp. Gen. 124 (1984); B-209585, Jan. 26, 

1983; B-200103, Mar. 5, 1981.
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A corporation statutorily designated as “private,” even though governmentcreated and government-financed, does not need the “character and 

necessity” language, and may spend money on entertainment unless 

statutorily restricted. B-131935, July 16, 1975 (Corporation for Public 

Broadcasting). Congress subsequently amended the Corporation for 

Public Broadcasting’s enabling legislation to prohibit the use of 

appropriated funds for the entertainment of federal, state, or local officials. 

47 U.S.C. § 396(k)(2)(A).

Another category of expenditures legally unobjectionable under “character 

and necessity” authority are items discussed in Chapter 4, section C.13. 

Examples are:

• Physical examinations for certain employees of the Saint Lawrence 

Seaway Development Corporation. 41 Comp. Gen. 531 (1962).

• Expenses necessary to qualify an employee to do his or her job. B-2835, 

Apr. 18, 1939 (qualification as notary).

• Payment of travel expenses for chairman’s spouse; installing storm 

windows and door and window locks on chairman’s house; paying for 

his membership in a private tennis club. GAO, FOD-77-14 (Washington, 

D.C.: Nov. 29, 1977) (untitled letter report).

Hazard insurance on various types of property is another type of 

expenditure that is permissible under a corporations “character and 

necessity” provision but is generally not available to agencies (see 

Chapter 4, section 10). 16 Comp. Gen. 453 (1936) (Federal Housing 

Administrator can insure property acquired in exchange for debentures); 

B-200103, Mar. 5, 1981 (Commodity Credit Corporation (CCC) can pay for 

hazard insurance on CCC-owned and stored commodities). See also

B-290162, Oct. 22, 2002; B-287209, June 3, 2002; 55 Comp. Gen. 1321 (1976); 

11 Comp. Gen. 59 (1931). This applies as well to creating a reserve for fire, 

theft, and similar losses. B-123709-O.M., June 29, 1955. 

Another major consequence of “character and necessity” authority is to 

permit the corporation to avoid general statutory restrictions (as opposed 

to restrictions specifically applicable to government corporations). As 

GAO put it in B-34706, Dec. 5, 1947, at 3:

“Where [character and necessity] language appears in the 

act chartering the corporation, there can be no question but 
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that Congress has determined that the Congressional or 

statutory rules otherwise directing how the public monies 

shall be spent are not of their own force to apply to the 

corporation, but rather that the corporation shall determine 

for itself what methods, procedures, etc. should be 

employed.”

One example of a general statutory provision that corporations with 

“character and necessity” language need not follow is 44 U.S.C. § 501, 

requiring the Government Printing Office to do all printing and binding for 

the government. (This provision is discussed in more detail in section B.7.f 

of this chapter.) Two additional examples, noted in B-193573, Dec. 19, 

1979, are 5 U.S.C. § 3107 (prohibiting use of appropriated funds to pay 

publicity experts) and 31 U.S.C. § 1345159 (prohibiting use of appropriated 

funds to pay lodging or feeding of nongovernment persons at meetings or 

conventions). See also B-7067, July 10, 1940; B-3163, Apr. 24, 1939 (both 

decisions examined now-obsolete portions of predecessor of 5 U.S.C. 

§ 3106 restricting hiring of attorneys).

A formulation GAO has often used is that a wholly owned government 

corporation with the power to determine the character and necessity of its 

expenditures is subject to (1) its own charter (i.e., enabling legislation); 

(2) the Government Corporation Control Act, if and to the extent 

applicable; (3) applicable restrictions contained in annual appropriation 

acts; and (4) statutes expressly applicable to wholly owned corporations. 

E.g., B-58305-O.M., Apr. 10, 1951 (Federal Intermediate Credit Banks, 

subsequently converted to mixed-ownership but listed as wholly owned in 

the original Government Corporation Control Act); B-58305-O.M., Mar. 8, 

1951 (then Production Credit Corporation); B-58306(2)-O.M., Nov. 14, 1950 

(Commodity Credit Corporation); B-58318-O.M., Oct. 27, 1950 (ExportImport Bank); B-90250-O.M., Mar. 28, 1950 (corporate functions of Federal 

Housing Administration).160 Similar statements appear in a number of more 

recent decisions. E.g., B-289219, Oct. 29, 2002; B-217578, Oct. 16, 1986.

159 A 1935 decision, 14 Comp. Gen. 638, seemed to say the opposite with respect to this 

statute, but it apparently overlooked the significance of the “character and necessity” 

power, although it was mentioned in the request for decision, and for that reason and to that 

extent should be disregarded.

160 These examples are from a series of internal GAO memoranda dated shortly after 

enactment of the Government Corporation Control Act, when GAO was refining its conduct 

of corporate audits.
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A mixed-ownership corporation is subject to its own statutory charter, the 

Government Corporation Control Act, if and to the extent applicable, and 

applicable provisions in appropriation act. In addition, it is subject to laws 

enacted after its enabling statute that are specifically applicable to mixedownership corporations. See B-58300-O.M., Nov. 30, 1950 (Federal Deposit 

Insurance Corporation (FDIC)). Some earlier mixed-ownership 

corporations included the “character and necessity” authority or its 

functional equivalent in their enabling legislation. E.g., 12 U.S.C. § 1820(a) 

(FDIC “shall determine and prescribe the manner in which its obligations 

shall be incurred and its expenses allowed and paid”). Later legislation 

may not have such language. E.g., Pub. L. No. 93-236, title II, 87 Stat. 

985, 990 (Jan. 2, 1974) (the now-defunct U.S. Railway Association). For a 

mixed-ownership corporation, at least one not receiving a direct 

appropriation, this specific language is probably not necessary. Our review 

of cases involving the FDIC indicates that its autonomy is abetted by the 

“character and necessity” clause, but that it would most likely have the 

same degree of autonomy without it, by virtue of its mixed-ownership 

status and the source of its funding. For example, the FDIC is not required 

to follow the obligation recording statute, 31 U.S.C. § 1501 (B-121541, 

Dec. 30, 1954); the statutory restrictions on the purchase of motor vehicles 

and aircraft, 31 U.S.C. § 1343 (B-94685-O.M., May 8, 1950); or the statutory 

provision restricting the funding of interagency groups, 31 U.S.C. § 1346 

(B-174571, Jan. 5, 1972). 

(2) “Without regard” clause

In addition to the various minor linguistic variations, there is one major 

variety of the “character and necessity” clause, illustrated by the Federal 

Crop Insurance Corporation statute quoted above in section 6.a of this 

chapter. It confers the “character and necessity” power, “without regard to 

the provisions of any other laws governing the expenditure of public 

funds.” 7 U.S.C. § 1506(i). Clearly, as a matter of basic statutory 

construction (or reading the English language), this version confers more 

than the basic “character and necessity” clause that does not include the 

“without regard” language. For example, in B-94115, Nov. 15, 1950, GAO 

reviewed the “without regard” clause of the Reconstruction Finance 

Corporation (RFC). GAO determined that the clause permitted the RFC to 

avoid laws existing on May 25, 1948, the date of the clause’s enactment, 

even laws expressly applicable to government corporations. However, the 

broad latitude of the “without regard” clause had been modified by the 

enactment after 1948 of legislation expressly applicable to government 

corporations. Id. Several months earlier, the Comptroller General had told 
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GAO’s auditors essentially the same thing with respect to the corporate 

functions of the Federal Housing Administration. B-90250-O.M., Mar. 28, 

1950. The “without regard” language, then, gives the corporation, in 

addition to everything it gets under the basic “character and necessity” 

clause, the further ability to avoid laws expressly applicable to government 

corporations (but not, of course, specifically applicable to the particular 

corporation), provided the laws are on the books at the time the “without 

regard” language was enacted.161

While a government corporation with a “character and necessity” provision 

which includes the “without regard” clause has considerable discretion, the 

discretion is not unlimited. It is “a legal discretion to be exercised within 

the limitations and for the purposes of the statutes providing the funds and 

prescribing the activities of the [corporation].” 14 Comp. Gen. 698, 700 

(1935). Nor does the “without regard” clause place the corporation 

“beyond all law or accountability with respect to its expenditures.” 

14 Comp. Gen. 755, 758 (1935). GAO has not attempted to draw the outer 

limits of this discretion, other than to suggest a broad “public policy” 

limitation. The practice GAO found illegal in 14 Comp. Gen. 755 was 

permitting attorneys employed by a government corporation to represent, 

on a fee basis, private parties in their dealings with the corporation. “The 

permitting of employees to practice before the public agency by which 

employed would seem so improper and so out of line with sound public 

policy as to suggest no need for a prohibiting statute.” Id. at 758. 

The corporation’s discretion must be exercised in accordance with the 

corporation’s established decision-making machinery and procedures. 

Rubber-stamping an expenditure already made—merely because it was 

made—“does not constitute the exercise of discretion . . . but a condoning 

of what has already been done.” 14 Comp. Gen. 698, 700. See also

18 Comp. Gen. 479 (1938); B-56550, Mar. 28, 1946. This does not mean that 

the decision-making machinery must be invoked for each individual 

transaction. In some cases, the exercise of discretion on a categorical basis 

is legitimate, as long as it is done under the established procedures and 

documented. E.g., A-98289, A-60495, Jan. 18, 1939 (corporation’s board 

issued the requisite formal board resolution stating that the requirement to 

161 We are aware of the seemingly inconsistent discussion in 65 Comp. Gen. 226 (1986). 

While that case was correctly decided, some of the discussion appears to misinterpret 

earlier decisions. The matter is covered in more detail in section B.7.f of this chapter.
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have printing done at Government Printing Office is not applicable to the 

corporation).

(3) Laws expressly applicable

It is clear at this point that it is important to know what laws are expressly 

applicable to government corporations. GAO prepared a list many years 

ago which is still useful (B-34706, B-56550-O.M., Nov. 9, 1949), but 

amendments, recodifications, and inter-title transfers, etc., over the years 

have in many cases separated the substantive and definitional provisions. 

Consider, for example, the Administrative Expenses Act of 1946, ch. 744, 

60 Stat. 806 (Aug. 2, 1946). After the first 17 sections set out substantive 

provisions, section 18 provided the following definitions: “The word 

‘department’ as used in this Act shall be construed to include wholly owned 

Government corporations. . . . The word ‘appropriation’ shall be construed 

as including funds made available by legislation under . . . the Government 

Corporation Control Act.” Id.

Thus, any of the first 17 provisions containing the word “department” or the 

word “appropriation” is expressly applicable to wholly owned government 

corporations. E.g., 27 Comp. Gen. 757, 758 (1948) (Tennessee Valley 

Authority may avail itself of authority in section 1 of Administrative 

Expenses Act, now found in 5 U.S.C. § 5724, to pay travel expenses incident 

to permanent change of station). The provisions of the Administrative 

Expenses Act ended up in various locations in the United States Code. 

Some of the provisions that found their way into title 5 of the United States 

Code have retained the appropriate definitional language. E.g., 5 U.S.C. 

§§ 3109 (employment of experts and consultants), 7903 (purchase of 

special clothing or protective equipment). As we noted in section B.2.a of 

this chapter, sometimes it is necessary to look beyond the provision itself. 

For example, for purposes of title 5, the term “executive agency” includes 

government corporations (5 U.S.C. § 105), which in turn means 

corporations “owned or controlled by the government of the United States” 

(5 U.S.C § 103(1)). Under 5 U.S.C. § 103(2), the term “government 

controlled corporation” does not include “a corporation owned by the 

government of the United States,” and, as we noted in section B.2.a. of this 

chapter, refers to mixed-ownership government corporations such as those 

listed in 31 U.S.C. § 9101(2). 

The travel expense authority of 5 U.S.C. § 5724 requires this kind of 

analysis. Section 5724(a) of title 5 of the United States Code refers to 

“agency.” Section 5701(1) of title 5 defines agency as including “executive 
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agency” (which includes wholly owned corporations) but not “government 

controlled corporation.” See 5 U.S.C. § 5701 note. Applying 5 U.S.C. § 103 

again, section 5724 is applicable to wholly owned government corporations 

but not mixed-ownership corporations.

Some of the provisions of the Administrative Expenses Act are now in title 

31 of the United States Code. For example, section 11 amended the first 

sentence of the advance payment statute to read, “No advance of public 

money shall be made in any case unless authorized by the appropriation 

concerned or other law.” See 31 U.S.C. § 3324. The 1982 recodification of 

title 31 was not intended to make substantive changes. Therefore, applying 

the definitions contained in section 18, the advance payment statute 

applies to wholly owned corporations. GAO applied the identical 

reasoning to conclude that statutory restrictions on home-to-work 

transportation, 31 U.S.C. § 1344 (whose source is section 16 of the 

Administrative Expenses Act) apply expressly to wholly owned 

government corporations. B-210555.11, Apr. 1, 1986. However, that hometo-work statute was completely overhauled later in 1986. The revised 

statute expressly applies to government corporations and government 

controlled corporations as defined in 5 U.S.C. § 103 (31 U.S.C.

§§ 1344(h)(2)(D) and (E)) and specifically includes mixed-ownership 

corporations subject to the Government Corporation Control Act in 

31 U.S.C. §§ 9101–9110 (31 U.S.C. § 1344(h)(2)(F)), thus covering all the 

terminology. 

Still another provision of the Administrative Expenses Act, section 9, 

amended the statutory requirement for advertising proposals for purchases 

and contracts for supplies and services now found in 41 U.S.C. § 5. That 

provision specifically applies only to the administrative transactions of 

wholly owned corporations.

A similar situation occurs in the apportionment requirement of 31 U.S.C. 

§ 1512. The apportionment provisions were substantially overhauled in 

1950. The revision included language making these provisions applicable 

to “any corporation wholly or partly owned by the United States which is 

an instrumentality of the United States” (Act of September 6, 1950, ch. 896, 

§ 1211, 64 Stat. 595, 766). The 1982 recodification of title 31, United States 

Code, dropped this definitional language. The former Federal Savings and 

Loan Insurance Corporation, chartered in the 1930s, argued that its 

nonadministrative funds should not be subject to apportionment because it 

was empowered to determine the character and necessity of its 

expenditures without regard to any other provision of law governing the 
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expenditure of public funds. Upon a detailed analysis, the Justice 

Department’s Office of Legal Counsel concluded that the “specifically 

crafted, later-enacted” apportionment law applied to all of the corporation’s 

funds, administrative and nonadministrative. 7 Op. Off. Legal Counsel 22, 

26 (1983). GAO had reached the same conclusion in 43 Comp. Gen. 759 

(1964). (Apparently, the FSLIC never tried to argue in either case that its 

“without regard” power should affect the applicability of the later-enacted 

apportionment provisions to its administrative funds.) A statutory 

exception is 12 U.S.C. § 1817(d) (funds of Federal Deposit Insurance 

Corporation, however derived, not subject to apportionment).

(4) Appropriation act provisions

Another source of expressly applicable laws is appropriation acts. Worthy 

of note is section 808 of the Transportation, Treasury, Housing and Urban 

Development, the Judiciary, the District of Columbia, and Independent 

Agencies Appropriation Act, 2006, Pub. L. No. 109-115, title VIII, § 808, 

119 Stat. 2396, 2497 (Oct. 30, 2005) (emphasis added):

“Funds made available by this or any other Act for 

administrative expenses in the current fiscal year of the 

corporations and agencies subject to [the Government 

Corporation Control Act] shall be available, in addition to 

objects for which such funds are otherwise available, for 

rent in the District of Columbia; services in accordance with 

5 U.S.C. 3109; and the objects specified under this head, all 

the provisions of which shall be applicable to the 

expenditure of such funds unless otherwise specified in the 

Act by which they are made available . . .” 

The ancestor of this provision first appeared in the very first Government 

Corporation Appropriation Act, 1947 (Act of July 20, 1946, ch. 589, § 301, 

60 Stat. 586, 595), enacted a short 6 months after the Government 

Corporation Control Act. Since 1972, this provision has appeared in the 

Treasury-General Government appropriation acts, now the Transportation, 

Treasury, Housing and Urban Development, the Judiciary, the District of 

Columbia, and Independent Agencies appropriation acts, in the title 

containing the governmentwide general provisions, so “this head” refers to 

that title (e.g., title VIII in Public Law 109-115). Therefore, there may be 

other laws expressly applicable to government corporations, by virtue of 

the italicized language above, in the pertinent title each year. Although this 
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provision has been around since 1946, GAO does not appear to have 

addressed the italicized language in any decision or opinion.

There is no governmentwide definition of “administrative expenses.” 

Generally, the term refers to overhead-type expenses, like certain salaries, 

office supplies and equipment, payroll taxes, and telephone and other 

utility expenses. Leonard v. S.G. Frantz Co., 49 N.Y.S.2d 329, 332–33 (N.Y. 

App. Div. 1944). In contrast, nonadministrative or program expenses are 

things such as loan guarantee or subsidy payments. GAO has suggested 

that a fixed definition in other than the most general terms would probably 

be impossible because the status of a given expense depends on the 

particular program, the governing legislation, and congressional intent, and 

what may be an administrative expense under one program or law may not 

be under another. B-24341, Mar. 12, 1942. Program statutes or regulations 

may include their own definitions, which of course would control. E.g.,

12 U.S.C. § 1702 (National Housing Act). Congress may also address the 

issue in appropriation acts by providing that specific items of expense shall 

or shall not be considered administrative expenses for purposes of a 

statutory limit. E.g., Pub. L. No. 105-78, 111 Stat. 1467, 1472 (Nov. 13, 1997) 

(Pension Benefit Guaranty Corporation); Pub. L. No. 105-118, 111 Stat. 

2386, 2387 (Nov. 26, 1997) (Export-Import Bank).

Another form of language Congress has used is a restriction applicable to 

“any appropriation contained in this or any other Act, or of the funds 

available for expenditure by any corporation or agency.”162 This language 

has been held to embrace both wholly owned corporations (B-114823, 

Dec. 23, 1974, Export-Import Bank) and mixed-ownership corporations 

(B-164497(5), Mar. 10, 1977, U.S. Railway Association).

(5) Other provisions of title 31, United States Code

The post-recodification title 31 defines “agency” to mean “a department, 

agency, or instrumentality of the United States Government.” 31 U.S.C. 

§ 101. The codification note following 31 U.S.C. § 1511 makes it clear that 

“instrumentality” is intended to include those government corporations 

which are instrumentalities of the United States. This applies to all of title 

31 unless another more specific provision intervenes, which it does on 

several occasions. For example, GAO’s authority to prescribe accounting 

principles and standards (31 U.S.C. § 3511) does not apply to government 

162 See, e.g., Pub. L. No. 96-74, title VI, § 607(a), 93 Stat. 559, 575 (Sept. 29, 1979).
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corporations. B-207435, July 7, 1982. This is because, for purposes of the 

chapter in which section 3511 appears, the definition of “executive agency” 

specifically excludes corporations or other entities subject to the 

Government Corporation Control Act. 31 U.S.C. § 3501. Similarly, 

31 U.S.C. §§ 717 (program evaluations) and 720 (agency reports on GAO 

recommendations) include their own definitions under which they apply to 

wholly owned, but not mixed-ownership, government corporations.

The Antideficiency Act’s prohibition against overobligation and 

overspending, 31 U.S.C. § 1341, has been applied to wholly owned 

corporations with “character and necessity” authority (see section B.6.c(1) 

of this chapter) because the funds used by the corporations to finance their 

operations were appropriated funds subject to the restrictions imposed by 

the Antideficiency Act. B-223857, Feb. 27, 1987 (Commodity Credit 

Corporation); B-135075-O.M., Feb. 14, 1975 (Inter-American Foundation). 

In B-223857, GAO found also that the Commodity Credit Corporation 

violated the voluntary services prohibition, 31 U.S.C. § 1342, by directing 

contractors to continue performance after its borrowing authority had 

been depleted. A government-created corporation statutorily designated as 

private or not an agency or instrumentality of the United States is not 

subject to the Antideficiency Act. B-308037, Sept. 14, 2006 (Legal Services 

Corporation). Congress, of course, could choose to subject such a 

corporation to the Antideficiency Act by amending its enabling statute or 

imposing restrictions specifically when it appropriates funds to the 

corporation. For an example of a restriction in an annual appropriations 

act subjecting specific appropriations received by private entities to the 

restrictions of the Antideficiency Act, see Department of Transportation 

and Related Agencies Appropriations Act, 1998, Pub. L. No. 105-66, 

111 Stat. 1425, 1435 (Oct. 27, 1997) (“any obligation or commitment by 

[Amtrak] for the purchase of capital improvements with fund appropriated 

herein which is prohibited by this Act shall be deemed a violation of 

31 U.S.C. § 1341”).

The statute which prescribes the standards for recording obligations, 

31 U.S.C. § 1501, also applies to government corporations which are 

agencies or instrumentalities of the United States. E.g., 34 Comp. Gen. 825 

(1954) (GAO’s initial guidance on implementing the then recording statute); 

B-123943-O.M., July 1, 1955 (Institute of Inter-American Affairs). See also

United States v. American Renaissance Lines, Inc., 494 F.2d 1059 (D.C. 

Cir.), cert. denied, 419 U.S. 1020 (1974) (Commodity Credit Corporation), 

and 37 Comp. Gen. 691 (1958) (Saint Lawrence Seaway Development 

Corporation), in which the court and GAO, respectively, treated the statute 
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as applicable without directly addressing the issue. The original enactment 

of 31 U.S.C. § 1501 was section 1311 of the Supplemental Appropriations 

Act for 1955 (Pub. L. No. 83-663, ch. 935, 68 Stat. 800, 830 (Aug. 26, 1954)).

The Economy Act, Act of June 30, 1932, § 601, 47 Stat. 417, as amended, 

applies to “independent establishments of the Government,” which would 

include wholly owned government corporations and entities chartered as 

“instrumentalities of the government.” See 31 U.S.C. § 1535 note; B-116194, 

Oct. 5, 1953 (since the Panama Canal Company was created as an 

instrumentality of the government, it is an independent establishment 

within the meaning of that term in the Economy Act); B-39199, Jan. 19, 1944 

(Rubber Development Corporation, as a wholly owned subsidiary of the 

Reconstruction Finance Corporation, which in turn is owned by the United 

States, is an independent establishment under the Economy Act). The 

corporation can be the requisitioning agency (13 Comp. Gen. 138 (1933);

B-27842, Aug. 13, 1942), or the performing agency (B-116194, Oct. 5, 1953; 

B-39199, Jan. 19, 1944; A-46332, Jan. 9, 1933). If a corporation has specific 

charter authority to provide goods or services to other government 

establishments, the specific authority will displace the Economy Act. E.g.,

44 Comp. Gen. 683 (1965) (sale of electric power by Tennessee Valley 

Authority to other government agencies).

The so-called “Stale Check Act,” Pub. L. No. 80-171, ch. 222, 61 Stat. 308 

(July 11, 1947), codified at 31 U.S.C. § 3328, prescribes requirements for 

handling Treasury checks. The original language applied expressly to 

checks “drawn by wholly owned and mixed-ownership Government 

corporations,” except for “transactions regarding the administration of 

banking and currency laws.” Pub. L. No. 80-171, § 1. The 1982 

recodification dropped the definitional language as “surplus.” See 31 U.S.C. 

§ 3328 note. Nevertheless, in view of the original language, the statute still 

applies to both wholly owned and mixed-ownership government 

corporations. Id.; see also B-70248, Nov. 6, 1947; B-100893-O.M., Mar. 27, 

1951. The statute also has been held applicable to a government 

corporation with “character and necessity” power including the “without 

regard” clause (see sections B.6.c(1) and (2) of this chapter for a discussion 

of these clauses). B-70248, Sept. 1, 1950. 

The decision in B-70248, Sept. 1, 1950, involved the Reconstruction Finance 

Corporation, which received its “without regard” authority in 1948, a year 

after enactment of the Stale Check Act. At first glance, therefore, this 

would appear to contradict our earlier discussion in section B.6.c(2) that a 

“without regard” clause permits the corporation to avoid expressly 
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applicable laws already in existence. The answer is that it depends on what 

kind of law you’re talking about and whose discretion or responsibility is at 

issue. The decision stated:

“[W]here the Corporation has decided a payment should be 

made, and issued a check drawn on the Treasurer of the 

United States, it appears that the discretion of the 

Corporation has then been exercised. . . . The obligation 

after issuance of the checks . . . appears clearly to be a 

Treasury obligation, not one of the Reconstruction Finance 

Corporation. As such, it does not appear to be one over 

which the Corporation’s determination is final and 

conclusive, but one over which the Treasury Department . . . 

under the ‘Stale Check Act’ [has] jurisdiction.” 

B-70248, Sept. 1, 1950, at 5.

Another provision with relevance to government corporations is 31 U.S.C. 

§ 3301(a)(1), which directs the Secretary of the Treasury to “receive and 

keep public money.” This provision, as reinforced by the Government 

Corporation Control Act (31 U.S.C. §§ 9107(b) and (c)), applies to the 

appropriated funds of a government corporation (both wholly owned and 

mixed-ownership) unless waived pursuant to section 9107(c). Thus, a 

government corporation is not entitled, solely by virtue of its corporate 

status, to have its appropriation paid over directly to it “up front” in a lump 

sum. Rather, like any other agency, the money stays in the Treasury until 

needed for a valid purpose. 21 Comp. Gen. 489 (1941). Congress can, of 

course, provide differently. An example is the Corporation for Public 

Broadcasting, whose appropriations “shall be disbursed by the Secretary of 

the Treasury on a fiscal year basis.” 47 U.S.C. § 396(k)(2)(B).

A final provision we will note is 31 U.S.C. § 3302(b), the miscellaneous 

receipts statute. If “character and necessity” authority is one major leg 

upon which the fiscal autonomy of a government corporation rests, user 

fee or revolving fund-type financing is the second. If a government 

corporation is realistically expected to perform business-type functions 

with any efficiency, the requirement to deposit all receipts in the Treasury 

and await congressional appropriations would be a serious impediment, 

especially for federally chartered but private, nonprofit entities like the 

State Justice Institute, which by statute is not to be considered a 

department, agency, or instrumentality of the government. B-307317, 

Sept. 13, 2006. Therefore, money received by the State Justice Institute 
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would not be money received “for the government,” so the miscellaneous 

receipts statute does not apply. Id. However, other types of government 

corporate entities, which act as agents of the government would need 

statutory authority to overcome 31 U.S.C. § 3302(b); corporate status alone 

is not enough. B-300218, Mar. 17, 2003; 52 Comp. Gen. 54, 55 (1972); 

5 Comp. Gen. 1004 (1926). For most corporations, the solution is the 

charter authority to retain and reuse receipts, the exact type of receipts 

varying with the particular corporation. These are called “public enterprise 

revolving funds” and effectively displace 31 U.S.C. § 3302(b).163 Revolving 

funds are covered in Chapter 12, section C, and we will not repeat that 

discussion here, except to emphasize that the legislation creating the fund 

determines what can go into it and what it can be used for. For example, 

the statute for the Overseas Private Investment Corporation (OPIC), 

22 U.S.C. § 2196, uses very broad language—“all revenues and income . . . 

from whatever source derived.” See 52 Comp. Gen. 54 (1972) (interest 

earned by OPIC on foreign currencies held in designated depositaries 

pending their sale for dollars may be retained and used).

Along similar lines, a provision in a 1945 appropriation act limited 

expenditures for long-distance telephone calls to 90 percent of the agency’s 

budget estimate for that purpose. The resulting savings were to be 

deposited as miscellaneous receipts. GAO interpreted the provision as 

contemplating “the return of such funds to the source from which made 

available,” and advised the Commodity Credit Corporation that it could 

retain its savings and did not have to deposit them in the general fund of 

the Treasury. 24 Comp. Gen. 514, 517 (1945).

d. Program Implementation Thus far, our discussion of fiscal autonomy has focused on the ability of a 

government corporation to avoid laws applicable to the rest of the 

government. There is another dimension, however. The discretion of a 

government corporation also helps determine the scope of the 

corporation’s program activities, wholly apart from questions of 

compliance with specific laws.

It would seem hardly open to question that the very common-sense statute, 

31 U.S.C. § 1301(a), which prohibits the use of appropriations for other 

than their intended purposes, applies to the “appropriated funds”—as we 

163 For the distinctions between government corporation revolving funds and those of 

agencies, see Ronald C. Moe, Managing the Public’s Business: Federal Government 

Corporations, S. Prt. No. 104-18, at 62 (1995).
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have described that term earlier—of a government corporation. The 

analytical approach to purpose availability is essentially the same for a 

corporation as for agencies. The expenditure must bear a logical 

relationship to furthering some authorized function or activity, and must 

not be otherwise prohibited or otherwise expressly provided for. For 

example, it is within the discretion of Federal Prison Industries, Inc., (FPI) 

to engage in the business of manufacturing envelopes for sale to the rest of 

the government. B-240914, Aug. 14, 1991. While FPI is generally supposed 

to seek out more labor-intensive activities, this is not an absolute legal 

requirement, and the corporation could properly determine that envelope 

manufacturing would further its objectives. Similarly, the Saint Lawrence 

Seaway Development Corporation could use its funds for minor work on 

the Canadian side of the border if closely related and ancillary to its 

primary works on the United States side. 34 Comp. Gen. 309 (1954).

While the corporations cited in the preceding paragraph are wholly owned, 

the principle applies equally to funds appropriated to a mixed-ownership 

corporation. For example, the National Credit Union Administration could 

not avoid restrictions on paying relocation expenses to one of its officials 

by transferring the charge to the accounts of the Central Liquidity Facility 

(CLF) where the official was clearly an employee of, and whose salary was 

paid entirely by, the Administration and not the CLF. 63 Comp. Gen. 31, 

36–37 (1983).

As we noted in section B.6.c(1) of this chapter, when you add “character 

and necessity” authority to the discretion already inherent under 31 U.S.C. 

§ 1301(a), the result is that a government corporation has much more 

spending discretion than other agencies, although it is still subject to the 

overall limitation that its discretion be exercised “within the limitations and 

for the purposes of the statutes providing [its] funds and prescribing [its] 

activities.” 14 Comp. Gen. 698, 700 (1935). 

An illustration of how all this can work is B-48184, Mar. 14, 1945. The 

Federal Housing Administration (FHA) had acquired title to a rental 

housing development under its mortgage insurance program. The FHA 

could retain and operate the development or could, within its discretion, 

sell it. A major drawback was that, except for a “low grade combination 

grocery store and beer parlor,” there were no shopping facilities in the 

development or nearby area. After unsuccessfully trying to interest private 

capital, the FHA proposed using its own funds to provide a shopping center 

consisting of a food store, drug store, barber shop, beauty shop, shoe repair 

shop, laundry, gasoline station, and a management office. FHA thought 
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that the shopping center would help significantly to make the development 

livable during the period of FHA operation, and would enhance its value if 

and when the FHA decided to sell it. The FHA had statutory authority to 

“deal with, complete, rent, renovate, modernize . . . or sell” the property, 

and to determine the necessity of its expenditures. Id. at 4. In light of this 

authority and the FHA’s justification, GAO concurred with the proposal, 

notwithstanding the lack of statutory authority for new construction.

A sampling of cases involving three additional entities—the Commodity 

Credit Corporation, the Bonneville Power Administration, and Amtrak—

further illustrates the role of corporate discretion, and its limitations, in 

program implementation.

(1) Commodity Credit Corporation

Created in 1933, the Commodity Credit Corporation (CCC) operates a 

variety of price support programs for agricultural commodities (including 

such things as direct subsidy payments and loans) and export programs 

designed to develop foreign markets for American agricultural products. It 

is a wholly owned government corporation and “an agency and 

instrumentality of the United States, within the Department of Agriculture.” 

15 U.S.C. § 714. It is unusual in that it has no employees. It is managed by a 

presidentially appointed board of directors (15 U.S.C. § 714g), but its dayto-day operations are carried out by Department of Agriculture employees 

who, in effect, wear two hats. It has the authority to determine the 

character and necessity of its expenditures. 15 U.S.C. § 714b(j).

In a 1982 case, the Justice Department’s Office of Legal Counsel reviewed 

two programs that CCC had created to promote agricultural exports by 

guaranteeing exporters or their financing institutions against certain risks. 

There was no explicit statutory authority for the programs, but CCC is 

authorized to “use its general powers” to “[e]xport or cause to be exported, 

or aid in the development of foreign markets for, agricultural 

commodities.” 15 U.S.C. § 714c(f). One of those general powers is the 

“character and necessity” power discussed in section B.6.c(1) of this 

chapter. Since the programs were unquestionably designed to promote 

exports, they had adequate statutory authority. 6 Op. Off. Legal Counsel 

233 (1982). The following year, GAO reviewed payments made under these 

programs to United States banks which had financed exports to the then 

Polish People’s Republic. While the CCC had not strictly complied with its 

own regulations, the deviations were essentially on matters of procedure, 
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which the CCC could waive. Therefore, GAO found nothing objectionable. 

B-208610, Sept. 1, 1983.

In B-213761, July 27, 1984, GAO considered aspects of the CCC’s tobacco 

price support program. Specifically, there were differences between the 

procedures Treasury used in charging interest and crediting repayments 

against loans to the CCC and the procedures the CCC used in charging 

interest and crediting repayments on loans it made to tobacco producers. 

The impact was to increase the amount of the CCC’s net losses, for which 

appropriations are made annually. While GAO felt that the CCC should 

change its procedures to more closely align with Treasury’s procedures, 

and had made this recommendation on more than one occasion, the CCC 

was under no legal requirement to do so. The terms and conditions of its 

loans were within its discretion.

Much of the detail in CCC’s programs comes from its regulations. See 

generally 7 C.F.R. subtitle B, ch. XIV. The extent to which it may deviate 

with impunity from the terms of its regulations suggests another test of the 

range of the corporation’s discretion. A 1965 case involved price support 

payments to tobacco producers under regulations which made the 

payments available only for sales within the annual normal marketing 

season. A temporary funding shortage forced suspension of payments. 

The question was whether, once the funds became available, the CCC could 

make payments to producers for sales occurring shortly after the normal 

marketing season. If legal liability to those producers could be established, 

the answer of course would be yes. GAO did not think it could, but found 

the matter sufficiently doubtful, especially in light of prior practice, and 

therefore advised the CCC that the payments would be unobjectionable. 

44 Comp. Gen. 735 (1965). As noted above, the CCC, like any other 

government agency, can deviate from procedural regulations, at least as 

long as the action does not prejudice other parties. Its discretion does not 

extend, however, to retroactively waiving substantive regulations without 

statutory authority. 53 Comp. Gen. 364 (1973); B-208610, Sept. 1, 1983.

Cases involving the price support program for milk and milk products 

illustrate a situation in which corporate discretion must be subordinated to 

the terms of the program statute. The pertinent law provided that price 

support “shall be provided through loans on, or purchases of, milk and the 

products of milk and butterfat.” Agricultural Act of 1949, Pub. L. No. 81-

439, title II, § 201(c), 63 Stat. 1051, 1053 (Oct. 31, 1949), currently amended 

and codified at 7 U.S.C. § 1446(c). Some within Agriculture wanted to 

make direct price support payments, relying on CCC’s broad general 
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powers. Both the Department’s Solicitor and the Attorney General agreed 

that under existing law the CCC is limited to loans on, and purchases of, 

dairy products “in supporting the price of milk and butterfat to producers.” 

See 41 Op. Att’y Gen. 183, 187 (1954). The CCC’s general powers “cannot 

reasonably be deemed to enlarge the specific powers granted in [the price 

support statute].” Id. at 186. Agriculture then proposed to purchase the 

products at one price and sell them back to the same parties at a lower 

price, without the products ever moving. GAO determined that this was 

not a bona fide purchase and that the payments were therefore 

unauthorized. B-124910, Aug. 15, 1955. Upon GAO’s determination of 

unauthorized payments, Justice proceeded to initiate recovery of the 

amounts improperly paid. This determination has been upheld by at least 

three courts of appeals, which agreed that the payments were illegal and 

could be recovered.164 See also B-211462-O.M., Oct. 31, 1983 (statutory 

payment limitation applies to in-kind payments as well as cash, CCC’s 

broad discretion notwithstanding).

In 1961, CCC made another proposal, strikingly similar on the surface. The 

CCC would accept grain in satisfaction of loans it had made to the 

producer, and then sell the grain—which never moved—back to the same 

producer at current support rates. This case was different, however. The 

resale back to the producer was under an emergency assistance program, 

separate and distinct from the program under which the loans had been 

made. There was no lack of genuineness to the transaction, and selling 

back to the same producer made sense because it would save money for all 

concerned by eliminating moving and handling charges. Accordingly, GAO 

found this proposal to be within the CCC’s authority and discretion. 

40 Comp. Gen. 571 (1961).

An illustration of an expenditure expressly “otherwise provided for” is 

B-142011, June 19, 1969, very similar in principle to 63 Comp. Gen. 31 

(1983), the Central Liquidity Facility decision summarized earlier in section 

B.6.d of this chapter. Some had suggested that the Agriculture Department 

could avoid a limitation in its salaries and expenses appropriation by 

having certain salaries paid from CCC funds. Agriculture felt this would be 

improper. GAO agreed:

164 Kraft Foods Co. v. Commodity Credit Corporation, 266 F.2d 254 (7th Cir.), cert. denied, 

361 U.S. 832 (1959); Land O’Lakes Creameries, Inc. v. Commodity Credit Corporation,

265 F.2d 163 (8th Cir. 1959); Swift & Co. v. United States, 257 F.2d 787 (4th Cir.), cert. denied, 

358 U.S. 837 (1958).
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“We see no significant distinction between using an 

otherwise available general appropriation for a particular 

object, when there is a specific appropriation for such 

object, and using corporate funds for a purpose for which a 

specific appropriation has been made, in order to avoid a 

limitation pertaining to the specific appropriation.” 

B-142011, June 19, 1969, at 12.

A case in which the expenditure bore no relationship to a legitimate 

corporate purpose is B-129650, May 11, 1977. A practice had developed of 

using the CCC revolving fund to purchase foreign currencies to be used for 

congressional travel expenses, beyond the limited authority then found in 

22 U.S.C. § 1754(b) (1975). Finding no authority for this practice, the 

decision stated, at page 3:

“While included among the general powers of the CCC is the 

authority to determine the character and necessity of its 

expenditures . . . the broad administrative discretion 

thereby conferred must be exercised in conformity with the 

congressional purpose of the CCC . . . and in accordance 

with the specific powers granted to the CCC [by statute]. . . . 

Nothing in these provisions . . . suggest[s] a congressional 

intent to allow conversions of dollar funds to foreign 

currencies for use for congressional travel.”165

(2) Bonneville Power Administration

The Bonneville Power Administration is one of the four Department of 

Energy regional power marketing administrations, which were established 

to “sell and transmit the power generated at various federal hydroelectric 

plants.”166 Created in 1937, Bonneville markets and transmits electric 

165 The statute was subsequently amended to give Treasury a permanent indefinite 

appropriation to purchase the necessary currencies. International Security Assistance Act 

of 1978, Pub. L. No. 95-384, § 22, 92 Stat. 730, 742 (Sept. 26, 1978); see also B-129650, Mar. 27, 

1979.

166 See B-303180, July 26, 2004, for a detailed background description of power marketing 

administrations. See also GAO, Power Marketing Administrations: Their Ratesetting 

Practices Compared with Those of Nonfederal Utilities, GAO/AIMD-00-114 (Washington, 

D.C.: Mar. 30, 2000), at 6–8.
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power in the Pacific Northwest.167 It is not a government corporation but 

“an office in the Department of [Energy] . . . under the jurisdiction and 

control of the Secretary of [Energy].” 16 U.S.C. § 832a(a).168 Nevertheless, 

its statutory powers are comparable to those of a wholly owned 

government corporation. It is financed through a revolving fund,169

16 U.S.C. § 838i, and has the following general powers:

“Subject only to the provisions of this Act, the Administrator 

is authorized to enter into such contracts, agreements, and 

arrangements, including the amendment, modification, 

adjustment, or cancellation thereof and the compromise or 

final settlement of any claim arising thereunder, and to 

make such expenditures, upon such terms and conditions 

and in such manner as he may deem necessary.”

“The administrator may make such expenditures for offices, 

vehicles, furnishings, equipment, supplies, and books; for 

attendance at meetings; and for such other facilities and 

services as he may find necessary for the proper 

administration of this Act.” 

16 U.S.C. §§ 832a(f), 832h(b) (respectively).

167 Bonneville Project Act of 1937, Pub. L. No. 75-329, 50 Stat. 731 (Aug. 20, 1937), codified at 

16 U.S.C. §§ 832–832m. As summarized in one opinion, Bonneville’s main purposes as set 

forth in 16 U.S.C. § 832a are “to operate and maintain the Federal electric power 

transmission system in the Pacific Northwest and to market the electric power generated by 

the Federal generating plants in that area.” 3 Op. Off. Legal Counsel 419 (1979). See also 

16 U.S.C. § 832a. 

168 Bonneville Power Administration was transferred from the Department of the Interior to 

the Department of Energy in 1977 when the Department of Energy was created. See Pub. L. 

No. 95-91, title III, § 302(a), 91 Stat. 565, 578 (Aug. 4, 1977), codified at 42 U.S.C. 

§ 7152(a)(1)(c). See also B-303180, July 26, 2004. 

169 As discussed in more detail in Chapter 6, section E.2.g, a revolving fund is generally a 

statutorily created fund in which receipts are credited to the fund and are then available for 

fund purposes without the need for further appropriation. However, BPA’s revolving fund is 

“subject to such limitations as may be prescribed by any applicable appropriation act 

effective during such period as may elapse between [the funds] transfer and the approval by 

the Congress of the first subsequent annual budget program of the [BPA] Administrator.” 

16 U.S.C. § 838i(a).
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Although not a corporation, Bonneville is subject to the Government 

Corporation Control Act provisions for wholly owned corporations. 

16 U.S.C. § 838i(c). Thus, Bonneville has essentially the same range of 

spending discretion as a wholly owned corporation. It is also subject to the 

same overall purpose limitation which, in addition to 31 U.S.C. § 1301(a) 

(the purpose statute), is spelled out in 16 U.S.C. § 838i(c) (“Moneys 

heretofore or hereafter appropriated shall be used only for the purposes for 

which appropriated”).

Before the enactment of 16 U.S.C. § 832a(f), Bonneville’s spending 

discretion was not materially different from that of other government 

agencies. E.g., B-49169, May 5, 1945 (appropriations unavailable for 

entertainment). However, the enactment of that provision in October 1945 

made a material change:

“The legislative history of [16 U.S.C. § 832a(f)] indicates that 

its purpose was to free the Administration from the 

requirements and restrictions ordinarily applicable to the 

conduct of Government business and to enable the 

Administrator to conduct the business of the project with a 

freedom similar to that which has been conferred on public 

corporations carrying on similar or comparable activities.” 

B-105397, Sept. 21, 1951, at 3.

Naturally, anything Bonneville could do before the amendment was 

unaffected. An example would be 20 Comp. Gen. 566 (1941) (Bonneville’s 

appropriations available for photographic identification cards for its 

employees). Other examples, validated under 16 U.S.C. § 832h(b), which 

predated § 832a(f), are 18 Comp. Gen. 843 (1939) (purchase of motion 

picture equipment to record key aspects of construction program), and 

B-25800, May 20, 1942 (expenses of attendance at meetings).

The latitude given Bonneville has enabled it to structure its dealings to 

reflect the nature of the business in which it is involved, the characteristics 

of the geographical region in which it operates, and changing 

circumstances. In a 1962 case, for example, Bonneville proposed an 

agreement with the Washington Public Power Supply System (WPPSS) 

under which WPPSS would furnish to Bonneville electric power purchased 

from the Atomic Energy Commission’s Hanford reactor, and Bonneville 

would provide “firm power” (i.e., not subject to interruptions) in exchange. 

The agreement would terminate if the reactor were discontinued prior to 
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commencement of commercial operations, in which event Bonneville 

would reimburse WPPSS for certain expenses incurred up to that point. As 

long as the Atomic Energy Commission’s participation received 

congressional approval, GAO found no problem with Bonneville’s authority 

to enter into the agreement. B-149016, B-149083, July 6, 1962.170

In 46 Comp. Gen. 349 (1966), Bonneville was acquiring high-powered 

circuit breakers, and decided to spread the risk among several 

manufacturers to minimize risk of major power failure until the circuit 

breakers had been in service for sufficient time to assure that they were 

free from defects. Bonneville’s discretion permitted it to do this, and to 

exclude from the solicitation two firms from which it had already 

purchased circuit breakers.

Bonneville is required to give “preference and priority to public bodies and 

cooperatives” in disposing of electric energy generated at a Bonneville 

project. 16 U.S.C. § 832c(a). It is also authorized to sell electric power 

“either for resale or direct consumption, to public bodies and cooperatives 

and to private agencies and persons,” as well as to other federal agencies. 

16 U.S.C. § 832d(a). While Bonneville is thus authorized to sell directly to 

private consumers, it is not legally required to do so, and is therefore under 

no obligation to sell power to every applicant. B-158903, July 6, 1966. 

A concept frequently arising in the Bonneville cases is the concept of “net 

billing.” This is, in oversimplified terms, a system under which Bonneville, 

in billing its customers, liquidates certain of its payment obligations by 

reducing the bill by the amount the customer has paid either to Bonneville 

under some separate arrangement or to some other party under a variety of 

complex arrangements. GAO approved the concept as within Bonneville’s 

authority in B-170878, Oct. 21, 1970. (Congress had already recognized the 

concept in legislation.) A few years later, it became apparent that, in the 

particular situation addressed in B-170878, net billing would be inadequate 

to sustain the purchase of sufficient power. Bonneville then proposed to 

170 For more information on the relationship between Bonneville and WPPSS, see GAO, GAO 

Products on Bonneville Power Administration, RCED-93-133R (Washington, D.C.: Mar. 31, 

1993), at enclosure VII; The Bonneville Power Administration’s Oversight Activities 

Related to Washington Public Power Supply System, No. 123637 (Washington, D.C.: 

Mar. 12, 1984) (testimony); Bonneville Power Administration and Rural Electrification 

Administration Actions and Activities Affecting Utility Participation in Washington 

Public Power Supply System Plants 4 and 5, GAO/EMD-82-105 (Washington, D.C.: July 30, 

1982).
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purchase power for its preference customers under what it called a “trustagency” agreement. While finding this authorized as well, GAO stressed the 

purpose limitation on Bonneville’s discretion: “While 16 U.S.C. § 832a(f) is 

intended to confer broad administrative discretion on the Administrator, 

that discretion must always be exercised in furtherance of the purposes, 

and subject to the provisions, of the [program legislation].” B-137458, 

Sept. 13, 1974, at 5.

The financing mechanism of net billing agreements has been judicially 

approved, as well. In City of Springfield v. Washington Public Power 

Supply System, 564 F. Supp. 90, 95 (D. Ore. 1983), the court described one 

system as follows.

“The net billing agreements are contracts between the 

United States, acting through BPA, WPPSS, and the 

Northwest utilities. Under these contracts, utilities buy 

power from BPA. Instead of paying BPA, however, utilities 

pay WPPSS, which uses the money to retire bonds. . . . Thus 

BPA ‘net-bills’ for power and those bills are paid to WPPSS 

as third party beneficiary of the BPA-utility contracts and in 

satisfaction of WPPSS’ rights under the net billing 

agreements.”

The Ninth Circuit Court of Appeals modified the district court’s decision in 

certain respects, but affirmed its holding that these were essentially 

contracts for the purchase of electricity and thus within Bonneville’s 

authority. City of Springfield v. Washington Public Power Supply System,

752 F.2d 1423 (9th Cir. 1985), cert. denied, 474 U.S. 1055 (1986). One factor 

both courts noted was that Bonneville had assumed “dry-hole risk,” that is, 

Bonneville would pay even if the generating plants were never completed 

or never produced saleable power, thus insulating public bodies from 

having to resort to future taxation. City of Springfield, 564 F. Supp. at 93, 

95; 752 F.2d at 1429.

The extent to which Bonneville’s range of discretion permits it to tailor 

arrangements to fit specific program needs is illustrated in B-210929, 

Aug. 2, 1983. As construction of one of the WPPSS plants approached 

completion, WPPSS found itself unable to obtain further bond financing. 

Bonneville proposed, and GAO concurred, to pay, by direct disbursement 

or net billing, to complete construction of the WPPSS project. The 

argument against direct payment was that Bonneville had not presented 

this as an option when seeking congressional approval. However, GAO 
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found that direct payment would not be inconsistent with congressional 

approval of the net billing approach since direct payment funds would be 

derived at least ultimately from rate adjustments, and the end result—costs 

borne by Bonneville’s ratepayers rather than taxpayers—would be the 

same. It would amount simply to “[doing] directly what Congress 

otherwise authorized it to do indirectly.” Id. at 16.

Still another area in which Bonneville’s discretion has been upheld is the 

Pacific Northwest-Pacific Southwest Intertie, a system of high-voltage 

transmission lines partially owned by Bonneville and designed to permit 

the regions to help each other during times of heavy demand. Bonneville is 

required to first give itself preference and then to make excess capacity 

available to others. 16 U.S.C. § 837e. The courts have upheld Bonneville’s 

policies for the allocation of excess Intertie capacity as within its 

discretion, as long as done in a fair and nondiscriminatory manner 

(16 U.S.C. § 838d). California Energy Resources Conservation and 

Development Commission v. Bonneville Power Administration, 831 F.2d 

1467 (9th Cir. 1987); Department of Water and Power of Los Angeles v. 

Bonneville Power Administration, 759 F.2d 684 (9th Cir. 1985). 

Rate-making decisions under 16 U.S.C. § 839e have also been accorded 

deference by the courts, as long as the rates are supported by sound 

business practices. See, e.g., Public Power Council, Inc. v. Bonneville 

Power Administration, 442 F.3d 1204, 1209 (9th Cir. 2006); California 

Energy Commission v. Bonneville Power Administration, 909 F.2d 1298, 

1306 (9thCir. 1990).

Finally, Bonneville has the discretionary authority to engage in certain 

energy conservation programs. B-114858, July 10, 1979; 3 Op. Off. Legal 

Counsel 419 (1979). The question was whether energy conservation is 

consistent with Bonneville’s statutory mandate to encourage widespread 

use of federally generated power. In other words, is its main job to push 

the stuff, or save it? Bonneville’s argument, successful as it turned out, was 

that it viewed conservation as an investment in increased production rather 

than a demand reduction device. Once again, the GAO opinion stressed 

that Bonneville’s discretion, broad though it may be, “must always be 

exercised in furtherance of the purposes, and subject to the provisions, of 

BPA’s enabling legislation.” B-114858, July 10, 1979, at 4.
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(3) Amtrak

Amtrak was created by the Rail Passenger Service Act of 1970, Pub. L. 

No. 91-518, title III, § 301, 84 Stat. 1327, 1330 (Oct. 30, 1970).171 Its purpose 

is to provide modern and efficient intercity and commuter rail passenger 

transportation. 49 U.S.C. § 24101(b). Amtrak was the federal government’s 

response to declining railroad passenger ridership resulting in the railroad 

companies losing money on a service they were legally required to provide. 

Congress created Amtrak to ensure a minimum level of intercity passenger 

rail service for the public while relieving the railroad companies of this 

financial burden so that they could focus on the more profitable freight 

services. See Library of Congress, Congressional Research Service, 

Amtrak Profitability: An Analysis of Congressional Expectations at 

Amtrak’s Creation, No. RL 31473 (June 26, 2002), at 1–3. Congressional 

and administration leaders in 1970 predicted that Amtrak would ultimately 

be profitable as a result of reductions in money-losing routes and federal 

investment that would yield faster, safer rail travel, neither of which have 

occurred. Id. at 7. See also B-277814, Oct. 20, 1997. The current status of 

Amtrak and passenger rail travel is addressed in GAO, Intercity Passenger 

Rail: National Policy and Strategies Needed to Maximize Public Benefits 

from Federal Expenditures, GAO-07-15 (Washington, D.C.: Nov. 13, 2006). 

Although federally created and receiving substantial federal financial 

assistance, Amtrak is to be “operated and managed as a for-profit 

corporation,” and is “not a department, agency, or instrumentality of the 

United States Government, and shall not be subject to title 31 [of the United 

States Code].” 49 U.S.C. §§ 24301(a)(2) and (3).172 It was originally 

171 Much of Amtrak’s legislation was transferred from title 45 of the United States Code to 

title 49 as part of a 1994 recodification. While 45 U.S.C. § 1104(1) still defines Amtrak as the 

National Railroad Passenger Corporation, the recodified provisions in title 49 have dropped 

that designation and use only “Amtrak.” See the codifier’s note to 49 U.S.C. § 24101.

172 The version in effect immediately prior to the 1994 recodification said that Amtrak will 

not be “an agency, instrumentality, authority, or entity, or establishment” of the United 

States. 45 U.S.C. § 541 (1988). The Amtrak Reform and Accountability Act of 1997 amended 

49 U.S.C. § 24301(a)(3) to specify that Amtrak “shall not be subject to title 31.” 

Pub. L. No. 105-134, § 415(d)(1), 111 Stat. 2570, 2590 (Dec. 2, 1997). That same year, 

however, the annual appropriation act provided that “any obligation or commitment by 

[Amtrak] for the purchase of capital improvements with funds appropriated herein which is 

prohibited by this Act shall be deemed a violation of 31 U.S.C. § 1341,” the Antideficiency 

Act. Department of Transportation and Related Agencies Appropriations Act, 1988, 

Pub. L. No. 105-66, 111 Stat. 1425, 1435 (Oct. 27, 1997).
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designated a mixed-ownership government corporation,173 but this was 

dropped in 1997.174 It is also classed as a railroad carrier for purposes of 

certain portions of the Interstate Commerce Act (49 U.S.C. § 24301(a)(1)), 

and is thus subject to the jurisdiction of the Surface Transportation Board, 

successor to the Interstate Commerce Commission, to that limited 

extent.175 GAO is authorized to conduct “performance audits of [Amtrak’s] 

activities and transactions.” 49 U.S.C. § 24315(e); B-175155-O.M., Oct. 21, 

1981.

The congressional objective is eventual profitability and elimination or at 

least minimization of federal subsidies. See 49 U.S.C. § 24101(d), as 

amended by Public Law 105-134, § 201, mandating that Amtrak operate 

without federal operating grants by fiscal year 2004. Section 301 of Public 

Law 105-134, codified at 49 U.S.C. § 24104(a), authorized to be appropriated 

to the Secretary of the Treasury declining amounts ranging from 

$1.14 billion in fiscal year 1998 to $0.96 billion in fiscal year 2002 to support 

Amtrak. Nevertheless, federal financial assistance has always been 

necessary. Despite the goals set out in the 1997 act, fiscal year 2004 has 

come and gone, and Amtrak still cannot operate without federal subsidies. 

In fact, GAO reported that between 1971 and 2005, Amtrak received 

cumulative subsidies of $29 billion. See GAO, Amtrak Management: 

Systemic Problems Require Actions to Improve Efficiency, Effectiveness, 

and Accountability, GAO-06-145 (Washington, D.C.: Oct. 4, 2005), at 2. 

This federal financial assistance takes the form of appropriations made to 

the Secretary of Transportation for the purpose of making grants to 

Amtrak. For example, in the Department of Transportation appropriations 

act for 2006, $495 million was made available until expended for Amtrak 

operational subsidy grants. Pub. L. No. 109-115, 119 Stat. 2396, 2413–15 

(Nov. 30, 2005). Congress also appropriated $780 million for capital and 

debt service grants and $40 million for efficiency incentive grants, both 

amounts also to be available until expended, for a total of $1.315 billion in 

173 Pub. L. No. 91-518, § 804.

174 Pub. L. No. 105-134, § 415(d)(2), which amended 31 U.S.C. § 9101 to delete Amtrak from 

the list of agencies statutorily defined as mixed-ownership government corporations for 

purposes of title 31 of the United States Code.

175 Section 24301(a)(1) was amended by Pub. L. No. 105-134, § 401, to clarify Amtrak’s 

relationship to the Interstate Commerce Act. See H.R. Rep. No. 105-251, at 36 (1997).
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appropriations for fiscal year 2006. Id.176 Amtrak makes its funding 

requests to the Secretary of Transportation, who in turn includes them as 

part of Transportation’s portion of the President’s budget. B-175155, 

Sept. 26, 1978 (requirement in 31 U.S.C. § 1105(a)(5) for 5-year projection 

not applicable to Amtrak’s funding requests to Secretary). As with the 

fiscal year 2006 appropriation, the funds are made available until expended, 

and may include separate amounts for operating losses and capital 

improvements. 

The statutory payout schedule “has virtually assured” that Amtrak will 

receive more money that it immediately needs for current expenses. 

B-175155(2), Apr. 22, 1975, at 4. Congress did not restrict the use of these 

funds but “expects Amtrak to utilize them in accordance with its best 

business judgment.” Id. Thus, a line of Comptroller General decisions held 

that Amtrak could use its grant funds for such things as advances on capital 

equipment (B-175155(2), Apr. 22, 1975); investment to the extent funds are 

not currently needed (B-175155, June 11, 1975); payment of operating 

expenses while funds from other sources are temporarily invested (id.); 

retirement of long-term debt obligations under a since-repealed provision 

for the Secretary of Transportation to guarantee loans to Amtrak 

(B-175155(2), July 26, 1976); and installing fire fighting equipment in 

railroad tunnels in New York City to comply with a safety order of the New 

York City Fire Department (B-175155, May 22, 1978). When investing 

excess funds, Amtrak may retain the interest earned notwithstanding their 

designation as grant funds. B-175155, June 11, 1975.

In surveying decisions and opinions relating to Amtrak, the details are of 

secondary importance because virtually every provision of Amtrak’s 

legislation has changed, sometimes repeatedly. The cases are intended to 

illustrate the operational and spending freedom of a noninstrumentality 

corporation in principle. The Supreme Court has said that Amtrak’s 

noninstrumentality disclaimer “is assuredly dispositive of Amtrak’s 

status . . . for purposes of matters that are within Congress’ control.” 

Lebron v. National Railroad Passenger Corp., 513 U.S. 374, 392 (1995). 

Thus, the answer to the typical question of whether this or that law 

applicable to government entities applies to Amtrak is “no.” E.g., National 

Railroad Passenger Corp. v. Commonwealth of Pennsylvania Public 

176 These are the amounts before an across-the-board rescission that was enacted as part of 

the Department of Defense Appropriations Act, 2006, Pub. L. No 109-148, § 3801, 119 Stat. 

2680, 2791–92 (Dec. 30, 2005).
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Utility Commission, No. Civ. A. 86-5357 (E.D. Pa. Sept. 15, 1997) (Amtrak 

does not share the government’s Eleventh Amendment rights in relation to 

jurisdiction to suit in state courts); Hill International, Inc. v. National 

Railroad Passenger Corp., 957 F. Supp. 548 (D.N.J. 1996) (Amtrak is not 

subject to federal procurement regulations); Sentner v. Amtrak,

540 F. Supp. 557 (D.N.J. 1982) (Amtrak does not share the government’s 

immunity from awards of punitive damages). See also B-277814, Oct. 20, 

1997 (U.S. government is not liable for Amtrak’s debts in the event of an 

Amtrak bankruptcy); B-252085, Jan. 26, 1993, and B-215893, Oct. 29, 1984 

(GAO does not have jurisdiction to hear a protest of an Amtrak 

procurement award); B-206638-O.M., Apr. 1, 1982 (Amtrak not required to 

follow the Federal Acquisition Regulations or the mandatory provisions of 

the Federal Supply Schedule).

Of course, since we are talking about matters within Congress’s control, 

Congress does have a certain freedom in defining the applicability of laws. 

For example, Amtrak is not subject to the Antideficiency Act, 31 U.S.C. 

§ 1341. See B-175155, July 26, 1976. Yet, as noted above, Amtrak’s 1998 

appropriation included a proviso that “the incurrence of any obligation or 

commitment by the Corporation for the purchase of capital improvements 

with funds appropriated herein which is prohibited by this Act shall be 

deemed a violation of 31 U.S.C. 1341.” Pub. L. No. 105-66. However, this 

Antideficiency Act proviso expired at the end of fiscal year 1998, and 

Congress did not include the proviso in the Amtrak appropriation for any 

subsequent fiscal year, such as fiscal year 2006. See Pub. L. No. 109-115. 

The point is that making the Antideficiency Act applicable, even to the 

limited extent in Public Law 105-66, required legislation specifically 

applicable to Amtrak.

Another group of GAO cases deals with compensation issues. The 1970 

legislation creating Amtrak placed no limit on the compensation of the 

corporation’s officers. A 1972 amendment limited compensation to level 1 

of the Executive Schedule.177 A question arose as to whether the value of 

fringe benefits had to be counted in applying the ceiling. Amtrak wanted to 

provide fringe benefits normal in the rail industry. These included group 

life insurance, travel accident insurance, long-term disability benefits, 

hospital surgical and major medical coverage, noncontributory retirement 

benefits, and free transportation for employees and their dependents on 

Amtrak trains. Noting that the ceiling was the same as that for cabinet 

177 Pub. L. No. 92-316, § 1(a), 86 Stat. 227 (June 22, 1972).
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members, who receive fringe benefits in addition to their statutory 

compensation, and finding nothing to indicate a contrary intent for Amtrak 

officers, GAO concluded that the fringe benefits need not be considered 

compensation for purposes of the ceiling. B-175155, Jan. 7, 1974. The 

limitation was changed in 1988178 to prohibit rates of compensation greater 

than “the general level of pay for officers of rail carriers with comparable 

responsibility.” 49 U.S.C. § 24303(b). While the ceiling is now more 

amorphous than the fixed-dollar ceiling of 1974, the principle of B-175155, 

Jan. 7, 1974, should remain valid, unless practices in the private rail 

industry change so as to include fringe benefits as part of compensation.

Amtrak was also offering its officers separation agreements, under which 

they would receive an additional payment of up to a year’s salary upon 

termination of their services. If somehow the payments could be regarded 

as payments for post-termination services, they would be permissible. If, 

however, they were nothing more than a form of deferred compensation to 

avoid the statutory limitation, they would violate the statute. B-175155, 

May 1, 1974; B-175155, Jan. 7, 1974. Amtrak developed an agreement under 

which the officer agreed to perform whatever services might be necessary, 

for a period of 6 months, to accomplish an orderly transition of 

responsibilities to his or her successor, and to complete unfinished 

assignments. This was sufficient to avoid the “deferred compensation” 

objection and therefore did not violate the limitation. B-175155, Oct. 3, 

1974; B-175155, Sept. 5, 1974.

Another source of Amtrak’s powers is the District of Columbia Business 

Corporation Act, which applies to Amtrak to the extent consistent with the 

Rail Passenger Service Act. 49 U.S.C. § 24301(e). Thus, Amtrak can sell 

real property (B-175155, June 14, 1978),179 and it can make loans provided 

they serve a corporate purpose (B-207880-O.M., Nov. 5, 1982), because both 

actions are authorized under the District of Columbia law.

178 Pub. L. No. 100-342, § 18(c), 102 Stat. 624, 636 (June 22, 1988).

179 Sometimes, dealing with GAO case law can be a complicated, confusing, and even 

daunting task. For one thing, in the past GAO sometimes reused “B” file designations for 

similar subjects—counting on “subnumbers” like (2) and dates to distinguish between 

different cases. This made proofing this manual difficult and careful reading of it critical. 

For example, in the preceding textual discussion of Amtrak, how many different GAO items 

with the B-file designation “B-175155” can you find? (Hint: There are 11.)
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7. Application of Other 

Laws

As discussed in the previous sections, a government corporation’s180

autonomy, while conferring considerable spending discretion, does not 

remove it from the coverage of various laws of the United States. We set 

forth here several other laws governing the operations of federal agencies. 

As one would expect, wholly owned corporations are subject to more of 

the laws than mixed-ownership corporations, which are in turn subject to 

more than the so-called noninstrumentality corporations. A summary 

chart, including some laws not covered here, may be found in GAO, 

Government Corporations: Profiles of Existing Government 

Corporations, GAO/GGD-96-14 (Washington, D.C.: Dec. 13, 1995), app. III. 

See also Library of Congress, Congressional Research Service, Federal 

Government Corporations: An Overview, No. RL30365 (Mar. 15, 2005), at 

app. 1; Thomas H. Stanton and Ronald C. Moe, “Government Corporations 

and Government-Sponsored Enterprises,” in Lester M. Salaman, The Tools 

of Government: A Guide to the New Governance, 80, 92 table 3-1 (2002).

a. Civil Service Laws We use the term “civil service laws” to mean the body of laws in title 5 of 

the United States Code governing the appointment, classification, pay, 

allowances, and other benefits of federal officers and employees. The 

applicability of title 5, or portions thereof, to a government corporation 

depends on (1) the definitions in title 5, and (2) the corporation’s own 

charter.181 Title 5 includes a few general definitions and a great many 

specific ones. As discussed in section B.2.a of this chapter, section 105 of 

title 5 defines “executive agency” to include government corporations. 

“Government corporation” is defined as “a corporation owned or 

controlled by the Government of the United States.” 5 U.S.C. § 103(1). 

“Government controlled corporation” does not include a corporation 

owned by the government of the United States. 5 U.S.C. § 103(2). In 

addition, 5 U.S.C. § 2105(a) defines “employee” as someone appointed in 

180 For ease of discussion in this section, we will use the term “government corporation” to 

refer generically to the various corporate devices discussed in section B.2 of this chapter 

unless a more specific term is warranted.

181 GAO observed in 1943 that “there can not be stated any broad generality that persons 

employed by the Government’s corporations are or are not employees of the United States 

for all purposes.” B-37559, Nov. 5, 1943, at 3, quoted in 23 Comp. Gen. 815, 816 (1944). A 

commentator wrote in 1995 that approximately one half of the government corporations 

were subject to the civil service laws and that the exemptions, “both partial and complete,” 

were “numerous and complex.” That statement has retained its veracity. Ronald C. Moe, 

Managing the Public’s Business: Federal Government Corporations, S. Prt. No. 104-18, 

at 56 (1995).
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the civil service by, as pertinent here, the President, “an individual who is 

an employee under this section” (which would include wholly owned 

corporations), or “the head of a Government controlled corporation.” GAO 

has interpreted the term “government controlled corporation” in these 

definitions to mean a mixed-ownership government corporation. B-221677, 

July 21, 1986.

Thus, unless it specifically provides otherwise, a provision in title 5 that 

applies to an executive agency, a government corporation, or an employee 

applies to wholly owned and mixed-ownership government corporations. 

E.g., 5 U.S.C. § 2301(a) (merit system principles apply to “an Executive 

agency”); 5 U.S.C. §§ 8701(a)(1) and 8901(1)(A) (provisions for group life 

and group health insurance, respectively, apply to an employee as defined 

in § 2105).

Some provisions of title 5 do specifically provide otherwise. A provision 

applicable to an “executive agency” but not a “government controlled 

corporation” applies to wholly owned, but not mixed-ownership, 

government corporations. A good example is what is perhaps the heart of 

the civil service system, the provisions governing classification (5 U.S.C. 

§§ 5101–5115) and General Schedule pay rates (5 U.S.C. §§ 5331–5338). The 

classification provisions apply to executive agencies (5 U.S.C. 

§ 5102(a)(1)(A)), but specifically do not apply to government controlled 

corporations. 5 U.S.C. § 5102(a)(1)(i). The General Schedule pay 

provisions adopt the definition of section 5102. 5 U.S.C. § 5331(a). Thus, 

unless specified otherwise, the classification and pay provisions apply to 

wholly owned, but not mixed-ownership, corporations. An illustrative case 

containing important discussion is Dockery v. Federal Deposit Insurance 

Corp., 64 M.S.P.R. 458, 460–62 (1994) (FDIC, as a mixed-ownership 

corporation, held not subject to the classification provisions).

The following inventory does not purport to be complete:

• Whistleblower Protection Act—excludes both wholly owned and 

mixed-ownership government corporations, except with respect to 

improper personnel actions resulting from disclosure of information 

the employee reasonably believes evidences a violation of law, gross 

mismanagement, gross waste of funds, an abuse of authority, or 

substantial danger to public health or safety, with certain qualifications. 

5 U.S.C. §§ 2302(a)(2)(C), (b)(8).
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• Experts and consultants—applies to wholly owned, but not mixedownership, government corporations. 5 U.S.C. § 3109(a) (incorporating 

the definition for agency included in 5 U.S.C. § 5721(1), which includes 

an executive agency but specifically excludes a government controlled 

corporation).

• Senior Executive Service—not applicable to either wholly owned or 

mixed-ownership government corporations. 5 U.S.C. § 3132(a)(1).

• Government Employees Training Act—applies to a “Government 

corporation subject to chapter 91 of title 31,” that is, both wholly owned 

and mixed-ownership corporations subject to the Government 

Corporation Control Act (see section B.4.a of this chapter). 5 U.S.C. 

§ 4101(1)(C).

• Performance appraisal system—not applicable to either wholly owned 

or mixed-ownership government corporations. 5 U.S.C. § 4301(1)(i). 

E.g., B-233528, Dec. 14, 1988 (Overseas Private Investment Corporation 

not required to submit its performance appraisal system for review by 

Office of Personnel Management).

• Government Employees Incentive Awards Act—applies to both wholly 

owned and mixed-ownership corporations (5 U.S.C. §§ 4501(1)(A), 

(2)(A)), except it specifically excludes the Tennessee Valley Authority 

and the Central Bank for Cooperatives (5 U.S.C. §§ 4501(1)(i), (ii)).

• Dual compensation laws—apply to both wholly owned and mixedownership government corporations. 5 U.S.C. § 5531(2). E.g.,

B-238303, B-236399, May 29, 1991 (retired military officer employed by 

Federal Deposit Insurance Corporation).182 However, they do not apply 

to corporations statutorily designated as not agencies or 

instrumentalities of the United States. B-170582, July 15, 1976. For a 

corporation subject to the dual compensation laws, using a personal 

182 Under an earlier version of the statute without the explicit definition, the Court of Claims 

had held that the United States Shipping Board Emergency Fleet Corporation was a private 

corporation and not part of the government for purposes of the dual compensation laws. 

Dalton v. United States, 71 Ct. Cl. 421 (1931). Apart from the statutory changes, the case 

can be disregarded, even though not directly overruled, because it was one of the rare 

instances in which Congress refused to appropriate funds to pay the judgment. See First 

Deficiency Act, 1932, Pub. L. No. 72-5, title II, § 3, 47 Stat. 15, 28 (Feb. 2, 1932); 23 Comp. 

Gen. 815, 817 (1944). 
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services contract rather than employment in order to avoid the 

statutory restrictions is improper. B-222334, June 2, 1986.183

• Severance pay—applies to both wholly owned and mixed-ownership 

government corporations. 5 U.S.C. § 5595(a)(1)(A). E.g., B-114839-

O.M., Aug. 11, 1978 (former Panama Canal Company). The statute 

expressly excludes employees, other than members of the Senior 

Executive Service (SES), paid at or in excess of Executive Schedule 

levels. 5 U.S.C. § 5595(a)(2)(i). Since the SES does not extend to 

government corporations, the president of a government corporation 

who is compensated at an Executive Schedule level is not entitled to 

severance pay. B-215273, June 28, 1984.

• Back Pay Act—applies to both wholly owned and mixed-ownership 

government corporations. 5 U.S.C. § 5596(a)(1). E.g., Payne v. 

Panama Canal Co., 607 F.2d 155 (5th Cir. 1979) (former Panama Canal 

Company subject to Back Pay Act notwithstanding its power to sue and 

be sued in its own name).

• Travel and transportation—The travel and transportation provisions 

in 5 U.S.C. §§ 5701–5739 apply to wholly owned, but not mixedownership, corporations. 5 U.S.C. §§ 5701(1)(A), (i) and 5721(1). E.g.,

B-214811-O.M., July 25, 1984 (Saint Lawrence Seaway Development 

Corporation, a wholly owned corporation, should not reimburse travel 

expenses of official’s spouse unless spouse was providing some sort of 

direct service to government). The Federal Deposit Insurance 

Corporation, as a mixed-ownership corporation, is not subject to the 

provisions governing service agreements in return for payment of 

relocation expenses. However, work for the FDIC qualifies as 

“government service” for purposes of fulfilling the agreement. 

B-221677, July 21, 1986.

• Uniform allowance—applies to wholly owned government 

corporations but not mixed-ownership government corporations. 

5 U.S.C. § 5901(a).

183 As noted earlier, a government corporation empowered to determine the character and 

necessity of its expenditures, as was the Tennessee Valley Authority in this case, is not 

required to follow the government’s policy on personal service contracts. Intimations to the 

contrary notwithstanding, the contract in B-222334 was objectionable, not because it was a 

personal services contract per se, but because it was used to circumvent the statutory 

restriction on compensation. 
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• Annual and sick leave—applies to both wholly owned and mixedownership government corporations. 5 U.S.C. § 6301(2)(A).

• Federal Employees Compensation Act—FECA’s definition of employee 

includes “an officer or employee of an instrumentality wholly owned by 

the United States.” 5 U.S.C. § 8101(1)(A). FECA, where it applies, is 

the employee’s exclusive remedy just as it is for employees of agencies. 

Posey v. Tennessee Valley Authority, 93 F.2d 726 (5th Cir. 1937) (TVA); 

Pinto v. Vessel “Santa Isabel,” 492 F. Supp. 689 (D.C.Z. 1980) (former 

Panama Canal Company).

• Retirement—Both the Civil Service Retirement System (CSRS) and the 

Federal Employees Retirement System (FERS) apply to employees as 

defined in 5 U.S.C. § 2105, and therefore apply to both wholly owned 

and mixed-ownership government corporations. 5 U.S.C. §§ 8331(1)(A) 

(CSRS), 8401(11)(A) (FERS).

A law related in subject matter to title 5 of the United States Code is the 

Fair Labor Standards Act (FLSA), 29 U.S.C. §§ 201–219, which provides, 

among other things, for overtime compensation for nonexempted 

employees for time worked in excess of 40 hours in a week. 29 U.S.C. 

§ 207(a)(1). The FLSA adopts the definition of executive agency of 5 U.S.C. 

§ 105, and therefore includes both wholly owned and mixed-ownership 

government corporations. 29 U.S.C. § 203(e)(2)(A)(ii). E.g., 54 Comp. 

Gen. 617 (1975) (FLSA applicable to former Panama Canal Company). 

Another relevant statute is Title VII of the Civil Rights Act of 1964. Its 

employment discrimination provisions apply to “executive agencies as 

defined in section 105 of title 5, United States Code (including employees 

and applicants for employment who are paid from nonappropriated 

funds).” 42 U.S.C. § 2000e-16(a).

The general and specific title 5 definitions determine the applicability of 

various provisions to government corporations only in the absence of more 

specific direction in the legislative charter. Government corporations are 

commonly empowered to “appoint and fix the compensation of such 

officers, attorneys, employees, and agents as may be required.” E.g.,

29 U.S.C. § 1302(b)(6) (Pension Benefit Guaranty Corporation). This alone, 

while affording some discretion, does little more than authorize 

appointment and compensation within the civil service structure. A 

variation specifically makes the authority subject to the civil service laws. 

E.g., 33 U.S.C. § 984(a)(7) (Saint Lawrence Seaway Development 

Corporation). The comparable provision for the Inter-American 
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Foundation limits the total number of employees. 22 U.S.C. § 290f(e)(5). 

An example of seemingly broader language is section 723 of the Federal 

Agriculture Improvement and Reform Act of 1996, Pub. L. No. 104-127, 

110 Stat. 888, 1115–18 (Apr. 4, 1996), providing that officers or employees of 

the now-defunct Alternative Agricultural Research and Commercialization 

Corporation “shall be subject to all laws of the United States relating to 

governmental employment.”184

An important variation authorizes appointment and compensation “without 

regard” to the civil service laws applicable to officers and employees of the 

government. E.g., 16 U.S.C. § 831b (Tennessee Valley Authority (TVA)); 

7 U.S.C. § 943(d) (Rural Telephone Bank). The “without regard” authority 

is not an all or nothing proposition. The corporation, in its discretion, may 

appoint some employees in accordance with the civil service laws and 

invoke the exemption for others. 37 Op. Att’y Gen. 7 (1932). Of course, the 

discretion should be reasoned and not arbitrary. Some charters exempt 

only a portion of the corporation’s employees from the civil service laws. 

E.g., 22 U.S.C. § 2193(d) (Overseas Private Investment Corporation may 

hire, pay, and fire up to 20 of its employees without regard to civil service 

laws). A corporation possessing the “without regard” authority is, to the 

extent of its coverage, not required to follow, for example, the dual 

compensation laws (19 Comp. Gen. 926 (1940); B-9113, Apr. 30, 1940),185 or 

the laws governing annual and sick leave (A-49652, June 28, 1933). It is free 

to set up its own parallel system. See, e.g., Tennessee Valley Authority v. 

Kinzer, 142 F.2d 833 (6th Cir. 1944), discussing TVA’s retirement system. As 

the Attorney General has pointed out, the inclusion of the “without regard” 

clause in some charters evidences the congressional understanding that the 

employees would otherwise be subject to the civil service system, else 

there would be no need to exempt them. 39 Op. Att’y Gen. 238, 241 (1939). 

(For more on “without regard” clauses, see section B.6.c(2) of this chapter.)

One thing GAO has been reluctant to sanction is the making of deductions 

from an employee’s salary for payment to private organizations, and has 

advised that statutory authority should be obtained before making 

184 The Farm Security and Rural Investment Act of 2002, Pub. L. No. 107-171, § 6201(a), 

116 Stat. 134, 418 (May 13, 2002), repealed the authorization for the Alternative Agricultural 

Research and Commercialization Corporation, but we include this for illustrative purposes.

185 Earlier decisions to the contrary, such as 14 Comp. Gen. 527 (1935) and 14 Comp. 

Gen. 822 (1935), must be regarded as implicitly overruled by the decisions cited in the text. 

Why this was not done explicitly is not clear.
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deductions for union dues (B-105819, Dec. 19, 1951) or a union pension and 

welfare fund (32 Comp. Gen. 572 (1953)). Both decisions suggest, however, 

that the corporation could use its power to fix compensation to include 

these items in the amount of compensation actually paid to the employee, 

who would then make the contributions, subject to any statutory limits on 

total compensation payable. See also B-82293, Jan. 3, 1949 (similar holding 

with respect to life and health insurance premiums prior to the enactment 

of the general legislation now in title 5 of the United States Code). 

Presumably, had the authority to fix compensation in these cases included 

the “without regard” clause, there would have been no objection to making 

the deductions.

The “without regard” authority may itself have qualifications which may 

extend beneficial provisions and/or impose restrictions. For example, 

16 U.S.C. § 831b includes two qualifications for TVA employees: they are 

covered by the Federal Employees Compensation Act, and their salaries 

may not exceed that of board members. In GAO’s view, the authority to fix 

compensation, even with the “without regard language,” is not sufficient to 

overcome explicit salary restrictions in TVA’s charter, and GAO has found 

unauthorized payments variously called retention payments, management 

staffing incentive payments, merit incentive supplemental retirement 

income payments, etc., although TVA itself has the last word, at least at the 

administrative level. B-222334, June 2, 1986; B-205284, Nov. 16, 1981.

In addition to charter exemptions, other specific exemptions are scattered 

throughout title 5. For example, the Government Employees Incentive 

Awards Act does not apply to TVA or the Central Bank for Cooperatives, 

5 U.S.C. § 4501(1)(i), (ii); the severance pay statute does not apply to TVA, 

5 U.S.C. § 5595(a)(2)(vii); and the annual and sick leave laws and the group 

health insurance provisions do not apply to corporations supervised by the 

Farm Credit Administration “if private interests elect or appoint a member 

of the board of directors,” 5 U.S.C. §§ 6301(2)(vii), 8901(1)(i). The 

exemption for the farm credit corporations is repeated in 5 U.S.C. 

§ 6308(a), which authorizes the transfer of annual and sick leave balances 

when an employee transfers to a position under a different leave system 

without break in service. The exemption was repeated to permit those 

corporations to make lump-sum payments for leave rather than 

transferring the balances. See B-124592, Dec. 1, 1955.

If a corporation is designated as not an agency or instrumentality of the 

United States, its employees are not employees of the United States. 

Hrubec v. National Railroad Passenger Corp., 49 F.3d 1269, 1270 (7th Cir. 
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1995) (Amtrak). Accordingly, title 5 of the United States Code would not 

apply. However, Congress may incorporate restrictions in the corporate 

charter. For example, employees of the Legal Services Corporation are not 

considered employees of the United States but are subject to title 5 

provisions relating to retirement, life insurance, health insurance, and work 

injuries. 42 U.S.C. §§ 2996d(e), (f). Officers and employees of the 

Corporation for Public Broadcasting are similarly not officers or employees 

of the United States, but their annual rate of pay may not exceed the “rate 

of basic pay in effect from time to time for level I of the Executive 

Schedule.” 47 U.S.C. § 396(e)(1).

b. Procurement Laws and 

Regulations

In contrast to the civil service laws, the applicability of procurement laws 

and regulations to government corporations is fairly simple: By statute, 

they apply, for the most part, to wholly owned government corporations, 

but not to mixed-ownership corporations and certainly not to 

noninstrumentalities.

(1) 41 U.S.C. § 5

Perhaps the oldest general procurement law still on the books, 41 U.S.C.

§ 5—the old Revised Statutes § 3709—requires that, unless otherwise 

provided and with several stated exceptions, “purchases and contracts for 

supplies or services for the Government may be made or entered into only 

after advertising a sufficient time previously for proposals.” As noted in 

our earlier discussion of the applicability of fiscal laws in section B.6.c of 

this chapter, this statute was revised as part of the Administrative 

Expenses Act of 1946, Pub. L. No. 79-600, § 9, 60 Stat. 806, 809 (Aug. 2, 

1946). It applies to the administrative expenses of wholly owned 

government corporations. 41 U.S.C. §§ 5 (last sentence), 5a. It does not 

apply to any transactions of mixed-ownership corporations. E.g.,

B-138105-O.M., Mar. 4, 1959 (Federal National Mortgage Association).

GAO has not attempted to define “administrative expenses” for this statute. 

Rather, GAO has followed a case-by-case approach. For example, “[t]he 

procurement of grain storage structures [by the Commodity Credit 

Corporation] obviously is not an administrative expense” for purposes of 

the advertising statute. B-119791, Oct. 22, 1954, at 2. Nor is the 

construction and equipping of a substation by the former Panama Canal 

Company. B-122655, Apr. 7, 1955. Nor is the purchase of a generating set 

for supplying electric power. B-114990, Aug. 19, 1953. See generally GAO, 

Pension Benefit Guaranty Corporation’s Statutory Limitation on 

Administrative Expenses Does Not Provide Meaningful Control, GAO-03-
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301 (Washington, D.C.: Feb. 28, 2003); Corporation for Public 

Broadcasting: Congressional Guidance Needed on Administrative 

Expenses, GAO/HRD-90-5 (Washington, D.C.: Jan. 22, 1990).

(2) Federal Property and Administrative Services Act

The primary statute governing the procurement of goods and services by 

the civilian agencies of the federal government is title III of the Federal 

Property and Administrative Services Act of 1949 (the Property Act), 

Pub. L. No. 81-152, §§ 301–310, 63 Stat. 377, 393–97 (June 30, 1949), as 

amended, codified at 41 U.S.C. §§ 251–266a. Sections 3(a) and (b) of the 

original Property Act defined “federal agency” to include “executive 

agency,” which in turn includes “any wholly owned Government 

corporation.” Therefore, the procurement provisions of the Property Act, 

as amended, apply to wholly owned government corporations (but not 

mixed-ownership corporations) unless exempt under 40 U.S.C. § 113 or 

comparable statutory authority.186

The Property Act applies to the procurement of property and services, but 

not to every type of contractual arrangement an agency or corporation may 

enter into. For example, the Overseas Private Investment Corporation is 

authorized to enter into arrangements with the private insurance industry 

for risk sharing under its foreign investment insurance program. 22 U.S.C. 

§ 2194(f). GAO reviewed one such pooling proposal and found that it was 

not the procurement of goods or services, but was more in the nature of a 

cooperative agreement. Therefore, it was not subject to the procurement 

laws and regulations. B-173240, June 16, 1975.

The statute also addresses the relationship of the Property Act 

procurement provisions to 41 U.S.C. § 5. Basically, 41 U.S.C. § 5 does not 

apply to procurements under the Property Act. An agency or wholly owned 

corporation which is exempt from the Property Act provisions remains 

subject to 41 U.S.C. § 5 unless it has specific authority to contract without 

regard to 41 U.S.C. § 5. An entity with such authority must still follow the 

Property Act provisions for other than sealed-bid procedures unless 

exempt from that too. 41 U.S.C. §§ 252(a)(2), 260.

186 The Property Act addresses property management as well as procurement. The property 

management portions are located in title 40 of the United States Code, along with the 

definitions, now found in 40 U.S.C. §§ 102(4) and (5). Placing the operative provisions in 

more than one title of the United States Code does not change the application of the 

statutory definitions. 
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(3) Office of Federal Procurement Policy Act

The Office of Federal Procurement Policy Act, Pub. L. No. 93-400, 88 Stat. 

796 (Aug. 30, 1974), established the Office of Federal Procurement Policy in 

the Office of Management and Budget to “provide overall direction of 

Government-wide procurement policies, regulations, procedures, and 

forms for executive agencies.” 41 U.S.C. § 404(a). This Act defines 

executive agency to include “a wholly owned Government corporation fully 

subject to the provisions of [the Government Corporation Control Act].” 

41 U.S.C. § 403(1)(D). Thus, wholly owned government corporations must 

comply with governmentwide procurement polices and procedures.

(4) Federal Acquisition Regulation

The Federal Acquisition Regulation (FAR), found in title 48 of the Code of 

Federal Regulations, is the governmentwide body of procurement 

regulations which implement the Property Act and the Office of Federal 

Procurement Policy Act. The FAR defines the term “federal agency” as 

including an executive agency, and the term “executive agency” as 

including any wholly owned government corporation listed in the 

Government Corporation Control Act. 48 C.F.R. § 2.101.

The Pension Benefit Guaranty Corporation, as a wholly owned corporation, 

is subject to the FAR for purposes of its administrative activities, but not 

when serving as trustee for terminated pension plans. Of course, as with 

any exemption, the corporation can, in its discretion, elect to follow the 

established procedures. B-217281-O.M., Mar. 27, 1985 (procurement of 

investment manager services in its trustee capacity).

The procurement statutes and the FAR have no application to corporations 

which are designated as not agencies or instrumentalities of the United 

States, even though they may be federally created and funded. B-223852, 

Sept. 9, 1986 (Legal Services Corporation); GAO, Analysis of Amtrak’s 

Acquisition of Office Copying Equipment, GAO/CED-82-111 (Washington, 

D.C.: July 12, 1982).

(5) Competition in Contracting Act

The Competition in Contracting Act (CICA), title VII of the massive Deficit 

Reduction Act of 1974, Pub. L. No. 98-369, div. B, title VII, 98 Stat. 494, 1175 

(July 18, 1984), made a number of revisions in procurement-related 

provisions. As relevant here, section 2741 of CICA gave a statutory basis to 
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GAO’s bid protest function (31 U.S.C. §§ 3551–3556). Prior to CICA, GAO’s 

bid protest authority was not explicit but was derived from its account 

settlement authority. E.g., Wheelabrator Corp. v. Chafee, 455 F.2d 1306, 

1313–14 (D.C. Cir. 1971). CICA divorced the bid protest function from 

account settlement. CICA applies to procurements by a “federal agency,” 

which it defines by reference to the Federal Property and Administrative 

Services Act (Property Act), 40 U.S.C. § 102(5). In other words, it expressly 

includes wholly owned government corporations. E.g., B-295737, 

B-295737.2, Apr. 19, 2005 (under CICA GAO has jurisdiction over bid 

protests involving procurements by wholly owned corporations such as the 

Federal Prison Industries).

Since CICA hinges on the definition of federal agency, account settlement 

authority is irrelevant, and GAO has CICA jurisdiction over corporations 

exempt under the pre-CICA system. 64 Comp. Gen. 756 (1985) (Tennessee 

Valley Authority). As with the pre-CICA system, the jurisdiction does not 

extend to mixed-ownership corporations. E.g., B-252085, Jan. 26, 1993 

(Amtrak); B-220302, Sept. 24, 1985 (Federal Deposit Insurance 

Corporation).

Also not dispositive is the applicability or nonapplicability of the Property 

Act and the Federal Acquisition Regulation (FAR). The Bonneville Power 

Administration, for example, is not subject to the Property Act’s 

procurement provisions or to the FAR. See 16 U.S.C. § 832a(f); 40 U.S.C. 

§ 113(e)(18). Nevertheless, it meets the CICA definition of federal agency, 

and is therefore subject to GAO’s bid protest jurisdiction. 68 Comp. 

Gen. 447 (1989); 67 Comp. Gen. 8 (1987). Naturally, as was done in the two 

cited cases, GAO will apply Bonneville’s own regulations rather than the 

FAR in evaluating the protest.

(6) Other statutes

The laws listed above are the ones we regard as most important to the 

procurement function in terms of the breadth of procurement activities. 

There are, however, several other procurement-related statutes, some of 

which address their applicability to government corporations. For 

example, the Walsh-Healey Act (which mandates wage and labor standards 

for supply or equipment contracts over $10,000) applies to contracts made 

by “any corporation all the stock of which is beneficially owned by the 

United States.” 41 U.S.C. § 35. Others do not expressly define their 

applicability as, for example, the Competition in Contracting Act and the 

Property Act do. One example is the Brooks Architect-Engineers Act, 
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40 U.S.C. §§ 1101–1104, which establishes procedures for the acquisition of 

architectural and engineering services. It uses, but does not define, the 

term “agency.” 40 U.S.C. § 1102(1). In an internal memorandum, B-215818-

O.M., Aug. 10, 1984, GAO considered whether this act applies to the Federal 

Deposit Insurance Corporation, and concluded that it does not, consistent 

with the clear congressional pattern of excluding mixed-ownership 

corporations from the coverage of procurement laws.

Another example is the Service Contract Act of 1965, 41 U.S.C. § 351, which 

prescribes minimum standards for wages and working conditions under 

contracts “the principal purpose of which is to furnish services in the 

United States through the use of service employees.” 41 U.S.C. § 351(a). 

Like the Brooks Architect-Engineers Act, it does not define its own 

applicability. It has been held applicable to Federal Reserve banks. 2 Op. 

Off. Legal Counsel 211 (1978), approved and followed in Brink’s, Inc. v. 

Board of Governors of the Federal Reserve System, 466 F. Supp. 116 

(D.D.C. 1979). It has also been held applicable to a contract between a 

personnel referral firm and a federally funded research and development 

center, even though it would not apply to the contract between the center 

and its sponsoring agency because the latter would not meet the “principal 

purpose” qualification quoted above. Menlo Service Corp. v. United States,

765 F.2d 805 (9th Cir. 1985).

c. General Management Laws We have included under this caption the series of laws, enacted during the 

last quarter of the twentieth century, designed to enhance the management, 

general and financial, of government entities in the broad sense. 

(1) Inspector General Act

The Inspector General Act of 1978 (Pub. L. No. 95-452, 92 Stat. 1101 

(Oct. 12, 1978)), as amended, is found in the appendix to title 5 of the 

United States Code. Its purpose is to create independent and objective 

units to conduct audits and investigations of the agency’s programs and 

operations. 5 U.S.C. app. § 2.

This Act divides the federal government into three categories—

establishments, designated federal entities, and other federal entities. The 

Act defines “establishment” by listing the agencies and instrumentalities 

covered, starting with the cabinet departments. 5 U.S.C. app. § 11(2). The 

listing includes a few government corporations, such as the Federal 

Deposit Insurance Corporation, the Corporation for National and 

Community Service, and the Tennessee Valley Authority. Id. Each 
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establishment is required to have an Office of Inspector General, the head 

of which is appointed by the President with the advice and consent of the 

Senate. 5 U.S.C. app. §§ 2, 3(a).

“Designated federal entity” is similarly defined by listing the entities 

covered, and includes several more government corporations and several 

noninstrumentalities—Amtrak,187 the Corporation for Public Broadcasting, 

the Legal Services Corporation, and the Pension Benefit Guaranty 

Corporation. 5 U.S.C. app. § 8G(a)(2). It also includes the Farm Credit 

Administration and the National Credit Union Administration, which are 

not themselves government corporations but which supervise government 

corporations. A designated federal entity must have an Office of Inspector 

General, whose head is appointed by the head of the entity. 5 U.S.C. 

app. § 8G(b), (c).

The term “federal entity” includes government corporations as defined in 

5 U.S.C. § 103, which means both wholly owned and mixed-ownership, 

except for corporations already listed as either establishments or 

designated federal entities, or which are part of an entity in either of those 

groups. 5 U.S.C. app. § 8G(a)(1). A federal entity is not statutorily required 

to have an Office of Inspector General, but must report annually on its 

internal audit structure to the Office of Management and Budget and to the 

Congress. 5 U.S.C. app. § 8G(h)(2). The corporations selected for 

“designated federal entity” status are those receiving over $100 million 

annually in federal funds. See H.R. Rep. No. 100-771, at 2 (1988).

(2) Federal Managers’ Financial Integrity Act of 1982

The Federal Managers’ Financial Integrity Act of 1982 (FMFIA), 

Pub. L. No. 97-255, 96 Stat. 814 (Sept. 8, 1982),188 sets out a framework for 

establishing and evaluating internal controls. Section 2 requires each 

executive agency to develop, in accordance with standards prescribed by 

the Comptroller General,189 a system of internal accounting and 

187 Amtrak will be dropped from the statutory coverage when it is able to operate for a fiscal 

year without federal subsidy. Pub. L. No. 105-134, § 409, 111 Stat. 2570, 2586 (Dec. 2, 1997).

188 Actually, the FMFIA was repealed by Public Law 97-452, § 4b, 96 Stat. 2467, 2480 (Jan. 12, 

1983), but its operative provisions were codified at 31 U.S.C. §§ 3512(c) and (d).

189 The Comptroller General’s standards are commonly referred to as the “Green Book.” 

GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1 

(Washington, D.C.: Nov. 1999).
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administrative controls, and to report each year, under Office of 

Management and Budget guidelines,190 on the extent of its compliance. The 

applicable definitional section is 31 U.S.C. § 3501, which excludes “a 

corporation, agency, or instrumentality subject to [the Government 

Corporation Control Act (GCCA), 31 U.S.C. §§ 9101–9110].” Therefore, 

section 2 of FMFIA by its own force has no application to government 

corporations listed in the GCCA, 31 U.S.C. § 9101. However, because GCCA 

corporations were specifically excluded from the definition of “executive 

agency” by 31 U.S.C. § 3501, other non-GCCA corporate entities specifically 

designated as “agencies or instrumentalities” may be subject to FMFIA, 

since the general title 31 definition of “executive agency” in 31 U.S.C. § 102 

includes agencies and instrumentalities in the executive branch of the 

government.

Also, the annual management report, added to the Government 

Corporation Control Act by the Chief Financial Officers Act (see below), 

requires the inclusion of “a statement on internal accounting and 

administrative control systems by the head of the management of the 

corporation, consistent with the requirements for agency statements on 

internal accounting and administrative control systems under the 

amendments made by the Federal Managers’ Financial Integrity Act of 

1982.” 31 U.S.C. § 9106(a)(2)(E). Accordingly, while FMFIA does not apply 

to GCCA corporations by its own terms, the GCCA contains a parallel 

requirement.

(3) Chief Financial Officers Act

The Chief Financial Officers Act of 1990 (CFO Act), Pub. L. No. 101-576, 

104 Stat. 2838 (Nov. 15, 1990), which enacted, among other things, 

provisions in 31 U.S.C. §§ 901–903, as amended, requires the establishment 

of Chief Financial Officers in specified agencies, but includes no 

government corporations. 31 U.S.C. § 901. However, other statutes do 

require some government corporations to establish Chief Financial 

Officers. For example, the Corporation for National and Community 

Service has a presidentially appointed, Senate-confirmed Chief Financial 

Officer. 42 U.S.C. § 12651e(c). The Federal Deposit Insurance Corporation 

has an internally appointed Chief Financial Officer. 12 U.S.C. 

§ 1821(a)(6)(E)(vi).

190 OMB Cir. No. A-123, Management’s Responsibility for Internal Control (Dec. 21, 2004).
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The CFO Act did, however, revise the audit and management reporting 

provisions of the Government Corporation Control Act, as summarized in 

our coverage of that act in section B.4.a of this chapter. Section 301 of the 

CFO Act, 31 U.S.C. § 3512(a), requires the Office of Management and 

Budget to include information about government corporations in the 

financial management status reports and governmentwide 5-year financial 

management plans it must prepare for the Congress. 

(4) Government Performance and Results Act

The Government Performance and Results Act of 1993 (GPRA), Pub. L.

No. 103-62, 107 Stat. 285 (Aug. 3, 1993), is designed to improve efficiency 

and effectiveness in the federal government by requiring agencies to set 

performance goals and to measure results against those goals. Section 3 of 

GPRA, 5 U.S.C. § 306, requires each agency to submit to Congress, and 

requires the Office of Management and Budget to update periodically, a 

strategic plan, which must include a mission statement and the agency’s 

goals and objectives for at least a 5-year period. Section 4 of GPRA, 

31 U.S.C. §§ 1115 and 1116, requires agencies to prepare annual 

performance plans and program performance reports. GPRA’s definition of 

agency is “an Executive agency defined under [5 U.S.C. §] 105,” with several 

exceptions not relevant here. 5 U.S.C. § 306(f); 31 U.S.C. § 1115(g)(1). 

Therefore, GPRA applies to both wholly owned and mixed-ownership 

government corporations.

(5) Government Management Reform Act of 1994

The Government Management Reform Act of 1994 requires Treasury to 

prepare annual consolidated financial statements “covering all accounts 

and associated activities of the executive branch of the United States 

Government.” Pub. L. No. 103-356, § 405(c), 108 Stat. 3410, 3416 (Oct. 13, 

1994), 31 U.S.C. § 331(e)(1). GAO is required to audit these consolidated 

statements. 31 U.S.C. § 331(e)(2). Since the statements are to cover the 

entire executive branch, they include those government corporations that 

are in the executive branch. See U.S. Department of Treasury, 2005 

Financial Report of the U.S. Government, Appendix: Significant 

Government Entities Included and Excluded from the Financial 

Statements (December 2005), at 133–34.191 In fact, the Office of 

191 This report is available at www.gao.gov/financial/fy2005financialreport.html (last visited 

Nov. 28, 2007).
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Management and Budget and Treasury direct certain government 

corporations to submit special audit financial information to Treasury for 

consolidation. OMB Cir. No. A-136, Financial Reporting Requirements, 

§ I.3 (June 29, 2007); I TFM 2-4700.

(6) Federal Financial Management Improvement Act of 1996

This law requires agencies to comply with federal accounting standards, 

financial management system requirements, and the United States 

Government Standard General Ledger. Pub. L. No. 104-208, div. A, § 101(f) 

[title VIII, § 803(a)], 110 Stat. 3009, 3009-390–92 (Sept. 30, 1996). It does not 

apply to government corporations because it defines agency by 

incorporating the definition in 31 U.S.C. § 901(b), which does not include 

any government corporations. Pub. L. No. 104-208, § 806(1).

(7) Improper Payments Information Act of 2002

This statute requires agencies to identify programs or activities that are 

susceptible to significant improper payments, annually estimate the 

amount of improper payments, and report those estimates and actions 

taken to reduce improper payments for highly-susceptible programs. 

Pub. L. No. 107-300, 116 Stat. 2350 (Nov. 26, 2002), 31 U.S.C. § 3321 note. 

The act uses the broad definition of executive agency in 31 U.S.C. § 102, 

which includes instrumentalities in the executive branch, meaning that 

both wholly owned and mixed-ownership government corporations 

designated as executive branch instrumentalities are covered. Pub. L. 

No. 107-300, § 2(d)(1).

d. Property Management The primary law governing the use and disposal of property is the Federal 

Property and Administrative Services Act of 1949. The pertinent 

definitions are found in 40 U.S.C. §§ 102(4) and (5), under which the term 

“federal agency” includes executive agency, and “executive agency” 

includes any wholly owned government corporation. Naturally, there are 

exceptions. For example, 40 U.S.C. § 113(c) exempts both wholly owned 

and mixed-ownership government corporations subject to the Government 

Corporation Control Act (31 U.S.C. §§ 9101–9110) from the provisions 

relating to GAO approval of property accounting systems (40 U.S.C. 

§ 121(b)) and GAO audit of property accounts (40 U.S.C. § 506(c)). The 

Tennessee Valley Authority is partially exempt by virtue of 40 U.S.C. 

§ 113(e)(11). The rule is, therefore, that absent an applicable exemption, 

provisions of the Property Act applicable to federal agencies or executive 

agencies apply to wholly owned government corporations.
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Section 501 of 40 U.S.C. gives the General Services Administration a variety 

of responsibilities with respect to the procurement and storage of personal 

property, including public utility services. This applies to wholly owned 

corporations by virtue of 40 U.S.C. § 102. The law further directs GSA to 

provide these services upon request to mixed-ownership corporations as 

well. 40 U.S.C. § 502(a)(2). This would include such services as the use of 

federal supply schedules.

The disposition of excess property is covered in 40 U.S.C. §§ 521–529. 

Reimbursement of fair value is required in the case of a transfer from one 

agency to another when either the transferring agency or the receiving 

agency is a corporation under the Government Corporation Control Act. 

40 U.S.C. § 522(b). The purpose of this provision is to “maintain the 

integrity of the corporate accounts; that is, to prevent the impairment of the 

capital assets of a corporation disposing of excess property or the unjust 

enrichment of a corporation receiving such excess property.” B-119819, 

Dec. 1, 1954, at 2.

Transfer may be made without reimbursement in situations where it would 

not impair a corporation’s capital structure—uncommon in the case of a 

government corporation, but possible nevertheless. Id.; B-129149, Sept. 28, 

1956.

Section 543 of title 40, United States Code, addresses surplus property and 

is also applicable to wholly owned corporations. Under this provision, the 

disposing agency may “execute documents to transfer title or other interest 

in the property and may take other action it considers necessary or proper 

to dispose of the property.” This includes transfers of title to real property 

from a wholly owned corporation to the United States, as and to the extent 

required by regulation. 41 Op. Att’y Gen. 15 (1949) (dealing with similar 

language in a predecessor statute).

Proceeds from the sale of surplus property, as well as reimbursements from 

the transfer of excess property, are governed by 40 U.S.C. §§ 571–574, 

which generally direct their deposit as miscellaneous receipts. 40 U.S.C.

§ 571. However, an exception specified in 40 U.S.C. § 574(a) provides that 

where the property transferred or disposed of was acquired by the use of 

funds either not appropriated from the general fund of the Treasury, or 

appropriated from the general fund but by law reimbursable from 

assessment, tax, or other revenue or receipts, then the net proceeds of the 

disposition or transfer shall be credited to the reimbursable fund or paid to 

the agency that determined the property to be excess.
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GSA’s leasing authority is found in 40 U.S.C. § 581(d). It, too, applies to 

wholly owned corporations by virtue of 40 U.S.C. § 102. As with personal 

property services, GSA may extend its buildings services (operation, 

maintenance, protection) to a mixed-ownership corporation upon request. 

40 U.S.C. § 582(a). An odd situation occurred in 38 Comp. Gen. 565 (1959). 

The Federal National Mortgage Association (Fannie Mae) started out in life 

as a wholly owned government corporation, was rechartered as a mixedownership government corporation, and is now a government-sponsored 

enterprise. In 1959, it was a mixed-ownership corporation, but Congress 

had chosen to retain it in the Government Corporation Control Act as a 

wholly owned corporation. The question was whether Fannie Mae was 

required to do its leasing through GSA. The continued listing as a wholly 

owned corporation, the decision reasoned, was only for purposes of the 

Control Act. Absent some other definition, the “actual organic structure of 

the corporation” should determine its status. 38 Comp. Gen. at 567. 

Therefore, for purposes of leasing authority, Fannie Mae was a mixedownership corporation and thus not required to lease office space through 

GSA. See also B-161531, June 29, 1967.

Another pertinent statute is the Public Buildings Act.192 It applies to wholly 

owned corporations and to several specified mixed-ownership 

corporations, one of which is the Federal Deposit Insurance Corporation 

(FDIC). 40 U.S.C. § 3301(a)(3)(E). Thus, an office building proposed to be 

constructed by the FDIC would be a “public building” and therefore subject 

to the Public Buildings Act, except for the prospectus approval 

requirement. B-143167-O.M., Sept. 27, 1960.

The Uniform Relocation Assistance and Real Property Acquisition Policies 

Act of 1970,193 which authorizes relocation assistance to individuals 

affected by federal projects, also applies to wholly owned government 

corporations. 42 U.S.C. § 4601(1).

e. Freedom of Information, 

Privacy Acts

The Administrative Procedure Act defines agency to mean “each authority 

of the Government of the United States, whether or not it is within or 

subject to review by another agency,” with a list of exceptions not relevant 

to this discussion. 5 U.S.C. § 551(1). The Freedom of Information Act 

(FOIA) provides that “‘agency’ as defined in section 551(1) of this title 

192 Pub. L. No. 86-249, 73 Stat. 479 (Sept. 9, 1959). 

193 Pub. L. No. 91-646, 84 Stat. 1894 (Jan. 2, 1971). 
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includes any . . . Government corporation [or] Government controlled 

corporation,” which includes both wholly owned and mixed-ownership 

government corporations. 5 U.S.C. § 552(f)(1). The Privacy Act provides 

that “the term ‘agency’ means agency as defined in section 552([f]) of this 

title.” 5 U.S.C. § 552a(a)(1). Thus, the extent to which FOIA and the 

Privacy Act apply to government corporations should be the same since 

they use the same definition.

Given the plain statutory language, the traditional types of government 

corporations—wholly owned and mixed-ownership—do not appear to 

have presented problems. E.g., Dean v. Federal Deposit Insurance Corp., 

389 F. Supp. 2d 780 (E.D. Ky. 2005) (FOIA and Privacy Act held applicable 

in suit against the Federal Deposit Insurance Corporation); Stephens v. 

Tennessee Valley Authority, 754 F. Supp. 579 (E.D. Tenn. 1990) (Privacy Act 

suit against the Tennessee Valley Authority with no suggestion of concern 

over applicability); Jones v. United States Nuclear Regulatory 

Commission, 654 F. Supp. 130, 131 (D.D.C. 1987) (FOIA applies to the 

Tennessee Valley Authority). If these traditional government corporations 

are at the “clearly covered” extreme, at the other, “clearly not covered” 

extreme, are private corporations which receive federal financial 

assistance, even with a slight amount of federal supervision. Irwin 

Memorial Blood Bank v. American National Red Cross, 640 F.2d 1051 

(9th Cir. 1981) (holding FOIA inapplicable to the Red Cross); Forsham v. 

Harris, 445 U.S. 169 (1980) (holding FOIA inapplicable to a private 

grantee).

The difficult cases occupy the gray area between these poles. The case of 

Rocap v. Indiek, 539 F.2d 174 (D.C. Cir. 1976), found FOIA applicable to the 

Federal Home Loan Mortgage Corporation (Freddie Mac), a governmentsponsored enterprise. The court listed the factors it found relevant, 

acknowledging that none of them alone would be sufficient:

“It is federally chartered, its Board of Directors is 

Presidentially appointed, it is subject to close governmental 

supervision and control over its business transactions, and 

to federal audit and reporting requirements. In addition, the 

Corporation is expressly designated an ‘agency,’ and its 

employees are officers and employees of the United States, 

for a number of purposes.” 

Id. at 180.
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Taken together, these “federal characteristics dictate the conclusion that it 

is the kind of federally created and controlled entity” that Congress 

intended to include under the term government-controlled corporation. Id. 

at 181.194

Amtrak is subject to FOIA by virtue of 49 U.S.C. § 24301(e), which makes 

FOIA applicable for any year in which Amtrak receives a federal subsidy. 

However, it is not a government-controlled corporation for purposes of the 

Privacy Act. United States v. Jackson, 381 F.3d 984 (10th Cir. 2004), cert. 

denied, 544 U.S. 963 (2005); Ehm v. National Railroad Passenger 

Corporation, 732 F.2d 1250 (5th Cir.), cert. denied, 469 U.S. 982 (1984). The 

issue had become somewhat clouded by some legislative history that could 

be used to support applicability, as GAO had done in 57 Comp. Gen. 773 

(1978). The Ehm court reviewed the legislative history, found it 

inconclusive, and found Amtrak closer to the Corporation for Public 

Broadcasting, which was indisputably intended to be excluded. Ehm,

732 F.2d at 1253–55. 

A related statute is the Government in the Sunshine Act, 5 U.S.C. § 552b, 

which requires, among other things, that every meeting of an agency be 

announced in advance and open to the public, unless otherwise excepted. 

It defines agency as an agency (1) within the FOIA/Privacy Act definition, 

which explicitly includes both wholly owned and mixed-ownership 

government corporations, and which is (2) “headed by a collegial body 

composed of two or more individual members, a majority of whom are 

appointed to such position by the President.” 5 U.S.C. § 552b(a)(1). A 

corporation’s board of directors is a “collegial body.” 63 Comp. Gen. 98, 99 

(1983); 57 Comp. Gen. at 775. While Ehm supersedes these cases insofar as 

they deal with Amtrak, the general points remain valid, and many 

government corporations are subject to the Sunshine Act.

Of course, as it did with Amtrak, Congress can exclude or include 

government corporations under these laws. 1 Op. Off. Legal Counsel 126, 

131–32 (1977).

194 Legislation in 1989 largely privatized Freddie Mac and severed most of its federal ties. We 

cite Rocap merely to illustrate the kinds of factors that influenced the court. The holding is 

no longer directly applicable. See American Bankers Mortgage Corp. v. Federal Home 

Loan Mortgage Corp., 75 F.3d 1401, 1408 (9th Cir.), cert. denied, 519 U.S. 812 (1996).
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Another information-related statute is the Paperwork Reduction Act of 

1980 (which replaced the Federal Reports Act of 1942), 44 U.S.C. §§ 3501–

3520, which gives the Office of Management and Budget certain oversight 

and regulatory responsibilities with respect to the collection of information 

from the public. The statute’s definition of agency is essentially the same 

as that of FOIA and the Privacy Act in that it expressly includes both wholly 

owned and mixed-ownership government corporations. 44 U.S.C. 

§ 3502(1).

In 2002, Congress passed the E-Government Act to enhance access to 

government information, to promote electronic government services, and 

to increase federal information security. Pub. L. No. 107-347, 116 Stat. 2899 

(Dec. 17, 2002). The majority of the statute’s provisions employ the 

definition of agency in the Paperwork Reduction Act and thus apply to both 

wholly owned and mixed-ownership government corporations. Pub. L. 

No. 107-347, §§ 201, 301. Title II of Public Law 107-347 ensures the 

acceptance by agencies, government corporations, and government 

controlled corporations of electronic signatures and requires the 

development of standards for agency Web sites. Title III of Public 

Law 107-347, titled the Federal Information Security Management Act, sets 

security standards for agencies’ information systems, which also apply to 

both wholly owned and mixed-ownership government corporations.

f. Printing and Binding Subject to a few exceptions, all printing and binding for “every executive 

department, independent office and establishment of the Government, 

shall be done at the Government Printing Office.” 44 U.S.C. § 501. Title 44 

does not further define the applicability of this provision. Although the 

cases must be approached with some caution, the rule developed in the 

cases presented below is that a government corporation empowered to 

determine the character and necessity of its expenditures is not required to 

comply with 44 U.S.C. § 501.

The earliest decision appears to be A-49652, June 28, 1933, in which GAO 

advised that the Home Owners’ Loan Corporation (HOLC) was not required 

to have its printing done at the Government Printing Office. Yet in 

14 Comp. Gen. 695 (1935), GAO held that the Federal Savings and Loan 

Insurance Corporation (FSLIC) was subject to the requirement. The 

difference was that the Home Owners’ Loan Corporation had the statutory 

“character and necessity” power, whereas the FSLIC did not. FSLIC was 

given that power shortly thereafter, and GAO then confirmed that it, too, 

was now exempt. A-60495, Oct. 4, 1938. The two corporations 

subsequently adopted resolutions to serve as their determination of 
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nonapplicability, and GAO concurred. A-98289, Jan. 18, 1939 (HOLC); 

A-98289, A-60495, Jan. 18, 1939 (FSLIC). See also 18 Comp. Gen. 479 (1938); 

14 Comp. Gen. 698 (1935). GAO has applied the same result to other 

government corporations and similar entities. E.g., B-209585, Jan. 26, 1983 

(Tennessee Valley Authority); B-114829, July 8, 1975 (U.S. Postal Service). 

A corporation not subject to 44 U.S.C. § 501 may still elect to follow it. 

A-49217, June 5, 1933.

By coincidence, all of the government corporations GAO had considered 

possessed the variety of “character and necessity” authority which 

included the “without regard to other provisions of law” clause. See 

sections B.6.c(1) and (2) of this chapter. A 1986 decision, 65 Comp. 

Gen. 226, misinterpreted this coincidence and treated the “without regard” 

clause, rather than the basic “character and necessity” provision, as the 

basis for the exemption. While the actual holding of 65 Comp. Gen. 226 is 

correct—that a corporation not possessing the “character and necessity” 

power must follow 44 U.S.C. § 501—the discussion of the “without regard” 

clause is not. This is because 44 U.S.C. § 501 is a general statute; it does not 

expressly apply to government corporations. Therefore, as discussed in 

section B.6.c of this chapter, a “character and necessity” provision is 

sufficient to permit its avoidance, without the need for the additional 

“without regard” clause.

As further evidence, in 1949, the Institute of Inter-American Affairs 

responded to a budget cut by firing all of its auditors. An angered Congress 

threatened to respond by repealing its “character and necessity” power. 

See B-24827, Mar. 24, 1949. As part of this process, GAO was asked to study 

which laws would be affected by such a repeal. The resulting statement 

listed the printing statute as one of the laws that had not previously applied 

but would in the event of repeal. See GAO, General Accounting Office 

Statement Concerning Effect of “Determine and Prescribe” Language on 

Conduct of Business by the Institute of Inter-American Affairs, June 22, 

1949, 334 MS 1805A.195

g. Criminal Code Regardless of a corporation’s autonomy, it is within the power of Congress 

to provide that a crime against a government corporation is a crime against 

the United States. The Supreme Court has said:

195 For an explanation of this citation format, see Chapter 1, section E.2.d, n.78.
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“The United States can protect its property by criminal laws, 

and its constitutional power would not be affected if it saw 

fit to create a corporation of its own for purposes of the 

Government, under laws emanating directly or indirectly 

from itself, and turned the property over to its creature. The 

creator would not be subordinated to its own machinery.” 

United States v. Walter, 263 U.S. 15, 17 (1923).

Congress has implemented this power through several provisions of the 

Criminal Code in title 18 of the United States Code. The definition of 

agency includes “any corporation in which the United States has a 

proprietary interest, unless the context shows that such term was intended 

to be used in a more limited sense.” 18 U.S.C. § 6. 

Some statutes in which this definition can come into play are 18 U.S.C. 

§§ 286 (conspiracy to defraud the United States or agency thereof through a 

false claim); 287 (presenting a false claim to the United States or agency 

thereof); and 371 (conspiracy to defraud the United States or agency 

thereof “in any manner or for any purpose”). An illustrative case is 

United States v. Samuel Dunkel & Co., 184 F.2d 894 (2nd Cir. 1950), cert. 

denied, 340 U.S. 930 (1951), holding that fraud upon the former Federal 

Surplus Commodities Corporation was the same as fraud upon the United 

States for purposes of 18 U.S.C. § 371. This was an easy case since the 

corporation in question was statutorily designated as an agency of the 

United States. Id. at 898. In view of the language of 18 U.S.C. § 6, however, 

that designation would not appear to be necessary. See Walter, 263 U.S. 

at 18.

The “proprietary interest” language of 18 U.S.C. § 6 replaced language in 

prior laws referring to “any corporation in which the United States is a 

stockholder.” See 18 U.S.C. §§ 286, 287 (Revision Notes). No minimum 

proprietary interest is specified to trigger applicability. Thus, the statute 

would apply to a corporation in which the proprietary interest is slight, the 

only qualification being that it must be an instrumentality of the 

government. Walter, 263 U.S. at 18. This ensures that the statute is 

restricted to its intended purpose, government corporations, and 

eliminates situations in which the United States might, for example, acquire 

an interest in a private corporation through some sort of forfeiture.

Proprietary interest also includes nonstock government corporations. The 

Revision Note to 18 U.S.C. § 6 makes clear that this phrase “is intended to 
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include those governmental corporations in which stock is not actually 

issued.” A case applying this concept is Acron Investments, Inc. v. 

Federal Savings and Loan Insurance Corporation, 363 F.2d 236, 239–40 

(9th Cir.), cert. denied, 385 U.S. 970 (1966), dealing with the identical 

proprietary interest language in 28 U.S.C. § 451 which was intended to 

parallel 18 U.S.C. § 6. Another is Government National Mortgage 

Association v. Terry, 608 F.2d 614 (5th Cir. 1979), applying Acron to Ginnie 

Mae.

8. Claims and Lawsuits

a. Administrative Claims (1) Claims settlement authority

The structure of administrative claims settlement in the federal 

government consists of (1) a series of statutes, one example being the 

Federal Tort Claims Act, authorizing the final and conclusive settlement of 

claims either with or without judicial review, and (2) a general claims 

settlement statute, 31 U.S.C. § 3702(a), which picks up claims not covered 

by any of the specific statutes.

Government corporations196 generally have their own claims settlement 

authority by virtue of specific charter provisions, and are therefore not 

subject to 31 U.S.C. § 3702(a). The most direct approach is illustrated by 

15 U.S.C. § 714b(k), which provides that the Commodity Credit 

Corporation may “make final and conclusive settlement and adjustment of 

any claims by or against the Corporation or the accounts of its fiscal 

officers.”

While often cited in conjunction with a “sue-and-be-sued” clause (see 

section B.8.c(2) of this chapter) or a “character and necessity” clause (see 

section B.6.c(1) of this chapter), this provision is sufficient to permit the 

corporation to administratively settle its own claims. Government 

196 For ease of discussion in this section, we will use the term “government corporation” to 

refer generically to the various corporate devices discussed in section B.2 of this chapter 

unless a more specific term is warranted.
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corporations with this type of authority include the Tennessee Valley 

Authority,197 and the Bonneville Power Administration.198

GAO also has held that the power to sue and be sued, combined with the 

power to determine the character and necessity of expenditures, even 

without the explicit claims settlement power, is still sufficient to remove 

the corporation from the scope of 31 U.S.C. § 3702(a). B-179464, Mar. 27, 

1974; B-109766, Jan. 20, 1959 (both dealing with the former Panama Canal 

Company). The Federal Housing Administration has similar authority, 

from which it derives its claims settlement authority. 12 U.S.C. § 1702; 

53 Comp. Gen. 337 (1973); 27 Comp. Gen. 429, 432 (1948); B-156202, Mar. 9, 

1965. 

(2) Federal Tort Claims Act

Prior to the Federal Tort Claims Act (FTCA), 28 U.S.C. §§ 1346(b), 

2671–2680, it was somewhat unclear whether government corporations 

were subject to common-law tort suits. By 1939, the answer became 

settled in the affirmative. Keifer & Keifer v. Reconstruction Finance 

Corporation, 306 U.S. 381 (1939); Prato v. Home Owners’ Loan 

Corporation, 106 F.2d 128 (1st Cir. 1939). See also 25 Comp. Gen. 685 

(1946). When the FTCA was enacted in 1946 to remove much of the 

government’s tort immunity, it included most, if not all, of the then-existing 

government corporations in the waiver. The Act defines federal agency as 

including “corporations primarily acting as instrumentalities or agencies of 

the United States.” 28 U.S.C. § 2671. Far from establishing a black-letter 

rule, however, the definition raises as many questions as it answers.

At a minimum, the definition should pick up wholly owned government 

corporations. The following have been found subject to the Act:

197 16 U.S.C. § 831h(b); B-124078, June 7, 1955. Naturally, the GAO decisions and opinions 

we cite involve claims submitted to GAO during the 75-year span that GAO possessed the 

general claims settlement authority. While GAO is no longer directly involved in the 

process, the principles themselves remain sound. For details of the transfer of the general 

claims settlement authority, see B-275605, Mar. 17, 1997, and Chapter 14, section B.

198 16 U.S.C. § 832a(f); B-129395, Jan. 22, 1957; B-132855-O.M., Oct. 1, 1957.
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• The former Inland Waterways Corporation. Wickman v. 

Inland Waterways Corporation, 78 F. Supp. 284 (D. Minn. 1948). This 

appears to be the earliest published decision on the applicability of the 

FTCA to a government corporation.

• The former Federal Savings and Loan Insurance Corporation. Federal 

Savings & Loan Insurance Corp. v. Quinn, 419 F.2d 1014 (7th Cir. 

1969); Kohlbeck v. Kis, 651 F. Supp. 1233 (D. Mont. 1987); Colony First 

Federal Savings and Loan Ass’n v. Federal Savings & Loan Insurance 

Corp., 643 F. Supp. 410 (C.D. Cal. 1986).

• Saint Lawrence Seaway Development Corporation. Handley v. 

Tecon Corp., 172 F. Supp. 565 (N.D.N.Y. 1959).

• Federal Housing Administration. Edelman v. Federal Housing 

Administration, 382 F.2d 594 (2nd Cir. 1967).

• Federal Prison Industries (FPI). See United States v. Demko, 385 U.S. 

149 (1966). The Court in that case held that a prisoner injured while 

working for FPI could not sue under the FTCA because the 

compensation remedy provided under 18 U.S.C. § 4126 was his 

exclusive remedy. If the FTCA did not apply to FPI, there would have 

been no need to tackle the exclusivity question.

Our research has disclosed no case in which the FTCA was found 

inapplicable to a wholly owned government corporation on the basis of the 

section 2671 definition.

Turning to mixed-ownership corporations, the situation is less uniform. 

One court has held a Federal Home Loan Bank is not a federal agency for 

FTCA purposes. Rheams v. Bankston, Wright & Greenhill,

756 F. Supp. 1004 (W.D. Tex. 1991). Another court reached the opposite 

result for the former Resolution Trust Corporation (RTC), influenced 

largely by the fact that “the RTC is an organization similar to, and in fact 

replaces the FSLIC,” which, as noted above, was an agency under the 

FTCA. Park Club, Inc. v. Resolution Trust [Corporation], 742 F. 

Supp. 395, 398 (S.D. Tex. 1990), aff’d in part and rev’d in part on other 

grounds, 967 F.2d 1053 (5th Cir. 1992).

A sampling of cases involving the Federal Deposit Insurance Corporation 

(FDIC), another mixed-ownership corporation, indicates some of the 

consequences of the FTCA’s applicability. Numerous cases have held that 
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the FDIC is a federal agency for FTCA purposes. E.g., Davis v. 

Federal Deposit Insurance Corp., 369 F. Supp. 277 (D. Colo. 1974). This is 

true regardless of whether the FDIC is acting in its receiver capacity or its 

corporate capacity. Federal Deposit Insurance Corp. v. Hartford 

Insurance Co., 877 F.2d 590 (7th Cir. 1989), cert. denied, 493 U.S. 1056 

(1990); Federal Deposit Insurance Corp. v. diStefano, 839 F. Supp. 110, 121 

(D.R.I. 1993). One important consequence is that if the tort is subject to 

one of the exemptions listed in 28 U.S.C. § 2680, recovery is precluded just 

as if the agency involved were not a corporation, and the corporation’s “sue 

and be sued” power (see section B.8.c(2) of this chapter) cannot be used to 

get in through the back door. Federal Deposit Insurance Corp. v. Citizens 

Bank & Trust Co., 592 F.2d 364 (7th Cir.), cert. denied, 444 U.S. 829 (1979) 

(misrepresentation); Safeway Portland Employees’ Federal Credit 

Union v. Federal Deposit Insurance Corp., 506 F.2d 1213 (9th Cir. 1974) 

(misrepresentation and deceit); Mill Creek Group, Inc. v. Federal Deposit 

Insurance Corp., 136 F. Supp. 2d 36 (D.Conn. 2001) (misrepresentation, 

fraud, and breach of fiduciary duty); Freeling v. Federal Deposit Insurance 

Corp., 221 F. Supp. 955 (W.D. Okla. 1962), aff’d, 326 F.2d 971 (10th Cir. 1963) 

(slander). One possible way around this is a valid recoupment claim, 

whereby a defendant can reduce a plaintiff’s monetary recovery because of 

a counterclaim arising out of the same transaction. diStefano, 839 F. Supp. 

at 123. Another important consequence of applicability is the requirement 

to attempt administrative resolution before going to court. E.g., Federal 

Deposit Insurance Corp. v. Cheng, 787 F. Supp. 625, 631 (N.D. Tex. 1991).

If the seemingly uniform application in the case of wholly owned 

corporations begins to break down with respect to mixed-ownership 

corporations, it breaks down even further for the government-sponsored 

enterprise (GSE). For example, the Federal Home Loan Mortgage 

Corporation (Freddie Mac) has been held not a federal agency under the 

FTCA. Mendrala v. Crown Mortgage Co., 955 F.2d 1132 (7th Cir. 1992). 

The original definitional language, quoted in Wickman, 78 F. Supp. at 285 

(emphasis added) “corporations whose primary function is to act as, and 

while acting as, instrumentalities or agencies of the United States,” 

suggests an interesting twist.199 At least in theory, it seems possible for a 

government corporation or GSE to be subject to the FTCA with respect to 

199 The linguistic change resulting from the 1948 recodification of title 28 presumably works 

no substantive change. 
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its primary function, but not subject while performing some ancillary or 

incidental function.

As to the remaining types of government corporations, applicability of the 

FTCA would seem quite remote. In our definitional discussion in 

section B.2.c of this chapter we noted cases refusing to apply the FTCA to 

the American Red Cross and to the Civil Air Patrol. And, the FTCA does 

not apply to Amtrak. Sentner v. Amtrak, 540 F. Supp. 557, 561 

(D.N.J. 1982).

For most government corporations, applicability of the FTCA is determined 

under the definitional language of 28 U.S.C. § 2671. In a few instances, 

inclusion or exclusion is the subject of other specific legislation. For 

example, the Commodity Credit Corporation is subject to the FTCA by 

virtue of express language in 15 U.S.C. § 714b(c), although it is not clear 

why the CCC would not qualify under the definitional language in any 

event. The FTCA itself provides a few exemptions. Under 28 U.S.C. 

§ 2680(n), the law does not apply to claims “arising from the activities of a 

Federal land bank, a Federal intermediate credit bank, or a bank for 

cooperatives.”

Another significant exemption is 28 U.S.C. § 2680(l): the FTCA does not 

apply to “[a]ny claim arising from the activities of the Tennessee Valley 

Authority.” From this, it is clear that the FTCA cannot form the basis of a 

claim or suit against the Tennessee Valley Authority (TVA). E.g., 

Robinson v. United States, 422 F. Supp. 121 (M.D. Tenn. 1976); Latch v. 

Tennessee Valley Authority, 312 F. Supp. 1069 (N.D. Miss. 1970). However, 

TVA still can be sued in tort under its “sue and be sued” clause. Courts 

have held that, subject to public policy limitations, it is “subject to common 

law liability and may be sued and held liable as may be a private 

individual.” Brewer v. Sheco Construction Co., 327 F. Supp. 1017, 1019 

(W.D. Ky. 1971). See Smith v. Tennessee Valley Authority, 436 F. Supp. 151, 

153–54 (E.D. Tenn. 1977) (following Brewer). Well, maybe not exactly like 

a private individual because TVA is an agency or instrumentality of the 

United States and the Fifth Circuit has held that it cannot be held liable for 

punitive damages without statutory authority. Painter v. Tennessee Valley 

Authority, 476 F.2d 943 (5th Cir. 1973).

(3) Contract Disputes Act

The Contract Disputes Act (CDA), 41 U.S.C. §§ 601–613, applies to each 

executive agency, which includes a wholly owned government corporation 
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as defined by 31 U.S.C. § 9101(3). 41 U.S.C. § 601(2). See APA, Inc. v. 

Federal Savings and Loan Insurance Corp., 562 F. Supp. 884 (W.D. La. 

1983) (CDA applied to former FSLIC because it was listed as a wholly 

owned government corporation). However, the Federal Circuit has ruled 

that the Contract Disputes Act does not apply to the Federal Prison 

Industries (FPI) because the CDA requires judgments rendered against the 

United States to be paid out of appropriated funds, and FPI is a 

nonappropriated fund instrumentality. Core Concepts of Florida, Inc. v. 

United States, 327 F.3d 1331, 1338 (Fed. Cir.), cert. denied, 540 U.S. 1046 

(2003).

As is often the case, the Tennessee Valley Authority (TVA) has its own 

specific provisions. TVA contracts “for the sale of fertilizer or electric 

power or related to the conduct or operation of the electric power system” 

are excluded from the CDA. 41 U.S.C. § 602(b). Other TVA contracts are 

covered only if they include a disputes clause mandating administrative 

resolution. 41 U.S.C. §602(b). The TVA is authorized to establish its own 

board of contract appeals, and has its own direct payment authority. 

41 U.S.C. §§ 607(a)(2), 612(d).

(4) Assignment of Claims Act

The Assignment of Claims Act (31 U.S.C. § 3727, 41 U.S.C. § 15) does not 

explicitly define its applicability. Therefore, absent some charter provision 

resolving the issue, applicability has been determined through case law.

The first wave of cases involved the U.S. Emergency Fleet Corporation, 

which seems to have spent as much time litigating as shipping cargo. The 

Comptroller of the Treasury ruled in 1919 that the statute should apply 

whenever payment is to be made from appropriated funds, and therefore it 

was not necessary to determine whether claims against the Corporation 

were claims against the United States. 25 Comp. Dec. 701, 703 (1919). The 

courts disagreed, however, and held that the Fleet Corporation, because of 

its distinct corporate entity, was not subject to the Act. Rhodes v. 

United States, 8 F. Supp. 124 (E.D.N.Y. 1934); Charles Nelson Co. v. United 

States, 11 F.2d 906 (W.D. Wash. 1926); Providence Engineering Corp. v. 

Downey Shipbuilding Corp., 3 F.2d 154 (E.D.N.Y. 1924).

What was distinct about the Fleet Corporation, although not spelled out in 

the cases cited, was that the Shipping Board, which had organized the Fleet 

Corporation under statutory authority, was authorized to sell Fleet 

Corporation stock to the public as long as the Shipping Board remained 
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majority stockholder. See Pub. L. No. 64-260, § 11, 39 Stat. 728, 731 (Sept. 7, 

1916). The Corporation had been organized “so that private parties could 

share stock ownership with the United States.” Rainwater v. United 

States, 356 U.S. 590, 593 (1958). While this may never have actually 

happened,200 the Corporation was nevertheless legally designed to be more 

of a mixed-ownership corporation. Accordingly, the Rainwater Court 

noted in another context that enactments dealing with corporations like 

the Fleet Corporation were “of little value” in assessing “wholly owned and 

closely controlled” government corporations. Id. at 593–94. (A cynic might 

say that is equally true for case law.)

Later cases involving wholly owned corporations tend to regard the 

Assignment of Claims Act as applicable. The court in Federal Insurance 

Co. v. Hardy, 222 F. Supp. 68 (E.D. Mo. 1963), found it applicable to the 

Federal Housing Administration. Other cases have applied the Assignment 

of Claims Act to the Tennessee Valley Authority (Sigmon Fuel Co. v. 

Tennessee Valley Authority, 709 F.2d 440 (6th Cir. 1983)), and the ExportImport Bank (Balfour Maclaine International, Ltd. v. Hanson, 876 F. 

Supp. 52, 57 (S.D.N.Y. 1995)). See also In re Sunberg, 35 B.R. 777 (Bankr. 

S.D. Iowa 1983), aff’d, 729 F.2d 561 (8th Cir. 1984) (Commodity Credit 

Corporation).

It is also possible for a government corporation or government-sponsored 

enterprise which qualifies as a “financing institution” to be the assignee of 

the proceeds of a contract between the contractor and some other 

government agency. For example, in In re Peoria Consolidated 

Manufacturers, Inc., 286 F.2d 642 (7th Cir. 1961), the court noted that the 

plaintiff manufacturing company had obtained a loan from the 

Reconstruction Finance Corporation and, as security assigned, to the 

corporation money due under a contract with the Army. Id. at 644.

(5) Estoppel

The classic case on estoppel against the government, Federal Crop 

Insurance Corp. v. Merrill, 332 U.S. 380 (1947), involved a wholly owned 

government corporation. The Corporation had denied a claim based on the 

eligibility criteria in its regulations. The Supreme Court upheld the denial, 

notwithstanding that the farmer had been misled into believing that his 

200 As of at least 1927, the Shipping Board still held all of the stock. See United States ex rel. 

Skinner & Eddy Corp. v. McCarl, 275 U.S. 1, 5 (1927).
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crop would be covered. Speaking through Justice Frankfurter, the Court 

explained:

“[W]e assume that recovery could be had against a private 

insurance company. But the Corporation is not a private 

insurance company. . . . The Government may carry on its 

operations through conventional executive agencies or 

through corporate forms especially created for defined 

ends. . . . Whatever the form in which the Government 

functions, anyone entering into an arrangement with the 

Government takes the risk of having accurately ascertained 

that he who purports to act for the Government stays within 

the bounds of his authority.” 

Id. at 383–84.

The D.C. Circuit has held Freddie Mac—the Federal Home Loan Mortgage 

Corporation—to be a federal entity for purposes of a promissory estoppel 

claim. McCauley v. Thygerson, 732 F.2d 978 (D.C. Cir. 1984). (This was the 

preprivatization version of Freddie Mac dealt with in Rocap v. Indiek,

539 F.2d 174 (D.C. Cir. 1976), discussed in section B.7.e of this chapter in 

connection with the Freedom of Information Act.)

(6) Prompt Payment Act

The Prompt Payment Act, 31 U.S.C. §§ 3901–3907, requires the payment of 

an interest penalty when an agency makes late payment for the acquisition 

of property or services from a business concern. The definition of agency 

in 31 U.S.C. § 3901(a)(1) adopts the definition of the Administrative 

Procedure Act, 5 U.S.C. § 551(1), which is broad enough to include 

government corporations but does not explicitly apply to them. GAO has 

regarded this language as clearly applying, for example, to the Commodity 

Credit Corporation. B-223857, Feb. 27, 1987. Subsection (b) of 31 U.S.C. 

§ 3901 states that the Act applies to the Tennessee Valley Authority (TVA), 

but that “regulations prescribed under this chapter do not apply” to the 

TVA, which is authorized to prescribe its own implementing regulations. 

Congress amended the Act in 1988 to make it applicable to certain 

assistance payments to farmers by the Commodity Credit Corporation 

(CCC) which are not payments for the acquisition of goods or services. 

Pub. L. No. 100-496, § 3, 102 Stat. 2455, 2456 (Oct. 17, 1988), codified at 

31 U.S.C. § 3902(h). Under 31 U.S.C. § 3907, a claim for an interest penalty 
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may be brought under the Contract Disputes Act but, since that act has its 

own interest provision, Prompt Payment Act interest is limited to 1 year. 

However, by virtue of 31 U.S.C. § 3902(h)(4), section 3907 does not apply to 

payments owed by the CCC for agricultural commodity pricing and disaster 

assistance programs. Therefore, the 1-year limitation on interest payments 

does not apply to those payments. Doane v. Espy, 873 F. Supp. 1277 (W.D. 

Wis. 1995). As with any other statute, and subject, of course, to 

constitutional restrictions, Congress can expand or restrict the scope or 

applicability of 31 U.S.C. § 3902(h). See Huntsman Farms, Inc. v. Espy,

928 F. Supp. 1451 (E.D. Ark. 1996), aff’d, 105 F.3d 662 (8th Cir. 1997), for one 

example.

(7) False Claims Act

The False Claims Act, 31 U.S.C. §§ 3729–3733, imposes liability for 

presenting a false claim to, or conspiring to defraud, “the Government.” 

31 U.S.C. § 3729(a). The question in the present context is whether 

defrauding a government corporation is the same as defrauding “the 

Government” for False Claims Act purposes. With respect to wholly owned 

corporations at least, the answer appears to be “yes.”201

One line of cases involves the Commodity Credit Corporation (CCC). The 

Supreme Court has held that a claim against the CCC is a claim against the 

government under the False Claims Act. Rainwater v. United States,

356 U.S. 590 (1958). See also United States v. McNinch, 356 U.S. 595 

(1958); United States v. Brown, 274 F.2d 107 (4th Cir. 1960). As the 

Rainwater Court put it: “In brief, Commodity is simply an administrative 

device established by Congress for the purpose of carrying out federal farm 

programs with public funds. . . . In our judgment Commodity is a part of 

‘the Government of the United States’ for purposes of the False Claims 

Act.” Rainwater, 356 U.S. at 592.

Another line of cases says essentially the same thing with respect to the 

Federal Housing Administration (FHA). McNinch, 356 U.S. at 598; United 

States v. Veneziale, 268 F.2d 504 (3rd Cir. 1959); United States v. 

201 There are cases where qui tam plaintiffs attempted to file False Claims Act actions 

against government corporations, but the courts rejected such claims. For example, the 

D.C. Circuit rejected a qui tam action alleging that the Federal Prison Industries (FPI) was 

filing false claims against the United States, because the claim was barred by FPI’s sovereign 

immunity. Galvan v. Federal Prison Industries, Inc., 199 F.3d 461 (D.C. Cir. 1999). See also 

Wood ex rel. United States v. American Institute in Taiwan, 286 F.3d 526 (D.C. Cir. 2002).
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Globe Remodeling Co., 196 F. Supp. 652 (D. Vt. 1960). However, the 

McNinch Court held that a lending institution’s application for credit 

insurance from the FHA is not a claim under the False Claims Act, because 

an application for credit insurance is not usually understood as a claim 

against the government. McNinch, 356 U.S. at 598.

Other wholly owned corporations which have been regarded as part of “the 

Government” under the False Claims Act include the Federal Crop 

Insurance Corporation (Kelsoe v. Federal Crop Insurance Corp.,

724 F. Supp. 448 (E.D. Tex. 1988)), and the former Reconstruction Finance 

Corporation (United States v. Borin, 209 F.2d 145 (5th Cir.), cert. denied, 

348 U.S. 821 (1954)). Whether there might be any basis for distinguishing 

these corporations from any other wholly owned corporation does not 

appear to have been addressed.

The Federal Deposit Insurance Corporation—a mixed-ownership 

government corporation—has also been treated as part of the government 

under the False Claims Act. United States ex rel. Prawer & Co. v. 

Verrill & Dana, 946 F. Supp. 87 (D. Maine 1996), reconsideration denied,

962 F. Supp. 206 (D. Maine 1997). This case involved the so-called “reverse 

claim” provision of the False Claims Act, 31 U.S.C. § 3729(a)(7), imposing 

liability for knowingly making or using a false record or statement “to 

conceal, avoid, or decrease an obligation to pay or transmit money or 

property to the Government.”

In a 2004 decision, the D.C. Circuit held that Amtrak is not part of the 

government for purposes of the False Claims Act. United States ex rel. 

Totten v. Bombardier Corp., 380 F.3d 488 (D.C. Cir. 2004), cert. denied, 

544 U.S. 1032 (2005). The court concluded that Congress had clearly 

specified that Amtrak is not an agency of the government, and that the 

False Claims Act requires presentment of a claim to a federal employee, 

which Amtrak employees are not. 

When a government corporation recovers damages under the False Claims 

Act, it is entitled to retain those funds that represent reimbursement for 

actual losses and for investigative costs. However, double and treble 

damages recovered under the Act must be deposited into the Treasury as 

miscellaneous receipts. B-281064, Feb. 14, 2000 (disposition of damages 

recovered by the Tennessee Valley Authority under the False Claims Act).
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(8) Interagency claims

The conventional wisdom has traditionally been that an agency of the 

federal government may not sue the United States or another agency 

because the same person may not be on both ends of the same lawsuit. 

E.g., Defense Supplies Corporation v. United States Lines Co., 148 F.2d 

311 (2nd Cir.), cert. denied, 326 U.S. 746 (1945). Based in part on this 

reasoning, GAO had held that an agency’s appropriations were not 

available to pay a claim for damage to the property of a government 

corporation. 25 Comp. Gen. 49 (1945). This was a straightforward 

application of the so-called “interdepartmental waiver doctrine,” which 

prohibits a federal agency or instrumentality from paying for the use or 

repair of real property controlled by another federal agency or 

instrumentality unless authorized by statute. See Chapter 6, section E.2.c. 

This doctrine is based on the concept that the property of instrumentalities 

of the government is not the property of separate entities but rather of the 

government as a single entity. 71 Comp. Gen. 1 (1991), and cases cited. 

However, this theory of the government as a single entity, while still true for 

the most part, is not an absolute. See, e.g., United States v. 

Interstate Commerce Commission, 337 U.S. 426 (1949) (suit by the United 

States to review a decision by the Interstate Commerce Commission); 

Tennessee Valley Authority v. EPA, 278 F.3d 1184 (11th Cir. 2003), opinion 

withdrawn in part, 336 F.3d 1236 (11th Cir. 2003), cert. denied, 

541 U.S.1030 (2004) (dispute between the Tennessee Valley Authority (TVA) 

and EPA over the meaning of the Clean Air Act); Dean v. Herrington,

668 F. Supp. 646 (E.D. Tenn. 1987) (suit by TVA against the Department of 

Energy over two long-term power contracts). 

Other decisions have recognized the availability of an agency’s 

appropriations to pay damage claims to at least certain government 

corporations and corporate-like entities. For example, the Bonneville 

Power Administration could charge the National Weather Service for 

damage resulting from its use of Bonneville property. 71 Comp. Gen. 1 

(1991). Under Bonneville’s financing structure, the burden otherwise 

would have fallen on Bonneville’s customers through rate increases caused 

by unrelated activities. Id. at 3–4. The Bonneville decision was followed 

and applied in B-253613, Dec. 3, 1993, holding that the Federal Highway 

Administration could pay TVA for damage its construction caused to TVA’s 

electrical transmission towers because the burden would otherwise have 

fallen on TVA’s customers.
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The reverse situation—payment by a government corporation to another 

agency or government corporation—occurred in 26 Comp. Gen. 235 (1946). 

GAO concluded that the corporation could pay the claim as long as its 

funds were available for the payment of damages incurred in the course of 

its operations. In the cited case, the funds of the former Inland Waterways 

Corporation were available to operate the business of a common carrier by 

water, and therefore available to pay any lawful claims arising from that 

activity. The claimant in the 1946 case happened to be another government 

corporation. Either way, the fact that the agency or corporation suffering 

the damage may not have a legally enforceable claim does not prevent 

administrative settlement. Of course, the charter power to make final and 

conclusive claim settlements provides this authority too.

b. Debt Collection The United States has inherent authority to recover amounts owed to it and 

does not need any special statutory authority to do so. United States v. 

Wurts, 303 U.S. 414, 416 (1938). There is no apparent reason this should 

not apply equally to government corporations. See Bechtel v. Pension 

Benefit Guaranty Corporation, 624 F. Supp. 590 (D.D.C. 1984), aff’d,

781 F.2d 906 (D.C. Cir. 1986).

The typical claims settlement charter provision of government 

corporations applies to debt claims as well as payment claims. For 

example, 15 U.S.C. § 714b(k) authorizes the Commodity Credit Corporation 

to “make final and conclusive settlement and adjustment of any claims by 

or against the Corporation.” Just as with payment claims, this authority 

removes the corporation from the coverage of 31 U.S.C. § 3702(a), the 

general claims settlement statute. Since most debt collection became 

statutory during the last third of the twentieth century, this has less 

significance than it does in the payment context.

Much of the governmentwide debt collection legislation applies expressly 

to government corporations. The first governmentwide statute, the Federal 

Claims Collection Act of 1966, defined “agency” as including “government 

corporations,” which in turn includes both wholly owned and mixedownership government corporations. Pub. L. No. 89-508, § 2(a), 80 Stat. 308 

(July 19, 1966). The provisions which originated in the 1966 Act are the 

duty to pursue collection action and the compromise, suspension, and 

termination authorities, all of which are now found in 31 U.S.C. § 3711. The 

Debt Collection Act of 1982 (Pub. L. No. 97-365, 96 Stat. 1749 (Oct. 25, 

1982)) did not include its own definition, but many of its provisions were 

cast as amendments to the Federal Claims Collection Act, such as 

sections 10 (31 U.S.C. § 3716, administrative offset), 11 (31 U.S.C. § 3717, 
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interest), and 13 (31 U.S.C. § 3718, contracts for collection services). Thus, 

these became subject to the 1966 definition.

The 1982 recodification of title 31 of the United States Code dropped the 

definition as unnecessary. While this made no substantive change, it then 

required several steps of statutory construction to figure out which 

provisions applied to government corporations. In 1996, as part of the Debt 

Collection Improvement Act of 1996, the express reference to government 

corporations was restored. 31 U.S.C. § 3701(a)(4), as amended by Pub. L. 

No. 104-134, § 31001(c)(2), 110 Stat. 1321, 1321-359 (Apr. 26, 1996). Thus, 

for example, the Pension Benefit Guaranty Corporation is subject to 

31 U.S.C. § 3718 and may contract for collection services to collect 

delinquent debts, but not for audit services to identify the debts. B-276628, 

Aug. 19, 1998.

One authority a government corporation has which a regular agency does 

not (by virtue of either its specific claims settlement power or its sue-andbe-sued power in conjunction with other charter powers) is the authority to 

waive indebtedness independent of the waiver statutes applicable to the 

rest of the government. B-194628, July 3, 1979 (Government National 

Mortgage Association); B-190806, Apr. 13, 1978 (Pension Benefit Guaranty 

Corporation). The power to waive includes the power to rescind a 

previously granted waiver if found to have been obtained under a material 

mistake of fact, error of law, fraud, or misrepresentation. B-272467.2, 

Aug. 28, 1998 (Export-Import Bank).

In the majority of cases in which the fact that a government corporation is 

involved is relevant, the issue is whether a debt owed to the corporation is 

the same as a debt owed to the United States. The largest group of cases 

involves 31 U.S.C. § 3713, which gives priority to government claims under 

certain circumstances, and the earliest of these dealt with the Emergency 

Fleet Corporation. The courts held that debts owed to the Fleet 

Corporation were not entitled to the statutory priority. Sloan Shipyards 

Corp. v. United States Shipping Board Emergency Fleet Corp.,

258 U.S. 549 (1922);202 United States v. Wood, 290 F. 109 (2nd Cir.), aff’d 

mem., 263 U.S. 680 (1923); West Virginia Rail Co. v. Jewett Bigelow & 

Brooks Co., 26 F.2d 503 (E.D. Ky. 1928).

202 The summary treatment in Sloan, 258 U.S. at 570, did not cite the priority statute but the 

lower court opinion, which Sloan affirmed, did. See In re Eastern Shore Shipbuilding 

Corp., 274 F. 893 (2nd Cir. 1921), aff’d, 258 U.S. 549 (1922).
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As we have seen in section B.8.a(4) of this chapter, Fleet Corporation cases 

must be applied with great caution, but this is one instance in which the 

courts have generally reached the same result. Debts to the following 

corporations have been held not to constitute debts to the United States for 

purposes of the priority statute: Government National Mortgage 

Association or “Ginnie Mae” (United States v. Blumenfeld, 128 B.R. 918 

(E.D. Penn. 1991)); Federal Deposit Insurance Corporation (Lapadula & 

Villani, Inc. v. United States, 563 F. Supp. 782 (S.D.N.Y. 1983)); and the 

former Reconstruction Finance Corporation (RFC) (Reconstruction 

Finance Corporation v. Brady, 150 S.W.2d 357 (Tex. Civ. App. 1941)). Two 

cases giving priority to RFC debts are In re Peoria Consolidated 

Manufacturers, Inc., 286 F.2d 642 (7th Cir. 1961), and In re Tennessee 

Central Railway, 463 F.2d 73 (6th Cir.), cert. denied, 409 U.S. 893 (1972). 

Peoria involved a loan program given to the RFC under the Defense 

Production Act of 1950, the funds for which “were obtained from the 

Treasury of the United States and did not involve the capital or assets of 

RFC.” Peoria, 286 F.2d at 645. The Tennessee litigation occurred long after 

the RFC had been liquidated and its assets transferred to various 

government agencies. See RFC Liquidation Act, Pub. L. No. 83-163, 67 Stat. 

230 (July 30, 1953).

Since the fact of corporate identity seems to be the key factor in these 

cases, the courts have reached a different result with respect to the Federal 

Housing Administration (FHA), which has corporate powers but is not 

organized as a corporation. Debts owed to the FHA are debts owed to the 

United States under 31 U.S.C. § 3713. Korman v. Federal Housing 

Administrator, 113 F.2d 743 (D.C. Cir. 1940). Also, Congress can extend 

the government’s priority to any government corporation by expressly so 

providing in the charter, as it has done, for example, for the Commodity 

Credit Corporation, which “shall have all the rights, privileges, and 

immunities of the United States with respect to the right to priority of 

payment with respect to debts due from insolvent, deceased, or bankrupt 

debtors.” 15 U.S.C. § 714b(e). See Engleman v. Commodity Credit Corp.,

107 F. Supp. 930 (S.D. Cal. 1952) (recognizing the priority but finding the 

statute inapplicable where the government acquired its claim after an 

assignment for the benefit of creditors).

In the area of offset, GAO and the courts have mostly recognized the 

concept of the government as a single entity (“unitary government”) and 

treated debts to government corporations as debts to the United States. 

Applying the common-law offset inherent under the general settlement 

authority of 31 U.S.C. § 3702(a), GAO took the position that a refund of 
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certain taxes was subject to offset to collect a debt owed to the 

Reconstruction Finance Corporation. B-35182, Aug. 16, 1943. The debtor 

sued, the government filed a counterclaim, and the Supreme Court 

effectively upheld the offset. Cherry Cotton Mills, Inc. v. 

United States, 327 U.S. 536 (1946). The Court said:

“Every reason that could have prompted Congress to 

authorize the Government to plead counterclaims for debts 

owed to any of its other agencies applies with equal force to 

debts owed to the R.F.C. . . . That the Congress chose to call 

it a corporation does not alter its characteristics so as to 

make it something other than what it actually is, an agency 

selected by Government to accomplish purely governmental 

purposes.” 

Id. at 539.

While the Court was ruling, strictly speaking, on the propriety of the 

counterclaim and not the propriety of the administrative action, the 

rationale clearly fits. See also B-35182, Nov. 30, 1945. While there now 

exists a comprehensive statutory provision for administrative offset, 

31 U.S.C. § 3716, which applies to government corporations under 31 U.S.C. 

§ 3701(a)(4), the common-law principles remain relevant in cases in which 

section 3716 does not apply. See McBride Cotton & Cattle Corp. v. 

Veneman, 296 F. Supp. 2d 1125 (D.Ariz. 2003) (the Commodity Credit 

Corporation has administrative offset authority outside of 31 U.S.C. § 3716 

by virtue of its statutory authority to settle and adjust claims and to 

determine its obligations and expenditures). Just like an agency, a 

government corporation cannot use 31 U.S.C. § 3716 unless it has issued 

implementing regulations. In re Art Metal U.S.A., Inc., 109 B.R. 74, 81 

(Bankr. D.N.J. 1989).

The unitary government concept also applies for the most part in setoffs 

under the Bankruptcy Code. E.g., In re Turner, 84 F.3d 1294 (10th Cir. 

1996). The bankruptcy law regarding setoff, 11 U.S.C. § 553, preserves any 

common-law offset arising before commencement of the bankruptcy case. 

11 U.S.C. § 553(a). For purposes of this provision, most government 

corporations are part of the unitary government. This had also been the 

case under prior versions of the Bankruptcy Code. Luther v. 

United States, 225 F.2d 495, 498 (10th Cir. 1954); B-120801, July 7, 1955. 

There is an exception, however, for “certain federal agencies such as the 

Federal Deposit Insurance Corporation [which] are viewed as separate 
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governmental units when they act in their private receivership capacity.” 

Doe v. United States, 58 F.3d 494, 498 (9th Cir. 1995); In re Lopes, 211 B.R. 

443, 447 n.3 (D.R.I. 1997). Another exception which fits this formulation is 

the Pension Benefit Guaranty Corporation when serving as trustee for 

terminated plans. The fact that the Pension Benefit Guaranty Corporation 

is a wholly owned government corporation had no impact on the court’s 

decision. In re Art Metal U.S.A., Inc., 109 B.R. at 78.

In one early case predating Cherry Cotton Mills, GAO applied the 

precedents under the priority statute in determining which debts can be 

collected by offset against judgments under 31 U.S.C. § 3728. A-97085, 

June 13, 1942 (a debt owed to the Federal Deposit Insurance Corporation 

was not a debt owed to the United States for judgment offset purposes). 

While the result might still be the same for the corporation under the 

“private capacity” exception, the analysis probably should start by applying 

the offset cases rather than the priority cases.

c. Litigation in the Courts (1) Sovereign immunity

We begin with the well-recognized principle that sovereign immunity 

protects the federal government and its agencies from suit. E.g., Federal 

Deposit Insurance Corp. v. Meyer, 510 U.S. 471, 475 (1994). Of course, the 

United States may waive that immunity by consenting to be sued. Id. The 

Supreme Court in Meyer described sovereign immunity as being 

jurisdictional in nature—“the terms of [the United States’] consent to be 

sued in any court define that court’s jurisdiction to entertain the suit.” Id. 

at 475, quoting United States v. Sherwood, 312 U.S. 584, 586 (1941). Since 

government corporations are not always considered to “be” the United 

States, we cannot rely solely upon the general theories of sovereign 

immunity to determine the status of government corporations.

(2) “Sue-and-be-sued” clauses

Most government corporation charters provide the power to sue and be 

sued; that is, sue and be sued in the name of the corporation rather than the 

United States. The simplest charter provision empowers the corporation to 

“sue and be sued in its corporate name.” E.g., 16 U.S.C. § 831c(b) 

(Tennessee Valley Authority); 7 U.S.C. § 942 (Rural Telephone Bank). See 

also B-281064, Feb. 14, 2000 (discussing the Tennessee Valley Authority’s 

power to sue and be sued). A variation includes one or two additional 

elements, such as 29 U.S.C. § 1302(b)(1), which authorizes the Pension 

Benefit Guaranty Corporation (PBGC) to “sue and be sued, complain and 
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defend, in its corporate name and through its own counsel, in any court, 

State or Federal.” See also B-289219, Oct. 29, 2002 (describing PBGC’s 

authority to sue and be sued in its own name). Another version adds a 

whole paragraph of instructions on such things as jurisdiction, venue, and 

the time limitations in which suit may be filed. E.g., 7 U.S.C. § 1506(d) 

(Federal Crop Insurance Corporation (FCIC)); 15 U.S.C. § 714b(c) 

(Commodity Credit Corporation). See, e.g., Texas Peanut Farmers v. 

United States, 409 F.3d 1370 (Fed. Cir. 2005) (discussing proper venue for 

suit against FCIC under 7 U.S.C. § 1506(d)). 

Whether a government corporation without a sue-and-be-sued clause also 

has sovereign immunity is open to some debate. In Keifer & Keifer v. 

Reconstruction Finance Corp., 306 U.S. 381, 389 (1939), the Supreme 

Court said that the mere fact that corporations are created by Congress and 

act as agencies of the United States “would not confer on such 

corporations legal immunity even if the conventional to-sue-and-be-sued 

clause were omitted.” Other courts seized upon this proposition and 

proclaimed that a government corporation does not share the government’s 

sovereign immunity unless Congress expressly grants it. E.g., 

Reconstruction Finance Corp. v. Langham, 208 F.2d 556 (6th Cir. 1953); 

United States v. Edgerton & Sons, 178 F.2d 763 (2nd Cir. 1949). Taken to its 

logical conclusion, this position would render the sue-and-be-sued clause 

surplusage—the situation would be the same with or without it. In Keifer,

however, the Court was dealing with legislation which authorized the 

Reconstruction Finance Corporation to create certain regional 

corporations, and found that Congress contemplated that the powers of the 

parent corporation would flow through to its progeny. Many government 

corporations have come and gone in the decades since the Keifer decision, 

virtually all possessing the sue-and-be-sued power. It would seem that the 

omission of that power from a new statutory charter could not be 

summarily dismissed. Be that as it may, the question would likely turn on 

congressional intent (Federal Land Bank v. Priddy, 295 U.S. 229, 231 

(1935)) and may well remain academic if Congress continues to routinely 

include the sue-and-be-sued clause.

Regardless of the arguable consequences of silence in a legislative charter, 

the important starting principle is that Congress has the power to control 

the matter by including appropriate language, one way or the other, in the 

charter. Keifer, 306 U.S. at 389; Priddy, 295 U.S. at 231–32. As the Supreme 

Court put it in Federal Housing Administration v. Burr, 309 U.S. 242, 244 

(1940), “there can be no doubt that Congress has full power to endow [a 
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government corporation] with the government’s immunity from suit or to 

determine the extent to which it may be subjected to the judicial process.”

A very similar statement is found in Priddy, 295 U.S. at 231: “Immunity 

from suit is . . . given up when the language of the organic statute 

specifically waives it.” See also Dollar v. Land, 154 F.2d 307, 312 (D.C. Cir. 

1946), aff’d, 330 U.S. 731 (1947). The most common legislative device for 

waiving sovereign immunity is the sue-and-be-sued clause. When Congress 

passes enabling legislation allowing a federal entity to be sued under a sueand-be-sued clause, that waiver of sovereign immunity “should be given a 

liberal—that is to say, expansive—construction.” United States Postal 

Service v. Flamingo Industries, Ltd., 540 U.S. 736, 741 (2004). The 

Supreme Court emphasized that sue-and-be-sued clauses could only be 

limited by implication in certain circumstances where there has been a—

“‘clea[r] show[ing] that certain types of suits are not 

consistent with the statutory or constitutional scheme, that 

an implied restriction of the general authority is necessary 

to avoid grave interference with the performance of a 

governmental function, or that for other reasons it was 

plainly the purpose of Congress to use the ‘sue and be sued’ 

clause in a narrow sense.’” 

Federal Deposit Insurance Corp. v. Meyer, 510 U.S. 471, 480 (1994), 

quoting Burr, 309 U.S. at 245. 

The fact that a government corporation can sue or be sued does not mean 

that it can be hauled into court for any perceived wrong. The Supreme 

Court pointed out in Meyer that the sovereign immunity waiver is only the 

first step in a two-step process: “The first inquiry is whether there has been 

a waiver of sovereign immunity. If there has been such a waiver, as in this 

case, the second inquiry comes into play—that is, whether the source of 

substantive law upon which the claimant relies provides an avenue for 

relief.” Meyer, 510 U.S. at 484.

The Meyer Court held that the sue-and-be-sued clause of the former 

Federal Savings and Loan Insurance Corporation waived its immunity with 

respect to a constitutional tort claim, but that there was no legal basis—

and the Court emphatically refused to create one—for asserting a 

constitutional tort claim against the corporation itself. In the Meyer case, 

the source of the substantive law upon which the suit relied did not provide 

an avenue for relief. Id. at 483–86. Thus, a sue-and-be-sued clause does not 
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furnish the legal basis for “liability if the substantive law in question is not 

intended to reach the federal entity.” Flamingo Industries, 540 U.S. at 744. 

See also Young v. Federal Deposit Insurance Corp., 763 F. Supp. 485 (D. 

Colo. 1991); Atchley v. Tennessee Valley Authority, 69 F. Supp. 952 (N.D. 

Ala. 1947); Grant v. Tennessee Valley Authority, 49 F. Supp. 564 (E.D. Tenn. 

1942). The Atchley court put it this way:

“A distinction must be recognized between the procedural 

question of whether a government corporation is subject to 

suit and the substantive question of whether a given set of 

facts establishes its liability as a matter of substantive law. 

The sue-and-be-sued clause in the TVA Act does nothing but 

remove the procedural bar to suit against an agency of the 

Federal Government. It does not engender liability in a case 

where liability would not otherwise exist.” 

Atchley, 69 F. Supp. at 954.

Some conflict has arisen regarding the source of payments for potential 

judgments and the effect, if any, on jurisdiction. The source of that conflict 

can be found in the Burr case. In Burr, the Supreme Court held that 

garnishment was available to litigants against the Federal Housing 

Administration (FHA), but stated that this did not mean “that any funds or 

property of the United States [could] be held responsible for this 

judgment.” Burr, 309 U.S. at 250. The Supreme Court pointed out that 

claims against private corporations are normally only collectible against 

corporate assets and that the same was true for the FHA. The National 

Housing Act directed that claims against the FHA involved in this case 

“shall be paid out of funds made available by this Act.” Id. at 250, quoting 

Pub. L. No. 73-479, §1, 48 Stat. 1246 (June 27, 1934). Thus, the Supreme 

Court concluded that only funds which were actually in the possession of 

FHA, “severed from Treasury funds and Treasury control, are subject to 

execution.” Burr, 309 U.S. at 250. On the other hand, FHA funds deposited 

with the Treasury were not subject to execution because there had been no 

consent to reach them and allowing execution “would be to allow 

proceedings against the United States where it had not waived its 

immunity.” Id. Recognizing that this restriction on execution deprived it of 

utility, the Supreme Court emphasized that this was an inherent limitation 

on the statutory scheme and remedies provided by Congress. Id. at 251.

Federal courts have differed in interpreting the Burr holding. Some courts 

have held that, in order to establish the government’s waiver of sovereign 
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immunity, the party suing a government corporation with a sue-and-be-sued 

clause must show that a judgment against the government corporation 

would come from funds in its possession and control. Johnson v. 

Secretary of Housing & Urban Development, 710 F.2d 1130, 1138 (5th Cir. 

1983); S.S. Silberblatt, Inc. v. East Harlem Pilot Block, 608 F.2d 28, 36 

(2nd Cir. 1979); Marcus Garvey Square, Inc. v. Winston Burnett 

Construction Co., 595 F.2d 1126, 1131 (9th Cir. 1979); Rawlins v. 

M&T Mortgage Corp., No. 05 Civ. 2572(RCC) (S.D.N.Y. Sept. 1, 2005); 

Thomas v. Pierce, 662 F. Supp. 519, 526 (D. Kan. 1987). See also Oklahoma 

Mortgage Co. v. Government National Mortgage Association, 831 F. Supp. 

821, 823 (W.D. Okla. 1993) (the Government National Mortgage Association 

has no funds in its possession and control separate from Treasury funds, 

and statute precludes recovery from its assets, so claims against it were, in 

reality, claims against the United States barred by sovereign immunity). 

Other courts reason that even if funds are in the possession and control of 

the federal entity, the action must be brought against the United States if 

the funds originated from the public treasury. Housing Products Co. v. 

Flint Housing Commission, No. 99-1551 (6th Cir. Nov. 7, 2000)

(per curiam); Portsmouth Redevelopment and Housing Authority v. 

Pierce, 706 F.2d 471 (4th Cir. 1983). These courts note that funds 

appropriated to a federal entity “do not cease to be public funds after they 

are appropriated.” Pierce, 706 F.2d at 473–74. At least one court has 

criticized this approach on the basis that if funds appropriated to federal 

entities cannot be used to satisfy judgments acquired by the waiver of 

immunity provided by a sue-or-be-sued clause, it would “render such 

clauses ineffectual.” C.D. Barnes Associates, Inc. v. Grand Haven 

Hideaway Ltd., 406 F. Supp. 2d 801, 818 (W.D. Mich. 2005).

Some courts have rejected both these approaches, reasoning that those 

cases misinterpret Burr. Auction Co. of America v. Federal Deposit 

Insurance Corp., 132 F.3d 746 (D.C. Cir. 1997). In deciding jurisdictional 

issues involving the FDIC, the Auction court criticized the distinction 

between suits against agencies and those against the United States because 

“this test was designed to distinguish suits against private individuals from 

ones against the sovereign,” and “[f]ederal agencies or instrumentalities 

performing federal functions always fall on the ‘sovereign’ side of [the] 

fault line; that is why they possess immunity that requires waiver.” Id.

at 752. The Auction court stated that although the source of funds for 

recovery may become an issue, “it is not jurisdictional and does not bear on 

whether a suit against the FDIC as Receiver is a suit against the United 

States.” Id. at 752–53.
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Other courts have held that when sovereign immunity is waived by a sueand-be sued clause, the court does not need to analyze whether there are 

funds within the government corporation’s control for jurisdictional 

purposes. C.H. Sanders Co.v. BHAP Housing Development Fund, 903 F.2d 

114, 120 (2nd Cir. 1990);203 Jackson Square Ass’n v. Department of Housing 

& Urban Development, 797 F. Supp. 242, 245–46 (W.D.N.Y. 1992). Upon 

consideration of the government’s petition for rehearing in the 

C.H. Sanders case, the Second Circuit addressed the concern that the 

Department of Housing and Urban Development (HUD) was obliged to 

satisfy any judgment that might be rendered out of Treasury funds. 

C.H. Sanders Co. v. BHAP Housing Development Fund, 910 F.2d 33 

(2nd Cir. 1990) (denying petition for rehearing). The Second Circuit held 

that HUD would be obliged to satisfy any judgment only out of nonTreasury funds that are available to it and would have no payment 

obligation if no such funds were available. Id.

Another court distinguished Burr on the basis that jurisdiction was derived 

from another source, such as the Tucker Act, which does not limit the 

source of judgment, instead of FHA’s sue and be sued clause. National 

State Bank of Newark v. United States, 357 F.2d 704, 711 (Ct. Cl. 1966).

Finally, the court in Far West Federal Bank v. Office of Thrift Supervision,

930 F.2d 883, 890 (Fed. Cir. 1991), recognized the split, but avoided 

choosing one or the other because the court was able to identify funds in 

control of the government corporation from which any judgments would be 

paid. In Far West, the government argued that any judgment would be paid 

from Treasury funds and not funds in control of the government 

corporation and such a claim could only be asserted in the Claims Court 

under the Tucker Act. Id. at 890. The government’s argument was based 

upon a “Treasury backup” provision stating that the Secretary of Treasury 

will fund amounts as may be necessary for fund purposes. Id. However, 

the court held that the liabilities of the fund were to be paid from the fund, 

the fund was to be administered by the government corporation and the 

Treasury backup provision simply implemented congressional intent that 

the fund have sufficient resources to carry out its obligations. Id. at 889–

90. Thus, the court concluded that the Treasury backup provision did not 

203 We note that the sue-or-be-sued clause at issue in C.H. Sanders has been amended since 

the case was decided. See 12 U.S.C. § 1701q. Although the clause has been superseded (see 

United American Inc. v. N.B.C.-U.S.A. Housing Inc. Twenty Seven, 400 F. Supp. 2d 59, 63–

65 (D.C. Cir. 2005)), the proposition for which the case is cited (i.e., waiver of sovereign 

immunity by a sue-or-be-sued clause) has not been disturbed. 
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bar recovery under the sue-and-be-sued clause or impose exclusive Tucker 

Act jurisdiction. Id. at 890.

Notwithstanding the differences discussed above, generally, judgments 

against a government corporation are paid by the government corporation 

rather than from the Judgment Fund.204 Judgments against government 

corporations are “otherwise provided for,” so when judgments are obtained 

against government corporations they can pay them, like private 

corporations, from those corporate assets. Both GAO and the Attorney 

General recognize this rule. See, e.g., 62 Comp. Gen. 12 (1982); B-236414, 

Feb. 22, 1991; 22 Op. Off. Legal Counsel 141 (1998); 13 Op. Off. Legal 

Counsel 362 (1989).

(3) The Tucker Act

Sue-and-be-sued clauses are not the only waivers of sovereign immunity for 

government corporations. The Tucker Act waives sovereign immunity of 

the United States and sets out jurisdictional parameters for certain 

monetary claims against the United States, including those founded upon 

the Constitution, any act of Congress, any regulation of an executive 

department, or any express or implied contract with the United States. 

28 U.S.C. § 1491(a)(1). Under the Tucker Act, the United States Court of 

Federal Claims has exclusive jurisdiction for civil suits of more than 

$10,000 and concurrent jurisdiction with federal district courts for civil 

suits not exceeding $10,000. 28 U.S.C. §§ 1346(a)(2) and 1491(a)(1). The 

Tucker Act provides jurisdiction for suits against the United States 

“whenever ‘a federal instrumentality acts within its statutory authority to 

carry out [the government’s] purposes’ as long as no other specific 

statutory provision bars jurisdiction.” Auction Co. of America v. Federal 

Deposit Insurance Corp., 141 F.3d 1198, 1199 (1998) (Auction II), quoting 

Butz Engineering Corp. v. United States, 499 F.2d 619, 622 (Ct. Cl. 1974). 

Several mixed-ownership government corporations, such as the Federal 

Deposit Insurance Corporation (FDIC) as receiver, the Office of Thrift 

Supervision, and the Resolution Trust Corporation have been held to be 

federal instrumentalities for Tucker Act purposes. Auction II, 141 F.3d 

204 Under section 1304 of title 31, United States Code, a permanent appropriation, commonly 

know as the Judgment Fund, was created to pay judgments against the United States when, 

among other things, “the payment is not otherwise provided for.” If an appropriation or fund 

under the control of the agency involved in the litigation is legally available to satisfy a 

particular judgment, then the judgment appropriation may not be used. See, e.g., 62 Comp. 

Gen. 12 (1982); B-236414, Feb. 22, 1991; B-211389, July 23, 1984.
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at 1199; Auction Co. of America v. Federal Deposit Insurance Corp., 

132 F.3d 746, 750 (D.C. Cir. 1997) (Auction I). See, e.g., Slattery v. United 

States, 35 Fed. Cl. 180 (1996); Seuss v. United States, 33 Fed. Cl. 89 (1995).

A wholly owned government corporation is clearly a federal 

instrumentality for Tucker Act purposes where it can be demonstrated 

“that it is an agency selected by the Government to accomplish purely 

governmental purposes . . . and that it is doing work of the Government.” 

Breitbeck v. United States, 500 F.2d 556, 558 (1974) (Saint Lawrence 

Seaway Development Corporation). See also Oklahoma Mortgage Co. v. 

Government National Mortgage Association, 831 F. Supp. 821 (1993) 

(company’s claim was an action founded upon a contract, against the 

United States, seeking relief in excess of $10,000 which was within the 

exclusive jurisdiction of the United States Claims Court). Even where 

wholly owned government corporations carry out commercial activities 

that can be characterized as private, if their purpose is to further the policy 

interests of the government, they are considered to be federal 

instrumentalities for Tucker Act purposes. Optiperu, S.A., v. 

Overseas Private Investment Corp., 640 F. Supp. 420, 424 (D.D.C. 1986). 

The Optiperu court reviewed the legislative history of the Overseas Private 

Investment Corporation (OPIC) and found several instances where 

Congress set out OPIC’s governmental policy objectives while carrying out 

transactions that would otherwise normally be characterized as private, 

such as issuing and guaranteeing loans and insurance. Id. at 424–25. The 

court noted that under 22 U.S.C. § 2191 OPIC is “an agency of the United 

States under the policy guidance of the Secretary of State.” Optiperu, 

640 F. Supp. at 424. The court also pointed out that OPIC was listed as a 

wholly owned government corporation in the Government Corporation 

Control Act, 31 U.S.C. § 9101(3)(H), and noted the various provisions 

dealing with OPIC’s budget submissions, appropriations, financial audits 

and account requirements with the government. Optiperu, 640 F. Supp. 

at 424 n.2. Finally, the court found that even if OPIC had to pay any 

judgments out of its funds rather than the Treasury, this did not eliminate 

its status as a federal instrumentality. Id. at 425–26. Rather, the United 

States would be jointly or severally liable for any money damages obtained 

against OPIC. Id. at 426. 

The various waivers of sovereign immunity and jurisdictional authority 

may provide plaintiffs with several choices of forum. For example, in 

Auction I, 132 F.3d at 753, the court pointed out that plaintiffs suing the 

FDIC in contract could sue in the Court of Federal Claims for Tucker Act 

suits of more than $10,000, in the Court of Federal Claims or federal district 
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court for Tucker Act claims of less than $10,000, or in any court of law or 

equity under the FDIC sue-or-be-sued clause.

(4) Liability for costs and remedies of litigation

Once government corporations sue, or are sued, they can expect to be 

subject to at least some of the typical costs of litigation. Courts have 

analyzed the sue-and-be-sued clauses of government corporations in order 

to determine which costs can be assessed against government 

corporations. In Federal Housing Administration v. Burr, 309 U.S. 242 

(1940), for example, the Supreme Court held that the Federal Housing 

Administration (FHA) was subject to all civil process incident to the 

commencement or continuance of legal proceedings which included the 

garnishment of the wages of an FHA employee sought in that case.205 The 

Supreme Court noted that garnishment is a well-known remedy available to 

litigants and “[t]o say that Congress did not intend to include such civil 

process in the words ‘sue and be sued’ would in general deprive suits of 

some of their efficacy.” Id. at 246. The Court pointed out two examples of 

government agencies with sue-and-be-sued clauses with specific 

prohibitions against attachment and garnishment, which added weight to 

the Court’s conclusion that Congress ordinarily intended that such civil 

process apply or it would have specifically prohibited them. Id. at 247 n.10.

The Supreme Court considered whether the Reconstruction Finance 

Corporation (RFC), as the unsuccessful litigant, could be held liable for 

costs incident to litigation. Reconstruction Finance Corp. v.

Menihan Corp., 312 U.S. 81 (1941). The Supreme Court noted that 

although the RFC acted as a governmental agency “its transactions are akin 

to those of private enterprises” and Congress provided it with the power to 

sue and be sued. Id. at 83. The Supreme Court held that sue-and-be-sued 

clauses “normally include the natural and appropriate incidents of legal 

proceedings” and that the “payment of costs by the unsuccessful litigant, 

awarded by the court in the proper exercise of the authority it possesses in 

similar cases, is manifestly such an incident.” Id. at 85. Although this 

statement was very broad, its application has been somewhat limited.

205 Compare 26 Comp. Gen. 907 (1947) (finding that a sue-and-be-sued clause did not 

authorize collection of an FHA employee’s federal tax indebtedness); 19 Comp. Gen. 798 

(1940) (finding that a sue-and-be-sued clause did not authorize the FHA to purchase 

insurance to cover potential tort liability).
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Generally, interest cannot be recovered in a suit against the United States 

unless there is an express waiver of sovereign immunity from an award of 

interest. Library of Congress v. Shaw, 478 U.S. 310, 311 (1986);206 see also 

B-243029, Mar. 25, 1991. Where a government corporation does not act like 

a private corporation, but acts as an agent for the government and there is 

no statue or authority for paying interest, interest cannot be imposed upon 

the United States directly or indirectly through the agent government 

corporation. Riverview Packing Co. v. Reconstruction Finance Corp.,

207 F.2d 361, 370 (3rd Cir. 1953). 

However, interest can and has been recovered against government 

corporations under certain circumstances. A “commercial venture” 

exception to the no-interest rule has developed. Generally this exception 

recognizes that where an agency of the United States is involved in an 

essentially commercial and for-profit venture, its sue-and-be-sued clause 

waives sovereign immunity and may allow liability for pre- or postjudgment interest. Standard Oil Co. v. United States, 267 U.S. 76, 79 

(1925); R&R Farm Enterprises, Inc. v. Federal Crop Insurance Corp.,

788 F.2d 1148 (5th Cir. 1986). If the party seeking payment of interest is a 

recipient of government benefits arising out of the agency’s noncommercial 

ventures, courts have refused to award interest because the payment 

would be in excess of what Congress or the agency has authorized by law 

or regulation. R&R Farm Enterprises, 788 F.2d at 1153. The waiver of 

sovereign immunity does not create a new liability upon the government 

for the payment of interest. See McGehee v. Panama Canal Commission,

872 F.2d 1213 (5th Cir.), rehearing denied, 880 F.2d 413 (5th Cir. 1989); 

Pender Peanut Corp. v. United States, 21 Cl. Ct. 95 (1990). 

In cases where the government corporation is not engaged in a commercial 

enterprise, but is acting as a governmental, regulatory entity, it is not 

subject to prejudgment interest awards even where it has a sue-and-besued clause. For example, where the Federal Deposit Insurance 

Corporation (FDIC) is acting as a regulatory agency protecting the banking 

system, it is not subject to prejudgment interest awards. Far West Federal 

Bank v. Office of Thrift Supervision, 119 F.3d 1358, 1366–67 (9th Cir. 1994); 

206 The Civil Rights Act has been amended to allow interest on judgments against the United 

States since Shaw was decided. See Pub. L. No. 102-166, § 114, 105 Stat. 1071, 1079 (Nov. 21, 

1991). While the statutory provision at issue in the case has been superseded (see 

Landgraf v. U.S.I. Film Products, 511 U.S. 244, 251 (1994)), the proposition for which the 

case is cited (i.e., the need for an express waiver of immunity from an interest award) has 

not been overturned. 
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Spawn v. Western Bank-Westheimer, 989 F.2d 830, 833–38 (5th Cir. 1993), 

cert. denied, 510 U.S. 1109 (1994); Gilbert v. Federal Deposit Insurance 

Corp., 950 F. Supp. 1194, 1199–1200 (D.D.C. 1997).

The award of prejudgment interest may also be imposed against 

government corporations under the analysis recognized by the Supreme 

Court in Loeffler v. Frank, 486 U.S. 549, 556 (1988). Under Title VII of the 

Civil Rights Act of 1964, Congress waived sovereign immunity for actions 

against federal agencies, but not for interest awards. Shaw, 478 U.S. at 323. 

In Loeffler, the Supreme Court identified two factors which waived any 

existing immunity of the Postal Service.207 First, the Supreme Court 

recognized that Congress had designed the Postal Service to be run like a 

business by “launching” it into the commercial world. Loeffler, 486 U.S. 

at 556. Second, Congress included a sue-and-be-sued clause in the Postal 

Service’s charter. Id. However, since Congress did not expressly limit the 

waiver of sovereign immunity effected by the Postal Service’s sue-and-besued clause, interest could be recovered against the Postal Service in 

Title VII cases even though it could not be recovered against other 

agencies. The Supreme Court concluded that “Congress is presumed to 

have waived any otherwise existing immunity of the Postal Service from 

interest awards” which could be recovered from the Postal Service “to the 

extent that interest is recoverable against a private party as a normal 

incident of suit.” Id. at 556–57.

Finally, like federal agencies, government corporations may not be sued for 

punitive damages unless expressly authorized by Congress. Springer v. 

Bryant, 897 F.2d 1085, 1089 (11th Cir. 1990).

The Equal Access to Justice Act (EAJA) also authorizes fee awards against 

the United States, in various administrative and judicial actions which were 

not previously authorized. Pub. L. No. 96-481, 94 Stat. 2321, 2325–30 

(Oct. 21, 1980), amended by Pub. L. No. 99-80, 99 Stat. 183–87 (Aug. 5, 

1985). See also 63 Comp. Gen. 260, 261 (1984). Prior to the EAJA’s 

implementation, the award of attorney’s fees against the government was 

barred and a sue-and-be-sued clause that did not directly or expressly 

authorize an award of fees was not sufficient to override that bar. 

207 The U.S. Postal Service is an independent establishment of the executive branch. 

39 U.S.C. § 201. However, it shares many characteristics of government corporations 

including commercial or business-type operations and a sue-and-be-sued clause. 39 U.S.C. 

§ 401.
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Resolution Trust Corp. v. Miramon, 935 F. Supp. 838, 842 (E.D. La. 1996), 

citing Knights of the Ku Klux Klan v. East Baton Rouge Parish School 

Board, 679 F.2d 64, 66 (5th Cir. 1982).

The EAJA addressed judicial fee awards by extensively revising 28 U.S.C. 

§ 2412. Section 2412 applies to the United States or “any agency and any 

official of the United States acting in his or her official capacity.” 28 U.S.C. 

§ 2412(c)(2). The EAJA has been applied to both mixed-ownership and 

wholly owned government corporations, although without addressing the 

issue of the EAJA’s application to them. See, e.g., Resolution Trust Corp. v. 

Eason, 17 F.3d 1126 (8th Cir. 1994); Miramon, 935 F. Supp. 838; Olenhouse v. 

Commodity Credit Corp., 922 F. Supp. 489 (D. Kan. 1996).

As is true with other federal agencies, the EAJA operates as a limited 

waiver of a government corporation’s sovereign immunity by permitting 

courts to award reasonable attorney’s fees to prevailing parties under 

common law or the terms of a statute, but the waiver must be strictly 

construed in favor of the government. Eason, 17 F.3d at 1134. In that case, 

the Resolution Trust Corporation (RTC) sued officers of a failed savings 

and loan association alleging negligence and breach of fiduciary duty. Id. 

at 1128. The officers successfully defended against the action and 

attempted to recover attorney’s fees from RTC relying on a regulation that 

authorized indemnification for expenses incurred in defending charges 

arising out of their official conduct. Id. at 1135. However, that regulation 

only applied during the “life” of the savings and loan. By the time RTC 

brought the action, the entity had failed and RTC was not acting in the 

capacity of the savings and loan. Id. Thus, the regulation did not apply and 

the officers could not recover attorney’s fees. Id. at 1136.

The EAJA is specific in the items that may be awarded in a judgment 

against the United States for costs, fees and expenses, but does not 

authorize general compensatory damages for embarrassment or loss of 

reputation. Miramon, 935 F. Supp. at 843–44. Neither does a “naked” sueand-be-sued clause, that is, one which does not directly or expressly 

authorize an award of fees. Id. at 843.

Finally, the terms “common law” and “statute” as used in the EAJA’s 

authorization of fees refers to federal common law or a federal statute, not 

state law. Eason, 17 F.3d at 1134 n.6; Miramon, 935 F. Supp. at 846.
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(5) Sovereign immunity from state and local taxes

The oft-quoted principle that the federal government and its activities208 are 

immune from taxation by state and local governments was recognized by 

the Supreme Court in a case involving a government corporation. 

McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316 (1819).209 The application of 

this principle to government corporations has varied since McCulloch, but 

the main debate has centered on whether one should assume that an entity 

has such immunity due to its status as a corporation carrying out 

governmental purposes, or whether Congress must expressly grant such 

immunity by statute.

McCulloch involved the Second Bank of the United States, which was 

chartered by Congress, had 20 percent of its capital stock subscribed to by 

the United States, and several of its directors appointed by the President. 

The Second Bank of the United States established a branch in Maryland. 

The state of Maryland imposed a tax on all banks or branches of banks in 

the state which were not chartered by the Maryland state legislature. The 

Supreme Court held that the Supremacy clause of the Constitution 

prevents a state from exercising any power, by taxation or otherwise, to 

retard, impede, burden, or in any manner control the operations of the 

federal government or its constitutional means of carrying out its powers. 

Id. at 436. The Supreme Court emphasized that the bank’s purpose was to 

carry out a governmental function, and concluded that any effort to tax the 

bank directly affected the government. The Supreme Court put it this way: 

“But this is a tax on the operations of the bank, and is, consequently, a tax 

on the operation of an instrument employed by the government of the 

Union to carry its powers into execution. Such a tax must be 

unconstitutional.” Id. at 436–37.

208 A federal instrumentality is also immune from state and local taxation if it is “so 

assimilated by the Government as to become one of its constituent parts.” United States v. 

Township of Muskegon, 355 U.S. 484, 486 (1958) (here state taxation was not 

unconstitutional as applied to a corporation which was permitted to use government 

property in the performance of government contracts because the government had no 

control over the activities of the corporation or any other interest which would make the 

corporation part of the government). The Supreme Court has added that tax immunity for a 

federal instrumentality is appropriate when the agency or instrumentality is “so closely 

connected to the Government that the two cannot be realistically viewed as separate 

entities, at least insofar as the activity being taxed is concerned.” United States v. New 

Mexico, 455 U.S. 720, 735 (1982).

209 The United States’ immunity from state and local taxation is discussed in Chapter 4, 

section C.15.
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Although the act creating the Bank did not expressly prohibit the states 

from taxing it, the Supreme Court in McCulloch did not address that issue. 

Five years later, the Supreme Court took up this issue in Osborn v. 

The Bank of the United States, 22 U.S. (9 Wheat.) 738 (1824). In Osborn,

the Supreme Court held that although Congress did not expressly prohibit 

taxing the Bank, immunity was implied as a consequence of Congress’s 

power to create and protect the Bank. Id. at 865.

In later cases, the Supreme Court addressed Congress’s power to exempt 

government corporations from state taxation without relying upon the 

“implied” immunity of the McCulloch and Osborn cases. Federal Land 

Bank v. Crosland, 261 U.S. 374 (1923); Smith v. Kansas City Title & 

Trust Co., 255 U.S. 180 (1921). In those cases, Congress created 

government corporations—federal land banks—and specifically exempted 

their bonds and mortgages from state and local taxation. The Supreme 

Court held that Congress not only had the power to create the 

corporations, but to protect their operations by exempting them from 

taxation. Crosland, 261 U.S. at 377; Smith, 255 U.S. at 211–12. A few 

months after it decided Crosland, the Supreme Court returned to the 

McCulloch analysis in a case involving state taxation of another 

government corporation, the Spruce Production Corporation. 

Clallam County v. United States, 263 U.S. 341 (1923). In the words of the 

Supreme Court:

“It is true that no specific words forbid the tax, but the 

prohibition established by McCulloch v. Maryland, . . . was 

established on the ground that the power to tax assumed by 

the State was in its nature ‘repugnant to the constitutional 

laws of the Union’ and therefore was one that under the 

Constitution the State could not use. . . . The immunity is 

derived from the Constitution in the same sense and upon 

the same principle that it would be if expressed in so many 

words.” 

Id. at 344, quoting McCulloch, 17 U.S. (4 Wheat.) at 425, 426, 430.

A statement by the Clallam court provides a clue as to what appears to be 

the distinction between these approaches. The Supreme Court noted that, 

unlike “the case of a corporation having its own purposes, as well as those 

of the United States and interested in profit on its own account,” the Spruce 

Production Corporation was incorporated only for the convenience of the 

United States to carry out its ends. Clallam, 263 U.S. at 345. Although not 
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addressed in either the Smith or Crosland cases, the federal land banks 

were mixed-ownership government corporations with private (read profit), 

as well as government purposes. See also Federal Land Bank v. Priddy,

295 U.S. 229, 234–35 (1935) (noting that Congress provided a specific grant 

of immunity from taxation to a corporation having its own as well as 

government purposes).

Subsequent decisions by the Supreme Court continued this analysis. For 

example, recognizing that Congress may grant immunity from state and 

local taxation to a federal instrumentality or government corporation in 

Pittman v. Home Owners’ Loan Corp., 308 U.S. 21 (1939), the Supreme 

Court explained that “Congress has not only the power to create a 

corporation to facilitate the performance of governmental functions, but 

has the power to protect the operations thus validly authorized.” Id. 

at 32–33.210 The Supreme Court held that the creation of the corporation 

“was a constitutional exercise of the congressional power and that the 

activities of the Corporation through which the national government 

lawfully acts must be regarded as governmental functions and as entitled to 

whatever immunity attaches to those functions when performed by the 

government itself through its departments.” Id. at 32. See also Federal 

Lank Bank v. Bismark Lumber Co., 314 U.S. 95, 99 (1941) (statutory 

exemption from taxation for federal land banks includes sales taxes).

As seen in the cases discussed above, Congress has specifically prescribed 

the scope of immunity for many government corporations by wholly or 

partially exempting them from state and local taxation.211 In other 

instances, Congress expressly waived immunity from taxation of any real 

property belonging to a government corporation. For example, under the 

provisions of the statute establishing the Reconstruction Finance 

Corporation (RFC), Congress waived the immunity of real property of the 

210 The Pittman case involved the Home Owners’ Loan Corporation, a wholly owned and 

controlled government corporation, upon whose mortgages the state of Maryland imposed a 

tax. The act establishing the Home Owners’ Loan Corporation provided that it, its 

franchises, capital, reserves, surplus, loans and income shall be exempt from all state and 

municipal taxes.

211 Other examples include, but are not limited to, 7 U.S.C. § 1511 (Federal Crop Insurance 

Corporation); 22 U.S.C. § 2199(j) (Overseas Private Investment Corporation); 33 U.S.C. § 986 

(Saint Lawrence Seaway Development Corporation); 29 U.S.C. § 1302(g) (Pension Benefit 

Guarantee Corporation).
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RFC and its subsidiary corporations.212 Board of County 

Commissioners v. United States, 123 Ct. Cl. 304 (1952). However, the 

RFC’s authority to pay taxes was contingent upon the corporation’s holding 

legal title and having full control and dominion over the property. 32 Comp. 

Gen. 164 (1952). Once the RFC declared property to be surplus and 

transferred the title to the United States, the property was held by and for 

the use of the United States. Thus, the “cloak of immunity descended upon 

the property” so that no tax liability for state and local taxes could be 

imposed and agencies could not use appropriated funds to pay such taxes. 

Board of County Commissioners, 123 Ct. Cl. at 324 (property transferred 

to the Bureau of Mines). See also 36 Comp. Gen. 713 (1957) (property 

transferred to the General Services Administration); 34 Comp. Gen. 319 

(1955) (same).

(6) Litigation authority

Once a government corporation decides to sue, or is sued, it must 

determine whether it must be represented in litigation by the Justice 

Department, or whether it can use or hire its own attorneys. The Justice 

Department has extremely broad authority with respect to litigation 

involving the federal government. “Except as otherwise authorized by law, 

the conduct of litigation in which the United States, an agency, or officer 

thereof is a party, or is interested” is reserved to the Justice Department. 

28 U.S.C. § 516. Further, “the Attorney General shall supervise all litigation 

to which the United States, an agency, or officer thereof is a party.” Id. 

§ 519. The term “agency” is defined for purposes of title 28 of the United 

States Code as including “any corporation in which the United States has a 

proprietary interest.” Id. § 451. Therefore, absent some form of 

exemption, 28 U.S.C. §§ 516 and 519 apply to wholly owned and at least 

some mixed-ownership government corporations. In some cases, the 

authority is reinforced by charter language. For example, 7 U.S.C. § 943(e) 

expressly makes the Rural Telephone Bank subject to the Attorney 

General’s litigation authority.

The Justice Department has expressed the position that exemptions from 

the Attorney General’s litigation authority should be clear and specific. See

Department of Justice, Civil Division, Compendium of Departments and 

Agencies With Authority Either by Statute or Agreement to Represent 

212 Act of January 22, 1932, § 10, 47 Stat. 10, as amended by Act of June 10, 1941, § 3, 55 Stat. 

248.
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Themselves in Civil Litigation (October 1982), at 9–10 (hereafter, Civil 

Litigation Compendium). The Department does not regard a simple sueand-be-sued clause as enough. Id. at 11. An example of explicit authority is 

the Pension Benefit Guaranty Corporation statute, which provides that the 

Corporation may complain or defend a lawsuit “through its own counsel.” 

29 U.S.C. § 1302(b)(1). Even where a corporation has independent 

litigating authority, Justice believes the corporation should invoke that 

authority only in programmatic litigation. In nonprogrammatic litigation 

which is of governmentwide import, like suits under the Freedom of 

Information Act or Federal Tort Claims Act, Justice urges the corporations 

to avail themselves of Department representation. Civil Litigation 

Compendium, at 18–19. The Department’s litigating authority does not 

apply to noninstrumentality corporations. Id. at 22 n.13.

The Civil Litigation Compendium recognizes that Justice has acquiesced 

in self-representation by two corporations, the Federal Deposit Insurance 

Corporation (FDIC) and the Tennessee Valley Authority (TVA), which 

possess only the simple version of the sue-and-be-sued clause. Id. at 26–27. 

The courts have held Justice to that acquiescence and have upheld selfrepresentation authority for FDIC and TVA. Tennessee Valley Authority v. 

EPA, 278 F.3d 1184, 1191–93 (11th Cir. 2002), withdrawn in part on other 

grounds, 376 F.2d 1236 (11th Cir. 2003), cert. denied, 541 U.S. 1030 (2004); 

Cooper v. Tennessee Valley Authority, 723 F.2d 1560 (Fed. Cir. 1983); 

Federal Deposit Insurance Corp. v. Irwin, 727 F. Supp. 1073 (N.D. Tex. 

1989), aff’d on other grounds, 916 F.2d 1051 (5th Cir. 1990); Algernon Blair 

Industrial Contractors, Inc. v. Tennessee Valley Authority, 540 F. Supp. 

551 (M.D. Ala. 1982).

Exemptions may be partial as well as complete. For example, the ExportImport Bank may represent itself “in all legal and arbitral proceedings 

outside the United States.” 12 U.S.C. § 635(a)(1). Under this provision, 

Justice has advised that it is required to conduct the Bank’s litigation inside 

the United States, and in addition may represent the Bank in stateside 

arbitration proceedings. 3 Op. Off. Legal Counsel 226 (1979).

One consequence of self-representation is that the corporation must pick 

up the responsibility of paying the actual representation costs and the 

various expenses of preparing and presenting the case which would 

otherwise be borne by the Justice Department’s litigation budget. 38 Comp. 

Gen. 343 (1958) (requiring the Federal Housing Administration to bear the 

costs of auctioneer fees and advertising costs incident to foreclosure 

proceedings); B-9850, May 23, 1940 (requiring the Home Owners’ Loan 
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Corporation to bear the costs of attorney fees, cost of printing an appellate 

brief, and other miscellaneous expenses); B-3163, Apr. 24, 1939 (requiring 

the Federal Housing Administration to bear the cost of legal services 

necessary for foreclosing a defaulted mortgage or regaining possession of 

property).

9. Termination of 

Government 

Corporations

Unlike a private corporation, a government corporation cannot terminate 

its existence on its own authority.213 The power to terminate a government 

corporation flows from the power to create one, a power clearly held by 

Congress. Congress may terminate a government corporation for any of a 

number of reasons. For example, many government corporations were 

created to address short-term or temporary issues or crises. Logically, 

once the issue or crisis is resolved, the need for the government 

corporation is eliminated and it can be terminated. For example, many 

corporations created to meet the wartime needs of World Wars I and II, and 

the social and economic crises of the Great Depression, were dissolved 

once those crises had passed.

Congress terminated all government corporations in order to bring them 

under its control upon the enactment of the Government Corporation 

Control Act (GCCA). GCCA required all government corporations then 

existing to institute dissolution or liquidation proceedings on or before 

June 30, 1948, subject to reincorporation by act of Congress for such 

purposes, powers and duties as might be authorized by law. Pub. L. 

No. 79-248, § 304(b), 59 Stat. 597, 602 (Dec. 6, 1945). See Lebron v. 

National Railroad Passenger Corp., 513 U.S. 374, 390 (1995).

Sometimes Congress provides itself with a built-in opportunity to 

determine whether it wants to continue a program carried out by a 

government corporation. Congress may provide a termination date in the 

enabling legislation or charter of some government corporations that must 

be reauthorized if Congress wants them to continue in existence. In other 

situations, Congress may impose a deadline for a government corporation 

to fulfill its goals. For example, Congress directed the Resolution Trust 

Corporation (RTC), created to manage and resolve failed savings 

institutions and recover funds by managing and selling the institutions’ 

assets, to terminate no later than December 31, 1995. 12 U.S.C. § 1441a(m). 

213 See Ronald C. Moe, Managing the Public Business: Federal Government Corporations, 

S. Prt. No. 104-18, at 29 (1995) (Moe 1995).
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RTC did terminate by that date, having substantially completed its mission. 

GAO, Financial Audit: Resolution Trust Corporation’s 1995 Financial 

Statements, GAO/AIMD-96-123 (Washington, D.C.: July 2, 1996), at 8–9.

Congress may take actions short of termination by converting a 

government corporation into a private institution. For example, Congress 

converted the National Consumer Cooperative Bank from a mixedownership government corporation to a federally chartered, private 

banking institution. Pub. L. No. 97-35, title III, subtitle C, §§ 390–396, 

95 Stat. 357, 433–41 (Aug. 13, 1981). See B-219801, Oct. 10, 1986. Other 

government corporations are created with the goal of privatization. For 

example, Congress directed the United States Enrichment Corporation 

(USEC) to operate as a for-profit government corporation and work 

towards privatization.214 In 1996, Congress enacted legislation to privatize 

the USEC.215

Congress may also terminate a government corporation due to its 

dissatisfaction with the corporation’s purpose and management. For 

example, Congress abolished the Synthetic Fuels Corporation in 1985 by 

rescinding its funding and giving it 120 days to wind up its affairs.216 Pub. L. 

No. 99-190, 99 Stat. 1185, 1249–50 (Dec. 19, 1985). The Federal Asset 

Disposition Association met a similar fate. In the face of mounting 

criticism regarding its method of creation, its purpose, and management, 

Congress dissolved it as part of the Financial Institutions Reform, 

Recovery, and Enforcement Act of 1989, Pub. L. No. 101-73, § 501(a), 

103 Stat. 183, 383 (Aug. 9, 1989).217

In other cases, Congress has changed its view and gone back and forth on 

the form of a government corporation. For example, Congress replaced the 

Panama Canal Company, a government corporation, with the Panama 

Canal Commission, an appropriated fund agency, because it wanted to 

maintain greater oversight of the Canal during the remaining years of U.S. 

control. Pub. L. No. 96-70, §§ 1101, 1302, 93 Stat. 452, 456, 477 (Sept. 27, 

214 Energy Policy Act of 1992, Pub. L. No. 102-486, title IX, § 901, 106 Stat. 2776, 2937–38 

(Oct. 24, 1992), repealed by United States Enrichment Corporation Privatization Act, Pub. L. 

No. 104-134, title III, § 3116(a)(1), 110 Stat. 1321, 1321-349 (Apr. 26, 1996).

215 Pub. L. No. 104-134, §§ 3101–3117. 

216 For a more detailed discussion on this, see Moe 1995, at 19–22.

217 For a more detailed discussion on this, see Moe 1995, at pages 22–26.
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1979). See B-280951, Dec. 3, 1998. Subsequently, Congress granted the 

Commission greater autonomy and converted it into a revolving-fund 

agency. Pub. L. No. 100-203, title V, subtitle E, pt. 2, § 5422(a), 101 Stat. 

1330, 1330-271 (Dec. 22, 1987); B-280951, at 6. Finally, Congress expanded 

the Commission’s business-like powers to its final status as a wholly owned 

government corporation,218 when the canal was transferred from U.S. 

control, “as an autonomous entity that [could] compete as a commercial 

enterprise in international transportation markets.” B-280951, at 8.

C. Nonappropriated 

Fund 

Instrumentalities

“Their birth is funded by the Government. The seed money 

for their creation came from the Government. They are 

managed by Government people who are paid Government 

salaries. They usually occupy Government facilities, 

perhaps on some cost-reimbursable arrangement, but on 

Government real estate, using Government facilities. They 

perform essentially a morale-building function for 

Government personnel, which the Government would 

otherwise have to appropriate funds for if it weren’t having 

it done in this manner. There is a very close identity 

between them and the Government people with whom they 

are working every day. They are providing service to 

Government people engaged in a Government mission. As I 

say, this is just off the top of my head.” 

Testimony of Louis Spector, Commissioner of the Court of Claims, on 

nonappropriated fund instrumentalities.219

1. Introduction The term nonappropriated fund instrumentality (NAFI) has a variety of 

meanings based on the particular context. In a report in 1977, GAO noted 

that there is no official definition or commonly understood opinion of what 

218 Pub. L. No. 104-106, div. C, title XXXV, § 3522(a), 110 Stat. 186, 638 (Feb. 10, 1996), 

codified at 22 U.S.C. § 3611. 

219 Jurisdiction of U.S. Courts, Nonappropriated Fund Activities: Hearings on S. 980 

Before Subcommittee No. 4 of the House Committee on the Judiciary, 91st Cong., 1st Sess. 9 

(1969), quoted in McDonald’s Corp. v. United States, 926 F.2d 1126, 1129–30 (Fed. Cir. 

1991).
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is or is not a nonappropriated fund activity.220 At the outset, then, it is 

useful to be cognizant of the danger of relying merely on a NAFI label to 

determine what laws apply to an entity, its relationship with the United 

States government, how the entity was created, its source of funding, or 

what authorities it can exercise. These issues can only be addressed in the 

context of a particular entity. We start our discussion with the “oldest” of 

these NAFIs—morale, welfare, and recreation organizations attached to 

the military. 

a. History of Military Morale, 

Welfare, and Recreation 

Organizations

The need to provide services and items to fulfill the morale, welfare, and 

recreational needs of officers and employees of armed forces originated 

long before the establishment of the United States government and far from 

our shores. Persons providing such support have existed since the times of 

the Roman Legions. “Caesar alludes to the itinerant merchants who 

followed the legions, selling items not considered necessaries by 

quartermasters.”221 From the time of the Roman Legions to the European 

armies and navies of the seventeenth and eighteenth centuries,222 these 

men, known as sutlers,223 followed armies and met ships in port in order to 

supply the soldiers and sailors with provisions and contraband.224 Due to 

the monopolistic prices charged by sutlers, sailors organized their own ship 

cooperatives called “slop chests.”225 

The United States government, at times, has directly provided items and 

services to meet the morale, welfare, and recreational needs of its officers 

and employees of the armed forces while, at other times, it has relied upon 

220 GAO, Magnitude of Nonappropriated Fund and Related Activities in the Executive 

Branch, FPCD-77-28 (Washington, D.C: Apr. 25, 1977).

221 Michael Francis Noone, Legal Problems of Non-Appropriated Funds, Mil. L. Rev. 

Bicentennial Issue, 357, 361 (1975). This article was originally published as appendix 1 of 

the Senate Judiciary Committee, Hearings on S. 3163, Subcommittee on Improvements in 

Judicial Machinery, 90th Cong. 2nd Sess. 201, 203–08 (1968). We will cite to pages in Noone’s 

Military Law Review article. 

222 Stephen Castlen, Let the Good Times Role: Morale, Welfare, and Recreation Operations, 

Army Lawyer 3, 6 (1996).

223 The term “sutler” means a small vendor, derived from the word “soltelen” which means to 

befoul or perform mean duties. Noone, at 361. 

224 Id.

225 Id.
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private sources, albeit under governmental control, to provide such goods 

and services. Beginning with the American Articles of War of 1775, sutlers, 

itinerant or camp-following merchants, were authorized to sell to the 

troops items not provided by the government such as “victuals, liquors, or 

other necessaries of life”226 for the use of soldiers.227 The American Articles 

of War of 1775 also regulated the sutlers’ conduct, hours, and quality of 

items sold.228 For example, although sutlers were not a component part of 

the Army, they were subject to the orders and regulations of the 

Continental Army.229 Sutlers were not permitted to sell liquor, victuals, or 

provide entertainment after nine at night, before the beating of the 

reveilles, or during Sunday religious services.230 Commanding officers’ 

duties included monitoring sutlers to ensure that they supplied soldiers 

with good and wholesome provisions at a reasonable price.231 The Articles 

also prohibited commanding officers from charging exorbitant prices for 

houses or stalls let out to sutlers or charging any duty upon sales or having 

any financial interest in sales.232 The Articles further established a fund for 

fines collected from soldiers and officers for behaving indecently or 

irreverently during religious services.233 The fund benefited sick soldiers of 

the troop or company to which the offenders belonged.234 This is the first 

record we have of a United States government nonappropriated fund 

instrumentality (NAFI).235 

226 Winthrop’s Military Law and Precedents, American Articles of War of 1775, 

Article LXVI, 953, 958 (2nd ed., 1920 reprint) (Winthrop).

227 Paul J. Kovar, Legal Aspects of Nonappropriated Fund Activities, 1 Mil. L. Rev. 95, 96 

(1958).

228 Winthrop, Art. XXXII, LXIV, LXV, and LXVI, at 956, 958. 

229 Id., Art. XXXII, at 956.

230 Id., Art. LXIV, at 958.

231 Id., Art. LXV, at 958.

232 Id., Art LXVI, at 958.

233 Id., Art. II, at 953.

234 Id.

235 Castlen, at 6. 
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Sutlers were permitted to sell to the soldiers on credit and the paymaster 

could deduct the amount from the soldier’s pay and pay the sutler 

directly.236 In 1847, Congress abolished sutlers’ rights to have such a lien on 

a soldier’s pay. Act of March 3, 1847, ch. 61, § 11, 9 Stat. 184, 185. Congress 

reinstated and abolished the sutlers’ right to have a lien on a soldier’s pay 

several times throughout the next decades.237 In 1862, Congress enacted a 

bill which provided for the appointment of sutlers in the Volunteer Service, 

set out their duties, and authorized sutlers to have a lien on part of a 

soldier’s pay. Act of March 19, 1862, ch. 47, 12 Stat. 371. This act 

established guidelines for the activities and service of sutlers to the Army 

and their regulation by the War Department. The commanding officer of 

each brigade was required to have the commissioned officers of each 

regiment in the brigade select a sutler for their regiment, who would be the 

sole sutler for that regiment. Id., 12 Stat. 372. The act listed specific 

articles that sutlers could sell to soldiers including food, toiletries, reading 

materials, tobacco, stationery, and other items which in the judgment of the 

inspectors general were for the good of the service. Id., 12 Stat. 371. 

However, the sale of liquor was prohibited. Id.

The sutlers paid fees based upon the average number of soldiers in a unit 

for the privilege of doing business in that unit. Fines were imposed on 

sutlers for violation of regulations. All fees and fines were deposited into 

the “post fund” administered by a group of officers, known as the “Council 

of Administration,” along with the post commander. Kovar, at 97. The post 

fund aided indigent widows or children of deceased soldiers or disabled 

soldiers discharged without pensions, bought books and periodicals for the 

post library, and supported the post school and band. Id. In 1835, company 

funds, subject to the control of the post commander, were authorized by 

Army regulations to derive income from rental of billiard tables, the sale of 

grease from the company mess, and savings from the economical use of 

food. Noone, at 363.

The sutler system was subject to many abuses; soldiers were cheated and 

charged usurious interest and military officials and the merchants were 

involved in fraud and corruption. GAO, Appropriated Fund Support for 

Nonappropriated Fund and Related Activities in the Department of 

236 Id. at 6.

237 E.g., Act of June 12, 1858, ch. 156, § 5, 11 Stat. 332, 336 (repealed the legislation depriving 

sutlers of the right to have a lien on a soldier’s pay); Act of December 24, 1861, ch. 4, § 3, 

12 Stat. 331 (abolished the sutlers right to have a lien on a soldier’s pay). 
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Defense, FPCD-77-58 (Washington, D.C.: Aug. 31, 1977), at 4. In 1866, 

Congress responded to these abuses by abolishing the office of sutler 

effective July 1, 1867. Act of July 28, 1866, ch. 298, § 25, 14 Stat. 328, 336; 

see FPCD-77-58, at 4. With the abolishment of sutlers, Congress required 

the subsistence department of the Army to sell articles, designated by the 

inspectors general, at cost. 14 Stat. at 336. In 1867, Congress authorized 

the Commanding General of the Army to permit the establishment of 

trading posts on certain military posts. Resolution No. 33 of March 30, 

1867, 15 Stat. 29. Where the commissary department was prepared to 

supply stores to soldiers, traders were not permitted to remain at such 

posts or sell any goods kept by the commissary department. Id. 

In 1870, Congress repealed Resolution No. 33 and enacted legislation 

authorizing the establishment of post traders in certain locations to be 

under the protection and control of the military as camp followers and 

subject to the War Department’s regulations.238 Act of July 15, 1870, ch. 294, 

§ 22, 16 Stat. 315, 319–20. The War Department established general policies 

regulating the post traders which were carried out by a council of 

administration for the post. Kovar, at 100 n.28. Unlike the sutlers before 

them, the post traders did not have the right to a lien on a soldier’s pay. Id. 

The Secretary of War did not appoint a post trader at all military posts. 

Kovar, at 101. At posts where there were no post traders, the Secretary 

authorized commanders to establish canteens to supply troops with 

articles for their entertainment and comfort at moderate prices. Id., citing 

General Order No. 10, 1889. The following year, in 1890, the Secretary 

authorized all posts to establish canteens. Post commanders could make 

government buildings available to house canteens and its activities. An 

officer “in charge of canteen” managed the canteen assisted by a “canteen 

council” and its profits were distributed among the participating 

companies. Id., citing General Order No. 51, May 18, 1890. A canteen was 

established either on credit or from funds of the companies benefiting from 

the canteen. To promote and expand canteens, the War Department 

prohibited company fund activities from selling any item sold by the 

canteen. Id., citing Circular No. 1, Adjutant General’s Office, Feb. 9, 1891. 

Canteens were authorized to use profits to purchase sporting equipment 

238 This act authorized the establishment of post traders at certain posts on the frontier not 

in the vicinity of any city or town when, in the Secretary of War’s judgment, such posts were 

necessary to accommodate emigrants, freighters, and other citizens. In 1876, Congress 

authorized the Secretary of War to appoint post traders at all military posts regardless of 

location. Act of July 24, 1876, 19 Stat. 100. 
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and any items that would contribute to the “rational enjoyment and 

contentment of the soldiers.” Id., citing Circular No. 7, Adjutant General’s 

Office, June 10, 1890. 

Canteens evolved into the post exchanges which performed essentially the 

same functions. Kovar, at 102; Noone, at 365. By 1893, the post exchange 

had taken over the services provided by the post trader and Congress 

prohibited the Secretary of War from making further appointments of post 

traders or from filling vacancies. Act of January 28, 1893, ch. 51, 27 Stat. 

426. In 1895, the War Department established post exchanges at all military 

posts. Kovar, at 102, citing General Order Number 46, July 25, 1895. The 

post exchanges were to provide a reading and recreation room, a store, a 

restaurant, and other facilities to supply at reasonable prices, articles (not 

supplied by the government) for rational recreation and amusement. Id. 

Post exchanges were authorized to use government buildings and were 

managed by an “officer in charge” and a council who reported to the post 

commander. Id.

Although the Army regulated post exchanges and provided direct support 

through free government space and the use of military officers to manage 

their operations, the post exchanges were not considered to be an agency 

or instrumentality of the United States. Noone, at 365. The Judge Advocate 

General of the Army described the legal status of the post exchange in an 

1893 opinion:

“Now the Post Exchange is not a United States institution or 

branch of the United States military establishment, but a 

trading store permitted to be kept at a military post for the 

convenience of the soldiers. It is set up and stocked, not by 

means of an appropriation of public moneys, but by means 

of the funds of companies, etc.; the officers ordering the 

purchases . . . [are] responsible for the payment, not the 

Government.” 

Noone, at 365, citing 61 JAG Record Book, 1882–1895, 479 (1893). 

Congress limited the aid that the Army could provide to the post exchanges 

in the Army’s Appropriations Act for Fiscal Year 1893 as follows:

“And provided further, That hereafter no money 

appropriated for the support of the Army shall be expended 

for post gardens or exchanges, but this proviso shall not be 
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construed to prohibit the use by post exchanges of public 

buildings or public transportation when, in the opinion of 

the Quartermaster-General, not required for other 

purposes.” 

Act of July 16, 1892, ch. 195, 27 Stat. 174, 178 (emphasis in original).239 

The post exchange and post and company funds continued to carry out 

morale, welfare, and recreation (MWR) functions until after World War I. 

Kovar, at 102. After World War I, the War Department created and 

expanded organizations and functions to provide services such as motion 

pictures and library facilities, recreation centers and programs, child care 

centers, restaurants and other services for both service members and their 

family members. Castlen, at 9; Kovar, at 102–03. The War Department 

established a Morale Branch in 1941 to provide MWR services. Castlen, 

at 9. During World War II, the post exchanges were reorganized into a 

central organization known as the Army Exchange Service (currently in 

operation and now known as the Army and Air Force Exchange Service or 

AAFES) within the Morale Branch of the War Department. Id. 

b. Defining the 

Nonappropriated Fund 

Instrumentality 

“I am worried about the definition of ‘nonappropriated 

funds.’ Every time I think of one, you give me another one; 

then I think of another possibility.” 

Rep. Wiggins, House of Representatives (1969).240

In 1975, Congress authorized GAO to audit the operations and accounts of 

nonappropriated fund activities authorized or operated by the head of an 

executive agency to sell goods or services to U.S. government personnel 

and their dependents.241 In a 1977 report, GAO listed those activities, a 

brief description of each one, their assets, and gross revenues. GAO, 

239 This law is now codified at 10 U.S.C. § 4779(b).

240 Nonappropriated Fund Activities: Hearings on S. 980 Before Subcommittee No. 4 of the 

House Committee on the Judiciary, 91st Cong., 1st Sess. 18–19 (1969), quoted in McDonald’s 

Corp. v. United States, 926 F.2d 1126, 1130 (Fed. Cir. 1991) (statement made in discussion of 

amending the Tucker Act, 28 U.S.C. § 1491, to waive sovereign immunity for all 

nonappropriated fund instrumentalities, not only those administered by the Department of 

Defense). 

241 Pub. L. No. 93-604, § 301, 88 Stat. 1959, 1961–62 (Jan. 2, 1975), codified at 31 U.S.C. § 3525.
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Magnitude of Nonappropriated Fund and Related Activities in the 

Executive Branch, FPCD-77-28 (Washington, D.C.: Apr. 25, 1977). The 

report noted that some agencies maintained that their programs were not 

nonappropriated fund activities, but rather, private associations not 

officially a part of the government. “Varying interpretations are 

understandable,” the report stated, “since there is no official definition or 

commonly understood opinion of what is or is not a nonappropriated fund 

activity.” Id. at i. GAO cited an earlier Office of Management and Budget 

(OMB) study which found that the lack of a governmentwide definition of 

NAFIs caused confusion and precluded a reliable review of all 

nonappropriated fund instrumentalities (NAFIs). Id., citing OMB, Study of 

Procurement Payable for Nonappropriated Funds (Aug. 1975).

As noted in the 1977 GAO report, defining the terms “nonappropriated 

funds,” “nonappropriated fund instrumentalities” (NAFIs), or 

“nonappropriated fund activities” poses challenges. Contributing to the 

confusion is that the terms have been used interchangeably and without 

necessarily recognizing the differences between appropriated and 

nonappropriated funds. The term “appropriated funds” refers to funds 

provided in a regular annual appropriation act or a law enacting a 

permanent, indefinite appropriation.242 Both types of legislation authorize 

the obligation and expenditure of funds and designate the funds to be used. 

63 Comp. Gen. 331, 335 (1984). See also GAO, A Glossary of Terms Used in 

the Federal Budget Process, GAO-05-734SP (Washington, D.C.: Sept. 2005), 

at 21. Permanent, indefinite appropriations include gift acceptance and use 

authority, revolving funds, working capital funds, and franchise funds. 

Nonappropriated funds would include funds that are not derived from an 

annual appropriation act or a law enacting a permanent, indefinite 

appropriation. As such, these funds are generally not subject to the same 

fiscal controls as appropriations. 

In a broad sense, there are two types of NAFIs: morale, welfare, and 

recreational (MWR) entities (armed forces NAFIs with an historical basis) 

and all other NAFIs. While the armed forces NAFIs have common 

historical roots, there often is not much commonality among non-armed 

forces NAFIs. Historically, the armed forces NAFIs were organized to meet 

242 There has been some controversy over what constitutes a continuing permanent, 

indefinite appropriation, a discussion of which is contained in Chapter 2, section B.1.
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MWR needs of military and their dependents.243 DOD describes the 

importance of MWR programs as follows:

“MWR programs are vital to mission accomplishment and 

form an integral part of the non-pay compensation system. 

These programs provide a sense of community among 

patrons and provide support services commonly furnished 

by other employers, or other State and local governments to 

their employees and citizens. MWR programs encourage 

positive individual values, and aid in the recruitment and 

retention of personnel. They provide for the physical, 

cultural, and social needs and general well-being of Service 

members and their families, providing community support 

systems that make [DOD] bases temporary hometowns for a 

mobile military population.”

DOD Instruction 1015.10, Programs for Military Morale, Welfare, and 

Recreation (MWR), ¶ 4.2 (Nov. 3, 1995). See also 58 Comp. Gen. 94, 98 

(1958) (noting that DOD “NAFIs exist to help foster the morale and welfare 

of military personnel and their dependents”).

DOD defines NAFIs as:

“Nonappropriated Fund Instrumentality (NAFI). A [DOD] 

organizational and fiscal entity that is supported, in whole 

or in part by [nonappropriated funds]. It acts in its own 

name to provide or assist the Secretaries of the Military 

Departments in providing programs for [DOD] personnel. It 

is not incorporated under the law of any State or the District 

of Columbia, but has the legal status of an instrumentality of 

the United States.” 

Department of Defense Instruction 1015.15, Procedures for Establishment, 

Management, and Control of Nonappropriated Fund Instrumentalities 

243 Serving the MWR needs of the armed forces members and their families with goods and 

merchandise purchased through NAFIs is not limitless. NAFIs provide items and services 

for personal consumption, not for business, profit-making motives. See generally Covill v. 

United States, 959 F.2d 58, 59 (6th Cir. 1992) (noting that a Coast Guard warrant officer 

received a punitive letter of reprimand because he purchased merchandise from an armed 

forces NAFI purportedly for personal use, but instead used the merchandise in his 

restaurant where he sold it at retail to the general public).
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and Financial Management of Supporting Resources, encl. 2, ¶ E2.1.12 

(May 25, 2005). In discussing a suit brought by an employee of a military 

officers’ club (a DOD NAFI), one court, using the phrase “nonappropriated 

fund activity” instead of NAFIs, said:

“A non-appropriated fund activity is one to which the 

government has initially provided funds to permit it to begin 

operation. The governmental loan is repaid out of the 

profits earned by the activity. Thus, the activity is created 

by the government with governmental funds for 

governmental personnel, and is administered by 

governmental employees for the use and benefit of the 

United States.”

Bowen v. Culotta, 294 F. Supp. 183, 185 (E.D. Va. 1968).

Although NAFIs are considered United States government 

instrumentalities, NAFIs are not federal agencies or government 

corporations. They also are not typical private or commercial enterprises. 

Like DOD, GAO has noted that a NAFI mainly operates with funds 

generated from its own activities:

“NAFIs encompass a wide range of activities and resist a 

general definition. They share common characteristics in 

that they are associated with governmental entities and, to 

some extent, are controlled by and operated for the benefit 

of those Governmental entities. However, the essence of a 

NAFI is that it is operated with the proceeds of its activities, 

rather than with appropriated funds.”

64 Comp. Gen. 110, 110–11 (1984). See also B-289605.2, July 5, 2002.

GAO has identified several characteristics of MWR NAFIs:

• The activity is established under the authority or sanction of a 

government agency with or without an initial advance of government 

funds.

• The activity is created and run by government officers or employees.

• The activity is operated for the benefit of government officers or 

employees and/or their dependents.
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• The operations of the activity are financed by the proceeds therefrom. 

B-167710-O.M., May 6, 1976, at 4. Although many NAFIs demonstrate these 

characteristics, GAO noted that they are not absolute and should be 

applied on a case-by-case basis. Id. 

Other government entities funded with permanent, indefinite 

appropriations also may operate with the proceeds from their activities, 

including revolving funds and working capital funds, but those entities are 

not NAFIs unless Congress has established them as NAFIs. Unlike 

activities funded with permanent, indefinite appropriations, the common 

thread among armed forces NAFIs is that while they operate from the 

proceeds of their activities, the funds they collect are used for the 

collective benefit of the members of the armed forces, government officers 

or employees, and their dependents who generate them.

Congress has created some government entities and designated that they 

operate as nonappropriated fund instrumentalities or with 

nonappropriated funds. See, e.g., 7 U.S.C. § 2279b (Graduate School of 

Department of Agriculture); 12 U.S.C. § 244 (Board of Governors of the 

Federal Reserve); see also B-217578, Oct. 16, 1986. These entities do not 

serve MWR needs of government employees. Unlike the armed forces 

NAFIs already discussed, these entities are statutory creations and any 

fiscal limitations are defined by their organic statutes. Armed forces NAFIs 

fulfilling MWR purposes have an historical basis and were not created by 

statute, although Congress, in some cases, has approved of or authorized 

such NAFI operations. See, e.g., 10 U.S.C. § 2488. 

Further complicating the discussion of NAFIs is the use of the term NAFI 

by some federal courts. The Federal Circuit and the Court of Federal 

Claims have used the term in cases discussing their jurisdiction. See, e.g., 

AINS, Inc. v. United States, 365 F.3d 1333, 1343 (Fed. Cir. 2004) (holding 

that the court had no jurisdiction to hear case against U.S. Mint because it 

was a NAFI). See also O’Quin v. United States, 72 Fed. Cl. 20, 23–24 

(2006); McCafferty v. United States, 61 Fed. Cl. 615, 616 (2004). The 

Federal Circuit’s definition of a NAFI for purposes of its jurisdiction has 

resulted in classifying entities that operate with permanent, indefinite 

appropriations as NAFIs. See AINS, 365 F.3d 1333; Core Concepts of 

Florida, Inc. v. United States, 327 F.3d 1331 (Fed. Cir. 2003). See also

Furash & Co. v. United States, 252 F.3d 1336 (Fed. Cir. 2001) (holding that 
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the court had no jurisdiction to hear claims against the Federal Housing 

Finance Board because it was a NAFI).244 

Although a permanent, indefinite appropriation is not reenacted each year 

in the annual appropriations process, it is an appropriation nonetheless. 

Consequently, GAO does not view revolving funds (permanent, indefinite 

appropriations) as NAFIs. GAO does not question, nor has it the authority 

to question, a court’s determination of its own subject matter jurisdiction. 

The Federal Circuit recognizes that the weight of its authorities is limited in 

scope to its jurisdiction determination: “The authorities cited by the GAO 

to support [its position on what constitutes an appropriation], however, are 

not applicable to the [court’s] non-appropriated funds doctrine in the same 

sense that they are applicable to federal appropriations law.” Core 

Concepts, 327 F.3d at 1338. 

2. Legal Status

a. Authority for Creation As noted above, for the most part armed forces nonappropriated fund 

instrumentalities (NAFIs) are rooted in history and regulated by the 

military departments to assist in meeting the moral, welfare, and recreation 

(MWR) needs of their personnel. Some of these NAFIs later received 

statutory recognition. See, e.g., 10 U.S.C. § 2488 (Secretary of Defense may 

authorize a NAFI to operate a military exchange and commissary store on a 

military base). See also B-167710-O.M., May 6, 1976 (noting that military 

departments established NAFIs under the departments’ general regulatory 

authority). The fact that NAFIs originated from historical practice and 

later received congressional recognition does not affect their status. 

Indeed, with regard to military post exchanges, the Supreme Court stated: 

“That the establishment and control of post exchanges have been in 

accordance with regulations rather than specific statutory directions does 

not alter their status, for authorized War Department regulations have the 

force of law.” Standard Oil Co. v. Johnson, 316 U.S. 481, 484 (1942). 

244 For a further discussion of these decisions, see Chapter 2, section B.1.
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b. Relationship to the United 

States Government

“It would not be an exaggeration to call their legal status 

bizarre. They are operations of the federal government, yet 

they are not.”245 

Despite their peculiarities, nonappropriated fund instrumentalities (NAFIs) 

are now recognized as being federal instrumentalities, albeit “a special 

breed of federal instrumentality, which cannot be fully analogized to the 

typical federal agency supported by federal funds.” Cosme Nieves v. 

Deshler, 786 F.2d 445, 448 (1st Cir. 1986), cert. denied, 479 U.S. 824 (1986). 

In Standard Oil Co. v. Johnson, 316 U.S. 481 (1942), the State of California 

attempted to levy a tax upon military post exchanges. The California Motor 

Vehicle Fuel License Tax Act imposed a license tax on the privilege of 

distributing motor vehicle fuel. By its terms, the tax was inapplicable to 

fuel sold to the United States government. California insisted that Standard 

Oil levy the tax on sales it made to the U.S. Army Post Exchanges in 

California. In the suit to recover payment, Standard Oil (with the United 

States as amicus curiae) claimed the sales to the Post Exchanges were 

exempt under the Act. Standard Oil also argued that if the Act were 

construed to require payment on such sales, it would impose an 

unconstitutional burden upon instrumentalities or agencies of the United 

States. The California courts found for the state on both issues. Standard 

Oil, 316 U.S. at 482. The decision was appealed, however. 

Upon appeal to the Supreme Court, the Court looked first to the legal status 

of the post exchange, examining the relationship between the United States 

and the post exchanges as demonstrated through the creation, regulation, 

and practices of the activity. Id. at 484. The Court recognized several 

factors: The post exchanges were established pursuant to regulations of 

the Secretary of War under authority granted by Congress originally in the 

Act of July 15, 1870, 16 Stat. 315, 319, and Act of March 1, 1875, 18 Stat. 337. 

Id. The commanding officer of an army post had virtually total authority to 

establish and manage the exchange. The supervisory councils for the 

exchanges consisted of the commanding officers of the post units and they 

served in that capacity without any compensation other than their regular 

pay. Id. The purpose of the post exchanges was to provide a convenient 

source of low priced goods for soldiers. Id. at 484–85. The government did 

not assume any of the financial obligations of the post exchanges, but 

245 Michael Francis Noone, Legal Problems of Non-Appropriated Funds, Mil. L. Rev. 

Bicentennial Issue, 357, 359 (1975). 
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government officers were responsible for the funds obtained. Profits were 

used only for the welfare, pleasure, and comfort of the troops. Id. at 485. 

 “From all this, we conclude that post exchanges as now 

operated are arms of the government deemed by it essential 

for the performance of governmental functions. They are 

integral parts of the War Department, share in fulfilling the 

duties entrusted to it, and partake of whatever immunities it 

may have under the Constitution and federal statutes.” 

Id. Accordingly, the Supreme Court concluded, the state could not tax the 

fuel sold to the post exchanges. Id. 

Lower federal courts have applied the Standard Oil analysis to determine 

whether NAFIs are immune from suit involving contract matters. In 

Nimro v. Davis, 204 F.2d 734 (D.C. Cir.), cert. denied, 346 U.S. 901 (1953), 

Nimro brought suit against the board members of a Naval Gun Factory 

Lunchroom Committee for “services rendered and expenses incurred.” 

Nimro, 204 F.2d at 734. The board, composed of naval officers and civilian 

employees, argued that it was an instrumentality of the Navy Department, 

and therefore was immune from suit to the same extent as the department 

itself. To counter this defense, Nimro maintained that he was suing the 

members of the board in their representative capacity as custodians of a 

private fund, not as government employees. Id. at 735.

Noting the several factors considered in Standard Oil, the court held that 

the Naval Gun Factory Lunchroom Committee, a NAFI, was a United States 

government instrumentality because it was made up of the department’s 

own personnel, acting officially under authority and direction of the 

Secretary in accordance with his instructions, to carry out a purpose 

declared by him to be an integral part of the department. Id. at 736. The 

court found the individuals comprising the Lunchroom Committee’s board 

to be acting for and on behalf of the United States, and not in any private 

capacity. As such, the suit comprised an action against the United States 

that could not be maintained without its consent.246 Id. at 736.

246 In 1970, Congress waived sovereign immunity for contract claims arising against some 

NAFIs, including NAFIs closely affiliated with the Army and Air Force Exchange Service, 

Navy Exchanges, Marine Corps Exchanges, Coast Guard Exchanges, and Exchange 

Councils of the National Aeronautics and Space Administration. Pub. L. No. 91-350, 84 Stat. 

449 (July 23, 1970), codified at 28 U.S.C. § 1491. See also McDonald’s Corp. v. United 

States, 926 F.2d 1126, 1132–33 (Fed. Cir. 1991).
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In Automatic Retailers of America, Inc. v. Ruppert, 269 F. Supp. 588 (S.D. 

Iowa 1967), Automatic Retailers sued members of the Employees Welfare 

Committee of the Des Moines Post Office Employees Association to 

enforce a contract for vending machine services. Automatic Retailers, 

269 F. Supp. at 590. One employee member moved to dismiss the case, 

arguing that the suit was in essence against the Employee Welfare 

Committee, an instrumentality of the United States that was immune from 

suit.

Applying the elements set forth in the Standard Oil decision, the court held 

that the Employee Welfare Committee constituted an integral part of the 

Postal Service and was an instrumentality of the United States for purposes 

of suit. Automatic Retailers, 269 F. Supp. at 591. The court further 

determined that, although Automatic Retailers had named committee 

members in their individual capacity, the suit sought to compel the 

Employees Welfare Committee, and thus the United States, to act. Since 

the United States had not consented to suit, the court dismissed the case. 

Id. at 592. See also Employees Welfare Commission v. Daws, 599 F.2d 

1375, 1378–79 (5th Cir. 1979). The court found that the committee was 

established pursuant to regulatory authority, the Postal Service appointed 

employees to carry out the contractual and managerial duties of the 

committee, the Postal Service regulated and controlled vending stands and 

machines, and the primary objective of the committee was to further the 

interests of the Postal Service. Automatic Retailers, 269 F. Supp. at 591. 

However, there are also times when the action of a NAFI or its employees 

will not be attributable to the government. There was a time when, under 

contract with base exchanges, telegraph offices were routinely operated on 

military bases by NAFI employees. In 50 Comp. Gen. 76 (1970), the Nellis 

Air Force Base Exchange operated a telegraph office on the base under 

contract with Western Union. The contract between the exchange and 

Western Union stipulated that the exchange acted as the agent for Western 

Union. 50 Comp. Gen. at 77. Prospective government contract bidders 

telegraphed their bids within the required time frame for bid acceptance, 

but the bids were nevertheless delivered late to the contracting office by 

the telegraph office run by the base exchange. Under Army regulations, 

late bids are accepted if the delay is due to the government’s mishandling of 

the bid but precludes consideration of late bids delayed by the telegraph 

company’s error. Id. GAO held that where the base exchange acts as the 

agent for the telegraph company, as the contract stipulated in this case, the 

activity was not an instrumentality of the government and the exchange’s 

actions were not attributable to the government. Accordingly, the bid here 
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was deemed late due to mishandling by a telegraphy company’s error and 

not considered in the procurement process. Id. at 80. See also B-186794, 

Nov. 11, 1976.

3. Sources of Funding: 

The Use of 

Appropriated Funds for 

Nonappropriated Fund 

Instrumentalities

“Although for some purposes nonappropriated fund 

activities are considered instrumentalities of the 

Government, they are generally self-supporting and do not 

receive appropriated funds from the Congress.” 

B-215398, Oct. 30, 1984. 

a. Self-Supporting or 

Subsidized? 

As the name suggests, a nonappropriated fund instrumentality (NAFI) is 

“operated with the proceeds of its activities, rather than with appropriated 

funds.” 64 Comp. Gen. 110, 111 (1984). That sounds simple enough, but the 

reality is not so simple. Part of the reason for this is that some people think 

the government should fund morale, welfare, and recreation (MWR) using 

appropriated funds, while others find that suggestion outrageous. Some 

argue for direct government support for the MWR services provided by 

NAFIs because there is a legitimate business need to provide MWR support 

for members of the armed forces. Others, like private retailers in 

competition with NAFIs, argue that recreational expenses should be paid 

for by the government through traditional procurement from the private 

sector, not by making NAFIs compete with the private sector. Still others 

argue that the taxpayers should not pay for any employee recreational 

expenses, advocating that NAFIs should be self-supporting and their profits 

used for MWR expenses. The tension between these factions has led to a 

complicated mix of appropriated and nonappropriated funding for NAFIs. 

b. General Rule: 

Appropriations Not 

Available for Morale, 

Welfare, and Recreation 

unless Authorized by 

Congress

The general rule, established in early decisions, is that expenses associated 

with employee morale, welfare, and recreation (MWR) cannot be paid from 

appropriated funds unless specifically authorized by law. See 27 Comp. 

Gen. 679 (1948) (Navy appropriations not available to hire full-time or parttime employees for recreational programs for civilian employees of Navy); 

18 Comp. Gen. 147 (1938) (river and harbor appropriation not available to 

provide recreational activities for workers). The rationale for the rule was 

that those types of expenditures would only have an indirect bearing on the 

purposes for which the appropriations were made. 27 Comp. Gen. at 681. 

In addition, several laws specifically prohibited the use of appropriated 

funds for certain MWR expenses. As early as 1892, Congress passed 
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legislation prohibiting the use of appropriated funds of the various armed 

forces for the exchanges; that legislation authorized the exchanges to use 

military buildings and transportation when not being used by the military. 

Act of July 16, 1892, ch. 195, 27 Stat. 174, 178, codified at 10 U.S.C. §§ 4779, 

9779 (Army and Air Force, respectively). Congress has also specifically 

authorized the use of certain appropriated funds for MWR expenses. See

10 U.S.C. § 2241(a)(1) (authorizing the use of Operation and Maintenance 

(O&M) appropriations for MWR).247 At the same time, however, Congress 

expressly prohibited the Department of Defense (DOD) from using 

appropriated funds for equipping, operating, or maintaining golf courses at 

DOD facilities or installations. Pub. L. No. 130-160, div. A, title III, § 312, 

107 Stat. 1547, 1618 (Nov. 30, 1993), codified at 10 U.S.C. § 2491a(a).248 In 

1998, GAO interpreted this prohibition as precluding the use of 

appropriated funds to install or maintain pipelines for watering an Army 

golf course. B-277905, Mar. 17, 1998.249 DOD argued that other laws 

permitted DOD to participate in water conservation projects and federal 

agency cooperative efforts to resolve water resource issues in concert with 

conservation of endangered species. GAO concluded that those laws did 

not override the prohibition of section 2491a. Id.

In a 1949 report on nonappropriated funds, GAO reported on the improper 

use of appropriated funds to support activities such as restaurants, stores, 

golf courses, and theaters, and recommended changes in accounting, 

billing, reimbursements, and legislation. GAO reported that there was a 

“widespread and growing practice . . . of withholding from the Treasury and 

diverting to unauthorized purposes substantial sums of money coming into 

the hands of persons in the service of the United States in connection with 

the performance of their official duties.” B-45101, Aug. 10, 1949, at 1. GAO 

had several concerns: (1) whether these activities were authorized to 

withhold revenues, donations, and contributions arising from such 

247 Congress also has appropriated advances for the establishment of nonappropriated fund 

instrumentalities (NAFIs) which were to be repaid to the Treasury. See B-156167, July 18, 

1967 (advanced appropriations to Midshipmen’s Store Fund, a NAFI, to acquire a dairy 

farm). In some cases, Congress later repealed the requirement that a NAFI repay the 

Treasury the sums advanced. Id.

248 Section 2491a(b) exempts from this prohibition golf courses at installations outside the 

United States or at remote and isolated locations as designated by the Secretary of Defense.

249 B-277905 refers to 10 U.S.C. § 2246(a) as the statutory prohibition. In 2004, section 2246 

was renumbered to be section 2491a. Pub. L. No. 108-375, div. A, title VI, § 651(d), 118 Stat. 

1811, 1972 (Oct. 28, 2004).
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activities; (2) the unreimbursed or “free” use of public property and funds 

in connection with revenue producing activities; and (3) GAO’s lack of 

specific authority to audit NAFIs. Id. at 5–7. While not questioning the 

validity of NAFI purposes to meet MWR needs, GAO questioned whether 

Congress had by law authorized these types of expenditures and whether 

they should not be self-supporting. Id. at 7–8. 

The rule appears to be simple—an agency may not use appropriated funds 

to support MWR needs or nonappropriated fund instrumentalities 

providing those needs unless specifically authorized by law. However, like 

many things in law and life, it is not, in fact, that simple. 

c. The Current Trend: Use of 

Appropriated Funds

We have used the necessary expense doctrine to address whether 

appropriations are legally available for certain morale, welfare, and 

recreation (MWR) expenses of some agencies without nonappropriated 

fund instrumentalities (NAFIs). The cases have increasingly recognized 

that, given isolated or remote working conditions, certain items or services 

contribute directly to an agency’s mission by enhancing employee morale 

and productivity. For example, in cases where employees are located at a 

remote site where MWR items and equipment would not otherwise be 

available and such expenses would be necessary for recruitment and 

retention of personnel, GAO has held that appropriated funds may be used 

to pay for MWR expenditures. See, e.g., 54 Comp. Gen. 1075 (1975) 

(purchase of television set for crew on Environmental Protection Agency 

ship gathering and evaluating water samples on multiday cruises); 

B-144237, Nov. 7, 1960 (transportation of musical instruments, sports, and 

recreational equipment to isolated Weather Bureau installations in the 

Arctic); B-61076, Feb. 25, 1947 (purchase of ping pong paddles and balls by 

Corps of Engineers to equip recreation room on a seagoing dredge justified 

by policy in War Department regulations and necessary expense for the 

recruitment and retention of employees). 

The military’s use of appropriated funds for MWR expenses has differed 

from civilian agencies because, in the context of the necessary expense 

rule, it is easier for the military to justify MWR expenses due to the nature 

of its mission, the remoteness of many of its locations, and hardships 

imposed on military members and families. 

In 1954, GAO considered whether the Department of the Air Force could 

use appropriated funds to pay for travel relating to the business of the 

Army and Air Force Exchange Service (AAFES). B-120139-O.M., Aug. 16, 

1954. Since expenses for travel involving public business could be paid 
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from appropriated funds, GAO analyzed whether travel involving AAFES 

business qualified as public business. The Comptroller General noted that 

AAFES is a government instrumentality under the executive control of 

officers of the services, who receive pay and allowances from appropriated 

funds while assigned to the exchanges. Thus, travel involving command 

supervision of exchanges is public business and the use of appropriated 

funds is reasonable. Command supervision may include travel for the 

purposes of inspecting, auditing, or investigating exchange activities, 

attending exchange conferences, coordinating exchange matters, or 

attending exchange schools and may be paid from appropriated funds as 

travel in connection with public business. The Department of the Air 

Force, however, could not use appropriations to pay for AAFES’s 

operational expenses. Travel for the purpose of purchasing exchange 

supplies for resale related more to operational expense and not to 

command supervision and could not be considered as travel on public 

business. Id. 

A few years later, GAO considered whether the Department of the Army 

could use appropriated funds to pay for travel by a member of the Army in 

order to participate in a field artillery basketball tournament as a 

nonparticipating coach. B-133763, Nov. 13, 1957. At issue was whether the 

travel was for public business. Army regulations provided that 

nonappropriated funds could be used to pay the expenses of military 

members participating in sports program activities. However, 

nonappropriated funds could not be used to pay expenses of official travel 

of military personnel when performing command supervision of the Army 

sports programs. Applicable travel regulations provided that travel 

conducted for public business (defined as relating to activities or functions 

of the service to which the traveler was attached) could be paid with 

appropriated funds. So, was the nonparticipating coach engaged in official 

government business or not? GAO held that while a tournament was 

recognized as part of athletic or recreational programs of the Army, it did 

not appear to be an activity or function of a field artillery battalion and 

would not constitute public business under the regulations. GAO advised 

the requestor to seek reimbursement from nonappropriated funds. Id.

In 1962, the Comptroller General was asked whether it was proper for the 

Air Force to use appropriated funds to pay for the modification, alteration, 

or repair of buildings or facilities used by a post exchange. B-147516-O.M., 

Jan. 24, 1962. Both the Secretary of Defense’s authority and Air Force 

regulations supported the use of appropriations to maintain MWR 

programs. Id., citing DOD Directive 1330.2 (Aug. 31, 1956), and Air Force 
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Regulation 170-4A (July 1, 1958). GAO noted that Congress had authorized 

exchanges’ use of public buildings and in the past had authorized the use of 

appropriated funds for construction, equipment and maintenance of 

buildings for exchange activities. B-147516-O.M., at 3. While current 

appropriations did not include specific authorization for such expenses, 

GAO deferred to the interpretation of the military departments that when 

Operation and Maintenance appropriations were available for repair and 

maintenance of facilities generally, reference to “facilities” would include 

those used for MWR activities. For these reasons, the Air Force could use 

appropriated funds to pay for the repair and alteration of NAFI facilities. 

Id. 

In other cases, GAO addressed whether military departments could use 

appropriated funds for leasing and other property services on behalf of 

NAFIs. In B-154547-O.M., Oct. 20, 1964, GAO was asked whether the 

Department of Defense (DOD) could use appropriated funds to lease hotel 

facilities for a NAFI. The business of the NAFI was to provide quarters for 

transient and retired military personnel and their families. GAO answered, 

“yes,” albeit with some hesitation. DOD cited its authority to conduct all 

affairs for the department, including welfare activities, in addition to the 

availability of Operation and Maintenance (O&M) appropriation for welfare 

and morale. GAO originally said “not good enough,” noting that DOD had 

no specific authority to lease a building for a NAFI. Unless DOD could 

provide another interpretation of its authority to lease facilities for NAFIs, 

GAO would conclude that DOD could not do so. Id. Subsequently, GAO 

altered course, because DOD was authorized to lease buildings for military 

purposes and MWR use could reasonably be construed to constitute a 

military purpose. B-154547-O.M., July 7, 1965. 

In 1975, GAO analyzed whether the Air Force could acquire land solely for 

recreational purposes.250 GAO looked to the Air Force’s authority to 

conduct welfare functions and the availability of DOD O&M appropriations 

for welfare and recreation in conjunction with the availability of 

appropriations to acquire land by lease or purchase. Deferring to DOD’s 

discretion in interpreting the extent of its authority and responsibilities, 

GAO agreed that sponsoring recreational and social activities could be 

considered activities with a military purpose and the Air Force could 

acquire land interests for such activities. 

250 Unnumbered case dated February 21, 1975, found in GAO Manuscript Volume 642, part B, 

appendix 10. 
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In 1977, GAO reported on NAFIs in DOD and concluded that, while NAFIs 

operated mainly with self-generated revenue, DOD was providing some 

appropriated fund support, including funding transportation which should 

have been funded by the NAFIs, for example, for transportation of 

merchandise for resale by NAFIs. GAO, Unauthorized and Questionable 

Use of Appropriated Funds to Pay Transportation Costs of NonAppropriated Fund Activities, LCD-76-233 (Washington, D.C.: June 3, 

1977). While GAO noted that annual DOD appropriation acts had generally 

provided funds for welfare and recreation, Congress had not specifically 

provided funds for transportation of merchandise for resale through 

NAFIs. Id. at 1. Thus, the use of appropriated funds for transportation of 

exchange goods was only permitted when the goods were carried on 

conveyances that are owned, leased, or chartered by the government, 

where the government was already obligated to pay for the space whether 

used or not. Id. GAO recommended that the Secretary of Defense: 

(1) direct the NAFIs to reimburse the paying appropriation for excess 

transportation costs; (2) institute procedures for properly charging NAFIs 

for transportation services; and (3) recover costs for improper 

appropriated fund support provided to NAFIs. Id. at ii–iii.

GAO also reported that the government spent over $600 million each year 

to subsidize DOD NAFIs. GAO, Appropriated Fund Support for 

Nonappropriated Fund and Related Activities in the Department of 

Defense, FPCD-77-58 (Washington, D.C.: Aug. 31, 1977). GAO reported that 

appropriated fund support was understated because of the failure to 

include certain costs, such as personnel costs, indirect costs, and other 

unrecognized costs. Id. at 19–25. In testimony on the findings of this 

report, GAO stated that the three major concerns with appropriated fund 

support were: (1) the use of military personnel to perform nonmilitary 

duties in NAFI activities; (2) the lack of a system for accurately reporting 

appropriated fund support; and (3) the lack of specific guidelines for 

providing appropriated fund support. GAO, Appropriated Fund Support 

for Nonappropriated Fund and Related Activities of the Department of 

Defense: Testimony before the House Committee on Armed Services, 

Investigations Subcommittee (Washington, D.C.: Sept. 27, 1977). 

d. Other Issues in 

Appropriated Fund Support

Questions arise as to whether an agency may reimburse a nonappropriated 

fund instrumentality (NAFI) with appropriated funds for goods or services 

that the NAFI provides. In B-192859, Apr. 17, 1979, the Comptroller General 

considered whether the Army could reimburse a NAFI, a consolidated post 

housing fund that provided maid and custodian services, mowing and 

watering services, maintenance of roads, snow removal, and general 
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policing services for common use areas in post housing. Although the 

Army was responsible for providing those services, it did not. The NAFI 

decided to provide the services and pay for them by charging the housing 

residents. Later, the NAFI decided to bill the Army for those services and 

seek reimbursements from the Army for the residents. GAO concluded 

that the NAFI could be reimbursed for those services for which the Army 

was responsible. The decision noted that obtaining services from a NAFI is 

tantamount to obtaining them from a nongovernmental source and that 

regular purchase orders should be used. In B-192859, the documents 

prepared and actions taken by the Army and the NAFI did not create a 

binding contract and no binding obligation on the government was created. 

Accordingly, any voucher to pay the NAFI for goods and services could not 

be repaid. However, for those services for which the Army was responsible 

and had received a benefit, the NAFI could be reimbursed on a quantum 

meruit basis. For those services that were not the responsibility of the 

Army, the NAFI could not be reimbursed with appropriated funds. For 

further discussion regarding contracting with a NAFI for goods and 

services see section C.4.b. of this chapter. 

A related issue affecting NAFIs is the proper disposal or deposit of receipts 

from the sale of NAFI property or resulting from NAFI operations. In 

B-156167, July 18, 1967, the Navy asked whether the proceeds from a 

contemplated sale of the Naval Academy dairy farm could be credited to 

the Midshipmen’s Store Fund. GAO noted that, by statute, federal agencies 

are required to deposit all proceeds from the disposition of excess property 

in the Treasury as miscellaneous receipts. Exceptions to this statute 

include property acquired with nonappropriated funds or appropriated 

funds that by law are reimbursable. The funds used to purchase the dairy 

farm were derived from the Midshipmen’s Store Fund, a NAFI, or from an 

advance of appropriated funds that were by law reimbursable at the time of 

the advance. Consequently, any realized gain from the sale of the dairy 

farm could be credited to the Midshipmen’s Store Fund. Id. 

A different result is obtained when the proceeds of a transaction derive not 

from NAFI operations, but from official business of the government. The 

miscellaneous receipts statute (as discussed in Chapter 6, section E.2) 

requires government officials receiving money for the use of the United 

States to deposit the money in the Treasury. 31 U.S.C. § 3302(b). In 

Reeve Aleutian Airways, Inc. v. Rice, 789 F. Supp. 417 (D.D.C. 1992), the 

Air Force awarded a contract to a commercial air carrier to provide 

passenger and cargo service to a remote base in the Aleutian Islands. Id. 

at 419–20. Fares purchased directly or reimbursed by the government for 
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its personnel, dependents, and contractor employees would provide the 

carrier’s revenue. Id. at 421. In return for landing rights and ground 

support the contractor would pay a “concession fee” (i.e., a rebate) for 

deposit to the base morale, welfare, and recreation (MWR) fund, a NAFI. 

The court found that the fees for the use of property of the United States 

were “public monies” and there was no authority in this case to divert those 

funds to an MWR fund. Id. Accordingly, the miscellaneous receipts statute 

required that such fees be deposited in the Treasury. Id.

In Scheduled Airlines Traffic Offices, Inc. (SATO) v. Department of 

Defense, 87 F.3d 1356 (D.C. Cir. 1996) (SATO), the Defense Construction 

Supply Center, a DOD agency, awarded a commercial travel office contract 

requiring the contractor to offer both official (government business) and 

unofficial (personal travel for government employees and dependents) 

travel services. The contractor was required to pay the government 

concession fees on both official and unofficial travel. Concession fees for 

official travel were deposited to the Treasury and fees for unofficial travel 

were deposited to the local MWR fund, a NAFI. SATO, 87 F.3d at 1357–58. 

The travel agency, SATO, had bid unsuccessfully on similar contracts in the 

past, losing the bid to a company that agreed to pay larger concession fees 

for unofficial travel. Through informal channels, it learned that the agency 

made its award determinations “largely to maximize payments to the local 

Morale Funds.” Id. at 1358. SATO filed suit seeking declaratory and 

injunctive relief to prohibit the award of the contract. Id. Among other 

things, SATO claimed that the miscellaneous receipts statute did not permit 

the deposit of the concession fees into MWR funds, but compelled their 

deposit into the Treasury. Id. The government argued that this contract 

was different from the one in Reeve Aleutian: The concession fees were 

derived solely from unofficial travel paid for by private funds and were not 

government funds. Id. at 1362.

The Court of Appeals for the District of Columbia Circuit concluded that 

the fees were government funds. Id. at 1362–63. The travel agents paid 

them in consideration for government resources, such as the right to 

occupy agency space, utilize government services associated with the 

space, and serve as an exclusive on-site travel agent. Id. at 1362. Since the 

miscellaneous receipts statute requires the deposit into Treasury of “money 

for the government from any source,” the government’s argument about 

the private source of funds was rejected. Id. (emphasis in original). The 

SATO court noted that the concession fees were derived from 

procurements administered by a government agency in which the Morale 

Fund played no role. Id. at 1363. The court observed that “not only does 
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the travel scheme at issue here divert to Morale Funds revenues that should 

be deposited in the Treasury, but it also creates incentives for government 

officials to reduce even those funds that are deposited in the Treasury.” Id. 

Depositing the fees into MWR funds violated the miscellaneous receipts 

statute. Id. The decision left open the question of whether unofficial travel 

concession fees could be retained by an MWR fund if a NAFI administers 

the contract. 

e. Borrowing by 

Nonappropriated Fund 

Activities

GAO has determined that some nonappropriated fund instrumentalities 

(NAFIs) have the authority to borrow funds from commercial sources. In 

B-148581-O.M., Dec. 18, 1970, GAO found that no federal law specifically 

prohibited the Army and Air Force Exchange Services (AAFES) (a military 

post exchange NAFI) from borrowing funds. GAO observed that the 

general laws governing borrowing by the United States, the use of 

appropriated funds and other financial transactions of the government 

have not been applied to NAFIs. Moreover, the United States is not a party 

to nor is it legally bound or obligated by the financial transactions of 

NAFIs, notwithstanding their status as federal instrumentalities immune 

from state taxation. GAO had previously noted that an Army regulation 

authorizes the borrowing of funds by post restaurants. 9 Comp. Gen. 411 

(1930). Then current DOD regulations granted AAFES implied authority to 

borrow funds from private sources and such authority was considered a 

normal practice for a business operation like AAFES. B-148581-O.M., 

Dec. 18, 1970. However, GAO emphasized that such loans could not be on 

the credit of the United States. 

4. Transactions with 

Federal Agencies

Since they are so closely involved with the federal government, it is not 

surprising that nonappropriated fund instrumentalities and the agencies 

they are associated with want to enter into transactions for the provision of 

goods and services. This section addresses these practices and the legal 

authority for such transactions.

a. Economy Act and IntraAgency Orders 

As a general matter, the federal government is one entity (or “person”) for 

legal purposes. So, when agencies wish to obtain items or services from 

one another, they do not enter into contracts per se—a person cannot 

contract with himself. See Chapter 12, section B.1. One source of authority 

for agencies to obtain services from one another is by entering into 

reimbursable interagency agreements under the Economy Act. 31 U.S.C. 

§ 1535. However, although nonappropriated fund instrumentalities 

(NAFIs) are instrumentalities of the United States government, the 
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Economy Act does not apply to NAFIs. 58 Comp. Gen. 94 (1978) (Army and 

NAFIs could not enter into intra-agency orders for services provided to 

Army).

The Comptroller General explained the rationale for this result in 58 Comp. 

Gen. 94 which involved the Army’s use of intra-Army orders for obtaining 

goods and services from NAFIs. GAO emphasized that the Economy Act 

authority involves the transfer of moneys from one appropriation account 

to another for services provided. In the case of a NAFI, by definition, the 

transfer would not involve an appropriation account. (While an 

instrumentality of the government, NAFIs are not federal agencies and do 

not have appropriated fund accounts.) Recognizing their connection to the 

government, the Comptroller General noted that “they differ significantly 

from other Governmental activities, particularly with respect to budgetary 

and appropriation requirements.” Id. at 97. It was those differences, rather 

than their status as government instrumentalities, which the Comptroller 

General found controlling. 58 Comp. Gen. at 97. The Comptroller General 

further noted that Congress has no direct control, through appropriations, 

over the accounts of the NAFI (and neither did GAO, through its account 

settlement authority). Thus, obtaining goods and services from a NAFI is 

“tantamount to obtaining them from non-Governmental, commercial 

sources.” Id. at 98. 

Similarly, when considering the use of interagency agreements between 

federal agencies and the Graduate School of the Department of Agriculture, 

the Comptroller General again determined that the Economy Act did not 

apply to this statutorily created NAFI. 64 Comp. Gen. 110, 113 (1984) 

(decision concluded that the Government Employees Training Act, 5 U.S.C. 

§ 4104, also did not constitute authority for agreements between federal 

agencies and NAFIs for the same reasons). 

b. Contracting to Sell Goods 

and Services to Agencies

Noting that nonappropriated fund instrumentalities (NAFIs) exist primarily 

to help foster the morale, welfare, and recreation needs of government 

officers and employees, the Comptroller General, at times, has questioned 

whether it is appropriate for federal agencies to procure goods and services 

from the NAFI for the benefit of the federal agency. 58 Comp. Gen. 94, 98 

(1978). Despite this observation, GAO has recognized circumstances in 

which it may be appropriate for agencies to procure goods and services 

from NAFIs through the competitive procurement process and sole 

sourcing procurements.
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With regard to participation in the competitive procurement process, the 

Comptroller General has stated that obtaining services from a NAFI is 

“tantamount to obtaining services from nongovernment commercial 

sources” and, therefore, NAFIs may compete to provide goods or services 

to agencies in the competitive procurement process. 68 Comp. Gen. 62, 66 

(1988) (Department of Agriculture Graduate School may compete in 

competitive procurement for operation and maintenance of a federal 

agency’s training laboratory); 64 Comp. Gen. 110, 111–12 (1984) 

(Department of Agriculture Graduate School may be an appropriate 

recipient of sole source or competitive contract for training of federal 

employees); B-215580, Dec. 31, 1984 (Army could not purchase child care 

services from a NAFI via intra-agency order, but could use a regular 

purchase order). The Comptroller General has also stated that “a NAFI 

may compete in, and be awarded a contract under a competitive 

procurement unless otherwise precluded by its charter from doing so.” 

64 Comp. Gen. at 112. See also B-289605.2, July 5, 2002; B-274795, Jan. 6, 

1997. 

Sole-sourcing is another matter. There may be circumstances where an 

agency’s contract with a NAFI for goods or services might be proper, such 

as where it is impracticable for an agency to obtain goods or services from 

sources other than NAFIs, or where only a NAFI could provide the urgently 

required goods or services. 58 Comp. Gen. at 98. In such cases, a sole 

source contract would be proper with appropriate justifications. Id. See 

also B-235742, Apr. 24, 1990 (proposed sole-source award to a NAFI for 

lunchroom monitoring services at Department of Defense dependent 

schools was proper). Whether a NAFI should provide goods or services 

will depend upon the factual circumstances. In 58 Comp. Gen. 94 (1978), it 

was improper for a NAFI to provide mattresses to the Army, but GAO did 

not have enough information on the record to determine whether the 

provision of janitorial and dry-cleaning services was also inappropriate. 

58 Comp. Gen. at 99. In circumstances where it is impracticable for an 

agency to obtain goods or services from sources other than NAFIs, or 

where only a NAFI could provide the urgently required goods or services, 

sole-source contracts may be proper. Id. at 98.

In another case, the Army wanted to purchase “health and comfort kits” 

(shampoo, razors, chewing gum, and shoe polish) for soldiers in Korea 

from the Army and Air Force Exchange Service on a sole-source basis. 

B-190650, Sept. 2, 1980. GAO noted that the Army had not alleged that 

other sources were not capable of furnishing the items (nor could it make 

that statement since other sources were currently providing the items) and 
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held that the fact that a NAFI is able to perform a contract with greater ease 

or at less cost than any other concern does not justify a noncompetitive 

procurement. Id. See also 58 Comp. Gen. at 98–99 (noting that, where 

circumstances require services or goods to be supplied by a NAFI because 

of exigent circumstances or practicality, appropriate sole source 

justifications should be prepared); B-235742, Apr. 24, 1990 (finding that use 

of sole-source justification papers prepared by the Army for contract with a 

NAFI for lunch room monitoring services was proper). 

Where NAFIs provided services to federal agencies under inter- or intraagency orders later found to be improper, GAO has allowed the activities to 

be reimbursed on a quantum meruit or quantum valebant basis, if ratified 

by an authorized contracting official. 58 Comp. Gen. 94, 100 (1978); 

B-199533, Aug. 25, 1980; B-192859, Apr. 17, 1979.

c. Statutory Authority to Enter 

into Contracts with Federal 

Agencies

Congress provided statutory authority for certain nonappropriated fund 

instrumentalities (NAFIs) to enter into contracts and agreements with 

other federal agencies or instrumentalities. 

As part of the 1997 National Defense Authorization Act, Congress 

authorized agencies and instrumentalities of the Department of Defense 

that support operation of the exchange system, or a morale, welfare, and 

recreation (MWR) system to enter into contracts or other agreements with 

other federal agencies or instrumentalities. That statute specifically 

provides:

“An agency or instrumentality of the Department of Defense 

that supports the operation of the exchange system, or the 

operation of a morale, welfare, and recreation system, of the 

Department of Defense may enter into a contract or other 

agreement with another element of the Department of 

Defense or with another Federal department, agency, or 

instrumentality to provide or obtain goods and services 

beneficial to the efficient management and operation of the 

exchange system or that morale, welfare, and recreation 

system.” 

Pub. L. No. 104-201, div. A, title III, § 341(a)(1), 110 Stat. 2422, 2488 

(Sept. 23, 1996), codified at 10 U.S.C. § 2492.

The House Committee on National Security noted that exchanges and the 

MWR programs need to become more efficient, and determined that this 
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could be achieved by permitting contracting between those activities and 

federal agencies. H.R. Rep. No. 104-563, at 278 (1996). 

5. Nonappropriated Fund 

Instrumentality 

Procurement

Obviously, the armed forces nonappropriated fund instrumentalities 

(NAFIs) have to procure goods and services for morale, welfare, and 

recreation programs. This section addresses the applicable procurement 

policies and procedures. It is important not to just categorize an entity as a 

NAFI and then think it obvious what laws apply to the entity. For example, 

Federal Prison Industries, Inc (FPI) has been described by the Federal 

Circuit as a NAFI for purposes of its jurisdiction, but FPI was created by 

statute as a wholly owned government corporation. As such, FPI is subject 

to the Competition in Contracting Act. B-295737, B-295737.2, Apr. 19, 2005. 

41 U.S.C. § 5—This law specifies that, subject to other authority or stated 

exceptions, “purchases and contracts for supplies or services for the 

government may be made or entered into only after advertising a sufficient 

time previously for proposals.” 41 U.S.C. § 5. NAFI contracts are made for 

the benefit of government officers or employees in their individual personal 

capacity, not in their official capacity. There is no case law, however, 

addressing whether 41 U.S.C. § 5 applies to NAFI contracting. 

Competition in Contracting Act—The Competition in Contracting Act of 

1984 (CICA)251 made several changes to procurement provisions, including 

GAO’s bid protest authority (which we will discuss in section C.8.b(4) of 

this chapter). Its applicability depends on the definition of “federal agency” 

found in the Federal Property and Administrative Services Act of 1949, 

ch. 288, 63 Stat. 377, 378 (June 30, 1949), codified at 40 U.S.C. § 102. 

Federal agency includes an executive branch agency. 40 U.S.C. § 102(5). 

An executive branch agency includes any executive department or 

independent establishment, including wholly owned government 

corporations. 40 U.S.C. § 102(4). However, it does not include NAFIs 

which, although recognized as government instrumentalities associated 

with and supervised by government entities, operate without appropriated 

funds and are not federal agencies. B-270109, Feb. 6, 1996; B-228895, 

Dec. 29, 1987. 

251 Pub. L. No. 98-369, div. B, title VII, 98 Stat. 494, 1175 (July 18, 1984), codified in scattered 

sections of titles 10, 31, and 41, United States Code.
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Armed Services Procurement Act of 1947 252—Although many NAFIs are 

related to the Department of Defense (DOD), the Armed Services 

Procurement Act and armed services and defense acquisition regulations 

do not apply to NAFIs because they operate with nonappropriated funds. 

10 U.S.C. § 2303(a) (chapter applies to procurements for which payments 

are to be made from appropriated funds). See also Ellsworth Bottling 

Company v. United States, 408 F. Supp. 280, 285 (W.D. Okla. 1975); 

58 Comp. Gen. 94, 98 (1978). 

The armed forces have some regulations applicable to armed forces NAFI 

procurements with nonappropriated funds. See, e.g., Army 

Regulation 215-1, Military Morale, Welfare, and Recreation Programs and 

Nonappropriated Fund Instrumentalities, ch. 5 (Oct. 24, 2006); Army 

Regulation 215-4, Nonappropriated Fund Contracting (Mar. 11, 2005). 

However, there are circumstances in which appropriated funds are used for 

armed forces NAFI purchases. See, e.g., Army Regulation 215-1, ch. 5. In 

those cases, defense acquisition regulations will apply. 

Federal Property and Administrative Services Act of 1949—NAFIs are 

not federal agencies for purposes of the Federal Property and 

Administrative Services Act of 1949 (Property Act). See B-270109, Feb. 6, 

1996. Also, the provisions of the Property Act would not apply to armed 

forces NAFIs since section 302 of the Act excludes DOD instrumentalities 

from the provisions of title III of that Act. 41 U.S.C. § 252(a). See 66 Comp. 

Gen. 231, 235 (1987). See also Ellsworth Bottling Co., 408 F. Supp. at 283–

84. (Army and Air Force Exchange Service is not subject to the FPASA as it 

is part of the Departments of Army and Air Force). 

Federal Acquisition Regulation—The Federal Acquisition Regulation 

(FAR), the governmentwide regulation which implements the Federal 

Property and Administrative Services Act, applies to federal agencies and 

acquisitions with appropriated funds. This would not include NAFI 

procurements with nonappropriated funds. 48 C.F.R. § 2.101(b). However, 

there are circumstances in which appropriated funds are used for NAFI 

purchases. See, e.g., Army Regulation 215-1, ch. 5. If appropriated funds 

are used for a NAFI purchase, FAR and agency regulations would apply to 

the procurement. See id.; Army Regulation 215-4. 

252 Pub. L. No. 80-413, 62 Stat. 21 (Feb. 19, 1948), codified at 10 U.S.C. §§ 2202, 2301–2314, 

2381, 2383.
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6. Debts Due 

Nonappropriated Fund 

Instrumentalities

Despite their close association with the government, debts owed 

nonappropriated fund instrumentalities (NAFIs) are not debts owed the 

United States. Until 1966, this had a profound impact on the debt collection 

tools available to nonappropriated fund instrumentalities (NAFIs). In 

Kenny v. United States, 62 Ct. Cl. 328 (1926), an Army officer was assigned 

to serve as superintendent of a post exchange. A post exchange civilian 

employee lost post exchange receipts in the amount of $2,557.60. The 

superintendent was ultimately held responsible for payment of the amount 

not recovered and the amount was withheld from his pay. The court held 

that the receipts of a post exchange were not the property of the United 

States, the superintendent was not in arrears to the United States, and 

therefore, the loss could not be deducted from his statutory pay as an Army 

officer. Id. 

Similarly, in 43 Comp. Gen. 431 (1963), GAO held that a debt owed to the 

Officer’s Mess, a NAFI, could not be set off against an enlisted member’s 

final pay because it did not constitute a debt to the United States. The 

result was the same in B-170400, Sept. 21, 1970, aff’d, B-170400, Feb. 2, 

1971, where GAO held that a debt owed by a former employee of the 

Defense Supply Agency to the Officer’s Mess and Post Restaurant, a NAFI, 

could not be set off against his final compensation or the amount to his 

credit in the Civil Service Retirement Fund. 

Various federal laws, including the Federal Claims Collection Act of 1966,253

as amended by the Debt Collection Act of 1982254 and the Debt Collection 

Improvement Act of 1996,255 provide federal entities, including 

“instrumentalities” of the government, with methods to collect their debts, 

such as salary offset and administrative offset of monies otherwise payable 

to debtors. 31 U.S.C. § 3701(a)(4) (includes instrumentality in the 

definition of executive, judicial, or legislative agency). The Debt Collection 

Improvement Act of 1996 amended the terms “claim” or “debt” to include 

“expenditures of nonappropriated funds.” 31 U.S.C. § 3701(b)(1)(B). Also, 

Congress authorized the Department of Defense to collect debts owed by 

service members to its instrumentalities, including NAFIs, by deducting 

253 Pub. L. No. 89-508, 80 Stat. 308 (July 19, 1966), codified at 31 U.S.C. §§ 3701–3733.

254 Pub. L. No. 97-365, 96 Stat. 1749 (Oct. 25, 1982).

255 Pub. L. No. 104-134, § 31001, 110 Stat. 1321, 1321-358 (Apr. 26, 1996).
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that amount from the member’s pay in monthly installments. 37 U.S.C. 

§ 1007(c). 

Courts have held that for purposes of setoff under the Bankruptcy Code, 

where a debtor to a NAFI is owed a refund from the Internal Revenue 

Service (IRS), the refund may be set off against a debt owed to the NAFI. 

In re Hanssen, 203 B.R. 149 (Bankr. E.D. Ark. 1996). 

7. Nonappropriated Fund 

Instrumentality 

Property

While a nonappropriated fund instrumentality (NAFI) is not a federal 

agency and in many cases is not supported by appropriated funds, its 

property is under government control. 40 Comp. Gen. 587 (1961). This 

case involved the commercial aircraft purchased by “military aero clubs” or 

“flying clubs,” NAFIs which provide flying instruction, practice, and 

recreation for active duty and retired military personnel, Department of 

Defense civilian personnel, their families, and other personnel designated 

by the Department of Defense. GAO held that the aero club, as a NAFI, 

owned and used equipment in its capacity as a government enterprise and 

may own and use property and equipment only in that capacity. Id. at 589. 

Thus, GAO concluded that commercial aircraft purchased by the aero club 

were to be regarded as government conveyances under government travel 

regulations and government travelers could be reimbursed for the 

expenses of their operation in the circumstances specified by those 

regulations. Id. at 590.

In other cases involving property, the courts have held that NAFI property 

is property of the United States for purposes of a statute prohibiting theft of 

anything of value from the United States or any department or agency 

thereof. See United States v. Sanders, 793 F.2d 107 (5th Cir. 1986) 

(merchandise from the Army and Air Force Exchange Service is a “thing of 

value from the United States” under 18 U.S.C. § 641). See also United 

States v. Towns, 842 F.2d 740 (4th Cir.), cert. denied, 487 U.S. 1240 (1988) 

(the Army and Air Force Exchange Service, as an instrumentality of the 

United States, is an agency or department of the United States for purposes 

of 18 U.S.C. § 641 and theft of its property causes property loss to the 

United States). 
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8. Management of 

Nonappropriated Fund 

Instrumentalities

a. Regulation and Oversight For armed forces nonappropriated fund instrumentalities (NAFIs), the 

Department of Defense (DOD) provides for their operations and carries out 

its oversight by regulation.256 DOD’s regulations cover everything from the 

creation of NAFIs, their purpose, funding, contracting, employment, audits, 

financial management, property management, to their dissolution. 

Congress has also approved regulations of DOD’s NAFIs, requiring specific 

departments and agencies to regulate such entities, and imposed specific 

requirements by statute. For example, in 1821 Congress approved the 

General Regulations for the Army which contained specific regulations 

regarding sutlers, the predecessors of Army MWR activities. Act of 

March 2, 1821, ch. 13, § 14, 3 Stat. 615, 616. Under 10 U.S.C. § 2783, the 

Secretary of Defense is required to establish regulations for DOD’s NAFIs 

governing the purposes for which nonappropriated funds may be expended 

and the financial management of such funds to prevent, waste, loss, or 

unauthorized use. Section 2783 also establishes penalties for violations of 

the financial management regulations for civilian employees of DOD and 

members of the armed forces. Under 10 U.S.C. § 136(b), Congress 

established the position of the Under Secretary of Defense for Personnel 

and Readiness who is to perform duties which include exchanges, 

commissaries, and NAFIs. 

b. Authority to Audit 

Nonappropriated Fund 

Activities

(1) GAO jurisdiction

In 1975, Congress gave GAO the authority to audit the operations and 

accounts of nonappropriated fund activities authorized or operated by the 

head of an executive agency to sell goods or services to government

256 See, e.g., Department of Defense Instruction 1015.08, DoD Civilian Employee Morale, 

Welfare, and Recreation Activities (MWR) and Supporting Nonappropriated Fund 

Instrumentalities (NAFI) (Dec. 3, 2005); Department of Defense Directive 1015.2, Military 

Morale, Welfare, and Recreation, June 14, 1995; Department of Defense Financial 

Management Regulation 7000.14-R, vol. 13, Nonappropriated Funds Policy and Procedures

(Aug. 1994); Army Regulation 215-1, Military Morale, Welfare, and Recreation Programs 

and Nonappropriated Fund Instrumentalities, (Oct. 24, 2006); Army Regulation 215-4, 

Nonappropriated Fund Contracting (Mar. 11, 2005). 
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personnel and their dependents.257 Several questions came up regarding 

what types of activities were covered under this authority. B-167710-O.M., 

May 6, 1976. GAO explained that the scope of the audit authority was not 

intended to apply to every nonappropriated fund activity since “the primary 

responsibility should rest with the operating agencies concerned.” Id. at 1. 

GAO pointed out that the statute listed the military and National 

Aeronautics and Safety Administration exchanges and similar entities as 

examples of the types of activities to be audited under this authority.258 Id. 

Since GAO could not identify a workable definition of a nonappropriated 

fund activity, it relied on the case law and statutes dealing with 

nonappropriated fund operations to identify the applicable elements used 

for determining whether a particular activity should be audited.259

The Comptroller General may audit the accounting systems and internal 

controls of nonappropriated fund instrumentalities (NAFIs) as well as 

internal or independent audits or reviews of those funds. 31 U.S.C. 

§ 3525(a)(1)–(3). To carry out this authority, records and property of 

NAFIs are to be made available to the Comptroller General. 31 U.S.C.

§ 3525(c). The Comptroller General is authorized to audit NAFIs which 

receive income from vending machines on federal property and has access 

to any records necessary to conduct such audits. 20 U.S.C. § 107b-3.

(2) Other auditors

GAO has concluded that the Secretary of Defense was authorized by 

statute and regulations to require Department of Defense (DOD) internal 

auditors to audit DOD nonappropriated fund instrumentalities (NAFIs). 

B-148581.14-O.M., Aug. 17, 1976. Military audit agencies or certified public 

257 The General Accounting Office Act of 1974, Pub. L. No. 93-604, § 301, 88 Stat. 1959, 1961 

(Jan. 2, 1975), codified at 31 U.S.C. § 3525. 

258 In the recodification of this provision in Pub. L. No. 97-258, 96 Stat. 963 (Sept. 13, 1982), 

the words “military or other . . . such as the Army and Air Force Exchange Service, Navy 

Exchanges, Marine Corps Exchanges, Coast Guard Exchanges, Exchange Councils of the 

National Aeronautics and Space Administration, commissaries, clubs, and theaters” were 

omitted as surplus. See 31 U.S.C. § 3525, Revision Notes.

259 These elements include whether: (1) the activity was established under the authority or 

sanction of a government agency with or without an initial advance of government funds; 

(2) the activity is created and run by government officers or employees and/or their 

dependents; (3) the activity is operated for the benefit of government officers or employees 

and/or their dependents; and (4) the operations of the activity are financed by the proceeds 

therefrom rather than by appropriations. B-167710-O.M., May 6, 1976.
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accountants may audit military department NAFIs in accordance with DOD 

regulations and instructions. DOD Instruction 7600.6, Audit of 

Nonappropriated Fund Instrumentalities and Related Activities (Jan. 16, 

2004); Army Regulation 215-1, Military Morale, Welfare, and Recreation 

Programs and Nonappropriated Fund Instrumentalities, ch. 18 (Oct. 24, 

2006).

(3) Settlement of accounts

Under 31 U.S.C. § 3526 the Comptroller General adjusts and settles the 

accounts of the United States government and certifies balances in the 

accounts of accountable officers. Under the accounts settlement authority, 

the Comptroller General can take exception to an improper transaction, 

and hold the certifying or disbursing officer personally liable for the 

amount of money erroneously or improperly expended. 62 Comp. 

Gen. 40, 41 (1982). GAO can exercise its account settlement authority over 

government agencies, departments, or independent establishments. While 

31 U.S.C. § 3525 provides GAO with audit authority over nonappropriated 

fund instrumentalities (NAFIs), it does not include accounts settlement 

authority over NAFIs. B-187004, Aug. 12, 1976; B-183034, Apr. 18, 1975. 

(4) Bid protests

Prior to the enactment of the Competition in Contracting Act (CICA),260

GAO’s accounts settlement authority was the basis for its bid protest 

jurisdiction. B-218441, Aug. 8, 1985. Stated slightly differently, GAO 

viewed its authority to consider protests of contract awards as an 

extension of its authority to settle appropriated funds accounts of the 

government. B-185084, Nov. 28, 1975. The fact that an agency labeled 

funds as nonappropriated was not determinative of whether GAO would 

exercise jurisdiction over a bid protest. For example, in B-188770, Feb. 24, 

1978, GAO reviewed the protest of a procurement for the design and 

construction of a commissary which was to be paid from a trust revolving 

fund account in which commissary surcharges were deposited. Originally, 

GAO dismissed the protest because the agency asserted that these funds 

were nonappropriated. B-188770, Apr. 14, 1977. Upon reconsideration, 

GAO determined that the commissary surcharge funds were appropriated 

funds because Congress had authorized the collection of the surcharge and 

260 Pub. L. No. 98-369, div. B, title VII, 98 Stat. 494, 1175 (July 18, 1984). GAO’s bid protest 

responsibilities under CICA are codified at 31 U.S.C. §§ 3551–3556.
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its use for commissary construction. 57 Comp. Gen. 311 (1978). GAO 

noted that this was consistent with its prior analysis that statutes 

authorizing the collection and credit of fees to a particular fund and making 

the fund available for specified expenditures constituted appropriations of 

funds.261 Id. at 313. Since these were, in fact, appropriated funds, GAO did 

have accounts settlement authority for the funds and bid protest 

jurisdiction over the protest.262 Id. at 315. 

Since the enactment of CICA, GAO’s jurisdiction over bid protests is no 

longer defined by its accounts settlement authority; rather, CICA 

established GAO bid protest jurisdiction over procurements by federal 

agencies as defined in the Federal Property and Administrative Services 

Act of 1949 (Property Act), Act of June 30, 1949, ch. 288, 63 Stat. 377, 

codified at 40 U.S.C. § 472. The definition of federal agency includes an 

executive branch agency.263 40 U.S.C. § 102(5). The definition of an 

executive branch agency includes any executive department or 

independent establishment in the executive branch of the government and 

wholly owned government corporations. 40 U.S.C. § 102(4). However, it 

does not include nonappropriated fund instrumentalities (NAFIs) which, 

although recognized as government instrumentalities associated with and 

supervised by government entities, operate without appropriated funds and 

are not, in that sense, federal agencies. B-270109, Feb. 6, 1996. See also 

4 C.F.R. § 21.5(g). 

This does not mean that GAO will never consider a protest involving a 

procurement by a NAFI. GAO will review a NAFI procurement where the 

protester asserts that the NAFI is acting as a conduit for the federal agency 

in order for the agency to circumvent applicable procurement statutes and 

regulations. B-270109, Feb. 6, 1996. For example, in B-256560, July 5, 1994, 

GAO considered a protest concerning a procurement by an employees’ 

261 Legally, these funds were offsetting collections, a permanent, indefinite appropriation. 

See the discussion of various types of budget authority in Chapter 2, section A.2.

262 In B-188770, GAO expressly overruled prior bid protest decisions to the extent that these 

prior decisions held that commissary funds were nonappropriated and that GAO would not 

consider protests involving procurements financed with such funds.

263 The Property Act defines a federal agency as an executive agency or an establishment in 

the legislative or judicial branch of the government (except the Senate, the House of 

Representatives, and the Architect of the Capitol, including any activities under the 

Architect’s direction). 40 U.S.C. § 102(5). This definition of a federal agency is adopted in 

CICA at 31 U.S.C. § 3551(3), and appears in GAO’s bid protest regulations at 4 C.F.R. 

§ 21.0(c).
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association, which was a NAFI. The protester, a private-sector contractor, 

alleged that the Bureau of Prisons (BOP) was improperly diverting to the 

NAFI requirements for the procurement of vending machines used in its 

employee and visitor lounge areas in order to avoid applying procurement 

statutes and regulations, specifically, CICA’s mandate for full and open 

competition. GAO determined that the vending machines in question were 

not part of BOP’s requirements, and did not represent BOP’s needs or 

objectives, and, therefore, BOP could not be said to be diverting a 

requirement to the employees’ association. GAO concluded that the 

procurement was a legitimate NAFI procurement, properly intended to 

serve the needs of the employees’ association and its members. 

Further, the fact that an agency will receive some incidental benefit from a 

NAFI procurement does not convert it into an agency requirement. In 

B-256560, the protester argued that BOP was going to receive benefits from 

the vending machines being procured by the NAFI and, as such, the 

agency’s appropriations would be improperly augmented. Notwithstanding 

the fact that the inmates may have had some limited access to buy items 

from the visitor lounge vending machines during prison visiting hours, the 

record showed, and GAO concluded, that these machines were not 

necessary to serve BOP’s mission of inmate care. In other words, the 

vending machines in the visitor lounge primarily existed for the benefit of 

the employees’ association and its members, and inmate use and benefit 

was only incidental. Access by the inmates did not convert the machines 

into an agency need or benefit.

GAO will make its own determination regarding its jurisdiction over a bid 

protest under CICA. In B-295737, B-295737.2, Apr. 19, 2005, Federal Prison 

Industries, Inc. (FPI), citing Core Concepts of Florida, Inc. v. 

United States, 327 F.3d 1331 (Fed. Cir. 2003), argued that GAO lacked 

jurisdiction to hear a protest of an FPI solicitation for shirt fabric because 

FPI is a NAFI. GAO disagreed with the court’s characterization of FPI as a 

NAFI. FPI by statute is a wholly owned government corporation. See 

31 U.S.C. § 9101(3)(E) (includes FPI in a list of wholly owned government 

corporations). Noting that the Property Act clearly included wholly owned 

government corporations in its definition of a federal agency, 40 U.S.C. 

§ 102(4), a definition which, as previously noted, was adopted in CICA, 

GAO concluded that it has jurisdiction under CICA to hear protests arising 

out of procurements by wholly owned government corporations, such as 

FPI. 
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9. Sovereign Immunity As instrumentalities of the United States government, nonappropriated 

fund instrumentalities are subject to and entitled to various duties and 

privileges of the United States government. One of these is the principle of 

sovereign immunity: The United States, as sovereign, cannot be sued 

without its consent. 

a. Immunity from State and 

Local Taxation

Under the doctrine of sovereign immunity, the federal government of the 

United States is immune from taxation by state and local governments, a 

principle recognized by the Supreme Court in McCulloch v. 

Maryland, 17 U.S.(4 Wheat.) 316 (1819). This constitutional immunity 

extends to federal instrumentalities, including nonappropriated fund 

instrumentalities (NAFIs). Standard Oil v. Johnson, 316 U.S. 481, 485 

(1942). This immunity prohibits a state taxing authority from imposing a 

markup on the purchases of NAFIs. United States v. State Tax 

Commission of Mississippi, 421 U.S. 599, 604–05 (1975). This is so even 

where that markup is not collected directly from the NAFI, but is collected 

by suppliers. Id. at 608–09. 

The United States may consent to state taxation of its instrumentalities. 

For example, Congress permits collection of state taxes on gasoline and 

other fuels sold through post exchanges and other retail sales agencies of 

the federal government on military installations when such fuels are not for 

the exclusive use of the United States. 4 U.S.C. § 104. Congress also 

permitted states to levy taxes within federal areas to the same extent as 

though the area were not a federal area, with certain exceptions not 

relevant here.264 4 U.S.C. §§ 105–107. 

b. Immunity from Suit In 1970, Congress amended the Tucker Act to waive immunity for claims 

arising from some armed forces and National Aeronautics and Space 

Administration (NASA) nonappropriated fund instrumentalities (NAFIs) 

contracts. Pub. L. No. 91-350, 84 Stat. 449 (July 23, 1970), codified at 

28 U.S.C. § 1491(a). Prior to 1970, the courts had consistently held that 

neither the NAFI, nor the agency supervising the NAFI, could be sued. E.g., 

Jaeger v. United States, 394 F.2d 944 (D.C. Cir. 1968); Kyer v. United 

States, 369 F.2d 714 (Ct. Cl. 1966); Keetz v. United States, 168 Ct. Cl. 205 

264 This also had the effect of removing any immunity previously enjoyed by private 

concessionaires located on military installations since they are not instrumentalities of the 

United States. Stephen Castlen, Let the Good Times Role: Morale, Welfare, and Recreation 

Operations, Army Lawyer 3, 11 n.69 (1996). 
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(1964); Pulaski Cab Co. v. United States, 157 F. Supp. 955 (Ct. Cl. 1958); 

Borden v. United States, 116 F. Supp. 873 (Ct. Cl. 1953). The most famous 

of these decisions, the Borden case, involved a chief accountant employed 

by the American Army Exchange Service. He brought suit against the 

United States to recover salary withheld to recoup the loss of money stolen 

from a safe at the post exchange. Mr. Borden had contracted with the 

American Army Exchange Service to serve as a senior accountant. His 

contract stipulated that the employer could withhold salary for claims 

against him on account of fraud, breach of contract, or negligence. Army 

regulations regarding NAFIs stated that: “Exchange contracts are solely 

the obligation of the exchange. They are not government contracts and the 

distinction between exchange contracts and government contracts will be 

observed and clearly indicated at all times.” Borden, 116 F. Supp. at 877. 

The Court of Claims held that, under the Standard Oil decision,265

Mr. Borden could not sue the Exchange Service because it was part of the 

government and the government had not consented to a suit against the 

Exchange Service. Id. In addition, Mr. Borden was precluded from suing 

the government because Exchange contracts were not contracts of the 

United States and the United States was not liable on such contracts. Id. 

The dilemma for Mr. Borden was not lost on the Court of Claims. The court 

put its concerns this way:

“The Army officers are given complete supervision of these 

Post Exchanges. They handle the money. They have 

control of the funds. The funds are used to make the Army 

more effective. In other words the officers run the show. 

The Exchanges are established and maintained for the 

benefit of Army personnel. That is their major, in fact their 

sole purpose. Even the civilian employees are subject to the 

Articles of War. For the Army to contend and to provide by 

regulation that it is not liable since it did not act in its 

official capacity would be like a man charged with extramarital activity pleading that whatever he may have done 

was done in his individual capacity and not in his capacity 

as a husband.

* * * * * * * * *

265 Standard Oil v. Johnson, 316 U.S. 481 (1942).
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“We think it is proper that this situation should be called to 

the attention of the Congress. It seems fair that either the 

Post Exchanges or the Government should be subject to suit 

and liable for any breach of contract that had been duly 

signed by the Army Exchange Service.” 

Borden, 116 F. Supp. at 877–78.

Some nonmilitary NAFIs have benefited from this same paradox. For 

example, several courts have held that Post Office employee welfare 

committees constitute integral parts of the Postal Service and were 

instrumentalities of the United States immune from suit without the United 

States’ consent. Employees Welfare Committee v. Daws, 599 F.2d 1375 

(5th Cir. 1979); Automatic Retailers v. Ruppert, 269 F. Supp. 588 (S.D. Ia. 

1967).

In response to these decisions, Congress, amended the Tucker Act 

(28 U.S.C. § 1491) in 1970 to waive sovereign immunity for claims arising 

from some armed forces and NASA NAFI contracts. The amendment to the 

Tucker Act provided that express or implied contracts with these specified 

NAFIs are considered express or implied contracts with the United States. 

Pub. L. No. 91-350, codified at 28 U.S.C. § 1491(a). Section 1491(a) now 

reads as follows:

“The United States Court of Federal Claims shall have 

jurisdiction to render judgment upon any claim against the 

United States founded either upon the Constitution or any 

Act of Congress or any regulation of an executive 

department, or upon any express or implied contract with 

the United States, or for liquidated or unliquidated damages 

in cases not sounding in tort. For the purpose of this 

paragraph, an express or implied contract with the Army 

and Air Force Exchange Service, Navy Exchanges, Marine 

Corps Exchanges, Coast Guard Exchanges, or Exchange 

Councils of the National Aeronautics and Space 

Administration shall be considered an express or implied 

contract with the United States.” 

The purpose of the amendment was to afford contractors a federal forum in 

which to sue the specified NAFIs by “doing away with the inequitable 

‘loophole’ in the Tucker Act.” United States v. Hopkins, 427 U.S. 123, 126 

(1976) (holding that an employment contract may qualify as an expressed 
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or implied contract of the United States for purposes of Tucker Act 

jurisdiction). See also H.R. Rep. No. 91-933, at 2 (1970). That waiver of 

sovereign immunity only applied to the NAFIs specifically designated in the 

amendment to the Tucker Act. See Sodexho Marriott Management, Inc. v. 

United States, 61 Fed. Cl. 229, 232–33 (2004) (MWR activity at Marine 

Corps installation); Research Triangle Institute v. Board of Governors of 

the Federal Reserve System, 962 F. Supp. 61 (M.D.N.C. 1997) (Board of 

Governors of the Federal Reserve System); McDonald’s Corp. v. 

United States, 926 F.2d 1126, 1132–33 (Fed. Cir. 1991) (Navy Resale and 

Service Support Office). See also Wolverine Supply, Inc. v. United States,

17 Cl. Ct. 190 (1989) (applying the same standard for determining immunity 

from suit under the Tucker Act to suits under the Contract Disputes Act, 

41 U.S.C. §§ 601–613). 

According to the Federal Circuit, as originally proposed, the amendment 

would have applied to all NAFIs. Denkler v. United States, 782 F.2d 1003, 

1007 (Fed. Cir. 1986), citing H.R. Rep. No. 91-933, at 6–7. It was changed to 

cover the armed forces and NASA NAFIs named in the amendment because 

some government agencies protested that certain activities that operated 

incidentally to them, like bowling leagues or baseball teams, should not be 

covered by the amendment. Id. The court said that Congress decided to 

include only those activities which it believed would have sufficient assets 

to pay costs resulting from the expanded jurisdiction. Id. Subsequently, 

the Court of Claims and the Federal Circuit have addressed their 

jurisdiction under the Tucker Act amended on a number of occasions. For 

additional discussion see section C.1.b of this chapter and subsequent case 

law.

c. Payment of Judgments If a party overcomes the jurisdictional barriers to suing a nonappropriated 

fund instrumentality (NAFI) and prevails in the action, who pays the 

judgment? One of the most commonly cited principles regarding NAFIs is 

that the United States “assumes none of the financial obligations” of NAFIs. 

Standard Oil Co. v. Johnson, 316 U.S. 481, 485 (1942). The same is true of 

judgments against NAFIs. 

NAFIs generally pay tort judgments entered against them from their own 

funds. They may not use appropriated funds and have no access to the 

permanent, indefinite appropriation known as the Judgment Fund, 

31 U.S.C. § 1304. See B-204703, Sept. 29, 1981. See also Mignogna v. 

Sair Aviation, Inc., 937 F.2d 37, 42–43 (2nd Cir. 1991).
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When a judgment arises out of an express or implied contract made by the 

Army and Air Force Exchange Service, the Navy Exchanges, the Marine 

Corps Exchanges, the Coast Guard Exchanges, or the Exchange Councils 

of NASA, the Judgment Fund pays the judgment. 31 U.S.C. § 1304(c)(1). 

The Exchange making the contract is required to reimburse the Fund for 

the amount paid. 31 U.S.C. § 1304(c)(2). 

10. Status of 

Nonappropriated Fund 

Instrumentality 

Employees

Employees of armed forces nonappropriated fund instrumentalities 

(NAFIs) are neither employees of federal agencies nor employees of the 

United States government. Pub. L. No. 82-397, ch. 444, § 1, 66 Stat. 138 

(June 19, 1952).266 Public Law 82-397 provides that armed forces NAFI 

employees “shall not be held and considered as employees of the United 

States for the purpose of any laws administered by the Civil Service 

Commission.” Id. Rather, they are employees of the instrumentality. 

United States v. Hopkins, 427 U.S. 123, 127 (1976). Congress never 

intended that armed forces NAFI employees receive the same level of 

protection as other federal employees. McAuliffe v. Rice, 966 F.2d 979, 980 

(5th Cir. 1992). See also B-289605.2, July 5, 2002 (Armed forces NAFI 

employees are not covered by civil service laws). Congress enacted Public 

Law 82-397 in response to the Department of Defense’s desire for flexibility 

by exempting armed forces NAFI employees from civil service type 

protections. See McAuliffe, 966 F.2d at 980. Where Congress has made 

NAFI employees subject to laws applicable to other federal employees, it 

has done so by expressly including them within the coverage of specific 

statutes. See Perez v. Army and Air Force Exchange Service, 680 F.2d 

779, 787 (D.C. Cir. 1982).

a. Applicability of Civil 

Service Laws

Armed forces nonappropriated fund instrumentality (NAFI) employees are 

generally not deemed to be employees of the United States except as 

specifically provided by statute. 5 U.S.C. § 2105(c). Section 2105(c) 

provides:

“An employee paid from nonappropriated funds of the Army 

and Air Force Exchange Service, Army and Air Force 

Motion Picture Service, Navy Ship’s Stores Ashore, Navy 

exchanges, Marine Corps exchanges, Coast Guard 

266 Public Law 82-397 is codified at 5 U.S.C. § 2105(c) and incorporated within the Civil 

Service Reform Act of 1978.
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exchanges, and other instrumentalities of the United States 

under the jurisdiction of the armed forces conducted for the 

comfort, pleasure, contentment, and mental and physical 

improvement of personnel of the armed forces is deemed 

not an employee for the purpose of—

“(1) laws administered by the Office of Personnel 

Management, except—

(A) section 7204;

(B) as otherwise specifically provided in this title;

(C) the Fair Labor Standards Act of 1938;

(D) for the purpose of entering into an interchange 

agreement to provide for the noncompetitive 

movement of employees between such 

instrumentalities and the competitive service; or

(E) subchapter V of chapter 63, which shall be 

applied so as to construe references to benefit 

programs to refer to applicable programs for 

employees paid from nonappropriated funds; or

“(2) subchapter I of chapter 81, chapter 84 (except to the 

extent specifically provided therein), and section 7902 of 

this title.”

The final sentence of 5 U.S.C. § 2105(c) states that it does not affect the 

status of the specified NAFIs as federal instrumentalities. 

(1) Civil Service Reform Act of 1978

The Civil Service Reform Act of 1978267 and the Supreme Court in 

United States v. Fausto, 484 U.S. 439 (1988), streamlined and simplified the 

remedies available to federal employees for adverse employment actions. 

McAuliffe v. Rice, 966 F.2d 979, 981 (5th Cir. 1992). The Civil Service 

267 Pub. L. No. 95-454, 92 Stat. 1111 (Oct. 13, 1978).
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Reform Act of 1978 created a comprehensive framework providing 

substantive and procedural rights and remedies for federal employees for 

performance actions, removals, or other adverse actions.268 In Fausto, the 

Supreme Court held that the Civil Service Reform Act was the exclusive 

substantive and procedural framework for federal employee actions, and 

precluded judicial review of an employee’s action under other laws. To 

conclude otherwise, said the Court, would allow such claims to undermine 

the goals of unitary decision making and consistency intended by the Act. 

Fausto, 484 U.S. at 449–51. Thus, the Supreme Court held that the Civil 

Service Reform Act precluded an employee who otherwise did not qualify 

for review under the Act from bringing a claim under the Back Pay Act. Id. 

at 454–55.

Congress deliberately exempted armed forces nonappropriated fund 

instrumentality (NAFI) employees from federal civil service rules. This 

enabled the armed forces to carry out the missions of NAFIs with the 

maximum possible personnel flexibility. McAuliffe, 966 F.2d at 981. With a 

few exceptions, armed forces NAFI employees are not covered by laws 

which apply to employees within the general federal service, including the 

Civil Service Reform Act. McAuliffe, 966 F.2d at 980–81; Perez v. Army & 

Air Force Exchange Service, 680 F.2d 779, 785–87 (1982). See 5 U.S.C. 

§ 2105(c). Thus, the remedies available to NAFI employees are established 

by regulation of the agency administering the NAFI. See McAuliffe,

966 F.2d at 981; Castella v. Long, 701 F. Supp. 578 (N.D. Tex. 1988). 

Accordingly, NAFI employees are not entitled to appeal adverse actions to 

the Merit Systems Protection Board. Perez, 680 F.2d at 787; Taylor v. 

Department of the Navy, 1 M.S.P.R. 591 (1980). In the McAuliffe case, a 

former civilian employee of an Air Force NAFI sought review of the 

decision to terminate her employment under the Administrative Procedure 

Act, 5 U.S.C. § 701–706. The court held that the exclusivity of the Civil 

Service Reform Act precluded judicial review under the Administrative 

Procedure Act.269 McAuliffe, 966 F.2d at 981.

268 For a detailed discussion of the Civil Service Reform Act, see Fausto, 484 U.S. at 443–47.

269 But compare Helsabeck v. United States, 821 F. Supp. 404 (E.D.N.C. 1993), in which the 

district court held that the Civil Service Reform Act did not preclude judicial review of a 

claim for nonmonetary damages against the government by an employee for the Cherry 

Point Marine Air Station food service for procedures used to discharge him. While the court 

permitted the plaintiff to amend his complaint with respect to nonmonetary claims, it did 

not specify what the nature of the review would be. There is no subsequent history of the 

case to determine what, if anything, the plaintiff did as a result, so we are unable to infer 

what effect this would have on NAFI employee rights. 
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Since they are not covered by the Civil Service Reform Act, armed forces 

NAFI employees have attempted to challenge actions taken against them 

through other statutory and constitutional rights. These include invoking 

Tucker Act jurisdiction, 28 U.S.C. § 1491, for certain NAFI contracts, and 

seeking damages for constitutional deprivations by a government official, 

as established in Bivens v. Six Unknown Named Agents of the Federal 

Bureau of Narcotics, 403 U.S. 388 (1971). 

As we previously discussed, the Tucker Act waives sovereign immunity for 

claims arising from contracts of certain post exchanges described in 

28 U.S.C. § 1491(a). The Supreme Court has recognized that Tucker Act 

jurisdiction may be premised on an employment contract, as well as on one 

for goods or other services. Army & Air Force Exchange Service

(AAFES) v. Sheehan, 456 U.S. 728, 735 (1982). Relying on this theory, Army 

and Air Force Exchange Service employees sued their employers alleging 

that they were employed by contract. Id. at 735; Moore v. United States,

21 Cl. Ct. 537 (1990); Orona v. United States, 4 Cl. Ct. 81 (1983). However, 

the courts found that the specific employees in those cases, in fact, were 

not serving under employment contracts but had been appointed to their 

positions. Sheehan, 456 U.S. at 736–38. Consequently, the courts lacked 

jurisdiction over their claims. Id. at 741; Moore, 21 Cl. Ct. at 539–40; 

Orona, 4 Cl. Ct. at 84. Where an employee holds his employment through 

appointment, claims for entitlements to pay and allowances derive from 

applicable statutes and regulations not from a claimed contract of 

employment. B-280764, May 4, 2000 (citing AAFES, 456 U.S. at 735).

Feeling confused? This next case is not going to make you feel a whole lot 

better. In Castella v. Long, 701 F. Supp. 578 (N.D. Tex.), aff’d, 862 F.2d 872 

(5th Cir. 1988), cert. denied, 493 U.S. 936 (1989), a former Army and Air 

Force Exchange Service (AAFES) employee sued for damages after he was 

fired for making false claims for travel expense reimbursements. Id. 

at 580–81. The court recognized that AAFES employees were not federal 

employees with rights under the Civil Service System. Instead, AAFES 

employees fall under the Army and Air Force regulations. Id. at 581. Based 

on sovereign immunity, the court dismissed those claims which sought 

relief from the NAFI, the government, and the individuals who acted in 

their official capacities to fire the claimant. Id. at 582. The court then 

dismissed those claims against the individuals acting in their personal 
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capacities,270 based on Bush v. Lucas, 462 U.S. 367 (1983). See Castella, 

701 F. Supp. at 583–84. 

Bush held that Bivens-type constitutional damage claims could not be 

brought for alleged constitutional violations associated with a claimant’s 

employment in the federal government. The reason for this was that 

Congress had established “an elaborate remedial system” which was 

intended to address employment-related claims by federal employees. 

Bivens-type actions would unduly disrupt that statutory scheme. Bush, 

462 U.S. at 388. 

The Castella court realized that Bush involved federal employees subject to 

the Civil Service System, not armed forces NAFI employees. Castella,

701 F. Supp. at 583. (As we noted earlier, Congress intentionally exempted 

armed forces NAFI employees from that system.) Nevertheless, it noted 

that some other courts (including its own circuit court) had applied (or 

endorsed applying) Bush to armed forces NAFI employee claims. The 

courts rationalized their position with the explanation that while the Army 

and Air Force regulations were not approved by Congress, they were, 

nevertheless, “an elaborate remedial system” that should not be augmented 

by Bivens-style constitutional claims. Castella, 701 F. Supp. at 584.

Strange as it may seem, by treating NAFI employees the same as federal 

employees under Bush, the courts may actually have reinforced the 

congressional intention that armed forces NAFI employees be treated 

differently than federal employees, since absent a Bivens-type claim, the 

NAFI employees are left more to the regulatory mercy of the agencies than 

are federal employees under the statutory civil service rules.

The Castella court also held that the NAFI employee could not use the 

Privacy Act challenging the correctness of the records that supported the 

decision to remove him, to attack the removal decision. Castella, 

701 F. Supp. 585. The court explained that the purpose of the Privacy Act 

was to allow for the correction of factual or historical errors. It was not 

intended to permit a plaintiff to reopen consideration of unfavorable 

270 In the Bivens case, the Supreme Court held that an individual citizen was entitled to sue 

for damages for alleged constitutional deprivations by a government official. Bivens, 

403 U.S. at 396–97. The Bivens remedy, it should be noted, runs against the offending 

official in his private capacity, not against the government. 
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federal agency decisions. The court found that the plaintiff was really 

alleging only a wrongful personnel decision. Id. at 584–85.

(2) Other employment related laws

The following list of laws typically associated with federal employment 

discusses their applicability to armed forces nonappropriated fund 

instrumentalities (NAFIs). 

Whistleblower Protection Act of 1989 271—Employees of armed forces 

NAFIs are not protected by the Whistleblower Protection Act because they 

are excluded from the definition of employee for purposes of title 5, United 

States Code. Clark v. Merit Protection Systems Board, 361 F.3d 647, 

650–52 (Fed. Cir. 2004) (adopting the analysis of Clark v. Army & Air Force 

Exchange Service, 57 M.S.P.R. 43, 46 (1993)). However, pursuant to 

10 U.S.C. § 1587, armed forces NAFI employees are protected from reprisal 

for whistleblowing under procedures adopted by the Secretary of Defense. 

Classification and Pay Rates and Systems—As stated in 5 U.S.C. 

§ 2105(c), armed forces NAFI employees are federal employees for 

purposes of: 5 U.S.C. § 7204, which prohibits discrimination because of 

race, color, creed, sex, or marital status against individuals in the 

classification of employees, administration of pay rates and systems of 

employees; appointments to positions above GS-15 under 5 U.S.C. § 3324; 

and the systematic agency review of operations under 5 U.S.C. § 305. 

Fair Labor Standards Act of 1938—NAFI employees under the 

jurisdiction of the armed forces fall within the coverage of the Fair Labor 

Standards Act of 1938 (FLSA). 29 U.S.C. § 203(e)(2)(A)(iv). Unlike federal 

employees in the competitive or excepted service, armed forces NAFI 

employees are under another personnel system pursuant to 5 U.S.C. 

§ 2105(c). Since such employees are not covered by the laws which apply 

to federal employees, procedural protections for removals or other adverse 

actions affecting those employees are established by regulation of the 

agency supervising the armed forces NAFI. American Federation of 

Government Employees, Local 1799 and Department of Army, Aberdeen 

Proving Ground, Maryland, 22 FLRA 574, 576 (1986). An FLSA claim may 

be brought against an armed forces NAFI, to the extent of nonappropriated 

funds, since the government has waived immunity with regard to wage 

271 Pub. L. No. 101-12, 103 Stat. 16 (Apr. 10, 1989), codified at 5 U.S.C. §§ 1201–1222.
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claims under the FLSA. El-Sheikh v. United States, 177 F.3d 1321, 1323–24 

(Fed. Cir. 1999); Cosme Nieves v. Deshler, 786 F.2d 445, 450 (1st Cir.), cert. 

denied, 479 U.S. 824 (1986) (an FLSA claim does not come within the 

limited exceptions of the Tucker Act); Morales v. Senior Petty Officers’ 

Mess, 366 F. Supp. 1305 (D.P.R. 1973). 

Family and Medical Leave Act of 1993272—Armed forces NAFI employees 

are federal employees for purposes of Title II of the Family and Medical 

Leave Act of 1993. 5 U.S.C. § 2105(c)(1)(E). Title II of the Family Medical 

Leave Act grants federal employees, including armed forces NAFI 

employees, rights to leave from work in enumerated circumstances, but no 

private right of action to enforce the leave rights. Mann v. Haigh, 120 F.3d 

34, 37 (4th Cir. 1997). In the Mann decision, since the plaintiff was not a 

federal employee covered by the Civil Service Reform Act of 1978, and he 

was not entitled to a judicial review under the Administrative Procedure 

Act, his right to appeal his termination was limited to procedural 

safeguards provided by the NAFI. Id. at 37–38. 

Civil Service Retirement Act273—The Civil Service Retirement Act entitles 

certain government employees to deferred retirement annuities. Typically, 

in order to be eligible for a retirement annuity under the Civil Service 

Retirement Act, an individual must complete at least 5 years of “creditable” 

civilian service and must complete at least 1 year of “covered” civilian 

service in the final 2 years of employment. 5 U.S.C. §§ 8333(a), (b); Dupo v. 

OPM, 69 F.3d 1125, 1128 (Fed. Cir. 1995). Although most service in the 

federal government is creditable, service with an armed forces NAFI is not, 

as a general rule, creditable service for purposes of the Civil Service 

Retirement Act. Armed forces NAFI employees are excluded from the 

definition of an employee for purposes of laws administered by the Office 

of Personnel Management which includes the Civil Service Retirement Act. 

5 U.S.C. § 2105(c). See also Dupo, 69 F.3d at 1128. However, Congress has 

provided that in limited circumstances, service with an armed forces NAFI 

may be creditable for purposes of the Civil Service Retirement Act. The 

Nonappropriated Fund Instrumentalities Employees’ Retirement Credit Act 

of 1986, Pub. L. No. 99-638, 100 Stat. 3535 (Nov. 10, 1986), codified at 

5 U.S.C. § 8332(b)(16), provides that the following service is creditable:

272 Pub. L. No. 103-3, 107 Stat. 6 (Feb. 5, 1993), codified at 28 U.S.C. §§ 2601–2654.

273 Pub. L. No. 95-454, 92 Stat. 1111 (Oct. 13, 1978), codified as amended in scattered 

sections of title 5, United States Code. 
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“[S]ervice performed by any individual as an employee 

described in section 2105(c) of this title after June 18, 1952, 

and before January 1, 1966, if (A) such service involved 

conducting an arts and crafts, drama, music, library, service 

club, youth activities, sports or recreation program 

(including any outdoor recreation program) for personnel of 

the armed forces, and (B) such individual is an employee 

subject to this subchapter on the day before the date of the 

enactment of The Nonappropriated Fund Instrumentalities 

Employees’ Retirement Credit Act of 1986.”

Therefore, armed forces NAFI employees are entitled to civil service 

retirement credit for that service only if they meet the following criteria: 

(1) the service to be credited was performed for an armed forces NAFI 

between June 18, 1952, and January 1, 1966; (2) the service performed 

during that period involved conducting certain activities as listed in 

5 U.S.C. § 8332(b)(16); and (3) the individual was an employee subject to 

the Civil Service Retirement Act on November 9, 1986. Dupo, 69 F.3d 

at 1128. In the Dupo case, the Federal Circuit found that Mr. Dupo was 

employed by a Navy Exchange for the time periods required for creditable 

service. Id. at 1128–29. However, he had not conducted the activities listed 

in section 8332(b)(16). The Dupo court held that for purposes of 

section 8332(b)(16), “conducting” means “to lead from a position of 

command” or “to direct the performance of” and employees who were 

administrative or support workers, such as Mr. Dupo, generally did not 

satisfy this requirement. Id. at 1129. Furthermore, Mr. Dupo had been 

separated from service prior to November 9, 1986 and did not meet the 

third requirement. Id. Thus, he was not entitled to a civil service 

retirement annuity. 

Relocation Expenses—Sections 5724 and 5724a of title 5, United States 

Code, authorize an agency to pay transferred employees travel and 

transportation expenses, various allowances, and relocation expenses. 

However, these expenses are allowable only for “an individual employed in 

or under an agency.” 5 U.S.C. § 5721(2). Thus, an individual is entitled to 

these expenses if the agency from which he transfers and the agency to 

which he transfers are within this coverage. NAFIs are not considered 

federal agencies for the purpose of receipt and disbursement of funds, 

including payments to their employees. B-215398, Oct. 30, 1984. 

Employees of a NAFI are not employed by an agency within the meaning of 

section 5721(1) and are not entitled to relocation expenses under 

sections 5724 and 5724a when they transfer to a federal agency. In 1996, 
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however, Congress authorized the Department of Defense to pay for travel, 

transportation, and relocation expenses for employees of the department 

and Coast Guard NAFIs to the same extent authorized for transferred 

employees.274 Pub. L. No. 104-201, div. A, title XVI, § 1605(a)(1), 110 Stat. 

2422, 2736 (Sept. 23, 1996), codified at 5 U.S.C. § 5736. 

Dual Compensation Laws—The dual compensation laws were intended to 

preclude “double dipping”—in other words, to protect the taxpayer from 

paying the same individual two salaries. One way this has been manifested 

is in a provision which dictated that the retired pay of a regular retired 

officer be reduced if he held a position with the United States government 

or if his retired pay together with his civilian pay exceeded level V of the 

Executive Schedule. 5 U.S.C. §§ 5531, 5532, 5533.275 In this context, 

“position” is defined as—

“a civilian office or position (including a temporary, 

part-time, or intermittent position), appointive or elective, 

in the legislative, executive, or judicial branch of the 

Government of the United States (including a Government 

corporation and a nonappropriated fund instrumentality 

under the jurisdiction of the armed forces) or in the 

government of the District of Columbia.” 

5 U.S.C. § 5531(2) (emphasis added). 

Thus, for example, the retired pay of regular retired officers of the armed 

forces who are employed with armed forces NAFIs is subject to reduction 

in order to avert dual compensation. 

There are NAFIs outside the Department of Defense that employ retired 

officers of the armed forces, and the courts have considered the 

applicability of the dual compensation laws to them. In Denkler v. 

274 The General Services Administration Board of Contract Appeals concluded that an 

employee transferring from an armed forces NAFI to a civilian agency was entitled to 

relocation expenses under the 1996 law. See In the Matter of Emma Jane Medina, GSBCA 

No. 16,136, 04-1 B.C.A. ¶ 32,423 (2003); In the Matter of Kenneth A. Hack, GSBCA 

No. 15,758, 02-2 B.C.A. ¶ 31,926 (2002). 

275 Section 5532 was repealed, effective October 1, 1999. Pub. L. No. 106-65, div. A, title VI, 

§ 656(a)(1), 113 Stat. 512, 664 (Oct. 5, 1999). We mention this provision nevertheless 

because the cases which apply it also apply other dual compensation provisions. Both those 

cases and the other dual compensation statutory provisions remain valid.
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United States, 782 F.2d 1003 (Fed. Cir. 1986), the Federal Circuit 

considered whether the phrase “including . . . a nonappropriated fund 

instrumentality under the jurisdiction of the armed forces” was intended to 

include other NAFIs such as the Federal Reserve Board, a statutorily 

designated NAFI. The Federal Circuit concluded that although there did 

not appear to be a reason for Congress to limit the purpose of the dual 

compensation laws, Congress had limited the provision to retired military 

officers employed by NAFIs of the armed forces and the court would not 

legislate in its stead. Id. at 1008. Thus, in the Denkler case, the salary of 

employees of Federal Reserve Board was not subject to pay reduction 

under dual compensation principles. Id.

GAO followed the Denkler decision in 67 Comp. Gen. 436 (1988) in a case 

involving three retired military officers who were employed by the Federal 

Reserve System (FRS), holding that the FRS was a NAFI not under the 

jurisdiction of the armed forces and therefore not subject to the dual 

compensation pay reduction. Id. at 440. In that decision, GAO also 

analyzed the laws governing the Office of Civilian Radioactive Waste 

Management, an organization within the Department of Energy, to 

determine whether this entity was a NAFI. Because its funds came from 

user fees which were deposited in the Treasury for use in paying the 

Office’s expenses, GAO concluded that it was not a NAFI. Id. at 441. Thus, 

the Denkler decision was not applicable, and employees of the Office of 

Civilian Radioactive Waste Management were subject to the dual 

compensation provisions. Id. See also B-236979, Apr. 19, 1990 (since the 

Panama Canal Commission collects funds, deposits them into a revolving 

fund in the Treasury, and withdraws from the fund pursuant to 

appropriation acts, the Commission is not a NAFI and its employees are 

subject to dual compensation reductions).

Title VII of the Civil Rights Act and Age Discrimination in Employment 

Act—Employees and applicants for employment in the military 

departments and executive agencies as defined by title 5 of the United 

States Code are entitled to maintain actions under Title VII of the Civil 

Rights Act. 42 U.S.C. § 2000e-16(a). The Act defines executive agency 

employees to include “employees and applicants for employment who are 

paid from nonappropriated funds.” Id.; see B-234746-O.M., Mar. 10, 1989. 

Such persons also are entitled to maintain actions under the Age 

Discrimination in Employment Act. 29 U.S.C. § 633a. The proper 

defendant to be sued under these statutes is the head of the department, 

agency, or unit, which in the case of the Army and Air Force Exchange 

Service (AAFES) is the Secretary of Defense or the Secretary of the Air 
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Force and the Secretary of the Army jointly. Honeycutt v. Long, 861 F.2d 

1346, 1349 (5th Cir. 1988) (AAFES is not an executive department, agency, 

or unit; it is an instrumentality of the United States operating under the 

Department of Defense).

Employment for Purposes of Immigration Laws—Under the Immigration 

and Nationality Act, an employee of the United States, upon the completion 

of 15 years of service, is eligible for classification as a special immigrant 

entitled to special consideration with his application for admission to the 

United States. 8 U.S.C. § 1101(a)(27). Public Law 82-397, 66 Stat. 138 

(June 19, 1952), now codified at 5 U.S.C. § 2105, includes employees of 

armed services NAFIs in the definition of United States employee. The 

Office of Legal Counsel has concluded that armed forces NAFI employees 

are to be considered employees of the United States for the purposes of 

applying 8 U.S.C. § 1101(a)(27). 1 Op. Off. Legal Counsel 258 (1977). The 

Office of Legal Counsel determined that as a general rule, armed forces 

NAFI employees should be regarded as employees of the United States 

unless a federal statute provides otherwise. Id. In the case of the 

Immigration and Nationality Act, the Office of Legal Counsel concluded 

that neither the language or history of the Act suggested that employee of 

the United States was intended to have a restricted meaning. Further, since 

Congress’s primary intention was to facilitate the immigration of persons 

serving the government abroad and NAFI employees were not excluded, 

they were eligible for classification as special immigrants under the Act. 

There is no GAO case law addressing the application of immigration laws 

to NAFI employees.

Criminal Statutes—Some NAFI employees, when charged with bribery 

under a federal statute, have offered as a defense that they are not federal 

employees. See Harlow v. United States, 301 F.2d 361 (5th Cir.), cert. 

denied, 371 U.S. 814, reh’g denied, 371 U.S. 906 (1962). Mr. Harlow and his 

co-conspirators were employed by the European Exchange System, which 

was established to operate various facilities, including military Post 

Exchanges. They were responsible for contracting for the Exchanges. 

They established various Swiss bank accounts, solicited bribes from 

vendors seeking to do business with the Exchanges, and deposited the 

bribes into those accounts. In appealing their convictions for corruption, 

the defendants argued that, as NAFI employees, they were not federal 

employees and could not be charged under a federal statute making it a 

crime for any employee or person acting for or on behalf of the United 

States to solicit or receive bribes. Although the court agreed that they were 

not federal employees, it declined to dismiss those charges because the 
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defendants could be included under the term “person acting for or on 

behalf of the United States.” The court reasoned that NAFIs are 

instrumentalities of the United States government and the employees, 

acting on behalf of the Exchanges in making contracting decisions, were 

acting on behalf of the United States. Id. at 370–71.

Tort Claims—The Federal Tort Claims Act (FTCA), 28 U.S.C. §§ 1346(b), 

2671–2680, waived most of the government’s sovereign immunity from 

torts. While the FTCA does not specifically refer to NAFIs, courts in certain 

instances have interpreted the FTCA’s coverage to include some NAFIs that 

the courts consider to be federal instrumentalities. See, e.g., Brucker v. 

United States, 338 F.2d 427, 430 (9th Cir. 1964) (military flying club); 

United States v. Hainline, 315 F.2d 153, 156 (10th Cir.), cert. denied, 

375 U.S. 895 (1963) (military flying club); United States v. Holcombe,

277 F.2d 143, 144 (4th Cir. 1960) (Naval Officers’ Mess). However, an 

equestrian club on an Army base was not covered under the FTCA. Scott v. 

United States, 226 F. Supp. 864 (M.D. Ga. 1963), aff’d, 337 F.2d 471

 (5th Cir. 1964), cert. denied, 380 U.S. 933 (1965). The court concluded that 

the club differed from other activities such as post exchanges because the 

club was not an integral part of the Army and not subject to the requisite 

degree of control and supervision by the Army. Id. at 868–69. 

Injuries to military service members when they are involved in NAFI 

activities, such as social or flying clubs, are considered to be in connection 

with their military service, which bars recovery under the FTCA. Pringle v. 

United States, 44 F. Supp. 2d 1168 (D. Kan. 1999), aff’d, 208 F.3d 1220 

(10th Cir. 2000); Eckles v. United States, 471 F. Supp. 108, 110–11 (M.D. Pa. 

1979) (and cases cited therein).

The federal courts have found that injuries to employees of armed forces 

NAFIs arising in the course of employment are covered under the 

Longshoremen’s and Harbor Workers’ Compensation Act (33 U.S.C. ch. 18; 

see 5 U.S.C. §§ 8171, 8173), and not the Federal Employees Compensation 

Act (5 U.S.C. § 8101) or the FTCA. Traywick v. Juhola, 922 F.2d 786 

(11th Cir. 1991); Vilanova v. United States, 851 F.2d 1 (1st Cir. 1988), cert. 

denied, 488 U.S. 1016 (1989); Calder v. Crall, 726 F.2d 598 (9th Cir.), cert. 

denied, 469 U.S. 857 (1984). 

D. Trust Funds On June 27, 1829, an English chemist and mineralogist, James Smithson, 

died in Genoa, Italy. In 1835, in Pisa, Italy, James Smithson’s nephew died 

without heirs. Smithson’s will had stipulated that, if his nephew died 
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without heirs, his estate should go, in trust, “to the United States of 

America, to found at Washington, under the name of the Smithsonian 

Institution, an Establishment for the increase and diffusion of knowledge.” 

The President expressed doubts about the legality of accepting the gift and 

sought statutory authority to do so. In Congress, the decision to accept 

Mr. Smithson’s gift was not open and shut. Senator John C. Calhoun led a 

determined minority that opposed accepting the gift. Senator Calhoun 

argued that the gift abridged states’ rights and was beneath the dignity of 

the government to accept. Federalism and dignity aside, money was then, 

and still is, a useful commodity. Accordingly, by Act of July 1, 1836, ch. 252, 

5 Stat. 64, Congress authorized the acceptance of the Smithson bequest. 

Shortly thereafter, President Andrew Jackson appointed Mr. Richard Rush 

to pursue the claim of the United States in the Court of Chancery of 

England. Two years later, the Chancery Court awarded Smithson’s estate 

to the United States. 

Mr. Rush sold Mr. Smithson’s properties, converting the proceeds into gold 

sovereigns. On July 17, 1838, he sailed for home, taking with him 11 boxes 

containing 104,960 sovereigns, 8 shillings, and 7 pence, as well as 

Mr. Smithson’s mineral collection, library, scientific notes, and personal 

effects. Arriving in New York after a 6-week voyage, Mr. Rush transferred 

the gold coins to the Treasury to be melted down. 

Eight years passed before the Congress resolved what should be done with 

Smithson’s bequest. Suggestions included a national university, a public 

library, common schools, and an astronomical observatory. Congress 

settled the matter by Act of August 10, 1846, ch. 178, 9 Stat. 102, creating 

the Smithsonian Institution and leaving it up to the new Institution’s Board 

of Regents to decide on the specific activities to undertake for the faithful 

execution of the Smithson trust. Congress directed that the principal of the 

Smithson bequest, “being the sum of $541,379.63,” be lent to the United 

States Treasury and invested in public debt securities. 20 U.S.C. § 54. 

Congress provided an appropriation of the interest from the securities for 

the perpetual maintenance and support of the Smithsonian Institution. Id.

The legislative history surrounding acceptance of the Smithson Bequest 

and the founding of the Smithsonian Institution suggests that this may well 

have been one of the earliest instances of the United States accepting the 
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role and responsibilities of “trustee” for private funds.276 Today the United 

States has many different “trust funds.”

As a general proposition, the United States holds funds or property “in 

trust” in three different situations. Like the Smithson bequest, the federal 

government may hold funds in trust that are donated to (and accepted by) 

the United States.277 Second, the United States may have a trust obligation 

with respect to property of others that it controls and manages. Third, the 

United States holds dedicated receipts appropriated to statutorily 

designated trust funds. In this last form of “trust funds” the funds are 

owned by the federal government and are not “trusts” in the common, legal 

sense of the word; rather, they are accounting mechanisms within the 

context of the federal budget. 

These days, it is clear that the federal government may hold funds “in trust” 

for any number of reasons and for any number of groups. Equally clear is 

that further generalizations are fraught with danger. In particular, care 

needs to be exercised with respect to the scope of the government’s legal 

obligations to trust beneficiaries. 

Usually, the creation, terms, and conditions of a trust depend solely upon 

the statute creating or authorizing the trust. However, from a fiscal law 

perspective, there can be other factors in the equation. The source of the 

funds held in trust is one of those factors. As the discussion below shows, 

sometimes the source of the funds determines whether the United States 

has a trust obligation with respect to the funds it holds. It can also be 

significant where statutory restrictions on the use of appropriated funds 

are at issue.

Another factor is the “common law.” The decisions of the accounting 

officers of the government, as well as those of the courts, frequently refer 

to or use common law trust concepts to analyze or resolve issues 

concerning property of others that the government holds or possesses. In 

276 See National Intelligencer, Smithson Legacy, May 2, 1836, available at

www.sil.si.edu/Exhibitions/Smithson-to-Smithsonian/natinte3.html (last visited Nov. 28, 

2007) (congressional debates focused on whether sovereign governments can accept funds 

in trust).

277 These privately owned trust funds are not included in budget totals and are referred to as 

deposit funds. See generally Analytical Perspectives, Budget of the United States 

Government for Fiscal Year 2008 (Feb. 5, 2007), at 342, 359, available at

www.whitehouse.gov/omb/budget/fy2008 (last visited Nov. 28, 2007).
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this way, common law trust concepts inform the decision makers’ judgment 

as they give meaning to the governing statutes. However, sometimes it is 

the common law alone which creates and controls the government’s 

obligations with respect to property it holds “in trust.” See, e.g., 

United States v. Mitchell, 463 U.S. 206, 225 (1983); White Mountain Apache 

Tribe v. United States, 249 F.3d 1364, 1377–79 (Fed. Cir. 2001). As the court 

observed in Cobell v. Norton, 240 F.3d 1081, 1101 (D.C. Cir. 2001), “[t]he 

general ‘contours’ of the government’s obligations may be defined by 

statute, but the interstices must be filled in through reference to general 

trust law.” That is, once a statutory obligation is identified, courts may look 

to the common law trust principles to particularize that obligation. 

Cobell v. Norton, 392 F.3d 461, 473 (D.C. Cir. 2004).278

One further word of caution: As suggested earlier, there is no one model of 

a federal trust fund. In certain situations the federal government may act 

and may have the legal obligation to act as a fiduciary with respect to funds 

or property it holds for the benefit of specified groups or individuals. In 

dollar terms, the amounts held in these “true” trusts are relatively minor. 

There are, however, a relatively small number of statutorily designated 

“trust fund” accounts. While these accounts are designated trust funds for 

bookkeeping and accounting purposes, they are not trusts in the sense that 

Congress may not redefine eligibility of beneficiaries, alter benefit 

amounts, or redirect receipts to other programs or purposes. Cf. OMB Cir. 

No. A-11, Preparation, Submission, and Execution of the Budget, 

§ 20.12(d) (July 2, 2007). It is these statutorily designated trust accounts 

that contain the overwhelming amount of federal trust fund dollars. The 

use of the term “trust” in connection with these funds, however, implies 

greater rights in the “beneficiaries” and obligations in the “trustee,” vis-àvis the trust corpus, than the law actually recognizes.

1. Federal Funds and 

Trust Funds

The federal government holds funds in over 1,000 accounts. GAO, 

Compendium of Budget Accounts: Fiscal Year 2001, GAO/AIMD-00-143 

(Washington, D.C.: Apr. 2000). At the highest level of generality, these 

278 That same court, however, cautioned the district court below against abstracting 

common law trust duties from any federal statutory basis or simply copying a list of 

common law trust duties from the Restatement of Trusts and imposing them on federal 

trustees. Cobell, 392 F.3d at 471.
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accounts are divided into two279 major groups: federal funds and trust 

funds. OMB Cir. No. A-11, Preparation, Submission, and Execution of the 

Budget, § 20.12(b) (July 2, 2007). Within each of these two groups there are 

several types of accounts. 

a. Federal Funds Federal funds include general fund expenditure and receipt accounts, 

special fund expenditure and receipt accounts, and intragovernmental, 

management, and public enterprise revolving fund accounts. OMB Cir. 

No. A-11, Preparation, Submission, and Execution of the Budget, 

§ 20.12(c) (July 2, 2007). Of these accounts only the general fund receipt 

accounts are typically used to account for collections that are not 

earmarked by law for a specific purpose. See, e.g., GAO, Federal Trust and 

Other Earmarked Funds: Answers to Frequently Asked Questions,

GAO-01-199SP (Washington, D.C.: Jan. 2001), at 9–10. 

Public enterprise revolving funds and special funds are financed by 

earmarked receipts. A public enterprise revolving fund is credited with 

receipts generated by a cycle of businesslike operations with the public “in 

which the agency charges for the sale of products or services and uses the 

proceeds to finance its spending.” GAO, A Glossary of Terms Used in the 

Federal Budget Process, GAO-05-734SP (Washington, D.C.: Sept. 2005), 

at 4. The Postal Fund is an example of such a fund. 39 U.S.C. § 2003. Its 

receipts come primarily from mail and service revenues and are available, 

through a permanent, indefinite appropriation, for authorized activities and 

functions of the Postal Service without further appropriation action. 

39 U.S.C. § 2003(a).

Special fund accounts are established to record receipts collected from a 

specific source and earmarked by law for a specific purpose or program. 

OMB Cir. No. A-11, §§ 20.3, 20.12. As a general proposition, special funds 

operate like statutorily designated trust fund accounts with little 

substantive difference other than that the authorizing legislation does not 

279 Compare 1 TFM 2-1520, which breaks down the accounts into three classifications: 

general funds, trust funds, and special funds.
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designate them as trust funds.280 GAO-01-199SP, at 10. The Nuclear Waste 

Fund, 42 U.S.C. § 10222(c), is an example. It receives mainly two kinds of 

receipts: fees collected from civilian nuclear power operators and interest 

income from investments in United States securities. 42 U.S.C. §§ 10222(a), 

(e). The amounts in this fund are only available for radioactive waste 

disposal activities including the development, construction, and operation 

of authorized facilities for the disposal of high-level nuclear waste. 

42 U.S.C. § 10222(d). 

b. Trust Funds The trust fund group is comprised of trust fund expenditure accounts, trust 

fund receipt accounts, and trust revolving fund accounts.281 OMB Cir. 

No. A-11, Preparation, Submission, and Execution of the Budget, 

§ 20.12(b) (July 2, 2007). The distinguishing characteristic of these 

accounts is that they represent accounts, designated by law as trust funds, 

for receipts earmarked for specific purposes and sometimes, but not 

always, for the expenditure of these receipts. Id. Trust fund expenditure 

accounts record appropriated amounts of trust fund receipts used to 

finance specific purposes or programs under a trust agreement or statute. 

Trust fund receipt accounts capture collections generated by the terms of 

the trust agreement or statute. 1 TFM 2-1520. These include nonrevolving 

accounts finance programs such as the Social Security and Medicare 

programs.282 

The other type of trust account, trust revolving fund accounts, cover the 

permanent appropriation and expenditure of collections used to carry out a 

cycle of businesslike operations in accordance with a statute that 

designates the fund as a trust fund. One example is the Commissary Funds, 

Federal Prisons, 31 U.S.C. § 1321(a)(22), which uses profits earned on sales 

of goods and articles not regularly provided to inmates by the federal 

280 The fact that other general authority would provide for the moneys in the fund to be 

accounted for and disbursed as trust funds does not affect their classification where 

Congress has specifically provided for deposit of the funds in a special deposit account. 

16 Comp. Gen. 940 (1937).

281 See GAO, Federal Trust and Other Earmarked Funds, GAO-01-199SP (Washington, D.C.: 

Jan. 2001), for a discussion of the composition of trusts and other earmarked funds, 

including their treatment in the federal budget process.

282 The Social Security and Medicare programs are each funded out of two trust funds—

Social Security from the Federal Old-Age and Survivors Insurance Trust Fund and the 

Federal Disability Trust Fund, and Medicare from the Federal Hospital Insurance Trust 

Fund and the Federal Supplementary Medical Insurance Trust Fund. 42 U.S.C. §§ 401(h), 

1395i, 1395t.
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prisons for recreational and general welfare items. This category also 

includes a number of small trusts created to account for the expenditure of 

funds in accordance with a trust agreement where the government may act 

as a fiduciary. See 31 U.S.C. §§ 1321(b), 1323(c). 

Over the last 50 years, trust fund receipts have grown both as a share of 

total federal receipts and as a share of Gross Domestic Product (GDP). 

Today, annual trust fund receipts make up about half of all federal receipts 

and about 10 percent of GDP. GAO-01-199SP, at 31. In fiscal year 1999, 

GAO identified 130 federal trust funds. Id. at 12.

c. Congressional Prerogatives Generally accepted governmental definitions do not constrain Congress in 

its designation of an account as a trust fund or special fund account.283 

Congress may and does approach the matter on a case-by-case basis. As a 

result, it is possible to find trust funds that share features of special funds 

and vice versa. For example, Congress designated the Environmental 

Protection Agency’s Hazardous Substance Superfund as a trust fund, 

26 U.S.C. § 9507, while it established the Department of Energy’s similar 

Nuclear Waste Fund as a special fund on the books of the Treasury. 

42 U.S.C. § 10222(c). 

2. The Government as 

Trustee: Creation of a 

Trust

In governmental parlance, the term “trust funds” covers a lot of territory. 

Of course, it is applied in the classical sense to nongovernmental funds 

entrusted to the government. But it is also applied to certain governmental 

funds held by the government that have been designated as trust funds by 

statute. In addition, it is applied to funds that are donated to the 

government for specified purposes. Each of these uses of the term is 

discussed below. 

a. Property of Others 

Controlled by the United 

States

At common law, a trust is “a fiduciary relationship with respect to 

property.” Under it, the person holding title to the property has “equitable 

duties” to manage the property for the benefit of another person. This 

fiduciary relationship arises as a result of an expressed intention to create 

it. Restatement (Third) of Trusts, § 2 (2003). Clearly, the United States 

can act as a trustee. E.g., Memorandum for the Assistant Attorney General, 

283 “When I use a word . . . it means just what I choose it to mean—neither more nor less.” 

Spoken by Humpty Dumpty in Lewis Carroll, Alice’s Adventures in Wonderland and 

Through the Looking Glass 213 (1871) (reprinted Holt Rinehart, and Winston, 1961).
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Civil Division, Fiduciary Obligations Regarding Bureau of Prisons 

Commissary Fund, OLC Opinion, May 22, 1995, citing 2 Scott & Fratcher, 

The Law of Trusts § 95 (4th ed. 1987) (“as sovereign, the United States has 

the capacity to act as a common law trustee”). Equally clear is that the 

terms on which the United States agrees to act as trustee vary widely. 

Thus, the initial questions are when does a trust arise and what are the 

conditions under which the government, as trustee, operates. The 

discussion that follows examines these issues. 

Two Supreme Court decisions involving claimed breaches by the United 

States of trust obligations owed to Quinault Reservation Indian allottees 

address when an actionable trust may arise. In United States v. Mitchell,

445 U.S. 535, reh’g denied, 446 U.S. 992 (1980) (Mitchell I), Indian allottees 

sued the United States for damages for mismanagement of forest 

resources. The Indian allottees argued that the General Allotment Act 

imposed on the United States a fiduciary obligation to manage the forest 

resources for their benefit.284 The Indian allottees claimed that the breach 

of the fiduciary obligation created by the General Allotment Act entitled 

them to money damages for a breach of trust. The General Allotment Act 

required the United States to “hold the land . . . in trust for the sole use and 

benefit” of the allottees. Mitchell I, 445 U.S. at 541 (quoting the General 

Allotment Act, codified as amended at 25 U.S.C. § 348). The Supreme 

Court rejected the Indian allottee’s argument, reasoning that Congress used 

the trust language of the General Allotment Act for the limited purpose of 

preventing alienation of allotted lands and immunizing the lands from state 

taxation. The act created only a “limited trust relationship” for those 

purposes, and did not “unambiguously provide that the United States has 

undertaken full fiduciary responsibilities as to the management of allotted 

lands.” Id. at 542. Absent such responsibilities, the United States was not 

answerable for damages. Id. “Any right of the [allottees] to recover money 

damages for Government mismanagement of timber resources must be 

found in some source other than the [General Allotment Act].” Id. at 546.

Fortunately for the Indian allottees, another source of authority was 

available to support their claim, and Mitchell I was not the last word on the 

matter. In United States v. Mitchell, 463 U.S. 206 (1983) (Mitchell II), the 

Supreme Court found that a trust duty did arise under several other 

statutes and regulations which, unlike the General Allotment Act, did 

284 Under the General Allotment Act, the federal government had allotted all of the 

Reservation’s land in trust to individual Indians, or “allottees.”
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expressly authorize or direct the Secretary of Interior to manage forests on 

Indian lands. Id. at 224. The Court explained that “a fiduciary relationship 

necessarily arises when the Government assumes such elaborate control 

over forests and property belonging to Indians. All of the necessary 

elements of a common-law trust are present: a trustee (the United States), 

a beneficiary (the Indian Allottees), and a trust corpus (Indian timber, 

lands, and funds).” Id. at 225.

Quoting from the Court of Claims decision in Navajo Tribe of Indians v. 

United States, 224 Ct. Cl. 171, 183 (1980), the Supreme Court emphasized 

that “where the Federal Government takes on or has control or supervision 

over tribal monies or properties, the fiduciary relationship normally exists.” 

Mitchell II, 463 U.S. at 225. This remains true even if “nothing is said 

expressly in the authorizing or underlying statute . . . about a trust fund, or 

a trust or fiduciary connection.” Id. Of course, where Congress has 

provided otherwise with respect to such moneys or property, those 

directions will control. Id. In other words, to recover for a breach of trust, 

the beneficiaries must be able to establish a trust responsibility that 

mandates monetary relief by statute, treaty, or the government’s 

assumption of management and control over the funds or assets.

Ten years after Mitchell II, the Supreme Court decided two companion 

cases brought by Indian tribes alleging breach of trust obligations by the 

United States. In White Mountain Apache Tribe, 537 U.S. 465, the Tribe 

sought compensation from the United States for breach of a fiduciary duty 

to maintain land and improvements at Fort Apache Military Reservation in 

Arizona held in trust for the Tribe but occupied by the federal government. 

Dating to 1870, Fort Apache was established on territory that later became 

the Tribe’s reservation. In 1923 and again in 1960 Congress provided by 

statute that the fort would be “held by the United States in trust for the 

White Mountain Apache Tribe, subject to the right of the Secretary of the 

Interior to use any part of the land and improvements for administrative or 

school purposes for as long as they are needed for that purpose.” Pub. L. 

No. 86-392, 74 Stat. 8 (Mar. 18, 1960). Exercising that right, the Department 

of the Interior had allowed the historic buildings to fall into such disrepair 

that some were condemned and others demolished. Citing the terms of the 

1960 statute, the Tribe brought suit against the United States in the Court of 

Federal Claims for money damages to restore the properties.

Affirming Mitchell I and II, the Supreme Court ruled for the White 

Mountain Apache Tribe, finding that the federal government had breached 
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its duty as trustee to preserve the trust corpus. Like the statutes at issue in 

Mitchell II, the court found:

“The 1960 Act goes beyond a bare trust and permits a fair 

inference that the Government is subject to duties as a 

trustee and liable in damages for breach. . . . [T]he statute 

[invests] the United States with discretionary authority to 

make direct use of portions of the trust corpus . . . [A]n 

obligation to preserve the property improvements was 

incumbent on the United States as trustee. This is so 

because elementary trust law, after all, confirms the 

commonsense assumption that a fiduciary actually 

administering trust property may not allow it to fall into ruin 

on his watch. ‘One of the fundamental common-law duties 

of a trustee is to preserve and maintain trust assets.’”

Id. at 474–75 (citations omitted). 

In the companion case to White Mountain Apache Tribe, the Supreme 

Court found that the Indian Mineral Leasing Act of 1938 (IMLA), 25 U.S.C. 

§ 396a, does not assign managerial control to the Secretary of Interior over 

coal leasing on Navajo land and, as in Mitchell I, imposing fiduciary duties 

on the government would be out of line with one of IMLA’s principal 

purposes. United States v. Navajo Nation, 537 U.S. 488, 508 (2003). IMLA 

requires Secretarial approval before coal mining leases negotiated between 

Tribes and third parties become effective. Id. at 507. IMLA also authorizes 

the Secretary generally to promulgate regulations governing mining 

operations, 25 U.S.C. § 396d. Id. The Navajo Nation sought money 

damages from the United States, alleging a breach of trust in connection 

with the Secretary of Interior’s approval of a coal lease amendment 

negotiated by the Tribe and a third party. Unlike the elaborate provisions at 

issue in Mitchell II, the Court found the IMLA and its regulations, like the 

Allotment Act in Mitchell I, do not give the federal government full 

responsibility to manage Indian resources for the benefit of the Indians. 

Nor does IMLA establish even a limited trust relationship. Rather, IMLA 

aims to enhance tribal self-determination by giving Tribes, not the 

government, the lead role in negotiating mining leases on tribal lands with 

third parties. Navajo Nation, 537 U.S. at 507–08.

Consistent with Mitchell II, one court recently observed: “The federal 

government has substantial trust responsibilities toward Native Americans. 

This is undeniable.” Cobell v. Norton, 240 F.3d 1081 (D.C. Cir. 2001). In 
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fact, the Supreme Court has recognized a general trust relationship with 

Indian tribes since 1831.285 United States v. White Mountain Apache Tribe, 

537 U.S. 465, 476 (2003), citing Cherokee Nation v. Georgia, 30 U.S. (5 Pet.) 

1, 17 (1831) (characterizing the relationship between Indian tribes and the 

United States as “a ward to his guardian”). In recent years, Indian 

claimants have sought to compel the government to properly account for 

the funds it holds for them. For its part, the government has had to 

acknowledge that it does not know how many accounts it is responsible 

for, is uncertain of the balances in them, and lacks the records necessary to 

determine that information.286 See, e.g., GAO, Financial Management: 

BIA’s Tribal Trust Fund Account Reconciliation Results, GAO/AIMD-96-63 

(Washington, D.C.: May 3, 1996). See generally GAO, Indian Issues: BLM’s 

Program for Issuing Individual Indian Allotments on Public Lands Is No 

Longer Viable, GAO-07-23R (Washington, D.C.: Oct. 20, 2006).

The claimants in Cobell brought a class action for injunctive relief and 

damages in response to the government’s alleged mismanagement of 

individual Indian trust accounts. Cobell v. Babbitt, 30 F. Supp. 2d 24 

(D.D.C. 1998). (The district court bifurcated the proceedings and placed 

the reconciliation of the accounts and the claims for damages on hold 

pending completion of the court’s investigation regarding the claims of 

inadequate accounting.) Finding that the government had breached its 

fiduciary duties, the trial court remanded the matter to the government 

with orders to promptly discharge its fiduciary duties in accord with the 

court’s delineation of them. The court also retained jurisdiction over the 

matter and directed the government to file quarterly reports. Cobell v. 

Babbitt, 91 F. Supp. 2d 1, 56–57 (D.D.C. 1999). See also Cobell, 240 F.3d 

285 Congress’s power under the Indian Commerce Clause, U.S. Const. art. I, § 8, cl. 3, 

however, is not limited by this general trust relationship with Indians. Lac Courte Oreilles 

Band of Lake Superior Chippewa Indians v. United States, 367 F.3d 650, 665–67 (7th Cir. 

2004), cert. denied, 543 U.S. 1051 (2005). In that case, the court rejected the Tribe’s 

argument that a gubernatorial concurrence provision in the Indian Gaming Regulations Act, 

25 U.S.C. § 2719(b)(1)(A), violated the federal government’s trust responsibility to Indians 

and rejected the Tribes argument that all Indian legislation enacted pursuant to the Indian 

Commerce Clause, which confers “plenary power to legislate in the field of Indian affairs” to 

Congress, must be rationally related to furthering that trust relationship. Id.

286 Beginning in fiscal year 2000 the federal budget no longer included funds that are owned 

by Indian tribes but are held and managed in a fiduciary capacity by the government on 

behalf of the tribes. These Indian tribal funds were included in the budget totals beginning 

with the adoption of the unified budget in 1969 through fiscal year 1999 under the generic 

title “tribal trust funds.” See GAO, Federal Trust and Other Earmarked Funds: Answers to 

Frequently Asked Questions, GAO-01-199SP (Washington, D.C.: Jan. 2001), at 8.
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at 1092–94 (discussing the procedural history of the Cobell litigation). The 

government appealed. Citing Mitchell II, the Circuit Court of Appeals for 

the District of Columbia agreed that the government owes common law 

fiduciary obligations to the Indians. Id. at 1098. The court noted that those 

obligations have been reaffirmed in a number of statutory provisions which 

specify how those duties are to be carried out. Id. at 1100–02. Those 

obligations include, the circuit court held, a “duty to account” which can be 

compelled by the courts if unreasonably delayed or withheld. Id. at 1102–

04. The circuit court agreed it had been delayed, and affirmed and 

remanded the matter to the district court. Id. at 1110. 

Following years of appeals and some reversals of high-profile contempt 

citations against cabinet secretaries, the District of Columbia circuit, in 

reassigning the case to a different federal district court judge below, 

expressed its frustration that “five years later, no remedy is in sight, th[e] 

case continues to consume vast amounts of judicial resources, and growing 

hostility between the parties distracts from the serious issues in the case.” 

Cobell v. Kempthorne, 455 F.3d 317, 335 (D.C. Cir. 2006), cert. denied,

___ U.S. ___, 127 S. Ct. 1876 (2007). On April 20, 2007, the district court 

ordered a hearing on the government’s accounting project to determine, 

among other things, whether the government has cured the breaches of its 

fiduciary duty. Cobell v. Kempthorne, Civ. A. No. 96-1285 (JR) (D.D.C. 

Apr. 20, 2007). While the Cobell litigation continues, a similar Indian trust 

case brought by over 4,000 individuals is winding its way through the court 

of federal claims. See Wolfchild v. United States, 72 Fed. Cl. 511 (2006).287

In Fors v. United States, 14 Cl. Ct. 709 (1988), the Claims Court rejected 

claimant’s argument that the Marine Corps had a fiduciary duty to invest288

the accumulated back pay of a deceased Marine Corps pilot either as a 

result of the Missing Persons Act or the common law. The court pointed 

out that essential to the holding in Mitchell II was the Supreme Court’s 

finding that the statutes and regulations at issue established fiduciary

287 For more information on the Indian trust litigation, see Ross O. Swimmer, Separating 

Fact from Fiction: The Department of the Interior and the Cobell Litigation, 33-SPG Hum. 

Rts. 7 (2006); Jamin B. Raskin, Professor Richard J. Pierce’s Reign of Error in the 

Administrative Law Review, 57 Admin. L. Rev. 229 (2005).

288 For more on a trustee’s “duty to invest,” see section D.5 of this chapter.
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obligations of the United States in the management of Indian resources.289 

For the period at issue in Fors, there was no statutory or regulatory basis to 

charge the government with the fiduciary duties of a common law trustee. 

Id. at 718–19. To the contrary, the applicable statutes and regulations 

limited the Marine Corps authority to pay interest only until 90 days after a 

determination of death. Id.

Likewise, in Franklin Savings Corp. v. United States, 56 Fed. Cl. 720 

(2003), the Claims Court rejected the argument of a failed savings and loans 

institution that the government’s seizure of the savings and loans under the 

Financial Institutions Reform, Recovery, and Enforcement Act of 1989 

(FIRREA), 12 U.S.C. § 1464(d)(2)(F), imposed Mitchell II-type fiduciary 

duties on the government. Unlike the timber management statutes at issue 

in Mitchell II, the claims court found that FIRREA, the banking statute 

relied on by the failed savings and loans, did not provide a substantive 

source of law which imposes fiduciary duties on the government. Id. 

at 752. “[N]othing in FIRREA demonstrates congressional intent to create a 

fiduciary duty whereby government must assure profits when seizing [a 

savings and loans]. . . . [I]mposing an enforceable trust relationship on the 

government in this case is simply antithetical to the regulatory purpose and 

congressional intent of FIRREA and the banking statutes in general.” Id. 

at 753.

The Department of Veterans Affairs (VA) “personal funds of patients” trust 

fund (discussed in Chapter 9, section B.3.c) contains moneys of patients 

who, as a matter of convenience, deposit money with VA for safekeeping 

and use during their stay at VA hospitals. See 38 U.S.C. § 5504. The money 

is patient money, not government money, and the Comptroller General has 

treated such funds as held in trust by the United States. 68 Comp. Gen. 600 

(1989). 

The Office of Legal Counsel (OLC) has applied a Mitchell II analysis with 

respect to moneys contained in inmates’ Prisoners’ Trust Fund accounts. 

Memorandum for the Assistant Attorney General, Civil Division, Fiduciary 

289 See also Hohri v. United States, 782 F.2d 227, 243–44 (D.C. Cir. 1986), vacated and 

remanded on jurisdictional grounds, 482 U.S. 64 (1987) (neither narrow regulatory 

obligations or alleged contractual commitments impose fiduciary obligations on the United 

States with respect to Japanese-American internees during World War II); Han v. United 

States, 45 F.3d 333 (9th Cir. 1995) (United States has no general fiduciary obligation to bring 

suit against the State of Hawaii for alleged breach of trust obligations owed by the state to 

native Hawaiians).
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Obligations Regarding Bureau of Prisons Commissary Fund, OLC 

Opinion, May 22, 1995. In the 1930s, the Department of Justice established 

Prisoners’ Trust Funds at each federal prison for inmates to deposit money 

earned or sent to them while in prison. Inmates could use amounts in their 

accounts to purchase articles from prison commissaries. In the Permanent 

Appropriation Repeal Act of 1934, ch. 756, 48 Stat. 1224 (June 26, 1934), 

Congress classified the Prisoners’ Trust Fund (and the related Commissary 

Fund discussed below) as a “trust fund.” See 31 U.S.C. §§ 1321(a)(21), 

(a)(22).

OLC found three reasons to conclude that 31 U.S.C. § 1321 and the rules set 

forth in the Justice Department circular establishing the funds impose 

fiduciary obligations on the Bureau of Prisons with respect to amounts held 

in the Prisoners’ Trust Funds. First, the money in the Prisoners’ Trust Fund 

account is the inmate’s property even though the Bureau of Prisons has 

assumed control over the property. Second, the circular establishing the 

funds requires the Bureau of the Prisons to act in the best interest of the 

prisoners in managing their funds, and third, the Bureau has always viewed 

its relationship to the Prisoners’ Trust Funds as a fiduciary one.290

The Thrift Savings Fund established by the Federal Employees’ Retirement 

System Act of 1986, 5 U.S.C. §§ 8401–8479, is also a trust in the classic 

sense of the term. The act provides federal employees a capital 

accumulation plan similar to those found in the private sector. Employees 

and the employing agencies contribute to the Thrift Savings Fund. 

Earnings on investments supplement amounts contributed to the fund. 

5 U.S.C. §§ 8432(a), (c), and 8437(b). All sums contributed to the Thrift 

Savings Fund by or on behalf of an employee as well as earnings on those 

contributions are held in trust for the employee. 5 U.S.C. § 8437(g). The 

Thrift Savings Fund is managed in accordance with the investment policies 

established by the Federal Retirement Thrift Investment Board. 5 U.S.C.

§ 8472. The members of the Board are specifically designated fiduciaries. 

290 There can be no doubt that the government has fiduciary obligations with respect to the 

Prisoners’ Trust Fund and VA Patient Funds mentioned above. Yet, we wonder: Do those 

funds really constitute “trusts” or are they “bailments”? Cf. B-153479, Apr. 15, 1964 (funds in 

the Prisoners’ Trust Fund at issue regarded as held in bailment not trust). As OLC observed, 

fiduciary relationship can arise in many different contexts. This is important because, as 

OLC also observed quoting Restatement (Second) of Trusts § 2, comment b, (1959), at 7, 

“[t]he duties of a trustee are more intensive than the duties of some other fiduciaries.” 

May 22, 1995, OLC Opinion, at n.5. For one thing, no one has held—so far—that the 

government has a duty to invest those funds and make them productive. See section D.5 of 

this chapter.
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5 U.S.C. §§ 8477(a), (b). Any fiduciary who breaches the responsibilities, 

duties, and obligations set out in the authorizing statute is personally liable 

to the Thrift Savings Fund for any losses and profits realized as a result of a 

breach of trust.291 5 U.S.C. § 8477(e). 

Claimants have sought to use trust concepts to recoup funds in the 

Treasury. In Stitzel-Weller Distillery v. Wickard, 118 F.2d 19 (D.C. Cir. 

1941), distillers sought to recover contributions paid into the Treasury 

pursuant to marketing agreements authorized by the Agricultural 

Adjustment Act. Previously, in United States v. Butler, 297 U.S. 1 (1936), 

the Supreme Court had declared related provisions of the act 

unconstitutional. Then, given the constitutional defects of the authorizing 

legislation, the Comptroller General concluded that the moneys could no 

longer be applied to the agreed upon purposes and had to be deposited into 

the general fund of the Treasury. 15 Comp. Gen. 681 (1936). In response, 

the distillers claimed that their contributions were impressed with a trust 

by virtue of section 20 of the Permanent Appropriation Repeal Act of 1934. 

That act recognized the existence of trust funds “analogous” to those 

specified in it and provided a permanent appropriation for payment of 

amounts held in such trust accounts. 31 U.S.C. § 1321(b). The claimants 

also argued that the contributions should be returned to them based on the 

general equitable doctrine that upon the failure of a trust, the trustee must 

return the trust corpus to the creator of the trust, in this case, the 

contributors. The court in Stitzel-Weller rejected the notion that the 

marketing agreement either explicitly or by analogy to other funds 

classified as trusts by the Permanent Appropriation Repeal Act of 1934, 

created a trust for the benefit of the contributors. Since there was no trust, 

there was no appropriation nor other authority to return the funds from the 

Treasury to the contributing distilleries. Stitzel-Weller, 118 F.2d at 21–23 

(citing 15 Comp. Gen. 681).

Similarly, in United States v. $57,480.05 United States Currency and 

Other Coins, 722 F.2d 1457 (9th Cir. 1984), a claimant sought recovery of 

$57,480.05 forfeited and paid into the Treasury. In dismissing the case for 

291 Given the nature of these accounts, GAO recommended removal of the fund from the 

federal budget. B-227344, May 29, 1987. And, it was done. See Analytical Perspectives,

Budget of the United States Government for Fiscal Year 2001 (Feb. 2000), at 377. 

Beginning in fiscal year 2000, the federal budget also excludes funds owned by Indian tribes 

but held in trust by the government. As the notes to the federal budget explains, “the 

transactions of these funds are not transactions of the Government itself.” Id. The Budget 

notes refer to these (and the Thrift Savings Fund moneys) as “deposit Funds.” Id. 
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lack of jurisdiction over the res, the court pointed out that a judgment for 

the claimant “would require an impermissible payment of public funds not 

appropriated by Congress.” Id. at 1459. The court rejected the claimant’s 

suggested solution of “[e]nforcing a constructive trust on the government,” 

noting that such a trust “would violate sovereign immunity in the absence 

of statutes or regulations clearly establishing fiduciary obligations.” Id. 

The two preceding cases involved unsuccessful attempts to recover funds 

in the Treasury by impressing them with an implicit common law trust. 

However, other cases have held the government liable for funds received in 

trust for others. For example, as discussed in Chapter 6, section E.2.h, and 

Chapter 9, section B.3.c, the government receives moneys to reimburse 

injured or overcharged consumers or residents that the government holds 

in trust to disburse to the injured parties. Emery v. United States, 186 F.2d 

900 (9th Cir.), cert. denied, 341 U.S. 925 (1951); 60 Comp. Gen. 15 (1980). 

Since these moneys are not received for the use of the United States, they 

are not for deposit in the Treasury of the United States, nor is an 

appropriation needed for the Treasurer to disburse such funds. Cf. 

Varney v. United States, 147 F.2d 238 (6th Cir.), cert. denied, 325 U.S. 882, 

reh’g denied, 326 U.S. 805 (1945) (moneys received by War Food 

Administrator were “trust funds” retained and disbursed by market agents 

appointed by Administrator without deposit into the Treasury of the United 

States).

Simply because a government official has custody of nongovernment funds 

does not mean that they are held in a trust capacity. In B-164419-O.M., 

May 20, 1969, GAO distinguished between funds of a foreign government 

held by the United States incident to a cooperative agreement (trust funds), 

and funds of a private contractor held by a government official for 

safekeeping as a favor to the contractor. The latter situation was a mere 

bailment for the benefit of the contractor. Although the United States may 

have an obligation to exercise ordinary care with respect to bailed funds in 
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its custody292 (55 Comp. Gen. 356 (1975); 23 Comp. Gen. 907 (1944)), the 

government official with custody of the funds is not an accountable officer 

with respect to those funds. See also GAO, White House: Travel Office 

Operations, GAO/GGD-94-132 (Washington, D.C.: May 2, 1994), at 85 

(government would be “morally or legally” liable for loss of funds collected 

by White House staff from press corps members to pay for press corps 

members’ travel expenses as they accompany the President on trips; 

therefore, those funds shall be deposited in a Treasury account for 

safekeeping).

b. Trust Funds Designated by 

Statute

Earmarking alone does not create a trust fund since earmarked receipts 

can finance other types of accounts such as special funds. For example, 

Congress created the Vaccine Injury Compensation Trust Fund to 

compensate victims of vaccine-related injury or death. 26 U.S.C. § 9510. 

The Fund is financed by a tax on certain vaccines. Id. On the other hand, 

the North Pacific Fishery Observer Fund covers the cost of observers 

stationed on fishing vessels to collect information for fish management and 

conservation. Congress finances the program by assessing fees on fishing 

vessels and fish processors. 16 U.S.C. § 1862(d). Since Congress did not by 

statute designate the Observer Fund as a trust fund, Treasury classified it 

as a special fund.

The fact that money is held in a trust account does not necessarily create 

fiduciary obligations where they do not otherwise exist. See B-274855, 

Jan. 23, 1997. Most federal trust funds are trust funds simply because 

Congress says so, or, euphemistically, because the law designates them as 

such. Typically, the enabling legislation will earmark receipts or other 

money generated by a program for deposit in a fund designated by the 

292 A bailment is a “species” of trust. 8 C.J.S. Bailments § 1 (2005). A bailment arises when 

the owner delivers personal property to another for some particular purpose upon an 

express or implied contract to redeliver the property when the purpose of the bailment has 

been fulfilled. 53 Comp. Gen. 607, 609 (1974). Unlike a trust where title to the trust corpus

passes to the trustee, in a bailment, title to the bailed property does not transfer. 8 C.J.S. 

Bailments § 32. The level of care required of a bailee depends on whether the bailment is 

for the benefit of the bailee, the bailor, or for their mutual benefit. Id. § 58. Though not 

treated as fiduciaries for all purposes, bailees have long been included within “the more 

general class of fiduciaries” since they hold a thing in trust for another. E.g., In re Holman, 

42 B.R. 848, 851 (1984). See also United States v. Kehoe, 365 F. Supp. 920, 922 (S.D. Tex. 

1973) (“It was this failure of the common law to provide any criminal remedy for these 

breaches of trust . . . on the part of . . . bailees, trustees, and other persons occupying 

fiduciary positions that led to the enactment of the present Penal Code provision dealing 

with embezzlement.”) quoting 21 Tex. Jur. 2d, Embezzlement and Conversion § 2, at 579–80 

(1961) (emphasis added).
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program legislation as a trust fund. See the Trust Fund Code, 26 U.S.C. 

§§ 9500–9510, for a listing of trust funds. These trust funds serve as 

accounting devices to distinguish the funds earmarked for deposit to the 

trust funds from general funds. The scope of the trustee’s duties with 

respect to a trust fund will necessarily depend on the substantive law 

creating those duties. See, e.g., United States v. Mitchell, 463 U.S. 206, 224 

(1983) (Mitchell II) (statutes and regulations “establish a fiduciary 

relationship and define the contours of the United States’ fiduciary 

responsibilities.”)

The fact that Congress has designated a fund which finances a social 

service, public works, or revenue sharing program as a trust fund does not 

mean that the administering agency has a full range of fiduciary 

obligations. A leading case on this matter (not involving Indian lands or 

property) is National Ass’n of Counties v. Baker, 842 F.2d 369 (D.C. Cir. 

1988), rev’g, 669 F. Supp. 518 (D.D.C. 1987), cert. denied, 488 U.S. 1005 

(1989). In that case a number of local governments sued the Secretary of 

the Treasury seeking an order requiring the Treasury to release $180 million 

of Revenue Sharing Trust Fund moneys sequestered pursuant to GrammRudman-Hollings, Pub. L. No. 99-177, 99 Stat. 1037 (Dec. 12, 1985). The 

district court issued an order requiring the Secretary to disburse the funds, 

and the Secretary appealed.

The Secretary argued that the district court lacked subject matter 

jurisdiction because the local governments were in effect asserting a 

money damage claim that only may be brought in the Claims Court. 

National Ass’n of Counties, 842 F.2d at 372. To sustain this argument the 

Secretary had to establish that substantive law mandated compensation for 

damages. The Secretary argued that because the Revenue Sharing Act 

created a trust fund with the Secretary as trustee, the statute was similar to 

the statutes found by the Supreme Court in Mitchell II to create a fiduciary 

duty in the United States, the breach of which mandated compensation.

The court of appeals rejected the Secretary’s reliance on Mitchell II. The 

court concluded instead that the Revenue Sharing Act created only a 

limited trust relationship similar to the General Allotment Act trust in 

United States v. Mitchell, 445 U.S. 535, reh’g denied, 446 U.S. 992 (1980) 

(Mitchell I). National Ass’n of Counties, 842 F.2d at 375. Congress created 

the Revenue Sharing Trust Fund for budgetary reasons, not to subject the 

Secretary to actions for mismanagement of the trust. Id. at 376. “Indeed, 

there is no indication in the Revenue Sharing Act or its legislative history 

that the Secretary owes any common law fiduciary obligations to Trust 
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Fund recipients.” Id. The Court rejected an implied right of action in favor 

of trust recipients based on a generalized common law trust theory because 

the substantive statute at issue did not make the United States expressly 

liable for mismanagement of the trust.

Applying the analysis used in Mitchell I and II and in National Ass’n of 

Counties, the Office of Legal Counsel (OLC) has construed the Bureau of 

Prison’s obligations for the Commissary Trust Fund, classified as a trust 

fund under 31 U.S.C. § 1321, to not include common law fiduciary duties. 

Memorandum for the Assistant Attorney General, Civil Division, Fiduciary 

Obligations Regarding Bureau of Prisons Commissary Fund, May 22, 

1995. OLC discerned no indication in the legislative history of the 

Permanent Appropriation Repeal Act of 1934, the source statute for 

31 U.S.C. § 1321, that Congress intended to subject the United States to suit 

for breach of fiduciary obligations in the management of the Commissary 

Fund. Unlike the Prisoners’ Trust Fund accounts discussed earlier in this 

part, the moneys in the Commissary Fund were not the personal funds of 

the inmates, but resulted from a continuous cycle of business operations. 

The Bureau of Prisons retained the authority to decide whether and how 

much of any profits were to be disbursed through the welfare fund for the 

benefit of the inmate population. See Washington v. Reno, 35 F.3d 1093 

(6th Cir. 1994) (district court did not abuse discretion in preliminarily 

enjoining Bureau of Prisons from alleged misappropriation of Commissary 

funds for purchase of telephone system to support prison security).

c. Accepting Donated Funds As noted earlier in this publication, a number of departments and agencies 

have specific statutory authority to accept gifts. See Chapter 6, 

section E.3.a. The level of detail addressed by these statutory authorities 

varies. Compare, e.g., 22 U.S.C. § 2697 (acceptance of unconditional and 

conditional gifts by the Secretary of State) with 31 U.S.C. § 3113 

(acceptance of gifts to reduce the public debt). Section 19 of the 

Permanent Appropriation Repeal Act of 1934, 31 U.S.C. § 1323(c), provides 

general guidance concerning accounting for gifts and donations. Pursuant 

to this statute, donations or gifts are treated as trust funds and must be 

deposited in the Treasury as such. Like the statutory trust funds 

catalogued at 31 U.S.C. § 1321(a) and the analogous trust funds established 

pursuant to 31 U.S.C. § 1321(b), Congress has provided a permanent 

appropriation for donated funds. 31 U.S.C. § 1323(c) (“Donations . . . shall 

be deposited in the Treasury as trust funds and are appropriated for 

disbursement under the terms of the trusts.”).
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Before a government officer may accept a donation that would require the 

management of a trust, the officer must have the authority to bind the 

government to act as a trustee, with the attendant responsibilities and 

cost.293 This was the issue in 11 Comp. Gen. 355 (1932). The Secretary of 

the Navy asked whether he was authorized to accept a bequest to the 

United States Naval Hospital in Brooklyn, New York, to be invested in a 

memorial fund. The proceeds of the trust were to be used for the 

maintenance and comfort of sailors in that hospital. The Comptroller 

General concluded that the President’s gift acceptance authority was 

limited to hospitals for merchant seamen, not naval hospitals. Observing 

that if the testamentary gift was accepted, the United States would 

“become, in effect, a trustee for charitable uses,” the Comptroller General 

ruled “that such an obligation could not legally be assumed by an officer on 

behalf of the United States without express statutory authority therefor.” 

Id. at 356. To drive home the point, the Comptroller General further noted 

that without such authority, there would be no basis to use any 

appropriations to cover the necessary expenses of administering such a 

trust fund. Id. 

A similar issue was touched on in 27 Comp. Gen. 641 (1948). In that 

decision, the issue was whether the Department of State created a trust 

fund for the education of Persian students in the United States as part of a 

settlement of claims of the United States against the Persian government. 

The answer to that question seems to have been that the President acting 

through the State Department had the authority to agree to the creation of 

trust. However, the decision ultimately turned not on the scope of the 

President’s authority, but on “precisely what the terms of the agreement 

were.” Id. at 645. The Comptroller General concluded that the agreement 

reached did not include the use of the funds for the benefit of the Persian 

students. Accordingly, the Secretary could not later, without additional 

consideration, modify the agreement to create a trust obligation on the part 

of the United States. Id. at 646.

293 Cf. 4 First Comp. Dec. 457, 458 (1883), citing United States v. Morris, 23 U.S. (10 Wheat.) 

246, 303 (1825) (“The Government cannot, without its authorized express consent, be forced 

to occupy the position of a trustee.”).
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3. Application of Fiscal 

Laws

a. Permanent Appropriation 

Repeal Act of 1934

Prior to 1934, government officials held a number of trust fund accounts 

outside the Treasury. The Comptroller General had directed the deposit of 

the funds to the accounts of Treasury officials in order to ensure that a 

proper accounting and audit was made of all disbursements. The 

Comptroller General permitted the withdrawal of trust funds, after deposit 

in the Treasury, without an express appropriation from Congress. 

Congress objected to the Comptroller General’s approval of withdrawals of 

trust fund moneys without an appropriation as a violation of the 

constitutional prohibition that “no moneys shall be drawn from the 

Treasury but in consequence of an appropriation made by law.” H.R. Rep. 

No. 73-1414, at 12 (1934). Ironically the solution was to provide a 

permanent appropriation for trust funds as part of legislation designed to 

repeal permanent appropriations in general. Id. Accordingly, in section 20 

of the Permanent Appropriation Repeal Act of 1934, ch. 756, 48 Stat. 1233 

(June 26, 1934), codified at 31 U.S.C. § 1321(a), Congress listed all funds of 

a trust nature that Congress wanted to maintain on the books of the 

government and provided a permanent appropriation for these funds. See 

also S. Rep. No. 73-1195, at 1–3 (1934); H.R. Conf. Rep. No. 73-2039, at 6–9 

(1934). See 16 Comp. Gen. 147 (1936) for a comprehensive discussion of 

the Permanent Appropriation Repeal Act.

Section 20 of this act also provides prospective guidance. Any amounts 

received by the United States as trustee which are analogous to the funds 

listed in subsection (a) are for deposit in a trust account of the Treasury. 

Amounts “accruing to these funds” are permanently appropriated for 

expenditure in accordance with the terms of the trust. 31 U.S.C. § 1321(b). 

See also 31 U.S.C. § 1323(c). 

b. Available Uses of Trust 

Funds

(1) Using donated funds

Funds held in trust are available only for trust purposes. Where an agency 

is authorized to accept a donation of funds for specified purposes, the 

funds may only be used for purposes necessary to carry out the trust. 

17 Comp. Gen. 732 (1938). For the accepting agency to do otherwise would 

be a clear breach of the terms of the agreement governing the gift. See 

47 Comp. Gen. 314 (1967). (Of course, an agency’s authority to agree to any 

particular use of donated funds is limited by the terms of its statutory 

authority to accept donations. 11 Comp. Gen. 355 (1932).) 
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Appropriated funds are subject to many use restrictions. See generally

Chapter 6. Depending on the terms of the donation, some of those 

restrictions may not apply to donations accepted by authorized officers of 

the United States. In several cases GAO has held that— 

“where the Congress authorizes Federal officers to accept 

private gifts or bequests for a specific purpose, . . . authority 

must of necessity be reposed in the custodians of the trust 

fund to make expenditures for administration in such a 

manner as to carry out the purposes of the trust . . . without 

reference to general regulatory and prohibitory statutes 

applicable to public funds.” 

16 Comp. Gen. 650, 655 (1937). See 36 Comp. Gen. 771 (1957); B-195492, 

Mar. 18, 1980; B-170938, Oct. 30, 1972; B-131278, Sept. 9, 1957; 

B-135255-O.M., Mar. 21, 1958. In 23 Comp. Gen. 726 (1944), the Comptroller 

General was asked what the National Park Trust Fund Board could do with 

the principal of gifts received in trust for the benefit of the National Park 

Service where the donor had not prescribed a particular purpose for the 

gift. The Board’s statutory authority was silent on this point. See Pub. L. 

No. 74-201, § 2, 49 Stat. 477 (July 10, 1935), codified at 16 U.S.C. 

§§ 19e–19m. The statute did direct the Secretary of Treasury to invest 

donations for the account of the Board consistent with the laws applicable 

to a trust company in the District of Columbia and to credit the income 

from such investments to the National Park Trust Fund. Since the Board’s 

statute did not authorize use of the principal of a gift, the Board could not 

invade the principal. However, to give “some effect to the action of the 

respective donors” in making a gift, the Board could use investment income 

for the presumed purpose of the gift—the general benefit of the National 

Park Service, its activities, or its services.

Another decision, B-274855, Jan. 23, 1997, discussed the range of 

permissible uses of donated funds available to the now defunct United 

States Advisory Commission on Intergovernmental Relations (ACIR). 

Congress created ACIR to give continuing attention to intergovernmental 

problems.294 To finance its activities, Congress authorized ACIR to solicit 

and receive contributions from, among others, state governments. In 1995, 

294 Pub. L. No. 86-380, 73 Stat. 703 (Sept. 24, 1959).
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Congress terminated ACIR effective September 30, 1996.295 Two months 

prior to termination, Congress directed the National Gambling Impact 

Study Commission to contract with ACIR for research and authorized ACIR 

to continue in existence solely to perform the contract.296

The question was whether prior unconditional state contributions were 

available to cover ACIR’s salaries and expenses until the National Gambling 

Commission awarded ACIR a contract. The states contributed funds to 

support ACIR’s authorized activities. The Comptroller General viewed the 

funds as unrestricted gifts. As unrestricted gifts, they were available for 

ACIR activities authorized by Congress at the time of obligation and 

expenditure regardless of the activities contemplated by ACIR and the 

states at the time the gifts were made. The Comptroller General further 

concluded that after ACIR completed its authorized study, any unused 

contributions were for deposit in the Treasury as miscellaneous receipts. 

Cf. 15 Comp. Gen. 681 (1936) (moneys received that could no longer be 

applied to agreed upon purposes due to constitutional defects of 

authorizing legislation are for deposit as miscellaneous receipts).

Like direct appropriations, moneys donated in trust are available for 

expenses reasonably related to the purpose of the trust. That is the 

message of 23 Comp. Gen. 726 and B-274855, Jan. 23, 1997. In 

55 Comp. Gen. 1059 (1976), for example, GAO held that the Forest Service 

could not transfer funds donated to establish and operate a research 

facility to a private foundation to invest and use for a purpose other than 

establishing and operating a research facility.

GAO also has considered whether donated funds could be used for 

expenses that the Comptroller General traditionally has viewed as 

personal. In 47 Comp. Gen. 314 (1967), GAO concluded that the purchase 

of seasonal greeting cards remained unallowable regardless of the fact that 

the Interior Department would pay for the cards from a trust fund for 

donations to the National Park Service. Donated funds, as a general matter, 

are no more available for personal expenditures than appropriated funds, 

unless, of course, the personal expense would serve the purpose of the 

donation and would otherwise fall within the agency’s gift acceptance 

authority.

295 Pub. L. No. 104-52, 109 Stat. 468, 480 (Nov. 19, 1995).

296 Pub. L. No. 104-169, 110 Stat. 1482, 1487 (Aug. 3, 1996).
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In B-195492, Mar. 18, 1980, Senator Proxmire questioned Interior’s use of 

amounts held in its Cooperating Association Fund. The Secretary of the 

Interior maintains this discretionary fund under authority of 16 U.S.C. 

§ 6, which permits the Department of Interior to accept lands, rights-ofway, buildings or other property, and money which may be donated “for the 

purposes of the national park and monument system.” Interior was using 

these funds for contest entry fees, receptions for very important guests, 

gifts, and refreshments. While GAO reiterated that donated funds are not 

available for personal expenses, GAO noted that the strictures on the use of 

donated funds do not necessarily mirror those applicable to the use of 

appropriated funds. With respect to the “‘entertainment,’ ‘gifts,’ and other 

so called ‘personal’ items,” GAO pointed out that the restrictions on the use 

of general agency appropriations for these purposes derived not from the 

idea that these could never be “official” expenses but that “such purposes 

are so subject to abuse as to require specific Congressional authorization 

before general agency appropriations may be so used.” Since those 

expenses are not prohibited, where agencies can justify the use of donated 

funds as incident to the terms of the donation for what would otherwise be 

viewed as an improper personal use of general agency appropriations, we 

would not object. On the other hand, GAO noted that the availability of 

donated funds for travel and subsistence expenses is subject to the same 

rules as govern the use of appropriated funds because of statutory language 

that precluded the use of “funds appropriated for any purpose” for travel 

expenses of the kind at issue there.

(2) Property of others

General use restrictions have less applicability to the property of others 

being held in trust. In B-33020, Apr. 1, 1943, GAO did not object to use of 

Osage Indian Trust Funds to cover the cost of telegrams sent to members of 

Congress concerning pending legislation affecting the tribe that would have 

been prohibited by legislation concerning the use of appropriated funds to 

influence Congress. GAO did not object to these expenditures since 

Congress had appropriated the funds to be used for the benefit of the tribe 

and authorized the tribe to organize for its common welfare and to 

negotiate with federal, state, and local governments.

A slightly different twist on these concepts occurred in 20 Comp. Gen. 581 

(1941). In that decision, the Library of Congress Trust Board held, as 

trustee, legal title to some improved real estate that the Federal Works 

Administrator wanted to lease. Standing in the way of the transaction was 

the longstanding rule of the accounting officers of the government that, 
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absent statutory authority, the payment of rent by one agency to another 

for premises under the control of another is unauthorized. Since the 

United States did not in its own right hold legal title to, or have the 

beneficial right to the use of, the property, there was no objection to the 

payment of rent to the Library of Congress Trust Board in its capacity as 

trustee. 

Similarly, the authority of the Pension Benefit Guaranty Corporation 

(PBGC), when acting as a trustee for terminated pension plans, is not 

constrained by laws applicable to contracting by federal agencies or the 

expenditure of public funds. B-223146, Oct. 7, 1986. One issue addressed 

by the decision was PBGC’s authority to modify the fee provision of an 

existing contract with outside litigation counsel to include a contingent fee 

arrangement. Since PBGC was authorized by law to serve as a trustee for 

terminated pension plans, possessing all the rights and duties to act as a 

private trustee similarly situated, GAO could find no legal or public policy 

considerations which precluded PBGC’s modifications of its contracts with 

outside counsel. (We can assume that we would have held otherwise if 

public funds were at issue. See Chapter 6, section C). Also, since any 

recoveries resulting from the litigation accrued to the terminated pension 

plan, the use by PBGC (in its capacity as trustee) of a portion of the 

recoveries to pay its contingent fee obligation would not violate the deposit 

requirements of the miscellaneous receipts statute.

(3) Statutory trust funds

Like donated funds held in trust, where Congress designates a trust 

account to receive dedicated tax receipts, the corpus of the trust is only 

available for trust purposes. The rationale for this axiom differs from cases 

where the government holds donated funds accepted in trust. As noted 

earlier, in the latter case, the limitation on the use of funds derives in the 

first instance from the agreement with the donor. While an agency’s 

statutory authority to accept a gift is relevant in prescribing the range of 

uses to which an agency may agree, it is the donor’s action in making a 
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restricted gift, that is, one for designated purposes, that controls the 

particular use.297

Where the corpus of the trust account consists of dedicated tax receipts, 

the rationale for the rule is a function of Congress’s constitutional 

prerogative to allocate resources for the general welfare. In other words, 

the limitation on the use of the funds for other than trust purposes derives 

from the terms of the statute creating the trust account and 31 U.S.C. 

§ 1301(a), limiting the use of appropriated funds only to purposes for which 

appropriated. One consequence of this distinction concerning the source 

of the limitation on use manifests itself when Congress decides to modify 

the authorized uses of the trust funds. In the case of trust funds designed 

to serve as accounting mechanisms for dedicated tax receipts, Congress as 

the creator of the trust can change or modify the permissible uses of the 

trust funds. Cf. 36 Comp. Gen. 712 (1957). For an example of Congress 

changing the uses of a statutory trust fund filled with tax revenues, see the 

legislative history recounted in B-281779, Feb. 12, 1999.

As the prior discussion suggests, when resolving issues involving the 

application of statutory restrictions to this type of trust fund the 

Comptroller General will treat them more like a direct appropriation. In 

B-191761, Sept. 22, 1978, an agency of the Department of Agriculture 

wanted to dip into a user fee trust fund to provide a uniform allowance to 

its employees. Section 5901 of title 5, United States Code, requires that 

before an agency may use appropriated funds for uniforms, it must have 

specific statutory authority to do so. GAO resolved the issue on the basis 

of authority in Agriculture’s appropriation act, which provided that “funds 

available to the Department” may be used for employee uniforms. 

Arguably, if donated funds were involved, the Department would have had 

a greater ability to use the funds for trust purposes unfettered by general 

regulatory statutes applicable to appropriated funds. 

The essential point is that, if viewed like any other appropriation, amounts 

in a trust fund account may only be used for the purposes for which they 

were appropriated. As suggested above, depending on the source of funds, 

297 An argument has been made that funds held in trust and expended pursuant to the 

permanent appropriation of moneys “accruing to these trust funds” contained in the 

Permanent Appropriation Repeal Act of 1934, 31 U.S.C. § 1321(b), are appropriated funds 

subject to the laws governing the obligation and expenditure of any other appropriated 

funds. See Soboleski v. Commissioner, 88 T.C. 1024, 1034 (1987), aff’d, 842 F.2d 1292 

(4th Cir. 1988). 
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this may translate to mean no more than the authorized purposes of the 

trust.

c. Intergovernmental Claims Another consequence of the distinction is seen in decisions involving 

intergovernmental claims. As a general proposition, a federal agency or 

establishment that damages public property, real or personal, under the 

control of another federal agency or establishment may not pay a claim for 

that damage. Put another way, federal agencies may not assert damage 

claims against one another. E.g., 60 Comp. Gen. 710, 714 (1981). 

Claims involving property or funds held by the government in a trust 

capacity are an exception to this rule. In 41 Comp. Gen. 235 (1961), GAO 

found that the Bureau of Indian Affairs (BIA) could present a claim against 

the Air Force for damage to the San Carlos Irrigation Project caused by the 

crash of a Civil Air Patrol plane. Although the San Carlos Irrigation Project 

was an instrumentality of the United States, the project benefited the Pima 

Indians and was funded from moneys held in trust by the government for 

the Pima. The question was whether the BIA claim against the Air Force 

for damage to the project would constitute a claim by one government 

agency against another. The decision held that it would not. As BIA was 

acting in a trust capacity on behalf of the Pima, if the general rule were 

applied, the expense of repairing the damage would be borne not by the 

government but by the Pima. Thus, the claim was not that of one agency 

against another.

Applying similar reasoning, the Comptroller General found Navy 

appropriations available to pay a claim for damage to property of the 

Ryukyu Electric Power Corporation. B-159559, Aug. 12, 1968. The 

corporation, while an instrumentality of the United States Civil 

Administration of the Ryukyu Islands, was not an instrumentality of the 

United States government. Further, while funds available to the Civil 

Administration were government funds, they were in the nature of a trust 

account held for the sole benefit of the Ryukyu people. Another case 

applying the trust reasoning is B-35478, July 24, 1943 (since timberland was 

held in trust for counties, Bonneville Power Administration should pay for 

timber destroyed).

The trust exception of cases like 41 Comp. Gen. 235 and B-159559, Aug. 12, 

1968, has its limits and does not apply where the trust fund is more in the 

nature of an accounting or bookkeeping device. An illustrative case is 

65 Comp. Gen. 464 (1986). A Navy plane had crashed into and destroyed a 

Federal Aviation Administration (FAA) instrument landing system. 
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Although the FAA used funds from the Airport and Airway Trust Fund to 

repair its facility, the Comptroller General viewed this trust fund as little 

more than an earmarked appropriation, not involving the same kind of trust 

relationship as in the San Carlos and Ryukyu cases. Accordingly, the 

general rule controlled, and Navy appropriations were not available to 

reimburse the FAA.

4. Concepts of Amount 

and Time

Concepts of amount and time which are so important to general 

appropriations law (see Chapters 5 and 6) also come into play with trust 

funds. With respect to “amount,” this would include concerns that trust 

funds are being used to augment regular appropriations. In B-107662, 

Apr. 23, 1952, GAO reviewed a Commerce procedure for charging trust 

funds with the cost of employees assigned full time to activities funded by 

regular appropriations, but assigned intermittently for short periods to 

activities financed by trust funds. GAO had no objection to the Commerce 

procedure, but cautioned that the proper records needed to be kept to 

ensure that trust funds did not augment general fund appropriations. See 

also B-138841, Sept. 18, 1959 (payment of regular weather bureau 

employees from Department of Commerce trust fund for intermittent 

services performed on trust fund projects).

As with other types of accounts, errors can and do occur that effect the 

amount properly credited to trust fund balances. When they do, the 

obvious solution is to correct them. GAO generally recognizes that an act 

of Congress is not necessary to correct clerical or administrative errors 

when dealing with the nontrust fund accounts of the government. 

41 Comp. Gen. 16, 19 (1961). Where the evidence of an error is unreliable 

or inconclusive, the Comptroller General has objected to administrative 

adjustment of account balances. B-2369400, Oct. 17, 1989. This is 

particularly true where (as in the immediately preceding decision) the 

adjustment would result in additional budget authority being available to 

an agency.

In B-275490, Dec. 5, 1996, GAO concluded that Treasury could credit to the 

Highway Trust Fund $1.59 billion mistakenly not credited to that account. 

Each month, Treasury transferred from the general fund of the Treasury 

amounts appropriated to the Trust Fund based on Treasury estimates of the 

specified excise taxes for the month. The Treasury then adjusted the 

amounts originally credited to the fund to the extent the estimates differed 

from actual receipts. Due to a change in reporting format and a resulting 

transcription error, Treasury substantially understated the adjustments to 
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the income credited to the trust fund. The Department of Transportation 

and Treasury discovered the error when the year-end statement was 

prepared. GAO agreed with Treasury that, as trustee of the Fund, Treasury 

should adjust the fiscal year 1994 and 1995 Trust Fund income statements 

to credit the Fund with the excise taxes originally not included in the 

Highway Trust Fund income statements just as if Treasury had credited 

such amounts upon receipt of the reports from the IRS. The Comptroller 

General made the following observation:

“Apart from whatever responsibilities the Secretary may 

have to accurately state the accounts of the United States, 

the Secretary in his capacity as trustee of the [Highway 

Trust] Fund has the duty to accurately account for the 

amounts in the Fund consistent with the terms of the 

appropriation made thereto and the applicable 

administrative procedures adopted to effectuate his 

statutory responsibilities.” 

Id. See also 67 Comp. Gen. 342 (1988) (Bureau of Indian Affairs has duty to 

make prompt corrective payments to trust account beneficiary before 

collecting from an erroneous payee; to avoid overdraft of an Individual 

Trust Account, BIA could use funds from its Operation of Indian Programs 

appropriations to correct the erroneous payment from the Individual Trust 

Account); 65 Comp. Gen. 533 (1986) (funds returned to Individual Indian 

Money Account, which were earlier improperly recovered, should be 

repaid from appropriations currently available for the activity involved); 

41 Comp. Gen. 16 (1961) (incorrect allocation of federal highway funds to 

states was an act in excess of statutory authority and consequently must be 

corrected through appropriate adjustments). In addition see the discussion 

of restoration in Chapter 9, section H.2.

The Comptroller General has recognized that the miscellaneous receipts 

statute does not apply to trust funds. 60 Comp. Gen. 15, 26 (1980); 

27 Comp. Gen. 641 (1948). See discussion in Chapter 6, section E.2.h. The 

miscellaneous receipts statute directs that all moneys received for the use 

of the United States must be deposited in the general fund of the Treasury. 

31 U.S.C. § 3302(b). The very terms of the statute call into question its 

application to moneys the government receives in trust. As a practical 

matter, in most instances, it is clear when the United States has received 

funds for its use. Occasionally a question does arise whether the funds are 

for credit to the general fund of the Treasury as a miscellaneous receipt or 

to a trust account. In 25 Comp. Gen. 637 (1946), GAO concluded that 
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payments made in conjunction with making movies in national parks were 

payments made in consideration of the privilege to film in the park and, 

hence, were properly accounted for as miscellaneous receipts, not 

donations to the National Park Trust Fund. On the other hand, in B-195492, 

Mar. 18, 1980, GAO found no elements of an exchange and accordingly held 

that payments by nonprofit associations operating in national parks of onehalf of 1 percent of their gross sales were properly treated as contributions 

to the Cooperating Associations Trust Fund, not as miscellaneous receipts. 

In 60 Comp. Gen. 15 (1980) the Comptroller General expanded on the 

concept of “received in trust.” The Department of Energy had received 

$25 million under the terms of a consent order settling disputes between 

Energy and the Getty Oil Company concerning compliance with oil price 

and allocation regulations. The order provided that Getty would deposit 

$25 million into a bank escrow account. The order did not specify how the 

money was to be distributed. Energy announced that the money would be 

distributed to state governments in proportion to the oil company’s sales in 

that state and directed that the states use the money to defray the heating 

oil costs of low-income persons. GAO found that, to the extent the money 

would be returned as restitution to victims of Getty’s alleged violation of oil 

and price allocation regulations, Energy was acting as a trustee and the 

funds need not be deposited to the Treasury as miscellaneous receipts. 

However, to the extent that Energy sought to distribute funds to a class of 

individuals other than to those overcharged, those funds were not held in 

trust and must be deposited in the Treasury as miscellaneous receipts. 

(This opinion was the first of several to address this matter. See 63 Comp. 

Gen. 189 (1984); 62 Comp. Gen. 379 (1983); B-210176, Oct. 4, 1984; 

B-200170, Apr. 1, 1981.) 

For other cases treating amounts received as trust funds exempt from the 

miscellaneous receipts statute, see 51 Comp. Gen. 506 (1972) (National Zoo 

receipts are for deposit to the credit of the Smithsonian Institution, not as 

miscellaneous receipts, even though activities in question were supported 

mostly by appropriated funds because the Zoo operates under a trust 

charter); B-192035, Aug. 25, 1978 (income derived from local currency trust 

fund operations not for deposit as miscellaneous receipts since Agency for 

International Development is merely a trustee of host country funds); 

B-166059, July 10, 1969 (recovery for damage to property purchased with 

trust funds credited to trust fund account); B-4906, Oct. 11, 1951 

(recoveries for lost or damaged property financed from Federal Old-Age 

and Survivors Insurance Trust Fund are creditable to the trust fund). 
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One decision applying “time” concepts to a statutory trust fund reached a 

predictable result. In B-171277, Apr. 2, 1971, amounts in the trust fund, 

which consisted of fees received from commercial testing labs for testing 

agricultural products, were available until expended. The “available until 

expended” language made the trust fund a no-year appropriation and thus 

available for multiyear contracts. So long as the fund contained amounts 

sufficient to cover all obligations under the contract, there would be no 

Antideficiency Act concerns. See Chapter 5 for a general discussion of noyear funds and multiyear contracts.

5. Duty to Invest Under the common law, it is the trustee’s duty to make the trust corpus

productive. Restatement (Third) of Trusts, § 181 (1992). Obviously the 

issue is of more than passing importance to the trust beneficiaries. For 

amounts held in trust by the United States, the trustee’s duty to make the 

trust corpus productive, and the trustee’s corresponding liability to the 

beneficiary for failure to do so, are limited by the concept of sovereign 

immunity. As a general rule, the United States is not liable for interest 

unless it has consented to the payment of interest. Library of Congress v. 

Shaw, 478 U.S. 310, 314–17 (1986); United States v. Alcea Band of 

Tillamooks, 341 U.S. 48, 49 (1951). The Supreme Court has insisted that 

any such consent be express and clear, stating that “there can be no 

consent by implication or by use of ambiguous language. Nor can an intent 

on the part of the framers of a statute . . . to permit the recovery of interest 

suffice where the intent is not translated into affirmative statutory . . . 

terms.” United States v. N.Y. Rayon Importing Co., 329 U.S. 654, 659 

(1947). See B-272979, Aug. 23, 1996. See also 65 Comp. Gen. 533, 539–40 

(1986) (no difference whether interest is characterized as “damages, loss, 

earned increment, just compensation, discount, offset, penalty or any other 

term”); B-241592.3, Dec. 13, 1991 (no authority to pay interest on funds held 

by Customs on behalf of the Virgin Islands, absent an agreement or 

statute).

Various arguments have been made that 31 U.S.C. § 9702 provides the 

requisite authority to pay interest on trust funds. Section 9702 provides 

that “[e]xcept as required by a treaty of the United States, amounts held in 

trust by the United States Government (including annual interest earned on 

the amounts)—(1) shall be invested in Government obligations; and 

(2) shall earn interest at an annual rate of at least 5 percent.” This statute 

was intended to end the practice of investing United States trust funds in 

state obligations. Despite its seemingly straightforward language, this 

statute applies only where a statute, treaty, or contract requires trust funds 
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to be invested. It is not an independent authorization for the payment of 

interest. B-241592.3, Dec. 13, 1991. 

A comprehensive discussion of 31 U.S.C. § 9702 is contained in 

United States v. Mescalero Apache Tribe, 518 F.2d 1309, 1324 (Ct. Cl. 1975), 

cert. denied, 425 U.S. 911 (1976) and the cases cited therein. In Mescalero,

the Court of Claims explained the purpose of the Act of September 11, 

1841, ch. 25, § 2, 5 Stat. 465, now codified at 31 U.S.C. § 9702. Congress 

wanted to prohibit the investment of United States trust funds, otherwise 

required by treaty or statute to be invested, in state bonds and to require 

instead their investment in safer United States securities. The court held 

that the 1841 act did not require the payment by the United States of 

interest on any fund that was not expressly required to be invested by a 

contract, treaty, or a statute. The lesson of Mescalero and subsequent cases 

is that one must examine the statute or other legal source for the fund to 

determine whether any requirement to invest the trust fund exists. Alcea 

Band of Tillamooks, 341 U.S. 48 (interest on amount of compensation 

awarded for taking of original Indian title by United States in 1855 not 

allowed where jurisdictional act contained no provision authorizing award 

of interest); B-226801-O.M., May 4, 1988 (section 9702 did not require the 

Veteran’s Administration to invest the Post-Vietnam Era Veterans 

Education Account, listed as a trust fund at 31 U.S.C. § 1321(a)(82)). 

An example of a specific requirement for investment and the payment of 

interest is found at 25 U.S.C. § 161a. It requires that all funds held in trust 

by the United States to the credit of Indian tribes or individual Indians be 

invested by the Secretary of the Treasury, with interest at rates determined 

by the Secretary of the Treasury. GAO has considered the payment of 

interest on government held Indian funds numerous times. E.g., 52 Comp. 

Gen. 248 (1972); 8 Comp. Gen. 625 (1929); B-272979, Aug. 23, 1996; 

B-243029, Mar. 25, 1991; B-108439, Dec. 28, 1973; B-126459, Feb. 20, 1956. 

The obligation to invest under section 161a does not arise prior to the date 

that Congress has specified for deposit of funds to the trust. B-108439, 

Apr. 13, 1978.

In 2001, the Department of Justice Office of Legal Counsel held that 

section 604(c) of the Water Resources Development Act of 1999, Pub. L. 

No. 106-53, 113 Stat. 269, 389–90 (Aug. 17, 1999), required the Treasury to 

invest the trust fund for two South Dakota Indian tribes in “available 

obligations” bearing the highest rate of interest, even when those 

obligations do not have the highest yields. Memorandum Opinion for the 

General Counsel, Department of the Treasury, Investment of Federal Trust 
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Funds for Cheyenne River and Lower Brule Sioux, OLC Opinion, Jan. 19, 

2001. Recognizing that this statute is unique among federal trust funds, this 

opinion supports the general rule that the extent of a trustee’s duties and 

powers is determined by the trust instrument and the specific rules of the 

applicable law. See also Chippewa Cree Tribe of Rocky Boy’s 

Reservation v. United States, 73 Fed. Cl. 154 (2006). 

6. Liability for Loss of 

Trust Funds

Where the government acts in the capacity of a trustee with respect to a 

fund it holds, the government must see to the proper application of the 

trust funds like a private trustee. Julia A. L. Burnell v. United States,

44 Ct. Cl. 535 (1909). In the cited case, the Treasury paid the wrong party 

through a mistake of law. The Claims Court held that the government 

remained responsible to the rightful owner of the securities. Id.

The decisions of the Comptroller General are to the same effect. For 

example, the Department of Veterans Affairs (VA) holds “personal funds of 

patients” for safekeeping and use during their stay at VA hospitals. The 

government is accountable to the patients for these funds like a private 

trustee would be.298 68 Comp. Gen. 600, 603 (1989). Accordingly, where an 

erroneous payment is made, the government is chargeable with any loss 

resulting from the breach of trust. In this case, VA was advised to make the 

trust fund whole by charging the deficiency to the VA’s operating 

appropriation as a necessary expense of administering the trust. Id. To the 

same effect is 67 Comp. Gen. 342 (1988) (use of Bureau of Indian Affairs 

operating appropriation to adjust deficiency in Bureau trust fund). See also

B-288284.2, Mar. 7, 2003. 

The liability of an accountable officer for loss of funds in a trust account is 

no different than any other loss of government funds. Although the funds 

are not strictly speaking public funds, they are nevertheless funds for 

which the government is accountable. The absence of a beneficial interest 

in the funds does not alter the liability equation; by accepting custody of 

them, the United States assumes a trust responsibility for their care and 

safekeeping. B-200108, B-198558, Jan. 23, 1981. If a trustee commits a 

breach of trust, the trustee is chargeable with any loss resulting from that 

breach. B-248715, Jan. 13, 1993. See generally United States v. Mitchell,

463 U.S. 206, 226 (1983); White Mountain Apache Tribe v. United States, 

298 Cf. B-153479, Apr. 15, 1964 (prisoners’ trust funds).
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249 F.3d 1364 (Fed. Cir. 2001), aff’d, 537 U.S. 465 (2003). See also

Confederated Salish and Kootenai Tribes of Flathead Reservation, 

Montana v. United States, 175 Ct. Cl. 451, 455–56 (1966) (misuse of trust 

funds is a breach of trust, not Fifth Amendment taking). The responsibility 

of the accountable officer has been described as follows: “the same 

relationship between an accountable officer and the United States is 

required with respect to trust funds of a private character obtained and 

held for some particular purpose sanctioned by law as is required with 

respect to public funds.” 6 Comp. Gen. 515, 517 (1927) (funds in retirement 

account of embezzling employee used to satisfy loss of private trust funds). 

See also Osborn v. United States, 91 U.S. 474 (1876) (court can summarily 

compel restitution of funds improperly withdrawn from registry account by 

former officers). The rules that apply for the relief of an accountable 

officer for the loss of appropriated funds also apply for the relief of an 

accountable officer for the loss of trust funds. B-288163, June 4, 2002. See 

Chapter 9, section B.3.c.

Other situations involving accountability for funds held in trust or trust-like 

circumstances include— 

• VA patient funds: 68 Comp. Gen. 600 (1989); B-226911, Oct. 19, 1987; 

B-221447, Apr. 2, 1986; B-215477, Nov. 5, 1984; B-208888, Sept. 28, 1984.

• Erroneous payment to Individual Indian Money Account: 65 Comp. 

Gen. 533 (1986).

• Registry accounts of courts of the United States: B-288163, June 4, 

2002; 64 Comp. Gen. 535 (1985); 63 Comp. Gen. 489, 490 n.1 (1984); 

B-200108, B-198558, Jan. 23, 1981.

• United States Naval Academy laundry fund: 17 Comp. Gen. 786 (1938).

• Prisoners’ money held in Brig Officer’s Safekeeping Fund: B-248715, 

Jan. 13, 1993.

• Mutilated and worn currency sent by private bank to Treasury for 

redemption: B-239955, June 18, 1991.

• Overseas Consular Service Trust Fund holding private funds to pay for 

funeral expenses: B-238955, Apr. 3, 1991. 
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• Foreign currencies accepted in connection with accommodation 

exchanges: B-190205, Nov. 14, 1977.

7. Claims

a. Setoff and Levy against 

Trust Funds 

In 38 Comp. Gen. 23 (1958), GAO held that a delinquent taxpayer’s postal 

savings deposits are property subject to Internal Revenue Service (IRS) 

levy and the fact that the postmaster held the deposits as a trust fund does 

not protect them from IRS levy. Similarly, in B-165138, Mar. 12, 1969, we 

advised the Bureau of Prisons that prisoners’ funds it held as “trust funds” 

under 31 U.S.C. § 1321, are property subject to tax lien and levy under 

sections 6321 and 6331, respectively, of the Internal Revenue Code of 1954 

(IRC). The literal language of section 6334(c) of the IRC compelled this 

result. That section provides that no property rights would be exempt from 

levy unless specifically exempted in section 6334(a). See also 63 Comp. 

Gen. 498 (1984) (honoring a levy against a judgment award did not give rise 

to a breach of trust); 34 Comp. Gen. 152 (1954) (government may take 

setoff against funds held by it in trust to recoup a debt owed to the 

government as sovereign).

Contrast the preceding decisions (involving the collection of taxes from 

trust funds held by the government) with 48 Comp. Gen. 249 (1968) 

(reversing B-72968, Apr. 21, 1948), where the Comptroller General held that 

the Bureau of Prisons could not set off prisoners’ trust funds to satisfy 

claims of the United States arising from an inmate’s destruction of 

government property. In reversing his earlier decision, the Comptroller 

General pointed out that he had not known at the time of his 1948 decision 

that the terms of the trust expressly required the prisoner’s consent prior to 

a withdrawal of funds. Accordingly, given the new information, the 

Comptroller General held that absent a change in the terms of the trust 

agreement, the Bureau could not use prisoner trust funds to satisfy a writ 

of execution issued pursuant to a court judgment against the inmate. 

Id. Cf. 65 Comp. Gen. 533 (1986) (United States will absorb the loss for 

moneys erroneously paid from an Individual Indian Money account and 

forego collection from the erroneous payee—another Indian—in light of 

the moral obligations of the United States in dealing with the Indians). 

b. Unclaimed Moneys At the end of each fiscal year, money which has been in any of the trust 

accounts identified in or established pursuant to 31 U.S.C. § 1321 for more 

than a year and which represents money belonging to individuals whose 
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location is unknown is transferred to a Treasury trust fund receipt account 

entitled “Unclaimed Moneys of Individuals Whose Whereabouts are 

Unknown.” 31 U.S.C. § 1322(a). Section 1322(b)(1) establishes a 

permanent, indefinite appropriation to pay claims from the Unclaimed 

Moneys account. Instructions to implement 31 U.S.C. § 1322 are contained 

in the Treasury Financial Manual, 1 TFM. 6-3000. 

Under 31 U.S.C. § 3702(b), a claim against the government ordinarily 

cannot be considered unless the claim is received within 6 years of the date 

it accrues. The Comptroller General has held, however, that the 6-year 

statute of limitations in 31 U.S.C. § 3702(b) does not bar claims to recover 

moneys held in trust. See B-201669, Nov. 26, 1985 and decisions cited 

therein. Since the trustee holds property for the beneficiary’s benefit, 

unless there is a breach of some duty owed by the trustee to a beneficiary, 

such as a repudiation of the trust, there is no claim or cause of action that 

would trigger the running of the statute. Id. See Bogert, Trusts & Trustees,

951 (2nd ed. rev. 1995). In keeping with the general rule, GAO has deemed 

the statute inapplicable to claims of beneficiaries payable from money held 

in trust. See 70 Comp. Gen. 612 (1991); 66 Comp. Gen. 40 (1986); 55 Comp. 

Gen. 1234 (1976); B-201669, Nov. 26, 1985. See also B-155963, Mar. 19, 1965 

(special deposit account for the proceeds of withheld foreign checks); 

B-139963, July 6, 1959 (soldiers’ deposit savings accounts); B-103575, 

Aug. 27, 1951 (unclaimed moneys of individuals whose whereabouts are 

unknown).

The agency that received and transferred the funds to the Treasury handles 

any claims relating to those funds. If a claim is determined to be valid, the 

agency may certify a payment voucher to Treasury. If the money was 

transferred to the trust account, payment is made directly from that 

account. See GAO, Unclaimed Money: Proposals for Transferring 

Unclaimed Funds to States, GAO/AFMD-89-44 (Washington, D.C.: May 9, 

1989), at 10.
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8. Federal Trust Funds 

and the Budget

As suggested earlier, certain federal trust funds (those with the largest 

amount of federal trust fund dollars) are bookkeeping devices to capture 

receipts earmarked for certain programs or purposes.299 They do not hold 

cash separate from the Treasury—all moneys received by the Treasury are 

commingled and used to pay government obligations as they come due. In 

effect, Treasury borrows the earmarked receipts in exchange for interestbearing, nonmarketable Treasury securities. As a result, a trust fund 

balance reflects federal debt, that is, debt held by a government account.300 

To the extent that the receipts credited to a trust fund (i.e., fees, employee 

contributions, tax receipts, and interest earned on Treasury securities) 

exceed expenditures charged to the fund, the trust fund balance grows. 

The converse, of course, is also true—to the extent that expenditures 

exceed receipts, the balance decreases.

The Social Security trust funds are the largest federal trust funds both in 

terms of annual spending and account balance. They are also the largest 

single item in the federal budget. See GAO, Fiscal Stewardship: A Critical 

Challenge Facing Our Nation, GAO-07-362SP (Washington, D.C.: Jan. 

2007), at 6. See also GAO, Social Security Reform: Answers to Key 

Questions, GAO-05-193SP (Washington, D.C.: May 2005); Social Security 

Financing: Implications of Government Stock Investing for the Trust 

Fund, the Federal Budget, and the Economy, GAO/AIMD/HEHS-98-74 

(Washington, D.C.: Apr. 22, 1998), at 29. See also Library of Congress, 

Congressional Research Service, Social Security’s Treatment Under the 

Federal Budget: A Summary, No. 95-206 (Mar. 20, 2002). Congress created 

the Social Security program in 1935 in response to the economic 

deprivations of the Depression. Originally created as a benefit system for 

299 In B-274855, Jan. 23, 1997, for example, GAO noted that: 

“Donations are accounted for as trust funds and must be deposited in the 

Treasury as such under 31 U.S.C. § 1323(c), to be disbursed in accordance 

with the terms of the trust and the scope of the agency’s statutory authority. 

Although contributions to [the Advisory Commission on Intergovernmental 

Relations] have been maintained separately from direct appropriations and 

held in a ‘trust fund account’ to carry out authorized purposes, they are not 

‘held in trust’ as those words are commonly used to describe a fiduciary 

relationship to keep money for the benefit of another.”

300 Debt held by the government, about $8.5 trillion at the beginning of fiscal year 2007, 

primarily reflects debt owned by federal trust funds, such as the Social Security trust funds. 

GAO, Bureau of the Public Debt’s Fiscal Years 2006 and 2005 Schedule of Federal Debt,

GAO-07-127 (Washington, D.C.: Nov. 7, 2006), at 3–4. 
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retired workers, over time, Congress has expanded Social Security to 

insure disabled workers and the families of retired, disabled, and deceased 

workers. GAO, Social Security: Different Approaches for Addressing 

Program Solvency, GAO/HEHS-98-33 (Washington, D.C.: July 22, 1998), 

at 4. 

Social Security consists of two separate trust funds, the Federal Old-Age 

and Survivors Insurance Trust Fund, which covers retirement and survivor 

benefits, and the Federal Disability Insurance Trust Fund, which provides 

benefits to disabled workers and their families.301 Congress has provided a 

permanent indefinite appropriation from the general fund of the Treasury 

to the Social Security trust funds of an amount determined by applying the 

applicable employment tax rate to wages reported to the Secretary of 

Treasury or his delegate. 42 U.S.C. § 401(a)(3). As a check on the amount 

credited to these trust funds, the Commissioner of Social Security is to 

certify the amount of wages (or self- employment income) reported to the 

Internal Revenue Service (IRS). Id. See B-261522, Sept. 29, 1995 (Social 

Security Administration may use wage data collected by IRS in certifying to 

Treasury the amount of wages reported by employers and the amount of 

funds appropriated to the Social Security trust funds). 

A Board of Trustees holds the Social Security trust funds. 42 U.S.C.

§ 401(c). The Board of Trustees is composed of the Secretary of the 

Treasury as Managing Trustee, the Commissioner of Social Security, the 

Secretary of Labor, the Secretary of Health and Human Services, all ex 

officio, and two members of the public nominated by the President and 

confirmed by the Senate. Id. In addition to holding the fund, it is the duty 

of the Board of Trustees to report to the Congress on the operation and 

status of the Funds and to review and recommend improvements in the 

administrative procedures and policies followed in managing the Funds. 

Id. A “person serving on the Board of Trustees” does not have a fiduciary 

duty vis-à-vis the trust funds and “shall not be personally liable for actions 

taken [as a member of the Board of Trustees] with respect to the Trust 

Funds.” Id.

301 See generally GAO-05-193SP; GAO, Disability Insurance: SSA Should Strengthen Its 

Efforts to Detect and Prevent Overpayments, GAO-04-929 (Washington, D.C.: Sept. 10, 

2004); Social Security Reform: Analysis of a Trust Fund Exhaustion Scenario, GAO-03-

907 (Washington, D.C.: July 29, 2003).
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There are a number of large trust funds that finance public works, notably 

transportation, programs. A prominent example is the Federal Aid 

Highway Program which distributes billions of dollars of federal funding 

annually to the 50 states, the District of Columbia, and Puerto Rico for 

highway construction, repair, and related activities. To finance the highway 

program, Congress established the Highway Trust Fund account in the 

Treasury, 26 U.S.C. § 9503(a), designating the Secretary of Treasury as 

trustee, 26 U.S.C. § 9602(a).302 Congress has provided the fund with a 

permanent, indefinite appropriation of amounts received in the Treasury 

from certain gasoline, diesel fuel, and other excise taxes paid by highway 

users. 26 U.S.C. § 9503(b). In fiscal year 1997, these earmarked revenues 

brought in $23.9 billion to the fund.303 In 2006, the amount was 

$38.5 billion.304 The Secretary of the Treasury is responsible for holding the 

Highway Trust Fund, reporting annually to Congress on the financial 

condition and operation of the fund, and investing any amounts in the fund 

not needed to meet current needs in interest-bearing Treasury securities. 

26 U.S.C. § 9602. See B-275490, Dec. 5, 1996 (Treasury, as trustee, could 

credit Highway Trust Fund income statements with $1.59 billion in excise 

taxes mistakenly not credited to the Fund as the result of accounting and 

reporting errors).305

Chapter 98 of title 26, United State Code, contains a number of other trust 

funds established to finance social insurance, public works or 

environmental programs. For example, the Black Lung Disability Trust 

Fund finances the payment of benefits to eligible miners under the Black 

302 The Highway Trust Fund actually contains two accounts. The oldest and most wellknown of the two accounts is the highway account. The other, more recent account is the 

Mass Transit Account, 26 U.S.C. § 9503(e).

303 Department of Transportation, Highway Trust Fund Primer (Nov. 1998), at 1, available 

at www.fhwa.dot.gov/aap/PRIMER98.PDF (last visited Nov. 28, 2007).

304 Budget of the United States Government for Fiscal Year 2006, Appendix (Feb. 7, 2005), 

at 807, available at www.whitehouse.gov/omb/budget/fy2006 (last visited Nov. 28, 2007).

305 For more information on the history and operation of the Highway Trust Fund, see GAO, 

Highway Trust Fund: Overview of Highway Trust Fund Estimates, GAO-06-572T 

(Washington, D.C.: Apr. 4, 2006); Federal-Aid Highways: Trends, Effect on State Spending, 

and Options for Future Program Design, GAO-04-802 (Washington, D.C.: Aug. 31, 2004); 

Highway Financing: Factors Affecting Highway Trust Fund Revenues, GAO-02-667T 

(Washington, D.C.: May 9, 2002); and Highway Trust Fund: Overview of Highway Trust 

Fund Financing, GAO-02-435T (Washington, D.C.: Feb. 11, 2002). See also Library of 

Congress, Congressional Research Service (CRS), The Federal Excise Tax on Gasoline and 

the Highway Trust Fund: A Short History, No. RL30304 (Apr. 4, 2006).
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Lung Benefits Act. 26 U.S.C. § 9501. Another social insurance fund is the 

Vaccine Injury Compensation Trust Fund, 26 U.S.C. § 9510. In addition to 

the Highway Trust Fund, other public works trust funds include the Airport 

and Airway Trust Fund, 26 U.S.C. § 9502, the Harbor Maintenance Trust 

Fund, 26 U.S.C. § 9505, and the Inland Waterways Trust Fund, 26 U.S.C. 

§ 9506. Examples of trust funds designed to finance environmental 

remediation programs are the Hazardous Substance Superfund, 26 U.S.C. 

§ 9507, and the Leaking Underground Storage Tank Trust Fund, 26 U.S.C. 

§ 9508.

There has been an ongoing debate over whether the trust funds, 

particularly Social Security and the large infrastructure trust funds such as 

the Federal Highway Trust Fund and the Airport and Airways Development 

Trust Fund should be included in the budget. In other words, whether they 

should be “off budget,” which are “those budgetary accounts (either federal 

or trust funds) designated by law as excluded from budget totals.” GAO, A 

Glossary of Terms Used in the Federal Budget Process, GAO-05-734SP 

(Washington, D.C.: Sept. 2005), at 72.306 Since fiscal year 1969 the President 

has submitted a unified budget that covers both trust and nontrust fund 

activities. The unified budget merges trust and nontrust outlays and 

receipts into a consolidated budget surplus or deficit. As a result, the 

growing positive trust fund balances, particularly in the Social Security 

trust funds, “[mask] the basic imbalance in the government’s financial 

affairs.” GAO, The Budget Treatment of Trust Funds, GAO/T-AFMD-90-3 

(Washington, D.C.: Oct. 18, 1989), at 5. In other words, the trust fund 

surpluses disguise the severity of the deficit (or the amount of surplus) on 

the nontrust fund side of the government’s ledgers.

Related to the on- or off-budget issue are allegations of misuse of the major 

trust funds such as the Highway and the Airport and Airway trust funds. 

Proponents of this view charge that, while the trust funds have a steady 

dedicated stream of tax receipts, budgeting actions have restricted fund 

outlays to create trust fund surpluses for budgetary reasons, namely, to 

306 A better sense of what it means to be “off budget” can be gleaned from the statutory 

provision prescribing the budgetary treatment of the Postal Service Fund. 39 U.S.C. § 2009a. 

Section 2009a directs that the receipts and disbursements of the Postal Service Fund shall 

be excluded from the budget totals, exempt from any statutory budget limitations, and 

exempt from sequestration orders under the Balanced Budget and Emergency Deficit 

Control Act of 1985. For additional discussion, see the CRS reports Social Security and the 

Federal Budget: What Does Social Security’s Being “Off Budget” Mean?, No. 98-422 

(Aug. 29, 2001) and Appropriations for FY 2000: Department of Transportation and 

Related Agencies, No. RL30208 (Feb. 4, 2000).
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lower the deficit. GAO, Budget Issues: Trust Funds and their 

Relationship to the Federal Budget, GAO/AFMD 88-55 (Washington, D.C.: 

Sept. 30, 1988), at 4. This practice, proponents argue, breaks the implied 

agreement underlying the original enactment of the “trust fund”—full use 

of dedicated tax receipts for the trust fund program. Opponents of offbudget designations argue that changing the label or category does not 

make an activity less federal, does not change total federal revenues or 

spending, and contributes to a more confusing picture of the federal 

government’s total taxes and spending. This simply highlights the tension 

that Congress faces between the collection and expenditure of earmarked 

revenues, whether trust funds or special funds, and the tradeoffs Congress 

must make with respect to spending priorities in general. GAO, Budget 

Issues: Trust Funds in the Budget, GAO/T-AIMD-99-110 (Washington, D.C.: 

Mar. 9, 1999), at 1.

A number of different approaches have been offered. One proposed 

approach is to take the fund “off budget.” See, e.g., H.R. 798, 106th Cong., 

§ 7 (1999) (a bill to provide funding and off-budget treatment for the 

protection and enhancement of natural and cultural resources); H.R. 4, 

105th Cong., § 2 (1997) (a bill proposing to provide off-budget treatment for 

the Highway, Airport and Airway, Inland Waterways and Harbor 

Maintenance Trust Funds). GAO has suggested that Congress could 

address the matter in the context of the unified budget by separately 

displaying trust funds, federal funds, and government sponsored 

enterprises in the budget. GAO/T-AFMD-90-3. In the Transportation Equity 

Act for the 21st Century, Pub. L. No. 105-178, 112 Stat. 107 (June 9, 1998) 

(TEA-21), Congress took yet a different approach with respect to the 

highway and mass transit programs. In TEA-21 Congress established 

outlay caps that apply separately to the highway and mass transit programs 

for fiscal years 1999 through 2003. In addition to carving out outlay caps 

for these programs separate from the dollar caps applicable to 

discretionary spending in general, Congress also specified annual 

guaranteed minimum spending levels tied, in the case of highways, to 

Highway Trust Fund receipts. For a discussion of the implications of this 

approach, see GAO, Cap Structure and Guaranteed Funding, GAO/TAIMD-99-210 (Washington, D.C.: July 21, 1999).

In addition to transparency of trust fund balances through the budget 

process, another issue that has arisen is whether and to what extent the 

long-term actuarial costs of the largest social insurance trust funds (Social 

Security, Medicare, and Medicaid) should be reported on the balance sheet 

of the consolidated financial statements of the United States government as 
Chapter 15

Miscellaneous Topics

Page 15-318 GAO-08-978SP Appropriations Law—Vol. III

liability of the government. See FASAB, Preliminary Views—Accounting 

for Social Insurance, Revised (Oct. 23, 2006), available at 

www.fasab.gov/pdffiles/social insurance92006.pdf (last visited Nov. 28, 

2007). While these trust funds presently show a surplus (thus, the 

investment of excess receipts in Treasury securities), the long-term cost of 

these programs is expected to reach nearly $40 trillion—over and above the 

anticipated future tax receipts. See GAO-07-362SP; GAO, The Nation’s 

Long-Term Fiscal Outlook: September 2006 Update, GAO-06-1077R 

(Washington, D.C.: Sept. 2006). As of fiscal year 2006, the consolidated 

financial statements included a Statement of Social Insurance that reports 

the long-term actuarial costs of these programs, but the balance sheet 

reports as a liability only the amounts that are “due and payable” at fiscal 

year end under the programs. See FASAB, Preliminary Views, supra.